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LOAN AND SECURITY AGREEMENT
by and between
▇▇▇▇▇▇ ELECTRONICS, INC.
as Borrower,
and
WHITEHALL RETAIL FINANCE, a division of
Whitehall Business Credit Corporation,
as Lender
Dated as of November 21, 2003
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TABLE OF CONTENTS
1. DEFINITIONS AND CONSTRUCTION.............................................................................1
1.1. Definitions.....................................................................................1
1.2. Accounting Terms...............................................................................18
1.3. Code...........................................................................................18
1.4. Construction...................................................................................18
1.5. Schedules and Exhibits.........................................................................18
2. LOAN AND TERMS OF PAYMENT...............................................................................18
2.1. Revolver Advances..............................................................................18
2.2. Reserved.......................................................................................19
2.3. Borrowing Procedures and Settlements...........................................................19
2.4. Payments.......................................................................................20
2.5. Overadvances...................................................................................21
2.6. Interest Rates and Letter of Credit Fee: Rates, Payments, and Calculations....................21
2.7. Cash Management................................................................................22
2.8. Crediting Payments; Float Charge...............................................................23
2.9. Designated Account.............................................................................24
2.10. Maintenance of Loan Account; Statements of Obligations.........................................24
2.11. Fees...........................................................................................24
2.12. Letters of Credit..............................................................................25
2.13. LIBOR Option...................................................................................27
2.14. Capital Requirements...........................................................................29
3. CONDITIONS; TERM OF AGREEMENT...........................................................................30
3.1. Conditions Precedent to the Initial Extension of Credit........................................30
3.2. Conditions Subsequent to the Initial Extension of Credit.......................................32
3.3. Conditions Precedent to all Extensions of Credit...............................................32
3.4. Term...........................................................................................33
3.5. Effect of Termination..........................................................................33
3.6. Early Termination by Borrower..................................................................33
4. CREATION OF SECURITY INTEREST...........................................................................34
4.1. Grant of Security Interest.....................................................................34
4.2. Control of Collateral..........................................................................34
4.3. Possession of Collateral.......................................................................34
4.4. Collection of Accounts, General Intangibles, and Negotiable Collateral.........................34
4.5. Delivery of Additional Documentation Required..................................................35
4.6. Power of Attorney..............................................................................35
4.7. Right to Inspect...............................................................................36
4.8. Control Agreements.............................................................................36
5. REPRESENTATIONS AND WARRANTIES..........................................................................36
5.1. No Encumbrances................................................................................37
5.2. Accounts.......................................................................................37
5.3. Eligible Inventory.............................................................................37
5.4. Equipment......................................................................................37
5.5. Location of Inventory and Equipment............................................................37
5.6. Inventory Records..............................................................................37
5.7. Legal Status...................................................................................37
5.8. Due Organization and Qualification; Subsidiaries...............................................37
5.9. Due Authorization; No Conflict.................................................................38
5.10. Litigation.....................................................................................39
5.11. No Material Adverse Change.....................................................................39
5.12. Fraudulent Transfer............................................................................39
5.13. Employee Benefits..............................................................................39
5.14. Environmental Condition........................................................................39
5.15. Brokerage Fees.................................................................................40
5.16. Intellectual Property..........................................................................40
5.17. Leases.........................................................................................40
5.18. DDAs...........................................................................................40
5.19. Credit Card Receipts...........................................................................40
5.20. Indebtedness...................................................................................40
5.21. Complete Disclosure............................................................................40
6. AFFIRMATIVE COVENANTS...................................................................................41
6.1. Accounting System..............................................................................41
6.2. Collateral Reporting...........................................................................41
6.3. Financial Statements, Reports, Certificates....................................................43
6.4. Use of Inventory...............................................................................45
6.5. Return.........................................................................................45
6.6. Maintenance of Properties......................................................................45
6.7. Taxes..........................................................................................45
6.8. Insurance......................................................................................45
6.9. Location of Inventory and Equipment............................................................46
6.10. Compliance with Laws...........................................................................46
6.11. Leases.........................................................................................46
6.12. Reserved.......................................................................................46
6.13. Existence......................................................................................46
6.14. Environmental..................................................................................47
6.15. Intellectual Property..........................................................................47
6.16. Disclosure Updates.............................................................................47
7. NEGATIVE COVENANTS......................................................................................47
7.1. Indebtedness...................................................................................47
7.2. Liens..........................................................................................48
7.3. Restrictions on Fundamental Changes............................................................48
7.4. Disposal of Assets.............................................................................48
7.5. Change Name or Address.........................................................................48
7.6. Guarantee......................................................................................49
7.7. Nature of Business.............................................................................49
7.8. Prepayments and Amendments.....................................................................49
7.9. Change of Control..............................................................................49
7.10. Consignments...................................................................................49
7.11. Distributions..................................................................................49
7.12. Accounting Methods.............................................................................49
7.13. Investments....................................................................................49
7.14. Transactions with Affiliates...................................................................50
7.15. Store Openings and Closings....................................................................50
7.16. Suspension.....................................................................................50
7.17. Compensation...................................................................................50
7.18. Use of Proceeds................................................................................50
7.19. Inventory and Equipment with Bailees...........................................................50
7.20. Securities Accounts............................................................................50
7.21. Financial Covenants............................................................................51
8. EVENTS OF DEFAULT.......................................................................................51
9. LENDER'S RIGHTS AND REMEDIES............................................................................53
9.1. Rights and Remedies............................................................................53
9.2. Remedies Cumulative............................................................................55
10. TAXES AND EXPENSES......................................................................................55
11. WAIVERS; INDEMNIFICATION................................................................................55
11.1. Demand; Protest................................................................................55
11.2. Lender's Liability for Collateral..............................................................55
11.3. Indemnification................................................................................56
12. NOTICES.................................................................................................56
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER..............................................................57
14. ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS..............................................................58
14.1. Assignments and Participations.................................................................58
14.2. Successors.....................................................................................60
15. AMENDMENTS; WAIVERS.....................................................................................60
15.1. Amendments and Waivers.........................................................................60
15.2. No Waivers; Cumulative Remedies................................................................60
16. GENERAL PROVISIONS......................................................................................60
16.1. Effectiveness..................................................................................60
16.2. Section Headings...............................................................................60
16.3. Interpretation.................................................................................60
16.4. Severability of Provisions.....................................................................60
16.5. Withholding Taxes..............................................................................60
16.6. Amendments in Writing..........................................................................61
16.7. Counterparts; Telefacsimile Execution..........................................................61
16.8. Revival and Reinstatement of Obligations.......................................................61
16.9. Integration....................................................................................62
16.10. Publicity......................................................................................62
EXHIBITS AND SCHEDULES
Exhibit B-1................Form of Borrowing Base Certificate
Exhibit C-1................Form of Compliance Certificate
Exhibit D-1................Business Plan
Exhibit L-1................Form of LIBOR Notice
Schedule E-1...............Eligible Inventory Locations
Schedule P-1...............Permitted Liens
Schedule 2.7(a)............Cash Management Banks
Schedule 5.5...............Locations of Inventory and Equipment
Schedule 5.8(b)............Capitalization of Borrower
Schedule 5.8(c)............Capitalization of Borrower's Subsidiaries
Schedule 5.10..............Litigation
Schedule 5.10(b)...........Commercial Tort Claims
Schedule 5.14..............Environmental Matters
Schedule 5.16..............Intellectual Property
Schedule 5.18..............Demand Deposit Accounts
Schedule 5.19..............Credit Card Receipts
Schedule 5.20..............Permitted Indebtedness
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (this "Agreement"), is entered into as of
November 21, 2003, between WHITEHALL RETAIL FINANCE, a division of Whitehall
Business Credit Corporation, a New York corporation ("Lender"), and ▇▇▇▇▇▇
ELECTRONICS, INC., a New York corporation ("Borrower").
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1. Definitions. As used in this Agreement, the following terms shall have
the following definitions:
"Account Debtor" means any Person who is or who may become obligated under,
with respect to, or on account of, an Account, Chattel Paper, or a General
Intangible.
"Accounts" means all of Borrower's now owned or hereafter acquired right,
title, and interest with respect to "accounts" (as such term is defined from
time to time in the Code).
"ACH Transactions" means any cash management or related services (including
the Automated Clearing House processing of electronic funds transfers through
the direct Federal Reserve Fedline system) provided by Bank or its Affiliates
for the account of Borrower or its Subsidiaries.
"Additional Documents" has the meaning set forth in Section 4.5.
"Advances" has the meaning set forth in Section 2.1.
"Affiliate" means, as applied to any Person, any other Person who, directly
or indirectly, controls, is controlled by, or is under common control with, such
Person. For purposes of this definition, "control" means the possession,
directly or indirectly, of the power to direct the management and policies of a
Person, whether through the ownership of Stock, by contract, or otherwise;
provided, however, that, for purposes of Section 7.14 hereof: (a) any Person
which owns directly or indirectly 10% or more of the securities having ordinary
voting power for the election of directors or other members of the governing
body of a Person or 10% or more of the partnership or other ownership interests
of a Person (other than as a limited partner of such Person) shall be deemed to
control such Person, (b) each director (or comparable manager) of a Person shall
be deemed to be an Affiliate of such Person, and (c) each partnership or joint
venture in which a Person is a partner or joint venturer shall be deemed to be
an Affiliate of such Person.
"Agreement" has the meaning set forth in the preamble hereto.
"Applicable Prepayment Premium" means, as of any date of determination, an
amount equal to (a) during the period of time from and after the date of the
execution and delivery of this Agreement up to the date that is the first
anniversary of the Closing Date, 3.0% of the Maximum Revolver Amount on the date
immediately prior to the date of determination, (b) during the period of time
from and including the date that is the first anniversary of the Closing Date up
to the date that is the second anniversary of the Closing Date, 2.0% of the
Maximum Revolver Amount, on the date immediately prior to the date of
determination, and (c) during the period of time from and including the date
that is the second anniversary of the Closing Date up to the date that is the
third anniversary of the Closing Date, 0.5% of the Maximum Revolver Amount on
the date immediately prior to the date of determination. From and after the date
that is the third anniversary of the Closing Date, the Applicable Prepayment
Premium shall be $0.
"Assignee" has the meaning set forth in Section 14.1(a).
"Authorized Person" means any officer or controller of Borrower.
"Availability" means, as of any date of determination, if such date is a
Business Day, and determined at the close of business on the immediately
preceding Business Day, if such date of determination is not a Business Day, the
amount that Borrower is entitled to borrow as Advances under Section 2.1 (after
giving effect to all then outstanding Obligations (other than Bank Product
Obligations) and all sublimits and reserves applicable hereunder).
"Availability Reserves" means such reserves as the Lender from time to time
determines in its Permitted Discretion as being appropriate to reflect the
impediments to the Lender's ability to realize upon the Collateral. Without
limiting the generality of the foregoing, Availability Reserves may include (but
are not limited to) reserves based on the following: (a) returns, customer
credits, gift certificates and frequent shopper programs, (b) payables (based
upon payables which are 60 days or more past due), (c) customer deposits, (d)
taxes and other governmental charges, including tax Liens, ad valorem, personal
property, sales, and other taxes which may have priority over the security
interests of the Lender in the Collateral, (e) held or post-dated checks issued
by Borrower, (f) judgment liens against Borrower or Collateral, (g) Borrower's
failure to pay when due and payable indebtedness owing to any trade creditor,
and (h) Letter of Credit reserves. As of the Closing Date, Availability Reserves
shall not include reserves in respect of customer deposits.
"Bank" means ▇▇▇▇▇▇▇ Bank.
"Bank Product Agreements" means those certain cash management service
agreements entered into from time to time by Borrower or its Subsidiaries in
connection with any of the Bank Products.
"Bank Product Obligations" means all obligations, liabilities, contingent
reimbursement obligations, fees, and expenses owing by Borrower or its
Subsidiaries to Bank or its Affiliates pursuant to or evidenced by the Bank
Product Agreements and irrespective of whether for the payment of money, whether
direct or indirect, absolute or contingent, due or to become due, now existing
or hereafter arising, and including all such amounts that Borrower is obligated
to reimburse to Lender as a result of Lender purchasing participations or
executing indemnities or reimbursement obligations with respect to the Bank
Products provided to Borrower or its Subsidiaries pursuant to the Bank Product
Agreements.
"Bank Products" means any service or facility extended to Borrower or its
Subsidiaries by Bank or any Affiliate of Bank including: (a) credit cards, (b)
credit card processing services, (c) debit cards, (d) purchase cards, (e) ACH
Transactions, (f) cash management, including controlled disbursement, accounts
or services, or (g) any treasury products including, without limitation,
derivates and interest rate ▇▇▇▇▇▇.
"Bankruptcy Code" means the United States Bankruptcy Code, as in effect
from time to time.
"Base LIBOR Rate" means the rate per annum, determined by Lender in
accordance with its customary procedures, and utilizing such electronic or other
quotation sources as it considers appropriate (rounded upwards, if necessary, to
the next 1/16%), on the basis of the rates at which Dollar deposits are offered
to major banks in the London interbank market on or about 11:00 a.m. (Boston,
Massachusetts time) 2 Business Days prior to the commencement of the applicable
Interest Period, for a term and in amounts comparable to the Interest Period and
amount of the LIBOR Rate Loan requested by Borrower in accordance with this
Agreement, which determination shall be conclusive in the absence of manifest
error.
"Base Rate" means, the rate of interest from time to time announced by Bank
as its "prime rate", with the understanding that the "prime rate" is one of
Bank's base rates (not necessarily the lowest of such rates) and serves as the
basis upon which effective rates of interest are calculated for those loans
making reference thereto and is evidenced by the recording thereof after its
announcement in such internal publication or publications as Bank may designate.
"Base Rate Loan" means each portion of an Advance that bears interest at a
rate determined by reference to the Base Rate.
"Base Rate Margin" means 0.25%.
"Benefit Plan" means a "defined benefit plan" (as defined in Section 3(35)
of ERISA) for which Borrower or any Subsidiary or ERISA Affiliate of Borrower
has been an "employer" (as defined in Section 3(5) of ERISA) within the past six
years.
"BOA Repurchase Agreement" means the Repurchase Agreement dated as of the
date hereof by and among Borrower, Lender and Bang & Olufsen America, Inc., in
form and substance reasonably satisfactory to Lender.
"Board of Directors" means the board of directors (or comparable managers)
of Borrower or any committee thereof duly authorized to act on behalf of the
board.
"Books" means Borrower's and its Subsidiaries' now owned or hereafter
acquired books and records (including all of its Records indicating,
summarizing, or evidencing its assets (including the Collateral) or liabilities,
all of Borrower's or its Subsidiaries' Records relating to its or their business
operations or financial condition, and all of its or their goods or General
Intangibles related to such information).
"Borrower" has the meaning set forth in the preamble to this Agreement.
"Borrowing" means a borrowing hereunder of an Advance.
"Borrowing Base" has the meaning set forth in Section 2.1.
"Borrowing Base Certificate" means a certificate in the form of Exhibit
B-1.
"Business Day" means any day that is not a Saturday, Sunday, or other day
on which national banks are authorized or required to close, except that, if a
determination of a Business Day shall relate to a LIBOR Rate Loan, the term
"Business Day" also shall exclude any day on which banks are closed for dealings
in Dollar deposits in the London interbank market.
"Business Plan" means the Borrower's business plan and Projections accepted
by the Lender in its Permitted Discretion , and any revision, amendment, or
update of such business plan, provided such revision, amendment, or update has
been attached to this Agreement as an amendment to or an amendment and
restatement of Exhibit D-1.
"Capital Lease" means a lease that is required to be capitalized for
financial reporting purposes in accordance with GAAP.
"Capitalized Lease Obligation" means any Indebtedness represented by
obligations under a Capital Lease.
"Cash Equivalents" means (a) marketable direct obligations issued or
unconditionally guaranteed by the United States or issued by any agency thereof
and backed by the full faith and credit of the United States, in each case
maturing within 1 year from the date of acquisition thereof, (b) marketable
direct obligations issued by any state of the United States or any political
subdivision of any such state or any public instrumentality thereof maturing
within 1 year from the date of acquisition thereof and, at the time of
acquisition, having the highest rating obtainable from either S&P or ▇▇▇▇▇'▇,
(c) commercial paper maturing no more than 270 days from the date of acquisition
thereof and, at the time of acquisition, having a rating of A-1 or P-1, or
better, from S&P or ▇▇▇▇▇'▇, and (d) certificates of deposit or bankers'
acceptances maturing within 1 year from the date of acquisition thereof either
(i) issued by any bank organized under the laws of the United States or any
state thereof which bank has a rating of A or A2, or better, from S&P or
▇▇▇▇▇'▇, or (ii) certificates of deposit less than or equal to $100,000 in the
aggregate issued by any other bank insured by the Federal Deposit Insurance
Corporation.
"Cash Management Bank" has the meaning set forth in Section 2.7(a).
"Cash Management Account" has the meaning set forth in Section 2.7(a).
"Cash Management Agreements" means those certain cash management service
agreements, in form and substance reasonably satisfactory to Lender, each of
which is among Borrower, Lender, and one of the Cash Management Banks.
"Change of Control" means (a) any "person" or "group" (within the meaning
of Sections 13(d) and 14(d) of the Exchange Act) becomes the beneficial owner
(as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
51%, or more, of the Stock of Borrower having the right to vote for the election
of members of the Board of Directors or (b) a majority of the members of the
Board of Directors do not constitute Continuing Directors.
"Chattel Paper" means all of Borrower's now owned or hereafter acquired
right, title, and interest with respect to "chattel paper", including, without
limitation, "tangible chattel paper" and "electronic chattel paper", as such
terms are defined from time to time in the Code, and any and all supporting
obligations in respect thereof.
"Closing Date" means the date of the making of the initial Advance (or
other extension of credit) hereunder.
"Closing Date Business Plan" means Borrower's Business Plan for the period
year ended October 30, 2004 attached hereto as Exhibit D-1.
"Code" means the Massachusetts Uniform Commercial Code, as in effect from
time to time.
"Collateral" means all of Borrower's now owned or hereafter acquired right,
title, and interest in and to each of the following:
(a) Accounts,
(b) Chattel Paper,
(c) DDAs,
(d) Documents,
(e) General Intangibles,
(f) Goods (including, without limitation, Inventory and Equipment),
(g) Instruments,
(h) Investment Property,
(i) Letter of Credit Rights,
(j) the Commercial Tort Claims set forth on Schedule 5.10(b),
(k) money or other assets of Borrower that now or hereafter come into the
possession, custody, or control of Lender, and
(l) any and all proceeds and products, whether tangible or intangible, of
any of the foregoing, including proceeds of insurance covering any or all of the
foregoing, and any and all Accounts, Books, Chattel Paper, Documents, General
Intangibles, Goods (including, without limitation, Equipment, Inventory and
Goods covered by Documents), Instruments, Investment Property, Real Property,
money, DDAs, or other tangible or intangible property resulting from the sale,
exchange, collection, or other disposition of any of the foregoing, or any
portion thereof or interest therein, and the proceeds thereof.
"Collateral Access Agreement" means a landlord waiver, bailee letter, or
acknowledgement agreement of any lessor, warehouseman, processor, consignee, or
other Person in possession of, having a Lien upon, or having rights or interests
in the Equipment or Inventory, in each case, in form and substance reasonably
satisfactory to Lender.
"Collections" means all cash, checks, credit card slips or receipts, notes,
instruments, and other items of payment (including insurance proceeds, proceeds
of cash sales, rental proceeds, and tax refunds) of Borrower.
"Commercial Tort Claim" means any now existing or hereafter arising
"commercial tort claim", as such term is defined from time to time in the Code.
"Compliance Certificate" means a certificate substantially in the form of
Exhibit C-1 delivered by the chief financial officer of Borrower to Lender.
"Concentration Account" means account number 0009506505 maintained by
Borrower at the Bank.
"Continuing Director" means (a) any member of the Board of Directors who
was a director (or comparable manager) of Borrower on the Closing Date, and (b)
any individual who becomes a member of the Board of Directors after the Closing
Date if such individual was appointed or nominated for election to the Board of
Directors by a majority of the Continuing Directors, but excluding any such
individual originally proposed for election in opposition to the Board of
Directors in office at the Closing Date in an actual or threatened election
contest relating to the election of the directors (or comparable managers) of
Borrower (as such terms are used in Rule 14a-11 under the Exchange Act) and
whose initial assumption of office resulted from such contest or the settlement
thereof.
"Control Agreement" means an agreement, in form and substance reasonably
satisfactory to Lender, executed and delivered by Borrower and the applicable
securities intermediary or bank, which agreement is sufficient to give Lender
"control" over the subject Securities Account, DDA or Investment Property as
provided in the Code.
"Cost" means the calculated cost of Inventory, on an average cost basis, as
determined from invoices received by Borrower, Borrower's purchase journals or
stock ledgers, based upon Borrower's accounting practices, known to Lender,
which practices are in effect on the date on which this Agreement was executed.
"Cost" does not include any inventory capitalization costs inclusive of
advertising, but may include other charges used in Borrower's determination of
cost of goods sold and bringing goods to market, all in accordance with GAAP and
as approved by Lender in its Permitted Discretion.
"Credit Card Accounts Receivable" means Accounts consisting of accounts
receivable owed to Borrower from any Credit Card Processor arising from
purchases by Borrower's customers on credit cards, to the extent deemed eligible
by Lender in its Permitted Discretion.
"Credit Card Agreements" means those certain credit card receipts
agreements, each in form and substance reasonably satisfactory to Lender and
each of which is among Lender, Borrower and one of Borrower's Credit Card
Processors.
"Credit Card Processor" means any Person (other than Borrower or any
Affiliate of Borrower or any provider of private label credit card program) that
acts as a credit card clearinghouse or processor of credit card payments
accepted by Borrower.
"Daily Balance" means, with respect to each day during the term of this
Agreement, the amount of an Obligation owed at the end of such day.
"DDA" means any checking account, demand deposit account or other "deposit
account" (as such term is defined from time to time in the Code) maintained by
Borrower.
"Default" means an event, condition, or default that, with the giving of
notice, the passage of time, or both, would be an Event of Default.
"Designated Account" means account number 0009506514 maintained by Borrower
at the Designated Account Bank.
"Designated Account Bank" means the Bank.
"Disbursement Letter" means an instructional letter executed and delivered
by Borrower to Lender regarding the extensions of credit to be made on the
Closing Date, the form and substance of which is reasonably satisfactory to
Lender.
"Document" all of Borrower's now owned or hereafter acquired right, title,
and interest with respect to any "document" as such term is defined in the Code,
and any and all supporting obligations in respect thereof.
"Dollars" or "$" means United States dollars.
"Due Diligence Letter" means the due diligence letter sent by Lender's
counsel to Borrower, together with Borrower's completed responses to the
inquiries set forth therein, the form and substance of such responses to be
reasonably satisfactory to Lender.
"EBITDA" means, with respect to any fiscal period, Borrower's and its
Subsidiaries consolidated net earnings (or loss), minus extraordinary gains,
plus interest expense, income taxes, and depreciation and amortization for such
period, as determined in accordance with GAAP.
"Eligible Credit Card Accounts Receivable" means Credit Card Accounts
Receivable deemed eligible by Lender in its Permitted Discretion but excluding
the following:
(a) any Credit Card Accounts Receivable not paid within five Business Days
of invoice,
(b) any Credit Card Accounts Receivable subject to chargebacks, or
(c) other accounts receivable which do not constitute acceptable Credit
Card Accounts Receivable in Lender's Permitted Discretion.
"Eligible Inventory" means Inventory, net of Inventory Reserves, consisting
of first quality finished goods held for sale in the ordinary course of
Borrower's business located at one of Borrower's business locations set forth on
Schedule E-1 (or in-transit between any such locations), that complies with each
of the representations and warranties respecting Eligible Inventory made by
Borrower in the Loan Documents, and that is not excluded as ineligible by virtue
of the one or more of the criteria set forth below; provided, however, that such
criteria may be fixed and revised from time to time by Lender in Lender's
Permitted Discretion to address the results of any audit or appraisal performed
by Lender from time to time after the Closing Date. In determining the amount to
be so included, Inventory shall be valued at the lower of cost or market on a
basis consistent with Borrower's historical accounting practices. An item of
Inventory shall not be included in Eligible Inventory if:
(a) Borrower does not have good, valid, and marketable title thereto,
(b) it is not located at one of the locations in the United States set
forth on Schedule E-1 or in transit from one such location to another such
location,
(c) it is located on real property leased by Borrower or in a contract
warehouse, in each case, unless it is subject to a Collateral Access Agreement
executed by the lessor, warehouseman, or other third party, as the case may be,
and unless it is segregated or otherwise separately identifiable from goods of
others, if any, stored on the premises,
(d) it is not subject to a valid and perfected first priority Lender's
Lien,
(e) it consists of goods returned or rejected by Borrower's customers
unless such goods can be restored to Borrower's Inventory and sold in the
ordinary course of business, or
(f) it consists of goods that are obsolete or slow moving, restrictive or
custom items, work-in-process, raw materials, or goods that constitute spare
parts, packaging and shipping materials, supplies used or consumed in Borrower's
business, ▇▇▇▇ and hold goods, defective goods, "seconds," or Inventory acquired
on consignment.
"Environmental Actions" means any complaint, summons, citation, notice,
directive, order, claim, litigation, investigation, judicial or administrative
proceeding, judgment, letter, or other communication from any Governmental
Authority, or any third party involving violations of Environmental Laws or
releases of Hazardous Materials from (a) any assets, properties, or businesses
of Borrower or any predecessor in interest, (b) from adjoining properties or
businesses, or (c) from or onto any facilities which received Hazardous
Materials generated by Borrower or any predecessor in interest.
"Environmental Law" means any applicable federal, state, provincial,
foreign or local statute, law, rule, regulation, ordinance, code, binding and
enforceable guideline, binding and enforceable written policy, or rule of common
law now or hereafter in effect and in each case as amended, or any judicial or
administrative interpretation thereof, including any judicial or administrative
order, consent decree or judgment, to the extent binding on Borrower, relating
to the environment, employee health and safety, or Hazardous Materials,
including CERCLA; RCRA; the Federal Water Pollution Control Act, 33 USC ss. 1251
et seq.; the Toxic Substances Control Act, 15 USC, ss. 2601 et seq.; the Clean
Air Act, 42 USC ss. 7401 et seq.; the Safe Drinking Water Act, 42 USC. ss. 3803
et seq.; the Oil Pollution Act of 1990, 33 USC. ss. 2701 et seq.; the Emergency
Planning and the Community Right-to-Know Act of 1986, 42 USC. ss. 11001 et seq.;
the Hazardous Material Transportation Act, 49 USC ss. 1801 et seq.; and the
Occupational Safety and Health Act, 29 USC. ss.651 et seq. (to the extent it
regulates occupational exposure to Hazardous Materials); any state and local or
foreign counterparts or equivalents, in each case as amended from time to time.
"Environmental Liabilities and Costs" means all liabilities, monetary
obligations, Remedial Actions, losses, damages, punitive damages, consequential
damages, treble damages, costs and expenses (including all reasonable fees,
disbursements and expenses of counsel, experts, or consultants, and costs of
investigation and feasibility studies), fines, penalties, sanctions, and
interest incurred as a result of any claim or demand by any Governmental
Authority or any third party, and which relate to any Environmental Action.
"Environmental Lien" means any Lien in favor of any Governmental Authority
for Environmental Liabilities and Costs.
"Equipment" means all of Borrower's now owned or hereafter acquired right,
title, and interest with respect to "equipment" (as such term is defined from
time to time in the Code), fixtures and vehicles (including motor vehicles),
including all attachments, accessories, accessions, replacements, substitutions,
additions, and improvements to any of the foregoing.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and any successor statute thereto.
"ERISA Affiliate" means (a) any Person subject to ERISA whose employees are
treated as employed by the same employer as the employees of Borrower under IRC
Section 414(b), (b) any trade or business subject to ERISA whose employees are
treated as employed by the same employer as the employees of Borrower under IRC
Section 414(c), (c) solely for purposes of Section 302 of ERISA and Section 412
of the IRC, any organization subject to ERISA that is a member of an affiliated
service group of which Borrower is a member under IRC Section 414(m), or (d)
solely for purposes of Section 302 of ERISA and Section 412 of the IRC, any
Person subject to ERISA that is a party to an arrangement with Borrower and
whose employees are aggregated with the employees of Borrower under IRC Section
414(o).
"Event of Default" has the meaning set forth in Section 8.
"Excess Availability" means the amount, as of the date any determination
thereof is to be made, equal to Availability minus the aggregate amount, if any,
of all trade payables of Borrower aged in excess of historical levels with
respect thereto and all book overdrafts in excess of historical practices with
respect thereto, in each case as determined by Lender in its Permitted
Discretion.
"Exchange Act" means the Securities Exchange Act of 1934, as in effect from
time to time.
"Existing Lender" means ▇▇▇▇▇ Fargo Retail Finance II, LLC.
"Funding Date" means the date on which a Borrowing occurs.
"Funding Losses" has the meaning set forth in Section 2.13(b)(ii).
"GAAP" means generally accepted accounting principles as in effect from
time to time in the United States, consistently applied.
"General Intangibles" means all of Borrower's now owned or hereafter
acquired right, title, and interest with respect to "general intangibles" (as
such term is defined from time to time in the Code).
"Goods" means all of Borrower's now owned or hereafter acquired right,
title, and interest with respect to "goods", as that term is defined from time
to time in the Code, including, without limitation, any and all Inventory and
Equipment.
"Governing Documents" means, with respect to any Person, the certificate or
articles of incorporation, by-laws, or other organizational documents of such
Person.
"Governmental Authority" means any federal, state, local, or other
governmental or administrative body, instrumentality, department, or agency or
any court, tribunal, administrative hearing body, arbitration panel, commission,
or other similar dispute-resolving panel or body.
"Hazardous Materials" means (a) substances that are defined or listed in,
or otherwise classified pursuant to, any applicable laws or regulations as
"hazardous substances," "hazardous materials," "hazardous wastes," "toxic
substances," or any other formulation intended to define, list, or classify
substances by reason of deleterious properties such as ignitability,
corrosivity, reactivity, carcinogenicity, reproductive toxicity, or "EP
toxicity", (b) oil, petroleum, or petroleum derived substances, natural gas,
natural gas liquids, synthetic gas, drilling fluids, produced waters, and other
wastes associated with the exploration, development, or production of crude oil,
natural gas, or geothermal resources, (c) any flammable substances or explosives
or any radioactive materials, and (d) asbestos in any form or electrical
equipment that contains any oil or dielectric fluid containing levels of
polychlorinated biphenyls in excess of 50 parts per million.
"Indebtedness" means (a) all obligations for borrowed money, (b) all
obligations evidenced by bonds, debentures, notes, or other similar instruments
and all reimbursement or other obligations in respect of letters of credit,
bankers acceptances, interest rate swaps, or other financial products, (c) all
obligations under Capital Leases, (d) all obligations or liabilities of others
secured by a Lien on any asset of Borrower or its Subsidiaries, irrespective of
whether such obligation or liability is assumed, (e) all obligations for the
deferred purchase price of assets (other than trade debt incurred in the
ordinary course of business and repayable in accordance with customary trade
practices), and (f) any obligation guaranteeing or intended to guarantee
(whether directly or indirectly guaranteed, endorsed, co-made, discounted, or
sold with recourse) any obligation of any other Person.
"Indemnified Liabilities" has the meaning set forth in Section 11.3.
"Indemnified Person" has the meaning set forth in Section 11.3.
"Insolvency Proceeding" means any proceeding commenced by or against any
Person under any provision of the Bankruptcy Code or under any other state or
federal bankruptcy or insolvency law, assignments for the benefit of creditors,
formal or informal moratoria, compositions, extensions generally with creditors,
or proceedings seeking reorganization, arrangement, or other similar relief.
"Instruments" means all of Borrower's now owned or hereafter acquired
right, title, and interest with respect to "instruments", including, without
limitation, any "promissory notes", as such terms are defined from time to time
in the Code.
"Intangible Assets" means, with respect to any Person, that portion of the
book value of all of such Person's assets that would be treated as intangibles
under GAAP.
"Interest Period" means, with respect to each LIBOR Rate Loan, a period
commencing on the date of the making of such LIBOR Rate Loan and ending 1, 2, or
3 months thereafter; provided, however, that (a) if any Interest Period would
end on a day that is not a Business Day, such Interest Period shall be extended
(subject to clauses (c)-(e) below) to the next succeeding Business Day, (b)
interest shall accrue at the applicable rate based upon the LIBOR Rate from and
including the first day of each Interest Period to, but excluding, the day on
which any Interest Period expires, (c) any Interest Period that would end on a
day that is not a Business Day shall be extended to the next succeeding Business
Day unless such Business Day falls in another calendar month, in which case such
Interest Period shall end on the next preceding Business Day, (d) with respect
to an Interest Period that begins on the last Business Day of a calendar month
(or on a day for which there is no numerically corresponding day in the calendar
month at the end of such Interest Period), the Interest Period shall end on the
last Business Day of the calendar month that is 1, 2, or 3 months after the date
on which the Interest Period began, as applicable, and (e) Borrower may not
elect an Interest Period which will end after the Maturity Date.
"Inventory" means all Borrower's now owned or hereafter acquired right,
title, and interest with respect to "inventory" as such term is defined from
time to time in the Code, including, without limitation, goods held for sale or
lease or to be furnished under a contract of service, goods that are leased by
Borrower as lessor, goods that are furnished by Borrower under a contract of
service, and raw materials, work in process, or materials used or consumed in
Borrower's business.
"Inventory Reserves" means such reserves as the Lender determines from time
to time in its Permitted Discretion as being appropriate to reflect the
impediments to the Lender's ability to realize upon the Collateral. Without
limiting the generality of the foregoing, Inventory Reserves may include (but
are not limited to) reserves based on the following: (a) the extent to which
Inventory consists of goods that (i) are obsolete, slow-moving, restrictive or
custom items, bills and hold goods, defective, damaged, prepared for return to
vendor, not first quality goods, work-in-process or raw materials or (ii)
constitute spare parts, packaging and shipping materials or supplies; (b)
seasonality; (c) shrinkage; (d) imbalance or change in Inventory character,
composition or mix; (e) markdowns; (f) the estimated costs relating to unpaid
freight charges, warehousing or storage charges, taxes, duties, and other
similar unpaid costs associated with the acquisition of Inventory by Borrower;
and (g) the estimated reclamation claims of unpaid sellers of Inventory sold to
Borrower.
"Investment" means, with respect to any Person, any investment by such
Person in any other Person (including Affiliates) in the form of loans,
guarantees, advances, or capital contributions (excluding (a) commission,
travel, and similar advances to officers and employees of such Person made in
the ordinary course of business, and (b) bona fide Accounts arising in the
ordinary course of business consistent with past practices), purchases or other
acquisitions for consideration of Indebtedness or Stock, and any other items
that are or would be classified as investments on a balance sheet prepared in
accordance with GAAP.
"Investment Property" means all of Borrower's now owned or hereafter
acquired right, title, and interest with respect to "investment property" as
such term is defined from time to time in the Code.
"IRC" means the Internal Revenue Code of 1986, as in effect from time to
time.
"L/C" has the meaning set forth in Section 2.12(a).
"L/C Disbursement" means a payment made by Lender pursuant to a Letter of
Credit.
"L/C Sublimit" means $1,000,000.
"L/C Undertaking" has the meaning set forth in Section 2.12(a).
"Lender" has the meaning set forth in the preamble to this Agreement.
"Lender Expenses" means all (a) costs or expenses (including taxes, and
insurance premiums) required to be paid by Borrower under any of the Loan
Documents that are paid or incurred by Lender, (b) fees or charges paid or
incurred by Lender in connection with Lender's transactions with Borrower,
including, fees or charges for photocopying, notarization, couriers and
messengers, telecommunication, public record searches (including tax lien,
litigation, and UCC searches and including searches with the patent and
trademark office, the copyright office, or the department of motor vehicles),
filing, recording, publication, appraisal (including periodic Collateral
appraisals or business valuations to the extent of the fees and charges (and up
to the amount of any limitation) contained in this Agreement), real estate
surveys, real estate title policies and endorsements, and environmental audits,
(c) costs and expenses incurred by Lender in the disbursement of funds to
Borrower (by wire transfer or otherwise), (d) charges paid or incurred by Lender
resulting from the dishonor of checks, (e) reasonable costs and expenses paid or
incurred by Lender to correct any default or enforce any provision of the Loan
Documents, or in gaining possession of, maintaining, handling, preserving,
storing, shipping, selling, preparing for sale, or advertising to sell the
Collateral, or any portion thereof, irrespective of whether a sale is
consummated, (f) audit fees and expenses of Lender related to audit examinations
of the Books to the extent of the fees and charges (and up to the amount of any
limitation) contained in this Agreement, (g) reasonable costs and expenses of
third party claims or any other suit paid or incurred by Lender in enforcing or
defending the Loan Documents or in connection with the transactions contemplated
by the Loan Documents or Lender's relationship with Borrower or any guarantor of
the Obligations, (h) Lender's reasonable fees and expenses (including attorneys
fees) incurred in advising, structuring, drafting, reviewing, administering, or
amending the Loan Documents, and (i) Lender's reasonable fees and expenses
(including attorneys fees) incurred in terminating, enforcing (including
attorneys fees and expenses incurred in connection with a "workout," a
"restructuring," or an Insolvency Proceeding concerning Borrower or in
exercising rights or remedies under the Loan Documents), or defending the Loan
Documents, irrespective of whether suit is brought, or in taking any Remedial
Action concerning the Collateral.
"Lender-Related Person" means Lender, Lender's Affiliates, Underlying
Issuer, Bank, and the officers, directors, employees, and agents of Lender.
"Lender's Account" means an account of Lender maintained at Bank.
"Lender's Liens" means the Liens granted by Borrower to Lender under this
Agreement or the other Loan Documents.
"Letter of Credit" means an L/C or an L/C Undertaking, as the context
requires.
"Letter of Credit Rights" means all of Borrower's now owned or hereafter
acquired right, title, and interest with respect to "letter-of-credit rights",
as that term is defined from time to time in the Code.
"Letter of Credit Usage" means, as of any date of determination, the
aggregate undrawn amount of all outstanding Letters of Credit plus 100% of the
amount of outstanding time drafts accepted by an Underlying Issuer as a result
of drawings under Underlying Letters of Credit.
"LIBOR Deadline" has the meaning set forth in Section 2.13(b)(i).
"LIBOR Notice" means a written notice in the form of Exhibit L-1.
"LIBOR Option" has the meaning specified in Section 2.13(a).
"LIBOR Rate" means, for each Interest Period for each LIBOR Rate Loan, the
rate per annum determined by Lender (rounded upwards, if necessary, to the next
1/16%) by dividing (a) the Base LIBOR Rate for such Interest Period, by (b) 100%
minus the Reserve Percentage. The LIBOR Rate shall be adjusted on and as of the
effective day of any change in the Reserve Percentage.
"LIBOR Rate Loan" means each portion of an Advance that bears interest at a
rate determined by reference to the LIBOR Rate.
"LIBOR Rate Margin" means 2.75%.
"Lien" means any interest in an asset securing an obligation owed to, or a
claim by, any Person other than the owner of the asset, whether such interest
shall be based on the common law, statute, or contract, whether such interest
shall be recorded or perfected, and whether such interest shall be contingent
upon the occurrence of some future event or events or the existence of some
future circumstance or circumstances, including the lien or security interest
arising from a mortgage, deed of trust, encumbrance, pledge, hypothecation,
assignment, deposit arrangement, security agreement, conditional sale or trust
receipt, or from a lease, consignment, or bailment for security purposes and
also including reservations, exceptions, encroachments, easements,
rights-of-way, covenants, conditions, restrictions, leases, and other title
exceptions and encumbrances affecting Real Property.
"Loan Account" has the meaning set forth in Section 2.10.
"Loan Documents" means this Agreement, the Bank Product Agreements, the
Cash Management Agreements, the Control Agreements, the BOA Repurchase
Agreement, the Trademark Security Agreement, the Disbursement Letter, the Due
Diligence Letter, the Letters of Credit, the Perfection Certificate, any note or
notes executed by Borrower in connection with this Agreement and payable to
Lender, and any other agreement entered into, now or in the future, by Borrower
and Lender in connection with this Agreement.
"Material Adverse Change" means (a) a material adverse change in the
business, prospects, operations, results of operations, assets, liabilities or
condition (financial or otherwise) of Borrower, (b) a material impairment of
Borrower's ability to perform its obligations under the Loan Documents to which
it is a party or of Lender's ability to enforce the Obligations or realize upon
the Collateral, or (c) a material impairment of the enforceability or priority
of the Lender's Liens with respect to the Collateral as a result of an action or
failure to act on the part of Borrower.
"Maturity Date" has the meaning set forth in Section 3.4.
"Maximum Revolver Amount" means $7,500,000.
"Net Liquidation Percentage" means the percentage of the book value of
Borrower's Inventory that is estimated to be recoverable in an orderly
liquidation of such Inventory, such percentage to be as determined from time to
time by a qualified appraisal company selected by Lender.
"Net Liquidation Value" means, at any date of determination, the result
(expressed in Dollars) of the Net Liquidation Percentage times the Cost value of
Eligible Inventory as of such date.
"Obligations" means (a) all loans, Advances, debts, principal, interest
(including any interest that, but for the provisions of the Bankruptcy Code,
would have accrued), contingent reimbursement obligations with respect to
outstanding Letters of Credit, premiums, liabilities (including all amounts
charged to Borrower's Loan Account pursuant hereto), obligations, fees, charges,
costs, Lender Expenses (including any fees or expenses that, but for the
provisions of the Bankruptcy Code, would have accrued), lease payments,
guaranties, covenants, and duties of any kind and description owing by Borrower
to Lender, Underlying Issuer and each other Lender-Related Person pursuant to or
evidenced by the Loan Documents and irrespective of whether for the payment of
money, whether direct or indirect, absolute or contingent, due or to become due,
now existing or hereafter arising, and including all interest not paid when due
and all Lender Expenses that Borrower is required to pay or reimburse by the
Loan Documents, by law, or otherwise, and (b) all Bank Product Obligations. Any
reference in this Agreement or in the Loan Documents to the Obligations shall
include all amendments, changes, extensions, modifications, renewals
replacements, substitutions, and supplements, thereto and thereof, as
applicable, both prior and subsequent to any Insolvency Proceeding.
"Overadvance" has the meaning set forth in Section 2.5.
"Participant" has the meaning set forth in Section 14.1(d).
"Pay-Off Letter" means a letter, in form and substance reasonably
satisfactory to Lender, from Existing Lender to Lender respecting the amount
necessary to repay in full all of the obligations of Borrower owing to Existing
Lender and obtain a release of all of the Liens existing in favor of Existing
Lender in and to the assets of Borrower.
"Perfection Certificate" means the form entitled "Perfection Certificate of
▇▇▇▇▇▇ Electronics, Inc." submitted by Borrower to Lender, together with
Borrower's completed responses to the inquiries set forth therein, the form and
substance of such responses to be reasonably satisfactory to Lender.
"Permitted Discretion" means a determination made in good faith and in the
exercise of reasonable (from the perspective of a secured asset-based lender)
business judgment.
"Permitted Dispositions" means (a) sales or other dispositions by Borrower
or its Subsidiaries of Equipment that is substantially worn, damaged, or
obsolete in the ordinary course of business, (b) sales by Borrower or its
Subsidiaries of Inventory to buyers in the ordinary course of business, (c) the
use or transfer of money or Cash Equivalents by Borrower or its Subsidiaries in
a manner that is not prohibited by the terms of this Agreement or the other Loan
Documents, and (d) the licensing by Borrower or its Subsidiaries, on a
non-exclusive basis, of patents, trademarks, copyrights, and other intellectual
property rights in the ordinary course of business, provided, such licensing
arrangements do not individually or in the aggregate create a material adverse
effect on the Collateral or the Lender's ability to liquidate the Collateral.
"Permitted Investments" means (a) investments in Cash Equivalents, (b)
investments in negotiable instruments for collection, and (c) advances made in
connection with purchases of goods or services in the ordinary course of
business.
"Permitted Liens" means (a) Liens held by Lender, (b) Liens for unpaid
taxes that either (i) are not yet delinquent, or (ii) do not constitute an Event
of Default hereunder and are the subject of Permitted Protests, (c) the
judgments and the Liens set forth on Schedule P-1, (d) the interests of lessors
under operating leases, (e) purchase money Liens or the interests of lessors
under Capital Leases to the extent that such Liens or interests secure Permitted
Purchase Money Indebtedness and so long as such Lien attaches only to the asset
purchased or acquired and the proceeds thereof, (f) Liens arising by operation
of law in favor of warehousemen, landlords, carriers, mechanics, materialmen,
laborers, or suppliers, incurred in the ordinary course of business and not in
connection with the borrowing of money, and which Liens either (i) are for sums
not yet delinquent, or (ii) are the subject of Permitted Protests, (g) Liens
arising from deposits made in connection with obtaining worker's compensation or
other unemployment insurance, (h) Liens or deposits to secure performance of
bids, tenders, or leases incurred in the ordinary course of business and not in
connection with the borrowing of money, (i) Liens granted as security for surety
or appeal bonds in connection with obtaining such bonds in the ordinary course
of business, (j) Liens resulting from any judgment or award that is not an Event
of Default hereunder, and (k) with respect to any Real Property, easements,
rights of way, and zoning restrictions that do not materially interfere with or
impair the use or operation thereof.
"Permitted Protest" means the right of Borrower or any of its Subsidiaries,
as applicable, to protest any Lien (other than any such Lien that secures the
Obligations), taxes (other than payroll taxes or taxes that are the subject of a
United States federal tax lien), or rental payment and includes, without
limitation, the matter set forth on Schedule T-1; provided that (a) a reserve
with respect to such obligation is established on the Books in such amount as is
required under GAAP, (b) any such protest is instituted promptly and prosecuted
diligently by Borrower or any of its Subsidiaries, as applicable, in good faith,
and (c) Lender is satisfied in its Permitted Discretion that, while any such
protest is pending, there will be no impairment of the enforceability, validity,
or priority of any of the Lender's Liens.
"Permitted Purchase Money Indebtedness" means, as of any date of
determination, Purchase Money Indebtedness incurred after the Closing Date in an
aggregate principal amount outstanding at any one time not in excess of
$250,000.
"Person" means natural persons, corporations, limited liability companies,
limited partnerships, general partnerships, limited liability partnerships,
joint ventures, trusts, land trusts, business trusts, or other organizations,
irrespective of whether they are legal entities, and governments and agencies
and political subdivisions thereof.
"Projections" means Borrower's forecasted monthly (a) profit and loss
statements and (b) cash flow statements, all prepared on a basis consistent with
Borrower's historical financial statements, together with appropriate supporting
details and a statement of underlying assumptions, accepted by the Lender in its
Permitted Discretion and any revision, amendment, or updates thereto, provided
such revision, amendment, or update has been accepted in writing by the Lender.
"Purchase Money Indebtedness" means Indebtedness (other than the
Obligations, but including Capitalized Lease Obligations), incurred at the time
of, or within 20 days after, the acquisition of any fixed assets for the purpose
of financing all or any part of the acquisition cost thereof.
"Real Property" means any fee, leasehold or other estate or interest in
real property now owned or hereafter owned or leased by Borrower and the
improvements thereto.
"Record" means information that is inscribed on a tangible medium or which
is stored in an electronic or other medium and is retrievable in perceivable
form.
"Remedial Action" means all actions taken to (a) clean up, remove,
remediate, contain, treat, monitor, assess, evaluate, or in any way address
Hazardous Materials in the indoor or outdoor environment, (b) prevent or
minimize a release or threatened release of Hazardous Materials so they do not
migrate or endanger or threaten to endanger public health or welfare or the
indoor or outdoor environment, (c) perform any pre-remedial studies,
investigations, or post-remedial operation and maintenance activities, or (d)
conduct any other actions authorized by 42 USC ss. 9601.
"Reserve Percentage" means, on any day, for Lender, the maximum percentage
prescribed by the Board of Governors of the Federal Reserve System (or any
successor Governmental Authority) for determining the reserve requirements
(including any basic, supplemental, marginal, or emergency reserves) that are in
effect on such date with respect to eurocurrency funding (currently referred to
as "eurocurrency liabilities") of Lender, but so long as Lender is not required
or directed under applicable regulations to maintain such reserves, the Reserve
Percentage shall be zero.
"Revolver Usage" means, as of any date of determination, the sum of (a) the
then extant amount of outstanding Advances, plus (b) the then extant amount of
the Letter of Credit Usage.
"SEC" means the United States Securities and Exchange Commission and any
successor thereto.
"Securities Account" means a "securities account" as such term is defined
from time to time in the Code.
"Solvent" means, with respect to any Person on a particular date, that such
Person is not insolvent (as such term is defined in the Uniform Fraudulent
Transfer Act).
"Stock" means all shares, options, warrants, interests, participations, or
other equivalents (regardless of how designated) of or in a Person, whether
voting or nonvoting, including common stock, preferred stock, or any other
"equity security" (as such term is defined in Rule 3a11-1 of the General Rules
and Regulations promulgated by the SEC under the Exchange Act).
"Subsidiary" of a Person means a corporation, partnership, limited
liability company, or other entity in which that Person directly or indirectly
owns or controls the shares of Stock having ordinary voting power to elect a
majority of the board of directors (or appoint other comparable managers) of
such corporation, partnership, limited liability company, or other entity.
"Taxes" has the meaning set forth in Section 16.5.
"Trademark Security Agreement" means a trademark security agreement
executed and delivered by Borrower and Lender, the form and substance of which
is reasonably satisfactory to Lender.
"Underlying Issuer" means a third Person which is the beneficiary of an L/C
Undertaking and which has issued a letter of credit at the request of Lender for
the benefit of Borrower.
"Underlying Letter of Credit" means a letter of credit that has been issued
by an Underlying Issuer.
"Voidable Transfer" has the meaning set forth in Section 16.8.
1.2. Accounting Terms. All accounting terms not specifically defined herein
shall be construed in accordance with GAAP. When used herein, the term
"financial statements" shall include the notes and schedules thereto. Whenever
the term "Borrower" is used in respect of a financial covenant or a related
definition, it shall be understood to mean Borrower and its Subsidiaries on a
consolidated basis unless the context clearly requires otherwise.
1.3. Code. Any terms used in this Agreement that are defined in the Code
shall be construed and defined as set forth from time to time in the Code unless
otherwise defined herein.
1.4. Construction. Unless the context of this Agreement or any other Loan
Document clearly requires otherwise, references to the plural include the
singular, references to the singular include the plural, the term "including" is
not limiting, and the term "or" has, except where otherwise indicated, the
inclusive meaning represented by the phrase "and/or." The words "hereof,"
"herein," "hereby," "hereunder," and similar terms in this Agreement or any
other Loan Document refer to this Agreement or such other Loan Document, as the
case may be, as a whole and not to any particular provision of this Agreement or
such other Loan Document, as the case may be. Section, subsection, clause,
schedule, and exhibit references herein are to this Agreement unless otherwise
specified. Any reference in this Agreement or in the other Loan Documents to any
agreement, instrument, or document shall include all alterations, amendments,
changes, extensions, modifications, renewals, replacements, substitutions,
joinders, and supplements, thereto and thereof, as applicable (subject to any
restrictions on such alterations, amendments, changes, extensions,
modifications, renewals, replacements, substitutions, joinders, and supplements
set forth herein). Any reference herein to any Person shall be construed to
include such Person's successors and assigns. Any requirement of a writing
contained herein or in the other Loan Documents shall be satisfied by the
transmission of a Record and any Record transmitted shall constitute a
representation and warranty as to the accuracy and completeness of the
information contained therein.
1.5. Schedules and Exhibits. All of the schedules and exhibits attached to
this Agreement shall be deemed incorporated herein by reference.
2. LOAN AND TERMS OF PAYMENT.
2.1. Revolver Advances.
(a) Subject to the terms and conditions of this Agreement, and during the
term of this Agreement, Lender agrees to make advances ("Advances") to Borrower
in an amount at any one time outstanding not to exceed an amount equal to the
lesser of (i) the Maximum Revolver Amount less the Letter of Credit Usage, or
(ii) the Borrowing Base less the Letter of Credit Usage and the aggregate amount
of Availability Reserves. For purposes of this Agreement, "Borrowing Base," as
of any date of determination, shall mean the result of:
(x) up to 85% of the amount of Eligible Credit Card Accounts Receivable;
plus
(y) up to 90% of the Net Liquidation Value of Eligible Inventory (on the
Closing Date such amount being equal to 69% of the Cost value of Eligible
Inventory), and thereafter adjusted as set forth in Section 2.1(b).
(b) Anything to the contrary in this Section 2.1 notwithstanding, Lender
shall have the right to establish reserves in such amounts, and with respect to
such matters, as Lender in its Permitted Discretion shall deem necessary or
appropriate, against the Borrowing Base, including reserves with respect to (i)
sums that Borrower is required to pay and has failed to pay under any Section of
this Agreement or any other Loan Document (such as past due taxes, assessments
or insurance premiums, or, in the case of leased assets, past due rents or other
amounts payable under such leases) and (ii) amounts owing by Borrower to any
Person to the extent secured by a Lien on, or trust over, any of the Collateral
(other than any existing Permitted Lien set forth on Schedule P-1 which is
specifically identified thereon as entitled to have priority over the Lender's
Liens), which Lien or trust, in the Permitted Discretion of Lender likely would
have a priority superior to the Lender's Liens (such as Liens or trusts in favor
of landlords, warehousemen, carriers, mechanics, materialmen, laborers, or
suppliers, or Liens or trusts for ad valorem, excise, sales, or other taxes
where given priority under applicable law) in and to such item of the
Collateral. In addition to the foregoing, Lender shall have the right (i)
consistent with the provisions of Section 4.7 to have the Inventory reappraised
by a qualified appraisal company selected by Lender from time to time after the
Closing Date for the purpose of redetermining the Net Liquidation Percentage of
the Eligible Inventory portion of the Collateral and, as a result, redetermining
the Borrowing Base and (ii) to redetermine the percentage of the Net Liquidation
Value of Eligible Inventory that will be included in the Borrowing Base, as
determined from time to time in its Permitted Discretion.
(c) Lender shall have no obligation to make additional Advances hereunder
to the extent such additional Advances would cause the Revolver Usage to exceed
either the Maximum Revolver Amount or Borrowing Base.
(d) Amounts borrowed pursuant to this Section may be repaid and, subject to
the terms and conditions of this Agreement, reborrowed at any time during the
term of this Agreement.
2.2. Reserved.
2.3. Borrowing Procedures and Settlements.
(a) Procedure for Borrowing. Each Borrowing shall be made by a request by
an Authorized Person delivered to Lender (in the form of a Borrowing Base
Certificate which must be received by Lender no later than 12:00 noon (Boston,
Massachusetts time) on the Business Day that is the requested Funding Date).
(b) Making of Advances. If Lender has received a timely request for a
Borrowing in accordance with the provisions hereof, and subject to the
satisfaction of the applicable terms and conditions set forth herein, Lender
shall make the proceeds of such Advance available to Borrower on the applicable
Funding Date by transferring immediately available funds equal to such proceeds
to Borrower's Designated Account.
2.4. Payments.
(a) Payments by Borrower. Except as otherwise expressly provided herein,
all payments by Borrower shall be made to Lender's Account and shall be made in
immediately available funds, no later than 11:00 a.m. (Boston, Massachusetts
time) on the date specified herein. Any payment received by Lender later than
11:00 a.m. (Boston, Massachusetts time) shall be deemed to have been received on
the following Business Day and any applicable interest or fee shall continue to
accrue until such following Business Day.
(b) Application and Reversal of Payments.
(i) All payments shall be remitted to Lender and all such payments (other
than payments received while no Default or Event of Default has occurred and is
continuing and which relate to the payment of principal or interest of specific
Obligations or which relate to the payment of specific fees), and all proceeds
of Accounts or other Collateral received by Lender, shall be applied as follows:
(A) first, to pay any Lender Expenses then due to Lender under the Loan
Documents, until paid in full,
(B) second, to pay any fees then due to Lender under the Loan Documents
until paid in full,
(C) third, to pay interest due in respect of the Advances until paid in
full,
(D) fourth, so long as no Event of Default has occurred and is continuing,
to pay the principal of all Advances until paid in full,
(E) fifth, so long as no Event of Default has occurred and is continuing,
and at Lender's election, to pay amounts then due and owing by Borrower or its
Subsidiaries in respect of Bank Products, until paid in full,
(F) sixth, if an Event of Default has occurred and is continuing, ratably
(i) to pay the principal of all Advances until paid in full, and after payment
in full of the Advances,
(G) seventh, if an Event of Default has occurred and is continuing, to be
held by Lender as cash collateral in an amount up to 105% of the then extant
Letter of Credit Usage until paid in full,
(H) eighth, to pay (i) all Bank Product Obligations until paid in full, and
(ii) any other Obligations until paid in full, and
(I) ninth, to Borrower (to be wired to the Designated Account) or such
other Person entitled thereto under applicable law.
(ii) In each instance, so long as no Default or Event of Default has
occurred and is continuing, Section 2.4(b) shall not be deemed to apply to any
payment by Borrower specified by Borrower to be for the payment of specific
Obligations then due and payable (or prepayable) under any provision of this
Agreement.
(iii) For purposes of the foregoing, "paid in full" means payment of all
amounts owing under the Loan Documents according to the terms thereof, including
loan fees, service fees, professional fees, interest (and specifically including
interest accrued after the commencement of any Insolvency Proceeding), default
interest, interest on interest, and expense reimbursements, whether or not the
same would be or is allowed or disallowed in whole or in part in any Insolvency
Proceeding.
(iv) In the event of a direct conflict between the priority provisions of
this Section 2.4 and other provisions contained in any other Loan Document, it
is the intention of the parties hereto that such priority provisions in such
documents shall be read together and construed, to the fullest extent possible,
to be in concert with each other. In the event of any actual, irreconcilable
conflict that cannot be resolved as aforesaid, the terms and provisions of this
Section 2.4 shall control and govern.
2.5. Overadvances. If, at any time or for any reason, the amount of
Obligations (other than Bank Product Obligations) owed by Borrower to Lender
pursuant to Sections 2.1 and 2.12 is greater than either the Dollar or
percentage limitations set forth in Sections 2.1 or 2.12, (an "Overadvance"),
Borrower immediately shall pay to Lender, in cash, the amount of such excess,
which amount shall be used by Lender to reduce the Obligations in accordance
with the priorities set forth in Section 2.4(b). In addition, Borrower hereby
promises to pay the Obligations (including principal, interest, fees, costs, and
expenses) in Dollars in full to Lender as and when due and payable under the
terms of this Agreement and the other Loan Documents.
2.6. Interest Rates and Letter of Credit Fee: Rates, Payments, and
Calculations.
(a) Interest Rates. Except as provided in clause (c) below, all Obligations
(except for undrawn Letters of Credit and except for Bank Product Obligations)
that have been charged to the Loan Account pursuant to the terms hereof shall
bear interest on the Daily Balance thereof as follows (i) if the relevant
Obligation is an Advance that is a LIBOR Rate Loan, at a per annum rate equal to
the LIBOR Rate plus the LIBOR Rate Margin, and (ii) otherwise, at a per annum
rate equal to the Base Rate plus the Base Rate Margin.
(b) Letter of Credit Fee. Borrower shall pay Lender a Letter of Credit fee
(in addition to the charges, commissions, fees, and costs set forth in Section
2.12(e)) which shall accrue at a rate equal to 2.75% per annum times the Daily
Balance of the undrawn amount of all outstanding Letters of Credit.
(c) Default Rate. Upon the occurrence and during the continuation of an
Event of Default,
(i) all Obligations (except for undrawn Letters of Credit and except for
Bank Product Obligations) that have been charged to the Loan Account pursuant to
the terms hereof shall bear interest on the Daily Balance thereof at a per annum
rate equal to 2% above the per annum rate otherwise applicable hereunder, and
(ii) the Letter of Credit fee provided for in clause (b) above shall be
increased to a rate 2% above the per annum rate otherwise applicable hereunder.
(d) Payment. Interest, Letter of Credit fees, and all other fees payable
hereunder shall be due and payable, in arrears, on the first day of each month
at any time that Obligations or obligation to extend credit hereunder are
outstanding. Borrower hereby authorizes Lender, from time to time without prior
notice to Borrower, to charge such interest and fees, all Lender Expenses (as
and when incurred), the charges, commissions, fees, and costs provided for in
Section 2.12(e) (as and when accrued or incurred), the fees and costs provided
for in Section 2.11 (as and when accrued or incurred), and all other payments as
and when due and payable under any Loan Document (including any amounts due and
payable to Bank or its Affiliates in respect of Bank Products) to Borrower's
Loan Account, which amounts thereafter shall constitute Advances hereunder and
shall accrue interest at the rate then applicable to Advances hereunder. Any
interest not paid when due shall be charged to Borrower's Loan Account and shall
thereafter constitute Advances hereunder and shall accrue interest at the rate
then applicable to Advances that are Base Rate Loans hereunder.
(e) Computation. All interest and fees chargeable under the Loan Documents
shall be computed on the basis of a 360 day year for the actual number of days
elapsed. In the event the Base Rate is changed from time to time hereafter, the
rates of interest hereunder based upon the Base Rate automatically and
immediately shall be increased or decreased by an amount equal to such change in
the Base Rate.
(f) Intent to Limit Charges to Maximum Lawful Rate. In no event shall the
interest rate or rates payable under this Agreement, plus any other amounts paid
in connection herewith, exceed the highest rate permissible under any law that a
court of competent jurisdiction shall deem applicable. Borrower and Lender, in
executing and delivering this Agreement, intend legally to agree upon the rate
or rates of interest and manner of payment stated within it; provided, however,
that, anything contained herein to the contrary notwithstanding, if said rate or
rates of interest or manner of payment exceeds the maximum allowable under
applicable law, then, ipso facto, as of the date of this Agreement, Borrower is
and shall be liable only for the payment of such maximum as allowed by law, and
payment received from Borrower in excess of such legal maximum, whenever
received, shall be applied to reduce the principal balance of the Obligations to
the extent of such excess.
2.7. Cash Management.
(a) Borrower shall (i) establish and maintain cash management services of a
type and on terms reasonably satisfactory to Lender at one or more of the banks
set forth on Schedule 2.7(a) (each, a "Cash Management Bank"), and shall request
in writing and otherwise take such reasonable steps to ensure that all of its
Account Debtors forward payment of the amounts owed by them directly to such
Cash Management Bank, and (ii) deposit or cause to be deposited promptly, and in
any event no later than the first Business Day after the date of receipt
thereof, all Collections (including those sent directly by Account Debtors to a
Cash Management Bank) into a bank account (a "Cash Management Account") at one
of the Cash Management Banks.
(b) Each Cash Management Bank shall establish and maintain Cash Management
Agreements with Lender and Borrower, in form and substance acceptable to Lender
in its Permitted Discretion.
(c) Borrower shall establish and maintain Credit Card Agreements with
Lender and each Credit Card Processor. Each such Credit Card Agreement shall
provide, among other things, that each such Credit Card Processor shall transfer
all proceeds of credit card charges for sales by Borrower received by it (or
other amounts payable by such Credit Card Processor) into a designated Cash
Management Account on a daily basis. Borrower shall not attempt to change any
direction or designation set forth in the Credit Card Agreements regarding
payment of charges without the prior written consent of Lender.
(d) So long as no Default or Event of Default has occurred and is
continuing, Borrower may amend Schedule 2.7(a) to add or replace a Cash
Management Bank or Cash Management Account; provided, however, that (i) such
prospective Cash Management Bank shall be reasonably satisfactory to Lender and
Lender shall have consented in writing in advance to the opening of such Cash
Management Account with the prospective Cash Management Bank, and (ii) prior to
the time of the opening of such Cash Management Account, Borrower and such
prospective Cash Management Bank shall have executed and delivered to Lender a
Cash Management Agreement. Borrower shall close any of its Cash Management
Accounts (and establish replacement cash management accounts in accordance with
the foregoing sentence) promptly and in any event within 45 days of notice from
Lender that the creditworthiness of any Cash Management Bank is no longer
acceptable in Lender's reasonable judgment, or as promptly as practicable and in
any event within 60 days of notice from Lender that the operating performance,
funds transfer, or availability procedures or performance of the Cash Management
Bank with respect to Cash Management Accounts or Lender's liability under any
Cash Management Agreement with such Cash Management Bank is no longer acceptable
in Lender's reasonable judgment.
(e) The Cash Management Accounts shall be cash collateral accounts, with
all cash, checks and similar items of payment in such accounts securing payment
of the Obligations, and in which Borrower is hereby deemed to have granted a
Lien to Lender.
(f) As of the Closing Date, Borrower shall not be required to maintain a
Cash Management Agreement at Fleet National Bank, N.A. The Control Agreement to
be entered into by the Bank, Lender and Borrower pursuant to Section 3.2(b) of
this Agreement shall be the Cash Management Agreement among Bank, Lender and
Borrower.
2.8. Crediting Payments; Float Charge. The receipt of any payment item by
Lender (whether from transfers to Lender by the Cash Management Banks pursuant
to the Cash Management Agreements or otherwise) shall not be considered a
payment on account unless such payment item is a wire transfer of immediately
available federal funds made to the Lender's Account or unless and until such
payment item is honored when presented for payment. Should any payment item not
be honored when presented for payment, then Borrower shall be deemed not to have
made such payment and interest shall be calculated accordingly. Anything to the
contrary contained herein notwithstanding, any payment item shall be deemed
received by Lender only if it is received into the Lender's Account on a
Business Day on or before 11:00 a.m. (Boston, Massachusetts time). If any
payment item is received into the Lender's Account on a non-Business Day or
after 11:00 a.m. (Boston, Massachusetts time) on a Business Day, it shall be
deemed to have been received by Lender as of the opening of business on the
immediately following Business Day. From and after the Closing Date, Lender
shall be entitled to charge Borrower for one Business Day of `clearance' or
`float' at the rate applicable to Base Rate Loans under Section 2.6 on all
Collections that are received by Borrower (regardless of whether forwarded by
the Cash Management Banks to Lender). This across-the-board one Business Day
clearance or float charge on all Collections is acknowledged by the parties to
constitute an integral aspect of the pricing of the financing of Borrower and
shall apply irrespective of whether or not there are any outstanding monetary
Obligations; the effect of such clearance or float charge being the equivalent
of charging one Business Day of interest on such Collections.
2.9. Designated Account. Lender is authorized to make the Advances and
Lender is authorized to issue the Letters of Credit, under this Agreement based
upon telephonic or other instructions received from anyone purporting to be an
Authorized Person, or without instructions if pursuant to Section 2.6(d).
Borrower agrees to establish and maintain the Designated Account with the
Designated Account Bank for the purpose of receiving the proceeds of the
Advances requested by Borrower and made by Lender hereunder. Unless otherwise
agreed by Lender and Borrower, any Advance requested by Borrower and made by
Lender hereunder shall be made to the Designated Account.
2.10. Maintenance of Loan Account; Statements of Obligations. Lender shall
maintain an account on its books in the name of Borrower (the "Loan Account") on
which Borrower will be charged, all Advances made by Lender to Borrower or for
Borrower's account, the Letters of Credit issued by Lender for Borrower's
account, and with all other payment Obligations hereunder or under the other
Loan Documents (except for Bank Product Obligations), including, accrued
interest, fees and expenses, and Lender Expenses. In accordance with Section
2.8, the Loan Account will be credited with all payments received by Lender from
Borrower or for Borrower's account, including all amounts received in the
Lender's Account from any Cash Management Bank. Lender shall render statements
regarding the Loan Account to Borrower, including principal, interest, fees, and
including an itemization of all charges and expenses constituting Lender
Expenses owing, and such statements shall be presumed to be correct and accurate
and constitute an account stated between Borrower and Lender unless, within 30
days after receipt thereof by Borrower, Borrower shall deliver to Lender written
objection thereto describing the error or errors contained in any such
statements.
2.11. Fees. Borrower shall pay to Lender the following fees and charges,
which fees and charges shall be non-refundable when paid (irrespective of
whether this Agreement is terminated thereafter):
(a) Unused Line Fee. On the first day of each month during the term of this
Agreement, an unused line fee in an amount equal to 0.375% per annum times the
result of (a) $6,500,000, minus (b) the sum of (i) the average Daily Balance of
Advances that were outstanding during the immediately preceding month plus (ii)
the average Daily Balance of the Letter of Credit Usage during the immediately
preceding month.
(b) Closing Fee. On the Closing Date, a closing fee of $25,000, which
closing fee shall be fully earned on the Closing Date and payable in
installments of $12,500 on each of the Closing Date and the first anniversary of
the Closing Date. No portion of such closing fee be refunded or restored to the
Borrower under any circumstances.
(c) Collateral Evaluation Fee. On the first day of each month during the
term of this Agreement, a "Collateral Evaluation Fee" of $1,000 per month,
payable solely to Lender.
2.12. Letters of Credit.
(a) Subject to the terms and conditions of this Agreement, Lender agrees to
cause Underlying Issuer to issue letters of credit for the account of Borrower
(each, an "L/C") or to purchase participations or execute indemnities or
reimbursement obligations (each such undertaking, an "L/C Undertaking") with
respect to letters of credit issued by an Underlying Issuer (as of the Closing
Date, such issuing bank to be Bank) for the account of Borrower. To request the
issuance of an L/C or an L/C Undertaking (or the amendment, renewal, or
extension of an outstanding L/C or L/C Undertaking), Borrower shall hand deliver
or telecopy (or transmit by electronic communication, if arrangements for doing
so have been approved by Lender) to Lender (reasonably in advance of the
requested date of issuance, amendment, renewal, or extension) a notice
requesting the issuance of an L/C or L/C Undertaking, or identifying the L/C or
L/C Undertaking to be amended, renewed, or extended, the date of issuance,
amendment, renewal, or extension, the date on which such L/C or L/C Undertaking
is to expire, the amount of such L/C or L/C Undertaking, the name and address of
the beneficiary thereof (or the beneficiary of the Underlying Letter of Credit,
as applicable), and such other information as shall be necessary to prepare,
amend, renew, or extend such L/C or L/C Undertaking. If requested by Lender,
Borrower also shall be an applicant under the application with respect to any
Underlying Letter of Credit that is to be the subject of an L/C Undertaking.
Lender shall have no obligation to issue a Letter of Credit if any of the
following would result after giving effect to the requested Letter of Credit:
(i) the Letter of Credit Usage would exceed the Borrowing Base less the
amount of outstanding Advances, or
(ii) the Letter of Credit Usage would exceed the L/C Sublimit, or
(iii) the Letter of Credit Usage would exceed the Maximum Revolver Amount
less the then extant amount of outstanding Advances.
Borrower and Lender acknowledge and agree that certain Underlying Letters of
Credit may be issued to support letters of credit that already are outstanding
as of the Closing Date. Each Letter of Credit (and corresponding Underlying
Letter of Credit) shall be in form and substance acceptable to Lender (in the
exercise of its Permitted Discretion), including the requirement that the
amounts payable thereunder must be payable in Dollars. Prior to the issuance of
any Letters of Credit, Borrower shall execute and deliver Underlying Issuer's
standard agreement and other letter of credit documentation. If Lender or
Underlying Issuer is obligated to advance funds under a Letter of Credit,
Borrower immediately shall reimburse such L/C Disbursement to Lender by paying
to Lender an amount equal to such L/C Disbursement not later than 11:00 a.m.,
Boston, Massachusetts time, on the date that such L/C Disbursement is made, if
Borrower shall have received written or telephonic notice of such L/C
Disbursement prior to 10:00 a.m., Boston, Massachusetts time, on such date, or,
if such notice has not been received by Borrower prior to such time on such
date, then not later than 11:00 a.m., Boston, Massachusetts time, on the
Business Day that Borrower receives such notice, if such notice is received
prior to 10:00 a.m., Boston, Massachusetts time, on the date of receipt, and, in
the absence of such reimbursement, the L/C Disbursement immediately and
automatically shall be deemed to be an Advance hereunder and, thereafter, shall
bear interest at the rate then applicable to Advances that are Base Rate Loans
under Section 2.6. To the extent an L/C Disbursement is deemed to be an Advance
hereunder, Borrower's obligation to reimburse such L/C Disbursement shall be
discharged and replaced by the resulting Advance.
(b) Borrower hereby agrees to indemnify, save, defend, and hold Lender and
each Underlying Issuer harmless from any loss, cost, expense, or liability, and
reasonable attorneys fees incurred by Lender and each Underlying Issuer arising
out of or in connection with any Letter of Credit; provided, however, that
Borrower shall not be obligated hereunder to indemnify for any loss, cost,
expense, or liability that is caused by the gross negligence or willful
misconduct of Lender or any Underlying Issuer. Borrower agrees to be bound by
the Underlying Issuer's regulations and interpretations of any Underlying Letter
of Credit or by Lender's interpretations of any L/C issued by Lender to or for
Borrower's account (in the exercise of its Permitted Discretion), even though
this interpretation may be different from Borrower's own, and Borrower
understands and agrees that Lender and such Underlying Issuer shall not be
liable for any error, negligence, or mistake, whether of omission or commission,
in following Borrower's instructions or those contained in the Letter of Credit
or any modifications, amendments, or supplements thereto except for gross
negligence or intentional misconduct on the part of Lender or such Underlying
Issuer, as applicable. Borrower understands that the L/C Undertakings may
require Lender to indemnify the Underlying Issuer for certain costs or
liabilities arising out of claims by Borrower against such Underlying Issuer.
Borrower hereby agrees to indemnify, save, defend, and hold Lender harmless with
respect to any loss, cost, expense (including reasonable attorneys fees), or
liability incurred by Lender under any L/C Undertaking as a result of Lender's
indemnification of any Underlying Issuer; provided, however, that Borrower shall
not be obligated hereunder to indemnify for any loss, cost, expense, or
liability that is caused by the gross negligence or willful misconduct of
Lender.
(c) Borrower hereby authorizes and directs any Underlying Issuer to deliver
to Lender all instruments, documents, and other writings and property received
by such Underlying Issuer pursuant to such Underlying Letter of Credit and to
accept and rely upon Lender's instructions with respect to all matters arising
in connection with such Underlying Letter of Credit and the related application.
(d) Any and all charges, commissions, fees, and costs incurred by Lender
relating to Underlying Letters of Credit shall be Lender Expenses for purposes
of this Agreement and immediately shall be reimbursable by Borrower to Lender
for the account of Lender.
(e) If by reason of (i) any change in any applicable law, treaty, rule, or
regulation or any change in the interpretation or application thereof by any
Governmental Authority, or (ii) compliance by the Underlying Issuer or Lender
with any direction, request, or requirement (irrespective of whether having the
force of law) of any Governmental Authority or monetary authority including,
Regulation D of the Federal Reserve Board as from time to time in effect (and
any successor thereto):
(i) any reserve, deposit, or similar requirement is or shall be imposed or
modified in respect of any Letter of Credit issued hereunder, or
(ii) there shall be imposed on the Underlying Issuer or Lender any other
condition regarding any Underlying Letter of Credit or any Letter of Credit
issued pursuant hereto,
and the result of the foregoing is to increase, directly or indirectly, the cost
to Lender and/or Underlying Issuer of issuing, making, guaranteeing, or
maintaining any Letter of Credit or to reduce the amount receivable in respect
thereof by Lender, then, and in any such case, Lender may, at any time within a
reasonable period after the additional cost is incurred or the amount received
is reduced, notify Borrower in writing as set forth in the certificate referred
to below, and Borrower shall pay on demand such amounts as Lender may specify to
be necessary to compensate Lender and/or Underlying Issuer for such additional
cost or reduced receipt, together with interest on such amount from the date of
such demand until payment in full thereof at the rate then applicable to Base
Rate Loans hereunder. The determination by Lender of any amount due pursuant to
this Section, as set forth in a certificate setting forth the calculation
thereof in reasonable detail, shall, in the absence of manifest or demonstrable
error, be final and conclusive and binding on all of the parties hereto.
2.13. LIBOR Option.
(a) Interest and Interest Payment Dates. In lieu of having interest charged
at the rate based upon the Base Rate, Borrower shall have the option (the "LIBOR
Option") to have interest on all or a portion of the Advances be charged at a
rate of interest based upon the LIBOR Rate. Interest on LIBOR Rate Loans shall
be payable on the earliest of (i) the last day of the Interest Period applicable
thereto, (ii) the occurrence of an Event of Default in consequence of which
Lender has elected to accelerate the maturity of all or any portion of the
Obligations, or (iii) termination of this Agreement pursuant to the terms
hereof. On the last day of each applicable Interest Period, unless Borrower
properly has exercised the LIBOR Option with respect thereto, the interest rate
applicable to such LIBOR Rate Loan automatically shall convert to the rate of
interest then applicable to Base Rate Loans of the same type hereunder. At any
time that an Event of Default has occurred and is continuing, Borrower no longer
shall have the option to request that Advances bear interest at the LIBOR Rate
and Lender shall have the right to convert the interest rate on all outstanding
LIBOR Rate Loans to the rate then applicable to Base Rate Loans hereunder.
(b) LIBOR Election.
(i) Borrower may, at any time and from time to time, so long as no Event of
Default has occurred and is continuing, elect to exercise the LIBOR Option by
notifying Lender prior to 11:00 a.m. (Boston, Massachusetts time) at least 3
Business Days prior to the commencement of the proposed Interest Period (the
"LIBOR Deadline"). Notice of Borrower's election of the LIBOR Option for a
permitted portion of the Advances and an Interest Period pursuant to this
Section shall be made by delivery to Lender of a LIBOR Notice received by Lender
before the LIBOR Deadline, or by telephonic notice received by Lender before the
LIBOR Deadline (to be confirmed by delivery to Lender of a LIBOR Notice received
by Lender prior to 5:00 p.m. (Boston, Massachusetts time) on the same day.
(ii) Each LIBOR Notice shall be irrevocable and binding on Borrower. In
connection with each LIBOR Rate Loan, Borrower shall indemnify, defend, and hold
Lender harmless against any loss, cost, or expense incurred by Lender as a
result of (a) the payment of any principal of any LIBOR Rate Loan other than on
the last day of an Interest Period applicable thereto (including as a result of
an Event of Default), (b) the conversion of any LIBOR Rate Loan other than on
the last day of the Interest Period applicable thereto, or (c) the failure to
borrow, convert, continue or prepay any LIBOR Rate Loan on the date specified in
any LIBOR Notice delivered pursuant hereto (such losses, costs, and expenses,
collectively, "Funding Losses"). Funding Losses shall be deemed to
equal the amount determined by Lender to be the excess, if any, of (i) the
amount of interest that would have accrued on the principal amount of such LIBOR
Rate Loan had such event not occurred, at the LIBOR Rate that would have been
applicable thereto, for the period from the date of such event to the last day
of the then current Interest Period therefor (or, in the case of a failure to
borrow, convert, or continue, for the period that would have been the Interest
Period therefor), minus (ii) the amount of interest that would accrue on such
principal amount for such period at the interest rate which Lender would be
offered were it to be offered, at the commencement of such period, Dollar
deposits of a comparable amount and period in the London interbank market. A
certificate of Lender delivered to Borrower setting forth any amount or amounts
that Lender is entitled to receive pursuant to this Section shall be conclusive
absent manifest error.
(iii) Borrower shall have not more than 3 LIBOR Rate Loans in effect at any
given time. Borrower only may exercise the LIBOR Option for LIBOR Rate Loans of
at least $1,000,000.
(c) Prepayments. Borrower may prepay LIBOR Rate Loans at any time;
provided, however, that in the event that LIBOR Rate Loans are prepaid on any
date that is not the last day of the Interest Period applicable thereto,
including as a result of any automatic prepayment through the required
application by Lender of proceeds of Collections in accordance with Section
2.4(b) or for any other reason, including early termination of the term of this
Agreement or acceleration of all or any portion of the Obligations pursuant to
the terms hereof, Borrower shall indemnify, defend, and hold Lender harmless
against any and all Funding Losses in accordance with clause (b)(ii) above.
(d) Special Provisions Applicable to LIBOR Rate.
(i) The LIBOR Rate may be adjusted by Lender on a prospective basis to take
into account any additional or increased costs to Lender of maintaining or
obtaining any eurodollar deposits or increased costs due to changes in
applicable law occurring subsequent to the commencement of the then applicable
Interest Period, including changes in tax laws (except changes of general
applicability in corporate income tax laws) and changes in the reserve
requirements imposed by the Board of Governors of the Federal Reserve System (or
any successor), excluding the Reserve Percentage, which additional or increased
costs would increase the cost of funding loans bearing interest at the LIBOR
Rate. In any such event, Lender shall give Borrower notice of such a
determination and adjustment and, upon its receipt of the notice from Lender,
Borrower may, by notice to Lender (y) require Lender to furnish to Borrower a
statement setting forth the basis for adjusting such LIBOR Rate and the method
for determining the amount of such adjustment, or (z) repay the LIBOR Rate Loans
with respect to which such adjustment is made (together with any amounts due
under clause (b)(ii) above).
(ii) In the event that any change in market conditions or any law,
regulation, treaty, or directive, or any change therein or in the interpretation
of application thereof, shall at any time after the date hereof, in the
reasonable opinion of Lender, make it unlawful or impractical for Lender to fund
or maintain LIBOR Advances or to continue such funding or maintaining, or to
determine or charge interest rates at the LIBOR Rate, Lender shall give notice
of such changed circumstances to Borrower and (y) in the case of any LIBOR Rate
Loans that are outstanding, the date specified in Lender's notice shall be
deemed to be the last day of the Interest Period of such LIBOR Rate Loans, and
interest upon the LIBOR Rate Loans thereafter shall accrue interest at the rate
then applicable to Base Rate Loans, and (z) Borrower shall not be entitled to
elect the LIBOR Option until Lender determines in its Permitted Discretion that
it would no longer be unlawful or impractical to do so.
(e) No Requirement of Matched Funding. Anything to the contrary contained
herein notwithstanding, Lender is not required actually to acquire eurodollar
deposits to fund or otherwise match fund any Obligation as to which interest
accrues at the LIBOR Rate. The provisions of this Section shall apply as if
Lender had match funded any Obligation as to which interest is accruing at the
LIBOR Rate by acquiring eurodollar deposits for each Interest Period in the
amount of the LIBOR Rate Loans.
2.14. Capital Requirements. If, after the date hereof, Lender determines in
its Permitted Discretion that (i) the adoption of or change in any law, rule,
regulation or guideline regarding capital requirements for banks or bank holding
companies, or any change in the interpretation or application thereof by any
Governmental Authority charged with the administration thereof, or (ii)
compliance by Lender or its parent bank holding company with any guideline,
request, or directive of any such entity regarding capital adequacy (whether or
not having the force of law), the effect of reducing the return on Lender's or
such holding company's capital as a consequence of Lender's obligations
hereunder to a level below that which Lender or such holding company could have
achieved but for such adoption, change, or compliance (taking into consideration
Lender's or such holding company's then existing policies with respect to
capital adequacy and assuming the full utilization of such entity's capital) by
any amount deemed by Lender to be material, then Lender may notify Borrower
thereof. Following receipt of such notice, Borrower agrees to pay Lender on
demand the amount of such reduction of return of capital as and when such
reduction is determined, payable within 90 days after presentation by Lender of
a statement in the amount and setting forth in reasonable detail Lender's
calculation thereof and the assumptions made by Lender in its Permitted
Discretion upon which such calculation was based (which statement shall be
deemed true and correct absent manifest error). In determining such amount,
Lender may use any reasonable averaging and attribution methods.
3. CONDITIONS; TERM OF AGREEMENT.
3.1. Conditions Precedent to the Initial Extension of Credit. The
obligation of Lender to make the initial Advance (or otherwise to extend any
credit provided for hereunder), is subject to the fulfillment, to the reasonable
satisfaction of Lender, of each of the conditions precedent set forth below:
(a) the Closing Date shall occur on or before November 26, 2003;
(b) Lender shall have filed all financing statements required by Lender,
duly authorized by Borrower, and Lender shall have received searches reflecting
the filing of all such financing statements;
(c) Lender shall have received each of the following documents, in form and
substance satisfactory to Lender, duly executed, and each such document shall be
in full force and effect:
(i) the Trademark Security Agreement,
(ii) the BOA Repurchase Agreement,
(iii) the Disbursement Letter,
(iv) the Pay-Off Letter, together with UCC termination statements and other
documentation evidencing the termination by Existing Lender of its Liens in and
to the properties and assets of Borrower,
(v) the Perfection Certificate,
(vi) the Due Diligence Letter, and
(vii) a Compliance Certificate dated as of the Closing Date and satisfying
the conditions of Section 6.3(a)(iii);
(d) On the Closing Date, Borrower shall have an Excess Availability of at
least $2,000,000 after giving effect to the initial extensions of credit
hereunder;
(e) Lender shall have received a certificate from the Secretary of Borrower
attesting to the resolutions of Borrower's Board of Directors authorizing its
execution, delivery, and performance of this Agreement and the other Loan
Documents to which Borrower is a party and authorizing specific officers of
Borrower to execute the same;
(f) Lender shall have received copies of Borrower's Governing Documents, as
amended, modified, or supplemented to the Closing Date, certified by the
Secretary of Borrower;
(g) Lender shall have received a certificate of status with respect to
Borrower, dated within 10 days of the Closing Date, such certificate to be
issued by the appropriate officer of the jurisdiction of organization of
Borrower, which certificate shall indicate that Borrower is in good standing in
such jurisdiction;
(h) Lender shall have received certificates of status with respect to
Borrower, each dated within 30 days of the Closing Date, such certificates to be
issued by the appropriate officer of the jurisdictions (other than the
jurisdiction of organization of Borrower) in which its failure to be duly
qualified or licensed would constitute a Material Adverse Change, which
certificates shall indicate that Borrower is in good standing in such
jurisdictions, provided, that such certificate for the State of New Jersey may
indicate that annual reports for the years 2000 and 2001 are outstanding so long
as Borrower shall have delivered to Lender evidence satisfactory to Lender that
Borrower has duly completed and filed a New Jersey Corporation Business Tax
Payment and Annual Report for each such year and has paid the fees required in
connection therewith to the State of New Jersey;
(i) Lender shall have received a certificate of insurance, together with
the endorsements thereto, as are required by Section 6.8, the form and substance
of which shall be satisfactory to Lender;
(j) Lender shall have received an opinion of Borrower's counsel in form and
substance satisfactory to Lender;
(k) Lender shall have received a certificate of the chief financial officer
of Borrower certifying that Borrower is Solvent as of the Closing Date;
(l) Lender shall have received satisfactory evidence (including a
certificate of the chief financial officer of Borrower) that all tax returns
required to be filed by Borrower have been timely filed and all taxes upon
Borrower or its properties, assets, income, and franchises (including Real
Property taxes and payroll taxes) have been paid prior to delinquency, except
such taxes that are the subject of a Permitted Protest;
(m) Lender shall have received releases satisfactory to Lender executed by
Congress Financial Corporation releasing any security interests that it may have
on record against any of Borrower's trademarks in the United States Patent and
Trademark Office;
(n) Lender shall have completed its business, legal, and collateral due
diligence, including (i) a collateral audit and review of Borrower's books and
records and verification of Borrower's representations and warranties to Lender,
the results of which shall be satisfactory to Lender, and (ii) an inspection of
each of the locations where Inventory is located, the results of which shall be
satisfactory to Lender;
(o) Lender shall have received completed reference checks with respect to
Borrower's senior management, the results of which are satisfactory to Lender in
its sole discretion;
(p) Lender shall have received an appraisal of the Net Liquidation
Percentage applicable to Borrower's Inventory, the results of which shall be
satisfactory to Lender;
(q) Lender shall have received Borrower's Closing Date Business Plan;
(r) Borrower shall pay all Lender Expenses incurred in connection with the
transactions evidenced by this Agreement; and
(s) Borrower shall have received all licenses, approvals or evidence of
other actions required by any Governmental Authority in connection with the
execution and delivery by Borrower of this Agreement or any other Loan Document
or with the consummation of the transactions contemplated hereby and thereby;
and
all other documents and legal matters in connection with the transactions
contemplated by this Agreement shall have been delivered, executed, or recorded
and shall be in form and substance satisfactory to Lender.
3.2. Conditions Subsequent to the Initial Extension of Credit. The
obligation of Lender to continue to make Advances (or otherwise extend credit
hereunder) is subject to the fulfillment, on or before the date applicable
thereto, of each of the conditions subsequent set forth below (the failure by
Borrower to so perform or cause to be performed constituting an Event of
Default): (a) within 30 days after the Closing Date, deliver to Lender a
certificate of status from the State of New Jersey, which certificate shall not
indicate that any annual reports are outstanding;
(b) within 30 days after the Closing Date, deliver to Lender certified
copies of the policies of insurance, together with the endorsements thereto, as
are required by Section 6.8, the form and substance of which shall be
satisfactory to Lender and its counsel; and
(c) before December 5, 2003 enter into a Control Agreement with respect to
the Concentration Account with Bank and Lender.
3.3. Conditions Precedent to all Extensions of Credit. The obligation of
Lender to make all Advances (or to extend any other credit hereunder) shall be
subject to the following conditions precedent:
(a) the representations and warranties contained in this Agreement and the
other Loan Documents shall be true and correct in all material respects on and
as of the date of such extension of credit, as though made on and as of such
date (except to the extent that such representations and warranties relate
solely to an earlier date),
(b) no Default or Event of Default shall have occurred and be continuing on
the date of such extension of credit, nor shall either result from the making
thereof,
(c) no injunction, writ, restraining order, or other order of any nature
prohibiting, directly or indirectly, the extending of such credit shall have
been issued and remain in force by any Governmental Authority against Borrower,
Lender, or any of their Affiliates.
(d) no Material Adverse Change shall have occurred.
3.4. Term. This Agreement shall become effective upon the execution and
delivery hereof by Borrower and Lender and shall continue in full force and
effect for a term ending on November 21, 2008 (the "Maturity Date"). The
foregoing notwithstanding, Lender shall have the right to terminate its
obligations under this Agreement immediately and without notice upon the
occurrence and during the continuation of an Event of Default.
3.5. Effect of Termination. On the date of termination of this Agreement,
all Obligations (including contingent reimbursement obligations of Borrower with
respect to outstanding Letters of Credit and including all Bank Product
Obligations) immediately shall become due and payable without notice or demand
(including (a) either (i) providing cash collateral to be held by Lender in an
amount equal to 105% of the then extant Letter of Credit Usage, or (ii) causing
the original Letters of Credit to be returned to Lender, and (b) providing cash
collateral to be held by Lender for the benefit of Bank or its Affiliates with
respect to the then extant Bank Products Obligations). No termination of this
Agreement, however, shall relieve or discharge Borrower of its duties,
Obligations, or covenants hereunder and the Lender's Liens in the Collateral
shall remain in effect until all Obligations have been fully and finally
discharged and Lender's obligations to provide additional credit hereunder have
been terminated. When this Agreement has been terminated and all of the
Obligations have been fully and finally discharged and Lender's obligations to
provide additional credit under the Loan Documents have been terminated
irrevocably, Lender will, at Borrower's sole expense, execute (as applicable)
and deliver any UCC termination statements, lien releases, mortgage releases,
re-assignments of trademarks, discharges of security interests, and other
similar discharge or release documents (and, if applicable, in recordable form)
as are reasonably necessary to release, as of record, the Lender's Liens and all
notices of security interests and liens previously filed by Lender with respect
to the Obligations.
3.6. Early Termination by Borrower. Borrower has the option, at any time
upon 90 days prior written notice to Lender, to terminate this Agreement by
paying to Lender, in cash, the Obligations (including (a) either (i) providing
cash collateral to be held by Lender in an amount equal to 105% of the then
extant Letter of Credit Usage, or (ii) causing the original Letters of Credit to
be returned to Lender, and (b) providing cash collateral to be held by Lender
for the benefit of Bank or its Affiliates with respect to the then extant Bank
Products Obligations), in full, together with the Applicable Prepayment Premium.
If Borrower has sent a notice of termination pursuant to the provisions of this
Section, then Lender's obligations to extend credit hereunder shall terminate
and Borrower shall be obligated to repay the Obligations (including (a) either
(i) providing cash collateral to be held by Lender in an amount equal to 105% of
the then extant Letter of Credit Usage, or (ii) causing the original Letters of
Credit to be returned to Lender, and (b) providing cash collateral to be held by
Lender for the benefit of Bank or its Affiliates with respect to the then extant
Bank Product Obligations), in full, together with the Applicable Prepayment
Premium, on the date set forth as the date of termination of this Agreement in
such notice. In the event of the termination of this Agreement and repayment of
the Obligations at any time prior to the Maturity Date, for any other reason,
including (a) termination upon the election of Lender to terminate after the
occurrence of an Event of Default, (b) foreclosure and sale of Collateral, (c)
sale of the Collateral in any Insolvency Proceeding, or (d) restructure, or
compromise of the Obligations by the confirmation of a plan of reorganization or
any other plan of compromise, restructure, or arrangement in any Insolvency
Proceeding, then, in view of the impracticability and extreme difficulty of
ascertaining the actual amount of damages to Lender or profits lost by Lender as
a result of such early termination, and by mutual agreement of the parties as to
a reasonable estimation and calculation of the lost profits or damages of
Lender, Borrower shall pay the Applicable Prepayment Premium to Lender, measured
as of the date of such termination.
4. CREATION OF SECURITY INTEREST.
4.1. Grant of Security Interest. Borrower hereby grants to Lender for the
ratable benefit of Lender, Bank and its Affiliates, and each Underlying Issuer a
continuing security interest in and to all of its right, title, and interest in
all currently existing and hereafter acquired or arising Collateral in order to
secure prompt repayment of any and all of the Obligations in accordance with the
terms and conditions of the Loan Documents and in order to secure prompt
performance by Borrower of each of its covenants and duties under the Loan
Documents. The Lender's Liens in and to the Collateral shall attach to all
Collateral without further act on the part of Lender or Borrower. Anything
contained in this Agreement or any other Loan Document to the contrary
notwithstanding, except for Permitted Dispositions, Borrower has no authority,
express or implied, to dispose of any item or portion of the Collateral.
4.2. Control of Collateral. If from time to time any Collateral, including
any proceeds or supporting obligations, consists of property or rights of
Borrower in which the perfection or priority of Lender's security interest is
dependent upon or enhanced by Lender's gaining control of such Collateral,
Borrower shall immediately notify Lender and, at Lender's request, deliver the
appropriate Control Agreements or take such actions as may be necessary to give
Lender control over such Collateral as provided in the Code.
4.3. Possession of Collateral. If from time to time any Collateral,
including any proceeds, is evidenced by or consists of letters of credit,
Instruments, Documents, Goods covered by Documents, Investment Property or
Chattel Paper and if perfection or priority of Lender's security interest in
such Collateral is dependent on or enhanced by possession, Borrower shall
endorse and deliver physical possession of such Collateral to Lender immediately
upon Lender's request.
4.4. Collection of Accounts, General Intangibles, and Negotiable
Collateral. At any time after the occurrence and during the continuation of an
Event of Default, Lender or Lender's designee may (a) notify Account Debtors of
Borrower that the Accounts, Chattel Paper, or General Intangibles have been
assigned to Lender or that Lender has a security interest therein, or (b)
collect the Accounts, Chattel Paper, or General Intangibles directly and charge
the collection costs and expenses to the Loan Account. Borrower agrees that it
will hold in trust for Lender, as Lender's trustee, any Collections that it
receives and immediately will deliver said Collections to Lender or a Cash
Management Bank in their original form as received by Borrower.
4.5. Delivery of Additional Documentation Required. At any time upon the
written request of Lender, Borrower shall execute (as applicable) and deliver to
Lender any and all financing statements (including, without limitation, any
amendments thereto and any "in lieu" continuation statements), security
agreements, pledges, assignments, endorsements of certificates of title, bailee
acknowledgments and all other documents (the "Additional Documents") that Lender
may request in its Permitted Discretion, each in form and substance satisfactory
to Lender, to perfect, to continue perfected or to better perfect (as
applicable) the Lender's Liens in the Collateral (whether now owned or hereafter
arising or acquired), to create and perfect Liens in favor of Lender in any Real
Property acquired after the Closing Date, and in order to fully consummate all
of the transactions contemplated hereby and under the other Loan Documents. To
the maximum extent permitted by applicable law, Borrower authorizes Lender to
file such Additional Documents in any appropriate filing office. Without
limiting the foregoing, Borrower shall give the Lender prompt written notice of
any Commercial Tort Claim of Borrower not specifically identified herein and any
Letter of Credit Right of Borrower. Borrower shall grant to the Lender a
security interest in any such Commercial Tort Claim or Letter of Credit Right
and the proceeds thereof. On such periodic basis as Lender shall require in its
Permitted Discretion, Borrower shall (i) provide Lender with a report of all new
patentable, copyrightable or trademarkable materials acquired or generated by
Borrower during the prior period, (ii) cause all patents, copyrights, and
trademarks acquired or generated by Borrower that are not already the subject of
a registration with the appropriate filing office (or an application therefor
diligently prosecuted) to be registered with such appropriate filing office in a
manner sufficient to impart constructive notice of Borrower's ownership thereof,
(iii) cause to be prepared, executed, and delivered to Lender supplemental
schedules to the applicable Loan Documents to identify such patents, copyrights
and trademarks as being subject to the security interests created thereunder,
and (iv) execute and deliver to Lender at Lender's request Patent, Trademark or
Copyright Security Agreements with respect to such patents, trademarks or
copyrights for filing with the appropriate filing office.
4.6. Power of Attorney. Borrower hereby irrevocably makes, constitutes, and
appoints Lender (and any of Lender's officers, employees, or agents designated
by Lender) as Borrower's true and lawful attorney, with power to at any time
that an Event of Default has occurred and is continuing, (a) sign Borrower's
name on any of the documents described in Section 4.5 or on any invoice or ▇▇▇▇
of lading relating to the Collateral, drafts against Account Debtors, or notices
to Account Debtors, (b) send requests for verification of Accounts, (c) endorse
Borrower's name on any Collection item that may come into Lender's possession,
(d) make, settle, and adjust all claims under Borrower's policies of insurance
and make all determinations and decisions with respect to such policies of
insurance, and (e) settle and adjust disputes and claims respecting the
Accounts, Chattel Paper or General Intangibles directly with Account Debtors,
for amounts and upon terms that Lender determines to be reasonable, and Lender
may cause to be executed and delivered any documents and releases that Lender
determines in its Permitted Discretion to be necessary. The appointment of
Lender as Borrower's attorney, and each and every one of its rights and powers,
being coupled with an interest, is irrevocable until all of the Obligations have
been fully and finally repaid and performed and Lender's obligations to extend
credit hereunder are terminated.
4.7. Right to Inspect. Lender (through any of its officers, employees, or
agents) shall have the right from time to time hereafter to inspect the Books
and to check, test, and appraise the Collateral in order to verify Borrower's
financial condition or the amount, quality, value, condition of, or any other
matter relating to the Collateral at any reasonable time during business hours
after the occurrence of an Event of Default and upon reasonable notice and at
reasonable times during business hours prior to the occurrence of an Event of
Default. Without limiting the generality of the foregoing:
(a) Borrower shall conduct physical inventories at all of its store
locations at least one time per fiscal year, and at each of Borrower's
distribution centers at least one time per fiscal year. Lender, at the expense
of Borrower, may participate in and/or observe each physical count and/or
inventory of so much of the Collateral as consists of Inventory which is
undertaken on behalf of Borrower.
(b) Lender may from time to time obtain or conduct (in all events, at
Borrower's expense) appraisals conducted by such appraisers as are satisfactory
to Lender in its Permitted Discretion; provided that prior to the occurrence of
an Event of Default, Borrower shall only be required to pay for two such
appraisals per year; provided further, that after the occurrence of an Event of
Default, Borrower shall only be required to pay for two such appraisals per year
that are conducted during the periods of any such year when an Event of Default
is not continuing and in existence.
(c) Lender may from time to time conduct commercial finance audits (in each
event, at the Borrower's expense) of Borrower's Books; provided that Borrower
shall only be required to pay for two such audits per year unless an Event of
Default has occurred or Borrower has failed to maintain an Excess Availability
of at least $1,000,000 at all times.
4.8. Control Agreements. Borrower agrees that it will not transfer assets
out of any Securities Accounts other than as permitted under Section 7.20 and,
if to another securities intermediary, unless each of Borrower, Lender, and the
substitute securities intermediary have entered into a Control Agreement. No
arrangement contemplated hereby or by any Control Agreement in respect of any
Securities Accounts or other Investment Property shall be modified by Borrower
without the prior written consent of Lender. Upon the occurrence and during the
continuance of an Event of Default, Lender may notify any securities
intermediary to liquidate the applicable Securities Account or any related
Investment Property maintained or held thereby and remit the proceeds thereof to
the Lender's Account.
5. REPRESENTATIONS AND WARRANTIES.
In order to induce Lender to enter into this Agreement, Borrower makes the
following representations and warranties to Lender which shall be true, correct,
and complete, in all material respects, as of the date hereof, and shall be
true, correct, and complete, in all material respects, as of the Closing Date,
and at and as of the date of the making of each Advance (or other extension of
credit) made thereafter, as though made on and as of the date of such Advance
(or other extension of credit) (except to the extent that such representations
and warranties relate solely to an earlier date) and such representations and
warranties shall survive the execution and delivery of this Agreement:
5.1. No Encumbrances. Borrower has good and indefeasible title to the
Collateral and the Real Property, free and clear of Liens except for Permitted
Liens.
5.2. Accounts. The Accounts listed in the Borrower's financial statements
are bona fide existing payment obligations of Account Debtors created by the
sale and delivery of Inventory or the rendition of services to such Account
Debtors in the ordinary course of Borrower's business, owed to Borrower without
defenses, disputes, offsets, counterclaims, or rights of return or cancellation.
5.3. Eligible Inventory. All Eligible Inventory is of good and merchantable
quality, free from defects. As to each item of Inventory that is identified by
Borrower as Eligible Inventory in a borrowing base report submitted to Lender,
such Inventory is not excluded as ineligible by virtue of one or more of the
excluding criteria set forth in the definition of Eligible Inventory.
5.4. Equipment. All of the Equipment is used or held for use in Borrower's
business and is fit for such purposes.
5.5. Location of Inventory and Equipment. The Inventory and Equipment are
not stored with a bailee, warehouseman, or similar party and are located only at
the locations identified on Schedule 5.5.
5.6. Inventory Records. Borrower keeps correct and accurate records
itemizing and describing the type, quality, and quantity of its Inventory and
the book value thereof.
5.7. Legal Status. Borrower represents and warrants that (a) Borrower's
exact legal name is that indicated on the Perfection Certificate and on the
signature page hereof; (b) Borrower is an organization of the type, and is
organized in the jurisdiction, set forth in the Perfection Certificate; (c) the
Perfection Certificate accurately sets forth Borrower's organizational
identification number or accurately states that Borrower has none; (d) the
Perfection Certificate accurately sets forth Borrower's place of business or, if
more than one, its chief executive office, as well as Borrower's mailing
address, if different; (e) all other information set forth on the Perfection
Certificate pertaining to Borrower is accurate and complete as of the date
hereof and (f) there has been no change in any of such information since the
date on which the Perfection Certificate was signed by Borrower.
5.8. Due Organization and Qualification; Subsidiaries.
(a) Borrower is duly organized and existing and in good standing under the
laws of the jurisdiction of its organization and qualified to do business in any
state where the failure to be so qualified reasonably could be expected to have
a Material Adverse Change.
(b) Set forth on Schedule 5.8(b), is a complete and accurate description of
the authorized capital Stock of Borrower, by class, and, as of the Closing Date,
a description of the number of shares of each such class that are issued and
outstanding. Other than as described on Schedule 5.8(b), there are no
subscriptions, options, warrants, or calls relating to any shares of Borrower's
capital Stock, including any right of conversion or exchange under any
outstanding security or other instrument. Borrower is not subject to any
obligation (contingent or otherwise) to repurchase or otherwise acquire or
retire any shares of its capital Stock or any security convertible into or
exchangeable for any of its capital Stock.
(c) Set forth on Schedule 5.8(c), is a complete and accurate list of
Borrower's direct and indirect Subsidiaries, showing: (i) the jurisdiction of
their organization, (ii) the number of shares of each class of common and
preferred Stock authorized for each of such Subsidiaries, and (iii) the number
and the percentage of the outstanding shares of each such class owned directly
or indirectly by Borrower. All of the outstanding capital Stock of each such
Subsidiary has been validly issued and is fully paid and non-assessable.
(d) Except as set forth on Schedule 5.8(c), there are no subscriptions,
options, warrants, or calls relating to any shares of Borrower's Subsidiaries'
capital Stock, including any right of conversion or exchange under any
outstanding security or other instrument. Neither Borrower nor any of its
Subsidiaries is subject to any obligation (contingent or otherwise) to
repurchase or otherwise acquire or retire any shares of Borrower's Subsidiaries'
capital Stock or any security convertible into or exchangeable for any such
capital Stock.
5.9. Due Authorization; No Conflict.
(a) The execution, delivery, and performance by Borrower of this Agreement
and the Loan Documents to which it is a party have been duly authorized by all
necessary action on the part of Borrower.
(b) The execution, delivery, and performance by Borrower of this Agreement
and the Loan Documents to which it is a party do not and will not (i) violate
any provision of federal, state, or local law or regulation applicable to
Borrower, the Governing Documents of Borrower, or any order, judgment, or decree
of any court or other Governmental Authority binding on Borrower, (ii) conflict
with, result in a breach of, or constitute (with due notice or lapse of time or
both) a default under any material contractual obligation of Borrower, (iii)
result in or require the creation or imposition of any Lien of any nature
whatsoever upon any properties or assets of Borrower, other than Permitted
Liens, or (iv) require any approval of Borrower's interestholders or any
approval or consent of any Person under any material contractual obligation of
Borrower.
(c) Other than the filing of financing statements and fixture filings, the
execution, delivery, and performance by Borrower of this Agreement and the Loan
Documents to which Borrower is a party do not and will not require any
registration with, consent, or approval of, or notice to, or other action with
or by, any Governmental Authority or other Person.
(d) This Agreement and the other Loan Documents to which Borrower is a
party, and all other documents contemplated hereby and thereby, when executed
and delivered by Borrower will be the legally valid and binding obligations of
Borrower, enforceable against Borrower in accordance with their respective
terms, except as enforcement may be limited by equitable principles or by
bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to
or limiting creditors' rights generally.
(e) The Lender's Liens are validly created, perfected, and first priority
Liens, subject only to Permitted Liens.
5.10. Litigation.
(a) Other than those matters disclosed on Schedule 5.10, there are no
actions, suits, or proceedings pending or, to the best knowledge of Borrower,
threatened against Borrower, or any of its Subsidiaries, as applicable, except
for matters arising after the Closing Date that, if decided adversely to
Borrower, or any of its Subsidiaries, as applicable, reasonably could not be
expected to result in a Material Adverse Change.
(b) Schedule 5.10(b) lists all of Borrower's Commercial Tort Claims
existing as of the date hereof.
5.11. No Material Adverse Change. All financial statements relating to
Borrower that have been delivered by Borrower to Lender have been prepared in
accordance with GAAP (except, in the case of unaudited financial statements, for
the lack of footnotes and being subject to year-end audit adjustments) and
present fairly in all material respects, Borrower's financial condition as of
the date thereof and results of operations for the period then ended. There has
not been a Material Adverse Change with respect to Borrower since the date of
the latest financial statements submitted to Lender on or before the Closing
Date.
5.12. Fraudulent Transfer.
(a) Borrower is Solvent.
(b) No transfer of property is being made by Borrower and no obligation is
being incurred by Borrower in connection with the transactions contemplated by
this Agreement or the other Loan Documents with the intent to hinder, delay, or
defraud either present or future creditors of Borrower.
5.13. Employee Benefits. None of Borrower, any of its Subsidiaries, or any
of their ERISA Affiliates maintains or contributes to any Benefit Plan.
5.14. Environmental Condition. Except as set forth on Schedule 5.14, (a) to
Borrower's knowledge, none of Borrower's assets has ever been used by Borrower
or by previous owners or operators in the disposal of, or to produce, store,
handle, treat, release, or transport, any Hazardous Materials, where such
production, storage, handling, treatment, release or transport was in violation,
in any material respect, of applicable Environmental Law, (b) to Borrower's
knowledge, none of Borrower's properties or assets has ever been designated or
identified in any manner pursuant to any environmental protection statute as a
Hazardous Materials disposal site, (c) Borrower has not received notice that a
Lien arising under any Environmental Law has attached to any revenues or to any
Real Property owned or operated by Borrower, and (d) Borrower has not received a
summons, citation, notice, or directive from the Environmental Protection Agency
or any other federal or state governmental agency concerning any action or
omission by Borrower resulting in the releasing or disposing of Hazardous
Materials into the environment.
5.15. Brokerage Fees. Borrower has not utilized the services of any broker
or finder in connection with Borrower's obtaining financing from Lender under
this Agreement and no brokerage commission or finders fee is payable by Borrower
in connection herewith.
5.16. Intellectual Property. Borrower owns, or holds licenses in, all
trademarks, trade names, copyrights, patents, patent rights, and licenses that
are necessary to the conduct of its business as currently conducted. Attached
hereto as Schedule 5.16 is a true, correct, and complete listing of all material
patents, patent applications, trademarks, trademark applications, copyrights,
and copyright registrations as to which Borrower is the owner or is an exclusive
licensee.
5.17. Leases. Borrower enjoys peaceful and undisturbed possession under all
leases material to the business of Borrower and to which it is a party or under
which it is operating. All of such leases are valid and subsisting and no
material default by Borrower exists under any of them.
5.18. DDAs. Set forth on Schedule 5.18 are all of Borrower's DDAs,
including, with respect to each depositary (i) the name and address of such
depository, and (ii) the account numbers of the accounts maintained with such
depository.
5.19. Credit Card Receipts. Schedule 5.19 sets forth each of Borrower's
Credit Card Processors and all arrangements to which Borrower is a party with
respect to the payment to Borrower of the proceeds of all credit card charges
for sales by Borrower.
5.20. Indebtedness. Set forth on Schedule 5.20 is a true and complete list
of all Indebtedness of Borrower outstanding immediately prior to the Closing
Date that is to remain outstanding after the Closing Date and such Schedule
accurately reflects the aggregate principal amount of such Indebtedness and the
principal terms thereof.
5.21. Complete Disclosure. All factual information (taken as a whole)
furnished by or on behalf of Borrower in writing to Lender (including all
information contained in the Schedules hereto or in the other Loan Documents)
for purposes of or in connection with this Agreement, the other Loan Documents,
or any transaction contemplated herein or therein is, and all other such factual
information (taken as a whole) hereafter furnished by or on behalf of Borrower
in writing to Lender will be, true and accurate, in all material respects, on
the date as of which such information is dated or certified and not incomplete
by omitting to state any fact necessary to make such information (taken as a
whole) not misleading in any material respect at such time in light of the
circumstances under which such information was provided. On the Closing Date,
the Closing Date Projections represent, and as of the date on which any other
Projections are delivered to Lender, such additional Projections will represent
Borrower's good faith best estimate of its future performance for the periods
covered thereby.
6. AFFIRMATIVE COVENANTS.
Borrower covenants and agrees that, so long as any credit hereunder shall
be available and until full and final payment of the Obligations, Borrower shall
and shall cause each of its Subsidiaries to do all of the following:
6.1. Accounting System. Maintain a system of accounting that enables
Borrower to produce financial statements in accordance with GAAP and maintain
records pertaining to the Collateral that contain information as from time to
time reasonably may be requested by Lender. Borrower also shall keep an
inventory reporting system that shows all additions, sales, claims, returns, and
allowances with respect to the Inventory.
6.2. Collateral Reporting. Provide Lender with the following documents at
the following times in form satisfactory to Lender, each certified by the
President or Chief Financial Officer of Borrower:
------------------------------------------ ---------------------------------------------------------------------------
Daily (a) a Borrowing Base Certificate;
------------------------------------------ ---------------------------------------------------------------------------
Weekly (on Monday of each week, current (b) a detailed calculation of the Borrowing Base accompanied
through the close of business on the by a system produced summary stock ledger by store, at Cost,
immediately preceding Sunday) on the date that the inventory values are updated, such report to show
the outstanding balance of Loans as of the close of business
on the immediately preceding day, including the following supporting
documents:
(i) an updated Inventory roll forward showing the
Inventory balance from the end of the immediately
preceding week's Borrowing Base (from the summary page
of Borrower's so-called "Average Cost Report
(Perpetual) Summary at Average Cost" (the "Weekly
Average Cost Report")) minus the estimated cost of goods
sold (using the change in the month to date cost of
goods sold obtained from the summary page of the Weekly
Average Cost Report) plus the resulting amount for
receiving to date that is required to roll forward the
inventory balance to the ending balance of such week
(from the summary page of the Weekly Average Cost
Report), and
(ii)an update of the Credit Card Accounts Receivable balance,
inclusive of Citifinancial or similar private label
receivables;
(c) Borrower's so-called "▇▇▇▇▇▇ Electronics Sales Comparison";
------------------------------------------ ---------------------------------------------------------------------------
Monthly (not later than the (d) a certificate detailing Inventory in the form provided by Lender;
15th day of each month)
(e) Borrower's month end "Average Cost Report (Perpetual) Summary at
Suggested Retail Selling Price" and "Average Cost Report (Perpetual)
Summary at Average Cost";
(f) Borrower's so-called "Summary of Monthly Sales & Payment Type Report/
Sales Audit Report";
------------------------------------------ ---------------------------------------------------------------------------
Monthly (not later than the 40th day (g) reconciliation of Inventory to the general ledger as of the end of
after the end of each month) the subject month;
(h) a store activity report in the form provided by Lender;
(i) Borrower's so-called "Receipts from Vendor List";
(j) Borrower's so-called "Sales and Gross Profit by Vendor" report;
(k) a schedule of purchases from the Borrower's ten largest vendors (in
terms of year-to-date purchases) which shall include year-to-date
cumulative purchases and an aging of payables to each such vendor;
(l) a detailed summary of customer deposits and merchandise credits in
the form currently provided to Lender;
(m) the officer's compliance certificate described in Section 6.3;
(n) a detailed monthly roll forward of the perpetual inventory balance as
currently provided to Lender; and
------------------------------------------ ---------------------------------------------------------------------------
Upon request by Lender (o) such other reports as to the Collateral, or the
financial condition of Borrower, as Lender may request in its Permitted
Discretion.
------------------------------------------ ---------------------------------------------------------------------------
In addition, Borrower agrees to cooperate fully with Lender to facilitate and
implement a system of electronic collateral reporting in order to provide
electronic reporting of each of the items set forth above.
6.3. Financial Statements, Reports, Certificates. Deliver to Lender:
(a) as soon as available, but in any event within 40 days (45 days in the
case of a month that is the end of one of the first 3 fiscal quarters in a
fiscal year) after the end of each month during each of Borrower's fiscal years,
(i) a company prepared consolidated balance sheet, income statement, and
statement of cash flow covering Borrower's and its Subsidiaries' operations
during such period, except that Borrower shall deliver such a balance sheet for
the fiscal months of November and December within 90 days of the end of
Borrower's fiscal year ended the immediately preceding October,
(ii) a certificate signed by the chief financial officer of Borrower to the
effect that:
(A) the financial statements delivered hereunder have been prepared in
accordance with GAAP (except for the lack of footnotes and being subject to
year-end audit adjustments) and fairly present in all material respects the
financial condition of Borrower and its Subsidiaries,
(B) the representations and warranties of Borrower contained in this
Agreement and the other Loan Documents are true and correct in all material
respects on and as of the date of such certificate, as though made on and as of
such date (except to the extent that such representations and warranties relate
solely to an earlier date), and
(C) there does not exist any condition or event that constitutes a Default
or Event of Default (or, to the extent of any non-compliance, describing such
non-compliance as to which he or she may have knowledge and what action Borrower
has taken, is taking, or proposes to take with respect thereto), and
(iii) for each month that is the date on which a financial covenant in
Section 7.21 is to be tested, a Compliance Certificate demonstrating, in
reasonable detail, compliance at the end of such period with the applicable
financial covenants contained in Section 7.21, and
(b) as soon as available, but in any event within 90 days after the end of
each of Borrower's fiscal years, financial statements of Borrower and its
Subsidiaries for each such fiscal year, audited by independent certified public
accountants reasonably acceptable to Lender and certified, without any
qualifications, by such accountants to have been prepared in accordance with
GAAP (such audited financial statements to include a balance sheet, income
statement, and statement of cash flow and, if prepared, such accountants' letter
to management),
(c) as soon as available, but in any event within 30 days prior to the
start of each of Borrower's fiscal years,
(i) copies of Borrower's Business Plan and Projections, in form and
substance (including as to scope and underlying assumptions) satisfactory to
Lender, in its sole discretion, for the forthcoming fiscal year, on a month by
month basis, certified by the chief financial officer of Borrower as being such
officer's good faith best estimate of the financial performance of Borrower
during the period covered thereby,
(d) if and when filed by Borrower,
(i) Form 10-Q quarterly reports, Form 10-K annual reports, and Form 8-K
current reports,
(ii) any other filings made by Borrower with the SEC,
(iii) if requested by Lender, copies of Borrower's federal income tax
returns, and any amendments thereto, filed with the Internal Revenue Service,
and
(iv) any other information that is provided by Borrower to its shareholders
generally,
(e) if and when filed by Borrower and as requested by Lender copies of
Borrower's federal income tax returns, and any amendments thereto, filed with
the Internal Revenue Service and satisfactory evidence of payment of applicable
excise taxes in each jurisdictions in which (i) Borrower conducts business or is
required to pay any such excise tax, (ii) where Borrower's failure to pay any
such applicable excise tax would result in a Lien on the properties or assets of
Borrower, or (iii) where Borrower's failure to pay any such applicable excise
tax reasonably could be expected to result in a Material Adverse Change,
(f) as soon as Borrower has knowledge of any event or condition that
constitutes a Default or an Event of Default, notice thereof and a statement of
the curative action that Borrower proposes to take with respect thereto, and
(g) upon the request of Lender, any other report reasonably requested
relating to the financial condition of Borrower.
In the event that Borrower has any Subsidiaries, Borrower (i) shall deliver
financial statements prepared on both a consolidated and consolidating basis in
addition to the financial statements referred to above and (ii) agrees that no
Subsidiary of Borrower will have a fiscal year different from that of Borrower.
Borrower agrees that its independent certified public accountants are authorized
to communicate with Lender and to release to Lender whatever financial
information concerning Borrower that Lender reasonably may request so long as
Lender has previously requested that Borrower provide such requested information
to Lender and Borrower has failed promptly deliver such requested information.
Borrower waives the right to assert a confidential relationship, if any, it may
have with any accounting firm or service bureau in connection with any
information requested by Lender pursuant to or in accordance with this
Agreement, and agrees that Lender may contact directly any such accounting firm
or service bureau in order to obtain such information.
6.4. Use of Inventory.
(a) The Borrower shall not engage in any sale of Inventory other than for
fair consideration in the conduct of the Borrower's business in the ordinary
course (including but not limited to seasonal and promotional sales) and shall
not engage in sales or other dispositions to creditors, sales or other
dispositions in bulk, and any use of any Inventory in breach of any provision of
the Agreement.
(b) No sale of Inventory shall be on consignment, approval, or under any
other circumstances such that, with the exception of the Borrower's customary
return policy applicable to the return of Inventory purchased by the Borrower's
retail customers in the ordinary course, such Inventory may be returned to the
Borrower without the consent of the Lender.
6.5. Return. Account for returns of inventory and customer credits and
record the effects thereof by netting them against sales on the same basis and
in accordance with the usual customary practices of Borrower, as they exist at
the time of the execution and delivery of this Agreement.
6.6. Maintenance of Properties. Maintain and preserve all of its properties
which are necessary or useful in the proper conduct to its business in good
working order and condition, ordinary wear and tear excepted, and comply at all
times with the provisions of all leases to which it is a party as lessee so as
to prevent any loss or forfeiture thereof or thereunder.
6.7. Taxes. Cause all assessments and taxes, whether real, personal, or
otherwise, due or payable by, or imposed, levied, or assessed against Borrower
or any of its assets to be paid in full, before delinquency or before the
expiration of any extension period, except to the extent that the validity of
such assessment or tax shall be the subject of a Permitted Protest. Borrower
will make timely payment or deposit of all tax payments and withholding taxes
required of it by applicable laws, including those laws concerning F.I.C.A.,
F.U.T.A., state disability, and local, state, and federal income taxes, and
will, upon Lender's request, furnish Lender with proof satisfactory to Lender
indicating that Borrower has made such payments or deposits. If requested by
Lender, Borrower shall deliver reasonably satisfactory evidence of payment of
applicable excise taxes in each jurisdictions in which Borrower is required to
pay any such excise tax.
6.8. Insurance.
(a) At Borrower's expense, maintain insurance respecting its assets
wherever located, covering loss or damage by fire, theft, explosion, and all
other hazards and risks as ordinarily are insured against by other Persons
engaged in the same or similar businesses. Borrower also shall maintain business
interruption, public liability, and product liability insurance, as well as
insurance against larceny, embezzlement, and criminal misappropriation. All such
policies of insurance shall be in such amounts and with such insurance companies
as are reasonably satisfactory to Lender. Borrower shall deliver copies of all
such policies to Lender with a satisfactory lender's loss payable endorsement
naming Lender as sole loss payee or additional insured, as appropriate. Each
policy of insurance or endorsement shall contain a clause requiring the insurer
to give not less than 30 days prior written notice to Lender in the event of
cancellation of the policy for any reason whatsoever.
(b) Borrower shall give Lender prompt notice of any loss covered by such
insurance. Borrower shall not adjust any losses payable under any such insurance
policies in excess of $500,000 without Lender's prior written consent. Any
monies received as payment for any loss under any insurance policy mentioned
above (other than liability insurance policies) or as payment of any award or
compensation for condemnation or taking by eminent domain, shall be jointly paid
over to Lender and Borrower as co-payees and shall be deposited in the
Concentration Account or the successor account thereto required under Section
3.2(b). Any repairs, replacements, or restorations paid for out of insurance
proceeds shall be effected with reasonable promptness and shall be of a value at
least equal to the value of the items of property destroyed prior to such damage
or destruction.
(c) Borrower will not obtain separate insurance concurrent in form or
contributing in the event of loss with that required to be maintained under this
Section 6.8, unless Lender is included thereon as named insured with the loss
payable to Lender under a lender's loss payable endorsement or its equivalent.
Borrower immediately shall notify Lender whenever such separate insurance is
obtained, specifying the insurer thereunder and full particulars as to the
policies evidencing the same, and copies of such policies promptly shall be
provided to Lender.
6.9. Location of Inventory and Equipment. Keep the Inventory and Equipment
only at the locations identified on Schedule 5.5; provided, however, that
Borrower may amend Schedule 5.5 so long as such amendment occurs by written
notice to Lender not less than 30 days prior to the date on which Inventory or
Equipment is moved to such new location, so long as such new location is within
the continental United States, and so long as, at the time of such written
notification, Borrower provides any financing statements, fixture filings or
other documents necessary to perfect and continue perfected the Lender's Liens
on such assets and also provides to Lender a bailee acknowledgment or Collateral
Access Agreement, if and as applicable.
6.10. Compliance with Laws. Comply with the requirements of all applicable
laws, rules, regulations, and orders of any Governmental Authority, including
the Fair Labor Standards Act and the Americans With Disabilities Act, other than
laws, rules, regulations, and orders the non-compliance with which, individually
or in the aggregate, would not result in and reasonably could not be expected to
result in a Material Adverse Change.
6.11. Leases. Pay when due all rents and other amounts payable under any
leases to which Borrower is a party or by which Borrower's properties and assets
are bound, unless such payments are the subject of a Permitted Protest.
6.12. Reserved.
6.13. Existence. At all times preserve and keep in full force and effect
Borrower's valid existence and good standing and any rights and franchises
material to Borrower's businesses.
6.14. Environmental.
(a) Keep any property either owned or operated by Borrower free of any
Environmental Liens or post bonds or other financial assurances sufficient to
satisfy the obligations or liability evidenced by such Environmental Liens, (b)
comply, in all material respects, with Environmental Laws and provide to Lender
documentation of such compliance which Lender reasonably requests, (c) promptly
notify Lender of any release of a Hazardous Material in any reportable quantity
from or onto property owned or operated by Borrower and take any Remedial
Actions required to ▇▇▇▇▇ said release or otherwise to come into compliance with
applicable Environmental Law, and (d) promptly provide Lender with written
notice within 10 days of the receipt of any of the following: (i) notice that an
Environmental Lien has been filed against any of the real or personal property
of Borrower, (ii) commencement of any Environmental Action or notice that an
Environmental Action will be filed against Borrower, and (iii) notice of a
violation, citation, or other administrative order which reasonably could be
expected to result in a Material Adverse Change.
6.15. Intellectual Property. Take all the necessary steps to maintain the
registration of Borrower's trademarks set forth on Schedule A to the Trademark
Security Agreement (other than the trademark registration number 2,061,476
entitled "The Temple of Home Theater").
6.16. Disclosure Updates. Promptly and in no event later than 5 Business
Days after obtaining knowledge thereof, (a) notify Lender if any written
information, exhibit, or report furnished to Lender contained any untrue
statement of a material fact or omitted to state any material fact necessary to
make the statements contained therein not misleading in light of the
circumstances in which made, and (b) correct any defect or error that may be
discovered therein or in any Loan Document or in the execution, acknowledgement,
filing, or recordation thereof.
7. NEGATIVE COVENANTS.
Borrower covenants and agrees that, so long as any credit hereunder shall
be available and until full and final payment of the Obligations, Borrower will
not and will not permit any of its Subsidiaries to do any of the following:
7.1. Indebtedness. Create, incur, assume, permit, guarantee, or otherwise
become or remain, directly or indirectly, liable with respect to any
Indebtedness, except:
(a) Indebtedness evidenced by this Agreement and the other Loan Documents,
together with Indebtedness owed to Underlying Issuers with respect to Underlying
Letters of Credit,
(b) Indebtedness set forth on Schedule 5.20,
(c) Permitted Purchase Money Indebtedness,
(d) Refinancings, renewals, or extensions of Indebtedness permitted under
clauses (b) and (c) of this Section 7.1 (and continuance or renewal of any
Permitted Liens associated therewith) so long as: (i) the terms and conditions
of such refinancings, renewals, or extensions do not, in Lender's judgment,
materially impair the prospects of repayment of the Obligations by Borrower or
materially impair Borrower's creditworthiness, (ii) such refinancings, renewals,
or extensions do not result in an increase in the principal amount of, or
interest rate with respect to, the Indebtedness so refinanced, renewed, or
extended, (iii) such refinancings, renewals, or extensions do not result in a
shortening of the average weighted maturity of the Indebtedness so refinanced,
renewed, or extended, nor are they on terms or conditions that, taken as a
whole, are materially more burdensome or restrictive to Borrower, and (iv) if
the Indebtedness that is refinanced, renewed, or extended was subordinated in
right of payment to the Obligations, then the terms and conditions of the
refinancing, renewal, or extension Indebtedness must include subordination terms
and conditions that are at least as favorable to Lender as those that were
applicable to the refinanced, renewed, or extended Indebtedness;
(e) Unsecured Indebtedness in respect of Borrower's financing the payment
of its insurance premiums in an amount not to exceed $650,000 per calendar year;
and
(f) Indebtedness composing Permitted Investments.
7.2. Liens. Create, incur, assume, or permit to exist, directly or
indirectly, any Lien on or with respect to any of its assets, of any kind,
whether now owned or hereafter acquired, or any income or profits therefrom,
except for Permitted Liens (including Liens that are replacements of Permitted
Liens to the extent that the original Indebtedness is refinanced, renewed, or
extended under Section 7.1(d) and so long as the replacement Liens only encumber
those assets that secured the refinanced, renewed, or extended Indebtedness).
7.3. Restrictions on Fundamental Changes.
(a) Enter into any merger, consolidation, reorganization, or
recapitalization, or reclassify its Stock or otherwise change Borrower's type of
organization, jurisdiction of organization or other legal or corporate
structure.
(b) Liquidate, wind up, or dissolve itself (or suffer any liquidation or
dissolution).
(c) Convey, sell, lease, license, assign, transfer, or otherwise dispose
of, in one transaction or a series of transactions, all or any substantial part
of its assets.
(d) Form any Subsidiary or enter into any partnership, joint venture or
other similar arrangement without the prior written consent of the Lender.
7.4. Disposal of Assets. Other than Permitted Dispositions, convey, sell,
lease, license, assign, transfer, or otherwise dispose of any of Borrower's
assets.
7.5. Change Name or Address. Change Borrower's name or organizational
identification number or relocate Borrower's chief executive office to a new
location; provided, however, that Borrower may change its name or chief
executive office location upon at least 30 days prior written notice to Lender
of such change and so long as, at the time of such written notification,
Borrower provides (i) any financing statements, fixture filings or other
agreements or documents necessary to perfect and continue perfected Lender's
Liens and (ii) in the case of such a relocation, if the new chief executive
office location is leased by Borrower, a Collateral Access Agreement with
respect thereto.
7.6. Guarantee. Guarantee or otherwise become in any way liable with
respect to the obligations of any third Person except by endorsement of
instruments or items of payment for deposit to the account of Borrower or which
are transmitted or turned over to Lender.
7.7. Nature of Business. Make any change in the principal nature of its
business as conducted as of the date of this Agreement.
7.8. Prepayments and Amendments.
(a) Except in connection with a refinancing permitted by Section 7.1(d),
prepay, redeem, defease, purchase, or otherwise acquire any Indebtedness of
Borrower, other than the Obligations in accordance with this Agreement, and
(b) Except in connection with a refinancing permitted by Section 7.1(d),
directly or indirectly, amend, modify, alter, increase, or change any of the
terms or conditions of any agreement, instrument, document, indenture, or other
writing evidencing or concerning Indebtedness permitted under Sections 7.1(b) or
(c).
7.9. Change of Control. Cause, permit, or suffer, directly or indirectly,
any Change of Control.
7.10. Consignments. Consign any Inventory or sell any Inventory on ▇▇▇▇ and
hold, sale or return, sale on approval, or other conditional terms of sale.
7.11. Distributions. Make any distribution or declare or pay any dividends
(in cash or other property, other than common Stock) on, or purchase, acquire,
redeem, or retire any of Borrower's Stock, of any class, whether now or
hereafter outstanding, except, so long as no Event of Default has occurred and
is continuing and none shall be caused by the making of such distribution,
dividend payments to the holders of the Borrower's 8.5% Cumulative Convertible
Preferred Stock in an aggregate amount not to exceed $100,000 per calendar year.
7.12. Accounting Methods. Modify or change its method of accounting (other
than as may be required to conform to GAAP) or change its fiscal year from that
in effect as of the date hereof.
7.13. Investments. Except for Permitted Investments, directly or
indirectly, make or acquire any Investment or incur any liabilities (including
contingent obligations) for or in connection with any Investment; provided,
however, that Borrower and its Subsidiaries shall not have Permitted Investments
(other than in the Cash Management Accounts) in deposit accounts or Securities
Accounts in excess of $100,000 outstanding at any one time unless Borrower or
its Subsidiary, as applicable, and the applicable securities intermediary or
bank have entered into Control Agreements governing such Permitted Investments,
as Lender shall determine in its Permitted Discretion, to perfect (and further
establish) the Lender's Liens in such Permitted Investments.
7.14. Transactions with Affiliates. Directly or indirectly enter into or
permit to exist any transaction with any Affiliate of Borrower except for
transactions that are in the ordinary course of Borrower's business, upon fair
and reasonable terms, that are fully disclosed to Lender, and that are no less
favorable to Borrower than would be obtained in an arm's length transaction with
a non-Affiliate.
7.15. Store Openings and Closings. Commit to open, open or close any
location at which Borrower maintains, offers for sale or stores any of the
Collateral unless Borrower has provided Lender at least 30 days' prior written
notice of such commitment, opening or closing and (i) in the case of any such
opening, such opening is consistent with the Business Plan or (ii) in the case
of any such closing, Lender has consented in writing to the manner in which
Borrower shall effect such closing, including, without limitation, any third
party agent that Borrower proposes to employ in connection therewith.
7.16. Suspension. Suspend or go out of a substantial portion of its
business.
7.17. Compensation. Increase the total cash compensation paid to its
officers and senior management employees during any year unless approved by the
compensation committee of Borrower's Board of Directors.
7.18. Use of Proceeds. Use the proceeds of the Advances for any purpose
other than (a) on the Closing Date, (i) to repay, in full, the outstanding
principal, accrued interest, and accrued fees and expenses owing to Existing
Lender, and (ii) to pay transactional fees, costs, and expenses incurred in
connection with this Agreement, the other Loan Documents, and the transactions
contemplated hereby and thereby, and (b) thereafter, consistent with the terms
and conditions hereof, for its lawful and permitted purposes. Without limiting
the foregoing, Borrower will not use proceeds of the Advances for the purpose of
purchasing or carrying margin stock within the meaning of Regulation U (12 CFR
Part 221) of the Board of Governors of the Federal Reserve System, or for any
other purpose which would violate any provision of this Agreement or of any
applicable statute, regulation, order or restriction.
7.19. Inventory and Equipment with Bailees. The Inventory and Equipment
shall not at any time now or hereafter be stored with a bailee, warehouseman, or
similar party unless Lender has granted its prior written consent and Borrower
has delivered to Lender a bailee acknowledgment with respect to the applicable
Inventory and/or Equipment.
7.20. Securities Accounts. Establish or maintain any Securities Account
unless Lender shall have received a Control Agreement in respect of such
Securities Account. Borrower shall not transfer assets out of any Securities
Account; provided, however, that, so long as no Event of Default has occurred
and is continuing or would result therefrom, Borrower may use such assets (and
the proceeds thereof) to the extent not prohibited by this Agreement and such
Control Agreement.
7.21. Financial Covenants.
(a) Minimum EBITDA.
(i) Measured as of the last day of each fiscal month, allow (A) EBITDA for
such fiscal month to vary negatively by more than $250,000 from the EBITDA
projected for such fiscal month in the Business Plan and (B) EBITDA for the
three fiscal month period ended on such measurement date to vary negatively by
more than $500,000 from the EBITDA projected for such three fiscal month period
in the Business Plan.
(ii) If Borrower fails to deliver an updated Business Plan satisfactory to
Lender as required by Section 6.3(c), Borrower shall be required to maintain an
Excess Availability of at least $1,500,000 all times thereafter until Borrower
delivers such an updated Business Plan approved by Lender.
(b) Capital Expenditures. Make capital expenditures in any fiscal year in
excess of $1,500,000.
8. EVENTS OF DEFAULT.
Any one or more of the following events shall constitute an event of
default (each, an "Event of Default") under this Agreement:
8.1. If Borrower fails to pay when due and payable, or when declared due
and payable, all or any portion of the Obligations (whether of principal,
interest (including any interest which, but for the provisions of the Bankruptcy
Code, would have accrued on such amounts), fees and charges due Lender,
reimbursement of Lender Expenses, or other amounts constituting Obligations);
8.2. If Borrower fails to perform, keep, or observe any term, provision,
condition, covenant or agreement contained in (i) Section 6.2 (Collateral
Reporting) (other than with respect to the delivery of the Borrowing Base
Certificate as to which there shall not be any grace period) or Section 6.3
(Financial Statements, Reports, Certificates) of this Agreement and such failure
continues for a period of 10 Business Days; (ii) Sections 6.1 (Accounting
System), 6.5 (Returns), 6.6 (Maintenance of Properties), 6.7 (Taxes), 6.9
(Location of Inventory and Equipment), 6.10 (Compliance with Laws) or 6.11
(Leases) of this Agreement and such failure continues for a period of 10
Business Days; or (iii) elsewhere in this Agreement or in any other Loan
Document.
8.3. If any material portion of Borrower's or any of its Subsidiaries'
assets is attached, seized, subjected to a writ or distress warrant, levied
upon, or comes into the possession of any third Person;
8.4. If an Insolvency Proceeding is commenced by Borrower or any of its
Subsidiaries;
8.5. If an Insolvency Proceeding is commenced against Borrower, or any of
its Subsidiaries, and any of the following events occur: (a) Borrower or the
Subsidiary consents to the institution of such Insolvency Proceeding against it,
(b) the petition commencing the Insolvency Proceeding is not timely
controverted, (c) the petition commencing the Insolvency Proceeding is not
dismissed within 45 calendar days of the date of the filing thereof; provided,
however, that, during the pendency of such period, Lender shall be relieved of
its obligations to extend credit hereunder, (d) an interim trustee is appointed
to take possession of all or any substantial portion of the properties or assets
of, or to operate all or any substantial portion of the business of, Borrower or
any of its Subsidiaries, or (e) an order for relief shall have been entered
therein;
8.6. If Borrower or any of its Subsidiaries is enjoined, restrained, or in
any way prevented by court order from continuing to conduct all or any material
part of its business affairs;
8.7. If a notice of Lien, levy, or assessment is filed of record with
respect to any of Borrower's or any of its Subsidiaries' assets by the United
States, or any department, agency, or instrumentality thereof, or by any state,
county, municipal, or governmental agency, or if any taxes or debts owing at any
time hereafter to any one or more of such entities becomes a Lien, whether
▇▇▇▇▇▇ or otherwise, upon any of Borrower's or any of its Subsidiaries' assets
and the same is not paid before such payment is delinquent;
8.8. If a judgment or other claim becomes a Lien or encumbrance upon any
material portion of Borrower's or any of its Subsidiaries' assets;
8.9. If there is a default in any material agreement to which Borrower or
any of its Subsidiaries is a party and such default (a) occurs at the final
maturity of the obligations thereunder, or (b) results in a right by the other
party thereto, irrespective of whether exercised, to accelerate the maturity of
Borrower's or its Subsidiaries' obligations thereunder, to terminate such
agreement, or to refuse to renew such agreement pursuant to an automatic renewal
right therein;
8.10. If Borrower or any of its Subsidiaries makes any payment on account
of Indebtedness that has been contractually subordinated in right of payment to
the payment of the Obligations, except to the extent such payment is permitted
by the terms of the subordination provisions applicable to such Indebtedness;
8.11. If there now or hereafter exists any misstatement or
misrepresentation in any warranty or representation or any material misstatement
in any statement or Record made to Lender by Borrower, its Subsidiaries, or any
officer, employee, agent, or director of Borrower or any of its Subsidiaries;
8.12. If this Agreement or any other Loan Document that purports to create
a Lien, shall, for any reason, fail or cease to create a valid and perfected
and, except to the extent permitted by the terms hereof or thereof, first
priority Lien on or security interest in the Collateral covered hereby or
thereby; or
8.13. Any provision of any Loan Document shall at any time for any reason
be declared to be null and void, or the validity or enforceability thereof shall
be contested by Borrower, or a proceeding shall be commenced by Borrower, or by
any Governmental Authority having jurisdiction over Borrower, seeking to
establish the invalidity or unenforceability thereof, or Borrower shall deny
that Borrower has any liability or obligation purported to be created under any
Loan Document.
9. LENDER'S RIGHTS AND REMEDIES.
9.1. Rights and Remedies. Upon the occurrence, and during the continuation,
of an Event of Default, Lender (at its election but without notice of its
election and without demand) may do any one or more of the following, all of
which are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this Agreement, by any of
the other Loan Documents, or otherwise, immediately due and payable, provided,
that upon the occurrence of any Event of Default listed at subsection 8.4 or 8.5
above, the Obligations shall automatically be deemed accelerated and immediately
due and payable without further notice or demand by the Lender;
(b) Cease advancing money or extending credit to or for the benefit of
Borrower under this Agreement, under any of the Loan Documents, or under any
other agreement between Borrower and Lender;
(c) Convert the interest rate on all outstanding LIBOR Rate Loans to the
rate then applicable to Base Rate Loans hereunder;
(d) Terminate this Agreement and any of the other Loan Documents as to any
future liability or obligation of Lender, but without affecting any of the
Lender's Liens in the Collateral and without affecting the Obligations;
(e) Settle or adjust disputes and claims directly with Account Debtors for
amounts and upon terms which Lender in its Permitted Discretion considers
advisable, and in such cases, Lender will credit Borrower's Loan Account with
only the net amounts received by Lender in payment of such disputed Accounts
after deducting all Lender Expenses incurred or expended in connection
therewith;
(f) Cause Borrower to hold all returned Inventory in trust for Lender,
segregate all returned Inventory from all other assets of Borrower or in
Borrower's possession and conspicuously label said returned Inventory as the
property of Lender;
(g) Without notice to or demand upon Borrower, make such payments and do
such acts as Lender considers necessary or reasonable to protect its security
interests in the Collateral. Borrower agrees to assemble the Collateral if
Lender so requires, and to make the Collateral available to Lender at a place
that Lender may designate which is reasonably convenient to both parties.
Borrower authorizes Lender to enter the premises where the Collateral is
located, to take and maintain possession of the Collateral, or any part of it,
and to pay, purchase, contest, or compromise any Lien that in Lender's
determination (in the exercise of its Permitted Discretion) appears to conflict
with the Lender's Liens and to pay all expenses incurred in connection therewith
and to charge Borrower's Loan Account therefor. With respect to any of
Borrower's owned or leased premises, Borrower hereby grants Lender a license to
enter into possession of such premises and to occupy the same, without charge,
in order to exercise any of Lender's rights or remedies provided herein, at law,
in equity, or otherwise;
(h) Without notice to Borrower (such notice being expressly waived), and
without constituting a retention of any collateral in satisfaction of an
obligation (within the meaning of the Code), set off and apply to the
Obligations any and all (i) balances and deposits of Borrower held by Lender
(including any amounts received in the Cash Management Accounts), or (ii)
Indebtedness at any time owing to or for the credit or the account of Borrower
held by Lender;
(i) Hold, as cash collateral, any and all balances and deposits of Borrower
held by Lender, and any amounts received in the Cash Management Accounts, to
secure the full and final repayment of all of the Obligations;
(j) Ship, reclaim, recover, store, finish, maintain, repair, prepare for
sale, advertise for sale, and sell (in the manner provided for herein) the
Collateral. Borrower hereby grants to Lender a license or other right to use,
without charge, Borrower's labels, patents, copyrights, trade secrets, trade
names, trademarks, service marks, and advertising matter, or any property of a
similar nature, as it pertains to the Collateral, in completing production of,
advertising for sale, and selling any Collateral and Borrower's rights under all
licenses and all franchise agreements shall inure to Lender's benefit;
(k) Sell the Collateral at either a public or private sale, or both, by way
of one or more contracts or transactions, for cash or on terms, in such manner
and at such places (including Borrower's premises) as Lender determines is
commercially reasonable. It is not necessary that the Collateral be present at
any such sale;
(l) Lender shall give notice of the disposition of the Collateral as
follows:
(i) Lender shall give Borrower a notice in writing of the time and place of
public sale, or, if the sale is a private sale or some other disposition other
than a public sale is to be made of the Collateral, then the time on or after
which the private sale or other disposition is to be made; and
(ii) The notice shall be personally delivered or mailed, postage prepaid,
to Borrower as provided in Section 12, at least 10 days before the earliest time
of disposition set forth in the notice; no notice needs to be given prior to the
disposition of any portion of the Collateral that is perishable or threatens to
decline speedily in value or that is of a type customarily sold on a recognized
market;
(m) Lender may credit bid and purchase at any public sale;
(n) Lender may seek the appointment of a receiver or keeper to take
possession of all or any portion of the Collateral or to operate same and, to
the maximum extent permitted by law, may seek the appointment of such a receiver
without the requirement of prior notice or a hearing;
(o) Lender shall have all other rights and remedies available at law or in
equity or pursuant to any other Loan Document; and
(p) Any deficiency that exists after disposition of the Collateral as
provided above will be paid immediately by Borrower. Any excess will be
returned, without interest and subject to the rights of third Persons, by Lender
to Borrower.
9.2. Remedies Cumulative. The rights and remedies of Lender under this
Agreement, the other Loan Documents, and all other agreements shall be
cumulative. Lender shall have all other rights and remedies not inconsistent
herewith as provided under the Code, by law, or in equity. No exercise by Lender
of one right or remedy shall be deemed an election, and no waiver by Lender of
any Event of Default shall be deemed a continuing waiver. No delay by Lender
shall constitute a waiver, election, or acquiescence by it.
10. TAXES AND EXPENSES.
If Borrower fails to pay any monies (whether taxes, assessments, insurance
premiums, or, in the case of leased properties or assets, rents or other amounts
payable under such leases) due to third Persons, or fails to make any deposits
or furnish any required proof of payment or deposit, all as required under the
terms of this Agreement, then, Lender, in its Permitted Discretion and without
prior notice to Borrower, may do any or all of the following: (a) make payment
of the same or any part thereof, (b) set up such reserves in Borrower's Loan
Account as Lender deems necessary to protect Lender from the exposure created by
such failure, or (c) in the case of the failure to comply with Section 6.8
hereof, obtain and maintain insurance policies of the type described in Section
6.8 and take any action with respect to such policies as Lender deems prudent.
Any such amounts paid by Lender shall constitute Lender Expenses and any such
payments shall not constitute an agreement by Lender to make similar payments in
the future or a waiver by Lender of any Event of Default under this Agreement.
Lender need not inquire as to, or contest the validity of, any such expense,
tax, or Lien and the receipt of the usual official notice for the payment
thereof shall be conclusive evidence that the same was validly due and owing.
11. WAIVERS; INDEMNIFICATION.
11.1. Demand; Protest. Borrower waives demand, protest, notice of protest,
notice of default or dishonor, notice of payment and nonpayment, nonpayment at
maturity, release, compromise, settlement, extension, or renewal of documents,
instruments, chattel paper, and guarantees at any time held by Lender on which
Borrower may in any way be liable.
11.2. Lender's Liability for Collateral. Borrower hereby agrees that: (a)
so long as Lender complies with its obligations, if any, under the Code, Lender
shall not in any way or manner be liable or responsible for: (i) the safekeeping
of the Collateral, (ii) any loss or damage thereto occurring or arising in any
manner or fashion from any cause, (iii) any diminution in the value thereof, or
(iv) any act or default of any carrier, warehouseman, bailee, forwarding agency,
or other Person, and (b) all risk of loss, damage, or destruction of the
Collateral shall be borne by Borrower; provided, however, that Lender shall
exercise reasonable care (as such term is construed in the Code) with respect to
the Collateral.
11.3. Indemnification. Borrower shall pay, indemnify, defend, and hold the
Lender-Related Persons and each of their respective officers, directors,
employees, agents, and attorneys-in-fact (each, an "Indemnified Person")
harmless (to the fullest extent permitted by law) from and against any and all
claims, demands, suits, actions, investigations, Environmental Liabilities and
Costs, proceedings, and damages, and all reasonable attorneys fees and
disbursements and other costs and expenses actually incurred in connection
therewith (as and when they are incurred and irrespective of whether suit is
brought), at any time asserted against, imposed upon, or incurred by any of them
(a) in connection with or as a result of or related to the execution, delivery,
enforcement, performance, or administration of this Agreement, any of the other
Loan Documents, or the transactions contemplated hereby or thereby, and (b) with
respect to any investigation, litigation, or proceeding related to this
Agreement, any other Loan Document, or the use of the proceeds of the credit
provided hereunder (irrespective of whether any Indemnified Person is a party
thereto), or any act, omission, event, or circumstance in any manner related
thereto (all the foregoing, collectively, the "Indemnified Liabilities"). The
foregoing to the contrary notwithstanding, Borrower shall have no obligation to
any Indemnified Person under this Section 11.3 with respect to any Indemnified
Liability that a court of competent jurisdiction finally determines to have
resulted from the gross negligence or willful misconduct of such Indemnified
Person. This provision shall survive the termination of this Agreement and the
repayment of the Obligations. If any Indemnified Person makes any payment to any
other Indemnified Person with respect to an Indemnified Liability as to which
Borrower was required to indemnify the Indemnified Person receiving such
payment, the Indemnified Person making such payment is entitled to be
indemnified and reimbursed by Borrower with respect thereto. WITHOUT LIMITATION,
THE FOREGOING INDEMNITY SHALL APPLY TO EACH INDEMNIFIED PERSON WITH RESPECT TO
INDEMNIFIED LIABILITIES WHICH IN WHOLE OR IN PART CAUSED BY OR ARISE OUT OF ANY
NEGLIGENT ACT OR OMISSION OF SUCH INDEMNIFIED PERSON EXCEPT THOSE THAT ARE
CAUSED BY OR ARISE OUT OF GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.
12. NOTICES.
Unless otherwise provided in this Agreement, all notices or demands by
Borrower or Lender to the other relating to this Agreement or any other Loan
Document shall be in writing and (except for financial statements and other
informational documents which may be sent by first-class mail, postage prepaid)
shall be personally delivered or sent by registered or certified mail (postage
prepaid, return receipt requested), overnight courier, electronic mail (at such
email addresses as Borrower or Lender, as applicable, may designate to each
other in accordance herewith), or telefacsimile to Borrower or Lender, as the
case may be, at its address set forth below:
If to Borrower: ▇▇▇▇▇▇ Electronics, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Fax No.: (▇▇▇) ▇▇▇-▇▇▇▇
with copies to: Ruskin Moscou Faltischek, P.C.
▇▇▇ ▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Fax No.: (▇▇▇) ▇▇▇-▇▇▇▇
If to Lender: Whitehall Retail Finance
▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇▇▇▇ ▇'▇▇▇▇▇▇
Fax No.: (▇▇▇) ▇▇▇-▇▇▇▇
with copies to: ▇▇▇▇▇▇, Hall & ▇▇▇▇▇▇▇
Exchange Place
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, P.C.
Fax No.: (▇▇▇) ▇▇▇-▇▇▇▇
Lender and Borrower may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other party. All notices or demands sent in accordance with this Section 12,
other than notices by Lender in connection with enforcement rights against the
Collateral under the provisions of the Code, shall be deemed received on the
earlier of the date of actual receipt or 5 Business Days after the deposit
thereof in the mail. Borrower acknowledges and agrees that notices sent by
Lender in connection with the exercise of enforcement rights against Collateral
under the provisions of the Code shall be deemed sent when deposited in the mail
or personally delivered, or, where permitted by law, transmitted by
telefacsimile or any other method set forth above.
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
(a) THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (UNLESS
EXPRESSLY PROVIDED TO THE CONTRARY IN ANOTHER LOAN DOCUMENT IN RESPECT OF SUCH
OTHER LOAN DOCUMENT), THE CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF
AND THEREOF, AND THE RIGHTS OF THE PARTIES HERETO AND THERETO WITH RESPECT TO
ALL MATTERS ARISING HEREUNDER OR THEREUNDER OR RELATED HERETO OR THERETO SHALL
BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE COMMONWEALTH OF MASSACHUSETTS.
(b) THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION
WITH THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE TRIED AND LITIGATED
ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF SUFFOLK,
COMMONWEALTH OF MASSACHUSETTS, PROVIDED, HOWEVER, THAT ANY SUIT SEEKING
ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT LENDER'S
OPTION, IN THE COURTS OF ANY JURISDICTION WHERE LENDER ELECTS TO BRING SUCH
ACTION OR WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. BORROWER AND
LENDER WAIVE, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY
HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE
EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 13(b).
(c) BORROWER AND LENDER HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY
TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE
LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING
CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR
STATUTORY CLAIMS. BORROWER AND LENDER REPRESENT THAT EACH HAS REVIEWED THIS
WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING
CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS
AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
14. ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS.
14.1. Assignments and Participations.
(a) Lender may assign and delegate to one or more assignees (each an
"Assignee") all, or any ratable part of all, of the Obligations and the other
rights and obligations of Lender hereunder and under the other Loan Documents;
provided, however, that Borrower may continue to deal solely and directly with
Lender in connection with the interest so assigned to an Assignee until (i)
written notice of such assignment, together with payment instructions,
addresses, and related information with respect to the Assignee, have been given
to Borrower by Lender and the Assignee, and (ii) Lender and its Assignee have
delivered to Borrower an appropriate assignment and acceptance agreement.
(b) From and after the date that Lender provides Borrower with such written
notice and executed assignment and acceptance agreement, (i) the Assignee
thereunder shall be a party hereto and, to the extent that rights and
obligations hereunder have been assigned to it pursuant to such assignment and
acceptance agreement, shall have the assigned and delegated rights and
obligations of Lender under the Loan Documents, and (ii) Lender shall, to the
extent that rights and obligations hereunder and under the other Loan Documents
have been assigned and delegated by it pursuant to such assignment and
acceptance agreement, relinquish its rights (except with respect to Section 11.3
hereof) and be released from its obligations under this Agreement (and in the
case of an assignment and acceptance covering all or the remaining portion of
Lender's rights and obligations under this Agreement and the other Loan
Documents, Lender shall cease to be a party hereto and thereto), and such
assignment shall affect a novation between Borrower and the Assignee.
(c) Immediately upon Borrower's receipt of such fully executed assignment
and acceptance agreement, this Agreement shall be deemed to be amended to the
extent, but only to the extent, necessary to reflect the addition of the
Assignee and the resulting adjustment of the rights and duties of Lender arising
therefrom.
(d) Lender may at any time sell to one or more commercial banks, financial
institutions, or other Persons not Affiliates of such Lender (a "Participant")
participating interests in the Obligations and the other rights and interests of
Lender hereunder and under the other Loan Documents; provided, however, that (i)
Lender shall remain the "Lender" for all purposes of this Agreement and the
other Loan Documents and the Participant receiving the participating interest in
the Obligations and the other rights and interests of Lender shall not
constitute a "Lender" hereunder or under the other Loan Documents and Lender's
obligations under this Agreement shall remain unchanged, (ii) Lender shall
remain solely responsible for the performance of such obligations, (iii)
Borrower and Lender shall continue to deal solely and directly with each other
in connection with Lender's rights and obligations under this Agreement and the
other Loan Documents, (iv) Lender shall not transfer or grant any participating
interest under which the Participant has the right to approve any amendment to,
or any consent or waiver with respect to, this Agreement or any other Loan
Document, except to the extent such amendment to, or consent or waiver with
respect to this Agreement or of any other Loan Document would (A) extend the
final maturity date of the Obligations hereunder in which such Participant is
participating, (B) reduce the interest rate applicable to the Obligations
hereunder in which such Participant is participating, (C) release all or a
material portion of the Collateral or guaranties (except to the extent expressly
provided herein or in any of the Loan Documents) supporting the Obligations
hereunder in which such Participant is participating, (D) postpone the payment
of, or reduce the amount of, the interest or fees payable to such Participant
through Lender, or (E) change the amount or due dates of scheduled principal
repayments or prepayments or premiums, and (v) all amounts payable by Borrower
hereunder shall be determined as if Lender had not sold such participation,
except that, if amounts outstanding under this Agreement are due and unpaid, or
shall have been declared or shall have become due and payable upon the
occurrence of an Event of Default, each Participant shall be deemed to have the
right of set-off in respect of its participating interest in amounts owing under
this Agreement to the same extent as if the amount of its participating interest
were owing directly to it as Lender under this Agreement. The rights of any
Participant only shall be derivative through Lender and no Participant shall
have any rights under this Agreement or the other Loan Documents or any direct
rights as to Borrower, the Collections, the Collateral, or otherwise in respect
of the Obligations. No Participant shall have the right to participate directly
in the making of decisions by Lender.
(e) In connection with any such assignment or participation or proposed
assignment or participation, a Lender may disclose all documents and information
which it now or hereafter may have relating to Borrower or Borrower's business.
(f) Any other provision in this Agreement notwithstanding, Lender may at
any time create a security interest in, or pledge, all or any portion of its
rights under and interest in this Agreement in favor of any Federal Reserve Bank
in accordance with Regulation A of the Federal Reserve Bank or U.S. Treasury
Regulation 31 CFR ss.203.14, and such Federal Reserve Bank may enforce such
pledge or security interest in any manner permitted under applicable law.
14.2. Successors. This Agreement shall bind and inure to the benefit of the
respective successors and assigns of each of the parties; provided, however,
that Borrower may not assign this Agreement or any rights or duties hereunder
without Lender's prior written consent and any prohibited assignment shall be
absolutely void ab initio. No consent to assignment by Lender shall release
Borrower from its Obligations. Lender may assign this Agreement and the other
Loan Documents and its rights and duties hereunder and thereunder pursuant to
Section 14.1 hereof and no consent or approval by Borrower is required in
connection with any such assignment.
15. AMENDMENTS; WAIVERS.
15.1. Amendments and Waivers. No amendment or waiver of any provision of
this Agreement or any other Loan Document, and no consent with respect to any
departure by Borrower therefrom, shall be effective unless the same shall be in
writing and signed by Lender and Borrower and then any such waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given.
15.2. No Waivers; Cumulative Remedies. No failure by Lender to exercise any
right, remedy, or option under this Agreement or any other Loan Document, or
delay by Lender in exercising the same, will operate as a waiver thereof. No
waiver by Lender will be effective unless it is in writing, and then only to the
extent specifically stated. No waiver by Lender on any occasion shall affect or
diminish Lender's rights thereafter to require strict performance by Borrower of
any provision of this Agreement. Lender's rights under this Agreement and the
other Loan Documents will be cumulative and not exclusive of any other right or
remedy that Lender may have.
16. GENERAL PROVISIONS.
16.1. Effectiveness. This Agreement shall be binding and deemed effective
when executed by Borrower and Lender.
16.2. Section Headings. Headings and numbers have been set forth herein for
convenience only. Unless the contrary is compelled by the context, everything
contained in each Section applies equally to this entire Agreement.
16.3. Interpretation. Neither this Agreement nor any uncertainty or
ambiguity herein shall be construed against Lender or Borrower, whether under
any rule of construction or otherwise. On the contrary, this Agreement has been
reviewed by all parties and shall be construed and interpreted according to the
ordinary meaning of the words used so as to accomplish fairly the purposes and
intentions of all parties hereto.
16.4. Severability of Provisions. Each provision of this Agreement shall be
severable from every other provision of this Agreement for the purpose of
determining the legal enforceability of any specific provision.
16.5. Withholding Taxes. All payments made by Borrower hereunder or under
any note will be made without setoff, counterclaim, or other defense, except as
required by applicable law other than for Taxes (as defined below). All such
payments will be made free and clear of, and without deduction or withholding
for, any present or future taxes, levies, imposts, duties, fees, assessments or
other charges of whatever nature now or hereafter imposed by any jurisdiction
(other than the United States) or by any political subdivision or taxing
authority thereof or therein (other than of the United States) with respect to
such payments (but excluding, any tax imposed by any jurisdiction or by any
political subdivision or taxing authority thereof or therein (i) measured by or
based on the net income or net profits of Lender, or (ii) to the extent that
such tax results from a change in the circumstances of Lender, including a
change in the residence, place of organization, or principal place of business
of Lender, or a change in the branch or lending office of Lender participating
in the transactions set forth herein) and all interest, penalties or similar
liabilities with respect thereto (all such non-excluded taxes, levies, imposts,
duties, fees, assessments or other charges being referred to collectively as
"Taxes"). If any Taxes are so levied or imposed, Borrower agrees to pay the full
amount of such Taxes, and such additional amounts as may be necessary so that
every payment of all amounts due under this Agreement or under any note,
including any amount paid pursuant to this Section 16.5 after withholding or
deduction for or on account of any Taxes, will not be less than the amount
provided for herein; provided, however, that Borrower shall not be required to
increase any such amounts payable to Lender if the increase in such amount
payable results from Lender's own willful misconduct or gross negligence.
Borrower will furnish to Lender as promptly as possible after the date the
payment of any Taxes is due pursuant to applicable law certified copies of tax
receipts evidencing such payment by Borrower.
16.6. Amendments in Writing. This Agreement only can be amended, and the
terms herein waived or modified, by a writing signed by Lender and Borrower.
16.7. Counterparts; Telefacsimile Execution. This Agreement may be executed
in any number of counterparts and by different parties on separate counterparts,
each of which, when executed and delivered, shall be deemed to be an original,
and all of which, when taken together, shall constitute but one and the same
Agreement. Delivery of an executed counterpart of this Agreement by
telefacsimile shall be equally as effective as delivery of an original executed
counterpart of this Agreement. Any party delivering an executed counterpart of
this Agreement by telefacsimile also shall deliver an original executed
counterpart of this Agreement but the failure to deliver an original executed
counterpart shall not affect the validity, enforceability, and binding effect of
this Agreement. The foregoing shall apply to each other Loan Document mutatis
mutandis.
16.8. Revival and Reinstatement of Obligations. If the incurrence or
payment of the Obligations by Borrower or the transfer to Lender of any property
should for any reason subsequently be declared to be void or voidable under any
state or federal law relating to creditors' rights, including provisions of the
Bankruptcy Code relating to fraudulent conveyances, preferences, or other
voidable or recoverable payments of money or transfers of property
(collectively, a "Voidable Transfer"), and if Lender is required to repay or
restore, in whole or in part, any such Voidable Transfer, or elects to do so
upon the reasonable advice of its counsel, then, as to any such Voidable
Transfer, or the amount thereof that Lender is required or elects to repay or
restore, and as to all reasonable costs, expenses and attorneys fees of Lender
related thereto, the liability of Borrower automatically shall be revived,
reinstated, and restored and shall exist as though such Voidable Transfer had
never been made.
16.9. Integration. This Agreement, together with the other Loan Documents,
reflects the entire understanding of the parties with respect to the
transactions contemplated hereby and shall not be contradicted or qualified by
any other agreement, oral or written, before the date hereof.
16.10. Publicity. Borrower hereby authorizes Lender to make appropriate
announcements of the financial arrangement entered into among Borrower and
Lender, including, without limitation, announcements which are commonly known as
tombstones, in such publications and to such selected parties as Lender or Bank
shall in its sole and absolute discretion deem appropriate. Without limiting the
foregoing, Borrower authorizes Lender and Bank to utilize any logo or other
distinctive symbol associated with the Borrower in connection with any such
announcement or any other promotion, advertising or marketing undertaken by
Lender or Bank. In no event, however, shall Borrower use the name of Lender or
Bank, or any logo or distinctive symbol associated with any of them, unless, as
appropriate, Lender or Bank has given its prior written consent thereto.
[Signature page follows]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered as of the date first above written.
▇▇▇▇▇▇ ELECTRONICS, INC.
By:______________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Executive Vice President and Chief
Financial Officer
WHITEHALL RETAIL FINANCE, a division of
Whitehall Business Credit Corporation
By:______________________________
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Vice President