Loan and Security Agreement
by and between
CONGRESS FINANCIAL CORPORATION (WESTERN)
as Lender
and
GOTTSCHALKS INC.
as Borrower
Dated: December 20, 1996
TABLE OF CONTENTS
PAGE(S)
SECTION 1. DEFINITIONS . . . . . . 1
SECTION 2. CREDIT FACILITIES . . . 10
2.1 Revolving Loans . . . . 10
2.2 Letter of Credit
Accommodations 11
SECTION 3. INTEREST AND FEES . . . 13
3.1 Interest. . . . . . . . 13
3.2 Closing Fee . . . . . . 15
3.3 Loan Servicing and Audit Fee 15
3.4 Changes in Laws and Increased Costs
of Loans . . . . . . . . . . . . 15
3.5 Compensation Adjustment 16
SECTION 4. CONDITIONS PRECEDENT. . 17
4.1 Conditions Precedent to Initial
Loans and the Letter of Credit
Accommodations. . . . . 17
4.2 Conditions Precedent to All Loans
and Letter of Credit Accommodations 19
SECTION 5. GRANT OF SECURITY INTEREST 20
SECTION 6. COLLECTION AND ADMINISTRATION 21
6.1 Borrower's Loan Account 21
6.2 Statements. . . . . . . 21
6.3 Collection of Accounts. 21
6.4 Payments. . . . . . . . 23
6.5 Authorization to Make Loans 24
6.6 Use of Proceeds . . . . 24
SECTION 7. COLLATERAL REPORTING AND COVENANTS 24
7.1 Collateral Reporting. . 24
7.2 Accounts Covenants. . . 25
7.3 Inventory Covenants . . 26
7.4 Equipment Covenants . . 27
7.5 Power of Attorney . . . 27
7.6 Right to Cure . . . . . 28
7.7 Access to Premises. . . 28
SECTION 8. REPRESENTATIONS AND WARRANTIES 29
8.1 Corporate Existence, Power and
Authority; Subsidiaries. . . . . 29
8.2 Financial Statements; No Material
Adverse Change.. . . . . . . . . 29
8.3 Chief Executive Office; Collateral
Locations. . . . . . . . . . . . 29
8.4 Priority of Liens; Title to
Properties . . . . . . . . . . . 30
8.5 Tax Returns . . . . . . 30
8.6 Litigation. . . . . . . 30
8.7 Compliance with Other Agreements and
Applicable Laws. . . . . . . . . 30
8.8 Environmental Compliance 30
8.9 Employee Benefits . . . 31
8.10 Accuracy and Completeness of
Information. . . . . . . . . . . 32
8.11 Survival of Warranties; Cumulative 32
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS 32
9.1 Maintenance of Existence 32
9.2 New Collateral Locations 32
9.3 Compliance with Laws, Regulations,
Etc. . . . . . . . . . . . . . . 33
9.4 Payment of Taxes and Claims 33
9.5 Insurance . . . . . . . 34
9.6 Financial Statements and Other
Information. . . . . . . . . . . 34
9.7 Sale of Assets, Consolidation,
Merger, Dissolution, Etc . . . . 35
9.8 Encumbrances. . . . . . 36
9.9 Indebtedness. . . . . . 36
9.10 Revolving Loans, Investments,
Guarantees, Etc. . . . . . . . . 37
9.11 Dividends and Redemptions 37
9.12 Transactions with Affiliates 37
9.13 Compliance with ERISA . 38
9.14 Adjusted Net Worth. . . 38
9.15 Costs and Expenses. . . 38
9.16 Securitization Facility 39
9.17 Amendment of Securitization Facility 39
9.18 Renewal of Securitization Facility 39
9.19 No Defaults . . . . . . 39
9.20 Use of Private Label Card 39
9.21 GCRC Receivables Collections 40
9.22 Purchase Price for GCRC Receivables 40
9.23 Further Assurances. . . 40
SECTION 10. EVENTS OF DEFAULT AND REMEDIES 40
10.1 Events of Default . . . 40
10.2 Remedies. . . . . . . . 42
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS AND
CONSENTS; GOVERNING LAW 44
11.1 Governing Law; Choice of Forum;
Service of Process; Jury Trial
Waiver. . . . . . . . . 44
11.2 Waiver of Notices . . . 45
11.3 Amendments and Waivers. 45
11.4 Waiver of Counterclaims 45
11.5 Indemnification . . . . 45
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS 46
12.1 Term. . . . . . . . . . 46
12.2 Notices . . . . . . . . 48
12.3 Partial Invalidity. . . 48
12.4 Successors. . . . . . . 48
12.5 Entire Agreement. . . . 48
12.6 Publicity . . . . . . . 49
INDEX TO
EXHIBITS AND SCHEDULES
Exhibit A Information Certificate
Schedule 6.3 Deposit Accounts
Schedule 7.3(i) Consignment Inventory
Schedule 8.4 Other Liens
Schedule 8.8 Environmental
Disclosures
LOAN AND SECURITY AGREEMENT
This Loan and Security Agreement dated December
20, 1996 is entered into by and between Congress
Financial Corporation (Western), a California
corporation ("Lender"), and Gottschalks Inc., a
Delaware corporation ("Borrower").
W I T N E S S E T H:
WHEREAS, Borrower has requested that Lender
enter into certain financing arrangements with Borrower
pursuant to which Lender may make loans and provide
other financial accommodations to Borrower; and
WHEREAS, Lender is willing to make such loans
and provide such financial accommodations on the terms
and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual
conditions and agreements set forth herein, and for
other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
SECTION 1. DEFINITIONS
All terms used herein which are defined in
Article 1 or Article 9 of the California Uniform
Commercial Code shall have the respective meanings
given therein unless otherwise defined in this
Agreement. All references to the plural herein shall
also mean the singular and to the singular shall also
mean the plural. All references to Borrower and Lender
pursuant to the definitions set forth in the recitals
hereto, or to any other person herein, shall include
their respective successors and assigns. The words
"hereof", "herein", "hereunder", "this Agreement" and
words of similar import when used in this Agreement
shall refer to this Agreement as a whole and not any
particular provision of this Agreement and as this
Agreement now exists or may hereafter be amended,
modified, supplemented, extended, renewed, restated or
replaced. An Event of Default shall exist or continue
or be continuing until such Event of Default is waived
in accordance with Section 11.3. Any accounting term
used herein unless otherwise defined in this Agreement
shall have the meaning customarily given to such term
in accordance with GAAP. For purposes of this
Agreement, the following terms shall have the
respective meanings given to them below:
1.1 "Accounts" shall mean all present and future
rights of Borrower to payment for goods sold or leased
or for services rendered, which are not evidenced by
instruments or chattel paper, and whether or not earned
by performance.
1.2 "Adjusted Eurodollar Rate" shall mean, with
respect to each Interest Period for any Eurodollar Rate
Loan, the rate per annum (rounded upwards, if
necessary, to the next one-sixteenth (1/16) of one
percent (1%), determined by dividing (a) the Eurodollar
Rate for such Interest Period by (b) a percentage equal
to: (i) one (1) minus (ii) the Reserve Percentage. For
purposes hereof, "Reserve Percentage" shall mean the
reserve percentage, expressed as a decimal, prescribed
by any United States or foreign banking authority for
determining the reserve requirement which is or would
be applicable to deposits of United States dollars in a
non-United States or an international banking office of
Reference Bank used to fund a Eurodollar Rate Loan or
any Eurodollar Rate Loan made with the proceeds of such
deposit, whether or not the Reference Bank actually
holds or has made any such deposits or loans. The
Adjusted Eurodollar Rate shall be adjusted on and as of
the effective day of any change in the Reserve
Percentage.
1.3 "Adjusted Net Worth" shall mean as to any
Person, at any time, in accordance with GAAP (except as
otherwise specifically set forth below), on a
consolidated basis for such Person and its subsidiaries
(if any), the amount equal to: (a) the difference
between: (i) the aggregate net book value of all
assets of such Person and its subsidiaries, calculating
the book value of inventory for this purpose on a
first-in-first-out basis, at the lower of cost or
market, utilizing the retail method of accounting,
after deducting from such book values all appropriate
reserves in accordance with GAAP (including all
reserves for doubtful receivables, obsolescence,
depreciation and amortization) and (ii) the aggregate
amount of the indebtedness and other liabilities of
such Person and its subsidiaries (including income tax
expense or benefit and other related accruals, but
excluding adjustments to deferred income tax accounts)
plus (b) indebtedness of such Person and its
subsidiaries which is subordinated in right of payment
to the full and final payment of all of the Obligations
on terms and conditions acceptable to Lender.
1.4 "Appraised Value" shall mean, with respect
to Eligible Inventory, the appraised value of such
Eligible Inventory, expressed as a percentage of either
the Value or the Retail Sales Price, as required by
Lender, determined on a "going out of business sale"
basis, net of all estimated liquidation expenses,
shrinkage and markdowns, pursuant to an appraisal
conducted, at Borrower's expense, by an independent
appraisal firm acceptable to Lender in its sole and
absolute discretion.
1.5 "Availability Reserves" shall mean, as of
any date of determination, such amounts as Lender may
from time to time establish and revise in good faith
reducing the amount of Revolving Loans and Letter of
Credit Accommodations which would otherwise be
available to Borrower under the lending formula(s)
provided for herein: (a) to reflect events, conditions, contingencies or
risks which, as determined by Lender in good faith, do
or may affect either (i) the Collateral or any other
property which is security for the Obligations or its
value, (ii) the assets or business of Borrower or any
Obligor or (iii) the security interests and other
rights of Lender in the Collateral (including the
enforceability, perfection and priority thereof) or (b)
to reflect Lender's good faith belief that any
collateral report or financial information furnished by
or on behalf of Borrower to Lender is or may have been
incomplete, inaccurate or misleading in any material
respect or (c) to reflect any state of facts which
Lender determines in good faith constitutes an Event of
Default. Without limiting the generality of the
foregoing, Lender (i) shall establish on the date
hereof and maintain throughout the term of this
Agreement and throughout any renewal term an
Availability Reserve in an amount equal to two (2)
months gross rent for Borrower's Distribution Facility
and for each of the Borrower's retail locations in
States other than California and Nevada for which
Lender has not received a landlord waiver and consent
in form and substance satisfactory to Lender, and (ii)
may establish and maintain an additional Availability
Reserve from time to time to compensate for any
increase in the percentage of Inventory not otherwise
deemed ineligible represented by slow moving Inventory
(defined as Inventory held for longer than one (1)
year), and (iii) may establish and maintain throughout
the term of this Agreement and any renewal term an
additional Availability Reserve in an amount equal to
the Value of consigned Inventory located at any one
time at Borrower's Distribution Facility or retail
stores in excess of One Million Dollars ($1,000,000),
and (iv) may establish and maintain throughout the term
of this Agreement and any renewal term an additional
Availability Reserve in an amount equal to one hundred
percent (100%) of the total sales of Concession
Inventory during the same month of the preceding fiscal
year as the month during which determination of this
Availability Reserve is to be made, less any amounts to
be retained by Borrower as a percentage rental payment
or similar charge, and this Availability Reserve shall
be subject to increase, in such amount as Lender shall
determine, to cover any payments of sale proceeds due
to concessionaires for the sale of Concession Inventory
that are not made within thirty (30) days of the date
of sale.
1.6 "Blocked Account" shall have the meaning set
forth in Section 6.3 hereof.
1.7 "Business Day" shall mean (a) for the Prime
Rate Loans, any day other than a Saturday, Sunday, or
other day on which commercial banks are authorized or
required to close under the laws of the State of New
York or the Commonwealth of Pennsylvania, and a day on
which the Reference Bank and Lender are open for the
transaction of business, and (b) for all Eurodollar
Rate Loans, any such day as described in (a) above in
this definition of Business Day, excluding any day on
which banks are closed for dealings in dollar deposits
in the London interbank market or other applicable
Eurodollar Rate market.
1.8 "Code" shall mean the Internal Revenue Code
of 1986, as the same now exists or may from time to
time hereafter be amended, modified, recodified or
supplemented, together with all rules, regulations and
interpretations thereunder or related thereto.
1.9 "Collateral" shall have the meaning set
forth in Section 5 hereof.
1.10 "Concession Inventory" shall mean any goods
of a concessionaire located at Borrower's Distribution
Facility or retail stores, (which goods would otherwise
be considered Inventory if the property of the
Borrower, but as to which Borrower has no right, title
or interest), held for sale by the concessionaire,
which goods are not accounted for in Borrower's
inventory system but the proceeds of sale thereof are
collected through Borrower's deposit account
arrangements.
1.11 "Credit Card Agreements" shall mean all
agreements now or hereafter entered into by Borrower or
GCRC with any Credit Card Issuer or Credit Card
Processor, with the exception of Borrower, as the same
may now exist or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced.
1.12 "Credit Card Issuer" shall mean any person
(excluding the Borrower with respect to its private
label credit card program) who issues or whose members
issue credit cards used by customers of the Borrower to
purchase goods, including, without limitation,
MasterCard or VISA bank credit or debit cards or other
bank credit or debit cards, and American Express,
Discover, Diners Club, ▇▇▇▇▇ ▇▇▇▇▇▇▇, and other non-bank
credit or debit cards.
1.13 "Credit Card Processor" shall mean any
servicing or processing agent or any factor or
financial intermediary who facilities, services,
processes or manages the credit authorization, billing
transfer and/or payment from a Credit Card Issuer or
Credit Card Processor and other procedures with respect
to any sales transactions of the Borrower involving
credit card or debit card purchases by customers using
credit cards or debit cards issued by any Credit Card
Issuer, but excluding the Borrower with respect to its
private label credit card program.
1.14 "Credit Card Receivables" shall mean all
Accounts consisting of the present and future rights of
Borrower, but excluding GCRC Receivables, to payment by
Credit Card Issuers or Credit Card Processors for
merchandise sold and delivered to customers of Borrower
who have purchased such goods using a credit card or a
debit card issued by a Credit Card Issuer.
1.15 "Distribution Facility" means Borrower's
distribution facility at ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇.
1.16 "Eligible Domestic In-Transit Inventory"
shall mean those items of Inventory which are not
located at one of the Borrower's retail stores or at
Borrower's Distribution Facility but: (i) are currently
in-transit from a location within the continental
United States of America to one of Borrower's retail
stores or to Borrower's Distribution Facility via a
third party carrier, (ii) are insured against type of
loss, damage, hazards, and risks, and in amounts,
satisfactory to Lender, (iii) title to which items has
been transferred to Borrower, (iv) documentation and
monitoring regarding such items are acceptable to
Lender, (v) such items strictly comply with all of
Borrower's representations and warranties to Lender,
including, but not limited to, Lender's first priority
security interest in such Inventory, and (vi) if such
items have been acquired pursuant to a Letter of Credit
Accommodation, the Letter of Credit Accommodation must
have been drawn upon.
1.17 "Eligible Inventory" shall mean Inventory
consisting of finished goods held for resale in the
ordinary course of the business of Borrower which are
located either at one of Borrower's retail stores or at
Borrower's Distribution Facility, or which qualify as
Eligible Domestic In-Transit Inventory, and which are
acceptable to Lender based on the criteria set forth
below. In general, Eligible Inventory shall not include (a) raw
materials, (b) work-in-process as defined by GAAP; (c)
components which are not part of finished goods; (d)
spare parts for equipment; (e) packaging and shipping
materials; (f) supplies used or consumed in Borrower's
business; (g) Inventory at premises not owned or
controlled by Borrower, except if Lender shall have
received an agreement in writing from the person in
possession of such Inventory and/or the owner or
operator of such premises in form and substance
satisfactory to Lender acknowledging Lender's first
priority security interest in the Inventory, waiving
security interests and claims by such person against
the Inventory and permitting Lender access to, and the
right to remain on, the premises so as to exercise
Lender's rights and remedies and otherwise deal with
the Collateral; (h) Inventory in transit except for
Eligible Domestic In-Transit Inventory; (i) Inventory
subject to a security interest or lien in favor of any
person other than Lender except those permitted in this
Agreement; (j) unserviceable Inventory; (k) Inventory
which is not subject to the first priority, valid and
perfected security interest of Lender; (l) damaged
and/or defective Inventory; (m) Inventory held for
return to vendors; (n) Inventory returned by customers
and not held for resale; (o) Inventory consisting of
samples; (p) display Inventory (currently designated at
Location 80); (q) that portion of the Value of
Inventory attributable to markdowns not posted to the
Inventory retail system due to month-end cut-off, or to
unearned discounts; (r) that portion of the Value of
Inventory attributable to capitalized warehousing,
packing and freight cost from the Distribution Facility
to one of the Borrower's retail stores (UNICAP); and
(s) Inventory purchased or sold on consignment.
General criteria for Eligible Inventory may be
established and revised from time to time by Lender in
its reasonable credit judgment. Any Inventory which is
not Eligible Inventory shall nevertheless be part of
the Collateral.
1.18 "Environmental Laws" shall mean all federal,
state, district, local and foreign laws, rules,
regulations, ordinances, and consent decrees relating
to health, safety, hazardous substances, pollution and
environmental matters, as now or at any time hereafter
in effect, applicable to Borrower's business and
facilities (whether or not owned by it), including laws
relating to emissions, discharges, releases or
threatened releases of pollutants, contamination,
chemicals, or hazardous, toxic or dangerous substances,
materials or wastes into the environment (including,
without limitation, ambient air, surface water, ground
water, land surface or subsurface strata) or otherwise
relating to the generation, manufacture, processing,
distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants,
chemicals, or hazardous, toxic or dangerous substances,
materials or wastes.
1.19 "Equipment" shall mean all of Borrower's now
owned and hereafter acquired equipment, machinery,
computers and computer hardware and software (whether
owned or licensed), vehicles, tools, furniture,
fixtures, all attachments, accessions and property now
or hereafter affixed thereto or used in connection
therewith, and substitutions and replacements thereof,
wherever located.
1.20 "ERISA" shall mean the United States
Employee Retirement Income Security Act of 1974, as the
same now exists or may hereafter from time to time be
amended, modified, recodified or supplemented, together
with all rules, regulations and interpretations
thereunder or related thereto.
1.21 "ERISA Affiliate" shall mean any person
required to be aggregated with Borrower or any of its
affiliates under Sections 414(b), 414(c), 414(m) or
414(o) of the Code.
1.22 "Eurodollar Rate Loans" shall mean any Loans
or portion thereof on which interest is payable based
on the Adjusted Eurodollar Rate in accordance with the
terms hereof.
1.23 "Eurodollar Rate" shall mean with respect to
the Interest Period for a Eurodollar Rate Loan, the
interest rate per annum equal to the arithmetic average
of the rate of interest per annum (rounded upwards, if
necessary, to the next one-sixteenth (1/16) of one
percent (1%)) at which Reference Bank is offered
deposits of United States dollars in the London
interbank market (or other Eurodollar Rate market
selected by Borrower and approved by Lender) on or
about 9:00 a.m. (New York time) two (2) Business Days
prior to the commencement of such Interest Period in
amounts substantially equal to the principal amount of
the Eurodollar Rate Loans requested by and available to
Borrower in accordance with this Agreement, with a
maturity of comparable duration to the Interest Period
selected by Borrower.
1.24 "Event of Default" shall mean the occurrence
or existence of any event or condition described in
Section 10.1 hereof.
1.25 "Excess Availability" shall mean the amount,
as determined by Lender, calculated at any time, equal
to:
(a) the lesser of (i) the amount of
the Revolving Loans available to
Borrower as of such time (based on
the applicable advance rate set forth
in Section 2.1(a)(i) hereof
multiplied by the Value, Retail Sales
Price or Appraised Value of Eligible
Inventory, as applicable, as
determined by Lender), subject to the
sublimits and Availability Reserves
from time to time established by
Lender hereunder and (ii) the Maximum
Credit,
minus (b) the sum of: (i)( the amount
of all then outstanding and unpaid
Obligations, (ii) the aggregate
amount of all trade payables of
Borrower which are more than sixty
(60) days past due as of such time
and which are not disputed in good
faith, and (iii) the aggregate amount
of Borrower's book overdrafts.
1.26 "Financing Agreements" shall mean, colle-
ctively, this Agreement and all notes, guarantees,
security agreements and other agreements, documents and
instruments now or at any time hereafter executed
and/or delivered by Borrower in connection with this
Agreement, as the same now exist or may hereafter be
amended, modified, supplemented, extended, renewed,
restated or replaced.
1.27 "Fixed Base Certificates" shall mean,
collectively, (i) the $40,000,000 7.35% Fixed Base
Class A-1 Credit Card Certificates, Series 1994-1, and
(ii) the $6,000,000 6.79% Fixed Base Class A-1 Credit
Card Certificates, Series 1996-1, issued by the
Gottschalks Credit Card Master Trust pursuant to the
Securitization Facility.
1.28 "GAAP" shall mean generally accepted
accounting principles in the United States of America
as in effect from time to time as set forth in the
opinions and pronouncements of the Accounting
Principles Board and the American Institute of
Certified Public Accountants and the statements and
pronouncements of the Financial Accounting Standards
Boards which are applicable to the circumstances as of
the date of determination consistently applied, except
that, for purposes of Section 9.14 hereof, GAAP shall
be determined on the basis of such principles in effect
on the date hereof and consistent with those used in
the preparation of the audited financial statements
delivered to Lender prior to the date hereof.
1.29 "GCRC" shall mean Gottschalks Credit
Receivables Corp., a Delaware corporation, and a wholly
owned subsidiary of the Borrower.
1.30 "GCRC Receivables" shall mean those Accounts
and other indebtedness owed to Borrower arising under
Borrower's private label credit card program and sold
by Borrower to GCRC pursuant to the Receivables
Purchase Agreement.
1.31 "Hazardous Materials" shall mean any
hazardous, toxic or dangerous substances, materials and
wastes, including, without limitation, hydrocarbons
(including naturally occurring or man-made petroleum
and hydrocarbons), flammable explosives, asbestos, urea
formaldehyde insulation, radioactive materials,
biological substances, polychlorinated biphenyls,
pesticides, herbicides and any other kind and/or type
of pollutants or contaminants (including, without
limitation, materials which include hazardous
constituents), sewage, sludge, industrial slag,
solvents and/or any other similar substances,
materials, or wastes and including any other
substances, materials or wastes that are or become
regulated under any Environmental Law (including,
without limitation any that are or become classified as
hazardous or toxic under any Environmental Law).
1.32 "Information Certificate" shall mean the
Information Certificate of Borrower constituting
Exhibit A hereto containing material information with
respect to Borrower, its business and assets provided
by or on behalf of Borrower to Lender in connection
with the preparation of this Agreement and the other
Financing Agreements and the financing arrangements
provided for herein.
1.33 "Interest Period" shall mean for any
Eurodollar Rate Loan, a period of approximately one
(1), two (2) or three (3) months duration as Borrower
may elect, the exact duration to be determined in
accordance with the customary practice in the
applicable Eurodollar Rate market; provided, that,
Borrower may not elect an Interest Period which will
end after the last day of the then-current term of this
Agreement.
1.34 "Interest Rate" shall mean, as to Prime Rate
Loans, a rate of one quarter of one (.25) percentage
point per annum in excess of the Prime Rate and, as to
Eurodollar Rate Loans, a rate of two and one-half
(2.50) percentage points per annum in excess of the
Adjusted Eurodollar Rate (based on the Eurodollar Rate
applicable for the Interest Period selected by Borrower
as in effect three (3) Business Days after the date of
receipt by Lender of the request of Borrower for such
Eurodollar Rate Loans in accordance with the terms
hereof, whether such rate is higher or lower than any
rate previously quoted to Borrower); provided, however,
that in the event Borrower's pretax income for any
given fiscal year (excluding extraordinary gains and
non-cash losses) exceeds Two Million Dollars
($2,000,000), the applicable Interest Rate provided for
in the preceding clause of this Section 1.34 shall be
reduced by one-quarter of one (.25) percentage point,
such reduction in the applicable Interest Rate to be
effective as of the first day of the month immediately
following the date of receipt by Lender of Borrower's
audited annual financial statements, as provided by
Borrower to Lender pursuant to Section 9.6(a)(iii)
hereof, indicating the required pretax income; and
provided further, however, that in the event Borrower's
pretax income for its fiscal year immediately following
the fiscal year for which the Interest Rate has been
reduced, as provided for in the first proviso of this
Section 1.34, again exceeds Two Million Dollars
($2,000,000) excluding extraordinary gains and non-cash
losses, then the applicable Interest Rate shall be
further reduced by an additional one-quarter of one
(.25) percentage point, such reduction in the
applicable Interest Rate to be effective as of the
first day of the month immediately following the date
of receipt by Lender of Borrower's audited annual
financial statements, as provided by Borrower to Lender
pursuant to Section 9.6(a)(iii) hereof, indicating the
required pretax income; and provided further, however,
the Interest Rate shall mean the rate of two and one-quarter
(2.25) percentage points per annum in excess of
the Prime Rate as to Prime Rate Loans and the rate of
four and one-half (4.50) percentage points percent per
annum in excess of the Adjusted Eurodollar Rate as to
Eurodollar Rate Loans, at Lender's option, without
notice, (a) for the period on and after the date of
termination or non-renewal hereof, or the date of the
occurrence of any Event of Default or event which with
notice or passage of time or both would constitute an
Event of Default, and for so long as such Event of
Default or other event is continuing as determined by
Lender and until such time as all Obligations are
indefeasibly paid in full (notwithstanding entry of any
judgment against Borrower) and (b) on the Revolving
Loans at any time outstanding in excess of the amounts
available to Borrower under Section 2 (whether or not
such excess(es) arise or are made with or without
Lender's knowledge or consent and whether made before
or after an Event of Default).
1.35 "Inventory" shall mean all of Borrower's now
owned and hereafter existing or acquired raw materials,
work in process, finished goods and all other inventory
of whatsoever kind or nature, wherever located.
1.36 "Inventory Advance Rate" shall mean the
advance rate applicable to Eligible Inventory as
determined in accordance with subsections 2.1(a)(i).
1.37 "Letter of Credit Accommodations" shall mean
the letters of credit, merchandise purchase or other
guaranties which are from time to time either (a)
issued or opened by Lender for the account of Borrower
or any Obligor or (b) with respect to which Lender has
agreed to indemnify the issuer or guaranteed to the
issuer the performance by Borrower of its obligations
to such issuer.
1.38 "Loans" shall mean the Revolving Loans.
1.39 "Maximum Credit" shall mean, with reference
to the Revolving Loans and the Letter of Credit
Accommodations, the amount of Eighty Million Dollars
($80,000,000).
1.40 "Obligations" shall mean any and all
Revolving Loans, the Letter of Credit Accommodations
and all other obligations, liabilities and indebtedness
of every kind, nature and description owing by Borrower
to Lender and/or its affiliates, including principal,
interest, charges, fees, costs and expenses, however
evidenced, whether as principal, surety, endorser,
guarantor or otherwise, whether arising under this
Agreement or otherwise, whether now existing or
hereafter arising, whether arising before, during or
after the initial or any renewal term of this Agreement
or after the commencement of any case with respect to
Borrower under the United States Bankruptcy Code or any
similar statute (including, without limitation, the
payment of interest and other amounts which would
accrue and become due but for the commencement of such
case), whether direct or indirect, absolute or
contingent, joint or several, due or not due, primary
or secondary, liquidated or unliquidated, secured or
unsecured, and however acquired by Lender.
1.41 "Obligor" shall mean any guarantor,
endorser, acceptor, surety or other person liable on or
with respect to the Obligations or who is the owner of
any property which is security for the Obligations,
other than Borrower.
1.42 "Participant" shall mean any person which at
any time participates with Lender in respect of the
Loans, the Letter of Credit Accommodations or other
Obligations or any portion thereof.
1.43 "Payment Account" shall have the meaning set
forth in Section 6.3 hereof.
1.44 "Person" or "person" shall mean any
individual, sole proprietorship, partnership,
corporation (including, without limitation, any
corporation which elects subchapter S status under the
Internal Revenue Code of 1986, as amended), business
trust, unincorporated association, joint stock
corporation, trust, joint venture or other entity or
any government or any agency or instrumentality or
political subdivision thereof.
1.45 "Pooling Agreement" shall mean that certain
Pooling and Servicing Agreement, dated as of March 30,
1994, among GCRC, as depositor, Borrower, as servicer,
and Bankers Trust Company, as trustee.
1.46 "Prime Rate" shall mean the rate from time
to time publicly announced by CoreStates Bank, N.A., or
its successors, at its office in Philadelphia,
Pennsylvania, as its prime rate, whether or not such
announced rate is the best rate available at such bank.
1.47 "Prime Rate Loans" shall mean any Loans or
portion thereof on which interest is payable based on
the Prime Rate in accordance with the terms thereof.
1.48 "Receivables Purchase Agreement" shall mean
that certain Receivables Purchase Agreement for the
purchase of GCRC Receivables, dated as of March 30,
1994, between Borrower, as seller, and GCRC, as
purchaser.
1.49 "Records" shall mean all of Borrower's
present and future books of account of every kind or
nature, purchase and sale agreements, invoices, ledger
cards, bills of lading and other shipping evidence,
statements, correspondence, memoranda, credit files and
other data relating to the Collateral or any account
debtor, together with the tapes, disks, diskettes and
other data and software storage media and devices, file
cabinets or containers in or on which the foregoing are
stored (including any rights of Borrower with respect
to the foregoing maintained with or by any other
person).
1.50 "Reference Bank" shall mean CoreStates Bank,
N.A., or such other bank as Lender may from time to
time designate.
1.51 "Renewal Date" shall have the meaning set
forth in Section 12.1(a) hereof.
1.52 "Retail Sales Price" shall mean the current
ticketed sales price in the Borrower's retail stores,
net of markdowns from the original retail sales price
with respect thereto, for the types, categories and
styles of inventory included in the Eligible Inventory
of Borrower.
1.54 "Revolving Loans" shall mean the loans now
or hereafter made by Lender to or for the benefit of
Borrower on a revolving basis (involving advances,
repayments and readvances) as set forth in Section 2.1
hereof.
1.55 "Seasonal Period" shall mean the period from
September 1 through December 20 of each calendar year.
1.56 "Securitization Facility" shall mean (i) the
securitization facility in effect as of the date hereof
with respect to certain of Borrower's Accounts and
other indebtedness owed to Borrower arising out of
Borrower's private label credit card program, as
evidenced by the Receivables Purchase Agreement, the
Pooling Agreement, and all other agreements, documents
and instruments executed in connection therewith,
including all supplemental financings thereunder; and
(ii) such other securitization facility with respect to
the Accounts as may be acceptable to Lender in its
reasonable credit judgment.
1.57 "Variable Base Certificates" shall mean the
$15,000,000 Variable Base Class A-2 Credit Card
Certificates, Series 1994-1 issued by the Gottschalks
Credit Card Master Trust pursuant to the Securitization
Facility.
1.58 "Value" shall mean, as determined by Lender in
good faith, with respect to Inventory, the lower of (a)
cost as determined by the retail method of accounting
or (b) market value.
SECTION 2. CREDIT FACILITIES
2.1 Revolving Loans.
(a) Subject to, and upon the terms and
conditions contained herein, Lender agrees to make
Revolving Loans to Borrower from time to time in
amounts requested by Borrower up to the amount equal
to:
(i) the lesser of: (A) sixty-five percent (65%) (seventy percent
(70%) during the Seasonal Period) of the
Value of the Eligible Inventory, or (B)
thirty-three percent (33%) (thirty-five
percent (35%) during the Seasonal
Period) of the Retail Sales Price of the
Eligible Inventory; provided, however,
that advances against Eligible Domestic
In-Transit Inventory shall not, at any
one time, exceed Five Million Dollars
($5,000,000); minus
(ii) the then undrawn amounts
of outstanding Letter of Credit Accommodations
multiplied by the applicable percentages as
provided for in Section 2.2(c) hereof; and minus
(iii) any Availability
Reserves.
(b) Lender may, in its reasonable credit
judgment, from time to time, upon not less than ten
(10) days prior notice to Borrower, reduce the lending
formula(s) with respect to Eligible Inventory to the
extent that Lender determines that: (A) the number of
days of the turnover of such Inventory for any period
has changed in any materially adverse respect or (B)
the Appraised Value of the Eligible Inventory, or any
category thereof, has decreased in any material
respect, or (C) the nature and quality of the Inventory
has deteriorated in any material respect. In
determining whether to reduce the lending formula(s),
Lender may consider events, conditions, contingencies
or risks which are also considered in determining
Eligible Inventory or in establishing Availability
Reserves.
(c) Except in Lender's discretion, the
aggregate amount of the Loans, the Letter of Credit
Accommodations and other Obligations outstanding at any
time shall not exceed the Maximum Credit. In the event
that the outstanding amount of any component of the
Loans and Letter of Credit Accommodations or the
aggregate amount of the outstanding Loans and Letter of
Credit Accommodations exceeds the amounts available
under the lending formulas set forth in Section 2.1(a)
hereof, the sublimits for Letter of Credit
Accommodations set forth in Section 2.2(c), or the
Maximum Credit, as applicable, such event shall not
limit, waive or otherwise affect any rights of Lender
in that circumstance or on any future occasions and
Borrower shall, upon demand by Lender, which may be
made at any time or from time to time, immediately
repay to Lender the entire amount of any such
excess(es) for which payment is demanded.
2.2 Letter of Credit Accommodations.
(a) Subject to, and upon the terms and
conditions contained herein, at the request of
Borrower, Lender agrees to provide or arrange for
Letter of Credit Accommodations for the account of
Borrower containing terms and conditions acceptable to
Lender in its reasonable credit judgment and the issuer
thereof. Any payments made by Lender to any issuer
thereof and/or related parties in connection with the
Letter of Credit Accommodations shall constitute
additional Revolving Loans to Borrower pursuant to this
Section 2.
(b) In addition to any normal, reasonable
and customary charges, fees or expenses charged by any
bank or issuer in connection with the Letter of Credit
Accommodations, Borrower shall pay to Lender a letter
of credit fee at a rate equal to one percent (1%) per
annum on the daily outstanding balance of the Letter of
Credit Accommodations for the immediately preceding
month (or part thereof), payable in arrears as of the
first day of each succeeding month; provided, however,
that such letter of credit fee shall be increased, at
Lender's option without notice, to three percent (3%)
per annum for the period on or after the date of
termination or non-renewal of this Agreement, or the
date of the occurrence of an Event of Default and
during the continuation thereof. Such letter of credit
fee shall be calculated on the basis of a three hundred
sixty (360) day year and actual days elapsed and the
obligation of Borrower to pay such fee shall survive
the termination or non-renewal of this Agreement.
(c) No Letter of Credit Accommodations
shall be available unless on the date of the proposed
issuance of any Letter of Credit Accommodations, the
Revolving Loans available to Borrower (subject to the
Maximum Credit and any Availability Reserves) are equal
to or greater than: (i) if the proposed Letter of
Credit Accommodation is for the purpose of purchasing
Eligible Inventory, the sum of (A) the product of the
Value of such Eligible Inventory multiplied by one
minus the Inventory Advance Rate under Section
2.1(a)(i)(A) hereof, plus (B) freight, taxes, duty and
other amounts which Lender estimates, in its reasonable
credit judgment, must be paid in connection with such
Inventory upon arrival and for delivery to one of
Borrower's locations for Eligible Inventory within the
United States of America and (ii) if the proposed
Letter of Credit Accommodation is for standby letters
of credit guaranteeing the purchase of Eligible
Inventory or for any other purpose, an amount equal to
one hundred percent (100%) of the face amount thereof
and all other commitments and obligations made or
incurred by Lender with respect thereto. Effective on
the issuance of each Letter of Credit Accommodation,
the amount of Revolving Loans which might otherwise be
available to Borrower shall be reduced by the
applicable amount set forth in Section 2.2(c)(i) or
Section 2.2(c)(ii).
(d) Except in Lender's discretion, the
amount of all outstanding Letter of Credit
Accommodations and all other commitments and
obligations made or incurred by Lender in connection
therewith shall not at any time exceed Twenty Million
Dollars ($20,000,000). At any time an Event of Default
exists or has occurred and is continuing, upon Lender's
request, Borrower will either furnish cash collateral
to secure the reimbursement obligations to the issuer
in connection with any Letter of Credit Accommodations
or furnish cash collateral to Lender for the Letter of
Credit Accommodations, and in either case, the
Revolving Loans otherwise available to Borrower shall
not be reduced as provided in Section 2.2(c) to the
extent of such cash collateral.
(e) Borrower shall indemnify and hold
Lender harmless from and against any and all losses,
claims, damages, liabilities, costs and expenses which
Lender may suffer or incur in connection with any
Letter of Credit Accommodations and any documents,
drafts or acceptances relating thereto, including, but
not limited to, any losses, claims, damages,
liabilities, costs and expenses due to any action taken
by any issuer or correspondent with respect to any
Letter of Credit Accommodation. Borrower assumes all
risks with respect to the acts or omissions of the
drawer under or beneficiary of any Letter of Credit
Accommodation and for such purposes the drawer or
beneficiary shall be deemed Borrower's agent. Borrower
assumes all risks for, and agrees to pay, all foreign,
Federal, State and local taxes, duties and levies
relating to any goods subject to any Letter of Credit
Accommodations or any documents, drafts or acceptances
thereunder. Borrower hereby releases and holds Lender
harmless from and against any acts, waivers, errors,
delays or omissions, whether caused by Borrower, by any
issuer or correspondent or otherwise, unless caused by
the gross negligence or willful misconduct of Lender,
with respect to or relating to any Letter of Credit
Accommodation. The provisions of this Section 2.2(e)
shall survive the payment of Obligations and the
termination or non-renewal of this Agreement.
(f) Nothing contained herein shall be
deemed or construed to grant Borrower any right or
authority to pledge the credit of Lender in any manner.
Lender shall have no liability of any kind with respect
to any Letter of Credit Accommodation provided by an
issuer other than Lender unless Lender has duly
executed and delivered to such issuer the application
or a guarantee or indemnification in writing with
respect to such Letter of Credit Accommodation.
Borrower shall be bound by any interpretation made in
good faith by Lender, or any other issuer or
correspondent under or in connection with any Letter of
Credit Accommodation or any documents, drafts or
acceptances thereunder, notwithstanding that such
interpretation may be inconsistent with any
instructions of Borrower. Lender shall have the sole
and exclusive right and authority to, and Borrower
shall not: (i) at any time an Event of Default exists
or has occurred and is continuing, (A) approve or
resolve any questions of non-compliance of documents,
(B) give any instructions as to acceptance or rejection
of any documents or goods or (C) execute any and all
applications for steamship or airway guaranties,
indemnities or delivery orders, and (ii) at all times,
(A) grant any extensions of the maturity of, time of
payment for, or time of presentation of, any drafts,
acceptances, or documents, and (B) agree to any
amendments, renewals, extensions, modifications,
changes or cancellations of any of the terms or
conditions of any of the applications, Letter of Credit
Accommodations, or documents, drafts or acceptances
thereunder or any letters of credit included in the
Collateral. Lender may take such actions either in its
own name or in Borrower's name.
(g) Any rights, remedies, duties or
obligations granted or undertaken by Borrower to any
issuer or correspondent in any application for any
Letter of Credit Accommodation, or any other agreement
in favor of any issuer or correspondent relating to any
Letter of Credit Accommodation, shall be deemed to have
been granted or undertaken by Borrower to Lender. Any
duties or obligations undertaken by Lender to any
issuer or correspondent in any application for any
Letter of Credit Accommodation, or any other agreement
by Lender in favor of any issuer or correspondent
relating to any Letter of Credit Accommodation, shall
be deemed to have been undertaken by Borrower to Lender
and to apply in all respects to Borrower.
SECTION 3. INTEREST AND FEES
3.1 Interest.
(a) Borrower shall pay to Lender interest
on the outstanding principal amount of the non-contingent
Obligations at the Interest Rate. All
interest accruing hereunder on and after the date of
any Event of Default or termination or non-renewal
hereof shall be payable on demand.
(b) Borrower may from time to time
request that Prime Rate Loans be converted to
Eurodollar Rate Loans or that any existing Eurodollar
Rate Loans continue for an additional Interest Period.
Such request from Borrower shall specify the amount of
the Prime Rate Loans which will constitute Eurodollar
Rate Loans (subject to the limits set forth below) and
the Interest Period to be applicable to such Eurodollar
Rate Loans. Subject to the terms and conditions
contained herein, three (3) Business Days after receipt
by Lender of such a request from Borrower, such Prime
Rate Loans shall be converted to Eurodollar Rate Loans
or such Eurodollar Rate Loans shall continue, as the
case may be, provided, that, (i) no Event of Default,
or event of which with notice or passage of time or
both would constitute an Event of Default exists or has
occurred and is continuing, (ii) no party hereto shall
have sent any notice of termination or non-renewal of
this Agreement, (iii) Borrower shall have complied with
such customary and reasonable procedures as are
established by Lender and specified by Lender to
Borrower from time to time for requests by Borrower for
Eurodollar Rate Loans, (iv) no more than four (4)
Interest Periods may be in effect at any one time, (v)
the aggregate amount of the Eurodollar Rate Loans must
be in an amount not less than $5,000,000 or an integral
multiple of $1,000,000 in excess thereof; (vi) the
maximum amount of the Eurodollar Rate Loans at any time
requested by Borrower shall not exceed the amount equal
to ninety percent (90%) of the daily average of the
principal amount of the Revolving Loans which it is
anticipated will be outstanding during the applicable
Interest Period, in each case as determined by Lender
(but with no obligation of Lender to make such
Revolving Loans) and (vii) Lender shall have determined
that the Interest Period or Adjusted Eurodollar Rate is
available to Lender through the Reference Bank and can
be readily determined as of the date of the request for
such Eurodollar Rate Loan by Borrower. Any request by
Borrower to convert Prime Rate Loans to Eurodollar Rate
Loans or to continue any existing Eurodollar Rate Loans
shall be irrevocable. Notwithstanding anything to the
contrary contained herein, Lender and Reference Bank
shall not be required to purchase United States Dollar
deposits in the London interbank market or other
applicable Eurodollar Rate market to fund any
Eurodollar Rate Loans, but the provisions hereof shall
be deemed to apply as if Lender and Reference Bank had
purchased such deposits to fund the Eurodollar Rate
Loans.
(c) Any Eurodollar Rate Loans shall
automatically convert to Prime Rate Loans upon the last
day of the applicable Interest Period, unless Lender
has received and approved a request to continue such
Eurodollar Rate Loan at least three (3) Business Days
prior to such last day in accordance with the terms
hereof. Any Eurodollar Rate Loans shall, at Lender's
option, upon notice by Lender to Borrower, convert to
Prime Rate Loans in the event that (i) this Agreement
shall terminate or not be renewed, or (ii) the
aggregate principal amount of the Prime Rate Loans
which have previously been converted to Eurodollar Rate
Loans or existing Eurodollar Rate Loans continued, as
the case may be, at the beginning of an Interest Period
shall at any time during such Interest Period exceed
either (A) the aggregate principal amount of the Loans
then outstanding, or (B) Revolving Loans then available
to Borrower under Section 2 hereof. Borrower shall pay
to Lender, upon demand by Lender (or Lender may, at its
option, charge any loan account of Borrower) any
amounts required to compensate Lender, the Reference
Bank or any participant with Lender for any actual loss
(including loss of anticipated profits), cost or
expense incurred by such person, as a result of the
conversion of Eurodollar Rate Loans to Prime Rate Loans
pursuant to any of the foregoing.
(d) Interest shall be payable by Borrower
to Lender monthly in arrears not later than the first
day of each calendar month and shall be calculated on
the basis of a three hundred sixty (360) day year and
actual days elapsed. The interest rate on non-contingent
Obligations (other than Eurodollar Rate
Loans) shall increase or decrease by an amount equal to
each increase or decrease in the Prime Rate effective
on the first day of the month after any change in such
Prime Rate is announced based on the Prime Rate in
effect on the last day of the month in which any such
change occurs. In no event shall charges constituting
interest payable by Borrower to Lender exceed the
maximum amount or the rate permitted under any
applicable law or regulation, and if any such part or
provision of this Agreement is in contravention of any
such law or regulation, such part or provision shall be
deemed amended to conform thereto.
3.2 Closing Fee. Borrower shall pay to Lender
as a closing fee (inclusive of any commitment fees paid
to Lender by Borrower) of Five Hundred Ninety Thousand
Dollars ($590,000), which fee shall be fully earned as
of and payable on the date hereof. The commitment fee
of One Hundred Fifty Thousand Dollars ($150,000)
previously paid by Borrower to Lender shall be applied
to the closing fee. Lender shall pay the early
termination fee charged by Fleet Business Credit, Inc.
provided that such early termination fee does not
exceed One Hundred Ninety Thousand Dollars ($190,000).
3.3 Loan Servicing and Audit Fee. Borrower
shall pay to Lender monthly in advance a loan servicing
and audit fee in an amount equal to Four Thousand
Dollars ($4,000), plus out-of-pocket costs and
expenses, in respect of Lender's services for each
month (or part thereof) while this Agreement remains in
effect and for so long thereafter as any of the
Obligations are outstanding, which fee shall be fully
earned as of and payable in advance on the date hereof
and on the first day of each month hereafter.
3.4 Changes in Laws and Increased Costs of
Loans.
(a) Notwithstanding anything to the
contrary contained herein, all Eurodollar Rate Loans
shall, upon notice by Lender to Borrower, convert to
Prime Rate Loans in the event that (i) any change in
applicable law or regulation (or the interpretation or
administration thereof) shall either (A) make it
unlawful for Lender, Reference Bank or any Participant
to make or maintain Eurodollar Rate Loans or to comply
with the terms hereof in connection with the Eurodollar
Rate Loans, by an amount deemed by Lender to be
material, or (B) shall result in the increase in the
costs to Lender, Reference Bank or any Participant of
making or maintaining any Eurodollar Rate Loans or (C)
reduce the amounts received or receivable by Lender or
any Participant in respect thereof, by an amount deemed
by Lender to be material or (ii) the cost to Lender,
Reference Bank or any Participant of making or
maintaining any Eurodollar Rate Loans shall otherwise
increase by an amount deemed by Lender to be material.
Borrower shall pay to Lender, upon demand by Lender (or
Lender may, at its option, charge any loan account of
Borrower) any amounts required to compensate Lender,
the Reference Bank or any participant with Lender for
any loss (including loss of anticipated profits), cost
or expense incurred by such person as a result of the
foregoing, including, without limitation, any such
loss, cost or expense incurred by reason of the
liquidation or reemployment of deposits or other funds
acquired by such person to make or maintain the
Eurodollar Rate Loans or any portion thereof. A
certificate of Lender setting forth the basis for the
determination of such amount necessary to compensate
Lender as aforesaid shall be delivered to Borrower and
shall be conclusive, absent manifest error.
(b) If any payments or prepayments in
respect of the Eurodollar Rate Loans are received by
Lender other than on the last day of the applicable
Interest Period (whether pursuant to acceleration, upon
maturity or otherwise), including any payments pursuant
to the application of collections under Section 6.3 or
any other payments made with the proceeds of
Collateral, Borrower shall pay to Lender upon demand by
Lender (or Lender may, at its option, charge any loan
account of Borrower) any amounts required to compensate
Lender, the Reference Bank or any Participant with
Lender for any additional loss (including loss of
anticipated profits), cost or expense incurred by such
person as a result of such prepayment or payment,
including, without limitation, any loss, cost or
expense incurred by reason of the liquidation or
reemployment of deposits or other funds acquired by
such person to make or maintain such Eurodollar Rate
Loans or any portion thereof.
3.5 Compensation Adjustment
(a) If after the date of this Agreement
the introduction of, or any change in, any law or any
governmental rule, regulation, policy, guideline or
directive (whether or not having the force of law), or
any interpretation thereof, or compliance by Lender or
any Participant therewith:
(i) subjects Lender to any tax,
duty, charge or withholding on or from payments due
from Borrower (excluding franchise taxes imposed upon,
and taxation of the overall net income of, Lender or
any Participant), or changes the basis of taxation of
payments, in either case in respect of amounts due it
hereunder, or
(ii) imposes or increases or deems
applicable any reserve requirement or other reserve,
assessment, insurance charge, special deposit or
similar requirement against assets of, deposits with or
for the account of, or credit extended by Lender or any
Participant, or
(iii) imposes any other condition
the result of which is to increase the cost to Lender
or any Participant of making, funding or maintaining
the Revolving Loans or Letter of Credit Accommodations
or reduces any amount receivable by Lender or any
Participant in connection with the Loans or Letter of
Credit Accommodations, or requires Lender or any
Participant to make payment calculated by references to
the amount of loans held or interest received by it, by
an amount deemed material by Lender or any Participant,
or
(iv) imposes or increases any
capital requirement or affects the amount of capital
required or expected to be maintained by Lender or any
Participant or any corporation controlling Lender or
any Participant, and Lender or any Participant
determines that such imposition or increase in capital
requirements or increase in the amount of capital
expected to be maintained is based upon the existence
of this Agreement or the Loans or Letter of Credit
Accommodations hereunder, all of which may be
determined by Lender's reasonable allocation of the
aggregate of its impositions or increases in capital
required or expected to be maintained, and the result
of any of the foregoing is to increase the cost to
Lender or any Participant of making, renewing or
maintaining the Loans or Letter of Credit
Accommodations, or to reduce the rate of return to
Lender or any Participant on the Loans or Letter of
Credit Accommodations, then upon demand by Lender,
Borrower shall pay to Lender, and continue to make
periodic payments to Lender or any Participant, such
additional amounts as may be necessary to compensate
Lender or any Participant for any such additional cost
incurred or reduced rate of return realized.
(b) A certificate of Lender claiming
entitlement to compensation as set forth above will be
conclusive in the absence of manifest error. Such
certificate will set forth the nature of the occurrence
giving rise to such compensation, the additional amount
or amounts to be paid and the compensation and the
method by which such amounts were determined. In
determining any additional amounts due from Borrower
under this Section 3.5, Lender shall act reasonably and
in good faith and will, to the extent that the
increased costs, reductions, or amounts received or
receivable relate to the Lender's or a Participant's
loans or commitments generally and are not specifically
attributable to the Loans and commitments hereunder,
use averaging and attribution methods which are
reasonable and equitable and which cover all loans and
commitments under this Agreement by the Lender or such
Participant, as the case may be, whether or not the
loan documentation for such other loans and commitments
permits the Lender or such Participant to receive
compensation costs of the type described in this
Section 3.5.
SECTION 4. CONDITIONS PRECEDENT
4.1 Conditions Precedent to Initial Loans and
the Letter of Credit Accommodations. Each of the
following is a condition precedent to Lender making the
initial Loans and the initial Letter of Credit
Accommodations hereunder:
(a) Lender shall have received, in form
and substance satisfactory to Lender, all releases,
terminations and such other documents as Lender may
request to evidence and effectuate the termination by
the existing lender or lenders to Borrower of their
respective financing arrangements with Borrower and the
termination and release by it or them, as the case may
be, of any interest in and to any assets and properties
of Borrower, duly authorized, executed and delivered by
it or each of them, including, but not limited to, UCC
termination statements for all UCC financing statements
previously filed by it or any of them or their
predecessors, as secured party and Borrower, as debtor
in form acceptable for recording or filing in the
appropriate government office, and Lender shall have
satisfied itself that it has valid, perfected and first
priority security interests in and liens upon the
Collateral and any other property which is intended as
security for the Obligations, subject only to the
security interests and liens permitted herein or in the
other Financing Agreements;
(b) all requisite corporate action and
proceedings in connection with this Agreement and the
other Financing Agreements shall be satisfactory in
form and substance to Lender, and Lender shall have
received all information and copies of all documents,
including, without limitation, records of requisite
corporate action and proceedings which Lender may have
requested in connection therewith, such documents where
requested by Lender or its counsel to be certified by
appropriate corporate officers or governmental
authorities;
(c) no material adverse change shall have
occurred in the assets, business or prospects of
Borrower since the date of Lender's latest field
examination and no change or event shall have occurred
which would impair the ability of Borrower to perform
its obligations hereunder or under any of the other
Financing Agreements to which it is a party or of
Lender to enforce the Obligations or realize upon the
Collateral;
(d) Lender shall have completed a field
review of the Records and such other information with
respect to the Collateral as Lender may require to
determine the amount of Revolving Loans available to
Borrower, the results of which shall be satisfactory to
Lender; and Lender shall have received current
perpetual Inventory records and/or rollforwards of
Inventory through the date hereof, together with all
supporting documentation and such other documents and
information as Lender shall request in its reasonable
credit judgment to enable Lender to accurately identify
and verify the Eligible Inventory at or before the date
hereof in a manner satisfactory to Lender, including,
but not limited to, Inventory in transit;
(e) Lender shall have received, in form
and substance satisfactory to Lender, all consents,
waivers, acknowledgments and other agreements from
third persons which Lender may deem necessary or
desirable in order to permit, protect and perfect its
security interests in and liens upon the Collateral or
to effectuate the provisions or purposes of this
Agreement and the other Financing Agreements,
including, without limitation, but subject to
Borrower's best efforts to obtain such waivers for
Borrower's retail locations, acknowledgements by
lessors of Lender's security interests in the
Collateral, waivers by such persons of any security
interests, liens or other claims by such persons to the
Collateral and agreements by such persons permitting
Lender access to, and the right to remain on, the
premises to exercise its rights and remedies and
otherwise deal with the Collateral; provided, however,
that the foregoing shall not limit the right of Lender
to establish an Availability Reserve to cover two (2)
months gross rent, in a manner consistent with the
Availability Reserve established to cover rent as
defined in Section 1.5 hereof, in the event Lender does
not receive an acceptable waiver from the owner of any
location at which the Borrower maintains Inventory.
(f) all Credit Card Issuers and Credit
Card Processors shall have been irrevocably directed by
the parties to Credit Card Agreements, and such Credit
Card Companies and Credit Card Processors shall agree,
that all proceeds of Credit Card Receivables shall be
remitted to the Blocked Account;
(g) Lender shall have received evidence
of insurance and loss payee endorsements required
hereunder and under the other Financing Agreements, in
form and substance satisfactory to Lender, and
certificates of insurance policies and/or endorsements
naming Lender as loss payee;
(h) Lender shall have received, in form
and substance satisfactory to Lender, such opinion
letters of counsel to Borrower with respect to the
Financing Agreements and such other matters as Lender
may request;
(i) the Excess Availability as determined
by Lender as of the date hereof, shall be not less than
Ten Million Dollars ($10,000,000) after giving effect
to the initial Loans made or to be made hereunder and
the payment of all fees and expenses payable upon the
consummation of the initial transactions contemplated
by this Agreement;
(j) Lender shall have received the
negative pledge by Borrower of the issued and
outstanding capital stock of GCRC, as additional
collateral security for the Obligations, through the
deposit by Borrower of such stock into an escrow
arrangement for the sole benefit of Lender, in form and
substance, and with an escrow holder, acceptable to
Lender and its counsel;
(k) Lender shall have received, in form
and substance satisfactory to Lender and its counsel,
an irrevocable payment instruction from Borrower and
GCRC to Bankers Trust Company, as Trustee under the
Pooling Agreement, directing that all amounts otherwise
payable to Borrower or GCRC under the Pooling Agreement
shall be paid to Lender, and such payment instruction
shall have been acknowledged and agreed to by Bankers
Trust Company;
(l) Lender shall have received, in form
and substance satisfactory to Lender and its counsel,
the assignment of all of Borrower's rights in
registered patents, trademarks, service marks and
copyrights, as Collateral hereunder, on Lender's
standard forms of Collateral Assignments;
(m) Lender shall have received, each in
form and substance satisfactory to Lender and its
counsel, copies of all agreements in connection with
the Securitization Facility, including the Receivables
Purchase Agreement and the Pooling Agreement;
(n) Lender shall have received, in form
and substance satisfactory to Lender and its counsel,
copies of all of Borrower's agreements with financial
institutions regarding the collection of receipts from
purchases made by customers on credit or charge cards
other than Borrower's private label credit card;
(o) each of the depository banks used by
Borrower's retail store locations for the deposit of
receipts from the sale of merchandise or for the
deposit of other proceeds of Collateral and other
property which is security for the Obligations shall
have been notified of Lender's security interested
therein and shall have been irrevocably authorized and
directed to send all funds on deposit with such banks
only to the Blocked Account or as Lender otherwise
directs;
(p) Lender shall have received, in form
and substance satisfactory to Lender, an executed copy
of a Blocked Account Agreement, pursuant to Section
6.3(ii) hereof, among Lender, Borrower and ▇▇▇▇▇ Fargo
Bank, N.A.; and
(q) the other Financing Agreements and
all instruments and documents hereunder and thereunder
shall have been duly executed and delivered to Lender,
in form and substance satisfactory to Lender;
4.2 Conditions Precedent to All Loans and
Letter of Credit Accommodations. Each of the following
is an additional condition precedent to Lender making
Loans and/or providing Letter of Credit Accommodations
to Borrower, including the initial Loans and Letter of
Credit Accommodations and any future Loans and Letter
of Credit Accommodations:
(a) all representations and warranties
contained herein and in the other Financing Agreements
shall be true and correct in all material respects with
the same effect as though such representations and
warranties had been made on and as of the date of the
making of each such Revolving Loan or providing each
such Letter of Credit Accommodation and after giving
effect thereto;
(b) no Event of Default and no event or
condition which, with notice or passage of time or
both, would constitute an Event of Default, shall exist
or have occurred and be continuing on and as of the
date of the making of such Loan or providing each such
Letter of Credit Accommodation and after giving effect
thereto; and
(c) the Securitization Facility shall not
have expired or been terminated, and no default or
event of default with respect to the Securitization
Facility, or under any agreements between Borrower and
any other Person evidencing or relating to the
Securitization Facility shall have occurred and be
continuing.
SECTION 5. GRANT OF SECURITY INTEREST
To secure payment and performance of all
Obligations, Borrower hereby grants to Lender a
continuing security interest in, a lien upon, and a
right of set off against, and hereby assigns to Lender
as security, the following property and interests in
property, whether now owned or hereafter acquired or
existing, and wherever located (collectively, the
"Collateral"):
5.1 Accounts, Credit Card Receivables and other
indebtedness owed to the Borrower; provided, however,
that Lender's security interest in Accounts or other
indebtedness owed to the Borrower arising out of
Borrower's private label credit card program, and the
collections and proceeds thereof in whatever form
(including any related "instruments," "documents" and
"chattel paper," each as defined in the California
Uniform Commercial Code), all deposit accounts
associated therewith, and all books and records related
thereto, shall automatically terminate (but not
Lender's security interest in the proceeds thereof
consisting of any amounts paid to Borrower by GCRC
pursuant to the Receivables Purchase Agreement) upon
the sale of any such Accounts or other indebtedness
owed to the Borrower by the Borrower to GCRC;
5.2 all present and future contract rights,
general intangibles (including, but not limited to, tax
and duty refunds, registered and unregistered patents,
trademarks, service marks, copyrights, trade names,
applications for the foregoing, trade secrets,
goodwill, processes, drawings, blueprints, customer
lists, licenses, whether as licensor or licensee,
choses in action and other claims and existing and
future leasehold interests in equipment, real estate
and fixtures), chattel paper, documents, instruments,
securities, letters of credit, bankers' acceptances and
guaranties;
5.3 all present and future monies, securities,
credit balances, deposits, deposit accounts and other
property of Borrower now or hereafter held or received
by or in transit to Lender or its affiliates or at any
other depository or other institution from or for the
account of Borrower, whether for safekeeping, pledge,
custody, transmission, collection or otherwise, and all
present and future liens, security interests, rights,
remedies, title and interest in, to and in respect of
Accounts, Credit Card Receivables, and other
Collateral, including, without limitation, (a) rights
and remedies under or relating to guaranties, contracts
of suretyship, letters of credit and credit and other
insurance related to the Collateral, (b) rights of
stoppage in transit, replevin, repossession,
reclamation and other rights and remedies of an unpaid
vendor, lienor or secured party, (c) goods described in
invoices, documents, contracts or instruments with
respect to, or otherwise representing or evidencing,
Accounts, Credit Card Receivables, or other Collateral,
including, without limitation, returned, repossessed
and reclaimed goods, and (d) deposits by and property
of account debtors or other persons securing the
obligations of account debtors;
5.4 Inventory;
5.5 Equipment;
5.6 Records; and
5.7 All products and proceeds of the foregoing,
in any form, including, without limitation, insurance
proceeds and all claims against third parties for loss
or damage to or destruction of any or all of the
foregoing.
SECTION 6. COLLECTION AND ADMINISTRATION
6.1 Borrower's Loan Account. Lender shall
maintain one or more loan account(s) on its books in
which shall be recorded (a) all Loans, all Letter of
Credit Accommodations and all other Obligations and the
Collateral, (b) all payments made by or on behalf of
Borrower and (c) all other appropriate debits and
credits as provided in this Agreement, including,
without limitation, fees, charges, costs, expenses and
interest. All entries in the loan account(s) shall be
made in accordance with Lender's customary practices as
in effect from time to time.
6.2 Statements. Lender shall render to
Borrower each month a statement setting forth the
balance in the Borrower's loan account(s) maintained by
Lender for Borrower pursuant to the provisions of this
Agreement, including principal, interest, fees, costs
and expenses. Each such statement shall be subject to
subsequent adjustment by Lender but shall, absent
manifest errors or omissions, be considered correct and
deemed accepted by Borrower and conclusively binding
upon Borrower as an account stated except to the extent
that Lender receives a written notice from Borrower of
any specific exceptions of Borrower thereto within
sixty (60) days after the date such statement has been
mailed by Lender. Until such time as Lender shall have
rendered to Borrower a written statement as provided
above, the balance in Borrower's loan account(s) shall
be presumptive evidence of the amounts due and owing to
Lender by Borrower.
6.3 Collection of Accounts.
(a) Borrower shall establish and maintain,
at its expense, deposit account arrangements and
merchant payment arrangements with the banks set forth
on Schedule 6.3 and after prior written notice to
Lender, such other banks as Borrower may hereafter
select as are acceptable to Lender. The banks set
forth on Schedule 6.3 constitute all of the banks with
whom Borrower has deposit account arrangements and
merchant payment arrangements as of the date hereof and
identifies each of the deposit accounts at such banks
to a retail store location of Borrower or otherwise
describes the nature of the use of such deposit account
by Borrower.
(i) Borrower shall deposit all
proceeds from sales of Inventory in every form
(including, without limitation, cash, checks, credit
card sales drafts, credit card sales or charge slip or
receipts and other forms of daily store receipts, but
excluding GCRC Receivables, and the collections and
proceeds thereof in whatever form upon the sale of such
Accounts by Borrower to GCRC, but including any amounts
paid to Borrower by GCRC pursuant to the Receivables
Purchase Agreement, from each retail store location of
Borrower, and all other proceeds of Collateral, on each
business day into the deposit accounts of Borrower used
solely for such purpose and identified to each retail
store location as set forth on Schedule 6.3. Borrower
shall irrevocably authorize and direct in writing, in
form and substance satisfactory to Lender, each of the
banks into which proceeds from sales of Inventory from
each retail store location of Borrower and any and all
other proceeds of Collateral are at any time deposited
as provided above to send by wire transfer on a daily
basis all funds deposited in such account, and shall
irrevocably authorize and direct in writing its account
debtors, Credit Card Issuers and Credit Card Processors
to directly remit payments on its Accounts, Credit Card
Receivables and all other payments constituting
proceeds of Inventory to the Blocked Accounts described
in Section 6.3(a)(ii) below. Borrower shall
irrevocably direct and shall also cause GCRC to
irrevocably direct, in writing, Bankers Trust Company
to directly remit to the Blocked Account, by same day
wire transfer, any amounts payable to Borrower or GCRC
under the Pooling Agreement. Such authorizations and
directions shall not be rescinded, revoked or modified
without the prior written consent of Lender.
(ii) Borrower shall establish and
maintain, at its expense, pursuant to an agreement
described in the following sentence, a blocked account
with such bank or banks as are acceptable to Lender
(each a "Blocked Account" and collectively the "Blocked
Accounts"). Each bank at which a Blocked Account is
established shall enter into an agreement, in form and
substance satisfactory to Lender, providing (unless
otherwise agreed to by Lender) that all items received
or deposited in such Blocked Account are the Collateral
of Lender, that the depository bank has no lien upon,
or right to setoff against, the Blocked Accounts, the
items received for deposit therein, or the funds from
time to time on deposit therein, and that the
depository bank will wire, or otherwise transfer, in
immediately available funds, on a daily basis, all
funds received or deposited into such Blocked Account
to such bank account of Lender as Lender may from time
to time designate for such purpose (the "Payment
Account"). Borrower agrees that all amounts deposited
in the Blocked Account(s) or other funds received and
collected by Lender, whether as proceeds of Inventory,
the collection of Accounts or other Collateral or
otherwise shall be the Collateral of Lender.
(b) For purposes of calculating interest
on the Obligations, such payments or other funds
received will be applied (conditional upon final
collection) to the Obligations (i) immediately upon
receipt of immediately available funds by Lender in the
Payment Account if such funds are received by Lender
prior to 10 a.m. (Los Angeles time), or (ii) one (1)
business day following the date of receipt of
immediately available funds by Lender in the Payment
Account if such funds are received by Lender on or
after 10 a.m. (Los Angeles time), or (iii) three (3)
business days following the date of receipt of funds
that are not immediately available to Lender in the
Payment Account, as applicable. For purposes of
calculating the amount of the Revolving Loans available
to Borrower such payments will be applied (conditional
upon final collection) to the Obligations on the
business day of receipt by Lender in the Payment
Account, if such payments are received within
sufficient time (in accordance with Lender's usual and
customary practices as in effect from time to time) to
credit Borrower's loan account on such day, and if not,
then on the next business day.
(c) Borrower and all of its affiliates,
subsidiaries, partners, employees or agents shall,
acting as trustee for Lender, receive, as the property
of Lender, any cash, checks, credit card sales drafts,
credit card sales or charge slips or receipts, notes,
drafts and all forms of daily store receipts or any
other payment relating to and/or proceeds from sales of
Inventory or other Collateral which come into their
possession or under their control and immediately upon
receipt thereof, shall deposit or cause the same to be
deposited in the Blocked Accounts, or remit the same or
cause the same to be remitted, in kind, to Lender,
[with the exception of Accounts arising out of
Borrower's private label credit card program, including
the collections and proceeds thereof in whatever form,
if and when such Accounts are sold by Borrower to GCRC,
but including any amounts paid to Borrower by GCRC
pursuant to the Receivables Purchase Agreement]. In no
event shall any such monies, checks, credit card sales
drafts, credit card sales or charge slips or receipts,
notes, drafts or other payments be commingled with
Borrower's own funds. Borrower agrees to reimburse
Lender on demand for any amounts owed or paid to any
bank at which a Blocked Account is established or any
other bank or person involved in the transfer of funds
to or from the Blocked Accounts arising out of Lender's
payments to or indemnification of such bank or person,
unless such payment or indemnification obligation of
Lender was a result of Lender's gross negligence or
wilful misconduct. The obligation of Borrower to
reimburse Lender for such amounts pursuant to this
Section 6.3 shall survive the termination or non-renewal of this Agreement.
6.4 Payments. All Obligations shall be payable
to the Payment Account as provided in Section 6.3 or
such other place as Lender may designate from time to
time. Lender may apply payments received or collected
from Borrower or for the account of Borrower
(including, without limitation, the monetary proceeds
of collections or of realization upon any Collateral)
to such of the Obligations, whether or not then due, in
such order and manner as Lender determines. At
Lender's option, all principal, interest, fees, costs,
expenses and other charges provided for in this
Agreement or the other Financing Agreements may be
charged directly to the loan account(s) of Borrower.
Borrower shall make all payments to Lender on the
Obligations free and clear of, and without deduction or
withholding for or on account of, any setoff,
counterclaim, defense, duties, taxes, levies, imposts,
fees, deductions, withholding, restrictions or
conditions of any kind. If after receipt of any
payment of, or proceeds of Collateral applied to the
payment of, any of the Obligations, Lender is required
to surrender or return such payment or proceeds to any
Person for any reason, then the Obligations intended to
be satisfied by such payment or proceeds shall be
reinstated and continue and this Agreement shall
continue in full force and effect as if such payment or
proceeds had not been received by Lender. Borrower
shall be liable to pay to Lender, and does hereby
indemnify and hold Lender harmless for the amount of
any payments or proceeds surrendered or returned. This
Section 6.4 shall remain effective notwithstanding any
contrary action which may be taken by Lender in
reliance upon such payment or proceeds. This Section
6.4 shall survive the payment of the Obligations and
the termination or non-renewal of this Agreement.
6.5 Authorization to Make Loans. Lender is
authorized to make the Loans and provide Letter of
Credit Accommodations based upon telephonic or other
instructions received from anyone purporting to be an
officer of Borrower or other authorized person or, at
the discretion of Lender, if such Loans are necessary
to satisfy any Obligations. All requests for Loans or
Letter of Credit Accommodations hereunder shall specify
the date on which the requested advance is to be made
or Letter of Credit Accommodations established (which
day shall be a business day) and the amount of the
requested Loan. Requests received after 10:30 a.m.
(Los Angeles time) on any day shall be deemed to have
been made as of the opening of business on the
immediately following business day. All Loans and
Letter of Credit Accommodations under this Agreement
shall be conclusively presumed to have been made to,
and at the request of and for the benefit of, Borrower
when deposited to the credit of Borrower or otherwise
disbursed or established in accordance with the
instructions of Borrower or in accordance with the
terms and conditions of this Agreement.
6.6 Use of Proceeds. Borrower shall use the
initial proceeds of the Loans provided by Lender to
Borrower hereunder only for: (a) payments to each of
the persons listed in the disbursement direction letter
furnished by Borrower to Lender on or about the date
hereof and (b) costs, expenses and fees in connection
with the preparation, negotiation, execution and
delivery of this Agreement and the other Financing
Agreements. All other Loans made or Letter of Credit
Accommodations provided by Lender to Borrower pursuant
to the provisions hereof shall be used by Borrower only
for general operating, working capital and other proper
corporate purposes of Borrower not otherwise prohibited
by the terms hereof. None of the proceeds will be
used, directly or indirectly, for the purpose of
purchasing or carrying any margin security or for the
purposes of reducing or retiring any indebtedness which
was originally incurred to purchase or carry any margin
security or for any other purpose which might cause any
of the Loans to be considered a "purpose credit" within
the meaning of Regulation G of the Board of Governors
of the Federal Reserve System, as amended.
SECTION 7. COLLATERAL REPORTING AND COVENANTS
7.1 Collateral Reporting. Borrower shall
provide Lender with the following documents in a form
satisfactory to Lender: (a) on Tuesday of each week for
the immediately preceding week ending on the close of
business on Saturday of that week, or more frequently
as Lender may request, (i) a schedule of Inventory at
Borrower's retail stores and Distribution Center,
setting forth the aggregate cost and Retail Sales Price
of such Inventory (including markdowns from the
original sales price or ticketed sales price with
respect thereto); (ii) a report of the amount of
Eligible Domestic In-Transit Inventory, and such
additional details Lender may reasonably require, (iii)
a summary of Borrower's deposits into the Blocked
Account, and (iv) a summary of Borrower's sales of
Concession Inventory; (b) once each fiscal month, on or
before the twentieth (20th) Business Day of each such
fiscal month for the immediately preceding fiscal month
or more frequently as Lender may request, (i) a summary
of Borrower's sales of Concession Inventory, and
evidence, in such manner as Lender shall reasonably
request, demonstrating that Borrower has remitted the
net sales revenue to concessionaires for the
immediately preceding fiscal month and that no amounts
are due concessionaires for any period with the
exception of sales of Concession Inventory made during
the current fiscal month; (ii) the Monthly Servicing
Report prepared by Borrower, as Servicer, under the
Pooling Agreement, (iii) the aggregate amount of all
sales of Inventory for all Borrower's retail stores,
and (iv) a schedule of Inventory at Borrower's retail
stores and Distribution Center (by division) setting
forth the aggregate cost and Retail Sales Price of such
Inventory (including markdowns from the original sales
price or ticketed sales price with respect thereto),
(c) once each fiscal quarter, on or before the
twentieth (20th) Business Day of such fiscal quarter
for the immediately preceding fiscal quarter or more
frequently as Lender may request, (i) a merchandise
accounts payable trial balance and a summary of lease
payables and other payables, (ii) a schedule of
Accounts, Credit Card Receivables, GCRC Receivables,
and other indebtedness owed to Borrower, (iii) a report
of Inventory to be sold by each department (the Gross
Margin Report by department), (iv) a schedule of
Inventory located at the Distribution Facility and
Eligible Domestic In-Transit Inventory, and (v) a
certificate from an authorized officer of Borrower
representing that Borrower has made payment of sales
and use taxes during such quarter, or at Lender's
request, other evidence of such payment, and (d) such
other reports as to the Collateral and other property
which is security for the Obligations as Lender shall
reasonably request from time to time. If any of
Borrower's or any other Obligor's records or reports of
the Collateral or other property which is security for
the Obligations are prepared or maintained by an
accounting service, contractor, shipper or agent,
Borrower hereby irrevocably authorizes such service,
contractor, shipper or agent to deliver such records,
reports, and related documents to Lender and to follow
Lender's instructions with respect to further services
at any time that an Event of Default exists or has
occurred and is continuing.
7.2 Accounts Covenants.
(a) So long as no Event of Default exists
or has occurred and is continuing, Borrower shall
settle, adjust or compromise any claim, offset,
counterclaim or dispute with any account debtor. At
any time that an Event of Default exists or has
occurred and is continuing, Lender shall, at its
option, have the exclusive right to settle, adjust or
compromise any claim, offset, counterclaim or dispute
with account debtors or grant any credits, discounts or
allowances other than with respect to GCRC Receivables.
(b) In the event any account debtor
returns Inventory when an Event of Default exists or
has occurred and is continuing, Borrower shall, upon
Lender's request, (i) hold the returned Inventory in
trust for Lender, (ii) segregate all returned Inventory
from all of its other property, (iii) dispose of the
returned Inventory solely according to Lender's
instructions, and (iv) not issue any credits, discounts
or allowances with respect thereto without Lender's
prior written consent.
(c) With respect to each Account, Credit
Card Receivable and GCRC Receivable: (i) the amounts
shown on any invoice delivered to Lender or schedule
thereof delivered to Lender shall be true and complete,
(ii) no payments shall be made thereon except payments
made pursuant to the terms of this Agreement, (iii)
there shall be no setoffs, deductions, contras,
defenses, counterclaims or disputes existing or
asserted with respect thereto except as reported to
Lender in accordance with the terms of this Agreement
or as provided herein, (iv) none of the transactions
giving rise thereto will violate any applicable State
or Federal laws or regulations, all documentation will
be legally enforceable in accordance with its terms,
and (v) there shall be compliance with the provisions
of Section 4.1(f) hereof as to each Credit Card Issuer
obligated on any Credit Card Receivables.
(d) Lender shall have the right at any
time or times, in Lender's name or in the name of a
nominee of Lender, to verify the validity, amount or
any other matter relating to any Account, Credit Card
Receivable, or other Collateral or property which is
security for the Obligations, by mail, telephone
facsimile transmission or otherwise.
(e) Borrower shall deliver or cause to be
delivered to Lender, with appropriate endorsement and
assignment, with full recourse to Borrower, all chattel
paper and instruments which Borrower now owns or may at
any time acquire immediately upon Borrower's receipt
thereof, except as Lender may otherwise agree.
(f) Lender may, at any time or times that
an Event of Default exists or has occurred and is
continuing, (i) notify any or all account debtors that
the Accounts, Credit Card Receivables and other
obligations included in the Collateral have been
assigned to Lender and that Lender has a security
interest therein and Lender may direct any or all
accounts debtors to make payment of Accounts directly
to Lender, (ii) extend the time of payment of,
compromise, settle or adjust for cash, credit, return
of merchandise or otherwise, and upon any terms or
conditions, any and all Accounts, Credit Card
Receivables or other obligations included in the
Collateral and thereby discharge or release the account
debtor or any other party or parties in any way liable
for payment thereof without affecting any of the
Obligations, (iii) demand, collect or enforce payment
of any Accounts, Credit Card Receivables or such other
obligations, but without any duty to do so, and Lender
shall not be liable for its failure to collect or
enforce the payment thereof nor for the negligence of
its agents or attorneys with respect thereto and (iv)
take whatever other action Lender may deem necessary or
desirable for the protection of its interests. At any
time that an Event of Default exists or has occurred
and is continuing, at Lender's request, all invoices
and statements sent to any account debtor shall state
that the Accounts, Credit Card Receivables and such
other obligations have been assigned to Lender and are
payable directly and only to Lender and Borrower shall
deliver to Lender such originals of documents
evidencing the sale and delivery of goods or the
performance of services giving rise to any Accounts as
Lender may require.
7.3 Inventory Covenants. With respect to the
Inventory: (a) Borrower shall at all times maintain
inventory records reasonably satisfactory to Lender,
keeping correct and accurate records itemizing and
describing the kind, type, quality and quantity of
Inventory, Borrower's cost therefor, the Retail Sales
Price thereof (including markdowns with respect
thereto) and daily withdrawals therefrom and additions
thereto; (b) Borrower shall conduct a complete physical
count of the Inventory at a minimum of once every
twelve (12) months but at any time as Lender may
request upon the occurrence and during the continuance
an Event of Default, and promptly following such
physical count shall supply Lender with a report in the
form and with such specificity as may be reasonably
satisfactory to Lender concerning such physical count;
(c) Borrower shall not remove any Inventory from the
locations set forth or permitted herein in excess of
Two Hundred Fifty Thousand Dollars ($250,000) during
any twelve month period, without the prior written
consent of Lender, except for sales of Inventory in the
ordinary course of Borrower's business and except to
move Inventory directly from one location set forth or
permitted herein to another such location; (d) upon
Lender's request, Borrower shall, at its expense, no
more than once in any twelve (12) month period, but at
any time or times as Lender may request upon the
occurrence and during the continuance of an Event of
Default, deliver or cause to be delivered to Lender
written reports or appraisals as to the Inventory in
form, scope and methodology acceptable to Lender by
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Partners, Inc. or by any other
appraiser acceptable to Lender, addressed to Lender or
upon which Lender is expressly permitted to rely (with
the understanding that Lender may revise the definition
of "Eligible Inventory" hereunder or establish
Availability Reserves as Lender may deem advisable in
its sole discretion based upon the results of such
updated appraisals); (e) Borrower shall produce, use,
store and maintain the Inventory, with all reasonable
care and caution and in accordance with applicable
standards of any insurance and in conformity with
applicable laws (including, but not limited to, the
requirements of the Federal Fair Labor Standards Act of
1938, as amended and all rules, regulations and orders
related thereto); (f) Borrower assumes all
responsibility and liability arising from or relating
to the production, use, sale or other disposition of
the Inventory; (g) Borrower shall not sell Inventory to
any customer on approval, or any other basis which
entitles the customer to return or may obligate
Borrower to repurchase such Inventory with the
exception of Inventory sold in the ordinary course of
Borrower's business subject to Borrower's normal and
customary return policy; (h) Borrower shall keep the
Inventory in good and marketable condition; and (i)
Borrower shall not, without prior written notice to
Lender, acquire or accept any Inventory on consignment
or approval except as set forth on Schedule 7.3(i)
hereto.
7.4 Equipment Covenants. With respect to the
Equipment: (a) upon Lender's request, Borrower shall,
at its expense, at any time or times as Lender may
request on or after an Event of Default, deliver or
cause to be delivered to Lender written reports as to
the Equipment in form, scope and methodology acceptable
to Lender; (b) Borrower shall keep the Equipment in
good order, repair, running and marketable condition
(ordinary wear and tear excepted); (c) Borrower shall
use the Equipment with all reasonable care and caution
and in accordance with applicable standards of any
insurance and in conformity with all applicable laws;
(d) the Equipment is and shall be used in Borrower's
business and not for personal, family, household or
farming use; (e) Borrower shall not remove any
Equipment from the locations set forth or permitted
herein, except to the extent necessary to have any
Equipment repaired or maintained in the ordinary course
of the business of Borrower or to move Equipment
directly from one such location set forth or permitted
herein to another such location and except for the
movement of motor vehicles used by or for the benefit
of Borrower in the ordinary course of business; (f) the
Equipment is now and shall remain personal property and
Borrower shall not permit any of the Equipment to be or
become a part of or affixed to real property; and (g)
Borrower assumes all responsibility and liability
arising from the use of the Equipment.
7.5 Power of Attorney. Borrower hereby
irrevocably designates and appoints Lender (and all
persons designated by Lender) as Borrower's true and
lawful attorney-in-fact, and authorizes Lender, in
Borrower's or Lender's name, to: (a) at any time an
Event of Default exists (i) demand payment on Accounts
or other proceeds of Inventory or other Collateral,
(ii) enforce payment of Accounts, Credit Card
Receivables or other obligations included in the
Collateral by legal proceedings or otherwise, (iii)
exercise all of Borrower's rights and remedies to
collect any Account, Credit Card Receivables or other
proceeds of Inventory or other Collateral, (iv) sell or
assign any Account upon such terms, for such amount and
at such time or times as the Lender deems advisable,
(v) settle, adjust, compromise, extend or renew an
Account, (vi) discharge and release any Account, Credit
Card Receivables or other obligations included in the
Collateral, (vii) prepare, file and sign Borrower's
name on any proof of claim in bankruptcy or other
similar document against an account debtor, (viii)
notify the post office authorities to change the
address for delivery of Borrower's mail to an address
designated by Lender, and open and dispose of all mail
addressed to Borrower, and (ix) do all acts and things
which are necessary, in Lender's determination, to
fulfill Borrower's obligations under this Agreement and
the other Financing Agreements and (b) at any time,
subject to the terms of the agreement(s) relating to
the Blocked Account(s), to (i) take control in any
manner of any item of payment or proceeds thereof, (ii)
have access to any lockbox or postal box into which
Borrower's mail is deposited, (iii) endorse Borrower's
name upon any items of payment or proceeds thereof and
deposit the same in the Lender's account for
application to the Obligations, (iv) endorse Borrower's
name upon any chattel paper, document, instrument,
invoice, or similar document or agreement relating to
any Account or Credit Card Receivables or any goods
pertaining thereto or any other Collateral, (v) sign
Borrower's name on any verification of Accounts or
Credit Card Receivables and notices thereof to account
debtors and (vi) execute in Borrower's name and file
any UCC financing statements or amendments thereto.
Borrower hereby releases Lender and its officers,
employees and designees from any liabilities arising
from any act or acts under this power of attorney and
in furtherance thereof, whether of omission or
commission, except as a result of Lender's own gross
negligence or wilful misconduct as determined pursuant
to a final non-appealable order of a court of competent
jurisdiction.
7.6 Right to Cure. Lender may, at its option,
(a) cure any default by Borrower under any agreement
with a third party or pay or bond on appeal any
judgment entered against Borrower, (b) discharge taxes,
liens, security interests or other encumbrances at any
time levied on or existing with respect to the
Collateral and (c) pay any amount, incur any expense or
perform any act which, in Lender's reasonable judgment,
is necessary or appropriate to preserve, protect,
insure or maintain the Collateral and the rights of
Lender with respect thereto. Lender may add any
amounts so expended to the Obligations and charge
Borrower's account therefor, such amounts to be
repayable by Borrower on demand. Lender shall be under
no obligation to effect such cure, payment or bonding
and shall not, by doing so, be deemed to have assumed
any obligation or liability of Borrower. Any payment
made or other action taken by Lender under this Section
shall be without prejudice to any right to assert an
Event of Default hereunder and to proceed accordingly.
7.7 Access to Premises. From time to time as
requested by Lender, at the cost and expense of
Borrower, (a) Lender or its designee shall have access
to Borrower's premises during normal business hours and
after notice to Borrower, or at any time and without
notice to Borrower if an Event of Default exists or has
occurred and is continuing, for the purposes of
inspecting, verifying and auditing the Collateral and
all of Borrower's books and records, including, without
limitation, the Records, and (b) Borrower shall
promptly furnish to Lender such copies of such books
and records or extracts therefrom as Lender may
request, and (c) use during normal business hours such
of Borrower's personnel, equipment, supplies and
premises as may be reasonably necessary for the
foregoing and if an Event of Default exists or has
occurred and is continuing for the collection of
Accounts and realization of other Collateral.
SECTION 8. REPRESENTATIONS AND WARRANTIES
Borrower hereby represents and warrants to Lender
the following (which shall survive the execution and
delivery of this Agreement), the truth and accuracy of
which are a continuing condition of the making of Loans
and the providing of Letter of Credit Accommodations by
Lender to Borrower:
8.1 Corporate Existence, Power and Authority;
Subsidiaries. Borrower is a corporation duly organized
and in good standing under the laws of its state of
incorporation and is duly qualified as a foreign
corporation and in good standing in all states or other
jurisdictions where the nature and extent of the
business transacted by it or the ownership of assets
makes such qualification necessary, except for those
jurisdictions in which the failure to so qualify would
not have a material adverse effect on Borrower's
financial condition, results of operation or business
or the rights of Lender in or to any of the Collateral.
The execution, delivery and performance of this
Agreement, the other Financing Agreements and the
transactions contemplated hereunder and thereunder are
all within Borrower's corporate powers, have been duly
authorized and are not in contravention of law or the
terms of Borrower's certificate of incorporation, by-laws,
or other organizational documentation, or any
indenture, agreement or undertaking to which Borrower
is a party or by which Borrower or its property are
bound. This Agreement and the other Financing
Agreements constitute legal, valid and binding
obligations of Borrower enforceable in accordance with
their respective terms. Borrower does not have any
subsidiaries except as set forth on the Information
Certificate.
8.2 Financial Statements; No Material Adverse
Change. All financial statements relating to Borrower
which have been or may hereafter be delivered by
Borrower to Lender have been prepared in accordance
with GAAP and fairly present the financial condition
and the results of operations of Borrower as at the
dates and for the periods set forth therein, except
that unaudited financial statements do not have all
GAAP required footnotes and are subject to accruals and
other year-end adjustments. Except as disclosed in any
interim financial statements furnished by Borrower to
Lender prior to the date of this Agreement, there has
been no material adverse change in the assets, liabi-
lities, properties and condition, financial or
otherwise, of Borrower, since the date of the most
recent audited financial statements furnished by
Borrower to Lender prior to the date of this Agreement.
8.3 Chief Executive Office; Collateral
Locations. The chief executive office of Borrower and
Borrower's Records concerning Accounts are located only
at the address set forth below and its only other
places of business and the only other locations of
Collateral, if any, are the addresses set forth in the
Information Certificate, subject to the right of
Borrower to establish new locations in accordance with
Section 9.2 below. The Information Certificate
correctly identifies any of such locations which are
not owned by Borrower and sets forth the owners and/or
operators thereof.
8.4 Priority of Liens; Title to Properties.
The security interests and liens granted to Lender
under this Agreement and the other Financing Agreements
constitute valid and perfected first priority liens and
security interests in and upon the Collateral subject
only to the liens indicated on Schedule 8.4 hereto and
the other liens permitted under Section 9.8 hereof.
Borrower has good and marketable title to all of its
properties and assets subject to no liens, mortgages,
pledges, security interests, encumbrances or charges of
any kind, except those granted to Lender and such
others as are specifically listed on Schedule 8.4
hereto or permitted under Section 9.8 hereof.
8.5 Tax Returns. Borrower has filed, or caused
to be filed, in a timely manner all tax returns,
reports and declarations which are required to be filed
by it (without requests for extension except as
previously disclosed in writing to Lender). All
information in such tax returns, reports and
declarations is complete and accurate in all material
respects. Borrower has paid or caused to be paid all
taxes due and payable or claimed due and payable in any
assessment received by it, except taxes the validity of
which are being contested in good faith by appropriate
proceedings diligently pursued and available to
Borrower and with respect to which adequate reserves
have been set aside on its books. Adequate provision
has been made for the payment of all accrued and unpaid
Federal, State, county, local, foreign and other taxes
whether or not yet due and payable and whether or not
disputed.
8.6 Litigation. Except as set forth on the
Information Certificate, there is no present
investigation by any governmental agency pending, or to
the best of Borrower's knowledge threatened, against or
affecting Borrower, its assets or business and there is
no action, suit, proceeding or claim by any Person
pending, or to the best of Borrower's knowledge
threatened, against Borrower or its assets or goodwill,
or against or affecting any transactions contemplated
by this Agreement, which if adversely determined
against Borrower would result in any material adverse
change in the assets, business or prospects of Borrower
or would impair the ability of Borrower to perform its
obligations hereunder or under any of the other
Financing Agreements to which it is a party or of
Lender to enforce any Obligations or realize upon any
Collateral.
8.7 Compliance with Other Agreements and
Applicable Laws. Borrower is not in default in any
material respect under, or in violation in any material
respect of any of the terms of, any agreement,
contract, instrument, lease or other commitment to
which it is a party or by which it or any of its assets
are bound and Borrower is in compliance in all material
respects with all applicable provisions of laws, rules,
regulations, licenses, permits, approvals and orders of
any foreign, Federal, State or local governmental
authority.
8.8 Environmental Compliance.
(a) Except as set forth on Schedule 8.8
hereto, Borrower has not generated, used, stored,
treated, transported, manufactured, handled, produced
or disposed of any Hazardous Materials, on or off its
premises (whether or not owned by it) in any manner
which at any time violates any applicable Environmental
Law or any license, permit, certificate, approval or
similar authorization thereunder and the operations of
Borrower complies in all material respects with all
Environmental Laws and all licenses, permits,
certificates, approvals and similar authorizations
thereunder.
(b) Except as set forth on Schedule 8.8
hereto, there has been no investigation, proceeding,
complaint, order, directive, claim, citation or notice
by any governmental authority or any other person nor
is any pending or to the best of Borrower's knowledge
threatened, with respect to any non-compliance with or
violation of the requirements of any Environmental Law
by Borrower or the release, spill or discharge,
threatened or actual, of any Hazardous Material or the
generation, use, storage, treatment, transportation,
manufacture, handling, production or disposal of any
Hazardous Materials or any other environmental, health
or safety matter, which affects Borrower or its
business, operations or assets or any properties at
which Borrower has transported, stored or disposed of
any Hazardous Materials.
(c) Borrower has no material liability
(contingent or otherwise) in connection with a release,
spill or discharge, threatened or actual, of any
Hazardous Materials or the generation, use, storage,
treatment, transportation, manufacture, handling,
production or disposal of any Hazardous Materials.
(d) Borrower has all licenses, permits,
certificates, approvals or similar authorizations
required to be obtained or filed in connection with the
operations of Borrower under any Environmental Law and
all of such licenses, permits, certificates, approvals
or similar authorizations are valid and in full force
and effect.
8.9 Employee Benefits.
(a) Borrower has not engaged in any
transaction in connection with which Borrower or any of
its ERISA Affiliates could be subject to either a civil
penalty assessed pursuant to Section 502(i) of ERISA or
a tax imposed by Section 4975 of the Code, including
any accumulated funding deficiency described in Section
8.9(c) hereof and any deficiency with respect to vested
accrued benefits described in Section 8.9(d) hereof.
(b) No liability to the Pension Benefit
Guaranty Corporation has been or is expected by
Borrower to be incurred with respect to any employee
pension benefit plan of Borrower or any of its ERISA
Affiliates. There has been no reportable event (within
the meaning of Section 4043(b) of ERISA) or any other
event or condition with respect to any employee pension
benefit plan of Borrower or any of its ERISA Affiliates
which presents a risk of termination of any such plan
by the Pension Benefit Guaranty Corporation.
(c) Full payment has been made of all
amounts which Borrower or any of its ERISA Affiliates
is required under Section 302 of ERISA and Section 412
of the Code to have paid under the terms of each
employee pension benefit plan as contributions to such
plan as of the last day of the most recent fiscal year
of such plan ended prior to the date hereof, and no
accumulated funding deficiency (as defined in Section
302 of ERISA and Section 412 of the Code), whether or
not waived, exists with respect to any employee pension
benefit plan, including any penalty or tax described in
Section 8.9(a) hereof and any deficiency with respect
to vested accrued benefits described in Section 8.9(d)
hereof.
(d) The current value of all vested
accrued benefits under all employee pension benefit
plans maintained by Borrower that are subject to Title
IV of ERISA does not exceed the current value of the
assets of such plans allocable to such vested accrued
benefits, including any penalty or tax described in
Section 8.9(a) hereof and any accumulated funding
deficiency described in Section 8.9(c) hereof. The
terms "current value" and "accrued benefit" have the
meanings specified in ERISA.
(e) Neither Borrower nor any of its ERISA
Affiliates is or has ever been obligated to contribute
to any "multiemployer plan" (as such term is defined in
Section 4001(a)(3) of ERISA) that is subject to Title
IV of ERISA.
8.10 Accuracy and Completeness of Information.
All information furnished by or on behalf of Borrower
in writing to Lender in connection with this Agreement
or any of the other Financing Agreements or any
transaction contemplated hereby or thereby, including,
without limitation, all information on the Information
Certificate is true and correct in all material
respects on the date as of which such information is
dated or certified and does not omit any material fact
necessary in order to make such information not
misleading. No event or circumstance has occurred
which has had or could reasonably be expected to have a
material adverse affect on the business, assets or
prospects of Borrower, which has not been fully and
accurately disclosed to Lender in writing.
8.11 Survival of Warranties; Cumulative. All
representations and warranties contained in this
Agreement or any of the other Financing Agreements
shall survive the execution and delivery of this
Agreement and shall be deemed to have been made again
to Lender on the date of each additional borrowing or
other credit accommodation hereunder and shall be
conclusively presumed to have been relied on by Lender
regardless of any investigation made or information
possessed by Lender. The representations and
warranties set forth herein shall be cumulative and in
addition to any other representations or warranties
which Borrower shall now or hereafter give, or cause to
be given, to Lender.
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS
9.1 Maintenance of Existence. Borrower shall
at all times preserve, renew and keep in full force and
effect its corporate existence and rights and
franchises with respect thereto and maintain in full
force and effect all permits, licenses, trademarks,
trade names, approvals, authorizations, leases and
contracts necessary to carry on the business as
presently or proposed to be conducted. Borrower shall
give Lender thirty (30) days prior written notice of
any proposed change in its corporate name, which notice
shall set forth the new name and Borrower shall deliver
to Lender a copy of the amendment to the Certificate of
Incorporation of Borrower providing for the name change
certified by the Secretary of State of the jurisdiction
of incorporation of Borrower as soon as it is
available.
9.2 New Collateral Locations. Borrower may
open any new location within the continental United
States provided Borrower (a) gives Lender thirty (30)
days prior written notice of the intended opening of
any such new location, and (b) executes and delivers,
or causes to be executed and delivered, to Lender such
agreements, documents, and instruments as Lender may
deem reasonably necessary or desirable to protect its
interests in the Collateral at such location,
including, without limitation, UCC financing statements
and, if Borrower leases such new location, provides a
favorable landlord waiver or subordination, or, in the
alternative, Lender may apply an Availability Reserve
in an amount equal to two (2) months gross rent in a
manner consistent with the Availability Reserve
established to cover tent as defined in Section 1.5
hereof.
9.3 Compliance with Laws, Regulations, Etc.
(a) Borrower shall, at all times, comply
in all material respects with all laws, rules,
regulations, licenses, permits, approvals and orders
applicable to it and duly observe all requirements of
any Federal, State or local governmental authority,
including, without limitation, the Employee Retirement
Security Act of 1974, as amended, the Occupational
Safety and Hazard Act of 1970, as amended, the Fair
Labor Standards Act of 1938, as amended, and all
statutes, rules, regulations, orders, permits and
stipulations relating to environmental pollution and
employee health and safety, including, without
limitation, all of the Environmental Laws.
(b) Borrower shall take prompt and
appropriate action to respond to any non-compliance
with any of the Environmental Laws and shall report to
Lender on such response.
(c) Borrower shall give both oral and
written notice to Lender immediately upon Borrower's
receipt of any notice of, or Borrower's otherwise
obtaining knowledge of, (i) the occurrence of any event
involving the release, spill or discharge, threatened
or actual, of any Hazardous Material or (ii) any
investigation, proceeding, complaint, order, directive,
claims, citation or notice with respect to: (A) any
non-compliance with or violation of any Environmental
Law by Borrower or (B) the release, spill or discharge,
threatened or actual, of any Hazardous Material or (C)
the generation, use, storage, treatment,
transportation, manufacture, handling, production or
disposal of any Hazardous Materials or (D) any other
environmental, health or safety matter, which affects
Borrower or its business, operations or assets or any
properties at which Borrower transported, stored or
disposed of any Hazardous Materials.
(d) Borrower shall indemnify and hold
harmless Lender, its directors, officers, employees,
agents, invitees, representatives, successors and
assigns, from and against any and all losses, claims,
damages, liabilities, costs, and expenses (including
attorneys' fees and legal expenses) directly or
indirectly arising out of or attributable to the use,
generation, manufacture, reproduction, storage,
release, threatened release, spill, discharge, disposal
or presence of a Hazardous Material, including, without
limitation, the costs of any required or necessary
repair, cleanup or other remedial work with respect to
any property of Borrower and the preparation and
implementation of any closure, remedial or other
required plans. All representations, warranties,
covenants and indemnifications in this Section 9.3
shall survive the payment of the Obligations and the
termination or non-renewal of this Agreement.
9.4 Payment of Taxes and Claims. Borrower
shall duly pay and discharge all taxes, assessments,
contributions and governmental charges upon or against
it or its properties or assets, except for taxes the
validity of which are being contested in good faith by
appropriate proceedings diligently pursued and
available to Borrower and with respect to which
adequate reserves have been set aside on its books.
Borrower shall be liable for any tax or penalties
imposed on Lender as a result of the financing
arrangements provided for herein and Borrower agrees to
indemnify and hold Lender harmless with respect to the
foregoing, and to repay to Lender on demand the amount
thereof, and until paid by Borrower such amount shall
be added and deemed part of the Loans, provided, that,
nothing contained herein shall be construed to require
Borrower to pay any income or franchise taxes
attributable to the income of Lender from any amounts
charged or paid hereunder to Lender. The foregoing
indemnity shall survive the payment of the Obligations
and the termination or non-renewal of this Agreement.
9.5 Insurance. Borrower shall, at all times,
maintain with financially sound and reputable insurers
insurance with respect to the Collateral against loss
or damage and all other insurance of the kinds and in
the amounts customarily insured against or carried by
corporations of established reputation engaged in the
same or similar businesses and similarly situated.
Said policies of insurance shall be satisfactory to
Lender as to form, amount and insurer. Borrower shall
furnish certificates, policies or endorsements to
Lender as Lender shall require as proof of such
insurance, and, if Borrower fails to do so, Lender is
authorized, but not required, to obtain such insurance
at the expense of Borrower. All policies shall provide
for at least thirty (30) days prior written notice to
Lender of any cancellation or reduction of coverage and
that Lender may act as attorney for Borrower in
obtaining, and at any time an Event of Default exists
or has occurred and is continuing, adjusting, settling,
amending and canceling such insurance. Borrower shall
cause Lender to be named as a loss payee and an
additional insured (but without any liability for any
premiums) under such insurance policies and Borrower
shall obtain non-contributory lender's loss payable
endorsements to all insurance policies in form and
substance satisfactory to Lender. Such lender's loss
payable endorsements shall specify that the proceeds of
such insurance shall be payable to Lender as its
interests may appear and further specify that Lender
shall be paid regardless of any act or omission by
Borrower or any of its affiliates. At its option,
Lender may apply any insurance proceeds received by
Lender at any time to the cost of repairs or
replacement of Collateral and/or to payment of the
Obligations, whether or not then due, in any order and
in such manner as Lender may determine or hold such
proceeds as cash collateral for the Obligations.
9.6 Financial Statements and Other Information.
(a) Borrower shall keep proper books and
records in which true and complete entries shall be
made of all dealings or transactions of or in relation
to the Collateral and the business of Borrower and its
subsidiaries (if any) in accordance with GAAP and
Borrower shall furnish or cause to be furnished to
Lender: (i) within twenty (20) days after the end of
each fiscal month, monthly unaudited consolidated
financial statements, (including a balance sheet,
statement of income or loss and statement of
stockholders' equity), all in reasonable detail, fairly
presenting the financial position and the results of
the operations of Borrower and its subsidiaries as of
and through such fiscal month, (ii) within twenty (20)
days after the end of each fiscal quarter, a store-by-store
profitability report for each of Borrower's
retail stores, (iii) within ninety (90) days after the
end of each fiscal year, audited consolidated financial
statements for the Borrower and within one hundred and
twenty (120) days after the end of each fiscal year,
audited financial statements for GCRC, (including in
each case balance sheets, statements of income and
loss, statements of cash flow and statements of
stockholders' equity), and the accompanying notes
thereto, all in reasonable detail, fairly presenting
the financial position and the results of operations of
Borrower and its subsidiaries as of the end of and for
such fiscal year, together with the opinion of
independent certified public accountants, which
accountants shall be an independent accounting firm
selected by Borrower and reasonably acceptable to
Lender, that such financial statements have been
prepared in accordance with GAAP, and present fairly
the results of operations and financial condition of
Borrower and its subsidiaries as of the end of and for
the fiscal year then ended.
(b) Borrower shall promptly notify Lender
in writing of the details of (i) any loss, damage,
investigation, action, suit, proceeding or claim
relating to the Collateral or any other property which
is security for the Obligations or which would result
in any material adverse change in Borrower's business,
properties, assets, goodwill or condition, financial or
otherwise and (ii) the occurrence of any Event of
Default or event which, with the passage of time or
giving of notice or both, would constitute an Event of
Default.
(c) Borrower shall promptly after the
sending or filing thereof furnish or cause to be
furnished to Lender copies of all financial reports
which Borrower sends to its stockholders generally and
copies of all reports and registration statements which
Borrower files with the Securities and Exchange
Commission, any national securities exchange or the
National Association of Securities Dealers, Inc.
(d) Borrower shall furnish or cause to be
furnished to Lender such budgets, forecasts,
projections and other information in respect of the
Collateral and the business of Borrower, as Lender may,
from time to time, reasonably request. Lender is
hereby authorized to deliver a copy of any financial
statement or any other information relating to the
business of Borrower to any court or other government
agency or to any participant or assignee or prospective
participant or assignee. Borrower hereby irrevocably
authorizes and directs all accountants or auditors to
deliver to Lender, at Borrower's expense, copies of the
financial statements of Borrower and any reports or
management letters prepared by such accountants or
auditors on behalf of Borrower and to disclose to
Lender such information as they may have regarding the
business of Borrower. Any documents, schedules,
invoices or other papers delivered to Lender may be
destroyed or otherwise disposed of by Lender one (1)
year after the same are delivered to Lender, except as
otherwise designated by Borrower to Lender in writing.
(e) Borrower shall promptly, after
sending such reports to Bankers Trust Company, furnish
or cause to be furnished to Lender copies of the
Monthly Servicer's Certificate and Distributions Date
Sheet, the Annual Report and such other monthly,
quarterly or annual reports provided to Bankers Trust
Company by the Borrower as Servicer under the Pooling
Agreements; and, if requested by Lender, Borrower shall
promptly provide Lender copies of the Daily Servicer's
Report prepared by it pursuant to the Pooling
Agreement.
9.7 Sale of Assets, Consolidation, Merger,
Dissolution, Etc. Borrower shall not, directly or
indirectly, (a) merge into or with or consolidate with
any other Person or permit any other Person to merge
into or with or consolidate with it, or (b) sell,
assign, lease, transfer, abandon or otherwise dispose
of any indebtedness to any other Person or any of its
assets to any other Person (except for (i) sales of
Inventory in the ordinary course of business, (ii) the
sale or other disposition of Equipment in the event of
a store closure, (iii) the sale of Accounts arising out
of Borrower's private label credit card program to GCRC
in accordance with the procedures set forth in the
documentation evidencing the Securitization Facility,
and (iv) the disposition of worn-out or obsolete
Equipment or Equipment no longer used in the business
of Borrower so long as (A) if an Event of Default
exists or has occurred and is continuing, any net
proceeds are paid to Lender and (B) such sales do not
involve Equipment having an aggregate fair market value
in excess of Two Hundred Fifty Thousand Dollars
($250,000) for all such Equipment disposed of in any
fiscal year of Borrower), or (c) form or acquire any
subsidiaries, or (d) wind up, liquidate or dissolve or
(e) agree to do any of the foregoing.
9.8 Encumbrances. Borrower shall not create,
incur, assume or suffer to exist any security interest,
mortgage, pledge, lien, charge or other encumbrance of
any nature whatsoever on any of its assets or
properties, including, without limitation, the
Collateral, except: (a) liens and security interests
of Lender; (b) liens securing the payment of taxes,
either not yet overdue or the validity of which are
being contested in good faith by appropriate
proceedings diligently pursued and available to
Borrower and with respect to which adequate reserves
have been set aside on its books; (c) security deposits
in the ordinary course of business; (d) non-consensual
statutory liens (other than liens securing the payment
of taxes) arising in the ordinary course of Borrower's
business to the extent: (i) such liens secure
indebtedness which is not overdue or (ii) such liens
secure indebtedness relating to claims or liabilities
which are fully insured and being defended at the sole
cost and expense and at the sole risk of the insurer
(subject to applicable deductibles) or being contested
in good faith by appropriate proceedings diligently
pursued and available to Borrower, in each case prior
to the commencement of foreclosure or other similar
proceedings and with respect to which adequate reserves
have been set aside on its books; (e) liens in favor of
Credit Card Processors with respect to Credit Card
Receivables processed by them; (f) zoning restrictions,
easements, licenses, covenants and other restrictions
affecting the use of real property which do not
interfere in any material respect with the use of such
real property or ordinary conduct of the business of
Borrower as presently conducted thereon or materially
impair the value of the real property which may be
subject thereto; (g) purchase money security interests
in Equipment (including operating and capital leases)
and purchase money mortgages on real estate so long as
such security interests and mortgages do not apply to
any property of Borrower other than the Equipment or
real estate so acquired, and the indebtedness secured
thereby does not exceed the cost of the Equipment or
real estate so acquired, as the case may be; (h) the
security interests and liens set forth on Schedule 8.4
hereto; and (i) liens granted pursuant to the
Securitization Facility.
9.9 Indebtedness. Borrower shall not incur,
create, assume, become or be liable in any manner with
respect to, or permit to exist, any obligations or
indebtedness, except:
(a) the Obligations;
(b) trade obligations and normal accruals in
the ordinary course of business not yet due and
payable, or with respect to which Borrower is
contesting in good faith the amount or validity thereof
by appropriate proceedings diligently pursued and
available to Borrower and with respect to which
adequate reserves have been set aside on its books;
(c) with respect to the Securitization
Facility;
(d) costs and expenses of opening new stores in
compliance with Section 9.2; and
(e) obligations or indebtedness set forth on
the Information Certificate; provided, that, (i)
Borrower may only make regularly scheduled payments of
principal and interest in respect of such indebtedness
in accordance with the terms of the agreement or
instrument evidencing or giving rise to such
indebtedness as in effect on the date hereof, (ii)
Borrower shall not, directly or indirectly, (A) amend,
modify, alter or change the terms of such indebtedness
or any agreement, document or instrument related
thereto as in effect on the date hereof, or (B) except
as otherwise permitted under this Agreement, redeem,
retire, defease, purchase or otherwise acquire such
indebtedness, or set aside or otherwise deposit or
invest any sums for such purpose, and (iii) Borrower
shall furnish to Lender all notices or demands in
connection with such indebtedness either received by
Borrower or on its behalf, promptly after the receipt
thereof, or sent by Borrower or on its behalf,
concurrently with the sending thereof, as the case may
be.
9.10 Revolving Loans, Investments, Guarantees,
Etc. Borrower shall not, directly or indirectly, make
any loans or advance money or property to any person,
or invest in (by capital contribution, dividend or
otherwise) or purchase or repurchase the stock or
indebtedness or all or a substantial part of the assets
or property of any person, or guarantee, assume,
endorse, or otherwise become responsible for (directly
or indirectly) the indebtedness, performance,
obligations or dividends of any Person or agree to do
any of the foregoing in an amount, whether contingent
or non-contingent, in excess of One Hundred Fifty
Thousand Dollars ($150,000) during any twelve month
period, except: (a) the endorsement of instruments for
collection or deposit in the ordinary course of
business; (b) investments in: (i) short-term direct
obligations of the United States Government, (ii)
negotiable certificates of deposit issued by any bank
satisfactory to Lender, payable to the order of the
Borrower or to bearer and delivered to Lender, and
(iii) commercial paper rated A1 or P1; provided, that,
as to any of the foregoing, unless waived in writing by
Lender, Borrower shall take such actions as are deemed
necessary by Lender to perfect the security interest of
Lender in such investments; and (c) the guarantees set
forth in the Information Certificate.
9.11 Dividends and Redemptions. Borrower shall
not, without the prior written consent of Lender,
directly or indirectly, declare or pay any dividends on
account of any shares of any class of capital stock of
Borrower now or hereafter outstanding, or set aside or
otherwise deposit or invest any sums for such purpose,
or redeem, retire, defease, purchase or otherwise
acquire any shares of any class of capital stock (or
set aside or otherwise deposit or invest any sums for
such purpose) for any consideration other than common
stock or apply or set apart any sum, or make any other
distribution (by reduction of capital or otherwise) in
respect of any such shares or agree to do any of the
foregoing.
9.12 Transactions with Affiliates. Borrower
shall not enter into any transaction for the purchase,
sale or exchange of property or the rendering of any
service to or by any affiliate, except in the ordinary
course of and pursuant to the reasonable requirements
of Borrower's business and upon fair and reasonable
terms no less favorable to the Borrower than Borrower
would obtain in a comparable arm's length transaction
with an unaffiliated person.
9.13 Compliance with ERISA. Borrower shall not
with respect to any "employee pension benefit plans"
maintained by Borrower or any of its ERISA Affiliates:
(a) (i) terminate any of such employee
pension benefit plans so as to incur any liability to
the Pension Benefit Guaranty Corporation established
pursuant to ERISA, (ii) allow or suffer to exist any
prohibited transaction involving any of such employee
pension benefit plans or any trust created thereunder
which would subject Borrower or such ERISA Affiliate to
a tax or penalty or other liability on prohibited
transactions imposed under Section 4975 of the Code or
ERISA, (iii) fail to pay to any such employee pension
benefit plan any contribution which it is obligated to
pay under Section 302 of ERISA, Section 412 of the Code
or the terms of such plan, (iv) allow or suffer to
exist any accumulated funding deficiency, whether or
not waived, with respect to any such employee pension
benefit plan, (v) allow or suffer to exist any
occurrence of a reportable event or any other event or
condition which presents a material risk of termination
by the Pension Benefit Guaranty Corporation of any such
employee pension benefit plan that is a single employer
plan, which termination could result in any liability
to the Pension Benefit Guaranty Corporation or (vi)
incur any withdrawal liability with respect to any
multiemployer pension plan.
(b) As used in this Section 9.13, the
term "employee pension benefit plans," "employee
benefit plans", "accumulated funding deficiency" and
"reportable event" shall have the respective meanings
assigned to them in ERISA, and the term "prohibited
transaction" shall have the meaning assigned to it in
Section 4975 of the Code and ERISA.
9.14 Adjusted Net Worth. Borrower shall, at all
times, maintain Adjusted Worth of not less than Seventy
Million Dollars ($70,000,000); provided, however,
Lender will only test for Borrower's compliance with
this financial covenant on a monthly basis and then
only in the event that Borrower's Excess Availability
is less than Five Million Dollars ($5,000,000).
9.15 Costs and Expenses. Borrower shall pay to
Lender, and, to the extent covered, in a manner
consistent with Lender's proposed letter to Borrower of
October 31, 1996, on demand all costs, expenses, filing
fees and taxes paid or payable in connection with the
preparation, negotiation, execution, delivery,
recording, administration, collection, liquidation,
enforcement and defense of the Obligations, Lender's
rights in the Collateral, this Agreement, the other
Financing Agreements and all other documents related
hereto or thereto, including any amendments,
supplements or consents which may hereafter be
contemplated (whether or not executed) or entered into
in respect hereof and thereof, including, but not
limited to: (a) all costs and expenses of filing or
recording (including Uniform Commercial Code financing
statement filing taxes and fees, documentary taxes,
intangibles taxes and mortgage recording taxes and
fees, if applicable); (b) costs and expenses and fees
for title insurance and other insurance premiums,
environmental audits, surveys, assessments, engineering
reports and inspections, appraisal fees and search
fees; (c) costs and expenses of remitting loan
proceeds, collecting checks and other items of payment,
and establishing and maintaining the Blocked Accounts,
together with Lender's customary charges and fees with
respect thereto; (d) charges, fees or expenses charged
by any bank or issuer in connection with the Letter of
Credit Accommodations; (e) costs and expenses of
preserving and protecting the Collateral; (f) costs and
expenses paid or incurred in connection with obtaining
payment of the Obligations, enforcing the security
interests and liens of Lender, selling or otherwise
realizing upon the Collateral, and otherwise enforcing
the provisions of this Agreement and the other
Financing Agreements or defending any claims made or
threatened against Lender arising out of the
transactions contemplated hereby and thereby
(including, without limitation, preparations for and
consultations concerning any such matters); (g) all
out-of-pocket expenses and costs incurred by Lender's
examiners in the conduct of their periodic field
examinations of the Collateral and Borrower's
operations; and (h) the fees and disbursements of
counsel (including legal assistants) to Lender in
connection with any of the foregoing.
9.16 Securitization Facility. So long as there
are any Loans or Letter of Credit Accommodations
outstanding, Borrower, as the sole shareholder of GCRC
shall cause GCRC, subject to customary corporate
procedures, to cause GCRC to pay (including the
purchase of receivables) or distribute to Borrower, by
payment directly to the Blocked Account, all amounts
available (after application of all reserves required
or anticipated under the Securitization Facility) for
the purchase of Receivables under and as defined in the
Receivables Purchase Agreement, including amounts
available due to the collection of the Receivables and
GCRC's utilization of the maximum financing under the
Securitization Facility.
9.17 Amendment of Securitization Facility.
During the term of this Agreement, and thereafter for
so long as there are any Obligations to Lender
outstanding, Borrower shall not unless otherwise
consented to by Lender in writing, amend or consent to
any amendment of or modification to any of the terms of
the Securitization Facility or the agreements related
thereto.
9.18 Renewal of Securitization Facility. Within
ninety (90) days prior to any expiration of the
Securitization Facility or prior to any repayment of
principal under the Fixed Base Certificates, Borrower
shall provide Lender with satisfactory evidence that
either (i) the Securitization Facility has been renewed
or (ii) GCRC has obtained a replacement facility on
terms that are no less favorable to GCRC or Lender and
on terms otherwise acceptable to Lender, with a
replacement lender acceptable to Lender, and subject to
intercreditor arrangements acceptable to Lender.
9.19 No Defaults. No default, event of default
or Early Amortization Event (as defined in the Pooling
Agreement) has occurred under or with respect to the
Securitization Facility or any of the Borrower's or
GCRC's agreements related thereto.
9.20 Use of Private Label Card. At Lender's
direction, Borrower shall cease making any sales of
merchandise to its customers that purchase such
merchandise with Borrower's private label credit
card(s) (a) upon the occurrence of an Event of Default
that is continuing or (b) if the percentage of the face
amount of GCRC Receivables which is advanced or paid to
Borrower by GCRC pursuant to the Receivables Purchase
Agreement is at any time less than eighty-four percent
(84%).
9.21 GCRC Receivables Collections. Unless
otherwise provided in the Pooling Agreement or the
Receivables Purchase Agreement, Borrower shall cause
GCRC to promptly remit to Borrower all amounts, however
denominated, received by GCRC from the trustee for the
Gottschalks Credit Card Master Trust.
9.22 Purchase Price for GCRC Receivables.
Borrower shall cause GCRC to purchase GCRC Receivables
in accordance with the terms of the Receivables
Purchase Agreement, including, without limitation,
Section 2.01(e) thereof. To the extent that the
consideration for the purchase of GCRC Receivables
consists of a capital contribution of the type
described in Section 2.01(e)(ii) of the Receivables
Purchase Agreement, Borrower shall, as soon as
practicable thereafter, cause GCRC to distribute cash
in redemption of the capital contribution to Borrower
as shareholder of GCRC in the maximum amount permitted
by law.
9.23 Further Assurances. At the request of
Lender at any time and from time to time, Borrower
shall, at its expense, duly execute and deliver, or
cause to be duly executed and delivered, such further
agreements, documents and instruments, and do or cause
to be done such further acts as may be necessary or
proper to evidence, perfect, maintain and enforce the
security interests and the priority thereof in the
Collateral and to otherwise effectuate the provisions
or purposes of this Agreement or any of the other
Financing Agreements. Lender may at any time and from
time to time request a certificate from an officer of
Borrower representing on behalf of the Borrower that
all conditions precedent to the making of Loans and
providing Letter of Credit Accommodations contained
herein are satisfied. In the event of such request by
Lender, Lender may, at its option, cease to make any
further Loans or provide any further Letter of Credit
Accommodations until Lender has received such
certificate and, in addition, Lender has determined
that such conditions are satisfied. Where permitted by
law, Borrower hereby authorizes Lender to execute and
file one or more UCC financing statements signed only
by Lender.
SECTION 10. EVENTS OF DEFAULT AND REMEDIES
10.1 Events of Default. The occurrence or
existence of any one or more of the following events
are referred to herein individually as an "Event of
Default", and collectively as "Events of Default":
(a) any Borrower shall fail (i) to pay
when due any of the Obligations within two (2) Business
Days of the due date thereof or (ii) to observe or
perform any of the other terms, covenants, conditions
or provisions contained in this Agreement or the other
Financing Agreements other than as described in Section
10.1(a)(i) above and such failure shall continue for
fifteen (15) consecutive days (with the exception of
the failure to observe or perform any covenants or
provisions with respect to Collateral under this
Agreement or any of the other Financing Agreements
including, but not limited to, Section 7.1 hereof for
which the time period shall be five (5) days);
provided, that, such fifteen (15) day period (or five
(5) day period as the case may be) shall not apply in
the case of: (A) any failure to observe any such term,
covenant, condition or provision which is not capable
of being cured at all or within such fifteen (15) day
period (or five (5) day period as the case may be) or
which has been the subject of a prior failure within a
six (6) month period or (B) an intentional breach by
Borrower of any such term, covenant, condition or
provision;
(b) any representation, warranty or
statement of fact made by Borrower to Lender in this
Agreement, the other Financing Agreements or any other
agreement, schedule, confirmatory assignment or
otherwise shall when made or deemed made be false or
misleading in any material respect;
(c) any Obligor revokes, terminates or
fails to perform any of the terms, covenants,
conditions or provisions of any guarantee, endorsement
or other agreement of such party in favor of Lender;
(d) any judgment for the payment of money
is rendered against Borrower in excess of Two Hundred
Fifty Thousand Dollars ($250,000) in any one case or in
excess of Five Hundred Thousand Dollars ($500,000) in
the aggregate (in each case in excess of any insurance
coverage which Lender has determined in its reasonable
credit judgment adequately and fully covers any such
liability) and shall remain undischarged or unvacated
for a period in excess of thirty (30) days or execution
shall at any time not be effectively stayed, or any
material judgment other than for the payment of money,
or injunction, attachment, garnishment or execution is
rendered against Borrower or any Obligor or any of
their assets;
(e) any Obligor (being a natural person
or a general partner of an Obligor which is a
partnership) dies or Borrower or any Obligor, which is
a partnership, limited liability company, or
corporation, dissolves or suspends or discontinues
doing business;
(f) Borrower or any Obligor becomes
insolvent (however defined or evidenced), makes an
assignment for the benefit of creditors, makes or sends
notice of a bulk transfer or calls a meeting of its
creditors or principal creditors;
(g) a case or proceeding under the
bankruptcy laws of the United States of America now or
hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt,
dissolution or liquidation law or statute of any
jurisdiction now or hereafter in effect (whether at law
or in equity) is filed against Borrower or any Obligor
or all or any part of its properties and such petition
or application is not dismissed within thirty (30) days
after the date of its filing or Borrower or any Obligor
shall file any answer admitting or not contesting such
petition or application or indicates its consent to,
acquiescence in or approval of, any such action or
proceeding or the relief requested is granted sooner;
(h) a case or proceeding under the
bankruptcy laws of the United States of America now or
hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt,
dissolution or liquidation law or statute of any
jurisdiction now or hereafter in effect (whether at a
law or equity) is filed by Borrower or for all or any
part of its property; or
(i) any default by Borrower or any
Obligor under any agreement, document or instrument
relating to any indebtedness for borrowed money owing
to any person other than Lender, or any capitalized
lease obligations, contingent indebtedness in
connection with any guarantee, letter of credit,
indemnity or similar type of instrument in favor of any
person other than Lender, in any case in an amount in
excess of Two Hundred Fifty Thousand Dollars
($250,000), which default continues for more than the
applicable cure period, if any, with respect thereto,
or any default by Borrower under any material contract,
lease, license or other obligation to any person other
than Lender, which default continues for more than the
applicable cure period, if any, with respect thereto;
(j) any change in the controlling
ownership of Borrower;
(k) the indictment of Borrower or any
Obligor under any criminal statute, or the commencement
of criminal or civil proceedings by a governmental
entity against Borrower or any Obligor, pursuant to
which statute or proceedings the penalties or remedies
sought or available include forfeiture of any of the
property of Borrower or such Obligor;
(l) there shall be a material adverse
change in the business, assets or prospects of Borrower
or any Obligor after the date hereof;
(m) any event of default shall occur
under, or Borrower or GCRC shall default in the
performance or observance of any covenant, condition,
term, provision, warranty, representation or agreement
evidencing the Securitization Facility, or under the
notes and agreements evidencing or related to the
Securitization Facility, and such default shall
continue beyond any applicable grace or cure period
provided therefor;
(n) an Early Amortization Event (as
defined in the Pooling Agreement) shall have occurred;
(o) the Securitization Facility is
terminated for any reason, or Borrower fails to renew
the Securitization Facility or provide Lender, within
ninety (90) days prior to the scheduled expiration of
the same; with satisfactory evidence that Borrower has
obtained a replacement facility (i) on terms that are
no less favorable to Borrower or Lender and on terms
otherwise acceptable to Lender, (ii) with a replacement
lender acceptable to Lender, and (iii) that shall be
subject to intercreditor arrangements acceptable to
Lender; or
(p) there shall be an event of default
under any of the other Financing Agreements.
10.2 Remedies.
(a) At any time an Event of Default exists
or has occurred and is continuing, Lender shall have
all rights and remedies provided in this Agreement, the
other Financing Agreements, the Uniform Commercial Code
and other applicable law, all of which rights and
remedies may be exercised without notice to or consent
by Borrower, except as such notice or consent is
expressly provided for hereunder or required by
applicable law. All rights, remedies and powers
granted to Lender hereunder, under any of the other
Financing Agreements, the Uniform Commercial Code or
other applicable law, are cumulative, not exclusive and
enforceable, in Lender's discretion, alternatively,
successively, or concurrently on any one or more
occasions, and shall include, without limitation, the
right to apply to a court of equity for an injunction
to restrain a breach or threatened breach by Borrower
of this Agreement or any of the other Financing
Agreements. Lender may, at any time or times, proceed
directly against Borrower to collect the Obligations
without prior recourse to the Collateral.
(b) Without limiting the foregoing, at any
time an Event of Default exists or has occurred and is
continuing, Lender may, in its discretion and without
limitation, (i) accelerate the payment of all
Obligations and demand immediate payment thereof to
Lender (provided, that, upon the occurrence of any
Event of Default described in Sections 10.1(g) and
10.1(h), all Obligations shall automatically become
immediately due and payable), (ii) with or without
judicial process or the aid or assistance of others,
enter upon any premises on or in which any of the
Collateral may be located and take possession of the
Collateral or complete processing, manufacturing and
repair of all or any portion of the Collateral,
provided that no action taken by Lender shall
constitute a breach of the peace, (iii) require
Borrower, at Borrower's expense, to assemble and make
available to Lender any part or all of the Collateral
at any place and time designated by Lender, (iv)
collect, foreclose, receive, appropriate, setoff and
realize upon any and all Collateral, (v) remove any or
all of the Collateral from any premises on or in which
the same may be located for the purpose of effecting
the sale, foreclosure or other disposition thereof or
for any other purpose, provided that no action taken by
Lender shall constitute a breach of the peace, (vi)
sell, lease, transfer, assign, deliver or otherwise
dispose of any and all Collateral (including, without
limitation, entering into contracts with respect
thereto, public or private sales at any exchange,
broker's board, at any office of Lender or elsewhere)
at such prices or terms as Lender may deem reasonable,
for cash, upon credit or for future delivery, with the
Lender having the right to purchase the whole or any
part of the Collateral at any such public sale, all of
the foregoing being free from any right or equity of
redemption of Borrower, which right or equity of
redemption is hereby expressly waived and released by
Borrower and/or (vii) terminate this Agreement. If any
of the Collateral is sold or leased by Lender upon
credit terms or for future delivery, the Obligations
shall not be reduced as a result thereof until payment
therefor is finally collected by Lender. If notice of
disposition of Collateral is required by law, five (5)
days prior notice by Lender to Borrower designating the
time and place of any public sale or the time after
which any private sale or other intended disposition of
Collateral is to be made, shall be deemed to be
reasonable notice thereof and Borrower waives any other
notice. In the event Lender institutes an action to
recover any Collateral or seeks recovery of any
Collateral by way of prejudgment remedy, Borrower
waives the posting of any bond which might otherwise be
required.
(c) Lender may apply the cash proceeds of
Collateral actually received by Lender from any sale,
lease, foreclosure or other disposition of the
Collateral to payment of the Obligations, in whole or
in part and in such order as Lender may elect, whether
or not then due. Borrower shall remain liable to
Lender for the payment of any deficiency with interest
at the highest rate provided for herein and all costs
and expenses of collection or enforcement, including
attorneys' fees and legal expenses.
(d) Without limiting the foregoing, upon
the occurrence of an Event of Default or an event which
with notice or passage of time or both would constitute
an Event of Default, Lender may, at its option, without
notice, (i) cease making Loans or arranging Letter of
Credit Accommodations or reduce the lending formulas or
amounts of Loans and Letter of Credit Accommodations
available to Borrower and/or (ii) terminate any
provision of this Agreement providing for any future
Loans or Letter of Credit Accommodations to be made by
Lender to Borrower.
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS
AND CONSENTS; GOVERNING LAW
11.1 Governing Law; Choice of Forum; Service of
Process; Jury Trial Waiver.
(a) The validity, interpretation and
enforcement of this Agreement and the other Financing
Agreements and any dispute arising out of the
relationship between the parties hereto, whether in
contract, tort, equity or otherwise, shall be governed
by the internal laws of the State of California
(without giving effect to principles of conflicts of
law).
(b) Borrower and Lender irrevocably
consent and submit to the non-exclusive jurisdiction of
the state courts of the County of Los Angeles, State of
California and of the United States District Court for
the Central District of California and waive any
objection based on venue or forum non conveniens with
respect to any action instituted therein arising under
this Agreement or any of the other Financing Agreements
or in any way connected with or related or incidental
to the dealings of the parties hereto in respect of
this Agreement or any of the other Financing Agreements
or the transactions related hereto or thereto, in each
case whether now existing or hereafter arising, and
whether in contract, tort, equity or otherwise, and
agree that any dispute with respect to any such matters
shall be heard only in the courts described above
(except that Lender shall have the right to bring any
action or proceeding against Borrower or its property
in the courts of any other jurisdiction which Lender
deems necessary or appropriate in order to realize on
the Collateral or to otherwise enforce its rights
against Borrower or its property).
(c) Borrower hereby waives personal
service of any and all process upon it and consents
that all such service of process may be made by
certified mail (return receipt requested) directed to
its address set forth on the signature pages hereof and
service so made shall be deemed to be completed five
(5) days after the same shall have been so deposited in
the U.S. mails, or, at Lender's option, by service upon
Borrower in any other manner provided under the rules
of any such courts. Within thirty (30) days after such
service, Borrower shall appear in answer to such
process, failing which Borrower shall be deemed in
default and judgment may be entered by Lender against
Borrower for the amount of the claim and other relief
requested.
(d) BORROWER AND LENDER EACH HEREBY WAIVES
ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION
OR CAUSE OF ACTION (i) ARISING UNDER THIS AGREEMENT OR
ANY OF THE OTHER FINANCING AGREEMENTS OR (ii) IN ANY
WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE
DEALINGS OF THE PARTIES HERETO IN RESPECT OF THIS
AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR
THE TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE
WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER
IN CONTRACT, TORT, EQUITY OR OTHERWISE. BORROWER AND
LENDER EACH HEREBY AGREES AND CONSENTS THAT ANY SUCH
CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE
DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT BORROWER
OR LENDER MAY FILE AN ORIGINAL COUNTERPART OF A COPY OF
THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF
THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF
THEIR RIGHT TO TRIAL BY JURY.
(e) Lender shall not have any liability to
Borrower (whether in tort, contract, equity or
otherwise) for losses suffered by Borrower in
connection with, arising out of, or in any way related
to the transactions or relationships contemplated by
this Agreement, or any act, omission or event occurring
in connection herewith, unless it is determined by a
final and non-appealable judgment or court order
binding on Lender, that the losses were the result of
acts or omissions constituting gross negligence or
willful misconduct. In any such litigation, Lender
shall be entitled to the benefit of the rebuttable
presumption that it acted in good faith and with the
exercise of ordinary care in the performance by it of
the terms of this Agreement.
11.2 Waiver of Notices. Borrower hereby
expressly waives demand, presentment, protest and
notice of protest and notice of dishonor with respect
to any and all instruments and commercial paper,
included in or evidencing any of the Obligations or the
Collateral, and any and all other demands and notices
of any kind or nature whatsoever with respect to the
Obligations, the Collateral and this Agreement, except
such as are expressly provided for herein. No notice
to or demand on Borrower which Lender may elect to give
shall entitle Borrower to any other or further notice
or demand in the same, similar or other circumstances.
11.3 Amendments and Waivers. Neither this
Agreement nor any provision hereof shall be amended,
modified, waived or discharged orally or by course of
conduct, but only by a written agreement signed by an
authorized officer of Lender. Lender shall not, by any
act, delay, omission or otherwise be deemed to have
expressly or impliedly waived any of its rights, powers
and/or remedies unless such waiver shall be in writing
and signed by an authorized officer of Lender. Any
such waiver shall be enforceable only to the extent
specifically set forth therein. A waiver by Lender of
any right, power and/or remedy on any one occasion
shall not be construed as a bar to or waiver of any
such right, power and/or remedy which Lender would
otherwise have on any future occasion, whether similar
in kind or otherwise.
11.4 Waiver of Counterclaims. Borrower waives
all rights to interpose any claims, deductions, setoffs
or counterclaims of any nature (other than compulsory
counterclaims) in any action or proceeding with respect
to this Agreement, the Obligations, the Collateral or
any matter arising therefrom or relating hereto or
thereto.
11.5 Indemnification. Borrower shall indemnify
and hold Lender, and its directors, agents, employees
and counsel, harmless from and against any and all
losses, claims, damages, liabilities, costs or expenses
imposed on, incurred by or asserted against any of them
in connection with any litigation, investigation, claim
or proceeding commenced or threatened related to the
negotiation, preparation, execution, delivery,
enforcement, performance or administration of this
Agreement, any other Financing Agreements, or any
undertaking or proceeding related to any of the
transactions contemplated hereby or any act, omission,
event or transaction related or attendant thereto,
including, without limitation, amounts paid in
settlement, court costs, and the fees and expenses of
counsel, except that nothing herein shall be considered
to obligate Borrower to indemnify Lender for gross
negligence or wilful misconduct on the part of Lender
and its directors, agents, employees and counsel. To
the extent that the undertaking to indemnify, pay and
hold harmless set forth in this Section may be
unenforceable because it violates any law or public
policy, Borrower shall pay the maximum portion which it
is permitted to pay under applicable law to Lender in
satisfaction of indemnified matters under this Section.
The foregoing indemnity shall survive the payment of
the Obligations and the termination or non-renewal of
this Agreement.
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS
12.1 Term.
(a) This Agreement and the other
Financing Agreements shall become effective as of the
date set forth on the first page hereof and shall
continue in full force and effect for a term ending on
March 31, 2000 (the "Renewal Date"), and from year to
year thereafter, unless sooner terminated pursuant to
the terms hereof. Unless sooner terminated, all other
Financing Agreements shall be terminated simultaneously
with this Agreement. Lender or Borrower may terminate
this Agreement and the other Financing Agreements
effective on the Renewal Date or on the anniversary of
the Renewal Date in any year by giving to the other
party at least sixty (60) days prior written notice.
Borrower may terminate this Agreement prior to the end
of the then current term, including any renewal term,
for any reason upon thirty (30) days prior written
notice to Lender, and in such case Borrower agrees to
pay Lender the applicable early termination fee
provided for in Section 12.1(c) hereof. Regardless of
the timing of termination, this Agreement and all other
Financing Agreements must be terminated simultaneously.
Upon the effective date of termination or non-renewal
of the Financing Agreements, Borrower shall pay to
Lender, in full, all outstanding and unpaid Obligations
and shall furnish cash collateral to Lender in such
amounts as Lender determines are reasonably necessary
to secure Lender from loss, cost, damage or expense,
including attorneys' fees and legal expenses, in
connection with any contingent Obligations, including
issued and outstanding Letter of Credit Accommodations
and checks or other payments provisionally credited to
the Obligations and/or as to which Lender has not yet
received final and indefeasible payment. Such cash
collateral shall be remitted by wire transfer in
Federal funds to such bank account of Lender, as Lender
may, in its discretion, designate in writing to
Borrower for such purpose. Interest shall be due until
and including the next business day, if the amounts so
paid by Borrower to the bank account designated by
Lender are received in such bank account later than
10:30 a.m., Los Angeles time.
(b) No termination of this Agreement or
the other Financing Agreements shall relieve or
discharge Borrower of its respective duties,
obligations and covenants under this Agreement or the
other Financing Agreements until all Obligations have
been fully and finally discharged and paid, and
Lender's continuing security interest in the Collateral
and the rights and remedies of Lender hereunder, under
the other Financing Agreements and applicable law,
shall remain in effect until all such Obligations have
been fully and finally discharged and paid.
(c) Except as otherwise provided in this
Agreement, if for any reason this Agreement is
terminated prior to the end of the then current term or
a renewal term, if any, of this Agreement, in view of
the impracticality and extreme difficulty of
ascertaining actual damages and by mutual agreement of
the parties as to a reasonable calculation of Lender's
lost profits as a result thereof, Borrower agrees to
pay to Lender, upon the effective date of such
termination, an early termination fee in the amount set
forth below if such termination is effective in the
period indicated:
Amount Period
(i) 2% of the Maximum Credit from the date of
this Agreement to
and including the
day preceding the
first anniversary
of this Agreement;
(ii) 1% of the Maximum Credit from the first
anniversary of this
Agreement to and
including the day
preceding the
second anniversary
of this Agreement;
(iii) 0.5% of the Maximum Credit from the second anniversary of this
Agreement to and
including the
Renewal Date; and
(iv) 0.25% of the Maximum Credit if the Renewal Date
is extended as
provided in Section
12.1(a), at any
time during a
renewal term, if
any.
Notwithstanding the foregoing, in the event that all
Obligations under this Agreement are refinanced and
this Agreement terminated in conjunction with either
(i) a secondary offering of the capital stock of the
Borrower, or (ii) the sale of in excess of fifty
percent (50%) of the shares of the issued and
outstanding capital stock of the Borrower, or (iii) the
sale by the Company of in excess of fifty percent (50%)
of its assets to an unrelated third party, then the
above-referenced applicable termination fee shall be
reduced by fifty percent (50%). Additionally, in the
event, at any time after the first anniversary of this
Agreement, all Obligations are fully repaid through the
refinancing thereof by CoreStates Bank, N.A., the then
applicable termination fee shall be waived by Lender.
Such early termination fee shall be presumed to be the
amount of damages sustained by Lender as a result of
such early termination and Borrower agrees that it is
reasonable under the circumstances currently existing.
The early termination fee provided for in this Section
12.1 shall be deemed included in the Obligations.
Notwithstanding the foregoing, in the event that
Lender, either establishes additional Availability
Reserves, or revises the criteria for Eligible
Inventory, or reduces the lending formulas under
Section 2.1(a)(i), other than based upon an updated
Inventory appraisal, or specific events adversely
affecting the Collateral or Lender's security interest
therein, and the effect of any such action by Lender is
to reduce Borrower's borrowing availability by greater
than ten percent (10%) under Section 2.1(a), provided
that no Event of Default shall have occurred and be
continuing hereunder other than as a result of any such
reduction in availability, Borrower may, at any time
during a period ninety (90) days following the date of
such action taken by Lender, fully refinance the
Obligations hereunder with another lender willing to
provide Borrower with Inventory financing at lending
formulas equal to or better than those in effect
hereunder immediately prior to the reduction and on
other terms, conditions and funding levels
substantially similar to or better than those provided
by Lender, and Borrower fully repays the Obligations by
the end of such ninety (90) day period and terminates
this Agreement as provided in Section 12.1(a) hereof;
then, in such event, Borrower shall have no obligation
to pay the early termination fee otherwise provided for
in this Section 12.1(c).
12.2 Notices. All notices, requests and demands
hereunder shall be in writing and (a) made to Lender at
its address set forth below and to Borrower at its
chief executive office set forth below, or to such
other address as either party may designate by written
notice to the other in accordance with this provision,
and (b) deemed to have been given or made: if delivered
in person, immediately upon delivery; if by telex,
telegram or facsimile transmission, immediately upon
sending and upon confirmation of receipt; if by
nationally recognized overnight courier service with
instructions to deliver the next business day, one (1)
business day after sending; and if by certified mail,
return receipt requested, five (5) days after mailing.
12.3 Partial Invalidity. If any provision of
this Agreement is held to be invalid or unenforceable,
such invalidity or unenforceability shall not
invalidate this Agreement as a whole, but this
Agreement shall be construed as though it did not
contain the particular provision held to be invalid or
unenforceable and the rights and obligations of the
parties shall be construed and enforced only to such
extent as shall be permitted by applicable law.
12.4 Successors. This Agreement, the other
Financing Agreements and any other document referred to
herein or therein shall be binding upon and inure to
the benefit of and be enforceable by Lender, Borrower
and their respective successors and assigns, except
that Borrower may not assign its rights under this
Agreement, the other Financing Agreements and any other
document referred to herein or therein without the
prior written consent of Lender. Lender may, after
notice to Borrower, assign its rights and delegate its
obligations under this Agreement and the other
Financing Agreements and further may assign, or sell
participations in, all or any part of the Loans, the
Letter of Credit Accommodations or any other interest
herein to another financial institution or other
person, in which event, the assignee or participant
shall have, to the extent of such assignment or
participation, the same rights and benefits as it would
have if it were the Lender hereunder, except as
otherwise provided by the terms of such assignment or
participation.
12.5 Entire Agreement. This Agreement, the
other Financing Agreements, any supplements hereto or
thereto, and any instruments or documents delivered or
to be delivered in connection herewith or therewith
represents the entire agreement and understanding
concerning the subject matter hereof and thereof
between the parties hereto, and supersede all other
prior agreements, understandings, negotiations and
discussions, representations, warranties, commitments,
proposals, offers and contracts concerning the subject
matter hereof, whether oral or written.
12.6 Publicity. Borrower consents to Lender
publishing a tombstone or similar advertising material
relating to the financing transaction contemplated by
this Agreement.
IN WITNESS WHEREOF, Lender and Borrower have
caused these presents to be duly executed as of the day
and year first above written.
LENDER
CONGRESS FINANCIAL CORPORATION (WESTERN)
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By: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Senior Vice President
Address:
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BORROWER
GOTTSCHALKS INC.
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By: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Title: Senior Vice President and
Chief Financial Officer
Chief Executive Office:
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