[EXECUTED]
Loan and Security Agreement
by and among
First Union National Bank
as Lender
Congress Financial Corporation
as Agent
and
Zany Brainy, Inc.
as Borrower
Dated: July 25, 2000
TABLE OF CONTENTS
SECTION 1. DEFINITIONS..........................................................................................1
SECTION 2. CREDIT FACILITIES...................................................................................17
2.1 Loans..............................................................................................17
2.2 Letter of Credit Accommodations....................................................................18
2.3 Availability Reserves..............................................................................21
SECTION 3. INTEREST AND FEES...................................................................................23
3.1 Interest...........................................................................................23
3.2 Changes in Laws and Increased Costs of Loans.......................................................24
3.3 Fees...............................................................................................25
3.4 Unused Line Fee....................................................................................25
SECTION 4. CONDITIONS PRECEDENT.................................................................................25
4.1 Conditions Precedent to Initial Loans and Letter of Credit Accommodations..........................25
4.2 Conditions Precedent to All Loans and Letter of Credit Accommodations..............................27
SECTION 5. SECURITY INTEREST...................................................................................28
SECTION 6. COLLECTION AND ADMINISTRATION.......................................................................29
6.1 Borrower's Loan Account............................................................................29
6.2 Statements.........................................................................................30
6.3 Collection of Accounts.............................................................................30
6.4 Payments...........................................................................................32
6.5 Authorization to Make Loans........................................................................33
6.6 Use of Proceeds....................................................................................33
6.7 Sharing of Payments, Etc...........................................................................33
6.8 Settlement Procedures..............................................................................33
SECTION 7. COLLATERAL REPORTING AND COVENANTS..................................................................34
7.1 Collateral Reporting...............................................................................34
7.2 Accounts Covenants.................................................................................34
7.3 Inventory Covenants................................................................................36
7.4 Power of Attorney..................................................................................37
7.5 Right to Cure......................................................................................37
7.6 Access to Premises.................................................................................38
SECTION 8. REPRESENTATIONS AND WARRANTIES......................................................................38
8.1 Corporate Existence, Power and Authority; Subsidiaries.............................................38
8.2 Financial Statements; No Material Adverse Change...................................................39
8.3 Chief Executive Office; Collateral Locations.......................................................39
8.4 Priority of Liens; Title to Properties.............................................................39
8.5 Tax Returns........................................................................................39
8.6 Litigation.........................................................................................40
8.7 Compliance with Other Agreements and Applicable Laws...............................................40
8.8 Environmental Compliance. ........................................................................40
8.9 Credit Card Agreements.............................................................................41
8.10 Employee Benefits.................................................................................42
8.11 Bank Accounts.....................................................................................42
8.12 Solvency...........................................................................................43
8.13 Accuracy and Completeness of Information..........................................................43
8.14 Survival of Warranties; Cumulative................................................................43
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS..................................................................43
9.1 Maintenance of Existence...........................................................................43
9.2 New Collateral Locations...........................................................................43
9.3 Compliance with Laws, Regulations, Etc.............................................................44
9.4 Payment of Taxes and Claims........................................................................44
9.5 Insurance..........................................................................................44
9.6 Financial Statements and Other Information.........................................................45
9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc............................................46
9.8 Encumbrances.......................................................................................50
9.9 Indebtedness.......................................................................................51
9.10 Loans, Investments, Guarantees, Etc...............................................................53
9.11 Dividends and Redemptions.........................................................................55
9.12 Transactions with Affiliates......................................................................56
9.13 Credit Card Agreements............................................................................56
9.14 Adjusted Tangible Net Worth.......................................................................56
9.15 Compliance with ERISA.............................................................................57
9.16 Additional Bank Accounts..........................................................................57
9.17 End of Fiscal Years; Fiscal Quarters..............................................................57
9.18 Change in Business................................................................................58
9.19 Documents to be Delivered with respect to Noodle Kidoodle..........................................58
9.20 Costs and Expenses. .............................................................................59
9.21 Further Assurances................................................................................60
SECTION 10. EVENTS OF DEFAULT AND REMEDIES.....................................................................60
10.1 Events of Default.................................................................................60
10.2 Remedies..........................................................................................62
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING LAW.......................................64
11.1 Confession of Judgment............................................................................64
11.2 Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver.............................65
11.3 Waiver of Notices.................................................................................66
11.4 Amendments and Waivers............................................................................66
11.5 Waiver of Counterclaims...........................................................................66
11.6 Indemnification...................................................................................67
SECTION 12. THE AGENT..........................................................................................67
12.1 Appointment, Powers and Immunities................................................................67
12.2 Reliance by Agent.................................................................................67
12.3 Events of Default.................................................................................68
12.4 Indemnification. ................................................................................68
12.5 Non-Reliance on Agent and Other Lender............................................................68
12.6 Failure to Act....................................................................................69
12.7 Resignation of Agent..............................................................................69
12.8 Consents and Releases of Collateral under Financing Agreements....................................70
12.9 Collateral Matters................................................................................70
SECTION 13. TERM OF AGREEMENT; MISCELLANEOUS...................................................................71
13.1 Term..............................................................................................71
13.2 Notices...........................................................................................73
13.3 Partial Invalidity................................................................................73
13.4 Successors........................................................................................73
13.5 Assignments and Participations....................................................................74
13.6 Entire Agreement..................................................................................75
INDEX TO
EXHIBITS AND SCHEDULES
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Exhibit A Information Certificate
Exhibit B Form of Certificate for Merger of Noodle Kidoodle
Schedule 1.6 Applicable Margin
Schedule 1.30 Existing Letters of Credit
Schedule 1.56 Permitted Holders
Schedule 6.3 Bank Accounts
Schedule 8.4 Existing Liens
Schedule 8.7 Permits
Schedule 8.8 Environmental Matters
Schedule 8.9 Credit Card Agreements
Schedule 9.9 Existing Indebtedness
Schedule 9.10 Existing Loans, Investments, Guarantees
Schedule 10.1(m) Projections
LOAN AND SECURITY AGREEMENT
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This Loan and Security Agreement dated July 25, 2000 is entered into by and
among First Union National Bank, a national banking association ("Lender"),
Congress Financial Corporation, in its capacity as administrative agent and
collateral agent for Lender (in such capacity "Agent") and Zany Brainy, Inc., a
Pennsylvania corporation ("Borrower").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Borrower and Lender have entered into certain financing
arrangements pursuant to which Lender has made loans and advances and provided
other financial accommodations to Borrower as set forth in the Existing
Agreements (as hereinafter defined);
WHEREAS, Borrower has requested that Agent act as agent for Lender in
connection with its financing arrangements with Borrower pursuant to which Agent
may make loans and advances and provide other financial accommodations on behalf
of Lender to Borrower; and
WHEREAS, Borrower has requested that Lender extend, modify and restate the
existing financing arrangements of Lender with Borrower;
NOW, THEREFORE, in consideration of the mutual conditions and agreements set
forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
SECTION 1. DEFINITIONS
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All terms used herein which are defined in Article 1 or Article 9 of the
Uniform Commercial Code shall have the meanings given therein unless otherwise
defined in this Agreement. All references to the plural herein shall also mean
the singular and to the singular shall also mean the plural unless the context
otherwise requires. All references to Borrower, Agent and Lender pursuant to the
definitions set forth in the recitals hereto, or to any other person herein,
shall include their respective successors and assigns. The words "hereof",
"herein", "hereunder", "this Agreement" and words of similar import when used in
this Agreement shall refer to this Agreement as a whole and not any particular
provision of this Agreement and as this Agreement now exists or may hereafter be
amended, modified, supplemented, extended, renewed, restated or replaced. The
word "including" when used in this Agreement shall mean "including, without
limitation". An Event of Default shall exist or continue or be continuing until
such Event of Default is waived in accordance with Section 10.4 or cured in a
manner satisfactory to Agent, if such Event of Default is capable of being cured
as determined by Agent. Any accounting term used herein unless otherwise defined
in this
Agreement shall have the meanings customarily given to such term in accordance
with GAAP. For purposes of this Agreement, the following terms shall have the
respective meanings given to them below:
1.1 "Accounts" shall mean all present and future rights of Borrower to
payment for goods sold or leased or for services rendered, whether or not
evidenced by instruments or chattel paper, and whether or not earned by
performance, and including, without limitation, Credit Card Receivables.
1.2 "Adjusted Eurodollar Rate" shall mean, with respect to each Interest
Period for any Eurodollar Rate Loan, the rate per annum (rounded upwards, if
necessary, to the next one-sixteenth (1/16) of one (1%) percent) determined by
dividing (a) the Eurodollar Rate for such Interest Period by (b) a percentage
equal to: (i) one (1) minus (ii) the Reserve Percentage. For purposes hereof,
"Reserve Percentage" shall mean the reserve percentage, expressed as a decimal,
prescribed by any United States or foreign banking authority for determining the
reserve requirement which is or would be applicable to deposits of United States
dollars in a non-United States or an international banking office of Reference
Bank used to fund a Eurodollar Rate Loan or any Eurodollar Rate Loan made with
the proceeds of such deposit, whether or not the Reference Bank actually holds
or has made any such deposits or loans. The Adjusted Eurodollar Rate shall be
adjusted on and as of the effective day of any change in the Reserve Percentage.
1.3 "Adjusted Tangible 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 the difference between: (a) the aggregate net book value of all assets
(excluding the value of patents, trademarks, trade names, domain names, data
bases, copyrights, licenses, goodwill, prepaid assets, deferred tax assets,
investments in joint ventures (and including any investment in ZBH) and other
intangible assets) of such Person and its Subsidiaries, calculating the book
value of inventory for this purpose principally on a first-in-first-out basis,
at the lower of Cost or market, after deducting from such book values all
appropriate reserves in accordance with GAAP (including all reserves for
doubtful receivables, obsolescence, depreciation and amortization) and (b) the
aggregate amount of the indebtedness and other liabilities of such Person and
its Subsidiaries (including tax and other proper accruals).
1.4 "Affiliate" shall mean, with respect to a specified Person, any other
Person (a) which directly or indirectly through one or more intermediaries
controls, or is controlled by, or is under common control with, such specified
person; (b) which beneficially owns or holds ten (10%) percent or more of the
Voting Stock or other equity interest of such specified person; or (c) of which
ten (10%) percent or more of the Voting Stock or other equity interest is
beneficially owned or held by such specified person or a Subsidiary of such
specified person. For purposes of this definition, "control" (including, with
correlative meanings, the terms "controlling", "controlled by" and "under common
control with") when used with respect to any specified person shall mean the
possession, directly or indirectly, of the power to direct or cause the
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direction of the management and policies of such Person, whether through the
ownership of Voting Stock, by agreement or otherwise.
1.5 "Agent" shall mean Congress Financial Corporation in its capacity as
administrative agent and collateral agent for Lender pursuant to the terms
hereof and any replacement or successor agent hereunder.
1.6 "Applicable Margin" shall mean the following:
(a) At any time, as to the Interest Rate for Eurodollar Rate Loans,
the applicable percentage (on a per annum basis) determined based on the
Quarterly Average Excess Availability for the immediately preceding quarter
shall be as set forth on Schedule 1.6 hereto.
(b) The Applicable Margin shall be calculated and established once
each quarter (commencing with the quarter ending on or about September 30,
2000);
(c) The Applicable Margin set forth above used to calculate the
Interest Rate for each Borrower as to Eurodollar Rate Loans shall be decreased
one time by one-quarter (1/4%) percent from the percentage with respect thereto
set forth above:
(i) effective as of the first day of the month after each of the
following conditions is satisfied as determined by Agent: (A) Agent shall have
received the audited financial statements of Borrower for the fiscal year ending
on the Saturday closest to January 31, 2001, together with the unqualified
opinion of the independent certified accountants and if such accountants issue a
letter to management then a copy of such letter, in accordance with Section 9.6
hereof, (B) the Pre-Tax Income of Borrower for the fiscal year ending on the
Saturday closest to January 31, 2001 as set forth in the audited financial
statements of Borrower for such fiscal year delivered to Agent shall exceed
$17,500,000, and (C) no Event of Default or act, condition or event which with
notice or passage of time would constitute an Event of Default shall exist or
have occurred, and
(ii) in the event that the conditions set forth in clause (i) are
not satisfied, then effective as of the first day of the month after each of the
following conditions is satisfied by Agent: (A) Agent shall have received the
audited financial statements of Borrower for the fiscal year ending on the
Saturday closest to January 31, 2002, together with the unqualified opinion of
the independent certified accountants in accordance with Section 9.6 hereof, (B)
the Pre-Tax Income of Borrower for the fiscal year ending on the Saturday
closest to January 31, 2001 as set forth in the audited financial statements of
Borrower for such fiscal year delivered to Agent, shall exceed $10,000,000, (C)
the Pre-Tax Income of Borrower for the fiscal year ending on the Saturday
closest to January 31, 2002 as set forth in the audited financial statements of
Borrower for such fiscal year delivered to Agent, together with the unqualified
opinion of the independent certified accountants and if such accountants issue a
letter to management, then a copy of such letter, in accordance with Section 9.6
hereof shall exceed $23,000,000 and (D) no Event of
3
Default or act, condition or event which with notice or passage of time or both
would constitute an Event of Default shall exist or have occurred.
(d) Notwithstanding anything to the contrary contained herein, if in
any subsequent fiscal year after the effectiveness of any decrease in the
Applicable Margin as provided in clause (c) of this definition, the Pre-Tax
Income of Borrower for such subsequent fiscal year based on the financial
statements of Borrower for such year shall be negative, then effective on the
first day of the month after the receipt by Agent of the financial statements of
Borrower for such fiscal year, the Applicable Margin shall increase to the rates
calculated as set forth on Schedule 1.6 hereto.
1.7 "Availability Reserves" shall mean, as of any date of determination,
such amounts as Agent may from time to time establish and revise in good faith
reducing the amount of Loans and Letter of Credit Accommodations that would
otherwise be available to Borrower under the lending formula(s) provided for
herein: (a) to reflect events, conditions, contingencies or risks that, as
determined by Agent in good faith, do or may affect either (i) the Collateral or
any other property which is security for the Obligations or its value, or (ii)
the security interests and other rights in the Collateral of Agent held for the
benefit of Lender (including the enforceability, perfection and priority
thereof); or (iii) the assets, business or prospects of Borrower or any Obligor
(b) to reflect Agent's good faith belief that any collateral report or financial
information furnished by or on behalf of Borrower or any Obligor to Agent is or
may have been incomplete, inaccurate or misleading in any material respect; (c)
in respect of any state of facts which Agent determines in good faith
constitutes an Event of Default or may, with notice or passage of time or both,
constitute an Event of Default; (d) to reflect outstanding Letter of Credit
Accommodations as provided in Section 2.2 hereof; or (e) as otherwise provided
in Section 2.3 hereof.
1.8 "Blocked Accounts" shall have the meaning set forth in Section 6.3
hereof.
1.9 "Business Day" shall mean any day other than a Saturday, Sunday, or
other day on which commercial banks are authorized or required to close under
the laws of the State of New York or the State of North Carolina, and a day on
which the Reference Bank and Agent are open for the transaction of business,
except that if a determination of a Business Day shall relate to any Eurodollar
Rate Loans, the term Business Day shall also exclude any day on which banks are
closed for dealings in dollar deposits in the London interbank market or other
applicable Eurodollar Rate market.
1.10 "Capital Stock" shall mean, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated) of
such Person's capital stock or any membership interest of such Person at any
time outstanding, and any and all rights, warrants or options exchangeable for
or convertible into such capital stock or membership interest (but excluding any
debt security that is exchangeable for or convertible into such capital stock or
membership interest).
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1.11 "Cash Equivalents" shall mean, at any time, (a) any evidence of
indebtedness with a maturity date of one hundred eighty (180) days or less
issued or directly and fully guaranteed or insured by the United States of
America or any agency or instrumentality thereof; provided, that, the full faith
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and credit of the United States of America is pledged in support thereof; (b)
certificates of deposit or bankers' acceptances with a maturity of one hundred
eighty (180) days or less of any financial institution that is a member of the
Federal Reserve System having combined capital and surplus and undivided profits
of not less than $200,000,000; (c) commercial paper (including variable rate
demand notes) with a maturity of one hundred eighty (180) days or less issued by
a corporation (except any Subsidiary or Affiliate of a Borrower) organized under
the laws of any State of the United States of America or the District of
Columbia and rated at least A-1 by Standard & Poor's Ratings Service, a division
of The ▇▇▇▇▇▇-▇▇▇▇ Companies, Inc. or at least P-1 by ▇▇▇▇▇'▇ Investors Service,
Inc.; (d) repurchase and reverse repurchase obligations with a term of not more
than thirty (30) days for underlying securities of the types described in clause
(a) above entered into with any financial institution having combined capital
and surplus and undivided profits of not less than $200,000,000; (e) repurchase
agreements and reverse repurchase agreements relating to marketable direct
obligations issued or unconditionally guaranteed by the United States of America
or issued by any governmental agency thereof and backed by the full faith and
credit to the United States of America, in each case maturing within one hundred
eighty (180) days or less from the date of acquisition; provided, that, the
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terms of such agreements comply with the guidelines set forth in the Federal
Financial Agreements of Depository Institutions with Securities Dealers and
Others, as adopted by the Comptroller of the Currency on October 31, 1985; (f)
investments in money market funds and mutual funds which invest substantially
all of their assets in securities of the types described in clauses (a) through
(e) above; and (g) funds maintained by such Person in demand deposit accounts at
any national or state bank or trust company.
1.12 "Change of Control" shall mean the occurrence of any of the following:
(a) all or substantially all of Borrower's assets are sold, in one or in a
series of transactions to any "person" or "group" (as such terms are used in
Sections 14(d)(2) and 13(d)(3), respectively, of the Securities Exchange Act)
other than to Permitted Holders; (b) an event or series of events (whether a
stock purchase, amalgamation, merger, consolidation or other business
combination or otherwise) by which any person or group (other than a Permitted
Holder) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Securities Exchange Act) directly or indirectly of fifty (50%) percent or more
of the combined voting power of the then outstanding securities of Borrower
ordinarily (and apart from rights accruing under certain circumstances) having
the right to vote in election of directors or (c) after the date of this
Agreement, the replacement of a majority of the Board of Directors of Borrower
over a two (2) year period commencing from the date of this Agreement from the
directors who constituted the Board of Directors at the beginning of such period
other than directors whose nominations for election by the stockholders of
Borrower was approved by such Board of Directors.
1.13 "Code" shall mean the Internal Revenue Code of 1986, as the same now
exists or may from time to time hereafter be amended, modified, recodified or
supplemented, together with all rules, regulations and interpretations
thereunder or related thereto.
5
1.14 "Collateral" shall have the meaning set forth in Section 5 hereof.
1.15 "Collateral Access Agreement" shall mean an agreement in writing, in
form and substance satisfactory to Agent, from any lessor of premises to
Borrower or Noodle Kidoodle, or any other person to whom any Collateral
(including Inventory, Equipment, bills of lading or other documents of title) is
consigned or who has custody, control or possession of any Collateral or is
otherwise the owner or operator of any premises on which any of such Collateral
is located, pursuant to which such lessor, consignee or other person, inter
-----
alia, acknowledges the first priority security interest of Agent in such
----
Collateral, agrees to waive any and all claims such lessor, consignee or other
person may, at any time, have against such Collateral, whether for processing,
storage or otherwise, and agrees to permit Agent access to, and the right to
remain on, the premises of such lessor, consignee or other person so as to
exercise Agent's rights and remedies and otherwise deal with such Collateral and
in the case of any person who at any time has custody, control or possession of
any bills of lading or other documents of title, agrees to hold such bills of
lading or other documents as bailee for Agent and to follow all instructions of
Agent with respect thereto.
1.16 "Cost" shall mean, as to the Inventory as of any date, the cost of such
Inventory as of such date, determined on a first-in-first-out basis on a
weighted average cost basis in accordance with GAAP.
1.17 "Credit Card Acknowledgments" shall mean, individually and
collectively, the agreements by Credit Card Issuers or Credit Card Processors
who are parties to Credit Card Agreements in favor of Lender and Agent
acknowledging the first priority security interest of Agent, for itself and the
benefit of Lender, in the monies due and to become due to Borrower or Noodle
Kidoodle (including, without limitation, credits and reserves) under the Credit
Card Agreements, and agreeing to transfer all such amounts to the Blocked
Accounts, as the same now exist or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced.
1.18 "Credit Card Agreements" shall mean all agreements now or hereafter
entered into by Borrower or Noodle Kidoodle with any Credit Card Issuer or any
Credit Card Processor, as the same now exist or may hereafter be amended,
modified, supplemented, extended, renewed, restated or replaced, including, but
not limited to, as to Borrower, the agreements set forth on Schedule 8.9 hereto.
1.19 "Credit Card Issuer" shall mean any Person (other than Borrower) who
issues or whose members issue credit cards, including, without limitation,
MasterCard or VISA bank credit or debit cards or other bank credit or debit
cards issued through MasterCard International, Inc., Visa, U.S.A., Inc. or Visa
International and American Express, Discover, Diners Club, ▇▇▇▇▇ ▇▇▇▇▇▇▇ and
other non-bank credit or debit cards, including, without limitation, credit or
debit cards issued by or through American Express Travel Related Services
Company, Inc. and Discover Financial Services, Inc.
6
1.20 "Credit Card Processor" shall mean any servicing or processing agent or
any factor or financial intermediary who facilitates, services, processes or
manages the credit authorization, billing transfer and/or payment procedures
with respect to any of Borrower's or Noodle Kidoodle's sales transactions
involving credit card or debit card purchases by customers using credit cards or
debit cards issued by any Credit Card Issuer (including, but not limited to,
National Data Payment Systems, Inc.).
1.21 "Credit Card Receivables" shall mean collectively, (a) all present and
future rights of Borrower or Noodle Kidoodle to payment from any Credit Card
Issuer, Credit Card Processor or other third party arising from sales of goods
or rendition of services to customers who have purchased such goods or services
using a credit or debit card and (b) all present and future rights of Borrower
or Noodle Kidoodle to payment from any Credit Card Issuer, Credit Card Processor
or other third party in connection with the sale or transfer of Accounts arising
pursuant to the sale of goods or rendition of services to customers who have
purchased such goods or services using a credit card or a debit card, including,
but not limited to, all amounts at any time due or to become due from any Credit
Card Issuer or Credit Card Processor under the Credit Card Agreements or
otherwise.
1.22 "Eligible Inventory" shall mean Inventory consisting of finished goods
held for resale in the ordinary course of the business of Borrower or Noodle
Kidoodle (except as to Inventory of Noddle Kidoodle, as otherwise noted below),
in each case that are acceptable to Agent based on the criteria set forth below.
In general, Eligible Inventory shall not include (a) packaging and shipping
materials; (b) supplies used or consumed in the business of Borrower or Noodle
Kidoodle; (c) Inventory at premises other than those owned and controlled by
Borrower or Noodle Kidoodle, except for (i) Inventory at retail store locations
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of Borrower or Noodle Kidoodle which are leased by it, provided, that, if Agent
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has not received Collateral Access Agreement duly authorized, executed and
delivered by the owner and lessor of such premises, without limiting any other
rights and remedies of Agent under this Agreement or under the other Financing
Agreements with respect to the establishment of Availability Reserves or
otherwise, Agent may, at its option, establish an Availability Reserve in
respect of amounts due or to become due to the owner and lesser of any retail
store location at any time Excess Availability is equal to or less than
$8,000,000 or any Event of Default or act, condition or event which with notice,
passage of time or both could constitute an Event of Default shall exist or have
occurred and (ii) Inventory at other locations of Borrower or Noodle Kidoodle
which are leased by it, if Agent shall have received a Collateral Access
Agreement duly authorized, executed and delivered by the owner and lessor of
such premises; (d) Inventory subject to a security interest or lien in favor of
any person other than Agent, for itself and the benefit of Lender, except those
permitted in this Agreement; (e) ▇▇▇▇ and hold goods; (f) unserviceable,
obsolete, discontinued (or "out of stock") or slow moving Inventory (except that
so long as the amount of slow moving Inventory shall not increase after the date
hereof disproportionately to increases in sales by Borrower and increases in the
total amount of Inventory, as determined by Agent in good faith, such slow
moving Inventory shall be considered Eligible Inventory to the extent it
otherwise satisfies the criteria set forth herein); (g) Inventory which is not
subject to the first priority, valid and perfected security interest of Agent,
for itself and the benefit of Lender; (h) damaged and/or
7
defective Inventory; (i) Inventory to be returned to vendors (except, that,
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Eligible Inventory may include Inventory of Borrower to be returned to vendors
of up to the aggregate amount of $500,000 thereof, so long as it is in the same
condition and state as when first received by Borrower from such vendor); (j)
Inventory subject to deposits made by customers for sales of Inventory that has
not been delivered; (k) Inventory held after the applicable expiration date
thereof; (l) samples; (m) Inventory purchased or sold on consignment; (n)
Inventory of Noodle Kidoodle other than the Inventory of Noodle Kidoodle owned
by it as of the date of the Merger; and (o) any Inventory of Noodle Kidoodle
after December 31, 2000. On and before the increase in the Maximum Credit to
$115,000,000 pursuant to Section 2.4 hereof and on and after December 31, 2000,
Inventory of Noodle Kidoodle shall not be Eligible Inventory. Notwithstanding
anything to the contrary contained herein, no Inventory of Noodle Kidoodle shall
be Eligible Inventory unless and until the Maximum Credit is increased to
$115,000,000 pursuant to Section 2.4 hereof. General criteria for Eligible
Inventory may be established and revised from time to time by Agent in good
faith. Any Inventory which is not Eligible Inventory shall nevertheless be part
of the Collateral.
1.23 "Environmental Laws" shall mean all foreign, Federal, State and local
laws (including common law), legislation, rules, codes, licenses, permits
(including any conditions imposed therein), authorizations, judicial or
administrative decisions, injunctions or agreements between Borrower and any
Governmental Authority, (a) relating to pollution and the protection,
preservation or restoration of the environment (including air, water vapor,
surface water, ground water, drinking water, drinking water supply, surface
land, subsurface land, plant and animal life or any other natural resource), or
to human health or safety, (b) relating to the exposure to, or the use, storage,
recycling, treatment, generation, manufacture, processing, distribution,
transportation, handling, labeling, production, release or disposal, or
threatened release, of Hazardous Materials, or (c) relating to all laws with
regard to recordkeeping, notification, disclosure and reporting requirements
respecting Hazardous Materials. The term "Environmental Laws" includes (i) the
Federal Comprehensive Environmental Response, Compensation and Liability Act of
1980, the Federal Superfund Amendments and Reauthorization Act, the Federal
Water Pollution Control Act of 1972, the Federal Clean Water Act, the Federal
Clean Air Act, the Federal Resource Conservation and Recovery Act of 1976
(including the Hazardous and Solid Waste Amendments thereto), the Federal Solid
Waste Disposal Act and the Federal Toxic Substances Control Act, the Federal
Insecticide, Fungicide and Rodenticide Act, and the Federal Safe Drinking Water
Act of 1974, (ii) applicable state counterparts to such laws, and (iii) any
common law or equitable doctrine that may impose liability or obligations for
injuries or damages due to, or threatened as a result of, the presence of or
exposure to any Hazardous Materials.
1.24 "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.
8
1.25 "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.
1.26 "ERISA Affiliate" shall mean any person required to be aggregated with
Borrower or any of its Subsidiaries under Sections 414(b), 414(c), 414(m) or
414(o) of the Code.
1.27 "Eurodollar Rate" shall mean with respect to the Interest Period for a
Eurodollar Rate Loan, the interest rate per annum equal to the arithmetic
average of the rates of interest per annum (rounded upwards, if necessary, to
the next one-sixteenth (1/16) of one (1%) percent) at which Reference Bank is
offered deposits of United States dollars in the London interbank market (or
other Eurodollar Rate market selected by Borrower and approved by Agent) 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.
1.28 "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.
1.29 "Excess Availability" shall mean the amount, as determined by Agent,
calculated at any time, equal to: (a) the lesser of (i) the amount of the Loans
available to Borrower as of such time based on the applicable lending formula
multiplied by the Value of Eligible Inventory, as determined by Agent, and
subject to the sublimits and Availability Reserves from time to time established
by Agent hereunder (other than Availability Reserves in respect of Letter of
Credit Accommodations) and (ii) the Maximum Credit, minus (b) the sum of: (i)
-----
the amount of all then outstanding and unpaid Obligations, plus (ii) the
aggregate amount of all trade payables or other obligations of Borrower which
are more than thirty (30) days past due as of such time, plus (iii) the amount
of checks issued by Borrower to pay trade payables or other obligations, but not
yet sent and the book overdraft of Borrower.
1.30 "Existing Letters of Credit" shall mean, collectively, the letters of
credit issued prior to the date hereof by Lender for the account of Borrower set
forth on Schedule 1.30 hereto.
1.31 "Event of Default" shall mean the occurrence or existence of any event
or condition described in Section 10.1 hereof.
1.32 "Fee Letter" shall mean the letter agreement, dated on or about the
date hereof, by and among Borrower, Agent and Lender, setting forth certain fees
payable by Borrower to Agent, for itself and the benefit of Lender, as the same
now exists or may hereafter be amended, modified, supplemented, extended,
renewed, restated or replaced.
9
1.33 "Financing Agreements" shall mean, collectively, this Agreement and
all notes, guarantees, security agreements and other agreements, documents and
instruments now or at any time hereafter executed and/or delivered by Borrower
or any Obligor in connection with this Agreement, as the same now exist or may
hereafter be amended, modified, supplemented, extended, renewed, restated or
replaced.
1.34 "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 Agent prior to
the date hereof.
1.35 "Governmental Authority" shall mean any nation or government, any
state, province, or other political subdivision thereof, any central bank (or
similar monetary or regulatory authority) thereof, any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government, and any corporation or other entity owned or
controlled, through stock or capital ownership or otherwise, by any of the
foregoing.
1.36 "Hazardous Materials" shall mean any hazardous, toxic or dangerous
substances, materials and wastes, including hydrocarbons (including naturally
occurring or man-made petroleum and hydrocarbons), flammable explosives,
asbestos, urea formaldehyde insulation, radioactive materials, biological
substances, polychlorinated biphenyls, pesticides, herbicides and any other kind
and/or type of pollutants or contaminants (including materials which include
hazardous constituents), sewage, sludge, industrial slag, solvents and/or any
other similar substances, materials, or wastes and including any other
substances, materials or wastes that are or become regulated under any
Environmental Law (including any that are or become classified as hazardous or
toxic under any Environmental Law).
1.37 "Indebtedness" shall mean, with respect to any Person, any liability,
whether or not contingent (without duplication), (a) in respect of borrowed
money (whether or not the recourse of the lender is to the whole of the assets
of such Person or only to a portion thereof) or evidenced by bonds, notes,
debentures or similar instruments; (b) representing the balance deferred and
unpaid of the purchase price of any property or services (except any such
balance that constitutes an account payable to a trade creditor (whether or not
an Affiliate) created, incurred, assumed or guaranteed by such Person in the
ordinary course of business of such Person in connection with obtaining goods,
materials or services that is not overdue by more than ninety (90) days, unless
the trade payable is being contested in good faith); (c) all obligations as
lessee under leases which have been, or should be, in accordance with GAAP
recorded as Capital Leases; (d) any contractual obligation, contingent or
otherwise, of such Person to pay or be liable for the payment of any
indebtedness described in this definition of another Person, including, without
limitation, any such indebtedness, directly or indirectly guaranteed, or any
agreement to
10
purchase, repurchase, or otherwise acquire such indebtedness, obligation or
liability or any security therefor, or to provide funds for the payment or
discharge thereof, or to maintain solvency, assets, level of income, or other
financial condition; (e) all obligations with respect to redeemable stock and
redemption or repurchase obligations under any Capital Stock or other equity
securities issued by such Person which are redeemable or subject to mandatory
repurchase at the option of the holder; (f) all reimbursement obligations and
other liabilities of such Person with respect to surety bonds (whether bid,
performance or otherwise), letters of credit, banker's acceptances or similar
documents or instruments issued for such Person's account; and (g) all
indebtedness of such Person in respect of indebtedness of another Person for
borrowed money or indebtedness of another Person otherwise described in this
definition which is secured by any consensual lien, security interest,
collateral assignment, conditional sale, mortgage, deed of trust, or other
encumbrance on any asset of such Person, whether or not such obligations,
liabilities or indebtedness are assumed by or are a personal liability of such
Person, all as of such time.
1.38 "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 Agent in connection with the preparation of this Agreement and the
other Financing Agreements and the financing arrangements provided for herein.
1.39 "Inventory" shall mean all of each Borrower's and Noodle Kidoodle'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.
1.40 "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
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not elect an Interest Period which will end after the last day of the then-
current term of this Agreement.
1.41 "Interest Rate" shall mean:
(a) as to Prime Rate Loans, a rate equal to the Prime Rate per annum,
(b) as to Eurodollar Rate Loans, a rate equal to two (2%) percent per
annum in excess of the Adjusted Eurodollar Rate (in each case, 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 Agent of the request
of Borrower for such Eurodollar Rate Loans in accordance with the terms hereof,
whether such rate is higher or lower than any rate previously quoted to
Borrower), provided, that, effective as of the first day of each calendar
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quarter (commencing October 1, 2000), the Interest Rate payable by Borrower in
respect of Eurodollar Rate Loans shall be increased or decreased, as the case
may be, to the rate equal to the Applicable Margin on a per annum basis
(determined based on the Quarterly Average Excess Availability for the
immediately preceding quarter) in excess of the Adjusted Eurodollar Rate.
11
(c) Notwithstanding anything to the contrary contained in clauses (a)
or (b) of this definition, the Applicable Margin otherwise used to calculate the
Interest Rate for Eurodollar Rate Loans shall be the highest percentage set
forth in the definition of the term Applicable Margin (without regard to the
amount of Excess Availability) plus two (2%) percent per annum, and the Interest
Rate applicable to Prime Rate Loans shall equal the Prime Rate plus two (2%)
percent per annum, in each case, at Agent's option (i) for the period (A) from
and after the effective date of termination or non-renewal hereof until Agent,
for and on behalf of Lender, has received full and final payment of all
outstanding and unpaid Obligations or as to contingent Obligations, cash
collateral in the amount and on the terms required under Section 13.1 hereof
(notwithstanding entry of a judgment against Borrower) and (B) from and after
the date of the occurrence of an Event of Default for so long as such Event of
Default is continuing, and (ii) on Loans to Borrower at any time outstanding in
excess of the amount available to Borrower under Section 2 (whether or not such
excess(es), arise or are made with or without Agent's or Lender's knowledge or
consent and whether made before or after an Event of Default).
1.42 "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 Agent for the account of Borrower or any Obligor or (b) with
respect to which Agent has agreed to indemnify the issuer or guaranteed to the
issuer the performance by Borrower of its obligations to such issuer (including,
without limitation, the Existing Letters of Credit).
1.43 "Loans" shall mean the loans now or hereafter made by Agent or Lender
to or for the benefit of Borrower on a revolving basis (involving advances,
repayments and readvances) as set forth in Section 2.1(a) hereof.
1.44 "Material Adverse Effect" shall mean a material adverse effect on (a)
the condition (financial or otherwise), business, performance, operations or
properties of Borrower and its Subsidiaries, taken as a whole; (b) the legality,
validity or enforceability of this Agreement or any of the other Financing
Agreements; (c) the legality, validity, enforceability, perfection or priority
of the security interests and liens of Agent or Lender upon the Collateral or
any other property which is security for the Obligations; (d) the Collateral or
any other property which is security for the Obligations, or the value of the
Collateral or such other property; (e) the ability of Borrower to repay the
Obligations, or the ability of Borrower or any Obligor to perform its
obligations under this Agreement or any of the other Financing Agreements; or
(f) the ability of Agent or Lender to enforce the Obligations or realize upon
the Collateral or otherwise with respect to the rights and remedies of Agent and
Lender under this Agreement or any of the other Financing Agreements.
1.45 "Material Contract" shall mean (a) any contract or other agreement
(other than the Financing Agreements), written or oral, of Borrower involving
monetary liability of or to any Person in an amount in excess of $2,500,000 in
any fiscal year and (b) any other contract or other agreement (other than the
Financing Agreements), whether written or oral, to which Borrower is a party as
to which the breach, nonperformance, cancellation or failure to renew by any
party
12
thereto would have a material adverse effect on the business, assets, condition
(financial or otherwise) or results of operations or prospects of Borrower or
the validity or enforceability of this Agreement, any of the other Financing
Agreements, or any of the rights and remedies of Agent or Lender hereunder or
thereunder.
1.46 "Maximum Credit" shall mean $65,000,000, provided, that, upon the date
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of written notice of Agent to Borrower of the satisfaction of the conditions set
forth in Section 2.4 hereof, the Maximum Credit shall mean $115,000,000.
1.47 "Merger" shall mean the merger of Night Owl Acquisition, Inc., a
Delaware corporation, with and into Noodle Kidoodle with Noodle Kidoodle as the
surviving corporation pursuant to the terms of the Merger Agreements.
1.48 "Merger Agreements" shall mean, collectively, the Amended and Restated
Agreement and Plan of Merger, dated as of April 21, 2000, by and among Borrower,
Noodle Kidoodle and Night Owl Acquisition, Inc., a Delaware corporation, the
Certificate of Merger of Noodle Kidoodle Corporation and Night Owl Acquisition,
Inc. and all related agreements, documents and instruments, as the same now
exist or may hereafter be amended, modified, supplemented, extended, renewed,
restated or replaced.
1.49 "Net Recovery Percentage" shall mean the fraction, expressed as a
percentage, (a) the numerator of which is the amount equal to the median
recovery on the aggregate amount of the Inventory at such time on a "going out
of business sale" basis as set forth in the most recent acceptable appraisal of
Inventory received by Agent in accordance with Section 7.3, net of operating
expenses, liquidation expenses and commissions, and (b) the denominator of which
is the original Cost of the aggregate amount of the Inventory subject to
appraisal.
1.50 "Noodle Kidoodle" shall mean Noodle Kidoodle, Inc., a Delaware
corporation, as survivor of the Merger, and its successors and assigns.
1.51 "Obligations" shall mean any and all Loans, Letter of Credit
Accommodations and all other obligations, liabilities and indebtedness of every
kind, nature and description owing by Borrower to Agent and/or Lender and/or any
of their affiliates, including principal, interest, charges, fees, costs and
expenses, however evidenced, whether as principal, surety, endorser, guarantor
or otherwise, arising under this Agreement, any of the other Financing
Agreements or by operation of law in connection therewith, 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 or not such amounts are allowed or allowable in whole or in part in such
case), whether direct or indirect, absolute or contingent, joint or several, due
or not due, primary or secondary, liquidated or unliquidated, secured or
unsecured, and however acquired by Agent or Lender.
13
1.52 "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.
1.53 "Participant" shall have the meaning set forth in Section 13.5 hereof.
1.54 "Payment Account" shall have the meaning set forth in Section 6.3
hereof.
1.55 "Permits" shall have the meaning set forth in Section 8.7 hereof.
1.56 "Permitted Holders" shall mean the persons listed on Schedule 1.56
hereto.
1.57 "Person" or "person" shall mean any individual, sole proprietorship,
partnership, corporation (including, without limitation, any corporation which
elects subchapter S status under the Code), limited liability company, limited
liability partnership, business trust, unincorporated association, joint stock
corporation, trust, joint venture or other entity or any government or any
agency or instrumentality or political subdivision thereof.
1.58 "Pre-Tax Income" shall mean, with respect to any Person for any period,
the aggregate of the net income (loss) of such Person and its Subsidiaries, on a
consolidated basis, for such period (excluding to the extent included therein
any extraordinary or one time or non-recurring gains) after deducting all
charges which should be deducted before arriving at the net income (loss) for
such period and before deducting the Provision for Taxes for such period, all as
determined in accordance with GAAP; provided, that, (a) the net income of any
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Person that is not a consolidated Subsidiary or that is accounted for by the
equity method of accounting shall be included only to the extent of the amount
of dividends or distributions paid or payable to such Person or a wholly-owned
Subsidiary of such Person; (b) except to the extent included pursuant to the
foregoing clause, the net income of any Person accrued prior to the date it
becomes a wholly-owned Subsidiary of such Person or is merged into or
consolidated with such Person or any of its wholly-owned Subsidiaries or that
Person's assets are acquired by such Person or by its wholly-owned Subsidiaries
shall be excluded; (c) the net income (if positive) of any consolidated
Subsidiary to the extent that the declaration or payment of dividends or similar
distributions by such consolidated Subsidiary to such Person or to any other
consolidated Subsidiary of such Person is not at the time permitted by operation
of the terms of its charter or any agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation applicable to such consolidated
Subsidiary shall be excluded; (d) the effect of any change in accounting
principles adopted by such person or its Subsidiaries after the date hereof
shall be excluded; and (e) in connection with the calculation of the Pre-Tax
Income of Borrower: (i) for any period depreciation expenses during such period
shall be excluded and (ii) for the fiscal year of Borrower ending on the
Saturday closest to January 31, 2001 up to a maximum of $14,000,000 of the
expenses of Borrower incurred in connection with the Merger during such fiscal
year which are cash items and up to a maximum amount of $11,000,000 of the
expenses of Borrower incurred in connection with the Merger during such fiscal
year which are non-cash items (with cash items and non-cash items being
determined in accordance with GAAP) shall in each case be
14
excluded. For the purposes of this definition, (A) net income excludes any gain
together with any related Provision for Taxes for such gain realized upon the
sale or other disposition of any assets that are not sold in the ordinary course
of business (including, without limitation, dispositions pursuant to sale and
leaseback transactions) or of any Capital Stock of such Person or a Subsidiary
of such Person, and (B) the term "Provision for Taxes" shall mean an amount
equal to all taxes imposed on or measured by net income, whether Federal, State,
Provincial, county or local, and whether foreign or domestic, that are paid or
payable by any Person in respect of any period in accordance with GAAP.
1.59 "Prime Rate" shall mean the rate from time to time publicly announced
by First Union National Bank, or its successors, as its prime rate, whether or
not such announced rate is the best rate available at such bank.
1.60 "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 hereof.
1.61 "Qualified Sale" shall mean any bona fide, firm commitment,
underwritten offering by Borrower of the Capital Stock of ZBH owned by it to the
public pursuant to an effective registration statement under the Securities Act,
as then in effect, or any comparable statement under any similar federal statute
then in force, or any offering pursuant to Rule 144A, provided, that, as to each
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and all such sales, each of the following conditions is satisfied as determined
by Agent: (a) the net cash proceeds received by Borrower in immediately
available funds, without restriction, upon the consummation of any such sale
(after giving effect to underwriters' discounts and commissions, and other fees,
costs and expenses related to such sale) shall be at least equal to the fair
market value of such Capital Stock, but in no event less than the aggregate
amount of all contributions, loans, advances, or other investments or payments
by Borrower to or for the acquisition of any assets of, or otherwise for the
benefit of ZBH or otherwise in connection with the business or operations of ZBH
made prior to the date of such sale, (b) such sale shall be on commercially
reasonable prices and terms in a bona fide arm's length transaction with a party
---- ----
that is not an Affiliate of Borrower, (c) the consideration received by Borrower
for such sale shall be in cash or Cash Equivalents, (d) Agent shall have
received, for itself and the benefit of Lender, all proceeds from the sale of
such Capital Stock in cash or other immediately available funds for application
to the Obligations, (e) Agent shall have received not less than ten (10)
Business Days prior written notice of any such sale of Capital Stock, which
notice shall set forth in reasonable detail satisfactory to Agent, the parties
to such sale, the consideration to be paid for the sale of Capital Stock, the
terms and manner of the payment of such consideration, the Capital Stock to be
sold, the liabilities being assumed by the purchaser to such sale and after
giving effect thereto, and (f) as of the date of any such sale and after giving
effect thereto, no Event of Default, or act, condition or event which with
notice or passage of time would constitute an Event of Default, shall exist or
have occurred.
1.62 "Quarterly Average Excess Availability" shall mean, at any time, the
daily average of the Excess Availability for the immediately preceding quarter
as calculated by Lender in good faith.
15
1.63 "Real Property" shall mean all now owned and hereafter acquired real
property of Borrower, including leasehold interests, together with all
buildings, structures, and other improvements located thereon and all licenses,
easements and appurtenances relating thereto, wherever located.
1.64 "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).
1.65 "Reference Amount" shall have the meaning set forth in Section 3.4
hereof.
1.66 "Reference Bank" shall mean First Union National Bank or such other
bank as Agent may designate from time to time.
1.67 "Renewal Date" shall have the meaning set forth in Section 13.1
hereof.
1.68 "Retail Value" shall mean, as to the Inventory as of any date, the
then current retail sales price of such Inventory as of such date, net of
markdowns from the original retail sales price or ticketed sales price with
respect thereto.
1.69 "Securities Act" shall mean the Securities Act of 1933, 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.
1.70 "Securities Exchange Act" shall mean the Securities Exchange Act of
1934, as the same now exists or may hereafter from time to time be amended,
modified, recodified or supplemented, together with all rules, regulations and
interpretations thereunder or related thereto.
1.71 "Subsidiary" shall mean, as to any Person, any corporation or other
entity of which securities or other ownership interests having ordinary voting
power to elect a majority of the board of directors or other persons performing
similar functions are at the time directly or indirectly owned or controlled by
such Person, one or more of the other subsidiaries of such Person or any
combination thereof.
1.72 "Value" shall mean, as determined by Agent in good faith, with respect
to Inventory, the lower of (a) Cost or (b) market value, provided, that, for
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purposes of the calculation of the amount of the Loans available to Borrower,
the Value of the Inventory shall not include: (i) the portion of the value of
Inventory equal to the profit earned by any Affiliate on the sale thereof to
Borrower or (ii) write-ups in value with respect to currency exchange rates.
16
1.73 "Voting Stock" shall mean with respect to any Person, (a) one (1) or
more classes of Capital Stock of such Person having general voting powers to
elect at least a majority of the board of directors, managers or trustees of
such Person, irrespective of whether at the time Capital Stock of any other
class or classes have or might have voting power by reason of the happening of
any contingency, and (b) any Capital Stock of such Person convertible or
exchangeable without restriction at the option of the holder thereof into
Capital Stock of such Person described in clause (a) of this definition.
1.74 "ZBH" shall mean Z.B. Holdings, LLC, a Delaware limited liability
company, and its successors and assigns.
SECTION 2. CREDIT FACILITIES
-----------------
2.1 Loans.
-----
(a) Subject to, and upon the terms and conditions contained herein,
Lender agrees to fund the Loans in amounts requested by Borrower up to the
amount equal to the least of:
(i) the least of (A) the Maximum Credit (as then in effect), or (B)
the amount equal to (1) seventy-five (75%) percent multiplied by the Cost of the
Eligible Inventory during the period commencing on June 1 of each calendar year
through and including November 30 of such calendar year, or sixty-five (65%)
percent multiplied by the Cost of the Eligible Inventory during the period
commencing on December 1 of each year through and including May 31 of the
immediately following year, minus (2) Availability Reserves (other than the
Availability Reserves described in clause (ii) below) or (C) the amount equal to
(1) eighty-five (85%) percent of the Net Recovery Percentage multiplied by the
Cost of Eligible Inventory minus (2) Availability Reserves (other than
Availability Reserves described in clause (ii) below); minus
-----
(ii) the Availability Reserves relating to amounts which Agent might
be required to pay on behalf of, or for the account of, Borrower for the
maintenance, preservation, or protection of the Collateral, its value or the
rights of Agent therein (including, without limitation, Availability Reserves
established pursuant to Section 1.22(c)(i) hereof).
(b) Without limiting any of the rights of Agent or Lender pursuant to
Section 2.2(c) below or otherwise, on each date when any reduction to any of the
lending formulas set forth in Section 2.1(a) above becomes effective, regardless
of the amounts of Eligible Inventory, Borrower agrees absolutely and
unconditionally to automatically and without demand make a payment to Agent, for
the benefit of Lender, in respect of the Loans, in an amount equal to the
excess, if any, of the aggregate unpaid principal amount of the Loans over the
amounts available to Borrower pursuant to the lending formula as so reduced.
Each such payment in respect of the Loans pursuant to this Section 2.1(b) shall
be without premium or penalty, except to the extent that Section 13.1(c) hereof
is applicable. All interest accrued on the principal amount of the
17
Loans paid pursuant to this Section 2.1(b) may be charged to the loan account of
Borrower, at Agent's option, on the date of such payment.
(c) Except in Agent's discretion, the aggregate amount of the Loans
and the Letter of Credit Accommodations outstanding at any time shall not exceed
the Maximum Credit (as then in effect). In the event that the outstanding
amount of the Loans, or the aggregate amount of the outstanding Loans and Letter
of Credit Accommodations, exceed the amounts available under the lending
formulas, the sublimits for Letter of Credit Accommodations set forth in Section
2.2(d) or the Maximum Credit, as applicable, such event shall not limit, waive
or otherwise affect any rights of Agent or Lender in that circumstance or on any
future occasions and Borrower shall, upon demand by Agent, which may be made at
any time or from time to time, immediately repay to Agent, for the benefit of
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, Agent agrees, for the risk of Lender, to provide or
arrange for Letter of Credit Accommodations for the account of Borrower
containing terms and conditions acceptable to Agent and the issuer thereof. Any
payments made by Agent or Lender to any issuer thereof and/or related parties in
connection with the Letter of Credit Accommodations shall constitute additional
Loans to Borrower pursuant to this Section 2.
(b) In addition to any charges, fees or expenses charged by issuer in
connection with the Letter of Credit Accommodations, Borrower shall pay to
Agent, for the benefit of Lender, a letter of credit fee at a rate equal to one
and one-quarter (1 1/4%) percent per annum on the daily outstanding balance of
the Letter of Credit Accommodations (other than the Existing Letters of Credit)
for the immediately preceding month (or part thereof), payable in arrears as of
the first day of each succeeding month, except that Borrower shall pay to Agent
such letter of credit fee, at Agent's option, without notice, at a rate equal to
three and one-quarter (3 1/4%) percent per annum for (i) the period on and after
the date of termination hereof until Agent, for the benefit of Lender, has
received full and final payment of all Obligations (notwithstanding entry of a
judgment against Borrower) and (ii) the period on and after the date of the
occurrence of any Event of Default or act, condition 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 act, condition or event is continuing as determined
by Agent. 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) In addition to being subject to the satisfaction of the
applicable conditions precedent contained in Section 4 hereof and the other
terms and conditions contained herein, no Letter of Credit Accommodations shall
be available unless each of the following conditions precedent have been
satisfied in a manner satisfactory to Agent: (i) Borrower shall have delivered
to the proposed issuer of such Letter of Credit Accommodation at such times and
in
18
such manner as such proposed issuer may require, an application in form and
substance satisfactory to such proposed issuer and Agent for the issuance of the
Letter of Credit Accommodation and such other documents as may be required
pursuant to the terms thereof, and the form and terms of the proposed Letter of
Credit Accommodation shall be satisfactory to Lender and such proposed issuer,
(ii) as of the date of issuance, no order of any court, arbitrator or other
governmental authority shall purport by its terms to enjoin or restrain money
center banks generally from issuing letters of credit of the type and in the
amount of the proposed Letter of Credit Accommodation, and no law, rule or
regulation applicable to money center banks generally and no request or
directive (whether or not having the force of law) from any Governmental
Authority with jurisdiction over money center banks generally shall prohibit, or
request that the proposed issuer of such Letter of Credit Accommodation refrain
from, the issuance of letters of credit generally or the issuance of such Letter
of Credit Accommodation; and (iii) the Excess Availability prior to giving
effect to any Reserves with respect to such Letter of Credit Accommodation
requested, on the date of the proposed issuance of any Letter of Credit
Accommodations, shall be equal to or greater than: (A) if the proposed Letter of
Credit Accommodation is for the purpose of purchasing Eligible Inventory and the
documents of title with respect thereto are consigned to the issuer, the sum of
(1) the percentage equal to one hundred (100%) percent minus the then applicable
percentage set forth in Section 2.1(a)(i) multiplied by the Value of such
Eligible Inventory, plus (2) freight, taxes, duty and other amounts which Lender
estimates must be paid in connection with such Inventory upon arrival and for
delivery to one of Borrower's locations for Eligible Inventory within the United
States of America and (B) if the proposed Letter of Credit Accommodation is for
any other purpose (or the documents of title are not consigned to the issuer in
connection with a Letter of Credit Accommodation which is for the purpose of
purchasing Eligible Inventory), an amount equal to one hundred (100%) percent of
the face amount thereof. Effective on the issuance of each Letter of Credit
Accommodations, an Availability Reserve shall be established in the applicable
amount set forth in this Section 2.2(c)(iii)(A) or Section 2.2(c)(iii)(B).
(d) Except in Agent's discretion, the amount of all outstanding
Letter of Credit Accommodations for all other purposes and all other commitments
and obligations made or incurred by Agent or Lender in connection therewith,
shall not at any time exceed $40,000,000. At any time an Event of Default
exists or has occurred and is continuing, upon Agent'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 Agent, for itself and the benefit of Lender, for the Letter of
Credit Accommodations, and in either case, the 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 Agent and Lender harmless from
and against any and all losses, claims, damages, liabilities, costs and expenses
which Agent or 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, except for any losses,
19
claims, damages, liabilities, costs and expenses as a result of the gross
negligence or wilful misconduct of Lender as determined pursuant to a final non-
appealable order of a court of competent jurisdiction. Borrower assumes all
risks with respect to the acts or omissions of the drawer under or beneficiary
of any Letter of Credit Accommodation and for such purposes the drawer or
beneficiary shall be deemed Borrower's agent. Borrower assumes all risks for,
and agrees to pay, all foreign, Federal, State and local taxes, duties and
levies relating to any goods subject to any Letter of Credit Accommodations or
any documents, drafts or acceptances thereunder. Borrower hereby releases and
holds Agent and Lender harmless from and against any acts, waivers, errors,
delays or omissions, whether caused by Borrower, by any issuer or correspondent
or otherwise with respect to or relating to any Letter of Credit Accommodation,
except for any losses, claims, damages, liabilities, costs and expenses as a
result of the gross negligence or wilful misconduct of Lender as determined
pursuant to final non-appealable order of a court of competent jurisdiction. The
provisions of this Section 2.2(e) shall survive the payment of Obligations and
the termination or non-renewal of this Agreement.
(f) In connection with Inventory purchased pursuant to Letter of
Credit Accommodations, Borrower will, at Agent's request, instruct all
suppliers, carriers, forwarders, customs brokers, warehouses or others receiving
or holding cash, checks, Inventory, documents or instruments in which Agent
holds a security interest to deliver them to Agent's and/or subject to Agent's
order, and if they shall come into Borrower's possession, to deliver them, upon
Agent's request, to Agent in their original form. Borrower shall also, at
Agent's request, designate Agent (or such other person as Agent may designate)
as the consignee on all bills of lading and other negotiable and non-negotiable
documents.
(g) Nothing contained herein shall be deemed or construed to grant
Borrower any right or authority to pledge the credit of Agent or Lender in any
manner. Agent and Lender shall have no liability of any kind with respect to
any Letter of Credit Accommodation provided by an issuer other than Agent unless
Agent 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 Agent, 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.
(i) At any time an Event of Default exists or has occurred and is
continuing, Agent shall have the sole and exclusive right and authority to, and
Borrower shall not (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.
(ii) At any time prior to an Event of Default, Agent shall have
the right and authority, with the consent of Borrower (except that such consent
shall not be required if in Agent's good faith determination it is necessary or
desirable to avoid any liability of Agent or Lender), and at any time on or
after an Event of Default exists or has occurred and is continuing,
20
Agent shall have the sole and exclusive right and authority to, without the
consent of Borrower, (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.
(iii) Agent may take such actions referred to above either in
its own name or in Borrower's name.
(h) 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 Agent, for the benefit of Lender.
Any duties or obligations undertaken by Agent to any issuer or correspondent in
any application for any Letter of Credit Accommodation, or any other agreement
by Agent in favor of any issuer or correspondent relating to any Letter of
Credit Accommodation, shall be deemed to have been undertaken by Borrower to
Agent, for the benefit of Lender, and to apply in all respects to Borrower.
2.3 Availability Reserves. All Loans otherwise available to Borrower
---------------------
pursuant to the lending formulas and subject to the Maximum Credit and other
applicable limits hereunder, shall be subject to Agent's continuing right to
establish and revise Availability Reserves. Without limiting any other rights
or remedies of Agent and Lender under this Agreement or any of the other
Financing Agreements with respect to the establishment of Availability Reserves
or otherwise, subject to the provisions of Section 1.22(c)(i) hereof, Agent may
establish and revise Availability Reserves to reflect: (a) inventory shrinkage;
(b) reserves in respect of markdowns, "kick-outs" (arising from the sale of
items of Inventory which are not reflected in the perpetual inventory records
maintained by Borrower) and cost variances (pursuant to discrepancies between
the purchase order price of Inventory and the actual cost thereof); (c) the
aggregate amount of deposits, if any, received by Borrower from its retail
customers in respect of unfilled orders for merchandise; (d) amounts due or to
become due in respect of sales, use and/or withholding taxes; (e) any rental
payments, service charges or other amounts due to lessors of real or personal
property to the extent Inventory or Records are located in or on property or
such Records are needed to monitor or otherwise deal with the Collateral; (f)
amounts owing by Borrower to Credit Card Issuers or Credit Card Processors in
connection with the Credit Card Agreements; (g) increase in the number of days
of the turnover of Inventory or a deterioration in its nature, quality or mix
(but only to the extent not addressed by the lending formulas in a manner
satisfactory to Agent) and (h) at any time after the next field examination by
Agent with respect to the Collateral, variances between the perpetual inventory
records of Borrower and the results of the test counts of Inventory conducted by
Agent with respect thereto in excess of the percentage acceptable to Agent.
2.4 Increase in Maximum Credit.
--------------------------
21
(a At any time prior to August 31, 2000, Borrower may request that
the Maximum Credit increase from $65,000,000 to $115,000,000. Within ten (10)
Business Days days after the receipt by Agent of such written request by
Borrower for an increase in the Maximum Credit, subject to the satisfaction of
each of the conditions set forth in Section 2.4(b) hereof, Agent shall give
Borrower written notice of such increase in the Maximum Credit (which increase
shall be effective on the date of such notice by Agent to Borrower).
(b Agent shall only be required to send written notice of the
increase in the Maximum Credit as provided in Section 2.4(a) above if each of
the following conditions precedent is satisfied as determined by Agent in good
faith: (i) as of the effective date of such increase, no Event of Default, or
act, condition or event, which with notice or passage of time or both would
constitute an Event of Default shall exist or have occurred and be continuing,
(ii) no material adverse change shall have occurred in the assets, business or
prospects of Noodle Kidoodle since the date of Agent's latest field examination
and no change or event shall have occurred which would impair the ability of
Noodle Kidoodle to perform its obligations hereunder or under any of the other
Financing Agreements to which it is a party or of Agent to enforce the
Obligations or realize upon the Collateral, (iii) Agent shall have completed a
field review of the Records and such other information with respect to the
Collateral of Noddle Kidoodle as Agent may require to determine the amount of
Loans available to Borrower based on the Inventory of Noodle Kidoodle,
including, without limitation, current perpetual inventory records and/or roll-
forwards of Inventory through the date of closing, together with such supporting
documentation as may be necessary or appropriate, and other documents and
information that will enable Agent to accurately identify and verify the
Collateral, the results of which shall be satisfactory to Agent, not more than
three (3) Business Days prior to the date of the effectiveness of such increase,
(iv) Agent and its counsel shall have conducted legal due diligence with
respect to Noodle Kidoodle, (v Agent shall have conducted test counts with
respect to the Inventory of Borrower in form and scope satisfactory to Agent and
any variances arising pursuant to such test counts shall be acceptable to Agent,
(vi) Excess Availability as determined by Agent after giving effect to the
Eligible Inventory of Noodle Kidoodle (or Inventory which would be Eligible
Inventory after giving effect to the increase in the Maximum Credit) shall not
be less than $12,000,000, and (vii) Agent shall have received each of the
agreements, documents and other materials to be delivered to Agent under Section
9.19 hereof.
(c The giving of notice by Agent to Borrower of the increase in the
Maximum Credit as provided herein shall not be deemed a waiver of any Event of
Default which may exist or have occurred on or before the date of such notice or
of any of Agent's or Lender's rights or remedies with respect thereto. Agent
shall not be required to give such notice to Borrower of the increase in the
Maximum Credit unless in the determination of Agent, each of the conditions set
forth above are satisfied. As of the effective date of any such increase in the
Maximum Credit, each reference to the term Maximum Credit herein and in any of
the other Financing Agreements shall be deemed amended to mean the amount of the
Maximum Credit specified in the most recent notice from Agent to Borrower of the
increase in the Maximum Credit.
22
SECTION 3. INTEREST AND FEES
-----------------
3.1 Interest.
--------
(a Borrower shall pay to Agent, for the benefit of 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 Agent 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, as of such date each of the following conditions is satisfied as
-------- ----
determined by Lender: (i) no Event of Default, or act, condition or event which
with notice or passage of time or both would constitute an Event of Default
exists or has occurred and is continuing, (ii) Borrower shall have complied with
such customary procedures as are established by Agent and specified by Agent to
Borrower from time to time for requests by Borrower for Eurodollar Rate Loans,
(iii) no more than five (5) 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,
(iv) the maximum amount of the Eurodollar Rate Loans at any time requested by
Borrower shall not exceed the amount equal to ninety-five (95%) percent of the
lowest principal amount of the Loans which it is anticipated will be outstanding
during the applicable Interest Period, in each case as determined by Agent (but
with no obligation of Agent and Lender to make such Loans) and (vii) Agent shall
have determined that the Interest Period or Adjusted Eurodollar Rate is
available to Agent 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, Agent, 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 Agent, 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 Agent 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 Agent's option, upon notice by
Agent to Borrower, convert to Prime Rate Loans in the event that (i) this
Agreement shall terminate, or (ii) the aggregate principal amount of the Prime
Rate Loans which
23
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) the Loans then available
to Borrower under Section 2 hereof. Borrower shall pay to Agent, for the benefit
of Lender, upon demand by Agent (or Agent may, at its option, charge any loan
account of Borrower) any amounts required to compensate Agent, Lender, the
Reference Bank or any Participant for any loss (including loss of anticipated
profits), cost or expense incurred by such person, as a result of the conversion
of Eurodollar Rate Loans to Prime Rate Loans pursuant to any of the foregoing
prior to the end of the applicable Interest Period.
(d Interest shall be payable by Borrower to Agent 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 Agent 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 Changes in Laws and Increased Costs of Loans.
--------------------------------------------
(a Notwithstanding anything to the contrary contained herein, all
Eurodollar Rate Loans shall, upon notice by Agent to Borrower, convert to Prime
Rate Loans in the event that (i) any change in applicable law or regulation (or
the interpretation or administration thereof) shall either (A) make it unlawful
for Lender, Reference Bank or any Participant to make or maintain Eurodollar
Rate Loans or to comply with the terms hereof in connection with the Eurodollar
Rate Loans, or (B) shall result in the increase in the costs to Lender,
Reference Bank or any Participant of making or maintaining any Eurodollar Rate
Loans by an amount deemed by Agent to be material, or (C) reduce the amounts
received or receivable by Agent for the benefit of Lender in respect thereof, by
an amount deemed by Agent 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 Agent to be material. Borrower shall
pay to Agent, for the benefit of Lender, upon demand by Agent (or Agent may, at
its option, charge any loan account of Borrower) any amounts required to
compensate Lender, the Reference Bank or any Participant 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 Agent setting forth the basis
for the determination of such amount necessary to compensate Agent as aforesaid
shall be delivered to Borrower and shall be conclusive, absent manifest error.
24
(b If any payments or prepayments in respect of the Eurodollar Rate
Loans are received by Agent 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 Agent upon demand by Agent (or Agent may, at its option, charge any loan
account of Borrower) any amounts required to compensate Lender, the Reference
Bank or any Participant 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.
3.3 Fees. Borrower agrees to pay to Agent, for itself and the benefit of
----
Lender, the fees and the amounts set forth in the Fee Letter in the amounts and
at the times specified therein.
3.4 Unused Line Fee. Borrower shall pay to Agent, for itself and the
---------------
benefit of Lender, monthly an unused line fee at a rate equal to three-eighths
(3/8%) percent calculated upon the amount by which the Reference Amount (as
hereinafter defined) exceeds the average daily principal balance of the
outstanding Loans and Letter of Credit Accommodations during the immediately
preceding month (or part thereof) while this Agreement is in effect and for so
long thereafter as any of the Obligations are outstanding, which fee shall be
payable on the first day of each month in arrears. For purposes hereof, the
term "Reference Amount" shall mean (a) unless and until the increase in the
Maximum Credit pursuant to Section 2.4 hereof: (i) $30,000,000 for the period
commencing on December 1 of each calendar year through and including May 31 of
the immediately following calendar year, (ii) $50,000,000 for the period
commencing on the date hereof through and including November 30, 2000 and (iii)
$60,000,000 for the period commencing on June 1 of each calendar year after June
1, 2000 through and including November 30 of each such calendar year and (b) on
and after the increase in the Maximum Credit pursuant to Section 2.4 hereof: (i)
$50,000,000 for the period commencing on December 1 of each calendar year
through and including May 31 of the immediately following calendar year, (ii)
$80,000,000 for the period commencing on the date hereof through and including
November 30, 2000, and (iii) $110,000,000 for the period commencing on June 1 of
each calendar year after June 1, 2000 through and including November 30 of each
such calendar year.
SECTION 4. CONDITIONS PRECEDENT
--------------------
4.1 Conditions Precedent to Initial Loans and Letter of Credit
----------------------------------------------------------
Accommodations. Each of the following is a condition precedent to Lender (or
--------------
Agent on behalf of Lender) making the initial Loans and providing the initial
Letter of Credit Accommodations hereunder:
(a Agent shall have received evidence, in form and substance
satisfactory to Agent, that Agent has valid perfected and first priority
security interests in and liens upon the Collateral and any other property which
is intended to be security for the Obligations or the
25
liability of any Obligor in respect thereof, subject only to the security
interests and liens permitted herein or in the other Financing Agreements;
(b Agent shall have received and reviewed UCC, tax lien and judgment
search results for all jurisdictions in which assets of Borrower and Obligors
are located or as Agent may otherwise agree, which search results shall be in
form and substance satisfactory to Agent;
(c all requisite corporate action and proceedings in connection with
this Agreement and the other Financing Agreements shall be satisfactory in form
and substance to Agent, and Agent shall have received all information and copies
of all documents, including, without limitation, records of requisite corporate
action and proceedings which Agent may have requested in connection therewith,
such documents where requested by Agent or its counsel to be certified by
appropriate corporate officers or governmental authorities;
(d no material adverse change shall have occurred in the assets,
business or prospects of Borrower since the date of Agent's latest field
examination and no change or event shall have occurred which would impair the
ability of Borrower or any Obligor to perform its obligations hereunder or under
any of the other Financing Agreements to which it is a party or of Agent to
enforce the Obligations or realize upon the Collateral;
(e Agent shall have completed a field review of the Records and such
other information with respect to the Collateral as Agent may require to
determine the amount of Loans available to Borrower including, without
limitation, current perpetual inventory records and/or roll-forwards of
Inventory through the date of closing, together with such supporting
documentation as may be necessary or appropriate, and other documents and
information that will enable Agent to accurately identify and verify the
Collateral, the results of which shall be satisfactory to Agent, not more than
three (3) Business Days prior to the date hereof;
(f Agent shall have received, in form and substance satisfactory to
Agent, all consents, waivers, acknowledgments and other agreements from third
persons which Agent 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, Collateral Access Agreement by
lessors (other than from lessors of retail store locations), mortgagees and
warehousemen;
(g Borrower shall have established the Blocked Accounts and Agent
shall have received, in form and substance satisfactory to Agent, all agreements
with the depository banks and Borrower with respect to such Blocked Accounts as
Agent may require pursuant to Section 6.3 hereof, duly authorized, executed and
delivered by such depository banks and Borrower;
(h Agent shall have received, in form and substance satisfactory to
Agent, letters from Borrower to the banks at which Borrower maintains deposit
accounts for the initial receipt of cash, checks and other items from Borrower's
retail store locations directly such banks to transfer all immediately available
funds deposited in such bank only to the Blocked Accounts as
26
required pursuant to Section 6.3 hereof or as otherwise directed by Agent, as
duly authorized, executed and delivered by Borrower;
(i Agent shall have received Credit Card Acknowledgments with
respect to arrangements of Borrower with Credit Card Issuers and Credit Card
Processors, in each case, duly authorized, executed and delivered by the Credit
Card Issuers and Credit Card Processors;
(j the Excess Availability as determined by Agent, as of the date
hereof, shall be not less than $7,000,000 after giving effect to the initial
Loans made or to be made and Letter of Credit Accommodations issued or to be
issued in connection with the initial transactions hereunder;
(k Agent shall have received evidence of insurance and loss payee
endorsements required hereunder and under the other Financing Agreements, in
form and substance satisfactory to Agent, and certificates of insurance policies
and/or endorsements naming Agent and as loss payee;
(l Agent shall have received, in form and substance satisfactory to
Agent, the consent and agreement of the CIT Group/Business Credit, Inc. to the
Merger;
(m Agent shall have received, in form and substance satisfactory to
Agent, the opinion letter of counsel(s) to Borrower with respect to the
Financing Agreements and the security interests and liens of Agent with respect
to the Collateral and such other matters as Agent may request;
(n the other Financing Agreements and all instruments and documents
hereunder and thereunder shall have been duly executed and delivered to Agent,
in form and substance satisfactory to Agent.
4.2 Conditions Precedent to All Loans and Letter of Credit
------------------------------------------------------
Accommodations. Each of the following is an additional condition precedent to
--------------
Lender (or Agent on behalf of Lender) making Loans and/or providing Letter of
Credit Accommodations to Borrower, including the initial Loans and Letter of
Credit Accommodations and any future Loans and Letter of Credit Accommodations:
(a all representations and warranties contained herein and in the
other Financing Agreements shall be true and correct in all material respects
with the same effect as though such representations and warranties had been made
on and as of the date of the making of each such Loan or providing each such
Letter of Credit Accommodation and after giving effect thereto;
(b no law, regulation, order, judgment or decree of any Governmental
Authority shall exist, and no action, suit, investigation, litigation or
proceeding shall be pending or threatened in any court or before any arbitrator
or Governmental Authority, which (i) purports to enjoin, prohibit, restrain or
otherwise affect (A) the making of the Loans or providing the Letter
27
of Credit Accommodations, or (B) the consummation of the transactions
contemplated pursuant to the terms hereof or the other Financing Agreements or
(ii) has or would reasonably be expected to have a Material Adverse Effect; and
(c no Event of Default and no act, condition or 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.
SECTION 5. SECURITY INTEREST
-----------------
5.1 To secure payment and performance of all Obligations, Borrower hereby
grants to Agent, for itself and the benefit of Lender, a continuing security
interest in, a lien upon, and a right of set off against, and hereby assigns to
Agent, for itself and the benefit of Lender, in each case, as security, the
following property and interests in property of Borrower, whether now owned or
hereafter acquired or existing, and wherever located (together with all other
collateral security for the Obligations at any time granted to or held or
acquired by Agent, collectively, the "Collateral") :
(a Accounts;
(b 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, data bases, domain names, 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 and other investment property, credit card
sales drafts, credit card sales slips or charge slips or receipts and other
forms of store receipts, letters of credit, bankers' acceptances and guaranties;
(c all present and future monies, securities and other investment
property, credit balances, deposits, deposit accounts and other property of
Borrower now or hereafter held or received by or in transit to Agent, Lender or
its affiliates or at any other depository or other institution from or for the
account of Borrower, whether for safekeeping, pledge, custody, transmission,
collection or otherwise, and all present and future liens, security interests,
rights, remedies, title and interest in, to and in respect of Accounts and other
Collateral, including, without limitation, (i) rights and remedies under or
relating to guaranties, contracts of suretyship, letters of credit and credit
and other insurance related to the Collateral, (ii) rights of stoppage in
transit, replevin, repossession, reclamation and other rights and remedies of an
unpaid vendor, lienor or secured party, (iii) goods described in invoices,
documents, credit card sales drafts, credit card sales slips or charge slips or
receipts and other forms of store receipts, contracts or instruments with
respect to, or otherwise representing or evidencing, Accounts or other
Collateral, including, without limitation, returned, repossessed and reclaimed
goods, and (iv)
28
deposits by and property of account debtors or other persons securing the
obligations of account debtors;
(d Inventory;
(e Equipment (except as otherwise provided below);
(f Records;
(g 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.
5.2 Notwithstanding anything to the contrary contained in Section 5.1
above, the types or items of Collateral described in such Section shall not
include any Equipment which is, or at the time of Borrower's acquisition thereof
shall be, subject to a purchase money mortgage or other purchase money lien or
security interest (including capitalized or finance leases) permitted under
Section 9.8 hereof if: (a) the valid grant of a security interest or lien to
Agent in such item of Equipment is prohibited by the terms of the agreement
between Borrower and the holder of such purchase money mortgage or other
purchase money lien or security interest or under applicable law and such
prohibition has not been or is not waived, or the consent of the holder of the
purchase money mortgage or other purchase money lien or security interest has
not been or is not otherwise obtained, or under applicable law such prohibition
cannot be waived and (b) the purchase money mortgage or other purchase money
lien or security interest on such item of Equipment is or shall become valid and
perfected.
5.3 Notwithstanding anything to the contrary contained in Section 5.1
above, Borrower will not be required to deliver to Agent any certificate
evidencing the interests of Borrower in ZBH; except, that, Borrower shall
------ ----
deliver such certificate (and take such other action as Agent may request to
perfect the security interest of Agent in the interest of Borrower in ZBH) and
Agent may, at Agent's option, deliver to ZBH the instructions to register such
pledge being delivered by Borrower to Agent concurrently herewith pursuant to
the Pledge and Security Agreement, dated of even date herewith, between Borrower
and Agent with respect to the interest of Borrower in ZBH and other persons, at
any time that an Event of Default, or act, condition or event which with notice,
passage of time or both could constitute an Event of Default, shall exist or
have occurred and be continuing, to the extent such interest of Borrower in ZBH
has not theretofore been subject to a Qualified Sale permitted under this
Agreement.
SECTION 6. COLLECTION AND ADMINISTRATION
-----------------------------
6.1 Borrower's Loan Account. Agent shall maintain one or more loan
-----------------------
account(s) on its books in which shall be recorded (a) all Loans, Letter of
Credit Accommodations and other Obligations and the Collateral, (b) all payments
made by or on behalf of Borrower and (c) all
29
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 Agent's customary practices
as in effect from time to time.
6.2 Statements. Agent shall render to Borrower each month a statement
----------
setting forth the balance in the Borrower's loan account(s) maintained by Agent
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 Agent 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 Agent receives a
written notice from Borrower of any specific exceptions of Borrower thereto
within thirty (30) days after the date such statement has been mailed by Agent.
Until such time as Agent 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 Agent 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 hereto and after prior written notice to Agent, subject to
Section 9.16, such other banks as Borrower may hereafter select as are
acceptable to Agent. 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 (and on and after the effectiveness of the
increase in the Maximum Credit under Section 2.4, shall cause Noodle Kidoodle
to) deposit all proceeds from sales of Inventory in every form, including,
without limitation, cash, checks, credit card sales drafts, credit card sales or
charge slips or receipts and other forms of daily store receipts, from each
retail store location of Borrower 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 or as hereafter specified by Borrower to
Agent with respect to each retail store location of Noodle Kidoodle. All such
funds deposited into the separate deposit accounts shall be sent by wire
transfer no less frequently than twice each week and all other proceeds of
Collateral shall be sent by wire transfer, to the Blocked Accounts as provided
in Section 6.3(a)(ii) below. Promptly upon Agent's request, at any time and
from time to time, Borrower shall (or Agent may on behalf of Borrower)
irrevocably authorize and direct in writing, in form and substance satisfactory
to Agent, each of the banks into which proceeds from sales of Inventory from
each retail store location of Borrower (and on and after the effectiveness of
the increase in the Maximum Credit under Section 2.4, each retail store location
of Noodle Kidoodle) are at any time deposited as provided above to send all
funds deposited in such account by wire transfer on a daily basis to the Blocked
Accounts. Such authorization and direction shall not be rescinded, revoked or
modified without the prior written consent of Agent.
30
(ii Borrower shall establish and maintain, at its expense, deposit
accounts with such banks as are acceptable to Agent (the "Blocked Accounts")
into which Borrower shall promptly either cause all amounts on deposit in its
deposit accounts used by each retail store location of Borrower (and on and
after the effectiveness of the increase in the Maximum Credit under Section 2.4,
each retail store location of Noodle Kidoodle) to be sent as provided in Section
6.3(a)(i) above or shall itself deposit or cause to be deposited all proceeds
from sales of Inventory, all amounts payable to Borrower (and on and after the
effectiveness of the increase in the Maximum Credit under Section 2.4 hereof)
from Credit Card Issuers and Credit Card Processors and all other proceeds of
Collateral. The banks at which the Blocked Accounts are established shall enter
into an agreement, in form and substance satisfactory to Agent, providing that
all items received or deposited in the Blocked Accounts are the property of
Agent and Lender, that the depository bank has no lien upon, or right of setoff
against, the Blocked Accounts, the items received for deposit therein, or the
funds from time to time on deposit therein and that the depository bank will
wire, or otherwise transfer, in immediately available funds, on a daily basis,
all funds received or deposited into the Blocked Accounts to such bank account
of Agent, as Agent may from time to time designate for such purpose ("Payment
Account"). Subject to the terms and conditions contained herein, Agent shall
instruct the depository banks at which the Blocked Accounts are maintained to
transfer the funds on deposit in the Blocked Accounts to such operating bank
account of Borrower as Borrower may specify in writing to Agent until such time
as Agent shall notify the depository bank otherwise. Agent will only instruct
the depository banks at which the Blocked Accounts are maintained to transfer
all funds received or deposited into the Blocked Accounts to the Payment Account
at any time that either: (iii) an Event of Default or act, condition or event
which with notice or passage of time or both would constitute an Event of
Default shall exist or have occurred, or (iv) Excess Availability shall be less
than the amount equal to ten (10%) percent of the Maximum Credit (as then in
effect). Borrower agrees that all payments made to such Blocked Accounts or
other funds received and collected by Agent, shall be treated as payments to
Agent for and on behalf of Lender, in respect of the Obligations and therefore
shall constitute the property of Agent to the extent of the then outstanding
Obligations.
(b For purposes of calculating the amount of the Loans available to
Borrower, such payments will be applied (conditional upon final collection) to
the Obligations on the Business Day of receipt by Agent of immediately available
funds in the Payment Account provided such payments and notice thereof are
received in accordance with Agent's usual and customary practices as in effect
from time to time and within sufficient time to credit Borrower's loan account
on such day, and if not, then on the next Business Day. For the purposes of
calculating interest on the Obligations, such payments or other funds received
will be applied (conditional upon final collection) to the Obligations one (1)
Business Day following the date of receipt of immediately available funds by
Agent in the Payment Account (the "Collection Period") provided such payments or
other funds and notice thereof are received in accordance with Agent's usual and
customary practices as in effect from time to time and within sufficient time to
credit Borrower's loan account on such day, and if not, then on the next
Business Day. To the extent that payments and other funds are not being sent to
the Payment Account as provided for in Section 6.3(a)(ii) above, Agent shall be
entitled to charge Borrower an
31
administrative fee equivalent to the interest Agent would have received for the
Collection Period in accordance with the customary practices of Agent if such
payments and other funds were being sent to the Payment Account.
(c Borrower and all of its Subsidiaries, shareholders, directors,
employees, agents and other Affiliates shall, acting as trustee for Agent,
receive, as the property of Agent, any cash, checks, credit card sales drafts,
credit card sales or charge slips or receipts, notes, drafts, any other forms of
store receipts or any other payment relating to and/or proceeds of Accounts or
other Collateral which come into their possession or under their control and
immediately upon receipt thereof, shall deposit or cause the same to be
deposited in the Blocked Accounts, or remit the same or cause the same to be
remitted, in kind, to Agent, provided, that, if at any time the Excess
-------- ----
Availability shall be less than $3,000,000, Borrower shall promptly upon Agent's
request cause the portion thereof representing sales and/or use taxes payable in
connection with such sales or otherwise to be deposited into a separate bank
account or accounts established for such purpose. In no event shall any such
cash, 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 Agent 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 Agent's payments to or indemnification of such bank or person. The
obligation of Borrower to reimburse Agent 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 Agent may designate from time to
time. Agent 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 Agent determines. At
Agent'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 Agent, for the benefit of 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, Agent
or 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 Agent. Borrower shall be liable to pay to Agent, for the benefit of
Lender, and does hereby indemnify and hold Agent and 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
Agent 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.
32
6.5 Authorization to Make Loans. Agent is authorized to make the Loans
---------------------------
and provide the Letter of Credit Accommodations, for the account and risk of
Lender, 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 Agent, if such Loans are necessary to satisfy any Obligations.
All requests for Loans or Letter of Credit Accommodations hereunder shall
specify the date on which the requested advance is to be made or Letter of
Credit Accommodations established (which day shall be a Business Day) and the
amount of the requested Loan. Requests received after 11:00 a.m. New York 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. The Loans or Letter of Credit Accommodations provided
---------------
by Agent 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 (including, but not
limited to, the expenses of opening additional retail store locations). In no
event shall any proceeds of Loans or Letter of Credit Accommodations be used to
make any payments to shareholders in connection with the Merger (but proceeds
may be used to pay costs and expenses incurred in connection therewith). 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 U of the Board
of Governors of the Federal Reserve System, as amended.
6.7 Sharing of Payments, Etc. Borrower agrees that, in addition to (and
------------------------
without limitation of) any right of setoff, banker's lien or counterclaim Agent
or Lender may otherwise have, Lender shall be entitled, at its option (but
subject, as among Agent and Lender, to the provisions of Section 12.3(b)
hereof), to offset balances held by it for the account of Borrower at any of its
offices, in dollars or in any other currency, against any principal of or
interest on any Loans owed to Lender or any other amount payable to Lender
hereunder, that is not paid when due (regardless of whether such balances are
then due to Borrower), in which case it shall promptly notify Borrower and Agent
thereof; provided, that, Lender's failure to give such notice shall not affect
-------- ----
the validity thereof.
6.8 Settlement Procedures. In order to administer the Loans and Letter of
---------------------
Credit Accommodations in an efficient manner and to minimize the transfer of
funds between Agent and Lender, Agent shall, subject to the terms of this
Section 6.8, make available, on behalf of Lender, the full amount of the Loans
requested or charged to Borrower's loan account(s) or otherwise to be advanced
by Lender pursuant to the terms hereof, without any requirement of prior notice
to Lender of the proposed Loans. Agent and Lender shall settle between them at
such times and in such manner as Agent and Lender may agree. The obligation of
Lender to
33
transfer funds to Agent and effect such settlement shall be irrevocable and
unconditional and without recourse to or warranty by Agent. In lieu of
settlements, Agent may at any time require Lender to provide Agent with
immediately available funds for each Loan, prior to Agent's disbursement of such
Loan to Borrower.
SECTION 7. COLLATERAL REPORTING AND COVENANTS
----------------------------------
7.1 Collateral Reporting. Borrower shall provide Agent with the following
--------------------
documents in a form satisfactory to Agent: (a) as soon as possible after the end
of each week, upon Agent's request, a weekly summary inventory report; (b) as
soon as possible after the end of each month (but in any event within fifteen
(15) days after the end thereof) on a monthly basis or more frequently as Agent
may request, (i) perpetual inventory reports, (ii) inventory reports by category
and location (including in-transit inventory), (iii) agings of accounts payable
(and including information indicating the status of payments to owners and
lessors of the leased premises of Borrower and Noodle Kidoodle and to off-site
storage facilities, warehouses and processors used by Borrower and Noodle
Kidoodle), (iv) a reconciliation of the perpetual inventory report to the
general ledger of Borrower and the roll-forward, (v) reports of the Cost and
Retail Value of the Inventory (net of markdowns) and (vi) in the event there is
any consigned Inventory, reports of amounts of consigned Inventory held by
Borrower by category and consignor; (vii) reports by retail store location of
sales and operating profits for each such retail store location; (c) upon
Agent's request, (i) reports of sales for each category of Inventory, (ii
reports on sales and use tax collections, deposits and payments, including
monthly sales and use tax accruals, (iii) reports of aggregate Inventory
purchases (including all costs related thereto, such as freight, duty and taxes)
and identifying items of Inventory in transit to Borrower related to the
applicable documentary letter of credit and/or ▇▇▇▇ of lading number, (iv)
copies of remittance advices and reports, and copies of deposit slips and bank
statements, (v) copies of shipping and delivery documents, and (vi) copies of
purchase orders, invoices and delivery documents for Inventory and Equipment
acquired by Borrower; and (d) upon Agent's request, the monthly statements
received by Borrower from any Credit Card Issuers or Credit Card Processors,
together with such additional information with respect thereto as shall be
sufficient to enable Agent to monitor the transactions pursuant to the Credit
Card Agreements; and (e) such other reports as to the Collateral as Agent shall
request from time to time. If any of Borrower's records or reports of the
Collateral are prepared or maintained by an accounting service, contractor,
shipper or other agent, Borrower hereby irrevocably authorizes such service,
contractor, shipper or agent to deliver such records, reports, and related
documents to Agent and to follow Agent'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 No credit, discount, allowance or extension or agreement for any
of the foregoing shall be granted to any account debtor, Credit Card Issuer or
Credit Card Processor except in the ordinary course of Borrower's business in
accordance with the current practices of
34
Borrower as in effect on the date hereof. 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, Credit Card
Issuer, Credit Card Processor. At any time that an Event of Default exists or
has occurred and is continuing, Agent shall, at its option, have the exclusive
right to settle, adjust or compromise any claim, offset, counterclaim or dispute
with account debtors, Credit Card Issuers or Credit Card Processors or grant any
credits, discounts or allowances.
(b Borrower shall notify Agent promptly of: (i) any notice of a
material default by Borrower under any of the Credit Card Agreements or of any
default which might result in the Credit Card Issuer or Credit Card Processor
ceasing to make payments or suspending payments to Borrower, (ii) any notice
from any Credit Card Issuer or Credit Card Processor that such person is ceasing
or suspending, or will cease or suspend, any present or future payments due or
to become due to Borrower from such person, or that such person is terminating
or will terminate any of the Credit Card Agreements, and (iii) the failure of
Borrower to comply with any material terms of the Credit Card Agreements or any
terms thereof which might result in the Credit Card Issuer or Credit Card
Processor ceasing or suspending payments to Borrower.
(c With respect to each Account: (i) the amounts shown on any
invoice delivered to Agent or schedule thereof delivered to Agent shall be true
and complete, (ii) no payments shall be made thereon except payments delivered
to Agent, for the benefit of Lender, pursuant to the terms of this Agreement,
(iii) no credit, discount, allowance or extension or agreement for any of the
foregoing shall be granted to any account debtor, Credit Card Issuer or Credit
Card Processor, except as reported to Agent in accordance with this Agreement
and except for credits, discounts, allowances or extensions made or given in the
ordinary course of Borrower's business in accordance with practices and policies
previously disclosed to Agent and (iv) none of the transactions giving rise
thereto will violate any applicable State or Federal Laws or regulations, all
documentation relating thereto will be legally sufficient under such laws and
regulations and all such documentation will be legally enforceable in accordance
with its terms.
(d Agent 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, Credit
Card Issuers and Credit Card Processors that the Accounts have been assigned to
Agent and that Agent has a security interest therein and Agent may direct any or
all account debtors, Credit Card Issuers and Credit Card Processors to make
payments of Accounts directly to Agent, (ii) extend the time of payment of,
compromise, settle or adjust for cash, credit, return of merchandise or
otherwise, and upon any terms or conditions, any and all Accounts or other
obligations included in the Collateral and thereby discharge or release the
account debtor or any other party or parties in any way liable for payment
thereof without affecting any of the Obligations, (iii) demand, collect or
enforce payment of any Accounts or such other obligations, but without any duty
to do so, and Agent 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 Agent 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 Agent's request, all
invoices and statements
35
sent to any account debtor, Credit Card Issuer or Credit Card Processor shall
state that the Accounts due from such account debtor, Credit Card Issuer or
Credit Card Processor and such other obligations have been assigned to Agent and
are payable directly and only to Agent and Borrower shall deliver to Agent such
originals of documents evidencing the sale and delivery of goods or the
performance of services giving rise to any Accounts as Agent may require.
(e Agent shall have the right at any time or times, in Agent's name
or in the name of a nominee of Agent, to verify the validity, amount or any
other matter relating to any Account or other Collateral, by mail, telephone,
facsimile transmission or otherwise.
(f Borrower shall deliver or cause to be delivered to Agent, 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 Agent may otherwise
agree.
7.3 Inventory Covenants. With respect to the Inventory: (a) Borrower shall
-------------------
at all times maintain inventory records reasonably satisfactory to Agent,
keeping correct and accurate records itemizing and describing the kind, type,
quality and quantity of Inventory, Borrower's (and Noodle Kidoodle's Cost)
therefor and daily withdrawals therefrom and additions thereto; (b) Borrower
shall conduct a physical count of the Inventory at least once each year, but at
any time or times as Agent may request on or after an Event of Default, and
promptly following such physical inventory shall supply Agent with a report in
the form and with such specificity as may be reasonably satisfactory to Agent
concerning such physical count; (c) Borrower shall not remove any Inventory from
the locations set forth or permitted herein, without the prior written consent
of Agent, 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 Agent's request, Borrower
shall, at its expense, no more than four (4) times in any twelve (12) month
period (provided that, one of such appraisals as specified by Agent may be "desk
-------- ----
top" appraisal), but at any time or times as Agent may request at Agent's
expense, or at any time or times as Agent may request at Borrower's expense on
or after an Event of Default, deliver or cause to be delivered to Agent written
reports or appraisals as to the Inventory in form, scope and methodology
acceptable to Agent and by an appraiser acceptable to Agent, addressed to Agent
and upon which Agent is expressly permitted to rely; (e) upon Agent's request,
Borrower shall, at its expense, conduct through Washington Inventory Services,
Inc., RGIS Inventory Specialists, Inc. or another inventory counting service
acceptable to Agent, a physical count of the Inventory at each retail store
location or other location of such Inventory in form, scope and methodology
acceptable to Agent no less than one time in any twelve (12) month period, but
at any time or times as Agent may request on or after an Event of Default, the
results of which shall be reported directly by such inventory counting service
to Agent and Borrower shall promptly deliver confirmation in a form satisfactory
to Agent that appropriate adjustments have been made to the inventory records of
Borrower to reconcile the inventory count to Borrower's inventory records; (f)
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
36
Federal Fair Labor Standards Act of 1938, as amended and all rules, regulations
and orders related thereto); (g) Borrower assumes all responsibility and
liability arising from or relating to the production, use, sale or other
disposition of the Inventory; (h 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 except for the right of
return given to retail customers of Borrower in the ordinary course of the
business of Borrower in accordance with the then current return policy of
Borrower; (i) Borrower shall keep the Inventory in good and marketable
condition; (j) Borrower shall not acquire or accept any Inventory on consignment
or approval, except to the extent such Inventory is reported to Agent in
accordance with the terms hereof; and (k) on and after the date hereof, Noodle
Kidoodle shall not purchase any Inventory and all Inventory will only be
purchased by Borrower.
7.4 Power of Attorney. Borrower hereby irrevocably designates and
-----------------
appoints Agent (and all persons designated by Agent) as Borrower's true and
lawful attorney-in-fact, and authorizes Agent, in Borrower's or Agent's name,
to: (a) at any time an Event of Default or act, condition or event which with
notice or passage of time or both would constitute an Event of Default exists or
has occurred and is continuing (i) demand payment on Accounts or other proceeds
of Inventory or other Collateral, (ii) enforce payment of Accounts by legal
proceedings or otherwise, (iii) exercise all of Borrower's rights and remedies
to collect any Account or other Collateral, (iv) sell or assign any Account upon
such terms, for such amount and at such time or times as the Agent deems
advisable, (v) settle, adjust, compromise, extend or renew an Account, (vi)
discharge and release any Account, (vii) prepare, file and sign Borrower's name
on any proof of claim in bankruptcy or other similar document against an account
debtor, (viii) notify the post office authorities to change the address for
delivery of Borrower's mail to an address designated by Agent, and open and
dispose of all mail addressed to Borrower, and (ix) do all acts and things which
are necessary, in Agent's determination, to fulfill Borrower's obligations under
this Agreement and the other Financing Agreements and (b) at any time to (i)
take control in any manner of any item of payment or proceeds thereof, (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 Agent'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 any goods pertaining
thereto or any other Collateral, (v) sign Borrower's name on any verification of
Accounts and notices thereof to account debtors and (vi) execute in Borrower's
name and file any UCC financing statements or amendments thereto. Borrower
hereby releases Agent 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
Agent's own gross negligence or wilful misconduct as determined pursuant to a
final non-appealable order of a court of competent jurisdiction.
7.5 Right to Cure. Agent 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
37
act which, in Agent's judgment, is necessary or appropriate to preserve,
protect, insure or maintain the Collateral and the rights of Agent and Lender
with respect thereto. Agent may add any amounts so expended to the Obligations
and charge Borrower's account therefor, such amounts to be repayable by Borrower
on demand. Agent 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 Agent under
this Section shall be without prejudice to any right to assert an Event of
Default hereunder and to proceed accordingly.
7.6 Access to Premises. From time to time as requested by Agent, at the
------------------
cost and expense of Borrower, (a) Agent or its designee shall have complete
access to all of Borrower's premises during normal business hours and after
notice to Borrower, or at any time and without notice to Borrower if an Event of
Default exists or has occurred and is continuing, for the purposes of
inspecting, verifying and auditing the Collateral and all of Borrower's books
and records, including, without limitation, the Records, and (b) Borrower shall
promptly furnish to Agent such copies of such books and records or extracts
therefrom as Agent may request, and (c) Agent or its designees may 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 Agent and Lender the following
(which shall survive the execution and delivery of this Agreement), the truth
and accuracy of which are a continuing condition of the making of Loans and
providing Letter of Credit Accommodations 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 where the failure to so qualify would have a Material Adverse Effect.
The execution, delivery and performance of this Agreement, the other Financing
Agreements and the transactions contemplated hereunder and thereunder are all
within Borrower's corporate powers, have been duly authorized and are not in
contravention of law or the terms of Borrower's articles of incorporation or by-
laws, 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.
38
8.2 Financial Statements; No Material Adverse Change. All financial
------------------------------------------------
statements relating to Borrower delivered by Borrower to Agent have been
prepared in accordance with GAAP and fairly present the financial condition and
the results of operation of Borrower as at the dates and for the periods set
forth therein (subject, as to interim statements, to normal year-end adjustments
and the absence of footnotes). Except as disclosed in any interim financial
statements furnished by Borrower to Agent prior to the date of this Agreement,
there has been no material adverse change in the assets, liabilities, properties
and condition, financial or otherwise, of Borrower, since the date of the most
recent audited financial statements furnished by Borrower to Agent 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 and Inventory 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 and to the best of
Borrower's knowledge, the holders of any mortgages on such locations.
8.4 Priority of Liens; Title to Properties. The security interests and
--------------------------------------
liens granted to Agent, for itself and the benefit of 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 Agent,
for the benefit of 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 Agent) where the failure to file would have a Material Adverse Effect. 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
material taxes due and payable or claimed due and payable in any assessment
received by it, and has collected, deposited and remitted in accordance with all
applicable laws all sales and/or use taxes applicable to the conduct of its
business, 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. Borrower has collected and deposited in a separate
bank account or remitted to the appropriate tax authority all sales and/or use
taxes applicable to its business required to be collected under the laws of the
United States and each possession or territory thereof, and each State or
political
39
subdivision thereof, including any State in which Borrower owns any Inventory or
owns or leases any other property.
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 have a
Material Adverse Effect.
8.7 Compliance with Other Agreements and Applicable Laws.
----------------------------------------------------
(a) Borrower is not in default in any respect under, or in violation
in any 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 where which default or violation would have a Material Adverse
Effect. Borrower is in compliance in all respects with the requirements of all
applicable laws, rules, regulations and orders of any Governmental Authority
relating to its business, including, without limitation, those set forth in or
promulgated pursuant to the Occupational Safety and Health Act of 1970, as
amended, the Fair Labor Standards Act of 1938, as amended, ERISA, the Code, as
amended, and the rules and regulations thereunder, all Federal, State and local
statutes, regulations, rules and orders relating to consumer credit (including,
without limitation, as each has been amended, the Truth-in-Lending Act, the Fair
Credit Billing Act, the Equal Credit Opportunity Act and the Fair Credit
Reporting Act, and regulations, rules and orders promulgated thereunder), all
Federal, State and local states, regulations, rules and orders pertaining to
sales of consumer goods (including, without limitation, the Consumer Products
Safety Act of 1972, as amended, and the Federal Trade Commission Act of 1914, as
amended, and all regulations, rules and orders promulgated thereunder) where the
failure to comply would have a Material Adverse Effect.
(b) Borrower has obtained all material permits, licenses, approvals,
consents, certificates, orders or authorizations of any Governmental Authority
required for the lawful conduct of its business. Schedule 8.7 hereto sets forth
all material permits, licenses, approvals, consents, certificates, orders or
authorizations (the "Permits") issued to or held by Borrower as of the date
hereof by any Federal, State or local Governmental Authority and any
applications pending by Borrower with such Federal, State or local governmental
agency. The Permits constitute all permits, licenses, approvals, consents,
certificates, orders or authorizations necessary for Borrower to own and operate
its business as presently conducted or proposed to be conducted where the
failure to have such Permits would have a Material Adverse Effect. All of the
Permits are valid and subsisting and in full force and effect. There are no
actions, claims or proceedings pending or, to the best of Borrower's knowledge,
threatened that seek the revocation, cancellation, suspension or modification of
any of the Permits.
8.8 Environmental Compliance.
------------------------
40
(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 in any material respect or any license, permit, certificate,
approval or similar authorization issued to Borrower thereunder and the
operations of Borrower comply in all material respects with all applicable
Environmental Laws and all licenses, permits, certificates, approvals and
similar authorizations thereunder.
(b) Except as set forth on Schedule 8.8 hereto, there is no
investigation, proceeding, complaint, order, directive, claim, citation or
notice by any Governmental Authority or any other person pending or to the best
of Borrower's knowledge threatened, with respect to any non-compliance with or
violation of the requirements of any applicable Environmental Law by Borrower
nor has there been any release, spill or discharge, overtly threatened or
actual, of any Hazardous Material on any properties of Borrower, or to the best
of Borrower's knowledge, releases, spills or discharges from any properties at
which Borrower has transported, stored or disposed of any Hazardous Materials
which would have a Material Adverse Effect.
(c) Except as set forth in Schedule 8.8 hereto, 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, certificates, approvals or similar
authorizations and other Permits required to be obtained or filed in connection
with the operations of Borrower under any Environmental Law and all of such
licenses, certificates, approvals or similar authorizations are valid and in
full force and effect in each case where the failure to obtain or maintain such
licenses, certificates, approvals or similar authorizations and other Permits
would have a Material Adverse Effect.
8.9 Credit Card Agreements. Set forth in Schedule 8.9 hereto is a correct
----------------------
and complete list of (a) all of the Credit Card Agreements and all other
agreements, documents and instruments existing as of the date hereof between or
among Borrower, any of its Affiliates, the Credit Card Issuers, the Credit Card
Processors and any of their affiliates, (b) the percentage of each sale payable
to the Credit Card Issuer or Credit Card Processor under the terms of the Credit
Card Agreements, (c) all other fees and charges payable by Borrower under or in
connection with the Credit Card Agreements and (d) the term of such Credit Card
Agreements. The Credit Card Agreements constitute all of such agreements
necessary for Borrower to operate its business as presently conducted with
respect to credit cards and debit cards and no Accounts of Borrower arise from
purchases by customers of Inventory with credit cards or debit cards, other than
those which are issued by Credit Card Issuers with whom Borrower has entered
into one of the Credit Card Agreements set forth on Schedule 8.9 hereto or with
whom Borrower has entered into a Credit Card Agreement in accordance with
Section 9.13 hereof. Each of the Credit Card Agreements constitutes the legal,
valid and binding obligations of Borrower and to the best of Borrower's
knowledge, the other parties thereto, enforceable in accordance with their
respective
41
terms and is in full force and effect. No default or event of default, or act,
condition or event which after notice or passage of time or both, would
constitute a default or an event of default under any of the Credit Card
Agreements exists or has occurred. Borrower and the other parties thereto have
complied with all of the terms and conditions of the Credit Card Agreements to
the extent necessary for Borrower to be entitled to receive all payments
thereunder.
8.10 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 ERISA or a tax imposed the Code, including any
accumulated funding deficiency described in Section 8.10(c) hereof and any
deficiency with respect to vested accrued benefits described in Section 8.10(d)
hereof.
(b) No material liability to the Pension Benefit Guaranty Corporation
has been or is expected by Borrower to be incurred with respect to any employee
benefit plan of Borrower or any of its ERISA Affiliates. There has been no
reportable event (within the meaning of ERISA) or any other event or condition
with respect to any employee 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 ERISA and the Code to have paid under
the terms of each employee benefit plan as contributions to such plan as of the
last day of the most recent fiscal year of such plan ended prior to the date
hereof, and no material accumulated funding deficiency (as defined in ERISA and
the Code), whether or not waived, exists with respect to any employee pension
benefit plan, including any penalty or tax described in Section 8.10(a) hereof
and any deficiency with respect to vested accrued benefits described in Section
8.10(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 8.10(a) hereof and any accumulated funding deficiency
described in Section 8.10(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 ERISA) that is subject to Title IV of ERISA.
8.11 Bank Accounts. All of the deposit accounts, investment accounts or
-------------
other accounts in the name of or used by Borrower maintained at any bank or
other financial institution are set forth on Schedule 6.3 hereto, subject to the
right of Borrower to establish new accounts in accordance with Section 9.16
below.
42
8.12 Solvency. Borrower is solvent and will continue to be solvent after
--------
the creation of the Obligations, the security interests of Lender and the other
transactions contemplated hereunder, is able to pay its debts as they mature and
has (and has reason to believe it will continue to have) sufficient capital (and
not unreasonably small capital) to carry on its business and all businesses in
which it is about to engage. The assets and properties of Borrower at a fair
valuation and at their present fair salable value are, and will be, greater than
the Indebtedness of Borrower, including subordinated and contingent liabilities
computed at the amount which, to the best of Borrower's knowledge, represents an
amount which can reasonably be expected to become an actual or matured
liability.
8.13 Accuracy and Completeness of Information. All information furnished
----------------------------------------
by or on behalf of Borrower in writing to Agent or 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.
8.14 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 Agent and Lender on the date of each additional
borrowing or other credit accommodation hereunder and shall be conclusively
presumed to have been relied on by Agent and Lender regardless of any
investigation made or information possessed by Agent and 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 Agent and Lender.
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS
----------------------------------
9.1 Maintenance of Existence. Borrower shall at all times preserve, renew
------------------------
and keep in full, force and effect its corporate existence and rights and
franchises with respect thereto and maintain in full force and effect all
Permits, licenses, trademarks, tradenames, approvals, authorizations, leases and
contracts necessary to carry on the business as presently or proposed to be
conducted. Borrower shall give Agent 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 Agent a copy of the amendment to the articles
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 Agent thirty (30) days
prior written notice of the intended opening of any such new location and (b)
executes and delivers, or causes to be
43
executed and delivered, to Agent such agreements, documents, and instruments as
Agent may deem reasonably necessary or desirable to protect its interests in the
Collateral at such location, including UCC financing statements.
9.3 Compliance with Laws, Regulations, Etc. Borrower shall at all times
---------------------------------------
comply in all material respects with all applicable provisions of laws, rules,
regulations, licenses, approvals, orders and other Permits and duly observe all
material requirements, of any foreign, Federal, State or local Governmental
Authority, including, without limitation, the Occupational Safety and Health Act
of 1970, as amended, the Code, the Fair Labor Standards Act of 1938, as amended,
and the rules and regulations thereunder, all Federal, State and local statutes,
regulations, rules and orders relating to consumer credit (including, without
limitation, as each has been amended, the Truth-in-Lending Act, the Fair Credit
Billing Act, the Equal Credit Opportunity Act and the Fair Credit Reporting Act,
and regulations, rules and orders promulgated thereunder), all Federal, State
and local statutes, regulations, rules and orders pertaining to sales of
consumer goods (including, without limitation, the Consumer Products Safety Act
of 1972, as amended, and the Federal Trade Commission Act of 1914, as amended,
and all regulations, rules and orders promulgated thereunder) and all statutes,
rules, regulations, orders, permits and stipulations relating to environmental
pollution and employee health and safety, including, without limitation, all
Environmental Laws.
9.4 Payment of Taxes and Claims. Borrower shall duly pay and discharge
---------------------------
all material 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 Agent or any Lender as a result of the financing arrangements
provided for herein and Borrower agrees to indemnify and hold Agent and Lender
harmless with respect to the foregoing, and to repay to Agent and 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 Agent or Lender from any amounts charged or paid hereunder to
Agent or 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 Agent as to form, amount and insurer.
Borrower shall furnish certificates, policies or endorsements to Agent as Agent
shall require as proof of such insurance, and, if Borrower fails to do so, Agent
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 Agent of any cancellation or reduction of coverage and that
Agent may act as attorney for Borrower in obtaining, and at any time an Event of
Default exists or has occurred
44
and is continuing, adjusting, settling, amending and canceling such insurance.
Borrower shall cause Agent 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 Agent. Such lender's
loss payable endorsements shall specify that the proceeds of such insurance
shall be payable to Agent, for the benefit of Lender, as its interests may
appear and further specify that Agent shall be paid regardless of any act or
omission by Borrower or any of its affiliates. At its option, Agent may apply
any insurance proceeds received by Agent 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 Agent may determine or hold such
proceeds as cash collateral for the Obligations, except, that, notwithstanding
------ ----
anything to the contrary contained herein, in the event that any of the
Collateral shall be lost or physically damaged or destroyed, upon the written
request of Borrower, Agent shall release the net cash proceeds from insurance
received by Agent pursuant to this Section 9.5 to Borrower as a result of such
loss, damage or destruction provided, that, all of the following conditions are
-------- ----
satisfied: (a) no Event of Default or act, condition or event which with notice
or passage of time or both would constitute an Event of Default shall exist or
have occurred and be continuing, (b) the amount of the insurance proceeds are
sufficient, in Agent's determination, to effect such repair, refurbishing or
replacement in a satisfactory manner, (c) such proceeds shall be used first to
repair, refurbish or replace the Collateral so lost, damaged or destroyed (free
and clear of any security interests, liens, claims or encumbrances), (d) the
insurance carrier shall have waived any right of subrogation against Borrower
under its policy, and (e) the casualty resulted in a payment of $500,000 in
insurance proceeds or less.
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
Agent: (i) within thirty (30) days after the end of each fiscal month, monthly
unaudited consolidated financial statements, and unaudited consolidating
financial statements (including in each case balance sheets, statements of
income and loss, statements of cash flow and statements of shareholders'
equity), all in reasonable detail, fairly presenting the financial position and
the results of the operations of Borrower and its Subsidiaries as of the end of
and through such fiscal month and (ii) within ninety (90) days after the end of
each fiscal year, audited consolidated financial statements and, if Borrower has
any Subsidiaries, unaudited consolidating financial statements of Borrower and
its Subsidiaries (including in each case balance sheets, statements of income
and loss, statements of cash flow and statements of shareholders' equity), and
the accompanying notes thereto, all in reasonable detail, fairly presenting the
financial position and the results of the operations of Borrower and its
Subsidiaries as of the end of and for such fiscal year, together with the
unqualified opinion of independent certified public accountants, which
accountants shall be an independent accounting firm selected by Borrower and
reasonably acceptable to Agent, that such financial statements have been
prepared in accordance with GAAP, and present fairly the results of operations
and
45
financial condition of Borrower and its Subsidiaries as of the end of and for
the fiscal year then ended.
(b) Borrower shall promptly notify Agent 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 act, condition or event which, with the
passage of time or giving of notice or both, would constitute an Event of
Default.
(c) Borrower shall promptly after the sending or filing thereof
furnish or cause to be furnished to Agent copies of all 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 Agent such
budgets, forecasts, projections and other information respecting the Collateral
and the business of Borrower, as Agent may, from time to time, reasonably
request. Agent and Lender are 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 Agent, 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 Agent such information as they may have regarding
the business of Borrower. Any documents, schedules, invoices or other papers
delivered to Agent may be destroyed or otherwise disposed of by Agent one (1)
year after the same are delivered to Agent, except as otherwise designated by
Borrower to Agent in writing.
9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc. Borrower
--------------------------------------------------------
shall not, directly or indirectly:
(a) merge into or with or consolidate with any other Person or permit
any other Person to merge into or with or consolidate with it, except, that,
------ ----
(i) any Guarantor or ZBH may merge with and into or consolidate
with Borrower or any Guarantor, provided, that, each of the following conditions
-------- ----
is satisfied as determined by Agent: (A) Agent shall have received not less than
twenty (20) Business Days prior written notice of the intention of Borrower to
so merge or consolidate and such information with respect thereto as Agent may
request, (B) as of the effective date of the merger or consolidation and after
giving effect thereto, no Event of Default, or act, condition or event which
with notice or passage of time or both would constitute an Event of Default,
shall exist or have occurred and be continuing, (C) promptly upon Agent's
request, Borrower shall furnish, or
46
cause to be furnished to Agent, true, correct and complete copies of all
agreements, documents and instruments relating to such merger or consolidation,
including, but not limited to, the certificate or certificates of merger or
consolidation as filed with each appropriate Secretary of State, (D) promptly
upon Agent's request, the surviving entity shall immediately upon the
effectiveness of the merger or consolidation expressly confirm in writing
pursuant to an agreement, in form and substance satisfactory to Agent, its
continuing liability in respect of the Obligations and Financing Agreements and
execute and deliver such other agreements, documents and instruments as Agent
may request in connection therewith, (E) any Obligor shall, promptly upon
Agent's request, ratify and confirm, in form and substance satisfactory to
Agent, that its guarantee of the Obligations shall apply to the Obligations as
assumed by such surviving entity, (F) in any merger or consolidation with
Borrower, at its option, Agent shall have conducted a field examination with
respect to the Person, its assets and its business with whom Borrower is merging
or consolidating, and so long as the results thereof are satisfactory, Inventory
acquired by Borrower pursuant to such merger or consolidation may be considered
Eligible Inventory, subject to the terms and conditions contained herein and
such Availability Reserves and criteria with respect to the eligibility thereof
as Agent may establish, and (G) in any merger or consolidation with Borrower,
Borrower shall be the surviving entity of any such merger, and
(ii) any Guarantor or ZBH may merge with and into any other
Person, provided, that, each of the following conditions is satisfied as
-------- ----
determined by Agent: (A) Agent shall have received not less than twenty (20)
Business Days prior written notice of the intention of any of such parties to so
merge or consolidate and such information with respect thereto as Agent may
request, (B) as of the effective date of the merger or consolidation and after
giving effect thereto, no Event of Default, or act, condition or event which
with notice or passage of time or both would constitute an Event of Default,
shall exist or have occurred and be continuing, (C) promptly upon Agent's
request, Borrower shall furnish, or cause to be furnished to Agent, true,
correct and complete copies of all agreements, documents and instruments
relating to such merger or consolidation, including, but not limited to, the
certificate or certificates of merger or consolidation as filed with each
appropriate Secretary of State, (D) promptly upon Agent's requests, the
surviving entity shall immediately upon the effectiveness of the merger or
consolidation expressly confirm in writing pursuant to an agreement, in form and
substance satisfactory to Agent, its continuing liability in respect of the
Obligations and Financing Agreements and execute and deliver such other
agreements, documents and instruments as Agent may request in connection
therewith, (E) any Obligor shall, promptly upon Agent's request, ratify and
confirm, in form and substance satisfactory to Agent, that its guarantee of the
Obligations shall apply to the Obligations as assumed by such surviving entity,
(F) Guarantor or ZBH, as the case may be, shall be the surviving entity, (G) in
no event shall the total amount of all payments by Borrower in connection with
such merger or consolidation (whether as consideration for the merger or
consolidation or otherwise), together with capital contributions, loans or other
payments by Borrower permitted under Section 9.10(d) hereof, exceed $1,500,000,
(H) as of the date of any such payment, the daily average of the Excess
47
Availability for the immediately preceding thirty (30) consecutive day period
shall be not less than $7,500,000, and as of the date of any such capital
contribution, loan or other payment and after giving effect thereto, the Excess
Availability shall be not less than $5,000,000, and (I) Borrower shall not
become obligated with respect to any obligations or Indebtedness, nor shall any
of its property become subject to any security interest, lien, claim or other
encumbrance, pursuant to such merger or consolidation, or
(b) sell, assign, lease, transfer, abandon or otherwise dispose of any
Capital Stock or indebtedness to any other Person or any of its assets to any
other Person, except for:
------ ---
(i) sales of Inventory in the ordinary course of business;
(ii) sales of Equipment and fixtures (other than sales permitted
pursuant to Section 9.7(b)(iii) and Section 9.7(b)(iv) below), in the ordinary
course of the business of Borrower; provided, that, as to each and all such
-------- ----
sales, each of the following conditions is satisfied: (A) the consideration
received in connection with any such sale or disposition shall be at least equal
to the fair market value of such assets, (B) the fair market value of any such
assets so sold by Borrower in a single transaction or series of related
transactions shall not exceed $500,000 in any one case or $1,000,000 in the
aggregate for all such assets so sold by Borrower in any fiscal year, (C) any
and all net cash proceeds payable or delivered to Borrower from such sales shall
be used to repay any Indebtedness which is secured by a purchase money security
interest or other security interest on the asset so sold or otherwise disposed
of and any remaining proceeds shall be either: (1) paid or delivered, or caused
to be paid or delivered, to Agent either, at Agent's option, for application to
the Obligations or to be held by Agent as cash collateral for the Obligations on
terms and conditions acceptable to Agent or (2) used to purchase assets to be
used in the ordinary course of the business of Borrower to replace the assets
sold or otherwise disposed of by Borrower within ten (10) Business Days after
the receipt of such proceeds by Borrower, which replacements shall have a fair
market value in the aggregate of not less than the fair market value of the
assets being replaced, (D) Agent shall have received not less than ten (10)
Business Days prior written notice of any such sale or other disposition of
assets having a fair market value in excess of $50,000, which notice shall set
forth in reasonable detail satisfactory to Agent, the parties to such sale or
other disposition, the assets to be sold or otherwise disposed of, the purchase
price and the manner of payment thereof and such other information with respect
thereto as Agent may request and (E) as of the date of such sale and after
giving effect thereto, no Event of Default or act, condition or event which with
notice or passage of time would constitute an Event of Default shall exist or
have occurred and be continuing;
(iii) the disposition of worn-out or obsolete Equipment so long as
(A) if an Event of Default exists or has occurred and is continuing, any
proceeds are paid to Agent, for the benefit of Lender, and (B) such sales do not
involve Equipment having an aggregate fair market value in excess of $500,000
for all such Equipment disposed of in any fiscal year of Borrower;
(iv) sales or other dispositions by Borrower of assets in
connection with the closing or sale of a retail store location of Borrower in
the ordinary course of Borrower's business which consist of leasehold interests
in the premises of such store, the Equipment and fixtures located at such
premises and the books and records relating exclusively and directly to
48
the operations of such store; provided, that, as to each and all such sales, (A)
-------- ----
on the date of, and after giving effect to, any such sale, in any calendar year,
Borrower shall not have closed or sold retail store locations accounting for
more than ten (10%) percent of all sales of Borrower in the immediately
preceding twelve (12) month period, (B) Agent shall have received not less than
ten (10) Business Days prior written notice of such sale, which notice shall set
forth in reasonable detail satisfactory to Agent, the parties to such sale or
other disposition, the assets to be sold or otherwise disposed of, the purchase
price and the manner of payment thereof and such other information with respect
thereto as Agent may request, (C) as of the date of such sale or other
disposition and after giving effect thereto, no Event of Default, or act,
condition or event which with notice or passage of time would constitute an
Event of Default, shall exist or have occurred, (D) such sale shall be on
commercially reasonable prices and terms in a bona fide arm's length
---- ----
transaction, and (E) any and all net proceeds payable or delivered to Borrower
in respect of such sale or other disposition shall be paid or delivered, or
caused to be paid or delivered, to Agent, for the benefit of Lender, in
accordance with the terms of this Agreement either, at Agent's option, for
application to the Obligations in accordance with the terms hereof (except to
the extent such proceeds reflect payment in respect of Indebtedness secured by a
properly perfected first priority security interest in the assets sold, in which
case, such proceeds shall be applied to such indebtedness secured thereby) or to
be held by Agent as cash collateral for the Obligations on terms and conditions
acceptable to Agent;
(v) the issuance and sale by Borrower of Capital Stock of Borrower
after the date hereof; provided, that, (A) Agent shall have received not less
-------- ----
than ten (10) Business Days prior written notice of such issuance and sale by
Borrower, which notice shall specify the parties to whom such shares are to be
sold, the terms of such sale, the total amount which it is anticipated will be
realized from the issuance and sale of such stock and the net cash proceeds
which it is anticipated will be received by Borrower from such sale, (B)
Borrower shall not be required to pay any dividends or repurchase or redeem such
Capital Stock or make any other payments in respect thereof, (C) the terms of
such Capital Stock, and the terms and conditions of the purchase and sale
thereof, shall not include any terms that include any limitation on the right of
Borrower to request or receive Loans or Letter of Credit Accommodations or to
amend or modify any of the terms and conditions of this Agreement or any of the
other Financing Agreements or otherwise in any way relate to or affect the
arrangements of Borrower with Agent and Lender or are more restrictive or
burdensome to Borrower than the terms of any Capital Stock in effect on the date
hereof, and (D) as of the date of such issuance and sale and after giving effect
thereto, no Event of Default or act, condition or event which with notice or
passage of time or both would constitute an Event of Default shall exist or have
occurred;
(vi) the sale of membership interests of Borrower in ZBH pursuant
to a Qualified Sale;
(c) form or acquire any Subsidiaries, except, that, Borrower may form
------ ----
or acquire Subsidiaries after the date hereof; provided, that, each of the
-------- ----
following conditions is satisfied, as determined by Agent: (i) promptly upon
such formation or acquisition, Borrower shall cause any such Subsidiary to
execute and deliver to Agent, in form and substance satisfactory to Agent:
49
(A) an absolute and unconditional guarantee of payment of all of the
Obligations, (B) a general security agreement granting to Agent, for itself and
the benefit of Lender, a first and only security interest in and lien upon all
of the assets and properties of such Subsidiary, (C) related Uniform Commercial
Code financing statements, and (D) such other agreements, documents and
instruments as Agent may reasonably require, (ii) promptly upon Agent's request,
borrower shall deliver the original stock certificates evidencing such shares of
Capital Stock, together with stock powers with respect thereto duly executed in
blank, (iii) the amount of the investment by Borrower in the Capital Stock of
such Subsidiary and any other amounts paid by Borrower to or for the formation
or acquisition of such Subsidiary shall not exceed the amounts permitted under
Section 9.10 hereof and (iv) no Event of Default, or act, condition or event
which with notice or passage of time or both would constitute an Event of
Default, shall exist or have occurred;
(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 Agent, for itself and the benefit
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) 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 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;
(d) 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;
(e) purchase money security interests in Equipment (including capital
leases) and fixtures, and purchase money mortgages on real estate, or other
security interests in equipment and fixtures, arising after the date hereof to
secure Indebtedness permitted under Sections 9.9(b), and 9.9(c) hereof, in each
case, so long as such security interests and mortgages do not apply to
50
any property of Borrower other than the Equipment or real estate so acquired or
otherwise subject to such security interest, and the Indebtedness secured
thereby does not exceed the cost of the Equipment or real estate so acquired or
otherwise subject to such security interest, as the case may be;
(f) liens or rights of setoff or credit balances of Borrower with
Credit Card Issuers, but not liens on or rights of setoff against any other
property or assets of Borrower pursuant to the Credit Card Agreements (as in
effect on the date hereof) to secure the obligations of Borrower to the Credit
Card Issuers as a result of fees and chargebacks;
(g) deposits of cash with the owner or lessor of premises leased and
operated by Borrower in the ordinary course of the business of Borrower to
secure the performance by Borrower of its obligations under the terms of the
lease for such premises; and
(h) the liens and security interests set forth on Schedule 8.4
hereto.
9.9 Indebtedness. Borrower shall not incur, create, assume, become or be
------------
liable in any manner with respect to, or permit to exist, any Indebtedness,
except:
(a) the Obligations;
(b) purchase money Indebtedness of Borrower (including capital
leases) to the extent not secured by liens (including capital leases) in
violation of any other provision of this Agreement, provided, that, the
-------- ----
aggregate amount of such Indebtedness incurred after the date hereof, together
with Indebtedness of Borrower permitted under Section 9.9(c) below, shall not
exceed $5,000,000 in the aggregate for any fiscal year of Borrower, except,
------
that, to the extent Borrower may incur Indebtedness under this Section 9.9(b)
----
and Section 9.9(c) in the aggregate in any one fiscal year, commencing with the
fiscal year of Borrower ending on the Saturday closest to January 31, 2001 in
amounts less than $5,000,000, Borrower may incur additional amounts of
Indebtedness under this Section 9.9(b) and Section 9.9(d) in the aggregate in
any of the following fiscal years in amounts up to the difference between
$5,000,000 and the actual amount of such Indebtedness under Section 9.9(c) and
this Section 9.9(b) incurred in such prior fiscal years (but in no event shall
such Indebtedness incurred under Section 9.9(c) and this Section 9.9(b) in the
aggregate in any one fiscal year exceed $7,500,000);
(c) Indebtedness of Borrower arising after the date hereof in
connection with loans by a financial institution to Borrower based on the value
of, and secured only by a security interest in, Equipment or fixtures of
Borrower acquired after the date hereof, provided, that:
-------- ----
(i) as to any such Indebtedness, (A) Agent shall have received not
less than ten (10) Business Days prior written notice of the intention to incur
such Indebtedness, which notice shall set forth in reasonable detail
satisfactory to Agent, the amount of such Indebtedness, the person to whom such
indebtedness will be owed, the interest rate, the schedule of repayments and
maturity date with respect thereto and such other information with respect
thereto as Agent
51
may request, (B) Agent shall have received true, correct and complete copies of
all agreements, documents and instruments evidencing or otherwise related to
such Indebtedness, as duly authorized, executed and delivered by the parties
thereto, (C) such Indebtedness shall be incurred by Borrower at commercially
reasonable rates and terms in a bona fide arm's length transaction, (D) such
---- ----
indebtedness shall not at any time include terms and conditions which in any
manner adversely affect Agent or any rights of Agent as determined in good faith
by Agent or which are more restrictive or burdensome than the terms or
conditions of any other Indebtedness of Borrower (taken as a whole) as in effect
on the date hereof, (E) Borrower shall cause the person to whom such
indebtedness is owed to remit all of the proceeds of the loans giving rise to
such Indebtedness directly to Agent for application to the Obligations in such
order and manner as Agent shall determine, (F) such indebtedness shall only be
secured by Equipment or fixtures to the extent the security interest therein is
permitted under Section 9.8 hereof, (G) as of the date of incurring such
Indebtedness and after giving effect thereto, no Event of Default or act,
condition or event which with notice or passage of time or both would constitute
an Event of Default shall exist or have occurred, (H) the aggregate amount of
such Indebtedness incurred after the date hereof, together with Indebtedness of
Borrower permitted under Section 9.9(b) above, shall not exceed $5,000,000 in
the aggregate for any fiscal year of Borrower, except, that, to the extent
------ ----
Borrower may incur Indebtedness under Section 9.9(b) and this Section 9.9(c) in
the aggregate in any one fiscal year, commencing with the fiscal year of
Borrower ending on the Saturday closest to January 31, 2001, in amounts less
than $5,000,000, Borrower may incur additional amounts of Indebtedness under
Section 9.9(b) and this Section 9.9(c) in the aggregate in any of the following
fiscal years in amounts up to the difference between $2,500,000 and the actual
amount of such Indebtedness under Section 9.9(b) and this Section 9.9(c)
incurred in such prior fiscal years (but in no event shall such Indebtedness
incurred under Section 9.9(b) and this Section 9.9(c) in the aggregate in any
one fiscal year exceed $7,500,000), (I) Borrower may only make regularly
scheduled payments of principal and interest in respect of such Indebtedness,
(J) Borrower shall not, directly or indirectly, (1) amend, modify, alter or
change the terms of the agreements with respect to such Indebtedness or (2)
redeem, retire, defease, purchase or otherwise acquire such Indebtedness, or set
aside or otherwise deposit or invest any sums for such purpose, and (K) Borrower
shall furnish to Agent 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; and
(ii) so long as each of the conditions set forth in Section
9.9(c)(i) above are satisfied, as determined by Agent in good faith, to the
extent required by the financial institution making such loans, Agent shall,
upon Borrower's request and at Borrower's expense, execute and deliver to
Borrower a UCC partial release, in form and substance satisfactory to Agent,
with respect to the Equipment or fixtures which constitute collateral for such
Indebtedness;
(d) unsecured Indebtedness of Borrower to Children's Products, Inc.
evidenced by or arising under the Loan Agreement, dated January 13, 1999,
between Borrower, as borrower and Children's Product Inc., as lender, provided,
--------
that,
----
52
(i) such Indebtedness of Borrower is subject and subordinate in
right of payment to the right of Agent and Lender to receive the prior final
payment and satisfaction in full of all of the Obligations,
(ii) Borrower shall not, directly or indirectly, make, or be
required to make, any payments in respect of such Indebtedness, except, that,
------ ----
Borrower may make regularly scheduled payments of interest each quarter when due
in accordance with the terms of the Loan Agreement referred to above as in
effect on the date hereof, provided, that, as to each such payment, each of the
-------- ----
following conditions is satisfied as determined by Agent: (A) as of the date of
any such payment and after giving effect thereto, no Event of Default or act,
condition or event which with notice or passage of time or both would constitute
an Event of Default, shall exist or have occurred and (B) all proceeds of such
payments shall only be used by Children's Products, Inc. to promptly make
further loans to Borrower under the terms of the Loan Agreement referred to
above, except to the extent otherwise permitted under the Intellectual Property
------
Licensor Agreement by and among Borrower, Lender, Children's Product Inc. and
Children's Development, Inc.,
(iii) Borrower shall not, directly or indirectly, (A) amend,
modify, alter or change any terms of such Indebtedness or any agreement,
document or instrument related thereto, except that Borrower may, after prior
------ ----
written notice to Agent, amend, modify, alter or change the terms thereof so as
to extend the maturity thereof or defer the timing of any payments in respect
thereof, or to forgive or cancel any portion of such Indebtedness other than
pursuant to payments thereof, or (B) redeem, retire, defease, purchase or
otherwise acquire such indebtedness, or set aside or otherwise deposit or invest
any sums for such purpose, and
(iv) Borrower shall furnish to Agent all notices or demands in
connection with such Indebtedness (other than requests for borrowings) 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;
(e) Indebtedness existing as of the date hereof (and after giving
effect to the terms hereof) set forth on Schedule 9.9 hereto, provided, that,
-------- ----
(i) Borrower may only make regularly scheduled payments of principal and
interest in respect of such Indebtedness in accordance with the terms of the
agreement or instrument evidencing or giving rise to such Indebtedness as in
effect on the date hereof, (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)
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 Agent all notices or demands in connection with such
Indebtedness either received by Borrower or on its behalf, promptly after the
receipt thereof, or sent by Borrower or on its behalf, concurrently with the
sending thereof, as the case may be.
9.10 Loans, Investments, Guarantees, Etc. Borrower shall not, directly or
------------------------------------
indirectly, make any loans or advance money or property to any person, or invest
in (by capital contribution,
53
dividend or otherwise) or purchase or repurchase the Capital Stock or
Indebtedness or all or a substantial part of the assets or property of any
person, or guarantee, assume, endorse, or otherwise become responsible for
(directly or indirectly) the Indebtedness, performance, obligations or dividends
of any Person or agree to do any of the foregoing, except:
------
(a) the endorsement of instruments for collection or deposit in the
ordinary course of business;
(b) investments in Cash Equivalents; provided, that, as to any of the
-------- ----
foregoing, unless waived in writing by Agent, Borrower shall take such actions
as are deemed necessary by Agent to perfect the security interest of Agent, for
the ratable benefit of Lender, in such investments;
(c) the existing investment of Borrower in the Capital Stock of
Children's Product Inc., Children's Development Inc., ZBH, Children's
Distribution LLC and Children's Equity LLC;
(d) capital contributions, loans or other payments by Borrower to or
for the acquisition of or otherwise in connection with any wholly-owned
Subsidiary of Borrower formed or acquired after the date hereof in accordance
with Section 9.7 or loans by Borrower to employees of Borrower after the date
hereof, provided, that, as to each such capital contribution, loan or other
-------- ----
payment, each of the following conditions is satisfied as determined by Agent:
(i) in no event shall the total amount of capital contributions, loans or other
amounts paid by Borrower to, for or in connection with the formation or
acquisition of all such Subsidiaries, together with all loans by Borrower to
employees of Borrower, and amounts paid in connection with any merger or
consolidation permitted under Section 9.7 hereof, exceed $1,500,000, (ii) at the
time of any such capital contribution, loan or other payment and after giving
effect thereto, no Event of Default or act, condition or event which with notice
and passage of time or both would constitute an Event of Default, shall exist or
have occurred, (iii) in the case of any loans by Borrower to, for or in
connection with a Subsidiary or employee, the Indebtedness arising from such
loans shall not be evidenced by any promissory note or other instrument, unless
the original of such note or other instrument is delivered to Agent, duly
endorsed and assigned by the payee to Agent in a form and manner acceptable to
Agent, (iv) in the case of any loan by Borrower to employees of Borrower, such
loans shall be for reasonable and necessary work-related travel or other
ordinary business expenses to be incurred by such employees in connection with
their work for Borrower or for the relocation of such employees in connection
with their work for Borrower, or for any other purpose related in any manner to
their employment by Borrower, and (v) as of the date of any such capital
contribution, loan or other payment, the daily average of the Excess
Availability for the immediately preceding thirty (30) consecutive day period
shall be not less than $7,500,000, and as of the date of any such capital
contribution, loan or other payment and after giving effect thereto, the Excess
Availability shall be not less than $5,000,000,
54
(e) capital contributions or loans by Borrower to or for the benefit
of the existing wholly-owned Subsidiaries of Borrower after the date hereof (but
not including for this purpose the payment of royalties or other fees or amounts
in respect of Intellectual Property licensed by Borrower), provided, that, the
-------- ----
aggregate amount of all such capital contributions and loans shall not exceed
$50,000 in any fiscal year;
(f) capital contributions or loans by Borrower to ZBH after the date
hereof, provided, that, as to each such capital contribution or loan, each of
-------- ----
the following conditions is satisfied as determined by Agent: (i) in no event
shall the amount of all such capital contributions or loans exceed $5,000,000
in the aggregate, (ii) in no event shall Borrower make any such capital
contributions or loans unless and until Agent shall have received, in form and
substance satisfactory to Agent, evidence that Borrower has obtained all
requisite consents to the pledge of its membership interests in ZBH to Agent,
(iii) at the time of any such capital contribution or loan and after giving
effect thereto, no Event of Default or act, condition or event which with notice
and passage of time or both would constitute an Event of Default, shall exist or
have occurred, (iv) in the case of any loans by Borrower to ZBH, the
Indebtedness arising from such loans shall not be evidenced by any promissory
note or other instrument, unless the original of such note or other instrument
is delivered to Agent, duly endorsed and assigned by the payee to Agent in a
form and manner acceptable to Agent, and (v) as of the date of any such capital
contribution, loan or other payment, the daily average of the Excess
Availability for the immediately preceding thirty (30) consecutive day period
shall be not less than $7,500,000, and as of the date of any such capital
contribution, loan or other payment and after giving effect thereto, the Excess
Availability shall be not less than $5,000,000, and
(g) the existing loans, advances and guarantees by Borrower
outstanding as of the date hereof as set forth on Schedule 9.10 hereto;
provided, that, as to such loans, advances and guarantees, (i) Borrower shall
-------- ----
not, directly or indirectly, (A) amend, modify, alter or change the terms of
such loans, advances or guarantees or any agreement, document or instrument
related thereto, or (B) as to such guarantees, redeem, retire, defease, purchase
or otherwise acquire such guarantee or set aside or otherwise deposit or invest
any sums for such purpose and (ii) Borrower shall furnish to Agent all notices,
demands or other materials in connection with such loans, advances or guarantees
either received by Borrower or on its behalf, promptly after the receipt
thereof, or sent by Borrower or on its behalf, concurrently with the sending
thereof, as the case may be.
9.11 Dividends and Redemptions. Borrower shall not, directly or
-------------------------
indirectly, declare or pay any dividends on account of any shares of class of
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.
55
9.12 Transactions with Affiliates. Borrower shall not directly or
----------------------------
indirectly, (a) purchase, acquire or lease any property from, or sell, transfer
or lease any property to, any officer, employee, shareholder, director, agent or
any other person affiliated with Borrower, except in the ordinary course of and
pursuant to the reasonable requirements of Borrower's business and upon fair and
reasonable terms no less favorable to the Borrower than Borrower would obtain in
a comparable arm's length transaction with an unaffiliated person or (b) make
any payments of management, consulting or other fees for management or similar
services, or of any Indebtedness owing to any officer, employee, shareholder,
director or other person affiliated with Borrower except reasonable compensation
to officers, employees and directors for services rendered to Borrower in the
ordinary course of business.
9.13 Credit Card Agreements. Borrower shall (a) observe and perform all
----------------------
material terms, covenants, conditions and provisions of the Credit Card
Agreements to be observed and performed by it at the times set forth therein;
(b) not do, permit, suffer or refrain from doing anything, as a result of which
there could be a default under or breach of any of the terms of any of the
Credit Card Agreements and (c) at all times maintain in full force and effect
the Credit Card Agreements and not terminate, cancel, surrender, modify, amend,
waive or release any of the Credit Card Agreements, or consent to or permit to
occur any of the foregoing; except, that, (i) Borrower may terminate or cancel
any of the Credit Card Agreements in the ordinary course of the business of
Borrower; provided, that, Borrower shall give Agent not less than fifteen (15)
-------- ----
days prior written notice of its intention to so terminate or cancel any of the
Credit Card Agreements; (d) not enter into any new Credit Card Agreements with
any new Credit Card Issuer unless (i) Agent shall have received not less than
fifteen (15) days prior written notice of the intention of Borrower to enter
into such agreement (together with such other information with respect thereto
as Agent may request) and (ii) Borrower delivers, or causes to be delivered to
Agent, a Credit Card Acknowledgment in favor of Agent, for the ratable benefit
of Lender; (e) give Agent immediate written notice of any Credit Card Agreement
entered into by Borrower after the date hereof, together with a true, correct
and complete copy thereof and such other information with respect thereto as
Agent may request; and (f) furnish to Agent, promptly upon the request of Agent,
such information and evidence as Agent may require from time to time concerning
the observance, performance and compliance by Borrower or the other party or
parties thereto with the terms, covenants or provisions of the Credit Card
Agreements.
9.14 Adjusted Tangible Net Worth. Borrower shall, at all times, maintain
---------------------------
Adjusted Tangible Net Worth of not less than the respective amounts set forth
below for the period indicated therein:
Period Amount
------ ------
(a) From the date hereof through and including
November 30, 2000 $58,500,000
(b) From December 1, 2000 and from December 1
of each year thereafter to and including
56
March 31 of the next year $88,500,000
(c) From April 1 of each year after the date
hereof to and including November 30 of
such year $76,500,000.
9.15 Compliance with ERISA.
---------------------
(a) Borrower shall not with respect to any "employee benefit plans"
maintained by Borrower or any of its ERISA Affiliates: (i) terminate any of
such employee pension 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 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 the Code or ERISA, (iii) fail to pay to any such employee benefit
plan any contribution which it is obligated to pay under ERISA, the Code or the
terms of such plan, (iv) allow or suffer to exist any accumulated funding
deficiency, whether or not waived, with respect to any such employee benefit
plan, (v) allow or suffer to exist any occurrence of a reportable event or any
other event or condition which presents a material risk of termination by the
Pension Benefit Guaranty Corporation of any such employee benefit plan that is a
single employer plan, which termination could result in any liability to the
Pension Benefit Guaranty Corporation or (vi) incur any withdrawal liability with
respect to any multiemployer pension plan.
(b) As used in this Section 9.15, 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
the Code and ERISA.
9.16 Additional Bank Accounts. Borrower shall not, directly or indirectly,
------------------------
open, establish or maintain any deposit account, investment account or any other
account with any bank or other financial institution, other than the Blocked
Accounts and the accounts set forth in Schedule 6.3 hereto, except: (a) as to
any new or additional Blocked Accounts and other such new or additional accounts
which contain any Collateral or proceeds thereof, with the prior written consent
of Agent and subject to such conditions thereto as Agent may establish and (b)
as to any accounts used by Borrower to make payments of payroll, taxes or other
obligations to third parties, after prior written notice to Lender.
9.17 End of Fiscal Years; Fiscal Quarters. Borrower shall, for financial
------------------------------------
reporting purposes, cause its, and each of its Subsidiaries' (a) fiscal years to
end on the Saturday closest to January 31 of each year and (b) fiscal quarters
to end on or about April 30, July 31, October 31 and January 31 of each year.
9.18 Change in Business. Borrower and its Subsidiaries shall not engage
------------------
in any business other than the businesses of Borrower and its Subsidiaries on
the date hereof (provided, that, on and after the Merger, all Inventory will
-------- ----
only be purchased by Borrower and Noodle Kidoodle
57
will cease to purchase Inventory or any other assets) and any businesses
reasonably related, ancillary or complimentary to the businesses in which
Borrower and its Subsidiaries are engaged on the date hereof.
9.19 Documents to be Delivered with respect to Noodle Kidoodle. In the
---------------------------------------------------------
event that the Merger shall occur, Borrower shall deliver, or cause to be
delivered to Agent, each of the following items, in form and substance
satisfactory to Agent, by no later than August 31, 2000:
(a) evidence that the Merger Agreements have been duly executed and
delivered by and to the appropriate parties thereto and the transactions
contemplated under the terms of the Merger Agreements have been consummated
prior to or contemporaneously with the execution of this Agreement;
(b) evidence that the certificates of merger with respect to the
Merger have been filed with the Secretary of State of the State of Delaware and
the Merger is valid and effective in accordance with the terms and provisions of
the Merger Agreements and the applicable corporation statutes of the State of
Delaware;
(c) a certificate in the form of Exhibit B hereto properly completed
and duly authorized, executed and delivered by Borrower;
(d) all releases, terminations and such other documents as Agent may
request to evidence and effectuate the termination by The CIT Group/Business
Credit, Inc. and any lenders for whom it is acting as agent of their respective
financing arrangements with Noodle Kidoodle and the termination and release by
them of any interest in and to any assets and properties of Noodle Kidoodle,
duly authorized, executed and delivered by each of them, including, but not
limited to, UCC termination statements for all UCC financing statements
previously filed by any of them or their predecessors, as secured party and
Noodle Kidoodle or any Obligor, as debtor;
(e) evidence that Agent has valid perfected and first priority
security interests in and liens upon the Collateral of Noodle Kidoodle, subject
only to the security interests and liens permitted herein or in the other
Financing Agreements;
(f) UCC, tax lien and judgment search results against Noodle Kidoodle
for all jurisdictions in which assets of Noodle Kidoodle are located or as Agent
may otherwise agree, which search results shall be in form and substance
satisfactory to Agent;
(g) evidence that all requisite corporate action and proceedings in
connection with the Financing Agreements to be executed by Noodle Kidoodle have
been taken by Noodle Kidoodle and copies of all documents relating to such
requisite corporate action and proceedings which Agent may have requested in
connection therewith, such documents where requested by Agent or its counsel to
be certified by appropriate corporate officers or governmental authorities;
58
(h) letters from Noodle Kidoodle to the banks at which Noodle
Kidoodle maintains deposit accounts for the initial receipt of cash, checks and
other items from Noodle Kidoodle's retail store locations directing such banks
to transfer all immediately available funds deposited in such bank only to the
Blocked Accounts as required pursuant to Section 6.3 hereof or as otherwise
directed by Agent, as duly authorized, executed and delivered by Noodle
Kidoodle;
(i) Credit Card Acknowledgments with respect to arrangements of
Noodle Kidoodle with Credit Card Issuers and Credit Card Processors, in each
case, duly authorized, executed and delivered by the Credit Card Issuers and
Credit Card Processors;
(j) evidence of insurance and loss payee endorsements with respect to
Noodle Kidoodle and certificates of insurance policies and/or endorsements
naming Agent as loss payee with respect thereto;
(k) all consents, waivers, acknowledgments and other agreements from
third persons which Agent may deem necessary or desirable in order to permit,
protect and perfect its security interests in and liens upon the Collateral of
Noodle Kidoodle or to effectuate the provisions or purposes of this Agreement
and the other Financing Agreements with respect to the Collateral or operations
of Noodle Kidoodle, including, without limitation, Collateral Access Agreement
by lessors (other than from lessors of retail store locations), mortgagees and
warehousemen;
(l) the other Financing Agreements that Agent shall require be
executed and/or delivered by Noodle Kidoodle (including a guarantee, general
security agreement, UCC financing statements), duly authorized, executed and
delivered by Noodle Kidoodle; and
(m) the opinion letter of counsel(s) to Borrower with respect to the
Merger Agreements, the effectiveness of the Merger, the Financing Agreements
executed and/or delivered by Noodle Kidoodle and the security interests and
liens of Agent with respect to the Collateral of Noodle Kidoodle and such other
matters as Agent may request;
9.20 Costs and Expenses. Borrower shall pay to Agent, for the benefit of
------------------
Lender, on demand all costs, expenses, filing fees and taxes paid or payable in
connection with the preparation, negotiation, execution, delivery, recording,
administration, collection, liquidation, enforcement and defense of the
Obligations, the rights of Agent, for the benefit of Lender, in the Collateral,
this Agreement, the other Financing Agreements and all other documents related
hereto or thereto, including any amendments, supplements or consents which may
hereafter be contemplated (whether or not executed) or entered into in respect
hereof and thereof, including: (a) all costs and expenses of filing or recording
(including Uniform Commercial Code financing statement filing taxes and fees,
documentary taxes, intangibles taxes and mortgage recording taxes and fees, if
applicable); (b) all insurance premiums, 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
Agent's customary charges
59
and fees with respect thereto; (d) charges, fees or expenses charged by any
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 Agent, for the benefit 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 Agent and/or Lender arising out of the
transactions contemplated hereby and thereby (including preparations for and
consultations concerning any such matters); (g) all reasonable out-of-pocket
expenses and costs heretofore and from time to time hereafter incurred by Agent
during the course of periodic field examinations of the Collateral and
Borrower's operations, plus a per diem charge at the rate of $750 per person per
day for Agent's examiners in the field and office; and (h) the fees and
disbursements of counsel (including legal assistants) to Agent and Lender in
connection with any of the foregoing.
9.21 Further Assurances. At the request of Agent 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. Agent may
at any time and from time to time request a certificate from an officer of
Borrower representing that all conditions precedent to the making of Loans and
providing Letter of Credit Accommodations contained herein are satisfied. In
the event of such request by Agent, Agent may, at its option, cease to make any
further Loans or provide any further Letter of Credit Accommodations until Agent
has received such certificate and, in addition, Agent has determined that such
conditions are satisfied. Where permitted by law, Borrower hereby authorizes
Agent to execute and file one or more UCC financing statements signed only by
Agent.
SECTION 10. EVENTS OF DEFAULT AND REMEDIES
------------------------------
10.1 Events of Default. The occurrence or existence of any one or more of
-----------------
the following events are referred to herein individually as an "Event of
Default", and collectively as "Events of Default":
(a) (i) Borrower fails to pay any of the Obligations within three
(3) days after the same becomes due and payable or (ii) Borrower or any Obligor
fails to perform any of the covenants contained in Sections 9.1, 9.2, 9.3, 9.4,
9.6, 9.13, 9.14, 9.15 or 9.16 of this Agreement and such failure shall continue
for fifteen (15) days; provided, that, such fifteen (15) day period shall not
-------- ----
apply in the case of: (A) any failure to observe any such covenant which is not
capable of being cured at all or within such fifteen (15) day period or which
has been the subject of a prior failure within a six (6) month period or (B) an
intentional breach of Borrower or any Obligor of any such covenant or (iii)
Borrower fails to perform any of the terms, covenants, conditions or provisions
contained in this Agreement or any of the other Financing Agreements other than
those described in Sections 10.1(a)(i) and 10.1(a)(ii) above;
60
(b) any representation, warranty or statement of fact made by
Borrower to Agent or any 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 Agent or any Lender;
(d) any judgment for the payment of money is rendered against
Borrower or any Obligor in excess of $1,000,000 in any one case or in excess of
$2,500,000 in the aggregate 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 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) Borrower or any Obligor dissolves or suspends or discontinues
doing business;
(f) Borrower or any Obligor becomes insolvent (however defined or
evidenced), makes an assignment for the benefit of creditors, makes or sends
notice of a bulk transfer or calls a meeting of its creditors or principal
creditors;
(g) a case or proceeding under the bankruptcy laws of the United
States of America now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction now or hereafter in effect (whether at law or
in equity) is filed against Borrower or any Obligor or all or any part of its
properties and such petition or application is not dismissed within forty-five
(45) days after the date of its filing or Borrower or any Obligor shall file any
answer admitting or not contesting such petition or application or indicates its
consent to, acquiescence in or approval of, any such action or proceeding or the
relief requested is granted sooner;
(h) a case or proceeding under the bankruptcy laws of the United
States of America now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction now or hereafter in effect (whether at a law
or equity) is filed by Borrower or any Obligor or for all or any part of its
property; 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 Agent or 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 Agent
or Lender, in any case in an amount in excess of $2,500,000, which default
61
continues for more than the applicable cure period, if any, with respect
thereto, or any default by Borrower or any Obligor under any Material Contract
which default continues for more than the applicable cure period, if any, with
respect thereto or any Credit Card Issuer or Credit Card Processor withholds
payment of amounts otherwise payable to Borrower to fund a reserve account or
otherwise hold as collateral, or shall require Borrower to pay funds into a
reserve account or for such Credit Card Issuer or Credit Card Processor to
otherwise hold as collateral, or Borrower shall provide a letter of credit,
guarantee, indemnity or similar instrument to or in favor of such Credit Card
Issuer or Credit Card Processor such that in the aggregate all of such funds in
the reserve account, other amounts held as collateral and the amount of such
letters of credit, guarantees, indemnities or similar instruments shall exceed
$500,000;
(j) any Credit Card Issuer or Credit Card Processor shall send notice
to Borrower that it is ceasing to make or suspending payments to Borrower of
amounts due or to become due to Borrower or shall cease or suspend such
payments, or shall send notice to Borrower that it is terminating its
arrangements with Borrower or such arrangements shall terminate as a result of
any event of default under such arrangements, which continues for more than the
applicable cure period, if any, with respect thereto, unless Borrower shall have
entered into arrangements with another Credit Card Issuer or Credit Card
Processor, as the case may be, within thirty (30) days after the date of any
such notice;
(k) any Change of Control
(l) the indictment or threatened indictment of Borrower or any
Obligor by a Governmental Authority under any criminal statute, or commencement
or threatened commencement of criminal or civil proceedings against Borrower or
any Obligor, pursuant to which statute or proceedings the penalties or remedies
sought or available include forfeiture of any material portion of the property
of Borrower or such Obligor;
(m) there shall be a material adverse change in the business, assets
or prospects of Borrower and each Obligor, taken as a whole, after the date
hereof (provided, that, in no event shall the performance by Borrower
-------- ----
substantially in accordance with the projections included as Schedule 10.1(m)
hereto be deemed a material adverse change for purposes hereof); or
(n) 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, Agent and Lender shall have all rights and remedies provided in this
Agreement, the other Financing Agreements, the Uniform Commercial Code and other
applicable law, all of which rights and remedies may be exercised without notice
to or consent by Borrower or any Obligor, except as such notice or consent is
expressly provided for hereunder or required by applicable law. All rights,
remedies and powers granted to Agent and Lender hereunder, under any of the
62
other Financing Agreements, the Uniform Commercial Code or other applicable law,
are cumulative, not exclusive and enforceable, in Agent'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. Agent and Lender may at any
time or times, proceed directly against Borrower or any Obligor to collect the
Obligations without prior recourse to the Collateral.
(b) Without limiting the foregoing, at any time an Event of Default
exists or has occurred and is continuing, Agent, for the benefit of Lender, may,
in its discretion and without limitation, (i) accelerate the payment of all
Obligations and demand immediate payment thereof to Agent, for the benefit of
Lender, (provided, that, upon the occurrence of any Event of Default described
-------- ----
in Sections 10.1(g) and 10.1(h), all Obligations shall automatically become
immediately due and payable), (ii) with or without judicial process or the aid
or assistance of others, enter upon any premises on or in which any of the
Collateral may be located and take possession of the Collateral or complete
processing, manufacturing and repair of all or any portion of the Collateral,
(iii) require Borrower, at Borrower's expense, to assemble and make available to
Agent any part or all of the Collateral at any place and time designated by
Agent, (iv) collect, foreclose, receive, appropriate, setoff and realize upon
any and all Collateral, (v) remove any or all of the Collateral from any
premises on or in which the same may be located for the purpose of effecting the
sale, foreclosure or other disposition thereof or for any other purpose, (vi)
sell, lease, transfer, assign, deliver or otherwise dispose of any and all
Collateral (including, without limitation, entering into contracts with respect
thereto, public or private sales at any exchange, broker's board, at any office
of Agent or elsewhere) at such prices or terms as Agent may deem reasonable, for
cash, upon credit or for future delivery, with Agent or 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 Agent upon credit terms or for future delivery, the
Obligations shall not be reduced as a result thereof until payment therefor is
finally collected by Agent, for the benefit of Lender. If notice of disposition
of Collateral is required by law, five (5) days prior notice by Agent 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 Agent 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) Agent may apply the cash proceeds of Collateral actually received
by Agent, for the benefit of 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 Agent may elect, whether or not then due. Borrower shall
remain liable to Agent and 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.
63
(d) For the purpose of enabling Agent or Lender to exercise the
rights and remedies hereunder, Borrower hereby grants to Agent and Lender, to
the extent assignable, an irrevocable, non-exclusive license (exercisable
without payment of royalty or other compensation to Borrower) to use, assign,
license or sublicense any of the trademarks, service-marks, trade names,
business names, trade styles, designs, logos and other source of business
identifiers and other intellectual property and general intangibles now owned or
hereafter acquired by Borrower, wherever the same maybe located, including in
such license reasonable access to all media in which any of the licensed items
may be recorded or stored and to all computer programs used for the compilation
or printout thereof.
(e) 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, Agent and Lender may, at their option, without
notice, (i) cease making Loans or arranging for 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 Agent or Lender to Borrower.
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS
AND CONSENTS; GOVERNING LAW
--------------------------------
11.1 Confession of Judgment.
----------------------
(a) Borrower, to the extent permitted by law, and without the further
consent of or notice to Borrower, hereby irrevocably and unconditionally
authorizes the Prothonotary, Clerk of Court, or any attorney of any court of
record in the Commonwealth of Pennsylvania, or any other jurisdiction, as
attorney for Borrower to appear for Borrower in such court and confess judgment
against Borrower and in favor of Agent or Lender, at any time on or after an
Event of Default exists or has occurred and is continuing, for all or any
portion of the Obligations (including, but not limited to, principal, interest,
fees, costs and expenses and including attorneys' fees and legal expenses not to
exceed five (5%) percent of the outstanding and unpaid Obligations), for which
this Agreement or a verified copy hereof shall be sufficient warrant. The
authority to enter judgment shall not be exhausted by one exercise hereof, but,
to the extent permitted by law, shall continue from time to time until final
payment and satisfaction in full of all of the Obligations. The foregoing right
and remedy is in addition to and not in lieu of any other right or remedy
available to Agent and Lender under this Agreement, the other Financing
Agreements, applicable law or otherwise.
(b) Borrower, being fully aware of its right to notice and a hearing
concerning the validity of any and all claims that may be asserted against
Borrower by Agent and Lender before a judgment can be entered hereunder or
before execution may be levied on such judgment against any and all property of
Borrower, hereby waives each of these rights and agrees and consents to
64
judgment being entered by confession in accordance with the terms hereof and
execution being levied on such judgment against any and all property of
Borrower, in each case without first giving notice and the opportunity to be
heard on the validity of the claim or claims upon which such judgment is
entered.
11.2 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 New York
(without giving effect to principles of conflicts of law).
(b) Borrower, Agent and Lender irrevocably consent and submit to the
non-exclusive jurisdiction of the Supreme Court of the State of New York in New
York County and the United States District Court for the Southern District of
New York 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
Agent shall have the right to bring any action or proceeding against Borrower or
its property in the courts of any other jurisdiction which Agent 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
Agent'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 Agent against Borrower for the amount
of the claim and other relief requested.
(d) BORROWER, AGENT 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, AGENT
AND LENDER EACH HEREBY AGREES AND
65
CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED
BY COURT TRIAL WITHOUT A JURY AND THAT BORROWER, AGENT 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) Neither Agent nor Lender shall 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 Agent and Lender, that the losses
were the result of acts or omissions constituting gross negligence or willful
misconduct. In any such litigation, Agent and 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.
11.3 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 Agent may elect to give shall entitle Borrower to
any other or further notice or demand in the same, similar or other
circumstances.
11.4 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
Agent, and as to amendments, as also signed by an authorized officer of
Borrower. Agent 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
Agent. Any such waiver shall be enforceable only to the extent specifically set
forth therein. A waiver by Agent 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 Agent or Lender would otherwise have on any future occasion,
whether similar in kind or otherwise.
11.5 Waiver of Counterclaims. Borrower waives all rights to interpose any
-----------------------
claims, deductions, setoffs or counterclaims of any nature (other then
compulsory counterclaims) in any action or proceeding with respect to this
Agreement, the Obligations, the Collateral or any matter arising therefrom or
relating hereto or thereto.
11.6 Indemnification. Borrower shall indemnify and hold Agent, Lender and
---------------
their 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
66
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. 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 Agent and/or 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. THE AGENT
---------
12.1 Appointment, Powers and Immunities. Lender hereby irrevocably
----------------------------------
appoints and authorizes Agent to act as its agent hereunder and under the other
Financing Agreements with such powers as are specifically delegated to Agent by
the terms of this Agreement and of the other Financing Agreements, together with
such other powers as are reasonably incidental thereto. Agent (a) shall have no
duties or responsibilities except those expressly set forth in this Agreement
and in the other Financing Agreements, and shall not by reason of this Agreement
or any other Financing Agreement be a trustee or fiduciary for Lender; (b) shall
not be responsible to Lender for any recitals, statements, representations or
warranties contained in this Agreement or in any other Financing Agreement, or
in any certificate or other document referred to or provided for in, or received
by it under, this Agreement or any other Financing Agreement, or for the value,
validity, effectiveness, genuineness, enforceability or sufficiency of this
Agreement or any other Financing Agreement or any other document referred to or
provided for herein or therein or for any failure by Borrower or any Obligor or
any other Person to perform any of its obligations hereunder or thereunder; and
(c) shall not be responsible to Lender for any action taken or omitted to be
taken by it hereunder or under any other Financing Agreement or under any other
document or instrument referred to or provided for herein or therein or in
connection herewith or therewith, except for its own gross negligence or willful
misconduct as determined by a final non-appealable judgment of a court of
competent jurisdiction. Agent may employ agents and attorneys-in-fact and shall
not be responsible for the negligence or misconduct of any such agents or
attorneys-in-fact selected by it in good faith. Agent may deem and treat the
payee of any note as the holder thereof for all purposes hereof unless and until
the assignment thereof pursuant to an agreement (if and to the extent permitted
herein) in form and substance satisfactory to Agent shall have been delivered to
and acknowledged by Agent.
12.2 Reliance by Agent. Agent shall be entitled to rely upon any
-----------------
certification, notice or other communication (including any thereof by
telephone, telecopy, telex, telegram or cable) believed by it to be genuine and
correct and to have been signed or sent by or on behalf of the proper Person or
Persons, and upon advice and statements of legal counsel, independent
accountants and other experts selected by Agent. As to any matters not
expressly provided for by this Agreement or any other Financing Agreement, Agent
shall in all cases be fully protected
67
in acting, or in refraining from acting, hereunder or thereunder in accordance
with instructions given by Lender as is required in such circumstance, and such
instructions of Lender and any action taken or failure to act pursuant thereto
shall be binding on Lender.
12.3 Events of Default.
-----------------
(a) Agent shall not be deemed to have knowledge or notice of the
occurrence of an Event of Default or other failure of a condition precedent to
the Loans and Letter of Credit Accommodations hereunder, unless and until Agent
has received written notice from Lender or Borrower specifying such Event of
Default or any unfulfilled condition precedent, and stating that such notice is
a "Notice of Default or Failure of Condition". In the event that Agent receives
such a Notice of Default or Failure of Condition, Agent shall give prompt notice
thereof to Lender. Agent shall (subject to Section 12.7) take such action with
respect to any such Event of Default or failure of condition precedent as Agent
shall determine. Without limiting the foregoing, and notwithstanding the
existence or occurrence and continuance of an Event of Default or any other
failure to satisfy any of the conditions precedent set forth in Section 5 of
this Agreement to the contrary, the Agent may, but shall have no obligation to,
continue to make Loans and issue or cause to be issued Letter of Credit
Accommodations for the account and risk of Lender from time to time if Agent
believes making such Loans or issuing or causing to be issued such Letter of
Credit Accommodations is in the best interests of Lender.
(b) Except with the prior written consent of Agent, Lender may not
assert or exercise any enforcement right or remedy in respect of the Loans,
Letter of Credit Accommodations or other Obligations, as against Borrower or any
Obligor or any of the Collateral or other property of Borrower or any Obligor.
12.4 Indemnification. Lender agrees to indemnify Agent (to the extent not
---------------
reimbursed by Borrower hereunder and without limiting the Obligations of
Borrower hereunder) for any and all claims of any kind and nature whatsoever
that may be imposed on, incurred by or asserted against Agent (including by
Lender) arising out of or by reason of any investigation in or in any way
relating to or arising out of this Agreement or any other Financing Agreement or
any other documents contemplated by or referred to herein or therein or the
transactions contemplated hereby or thereby (including the costs and expenses
that Agent is obligated to pay hereunder) or the enforcement of any of the terms
hereof or thereof or of any such other documents, provided, that, Lender shall
-------- ----
not be liable for any of the foregoing to the extent it arises from the gross
negligence or willful misconduct of the party to be indemnified as determined by
a final non-appealable judgment of a court of competent jurisdiction.
12.5 Non-Reliance on Agent and Other Lender. Lender agrees that it has,
--------------------------------------
independently and without reliance on Agent or any other Person, and based on
such documents and information as it has deemed appropriate, made its own credit
analysis of Borrower and any Obligors and has made its own decision to enter
into this Agreement and that it will, independently and without reliance upon
Agent or any other Person, and based on such documents and information as it
shall deem appropriate at the time, continue to make its own
68
analysis and decisions in taking or not taking action under this Agreement or
any of the other Financing Agreements. Agent shall not be required to keep
itself informed as to the performance or observance by Borrower or any Obligor
of any term or provision of this Agreement or any of the other Financing
Agreements or any other document referred to or provided for herein or therein
or to inspect the properties or books of Borrower or any Obligor. Agent will use
reasonable efforts to provide Lender with any information received by Agent from
Borrower which is required to be provided to Lender hereunder, with a copy of
any Notice of Default or Failure of Condition received by Agent from Borrower or
any Lender and with a copy of any notice of an Event of Default delivered by
Agent to Borrower; provided, that, Agent shall not be liable to Lender for any
-------- ----
failure to do so, except to the extent that such failure is attributable to
Agent's own gross negligence or willful misconduct as determined by a final non-
appealable judgment of a court of competent jurisdiction. Except for notices,
reports and other documents expressly required to be furnished to Lender by
Agent hereunder, Agent shall not have any duty or responsibility to provide
Lender with any other credit or other information concerning the affairs,
financial condition or business of Borrower or any of its Subsidiaries (or any
of their affiliates) that may come into the possession of Agent or any of its
affiliates.
12.6 Failure to Act. Except for action expressly required of Agent
--------------
hereunder and under the other Financing Agreements, Agent shall in all cases be
fully justified in failing or refusing to act hereunder and thereunder unless it
shall receive further assurances to its satisfaction from Lender of its
indemnification obligations under Section 12.5 hereof against any and all
liability and expense that may be incurred by it by reason of taking or
continuing to take any such action.
12.7 Resignation of Agent. Subject to the appointment and acceptance of a
--------------------
successor Agent as provided below, Agent may resign at any time by giving notice
thereof to Lender and Borrower. Upon any such resignation, Lender shall have the
right to appoint a successor Agent with the consent of Borrower, which consent
shall not be unreasonably withheld, conditioned or delayed. If no successor
Agent shall have been so appointed by Lender, and/or so consented to by Borrower
and the appointment accepted by such successor Agent within thirty (30) days
after the retiring Agent's giving of notice of resignation, then the retiring
Agent may, on behalf of Lender, appoint (without the consent of Borrower) a
successor Agent that shall be a bank, commercial finance company or other
financial institution. Upon the acceptance of any appointment as Agent
hereunder by a successor Agent in accordance with the terms hereof, such
successor Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Agent, and the retiring
Agent shall be discharged from its duties and obligations hereunder. After any
retiring Agent's resignation hereunder as Agent, the provisions of this Section
12 shall continue in effect for its benefit in respect of any actions taken or
omitted to be taken by it while it was acting as Agent.
12.8 Consents and Releases of Collateral under Financing Agreements.
--------------------------------------------------------------
Except as otherwise provided in Section 11.4 hereof with respect to certain
amendments or modifications to this Agreement, Agent may consent to any
modification, supplement or waiver under any of the Financing Agreements;
provided, that, without the prior consent of Lender, Agent shall not release any
-------- ----
Collateral or otherwise terminate any security interest in or lien upon any of
the
69
Collateral under any of the Financing Agreements, except that no such consent
shall be required, and Agent is hereby authorized (i) to release any security
interest in or lien upon any of the Collateral which is the subject of a
disposition permitted hereunder or under the other Financing Agreements, or (ii)
to release, in any fiscal year of Borrower, any security interest in or lien
upon any of the Collateral the value of which does not exceed $10,000,000.
12.9 Collateral Matters.
------------------
(a) Except as otherwise expressly provided for in this Agreement,
Agent shall have no obligation whatsoever to Lender or any other Person to
investigate, confirm or assure that the Collateral exists or is owned by
Borrower or any Obligor or is cared for, protected or insured or has been
encumbered, or that any particular items of Collateral meet the eligibility
criteria applicable in respect of the Loans or Letter of Credit Accommodations
hereunder, or whether any particular Availability Reserves are appropriate, or
that the liens and security interests granted to Agent herein or pursuant hereto
or otherwise have been properly or sufficiently or lawfully created, perfected,
protected or enforced or are entitled to any particular priority, or to exercise
at all or in any particular manner or under any duty of care, disclosure or
fidelity, or to continue exercising, any of the rights, authorities and powers
granted or available to Agent in this Agreement or in any of the other Financing
Agreements, it being understood and agreed that in respect of the Collateral, or
any act, omission or event related thereto, Agent may act in any manner it may
deem appropriate, in its discretion, and that Agent shall have no duty or
liability whatsoever to Lender, other than liability for its own gross
negligence or willful misconduct as determined by a final non-appealable
judgment of a court of competent jurisdiction.
(b) Lender hereby appoints Agent, and Agent hereby appoints Lender,
as agent for the purpose of perfecting the security interest of Agent in assets
which, in accordance with Article 9 of the Uniform Commercial Code can be
perfected only by possession. Should Lender obtain possession of any such
Collateral, Lender shall notify Agent thereof and, promptly upon Agent's request
therefor, shall deliver such Collateral to Agent or in accordance with Agent's
instructions. In the event that Lender or any Affiliate of Lender may act as a
securities intermediary in connection with any securities or security
entitlements of Borrower or any Obligor (including, but not limited to,
Children's Development, Inc. or Children's Products, Inc.) or otherwise have
possession or control of any investment property of Borrower or any Obligor,
Lender or such Affiliate shall act on instructions from Agent with respect to
such securities or security entitlements or other investment property without
the further consent of the registered owner or entitlement holder.
SECTION 13. TERM OF AGREEMENT; MISCELLANEOUS
--------------------------------
13.1 Term.
----
70
(a) This Agreement and the other Financing Agreements shall become
effective as of the date set forth on the first page hereof and shall continue
in full force and effect for a term ending on the date three (3) years from the
date hereof (the "Renewal Date"), and from year to year thereafter, unless
sooner terminated pursuant to the terms hereof; provided, that, Agent may at its
-------- ----
option, extend the Renewal Date to the date four (4) years from the date hereof
by giving Borrower written notice at least sixty (60) days prior to the third
(3rd) anniversary of the date hereof. Agent 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 the other party at
least sixty (60) days prior written notice; provided, that, this Agreement and
-------- ----
all other Financing Agreements must be terminated simultaneously. Upon the
effective date of termination or non-renewal of the Financing Agreements,
Borrower shall pay to Agent, for the benefit of Lender, in full, all outstanding
and unpaid Obligations and shall furnish cash collateral to Agent, for the
benefit of Lender, in such amounts as Agent determines are reasonably necessary
to secure Agent and 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 Agent and Lender have not yet received final and indefeasible payment.
Such payments in respect of the Obligations and cash collateral shall be
remitted by wire transfer in Federal funds to such bank account of Agent, as
Agent 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 Agent are received in such
bank account later than 12:00 noon, New York 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 the
continuing security interest of Agent, for the benefit of Lender, in the
Collateral and the rights and remedies of Agent and 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. Upon the
receipt by Agent and Lender of payment in full in cash or other immediately
available funds of all of the Obligations (which are not contingent) and cash
collateral in such amounts and on such terms as Agent shall deem reasonably
acceptable for all contingent Obligations, upon Borrower's request and at
Borrower's expense, except as otherwise required by applicable law, Agent shall
execute and deliver to Borrower UCC-3 termination statements and such other
release documents with respect to the Collateral as may be reasonably requested
by Borrower, in form and substance satisfactory to Agent, to effectuate the
termination of the security interests granted by Borrower to Agent herein and in
the other Financing Agreements.
(c) If for any reason this Agreement is terminated prior to the end
of the then current term or renewal term of this Agreement, in view of the
impracticality and extreme difficulty of ascertaining actual damages and by
mutual agreement of the parties as to a reasonable calculation of Agent's and
Lender's lost profits as a result thereof, Borrower agrees to
71
pay to Agent, for itself and the benefit of 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) One and one-half (1 1/2%) From the date hereof to and including
percent of the first anniversary of the date
the Maximum Credit hereof
(ii) Three-fourths (3/4%) From the first anniversary of the date
percent of the Maximum hereof to and including the second
Credit anniversary of the date hereof
(iii) One-third (1/3%) percent From the second anniversary of the
of the Maximum Credit date hereof to and including the
Renewal Date.
Such early termination fee shall be presumed to be the amount of damages
sustained by Agent and Lender as a result of such early termination and Borrower
agrees that it is reasonable under the circumstances currently existing. In
addition, Agent shall be entitled to such early termination fee, for itself and
the benefit of Lender, upon the occurrence of any Event of Default described in
Sections 10.1(g) and 10.1(h) hereof, even if Agent does not exercise its right
to terminate this Agreement, but elects, at its option, to provide financing to
Borrower or permit the use of cash collateral under the United States Bankruptcy
Code. The early termination fee provided for in this Section 13.1 shall be
deemed included in the Obligations.
(d) Notwithstanding anything to contrary contained in Section
13.1(c) above, in the event of the termination of this Agreement by Borrower
prior to the end of the then current term or renewal term of this Agreement
Borrower shall not be required to pay the early termination fee provided for in
Section 13.1(c) if each of the following conditions is satisfied: (i) such
termination occurs after the second anniversary of the date hereof but prior to
the third anniversary of the date hereof, (ii) no Event of Default, or act,
condition or event which with notice or passage of time or both would constitute
an Event of Default shall exist or have occurred and be continuing, (iii) Agent
shall have received full and final repayment of all of the Obligations and the
cash collateral all as provided in Section 13.1(c) solely from the proceeds of
initial loans and advances to Borrower pursuant to an unsecured revolving credit
facility (or if a revolving credit facility which is secured but in which the
amount of the loans available to Borrower thereunder are not based on the amount
of its assets), (iv) Agent shall have received not less than sixty (60) days
prior written notice of the intention of Borrower to terminate this Agreement
and repay the Obligations with such proceeds, which notice shall set forth the
terms and conditions of the credit facility the proceeds of which are to repay
the Obligations and (v) within thirty (30) days after the receipt by Agent of
the written notice of the intention of Borrower to so terminate this Agreement,
Lender or any of its Affiliates shall not have provided to Borrower a proposal
for an unsecured revolving credit facility (or a revolving credit facility
72
which is secured so long as the amount of the loans available to Borrower
thereunder are not based on the amount of its assets) the terms and conditions
of which are at least as favorable to Borrower with respect to amount, interest
rate and fees as those set forth in the notice provided by Borrower to Agent and
Lender. In the event that any one of the conditions set forth in this Section
13.1(d) are not satisfied as determined by Agent or Lender in good faith, then
the early termination fee shall be payable as provided herein.
13.2 Notices. All notices, requests and demands hereunder shall be in
-------
writing and (a) made to Agent and Lender at their addresses 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.
13.3 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.
13.4 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, Agent and 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
Agent and Lender. Lender may not assign its rights and obligations under this
Agreement (or any part thereof) without the prior written consent of Agent,
except as permitted under Section 13.5(b) hereof. Any purported assignment by
Lender without such prior express consent or compliance with Section 13.5(b)
where applicable, shall be void. The terms and provisions of this Agreement and
the other Financing Agreements are for the purpose of defining the relative
rights and obligations of Borrower, Agent and Lender with respect to the
transactions contemplated hereby and there shall be no third party beneficiaries
of any of the terms and provisions of this Agreement or any of the other
Financing Agreements.
13.5 Assignments and Participations.
------------------------------
(a) Lender may, in the ordinary course of its commercial banking or
finance business and in accordance with applicable law, at any time sell to one
or more banks, commercial finance companies or other financial institutions
(collectively, "Participants" and individually, a "Participant"), including,
without limitation, Congress Financial Corporation in its individual capacity,
participating interests in all or a portion of its rights and obligations under
this Agreement and the other Financing Agreements (including all or a part of
its interest in the
73
Obligations). In the event of any such sale by Lender of a participating
interest to a Participant, Lender's obligations under this Agreement to the
other parties to this Agreement shall remain unchanged, Lender shall remain
solely responsible for the performance thereof, Lender shall remain the holder
of any such obligations for all purposes under this Agreement and the other
Financing Agreements, and Borrower and Agent shall continue to deal solely and
directly with Lender in connection with Lender's rights and obligations under
this Agreement and the other Financing Agreements. Borrower agrees that if
amounts outstanding under this Agreement are due or unpaid, or shall have been
declared or shall have become due and payable upon the occurrence of an Event of
Default, each Participant shall, to the maximum extent permitted by applicable
law, be deemed to have the right of setoff in respect of its participating
interest in amounts owing under this Agreement to the same extent as if the
amount of its participating interest were owing directly to it as a Lender under
this Agreement; provided, that, in purchasing such participating interest, such
-------- ----
Participant shall be deemed to have agreed to share with Lender the proceeds
thereof as provided in Section 6.7 hereof. Notwithstanding anything to the
contrary contained herein, Lender shall not grant any participation under which
the Participant shall have rights to approve any amendment to or waiver of or
consent under this Agreement or the other Financing Agreements, except with the
------
consent of Agent.
(b) Lender may, in accordance with applicable law, at any time and
from time to time assign to another bank, commercial finance company or other
financial institution or any of its affiliates, or in connection with the sale
of its business or all or substantially all of its loan portfolio, with the
written consent of Agent, to a bank, commercial finance company or other
financial institution (an "Assignee") all (or, with the consent of Agent, less
than all, but in no event less than $5,000,000) of its rights and obligations
under this Agreement and the other Financing Agreements, pursuant to an
assignment agreement, in form and substance satisfactory to Agent, executed by
such Assignee and Lender and delivered to Agent for its acceptance and recording
in its records. Upon such execution, delivery, acceptance and recording, from
and after the effective date determined pursuant to such assignment agreement,
the Assignee thereunder shall be a party hereto and, to the extent provided in
such assignment agreement, (i) have the rights and obligations of Lender
hereunder with a Commitment and Commitment Percentage as set forth therein, and
(ii) Lender thereunder shall, to the extent provided in such assignment
agreement, be released from its obligations under this Agreement (and, in the
case of an assignment agreement covering all or the remaining portion of
Lender's rights and obligations under this Agreement, Lender shall cease to be a
party hereto). Borrower may at any time and from time to time, notify Agent of
any bank, commercial finance company or other financial institution that is
interested in obtaining an assignment of all or any portion of the rights and
obligations of Lender under this Agreement and the other Financing Agreements.
(c) Upon its receipt of an assignment agreement executed by Lender
and an Assignee, Agent shall (i) promptly accept such assignment agreement and
(ii) on the effective date determined pursuant thereto record the information
contained therein in Agent's records and give notice of such acceptance and
recordation to Lender and Borrower.
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(d) Except as otherwise provided in this Section 13.5, Lender shall
not, as between Borrower and Lender, be relieved of any of its obligations
hereunder as a result of any sale, assignment, transfer or negotiation of, or
granting of participation in, all or any part of the Obligations owed to Lender.
Lender is permitted to sell assignments and participations under this Section
13.5 and may furnish any information concerning Borrower and its Subsidiaries
and affiliates in the possession of Lender from time to time to assignees and
participants (including, prospective assignees and participants).
(e) Borrower shall assist Lender in selling assignment participations
under this Section 13.5 in whatever manner reasonably necessary in order to
enable or effect any such assignment or participation, including (but not
limited to) the execution and delivery of any and all agreements, notes and
other documents and instruments as shall be requested and the delivery of
informational materials, appraisals or other documents for, and the
participation of relevant management in meetings and conference calls with,
potential assignees or participants. Borrower shall certify the correctness,
completeness and accuracy of all descriptions of Borrower and its affairs
provided, prepared or reviewed by Borrower that are contained in any selling
materials and all other information provided by it and included in such
materials.
13.6 Entire Agreement. This Agreement, the other Financing Agreements, any
----------------
supplements hereto or thereto, and any instruments or documents delivered or to
be delivered in connection herewith or therewith represents the entire agreement
and understanding concerning the subject matter hereof and thereof between the
parties hereto, and supersede all other prior agreements, understandings,
negotiations and discussions, representations, warranties, commitments,
proposals, offers and contracts concerning the subject matter hereof, whether
oral or written.
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IN WITNESS WHEREOF, Agent, Lender and Borrower have caused these presents to
be duly executed as of the day and year first above written.
======================================================================================
AGENT BORROWER
----- --------
CONGRESS FINANCIAL CORPORATION, as Agent ZANY BRAINY, INC.
By:_______________________________ By:_________________________________
Title:____________________________ Title:______________________________
Address: Chief Executive Office:
------- ----------------------
1133 Avenue of the Americas ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ King of ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
======================================================================================
LENDER
------
======================================================================================
FIRST UNION NATIONAL BANK
By:______________________________
Title:___________________________
Address:
-------
▇▇▇▇▇▇▇ Building
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
======================================================================================
76
EXHIBIT B
TO
LOAN AND SECURITY AGREEMENT
---------------------------
FORM OF CERTIFICATE WITH RESPECT TO NOODLE KIDOODLE MERGER
----------------------------------------------------------
________________, 20__
Congress Financial Corporation
▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Gentlemen:
Zany Brainy, Inc. ("Borrower") has entered into financing arrangements as
set forth in the Loan and Security Agreement, dated as of July __, 2000, by and
between Congress Financial Corporation ("Lender") and Borrower (as amended,
modified or supplemented from time to time, the "Loan Agreement").
Borrower hereby certifies to Agent and Lender that the following statements
are true on the date hereof.
(a) Set forth on Schedule 1 hereto is a true, correct and complete list of
agreements, documents and instruments entered into in connection with the Merger
and all transactions related thereto. Such agreements, documents and
instruments are referred to herein collectively, as the "Merger Agreements".
(b) The Merger is valid and effective in accordance with the terms of the
Merger Agreements and the corporation statutes of the States of Delaware, and
Noodle Kidoodle is the surviving corporation pursuant to the Merger and is a
wholly-owned Subsidiary of Borrower.
(c) The Merger Agreements and the transactions contemplated thereunder have
been duly executed, delivered and performed to the extent to be performed by
this date of this certificate in accordance with their terms by the respective
parties thereto in all respects, including the fulfillment of all conditions
precedent set forth therein and giving effect to the terms of the Merger
Agreements. Noodle Kidoodle is a wholly-owned Subsidiary of Borrower.
(d) All actions and proceedings, required by the Merger Agreements,
applicable law or regulation (including, but not limited to, compliance with the
▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Anti- Trust Improvements Act of 1976, as amended if
applicable) have been taken and the transactions required thereunder have been
duly and validly taken and consummated as of the date hereof.
B-1
(e) No court of competent jurisdiction has issued any injunction,
restraining order or other order which prohibits consummation of the
transactions described in the Merger Agreements and no governmental or other
action or proceeding has been threatened or commenced, seeking any injunction,
restraining order or other order which seeks to void or otherwise modify the
transactions described in the Merger Agreements.
(f) Borrower has delivered, or caused to be delivered to Lender, true,
correct and complete copies of the Merger Agreements.
(g) The representations and warranties contained in the Loan Agreement are
true and correct in all material respects, before and after giving effect to the
transactions contemplated by the Merger Agreements as though made on and as of
the date hereof, except for the representations and warranties made as of a
specific date which continue to be true and correct as of such date.
(h) No Event of Default of act, condition or event which with notice or
passage of time or both would constitute an Event of Default has occurred and is
continuing, or would result from such proposed loan or from the application of
the proceeds thereof.
Capitalized terms used herein shall have the meanings set forth in the Loan
Agreement.
Very truly yours,
ZANY BRAINY, INC.
By:_________________________
Title:______________________
B-2
SCHEDULE 1.6
TO
LOAN AND SECURITY AGREEMENT
---------------------------
At all times prior to the time that Inventory of Noodle Kidoodle may be
considered Eligible Inventory, the "Applicable Margin" shall be determined as
follows:
Quarterly Average Excess Availability Applicable Margin
------------------------------------- -----------------
Greater than $9,000,000 2%
Greater than $5,000,000 but equal to or less 2 1/4%
than $9,000,000
$5,000,000 or less 2 1/2%
At all times on and after Inventory of Noodle Kidoodle may be considered
Eligible Inventory, the "Applicable Margin" shall be determined as follows:
Quarterly Average Excess Availability Applicable Margin
------------------------------------- -----------------
Greater than $25,000,000 1 3/4%
Greater than $15,000,000 but
equal to or less than $25,000,000 2%
Greater than $5,000,000 but
equal to or less than $15,000,000 2 1/4%
$5,000,000 or less 2 1/2%
B-3