Exhibit 99.2
LOAN AND SECURITY AGREEMENT
▇▇▇▇▇ FARGO RETAIL FINANCE, LLC
THE LENDER
BLUEFLY, INC.
THE BORROWER
July 26, 2005
Article 1 - Definitions:.....................................................1
Article 2 - The Revolving Credit:...........................................16
2.1. Establishment of Revolving Credit...............................16
2.2. Increase in Revolving Credit Ceiling............................16
2.3. Advances in Excess of Borrowing Base (OverLoans)................17
2.4. Risks of Value of Collateral....................................17
2.5. Commitment to Make Revolving Credit Loans and Support
Letters of Credit..............................................17
2.6. Revolving Credit Loan Requests..................................17
2.7. Suspension of Revolving Credit..................................18
2.8. Making of Revolving Credit Loans................................18
2.9. The Loan Account................................................19
2.10. The Revolving Credit Note.......................................20
2.11. Payment of The Loan Account.....................................20
2.12. Interest on Revolving Credit Loans..............................20
2.13. Closing Fee.....................................................21
2.14. Unused Line Fee.................................................21
2.15. Early Termination Fee...........................................21
2.16. Lender's Discretion.............................................22
2.17. Procedures For Issuance of L/C's................................23
2.18. Fees For L/C's..................................................24
2.19. Concerning L/C's................................................24
2.20. Changed Circumstances...........................................25
Article 3 - Conditions Precedent:...........................................26
3.1. Corporate Due Diligence.........................................26
3.2. Opinion.........................................................26
3.3. Additional Documents............................................27
3.4. Collateral L/C..................................................27
3.5. Officers' Certificates..........................................28
3.6. Representations and Warranties..................................29
3.7. All Fees and Expenses Paid......................................29
3.8. Borrower Not In Default.........................................29
3.9. No Adverse Change...............................................29
3.10. Minimum Availability............................................29
3.11. Benefit of Conditions Precedent.................................29
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Article 4 - General Representations, Covenants and Warranties:..............29
4.1. Payment and Performance of Liabilities..........................29
4.2. Due Organization; Authorization; No Conflicts...................30
4.3. Trade Names.....................................................30
4.4. Infrastructure..................................................31
4.5. Locations.......................................................31
4.6. Encumbrances....................................................32
4.7. Indebtedness....................................................32
4.8. Insurance.......................................................32
4.9. Licenses........................................................33
4.10. Leases..........................................................33
4.11. Requirements of Law.............................................33
4.12. Labor Relations.................................................34
4.13. Maintain Properties.............................................34
4.14. Taxes...........................................................35
4.15. No Margin Stock.................................................35
4.16. ERISA...........................................................35
4.17. Hazardous Materials.............................................36
4.18. Litigation......................................................36
4.19. Dividends; Investments; Corporate Action........................36
4.20. Loans...........................................................37
4.21. Protection of Assets............................................37
4.22. Line of Business................................................38
4.23. Affiliate Transactions..........................................38
4.24. Further Assurances..............................................38
4.25. Adequacy of Disclosure..........................................39
4.26. No Restrictions on Liabilities..................................39
4.27. Other Covenants.................................................39
Article 5 - Financial Reporting and Performance Covenants:..................39
5.1. Maintain Records................................................39
5.2. Access to Records...............................................40
5.3. Immediate Notice to Lender......................................40
5.4. Borrowing Base Certificate; Weekly Reporting....................41
5.5. Monthly Reports.................................................41
5.6. Annual Reports..................................................41
5.7. Officers' Certificates..........................................42
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5.8. Inventories, Appraisals, and Audits.............................42
5.9. Additional Financial Information................................43
Article 6 - Use of Collateral:..............................................44
6.1. Use of Inventory Collateral.....................................44
6.2. Inventory Quality...............................................44
6.3. Adjustments and Allowances......................................44
6.4. Validity of Accounts............................................45
6.5. Notification to Account Debtors.................................45
Article 7 - Cash Management. Payment of Liabilities:........................45
7.1. The Concentration, Blocked, and Operating Accounts..............45
7.2. Credit Card and Other Credit Financing Receipts.................45
7.3. Proceeds and Collections........................................46
7.4. Payment of Liabilities..........................................46
7.5. The Operating Account...........................................47
Article 8 - Grant of Security Interest:.....................................47
8.1. Grant of Security Interest......................................47
8.2. Extent and Duration of Security Interest........................48
Article 9 - Lender As Borrower's Attorney-In-Fact:..........................48
9.1. Appointment as Attorney-In-Fact.................................48
9.2. No Obligation to Act............................................49
Article 10 - Events of Default:..............................................49
10.1. Failure to Pay the Revolving Credit.............................49
10.2. Failure To Make Other Payments..................................49
10.3. Failure to Perform Covenant or Liability (No Grace Period)......49
10.4. Failure to Perform Covenant or Liability (Grace Period).........50
10.5. Misrepresentation...............................................50
10.6. Acceleration of Other Debt; Breach of Lease.....................50
10.7. Default Under Other Agreements..................................50
10.8. Uninsured Casualty Loss.........................................50
10.9. Attachment; Judgment; Restraint of Business.....................50
10.10. Business Failure................................................51
10.11. Bankruptcy......................................................51
10.12. Indictment - Forfeiture.........................................51
10.13. Challenge to Loan Documents.....................................51
10.14. Change in Control...............................................51
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Article 11 - Rights and Remedies Upon Default:...............................52
11.1. Acceleration....................................................52
11.2. Rights of Enforcement...........................................52
11.3. Sale of Collateral..............................................52
11.4. Occupation of Business Location.................................53
11.5. Grant of Nonexclusive License...................................53
11.6. Assembly of Collateral..........................................53
11.7. Rights and Remedies.............................................53
Article 12 - Notices:........................................................54
12.1. Notice Addresses................................................54
12.2. Notice Given....................................................54
12.3. Wire Instructions. Notice Given.................................55
Article 13 - Term:...........................................................55
13.1. Termination of Revolving Credit.................................55
13.2. Actions On Termination..........................................55
Article 14 - General:........................................................56
14.1. Protection of Collateral........................................56
14.2. Confidentiality.................................................56
14.3. Publicity.......................................................57
14.4. Successors and Assigns..........................................57
14.5. Severability....................................................57
14.6. Amendments. Course of Dealing..................................57
14.7. Power of Attorney...............................................58
14.8. Application of Proceeds.........................................58
14.9. Increased Costs.................................................58
14.10. Costs and Expenses of the Lender................................59
14.11. Copies and Facsimiles...........................................59
14.12. Massachusetts Law...............................................59
14.13. Consent to Jurisdiction.........................................59
14.14. Indemnification.................................................60
14.15. Rules of Construction...........................................60
14.16. Intent..........................................................62
14.17. Right of Set-Off................................................62
14.18. Pledges To Federal Reserve Banks................................62
14.19. Maximum Interest Rate...........................................63
14.20. Waivers.........................................................63
v
EXHIBITS
2.10 : Revolving Credit Note
4.2 : Organizational ID; Affiliates
4.3 : Trade Names
4.5 : Locations
4.6 : Permitted Encumbrances
4.7 : Indebtedness
4.8 : Insurance
4.10 : Capital Leases; Other Leases
4.14 : Taxes
4.18 : Litigation
5.4 : Borrowing Base Certificate
5.6 : Monthly Financial Reporting Requirements
7.2 : Credit Card Arrangements
vi
LOAN AND SECURITY AGREEMENT
July 26, 2005
THIS AGREEMENT is made between
▇▇▇▇▇ FARGO RETAIL FINANCE, LLC (in such capacity, herein the "Lender"),
a Delaware limited liability company with offices at ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ - - ▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇;
and
BLUEFLY, INC. (the "Borrower"), a Delaware corporation with its
principal executive offices at ▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇,
in consideration of the mutual covenants contained herein and benefits
to be derived herefrom,
WITNESSETH:
ARTICLE 1 - DEFINITIONS:
As used herein, the following terms have the following meanings or are
defined in the section of this Agreement so indicated:
"Acceleration": The making of demand or declaration that any
indebtedness, not otherwise due and payable, is due and payable. Derivations of
the word "Acceleration" (such as "Accelerate") are used with like meaning in
this Agreement.
"Account Debtor": Has the meaning given that term in the UCC.
"Accounts" and "Accounts Receivable": Include, without limitation,
"accounts" as defined in the UCC, and also all: accounts, accounts receivable,
receivables, and rights to payment (whether or not earned by performance) for:
property that has been or is to be sold, leased, licensed, assigned, or
otherwise disposed of; services rendered or to be rendered; a policy of
insurance issued or to be issued; a secondary obligation incurred or to be
incurred; energy provided or to be provided; for the use or hire of a vessel;
arising out of the use of a credit or charge card or information contained on or
used with that card; winnings in a lottery or other game of chance; and also all
Inventory which gave rise thereto, and all rights associated with such
Inventory, including the right of stoppage in transit; all reclaimed, returned,
rejected or repossessed Inventory (if any) the sale of which gave rise to any
Account.
"ACH": Automated clearing house.
"Affiliate": The following:
(a) With respect to any two Persons, a relationship in which one
Person, directly or indirectly, through one or more intermediaries, is
Controlled by, Controls, or is under common Control with the other Person.
(b) Any Person which: could have such enterprise's tax returns or
financial statements consolidated with the Borrower's; could be a member of the
same controlled group of corporations (within the meaning of Section 1563(a)(1),
(2) and (3) of the Internal Revenue Code of 1986, as amended from time to time)
of which the Borrower is a member; or controls or is controlled by the Borrower.
1
"Applicable Law": As to any Person: (i) All statutes, rules,
regulations, orders, or other requirements having the force of law and (ii) all
court orders and injunctions, arbitrator's decisions, and/or similar rulings, in
each instance ((i) and (ii)) of or by any federal, state, municipal, and other
governmental authority, or court, tribunal, panel, or other body which has or
claims jurisdiction over such Person, or any property of such Person, or of any
other Person for whose conduct such Person would be responsible.
"Average Excess Availability": Means, for the subject period, the
aggregate of the amount of Availability on each day in the period, divided by
the number of days in the subject period.
"Availability": The result of the following:
(i) The lesser of
(A) The Revolving Credit Ceiling.
or
(B) The Borrowing Base.
Minus
(ii) The aggregate unpaid balance of the Loan Account.
Minus
(iii) The aggregate undrawn Stated Amount of all then outstanding.
L/C's.
Minus
(iv) The aggregate of the Availability Reserves.
Minus
(v) The Minimum Reserve.
"Availability Reserves": Such reserves as the Lender from time to time
determines in the Lender's discretion as being appropriate to reflect the
impediments to the Lender's ability to realize upon the Collateral.
"Bank Product Agreements": Those certain cash management service
agreements entered into from time to time by the Borrower in connection with any
of the Bank Products.
"Bank Product Obligations": All obligations, liabilities, contingent
reimbursement obligations, fees, and expenses owing by the Borrower to the
Lender, ▇▇▇▇▇ Fargo Bank, N. A., or any of their Affiliates pursuant to or
evidenced by the Bank Product Agreements and irrespective of whether for the
payment of money, whether direct or indirect, absolute or contingent, due or to
become due, now existing or hereafter arising, and including all such amounts
that the Borrower is obligated to reimburse to the Lender as a result of the
Lender purchasing participations or executing indemnities or reimbursement
obligations with respect to the Bank Products provided to the Borrower pursuant
to the Bank Product Agreements.
"Bank Products": Any service or facility extended to the Borrower by
▇▇▇▇▇ Fargo Bank, N. A. or any of its Affiliates, including: (a) credit cards,
(b) credit card processing services, (c) debit cards, (d) purchase cards, (e)
ACH transactions, (f) cash management, including controlled disbursement,
accounts or services, or (g) hedge agreements.
2
"Bank Product Reserves": As of any date of determination, the amount of
reserves that the Lender has established (based upon ▇▇▇▇▇ Fargo Bank, N. A.'s
or its Affiliate's reasonable determination of the credit exposure in respect of
then extant Bank Products) for Bank Product Obligations then provided or
outstanding.
"Bankruptcy Code": Title 11, U.S.C., as amended from time to time.
"Blocked Account": Is defined in Section 7.1(a)(ii).
"Blocked Account Agreement": An Agreement, in form satisfactory to the
Lender, which Agreement recognizes the Lender's Collateral Interest in the
contents of the Blocked Account and agrees that such contents shall be
transferred only to the Concentration Account or as otherwise instructed by the
Lender.
"Borrower": Is defined in the Preamble.
"Borrowing Base": The aggregate of the following:
The face amount of Eligible Credit Card Receivables multiplied by 85%.
Plus
The Cost of Eligible Inventory (net of Inventory Reserves) multiplied by
85% of the NRLV.
Plus
One hundred percent (100%) of the stated amount of any Collateral L/C.
"Borrowing Base Certificate": Is defined in Section 5.4.
"Business Day": Any day other than (a) a Saturday or Sunday; (b) any day
on which banks in Boston, Massachusetts or in New York, New York, generally are
not open to the general public for the purpose of conducting commercial banking
business; or (c) a day on which the principal office of the Lender is not open
to the general public to conduct business.
"Business Plan": The Borrower's business plan, delivered to the Lender
prior to the Closing Date, and any revision, amendment, or update of such
business plan to which the Lender has provided its written sign-off.
"Capital Expenditures": The expenditure of funds or the incurrence of
liabilities which may be capitalized in accordance with GAAP.
"Capital Lease": Any lease which may be capitalized in accordance with
GAAP.
"Cash Dominion Event": The (i) failure of the Borrower to maintain
Average Excess Availability in an amount greater than $3,000,000.00 for any
period of Ten (10) consecutive days or (ii) failure of the Borrower to maintain
Availability of more than $1,500,000 on any day; provided, however, that such
Cash Dominion Event shall be deemed to have been discontinued if the Borrower
successfully maintains Availability in an amount greater than $3,000,000 each
day for a period of Thirty (30) consecutive days following the occurrence of
such Cash Dominion Event; provided further, that if a Cash Dominion Event shall
occur and be discontinued during a Fiscal Year and a second Cash Dominion Event
shall occur during the same Fiscal Year, then a Cash Dominion Event shall be
deemed continuing for the rest of such Fiscal Year even if the applicable cause
of the Cash Dominion Event no longer exists.
3
"Cash Equivalents": Any of the following:
(a) marketable direct obligations issued by, or unconditionally
guaranteed by, the United States or issued by any agency thereof and backed by
the full faith and credit of the United States, in each case maturing within 1
year from the date of acquisition thereof;
(b) marketable direct obligations issued by any state of the United
States or any political subdivision of any such state or any public
instrumentality thereof maturing within 1 year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either Standard & Poor's Rating Group ("S&P") or ▇▇▇▇▇'▇
Investors Service, Inc. ("Moody's");
(c) commercial paper maturing no more than 270 days from the date of
creation thereof and, at the time of acquisition, having a rating of at least
A-1 from S&P or at least P-1 from Moody's;
(d) certificates of deposit or bankers' acceptances maturing within
1 year from the date of acquisition thereof issued by any bank organized under
the laws of the United States or any state thereof having at the date of
acquisition thereof combined capital and surplus of not less than $250,000,000;
(e) Deposit Accounts maintained with (i) any bank that satisfies the
criteria described in clause (d) above, or (ii) any other bank organized under
the laws of the United States or any state thereof so long as the amount
maintained with any such other bank is less than or equal to $100,000 and is
insured by the Federal Deposit Insurance Corporation; and
(f) Investments in money market funds substantially all of whose
assets are invested in the types of assets described in clauses (a) through (e)
above.
"Change in Control": The occurrence of any of the following:
(a) The acquisition, by any group of persons (within the meaning of
the Exchange Act) or by any Person, other than by one or more ▇▇▇▇▇ Entities, of
beneficial ownership (within the meaning of Rule 13d-3 of the Exchange Act) of
35% or more of the issued and outstanding capital stock of the Borrower having
the right, under ordinary circumstances, to vote for the election of directors
of the Borrower, which Person or group of Persons thereby becomes the largest
shareholder of Borrower.
(b) More than half of the persons who were directors of the Borrower
on the first day of any period consisting of Twelve (12) consecutive calendar
months (the first of which Twelve (12) month periods commencing with the first
day of the month during which this Agreement was executed) (together with any
new directors whose nomination for election by the equity holders of the
Borrower, was approved by a vote of at least a majority of the directors then
still in office who were either directors at the beginning of such period or
whose election or nomination for election was previously so approved), cease,
for any reason other than death or disability, to be directors of the Borrower.
"Chattel Paper": Has the meaning given that term in the UCC.
"Closing Date": July __, 2005.
"Closing Fee": Is defined in Section 2.13.
"Collateral": Is defined in Section 8.1.
"Collateral Interest": Any interest in property to secure an obligation,
including, without limitation, a security interest, mortgage, and deed of trust.
"Collateral L/C": A standby letter of credit which the Lender has
determined is acceptable for borrowing, in form and substance acceptable to the
Lender and on terms and conditions acceptable to the Lender, all of the
foregoing as determined by the Lender in its sole and exclusive discretion,
which has been issued by an Issuer acceptable to the Lender, and which names the
Lender as sole beneficiary thereof.
4
"Concentration Account": Is defined in Section 7.1.
"Control": The possession, directly or indirectly, of the power (a) to
vote 50% or more of the securities having ordinary voting power for the election
of directors of a Person, or (b) to direct or cause the direction of the
management or policies of a Person, whether through the ability to exercise
voting power, by contract or otherwise. The terms "Controlling" and "Controlled"
have meanings correlative thereto.
"Cost": The lower of (a) or (b), where:
(a) is the calculated cost of purchases, based upon the Borrower's
accounting practices, known to the Lender, which practices are in effect on the
date on which this Agreement was executed as such calculated cost is determined
from: invoices received by the Borrower; the Borrower's purchase journal; or the
Borrower's stock ledger.
(b) is the cost equivalent of the lowest ticketed or promoted price
at which the subject Inventory is offered to the public, after all ▇▇▇▇-▇▇▇▇▇
(whether or not such price is then reflected on the Borrower's accounting
system), which cost equivalent is determined in accordance with the retail
method of accounting, reflecting the Borrower's historic business practices.
("Cost" does not include inventory capitalization costs or other
non-purchase price charges (such as freight) used in the Borrower's calculation
of cost of goods sold).
"Costs of Collection": Includes, without limitation, all attorneys'
reasonable fees and reasonable out-of-pocket expenses incurred by the Lender's
attorneys, and all reasonable out-of-pocket costs incurred by the Lender in the
administration of the Liabilities and/or the Loan Documents, including, without
limitation, reasonable costs and expenses associated with travel on behalf of
the Lender, where such costs and expenses are directly or indirectly related to
or in respect of the Lender's: administration and management of the Liabilities;
negotiation, documentation, and amendment of any Loan Document; or efforts to
preserve, protect, collect, or enforce the Collateral, the Liabilities, and/or
the Lender's Rights and Remedies and/or any of the rights and remedies of the
Lender against or in respect of any guarantor or other person liable in respect
of the Liabilities (whether or not suit is instituted in connection with such
efforts). The Costs of Collection are Liabilities, and at the Lender's option
may bear interest at the then effective Prime Margin Rate.
"Customer Credit Liability": Gift certificates, gift cards, customer
deposits, merchandise credits, layaway obligations, frequent shopping programs,
and similar liabilities of the Borrower to its retail customers and prospective
customers.
"DDA": Any checking or other demand daily depository account maintained
by the Borrower other than any Exempt DDA.
"Deposit Account": Has the meaning given that term in the UCC and also
includes all demand, time, savings, passbook, or similar accounts maintained
with a bank.
"Documents": Has the meaning given that term in the UCC.
"Documents of Title": Has the meaning given that term in the UCC.
"Eligible Credit Card Receivables": Under Three (3) business day
accounts due on a non-recourse basis from major credit card processors (which,
if due on account of a private label credit card program, are deemed in the
discretion of the Lender to be eligible).
5
"Eligible Inventory": All of the following: Such of the Borrower's
Inventory, at such locations, and of such types, character, qualities and
quantities, as the Lender, in its reasonable discretion, exercised in good faith
and in a manner and methodology consistent with the Lender's general operational
practices, from time to time determines to be acceptable for borrowing, as to
which Inventory, the Lender has a perfected security interest which is prior and
superior to all security interests, claims, and Encumbrances (other than
Permitted Encumbrances).
"Employee Benefit Plan": As defined in ERISA.
"Encumbrance": Each of the following:
(a) A Collateral Interest or agreement to create or grant a
Collateral Interest; the interest of a lessor under a Capital Lease; conditional
sale or other title retention agreement; sale of accounts receivable or chattel
paper; or other arrangement pursuant to which any Person is entitled to any
preference or priority with respect to the property or assets of another Person
or the income or profits of such other Person; each of the foregoing whether
consensual or non-consensual and whether arising by way of agreement, operation
of law, legal process or otherwise.
(b) The filing of any financing statement under the UCC or
comparable law of any jurisdiction.
"End Date": The date upon which all of the following conditions are met:
(a) all payment Liabilities described in Section 13.2(a) have been paid in full
and (b) all obligations of the Lender to make loans and advances and to provide
other financial accommodations to the Borrower hereunder shall have been
irrevocably terminated and (c) those arrangements concerning L/C's, Bank
Products, and Bank Product Obligations which are described in Section 13.2(b)
have been made.
"Environmental Laws": All of the following:
(a) Applicable Law which regulates or imposes any standard of
conduct or liability on account of or in respect to environmental protection
matters, including, without limitation, Hazardous Materials, as are now or
hereafter in effect.
(b) The common law relating to damage to Persons or property from
Hazardous Materials.
"Equipment": Includes, without limitation, "equipment" as defined in the
UCC, and also all furniture, store fixtures, motor vehicles, rolling stock,
machinery, office equipment, plant equipment, tools, dies, molds, and other
goods, property, and assets which are used and/or were purchased for use in the
operation or furtherance of the Borrower's business, and any and all accessions
or additions thereto, and substitutions therefor.
"ERISA": The Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate": Any Person which is under common control with the
Borrower within the meaning of Section 4001 of ERISA or is part of a group which
includes the Borrower and which would be treated as a single employer under
Section 414 of the Internal Revenue Code of 1986, as amended.
"Events of Default": Is defined in Article 10. An "Event of Default"
shall be deemed to have occurred and to be continuing unless and until that
Event of Default has been duly waived by the Lender.
"Exchange Act ": Means, the Securities Exchange Act of 1934, as amended.
"Fiscal": When followed by "month" or "quarter," the relevant fiscal
period based on the Borrower's fiscal year and accounting conventions (e.g.
reference to "Fiscal 2005" is to the fiscal month of the Borrower's fiscal year
ending in 2005). When followed by reference to a specific year, the fiscal year
which ends in a month of the year to which reference is being made (e.g. if the
Borrower's fiscal year ends in January 2005, reference to that year would be to
the Borrower's "Fiscal 2005").
6
"Fixtures": Has the meaning given that term in the UCC.
"GAAP": Principles which are consistent with those promulgated or
adopted by the Financial Accounting Standards Board and its predecessors (or
successors) in effect and applicable to that accounting period in respect of
which reference to GAAP is being made.
"General Intangibles": Includes, without limitation, "general
intangibles" as defined in the UCC; and also all: rights to payment for credit
extended; deposits; amounts due to the Borrower; credit memoranda in favor of
the Borrower; warranty claims; tax refunds and abatements; insurance refunds and
premium rebates; all means and vehicles of investment or hedging, including,
without limitation, options, warrants, and futures contracts; records; customer
lists; telephone numbers; goodwill; causes of action; judgments; payments under
any settlement or other agreement; royalties; license and/or franchise fees;
licenses; franchises; license agreements, including all rights of the Borrower
to enforce same; permits, certificates of convenience and necessity, and similar
rights granted by any governmental authority; patents, patent applications,
patents pending, and other intellectual property; internet addresses and domain
names; developmental ideas and concepts; proprietary processes; blueprints,
drawings, designs, diagrams, plans, reports, and charts; catalogs; manuals;
technical data; computer software programs (including the source and object
codes therefor), computer records, computer software, rights of access to
computer record service bureaus, service bureau computer contracts, and computer
data; tapes, disks, semi-conductor chips and printouts; trade secret rights,
copyrights, mask work rights and interests, and derivative works and interests;
user, technical reference, and other manuals and materials; trade names,
trademarks, service marks, and all goodwill relating thereto; applications for
registration of the foregoing; and all other general intangible property of the
Borrower in the nature of intellectual property, proposals, cost estimates, and
reproductions on paper, or otherwise, of any and all concepts or ideas, and any
matter related to, or connected with, the design, development, manufacture,
sale, marketing, leasing, or use of any or all property produced, sold, or
leased, by the Borrower or credit extended or services performed, by the
Borrower, whether intended for an individual customer or the general business of
the Borrower, or used or useful in connection with research by the Borrower.
"Goods": Has the meaning given that term in the UCC, and also includes
all things movable when a security interest therein attaches and also all
computer programs embedded in goods and any supporting information provided in
connection with a transaction relating to the program if (i) the program is
associated with the goods in such manner that it customarily is considered part
of the goods or (ii) by becoming the owner of the goods, a Person acquires a
right to use the program in connection with the goods.
"Hazardous Materials": Any (a) substance which is defined or regulated
as a hazardous material in or under any Environmental Law and (b) oil in any
physical state.
"Indebtedness": All indebtedness and obligations of or assumed by any
Person on account of or in respect to any of the following:
(a) In respect of money borrowed (including any indebtedness which
is non-recourse to the credit of such Person but which is secured by an
Encumbrance on any asset of such Person) whether or not evidenced by a
promissory note, bond, debenture or other written obligation to pay money.
(b) In connection with any letter of credit or acceptance
transaction (including, without limitation, the face amount of all letters of
credit and acceptances issued for the account of such Person or reimbursement on
account of which such Person would be obligated).
(c) In connection with the sale or discount of accounts receivable
or chattel paper of such Person.
7
(d) On account of deposits or advances, other than gift cards or
store credits.
(e) As lessee under Capital Leases.
(f) In connection with any sale and leaseback transaction.
"Indebtedness" also includes:
(x) Indebtedness of others secured by an Encumbrance on any asset of
such Person, whether or not such Indebtedness is assumed by such Person.
(y) Any guaranty, endorsement, suretyship or other undertaking
pursuant to which that Person may be liable on account of any obligation of any
third party (including, without limitation, the posting of any bond to secure a
Person's performance under any agreement).
(z) The Indebtedness of a partnership or joint venture for which
such Person is liable as a general partner or joint venturer.
(For the avoidance of doubt, "Indebtedness" shall not include Customer
Credit Liability)
"In Default": Any occurrence, circumstance, or state of facts with
respect to the Borrower which (a) is an Event of Default; or (b) would become an
Event of Default if any requisite notice were given and/or any requisite period
of time were to run and such occurrence, circumstance, or state of facts were
not absolutely cured within any applicable grace period, provided that the
Borrower shall no longer be deemed "In Default" after such occurrence,
circumstance, or state of facts has been cured.
"Indemnified Person": Is defined in Section 14.14.
"Insolvency Proceeding": Any proceeding commenced by or against any
Person under any provision of the Bankruptcy Code or under any other state or
federal bankruptcy or insolvency law, assignments for the benefit of creditors,
formal or informal moratoria, compositions, extensions generally with creditors,
or proceedings seeking reorganization, arrangement, or other similar relief.
"Instruments": Has the meaning given that term in the UCC.
"Interest Payment Date": With reference to:
Each Libor Loan: The last day of the Interest Period relating
thereto; the Termination Date; and the End Date.
Each Prime Margin Loan: The first day of each month; the
Termination Date; and the End Date.
"Interest Period": The following:
(a) With respect to each Libor Loan: Subject to Subsection (c),
below, the period commencing on the date of the making or continuation of, or
conversion to, the subject Libor Loan and ending one, two, or three months
thereafter, as the Borrower may elect by notice (pursuant to Section 2.6) to the
Lender.
(b) With respect to each Prime Margin Loan: Subject to Subsection
(c), below, the period commencing on the date of the making or continuation of
or conversion to such Prime Margin Loan and ending on that date (i) as of which
the subject Prime Margin Loan is converted to a Libor Loan, as the Borrower may
elect by notice (pursuant to Section 2.6) to the Lender, or (ii) on which the
subject Prime Margin Loan is paid by the Borrower.
8
(c) The setting of Interest Periods is in all instances subject to
the following:
(i) Any Interest Period for a Prime Margin Loan which would
otherwise end on a day which is not a Business Day shall be extended to
the next succeeding Business Day.
(ii) Any Interest Period for a Libor Loan which would
otherwise end on a day that is not a Business Day shall be extended to
the next succeeding Business Day, unless that succeeding Business Day is
in the next calendar month, in which event such Interest Period shall
end on the last Business Day of the month during which the Interest
Period ends.
(iii) Subject to Subsection (iv), below, any Interest Period
applicable to a Libor Loan, which Interest Period begins on a day for
which there is no numerically corresponding day in the calendar month
during which such Interest Period ends, shall end on the last Business
Day of the month during which that Interest Period ends.
(iv) Any Interest Period which would otherwise end after the
Termination Date shall end on the Termination Date.
(v) The number of Interest Periods in effect at any one time
is subject to Section 2.12(e).
"Inventory": Includes, without limitation, "inventory" as defined in the
UCC and also all: (a) Goods which are held by a Person for sale or to be
furnished under a contract of service; are furnished by a Person under a
contract of service; or consist of raw materials, work in process, or materials
used or consumed in a business; (b) Goods of said description in transit; (c)
Goods of said description which are returned, repossessed and rejected; (d)
packaging, advertising, and shipping materials related to any of the foregoing;
(e) the Borrower's rights, if any, in and to all names, marks, and General
Intangibles affixed or to be affixed or associated thereto; and (f) Documents
and Documents of Title which represent any of the foregoing.
"Inventory Reserves": Such Reserves as may be established from time to
time by the Lender in the Lender's reasonable discretion with respect to the
determination of the saleability, at retail, of the Eligible Inventory or which
reflect such other factors as affect the market value of the Eligible Inventory.
"Investment": With respect to any Person (a) the direct or indirect
purchase or acquisition of any beneficial interest in, any share of capital
stock of, evidence of Indebtedness of or other security issued by any other
Person, (b) any loan, advance or extension of credit to, or contribution to the
capital of, any other Person, excluding advances to employees in the ordinary
course of business for business expenses, (c) the guaranty of the obligations of
any other Person, or (d) any commitment or option to take any of the actions
described in clauses (a), (b), or (c) above.
"Investment Property": Has the meaning given that term in the UCC.
"Issuer": The issuer of any L/C.
"L/C": Any letter of credit, the issuance of which is procured by the
Lender for the account of the Borrower and any acceptance made on account of
such letter of credit.
"L/C Landing Costs": To the extent not included in the Stated Amount of
an L/C, customs, duty, freight, and other out-of-pocket costs and expenses which
will be expended to "land" the Inventory, the purchase of which is supported by
such L/C.
"Lease": Any lease or other agreement, no matter how styled or
structured, pursuant to which the Borrower is entitled to the use or occupancy
of any space.
9
"Leasehold Interest": Any interest of the Borrower as lessee under any
Lease.
"Lender": Is referred to in the Preamble.
"Lender's Rights and Remedies": Is defined in Section 11.7.
"Letter-of-Credit Right": Has the meaning given that term in UCC and
also refers to any right to payment or performance under an L/C, whether or not
the beneficiary has demanded or is at the time entitled to demand payment or
performance.
"Liabilities": Includes, without limitation, the following:
(a) All and each of the following, whether now existing or hereafter
arising under this Agreement or under any of the other Loan Documents:
(i) Any and all direct and indirect liabilities, debts, and
obligations of the Borrower to the Lender, each of every kind, nature,
and description.
(ii) Each obligation to repay any loan, advance,
indebtedness, note, obligation, overdraft, or amount now or hereafter
owing by the Borrower to the Lender (including all future advances
whether or not made pursuant to a commitment by the Lender), whether or
not any of such are liquidated, unliquidated, primary, secondary,
secured, unsecured, direct, indirect, absolute, contingent, or of any
other type, nature, or description, or by reason of any cause of action
which the Lender may hold against the Borrower.
(iii) All notes and other obligations of the Borrower now or
hereafter assigned to or held by the Lender, each of every kind, nature,
and description.
(iv) All interest, fees, and charges and other amounts which
may be charged by the Lender to the Borrower and/or which may be due
from the Borrower to the Lender from time to time.
(v) All Bank Product Obligations.
(vi) All costs and expenses incurred or paid by the Lender in
respect of any agreement between the Borrower and the Lender or
instrument furnished by the Borrower to the Lender (including, without
limitation, Costs of Collection, attorneys' reasonable fees, and all
court and litigation costs and expenses).
(vii) Any and all covenants of the Borrower to or with the
Lender and any and all obligations of the Borrower to act or to refrain
from acting in accordance with any agreement between the Borrower and
the Lender or instrument furnished by the Borrower to the Lender.
(viii) Each of the foregoing as if each reference to the
"Lender" were to each Affiliate of the Lender.
(b) Any and all direct or indirect liabilities, debts, and
obligations of the Borrower to the Lender or any Affiliate of the Lender, each
of every kind, nature, and description owing on account of any service or
accommodation provided to, or for the account of the Borrower pursuant to this
or any other Loan Document, including cash management services and the issuances
of L/C's and, for the avoidance of doubt, without double-counting, including
accounts payable of the Borrower to any third party whose Accounts are factored
to the Lender or an Affiliate of the Lender.
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"Libor Business Day": Any day which is both a Business Day and a day on
which the principal interbank market for Libor deposits in London in which ▇▇▇▇▇
Fargo Bank, N. A. participates is open for dealings in United States Dollar
deposits.
"Libor Loan": Any Revolving Credit Loan which bears interest at a Libor
Rate.
"Libor Margin": The following applicable percentage, based upon the
corresponding Average Excess Availability:
LEVEL LIBOR MARGIN AVERAGE EXCESS AVAILABILITY
----- ------------ ---------------------------
I 2.50% Greater than $3,000,000
II 2.75% $3,000,000 or less
The Margin on the Closing Date shall be established at Level II and
adjusted at the end of each fiscal quarter thereafter based upon the amount of
Average Excess Availability during the preceding quarter.
"Libor Offer Rate": That rate of interest (rounded upwards, if
necessary, to the next 1/100 of 1%) determined by the Lender to be the highest
prevailing rate per annum at which deposits on U.S. Dollars are offered to ▇▇▇▇▇
Fargo Bank, N. A., by first-class banks in the London interbank market in which
▇▇▇▇▇ Fargo Bank, N. A. participates at or about 10:00AM (Boston Time) Two (2)
Libor Business Days before the first day of the Interest Period for the subject
Libor Loan, for a deposit approximately in the amount of the subject loan for a
period of time approximately equal to such Interest Period.
"Libor Rate": That per annum rate which is the aggregate of the Libor
Offer Rate plus the Libor Margin except that, in the event that the Lender
determines that the Lender may be subject to the Reserve Percentage, the "Libor
Rate" shall mean, with respect to any Libor Loans then outstanding (from the
date on which that Reserve Percentage first became applicable to such loans),
and with respect to all Libor Loans thereafter made, an interest rate per annum
equal the sum of (a) plus (b), where:
(a) is the decimal equivalent of the following fraction:
Libor Offer Rate
----------------------------------------------------------------
1 minus the Reserve Percentage
(b) is the applicable Libor Margin.
"Liquidation": The exercise, by the Lender, of those rights accorded to
the Lender under the Loan Documents as a creditor of the Borrower following and
on account of the occurrence of an Event of Default looking towards the
realization on the Collateral. Derivations of the word "Liquidation" (such as
"Liquidate") are used with like meaning in this Agreement.
"Loan Account": Is defined in Section 2.9(a).
"Loan Documents": This Agreement and each other instrument or document
from time to time executed and/or delivered in connection with the arrangements
contemplated hereby or in connection with any transaction with the Lender or any
Affiliate of the Lender, including, without limitation, any transaction which
arises out of any cash management, depository, investment, letter of credit,
interest rate protection, or equipment leasing services provided by the Lender
or any Affiliate of the Lender, including any Bank Product Agreements, as each
may be amended from time to time.
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"Material Accounting Change": Any change in GAAP applicable to
accounting periods subsequent to the Borrower's fiscal year most recently
completed prior to the execution of this Agreement, which change has a material
effect on the Borrower's financial condition or operating results, as reflected
on financial statements and reports prepared by or for the Borrower, when
compared with such condition or results as if such change had not taken place.
"Material Adverse Change": Any event, fact, circumstance, change in, or
effect, on the business of the Borrower, when taken as a whole, which,
individually or in the aggregate or on a cumulative basis with any other
circumstance, changes in, or effects on, the Borrower or the Collateral,
constitutes any of the following:
(a) A material adverse change in the business, operations, results
of operations, assets, liabilities, or condition (financial or otherwise) of the
Borrower (when taken as a whole).
(b) The material impairment of the Borrower's ability to perform its
obligations under the Loan Documents or of the Lender's ability to enforce the
Liabilities or to realize on any of the Collateral.
(c) A material adverse effect on the value of the Collateral or the
amount which the Lender likely would receive (after giving consideration to
delays in payment and costs of enforcement).
(d) A material impairment to the priority of the Lender's Collateral
Interests in the Collateral.
"Maturity Date": July 26, 2008.
"Minimum Reserve": An amount equal to $850,000.00.
"Non-Assignable Contractual Interest": Leases, licenses and other
agreements which by their terms prohibit the Borrower from transferring,
assigning or otherwise encumbering its rights thereunder.
"NRLV": The net recovery value (liquidation value) of Inventory
expressed as a percentage of the cost of such Inventory, as determined by the
Lender in its discretion based upon the most recent Inventory appraisal
available to the Lender conducted by an appraiser reasonably acceptable to the
Lender.
"Operating Account": Is defined in Section 7.1.
"OverLoan": A loan, advance, or providing of credit support (such as
the issuance of any L/C) to the extent that, immediately after its having been
made, Availability is less than zero.
"Payment Intangible": As defined in the UCC and also any general
intangible under which the Account Debtor's primary obligation is a monetary
obligation.
"Permitted Affiliate Transactions": (a) the incurrence of any
Indebtedness to the ▇▇▇▇▇ Entities, so long as such Indebtedness is subject to
the terms and conditions of the Subordination Agreement, (b) the sale of capital
stock of the Borrower to an Affiliate, and (c) the grant of options or warrants
to an Affiliate.
"Permitted Disposition": (a) bulk sales of Inventory for fair
consideration, which Inventory has a value at the time of sale below the
Borrower's original cost, and (b) other bulk sales of Inventory as do not exceed
one hundred thousand dollars ($100,000) in any Twelve (12) month period.
"Permitted Encumbrances": The following:
(a) Encumbrances in favor of the Lender;
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(b) Encumbrances securing taxes, assessments and other governmental
charges or levies or the claims of materialmen, suppliers, mechanics, carriers,
warehousemen or landlords for labor, materials, supplies or rentals incurred in
the ordinary course of business;
(c) Encumbrances arising out of or resulting from any judgment or
award that do not constitute an Event of Default under Section 10.9;
(d) purchase money security interests in Equipment to secure
Indebtedness otherwise permitted hereby;
(e) Encumbrances on amounts deposited in connection with obtaining
worker's compensation or other unemployment insurance;
(f) Encumbrances on amounts deposited in connection with the making
or entering into of bids, tenders, or leases in the ordinary course of business
and not in connection with the borrowing of money;
(g) Encumbrances on amounts deposited as security for surety or
appeal bonds in connection with obtaining such bonds in the ordinary course of
business;
(h) with respect to any Leasehold Interest of the Borrower in real
property, easements, rights of way, and zoning restrictions that do not
materially interfere with or impair the use or operation thereof;
(i) any interest or title of a licensor, lessor or sublicensor or
sublessor under any Lease or license permitted by this Agreement;
(k) Encumbrances not attaching to any Collateral; and
(m) Encumbrances listed on EXHIBIT 4.6.
"Permitted Indebtedness": The following:
(a) any Indebtedness on account of the Revolving Credit;
(b) the Indebtedness (if any) listed on EXHIBIT 4.7, annexed hereto,
(c) Indebtedness on account of Equipment acquired in compliance with
the requirements of Section 4.6(c), the incurrence of which would not otherwise
be prohibited by this Agreement,
(d) trade Indebtedness incurred in the ordinary course of business,
(e) any and all Indebtedness owing to a ▇▇▇▇▇ Entity, so long as
such Indebtedness is subject to the terms and conditions of the Subordination
Agreement; and
(f) Indebtedness in respect of workers' compensation claims,
self-insurance obligations, bankers' acceptances, bids, performance, completion,
appeal and surety bonds or guarantees, and similar types of obligations in the
ordinary course of business.
"Permitted Investments": The following:
(a) Investments in cash and Cash Equivalents;
(b) Investments in negotiable instruments for collection;
13
(c) advances made in connection with purchases of goods or services
in the ordinary course of business;
(d) Investments received in settlement of amounts due to the
Borrower effected in the ordinary course of business or owing to the Borrower as
a result of Insolvency Proceedings involving an Account Debtor or upon the
foreclosure or enforcement of any Encumbrance in favor of the Borrower; and
(e) Permitted Affiliate Transactions.
"Person": Any natural person, and any corporation, limited liability
company, trust, partnership, joint venture, or other enterprise or entity.
"Prime": The Prime Rate announced from time to time by ▇▇▇▇▇ Fargo Bank,
N. A. (or any successor in interest to ▇▇▇▇▇ Fargo Bank, N. A.). In the event
that said bank (or any such successor) ceases to announce such a rate, "Prime"
shall refer to that rate or index announced or published from time to time as
the Lender, in good faith, designates as the functional equivalent to said Prime
Rate. Any change in "Prime" shall be effective, for purposes of the calculation
of interest due hereunder, when such change is made effective generally by the
bank on whose rate or index "Prime" is being set.
"Prime Margin Loan": Each Revolving Credit Loan while bearing interest
at the Prime Margin Rate.
"Prime Margin Rate": The aggregate of Prime plus the following
applicable percentage, based upon the corresponding Average Excess Availability:
LEVEL PRIME MARGIN AVERAGE EXCESS AVAILABILITY
----- ------------ ---------------------------
I 0.50% Greater than $3,000,000
II 0.75% $3,000,000 or less
The Margin on the Closing Date shall be established at Level II and
adjusted at the end of each fiscal quarter thereafter based upon the amount of
Average Excess Availability.
"Proceeds": Includes, without limitation, "Proceeds" as defined in the
UCC and the proceeds from the sale or other disposition of each type of property
described in Section 8.1.
"Receipts": All cash, cash equivalents, money, checks, credit card
slips, receipts and other Proceeds from any sale of the Collateral.
"Receivables Collateral": That portion of the Collateral which consists
of Accounts, Accounts Receivable, General Intangibles, Chattel Paper,
Instruments, Documents of Title, Documents, Investment Property, Payment
Intangibles, Letter-of-Credit Rights, Health-Care-Insurance-Receivables,
bankers' acceptances, and all other rights to payment.
"Requirements of Law": As to any Person:
(a) Applicable Law.
(b) That Person's organizational documents.
(c) That Person's by-laws and/or other instruments which deal with
corporate or similar governance, as applicable.
14
"Reserves": Availability Reserves and Inventory Reserves.
"Reserve Percentage": The decimal equivalent of that rate applicable to
the Lender under regulations issued from time to time by the Board of Governors
of the Federal Reserve System for determining the maximum reserve requirement of
the Lender with respect to "Eurocurrency liabilities" as defined in such
regulations. The Reserve Percentage applicable to a particular Eurodollar Loan
shall be based upon that in effect during the subject Interest Period, with
changes in the Reserve Percentage which take effect during such Interest Period
to take effect (and to consequently change any interest rate determined with
reference to the Reserve Percentage) if and when such change is applicable to
such loans.
"Revolving Credit": Is defined in Section 2.1.
"Revolving Credit Ceiling": $7,500,000.00 as of the Closing Date; which
may be increased to $12,500,000.00 in accordance with Section 2.2.
"Revolving Credit Early Termination Fee": Is defined in Section 2.15.
"Revolving Credit Loans": Loans made under the Revolving Credit, except
that where the term "Revolving Credit Loan" is used with reference to available
interest rates applicable to the loans under the Revolving Credit, it refers to
so much of the unpaid principal balance of the Loan Account as bears the same
rate of interest for the same Interest Period. (See Section 2.12(d)).
"Revolving Credit Note": Is defined in Section 2.10.
"Stated Amount": The maximum amount for which an L/C may be honored.
"▇▇▇▇▇ Entities": QIH Management LLC, QIH Management Investor, L.P.,
Quantum Industrial Partners LDC, SFM Domestic Investments LLC, ▇▇▇▇▇ Fund
Management LLC, ▇▇▇▇▇ Private Equity Partners, LLC, Mr. ▇▇▇▇▇▇ ▇▇▇▇▇ and each of
their respective Affiliates.
"Subordination Agreement": That certain Intercreditor and Subordination
Agreement, dated as of the Closing Date, between Quantum Industrial Partners
LDC, SFM Domestic Investments LLC, and the Lender.
"Supporting Obligation": Has the meaning given that term in the UCC and
also refers to a Letter-of-Credit Right or secondary obligation which supports
the payment or performance of an Account, Chattel Paper, a Document, a General
Intangible, an Instrument, or Investment Property.
"Temporary Location": A retail store opened for a period not to exceed
Four (4) months or a location at which a sample sale is held for a period not to
exceed Two (2) weeks.
"Termination Date": The earliest of (a) the Maturity Date; or (b) the
occurrence of any event described in Section 10.11; or (c) the Lender's notice
to the Borrower setting the Termination Date on account of the occurrence of any
Event of Default other than as described in Section 10.11 or (d) the date which
is ten (10) days from the date on which Lender receives written notice from the
Borrower of its desire to terminate this Agreement.
"Transfer": Wire transfer pursuant to the wire transfer system
maintained by the Board of Governors of the Federal Reserve Board, or as
otherwise may be agreed to from time to time by the Lender. Wire instructions
may be changed in the same manner that Notice Addresses may be changed
(Section 12.1), except that no change of the wire instructions for Transfers to
the Lender shall be effective without the consent of the Lender.
"UCC": The Uniform Commercial Code as in effect from time to time in
Massachusetts.
15
"Unused Line Fee": Is defined in Section 2.14.
ARTICLE 2 - THE REVOLVING CREDIT:
2.1. ESTABLISHMENT OF REVOLVING CREDIT.
(a) The Lender hereby establishes a revolving line of credit
(the "Revolving Credit") in the Borrower's favor pursuant to which the Lender,
subject to, and in accordance with, this Agreement, shall make loans and
advances and otherwise provide financial accommodations to and for the account
of the Borrower as provided herein.
(b) Loans, advances, and financial accommodations under the
Revolving Credit shall be made with reference to the Borrowing Base and shall be
subject to Availability. The Borrowing Base and Availability shall be determined
by the Lender by reference to Borrowing Base Certificates furnished as provided
in Section 5.4, and shall be subject to the following:
(i) Such determination shall take into account such
Reserves as the Lender may determine as being applicable thereto. As of
the Closing Date, no Reserves have been implemented by the Lender.
Subsequent to the Closing Date, the Lender may, in its discretion,
implement Reserves to address those material matters as the Lender
reasonably may determine, in its discretion.
(ii) The Cost of Eligible Inventory will be
determined in a manner consistent with current tracking practices, based
on the Borrower's stock ledger inventory.
(c) The proceeds of borrowings under the Revolving Credit
shall be used (i) for the posting of back-to-back L/C's with respect to letters
of credit which remain outstanding under the credit facility with ▇▇▇▇▇▇▇▇▇ &
▇▇▇▇▇▇▇▇▇, Inc. after the Closing Date, and (ii) for the Borrower's working
capital and Capital Expenditures, all solely to the extent permitted by this
Agreement. No proceeds of a borrowing under the Revolving Credit may be used,
nor shall any be requested, with a view towards the accumulation of any general
fund or funded reserve of the Borrower other than in the ordinary course of the
Borrower's business and consistent with the provisions of this Agreement.
2.2. INCREASE IN REVOLVING CREDIT CEILING.
(a) So long as the Borrower is not In Default and no Event
of Default exists or would arise therefrom, the Borrower shall have the right at
any time from and after the Closing Date through December 31, 2007, on one
occasion, to request an increase to the Revolving Credit Ceiling to an amount
not to exceed $12,500,000.
(b) No increase to the Revolving Credit Ceiling shall become
effective unless and until each of the following conditions have been satisfied:
(i) The Borrower shall deliver to the Lender an
officer's certificate, in form and substance reasonably satisfactory to
the Lender, confirming the Borrower's authorization to obtain such
increase;
(ii) A new Note will be issued, to be in conformity
with requirements of Section 2.10 (with appropriate modification) to the
extent necessary to reflect the new Revolving Credit Ceiling;
(iii) The Borrower shall have delivered such other
instruments, documents and agreements as the Lender may reasonably have
requested; and
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(iv) The Borrower shall have paid to the Lender a
commitment increase fee in an amount equal to the product of (x) the
amount of the increase, times (y) 0.375%.
2.3. ADVANCES IN EXCESS OF BORROWING BASE (OVERLOANS)
The Lender has no obligation to the Borrower to make any loan or
advance, or otherwise to provide any credit to or for the benefit of the
Borrower where the result of such loan, advance, or credit is an OverLoan.
2.4. RISKS OF VALUE OF COLLATERAL.
The Lender's reference to a given asset in connection with the making of
loans, credits, and advances and the providing of financial accommodations under
the Revolving Credit and/or the monitoring of compliance with the provisions
hereof shall not be deemed a determination by the Lender relative to the actual
value of the asset in question. All risks concerning the value of the Collateral
are and remain upon the Borrower. All Collateral secures the prompt, punctual,
and faithful performance of the Liabilities whether or not relied upon by the
Lender in connection with the making of loans, credits, and advances and the
providing of financial accommodations under the Revolving Credit.
2.5. COMMITMENT TO MAKE REVOLVING CREDIT LOANS AND SUPPORT LETTERS OF
CREDIT.
Subject to the provisions of this Agreement, the Lender shall make a
loan or advance under the Revolving Credit and the Lender shall endeavor to have
an L/C issued for the account of the Borrower, in each instance if duly and
timely requested by the Borrower as provided herein provided that:
(a) No OverLoan is then outstanding and none will result
therefrom.
(b) Borrower is not then In Default and will not thereby
become In Default.
2.6. REVOLVING CREDIT LOAN REQUESTS.
(a) Requests for loans and advances under the Revolving
Credit or for the continuance or conversion of an interest rate applicable to a
Revolving Credit Loan may be requested by the Borrower in such manner as may
from time to time be acceptable to the Lender.
(b) Subject to the provisions of this Agreement, including,
without limitation, the definition of Borrowing Base, the Borrower may request a
Revolving Credit Loan and elect an interest rate and Interest Period to be
applicable to that Revolving Credit Loan by giving notice to the Lender by no
later than the following:
(i) If such Revolving Credit Loan is to be, or is to
be converted to, a Prime Margin Loan: By 11:30AM on the Business Day on
which the subject Revolving Credit Loan is to be made or is to be so
converted. Prime Margin Loans requested by the Borrower, other than
those resulting from the conversion of a Libor Loan, shall not be less
than $10,000.00.
(ii) If such Revolving Credit Loan is to be, or is to
be continued as, or converted to, a Libor Loan: By 1:00PM Three (3)
Libor Business Days before the commencement of any new Interest Period
or the end of the then applicable Interest Period. Libor Loans and
conversions to Libor Loans shall each be not less than $250,000.00 and
in increments of $50,000.00 in excess of such minimum.
(iii) Any Libor Loan which matures while the Borrower
is In Default shall be converted, at the option of the Lender, to a
Prime Margin Loan notwithstanding any notice from the Borrower that such
Loan is to be continued as a Libor Loan.
17
(c) Any request for a Revolving Credit Loan or for the
continuance or conversion of an interest rate applicable to a Revolving Credit
Loan which is made after the applicable deadline therefor, as set forth above,
shall be deemed to have been made at the opening of business on the then next
Business Day or Libor Business Day, as applicable.
(d) The Borrower may request that the Lender cause the
issuance by the Issuer of L/C's for the account of the Borrower as provided in
Section 2.17.
(e) The Lender may rely on any request for a loan or
advance, or other financial accommodation under the Revolving Credit which the
Lender, in good faith, believes to have been made by a Person duly authorized to
act on behalf of the Borrower and may decline to make any such requested loan or
advance, or issuance, or to provide any such financial accommodation pending the
Lender's being furnished with such documentation concerning that Person's
authority to act as may be satisfactory to the Lender.
(f) A request by the Borrower for a loan or advance, or
other financial accommodation under the Revolving Credit shall be irrevocable
and shall constitute certification by the Borrower that as of the date of such
request, each of the following is true and correct:
(i) There has been no Material Adverse Change in the
Borrower's financial condition from the most recent financial
information furnished to the Lender pursuant to this Agreement.
(ii) To the extent not therefore paid or set aside,
all or a portion of any loan or advance so requested will be set aside
by the Borrower to cover the Borrower's obligations for sales tax on
account of sales since the then most recent borrowing pursuant to the
Revolving Credit.
(iii) Each representation which is made herein or in
any of the Loan Documents is then true and complete in all material
respects as of and as if made on the date of such request.
(iv) That the Borrower is not In Default, or if the
Borrower is In Default, it shall be accompanied by a written Certificate
of the Borrower's President or its Chief Financial Officer describing
(in reasonable detail) the facts and circumstances thereof and the steps
(if any) being taken to remedy such condition (but such Certificate
shall not relieve the Borrower from being In Default).
2.7. SUSPENSION OF REVOLVING CREDIT.
If, at any time or from time to time, the Borrower is In Default or
there has occurred a Material Adverse Change:
(a) The Lender may suspend the Revolving Credit immediately,
in which event, the Lender shall not be obligated, during such suspension, to
make any loans or advance, or to provide any financial accommodation hereunder
or to seek the issuance of any L/C.
(b) The Lender may suspend the right of the Borrower to
request any Libor Loan or to convert any Prime Margin Loan to a Libor Loan.
2.8. MAKING OF REVOLVING CREDIT LOANS.
(a) A loan or advance under the Revolving Credit shall be
made by the transfer of the proceeds of such loan or advance to the Operating
Account or as otherwise instructed by the Borrower.
(b) A loan or advance shall be deemed to have been made
under the Revolving Credit (and the Borrower shall be indebted to the Lender for
the amount thereof immediately) at the following:
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(i) The Lender's initiation of the transfer of the
proceeds of such loan or advance in accordance with the Borrower's
instructions (if such loan or advance is of funds requested by the
Borrower).
(ii) The charging of the amount of such loan to the
Loan Account (in all other circumstances).
(c) There shall not be any recourse to or liability of the
Lender, on account of:
(i) Any delay in the making of any loan or advance
requested under the Revolving Credit.
(ii) Any delay by any bank or other depository
institution in treating the proceeds of any such loan or advance as
collected funds.
(iii) Any delay in the receipt, and/or any loss, of
funds which constitute a loan or advance under the Revolving Credit, the
wire transfer of which was properly initiated by the Lender in
accordance with wire instructions provided to the Lender by the
Borrower.
2.9. THE LOAN ACCOUNT.
(a) An account (the "Loan Account") shall be opened on the
books of the Lender in which a record shall be kept of all loans and advances
made under the Revolving Credit.
(b) The Lender shall also keep a record (either in the Loan
Account or elsewhere, as the Lender may from time to time elect) of all
interest, fees, service charges, costs, expenses, and other debits owed to the
Lender on account of the Liabilities and of all credits against such amounts so
owed.
(c) All credits against the Liabilities shall be conditional
upon final payment to the Lender for the account of the Lender of the items
giving rise to such credits. The amount of any item credited against the
Liabilities which is charged back against the Lender or is disgorged for any
reason or is not so paid shall be a Liability and shall be added to the Loan
Account, whether or not the item so charged back or not so paid is returned.
(d) Except as otherwise provided herein, all fees, service
charges, costs, and expenses for which the Borrower is obligated hereunder are
payable on demand. In the determination of Availability, the Lender may deem
fees, service charges, accrued interest, and other payments which will be due
and payable between the date of such determination and the first day of the then
next succeeding month as having been advanced under the Revolving Credit whether
or not such amounts are then due and payable.
(e) The Lender, without the request of the Borrower, may
advance under the Revolving Credit any interest, fee, service charge, or other
payment to which the Lender is entitled from the Borrower pursuant hereto and
may charge the same to the Loan Account notwithstanding that an OverLoan may
result thereby. Such action on the part of the Lender shall not constitute a
waiver of the Lender's rights and the Borrower's obligations under Section
2.11(b). Any amount which is added to the principal balance of the Loan Account
as provided in this Section 2.9(e) shall bear interest at the interest rate then
and thereafter applicable to Prime Margin Loans.
(f) Any statement rendered by the Lender to the Borrower
concerning the Liabilities shall be considered correct and accepted by the
Borrower and shall be conclusively binding upon the Borrower unless the Borrower
provides the Lender with written objection thereto within twenty (20) days from
the mailing of such statement, which written objection shall indicate, with
particularity, the reason for such objection. The Loan Account and the Lender's
books and records concerning the loan arrangement contemplated herein and the
Liabilities shall be prima facie evidence and proof of the items described
therein.
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2.10. THE REVOLVING CREDIT NOTE.
The Borrower's obligation to repay loans and advances under the
Revolving Credit, with interest as provided herein, shall be evidenced by a Note
(the "Revolving Credit Note") in the form of EXHIBIT 2.10, annexed hereto,
executed by the Borrower, payable to the Lender. Neither the original nor a copy
of the Revolving Credit Note shall be required, however, to establish or prove
any Liability. In the event that the Revolving Credit Note is ever lost,
mutilated, or destroyed, the Borrower shall execute a replacement thereof and
deliver such replacement to the Lender.
2.11. PAYMENT OF THE LOAN ACCOUNT.
(a) The Borrower may repay all or any portion of the
principal balance of the Loan Account from time to time until the Termination
Date.
(b) The Borrower, without notice or demand from the Lender,
shall pay the Lender that amount, from time to time, which is necessary so that
there is no OverLoan outstanding.
(c) The Borrower shall repay the then entire unpaid balance
of the Loan Account and all other Liabilities on the Termination Date.
(d) The Lender shall endeavor to cause the application of
payments (if any), pursuant to Sections 2.12(a) and 2.12(b) against Libor Loans
then outstanding in such manner as results in the least cost to the Borrower,
but shall have no liability on account of the Lender's failure to have done so.
In no event shall action or inaction taken by the Lender excuse the Borrower
from any indemnification obligation under Section 2.11(e).
(e) The Borrower shall indemnify the Lender and hold the
Lender harmless from and against any loss, cost or expense (including loss of
anticipated profits and amounts payable by the Lender on account of "breakage
fees" (so-called)) which the Lender may sustain or incur (including, without
limitation, by virtue of acceleration after the occurrence of any Event of
Default) as a consequence of the following:
(i) Default by the Borrower in payment of the
principal amount of or any interest on any Libor Loan as and when due
and payable, including any such loss or expense arising from interest or
fees payable by the Lender in order to maintain its Libor Loans.
(ii) Default by the Borrower in making a borrowing or
conversion after the Borrower has given (or is deemed to have given) a
request for a Revolving Credit Loan or a request to convert a Revolving
Credit Loan from one applicable interest rate to another.
(iii) The making of any payment on a Libor Loan or the
making of any conversion of any such Loan to a Prime Margin Loan on a
day that is not the last day of the applicable Interest Period with
respect thereto.
2.12. INTEREST ON REVOLVING CREDIT LOANS.
(a) Each Revolving Credit Loan shall bear interest at the
Prime Margin Rate applicable to Revolving Credit Loans, unless timely notice is
given (as provided in Section 2.6) that the subject Revolving Credit Loan (or a
portion thereof) is, or is to be converted to, a Libor Loan.
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(b) Each Revolving Credit Loan which consists of a Libor
Loan shall bear interest at the Libor Rate applicable to Revolving Credit Loans.
(c) Subject to, and in accordance with, the provisions of
this Agreement, the Borrower may cause all or a part of the unpaid principal
balance of the Loan Account to bear interest at the Prime Margin Rate or the
Libor Rate as specified from time to time by the Borrower by notice to the
Lender.
(d) For ease of reference and administration, each part of
the Loan Account which bears interest at the same rate of interest and for the
same Interest Period is referred to herein as if it were a separate "Revolving
Credit Loan."
(e) The Borrower shall not select, renew, or convert any
interest rate for a Revolving Credit Loan such that, in addition to interest at
the Prime Margin Rate, there are more than Three (3) Libor Rates applicable to
the Revolving Credit Loans at any one time.
(f) The Borrower shall pay accrued and unpaid interest on
each Revolving Credit Loan in arrears as follows:
(i) On the applicable Interest Payment Date for that
Revolving Credit Loan.
(ii) On the Termination Date and on the End Date.
(iii) Following the occurrence and during the
continuance of any Event of Default, with such frequency as may be
determined by the Lender.
(g) (Following the occurrence and during the continuance of
any Event of Default (and whether or not the Lender exercises the Lender's
rights on account thereof), all Revolving Credit Loans shall bear interest, at
the option of the Lender, at rate which is the aggregate of the rate applicable
to Prime Margin Loans plus Two Percent (2%) per annum.
2.13. CLOSING FEE.
In consideration of the commitment to make loans and advances to the
Borrower under the Revolving Credit, and to maintain sufficient funds available
for such purpose, there has been earned and the Borrower shall pay on or before
the Closing Date the "Closing Fee" (so referred to herein) of $50,000.00. The
full amount of the Closing Fee has been earned in full by the Lender as of the
Closing Date.
2.14. UNUSED LINE FEE.
In addition to any other fee to be paid by the Borrower on account of
the Revolving Credit, the Borrower shall pay the Lender the "Unused Line Fee"
(so referred to herein) of 0.35% per annum of the average difference, during the
month just ended (or relevant period with respect to the payment being made on
the Termination Date) between the Revolving Credit Ceiling and the aggregate of
the unpaid principal balance of the Loan Account and the undrawn Stated Amount
of L/C's outstanding during the relevant period. The Unused Line Fee shall be
paid in arrears, on the first day of each month after the execution of this
Agreement and on the Termination Date.
2.15. EARLY TERMINATION FEE.
(a) In the event that the Termination Date occurs prior to the
Maturity Date, for any reason other than if the Borrower refinances the
Revolving Credit as an unsecured facility with ▇▇▇▇▇ Fargo Bank, N. A., the
Borrower shall pay to the Lender, the "Revolving Credit Early Termination Fee"
(so referred to herein) in an amount equal to the product of (x) the Revolving
Credit Ceiling, multiplied by the following percentage during the corresponding
specified period:
21
CALENDAR PERIOD PERCENT
-------------------------------------------------------- -------
From and after the Closing Date through July __, 2006 1.50%
From and after July __, 2006 through July __, 2007 1.00%
From and after July __, 2007 0.50%
(b) All parties to this Agreement agree and acknowledge that the
Lender will have suffered damages on account of the early termination of the
Revolving Credit and that, in view of the difficulty in ascertaining the amount
of such damages, that the Early Termination Fee constitutes reasonable
compensation and liquidated damages to compensate Lender on account thereof.
2.16. LENDER'S DISCRETION.
(a) Each reference in the Loan Documents to the exercise of
discretion or the like by the Lender shall be to such Person's exercise of its
judgment, in good faith (which shall be presumed), based upon such information
of which that Person then has actual knowledge.
(b) In the exercise of such discretion, the following may be
taken into account:
(i) The reasonable anticipation of an adverse change
to the value of the Collateral; the enforceability of the Lender's
Collateral Interests therein; or the amount which the Lender would
likely realize therefrom (taking into account delays which may possibly
be encountered in the Lender's realizing upon the Collateral and likely
Costs of Collection).
(ii) The content, completeness, and accuracy of any
report or financial information delivered to the Lender by or on behalf
of the Borrower and the manner by which such report or financial
information was prepared.
(iii) The existence of circumstances which suggest an
increase in the likelihood that the Borrower may become the subject of
an Insolvency Proceeding.
(iv) The existence of circumstances that suggest that
the Borrower is In Default.
(c) In the exercise of such discretion, the Lender also may
take into account any of the following factors to the extent that they have a
material bearing on credit risks associated with the providing of loans and
financial accommodations to the Borrower:
(i) Those included in, or tested by, the definitions
of "Eligible Credit Card Receivables," "Eligible Inventory" and "Cost."
(ii) The current financial and business climate of
the industry in which the Borrower competes (having regard for the
Borrower's position in that industry).
(iii) General macroeconomic conditions which have a
material effect on the Borrower's cost structure.
(iv) Material changes in or to the mix of the
Borrower's Inventory.
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(v) Seasonality with respect to the Borrower's
Inventory and patterns of retail sales.
(vi) Such other factors as the Lender reasonably
determines as having a material bearing on credit risks associated with
the providing of loans and financial accommodations to the Borrower.
(d) The burden of establishing the failure of the Lender to
have acted in a reasonable manner in such Person's exercise of such discretion
shall be the Borrower's and may be made only by clear and convincing evidence.
2.17. PROCEDURES FOR ISSUANCE OF L/C's.
(a) The Borrower may request that the Lender cause the
issuance by the Issuer of L/C's for the account of the Borrower. Each such
request shall be in such manner as may from time to time be acceptable to the
Lender.
(b) The Lender will endeavor to cause the issuance of any
L/C so requested by the Borrower, provided that, at the time that the request is
made, the Revolving Credit has not been suspended as provided in Section 2.7 and
if so issued:
(i) The aggregate Stated Amount of all L/C's then
outstanding, does not exceed $5,000,000.00.
(ii) The expiry of the L/C is not later than the
earlier of Thirty (30) days prior to the Maturity Date or the following:
(A) Standby's: One (1) year from initial
issuance.
(B) Documentary's: Sixty (60) days from
issuance.
(iii) If the expiry of an L/C is later than the
Maturity Date, it is 103% cash collateralized at its issuance.
(iv) An OverLoan will not result from the issuance of
the subject L/C.
(c) The Borrower shall execute such documentation to apply
for and support the issuance of an L/C as may be required by the Issuer.
(d) There shall not be any recourse to, nor liability of,
the Lender on account of:
(i) Any delay or refusal by an Issuer to issue an
L/C.
(ii) Any action or inaction of an Issuer on account
of, or in respect to, any L/C.
(e) The Borrower shall reimburse the Issuer for the amount
of any honoring of a drawing under an L/C on the same day on which such honoring
takes place. The Lender, without the request of the Borrower, may advance under
the Revolving Credit (and charge to the Loan Account) the amount of any honoring
of any L/C and other amount for which the Borrower, the Issuer, or the Lender
become obligated on account of, or in respect to, any L/C. Such advance shall be
made whether or not the Borrower is In Default or such advance would result in
an OverLoan. Such action shall not constitute a waiver of the Lender's rights
under Section 2.11(b).
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2.18. FEES FOR L/C's.
(a) The Borrower shall pay to the Lender a fee, on account
of L/C's, the issuance of which had been procured by the Lender, monthly in
arrears, and on the Termination Date and on the End Date, equal to the following
percentage per annum of the weighted average Stated Amount of all L/C's
outstanding during the period in respect of which such fee is being paid based
upon the corresponding amount of Average Excess Availability, except that,
following the occurrence and during the continuance of any Event of Default,
such fee shall be increased by two percent (2%) per annum
LEVEL STANDBY FEE DOCUMENTARY FEE AVERAGE EXCESS AVAILABILITY
----- ----------- --------------- ---------------------------
I 2.50% 2.00% Greater than $3,000,000
II 2.75% 2.25% $3,000,000 or less
The Standby Fee and the Documentary Fee on the Closing Date shall be
established at Level II and adjusted at the end of each fiscal quarter
thereafter based upon the average amount of excess Availability.
(b) In addition to the fee to be paid as provided in
Subsection 2.18(a), above, the Borrower shall pay to the Lender (or to the
Issuer, if so requested by Lender), on demand, all issuance, processing,
negotiation, amendment, and administrative fees and other amounts charged by the
Issuer on account of, or in respect to, any L/C.
(c) If any change in Applicable Law shall either:
(i) impose, modify or deem applicable any reserve,
special deposit or similar requirements against letters of credit
heretofore or hereafter issued by any Issuer or with respect to which
the Lender or any Issuer has an obligation to lend to fund drawings
under any L/C; or
(ii) impose on any Issuer any other condition or
requirements relating to any such letters of credit;
and the result of any event referred to in Section 2.18(c)(i) or
2.18(c)(ii), shall be to increase the cost to the Lender or to any Issuer of
issuing or maintaining any L/C (which increase in cost shall be the result of
such Issuer's reasonable allocation among the Lender's or Issuer's letter of
credit customers of the aggregate of such cost increases resulting from such
events), then, upon demand by the Lender and delivery by the Lender to the
Borrower of a certificate of an officer of the Lender or the subject Issuer
describing such change in law, executive order, regulation, directive, or
interpretation thereof, its effect on the Lender or such Issuer, and the basis
for determining such increased costs and their allocation, the Borrower shall
immediately pay to the Lender, from time to time as specified by the Lender,
such amounts as shall be sufficient to compensate the Lender or the subject
Issuer for such increased cost. The Lender's or any Issuer's determination of
costs incurred under Section 2.18(c)(i) or 2.18(c)(ii), and the allocation, if
any, of such costs among the Borrower and other letter of credit customers of
the Lender or such Issuer, if done in good faith and made on an equitable basis
and in accordance with such officer's certificate, shall be conclusive and
binding on the Borrower.
2.19. CONCERNING L/C's.
(a) None of the Issuer, the Issuer's correspondents, the
Lender, or any advising, negotiating, or paying bank with respect to any L/C
shall be responsible in any way for:
(i) The performance by any beneficiary under any L/C
of that beneficiary's obligations to the Borrower.
24
(ii) The form, sufficiency, correctness, genuineness,
authority of any person signing, falsification, or the legal effect of,
any documents called for under any L/C if (with respect to the
foregoing) such documents on their face appear to be in order.
(b) The Issuer may honor, as complying with the terms of any
L/C and of any drawing thereunder, any drafts or other documents otherwise in
order, but signed or issued by an administrator, executor, conservator, trustee
in bankruptcy, debtor in possession, assignee for the benefit of creditors,
liquidator, receiver, or other legal representative of the party authorized
under such L/C to draw or issue such drafts or other documents.
(c) Unless otherwise agreed to, in the particular instance,
the Borrower hereby authorizes any Issuer to:
(i) Select an advising bank, if any.
(ii) Select a paying bank, if any.
(iii) Select a negotiating bank.
(d) All directions, correspondence, and funds transfers
relating to any L/C are at the risk of the Borrower. The Issuer shall have
discharged the Issuer's obligations under any L/C which, or the drawing under
which, includes payment instructions, by the initiation of the method of payment
called for in, and in accordance with, such instructions (or by any other
commercially reasonable and comparable method). Neither the Lender nor the
Issuer shall have any responsibility for any inaccuracy, interruption, error, or
delay in transmission or delivery by post, telegraph or cable, or for any
inaccuracy of translation.
(e) The Lender's and the Issuer's rights, powers, privileges
and immunities specified in or arising under this Agreement are in addition to
any heretofore or at any time hereafter otherwise created or arising, whether by
statute or rule of law or contract.
(f) The obligations of the Borrower under this Agreement
with respect to L/C's are absolute, unconditional, and irrevocable and shall be
performed strictly in accordance with the terms hereof under all circumstances,
whatsoever including, without limitation, the following:
(i) Any lack of validity or enforceability or
restriction, restraint, or stay in the enforcement of this Agreement,
any L/C, or any other agreement or instrument relating thereto.
(ii) The Borrower's consent to any amendment or
waiver of, or consent to the departure from, any L/C.
(iii) The existence of any claim, set-off, defense, or
other right which the Borrower may have at any time against the
beneficiary of any L/C.
(iv) Any good faith honoring of a drawing under any
L/C, which drawing possibly could have been dishonored based upon a
strict construction of the terms of the L/C.
2.20. CHANGED CIRCUMSTANCES.
(a) The Lender may advise the Borrower that the Lender has
made the good faith determination (which determination shall be final and
conclusive) of any of the following:
(i) Adequate and fair means do not exist for
ascertaining the rate for Libor Loans.
25
(ii) The continuation of, or conversion of any
Revolving Credit Loan to, a Libor Loan has been made impracticable or
unlawful by the occurrence of a contingency that materially and
adversely affects the applicable market or the compliance by the Lender
in good faith with any Applicable Law.
(iii) The indices on which the interest rates for
Libor Loans are based shall no longer represent the effective cost to
the Lender for U.S. dollar deposits in the interbank market for deposits
in which it regularly participates.
(b) In the event that the Lender advises the Borrower of an
occurrence described in Section 2.20(a), then, until the Lender notifies the
Borrower that the circumstances giving rise to such notice no longer apply:
(i) The obligation of the Lender to make loans of
the type affected by such changed circumstances or to permit the
Borrower to select the affected interest rate as otherwise applicable to
any Revolving Credit Loans shall be suspended.
(ii) Any notice which the Borrower had given the
Lender with respect to any Libor Loan, the time for action with respect
to which has not occurred prior to the Lender's having given notice
pursuant to Section 2.12(a), shall be deemed at the option of the Lender
to not having been given.
ARTICLE 3 - CONDITIONS PRECEDENT:
As a condition to the effectiveness of this Agreement, the establishment
of the Revolving Credit, and the making of the first loan under the Revolving
Credit, each of the documents respectively described in Sections 3.1 through and
including 3.4, (each in form and substance satisfactory to the Lender) shall
have been delivered to the Lender, and the conditions respectively described in
Sections 3.5 through and including 3.8, shall have been satisfied:
3.1. CORPORATE DUE DILIGENCE.
(a) Certificate of corporate good standing for the Borrower
issued by the Secretary of State for the State of Delaware.
(b) Certificates of due qualification, in good standing,
issued by the Secretary(ies) of State of each State in which the nature the
Borrower's business conducted or assets owned could require such qualification.
(c) Certificate of the Borrower's Secretary of the due
adoption, continued effectiveness, and setting forth the texts of, each
corporate resolution adopted in connection with the establishment of the loan
arrangement contemplated by the Loan Documents and attesting to the true
signatures of each Person authorized as a signatory to any of the Loan
Documents, including ▇▇▇▇▇▇▇ ▇▇▇▇▇▇-▇▇▇▇▇▇, and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇.
3.2. OPINION.
An opinion of counsel to the Borrower in form and substance satisfactory
to the Lender, in the Lender's sole and exclusive discretion, including relevant
opinions with respect to enforceability and perfection, and similar matters.
26
3.3. ADDITIONAL DOCUMENTS.
Such additional instruments and documents as the Lender or its counsel
reasonably may require or request including, without limitation, the following:
(a) Satisfactory background checks for key management.
(b) All Loan Documents.
(c) Lien search results with respect to the Borrower's
locations.
(d) Confirmation of filing of all necessary and appropriate
Financing Statements and such other documents as may be required to perfect the
Lender's security interest in the Collateral.
(e) Receipt of discharges, releases, and terminations
required to afford the Lender a first, perfected security interest in and to all
Collateral, free and clear of all liens and Encumbrances, other than Permitted
Encumbrances.
(f) Confirmation of insurance and appropriate endorsements
in favor of the Lender.
(g) Collateral access agreements, as may be necessary,
including an agreement with NewRoads, Inc., all in form and substance acceptable
to the Lender in its sole and exclusive discretion.
(h) Receipt of an appraisal of the NRLV of the Borrower's
Inventory in form and substance acceptable to the Lender, in the Lender's sole
and exclusive discretion.
(i) Receipt of a field audit and examination in form and
substance acceptable to the Lender, in the Lender's sole and exclusive
discretion.
(j) Receipt of the Business Plan in form and substance
acceptable to the Lender, in the Lender's sole and exclusive discretion,
including a monthly balance sheet, profit and loss statements, and cash flow
analysis that presents expected Revolving Credit usage and Availability
consistent with the terms and conditions of this Agreement.
(k) Receipt of the Subordination Agreement, in form and
substance acceptable to the Lender, in the Lender's sole and exclusive
discretion, and confirming the terms and conditions of any subordinated
indebtedness in a manner acceptable to the Lender, in the Lender's sole and
exclusive discretion.
3.4. COLLATERAL L/C.
The initial Collateral L/C shall have been issued and delivered to the
Lender in form and substance acceptable to the Lender, which initial Collateral
L/C shall include and be subject to, among other things, the following terms and
conditions:
(a) Face Amount: $2,000,000.00.
(b) Expiry: ten (10) days following the Maturity Date
("Initial Collateral L/C Expiry Date") or as earlier terminated pursuant to
subparagraph (d) below.
(c) Conditions to Draw: The Lender shall certify that:
(i) (w) if at the time of the occurrence of an Event
of Default, greater than seventy five (75) days remain until the Initial
Collateral L/C Expiry Date, an Event of Default has occurred and has
been continuing for not less than sixty (60) days, (x) if at the time of
the occurrence of an Event of Default, between seventy five (75) days
and forty-five (45) days remain until the Initial
27
Collateral L/C Expiry Date, such Event of Default has occurred and has
been continuing for thirty (30) days, (y) if at the time of the
occurrence of an Event of Default, between forty five (45) days and
twenty (20) days remain until the Initial Collateral L/C Expiry Date,
such Event of Default has occurred and has been continuing for ten (10)
days, or (z) if at the time of the occurrence of an Event of Default,
fewer than twenty (20) days remain until the Initial Collateral L/C
Expiry Date, such Event of Default has occurred and is continuing; and
(ii) the amount being drawn is equal to the lesser of
(x) the unpaid balance of all Liabilities, or (y) the face amount of the
Collateral L/C.
(d) Terminability: The Borrower and the Lender acknowledge
and agree that so long as no Event of Default has occurred and is continuing,
the initial Collateral L/C shall no longer be required and shall be terminated
prior to the Initial Collateral L/C Expiry Date by the Lender upon the written
request of obligor/account party under such initial Collateral L/C (and upon
such request for termination prior to the Initial Collateral L/C Expiry Date the
Lender shall cause to be delivered to the issuer of the Collateral L/C a
certification that the conditions set forth in this Section 3.4(d) have been met
and the Lender shall request the issuer of the Collateral L/C to return such
initial Collateral L/C to such obligor/account party), at any time that the
Borrower then maintains Availability of not less than $2,000,000.00, and is
projected (pursuant to pro forma financial projections prepared by the Borrower
in good faith and determined by the Lender, in its reasonable discretion, to be
reasonable and otherwise acceptable in all respects) to maintain Average Excess
Availability for the succeeding six (6) months of not less than $2,000,000.00,
after giving effect to the termination of the Collateral L/C; and the Lender
agrees not to make any initial or further drawing under such Collateral L/C
after any request for termination of such Collateral L/C by the obligor/account
party and agrees to execute all such instruments (including execution of a
certification that the conditions set forth in this Section 3.4(d) have been
met) and do such other things (including returning the initial Collateral L/C to
the obligor/account party) as may be required by Borrower or the obligor/account
party to effectuate such termination and surrender.
3.5. OFFICERS' CERTIFICATES.
Certificates executed by the President and the Chief Financial Officer
of the Borrower which state that:
(a) Such officer, acting on behalf of the Borrower, has
reviewed each of the Loan Documents and has had the benefit of independent
counsel (Attorneys Dechert LLP) of the Borrower's selection in connection with
the review and negotiation of the Loan Documents. In particular, and without
limiting the generality of such review, the following provisions of the Loan
Documents have been brought to the attention of the undersigned by such counsel:
(i) The waiver of the right to a trial by jury in
connection with controversies arising out of the loan arrangement
contemplated by the Loan Documents.
(ii) The designation of, and submission to the
exclusive jurisdiction and venue of, certain courts.
(iii) Various other waivers and indemnifications
included therein.
(iv) The circumstances under which the Liabilities
could be accelerated and the grace periods available with respect to
certain Events of Default.
(b) The representations and warranties made by the Borrower
to the Lender in the Loan Documents are true and complete as of the date of such
Certificate, and that no event has occurred which is or which, solely with the
giving of notice or passage of time (or both), would be an Event of Default.
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3.6. REPRESENTATIONS AND WARRANTIES.
Each of the representations made by or on behalf of the Borrower in this
Agreement or in any of the other Loan Documents or in any other report,
statement, document, or paper provided by or on behalf of the Borrower shall be
true and complete as of the date as of which such representation or warranty was
made.
3.7. ALL FEES AND EXPENSES PAID.
All fees due at or immediately after the first funding under the
Revolving Credit and all costs and expenses incurred by the Lender in connection
with the establishment of the credit facility contemplated hereby (including the
fees and expenses of counsel to the Lender) shall have been paid in full.
3.8. BORROWER NOT IN DEFAULT.
The Borrower is not In Default.
3.9. NO ADVERSE CHANGE.
There has been no Material Adverse Change and no event shall have
occurred or failed to occur, which occurrence or failure is reasonably likely to
have a materially adverse effect upon the Borrower's financial condition since
the date of the most recent financial information delivered to the Lender.
3.10. MINIMUM AVAILABILITY.
On the Closing Date, after giving effect to the first funding under the
Revolving Credit; any charges to the Loan Account made in connection with the
establishment of the credit facility contemplated hereby; and L/C's to be issued
at, or immediately subsequent to, such establishment, and the establishment of
all required Reserves, Availability shall not be less than $3,000,000.
3.11. BENEFIT OF CONDITIONS PRECEDENT.
The conditions set forth in this Article 3, are for the sole benefit of
the Lender and may be waived by the Lender in whole or in part without prejudice
to the Lender.
No document shall be deemed delivered to the Lender until received and
accepted by the Lender at its offices in Boston, Massachusetts. Under no
circumstances shall this Agreement take effect until executed and accepted by
the Lender at said offices.
ARTICLE 4 - GENERAL REPRESENTATIONS, COVENANTS AND WARRANTIES:
To induce the Lender to establish the credit facility contemplated herein and to
induce the Lender to provide loans and advances under the Revolving Credit (each
of which loans shall be deemed to have been made in reliance thereupon) the
Borrower, in addition to all other representations, warranties, and covenants
made by the Borrower in any other Loan Document, makes those representations,
warranties, and covenants included in this Agreement. For the avoidance of
doubt, it is understood and agreed that the covenants set forth below do not
prohibit the Borrower from taking any action with the prior written consent of
Lender.
4.1. PAYMENT AND PERFORMANCE OF LIABILITIES.
The Borrower shall pay each payment Liability when due (or when
demanded, if payable on demand) and shall promptly, punctually, and faithfully
perform each other Liability.
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4.2. DUE ORGANIZATION; AUTHORIZATION; NO CONFLICTS.
(a) The Borrower presently is and hereafter shall remain in
good standing as a corporation under the laws of the State of Delaware and is
and shall hereafter remain duly qualified and in good standing in every other
State in which, by reason of the nature or location of the Borrower's assets or
operation of the Borrower's business, such qualification may be necessary,
except where the failure to be so qualified would result in a Material Adverse
Change.
(b) The Borrower's organizational identification number
assigned to it by the State of its incorporation and its respective federal
employer identification number is listed on EXHIBIT 4.2, annexed hereto.
(c) The Borrower shall not change its State of organization;
any organizational identification number assigned to the Borrower by that State;
or the Borrower's federal taxpayer identification number.
(d) Each Affiliate, other than Affiliates of the ▇▇▇▇▇
Entities, is listed on EXHIBIT 4.2. The Borrower shall provide the Lender with
prior written notice of any entity's becoming or ceasing to be an Affiliate,
other than Affiliates of the ▇▇▇▇▇ Entities.
(e) The Borrower has all requisite power and authority to
execute and deliver all Loan Documents to which the Borrower is a party and has
and will hereafter retain all requisite power to perform all Liabilities.
(f) The execution and delivery by the Borrower of each Loan
Document to which it is a party; the Borrower's consummation of the transactions
contemplated by such Loan Documents (including, without limitation, the creation
of Collateral Interests by the Borrower to secure the Liabilities); the
Borrower's performance under those of the Loan Documents to which it is a party:
(i) Have been duly authorized by all necessary
action.
(ii) Do not, and will not, contravene in any material
respect any provision of any Requirement of Law or obligation of the
Borrower.
(iii) Will not result in the creation or imposition
of, or the obligation to create or impose, any Encumbrance upon any
assets of the Borrower pursuant to any Requirement of Law or obligation,
except pursuant to the Loan Documents.
(g) The Loan Documents have been duly executed and delivered
by the Borrower and are the legal, valid and binding obligations of the
Borrower, enforceable against the Borrower in accordance with their respective
terms.
4.3. TRADE NAMES.
(a) EXHIBIT 4.3, annexed hereto, is a listing of:
(i) All names under which the Borrower has conducted
its business.
(ii) All Persons with whom the Borrower has
consolidated or merged since January 1, 2000, or from whom the Borrower
has acquired since such date in a single transaction or in a series of
related transactions substantially all of such Person's assets.
(b) The Borrower will provide the Lender with not less than
twenty-one (21) days prior written notice (with reasonable particularity) of any
change to the Borrower's name from that under which the Borrower is conducting
its business at the execution of this Agreement and will not effect such change
if an Event of Default has occurred and is continuing.
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4.4. INFRASTRUCTURE.
(a) The Borrower has and will maintain a sufficient
infrastructure to conduct its business as presently conducted and as
contemplated to be conducted following its execution of this Agreement.
(b) The Borrower owns and possesses, or has the right to use
(and will hereafter own, possess, or have such right to use) all patents,
industrial designs, trademarks, trade names, trade styles, brand names, service
marks, logos, copyrights, trade secrets, know-how, confidential information, and
other intellectual or proprietary property of any third Person necessary for the
Borrower's conduct of the Borrower's business.
(c) The conduct by the Borrower of the Borrower's business
does not presently and materially infringe (nor will the Borrower conduct its
business in the future so as to materially infringe) the patents, industrial
designs, trademarks, trade names, trade styles, brand names, service marks,
logos, copyrights, trade secrets, know-how, confidential information, or other
intellectual or proprietary property of any third Person.
4.5. LOCATIONS.
(a) The Collateral, and the books, records, and papers of
the Borrower's pertaining thereto, are kept and maintained solely at those
locations which are listed on EXHIBIT 4.5, annexed hereto (other than the
Collateral which is kept and maintained from time to time at Temporary
Locations), which EXHIBIT 4.5 includes, with respect to each such location, the
name and address of the landlord on the Lease which covers such location (or an
indication that the Borrower owns the subject location) and of all service
bureaus with which any such records are maintained.
(b) The Borrower shall not remove any of the Collateral from
those locations listed on EXHIBIT 4.5 except for the following purposes:
(i) To accomplish sales of Inventory in the ordinary
course of business.
(ii) To move Inventory from one such location to
another such location.
(iii) To utilize such of the Collateral as is removed
from such locations in the ordinary course of business (such as motor
vehicles).
(c) The Borrower shall not:
(i) Execute or materially alter, modify, or amend
any Lease, other than a Lease for a Temporary Location.
(ii) Commit to, or open or close any location at
which the Borrower maintains, offers for sale, or stores any of the
Collateral, other than a Temporary Location.
(d) Except as set forth on EXHIBIT 4.5, no material tangible
personal property of the Borrower is in the care or custody of any third party
or stored or entrusted with a bailee or other third party and none shall
hereafter be placed under such care, custody, storage, or entrustment.
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(e) To the extent required by the Lender, the Borrower shall
cause each landlord at any Temporary Location to execute and deliver to Lender a
waiver and access agreement on terms and conditions reasonably satisfactory to
Lender.
4.6. ENCUMBRANCES.
(a) The Borrower is, and shall hereafter remain, the owner
of the Collateral free and clear of all Encumbrances other than any Permitted
Encumbrance.
(b) Other than property held on consignment which is not
included in the calculation of the Borrowing Base and shall not in any event
exceed $250,000 in value at any time (provided, however, that Lender agrees to
increase this amount to up to $500,000 upon Borrower's request therefore if
Borrower can demonstrate to Lender's reasonable satisfaction that such increase
would be beneficial to Borrower's business), the Borrower does not have, and
shall not have, possession of any property on consignment to the Borrower.
(c) The Borrower shall not acquire or obtain the right to
use any Equipment, the acquisition or right to use of which Equipment is
otherwise permitted by this Agreement, in which Equipment any third party has an
interest, except for:
(i) Equipment which is merely incidental to the
conduct of the Borrower's business.
(ii) Equipment set forth on EXHIBIT 4.6, the
acquisition or right to use of which has been consented to by the
Lender, which consent may be conditioned upon the Lender's receipt of
such agreement with the third party which has an interest in such
Equipment as is satisfactory to the Lender.
(iii) Equipment subject to one or more Capital Leases
with aggregate future obligations outstanding to the lessor, at any one
time, not to exceed $500,000.
4.7. INDEBTEDNESS.
The Borrower does not and shall not hereafter have any Indebtedness
other than any Permitted Indebtedness, except for:
(a) Any Indebtedness on account of the Revolving Credit.
(b) The Indebtedness (if any) listed on EXHIBIT 4.7, annexed
hereto.
(c) Indebtedness otherwise associated with the acquisition
of Equipment otherwise in compliance with the requirements of Section 4.6.
4.8. INSURANCE.
(a) EXHIBIT 4.8, annexed hereto, is a schedule of all
insurance policies owned by the Borrower or under which the Borrower is the
named insured. Each of such policies is in full force and effect. Neither the
Borrower nor, to the best of Borrower's knowledge, the issuer of any such
policy, is in default or violation of any such policy in any material respect.
(b) The Borrower shall have and maintain at all times
insurance covering such risks, in such amounts, containing such terms, in such
form, for such periods, and written by such companies as may be satisfactory to
the Lender.
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(c) All insurance carried by the Borrower shall provide for
a minimum of Thirty (30) days' prior written notice of cancellation to the
Lender and all such insurance which covers the Collateral shall:
(i) Include an endorsement in favor of the Lender,
which endorsement shall provide that the insurance, to the extent of the
Lender's interest therein, shall not be impaired or invalidated, in
whole or in part, by reason of any act or neglect of the Borrower or by
the failure of the Borrower to comply with any warranty or condition of
the policy.
(ii) Not include an endorsement in favor of any other
Person.
(d) The coverage reflected on EXHIBIT 4.8 presently
satisfies the foregoing requirements, it being recognized by the Borrower,
however, that such requirements may change hereafter to reflect changing
circumstances.
(e) The Borrower shall furnish the Lender from time to time
with certificates or other evidence satisfactory to the Lender regarding
compliance by the Borrower with the foregoing requirements.
(f) In the event of the failure by the Borrower to maintain
insurance as required herein, the Lender, at its option and the Borrower's
expense, may obtain such insurance at the expense of the Borrower; provided,
however, the Lender's obtaining of such insurance shall not constitute a cure or
waiver of any Event of Default occasioned by the Borrower's failure to have
maintained such insurance.
4.9. LICENSES.
Each license, distributorship, franchise, and similar agreement issued
to, or to which the Borrower is a party is in full force and effect, except
those the termination of which would not result in a Material Adverse Change. To
the best of Borrower's knowledge, no party to any such license or agreement is
in default or violation thereof, which default or violation would be reasonably
likely to result in a Material Adverse Change. The Borrower has not received any
notice or threat of cancellation of any license or agreement, except those the
termination of which would not result in a Material Adverse Change.
4.10. LEASES.
EXHIBIT 4.10, annexed hereto, is a schedule of all presently effective
Capital Leases. (EXHIBIT 4.10 includes a list of all other presently effective
Leases). To the best of Borrower's knowledge, no party to any such Lease or
Capital Lease is in default or violation of any such Lease or Capital Lease,
which default or violation would be reasonably likely to result in a Material
Adverse Change. The Borrower has not received any notice or threat of
cancellation of any such Lease or Capital Lease, except those the termination of
which would not result in a Material Adverse Change. Following the occurrence
and during the continuance of an Event of Default, the Borrower hereby
authorizes the Lender at any time and from time to time to contact any of the
Borrower's respective landlords in order to confirm the Borrower's continued
compliance with the terms and conditions of the Lease(s) between the Borrower
and that landlord and to discuss such issues, concerning the Borrower's
occupancy under such Lease(s), as the Lender may determine.
4.11. REQUIREMENTS OF LAW.
The Borrower is in compliance with, and shall hereafter comply with and
use its assets in compliance in all material respects with, all Requirements of
Law. The Borrower has not received any notice of any material violation of any
Requirement of Law, which violation has not been cured or otherwise remedied or,
if it occurs after the Closing Date, will not be cured within a commercially
reasonable period of time or does not result in a Material Adverse Change.
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4.12. LABOR RELATIONS.
(a) The Borrower has not been, and shall not be, a party to
any collective bargaining or other multi-party labor contract.
(b) There is not presently pending and, to the Borrower's
knowledge, there is not threatened any of the following:
(i) Any strike, slowdown, picketing, work stoppage,
or material employee grievance process which is reasonably likely to
result in a Material Adverse Change.
(ii) Any proceeding against or affecting the Borrower
relating to the alleged violation of any Applicable Law pertaining to
labor relations or before National Labor Relations Board, the Equal
Employment Opportunity Commission, or any comparable governmental body,
organizational activity, or other labor or employment dispute against or
affecting the Borrower, which, if determined adversely to the Borrower,
is reasonably likely to result in a Material Adverse Change.
(iii) Any material lockout of any employees by the
Borrower (and no such action is contemplated by the Borrower).
(iv) Any application for the certification of a
collective bargaining agent.
(c) No event has occurred or circumstance exists which are
reasonably likely to provide the basis for any material work stoppage or other
material labor dispute with a collective bargaining unit.
(d) The Borrower:
(i) Has complied in all material respects with all
Applicable Law relating to employment, equal employment opportunity,
nondiscrimination, immigration, wages, hours, benefits, collective
bargaining, the payment of social security and similar taxes,
occupational safety and health, and plant closing.
(ii) Is not liable for the payment of any material
amount of compensation, damages, taxes, fines, penalties, or other
amounts, however designated, for the Borrower's failure to comply with
any Applicable Law referenced in Section 4.12(d)(i).
4.13. MAINTAIN PROPERTIES.
The Borrower shall:
(a) Keep the Collateral in good order and repair (ordinary
reasonable wear and tear and insured casualty excepted).
(b) Not suffer or cause the waste or destruction of any
material part of the Collateral.
(c) Not use any of the Collateral in violation of any policy
of insurance thereon.
(d) Not sell, lease, or otherwise dispose of any of the
Collateral, other than the following:
(i) The sale of Inventory in compliance with this
Agreement.
(ii) The disposal of Equipment which is obsolete,
worn out, or damaged beyond repair, which Equipment is replaced to the
extent necessary to preserve or improve the operating efficiency of the
Borrower.
34
(iii) Permitted Dispositions.
(iv) The turning over to the Lender of all Receipts
as provided in Article 7.
4.14. TAXES.
(a) With respect to the Borrower's federal, state, and local
tax liability and obligations:
(i) The Borrower, in compliance with all Applicable
Law, has properly filed all returns due to be filed up to the Closing
Date.
(ii) Except as described on EXHIBIT 4.14, annexed
hereto:
(A) From January 1, 2000 until the Closing
Date, the Borrower has not received from any taxing authority
any request to perform any examination of or with respect to the
Borrower nor any other written or verbal notice in any way
relating to any claimed failure by the Borrower to comply with
all Applicable Law concerning payment of any taxes or other
amounts in the nature of taxes.
(B) From January 1, 2000 until the Closing
Date, no agreement was entered into which waived or extended any
statute of limitations applicable to the right of any taxing
authority to assert a deficiency or make any other claim for or
in respect to federal income taxes.
(C) From January 1, 2000 until the Closing
Date, no issue has been raised in any tax examination of the
Borrower which, by application of similar principles, reasonably
could be expected to result in the assertion of a deficiency for
any fiscal year open for examination, assessment, or claim by
any taxing authority.
(b) The Borrower has, and hereafter shall: pay, as they
become due and payable, all taxes and unemployment contributions and other
charges of any kind or nature levied, assessed or claimed against the Borrower
or the Collateral by any person, entity or governmental authority whose claim
could result in an Encumbrance upon any asset of the Borrower, except for those
immaterial and inadvertently late payments which are promptly cured and have no
more than a de minimis effect on the Borrower's business or assets and except
for those payments which are being contested in good faith and for which
adequate reserves have been set aside; properly exercise any trust
responsibilities imposed upon the Borrower by reason of withholding from
employees' pay or by reason of the Borrower's receipt of sales tax or other
funds for the account of any third party; timely make all material contributions
and other payments as may be required pursuant to any Employee Benefit Plan now
or hereafter established by the Borrower; and timely file all tax and other
returns and other reports with each governmental authority to whom the Borrower
is obligated to so file.
4.15. NO MARGIN STOCK.
The Borrower is not engaged in the business of extending credit for the
purpose of purchasing or carrying any margin stock (within the meaning of
Regulations U, T, and X of the Board of Governors of the Federal Reserve System
of the United States). No part of the proceeds of any borrowing hereunder will
be used at any time to purchase or carry any such margin stock or to extend
credit to others for the purpose of purchasing or carrying any such margin
stock.
4.16. ERISA.
(a) Neither the Borrower nor any ERISA Affiliate has since
January 1, 2000:
35
(i) Violated or failed to be in compliance in all
material respects with the Borrower's Employee Benefit Plan.
(ii) Failed timely to file all reports and filings
required by ERISA to be filed by the Borrower, other than reports and
filings which are inadvertently late, which are promptly cured and have
no more than a de minimis effect on the Borrower's business or assets.
(iii) Engaged in any nonexempt "prohibited
transactions" or "reportable events" (respectively as described in
ERISA).
(iv) Engaged in, or committed, any act such that a
tax or penalty that would have more than a de minims effect could be
imposed upon the Borrower on account thereof pursuant to ERISA.
(v) Accumulate any material cumulative funding
deficiency within the meaning of ERISA.
(vi) Terminated any Employee Benefit Plan such that a
lien could be asserted against any assets of the Borrower on account
thereof pursuant to ERISA.
(vii) Been a member of, contributed to, or have any
obligation under any Employee Benefit Plan which is a multiemployer plan
within the meaning of Section 4001(a) of ERISA.
(b) Neither the Borrower nor any ERISA Affiliate shall ever
engage in any action of the type described in Section 4.16(a).
4.17. HAZARDOUS MATERIALS.
(a) Since January 1, 2000 until the Closing Date, the
Borrower has not: (i) been legally responsible for any release or threat of
release of any Hazardous Material or (ii) received notification of the
incurrence of any expense in connection with the assessment, containment, or
removal of any Hazardous Material for which the Borrower would be responsible.
(b) Since January 1, 2000 until the Closing Date, the
Borrower has not: (i) disposed of any Hazardous Material, except in compliance
with all Environmental Laws and (ii) had possession of any Hazardous Material,
except in the ordinary course of the Borrower's business and in compliance with
all Environmental Laws.
4.18. LITIGATION.
Except as described in EXHIBIT 4.18, annexed hereto, there is not
presently pending or threatened by or against the Borrower any suit, action,
proceeding, or investigation which would be reasonably likely to cause a
Material Adverse Change.
4.19. DIVIDENDS; INVESTMENTS; CORPORATE ACTION.
The Borrower shall not:
(a) Pay any cash dividend or make any other distribution in
respect of any class of the Borrower's capital stock (other than dividends paid
in the form of capital stock of the Borrower).
36
(b) make or agree to pay or make, directly or indirectly,
any payment or other distribution (whether in cash, securities or other
property) of or in respect of principal of or interest on any Indebtedness, or
any payment or other distribution (whether in cash, securities or other
property), including any sinking fund or similar deposit, on account of the
purchase, redemption, retirement, acquisition, cancellation or termination of
any Indebtedness, except (i) the Liabilities, (ii) as long as no Event of
Default has occurred and is continuing or would result therefrom, payment of
regularly scheduled interest and principal payments as and when due in respect
of Permitted Indebtedness, (iii) payment-in-kind or other notes or instruments
issued in lieu of cash to a ▇▇▇▇▇ Entity and which are subject to the terms and
conditions of the Subordination Agreement and (iv) payment by the Borrower in
its capital stock to ▇▇▇▇▇ Entities of Indebtedness which is subject to the
terms and conditions of the Subordination Agreement.
(c) Own, redeem, retire, purchase, or acquire any of the
Borrower's capital stock; provided, however, that the Borrower may make non-cash
redemptions where the consideration is paid by the Borrower in its capital stock
or indebtedness subject to the terms and conditions of the Subordination
Agreement.
(d) Invest in or purchase any stock or securities or rights
to purchase any such stock or securities, of any Person other than a Permitted
Investment.
(e) Merge or consolidate or be merged or consolidated with
or into any other corporation or other entity.
(f) Consolidate any of the Borrower's operations with those
of any other Person.
(g) Organize or create any Affiliate. For the avoidance of
doubt, this covenant shall not apply to Affiliates of the ▇▇▇▇▇ Entities.
(h) Subordinate any debts or obligations owed to the
Borrower by any third party to any other debts owed by such third party to any
other Person.
(i) Acquire any assets other than in the ordinary course and
conduct of the Borrower's business as conducted at the execution of this
Agreement.
4.20. LOANS.
The Borrower shall not make any loans or advances to, nor acquire the
Indebtedness of, any Person; provided, however, the foregoing does not prohibit
any of the following:
(a) Advance payments made to the Borrower's suppliers and
service providers in the ordinary course.
(b) Advances to the Borrower's officers, employees, and
salespersons with respect to reasonable expenses to be incurred by such
officers, employees, and salespersons for the benefit of the Borrower, which
expenses are properly substantiated by the person seeking such advance and
properly reimbursable by the Borrower.
4.21. PROTECTION OF ASSETS.
The Lender, in the Lender's discretion, and from time to time, may (i)
upon prior written notice to Borrower, discharge any tax or Encumbrance on any
of the Collateral, or (ii) take any other action which the Lender may deem
necessary or desirable to repair, insure, maintain, preserve, collect, or
realize upon any of the Collateral. The Lender shall not have any obligation to
undertake any of the foregoing and shall have no liability on account of any
action so undertaken except where there is a specific finding in a judicial
proceeding (in which the Lender has had an opportunity to be heard), from which
finding no further appeal is available, that the Lender had acted in actual bad
faith or in a grossly negligent manner. The Borrower shall pay to the Lender, on
demand, or the Lender, in its discretion, may add to the Loan Account, all
amounts paid or incurred by the Lender pursuant to this Section 4.21.
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4.22. LINE OF BUSINESS.
The Borrower shall not engage in any business other than the business in
which it is currently engaged or a business reasonably related thereto.
4.23. AFFILIATE TRANSACTIONS.
Other than Permitted Affiliate Transactions, the Borrower shall not make
any payment, nor give any value to any Affiliate except for goods and services
actually purchased by the Borrower from, or sold by the Borrower to, such
Affiliate for a price and on terms which shall:
(a) be competitive and fully deductible as an "ordinary and
necessary business expense" and/or fully depreciable under the Internal Revenue
Code of 1986 and the Treasury Regulations, each as amended; and
(b) be no less favorable to the Borrower than those which
would have been charged and imposed in an arm's length transaction.
4.24. FURTHER ASSURANCES.
(a) The Borrower is not the owner of, nor has it any
interest in, any property or asset, other than Non-Assignable Contractual
Interests, which will not be subject to a perfected Collateral Interest in favor
of the Lender (subject only to Permitted Encumbrances and Permitted
Dispositions) to secure the Liabilities.
(b) The Borrower will not hereafter acquire any asset or any
interest in property, other than Non-Assignable Contractual Interests, which is
not, immediately upon such acquisition, subject to such a perfected Collateral
Interest in favor of the Lender to secure the Liabilities (subject only to
Permitted Encumbrances).
(c) The Borrower shall execute and deliver to the Lender
such instruments, documents, and papers, and shall do all such things from time
to time hereafter as the Lender may request to carry into effect the provisions
and intent of this Agreement; to protect and perfect the Lender's Collateral
Interests in the Collateral; and to comply with all applicable statutes and
laws, and facilitate the collection of the Receivables Collateral. The Borrower
shall execute all such instruments as may be required by the Lender with respect
to the recordation and/or perfection of the Collateral Interests created or
contemplated herein.
(d) The Borrower hereby designates the Lender as and for the
Borrower's true and lawful attorney, with full power of substitution, to sign
and file any financing statements in order to perfect or protect the Lender's
Collateral Interests in the Collateral.
(e) This Agreement constitutes an authenticated record which
authorizes the Lender to file such financing statements as the Lender determines
as appropriate to perfect or protect the Collateral Interests created by this
Agreement.
(f) A carbon, photographic, or other reproduction of this
Agreement or of any financing statement or other instrument executed pursuant to
this Section 4.24 shall be sufficient for filing to perfect the security
interests granted herein.
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4.25. ADEQUACY OF DISCLOSURE.
(a) All financial statements furnished to the Lender by the
Borrower have been prepared in accordance with GAAP consistently applied and
present fairly the condition of the Borrower at the date(s) thereof and the
results of operations and cash flows for the period(s) covered (provided,
however, that unaudited financial statements are subject to normal year end
adjustments and to the absence of footnotes). There has been no change in the
financial condition, results of operations, or cash flows of the Borrower since
the date(s) of such financial statements, other than changes in the ordinary
course of business, which changes have not been materially adverse, either
singularly or in the aggregate.
(b) Other than obligations under operating Leases which are
(x) reflected in the footnotes to the financial statements or (y) which are set
forth on EXHIBIT 4.10, annexed hereto, the Borrower has no contingent
obligations or obligation under any Lease or Capital Lease which is not noted in
the Borrower's financial statements furnished to the Lender prior to the
execution of this Agreement.
(c) No document, instrument, agreement, or paper now or
hereafter given to the Lender by or on behalf of the Borrower in connection with
the execution of this Agreement by the Lender contains or will contain any
untrue statement of a material fact or omits or will omit to state a material
fact necessary in order to make the statements therein not misleading. There is
no fact known to the Borrower which has, or which, in the foreseeable future
could reasonably be expected to have, a material adverse effect on the financial
condition of the Borrower which has not been disclosed in writing to the Lender.
4.26. NO RESTRICTIONS ON LIABILITIES.
Other than Non-Assignable Contractual Interests and the Subordination
Agreement, the Borrower shall not enter into or directly or indirectly become
subject to any agreement, which prohibits or restricts, in any manner, the
Borrower's:
(a) Creation of, and granting of Collateral Interests in
favor of the Lender.
(b) Incurrence of Liabilities.
4.27. OTHER COVENANTS.
The Borrower shall not indirectly do or cause to be done any act which,
if done directly by the Borrower, would breach any covenant contained in this
Agreement.
ARTICLE 5 - FINANCIAL REPORTING AND PERFORMANCE COVENANTS:
5.1. MAINTAIN RECORDS.
The Borrower shall:
(a) At all times, keep proper books of account, in which
full, true, and accurate entries shall be made of all of the Borrower's
financial transactions, consistent with prior periods to fairly reflect the
financial condition of the Borrower at the close of, and its results of
operations for, the periods in question.
(b) Timely provide the Lender with those financial reports,
statements, and schedules required by this Article 5 or otherwise, each of which
reports, statements and schedules shall be prepared, to the extent applicable,
in accordance with GAAP applied consistently with prior periods to fairly
reflect the financial condition of the Borrower at the close of, and the results
of operations for, the period(s) covered therein.
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(c) At all times, keep accurate current records of the
Collateral including, without limitation, accurate current stock, cost, and
sales records of its Inventory, accurately and sufficiently itemizing and
describing the kinds, types, and quantities of Inventory and the cost and
selling prices thereof.
(d) At all times, retain independent certified public
accountants who are reasonably satisfactory to the Lender and instruct such
accountants to fully cooperate with, and be available to, the Lender to discuss
the Borrower's financial performance, financial condition, operating results,
controls, and such other matters, within the scope of the retention of such
accountants, as may be raised by the Lender.
(e) Not change the Borrower's fiscal year.
5.2. ACCESS TO RECORDS.
(a) The Borrower shall accord the Lender with access from
time to time, which, except following the occurrence and during the continuance
of an Event of Default, shall be on not less than One (1) business day prior
notice and during reasonable business hours as the Lender may require to all
properties owned by or over which the Borrower has control. The Lender shall
have the right, and the Borrower will permit the Lender from time to time as
Lender may request, to examine, inspect, copy, and make extracts from any and
all of the Borrower's books, records, electronically stored data, papers, and
files. The Borrower shall make all of the Borrower's copying facilities
available to the Lender.
(b) The Borrower hereby authorizes the Lender to:
(i) Inspect, copy, duplicate, review, cause to be
reduced to hard copy, run off, draw off, and otherwise use any and all
computer or electronically stored information or data which relates to
the Borrower, or any service bureau, contractor, accountant, or other
person, and directs any such service bureau, contractor, accountant, or
other person fully to cooperate with the Lender with respect thereto.
(ii) Verify at any time the Collateral or any portion
thereof, including verification with Account Debtors, and/or with the
Borrower's computer billing companies, collection agencies, and
accountants and to sign the name of the Borrower on any notice to the
Borrower's Account Debtors or verification of the Collateral.
(c) The Lender from time to time may designate one or more
representatives to exercise the Lender's rights under this Section 5.2 as fully
as if the Lender were doing so.
5.3. IMMEDIATE NOTICE TO LENDER.
(a) The Borrower shall provide the Lender with written
notice promptly upon the occurrence of any of the following events, which
written notice shall be with reasonable particularity as to the facts and
circumstances in respect of which such notice is being given:
(i) Any change in the Borrower's President, Chief
Executive Officer, Chief Operating Officer, and Chief Financial Officer
(without regard to the title(s) actually given to the Persons
discharging the duties customarily discharged by officers with those
titles).
(ii) Any ceasing of the Borrower's making of payment,
in the ordinary course, to any of its creditors (other than its ceasing
of making of such payments on account of a good faith dispute that is
not reasonably likely to result in a Material Adverse Change.
(iii) Any failure by the Borrower to pay rent at any
of the Borrower's locations (other than a Temporary Location), which
failure continues for more than Seven (7) days following the last day on
which such rent was payable and which is reasonably likely to result in
a Material Adverse Change.
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(iv) Any event which is reasonably likely to result
in a Material Adverse Change .
(v) The Borrower's becoming In Default.
(vi) Any intention on the part of the Borrower to
discharge the Borrower's present independent accountants or any
withdrawal or resignation by such independent accountants from their
acting in such capacity (as to which, see Subsection 5.1(d)).
(vii) Any litigation which, if determined adversely to
the Borrower, is reasonably likely to have a material adverse effect on
the financial condition of the Borrower.
(b) The Borrower shall:
(i) Other than with respect to routine, day-to-day
communications, provide the Lender, when so distributed, with copies of
any materials distributed to the shareholders of the Borrower (qua such
shareholders).
(ii) Add the Lender as an addressee on all mailing
lists maintained by or for the Borrower.
(iii) At the request of the Lender, from time to time,
provide the Lender with copies of all advertising (including copies of
all print advertising and duplicate tapes of all video and radio
advertising).
(iv) Provide the Lender, promptly after received by
the Borrower, with a copy of any management letter or similar
communications from any accountant of the Borrower.
5.4. BORROWING BASE CERTIFICATE; WEEKLY REPORTING.
The Borrower shall provide the Lender with a Borrowing Base Certificate
(in the form of EXHIBIT 5.4, annexed hereto, as such form may be revised from
time to time by the Lender) at the times, and in the manner set forth on EXHIBIT
5.4(a), annexed hereto.
5.5. MONTHLY REPORTS.
Monthly, the Borrower shall provide the Lender with those financial
statements and reports described in EXHIBIT 5.5, annexed hereto, at the times
set forth therein.
5.6. ANNUAL REPORTS.
(a) Annually, in addition to the timely submission of the
monthly reporting required at the end of every month, within one-hundred-five
(105) days following the end of the Borrower's fiscal year, the Borrower shall
furnish the Lender with a signed counterpart of the Borrower's annual financial
statement, which statement shall have been prepared by, and bear the unqualified
opinion of, the Borrower's independent certified public accountants (i.e. said
statement shall be "certified" by such accountants) and shall include, at a
minimum (with comparative information for the then prior fiscal year) a balance
sheet, income statement, statement of changes in shareholders' equity, and cash
flows.
(b) No later than the earlier of Fifteen (15) days prior to
the end of each of the Borrower's fiscal years or the date on which such
accountants commence their work on the preparation of the Borrower's annual
financial statement, the Borrower shall give written notice to such accountants
(with a copy of such notice, when sent, to the Lender) that:
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(i) Such annual financial statement will be
delivered by the Borrower to the Lender (for subsequent distribution to
the Lender).
(ii) It is the intention of the Borrower, in its
engagement of such accountants, to satisfy the financial reporting
requirements set forth in this Article 5.
(iii) The Borrower has been advised that the Lender
will rely thereon with respect to the administration of, and
transactions under, the credit facility contemplated by this Agreement.
(c) Upon Lender's request therefor, each annual statement
shall be accompanied by such accountant's Certificate indicating that, in
conducting the audit for such annual statement, nothing came to the attention of
such accountants to believe that the Borrower is not In Default (or that if the
Borrower is in Default, the facts and circumstances thereof).
5.7. OFFICERS' CERTIFICATES
The Borrower shall cause either the Borrower's President or its Chief
Financial Officer, in each instance, to provide such Person's Certificate with
those financial statements to be provided within Fifty (50) days of the end of
each quarter and One-Hundred-Five (105) days with those annual statements to be
furnished pursuant to this Agreement, which Certificate shall:
(a) Indicate that the subject statement was prepared in
accordance with GAAP consistently applied and presents fairly the financial
condition of the Borrower at the close of, and the results of the Borrower's
operations and cash flows for, the period(s) covered, subject, however to the
following:
(i) Usual year end adjustments and the absence of
footnotes (this exception shall not be included in the Certificate which
accompanies such annual statement).
(b) Indicate either that (i) the Borrower is not In Default,
or (ii) if such an event has occurred, its nature (in reasonable detail) and the
steps (if any) being taken or contemplated by the Borrower to be taken on
account thereof.
(c) Include confirmation that all of the Borrower's taxes,
insurance premiums, and rental payments are current in all material respects.
5.8. INVENTORIES, APPRAISALS, AND AUDITS.
(a) The Lender, at the expense of the Borrower, may
participate in and/or observe each physical count and/or inventory of so much of
the Collateral as consists of Inventory which is undertaken on behalf of the
Borrower.
(b) The Borrower, at its own expense, shall cause at least
one (1) physical inventory to be undertaken with respect to each fulfillment
center maintained by the Borrower during each year in which this Agreement is in
effect (the scheduling of which shall be subject to the Lender's discretion)
conducted by such inventory takers as are satisfactory to the Lender and
following such methodology as may be satisfactory to the Lender, provided,
however, that during the continuance of an Event of Default Lender may require
such additional physical inventories as it shall deem necessary.
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(i) The Borrower shall provide the Lender with a
copy of the preliminary results of each such inventory (as well as of
any other physical inventory undertaken by the Borrower) within Ten (10)
days following the completion of such inventory.
(ii) The Borrower, within Thirty (30) days following
the completion of such inventory, shall provide the Lender with a
reconciliation of the results of each such inventory (as well as of any
other physical inventory undertaken by the Borrower) and shall post such
results to the Borrower's stock ledger and, as applicable to the
Borrower's other financial books and records.
(iii) The Lender, in its discretion, may cause such
additional inventories to be taken as the Lender determines (each at the
expense of the Borrower).
(c) The Lender contemplates conducting Three (3) appraisals
of the Collateral during any Twelve (12) month period during which this
Agreement is in effect, conducted by such appraisers as are satisfactory to the
Lender, each at the expense of the Borrower. The Lender, in its discretion, may
conduct such additional appraisals as the Lender determines (each at the expense
of the Borrower).
(d) The Lender contemplates conducting Three (3) commercial
finance field examinations and audits of the Borrower's books and records during
any Twelve (12) month period during which this Agreement is in effect, each at
the expense of the Borrower. The Lender, in its discretion, may conduct such
additional commercial finance field examinations and audits as the Lender
determines (each at the expense of the Borrower).
5.9. ADDITIONAL FINANCIAL INFORMATION.
(a) In addition to all other information required to be
provided pursuant to this Article 5, the Borrower promptly shall provide the
Lender, with such other additional information concerning the Borrower, the
Collateral, the operation of the Borrower's business, and the Borrower's
financial condition, including original counterparts of financial reports and
statements, as the Lender may from time to time request from the Borrower.
(b) The Borrower may provide the Lender, from time to time
hereafter, with updated forecasts of the Borrower's anticipated performance and
operating results.
(c) In all events, the Borrower, no sooner than Ninety (90)
nor later than Thirty (30) days prior to the end of each of the Borrower's
fiscal years, shall provide the Lender with an updated and extended forecast
which shall go out at least through the end of the then next fiscal year and
shall include an income statement, balance sheet, and statement of cash flow, by
month, and each prepared in conformity with GAAP and in a manner consistent with
the Borrower's then current practices.
(d) The Lender, following the receipt of any of such
forecast, may, but shall not be under any obligation to, provide its written
acceptance of such forecast (in which event, such forecast shall become the
Business Plan).
(e) The Borrower recognizes that all appraisals,
inventories, analysis, financial information, and other materials which the
Lender may obtain, develop, or receive with respect to the Borrower is
confidential to the Lender and that, except for the physical inventories and
collateral appraisals and as otherwise provided herein, the Borrower is not
entitled to receipt of any of such appraisals, inventories, analysis, financial
information, and other materials, nor copies or extracts thereof or therefrom.
(f) The Lender agrees to keep all appraisals, inventories,
analysis, financial information, and other materials which Lender may obtain,
develop, or receive with respect to the Borrower in a confidential manner
pursuant to the terms of Section 14.2.
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ARTICLE 6 - USE OF COLLATERAL:
6.1. USE OF INVENTORY COLLATERAL.
(a) The Borrower shall not engage in any of the following
with respect to its Inventory:
(i) Any sale other than
(A) for fair consideration in the conduct of
the Borrower's business in the ordinary course (for the
avoidance of doubt, sales that take place at Temporary Locations
shall be deemed to be sales for fair consideration in the
conduct of the Borrower's business in the ordinary course) or,
(B) a Permitted Disposition.
(ii) Sales or other dispositions to creditors.
(iii) Sales or other dispositions in bulk (other than
as part of a Permitted Disposition).
(iv) Sales of any Collateral in breach of any
provision of this Agreement.
(b) No sale of Inventory shall be on consignment, approval,
or under any other circumstances such that such Inventory may be returned to the
Borrower without the consent of the Lender, other than Inventory returnable by
customers in the ordinary course of Borrower's business.
(c) The Borrower shall maintain in full force and effect the
Master Services Agreement dated March 21, 2005 entered into by and between the
Borrower and NewRoads, Inc., and shall not amend or modify that agreement in any
respect without the prior written consent of the Lender. At the Lender's
request, the Borrower shall provide the Lender with copies of all statements of
account, documents, notices, and other communication received by the Borrower
from NewRoads, Inc. immediately upon receipt by the Borrower, and shall
simultaneously provide the Lender with a copy of any communication forwarded by
the Borrower to NewRoads, Inc.
6.2. INVENTORY QUALITY.
All Inventory included in the calculation of the Borrowing Base now
owned or hereafter acquired by the Borrower is and will be of good and
merchantable quality and free from defects (other than defects within customary
trade tolerances).
6.3. ADJUSTMENTS AND ALLOWANCES.
The Borrower may grant such allowances or other adjustments to the
Borrower's Account Debtors (exclusive of extending the time for payment of any
Account or Account Receivable, which shall not be done without first obtaining
the Lender's prior written consent in each instance) as the Borrower may
reasonably deem to accord with sound business practice; provided, however, the
authority granted the Borrower pursuant to this Section 6.3 may be limited or
terminated by the Lender at any time following the occurrence and during the
continuance of an Event of Default in the Lender's discretion.
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6.4. VALIDITY OF ACCOUNTS.
(a) The amount of each Account shown on the books, records,
and invoices of the Borrower represented as owing by each Account Debtor is and
will be the correct amount actually owing by such Account Debtor and shall have
been fully earned by performance by the Borrower.
(b) The Lender from time to time may verify the Receivables
Collateral directly with the Borrower's Account Debtors, such verification to be
undertaken in keeping with commercially reasonable commercial lending standards.
(c) The Borrower has no knowledge of any impairment of the
validity or collectability of any of the Accounts except with respect to
doubtful Accounts as indicated on the current Borrowing Base Certificate. The
Borrower shall notify the Lender of any such impairment immediately after the
Borrower becomes aware of any such impairment.
6.5. NOTIFICATION TO ACCOUNT DEBTORS.
The Lender shall have the right (whether or not an Event of Default has
occurred) to notify any of the Borrower's Account Debtors to make payment
directly to the Lender and to collect all amounts due on account of the
Collateral.
ARTICLE 7 - CASH MANAGEMENT. PAYMENT OF LIABILITIES:
7.1. THE CONCENTRATION, BLOCKED, AND OPERATING ACCOUNTS.
(a) The following checking accounts have been or will be
established (and are so referred to herein):
(i) The "Concentration Account" (so referred to
herein): Established by the Lender with ▇▇▇▇▇ Fargo Bank, N. A.
(ii) The "Blocked Account" (so referred to herein):
Established by the Borrower with Wachovia Bank, National Association.
(iii) The "Operating Account" (so referred to herein):
Established by the Borrower with [Wachovia Bank, National Association].
(b) The contents of the Blocked Account constitutes
Collateral and Proceeds of Collateral. The contents of the Concentration Account
constitutes the Lender's property.
(c) The Borrower shall pay all fees and charges of, and
maintain such impressed balances as may be required by the depository in which
any account is opened as required hereby (even if such account is opened by
and/or is the property of the Lender).
7.2. CREDIT CARD AND OTHER CREDIT FINANCING RECEIPTS.
(a) Annexed hereto as EXHIBIT 7.2, is a Schedule which
describes all arrangements to which the Borrower is a party with respect to the
payment to the Borrower of the proceeds of credit card charges and other credit
finance arrangements for sales by the Borrower.
(b) The Borrower shall deliver to the Lender, as a condition
to the effectiveness of this Agreement, notification, executed on behalf of the
Borrower, to each of the Borrower's credit card clearinghouses and processors
and other providers of credit financing of notice (in form satisfactory to the
Lender), which notice provides that payment of all credit card charges and
credit financings submitted by the Borrower to that clearinghouse or other
processor or provider and any other amount payable to the Borrower
45
by such clearinghouse or other processor or provider shall be directed to the
Blocked Account or as otherwise designated by the Lender upon the occurrence and
during the continuance of a Cash Dominion Event. The Borrower shall not change
such direction or designation except upon and with the prior written consent of
the Lender.
7.3. PROCEEDS AND COLLECTIONS.
(a) All Receipts and all cash proceeds of any sale or other
disposition of any of the Borrower's assets:
(i) Constitute Collateral and proceeds of
Collateral.
(ii) Shall be held in trust by the Borrower for the
Lender.
(iii) Shall not be commingled with any of the
Borrower's other funds.
(iv) Shall be deposited and/or transferred only to
the Operating Account, Blocked Account or the Concentration Account in
accordance with this Article 7.
(b) The Borrower shall cause the ACH or wire transfer to the
Blocked Account or, upon the occurrence and during the continuance of a Cash
Dominion Event, the Concentration Account, not less frequently than daily (and
whether or not there is then an outstanding balance in the Loan Account) of the
proceeds of all credit card charges not otherwise provided for pursuant hereto.
Telephone advice (confirmed by written notice) shall be provided to the Lender
on each Business Day on which any such transfer is made.
(c) Whether or not any Liabilities are then outstanding,
from and after the occurrence and during the continuance of any Cash Dominion
Event, the Borrower shall cause the ACH or wire transfer to the Concentration
Account, no less frequently than daily, of then entire ledger balance of the
Blocked Account, net of such minimum balance, not to exceed $1,000.00 as may be
required to be maintained in the Blocked Account by the depository which the
Blocked Account is maintained.
(d) In the event that, notwithstanding the provisions of
this Section 7.3, the Borrower receives or otherwise has dominion and control of
any Receipts, or any proceeds or collections of any Collateral, such Receipts,
proceeds, and collections shall be held in trust by the Borrower for the Lender
and shall not be commingled with any of the Borrower's other funds or deposited
in any account of the Borrower other than as instructed by the Lender.
7.4. PAYMENT OF LIABILITIES.
(a) On each Business Day after the occurrence and during the
continuance of a Cash Dominion Event, the Lender shall apply the then collected
balance of the Concentration Account (net of fees charged, and of such impressed
balances as may be required by the bank at which the Concentration Account is
maintained) towards the unpaid balance of the Loan Account and all other
Liabilities, provided, however, for purposes of the calculation of interest on
the unpaid principal balance of the Loan Account, such payment shall be deemed
to have been made One (1) Business Days after such transfer.
(b) The following rules shall apply to deposits and payments
under and pursuant to this Section 7.3:
(i) Funds shall be deemed to have been deposited to
the Concentration Account on the Business Day on which deposited,
provided that notice of such deposit is available to the Lender by
2:00PM on that Business Day.
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(ii) Funds paid to the Lender, other than by deposit
to the Concentration Account, shall be deemed to have been received on
the Business Day when they are good and collected funds, provided that
notice of such payment is available to the Lender by 2:00PM on that
Business Day.
(iii) If notice of a deposit to the Concentration
Account (Section 7.4(b)(i) or payment (Section 7.4(b)(ii)) is not
available to the Lender until after 2:00PM on a Business Day, such
deposit or payment shall be deemed to have been made at 9:00AM on the
then next Business Day.
(iv) All deposits to the Concentration Account and
other payments to the Lender are subject to clearance and collection.
(c) The Lender shall transfer to the Operating Account any
surplus in the Concentration Account remaining after the application towards the
Liabilities referred to in Section 7.4(a) (less those amount which are to be
netted out, as provided therein) provided, however, in the event that
(i) the Borrower is In Default; and
(ii) one or more L/C's are then outstanding,
then the Lender may establish a funded reserve of up to 103% of the
aggregate Stated Amounts of such L/C's. Such funded reserve shall either be (i)
returned to the Borrower provided that no Borrower is In Default or (ii) applied
towards the Liabilities following the occurrence of any Event of Default
described in Section 10.11 or acceleration following the occurrence of any other
Event of Default.
7.5. THE OPERATING ACCOUNT.
Except as otherwise specifically provided in, or permitted by, this
Agreement, all checks shall be drawn by the Borrower upon, and other
disbursements shall be made by the Borrower solely from, the Operating Account.
ARTICLE 8 - GRANT OF SECURITY INTEREST:
8.1. GRANT OF SECURITY INTEREST.
To secure the Borrower's prompt, punctual, and faithful performance of
all and each of the Liabilities, the Borrower hereby grants to the Lender, a
continuing security interest in and to, and assigns to the Lender, the
following, and each item thereof, whether now owned or now due, or in which the
Borrower has an interest, or hereafter acquired, arising, or to become due, or
in which the Borrower obtains an interest, and all products, Proceeds,
substitutions, and accessions of or to any of the following (all of which,
together with any other property in which the Lender may in the future be
granted a security interest, is referred to herein as the "Collateral"):
(a) All Accounts and accounts receivable.
(b) All Inventory.
(c) All General Intangibles (other than a Non-Assignable
Contractual Interest).
(d) All Goods.
(e) All Chattel Paper.
47
(f) All Letter-of-Credit Rights.
(g) All Payment Intangibles.
(h) All Supporting Obligations.
(i) All books, records, and information relating to the
Collateral and/or to the operation of the Borrower's business, and all rights of
access to such books, records, and information, and all property in which such
books, records, and information are stored, recorded, and maintained.
(j) All Leasehold Interests (other than a Non-Assignable
Contractual Interest).
(k) All Investment Property, Instruments, Documents, Deposit
Accounts, money, policies and certificates of insurance, deposits, impressed
accounts, compensating balances, cash, or other property.
(l) All insurance proceeds, refunds, and premium rebates,
including, without limitation, proceeds of fire and credit insurance, whether
any of such proceeds, refunds, and premium rebates arise out of any of the
foregoing (Section 8.1(a) through 8.1(k)) or otherwise.
(m) All liens, guaranties, rights, remedies, and privileges
pertaining to any of the foregoing (Section 8.1(a) through 8.1(l)), including
the right of stoppage in transit.
8.2. EXTENT AND DURATION OF SECURITY INTEREST.
(a) The security interest created and granted herein is in
addition to, and supplemental of, any security interest previously granted by
the Borrower to the Lender and shall continue in full force and effect
applicable to all Liabilities until both:
(i) all Liabilities have been paid and/or satisfied
in full, including those arrangements set forth in Section 13.2(d); and
(ii) the security interest created herein is
specifically terminated in writing by a duly authorized officer of the
Lender.
(b) It is intended that the Collateral Interests created
herein extend to and cover all assets of the Borrower.
ARTICLE 9 - LENDER AS BORROWER'S ATTORNEY-IN-FACT:
9.1. APPOINTMENT AS ATTORNEY-IN-FACT.
The Borrower hereby irrevocably constitutes and appoints the Lender
(acting through any officer of the Lender) as the Borrower's true and lawful
attorney, with full power of substitution, following the occurrence and during
the continuance of an Event of Default, to convert the Collateral into cash at
the sole risk, cost, and expense of the Borrower, but for the sole benefit of
the Lender. The rights and powers granted to the Lender by this appointment
include but are not limited to the right and power to:
(a) Prosecute, defend, compromise, or release any action
relating to the Collateral.
(b) Sign change of address forms to change the address to
which the Borrower's mail is to be sent to such address as the Lender shall
designate; receive and open the Borrower's mail; remove any Receivables
Collateral and Proceeds of Collateral therefrom and turn over the balance of
such mail either to the Borrower or to any trustee in bankruptcy or receiver of
the Borrower, or other legal representative of the Borrower whom the Lender
determines to be the appropriate person to whom to so turn over such mail.
48
(c) Endorse the name of the Borrower in favor of the Lender
upon any and all checks, drafts, notes, acceptances, or other items or
instruments; sign and endorse the name of the Borrower on, and receive as
secured party, any of the Collateral, any invoices, schedules of Collateral,
freight or express receipts, or bills of lading, storage receipts, warehouse
receipts, or other documents of title respectively relating to the Collateral.
(d) Sign the name of the Borrower on any notice to the
Borrower's Account Debtors or verification of the Receivables Collateral; sign
the Borrower's name on any proof of claim in bankruptcy against Account Debtors,
and on notices of lien, claims of mechanic's liens, or assignments or releases
of mechanic's liens securing the Accounts.
(e) Take all such action as may be necessary to obtain the
payment of any letter of credit and/or banker's acceptance of which the Borrower
is a beneficiary.
(f) Repair, manufacture, assemble, complete, package,
deliver, alter or supply goods, if any, necessary to fulfill in whole or in part
the purchase order of any customer of the Borrower.
(g) Use, license or transfer any or all General Intangibles
of the Borrower.
9.2. NO OBLIGATION TO ACT.
The Lender shall not be obligated to do any of the acts or to exercise
any of the powers authorized by Section 9.1, but if the Lender elects to do any
such act or to exercise any of such powers, it shall not be accountable for more
than it actually receives as a result of such exercise of power, and shall not
be responsible to the Borrower for any act or omission to act except for any act
or omission to act as to which there is a final determination made in a judicial
proceeding (in which proceeding the Lender has had an opportunity to be heard)
which determination includes a specific finding that the subject act or omission
to act had been grossly negligent or in actual bad faith.
ARTICLE 10 - EVENTS OF DEFAULT:
The occurrence of any event described in this Article 10 respectively
shall constitute an "Event of Default" herein. The occurrence of any Event of
Default shall also constitute, without notice or demand, a default under all
other agreements between the Lender and the Borrower and instruments and papers
heretofore, now, or hereafter given to the Lender by the Borrower.
10.1. FAILURE TO PAY THE REVOLVING CREDIT.
The failure by the Borrower to pay when due any principal of, interest
on, or fees in respect of, the Revolving Credit.
10.2. FAILURE TO MAKE OTHER PAYMENTS.
The failure by the Borrower to pay when due (or upon demand, if payable
on demand) any payment Liability other than any payment liability on account of
the principal of, or interest on, or fees in respect of, the Revolving Credit,
and such failure continues without cure for a period of Five (5) days.
10.3. FAILURE TO PERFORM COVENANT OR LIABILITY (NO GRACE PERIOD).
The failure by the Borrower to promptly, punctually, faithfully and
timely perform, discharge, or comply with any covenant or Liability included in
any of the following provisions hereof:
49
Section Relates to
------------------
4.7 Indebtedness
4.19 Dividends. Investments. Other Corporate Actions
4.23 Affiliate Transactions
Article 7 Cash Management
10.4. FAILURE TO PERFORM COVENANT OR LIABILITY (GRACE PERIOD).
The failure by the Borrower to comply with (i) any covenant or
L`iability in Section 4.14 or Article 5 which failure continues without cure for
a period of Five (5) days following the earlier of the Borrower's knowledge of
such breach or of its receipt of written notice from the Lender of such breach)
or (ii) any covenant or Liability not described in Sections 10.1, 10.2 or 10.3,
or 10.4(i) which failure continues without cure for a period of Ten (10) days
following the earlier of the Borrower's knowledge of such breach or of its
receipt of written notice from the Lender of such breach).
10.5. MISREPRESENTATION.
The determination by the Lender that any representation or warranty at
any time made by the Borrower to the Lender was not true or complete in all
material respects when given.
10.6. ACCELERATION OF OTHER DEBT; BREACH OF LEASE.
The occurrence of any event such that any Indebtedness in excess of
$100,000 of the Borrower to any creditor other than the Lender could be
accelerated, other than Indebtedness to a ▇▇▇▇▇ Entity which is subject to the
terms and conditions of the Subordination Agreement and which is waived by such
▇▇▇▇▇ Entity before such ▇▇▇▇▇ Entity shall take any action with respect to such
event under the applicable instrument, or, without the consent of the Borrower,
any material Lease could be terminated (whether or not the subject creditor or
lessor takes any action on account of such occurrence).
10.7. DEFAULT UNDER OTHER AGREEMENTS.
The occurrence of any breach in any material respect of any covenant or
Liability imposed by, or of any default under, any agreement (including any Loan
Document) between the Lender and the Borrower or instrument given by the
Borrower to the Lender and the expiry, without cure, of any applicable grace
period (notwithstanding that the Lender may not have exercised all or any of its
rights on account of such breach or default).
10.8. UNINSURED CASUALTY LOSS.
The occurrence of any uninsured loss, theft, damage, or destruction of
or to any material portion of the Collateral.
10.9. ATTACHMENT; JUDGMENT; RESTRAINT OF BUSINESS.
(a) Other than claims which the Lender determines in its
commercially reasonable judgment are frivolous or which are for less than
$100,000 in the aggregate, the service of process upon the Lender seeking to
attach, by trustee, mesne, or other process, any funds of the Borrower on
deposit with, or assets of the Borrower in the possession of, the Lender.
(b) The entry of any judgment in excess of $250,000 against
the Borrower, which judgment is not satisfied (if a money judgment) or appealed
from (with execution or similar process stayed) within Thirty (30) days of its
entry.
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(c) The entry of any order or the imposition of any other
process having the force of law, the effect of which is to restrain in any
material way the conduct by the Borrower of its business in the ordinary course.
10.10. BUSINESS FAILURE.
Any act by, against, or relating to the Borrower, or its property or
assets, which act constitutes the determination, by the Borrower, to initiate a
program of partial or total self-liquidation; application for, consent to, or
sufferance of the appointment of a receiver, trustee, or other person, pursuant
to court action or otherwise, over all, or a material part of the Borrower's
property; the granting of any trust mortgage or execution of an assignment for
the benefit of the creditors of the Borrower, or the occurrence of any other
voluntary or involuntary liquidation; the offering by or entering into by the
Borrower of any composition, extension, or any other arrangement seeking relief
from or extension of the debts of the Borrower; or the initiation of any
judicial or non-judicial proceeding or agreement by, against, or including the
Borrower which seeks or intends to accomplish a reorganization or arrangement
with creditors; and/or the initiation by or on behalf of the Borrower of the
liquidation or winding up of all or any material part of the Borrower's business
or operations.
10.11. BANKRUPTCY.
The failure by the Borrower to generally pay the debts of the Borrower
as they mature; adjudication of bankruptcy or insolvency relative to the
Borrower; the entry of an order for relief or similar order with respect to the
Borrower in any proceeding pursuant to the Bankruptcy Code or any other federal
bankruptcy law; the filing of any complaint, application, or petition by the
Borrower initiating any matter in which the Borrower is or may be granted any
relief from the debts of the Borrower pursuant to the Bankruptcy Code or any
other insolvency statute or procedure; the filing of any complaint, application,
or petition against the Borrower initiating any matter in which the Borrower is
or may be granted any relief from the debts of the Borrower pursuant to the
Bankruptcy Code or any other insolvency statute or procedure, which complaint,
application, or petition is not timely contested in good faith by the Borrower
by appropriate proceedings or, if so contested, is not dismissed within Sixty
(60) days of when filed.
10.12. INDICTMENT - FORFEITURE.
The indictment of, or institution of any legal process or proceeding
against, the Borrower, under any Applicable Law where the relief, penalties, or
remedies sought or available include the forfeiture of a material portion of the
Borrower's property and/or the imposition of any stay or other order, the effect
of which is reasonably likely to result in a Material Adverse Change.
10.13. CHALLENGE TO LOAN DOCUMENTS.
(a) Any challenge by or on behalf of the Borrower to the
validity of any Loan Document or the applicability or enforceability of any Loan
Document strictly in accordance with the subject Loan Document's terms or which
seeks to void, avoid, limit, or otherwise adversely affect any security interest
created by or in any Loan Document or any payment made pursuant thereto.
(b) Any determination by any court or any other judicial or
government authority that any Loan Document is not enforceable strictly in
accordance with the subject Loan Document's terms or which voids, avoids,
limits, or otherwise adversely affects any security interest created by any Loan
Document or any payment made pursuant thereto.
10.14. CHANGE IN CONTROL.
Any Change in Control.
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ARTICLE 11 - RIGHTS AND REMEDIES UPON DEFAULT:
11.1. ACCELERATION.
Upon the occurrence and during the continuance of any Event of Default
as described in Section 10.11, all Indebtedness of the Borrower to the Lender
shall be immediately due and payable. Upon the occurrence and during the
continuance of any Event of Default other than as described in Section 10.11,
the Lender may (and on the issuance of Acceleration Notice(s) requisite to the
causing of Acceleration, the Lender shall) declare all Indebtedness of the
Borrower to the Lender to be immediately due and payable and may exercise all of
the Lender's Rights and Remedies as the Lender from time to time thereafter
determines as appropriate.
11.2. RIGHTS OF ENFORCEMENT.
The Lender shall have all of the rights and remedies of a secured party
upon default under the UCC, in addition to which the Lender shall have all and
each of the following rights and remedies:
(a) To give notice to any bank at which any DDA or Blocked
Account is maintained and in which Proceeds of Collateral are deposited, to turn
over such Proceeds directly to the Lender.
(b) To give notice to any customs broker of the Borrower to
follow the instructions of the Lender as provided in any written agreement or
undertaking of such broker in favor of the Lender.
(c) To collect the Receivables Collateral with or without
the taking of possession of any of the Collateral.
(d) To take possession of all or any portion of the
Collateral.
(e) To sell, lease, or otherwise dispose of any or all of
the Collateral, in its then condition or following such preparation or
processing as the Lender deems advisable and with or without the taking of
possession of any of the Collateral.
(f) To apply the Receivables Collateral or the Proceeds of
the Collateral towards (but not necessarily in complete satisfaction of) the
Liabilities.
(g) To exercise all or any of the rights, remedies, powers,
privileges, and discretions under all or any of the Loan Documents.
11.3. SALE OF COLLATERAL.
(a) Any sale or other disposition of the Collateral may be
at public or private sale upon such terms and in such manner as the Lender deems
advisable, having due regard to compliance with any statute or regulation which
might affect, limit, or apply to the Lender's disposition of the Collateral.
(b) Unless the Collateral is perishable or threatens to
decline speedily in value, or is of a type customarily sold on a recognized
market (in which event the Lender shall provide the Borrower such notice as may
be practicable under the circumstances), the Lender shall give the Borrower at
least Ten (10) days prior notice, by authenticated record, of the date, time,
and place of any proposed public sale, and of the date after which any private
sale or other disposition of the Collateral may be made. The Borrower agrees
that such written notice shall satisfy all requirements for notice to the
Borrower which are imposed under the UCC or other applicable law with respect to
the exercise of the Lender's rights and remedies upon default.
52
(c) The Lender may purchase the Collateral, or any portion
of it at any sale held under this Article.
(d) If any of the Collateral is sold, leased, or otherwise
disposed of by the Lender on credit, the Liabilities shall not be deemed to have
been reduced as a result thereof unless and until payment is finally received
thereon by the Lender.
The Lender shall apply the proceeds of the Lender's exercise of its
rights and remedies upon default pursuant to this Article 11.
11.4. OCCUPATION OF BUSINESS LOCATION.
In connection with the Lender's exercise of the Lender's rights under
this Article 11 upon the occurrence and during the continuance of an Event of
Default, the Lender may enter upon, occupy, and use any premises owned or
occupied by the Borrower, and may exclude the Borrower from such premises or
portion thereof as may have been so entered upon, occupied, or used by the
Lender. The Lender shall not be required to remove any of the Collateral from
any such premises upon the Lender's taking possession thereof, and may render
any Collateral unusable to the Borrower. In no event shall the Lender be liable
to the Borrower for use or occupancy by the Lender of any premises pursuant to
this Article 11, nor for any charge (such as wages for the Borrower's employees
and utilities) incurred in connection with the Lender's exercise of the Lender's
Rights and Remedies.
11.5. GRANT OF NONEXCLUSIVE LICENSE.
The Borrower hereby grants to the Lender a royalty-free nonexclusive
irrevocable license to, upon the occurrence and during the continuance of an
Event of Default, use, apply, and affix any trademark, trade name, logo, or the
like in which the Borrower now or hereafter has rights, such license being with
respect to the Lender's exercise of the rights hereunder including, without
limitation, in connection with any completion of the manufacture of Inventory or
sale or other disposition of Inventory.
11.6. ASSEMBLY OF COLLATERAL.
In connection with the Lender's exercise of the Lender's rights under
this Article 11 upon the occurrence and during the continuance of an Event of
Default, the Lender may require the Borrower to assemble the Collateral and make
it available to the Lender at the Borrower's sole risk and expense at a place or
places which are reasonably convenient to both the Lender and the Borrower.
11.7. RIGHTS AND REMEDIES.
The rights, remedies, powers, privileges, and discretions of the Lender
hereunder (herein, the "Lender's Rights and Remedies") shall be cumulative and
not exclusive of any rights or remedies which it would otherwise have. No delay
or omission by the Lender in exercising or enforcing any of the Lender's Rights
and Remedies shall operate as, or constitute, a waiver thereof. No waiver by the
Lender of any Event of Default or of any default under any other agreement shall
operate as a waiver of any other default hereunder or under any other agreement.
No single or partial exercise of any of the Lender's Rights or Remedies, and no
express or implied agreement or transaction of whatever nature entered into
between the Lender and any person, at any time, shall preclude the other or
further exercise of the Lender's Rights and Remedies. No waiver by the Lender of
any of the Lender's Rights and Remedies on any one occasion shall be deemed a
waiver on any subsequent occasion, nor shall it be deemed a continuing waiver.
The Lender's Rights and Remedies may be exercised at such time or times and in
such order of preference as the Lender may determine. The Lender's Rights and
Remedies may be exercised without resort or regard to any other source of
satisfaction of the Liabilities.
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ARTICLE 12 - NOTICES:
12.1. NOTICE ADDRESSES.
All notices, demands, and other communications made in respect of any
Loan Document (other than a request for a loan or advance or other financial
accommodation under the Revolving Credit) shall be made to the following
addresses, each of which may be changed upon Seven (7) days written notice to
all others given by certified mail, return receipt requested:
If to the Lender:
▇▇▇▇▇ Fargo Retail Finance, LLC
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ - - ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention : ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Vice President
Fax : ▇▇▇-▇▇▇-▇▇▇▇
With a copy to:
▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇▇ LLP
▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention : ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esquire
Fax : ▇▇▇-▇▇▇-▇▇▇▇
If to the Borrower:
Bluefly, Inc.
▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention : ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Chief Financial Officer
Fax :
With a copy to:
Dechert LLP
▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention : ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Fax : ▇▇▇-▇▇▇-▇▇▇▇
12.2. NOTICE GIVEN.
(a) Except as otherwise specifically provided herein,
notices shall be deemed made and correspondence received, as follows (all times
being local to the place of delivery or receipt):
(i) By mail: the sooner of when actually received or
Three (3) days following deposit in the United States mail, postage
prepaid.
(ii) By recognized overnight express delivery: the
Business Day following the day when sent.
(iii) By Hand: If delivered on a Business Day after
9:00 AM and no later than Three (3) hours prior to the close of
customary business hours of the recipient, when delivered. Otherwise, at
the opening of the then next Business Day.
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(iv) By Facsimile transmission (which must include a
header on which the party sending such transmission is indicated): If
sent on a Business Day after 9:00 AM and no later than Three (3) hours
prior to the close of customary business hours of the recipient, one (1)
hour after being sent. Otherwise, at the opening of the then next
Business Day.
(b) Rejection or refusal to accept delivery and inability to
deliver because of a changed address or Facsimile Number for which no due notice
was given shall each be deemed receipt of the notice sent.
12.3. WIRE INSTRUCTIONS. NOTICE GIVEN.
Subject to change in the same manner that a notice address may be
changed (as to which, see Section 12.1), wire transfers to the Lender shall be
made in accordance with the following wire instructions:
▇▇▇▇▇ Fargo Bank
San Francisco, CA
ABA # ▇▇▇-▇▇▇-▇▇▇
▇▇▇▇▇ Fargo Retail Finance, LLC
Account Number ____________
Ref: Bluefly, Inc.
ARTICLE 13 - TERM:
13.1. TERMINATION OF REVOLVING CREDIT.
The Revolving Credit shall remain in effect (subject to suspension as
provided in Section 2.7) until the Termination Date.
13.2. ACTIONS ON TERMINATION.
(a) On the Termination Date, the Borrower shall pay the
Lender (whether or not then due), in immediately available funds, all then
Liabilities including, without limitation: the following:
(i) The entire balance of the Loan Account
(including the unpaid principal balance of the Revolving Credit Loans).
(ii) Any payments due on account of the
indemnification obligations included in Section 2.11(e).
(iii) Any accrued and unpaid Unused Line Fee.
(iv) Any applicable Revolving Credit Early
Termination Fee.
(v) All unreimbursed costs and expenses of the
Lender for which the Borrower is responsible.
(vi) All other Liabilities, other than Bank Products,
Bank Product Obligations and L/C's, to the extent the Borrower complies
with Sections 13.2 (b) and (c).
(b) On the Termination Date, the Borrower shall also shall
make such arrangements concerning any L/C's and any Bank Products and Bank
Product Obligations then outstanding as are reasonably satisfactory to the
Lender.
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(c) Until such payment (Section 13.2(a)) and arrangements
concerning L/C's, Bank Products, and Bank Product Obligations (Section 13.2(b)),
all provisions of this Agreement, other than those included in Article 2 which
place any obligation on the Lender to make any loans or advances or to provide
any financial accommodations to the Borrower shall remain in full force and
effect until all Liabilities shall have been paid in full.
(d) On the Termination Date, the Borrower shall make such
arrangements with respect to any other continuing Liabilities (such as the
Borrower's continuing Liability to reimburse the Lender as set forth in Section
14.9 and continuing indemnification Liability set forth in Section 14.13) as are
reasonably satisfactory to the Lender, such as by the establishment and funding
of cash collateral reserve accounts in such amounts as the Lender, in its sole
and exclusive discretion, may determine. The release by the Lender of the
Collateral Interests granted to the Lender by the Borrower hereunder may be upon
such other terms, conditions, and indemnifications as the Lender may require.
ARTICLE 14 - GENERAL:
14.1. PROTECTION OF COLLATERAL.
The Lender has no duty as to the collection or protection of the
Collateral beyond the safe custody of such of the Collateral as may come into
the possession of the Lender.
14.2. CONFIDENTIALITY.
The Lender agrees to use commercially reasonable efforts to treat in a
confidential manner any non-public information regarding Borrower, its
operations, assets, and existing and contemplated business plans which is
provided by Borrower to Lender pursuant to this Agreement, and not to disclose
such non-public information to Persons who are not parties to this Agreement
except with the prior consent of the Borrower (which consent shall not be
unreasonably withheld or delayed), and except that such restrictions shall not
apply to information:
(a) provided by Lender to attorneys and other advisors,
accountants, auditors, and consultants who need such information in connection
with their work,
(b) provided by Lender to subsidiaries and Affiliates of the
Lender, provided that any such subsidiary or Affiliate shall have agreed to
receive such information hereunder subject to the terms of this Section 14.2,
(c) as may be required by statute, decision, or judicial or
administrative order, rule, or regulation,
(d) as may be requested or required by any Governmental
Authority pursuant to any subpoena or other legal process (in which case the
Lender shall, if permitted by law) provide notice to the Borrower and an
opportunity to seek a protective order, in each case to the extent commercially
reasonable to do so),
(e) that is or becomes generally available to the public
(other than as a result of prohibited disclosure by the Lender),
(f) as was available to Lender on a non-confidential basis
prior to its disclosure by Lender, has becomes available to Lender on a
non-confidential basis from a Person who, to the best knowledge of Lender, is
not otherwise bound by a confidentiality agreement with Borrower or is not
otherwise prohibited from transmitting the information to Lender;
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(g) in connection with any assignment, prospective
assignment, sale, prospective sale, participation or prospective participations,
or pledge or prospective pledge of any of the Lender's interest under this
Agreement, provided that any such assignee, prospective assignee, purchaser,
prospective purchaser, participant, prospective participant, pledgee, or
prospective pledgee shall have agreed in writing to receive such information
hereunder subject to the terms of this Section 14.2,
(h) in connection with requests from Borrower's vendors for
credit reference with respect to Borrower; and
(i) in connection with any litigation or other adversary
proceeding involving parties hereto which such litigation or adversary
proceeding involves claims related to the rights or duties of such parties under
this Agreement or the other Loan Documents.
Unless sooner terminated by agreement of the parties, the agreements
contained in this Section 14.2 shall terminate, as to Lender One (1) year after
the termination of this Agreement (but Three (3) years after the termination of
this Agreement with respect to vendor information, and an indefinite period of
time with respect to customer lists, unless and to the extent that disclosure is
required by law, rule, or regulation, or pursuant to any administrative or court
order), provided that any such termination shall not relieve the parties of
their obligations under this Section 14.2 with respect to Confidential
Information disclosed prior to the termination hereof.
14.3. PUBLICITY.
The Lender may issue a "tombstone" notice of the establishment of the
credit facility contemplated by this Agreement and may make reference to the
Borrower (and may utilize any logo or other distinctive symbol associated with
the Borrower) in connection with any advertising, promotion, or marketing
(including reference in any "case study" of the creditor facility contemplated
hereby) undertaken by the Lender.
14.4. SUCCESSORS AND ASSIGNS.
This Agreement shall be binding upon the Borrower and its
representatives, successors, and assigns and shall inure to the benefit of the
Lender and their respective successors and assigns, provided, however, no
trustee or other fiduciary appointed with respect to the Borrower shall have any
rights hereunder. In the event that the Lender assigns or transfers its rights
under this Agreement, including without limitation, any assignment in connection
with the exercise by any of the ▇▇▇▇▇ Entities of their "Buyout Option" as set
forth in the Subordination Agreement, the assignee shall thereupon succeed to
and become vested with all rights, powers, privileges, and duties of such
assignor hereunder and such assignor shall thereupon be discharged and relieved
from its duties and obligations hereunder.
14.5. SEVERABILITY.
Any determination that any provision of this Agreement or any
application thereof is invalid, illegal, or unenforceable in any respect in any
instance shall not affect the validity, legality, or enforceability of such
provision in any other instance, or the validity, legality, or enforceability of
any other provision of this Agreement.
14.6. AMENDMENTS. COURSE OF DEALING.
(a) This Agreement and the other Loan Documents incorporate
all discussions and negotiations between the Borrower and the Lender, either
express or implied, concerning the matters included herein and in such other
instruments, any custom, usage, or course of dealings to the contrary
notwithstanding. No such discussions, negotiations, custom, usage, or course of
dealings shall limit, modify, or otherwise affect the provisions thereof. No
failure by the Lender to give notice to the Borrower of the Borrower's having
failed to observe and comply with any warranty or covenant included in any Loan
Document shall constitute a waiver of such warranty or covenant or the amendment
of the subject Loan Document. No change made by the Lender to the manner by
which the Borrowing Base is determined shall obligate the Lender to continue to
determine the Borrowing Base in that manner.
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(b) The Borrower may undertake any action otherwise
prohibited hereby, and may omit to take any action otherwise required hereby,
upon and with the express prior written consent of the Lender. No consent,
modification, amendment, or waiver of any provision of any Loan Document shall
be effective unless executed in writing by or on behalf of the party to be
charged with such modification, amendment, or waiver (and if such party is the
Lender then by a duly authorized officer thereof). Any modification, amendment,
or waiver provided by the Lender shall be in reliance upon all representations
and warranties theretofore made to the Lender by or on behalf of the Borrower
(and any guarantor, endorser, or surety of the Liabilities) and consequently may
be rescinded in the event that any of such representations or warranties was not
true and complete in all material respects when given.
14.7. POWER OF ATTORNEY.
In connection with all powers of attorney included in this Agreement,
the Borrower hereby grants unto the Lender (acting through any of its officers)
full power to do any and all things necessary or appropriate in connection with
the exercise of such powers as fully and effectually as the Borrower might or
could do, hereby ratifying all that said attorney shall do or cause to be done
by virtue of this Agreement. No power of attorney set forth in this Agreement
shall be affected by any disability or incapacity suffered by the Borrower and
each shall survive the same. All powers conferred upon the Lender by this
Agreement, being coupled with an interest, shall be irrevocable until this
Agreement is terminated by a written instrument executed by a duly authorized
officer of the Lender.
14.8. APPLICATION OF PROCEEDS.
The proceeds of any collection, sale, or disposition of the Collateral,
or of any other payments received hereunder, shall be applied towards the
Liabilities in such order and manner as the Lender determines in its sole
discretion. The Borrower shall remain liable for any deficiency remaining
following such application.
14.9. INCREASED COSTS.
If, as a result of any Requirement of Law, or of the interpretation or
application thereof by any court or by any governmental or other authority or
entity charged with the administration thereof, whether or not having the force
of law, which:
(a) subjects the Lender to any taxes or changes the basis of
taxation, or increases any existing taxes, on payments of principal, interest or
other amounts payable by the Borrower to the Lender under this Agreement (except
for taxes on the Lender based on net income or capital imposed by the
jurisdiction in which the principal or lending offices of the Lender is
located);
(b) imposes, modifies or deems applicable any reserve, cash
margin, special deposit or similar requirements against assets held by, or
deposits in or for the account of or loans by or any other acquisition of funds
by the relevant funding office of the Lender;
(c) imposes on the Lender any other condition with respect
to any Loan Document; or
(d) imposes on the Lender a requirement to maintain or
allocate capital in relation to the Liabilities;
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and the result of any of the foregoing, in the Lender's reasonable
opinion, is to increase the cost to the Lender of making or maintaining any
loan, advance or financial accommodation or to reduce the income receivable by
the Lender in respect of any loan, advance or financial accommodation by an
amount which the Lender deems to be material, then upon written notice from the
Lender, from time to time, to the Borrower (such notice to set out in reasonable
detail the facts giving rise to and a summary calculation of such increased cost
or reduced income), the Borrower shall forthwith pay to the Lender, upon receipt
of such notice, that amount which shall compensate the Lender for such
additional cost or reduction in income.
14.10. COSTS AND EXPENSES OF THE LENDER.
(a) The Borrower shall pay from time to time on demand all
Costs of Collection and all reasonable costs, expenses, and disbursements
(including attorneys' reasonable fees and expenses) which are incurred by the
Lender in connection with the preparation, negotiation, execution, and delivery
of this Agreement and of any other Loan Documents, and all other reasonable
costs, expenses, and disbursements which may be incurred in connection with or
in respect to the credit facility contemplated hereby or which otherwise are
incurred with respect to the Liabilities.
(b) The Borrower shall pay from time to time on demand all
reasonable costs and expenses (including attorneys' reasonable fees and
expenses) incurred, following the occurrence of any Event of Default, by the
Lender.
(c) The Borrower authorizes the Lender to pay all such fees
and expenses and in the Lender's discretion, to add such fees and expenses to
the Loan Account.
(d) The undertaking on the part of the Borrower in this
Section 14.10 shall survive payment of the Liabilities and/or any termination,
release, or discharge executed by the Lender in favor of the Borrower, other
than a termination, release, or discharge which makes specific reference to this
Section 14.10.
14.11. COPIES AND FACSIMILES.
Each Loan Document and all documents and papers which relates thereto
which have been or may be hereinafter furnished to the Lender may be reproduced
by the Lender by any photographic, microfilm, xerographic, digital imaging, or
other process, and such Person making such reproduction may destroy any document
so reproduced. Any such reproduction shall be admissible in evidence as the
original itself in any judicial or administrative proceeding (whether or not the
original is in existence and whether or not such reproduction was made in the
regular course of business). Any facsimile which bears proof of transmission
shall be binding on the party which or on whose behalf such transmission was
initiated and likewise shall be so admissible in evidence as if the original of
such facsimile had been delivered to the party which or on whose behalf such
transmission was received.
14.12. MASSACHUSETTS LAW.
This Agreement and all rights and obligations hereunder, including
matters of construction, validity, and performance, shall be governed by the law
of The Commonwealth of Massachusetts.
14.13. CONSENT TO JURISDICTION.
(a) The Borrower agrees that any legal action, proceeding,
case, or controversy against the Borrower with respect to any Loan Document may
be brought in the Superior Court of Suffolk County Massachusetts or in the
United States District Court, District of Massachusetts, sitting in Boston,
Massachusetts, as the Lender may elect in the Lender's sole discretion. By
execution and delivery of this Agreement, the Borrower, for itself and in
respect of its property, accepts, submits, and consents generally and
unconditionally, to the jurisdiction of the aforesaid courts.
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(b) The Borrower WAIVES personal service of any and all
process upon it, and irrevocably consents to the service of process out of any
of the aforementioned courts in any such action or proceeding by the mailing of
copies thereof by certified mail, postage prepaid, to the Borrower at the
Borrower's address for notices as specified herein, such service to become
effective five (5) Business Days after such mailing.
(c) The Borrower WAIVES any objection based on forum non
conveniens and any objection to venue of any action or proceeding instituted
under any of the Loan Documents and consents to the granting of such legal or
equitable remedy as is deemed appropriate by the Court.
(d) Nothing herein shall affect the right of the Lender to
bring legal actions or proceedings in any other competent jurisdiction.
(e) The Borrower agrees that any action commenced by the
Borrower asserting any claim arising under or in connection with this Agreement
or any other Loan Document shall be brought solely in the Superior Court of
Suffolk County Massachusetts or in the United States District Court, District of
Massachusetts, sitting in Boston, Massachusetts, and that such Courts shall have
exclusive jurisdiction with respect to any such action.
14.14. INDEMNIFICATION.
The Borrower shall indemnify, defend, and hold the Lender and any of its
respective employees, officers, or agents (each, an "Indemnified Person")
harmless of and from any claim brought or threatened against any Indemnified
Person by the Borrower, any guarantor or endorser of the Liabilities, or any
other Person (as well as from attorneys' reasonable fees, expenses, and
disbursements in connection therewith) on account of the relationship of the
Borrower or of any other guarantor or endorser of the Liabilities, including all
costs, expenses, liabilities, and damages as may be suffered by any Indemnified
Person in connection with (x) the Collateral; (y) the occurrence of any Event of
Default; or (z) the exercise of any rights or remedies under any of the Loan
Documents (each of claims which may be defended, compromised, settled, or
pursued by the Indemnified Person with counsel of the Lender's selection, but at
the expense of the Borrower) other than any claim as to which a final
determination is made in a judicial proceeding (in which the Lender and any
other Indemnified Person has had an opportunity to be heard), which
determination includes a specific finding that the Indemnified Person seeking
indemnification had acted in a grossly negligent manner or in actual bad faith.
This indemnification shall survive payment of the Liabilities and/or any
termination, release, or discharge executed by the Lender in favor of the
Borrower, other than a termination, release, or discharge duly executed on
behalf of the Lender which makes specific reference to this Section 14.14.
14.15. RULES OF CONSTRUCTION.
The following rules of construction shall be applied in the
interpretation, construction, and enforcement of this Agreement and of the other
Loan Documents:
(a) Unless otherwise specifically provided for herein (and
then only to the extent so provided), interest and any fee or charge which is
stated as a per annum percentage shall be calculated based on a 360 day year and
actual days elapsed.
(b) Words in the singular include the plural and words in
the plural include the singular.
(c) Unless otherwise specifically provided for herein or in
a specific Loan Document (and then only to the extent so provided), as between
the parties hereto or to any Loan Document, the definitions of the following
terms, as included in the UCC, are deemed to be as follows for purposes of the
performance of obligations arising under or in respect of any Loan Document:
(i) "Authenticate" means "signed".
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(ii) "Record" means written information in a tangible
form.
(d) Cross references to Sections in this Agreement begin
with the Article in which that Section appears, and then the Section to which
reference is made.
(e) Titles, headings (indicated by being underlined or shown
in Small Capitals) and any Table of Contents are solely for convenience of
reference; do not constitute a part of the instrument in which included; and do
not affect such instrument's meaning, construction, or effect.
(f) The words "includes" and "including" are not limiting.
(g) Text which follows the words "including, without
limitation" (or similar words) is illustrative and not limitational.
(h) Text which is shown in italics (except for parenthesized
italicized text), shown in bold, shown IN ALL CAPITAL LETTERS, or in any
combination of the foregoing, shall be deemed to be conspicuous.
(i) The words "may not" are prohibitive and not permissive.
(j) Any reference to a Person's "knowledge" (or words of
similar import) are to such Person's knowledge assuming that such Person has
undertaken reasonable and diligent investigation with respect to the subject of
such "knowledge" (whether or not such investigation has actually been
undertaken).
(k) Terms which are defined in one section of any Loan
Document are used with such definition throughout the instrument in which so
defined.
(l) The term "Dollars" and the symbol "$" each refers to
United States Dollars.
(m) Unless limited by reference to a particular Section or
provision, any reference to "herein", "hereof", or "within" is to the entire
Loan Document in which such reference is made.
(n) References to "this Agreement" or to any other Loan
Document is to the subject instrument as amended to the date on which
application of such reference is being made.
(o) Except as otherwise specifically provided, all
references to time are to Boston time.
(p) In the determination of any notice, grace, or other
period of time prescribed or allowed hereunder:
(i) Unless otherwise provided (I) the day of the
act, event, or default from which the designated period of time begins
to run shall not be included and the last day of the period so computed
shall be included unless such last day is not a Business Day, in which
event the last day of the relevant period shall be the then next
Business Day and (II) the period so computed shall end at 5:00 PM on the
relevant Business Day.
(ii) The word "from" means "from and including".
(iii) The words "to" and "until" each mean "to, but
excluding".
(iv) The word "through" means "to and including".
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(q) The Loan Documents shall be construed and interpreted in
a harmonious manner and in keeping with the intentions set forth in Section
14.16, provided, however, in the event of any inconsistency between the
provisions of this Agreement and any other Loan Document, the provisions of this
Agreement shall govern and control.
14.16. INTENT.
It is intended that:
(a) This Agreement take effect as a sealed instrument.
(b) The scope of all Collateral Interests created by the
Borrower to secure the Liabilities be broadly construed in favor of the Lender
and that they cover all assets of the Borrower.
(c) All Collateral Interests created in favor of the Lender
at any time and from time to time secure all Liabilities, whether now existing
or contemplated or hereafter arising.
(d) All reasonable costs, expenses, and disbursements
incurred by the Lender and, to the extent provided in Section 14.10 the Lender,
in connection with such Person's relationship(s) with the Borrower shall be
borne by the Borrower.
(e) Unless otherwise explicitly provided herein, the
Lender's consent to any action of the Borrower which is prohibited unless such
consent is given may be given or refused by the Lender in its sole discretion
and without reference to Section 2.16(a).
(f) The statement in any section hereof that (i) an Event of
Default has occurred unless and until cured, or (ii) a provision of this
Agreement shall apply only "during the continuance of an Event of Default," (or
words of similar import) shall not imply any right or ability of the Borrower to
cure any such Event of Default, or any obligation of the Lender to waive any
Event of Default or permit the cure of any Event of Default, with any such
waiver granted, or cure permitted in the Lender's sole discretion, and without
regard to Section 2.16(a). No such waiver or cure, if granted or permitted,
shall take effect, unless and until provided for in writing executed by duly
authorized officers of the Borrower and the Lender.
14.17. RIGHT OF SET-OFF.
Any and all deposits or other sums at any time credited by or due to the
Borrower from the Lender or from any Affiliate of any of the Lender, and any
cash, securities, instruments or other property of the Borrower in the
possession of any of the foregoing, whether for safekeeping or otherwise
(regardless of the reason such Person had received the same) shall at all times
constitute security for all Liabilities and for any and all obligations of the
Borrower to the Lender or such Affiliate and may be applied or set off against
the Liabilities and against such obligations at any time, whether or not such
are then due and whether or not other collateral is then available to the
Lender.
14.18. PLEDGES TO FEDERAL RESERVE BANKS.
Nothing included in this Agreement shall prevent or limit the Lender, to
the extent that the Lender is subject to any of the twelve Federal Reserve Banks
organized under Section 4 of the Federal Reserve Act (12 U.S.C. Section 341)
from pledging all or any portion of that Lender's interest and rights under this
Agreement, provided, however, neither such pledge nor the enforcement thereof
shall release the Lender from any of its obligations hereunder or under any of
the Loan Documents.
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14.19. MAXIMUM INTEREST RATE.
Regardless of any provision of any Loan Document, the Lender shall not
be entitled to contract for, charge, receive, collect, or apply as interest on
any Liability, any amount in excess of the maximum rate imposed by Applicable
Law. Any payment which is made which, if treated as interest on a Liability
would result in such interest's exceeding such maximum rate shall be held, to
the extent of such excess, as additional collateral for the Liabilities as if
such excess were "Collateral.
14.20. WAIVERS.
(a) The Borrower makes each of the waivers included in
Section 14.20(b), knowingly, voluntarily, and intentionally, and understands
that Lender, in establishing the facilities contemplated hereby and in providing
loans and other financial accommodations to or for the account of the Borrower
as provided herein, whether now or in the future, is relying on such waivers.
(b) THE BORROWER WAIVES THE FOLLOWING:
(i) Except as otherwise specifically required
hereby, notice of non-payment, demand, presentment, protest and all
forms of demand and notice, both with respect to the Liabilities and the
Collateral.
(ii) Except as otherwise specifically required
hereby, the right to notice and/or hearing prior to the Lender's
exercising of the Lender's rights upon default.
(iii) THE RIGHT TO A JURY IN ANY TRIAL OF ANY CASE OR
CONTROVERSY IN WHICH THE LENDER IS OR BECOMES A PARTY (WHETHER SUCH CASE
OR CONTROVERSY IS INITIATED BY OR AGAINST THE LENDER OR IN WHICH THE
LENDER IS JOINED AS A PARTY LITIGANT), WHICH CASE OR CONTROVERSY ARISES
OUT OF OR IS IN RESPECT OF, ANY RELATIONSHIP AMONG OR BETWEEN THE
BORROWER OR ANY OTHER PERSON AND THE LENDER LIKEWISE WAIVES THE RIGHT TO
A JURY IN ANY TRIAL OF ANY SUCH CASE OR CONTROVERSY).
(iv) The benefits or availability of any stay,
limitation, hindrance, delay, or restriction (including, without
limitation, any automatic stay which otherwise might be imposed pursuant
to Section 362 of the Bankruptcy Code) with respect to any action which
the Lender may or may become entitled to take hereunder.
(v) Any defense, counterclaim, set-off, recoupment,
or other basis on which the amount of any Liability, as stated on the
books and records of the Lender, could be reduced or claimed to be paid
otherwise than in accordance with the tenor of and written terms of such
Liability.
(vi) Any claim to consequential, special, or punitive
damages.
[SIGNATURE PAGES FOLLOW]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as a sealed instrument as
of the day and year first above written.
(THE "BORROWER")
BLUEFLY, INC.
By /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
----------------------------
Print Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: COO and CFO
(THE "LENDER")
▇▇▇▇▇ FARGO RETAIL FINANCE, LLC
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
---------------------------
Print Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Title: Vice President
64