Exhibit 4.1
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LOAN AND SECURITY AGREEMENT
by and between
SWANK, INC.
as Borrower,
and
▇▇▇▇▇ FARGO FOOTHILL, INC.
as Lender
Dated as of June 30, 2004
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TABLE OF CONTENTS
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1. DEFINITIONS AND CONSTRUCTION............................................................................1
1.1 Definitions....................................................................................1
1.2 Accounting Terms..............................................................................23
1.3 Code..........................................................................................23
1.4 Construction..................................................................................23
1.5 Schedules and Exhibits........................................................................24
2. LOAN AND TERMS OF PAYMENT..............................................................................24
2.1 Revolver Advances.............................................................................24
2.2 Term Loan.....................................................................................25
2.3 Borrowing Procedures and Settlements..........................................................25
2.4 Payments......................................................................................26
2.5 Overadvances..................................................................................28
2.6 Interest Rates and Letter of Credit Fee: Rates, Payments, and Calculations...................28
2.7 Cash Management...............................................................................30
2.8 Crediting Payments; Float Charge..............................................................31
2.9 Designated Account............................................................................31
2.10 Maintenance of Loan Account; Statements of Obligations........................................31
2.11 Fees..........................................................................................32
2.12 Letters of Credit.............................................................................32
2.13 LIBOR Option..................................................................................35
2.14 Capital Requirements..........................................................................37
3. CONDITIONS; TERM OF AGREEMENT..........................................................................38
3.1 Conditions Precedent to the Initial Extension of Credit.......................................38
3.2 Conditions Subsequent to the Initial Extension of Credit......................................41
3.3 Conditions Precedent to all Extensions of Credit..............................................42
3.4 Term..........................................................................................42
3.5 Effect of Termination.........................................................................42
3.6 Early Termination by Borrower.................................................................43
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4. CREATION OF SECURITY INTEREST..........................................................................43
4.1 Grant of Security Interest....................................................................43
4.2 Negotiable Collateral.........................................................................44
4.3 Collection of Accounts, General Intangibles, and Negotiable Collateral........................44
4.4 Filing of Financing Statements; Commercial Tort Claims; Delivery of Additional
Documentation Required........................................................................44
4.5 Power of Attorney.............................................................................45
4.6 Right to Inspect..............................................................................46
4.7 Control Agreements............................................................................46
5. REPRESENTATIONS AND WARRANTIES.........................................................................46
5.1 No Encumbrances...............................................................................46
5.2 Eligible Accounts.............................................................................46
5.3 Eligible Inventory............................................................................47
5.4 Equipment.....................................................................................47
5.5 Location of Inventory and Equipment...........................................................47
5.6 Inventory Records.............................................................................47
5.7 State of Incorporation; Location of Chief Executive Office; Organizational
Identification Number; Commercial Tort Claims.................................................47
5.8 Due Organization and Qualification; Subsidiaries..............................................47
5.9 Due Authorization; No Conflict................................................................48
5.10 Litigation....................................................................................49
5.11 No Material Adverse Change....................................................................50
5.12 Fraudulent Transfer...........................................................................50
5.13 Employee Benefits.............................................................................50
5.14 Environmental Condition.......................................................................50
5.15 Brokerage Fees................................................................................50
5.16 Intellectual Property.........................................................................50
5.17 Leases........................................................................................51
5.18 Deposit Accounts and Securities Accounts......................................................51
5.19 Complete Disclosure...........................................................................51
5.20 Indebtedness..................................................................................51
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6. AFFIRMATIVE COVENANTS..................................................................................51
6.1 Accounting System.............................................................................51
6.2 Collateral Reporting..........................................................................52
6.3 Financial Statements, Reports, Certificates...................................................53
6.4 Guarantor Reports.............................................................................54
6.5 Returns.......................................................................................54
6.6 Maintenance of Properties.....................................................................55
6.7 Taxes.........................................................................................55
6.8 Insurance.....................................................................................55
6.9 Location of Inventory and Equipment...........................................................56
6.10 Compliance with Laws..........................................................................56
6.11 Leases........................................................................................56
6.12 Existence.....................................................................................57
6.13 Environmental.................................................................................57
6.14 Disclosure Updates............................................................................57
6.15 Formation of Subsidiaries.....................................................................57
7. NEGATIVE COVENANTS.....................................................................................58
7.1 Indebtedness..................................................................................58
7.2 Liens.........................................................................................59
7.3 Restrictions on Fundamental Changes...........................................................59
7.4 Disposal of Assets............................................................................59
7.5 Change Name...................................................................................59
7.6 Nature of Business............................................................................59
7.7 Prepayments and Amendments....................................................................59
7.8 Change of Control.............................................................................59
7.9 Consignments..................................................................................59
7.10 Distributions.................................................................................60
7.11 Accounting Methods............................................................................60
7.12 Investments...................................................................................60
7.13 Transactions with Affiliates..................................................................60
7.14 Suspension....................................................................................60
7.15 Compensation..................................................................................60
7.16 Use of Proceeds...............................................................................60
7.17 Inventory and Equipment with Bailees..........................................................61
7.18 Financial Covenants...........................................................................61
8. EVENTS OF DEFAULT......................................................................................62
9. LENDER'S RIGHTS AND REMEDIES...........................................................................64
9.1 Rights and Remedies...........................................................................64
9.2 Remedies Cumulative...........................................................................66
10. TAXES AND EXPENSES.....................................................................................67
11. WAIVERS; INDEMNIFICATION...............................................................................67
11.1 Demand; Protest; etc..........................................................................67
11.2 Lender's Liability for Borrower Collateral....................................................67
11.3 Indemnification...............................................................................67
12. NOTICES................................................................................................68
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.............................................................69
14. ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS.............................................................70
14.1 Assignments and Participations................................................................70
14.2 Successors....................................................................................72
15. AMENDMENTS; WAIVERS....................................................................................73
15.1 Amendments and Waivers........................................................................73
15.2 No Waivers; Cumulative Remedies...............................................................73
16. GENERAL PROVISIONS.....................................................................................73
16.1 Effectiveness.................................................................................73
16.2 Section Headings..............................................................................73
16.3 Interpretation................................................................................73
16.4 Severability of Provisions....................................................................73
16.5 Withholding Taxes.............................................................................73
16.6 Counterparts; Electronic Execution............................................................74
16.7 Revival and Reinstatement of Obligations......................................................74
16.8 Confidentiality...............................................................................75
16.9 Integration...................................................................................75
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EXHIBITS AND SCHEDULES
Exhibit C-1 Form of Compliance Certificate
Exhibit L-1 Form of LIBOR Notice
Schedule A-1 Attleboro Property Equipment
Schedule D-1 Designated Account
Schedule E-1 Eligible Inventory Locations
Schedule L-1 Lender's Account
Schedule PI-1 Permitted Investments
Schedule P-1 Permitted Liens
Schedule 2.7(a) Cash Management Banks
Schedule 5.5 Locations of Inventory and Equipment
Schedule 5.7(a) States of Organization
Schedule 5.7(b) Chief Executive Offices
Schedule 5.7(c) Organizational Identification Numbers
Schedule 5.7(d) Commercial Tort Claims
Schedule 5.8(b) Capitalization of Borrower
Schedule 5.8(c) Capitalization of Borrower's Subsidiaries
Schedule 5.10 Litigation
Schedule 5.14 Environmental Matters
Schedule 5.16 Intellectual Property
Schedule 5.18 Deposit Accounts and Securities Accounts
Schedule 5.20 Permitted Indebtedness
Schedule 5.28 License Agreements
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (this "Agreement"), is
entered into as of June 30, 2004, by and between ▇▇▇▇▇ FARGO FOOTHILL, INC., a
California corporation ("Lender") and SWANK, INC., a Delaware corporation
("Borrower").
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1 Definitions. As used in this Agreement, the following terms shall
have the following definitions:
"Account" means an account (as that term is defined in the
Code).
"Account Debtor" means any Person who is obligated on an
Account, chattel paper, or a General Intangible.
"ACH Transactions" means any cash management or related
services (including the Automated Clearing House processing of electronic fund
transfers through the direct Federal Reserve Fedline system) provided by a Bank
Product Provider for the account of Borrower or its Subsidiaries.
"Additional Documents" has the meaning set forth in Section
4.4(c).
"Advances" has the meaning set forth in Section 2.1(a).
"Affiliate" means, as applied to any Person, any other Person
who, directly or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, such Person. For purposes of
this definition, "control" means the possession, directly or indirectly through
one or more intermediaries, of the power to direct the management and policies
of a Person, whether through the ownership of Stock, by contract, or otherwise;
provided, however, that, for purposes of the definition of Eligible Accounts and
Section 7.13 hereof: (a) any Person which owns directly or indirectly 10% or
more of the Stock having ordinary voting power for the election of directors or
other members of the governing body of a Person or 10% or more of the
partnership or other ownership interests of a Person (other than as a limited
partner of such Person) shall be deemed an Affiliate of such Person, (b) each
director (or comparable manager) of a Person shall be deemed to be an Affiliate
of such Person, and (c) each partnership or joint venture in which a Person is a
partner or joint venturer shall be deemed an Affiliate of such Person.
"Agreement" has the meaning set forth in the preamble hereto.
"Applicable Prepayment Premium" means, as of any date of
determination, an amount equal to (a) during the period from and after the date
of the execution and delivery of this Agreement up to the date that is the first
anniversary of the Closing Date, 5% times the Maximum Revolver Amount, (b)
during the period from and including the date that is the first anniversary of
the Closing Date up to the date that is the second anniversary of the Closing
Date, 4% times the Maximum Revolver Amount, (c) during the period from and
including the date that is the second anniversary of the Closing Date up to the
date that is the third anniversary of the Closing Date, 3% times the Maximum
Revolver Amount, (d) during the period from and including the date that is the
third anniversary of the Closing Date up to the date that is the fourth
anniversary of the Closing Date, 2% times the Maximum Revolver Amount, and (e)
during the period from and including the date that is the fourth anniversary of
the Closing Date up to the date which is 90 days prior to the Maturity Date, 1%
times the Maximum Revolver Amount.
"Assignee" has the meaning set forth in Section 14.1(a).
"Attleboro Property" means Borrower's owned real property
located in Attleboro, Massachusetts (including the land, building, structures,
fixtures and other improvements located thereon and all licenses, easements and
appurtenances relating thereto).
"Authorized Person" means any officer or employee of
Borrower.
"Availability" means, as of any date of determination, the
amount that Borrower is entitled to borrow as Advances hereunder (after giving
effect to all then outstanding Obligations (other than Bank Product Obligations)
and all sublimits and reserves then applicable hereunder).
"Bank Product" means any financial accommodation extended to
Borrower or its Subsidiaries by a Bank Product Provider (other than pursuant to
this Agreement) 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)
transactions under Hedge Agreements.
"Bank Product Agreements" means those agreements entered into
from time to time by Borrower or its Subsidiaries with a Bank Product Provider
in connection with the obtaining of any of the Bank Products.
"Bank Product Obligations" means all obligations, liabilities,
contingent reimbursement obligations, fees, and expenses owing by Borrower or
its Subsidiaries to any Bank Product Provider pursuant to or evidenced by the
Bank Product Agreements and irrespective of whether for the payment of money,
whether direct or indirect, absolute or contingent, due or to become due, now
existing or hereafter arising, and including all such amounts that Borrower or
its Subsidiaries are obligated to reimburse to Lender as a result of Lender
purchasing participations from, or executing indemnities or reimbursement
obligations to, a Bank Product Provider with respect to the Bank Products
provided by such Bank Product Provider to Borrower or its Subsidiaries.
"Bank Product Provider" means ▇▇▇▇▇ Fargo or any of its
Affiliates.
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"Bank Product Reserve" means, as of any date of determination,
the amount of reserves that Lender has established (based upon the Bank Product
Providers' reasonable determination of the credit exposure of Borrower and its
Subsidiaries in respect of Bank Products) in respect of Bank Products then
provided or outstanding.
"Bankruptcy Code" means title 11 of the United States Code, as
in effect from time to time.
"Base LIBOR Rate" means the rate per annum, determined by
Lender in accordance with its customary procedures, and utilizing such
electronic or other quotation sources as it considers appropriate (rounded
upwards, if necessary, to the next 1/100%), to be the rate at which Dollar
deposits (for delivery on the first day of the requested Interest Period) are
offered to major banks in the London interbank market 2 Business Days prior to
the commencement of the requested Interest Period, for a term and in an amount
comparable to the Interest Period and the amount of the LIBOR Rate Loan
requested (whether as an initial LIBOR Rate Loan or as a continuation of a LIBOR
Rate Loan or as a conversion of a Base Rate Loan to a LIBOR Rate Loan) by
Borrower in accordance with this Agreement, which determination shall be
conclusive in the absence of manifest error.
"Base Rate" means, the rate of interest announced, from time
to time, within ▇▇▇▇▇ Fargo at its principal office in San Francisco as its
"prime rate", with the understanding that the "prime rate" is one of ▇▇▇▇▇
Fargo's base rates (not necessarily the lowest of such rates) and serves as the
basis upon which effective rates of interest are calculated for those loans
making reference thereto and is evidenced by the recording thereof after its
announcement in such internal publications as ▇▇▇▇▇ Fargo may designate.
"Base Rate Loan" means the portion of the Advances that bears
interest at a rate determined by reference to the Base Rate.
"Base Rate Margin" means 1.25 percentage points.
"Benefit Plan" means a "defined benefit plan" (as defined in
Section 3(35) of ERISA) which is subject to Title IV of ERISA and for which
Borrower or any Subsidiary or ERISA Affiliate of Borrower has been an "employer"
(as defined in Section 3(5) of ERISA) within the past six years.
"Board of Directors" means the board of directors (or
comparable managers) of Borrower or any committee thereof duly authorized to act
on behalf of the board of directors (or comparable managers).
"Books" means all of Borrower's and its Subsidiaries' now
owned or hereafter acquired books and records (including all of their Records
indicating, summarizing, or evidencing their assets (including the Collateral)
or liabilities, all of Borrower's and its Subsidiaries' Records relating to
their business operations or financial condition, and all of their goods or
General Intangibles related to such information).
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"Borrower" has the meaning set forth in the preamble to this
Agreement.
"Borrower Collateral" means all of Borrower's now owned or
hereafter acquired right, title, and interest in and to each of the following:
(a) all of its Accounts,
(b) all of its Books,
(c) all of its commercial tort claims described on Schedule
5.7(d),
(d) all of its Deposit Accounts,
(e) all of its Equipment,
(f) all of its General Intangibles,
(g) all of its Inventory,
(h) all of its Investment Property (including all of its
securities and Securities Accounts),
(i) all of its Negotiable Collateral,
(j) all of its Supporting Obligations,
(k) money or other assets of Borrower that now or hereafter
come into the possession, custody, or control of the Lender, and
(l) the proceeds and products, whether tangible or intangible,
of any of the foregoing, including proceeds of insurance covering any or all of
the foregoing, and any and all Accounts, Books, Deposit Accounts, Equipment,
General Intangibles, Inventory, Investment Property, Negotiable Collateral, Real
Property, Supporting Obligations, money, or other tangible or intangible
property resulting from the sale, exchange, collection, or other disposition of
any of the foregoing, or any portion thereof or interest therein, and the
proceeds thereof.
"Borrowing" means a borrowing hereunder consisting of
Advances.
"Borrowing Base" means, as of any date of determination, the
result of:
(a) the lesser of
(i) 85% of the amount of Eligible Accounts, less the
amount, if any, of the Dilution Reserve, and
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(ii) an amount equal to Borrower's Collections with
respect to Accounts for the immediately preceding 75 day period, plus
(b) the lowest of
(i) $9,000,000 (the "Inventory Cap"), provided, however
to the extent that the ratio of Eligible Accounts to Eligible Inventory is less
than 1.10:1.00 at any time during the months of July, August or September, or
less than 1.25:1.00 at any time during any other month, then the Inventory Cap
shall be reduced to an amount which would permit the Borrower to comply with
such ratio during such applicable period,
(ii) 60% of the value of Eligible Inventory, provided,
however, in no event shall the aggregate amount of (1) Eligible Inventory which
consists of In-Transit Inventory (as defined in the definition of "Eligible
Inventory") shall not exceed $1,600,000 at any time; and (2) Eligible Inventory
which consists of retail inventory shall not exceed $500,000 at any time; and
(iii) 80% times the Net Liquidation Percentage times the
book value of Borrower's Inventory, minus
(c) the sum of (i) the Bank Product Reserve, and (ii) the
aggregate amount of reserves, if any, established by Lender under Section
2.1(b).
"Business Day" means any day that is not a Saturday, Sunday,
or other day on which banks are authorized or required to close in the state of
California or the Commonwealth of Massachusetts, except that, if a determination
of a Business Day shall relate to a LIBOR Rate Loan, the term "Business Day"
also shall exclude any day on which banks are closed for dealings in Dollar
deposits in the London interbank market.
"Capital Expenditures" means, with respect to any Person for
any period, the aggregate of all expenditures by such Person and its
Subsidiaries during such period that are capital expenditures as determined in
accordance with GAAP, whether such expenditures are paid in cash or financed.
"Capitalized Lease Obligation" means that portion of the
obligations under a Capital Lease that is required to be capitalized in
accordance with GAAP.
"Capital Lease" means a lease that is required to be
capitalized for financial reporting purposes in accordance with GAAP.
"Cash Equivalents" means (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
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acquisition, having one of the two highest ratings obtainable from either
Standard & Poor's Rating Group ("S&P") or ▇▇▇▇▇'▇ Investor 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.
"Cash Management Account" has the meaning set forth in Section
2.6(a).
"Cash Management Agreements" means those certain cash
management agreements, in form and substance satisfactory to Lender, each of
which is among Borrower or one of its Subsidiaries, Lender, and one of the Cash
Management Banks.
"Cash Management Bank" has the meaning set forth in Section
2.6(a).
"Change of Control" means (a) the transfer (in one transaction
or a series of transactions) of all or substantially all of the assets of
Borrower to any Person or group (as such term is used in Sections 13(d)(3) of
the Exchange Act); (b) the liquidation or dissolution of Borrower or the
adoption of a plan by the stockholders or other equityholders of Borrower
relating to the dissolution or liquidation of Borrower; (c) the acquisition by
any Person or group (as such term is used in Sections 13(d)(3) of the Exchange
Act), except for one or more Permitted Holders, of beneficial ownership,
directly or indirectly, of a majority of the voting power of the total
outstanding Voting Stock of Borrower; or (d) during any period of twelve (12)
consecutive calendar months, individuals who at the beginning of such period
constituted the Board of Directors of Borrower (together with any new directors
who have been appointed by any Permitted Holder, or whose nomination for
election by the stockholders or other equityholders of Borrower, as the case may
be, was approved by a vote of at least sixty-six and two thirds percent (66
2/3%) 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 to constitute a majority of the
Board of Directors of Borrower then still in office.
"Closing Date" means the date of the making of the initial
Advance (or other extension of credit) hereunder.
"Closing Date Business Plan" means the set of Projections of
Borrower for the 1 year period following the Closing Date (on a month by month
basis), in form and substance (including as to scope and underlying assumptions)
satisfactory to Lender.
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"Code" means the Uniform Commercial Code of the Commonwealth
of Massachusetts, as in effect from time to time; provided, however, that in the
event that, by reason of mandatory provisions of law, any or all of the
attachment, perfection, priority, or remedies with respect to Lender's Lien on
any Collateral is governed by the Uniform Commercial Code as enacted and in
effect in a jurisdiction other than the Commonwealth of Massachusetts, the term
"Code" shall mean the Uniform Commercial Code as enacted and in effect in such
other jurisdiction solely for purposes of the provisions thereof relating to
such attachment, perfection, priority, or remedies.
"Collateral" means all assets and interests in assets and
proceeds thereof now owned or hereafter acquired by Borrower or its Subsidiaries
in or upon which a Lien is granted under any of the Loan Documents, provided,
however, for the avoidance of doubt, "Collateral" does not include the Attleboro
Property.
"Collateral Access Agreement" means a landlord waiver, bailee
letter, or acknowledgement agreement of any lessor, warehouseman, processor,
consignee, or other Person in possession of, having a Lien upon, or having
rights or interests in Borrower's or its Subsidiaries' Books, Equipment, or
Inventory, in each case, in form and substance satisfactory to Lender.
"Collections" means all cash, checks, notes, instruments, and
other items of payment (including insurance proceeds, proceeds of cash sales,
rental proceeds, and tax refunds).
"Commercial Tort Claim Assignment" has the meaning set forth
in Section 4.4(b).
"Compliance Certificate" means a certificate substantially in
the form of Exhibit C-1, which certificate is signed by the chief financial
officer of the Borrower, and delivered by the Borrower to Lender.
"Control Agreement" means a control agreement, in form and
substance reasonably satisfactory to Lender, executed and delivered by Borrower
or one of its Subsidiaries, Lender, and the applicable securities intermediary
(with respect to a Securities Account) or bank (with respect to a Deposit
Account).
"Daily Balance" means, as of any date of determination and
with respect to any Obligation, the amount of such Obligation owed at the end of
such day.
"Default" means an event, condition, or default that, with the
giving of notice, the passage of time, or both, would be an Event of Default.
"Deposit Account" means any deposit account (as that term is
defined in the Code).
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"Designated Account" means the Deposit Account of Borrower
identified on Schedule D-1.
"Designated Account Bank" has the meaning ascribed thereto on
Schedule D-1.
"Dilution" means, as of any date of determination, a
percentage, based upon the experience of the immediately prior 365 consecutive
days, that is the result of dividing the Dollar amount of (a) bad debt
write-downs, discounts, advertising allowances, credits, or other dilutive items
with respect to Borrower's Accounts during such period, by (b) the aggregate
amount of Borrower's ▇▇▇▇▇▇▇▇ with respect to Accounts during such period.
"Dilution Reserve" means, as of any date of determination, an
amount sufficient to reduce the advance rate against Eligible Accounts by 1
percentage point for each percentage point by which Dilution is in excess of 5%.
"Disbursement Letter" means an instructional letter executed
and delivered by Borrower to Lender regarding the extensions of credit to be
made on the Closing Date, the form and substance of which is satisfactory to
Lender.
"Distribution" means the declaration or payment of any
dividend on or in respect of any shares of capital Stock of the Borrower, other
than dividends payable solely in shares of common stock of the Borrower; the
purchase, redemption, defeasance, retirement or other acquisition of any shares
of any class of capital Stock of the Borrower, directly or indirectly through a
Subsidiary of the Borrower or otherwise (including the setting apart of assets
for a sinking or other analogous fund to be used for such purpose); the return
of capital by the Borrower to its shareholders as such; or any other
distribution on or in respect of any shares of any class of capital Stock of the
Borrower.
"Dollars" or "$" means United States dollars.
"Domestic Subsidiary" means any Subsidiary which is not a
Foreign Subsidiary.
"EBITDA" means, with respect to any fiscal period, Borrower's
and its Subsidiaries' consolidated net earnings (or loss), minus extraordinary
gains and interest income, plus, to the extent deducted in the calculation of
consolidated net earnings, interest expense, income taxes, and depreciation and
amortization for such period, plus, to the extent deducted in the calculation of
EBITDA, the sum of (a) the one time non-cash writeoff taken in the applicable
period in connection with the sale and closing of Attleboro Property, plus (b)
the one time non-cash writeoff taken by the Borrower in the applicable period in
connection with deferred financings costs associated with the refinancing of the
Indebtedness of the Existing Lender as contemplated hereunder, plus (c) the one
time cash expenses actually incurred by the Borrower in the applicable period in
connection with the early termination of the financing provided by the Existing
Lender, in each case, as determined in accordance with GAAP.
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"Eligible Accounts" means those Accounts created by Borrower
in the ordinary course of its business, that arise out of Borrower's sale of
goods or rendition of services, that comply with each of the representations and
warranties respecting Eligible Accounts made in the Loan Documents, and that are
not excluded as ineligible by virtue of one or more of the excluding criteria
set forth below; provided, however, that such criteria may be revised from time
to time by Lender in Lender's Permitted Discretion to address the results of any
audit performed by Lender from time to time after the Closing Date. In
determining the amount to be included, Eligible Accounts shall be calculated net
of customer deposits and unapplied cash. Eligible Accounts shall not include the
following:
(a) Accounts pursuant to which payments by the applicable
Account Debtors in respect thereof are more than 60 days past due or Accounts
with selling terms of more than 60 days, provided, notwithstanding the
foregoing, to the extent otherwise includable under this definition, the
Borrower shall be permitted to include (i) Accounts owing from ▇▇▇▇ ▇▇▇▇▇▇▇ with
selling terms of not more than 90 days so long as the aggregate amount of all
such Accounts does not exceed $300,000 at any time; and (ii) Accounts owing from
the Burlington Coat Factory with selling terms of not more than 60 days after
the 10th day of the calendar month occurring immediately after the date on which
the goods pertaining to such invoice are shipped by Borrower,
(b) Accounts owed by an Account Debtor (or its Affiliates)
where 50% or more of all Accounts owed by that Account Debtor (or its
Affiliates) are deemed ineligible under clause (a) above,
(c) Accounts with respect to which the Account Debtor is an
Affiliate of Borrower or an employee or agent of Borrower or any Affiliate of
Borrower,
(d) Accounts arising in a transaction wherein goods are placed
on consignment or are sold pursuant to a guaranteed sale, a sale or return, a
sale on approval, a ▇▇▇▇ and hold, or any other terms by reason of which the
payment by the Account Debtor may be conditional, provided, however,
notwithstanding the foregoing, to the extent otherwise includable under this
definition, the Borrower shall be permitted to include Accounts arising in a
transaction where goods are sold to certain major department store customers
pursuant to a rotational program pursuant to which the Borrower agrees to
replace old goods with new goods so long as such program is in the ordinary
course of business consistent with past practices,
(e) Accounts that are not payable in Dollars,
(f) Accounts with respect to which the Account Debtor either
(i) does not maintain its chief executive office in the United States, Canada or
Puerto Rico, provided, however, the aggregate amount of Accounts to be included
herein with respect to which the Account Debtor is located in Canada shall not
exceed $1,000,000 in the aggregate at any time or (ii) is not organized under
the laws of the United States or any state thereof, or (iii) is the government
of any foreign country or sovereign state, or of any state, province,
9
municipality, or other political subdivision thereof, or of any department,
agency, public corporation, or other instrumentality thereof, unless (y) the
Account is supported by an irrevocable letter of credit satisfactory to Lender
(as to form, substance, and issuer or domestic confirming bank) that has been
delivered to Lender and is directly drawable by Lender, or (z) the Account is
covered by credit insurance in form, substance, and amount, and by an insurer,
satisfactory to Lender,
(g) Accounts with respect to which the Account Debtor is
either (i) the United States or any department, agency, or instrumentality of
the United States (exclusive, however, of Accounts with respect to which
Borrower has complied, to the reasonable satisfaction of Lender, with the
Assignment of Claims Act, 31 USC ss. 3727), or (ii) any state of the United
States,
(h) Accounts with respect to which the Account Debtor is a
creditor of Borrower, has or has asserted a right of setoff, or has disputed its
obligation to pay all or any portion of the Account, to the extent of such
claim, right of setoff, or dispute,
(i) Accounts with respect to (i) an Account Debtor other than
The Marmaxx Group, Federated and Kohls, whose total obligations owing to
Borrower exceed 10%; and (ii) an Account Debtor which is any of The Marmaxx
Group, The May Department Stores Company, Federated and/or Kohls, whose total
obligations owing to Borrower exceed 20%, in each case with such percentage, as
applied to a particular Account Debtor being subject to reduction by Lender in
its Permitted Discretion if the creditworthiness of such Account Debtor
deteriorates of all Eligible Accounts, to the extent of the obligations owing by
such Account Debtor in excess of such percentage; provided, however, that, in
each case, the amount of Eligible Accounts that are excluded because they exceed
the foregoing percentage shall be determined by Lender based on all of the
otherwise Eligible Accounts prior to giving effect to any eliminations based
upon the foregoing concentration limit,
(j) Accounts with respect to which the Account Debtor is
subject to an Insolvency Proceeding, is not Solvent, has gone out of business,
or as to which Borrower has received notice of an imminent Insolvency Proceeding
or a material impairment of the financial condition of such Account Debtor,
(k) Accounts with respect to which the Account Debtor is
located in a state or jurisdiction that requires, as a condition to access to
the courts of such jurisdiction, that a creditor qualify to transact business,
file a business activities report or other report or form, or take one or more
other actions, unless Borrower has so qualified, filed such reports or forms, or
taken such actions (and, in each case, paid any required fees or other charges),
except to the extent that Borrower may qualify subsequently as a foreign entity
authorized to transact business in such state or jurisdiction and gain access to
such courts, without incurring any cost or penalty viewed by Lender to be
significant in amount, and such later qualification cures any access to such
courts to enforce payment of such Account,
10
(l) Accounts, the collection of which, Lender, in its
Permitted Discretion, believes to be doubtful by reason of the Account Debtor's
financial condition,
(m) Accounts that are not subject to a valid and perfected
first priority Lender's Lien,
(n) Accounts with respect to which (i) the goods giving rise
to such Account have not been shipped and billed to the Account Debtor, or (ii)
the services giving rise to such Account have not been performed and billed to
the Account Debtor, or
(o) Accounts that represent the right to receive progress
payments or other advance ▇▇▇▇▇▇▇▇ that are due prior to the completion of
performance by Borrower of the subject contract for goods or services.
"Eligible Inventory" means Inventory consisting of first
quality finished goods held for sale in the ordinary course of Borrower's
business, that complies with each of the representations and warranties
respecting Eligible Inventory made in the Loan Documents, and that is not
excluded as ineligible by virtue of one or more of the excluding criteria set
forth below; provided, however, that such criteria may be revised from time to
time by Lender in Lender's Permitted Discretion to address the results of any
audit or appraisal performed by Lender from time to time after the Closing Date.
In determining the amount to be so included, Inventory shall be valued at the
lower of standard cost or market on a basis consistent with Borrower's
historical accounting practices. An item of Inventory shall not be included in
Eligible Inventory if:
(a) Borrower does not have good, valid, and marketable title
thereto,
(b) it is not located at one of the locations in the
continental United States set forth on Schedule E-1 (or in-transit from one such
location to another such location or in-transit from outside of the United
States to one of the locations in the continental United States set forth on
Schedule E-1), provided, to the extent any such inventory is in-transit and has
been fully prepaid by the applicable Account Debtor, the Borrower shall be
permitted to include such inventory subject to the Lender's receipt of
satisfactory documentation (including, without limitation, negotiable bills of
lading with the Lender listed as a consignee and freight forwarder/customer
broker agreements in form and substance satisfactory to the Lender) and the
Lender being satisfied that all actions have been taken to perfect its security
interest in such inventory which is in-transit (such inventory which meets such
criteria set forth in this proviso being hereinafter referred to as the
"In-Transit Inventory");
(c) it is located on real property leased by Borrower or in a
contract warehouse, in each case, unless it is subject to a Collateral Access
Agreement executed by the lessor or warehouseman, as the case may be, and unless
it is segregated or otherwise separately identifiable from goods of others, if
any, stored on the premises,
(d) it is not subject to a valid and perfected first priority
Lender's Lien,
11
(e) it consists of goods returned or rejected by Borrower's
customers (unless such goods so returned or rejected are accepted back by the
Borrower and such goods are, at the time of such acceptances, in first quality
saleable condition), or
(f) it consists of inventory supporting a License Agreement
which is terminated or not renewed in accordance with its terms, or
(g) it consists of goods that are obsolete or slow moving,
restrictive or custom items, work-in-process, raw materials, or goods that
constitute spare parts, packaging and shipping materials, supplies used or
consumed in Borrower's business, ▇▇▇▇ and hold goods, defective goods,
"seconds," or Inventory acquired on consignment.
"Eligible Transferee" means (a) a commercial bank organized
under the laws of the United States, or any state thereof, and having total
assets in excess of $250,000,000, (b) a commercial bank organized under the laws
of any other country which is a member of the Organization for Economic
Cooperation and Development or a political subdivision of any such country and
which has total assets in excess of $250,000,000, provided that such bank is
acting through a branch or agency located in the United States, (c) a finance
company, insurance company, or other financial institution or fund that is
engaged in making, purchasing, or otherwise investing in commercial loans in the
ordinary course of its business and having (together with its Affiliates) total
assets in excess of $250,000,000, (d) any Affiliate (other than individuals) of
Lender, (e) so long as no Event of Default has occurred and is continuing, any
other Person approved by Borrower, and (f) during the continuation of an Event
of Default, any other Person approved by Lender.
"Environmental Actions" means any complaint, summons,
citation, notice, directive, order, claim, litigation, investigation, judicial
or administrative proceeding, judgment, letter, or other communication from any
Governmental Authority, or any third party involving violations of Environmental
Laws or releases of Hazardous Materials (a) from any assets, properties, or
businesses of Borrower, its Subsidiaries, or any of their predecessors in
interest, (b) from adjoining properties or businesses (but only to the extent
any such communication referred to above is either directed to the Borrower or
could reasonably be expected to impact the Borrower), or (c) from or onto any
facilities which received Hazardous Materials generated by Borrower, its
Subsidiaries, or any of their predecessors in interest.
"Environmental Law" means any applicable federal, state,
provincial, foreign or local statute, law, rule, regulation, ordinance, code,
binding and enforceable guideline, binding and enforceable written policy, or
rule of common law now or hereafter in effect and in each case as amended, or
any judicial or administrative interpretation thereof, including any judicial or
administrative order, consent decree or judgment, in each case, to the extent
binding on Borrower or its Subsidiaries, relating to the environment, the effect
of the environment on employee health, or Hazardous Materials, including the
Comprehensive Environmental Response Compensation and Liability Act, 42 USC ss.
9601 et seq.; the Resource Conservation and Recovery Act, 42 USC ss. 6901 et
seq.; the Federal Water Pollution Control Act, 33 USC ss. 1251 et seq.; the
12
Toxic Substances Control Act, 15 USC ss. 2601 et seq.; the Clean Air Act, 42 USC
ss. 7401 et seq.; the Safe Drinking Water Act, 42 USC ss. 3803 et seq.; the Oil
Pollution Act of 1990, 33 USC ss. 2701 et seq.; the Emergency Planning and the
Community Right-to-Know Act of 1986, 42 USC ss. 11001 et seq.; the Hazardous
Material Transportation Act, 49 USC ss. 1801 et seq.; and the Occupational
Safety and Health Act, 29 USC ss.651 et seq. (to the extent it regulates
occupational exposure to Hazardous Materials); any state and local or foreign
counterparts or equivalents, in each case as amended from time to time.
"Environmental Liabilities and Costs" means all liabilities,
monetary obligations, losses, damages, punitive damages, consequential damages,
treble damages, costs and expenses (including all reasonable fees, disbursements
and expenses of counsel, experts, or consultants, and costs of investigation and
feasibility studies), fines, penalties, sanctions, and interest incurred as a
result of any claim or demand, or Remedial Action required, by any Governmental
Authority or any third party, and which relate to any Environmental Action.
"Environmental Lien" means any Lien in favor of any
Governmental Authority for Environmental Liabilities and Costs.
"Equipment" means equipment (as that term is defined in the
Code) and includes machinery, machine tools, motors, furniture, furnishings,
fixtures, vehicles (including motor vehicles), computer hardware, tools, parts,
and goods (other than consumer goods, farm products, or Inventory), wherever
located, including all attachments, accessories, accessions, replacements,
substitutions, additions, and improvements to any of the foregoing.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and any successor statute thereto.
"ERISA Affiliate" means (a) any Person subject to ERISA whose
employees are treated as employed by the same employer as the employees of
Borrower or its Subsidiaries under IRC Section 414(b), (b) any trade or business
subject to ERISA whose employees are treated as employed by the same employer as
the employees of Borrower or its Subsidiaries under IRC Section 414(c), (c)
solely for purposes of Section 302 of ERISA and Section 412 of the IRC, any
organization subject to ERISA that is a member of an affiliated service group of
which Borrower or any of its Subsidiaries is a member under IRC Section 414(m),
or (d) solely for purposes of Section 302 of ERISA and Section 412 of the IRC,
any Person subject to ERISA that is a party to an arrangement with Borrower or
any of its Subsidiaries and whose employees are aggregated with the employees of
Borrower or its Subsidiaries under IRC Section 414(o).
"Event of Default" has the meaning set forth in Section 8.
"Excess Availability" means, as of any date of determination,
the amount equal to Availability minus the aggregate amount, if any, of all
trade payables of Borrower and its Subsidiaries aged in excess of historical
levels with respect thereto and all book overdrafts of Borrower and its
Subsidiaries in excess of historical practices with respect thereto.
13
"Exchange Act" means the Securities Exchange Act of 1934, as
in effect from time to time.
"Existing Lender" means Congress Financial Corporation (New
England).
"Family Member" means, with respect to any individual, any
other individual having a relationship by blood (to the second degree of
consanguinity), marriage, or adoption to such individual.
"Family Trusts" means, with respect to any individual, trusts
or other estate planning vehicles established for the benefit of such individual
or Family Members of such individual and in respect of which such individual
serves as trustee or in a similar capacity.
"Fee Letter" means that certain fee letter, dated as of even
date herewith, between Borrower and Lender, in form and substance satisfactory
to Lender.
"Foreign Subsidiary" means any Subsidiary of the Borrower that
is organized under the laws of a jurisdiction other than the United States and
the states (or the District of Columbia) thereof.
"Funding Date" means the date on which a Borrowing occurs.
"Funding Losses" has the meaning set forth in Section
2.13(b)(ii).
"GAAP" means generally accepted accounting principles as in
effect from time to time in the United States, consistently applied.
"General Intangibles" means general intangibles (as that term
is defined in the Code), including payment intangibles, contract rights, rights
to payment, rights arising under common law, statutes, or regulations, choses or
things in action, goodwill, patents, trade names, trade secrets, trademarks,
servicemarks, copyrights, blueprints, drawings, purchase orders, customer lists,
monies due or recoverable from pension funds, route lists, rights to payment and
other rights under any royalty or licensing agreements, infringement claims,
computer programs, information contained on computer disks or tapes, software,
literature, reports, catalogs, insurance premium rebates, tax refunds, and tax
refund claims, and any other personal property other than Accounts, Deposit
Accounts, goods, Investment Property, and Negotiable Collateral.
"Governing Documents" means, with respect to any Person, the
certificate or articles of incorporation, by-laws, or other organizational
documents of such Person.
"Governmental Authority" means any federal, state, local, or
other governmental or administrative body, instrumentality, board, department,
or agency or any court, tribunal, administrative hearing body, arbitration
panel, commission, or other similar dispute-resolving panel or body.
14
"Guarantors" means each Domestic Subsidiary of Borrower, and
"Guarantor" means any one of them.
"Guarantor Security Agreement" means one or more security
agreements executed and delivered by each Guarantor in favor of Lender and the
Bank Product Providers, in each case, in form and substance satisfactory to
Lender.
"Guaranty" means that certain general continuing guaranty
executed and delivered by each Guarantor in favor of Lender and the Bank Product
Providers, in form and substance satisfactory to Lender.
"Hazardous Materials" means (a) substances that are defined or
listed in, or otherwise classified pursuant to, any applicable laws or
regulations as "hazardous substances," "hazardous materials," "hazardous
wastes," "toxic substances," or any other formulation intended to define, list,
or classify substances by reason of deleterious properties such as ignitability,
corrosivity, reactivity, carcinogenicity, reproductive toxicity, or "EP
toxicity", (b) oil, petroleum, or petroleum derived substances, natural gas,
natural gas liquids, synthetic gas, drilling fluids, produced waters, and other
wastes associated with the exploration, development, or production of crude oil,
natural gas, or geothermal resources, (c) any flammable substances or explosives
or any radioactive materials, and (d) asbestos in any form or electrical
equipment that contains any oil or dielectric fluid containing levels of
polychlorinated biphenyls in excess of 50 parts per million.
"Hedge Agreement" means any and all agreements or documents
now existing or hereafter entered into by Borrower or any of its Subsidiaries
that provide for an interest rate, credit, commodity or equity swap, cap, floor,
collar, forward foreign exchange transaction, currency swap, cross currency rate
swap, currency option, or any combination of, or option with respect to, these
or similar transactions, for the purpose of hedging Borrower's or any of its
Subsidiaries' exposure to fluctuations in interest or exchange rates, loan,
credit exchange, security, or currency valuations or commodity prices.
"Inactive Subsidiary" means Joyas y Cueros de Costa Rica,
S.A..
"Indebtedness" means (a) all obligations for borrowed money,
(b) all obligations evidenced by bonds, debentures, notes, or other similar
instruments and all reimbursement or other obligations in respect of letters of
credit, bankers acceptances, interest rate swaps, or other financial products,
(c) all obligations as a lessee under Capital Leases or Synthetic Leases, (d)
all obligations or liabilities of others secured by a Lien on any asset of a
Person or its Subsidiaries, irrespective of whether such obligation or liability
is assumed, (e) all obligations to pay the deferred purchase price of assets
(other than trade payables incurred in the ordinary course of business and
repayable in accordance with customary trade practices), (f) all obligations
owing under Hedge Agreements, and (g) any obligation guaranteeing or intended to
guarantee (whether directly or indirectly guaranteed, endorsed, co-made,
15
discounted, or sold with recourse) any obligation of any other Person that
constitutes Indebtedness under any of clauses (a) through (f) above.
"Indemnified Liabilities" has the meaning set forth in Section
11.3.
"Indemnified Person" has the meaning set forth in Section
11.3.
"Insolvency Proceeding" means any proceeding commenced by or
against any Person under any provision of the Bankruptcy Code or under any other
state or federal bankruptcy or insolvency law, assignments for the benefit of
creditors, formal or informal moratoria, compositions, extensions generally with
creditors, or proceedings seeking reorganization, arrangement, or other similar
relief.
"Intangible Assets" means, with respect to any Person, that
portion of the book value of all of such Person's assets that would be treated
as intangibles under GAAP.
"Intercompany Subordination Agreement" means, to the extent
applicable, a subordination agreement executed and delivered by Borrower and
each of its Subsidiaries and Lender, the form and substance of which is
satisfactory to Lender.
"Interest Expense" means, for any period, the aggregate of the
interest expense of Borrower and its Subsidiaries for such period, determined on
a consolidated basis in accordance with GAAP.
"Interest Period" means, with respect to each LIBOR Rate Loan,
a period commencing on the date of the making of such LIBOR Rate Loan (or the
continuation of a LIBOR Rate Loan or the conversion of a Base Rate Loan to a
LIBOR Rate Loan) and ending 1, 2, or 3 months thereafter; provided, however,
that (a) if any Interest Period would end on a day that is not a Business Day,
such Interest Period shall be extended (subject to clauses (c)-(e) below) to the
next succeeding Business Day, (b) interest shall accrue at the applicable rate
based upon the LIBOR Rate from and including the first day of each Interest
Period to, but excluding, the day on which any Interest Period expires, (c) any
Interest Period that would end on a day that is not a Business Day shall be
extended to the next succeeding Business Day unless such Business Day falls in
another calendar month, in which case such Interest Period shall end on the next
preceding Business Day, (d) with respect to an Interest Period that begins on
the last Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such Interest
Period), the Interest Period shall end on the last Business Day of the calendar
month that is 1, 2, or 3 months after the date on which the Interest Period
began, as applicable, and (e) Borrower may not elect an Interest Period which
will end after the Maturity Date.
"Inventory" means inventory (as that term is defined in the
Code).
"Investment" means, with respect to any Person, any investment
by such Person in any other Person (including Affiliates) in the form of loans,
guarantees, advances, or capital contributions (excluding (a) commission,
travel, and similar advances to officers and employees of such Person made in
16
the ordinary course of business, and (b) bona fide Accounts arising in the
ordinary course of business consistent with past practice), purchases or other
acquisitions of Indebtedness, Stock, or all or substantially all of the assets
of such other Person (or of any division or business line of such other Person),
and any other items that are or would be classified as investments on a balance
sheet prepared in accordance with GAAP.
"Investment Property" means investment property (as that term
is defined in the Code).
"IRC" means the Internal Revenue Code of 1986, as in effect
from time to time.
"L/C" has the meaning set forth in Section 2.11(a).
"L/C Disbursement" means a payment made by Lender pursuant to
a Letter of Credit.
"L/C Undertaking" has the meaning set forth in Section
2.11(a).
"Lender" has the meaning set forth in the preamble to this
Agreement.
"Lender Expenses" means all (a) costs or expenses (including
taxes, and insurance premiums) required to be paid by Borrower or its
Subsidiaries under any of the Loan Documents that are paid, advanced, or
incurred by Lender, (b) reasonable fees or charges paid or incurred by Lender in
connection with Lender's transactions with Borrower or its Subsidiaries,
including, fees or charges for photocopying, notarization, couriers and
messengers, telecommunication, public record searches (including tax lien,
litigation, and UCC searches and including searches with the patent and
trademark office, the copyright office, or the department of motor vehicles),
filing, recording, publication, appraisal (including periodic collateral
appraisals or business valuations to the extent of the fees and charges (and up
to the amount of any limitation) contained in this Agreement), real estate
surveys, real estate title policies and endorsements, and environmental audits,
(c) costs and expenses incurred by Lender in the disbursement of funds to
Borrower (by wire transfer or otherwise), (d) charges paid or incurred by Lender
resulting from the dishonor of checks, (e) reasonable costs and expenses paid or
incurred by Lender to correct any default or enforce any provision of the Loan
Documents, or in gaining possession of, maintaining, handling, preserving,
storing, shipping, selling, preparing for sale, or advertising to sell the
Collateral, or any portion thereof, irrespective of whether a sale is
consummated, (f) audit fees and expenses of Lender related to audit examinations
of the Books to the extent of the fees and charges (and up to the amount of any
limitation) contained in this Agreement, (g) reasonable costs and expenses of
third party claims or any other suit paid or incurred by Lender in enforcing or
defending the Loan Documents or in connection with the transactions contemplated
by the Loan Documents or Lender's relationship with Borrower or any of its
Subsidiaries, (h) Lender's reasonable costs and expenses (including reasonable
attorneys fees) incurred in advising, structuring, drafting, reviewing,
administering, syndicating, or amending the Loan Documents, and (i) Lender's
17
reasonable costs and expenses (including attorneys, accountants, consultants,
and other advisors reasonable fees and expenses) incurred in terminating,
enforcing (including attorneys, accountants, consultants, and other advisors
fees and expenses incurred in connection with a "workout," a "restructuring," or
an Insolvency Proceeding concerning Borrower or its Subsidiaries or in
exercising rights or remedies under the Loan Documents), or defending the Loan
Documents, irrespective of whether suit is brought, or in taking any Remedial
Action concerning the Collateral.
"Lender-Related Person" means Lender, together with its
Affiliates, officers, directors, employees, attorneys, and agents.
"Lender's Account" means the account identified in Schedule
L-1.
"Lender's Liens" means the Liens granted by Borrower and its
Subsidiaries to Lender under this Agreement or the other Loan Documents.
"Letter of Credit" means an L/C or an L/C Undertaking, as the
context requires.
"Letter of Credit Usage" means, as of any date of
determination, the aggregate undrawn amount of all outstanding Letters of
Credit.
"LIBOR Deadline" has the meaning set forth in Section
2.12(b)(i).
"LIBOR Notice" means a written notice in the form of Exhibit
L-1.
"LIBOR Option" has the meaning set forth in Section 2.12(a).
"LIBOR Rate" means, for each Interest Period for each LIBOR
Rate Loan, the rate per annum determined by Lender (rounded upwards, if
necessary, to the next 1/100%) by dividing (a) the Base LIBOR Rate for such
Interest Period, by (b) 100% minus the Reserve Percentage. The LIBOR Rate shall
be adjusted on and as of the effective day of any change in the Reserve
Percentage.
"LIBOR Rate Loan" means each portion of an Advance that bears
interest at a rate determined by reference to the LIBOR Rate.
"LIBOR Rate Margin" means 3.75 percentage points.
"License Agreement" means, collectively, those certain license
agreements between the Borrower and certain other Persons pursuant to which the
Borrower licenses the rights to use certain names, tradenames, trademarks and
other intellectual property of such Person in connection with its sale and
distribution of certain men's accessories and other products.
"Lien" means any interest in an asset securing an obligation
owed to, or a claim by, any Person other than the owner of the asset,
irrespective of whether (a) such interest is based on the common law, statute,
18
or contract, (b) such interest is recorded or perfected, and (c) such interest
is contingent upon the occurrence of some future event or events or the
existence of some future circumstance or circumstances. Without limiting the
generality of the foregoing, the term "Lien" includes the lien or security
interest arising from a mortgage, deed of trust, encumbrance, pledge,
hypothecation, assignment, deposit arrangement, security agreement, conditional
sale or trust receipt, or from a lease, consignment, or bailment for security
purposes and also includes reservations, exceptions, encroachments, easements,
rights-of-way, covenants, conditions, restrictions, leases, and other title
exceptions and encumbrances affecting Real Property.
"Loan Account" has the meaning set forth in Section 2.10.
"Loan Documents" means this Agreement, the Bank Product
Agreements, the Cash Management Agreements, the Control Agreements, the
Disbursement Letter, the Fee Letter, the Guarantor Security Agreement, the
Guaranty, the Intercompany Subordination Agreement, the Letters of Credit, the
Mortgages, the Patent Security Agreement, the Trademark Security Agreement, any
note or notes executed by Borrower in connection with this Agreement and payable
to Lender, and any other agreement entered into, now or in the future, by
Borrower and Lender in connection with this Agreement.
"Material Adverse Change" means (a) a material adverse change
in the business, prospects, operations, results of operations, assets,
liabilities or condition (financial or otherwise) of Borrower and its
Subsidiaries, taken as a whole, (b) a material impairment of Borrower's and its
Subsidiaries' ability to perform their respective obligations under the Loan
Documents to which they are parties or of Lender's ability to enforce the
Obligations or realize upon the Collateral, or (c) a material impairment of the
enforceability or priority of the Lender's Liens with respect to the Collateral
as a result of an action or failure to act on the part of Borrower or its
Subsidiaries.
"Maturity Date" has the meaning set forth in Section 3.4.
"Maximum Revolver Amount" means $25,000,000.
"Mortgages" means, individually and collectively, one or more
mortgages, deeds of trust, or deeds to secure debt, executed and delivered by
Borrower or its Subsidiaries in favor of Lender, in form and substance
satisfactory to Lender, that encumber the Real Property Collateral.
"Negotiable Collateral" means letters of credit, letter of
credit rights, instruments, promissory notes, drafts, documents, and chattel
paper (including electronic chattel paper and tangible chattel paper).
"Net Liquidation Percentage" means the percentage of the book
value of Borrower's Inventory that is estimated to be recoverable in an orderly
liquidation of such Inventory net of all associated costs and expenses of such
liquidation, such percentage to be as determined from time to time by a
qualified appraisal company, other than ▇▇▇▇▇▇ Bros. selected by Lender.
19
"Obligations" means (a) all loans, Advances, debts, principal,
interest (including any interest that, but for the commencement of an Insolvency
Proceeding, would have accrued), contingent reimbursement obligations with
respect to outstanding Letters of Credit, premiums, liabilities (including all
amounts charged to Borrower's Loan Account pursuant hereto), obligations
(including indemnification obligations), fees (including the fees provided for
in the Fee Letter), charges, costs, Lender Expenses (including any fees or
expenses that, but for the commencement of an Insolvency Proceeding, would have
accrued), lease payments, guaranties, covenants, and duties of any kind and
description owing by Borrower to Lender pursuant to or evidenced by the Loan
Documents and irrespective of whether for the payment of money, whether direct
or indirect, absolute or contingent, due or to become due, now existing or
hereafter arising, and including all interest not paid when due and all Lender
Expenses that Borrower is required to pay or reimburse by the Loan Documents, by
law, or otherwise, and (b) all Bank Product Obligations. Any reference in this
Agreement or in the Loan Documents to the Obligations shall include all
extensions, modifications, renewals or alterations thereof, both prior and
subsequent to any Insolvency Proceeding.
"Overadvance" has the meaning set forth in Section 2.5.
"Participant" has the meaning set forth in Section 14.1(d).
"Patent Security Agreement" means a patent security agreement
executed and delivered by Borrower and Lender, the form and substance of which
is satisfactory to Lender.
"Pay-Off Letter" means a letter, in form and substance
satisfactory to Lender, from Existing Lender to Lender respecting the amount
necessary to repay in full all of the obligations of Borrower and its
Subsidiaries owing to Existing Lender and obtain a release of all of the Liens
existing in favor of Existing Lender in and to the assets of Borrower and its
Subsidiaries.
"Permitted Discretion" means a determination made in the
exercise of reasonable (from the perspective of a secured asset-based lender)
business judgment.
"Permitted Dispositions" means (a) sales or other dispositions
of Equipment that is substantially worn, damaged, obsolete, or is no longer used
or useful and has a fair market value of less than $25,000, in each case in the
ordinary course of business, (b) sales of Inventory to buyers in the ordinary
course of business, (c) the use or transfer of money or Cash Equivalents in a
manner that is not prohibited by the terms of this Agreement or the other Loan
Documents, (d) the licensing, on a non-exclusive basis, of patents, trademarks,
copyrights, and other intellectual property rights in the ordinary course of
business; and (e) the sale of the Attleboro Property, provided such sale is on
substantially the terms and conditions previously disclosed in writing to
Lender.
20
"Permitted Holders" means The New Swank, Inc. Retirement Plan
and the trustees thereof, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇,
other officers and directors of Borrower and, as to any individuals, their
respective Family Members and Family Trusts.
"Permitted Investments" means (a) Investments in cash and Cash
Equivalents, (b) Investments in negotiable instruments for collection or
deposit, (c) advances or prepayments made in connection with purchases of goods
or services in the ordinary course of business consistent with past practices,
(d) Investments received in settlement of amounts due to Borrower or any of its
Subsidiaries effected in the ordinary course of business or owing to Borrower or
any of its Subsidiaries as a result of Insolvency Proceedings involving an
Account Debtor or upon the foreclosure or enforcement of any Lien in favor of
Borrower or its Subsidiaries; (e) Investments existing on the Closing Date and
set forth on Schedule PI-1 hereto; (f) Investments consisting of the granting of
trade credit in the ordinary course of business consistent with past practices;
(g) Investments consisting of advances to employees in the nature of draws
against commissions made in the ordinary course of business consistent with past
practices, provided, the aggregate amount of all such Investments do not exceed
$40,000 per month per employee at any time; (h) Investments consisting of
expense advances to employees in the ordinary course of business consistent with
past practices, provided no single expense advance exceeds $1,000; (i)
Investments consisting of obligations of Account Debtors to Borrower arising
from amounts owing on past due Accounts and which amounts are evidenced by a
written promissory note from such Account Debtor to Borrower, provided all
actions necessary to perfect Lender's security interest in such note have been
taken (including such original note being endorsed to Lender and delivered to
Lender); and (j) so long as no Default or Event of Default has occurred as is
continuing, Investments by Borrower in The New Swank Inc. Retirement Plan
consisting of advances made by Borrower to The New Swank Inc. Retirement Plan,
the proceeds of which are used by The New Swank Inc. Retirement Plan to
repurchase from employees of Borrower shares of the Stock of Borrower owned by
such employee, provided, (i) the aggregate amount of any such Investment made
pursuant to this paragraph (j) shall be deducted from the calculation of EBITDA
in the applicable period in which such Investment was made (whether such
deduction is a result of such Investment being expensed or otherwise deducted);
(ii) the aggregate amount of such Investment together with any Restricted
Payment permitted hereunder shall not exceed $350,000 in any calendar year; and
(iii) the Borrower's Availability both before and after making such Investment
is not less than $2,000,000.
"Permitted Liens" means (a) Liens held by Lender, (b) Liens
for unpaid taxes that either (i) are not yet delinquent, or (ii) do not
constitute an Event of Default hereunder and are the subject of Permitted
Protests, (c) Liens set forth on Schedule P-1, (d) the interests of lessors
under operating leases, (e) purchase money Liens or the interests of lessors
under Capital Leases to the extent that such Liens or interests secure Permitted
Purchase Money Indebtedness and so long as such Lien attaches only to the asset
purchased or acquired and the proceeds thereof, (f) Liens arising by operation
of law in favor of warehousemen, landlords, carriers, mechanics, materialmen,
laborers, or suppliers, incurred in the ordinary course of business and not in
21
connection with the borrowing of money, and which Liens either (i) are for sums
not yet delinquent, or (ii) are the subject of Permitted Protests, (g) Liens on
amounts deposited in connection with obtaining worker's compensation or other
unemployment insurance, (h) Liens 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, (i) Liens on amounts
deposited as security for surety or appeal bonds in connection with obtaining
such bonds in the ordinary course of business, (j) Liens resulting from any
judgment or award that is not an Event of Default hereunder, and (k) with
respect to any Real Property, easements, rights of way, and zoning restrictions
that do not materially interfere with or impair the use or operation thereof.
"Permitted Protest" means the right of Borrower or any of its
Subsidiaries to protest any Lien (other than any Lien that secures the
Obligations), taxes (other than payroll taxes or taxes that are the subject of a
United States federal tax lien), or rental payment, provided that (a) a reserve
with respect to such obligation is established on the Books in such amount if
and as is required under GAAP, (b) any such protest is instituted promptly and
prosecuted diligently by Borrower or any of its Subsidiaries, as applicable, in
good faith, and (c) Lender is satisfied that, while any such protest is pending,
there will be no impairment of the enforceability, validity, or priority of any
of the Lender's Liens.
"Permitted Purchase Money Indebtedness" means, as of any date
of determination, Purchase Money Indebtedness incurred after the Closing Date in
an aggregate amount outstanding at any one time not in excess of $100,000.
"Person" means natural persons, corporations, limited
liability companies, limited partnerships, general partnerships, limited
liability partnerships, joint ventures, trusts, land trusts, business trusts, or
other organizations, irrespective of whether they are legal entities, and
governments and agencies and political subdivisions thereof.
"Projections" means Borrower's forecasted (a) balance sheets,
(b) profit and loss statements, and (c) cash flow statements, all prepared on a
basis consistent with Borrower's historical financial statements, together with
appropriate supporting details and a statement of underlying assumptions.
"Purchase Money Indebtedness" means Indebtedness (other than
the Obligations, but including Capitalized Lease Obligations), incurred at the
time of, or within 20 days after, the acquisition of any fixed assets for the
purpose of financing all or any part of the acquisition cost thereof.
"Qualified Cash" means, as of any date of determination, the
amount of unrestricted cash and Cash Equivalents of Borrower and the Guarantors
that is in Deposit Accounts or in Securities Accounts, or any combination
thereof, and which such Deposit Account or Securities Account is the subject of
a Control Agreement and is maintained by a branch office of the bank or
securities intermediary located within the United States.
22
"Real Property" means any estates or interests in real
property now owned or hereafter acquired by Borrower or any of its Subsidiaries
and the improvements thereto.
"Real Property Collateral" means any Real Property, other than
the Attleboro Property, subject to a Mortgage.
"Record" means information that is inscribed on a tangible
medium or which is stored in an electronic or other medium and is retrievable in
perceivable form.
"Remedial Action" means all necessary or otherwise prudent
actions taken to (a) clean up, remove, remediate, contain, treat, monitor,
assess, evaluate, or in any way address Hazardous Materials in the indoor or
outdoor environment, (b) prevent or minimize a release or threatened release of
Hazardous Materials so they do not migrate or endanger or threaten to endanger
public health or welfare or the indoor or outdoor environment, (c) restore or
reclaim natural resources or the environment, (d) perform any pre-remedial
studies, investigations, or post-remedial operation and maintenance activities,
or (e) conduct any other actions with respect to Hazardous Materials authorized
by Environmental Laws.
"Required Availability" means that the sum of (a) Excess
Availability, plus (b) Qualified Cash exceeds $2,000,000.
"Reserve Percentage" means, on any day, for Lender, the
maximum percentage prescribed by the Board of Governors of the Federal Reserve
System (or any successor Governmental Authority) for determining the reserve
requirements (including any basic, supplemental, marginal, or emergency
reserves) that are in effect on such date with respect to eurocurrency funding
(currently referred to as "eurocurrency liabilities") of Lender, but so long as
Lender is not required or directed under applicable regulations to maintain such
reserves, the Reserve Percentage shall be zero.
"Restricted Payment" means, in relation to the Borrower and
its Subsidiaries, any (a) Distribution, (b) payment or prepayment by the
Borrower or any of its Subsidiaries to the Borrower's or any Subsidiary's
shareholders (or other equity holders) or to any Affiliate of the Borrower or
any Subsidiary or any Affiliate of the Borrower's or such Subsidiary's
shareholders (or other equity holders), in each case, other than to the Borrower
or any Guarantor, (c) deriviatives or other transactions with any financial
institution, commodities or stock exchange or clearinghouse (a "Derivatives
Counterparty") obligating the Borrower or any Subsidiary to make payments to
such Derivatives Counterparty as a result of any change in market value of any
Capital Stock of the Borrower or such Subsidiary or (d) payment in respect of
any phantom stock or similar interests.
"Revolver Usage" means, as of any date of determination, the
sum of (a) the amount of outstanding Advances, plus (b) the amount of the Letter
of Credit Usage.
"SEC" means the United States Securities and Exchange
Commission and any successor thereto.
23
"Securities Account" means a securities account (as that term
is defined in the Code).
"Solvent" means, with respect to any Person on a particular
date, that, at fair valuations, the sum of such Person's assets is greater than
all of such Person's debts.
"Stock" means all shares, options, warrants, interests,
participations, or other equivalents (regardless of how designated) of or in a
Person, whether voting or nonvoting, including common stock, preferred stock, or
any other "equity security" (as such term is defined in Rule 3a11-1 of the
General Rules and Regulations promulgated by the SEC under the Exchange Act).
"Subsidiary" of a Person means a corporation, partnership,
limited liability company, or other entity in which that Person directly or
indirectly owns or controls the shares of Stock having ordinary voting power to
elect a majority of the board of directors (or appoint other comparable
managers) of such corporation, partnership, limited liability company, or other
entity.
"Supporting Obligation" means a letter-of-credit right or
secondary obligation that supports the payment or performance of an Account,
chattel paper, document, General Intangible, instrument, or Investment Property.
"Synthetic Lease" means any lease of goods or other property,
whether real or personal, which is treated as an operating lease under GAAP and
as a loan or financing for U.S. income tax purposes.
"Taxes" has the meaning set forth in Section 16.5.
"Trademark Security Agreement" means a trademark security
agreement executed and delivered by Borrower and Lender, the form and substance
of which is satisfactory to Lender.
"Tulin Note" means that certain Amended and Restated
Convertible Subordinated Promissory Note in the original principal amount of
$350,000, dated June 30, 2004 from the Borrower to ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, and as the
same may be further amended, modified, supplemented, restated, or renewed from
time to time to the extent permitted by this Agreement..
"Underlying Issuer" means a third Person which is the
beneficiary of an L/C Undertaking and which has issued a letter of credit at the
request of Lender for the benefit of Borrower.
"Underlying Letter of Credit" means a letter of credit that
has been issued by an Underlying Issuer.
"United States" means the United States of America.
24
"Voting Stock" means stock or similar interests, of any class
or classes (however designated), the holders of which are at the time entitled,
as such holders, to vote for the election of a majority of the directors (or
persons performing similar functions) of the corporation, association, trust or
other business entity involved, whether or not the right so to vote exists by
reason of the happening of a contingency.
"Voidable Transfer" has the meaning set forth in Section 16.8.
"▇▇▇▇▇ Fargo" means ▇▇▇▇▇ Fargo Bank, National Association, a
national banking association.
1.2 Accounting Terms. All accounting terms not specifically defined
herein shall be construed in accordance with GAAP. When used herein, the term
"financial statements" shall include the notes and schedules thereto. Whenever
the term "Borrower" is used in respect of a financial covenant or a related
definition, it shall be understood to mean Borrower and its Subsidiaries on a
consolidated basis unless the context clearly requires otherwise. If at any time
change in GAAP would affect the computation of any financial ratio or
requirement set forth in this Agreement or any other Loan Document, and either
the Borrower or Lender so requests, the Borrower and the Lender shall negotiate
in good faith to amend such ratio or requirement to preserve the original intent
thereof in light of such change in GAAP (subject to the approval of the Lender),
provided, that, until so amended, (a) such ratio or requirement shall continue
to be computed in accordance with GAAP prior to such change therein and (b)
Borrower shall provide to the Lender financial statements and other documents
required under this Agreement or as reasonably requested hereunder setting forth
a reconciliation between calculations of such ratio or requirement made before
and after giving effect to such change in GAAP.
1.3 Code. Any terms used in this Agreement that are defined in the Code
shall be construed and defined as set forth in the Code unless otherwise defined
herein; provided, however, that to the extent that the Code is used to define
any term herein and such term is defined differently in different Articles of
the Code, the definition of such term contained in Article 9 shall govern.
1.4 Construction. Unless the context of this Agreement or any other
Loan Document clearly requires otherwise, references to the plural include the
singular, references to the singular include the plural, the terms "includes"
and "including" are not limiting, and the term "or" has, except where otherwise
indicated, the inclusive meaning represented by the phrase "and/or." The words
"hereof," "herein," "hereby," "hereunder," and similar terms in this Agreement
or any other Loan Document refer to this Agreement or such other Loan Document,
as the case may be, as a whole and not to any particular provision of this
Agreement or such other Loan Document, as the case may be. Section, subsection,
clause, schedule, and exhibit references herein are to this Agreement unless
otherwise specified. Any reference in this Agreement or in the other Loan
Documents to any agreement, instrument, or document shall include all
alterations, amendments, changes, extensions, modifications, renewals,
replacements, substitutions, joinders, and supplements, thereto and thereof, as
25
applicable (subject to any restrictions on such alterations, amendments,
changes, extensions, modifications, renewals, replacements, substitutions,
joinders, and supplements set forth herein). Any reference herein to the
satisfaction or repayment in full of the Obligations shall mean the repayment in
full in cash (or cash collateralization in accordance with the terms hereof) of
all Obligations other than contingent indemnification Obligations and other than
any Bank Product Obligations that, at such time, are allowed by the applicable
Bank Product Provider to remain outstanding and are not required to be repaid or
cash collateralized pursuant to the provisions of this Agreement. Any reference
herein to any Person shall be construed to include such Person's successors and
assigns. Any requirement of a writing contained herein or in the other Loan
Documents shall be satisfied by the transmission of a Record and any Record
transmitted shall constitute a representation and warranty as to the accuracy
and completeness of the information contained therein.
1.5 Schedules and Exhibits. All of the schedules and exhibits attached
to this Agreement shall be deemed incorporated herein by reference.
2. LOAN AND TERMS OF PAYMENT.
2.1 Revolver Advances.
-----------------
(a) Subject to the terms and conditions of this Agreement, and
during the term of this Agreement, Lender agrees to make advances ("Advances")
to Borrower in an amount at any one time outstanding not to exceed an amount
equal to the lesser of (i) the Maximum Revolver Amount less the Letter of Credit
Usage, or (ii) the Borrowing Base less the Letter of Credit Usage.
(b) Anything to the contrary in this Section 2.1 notwithstanding,
Lender shall have the right to establish reserves in such amounts, and with
respect to such matters, as Lender in its Permitted Discretion shall deem
necessary or appropriate, against the Borrowing Base, including reserves with
respect to (i) sums that Borrower is required to pay (such as taxes,
assessments, insurance premiums, or, in the case of leased assets, rents or
other amounts payable under such leases) and has failed to pay under any Section
of this Agreement or any other Loan Document, and (ii) amounts owing by Borrower
or its Subsidiaries to any Person to the extent secured by a Lien on, or trust
over, any of the Collateral (other than any existing Permitted Lien set forth on
Schedule P-1 which is specifically identified thereon as entitled to have
priority over the Lender's Liens), which Lien or trust, in the Permitted
Discretion of Lender likely would have a priority superior to the Lender's Liens
(such as Liens or trusts in favor of landlords, warehousemen, carriers,
mechanics, materialmen, laborers, or suppliers, or Liens or trusts for ad
valorem, excise, sales, or other taxes where given priority under applicable
law) in and to such item of the Collateral. In addition to the foregoing, Lender
shall have the right to have the Borrower's Inventory reappraised by a qualified
appraisal company selected by Lender from time to time after the Closing Date
for the purpose of re-determining the Net Liquidation Percentage of Borrower's
Inventory (which appraisal can consist of a full appraisal including a site
visit) and, as a result, re-determining the Borrowing Base, provided, however so
long as no Default or Event of Default has occurred and is continuing hereunder,
the Borrower shall only be obligated to pay for two such reappraisals in each
calendar year.
26
(c) Lender shall have no obligation to make additional Advances
hereunder to the extent such additional Advances would cause the Revolver Usage
to exceed the Maximum Revolver Amount.
(d) Amounts borrowed pursuant to this Section 2.1 may be repaid
and, subject to the terms and conditions of this Agreement, reborrowed at any
time during the term of this Agreement.
2.2 Borrowing Procedures and Settlements.
------------------------------------
(a) Procedure for Borrowing. Each Borrowing shall be made by an
irrevocable written request by an Authorized Person delivered to Lender. Such
notice must be received by Lender no later than 1:00 p.m. (Massachusetts time)
on a Business Day specifying (i) the amount of such Borrowing, and (ii) the
requested Funding Date, which shall be a Business Day. At Lender's election, in
lieu of delivering the above-described written request, any Authorized Person
may give Lender telephonic notice of such request by the required time. In such
circumstances, Borrower agrees that any such telephonic notice will be confirmed
in writing within 24 hours of the giving of such telephonic notice, but the
failure to provide such written confirmation shall not affect the validity of
the request.
(b) Making of Advances. If Lender has received a timely request
for a Borrowing in accordance with the provisions hereof, and subject to the
satisfaction of the applicable terms and conditions set forth herein, Lender
shall make the proceeds of such Advance available to Borrower on the applicable
requested Funding Date by transferring available funds equal to such proceeds to
Borrower's Designated Account.
2.3 Payments.
--------
(a) Payments by Borrower.
(i) Except as otherwise expressly provided herein, all
payments by Borrower shall be made to Lender's Account for the
account of the Lender and shall be made in immediately available
funds, no later than 2:00 p.m. (Massachusetts time) on the date
specified herein. Any payment received by Lender later than 2:00
p.m. (Massachusetts time) shall be deemed to have been received
on the following Business Day and any applicable interest or fee
shall continue to accrue until such following Business Day.
(b) Apportionment and Application.
(i) All payments shall be remitted to Lender and all such
payments, and all proceeds of Collateral received by Lender,
shall be applied as follows:
27
(A) first, to pay any Lender Expenses then due to Lender
under the Loan Documents, until paid in full,
(B) second, to pay any fees then due to Lender under the
Loan Documents until paid in full,
(C) third, to pay interest due in respect of Advances
until paid in full,
(D) fourth, so long as no Event of Default has occurred
and is continuing, and at Lender's election (which election
Lender agrees will not be made if an Overadvance would be
created thereby), to pay amounts then due and owing by
Borrower or its Subsidiaries in respect of Bank Products,
until paid in full,
(E) fifth, so long as no Event of Default has occurred
and is continuing, to pay the principal of all Advances
until paid in full,
(F) sixth, if an Event of Default has occurred and is
continuing, ratably (i) to pay the principal of all Advances
until paid in full, (ii) to Lender, to be held by Lender as
cash collateral in an amount up to 105% of the Letter of
Credit Usage until paid in full, and (iii) to Lender, to be
held by Lender, for the benefit of the Bank Product
Providers, as cash collateral in an amount up to the amount
of the Bank Product Reserve established prior to the
occurrence of, and not in contemplation of, the subject
Event of Default until Borrower's and its Subsidiaries'
obligations in respect of Bank Products have been paid in
full or the cash collateral amount has been exhausted,
provided, however, to the extent any such Event of Default
giving rise to the delivery of any cash collateral hereunder
is subsequently waived by the Lender, the Lender shall
return any such cash collateral to the Borrower at the time
such waiver becomes effective;
(G) seventh, to pay any other Obligations (including the
provision of amounts to Lender, to be held by Lender, for
the benefit of the Bank Product Providers, as cash
collateral in an amount up to the amount determined by
Lender in its Permitted Discretion as the amount necessary
to secure Borrower's and its Subsidiaries' obligations in
respect of Bank Products), and
(H) eighth, to Borrower (to be wired to the Designated
Account) or such other Person entitled thereto under
applicable law.
(ii) In each instance, so long as no Event of Default has
occurred and is continuing, this Section 2.3(b) shall not apply
to any payment made by Borrower to Lender and specified by
28
Borrower to be for the payment of specific Obligations then due
and payable (or prepayable) under any provision of this
Agreement.
(iii) For purposes of the foregoing, "paid in full" means
payment of all amounts owing under the Loan Documents according
to the terms thereof, including loan fees, service fees,
professional fees, interest (and specifically including interest
accrued after the commencement of any Insolvency Proceeding),
default interest, interest on interest, and expense
reimbursements, whether or not any of the foregoing would be or
is allowed or disallowed in whole or in part in any Insolvency
Proceeding.
(iv) In the event of a direct conflict between the
priority provisions of this Section 2.3 and other provisions
contained in any other Loan Document, it is the intention of the
parties hereto that such priority provisions in such documents
shall be read together and construed, to the fullest extent
possible, to be in concert with each other. In the event of any
actual, irreconcilable conflict that cannot be resolved as
aforesaid, the terms and provisions of this Section 2.3 shall
control and govern.
2.4 Overadvances. If, at any time or for any reason, the amount of
Obligations (other than Bank Product Obligations) owed by Borrower to Lender
pursuant to Section 2.1 or Section 2.11 is greater than any of the limitations
set forth in Section 2.1 or Section 2.11, as applicable (an "Overadvance"),
Borrower immediately shall pay to Lender, in cash, the amount of such excess,
which amount shall be used by Lender to reduce the Obligations in accordance
with the priorities set forth in Section 2.3(b). In addition, Borrower hereby
promises to pay the Obligations (including principal, interest, fees, costs, and
expenses) in Dollars in full as and when due and payable under the terms of this
Agreement and the other Loan Documents.
2.5 Interest Rates and Letter of Credit Fee: Rates, Payments, and
Calculations.
(a) Interest Rates. Except as provided in clause (c) below, all
Obligations (except for undrawn Letters of Credit and except for Bank Product
Obligations) that have been charged to the Loan Account pursuant to the terms
hereof shall bear interest on the Daily Balance thereof as follows (i) if the
relevant Obligation is an Advance that is a LIBOR Rate Loan, at a per annum rate
equal to the LIBOR Rate plus the LIBOR Rate Margin, and (ii) otherwise, at a per
annum rate equal to the Base Rate plus the Base Rate Margin.
(b) Letter of Credit Fee. Borrower shall pay Lender a Letter of
Credit fee (in addition to the charges, commissions, fees, and costs set forth
in Section 2.11(e)) which shall accrue at a rate equal to 2% per annum times the
Daily Balance of the undrawn amount of all outstanding Letters of Credit.
(c) Default Rate. Upon the occurrence and during the continuation
of an Event of Default (and at the election of Lender),
29
(i) all Obligations (except for undrawn Letters of Credit
and except for Bank Product Obligations) that have been charged
to the Loan Account pursuant to the terms hereof shall bear
interest on the Daily Balance thereof at a per annum rate equal
to 3 percentage points above the per annum rate otherwise
applicable hereunder, and
(ii) the Letter of Credit fee provided for above shall be
increased to 3 percentage points above the per annum rate
otherwise applicable hereunder.
(d) Payment. Except as provided to the contrary in Section 2.10
or Section 2.12(a), interest, Letter of Credit fees, and all other fees payable
hereunder shall be due and payable, in arrears, on the first day of each month
at any time that Obligations are outstanding or at any time that Lender has an
obligation to extend credit hereunder. Borrower hereby authorizes Lender, from
time to time without prior notice to Borrower, to charge all interest and fees
(when due and payable), all Lender Expenses (as and when incurred), all charges,
commissions, fees, and costs provided for in Section 2.11(e) (as and when
accrued or incurred), all fees and costs provided for in Section 2.10 (as and
when accrued or incurred), and all other payments as and when due and payable
under any Loan Document (including any amounts due and payable to the Bank
Product Providers in respect of Bank Products up to the amount of the Bank
Product Reserve) to Borrower's Loan Account, which amounts thereafter shall
constitute Advances hereunder and shall accrue interest at the rate then
applicable to Advances hereunder. Any interest not paid when due shall be
compounded by being charged to Borrower's Loan Account and shall thereafter
constitute Advances hereunder and shall accrue interest at the rate then
applicable to Advances that are Base Rate Loans hereunder.
(e) Computation. All interest and fees chargeable under the Loan
Documents shall be computed on the basis of a 360 day year for the actual number
of days elapsed. In the event the Base Rate is changed from time to time
hereafter, the rates of interest hereunder based upon the Base Rate
automatically and immediately shall be increased or decreased by an amount equal
to such change in the Base Rate.
(f) Intent to Limit Charges to Maximum Lawful Rate. In no event
shall the interest rate or rates payable under this Agreement, plus any other
amounts paid in connection herewith, exceed the highest rate permissible under
any law that a court of competent jurisdiction shall, in a final determination,
deem applicable. Borrower and Lender, in executing and delivering this
Agreement, intend legally to agree upon the rate or rates of interest and manner
of payment stated within it; provided, however, that, anything contained herein
to the contrary notwithstanding, if said rate or rates of interest or manner of
payment exceeds the maximum allowable under applicable law, then, ipso facto, as
of the date of this Agreement, Borrower is and shall be liable only for the
payment of such maximum as allowed by law, and payment received from Borrower in
excess of such legal maximum, whenever received, shall be applied to reduce the
principal balance of the Obligations to the extent of such excess.
30
2.6 Cash Management.
---------------
(a) Borrower shall and shall cause each of the Guarantors to (i)
establish and maintain cash management services of a type and on terms
satisfactory to Lender at one or more of the banks set forth on Schedule 2.6(a)
(each, a "Cash Management Bank"), and shall request in writing and otherwise
take such reasonable steps to ensure that all of its and the Guarantors' Account
Debtors forward payment of the amounts owed by them directly to such Cash
Management Bank, and (ii) deposit or cause to be deposited promptly, and in any
event no later than the first Business Day after the date of receipt thereof,
all of their Collections (including those sent directly by their Account Debtors
to Borrower or one of the Guarantors) into a bank account in Lender's name (a
"Cash Management Account") at one of the Cash Management Banks. Notwithstanding
the foregoing, funds received or otherwise held by retail stores of the Borrower
shall only be required to be deposited or caused to be deposited in a Cash
Management Account at such time and from time to time that the aggregate amount
of all such funds received and/or held at all such retail stores exceeds
$100,000 in the aggregate, but in no event less frequently than weekly. In
addition, the provisions of this paragraph shall not apply to deposit accounts
specially and exclusively used for payroll, payroll taxes and other employee
wage and benefit payments to or for the benefit of Borrower's employees.
(b) Each Cash Management Bank shall establish and maintain Cash
Management Agreements with Lender and Borrower, in form and substance acceptable
to Lender. Except as otherwise agreed to in writing by Lender in its sole
discretion, each such Cash Management Agreement shall provide, among other
things, that (i) the Cash Management Bank will comply with any instructions
originated by Lender directing the disposition of the funds in such Cash
Management Account without further consent by Borrower or the Guarantors, as
applicable, (ii) the Cash Management Bank has no rights of setoff or recoupment
or any other claim against the applicable Cash Management Account other than for
payment of its service fees and other charges directly related to the
administration of such Cash Management Account and for returned checks or other
items of payment, and (iii) it will forward, by daily sweep, all amounts in the
applicable Cash Management Account to the Lender's Account.
(c) So long as no Default or Event of Default has occurred and is
continuing, Borrower may amend Schedule 2.6(a) to add or replace a Cash
Management Bank or Cash Management Account; provided, however, that (i) such
prospective Cash Management Bank shall be reasonably satisfactory to Lender, and
(ii) prior to the time of the opening of such Cash Management Account, Borrower
(or the Guarantor, as applicable) and such prospective Cash Management Bank
shall have executed and delivered to Lender a Cash Management Agreement.
Borrower (or the Guarantors, as applicable) shall close any of its Cash
Management Accounts (and establish replacement cash management accounts in
accordance with the foregoing sentence) promptly and in any event within 30 days
of notice from Lender that the creditworthiness of any Cash Management Bank is
no longer acceptable in Lender's reasonable judgment, or as promptly as
practicable and in any event within 60 days of notice from Lender that the
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operating performance, funds transfer, or availability procedures or performance
of the Cash Management Bank with respect to Cash Management Accounts or Lender's
liability under any Cash Management Agreement with such Cash Management Bank is
no longer acceptable in Lender's reasonable judgment.
(d) The Cash Management Accounts shall be cash collateral
accounts subject to the Lender's first priority perfected security interest, as
evidenced by the Control Agreements.
2.7 Crediting Payments; Float Charge. The receipt of any payment item
by Lender (whether from transfers to Lender by the Cash Management Banks
pursuant to the Cash Management Agreements or otherwise) shall not be considered
a payment on account unless such payment item is a wire transfer of immediately
available federal funds made to the Lender's Account or unless and until such
payment item is honored when presented for payment. Should any payment item not
be honored when presented for payment, then Borrower shall be deemed not to have
made such payment and interest shall be calculated accordingly. Anything to the
contrary contained herein notwithstanding, any payment item shall be deemed
received by Lender only if it is received into the Lender's Account on a
Business Day on or before 2:00 p.m. (Massachusetts time). If any payment item is
received into the Lender's Account on a non-Business Day or after 2:00 p.m.
(Massachusetts time) on a Business Day, it shall be deemed to have been received
by Lender as of the opening of business on the immediately following Business
Day. From and after the Closing Date, Lender shall be entitled to charge
Borrower for two Business Days of "clearance" or "float" at the rate then
applicable under Section 2.5 to Advances that are Base Rate Loans on all
Collections (other than Collections constituting proceeds of the sale of the
Attleboro Property) that are received by Borrower and its Subsidiaries
(regardless of whether forwarded by the Cash Management Banks to Lender). This
across-the-board two Business Day clearance or float charge on all Collections
(other than Collections constituting proceeds of the sale of the Attleboro
Property) of Borrower and the Guarantors is acknowledged by the parties for
purposes of calculating interest only (but not Availability, which shall be
calculated on a "same day" basis immediately after each daily sweep referred to
in Section 2.6(b)(iii) so long as the funds are received by the Lender by not
later than 2:00 p.m. (Massachusetts time) and if received after 2:00 p.m.
(Massachusetts time) on any day, then such funds shall be credited the next
Business Day), and constitutes an integral aspect of the pricing of the
financing of Borrower and shall apply irrespective of whether or not there are
any outstanding monetary Obligations; the effect of such clearance or float
charge being the equivalent of charging interest on such Collections through the
completion of a period ending two Business Days after the receipt thereof.
2.8 Designated Account. Lender is authorized to make the Advances, and
Lender is authorized to issue the Letters of Credit, under this Agreement based
upon telephonic or other instructions received from anyone purporting to be an
Authorized Person or, without instructions, if pursuant to Section 2.5(d).
Borrower agrees to establish and maintain the Designated Account with the
Designated Account Bank for the purpose of receiving the proceeds of the
Advances requested by Borrower and made by Lender hereunder. Unless otherwise
agreed by Lender and Borrower, any Advance requested by Borrower and made by
Lender hereunder shall be made to the Designated Account.
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2.9 Maintenance of Loan Account; Statements of Obligations. Lender
shall maintain an account on its books in the name of Borrower (the "Loan
Account") on which Borrower will be charged with all Advances made by Lender to
Borrower or for Borrower's account, the Letters of Credit issued by Lender for
Borrower's account, and with all other payment Obligations hereunder or under
the other Loan Documents (except for Bank Product Obligations), including,
accrued interest, fees and expenses, and Lender Expenses. In accordance with
Section 2.7, the Loan Account will be credited with all payments received by
Lender from Borrower or for Borrower's account, including all amounts received
in the Lender's Account from any Cash Management Bank. Lender shall render
statements regarding the Loan Account to Borrower, including principal,
interest, fees, and including an itemization of all charges and expenses
constituting Lender Expenses owing, and such statements shall constitute prima
facie evidence of the, account stated between Borrower and Lender unless, within
30 days after receipt thereof by Borrower, Borrower shall deliver to Lender
written objection thereto describing the error or errors contained in any such
statements.
2.10 Fees. Borrower shall pay to Lender the following fees and charges,
which fees and charges shall be non-refundable when paid (irrespective of
whether this Agreement is terminated thereafter):
(a) Unused Line Fee. On the first day of each month during the
term of this Agreement, an unused line fee in an amount equal to 1/2% per annum
times the result of (i) the Maximum Revolver Amount, less (ii) the sum of (A)
the average Daily Balance of Advances that were outstanding during the
immediately preceding month, plus (B) the average Daily Balance of the Letter of
Credit Usage during the immediately preceding month,
(b) Fee Letter Fees. As and when due and payable under the terms
of the Fee Letter, the fees set forth in the Fee Letter, and
(c) Audit and Appraisal Charges. Audit and appraisal fees and
charges as follows (i) a fee of $850 per day, per auditor, plus out-of-pocket
expenses for each financial audit of Borrower performed by personnel employed by
Lender, (ii) other reasonable fees and expenses incurred in connection with any
audit or appraisal conducted pursuant to this Agreement, (iii) all fees plus
out-of-pocket expenses of the Lender's appraisers, for each appraisal of the
Collateral, or any portion thereof, performed by personnel employed by Lender,
and (iv) the actual charges paid or incurred by Lender if it elects to employ
the services of one or more third Persons to perform financial audits of
Borrower or its Subsidiaries, to establish electronic collateral reporting
systems or to appraise the Collateral, or any portion thereof. Notwithstanding
anything to the contrary contained herein, so long as no Default or Event of
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Default has occurred or is continuing, the Borrower shall only be obligated to
pay for four audits and four appraisals (but only two full appraisals consisting
of site visits and two desktop appraisals) in any calendar year.
2.11 Letters of Credit.
-----------------
(a) Subject to the terms and conditions of this Agreement, Lender
agrees to issue letters of credit for the account of Borrower (each, an "L/C")
or to purchase participations or execute indemnities or reimbursement
obligations (each such undertaking, an "L/C Undertaking") with respect to
letters of credit issued by an Underlying Issuer (as of the Closing Date, the
prospective Underlying Issuer is to be ▇▇▇▇▇ Fargo) for the account of Borrower.
Each request for the issuance of a Letter of Credit, or the amendment, renewal,
or extension of any outstanding Letter of Credit, shall be made in writing by an
Authorized Person and delivered to Lender via hand delivery, telefacsimile, or
other electronic method of transmission reasonably in advance of the requested
date of issuance, amendment, renewal, or extension. Each such request shall be
in form and substance satisfactory to Lender in its Permitted Discretion and
shall specify (i) the amount of such Letter of Credit, (ii) the date of
issuance, amendment, renewal, or extension of such Letter of Credit, (iii) the
expiration of such Letter of Credit, (iv) the name and address of the
beneficiary thereof (or the beneficiary of the Underlying Letter of Credit, as
applicable), and (v) such other information (including, in the case of an
amendment, renewal, or extension, identification of the outstanding Letter of
Credit to be so amended, renewed, or extended) as shall be necessary to prepare,
amend, renew, or extend such Letter of Credit. If requested by Lender, Borrower
also shall be an applicant under the application with respect to any Underlying
Letter of Credit that is to be the subject of an L/C Undertaking. Lender shall
have no obligation to issue a Letter of Credit if any of the following would
result after giving effect to the issuance of such requested Letter of Credit:
(i) the Letter of Credit Usage would exceed the Borrowing
Base less the outstanding amount of Advances, or
(ii) the Letter of Credit Usage would exceed $5,000,000,
or
(iii) the Letter of Credit Usage would exceed the Maximum
Revolver Amount less the outstanding amount of Advances.
Borrower and Lender acknowledge and agree that certain Underlying
Letters of Credit may be issued to support letters of credit that already are
outstanding as of the Closing Date. Each Letter of Credit (and corresponding
Underlying Letter of Credit) shall be in form and substance acceptable to Lender
(in the exercise of its Permitted Discretion), including the requirement that
the amounts payable thereunder must be payable in Dollars. If Lender is
obligated to advance funds under a Letter of Credit, Borrower immediately shall
reimburse such L/C Disbursement to Lender by paying to Lender an amount equal to
such L/C Disbursement not later than 2:00 p.m., Massachusetts time, on the date
that such L/C Disbursement is made, if Borrower shall have received written or
telephonic notice of such L/C Disbursement prior to 1:00 p.m., Massachusetts
34
time, on such date, or, if such notice has not been received by Borrower prior
to such time on such date, then not later than 2:00 p.m., Massachusetts time, on
the Business Day that Borrower receives such notice, if such notice is received
prior to 1:00 p.m., Massachusetts time, on the date of receipt, and, in the
absence of such reimbursement, the L/C Disbursement immediately and
automatically shall be deemed to be an Advance hereunder and, thereafter, shall
bear interest at the rate then applicable to Advances that are Base Rate Loans
under Section 2.5. To the extent an L/C Disbursement is deemed to be an Advance
hereunder, Borrower's obligation to reimburse such L/C Disbursement shall be
discharged and replaced by the resulting Advance.
(b) Borrower hereby agrees to indemnify, save, defend, and hold
Lender harmless from any loss, cost, expense, or liability, and reasonable
attorneys fees incurred by Lender arising out of or in connection with any
Letter of Credit; provided, however, that Borrower shall not be obligated
hereunder to indemnify for any loss, cost, expense, or liability to the extent
that it is caused by the gross negligence or willful misconduct of Lender.
Borrower agrees to be bound by the Underlying Issuer's regulations and
interpretations of any Underlying Letter of Credit or by Lender's
interpretations of any L/C issued by Lender to or for Borrower's account, even
though this interpretation may be different from Borrower's own, and Borrower
understands and agrees that Lender shall not be liable for any error,
negligence, or mistake, whether of omission or commission, in following
Borrower's instructions or those contained in the Letter of Credit or any
modifications, amendments, or supplements thereto. Borrower understands that the
L/C Undertakings may require Lender to indemnify the Underlying Issuer for
certain costs or liabilities arising out of claims by Borrower against such
Underlying Issuer. Borrower hereby agrees to indemnify, save, defend, and hold
Lender harmless with respect to any loss, cost, expense (including reasonable
attorneys fees), or liability incurred by Lender under any L/C Undertaking as a
result of Lender's indemnification of any Underlying Issuer; provided, however,
that Borrower shall not be obligated hereunder to indemnify for any loss, cost,
expense, or liability to the extent that it is caused by the gross negligence or
willful misconduct of Lender. Borrower hereby acknowledges and agrees that
Lender shall not be responsible for delays, errors, or omissions resulting from
the malfunction of equipment in connection with any Letter of Credit.
(c) Borrower hereby authorizes and directs any Underlying Issuer
to deliver to Lender all instruments, documents, and other writings and property
received by such Underlying Issuer pursuant to such Underlying Letter of Credit
and to accept and rely upon Lender's instructions with respect to all matters
arising in connection with such Underlying Letter of Credit and the related
application.
(d) Any and all charges, commissions, fees, and costs incurred by
Lender relating to Underlying Letters of Credit shall be Lender Expenses for
purposes of this Agreement and immediately shall be reimbursable by Borrower to
Lender for the account of Lender; it being acknowledged and agreed by Borrower
that, as of the Closing Date, the issuance charge imposed by the prospective
Underlying Issuer is .825% per annum times the face amount of each Underlying
Letter of Credit, that such issuance charge may be changed from time to time,
and that the Underlying Issuer also imposes a schedule of charges for
amendments, extensions, drawings, and renewals.
35
(e) If by reason of (i) any change after the Closing Date in any
applicable law, treaty, rule, or regulation or any change in the interpretation
or application thereof by any Governmental Authority, or (ii) compliance by the
Underlying Issuer or Lender with any direction, request, or requirement
(irrespective of whether having the force of law) of any Governmental Authority
or monetary authority including, Regulation D of the Federal Reserve Board as
from time to time in effect (and any successor thereto):
(i) any reserve, deposit, or similar requirement is or
shall be imposed or modified in respect of any Letter of Credit
issued hereunder, or
(ii) there shall be imposed on the Underlying Issuer or
Lender any other condition regarding any Underlying Letter of
Credit or any Letter of Credit issued pursuant hereto;
and the result of the foregoing is to increase, directly or indirectly, the cost
to Lender of issuing, making, guaranteeing, or maintaining any Letter of Credit
or to reduce the amount receivable in respect thereof by Lender, then, and in
any such case, Lender may, at any time within a reasonable period after the
additional cost is incurred or the amount received is reduced, notify Borrower,
and Borrower shall pay on demand such amounts as Lender may specify to be
necessary to compensate Lender for such additional cost or reduced receipt,
together with interest on such amount from the date of such demand until payment
in full thereof at the rate then applicable to Base Rate Loans hereunder. The
determination by Lender of any amount due pursuant to this Section, as set forth
in a certificate setting forth the calculation thereof in reasonable detail,
shall be prima facie evidence of all amounts due pursuant to this Section.
2.12 LIBOR Option.
------------
(a) Interest and Interest Payment Dates. In lieu of having
interest charged at the rate based upon the Base Rate, Borrower shall have the
option (the "LIBOR Option") to have interest on all or a portion of the Advances
be charged at a rate of interest based upon the LIBOR Rate. Interest on LIBOR
Rate Loans shall be payable on the earliest of (i) the last day of the Interest
Period applicable thereto, (ii) the occurrence of an Event of Default in
consequence of which Lender has elected to accelerate the maturity of all or any
portion of the Obligations, or (iii) termination of this Agreement pursuant to
the terms hereof. On the last day of each applicable Interest Period, unless
Borrower properly has exercised the LIBOR Option with respect thereto, the
interest rate applicable to such LIBOR Rate Loan automatically shall convert to
the rate of interest then applicable to Base Rate Loans of the same type
hereunder. At any time that an Event of Default has occurred and is continuing,
Borrower no longer shall have the option to request that Advances bear interest
at a rate based upon the LIBOR Rate and Lender shall have the right to convert
the interest rate on all outstanding LIBOR Rate Loans to the rate then
applicable to Base Rate Loans hereunder.
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(b) LIBOR Election.
(i) Borrower may, at any time and from time to time, so
long as no Event of Default has occurred and is continuing, elect
to exercise the LIBOR Option by notifying Lender prior to 2:00
p.m. (Massachusetts time) at least 3 Business Days prior to the
commencement of the proposed Interest Period (the "LIBOR
Deadline"). Notice of Borrower's election of the LIBOR Option for
a permitted portion of the Advances and an Interest Period
pursuant to this Section shall be made by delivery to Lender of a
LIBOR Notice received by Lender before the LIBOR Deadline, or by
telephonic notice received by Lender before the LIBOR Deadline
(to be confirmed by delivery to Lender of a LIBOR Notice received
by Lender prior to 8:00 p.m. (Massachusetts time) on the same
day.
(ii) Each LIBOR Notice shall be irrevocable and binding
on Borrower. In connection with each LIBOR Rate Loan, Borrower
shall indemnify, defend, and hold Lender harmless against any
loss, cost, or expense incurred by Lender as a result of (a) the
payment of any principal of any LIBOR Rate Loan other than on the
last day of an Interest Period applicable thereto (including as a
result of an Event of Default), (b) the conversion of any LIBOR
Rate Loan other than on the last day of the Interest Period
applicable thereto, or (c) the failure to borrow, convert,
continue or prepay any LIBOR Rate Loan on the date specified in
any LIBOR Notice delivered pursuant hereto (such losses, costs,
and expenses, collectively, "Funding Losses"). Funding Losses
shall be deemed to equal the amount determined by Lender to be
the excess, if any, of (i) the amount of interest that would have
accrued on the principal amount of such LIBOR Rate Loan had such
event not occurred, at the LIBOR Rate that would have been
applicable thereto, for the period from the date of such event to
the last day of the then current Interest Period therefor (or, in
the case of a failure to borrow, convert, or continue, for the
period that would have been the Interest Period therefor), minus
(ii) the amount of interest that would accrue on such principal
amount for such period at the interest rate which Lender would be
offered were it to be offered, at the commencement of such
period, Dollar deposits of a comparable amount and period in the
London interbank market. A certificate of Lender delivered to
Borrower setting forth any amount or amounts that Lender is
entitled to receive pursuant to this Section 2.12 shall be
conclusive absent manifest error.
(iii) Borrower shall have not more than 5 LIBOR Rate
Loans in effect at any given time. Borrower only may exercise the
LIBOR Option for LIBOR Rate Loans of at least $1,000,000 and
integral multiples of $500,000 in excess thereof.
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(c) Prepayments. Borrower may prepay LIBOR Rate Loans at any
time; provided, however, that in the event that LIBOR Rate Loans are prepaid on
any date that is not the last day of the Interest Period applicable thereto,
including as a result of any automatic prepayment through the required
application by Lender of proceeds of Borrower's and its Subsidiaries'
Collections in accordance with Section 2.3(b) or for any other reason, including
early termination of the term of this Agreement or acceleration of all or any
portion of the Obligations pursuant to the terms hereof, Borrower shall
indemnify, defend, and hold Lender and its Participants harmless against any and
all Funding Losses in accordance with clause (b)(ii) above.
(d) Special Provisions Applicable to LIBOR Rate.
(i) The LIBOR Rate may be adjusted by Lender on a
prospective basis to take into account any additional or
increased costs to Lender of maintaining or obtaining any
eurodollar deposits or increased costs due to changes in
applicable law occurring subsequent to the commencement of the
then applicable Interest Period, including changes in tax laws
(except changes of general applicability in corporate income tax
laws) and changes in the reserve requirements imposed by the
Board of Governors of the Federal Reserve System (or any
successor), excluding the Reserve Percentage, which additional or
increased costs would increase the cost of funding loans bearing
interest at the LIBOR Rate. In any such event, Lender shall give
Borrower notice of such a determination and adjustment and, upon
its receipt of the notice from Lender, Borrower may, by notice to
Lender (y) require Lender to furnish to Borrower a statement
setting forth the basis for adjusting such LIBOR Rate and the
method for determining the amount of such adjustment, or (z)
repay the LIBOR Rate Loans with respect to which such adjustment
is made (together with any amounts due under clause (b)(ii)
above).
(ii) In the event that any change in market conditions or
any law, regulation, treaty, or directive, or any change therein
or in the interpretation of application thereof, shall at any
time after the date hereof, in the reasonable opinion of Lender,
make it unlawful or impractical for Lender to fund or maintain
LIBOR Advances or to continue such funding or maintaining, or to
determine or charge interest rates at the LIBOR Rate, Lender
shall give notice of such changed circumstances to Borrower and
(y) in the case of any LIBOR Rate Loans that are outstanding, the
date specified in Lender's notice shall be deemed to be the last
day of the Interest Period of such LIBOR Rate Loans, and interest
upon the LIBOR Rate Loans thereafter shall accrue interest at the
rate then applicable to Base Rate Loans, and (z) Borrower shall
not be entitled to elect the LIBOR Option until Lender determines
that it would no longer be unlawful or impractical to do so.
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(e) No Requirement of Matched Funding. Anything to the contrary
contained herein notwithstanding, neither Lender, nor any of its Participants,
is required actually to acquire eurodollar deposits to fund or otherwise match
fund any Obligation as to which interest accrues at the LIBOR Rate. The
provisions of this Section shall apply as if Lender or its Participants had
match funded any Obligation as to which interest is accruing at the LIBOR Rate
by acquiring eurodollar deposits for each Interest Period in the amount of the
LIBOR Rate Loans.
()()
2.13 Capital Requirements. If, after the date hereof, Lender determines
that (i) the adoption of or change in any law, rule, regulation or guideline
regarding capital requirements for banks or bank holding companies, or any
change in the interpretation or application thereof by any Governmental
Authority charged with the administration thereof, or (ii) compliance by Lender
or its parent bank holding company with any guideline, request, or directive of
any such entity regarding capital adequacy (whether or not having the force of
law), has the effect of reducing the return on Lender's or such holding
company's capital as a consequence of Lender's obligations hereunder to a level
below that which Lender or such holding company could have achieved but for such
adoption, change, or compliance (taking into consideration Lender's or such
holding company's then existing policies with respect to capital adequacy and
assuming the full utilization of such entity's capital) by any amount deemed by
Lender to be material, then Lender may notify Borrower thereof. Following
receipt of such notice, Borrower agrees to pay Lender on demand the amount of
such reduction of return of capital as and when such reduction is determined,
payable within 90 days after presentation by Lender of a statement in the amount
and setting forth in reasonable detail Lender's calculation thereof and the
assumptions upon which such calculation was based (which statement shall be
deemed true and correct absent manifest error). In determining such amount,
Lender may use any reasonable averaging and attribution methods.
3. CONDITIONS; TERM OF AGREEMENT.
3.1 Conditions Precedent to the Initial Extension of Credit. The
obligation of Lender to make the initial extension of credit provided for
hereunder, is subject to the fulfillment, to the satisfaction of Lender (the
making of such initial extension of credit by Lender being conclusively deemed
to be its satisfaction or waiver of the following), of each of the following
conditions precedent:
(a) the Closing Date shall occur on or before June 30, 2004;
(b) Lender shall have received appropriate financing statements
to be duly filed in such office or offices as may be necessary or, in the
opinion of Lender, desirable to perfect the Lender's Liens in and to the
Collateral;
(c) Lender shall have received each of the following documents,
in form and substance satisfactory to Lender, duly executed, and each such
document shall be in full force and effect:
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(i) the Cash Management Agreements,
(ii) the Control Agreements,
(iii) the Disbursement Letter,
(iv) the Fee Letter,
(v) the Patent Security Agreement,
(vi) the Pay-Off Letter, together with termination
statements and other documentation evidencing the termination by
Existing Lender of its Liens in and to the properties and assets
of Borrower and its Subsidiaries,
(vii) the Trademark Security Agreement, and
(viii) evidence satisfactory to the Lender that the Tulin
Note has been amended to provide for an extension of the original
maturity date thereof (the "Original Maturity Date") to a date
which is not prior to six months after the Maturity Date to the
extent the Borrower is unable to satisfy the Availability
criteria set forth in Section 7.7(b)(ii) hereof;
(d) Lender shall have received a certificate from the Secretary
of Borrower (i) attesting to the resolutions of Borrower's Board of Directors
authorizing its execution, delivery, and performance of this Agreement and the
other Loan Documents to which Borrower is a party, (ii) authorizing specific
officers of Borrower to execute the same, and (iii) attesting to the incumbency
and signatures of such specific officers of Borrower;
(e) Lender shall have received copies of Borrower's Governing
Documents, as amended, modified, or supplemented to the Closing Date, certified
by the Secretary of Borrower;
(f) Lender shall have received a certificate of status with
respect to Borrower, dated within 10 days of the Closing Date, such certificate
to be issued by the appropriate officer of the jurisdiction of organization of
Borrower, which certificate shall indicate that Borrower is validly subsisting
and/or in good standing in such jurisdiction;
(g) Lender shall have received certificates of status with
respect to Borrower, each dated within 30 days of the Closing Date, such
certificates to be issued by the appropriate officer of the jurisdictions (other
than the jurisdiction of organization of Borrower) in which its failure to be
duly qualified or licensed would constitute a Material Adverse Change, which
certificates shall indicate that Borrower is in good standing in such
jurisdictions;
40
(h) Lender shall have received a certificate of insurance,
together with the endorsements thereto, as are required by Section 6.8, the form
and substance of which shall be satisfactory to Lender;
(i) Lender shall have received Collateral Access Agreements with
respect to the following locations: Borrower's offices in Taunton,
Massachusetts; Borrower's retail stores in Lawrenceville, Georgia; Las Vegas,
Nevada; ▇▇▇▇▇▇▇▇▇, Virginia, ▇▇▇▇ ▇▇▇▇▇▇, New York; Niagara Falls, New York;
Orlando Florida, and Reading, Pennsylvania and Borrower's leased premises in New
York, New York;
(j) Lender shall have received an opinion of Borrower's counsel
in form and substance reasonably satisfactory to Lender;
(k) Lender shall have received satisfactory evidence (including a
certificate of the Borrower signed by its chief financial officer) that all tax
returns required to be filed by Borrower and its Subsidiaries have been timely
filed (after giving effect to any permitted extensions to file) and all taxes
upon Borrower and its Subsidiaries or their properties, assets, income, and
franchises (including Real Property taxes, sales taxes, and payroll taxes) have
been paid prior to delinquency, except such taxes that are the subject of a
Permitted Protest;
(l) Borrower shall have the Required Availability after giving
effect to the initial extensions of credit hereunder and the payment of all fees
and expenses required to be paid by Borrower on the Closing Date under this
Agreement or the other Loan Documents;
(m) Lender shall have completed its business, legal, and
collateral due diligence, including (i) a collateral audit and review of
Borrower's and its Subsidiaries' books and records and verification of
Borrower's representations and warranties to Lender, the results of which shall
be satisfactory to Lender, (ii) an inspection of each of the locations where
Borrower's and its Subsidiaries' Inventory is located, the results of which
shall be satisfactory to Lender; and (iii) a review of all License Agreements,
the form and substance of which must be acceptable in all respects to the Lender
(including such agreements containing terms sufficient to enable the Lender to
sell inventory relating to such License Agreements upon the exercise of Lender's
rights and remedies hereunder);
(n) Lender shall have received completed reference checks with
respect to Borrower's senior management, the results of which are satisfactory
to Lender in its sole discretion;
(o) Lender shall have received an appraisal of the Liquidation
Percentage applicable to Borrower's and its Subsidiaries' Inventory, the results
of which shall be satisfactory to Lender;
(p) Lender shall have received Borrower's Closing Date Business
Plan;
(q) Borrower shall have paid all Lender Expenses incurred in
connection with the transactions evidenced by this Agreement;
41
(r) Lender shall have received copies of each of the License
Agreements, together with a certificate of the Secretary of Borrower certifying
each such document as being a true, correct, and complete copy thereof;
(s) Borrower and each of its Subsidiaries shall have received all
licenses, approvals or evidence of other actions required by any Governmental
Authority in connection with the execution and delivery by Borrower or its
Subsidiaries of the Loan Documents or with the consummation of the transactions
contemplated thereby; and
(t) all other documents and legal matters in connection with the
transactions contemplated by this Agreement shall have been delivered, executed,
or recorded and shall be in form and substance reasonably satisfactory to
Lender.
3.2 Conditions Subsequent to the Initial Extension of Credit. The
obligation of Lender to continue to make Advances (or otherwise extend credit
hereunder) is subject to the fulfillment, on or before the date applicable
thereto, of each of the conditions subsequent set forth below (the failure by
Borrower to so perform or cause to be performed constituting an Event of
Default):
(a) within 30 days of the Closing Date, deliver to Lender
certified copies of the policies of insurance, together with the endorsements
thereto, as are required by Section 6.8, the form and substance of which shall
be satisfactory to Lender and its counsel.
3.3 Conditions Precedent to all Extensions of Credit. The obligation of
Lender to make any Advances hereunder at any time (or to extend any other credit
hereunder) shall be subject to the following conditions precedent:
(a) the representations and warranties contained in this
Agreement and the other Loan Documents shall be true and correct in all material
respects on and as of the date of such extension of credit, as though made on
and as of such date (except to the extent that such representations and
warranties relate solely to an earlier date);
(b) no Default or Event of Default shall have occurred and be
continuing on the date of such extension of credit, nor shall either result from
the making thereof;
(c) no injunction, writ, restraining order, or other order of any
nature restricting or prohibiting, directly or indirectly, the extending of such
credit shall have been issued and remain in force by any Governmental Authority
against Borrower, Lender, or any of their Affiliates; and
(d) no Material Adverse Change shall have occurred.
3.4 Term. This Agreement shall continue in full force and effect for a
term ending on June 30, 2009 (the "Maturity Date"). The foregoing
notwithstanding, Lender shall have the right to terminate its obligations under
this Agreement immediately and without notice upon the occurrence and during the
continuation of an Event of Default.
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3.5 Effect of Termination. On the date of termination of this
Agreement, all Obligations (including contingent reimbursement obligations of
Borrower with respect to outstanding Letters of Credit and including all Bank
Product Obligations) immediately shall become due and payable without notice or
demand (including (a) either (i) providing cash collateral to be held by Lender
in an amount equal to 105% of the Letter of Credit Usage, or (ii) causing the
original Letters of Credit to be returned to Lender, and (b) providing cash
collateral (in an amount determined by Lender as sufficient to satisfy the
reasonably estimated credit exposure) to be held by Lender for the benefit of
the Bank Product Providers with respect to the Bank Product Obligations), in
each case pursuant to a cash collateral agreement satisfactory to the Lender
(with such cash collateral agreement providing for the return of such cash
collateral upon all Obligations being indefeasibly repaid in full in cash). No
termination of this Agreement, however, shall relieve or discharge Borrower or
its Subsidiaries of their duties, Obligations, or covenants hereunder or under
any other Loan Documents and the Lender's Liens in the Collateral shall remain
in effect until all Obligations have been paid in full and Lender's obligations
to provide additional credit hereunder have been terminated. When this Agreement
has been terminated and all of the Obligations have been paid in full and
Lender's obligations to provide additional credit under the Loan Documents have
been terminated irrevocably, Lender will, at Borrower's sole expense, promptly
execute and deliver or otherwise authorize in writing any termination
statements, lien releases, mortgage releases, re-assignments of trademarks,
discharges of security interests, and other similar discharge or release
documents (and, if applicable, in recordable form) as are reasonably necessary
to release, as of record, the Lender's Liens and all notices of security
interests and liens previously filed by Lender with respect to the Obligations.
3.6 Early Termination by Borrower. Borrower has the option, at any time
upon 90 days prior written notice to Lender, to terminate this Agreement by
paying to Lender, in cash, the Obligations (including (a) either (i) providing
cash collateral to be held by Lender in an amount equal to 105% of the Letter of
Credit Usage, or (ii) causing the original Letters of Credit to be returned to
Lender, and (b) providing cash collateral (in an amount determined by Lender as
sufficient to satisfy the reasonably estimated credit exposure) to be held by
Lender for the benefit of the Bank Product Providers with respect to the Bank
Product Obligations) (in each cash pursuant to a cash collateral agreement
satisfactory to the Lender (with such cash collateral agreement providing for
the return of such cash collateral upon all Obligations being indefeasibly
repaid in full in cash)), in full, together with the Applicable Prepayment
Premium. If Borrower has sent a notice of termination pursuant to the provisions
of this Section, then Lender's obligations to extend credit hereunder shall
terminate and Borrower shall be obligated to repay the Obligations (including
(a) either (i) providing cash collateral to be held by Lender in an amount equal
to 105% of the Letter of Credit Usage, or (ii) causing the original Letters of
Credit to be returned to Lender, and (b) providing cash collateral (in an amount
determined by Lender as sufficient to satisfy the reasonably estimated credit
exposure) to be held by Lender for the benefit of the Bank Product Providers
with respect to the Bank Product Obligations), in full, together with the
Applicable Prepayment Premium, on the date set forth as the date of termination
of this Agreement in such notice. In the event of the termination of this
Agreement and repayment of the Obligations at any time prior to the Maturity
43
Date, for any other reason, including (a) termination upon the election of
Lender to terminate after the occurrence and during the continuation of an Event
of Default, (b) foreclosure and sale of Collateral, (c) sale of the Collateral
in any Insolvency Proceeding, or (d) restructure, reorganization, or compromise
of the Obligations by the confirmation of a plan of reorganization or any other
plan of compromise, restructure, or arrangement in any Insolvency Proceeding,
then, in view of the impracticability and extreme difficulty of ascertaining the
actual amount of damages to Lender or profits lost by Lender as a result of such
early termination, and by mutual agreement of the parties as to a reasonable
estimation and calculation of the lost profits or damages of Lender, Borrower
shall pay the Applicable Prepayment Premium to Lender, measured as of the date
of such termination.
4. CREATION OF SECURITY INTEREST.
4.1 Grant of Security Interest. Borrower hereby grants to Lender, for
the benefit of Lender and the Bank Product Providers, a continuing security
interest in all of its right, title, and interest in all currently existing and
hereafter acquired or arising Borrower Collateral in order to secure prompt
repayment of any and all of the Obligations in accordance with the terms and
conditions of the Loan Documents and in order to secure prompt performance by
Borrower of each of its covenants and duties under the Loan Documents. The
Lender's Liens in and to the Borrower Collateral shall attach to all Borrower
Collateral without further act on the part of Lender or Borrower. Anything
contained in this Agreement or any other Loan Document to the contrary
notwithstanding, except for Permitted Dispositions, Borrower and its
Subsidiaries have no authority, express or implied, to dispose of any item or
portion of the Collateral. Notwithstanding anything to the contrary contained
herein, (a) the grant of security interest contained in this Section 4.1 shall
not extend to, and the term "Borrower Collateral" shall not include, any General
Intangibles now or hereafter held or owned by Borrower to the extent that (i) an
assignment of or a security interest may not be granted by Borrower in such
General Intangibles as a matter of law or under the terms of the governing
document applicable thereto without the consent of one or more applicable
parties thereto and (ii) such consent has not been obtained; (b) the grant of
the security interest contained in this Section 4.1 shall extend to, and the
term "Borrower Collateral" shall include (i) any and all proceeds of such
General Intangibles to the extent that the proceeds are not themselves General
Intangibles subject to subparagraph (a) hereof and (ii) upon any such applicable
party or parties' consent with respect to any otherwise excluded General
Intangibles being obtained, thereafter such General Intangibles; and (c) the
provisions of subparagraph (a) shall not apply to (i) General Intangibles to the
extent that the restriction on Borrower assigning the same or granting a
security interest therein is not effective under applicable law, or (ii) payment
intangibles.
4.2 Negotiable Collateral. In the event that any Borrower Collateral,
including proceeds, is evidenced by or consists of Negotiable Collateral, and if
and to the extent that Lender determines that perfection or priority of Lender's
security interest is dependent on or enhanced by possession, Borrower, promptly
upon the request of Lender, shall endorse and deliver physical possession of
such Negotiable Collateral to Lender.
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4.3 Collection of Accounts, General Intangibles, and Negotiable
Collateral. At any time after the occurrence and during the continuation of an
Event of Default, Lender or Lender's designee may (a) notify Account Debtors of
Borrower that Borrower's Accounts, chattel paper, or General Intangibles have
been assigned to Lender or that Lender has a security interest therein, or (b)
collect Borrower's Accounts, chattel paper, or General Intangibles directly and
charge the collection costs and expenses to the Loan Account. Borrower agrees
that it will hold in trust for Lender, as Lender's trustee, any of its or its
Subsidiaries' Collections that it receives and immediately will deliver such
Collections to Lender or a Cash Management Bank in their original form as
received by Borrower or its Subsidiaries.
4.4 Filing of Financing Statements; Commercial Tort Claims; Delivery of
Additional Documentation Required.
(a) Borrower authorizes Lender to file any financing statement
necessary or desirable to effectuate the transactions contemplated by the Loan
Documents, and any continuation statement or amendment with respect thereto, in
any appropriate filing office without the signature of Borrower where permitted
by applicable law. Borrower hereby ratifies the filing of any financing
statement filed without the signature of Borrower prior to the date hereof.
(b) If Borrower or its Subsidiaries acquire any commercial tort
claims after the date hereof, Borrower shall promptly (but in any event within 3
Business Days after such acquisition) deliver to Lender a written description of
such commercial tort claim and shall deliver a written agreement, in form and
substance satisfactory to Lender, pursuant to which Borrower or its Subsidiary,
as applicable, shall grant a perfected security interest in all of its right,
title and interest in and to such commercial tort claim to Lender, as security
for the Obligations (a "Commercial Tort Claim Assignment").
(c) At any time upon the request of Lender, Borrower shall
execute or deliver to Lender, and shall cause its Subsidiaries to execute or
deliver to Lender, any and all financing statements, original financing
statements in lieu of continuation statements, amendments to financing
statements, fixture filings, security agreements, pledges, assignments,
Commercial Tort Claim Assignments, endorsements of certificates of title, and
all other documents (collectively, the "Additional Documents") that Lender may
request in its Permitted Discretion, in form and substance satisfactory to
Lender, to create, perfect, and continue perfected or to better perfect the
Lender's Liens in the Collateral of Borrower and its Subsidiaries (whether now
owned or hereafter arising or acquired, tangible or intangible, real or
personal), to create and perfect Liens in favor of Lender in any owned Real
Property acquired after the Closing Date, and in order to fully consummate all
of the transactions contemplated hereby and under the other Loan Documents. To
the maximum extent permitted by applicable law, Borrower authorizes Lender to
execute any such Additional Documents in Borrower's name and authorizes Lender
to file such executed Additional Documents in any appropriate filing office. In
addition, on such periodic basis as Lender shall require, Borrower shall (i)
provide Lender with a report of all new material patentable, copyrightable, or
45
trademarkable materials acquired or generated by Borrower or its Subsidiaries
during the prior period, (ii) cause all material patents, copyrights, and
trademarks acquired or generated by Borrower or its Subsidiaries that are not
already the subject of a registration with the appropriate filing office (or an
application therefor diligently prosecuted) to be registered with such
appropriate filing office in a manner sufficient to impart constructive notice
of Borrower's or the applicable Subsidiary's ownership thereof, and (iii) cause
to be prepared, executed, and delivered to Lender supplemental schedules to the
applicable Loan Documents to identify such patents, copyrights, and trademarks
as being subject to the security interests created thereunder ; provided,
however, that neither Borrower nor any of its Subsidiaries shall register with
the U.S. Copyright Office any unregistered copyrights (whether in existence on
the Closing Date or thereafter acquired, arising, or developed) unless (i) the
Borrower provides Lender with written notice of its intent to register such
copyrights not less than 30 days prior to the date of the proposed registration,
and (ii) prior to such registration, the applicable Person executes and delivers
to Lender a copyright security agreement in form and substance satisfactory to
Lender, supplemental schedules to any existing copyright security agreement, or
such other documentation as Lender reasonably deems necessary in order to
perfect and continue perfected Lender's Liens on such copyrights following such
registration.
4.5 Power of Attorney. Borrower hereby irrevocably makes, constitutes,
and appoints Lender (and any of Lender's officers, employees, or agents
designated by Lender) as Borrower's true and lawful attorney, with power to (a)
if Borrower refuses to, or fails timely to execute and deliver any of the
documents described in Section 4.4, sign the name of Borrower on any of the
documents described in Section 4.4, (b) at any time that an Event of Default has
occurred and is continuing, sign Borrower's name on any invoice or ▇▇▇▇ of
lading relating to the Borrower Collateral, drafts against Account Debtors, or
notices to Account Debtors, (c) send requests for verification of Borrower's or
its Subsidiaries' Accounts, (d) endorse Borrower's name on any of its payment
items (including all of its Collections) that may come into Lender's possession,
(e) at any time that an Event of Default has occurred and is continuing, make,
settle, and adjust all claims under Borrower's policies of insurance and make
all determinations and decisions with respect to such policies of insurance, and
(f) at any time that an Event of Default has occurred and is continuing, settle
and adjust disputes and claims respecting Borrower's or its Subsidiaries'
Accounts, chattel paper, or General Intangibles directly with Account Debtors,
for amounts and upon terms that Lender determines to be reasonable, and Lender
may cause to be executed and delivered any documents and releases that Lender
determines to be necessary. The appointment of Lender as Borrower's attorney,
and each and every one of its rights and powers, being coupled with an interest,
is irrevocable until all of the Obligations have been fully and finally repaid
and performed and Lender's obligations to extend credit hereunder are
terminated.
4.6 Right to Inspect. Lender (through any of its officers, employees,
or agents) shall have the right, from time to time hereafter to inspect the
Books and make copies or abstracts thereof and to check, test, and appraise the
Collateral, or any portion thereof, in order to verify Borrower's and its
Subsidiaries' financial condition or the amount, quality, value, condition of,
or any other matter relating to, the Collateral. So long as no Default or Event
of Default has occurred and is continuing, Lender's inspection will be during
normal business hours upon reasonable prior notice to Borrower.
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4.7 Control Agreements. Borrower agrees that it will and will cause its
Subsidiaries to take any or all reasonable steps in order for Lender to obtain
control in accordance with Sections 8-106, 9-104, 9-105, 9-106, and 9-107 of the
Code with respect to (subject to the proviso contained in Section 7.12) all of
its or their Securities Accounts, Deposit Accounts, electronic chattel paper,
Investment Property, and letter-of-credit rights. Upon the occurrence and during
the continuance of a Default or Event of Default, Lender may notify any bank or
securities intermediary to liquidate the applicable Deposit Account or
Securities Account or any related Investment Property maintained or held thereby
and remit the proceeds thereof to the Lender's Account. Notwithstanding the
foregoing, the provisions of this paragraph shall not apply to deposit accounts
specially and exclusively used for payroll, payroll taxes and other employee
wage and benefit payments to or for the benefit of Borrower's employees.
5. REPRESENTATIONS AND WARRANTIES.
In order to induce Lender to enter into this Agreement, Borrower makes
the following representations and warranties to Lender which shall be true,
correct, and complete, in all material respects, as of the date hereof, and
shall be true, correct, and complete, in all material respects, as of the
Closing Date, and at and as of the date of the making of each Advance (or other
extension of credit) made thereafter, as though made on and as of the date of
such Advance (or other extension of credit) (except to the extent that such
representations and warranties relate solely to an earlier date) and such
representations and warranties shall survive the execution and delivery of this
Agreement:
5.1 No Encumbrances. Borrower and its Subsidiaries have good and
indefeasible title to, or a valid leasehold interest in, their personal property
assets and good and marketable title to, or a valid leasehold interest in, their
Real Property, in each case, free and clear of Liens except for Permitted Liens.
5.2 Eligible Accounts. As to each Account that is identified by
Borrower as an Eligible Account in a borrowing base report submitted to Lender,
such Account is (a) a bona fide existing payment obligation of the applicable
Account Debtor created by the sale and delivery of Inventory or the rendition of
services to such Account Debtor in the ordinary course of Borrower's business,
(b) owed to Borrower without any known defenses, disputes, offsets,
counterclaims, or rights of return or cancellation except as expressly permitted
by the definition of "Eligible Accounts", and (c) not excluded as ineligible by
virtue of one or more of the excluding criteria set forth in the definition of
Eligible Accounts.
5.3 Eligible Inventory. As to each item of Inventory that is identified
by Borrower as Eligible Inventory in a borrowing base report submitted to
Lender, such Inventory is (a) of good and merchantable quality, free from known
defects, and (b) not excluded as ineligible by virtue of one or more of the
excluding criteria set forth in the definition of Eligible Inventory.
47
5.4 Equipment. All of the Equipment of Borrower and its Subsidiaries is
used or held for use in their business and, except for Equipment that is no
longer used or useful in such business, is fit for such purpose.
5.5 Location of Inventory and Equipment. The Inventory and Equipment of
Borrower and its Subsidiaries are not stored with a bailee, warehouseman, or
similar party and are located only at, or in-transit between, the locations
identified on Schedule 5.5 (as such Schedule may be updated pursuant to Section
6.9).
5.6 Inventory Records. Borrower keeps in all material respects correct
and accurate records itemizing and describing the type, quality, and quantity of
its and its Subsidiaries' Inventory and the book value thereof.
5.7 State of Incorporation; Location of Chief Executive Office;
Organizational Identification Number; Commercial Tort Claims.
(a) The jurisdiction of organization of Borrower and each of its
Subsidiaries is set forth on Schedule 5.7(a), as the same may be update after
the Closing Date in accordance with Section 6.15 hereof.
(b) The chief executive office of Borrower and each of its
Subsidiaries is located at the address indicated on Schedule 5.7 (b) (as such
Schedule may be updated pursuant to Section 6.9 and 6.15 hereof).
(c) Borrower's and each of its Subsidiaries' organizational
identification numbers, if any, are identified on Schedule 5.7(c), as the same
may be updated after the Closing Date in accordance with Section 6.15 hereof.
(d) As of the Closing Date, Borrower and its Subsidiaries do not
hold any commercial tort claims, except as set forth on Schedule 5.7(d).
5.8 Due Organization and Qualification; Subsidiaries.
------------------------------------------------
(a) Borrower is duly organized and existing and in good standing
under the laws of the jurisdiction of its organization and qualified to do
business in any state where the failure to be so qualified reasonably could be
expected to result in a Material Adverse Change.
(b) Set forth on Schedule 5.8(b), is a complete and accurate
description of the authorized capital Stock of Borrower, by class, and, as of
the Closing Date, a description of the number of shares of each such class that
are issued and outstanding. Other than as described on Schedule 5.8(b), there
are no subscriptions, options, warrants, or calls relating to any shares of
Borrower's capital Stock, including any right of conversion or exchange under
48
any outstanding security or other instrument. Borrower is not subject to any
obligation (contingent or otherwise) to repurchase or otherwise acquire or
retire any shares of its capital Stock or any security convertible into or
exchangeable for any of its capital Stock. The Borrower shall provide the Lender
with an updated Schedule 5.8(b) promptly after taking any action permitted by
this Agreement which requires such schedule to be modified in order to remain
accurate.
(c) Set forth on Schedule 5.8(c) (as the same may be updated from
time to time as contemplated by paragraph (b) above and Section 6.15 hereto), is
a complete and accurate list of Borrower's direct and indirect Subsidiaries,
showing: (i) the jurisdiction of their organization, (ii) the number of shares
of each class of common and preferred Stock authorized for each of such
Subsidiaries, and (iii) the number and the percentage of the outstanding shares
of each such class owned directly or indirectly by Borrower. All of the
outstanding capital Stock of each such Subsidiary has been validly issued and is
fully paid and non-assessable.
(d) Except as set forth on Schedule 5.8(c) (as the same may be
updated from time to time as contemplated by paragraph (b) above), there are no
subscriptions, options, warrants, or calls relating to any shares of Borrower's
Subsidiaries' capital Stock, including any right of conversion or exchange under
any outstanding security or other instrument. Neither Borrower nor any of its
Subsidiaries is subject to any obligation (contingent or otherwise) to
repurchase or otherwise acquire or retire any shares of Borrower's Subsidiaries'
capital Stock or any security convertible into or exchangeable for any such
capital Stock.
5.9 Due Authorization; No Conflict.
------------------------------
(a) The execution, delivery, and performance by Borrower of this
Agreement and the Loan Documents to which it is a party have been duly
authorized by all necessary action on the part of Borrower.
(b) The execution, delivery, and performance by Borrower of this
Agreement and the other Loan Documents to which it is a party do not and will
not (i) violate any provision of federal, state, or local law or regulation
applicable to Borrower, the Governing Documents of Borrower, or any order,
judgment, or decree of any court or other Governmental Authority binding on
Borrower, (ii) conflict with, result in a breach of, or constitute (with due
notice or lapse of time or both) a default under any material contractual
obligation of Borrower, (iii) result in or require the creation or imposition of
any Lien of any nature whatsoever upon any properties or assets of Borrower,
other than Permitted Liens, or (iv) require any approval of Borrower's equity
holders or any approval or consent of any Person under any material contractual
obligation of Borrower, other than consents or approvals that have been obtained
and that are still in force and effect.
(c) Other than the filing of financing statements, the filings of
the Trademark Security Agreement and Patent Security Agreement with the Patent
and Trademark Office and the recordation of the Mortgages, if any, the
49
execution, delivery, and performance by Borrower of this Agreement and the other
Loan Documents to which Borrower is a party do not and will not require any
registration with, consent, or approval of, or notice to, or other action with
or by, any Governmental Authority, other than consents or approvals that have
been obtained and that are still in force and effect.
(d) This Agreement and the other Loan Documents to which Borrower
is a party, and all other documents contemplated hereby and thereby, when
executed and delivered by Borrower will be the legally valid and binding
obligations of Borrower, enforceable against Borrower in accordance with their
respective terms, except as enforcement may be limited by equitable principles
or by bankruptcy, insolvency, reorganization, moratorium, or similar laws
relating to or limiting creditors' rights generally.
(e) The Lender's Liens are validly created, perfected, and first
priority Liens, subject only to Permitted Liens.
(f) To the extent applicable, the execution, delivery, and
performance by each Guarantor of the Loan Documents to which it is a party have
been duly authorized by all necessary action on the part of such Guarantor.
(g) To the extent applicable, the execution, delivery, and
performance by each Guarantor of the Loan Documents to which it is a party do
not and will not (i) violate any provision of federal, state, or local law or
regulation applicable to such Guarantor, the Governing Documents of such
Guarantor, or any order, judgment, or decree of any court or other Governmental
Authority binding on such Guarantor, (ii) conflict with, result in a breach of,
or constitute (with due notice or lapse of time or both) a default under any
material contractual obligation of such Guarantor, (iii) result in or require
the creation or imposition of any Lien of any nature whatsoever upon any
properties or assets of such Guarantor, other than Permitted Liens, or (iv)
require any approval of such Guarantor's interestholders or any approval or
consent of any Person under any material contractual obligation of such
Guarantor, other than consents or approvals that have been obtained and that are
still in force and effect.
(h) To the extent applicable, other than the filing of financing
statements and the recordation of the Mortgages, the execution, delivery, and
performance by each Guarantor of the Loan Documents to which such Guarantor is a
party do not and will not require any registration with, consent, or approval
of, or notice to, or other action with or by, any Governmental Authority other
than consents or approvals that have been obtained and that are still in force
and effect.
(i) To the extent applicable, the Loan Documents to which each
Guarantor is a party, and all other documents contemplated hereby and thereby,
when executed and delivered by such Guarantor will be the legally valid and
binding obligations of such Guarantor, enforceable against such Guarantor in
accordance with their respective terms, except as enforcement may be limited by
equitable principles or by bankruptcy, insolvency, reorganization, moratorium,
or similar laws relating to or limiting creditors' rights generally.
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5.10 Litigation. Other than those matters disclosed on Schedule 5.10
and other than matters arising after the Closing Date that reasonably could not
be expected to result in a Material Adverse Change, there are no actions, suits,
or proceedings pending or, to the best knowledge of Borrower, threatened against
Borrower or any of its Subsidiaries.
5.11 No Material Adverse Change. All financial statements relating to
Borrower and its Subsidiaries that have been delivered by Borrower to Lender
have been prepared in accordance with GAAP (except, in the case of unaudited
financial statements, for the lack of footnotes and being subject to year-end
audit adjustments) and present fairly in all material respects, Borrower's and
its Subsidiaries' financial condition as of the date thereof and results of
operations for the period then ended. There has not been a Material Adverse
Change with respect to Borrower and its Subsidiaries since the date of the
latest financial statements submitted to Lender on or before the Closing Date.
5.12 Fraudulent Transfer.
-------------------
(a) Each of Borrower and each of its Subsidiaries is Solvent.
(b) No transfer of property is being made by Borrower or its
Subsidiaries and no obligation is being incurred by Borrower or its Subsidiaries
in connection with the transactions contemplated by this Agreement or the other
Loan Documents with the intent to hinder, delay, or defraud either present or
future creditors of Borrower or its Subsidiaries.
5.13 Employee Benefits. None of Borrower, any of its Subsidiaries, or
any of their ERISA Affiliates maintains or contributes to any Benefit Plan.
5.14 Environmental Condition. Except as set forth on Schedule 5.14, (a)
to Borrower's knowledge, none of Borrower's or its Subsidiaries' properties or
assets has ever been used by Borrower, its Subsidiaries, or by previous owners
or operators in the disposal of, or to produce, store, handle, treat, release,
or transport, any Hazardous Materials, where such use, production, storage,
handling, treatment, release or transport was in violation of any applicable
Environmental Law and such violation could reasonably be expected to have a
Material Adverse Change, (b) to Borrower's knowledge, none of Borrower's or its
Subsidiaries' properties or assets has ever been designated or identified in any
manner pursuant to any environmental protection statute as a Hazardous Materials
disposal site, (c) neither Borrower nor any of its Subsidiaries has received
notice that a Lien arising under any Environmental Law has attached to any
revenues or to any Real Property owned or operated by Borrower or its
Subsidiaries, and (d) neither Borrower nor its Subsidiaries has received a
summons, citation, notice, or directive from the United States Environmental
Protection Agency or any other federal or state governmental agency concerning
any action or omission by Borrower or its Subsidiaries resulting in the
releasing or disposing of Hazardous Materials into the environment, which
summons, citation, notice or directive could reasonably be expected to have a
Material Adverse Change.
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5.15 Intellectual Property. Borrower and its Subsidiaries own, or hold
licenses in, all trademarks, trade names, copyrights, patents, patent rights,
and licenses that are necessary to the conduct of its business as currently
conducted, and attached hereto as Schedule 5.15 (as updated from time to time)
is a true, correct, and complete listing of all material patents, patent
applications, trademarks, trademark applications, copyrights, and copyright
registrations as to which Borrower or one of its Subsidiaries is the owner or is
an exclusive licensee. The Borrower hereby represents that its federally
registered copyrights of VA-441-209 (fish earrings) and VA-567-250 (golf mug)
are no longer used in the Borrower's business and, to the extent the Borrower at
any time after the Closing Date uses either such copyright, the Borrower shall
immediately notify the Lender and execute and deliver a copyright security
agreement in form and substance reasonably satisfactory to Lender to cover such
copyrights.
5.16 Leases. Borrower and its Subsidiaries enjoy peaceful and
undisturbed possession under all leases material to their business and to which
they are parties or under which they are operating, and all of such leases are
valid and subsisting and no material default by Borrower or its Subsidiaries
exists under any of them.
5.17 Deposit Accounts and Securities Accounts. Set forth on Schedule
5.17 is a listing of all of Borrower's and its Subsidiaries' Deposit Accounts
and Securities Accounts, including, with respect to each bank or securities
intermediary (a) the name and address of such Person, and (b) the account
numbers of the Deposit Accounts or Securities Accounts maintained with such
Person.
5.18 Complete Disclosure. All factual information (taken as a whole)
furnished by or on behalf of Borrower or its Subsidiaries in writing to Lender
(including all information contained in the Schedules hereto or in the other
Loan Documents) for purposes of or in connection with this Agreement, the other
Loan Documents, or any transaction contemplated herein or therein is, and all
other such factual information (taken as a whole) hereafter furnished by or on
behalf of Borrower or its Subsidiaries in writing to Lender will be, true and
accurate, in all material respects, on the date as of which such information is
dated or certified and not incomplete by omitting to state any material fact
necessary to make such information (taken as a whole) not misleading in any
material respect at such time in light of the circumstances under which such
information was provided. On the Closing Date, the Closing Date Projections
represent, and as of the date on which any other Projections are delivered to
Lender, such additional Projections represent Borrower's good faith estimate of
its and its Subsidiaries' future performance for the periods covered thereby.
5.19 Indebtedness. Set forth on Schedule 5.19 is a true and complete
list of all Indebtedness of Borrower and its Subsidiaries outstanding
immediately prior to the Closing Date that is to remain outstanding after the
Closing Date and such Schedule accurately reflects the aggregate principal
amount of such Indebtedness and describes the principal terms thereof.
5.20 No Default. No Default exists.
---------
52
5.21 Holding Company and Investment Company Acts. Neither the Borrower
nor any of its Subsidiaries is a "holding company" or a "subsidiary company" of
a "holding company" or an "affiliate" of a "holding company", as such terms are
defined in the Public Utility Holding Company Act of 1935; nor is it an
"investment company", or an "affiliated company" or a "principal underwriter" of
an "investment company", as such terms are defined in the Investment Company Act
of 1940.
5.22 Absence of Financing Statements. Except with respect to Permitted
Liens, there is no financing statement, security agreement, chattel mortgage,
real estate mortgage or other document filed or recorded with any filing
records, registry or other public office, that purports to cover, affect or give
notice of any present or possible future Lien on any assets or property of the
Borrower or any of its Subsidiaries or any rights relating thereto.
5.23 Certain Transactions. Except as set forth on Schedule 5.23 hereto,
and except for arm's length transactions pursuant to which the Borrower or any
of its Subsidiaries makes payments in the ordinary course of business upon terms
no less favorable than the Borrower or such Subsidiary could obtain from third
parties, none of the officers, directors, or employees of Borrower or Guarantor
or any of their Subsidiaries is presently a party to any transaction with
Borrower or Guarantor or any of their Subsidiaries (other than for services as
employees, officers and directors), including any agreement or other arrangement
providing for the furnishing of services to or by, providing for rental of real
or personal property to or from, or otherwise requiring payments to or from any
officer, director or such employee or, to the knowledge of Borrower, any
corporation, partnership, trust or other entity in which any officer, director,
or any such employee has a substantial interest or is an officer, director,
trustee or partner.
5.24 Regulations U and X. No portion of any Advance is to be used, and
no portion of any Letter of Credit is to be obtained, for the purpose of
purchasing or carrying any "margin security" or "margin stock" as such terms are
used in Regulations U and X of the Board of Governors of the Federal Reserve
System, 12 C.F.R. Parts 221 and 224.
5.25 Payment of Taxes. All tax returns, reports and declarations
required to be filed by Borrower by any jurisdiction to which it is subject have
been timely filed (after giving effect to any permitted filing extensions). All
taxes and other governmental assessments and charges upon Borrower or its
properties, assets, income and franchises (including real property taxes and
payroll taxes) but not subject of a Permitted Protest have been paid prior to
delinquency. Borrower has set aside on its books provisions reasonably adequate
for the payment of all taxes for periods subsequent to the periods to which such
returns, reports or declarations apply. There are no unpaid taxes in any
material amount claimed to be due by the taxing authority of any jurisdiction,
and none of the officers of Borrower know of any basis for any such claim
5.26 Foreign Asset Control Regulation. None of the requesting or
borrowing of the Loans, the requesting or issuance, extension or renewal of any
Letters of Credit or the use of the proceeds of any thereof will violate the
Trading With the Enemy Act (50 U.S.C. ss. 1 et seq., as amended) (the "Trading
53
With the Enemy Act") or any of the foreign assets control regulations of the
United States Treasury Department (31 C.F.R., Subtitle B, Chapter V, as amended)
(the "Foreign Assets Control Regulations") or any enabling legislation or
executive order relating thereto (which for the avoidance of doubt shall
include, but shall not be limited to (a) Executive Order 13224 of September 21,
2001 Blocking Property and Prohibiting Transactions With Persons Who Commit,
Threaten to Commit, or Support Terrorism (66 Fed. Reg. 49079 (2001)) (the
"Executive Order") and (b) the Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001
(Public Law 107-56)). Furthermore, none of the Borrower nor any of its
Subsidiaries or other Affiliates (a) is or will become a "blocked person" as
described in the Executive Order, the Trading With the Enemy Act or the Foreign
Assets Control Regulations or (b) engages or will engage in any dealings or
transactions, or be otherwise associated, with any such "blocked person".
5.27 License Agreements. Schedule 5.27 sets forth each of the License
Agreements to which the Borrower is a party. The Borrower shall update Schedule
5.27 immediately upon becoming a party to any new License Agreement or
terminating any License Agreement otherwise set forth on such schedule. Each
such License Agreement is in full force and effect, and the Borrower is not in
default of any material provisions thereof. Each License Agreement either (a)
contains terms sufficient to enable the Lender to sell inventory relating to
such License Agreements upon the exercise by the Lender of any of its rights and
remedies hereunder or under any of the other Loan Documents or (b) does not
prevent or otherwise have the effect of prohibiting the Lender from selling
inventory relating to such License Agreement upon the exercise by the Lender of
any of its rights and remedies hereunder or under any of the other Loan
Documents.
5.28 Inactive Subsidiary. The Inactive Subsidiary has no liabilities in
excess of $10,000, conducts no operations or business other than in connection
with its final dissolution and owns no assets.
6. AFFIRMATIVE COVENANTS.
Borrower covenants and agrees that, so long as any credit hereunder
shall be available and until payment in full of the Obligations, Borrower shall
and shall cause each of its Subsidiaries to do all of the following:
6.1 Accounting System. Maintain a system of accounting that enables
Borrower to produce financial statements in accordance with GAAP and maintain
records pertaining to the Collateral in a manner consistent with Borrower's
prior practices and that contain information as from time to time reasonably may
be requested by Lender. Borrower also shall keep a reporting system that shows
all additions, sales, claims, returns, and allowances with respect to its and
its Subsidiaries' sales.
6.2 Collateral Reporting. Provide Lender with the following documents
at the following times in form satisfactory to Lender:
54
-------------------------- -----------------------------------------------------
Daily (a) an accounts receivable activity report and
supporting schedules, including a sales journal,
collection journal, and credit register since the
last such schedule, a report regarding credit
memoranda that have been issued since the last such
report,
(b) notice of all claims, offsets, or disputes
asserted by Account Debtors with respect to
Borrower's and its Subsidiaries' Accounts.
-------------------------- -----------------------------------------------------
Weekly (c) Inventory system/perpetual reports specifying the
standard cost and the Borrower's selling price of its
Inventory, by category, with additional detail
showing additions to and deletions therefrom, with
such reports being delivered by Borrower to Lender
electronically in a format acceptable to Lender.
(d) Information as to In-Transit Inventory (including
amounts and all documentation associated therewith).
(e) detailed information as to any intercompany
activity among the Borrower and its Subsidiaries of a
financial nature or relating to assets.
-------------------------- -----------------------------------------------------
Monthly (not later than (f) a detailed calculation of the Borrowing Base,
the 15th day of each
month) (g) a detailed aging, by total, of the Accounts of
Borrower, together with a reconciliation to the
detailed calculation of the Borrowing Base previously
provided to Lender,
(h) a summary aging, by vendor, of Borrower's and its
Subsidiaries' accounts payable and any book overdraft
together with a summary of any held checks and an
aging by vendor,
(i) a detailed summary of the Borrower's Inventory,
together with a reconciliation to the detailed
calculation of the Borrowing Base previously provided
to Lender, and a summary of Inventory by class, with
such reports being delivered by Borrower to Lender
electronically in a format acceptable to Lender;
(j) a detailed report regarding Borrower and its
Subsidiaries' cash and Cash Equivalents including an
indication of which amounts constitute Qualified
Cash;
(k) a detailed calculation of those Accounts which do
not constitute Eligible Accounts for purposes of the
Borrowing Base;
(l) a detailed calculation of Inventory that does not
constitute Eligible Inventory for purposes of the
Borrowing Base; and
(m) a monthly Accounts rollforward in a format
acceptable to Lender in Lender's sole discretion
(with the beginning and ending Account balances used
in such report being tied to Borrower's general
ledger).
-------------------------- -----------------------------------------------------
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-------------------------- -----------------------------------------------------
Quarterly (n) a summary of the cash surrender value of the
Borrower's owned life insurance policies.
-------------------------- -----------------------------------------------------
Upon request by Lender (o) copies of invoices and purchase orders in
connection with Inventory and Equipment acquired by
Borrower or its Subsidiaries;
(p) a detailed list of Borrower's and its
Subsidiaries' customers, with address and other
contact information;
(q) invoices, their corresponding shipping and
delivery documents, and credit memos, their
corresponding supporting documentation, above an
amount determined in the sole discretion of Lender,
from time to time;
(r) proof of payment by Borrower and its Subsidiaries
of all applicable taxes and other charges (including,
without limitation, payment of Real Estate taxes, ad
valorem and foreign taxes), together with a report
regarding Borrower's and its Subsidiaries' accrued,
but unpaid, ad valorem taxes; and
(s) such other reports as to the Collateral or the
financial condition of Borrower and its Subsidiaries,
as Lender may request.
-------------------------- -----------------------------------------------------
In addition, Borrower agrees to cooperate fully with Lender to
facilitate and implement a system of electronic collateral reporting in order to
provide electronic reporting of each of the items set forth above.
6.3 Financial Statements, Reports, Certificates. Deliver to Lender:
--------------------------------------------------------------
(a) as soon as available, but in any event within 30 days (50
days in the case of a month that is the end of one of Borrower's fiscal
quarters) after the end of each month during each of Borrower's fiscal years,
(i) an unaudited consolidated and consolidating balance
sheet, income statement, and statement of cash flow covering
Borrower's and its Subsidiaries' operations during such period;
(ii) a Compliance Certificate; and
(iii) a trial balance as of the most recent month end
(b) as soon as available, but in any event within 105 days after
the end of each of Borrower's fiscal years,
(i) consolidated and consolidating financial statements
of Borrower and its Subsidiaries for each such fiscal year,
audited by independent certified public accountants reasonably
acceptable to Lender and certified, without any qualifications
(other than a "going concern" qualification or exception)
(including any (A) qualification or exception as to the scope of
such audit, or (B) qualification which relates to the treatment
or classification of any item and which, as a condition to the
removal of such qualification, would require an adjustment to
such item, the effect of which would be to cause any
noncompliance with the provisions of Section 7.18), by such
accountants to have been prepared in accordance with GAAP (such
audited financial statements to include a balance sheet, income
statement, and statement of cash flow and, if prepared, such
accountants' letter to management),
56
(ii) a certificate of such accountants addressed to
Lender stating that such accountants do not have knowledge of the
existence of any Default or Event of Default under Section 7.18,
and
(iii) a Compliance Certificate,
(c) as soon as available, but in any event within 30 days prior
to the start of each of Borrower's fiscal years, copies of Borrower's
Projections, in form and substance (including as to scope and underlying
assumptions) satisfactory to Lender, in its Permitted Discretion, for the
forthcoming fiscal year, month by month, certified by the chief financial
officer of Borrower as being such officer's good faith estimate of the financial
performance of Borrower during the period covered thereby,
(d) if and when filed by Borrower,
(i) Form 10-Q quarterly reports, Form 10-K annual
reports, and Form 8-K current reports,
(ii) any other filings made by Borrower with the SEC,
(iii) copies of Borrower's federal income tax returns,
and any amendments thereto, filed with the Internal Revenue
Service, and
(iv) any other information that is provided by Borrower
to its shareholders generally,
(e) promptly, but in any event within 5 days after Borrower has
knowledge of any event or condition that constitutes a Default or an Event of
Default, notice thereof and a statement of the curative action that Borrower
proposes to take with respect thereto,
(f) promptly after the commencement thereof, but in any event
within 5 days after the service of process with respect thereto on Borrower or
any of its Subsidiaries, notice of all actions, suits, or proceedings brought by
or against Borrower or any of its Subsidiaries before any Governmental Authority
which reasonably could be expected to result in a Material Adverse Change, and
(g) upon the request of Lender, any other information reasonably
requested relating to the financial condition of Borrower or its Subsidiaries.
In addition, Borrower agrees that no Subsidiary of Borrower will have a
fiscal year different from that of Borrower. Borrower also agrees to cooperate
with Lender to allow Lender to consult with its independent certified public
accountants if Lender reasonably requests the right to do so and that, in such
connection, its independent certified public accountants are authorized to
communicate with Lender and to release to whatever financial information
concerning Borrower or its Subsidiaries that Lender reasonably may request.
57
6.4 Guarantor Reports. Cause each Guarantor to deliver its annual
financial statements at the time when Borrower provides its audited financial
statements to Lender, but only to the extent such Guarantor's financial
statements are not consolidated with Borrower's financial statements, and copies
of all federal income tax returns as soon as the same are available and in any
event no later than 30 days after the same are required to be filed by law.
6.5 Returns. Cause returns and allowances, as between Borrower and its
Subsidiaries and their Account Debtors, to be on the same basis and in
accordance with the usual customary practices of Borrower and its Subsidiaries,
as they exist at the time of the execution and delivery of this Agreement.
6.6 Maintenance of Properties. Maintain and preserve all of its
properties which are necessary or useful (other than properties which are no
longer used by the Borrower) in the proper conduct to its business in good
working order and condition, ordinary wear and tear excepted, and comply at all
times with the provisions of all material leases to which it is a party as
lessee, so as to prevent any loss or forfeiture thereof or thereunder.
6.7 Taxes. Cause all assessments and taxes, whether real, personal, or
otherwise, due or payable by, or imposed, levied, or assessed against Borrower,
its Subsidiaries, or any of their respective assets to be paid in full, before
delinquency or before the expiration of any extension period, except to the
extent that the validity of such assessment or tax shall be the subject of a
Permitted Protest. Borrower will and will cause its Subsidiaries to make timely
payment or deposit of all tax payments and withholding taxes required of it and
them by applicable laws, including those laws concerning F.I.C.A., F.U.T.A.,
state disability, and local, state, and federal income taxes, and will, upon
request, furnish Lender with proof satisfactory to Lender indicating that
Borrower and its Subsidiaries have made such payments or deposits.
6.8 Insurance.
---------
(a) At Borrower's expense, maintain insurance respecting its and
its Subsidiaries' assets wherever located, covering loss or damage by fire,
theft, explosion, and all other hazards and risks as ordinarily are insured
against by other Persons engaged in the same or similar businesses. Borrower
also shall maintain business interruption, public liability, and product
liability insurance, as well as insurance against larceny, embezzlement, and
criminal misappropriation. All such policies of insurance shall be in such
amounts and with such insurance companies as are reasonably satisfactory to
Lender. Borrower shall deliver copies of all such policies to Lender with an
endorsement naming Lender as the sole loss payee (under a satisfactory lender's
loss payable endorsement) or additional insured, as appropriate. Each policy of
insurance or endorsement shall contain a clause requiring the insurer to give
not less than 30 days prior written notice to Lender in the event of
cancellation of the policy for any reason whatsoever.
(b) Borrower shall give Lender prompt notice of any loss covered
by such insurance. Lender shall have the exclusive right to adjust any losses
claimed under any such insurance policies in excess of $100,000 (or in any
amount after the occurrence and during the continuation of an Event of Default),
58
without any liability to Borrower whatsoever in respect of such adjustments. Any
monies received as payment for any loss under any insurance policy mentioned
above (other than liability insurance policies) or as payment of any award or
compensation for condemnation or taking by eminent domain, shall be paid over to
Lender to be applied at the option of Lender either to the prepayment of the
Obligations or shall be disbursed to Borrower under staged payment terms
reasonably satisfactory to Lender for application to the cost of repairs,
replacements, or restorations, provided that, insurance proceeds delivered to
Lender in an aggregate amount, in any case, of less than $100,000 that have been
applied by Lender to the outstanding Obligations can, subject to the other terms
and conditions of the Agreement, be reborrowed hereunder. Any such repairs,
replacements, or restorations shall be effected with reasonable promptness and
shall be of a value at least equal to the value of the items of property
destroyed prior to such damage or destruction.
(c) Borrower will not and will not suffer or permit its
Subsidiaries to take out separate insurance concurrent in form or contributing
in the event of loss with that required to be maintained under this Section 6.8,
unless Lender is included thereon as an additional insured or loss payee under a
lender's loss payable endorsement. Borrower promptly shall notify Lender
whenever such separate insurance is taken out, specifying the insurer thereunder
and full particulars as to the policies evidencing the same, and copies of such
policies promptly shall be provided to Lender.
(d) At its expense, maintain life insurance policies with respect
to certain employees so long as the aggregate cash surrender amounts for all
such policies is not less than $2,500,000 less any cash surrender value proceeds
actually received and retained by Lender under such policies. Borrower shall
furnish Lender with a collateral assignment of each such policy on assignment
forms reasonably acceptable to Lender, shall furnish each such assignment for
recording with the applicable insurance companies, and shall furnish to Lender
proof of the acceptance of each such assignment by the applicable insurance
companies to the extent acceptance is required for the effectiveness of the
assignment. In addition, Borrower shall provide Lender with immediate notice of
any surrender of any life insurance policy or if any policy is terminated or
ceases to be in full force and effect. The assigned policies and any proceeds
actually received by Lender shall constitute Borrower Collateral hereunder and
shall be subject to the terms and conditions of this Agreement (including,
without limitation, the application provisions set forth in Section 2.3(b)). As
between Borrower and Lender, the assignment of such policies is intended to
provide Lender with a security interest in, and access to, to the cash surrender
value proceeds upon the occurrence and during the continuation of an Event of
Default in accordance with the terms and conditions of this Agreement. To the
extent any proceeds other than cash surrender value proceeds of any assigned
policy shall be paid to Lender, including death benefits, Lender shall
immediately deliver such proceeds to Borrower. If requested, Lender shall
reasonably cooperate with Borrower or the beneficiary (or his or her legal
representatives) of any assigned policy, at Borrower's expense, to permit
Borrower or such beneficiary (or such legal representative) to obtain death and
any other benefits, other than cash surrender value proceeds, provided for in
such policies. Upon the request of Borrower, such policy shall be surrendered to
the applicable insurance company and the cash surrender value thereof shall be
held by Lender as cash collateral in an interest bearing account with a bank or
financial institution reasonably acceptable to Borrower and Lender, with any
such interest to be held as additional cash collateral. Any other cash surrender
value proceeds of the assigned policies actually received by Lender, whether as
a loan against such cash surrender value or otherwise, together with interest
thereof, shall also be held as cash collateral as provided in the immediately
preceding sentence. Except at the request of Borrower as provided above, and
except to the extent Lender, in connection with exercising its rights and
remedies hereunder, exercises its rights with respect to the assignment of the
cash surrender value of any assigned policies, Lender shall not amend, modify or
terminate any such assigned policies without the prior written consent of
Borrower and the beneficiary of such policies.
59
6.9 Location of Inventory and Equipment. Keep Borrower's and its
Subsidiaries' Inventory and Equipment only at the locations identified on
Schedule 5.5 and their chief executive offices only at the locations identified
on Schedule 5.7(b); provided, however, that Borrower may amend Schedule 5.5 and
Schedule 5.7 so long as such amendment occurs by written notice to Lender not
less than 30 days prior to the date on which such Inventory or Equipment is
moved to such new location or such chief executive office is relocated, so long
as such new location is within the continental United States, and so long as, at
the time of such written notification, if so requested by Lender, Borrower
provides to Lender a Collateral Access Agreement with respect thereto.
6.10 Compliance with Laws. Comply with the requirements of all
applicable laws, rules, regulations, and orders of any Governmental Authority,
other than laws, rules, regulations, and orders the non-compliance with which,
individually or in the aggregate, could not reasonably be expected to result in
a Material Adverse Change.
6.11 Leases. Pay when due all rents and other amounts payable under any
material leases to which Borrower or any of its Subsidiaries is a party or by
which Borrower's or any such Subsidiaries' properties and assets are bound,
unless such payments are the subject of a Permitted Protest.
6.12 Existence. At all times preserve and keep in full force and effect
Borrower's and its Subsidiaries' valid existence and good standing and any
rights and franchises material to their businesses.
6.13 Environmental.
-------------
(a) Keep any property either owned or operated by Borrower or its
Subsidiaries free of any Environmental Liens or post bonds or other financial
assurances sufficient to satisfy the obligations or liability evidenced by such
Environmental Liens, other than those being contested in good faith by
appropriate proceedings and those that could not reasonably be expected to have
a Material Adverse Effect, (b) comply, in all material respects, with
Environmental Laws and provide to Lender documentation of such compliance which
Lender reasonably requests, (c) promptly notify Lender of any release of a
Hazardous Material in any reportable quantity from or onto property owned or
operated by Borrower or its Subsidiaries and take any Remedial Actions required
to ▇▇▇▇▇ said release or otherwise to come into compliance with applicable
Environmental Law, and (d) promptly, but in any event within 5 days of its
receipt thereof, provide Lender with written notice of any of the following: (i)
notice that an Environmental Lien has been filed against any of the real or
personal property of Borrower or its Subsidiaries, (ii) commencement of any
Environmental Action or notice that an Environmental Action will be filed
against Borrower or its Subsidiaries, and (iii) notice of a violation, citation,
or other administrative order which reasonably could be expected to result in a
Material Adverse Change.
6.14 Disclosure Updates. Promptly and in no event later than 5 Business
Days after obtaining knowledge thereof, notify Lender if any written
information, exhibit, or report furnished to Lender contained, at the time it
was furnished, any untrue statement of a material fact or omitted to state any
material fact necessary to make the statements contained therein not misleading
in light of the circumstances in which made. The foregoing to the contrary
notwithstanding, any notification pursuant to the foregoing provision will not
cure or remedy the effect of the prior untrue statement of a material fact or
omission of any material fact nor shall any such notification have the affect of
amending or, modifying this Agreement or any of the Schedules hereto.
6.15 Formation of Subsidiaries. At the time that Borrower or any
Guarantor forms any direct or indirect Subsidiary or acquires any direct or
indirect Subsidiary after the Closing Date, Borrower or such Guarantor shall (a)
60
provide the Lender with written notice of such formation or acquisition, as the
case may be, together with information as to the jurisdiction of formation of
such subsidiary and an updated Schedule 5.7(a), 5.7(b) and 5.7(c) and updated
Schedule 5.8(c), (b) in the case of a Domestic Subsidiary, cause such new
Subsidiary to provide to Lender a joinder to this Agreement or the Guaranty and
the Guarantor Security Agreement, together with such other security documents
(including Mortgages with respect to any Real Property of such new Subsidiary
and an Intercompany Subordination Agreement), as well as appropriate financing
statements (and with respect to all property subject to a Mortgage, fixture
filings), all in form and substance satisfactory to Lender (including being
sufficient to grant Lender a first priority Lien (subject to Permitted Liens) in
and to the assets of such newly formed or acquired Subsidiary), (c) provide to
Lender a pledge agreement and appropriate certificates and powers or financing
statements, hypothecating all of the direct or beneficial ownership interest in
such new Subsidiary, in form and substance satisfactory to Lender, provided,
however, if such new Subsidiary is a Foreign Subsidiary, the applicable Borrower
or Guarantor, as the case may be, shall only be required to pledge 66% of the
capital Stock of such Foreign Subsidiary, and (d) provide to Lender all other
documentation, including one or more opinions of counsel satisfactory to Lender,
which in its opinion is appropriate with respect to the execution and delivery
of the applicable documentation referred to above (including policies of title
insurance or other documentation with respect to all property subject to a
Mortgage). Any document, agreement, or instrument executed or issued pursuant to
this Section 6.15 shall be a Loan Document.
6.16 License Agreements. Make all royalty payments on each License
Agreement when the same shall become due and payable (and not be delinquent in
any such payment), and, in addition, immediately provide Lender with notice of
(a) the Borrower entering into any new License Agreement (including a copy
thereof and Borrower delivering an updated Schedule 5.28 hereto) or any
amendment to any existing License Agreement and (b) any termination or
non-renewal of any License Agreement.
6.17 Mortgages. Deliver to the Lender, if the Lender so requests,
Mortgages on any Real Property leased or acquired after the date hereof,
together with such other documentation as the Lender may require (including,
without limitation, title policies, surveys, and environmental site assessments)
in order to provide the Lender with a first priority mortgage on such Real
Estate, subject only to Permitted Liens.
7. NEGATIVE COVENANTS.
Borrower covenants and agrees that, so long as any credit hereunder
shall be available and until payment in full of the Obligations, Borrower will
not and will not permit any of its Subsidiaries to do any of the following:
7.1 Indebtedness. Create, incur, assume, suffer to exist, guarantee, or
otherwise become or remain, directly or indirectly, liable with respect to any
Indebtedness, except:
(a) Indebtedness evidenced by this Agreement and the other Loan
Documents (whether as a borrower, guarantor or otherwise), together with
Indebtedness owed to Underlying Issuers with respect to Underlying Letters of
Credit,
(b) Indebtedness consisting of the Tulin Note and other
Indebtedness set forth on Schedule 5.20,
(c) Permitted Purchase Money Indebtedness,
61
(d) refinancings, renewals, or extensions of Indebtedness
permitted under clauses (b) and (c) of this Section 7.1 (and continuance or
renewal of any Permitted Liens associated therewith) so long as: (i) the terms
and conditions of such refinancings, renewals, or extensions do not, in Lender's
reasonable judgment, materially impair the prospects of repayment of the
Obligations by Borrower or materially impair Borrower's creditworthiness, (ii)
such refinancings, renewals, or extensions do not result in an increase in the
principal amount of, or interest rate with respect to, the Indebtedness so
refinanced, renewed, or extended, (iii) such refinancings, renewals, or
extensions do not result in a shortening of the average weighted maturity of the
Indebtedness so refinanced, renewed, or extended, nor are they on terms or
conditions that, taken as a whole, are materially more burdensome or restrictive
to Borrower, (iv) if the Indebtedness that is refinanced, renewed, or extended
was subordinated in right of payment to the Obligations, then the terms and
conditions of the refinancing, renewal, or extension Indebtedness must include
subordination terms and conditions that are at least as favorable to Lender as
those that were applicable to the refinanced, renewed, or extended Indebtedness,
and (v) the Indebtedness that is refinanced, renewed, or extended is not
recourse to any Person that is liable on account of the Obligations other than
those Persons which were obligated with respect to the Indebtedness that was
refinanced, renewed, or extended,
(e) endorsement of instruments or other payment items for
deposit,
(f) Indebtedness composing Permitted Investments;
(g) Indebtedness consisting of amounts owing under the License
Agreements;
(h) Indebtedness of the Borrower consisting of loans received by
the Borrower against the cash surrender value of life insurance contracts owned
by the Borrower so long as the aggregate cash surrender value of all such
contracts remaining and not subject to any lien is not less than $2,500,000.
7.2 Liens. Create, incur, assume, or suffer to exist, directly or
indirectly, any Lien on or with respect to any of its assets, of any kind,
whether now owned or hereafter acquired, or any income or profits therefrom,
except for Permitted Liens (including Liens that are replacements of Permitted
Liens to the extent that the original Indebtedness is refinanced, renewed, or
extended under Section 7.1(d) and so long as the replacement Liens only encumber
those assets that secured the refinanced, renewed, or extended Indebtedness).
62
7.3 Restrictions on Fundamental Changes.
-----------------------------------
(a) Enter into any merger, consolidation (other than a merger or
consolidation of a wholly-owned Subsidiary with and into the Borrower, with the
Borrower being the surviving entity), reorganization, or recapitalization, or
reclassify its Stock.
(b) Liquidate, wind up, or dissolve itself (or suffer any
liquidation or dissolution), provided, however, the Borrower shall be permitted
to liquidate and/or dissolve its Inactive Subsidiary.
(c) Convey, sell, lease, license, assign, transfer, or otherwise
dispose of, in one transaction or a series of transactions, all or any
substantial part of its assets.
7.4 Disposal of Assets. Other than in connection with Permitted
Dispositions, convey, sell, lease, license, assign, transfer, or otherwise
dispose of any of Borrower's or its Subsidiaries' assets.
7.5 Change Name. Change Borrower's or any of its Subsidiaries' names,
organizational identification number, state of organization or organizational
identity; provided, however, that Borrower or any of its Subsidiaries may change
their names upon at least 30 days prior written notice to Lender of such change
and so long as, at the time of such written notification, Borrower or its
Subsidiary provides any financing statements necessary to perfect and continue
perfected the Lender's Liens.
7.6 Nature of Business. Make any material change in the principal
nature of its or their business.
7.7 Prepayments and Amendments. Except in connection with a refinancing
permitted by Section 7.1(d),
(a) optionally prepay, redeem, defease, purchase, offer to
prepay, repay, redeem, defease or purchase, or otherwise acquire any
Indebtedness of Borrower or its Subsidiaries, other than the Obligations in
accordance with this Agreement,
(b) make any payments on the Tulin Note, provided, the Borrower
shall be permitted to make payments in the form of capital Stock of the Borrower
pursuant to the terms thereof and, in addition, so long as no Default of Event
of Default has occurred and is continuing hereunder, Borrower shall be permitted
to (i) make regularly scheduled interest payments due thereunder; and (ii) make
the regularly scheduled payment of principal due on the Original Maturity Date
so long as for the period of sixty (60) consecutive days prior to the Original
Maturity Date and immediately after giving effect to any such payment, the
Borrower has an Availability of not less than $3,000,000; or
(c) directly or indirectly, amend, modify, alter, increase, or
change any of the terms or conditions of any agreement, instrument, document,
indenture, or other writing evidencing or concerning Indebtedness permitted
under Section 7.1(b) or (c).
63
7.8 Change of Control. Cause, permit, or suffer, directly or
indirectly, any Change of Control.
7.9 Consignments. Consign any of its or their Inventory or sell any of
its or their Inventory on ▇▇▇▇ and hold, sale or return, sale on approval, or
other conditional terms of sale.
7.10 Restricted Payments. Make any Restricted Payment, provided,
however, so long as no Default or Event of Default has occurred and is
continuing or would exist as a result thereof, Borrower shall be permitted to
make a Restricted Payment to The New Swank Inc. Retirement Plan consisting of
advances or other Distributions made by Borrower to The New Swank Inc.
Retirement Plan, the proceeds of which are used by The New Swank Inc. Retirement
Plan to repurchase from employees of Borrower shares of the Stock of Borrower
owned by such employee, provided, (a) the aggregate amount of any such Resticted
Payment made pursuant to this Section 7.10 shall be deducted from the
calculation of EBITDA in the applicable period in which such Restricted Payment
was made (whether such deduction is a result of such Restricted Payment being
expensed or otherwise deducted); (b) the aggregate amount of such Restricted
Payment and the Permitted Investments set forth in paragraph (j) of such
definition shall not exceed $350,000 in any calendar year; and (c) the
Borrower's Availability both before and after making such Restricted Payment is
not less than $2,000,000.
7.11 Accounting Methods. Modify or change its fiscal year or its method
of accounting (other than as may be required or permitted to conform to GAAP) or
enter into, modify, or terminate any agreement currently existing, or at any
time hereafter entered into with any third party accounting firm or service
bureau for the preparation or storage of Borrower's or its Subsidiaries'
accounting records without said accounting firm or service bureau agreeing to
provide Lender information regarding Borrower's and its Subsidiaries' financial
condition.
7.12 Investments. Except for Permitted Investments, directly or
indirectly, make or acquire any Investment or incur any liabilities (including
contingent obligations) for or in connection with any Investment; provided,
however, that Borrower and its Subsidiaries shall not have Permitted Investments
(other than in the Cash Management Accounts) in Deposit Accounts or Securities
Accounts in an aggregate amount in excess of $10,000 at any one time unless
Borrower or its Subsidiary, as applicable, and the applicable securities
intermediary or bank have entered into Control Agreements governing such
Permitted Investments in order to perfect (and further establish) the Lender's
Liens in such Permitted Investments. Subject to the foregoing proviso, Borrower
shall not and shall not permit its Subsidiaries to establish or maintain any
Deposit Account or Securities Account unless Lender shall have received a
Control Agreement in respect of such Deposit Account or Securities Account.
7.13 Transactions with Affiliates. Directly or indirectly enter into or
permit to exist any transaction with any Affiliate of Borrower except for
transactions that (a) are in the ordinary course of Borrower's business, (b) are
upon fair and reasonable terms, (c) if they involve one or more payments by
Borrower or its Subsidiaries in excess of $60,000, are fully disclosed to
Lender, and (d) are no less favorable to Borrower or its Subsidiaries, as
applicable, than would be obtained in an arm's length transaction with a
non-Affiliate.
64
7.14 Suspension. Suspend or go out of a substantial portion of its or
their business.
7.15 Use of Proceeds. Use the proceeds of the Advances for any purpose
other than (a) on the Closing Date, (i) to repay, in full, the outstanding
principal, accrued interest, and accrued fees and expenses owing to Existing
Lender, and (ii) to pay transactional fees, costs, and expenses incurred in
connection with this Agreement, the other Loan Documents, and the transactions
contemplated hereby and thereby, and (b) thereafter, consistent with the terms
and conditions hereof, for its lawful and permitted purposes.
7.16 Inventory and Equipment with Bailees. Store the Inventory or
Equipment of Borrower or its Subsidiaries at any time now or hereafter with a
bailee, warehouseman, or similar party, except for such locations as to which a
Collateral Access Agreement shall have been executed and delivered to Lender and
remains in full force and effect.
7.17 Inactive Subsidiary. Permit the Inactive Subsidiary to conduct any
business other than in connection with its final dissolution, incur any
Indebtedness, liabilities in excess of $10,000 in the aggregate or obligations,
receive any investments, acquire any assets or have assets valued at more than
$0.
7.18 Financial Covenants.
-------------------
(a) Minimum EBITDA: Fail to maintain or achieve EBITDA, measured
on a month-end basis, of at least the required amount set forth in the following
table for the applicable period set forth opposite thereto:
--------------------------------------------------------------------------------
Applicable Amount Applicable Period
($487,000) For the 1 month period ended
April 30, 2004
($212,000) For the 2 month period ending
May 31, 2004
($872,000) For the 3 month period ending
June 30, 2004
($1,252,000) For the 4 month period ending
July 31, 2004
($462,000) For the 5 month period ending
August 31, 2004
--------------------------------------------------------------------------------
65
--------------------------------------------------------------------------------
$464,000 For the 6 month period
ending September 30, 2004
$1,455,000 For the 7 month period ending
October 31, 2004
$2,616,000 For the 8 month period ending
November 30, 2004
$2,611,000 For the 9 month period ending
December 31, 2004
An amount determined by Lender based For the 12 month period
upon the Projections delivered pursuant ending January 31, 2005 and
to Section 6.3(c); provided that if each calendar month thereafter.
Lender does not receive such Projections
or Borrower and Lender cannot agree (for
any reason) on covenants acceptable to
Borrower and Lender, then the Applicable
Amount shall be $2,500,000.
--------------------------------------------------------------------------------
(b) Capital Expenditures. Make Capital Expenditures in any fiscal
year in excess of the amount set forth in the following table for the applicable
period (provided, the Borrower shall also be permitted to make an additional
$300,000 in the aggregate in Capital Expenditures in any periods which occur on
and after the consummation of the sale of the Attleboro Property so long as such
Capital Expenditures relate solely to the relocation of the administrative and
other offices of Borrower to Borrower's Taunton, MA facility and related
expenses):
--------------------------------------------------------------------------------
Fiscal Year 2005 and each
Fiscal Year 2004 Fiscal Year thereafter
--------------------------------------------------------------------------------
$400,000 $500,000
--------------------------------------------------------------------------------
8. EVENTS OF DEFAULT.
Any one or more of the following events shall constitute an event of
default (each, an "Event of Default") under this Agreement:
8.1 If (a) Borrower fails to pay when due and payable, or when declared
due and payable, all or any portion of the Obligations consisting of principal
or any reimbursement of any L/C Disbursement; or (b) Borrower fails to pay,
within 2 days of when the same shall become due and payable (whether at the
stated date of maturity or any accelerated date of maturity or any other date
fixed for payments), all or any portion of the Obligations consisting of
66
interest (including any interest which, but for the provisions of the Bankruptcy
Code, would have accrued on such amounts), fees and charges due Lender,
reimbursement of Lender Expenses, or other amounts due hereunder or under any of
the other Loan Documents;
8.2 If Borrower or any of its Subsidiaries (a) fails to perform, keep,
or observe any term, provision, condition, covenant, or agreement contained in
Sections 6.7, 6.10, 6.11 or 6.13 this Agreement and such failure or neglect
continues for a period of ten (10) days after the date on which such failure or
neglect first occurs, or (b) fails to perform, keep, or observe any term,
provision, condition, covenant, or agreement contained in any other section of
this Agreement or in any of the other Loan Documents; provided however, that
during any period of time that any such failure or neglect of Borrower or its
Subsidiaries referred to in this Section 8.2 exists, even if such failure or
neglect is not yet an Event of Default by virtue of the existence of a grace
period or the pre-condition of the giving of notice, the Lender shall be
relieved of its obligation to extend any credit under this Agreement
8.3 If any material portion of Borrower's or any of its Subsidiaries'
assets is attached, seized, subjected to a writ or distress warrant, levied
upon, or comes into the possession of any third Person;
8.4 If an Insolvency Proceeding is commenced by Borrower or any of its
Subsidiaries;
8.5 If an Insolvency Proceeding is commenced against Borrower, or any
of its Subsidiaries, and any of the following events occur: (a) Borrower or such
Subsidiary consents to the institution of such Insolvency Proceeding against it,
(b) the petition commencing the Insolvency Proceeding is not timely
controverted; provided, however, that, during the pendency of such period,
Lender shall be relieved of its obligations to extend credit hereunder, (c) the
petition commencing the Insolvency Proceeding is not dismissed within 60
calendar days of the date of the filing thereof; provided, however, that, during
the pendency of such period, Lender shall be relieved of its obligation to
extend credit hereunder, (d) an interim trustee is appointed to take possession
of all or any substantial portion of the properties or assets of, or to operate
all or any substantial portion of the business of, Borrower or any of its
Subsidiaries, or (e) an order for relief shall have been entered therein;
8.6 If Borrower or any of its Subsidiaries is enjoined, restrained, or
in any way prevented by court order from continuing to conduct all or any
material part of its business affairs;
8.7 If a notice of Lien, levy, or assessment is filed of record with
respect to any of Borrower's or any of its Subsidiaries' assets by the United
States, or any department, agency, or instrumentality thereof, or by any state,
county, municipal, or governmental agency, or if any taxes or debts owing at any
time hereafter to any one or more of such entities becomes a Lien, whether
▇▇▇▇▇▇ or otherwise, upon any of Borrower's or any of its Subsidiaries' assets
and the same is not paid before the commencement of proceedings to foreclose any
such lien;
67
8.8 If there shall remain in force, undischarged, unsatisfied and
unstayed, for more than 30 days, whether or not consecutive, any final judgment
against Borrower or any of its Subsidiaries that, with other outstanding final
judgments which are not otherwise covered by insurance, undischarged, against
Borrower or any of its Subsidiaries exceeds in the aggregate $100,000;
8.9 If there is a default in any agreement relating to the borrowing of
money or credit received or in respect of any Capital Lease in an aggregate
principal amount in excess of $50,000 to which Borrower or any of its
Subsidiaries is a party and such default (a) occurs at the final maturity of the
obligations thereunder, or (b) results in a right by the other party thereto,
irrespective of whether exercised, to accelerate the maturity of Borrower's or
its Subsidiaries' obligations thereunder or to terminate such agreement;
8.10 If Borrower or any of its Subsidiaries makes any payment on
account of Indebtedness that has been contractually subordinated in right of
payment to the payment of the Obligations, except to the extent such payment is
permitted by the terms of the subordination provisions applicable to such
Indebtedness;
8.11 If any material misstatement or misrepresentation exists as of the
date when made or deemed made, in any warranty, representation, statement, or
Record made to Lender by Borrower, its Subsidiaries, or any officer, employee,
agent, or director of Borrower or any of its Subsidiaries;
8.12 If the obligation of any Guarantor under the Guaranty is limited
or terminated by operation of law or by such Guarantor thereunder;
8.13 If this Agreement or any other Loan Document that purports to
create a Lien, shall, for any reason, fail or cease to create a valid and
perfected and, except to the extent permitted by the terms hereof or thereof,
first priority Lien on or security interest in the Collateral covered hereby or
thereby, except as a result of a disposition of the applicable Collateral in a
transaction permitted under this Agreement; or
8.14 Any provision of any Loan Document shall at any time for any
reason be declared to be null and void, or the validity or enforceability
thereof shall be contested by Borrower or its Subsidiaries, or a proceeding
shall be commenced by Borrower or its Subsidiaries, or by any Governmental
Authority having jurisdiction over Borrower or its Subsidiaries seeking to
establish the invalidity or unenforceability thereof, or Borrower or its
Subsidiaries, shall deny that Borrower or its Subsidiaries has any liability or
obligation purported to be created under any Loan Document.
9. LENDER'S RIGHTS AND REMEDIES.
9.1 Rights and Remedies. Upon the occurrence, and during the
continuation, of an Event of Default, Lender (at its election but without notice
of its election and without demand) may do any one or more of the following, all
of which are authorized by Borrower:
68
(a) Declare all or any portion of the Obligations, whether
evidenced by this Agreement, by any of the other Loan Documents, or otherwise,
immediately due and payable;
(b) Cease advancing money or extending credit to or for the
benefit of Borrower under this Agreement, under any of the Loan Documents, or
under any other agreement between Borrower and Lender;
(c) Terminate this Agreement and any of the other Loan Documents
as to any future liability or obligation of Lender, but without affecting any of
the Lender's Liens in the Collateral and without affecting the Obligations;
(d) Settle or adjust disputes and claims directly with Borrower's
Account Debtors for amounts and upon terms which Lender considers advisable, and
in such cases, Lender will credit Borrower's Loan Account with only the net
amounts received by Lender in payment of such disputed Accounts after deducting
all Lender Expenses incurred or expended in connection therewith;
(e) Cause Borrower to hold all of its returned Inventory in trust
for Lender and segregate all such Inventory from all other assets of Borrower or
in Borrower's possession;
(f) Without notice to or demand upon Borrower, make such payments
and do such acts as Lender considers necessary or reasonable to protect its
security interests in the Collateral. Borrower agrees to assemble the Collateral
if Lender so requires, and to make the Collateral available to Lender at a place
that Lender may designate which is reasonably convenient to both parties.
Borrower authorizes Lender, subject to the terms of any applicable Collateral
Access Agreements, to enter the premises where the Collateral is located, to
take and maintain possession of the Collateral, or any part of it, and to pay,
purchase, contest, or compromise any Lien that in Lender's determination appears
to conflict with the priority of Lender's Liens in and to the Collateral and to
pay all expenses incurred in connection therewith and to charge Borrower's Loan
Account therefor. With respect to any of Borrower's owned or leased premises,
Borrower hereby grants Lender, subject to the terms of any applicable Collateral
Access Agreement, a license to enter into possession of such premises and to
occupy the same, without charge, in order to exercise any of Lender's rights or
remedies provided herein, at law, in equity, or otherwise;
(g) Without notice to Borrower (such notice being expressly
waived), and without constituting an acceptance of any collateral in full or
partial satisfaction of an obligation (within the meaning of the Code), set off
and apply to the Obligations any and all (i) balances and deposits of Borrower
held by Lender (including any amounts received in the Cash Management Accounts),
or (ii) Indebtedness at any time owing to or for the credit or the account of
Borrower held by Lender;
(h) Hold, as cash collateral, any and all balances and deposits
of Borrower held by Lender, and any amounts received in the Cash Management
Accounts, to secure the full and final repayment of all of the Obligations;
(i) Ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sale, and sell (in the manner provided for
herein) the Borrower Collateral. Borrower hereby grants to Lender a license or
other right to use, without charge, Borrower's labels, patents, copyrights,
trade secrets, trade names, trademarks, service marks, and advertising matter,
or any property of a similar nature, as it pertains to the Borrower Collateral,
in completing production of, advertising for sale, and selling any Borrower
Collateral and Borrower's rights under all licenses and all franchise agreements
shall inure to Lender's benefit;
69
(j) Sell the Borrower Collateral at either a public or private
sale, or both, by way of one or more contracts or transactions, for cash or on
terms, in such manner and at such places (including Borrower's premises) as
Lender determines is commercially reasonable. It is not necessary that the
Borrower Collateral be present at any such sale;
(k) Except in those circumstances where no notice is required
under the Code, Lender shall give notice of the disposition of the Borrower
Collateral as follows:
(i) Lender shall give Borrower a notice in writing of the
time and place of public sale, or, if the sale is a private sale
or some other disposition other than a public sale is to be made
of the Borrower Collateral, the time on or after which the
private sale or other disposition is to be made; and
(ii) The notice shall be personally delivered or mailed,
postage prepaid, to Borrower as provided in Section 12, at least
10 days before the earliest time of disposition set forth in the
notice; no notice needs to be given prior to the disposition of
any portion of the Borrower Collateral that is perishable or
threatens to decline speedily in value or that is of a type
customarily sold on a recognized market;
(l) Lender may credit bid and purchase at any public sale;
(m) Lender may seek the appointment of a receiver or keeper to
take possession of all or any portion of the Borrower Collateral or to operate
same and, to the maximum extent permitted by law, may seek the appointment of
such a receiver without the requirement of prior notice or a hearing; and
(n) Lender shall have all other rights and remedies available at
law or in equity or pursuant to any other Loan Document.
The foregoing to the contrary notwithstanding, upon the occurrence and
continuation of any Event of Default described in Section 8.4 or Section 8.5, in
addition to the remedies set forth above, without any notice to Borrower or any
other Person or any act by the Lender, Lender's obligation to extent credit
hereunder shall terminate and the Obligations then outstanding, together with
all accrued and unpaid interest thereon and all fees and all other amounts due
under this Agreement and the other Loan Documents, shall automatically and
immediately become due and payable, without presentment, demand, protest, or
notice of any kind, all of which are expressly waived by Borrower.
9.2 Remedies Cumulative. The rights and remedies of Lender under this
Agreement, the other Loan Documents, and all other agreements shall be
cumulative. Lender shall have all other rights and remedies not inconsistent
herewith as provided under the Code, by law, or in equity. No exercise by Lender
of one right or remedy shall be deemed an election, and no waiver by Lender of
any Event of Default shall be deemed a continuing waiver. No delay by Lender
shall constitute a waiver, election, or acquiescence by it.
10. TAXES AND EXPENSES.
If Borrower fails to pay any monies due to third Persons in connection
with taxes, assessments, insurance premiums, or, in the case of leased
properties or assets, rents or other amounts payable under such leases, or fails
to make any payments which could reasonably be expected to harm the value of any
Collateral, or fails to make any deposits or furnish any required proof of
payment or deposit, all as required under the terms of this Agreement, then,
Lender, in its sole discretion and without prior notice to Borrower, may do any
or all of the following: (a) make payment of the same or any part thereof, (b)
set up such reserves against the Borrowing Base or the Maximum Revolver Amount
as Lender deems necessary to protect Lender from the exposure created by such
failure, or (c) in the case of the failure to comply with Section 6.8 hereof,
70
obtain and maintain insurance policies of the type described in Section 6.8 and
take any action with respect to such policies as Lender deems prudent. Any such
amounts paid by Lender shall constitute Lender Expenses and any such payments
shall not constitute an agreement by Lender to make similar payments in the
future or a waiver by Lender of any Event of Default under this Agreement.
Lender need not inquire as to, or contest the validity of, any such expense,
tax, or Lien and the receipt of the usual official notice for the payment
thereof shall be conclusive evidence that the same was validly due and owing.
11. WAIVERS; INDEMNIFICATION.
11.1 Demand; Protest. Borrower waives demand, protest, notice of
protest, notice of default or dishonor, notice of payment and nonpayment,
nonpayment at maturity, release, compromise, settlement, extension, or renewal
of documents, instruments, chattel paper, and guarantees at any time held by
Lender on which Borrower may in any way be liable.
11.2 Lender's Liability for Borrower Collateral. Borrower hereby agrees
that: (a) so long as Lender complies with its obligations, if any, under the
Code, Lender shall not in any way or manner be liable or responsible for: (i)
the safekeeping of the Borrower Collateral, (ii) any loss or damage thereto
occurring or arising in any manner or fashion from any cause, (iii) any
diminution in the value thereof, or (iv) any act or default of any carrier,
warehouseman, bailee, forwarding agency, or other Person, and (b) all risk of
loss, damage, or destruction of the Borrower Collateral shall be borne by
Borrower.
11.3 Indemnification. Borrower shall pay, indemnify, defend, and hold
the Lender-Related Persons, and each Participant (each, an "Indemnified Person")
harmless (to the fullest extent permitted by law) from and against any and all
claims, demands, suits, actions, investigations, proceedings, and damages, and
all reasonable attorneys fees and disbursements and other costs and expenses
actually incurred in connection therewith or in connection with the enforcement
of this indemnification (as and when they are incurred and irrespective of
whether suit is brought), at any time asserted against, imposed upon, or
incurred by any of them (a) in connection with or as a result of or related to
the execution, delivery, enforcement, performance, or administration (including
any restructuring or workout with respect hereto) of this Agreement, any of the
other Loan Documents, or the transactions contemplated hereby or thereby or the
monitoring of Borrower's and its Subsidiaries' compliance with the terms of the
Loan Documents, and (b) with respect to any investigation, litigation, or
proceeding related to this Agreement, any other Loan Document, or the use of the
proceeds of the credit provided hereunder (irrespective of whether any
Indemnified Person is a party thereto), or any act, omission, event, or
circumstance in any manner related thereto (all the foregoing, collectively, the
"Indemnified Liabilities"). The foregoing to the contrary notwithstanding,
Borrower shall have no obligation to any Indemnified Person under this Section
11.3 with respect to any Indemnified Liability that a court of competent
jurisdiction finally determines to have resulted from the gross negligence or
willful misconduct of such Indemnified Person. This provision shall survive the
termination of this Agreement and the repayment of the Obligations. If any
Indemnified Person makes any payment to any other Indemnified Person with
respect to an Indemnified Liability as to which Borrower was required to
indemnify the Indemnified Person receiving such payment, the Indemnified Person
making such payment is entitled to be indemnified and reimbursed by Borrower
with respect thereto. WITHOUT LIMITATION, THE FOREGOING INDEMNITY SHALL APPLY TO
EACH INDEMNIFIED PERSON WITH RESPECT TO INDEMNIFIED LIABILITIES WHICH IN WHOLE
OR IN PART ARE CAUSED BY OR ARISE OUT OF ANY NEGLIGENT ACT OR OMISSION OF SUCH
INDEMNIFIED PERSON OR OF ANY OTHER PERSON.
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12. NOTICES.
Unless otherwise provided in this Agreement, all notices or demands by
Borrower or Lender to the other relating to this Agreement or any other Loan
Document shall be in writing and (except for financial statements and other
informational documents which may be sent by first-class mail, postage prepaid)
shall be personally delivered or sent by registered or certified mail (postage
prepaid, return receipt requested), overnight courier, electronic mail (at such
email addresses as Borrower or Lender, as applicable, may designate to each
other in accordance herewith), or telefacsimile to Borrower or Lender, as the
case may be, at its address set forth below:
If to Borrower: SWANK, INC.
▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Chief Financial Officer
Fax No. ▇▇▇-▇▇▇-▇▇▇▇
with copies to: SWANK, INC.
▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇▇▇▇▇, President
Fax No. ▇▇▇-▇▇▇-▇▇▇▇
with copies to: JENKENS & ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Fax No. ▇▇▇-▇▇▇-▇▇▇▇
If to Lender: ▇▇▇▇▇ FARGO FOOTHILL, INC.
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: Business Finance Manager
Fax No.: ▇▇▇-▇▇▇-▇▇▇▇
▇▇▇▇▇ FARGO FOOTHILL, INC.
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: Business Finance Manager
Fax No.: ▇▇▇-▇▇▇-▇▇▇▇
▇▇▇▇▇ FARGO FOOTHILL, INC.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: Business Finance Manager
Fax No.: ▇▇▇-▇▇▇-▇▇▇▇
with copies to: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ Barish, Esq.
Fax No.: ▇▇▇-▇▇▇-▇▇▇▇
Lender and Borrower may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other party. All notices or demands sent in accordance with this Section 12,
other than notices by Lender in connection with enforcement rights against the
Borrower Collateral under the provisions of the Code, shall be deemed received
on the earlier of the date of actual receipt or 3 Business Days after the
deposit thereof in the mail. Borrower acknowledges and agrees that notices sent
by Lender in connection with the exercise of enforcement rights against Borrower
Collateral under the provisions of the Code shall be deemed sent when deposited
in the mail or personally delivered, or, where permitted by law, transmitted by
telefacsimile or any other method set forth above.
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13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
(a) THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
(UNLESS EXPRESSLY PROVIDED TO THE CONTRARY IN ANOTHER LOAN DOCUMENT IN RESPECT
OF SUCH OTHER LOAN DOCUMENT), THE CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT
HEREOF AND THEREOF, AND THE RIGHTS OF THE PARTIES HERETO AND THERETO WITH
RESPECT TO ALL MATTERS ARISING HEREUNDER OR THEREUNDER OR RELATED HERETO OR
THERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS.
(b) THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN
CONNECTION WITH THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE TRIED AND
LITIGATED ONLY IN THE STATE AND, TO THE EXTENT PERMITTED BY APPLICABLE LAW,
FEDERAL COURTS LOCATED IN THE COUNTY OF SUFFOLK, COMMONWEALTH OF MASSACHUSETTS,
PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR
OTHER PROPERTY MAY BE BROUGHT, AT LENDER'S OPTION, IN THE COURTS OF ANY
JURISDICTION WHERE LENDER ELECTS TO BRING SUCH ACTION OR WHERE SUCH COLLATERAL
OR OTHER PROPERTY MAY BE FOUND. BORROWER AND LENDER WAIVE, TO THE EXTENT
PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE
OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS
BROUGHT IN ACCORDANCE WITH THIS SECTION 13(b).
(c) BORROWER AND LENDER HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A
JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF
THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING
CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR
STATUTORY CLAIMS. BORROWER AND LENDER REPRESENT THAT EACH HAS REVIEWED THIS
WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING
CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS
AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
14. ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS.
14.1 Assignments and Participations.
------------------------------
(a) Lender may assign and delegate to one or more assignees (each
an "Assignee") that are Eligible Transferees all, or any ratable part of all, of
the Obligations and the other rights and obligations of Lender hereunder and
under the other Loan Documents, in a minimum amount of $5,000,000; provided,
however, that Borrower may continue to deal solely and directly with Lender in
connection with the interest so assigned to an Assignee until (i) written notice
of such assignment, together with payment instructions, addresses, and related
information with respect to the Assignee, have been given to Borrower by Lender
and the Assignee, and (ii) Lender and its Assignee have delivered to Borrower an
assignment and acceptance. Anything contained herein to the contrary
notwithstanding, the Assignee need not be an Eligible Transferee if such
assignment is in connection with any merger, consolidation, sale, transfer, or
other disposition of all or any substantial portion of the business or loan
portfolio of the assigning Lender.
(b) From and after the date that Lender provides Borrower with
such written notice and executed assignment and acceptance, (i) the Assignee
thereunder shall be a party hereto and, to the extent that rights and
obligations hereunder have been assigned to it pursuant to such assignment and
acceptance, shall have the rights and obligations of a Lender under the Loan
Documents, and (ii) the Lender shall, to the extent that rights and obligations
hereunder and under the other Loan Documents have been assigned by it pursuant
to such assignment and acceptance, relinquish its rights (except with respect to
Section 11.3 hereof) and be released from any future obligations under this
Agreement (and in the case of an assignment and acceptance covering all or the
remaining portion of an assigning Lender's rights and obligations under this
Agreement and the other Loan Documents, such Lender shall cease to be a party
hereto and thereto), and such assignment shall effect a novation between
Borrower and the Assignee; provided, however, that nothing contained herein
shall release any assigning Lender from obligations that survive the termination
of this Agreement, including such assigning Lender's obligations under Section
16.9 of this Agreement.
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(c) Immediately upon Borrower's receipt of such fully executed
assignment and acceptance agreement, this Agreement shall be deemed to be
amended to the extent, but only to the extent, necessary to reflect the addition
of the Assignee and the resulting adjustment of the rights and duties of Lender
arising therefrom.
(d) Lender may at any time sell to one or more commercial banks,
financial institutions, or other Persons not Affiliates of Lender (a
"Participant") participating interests in Obligations and the other rights and
interests of Lender hereunder and under the other Loan Documents; provided,
however, that (i) Lender shall remain the "Lender" for all purposes of this
Agreement and the other Loan Documents and the Participant receiving the
participating interest in the Obligations and the other rights and interests of
Lender hereunder shall not constitute a "Lender" hereunder or under the other
Loan Documents and Lender's obligations under this Agreement shall remain
unchanged, (ii) Lender shall remain solely responsible for the performance of
such obligations, (iii) Borrower and Lender shall continue to deal solely and
directly with each other in connection with Lender's rights and obligations
under this Agreement and the other Loan Documents, (iv) Lender shall not
transfer or grant any participating interest under which the Participant has the
right to approve any amendment to, or any consent or waiver with respect to,
this Agreement or any other Loan Document, except to the extent such amendment
to, or consent or waiver with respect to this Agreement or of any other Loan
Document would (A) extend the final maturity date of the Obligations hereunder
in which such Participant is participating, (B) reduce the interest rate
applicable to the Obligations hereunder in which such Participant is
participating, (C) release all or substantially all of the Collateral or
guaranties (except to the extent expressly provided herein or in any of the Loan
Documents) supporting the Obligations hereunder in which such Participant is
participating, (D) postpone the payment of, or reduce the amount of, the
interest or fees payable to such Participant through Lender, or (E) change the
amount or due dates of scheduled principal repayments or prepayments or
premiums, and (v) all amounts payable by Borrower hereunder shall be determined
as if Lender had not sold such participation, except that, if amounts
outstanding under this Agreement are due and unpaid, or shall have been declared
or shall have become due and payable upon the occurrence of an Event of Default,
each Participant shall be deemed to have the right of set-off in respect of its
participating interest in amounts owing under this Agreement to the same extent
as if the amount of its participating interest were owing directly to it as a
Lender under this Agreement. The rights of any Participant only shall be
derivative through Lender and no Participant shall have any rights under this
Agreement or the other Loan Documents or any direct rights as to Borrower, the
Collections of Borrower or its Subsidiaries, the Collateral, or otherwise in
respect of the Obligations. No Participant shall have the right to participate
directly in the making of decisions by Lender.
(e) In connection with any such assignment or participation or
proposed assignment or participation, Lender may, subject to the provisions of
Section 16.9, disclose all documents and information which it now or hereafter
may have relating to Borrower and its Subsidiaries and their respective
businesses.
(f) Any other provision in this Agreement notwithstanding, Lender
may at any time create a security interest in, or pledge, all or any portion of
its rights under and interest in this Agreement in favor of any Federal Reserve
Bank in accordance with Regulation A of the Federal Reserve Bank or U.S.
Treasury Regulation 31 CFR ss. 203.24, and such Federal Reserve Bank may enforce
such pledge or security interest in any manner permitted under applicable law.
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14.2 Successors. This Agreement shall bind and inure to the benefit of
the respective successors and assigns of each of the parties; provided, however,
that Borrower may not assign this Agreement or any rights or duties hereunder
without Lender's prior written consent and any prohibited assignment shall be
absolutely void ab initio. No consent to assignment by Lender shall release
Borrower from its Obligations. Lender may assign this Agreement and the other
Loan Documents and its rights and duties hereunder and thereunder pursuant to
Section 14.1 hereof and, except as expressly required pursuant to Section 14.1
hereof, no consent or approval by Borrower is required in connection with any
such assignment.
15. AMENDMENTS; WAIVERS.
15.1 Amendments and Waivers. No amendment or waiver of any provision of
this Agreement or any other Loan Document (other than Bank Product Agreements),
and no consent with respect to any departure by Borrower therefrom, shall be
effective unless the same shall be in writing and signed by Lender and Borrower
and then any such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
15.2 No Waivers; Cumulative Remedies. No failure by Lender to exercise
any right, remedy, or option under this Agreement or any other Loan Document, or
delay by Lender in exercising the same, will operate as a waiver thereof. No
waiver by Lender will be effective unless it is in writing, and then only to the
extent specifically stated. No waiver by Lender on any occasion shall affect or
diminish Lender's rights thereafter to require strict performance by Borrower of
any provision of this Agreement. Lender's rights under this Agreement and the
other Loan Documents will be cumulative and not exclusive of any other right or
remedy that Lender may have.
16. GENERAL PROVISIONS.
16.1 Effectiveness. This Agreement shall be binding and deemed
effective when executed by Borrower and Lender.
16.2 Section Headings. Headings and numbers have been set forth herein
for convenience only. Unless the contrary is compelled by the context,
everything contained in each Section applies equally to this entire Agreement.
16.3 Interpretation. Neither this Agreement nor any uncertainty or
ambiguity herein shall be construed against Lender or Borrower, whether under
any rule of construction or otherwise. On the contrary, this Agreement has been
reviewed by all parties and shall be construed and interpreted according to the
ordinary meaning of the words used so as to accomplish fairly the purposes and
intentions of all parties hereto.
16.4 Severability of Provisions. Each provision of this Agreement shall
be severable from every other provision of this Agreement for the purpose of
determining the legal enforceability of any specific provision.
16.5 Withholding Taxes. All payments required to be made by Borrower
hereunder or under any note or other Loan Document will be made without setoff,
counterclaim, or other defense. In addition, all such payments will be made free
and clear of, and without deduction or withholding for, any present or future
Taxes, and in the event any deduction or withholding of Taxes is required,
Borrower shall comply with the penultimate sentence of this Section 16.5,
"Taxes" shall mean, any taxes, levies, imposts, duties, fees, assessments or
other charges of whatever nature now or hereafter imposed by any jurisdiction or
by any political subdivision or taxing authority thereof or therein with respect
to such payments (but excluding, any tax imposed by any jurisdiction or by any
political subdivision or taxing authority thereof or therein measured by or
based on the net income or net profits of Lender) and all interest, penalties or
similar liabilities with respect thereto. If any Taxes are so levied or imposed,
Borrower agrees to pay the full amount of such Taxes, and such additional
amounts as may be necessary so that every payment of all amounts due under this
Agreement, any note, or Loan Document, including any amount paid pursuant to
this Section 16.5 after withholding or deduction for or on account of any Taxes,
75
will not be less than the amount provided for herein; provided, however, that
Borrower shall not be required to increase any such amounts if the increase in
such amount payable results from Lender's own willful misconduct or gross
negligence. Borrower will furnish to Lender as promptly as possible after the
date the payment of any Tax is due pursuant to applicable law copies of tax
receipts evidencing such payment by Borrower.
16.6 Counterparts; Electronic Execution. This Agreement may be executed
in any number of counterparts and by different parties on separate counterparts,
each of which, when executed and delivered, shall be deemed to be an original,
and all of which, when taken together, shall constitute but one and the same
Agreement. Delivery of an executed counterpart of this Agreement by
telefacsimile or other electronic method of transmission shall be equally as
effective as delivery of an original executed counterpart of this Agreement. Any
party delivering an executed counterpart of this Agreement by telefacsimile or
other electronic method of transmission also shall deliver an original executed
counterpart of this Agreement but the failure to deliver an original executed
counterpart shall not affect the validity, enforceability, and binding effect of
this Agreement. The foregoing shall apply to each other Loan Document mutatis
mutandis.
16.7 Revival and Reinstatement of Obligations. If the incurrence or
payment of the Obligations by Borrower or Guarantor or the transfer to Lender of
any property should for any reason subsequently be declared to be void or
voidable under any state or federal law relating to creditors' rights, including
provisions of the Bankruptcy Code relating to fraudulent conveyances,
preferences, or other voidable or recoverable payments of money or transfers of
property (collectively, a "Voidable Transfer"), and if Lender is required to
repay or restore, in whole or in part, any such Voidable Transfer, or elects to
do so upon the reasonable advice of its counsel, then, as to any such Voidable
Transfer, or the amount thereof that Lender is required or elects to repay or
restore, and as to all reasonable costs, expenses, and attorneys fees of Lender
related thereto, the liability of Borrower or Guarantor automatically shall be
revived, reinstated, and restored and shall exist as though such Voidable
Transfer had never been made.
16.8 Confidentiality.
---------------
Lender agrees that material, non-public information regarding
Borrower and its Subsidiaries, their operations, assets, and existing and
contemplated business plans shall be treated by Lender in a confidential manner,
and shall not be disclosed by Lender to Persons who are not parties to this
Agreement, except: (a) to attorneys for and other advisors, accountants,
auditors, and consultants to Lender, (b) to Subsidiaries and Affiliates of
Lender (including the Bank Product Providers), provided that any such Subsidiary
or Affiliate shall have agreed to receive such information hereunder subject to
the terms of this Section 16.8, (c) as may be required by statute, decision, or
judicial or administrative order, rule, or regulation, (d) as may be agreed to
in advance by Borrower or its Subsidiaries or as requested or required by any
Governmental Authority pursuant to any subpoena or other legal process, (e) as
to any such information that is or becomes generally available to the public
(other than as a result of prohibited disclosure by Lender), (f) in connection
with any assignment, prospective assignment, sale, prospective sale,
participation or prospective participations, or pledge or prospective pledge of
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, and (g)
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. The provisions of this Section 16.8 shall survive for 2
years after the payment in full of the Obligations.
16.9 Integration. This Agreement, together with the other Loan
Documents, reflects the entire understanding of the parties with respect to the
transactions contemplated hereby and shall not be contradicted or qualified by
any other agreement, oral or written, before the date hereof.
[Signature pages to follow.]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered as of the date first above written.
SWANK, INC.
a Delaware corporation
By: ____________________________
Title:
▇▇▇▇▇ FARGO FOOTHILL, INC.,
a California corporation, as Lender
By: ____________________________
Title:
77
Schedule D-1
------------
Designated Account
Account number 2000016576021 of Borrower maintained with
Borrower's Designated Account Bank, or such other deposit account of Borrower
(located within the United States) that has been designed as such, in writing,
by Borrower to Agent.
"Designated Account Bank" means Wachovia Bank, National
Association, whose office is located at One Wachovia Center, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, and whose ABA number is ▇▇▇▇▇▇▇▇▇.
Schedule L-1
------------
Lender's Account
An account at a bank designated by Lender from time to time as
the account into which Borrower shall make all payments to Lender under this
Agreement and the other Loan Documents; unless and until Lender notifies
Borrower to the contrary, Lender's Account shall be that certain deposit account
bearing account number 323-266193 and maintained by Lender with JPMorgan Chase
Bank, 4 New York Plaza, 15th Floor, New York, New York 10004, ABA #▇▇▇▇▇▇▇▇▇.