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EXHIBIT 10.1
THIS AGREEMENT is made among Paragon Capital LLC ("Paragon"), a
Delaware limited liability company with its principal executive offices at
Hillsite Office Building, ▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ and Foothill Capital Corporation ("Foothill"), a California corporation
with its principal place of business at ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇
▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ (Paragon and Foothill, collectively being "the
Lender" hereunder) and Crown Books Corporation, Crown, Books East Corporation,
Crown Books West Corporation, Crown Books National Corporation, Super Crown
Books Corporation and Crown DHC Corporation, Delaware corporations and
Debtors-in-Possession under Chapter 11, Case Nos. 98-1575 through 98-1580,
District of Delaware (collectively "Borrower"), with their principal executive
offices at ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ in consideration of the
mutual covenants contained herein and benefits to be derived herefrom,
W I T N E S S E T H:
ARTICLE 1. THE REVOLVING CREDIT
1.1 Establishment of Revolving Credit.
(a) The Lender hereby establishes a revolving line of credit (the
"Revolving Credit") in the Borrower's favor pursuant to which the Lender,
subject to, and in with, this Agreement, shall make loans and advances and
otherwise provide financial accommodations to and for the account of the
Borrower as provided herein. The amount of the Revolving Credit shall be
determined by the Lender by reference to Availability, as determined by the
Lender from time to time hereafter. All loans made by the Lender under this
Agreement, and all of the Borrower's other Liabilities to the Lender under or
pursuant to this Agreement, are payable as provided herein.
(b) The Lender hereby agrees, subject to the terms and conditions
of this Agreement, to make loans to the Borrower in an amount outstanding not to
exceed at any one time the lesser of (i) the Credit Limit, or (ii) the Borrowing
Base.
(c) Availability shall be based upon Borrowing Certificates
furnished as provided in Section 9.4, below.
(d) The proceeds of borrowings under the Revolving Credit shall be
used solely in accordance with the Business Plan for working capital purposes of
the Borrower and for its Capital Expenditures, all solely to the extent
permitted by this Agreement.
(e) The Revolving Credit described in this Agreement is the
"Interim DIP Facility" described in a certain Letter dated July 10, 1998
(Revised) from Paragon Capital LLC and Foothill Capital Corporation, a copy of
which is attached hereto as Exhibit 1.1. Upon Lender's completion of its due
diligence and Borrowers' satisfaction of all other conditions to Lender's
satisfaction, it is anticipated that this Agreement will be amended to provide
for the "Amended DIP Facility" described in said Exhibit 1.1. Some of the
provisions of said Amended DIP Facility are described in Exhibit 1.1; others
cannot be determined until completion of Lender's due diligence.
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1.2 Advances in Excess of Maximum Loan Exposure. The Lender does not
have any obligation to make any loan or advance, or otherwise to provide any
credit for the benefit of the Borrower such that the outstanding principal
balance of the Loan Account exceeds Maximum Loan Exposure. The making of loans,
advances, and credits and thc providing of financial accommodations in excess of
Maximum Loan Exposure, if any, is for the benefit of the Borrower and does not
affect the obligations of the Borrower hereunder; such loans, advances, credits,
and financial accommodations constitute Liabilities. The making of any such
loans, advances, and credits and the providing of financial accommodations, on
any one occasion such that Maximum Loan Exposure is exceeded shall not obligate
the Lender to make any such loans, credits, or advances or to provide any
financial accommodation on any other occasion nor to permit such loans, credits,
or advances to remain outstanding.
1.3 Risks of Value of Inventory. The Lender's reference to a given asset
in connection with the making of loans, credits, and advances and the providing
of financial accommodations under the Revolving Credit and/or the monitoring of
compliance with the provisions hereof shall not be deemed a determination by the
Lender relative to the actual value of the asset in question. All risks
concerning the saleability of the Borrower's Inventory are and remain upon the
Borrower. All Collateral secures the prompt, punctual, and faithful performance
of the Liabilities whether or not relied upon by the Lender in connection with
the making of loans, credits, and advances and the providing of financial
accommodations under the Revolving Credit.
1.4 Procedures Under Revolving Credit.
(a) The Borrower may request loans and advances under the
Revolving Credit, each in an amount of not less than Ten Thousand Dollars
($10,000.00). Each such request shall be in such manner as may from time to time
be acceptable to the Lender.
(b) (i) The Lender, subject to the terms and conditions of this
Agreement, will provide the Borrower with the loan so requested, if such request
is received by 11:30 A.M., Boston time on a Banking Day, by the end of business
on that Banking Day; otherwise, by the end of the then next Banking Day.
(ii) The Lender may revise the above schedule, by which loans
shall be made, from time to time, by giving at least one days notice to
Borrower.
(c) Provided that Maximum Loan Exposure will not be exceeded (but
subject however, to Subsection 1.4(i), below (which deals with the effect of a
Suspension Event)), a loan or advance under the Revolving Credit so requested by
the Borrower shall be made by the transfer of the proceeds of such loan or
advance to the Funding Account or as otherwise instructed by the Borrower.
(d) A loan or advance shall be deemed to have been made under the
Revolving Credit upon:
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(i) The Lender's initiation of the transfer of the proceeds
of such loan or advance in accordance with the Borrower's instructions (if such
loan or advance is of funds requested by the Borrower).
(ii) The charging of the amount of such loan to the Loan
Account (in all other circumstances).
(e) There shall not be any recourse to, nor liability of, the
Lender on account of:
(i) Any delay in the making of any loan or advance requested
under the Revolving Credit.
(ii) Any delay in the proceeds of any such loan or advance
constituting collected funds.
(iii) Any delay in the receipt, and/or any loss, of funds
which constitute a loan or advance under the Revolving Credit, the wire transfer
of which was properly initiated by the Lender in accordance with wire
instructions provided to the Lender by the Borrower.
(f) The Lender may rely on any request for a loan or advance or
financial accommodation which the Lender, in good faith, believes to have been
made by a person duly authorized to act on behalf of the Borrower and may
decline to make any such requested loan or advance or to provide any such
financial accommodation pending the Lender's being furnished with such
documentation concerning that person's authority to act as may be satisfactory
to the Lender.
(g) A request by the Borrower for any financial accommodation
under the Revolving Credit or of the issuance of an L/C shall be irrevocable and
shall constitute certification by the Borrower that as of the date of such
request, each of the following is true and correct:
(i) There has been no Material Adverse Change with respect
to the Borrower since the date of the financial information furnished Lender
pursuant to this Agreement.
(ii) The Borrower is in compliance with, and has not breached
any of, its covenants contained in this Agreement.
(iii) Each representation which is made herein or in any of
the Loan Documents is then true and complete as of and as if made on the date of
such request.
(iv) No Suspension Event is then extant.
(h) The Borrower shall immediately become indebted to the Lender
for the amount of each loan under or pursuant to this Agreement when such loan
is deemed to have been made.
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(i) Upon the occurence from time to time of any Suspension Event,
the Lender may suspend the Revolving Credit immediately and shall not be
obligated, during such suspension, to make any loans or to provide any financial
accommodation hereunder.
(j) The Borrower may request that the Lender cause the issuance of
L/C's for the account of the Borrower.
(i) Each such request shall be in such manner as may from
time to time be acceptable to the Lender.
(ii) The Lender will endeavor to cause the issuance of any
L/C so requested by the Borrower, provided that the requested L/C is in form
satisfactory to the Lender and if so issued:
(A) The aggregate Stated Amount of all L/C's then
outstanding, does not exceed Five Million Dollars ($5,000,000).
(B) The expiry of the L/C is not later than the
earlier of thirty (30) days prior to the Maturity Date or the following:
(I) Standby's: one (1) year from initial
issuance.
(C) Maximum Loan Exposure would not be exceeded.
(iii) The Borrower shall execute such documentation to apply
for and support the issuance of an L/C as may be required by the Issuer.
(iv) There shall not be any recourse to, nor liability of,
the Lender on account of:
(A) Any delay or refusal by an Issuer to issue an L/C.
(B) Any action or inaction of an Issuer on account of
or in respect to, any L/C.
(v) The Borrower shall reimburse the Issuer, immediately
upon the drawing under any L/C, for the amount of such drawing. In the event
that the Borrower fails to so reimburse the Issuer, the Borrower immediately
shall reimburse the Lender for the amount of such drawing. To the extent which
the Borrower fails to so reimburse the Issuer or the Lender, the Lender, without
the request of the Borrower, may advance under the Revolving Credit any amount
with the Borrower is so obligated to pay to the Lender or the Issuer, or for
which the Borrower, the Issuer, or the Lender becomes obligated on account of,
or in respect to, any L/C. Such advance shall be made whether or not a
Suspension Event is then in existence or such advance would result in Maximum
Loan Exposure being exceeded. Such action shall not constitute a waiver of the
Lender's rights under Section 1.7(b), below.
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1.5 The Loan Account.
(a) An account ("Loan Account") shall be opened on the books of
the Lender in which Loan Account a record may be kept of all loans made under or
pursuant to this Agreement and of all payments thereon.
(b) The Lender may also keep a record (either in the Loan Account
or elsewhere, as the Lender may from time to time elect) of all interest, fees,
service charges, costs, expenses, and other debits owed the Lender on account of
the Liabilities and of all credits against such amounts so owed.
(c) All credits against the Liabilities shall be conditional upon
final payment to the Lender of the items giving rise to such credits. The amount
of any item credited against the Liabilities which is charged back against the
Lender for any reason or is not so paid shall be a Liability and shall be added
to the Loan Account, whether or not the item so charged back or not so paid is
returned.
(d) Except as otherwise provided herein, all fees, service
charges, costs, and expenses for which the Borrower is obligated hereunder are
payable on demand. In the determination of Availability, the Lender may deem
fees, service charges, accrued interest, and other payments or deposits as
having been advanced under the Revolving Credit if such amounts are then due and
payable inclusive of deposits for fees whether incurred at the time of deposit
or as duly accounted for in accordance with the terms set forth herein.
(e) The Lender, without the request of the Borrower, may advance
under the Revolving Credit any interest, fee, service charge, or other payment
to which the Lender is entitled from the Borrower pursuant hereto and may charge
the same to the Loan Account notwithstanding that such amount so advanced may
result in an Overadvance. Such action on the part of the Lender shall not
constitute a waiver of the Lender's rights under Section 1.7(b), below. Any
amount which is added to the principal balance of the Loan Account as provided
in this Section shall bear interest at the interest rate applicable from time to
time to the unpaid principal balance of the Loan Account.
(f) Any statement rendered by the Lender to the Borrower
concerning the Liabilities shall be considered correct and accepted by the
Borrower and shall be conclusively binding upon the Borrower unless the Borrower
provides the Lender with written objection thereto within twenty (20) days from
the mailing of such statement, which written objection shall indicate, with
particularity, the reason for such objection. The Loan Account and the Lender's
books and records concerning the loan arrangement contemplated herein and the
Liabilities shall be prima facie evidence and proof of the items described
therein.
1.6 The Master Note. The obligation to repay loans and advances under
the Revolving Credit, with interest as provided herein, shall be evidenced by a
note (the "Master Note") in the form of EXHIBIT 1.6, annexed hereto, executed by
the Borrower. Neither the original nor a copy of the Master Note shall be
required, however, to establish or prove any Liability. In the event that the
Master Note is ever lost, mutilated, or destroyed, the Borrower shall execute a
replacement thereof and deliver such replacement to the Lender.
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1.7 Payment of Loan Account.
(a) The Borrower may repay all or any portion of the principal
balance of the Loan from time to time until the Termination Date.
(b) The Borrower, without notice or demand from the Lender, shall
pay the Lender that amount, from time to time, which is necessary so that the
balance of the Loan Account does not exceed Maximum Loan Exposure.
(c) The Borrower shall repay the then entire unpaid balance of the
Loan Account and all other Liabilities on the Termination Date.
1.8 Interest.
(a) The unpaid principal balance of the Loan Account shall bear
interest until repaid (calculated based upon a 360-day year and actual days
elapsed), for Standard Inventory Advances, the aggregate of Base plus one
percent (1%) per annum, but in no event less than eight percent (8%) per annum
or in excess of the maximum rate permitted by applicable law.
(b) Following the occurrence of any Event of Default (and whether
or not the Lender exercises any of the Lender's rights on account of such Event
of Default), all loans and advances made under the Revolving Credit shall bear
interest, through the End Date, at a rate which is the aggregate of that
provided for in Section 1.8(a), above, plus four (4%) percent per annum.
(c) Accrued interest shall be payable:
(i) Monthly in arrears on the first day of the month next
following that during which such interest accrued.
(ii) On the Termination Date.
(iii) On the End Date.
1.9 Fees. Borrower shall pay to the Lender the following fees:
(a) Commitment Fee. Lender shall receive a commitment fee of up to
Eight Hundred Thousand Dollars ($800,000)(the "Commitment Fee"). Borrower shall
pay 1/8th of the Commitment Fee on the execution hereof, and 1/8th of the
Commitment Fee each thirty (30) days thereafter until paid in full. If this
facility is terminated for any reason. or matures, or is modified for any reason
other than by consensual extension of maturity, but including implementation of
an amended facility or the merger, acquisition or liquidation of Borrower, the
unpaid balance of the Commitment Fee shall be immediately due and payable;
provided, however, that if Lender declines to provided the Amended DIP Facility
contemplated in the Letter attached hereto as Exhibit 1.1 and a third-party
lender agrees to provide permanent financing on commercially reasonable terms,
Lender, for a period of five (5) days, shall have the
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right to provide financing on such terms and if such right is declined the
balance of the Commitment Fee shall be waived.
(b) Loan Maintenance. On the date of execution hereof and on each
monthly anniversary of the date of execution hereof, a loan maintenance fee
equal to Twenty Five Thousand Dollars ($25,000.00) (the "Loan Maintenance Fee").
In any instance where the monthly reporting outlined in Exhibit 9.5 is
received by Lender later than ten (10) days after the period set forth therein,
the monthly loan maintenance fee for the then subject month shall be two times
the usual amount set forth herein. In the event of two (2) consecutive months of
late or incomplete reporting, such month's loan maintenance fee shall increase
permanently thereafter by Five Thousand Dollars ($5,000.00) plus the doubled
usual amount until such time as the Borrower demonstrates two (2) consecutive
months of timely and complete reporting.
(c) Unused Line Fee. On the first day of each month during the
term of this Agreement, a fee in an amount equal to one quarter of one percent
(.25%) per annum times the Average Unused Portion of the Credit Limit (the
"Unused Line Fee").
(d) Financial Examination, Legal Investigation, Documentation, and
Appraisal Fees. Subject to the provisions of Article 9.10 Lender's actual
reasonable charges paid or incurred for each financial analysis and examination
(i.e., audits) of Borrower performed by one or more third Persons employed by
Lender to perform legal investigation, documentation financial analysis and
examinations (i.e., audits) of Borrower or to appraise the Collateral.
(e) In addition to any other right to which the Lender is then
entitled on account thereof, the Lender may assess a reasonable additional fee
payable by the Borrower on account of the excessive- and continued
accommodation, including accommodations made upon Borrower's requests with less
than seventy two (72) hours notice from time to time, of Lender to the
Borrower's request that the Lender depart or dispense with one or more of the
administrative provisions of this Agreement and/or the Borrower's failure to
comply with any of such provisions.
(i) By way of non-exclusive example, the Lender may assess a
fee on account of any of the following:
(A) The Borrower's failure to pay that amount which is
necessary so that the principal balance of the Loan Account does not
exceed Maximum Loan Exposure (as required under Section 1.7(b), above).
(B) The providing of a loan or advance under the
Revolving Credit such that Maximum Loan Exposure would be exceeded.
(C) The providing of a same Banking Day loan requested
after the time set forth in Section 1.4(b)(i), above.
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(D) The Borrower's failure to provide a financial
statement or report within the applicable time-frame provided for such
report under Article 9, below.
(ii) The inclusion of the foregoing right on the part of the
Lender to assess a fee does not constitute an obligation, on the part of the
Lender, to waive my provision of this Agreement under any circumstances. The
assessment of any such fee in any particular circumstance shall not constitute
the Lender's waiver of any breach of this Agreement on account of which such fee
was assessed nor a course of action on which the Borrower may rely.
(f) The Borrower shall not be entitled to any credit, rebate or
repayment of any Commitment Fee, Loan Maintenance Fee, Unused Line Fee, or other
fee previously earned by the Lender pursuant to this Section notwithstanding any
termination of this Agreement or suspension or termination of the Lender's
obligation to make loans and advances hereunder.
1.10 Lender's Discretion.
(a) Each reference in the Loan Documents to the exercise of
discretion or the like by the Lender shall be to that Person's exercise of its
judgement, in good faith (which shall be presumed), based upon that Person's
consideration of any such factor as the Lender, taking into account information
of which that Person then has actual knowledge, believes:
(i) Will or reasonably could be expected to affect the value
of the Collateral, the enforceability of the Lender's security and collateral
interests therein, or the amount which the Lender would likely realize therefrom
(taking into account delays which may possibly be encountered in the Lender's
realizing upon the Collateral and likely Costs of Collection).
(ii) Indicates that any report or financial information
delivered to the Lender by or on behalf of the Borrower is incomplete,
inaccurate, or misleading in any material manner or was not prepared in
accordance with the requirements of this Agreement.
(iii) Constitutes a Suspension Event.
(b) In the exercise of such judgement, the Lender also may take
into account any of the following factors:
(i) Those included in, or tested by, the definitions of
"Acceptable Inventory", "Retail", and "Cost".
(ii) The current financial and business climate of the
industry in which the Borrower competes (having regard for the Borrower's
position in that industry).
(iii) General economic conditions which have a material effect
on cost structure.
(iv) Material change s in or to the mix of the Borrower's
Inventory.
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(v) Seasonality with respect to the Borrower's Inventory and
pattern of the Borrower's retail sales versus that which was projected.
(vi) Material changes in Borrower's Availability versus that
which was projected.
(vii) Such other factors as the Lender determines as having a
material bearing on credit risks associated with the providing of loans and
financial accommodations to the Borrower.
(c) The burden of establishing the failure of the Lender to have
acted in a reasonable manner. in such Person's exercise of discretion shall be
the Borrower's.
1.11 Fees for L/C's.
(a) Prior to the issuance of any L/C, the Borrower shall pay to
the Lender a fee for each L/C equal to the greater of (i) One Thousand Dollars
($1,000.00), or (ii) twenty (20) Basis Points per month times the Stated Amount
of that L/C.
(b) In addition to the fee to be paid as provided in Subsection
1.11(a), above, the Borrower shall pay to the Lender (or to the Issuer, if so
requested by the Lender), on demand, all issuance, processing, negotiation,
amendment, and administrative fees and other amounts charged by the Issuer on
account of, or in respect to, any L/C.
1.12 Concerning L/C's.
(a) None of the Issuer, the Issuer's correspondents, or any
advising, negotiating, or paying bank with respect to any L/C shall be
responsible in any way for:
(i) The performance by any beneficiary under any L/C of that
beneficiary's obligations to the Borrower.
(ii) The form, sufficiency, correctness, genuineness,
authority of any person signing; falsification; or the legal effect of; any
documents called for under any L/C if (with respect to the foregoing) such
documents on their face appear to be in order.
(b) The Issuer may honor, as complying with the terms of any L/C
and of any drawing thereunder, any drafts or other documents otherwise in order,
but signed or issued by an administrator, executor, conservator, trustee in
bankruptcy, debtor in possession, assignee for the benefit of creditors,
liquidator, receiver, or other legal representative of the party authorized
under such L/C to draw or issue such drafts or other documents.
(c) Unless otherwise agreed to, in the particular instance, the
Borrower hereby authorizes any Issuer to:
(i) Select an advising bank, if any.
(ii) Select a paying bank, if any.
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(iii) Select a negotiating bank.
(d) All directions, correspondence, and funds transfers relating
to any L/C are at the risk of the Borrower. The Issuer shall have discharged the
Issuer's obligations under any L/C which, or the drawing under which, includes
payment instructions, by the initiation of the method of payment called for in,
and in accordance with, such instructions.(or by any other commercially
reasonable and comparable method). Neither the Lender nor the Issuer shall have
any responsibility for any inaccuracy, interruption, error, or delay in
transmission or delivery by post, telegraph or cable, or for any inaccuracy of
translation.
(e) The Lender's and the Issuer's rights, powers, privileges and
immunities specified in or arising under this Agreement are in addition to any
heretofore or at any time hereafter otherwise created or arising, whether by
statute or rule of law or contract.
(f) Except to the extent otherwise expressly provided hereunder or
agreed to in writing by the Issuer and the Borrower, the L/C will be governed by
the Uniform Customs and Practice for Documentary Credits (1993 Revision),
International Chamber of Commerce, Publication No.500, and any subsequent
revisions thereof.
(g) If any change in any law, executive order or regulation, or
any directive of any administrative or governmental authority (whether or not
having the force of law), or in the interpretation thereof by any court or
administrative or governmental authority charged with the administration
thereof, shall either:
(i) Impose, modify or deem applicable any reserve, special
deposit or similar requirements against letters of credit heretofore or
hereafter issued by any Issuer or with respect to which the Lender or any Issuer
has an obligation to lend to fund drawings under any L/C.
(ii) Impose on any Issuer any other condition or requirements
relating to any such letters of credit; and the result of any event referred to
in Section 1.12(g)(i), above, shall be to increase the cost to any Issuer of
issuing or maintaining any L/C (which increase in cost shall be the result of
such Issuer's reasonable allocation among that Issuer's letter of credit
customers of the aggregate of such cost increases resulting from such events),
then, upon demand by the Lender and delivery by the Lender to the Borrower of a
certificate of an officer of the subject Issuer describing such change in law,
executive order, regulation, directive, or interpretation thereof, its effect on
such Issuer, and the basis for determining such increased costs and their
allocation, the Borrower shall immediately pay to the Lender, from time to time
as specified by the Lender, such amounts as shall be sufficient to compensate
such Issuer for such increased cost. Any Issuer's determination of costs
incurred under Section 1.12(g)(i), above, and the allocation, if any, of such
costs among the Borrower and other letter of credit customers of such Issuer, if
done in good faith and made on an equitable basis and in accordance with the
officer's certificate, shall be conclusive and binding on the Borrower.
(h) The obligations of the Borrower under this Agreement with
respect to L/C's are absolute, unconditional, and irrevocable and shall be
performed strictly in accordance
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with the terms hereof under all circumstances, whatsoever including, without
limitation, the following:
(i) Any lack of validity or enforceability or restriction,
restraint, or stay in the enforcement of this Agreement, any L/C, or any other
agreement or instrument relating thereto.
(ii) Any amendment or waiver of, or consent to the departure from,
any L/C.
(iii) The existence of any claim, set-off, defense, or other right
which the Borrower may have at any time against the beneficiary of any L/C.
(iv) Any honoring of a drawing under any L/C, which drawing
possibly could have been dishonored based upon a strict construction of the
terms of the of the L/C.
(v) The Borrower shall not present to Lender or cause the
amendment of an L/C without the certification and support of either of the
following: (a) change in delivery date; (b) Borrower's receipt of partial
shipment; or (c) change to original order reflected in OTB (open to buy) or
other information which may be so reasonably requested by the Lender.
In no event, however, shall Lender honor any L/C presented for payment
after its expiration, as a result of discrepancies without an acceptable form of
amendment having been previously made. In all cases, in the event no payment has
been made and no cancellation previously amended, no L/C shall be removed from
the Borrower's Availability until such time as thirty (30) business days beyond
expiration of said L/C.
ARTICLE 2. GRANT OF SECURITY INTEREST
2.1 Grant of Security Interest. To secure the Borrower's prompt,
punctual, and faithful performance of all and each of the Borrower's
Liabilities, the Borrower hereby grants to the Lender a continuing security
interest in and to, and assigns to the Lender, the following, and each item
thereof, whether now owned or now due, or in which the Borrower has an interest;
or hereafter acquired, arising, or to become due, or in which the Borrower
obtains an interest (all of which, together with any other property in which the
Lender may in the future be granted a security interest, is referred to herein
as the "Collateral"):
(a) All Inventory.
(b) All Accounts, accounts receivable, contracts, contract rights,
notes, bills, drafts, acceptances, deposit accounts, General Intangibles
(including without limitation registered and unregistered tradenames,
copyrights, customer lists, goodwill, computer programs, computer records,
computer software, computer data, trade secrets, trademarks, patents, ledger
sheets, files, records, data processing records relating to any Accounts and all
tax refunds of every kind and nature to which Borrower is now or hereafter may
become entitled to, no matter how arising), Instruments, Documents, Document of
Title, Chattel Paper, securities, security
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entitlements, security accounts, Investment Property, choses in action
(specifically excluding all avoidance actions), and all other debts, obligations
and liabilities in whatever form, owing to Borrower from any person, firm or
corporation or any other legal entity, whether now existing or hereafter
arising, now or hereafter received by or belonging or owing to Borrower, for
goods sold by it or for services rendered by it or however otherwise same may
have been established or created, all guarantees and securities therefor, all
right, title and interest of Borrower in the merchandise or services which gave
rise thereto, including the rights of reclamation and stoppage in transit, all
rights to replevy goods, and all rights of an unpaid seller of merchandise or
services.
(c) All machinery, Equipment, Fixtures and other Goods whether now
owned or hereafter acquired by the Borrower and wherever located, all
replacements and substitutions therefor or accessions thereto and all proceeds
thereof.
(d) Leasehold interests and rights of occupancy.
(e) Real estate.
(f) Securities, including stock of subsidiaries.
(g) All proceeds, products, substitutions and accessions of or to
all of the foregoing in any form, including, without limitation, all proceeds,
refunds and premium rebates of credit, fire or other insurance, and also
including, without limitation, rents and profits resulting from the temporary
use of any of the foregoing.
2.2 Extent and Duration of Security Interest. This grant of a security
interest is in addition to, and supplemental of, any security interest
previously granted by the Borrower to the Lender and shall continue in full
force and effect applicable to all Liabilities until all Liabilities have been
paid and/or satisfied in full and the security interest granted herein is
specifically terminated in writing by a duly authorized officer of the Lender.
2.3 Administrative Priority. The Borrowers hereby agree that the
Borrower's Liabilities shall constitute allowed administrative expenses in the
Case having priority over all administrative expenses and unsecured claims
against the Borrowers now existing or hereafter arising, of any kind or nature
whatsoever (including without limitation, all administrative expenses of the
kind specified in sections 503(b) and 507(b) of the Bankruptcy Code), subject to
the terms and conditions of the Interim Borrowing Order.
2.4 Grants, Rights and Remedies Cumulative. The Liens and security
interests granted, pursuant to Article 2.1 hereof and administrative priority
granted pursuant to Article 2.3 hereof may be independently granted by the Loan
Document and by other Loan Documents hereafter entered into. This Agreement, the
Interim Borrowing Order, the Permanent Borrowing Order and such other Loan
Documents supplement each other, and the grants, priorities, rights and remedies
of the Lenders hereunder and thereunder are cumulative.
2.5 No Filing Required. The liens and security interests referred to in
Articles 2.1 and 2.3 hereof and in the other Loan Documents shall be deemed
valid and perfected upon entry of
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the Interim Borrowing Order. The Lenders shall not be required to file any
financing statements, notices of lien or similar instruments in any jurisdiction
or filing office or to take any other action in order to validate or perfect the
liens and security interests granted by or pursuant to this Agreement, the
Interim Borrowing Order, the Permanent Borrowing Order or any other Loan
Document.
2.6 Survival. The liens, lien priority, administrative priorities and
other rights and remedies granted to the Lenders pursuant to this Agreement, any
Borrowing Order and the other Loan Documents (specifically including, but not
limited to, the existence, perfection and priority of the liens and security
interests provided herein and therein, and the administrative priority provided
herein and therein) shall not be modified, altered or impaired in any manner by
any other financing or extension of credit or incurrence of debt by any Borrower
(pursuant to section 364 of the Bankruptcy Code or otherwise), or by any
dismissal or conversion of any Proceeding, or by any other act or omission
whatever, except in accordance with the Borrowing Order.
ARTICLE 3. DEFINITIONS
All capitalized terms used in this agreement which are not otherwise
defined herein or in the UCC shall have the meanings assigned to them in EXHIBIT
3, annexed hereto.
ARTICLE 4. CONDITIONS PRECEDENT
Precedent to the effectiveness of this Agreement, the establishment of the
Revolving Credit, and the making of the first loan under the Revolving Credit,
the documents respectively described in Sections 4.1 through and including 4.5,
each in form and substance satisfactory to the Lender shall have been delivered
to the Lender, and the conditions respectively described in Sections 4.6 through
and including 4.9 (and 4.10 as added by Article 15 hereof), shall have been
satisfied:
4.1 Corporate Due Diligence.
(a) A certificate of corporate good standing issued by the
Secretary of State of Incorporation of the Borrower.
(b) Certificates of due qualification, in good standing, issued by
the Secretary(ies) of State of each State in which the nature of the Borrower's
business conducted or assets owned could require such qualification.
(c) A certificate of the Borrower's secretary or clerk attesting
to the due adoption, continued effectiveness, and setting forth the texts of,
each corporate resolution adopted in connection with the establishment of the
loan arrangement contemplated by the Loan Documents and attesting to the true
signatures of each Person authorized as a signatory to any of the Loan
Documents.
4.2 Opinion. Intentionally omitted.
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4.3 Additional Documents. Such additional instruments and documents as
the Lender or its counsel reasonably may require or request.
4.4 Key Life Policies. Intentionally omitted.
4.5 Officers' Certificates. Certificates executed by the President and
the Chief Financial Officer of the Borrower and stating that the representations
and warranties made by the Borrower to the Lender in the Loan Documents are true
and complete as of the date of such Certificate, and that no event has occurred
which is or which, solely with the giving of notice or passage of time (or both)
would be an Event of Default.
4.6 Representations and Warranties. Each of the representations made by
or on behalf of the Borrower in this Agreement or in any of the other Loan
Documents or in any other report, statement, document, or paper provided by and
or on behalf of the Borrower shall be true and complete as of the date as of
which such representation or warranty was made.
4.7 Initial Minimum Excess Availability . Intentionally omitted.
4.8 No Event of Default. No event shall have occurred, or failed to
occur, which occurrence or which failure constitutes, or which, solely with the
passage of time or the giving of notice (or both) would constitute, an Event of
Default.
4.9 No Material Adverse Change. No Material Adverse Change from
Borrower's condition at July 15, 1998 has occurred.
No document shall be deemed delivered to the Lender until received and accepted
by the Lender at its head offices in Needham, Massachusetts. Under no
circumstances will this Agreement take effect until executed and accepted by the
Lender at said head office.
ARTICLE 5. GENERAL REPRESENTATIONS. WARRANTIES AND COVENANTS
To induce the Lender to establish the loan arrangement contemplated herein
and to make loans and advances and to provide financial accommodations under the
Revolving Credit (each of which loans shall be deemed to have been made in
reliance thereupon) the Borrower, in addition to all other representations,
warranties, and covenants made by the Borrower in any other Loan Document, makes
those representations, warranties, and covenants included in this Agreement.
5.1 Payment and Performance of Liabilities. The Borrower shall pay each
Liability due Lender when due (or when demanded if payable on demand) and shall
promptly, punctually, and faithfully perform each other Liability due Lender and
pay each Liability due others in accordance with its current custom and
practice. If Borrower has any dispute with any Person with respect to any
Liability, Borrower shall give Paragon notice of said dispute.
5.2 Due Organization - Corporate Authorization - No Conflicts.
(a) The Borrower presently is and shall hereafter remain in good
standing as a corporation in the state in which it is incorporated and is and
shall hereafter remain duly
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qualified and in good standing in every other state in which, by reason of the
nature or location of the Borrower's assets or operation of the Borrower's
business, such qualification may be necessary.
(b) Each Related Entity is listed on EXHIBIT 5.2, annexed hereto.
Each Related Entity is and shall hereafter remain in good standing in the state
in which incorporated and is and shall hereafter remain duly qualified in such
other states in which, by reason of that entity's assets or the operation of
such entity's business, such qualification may be necessary. The Borrower shall
provide the Lender with prior written notice of any entity's becoming or ceasing
to be a Related Entity.
(c) The Borrower has all requisite corporate power and authority
to execute and deliver all and singular the Loan Documents to which the Borrower
is a party and has and will hereafter retain all requisite corporate power to
perform all and singular the Liabilities.
(d) The execution and delivery by the Borrower of each Loan
Document to which it is a party; the Borrower's consummation of the transactions
contemplated by such Loan Documents (including, without limitation, the creation
of security interests by the Borrower as contemplated hereby); the Borrower's
performance under those of the Loan Documents to which it is a party; the
borrowings hereunder; and the use of the proceeds thereof:
(i) Have been duly authorized by all necessary corporate
action.
(ii) Do not, and will not, contravene in any material respect
any provision of any Requirement of Law or obligation of the Borrower.
(iii) Will not result in the creation or imposition of, or the
obligation to create or impose, any Encumbrance upon any assets of the Borrower
pursuant to any Requirement of Law or obligation, except pursuant to the Loan
Documents.
(e) The Loan Documents have been duly executed and delivered by
Borrower and are the legal, valid and binding obligations of the Borrower,
enforceable against the Borrower in accordance with their respective terms.
5.3 Trade Names.
(a) EXHIBIT 5.3, annexed hereto, is a listing of:
(i) All names under which the Borrower ever conducted its
business.
(ii) All entities and/or persons with whom the Borrower ever
consolidated or merged, or from whom the Borrower ever acquired in a single
transaction or in a series of related transactions substantially all of such
entity's or person's assets.
(b) Except (i) upon not less than twenty-one (21) days prior
written notice given the Lender, and (ii) in compliance with all other
provisions of this Agreement, the Borrower will not undertake or commit to
undertake any action such that the results of that
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action, if undertaken prior to the date of this Agreement, would have been
reflected on EXHIBIT 5.3.
(c) The Borrower owns and possesses, or has the right to use
all patents, industrial designs, trademarks, trade names, trade styles, brand
names, service marks, logos, copyrights, trade secrets, know-how, confidential
information, and other intellectual or proprietary property of any third Person
necessary for the Borrower's conduct of the Borrower's business.
(d) The conduct by the Borrower of the Borrower's business
does not infringe on the patents, industrial designs, trademarks, trade names,
trade styles, brand names, service marks, logos, copyrights, trade secrets,
know-how, confidential information, or other intellectual or proprietary
property of any third Person.
5.4 Locations. Landlord's Consents, Waivers. Intentionally omitted.
5.5 Title to Assets.
(a) The Borrower is, and shall hereafter remain, the owner of the
Collateral free and clear of all Encumbrances with the exceptions of the
following:
(i) The security interest created herein.
(ii) Those Encumbrances (if any) listed on EXHIBIT 5.5,
annexed hereto.
(b) The Borrower does not and shall not have possession of any
property on consignment to the Borrower.
5.6 Indebtedness. The Borrower does not and shall not hereafter have any
postpetition Indebtedness with the exceptions of:
(a) Any Indebtedness to the Lender.
(b) The Indebtedness (if any) listed on EXHIBIT 5.6, annexed
hereto.
(c) Capital Leases, not to exceed One Hundred Thousand Dollars
($100,000) per year, provided Lender is given prompt written notice of any
Capital Lease and no lien on the Collateral arises as a result thereof.
5.7 Insurance Policies.
(a) EXHIBIT 5.7, annexed hereto, is a schedule of all insurance
policies owned by the Borrower or under which the Borrower is the named insured.
Each of such policies is in full force and effect. Neither the issuer of any
such policy nor the Borrower is in default or violation of any such policy.
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(b) The Borrower shall have and maintain at all times insurance
covering such risks, in such amounts, containing such terms, in such form, for
such periods, and written by such companies as may be satisfactory to the
Lender. The coverage reflected on EXHIBIT 5.7 presently satisfies the foregoing
requirements, it being recognized by the Borrower, however, that such
requirements may change hereafter to reflect changing circumstances. All
insurance carried by the Borrower shall provide for a minimum of twenty (20)
days' written notice of cancellation to the Lender and all such insurance which
covers the Collateral shall include an endorsement in favor of the Lender, which
endorsement shall provide that the insurance, to the extent of the Lender's
interest therein, shall not be impaired or invalidated, in whole or in part, by
reason of any act or neglect of the Borrower or by the failure of the Borrower
to comply with any warranty or condition of the policy. In the event of the
failure by the Borrower to maintain insurance as required herein, the Lender, at
its option, may obtain such insurance, provided, however, the Lender's obtaining
of such insurance shall not constitute a cure or waiver of any Event of Default
occasioned by the Borrower's failure to have maintained such insurance. The
Borrower shall furnish to the Lender certificates or other evidence satisfactory
to the Lender regarding compliance by the Borrower with the foregoing insurance
provisions.
(c) The Borrower shall advise the Lender of each claim in excess
of Ten Thousand Dollars ($10,000.00) made by the Borrower under any policy of
insurance which covers the Collateral and will permit the Lender, at the
Lender's option in each instance, to the exclusion of the Borrower, to conduct
the adjustment of each such claim (and of all claims following the occurrence of
any Suspension Event). The Borrower hereby appoints the Lender as the Borrower's
attorney in fact to obtain, adjust, settle, and cancel any insurance described
in this section and to endorse in favor of the Lender any and all drafts and
other instruments with respect to such insurance. This appointment, being
coupled with an interest, is irrevocable until this Agreement is terminated by a
written instrument executed by a duly authorized officer of the Lender. The
Lender shall not be liable on account of any exercise pursuant to said power
except for any exercise in actual willful misconduct and bad faith. The Lender
may apply any proceeds of such insurance against the Liabilities, whether or not
such have matured, in such order of application as the Lender may determine.
(d) The Borrower shall maintain at all times those policies of
insurance obtained by the Borrower and assigned to the Lender as required by
Section 4.4, above.
5.8 Licenses. Each license, distributorship, franchise, and similar
agreement issued to, or to which the Borrower is a party is in full force and
effect. No party to any such license or agreement is in default or violation
thereof. The Borrower has not received any notice or threat of cancellation of
any such license or agreement.
5.9 Leases. EXHIBIT 5.9, annexed hereto, is a schedule of all presently
effective Leases and Capital Leases. Each of such Leases and Capital Leases is
in full force and effect. No party to any such Lease or Capital Lease is in
default or violation of any such Lease or Capital Lease and the Borrower has not
received any notice or threat of cancellation of any such Lease or Capital
Lease. The Borrower hereby authorizes the Lender at any time and from time to
time to contact any of the Borrower's landlords in order to confirm the
Borrower's continued compliance with the terms and conditions of the Lease(s)
between the Borrower and that
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landlord and to discuss such issues, concerning the Borrower's occupancy under
such Lease(s), as the Lender may determine.
5.10 Requirements of Law. The Borrower is in compliance with, and shall
hereafter comply with and use its assets in compliance with, all Requirements of
Law. The Borrower has not received any notice of any violation of any
Requirement of Law (whether or not such violation is material), which violation
has not been cured or otherwise remedied.
5.11 Maintain Properties. The Borrower shall:
(a) Keep the Collateral in good order and repair (ordinary
reasonable wear and tear and insured casualty excepted).
(b) Not suffer or cause the waste or destruction of any material
part of the Collateral.
(c) Not use any of the Collateral in violation of any policy of
insurance thereon.
(d) Not sell, lease, or otherwise dispose of any of the
Collateral, other than the following:
(i) The sale of Inventory in compliance with this Agreement,
return of Inventory in the ordinary course of business, or disposal of Inventory
pursuant to going out of business sales authorized by the Bankruptcy Court.
(ii) The disposal of Equipment which is obsolete, worn out,
or damaged beyond repair, which Equipment is replaced to the extent necessary to
preserve or improve the operating efficiency of the Borrower.
Subject to the turning over to the Lender of all Receipts with respect to the
same as provided herein.
5.12 Pay Taxes.
(a) The federal income tax returns of the Borrower have been
audited by the Internal Revenue Service (or closed by applicable statutes) for
all fiscal years through and including the Borrower's taxable year referenced on
EXHIBIT 5.12, annexed hereto, and all deficiencies, assessments, and other
amounts asserted as a result of such examinations have been fully paid or
settled. No agreement is extant which waives or extends any statute of
limitations applicable to the right of the Internal Revenue Service to assert a
deficiency or make any other claim for or in respect to federal income taxes. No
issue, has been raised in any such examination which, by application of similar
principles, reasonably could be expected to result in the assertion of a
deficiency for any fiscal year open for examination, assessment, or claim by the
Internal Revenue Service.
(b) All returns of the Borrower for state and local income,
excise, sales, and other taxes have been audited (or closed by applicable
statutes) for all fiscal years through and
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including the Borrower's taxable year referenced on EXHIBIT 5.12, annexed
hereto, and all deficiencies, assessments, and other amounts asserted as a
result of such examinations have been fully paid or settled. No agreement is in
existence which waives or extends any statute of limitations applicable to the
right of any state taxing authority to assert a deficiency or make any other
claim for or in respect to any such state taxes. No issue has been raised in any
such examination which, by application of similar principles, reasonably could
be expected to result in the assertion of a deficiency for any fiscal year open
for examination, assessment, or claim by any state or local taxing authority.
(c) Except as disclosed on said EXHIBIT 5.12, there are no
examinations of or with respect to the Borrower presently being conducted by the
Internal Revenue Service or any state taxing authority.
(d) The Borrower has, and hereafter shall: pay, as they become due
and payable, all taxes and unemployment contributions and other charges of any
kind or nature levied, assessed or claimed against the Borrower or the
Collateral by any person or entity whose claim could result in an Encumbrance
upon any asset of the Borrower or by any governmental authority; properly
exercise any trust responsibilities imposed upon the Borrower by reason of
withholding from employees' pay; timely make all contributions and other
payments as may be required pursuant to any Employee Benefit Plan now or
hereafter established by the Borrower; and timely file all tax and other returns
and other reports with each governmental authority to whom the Borrower is
obligated to so file.
(e) At its option, the Lender may, but shall not be obligated to,
pay any taxes, unemployment contributions, and any and all other charges levied
or assessed upon the Borrower or the Collateral by any person or entity or
governmental authority, and make any contributions or other payments on account
of the Borrower's Employee Benefit Plan as the Lender, in the Lender's
discretion, may deem necessary or desirable, to protect, maintain, preserve,
collect, or realize upon any or all of the Collateral or the value thereof or
any right or remedy pertaining thereto, provided, however, the Lender's making
of any such payment shall not constitute a cure or waiver of any Event of
Default occasioned by the Borrower's failure to have made such payment.
5.13 No Margin Stock. The Borrower is not engaged in the business of
extending credit for the purpose of purchasing or carrying any margin stock
(within the meaning of Regulations G, U, T, and X, of the Board of Governors of
the Federal Reserve System of the United States). No part of the proceeds of any
borrowing hereunder will be used at any time to purchase or carry any such
margin stock or to extend credit to others for the purpose of purchasing or
carrying any such margin stock.
5.14 ERISA. Neither the Borrower nor any ERISA Affiliate ever has or
hereafter shall:
(a) Violate or fail to be in full compliance with the Borrower's
Employee Benefit Plan.
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(b) Fail timely to file all reports and filings required by ERISA
to be filed by the Borrower.
(c) Engage in any "prohibited transactions" or "reportable events"
(respectively as described in ERISA).
(d) Engage in, or commit, any act such that a tax or penalty could
be imposed on account thereof pursuant to ERISA.
(e) Accumulate any material funding deficiency within the meaning
of ERISA.
(f) Terminate any Employee Benefit Plan such that a lien could be
asserted of the Borrower on account thereof pursuant to ERISA.
(g) Be a member of, contribute to, or have any obligation under
any Employee Benefit Plan which is a multiemployer plan within the meaning of
Section 4001(a) of ERISA.
5.15 Hazardous Materials.
(a) The Borrower has never:
(i) Been legally responsible for any release or threat of
release of any Hazardous Material.
(ii) Received notification of any release or threat of
release of any Hazardous Material from any site or vessel occupied or operated
by the Borrower and/or of the incurrence of any expense or loss in connection
with the assessment, containment, or removal of any release or threat of release
of any Hazardous Material from any such site or vessel.
(b) The Borrower shall:
(i) Dispose of any Hazardous Material only in compliance
with all Environmental Laws.
(ii) Not store on any site or vessel occupied or operated by
the Borrower and not transport or arrange for the transport of any Hazardous
Material, except if such storage or transport is in the ordinary course of the
Borrower's business and is in compliance with all Environmental Laws.
(c) The Borrower shall provide the Lender with written notice upon
the Borrower's obtaining knowledge of any incurrence of any expense or loss by
any governmental authority or other Person in connection with the assessment,
containment, or removal of any Hazardous Material, for which expense or loss the
Borrower may be liable.
5.16 Litigation. Except for the Proceedings, there is not presently
pending or threatened by or against the Borrower any suit, action, proceeding,
or investigation which, if determined adversely to the Borrower, would have a
material adverse effect upon the Borrower's
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financial condition or ability to conduct its business as such business is
presently conducted or is contemplated to be conducted in the foreseeable
future.
5.17 Dividends or Investments. The Borrower shall not:
(a) Pay any cash dividend or make any other distribution in
respect of any class of the Borrower's capital stock.
(b) Own, redeem, retire, purchase, or acquire any of the
Borrower's capital stock.
(c) Invest in or purchase any stock or securities or rights to
purchase any such stock or securities, of any corporation or other entity.
(d) Merge or consolidate or be merged or consolidated with or into
any other corporation or other entity.
(e) Consolidate any of the Borrower's operations with those of any
other corporation or other entity.
(f) Organize or create any Related Entity.
(g) Subordinate any debts or obligations owed to the Borrower by
any third party to any other debts owed by such third party to any other Person.
5.18 Loans. The Borrower shall not make any loans or advances to, nor
acquire the Indebtedness of, any Person, provided, however, the foregoing does
not prohibit any of the following:
(a) Advance payments made to the Borrower's suppliers in the
ordinary course.
(b) Advances to the Borrower's officers, employees, and
salespersons with respect to reasonable expenses to be incurred by such
officers, employees, and salespersons for the benefit of the Borrower, which
expenses are properly substantiated by the person seeking such advance and
properly reimbursable by the Borrower.
5.19 Protection of Assets. The Lender, in the Lender's discretion, and
from time to time, may discharge any tax or Encumbrance on any of the
Collateral, or take any other action that the Lender may deem necessary or
desirable to repair, insure, maintain, preserve, collect, or realize upon any of
the Collateral. The Lender shall not have any obligation to undertake any of the
foregoing and shall have no liability on account of any action so undertaken
except where there is a specific finding in a judicial proceeding (in which the
Lender has had an opportunity to be heard), from which finding no further appeal
is available, that the Lender had acted in actual bad faith or in a grossly
negligent manner. The Borrower shall pay to the Lender, on demand, or the
Lender, in its discretion, may add to the Loan Account, all amounts paid or
incurred by the
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Lender pursuant to this section. The obligation of the Borrower to pay such
amounts is a Liability.
5.20 Line of Business. The Borrower shall not engage in any business
other than the business in which it is currently engaged or a business
reasonably related thereto.
5.21 Affiliate Transactions. The Borrower shall not make any payment, nor
give any value to any Related Entity except for goods and services actually
purchased by the Borrower from, or sold by the Borrower to, such Related Entity
for a price which shall:
(a) Be competitive and fully deductible as an "ordinary and
necessary business expense" and/or fully depreciable under the Internal Revenue
Code of 1986 and the Treasury Regulations, each as amended.
(b) Not differ from that which would have been charged in an arms
length transaction.
5.22 Executive Pay.
(a) The only Executive Officers of the Borrower, at the execution
of this Agreement, are those individuals referenced in the definition of
"Executive Officers".
(b) Prior to the execution of this Agreement, the Borrower
furnished the Lender with copies of all written Executive Agreements and
outlines of the salient features of all unwritten Executive Agreements (as
amended to date) then extant. There are no unwritten agreements or
understandings between the Borrower and any Executive Officer which relate to
Executive Pay, written disclosure of which has not been made to the Lender.
(c) Subject to replacement of any existing Executive Officer, the
Borrower will not:
(i) Enter into any Executive Agreement not existing at the
execution of this Agreement.
(ii) Alter, amend, supplement, or otherwise change any
Executive Agreement.
(iii) Pay, provide, or facilitate any Executive Pay other than
as provided in an Executive Agreement or, if not covered by an Executive
Agreement, as periled pursuant to Section 5.21, above.
5.23 Additional Assurances.
(a) The Borrower is not the owner of, nor has it any interest in,
any property or asset which, immediately upon the satisfaction of the conditions
precedent to the effectiveness of the credit facility contemplated hereby
(Article 4) will not be subject to a perfected security
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interest in favor of the Lender (subject only to those Encumbrances (if any)
described on EXHIBIT 5.5, annexed hereto) to secure the Liabilities.
(b) The Borrower will not hereafter acquire any asset or any
interest in property which is not, immediately upon such acquisition, subject to
such a perfected security interest in favor of the Lender to secure the
Liabilities (subject only to Encumbrances (if any) permitted pursuant to Section
5.5, above).
(c) The Borrower shall execute and deliver to the Lender such
instruments, documents, and papers, and shall do all such things from time to
time hereafter as the Lender may request to carry into effect the provisions and
intent of this Agreement; to protect and perfect the Lender's security interests
in the Collateral; and to comply with all applicable statutes and laws, and
facilitate the collection of the Receivables Collateral. The Borrower shall
execute all such instruments as may be required by the Lender with respect to
the recordation and/or perfection of the security interests created herein.
(d) A carbon, photographic, or other reproduction of this
Agreement or of any Financing statement or other instrument executed pursuant to
this Section 5.23 shall be sufficient for filing to perfect the security
interests granted herein.
5.24 Adequacy of Disclosure.
(a) All financial statements furnished to the Lender by the
Borrower have been prepared in accordance with GAAP consistently applied and
present fairly the condition of the Borrower at the date(s) thereof and the
results of operations and cash flows for the period(s) covered. There has been
no change in the financial condition, results of operations, or cash flows of
the Borrower since the date(s) of such financial statements, other than changes
in the ordinary course of business, which changes have not been materially
adverse, either singularly or in the aggregate.
(b) The Borrower does not have any contingent obligations or
obligation under any Lease or Capital Lease which is not noted in the Borrower's
financial statements furnished to the Lender prior to the execution of this
Agreement.
(c) No document, instrument, agreement, or paper now or hereafter
given the Lender by or on behalf of the Borrower or any guarantor of the
Liabilities in connection with the execution of this Agreement by the Lender
contains or will contain any untrue statement of a material fact or omits or
will omit to state a material fact necessary in order to make the statements
therein not misleading. There is no fact known to the Borrower which has, or
which, in the foreseeable future could have, a material adverse effect on the
financial condition of the Borrower or any such guarantor which has not been
disclosed in writing to the Lender.
5.25 Minimum Excess Availability. Intentionally omitted.
5.26 No Material Adverse Change. Except for the Proceedings, there has
not been a. Material Adverse Change with respect to Borrower since the date of
the latest financial information submitted to Lender on or before the Closing
Date and there has been no Material
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Adverse Change from the period ended as of the latest financial information
supplied hereunder as compared to the Business Plan originally attached hereto
as EXHIBIT 9.12(a).
5.27 2000 Compliance. Intentionally omitted.
5.28 Other Covenants. The Borrower shall not indirectly do or cause to be
done any act which, if done directly by the Borrower, would breach any covenant
contained in this Agreement.
5.29 Administrative Priority; Lien Priority.
(a) After the entry of the Interim, Borrowing Order, the
Borrowers' Liabilities will constitute allowed administrative expenses in the
Proceedings having Priority over all administrative expenses and unsecured
claims against the Borrowers now existing or hereafter arising, of any kind or
nature whatsoever (including, without limitation, all administrative expenses of
the kind specified in Sections 503(b) and 507(b) of the Bankruptcy Code),
subject to the terms and conditions of the Interim Borrowing Order.
(b) The liens on the Collateral granted hereby shall be valid and
perfected first priority liens to the extent provided in the Interim Borrowing
Order.
Bankruptcy Court Orders. The Interim Borrowing Order is in full
force and effect, and has not been reversed, stayed, modified or amended absent
the joinder and consent of the Lenders.
5.30 Interim, Borrowing Order: Permanent Borrowing Order; Administrative
Priority; Lien Priority; Payment of Claims
(a) Without the prior written consent of the Lenders, no Borrower
shall at any time seek, consent to or suffer to exist any modification, stay,
vacation or amendment of the Interim Borrowing Order or the Permanent Borrowing
Order.
(b) No Borrower shall at any time suffer to exist a priority for
any administrative expense or unsecured claim (including, without limitation,
any reclamation claim) against any Borrower now existing or hereafter arising of
any kind or nature whatsoever (including, without limitation, any administrative
expenses of the kind specified in Sections 503(b) and 507(b) of the Bankruptcy
Code) equal or superior to the priority of the Lenders in respect of the
Borrowers' Liabilities, except as set forth in the Borrowing Order.
(c) No Borrower shall at any time suffer to exist any lien on the
Collateral having a priority equal or superior to the Liens in respect of the
Collateral granted to the Lenders hereby, except for Permitted Liens.
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ARTICLE 6. USE AND COLLECTION OF COLLATERAL
6.1 Use of Inventory Collateral.
(a) The Borrower shall not engage in any sale of the Inventory (i)
other than for fair consideration in the conduct of the Borrower's business in
the ordinary course,, or (ii) after notice to Lender, pursuant to Bankruptcy
Court ordered going out of business sales; and shall not engage in sales or
other dispositions to creditors; sales or other dispositions in bulk; and any
use of any of the Inventory in breach of any provision of this Agreement.
(b) No sale of Inventory shall be on consignment, approval, or
under any other circumstances such that, with the exception of the Borrower's
customary return policy applicable to the return of inventory purchased by the
Borrower's retail customers in the ordinary course, such Inventory may be
returned to the Borrower without the consent of the Lender.
6.2 Inventory Quality. All Inventory now owned or hereafter acquired by
the Borrower is and will be of good and merchantable quality and free from
defects (other than defects within customary trade tolerances).
6.3 Adjustments and Allowances. The Borrower may grant such allowances
or other adjustments to the Borrower's Account Debtors (exclusive of extending
the time for payment of any Account or Account Receivable, which shall not be
done without first obtaining the Lender's prior written consent in each
instance) as the Borrower may reasonably deem to accord with sound business
practice, provided, however, the authority granted the Borrower pursuant to this
Section 6.3 may be limited or terminated by the Lender at any time in the
Lender's discretion.
6.4 Validity of Accounts.
(a) The amount of each Account shown on the books, records, and
invoices of the Borrower represented as owing by each Account Debtor is and will
be the correct amount actually owing by such Account Debtor and shall have been
fully earned by performance by the Borrower.
(b) The Borrower has no knowledge of any impairment of the
validity or collectibility of any of the Accounts and shall notify the Lender of
any such fact immediately after Borrower becomes aware of any such impairment.
(c) The Borrower shall not post any bond to secure the Borrower's
performance under any agreement to which the Borrower is a party nor cause any
surety, guarantor, or other third party obligee to become liable to perform any
obligation of the Borrower (other than to the Lender) in the event of the
Borrower's failure so to perform.
6.5 Notification to Account Debtors. The Lender shall have the right at
any time (whether or not an Event of Default has occurred) to notify any of the
Borrower's Account Debtors to make payment directly to the Lender and to collect
all amounts due on account of the Collateral.
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ARTICLE 7. CASH MANAGEMENT
7.1 Depository Accounts.
(a) Annexed hereto as EXHIBIT 7.1 is a Schedule of all present
DDA's, which Schedule includes, with respect to each depository (i) the name and
address of that depository; (ii) the account number(s) of the account(s)
maintained with such depository; (iii) a contact person at such depository; and
(iv) the telephone number of the contact person.
(b) The Borrower shall deliver to the Lender, as a condition to
the effectiveness of this Agreement:
(i) Proof of the mailing, to each depository institution
with which any DDA is maintained (other than the Funding Account or any Local
DDA) of notification (in form satisfactory to the Lender) of the Lender's
interest in such DDA.
(ii) An agreement (in form satisfactory to the Lender ) with
any depository institution at which a Central Account is maintained.
(c) The Borrower will not establish any DDA hereafter (other than
a Local DDA) unless the Borrower, contemporaneous with such establishment,
delivers to the Lender an agreement (in form satisfactory to the Lender)
executed on behalf of the depository with which such DDA is being established.
7.2 Credit Card Receipts.
(a) Annexed hereto as EXHIBIT 7.2, is a Schedule which describes
all arrangements to which the Borrower is a party with respect to the payment to
the Borrower of the proceeds of all credit card charges for sales by the
Borrower.
(b) The Borrower shall deliver to the Lender, as a condition to
the effectiveness of this Agreement proof of the mailing to each of the
Borrower's credit card clearinghouses and processors of notice (in form
satisfactory to the Lender), which notice provides that payment of all credit
card charges submitted by the Borrower to that clearinghouse or other processor
and any other amount payable to the Borrower by such clearinghouse or other
processor shall be directed to the Central Account. The Borrower shall not
change such direction or designation except upon and with the prior written
consent of the Lender.
7.3 The Concentration and the Funding Accounts.
(a) The following checking accounts have been or will be
established (and are so referred to herein):
(i) The Concentration Account: Established by the Lender
with The Chase Manhattan Bank, N.A.
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(ii) The Funding Account: Established by the Borrower with
NationsBank, N.A.
(iii) The Central Account: Established by the Borrower with
NationsBank, N.A.
(b) The contents of the Central Account constitutes Collateral and
Proceeds of Collateral.
(c) The Borrower:
(i) Contemporaneous with the execution of this Agreement,
shall provide the Lender with such agreement of the depository with which the
Central Account is maintained as may be satisfactory to the Lender.
(ii) Shall not establish any Central Account hereafter except
upon not less than thirty (30) days prior written notice to the Lender and the
delivery to the Lender of a similar such agreement.
(d) The Borrower shall pay all fees and charges of, and maintain
such impressed balances as may be required by the Lender or by any bank in which
any account is opened as required hereby (even if such account is opened by the
Lender).
7.4 Proceeds and Collection of Accounts.
(a) All Receipts constitute Collateral and proceeds of Collateral
and shall be held in trust by the Borrower for the Lender; shall not be
commingled with any of the Borrower's other funds; and shall be deposited and/or
transferred only to the Central Account.
(b) The Borrower shall cause the ACH or wire transfer to the
Central Account, no less frequently than daily (and whether or not there is then
an outstanding balance in the Loan Account) of.
(i) The then contents of each DDA (other than (A) any Local
DDA and (B) the Funding Account), each such transfer to be net of any minimum
balance, not to exceed Seven Hundred Fifty Dollars ($750.00), as may be required
to be maintained in the subject DDA by the bank at which such DDA is maintained.
(ii) The proceeds of all credit card charges not otherwise
provided for pursuant hereto.
Telephone advice (confirmed by written notice) shall be provided to the Lender
on each Banking Day on which any such transfer is made.
(c) Whether or not any Liabilities are then outstanding, the
Borrower shall cause the ACH or wire transfer to the Concentration Account; no
less frequently than daily, of then entire previous day's closing collected
balance of the Central Account.
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(d) In the event that, notwithstanding the provisions of this
Section 7.4, the Borrower receives or otherwise has dominion and control of any
Receipts, or any proceeds or collections of any Collateral, such Receipts,
proceeds, and collections shall be held in trust by the Borrower for the Lender
and shall not be commingled with any of the Borrower's other funds or deposited
in any account of the Borrower other than as instructed by the Lender.
7.5 Payment of Liabilities.
(a) On each Banking Day, the Lender shall apply upon receipt by
Lender, towards the Liabilities, the then collected balance of the Central
Account (net of fees charged, and of such impressed balances as may be required
by the bank at which the Central Account is maintained), provided, however, for
purposes of the calculation of interest on the unpaid principal balance of the
Loan Account, such payment shall be deemed to have been made two (2) Banking
Days after such transfer.
(b) The Lender shall transfer to the Funding Account any surplus
in excess of the Liabilities in the Concentration Account (attributable to
Borrower) remaining after the application towards the Liabilities referred to in
Section 7.5(a), above (less those amounts which are to be netted out, as
provided therein) provided, however, in the event that both (i) a Suspension
Event has occurred and (ii) one or more L/C's are then outstanding, the Lender
may establish a funded reserve of up to one hundred ten (110%) percent of the
aggregate Stated Amounts of such L/C's.
7.6 The Funding Account. Except as otherwise specifically provided in,
or permitted by, this Agreement, all checks shall be drawn by the Borrower upon,
and other disbursements made by the Borrower solely from, the Funding Account.
ARTICLE 8. LENDER AS BORROWER'S ATTORNEY-IN-FACT
8.1 Appointment as Attorney-In-Fact. The Borrower hereby irrevocably
constitutes and appoints the Lender as the Borrower's true and lawful attorney,
with full power of substitution, to convert the Collateral into cash at the sole
risk, cost, and expense of the Borrower, but for the sole benefit of the Lender.
The rights and powers granted the Lender by this appointment include but are not
limited to the right and power to:
(a) Prosecute, defend, compromise, or release any action relating
to the Collateral.
(b) Sign change of address forms to change the address to which
the Borrower's mail is to be sent to such address as the Lender shall designate;
receive and open the Borrower's mail; remove any Receivables Collateral and
Proceeds of Collateral therefrom and turn over the balance of such mail either
to the Borrower or to any trustee in bankruptcy, receiver, assignee for the
benefit of creditors of the Borrower, or other legal representative of the
Borrower whom the Lender determines to be the appropriate person to whom to so
turn over such mail.
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(c) Endorse the name of the Borrower in favor of the Lender upon
any and all checks, drafts, notes, acceptances, or other items or instruments;
sign and endorse the name of the Borrower on, and receive as secured party, any
of the Collateral, any invoices, schedules of Collateral, freight or express
receipts, or bills of lading, storage receipts, warehouse receipts, or other
documents of title respectively relating to the Collateral.
(d) Sign the name of the Borrower on any notice to the Borrower's
Account Debtors or verification of the Receivables Collateral; sign the
Borrower's name on any Proof of Claim in Bankruptcy against Account Debtors, and
on notices of lien, claims of mechanic's liens, or assignments or releases of
mechanic's liens securing the Accounts.
(e) Take all such action as may be necessary to obtain the payment
of any letter of credit and/or banker's acceptance of which the Borrower is a
beneficiary.
(f) Repair, manufacture, assemble, complete, package, deliver,
alter or supply goods, if any, necessary to fulfill in whole or in part the
purchase order of any customer of the Borrower.
(g) Use, license or transfer any or all General Intangibles of the
Borrower.
(h) Sign and file or record any financing or other statements in
order to perfect or protect the Lender's security interest in the Collateral.
8.2 No Obligation to Act. The Lender shall not be obligated to do any of
the acts or to exercise any of the powers authorized by Section 8.1 herein, but
if the Lender elects to do any such act or to exercise any of such powers, it
shall not be accountable for more than, it actually receives as a result of such
exercise of power, and shall not be responsible to the Borrower for any act or
omission to act except for any act or omission to act as to which there is a
final determination made in a judicial proceeding (in which proceeding the
Lender has had an opportunity to be heard) which determination includes a
specific finding that the subject act or omission to act had been grossly
negligent or in actual bad faith.
ARTICLE 9. FINANCIAL AND OTHER REPORTING REQUIREMENTS/FINANCIAL COVENANTS
9.1 Maintain Records. The Borrower shall:
(a) At all times, keep proper books of account, in which full,
true, and accurate: entries shall be made of all of the Borrower's transactions,
all in accordance with GAAP applied consistently with prior periods to fairly
reflect the financial condition of the Borrower at the close of, and its results
of operations for, the periods in question.
(b) Timely provide the Lender with those financial reports,
statements, and schedules required by this Article 9 or otherwise, each of which
reports, statements and schedules shall be prepared, to the extent applicable,
in accordance with GAAP applied consistently with prior periods to fairly
reflect the financial condition of the Borrower at the close of, and its results
of operations for, the period(s) covered therein.
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(c) At all times, keep accurate current records of the Collateral
including, without limitation, accurate current stock, cost, and sales records
of its Inventory, accurately and sufficiently itemizing and describing the
kinds, types, and quantities of Inventory and the cost and selling prices
thereof.
(d) At all times, retain independent certified public accountants
who are reasonably satisfactory to the Lender and instruct such accountants to
fully cooperate with, and be available to, the Lender to discuss the Borrower's
financial performance, financial condition, operating results, controls, and
such other matters, within the scope of the retention of such accountants, as
may be raised by the Lender.
(e) Not change the Borrower's fiscal year.
(f) Not change the Borrower's taxpayer identification number.
9.2 Access to Records.
(a) The Borrower shall accord the Lender and the Lender's
representatives with access from time to time as the Lender and such
representatives may reasonably require to all properties owned by or over which
the Borrower has control. The Lender and the Lender's representatives shall have
the right, and the Borrower will permit the Lender and such representatives from
time to time as the Lender and such representatives may reasonably request, to
examine, inspect, copy, and make extracts from any and all of the Borrower's
books, records, electronically stored data, papers, and files. The Borrower
shall make all of the Borrower's copying facilities available to the Lender.
(b) The Borrower hereby authorizes the Lender and the Lender's ]
representatives to:
(i) Inspect, copy, duplicate, review, cause to be reduced to
hard copy, run off, draw off, and otherwise use any and all computer or
electronically stored information or data which relates to the Borrower, or any
service bureau, contractor, accountant, or other person, and directs any such
service bureau, contractor, accountant, or other person fully to cooperate with
the Lender and the Lender's representatives with respect thereto.
(ii) Verify at any time the Collateral or any portion
thereof, including verification with Account Debtors, and/or with the Borrower's
computer billing companies, collection agencies, and accountants and to sign the
name of the Borrower on any notice to the Borrower's Account Debtors or
verification of the Collateral.
9.3 Immediate Notice to Lender.
(a) The Borrower shall provide the Lender with written notice
immediately upon the occurrence of any of the following events, which written
notice shall be with reasonable particularity as to the facts and circumstances
in respect of which such notice is being given:
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(i) Any change in the Borrower's Executive Officers,
officers, directors, controllers or key employees.
(ii) The completion of any physical count of the Borrower's
Inventory (together with a copy of the certified results thereof).
(iii) Any ceasing of the Borrower's making of payment, in the
ordinary course, to any of its creditors (including the ceasing of the making of
such payments on account of a dispute with the subject creditor).
(iv) Any failure by the Borrower to pay rent at any of the
Borrower's locations, which failure continues for more than three (3) days
following the day on which such rent first came due. If Borrower has any dispute
with any Landlord with respect to rent payable or other matters, Borrower shall
give Lender written notice of said dispute.
(v) Any failure by Borrower to pay trade liabilities or
other expense liabilities in accordance with their past business practices.
(vi) Any material change in the business, operations, or
financial affairs of the Borrower.
(vii) The occurrence of any Suspension Event.
(viii) Any intention on the part of the Borrower to discharge
the Borrower's present independent accountants or any withdrawal or resignation
by such independent accountants from their acting in such capacity (as to which,
see Subsection 9.1(d)).
(ix) Any litigation which, if determined adversely to the
Borrower, might have a material adverse effect on the financial condition of the
Borrower.
(b) The Borrower shall:
(i) Provide the Lender, when so distributed, with copies of any
materials distributed to the shareholders of the Borrower (qua such
shareholders).
(ii) Add the Lender as an addressee on all- mailing lists
maintained by or for the Borrower.
(iii) At the request of the Lender, from time to time, provide the
Lender with copies of all advertising (including copies of all print advertising
and duplicate tapes of all video and radio advertising).
(iv) Provide the Lender, when received by the Borrower, with a copy
of any management letter or similar communications from any accountant of the
Borrower.
9.4 Borrowing Base Certificate. The Borrower shall provide the Lender,
daily, with a Borrowing Base Certificate (in the form of EXHIBIT 9.4 annexed
hereto, as such form may be revised from time to time by the Lender). Such
Certificate may be sent to the Lender by
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facsimile transmission, provided that the original thereof is forwarded to the
Lender on the date of such transmission at their request. No adjustments to the
Borrowing Base Certificate may be made without support documentation and such
other documentation as may be requested by Lender from time to time.
9.5 Reports. Lender shall provide weekly and monthly reports to Borrower
in accordance with the reporting schedule set forth in EXHIBIT 9.5.
9.6 Monthly Reports. Intentionally omitted.
9.7 Quarterly Reports. Quarterly, within forty five (45) days following
the end of each of the Borrower's fiscal quarters, the Borrower shall provide
the Lender with an original counterpart of a management prepared financial
statement of the Borrower for the period from the beginning of the Borrower's
then current fiscal year through the end of the subject quarter, with
comparative information for the same period of the previous fiscal, year, which
statement shall include, at a minimum, a balance sheet, income statement (on a
store specific and on a "consolidated" basis), statement of changes in
shareholders' equity, and cash flows and comparisons for the corresponding
quarter of the then Immediately previous year, as well as to the Business Plan.
9.8 Annual Reports.
(a) In addition to the monthly reports required under Article 9.6,
annually, within ninety (90) days following the end of the Borrower's fiscal
year, the Borrower shall furnish the Lender with an original signed counterpart
of the Borrower's annual financial statement, which statement shall have been
prepared by, and bearing the unqualified opinion of, the Borrower's independent
certified public accountants (i.e. said statement shall be "certified" by such
accountants). Such annual statement shall include, at a minimum (with
comparative information for the then prior fiscal year) a balance sheet, income
statement, statement of changes in shareholders' equity, and cash flows.
(b) Each annual statement shall be accompanied by such
accountant's certificate indicating that to the best knowledge of such
accountant, no event has occurred which is or which, solely with the passage of
time or the giving of notice (or both) would be, an Event of Default.
(c) Borrower shall provide interim draft annual financial
statements (inclusive of subsequent periods, until year end statements are
delivered) within thirty (30) days of each year end.
9.9 Officers' Certificates. The Borrower shall cause the
Borrower's President and Chief Financial Officer respectively to provide such
Person's Certificate with those monthly, quarterly, and annual statements to be
furnished pursuant to this Agreement, which Certificate shall:
(a) Indicate that the subject statement was prepared in accordance
with GAAP consistently applied, and presents fairly the financial condition of
the Borrower at the close of,
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and the results of the Borrower's operations and cash flows for, the period(s)
covered, subject, however (with the exception of the Certificate which
accompanies such annual statement) to usual year end adjustments.
(b) Indicate either that (i) no Suspension Event has occurred or
(ii) if such an event has occurred, its nature (in reasonable detail) and the
steps (if any) being taken or contemplated by the Borrower to be taken on
account thereof.
(c) Include calculations concerning the Borrower's compliance (or
failure to comply) at the date of the subject statement with each of the
financial performance covenants included in Section 9.12, below.
(d) Indicate that all taxes (broken down by type and taxing
authority) have or have not been paid. (e) Indicate that all rent and additional
rent (broken down by store location) due pursuant to any store lease have or
have not been paid.
9.10 Inventories, Appraisals, and Audits.
(a) The Lender, at the expense of the Borrower, may participate in
and/or observe each physical count and/or inventory of so much of the Collateral
as consists of Inventory which is undertaken on behalf of the Borrower.
(b) Upon the Lender's request from time to time, the Borrower
shall obtain, or shall permit the Lender to obtain (in all events, at the
Borrower's expense) financial or SKU based physical counts and/or inventories of
the Collateral, conducted by such inventory takers as are satisfactory to the
Lender and following such methodology as may be required by the Lender, each of
which physical counts and/or financial or SKU based inventories shall be
observed by the Borrower's accountants. The Lender will require the Borrower to
conduct two (2) such counts and/or inventories during each twelve (12) month
period during which this Agreement is in effect, but in its discretion, may
undertake additional such counts or inventories during such period. The draft or
unaudited results of all inventories or counts shall be furnished to Lender
within five (5) business days of the taking of such inventories or counts.
(c) Upon the Lender's reasonable request from time to time, the
Borrower shall permit the Lender to obtain appraisals (in all events, at the
Borrower's expense) conducted by such appraisers as are satisfactory to the
Lender.
(d) The Lender contemplates conducting three (3) commercial
finance audits (in each event, at the Borrower's expense) of the Borrower's
books and records during any twelve (12) month period during which this
Agreement is in effect, but in its discretion, may undertake additional such
audits during such period.
(e) The Lender from time to time (in all events, at the Borrower's
expense) may undertake "mystery shopping" (so-called) visits to all or any of
the Borrower's business
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premises. The Lender shall provide the Borrower with a copy of any non-company
confidential results of such mystery shopping upon Borrower's written request.
9.11 Additional Financial Information.
(a) In addition to all other information required to be provided
pursuant to this Article 9, the Borrower promptly shall provide the Lender with
such other and additional information concerning the Borrower and any guarantor
of the Liabilities, the Collateral, the operation of the Borrower's business,
and the Borrower's financial condition, including original counterparts of
financial reports and statements, as the Lender may from time to time request
from the Borrower.
(b) The Borrower may provide the Lender, from time to time
hereafter, with updated Business Plans. In all events, the Borrower, not later
than sixty (60) days prior to the end of each of the Borrower's fiscal years,
shall furnish the Lender with an updated and extended Business Plan which shall
go out at least through the end of the then next fiscal year and the final
Business Plan within fifteen (15) days of the end of Borrower's fiscal year. In
each event, such updated and extended Business Plans shall be prepared pursuant
to a methodology and shall include such assumptions as are satisfactory to the
Lender. Routinely throughout the year, the Lender, following the receipt of any
of such revised forecast which reflects material adverse business performance,
may, but shall not be under any obligation to, revise the financial performance
covenants included on EXHIBIT 9.12, annexed hereto.
9.12 Financial Performance Covenants. The Borrower shall observe and
comply with those financial performance covenants set forth on EXHIBIT 9.12(a),
annexed hereto, certain of which covenants are based on the Business Plan set
forth on EXHIBIT 9.12(b), annexed hereto.
9.13 Electronic Reporting. At Lender's option all information and reports
required to be substituted to Lender by Borrower shall be transmitted
electronically pursuant to an electronic transmitting reporting system and shall
be in a record layout format designated by Lender from time to time.
ARTICLE 10. EVENTS OF DEFAULT
The occurrence of any event described in this Article 10 respectively
shall constitute an "Event of Default" herein. Upon the occurrence of any Event
of Default described in Section 10-11, any and all Liabilities shall become due
and payable without any further act on the part of the Lender. Upon the
occurrence of any other Event of Default, any and all Liabilities shall become
immediately due and payable, at the option of the Lender and without notice or
demand. The occurrence of any Event of Default shall also constitute, without
notice or demand, a default under all other agreements between the Lender and
the Borrower and instruments and papers given the Lender by the Borrower,
whether such agreements, instruments, or papers now exist or hereafter arise.
10.1 Failure to Pay Revolving Credit. The failure by the Borrower to pay
any amount when due and payable or when declared due and payable under the
Revolving Credit.
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10.2 Failure To Make Other Payments. The failure by the Borrower to pay
when due (or upon demand, if payable on demand) any payment Liability other
than under the Revolving Credit.
10.3 Failure to Perform Covenant or Liability (No Grace Period). The
failure by the Borrower to promptly, punctually, faithfully and timely perform,
discharge, or comply with any covenant or Liability not otherwise described in
section 10.1 or section 10.2, above, and included in any of the following
provisions hereof:
Section Relates to:
------- ----------
5-4 Location of Collateral
5-5 Title to Assets
5-6 Indebtedness
5-7 Insurance Policies
5-12 Pay Taxes
5-21 Affiliate Transactions
5-23 Additional Assurances
Article 7 Cash Management
Article 9 Financial Reporting Requirements and
Financial Covenants
10.4 Failure to Perform Covenant or Liability (Grace Period). The
failure by the Borrower to promptly, punctually and faithfully perform, or
observe any term, covenant or agreement on its part to be performed or observed
pursuant to any of the provisions of this Agreement, other than those described
in Sections 10.1, 10.2 or 10.3, or in any other agreement with Lender which is
not remedied within the earlier of ten (10) days after (i) notice thereof by
Lender to Borrower, or (ii) the date Borrower was required to give notice to
Lender pursuant to Section 9.3(a)(vi) hereof.
10.5 Misrepresentation. The determination by the Lender that any
representation or warranty at any time made by the Borrower to the Lender, was
not true or complete in all material respects when given.
10.6 Acceleration of Other Debt Breach of Lease. The occurrence of any
event such that any Indebtedness of the Borrower to any creditor other than the
Lender could be accelerated or, without the consent of the Borrower, any Lease
could be terminated (whether or not the subject creditor or lessor takes any
action on account of such occurrence).
10.7 Default Under Other Agreements. The occurrence of any breach or
default under any agreement between the Lender and the Borrower or instrument or
paper given the Lender by the Borrower, whether such agreement, instrument, or
paper now exists or hereafter arises (notwithstanding that the Lender may not
have exercised its rights upon default under any such other agreement,
instrument or paper).
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10.8 Casualty Loss, Non-Ordinary Course Sales. The occurrence of any (a)
uninsured loss, theft, damage, or destruction of or to any material portion of
the Collateral, or (b) sale (other than sales in the ordinary course of
business) of any material portion of the Collateral.
10.9 Judgment, Restraint of Business.
(a) The service of process upon the Lender or any Participant
seeking to attach, by trustee, mesne, or other process, any of the Borrower's
funds on deposit with, or assets of the Borrower in the possession of, the
Lender or such Participant.
(b) The entry of any judgment against the Borrower, which judgment
is not satisfied (if a money judgment) or appealed from (with execution or
similar process stayed) within fifteen (15) days of its entry.
(c) The entry of any order or the imposition of any other process
having the force of law, the effect of which is to restrain in any material way
the conduct by the Borrower of its business in the ordinary course.
10.10 Business Failure. Except for the Proceedings, any act by, against,
or relating to the Borrower, or its property or assets, which act constitutes
the application for, consent to, or sufferance of the appointment of a receiver,
trustee, or other person, pursuant to court action or otherwise, over all, or
any part of the Borrower's property; the granting of any trust mortgage or
execution of an assignment for the benefit of the creditors of the Borrower, or
the occurrence of any other voluntary or involuntary liquidation or extension of
debt agreement for the Borrower; or the offering by or entering into by the
Borrower of any composition, extension, or any other arrangement seeking relief
from or extension of the debts of the Borrower, or the initiation of any other
judicial or non-judicial proceeding or agreement by, against, or including the
Borrower which seeks or intends to accomplish a reorganization or arrangement
with creditors.
10.11 Bankruptcy. Except in connection with the Proceedings, the failure
by the Borrower to generally pay the debts of the Borrower as they mature; the
filing of any complaint, application or petition by or against the Borrower
initiating any matter in which the Borrower is or may be granted any relief from
the debts of the Borrower pursuant to the Bankruptcy Code or any other
insolvency statute or procedure.
10.12 Insecurity. The occurrence of any event or circumstance with respect
to the Borrower such that Lender shall believe in good faith that the prospect
of payment of all or any part of the Liabilities or the performance by the
Borrower under this Agreement or any other agreement between the Lender and the
Borrower is impaired or there shall occur any Material Adverse Change.
10.13 Default by Guarantor or Related Entity. Intentionally omitted.
10.14 Indictment - Forfeiture. The indictment of, or institution of any
legal process or proceeding against, the Borrower, any Executive Officer or any
guarantor of the liabilities under any federal, state, municipal, and other
civil or criminal statute, rule, regulation, order, or other requirement having
the force of law where the relief, penalties, or remedies sought or
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available include the forfeiture of any property of the Borrower and/or the
imposition of any stay or other order, the effect of which could be to restrain
in any material way the conduct by the Borrower of its business in the ordinary
course.
10.15 Termination of Guaranty. Intentionally omitted.
10.16 Challenge to Loan Documents.
(a) Any challenge by or on behalf of the Borrower or any guarantor
of the Liabilities to the validity of any Loan Document or the applicability or
enforceability of any Loan Document strictly in accordance with the subject Loan
Document's terms or which seeks to void, avoid, limit, or otherwise adversely
affect any security interest created by or in any Loan Document or any payment
made pursuant thereto.
(b) Any determination by any court or any other judicial or
government authority that any Loan Document is not enforceable strictly in
accordance with the subject Loan Document's terms or which voids, avoids,
limits, or otherwise adversely affects any security interest created by any Loan
Document or any payment made pursuant thereto.
10.17 Executive Management. Intentionally omitted.
10.18 Change in Control. Intentionally omitted.
10.19 Material Adverse Change. If there is a Material Adverse Change.
ARTICLE 11. RIGHTS AND REMEDIES UPON DEFAULT
In addition to all of the rights, remedies, powers, privileges, and
discretions which the Lender is provided prior to the occurrence of an Event of
Default, the Lender shall have the following rights and remedies upon the
occurrence of any Event of Default and at any time thereafter. No stay which
otherwise might be imposed pursuant to the Bankruptcy Code or otherwise shall
stay, limit, prevent, hinder, delay, restrict, or otherwise prevent the Lender's
exercise of any of such rights and remedies.
11.1 Rights of Enforcement. The Lender shall have all of the rights and
remedies of a secured party upon default under the UCC, in addition to which the
Lender shall have all and each of the following rights and remedies:
(a) To collect the Receivables Collateral with or without the
taking of possession of any of the Collateral.
(b) To take possession of all or any portion of the Collateral.
(c) To sell, lease, or otherwise dispose of any or all of the
Collateral, in its then condition or following such preparation or processing as
the Lender deems advisable and with or without the taking of possession of any
of the Collateral.
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(d) To conduct one or more going out of business sales which
include the sale or other disposition of the Collateral.
(e) To apply the Receivables Collateral or the proceeds of the
Collateral towards (but not necessarily in complete satisfaction of) the
Liabilities.
(f) To exercise all or any of the rights, remedies, powers,
privileges, and discretions under all or any of the Loan Documents.
11.2 Sale of Collateral.
(a) Any sale or other disposition of the Collateral may be at
public or private sale upon such terms and in such manner as the Lender deems
advisable, having due regard to compliance with any statute or regulation which
might affect, limit, or apply to the Lender's disposition of the Collateral.
(b) The Lender, in the exercise of the Lender's rights and
remedies upon default, may conduct one or more going out of business sales, in
the Lender's own right or by one or more agents and contractors. Such sale(s)
may be conducted upon any premises owned, leased, or occupied by the Borrower.
The Lender and any such agent or contractor, in conjunction with any such sale,
may augment the Inventory with other goods (all of which other goods shall
remain the sole property of the Lender or such agent or contractor). Any amounts
realized from the sale of such goods which constitute augmentations to the
Inventory (net of an allocable share of the costs and expenses incurred in their
disposition) shall be the sole property of the Lender or such agent or
contractor and neither the Borrower nor any Person claiming under or in right of
the Borrower shall have any interest therein.
(c) Unless the Collateral is perishable or threatens to decline
speedily in value, or is of a type customarily sold on a recognized market (in
which event the Lender shall provide the Borrower with such notice as may be
practicable under the circumstances), the Lender shall give the Borrower at
least five (5) days prior written notice of the date, time, and place of any
proposed public sale, and of the date after which any private sale or other
disposition of the Collateral may be made. The Borrower agrees that such written
notice shall satisfy all requirements for notice to the Borrower which are
imposed under the UCC or other applicable law with respect to the exercise of
the Lender's rights and remedies upon default.
(d) The Lender may purchase the Collateral, or any portion of it
at any sale held under this Article.
(e) The Lender shall apply the proceeds of any exercise of the
Lender's Rights and Remedies under this Article 11 towards the Liabilities in
such manner, and with such frequency, as the Lender determines.
11.3 Occupation of Business Location. In connection with the Lender's
exercise of the Lender's rights under this Article 11, the Lender may enter
upon, occupy, and use any premises owned or occupied by the Borrower, and may
exclude the Borrower from such premises or portion thereof as may have been so
entered upon, occupied, or used by the Lender . The Lender
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shall not be required to remove any of the Collateral from any such premises
upon the Lender's taking possession thereof, and may render any Collateral
unusable to the Borrower. In no event shall the Lender be liable to the Borrower
for use or occupancy by the Lender of any premises pursuant to this Article 11,
nor for any charge (such as wages for the Borrower's employees and utilities)
incurred in connection with the Lender's exercise of the Lender's Rights and
Remedies.
11.4 Grant of Nonexclusive License. The Borrower hereby grants to the
Lender a royalty free nonexclusive irrevocable license to use, apply, and affix
any trademark, trade name, logo, or the like in which the Borrower now or
hereafter has rights, such license being with respect to the Lender's exercise
of the rights hereunder including, without limitation, in connection with any
completion of the manufacture of Inventory or sale or other disposition of
Inventory.
11.5 Assembly of Collateral. The Lender may require the Borrower to
assemble the Collateral and make it available to the Lender at the Borrower's
sole risk and expense at a place or places which are reasonably convenient to
both the Lender and Borrower.
11.6 Rights and Remedies. The rights, remedies, powers, privileges, and
discretions of the Lender hereunder (herein, the "Lender's Rights and Remedies")
shall be cumulative and not exclusive of any rights or remedies which it would
otherwise have. No delay or omission by the Lender in exercising or enforcing
any of the Lender's Rights and Remedies shall operate as, or constitute, a
waiver thereof. No waiver by the Lender of any Event of Default or of any
default under any other agreement shall operate as a waiver of any other default
hereunder or under any other agreement. No single or partial exercise of any of
the Lender's Rights or Remedies, and no express or implied agreement or
transaction of whatever nature entered into between the Lender and any person,
at any time, shall preclude the other or further exercise of the Lender's Rights
and Remedies. No waiver by the Lender of any of the Lender's Rights and Remedies
on any one occasion shall be deemed a waiver on any subsequent occasion, nor
shall it be deemed a continuing waiver. All of the Lender's Rights and Remedies
and all of the Lender's rights, remedies, powers, privileges, and discretions
under any other agreement or transaction are cumulative, and not alternative or
exclusive, and may be exercised by the Lender at such time or times and in such
order of preference as the Lender in its sole discretion may determine. The
Lender's Rights and Remedies may be exercised without resort or regard to any
other source of satisfaction of the Liabilities.
ARTICLE 12. NOTICES
12.1 Notice Addresses. All notices, demands, and other communications
made in respect of this Agreement (other than a request for a loan or advance or
other financial accommodation under the Revolving Credit) shall be made to the
following addresses, each (if which may be changed upon seven (7) days written
notice to all others given by certified mail, return receipt requested:
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If to the Lender: Paragon Capital LLC
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, President
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Esq.
▇▇▇▇▇▇▇, ▇▇▇▇▇▇ & ▇▇▇▇▇▇, P.C.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Borrower: Crown Books Corporation
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇▇▇
Phone: (▇▇▇)▇▇▇-▇▇▇▇
Fax: (▇▇▇)▇▇▇-▇▇▇▇
With a copy to: Young Conway Stargatt & ▇▇▇▇▇▇, LLP
Eleventh Floor
▇▇▇▇▇▇ Square North
▇.▇. ▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: S. ▇▇▇▇▇ ▇▇▇▇▇▇, Esquire
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
12.2 Notice Given.
(a) Except as otherwise specifically provided herein, notices
shall be deemed made and correspondence received, as follows (all times being
local to the place of delivery or receipt):
(i) By mail: the sooner of when actually received or three
(3) days following deposit in the United States mail, postage prepaid.
(ii) By recognized overnight express delivery: the Banking
Day following the day when sent.
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(iii) By hand: If delivered on a Banking Day after 9:00 A.M.
and no later than three (3) hours prior to the close of customary business hours
of the recipient, when delivered. Otherwise, at the opening of the then next
Banking Day.
(iv) By facsimile transmission (which must include a header
indicated the party sending such transmission): If sent on a Banking Day after
9:00 A.M. and no later than Three (3) hours prior to the close of customary
business hours of the recipient, one (1) hour after being sent. Otherwise, at
the opening of the then next Banking Day.
(b) Rejection or refusal to accept delivery and inability to
deliver because of a changed address or facsimile number for which no due notice
was given shall each be deemed receipt of the notice sent.
ARTICLE 13. TERM
13.1 Termination of Revolving Credit. This Agreement is, and is intended
to be, a continuing agreement and shall remain in full force and effect for an
initial term ending on the Maturity Date, and thereafter for successive
one-month periods at the sole discretion of the Lender. Notwithstanding the
foregoing, this Agreement shall terminate upon (i) appointment of a Chapter 11
Trustee; (ii) conversion of Debtor's present Chapter 11 case to a Chapter 7
case; (iii) confirmation of a Chapter 11 plan; or (iv) the occurrence of an
"event of default" under the Borrowing Order. Lender may terminate this
Agreement immediately and without notice upon the occurrence of an Event of
Default. Notwithstanding the foregoing or anything in this Agreement or
elsewhere to the contrary, the security interest, Lender's rights and remedies
hereunder and Borrower's obligations and liabilities hereunder shall survive any
termination of this Agreement and shall remain in full force and effect until
all of the Liabilities outstanding, or contracted or committed for (whether or
not outstanding), before the receipt of such notice by Lender, and any
extensions or renewals thereof (whether made before or after receipt of such
notice), together with interest accruing thereon after such notice, shall be
finally and irrevocably paid in full. No Collateral shall be released or
financing statement terminated until such final and irrevocable payment in full
of the Liabilities, as described in the preceding sentence.
13.2 Effect of Termination. Upon the termination of Revolving Credit, the
Borrower shall pay the Lender (whether or not then due), in immediately
available funds, all then Liabilities including, without limitation: the entire
balance of the Loan Account; any then remaining installments of the Commitment
Fee; any then remaining balance of the Loan Maintenance Fee; any accrued and
unpaid Unused Line Fee; and all unreimbursed costs and expenses of the Lender
for which the Borrower is responsible, and shall make such arrangements
concerning any L/C's then outstanding are reasonably satisfactory to the Lender.
Until such payment, all provisions of this Agreement, other than those contained
in Article I which place an obligation on the Lender to make any loans or
advances or to provide financial accommodations under the Revolving Credit or
otherwise, shall remain in full force and effect until all Liabilities shall
have been paid in full, The release by the Lender of the security interests
granted the Lender by the Borrower hereunder may be upon such conditions and
indemnifications as the Lender may require.
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ARTICLE 14. GENERAL
14.1 Protection of Collateral. The Lender has no duty as to the
collection or protection of the Collateral beyond the safe custody of such of
the Collateral as may come into the possession of the Lender and shall have no
duty as to the preservation of rights against prior parties or any other rights
pertaining thereto. The Lender may include reference to the Borrower (and may
utilize any logo or other distinctive symbol associated with the Borrower) in
connection with any advertising, promotion, or marketing undertaken by the
Lender.
14.2 Successors and Assigns. This Agreement shall be binding upon the
Borrower and the Borrower's representatives, successors, and assigns and shall
ensure to the benefit of the Lender and the Lender's successors and assigns
provided, however, no trustee or other fiduciary appointed with respect to the
Borrower shall have any rights hereunder. In the event that the Lender assigns
or transfers its rights under this Agreement, the assignee shall thereupon
succeed to and become vested with all rights, powers, privileges, and duties of
the Lender hereunder and the Lender shall thereupon be discharged and relieved
from its duties and obligations hereunder.
14.3 Severability. Any determination that any provision of this Agreement
or any application thereof is invalid, illegal, or unenforceable in any respect
in any instance shall not affect the validity, legality, or enforceability of
such provision in any other instance or the validity, legality, or
enforceability of any other provision of this Agreement.
14.4 Amendments, Course of Dealing.
(a) This Agreement and the other Loan Documents incorporate all
discussions and negotiations between the Borrower and the Lender, either express
or implied, concerning the matters included herein and in such other
instruments, any custom, usage, or course of dealings to the contrary
notwithstanding. No such discussions, negotiations, custom, usage, or course of
dealings shall limit, modify, or otherwise affect the provisions thereof. No
failure by the Lender to give notice to the Borrower of the Borrower's having
failed to observe and comply with any warranty or covenant included in any Loan
Document shall constitute a waiver of such warranty or covenant or the amendment
of the subject Loan Document. No change made by the Lender in the manner by
which Availability is determined shall obligate the Lender to continue to
determine Availability in that manner.
(b) The Borrower may undertake any action otherwise prohibited
hereby, and may omit to take any action otherwise required hereby, upon and with
the express prior written consent of the Lender. No consent, modification,
amendment, or waiver of any provision of any Loan Document shall be effective
unless executed in writing by or on behalf of the party to be charged with such
modification, amendment, or waiver (and if such party is the Lender, then by a
duly authorized officer thereof). Any modification, amendment, or waiver
provided by the Lender shall be in reliance upon all representations and
warranties theretofore made to the Lender by or on behalf of the Borrower (and
any guarantor, endorser, or surety of the Liabilities) and consequently may be
rescinded in the event that any of such representations or warranties was not
true and complete in all material respects when given.
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14.5 Power of Attorney. In connection with all powers of attorney
included in this Agreement, the Borrower hereby grants unto the Lender full
power to do any and all things necessary or appropriate in connection with the
exercise of such powers as fully and effectually as the Borrower might or could
do, hereby ratifying all that said attorney shall do or cause to be done by
virtue of this Agreement. No power of attorney set forth in this Agreement shall
be affected by any disability or incapacity suffered by the Borrower and each
shall survive the same. All powers conferred upon the Lender by this Agreement,
being coupled with an interest, shall be irrevocable until this Agreement is
terminated by a written instrument executed by a duly authorized officer of the
Lender.
14.6 Application of Proceeds. The proceeds of any collection, sale,
or disposition of the Collateral, or of any other payments received hereunder,
shall be applied towards the Liabilities in such order and manner as the Lender
determines in its sole discretion. The Borrower shall remain liable for any
deficiency remaining following such application.
14.7 Lender's Costs and Expenses. The Borrower shall pay on demand
all Costs of Collection and all reasonable expenses of the Lender and Lender's
participants in connection with the preparation, execution, and delivery of this
Agreement and of any other Loan Documents, whether now existing or hereafter
arising, and all other reasonable expenses which may be incurred by the Lender
in monitoring compliance with this Agreement and in connection with any
reasonable activity conducted in connection with Debtor's Chapter 11 proceedings
and in preparing or amending this Agreement and all other agreements,
instruments, and documents related thereto, or otherwise incurred with respect
to the Liabilities, including, without limiting the generality of the foregoing,
any counsel fees or expenses incurred in any bankruptcy or insolvency
proceedings. The Borrower specifically authorizes the Lender to pay all such
fees and expenses and in the Lender's discretion, to add such fees and expenses
to the Loan Account. Borrower shall be obligated, from time to time, to pay
Lender's fees, including reasonable attorneys' fees and expenses for the
preparation, negotiation, amendment and interpretation of this Agreement and
related documents.
14.8 Copies and Facsimiles. This Agreement and all documents which
relate thereto, which have been or may be hereinafter furnished the Lender may
be reproduced by the Lender by any photographic, microfilm, xerographic, digital
imaging, or other process, and the Lender may destroy any document so
reproduced. Any such reproduction shall be admissible in evidence as the
original itself in any judicial or administrative proceeding (whether or not the
original is in existence and whether or not such reproduction was made in the
regular course of business). Any facsimile which bears proof of transmission
shall be binding on the party which or on whose behalf such transmission was
initiated and likewise shall be so admissible in evidence as if the original of
such facsimile had been delivered to the party which or on whose behalf such
transmission was received.
14.9 Massachusetts Law. This Agreement and all rights and
obligations hereunder, including matters of construction, validity, and
performance, shall be governed by the laws of the Commonwealth of Massachusetts.
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14.10 Consent to Jurisdiction.
(a) The Borrower agrees that any legal action, proceeding, case,
or controversy against the Borrower with respect to any Loan Document may be
brought in the United States Bankruptcy Court, District of Delaware, sitting in
Wilmington, Delaware. By execution and delivery of this Agreement, the Borrower,
for itself and in respect of its property, accepts, submits, and consents
generally and unconditionally, to the jurisdiction of the aforesaid court.
(b) The Borrower agrees that any action commenced by the Borrower
asserting any claim or counterclaim arising under or in connection with this
Agreement or any other Loan Document shall be brought solely in the in the
United States Bankruptcy Court, District of Delaware, sitting in Wilmington,
Delaware, and that such court shall have exclusive jurisdiction with respect to
any such action.
14.11 Indemnification. The Borrower shall indemnify, defend, and hold the
Lender and any employee, officer, Participant or agent of the Lender (each, an
"Indemnified Person") harmless (to the fullest extent permitted by law) of and
from any and all claims, demands, suits, actions, investigations, proceedings,
and damages brought or threatened against any Indemnified Person by the
Borrower, any guarantor or endorser of the Liabilities, or any other Person (as
well as from attorneys' reasonable fees and expenses in connection therewith) on
account of the relationship of the Borrower or of any guarantor or endorser of
the Liabilities (each of which claims may be defended, compromised, settled, or
pursued by the Indemnified Person with counsel of the Lender's selection, but at
the expense of the Borrower) other than any claim as to which a final
determination is made in a judicial proceeding (in which the Lender and any
other Indemnified Person has had an opportunity to be heard), which
determination includes a specific finding that the Indemnified Person seeking
indemnification had acted in a grossly negligent manner or in actual bad faith.
This indemnification shall survive payment of the Liabilities and/or any
termination, release, or discharge executed by the Lender in favor of the
Borrower.
14.12 Right of Set-Off. Any and all deposits or other sums at any time
credited by or due to the undersigned from the Lender or from any participant (a
"Participant") with the Lender in the credit facility contemplated hereby and
any cash, securities, instruments or other property of the undersigned in the
possession of the Lender or any Participant, whether for safekeeping or
otherwise (regardless of the reason such Person had received the same) shall at
all times constitute security for all Liabilities and for any and all
obligations of the undersigned to the Lender and any Participant, and may be
applied or set off against the Liabilities and against such obligations at any
time, whether or not such are then due and whether or not other collateral is
then available to the Lender or any Participant.
14.13 Maximum Interest Rate. Regardless of any provision of any Loan
Document, the Lender shall never be entitled to contract for, charge, receive,
collect, or apply as interest on any Liability, any amount in excess of the
maximum rate imposed by applicable law. Any payment which is made which, if
treated as interest on a Liability would result in such interest's exceeding
such maximum rate shall be held, to the extent of such excess, as additional
collateral for the Liabilities as if such excess were "Collateral."
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14.14 Usury Savings Clause. It is the intention of the parties hereto to
comply strictly with applicable usury laws, if any; accordingly, notwithstanding
any provisions to the contrary in this Agreement or any other Loan Documents, in
no event shall this Agreement or such Loan Document require or permit the
payment, taking, reserving, receiving, collecting or charging of any sums
constituting interest under applicable laws which exceed the maximum amount
permitted by such laws. If any such excess interest is called for, contracted
for, charged, paid, taken, reserved, collected or received in connection with
the Liabilities or in any communication by Lender or any other person to the
Borrower or any other person, or in the event all or part of the principal of
the Liabilities or interest thereon shall be prepaid or accelerated, so that
under any of such circumstances or under any other circumstance whatsoever the
amount of interest contracted for, charged, taken, collected, reserved, or
received on the amount of principal actually outstanding from time to time under
this Agreement shall exceed the maximum amount of interest permitted by
applicable usury laws, if any, then in any such event it is agreed as follows:
(i) the provisions of this paragraph shall govern, and control, (ii) neither the
Borrower nor any other person or entity now or hereafter liable for the payment
of the Liabilities shall be obligated to pay the amount of such interest to the
extent such interest is in excess of the maximum amount of interest permitted by
applicable usury laws, if any, (iii) any such excess which is or has been
received notwithstanding this paragraph shall be credited against the then
unpaid principal balance hereof or, if the Liabilities have been or would be
paid in full by such credit, refunded to the Borrower, and (iv) the provisions
of this Agreement and the other Loan Documents, and any communication to the
Borrower, shall immediately be deemed reformed and such excess interest reduced,
without the necessity of executing any other document, to the maximum lawful
rate allowed under applicable laws as now or hereafter construed by courts
having jurisdiction hereof or thereof. Without limiting the foregoing, all
calculations of the rate of interest contracted for, charged, taken, collected,
reserved, or received in connection herewith which are made for the purpose of
determining whether such rate exceeds the maximum lawful rate shall be made to
the extent permitted by applicable laws by amortizing, prorating, allocating and
spreading during the period of the full term of the Liabilities, including all
prior and subsequent renewals and extensions, all interest at any time
contracted for, charged, taken, collected, reserved or received. The terms of
this paragraph shall be deemed to be incorporated in every Loan Document and
communication relating to the Liabilities.
14.15 Waivers.
(a) The Borrower makes each of the waivers included in Section
14.15(b), below, knowingly, voluntarily, and intentionally, and understands that
the Lender, in entering into the financial arrangements contemplated hereby and
in providing loans and other financial accommodations to or for the account of
the Borrower as provided herein, whether not or in the future, is relying on
such waivers.
(b) THE BORROWER WAIVES THE FOLLOWING.
(i) Except as otherwise specifically required in this
Agreement, notice of non-payment, demand, presentment, protest and all forms of
demand and notice, both with respect to the Liabilities and the Collateral.
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(ii) Except as otherwise specifically required in this
Agreement, the right to notice and/or hearing prior to the Lender's exercising
of the Lender's rights upon default.
(iii) THE RIGHT TO A JURY IN ANY TRIAL OF ANY CASE OR
CONTROVERSY IN WHICH THE LENDER IS OR BECOMES A PARTY (WHETHER SUCH CASE OR
CONTROVERSY IS INITIATED BY OR AGAINST THE LENDER OR IN WHICH THE LENDER IS
JOINED AS A PARTY LITIGANT), WHICH CASE OR CONTROVERSY ARISES OUT OF OR IS IN
RESPECT OF, ANY RELATIONSHIP AMONGST OR BETWEEN THE BORROWER OR ANY OTHER PERSON
AND THE LENDER (AND THE LENDER LIKEWISE WAIVES THE RIGHT TO A JURY IN ANY TRIAL
OF ANY SUCH CASE OR CONTROVERSY).
(iv) The benefits or availability of any stay, limitation,
hindrance, delay, or restriction (including, without limitation, any automatic
stay which otherwise might be imposed pursuant to Section 362 of the Bankruptcy
Code) with respect to any action which the Lender may or may become entitled to
take hereunder or under any Borrowing Order.
(v) Any defense, counterclaim, set-off, recoupment, or other
basis on which the amount of any Liability, as stated on the books and records
of the Lender, could be reduced or claimed to be paid otherwise than in
accordance with the tenor of and written terms of such Liability.
(vi) Any claim to consequential, special, or punitive
damages.
14.16 Confidentiality. Intentionally omitted.
14.17 Right to Publish Notice. Lender may, at Lender's discretion and
expense, publicize or otherwise advertise by so-called "tombstone" advertising
or otherwise Lender's and Participant's financing transaction with the Borrower.
14.18 Entities Related to Lender. Borrower acknowledges notice that Lender
is affiliated with The Ozer Group, LLC ("Ozer"). Ozer and other entities related
to Lender may, from time to time act as a merchant consultant or provide other
services to Lender with respect to Borrower.
14.19 Credit Inquiries. Borrower authorized Lender to (provided, however,
Lender shall incur no liability for the failure to) respond to credit inquiries
concerning Borrower in accordance with Lender's normal and customary practices.
Borrower hereby indemnifies and holds Lender harmless for any action taken by
Lender in reliance upon the foregoing authorization.
ARTICLE 15. DEBTOR IN POSSESSION PROVISIONS
15.1 Definitions. The following definitions shall be added to Exhibit 3
hereof:
"Bankruptcy Court": shall mean the United States District Court for the
District of Delaware.
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"Borrowing Order" shall mean each of the Interim Financing Order,
Permanent Financing Order and other orders relating thereto authorizing, inter
alia, the granting of credit by Lender to Debtor on an emergency, interim,
permanent or final basis pursuant to Section 364 of the Bankruptcy Code, as may
be entered by the Bankruptcy Court in the Proceedings. In all respects, all
Borrowing Orders must be satisfactory to Lender and Lender's counsel.
"Interim Borrowing Order" shall have the meaning ascribed to that term in
Section 15.2(c) hereof.
"Permanent Borrowing Order" shall have the meaning ascribed to that term
in Section 15.2(d) hereof.
"Plan" shall mean any plan of reorganization filed by the Borrower in the
Proceedings.
"Proceedings" The cases, pursuant to Chapter 11 of the Bankruptcy Code,
initiated on July __, 1998 by the Borrower in the Bankruptcy Court, Docket Nos.
98-________ through ________.
15.2 Conditions Precedent. The following are added as Section 4.10 of the
Loan and Security Agreement:
4.10. Further Conditions.
(a) No trustee or examiner, receiver or the like shall have been
appointed or designated in the Proceedings with respect to the Borrower or its
respective businesses, properties or assets, and no motion shall be pending
seeking such relief.
(b) There shall have been entered in the Proceedings a Borrowing
Order, which shall be in full force and effect and shall not have been vacated,
reversed, stayed, modified or appealed in any respect.
(c) Debtor shall comply in full with the notice and other
requirements of the Bankruptcy Code and any applicable Bankruptcy Rules with
respect to any relevant Borrowing Order in a manner reasonably acceptable to
Lender and its counsel, and an Interim Borrowing Order shall have been entered
by the Bankruptcy Court (the "Interim Borrowing Order") authorizing the secured
financing hereunder on the terms and conditions set forth herein, and, inter
alia, modifying the automatic stay authorizing and granting the senior security
interests and liens in favor of Lender with respect to all obligations due to
Lender. The Interim Borrowing Order shall authorize financing herewith for a
period not to exceed _________ (__) days in an amount acceptable to Lender in
its sole discretion, and shall contain such other terms and provisions as Lender
and its counsel shall reasonably require.
(d) With respect to further credit after expiration of the Interim
Borrowing Order on or before the expiration of the Interim Borrowing Order, the
Bankruptcy Court shall have entered a Permanent Borrowing order authorizing the
secured financing hereunder on the terms and conditions set forth herein
granting to Lender the senior security interests and liens described above and
super-priority administrative expense claim status described above (except as
otherwise specifically provided in the Interim Borrowing Order), modifying the
automatic stay and other provisions required by Lender and its counsel (the
"Permanent Borrowing
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Order"). Lender shall not provide any loans (or other financial accommodation)
other than those authorized under the Interim Borrowing Order unless, on or
before the day following the Petition Date, a Permanent Borrowing Order or other
Borrowing Order reasonably acceptable to Lender, shall have been entered.
15.3 Use and Collection of collateral. With notice to Lender and Lender's
opportunity to participate in any proceedings regarding the same, Borrower may
consent to the return of any item of Collateral pursuant to Section 546(h)(a/k/a
the Second Section 546(g)) of the Bankruptcy Code.
15.4 Events of Default. The following shall be added to Article 10
hereof:
10-19. Failure to Comply. Any Debtor shall fail to comply or shall
default in the performance of any term of the Borrowing Order;
10-20. Changes in Borrowing Order . The Bankruptcy Court or any
other court with jurisdiction in the matter shall enter an order modifying,
reversing, revoking, staying, rescinding, vacating, or amending any Borrowing
Order or any of the other Loan Documents, without Lender's express prior written
consent (and no such consent shall be implied from any other action, inaction,
or acquiescence of Lenders) or any Debtor shall make a motion or application to
do so (except following Lenders' priority written request);
10-21. Filing of Plan of Reorganization. Any person shall file a
plan of reorganization in the Proceedings which does not provide for the full
and final repayment of all of the Borrowers' Liabilities upon the effectiveness
of such plan, unless Lender has joined in or consented to such plan in writing;
10-22. Approval of Senior Claims or Liens. Any motion or application
is filed in Proceedings which seeks approval for or allowance of any claim,
lien, security interest ranking equal or senior in priority to the claims, liens
and security interests of Lenders under any Borrowing Order or the other Loan
Documents (and in the case of such motion or application filed by any Person
other than the Debtors, such motion or application is not dismissed by order of
the Bankruptcy Court within 10 days after it is filed), or any such equal or
prior claim, lien, or security interest shall be established in any manner,
except in either case, as expressly permitted under any Borrowing Order or the
other Loan Documents.
10-23. Termination of Lenders' Security Interests. Except for
expiration or termination in accordance with any Borrowing Order or the terms of
the other Loan Documents, any of the Loan Documents or any lien or security
interest of Lenders created thereunder shall cease for any reason to be in full
force and effect or to have the priority provided in the Interim Borrowing
Order, or any motion or application shall be filed or adversary proceeding
commenced in the Proceedings to challenge the validity, enforceability,
perfection or priority of any of the Loan Documents or any of such liens and
security interests (and in the case of any such motion, application, or
proceeding filed or commenced by any Person other than Debtors, such motion,
application or proceeding is not dismissed by order of the Bankruptcy Court
within 10 days after it is filed or commenced);
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10-24. Interim Borrowing Order. The Interim Borrowing Order shall
cease to be in full force and effect and the Permanent Borrowing Order shall not
have been entered by the Bankruptcy Court prior to such cessation; or
10-25. Permanent Borrowing Order. The Bankruptcy Court shall not
have entered the Permanent Borrowing Order on or before ______, 1998, or the
Permanent Borrowing Order shall cease to be in full force and effect from and
after the date of entry thereof by the Bankruptcy Court.
10-26. Appointment of Trustee or Examiner. The appointment in the
Proceedings of a trustee or any other fiduciary for any Debtor or any property
of any of Debtor's estates of any examiner having expanded powers to operate all
or any part of the Borrower's business.
10.27. Dismissal or Conversion of Case. The entry of an order
dismissing the Proceedings or converting any of the Borrower's cases to a case
under Chapter 7 of the Bankruptcy Code.
10-28. Relief from Stay. The entry of an order which provides relief
from the automatic stay otherwise imposed pursuant to Section 362 of the
Bankruptcy Code, which order permits any creditor, other than the Lender, to
realize upon, or to exercise any right or remedy with respect to, any asset of
the Borrower or to terminate any license, franchise, or similar agreement, where
such termination could have a material adverse effect on the Borrower's
financial condition or ability to conduct its business in the ordinary course.
ARTICLE 16. JOINT AND SEVERAL LIABILITY
16.1 Joint and Several Liability. (a) Each of the Borrowers shall be
jointly and severally liable with the other Borrowers for the Liabilities, and
each of the Liabilities shall be secured by all of the Collateral. Each of the
Borrowers acknowledges that it is a co-borrower hereunder and is jointly and
severally liable under this Agreement and the other Loan Documents. All
financial accommodations extended to any of the Borrowers or requested by any of
the Borrowers shall be deemed to be financial accommodations extended for each
of the Borrowers, and each of the Borrowers hereby authorizes each other of the
Borrowers to effectuate borrowings on its behalf Notwithstanding anything to the
contrary contained in this Agreement or any of the other Loan Documents, the
Lender shall be entitled to rely upon any request, notice or other communication
received by it from any of the Borrowers on behalf of Borrowers, and shall be
entitled to treat their giving of any notice hereunder to any of the Borrowers
as notice to each and all of the Borrowers.
(b) Each of the Borrowers agrees that the joint and several
liability of the Borrowers provided in this Article 16 shall not be impaired or
affected by any modification, supplement, extension or amendment or any contract
or agreement to which the other Borrowers may hereafter agree (other than an
agreement signed by the Lender specifically releasing such liability), nor by
any delay, extension of time, renewal, compromise or other indulgence granted by
Lender with respect to any of the Liabilities, nor by any Person, each of the
Borrowers hereby waiving all notice of such delay, extension, release,
substitution, renewal, compromise or other indulgence, and hereby consenting to
be bound thereby as fully and effectually as if it had expressly agreed thereto
in advance. The liability of each of the Borrowers is direct and
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unconditional as to all of the Liabilities, and may be enforced without
requiring Lender first to resort to any other right, remedy or security. Each of
the Borrowers hereby expressly waives promptness, diligence, notice of
acceptance and any other notice with respect to any of the Liabilities, the
Master Note, the Commitment Fee, this Agreement or any other Loan Document and
any requirement that Lender protect, secure, perfect or insure any Lien or any
property subject thereto or exhaust any right to take or any action against any
of the Borrowers or any other Person or any Collateral.
(c) Each of the Borrowers hereby irrevocably waives and releases
each of the other Borrowers from all "claims" (as defined in Section 101(5) of
the Bankruptcy Code) to which such Borrowers are or would be entitled by virtue
of the provisions of subsection (b), above, or the performance of such
Borrower's obligations thereunder including, without limitation, any right of
subrogation (whether contractual, under Section 509 of the Bankruptcy Code or
otherwise), reimbursement, contribution, exoneration or similar right, or
indemnity, or any right of recourse to security for any of the Liabilities.
ARTICLE 17. CO-LENDING
17.1 Co-Lending. Notwithstanding that Paragon and Foothill are defined as
"the Lender" hereunder, Paragon shall have the exclusive right to carry out the
provisions of the Loan Agreement on Paragon's behalf and as Foothill's agent, to
enforce and collect the Loans and exercise and enforce all rights and privileges
accruing to the Lender by reason of any other agreements, security, guarantees
or claims given to Lender in connection with the Loan Agreement, all in
accordance with Paragon's sole discretion and the exercise of Paragon's business
judgment. Foothill shall undertake no action to enforce or collect the Loans or
to exercise and enforce any rights and privileges accruing to the Lender without
Paragon's express written consent.
Executed as a sealed instrument this 15th day of July, 1998.
CROWN BOOKS CORPORATION,
Debtor-in-Possession (BORROWER)
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇
-----------------------------------------
Print Name: ▇▇▇▇ ▇▇▇▇▇▇▇▇
-------------------------------
Print Title: President and COO
------------------------------
CROWN BOOKS EAST CORPORATION,
Debtor-in-Possession (BORROWER)
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇
-----------------------------------------
Print Name: ▇▇▇▇ ▇▇▇▇▇▇▇▇
-------------------------------
Print Title: President and COO
------------------------------
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CROWN BOOKS WEST CORPORATION,
Debtor-in-Possession (BORROWER)
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇
-----------------------------------------
Print Name: ▇▇▇▇ ▇▇▇▇▇▇▇▇
-------------------------------
Print Title: President and COO
------------------------------
CROWN BOOKS NATIONAL CORPORATION,
Debtor-in-Possession (BORROWER)
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇
-----------------------------------------
Print Name: ▇▇▇▇ ▇▇▇▇▇▇▇▇
-------------------------------
Print Title: President and COO
------------------------------
SUPER CROWN BOOKS CORPORATION,
Debtor-in-Possession (BORROWER)
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇
-----------------------------------------
Print Name: ▇▇▇▇ ▇▇▇▇▇▇▇▇
-------------------------------
Print Title: President and COO
------------------------------
CROWN DHC CORPORATION,
Debtor-in-Possession (BORROWER)
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇
-----------------------------------------
Print Name: ▇▇▇▇ ▇▇▇▇▇▇▇▇
-------------------------------
Print Title: President and COO
------------------------------
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FOOTHILL CAPITAL CORPORATION,
(LENDER)
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇
-----------------------------------------
Print Name: ▇▇▇▇▇ ▇▇▇▇▇
-------------------------------
Print Title: Vice President
------------------------------
PARAGON CAPITAL LLC
(LENDER)
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
-----------------------------------------
Print Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
-------------------------------
Print Title: Chief Credit Officer, EVP
------------------------------
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EXHIBIT 3
DEFINITIONS
"ACCEPTABLE INVENTORY": Such of the Borrower's Inventory, at such
locations, and of such types, character, qualities and quantities, (net of
Inventory Reserves) as the Lender in its sole discretion from time to time
determines to be acceptable for borrowing, as to which Inventory, the Lender has
a perfected security interest which is prior and superior to all security
interests, claims, and Encumbrances, provided however, during the period of the
Interim DIP Facility only, Inventory excluded from Acceptable Inventory shall be
the lesser of one (1%) percent of Inventory at Cost and those amounts as
determined by Lender according to its usual credit practices.
"ACCOUNT DEBTOR": Has the meaning given that term in the UCC.
"ACCOUNTS RECEIVABLE" include, without limitation, "accounts" as defined
in the UCC.
"ACH": Automated clearing house.
"AFFILIATE": With respect to any two Persons, a relationship in which (a)
one holds, directly or indirectly, not less than twenty-five (25%) percent of
the capital stock,, beneficial interests, partnership interests, or other equity
interests of the other; or (b) one has, directly or indirectly, Control of the
other; or (c) not less than twenty-five (25%) percent of their respective
ownership is directly or indirectly held by the same third Person.
"ANNUAL FACILITY FEE": Is defined in Section 1.9(a).
"AVAILABILITY": Means that amount available for loans and advances as
calculated by the Lender based upon the lending formula set forth in Section
1.1(b).
"AVAILABILITY RESERVES": Such reserves as the Lender from time to time
determines in the Lender's discretion as being appropriate to reflect the
impediments to the Lender's ability to realize upon the Collateral. Without
limiting the generality of the foregoing, Availability Reserves may include (but
are not limited to) reserves based on the following:
(a) Rent (based upon past due rent and/or whether or not
Landlord's Waiver, acceptable to the Lender, has been received by the
Lender
(b) In store customer credits and gift certificates.
(c) Payables (based upon payables which are past due normal trade
terms).
(d) Frequent Shopper Programs.
(e) Layaway and Customer Deposits.
(f) Taxes and other governmental charges, including, ad valorem,
personal property, and other taxes which may have priority over the
security interests of the Lender in the Collateral.
"AVERAGE UNUSED PORTION OF CREDIT LIMIT": means, as of any date of
determination, (a) the Credit Limit, less (b) the sum of (i) the average daily
balance of advances that were
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outstanding during the immediately preceding month, plus, (ii) the average daily
balance of the undrawn Letters of Credit outstanding during the immediately
preceding month.
"BANKING DAY": Any day other than (a) a Saturday, Sunday; (b) any day on
which banks in Boston, Massachusetts generally are not open to the general
public for the purpose of conducting commercial banking business; or (c) a day
on which the Lender is not open to the general public to conduct business.
"BANKRUPTCY CODE": Title 11, U.S.C., as amended from time to time.
"BASE": The Base Rate announced from time to time by Norwest Bank
Minnesota, National Association (or any successor in interest to Norwest Bank
Minnesota, National Association). In the event that said bank (or any such
successor) ceases to announce such a rate, "Base" shall refer to that rate or
index announced or published from time to time as the Lender, in good faith,
designates as the functional equivalent to said Base Rate. Any change in "Base"
shall be effective, for purposes of the calculation of interest due hereunder,
when such change is made effective generally by the bank on whose rate or index
"Base" is being set.
"BASIS POINT(S)": An amount which is equal to 1/100th of one (1%) percent.
For. example, one and one-half (1.5%) percent equals 150 basis points.
"BORROWER": Is defined in the Preamble.
"BORROWING BASE": Means up to forty (40%) percent of Cost of Acceptable
Inventory, minus (i) the then unpaid principal balance of the Loan Account,
minus (ii) the then aggregate of such Reserves as may have been established by
Lender, minus (iii) the then outstanding Stated Amount of all L/C's.
"BUSINESS PLAN": The Borrower's business plan annexed hereto as EXHIBIT
9.12(b) and any revision, amendment, or update of such business plan to which
the Lender has provided its written sign-off.
"CAPITAL EXPENDITURES": The expenditure of funds or the inCurrence of
liabilities which may be capitalized in accordance with GAAP.
"CAPITAL LEASE": Any lease which may be capitalized in accordance with
GAAP.
"CENTRAL ACCOUNT": Defined in Section 7.3.
"CHATTEL PAPER": Has the meaning given that term in the UCC.
"COLLATERAL": Is defined in Section 2.1.
"COMMITMENT FEE": Is defined in Section 1.9(a).
"CONCENTRATION ACCOUNT": Is defined in Section 7.3.
"CONTROL": The direct or indirect power to direct or cause the direction
of the management and policies of another Person, whether through ownership of
voting securities, by contract, or otherwise. Included among such powers, with
respect to a corporation, are power to cause any of following: (a) the election
of a majority of its Board of Directors; (b) the issuance of additional shares
of its common stock; (c) the issuance and designation of rights and shares of
its preferred stock (if any); (d) the distribution and timing of dividends; (e)
the award of
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performance bonuses to its management; (f) the termination or severance of
officers or key employees; and (g) all or any similar matters.
"COST": The calculated cost of purchases, as determined from invoices
received by the Borrower, the Borrower's Purchase Journal or Stock Ledger, based
upon the Borrower's accounting practices, known to the Lender, which practices
are in effect on the date on which this Agreement was executed. "Cost" does not
include any inventory capitalization costs inclusive of advertising, but may
include other charges used in the Borrower's determination of cost of goods sold
and bringing goods to market, all within Lender's sole discretion and in
accordance with GAAP.
"COST FACTOR": The result of I minus the Borrower's then cumulative markup
percent derived from the Borrower's purchase journal on a rolling twelve (12)
month basis.
"COSTS OF COLLECTION" includes, without limitation, all attorneys'
reasonable fees and reasonable out-of-pocket expenses incurred by the Lender's
attorneys, and all reasonable costs incurred by the Lender in the administration
of the Liabilities and/or the Loan Documents, including, without limitation,
reasonable costs and expenses associated with travel on behalf of the Lender,
which costs and expenses are directly or indirectly related to or in respect of
the Lender's: administration and management of the Liabilities; negotiation,
documentation, and amendment of any Loan Document; or efforts to preserve,
protect, collect, or enforce the Collateral, the Liabilities, and/or the
Lender's Rights and Remedies and/or any of the Lender's rights and remedies
against or in respect of any guarantor or other person liable in respect of the
Liabilities (whether or not suit is instituted in connection with such efforts).
The Costs of Collection are Liabilities, and at the Lender's option may bear
interest at the highest post-default rate which the Lender may charge the
Borrower hereunder as if such had been lent, advanced, and credited by the
Lender to, or for the benefit of, the Borrower.
"CREDIT LIMIT": Means Forty Million Dollars ($40,000,000), minus (i) the
then unpaid principal balance of the Loan Account, minus (ii) the then aggregate
of such Reserves as may have been established by Lender, minus (iii) the then
outstanding Stated Amount of all L/C's.
"DDA": Any checking or other demand daily depository account maintained by
the Borrower.
"DULY AUTHORIZED PERSON": Means any individual authorized by the Borrower
to request loans or financial accommodations and/or sign reports to Lender.
"EMPLOYEE BENEFIT PLAN": As defined in ERISA.
"ENCUMBRANCE": Each of the following:
(a) security interest, mortgage, pledge, hypothecation, lien,
attachment, or charge of any kind (including any agreement to give any of
the foregoing); the interest of a lessor under a Capital Lease;
conditional sale or other title retention agreement; sale of accounts
receivable or chattel paper; or other arrangement pursuant to which any
Person is entitled to any preference or priority with respect to the
property or assets of another Person or the income or profits of such
other Person or which constitutes an interest in property to secure an
obligation; each of the foregoing whether consensual or nonconsensual and
whether arising by way of agreement, operation of law, legal process or
otherwise.
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(b) The filing of any financing statement under the UCC or
comparable law of any jurisdiction.
"END DATE": The date upon which both (a) all Liabilities have been paid in
full and (b) all obligations of the Lender to make loans and advances and to
provide other financial accommodations to the Borrower hereunder shall have been
irrevocably terminated.
"ENVIRONMENTAL LAWS": (a) Any and all federal, state, local or municipal
laws, rules, orders, regulations, statutes, ordinances, codes, decrees or
requirements which regulates or relates to, or imposes any standard of conduct
or liability on account of or in respect to environmental protection matters,
including, without limitation, Hazardous Materials, as is now or hereafter in
effect; and (b) the common law relating to damage to Persons or property from
Hazardous Materials.
"ERISA": The Employee Retirement Security Act of 1974, as amended.
"ERISA AFFILIATE": Any Person which is under common control with the
Borrower within the meaning of Section 4001 of ERISA or is part of a group which
includes the Borrower and which would be treated as a single employer under
Section 414 of the Internal Revenue Code of 1986, as amended.
"EVENTS OF DEFAULT": Is defined in Article 10.
"EXECUTIVE AGREEMENT": Any agreement or understanding (whether or not
written) to which the Borrower is a party or by which the Borrower may be bound,
which agreement or understanding relates to Executive Pay.
"EXECUTIVE OFFICER": Each of the Persons serving as an officer of Borrower
on July 15, 1998, and any other Person who (without regard to title) is the
successor to any of the foregoing or who exercises a substantial portion of the
authority being exercised, at the execution of this Agreement, by any of the
foregoing or a combination of the such authority of more than one of the
foregoing or who otherwise has Control of the Borrower.
"EXECUTIVE PAY": All salary, bonuses, and other value directly or
indirectly provided by or on behalf of the Borrower to or for the benefit of any
Executive Officer or any Affiliate, spouse, parent, or child of any Executive
Officer.
"FACILITY FEE": Is defined in Section 1.9(a).
"FUNDING ACCOUNT": Is defined in Section 7.3.
"GAAP": Principles which are consistent with those promulgated or adopted
by the Financial Accounting Standards Board and its predecessors (or successors)
in effect and applicable to that accounting period in respect of which reference
to GAAP is being made.
"GENERAL INTANGIBLES" includes, without limitation, "general intangibles"
as defined in the UCC; and also all: rights to payment for credit extended;
deposits; amounts due to the Borrower; credit memoranda in favor of the
Borrower; warranty claims; tax refunds and abatements; insurance refunds and
premium rebates; all Investment Property and all means and vehicles of
investment or hedging, including, without limitation, options, warrants, and
futures contracts; records; customer lists; telephone numbers; goodwill; causes
of action; judgments; payments under any settlement or other agreement; literary
rights; rights to performance; royalties; license and/or franchise fees; rights
of admission; licenses; franchises; license
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agreements, including all rights of the Borrower to enforce same; permits,
certificates of convenience and necessity, and similar rights granted by any
governmental authority; patents, patent applications, patents pending, and other
intellectual property; Internet addresses and domain names; developmental ideas
and concepts; proprietary processes; blueprints, drawings, designs, diagrams,
plans, reports, and charts; catalogs; manuals; technical data; computer software
programs (including the source and object codes therefor), computer records,
computer software, rights of access to computer record service bureaus, service
bureau computer contracts, and computer data; tapes, disks, semi-conductors
chips and printouts; trade secrets rights, copyrights, mask work rights and
interests, and derivative works and interests; user, technical reference, and
other manuals and materials; trade names, trademarks, service marks, and all
good will relating thereto; applications for registration of the foregoing; and
all other general intangible property of the Borrower in the nature of
intellectual property; proposals; cost estimates, and reproductions on paper, or
otherwise, of any and all concepts or ideas, and any matter related to, or
connected with, the design, development, manufacture, sale, marketing, leasing,
or use of any or all property produced, sold, or leased, by the Borrower or
credit extended or services performed, by the Borrower, whether intended for an
individual customer or the general business of the Borrower, or used or useful
in connection with research by the Borrower.
"GROSS MARGIN": With respect to the subject accounting period for which
being calculated, the following (determined in accordance with the cost method
of accounting):
Sales (Minus) Cost of Goods Sold
--------------------------------
Sales
"HAZARDOUS MATERIALS": Any (a) hazardous materials, hazardous waste,
hazardous or toxic substances, petroleum products, which (as to any of the
foregoing) are defined or regulated as a hazardous material in or under any
Environmental Law and (b) oil in any physical state.
"INDEBTEDNESS": All indebtedness and obligations of or assumed by any
Person on account of or in respect to any of the following:
(a) In respect of money borrowed (including any indebtedness which
is non-recourse to the credit of such Person but which is secured by an
Encumbrance on any asset of such Person) whether or not evidenced by a
promissory note, bond, debenture or other written obligation to pay money.
(b) For the payment of the purchase price of goods or services
deferred for more than thirty (30) days beyond then current trade terms
provided to such person by the supplier of such goods or services.
(c) In connection with any letter of credit or acceptance
transaction (including, without limitation, the face amount of all letters
of credit and acceptances issued for the account of such Person or
reimbursement on account of which such Person would be obligated).
(d) In connection with the sale or discount of accounts receivable
or chattel paper of such Person.
(e) On account of deposits or advances.
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(f) As lessee under Capital Leases.
"INDEBTEDNESS" of any Person shall also include:
(a) Indebtedness of others secured by an Encumbrance on any asset
of such Person, whether or not such Indebtedness is assumed by such
Person.
(b) Any guaranty, endorsement, suretyship or other undertaking
pursuant to which that Person may be liable on account of any obligation
of any third party.
(c) The Indebtedness of a partnership or joint venture in which
such Person is a general partner or joint venturer.
"INDEMNIFIED PERSON": Is defined in Section 14.11.
"INVENTORY": Includes, without limitation, "inventory" as defined in the
Uniform Commercial Code and including all goods, merchandise, raw materials,
goods and work in process, finished goods, and other tangible personal property
now owned or hereafter acquired and held for sale or lease or furnished or to be
furnished under contracts of service or used or consumed in Borrower's business.
"INVENTORY RESERVES": Such Reserves as may be established from time to
time by the Lender in the Lender's discretion with respect to the determination
of the saleability, at retail, of the Acceptable Inventory or which reflect such
other factors as affect the current Retail or market value of the Acceptable
Inventory. Without limiting the generality of the foregoing, Inventory Reserves
may include (but are not limited to) reserves based on the following:
(a) Obsolescence (determined based upon Inventory on hand beyond a
given number of days).
(b) Seasonality.
(c) Shrinkage.
(d) Imbalance.
(e) Change in Inventory character, composition or mix.
(f) Markdowns (both permanent and point of sale).
(g) Retail markons or markups inconsistent with prior period
practice and performance; current business plans; or advertising calendar
and planned advertising events.
"INVESTMENT PROPERTY": Has the meaning given that term in the Uniform
Commercial Code.
"ISSUER": The issuer of any L/C.
"L/C": Any letter of credit, the issuance of which is procured by the
Lender for the account of the Borrower and any acceptance made on account of
such letter.
"LANDLORD LIEN STATE": Any state or other jurisdiction under whose
statutory or common law the rights of a landlord in assets of that landlord's
tenant, for unpaid rent, may be senior to a perfected security interest in such
assets.
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"LEASE": Any lease or other agreement, no matter how styled or structured,
which the Borrower is entitled to the use or occupancy of any space.
"LEASEHOLD INTERESTS": shall mean the Borrower's leasehold estate or
interest in each of the properties at or upon which the Borrower conducts
business, offers any Inventory for sale, or maintains any of the Collateral,
whether or not for retail sale, together with Borrower's interest in any of the
improvements and fixtures located upon or appurtenant to each leasehold
interest.
"LENDER'S RIGHTS AND REMEDIES": Is defined in Section 11.6.
"LIABILITIES" (in the singular, "Liability") includes, without limitation,
all and each of the following, whether now existing or hereafter arising:
(a) Any and all direct and indirect liabilities, debts, and
obligations of the Borrower to the Lender, each of every kind, nature, and
description.
(b) Each obligation to repay any loan, advance, indebtedness,
note, obligation, overdraft, or amount now or hereafter owing by the
Borrower to the Lender (including all future advances whether or not made
pursuant to a commitment by the Lender), whether or not any of such are
liquidated, unliquidated, primary, secondary, secured, unsecured, direct,
indirect, absolute, contingent, or of any other type, nature, or
description, or by reason of any cause of action which the Lender may hold
against the Borrower.
(c) All notes and other obligations of the Borrower now or
hereafter assigned to or held by the Lender, each of every kind, nature,
and description.
(d) All interest, fees, and charges and other amounts which may be
charged by the Lender to the Borrower and/or which may be due from the
Borrower to the Lender from time to time.
(e) All costs and expenses incurred or paid by the Lender in
respect of any agreement between the Borrower and the Lender or instrument
furnished by the Borrower to the Lender (including, without limitation,
Costs of Collection, attorneys' reasonable fees, and all court and
litigation costs and expenses).
(f) Any and all covenants of the Borrower to or with the Lender
and any and all obligations of the Borrower to act or to refrain from
acting in accordance with any agreement between the Borrower and the
Lender or instrument furnished by the Borrower to the Lender.
"LOAN ACCOUNT": Is defined in Section 1.5.
"LOAN DOCUMENTS": This Agreement, each instrument and document executed
and/or delivered as contemplated by Article 4, and each other instrument or
document from time to time executed and/or delivered in connection with the
arrangements contemplated hereby, as each may be amended from time to time.
"LOCAL DDA": A depository account maintained by the Borrower, the only
contents of which may be transfers from the Funding Account and actually used
solely (i) for ▇▇▇▇▇ cash purposes; or (ii) for payroll.
"LOAN MAINTENANCE FEE": Is defined in Section 1.9(b).
"MASTER NOTE": Is defined in Section 1.6.
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"MATERIAL ADVERSE CHANGE": Means (a) a material adverse change in the
business, prospects, operations, results of operations, assets, liabilities or
condition (financial or otherwise) of Borrower, (b) the material impairment of
Borrower's ability to perform its obligations under the Loan Documents to which
it is a party or of Lender to enforce the Obligations or realize upon the
Collateral, (c) a material adverse effect on the value of the Collateral or the
amount that Lender would be likely to receive (after giving consideration to
delays in payment and costs of enforcement) in the liquidation of such
Collateral, or (d) a material impairment of the priority of Lender's liens with
respect to the Collateral.
"MATURITY DATE": August 17, 1998
"MAXIMUM LOAN EXPOSURE": The lesser, on any day, of the following, in each
instance determined net of the unpaid principal balance of the Loan Account on
that day: (a) the Borrowing Base, or (b) the Credit Limit.
"ONE TURN STATE": Any state or other jurisdiction under whose statutory or
common law the relative priority of the rights of a landlord in assets of that
landlord's tenant, for unpaid rent, vis a vis the rights of the holder of a
perfected security interest therein is dependent upon whether such security
interest arose prior or subsequent to the subject asset's coming onto the
demised premises.
"OVERADVANCE": Any amounts advanced hereunder which exceed Availability.
"PARTICIPANT": Is defined in Section 14.12.
"PERCENTAGE POINTS": The number of whole (and, if indicated, fractions (or
decimal equivalents) of) integers of a percentage referred to in a financial
performance covenant which consists of a ratio. For example, if a projected
ratio were fifty (50%) percent and the actual ratio turned out to be fifty-five
and 6/10 (55.6%) percent, the variance would be 5.6 Percentage Points.
"PERIODIC LOAN MAINTENANCE FEE": Is defined in Section 1.9(b).
"PERSON": Any natural person, and any corporation, limited liability
company, trust, partnership, joint venture, or other enterprise or entity.
"RECEIPTS": All cash, cash equivalents, checks, and credit card slips and
receipts as arise out of the sale of the Collateral.
"RECEIVABLES COLLATERAL": That portion of the Collateral which consists of
the Borrower's Accounts, Accounts Receivable, Contract Rights, General
Intangibles, Chattel Paper, Instruments, Investment Property, Documents of
Title, Documents, Securities, letters of credit for the benefit of the Borrower,
and bankers' acceptances held by the Borrower, and any rights to payment.
"RELATED ENTITY":
(a) Any corporation, limited liability company, trust,
partnership, joint venture, or other enterprise which: is a parent,
brother-sister, subsidiary, or affiliate, of the Borrower; could have such
enterprise's tax returns or financial statements consolidated with the
Borrower's; could be a member of the same controlled group of corporations
(within the meaning of Section 1563(a)(1), (2) and (3) of the Internal
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Revenue Code of 1986, as amended from time to time) of which the Borrower
is a member; Controls or is Controlled by the Borrower or by any Affiliate
of the Borrower.
(b) Any Affiliate.
"REQUIREMENT OF LAW": As to any Person:
(a)(i) All statutes, rules, regulations, orders, or other
requirements having the force of law and (ii) all court orders and
injunctions, arbitrator's decisions, and/or similar rulings, in each
instance ((i) and (ii)) of or by any federal, state, municipal, and other
governmental authority, or court, tribunal, panel, or other body which has
or claims jurisdiction over such Person, or any property of such Person,
or of any other Person for whose conduct such Person would be responsible.
(b) That Person's charter, certificate of incorporation, articles
of organization, and/or other organizational documents, as applicable; and
(c) that Person's by-laws and/or other instruments which deal with
corporate or similar governance, as applicable.
Without limiting the generality of the foregoing, "Requirement of Law"
includes all and singular the requirements of the Bankruptcy Code; all rules
adopted pursuant to the Bankruptcy Code or otherwise and applicable to the
Borrower and/or the Proceedings; the Borrowing Order; and all other orders or
rulings formally or informally entered in to the Proceedings or in any action or
proceeding which relates thereto.
"RESERVES": All (if any) Availability Reserves and Inventory Reserves.
"RETAIL": The Cost of Inventory divided by the Cost Factor.
"REVOLVING CREDIT": Is defined in Section 1.1.
"STATED AMOUNT": The maximum amount for which an L/C may be honored.
"SUSPENSION EVENT": Any occurrence, circumstance, or state of facts which
(a) is an Event of Default; or (b) would become an Event of Default if any
requisite notice were given and/or any requisite period of time were to run and
such occurrence, circumstance, or state of facts were not absolutely cured
within any applicable grace period.
"TERMINATION DATE": The earliest of (a) the Maturity Date; or (b) the
occurrence of any event described in Section 10.11; or (c) the Lender's notice
to the Borrower setting the Termination Date on account of the occurrence of any
Event of Default other than as described in Section 10.11.
"UCC": The Uniform Commercial Code as presently in effect in Massachusetts
(Mass. Gen. Laws, Ch. 106).
"YEAR 2000 COMPLIANT": means that Borrower's computer software programs
(whether used in Borrower's business or licensed by or to Borrower to or from
third parties) effectively process data including data fields requiring
references to dates on and after January 1, 2000 and have been designed not to
experience or produce invalid or incorrect results or abnormal software
operation related to or as a result of the occurrence of such dates.
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