LOAN AND SECURITY AGREEMENT
Dated as of January 13, ▇▇▇▇
▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇ BUSINESS CREDIT, INC.
AS THE LENDER
and
STROUDS, INC.
AS THE BORROWER
TABLE OF CONTENTS
DEFINITIONS 1
Account 1
Account Debtor 1
ACH Transactions 1
Adjusted Net Income (Loss) 1
Adjusted Tangible Assets 1
Affiliate 1
Anniversary Date 2
Availability 2
Bank 2
Borrowing 2
Business Day 2
Capital Adequacy Regulation 3
Capital Expenditures 3
Capital Lease 3
Closing Date 3
Code 3
Collateral 3
Contaminant 3
Conversion/Continuation Date 3
Debt 3
Default 4
Distribution 4
DOL 4
Dollar 4
Eligible Inventory 4
Environmental Laws 4
Environmental Lien 5
ERISA 5
ERISA Affiliate 5
ERISA Event 5
Event of Default 5
Financial Statements 5
Fiscal Year 5
Funding Date 5
GAAP 5
Guaranty 5
Intercompany Accounts 6
Interest Period 6
In-Transit Inventory 6
Inventory 6
IRS 7
Latest Projections 7
Letters of Credit 7
Letter of Credit Fee 7
LIBOR Interest Payment Date 7
LIBOR Interest Rate Determination Date 7
LIBOR Rate 7
Eurodollar Reserve Percentage 7
LIBOR 8
LIBOR Revolving Loan 8
Lien 8
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PAGE
Loans 8
Maximum Rate 8
Miscellaneous Deductions 8
Loan Documents 8
Multiemployer Plan 8
Notice of Borrowing 8
Notice of Conversion/Continuation 8
Obligations 9
Other Taxes 9
Participating Lender 9
Patent and Trademark Assignment 9
Payment Account 9
PBGC 9
Pension Plan 9
Permitted Liens 10
Person 10
Plan 10
Premises 10
Proceeds 11
Property 11
Proprietary Rights 11
Public Authority 11
Receivables 11
Reference Rate 11
Reference Rate Revolving Loans 12
Release 12
Reportable Event 12
Requirement of Law 12
Restricted Investment 12
Reversions 12
Revolving Loans 13
Security Interest 13
Slow Moving 13
Solvent 13
Stated Termination Date 13
Subsidiary 13
Supporting Letter of Credit 13
Swap Transactions 13
Taxes 13
Total Facility 13
UCC 13
Unused Line Fee 13
1.2 Accounting Terms 13
1.3 Other Terms 14
LOANS AND LETTERS OF CREDIT 14
2.1 Total Facility 14
2.2 Revolving Loans 14
2.3 Letters of Credit 15
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PAGE
INTEREST AND OTHER CHARGES 18
3.1 Interest 18
3.2 Conversion and Continuation Elections 19
3.3 Maximum Interest Rate 21
3.4 Letter of Credit Fee 21
PAYMENTS 21
4.1 Revolving Loans 21
4.2 Place and Form of Payments; Extension of Time 21
4.3 Application and Reversal of Payments 22
4.4 Indemnity for Returned Payments 22
LENDER'S BOOKS AND RECORDS; MONTHLY STATEMENTS 22
TAXES, YIELD PROTECTION AND ILLEGALITY 22
6.1 Taxes 22
6.2 Illegality 23
6.3 Increased Costs and Reduction of Return 24
6.4 Funding Losses 24
6.5 Inability to Determine Rates 25
6.6 Survival 25
COLLATERAL 25
7.1 Grant of Security Interest 25
7.2 Perfection and Protection of Security Interest 26
7.3 Location of Collateral 26
7.4 Title to, Liens on, and Sale and Use of Collateral 27
7.5 Appraisals 27
7.6 Access and Examination 27
7.7 Insurance 27
7.8 Collateral Reporting 28
7.9 Accounts 28
7.10 Collection of Accounts; Payments 29
7.11 Inventory 30
7.12 Documents, Instruments, and Chattel Paper 30
7.13 Right to Cure 30
7.14 Power of Attorney 30
7.15 Lender's Rights, Duties, and Liabilities 31
BOOKS AND RECORDS; FINANCIAL INFORMATION; NOTICES 31
8.1 Books and Records 31
8.2 Financial Information 32
8.3 Notices to Lender 33
GENERAL WARRANTIES AND REPRESENTATIONS 35
9.1 Authorization, Validity, and Enforceability of
this Agreement and the Loan Documents 35
9.2 Validity and Priority of Security Interest 35
9.3 Organization and Qualification 35
9.4 Corporate Name; Prior Transactions 36
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PAGE
9.5 Subsidiaries and Affiliates 36
9.6 Financial Statements and Projections 36
9.7 Capitalization 36
9.8 Solvency 37
9.9 Debt 37
9.10 Title to Property 37
9.11 Adequate Assets 37
9.12 Real Property; Leases 37
9.13 Proprietary Rights 37
9.14 Trade Names and Terms of Sale 37
9.15 Litigation 37
9.16 Restrictive Agreements 38
9.17 Labor Disputes 38
9.18 Environmental Laws 38
9.19 No Violation of Law 39
9.20 No Default 39
9.21 ERISA Compliance 40
9.22 Taxes 40
9.23 Use of Proceeds 40
9.24 Broker's Fees 41
9.25 No Material Adverse Change 41
9.26 Disclosure 41
AFFIRMATIVE AND NEGATIVE COVENANTS 41
10.1 Taxes and Other Obligations 41
10.2 Corporate Existence and Good Standing 41
10.3 Compliance with Law and Agreements 41
10.4 Maintenance of Property and Insurance 42
10.5 Environmental Laws 42
10.6 ERISA 42
10.7 Mergers, Consolidations, Acquisitions, or Sales 42
10.8 Distributions; Capital Changes 42
10.9 Transactions Affecting Collateral or Obligations 42
10.10 Guaranties 42
10.11 Debt 43
10.12 Prepayment 43
10.13 Transactions with Affiliates 43
10.14 Business Conducted 43
10.15 Liens 43
10.16 Sale and Leaseback Transactions 43
10.17 New Subsidiaries 43
10.18 Restricted Investments 43
10.19 Capital Expenditures 43
10.20 Adjusted Net Income (Loss) 44
10.21 Further Assurances 44
CLOSING; CONDITIONS TO CLOSING 44
11.1 Conditions Precedent to Making of Loans and
Issuance of Letters of Credit on the
Closing Date 44
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PAGE
Representations and Warranties; Covenants 44
Delivery of Document 44
Termination of Liens 45
Payment of Fees and Expenses 45
Required Approvals 45
No Material Adverse Change 45
Proceedings 45
Excess Availability 45
Projections 45
Third Party Facilities 45
11.2 Conditions Precedent to Each Loan 45
DEFAULT; REMEDIES 46
12.1 Events of Default 46
REMEDIES 48
TERM AND TERMINATION 49
MISCELLANEOUS 50
15.1 Cumulative Remedies; No Prior Recourse to
Collateral 50
15.2 No Implied Waivers 50
15.3 Severability 50
15.4 Governing Law 50
15.5 Consent to Jurisdiction and Venue; Service of
Process 50
15.6 Waiver of Jury Trial 51
15.7 Arbitration; Reference Proceeding 51
15.8 Survival of Representations and Warranties 52
15.9 Other Security and Guaranties 52
15.10 Fees and Expenses 52
15.11 Notices 53
15.12 Indemnification 53
15.13 Waiver of Notices 54
15.14 Binding Effect; Assignment 54
15.15 Modification 54
15.16 Counterparts 55
15.17 Captions 55
15.18 Right of Set-Off 55
15.19 Participating Lender's Security Interests 55
EXHIBITS
A - Form of Security Agreement (Intellectual Property)
B - Permitted Liens
C - Form of Bailee Agreements
D-1 - Financial Statements
D-2 - Projections
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SCHEDULES
7.3 - Location of Collateral, etc.
9.4 - Corporate Names; Prior Transactions
9.5 - Subsidiaries and Affiliates
9.12 - Real Property and Leases
9.13 - Proprietary Rights
9.14 - Trade Names and Styles
9.15 - Litigation
9.17 - Labor Disputes
vi
LOAN AND SECURITY AGREEMENT, dated as of January 13, 1997, by and
between BANKAMERICA BUSINESS CREDIT, INC., a Delaware corporation, with
offices at ▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ (the
"LENDER") and Strouds, Inc., a Delaware corporation, with offices at ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ of Industry, California 91748 (the "BORROWER").
WITNESSETH
WHEREAS, the Borrower has requested the Lender to make available
to the Borrower a revolving line of credit for loans and letters of credit in
an amount not to exceed $40,000,000.00, which extensions of credit the
Borrower will use to repay certain of its existing indebtedness to the Bank
and for its working capital needs and general business purposes;
NOW, THEREFORE, in consideration of the mutual conditions and
agreements set forth in this Agreement, and for good and valuable
consideration, the receipt of which is hereby acknowledged, the Borrower and
the Lender hereby agree as follows:
1. DEFINITIONS. As used herein:
"ACCOUNT" means the Borrower's right to payment for a sale or
lease and delivery of goods or rendition of services.
"ACCOUNT DEBTOR" means each Person obligated in any way on or in
connection with an Account.
"ACH TRANSACTIONS" means all debts, liabilities, and obligations
now or hereafter owing from the Borrower to the Bank arising from or related
to the automatic clearing house transfer of funds by the Bank for the account
of the Borrower pursuant to agreement or overdrafts.
"ADJUSTED NET INCOME (LOSS)" means, with respect to any fiscal
period of the Borrower, the Borrower's net income (loss) after provision for
income taxes for such fiscal period, as determined in accordance with GAAP and
reported on the Financial Statements for such period.
"ADJUSTED TANGIBLE ASSETS" means all of the Borrower's assets
except: (a) patents, copyrights, trademarks, trade names, franchises,
goodwill, and other similar intangibles; (b) Restricted Investments; (c)
unamortized debt discount and expense; (d) assets of the Borrower constituting
Intercompany Accounts; and (e) fixed assets to the extent of any write-up in
the book value thereof resulting from a revaluation effective after the
Closing Date.
"AFFILIATE" means: (a) a Person which, directly or indirectly,
controls, is controlled by or is under common control with, the Borrower; (b)
a Person which beneficially owns or holds, directly or indirectly, ten percent
or more of any class of voting stock of the Borrower; or (c) a Person in which
ten percent of any class of the voting stock is beneficially owned or held,
directly or indirectly, by the Borrower. The term "control" (including the
terms "controlled by" and "under common control with"), means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of the Person in question.
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"ANNIVERSARY DATE" means each anniversary of the Closing Date.
"AVAILABILITY" means at any time the lesser of:
(a) Forty Million and 00/100 Dollars ($40,000,000.00) (the
"MAXIMUM REVOLVING CREDIT LINE"); OR
(b) up to and including sixty percent (60%) of the value
of Eligible Inventory (PROVIDED that such percentage shall increase to 65%
during the period from and including January 1 to and including April 15 of
each year);
PROVIDED, HOWEVER, that at all times Availability shall be reduced by the sum
of:
(i) the unpaid principal balance of Revolving Loans
at that time;
(ii) the aggregate undrawn face amount of all
outstanding Letters of Credit which the Lender has caused to
be issued or obtained for the Borrower's account;
(iii) reserves for accrued interest on the Revolving
Loans;
(iv) reserves in Lender's reasonable discretion with
respect to Swap Transactions, with the amount thereof to be
at all times equal to the maximum exposure of the Bank;
(v) the reserves, if any, required pursuant to
SECTIONS 7.11 and 11.1(j) hereof; and
(vi) all other reserves which the Lender reasonably
deems necessary or desirable to maintain with respect to the
Borrower's account due to (a) events not anticipated by the
Lender as of the Closing Date, (b) impairment of the
Collateral or the Security Interest, (c) breaches of the
Borrower's obligations under this Agreement or (d) changes
in the Borrower's business practices, and including, without
limitation, with respect to any amounts which the Lender may
be obligated to pay in the future for the account of the
Borrower.
"BANK" means Bank of America National Trust and Savings
Association in San Francisco, California.
"BORROWING" means a borrowing hereunder consisting of Revolving
Loans by the Lender to the Borrower or the issuance of Letters of Credit
hereunder.
"BUSINESS DAY" means (a) any day that is not a Saturday, Sunday,
or a day on which banks in San Francisco, California, are required or
permitted to be closed, and (b) with respect to all notices, determinations,
2
fundings and payments in connection with the LIBOR Rate or LIBOR Revolving
Loans, any day that is a Business Day pursuant to clause (a) above and that is
also a day on which trading is carried on by and between banks in the London
interbank market.
"CAPITAL ADEQUACY REGULATION" means any guideline, request or
directive of any central bank or other Public Authority, or any other law,
rule or regulation, whether or not having the force of law, in each case,
regarding capital adequacy of any bank or of any corporation controlling a
bank.
"CAPITAL EXPENDITURES" means all payments due (whether or not
paid) during a Fiscal Year in respect of the cost of any fixed asset or
improvement, or replacement, substitution, or addition thereto, which has a
useful life of more than one year, including, without limitation, those
arising in connection with the direct or indirect acquisition of such assets
by way of increased product or service charges or offset items or in
connection with Capital Leases.
"CAPITAL LEASE" means any lease of Property by the Borrower that,
in accordance with GAAP, should be reflected as a liability on the balance
sheet of the Borrower.
"CLOSING DATE" means the date of this Agreement.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COLLATERAL" has the meaning given to such term in SECTION 7.1.
"CONTAMINANT" means any waste, pollutant, hazardous substance,
toxic substance, hazardous waste, special waste, petroleum or petroleum-
derived substance or waste, asbestos in any form or condition, polychlorinated
biphenyls ("PCBs"), or other substance or material, the handling, release, or
possession of which is regulated to protect health, safety, or the
environment, or any constituent of any such substance or waste.
"CONVERSION/CONTINUATION DATE" has the meaning given to such term
in Section 3.2(a).
"DEBT" means all liabilities, obligations and indebtedness of the
Borrower to any Person, of any kind or nature, now or hereafter owing,
arising, due or payable, howsoever evidenced, created, incurred, acquired or
owing, whether primary, secondary, direct, contingent, fixed or otherwise, and
including, without in any way limiting the generality of the foregoing: (c)
the Borrower's liabilities and obligations to trade creditors; (d) all
Obligations; (e) all obligations and liabilities of any Person secured by any
Lien on the Borrower's Property, even though the Borrower shall not have
assumed or become liable for the payment thereof; PROVIDED, HOWEVER, that all
such obligations and liabilities which are limited in recourse to such
Property shall be included in Debt only to the extent of the book value of
such Property as would be shown on a balance sheet of the Borrower prepared in
accordance with GAAP; (f) all obligations or liabilities created or arising
under any Capital Lease or conditional sale or other title retention agreement
3
with respect to Property used or acquired by the Borrower, even if the rights
and remedies of the lessor, seller or lender thereunder are limited to
repossession of such Property; PROVIDED, HOWEVER, that all such obligations
and liabilities which are limited in recourse to such Property shall be
included in Debt only to the extent of the book value of such Property as
would be shown on a balance sheet of the Borrower prepared in accordance with
GAAP; (g) all accrued pension fund and other employee benefit plan obligations
and liabilities; (h) all obligations and liabilities under Guaranties; and (i)
deferred taxes.
"DEFAULT" means any event or condition which, with notice, the
passage of time, the happening of any other condition or event, or any
combination thereof, would constitute an Event of Default.
"DISTRIBUTION" means, in respect of any corporation: (a) the
payment or making of any dividend or other distribution of Property in respect
of capital stock of such corporation, other than distributions in capital
stock of the same class; or (b) the redemption or other acquisition by such
corporation of any capital stock of such corporation.
"DOL" means the United States Department of Labor or any successor
department or agency.
"DOLLAR" means United States Dollars.
"ELIGIBLE INVENTORY" means Inventory, valued at the lower of cost
(on a first-in, first-out basis) or market, that constitutes first quality
finished goods and that: (a) is not, in
the Lender's reasonable opinion, Slow Moving; (b) is located at Premises owned
or leased by the Borrower or on Premises otherwise reasonably acceptable to
the Lender or is In-Transit Inventory, provided that 50% of the In-Transit
Inventory shall not be considered as Eligible Inventory; (c) is subject to the
Lender's first priority perfected security interest; (d) is not packaging and
shipping materials, supplies, ▇▇▇▇-and-hold Inventory, lay-away Inventory,
defective Inventory, or Inventory delivered to the Borrower on consignment;
and (e) the Lender, in the exercise of its reasonable discretion, deems
eligible as the basis for Revolving Loans based on such collateral and credit
criteria as the Lender may from time to time establish. The Eligible Inventory
shall be reduced by the amount from time to time of Miscellaneous Deductions.
If any Inventory at any time ceases to be Eligible Inventory, such Inventory
shall promptly be excluded from the calculation of Eligible Inventory.
"ENVIRONMENTAL LAWS" means all federal, state and local laws,
rules, regulations, ordinances, programs, permits, guidance, orders and
consent decrees relating to health, safety, hazardous substances, and
environmental matters applicable to the Borrower's business and facilities
(whether or not owned by it). Such laws and regulations include but are not
limited to the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901
et seq., as amended; the Comprehensive Environmental Response Compensation and
Liability Act, 42 U.S.C. Section 9601 et seq., as amended; the Toxic
Substances Control Act, 15 U.S.C. Section 2601 et seq., as amended; the Clean
Water Act, 33 U.S.C. Section 466 et seq., as amended; the Clean Air Act, 42
4
U.S.C. Section 7401 et seq., as amended; state and federal lien and
environmental cleanup programs; and U.S. Department of Transportation
regulations.
"ENVIRONMENTAL LIEN" means a Lien in favor of any Public Authority
for (a) any liability under any Environmental Laws, or (b) damages arising
from, or costs incurred by such Public Authority in response to, a Release or
threatened Release of a Contaminant into the environment.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"ERISA AFFILIATE" means any trade or business (whether or not
incorporated) under common control with the Borrower within the meaning of
Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for
purposes of provisions relating to Section 412 of the Code).
"ERISA EVENT" means, with respect to the Borrower, any ERISA
Affiliate or any Pension Plan, the occurrence of any of the following: (a) a
Reportable Event; (b) a withdrawal by a substantial employer (as defined in
Section 4001 (a)(12) of ERISA) subject to Section 4063 of ERISA; (c) a
cessation of
operations which is treated as a withdrawal under Section 4062(e) of ERISA;
(d) a complete or partial withdrawal under Section 4203 or 4205 of ERISA from
a Multiemployer Plan; (e) a notification that a Multiemployer Plan is in
reorganization under Section 4242 of ERISA; (f) the filing of a notice of
intent to terminate a Pension Plan under 4041 of ERISA; (g) the treatment of
an amendment of a Pension Plan as a termination under 4041 of ERISA; (h) the
termination of a Multiemployer Plan under Section 4041A of ERISA; (i) the
commencement of proceedings by the PBGC to terminate a Pension Plan under 4042
of ERISA; (j) an event or condition which could reasonably be expected to
constitute grounds under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, a Pension Plan; or (k) the imposition
of any liability under Title IV of ERISA, other than PBGC premiums due but not
delinquent under Section 4007 of ERISA.
"EVENT OF DEFAULT" has the meaning specified in SECTION 12.1.
"FINANCIAL STATEMENTS" means, according to the context in which it
is used, the financial statements attached hereto as EXHIBIT D-1, or any
financial statements required to be given to the Lender pursuant to SECTION
8.2(a), (b) and (c), or any combination thereof.
"FISCAL YEAR" means the Borrower's fiscal year for financial
accounting purposes. The current Fiscal Year of the Borrower will end on March
1, 1997.
"FUNDING DATE" means the date on which a Borrowing occurs.
"GAAP" means at any particular time generally accepted accounting
principles in the United States as in effect at such time.
"GUARANTY" by any Person means all obligations of such Person
which in any manner directly or indirectly guarantee or assure, or in effect
5
guarantee or assure, the payment or performance of any indebtedness, dividend
or other obligation of any other Person (the "guaranteed obligations"), or
assure or in effect assure the holder of the guaranteed obligations against
loss in respect thereof, including, without limitation, any such obligations
incurred through an agreement, contingent or otherwise: (a) to purchase the
guaranteed obligations or any Property constituting security therefor; (b) to
advance or supply funds for the purchase or payment of the guaranteed
obligations or to maintain a working capital or other balance sheet condition;
and (c) to lease Property or to purchase any debt or equity securities or
other Property or services.
"INTERCOMPANY ACCOUNTS" means all assets and liabilities, however
arising, which are due to the Borrower from, which are due from the Borrower
to, or which otherwise arise from any transaction by the Borrower with, any
Affiliate.
"INTEREST PERIOD" means, as to any LIBOR Revolving Loan, the
period commencing on the Funding Date of such Loan or on the
Conversion/Continuation Date on which the Loan is converted into or continued
as a LIBOR Revolving Loan, and ending on the date one week or one, two, three
or six months thereafter as selected by the Borrower in its Notice of
Borrowing or Notice of Conversion/Continuation; provided, however, that:
(i) if any Interest Period would otherwise
end on a day that is not a Business Day, that Interest
Period shall be extended to the following Business Day
unless the result of such extension would be to carry such
Interest Period into another calendar month, in which event
such Interest Period shall end on the preceding Business
Day;
(ii) any Interest Period pertaining to a LIBOR
Revolving Loan that begins on the last Business Day
of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the
end of such Interest Period) shall end on the last Business
Day of the calendar month at the end of such Interest
Period; and
(iii) no Interest Period shall extend beyond
the Stated Termination Date (unless this Agreement is
extended) or any renewal term.
"IN-TRANSIT INVENTORY" means Inventory (that is otherwise Eligible
Inventory) that is located in the United States but is temporarily not
situated at one of the Premises or any other location opened in the United
States after the Closing Date.
"INVENTORY" means all of the Borrower's now owned and hereafter
acquired inventory, goods, merchandise, and other personal property, wherever
located, to be furnished under any contract of service or held for sale or
lease, all raw materials, work-in-process, finished goods, returned goods, and
materials and supplies of any kind, nature or description which are or might
6
be used or consumed in the Borrower's business or used in connection with the
manufacture, packing, shipping, advertising, selling or finishing of such
goods, merchandise and such other personal property, and all documents of
title or other documents representing them, but shall exclude equipment,
fixtures and leasehold improvements.
"IRS" means the Internal Revenue Service or any successor agency.
"LATEST PROJECTIONS" means: (a) on the Closing Date and thereafter
until the Lender receives new projections pursuant to SECTION 8.2(f), the
projections of the Borrower's monthly financial condition, results of
operations, and cash flow for the one-year period ending February 28, 1998,
attached hereto as EXHIBIT D-2; and (b) thereafter, the projections most
recently received by the Lender pursuant to SECTION 8.2(f).
"LETTERS OF CREDIT" has the meaning specified in SECTION 2.3.
"LETTER OF CREDIT FEE" has the meaning specified in SECTION 3.4.
"LIBOR INTEREST PAYMENT DATE" means, with respect to a LIBOR
Revolving Loan, the last day of each Interest Period applicable to such Loan.
"LIBOR INTEREST RATE DETERMINATION DATE" means each date of
calculating the LIBOR Rate for purposes of determining the interest rate with
respect to an Interest Period. The LIBOR Interest Rate Determination Date for
any LIBOR Revolving Loan shall be the second Business Day prior to the first
day of the related Interest Period for such LIBOR Revolving Loan.
"LIBOR RATE" means, for any Interest Period, with respect to LIBOR
Revolving Loans comprising part of the same Borrowing, the rate of interest
per annum (rounded upward to the next 1/lOOOth of 1.0%) determined as follows:
LIBOR
LIBOR Rate = ----------------------------------------
1.00 - Eurodollar Reserve Percentage
Where,
"EURODOLLAR RESERVE PERCENTAGE" means for any
day for any Interest Period the maximum reserve
percentage (expressed as a decimal, rounded upward to
the next 1/lOOth of 1.0%) in effect on such day
(whether or not applicable to the Lender) under
regulations issued from time to time by the Federal
Reserve Board for determining the maximum reserve
requirement (including any emergency, supplemental
or other marginal reserve requirement) with respect
to Eurocurrency funding (currently referred to as
"Eurocurrency liabilities"); and
7
"LIBOR" means the rate of interest per annum
(expressed as a decimal, rounded upward to the next
1/100 of 1%) notified to the Lender by Bank as the
rate of interest at which United States Dollar
deposits in the approximate amount of the Loan to be
made or continued as, or converted into, a LIBOR
Revolving Loan and having a maturity comparable to
such Interest Period would be offered by Bank's
applicable lending office to major banks in the
London interbank market at their request at
approximately 11:00 a.m. (London time) two Business
Days prior to the commencement of such Interest
Period.
"LIBOR REVOLVING LOAN" means a Revolving Loan during any period in
which it bears interest based on the LIBOR Rate.
"LIEN" means: (a) any interest in Property securing an obligation
owed to, or a claim by, a Person other than the owner of the Property, whether
such interest is based on the common law, statute, or contract, and including
without limitation, a security interest, charge, claim, or lien arising from a
mortgage, deed of trust, encumbrance, pledge, hypothecation, assignment,
deposit arrangement, agreement, security agreement, conditional sale or trust
receipt or a lease, consignment or bailment for security purposes; and (b) to
the extent not included under clause (a), any reservation, exception,
encroachment, easement, right-of-way, covenant, condition, restriction, lease
or other title exception or encumbrance affecting Property.
"LOANS" means, collectively, all loans and advances provided for
in SECTION 2.
"MAXIMUM RATE" has the meaning specified in Section 3.3.
"MISCELLANEOUS DEDUCTIONS" means capitalized overhead, capitalized
distribution expenses, gift certificates, merchandise credits and similar
items.
"LOAN DOCUMENTS" means this Agreement, the Patent and Trademark
Assignment, and all other agreements, instruments, and documents heretofore,
now or hereafter evidencing, securing, guaranteeing or otherwise relating to
the Obligations, the Collateral, the Security Interest, or any other aspect of
the transactions contemplated by this Agreement.
"MULTIEMPLOYER PLAN" means a multiemployer plan as defined in
Section 4001(a)(3) of ERISA to which the Borrower or any ERISA Affiliate
makes, is making, made, or was at any time during the current year or the
immediately preceding six (6) years obligated to make contributions.
"NOTICE OF BORROWING" has the meaning specified in SECTION 2.2(b).
"NOTICE OF CONVERSION/CONTINUATION" has the meaning specified in
SECTION 3.2(b).
8
"OBLIGATIONS" means all present and future loans, advances,
liabilities, obligations, covenants, duties, and Debt owing by the Borrower to
the Lender under this Agreement, as amended, modified, continued or restated
from time to time, whether or not evidenced by any note, or other instrument
or document, whether arising from an extension of credit, opening of a letter
of credit, acceptance, loan, guaranty, indemnification or otherwise, whether
direct or indirect (including, without limitation, those acquired by
assignment from others, and any participation by the Lender in the Borrower's
debts owing to others), absolute or contingent, due or to become due, primary
or secondary, as principal or guarantor, and including, without limitation,
all interest, charges, expenses, fees, attorneys' fees, filing fees and any
other sums chargeable to the Borrower hereunder or under another Loan
Document. "OBLIGATIONS" includes, without limitation, (a) all debts,
liabilities, and obligations now or hereafter owing from Borrower to Lender
under or in connection with the Letters of Credit and (b) all debts,
liabilities and obligations now or hereafter owing from the Borrower to the
Lender arising from or related to ACH Transactions and Swap Transactions.
"OTHER TAXES" means any present or future stamp or documentary
taxes or any other excise or property taxes, charges or similar levies which
arise from any payment made hereunder or from the execution, delivery or
registration of, or otherwise with respect to, this Agreement or any other
Loan Documents, but excluding the Lender's income taxes or franchise taxes.
"PARTICIPATING LENDER" means any Person who shall have been
granted the right by the Lender to participate in the Loans and who shall have
entered into a participation agreement in form and substance satisfactory to
the Lender.
"PATENT AND TRADEMARK ASSIGNMENT" means, collectively, the
Security Agreement (Intellectual Property) dated as of the date hereof,
between the Borrower and the Lender, in substantially the form attached as
EXHIBIT A and the various documents and agreements executed in connection
therewith, all to further evidence and further perfect the Lender's Security
Interest in the Borrower's present and future Proprietary Rights specified
therein.
"PAYMENT ACCOUNT" means each blocked bank account or bank account
associated with a lock box, established pursuant to SECTION 7.10, to which the
funds of the Borrower (including, without limitation, Proceeds of Accounts and
other Collateral) are deposited or credited, and which is maintained in the
name of the Lender or the Borrower, as the Lender may reasonably determine, on
terms reasonably acceptable to the Lender.
"PBGC" means the Pension Benefit Guaranty Corporation or any
Person succeeding to the functions thereof.
"PENSION PLAN" means a pension plan (as defined in Section 3(2) of
ERISA) subject to Title IV of ERISA which the Borrower or an ERISA Affiliate
sponsors, maintains, or to which it makes, is making, or is obligated to make
contributions or, in the case of a Multiemployer Plan, has made contributions
at any time during the current year or the immediately preceding six (6) plan
years.
9
"PERMITTED LIENS" means: (a) Liens for taxes not yet delinquent or
Liens for taxes in an amount not to exceed $100,000 being contested in good
faith by appropriate proceedings diligently pursued, provided that a reserve
or other appropriate provision, if any, as shall be required by GAAP shall
have been made therefor on the applicable Financial Statements and that a stay
of enforcement of any such Lien is in effect; (b) Liens in favor of the
Lender; (c) Liens arising by operation of law in favor of warehousemen,
landlords, carriers, mechanics, materialmen, laborers, employees or suppliers,
incurred in the ordinary course of business of the Borrower and not in
connection with the borrowing of money, for sums not yet delinquent or which
are being contested in good faith and by proper proceedings diligently
pursued, provided that a reserve or other appropriate provision, if any,
required by GAAP shall have been made therefor on the applicable Financial
Statements and a stay of enforcement of any such Lien is in effect; (d) Liens
in connection with workers' compensation or other unemployment insurance
incurred in the ordinary course of the Borrower's business; (e) Liens created
by deposits of cash to secure performance of bids, tenders, leases, or trade
contracts, incurred in the ordinary course of business of the Borrower and not
in connection with the borrowing of money; (f) Liens arising by reason of cash
deposit for surety or appeal bonds in the ordinary course of business of the
Borrower; (g) Liens of or resulting from any judgment or award, the time for
the appeal or petition for rehearing of which has not yet expired, or in
respect of which the Borrower is in good faith prosecuting an appeal or
proceeding for a review, and in respect of which a stay of execution pending
such appeal or proceeding for review has been secured; (h) with respect to any
Premises: easements, rights of way, zoning and similar covenants and
restrictions and similar encumbrances which customarily exist on properties of
corporations engaged in similar activities and similarly situated and which in
any event do not materially interfere with or impair the use or operation of
the Collateral by the Borrower, or materially interfere with the ordinary
conduct of the business of the Borrower; (i) purchase money security interests
in equipment and liens of lessors under Capital Leases to the extent that the
acquisition or lease of the underlying asset was permitted under SECTION
10.19, the security interest or lien only encumbers the asset purchased or
leased, and so long as the security interest or lien only secures the purchase
price of the asset; and (j) such liens as are set forth on EXHIBIT B hereto.
"PERSON" means any individual, sole proprietorship, partnership,
joint venture, trust, unincorporated organization, limited liability company,
association, corporation, Public Authority, or any other entity.
"PLAN" means an employee benefit plan (as defined in Section 3(3)
of ERISA) which the Borrower or an ERISA Affiliate sponsors or maintains or to
which the Borrower or an ERISA Affiliate makes, is making, or is obligated to
make contributions and includes any Pension Plan.
"PREMISES" means the land identified by addresses on SCHEDULE 7.3
together with all buildings, improvements, and fixtures thereon and all
tenements, hereditaments, and appurtenances belonging or in any way
appertaining thereto, and which constitutes all of the real property in which
the Borrower has any interests on the Closing Date, and any land added to
Schedule 7.3 from time to time.
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"PROCEEDS" means all products and proceeds of any Collateral, and
all proceeds of such proceeds and products, including, without limitation, all
cash and credit balances, all payments under any indemnity, warranty, or
guaranty payable with respect to any Collateral, all awards for taking by
eminent domain, all proceeds of fire or other insurance, and all money and
other Property obtained as a result of any claims against third parties or any
legal action or proceeding with respect to Collateral.
"PROPERTY" means any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
"PROPRIETARY RIGHTS " means all of the Borrower's now owned and
hereafter arising or acquired: licenses, franchises, permits, patents, patent
rights, copyrights, works which are the subject matter of copyrights,
trademarks, trade names, trade styles, patent and trademark applications and
licenses and rights thereunder, including without limitation those patents,
trademarks and copyrights set forth on SCHEDULE 9.13, and all other rights
under any of the foregoing, all extensions, renewals, reissues, divisions,
continuations, and continuations-in-part of any of the foregoing, and all
rights to ▇▇▇ for past, present, and future infringement of any of the
foregoing; inventions, trade secrets, formulae, processes, compounds,
drawings, designs, blueprints, surveys, reports, manuals, and operating
standards; goodwill; customer and other lists in whatever form maintained; and
trade secret rights, copyright rights, rights in works of authorship, and
contract rights relating to computer software programs, in whatever form
created or maintained.
"PUBLIC AUTHORITY" means the government of any country or
sovereign state, or of any state, province, municipality, or other political
subdivision thereof, or any department, agency, public corporation or other
instrumentality of any of the foregoing.
"RECEIVABLES" means all of the Borrower's now owned and hereafter
arising or acquired: Accounts (whether or not earned by performance),
including Accounts owed to the Borrower by any of its Subsidiaries or
Affiliates and including Accounts arising from credit card sales, together
with all interest, late charges, penalties, collection fees, and other sums
which shall be due and payable in connection with any Account; proceeds of any
letters of credit naming the Borrower as beneficiary; contract rights, chattel
paper, instruments, documents, investment property, general intangibles
(including, without limitation, choses in action, causes of action, tax
refunds, tax refund claims, and Reversions and other amounts payable to the
Borrower from or with respect to any Plan) and all forms of obligations owing
to the Borrower (including, without limitation, in respect of loans, advances,
and extensions of credit by the Borrower to its Subsidiaries and Affiliates);
guarantees and other security for any of the foregoing; goods represented by
or the sale, lease or delivery of which gave rise to any of the foregoing;
merchandise returned to or repossessed by the Borrower and rights of stoppage
in transit, replevin, and reclamation; and other rights or remedies of an
unpaid vendor, lienor, or secured party.
"REFERENCE RATE" means the rate of interest publicly announced
from time to time by the Bank as its reference rate. It is a rate set by the
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Bank based upon various factors including the Bank's costs and desired return,
general economic conditions, and other factors, and is used as a reference
point for pricing some loans. However, the Bank may price loans at, above, or
below such announced rate. Any changes in the Reference Rate shall take effect
on the day specified in the public announcement of such change.
"REFERENCE RATE REVOLVING LOANS" means a Revolving Loan during any
period in which it bears interest based on the Reference Rate.
"RELEASE" means a release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, leaching or migration of a
Contaminant into the indoor or outdoor environment or into or out of any real
estate or other property, including the movement of Contaminants through or in
the air, soil, surface water, groundwater or real estate or other property.
"REPORTABLE EVENT" means any of the events set forth in Section
4043(b) of ERISA or the regulations thereunder, other than any such event for
which the 30-day notice requirement under ERISA has been waived in regulations
issued by the PBGC.
"REQUIREMENT OF LAW" means any law (statutory or common), treaty,
rule or regulation or determination of an arbitrator or of a Public Authority.
"RESTRICTED INVESTMENT" means any acquisition of Property by the
Borrower or any of its Subsidiaries in exchange for cash or other Property,
whether in the form of an acquisition of stock, debt security, or other
indebtedness or obligation, or the purchase or acquisition of any other
Property, or a loan, advance, capital contribution, or subscription, except
acquisitions of the following: (a) fixed assets to be used in the business of
the Borrower or its Subsidiaries, so long as the acquisition costs thereof
constitute Capital Expenditures permitted hereunder; (b) current assets
arising from the sale or lease of goods or rendition of services in the
ordinary course of business of the Borrower or its Subsidiaries; (c) direct
obligations of the United States of America, or any agency thereof, or
obligations guaranteed by the United States of America, provided that such
obligations mature within one year from the date of acquisition thereof; (d)
certificates of deposit maturing within one year from the date of acquisition,
bankers acceptances, Eurodollar bank deposits, or overnight bank deposits, in
each case issued by, created by, or with a bank or trust company organized
under the laws of the United States or any state thereof having capital and
surplus aggregating at least $100,000,000; (e) commercial paper given the
highest rating by a national credit rating agency and maturing not more than
270 days from the date of creation thereof; (f) shares of any money market
mutual fund that (i) has at least 95% of its assets invested continuously in
the types of investments referred to in clauses (c) and (d) above, (ii) has
net assets of not less than $500,000,000, and (iii) has the highest rating
obtainable from either Standard & Poor's Ratings Group or ▇▇▇▇▇'▇ Investors
Service, Inc.; and (g) repurchase agreements with respect to, and which are
fully secured by a perfected security interest in, obligations of a type
described in clause (c) above and are with any bank or trust company described
in clause (d) above.
"REVERSIONS" means any funds which may become due to the Borrower
in connection with the termination of any Plan or other employee benefit plan.
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"REVOLVING LOANS" has the meaning specified in Section 2.2.
"SECURITY INTEREST" means collectively the Liens granted to the
Lender in the Collateral pursuant to this Agreement, the other Loan Documents,
or any other agreement or instrument entered into in connection with any of
the Loan Documents.
"SLOW MOVING" means, with respect to Inventory of Borrower, any
Inventory for which there has been no order activity during the prior six (6)
months and, based on the last twelve (12) months' sales activity, is projected
not to sell within the next twelve (12) months. Slow Moving Inventory shall be
calculated after each audit.
"SOLVENT" shall mean when used with respect to any Person that:
(a) the fair value of all its Property is in excess of the total amount of its
debts (including the probable amount of contingent liabilities); (b) it is
able to pay its debts as they mature; and (c) it does not have unreasonably
small capital for the business in which it is engaged or for any business or
transaction in which it is about to engage.
"STATED TERMINATION DATE" has the meaning specified in SECTION 14.
"SUBSIDIARY" of a Person means any corporation, association,
partnership, joint venture or other business entity of which more than 50% of
the voting stock or other equity interests (in the case of Persons other than
corporations), is owned or controlled directly or indirectly by the Person, or
one or more of the Subsidiaries of the Person, or a combination thereof.
Unless the context otherwise clearly requires, references herein to a
"Subsidiary" refer to a Subsidiary of the Borrower.
"SUPPORTING LETTER OF CREDIT" has the meaning specified in Section
2.3(f)(3).
"SWAP TRANSACTIONS" means interest rate swaps entered into by the
Bank for the account of or otherwise for the benefit of the Borrower.
"TAXES" means any and all present or future taxes, assessments,
levies, imposts, impositions, deductions, charges or withholdings, and all
liabilities with respect thereto, excluding, in the case of the Lender, such
taxes (including income taxes or franchise taxes) as are imposed on or
measured by the Lender's net income by the jurisdiction (or any political
subdivision thereof under the laws of which the Lender is organized or
maintains a lending of office.
"TOTAL FACILITY" has the meaning specified in SECTION 2.1.
"UCC" means the Uniform Commercial Code (or any successor statute)
of the State of California or of any other state the laws of which are
required by Section 9103 thereof to be applied in connection with the issue of
perfection of security interests.
"UNUSED LINE FEE" has the meaning specified in SECTION 3.1(c).
1.2 ACCOUNTING TERMS. Any accounting term used in
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this Agreement shall have, unless otherwise specifically provided herein, the
meaning customarily given in accordance with GAAP, and all financial
computations hereunder shall be computed, unless otherwise specifically
provided herein, in accordance with GAAP as consistently applied and using the
same method for inventory valuation as used in the preparation of the
Financial Statements.
1.3 OTHER TERMS. All other undefined terms contained in this
Agreement shall, unless the context indicates otherwise, have the meanings
provided for by the UCC to the extent the same are used or defined therein.
Wherever appropriate in the context, terms used herein in the singular also
include the plural, and VICE VERSA, and each masculine, feminine, or neuter
pronoun shall also include the other genders. Unless the contrary is expressly
stated, all references to times shall be to Los Angeles time.
2. LOANS AND LETTERS OF CREDIT.
2.1 TOTAL FACILITY. Subject to all of the terms and conditions
of this Agreement, the Lender shall make available a total credit facility of
up to $40,000,000.00 (the "TOTAL FACILITY") for the Borrower's use from time
to time during the term of this Agreement. The Total Facility shall be
comprised of a revolving line of credit up to the limits of the Availability,
consisting of revolving loans and letters of credit as described in SECTIONS
2.2 and 2.3.
2.2 REVOLVING LOANS.
(a) The Lender shall, upon the Borrower's request from
time to time, make revolving loans (the "REVOLVING LOANS") to the Borrower up
to the limits of the Availability. The Lender, in its discretion, may elect to
exceed the limits of the Availability on one or more occasions, but if it does
so, the Lender shall not be deemed thereby to have changed the limits of the
Availability or to be obligated to exceed the limits of the Availability on
any other occasion. If the unpaid balance of the Revolving Loans exceeds the
Availability (with Availability determined for this purpose as if the amount
of the Revolving Loans were zero), then the Lender may refuse to make or
otherwise restrict Revolving Loans on such terms as the Lender determines
until such excess has been eliminated. The Borrower may request Revolving
Loans either telephonically or in writing (if in writing, pursuant to clause
(b), below). Each oral request for a Revolving Loan shall be conclusively
presumed to be made by a person authorized by the Borrower to do so and the
crediting of a Revolving Loan to the Borrower's deposit account, or
transmittal to such Person as the Borrower shall direct, shall conclusively
establish the obligation of the Borrower to repay such Revolving Loan as
provided herein. The Lender will charge all Revolving Loans and other
Obligations to a loan account of the Borrower maintained with the Lender. All
fees, commissions, costs, expenses, and other charges under or pursuant to the
Loan Documents, and all payments made and out-of-pocket expenses incurred by
the Lender pursuant to the Loan Documents, will be charged as Revolving Loans
to the Borrower's loan account as of the date due from the Borrower or the
date paid or incurred by the Lender, as the case may be.
(b) PROCEDURE FOR BORROWING.
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(i) Each Borrowing shall be made upon the Borrower's
irrevocable written notice ("NOTICE OF BORROWING") delivered to the Lender
(which notice must be received by the Lender (i) prior to 10:30 a.m. two
Business Days prior to the requested Funding Date, in the case of LIBOR
Revolving Loans and (ii) prior to 11:00 a.m. on the requested Funding Date, in
the case of Reference Rate Revolving Loans), specifying:
(A) the amount of the Borrowing;
(B) the requested Funding Date, which shall be a
Business Day;
(C) whether the Revolving Loans requested are to be
Reference Rate Revolving Loans or LIBOR Revolving Loans or a combination
thereof; and
(D) the duration of the Interest Period if all or
part of the requested Revolving Loans are to be LIBOR Revolving Loans. If the
Notice of Borrowing fails to specify the duration of the Interest Period for
any Borrowing comprised of LIBOR Revolving Loans, such Interest Period shall
be one week.
(ii) After giving effect to any Borrowing, there may
not be more than four (4) different Interest Periods in effect.
(iii) With respect to any request for Reference Rate
Revolving Loans, in lieu of delivering the above-described Notice of
Borrowing, the Borrower may give the Lender telephonic notice of such request
by the required time.
2.3 LETTERS OF CREDIT.
(a) Subject to the terms and conditions of this Agreement,
the Lender shall, upon the Borrower's request from time to time, cause
merchandise or standby letters of credit to be issued for the Borrower's
account (the "LETTERS OF CREDIT"). The Lender will not cause to be issued any
Letter of Credit if: (i) the maximum face amount of the requested Letter of
Credit, plus the aggregate undrawn face amount of all outstanding Letters of
Credit, would exceed $6,000,000; (ii) the maximum face amount of the requested
Letter of Credit, and all commissions, fees, and charges due from Borrower to
Lender in connection with the issuance thereof, would cause the Availability
to be exceeded at such time; or (iii) the expiration date of the Letter of
Credit would exceed the Stated Termination Date or any renewal term or be
greater than twelve (12) months from the date of issuance. All payments made
and expenses incurred by the Lender pursuant to or in connection with the
Letters of Credit will be charged to the Borrower's loan account as Revolving
Loans.
(b) OTHER CONDITIONS. In addition to being subject to the
satisfaction of the applicable conditions precedent contained in SECTION 11,
the obligation of the Lender to cause to be issued any Letter of Credit is
subject to the following conditions precedent having been satisfied or waived
by Lender:
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(1) The Borrower shall have delivered to the
proposed issuer of such Letter of Credit, at such times and in such manner as
such proposed issuer may prescribe, an application in form and substance
satisfactory to such proposed issuer and the Lender for the issuance of the
Letter of Credit and such other documents as may be required pursuant to the
terms thereof, and the form and terms of the proposed Letter of Credit shall
be satisfactory to the Lender and such proposed issuer; and
(2) As of the date of issuance, no order of any
court, arbitrator or Public Authority shall purport by its terms to enjoin or
restrain the issuer of the proposed Letter of Credit from issuing letters of
credit of the type and in the amount of the proposed Letter of Credit, and no
law, rule or regulation applicable to money center banks generally and no
request or directive (whether or not having the force of law) from any Public
Authority with jurisdiction over money center banks generally shall prohibit,
or request that the proposed issuer of such Letter of Credit refrain from, the
issuance of letters of credit generally or the issuance of such Letters of
Credit.
(c) ISSUANCE OF LETTERS OF CREDIT.
(1) REQUEST FOR ISSUANCE. The Borrower shall give
the Lender two (2) Business Days' prior written notice of the Borrower's
request for the issuance of a Letter of Credit. Such notice shall be
irrevocable and shall specify the original face amount of the Letter of Credit
requested, the effective date (which date shall be a Business Day) of issuance
of such requested Letter of Credit, whether such Letter of Credit may be drawn
in a single or in partial draws, the date on which such requested Letter of
Credit is to expire (which date shall be a Business Day), the purpose for
which such Letter of Credit is to be issued, and the beneficiary of the
requested Letter of Credit. The Borrower shall attach to such notice the
proposed form of the Letter of Credit that the Lender is requested to cause to
be issued.
(2) NO EXTENSIONS OR AMENDMENT. The Lender shall not
be obligated to cause any Letter of Credit to be extended or amended unless
the requirements of this SECTION 2.3 are met as though a new Letter of Credit
were being requested and issued.
(d) PAYMENTS PURSUANT TO LETTERS OF CREDIT.
(1) PAYMENT OF LETTER OF CREDIT OBLIGATIONS. The
Borrower agrees to reimburse the issuer for any draw under any Letter of
Credit immediately upon demand, and to pay the issuer of the Letter of Credit
the amount of all other obligations and other amounts payable to such issuer
under or in connection with any Letter of Credit immediately when due,
irrespective of any claim, setoff, defense or other right which the Borrower
may have at any time against such issuer or any other Person.
(2) REVOLVING LOANS TO SATISFY REIMBURSEMENT
OBLIGATIONS. In the event that the issuer of any Letter of Credit honors a
draw under such Letter of Credit and the Borrower shall not have repaid such
amount to the issuer of such Letter of Credit pursuant to SECTION 2.3(d)(1),
16
the Lender shall pay the issuer and such amount when paid shall constitute a
Reference Rate Revolving Loan which shall be deemed to have been requested by
the Borrower.
(e) COMPENSATION FOR LETTERS OF CREDIT.
(1) LETTER OF CREDIT FEE. The Borrower agrees to pay
to the Lender with respect to each Letter of Credit, the Letter of Credit Fee
specified in, and in accordance with the terms of, SECTION 3.4.
(2) ISSUER FEES AND CHARGES. The Borrower shall pay
to the issuer of any Letter of Credit, or to the Lender, for the account of
the issuer of any such Letter of Credit, solely for such issuer's account,
such fees and other charges as are charged by such issuer for letters of
credit issued by it, including, without limitation, its standard fees for
issuing, administering, amending, renewing, paying and canceling letters of
credit and all other fees associated with issuing or servicing letters of
credit, as and when assessed.
(f) INDEMNIFICATION; EXONERATION: POWER OF ATTORNEY.
(1) INDEMNIFICATION. In addition to amounts payable
as elsewhere provided in this SECTION 2.3, the Borrower hereby agrees to
protect, indemnify, pay and save the Lender harmless from and against any and
all claims, demands, liabilities, damages, losses, costs, charges and expenses
(including reasonable attorneys' fees) which the Lender may incur or be
subject to as a consequence, direct or indirect, of the issuance of any Letter
of Credit or the provision of any credit support or enhancement in connection
therewith pursuant to this Agreement. The agreement in this SECTION 2.3(f)(1)
shall survive payments of all Obligations and the termination of this
Agreement.
(2) ASSUMPTION OF RISK BY THE BORROWER. As among the
Borrower and the Lender, the Borrower assumes all risks of the acts and
omissions of, or misuse of any of the Letters of Credit by, the respective
beneficiaries of such Letters of Credit. In furtherance and not in limitation
of the foregoing, the Lender shall not be responsible for: (A) the form,
validity, sufficiency, accuracy, genuineness or legal effect of any document
submitted by any Person in connection with the application for and issuance of
and presentation of drafts with respect to any of the Letters of Credit, even
if it should prove to be in any or all respects invalid, insufficient,
inaccurate, fraudulent or forged; (B) the validity or sufficiency of any
instrument transferring or assigning or purporting to transfer or assign any
Letter of Credit or the rights or benefits thereunder or proceeds thereof, in
whole or in part, which may prove to be invalid or ineffective for any reason;
(C) the failure of the beneficiary of any Letter of Credit to comply duly with
conditions required in order to draw upon such Letter of Credit; (D) errors,
omissions, interruptions, or delays in transmission or delivery of any
messages, by mail, cable, telegraph, telex or otherwise, whether or not they
be in cipher; (E) errors in interpretation of technical terms; (F) any loss or
delay in the transmission or otherwise of any document required in order make
a drawing under any Letter of Credit or of the proceeds thereof; (G) the
misapplication by the beneficiary of any Letter of Credit of the proceeds of
17
any drawing under such Letter of Credit; or (H) any consequences arising from
causes beyond the control of the Lender, including, without limitation, any
act or omission, whether rightful or wrongful, of any present or future DE
JURE or DE FACTO Public Authority. None of the foregoing shall affect, impair
or prevent the vesting of any rights or powers of the Lender under this
SECTION 2.3. Nothing herein shall affect any agreement between Borrower and
any of issuer of a Letter of Credit relating to such issuer's liability to
Borrower.
(3) ACCOUNT PARTY. The Borrower hereby authorizes
and directs any issuer of a Letter of Credit hereunder to name the Borrower as
the "Account Party" therein and to deliver to the Lender all instruments,
documents and other writings and property received by the issuer pursuant to
the Letter of Credit, and to accept and rely upon the Lender's instructions
and agreements with respect to all matters arising in connection with the
Letter of Credit or the application therefor.
(g) SUPPORTING LETTER OF CREDIT; CASH COLLATERAL. If,
notwithstanding the provisions of this SECTION 2.3 and SECTION 14, any Letter
of Credit is outstanding upon the termination of this Agreement, then upon
such termination the Borrower shall deposit with the Lender, at its
discretion, with respect to each Letter of Credit then outstanding, either (A)
a standby letter of credit (a "Supporting Letter of Credit") in form and
substance reasonably satisfactory to the Lender, issued by an issuer
reasonably satisfactory to the Lender in an amount equal to the greatest
amount for which such Letter of Credit may be drawn, under which Supporting
Letter of Credit the Lender is entitled to draw amounts necessary to reimburse
the Lender for payments made by the Lender under such Letter of Credit or
under any credit support or enhancement provided through the Lender with
respect thereto in accordance with this Agreement, or (B) cash in amounts
necessary to reimburse the Lender for payments made by the Lender under such
Letter of Credit or under any credit support or enhancement provided through
the Lender in accordance with this Agreement. Such Supporting Letter of Credit
or deposit of cash shall be held by the Lender, as security for, and to
provide for the payment of, the aggregate undrawn amount of such Letters of
Credit remaining outstanding and returned if not drawn.
(h) AUTOMATED CLEARING HOUSE TRANSFERS AND OVERDRAFTS;
SWAP TRANSACTIONS. The Borrower may request and the Lender may, in its sole
and absolute discretion, arrange for the Borrower to obtain from the Bank ACH
Transactions and/or Swap Transactions. The Borrower agrees to indemnify and
hold the Lender harmless from all losses, liabilities, costs, expenses and
claims incurred by the Lender arising from or related to such ACH Transactions
and Swap Transactions. The Borrower acknowledges and agrees that the obtaining
of ACH Transactions and Swap Transactions from the Bank (a) is in the sole and
absolute discretion of the Bank, (b) is subject to all rules and regulations
of the Bank, and (c) is due to the Bank relying on the indemnity of the Lender
to the Bank with respect to all risks of loss associated with the ACH
Transactions and Swap Transactions.
3. INTEREST AND OTHER CHARGES.
3.1 INTEREST.
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(a) All Obligations shall bear interest on the unpaid
principal amount thereof from the date made until paid in full in cash at a
rate determined by reference to the Reference Rate or the LIBOR Rate and
SECTIONS 3.1 (a)(i) or (ii), as applicable, but not to exceed the Maximum
Rate. Subject to the provisions of SECTION 3.2, any of the Loans may be
converted into, or continued as, Reference Rate Revolving Loans or LIBOR
Revolving Loans in the manner provided in SECTION 3.2. If at any time Loans
are outstanding with respect to which notice has not been delivered to Lender
in accordance with the terms of this Agreement specifying the basis for
determining the interest rate applicable thereto, then those Loans shall be
Reference Rate Revolving Loans and shall bear interest at a rate determined by
reference to the Reference Rate until notice to the contrary has been given to
the Lender and such notice has become effective. Except as otherwise provided
herein, the Obligations shall bear interest as follows:
(i) For all Obligations, other than LIBOR Revolving
Loans, then at a fluctuating per annum rate equal to three-eighths of one
percent (0.375%)(the "REFERENCE RATE MARGIN") plus the Reference Rate; and
(ii) If the Loans are LIBOR Revolving Loans, then at
a per annum rate equal to two and one-quarter percent (2.25%) (the "LIBOR
MARGIN") plus the LIBOR Rate determined for the applicable Interest Period.
Each change in the Reference Rate shall be reflected in the interest rate
described in (i) above as of the effective date of such change. All interest
charges shall be computed on the basis of a year of three hundred sixty (360)
days and actual days elapsed. All interest shall be payable to Lender on the
first day of each month hereafter.
(b) If any Event of Default occurs, then, from the date
such Event of Default occurs until it is cured, or if not cured until all
Obligations are paid and performed in full, the Borrower will pay interest on
the unpaid principal balance from time to time of the Revolving Loans at a per
annum rate two percent (2.0%) greater than the rate of interest otherwise
specified herein, and the Letter of Credit Fee shall be increased to two and
three quarters percent (2.75%) per annum.
(c) UNUSED LINE FEE. For every month during the term of
this Agreement, the Borrower shall pay the Lender a fee (the "UNUSED LINE
FEE") in an amount equal to three-eighths of one percent (0.375%) per annum,
MULTIPLIED BY the average daily amount by which the Maximum Revolving Credit
Line exceeds the sum of (i) the average daily outstanding amount of Revolving
Loans during such month and (ii) the average daily undrawn face amount of all
outstanding Letters of Credit during such month, with the unpaid balance
calculated for this purpose by applying payments immediately upon receipt.
Such a fee, if any, shall be calculated on the basis of a year of three
hundred sixty (360) days and actual days elapsed, and shall be payable to the
Lender on the first day of each month with respect to the prior month.
3.2 CONVERSION AND CONTINUATION ELECTIONS.
(a) The Borrower may, upon irrevocable written notice to
the Lender in accordance with Subsection 3.2(b):
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(i) elect, as of any Business Day
("CONVERSION/CONTINUATION DATE"), in the case of Reference
Rate Revolving Loans to convert any such Loans (or any part
thereof in an amount not less than $500,000, or that is in
an integral multiple of $500,000 in excess thereof) into
LIBOR Revolving Loans; or
(ii) elect, as of the last day of the
applicable Interest Period ("CONVERSION/CONTINUATION DATE"),
to continue any LIBOR Revolving Loans having Interest
Periods expiring on such day (or any part thereof in an
amount not less than $500,000 or that is in an integral
multiple of $500,000 in excess thereof);
PROVIDED, that if at any time the aggregate amount of LIBOR Revolving Loans in
respect of any Borrowing is reduced, by payment, prepayment, or conversion of
part thereof to be less than $500,000, such LIBOR Revolving Loans shall
automatically convert into Reference Rate Revolving Loans, and on and after
such date the right of the Borrower to continue such Loans as, and convert
such Loans into, LIBOR Revolving Loans, as the case may be, shall terminate.
(b) The Borrower shall deliver a notice ("NOTICE OF
CONVERSION/CONTINUATION") to be received by the Lender not later than 10:30
a.m. (Pacific time) at least two Business Days in advance of the date of
conversion or continuing, if the Loans are to be converted into or continued
as LIBOR Revolving Loans and not later than 10:30 a.m. on the date of
conversion or continuing, in the case of Reference Rate Revolving Loans, and
specifying:
(A) the proposed Conversion/ Continuation Date;
(B) the aggregate amount of Loans to be converted or
continued;
(C) the type of Loans resulting from the proposed
conversion or continuation; and
(D) with respect to LIBOR Revolving Loans, the
duration of the requested Interest Period.
(c) If upon the expiration of any Interest Period
applicable to LIBOR Revolving Loans, the Borrower has failed to select timely
a new Interest Period to be applicable to LIBOR Revolving Loans or if any
Default or Event of Default then exists, the Borrower shall be deemed to have
elected to convert such LIBOR Revolving Loans into Reference Rate Revolving
Loans effective as of the expiration date of such Interest Period.
(d) During the existence of an Event of Default, the
Borrower may not elect to have a Loan converted into or continued as a LIBOR
Revolving Loan.
(e) After giving effect to any conversion or continuation
of Loans, there may not be more than four (4) different Interest Periods in
effect.
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3.3 MAXIMUM INTEREST RATE. In no event shall any interest rate
provided for hereunder exceed the maximum rate permissible for corporate
borrowers under applicable law for loans of the type provided for hereunder
(the "Maximum Rate"). If, in any month, any interest rate, absent such
limitation, would have exceeded the Maximum Rate, then the interest rate for
that month shall be the Maximum Rate, and, if in future months, that interest
rate would otherwise be less than the Maximum Rate, then that interest rate
shall remain at the Maximum Rate until such time as the amount of interest
paid hereunder equals the amount of interest which would have been paid if the
same had not been limited by the Maximum Rate. In the event that, upon payment
in full of the Obligations under this Agreement, the total amount of interest
paid or accrued under the terms of this Agreement is less than the total
amount of interest which would, but for this Section 3. 3, have been paid or
accrued if the interest rates otherwise set forth in this Agreement had at all
times been in effect, then the Borrower shall, to the extent permitted by
applicable law, pay the Lender, an amount equal to the difference between (a)
the lesser of (i) the amount of interest which would have been charged if the
Maximum Rate had, at all times, been in effect or (ii) the amount of interest
which would have accrued had the interest rates otherwise set forth in this
Agreement, at all times, been in effect and (b) the amount of interest
actually paid or accrued under this Agreement. In the event that a court
determines that the Lender has received interest and other charges hereunder
in excess of the Maximum Rate, such excess shall be deemed received on account
of, and shall automatically be applied to reduce, the Obligations other than
interest, in the inverse order of maturity, and if there are no Obligations
outstanding, the Lender shall promptly refund to the Borrower such excess.
3.4 LETTER OF CREDIT FEE. The Borrower agrees to pay to the
Lender a fee (the "Letter of Credit Fee") equal to three-quarters of one
percent (0.75%) per annum of the undrawn face amount of each Letter of Credit
issued for the Borrower's account at the Borrower's request, PLUS all out-of-
pocket costs, fees and expenses incurred by the Lender in connection with the
application for, issuance of, or amendment to any Letter of Credit, which
costs, fees and expenses could include a "fronting fee" required to be paid by
the Lender to such issuer for the assumption of the settlement risk in
connection with the issuance of such Letter of Credit. The Letter of Credit
Fee shall be payable monthly in arrears on the first day of each month
following any month in which a Letter of Credit was issued and/or in which a
Letter of Credit remains outstanding. The Letter of Credit Fee shall be
computed on the basis of a 360-day year for the actual number of days elapsed.
4. PAYMENTS.
4.1 REVOLVING LOANS. The Borrower shall repay the outstanding
principal balance of the Revolving Loans, plus all accrued but unpaid interest
thereon, upon the termination of this Agreement for any reason. In addition,
and without limiting the generality of the foregoing, the Borrower shall pay
to the Lender, on demand, the amount by which the unpaid principal balance of
the Revolving Loans at any time exceeds the Availability at such time (with
Availability determined for this purpose as if the amount of the Revolving
Loans were zero).
4.2 PLACE AND FORM OF PAYMENTS; EXTENSION OF TIME. All payments
of principal, interest, premium, and other sums due to the Lender shall be
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made at the Lender's address set forth in SECTION 15.11. Except for Proceeds
received directly by the Lender, all such payments shall be made in
immediately available funds. If any payment of principal, interest, premium,
or other sum to be made hereunder becomes due and payable on a day other than
a Business Day, the due date of such payment shall be extended to the next
succeeding Business Day and interest thereon shall be payable at the
applicable interest rate during such extension.
4.3 APPLICATION AND REVERSAL OF PAYMENTS. The Lender shall
determine in its sole discretion the order and manner in which Proceeds of
Collateral and other payments that the Lender receives are applied to the
Revolving Loans, interest thereon, and the other Obligations, and the Borrower
hereby irrevocably waives the right to direct the application of any payment
or Proceeds. The Lender shall have the continuing and exclusive right to apply
and reverse and reapply any and all such Proceeds and payments to any portion
of the Obligations.
4.4 INDEMNITY FOR RETURNED PAYMENTS. IF AFTER RECEIPT OF ANY
PAYMENT WHICH IS APPLIED TO THE PAYMENT OF ALL OR ANY PART OF THE OBLIGATIONS,
THE LENDER IS FOR ANY REASON COMPELLED TO SURRENDER SUCH PAYMENT TO ANY PERSON
BECAUSE SUCH PAYMENT IS INVALIDATED, DECLARED FRAUDULENT, SET ASIDE,
DETERMINED TO BE VOID OR VOIDABLE AS A PREFERENCE, IMPERMISSIBLE SETOFF, OR A
DIVERSION OF TRUST FUNDS, OR FOR ANY OTHER REASON, THEN: THE OBLIGATIONS OR
PART THEREOF INTENDED TO BE SATISFIED SHALL BE REVIVED AND CONTINUE AND THIS
AGREEMENT SHALL CONTINUE IN FULL FORCE AS IF SUCH PAYMENT HAD NOT BEEN
RECEIVED BY THE LENDER AND THE BORROWER SHALL BE LIABLE TO PAY TO THE LENDER
AND HEREBY DOES INDEMNIFY THE LENDER AND HOLD THE LENDER HARMLESS FOR THE
AMOUNT OF SUCH PAYMENT SURRENDERED. The provisions of this SECTION 4.4 shall
be and remain effective notwithstanding any contrary action which may have
been taken by the Lender in reliance upon such payment, and any such contrary
action so taken shall be without prejudice to the Lender's rights under this
Agreement and shall be deemed to have been conditioned upon such payment
having become final and irrevocable. The provisions of this SECTION 4.4 shall
survive the termination of this Agreement.
5. LENDER'S BOOKS AND RECORDS; MONTHLY STATEMENTS. The Borrower
agrees that the Lender's books and records showing the Obligations and the
transactions pursuant to this Agreement and the other Loan Documents shall be
admissible in any action or proceeding arising therefrom, and shall constitute
prima facie proof thereof, irrespective of whether any Obligation is also
evidenced by a promissory note or other instrument. The Lender will provide to
the Borrower a monthly statement of Loans, payments, and other transactions
pursuant to this Agreement. Such statement shall be deemed correct, accurate,
and binding on the Borrower and as an account stated (except for reversals and
reapplications of payments made as provided in SECTION 4.3 and corrections of
errors discovered by the Lender), unless the Borrower notifies the Lender in
writing to the contrary within forty-five (45) days after such statement is
rendered. In the event a timely written notice of objections is given by the
Borrower, only the items to which exception is expressly made will be
considered to be disputed by the Borrower.
6. TAXES, YIELD PROTECTION AND ILLEGALITY
6.1 TAXES.
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(a) Any and all payments by the Borrower to the Lender
under this Agreement and any other Loan Document shall be made free and clear
of, and without deduction or withholding for any Taxes. In addition, the
Borrower shall pay all Other Taxes.
(b) The Borrower agrees to indemnify and hold harmless the
Lender for the full amount of Taxes or Other Taxes (including any Taxes or
Other Taxes imposed by any jurisdiction on amounts payable under this Section)
paid by the Lender and any liability (including penalties, interest, additions
to tax and expenses) arising therefrom or with respect thereto, whether or not
such Taxes or Other Taxes were correctly or legally asserted. Payment under
this indemnification shall be made within 90 days after the date the Lender
makes written demand therefor.
(c) If the Borrower shall be required by law to deduct or
withhold any Taxes or Other Taxes from or in respect of any sum payable
hereunder to Lender, then:
(i) the sum payable shall be increased as necessary
so that after making all required deductions and withholdings (including
deductions and withholdings applicable to additional sums payable under this
Section) the Lender receives an amount equal to the sum it would have received
had no such deductions or withholdings been made;
(ii) the Borrower shall make such deductions and
withholdings;
(iii) the Borrower shall pay the full amount deducted
or withheld to the relevant taxing authority or other authority in accordance
with applicable law; and
(iv) the Borrower shall also pay to the Lender at the
time interest is paid, all additional amounts which the Lender specifies as
necessary to preserve the after-tax yield the Lender would have received if
such Taxes or Other Taxes had not been imposed.
(d) Within 30 days after the date of receipt of a receipt
in respect of any payment by the Borrower of Taxes or Other Taxes, the
Borrower shall furnish the Lender the original or a certified copy of a
receipt evidencing payment thereof, or other evidence of payment satisfactory
to the Lender.
6.2 ILLEGALITY.
(a) If the Lender determines that the introduction of any
Requirement of Law, or any change in any Requirement of Law, or in the
interpretation or administration of any Requirement of Law, in each case after
the Closing Date, has made it unlawful, or that any central bank or other
Public Authority has asserted that it is unlawful, for the Lender or its
applicable lending office to make LIBOR Revolving Loans, then, on notice
thereof by the Lender to the Borrower, any obligation of the Lender to make
LIBOR Revolving Loans shall be suspended until the Lender notifies the
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Borrower that the circumstances giving rise to such determination no longer
exist.
(b) If the Lender determines that it is unlawful to
maintain any LIBOR Revolving Loan, the Borrower shall, upon its receipt of
notice of such fact and demand from the Lender, prepay in full such LIBOR
Revolving Loans then outstanding, together with interest accrued thereon and
amounts required under SECTION 6.4, either on the last day of the Interest
Period thereof, if the Lender may lawfully continue to maintain such LIBOR
Revolving Loans to such day, or immediately, if the Lender may not lawfully
continue to maintain such LIBOR Revolving Loan. If the Borrower is required to
so prepay any LIBOR Revolving Loan, then concurrently with such prepayment,
the Borrower may borrow from the Lender, in the amount of such repayment, a
Reference Rate Revolving Loan.
6.3 INCREASED COSTS AND REDUCTION OF RETURN.
(a) If the Lender determines that, due to either (i) the
introduction of or any change in the interpretation of any law or regulation
after the date hereof or (ii) the compliance by the Lender with any guideline
or request from any central bank or other Public Authority (whether or not
having the force of law) after the date hereof, there shall be any increase in
the cost to the Lender of agreeing to make or making, funding or maintaining
any LIBOR Revolving Loans, then the Borrower shall be liable for, and shall
from time to time, within 15 days of written demand, pay to the Lender,
additional amounts as are sufficient to compensate the Lender for such
increased costs.
(b) If the Lender shall have determined that (i) the
introduction of any Capital Adequacy Regulation, (ii) any change in any
Capital Adequacy Regulation, (iii) any change in the interpretation or
administration of any Capital Adequacy Regulation by any central bank or other
Public Authority charged with the interpretation or administration thereof (in
the case of items (i) through (iii), after the Closing Date), or (iv)
compliance by the Lender or any corporation controlling the Lender with any
Capital Adequacy Regulation, affects or would affect the amount of capital,
reserves, or special deposits required or expected to be maintained by the
Lender or any corporation controlling the Lender and (taking into
consideration such Lender's or such corporation's policies with respect to
capital adequacy and such Lender's desired return on capital) determines that
the amount of such capital, reserves, or special deposits is increased as a
consequence of its loans, credits or obligations under this Agreement, then,
within 15 days after written demand of the Lender to the Borrower, the
Borrower shall pay to the Lender, from time to time as specified by the
Lender, additional amounts sufficient to compensate the Lender for such
increase. Notwithstanding the foregoing, all such amounts shall be subject to
the provisions of SECTION 3.3.
6.4 FUNDING LOSSES. The Borrower shall reimburse the Lender and
hold the Lender harmless from any loss or expense which the Lender may sustain
or incur as a consequence of:
(a) the failure of the Borrower to make on a timely basis
any payment of principal of any LIBOR Revolving Loan;
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(b) the failure of the Borrower to borrow, continue or
convert a Loan after the Borrower has given (or is deemed to have given) a
Notice of Borrowing or a Notice of Conversion/Continuation;
(c) the prepayment or other payment (including after
acceleration thereof) of any LIBOR Revolving Loan on a day that is not the
last day of the relevant Interest Period;
including any such loss or expense arising from the liquidation or
reemployment of funds obtained by it to maintain its LIBOR Revolving Loans or
from fees payable to terminate the deposits from which such funds were
obtained.
6.5 INABILITY TO DETERMINE RATES. If the Lender determines that
for any reason adequate and reasonable means do not exist for determining the
LIBOR Rate for any requested Interest Period with respect to a proposed LIBOR
Revolving Loan, or that the LIBOR Rate for any requested Interest Period with
respect to a proposed LIBOR Revolving Loan does not adequately and fairly
reflect the cost to the Lender of funding such Loan, the Lender will promptly
so notify the Borrower, which notice shall include in reasonable detail the
reason(s) for such determination. Thereafter, the obligation of the Lender to
make or maintain LIBOR Revolving Loans hereunder shall be suspended until the
Lender revokes such notice in writing. Upon receipt of such notice, the
Borrower may revoke any Notice of Borrowing or Notice of Conversion/
Continuation then submitted by it without penalty. If the Borrower does not
revoke such Notice, the Lender shall make, convert or continue the Loans, as
proposed by the Borrower, in the amount specified in the applicable notice
submitted by the Borrower, but such Loans shall be made, converted or
continued as Reference Rate Revolving Loans instead of LIBOR Revolving Loans.
6.6 SURVIVAL. The agreements and obligations of the Borrower in
this SECTION 6 shall survive the payment of all other Obligations.
7. COLLATERAL.
7.1 GRANT OF SECURITY INTEREST.
(a) As security for the Obligations, the Borrower hereby
grants to the Lender a continuing security interest in, lien on, and
assignment of: (i) all Receivables, Inventory, Proprietary Rights and
Proceeds, wherever located and whether now existing or hereafter arising or
acquired; (ii) all moneys, securities and other property and the Proceeds
thereof, now or hereafter held or received by, or in transit to, the Lender
from or for the Borrower, whether for safekeeping, pledge, custody,
transmission, collection or otherwise, including, without limitation, all of
the Borrower's deposit accounts, credits, and balances with the Lender and all
claims of the Borrower against the Lender at any time existing; (iii) all of
Borrower's deposit accounts with any financial institutions with which
Borrower maintains deposits; and (iv) all books, records and other Property
relating to or referring to any of the foregoing, including, without
limitation, all books, records, ledger cards, data processing records,
computer software and other property and general intangibles at any time
evidencing or relating to the Receivables, Inventory, Proprietary Rights,
25
Proceeds, and other property referred to above, but excluding Borrower's
equipment, fixtures and leasehold improvements (all of the foregoing, and all
other property in which the Lender may at any time be granted a Lien, being
herein collectively referred to as the "COLLATERAL"). The Lender shall have
all of the rights of a secured party with respect to the Collateral under the
UCC and other applicable laws.
(b) All Obligations shall constitute a single loan secured
by the Collateral.
7.2 PERFECTION AND PROTECTION OF SECURITY INTEREST. The Borrower
shall, at its expense, perform all steps requested by the Lender at any time
to perfect, maintain, protect, and enforce the Security Interest including,
without limitation: (a) executing and recording of the Patent and Trademark
Assignment and executing and filing financing or continuation statements, and
amendments thereof, in form and substance satisfactory to the Lender; (b)
delivering to the Lender the originals of all instruments, documents, and
chattel paper, and all other Collateral of which the Lender determines it
should have physical possession in order to perfect and protect the Security
Interest therein, duly endorsed or assigned to the Lender without restriction;
(c) delivering to the Lender warehouse receipts covering any portion of the
Collateral located in warehouses and for which warehouse receipts are issued;
(d) after an Event of Default and during the continuation thereof,
transferring Inventory to warehouses designated by the Lender; (e) placing
notations on the Borrower's books of account to disclose the Security
Interest; (f) executing and delivering to the Lender a security agreement
relating to the Reversions in form and substance reasonably satisfactory to
the Lender; (g) delivering to the Lender all letters of credit on which the
Borrower is named beneficiary; and (h) taking such other steps as are deemed
necessary by the Lender to maintain the Security Interest. To the extent
permitted by applicable law, the Lender may file, without the Borrower's
signature, one or more financing statements disclosing the Security Interest.
The Borrower agrees that a carbon, photographic, photostatic, or other
reproduction of this Agreement or of a financing statement is sufficient as a
financing statement. If any Collateral is at any time in the possession or
control of any warehouseman, bailee or any of the Borrower's agents or
processors, then the Borrower shall notify the Lender thereof and shall notify
such Person of the Security Interest in such Collateral and, upon the Lender's
request if an Event of Default has occurred and is continuing, instruct such
Person to hold all such Collateral for the Lender's account subject to the
Lender's instructions. From time to time, the Borrower shall, upon Lender's
request, execute and deliver confirmatory written instruments pledging to the
Lender the Collateral, but the Borrower's failure to do so shall not affect or
limit the Security Interest or the Lender's other rights in and to the
Collateral. So long as this Agreement is in effect and until all Obligations
have been fully satisfied in accordance with the terms hereof, the Security
Interest shall continue in full force and effect in all Collateral (whether or
not deemed eligible for the purpose of calculating the Availability or as the
basis for any advance, loan, extension of credit, or other financial
accommodation).
7.3 LOCATION OF COLLATERAL. The Borrower represents and warrants
to the Lender that as of the Closing Date: (a) SCHEDULE 7.3 hereto is a
26
correct and complete list of the Borrower's chief executive office, the
location of its books and records, the locations of the Collateral, and the
locations of all of its other places of business, and (b) SCHEDULE 7.3
correctly identifies any of such facilities and locations that are not owned
by the Borrower and sets forth the names of the owners and lessors or sub-
lessors of such facilities and locations. The Borrower covenants and agrees
that it will not maintain any Collateral at any location other than those
listed on SCHEDULE 7.3, and it will not otherwise change or add to any of such
locations, unless it gives the Lender at least 30 days' prior written notice
thereof and executes any and all financing statements and other documents that
the Lender requests in connection therewith.
7.4 TITLE TO, LIENS ON, AND SALE AND USE OF COLLATERAL. The
Borrower represents and warrants to the Lender that: (a) all Collateral is and
will continue to be owned by the Borrower free and clear of all Liens
whatsoever, except for the Security Interest and other Permitted Liens; (b)
the Security Interest will not be subject to any prior Lien except for the
Liens described in the definition of Permitted Liens; (c) the Borrower will
use, store, and maintain the Collateral with all reasonable care and will use
the Collateral for lawful purposes only; and (d) the Borrower will not,
without the Lender's prior written approval, sell, lease, or dispose of or
permit the sale or disposition of the Collateral or any portion thereof,
except for sales of Inventory in the ordinary course of business and as
permitted by SECTION 7.11. The inclusion of Proceeds in the Collateral shall
not be deemed the Lender's consent to any sale or other disposition of the
Collateral except as expressly permitted herein.
7.5 APPRAISALS. Whenever an Event of Default exists, and at such
other times not more frequently than once a year as the Lender requests, the
Borrower shall, at its expense and upon the Lender's reasonable request,
provide the Lender with appraisals or updates thereof of any or all of the
Collateral from an appraiser acceptable to the Lender.
7.6 ACCESS AND EXAMINATION. The Lender may at all reasonable
times have access to, examine, audit, make extracts from and inspect the
Borrower's records, files, and books of account and the Collateral and may
discuss the Borrower's affairs with the Borrower's officers and management.
The Borrower will deliver to the Lender any instrument necessary for the
Lender to obtain records from any service bureau maintaining records for the
Borrower. The Lender may, at any time when an Event of Default exists and at
the Borrower's expense, make copies of all of the Borrower's books and
records, or require the Borrower to deliver such copies to the Lender. The
Lender may, without expense to the Lender, use such of the Borrower's
personnel, supplies, and Premises as may be reasonably necessary for
maintaining or enforcing the Security Interest. The Lender shall have the
right, at any time, in the Lender's name or in the name of a nominee of the
Lender, to verify the validity, amount or any other matter relating to the
Accounts, by mail, telephone, or otherwise.
7.7 INSURANCE. The Borrower shall insure the Collateral against
loss or damage by fire with extended coverage, theft, burglary, pilferage,
loss in transit, and such other hazards as the Lender shall specify, in
amounts, under policies and by insurers acceptable to the Lender. Upon the
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Lender's request, the Borrower shall also maintain flood insurance for any
Inventory located in an area designated as a "FLOOD PRONE" or a "FLOOD RISK
AREA," (hereinafter "SFHA") as defined by the Flood Disaster Protection Act of
1973, in an amount to be reasonably determined by the Lender, and shall comply
with the additional requirements of the National Flood Insurance Program as
set forth therein. The Borrower shall cause the Lender to be named in each
such policy as secured party or mortgagee and loss payee or additional
insured, in a manner acceptable to the Lender. Each policy of insurance or
endorsement in favor of the Lender shall contain a clause requiring the
insurer to give not less than thirty (30) days' prior written notice to the
Lender in the event of cancellation of the policy for any reason whatsoever
and a clause or endorsement stating that the interest of the Lender shall not
be impaired or invalidated by any act or neglect of the Borrower or the owner
of any premises where Collateral is located nor by the occupation of such
premises for purposes more hazardous than are permitted by such policy. The
Borrower shall pay, upon Lender's request, all fees incurred by the Lender to
determine whether any of the Collateral is located in a SFHA. The Borrower
shall also pay all premiums for such insurance when due, and shall deliver to
the Lender certificates of insurance and, if requested, photocopies of the
policies. If the Borrower fails to pay such fees or to procure such insurance
or the premiums therefor when due, the Lender may (but shall not be required
to) do so and charge the costs thereof to the Borrower's loan account as a
Revolving Loan. The Borrower shall promptly notify the Lender of any loss,
damage, or destruction to the Collateral or arising from its use, whether or
not covered by insurance. The Lender is hereby authorized to collect all
insurance proceeds directly. After deducting from such proceeds the expenses,
if any, incurred by Lender in the collection or handling thereof, the Lender
may apply such proceeds to the reduction of the Obligations in such order as
Lender determines, or at the Lender's option may permit or require the
Borrower to use such money, or any part thereof, to replace, repair, restore
or rebuild the Collateral.
7.8 COLLATERAL REPORTING. The Borrower will provide the Lender
with the following documents at the following times in form satisfactory to
the Lender: (a) monthly inventory reports by category and location, no later
than the 25th of the following month, accompanied by a reconciliation; (b)
upon request, a monthly listing of accounts payable; (c) upon request, copies
of purchase orders, invoices, and delivery documents for Inventory acquired by
the Borrower; (d) such other reports as to the Collateral as the Lender shall
reasonably request from time to time; and (e) certificates of an officer of
the Borrower certifying as to the foregoing. If any of the Borrower's records
or reports of the Collateral are prepared by an accounting service or other
agent, the Borrower hereby authorizes such service or agent to deliver such
records, reports, and related documents to the Lender. Notwithstanding clause
(a) above, if the Borrower's average Availability for any thirty (30)
consecutive day period is less than $5,000,000, the Borrower shall thereafter
provide the Lender with weekly inventory reports by category and location,
accompanied by a reconciliation, and such weekly reporting shall continue
until the Lender otherwise agrees in writing.
7.9 ACCOUNTS. The Borrower hereby represents and warrants to the
Lender and agrees with the Lender that: (i) each existing Account represents,
and each future Account will represent, a BONA FIDE sale or lease and delivery
28
of goods by the Borrower, or rendition of services by the Borrower, in the
ordinary course of the Borrower's business; and (ii) each existing Account is,
and each future Account will be, for a liquidated amount payable by the
Account Debtor thereon on the terms set forth in the invoice therefor or in
the schedule thereof delivered to the Lender, without offset, deduction,
defense, or counterclaim. If an Account Debtor returns any Inventory to the
Borrower when no Event of Default exists, then the Borrower shall promptly
determine the reason for such return and shall issue a credit memorandum to
the Account Debtor in the appropriate amount. The Borrower shall immediately
report to the Lender any return involving an amount in excess of $20,000. Each
such report shall indicate the reasons for the returns and the locations and
condition of the returned Inventory. In the event any Account Debtor returns
Inventory to the Borrower when an Event of Default exists, the Borrower shall:
(i) hold the returned Inventory in trust for the Lender; (ii) segregate all
returned Inventory from all of its other Property; (iii) dispose of the
returned Inventory solely according to the Lender's written instructions; and
(iv) not issue any credits or allowances with respect thereto without the
Lender's prior written consent. All returned Inventory shall remain subject to
the Security Interest.
7.10 COLLECTION OF ACCOUNTS; PAYMENTS.
(a) Until the Lender notifies the Borrower to the
contrary, the Borrower shall make collection of all Accounts and other
Collateral for the Lender, shall receive all payments as the Lender's trustee,
and shall immediately deliver all payments to the Lender in their original
form duly endorsed in blank or deposit them into a Payment Account established
at the Lender's request, as the Lender may direct. All collections received in
any such Payment Account or directly by the Borrower or the Lender, and all
funds in any Payment Account or other account to which such collections are
deposited, shall be the sole property of the Lender and subject to the
Lender's sole control. The Lender or the Lender's designee may, at any time
while an Event of Default exists, notify obligors that the Accounts have been
assigned to the Lender and of the Security Interest therein, and may collect
them directly and charge the collection costs and expenses to the Borrower's
loan account as a Revolving Loan. At the Lender's request, the Borrower shall
execute and deliver to the Lender such documents as the Lender shall require
to grant the Lender access to any post office box in which collections of
Accounts are received.
(b) If sales of Inventory are made for cash, the Borrower
shall promptly deliver to the Lender the identical checks, cash, or other
forms of payment which the Borrower receives into the Payment Account.
(c) All payments received by the Lender on account of
Accounts or as Proceeds of other Collateral will be the Lender's sole property
and will be credited to the Borrower's loan account (conditional upon final
collection) after allowing one (1) Business Day for collection.
(d) In the event the Borrower repays all of the
Obligations upon the termination of this Agreement, other than through the
Lender's receipt of payments on account of Accounts or Proceeds of other
Collateral, such payment will be credited (conditional upon final collection)
29
to the Borrower's loan account one (1) Business Day after the Lender's receipt
thereof.
7.11 INVENTORY. The Borrower represents and warrants to the
Lender that all of the Inventory is and will be held for sale or lease, or to
be furnished in connection with the rendition of services in the ordinary
course of the Borrower's business and is and will be fit for such purposes.
The Borrower will keep the Inventory in good and marketable condition, at its
own expense. The Borrower will not, without prior written notice to the
Lender, acquire or accept any Inventory on consignment or approval. If the
Lender determines that any Inventory of the Borrower was not produced in
accordance with the Federal Fair Labor Standards Act of 1938, as amended, and
all rules, regulations, and orders thereunder, the Lender may establish
reserves equal to the value of such Inventory, as determined by the Lender.
The Borrower will maintain a perpetual inventory reporting system at all
times. The Borrower will conduct a physical count of the Inventory at least
once per Fiscal Year (and at such other times as the Lender reasonably
requests), and shall promptly upon completion supply the Lender with a copy of
such count accompanied by a report of the value of such Inventory (valued at
the lower of cost, on a first-in, first-out basis, or market value). The
Borrower will not, without the Lender's prior written consent, sell any
Inventory on a ▇▇▇▇-and-hold, guaranteed sale, consignment, or other
repurchase or return basis, except for returns, lay-aways and other
transactions with retail customers in the ordinary course of the Borrower's
business.
7.12 DOCUMENTS, INSTRUMENTS AND CHATTEL PAPER. The Borrower
represents and warrants to the Lender that: (a) all documents, instruments,
and chattel paper describing, evidencing, or constituting Collateral, and all
signatures and endorsements thereon, are and will be complete, valid, and
genuine; and (b) all goods evidenced by such documents, instruments, and
chattel paper are and will be owned by the Borrower free and clear of all
Liens other than Permitted Liens.
7.13 RIGHT TO CURE. The Lender may, in its sole discretion and at
any time, pay any amount or do any act required of the Borrower hereunder to
preserve, protect, maintain or enforce the Obligations, the Collateral or the
Security Interest, and which the Borrower fails to pay or do, including,
without limitation, payment of any judgment against the Borrower, any
insurance premium, any warehouse charge, any finishing or processing charge,
any landlord's claim, and any other Lien upon or with respect to the
Collateral. All payments that the Lender makes under this SECTION 7.13 and all
reasonable out-of-pocket costs and expenses that the Lender pays or incurs in
connection with any action taken by it hereunder shall be charged to the
Borrower's loan account as a Revolving Loan. Any payment made or other action
taken by the Lender under this SECTION 7.13 shall be without prejudice to any
right to assert an Event of Default hereunder and to proceed thereafter as
herein provided.
7.14 POWER OF ATTORNEY. The Borrower hereby appoints the Lender
and the Lender's designees as the Borrower's attorney, with power: (a) to
endorse the Borrower's name on any checks, notes, acceptances, money orders,
or other forms of payment or security relating to Collateral that come into
30
the Lender's possession; (b) to sign the Borrower's name on any invoice, ▇▇▇▇
of lading, or other document of title relating to any Collateral, on drafts
against customers, on assignments of Accounts, on notices of assignment,
financing statements and other public records, on verifications of Accounts
and on notices to Account Debtors and to file any such financing statements by
electronic means with or without a signature as authorized or required by
applicable law or filing procedure; (c) to notify the post office authorities,
when an Event of Default exists, to change the address for delivery of the
Borrower's mail to an address designated by the Lender and to receive, open
and dispose of all mail addressed to the Borrower; and (d) to do all things
necessary to carry out this Agreement. The Borrower ratifies and approves all
acts of such attorney in connection with the powers granted in the immediately
preceding sentence. Neither the Lender nor the attorney will be liable for any
acts or omissions or for any error of judgment or mistake of fact or law,
except any arising as a result of the Lender's or such attorney's gross
negligence or willful misconduct. This power, being coupled with an interest,
is irrevocable until this Agreement has been terminated and the Obligations
have been fully satisfied.
7.15 LENDER'S RIGHTS, DUTIES, AND LIABILITIES. The Borrower
assumes all responsibility and liability arising from or relating to the use,
sale, or other disposition of the Collateral. The Obligations shall not be
affected by any failure of the Lender to take any steps to perfect the
Security Interest or to collect or realize upon the Collateral, nor shall loss
of or damage to the Collateral release the Borrower from any of the
Obligations. After an Event of Default and during the continuation thereof,
the Lender may (but shall not be required to), without notice to or consent
from the Borrower, ▇▇▇ upon or otherwise collect, extend the time for payment
of, modify or amend the terms of, compromise or settle for cash, credit, or
otherwise upon any terms, grant other indulgences, extensions, renewals,
compositions, or releases, and take or omit to take any other action with
respect to the Collateral, any security therefor, any agreement relating
thereto, any insurance applicable thereto, or any Person liable directly or
indirectly in connection with any of the foregoing, without discharging or
otherwise affecting the liability of the Borrower for the Obligations or under
this Agreement or any other agreement now or hereafter existing between the
Lender and the Borrower relating to the transactions contemplated by the Loan
Documents.
8. BOOKS AND RECORDS; FINANCIAL INFORMATION; NOTICES.
8.1 BOOKS AND RECORDS. The Borrower shall maintain, at all
times, correct and complete books, records and accounts in which complete,
correct and timely entries are made of its transactions in accordance with
GAAP consistent with those applied in the preparation of the Financial
Statements. The Borrower shall, by means of appropriate entries, reflect in
such accounts and in all Financial Statements proper liabilities and reserves
for all taxes and proper provision for depreciation and amortization of
Property and bad debts, all in accordance with GAAP. The Borrower shall
maintain at all times books and records pertaining to the Collateral in such
detail, form, and scope as the Lender shall reasonably require, including
without limitation records of: (a) all payments received and all credits and
extensions granted with respect to the Accounts; (b) the return, rejection,
31
repossession, stoppage in transit, loss, damage, or destruction of any
Inventory; and (c) all other dealings affecting the Collateral.
8.2 FINANCIAL INFORMATION. The Borrower shall promptly furnish
to the Lender or its agents all such financial information as the Lender shall
reasonably request, and notify its auditors and accountants that the Lender is
authorized to obtain directly from them such information as the auditors or
accountants then have in their possession. Without limiting the foregoing, the
Borrower will furnish to the Lender, in such detail as the Lender shall
request, the following:
(a) As soon as available, but in any event not later than
90 days after the close of each Fiscal Year, audited balance sheets, and
statements of income and expense, retained earnings, and changes in financial
position and stockholders equity for the Borrower for such Fiscal Year, and
the accompanying notes thereto, setting forth in each case in comparative form
figures for the previous Fiscal Year, all in reasonable detail, fairly
presenting the financial position and the results of operations of the
Borrower as at the date thereof and for the Fiscal Year then ended, and
prepared in accordance with GAAP. Such statements shall be examined in
accordance with generally accepted auditing standards and accompanied by a
report thereon unqualified as to scope by independent certified public
accountants selected by the Borrower and reasonably satisfactory to the Lender
(the current auditor, KPMG Peat Marwick, being satisfactory).
(b) As soon as available, but in any event not later than
45 days after the close of each fiscal quarter other than the fourth quarter
of a Fiscal Year, unaudited balance sheets of the Borrower as at the end of
such quarter, and unaudited statements of income and expense and changes in
financial position for the Borrower for such quarter and for the period from
the beginning of the Fiscal Year to the end of such quarter, together with the
accompanying notes thereto, all in reasonable detail, fairly presenting the
financial position and results of operation of the Borrower as at the date
thereof and for such periods, prepared in accordance with GAAP consistent with
the audited Financial Statements required pursuant to SECTION 8.2(a). Such
statements shall be certified to be fairly stated in all material respects by
the chief financial or accounting officer of the Borrower, subject to normal
year-end adjustments.
(c) As soon as available, but in any event not later than
30 days after the end of each month other than the last month of a fiscal
quarter of the Borrower, unaudited balance sheets of the Borrower as at the
end of such month, and unaudited statements of income and expenses for the
Borrower for such month and for the period from the beginning of the Fiscal
Year to the end of such month, all in reasonable detail, fairly presenting the
financial position and results of operation of the Borrower as at the date
thereof and for such periods, and prepared in accordance with GAAP consistent
with the audited Financial Statements required pursuant to SECTION 8.2(a).
Such statements shall be certified to be fairly stated in all material
respects by the chief financial or accounting officer of the Borrower, subject
to normal year-end adjustments.
(d) With each of the annual audited and quarterly
unaudited Financial Statements delivered pursuant to SECTIONS 8.2(a) and
32
8.2(b), a certificate of the chief financial or accounting officer of the
Borrower (i) setting forth in reasonable detail the calculations required to
establish that the Borrower was in compliance with its covenants set forth in
Sections 10.19 through 10.20 at the end of the period covered in such
Financial Statements, and (ii) stating that, except as explained in reasonable
detail in such certificate, (A) all of the representations and warranties of
the Borrower contained in this Agreement and the other Loan Documents are
correct and complete in all material respects as at the date of such
certificate as if made at such time (except those speaking only as of an
earlier date or permitted changes), (B) no Default or Event of Default then
exists or existed during the period covered by such Financial Statements and
(iii) describing and analyzing in reasonable detail all material trends,
changes and developments in such Financial Statements. If such certificate
discloses that a representation or warranty is not correct or complete, or
that a covenant has not been complied with, or that an Default or Event of
Default existed or exists, such certificate shall set forth what action the
Borrower has taken or proposes to take with respect thereto.
(e) Prior to the beginning of each Fiscal Year,
preliminary projected balance sheets, statements of income and expense, and
statements of cash flow for the Borrower as at the end of and for each month
of such Fiscal Year; and within 30 days after the beginning of each Fiscal
Year, final projected balance sheets, statements of income and expense, and
statements of cash flow for the Borrower as at the end of and for each month
of such Fiscal Year.
(f) Within 45 days after the end of each fiscal quarter
(but within 90 days after the end of the fourth fiscal quarter), a report of
the Capital Expenditures of the Borrower for such quarter and a statement of
cash flow for the Borrower for the period from the beginning of the then
current Fiscal Year to the end of such quarter, prepared in accordance with
GAAP consistent with the audited Financial Statements required pursuant to
SECTION 8.2(a).
(g) Promptly after their preparation, copies of any and
all proxy statements, financial statements, and reports which the Borrower
makes available to its stockholders, including without limitation, copies of
all Forms 10-K and 10-Q filed by the Borrower with the United States
Securities and Exchange Commission.
(h) Promptly after filing with the PBGC, DOL, or IRS, a
copy of each annual report or other filing or notice filed with respect to
each Pension Plan of the Borrower or any ERISA Affiliate.
(i) Such additional information as the Lender may from
time to time reasonably request regarding the financial and business affairs
of the Borrower, including, without limitation, projections of future
operations on both a consolidated and consolidating basis.
8.3 NOTICES TO LENDER. The Borrower shall notify the Lender in
writing of the following matters at the following times:
(a) Promptly after becoming aware of the existence of any
Default or Event of Default.
33
(b) Promptly after becoming aware that the holder of any
Debt has given notice or taken any action with respect to a claimed default.
(c) Promptly after becoming aware of any material adverse
change in the Borrower's Property, business, operations, or condition
(financial or otherwise).
(d) Promptly after becoming aware of any pending or
threatened action, suit, proceeding, or counterclaim by any Person, or any
pending or threatened investigation by a Public Authority, which could
reasonably be expected, if adversely determined, to materially and adversely
affect the Collateral, the repayment of the Obligations, the Lender's rights
under the Loan Documents, or the Borrower's Property, business, operations, or
condition (financial or otherwise).
(e) Promptly after becoming aware of any pending or
threatened strike, work stoppage, material unfair labor practice claim, or
other material labor dispute affecting the Borrower that could reasonably be
expected to have a material adverse effect on the Borrower's business,
operations, or condition.
(f) Promptly after becoming aware of any violation of any
law, statute, regulation, or ordinance of a Public Authority applicable to
Borrower or its Properties which could reasonably be expected to materially
and adversely affect the Collateral, the repayment of the Obligations, the
Lender's rights under the Loan Documents, or the Borrower's Property,
business, operations, or condition (financial or otherwise).
(g) Promptly after becoming aware of any violation by the
Borrower of Environmental Laws or immediately upon receipt of any notice that
a Public Authority has asserted that the Borrower is not in compliance with
Environmental Laws or that its compliance is being investigated, in each case
that could reasonably be expected to have a material adverse effect on the
Borrower's business, operations or condition.
(h) Thirty (30) days prior to the Borrower changing its
name or the address of its chief executive office.
(i) Immediately after becoming aware of any ERISA Event,
accompanied by any materials required to be filed with the PBGC with respect
thereto; immediately after the Borrower's receipt of any notice concerning the
imposition of any withdrawal liability under Section 4042 of ERISA with
respect to a Plan; immediately upon the establishment of any Pension Plan not
existing at the Closing Date or the commencement of contributions by the
Borrower to any Pension Plan to which the Borrower was not contributing at the
Closing Date; and immediately upon becoming aware of any other event or
condition regarding a Plan or the Borrower's or an ERISA Affiliate s
compliance with ERISA, which may materially and adversely affect the
Borrower's business, operation, or condition (financial or otherwise).
Each notice given under this SECTION 8.3 shall describe the subject matter
thereof in reasonable detail and shall set forth the action that the Borrower
has taken or proposes to take with respect thereto.
34
9. GENERAL WARRANTIES AND REPRESENTATIONS.
The Borrower continuously warrants and represents to the Lender,
at all times during the term of this Agreement, that, except as hereafter
disclosed to and accepted by the Lender in writing:
9.1 AUTHORIZATION, VALIDITY, AND ENFORCEABILITY OF THIS
AGREEMENT AND THE LOAN DOCUMENTS. The Borrower has the corporate power and
authority to execute, deliver and perform this Agreement and the other Loan
Documents, to incur the Obligations, and to grant the Security Interest. The
Borrower has taken all necessary corporate action (including, without
limitation, obtaining approval of its stockholders, if required) to authorize
its execution, delivery, and performance of this Agreement and the other Loan
Documents. No consent, approval, or authorization of, or declaration or filing
with, any Public Authority, and no consent of any other Person, is required in
connection with the Borrower's execution, delivery, and performance of this
Agreement and the other Loan Documents, except for those already duly obtained
and filings to perfect the Security Interest. This Agreement and the other
Loan Documents have been duly executed and delivered by the Borrower and
constitute the legal, valid and binding obligations of the Borrower,
enforceable against it in accordance with their respective terms without
defense, setoff, or counterclaim, except as enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally. The Borrower's
execution, delivery, and performance of this Agreement and the other Loan
Documents do not and will not conflict with, or constitute a violation or
breach of, or constitute a default under, or result in the creation or
imposition of any Lien upon the Property of the Borrower or any of its
Subsidiaries (except as contemplated by this Agreement and the other Loan
Documents) by reason of the terms of (a) any mortgage, lease, agreement, or
instrument to which the Borrower or any of its Subsidiaries is a party or
which is binding upon it, (b) any judgment, law, statute, rule or governmental
regulation applicable to the Borrower or any of its Subsidiaries, or (c) the
Certificate or Articles of Incorporation or By-Laws of the Borrower or any of
its Subsidiaries.
9.2 VALIDITY AND PRIORITY OF SECURITY INTEREST. The provisions
of this Agreement and the other Loan Documents create legal and valid Liens on
all the Collateral in the Lender's favor, and when all proper filings,
recordings, and other actions necessary to perfect such Liens have been made
or taken, such Liens will constitute perfected and continuing Liens on all the
Collateral, having priority over all other Liens on the Collateral except for
the Permitted Liens identified in SECTION 7.4 and enforceable against the
Borrower and, to the extent permitted by applicable law, all third parties.
9.3 ORGANIZATION AND QUALIFICATION. The Borrower: (a) is duly
incorporated and organized and validly existing in good standing under the
laws of the State of Delaware; (b) is qualified to do business as a foreign
corporation and is in good standing in the States of California, Minnesota,
Nevada, Maryland and Illinois, which are the only states in which
qualification is necessary in order for it to own or lease its Property and
conduct its business, except where the failure to do so could not reasonably
be expected to have a material adverse effect on the Borrower's business,
35
operations or condition; and (c) has all requisite power and authority to
conduct its business and to own its Property.
9.4 CORPORATE NAME; PRIOR TRANSACTIONS. The Borrower has not,
during the past five years, been known by or used any other corporate or
fictitious name, or been a party to any merger or consolidation, or acquired
all or substantially all of the assets of any Person, or acquired any of its
Property out of the ordinary course of business, except as set forth on
SCHEDULE 9.4.
9.5 SUBSIDIARIES AND AFFILIATES. SCHEDULE 9.5 is a correct and
complete list of the name and relationship to the Borrower of each and all of
the Borrower's Subsidiaries and other Affiliates. Each Subsidiary is (a) duly
incorporated and organized and validly existing in good standing under the
laws of its state of incorporation set forth on SCHEDULE 9.5, and (b)
qualified to do business as a foreign corporation and in good standing in the
states set forth opposite its name on SCHEDULE 9.5, which are the only states
in which such qualification is necessary in order for it to own or lease its
Property and conduct its business.
9.6 FINANCIAL STATEMENTS AND PROJECTIONS.
(a) The Borrower has delivered to the Lender the audited
balance sheet and related statements of income, retained earnings, changes in
financial position, and changes in stockholders equity for the Borrower as of
March 2, 1996 and for the Fiscal Year then ended, accompanied by the report
thereon of the Borrower's independent certified public accountants, KPMG Peat
Marwick. The Borrower has also delivered to the Lender the unaudited balance
sheet and related statements of income and changes in financial position for
the Borrower, as at November 30, 1996. Such financial statements are attached
hereto as EXHIBIT D-1. All such financial statements have been prepared in
accordance with GAAP and present accurately and fairly in all material
respects the Borrower's financial position as at the dates thereof and its
results of operations for the periods then ended, subject to year-end
adjustments for the monthly financial statements.
(b) The Latest Projections represent the Borrower's best
estimate of the Borrower's future financial performance for the periods set
forth therein. The Latest Projections have been prepared on the basis of the
assumptions set forth therein, which the Borrower believes are fair and
reasonable in light of current and reasonably foreseeable business conditions.
The Lender agrees that the Latest Projections are good faith best estimate
predictions only and that the Borrower shall not be liable for any failure to
attain the financial performance predicted therein.
9.7 CAPITALIZATION. The Borrower's authorized capital stock
consists of (a) 750,000 shares of preferred stock, par value $0.0001 per
share, of which zero shares are issued or outstanding as of the Closing Date,
(b) 250,000 shares of preferred stock, series B, par value $0.0001 per share,
of which zero shares are issued or outstanding as of the Closing Date, and (c)
25,000,000 shares of common stock, par value $0.0001 per share, of which
8,522,817 shares are validly issued and outstanding, fully paid and non-
assessable as of the Closing Date.
36
9.8 SOLVENCY. The Borrower is Solvent prior to and after giving
effect to the making of each Revolving Loan.
9.9 DEBT. The Borrower has no Debt, except (a) the Obligations,
(b) Debt set forth in the most recent Financial Statements delivered to the
Lender, or the notes thereto, (c) trade payables and other Debt arising in the
ordinary course of business since the date of such Financial Statements, (d)
Debt incurred since the date of such Financial Statements to finance Capital
Expenditures permitted hereby and (e) any other Debt permitted under Section
10.11 since the date of such Financial Statements.
9.10 TITLE TO PROPERTY. Except for Property which the Borrower
leases, the Borrower has good and marketable title in fee simple to the
Premises and good, indefeasible, and merchantable title to all of its other
Property including, without limitation, the assets reflected on the most
recent Financial Statements delivered to the Lender, except as disposed of
since the date thereof in the ordinary course of business or as permitted
hereby.
9.11 ADEQUATE ASSETS. The Borrower possesses adequate assets for
the conduct of its business.
9.12 REAL PROPERTY; LEASES. As of the Closing Date, SCHEDULE 9.12
is a correct and complete list of all real property owned by the Borrower, all
leases and subleases of real or personal property by the Borrower as lessee or
sublessee, and all leases and subleases of real or personal property by the
Borrower as lessor or sublessor. Each of such leases and subleases is valid
and enforceable in accordance with its terms, except as enforcement may be
limited by bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affecting creditors' rights generally, and is in full
force and effect and no default by any party to any such lease or sublease
exists.
9.13 PROPRIETARY RIGHTS. SCHEDULE 9.13 is a correct and complete
list of all the Borrower's Proprietary Rights. None of the Proprietary Rights
is subject to any licensing agreement or similar arrangement except as set
forth on SCHEDULE 9.13. To the Borrower's knowledge, none of the Proprietary
Rights infringe on or conflict with any other Person's Property and no other
Person's Property infringes on or conflicts with the Proprietary Rights. The
Proprietary Rights described on SCHEDULE 9.13 constitute all of the Property
of such type necessary to the current and anticipated future conduct of the
Borrower's business.
9.14 TRADE NAMES AND TERMS OF SALE. All trade names or styles
under which the Borrower will sell Inventory or create Accounts, or to which
instruments in payment of Accounts may be made payable, are listed on SCHEDULE
9.14.
9.15 LITIGATION. Except as set forth on SCHEDULE 9.15, there is
no pending or, to the best of the Borrower's knowledge, threatened action,
suit, proceeding, or counterclaim by any Person, or investigation by any
Public Authority, or any basis for any of the foregoing, which, if adversely
determined, could reasonably be expected to materially and adversely affect
37
the Collateral, the repayment of the Obligations, the Lender's rights under
the Loan Documents, or the Borrower's and its Subsidiaries' Property,
business, operations, or condition (financial or otherwise) taken as a whole.
9.16 RESTRICTIVE AGREEMENTS. The Borrower is not a
party to any contract or agreement, and is not subject to any charter or other
corporate restriction, which affects its ability to execute, deliver, and
perform the Loan Documents and repay the Obligations or which materially and
adversely affects the Borrower's and its Subsidiaries' Property, business,
operations, or condition (financial or otherwise) taken as a whole.
9.17 LABOR DISPUTES. Except as set forth on SCHEDULE 9.17: (a)
there is no collective bargaining agreement or other labor contract covering
employees of the Borrower or any of its Subsidiaries; (b) no such collective
bargaining agreement or other labor contract is scheduled to expire during the
term of this Agreement; (c) no union of other labor organization is seeking to
organize, or to be recognized as, a collective bargaining unit of employees of
the Borrower or any of its Subsidiaries or for any similar purpose; and (d)
there is no pending or, to the best of the Borrower's knowledge, threatened
strike, work stoppage, material unfair labor practice claims, or other
material labor dispute against or affecting the Borrower or its Subsidiaries
or their respective employees that could reasonably be expected to have a
material adverse effect on the Borrower's and its Subsidiaries' business,
operations or condition (financial or otherwise) taken as a whole.
9.18 ENVIRONMENTAL LAWS.
(a) Each of the Borrower and its Subsidiaries have
complied in all material respects with all Environmental Laws applicable to
its Premises and business, and neither the Borrower nor any Subsidiary nor any
of their respective present Premises or operations, nor their respective past
property or operations, is subject to any enforcement order from or liability
agreement with any Public Authority or private Person respecting (i)
compliance by the Borrower with any Environmental Law or (ii) any potential
liabilities of the Borrower and costs or remedial action by the Borrower
arising from the Release or threatened Release of a Contaminant, in each case
that could reasonably be expected to have a material adverse effect on the
business, operations or condition of the Borrower and its Subsidiaries
(financial or otherwise) taken as a whole.
(b) The Borrower and its Subsidiaries have obtained all
permits necessary for their current operations under Environmental Laws, and
all such permits are in good standing and the Borrower and its Subsidiaries
are in compliance in all material respects with all terms and conditions of
such permits except where the failure to do so could reasonably be expected to
have a material adverse effect on the business, operations or condition of the
Borrower and its Subsidiaries (financial or otherwise) taken as a whole.
(c) Neither the Borrower nor any of its Subsidiaries has
stored, treated or disposed of any hazardous waste on any Premises, as defined
pursuant to 40 CFR Part 261 or any equivalent Environmental Law except in
material compliance.
38
(d) Neither the Borrower nor any of its Subsidiaries has
received any summons, complaint, order or similar written notice that it is
not currently in compliance with, or that any Public Authority is
investigating its compliance with, any Environmental Laws or that it is or may
be liable to any other Person as a result of a Release or threatened Release
of a Contaminant.
(e) To the best of the Borrower's knowledge, none of the
present or past operations of the Borrower and its Subsidiaries is the subject
of any investigation by any Public Authority evaluating whether any remedial
action is needed to respond to a Release or threatened Release of a
Contaminant.
(f) To the best of the Borrower's knowledge, there is not
now, nor has there ever been on or in the Premises:
(i) any underground storage tanks or surface
impoundments,
(ii) any asbestos containing material, or
(iii) any polychlorinated biphenyls (PCB's) used in
hydraulic oils, electrical transformers or other equipment.
(g) Neither the Borrower nor any of its Subsidiaries has
filed any notice under any requirement of Environmental Law reporting a spill
or accidental and unpermitted release or discharge of a Contaminant into the
environment.
(h) Neither the Borrower nor any of its Subsidiaries has
entered into any negotiations or settlement agreements with any Person
(including, without limitation, the prior owner of its property) imposing
material obligations or liabilities on the Borrower or any of its Subsidiaries
with respect to any remedial action in response to the Release of a
Contaminant or environmentally related claim.
(i) None of the products manufactured, distributed or sold
by the Borrower or any of its Subsidiaries contains asbestos material.
(j) No Environmental Lien has attached to the Borrower's
interest in any Premises of the Borrower or any of its Subsidiaries.
9.19 NO VIOLATION OF LAW. The Borrower is not in violation of any
law, statute, regulation, ordinance, judgment, order, or decree applicable to
it which violation would in any respect materially and adversely affect the
Collateral, the repayment of the Obligations, the Lender's rights under the
Loan Documents, or the Borrower's Property, business, operations, or condition
(financial or otherwise).
9.20 NO DEFAULT. The Borrower is not in default with respect to
any note, indenture, loan agreement, mortgage, lease, deed, or other agreement
to which the Borrower is a party or bound, which default could reasonably be
expected to materially and adversely affect the Collateral, the repayment of
39
the Obligations, the Lender's rights under the Loan Documents, or the
Borrower's Property, business, operations, or condition (financial or
otherwise).
9.21 ERISA COMPLIANCE.
(a) Each Plan is in compliance in all material respects
with the applicable provisions of ERISA, the Code and other federal or state
law. Each Plan which is intended to qualify under Section 401(a) of the Code
has received a favorable determination letter from the IRS and to the best
knowledge of the Borrower, nothing has occurred which would cause the loss of
such qualification. The Borrower and each ERISA Affiliate has made all
required contributions to any Plan subject to Section 412 of the Code, and no
application for a funding waiver or an extension of any amortization period
pursuant to Section 412 of the Code has been made with respect to any Plan.
(b) There are no pending or, to the best knowledge of
Borrower, threatened claims, actions or lawsuits, or action by any Public
Authority, with respect to any Plan which has resulted or could reasonably be
expected to result in a material adverse effect on the Borrower's business or
operations. There has been no prohibited transaction or violation of the
fiduciary responsibility rules with respect to any Plan which has resulted or
could reasonably be expected to result in a material adverse effect on the
Borrower's business or operations.
(c) (i) No ERISA Event has occurred or is reasonably
expected to occur; (ii) no Pension Plan has any unfunded pension liability;
(iii) neither the Borrower nor any ERISA Affiliate has incurred, or reasonably
expects to incur, any liability under Title IV of ERISA with respect to any
Pension Plan (other than premiums due and not delinquent under Section 4007 of
ERISA); (iv) neither the Borrower nor any ERISA Affiliate has incurred, or
reasonably expects to incur, any liability (and no event has occurred which,
with the giving of notice under Section 4219 of ERISA, would result in such
liability) under Section 4201 or 4243 of ERISA with respect to a Multiemployer
Plan; and (v) neither the Borrower nor any ERISA Affiliate has engaged in a
transaction that could subject any Person to Section 4069 or 4212(c) of ERISA.
9.22 TAXES. The Borrower and its Subsidiaries have filed all tax
returns and other reports required to be filed and have paid all Taxes,
assessments, fees and other governmental charges levied or imposed upon them
or their properties, income or assets that are otherwise due and payable,
excluding the Lender's income taxes and franchise taxes.
9.23 USE OF PROCEEDS. None of the transactions contemplated in
this Agreement (including, without limitation, the use of proceeds from the
Loans) will violate or result in the violation of Section 7 of the Securities
Exchange Act of 1934, as amended, or any regulations issued pursuant thereto,
including without limitation, Regulations G,T,U and X of the Board of
Governors of the Federal Reserve System ("Federal Reserve Board"), 12 CFR,
Chapter II. Borrower does not own or intend to carry or purchase any "margin
stock" within the meaning of said Regulation U or G. None of the proceeds of
the loans will be used, directly or indirectly, to purchase or carry (or
refinance any borrowing, the proceeds of which were used to purchase or carry)
40
any "security" within the meaning of the Securities Exchange Act of 1934, as
amended.
9.24 BROKER'S FEES. No Person is entitled to any brokerage or
finder s fee with respect to the transactions described in this Agreement.
9.25 NO MATERIAL ADVERSE CHANGE. No material adverse change has
occurred in the Borrower's Property, business, operations, or conditions
(financial or otherwise) since the date of the Financial Statements delivered
to the Lender.
9.26 DISCLOSURE. Neither this Agreement nor any document or
statement furnished to the Lender by or on behalf of the Borrower hereunder
contains any untrue statement of a material fact or omits to state any
material fact necessary in order to make the statements contained herein or
therein not misleading.
10. AFFIRMATIVE AND NEGATIVE COVENANTS. The Borrower covenants that,
so long as any of the Obligations remain outstanding or this Agreement is in
effect:
10.1 TAXES AND OTHER OBLIGATIONS. The Borrower shall: (a) file
when due all tax returns and other reports which it is required to file, pay,
or provide for the payment, when due, of all Taxes, fees, assessments and
other governmental charges against it or upon its Property, income, and
franchises, make all required withholding and other tax deposits, and
establish adequate reserves for the payment of all such items, and shall
provide to the Lender, upon reasonable request, satisfactory evidence of its
timely compliance with the foregoing; and (b) pay within normal trade terms
all trade Debt and, when due, all other Debt, and perform and discharge in a
timely manner all other obligations undertaken by it; PROVIDED, HOWEVER that
the Borrower and its Subsidiaries need not pay any tax, fee, assessment,
governmental charge, or Debt, or perform or discharge any other obligation,
that it is contesting in good faith by appropriate proceedings diligently
pursued.
10.2 CORPORATE EXISTENCE AND GOOD STANDING. The Borrower and each
of its Subsidiaries shall maintain its corporate existence and its
qualification and good standing in all states necessary to conduct its
business and own its Property, and shall obtain and maintain all licenses,
permits, franchises and governmental authorizations necessary to conduct its
business and own its Property, except where the failure to do so could not
reasonably be expected to have a material adverse effect on the business,
operations or condition of the Borrower and its Subsidiaries (financial or
otherwise) taken as a whole.
10.3 COMPLIANCE WITH LAW AND AGREEMENTS. The Borrower and each of
its Subsidiaries shall comply with the terms and provisions of each judgment,
law, statute, rule, and governmental regulation applicable to it and each
contract, mortgage, lien, lease, indenture, order, instrument, agreement, or
document to which it is a party or by which it is bound, except where the
failure to do so could not reasonably be expected to have a material adverse
effect on the business, operations or condition of the Borrower and its
41
Subsidiaries (financial or otherwise) taken as a whole.
10.4 MAINTENANCE OF PROPERTY AND INSURANCE. The Borrower and each
of its Subsidiaries shall: (a) maintain all of its Property necessary and
useful in its business in good operating condition and repair, ordinary wear
and tear excepted; and (b) in addition to the insurance required by SECTION
7.7, maintain with financially sound and reputable insurers such other
insurance with respect to its Property and business against casualties and
contingencies of such types (including, without limitation, business
interruption, environmental liability, public liability, product liability,
and larceny, embezzlement or other criminal misappropriation) and in such
amounts as is customary for Persons of established reputation engaged in the
same or a similar business and similarly situated, naming the Lender, at its
request, as additional insured under each such policy.
10.5 ENVIRONMENTAL LAWS. The Borrower shall conduct its business
in material compliance with all Environmental Laws applicable to it,
including, without limitation, those relating to the Borrower's generation,
handling, use, storage, and disposal of hazardous and toxic wastes and
substances. The Borrower shall take prompt and appropriate action to respond
to any non-compliance with Environmental Laws and shall regularly report to
the Lender on such response.
10.6 ERISA. The Borrower shall cause each Plan, which has been
designated to be so, to be qualified within the meaning of Section 401(a) of
the Code and to be administered in all respects in substantial compliance with
Section 401(a) of the Code. The Borrower shall cause each Plan to be
administered in all respect in substantial compliance with ERISA.
10.7 MERGERS, CONSOLIDATIONS, ACQUISITIONS, OR SALES. Neither the
Borrower nor any of its Subsidiaries shall enter into any transaction of
merger, reorganization, or consolidation (other than the merger of an existing
Subsidiary with and into the Borrower, where the Borrower is the surviving
entity of such merger), or transfer, sell, assign, lease, or otherwise dispose
of all or any part of its Property, or wind up, liquidate or dissolve, or
agree to do any of the foregoing, except sales of Inventory in the ordinary
course of its business, sales of equipment or store closures.
10.8 DISTRIBUTIONS; CAPITAL CHANGES. Neither the Borrower nor any
of its Subsidiaries shall: (a) directly or indirectly declare or make, or
incur any liability to make, any Distribution, except Distributions to the
Borrower by a Subsidiary wholly owned by the Borrower; or (b) make any change
in its capital structure which could adversely affect the repayment of the
Obligations.
10.9 TRANSACTIONS AFFECTING COLLATERAL OR OBLIGATIONS. Neither
the Borrower nor any of its Subsidiaries shall enter into any transaction
which materially and adversely affects the Collateral or the Borrower's
ability to repay the Obligations.
10.10 GUARANTIES. Neither the Borrower nor any of its Subsidiaries
shall make, issue, or become liable on any Guaranty, except Guaranties in
favor of the Lender and endorsements of instruments for deposit.
42
10.11 DEBT. Neither the Borrower nor any of its Subsidiaries shall
incur or maintain any Debt, other than: (a) the Obligations; (b) trade
payables, leases and other contractual obligations incurred in the ordinary
course of their business; (c) other Debt existing on the Closing Date and
reflected in the Financial Statements attached as EXHIBIT D-1; (d) liabilities
under any Plan and any other employee benefit obligations and liabilities; (e)
subject to SECTION 10.19, Debt incurred in connection with future leases
and/or equipment purchases; and (f) deferred taxes.
10.12 PREPAYMENT. Neither the Borrower nor any of its Subsidiaries
shall voluntarily prepay any Debt, except the Obligations in accordance with
their terms or trade payables.
10.13 TRANSACTIONS WITH AFFILIATES. Except as set forth below,
neither the Borrower nor any of its Subsidiaries shall: sell, transfer,
distribute, or pay any money or Property to any Affiliate, or lend or advance
money or Property to any Affiliate, or invest in (by capital contribution or
otherwise) or purchase or repurchase any stock or indebtedness or any Property
of any Affiliate, or become liable on any Guaranty of the indebtedness,
dividends, or other obligations of any Affiliate. Notwithstanding the
foregoing, if no Event of Default has occurred and is continuing, the Borrower
and its Subsidiaries may engage in transactions with Affiliates in the
ordinary course of business in amounts and upon terms fully disclosed to the
Lender and no less favorable to the Borrower or such Subsidiary than would
obtain in a comparable arm's length transaction with a third party who is not
an Affiliate and may pay reasonable fees to their directors in the ordinary
course of business.
10.14 BUSINESS CONDUCTED. The Borrower and its Subsidiaries shall
not engage, directly or indirectly, in any line of business other than the
businesses in which the Borrower and its Subsidiaries are engaged on the
Closing Date and retail and catalog businesses reasonably related thereto.
10.15 LIENS. Neither the Borrower nor any of its Subsidiaries
shall create, incur, assume, or permit to exist any Lien on any Property now
owned or hereafter acquired by any of them, except Permitted Liens.
10.16 SALE AND LEASEBACK TRANSACTIONS. Neither the Borrower nor
any of its Subsidiaries shall, directly or indirectly, enter into any
arrangement with any Person providing for the Borrower or a Subsidiary to
lease or rent Property that the Borrower or a Subsidiary has or will sell or
otherwise transfer to such Person.
10.17 NEW SUBSIDIARIES. The Borrower shall not, directly or
indirectly, organize or acquire any Subsidiary other than those listed on
SCHEDULE 9.5.
10.18 RESTRICTED INVESTMENTS. Neither the Borrower nor any of its
Subsidiaries shall make any Restricted Investment.
10.19 CAPITAL EXPENDITURES. Neither the Borrower nor any of its
Subsidiaries shall make or incur any Capital Expenditure if, after giving
effect thereto, the aggregate amount of all Capital Expenditures by the
43
Borrower and its Subsidiaries in any Fiscal Year would exceed $10,000,000;
provided that the Borrower and its Subsidiaries may make or incur Capital
Expenditures in an amount in excess of $10,000,000 (not to exceed $12,500,000)
in a Fiscal Year if, and only to the extent of, the difference between
$10,000,000 and the actual Capital Expenditures in the immediately preceding
Fiscal Year (not to exceed $10,000,000).
10.20 ADJUSTED NET INCOME (LOSS). The Borrower will achieve,
measured as of the end of each fiscal quarter on a Fiscal Year-to-date basis,
Adjusted Net Income of not less than (or loss not greater than) the following
amounts during the following periods:
PERIOD AMOUNT
Fiscal Year 1997 $(2,750,000)
First fiscal quarter
of Fiscal Year 1998 $(1,950,000)
Second fiscal quarter
of Fiscal Year 1998 $(2,430,000)
Third fiscal quarter
of Fiscal Year 1998 $(3,600,000)
Fiscal Year 1998 $(3,000,000)
The Lender shall set covenants for future periods under this SECTION 10.20
based on the Borrower's projections, which covenants shall be binding upon the
Borrower unless manifestly unreasonable.
10.21 FURTHER ASSURANCES. The Borrower shall execute and deliver,
or cause to be executed and delivered, to the Lender such documents and
agreements, and shall take or cause to be taken such actions, as the Lender
may, from time to time, request to carry out the terms and conditions of this
Agreement and the other Loan Documents.
11. CLOSING; CONDITIONS TO CLOSING. The Lender will not be obligated
to make the initial Loans or to issue or obtain any Letters of Credit on the
Closing Date, unless the following conditions precedent have been waived or
satisfied in a manner satisfactory to Lender:
11.1 CONDITIONS PRECEDENT TO MAKING OF LOANS AND ISSUANCE OF
LETTERS OF CREDIT ON THE CLOSING DATE.
(a) REPRESENTATIONS AND WARRANTIES; COVENANTS. The
Borrower's representations and warranties contained in this Agreement and the
other Loan Documents shall be correct and complete; the Borrower shall have
performed and complied with all covenants, agreements, and conditions
contained herein and in the other Loan Documents which are required to have
been performed or complied with on or prior to the Closing Date.
(b) DELIVERY OF DOCUMENTS. The Borrower shall have
delivered, or caused to be delivered, to the Lender such documents,
44
instruments and agreements as the Lender shall reasonably request in
connection herewith, duly executed by all parties thereto other than the
Lender, and in form and substance reasonably satisfactory to the Lender and
its counsel.
(c) TERMINATION OF LIENS. The Lender shall have received
duly executed UCC-3 Termination Statements and other instruments (including
UCC Assignments from the Bank), in form and substance reasonably satisfactory
to the Lender, as shall be necessary to terminate and satisfy all Liens on the
Property of the Borrower and its Subsidiaries except Permitted Liens.
(d) PAYMENT OF FEES AND EXPENSES. The Borrower shall have
paid the reasonable fees and expenses of the Lender's outside counsel, ▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ LLP, and all other fees and expenses of the Lender
incurred in connection with any of the Loan Documents and the transactions
contemplated thereby for which the Borrower shall have received an invoice.
(e) REQUIRED APPROVALS. The Lender shall have received
certified copies of all consents or approvals of any Public Authority or other
Person which the Lender determines are required in connection with the
transactions contemplated by this Agreement.
(f) NO MATERIAL ADVERSE CHANGE. There shall have occurred
no material adverse change in the Borrower's business or financial condition
or in the Collateral since November 30, 1996, and the Lender shall have
received a certificate of the Borrower's chief executive officer or accounting
officer to such effect.
(g) PROCEEDINGS. All proceedings to be taken in connection
with the transactions contemplated by this Agreement, and all documents,
contemplated in connection herewith, shall be reasonably satisfactory in form
and substance to the Lender and its counsel.
(h) EXCESS AVAILABILITY. After taking into account the
Revolving Loans and the Letters of Credit issued on the Closing Date and with
all obligations of the Borrower being current, there shall be remaining
Availability of at least $11,000,000.
(i) PROJECTIONS. The Lender shall have received and
approved the Borrower's Latest Projections.
(j) THIRD PARTY FACILITIES. The Lender shall have received
satisfactory bailee agreements for each of Borrower's third party distribution
marking facilities and cross docks, or in each case shall have reserved for
three (3) months' fees in lieu thereof.
(k) OPINION. The Lender shall have received the opinion of
Borrower's counsel, which opinion shall be in form and substance acceptable to
the Lender and its counsel.
11.2 CONDITIONS PRECEDENT TO EACH LOAN. The obligation of the
Lender to make each Loan or to provide for the issuance of any Letter of
Credit shall be subject to satisfaction or waiver of the conditions precedent
45
that on the date of any such extension of credit the following statements
shall be true, and the acceptance by the Borrower of any extension of credit
shall be deemed to be a statement to the effect set forth in clauses (a) and
(b), with the same effect as the delivery to the Lender of a certificate
signed by the chief executive officer or the chief financial officer or chief
accounting officer of the Borrower, dated the date of such extension of
credit, stating that:
(a) The representations and warranties contained in this
Agreement and the other Loan Documents are correct in all material respects on
and as of the date of such extension of credit as though made on and as of
such date, except to the extent the Lender has been notified by the Borrower
that any representation or warranty is not correct and the Lender has
explicitly waived in writing compliance with such representation or warranty
and except where the representations and warranties specifically relate to an
earlier date, in which case such representations and warranties shall be
correct in all material respects on and as of such earlier date; and
(b) No Event of Default has occurred and is continuing, or
would result from such extension of credit
12. DEFAULT; REMEDIES.
12.1 EVENTS OF DEFAULT. It shall constitute an event of default
("Event of Default") if any one or more of the following shall occur for any
reason:
(a) failure to make payment of principal when due in
accordance with the terms hereof or failure to make payment of interest, fees
or premium on any of the Obligations within 3 days of the date when due;
(b) any representation or warranty made or deemed made by
the Borrower in this Agreement, any of the other Loan Documents, any Financial
Statement, or any certificate furnished by the Borrower or any Subsidiary at
any time to the Lender shall prove to be untrue in any material respect as of
the date when made, deemed made, or furnished;
(c) default shall occur in the observance or performance
by the Borrower of any of the covenants and agreements contained in this
Agreement or, the other Loan Documents, or if any such agreement or document
shall terminate (other than in accordance with its terms or with the written
consent of the Lender) or become void or unenforceable without the written
consent of the Lender;
(d) default shall occur in the payment of any principal or
interest on any indebtedness for borrowed money in excess of $100,000 (other
than the Obligations) beyond any period of grace provided with respect
thereto;
(e) the Borrower or any Subsidiary shall: (i) file a
voluntary petition in bankruptcy or file a voluntary petition or an answer or
otherwise commence any action or proceeding seeking reorganization,
46
arrangement or readjustment of its debts or for any other relief under the
Federal Bankruptcy Code, as amended, or under any other bankruptcy or
insolvency act or law, state or federal, now or hereafter existing, or consent
to, approve of, or acquiesce in, any such petition, action or proceeding; (ii)
apply for or acquiesce in the appointment of a receiver, assignee, liquidator,
sequestrator, custodian, trustee or similar officer for it or for all or any
part of its Property; (iii) make an assignment for the benefit of creditors;
or (iv) be unable generally to pay its debts as they become due;
(f) an involuntary petition shall be filed or an action or
proceeding otherwise commenced seeking reorganization, arrangement or
readjustment of the Borrower's or any Subsidiary's debts or for any other
relief under the Federal Bankruptcy Code, as amended, or under any other
bankruptcy or insolvency act or law, state or federal, now or hereafter
existing and shall remain undismissed or unstayed of a period of sixty (60)
days or more, provided that the Lender shall have no obligation to make any
loans or cause any Letters of Credit to be issued during the pendency of any
such petition or action;
(g) a receiver, assignee, liquidator, sequestrator,
custodian, trustee or similar officer for the Borrower or any Subsidiary or
for all or any part of their respective Property shall be appointed
involuntarily, or a warrant of attachment, execution or similar process shall
be issued against any part of the Property of the Borrower or any Subsidiary,
and the same shall remain in effect for ten (10) or more days;
(h) the Borrower or any Subsidiary shall file a
certificate of dissolution under applicable state law or shall be liquidated,
dissolved or wound-up or shall commence or have commenced against it any
action or proceeding for dissolution, winding-up or liquidation, or shall take
any corporate action in furtherance thereof;
(i) all or any part of the Property of the Borrower shall
be nationalized, expropriated or condemned, seized or otherwise appropriated,
or custody or control of such Property or of the Borrower shall be assumed by
any Public Authority or any court of competent jurisdiction at the instance of
any Public Authority, except where contested in good faith by proper
proceedings diligently pursued where a stay of enforcement is in effect;
(j) one or more final judgments for the payment of money
aggregating in excess of $500,000 (whether or not covered by insurance) shall
be rendered against the Borrower or any Subsidiary and the Borrower or such
Subsidiary shall fail to discharge the same within thirty (30) days from the
date of notice of entry thereof or to appeal therefrom;
(k) any loss, theft, damage or destruction of any item or
items of Collateral occurs which: (i) materially and adversely affects the
operation of the Borrower's business taken as a whole or (ii) is in excess of
$500,000 and is not adequately covered by insurance;
(l) any event or condition shall occur or exist with
respect to a Plan that could subject the Borrower or any Subsidiary to any
tax, penalty or liability under ERISA, the Code or otherwise which in the
47
aggregate is material in relation to the business, operations, Property or
financial or other condition of the Borrower; or
(m) there occurs any material adverse change in the
Borrower's Property, business, operations, or condition (financial or
otherwise).
13. REMEDIES.
(a) If an Event of Default exists, the Lender may, without
notice to or demand on the Borrower, do one or more of the following at any
time or times and in any order: (i) reduce the Availability or one or more of
the elements thereof; (ii) restrict the amount of or refuse to make Revolving
Loans and restrict or refuse to arrange for Letters of Credit; (iii) terminate
this Agreement; (iv) declare any or all Obligations to be immediately due and
payable (provided however that upon the occurrence of any Event of Default
described in SECTIONS 12.1(e), 12.1(f), 12.1(g), or 12.1(h), all Obligations
shall automatically become immediately due and payable); and (v) pursue its
other rights and remedies under the Loan Documents and applicable law.
(b) If an Event of Default exists: (i) the Lender shall have, in
addition to all other rights, the rights and remedies of a secured party under
the UCC; (ii) the Lender may, at any time, take possession of the Collateral
and keep it on the Borrower's premises, at no cost to the Lender, or remove
any part of it to such other place or places as the Lender may desire, or the
Borrower shall, upon the Lender's demand, at the Borrower's cost, assemble the
Collateral and make it available to the Lender at a place reasonably
convenient to the Lender; and (iii) the Lender may sell and deliver any
Collateral at public or private sales, for cash, upon credit or otherwise, at
such prices and upon such terms as the Lender deems advisable, in its sole
discretion, and may, if the Lender deems it reasonable, postpone or adjourn
any sale of the Collateral by an announcement at the time and place of sale or
of such postponed or adjourned sale without giving a new notice of sale.
Without in any way requiring notice to be given in the following manner, the
Borrower agrees that any notice by the Lender of sale, disposition or other
intended action hereunder or in connection herewith, whether required by the
UCC or otherwise, shall constitute reasonable notice to the Borrower if such
notice is mailed by registered or certified mail, return receipt requested,
postage prepaid, or is delivered personally against receipt, at least ten (10)
days prior to such action to the Borrower's address specified in or pursuant
to SECTION 15.11. If any Collateral is sold on terms other than payment in
full at the time of sale, no credit shall be given against the Obligations
until the Lender receives payment, and if the buyer defaults in payment, the
Lender may resell the Collateral without further notice to the Borrower. In
the event the Lender seeks to take possession of all or any portion of the
Collateral by judicial process, the Borrower irrevocably waives: (a) the
posting of any bond, surety or security with respect thereto which might
otherwise be required; (b) any demand for possession prior to the commencement
of any suit or action to recover the Collateral; and (c) any requirement that
the Lender retain possession and not dispose of any Collateral until after
trial or final judgment. The Borrower agrees that the Lender has no obligation
to preserve rights to the Collateral or marshal any Collateral for the benefit
of any Person. The Lender is hereby granted a license or other right to use,
48
without charge, the Borrower's labels, patents, copyrights, name, trade
secrets, trade names, trademarks, and advertising matter, or any similar
property, in completing production of, advertising or selling any Collateral,
and the Borrower's rights under all licenses and all franchise agreements
shall inure to the Lender's benefit. The proceeds of sale shall be applied
first to all expenses of sale, including attorney's fees, and second, in
whatever order the Lender elects, to all Obligations. The Lender will return
any excess to the Borrower or such other Person as shall be legally entitled
thereto and the Borrower shall remain liable for any deficiency.
(c) If an Event of Default occurs, the Borrower hereby waives
(i) all rights to notice and hearing prior to the exercise by the Lender of
the Lender's rights to repossess the Collateral without judicial process or to
replevy, attach or levy upon the Collateral without notice or hearing, and
(ii) all rights of set-off and counterclaim against the Lender.
(d) If the Lender terminates this Agreement upon an Event of
Default, the Borrower shall pay the Lender, immediately upon termination, a
fee equal to the early termination fee that would have been payable under
SECTION 14 if this Agreement had been terminated on that date pursuant to the
Borrower's election.
14. TERM AND TERMINATION. This Agreement shall expire on January 13,
2000 (the "Stated Termination Date") unless earlier terminated or
automatically extended as provided in this Section. This Agreement shall
automatically be renewed on the Stated Termination Date for successive one-
year terms, unless this Agreement is terminated as provided below. The Lender
and the Borrower shall have the right to terminate this Agreement, without
premium or penalty, on the Stated Termination Date at the end of any renewal
term by giving the other written notice not less than sixty (60) days prior to
the end of such term by registered or certified mail. The Borrower may also
terminate this Agreement at any time prior to the Stated Termination Date or
during any renewal term if: (a) it gives the Lender sixty (60) days prior
written notice of termination by registered or certified mail; (b) it pays and
performs all Obligations on or prior to the effective date of termination; and
(c) it pays the Lender, on or prior to the effective date of termination, and
in addition to any other prepayment premium required hereunder and the fees
required by SECTION 6.4, (i) two percent (2%) of the average amount of the
Revolving Loans and Letters of Credit outstanding during the prior 180 day
period (or lesser period if within 180 days of the Closing Date) if such
termination is made on or prior to the first Anniversary Date; and (ii) one
percent (1%) of the average amount of the Revolving Loans and Letters of
Credit outstanding during the prior 180 day period if such termination is
after the first Anniversary Date but prior to the second Anniversary Date;
PROVIDED, however, that if such termination occurs in connection with a
refinancing agented by the Bank or in which the Bank is the sole lender, the
prepayment fee set forth in this clause (c) shall not be payable; PROVIDED
further that in any event no prepayment fee shall be payable after the second
Anniversary Date. The Lender may also terminate this Agreement without notice
while an Event of Default exists. Upon the effective date of termination of
this Agreement for any reason whatsoever, all Obligations shall become
immediately due and payable and Borrower shall immediately arrange for the
49
cancellation of Letters of Credit then outstanding. Notwithstanding the
termination of this Agreement, until all Obligations are paid and performed in
full, the Lender shall retain all its rights and remedies hereunder
(including, without limitation, in all then existing and after-arising
Collateral).
15. MISCELLANEOUS.
15.1 CUMULATIVE REMEDIES; NO PRIOR RECOURSE TO COLLATERAL. The
enumeration herein of the Lender's rights and remedies is not intended to be
exclusive, and such rights and remedies are in addition to and not by way of
limitation of any other rights or remedies that the Lender may have under the
UCC or other applicable law. The Lender shall have the right, in its sole
discretion, to determine which rights and remedies are to be exercised and in
which order. The exercise of one right or remedy shall not preclude the
exercise of any others, all of which shall be cumulative. The Lender may,
without limitation, proceed directly against the Borrower to correct the
Obligations without any prior recourse to the Collateral.
15.2 NO IMPLIED WAIVERS. No act, failure or delay by the Lender
shall constitute a waiver of any of its rights and remedies. No single or
partial waiver by the Lender of any provision of this Agreement or any other
Loan Document, or of breach or default hereunder or thereunder, or of any
right or remedy which the Lender may have, shall operate as a waiver of any
other provision, breach, default, right or remedy or of the same provision,
breach, default, right or remedy on a future occasion. No waiver by the Lender
shall affect its rights to require strict performance of this Agreement.
15.3 SEVERABILITY. If any provision of this Agreement shall be
prohibited or invalid, under applicable law, it shall be is effective only to
such extent, without invalidating the remainder of this Agreement.
15.4 GOVERNING LAW. This Agreement shall be deemed to have been
made in the State of California and shall be governed by and interpreted in
accordance with the laws of such state, except that no doctrine of choice of
law shall be used to apply the laws of any other state or jurisdiction.
15.5 CONSENT TO JURISDICTION AND VENUE; SERVICE OF PROCESS. The
Borrower agrees that, in addition to any other courts that may have
jurisdiction under applicable laws, any action or proceeding to enforce or
arising out of this Agreement or any of the other Loan Documents may be
commenced in the Superior Court of the State of California for Los Angeles
County, or in the United States District Court for the Central District of
California, and the Borrower consents and submits in advance to such
jurisdiction and agrees that venue will be proper in such courts on any such
matter. The Borrower hereby waives personal service of process and agrees that
a summons and complaint commencing an action or proceeding in any such court
shall be properly served and shall confer personal jurisdiction if served by
registered or certified mail to the Borrower. The choice of forum set forth in
this section shall not be deemed to preclude the enforcement of any judgment
obtained in such forum, or the taking of any action under this Agreement to
enforce the same, in any appropriate jurisdiction.
50
15.6 WAIVER OF JURY TRIAL. THE BORROWER HEREBY WAIVES TRIAL BY
JURY, RIGHTS OF SETOFF, AND THE RIGHT TO IMPOSE PERMISSIVE COUNTERCLAIMS IN
ANY LITIGATION IN ANY COURT WITH RESPECT TO, IN CONNECTION WITH, OR ARISING
OUT OF THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, THE OBLIGATIONS OR THE
COLLATERAL, OR ANY INSTRUMENT OR DOCUMENT DELIVERED PURSUANT HERETO OR
THERETO. THE BORROWER CONFIRMS THAT THE FOREGOING WAIVERS ARE INFORMED AND
FREELY MADE.
15.7 ARBITRATION; REFERENCE PROCEEDING.
(a) ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY AGREEMENTS OR INSTRUMENTS
RELATING HERETO OR DELIVERED IN CONNECTION HEREWITH AND ANY CLAIM BASED ON OR
ARISING FROM AN ALLEGED TORT, SHALL AT THE REQUEST OF ANY PARTY BE DETERMINED
BY ARBITRATION. THE ARBITRATION SHALL BE CONDUCTED IN ACCORDANCE WITH THE
UNITED STATES ARBITRATION ACT (TITLE 9, U.S. CODE), NOTWITHSTANDING ANY CHOICE
OF LAW PROVISION IN THIS AGREEMENT, AND UNDER THE COMMERCIAL RULES OF THE
AMERICAN ARBITRATION ASSOCIATION ("AAA"). THE ARBITRATION SHALL BE CONDUCTED
WITHIN LOS ANGELES COUNTY, CALIFORNIA. THE ARBITRATOR(S) SHALL GIVE EFFECT TO
STATUTES OF LIMITATION IN DETERMINING ANY CLAIM. ANY CONTROVERSY CONCERNING
WHETHER AN ISSUE IS ARBITRABLE SHALL BE DETERMINED BY THE ARBITRATOR(S).
JUDGMENT UPON THE ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING
JURISDICTION. THE INSTITUTION AND MAINTENANCE OF AN ACTION FOR JUDICIAL RELIEF
OR PURSUIT OF A PROVISIONAL OR ANCILLARY REMEDY SHALL NOT CONSTITUTE A WAIVER
OF THE RIGHT OF ANY PARTY, INCLUDING THE PLAINTIFF, TO SUBMIT THE CONTROVERSY
OR CLAIM TO ARBITRATION IF ANY OTHER PARTY CONTESTS SUCH ACTION FOR JUDICIAL
RELIEF.
(b) Notwithstanding the provisions of subparagraph (a), no
controversy or claim shall be submitted to arbitration without the consent of
all parties if, at the time of the proposed submission, such controversy or
claim arises from or relates to an obligation to the Lender which is secured
by real property collateral located in California. If all parties do not
consent to submission of such a controversy or claim to arbitration, the
controversy or claim shall be determined as provided in subparagraph (c).
(c) A controversy or claim which is not submitted to
arbitration as provided and limited in subparagraphs (a) and (b) shall, at the
request of any party, be determined by a reference in accordance with
California Code of Civil Procedure Section 638 ET SEQ. If such an election is
made, the parties shall designate to the court a referee or referees selected
under the auspices of the AAA in the same manner as arbitrators are selected
in AAA--sponsored proceedings. The presiding referee of the panel, or the
referee if there is a single referee, shall be an active attorney or retired
judge. Judgment upon the award rendered by such referee or referees shall be
entered in the court in which such proceeding was commenced in accordance with
California Code of Civil Procedure Sections 644 and 645.
(d) No provision of this paragraph shall limit the right
of either party to this Agreement to exercise self-help remedies such as
setoff, to foreclose against or sell any real or personal property collateral
or security, or to obtain provisional or ancillary remedies from a court of
competent jurisdiction before, after, or during the pendency of any
51
arbitration or other proceeding. The exercise of a remedy does not waive the
right of either party to resort to arbitration or reference. At the Lender's
option, foreclosure under a deed of trust or mortgage may be accomplished
either by exercise of power of sale under the deed of trust or mortgage or by
judicial foreclosure.
15.8 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the
Borrower's representations and warranties contained in this Agreement shall
survive the execution, delivery, and acceptance thereof by the parties,
notwithstanding any investigation by the Lender or its agents.
15.9 OTHER SECURITY AND GUARANTIES. The Lender may, without
notice or demand and without affecting the Borrower's obligations hereunder,
from time to time: (a) take from any Person and hold collateral (other than
the Collateral) for the payment of all or any part of the Obligations and
exchange, enforce or release such collateral or any part thereof; and (b)
accept and hold any endorsement or guaranty of payment of all or any part of
the Obligations and release or substitute any such endorser or guarantor, or
any Person who has given any Lien in any other collateral as security for the
payment of all or any part of the Obligations, or any other Person in any way
obligated to pay all or any part of the Obligations.
15.10 FEES AND EXPENSES. The Borrower shall pay to the Lender on
demand all reasonable costs and expenses that the Lender pays or incurs in
connection with the negotiation, preparation, consummation, administration,
enforcement, and termination of this Agreement and the other Loan Documents,
including, without limitation: (a) attorneys' and paralegals' fees and
disbursements of counsel to the Lender (including, without limitation, a
reasonable estimate of the allocable cost of in-house counsel and staff); (b)
costs and expenses including attorneys' and paralegals' fees and disbursements
(including, without limitation, a reasonable estimate of the allocable cost of
in-house counsel and staff) for any amendment, supplement, waiver, consent, or
subsequent closing in connection with the Loan Documents and the transactions
contemplated thereby; (c) costs and expenses of lien and title searches and
title insurance; (d) Taxes, fees and other charges for recording the
mortgages, filing financing statements and continuations, and other actions to
perfect, protect, and continue the Security Interest; (e) sums paid or
incurred to pay any amount or take any action required of the Borrower under
the Loan Documents that the Borrower fails to pay or take; (f) costs of
appraisals, inspections, and verifications of the Collateral, including,
without limitation, travel, lodging, meals and other expenses together with an
allocated charge of $500 per day for each auditor employed by the Lender for
inspections of the Collateral and the Borrower's operations; (g) costs and
expenses of forwarding loan proceeds, collecting checks and other items of
payment, and establishing and maintaining Payment Accounts and lock boxes; (h)
all amounts that the Borrower is required to pay in connection with the
Letters of Credit; (i) costs and expenses of preserving and protecting the
Collateral; and (j) costs and expenses including attorneys' and paralegals'
fees and disbursements (including, without limitation, a reasonable estimate
of the allocable cost of in-house counsel and staff) paid or incurred to
obtain payment of the Obligations, enforce the Security Interest, sell or
otherwise realize upon the Collateral, and otherwise enforce the provisions of
the Loan Documents, or to defend any claims made or threatened against the
52
Lender arising out of the transactions contemplated hereby (including without
limitation, preparations for and consultations concerning any such matters).
The foregoing shall not be construed to limit any other provisions of the Loan
Documents regarding costs and expenses to be paid by the Borrower. All of the
foregoing costs and expenses shall be charged to the Borrower's loan account
as Revolving Loans.
15.11 NOTICES. Except as otherwise provided herein, all notices,
demands, and requests that either party is required or elects to give to the
other shall be in writing, shall be delivered personally against receipt, or
sent by recognized overnight courier services, or mailed by registered or
certified mail, return receipt requested, postage prepaid, and shall be
addressed to the party to be notified as follows:
If to the Lender: BankAmerica Business Credit, Inc.
▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: Portfolio Manager
with a copy to: Bank of America N.T. & S.A., Legal
Department
▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, Esq.
and a copy to: ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
If to the Borrower: Strouds, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: President
with a copy to: ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇
▇▇▇ ▇. ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇, Esq.
or to such other address as each party may designate for itself by like
notice. Any such notice, demand, or request shall be deemed given when
received if personally delivered or sent by overnight courier, or when
deposited in the United States mails, postage paid, if sent by registered or
certified mail.
15.12 INDEMNIFICATION. THE BORROWER HEREBY INDEMNIFIES, DEFENDS
AND HOLDS THE LENDER, AND ITS DIRECTORS, OFFICERS, AGENTS, EMPLOYEES AND
COUNSEL, HARMLESS FROM AND AGAINST ANY AND ALL LOSSES, CLAIMS, DAMAGES,
LIABILITIES, DEFICIENCIES, JUDGMENTS, PENALTIES OR EXPENSES IMPOSED ON,
INCURRED BY OR ASSERTED AGAINST ANY OF THEM, WHETHER DIRECT, INDIRECT OR
CONSEQUENTIAL ARISING OUT OF OR BY REASON OF ANY LITIGATION, INVESTIGATIONS,
53
CLAIMS, OR PROCEEDINGS (WHETHER BASED ON ANY FEDERAL, STATE OR LOCAL LAWS OR
OTHER STATUTES OR REGULATIONS, INCLUDING, WITHOUT LIMITATION, SECURITIES,
ENVIRONMENTAL, OR COMMERCIAL LAWS AND REGULATIONS, UNDER COMMON LAW OR AT
EQUITY, OR ON CONTRACT OR OTHERWISE) COMMENCED OR THREATENED, WHICH ARISE OUT
OF OR ARE IN ANY WAY BASED UPON THE NEGOTIATION, PREPARATION, EXECUTION,
DELIVERY, ENFORCEMENT, PERFORMANCE OR ADMINISTRATION OF THIS AGREEMENT, ANY
OTHER LOAN DOCUMENT, OR ANY UNDERTAKING OR PROCEEDING RELATED TO ANY OF THE
TRANSACTIONS CONTEMPLATED HEREBY OR ANY ACT, OMISSION TO ACT, EVENT OR
TRANSACTION RELATED OR ATTENDANT THERETO, INCLUDING, WITHOUT LIMITATION,
AMOUNTS PAID IN SETTLEMENT, COURT COSTS, AND THE FEES AND EXPENSES OF COUNSEL
REASONABLY INCURRED IN CONNECTION WITH ANY SUCH LITIGATION, INVESTIGATION,
CLAIM OR PROCEEDING AND FURTHER INCLUDING, WITHOUT LIMITATION, ALL LOSSES,
DAMAGES (INCLUDING CONSEQUENTIAL DAMAGES), EXPENSES OR LIABILITIES SUSTAINED
BY THE LENDER IN CONNECTION WITH ANY ENVIRONMENTAL INSPECTION, MONITORING,
SAMPLING, OR CLEANUP OF THE ENCUMBERED REAL ESTATE REQUIRED OR MANDATED BY ANY
ENVIRONMENTAL LAW; PROVIDED, HOWEVER, THAT THE BORROWER SHALL NOT INDEMNIFY
THE LENDER, ITS DIRECTORS, OFFICERS, AGENTS, EMPLOYEES AND COUNSEL FROM SUCH
DAMAGES RESULTING FROM THEIR GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. Without
limiting the foregoing, if, by reason of any suit or proceeding of any kind,
nature, or description against the Borrower, or by the Borrower or any other
party against the Lender, which in the Lender's sole discretion makes it
advisable for the Lender to seek counsel for protection and preservation of
its Collateral and Security Interest hereunder, or to defend its own interest,
such expenses and reasonable counsel fees shall be allowed to the Lender. To
the extent that the undertaking to indemnify, pay and hold harmless set forth
in this SECTION 15.12 may be unenforceable because it is violative of any law
or public policy, the Borrower shall contribute the maximum portion which it
is permitted to pay and satisfy under applicable law, to the payment and
satisfaction of all indemnified matters incurred by the Lender. The foregoing
indemnity shall survive the payment of the Obligations and the termination of
this Agreement. All of the foregoing costs and expenses shall be part of the
Obligations and secured by the Collateral.
15.13 WAIVER OF NOTICES. Unless otherwise expressly provided
herein, the Borrower waives presentment, protest and notice of demand or
dishonor and protest as to any instrument, as well as any and all other
notices to which it might otherwise be entitled. No notice to or demand on the
Borrower which the Lender may elect to give shall entitle the Borrower to any
or further notice or demand in the same, similar or other circumstances.
15.14 BINDING EFFECT; ASSIGNMENT. The provisions of this Agreement
shall be binding upon and inure to the benefit of the respective
representatives, successors and assigns of the parties hereto; provided,
however, that no interest herein may be assigned by the Borrower without the
prior written consent of the Lender. The rights and benefits of the Lender
hereunder shall, if the Lender so agrees, inure to any assignee of the
Obligations or any part thereof.
15.15 MODIFICATION. This Agreement is intended by the Borrower and
the Lender to be the final, complete, and exclusive expression of the
agreement between them. This Agreement supersedes any and all prior oral or
written agreements relating to the subject matter hereof and may not be
contradicted by evidence of prior, contemporaneous or subsequent oral
54
agreements of the parties. There are no oral agreements between the parties.
No modification, rescission, waiver, release, or amendment of any provision of
this Agreement shall be made, except by a written agreement signed by the
Borrower and a duly authorized officer of the Lender.
15.16 COUNTERPARTS. This Agreement may be executed in any number
of counterparts, and by the Lender and the Borrower in separate counterparts,
each of which shall be an original, but all of which shall together constitute
one and the same agreement.
15.17 CAPTIONS. The captions contained in this Agreement are for
convenience only, are without substantive meaning and should not be construed
to modify, enlarge, or restrict any provision.
15.18 RIGHT OF SET-OFF. Whenever an Event of Default exists, the
Lender is hereby authorized at any time and from time to time, to the fullest
extent permitted by law, to set off and apply any and all deposits (general or
special, time or demand, provisional or final) at any time held and other
indebtedness at any time owing by the Lender or any affiliate of the Lender to
or for the credit or the account of the Borrower against any and all of the
Obligations, whether or not then due and payable. The Lender agrees promptly
to notify the Borrower after any such set-off and application made by the
Lender, provided that the failure to give such notice shall not affect the
validity of such set-off and application.
15.19 PARTICIPATING LENDER'S SECURITY INTERESTS. The Lender may,
without notice to or consent by the Borrower, grant one or more participations
in the Loans to Participating Lenders. If a Participating Lender shall at any
time with the Borrower's knowledge participate with the Lender in the Loans,
the Borrower hereby grants to such Participating Lender, and the Lender and
such Participating Lender shall have and are hereby given, a continuing lien
on and security interest in any money, securities and other property of the
Borrower in the custody or possession of the Participating Lender, including
the right of setoff, to the extent of the Participating Lender's participation
in the Obligations, and such Participating Lender shall be deemed to have the
same right of setoff to the extent of Participating Lender's participation in
the Obligations under this Agreement as it would have it were a direct lender.
IN WITNESS WHEREOF, the parties have entered into this Agreement on the date
first above written.
STROUDS, INC.
By: ____________________________
Name: __________________________
Title: _________________________
55
BANKAMERICA BUSINESS CREDIT INC.
By: ____________________________
Name: __________________________
Title: _________________________
56
EXHIBIT A
FORM OF SECURITY AGREEMENT
(INTELLECTUAL PROPERTY)
See attached.
SECURITY AGREEMENT
(INTELLECTUAL PROPERTY)
THIS SECURITY AGREEMENT (INTELLECTUAL PROPERTY) ("SECURITY
AGREEMENT"), dated as of January __, 1997, is executed by Strouds, Inc., a
Delaware corporation ("STROUDS"), in favor of BankAmerica Business Credit,
Inc. ("LENDER").
RECITALS
A. Pursuant to a Loan and Security Agreement dated as of the
date hereof ("LOAN AGREEMENT") between Strouds and Lender, Lender has agreed
to extend certain credit facilities to Strouds upon the terms and subject to
the conditions set forth therein.
B. The Lender's obligation to extend the credit facilities to
Strouds under the Loan Agreement is subject, among other conditions, to
receipt by Lender of this Security Agreement duly executed by Strouds.
AGREEMENT
NOW, THEREFORE, in consideration of the above recitals and for
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, Strouds hereby agrees with Lender as follows:
1. DEFINITIONS AND INTERPRETATION. When used in this Security
Agreement, the following terms shall have the following respective meanings:
"COLLATERAL" shall have the meaning given to
that term in PARAGRAPH 2 hereof.
"COPYRIGHT OFFICE" shall mean the United States
Copyright Office or any successor office or agency thereto.
"COPYRIGHTS" shall have the meaning given to
that term in ATTACHMENT I hereto.
"OBLIGATIONS" shall mean and include all loans,
advances, debts, liabilities and obligations, howsoever
arising, owed by Strouds to Lender of every kind and
description (whether or not evidenced by any note or
instrument and whether or not for the payment of money),
direct or indirect, absolute or contingent, due or to become
due, now existing or hereafter arising pursuant to the terms
of the Loan Agreement or any of the other Loan Documents,
including all interest, fees, charges, expenses, attorneys'
fees and accountants' fees chargeable to and payable by
Strouds hereunder and thereunder.
"PATENT AND TRADEMARK OFFICE" shall mean the
United States Patent and Trademark Office or any successor
office or agency thereto.
"PATENT APPLICATIONS" means and refers to all
applications made by, or on behalf of, Strouds to the Patent
and Trademark Office or to any similar office or agency of
any foreign country or political subdivision thereof for the
registration of Patents.
"PATENT REGISTRATIONS" means and refers to all
Patents registered with the Patent and Trademark Office or
with any similar office or agency of any foreign country or
political subdivision thereof and all Patent Applications.
"PATENTS" shall have the meaning given to that
term in ATTACHMENT I hereto.
"TRADE SECRETS" shall have the meaning given to
that term in ATTACHMENT I hereto.
"TRADEMARKS" shall have the meaning given to
that term in ATTACHMENT I hereto.
"UCC" shall mean the Uniform Commercial Code as
in effect in the State of California from time to time.
Unless otherwise defined herein, all other capitalized terms used herein and
defined in the Loan Agreement shall have the respective meanings given to
those terms in the Loan Agreement, and all terms defined in the UCC shall have
the respective meanings given to those terms in the UCC.
2. GRANT OF SECURITY INTEREST; CONDITIONAL ASSIGNMENT.
(a) As security for the Obligations, Strouds
hereby pledges and grants to Lender a security interest in
all right, title and interest of Strouds in and to the
property described in ATTACHMENT I annexed hereto
(collectively and severally, the "COLLATERAL"), which
ATTACHMENT I is incorporated herein by this reference.
(b) In addition to, and not by way of
limitation of, the pledge and mortgage of and grant of a
security interest in the Collateral set forth in
SUBPARAGRAPH 2(a), effective only upon both (i) the
occurrence of an Event of Default and (ii) the written
notice of Lender to Strouds during the continuance of such
Event of Default Strouds hereby assigns, transfers and
conveys to Lender, all of Strouds' right, title and interest
in and to the Collateral.
2
(c) Notwithstanding the provisions of
SUBPARAGRAPH 2(b), any assignment, transfer and conveyance
of any Trademark to Lender shall only be deemed to have
occurred if there is a contemporaneous assignment, transfer
and conveyance to Lender of the goodwill, business and/or
means of production, associated with the goods produced or
sold or the services rendered in connection with such
Trademark.
3. REPRESENTATIONS AND WARRANTIES. Strouds
represents and warrants to Lender that:
(a) Strouds is the owner of the Collateral
(or, in the case of after-acquired Collateral, at the time
Strouds acquires rights in the Collateral, will be the owner
thereof) and that no other Person has (or, in the case of
after-acquired Collateral, at the time Strouds acquires
rights therein, will have) any right, title, claim or
interest (by way of Lien or otherwise) in against or to
Strouds' rights in the Collateral;
(b) The Lender has (or in the case of
after-acquired Collateral, at the time Strouds acquires
rights therein, will have) a first priority perfected
security interest in the Collateral;
(c) Strouds has full corporate power and
authority to make the conditional assignment and to grant
the security interest herein granted;
(d) Strouds does not own any Patents,
Trademarks or Copyrights registered in, or the subject of
pending applications in, the Patent and Trademark Office or
the Copyright Office or any similar offices or agencies in
any other country or any political subdivision thereof,
other than those described in SCHEDULES A -E TO ATTACHMENT
I hereto;
(e) Strouds has:
(i) the sole, full and unencumbered
right, title and interest in and to the Trademarks
shown on SCHEDULE A TO ATTACHMENT I for the goods and
services covered by the registrations thereof and
such registrations are valid and enforceable and in
full force and effect;
(ii) the sole, full and unencumbered
right, title and interest in and to each of the
Patents shown ON SCHEDULE B TO ATTACHMENT I, and the
registrations thereof are valid and enforceable and
in full force and effect;
(iii) the sole, full and unencumbered
3
right, title and interest in and to each of the
Copyrights shown on SCHEDULE E TO ATTACHMENT I, and
according to the records of the Copyright Office,
each of said copyrights is valid and enforceable and
in full force and effect;
(f) To the knowledge of Strouds, there is no
claim by any third party that any Patents, Trademarks or
Copyrights are invalid or unenforceable or do or may violate
the rights of any Person;
(g) All licenses of Patents, Trademarks,
Copyrights and Trade Secrets which Strouds has granted to
any Person are set forth in SCHEDULE F TO ATTACHMENT I
hereto;
(h) All licenses of Patents, Trademarks,
Copyrights and Trade Secrets which any Person has granted to
Strouds are set forth in SCHEDULE G TO ATTACHMENT I hereto;
(i) Strouds has obtained from each employee
who may be considered the inventor of patentable inventions
(invented within the scope of such employee's employment) an
assignment to Strouds of all rights to such inventions,
including Patents; and
(j) Strouds has taken all steps necessary to
protect the secrecy and the validity under applicable law of
all material Trade Secrets.
4. COVENANTS OF STROUDS. Strouds hereby agrees:
(a) Strouds will perform all acts and execute
all documents, including notices of security interest for
each relevant type of intellectual property in forms
suitable for filing with the Patent and Trademark Office or
the Copyright Office. as applicable, substantially in the
form of ATTACHMENT II (appropriately revised) annexed
hereto, that may be necessary or desirable to record,
maintain, preserve, protect and perfect the Lender's
interest in the Collateral, the Lien granted to the Lender
in the Collateral and the first priority of such Lien;
(b) Except to the extent that Lender shall
give its prior written consent,
(i) Strouds (either itself or through
licensees) will continue to use the Trademarks which
are material to its business in connection with each
and every trademark class of goods or services
4
applicable to its current line of products or
services as reflected in its current catalogs,
brochures, price lists or similar materials in order
to maintain such Trademarks in full force and effect
free from any claim of abandonment for nonuse, and
Strouds will not (and will not permit any licensee
thereof to) do any act or knowingly omit to do any
act whereby any such Trademark may become
invalidated;
(ii) Strouds will not do any act or omit
to do any act whereby the Patent Registrations may
become abandoned or dedicated or the remedies
available against potential infringers weakened and
shall notify Lender immediately if it knows of any
reason or has reason to know that any Patent
Registration may become abandoned or dedicated;
(iii) Strouds will not do any act or omit
to do any act whereby the Copyrights may become
abandoned or dedicated or the remedies available
against potential infringers weakened and shall
notify Lender immediately if it knows of any reason
or has reason to know that any Copyright may become
abandoned or dedicated; and
(iv) Strouds will not assign, sell,
mortgage, lease, transfer, pledge, hypothecate, grant
a security interest in or Lien upon, encumber, grant
an exclusive or non-exclusive license, or otherwise
dispose of any of the Collateral, and nothing in
this Security Agreement shall be deemed a consent by
Lender to any such action except as expressly
permitted herein;
(c) Except as may be expressly limited by the
Loan Agreement, Strouds will promptly pay Lender for any and
all sums, costs, and expenses which Lender may pay or incur
pursuant to the provisions of this Security Agreement or in
enforcing the Obligations, the Collateral or the security
interest and assignments granted hereunder, including all
filing or recording fees, court costs, collection charges,
travel, and reasonable attorneys' fees and expenses, all of
which together with interest at the highest rate then
payable on the Obligations shall be part of the Obligations
and be payable on demand;
(d) Strouds will promptly notify Lender upon
the filing, either by Strouds or through any agent,
employee, licensee or designee, of (i) an application for
the registration of any Patent, Trademark or Copyright with
5
the Patent and Trademark Office or the Copyright Office or
any similar office or agency in any other country or any
political subdivision thereof, (ii) any assignment of any
Patent or Trademark, which Strouds may acquire from a third
party, with the Patent and Trademark Office or any similar
office or agency in any other country or any political
subdivision thereof, or (iii) any assignment of any
Copyright, which Strouds may acquire from a third party,
with the Copyright Office or any similar office or agency in
any other country or any political subdivision thereof. Upon
the request of Lender, Strouds shall execute and deliver any
and all assignments, agreements, instruments, documents and
papers as Lender may request to evidence the Lender's
interest in such Patent, Trademark (and the goodwill and
general intangibles of Strouds relating thereto or
represented thereby), or Copyright in the United States, and
Strouds authorizes Lender to amend an original counterpart
of the applicable notice of security interest executed
pursuant to SUBPARAGRAPH 4(a) of this Security Agreement
without first obtaining Strouds' approval of or signature to
such amendment and to record such assignment with the Patent
and Trademark Office or Copyright Office as applicable;
(e) Strouds will keep the Collateral free of
all Liens except in favor of Lender and Permitted Liens:
(f) Strouds will take all necessary steps in
any proceeding before the Patent and Trademark Office the
Copyright Office or any similar office or agency in any
other country or any political subdivision thereof to
diligently prosecute or maintain as applicable each
application and registration of the Patents Trademarks and
Copyrights which are material to its business including
filing of renewals, affidavits of use, affidavits of
incontestability and opposition, interference and
cancellation proceedings (except to the extent that
dedication abandonment or invalidation is permitted
hereunder);
(g) During the term of the Loan Agreement,
Strouds shall (i) make application to the Patent and
Trademark Office (and assign such application to Lender as
security) to register any material unpatented but patentable
inventions developed by Strouds or its employees (within the
scope of their employment) unless Strouds in the exercise of
its prudent business judgment deems any such Patent not to
have any significant commercial value or determines that its
rights thereunder are better preserved as a Trade Secret;
(ii) make application to the Patent and Trademark
Office to register any registerable but unregistered
material Trademarks used by Strouds in connection with its
products or services; and (iii) make application to the
Copyright Office to register any material unregistered
Copyright to which Strouds has rights;
6
(h) Strouds shall (i) use proper statutory
notice in connection with its use of the Patents Trademarks
and Copyrights (ii) use its best efforts to maintain
consistent standards of quality in its manufacture of
products sold under the Trademarks or provision of services
in connection with the Trademarks and (iii) take all steps
necessary to protect the secrecy and the validity under
applicable law of all material Trade Secrets;
(i) Strouds agrees that if it or any
Affiliate learns of any use by any Person of any term or
design likely to cause confusion with any material Trademark
Strouds shall promptly notify Lender of such use and of all
steps taken and to be taken to remedy any infringement of
any such Trademark;
(j) Strouds shall maintain with each employee
who may be the inventor of patentable inventions (invented
within the scope of such employee s employment) an invention
assignment agreement requiring such employee to assign all
rights to such inventions, including patents and patent
applications, to Strouds and further requiring such employee
to cooperate fully with Strouds, its successors in interest,
including Lender, and their counsel, in the prosecution of
any patent application or in any litigation involving the
invention, whether such cooperation is required during such
employee's employment with Strouds or after the termination
of such employment;
(k) Strouds shall at all times keep at least
one complete set of its records concerning the Collateral at
its chief executive office and shall make such records
available for inspection by Lender in accordance with the
terms of the Loan Agreement.
5. AUTHORIZED ACTION BY LENDER.
(a) Lender may, in its sole discretion, pay any amount or do any
act required of Strouds hereunder or requested by Lender to preserve, defend,
protect, maintain, record or enforce Strouds' obligations contained herein,
the Obligations, the Collateral, or the right, title and interest granted
Lender by this Security Agreement, and which Strouds fails to do or pay, and
any such payment shall be deemed an advance by Lender to Strouds and shall be
payable on demand together with interest at the highest rate then payable on
the Obligations.
(b) Strouds agrees to execute and deliver to Lender three
originals of a Special Power of Attorney in substantially the form of
ATTACHMENT III to this Agreement for the implementation of the recording,
giving of notice, preservation, assignment, sale or other disposal of the
Collateral pursuant to SUBPARAGRAPHS 2(a), 2(b), 5(a) AND 7(a).
(c) Strouds hereby grants to Lender and its employees and agents
the right to visit Strouds' business facilities at which Strouds manufactures
7
products or provides services, which products or services are sold under or
provided in connection with any of the Trademarks, and to inspect such
products and the quality control records relating thereto or observe the
provision of such services.
6. LITIGATION AND OTHER PROCEEDINGS
(a) Strouds shall have the right and obligation to commence and
diligently prosecute such suits, proceedings or other actions for infringement
or other damage, or reexamination or reissue proceedings, or opposition or
cancellation proceedings as are reasonable to protect any of the material
Patents, Trademarks, Copyrights or Trade Secrets. No such suit, proceeding or
other actions shall be settled or voluntarily dismissed, nor shall any party
be released or excused of any claims of or liability for infringement, without
the prior written consent of Lender, which consent shall not be unreasonably
withheld.
(b) Upon the occurrence and during the continuation of an Event
of Default, Lender shall have the right but not the obligation to bring suit
or institute proceedings in the name of Strouds to enforce any rights in the
Collateral, including any license thereunder, in which event Strouds shall at
the request of Lender do any and all lawful acts and execute any and all
documents required by Lender in aid of such enforcement. If Lender elects not
to bring suit to enforce any right under the Collateral, including any license
thereunder, Strouds agrees to use all reasonable measures, whether by suit,
proceeding or other action, to prevent the infringement of any right under the
Collateral by any Person and for that purpose agrees to diligently maintain
any action, suit or proceeding against any Person so infringing necessary to
prevent such infringement.
7. DEFAULT AND REMEDIES.
(a) Strouds shall be deemed in default under this Security
Agreement upon the occurrence of an Event of Default, as that term is defined
in the Loan Agreement. Upon the occurrence and during the continuation of any
such Event of Default, Lender may, at its option, and (except if otherwise
specified below) without notice to or demand on Strouds, and in addition to
all rights and remedies available to Lender under the Loan Agreement or the
other Loan Documents, do any one or more of the following:
(i) upon ten (10) days' prior notice to
Strouds, direct Strouds not to make any further use of the
Patents, the Trademarks (or any ▇▇▇▇ similar thereto) or the
Copyrights (or any work deriving therefrom) for any purpose;
(ii) at any time and from time to time, upon
ten (10) days' prior notice to Strouds, license, whether
general, special or otherwise, and whether on an exclusive
or nonexclusive basis, any of the Patents, Trademarks or
Copyrights, throughout the world for such term or terms, on
such conditions, and in such manner, as Lender shall in its
sole discretion determine;
8
(iii) at any time and from time to time,
enforce (and upon notice to Strouds have the exclusive right
to enforce) against any licensee or sublicensee all rights
and remedies of Strouds in, to and under any one or more
license agreements with respect to the Collateral (without
assuming any obligations or liability thereunder), and take
or refrain from taking any action under any thereof;
(iv) at any time and from time to time, upon
ten (10) days' prior notice to Strouds, assign, sell, or
otherwise dispose of, the Collateral or any of it, either
with or without special or other conditions or stipulations,
with power to buy the Collateral or any part of it, and with
power also to execute assurances, and do all other acts and
things for completing the assignment, sale or disposition
which Lender shall, in its sole discretion, deem appropriate
or proper; and
(v) in addition to the foregoing, in order to
implement the assignment, sale or other disposal of any of
the Collateral pursuant to CLAUSE (a)(iv) hereof, Lender
may, at any time, pursuant to the authority granted in the
Power of Attorney executed pursuant to SUBPARAGRAPH 5(b)
hereof, execute and deliver on behalf of Strouds, one or
more instruments of assignment of the Patents, Trademarks or
Copyrights (or any application or registration thereof), in
form suitable for filing, recording or registration in any
country.
(b) Strouds agrees to pay when due all reasonable costs incurred
in any such transfer of the Patents, Trademarks or Copyrights, including any
taxes, fees and reasonable attorneys' fees and expenses, and all such costs
shall be added to the Obligations. Lender may apply the proceeds actually
received from any such license, assignment, sale or other disposition to the
reasonable costs and expenses thereof, including reasonable attorneys' fees
and all legal, travel and other expenses which may be incurred by Lender, and
then to the Obligations, in such order as to principal or interest as Lender
may desire; and Strouds shall remain liable and will pay Lender on demand any
deficiency remaining, together with interest thereon at a rate equal to the
highest rate then payable on the Obligations and the balance of any expenses
unpaid. Nothing herein contained shall be construed as requiring Lender to
take any such action at any time. In the event of any such license,
assignment, sale or other disposition of the Collateral, or any of it, after
the occurrence or continuation as hereinabove provided of an Event of Default,
Strouds shall supply its know-how and expertise relating to the manufacture
and sale of the products bearing or in connection with which the Trademarks
Patents or Copyrights are used, and its customer lists and other records
relating to the Trademarks, Patents or Copyrights and to the distribution of
products or the provisions of services, to Lender or its designee.
8. INDEMNIFICATION AND RELEASE.
(a) Strouds assumes all responsibility and liability arising
from the use of the Patents, Trademarks and Copyrights, and Strouds hereby
9
indemnifies and holds Lender and its directors, officers, employees, agents
and any of its Affiliates ("INDEMNITEES") harmless from and against any claim,
suit, loss, damage or expense (including reasonable attorneys' fees and
expenses) arising out of or in connection with any alleged infringement of any
patent, trademark, service ▇▇▇▇, trade name, trade secret or copyright of a
third party or alleged defect in any product manufactured, promoted or sold by
Strouds (or any Affiliate of Strouds) in connection with any Patent, Trademark
or Copyright or out of the manufacture, promotion, labeling, sale or
advertisement of any product or service by Strouds (or any Affiliate of
Strouds). Strouds agrees that Lender does not assume nor shall it have any
responsibility for, the payment of any sums due or to become due under any
agreement or contract included in the Collateral or the performance of any
obligations to be performed under or with respect to any such agreement or
contract by Strouds, and Strouds hereby agrees to indemnify and hold each
Indemnitee harmless with respect to any and all claims by any Person relating
thereto.
(b) Strouds agrees to indemnify and hold each Indemnitee
harmless and against any claim, suit, loss, damage or expense (including
reasonable attorneys' fees and expenses) arising out of or in connection with
(i) any claim, suit or proceeding instituted by or against Strouds, (ii) any
action taken or omitted to be taken by Lender pursuant to SUBPARAGRAPH 6(b),
or (iii) any action taken or omitted to be taken by Lender pursuant to CLAUSE
7(a)(iii) hereof with respect to any license agreement of Strouds; PROVIDED,
HOWEVER, that Strouds shall not be required to indemnify any Indemnitee to the
extent such liability arises from the willful misconduct or gross negligence
of such Indemnitee.
(c) Strouds hereby releases each Indemnitee from any claims,
causes of action and demands at any time arising out of or with respect to any
actions taken or omitted to be taken by the Indemnitees, or any of them, under
the powers of attorney granted under the Special Power of Attorney executed
pursuant to SUBPARAGRAPH 5(b) herein, other than actions taken or omitted to
be taken through the gross negligence or willful misconduct of such
Indemnitees.
(d) Strouds agrees to cause Lender to be named as an additional
insured with respect to any policy of insurance held by Strouds from time to
time covering product liability or intellectual property infringement risk.
9. MISCELLANEOUS.
(a) NOTICES. Except as otherwise provided herein, all notices,
requests, demands, consents, instructions or other communications to or upon
Strouds or Lender under this Security Agreement shall be made and deemed
received in accordance with Section 15.11 of the Loan Agreement.
(b) NONWAIVER. No failure or delay on Lender's part in
exercising any right hereunder shall operate as a waiver thereof or of any
other right nor shall any single or partial exercise of any such right
preclude any other further exercise thereof or of any other right.
(c) AMENDMENTS AND WAIVERS. Except with respect to action by
the Lender pursuant TO SUBPARAGRAPH 4(d), this Security Agreement may not be
10
amended or modified, nor may any of its terms be waived, except by written
instruments signed by Strouds and Lender as required by the Loan Agreement.
Each waiver or consent under any provision hereof shall be effective only in
the specific instances and for the purpose for which given.
(d) ASSIGNMENTS. This Security Agreement shall be binding upon
and inure to the benefit of Lender and Strouds and their respective successors
and assigns; PROVIDED, HOWEVER, that Strouds and Lender may sell, assign and
delegate their respective rights and obligations hereunder only as permitted
by the Loan Agreement.
(e) CUMULATIVE RIGHTS, ETC. The rights, powers and remedies of
Lender under this Security Agreement shall be in addition to all rights,
powers and remedies given to Lender by virtue of any applicable law, rule or
regulation of any Governmental Authority, the Loan Agreement, any other Loan
Document or any other agreement, all of which rights, powers, and remedies
shall be cumulative and may be exercised successively or concurrently without
impairing Lender's rights hereunder. Strouds waives any right to require
Lender to proceed against any Person or to exhaust any Collateral or to pursue
any remedy in Lender's power.
(f) PAYMENTS FREE OF TAXES, ETC. All payments made by Strouds
under this Security Agreement shall be made by Strouds free and clear of and
without deduction for any and all present and future taxes, levies, charges,
deductions and withholdings. In addition, Strouds shall pay upon demand any
stamp or other taxes, levies or charges of any jurisdiction with respect to
the execution, delivery, registration, performance and enforcement of this
Security Agreement. Upon request by Lender, Strouds shall furnish evidence
satisfactory to Lender that all requisite authorizations and approvals by, and
notices to and filings with, governmental authorities and regulatory bodies
have been obtained and made and that all requisite taxes, levies and charges
have been paid.
(g) PARTIAL INVALIDITY. If at any time any provision of this
Security Agreement is or becomes illegal, invalid or unenforceable in any
respect under the law of any jurisdiction, neither the legality, validity or
enforceability of the remaining provisions of this Security Agreement nor the
legality validity or enforceability of such provision under the law of any
other jurisdiction shall in any way be affected or impaired thereby.
(h) GOVERNING LAW. This Security Agreement shall be governed by
and construed in accordance with the laws of the State of California without
reference to conflicts of law rules.
(i) SUBMISSION TO JURISDICTION. Strouds hereby irrevocably and
unconditionally:
(i) Submits for itself and its property in
any legal action or proceeding relating to this Security
Agreement or for recognition and enforcement of any judgment
in respect thereof to the non-exclusive jurisdiction of the
courts of the State of California and the courts of the
United States of America for the Central District of
11
California and consents and agrees to suit being brought in
such courts as Lender may elect;
(ii) Waives any objection that it may now or
hereafter have to the venue of any such action or proceeding
in any such court or that such proceeding was brought in an
inconvenient court and agrees not to plead or claim the
same; and
(iii) Waives personal service of the summons,
complaint and other process issued in any such action or
suit and agrees that service of such summons, complaint and
other process may be made by registered or certified mail
addressed to Strouds at the address set forth in the Loan
Agreement and that service so made shall be deemed completed
upon the earlier of Strouds' actual receipt thereof or 3
business days after deposit in the U.S. Mails, proper
postage prepaid. Nothing in this Security Agreement shall be
deemed or operate to affect the right of Lender to serve
legal process in any other manner permitted by law or to
preclude the enforcement by Lender of any judgment or order
obtained in such forum or the taking of any action under
this Security Agreement to enforce same in any other
appropriate forum or jurisdiction.
(j) JURY TRIAL. EACH OF STROUDS AND LENDER, TO THE FULLEST
EXTENT PERMITTED BY APPLICABLE LAW, HEREBY IRREVOCABLY WAIVES ALL RIGHT TO
TRIAL BY JURY AS TO ANY ISSUE RELATING HERETO IN ANY ACTION, PROCEEDING, OR
COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS SECURITY AGREEMENT.
IN WITNESS WHEREOF, the parties hereto have caused this Security
Agreement to be executed as of the day and year first above written.
STROUDS, INC.
By:_____________________________
Name:_________________________
Title:________________________
BANKAMERICA BUSINESS CREDIT, INC.
By:_____________________________
Name:_________________________
Title:________________________
12
ATTACHMENT I
TO SECURITY AGREEMENT
(a) All copyrights including (i) all original works of
authorship fixed in any tangible medium of expression, all right, title and
interest therein and thereto, and all registrations and recordings thereof,
including all applications, registrations and recordings in the Copyright
Office or in any similar office or agency of the United States, any state
thereof, or any foreign country or any political subdivision thereof, all
whether now owned or hereafter acquired by Strouds, including those described
on SCHEDULE E TO THIS ATTACHMENT I annexed hereto, which SCHEDULE E is
incorporated herein by this reference, and (ii) all extensions or renewals
thereof and all licenses thereof (collectively, the "COPYRIGHTS");
(b) All patentable inventions, patent rights, shop rights,
letters patent of the United States or any other country, all right, title and
interest therein and thereto, and all registrations and recordings thereof,
including (i) all Patent Registrations and recordings in the Patent and
Trademark Office or in any similar office or agency of the United States, any
state thereof or any foreign country or political subdivision thereof, all
whether now owned or hereafter acquired by Strouds, including those described
in SCHEDULES B AND D to this ATTACHMENT I annexed hereto, which SCHEDULES B
AND D are incorporated herein by this reference, and (ii) all reissues,
continuations, continuations-in-part or extensions thereof and all licenses
thereof (collectively, the "PATENTS");
(c) All trademarks, trade names, trade styles and service marks,
and all prints and labels on which said trademarks, trade names, trade styles
and service marks have appeared or appear, and all designs and general
intangibles of like nature, now existing or hereafter adopted or acquired, all
right, title and interest therein and thereto, all registrations and
recordings thereof, including (i) all applications, registrations and
recordings in the Patent and Trademark Office or in any similar office or
agency of the United States, any state thereof, or any foreign country or any
political subdivision thereof, all whether now owned or hereafter acquired by
Strouds, including those described in SCHEDULES A AND C TO THIS ATTACHMENT I,
which SCHEDULES A AND C are incorporated herein by this reference, and (ii)
all reissues, extensions or renewals thereof and all licenses thereof
(collectively, the "TRADEMARKS");
(d) All goodwill of Strouds' business symbolized by the
Trademarks and all customer lists and other records of Strouds relating to the
distribution of products or provision of services bearing or covered by the
Trademarks;
(e) All information, including formulas, patterns, compilations,
programs, devices, methods, techniques or processes, that derives independent
economic value, actual or potential, from not being generally known to, and
not being readily ascertainable by proper means by other Persons who can
I-1
obtain economic value from its disclosure or use, all whether now owned or
hereafter acquired by the Strouds (collectively, the "TRADE SECRETS").
(f) All claims by Strouds against any Person for past, present
or future infringement of the Patents, Trademarks, Copyrights or Trade
Secrets;
(g) All proceeds of the foregoing (including whatever is
receivable or received when Collateral or proceeds is (are) sold, collected,
exchanged, licensed or otherwise disposed of, whether such disposition is
voluntary or involuntary, including rights to payment and return premiums and
insurance proceeds under insurance with respect to any Collateral, and all
rights to payment with respect to any cause of action affecting or relating to
the Collateral).
I-2
SCHEDULE A TO ATTACHMENT I
TO SECURITY AGREEMENT
TRADEMARKS
TRADEMARK JURISDICTION REG. DATE REG. NO.
Strouds, the Linen Experts U.S. 09/24/96 2,003,415
Strouds Linen Outlet U.S. 09/24/96 2,002,249
I-A
SCHEDULE B TO ATTACHMENT I
TO SECURITY AGREEMENT
PATENTS
TITLE DATE ISSUED PATENT NO.
None
I-B
SCHEDULE C TO ATTACHMENT I
TO SECURITY AGREEMENT
APPLICATIONS FOR TRADEMARKS
TRADEMARK JURISDICTION DATE FILED REGISTRATION NO.
Strouds U.S. 04/15/94 74/513,201
Details U.S. 03/22/95 74/653,115
Details U.S. 03/22/95 74/650,299
Details U.S. 03/22/95 74/650,300
Details U.S. 03/22/95 74/650,298
Details U.S. 03/22/95 74/649,950
Details U.S. 03/22/95 74/649,949
Palette U.S. 02/27/95 74/638,661
Palette U.S. 02/27/95 74/638,662
Palette U.S. 02/27/95 74/638,658
Palette U.S. 02/27/95 74/638,656
Palette U.S. 02/27/95 74/638,657
Palette U.S. 02/27/95 74/638,660
Palette U.S. 02/27/95 74/638,659
Essentials U.S. 03/02/95 74/641,298
Essentials U.S. 03/02/95 74/641,292
Essentials U.S. 03/02/95 74/641,245
Essentials U.S. 03/02/95 74/641,242
Essentials U.S. 03/02/95 74/641,244
Strouds Home Compass U.S. 08/26/96 75/155,891
Home Compass U.S. 08/26/96 75/155,890
Garage Sale U.S. 12/12/96 75/212,360
I-C
SCHEDULE D TO ATTACHMENT I
TO SECURITY AGREEMENT
PATENT APPLICATIONS
TITLE JURISDICTION APPLICATION DATE APPLICATION NO.
None
I-D
SCHEDULE E TO ATTACHMENT I
TO SECURITY AGREEMENT
COPYRIGHTS
REGISTRATION NO. JURISDICTION DATE
None
I-E
SCHEDULE F TO ATTACHMENT I
TO SECURITY AGREEMENT
LICENSES GRANTED BY STROUDS TO THIRD PARTIES
None.
I-F
SCHEDULE G TO ATTACHMENT I
TO SECURITY AGREEMENT
LICENSES GRANTED BY THIRD PARTIES TO STROUDS
Software licenses used in the ordinary course of business.
I-G
ATTACHMENT II TO SECURITY AGREEMENT
[SEPARATE INSTRUMENT FOR
EACH FORM OF COLLATERAL]
GRANT OF SECURITY INTEREST
[PATENTS] [TRADEMARKS] [COPYRIGHTS]
THIS GRANT OF SECURITY INTEREST, dated as of January
___, 1997, is executed by Strouds, Inc., a Delaware corporation ("Strouds"),
in favor of BankAmerica Business Credit, Inc. ("Lender").
A. Pursuant to a Loan and Security Agreement dated as of the
date hereof ("LOAN AGREEMENT") between Strouds and Lender, Lender has agreed
to extend certain credit facilities to Strouds upon the terms and subject to
the conditions set forth therein.
[B. Strouds owns the letters patent, and/or applications for
letters patent, of the United States, more particularly described on SCHEDULES
1-A AND 1-B annexed hereto as part hereof (collectively, the "PATENTS");]
[B. Strouds has adopted, used and is using the trademarks, more
particularly described on SCHEDULES 1-A AND 1-B annexed hereto as part hereof,
which trademarks are registered or subject to an application for registration
in the United States Patent and Trademark Office (collectively, the
"TRADEMARKS");]
[B. Strouds owns the copyrights registered in the United States
Copyright Office, more particularly described on SCHEDULE 1-A annexed hereto
as part hereof (collectively, the "Copyrights");]
C. Strouds has entered into a Security Agreement (Intellectual
Property) dated the date hereof (the "SECURITY AGREEMENT") in favor of Lender;
and
[D. Pursuant to the Security Agreement, Strouds has granted to
Lender a security interest in all right, title and interest of Strouds in and
to the Patents, together with any reissue, continuation, continuation-in-part
or extension thereof, and all proceeds thereof, including any and all causes
of action which may exist by reason of infringement thereof for the full term
of the Patents (the "COLLATERAL"), to secure the prompt payment, performance
and observance of the Obligations, as defined in the Security Agreement;]
[D. Pursuant to the Security Agreement, Strouds has granted to
Lender a security interest in all right, title and interest of Strouds in and
to the Trademarks, together with the goodwill of the business symbolized by
the Trademarks and the customer lists and records related to the Trademarks
and the applications and registrations thereof, and all proceeds thereof,
including any and all causes of action which may exist by reason of
infringement thereof for the full term of the Patents (the "COLLATERAL"), to
secure the prompt payment, performance and observance of the Obligations, as
defined in the Security Agreement;]
II-1
[D. Pursuant to the Security Agreement, Strouds has granted to
Lender a security interest in all right, title and interest of Strouds in and
to the Copyrights and the registrations thereof, together with any renewals or
extensions thereof, and all proceeds thereof, including any and all causes of
action which may exist by reason of infringement thereof for the full term of
the Copyrights (the "COLLATERAL"), to secure the prompt payment, performance
and observance of the Obligations, as defined in the Security Agreement;]
NOW, THEREFORE, for good and valuable consideration, receipt of
which is hereby acknowledged, Strouds does hereby further grant to Lender a
security interest in the Collateral to secure the prompt payment, performance
and observance of the Obligations.
Strouds does hereby further acknowledge and affirm that the rights
and remedies of Lender with respect to the security interest in the Collateral
granted hereby are more fully set forth in the Security Agreement, the terms
and provisions of which are hereby incorporated herein by reference as if
fully set forth herein.
Lender's address is:
BankAmerica Business Credit, Inc.
▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: Portfolio Manager
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier No.: (▇▇▇) ▇▇▇-▇▇▇▇
IN WITNESS WHEREOF, Strouds has caused this Assignment to be
executed as of the day and year first above written.
STROUDS, INC.
By:__________________________
Name:______________________
Title:_____________________
II-2
CALIFORNIA ALL-PURPOSE NOTARY ACKNOWLEDGMENT
State of _____________
County of ____________
On this ______ day of ______________________, 199___, before me,
_______________________________________________________________
Name, Title of Officer
personally appeared ___________________________________________
Name(s) of Signer(s)
___ personally known to me -OR - ___ proved to me on the basis of satisfactory
evidence to be the person(s) whose name(s) is/are subscribed to the within
instrument and acknowledged to me that he/she/they executed the same in
his/her/their authorized capacity(ies), and that by his/her/their signature(s)
on the instrument the person(s), or the entity upon behalf of which the
person(s) acted, executed the instrument.
WITNESS my hand and official seal.
_________________________________
SIGNATURE OF NOTARY
* * * * * * * * * * * * OPTIONAL SECTION * * * * * * * * * * * *
CAPACITY CLAIMED BY SIGNER
Through statute does not require the Notary to fill in the data below, doing
so may prove invaluable to persons relying on the document
__INDIVIDUAL __ATTORNEY-IN-FACT
__CORPORATE OFFICERS(S) __TRUSTEE(S)
__PARTNER(S) __LIMITED __GUARDIAN/CONSERVATOR
__GENERAL __
OTHER:________________________________________________________________________
____________________________________________________
SIGNER IS REPRESENTING:
NAME OF PERSON(S) OR ENTITY(IES)
_____________________________
_____________________________
_____________________________
* * * * * * * * * * * * OPTIONAL SECTION * * * * * * * * * * * *
THIS CERTIFICATE MUST BE ATTACHED TO THE DOCUMENT DESCRIBED BELOW:
TITLE OR TYPE OF DOCUMENT ______________________________________
NUMBER OF PAGES __________ DATE OF DOCUMENT_____________________
SIGNER(S) OTHER THAN NAMED ABOVE________________________________
Though the data requested here is not required by law, it could prevent
fraudulent reattachment of this form.
SCHEDULE 1-A TO GRANT OF SECURITY INTEREST
PATENTS
TITLE DATE ISSUED PATENT NO.
II-A
SCHEDULE 1-B TO GRANT OF SECURITY INTEREST
PATENT APPLICATIONS
TITLE APPLICATION DATE APPLICATION NO.
II-B
SCHEDULE 1-A TO GRANT OF SECURITY INTEREST
TRADEMARKS
▇▇▇▇ REGISTRATION DATE REGISTRATION NO.
II-A
SCHEDULE 1-B TO GRANT OF SECURITY INTEREST
TRADEMARK APPLICATIONS
▇▇▇▇ APPLICATION DATE APPLICATION NO.
II-B
SCHEDULE 1-A TO GRANT OF SECURITY INTEREST
COPYRIGHTS
DESCRIPTION REGISTRATION DATE REGISTRATION NO.
II-A
ATTACHMENT III TO SECURITY AGREEMENT
SPECIAL POWER OF ATTORNEY
STATE OF CALIFORNIA )
) ss.:
COUNTY OF LOS ANGELES )
KNOW ALL PERSONS BY THESE PRESENTS, THAT Strouds, Inc., a Delaware
corporation ("STROUDS"), pursuant to a Security Agreement (Intellectual
Property), dated the date hereof (the "SECURITY AGREEMENT"), between Strouds
and Lender (as hereinafter defined) hereby appoints and constitutes
BankAmerica Business Credit, Inc. ("LENDER"), its true and lawful attorney,
with full power of substitution, and with full power and authority to perform
the following acts on behalf of Strouds:
1. For the purpose of assigning, selling, licensing or
otherwise disposing of all right, title and interest of Strouds in and to any
letters patent of the United States or any other country or political
subdivision thereof, and all registrations, recordings, reissues,
continuations, continuations-in-part and extensions thereof, and all pending
applications therefor, and for the purpose of the recording, registering and
filing of, or accomplishing any other formality with respect to, the
foregoing, to execute and deliver any and all agreements, documents,
instruments of assignment or other papers necessary or advisable to effect
such purpose;
2. For the purpose of assigning. selling, licensing or
otherwise disposing of all right, title and interest of Strouds in and to any
trademarks, licensee of trademarks, trade names, trade styles and service
marks, and all registrations, recordings, reissues, extensions and renewals
thereof, and all pending applications therefor, and for the purpose of the
recording, registering and filing of, or accomplishing any other formality
with respect to, the foregoing, to execute and deliver any and all agreements,
documents, instruments of assignment or other papers necessary or advisable to
effect such purpose;
3. For the purpose of assigning, selling, licensing or
otherwise disposing of all right, title and interest of Strouds in and to any
copyrights, and all registrations, recordings, reissues, extensions and
renewals thereof, and all pending applications therefor, and for the purpose
of the recording, registering and filing of, or accomplishing any other
formality with respect to, the foregoing, to execute and deliver any and all
agreements, documents, instruments of assignment or other papers necessary or
advisable to effect such purpose;
4. For the purpose of evidencing and perfecting Lender's
interest in any patent trademark license or copyright not previously assigned
to Lender as security, or in any patent, trademark or copyright, which Strouds
may acquire from a third party, and for the purpose of the recording,
registering and filing of, or accomplishing any other formality with respect
III-1
to, the foregoing, to execute and deliver any and all agreements, documents,
instruments of assignment or other papers necessary or advisable to effect
such purpose.
5. To execute any and all documents, statements, certificates
or other papers necessary or advisable in order to obtain the purposes
described above as Lender may in its sole discretion determine.
This power of attorney is made pursuant to the Security Agreement
and takes effect solely for the purposes of SUBPARAGRAPHS 2(a), 2(b), 5(a) AND
7(a) thereof and is subject to the conditions thereof and may not be revoked
until the payment in full of all "Obligations" as defined in the Security
Agreement.
Dated: January ___, 1997
STROUDS, INC.
By:_______________________________
Name:____________________________
Title:___________________________
III-2
EXHIBIT B
PERMIITTED LIENS
See attached.
BANKAMERICA BUSINESS CREDIT, INC./STROUDS, INC.
PERMITTED LIENS
SEARCH INSTRUMENT
JURISDICTION TYPE RESULTS NO. FILE DATE
CALIFORNIA
Secretary UCC Ford Equipment Leasing 91091101 04/25/91
of State Co. (leased equipment)
Secretary UCC Ford Equipment Leasing 91095761 05/01/91
of State Co. (leased equipment)
Secretary UCC Premier Computer Sales 92019678 01/30/92
of State (leased equipment)
Secretary UCC Crown Credit Co. 92038982 02/27/92
of State (specific equipment)
Secretary UCC Premier Computer Sales 92124774 06/05/92
of State (leased equipment)
Secretary UCC Premier Computer Sales 92168370 08/03/92
of State (leased equipment)
Secretary UCC Crown Credit Co. 93079973 04/20/93
of State (specific equipment)
Secretary UCC Premier Computer Sales 93144285 07/16/93
of State (leased equipment)
Secretary UCC Sensormatic Electronics 9516560717 06/12/95
of State Corp. (equipment (lease)
Secretary UCC Relational Funding Corp. 9620460389 07/19/96
of State (Community First Financial,
as assignee) (leased
equipment)
Secretary UCC Lyon Credit Corp. (all 9621860559 08/02/96
of State furniture, fixtures and
equipment, now owned
or hereafter
acquired, located at
stores #64 and #67)
Secretary UCC Trimarc Financial ▇▇▇▇▇▇▇▇▇▇ 08/12/96
of State (specific equipment)
Secretary UCC Trimarc Financial 9627560032 09/27/96
of State (specific equipment)
SEARCH INSTRUMENT
JURISDICTION TYPE RESULTS NO. FILE DATE
Secretary UCC Trimarc Financial 9627560039 09/27/96
of State (specific equipment)
ILLINOIS
Secretary UCC Alarmex (leased equipment) 3315658 10/12/94
of State
Secretary UCC Alarmex (leased equipment) 3347298 01/04/95
of State
Secretary UCC Alarmex (leased equipment) 3387368 04/12/95
of State
Secretary UCC Lyon Credit Corp. (all 3573799 08/02/96
of State furniture, fixtures and
equipment, now owned or
hereafter acquired, located
at store #67)
Secretary UCC Trimarc Financial 3578002 08/15/96
of State (specific equipment)
Secretary UCC Checkpoint Security Systems 3610833 11/12/96
of State (leased equipment)
▇▇▇▇ County UCC Lyon Credit Corp. (all 96-U09979 08/07/96
furniture, fixtures and
equipment, now owned or
hereafter acquired, located
at store #67)
MARYLAND
Secretary UCC Trimarc Financial 62258190 08/12/96
of State (specific equipment)
MINNESOTA
Secretary UCC Alarmex (leased equipment) 1725735 12/27/94
of State
2
SEARCH INSTRUMENT
JURISDICTION TYPE RESULTS NO. FILE DATE
NEVADA
Secretary UCC Lyon Credit Corp. (all 9612203 08/02/96
of State furniture, fixtures and
equipment, now owned or
hereafter acquired, located
at store #64)
Washoe County UCC Lyon Credit Corp. (all 2018349 08/05/96
furniture, fixtures and
equipment, now owned or
hereafter acquired, located
at store #64)
3
EXHIBIT C
FORM OF BAILEE AGREEMENT
See attached.
BAILMENT AGREEMENT
This Bailment Agreement ("Agreement") is entered into as of this
_______ day of ____________________, 1997 between ________________ ("Bailee")
and BankAmerica Business Credit, Inc. ("BABC") in reference to the following
facts:
A. Strouds, Inc. ("Strouds") periodically stores, delivers to
or otherwise maintains at the premises of Bailee inventory of Strouds
("Inventory") pursuant to written or verbal agreements. Under such agreements,
Bailee provides certain services to Strouds in connection with such Inventory.
B. Bailee is paid certain sums by Strouds for its services in
connection with the Inventory.
C. BABC has entered into a Loan and Security Agreement with
Strouds pursuant to which BABC has agreed to make certain financial
accommodations to Strouds based, in part, on the value of the Inventory.
D. BABC would not extend such financial accommodations but for
Bailee's entering into this Agreement
NOW THEREFORE, the parties hereto do hereby agree as
follows:
1. Subject to Bailee's claim for unpaid charges for its
services in connection with the Inventory, Bailee acknowledges that BABC has a
first priority perfected security interest in the Inventory and all accounts
arising therefrom.
2. Bailee agrees that it does not have any title to nor
interest in the Inventory and that at all times the Inventory remains the
property of Strouds, subject to the security interest of BABC.
3. Upon advice from BABC in writing that an Event of Default
(as defined in the Loan Agreement) has occurred, Bailee agrees to release the
Inventory only to such parties and in the manner directed by BABC. If such an
Event of Default has occurred, and upon BABC's request, the Inventory will be
released to BABC.
4. Bailee agrees to give notice within five (5) days of any
default by Strouds of any provision of its agreements with Bailee at:
BankAmerica Business Credit, Inc.
▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: Portfolio Manager
Fax:(▇▇▇) ▇▇▇-▇▇▇▇
Upon receipt of said notice, BABC shall have the right, but not the
obligation, to cure such default within ten (10) days. Any failure by BABC to
cure such default shall not otherwise affect the rights of BABC hereunder.
5. This Agreement shall be governed by the laws of the State of
California and shall inure to the benefit of and be binding upon the
successors, heirs and assigns of BABC and Bailee.
6. In the event of an action to enforce, interpret or
concerning this Agreement, the prevailing party shall be entitled to
reimbursement of its costs and reasonable attorneys' fees.
[BAILEE]
By _______________________________
Its ______________________________
BANKAMERICA BUSINESS CREDIT, INC.
By _______________________________
Its ______________________________
AGREED:
STROUDS, INC.
By ____________________________
Its ___________________________
2
EXHIBIT D-1
FINANCIAL STATEMENTS
See attached.
STROUDS, INC.
CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED) (UNAUDITED)
NOVEMBER 30 MARCH 2 NOVEMBER 25
1996 1996 1996
------------ ------------ ------------
ASSETS
Current assets:
Cash $ 419 $ 210 $ 2,012
Marketable securities --- --- ---
Accounts receivable 3,586 1,835 3,423
Merchandise inventory 73,278 60,167 62,406
Other 4,075 4,245 2,262
--------- -------- ---------
Total current assets 81,358 66,457 70,103
Property and equipment -at cost,
net of accumulated depreciation and
amortization 24,667 18,206 16,561
Excess of cost over net assets acquired, net 7,854 8,047 8,112
Other assets 841 1,297 1,664
--------- --------- ---------
Total assets $ 114,720 $ 94,007 $ 96,440
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 573 $ 237 $ 317
Accounts payable 19,550 14,367 20,364
Accrued expenses 10,554 8,974 10,083
--------- --------- ---------
Total current liabilities 30,677 23,578 30,764
Long-term debt 28,337 12,446 9,410
Other noncurrent liabilities 2,794 2,514 2,431
--------- --------- ---------
Total liabilities 61,808 38,538 42,605
--------- --------- ---------
Stockholders equity:
Preferred stock, $0.0001 par value; authorized
1,000,000 shares; no shares outstanding --- --- ---
Preferred stock, Series B, $0.0001 par value;
authorized 250,000 shares; no shares
outstanding --- --- ---
Common stock, $0.0001 par value; authorized
25,000,000 shares; issued and outstanding -
October 28, 1995, 8,423,160 shares; March
2, 1996, 8,512,059 shares; and November
2, 1996, 8,522,817 shares 1 1 1
Additional paid-in capital 38,982 38,946 38,777
Retained earnings 13,929 16,522 15,057
--------- --------- ---------
Total stockholders equity 52,912 55,469 53,835
--------- --------- ---------
Total liabilities and stockholders" equity $ 114,720 $ 94,007 $ 96,440
========= ========= =========
STROUDS, INC.
STATEMENTS OF INCOME
(IN THOUSANDS)
FOUR WEEKS ENDED THIRTY-NINE WEEKS ENDED
------------------------- -------------------------
NOVEMBER 30 NOVEMBER 25 NOVEMBER 30 NOVEMBER 25
1996 1995 1996 1995
------------ ------------ ------------ ------------
Net sales $ 19,684 $ 16,716 $ 150,936 $ 134,528
Costs and expenses:
Cost of sales, buying and occupancy 13,784 11,518 107,232 92,889
Selling and administrative expenses 6,365 4,908 46,496 39,277
Amortization of excess of cost over
net assets acquired 20 20 194 194
--------- --------- --------- ---------
20,169 16,446 153,922 132,360
--------- --------- --------- ---------
Operating income (loss) (485) 270 (2,986) 2,168
Other income (Expense) (24) 18 365 151
Interest expense, net (226) (53) (1,140) (470)
--------- --------- --------- ---------
Income (loss) before income
taxes (735) 235 (3,761) 1,849
Income tax (benefit) expense (139) 94 (1,168) 744
--------- --------- --------- ---------
Net income (loss) $ (596) $ 141 $ (2,593) $ 1,105
========= ========= ========= =========
STROUDS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FOUR WEEKS ENDED THIRTY-NINE WEEKS ENDED
NOVEMBER30, 1996 NOVEMBER30, 1996
---------------- ----------------
Cash flows from operating activities:
Net income (loss) $ (596) $ (2,593)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization of property
and equipment 403 3,238
Amortization of excess of cost over net
assets acquired 20 194
Change in assets and liabilities:
(Increase) decrease in accounts
receivable (883) (1,751)
(Increase) decrease in merchandise
inventory (685) (13,111)
Increase (decrease) in accounts payable
and accrued expenses (760) 8,315
Other 2,612 907
---------- ----------
Net cash provided by (used in)
operating activities 111 (4,801)
---------- ----------
Cash flows from investing activities:
Capital expenditures (947) (9,784)
Other 83 83
---------- ----------
Net cash provided by (used in)
investing activities (864) (9,701)
---------- ----------
Cash flows from financing activities:
Borrowings under long-term debt 6,850 39,350
Repayment of long-term debt (2,840) (22,919)
Principal payments under capital
lease obligations --- (205)
(Decrease) increase in overdraft (3,628) (1,552)
Proceeds from exercise of stock options
and purchases under employee stock
purchase plan --- 37
---------- ----------
Net cash provided by (used in)
financing activities 382 14,711
---------- ----------
Net increase in cash (371) 209
Cash at beginning of period 790 210
---------- ----------
Cash at end of period $ 419 $ 419
========== ==========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 201 $ 1,066
Income taxes --- 195
========== ==========