EXHIBIT 10.16
AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
BY AND AMONG
LEAPFROG ENTERPRISES, INC.,
AS BORROWER,
THE LENDERS THAT ARE SIGNATORIES HERETO
AS THE LENDERS,
AND
FOOTHILL CAPITAL CORPORATION
AS THE ARRANGER AND ADMINISTRATIVE AGENT
DATED AS OF JULY 10, 2001
TABLE OF CONTENTS
1. DEFINITIONS AND CONSTRUCTION. ................................................................. 1
1.1 Definitions .......................................................................... 1
1.2 Accounting Terms ..................................................................... 23
1.3 Code ................................................................................. 23
1.4 Construction ......................................................................... 23
1.5 Schedules and Exhibits ............................................................... 24
2. LOAN AND TERMS OF PAYMENT. .................................................................... 24
2.1 Revolver Advances .................................................................... 24
2.2 Intentionally Omitted. ............................................................... 25
2.3 Borrowing Procedures and Settlements ................................................. 25
2.4 Payments ............................................................................. 33
2.5 Overadvances ......................................................................... 35
2.6 Interest Rates and Letter of Credit Fee: Rates, Payments, and Calculations .......... 35
2.7 Cash Management ...................................................................... 37
2.8 Crediting Payments; Float Charge ..................................................... 38
2.9 Designated Account ................................................................... 38
2.10 Maintenance of Loan Account; Statements of Obligations ............................... 38
2.11 Fees ................................................................................. 39
2.12 Letters of Credit .................................................................... 39
2.13 LIBOR Option ......................................................................... 43
2.14 Capital Requirements ................................................................. 45
3. CONDITIONS; TERM OF AGREEMENT. ................................................................ 46
3.1 Conditions Precedent to the Initial Extension of Credit .............................. 46
3.2 Conditions Subsequent to the Initial Extension of Credit ............................. 48
3.3 Conditions Precedent to all Extensions of Credit ..................................... 48
3.4 Term ................................................................................. 49
3.5 Effect of Termination ................................................................ 49
3.6 Early Termination by Borrower ........................................................ 49
4. CREATION OF SECURITY INTEREST. ................................................................ 50
4.1 Grant of Security Interest ........................................................... 50
4.2 Negotiable Collateral ................................................................ 50
4.3 Collection of Accounts, General Intangibles, and Negotiable Collateral ............... 50
4.4 Delivery of Additional Documentation Required ........................................ 51
4.5 Power of Attorney .................................................................... 51
4.6 Right to Inspect ..................................................................... 52
4.7 Control Agreements ................................................................... 52
5. REPRESENTATIONS AND WARRANTIES. ............................................................... 52
5.1 No Encumbrances ...................................................................... 52
i
5.2 Eligible Accounts .................................................................... 52
5.3 Eligible Inventory ................................................................... 53
5.4 Equipment ............................................................................ 54
5.5 Location of Inventory and Equipment .................................................. 54
5.6 Inventory Records .................................................................... 54
5.7 Location of Chief Executive Office; FEIN ............................................. 54
5.8 Due Organization and Qualification; Subsidiaries ..................................... 54
5.9 Due Authorization; No Conflict ....................................................... 55
5.10 Litigation ........................................................................... 56
5.11 No Material Adverse Change ........................................................... 56
5.12 Fraudulent Transfer .................................................................. 56
5.13 Employee Benefits .................................................................... 56
5.14 Environmental Condition .............................................................. 56
5.15 Brokerage Fees ....................................................................... 56
5.16 Intellectual Property ................................................................ 57
5.17 Leases ............................................................................... 57
5.18 DDAs ................................................................................. 57
5.19 Complete Disclosure .................................................................. 57
5.20 Indebtedness ......................................................................... 57
6. AFFIRMATIVE COVENANTS. ........................................................................ 57
6.1 Accounting System .................................................................... 58
6.2 Collateral Reporting ................................................................. 58
6.3 Financial Statements, Reports, Certificates .......................................... 59
6.4 Intentionally Omitted. ............................................................... 61
6.5 Return ............................................................................... 61
6.6 Maintenance of Properties ............................................................ 61
6.7 Taxes ................................................................................ 62
6.8 Insurance ............................................................................ 62
6.9 Location of Inventory and Equipment .................................................. 63
6.10 Compliance with Laws ................................................................. 63
6.11 Leases ............................................................................... 63
6.12 Brokerage Commissions ................................................................ 63
6.13 Existence. ........................................................................... 63
6.14 Environmental ........................................................................ 63
6.15 Disclosure Updates ................................................................... 64
7. NEGATIVE COVENANTS. ........................................................................... 64
7.1 Indebtedness ......................................................................... 64
7.2 Liens ................................................................................ 65
7.3 Restrictions on Fundamental Changes .................................................. 65
7.4 Disposal of Assets ................................................................... 65
7.5 Change Name .......................................................................... 65
7.6 Guarantee ............................................................................ 65
7.7 Nature of Business ................................................................... 65
ii
7.8 Prepayments and Amendments ........................................................... 66
7.9 Change of Control .................................................................... 66
7.10 Consignments ......................................................................... 66
7.11 Distributions ........................................................................ 66
7.12 Accounting Methods ................................................................... 66
7.13 Investments .......................................................................... 66
7.14 Transactions with Affiliates ......................................................... 67
7.15 Suspension ........................................................................... 67
7.16 Intentionally Omitted. ............................................................... 67
7.17 Use of Proceeds ...................................................................... 67
7.18 Change in Location of Chief Executive Office; Inventory and Equipment with Bailees ... 67
7.19 Securities Accounts .................................................................. 67
7.20 Financial Covenants .................................................................. 68
8. EVENTS OF DEFAULT. ............................................................................ 68
9. THE LENDER GROUP'S RIGHTS AND REMEDIES. ....................................................... 70
9.1 Rights and Remedies .................................................................. 70
9.2 Remedies Cumulative .................................................................. 72
10. TAXES AND EXPENSES. ........................................................................... 73
11. WAIVERS; INDEMNIFICATION. ..................................................................... 73
11.1 Demand; Protest; etc. ................................................................ 73
11.2 The Lender Group's Liability for Collateral .......................................... 73
11.3 Indemnification ...................................................................... 73
12. NOTICES. ...................................................................................... 74
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER. ................................................... 75
14. ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS. ................................................... 76
14.1 Assignments and Participations ....................................................... 76
14.2 Successors ........................................................................... 79
15. AMENDMENTS; WAIVERS. .......................................................................... 79
15.1 Amendments and Waivers ............................................................... 79
15.2 Replacement of Holdout Lender. ....................................................... 80
15.3 No Waivers; Cumulative Remedies ...................................................... 81
16. AGENT; THE LENDER GROUP. ...................................................................... 81
16.1 Appointment and Authorization of Agent ............................................... 81
16.2 Delegation of Duties ................................................................. 82
16.3 Liability of Agent ................................................................... 82
16.4 Reliance by Agent .................................................................... 83
iii
16.5 Notice of Default or Event of Default ................................................ 83
16.6 Credit Decision ...................................................................... 83
16.7 Costs and Expenses; Indemnification .................................................. 84
16.8 Agent in Individual Capacity ......................................................... 85
16.9 Successor Agent ...................................................................... 85
16.10 Lender in Individual Capacity ........................................................ 85
16.11 Withholding Taxes .................................................................... 86
16.12 Collateral Matters ................................................................... 88
16.13 Restrictions on Actions by Lenders; Sharing of Payments .............................. 89
16.14 Agency for Perfection ................................................................ 89
16.15 Payments by Agent to the Lenders ..................................................... 89
16.16 Concerning the Collateral and Related Loan Documents ................................. 90
16.17 Field Audits and Examination Reports; Confidentiality; Disclaimers by Lenders; Other
Reports and Information .............................................................. 90
16.18 Several Obligations; No Liability .................................................... 91
16.19 Legal Representation of Agent ........................................................ 92
17. GENERAL PROVISIONS. ........................................................................... 92
17.1 Effectiveness ........................................................................ 92
17.2 Section Headings ..................................................................... 92
17.3 Interpretation ....................................................................... 92
17.4 Severability of Provisions ........................................................... 92
17.5 Amendments in Writing ................................................................ 92
17.6 Counterparts; Telefacsimile Execution ................................................ 92
17.7 Revival and Reinstatement of Obligations ............................................. 93
17.8 Amendment and Restatement. ........................................................... 93
17.9 Integration .......................................................................... 93
17.10 Confidentiality. ..................................................................... 93
iv
EXHIBITS AND SCHEDULES
Exhibit A-1 Form of Assignment and Acceptance
Exhibit B-1 Form of Borrowing Base Certificate
Exhibit C-1 Form of Compliance Certificate
Exhibit L-1 Form of LIBOR Notice
Schedule C-1 Commitments
Schedule E-1 Eligible Inventory Locations
Schedule P-1 Permitted Investments
Schedule P-2 Permitted Liens
Schedule 2.7(a) Cash Management Banks
Schedule 5.5 Locations of Inventory and Equipment
Schedule 5.7 Chief Executive Office; FEIN
Schedule 5.8(b) Capitalization of Borrower
Schedule 5.8(c) Capitalization of Borrower's Subsidiaries
Schedule 5.9 Conflicts and Violations
Schedule 5.10 Litigation
Schedule 5.14 Environmental Matters
Schedule 5.16 Intellectual Property
Schedule 5.18 Demand Deposit Accounts
Schedule 5.20 Permitted Indebtedness
v
AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
THIS AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT (this
"Agreement"), is entered into as of July 10, 2001, between and among, on the one
hand, the lenders identified on the signature pages hereof (such lenders,
together with their respective successors and assigns, are referred to
hereinafter each individually as a "Lender" and collectively as the "Lenders"),
FOOTHILL CAPITAL CORPORATION, a California corporation, as the arranger and
administrative agent for the Lenders ("Agent"), and, on the other hand, LEAPFROG
ENTERPRISES, INC., a Delaware corporation ("Borrower").
RECITALS
A. Borrower and Foothill are parties to that certain Loan and Security
Agreement, dated as of November 8, 2000, as amended (the "Existing Agreement").
B. Borrower and Foothill are entering into this Agreement for the
purpose of amending and restating the Existing Agreement in its entirety, and
providing for Foothill to be both the Agent and a Lender under the Agreement.
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1 DEFINITIONS. As used in this Agreement, the following terms shall have
the following definitions:
"Account Debtor" means any Person who is or who may become obligated
under, with respect to, or on account of, an Account, chattel paper, or a
General Intangible.
"Accounts" means all of Borrower's now owned or hereafter acquired
right, title, and interest with respect to "accounts" (as that term is defined
in the Code), and any and all supporting obligations in respect thereof.
"Additional Documents" has the meaning set forth in Section 4.4.
"Advances" has the meaning set forth in Section 2.1.
"Affiliate" means, as applied to any Person, any other Person who,
directly or indirectly, controls, is controlled by, or is under common control
with, such Person. For purposes of this definition, "control" means the
possession, directly or indirectly, of the power to direct the management and
policies of a Person, whether through the ownership of Stock, by contract, or
otherwise; provided, however, that, in any event: (a) any Person which owns
directly or indirectly 10% or more of the securities having ordinary voting
power for the
1
election of directors or other members of the governing body of a Person or 10%
or more of the partnership or other ownership interests of a Person (other than
as a limited partner of such Person) shall be deemed to control such Person, (b)
each director (or comparable manager) of a Person shall be deemed to be an
Affiliate of such Person, and (c) each partnership or joint venture in which a
Person is a partner or joint venturer shall be deemed to be an Affiliate of such
Person.
"Agent" means Foothill, solely in its capacity as agent for the
Lenders hereunder, and any successor thereto.
"Agent's Account" means an account at a bank designated by Agent from
time to time as the account into which Borrower shall make all payments to Agent
for the benefit of the Lender Group and into which the Lender Group shall make
all payments to Agent under this Agreement and the other Loan Documents; unless
and until Agent notifies Borrower and the Lender Group to the contrary, Agent's
Account shall be that certain deposit account bearing account number 323-266193
and maintained by Agent with The Chase Manhattan Bank, 4 New York Plaza, 15th
Floor, New York, New York 10004, ABA #▇▇▇▇▇▇▇▇▇.
"Agent Advances" has the meaning set forth in Section 2.3(e)(i).
"Agent's Liens" means the Liens granted by Borrower to Agent for the
benefit of the Lender Group under this Agreement or the other Loan Documents.
"Agent-Related Persons" means Agent together with its Affiliates,
officers, directors, employees, and agents.
"Agreement" has the meaning set forth in the preamble hereto.
"Applicable Prepayment Premium" means, as of any date of
determination, an amount equal to (a) during the period of time from and after
the date of the execution and delivery of this Agreement up to the date that is
the first anniversary of the Closing Date, 1.50% times the Maximum Revolver
Amount, (b) during the period of time from and including the date that is the
first anniversary of the Closing Date up to the date that is the second
anniversary of the Closing Date, 1.00% times the Maximum Revolver Amount, and
(c) during the period of time from and including the date that is the second
anniversary of the Closing Date up to the Maturity Date, 0.50% times the Maximum
Revolver Amount.
Notwithstanding anything to the contrary set forth above, Borrower
shall not be required to pay a Prepayment Premium if the Obligations are repaid
in full after one year from the Closing Date from proceeds of: (a) an unsecured
credit facility or (b) an initial public offering of shares of Borrower's common
stock or if Borrower or its shareholders sell, in an arms length transaction,
substantially all of its assets or all of its outstanding shares of common
stock. If Borrower seeks refinancing during the term of the Agreement, Borrower
shall give ▇▇▇▇▇ Fargo or a commercial banking unit thereof a "right of first
refusal" to
2
provide such financing so long as ▇▇▇▇▇ Fargo responds to Borrower's written
notice of the "right of first refusal" within 11 Business Days of ▇▇▇▇▇ Fargo's
receipt of such notice.
After one year from the Closing Date, if Borrower requests an increase
of the Maximum Revolver Amount from Agent and Lenders, and Agent and Lenders
refuse such request even though Borrower has provided Lenders with realistic
projections that would reasonably support such request, then Borrower shall have
the right to obtain other secured financing, and the Applicable Payment Premium
shall be an amount equal to 0.50% times the Maximum Revolver Amount.
"Assignee" has the meaning set forth in Section 14.1.
"Assignment and Acceptance" means an Assignment and Acceptance in the
form of Exhibit A-1.
"Authorized Person" means the Chief Executive Officer, President,
Chief Financial Officer, Controller, General Ledger Manager or Cash Manager of
Borrower.
"Availability" means, as of any date of determination, if such date is
a Business Day, and determined at the close of business on the immediately
preceding Business Day, if such date of determination is not a Business Day, the
amount that Borrower is entitled to borrow as Advances under Section 2.1 (after
giving effect to all then outstanding Obligations and all sublimits and reserves
applicable hereunder).
"Bankruptcy Code" means the United States Bankruptcy Code, as in
effect from time to time.
"Base LIBOR Rate" means the rate per annum, determined by Agent in
accordance with its customary procedures, and utilizing such electronic or other
quotation sources as it considers appropriate (rounded upwards, if necessary, to
the next 1/16%), on the basis of the rates at which Dollar deposits are offered
to major banks in the London interbank market on or about 11:00 a.m. (California
time) 2 Business Days prior to the commencement of the applicable Interest
Period, for a term and in amounts comparable to the Interest Period and amount
of the LIBOR Rate Loan requested by Borrower in accordance with this Agreement,
which determination shall be conclusive in the absence of manifest error.
"Base Rate" means, the rate of interest announced within ▇▇▇▇▇ Fargo
at its principal office in San Francisco as its "prime rate", with the
understanding that the "prime rate" is one of ▇▇▇▇▇ Fargo's base rates (not
necessarily the lowest of such rates) and serves as the basis upon which
effective rates of interest are calculated for those loans making reference
thereto and is evidenced by the recording thereof after its announcement in such
internal publication or publications as ▇▇▇▇▇ Fargo may designate.
"Base Rate Loan" means each portion of an Advance that bears interest
at a rate determined by reference to the Base Rate.
3
"Base Rate Margin" means the applicable amount set forth in the table
below.
Advances outstanding under the Revolver would initially bear interest,
at Borrower's option, at the Base Rate plus 0.25 percentage points. Commencing
January 1, 2002 and on the first day of each subsequent calendar quarter, the
margin for Base Rate shall be determined based upon Borrower's trailing 12-month
EBITDA for the immediately prior period as follows:
12-month EBITDA Base Rate Margin
--------------- ----------------
Greater than or equal to $20,000,000 .00%
Less than $20,000,000 0.25%
"Benefit Plan" means a "defined benefit plan" (as defined in Section
3(35) of ERISA) for which Borrower or any Subsidiary or ERISA Affiliate of
Borrower has been an "employer" (as defined in Section 3(5) of ERISA) within the
past six years.
"Board of Directors" means the board of directors (or comparable
managers) of Borrower or any committee thereof duly authorized to act on behalf
of the board.
"Books" means Borrower's now owned or hereafter acquired books and
records (including all of its Records indicating, summarizing, or evidencing its
assets (including the Collateral) or liabilities, all of its Records relating to
its business operations or financial condition, and all of its goods or General
Intangibles related to such information).
"Borrower" has the meaning set forth in the preamble to this
Agreement.
"Borrowing" means a borrowing hereunder consisting of Advances made on
the same day by the Lenders (or Agent on behalf thereof), or by Swing Lender in
the case of a Swing Loan, or by Agent in the case of an Agent Advance.
"Borrowing Base" has the meaning set forth in Section 2.1.
"Borrowing Base Certificate" means a certificate in the form of
Exhibit B-1.
"Business Day" means any day that is not a Saturday, Sunday, or other
day on which national banks are authorized or required to close, except that, if
a determination of a Business Day shall relate to a LIBOR Rate Loan, the term
"Business Day" also shall exclude any day on which banks are closed for dealings
in Dollar deposits in the London interbank market.
"Capital Lease" means a lease that is required to be capitalized for
financial reporting purposes in accordance with GAAP.
4
"Capitalized Lease Obligation" means any Indebtedness represented by
obligations under a Capital Lease.
"Cash Equivalents" means (a) marketable direct obligations issued or
unconditionally guaranteed by the United States or issued by any agency thereof
and backed by the full faith and credit of the United States, in each case
maturing within 1 year from the date of acquisition thereof, (b) marketable
direct obligations issued by any state of the United States or any political
subdivision of any such state or any public instrumentality thereof maturing
within 1 year from the date of acquisition thereof and, at the time of
acquisition, having the highest rating obtainable from either S&P or ▇▇▇▇▇'▇,
(c) commercial paper maturing no more than 1 year from the date of acquisition
thereof and, at the time of acquisition, having a rating of A-1 or P-1, or
better, from S&P or ▇▇▇▇▇'▇, and (d) certificates of deposit or bankers'
acceptances maturing within 1 year from the date of acquisition thereof either
(i) issued by any bank organized under the laws of the United States or any
state thereof which bank has a rating of A or A2, or better, from S&P or
▇▇▇▇▇'▇, or (ii) certificates of deposit less than or equal to $100,000 in the
aggregate issued by any other bank insured by the Federal Deposit Insurance
Corporation.
"Cash Management Bank" has the meaning set forth in Section 2.7(a).
"Cash Management Account" has the meaning set forth in Section 2.7(a).
"Cash Management Agreements" means those certain cash management
service agreements, in form and substance satisfactory to Agent, each of which
is among Borrower, Agent, and one of the Cash Management Banks.
"Change of Control" means (a) any "person" or "group" (within the
meaning of Sections 13(d) and 14(d) of the Exchange Act), other than Knowledge
Universe and its Subsidiaries becomes the beneficial owner (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of 35%, or more, of the
Stock of Borrower having the right to vote for the election of members of the
Board of Directors, or (b) Knowledge Universe and its Subsidiaries cease to be
the beneficial owners of more than 50% of the Stock of Borrower having the right
to vote for the election of members of the Board of Directors.
"Closing Date" means the date of the making of the initial Advance (or
other extension of credit) hereunder.
"Closing Date Business Plan" means the set of Projections of Borrower
for Borrower's current fiscal year and for the first 6 months of the subsequent
fiscal year on a month by month basis, in form and substance (including as to
scope and underlying assumptions) satisfactory to Agent.
"Code" means the California Uniform Commercial Code, as in effect from
time to time.
5
"Collateral" means all of Borrower's now owned or hereafter acquired
right, title, and interest in and to each of the following:
(a) Accounts,
(b) Books,
(c) Equipment,
(d) General Intangibles,
(e) Inventory,
(f) Investment Property; provided that the Collateral shall
include only two-thirds of Borrower's ownership interest in any Subsidiary which
is a "controlled foreign corporation" (as defined under the IRC),
(g) Negotiable Collateral,
(h) money or other assets of Borrower that now or hereafter come
into the possession, custody, or control of any member of the Lender Group, and
(i) the proceeds and products, whether tangible or intangible, of
any of the foregoing, including proceeds of insurance covering any or all of the
foregoing, and any and all Accounts, Books, Equipment, General Intangibles,
Inventory, Investment Property, Negotiable Collateral, Real Property, money,
deposit accounts, or other tangible or intangible property resulting from the
sale, exchange, collection, or other disposition of any of the foregoing, or any
portion thereof or interest therein, and the proceeds thereof.
"Collateral Access Agreement" means a landlord waiver, bailee letter,
or acknowledgement agreement of any lessor, warehouseman, processor, consignee,
or other Person in possession of, having a Lien upon, or having rights or
interests in the Equipment or Inventory, in each case, in form and substance
satisfactory to Agent.
"Collections" means all cash, checks, notes, instruments, and other
items of payment (including insurance proceeds, proceeds of cash sales, rental
proceeds, and tax refunds) of Borrower.
"Commitment" means, with respect to each Lender, its Revolver
Commitment, and, with respect to all Lenders, their Revolver Commitments, in
each case as such Dollar amounts are set forth beside such Lender's name under
the applicable heading on Schedule C-1 or on the signature page of the
Assignment and Acceptance pursuant to which such Lender became a Lender
hereunder in accordance with the provisions of Section 14.1.
"Compliance Certificate" means a certificate substantially in the form
of Exhibit C-1 delivered by the chief financial officer of Borrower to Agent.
6
"Continuing Director" means (a) any member of the Board of Directors
who was a director (or comparable manager) of Borrower on the Closing Date, and
(b) any individual who becomes a member of the Board of Directors after the
Closing Date if such individual was appointed or nominated for election to the
Board of Directors by a majority of the Continuing Directors, but excluding any
such individual originally proposed for election in opposition to the Board of
Directors in office at the Closing Date in an actual or threatened election
contest relating to the election of the directors (or comparable managers) of
Borrower (as such terms are used in Rule 14a-11 under the Exchange Act) and
whose initial assumption of office resulted from such contest or the settlement
thereof.
"Control Agreement" means a control agreement, in form and substance
satisfactory to Agent, executed and delivered by Borrower, Agent, and the
applicable securities intermediary with respect to a Securities Account or bank
with respect to a deposit account.
"Daily Balance" means, with respect to each day during the term of
this Agreement, the amount of an Obligation owed at the end of such day.
"DDA" means any checking or other demand deposit account maintained by
Borrower.
"Default" means an event, condition, or default that, with the giving
of notice, the passage of time, or both, would be an Event of Default.
"Defaulting Lender" means any Lender that fails to make any Advance
(or other extension of credit) that it is required to make hereunder on the date
that it is required to do so hereunder.
"Defaulting Lender Rate" means (a) the Base Rate for the first 3 days
from and after the date the relevant payment is due, and (b) thereafter, at the
interest rate then applicable to Advances that are Base Rate Loans (inclusive of
the Base Rate Margin applicable thereto).
"Designated Account" means account number 4311412803 of Borrower
maintained with Borrower's Designated Account Bank, or such other deposit
account of Borrower (located within the United States) that has been designated
as such, in writing, by Borrower to Lender.
"Designated Account Bank" means ▇▇▇▇▇ Fargo, whose office is located
at ▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ and whose ABA number is
▇▇▇-▇▇▇-▇▇▇.
"Dilution" means, as of any date of determination, a percentage, based
upon the experience of the immediately prior 180 days, that is the result of
dividing the Dollar amount of (a) bad debt write-downs, discounts, advertising
allowances, credits, or other dilutive items with respect to the Accounts during
such period, by (b) Borrower's Collections
7
with respect to Accounts during such period (excluding extraordinary items) plus
the Dollar amount of clause (a).
"Dilution Reserve" means, as of any date of determination, an amount
sufficient to reduce the advance rate against Eligible Accounts by one
percentage point for each percentage point by which Dilution is in excess of
5.00%.
"Disbursement Letter" means an instructional letter executed and
delivered by Borrower to Agent regarding the extensions of credit to be made on
the Closing Date, the form and substance of which is satisfactory to Agent.
"Dollars" or "$" means United States dollars.
"Due Diligence Letter" means the due diligence letter sent by Agent's
counsel to Borrower, together with Borrower's completed responses to the
inquiries set forth therein, the form and substance of such responses to be
satisfactory to Agent.
"EBITDA" means, with respect to any fiscal period, Borrower's and its
Subsidiaries consolidated net earnings (or loss), minus extraordinary gains,
plus extraordinary losses, interest expense, income taxes, and depreciation and
amortization for such period, as determined in accordance with GAAP.
"Eligible Accounts" means those Accounts created by Borrower in the
ordinary course of its business, that arise out of Borrower's sale of goods or
rendition of services, that comply with each of the representations and
warranties respecting Eligible Accounts made by Borrower in the Loan Documents,
and that are not excluded as ineligible by virtue of one or more of the criteria
set forth below; provided, however, that such criteria may be fixed and revised
from time to time by Agent in Agent's Permitted Discretion to address the
results of any audit performed by Agent from time to time after the Closing
Date. In determining the amount to be included, Eligible Accounts shall be
calculated net of customer deposits and unapplied cash remitted to Borrower.
Eligible Accounts shall not include the following:
(a) Accounts that the Account Debtor has failed to pay within 120
days of original invoice date or more than 60 days from due date,
(b) Accounts owed by an Account Debtor (or its Affiliates) where
50% or more of all Accounts owed by that Account Debtor (or its Affiliates) are
deemed ineligible under clause (a) above,
(c) Accounts with respect to which the Account Debtor is an
employee, Affiliate, or agent of Borrower,
(d) Accounts arising in a transaction wherein goods are placed on
consignment or are sold pursuant to a guaranteed sale, a sale or return, a sale
on approval, a
8
▇▇▇▇ and hold, or any other terms by reason of which the payment by the Account
Debtor may be conditional,
(e) Accounts that are not payable in Dollars or Canadian Dollars,
(f) Accounts with respect to which the Account Debtor either (i)
does not maintain its chief executive office in the United States or Canada, or
(ii) is not organized under the laws of the United States or any state thereof
or Canada or any province thereof, or (iii) is the government of any foreign
country (other than Canada) or sovereign state, or of any state, province,
municipality, or other political subdivision thereof, or of any department,
agency, public corporation, or other instrumentality thereof, unless (x) the
Account is supported by an irrevocable letter of credit satisfactory to Agent
(as to form, substance, and issuer or domestic confirming bank) that has been
delivered to Agent and is directly drawable by Agent, (y) the Account is covered
by credit insurance in form, substance, and amount, and by an insurer,
satisfactory to Agent, or (z) at Agent's sole and absolute discretion, those
Accounts, reviewed on a case-by-case basis, deemed to be a reasonable credit
risk by Agent,
(g) Accounts with respect to which the Account Debtor is either
(i) the United States or any department, agency, or instrumentality of the
United States (exclusive, however, of Accounts with respect to which Borrower
has complied, to the reasonable satisfaction of Agent, with the Assignment of
Claims Act, 31 USC Section 3727), or (ii) any state of the United States
(exclusive, however, of (y) Accounts owed by any state that does not have a
statutory counterpart to the Assignment of Claims Act, or (z) Accounts owed by
any state that does have a statutory counterpart to the Assignment of Claims Act
as to which Borrower has complied to Agent's satisfaction),
(h) Accounts with respect to which the Account Debtor is a
creditor of Borrower, has or has asserted a right of setoff, has disputed its
liability, or has made any claim with respect to its obligation to pay the
Account, to the extent of such claim, right of setoff, or dispute,
(i) Accounts with respect to an Account Debtor whose total
obligations owing to Borrower exceed 10% of all Eligible Accounts (or in the
case of each of Toys' R Us, K-Mart, Wal-Mart and Target 40% of all Eligible
Accounts), to the extent of the obligations owing by such Account Debtor in
excess of such percentage; provided, however, that Agent shall have the right to
change these concentration limits in its Permitted Discretion,
(j) Accounts with respect to which the Account Debtor is subject
to an Insolvency Proceeding, is not Solvent, has gone out of business, or as to
which Borrower has received notice of an imminent Insolvency Proceeding or a
material impairment of the financial condition of such Account Debtor,
9
(k) Accounts with respect to which the Account Debtor is located
in the states of New Jersey, Minnesota, or West Virginia (or any other state
that requires a creditor to file a business activity report or similar document
in order to bring suit or otherwise enforce its remedies against such Account
Debtor in the courts or through any judicial process of such state), unless
Borrower has qualified to do business in New Jersey, Minnesota, West Virginia,
or such other states, or has filed a business activities report with the
applicable division of taxation, the department of revenue, or with such other
state offices, as appropriate, for the then-current year, or is exempt from such
filing requirement,
(l) Accounts, the collection of which, Agent, in its Permitted
Discretion, believes to be doubtful by reason of the Account Debtor's financial
condition,
(m) Accounts that are not subject to a valid and perfected first
priority Agent's Lien,
(n) Accounts with respect to which (i) the goods giving rise to
such Account have not been shipped and billed to the Account Debtor, or (ii) the
services giving rise to such Account have not been performed and billed to the
Account Debtor, or
(o) Accounts that represent the right to receive progress
payments or other advance ▇▇▇▇▇▇▇▇ that are due prior to the completion of
performance by Borrower of the subject contract for goods or services.
"Eligible Inventory" means Inventory consisting of first quality
finished goods held for sale in the ordinary course of Borrower's business
located at one of Borrower's business locations set forth on Schedule E-1 (or
in-transit between any such locations), that complies with each of the
representations and warranties respecting Eligible Inventory made by Borrower in
the Loan Documents, and that is not excluded as ineligible by virtue of the one
or more of the criteria set forth below; provided, however, that (a) up to
$5,000,000 of Advances may be based upon Eligible Inventory that is in-transit
to one of Borrower's warehouses in the United States and (b) such criteria may
be fixed and revised from time to time by Agent in Agent's Permitted Discretion
to address the results of any audit or appraisal performed by Agent from time to
time after the Closing Date. In determining the amount to be so included,
Inventory shall be valued at the lower of cost or market on a basis consistent
with Borrower's historical accounting practices. An item of Inventory shall not
be included in Eligible Inventory if:
(a) Borrower does not have good, valid, and marketable title thereto,
(b) it is not located at one of the locations in the United States set
forth on Schedule E-1 or in transit from one such location to another such
location,
(c) it is located on real property leased by Borrower or in a contract
warehouse, in each case, unless it is subject to a Collateral Access Agreement
executed by
10
the lessor, warehouseman, or other third party, as the case may be, and unless
it is segregated or otherwise separately identifiable from goods of others, if
any, stored on the premises,
(d) it is not subject to a valid and perfected first priority
Agent's Lien,
(e) it consists of goods returned (unless such goods have been
added to Borrower's Inventory for sale and Borrower has issued a credit
memorandum for the Account related to such goods) or rejected by Borrower's
customers, or
(f) it consists of goods that are obsolete or slow moving,
restrictive or custom items, work-in-process, raw materials, or goods that
constitute spare parts, packaging and shipping materials, supplies used or
consumed in Borrower's business, ▇▇▇▇ and hold goods, defective goods,
"seconds," or Inventory acquired on consignment.
"Eligible Transferee" means (a) a commercial bank organized under the
laws of the United States, or any state thereof, and having total assets in
excess of $250,000,000, (b) a commercial bank organized under the laws of any
other country which is a member of the Organization for Economic Cooperation and
Development or a political subdivision of any such country and which has total
assets in excess of $250,000,000, provided that such bank is acting through a
branch or agency located in the United States, (c) a finance company, insurance
company, or other financial institution or fund that is engaged in making,
purchasing, or otherwise investing in commercial loans in the ordinary course of
its business and having (together with its Affiliates) total assets in excess of
$250,000,000, (d) any Affiliate (other than individuals) of a Lender that was
party hereto as of the Closing Date, (e) so long as no Event of Default has
occurred and is continuing, any other Person approved by Agent and Borrower, and
(f) during the continuation of an Event of Default, any other Person approved by
Agent.
"Environmental Actions" means any complaint, summons, citation,
notice, directive, order, claim, litigation, investigation, judicial or
administrative proceeding, judgment, letter, or other communication from any
Governmental Authority, or any third party involving violations of Environmental
Laws or releases of Hazardous Materials from (a) any assets, properties, or
businesses of Borrower or any predecessor in interest, (b) from adjoining
properties or businesses, or (c) from or onto any facilities which received
Hazardous Materials generated by Borrower or any predecessor in interest.
"Environmental Law" means any applicable federal, state, provincial,
foreign or local statute, law, rule, regulation, ordinance, code, binding and
enforceable guideline, binding and enforceable written policy, or rule of common
law now or hereafter in effect and in each case as amended, or any judicial or
administrative interpretation thereof, including any judicial or administrative
order, consent decree or judgment, to the extent binding on Borrower, relating
to the environment, employee health and safety, or Hazardous Materials,
including CERCLA; RCRA; the Federal Water Pollution Control Act, 33 USC Section
1251 et seq; the Toxic Substances Control Act, 15 USC, Section 2601 et seq; the
Clean Air Act, 42 USC Section 7401
11
et seq.; the Safe Drinking Water Act, 42 USC. Section 3803 et seq.; the Oil
Pollution Act of 1990, 33 USC. Section 2701 et seq.; the Emergency Planning and
the Community Right-to-Know Act of 1986, 42 USC. Section 11001 et seq.; the
Hazardous Material Transportation Act, 49 USC Section 1801 et seq.; and the
Occupational Safety and Health Act, 29 USC. Section 651 et seq. (to the extent
it regulates occupational exposure to Hazardous Materials); any state and local
or foreign counterparts or equivalents, in each case as amended from time to
time.
"Environmental Liabilities and Costs" means all liabilities, monetary
obligations, Remedial Actions, losses, damages, punitive damages, consequential
damages, treble damages, costs and expenses (including all reasonable fees,
disbursements and expenses of counsel, experts, or consultants, and costs of
investigation and feasibility studies), fines, penalties, sanctions, and
interest incurred as a result of any claim or demand by any Governmental
Authority or any third party, and which relate to any Environmental Action.
"Environmental Lien" means any Lien in favor of any Governmental
Authority for Environmental Liabilities and Costs.
"Equipment" means all of Borrower's now owned or hereafter acquired
right, title, and interest with respect to equipment, machinery, machine tools,
motors, furniture, furnishings, fixtures, vehicles (including motor vehicles),
tools, parts, goods (other than consumer goods, farm products, or Inventory),
wherever located, including all attachments, accessories, accessions,
replacements, substitutions, additions, and improvements to any of the
foregoing.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and any successor statute thereto.
"ERISA Affiliate" means (a) any Person subject to ERISA whose
employees are treated as employed by the same employer as the employees of
Borrower under IRC Section 414(b), (b) any trade or business subject to ERISA
whose employees are treated as employed by the same employer as the employees of
Borrower under IRC Section 414(c), (c) solely for purposes of Section 302 of
ERISA and Section 412 of the IRC, any organization subject to ERISA that is a
member of an affiliated service group of which Borrower is a member under IRC
Section 414(m), or (d) solely for purposes of Section 302 of ERISA and Section
412 of the IRC, any Person subject to ERISA that is a party to an arrangement
with Borrower and whose employees are aggregated with the employees of Borrower
under IRC Section 414(o).
"Event of Default" has the meaning set forth in Section 8.
"Exchange Act" means the Securities Exchange Act of 1934, as in effect
from time to time.
"Existing Agreement" has the meaning set forth in the Recitals.
12
"Fee Letter" means that certain fee letter, dated as of even date
herewith, between Borrower and Agent, in form and substance satisfactory to
Agent.
"FEIN" means Federal Employer Identification Number.
"Foothill" means Foothill Capital Corporation, a California
corporation.
"Funding Date" means the date on which a Borrowing occurs.
"Funding Losses" has the meaning set forth in Section 2.13(b)(ii).
"GAAP" means generally accepted accounting principles as in effect
from time to time in the United States, consistently applied.
"General Intangibles" means all of Borrower's now owned or hereafter
acquired right, title, and interest with respect to general intangibles
(including payment intangibles, contract rights, rights to payment, rights
arising under common law, statutes, or regulations, choses or things in action,
goodwill, patents, trade names, trademarks, servicemarks, copyrights,
blueprints, drawings, purchase orders, customer lists, monies due or recoverable
from pension funds, route lists, rights to payment and other rights under any
royalty or licensing agreements, infringement claims, computer programs,
information contained on computer disks or tapes, software, literature, reports,
catalogs, money, deposit accounts, insurance premium rebates, tax refunds, and
tax refund claims), and any and all supporting obligations in respect thereof,
and any other personal property other than goods, Accounts, Investment Property,
and Negotiable Collateral.
"Governing Documents" means, with respect to any Person, the
certificate or articles of incorporation, by-laws, or other organizational
documents of such Person.
"Governmental Authority" means any federal, state, local, or other
governmental or administrative body, instrumentality, department, or agency or
any court, tribunal, administrative hearing body, arbitration panel, commission,
or other similar dispute-resolving panel or body.
"Hazardous Materials" means (a) substances that are defined or listed
in, or otherwise classified pursuant to, any applicable laws or regulations as
"hazardous substances," "hazardous materials," "hazardous wastes," "toxic
substances," or any other formulation intended to define, list, or classify
substances by reason of deleterious properties such as ignitability,
corrosivity, reactivity, carcinogenicity, reproductive toxicity, or "EP
toxicity", (b) oil, petroleum, or petroleum derived substances, natural gas,
natural gas liquids, synthetic gas, drilling fluids, produced waters, and other
wastes associated with the exploration, development, or production of crude oil,
natural gas, or geothermal resources, (c) any flammable substances or explosives
or any radioactive materials, and (d) asbestos in any form or electrical
equipment that contains any oil or dielectric fluid containing levels of
polychlorinated biphenyls in excess of 50 parts per million.
13
"Indebtedness" means (a) all obligations of Borrower for borrowed
money, (b) all obligations of Borrower evidenced by bonds, debentures, notes, or
other similar instruments and all reimbursement or other obligations of Borrower
in respect of letters of credit, bankers acceptances, interest rate swaps, or
other financial products, (c) all obligations of Borrower under Capital Leases,
(d) all obligations or liabilities of others secured by a Lien on any asset of
Borrower, irrespective of whether such obligation or liability is assumed, (e)
all obligations of Borrower for the deferred purchase price of assets (other
than trade debt incurred in the ordinary course of Borrower's business and
repayable in accordance with customary trade practices), and (f) any obligation
of Borrower guaranteeing or intended to guarantee (whether directly or
indirectly guaranteed, endorsed, co-made, discounted, or sold with recourse to
Borrower) any obligation of any other Person.
"Indemnified Liabilities" has the meaning set forth in Section 11.3.
"Indemnified Person" has the meaning set forth in Section 11.3.
"Insolvency Proceeding" means any proceeding commenced by or against
any Person under any provision of the Bankruptcy Code or under any other state
or federal bankruptcy or insolvency law, assignments for the benefit of
creditors, formal or informal moratoria, compositions, extensions generally with
creditors, or proceedings seeking reorganization, arrangement, or other similar
relief.
"Intangible Assets" means, with respect to any Person, that portion of
the book value of all of such Person's assets that would be treated as
intangibles under GAAP.
"Intellectual Property Security Agreement" means an intellectual
property security agreement executed and delivered by Borrower and Agent, the
form and substance of which is satisfactory to Agent.
"Interest Period" means, with respect to each LIBOR Rate Loan, a
period commencing on the date of the making of such LIBOR Rate Loan and ending
1, 2, or 3 months thereafter; provided, however, that (a) if any Interest Period
would end on a day that is not a Business Day, such Interest Period shall be
extended (subject to clauses (c)-(e) below) to the next succeeding Business Day,
(b) interest shall accrue at the applicable rate based upon the LIBOR Rate from
and including the first day of each Interest Period to, but excluding, the day
on which any Interest Period expires, (c) any Interest Period that would end on
a day that is not a Business Day shall be extended to the next succeeding
Business Day unless such Business Day falls in another calendar month, in which
case such Interest Period shall end on the next preceding Business Day, (d) with
respect to an Interest Period that begins on the last Business Day of a calendar
month (or on a day for which there is no numerically corresponding day in the
calendar month at the end of such Interest Period), the Interest Period shall
end on the last Business Day of the calendar month that is 1, 2, or 3 months
after the date on which the Interest Period began, as applicable, and (e)
Borrower may not elect an Interest Period which will end after the Maturity
Date.
14
"Inventory" means all Borrower's now owned or hereafter
acquired right, title, and interest with respect to inventory, including goods
held for sale or lease or to be furnished under a contract of service, goods
that are leased by Borrower as lessor, goods that are furnished by Borrower
under a contract of service, and raw materials, work in process, or materials
used or consumed in Borrower's business.
"Investment" means, with respect to any Person, any investment
by such Person in any other Person (including Affiliates) in the form of loans,
guarantees, advances, or capital contributions (excluding (a) commission,
travel, and similar advances to officers and employees of such Person made in
the ordinary course of business, and (b) bona fide Accounts arising from the
sale of goods or rendition of services in the ordinary course of business
consistent with past practice), purchases or other acquisitions for
consideration of Indebtedness or Stock, and any other items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
"Investment Property" means all of Borrower's now owned or
hereafter acquired right, title, and interest with respect to "investment
property" as that term is defined in the Code, and any and all supporting
obligations in respect thereof.
"IRC" means the Internal Revenue Code of 1986, as in effect
from time to time.
"Issuing Lender" means Foothill or any other Lender that, at
the request of Borrower and with the consent of Agent agrees, in such Lender's
sole discretion, to become an Issuing Lender for the purpose of issuing L/Cs or
L/C Undertakings pursuant to Section 2.12.
"L/C" has the meaning set forth in Section 2.12(a).
"L/C Disbursement" means a payment made by the Issuing Lender
pursuant to a Letter of Credit.
"L/C Undertaking" has the meaning set forth in Section
2.12(a).
"Lender" and "Lenders" have the respective meanings set forth
in the preamble to this Agreement, and shall include any other Person made a
party to this Agreement in accordance with the provisions of Section 14.1.
"Lender Group" means, individually and collectively, each of
the Lenders (including the Issuing Lender) and Agent.
"Lender Group Expenses" means all (a) costs or expenses
(including taxes, and insurance premiums) required to be paid by Borrower under
any of the Loan Documents that are paid or incurred by the Lender Group, (b)
reasonable fees or charges paid or incurred by Agent in connection with the
Lender Group's transactions with Borrower, including, fees
15
or charges for photocopying, notarization, couriers and messengers,
telecommunication, public record searches (including tax lien, litigation, and
UCC searches and including searches with the patent and trademark office, the
copyright office, or the department of motor vehicles), filing, recording,
publication, appraisal (including periodic Collateral appraisals or business
valuations to the extent of the fees and charges (and up to the amount of any
limitation) contained in this Agreement) and environmental audits, (c)
reasonable costs and expenses incurred by Agent in the disbursement of funds to
Borrower (by wire transfer or otherwise), (d) reasonable charges paid or
incurred by Agent resulting from the dishonor of checks, (e) reasonable costs
and expenses paid or incurred by the Lender Group to correct any default or
enforce any provision of the Loan Documents, or in gaining possession of,
maintaining, handling, preserving, storing, shipping, selling, preparing for
sale, or advertising to sell the Collateral, or any portion thereof,
irrespective of whether a sale is consummated, (f) reasonable audit fees and
expenses of Agent related to audit examinations of the Books to the extent of
the fees and charges (and up to the amount of any limitation) contained in this
Agreement, (g) reasonable costs and expenses of third party claims or any other
suit paid or incurred by the Lender Group in enforcing or defending the Loan
Documents or in connection with the transactions contemplated by the Loan
Documents or the Lender Group's relationship with Borrower or any guarantor of
the Obligations, (h) Agent's and each Lender's reasonable fees and expenses
(including attorneys fees) incurred in advising, structuring, drafting,
reviewing, administering, or amending the Loan Documents, and (i) Agent's and
each Lender's reasonable fees and expenses (including attorneys fees) incurred
in terminating, enforcing (including attorneys fees and expenses incurred in
connection with a "workout," a "restructuring," or an Insolvency Proceeding
concerning Borrower or in exercising rights or remedies under the Loan
Documents), or defending the Loan Documents, irrespective of whether suit is
brought, or in taking any Remedial Action concerning the Collateral.
"Lender-Related Person" means, with respect to any Lender,
such Lender, together with such Lender's Affiliates, and the officers,
directors, employees, and agents of such Lender.
"Letter of Credit" means an L/C or an L/C Undertaking, as the
context requires.
"Letter of Credit Usage" means, as of any date of
determination, the aggregate undrawn amount of all outstanding Letters of Credit
plus 100% of the amount of outstanding time drafts accepted by an Underlying
Issuer as a result of drawings under Underlying Letters of Credit.
"LIBOR Deadline" has the meaning set forth in Section
2.13(b)(i).
"LIBOR Notice" means a written notice in the form of Exhibit
L-1.
"LIBOR Option" has the meaning set forth in Section 2.13(a).
16
"LIBOR Rate" means, for each Interest Period for each LIBOR
Rate Loan, the rate per annum determined by Agent (rounded upwards, if
necessary, to the next 1/16%) by dividing (a) the Base LIBOR Rate for such
Interest Period, by (b) 100% minus the Reserve Percentage. The LIBOR Rate shall
be adjusted on and as of the effective day of any change in the Reserve
Percentage.
"LIBOR Rate Loan" means each portion of an Advance that bears
interest at a rate determined by reference to the LIBOR Rate.
"LIBOR Rate Margin" means the applicable amount set forth in
the table below.
Advances outstanding under the Revolver would initially bear
interest, at Borrower's option, at the LIBOR Rate plus 2.50 percentage points.
Commencing January 1, 2002 and on the first day of each subsequent calendar
quarter, the margin for Libor Rate shall be determined based upon Borrower's
trailing 12-month EBITDA for the immediately prior period as follows:
12-month EBITDA Libor Margin
--------------- ------------
Greater than or equal to $20,000,000 2.25%
Less than $20,000,000 2.50%
"Lien" means any interest in an asset securing an obligation
owed to, or a claim by, any Person other than the owner of the asset, whether
such interest shall be based on the common law, statute, or contract, whether
such interest shall be recorded or perfected, and whether such interest shall be
contingent upon the occurrence of some future event or events or the existence
of some future circumstance or circumstances, including the lien or security
interest arising from a mortgage, deed of trust, encumbrance, pledge,
hypothecation, assignment, deposit arrangement, security agreement, conditional
sale or trust receipt, or from a lease, consignment, or bailment for security
purposes and also including reservations, exceptions, encroachments, easements,
rights-of-way, covenants, conditions, restrictions, leases, and other title
exceptions and encumbrances affecting Real Property.
"Loan Account" has the meaning set forth in Section 2.10.
"Loan Documents" means this Agreement, the Cash Management
Agreements, the Control Agreements, the Intellectual Property Security
Agreement, the Disbursement Letter, the Due Diligence Letter, the Fee Letter,
the Letters of Credit, the Officers' Certificate, the Stock Pledge Agreement,
any note or notes executed by Borrower in connection with this Agreement and
payable to a member of the Lender Group, and any other agreement entered into,
now or in the future, by Borrower and the Lender Group in connection with this
Agreement.
17
"Material Adverse Change" means (a) a material adverse change
in the business, operations, results of operations, assets, liabilities or
condition (financial or otherwise) of Borrower and its Subsidiaries as a whole,
(b) a material impairment of Borrower's ability to perform its obligations under
the Loan Documents to which it is a party or of the Lender Group's ability to
enforce the Obligations or realize upon the Collateral, or (c) a material
impairment of the enforceability or priority of the Agent's Liens with respect
to the Collateral as a result of an action or failure to act on the part of
Borrower.
"Maturity Date" has the meaning set forth in Section 3.4.
"Maximum Revolver Amount" means $80,000,000.
"Negotiable Collateral" means all of Borrower's now owned and
hereafter acquired right, title, and interest with respect to letters of credit,
letter of credit rights, instruments, promissory notes, drafts, documents, and
chattel paper (including electronic chattel paper and tangible chattel paper),
and any and all supporting obligations in respect thereof.
"Net Liquidation Percentage" means the percentage of the book
value of Borrower's Inventory that is estimated to be recoverable in an orderly
liquidation of such Inventory, such percentage to be as determined from time to
time by a qualified appraisal company selected by Agent.
"Obligations" means all loans, Advances, debts, principal,
interest (including any interest that, but for the provisions of the Bankruptcy
Code, would have accrued), contingent reimbursement obligations with respect to
outstanding Letters of Credit, premiums, liabilities (including all amounts
charged to Borrower's Loan Account pursuant hereto), obligations, fees
(including the fees provided for in the Fee Letter), charges, costs, Lender
Group Expenses (including any fees or expenses that, but for the provisions of
the Bankruptcy Code, would have accrued), lease payments, guaranties, covenants,
and duties of any kind and description owing by Borrower to the Lender Group
pursuant to or evidenced by the Loan Documents and irrespective of whether for
the payment of money, whether direct or indirect, absolute or contingent, due or
to become due, now existing or hereafter arising, and including all interest not
paid when due and all Lender Group Expenses that Borrower is required to pay or
reimburse by the Loan Documents, by law, or otherwise. Any reference in this
Agreement or in the Loan Documents to the Obligations shall include all
amendments, changes, extensions, modifications, renewals replacements,
substitutions, and supplements, thereto and thereof, as applicable, both prior
and subsequent to any Insolvency Proceeding.
"Officers' Certificate" means the representations and
warranties of certain officers of Borrower in the form submitted by Agent to
Borrower, together with Borrower's completed responses to the inquiries set
forth therein, the form and substance of such responses to be satisfactory to
Agent.
18
"Originating Lender" has the meaning set forth in Section
14.1(e).
"Overadvance" has the meaning set forth in Section 2.5.
"Participant" has the meaning set forth in Section 14.1(e).
"Permitted Discretion" means a determination made in good
faith and in the exercise of reasonable (from the perspective of a secured
asset-based lender) business judgment.
"Permitted Dispositions" means (a) sales or other dispositions
by Borrower of Equipment that is substantially worn, damaged, or obsolete in the
ordinary course of Borrower's business, (b) sales by Borrower of Inventory to
buyers in the ordinary course of business, (c) the use or transfer of money or
Cash Equivalents by Borrower in a manner that is not prohibited by the terms of
this Agreement or the other Loan Documents, and (d) other licensing by Borrower,
on a non-exclusive basis, of patents, trademarks, copyrights, and other
intellectual property rights in the ordinary course of Borrower's business.
"Permitted Investments" means (a) investments in Cash
Equivalents, (b) investments in negotiable instruments for collection, (c)
advances made in connection with purchases of goods or services in the ordinary
course of business, (d) investments in Subsidiaries as in effect as of the
Closing Date, (e) investments as in effect and in the amount as of the Closing
Date listed on Schedule P-1, (f) loans to Persons for the purpose of purchasing
Borrower's Stock from Borrower, or other loans (consisting of actual cash
advances or other transfers of property) to employees not to exceed $500,000
outstanding at any time, (g) investments in partnerships with employees for the
purpose of enabling home purchases by such employees not to exceed $1,000,000
outstanding at any time, (h) additional investments in an amount not exceeding
$500,000 outstanding at any time, and (i) additional investments in Subsidiaries
in an amount not to exceed $500,000, in the aggregate, per calendar year so long
as no Event of Default has occurred and is continuing.
"Permitted Liens" means (a) Liens held by Agent for the
benefit of Agent and the Lenders, (b) Liens for unpaid taxes that either (i) are
not yet delinquent, or (ii) do not constitute an Event of Default hereunder and
are the subject of Permitted Protests, (c) Liens set forth on Schedule P-2, (d)
the interests of lessors under operating leases, (e) purchase money Liens or the
interests of lessors under Capital Leases to the extent that such Liens or
interests secure Permitted Purchase Money Indebtedness and so long as such Lien
attaches only to the asset purchased or acquired and the proceeds thereof, (f)
Liens arising by operation of law in favor of warehousemen, landlords, carriers,
mechanics, materialmen, laborers, or suppliers, incurred in the ordinary course
of business of Borrower and not in connection with the borrowing of money, and
which Liens either (i) are for sums not yet delinquent, or (ii) are the subject
of Permitted Protests, (g) Liens arising from deposits made in connection with
obtaining worker's compensation or other unemployment insurance, (h) Liens or
deposits to secure performance of bids, tenders, or leases incurred in the
ordinary course of business of Borrower and not in connection with the borrowing
of money, (i) Liens
19
granted as security for surety or appeal bonds in connection with obtaining such
bonds in the ordinary course of business of Borrower, (j) Liens resulting from
any judgment or award that is not an Event of Default hereunder, (k) Liens on
cash collateral securing reimbursement obligations arising with respect to
letters of credit issued by ▇▇▇▇▇ Fargo in an amount not to exceed $1,000,000 or
such higher amount that has been approved by Agent, and (l) with respect to any
Real Property, easements, rights of way, and zoning restrictions that do not
materially interfere with or impair the use or operation thereof by Borrower.
"Permitted Protest" means the right of Borrower to protest any
Lien (other than any such Lien that secures the Obligations), taxes (other than
payroll taxes or taxes that are the subject of a United States federal tax
lien), or rental payment, provided that (a) a reserve with respect to such
obligation is established on the Books in such amount as is required under GAAP,
(b) any such protest is instituted promptly and prosecuted diligently by
Borrower in good faith, and (c) Agent is satisfied that, while any such protest
is pending, there will be no impairment of the enforceability, validity, or
priority of any of the Agent's Liens.
"Permitted Purchase Money Indebtedness" means, as of any date
of determination, Purchase Money Indebtedness incurred after the Closing Date in
an aggregate principal amount outstanding at any one time not in excess of
$500,000.
"Person" means natural persons, corporations, limited
liability companies, limited partnerships, general partnerships, limited
liability partnerships, joint ventures, trusts, land trusts, business trusts, or
other organizations, irrespective of whether they are legal entities, and
governments and agencies and political subdivisions thereof.
"Projections" means Borrower's forecasted (a) balance sheets,
(b) profit and loss statements, and (c) cash flow statements, all prepared on a
basis consistent with Borrower's historical financial statements, together with
appropriate supporting details and a statement of underlying assumptions.
"Pro Rata Share" means:
(a) with respect to a Lender's obligation to make
Advances and receive payments of principal, interest, fees, costs, and expenses
with respect thereto, the percentage obtained by dividing (i) such Lender's
Revolver Commitment, by (ii) the aggregate Revolver Commitments of all Lenders,
(b) with respect to a Lender's obligation to participate
in Letters of Credit, to reimburse the Issuing Lender, and to receive payments
of fees with respect thereto, the percentage obtained by dividing (i) such
Lender's Revolver Commitment, by (ii) the aggregate Revolver Commitments of all
Lenders,
(c) with respect to all other matters (including the
indemnification obligations arising under Section 16.7), the percentage obtained
by dividing (i) such Lender's
20
Total Commitment, by (ii) the aggregate amount of Total Commitments of all
Lenders; provided, however, that, in each case, in the event all Commitments
have been terminated, Pro Rata Share shall be determined according to the
Commitments in effect immediately prior to such termination.
"Purchase Money Indebtedness" means Indebtedness (other than
the Obligations, but including Capitalized Lease Obligations), incurred at the
time of, or within 20 days after, the acquisition of any fixed assets for the
purpose of financing all or any part of the acquisition cost thereof.
"Real Property" means any estates or interests in real
property now owned or hereafter acquired by Borrower and the improvements
thereto.
"Record" means information that is inscribed on a tangible
medium or which is stored in an electronic or other medium and is retrievable in
perceivable form.
"Remedial Action" means all actions taken to (a) clean up,
remove, remediate, contain, treat, monitor, assess, evaluate, or in any way
address Hazardous Materials in the indoor or outdoor environment, (b) prevent or
minimize a release or threatened release of Hazardous Materials so they do not
migrate or endanger or threaten to endanger public health or welfare or the
indoor or outdoor environment, (c) perform any pre-remedial studies,
investigations, or post-remedial operation and maintenance activities, or (d)
conduct any other actions authorized by 42 USC Section 9601.
"Report" has the meaning set forth in Section 16.17.
"Required Lenders" means, at any time, (a) Agent, and (b)
Lenders whose Pro Rata Shares aggregate 51% of the Total Commitments, or if the
Commitments have been terminated irrevocably, 51% of the Obligations then
outstanding.
"Reserve Percentage" means, on any day, for any Lender, the
maximum percentage prescribed by the Board of Governors of the Federal Reserve
System (or any successor Governmental Authority) for determining the reserve
requirements (including any basic, supplemental, marginal, or emergency
reserves) that are in effect on such date with respect to eurocurrency funding
(currently referred to as "eurocurrency liabilities") of that Lender, but so
long as such Lender is not required or directed under applicable regulations to
maintain such reserves, the Reserve Percentage shall be zero.
"Revolver Commitment" means, with respect to each Lender, its
Revolver Commitment, and, with respect to all Lenders, their Revolver
Commitments, in each case as such Dollar amounts are set forth beside such
Lender's name under the applicable heading on Schedule C-1 or on the signature
page of the Assignment and Acceptance pursuant to which such Lender became a
Lender hereunder in accordance with the provisions of Section 14.1.
21
"Revolver Usage" means, as of any date of determination, the
sum of (a) the then extant amount of outstanding Advances, plus (b) the then
outstanding amount of the Letter of Credit Usage.
"Risk Participation Liability" means, as to each Letter of
Credit, all reimbursement obligations of Borrower to the Issuing Lender with
respect to an L/C Undertaking, consisting of (a) the amount available to be
drawn or which may become available to be drawn, (b) all amounts that have been
paid by the Issuing Lender to the Underlying Issuer to the extent not reimbursed
by Borrower, whether by the making of an Advance or otherwise, and (c) all
accrued and unpaid interest, fees, and expenses payable with respect thereto.
"Seasonal Dilution Reserve" means, commencing and effective as
of October 1st of each year through March 31st of the following year, 15% of
Borrower's cumulative gross sales during the period from October 1st through
December 15th of each year, which reserve shall reduce, commencing on December
16th of each year, dollar for dollar by the amount of credits issued by Borrower
and reported to Agent, and shall reduce to zero on March 31st of each year.
"SEC" means the United States Securities and Exchange
Commission and any successor thereto.
"Securities Account" means a "securities account" as that term
is defined in the Code.
"Settlement" has the meaning set forth in Section 2.3(f)(i).
"Settlement Date" has the meaning set forth in Section
2.3(f)(i).
"Solvent" means, with respect to any Person on a particular
date, that such Person is not insolvent (as such term is defined in the Uniform
Fraudulent Transfer Act).
"Stock" means all shares, options, warrants, interests,
participations, or other equivalents (regardless of how designated) of or in a
Person, whether voting or nonvoting, including common stock, preferred stock, or
any other "equity security" (as such term is defined in Rule 3a11-1 of the
General Rules and Regulations promulgated by the SEC under the Exchange Act).
"Stock Pledge Agreement" means a stock pledge agreement, in
form and substance satisfactory to Agent, executed and delivered by Borrower to
Agent with respect to the pledge of the Stock owned by Borrower.
"Subsidiary" of a Person means a corporation, partnership,
limited liability company, or other entity in which that Person directly or
indirectly owns or controls the shares of Stock having ordinary voting power to
elect a majority of the board of directors (or
22
appoint other comparable managers) of such corporation, partnership, limited
liability company, or other entity.
"Swing Lender" means Foothill or any other Lender that, at the
request of Borrower and with the consent of Agent agrees, in such Lender's sole
discretion, to become the Swing Lender hereunder.
"Swing Loan" has the meaning set forth in Section 2.3(d)(i).
"Tangible Net Worth" means, as of any date of determination,
the result of (a) Borrower's total stockholder's equity, minus (b) the sum of
(i) all Intangible Assets of Borrower, (ii) all of Borrower's prepaid expenses,
and (iii) all amounts due to Borrower from Affiliates known by Borrower to be
Affiliates (unless such amounts are reflected as a reduction of stockholder's
equity) other than TEC Worldwide, Inc., Children's Discovery Centers of America,
Inc., Knowledge Kids Network, Inc., ▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇, Inc. d.b.a. ▇▇▇.▇▇▇,
CharterSchools USA, Inc., LearnNow, Inc., ▇▇▇▇▇.▇▇▇ LLC, Nobel Learning
Communities, Inc.
"Taxes" has the meaning set forth in Section 16.11.
"Underlying Issuer" means a third Person which is the
beneficiary of an L/C Undertaking and which has issued a letter of credit at the
request of the Issuing Lender for the benefit of Borrower.
"Underlying Letter of Credit" means a letter of credit that
has been issued by an Underlying Issuer.
"Voidable Transfer" has the meaning set forth in Section 17.7.
"▇▇▇▇▇ Fargo" means ▇▇▇▇▇ Fargo Bank, National Association, a
national banking association.
1.2 ACCOUNTING TERMS. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP. When used herein, the
term "financial statements" shall include the notes and schedules thereto.
Whenever the term "Borrower" is used in respect of a financial covenant or a
related definition, it shall be understood to mean Borrower and its Subsidiaries
on a consolidated basis unless the context clearly requires otherwise.
1.3 CODE. Any terms used in this Agreement that are defined in the
Code shall be construed and defined as set forth in the Code unless otherwise
defined herein.
1.4 CONSTRUCTION. Unless the context of this Agreement or any
other Loan Document clearly requires otherwise, references to the plural include
the singular, references to the singular include the plural, the term
"including" is not limiting, and the term "or" has,
23
except where otherwise indicated, the inclusive meaning represented by the
phrase "and/or." The words "hereof," "herein," "hereby," "hereunder," and
similar terms in this Agreement or any other Loan Document refer to this
Agreement or such other Loan Document, as the case may be, as a whole and not to
any particular provision of this Agreement or such other Loan Document, as the
case may be. Section, subsection, clause, schedule, and exhibit references
herein are to this Agreement unless otherwise specified. Any reference in this
Agreement or in the other Loan Documents to any agreement, instrument, or
document shall include all alterations, amendments, changes, extensions,
modifications, renewals, replacements, substitutions, joinders, and supplements,
thereto and thereof, as applicable (subject to any restrictions on such
alterations, amendments, changes, extensions, modifications, renewals,
replacements, substitutions, joinders, and supplements set forth herein). Any
reference herein to any Person shall be construed to include such Person's
successors and assigns. Any requirement of a writing contained herein or in the
other Loan Documents shall be satisfied by the transmission of a Record and any
Record transmitted shall constitute a representation and warranty as to the
accuracy and completeness, in all material respects, of the information
contained therein.
1.5 SCHEDULES AND EXHIBITS. All of the schedules and exhibits
attached to this Agreement shall be deemed incorporated herein by reference.
2. LOAN AND TERMS OF PAYMENT.
2.1 REVOLVER ADVANCES.
(a) Subject to the terms and conditions of this
Agreement, and during the term of this Agreement, each Lender with a Revolver
Commitment agrees (severally, not jointly or jointly and severally) to make
advances ("Advances") to Borrower in an amount at any one time outstanding not
to exceed such Lender's Pro Rata Share of an amount equal to the lesser of (i)
the Maximum Revolver Amount less the Letter of Credit Usage, or (ii) the
Borrowing Base less the Letter of Credit Usage. For purposes of this Agreement,
"Borrowing Base," as of any date of determination, shall mean the result of:
(x) 85% of the amount of Eligible Accounts, less
the amount, if any, of the Dilution Reserve and the Seasonal
Dilution Reserve, plus
(y) the lowest of
(i) $40,000,000;
(ii) 60% of Eligible Inventory for the
months of December and January through March of each year, 64%
of Eligible Inventory during the months of April through
August of each year and 72% of Eligible Inventory during the
month of September through November of each year;
24
(iii) 85% times the then Net
Liquidation Percentage times the book value of Borrower's
Inventory; and
(iv) (A) 150% of the amount of
credit availability created by clause (x) above for the months
of January through June of each year and (B) 100% of the
amount of credit availability created by clause (x) above for
the months of July through December of each year; minus
(z) the aggregate amount of reserves,
if any, established by Agent under Section 2.1(b).
(b) Anything to the contrary in this Section 2.1
notwithstanding, Agent shall have the right to establish reserves in such
amounts, and with respect to such matters, as Agent in its Permitted Discretion
shall deem necessary or appropriate, against the Borrowing Base, including
reserves with respect to (i) sums that Borrower is required to pay (such as
taxes, assessments, insurance premiums, or, in the case of leased assets, rents
or other amounts payable under such leases) and has failed to pay under any
Section of this Agreement or any other Loan Document, and (ii) amounts owing by
Borrower to any Person to the extent secured by a Lien on, or trust over, any of
the Collateral (other than any existing Permitted Lien set forth on Schedule P-1
which is specifically identified thereon as entitled to have priority over the
Agent's Liens), which Lien or trust, in the Permitted Discretion of Agent likely
would have a priority superior to the Agent's Liens (such as Liens or trusts in
favor of landlords, warehousemen, carriers, mechanics, materialmen, laborers, or
suppliers, or Liens or trusts for ad valorem, excise, sales, or other taxes
where given priority under applicable law) in and to such item of the
Collateral. In addition to the foregoing, Agent shall have the right to have the
Inventory reappraised by a qualified appraisal company selected by Agent from
time to time after the Closing Date for the purpose of redetermining the Net
Liquidation Percentage of the Eligible Inventory portion of the Collateral and,
as a result, redetermining the Borrowing Base; provided, however, that so long
as an Event of Default has not occurred and is continuing, Agent shall not be
entitled to have such appraisals to be performed more frequently than twice
during any 12-month period.
(c) Amounts borrowed pursuant to this Section
may be repaid and, subject to the terms and conditions of this Agreement,
reborrowed at any time during the term of this Agreement.
2.2 INTENTIONALLY OMITTED.
2.3 BORROWING PROCEDURES AND SETTLEMENTS.
(a) PROCEDURE FOR BORROWING. Each Borrowing
shall be made by an irrevocable written request by an Authorized Person
delivered to Agent (which notice must be received by Agent no later than 10:00
a.m. (California time) on the Business Day prior to the date that is the
requested Funding Date in the case of a request for an Advance specifying (i)
the amount of such Borrowing, and (ii) the requested Funding Date, which
25
shall be a Business Day; provided, however, that in the case of a request for
Swing Loan in an amount of $15,000,000, or less, such notice will be timely
received if it is received by Agent no later than 10:00 a.m. (California time)
on the Business Day that is the requested Funding Date) specifying (i) the
amount of such Borrowing, and (ii) the requested Funding Date, which shall be a
Business Day. At Agent's election, in lieu of delivering the above-described
written request, any Authorized Person may give Agent telephonic notice of such
request by the required time, with such telephonic notice to be confirmed in
writing by an Authorized Person within 24 hours of the giving of such notice.
(b) AGENT'S ELECTION. Promptly after receipt of
a request for a Borrowing pursuant to Section 2.3(a), Agent shall elect, in its
discretion, (i) to have the terms of Section 2.3(c) apply to such requested
Borrowing, or (ii) if the Borrowing is for an Advance, to request Swing Lender
to make a Swing Loan pursuant to the terms of Section 2.3(d) in the amount of
the requested Borrowing; provided, however, that if Swing Lender declines in its
sole discretion to make a Swing Loan pursuant to Section 2.3(d), Agent shall
elect to have the terms of Section 2.3(c) apply to such requested Borrowing.
(c) MAKING OF ADVANCES.
(i) In the event that Agent shall elect to have
the terms of this Section 2.3(c) apply to a requested
Borrowing as described in Section 2.3(b), then promptly after
receipt of a request for a Borrowing pursuant to Section
2.3(a), Agent shall notify the Lenders, not later than 1:00
p.m. (California time) on the Business Day immediately
preceding the Funding Date applicable thereto, by telecopy,
telephone, or other similar form of transmission, of the
requested Borrowing. Each Lender shall make the amount of such
Lender's Pro Rata Share of the requested Borrowing available
to Agent in immediately available funds, to Agent's Account,
not later than 10:00 a.m. (California time) on the Funding
Date applicable thereto. After Agent's receipt of the proceeds
of such Advances, upon satisfaction of the applicable
conditions precedent set forth in Section 3 hereof, Agent
shall make the proceeds thereof available to Borrower on the
applicable Funding Date by transferring immediately available
funds equal to such proceeds received by Agent to Borrower's
Designated Account; provided, however, that, subject to the
provisions of Section 2.3(i), Agent shall not request any
Lender to make, and no Lender shall have the obligation to
make, any Advance if Agent shall have actual knowledge that
(1) one or more of the applicable conditions precedent set
forth in Section 3 will not be satisfied on the requested
Funding Date for the applicable Borrowing unless such
condition has been waived, or (2) the requested Borrowing
would exceed the Availability on such Funding Date.
(ii) Unless Agent receives notice from a Lender
on or prior to the Closing Date or, with respect to any
Borrowing after the Closing Date, at least 1 Business Day
prior to the date of such Borrowing, that such Lender will not
26
make available as and when required hereunder to Agent for the
account of Borrower the amount of that Lender's Pro Rata Share
of the Borrowing, Agent may assume that each Lender has made
or will make such amount available to Agent in immediately
available funds on the Funding Date and Agent may (but shall
not be so required), in reliance upon such assumption, make
available to Borrower on such date a corresponding amount. If
and to the extent any Lender shall not have made its full
amount available to Agent in immediately available funds and
Agent in such circumstances has made available to Borrower
such amount, that Lender shall on the Business Day following
such Funding Date make such amount available to Agent,
together with interest at the Defaulting Lender Rate for each
day during such period. A notice submitted by Agent to any
Lender with respect to amounts owing under this subsection
shall be conclusive, absent manifest error. If such amount is
so made available, such payment to Agent shall constitute such
Lender's Advance on the date of Borrowing for all purposes of
this Agreement. If such amount is not made available to Agent
on the Business Day following the Funding Date, Agent will
notify Borrower of such failure to fund and, upon demand by
Agent, Borrower shall pay such amount to Agent for Agent's
account, together with interest thereon for each day elapsed
since the date of such Borrowing, at a rate per annum equal to
the interest rate applicable at the time to the Advances
composing such Borrowing. The failure of any Lender to make
any Advance on any Funding Date shall not relieve any other
Lender of any obligation hereunder to make an Advance on such
Funding Date, but no Lender shall be responsible for the
failure of any other Lender to make the Advance to be made by
such other Lender on any Funding Date.
(iii) Agent shall not be obligated to transfer to
a Defaulting Lender any payments made by Borrower to Agent for
the Defaulting Lender's benefit, and, in the absence of such
transfer to the Defaulting Lender, Agent shall transfer any
such payments to each other non-Defaulting Lender member of
the Lender Group ratably in accordance with their Commitments
(but only to the extent that such Defaulting Lender's Advance
was funded by the other members of the Lender Group) or, if so
directed by Borrower and if no Default or Event of Default had
occurred and is continuing (and to the extent such Defaulting
Lender's Advance was not funded by the Lender Group), retain
same to be re-advanced to Borrower as if such Defaulting
Lender had made Advances to Borrower. Subject to the
foregoing, Agent may hold and, in its Permitted Discretion,
re-lend to Borrower for the account of such Defaulting Lender
the amount of all such payments received and retained by it
for the account of such Defaulting Lender. Solely for the
purposes of voting or consenting to matters with respect to
the Loan Documents, such Defaulting Lender shall be deemed not
to be a "Lender" and such Lender's Commitment shall be deemed
to be zero. This Section shall remain effective with respect
to such Lender until (x) the Obligations under this Agreement
shall have been
27
declared or shall have become immediately due and payable, (y)
the non-Defaulting Lenders, Agent, and Borrower shall have
waived such Defaulting Lender's default in writing, or (z) the
Defaulting Lender makes its Pro Rata Share of the applicable
Advance and pays to Agent all amounts owing by Defaulting
Lender in respect thereof. The operation of this Section shall
not be construed to increase or otherwise affect the
Commitment of any Lender, to relieve or excuse the performance
by such Defaulting Lender or any other Lender of its duties
and obligations hereunder, or to relieve or excuse the
performance by Borrower of its duties and obligations
hereunder to Agent or to the Lenders other than such
Defaulting Lender. Any such failure to fund by any Defaulting
Lender shall constitute a material breach by such Defaulting
Lender of this Agreement and shall entitle Borrower at its
option, upon written notice to Agent, to arrange for a
substitute Lender to assume the Commitment of such Defaulting
Lender, such substitute Lender to be acceptable to Agent. In
connection with the arrangement of such a substitute Lender,
the Defaulting Lender shall have no right to refuse to be
replaced hereunder, and agrees to execute and deliver a
completed form of Assignment and Acceptance Agreement in favor
of the substitute Lender (and agrees that it shall be deemed
to have executed and delivered such document if it fails to do
so) subject only to being repaid its share of the outstanding
Obligations (including an assumption of its Pro Rata Share of
the Risk Participation Liability) without any premium or
penalty of any kind whatsoever; provided further, however,
that any such assumption of the Commitment of such Defaulting
Lender shall not be deemed to constitute a waiver of any of
the Lender Groups' or Borrower's rights or remedies against
any such Defaulting Lender arising out of or in relation to
such failure to fund.
(d) MAKING OF SWING LOANS.
(i) In the event Agent shall elect, with the
consent of Swing Lender, as a Lender, to have the terms of
this Section 2.3(d) apply to a requested Borrowing as
described in Section 2.3(b), Swing Lender as a Lender shall
make such Advance in the amount of such Borrowing (any such
Advance made solely by Swing Lender as a Lender pursuant to
this Section 2.3(d) being referred to as a "Swing Loan" and
such Advances being referred to collectively as "Swing Loans")
available to Borrower on the Funding Date applicable thereto
by transferring immediately available funds to Borrower's
Designated Account. Each Swing Loan is an Advance hereunder
and shall be subject to all the terms and conditions
applicable to other Advances, except that no such Swing Loan
shall be eligible for the LIBOR Option and all payments on any
Swing Loan shall be payable to Swing Lender as a Lender solely
for its own account (and for the account of the holder of any
participation interest with respect to such Swing Loan).
Subject to the provisions of Section 2.3(i), Agent shall not
request Swing Lender as a Lender
28
to make, and Swing Lender as a Lender shall not make, any
Swing Loan if Agent has actual knowledge that (i) one or more
of the applicable conditions precedent set forth in Section 3
will not be satisfied on the requested Funding Date for the
applicable Borrowing unless such condition has been waived, or
(ii) the requested Borrowing would exceed the Availability on
such Funding Date. Swing Lender as a Lender shall not
otherwise be required to determine whether the applicable
conditions precedent set forth in Section 3 have been
satisfied on the Funding Date applicable thereto prior to
making, in its sole discretion, any Swing Loan.
(ii) The Swing Loans shall be secured by the
Agent's Liens, shall constitute Advances and Obligations
hereunder, and shall bear interest at the rate applicable from
time to time to Advances that are Base Rate Loans.
(e) AGENT ADVANCES.
(i) Agent hereby is authorized by Borrower and
the Lenders, from time to time in Agent's sole discretion, (1)
after the occurrence and during the continuance of a Default
or an Event of Default, or (2) at any time that any of the
other applicable conditions precedent set forth in Section 3
have not been satisfied, to make Advances to Borrower on
behalf of the Lenders that Agent, in its Permitted Discretion
deems necessary or desirable (A) to preserve or protect the
Collateral, or any portion thereof, (B) to enhance the
likelihood of repayment of the Obligations, or (C) to pay any
other amount chargeable to Borrower pursuant to the terms of
this Agreement, including Lender Group Expenses and the costs,
fees, and expenses described in Section 10 (any of the
Advances described in this Section 2.3(e) shall be referred to
as "Agent Advances"). Each Agent Advance is an Advance
hereunder and shall be subject to all the terms and conditions
applicable to other Advances, except that no such Agent
Advance shall be eligible for the LIBOR Option and all
payments thereon shall be payable to Agent solely for its own
account (and for the account of the holder of any
participation interest with respect to such Agent Advance).
(ii) The Agent Advances shall be repayable on
demand and secured by the Agent's Liens granted to Agent under
the Loan Documents, shall constitute Advances and Obligations
hereunder, and shall bear interest at the rate applicable from
time to time to Advances that are Base Rate Loans.
(f) SETTLEMENT. It is agreed that each Lender's
funded portion of the Advances is intended by the Lenders to equal, at all
times, such Lender's Pro Rata Share of the outstanding Advances. Such agreement
notwithstanding, Agent, Swing Lender, and the other Lenders agree (which
agreement shall not be for the benefit of or enforceable by Borrower) that in
order to facilitate the administration of this Agreement and the other Loan
29
Documents, settlement among them as to the Advances, the Swing Loans, and the
Agent Advances shall take place on a periodic basis in accordance with the
following provisions:
(i) Agent shall request settlement
("Settlement") with the Lenders on a weekly basis, or on a
more frequent basis if so determined by Agent, (1) on behalf
of Swing Lender, with respect to each outstanding Swing Loan,
(2) for itself, with respect to each Agent Advance, and (3)
with respect to Collections received, as to each by notifying
the Lenders by telecopy, telephone, or other similar form of
transmission, of such requested Settlement, no later than 2:00
p.m. (California time) on the Business Day immediately prior
to the date of such requested Settlement (the date of such
requested Settlement being the "Settlement Date"). Such notice
of a Settlement Date shall include a summary statement of the
amount of outstanding Advances, Swing Loans, and Agent
Advances for the period since the prior Settlement Date.
Subject to the terms and conditions contained herein
(including Section 2.3(c)(iii)): (y) if a Lender's balance of
the Advances, Swing Loans, and Agent Advances exceeds such
Lender's Pro Rata Share of the Advances, Swing Loans, and
Agent Advances as of a Settlement Date, then Agent shall, by
no later than 12:00 p.m. (California time) on the Settlement
Date, transfer in immediately available funds to the account
of such Lender as such Lender may designate, an amount such
that each such Lender shall, upon receipt of such amount, have
as of the Settlement Date, its Pro Rata Share of the Advances,
Swing Loans, and Agent Advances, and (z) if a Lender's balance
of the Advances, Swing Loans, and Agent Advances is less than
such Lender's Pro Rata Share of the Advances, Swing Loans, and
Agent Advances as of a Settlement Date, such Lender shall no
later than 12:00 p.m. (California time) on the Settlement Date
transfer in immediately available funds to the Agent's
Account, an amount such that each such Lender shall, upon
transfer of such amount, have as of the Settlement Date, its
Pro Rata Share of the Advances, Swing Loans, and Agent
Advances. Such amounts made available to Agent under clause
(z) of the immediately preceding sentence shall be applied
against the amounts of the applicable Swing Loan or Agent
Advance and, together with the portion of such Swing Loan or
Agent Advance representing Swing Lender's Pro Rata Share
thereof, shall constitute Advances of such Lenders. If any
such amount is not made available to Agent by any Lender on
the Settlement Date applicable thereto to the extent required
by the terms hereof, Agent shall be entitled to recover for
its account such amount on demand from such Lender together
with interest thereon at the Defaulting Lender Rate.
(ii) In determining whether a Lender's balance of
the Advances, Swing Loans, and Agent Advances is less than,
equal to, or greater than such Lender's Pro Rata Share of the
Advances, Swing Loans, and Agent Advances as of a Settlement
Date, Agent shall, as part of the relevant Settlement, apply
30
to such balance the portion of payments actually received in
good funds by Agent with respect to principal, interest, fees
payable by Borrower and allocable to the Lenders hereunder,
and proceeds of Collateral. To the extent that a net amount is
owed to any such Lender after such application, such net
amount shall be distributed by Agent to that Lender as part of
such next Settlement.
(iii) Between Settlement Dates, Agent, to the
extent no Agent Advances or Swing Loans are outstanding, may
pay over to Swing Lender any payments received by Agent, that
in accordance with the terms of this Agreement would be
applied to the reduction of the Advances, for application to
Swing Lender's Pro Rata Share of the Advances. If, as of any
Settlement Date, Collections received since the then
immediately preceding Settlement Date have been applied to
Swing Lender's Pro Rata Share of the Advances other than to
Swing Loans, as provided for in the previous sentence, Swing
Lender shall pay to Agent for the accounts of the Lenders, and
Agent shall pay to the Lenders, to be applied to the
outstanding Advances of such Lenders, an amount such that each
Lender shall, upon receipt of such amount, have, as of such
Settlement Date, its Pro Rata Share of the Advances. During
the period between Settlement Dates, Swing Lender with respect
to Swing Loans, Agent with respect to Agent Advances, and each
Lender (subject to the effect of letter agreements between
Agent and individual Lenders) with respect to the Advances
other than Swing Loans and Agent Advances, shall be entitled
to interest at the applicable rate or rates payable under this
Agreement on the daily amount of funds employed by Swing
Lender, Agent, or the Lenders, as applicable.
(g) NOTATION. Agent shall record on its books
the principal amount of the Advances owing to each Lender, including the Swing
Loans owing to Swing Lender, and Agent Advances owing to Agent, and the
interests therein of each Lender, from time to time. In addition, each Lender is
authorized, at such Lender's option, to note the date and amount of each payment
or prepayment of principal of such Lender's Advances in its books and records,
including computer records, such books and records constituting conclusive
evidence, absent manifest error, of the accuracy of the information contained
therein.
(h) LENDERS' FAILURE TO PERFORM. All Advances
(other than Swing Loans and Agent Advances) shall be made by the Lenders
contemporaneously and in accordance with their Pro Rata Shares. It is understood
that (i) no Lender shall be responsible for any failure by any other Lender to
perform its obligation to make any Advance (or other extension of credit)
hereunder, nor shall any Commitment of any Lender be increased or decreased as a
result of any failure by any other Lender to perform its obligations hereunder,
and (ii) no failure by any Lender to perform its obligations hereunder shall
excuse any other Lender from its obligations hereunder.
31
(i) OPTIONAL OVERADVANCES. Any contrary
provision of this Agreement notwithstanding, the Lenders hereby authorize Agent
or Swing Lender, as applicable, and Agent or Swing Lender, as applicable, may,
but is not obligated to, knowingly and intentionally, continue to make Advances
(including Swing Loans) to Borrower notwithstanding that an Overadvance exists
or thereby would be created, so long as (i) after giving effect to such Advances
(including a Swing Loan), the outstanding Revolver Usage does not exceed the
Borrowing Base by more than $8,000,000, (ii) after giving effect to such
Advances (including a Swing Loan), the outstanding Revolver Usage (except for
and excluding amounts charged to the Loan Account for interest, fees, or Lender
Group Expenses) does not exceed the Maximum Revolver Amount, and (iii) at the
time of the making of any such Advance (including any Swing Loan), Agent does
not believe, in good faith, that the Overadvance created by such Advance will be
outstanding for more than 90 days. The foregoing provisions are for the
exclusive benefit of Agent, Swing Lender, and the Lenders and are not intended
to benefit Borrower in any way. The Advances and Swing Loans, as applicable,
that are made pursuant to this Section 2.3(i) shall be subject to the same terms
and conditions as any other Advance or Swing Loan, as applicable, except that
they shall not be eligible for the LIBOR Option and the rate of interest
applicable thereto shall be the rate applicable to Advances that are Base Rate
Loans under Section 2.6(c) hereof without regard to the presence or absence of a
Default or Event of Default.
(i) In the event Agent obtains actual knowledge
that the Revolver Usage exceeds the amounts permitted by the
preceding paragraph, regardless of the amount of, or reason
for, such excess, Agent shall notify Lenders as soon as
practicable (and prior to making any (or any additional)
intentional Overadvances (except for and excluding amounts
charged to the Loan Account for interest, fees, or Lender
Group Expenses) unless Agent determines that prior notice
would result in imminent harm to the Collateral or its value),
and the Lenders with Revolver Commitments thereupon shall,
together with Agent, jointly determine the terms of
arrangements that shall be implemented with Borrower intended
to reduce, within a reasonable time, the outstanding principal
amount of the Advances to Borrower to an amount permitted by
the preceding paragraph. In the event Agent or any Lender
disagrees over the terms of reduction or repayment of any
Overadvance, the terms of reduction or repayment thereof shall
be implemented according to the determination of the Required
Lenders.
(ii) Each Lender with a Revolver Commitment shall
be obligated to settle with Agent as provided in Section
2.3(f) for the amount of such Lender's Pro Rata Share of any
unintentional Overadvances by Agent reported to such Lender,
any intentional Overadvances made as permitted under this
Section 2.3(i), and any Overadvances resulting from the
charging to the Loan Account of interest, fees, or Lender
Group Expenses.
32
2.4 PAYMENTS.
(a) PAYMENTS BY BORROWER.
(i) Except as otherwise expressly provided
herein, all payments by Borrower shall be made to Agent's Account for
the account of the Lender Group and shall be made in immediately
available funds, no later than 11:00 a.m. (California time) on the date
specified herein. Any payment received by Agent later than 11:00 a.m.
(California time) shall be deemed to have been received on the
following Business Day and any applicable interest or fee shall
continue to accrue until such following Business Day.
(ii) Unless Agent receives notice from Borrower
prior to the date on which any payment is due to the Lenders that
Borrower will not make such payment in full as and when required, Agent
may assume that Borrower has made (or will make) such payment in full
to Agent on such date in immediately available funds and Agent may (but
shall not be so required), in reliance upon such assumption, distribute
to each Lender on such due date an amount equal to the amount then due
such Lender. If and to the extent Borrower does not make such payment
in full to Agent on the date when due, each Lender severally shall
repay to Agent on demand such amount distributed to such Lender,
together with interest thereon at the Defaulting Lender Rate for each
day from the date such amount is distributed to such Lender until the
date repaid.
(b) APPORTIONMENT AND APPLICATION OF PAYMENTS.
(i) Except as otherwise provided with respect to
Defaulting Lenders and except as otherwise provided in the Loan
Documents (including letter agreements between Agent and individual
Lenders), aggregate principal and interest payments shall be
apportioned ratably among the Lenders (according to the unpaid
principal balance of the Obligations to which such payments relate held
by each Lender) and payments of fees and expenses (other than fees or
expenses that are for Agent's separate account, after giving effect to
any letter agreements between Agent and individual Lenders) shall be
apportioned ratably among the Lenders having a Pro Rata Share of the
type of Commitment or Obligation to which a particular fee relates. All
payments shall be remitted to Agent and all such payments (other than
payments received while no Default or Event of Default has occurred and
is continuing and which relate to the payment of principal or interest
of specific Obligations or which relate to the payment of specific
fees), and all proceeds of Accounts or other Collateral received by
Agent, shall be applied as follows:
(A) first, to pay any Lender Group Expenses then
due to Agent under the Loan Documents, until paid in full,
33
(B) second, to pay any Lender Group Expenses
then due to the Lenders under the Loan Documents, on a ratable
basis, until paid in full,
(C) third, to pay any fees then due to Agent
(for its separate accounts, after giving effect to any letter
agreements between Agent and individual Lenders) under the
Loan Documents until paid in full,
(D) fourth, to pay any fees then due to any or
all of the Lenders (after giving effect to any letter
agreements between Agent and individual Lenders) under the
Loan Documents, on a ratable basis, until paid in full,
(E) fifth, to pay interest due in respect of all
Agent Advances, until paid in full,
(F) sixth, ratably to pay interest due in
respect of the Advances (other than Agent Advances) and the
Swing Loans until paid in full,
(G) seventh, to pay the principal of all Agent
Advances until paid in full,
(H) eighth, to pay the principal of all Swing
Loans until paid in full,
(I) ninth, to pay the principal of all Advances
until paid in full,
(J) tenth, if an Event of Default has occurred
and is continuing, to Agent, to be held by Agent, for the
ratable benefit of Issuing Lender and those Lenders having a
Revolver Commitment, as cash collateral in an amount up to
105% of the then extant Letter of Credit Usage until paid in
full,
(K) eleventh, to pay any other Obligations until
paid in full, and
(L) twelfth, to Borrower (to be wired to the
Designated Account) or such other Person entitled thereto
under applicable law.
(ii) Agent promptly shall distribute to each Lender,
pursuant to the applicable wire instructions received from each Lender
in writing, such funds as it may be entitled to receive, subject to a
Settlement delay as provided in Section 2.3(h).
34
(iii) In each instance, so long as no Default or Event of
Default has occurred and is continuing, Section 2.4(b) shall not be
deemed to apply to any payment by Borrower specified by Borrower to be
for the payment of specific Obligations then due and payable (or
prepayable) under any provision of this Agreement.
(iv) For purposes of the foregoing, "paid in full" means
payment of all amounts owing under the Loan Documents according to the
terms thereof, including loan fees, service fees, professional fees,
interest (and specifically including interest accrued after the
commencement of any Insolvency Proceeding), default interest, interest
on interest, and expense reimbursements, whether or not the same would
be or is allowed or disallowed in whole or in part in any Insolvency
Proceeding.
(v) In the event of a direct conflict between the
priority provisions of this Section 2.4 and other provisions contained
in any other Loan Document, it is the intention of the parties hereto
that such priority provisions in such documents shall be read together
and construed, to the fullest extent possible, to be in concert with
each other. In the event of any actual, irreconcilable conflict that
cannot be resolved as aforesaid, the terms and provisions of this
Section 2.4 shall control and govern.
2.5 OVERADVANCES. If, at any time or for any reason, the amount of
Obligations owed by Borrower to the Lender Group pursuant to Sections 2.1 and
2.12 is greater than either the Dollar or percentage limitations set forth in
Sections 2.1 or 2.12, (an "Overadvance"), subject to Section 2.3(i), Borrower
immediately shall pay to Agent, in cash, the amount of such excess, which amount
shall be used by Agent to reduce the Obligations in accordance with the
priorities set forth in Section 2.4(b). In addition, Borrower hereby promises to
pay the Obligations (including principal, interest, fees, costs, and expenses)
in Dollars in full to the Lender Group as and when due and payable under the
terms of this Agreement and the other Loan Documents.
2.6 INTEREST RATES AND LETTER OF CREDIT FEE: RATES, PAYMENTS, AND
CALCULATIONS.
(a) INTEREST RATES. Except as provided in clause
(c) below, all Obligations (except for undrawn Letters of Credit) that have been
charged to the Loan Account pursuant to the terms hereof shall bear interest on
the Daily Balance thereof as follows (i) if the relevant Obligation is an
Advance that is a LIBOR Rate Loan, at a per annum rate equal to the LIBOR Rate
plus the LIBOR Rate Margin, and (ii) otherwise, at a per annum rate equal to the
Base Rate plus the Base Rate Margin.
(b) LETTER OF CREDIT FEE. Borrower shall pay
Agent (for the ratable benefit of the Lenders with a Revolver Commitment,
subject to any letter agreement between Agent and individual Lenders), a Letter
of Credit fee (in addition to the charges,
35
commissions, fees, and costs set forth in Section 2.12(e)) which shall accrue at
a rate equal to 1.25% per annum times the Daily Balance of the undrawn amount of
all outstanding Letters of Credit.
(c) DEFAULT RATE. Upon the occurrence and during
the continuation of an Event of Default (and at the election of Agent or the
Required Lenders),
(i) all Obligations (except for undrawn
Letters of Credit ) that have been charged to the
Loan Account pursuant to the terms hereof shall bear
interest on the Daily Balance thereof at a per annum
rate equal to 4 percentage points above the per annum
rate otherwise applicable hereunder, and
(ii) the Letter of Credit fee provided
for above shall be increased to 4 percentage points
above the per annum rate otherwise applicable
hereunder.
(d) PAYMENT. Interest, Letter of Credit fees,
and all other fees payable hereunder shall be due and payable, in arrears, on
the first day of each month at any time that Obligations or Commitments are
outstanding. Borrower hereby authorizes Agent, from time to time without prior
notice to Borrower, to charge such interest and fees, all Lender Group Expenses
(as and when incurred), the charges, commissions, fees, and costs provided for
in Section 2.12(e) (as and when accrued or incurred), the fees and costs
provided for in Section 2.11 (as and when accrued or incurred), and all other
payments as and when due and payable under any Loan Document to Borrower's Loan
Account, which amounts thereafter constitute Advances hereunder and shall accrue
interest at the rate then applicable to Advances hereunder. Any interest not
paid when due shall be compounded by being charged to Borrower's Loan Account
and shall thereafter constitute Advances hereunder and shall accrue interest at
the rate then applicable to Advances that are Base Rate Loans hereunder.
(e) COMPUTATION. All interest and fees
chargeable under the Loan Documents shall be computed on the basis of a 360 day
year for the actual number of days elapsed. In the event the Base Rate is
changed from time to time hereafter, the rates of interest hereunder based upon
the Base Rate automatically and immediately shall be increased or decreased by
an amount equal to such change in the Base Rate.
(f) INTENT TO LIMIT CHARGES TO MAXIMUM LAWFUL
RATE. In no event shall the interest rate or rates payable under this Agreement,
plus any other amounts paid in connection herewith, exceed the highest rate
permissible under any law that a court of competent jurisdiction shall, in a
final determination, deem applicable. Borrower and the Lender Group, in
executing and delivering this Agreement, intend legally to agree upon the rate
or rates of interest and manner of payment stated within it; provided, however,
that, anything contained herein to the contrary notwithstanding, if said rate or
rates of interest or manner of payment exceeds the maximum allowable under
applicable law, then, ipso facto,
36
as of the date of this Agreement, Borrower is and shall be liable only for the
payment of such maximum as allowed by law, and payment received from Borrower in
excess of such legal maximum, whenever received, shall be applied to reduce the
principal balance of the Obligations to the extent of such excess.
2.7 CASH MANAGEMENT.
(a) Borrower shall (i) establish and maintain
cash management services of a type and on terms satisfactory to Agent at one or
more of the banks set forth on Schedule 2.7(a) (each, a "Cash Management Bank"),
and shall request in writing and otherwise take such reasonable steps to ensure
that all of its Account Debtors forward payment of the amounts owed by them
directly to such Cash Management Bank, and (ii) deposit or cause to be deposited
promptly, and in any event no later than the first Business Day after the date
of receipt thereof, all Collections (including those sent directly by Account
Debtors to a Cash Management Bank) into a bank account in Agent's name (a "Cash
Management Account") at one of the Cash Management Banks.
(b) Each Cash Management Bank shall establish
and maintain Cash Management Agreements with Agent and Borrower, in form and
substance acceptable to Agent. Each such Cash Management Agreement shall
provide, among other things, that (i) all items of payment deposited in such
Cash Management Account and proceeds thereof are held by such Cash Management
Bank as agent or bailee-in-possession for Agent, (ii) the Cash Management Bank
has no rights of setoff or recoupment or any other claim against the applicable
Cash Management Account other than for payment of its service fees and other
charges directly related to the administration of such Cash Management Account
and for returned checks or other items of payment, and (iii) it immediately will
forward by daily sweep all amounts in the applicable Cash Management Account to
the Agent's Account.
(c) So long as no Default or Event of Default
has occurred and is continuing, Borrower may amend Schedule 2.7(a) to add or
replace a Cash Management Bank or Cash Management Account; provided, however,
that (i) such prospective Cash Management Bank shall be satisfactory to Agent
and Agent shall have consented in writing in advance to the opening of such Cash
Management Account with the prospective Cash Management Bank, and (ii) prior to
the time of the opening of such Cash Management Account, Borrower and such
prospective Cash Management Bank shall have executed and delivered to Agent a
Cash Management Agreement. Borrower shall close any of its Cash Management
Accounts (and establish replacement cash management accounts in accordance with
the foregoing sentence) promptly and in any event within 30 days of notice from
Agent that the creditworthiness of any Cash Management Bank is no longer
acceptable in Agent's reasonable judgment, or as promptly as practicable and in
any event within 60 days of notice from Agent that the operating performance,
funds transfer, or availability procedures or performance of the Cash Management
Bank with respect to Cash Management Accounts or Agent's liability under any
Cash Management Agreement with such Cash Management Bank is no longer acceptable
in Agent's reasonable judgment.
37
(d) The Cash Management Accounts shall be cash
collateral accounts, with all cash, checks and similar items of payment in such
accounts securing payment of the Obligations, and in which Borrower is hereby
deemed to have granted a Lien to Agent.
2.8 CREDITING PAYMENTS; FLOAT CHARGE. The receipt of any payment
item by Agent (whether from transfers to Agent by the Cash Management Banks
pursuant to the Cash Management Agreements or otherwise) shall not be considered
a payment on account unless such payment item is a wire transfer of immediately
available federal funds made to the Agent's Account or unless and until such
payment item is honored when presented for payment. Should any payment item not
be honored when presented for payment, then Borrower shall be deemed not to have
made such payment and interest shall be calculated accordingly. Anything to the
contrary contained herein notwithstanding, any payment item shall be deemed
received by Agent only if it is received into the Agent's Account on a Business
Day on or before 11:00 a.m. (California time). If any payment item is received
into the Agent's Account on a non-Business Day or after 11:00 a.m. (California
time) on a Business Day, it shall be deemed to have been received by Agent as of
the opening of business on the immediately following Business Day. From and
after the Closing Date, Agent shall be entitled to charge Borrower for one
Business Days of 'clearance' or 'float' at the rate applicable to Base Rate
Loans under Section 2.6 on all Collections that are received by Borrower
(regardless of whether forwarded by the Cash Management Banks to Agent). This
across-the-board one Business Day clearance or float charge on all Collections
is acknowledged by the parties to constitute an integral aspect of the pricing
of the financing of Borrower and shall apply irrespective of whether or not
there are any outstanding monetary Obligations; the effect of such clearance or
float charge being the equivalent of charging one Business Day of interest on
such Collections. The parties acknowledge and agree that the economic benefit of
the foregoing provisions of this Section 2.8 shall be for the exclusive benefit
of Agent.
2.9 DESIGNATED ACCOUNT. Agent is authorized to make the Advances,
and Issuing Lender is authorized to issue the Letters of Credit, under this
Agreement based upon telephonic or other instructions received from anyone
purporting to be an Authorized Person, or without instructions if pursuant to
Section 2.6(d). Borrower agrees to establish and maintain the Designated Account
with the Designated Account Bank for the purpose of receiving the proceeds of
the Advances requested by Borrower and made by Agent or the Lenders hereunder.
Unless otherwise agreed by Agent and Borrower, any Advance, Agent Advance, or
Swing Loan requested by Borrower and made by Agent or the Lenders hereunder
shall be made to the Designated Account.
2.10 MAINTENANCE OF LOAN ACCOUNT; STATEMENTS OF OBLIGATIONS. Agent
shall maintain an account on its books in the name of Borrower (the "Loan
Account") on which Borrower will be charged with all Advances (including Agent
Advances and Swing Loans) made by Agent, Swing Lender, or the Lenders to
Borrower or for Borrower's account, the Letters of Credit issued by Issuing
Lender for Borrower's account, and with all other
38
payment Obligations hereunder or under the other Loan Documents, including,
accrued interest, fees and expenses, and Lender Group Expenses. In accordance
with Section 2.8, the Loan Account will be credited with all payments received
by Agent from Borrower or for Borrower's account, including all amounts received
in the Agent's Account from any Cash Management Bank. Agent shall render
statements regarding the Loan Account to Borrower, including principal,
interest, fees, and including an itemization of all charges and expenses
constituting Lender Group Expenses owing, and such statements shall be
conclusively presumed to be correct and accurate and constitute an account
stated between Borrower and the Lender Group unless, within 30 days after
receipt thereof by Borrower, Borrower shall deliver to Agent written objection
thereto describing the error or errors contained in any such statements.
2.11 FEES. Borrower shall pay to Agent the following fees and
charges, which fees and charges shall be non-refundable when paid (irrespective
of whether this Agreement is terminated thereafter) and shall be apportioned
among the Lenders in accordance with the terms of letter agreements between
Agent and individual Lenders:
(a) UNUSED LINE FEE. On the first day of each
month during the term of this Agreement, an unused line fee in an amount equal
to 0.25% per annum times the result of (a) the Maximum Revolver Amount, less (b)
the sum of (i) the average Daily Balance of Advances that were outstanding
during the immediately preceding month, plus (ii) the average Daily Balance of
the Letter of Credit Usage during the immediately preceding month,
(b) FEE LETTER FEES. As and when due and payable
under the terms of the Fee Letter, Borrower shall pay to Agent the fees set
forth in the Fee Letter, and
(c) AUDIT, APPRAISAL, AND VALUATION CHARGES.
Audit, appraisal, and valuation fees and charges as follows (i) a fee of $750
per day, per auditor, plus out-of-pocket expenses for each financial audit of
Borrower performed by personnel employed by Lender, (ii) if implemented, a one
time charge of $3,000 plus out-of-pocket expenses for expenses for the
establishment of electronic collateral reporting systems, (iii) a fee of $1,500
per day per appraiser, plus out-of-pocket expenses, for each appraisal of the
Collateral performed by personnel employed by Lender, and (iv) the actual
charges paid or incurred by Lender if it elects to employ the services of one or
more third Persons to perform financial audits of Borrower, to appraise the
Collateral, or any portion thereof, or to assess Borrower's business valuation.
2.12 LETTERS OF CREDIT
(a) Subject to the terms and conditions of this
Agreement, the Issuing Lender agrees to issue letters of credit for the account
of Borrower (each, an "L/C") or to purchase participations or execute
indemnities or reimbursement obligations (each such undertaking, an "L/C
Undertaking") with respect to letters of credit issued by an Underlying Issuer
(as of the Closing Date, the prospective Underlying Issuer is to be ▇▇▇▇▇ Fargo)
for the
39
account of Borrower. To request the issuance of an L/C or an L/C Undertaking (or
the amendment, renewal, or extension of an outstanding L/C or L/C Undertaking),
Borrower shall hand deliver or telecopy (or transmit by electronic
communication, if arrangements for doing so have been approved by the Issuing
Lender) to the Issuing Lender and Agent (reasonably in advance of the requested
date of issuance, amendment, renewal, or extension) a notice requesting the
issuance of an L/C or L/C Undertaking, or identifying the L/C or L/C Undertaking
to be amended, renewed, or extended, the date of issuance, amendment, renewal,
or extension, the date on which such L/C or L/C Undertaking is to expire, the
amount of such L/C or L/C Undertaking, the name and address of the beneficiary
thereof (or the beneficiary of the Underlying Letter of Credit, as applicable),
and such other information as shall be necessary to prepare, amend, renew, or
extend such L/C or L/C Undertaking. If requested by the Issuing Lender, Borrower
also shall be an applicant under the application with respect to any Underlying
Letter of Credit that is to be the subject of an L/C Undertaking. The Issuing
Lender shall have no obligation to issue a Letter of Credit if any of the
following would result after giving effect to the requested Letter of Credit:
(i) the Letter of Credit Usage would exceed the
Borrowing Base less the amount of outstanding Advances, or
(ii) the Letter of Credit Usage would exceed
$10,000,000, or
(iii) the Letter of Credit Usage would exceed the
Maximum Revolver Amount less the then amount of outstanding
Advances.
Borrower and the Lender Group acknowledge and agree that
certain Underlying Letters of Credit may be issued to support letters of credit
that already are outstanding as of the Closing Date. Each Letter of Credit (and
corresponding Underlying Letter of Credit) shall have an expiry date no later
than 30 days prior to the Maturity Date and all such Letters of Credit (and
corresponding Underlying Letter of Credit) shall be in form and substance
acceptable to the Issuing Lender (in the exercise of its Permitted Discretion),
including the requirement that the amounts payable thereunder must be payable in
Dollars. If Issuing Lender is obligated to advance funds under a Letter of
Credit, Borrower immediately shall reimburse such L/C Disbursement to Issuing
Lender by paying to Agent an amount equal to such L/C Disbursement not later
than 11:00 a.m., California time, on the date that such L/C Disbursement is
made, if Borrower shall have received written or telephonic notice of such L/C
Disbursement prior to 10:00 a.m., California time, on such date, or, if such
notice has not been received by Borrower prior to such time on such date, then
not later than 11:00 a.m., California time, on the Business Day that Borrower
receives such notice, if such notice is received prior to 10:00 a.m., California
time, on the date of receipt, and, in the absence of such reimbursement, the L/C
Disbursement immediately and automatically shall be deemed to be an Advance
hereunder and, thereafter, shall bear interest at the rate then applicable to
Advances that are Base Rate Loans under Section 2.6. To the extent an L/C
Disbursement is deemed to be an Advance hereunder, Borrower's obligation to
reimburse such L/C Disbursement shall be discharged and replaced
40
by the resulting Advance. Promptly following receipt by Agent of any payment
from Borrower pursuant to this paragraph, Agent shall distribute such payment to
the Issuing Lender or, to the extent that Lenders have made payments pursuant to
Section 2.12(c) to reimburse the Issuing Lender, then to such Lenders and the
Issuing Lender as their interest may appear.
(b) Promptly following receipt of a notice of
L/C Disbursement pursuant to Section 2.12(a), each Lender with a Revolver
Commitment agrees to fund its Pro Rata Share of any Advance deemed made pursuant
to the foregoing subsection on the same terms and conditions as if Borrower had
requested such Advance and Agent shall promptly pay to Issuing Lender the
amounts so received by it from the Lenders. By the issuance of a Letter of
Credit (or an amendment to a Letter of Credit increasing the amount thereof) and
without any further action on the part of the Issuing Lender or the Lenders with
Revolver Commitment, the Issuing Lender shall be deemed to have granted to each
Lender with a Revolver Commitment, and each Lender with a Revolver Commitment
shall be deemed to have purchased, a participation in each Letter of Credit, in
an amount equal to its Pro Rata Share of the Risk Participation Liability of
such Letter of Credit, and each such Lender agrees to pay to Agent, for the
account of the Issuing Lender, such Lender's Pro Rata Share of any payments made
by the Issuing Lender under such Letter of Credit. In consideration and in
furtherance of the foregoing, each Lender with a Revolver Commitment hereby
absolutely and unconditionally agrees to pay to Agent, for the account of the
Issuing Lender, such Lender's Pro Rata Share of each L/C Disbursement made by
the Issuing Lender and not reimbursed by Borrower on the date due as provided in
clause (a) of this Section, or of any reimbursement payment required to be
refunded to Borrower for any reason. Each Lender with a Revolver Commitment
acknowledges and agrees that its obligation to deliver to Agent, for the account
of the Issuing Lender, an amount equal to its respective Pro Rata Share pursuant
to this Section 2.12(b) shall be absolute and unconditional and such remittance
shall be made notwithstanding the occurrence or continuation of an Event of
Default or Default or the failure to satisfy any condition set forth in Section
3 hereof. If any such Lender fails to make available to Agent the amount of such
Lender's Pro Rata Share of any payments made by the Issuing Lender in respect of
such Letter of Credit as provided in this Section, Agent (for the account of the
Issuing Lender) shall be entitled to recover such amount on demand from such
Lender together with interest thereon at the Defaulting Lender Rate until paid
in full.
(c) Borrower hereby agrees to indemnify, save,
defend, and hold the Lender Group harmless from any loss, cost, expense, or
liability, and reasonable attorneys fees incurred by the Lender Group arising
out of or in connection with any Letter of Credit; provided, however, that
Borrower shall not be obligated hereunder to indemnify for any loss, cost,
expense, or liability that is caused by the gross negligence or willful
misconduct of the Issuing Lender or any other member of the Lender Group.
Borrower agrees to be bound by the Underlying Issuer's regulations and
reasonable interpretations of any Underlying Letter of Credit or by Issuing
Lender's interpretations of any L/C issued by Issuing Lender to or for
Borrower's account, even though this reasonable interpretation may
41
be different from Borrower's own, and Borrower understands and agrees that the
Lender Group shall not be liable for any error, negligence, or mistake, whether
of omission or commission, in following Borrower's instructions or those
contained in the Letter of Credit or any modifications, amendments, or
supplements thereto. Borrower understands that the L/C Undertakings may require
Issuing Lender to indemnify the Underlying Issuer for certain costs or
liabilities arising out of claims by Borrower against such Underlying Issuer.
Borrower hereby agrees to indemnify, save, defend, and hold the Lender Group
harmless with respect to any loss, cost, expense (including reasonable attorneys
fees), or liability incurred by the Lender Group under any L/C Undertaking as a
result of the Lender Group's indemnification of any Underlying Issuer on
reasonable terms; provided, however, that Borrower shall not be obligated
hereunder to indemnify for any loss, cost, expense, or liability that is caused
by the gross negligence or willful misconduct of the Issuing Lender or any other
member of the Lender Group.
(d) Borrower hereby authorizes and directs any
Underlying Issuer to deliver to the Issuing Lender all instruments, documents,
and other writings and property received by such Underlying Issuer pursuant to
such Underlying Letter of Credit and to accept and rely upon the Issuing
Lender's instructions with respect to all matters arising in connection with
such Underlying Letter of Credit and the related application.
(e) Any and all charges, commissions, fees, and
costs incurred by the Issuing Lender relating to Underlying Letters of Credit
shall be Lender Group Expenses for purposes of this Agreement and immediately
shall be reimbursable by Borrower to Agent for the account of the Issuing
Lender; it being acknowledged and agreed by Borrower that, as of the Closing
Date, the issuance charge imposed by the prospective Underlying Issuer is .825%
per annum times the face amount of each Underlying Letter of Credit, that such
issuance charge may be changed from time to time, and that the Underlying Issuer
also imposes a schedule of charges for amendments, extensions, drawings, and
renewals.
(f) If by reason of (i) any change after the
date hereof in any applicable law, treaty, rule, or regulation or any change in
the interpretation or application thereof by any Governmental Authority, or (ii)
compliance by the Underlying Issuer or the Lender Group with any direction,
request, or requirement (irrespective of whether having the force of law) of any
Governmental Authority or monetary authority including, Regulation D of the
Federal Reserve Board as from time to time in effect (and any successor
thereto):
(i) any reserve, deposit, or similar requirement
is or shall be imposed or modified in respect of any Letter of
Credit issued hereunder, or
(ii) there shall be imposed on the Underlying
Issuer or the Lender Group any other condition regarding any
Underlying Letter of Credit or any Letter of Credit issued
pursuant hereto,
and the result of the foregoing is to increase, directly or indirectly, the cost
to the Lender Group of issuing, making, guaranteeing, or maintaining any Letter
of Credit or to reduce the
42
amount receivable in respect thereof by the Lender Group, then, and in any such
case, Agent may, at any time within a reasonable period after the additional
cost is incurred or the amount received is reduced, notify Borrower, and
Borrower shall pay on demand such amounts as Agent may specify to be necessary
to compensate the Lender Group for such additional cost or reduced receipt,
together with interest on such amount from the date of such demand until payment
in full thereof at the rate then applicable to Base Rate Loans hereunder. The
determination by Agent of any amount due pursuant to this Section, as set forth
in a certificate setting forth the calculation thereof in reasonable detail,
shall, in the absence of manifest or demonstrable error, be final and conclusive
and binding on all of the parties hereto.
2.13 LIBOR OPTION.
(a) INTEREST AND INTEREST PAYMENT DATES. In lieu
of having interest charged at the rate based upon the Base Rate, Borrower shall
have the option (the "LIBOR Option") to have interest on all or a portion of the
Advances be charged at the LIBOR Rate. Interest on LIBOR Rate Loans shall be
payable, in arrears, on the earliest of (i) the last day of the Interest Period
applicable thereto, (ii) the occurrence of an Event of Default in consequence of
which the Required Lenders or Agent on behalf thereof elect to accelerate the
maturity of the Obligations, or (iii) termination of this Agreement pursuant to
the terms hereof. On the last day of each applicable Interest Period, unless
Borrower properly has exercised the LIBOR Option with respect thereto, the
interest rate applicable to such LIBOR Rate Loan automatically shall convert to
the rate of interest then applicable to Base Rate Loans of the same type
hereunder. At any time that an Event of Default has occurred and is continuing,
Borrower no longer shall have the option to request that Advances bear interest
at the LIBOR Rate and Agent shall have the right to convert the interest rate on
all outstanding LIBOR Rate Loans to the rate then applicable to Base Rate Loans
hereunder.
(b) LIBOR ELECTION.
(i) Borrower may, at any time and from time to
time, so long as no Event of Default has occurred and is
continuing, elect to exercise the LIBOR Option by notifying
Agent prior to 11:00 a.m. (California time) at least 3
Business Days prior to the commencement of the proposed
Interest Period (the "LIBOR Deadline"). Notice of Borrower's
election of the LIBOR Option for a permitted portion of the
Advances and an Interest Period pursuant to this Section shall
be made by delivery to Agent of a LIBOR Notice received by
Agent before the LIBOR Deadline, or by telephonic notice
received by Agent before the LIBOR Deadline (to be confirmed
by delivery to Agent of a LIBOR Notice received by Agent prior
to 5:00 p.m. (California time) on the same day. Promptly upon
its receipt of each such LIBOR Notice, Agent shall provide a
copy thereof to each of the Lenders having a Revolver
Commitment.
43
(ii) Each LIBOR Notice shall be irrevocable and
binding on Borrower. In connection with each LIBOR Rate Loan,
Borrower shall indemnify, defend, and hold Agent and the
Lenders harmless against any loss, cost, or expense incurred
by Agent or any Lender as a result of (a) the payment of any
principal of any LIBOR Rate Loan other than on the last day of
an Interest Period applicable thereto (including as a result
of an Event of Default), (b) the conversion of any LIBOR Rate
Loan other than on the last day of the Interest Period
applicable thereto, or (c) the failure to borrow, convert,
continue or prepay any LIBOR Rate Loan on the date specified
in any LIBOR Notice delivered pursuant hereto (such losses,
costs, and expenses, collectively, "Funding Losses"). Funding
Losses shall, with respect to Agent or any Lender, be deemed
to equal the amount determined by Agent or such Lender to be
the excess, if any, of (i) the amount of interest that would
have accrued on the principal amount of such LIBOR Rate Loan
had such event not occurred, at the LIBOR Rate that would have
been applicable thereto, for the period from the date of such
event to the last day of the then current Interest Period
therefor (or, in the case of a failure to borrow, convert, or
continue, for the period that would have been the Interest
Period therefor), minus (ii) the amount of interest that would
accrue on such principal amount for such period at the
interest rate which Agent or such Lender would be offered were
it to be offered, at the commencement of such period, Dollar
deposits of a comparable amount and period in the London
interbank market. A certificate of Agent or a Lender delivered
to Borrower setting forth any amount or amounts that Agent or
such Lender is entitled to receive pursuant to this Section
shall be conclusive absent manifest error.
(iii) Borrower shall have not more than 5 LIBOR
Rate Loans in effect at any given time. Borrower only may
exercise the LIBOR Option for LIBOR Rate Loans of at least
$1,000,000 and integral multiples of $100,000 in excess
thereof.
(c) PREPAYMENTS. Borrower may prepay LIBOR Rate
Loans at any time; provided, however, that in the event that LIBOR Rate Loans
are prepaid on any date that is not the last day of the Interest Period
applicable thereto, including as a result of any automatic prepayment through
the required application by Agent of proceeds of Collections in accordance with
Section 2.4(b) or for any other reason, including early termination of the term
of this Agreement or acceleration of the Obligations pursuant to the terms
hereof, Borrower shall indemnify, defend, and hold Agent and the Lenders and
their Participants harmless against any and all Funding Losses in accordance
with clause (b)(ii) above.
(d) SPECIAL PROVISIONS APPLICABLE TO LIBOR RATE.
(i) The LIBOR Rate may be adjusted by Agent with
respect to any Lender on a prospective basis to take into
account any additional or increased
44
costs to such Lender of maintaining or obtaining any
eurodollar deposits or increased costs due to changes in
applicable law occurring subsequent to the commencement of the
then applicable Interest Period, including changes in tax laws
(except changes of general applicability in corporate income
tax laws) and changes in the reserve requirements imposed by
the Board of Governors of the Federal Reserve System (or any
successor), excluding the Reserve Percentage, which additional
or increased costs would increase the cost of funding loans
bearing interest at the LIBOR Rate. In any such event, the
affected Lender shall give Borrower and Agent notice of such a
determination and adjustment and Agent promptly shall transmit
the notice to each other Lender and, upon its receipt of the
notice from the affected Lender, Borrower may, by notice to
such affected Lender (y) require such Lender to furnish to
Borrower a statement setting forth the basis for adjusting
such LIBOR Rate and the method for determining the amount of
such adjustment, or (z) repay the LIBOR Rate Loans with
respect to which such adjustment is made (together with any
amounts due under clause (b)(ii) above).
(ii) In the event that any change in market
conditions or any law, regulation, treaty, or directive, or
any change therein or in the interpretation of application
thereof, shall at any time after the date hereof, in the
reasonable opinion of any Lender, make it unlawful or
impractical for such Lender to fund or maintain LIBOR Advances
or to continue such funding or maintaining, or to determine or
charge interest rates at the LIBOR Rate, such Lender shall
give notice of such changed circumstances to Agent and
Borrower and Agent promptly shall transmit the notice to each
other Lender and (y) in the case of any LIBOR Rate Loans of
such Lender that are outstanding, the date specified in such
Lender's notice shall be deemed to be the last day of the
Interest Period of such LIBOR Rate Loans, and interest upon
the LIBOR Rate Loans of such Lender thereafter shall accrue
interest at the rate then applicable to Base Rate Loans, and
(z) Borrower shall not be entitled to elect the LIBOR Option
until such Lender determines that it would no longer be
unlawful or impractical to do so.
(e) NO REQUIREMENT OF MATCHED FUNDING. Anything
to the contrary contained herein notwithstanding, neither Agent, nor any Lender,
nor any of their Participants, is required actually to acquire eurodollar
deposits to fund or otherwise match fund any Obligation as to which interest
accrues at the LIBOR Rate. The provisions of this Section shall apply as if each
Lender or its Participants had match funded any Obligation as to which interest
is accruing at the LIBOR Rate by acquiring eurodollar deposits for each Interest
Period in the amount of the LIBOR Rate Loans.
2.14 CAPITAL REQUIREMENTS. If, after the date hereof, any Lender
determines that (i) the adoption of or change in any law, rule, regulation or
guideline regarding capital requirements for banks or bank holding companies, or
any change in the interpretation or
45
application thereof by any Governmental Authority charged with the
administration thereof, in each case occurring after the date hereof, or (ii)
compliance by such Lender or its parent bank holding company with any guideline,
request, or directive of any such entity regarding capital adequacy (whether or
not having the force of law) adopted after the date hereof, the effect of
reducing the return on such Lender's or such holding company's capital as a
consequence of such Lender's Commitments hereunder to a level below that which
such Lender or such holding company could have achieved but for such adoption,
change, or compliance (taking into consideration such Lender's or such holding
company's then existing policies with respect to capital adequacy and assuming
the full utilization of such entity's capital) by any amount deemed by such
Lender to be material, then such Lender may notify Borrower and Agent thereof.
Following receipt of such notice, Borrower agrees to pay such Lender on demand
the amount of such reduction of return of capital as and when such reduction is
determined, payable within 90 days after presentation by such Lender of a
statement in the amount and setting forth in reasonable detail such Lender's
calculation thereof and the assumptions upon which such calculation was based
(which statement shall be deemed true and correct absent manifest error). In
determining such amount, such Lender may use any reasonable averaging and
attribution methods.
3. CONDITIONS; TERM OF AGREEMENT.
3.1 CONDITIONS PRECEDENT TO THE INITIAL EXTENSION OF CREDIT. The
obligation of the Lender Group (or any member thereof) to make the initial
Advance (or otherwise to extend any credit provided for hereunder), is subject
to the fulfillment, to the satisfaction of Agent, of each of the conditions
precedent set forth below:
(a) the Closing Date shall occur on or before
July 16, 2001;
(b) Agent shall have received all financing
statements, assignments or amendments required by Agent, duly executed by
Borrower, and Agent shall have received searches reflecting the filing of all
such financing statements;
(c) Agent shall have received each of the
following documents, in form and substance satisfactory to Agent, or amendments
thereto if such documents are already in existence, duly executed, and each such
document shall be in full force and effect:
(i) the Control Agreements,
(ii) the Intellectual Property Security
Agreement,
(iii) the Disbursement Letter,
(iv) the Due Diligence Letter,
(v) the Fee Letter,
46
(vi) the Cash Management Agreements,
(vii) the Officers' Certificate, and
(viii) the Stock Pledge Agreement, together with
all certificates representing the shares of Stock pledged
thereunder, as well as Stock powers with respect thereto
endorsed in blank';
(d) Agent shall have received a certificate from
an officer of Borrower attesting to the resolutions of Borrower's Board of
Directors authorizing its execution, delivery, and performance of this Agreement
and the other Loan Documents to which Borrower is a party and authorizing
specific officers of Borrower to execute the same;
(e) Agent shall have received copies of
Borrower's Governing Documents, as amended, modified, or supplemented to the
Closing Date, certified by the Secretary of Borrower;
(f) Agent shall have received a certificate of
status with respect to Borrower, dated within 10 days of the Closing Date, such
certificate to be issued by the appropriate officer of the jurisdiction of
organization of Borrower, which certificate shall indicate that Borrower is in
good standing in such jurisdiction;
(g) Agent shall have received certificates of
status with respect to Borrower, each dated within 30 days of the Closing Date,
such certificates to be issued by the appropriate officer of the jurisdictions
(other than the jurisdiction of organization of Borrower) in which its failure
to be duly qualified or licensed would constitute a Material Adverse Change,
which certificates shall indicate that Borrower is in good standing in such
jurisdictions;
(h) Agent shall have received a certificate of
insurance, together with the endorsements thereto, as are required by Section
6.8, the form and substance of which shall be satisfactory to Agent;
(i) Agent shall have received an opinion of
Borrower's counsel in form and substance satisfactory to Agent;
(j) Agent shall have received satisfactory
evidence (including a certificate of the President of Borrower) that all tax
returns required to be filed by Borrower have been timely filed and all taxes
upon Borrower or its properties, assets, income, and franchises (including Real
Property taxes and payroll taxes) have been paid prior to delinquency, except
such taxes that are the subject of a Permitted Protest;
(k) Agent shall have completed its business,
legal, and collateral due diligence, including (i) a collateral audit and review
of Borrower's books and records and verification of Borrower's representations
and warranties to the Lender Group, the
47
results of which shall be satisfactory to Agent, and (ii) an inspection of each
of the locations where Inventory is located, the results of which shall be
satisfactory to Agent;
(l) Agent's Senior Credit Committee shall review
and approve this Agreement;
(m) Agent shall have received an appraisal of
the Liquidation Percentage applicable to Borrower's Inventory, the results of
which shall be satisfactory to Agent;
(n) Agent shall have received Borrower's Closing
Date Business Plan;
(o) Borrower shall pay all Lender Group Expenses
incurred in connection with the transactions evidenced by this Agreement;
(p) Borrower shall have received all licenses,
approvals or evidence of other actions required by any Governmental Authority in
connection with the execution and delivery by Borrower of this Agreement or any
other Loan Document or with the consummation of the transactions contemplated
hereby and thereby; and
(q) all other documents and legal matters in
connection with the transactions contemplated by this Agreement shall have been
delivered, executed, or recorded and shall be in form and substance satisfactory
to Agent.
3.2 CONDITIONS SUBSEQUENT TO THE INITIAL EXTENSION OF CREDIT. The
obligation of the Lender Group (or any member thereof) to continue to make
Advances (or otherwise extend credit hereunder) is subject to the fulfillment,
on or before the date applicable thereto, of each of the conditions subsequent
set forth below (the failure by Borrower to so perform or cause to be performed
constituting an Event of Default):
(a) within 30 days of the Closing Date, deliver
to Agent certified copies of the policies of insurance, together with the
endorsements thereto, as are required by Section 6.8, the form and substance of
which shall be satisfactory to Agent and its counsel.
3.3 CONDITIONS PRECEDENT TO ALL EXTENSIONS OF CREDIT. The
obligation of the Lender Group (or any member thereof) to make all Advances (or
to extend any other credit hereunder) shall be subject to the following
conditions precedent:
(a) the representations and warranties contained
in this Agreement and the other Loan Documents shall be true and correct in all
material respects on and as of the date of such extension of credit, as though
made on and as of such date (except to the extent that such representations and
warranties relate solely to an earlier date),
48
(b) no Default or Event of Default shall have
occurred and be continuing on the date of such extension of credit, nor shall
either result from the making thereof,
(c) no injunction, writ, restraining order, or
other order of any nature prohibiting, directly or indirectly, the extending of
such credit shall have been issued and remain in force by any Governmental
Authority against Borrower, Agent, any Lender, or any of their Affiliates.
(d) no Material Adverse Change shall have
occurred.
3.4 TERM. This Agreement shall become effective upon the execution
and delivery hereof by Borrower, Agent, and the Lenders and shall continue in
full force and effect for a term ending on July 10, 2004 (the "Maturity Date").
The foregoing notwithstanding, the Lender Group, upon the election of the
Required Lenders, shall have the right to terminate its obligations under this
Agreement immediately and without notice upon the occurrence and during the
continuation of an Event of Default.
3.5 EFFECT OF TERMINATION. On the date of termination of this
Agreement, all Obligations (including contingent reimbursement obligations of
Borrower with respect to outstanding Letters of Credit) immediately shall become
due and payable without notice or demand. No termination of this Agreement,
however, shall relieve or discharge Borrower of its duties, Obligations, or
covenants hereunder and the Agent's Liens in the Collateral shall remain in
effect until all Obligations have been fully and finally discharged and the
Lender Group's obligations to provide additional credit hereunder have been
terminated. When this Agreement has been terminated and all of the Obligations
have been fully and finally discharged and the Lender Group's obligations to
provide additional credit under the Loan Documents have been terminated
irrevocably, Agent will, at Borrower's sole expense, execute and deliver any UCC
termination statements, lien releases, mortgage releases, re-assignments of
trademarks, discharges of security interests, and other similar discharge or
release documents (and, if applicable, in recordable form) as are reasonably
necessary to release, as of record, the Agent's Liens and all notices of
security interests and liens previously filed by Agent with respect to the
Obligations.
3.6 EARLY TERMINATION BY BORROWER. Borrower has the option, at any
time upon 90 days prior written notice to Agent, to terminate this Agreement by
paying to Agent, for the benefit of the Lender Group, in cash, the Obligations
(including either (i) providing cash collateral to be held by Agent for the
benefit of those Lenders with a Revolver Commitment in an amount equal to 105%
of the then extant Letter of Credit Usage, or (ii) causing the original Letters
of Credit to be returned to the Issuing Lender), in full, together with the
Applicable Prepayment Premium (to be allocated based upon letter agreements
between Agent and individual Lenders). If Borrower has sent a notice of
termination pursuant to the provisions of this Section, then the Commitments
shall terminate and Borrower shall be obligated to repay the Obligations
(including either (i) providing cash collateral to be held by
49
Agent for the benefit of those Lenders with a Revolver Commitment in an amount
equal to 105% of the then extant Letter of Credit Usage, or (ii) causing the
original Letters of Credit to be returned to the Issuing Lender), in full,
together with the Applicable Prepayment Premium, on the date set forth as the
date of termination of this Agreement in such notice. In the event of the
termination of this Agreement and repayment of the Obligations at any time prior
to the Maturity Date, for any other reason, including (a) termination upon the
election of the Required Lenders to terminate after the occurrence of an Event
of Default, (b) foreclosure and sale of Collateral, (c) sale of the Collateral
in any Insolvency Proceeding, or (iv) restructure, reorganization, or compromise
of the Obligations by the confirmation of a plan of reorganization or any other
plan of compromise, restructure, or arrangement in any Insolvency Proceeding,
then, in view of the impracticability and extreme difficulty of ascertaining the
actual amount of damages to the Lender Group or profits lost by the Lender Group
as a result of such early termination, and by mutual agreement of the parties as
to a reasonable estimation and calculation of the lost profits or damages of the
Lender Group, Borrower shall pay the Applicable Prepayment Premium to Agent (to
be allocated based upon letter agreements between Agent and individual Lenders),
measured as of the date of such termination.
4. CREATION OF SECURITY INTEREST.
4.1 GRANT OF SECURITY INTEREST. Borrower hereby grants to Agent,
for the benefit of the Lender Group, a continuing security interest in all of
its right, title, and interest in all currently existing and hereafter acquired
or arising Collateral in order to secure prompt repayment of any and all of the
Obligations in accordance with the terms and conditions of the Loan Documents
and in order to secure prompt performance by Borrower of each of its covenants
and duties under the Loan Documents. The Agent's Liens in and to the Collateral
shall attach to all Collateral without further act on the part of Agent or
Borrower. Anything contained in this Agreement or any other Loan Document to the
contrary notwithstanding, except for Permitted Dispositions, Borrower has no
authority, express or implied, to dispose of any item or portion of the
Collateral.
4.2 NEGOTIABLE COLLATERAL. In the event that any Collateral,
including proceeds, is evidenced by or consists of Negotiable Collateral, and if
and to the extent that perfection or priority of Agent's security interest is
dependent on or enhanced by possession, Borrower, immediately upon the request
of Agent, shall endorse and deliver physical possession of such Negotiable
Collateral to Agent.
4.3 COLLECTION OF ACCOUNTS, GENERAL INTANGIBLES, AND NEGOTIABLE
COLLATERAL. At any time after the occurrence and during the continuation of an
Event of Default, Agent or Agent's designee may (a) notify Account Debtors of
Borrower that the Accounts, chattel paper, or General Intangibles have been
assigned to Agent or that Agent has a security interest therein, or (b) collect
the Accounts, chattel paper, or General Intangibles directly and charge the
collection costs and expenses to the Loan Account. Borrower agrees that it will
hold in trust for the Lender Group, as the Lender Group's trustee, any
Collections that it
50
receives and immediately will deliver said Collections to Agent or a Cash
Management Bank in their original form as received by Borrower.
4.4 DELIVERY OF ADDITIONAL DOCUMENTATION REQUIRED. At any time
upon the request of Agent, Borrower shall execute and deliver to Agent, any and
all financing statements, original financing statements in lieu of continuation
statements, fixture filings, security agreements, pledges, assignments,
endorsements of certificates of title, and all other documents (the "Additional
Documents") that Agent may request in its Permitted Discretion, in form and
substance satisfactory to Agent, to perfect and continue perfected or better
perfect the Agent's Liens in the Collateral (whether now owned or hereafter
arising or acquired), to create and perfect Liens in favor of Agent in any Real
Property (excluding office leases) acquired after the Closing Date, and in order
to fully consummate all of the transactions contemplated hereby and under the
other Loan Documents. To the maximum extent permitted by applicable law,
Borrower authorizes Agent to execute any such Additional Documents in Borrower's
name and authorizes Agent to file such executed Additional Documents in any
appropriate filing office. In addition, on such periodic basis as Agent shall
require per Section 4 of the Intellectual Property Security Agreement and as
referenced in Section 6.2, Borrower shall (a) provide Agent with a report of all
new material patentable, copyrightable, or trademarkable materials acquired or
generated by Borrower during the prior period, (b) if in Borrower's reasonable
business judgment, in light of Borrower's business and operations and Agent's
security interest in the intellectual property collateral, Accounts and
Inventory, the registration of such intellectual property is warranted (based on
Borrower's practices with respect to registering intellectual property as of the
Closing Date as disclosed to Agent on or before the Closing Date), cause all
patents, copyrights, and trademarks acquired or generated by Borrower that are
not already the subject of a registration with the appropriate filing office (or
an application therefor diligently prosecuted) to be registered with such
appropriate filing office in a manner sufficient to impart constructive notice
of Borrower's ownership thereof, and (c) cause to be prepared, executed, and
delivered to Agent supplemental schedules to the applicable Loan Documents to
identify such patents, copyrights, and trademarks as being subject to the
security interests created thereunder.
4.5 POWER OF ATTORNEY. Borrower hereby irrevocably makes,
constitutes, and appoints Agent (and any of Agent's officers, employees, or
agents designated by Agent) as Borrower's true and lawful attorney, with power
to (a) if Borrower refuses to, or fails timely to execute and deliver any of the
documents described in Section 4.4, sign the name of Borrower on any of the
documents described in Section 4.4, (b) at any time that an Event of Default has
occurred and is continuing, sign Borrower's name on any invoice or ▇▇▇▇ of
lading relating to the Collateral, drafts against Account Debtors, or notices to
Account Debtors, (c) send requests for verification of Accounts, (d) endorse
Borrower's name on any Collection item that may come into the Lender Group's
possession, (e) at any time that an Event of Default has occurred and is
continuing, make, settle, and adjust all claims under Borrower's policies of
insurance and make all determinations and decisions with respect to such
policies of insurance, and (f) at any time that an Event of Default has occurred
and is
51
continuing, settle and adjust disputes and claims respecting the Accounts,
chattel paper, or General Intangibles directly with Account Debtors, for amounts
and upon terms that Agent determines to be reasonable, and Agent may cause to be
executed and delivered any documents and releases that Agent determines to be
necessary. The appointment of Agent as Borrower's attorney, and each and every
one of its rights and powers, being coupled with an interest, is irrevocable
until all of the Obligations have been fully and finally repaid and performed
and the Lender Group's obligations to extend credit hereunder are terminated.
4.6 RIGHT TO INSPECT. Agent and each Lender (through any of their
respective officers, employees, or agents) shall have the right, from time to
time hereafter (so long as no Default or Event of Default has occurred and is
continuing, during normal business hours after reasonable notice), to inspect
the Books and to check, test, and appraise the Collateral in order to verify
Borrower's financial condition or the amount, quality, value, condition of, or
any other matter relating to, the Collateral.
4.7 CONTROL AGREEMENTS. Borrower agrees that it will not transfer
assets out of any Securities Accounts other than as permitted under Section 7.19
and, if to another securities intermediary, unless each of Borrower, Agent, and
the substitute securities intermediary have entered into a Control Agreement. No
arrangement contemplated hereby or by any Control Agreement in respect of any
Securities Accounts or other Investment Property shall be modified by Borrower
without the prior written consent of Agent. Upon the occurrence and during the
continuance of a Default or Event of Default, Agent may notify any securities
intermediary to liquidate the applicable Securities Account or any related
Investment Property maintained or held thereby and remit the proceeds thereof to
the Agent's Account.
5. REPRESENTATIONS AND WARRANTIES.
In order to induce the Lender Group to enter into this
Agreement, Borrower makes the following representations and warranties to the
Lender Group which shall be true, correct, and complete, in all material
respects, as of the date hereof, and shall be true, correct, and complete, in
all material respects, as of the Closing Date, and at and as of the date of the
making of each Advance (or other extension of credit) made thereafter, as though
made on and as of the date of such Advance (or other extension of credit)
(except to the extent that such representations and warranties relate solely to
an earlier date) and such representations and warranties shall survive the
execution and delivery of this Agreement:
5.1 NO ENCUMBRANCES. Borrower has good and indefeasible title to
the Collateral, free and clear of Liens except for Permitted Liens.
5.2 ELIGIBLE ACCOUNTS. The Eligible Accounts are bona fide
existing payment obligations of Account Debtors created by the sale and delivery
of Inventory or the rendition of services to such Account Debtors in the
ordinary course of Borrower's business, owed to Borrower without defenses,
disputes, offsets, counterclaims, or rights of return or cancellation. As to
each Eligible Account, such Account is not:
52
(a) owed by an employee, Affiliate, or agent of
Borrower,
(b) on account of a transaction wherein goods
were placed on consignment or were sold pursuant to a guaranteed sale, a sale or
return, a sale on approval, a ▇▇▇▇ and hold, or on any other terms by reason of
which the payment by the Account Debtor may be conditional,
(c) payable in a currency other than Dollars,
(d) owed by an Account Debtor that has or has
asserted a right of setoff, has disputed its liability, or has made any claim
with respect to its obligation to pay the Account, except to the extent
previously disclosed to Agent,
(e) owed by an Account Debtor that is subject to
any Insolvency Proceeding or is not Solvent or as to which Borrower has received
notice of an imminent Insolvency Proceeding or a material impairment of the
financial condition of such Account Debtor,
(f) on account of a transaction as to which the
goods giving rise to such Account have not been shipped and billed to the
Account Debtor or the services giving rise to such Account have not been
performed and accepted by the Account Debtor,
(g) a right to receive progress payments or
other advance ▇▇▇▇▇▇▇▇ that are due prior to the completion of performance by
Borrower of the subject contract for goods or services, and
(h) an Account that has not been billed to the
customer.
5.3 ELIGIBLE INVENTORY. All Eligible Inventory is of good and
merchantable quality, free from defects. As to each item of Eligible Inventory,
such Inventory is
(a) owned by Borrower free and clear of all
Liens other than Liens in favor of Agent for the benefit of the Lender Group,
(b) either located at one of the locations set
forth on Schedule E-1 or in transit from one such location to another such
location,
(c) not located on real property leased by
Borrower or in a contract warehouse, in each case, unless subject to a
Collateral Access Agreement executed by the lessor, the warehouseman, or other
third party, as the case may be, and unless segregated or otherwise separately
identifiable from goods of others, if any, stored on the premises,
(d) not goods that have been returned or
rejected by Borrower's customers, and
53
(e) not goods that are obsolete or slow moving,
restrictive or custom items, work-in-process, or that constitute spare parts,
packaging and shipping materials, supplies used or consumed in Borrower's
business, ▇▇▇▇ and hold goods, defective goods, "seconds," or Inventory acquired
on consignment.
5.4 EQUIPMENT. All of the Equipment is used or held for use in
Borrower's business and is fit for such purposes.
5.5 LOCATION OF INVENTORY AND EQUIPMENT. The Inventory and
Equipment are not stored with a bailee, warehouseman, or similar party and are
located only at the locations identified on Schedule 5.5.
5.6 INVENTORY RECORDS. Borrower keeps correct and accurate records
itemizing and describing the type, quality, and quantity of its Inventory and
the book value thereof.
5.7 LOCATION OF CHIEF EXECUTIVE OFFICE; FEIN. The chief executive
office of Borrower is located at the address indicated in Schedule 5.7 and
Borrower's FEIN is identified in Schedule 5.7.
5.8 DUE ORGANIZATION AND QUALIFICATION; SUBSIDIARIES.
(a) Borrower is duly organized and existing and
in good standing under the laws of the jurisdiction of its organization and
qualified to do business in any state where the failure to be so qualified
reasonably could be expected to have a Material Adverse Change.
(b) Set forth on Schedule 5.8(b), is a complete
and accurate description of the authorized capital Stock of Borrower, by class,
and, as of the Closing Date, a description of the number of shares of each such
class that are issued and outstanding. Other than as described on Schedule
5.8(b), there are no subscriptions, options, warrants, or calls relating to any
shares of Borrower's capital Stock, including any right of conversion or
exchange under any outstanding security or other instrument. Except as set forth
on Schedule 5.8(b), Borrower is not subject to any obligation (contingent or
otherwise) to repurchase or otherwise acquire or retire any shares of its
capital Stock or any security convertible into or exchangeable for any of its
capital Stock.
(c) Set forth on Schedule 5.8(c), is a complete
and accurate list of Borrower's direct and indirect Subsidiaries, showing: (i)
the jurisdiction of their organization, (ii) the number of shares of each class
of common and preferred Stock authorized for each of such Subsidiaries, and
(iii) the number and the percentage of the outstanding shares of each such class
owned directly or indirectly by Borrower. All of the outstanding capital Stock
of each such Subsidiary has been validly issued and is fully paid and
non-assessable. So long as no Event of Default has occurred and is continuing,
Borrower shall have the right to establish additional Subsidiaries so long as
Borrower gives prompt written notice to Agent of such new Subsidiaries.
54
(d) Except as set forth on Schedule 5.8(c),
there are no subscriptions, options, warrants, or calls relating to any shares
of Borrower's Subsidiaries' capital Stock, including any right of conversion or
exchange under any outstanding security or other instrument. Neither Borrower
nor any of its Subsidiaries is subject to any obligation (contingent or
otherwise) to repurchase or otherwise acquire or retire any shares of Borrowers'
Subsidiaries' capital Stock or any security convertible into or exchangeable for
any such capital Stock.
5.9 DUE AUTHORIZATION; NO CONFLICT.
(a) The execution, delivery, and performance by
Borrower of this Agreement and the Loan Documents to which it is a party have
been duly authorized by all necessary action on the part of Borrower.
(b) Except as provided in Schedule 5.9, the
execution, delivery, and performance by Borrower of this Agreement and the Loan
Documents to which it is a party do not and will not (i) violate any provision
of federal, state, or local law or regulation applicable to Borrower, the
Governing Documents of Borrower, or any order, judgment, or decree of any court
or other Governmental Authority binding on Borrower, (ii) conflict with, result
in a breach of, or constitute (with due notice or lapse of time or both) a
default under any material contractual obligation of Borrower, (iii) result in
or require the creation or imposition of any Lien of any nature whatsoever upon
any properties or assets of Borrower, other than Permitted Liens, or (iv)
require any approval of Borrower's interestholders or any approval or consent of
any Person under any material contractual obligation of Borrower except for
those that have been obtained or made.
(c) Other than the recording of the Intellectual
Property Security Agreement, filing of financing statements and fixture filings,
the execution, delivery, and performance by Borrower of this Agreement and the
Loan Documents to which Borrower is a party do not and will not require any
registration with, consent, or approval of, or notice to, or other action with
or by, any Governmental Authority or other Person.
(d) This Agreement and the other Loan Documents
to which Borrower is a party, and all other documents contemplated hereby and
thereby, when executed and delivered by Borrower will be the legally valid and
binding obligations of Borrower, enforceable against Borrower in accordance with
their respective terms, except as enforcement may be limited by equitable
principles or by bankruptcy, insolvency, reorganization, moratorium, or similar
laws relating to or limiting creditors' rights generally.
(e) The Agent's Liens are validly created,
perfected, and first priority Liens, subject only to Permitted Liens to the
extent that such Liens can be perfected by the recording of the Intellectual
Property Security Agreement and the filing of financing statements and fixture
filings.
55
5.10 LITIGATION. Other than those matters disclosed on Schedule
5.10, there are no actions, suits, or proceedings pending or, to the best
knowledge of Borrower, threatened against Borrower, or any of its Subsidiaries,
as applicable, except for (a) matters that are fully covered by insurance
(subject to customary deductibles), and (b) matters arising after the Closing
Date that, if decided adversely to Borrower, or any of its Subsidiaries, as
applicable, reasonably could not be expected to result in a Material Adverse
Change.
5.11 NO MATERIAL ADVERSE CHANGE. All financial statements relating
to Borrower that have been delivered by Borrower to the Lender Group have been
prepared in accordance with GAAP (except, in the case of unaudited financial
statements, for the lack of footnotes and being subject to year-end audit
adjustments) and present fairly in all material respects, Borrower's financial
condition as of the date thereof and results of operations for the period then
ended. There has not been a Material Adverse Change with respect to Borrower
since the date of the latest financial statements submitted to the Lender Group
on or before the Closing Date.
5.12 FRAUDULENT TRANSFER.
(a) Borrower is Solvent.
(b) No transfer of property is being made by
Borrower and no obligation is being incurred by Borrower in connection with the
transactions contemplated by this Agreement or the other Loan Documents with the
intent to hinder, delay, or defraud either present or future creditors of
Borrower.
5.13 EMPLOYEE BENEFITS. None of Borrower, any of its Subsidiaries,
or any of their ERISA Affiliates maintains or contributes to any Benefit Plan.
5.14 ENVIRONMENTAL CONDITION. Except as set forth on Schedule 5.14,
(a) to Borrower's knowledge, none of Borrower's assets has ever been used by
Borrower or by previous owners or operators in the disposal of, or to produce,
store, handle, treat, release, or transport, any Hazardous Materials, where such
production, storage, handling, treatment, release or transport was in violation,
in any material respect, of applicable Environmental Law, (b) to Borrower's
knowledge, none of Borrower's properties or assets has ever been designated or
identified in any manner pursuant to any environmental protection statute as a
Hazardous Materials disposal site, (c) Borrower has not received notice that a
Lien arising under any Environmental Law has attached to any revenues or to any
Real Property owned or operated by Borrower, and (d) Borrower has not received a
summons, citation, notice, or directive from the Environmental Protection Agency
or any other federal or state governmental agency concerning any action or
omission by Borrower resulting in the releasing or disposing of Hazardous
Materials into the environment.
5.15 BROKERAGE FEES. Borrower has not utilized the services of any
broker or finder in connection with Borrower's obtaining financing from the
Lender Group under this
56
Agreement and no brokerage commission or finders fee is payable by Borrower in
connection herewith.
5.16 INTELLECTUAL PROPERTY. Borrower owns, or holds licenses in,
all trademarks, trade names, copyrights, patents, patent rights, and licenses
that are necessary to the conduct of its business as currently conducted..
Attached hereto as Schedule 5.16 is a true, correct, and complete listing of all
material patents, patent applications, trademarks, trademark applications,
copyrights, and copyright registrations as to which Borrower is the owner or is
an exclusive licensee.
5.17 LEASES. Borrower enjoys peaceful and undisturbed possession
under all leases material to the business of Borrower and to which it is a party
or under which it is operating. All of such leases are valid and subsisting and
no material default by Borrower exists under any of them.
5.18 DDAs. Set forth on Schedule 5.18 are all of Borrower's DDAs,
including, with respect to each depository (i) the name and address of such
depository, and (ii) the account numbers of the accounts maintained with such
depository.
5.19 COMPLETE DISCLOSURE. All factual information (taken as a
whole) furnished by or on behalf of Borrower in writing to Agent or any Lender
(including all information contained in the Schedules hereto or in the other
Loan Documents) for purposes of or in connection with this Agreement, the other
Loan Documents, or any transaction contemplated herein or therein is, and all
other such factual information (taken as a whole) hereafter furnished by or on
behalf of Borrower in writing to Agent or any Lender will be, true and accurate,
in all material respects, on the date as of which such information is dated or
certified and not incomplete by omitting to state any fact necessary to make
such information (taken as a whole) not misleading in any material respect at
such time in light of the circumstances under which such information was
provided. On the Closing Date, the Closing Date Projections represent, and as of
the date on which any other Projections are delivered to Agent, such additional
Projections represent Borrower's good faith best estimate of its future
performance for the periods covered thereby, and Agent and Lenders acknowledge
that actual results may differ materially from the Projections and that no
representation is made by Borrower that the Projections will be obtained.
5.20 INDEBTEDNESS. Set forth on Schedule 5.20 is a true and
complete list of all Indebtedness of Borrower outstanding immediately prior to
the Closing Date that is to remain outstanding after the Closing Date and such
Schedule accurately reflects the aggregate principal amount of such Indebtedness
and the principal terms thereof.
6. AFFIRMATIVE COVENANTS.
Borrower covenants and agrees that, so long as any credit
hereunder shall be available and until full and final payment of the
Obligations, Borrower shall and shall cause each of its Subsidiaries to do all
of the following:
57
6.1 ACCOUNTING SYSTEM. Maintain a system of accounting that enables
Borrower to produce financial statements in accordance with GAAP and maintain
records pertaining to the Collateral that contain information as from time to
time reasonably may be requested by Agent. Borrower also shall keep an inventory
reporting system that shows all additions, sales, claims, returns, and
allowances with respect to the Inventory.
6.2 COLLATERAL REPORTING. Provide Agent (and if so requested by Agent,
with copies for each Lender) with the following documents at the following times
in form satisfactory to Agent:
Weekly (a) a sales journal, collection journal, and credit
register since the last such schedule and a
calculation of the Borrowing Base as of such date,
(b) notice of all returns, disputes, or claims, and
(c) a schedule of Eligible Inventory in-transit to
the Borrower's warehouses in the United States.
Monthly (not (d) Inventory reports specifying Borrower's cost and
later than the wholesale market value of its Inventory, by
the 10th category, with additional detail showing additions
day of each to and deletions from the Inventory,
month)
(e) a detailed calculation of the Borrowing Base
(including detail regarding those Accounts that are
not Eligible Accounts),
(f) a detailed aging, by total, of the Accounts,
together with a reconciliation to the detailed
calculation of the Borrowing Base previously provided
to Lender,
(g) a summary aging, by vendor, of Borrower's
accounts payable and any book overdraft,
(h) a calculation of Dilution for the prior month,
(i) Inventory reports describing and setting forth
the value of Borrower's Inventory located at premises
controlled by third parties,
(j) a report of Borrower's net 90 day sales, and
(k) a list of any new material service marks,
trademarks or patents, or renewal or extension of any
service ▇▇▇▇ or trademark registration arising or
occurring during the prior calendar month.
Quarterly (l) a detailed list of Borrower's customers,
58
(m) a report regarding Borrower's accrued, but
unpaid, ad valorem taxes.
Upon request (n) copies of invoices in connection with the
by Lender Accounts, credit memos, remittance advices, deposit
slips, shipping and delivery documents in connection
with the Accounts and, for Inventory and Equipment
acquired by Borrower, purchase orders and invoices,
and
(o) such other reports as to the Collateral, or the
financial condition of Borrower, as Lender may
request.
In addition, Borrower agrees to cooperate fully with Agent to
facilitate and implement a system of electronic collateral reporting in order to
provide electronic reporting of each of the items set forth above.
6.3 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES. Deliver to Agent, with
copies to each Lender:
(a) as soon as available, but in any event within 30 days (45
days in the case of a month that is the end of one of the first 3 fiscal
quarters in a fiscal year) after the end of each month during each of Borrower's
fiscal years,
(i) a company prepared consolidated balance sheet, income
statement, and statement of cash flow covering Borrower's and its
Subsidiaries' operations during such period,
(ii) a certificate signed by the chief financial officer of
Borrower to the effect that:
(A) the financial statements delivered hereunder have
been prepared in accordance with GAAP (except for the lack of
footnotes and being subject to year-end audit adjustments) and
fairly present in all material respects the financial
condition of Borrower and its Subsidiaries,
(B) the representations and warranties of Borrower
contained in this Agreement and the other Loan Documents are
true and correct in all material respects on and as of the
date of such certificate, as though made on and as of such
date (except to the extent that such representations and
warranties relate solely to an earlier date), and
(C) there does not exist any condition or event that
constitutes a Default or Event of Default (or, to the extent
of any non-compliance, describing such non-compliance as to
which he or she may
59
have knowledge and what action Borrower has taken, is taking, or
proposes to take with respect thereto), and
(iii) for each month that is the date on which a financial
covenant in Section 7.20 is to be tested, a Compliance Certificate
demonstrating, in reasonable detail, compliance at the end of such
period with the applicable financial covenants contained in Section
7.20, and
(b) as soon as available, but in any event within 120 days
after the end of each of Borrower's fiscal years,
(i) financial statements of Borrower and its Subsidiaries for
each such fiscal year, audited by independent certified public
accountants reasonably acceptable to Agent and certified, without any
qualifications, by such accountants to have been prepared in accordance
with GAAP (such audited financial statements to include a balance
sheet, income statement, and statement of cash flow and, if prepared,
such accountants' letter to management),
(ii) a certificate of such accountants addressed to Agent and
the Lenders stating that such accountants do not have knowledge of the
existence of any Default or Event of Default under Section 7.20,
(c) as soon as available, but in any event within 90 days
prior to the start of each of Borrower's fiscal years,
(i) copies of Borrower's Projections, in form and substance
(including as to scope and underlying assumptions) satisfactory to
Agent, in its sole discretion, for the forthcoming 3 years, year by
year, and for the forthcoming fiscal year, month by month, certified by
the chief financial officer of Borrower as being such officer's good
faith best estimate of the financial performance of Borrower during the
period covered thereby,
(d) if and when filed by Borrower,
(i) Form 10-Q quarterly reports, Form 10-K annual reports, and
Form 8-K current reports,
(ii) any other filings made by Borrower with the SEC,
(iii) copies of Borrower's federal income tax returns, and any
amendments thereto, filed with the Internal Revenue Service, and
60
(iv) any other information which could be material to Agent's
Lien on the Collateral or the repayment of the Obligations and that is
provided by Borrower to its shareholders generally,
(e) if and when filed by Borrower and as requested by Agent,
satisfactory evidence of payment of applicable excise taxes in each jurisdiction
in which (i) Borrower conducts business or is required to pay any such excise
tax, (ii) where Borrower's failure to pay any such applicable excise tax would
result in a Lien on the properties or assets of Borrower, or (iii) where
Borrower's failure to pay any such applicable excise tax reasonably could be
expected to result in a Material Adverse Change,
(f) promptly after Borrower has knowledge of any event or
condition that constitutes a Default or an Event of Default, notice thereof and
a statement of the curative action that Borrower proposes to take with respect
thereto, and
(g) upon the request of Agent, any other report reasonably
requested relating to the financial condition of Borrower.
In addition to the financial statements referred to above,
Borrower agrees to deliver financial statements prepared on both a consolidated
and consolidating basis and agrees that no Subsidiary of Borrower will have a
fiscal year different from that of Borrower. Borrower agrees that its
independent certified public accountants are authorized to communicate with
Agent and to release to Agent whatever financial information concerning Borrower
Agent reasonably may request. Borrower waives the right to assert a confidential
relationship, if any, it may have with any accounting firm or service bureau in
connection with any information requested by Agent pursuant to or in accordance
with this Agreement, and agrees that Agent may contact directly any such
accounting firm or service bureau in order to obtain such information.
6.4 INTENTIONALLY OMITTED.
6.5 RETURN. Cause returns and allowances, as between Borrower and its
Account Debtors, to be on the same basis and in accordance with the usual
customary practices of Borrower, as they exist at the time of the execution and
delivery of this Agreement. If, at a time when no Event of Default has occurred
and is continuing, any Account Debtor returns any Inventory to Borrower,
Borrower promptly shall determine the reason for such return and, if Borrower
accepts such return, issue a credit memorandum (with a copy to be sent to Agent)
in the appropriate amount to such Account Debtor. If, at a time when an Event of
Default has occurred and is continuing, any Account Debtor returns any Inventory
to Borrower, Borrower promptly shall determine the reason for such return and,
if Agent consents (which consent shall not be unreasonably withheld), issue a
credit memorandum (with a copy to be sent to Agent) in the appropriate amount to
such Account Debtor.
6.6 MAINTENANCE OF PROPERTIES. Maintain and preserve all of its
properties which are necessary or useful in the proper conduct of its business
in good working order and
61
condition, ordinary wear and tear excepted, and comply at all times with the
provisions of all leases to which it is a party as lessee so as to prevent any
loss or forfeiture thereof or thereunder.
6.7 TAXES. Cause all assessments and taxes, whether real, personal, or
otherwise, due or payable by, or imposed, levied, or assessed against Borrower
or any of its assets to be paid in full, before delinquency or before the
expiration of any extension period, except to the extent that the validity of
such assessment or tax shall be the subject of a Permitted Protest. Borrower
will make timely payment or deposit of all tax payments and withholding taxes
required of it by applicable laws, including those laws concerning F.I.C.A.,
F.U.T.A., state disability, and local, state, and federal income taxes, and
will, upon request, furnish Agent with proof satisfactory to Agent indicating
that Borrower has made such payments or deposits.
6.8 INSURANCE.
(a) At Borrower's expense, maintain insurance respecting its
assets wherever located, covering loss or damage by fire, theft, explosion, and
all other hazards and risks as ordinarily are insured against by other Persons
engaged in the same or similar businesses. Borrower also shall maintain business
interruption, public liability, and product liability insurance, as well as
insurance against larceny, embezzlement, and criminal misappropriation. All such
policies of insurance shall be in such amounts and with such insurance companies
as are reasonably satisfactory to Agent. Borrower shall deliver copies of all
such policies to Agent with a satisfactory lender's loss payable endorsement
naming Agent as sole loss payee or additional insured, as appropriate. Each
policy of insurance or endorsement shall contain a clause requiring the insurer
to give not less than 30 days prior written notice to Agent in the event of
cancellation of the policy for any reason whatsoever.
(b) Borrower shall give Agent prompt notice of any loss
covered by such insurance in excess of $100,000. Agent shall have the exclusive
right to adjust any losses payable under any such insurance policies in excess
of $100,000, without any liability to Borrower whatsoever in respect of such
adjustments. Any monies received as payment for any loss under any insurance
policy mentioned above (other than liability insurance policies) or as payment
of any award or compensation for condemnation or taking by eminent domain, shall
be paid over to Agent to be applied at the option of the Required Lenders either
to the prepayment of the Obligations or shall be disbursed to Borrower under
staged payment terms reasonably satisfactory to the Required Lenders for
application to the cost of repairs, replacements, or restorations. Any such
repairs, replacements, or restorations shall be effected with reasonable
promptness and shall be of a value at least equal to the value of the items of
property destroyed prior to such damage or destruction.
(c) Borrower will not take out separate insurance concurrent
in form or contributing in the event of loss with that required to be maintained
under this Section 6.8, unless Agent is included thereon as named insured with
the loss payable to
62
Agent under a lender's loss payable endorsement or its equivalent. Borrower
immediately shall notify Agent whenever such separate insurance is taken out,
specifying the insurer thereunder and full particulars as to the policies
evidencing the same, and copies of such policies promptly shall be provided to
Agent.
6.9 LOCATION OF INVENTORY AND EQUIPMENT. Keep the Inventory and
Equipment only at the locations identified on Schedule 5.5; provided, however,
that Borrower may amend Schedule 5.5 so long as such amendment occurs by written
notice to Agent not less than 30 days prior to the date on which Inventory or
Equipment is moved to such new location, so long as such new location is within
the continental United States, and so long as, at the time of such written
notification, Borrower provides any financing statements or fixture filings
necessary to perfect and continue perfected the Agent's Liens on such assets and
also provides to Agent a Collateral Access Agreement.
6.10 COMPLIANCE WITH LAWS. Comply with the requirements of all
applicable laws, rules, regulations, and orders of any Governmental Authority,
including the Fair Labor Standards Act and the Americans With Disabilities Act,
other than laws, rules, regulations, and orders the non-compliance with which,
individually or in the aggregate, would not result in and reasonably could not
be expected to result in a Material Adverse Change.
6.11 LEASES. Pay when due all rents and other amounts payable under any
leases to which Borrower is a party or by which Borrower's properties and assets
are bound, unless such payments are the subject of a Permitted Protest.
6.12 BROKERAGE COMMISSIONS. Pay any and all brokerage commission or
finders fees incurred in connection with or as a result of Borrower's obtaining
financing from the Lender Group under this Agreement. Borrower agrees and
acknowledges that payment of all such brokerage commissions or finders fees
shall be the sole responsibility of Borrower, and Borrower agrees to indemnify,
defend, and hold Agent and the Lender Group harmless from and against any claim
of any broker or finder arising out of Borrower's obtaining financing from the
Lender Group under this Agreement.
6.13 EXISTENCE. At all times preserve and keep in full force and effect
Borrower's valid existence and good standing and any rights and franchises
material to Borrower's businesses.
6.14 ENVIRONMENTAL.
(a) Keep any property either owned or operated by Borrower
free of any Environmental Liens or post bonds or other financial assurances
sufficient to satisfy the obligations or liability evidenced by such
Environmental Liens, (b) comply, in all material respects, with Environmental
Laws and provide to Agent documentation of such compliance which Agent
reasonably requests, (c) promptly notify Agent of any release of a Hazardous
Material in violation of any Environmental Law in any reportable quantity from
or onto property owned or operated by Borrower and take any Remedial Actions
required to ▇▇▇▇▇
63
said release or otherwise to come into compliance with applicable Environmental
Law, and (d) promptly provide Agent with written notice within 10 days of the
receipt of any of the following: (i) notice that an Environmental Lien has been
filed against any of the real or personal property of Borrower, (ii)
commencement of any Environmental Action or notice that an Environmental Action
will be filed against Borrower, and (iii) notice of a violation, citation, or
other administrative order which reasonably could be expected to result in a
Material Adverse Change.
6.15 DISCLOSURE UPDATES. Promptly and in no event later than 5 Business
Days after obtaining knowledge thereof, (a) notify Agent if any written
information, exhibit, or report furnished to the Lender Group contained any
untrue statement of a material fact or omitted to state any material fact
necessary to make the statements contained therein not misleading in light of
the circumstances in which made, and (b) correct any defect or error that may be
discovered therein or in any Loan Document or in the execution, acknowledgement,
filing, or recordation thereof.
7. NEGATIVE COVENANTS.
Borrower covenants and agrees that, so long as any credit
hereunder shall be available and until full and final payment of the
Obligations, Borrower will not and will not permit any of its Subsidiaries to do
any of the following:
7.1 INDEBTEDNESS. Create, incur, assume, permit, guarantee, or
otherwise become or remain, directly or indirectly, liable with respect to any
Indebtedness, except:
(a) Indebtedness evidenced by this Agreement and the other
Loan Documents, together with Indebtedness owed to Underlying Issuers with
respect to Underlying Letters of Credit,
(b) Indebtedness set forth on Schedule 5.20,
(c) Permitted Purchase Money Indebtedness, and
(d) refinancings, renewals, or extensions of Indebtedness
permitted under clauses (b) and (c) of this Section 7.1 (and continuance or
renewal of any Permitted Liens associated therewith) so long as: (i) the terms
and conditions of such refinancings, renewals, or extensions do not, in Agent's
judgment, materially impair the prospects of repayment of the Obligations by
Borrower or materially impair Borrower's creditworthiness, (ii) such
refinancings, renewals, or extensions do not result in an increase in the
principal amount of, or interest rate with respect to, the Indebtedness so
refinanced, renewed, or extended, (iii) such refinancings, renewals, or
extensions do not result in a shortening of the average weighted maturity of the
Indebtedness so refinanced, renewed, or extended, nor are they on terms or
conditions that, taken as a whole, are materially more burdensome or restrictive
to Borrower, and (iv) if the Indebtedness that is refinanced, renewed, or
extended was subordinated in right of payment to the Obligations, then the terms
and conditions of the
64
refinancing, renewal, or extension Indebtedness must include subordination terms
and conditions that are at least as favorable to the Lender Group as those that
were applicable to the refinanced, renewed, or extended Indebtedness.
7.2 LIENS. Create, incur, assume, or permit to exist, directly or
indirectly, any Lien on or with respect to any of its assets, of any kind,
whether now owned or hereafter acquired, or any income or profits therefrom,
except for Permitted Liens (including Liens that are replacements of Permitted
Liens to the extent that the original Indebtedness is refinanced, renewed, or
extended under Section 7.1(d) and so long as the replacement Liens only encumber
those assets that secured the refinanced, renewed, or extended Indebtedness).
7.3 RESTRICTIONS ON FUNDAMENTAL CHANGES.
(a) Enter into any merger, consolidation, reorganization, or
recapitalization, or reclassify its Stock.
(b) Liquidate, wind up, or dissolve itself (or suffer any
liquidation or dissolution).
(c) Other than Permitted Dispositions, convey, sell, lease,
license, assign, transfer, or otherwise dispose of, in one transaction or a
series of transactions, all or any substantial part of its assets.
7.4 DISPOSAL OF ASSETS. Other than Permitted Dispositions, convey,
sell, lease, license, assign, transfer, or otherwise dispose of any of
Borrower's assets.
7.5 CHANGE NAME. Change Borrower's name, state of incorporation, FEIN,
corporate structure, or identity, or add any new fictitious name; provided,
however, that Borrower may change its name or state of incorporation or add any
new fictitious name upon at least 30 days prior written notice to Agent of such
change and so long as, at the time of such written notification, Borrower
provides any financing statements or fixture filings necessary to perfect and
continue perfected the Agent's Liens.
7.6 GUARANTEE. Guarantee or otherwise become in any way liable with
respect to the obligations of any third Person except by endorsement of
instruments or items of payment for deposit to the account of Borrower or which
are transmitted or turned over to Agent.
7.7 NATURE OF BUSINESS. Make any material change in the principal
nature of its business.
65
7.8 PREPAYMENTS AND AMENDMENTS.
(a) Except in connection with a refinancing permitted by
Section 7.1(d), prepay, redeem, defease, purchase, or otherwise acquire any
Indebtedness of Borrower, other than the Obligations in accordance with this
Agreement, and
(b) Except in connection with a refinancing permitted by
Section 7.1(d), directly or indirectly, amend, modify, alter, increase, or
change any of the terms or conditions of any agreement, instrument, document,
indenture, or other writing evidencing or concerning Indebtedness permitted
under Sections 7.1(b) or (c) to increase the applicable rate of interest,
accelerate or increase the amortization of principal, or in any other manner
adverse to the interest of Lender.
7.9 CHANGE OF CONTROL. Cause, permit, or suffer, directly or
indirectly, any Change of Control.
7.10 CONSIGNMENTS. Other than consignments of Inventory valued at
$1,000,000 or less at any time to QVC, consign any Inventory or sell any
Inventory on ▇▇▇▇ and hold, sale or return, sale on approval, or other
conditional terms of sale.
7.11 DISTRIBUTIONS. Make any distribution or declare or pay any
dividends (in cash or other property, other than common Stock) on, or purchase,
acquire, redeem, or retire any of Borrower's Stock, of any class, whether now or
hereafter outstanding, except (so long as no Event of Default has occurred and
is continuing): (a) Borrower may repurchase $500,000 of Stock per year; and (b)
Borrower may use proceeds of any equity offering to repurchase Stock that is put
to Borrower and/or purchased by Knowledge Kids, L.L.C. upon exercise of the put
right referenced in Section 5.8(b) (the "Put Right") if such equity offering
resulted in at least $10,000,000 of proceeds to Borrower and if after giving
effect to any such repurchase of Stock in connection with the Put Right Borrower
has at least $3,000,000 of Excess Availability.
7.12 ACCOUNTING METHODS. Modify or change its method of accounting
(other than as may be required to conform to GAAP) or enter into, modify, or
terminate any agreement currently existing, or at any time hereafter entered
into with any third party accounting firm or service bureau for the preparation
or storage of Borrower's accounting records without said accounting firm or
service bureau agreeing to provide Agent information regarding the Collateral or
Borrower's financial condition.
7.13 INVESTMENTS. Except for Permitted Investments, directly or
indirectly, make or acquire any Investment or incur any liabilities (including
contingent obligations) for or in connection with any Investment; provided,
however, that Borrower shall not have Permitted Investments (other than those
described in clauses (b) and (c) of the definition thereof and in the Cash
Management Accounts) in excess of $250,000 outstanding at any one time unless
Borrower and the applicable securities intermediary or bank have entered into
Control Agreements governing such Permitted Investments, as Lender shall
determine in its
66
Permitted Discretion, to perfect (and further establish) the Lender's Liens in
such Permitted Investments.
7.14 TRANSACTIONS WITH AFFILIATES. Directly or indirectly enter into or
permit to exist any transaction with any Affiliate of Borrower except for
transactions that are in the ordinary course of Borrower's business, upon fair
and reasonable terms, that are fully disclosed to Lender (other than Oracle
Corporation, other than sales in the ordinary course of business to TEC
Worldwide, Inc., Children's Discovery Centers of America, Inc., Knowledge Kids
Network, Inc., ▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇, Inc. d.b.a. ▇▇▇.▇▇▇, CharterSchools USA, Inc.,
LearnNow, Inc., ▇▇▇▇▇.▇▇▇ LLC, or Nobel Learning Communities, Inc., if disclosed
in the appropriate Borrowing Base Certificate, and limited to Affiliates known
by Borrower to be Affiliates), and that are no less favorable to Borrower than
would be obtained in an arm's length transaction with a non-Affiliate.
7.15 SUSPENSION. Suspend or go out of a substantial portion of its
business.
7.16 INTENTIONALLY OMITTED.
7.17 USE OF PROCEEDS. Use the proceeds of the Advances for any purpose
other than (a) on the Closing Date, (i) to amend and restate the Existing Loan
Agreement and to include the Obligations under this Agreement, and (ii) to pay
transactional fees, costs, and expenses incurred in connection with this
Agreement, the other Loan Documents, and the transactions contemplated hereby
and thereby, and (b) thereafter, consistent with the terms and conditions
hereof, for its lawful and permitted purposes.
7.18 CHANGE IN LOCATION OF CHIEF EXECUTIVE OFFICE; INVENTORY AND
EQUIPMENT WITH BAILEES. Relocate its chief executive office to a new location
without providing 30 days prior written notification thereof to Agent and so
long as, at the time of such written notification, Borrower provides any
financing statements or fixture filings necessary to perfect and continue
perfected the Agent's Liens and also provides to Agent a Collateral Access
Agreement with respect to such new location. Except as specifically identified
in Schedule 5.5, the Inventory and Equipment shall not at any time now or
hereafter be stored with a bailee, warehouseman, or similar party without
Agent's prior written consent.
7.19 SECURITIES ACCOUNTS. Establish or maintain any Securities Account
unless Agent shall have received a Control Agreement in respect of such
Securities Account. Borrower shall not transfer assets out of any Securities
Account; provided, however, that, so long as no Event of Default has occurred
and is continuing or would result therefrom, Borrower may use such assets (and
the proceeds thereof) to the extent not prohibited by this Agreement.
67
7.20 FINANCIAL COVENANTS.
(a) Fail to maintain Tangible Net Worth of at least the
required amount set forth in the following table as of the last day of each
month set forth opposite thereto:
Applicable Amount Applicable Date
$30,000,000 June 30, 2001 through August 31, 2001
$51,400,000 September 30, 2001
$57,500,000 October 31, 2001
$59,200,000 November 30, 2001
$57,600,000 December 31, 2001
$49,200,000 January 31, 2002
$39,100,000 February 28, 2002
$30,700,000 March 31, 2002
$20,600,000 April 30, 2002
$12,200,000 May 31, 2002
$ 5,400,000 June 30, 2002
$ 7,200,000 July 31, 2002
$15,800,000 August 31, 2002
$34,600,000 September 30, 2002
$57,600,000 October 31, 2002
$70,500,000 November 30, 2002
$74,800,000 December 31, 2002
Agent shall establish the minimum Tangible Net Worth covenant
for each month in 2003 based upon 85% of Borrower's Projections for such year so
long as such Projections are acceptable to Lender.
(b) Make capital expenditures in any fiscal year in excess of
the amount set forth in the following table for the applicable period:
Fiscal Year 2001 Fiscal Year 2002
$8,500,000 $13,300,000
Agent shall establish the maximum capital expenditure covenant
for the fiscal year 2003 equal to the amount of capital expenditures set forth
in Borrower's Projections for such year so long as such Projections are
reasonable and acceptable to Agent.
8. EVENTS OF DEFAULT.
Any one or more of the following events shall constitute an
event of default (each, an "Event of Default") under this Agreement:
68
8.1 If Borrower fails to pay when due and payable, or when declared due
and payable, all or any portion of the Obligations (whether of principal,
interest (including any interest which, but for the provisions of the Bankruptcy
Code, would have accrued on such amounts), fees and charges due the Lender
Group, reimbursement of Lender Group Expenses, or other amounts constituting
Obligations);
8.2 If Borrower fails to perform, keep, or observe any term, provision,
condition, covenant, or agreement (a) contained in Section 6.2 or 6.3 this
Agreement and such failure continues for five days, (b) contained in Section
6.1, 6.5, 6.6, 6.7 or 6.11 of this Agreement and such failure continues for 15
days, or (c) contained in any other provision of this Agreement or in any other
Loan Document;
8.3 If any material portion of Borrower's or any of its Subsidiaries'
assets is attached, seized, subjected to a writ or distress warrant, levied
upon, or comes into the possession of any third Person;
8.4 If an Insolvency Proceeding is commenced by Borrower or any of its
Subsidiaries;
8.5 If an Insolvency Proceeding is commenced against Borrower, or any
of its Subsidiaries, and any of the following events occur: (a) Borrower or the
Subsidiary consents to the institution of such Insolvency Proceeding against it,
(b) the petition commencing the Insolvency Proceeding is not timely
controverted, (c) the petition commencing the Insolvency Proceeding is not
dismissed within 60 calendar days of the date of the filing thereof; provided,
however, that, during the pendency of such period, Agent (including any
successor agent) and each other member of the Lender Group shall be relieved of
their obligations to extend credit hereunder, (d) an interim trustee is
appointed to take possession of all or any substantial portion of the properties
or assets of, or to operate all or any substantial portion of the business of,
Borrower or any of its Subsidiaries, or (e) an order for relief shall have been
entered therein;
8.6 If Borrower or any of its Subsidiaries is enjoined, restrained, or
in any way prevented by court order from continuing to conduct all or any
material part of its business affairs;
8.7 If a notice of Lien, levy, or assessment is filed of record with
respect to any of Borrower's or any of its Subsidiaries' assets by the United
States, or any department, agency, or instrumentality thereof, or by any state,
county, municipal, or governmental agency, or if any taxes or debts owing at any
time hereafter to any one or more of such entities becomes a Lien, whether
▇▇▇▇▇▇ or otherwise, upon any material portion of Borrower's or any of its
Subsidiaries' assets and the same is not paid before such payment is delinquent;
provided that such Lien, levy or assessment shall not be an Event of Default if
for less than $250,000 and if fully reserved by Agent against Availability;
69
8.8 If a judgment or other claim in excess of $250,000 becomes a Lien
or encumbrance upon any material portion of Borrower's or any of its
Subsidiaries' assets;
8.9 If there is a default in any material agreement to which Borrower
or any of its Subsidiaries is a party and such default (a) occurs at the final
maturity of the obligations thereunder, or (b) results in a right by the other
party thereto, irrespective of whether exercised, to accelerate the maturity of
Borrower's or its Subsidiaries' obligations thereunder, to terminate such
agreement, or to refuse to renew such agreement pursuant to an automatic renewal
right therein;
8.10 If Borrower or any of its Subsidiaries makes any payment on
account of Indebtedness that has been contractually subordinated in right of
payment to the payment of the Obligations, except to the extent such payment is
permitted by the terms of the subordination provisions applicable to such
Indebtedness;
8.11 If any material misstatement or misrepresentation exists now or
hereafter in any warranty, representation, statement, or Record made to the
Lender Group by Borrower, its Subsidiaries, or any officer, employee, agent, or
director of Borrower or any of its Subsidiaries;
8.12 If this Agreement or any other Loan Document that purports to
create a Lien, shall, for any reason, fail or cease to create a valid and
perfected and, except to the extent permitted by the terms hereof or thereof,
first priority Lien on or security interest in the Collateral covered hereby or
thereby; or
8.13 Any material provision of any Loan Document shall at any time for
any reason be declared to be null and void, or the validity or enforceability
thereof shall be contested by Borrower, or a proceeding shall be commenced by
Borrower, or by any Governmental Authority having jurisdiction over Borrower,
seeking to establish the invalidity or unenforceability thereof, or Borrower
shall deny that Borrower has any liability or obligation purported to be created
under any Loan Document.
9. THE LENDER GROUP'S RIGHTS AND REMEDIES.
9.1 RIGHTS AND REMEDIES. Upon the occurrence, and during the
continuation, of an Event of Default, the Required Lenders (at their election
but without notice of their election and without demand) may authorize and
instruct Agent to do any one or more of the following on behalf of the Lender
Group (and Agent, acting upon the instructions of the Required Lenders, shall do
the same on behalf of the Lender Group), all of which are authorized by
Borrower:
(a) Declare all Obligations, whether evidenced by this
Agreement, by any of the other Loan Documents, or otherwise, immediately due and
payable;
70
(b) Cease advancing money or extending credit to or for the
benefit of Borrower under this Agreement, under any of the Loan Documents, or
under any other agreement between Borrower and the Lender Group;
(c) Terminate this Agreement and any of the other Loan
Documents as to any future liability or obligation of the Lender Group, but
without affecting any of the Agent's Liens in the Collateral and without
affecting the Obligations;
(d) Settle or adjust disputes and claims directly with Account
Debtors for amounts and upon terms which Agent considers advisable, and in such
cases, Agent will credit Borrower's Loan Account with only the net amounts
received by Agent in payment of such disputed Accounts after deducting all
Lender Group Expenses incurred or expended in connection therewith;
(e) Cause Borrower to hold all returned Inventory in trust for
the Lender Group, segregate all returned Inventory from all other assets of
Borrower or in Borrower's possession and conspicuously label said returned
Inventory as the property of the Lender Group;
(f) Without notice to or demand upon Borrower, make such
payments and do such acts as Agent considers necessary or reasonable to protect
its security interests in the Collateral. Borrower agrees to assemble the
Collateral if Agent so requires, and to make the Collateral available to Agent
at a place that Agent may designate which is reasonably convenient to both
parties. Borrower authorizes Agent to enter the premises where the Collateral is
located, to take and maintain possession of the Collateral, or any part of it,
and to pay, purchase, contest, or compromise any Lien that in Agent's
determination appears to conflict with the Agent's Liens and to pay all expenses
incurred in connection therewith and to charge Borrower's Loan Account therefor.
With respect to any of Borrower's owned or leased premises, Borrower hereby
grants Agent a license to enter into possession of such premises and to occupy
the same, without charge, in order to exercise any of the Lender Group's rights
or remedies provided herein, at law, in equity, or otherwise;
(g) Without notice to Borrower (such notice being expressly
waived), and without constituting a retention of any collateral in satisfaction
of an obligation (within the meaning of the Code), set off and apply to the
Obligations any and all (i) balances and deposits of Borrower held by the Lender
Group (including any amounts received in the Cash Management Accounts), or (ii)
Indebtedness at any time owing to or for the credit or the account of Borrower
held by the Lender Group;
(h) Hold, as cash collateral, any and all balances and
deposits of Borrower held by the Lender Group, and any amounts received in the
Cash Management Accounts, to secure the full and final repayment of all of the
Obligations;
(i) Ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sale, and sell (in the manner provided for
herein) the Collateral. Borrower
71
hereby grants to Agent a license or other right to use, without charge,
Borrower's labels, patents, copyrights, trade secrets, trade names, trademarks,
service marks, and advertising matter, or any property of a similar nature, as
it pertains to the Collateral, in completing production of, advertising for
sale, and selling any Collateral and Borrower's rights under all licenses and
all franchise agreements shall inure to the Lender Group's benefit;
(j) Sell the Collateral at either a public or private sale, or
both, by way of one or more contracts or transactions, for cash or on terms, in
such manner and at such places (including Borrower's premises) as Agent
determines is commercially reasonable. It is not necessary that the Collateral
be present at any such sale;
(k) Agent shall give notice of the disposition of the
Collateral as follows:
(i) Agent shall give Borrower a notice in writing of the time
and place of public sale, or, if the sale is a private sale or some
other disposition other than a public sale is to be made of the
Collateral, the time on or after which the private sale or other
disposition is to be made; and
(ii) The notice shall be personally delivered or mailed,
postage prepaid, to Borrower as provided in Section 12, at least 10
days before the earliest time of disposition set forth in the notice;
no notice needs to be given prior to the disposition of any portion of
the Collateral that is perishable or threatens to decline speedily in
value or that is of a type customarily sold on a recognized market;
(l) Agent, on behalf of the Lender Group, may credit bid and
purchase at any public sale; and
(m) Agent may seek the appointment of a receiver or keeper to
take possession of all or any portion of the Collateral or to operate same and,
to the maximum extent permitted by law, may seek the appointment of such a
receiver without the requirement of prior notice or a hearing;
(n) The Lender Group shall have all other rights and remedies
available at law or in equity or pursuant to any other Loan Document; and
(o) Any deficiency that exists after disposition of the
Collateral as provided above will be paid immediately by Borrower. Any excess
will be returned, without interest and subject to the rights of third Persons,
by Agent to Borrower.
9.2 REMEDIES CUMULATIVE. The rights and remedies of the Lender Group
under this Agreement, the other Loan Documents, and all other agreements shall
be cumulative. The Lender Group shall have all other rights and remedies not
inconsistent herewith as provided under the Code, by law, or in equity. No
exercise by the Lender Group of one right
72
or remedy shall be deemed an election, and no waiver by the Lender Group of any
Event of Default shall be deemed a continuing waiver. No delay by the Lender
Group shall constitute a waiver, election, or acquiescence by it.
10. TAXES AND EXPENSES.
If Borrower fails to pay any monies in material amounts
(whether taxes, assessments, insurance premiums, or, in the case of leased
properties or assets, rents or other amounts payable under such leases) due to
third Persons, or fails to make any deposits or furnish any required proof of
payment or deposit, all as required under the terms of this Agreement, then,
Agent, in its sole discretion and without prior notice to Borrower, may do any
or all of the following: (a) make payment (upon 5 Business Days notice if no
Event of Default shall have occurred and is continuing) of the same or any part
thereof, (b) set up such reserves in Borrower's Loan Account as Agent deems
necessary to protect the Lender Group from the exposure created by such failure,
or (c) in the case of the failure to comply with Section 6.8 hereof, obtain and
maintain insurance policies of the type described in Section 6.8 and take any
action with respect to such policies as Agent deems prudent. Any such amounts
paid by Agent shall constitute Lender Group Expenses and any such payments shall
not constitute an agreement by the Lender Group to make similar payments in the
future or a waiver by the Lender Group of any Event of Default under this
Agreement. Except for inquiry of Borrower if no Event of Default shall have
occurred and be continuing, Agent need not inquire as to, or contest the
validity of, any such expense, tax, or Lien and the receipt of the usual
official notice for the payment thereof shall be conclusive evidence that the
same was validly due and owing.
11. WAIVERS; INDEMNIFICATION.
11.1 DEMAND; PROTEST; ETC. Borrower waives demand, protest, notice of
protest, notice of default or dishonor, notice of payment and nonpayment,
nonpayment at maturity, release, compromise, settlement, extension, or renewal
of documents, instruments, chattel paper, and guarantees at any time held by the
Lender Group on which Borrower may in any way be liable.
11.2 THE LENDER GROUP'S LIABILITY FOR COLLATERAL. Borrower hereby
agrees that: (a) so long as Agent complies with its obligations, if any, under
the Code, the Lender Group shall not in any way or manner be liable or
responsible for: (i) the safekeeping of the Collateral, (ii) any loss or damage
thereto occurring or arising in any manner or fashion from any cause, (iii) any
diminution in the value thereof, or (iv) any act or default of any carrier,
warehouseman, bailee, forwarding agency, or other Person, and (b) all risk of
loss, damage, or destruction of the Collateral shall be borne by Borrower.
11.3 INDEMNIFICATION. Borrower shall pay, indemnify, defend, and hold
the Agent-Related Persons, the Lender-Related Persons with respect to each
Lender, each Participant, and each of their respective officers, directors,
employees, agents, and attorneys-in-fact (each, an "Indemnified Person")
harmless (to the fullest extent permitted by law) from and
73
against any and all claims, demands, suits, actions, investigations,
proceedings, and damages, and all reasonable attorneys fees and disbursements
and other costs and expenses actually and reasonably incurred in connection
therewith (as and when they are incurred and irrespective of whether suit is
brought), at any time asserted against, imposed upon, or incurred by any of them
(a) in connection with or as a result of or related to the execution, delivery,
enforcement, performance, or administration of this Agreement, any of the other
Loan Documents, or the transactions contemplated hereby or thereby, and (b) with
respect to any investigation, litigation, or proceeding related to this
Agreement, any other Loan Document, or the use of the proceeds of the credit
provided hereunder (irrespective of whether any Indemnified Person is a party
thereto), or any act, omission, event, or circumstance in any manner related
thereto (all the foregoing, collectively, the "Indemnified Liabilities"). The
foregoing to the contrary notwithstanding, Borrower shall have no obligation to
any Indemnified Person under this Section 11.3 with respect to any Indemnified
Liability that a court of competent jurisdiction finally determines to have
resulted from the gross negligence or willful misconduct of such Indemnified
Person. This provision shall survive the termination of this Agreement and the
repayment of the Obligations. If any Indemnified Person makes any payment to any
other Indemnified Person with respect to an Indemnified Liability as to which
Borrower was required to indemnify the Indemnified Person receiving such
payment, the Indemnified Person making such payment is entitled to be
indemnified and reimbursed by Borrower with respect thereto. WITHOUT LIMITATION,
THE FOREGOING INDEMNITY SHALL APPLY TO EACH INDEMNIFIED PERSON WITH RESPECT TO
INDEMNIFIED LIABILITIES WHICH IN WHOLE OR IN PART CAUSED BY OR ARISE OUT OF ANY
NEGLIGENT ACT OR OMISSION OF SUCH INDEMNIFIED PERSON OR OF ANY OTHER PERSON.
12. NOTICES.
Unless otherwise provided in this Agreement, all notices or
demands by Borrower or Agent to the other relating to this Agreement or any
other Loan Document shall be in writing and (except for financial statements and
other informational documents which may be sent by first-class mail, postage
prepaid) shall be personally delivered or sent by registered or certified mail
(postage prepaid, return receipt requested), overnight courier, electronic mail
(at such email addresses as Borrower or Agent, as applicable, may designate to
each other in accordance herewith), or telefacsimile to Borrower or Agent, as
the case may be, at its address set forth below:
If to Borrower: LEAPFROG ENTERPRISES, INC.
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Fax No. ▇▇▇.▇▇▇.▇▇▇▇
74
with copies to: ▇▇▇▇▇▇ GODWARD LLP
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, Esq.
Fax No. ▇▇▇.▇▇▇.▇▇▇▇
If to Agent: FOOTHILL CAPITAL CORPORATION
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: Business Finance Division Manager
Telephone No. 310.453-7300
with copies to: BUCHALTER, NEMER, FIELDS & YOUNGER
▇▇▇ ▇▇. ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Fax No.: ▇▇▇.▇▇▇.▇▇▇▇
Agent and Borrower may change the address at which they are to
receive notices hereunder, by notice in writing in the foregoing manner given to
the other party. All notices or demands sent in accordance with this Section 12,
other than notices by Agent in connection with enforcement rights against the
Collateral under the provisions of the Code, shall be deemed received on the
earlier of the date of actual receipt or 3 Business Days after the deposit
thereof in the mail. Borrower acknowledges and agrees that notices sent by the
Lender Group in connection with the exercise of enforcement rights against
Collateral under the provisions of the Code shall be deemed sent when deposited
in the mail or personally delivered, or, where permitted by law, transmitted by
telefacsimile or any other method set forth above.
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
(a) THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS (UNLESS EXPRESSLY PROVIDED TO THE CONTRARY IN ANOTHER LOAN DOCUMENT IN
RESPECT OF SUCH OTHER LOAN DOCUMENT), THE CONSTRUCTION, INTERPRETATION, AND
ENFORCEMENT HEREOF AND THEREOF, AND THE RIGHTS OF THE PARTIES HERETO AND THERETO
WITH RESPECT TO ALL MATTERS ARISING HEREUNDER OR THEREUNDER OR RELATED HERETO OR
THERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF CALIFORNIA.
75
(b) THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING
IN CONNECTION WITH THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE TRIED
AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF LOS
ANGELES, STATE OF CALIFORNIA, PROVIDED, HOWEVER, THAT ANY SUIT SEEKING
ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT AGENT'S
OPTION, IN THE COURTS OF ANY JURISDICTION WHERE AGENT ELECTS TO BRING SUCH
ACTION OR WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. BORROWER AND THE
LENDER GROUP WAIVE, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH
MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO
THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 13(B).
(c) BORROWER AND THE LENDER GROUP HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED
THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL
OTHER COMMON LAW OR STATUTORY CLAIMS. BORROWER AND THE LENDER GROUP REPRESENT
THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS
JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF
LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A
TRIAL BY THE COURT.
14. ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS.
14.1 ASSIGNMENTS AND PARTICIPATIONS.
(a) Any Lender may, with the written consent of Agent
(provided that no written consent of Agent shall be required in connection with
any assignment and delegation by a Lender to an Eligible Transferee), assign and
delegate to one or more assignees (each an "Assignee") all, or any ratable part
of all, of the Obligations, the Commitments and the other rights and obligations
of such Lender hereunder and under the other Loan Documents, in a minimum amount
of $5,000,000; provided, however, that Borrower and Agent may continue to deal
solely and directly with such Lender in connection with the interest so assigned
to an Assignee until (i) written notice of such assignment, together with
payment instructions, addresses, and related information with respect to the
Assignee, have been given to Borrower and Agent by such Lender and the Assignee,
(ii) such Lender and its Assignee have delivered to Borrower and Agent an
Assignment and Acceptance in form and substance satisfactory to Agent, and (iii)
the assignor Lender or
76
Assignee has paid to Agent for Agent's separate account a processing fee in the
amount of $5,000. Anything contained herein to the contrary notwithstanding, the
consent of Agent shall not be required (and payment of any fees shall not be
required) if such assignment is in connection with any merger, consolidation,
sale, transfer, or other disposition of all or any substantial portion of the
business or loan portfolio of such Lender.
(b) From and after the date that Agent notifies the assignor
Lender (with a copy to Borrower) that it has received an executed Assignment and
Acceptance and payment of the above-referenced processing fee, (i) the Assignee
thereunder shall be a party hereto and, to the extent that rights and
obligations hereunder have been assigned to it pursuant to such Assignment and
Acceptance, shall have the rights and obligations of a Lender under the Loan
Documents, and (ii) the assignor Lender shall, to the extent that rights and
obligations hereunder and under the other Loan Documents have been assigned by
it pursuant to such Assignment and Acceptance, relinquish its rights (except
with respect to Section 11.3 hereof) and be released from its obligations under
this Agreement (and in the case of an Assignment and Acceptance covering all or
the remaining portion of an assigning Lender's rights and obligations under this
Agreement and the other Loan Documents, such Lender shall cease to be a party
hereto and thereto), and such assignment shall affect a novation between
Borrower and the Assignee.
(c) By executing and delivering an Assignment and Acceptance,
the assigning Lender thereunder and the Assignee thereunder confirm to and agree
with each other and the other parties hereto as follows: (1) other than as
provided in such Assignment and Acceptance, such assigning Lender makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with this
Agreement or the execution, legality, validity, enforceability, genuineness,
sufficiency or value of this Agreement or any other Loan Document furnished
pursuant hereto, (2) such assigning Lender makes no representation or warranty
and assumes no responsibility with respect to the financial condition of
Borrower or the performance or observance by Borrower of any of its obligations
under this Agreement or any other Loan Document furnished pursuant hereto, (3)
such Assignee confirms that it has received a copy of this Agreement, together
with such other documents and information as it has deemed appropriate to make
its own credit analysis and decision to enter into such Assignment and
Acceptance, (4) such Assignee will, independently and without reliance upon
Agent, such assigning Lender or any other Lender, and based on such documents
and information as it shall deem appropriate at the time, continue to make its
own credit decisions in taking or not taking action under this Agreement, (5)
such Assignee appoints and authorizes Agent to take such actions and to exercise
such powers under this Agreement as are delegated to Agent, by the terms hereof,
together with such powers as are reasonably incidental thereto, and (6) such
Assignee agrees that it will perform all of the obligations which by the terms
of this Agreement are required to be performed by it as a Lender.
(d) Immediately upon each Assignee's making its processing fee
payment under the Assignment and Acceptance and receipt and acknowledgment by
Agent
77
of such fully executed Assignment and Acceptance, this Agreement shall be
deemed to be amended to the extent, but only to the extent, necessary to reflect
the addition of the Assignee and the resulting adjustment of the Commitments
arising therefrom. The Commitment allocated to each Assignee shall reduce such
Commitments of the assigning Lender pro tanto.
(e) Any Lender may at any time, with the written consent of
Agent, sell to one or more commercial banks, financial institutions, or other
Persons not Affiliates of such Lender (a "Participant") participating interests
in its Obligations, the Commitment, and the other rights and interests of that
Lender (the "Originating Lender") hereunder and under the other Loan Documents
(provided that no written consent of Agent shall be required in connection with
any sale of any such participating interests by a Lender to an Eligible
Transferee); provided, however, that (i) the Originating Lender shall remain a
"Lender" for all purposes of this Agreement and the other Loan Documents and the
Participant receiving the participating interest in the Obligations, the
Commitments, and the other rights and interests of the Originating Lender
hereunder shall not constitute a "Lender" hereunder or under the other Loan
Documents and the Originating Lender's obligations under this Agreement shall
remain unchanged, (ii) the Originating Lender shall remain solely responsible
for the performance of such obligations, (iii) Borrower, Agent, and the Lenders
shall continue to deal solely and directly with the Originating Lender in
connection with the Originating Lender's rights and obligations under this
Agreement and the other Loan Documents, (iv) no Lender shall transfer or grant
any participating interest under which the Participant has the right to approve
any amendment to, or any consent or waiver with respect to, this Agreement or
any other Loan Document, except to the extent such amendment to, or consent or
waiver with respect to this Agreement or of any other Loan Document would (A)
extend the final maturity date of the Obligations hereunder in which such
Participant is participating, (B) reduce the interest rate applicable to the
Obligations hereunder in which such Participant is participating, (C) release
all or a material portion of the Collateral or guaranties (except to the extent
expressly provided herein or in any of the Loan Documents) supporting the
Obligations hereunder in which such Participant is participating, (D) postpone
the payment of, or reduce the amount of, the interest or fees payable to such
Participant through such Lender, or (E) change the amount or due dates of
scheduled principal repayments or prepayments or premiums, and (v) all amounts
payable by Borrower hereunder shall be determined as if such Lender had not sold
such participation, except that, if amounts outstanding under this Agreement are
due and unpaid, or shall have been declared or shall have become due and payable
upon the occurrence of an Event of Default, each Participant shall be deemed to
have the right of set-off in respect of its participating interest in amounts
owing under this Agreement to the same extent as if the amount of its
participating interest were owing directly to it as a Lender under this
Agreement. The rights of any Participant only shall be derivative through the
Originating Lender with whom such Participant participates and no Participant
shall have any rights under this Agreement or the other Loan Documents or any
direct rights as to the other Lenders, Agent, Borrower, the Collections, the
Collateral, or otherwise in respect of the Obligations. No Participant shall
78
have the right to participate directly in the making of decisions by the Lenders
among themselves.
(f) In connection with any such assignment or participation or
proposed assignment or participation, a Lender may disclose all documents and
information which it now or hereafter may have relating to Borrower or
Borrower's business.
(g) Any other provision in this Agreement notwithstanding, any
Lender may at any time create a security interest in, or pledge, all or any
portion of its rights under and interest in this Agreement in favor of any
Federal Reserve Bank in accordance with Regulation A of the Federal Reserve Bank
or U.S. Treasury Regulation 31 CFR Section203.14, and such Federal Reserve Bank
may enforce such pledge or security interest in any manner permitted under
applicable law.
14.2 SUCCESSORS. This Agreement shall bind and inure to the benefit of
the respective successors and assigns of each of the parties; provided, however,
that Borrower may not assign this Agreement or any rights or duties hereunder
without the Lenders' prior written consent and any prohibited assignment shall
be absolutely void ab initio. No consent to assignment by the Lenders shall
release Borrower from its Obligations. A Lender may assign this Agreement and
the other Loan Documents and its rights and duties hereunder and thereunder
pursuant to Section 14.1 hereof and, except as expressly required pursuant to
Section 14.1 hereof, no consent or approval by Borrower is required in
connection with any such assignment.
15. AMENDMENTS; WAIVERS.
15.1 AMENDMENTS AND WAIVERS. No amendment or waiver of any provision of
this Agreement or any other Loan Document, and no consent with respect to any
departure by Borrower therefrom, shall be effective unless the same shall be in
writing and signed by the Required Lenders (or by Agent at the written request
of the Required Lenders) and Borrower and then any such waiver or consent shall
be effective only in the specific instance and for the specific purpose for
which given; provided, however, that no such waiver, amendment, or consent
shall, unless in writing and signed by all of the Lenders affected thereby and
Borrower, do any of the following:
(a) increase or extend any Commitment of any Lender,
(b) postpone or delay any date fixed by this Agreement or any
other Loan Document for any payment of principal, interest, fees, or other
amounts due hereunder or under any other Loan Document,
(c) reduce the principal of, or the rate of interest on, any
loan or other extension of credit hereunder, or reduce any fees or other amounts
payable hereunder or under any other Loan Document,
79
(d) change the percentage of the Commitments that is required
to take any action hereunder,
(e) amend this Section or any provision of the Agreement
providing for consent or other action by all Lenders,
(f) release Collateral other than as permitted by Section
16.12,
(g) change the definition of "Required Lenders",
(h) contractually subordinate any of the Agent's Liens,
(i) release Borrower from any obligation for the payment of
money, or
(j) change the definition of Borrowing Base or the definitions
of Eligible Accounts, Eligible Inventory, Maximum Revolver Amount, or change
Section 2.1(b), or
(k) amend any of the provisions of Section 16.
and, provided further, however, that no amendment, waiver or consent shall,
unless in writing and signed by Agent, Issuing Lender, or Swing Lender, as
applicable, affect the rights or duties of Agent, Issuing Lender, or Swing
Lender, as applicable, under this Agreement or any other Loan Document. The
foregoing notwithstanding, any amendment, modification, waiver, consent,
termination, or release of, or with respect to, any provision of this Agreement
or any other Loan Document that relates only to the relationship of the Lender
Group among themselves, and that does not affect the rights or obligations of
Borrower, shall not require consent by or the agreement of Borrower.
15.2 REPLACEMENT OF HOLDOUT LENDER.
(a) If any action to be taken by the Lender Group or Agent
hereunder requires the unanimous consent, authorization, or agreement of all
Lenders, and a Lender ("Holdout Lender") fails to give its consent,
authorization, or agreement, then Agent, upon at least 5 Business Days prior
irrevocable notice to the Holdout Lender, may permanently replace the Holdout
Lender with one or more substitute Lenders (each, a "Replacement Lender"), and
the Holdout Lender shall have no right to refuse to be replaced hereunder. Such
notice to replace the Holdout Lender shall specify an effective date for such
replacement, which date shall not be later than 15 Business Days after the date
such notice is given.
(b) Prior to the effective date of such replacement, the
Holdout Lender and each Replacement Lender shall execute and deliver an
Assignment and Acceptance Agreement, subject only to the Holdout Lender being
repaid its share of the
80
outstanding Obligations (including an assumption of its Pro Rata Share of the
Risk Participation Liability) without any premium or penalty of any kind
whatsoever. If the Holdout Lender shall refuse or fail to execute and deliver
any such Assignment and Acceptance Agreement prior to the effective date of such
replacement, the Holdout Lender shall be deemed to have executed and delivered
such Assignment and Acceptance Agreement. The replacement of any Holdout Lender
shall be made in accordance with the terms of Section 14.1. Until such time as
the Replacement Lenders shall have acquired all of the Obligations, the
Commitments, and the other rights and obligations of the Holdout Lender
hereunder and under the other Loan Documents, the Holdout Lender shall remain
obligated to make the Holdout Lender's Pro Rata Share of Advances and to
purchased a participation in each Letter of Credit, in an amount equal to its
Pro Rata Share of the Risk Participation Liability of such Letter of Credit.
15.3 NO WAIVERS; CUMULATIVE REMEDIES. No failure by Agent or any Lender
to exercise any right, remedy, or option under this Agreement or any other Loan
Document, or delay by Agent or any Lender in exercising the same, will operate
as a waiver thereof. No waiver by Agent or any Lender will be effective unless
it is in writing, and then only to the extent specifically stated. No waiver by
Agent or any Lender on any occasion shall affect or diminish Agent's and each
Lender's rights thereafter to require strict performance by Borrower of any
provision of this Agreement. Agent's and each Lender's rights under this
Agreement and the other Loan Documents will be cumulative and not exclusive of
any other right or remedy the Agent or any Lender may have.
16. AGENT; THE LENDER GROUP.
16.1 APPOINTMENT AND AUTHORIZATION OF AGENT. Each Lender hereby
designates and appoints Foothill as its representative under this Agreement and
the other Loan Documents and each Lender hereby irrevocably authorizes Agent to
take such action on its behalf under the provisions of this Agreement and each
other Loan Document and to exercise such powers and perform such duties as are
expressly delegated to Agent by the terms of this Agreement or any other Loan
Document, together with such powers as are reasonably incidental thereto. Agent
agrees to act as such on the express conditions contained in this Section 16.
The provisions of this Section 16 are solely for the benefit of Agent, and the
Lenders, and Borrower shall have no rights as a third party beneficiary of any
of the provisions contained herein. Any provision to the contrary contained
elsewhere in this Agreement or in any other Loan Document notwithstanding, Agent
shall not have any duties or responsibilities, except those expressly set forth
herein, nor shall Agent have or be deemed to have any fiduciary relationship
with any Lender, and no implied covenants, functions, responsibilities, duties,
obligations or liabilities shall be read into this Agreement or any other Loan
Document or otherwise exist against Agent; it being expressly understood and
agreed that the use of the word "Agent" is for convenience only, that Foothill
is merely the representative of the Lenders, and only has the contractual duties
set forth herein. Except as expressly otherwise provided in this Agreement,
Agent shall have and may use its sole discretion with respect to exercising or
refraining from exercising any discretionary rights or
81
taking or refraining from taking any actions that Agent expressly is entitled to
take or assert under or pursuant to this Agreement and the other Loan Documents.
Without limiting the generality of the foregoing, or of any other provision of
the Loan Documents that provides rights or powers to Agent, Lenders agree that
Agent shall have the right to exercise the following powers as long as this
Agreement remains in effect: (a) maintain, in accordance with its customary
business practices, ledgers and records reflecting the status of the
Obligations, the Collateral, the Collections, and related matters, (b) execute
or file any and all financing or similar statements or notices, amendments,
renewals, supplements, documents, instruments, proofs of claim, notices and
other written agreements with respect to the Loan Documents, (c) make Advances,
for itself or on behalf of Lenders as provided in the Loan Documents, (d)
exclusively receive, apply, and distribute the Collections as provided in the
Loan Documents, (e) open and maintain such bank accounts and cash management
arrangements as Agent deems necessary and appropriate in accordance with the
Loan Documents for the foregoing purposes with respect to the Collateral and the
Collections, (f) perform, exercise, and enforce any and all other rights and
remedies of the Lender Group with respect to Borrower, the Obligations, the
Collateral, the Collections, or otherwise related to any of same as provided in
the Loan Documents, and (g) incur and pay such Lender Group Expenses as Agent
may deem necessary or appropriate for the performance and fulfillment of its
functions and powers pursuant to the Loan Documents.
16.2 DELEGATION OF DUTIES. Agent may execute any of its duties under
this Agreement or any other Loan Document by or through agents, employees or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. Agent shall not be responsible for the
negligence or misconduct of any agent or attorney-in-fact that it selects as
long as such selection was made without gross negligence or willful misconduct.
16.3 LIABILITY OF AGENT. None of the Agent-Related Persons shall (i) be
liable for any action taken or omitted to be taken by any of them under or in
connection with this Agreement or any other Loan Document or the transactions
contemplated hereby (except for its own gross negligence or willful misconduct),
or (ii) be responsible in any manner to any of the Lenders for any recital,
statement, representation or warranty made by Borrower or any Subsidiary or
Affiliate of Borrower, or any officer or director thereof, contained in this
Agreement or in any other Loan Document, or in any certificate, report,
statement or other document referred to or provided for in, or received by Agent
under or in connection with, this Agreement or any other Loan Document, or the
validity, effectiveness, genuineness, enforceability or sufficiency of this
Agreement or any other Loan Document, or for any failure of Borrower or any
other party to any Loan Document to perform its obligations hereunder or
thereunder. No Agent-Related Person shall be under any obligation to any Lender
to ascertain or to inquire as to the observance or performance of any of the
agreements contained in, or conditions of, this Agreement or any other Loan
Document, or to inspect the Books or properties of Borrower or the books or
records or properties of any of Borrower's Subsidiaries or Affiliates.
82
16.4 RELIANCE BY AGENT. Agent shall be entitled to rely, and shall be
fully protected in relying, upon any writing, resolution, notice, consent,
certificate, affidavit, letter, telegram, facsimile, telex or telephone message,
statement or other document or conversation believed by it to be genuine and
correct and to have been signed, sent, or made by the proper Person or Persons,
and upon advice and statements of legal counsel (including counsel to Borrower
or counsel to any Lender), independent accountants and other experts selected by
Agent. Agent shall be fully justified in failing or refusing to take any action
under this Agreement or any other Loan Document unless Agent shall first receive
such advice or concurrence of the Lenders as it deems appropriate and until such
instructions are received, Agent shall act, or refrain from acting, as it deems
advisable. If Agent so requests, it shall first be indemnified to its reasonable
satisfaction by Lenders against any and all liability and expense that may be
incurred by it by reason of taking or continuing to take any such action. Agent
shall in all cases be fully protected in acting, or in refraining from acting,
under this Agreement or any other Loan Document in accordance with a request or
consent of the Lenders and such request and any action taken or failure to act
pursuant thereto shall be binding upon all of the Lenders.
16.5 NOTICE OF DEFAULT OR EVENT OF DEFAULT. Agent shall not be deemed
to have knowledge or notice of the occurrence of any Default or Event of
Default, except with respect to defaults in the payment of principal, interest,
fees, and expenses required to be paid to Agent for the account of the Lenders,
except with respect to Events of Default of which Agent has actual knowledge,
unless Agent shall have received written notice from a Lender or Borrower
referring to this Agreement, describing such Default or Event of Default, and
stating that such notice is a "notice of default." Agent promptly will notify
the Lenders of its receipt of any such notice or of any Event of Default of
which Agent has actual knowledge. If any Lender obtains actual knowledge of any
Event of Default, such Lender promptly shall notify the other Lenders and Agent
of such Event of Default. Each Lender shall be solely responsible for giving any
notices to its Participants, if any. Subject to Section 16.4, Agent shall take
such action with respect to such Default or Event of Default as may be requested
by the Required Lenders in accordance with Section 9; provided, however, that
unless and until Agent has received any such request, Agent may (but shall not
be obligated to) take such action, or refrain from taking such action, with
respect to such Default or Event of Default as it shall deem advisable.
16.6 CREDIT DECISION. Each Lender acknowledges that none of the
Agent-Related Persons has made any representation or warranty to it, and that no
act by Agent hereinafter taken, including any review of the affairs of Borrower
and its Subsidiaries or Affiliates, shall be deemed to constitute any
representation or warranty by any Agent-Related Person to any Lender. Each
Lender represents to Agent that it has, independently and without reliance upon
any Agent-Related Person and based on such documents and information as it has
deemed appropriate, made its own appraisal of and investigation into the
business, prospects, operations, property, financial and other condition and
creditworthiness of Borrower and any other Person (other than the Lender Group)
party to a Loan Document, and all applicable bank regulatory laws relating to
the transactions contemplated hereby, and made its own
83
decision to enter into this Agreement and to extend credit to Borrower. Each
Lender also represents that it will, independently and without reliance upon any
Agent-Related Person and based on such documents and information as it shall
deem appropriate at the time, continue to make its own credit analysis,
appraisals and decisions in taking or not taking action under this Agreement and
the other Loan Documents, and to make such investigations as it deems necessary
to inform itself as to the business, prospects, operations, property, financial
and other condition and creditworthiness of Borrower and any other Person (other
than the Lender Group) party to a Loan Document. Except for notices, reports,
and other documents expressly herein required to be furnished to the Lenders by
Agent, Agent shall not have any duty or responsibility to provide any Lender
with any credit or other information concerning the business, prospects,
operations, property, financial and other condition or creditworthiness of
Borrower and any other Person party to a Loan Document that may come into the
possession of any of the Agent-Related Persons.
16.7 COSTS AND EXPENSES; INDEMNIFICATION. Agent may incur and pay
Lender Group Expenses to the extent Agent reasonably deems necessary or
appropriate for the performance and fulfillment of its functions, powers, and
obligations pursuant to the Loan Documents, including court costs, reasonable
attorneys fees and expenses, costs of collection by outside collection agencies
and auctioneer fees and costs of security guards or insurance premiums paid to
maintain the Collateral, whether or not Borrower is obligated to reimburse Agent
or Lenders for such expenses pursuant to the Loan Agreement or otherwise. Agent
is authorized and directed to deduct and retain sufficient amounts from
Collections received by Agent to reimburse Agent for such out-of-pocket costs
and expenses prior to the distribution of any amounts to Lenders. In the event
Agent is not reimbursed for such costs and expenses from Collections received by
Agent, each Lender hereby agrees that it is and shall be obligated to pay to or
reimburse Agent for the amount of such Lender's Pro Rata Share thereof. Whether
or not the transactions contemplated hereby are consummated, the Lenders shall
indemnify upon demand the Agent-Related Persons (to the extent not reimbursed by
or on behalf of Borrower and without limiting the obligation of Borrower to do
so), according to their Pro Rata Shares, from and against any and all
Indemnified Liabilities; provided, however, that no Lender shall be liable for
the payment to any Agent-Related Person of any portion of such Indemnified
Liabilities resulting solely from such Person's gross negligence or willful
misconduct nor shall any Lender be liable for the obligations of any Defaulting
Lender in failing to make an Advance or other extension of credit hereunder.
Without limitation of the foregoing, each Lender shall reimburse Agent upon
demand for such Lender's ratable share of any costs or out-of-pocket expenses
(including attorneys fees and expenses) incurred by Agent in connection with the
preparation, execution, delivery, administration, modification, amendment, or
enforcement (whether through negotiations, legal proceedings or otherwise) of,
or legal advice in respect of rights or responsibilities under, this Agreement,
any other Loan Document, or any document contemplated by or referred to herein,
to the extent that Agent is not reimbursed for such expenses by or on behalf of
Borrower. The undertaking in this Section shall survive the payment of all
Obligations hereunder and the resignation or replacement of Agent.
84
16.8 AGENT IN INDIVIDUAL CAPACITY. Foothill and its Affiliates may make
loans to, issue letters of credit for the account of, accept deposits from,
acquire equity interests in, and generally engage in any kind of banking, trust,
financial advisory, underwriting, or other business with Borrower and its
Subsidiaries and Affiliates and any other Person (other than the Lender Group)
party to any Loan Documents as though Foothill were not Agent hereunder, and, in
each case, without notice to or consent of the other members of the Lender
Group. The other members of the Lender Group acknowledge that, pursuant to such
activities, Foothill or its Affiliates may receive information regarding
Borrower or its Affiliates and any other Person (other than the Lender Group)
party to any Loan Documents that is subject to confidentiality obligations in
favor of Borrower or such other Person and that prohibit the disclosure of such
information to the Lenders, and the Lenders acknowledge that, in such
circumstances (and in the absence of a waiver of such confidentiality
obligations, which waiver Agent will use its reasonable best efforts to obtain),
Agent shall not be under any obligation to provide such information to them. The
terms "Lender" and "Lenders" include Foothill in its individual capacity.
16.9 SUCCESSOR AGENT. Agent may resign as Agent upon 45 days notice to
the Lenders. If Agent resigns under this Agreement, the Required Lenders shall
appoint a successor Agent for the Lenders. If no successor Agent is appointed
prior to the effective date of the resignation of Agent, Agent may appoint,
after consulting with the Lenders, a successor Agent. If Agent has materially
breached or failed to perform any material provision of this Agreement or of
applicable law, the Required Lenders may agree in writing to remove and replace
Agent with a successor Agent from among the Lenders. In any such event, upon the
acceptance of its appointment as successor Agent hereunder, such successor Agent
shall succeed to all the rights, powers, and duties of the retiring Agent and
the term "Agent" shall mean such successor Agent and the retiring Agent's
appointment, powers, and duties as Agent shall be terminated. After any retiring
Agent's resignation hereunder as Agent, the provisions of this Section 16 shall
inure to its benefit as to any actions taken or omitted to be taken by it while
it was Agent under this Agreement. If no successor Agent has accepted
appointment as Agent by the date which is 45 days following a retiring Agent's
notice of resignation, the retiring Agent's resignation shall nevertheless
thereupon become effective and the Lenders shall perform all of the duties of
Agent hereunder until such time, if any, as the Lenders appoint a successor
Agent as provided for above.
16.10 LENDER IN INDIVIDUAL CAPACITY. Any Lender and its respective
Affiliates may make loans to, issue letters of credit for the account of, accept
deposits from, acquire equity interests in and generally engage in any kind of
banking, trust, financial advisory, underwriting or other business with Borrower
and its Subsidiaries and Affiliates and any other Person (other than the Lender
Group) party to any Loan Documents as though such Lender were not a Lender
hereunder without notice to or consent of the other members of the Lender Group.
The other members of the Lender Group acknowledge that, pursuant to such
activities, such Lender and its respective Affiliates may receive information
regarding Borrower or its Affiliates and any other Person (other than the Lender
Group) party to any Loan Documents that is subject to confidentiality
obligations in favor of Borrower or such
85
other Person and that prohibit the disclosure of such information to the
Lenders, and the Lenders acknowledge that, in such circumstances (and in the
absence of a waiver of such confidentiality obligations, which waiver such
Lender will use its reasonable best efforts to obtain), such Lender not shall be
under any obligation to provide such information to them. With respect to the
Swing Loans and Agent Advances, Swing Lender shall have the same rights and
powers under this Agreement as any other Lender and may exercise the same as
though it were not the sub-agent of Agent.
16.11 WITHHOLDING TAXES.
(a) If any Lender is a "foreign corporation, partnership or
trust" within the meaning of the IRC and such Lender claims exemption from, or a
reduction of, U.S. withholding tax under Sections 1441 or 1442 of the IRC, such
Lender agrees with and in favor of Agent and Borrower, to deliver to Agent and
Borrower:
(i) if such Lender claims an exemption from withholding tax
pursuant to its portfolio interest exception, (a) a statement of the
Lender, signed under penalty of perjury, that it is not a (I) a "bank"
as described in Section 881(c)(3)(A) of the IRC, (II) a 10% shareholder
(within the meaning of Section 881(c)(3)(B) of the IRC), or (III) a
controlled foreign corporation described in Section 881(c)(3)(C) of the
IRC, and (B) a properly completed IRS Form W-8BEN, before the first
payment of any interest under this Agreement and at any other time
reasonably requested by Agent or Borrower;
(ii) if such Lender claims an exemption from, or a reduction
of, withholding tax under a United States tax treaty, properly
completed IRS Form W-8BEN before the first payment of any interest
under this Agreement and at any other time reasonably requested by
Agent or Borrower;
(iii) if such Lender claims that interest paid under this
Agreement is exempt from United States withholding tax because it is
effectively connected with a United States trade or business of such
Lender, two properly completed and executed copies of IRS Form W-8ECI
before the first payment of any interest is due under this Agreement
and at any other time reasonably requested by Agent or Borrower;
(iv) such other form or forms as may be required under the IRC
or other laws of the United States as a condition to exemption from, or
reduction of, United States withholding tax.
Such Lender agrees promptly to notify Agent and Borrower of any change in
circumstances which would modify or render invalid any claimed exemption or
reduction.
(b) If any Lender claims exemption from, or reduction of,
withholding tax under a United States tax treaty by providing IRS Form W-8BEN
and such
86
Lender sells, assigns, grants a participation in, or otherwise transfers all or
part of the Obligations of Borrower to such Lender, such Lender agrees to notify
Agent of the percentage amount in which it is no longer the beneficial owner of
Obligations of Borrower to such Lender. To the extent of such percentage amount,
Agent will treat such Lender's IRS Form W-8BEN as no longer valid.
(c) If any Lender is entitled to a reduction in the applicable
withholding tax, Agent may withhold from any interest payment to such Lender an
amount equivalent to the applicable withholding tax after taking into account
such reduction. If the forms or other documentation required by subsection (a)
of this Section are not delivered to Agent, then Agent may withhold from any
interest payment to such Lender not providing such forms or other documentation
an amount equivalent to the applicable withholding tax.
(d) If the IRS or any other Governmental Authority of the
United States or other jurisdiction asserts a claim that Agent did not properly
withhold tax from amounts paid to or for the account of any Lender (because the
appropriate form was not delivered, was not properly executed, or because such
Lender failed to notify Agent of a change in circumstances which rendered the
exemption from, or reduction of, withholding tax ineffective, or for any other
reason) such Lender shall indemnify and hold Agent harmless for all amounts
paid, directly or indirectly, by Agent as tax or otherwise, including penalties
and interest, and including any taxes imposed by any jurisdiction on the amounts
payable to Agent under this Section, together with all costs and expenses
(including attorneys fees and expenses). The obligation of the Lenders under
this subsection shall survive the payment of all Obligations and the resignation
or replacement of Agent.
(e) All payments made by Borrower hereunder or under any note
will be made without setoff, counterclaim, or other defense, except as required
by applicable law other than for Taxes (as defined below). All such payments
will be made free and clear of, and without deduction or withholding for, any
present or future taxes, levies, imposts, duties, fees, assessments or other
charges of whatever nature now or hereafter imposed by any jurisdiction (other
than the United States) or by any political subdivision or taxing authority
thereof or therein (other than of the United States) with respect to such
payments (but excluding, any tax imposed by any jurisdiction or by any political
subdivision or taxing authority thereof or therein (i) measured by or based on
the net income or net profits of a Lender, or (ii) to the extent that such tax
results from a change in the circumstances of the Lender, including a change in
the residence, place of organization, or principal place of business of the
Lender, or a change in the branch or lending office of the Lender participating
in the transactions set forth herein) and all interest, penalties or similar
liabilities with respect thereto (all such non-excluded taxes, levies, imposts,
duties, fees, assessments or other charges being referred to collectively as
"Taxes"). If any Taxes are so levied or imposed, Borrower agrees to pay the full
amount of such Taxes, and such additional amounts as may be necessary so that
every payment of all amounts due under this Agreement or under any note,
including any amount paid pursuant to this Section 16.11(e) after withholding or
deduction for or on account of any Taxes, will not be less than the
87
amount provided for herein; provided, however, that Borrower shall not be
required to increase any such amounts payable to Agent or any Lender (i) that is
not organized under the laws of the United States, if such Person fails to
comply with the other requirements of this Section 16.11, or (ii) if the
increase in such amount payable results from Agent's or such Lender's own
willful misconduct or gross negligence. Borrower will furnish to Agent as
promptly as possible after the date the payment of any Taxes is due pursuant to
applicable law certified copies of tax receipts evidencing such payment by
Borrower.
16.12 COLLATERAL MATTERS.
(a) The Lenders hereby irrevocably authorize Agent, at its
option and in its sole discretion, to release any Lien on any Collateral (i)
upon the termination of the Commitments and payment and satisfaction in full by
Borrower of all Obligations, (ii) constituting property being sold or disposed
of if a release is required or desirable in connection therewith and if Borrower
certifies to Agent that the sale or disposition is permitted under Section 7.4
of this Agreement or the other Loan Documents (and Agent may rely conclusively
on any such certificate, without further inquiry), (iii) constituting property
in which Borrower owned no interest at the time the security interest was
granted or at any time thereafter, or (iv) constituting property leased to
Borrower under a lease that has expired or is terminated in a transaction
permitted under this Agreement. Except as provided above, Agent will not execute
and deliver a release of any Lien on any Collateral without the prior written
authorization of (y) if the release is of all or substantially all of the
Collateral, all of the Lenders, or (z) otherwise, the Required Lenders. Upon
request by Agent or Borrower at any time, the Lenders will confirm in writing
Agent's authority to release any such Liens on particular types or items of
Collateral pursuant to this Section 16.12; provided, however, that (1) Agent
shall not be required to execute any document necessary to evidence such release
on terms that, in Agent's opinion, would expose Agent to liability or create any
obligation or entail any consequence other than the release of such Lien without
recourse, representation, or warranty, and (2) such release shall not in any
manner discharge, affect, or impair the Obligations or any Liens (other than
those expressly being released) upon (or obligations of Borrower in respect of)
all interests retained by Borrower, including, the proceeds of any sale, all of
which shall continue to constitute part of the Collateral.
(b) Agent shall have no obligation whatsoever to any of the
Lenders to assure that the Collateral exists or is owned by Borrower or is cared
for, protected, or insured or has been encumbered, or that the Agent's Liens
have been properly or sufficiently or lawfully created, perfected, protected, or
enforced or are entitled to any particular priority, or to exercise at all or in
any particular manner or under any duty of care, disclosure or fidelity, or to
continue exercising, any of the rights, authorities and powers granted or
available to Agent pursuant to any of the Loan Documents, it being understood
and agreed that in respect of the Collateral, or any act, omission, or event
related thereto, subject to the terms and conditions contained herein, Agent may
act in any manner it may deem appropriate, in its sole discretion given Agent's
own interest in the Collateral in its capacity
88
as one of the Lenders and that Agent shall have no other duty or liability
whatsoever to any Lender as to any of the foregoing, except as otherwise
provided herein.
16.13 RESTRICTIONS ON ACTIONS BY LENDERS; SHARING OF PAYMENTS.
(a) Each of the Lenders agrees that it shall not, without the
express consent of Agent, and that it shall, to the extent it is lawfully
entitled to do so, upon the request of Agent, set off against the Obligations,
any amounts owing by such Lender to Borrower or any deposit accounts of Borrower
now or hereafter maintained with such Lender. Each of the Lenders further agrees
that it shall not, unless specifically requested to do so by Agent, take or
cause to be taken any action, including, the commencement of any legal or
equitable proceedings, to foreclose any Lien on, or otherwise enforce any
security interest in, any of the Collateral the purpose of which is, or could
be, to give such Lender any preference or priority against the other Lenders
with respect to the Collateral.
(b) If, at any time or times any Lender shall receive (i) by
payment, foreclosure, setoff, or otherwise, any proceeds of Collateral or any
payments with respect to the Obligations arising under, or relating to, this
Agreement or the other Loan Documents, except for any such proceeds or payments
received by such Lender from Agent pursuant to the terms of this Agreement, or
(ii) payments from Agent in excess of such Lender's ratable portion of all such
distributions by Agent, such Lender promptly shall (1) turn the same over to
Agent, in kind, and with such endorsements as may be required to negotiate the
same to Agent, or in immediately available funds, as applicable, for the account
of all of the Lenders and for application to the Obligations in accordance with
the applicable provisions of this Agreement, or (2) purchase, without recourse
or warranty, an undivided interest and participation in the Obligations owed to
the other Lenders so that such excess payment received shall be applied ratably
as among the Lenders in accordance with their Pro Rata Shares; provided,
however, that if all or part of such excess payment received by the purchasing
party is thereafter recovered from it, those purchases of participations shall
be rescinded in whole or in part, as applicable, and the applicable portion of
the purchase price paid therefor shall be returned to such purchasing party, but
without interest except to the extent that such purchasing party is required to
pay interest in connection with the recovery of the excess payment.
16.14 AGENCY FOR PERFECTION. Agent hereby appoints each other Lender as
its agent (and each Lender hereby accepts such appointment) for the purpose of
perfecting the Agent's Liens in assets which, in accordance with Article 9 of
the UCC can be perfected only by possession. Should any Lender obtain possession
of any such Collateral, such Lender shall notify Agent thereof, and, promptly
upon Agent's request therefor shall deliver such Collateral to Agent or in
accordance with Agent's instructions.
16.15 PAYMENTS BY AGENT TO THE LENDERS. All payments to be made by
Agent to the Lenders shall be made by bank wire transfer or internal transfer of
immediately available funds pursuant to such wire transfer instructions as each
party may designate for itself by
89
written notice to Agent. Concurrently with each such payment, Agent shall
identify whether such payment (or any portion thereof) represents principal,
premium, or interest of the Obligations.
16.16 CONCERNING THE COLLATERAL AND RELATED LOAN DOCUMENTS. Each member
of the Lender Group authorizes and directs Agent to enter into this Agreement
and the other Loan Documents relating to the Collateral, for the benefit of the
Lender Group. Each member of the Lender Group agrees that any action taken by
Agent in accordance with the terms of this Agreement or the other Loan Documents
relating to the Collateral and the exercise by Agent of its powers set forth
therein or herein, together with such other powers that are reasonably
incidental thereto, shall be binding upon all of the Lenders.
16.17 FIELD AUDITS AND EXAMINATION REPORTS; CONFIDENTIALITY;
DISCLAIMERS BY LENDERS; OTHER REPORTS AND INFORMATION. By becoming a party to
this Agreement, each Lender:
(a) is deemed to have requested that Agent furnish such
Lender, promptly after it becomes available, a copy of each field audit or
examination report (each a "Report" and collectively, "Reports") prepared by
Agent, and Agent shall so furnish each Lender with such Reports,
(b) expressly agrees and acknowledges that Agent does not (i)
make any representation or warranty as to the accuracy of any Report, and (ii)
shall not be liable for any information contained in any Report,
(c) expressly agrees and acknowledges that the Reports are not
comprehensive audits or examinations, that Agent or other party performing any
audit or examination will inspect only specific information regarding Borrower
and will rely significantly upon the Books, as well as on representations of
Borrower's personnel,
(d) agrees to keep all Reports and other material, non-public
information regarding Borrower and its Subsidiaries and their operations,
assets, and existing and contemplated business plans in a confidential manner;
it being understood and agreed by Borrower that in any event such Lender may
make disclosures (a) to counsel for and other advisors, accountants, and
auditors to such Lender, (b) reasonably required by any bona fide potential or
actual Assignee or Participant in connection with any contemplated or actual
assignment or transfer by such Lender of an interest herein or any participation
interest in such Lender's rights hereunder, (c) of information that has become
public by disclosures made by Persons other than such Lender, its Affiliates,
assignees, transferees, or Participants, or (d) as required or requested by any
court, governmental or administrative agency, pursuant to any subpoena or other
legal process, or by any law, statute, regulation, or court order; provided,
however, that, unless prohibited by applicable law, statute, regulation, or
court order, such Lender shall notify Borrower of any request by any court,
governmental or administrative agency, or pursuant to any subpoena or other
legal process for disclosure of
90
any such non-public material information concurrent with, or where practicable,
prior to the disclosure thereof, and
(e) without limiting the generality of any other
indemnification provision contained in this Agreement, agrees: (i) to hold Agent
and any other Lender preparing a Report harmless from any action the
indemnifying Lender may take or conclusion the indemnifying Lender may reach or
draw from any Report in connection with any loans or other credit accommodations
that the indemnifying Lender has made or may make to Borrower, or the
indemnifying Lender's participation in, or the indemnifying Lender's purchase
of, a loan or loans of Borrower, and (ii) to pay and protect, and indemnify,
defend and hold Agent, and any such other Lender preparing a Report harmless
from and against, the claims, actions, proceedings, damages, costs, expenses,
and other amounts (including, attorneys fees and costs) incurred by Agent and
any such other Lender preparing a Report as the direct or indirect result of any
third parties who might obtain all or part of any Report through the
indemnifying Lender.
In addition to the foregoing: (x) any Lender may from time to time request of
Agent in writing that Agent provide to such Lender a copy of any report or
document provided by Borrower to Agent that has not been contemporaneously
provided by Borrower to such Lender, and, upon receipt of such request, Agent
promptly shall provide a copy of same to such Lender, (y) to the extent that
Agent is entitled, under any provision of the Loan Documents, to request
additional reports or information from Borrower, any Lender may, from time to
time, reasonably request Agent to exercise such right as specified in such
Lender's notice to Agent, whereupon Agent promptly shall request of Borrower the
additional reports or information reasonably specified by such Lender, and, upon
receipt thereof from Borrower, Agent promptly shall provide a copy of same to
such Lender, and (z) any time that Agent renders to Borrower a statement
regarding the Loan Account, Agent shall send a copy of such statement to each
Lender.
16.18 SEVERAL OBLIGATIONS; NO LIABILITY. Notwithstanding that certain
of the Loan Documents now or hereafter may have been or will be executed only by
or in favor of Agent in its capacity as such, and not by or in favor of the
Lenders, any and all obligations on the part of Agent (if any) to make any
credit available hereunder shall constitute the several (and not joint)
obligations of the respective Lenders on a ratable basis, according to their
respective Commitments, to make an amount of such credit not to exceed, in
principal amount, at any one time outstanding, the amount of their respective
Commitments. Nothing contained herein shall confer upon any Lender any interest
in, or subject any Lender to any liability for, or in respect of, the business,
assets, profits, losses, or liabilities of any other Lender. Each Lender shall
be solely responsible for notifying its Participants of any matters relating to
the Loan Documents to the extent any such notice may be required, and no Lender
shall have any obligation, duty, or liability to any Participant of any other
Lender. Except as provided in Section 16.7, no member of the Lender Group shall
have any liability for the acts or any other member of the Lender Group. No
Lender shall be responsible to Borrower or any other Person for any failure by
any other Lender to fulfill its obligations to make credit
91
available hereunder, nor to advance for it or on its behalf in connection with
its Commitment, nor to take any other action on its behalf hereunder or in
connection with the financing contemplated herein.
16.19 LEGAL REPRESENTATION OF AGENT. In connection with the
negotiation, drafting, and execution of this Agreement and the other Loan
Documents, or in connection with future legal representation relating to loan
administration, amendments, modifications, waivers, or enforcement of remedies,
Buchalter, Nemer, Fields & Younger, a Professional Corporation ("BNF&Y") only
has represented and only shall represent Foothill in its capacity as Agent and
as a Lender. Each other Lender hereby acknowledges that BNF&Y does not represent
it in connection with any such matters.
17. GENERAL PROVISIONS.
17.1 EFFECTIVENESS. This Agreement shall be binding and deemed
effective when executed by Borrower, Agent, and each Lender whose signature is
provided for on the signature pages hereof.
17.2 SECTION HEADINGS. Headings and numbers have been set forth herein
for convenience only. Unless the contrary is compelled by the context,
everything contained in each Section applies equally to this entire Agreement.
17.3 INTERPRETATION. Neither this Agreement nor any uncertainty or
ambiguity herein shall be construed against the Lender Group or Borrower,
whether under any rule of construction or otherwise. On the contrary, this
Agreement has been reviewed by all parties and shall be construed and
interpreted according to the ordinary meaning of the words used so as to
accomplish fairly the purposes and intentions of all parties hereto.
17.4 SEVERABILITY OF PROVISIONS. Each provision of this Agreement shall
be severable from every other provision of this Agreement for the purpose of
determining the legal enforceability of any specific provision.
17.5 AMENDMENTS IN WRITING. This Agreement only can be amended by a
writing signed by Agent (on behalf of the requisite Lenders) and Borrower.
17.6 COUNTERPARTS; TELEFACSIMILE EXECUTION. This Agreement may be
executed in any number of counterparts and by different parties on separate
counterparts, each of which, when executed and delivered, shall be deemed to be
an original, and all of which, when taken together, shall constitute but one and
the same Agreement. Delivery of an executed counterpart of this Agreement by
telefacsimile shall be equally as effective as delivery of an original executed
counterpart of this Agreement. Any party delivering an executed counterpart of
this Agreement by telefacsimile also shall deliver an original executed
counterpart of this Agreement but the failure to deliver an original executed
counterpart shall not affect the validity, enforceability, and binding effect of
this Agreement. The foregoing shall apply to each other Loan Document mutatis
mutandis.
92
17.7 REVIVAL AND REINSTATEMENT OF OBLIGATIONS. If the incurrence or
payment of the Obligations by Borrower or the transfer to the Lender Group of
any property should for any reason subsequently be declared to be void or
voidable under any state or federal law relating to creditors' rights, including
provisions of the Bankruptcy Code relating to fraudulent conveyances,
preferences, or other voidable or recoverable payments of money or transfers of
property (collectively, a "Voidable Transfer"), and if the Lender Group is
required to repay or restore, in whole or in part, any such Voidable Transfer,
or elects to do so upon the reasonable advice of its counsel, then, as to any
such Voidable Transfer, or the amount thereof that the Lender Group is required
or elects to repay or restore, and as to all reasonable costs, expenses, and
attorneys fees of the Lender Group related thereto, the liability of Borrower
automatically shall be revived, reinstated, and restored and shall exist as
though such Voidable Transfer had never been made.
17.8 AMENDMENT AND RESTATEMENT. This Agreement amends and restates the
Existing Agreement in its entirety, and the outstanding obligations under the
Existing Agreement shall automatically become Obligations under this Agreement.
17.9 INTEGRATION. This Agreement, together with the other Loan
Documents, reflects the entire understanding of the parties with respect to the
transactions contemplated hereby and shall not be contradicted or qualified by
any other agreement, oral or written, before the date hereof.
17.10 CONFIDENTIALITY. Agent and each Lender agrees to keep all reports
and other material information obtained by it pursuant to the requirements of
this Agreement in accordance with its reasonable customary procedures for
handling confidential information; it being understood and agreed by Borrower
that in any event Agent and each Lender may make disclosures (i) reasonably
required by any bona fide potential or actual Assignee, transferee, or
Participant in connection with any contemplated or actual assignment or transfer
by such Lender of an interest herein or any participation interest in such
Lender's rights hereunder provided that any such prospective Assignee,
transferee or Participant agrees in writing to be bound by the terms thereof,
(ii) of information that has become public by disclosures made by Persons other
than Agent or a Lender, its Affiliates, or actual or prospective assignees,
transferees, or participants, or (iii) as required or requested by any court,
governmental or administrative agency, pursuant to any subpoena or other legal
process, or by any law, statute, regulation, or court order; provided, however,
that, unless prohibited by applicable law, statute, regulation, or court order,
Agent and each Lender shall notify Borrower of any request by any court,
governmental or administrative agency, or pursuant to any subpoena or other
legal process for disclosure of any such non-public material information
concurrent with, or where practicable, prior to the disclosure thereof.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and delivered as of the date first above written.
LEAPFROG ENTERPRISES, INC.,
93
A Delaware corporation
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇
Title: President
FOOTHILL CAPITAL CORPORATION,
a California corporation, as Agent
and as a Lender
By: /s/ ▇▇▇▇▇ ▇. Smart
Title: Vice President
94