EXHIBIT 10.90
FINOVA LOAN AND SECURITY AGREEMENT
Finova Graphic Omitted
LOAN AND SECURITY AGREEMENT
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Play Co. Toys & Entertainment Corp.,
a Delaware corporation
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▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
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Borrower Fed ID Tax No.
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Credit Limit: $7,100,000
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Dated as of January 21, 1998
CORPORATE FINANCE
THIS LOAN AND SECURITY AGREEMENT (collectively with the Schedule to Loan
Agreement (the "Schedule") attached hereto, the "Agreement") dated as of the
date set forth on the cover page, is entered into by and between the borrower
named on the cover page (the "Borrower"), whose address is set forth on the
cover page, and FINOVA Capital Corporation ("FINOVA"), whose address is ▇▇▇
▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇.
1. DEFINITIONS.
1.1 Defined Terms. As used in this Agreement, the following terms have the
definitions set forth below: -------------
"ABC" means ABC Fund, Inc. a Belize corporation and its successors and
assigns.
"ADA" has the meaning set forth in Section 4.1(z) hereof.
"Additional Sums" has the meaning set forth in Section 2.9(a) hereof.
"Affiliate" means any Person controlling, controlled by or under common
control with Borrower. For purposes of this definition, "control" means the
possession, directly or indirectly, of the power to direct or cause direction of
the management and policies of any Person, whether through ownership of common
or preferred stock or other equity interests, by contract or otherwise. Without
limiting the generality of the foregoing, each of the following shall be an
Affiliate: any officer, director, --------- employee or other agent of Borrower,
any shareholder, member or subsidiary of Borrower, any Guarantor and any other
Person with whom or which Borrower has common shareholders, officers or
directors.
"Agreement" has the meaning set forth in the preamble.
"Annual Renewal Fee" has the meaning set forth in the Schedule.
"Applicable Usury Law" has the meaning set forth in Section 2.9(b) hereof.
"Blocked Account" has the meaning set forth in Section 2.10(c) hereof.
"Business Day" means any day on which commercial banks in both Los Angeles,
California and Phoenix, Arizona are open for business.
"Capital Expenditures" means all expenditures made and liabilities incurred
for the acquisition of any fixed asset or improvement, replacement, substitution
or addition thereto which has a useful life of more than one year and including,
without limitation, those arising in connection with Capital Leases. Capital
Expenditures shall include expenses incurred by Borrower in connection with the
opening of new stores.
"Capital Lease" means any lease of property by Borrower that, in accordance
with GAAP, should be capitalized for financial reporting purposes and reflected
as a liability on the balance sheet of Borrower.
"Closing Fee" has the meaning set forth in the Schedule.
"Closing Date" means the date of the initial advance made by FINOVA
pursuant to this Agreement.
"Code" means the Uniform Commercial Code as adopted and in effect in the
State of Arizona from time to time.
"Collateral" has the meaning set forth in Section 3.1 hereof.
"Collateral Monitoring Fee" has the meaning set forth in the Schedule.
"Deposit Accounts" has the meaning set forth in Section 9-105 of the Code.
"Dominion Account" has the meaning set forth in Section 2.10(c) hereof.
"Due Date" means the first date to occur of: (i) acceleration of the
Obligations pursuant to Section 7.2 hereof, (ii) prepayment of the Obligations
pursuant to Section 9.2(d) hereof or (iii) termination of this Agreement
pursuant to Section 9.2(b) hereof. --------
"Eligible Inventory" means Inventory which FINOVA, in its Permitted
Discretion, deems eligible Inventory, based on such considerations as FINOVA may
from time to time deem appropriate. Without limiting the generality of the
foregoing, no Inventory shall be Eligible Inventory unless, in FINOVA's
Permitted Discretion, such Inventory: (i) consists of raw materials and finished
goods, in good, new and salable condition which do not constitute Obsolete
Inventory, returns, rejects or unmerchantable, and are not comprised of work in
process, packaging materials or supplies; (ii) meets all standards imposed by
any governmental agency or authority; (iii) conforms in all respects to the
warranties and representations set forth herein; (iv) is at all times subject to
FINOVA's duly perfected, first priority security interest; and (v) is situated
at a location in compliance with Section 5.16 hereof that is subject to a
Landlord's Waiver or is at a location in compliance with Section 5.16 hereof
with respect to which FINOVA has applied a Rent Reserve against Borrower's
borrowing availability and which location is either Borrower's corporate
warehouse or one of its retail stores. For all purposes hereunder, the amount of
otherwise Eligible Inventory shall be reduced by the amount of the Shrinkage
Reserve.
"Equipment" means all of Borrower's present and hereafter acquired
machinery, molds, machine tools, motors, furniture, equipment, furnishings,
fixtures, trade fixtures, motor vehicles, tools, parts, dyes, jigs, goods and
other tangible personal property (other than Inventory) of every kind and
description used in Borrower's operations or owned by Borrower and any interest
in any of the foregoing, and all attachments, accessories, accessions,
replacements, substitutions, additions or improvements to any of the foregoing,
wherever located.
"ERISA" means the Employment Retirement Income Security Act of 1974, as
amended, and the regulations thereunder.
"ERISA Affiliate" means each trade or business (whether or not incorporated
and whether or not foreign) which is or may hereafter become a member of a group
of which Borrower is a member and which is treated as a single employer under
ERISA Section 4001(b)(1), or IRC Section 414.
"Event of Default" means any of the events set forth in Section 7.1 hereof.
"Examination Fee" has the meaning set forth in the Schedule.
"Excess Availability" means, as of the date of determination thereof, the
amount by which the average daily total principal balance of the Revolving
Credit Loans facility which Borrower would be permitted to have outstanding over
the prior thirty (30) days, based on the formulas and reserves set forth in the
Schedule, exceeds the amount of the Revolving Credit Loans then actually
outstanding, such excess then being reduced by an amount necessary to provide
for the payment of all accounts payable of Borrower which are more than thirty
(30) days past written due date and all book overdrafts.
"FINOVA Affiliate" has the meaning set forth in Section 9.22 hereof.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect from time to time as set forth in the opinions and
pronouncements of the Accounting Principles Board and the American Institute of
Certified Public Accountants and the statements and pronouncements of the
Financial Accounting Standards Boards which are applicable to the circumstances
as of the date of determination consistently applied, except that, for the
financial covenants set forth in this Agreement, GAAP shall be determined on the
basis of such principles in effect on the date hereof and consistent with those
used in the preparation of the audited financial statements delivered to FINOVA
prior to the date hereof.
"General Intangibles" means all general intangibles of Borrower, whether
now owned or hereafter created or acquired by Borrower, including, without
limitation, all choses in action, causes of action, corporate or other business
records, Deposit Accounts, inventions, designs, drawings, blueprints,
Trademarks, Copyrights, Licenses and Patents, names, trade secrets, goodwill,
copyrights, registrations, licenses, franchises, customer lists, security and
other deposits, rights in all litigation presently or hereafter pending for any
cause or claim (whether in contract, tort or otherwise), and all judgments now
or hereafter arising therefrom, all claims of Borrower against FINOVA, rights to
purchase or sell real or personal property, rights as a licensor or licensee of
any kind, royalties, telephone numbers, proprietary information, purchase
orders, and all insurance policies and claims (including without limitation
credit, liability, property and other insurance) tax refunds and claims,
computer programs, discs, tapes and tape files, claims under guaranties,
security interests or other security held by or granted to Borrower to secure
payment of any of the Receivables by an account debtor, all rights to
indemnification and all other intangible property of every kind and nature
(other than Receivables).
"Guarantor" means United Textiles & Toys Corporation, a Delaware
corporation.
"▇▇▇▇▇▇▇" means ▇▇▇▇▇ ▇▇▇▇▇▇▇ Family Trust and its successors and assigns.
"Incipient Default" means an event which, with notice or passage of time or
both, would constitute an Event of Default.
"Indebtedness" means all of Borrower's present and future obligations,
liabilities, debts, claims and indebtedness, contingent, fixed or otherwise,
however evidenced, created, incurred, acquired, owing or arising, whether under
written or oral agreement, operation of law or otherwise, and includes, without
limiting the foregoing (i) the Obligations, (ii) obligations and liabilities of
any Person secured by a lien, claim, encumbrance or security interest upon
property owned by Borrower, even thoug Borrower has not assumed or become liable
therefor, (iii) obligations and liabilities created or arising under any lease
(including Capital Leases) or conditional sales contract or other title
retention agreement with respect to property used or acquired by Borrower, even
though the rights and remedies of the lessor, seller or lender are limited to
repossession, (iv) all unfunded pension fund obligations and liabilities and (v)
deferred taxes.
"Initial Term" has the meaning set forth on the Schedule.
"Inventory" means all of Borrower's now owned and hereafter acquired goods,
merchandise or other personal property, wherever located, to be furnished under
any contract of service or held for sale or lease, all raw materials, work in
process, finished goods and materials and supplies of any kind, nature or
description which are or might be used or consumed in Borrower's business or
used in connection with the manufacture, packing, shipping, advertising, selling
or finishing of such goods, merchandise or other personal property, and all
documents of title or other documents representing them.
"IRC" means the Internal Revenue Code of 1986, as amended, and the
regulations thereunder.
"L/C Line" has the meaning set forth in the Schedule.
"L/C Line Reserve" means: (a) during the first Loan Year and at all times
after an Event of Default has occurred (regardless of whether such Event of
Default is continuing), an amount equal to Six Hundred Thousand Dollars
($600,000), and (b) at all other times, an amount equal to Five Hundred Thousand
Dollars ($500,000). ----------------
"Landlord's Waiver" means a Landlord's Waiver and Consent, in form and
substance acceptable to FINOVA in its Permitted Discretion, as otherwise
required pursuant to Section 4.1(k) hereof.
"Lease Termination Reserve" means an amount equal to the Borrower's
remaining unsatisfied liability under any store leases which Borrower has
breached less any mitigating factors, all as determined by FINOVA in its
Permitted Discretion. The lease defaults described on Exhibit 3 to the Schedule
shall not be subject to a Lease Termination Reserve. -------------------------
"Letter of Credit" has the meaning set forth in the Schedule.
"Loans" has the meaning set forth in Section 2.2 hereof.
"Loan Documents" means, collectively, this Agreement, any note or notes
executed by Borrower and payable to FINOVA, and any other present or future
agreement entered into in connection with this Agreement, together with all
alterations, amendments, changes, extensions, modifications, refinancings,
refundings, renewals, replacements, restatements, or supplements, of or to any
of the foregoing.
"Loan Party" means Borrower, each Guarantor, each Subordinating Creditor
and each other party (other than FINOVA) to any Loan Document.
"Loan Reserves" means, as of any date of determination, such amounts as
FINOVA may from time to time establish and revise in good faith reducing the
amount of Revolving Credit Loans which would otherwise be available to Borrower
under the lending formula(s) provided in the Schedule: (a) to reflect events,
conditions, contingencies or risks which, as determined by FINOVA in good faith,
do or may affect either (i) the Collateral or any other property which is
security for the Obligations or its value, (ii) the assets, business or
prospects of Borrower or any Guarantor or (iii) the security interests and other
rights of FINOVA in the Collateral (including the enforceability, perfection and
priority thereof) or (b) to reflect FINOVA's good faith belief that any
collateral report or financial information furnished by or on behalf of Borrower
or any Guarantor to FINOVA is or may have been incomplete, inaccurate or
misleading in any material respect or (c) in respect of any state of facts which
FINOV determines in good faith constitutes an Event of Default or Incipient
Default. "Loan Reserves" shall be in addition to, and shall not include, any
amounts denominated as a Shrinkage Reserve, a Rent Reserve, an L/C Line Reserve
or a Lease Termination Reserve.
"Loan Year" means each twelve (12) month period commencing on the Closing
Date.
"Maximum Interest Rate" has the meaning set forth in Section 2.9(b) hereof.
"Minimum Interest Charge" has the meaning set forth in the Schedule.
"Multiemployer Plan" means a "multiemployer plan" as defined in ERISA
Sections 3(37) or 4001(a)(3) or IRC Section 414(f) which covers employees of
Borrower or any ERISA Affiliate.
"Multimedia" means Multimedia Concepts International, Inc., a Delaware
corporation and its successors and assigns.
"Net Worth" at any date means Borrower's net worth determined in accordance
with GAAP.
"Obligations" means all present and future loans, advances, debts,
liabilities, obligations, covenants, duties and indebtedness at any time owing
by Borrower to FINOVA, whether evidenced by this Agreement, any note or other
instrument or document, whether arising from an extension of credit, opening of
a letter of credit, banker's acceptance, loan, guaranty, indemnification or
otherwise, whether direct or indirect (including, without limitation, those
acquired by assignment and any participation by FINOVA in Borrower's debts owing
to others), absolute or contingent, due or to become due, including, without
limitation, all interest, charges, expenses, fees, attorney's fees, expert
witness fees, Examination Fees, letter of credit fees, Collateral Monitoring
Fees, Closing Fees, Annual Renewal Fees, Termination Fees, Minimum Interest
Charges and any other sums chargeable to Borrower hereunder or under any other
agreement with FINOVA.
"Obsolete Inventory" means otherwise Eligible Inventory which consists of
raw materials and/or finished goods, in good, new and salable condition, which:
(i) turn over less than one time per year or (ii) are obsolete.
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"Overadvance" has the meaning set forth in Section 2.3.
"Overline" has the meaning set forth in Section 2.3.
"PBGC" means the Pension Benefit Guarantee Corporation.
"Permitted Discretion" means FINOVA's judgment exercised in good faith
based upon its consideration of any factor which FINOVA believes in good faith:
(i) will or could adversely affect the value of any Collateral, the
enforceability or priority of FINOVA's liens thereon or the amount which FINOVA
would be likely to receive (after giving consideration to delays in payment and
costs of enforcement) in the liquidation of such Collateral; (ii) suggests that
any collateral report or financial information delivered to FINOVA by any Person
on behalf of the Borrower is incomplete, inaccurate or misleading in any
material respect; (iii) materially increases the likelihood of a bankruptcy,
reorganization or other insolvency proceeding involving the Borrower, any Loan
Party or any of the Collateral; or (iv) creates or reasonably could be expected
to create an Event of Default. In exercising such judgment, FINOVA may consider
such factors already included in or tested by the definition of Eligible
Inventory, as well as any of the following: (i) the financial and business
climate of the Borrower's industry and general macroeconomic conditions, (ii)
changes in collection history and dilution with respect to the Receivables,
(iii) changes in demand for, and pricing of, Inventory, (iv) changes in any
concentration of risk with respect to Receivables and/or Inventory, and (v) any
other factors that change the credit risk of lending to the Borrower on the
security of the Receivables and Inventory. The burden of establishing lack of
good faith hereunder shall be on the Borrower.
"Permitted Encumbrance" means each of the liens, mortgages and other
security interests set forth on the Schedule and denominated as such.
"Person" means any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated organization, association, corporation, limited
liability company, government, or any agency or political division thereof, or
any other entity.
"Plan" means any plan described in ERISA Section 3(2) maintained for
employees of Borrower or any ERISA Affiliate, other than a Multiemployer Plan.
"Prepared Financials" means the balance sheets of Borrower as of the date
set forth in the Schedule in the section entitled 'Reporting Requirements', and
as of each subsequent date on which audited balance sheets are delivered to
FINOVA from time to time hereunder, and the related statements of operations,
changes in stockholder's equity and changes in cash flow for the periods ended
on such dates.
"Prime Rate" has the meaning set forth in the Schedule.
"Prohibited Transaction" means any transaction described in Section 406 of
ERISA which is not exempt by reason of Section 408 of ERISA, and any transaction
described in Section 4975(c) of the IRC which is not exempt by reason of Section
4975(c)(2) of the IRC.
"Receivables" means all of Borrower's now owned and hereafter acquired
accounts (whether or not earned by performance), proceeds of any letters of
credit naming Borrower as beneficiary, contract rights, chattel paper,
instruments, documents and all other forms of obligations at any time owing to
Borrower, all guaranties and other security therefor, whether secured or
unsecured, all merchandise returned to or repossessed by Borrower, and all
rights of stoppage in transit and all other rights or remedies of an unpaid
vendor, lienor or secured party.
"Renewal Term" has the meaning set forth on the Schedule.
"Rent Reserve" means an amount equal to three (3) months' rent (including
without limitation monthly base rent and monthly estimates of operating charges,
and all other amounts, chargeable under the applicable lease), as determined by
FINOVA in its Permitted Discretion, attributable to each real property lease of
Borrower for which Borrower has not delivered to FINOVA a Landlord's Waiver.
"Reportable Event" means a reportable event described in Section 4043 of
ERISA or the regulations thereunder, a withdrawal from a Plan described in
Section 4063 of ERISA, or a cessation of operations described in Section 4068(f)
of ERISA.
"Revolving Credit Loans" has the meaning set forth in the Schedule.
"Revolving Interest Rate" has the meaning set forth in the Schedule.
"Schedule" has the meaning set forth in the preamble.
"Shrinkage Reserve" means an amount equal to five percent (5.0%) of the
value of Borrower's Inventory, calculated at the lower of cost or market value
and determined on a first-in, first-out basis, or such greater amount as FINOVA,
in its Permitted Discretion, deems appropriate from time to time.
"Subordinated Debt" means liabilities of Borrower the repayment of which is
subordinated, to the payment and performance of the Obligations, pursuant to a
subordination agreement acceptable to FINOVA in its sole discretion.
"Subordinating Creditor" means each of (i) Multimedia, (ii) ▇▇▇▇▇▇▇, (iii)
Guarantor and (iv) ABC.
"Termination Fee" has the meaning set forth in Section 9.2(d) hereof.
"Total Facility" has the meaning set forth in Section 2.1 hereof.
"Trademarks, Copyrights, Licenses and Patents" means all of Borrower's
right, title and interest in and to, whether now owned or hereafter acquired:
(i) trademarks, trademark registrations, trade names, trade name registrations,
service ▇▇▇▇ and service ▇▇▇▇ registrations, and trademark or trade name
applications, including without limitation such as are listed on the Schedule
attached hereto and made a part hereof, as the same may be amended from time to
time, and (a) renewals thereof, (b) all income, royalties, damages and payments
now and hereafter due and/or payable with respect thereto, including without
limitation, damages and payments for past or future infringements thereof, (c)
the right to ▇▇▇ for past, present and future infringements thereof, (d) all
rights corresponding thereto throughout the world, and (e) the goodwill of the
business operated by Borrower connected with and symbolized by any trademarks or
trade names; (ii) copyrights, copyright registrations and copyright
applications, including without limitation such as are listed on the Schedule
attached hereto and made a part hereof, as the same may be amended from time to
time, and (a) renewals thereof, (b) all income, royalties, damages and payments
now and hereafter due and/or payable with respect thereto, including without
limitation, damages and payments for past or future infringements thereof, (c)
the right to ▇▇▇ for past, present and future infringements thereof, and (d) all
rights corresponding thereto throughout the world; (iii) license agreements,
including without limitation such as are listed on the Schedule attached hereto
and made a part hereof, and the right to prepare for sale, sell and advertise
for sale any Inventory now or hereafter owned by Borrower and now or hereafter
covered by such licenses; and (iv) patents and patent applications, registered
or pending, including without limitation such as are listed on the Schedule
attached hereto, together with all income, royalties, shop rights, damages and
payments thereto, the right to ▇▇▇ for infringements thereof, and all rights
thereto throughout the world and all reissues, divisions, continuations,
renewals, extensions and continuations-in-part thereof.
"Unused Line Fee" has the meaning set forth in the Schedule.
1.2 Additional Provisions; Other Terms. For all purposes of this Agreement,
except as otherwise expressly provided or unless the context otherwise requires,
the terms defined in this Agreement shall include the plural as well as the
singular, and vice versa. All accounting terms used in this Agreement, unless
otherwise indicated, shall have the meanings given to such terms in accordance
with GAAP. All other terms contained in this Agreement, unless otherwise
indicated, shall have ---------------------------------- the meanings provided
by the Code, to the extent such terms are defined therein.
2. LOANS; INTEREST RATE AND OTHER CHARGES.
2.1 Total Facility. Upon the terms and conditions set forth herein and
provided that no Event of Default or Incipient Default shall have occurred and
be continuing, FINOVA shall, upon Borrower's request, make advances to Borrower
from time to time in an aggregate outstanding principal amount not to exceed the
Total Facility amount (the "Total Facility") set forth on the Schedule hereto,
subject to deduction of reserves for accrued interest and such other reserves as
FINOVA deems proper from time to time, and less amounts FINOVA may be obligated
to pay in the future on behalf of Borrower. The Schedule is an integral part of
this Agreement and all references to "herein", "herewith" and words of similar
import shall for all purposes be deemed to include the Schedule.
2.2 Loans. Advances under the Total Facility (each a "Loan") shall be
comprised of the amounts shown on the Schedule. ----- ----
2.3 Overlines; Overadvances. If at any time or for any reason the
outstanding amount of advances extended or issued pursuant hereto exceeds any of
the dollar limitations ("Overline") or percentage limitations ("Overadvance") in
the Schedule, then Borrower shall, upon FINOVA's demand, immediately pay to
FINOVA, in cash, the full amount of such Overline or Overadvance which, at
FINOVA's option, may be applied to reduce the outstanding principal balance of
the Loans. Without limiting Borrower's obligation to repay to FINOVA on demand
the amount of any Overline or Overadvance, Borrower agrees to pay FINOVA
interest on the outstanding principal amount of any Overline or Overadvance, on
demand, at the rate set forth on the Schedule and applicable to the Revolving
Credit Loans.
2.4 [Reserved]
2.5 Loan Account. All advances made hereunder shall be added to and deemed
part of the Obligations when made. FINOVA may from time to time charge all
Obligations of Borrower to Borrower's loan account with FINOVA. ------------
2.6 Interest; Fees. Borrower shall pay FINOVA interest on the daily
outstanding balance of the Obligations at the per annum rate set forth on the
Schedule. Borrower shall also pay FINOVA the fees set forth on the Schedule.
--------------
2.7 Default Interest Rate. Upon the occurrence and during the continuation
of an Event of Default, Borrower shall pay FINOVA interest on the daily
outstanding balance of the Obligations at a rate per annum which is three
percent (3.0%) in excess of the rate which would otherwise be applicable thereto
pursuant to the Schedule. Upon the curing of all Events of Default, the
outstanding balance of the Obligations shall accrue at the rate applicable
thereto pursuant to the Schedule. ---------------------
2.8 Examination Fee. Borrower agrees to pay to FINOVA the Examination Fee
in the amount set forth on the Schedule in connection with each audit or
examination of Borrower performed by FINOVA prior to or after the date hereof.
Without limiting the generality of the foregoing, Borrower shall pay to FINOVA
an initial Examination Fee in an amount equal to the amount set forth on the
Schedule. Such initial Examination Fee shall be deemed fully earned at the time
of payment and due and payable --------------- upon the closing of this
transaction, and shall be deducted from any good faith deposit paid by Borrower
to FINOVA prior to the date of this Agreement.
2.9 Excess Interest.
(a) The contracted for rate of interest of the Loans contemplated hereby,
without limitation, shall consist of the following: (i) the interest rate set
forth on the Schedule, calculated and applied to the principal balance of the
Obligations in accordance with the provisions of this Agreement; (ii) interest
after an Event of Default, calculated and applied to the amount of the
Obligations in accordance with the provisions hereof; and (iii) all Additional
Sums (as herein defined), if any. Borrower agrees to pay an effective contracted
for rate of interest which is the sum of the above-referenced elements. The
Examination Fees, attorneys fees, expert witness fees, letter of credit fees,
Collateral Monitoring Fees, Closing Fees, Unused Line Fees, Annual Renewal Fees,
Termination Fees, Minimum Interest Charges, other fees and charges, goods,
things in action or any other sums or things of value paid or payable by
Borrower (collectively, the "Additional Sums"), whether pursuant to this
Agreement or any other documents or instruments in any way pertaining to this
lending transaction, or otherwise with respect to this lending transaction, that
under any applicable law may be deemed to be interest with respect to this
lending transaction, for the purpose of any applicable law that may limit the
maximum amount of interest to be charged with respect to this lending
transaction, shall be payable by Borrower as, and shall be deemed to be,
additional interest and for such purposes only, the agreed upon and "contracted
for rate of interest" of this lending transaction shall be deemed to be
increased by the rate of interest resulting from the inclusion of the Additional
Sums.
(b) It is the intent of the parties to comply with the usury laws of the
State of Arizona (the "Applicable Usury Law"). Accordingly, it is agreed that
notwithstanding any provisions to the contrary in this Agreement, or in any of
the documents securing payment hereof or otherwise relating hereto, in no event
shall this Agreement or such documents require the payment or permit the
collection of interest in excess of the maximum contract rate permitted by the
Applicable Usury Law (the "Maximu Interest Rate"). In the event (a) any such
excess of interest otherwise would be contracted for, charged or received from
Borrower or otherwise in connection with the loan evidenced hereby, or (b) the
maturity of the Obligations is accelerated in whole or in part, or (c) all or
part of the Obligations shall be prepaid, so that under any of such
circumstances the amount of interest contracted for, shared or received in
connection with the loan evidenced hereby, would exceed the Maximum Interest
Rate, then in any such event (1) the provisions of this paragraph shall govern
and control, (2) neither Borrower nor any other Person now or hereafter liable
for the payment of the Obligations shall be obligated to pay the amount of such
interest to the extent that it is in excess of the Maximum Interest Rate, (3)
any such excess which may have been collected shall be either applied as a
credit against the then unpaid principal amount of the Obligations or refunded
to Borrower, at FINOVA's option, and (4) the effective rate of interest shall be
automatically reduced to the Maximum Interest Rate. It is further agreed,
without limiting the generality of the foregoing, that to the extent permitted
by the Applicable Usury Law: (x) all calculations of interest which are made for
the purpose of determining whether such rate would exceed the Maximum Interest
Rate shall be made by amortizing, prorating, allocating and spreading during the
period of the full stated term of the loan evidenced hereby, all interest at any
time contracted for, charged or received from Borrower or otherwise in
connection with such loan; and (y) in the event that the effective rate of
interest on the loan should at any time exceed the Maximum Interest Rate, such
excess interest that would otherwise have been collected had there been no
ceiling imposed by the Applicable Usury Law shall be paid to FINOVA from time to
time, if and when the effective interest rate on the loan otherwise falls below
the Maximum Interest Rate, to the extent that interest paid to the date of
calculation does not exceed the Maximum Interest Rate, until the entire amount
of interest which would otherwise have been collected had there been no ceiling
imposed by the Applicable Usury Law has been paid in full. Borrower further
agrees that should the Maximum Interest Rate be increased at any time hereafter
because of a change in the Applicable Usury Law, then to the extent not
prohibited by the Applicable Usury Law, such increases shall apply to all
indebtedness evidenced hereby regardless of when incurred; but, again to the
extent not prohibited by the Applicable Usury Law, should the Maximum Interest
Rate be decreased because of a change in the Applicable Usury Law, such
decreases shall not apply to the indebtedness evidenced hereby regardless of
when incurred.
2.10 Principal Payments; Proceeds of Collateral.
(a) Principal Payments. Except where evidenced by notes or other
instruments issued or made by Borrower to FINOVA specifically containing payment
provisions which are in conflict with this Section 2.10 (in which event the
conflicting provisions of said notes or other instruments shall govern and
control), that portion of the Obligations consisting of principal payable on
account of Loans shall be payable by Borrower to FINOVA immediately upon the
earliest of (i) the receipt by FINOVA or Borrower of any proceeds of any of the
Collateral, to the extent of said proceeds or (ii) the Due Date; provided,
however, that any Overadvance or Overline shall be payable on demand pursuant to
the provisions of Section 2.3 hereof.
(b) Collections. Until FINOVA notifies Borrower to the contrary, Borrower
may make collection of all Receivables for FINOVA and shall receive all such
payments or sums as trustee of FINOVA and immediately deliver all such payments
or sums to FINOVA in their original form, duly endorsed in blank or cause the
same to be deposited into a Blocked Account or Dominion Account. FINOVA or its
designee may, at any time, notify account debtors that the Receivables have been
assigned to FINOVA and of FINOVA's security interest therein, and may collect
the Receivables directly and charge the collection costs and expenses to
Borrower's loan account. Borrower agrees that, in computing the charges under
this Agreement, all items of payment shall be deemed applied by FINOVA on
account of the Obligations two (2) Business Days after receipt by FINOVA of good
funds which have been finally credited to FINOVA's account, whether such funds
are received directly from Borrower or from the Blocked Account bank or the
Dominion Account bank, pursuant to Section 2.10(c) hereof, and this provision
shall apply regardless of the amount of the Obligations outstanding or whether
any Obligations are outstanding; provided, that if any such good funds are
received after 12:00 p.m. noon (Los Angeles time) on any Business Day or at any
time on any day not constituting a Business Day, such funds shall be deemed
received on the immediately following Business Day. FINOVA is not, however,
required to credit Borrower's account for the amount of any item of payment
which is unsatisfactory to FINOVA in its Permitted Discretion and FINOVA may
charge Borrower's loan account for the amount of any item of payment which is
returned to FINOVA unpaid. For purposes of this Section 2.10(b), payments
received and to be received by Borrower from credit card companies (e.g. Visa,
Mastercard and American Express) shall be deemed cash rather than a Receivable.
(c) Establishment of a Lockbox Account or Dominion Account. Unless Borrower
shall be otherwise directed by FINOVA in writing, Borrower shall cause all
proceeds of Collateral to be deposited into a lockbox account, or such other
"blocked account" as FINOVA may require (each, a "Blocked Account") pursuant to
an arrangement with such bank as may be selected by Borrower and be acceptable
to FINOVA which proceeds, unless otherwise provided herein, shall be applied in
payment of the Obligations i such order as FINOVA determines in its sole
discretion. Borrower shall issue to any such bank an irrevocable letter of
instruction directing said bank to transfer such funds so deposited to FINOVA,
either to any account maintained by FINOVA at said bank or by wire transfer to
appropriate account(s) of FINOVA. All funds deposited in a Blocked Account shall
immediately become the sole property of FINOVA and Borrower shall obtain the
agreement by such bank to waive any offset rights against the funds so
deposited. FINOVA assumes no responsibility for any Blocked Account arrangement,
including without limitation, any claim of accord and satisfaction or release
with respect to deposits accepted by any bank thereunder. Alternatively, FINOVA
may establish depository accounts in the name of FINOVA at a bank or banks for
the deposit of such funds (each, a "Dominion Account") and Borrower shall
deposit all proceeds of Receivables and all cash proceeds of any sale of
Inventory or, to the extent permitted herein, Equipment or cause same to be
deposited, in kind, in such Dominion Accounts of FINOVA in lieu of depositing
same to Blocked Accounts, and, unless otherwise provided herein, all such funds
shall be applied by FINOVA to the Obligations in such order as FINOVA determines
in its sole discretion.
(d) Payments Without Deductions. Borrower shall pay principal, interest,
and all other amounts payable hereunder, or under any other Loan Document,
without any deduction whatsoever, including, but not limited to, any deduction
for any setoff or counterclaim. ---------------------------
(e) Collection Days Upon Repayment. In the event Borrower repays the
Obligations in full at any time hereafter, such payment in full shall be
credited (conditioned upon final collection) to Borrower's loan account two (2)
Business Days after FINOVA's receipt thereof. ------------------------------
(f) Monthly Accountings. FINOVA shall provide Borrower monthly with an
account of advances, charges, expenses and payments made pursuant to this
Agreement. Such account shall be deemed correct, accurate and binding on
Borrower and an account stated (except for reverses and reapplications of
payments made and corrections of errors discovered by FINOVA), unless Borrower
notifies FINOVA in writing to the contrary within thirty (30) days after each
account is rendered, describing the nature of ------------------- any alleged
errors or admissions.
2.11 Application of Collateral. Except as otherwise provided herein,
FINOVA shall have the continuing and exclusive right to apply or reverse and
re-apply any and all payments to any portion of the Obligations in such order
and manner as FINOVA shall determine in its sole discretion. To the extent that
Borrower makes a payment or FINOVA receives any payment or proceeds of the
Collateral for Borrower's benefit which is subsequently invalidated, declared to
be fraudulent or preferential, set aside or required to be repaid to a trustee,
debtor in possession, receiver or any other party under any bankruptcy law,
common law or equitable cause, or otherwise, then, to such extent, the
Obligations or part thereof intended to be satisfied shall be revived and
continue as if such payment or proceeds had not been received by FINOVA.
2.12 Application of Payments. The amount of all payments or amounts
received by FINOVA with respect to the Loan shall be applied to the extent
applicable under this Agreement: (i) first, to accrued interest through the date
of such payment, including any Default Interest; (ii) then, to any late fees,
overdue risk assessments, Examination Fees and expenses, collection fees and
expenses and any other fees and expenses due to FINOVA hereunder; and (iii)
last, the remaining balance, if any, to the unpaid principal balance of the
Loan; provided however, while an Event of Default exists under this Agreement,
or under any other Loan Document, each payment hereunder shall be (x) held as
cash collateral to secure Obligations relating to any contingent obligations
arising under the Loan Documents and/or (y) applied to amounts owed to FINOVA by
Borrower as FINOVA in its sole discretion may determine. In calculating interest
and applying payments as set forth above: (a) interest shall be calculated and
collected through the date a payment is actually applied by FINOVA under the
terms of this Agreement; (b) interest on the outstanding balance shall be
charged during any grace period permitted hereunder; (c) at the end of each
month, all accrued and unpaid interest and other charges provided for hereunder
shall be added to the principal balance of the Loan; and (d) to the extent that
Borrower makes a payment or FINOVA receives any payment or proceeds of the
Collateral for Borrower's benefit that is subsequently invalidated, set aside or
required to be repaid to any other Person, then, to such extent, the Obligations
intended to be satisfied shall be revived and continue as if such payment or
proceeds had not been received by FINOVA and FINOVA may adjust the Loan balances
as FINOVA, in its sole discretion, deems appropriate under the circumstances.
2.13 Notification of Closing. Borrower shall provide FINOVA with at
least forty-eight (48) hours prior written notice of the Closing Date, to enable
FINOVA to arrange for the availability of funds. In the event the closing does
not take place on the date specified in Borrower's notice to FINOVA, other than
through the fault of FINOVA, Borrower agrees to reimburse FINOVA for FINOVA's
costs to maintain the necessary funds available for the closing, at the
Revolving Interest Rate with respect to an amount equal to the initial advance
under the Revolving Credit Loans facility which is to be made on the Closing
Date, for the number of days which elapse between the date specified in
Borrower's notice and the date upon which the closing actually occurs (which
number of days shall not include the date specified in Borrower's notice, but
shall include the Closing Date).
3. SECURITY.
3.1 Security Interest in the Collateral. To secure the payment and
performance of the Obligations when due, Borrower hereby grants to FINOVA a
first priority security interest (subject only to Permitted Encumbrances) in all
of Borrower's now owned or hereafter acquired or arising Inventory, Equipment,
Receivables, life insurance policies and the proceeds thereof, Trademarks,
Copyrights, Licenses and Patents, Investment Property (as defined in Section
9-115 of the Code) and General Intangibles, including, without limitation, all
of Borrower's Deposit Accounts, money, any and all property now or at any time
hereafter in FINOVA's possession (including claims and credit balances), and all
proceeds (including proceeds of any insurance policies, proceeds of proceeds and
claims against third parties), all products and all books and records and
computer data related to any of the foregoing (all of the foregoing, together
with all other property in which FINOVA may be granted a lien or security
interest, and together with the Letters of Credit, are referred to herein,
collectively, as the "Collateral").
3.2 Perfection and Protection of Security Interest. Borrower shall, at its
expense, take all actions requested by FINOVA at any time to perfect, maintain,
protect and enforce FINOVA's first priority security interest and other rights
in the Collateral and the priority thereof from time to time, including, without
limitation, (i) executing and filing financing or continuation statements and
amendments thereof and executing and delivering such documents and titles in
connection with motor vehicles as FINOVA shall require, all in form and
substance satisfactory to FINOVA, (ii) maintaining a perpetual inventory and
complete and accurate stock records, (iii) delivering to FINOVA warehouse
receipts covering any portion of the Collateral located in warehouses and for
which warehouse receipts are issued, and transferring Inventory to warehouses
designated by FINOVA, (iv) placing notations on Borrower's books of account to
disclose FINOVA's security interest therein and (v) delivering to FINOVA all
letters of credit on which Borrower is named beneficiary. FINOVA may file,
without Borrower's signature, one or more financing statements disclosing
FINOVA's security interest under this Agreement. Borrower agrees that a carbon,
photographic, photostatic or other reproduction of this Agreement or of a
financing statement is sufficient as a financing statement. If any Collateral is
at any time in the possession or control of any warehouseman, bailee or any of
Borrower's agents or processors, Borrowe shall notify such Person of FINOVA's
security interest in such Collateral and, upon FINOVA's request, instruct them
to hold all such Collateral for FINOVA's account subject to FINOVA's
instructions. From time to time, Borrower shall, upon FINOVA's request, execute
and deliver confirmatory written instruments pledging the Collateral to FINOVA,
but Borrower's failure to do so shall not affect or limit FINOVA's security
interest or other rights in and to the Collateral. Until the Obligations have
been full satisfied and FINOVA's obligation to make further advances hereunder
has terminated, FINOVA's security interest in the Collateral shall continue in
full force and effect.
3.3 Preservation of Collateral. FINOVA may, in its Permitted Discretion, at
any time discharge any lien or encumbrance on the Collateral or bond the same,
pay any insurance, maintain guards, pay any service bureau, obtain any record or
take any other action to preserve the Collateral and charge the cost thereof to
Borrower's loan account as an Obligation. --------------------------
3.4 Insurance. Borrower will maintain and deliver evidence to FINOVA of
such insurance as is required by FINOVA, written by insurers, in amounts, and
with lender's loss payee, additional insured, and other endorsements,
satisfactory to FINOVA. All premiums with respect to such insurance shall be
paid by Borrower as and when due. Accurate and certified copies of the policies
shall be delivered by Borrower to FINOVA. If Borrower fails to comply with this
Section, FINOVA may (but shall not --------- be required to) procure such
insurance and endorsements at Borrower's expense and charge the cost thereof to
Borrower's loan account as an Obligation.
3.5 Collateral Reporting; Inventory.
(a) Invoices. Borrower shall not re-date any invoice or sale from the
original date thereof or make sales on extended terms beyond those customary in
Borrower's industry, or otherwise extend or modify the term of any Receivable.
If Borrower becomes aware of any matter affecting any Receivable, including
information affecting the credit of the account debtor thereon, Borrower shall
promptly notify FINOVA in writing.
(b) Instruments. In the event any Receivable is or becomes evidenced by a
promissory note, trade acceptance or any other instrument for the payment of
money, Borrower shall immediately deliver such instrument to FINOVA
appropriately endorsed to FINOVA and, regardless of the form of any presentment,
demand, notice of dishonor, protest and notice of protest with respect thereto,
Borrower shall remain liable thereon until such instrument is paid in full.
(c) Physical Inventory. Borrower shall conduct a physical count of the
Inventory at such intervals as FINOVA requests and promptly supply FINOVA with a
copy of such accounts accompanied by a report of the value (calculated at the
lower of cost or market value on a first in, first out basis) of the Inventory
and such additional information with respect to the Inventory as FINOVA may
request from time to time.
(d) Returns. If any account debtor returns any Inventory to Borrower in the
ordinary course of its business, Borrower shall promptly determine the reason
for such return and promptly issue a credit memorandum to the account debtor
(sending a copy to FINOVA) in the appropriate amount and if such account debtor
is other than a retail customer, a copy of such credit memorandum shall be sent
to FINOVA.
(e) Borrower shall not consign any Inventory.
3.6 Receivables and Inventory.
(a) Eligibility.
(i) Borrower represents and warrants that each Receivable, if any, covers
and shall cover a bona fide sale or lease and delivery by it of goods or the
rendition by it of services in the ordinary course of its business, and shall be
for a liquidated amount and FINOVA's security interest shall not be subject to
any offset, deduction, counterclaim, rights of return or cancellation, lien or
other condition.
(ii) FINOVA at any time shall be entitled to (i) establish and increase or
decrease reserves against Eligible Inventory, (ii) reduce the advance rates in
the Schedule or restore such advance rates to any level equal to or below the
advance rates set forth in the Schedule or (iii) impose additional restrictions
(or eliminate the same) to the standards of eligibility set forth in the
definitions of "Eligible Inventory," in the exercise of its Permitted
Discretion. FINOVA may but shall not be required to rely on the schedules and/or
reports delivered to FINOVA in connection herewith in determining the then
eligibility of Inventory. Reliance thereon by FINOVA from time to time shall not
be deemed to limit the right of FINOVA to revise advance rates or standards of
eligibility as provided above.
(b) Disputes. Borrower shall notify FINOVA promptly of all disputes or
claims and settle or adjust such disputes or claims at no expense to FINOVA, but
no discount, credit or allowance shall be granted to any account debtor and no
returns of merchandise shall be accepted by Borrower without FINOVA's consent,
except for discounts, credits and allowances made or given in the ordinary
course of Borrower's business. FINOVA may, at any time after the occurrence of
an Event of Default, settle or adjust disputes or claims directly with account
debtors for amounts and upon terms which FINOVA considers advisable in its
reasonable credit judgment and, in all cases, FINOVA shall credit Borrower's
loan account with only the net amounts received by FINOVA in payment of any
Receivables.
3.7 Equipment. Borrower shall keep and maintain the Equipment in good
operating condition and repair and make all necessary replacements thereto to
maintain and preserve the value and operating efficiency thereof at all times
consistent with Borrower's past practice, ordinary wear and tear excepted.
Borrower shall not permit any item of Equipment to become a fixture (other than
a trade fixture) to real estate or an accession to other property. ---------
3.8 Other Liens; No Disposition of Collateral. Borrower represents,
warrants and covenants that except for FINOVA's security interest, Permitted
Encumbrances, and such other liens, claims and encumbrances as may be permitted
by FINOVA in its sole discretion from time to time in writing, (a) all
Collateral is and shall continue to be owned by it free and clear of all liens,
claims and encumbrances whatsoever and (b) Borrower shall not, without FINOVA's
prior written approval, sell, encumber or dispose of or permit the sale,
encumbrance or disposal of any Collateral or all or any substantial part of any
of its other assets (or any interest of Borrower therein), except for the sale
of Inventory in the ordinary course of Borrower's business and except for the
sale of no more than Fifty Thousand Dollars ($50,000), in the aggregate, of
fixtures within any one (1) calendar year. In the event FINOVA gives any such
prior written approval with respect to any such sale of Collateral, the same may
be conditioned on the sale price being equal to, or greater than, an amount
acceptable to FINOVA. The proceeds of any such sales of Collateral shall be
remitted to FINOVA pursuant to this Agreement for application to the
Obligations.
3.9 Collateral Security. The Obligations shall constitute one loan secured
by the Collateral. FINOVA may, in its sole discretion, (i) exchange, enforce,
waive or release any of the Collateral, (ii) apply Collateral and direct the
order or manner of sale thereof as it may determine, and (iii) settle,
compromise, collect or otherwise liquidate any Collateral in any manner without
affecting its right to take any other action with respect to any other
Collateral. -------------------
4. CONDITIONS OF CLOSING.
4.1 Initial Advance. The obligation of FINOVA to make the initial advance
hereunder is subject to the fulfillment, to the satisfaction of FINOVA and its
counsel, of each of the following conditions on or prior to the date set forth
on the Schedule: ---------------
(a) Loan Documents. FINOVA shall have received each of the following Loan
Documents: (i) the Agreement fully and properly executed by Borrower; (ii)
promissory notes in such amounts and on such terms and conditions as FINOVA
shall specify, executed by Borrower; (iii) Guaranties executed by each of the
Guarantors; (iv) such security agreements, intellectual property assignments,
pledge agreements, mortgages and deeds of trust as FINOVA may require with
respect to this Agreement and any Guaranties, executed by each of the parties
thereto and, if applicable, duly acknowledged for recording or filing in the
appropriate governmental offices; (v) Subordination Agreements in form and
substance acceptable to FINOVA, executed by each of the Subordinating Creditors,
together with copies of all instruments subject thereto showing a legend
indicating such subordination; (vi) such Blocked Account or Dominion Account
agreements as it shall determine; and (vii) such other documents, instruments
and agreements in connection herewith as FINOVA shall require, executed,
certified and/or acknowledged by such parties as FINOVA shall designate;
(b) Minimum Excess Availability. Borrower shall have Excess Availability
under the Revolving Credit Loans facility of not less than the amount specified
in the Schedule, after giving effect to the initial advance hereunder and after
giving effect to any applicable Loan Reserves or other reserves against
borrowing availability under the Revolving Credit Loans;
---------------------------
(c) Terminations by Existing Lender. Borrower's existing lender(s) shall
have executed and delivered UCC termination statements and other documentation
evidencing the termination of its liens and security interests in the assets of
Borrower or a subordination agreement in form and substance satisfactory to
FINOVA in its sole discretion; -------------------------------
(d) Charter Documents. FINOVA shall have received copies of Borrower's
By-laws and Articles or Certificate of Incorporation, as amended, modified, or
supplemented to the Closing Date, certified by the Secretary of Borrower;
-----------------
(e) Good Standing. FINOVA shall have received a certificate of corporate
status with respect to Borrower, dated within ten (10) days of the Closing Date,
by the Secretary of State of the state of incorporation of Borrower, which
certificate shall indicate that Borrower is in good standing in such state;
--------------
(f) Foreign Qualification. FINOVA shall have received certificates of
corporate status with respect to Borrower and each other Loan Party, each dated
within ten (10) days of the Closing Date, issued by the Secretary of State of
each state in which such party's failure to be duly qualified or licensed would
have a material adverse effect on its financial condition or assets, indicating
that such party is in good standing; ---------------------
(g) Authorizing Resolutions and Incumbency. FINOVA shall have received a
certificate from the Secretary of Borrower attesting to (i) the adoption of
resolutions of Borrower's Board of Directors, and shareholders or members if
necessary, authorizing the borrowing of money from FINOVA and execution and
delivery of this Agreement and the other Loan Documents to which Borrower is a
party, and authorizing specific officers of Borrower to execute same, and (ii)
the authenticity of original -------------------------------------- specimen
signatures of such officers;
(h) Insurance. FINOVA shall have received the insurance certificates and
certified copies of policies required by Section 3.4 hereof, in form and
substance satisfactory to FINOVA and its counsel, together with an additional
insured endorsement in favor of FINOVA with respect to all liability policies
and a lender's loss payable endorsement in favor of FINOVA with respect to all
casualty and business interruption policies, each in form and substance
acceptable to FINOVA and its counsel; ---------
(i) Title Insurance. FINOVA shall have received binding commitments to
issue such title insurance with respect to Collateral or security for Guaranties
which is comprised of real property as it shall determine; ---------------
(j) Searches; Certificates of Title. FINOVA shall have received searches
reflecting the filing of its financing statements and fixture filings in such
jurisdictions as it shall determine, and shall have received certificates of
title with respect to the Collateral which shall have been duly executed in a
manner sufficient to perfect all of the security interests granted to FINOVA;
-------------------------------
(k) Landlord, Bailee and Mortgagee Waivers. FINOVA shall have received
Landlord's Waivers from the lessors of all locations where any Collateral is
located, with the exception of no more than seven (7) locations;
---------------------------------------
(l) Fees. Borrower shall have paid all fees payable by it on the Closing
Date pursuant to this Agreement;
(m) Opinion of Counsel. FINOVA shall have received an opinion of Borrower's
counsel covering such matters as FINOVA shall determine in its sole discretion;
(n) Officer Certificate. FINOVA shall have received a certificate of the
President and the Chief Financial Officer or similar official of Borrower,
attesting to the accuracy of each of the representations and warranties of
Borrower set forth in this Agreement and the fulfillment of all conditions
precedent to the initial advance hereunder; -------------------
(o) Solvency Certificate. If requested, FINOVA shall have received a signed
certificate of the Borrower's duly elected Chief Financial Officer concerning
the solvency and financial condition of Borrower, on FINOVA's standard form;
--------------------
(p) Blocked Account. The Blocked Account or the Dominion Account, as
referred to in Section 2.10(c) hereof, shall have been established to the
satisfaction of FINOVA in its sole discretion; ---------------
(q) [Reserved]
(r) Environmental Certificate. FINOVA shall have received an Environmental
Certificate from Borrower, in form and substance satisfactory to FINOVA in its
discretion, with respect to all locations of Collateral;
(s) Search and References. FINOVA shall have received and approved the
results of UCC, tax lien, litigation, judgment, and bankruptcy searches
regarding Borrower and such other Persons as FINOVA shall deem necessary, and
shall have received satisfactory customer, vendor and credit reference checks on
Borrower and such other Persons as FINOVA shall deem necessary.
(t) [Reserved]
(u) [Reserved]
(v) No Material Adverse Changes. Prior to the Closing Date, there shall
have occurred no material adverse change in the financial condition of Borrower
or any Guarantor, or in the condition of the assets of Borrower or any
Guarantor, from that shown on the draft financial statements for Borrower and
Guarantor dated on the date set forth in the Schedule. At the closing, Borrower
shall deliver to FINOVA an officer's certification confirming that Borrower is
unaware of the existence of any such material adverse change in Borrower's or
Guarantor's financial condition.
(w) Material Agreements. FINOVA shall have received, reviewed and approved
all material agreements to which Borrower shall be a party.
(x) Projections. Borrower shall submit cash flow projections and pro forma
balance sheet with adjusting entries (i) showing that the proposed financing
will provide sufficient funds for the Borrower's projected working capital
needs, and (ii) showing: (a) that the Borrower will have reasonably sufficient
capital for the conduct of its business following the initial funding, and (b)
that the Borrower will not incur debts beyond its ability to pay such debts as
they mature. -----------
(y) Opinions. To the extent any Person other than Borrower shall be parties
to the Loan Documents, FINOVA reserves the right to require satisfactory
opinions of counsel for each such Person concerning the proper organization of
such Person and the due authorization, execution, delivery, enforceability,
validity and binding effect of the Loan Documents to which such Person is a
party. Each such opinion of counsel shall confirm, to the satisfaction of
FINOVA, that the opinion is being -------- delivered to FINOVA at the
instruction of the party represented by such counsel, that FINOVA is entitled to
rely on such opinion and that for purposes of such reliance, FINOVA is deemed to
be in privity with the opining counsel.
(z) ADA Compliance. If necessary, as of the Closing Date, Borrower shall be
in compliance with the Americans with Disabilities Act of 1990 ("ADA"), or, if
any renovations of Borrower's facilities or modifications of Borrower's
employment practices shall be required to bring them into compliance with the
ADA, review and approval by FINOVA of Borrower's proposed plan to come into such
compliance. Borrower shall deliver representations and warranties to FINOVA
concerning Borrower's compliance with the ADA, and no evidence shall have come
to the attention of FINOVA indicating that Borrower is not in compliance with
the ADA (except to the extent that FINOVA has reviewed and approved Borrower's
plan to come into compliance).
(aa) Subordination Agreements. FINOVA and each Subordinating Creditor shall
have entered into a Subordination Agreement, in form and substance satisfactory
to FINOVA, providing among other things that such Subordinating Creditor's right
to payments in respect of the Subordinated Debt held by such Subordinating
Creditor shall be subordinated in right of payment to the Loan.
(bb) Guarantor Documents. FINOVA shall have received each Guarantor's
charter documents, good standing certificate and resolutions corresponding to
the requirements of Borrower under Section 4.1(d), (e) (h) and (g) hereof.
(cc) [Reserved].
(dd) Employment and Non-compete Agreements. FINOVA shall have reviewed and
approved all employment and non-compete agreements to be in effect as of the
Closing Date between Borrower and any other Person.
(ee) Asset Appraisal. Borrower shall have provided to FINOVA, at Borrower's
sole cost and expense, an asset appraisal of all Borrower's fixed assets upon
which FINOVA shall be granted a first priority lien and security interest, which
appraisal must be acceptable to FINOVA in all respects. ---------------
(ff) Transaction Costs. Borrower shall provide to FINOVA a complete,
itemized summary of all transaction costs paid or incurred by any Person in
connection with the making of the Loan, which transaction costs shall not exceed
a reasonable amount, as well as appropriate documentation evidencing such costs
and the payment thereof. All such information must be acceptable to FINOVA, in
FINOVA's sole discretion, exercised in good faith. -----------------
(gg) Schedule Conditions. Borrower shall have complied with all additional
conditions precedent as set forth in the Schedule attached hereto.
(hh) Other Matters. All other documents and legal matters in connection
with the transactions contemplated by this Agreement shall have been delivered,
executed and recorded and shall be in form and substance satisfactory to FINOVA
and its counsel. -------------
4.2 Subsequent Advances. The obligation of FINOVA to make any advance
shall be subject to the further conditions precedent that, on and as of the date
of such advance: (a) the representations and warranties of Borrower set forth in
this Agreement shall be accurate, before and after giving effect to such advance
or issuance and to the application of any proceeds thereof; (b) no Event of
Default or Incipient Default has occurred and is continuing, or would result
from such advance or issuanc or from the application of any proceeds thereof;
(c) no material adverse change has occurred in the Borrower's business,
operations, financial condition, in the condition of the Collateral or other
assets of Borrower or in the prospect of repayment of the Obligations; and (d)
FINOVA shall have received such other approvals, opinions or documents as FINOVA
shall reasonably request.
5. REPRESENTATIONS AND WARRANTIES.
Borrower represents and warrants that:
5.1 Due Organization. It is a corporation duly organized, validly existing
and in good standing under the laws of the State set forth on the Schedule, is
qualified and authorized to do business and is in good standing in all states in
which such qualification and good standing are necessary in order for it to
conduct its business and own its property, and has all requisite power and
authority to conduct its business as presently conducted, to own its property
and to execute and deliver each of the Loan Documents to which it is a party and
perform all of its Obligations thereunder, and has not taken any steps to
wind-up, dissolve or otherwise liquidate its assets;
5.2 Other Names. Borrower has not, during the preceding five (5) years,
been known by or used any other corporate or fictitious name except as set forth
on the Schedule, nor has Borrower been the surviving corporation of a merger or
consolidation or acquired all or substantially all of the assets of any Person
during such time; -----------
5.3 Due Authorization. The execution, delivery and performance by Borrower
of the Loan Documents to which it is a party have been authorized by all
necessary corporate action and do not and shall not constitute a violation of
any applicable law or of Borrower's Articles or Certificate of Incorporation or
By-Laws or any other document, agreement or instrument to which Borrower is a
party or by which Borrower or its assets are bound; -----------------
5.4 Binding Obligation. Each of the Loan Documents to which Borrower is a
party is the legal, valid and binding obligation of Borrower enforceable against
Borrower in accordance with its terms; ------------------
5.5 Intangible Property. Borrower possesses adequate assets, licenses,
patents, patent applications, copyrights, trademarks, trademark applications and
trade names for the present and planned future conduct of its business without
any known conflict with the rights of others, and each is valid and has been
duly registered or filed with the appropriate governmental authorities; each of
Borrower's patents, patent applications, copyrights, trademarks and trademark
applications which have been registered or filed with any governmental authority
(including the U.S. Patent and Trademark Office and the Library of Congress) are
listed by name, date and filing number on the Schedule;
5.6 Capital. Borrower has capital sufficient to conduct its business, is
able to pay its debts as they mature, and owns property having a fair salable
value greater than the amount required to pay all of its debts (including
contingent debts);
5.7 Material Litigation. Borrower has no pending or overtly threatened
litigation, actions or proceedings which would materially and adversely affect
its business, assets, operations, prospects or condition, financial or
otherwise, or the Collateral or any of FINOVA's interests therein;
5.8 Title; Security Interests of FINOVA. Borrower has good, indefeasible
and merchantable title to the Collateral and, upon the execution and delivery of
the Loan Documents, the filing of UCC-1 Financing Statements, delivery of the
certificate(s) evidencing any pledged securities, the filing of any collateral
assignments or security agreements regarding Borrower, Trademarks, Copyrights,
Licenses and Patents, if any, with the appropriate governmental offices and the
recording of any mortgage or deeds of trust with respect to real property, in
each case in the appropriate offices, this Agreement and such documents shall
create valid and perfected first priority liens in the Collateral, subject only
to Permitted Encumbrances;
5.9 Restrictive Agreements; Labor Contracts. Borrower is not a party or
subject to any contract or subject to any charge, corporate restriction,
judgment, decree or order materially and adversely affecting its business,
assets, operations, prospects or condition, financial or otherwise, or which
restricts its right or ability to incur Indebtedness, and it is not party to any
labor dispute. In addition, no labor contract is scheduled to expire during the
Initial Term of this Agreement, except as disclosed to FINOVA in writing prior
to the date hereof;
5.10 Laws. Borrower is not in violation of any applicable statute,
regulation, ordinance or any order of any court, tribunal or governmental
agency, in any respect materially and adversely affecting the Collateral or its
business, assets, operations, prospects or condition, financial or otherwise;
5.11 Consents. Borrower has obtained or caused to be obtained or issued any
required consent of a governmental agency or other Person in connection with the
financing contemplated hereby; --------
5.12 Defaults. Borrower is not in default with respect to any note,
indenture, loan agreement, mortgage, lease, deed or other agreement to which it
is a party or by which it or its assets are bound, nor has any event occurred
which, with the giving of notice or the lapse of time, or both, would cause such
a default, except as set forth on Exhibit 3 of the Schedule; --------
5.13 Financial Condition. The Prepared Financials fairly present Borrower's
financial condition and results of operations and those of such other Persons
described therein as of the date thereof in accordance with GAAP; there are no
material omissions from the Prepared Financials or other facts or circumstances
not reflected in the Prepared Financials; and there has been no material and
adverse change in such financial condition or operations since the date of the
initial Prepared Financials ------------------- delivered to FINOVA hereunder;
5.14 ERISA. None of Borrower, any ERISA Affiliate, or any Plan is or has
been in violation of any of the provisions of ERISA, any of the qualification
requirements of IRC Section 401(a) or any of the published interpretations
thereunder, nor has Borrower or any ERISA Affiliate received any notice to such
effect. No notice of intent to terminate a Plan has been filed under Section
4041 of ERISA, nor has any Plan been terminated under ERISA. The PBGC has not
instituted proceedings to terminate, or appointed a trustee to administer, a
Plan. No lien upon the assets of Borrower has arisen with respect to a Plan. No
prohibited transaction or Reportable Event has occurred with respect to a Plan.
Neither Borrower nor any ERISA Affiliate has incurred any withdrawal liability
with respect to any Multiemployer Plan. Borrower and each ERISA Affiliate have
made all contributions required to be made by them to any Plan or Multiemployer
Plan when due. There is no accumulated funding deficienc in any Plan, whether or
not waived;
5.15 Taxes. Borrower has filed all tax returns and such other reports as it
is required by law to file and has paid or made adequate provision for the
payment on or prior to the date when due of all taxes, assessments and similar
charges that are due and payable; -----
5.16 Locations; Federal Tax ID No. Borrower's chief executive office and
the offices and locations where it keeps the Collateral (except for Inventory in
transit) are at the locations set forth on the Schedule, except to the extent
that such locations may have been changed after notice to FINOVA in accordance
with Section 6.1.4 hereof; Borrower's federal tax identification number is as
shown on the cover page to this Agreement; ----------------------------
5.17 Business Relationships. There exists no actual or threatened
termination, cancellation or limitation of, or any modification or change in,
the business relationship between Borrower and any customer or any group of
customers whose purchases individually or in the aggregate are material to the
business of Borrower, or with any material supplier, and there exists no present
condition or state of facts or circumstances which would materially and
adversely affect Borrower or prevent Borrowe from conducting such business after
the consummation of the transactions contemplated by this Agreement in
substantially the same manner in which it has heretofore been conducted; and
5.18 Reaffirmations. Each request for a loan made by Borrower pursuant to
this Agreement shall constitute (i) an automatic representation and warranty by
Borrower to FINOVA that there does not then exist any Event of Default and (ii)
a reaffirmation as of the date of said request of all of the representations and
warranties of Borrower contained in this Agreement and the other Loan Documents.
6. COVENANTS.
6.1 Affirmative Covenants. Borrower covenants that, so long as any
Obligation remains outstanding and this Agreement is in effect, it shall:
6.1.1 Taxes. File all tax returns and pay or make adequate provision for
the payment of all taxes, assessments and other charges on or prior to the date
when due;
6.1.2 Notice of Litigation. Promptly notify FINOVA in writing of any
litigation, suit or administrative proceeding which may materially and adversely
affect the Collateral or Borrower's business, assets, operations, prospects or
condition, financial or otherwise, whether or not the claim is covered by
insurance;
6.1.3 ERISA. Notify FINOVA in writing (i) promptly upon the occurrence of
any event described in Paragraph 4043 of ERISA, other than a termination,
partial termination or merger of a Plan or a transfer of a Plan's assets and
(ii) prior to any termination, partial termination or merger of a Plan or a
transfer of a Plan's assets;
6.1.4 Change in Location. Notify FINOVA in writing forty-five (45) days
prior to any change in the location of Borrower's chief executive office or the
location of any Collateral, or Borrower's opening of any other place of business
and fifteen (15) days prior to Borrower's closing of any place of business;
6.1.5 Corporate Existence. Maintain its corporate existence and its
qualification to do business and good standing in all states necessary for the
conduct of its business and the ownership of its property and maintain adequate
assets, licenses, patents, copyrights, trademarks and trade names for the
conduct of its business;
6.1.6 Labor Disputes. Promptly notify FINOVA in writing of any labor
dispute to which Borrower is or may become subject and the expiration of any
labor contract to which Borrower is a party or bound;
6.1.7 Violations of Law. Promptly notify FINOVA in writing of any violation
of any law, statute, regulation or ordinance of any governmental entity, or of
any agency thereof, applicable to Borrower which may materially and adversely
affect the Collateral or Borrower's business, assets, prospects, operations or
condition, financial or otherwise;
6.1.8 Defaults. Notify FINOVA in writing within five (5) Business Days of
Borrower's default under any material note, indenture, loan agreement, mortgage,
lease or other agreement to which Borrower is a party or by which Borrower is
bound, or of any other default under any Indebtedness of Borrower; --------
6.1.9 Capital Expenditures. Promptly notify FINOVA in writing of the making
of any Capital Expenditure materially affecting Borrower's business, assets,
prospects, operations or condition, financial or otherwise, except to the extent
permitted in the Schedule; --------------------
6.1.10 Books and Records. Keep adequate records and books of account with
respect to its business activities in which proper entries are made in
accordance with GAAP, reflecting all of its financial transactions;
6.1.11 Leases; Warehouse Agreements. Provide FINOVA with (i) copies of all
agreements between Borrower and any landlord, warehouseman or bailee which owns
any premises at which any Collateral may, from time to time, be located (whether
for processing, storage or otherwise), and (ii) without limiting the Landlord's
Waivers, bailee and/or mortgagee waivers to be provided pursuant to Section
4.1(k) hereof, additional Landlord's Waivers, bailee and/or mortgagee waivers in
form acceptable to FINOVA with respect to all locations where any Collateral is
hereafter located;
6.1.12 Additional Documents. At FINOVA's request, promptly execute or cause
to be executed and delivered to FINOVA any and all documents, instruments or
agreements deemed necessary by FINOVA to facilitate the collection of the
Obligations or the Collateral or otherwise to give effect to or carry out the
terms or intent of this Agreement or any of the other Loan Documents. Without
limiting the generality of the foregoing, if any of the Receivables with a face
value in excess of One Thousand Dollars ($1,000) arises out of a contract with
the United States of America or any department, agency, subdivision or
instrumentality thereof, Borrower shall promptly notify FINOVA of such fact in
writing and shall execute any instruments and take any other action required or
requested by FINOVA to comply with the provisions of the Federal Assignment of
Claims Act; and
6.1.13 Financial Covenants. Comply with the financial covenants set forth
on the Schedule.
6.1.14 Life Insurance. To the extent, at any time during the term of this
Agreement, Borrower purchases a life insurance policy on the life of any of its
officers or directors (collectively, the "Life Insurance Policy"), the Life
Insurance Policy shall be collaterally assigned to FINOVA (pursuant to an
assignment in form satisfactory to FINOVA, hereinafter referred to as the
"Assignment of Life Insurance") and be accepted and acknowledged in writing by
the applicable insurer or its authorized representative. Borrower hereby grants
to FINOVA a security interest in the Life Insurance Policy, now owned or
hereafter acquired, all replacements thereof, any supplementary contract issued
in connection therewith, and all proceeds of the foregoing (including without
limitation, the beneficiary's interest therein, collectively referred to as the
"Insurance Collateral") to secure Borrower's payment and performance of all the
Obligations. The insurer under the Life Insurance Policy and the terms and
conditions of the Life Insurance Policy are subject to the approval of FINOVA.
The original of the policy evidencing the Life Insurance Policy, signed by an
authorized insurance company representative, shall be delivered to FINOVA
immediately following its issuance together with a duly executed Collateral
Assignment of Life Insurance which has been accepted and acknowledged in writing
by the applicable insurer or its authorized representative. The Life Insurance
Policy shall require the insure to provide FINOVA with thirty (30) days advance
written notice of any cancellation and/or any material change in coverage.
Borrower warrants and represents that it is and will be (throughout the entire
term of the Loan) the owner and beneficiary of the Life Insurance Policy.
Notwithstanding anything herein to the contrary, upon the maturity of the Life
Insurance Policy or upon the death of the individual insured, the proceeds of
the Life Insurance Policy shall be paid directly to FINOVA, shall (at the option
of FINOVA) be treated as a prepayment and, if treated as a prepayment, shall be
applied in order against (a) all of Borrower's Obligations, other than as set
forth in the remaining subsections of this paragraph, (b) all costs and expenses
of FINOVA in connection with such prepayment, (c) accrued interest, and (d) the
unpaid principal balance of the Loans in such manner as FINOVA shall elect. No
prepayment premium or Termination Fee shall be due and owing in connection with
such prepayment. To the extent that the proceeds of said Life Insurance Policy
exceed the amount of Borrower's Obligations, any such excess shall be paid by
FINOVA directly to Borrower. Notwithstanding anything to the contrary herein,
the obligations, undertakings and representations of Borrower under this Section
16.1.14 shall survive the Closing Date and shall be a continuing obligation and
agreement of Borrower hereunder.
6.2 Negative Covenants. Without FINOVA's prior written consent, which
consent FINOVA may withhold in its sole discretion, so long as any Obligation
remains outstanding and this Agreement is in effect, Borrower shall not:
6.2.1 Mergers. Merge or consolidate with or acquire any other Person, or
make any other material change in its capital structure or in its business or
operations which might adversely affect the repayment of the Obligations;
6.2.2 Loans. Make advances, loans or extensions of credit to, or invest in,
any Person, except for loans or cash advances to employees which are permitted
in the Schedule;
6.2.3 Dividends. Declare or pay cash dividends upon any of its stock or
distribute any of its property or redeem, retire, purchase or acquire directly
or indirectly any of its stock the foregoing shall not however, prevent Borrower
from declaring stock dividends on any of its stock;
6.2.4 Adverse Transactions. Enter into any transaction which materially and
adversely affects the Collateral or its ability to repay the Obligations in full
as and when due;
6.2.5 Indebtedness of Others. Guarantee or become directly or contingently
liable for the Indebtedness of any Person, except by endorsement of instruments
for deposit and except for the existing guarantees made by Borrower prior to the
date hereof, if any, which are set forth in the Schedule;
6.2.6 Repurchase. Make a sale to any customer on a ▇▇▇▇-and-hold,
guaranteed sale, sale and return, sale on approval, consignment, or any other
repurchase or return basis;
6.2.7 Name. Use any corporate or fictitious name other than its corporate
name as set forth in its Articles or Certificate of Incorporation on the date
hereof or as set forth on the Schedule;
6.2.8 Prepayment. Prepay any Indebtedness other than trade payables and
other than the Obligations;
6.2.9 Capital Expenditure. Make or incur any Capital Expenditure if, after
giving effect thereto, the aggregate amount of all Capital Expenditures by
Borrower in any fiscal year would exceed the amount set forth on the Schedule;
6.2.10 Compensation. Pay total compensation, including salaries,
withdrawals, fees, bonuses, commissions, drawing accounts and other payments,
whether directly or indirectly, in money or otherwise, during any fiscal year to
all of Borrower's executives, officers and directors (or any relative thereof)
in an amount in excess of the amount set forth on the Schedule;
6.2.11 Indebtedness. Create, incur, assume or permit to exist any
Indebtedness (including Indebtedness in connection with Capital Leases) in
excess of the amount set forth on the Schedule, other than (i) the Obligations,
(ii) trade payables and other contractual obligations to suppliers and customers
incurred in the ordinary course of business, and (iii) other Indebtedness
existing on the date of this Agreement and reflected in the Prepared Financials
(except Indebtedness paid on the dat of this Agreement from proceeds of the
initial advances hereunder), and (iv) Subordinated Debt;
6.2.12 Affiliate Transactions. Except as set forth below, sell, transfer,
distribute or pay any money or property to any Affiliate, or invest in (by
capital contribution or otherwise) or purchase or repurchase any stock or
Indebtedness, or any property, of any Affiliate, or become liable on any
guaranty of the indebtedness, dividends or other obligations of any Affiliate.
Notwithstanding the foregoing, Borrower may pay compensation permitted by
Section 6.2.10 to employees who are Affiliates and, if no Event of Default has
occurred, Borrower may (i) engage in transactions with Affiliates in the normal
course of business, in amounts and upon terms which are fully disclosed to
FINOVA and which are no less favorable to Borrower than would be obtainable in a
comparable arm's length transaction with a Person who is not an Affiliate, and
(ii) make payments to a Subordinating Creditor that is an Affiliate, subject to
and only to the extent expressly permitted in the Subordination Agreemen between
such Subordinating Creditor and FINOVA;
6.2.13 Nature of Business. Enter into any new business or make any material
change in any of Borrower's business objectives, purposes or operations;
6.2.14 FINOVA's Name. Use the name of FINOVA in connection with any of
Borrower's business or activities, except in connection with internal business
matters or as required in dealings with governmental agencies and financial
institutions or with trade creditors of Borrower, solely for credit reference
purposes; or -------------
6.2.15 Margin Security. Borrower will not (and has not in the past) engaged
principally, or as one of its important activities, in the business of extending
credit for the purpose of purchasing or carrying margin stock (within the
meaning of Regulation G or Regulation U issued by the Board of Governors of the
Federal Reserve System), and no proceeds of any Loan or other advance will be
used to purchase or carry any margin stock or to extend credit to others for the
purpose of purchasing or carrying any margin stock, or in any manner which might
cause such Loan or other advance or the application of such proceeds to violate
(or require any regulatory filing under) Regulation G, Regulation T, Regulation
U, Regulation X or any other regulation of the Board of Governors of the Federal
Reserve System, in each case as in effect on the date or dates of such Loan or
other advance and such use of proceeds. Further, no proceeds of any Loan or
other advance will be used to acquire any security of class which is registered
pursuant to Section 12 of the Securities Exchange Act of 1934.
6.2.16 Real Property. Purchase or acquire any real property without
FINOVA's prior written consent, a condition of which consent shall include
delivery of appropriate environmental reports and analysis, in form and
substance satisfactory to FINOVA and its counsel. -------------
6.2.17 Borrower's Auditors. Change Borrower's auditors without FINOVA's
prior written consent.
6.2.18 Borrower's Fiscal Year. Change Borrower's fiscal year without
FINOVA's prior written consent.
7. DEFAULT AND REMEDIES.
7.1 Events of Default. Any one or more of the following events shall
constitute an Event of Default under this Agreement: -----------------
(a) Borrower fails to pay when due and payable any portion of the
Obligations at stated maturity, upon acceleration or otherwise;
(b) Borrower or any other Loan Party fails or neglects to perform, keep, or
observe any Obligation including, but not limited to, any term, provision,
condition, covenant or agreement contained in any Loan Document to which
Borrower or such other Loan Party is a party and such failure or neglect
continues for a period of five (5) days following its occurrence;
(c) Any material adverse change occurs in Borrower's business, assets,
operations, prospects or condition, financial or otherwise;
(d) The prospect of repayment of any portion of the Obligations or the
value or priority of FINOVA's security interest in the Collateral is materially
impaired;
(e) Any portion of Borrower's assets is seized, attached, subjected to a
writ or distress warrant, is levied upon or comes into the possession of any
judicial officer;
(f) Borrower shall generally not pay its debts as they become due or shall
enter into any agreement (whether written or oral), or offer to enter into any
agreement, with all or a significant number of its creditors regarding any
moratorium or other indulgence with respect to its debts or the participation of
such creditors or their representatives in the supervision, management or
control of the business of Borrower;
(g) Any bankruptcy or other insolvency proceeding is commenced by Borrower,
or any such proceeding is commenced against Borrower and remains undischarged or
unstayed for forty-five (45) days;
(h) Any notice of lien, levy or assessment is filed of record with respect
to any of Borrower's assets;
(i) Any judgments are entered against Borrower in an aggregate amount
exceeding Fifty Thousand Dollars ($50,000) in any fiscal year unless the same
are paid, covered by insurance or bonded, in a manner satisfactory to FINOVA;
(j) Any default shall occur under (i) any material agreement between
Borrower and any third party including, without limitation, any default which
would result in a right by such third party to accelerate the maturity of any
Indebtedness of Borrower to such third party and the aggregate amount of such
Indebtedness in default shall exceed Fifty Thousand Dollars ($50,000), or (ii)
any Subordinated Debt;
(k) Any representation or warranty made or deemed to be made by Borrower,
any Affiliate or any other Loan Party in any Loan Document or any other
statement, document or report made or delivered to FINOVA in connection
therewith shall prove to have been misleading in any material respect;
(l) Any Guarantor dies, terminates or attempts to terminate its Guaranty or
any security therefor or becomes subject to any bankruptcy or other insolvency
proceeding;
(m) Any Prohibited Transaction or Reportable Event shall occur with respect
to a Plan which could have a material adverse effect on the financial condition
of Borrower; any lien upon the assets of Borrower in connection with any Plan
shall arise; Borrower or any of its ERISA Affiliates shall fail to make full
payment when due of all amounts which Borrower or any of its ERISA Affiliates
may be required to pay to any Plan or any Multiemployer Plan as one or more
contributions thereto; Borrower or any of its ERISA Affiliates creates or
permits the creation of any accumulated funding deficiency, whether or not
waived;
(n) Any transfer of the issued and outstanding shares of common stock or
other evidence of ownership of Borrower which results in ▇▇▇▇ ▇▇▇▇▇ or his
Affiliates owning less than fifty-one percent (51%) of the outstanding shares of
common stock of Borrower; or
(o) The aggregate amount of the Letters of Credit shall be less than Three
Million Dollars ($3,000,000), or any Letter of Credit shall: (i) fail to be
renewed less than sixty (60) days prior to its expiry or for a period less than
the then-remaining term of the Loans, or (ii) be dishonored, or any draw
thereupon refused by the issuer, or (iii) be from an issuer no longer acceptable
to FINOVA in its Permitted Discretion.
NOTWITHSTANDING ANYTHING TO THE CONTRARY HEREIN, FINOVA RESERVES THE RIGHT
TO CEASE MAKING ANY LOANS DURING ANY PERIOD WHILE AN INCIPIENT DEFAULT EXISTS,
AND THEREAFTER IF AN EVENT OF DEFAULT HAS OCCURRED.
7.2 Remedies. Upon the occurrence of an Event of Default, FINOVA may,
at its option and in its sole discretion and in addition to all of its other
rights under the Loan Documents, cease making Loans, terminate this Agreement
and/or declare all of the Obligations to be immediately payable in full.
Borrower agrees that FINOVA shall also have all of its rights and remedies under
applicable law, including, without limitation, the default rights and remedies
of a secured party under the Code, and upon the occurrence of an Event of
Default Borrower hereby consents to the appointment of a receiver by FINOVA in
any action initiated by FINOVA pursuant to this Agreement and to the
jurisdiction and venue set forth in Section 9.26 hereof, and Borrower waives
notice and posting of a bond in connection therewith. Further, FINOVA may, at
any time, take possession of the Collateral and keep it on Borrower's premises,
at no cost to FINOVA, or remove any part of it to such other place(s) as FINOVA
may desire, or Borrower shall, upon FINOVA's demand, at Borrower's sole cost,
assemble the Collateral and make it available to FINOVA at a place reasonably
convenient to FINOVA. FINOVA may sell and deliver any Collateral at public or
private sales, for cash, upon credit or otherwise, at such prices and upon such
terms as FINOVA deems advisable, at FINOVA's discretion, and may, if FINOVA
deems it reasonable, postpone or adjourn any sale of the Collateral by an
announcement at the time and place of sale or of such postponed or adjourned
sale without giving a new notice of sale. Borrower agrees that FINOVA has no
obligation to preserve rights to the Collateral or marshal any Collateral for
the benefit of any Person. FINOVA is hereby granted a license or other right to
use, without charge, Borrower's labels, patents, copyrights, name, trade
secrets, trade names, trademarks and advertising matter, or any similar
property, in completing production, advertising or selling any Collateral and
Borrower's rights unde all licenses and all franchise agreements shall inure to
FINOVA's benefit. Any requirement of reasonable notice shall be met if such
notice is mailed postage prepaid to Borrower at its address set forth in the
heading to this Agreement at least ten (10) days before sale or other
disposition. The proceeds of sale shall be applied, first, to all attorneys fees
and other expenses of sale, and second, to the Obligations in such order as
FINOVA shall elect, in its sole discretion. FINOVA shall return any excess to
Borrower and Borrower shall remain liable for any deficiency to the fullest
extent permitted by law. In addition, without limiting or barring any other
remedy available to it, but subject to the provisions of Section 7.3 below,
FINOVA may draw upon each and every Letter of Credit, and the proceeds thereof
shall be applied in payment of the Obligations in such order as FINOVA
determines in its sole discretion.
7.3 Letter of Credit. FINOVA hereby agrees, that upon the occurrence of
either of an Event of Default, FINOVA will limit its draw against the Letter of
Credit to an initial draw in an amount equal to the amounts then outstanding
under Section 2.2(b) of the Schedule plus any amounts outstanding at such time
in excess of the amounts available under the lending formulas set forth in
Section 2.2(a) of the Schedule, and FINOVA will refrain from making any further
draw against the Letter of Credi for a period of fifty (50) days after the
occurrence of the Event of Default, at which time FINOVA may immediately draw
the balance of the Letter of Credit; provided, however, that FINOVA's agreement
to delay the full draw against the Letter of Credit as aforedescribed shall not
apply if a draw under the Letter of Credit involves an Event of Default
described Sections 7.1(f), 7.1(g), 7.1(k) or 7.1(o) hereof.
7.4 Standards for Determining Commercial Reasonableness. Borrower and
FINOVA agree that the following conduct by FINOVA with respect to any
disposition of Collateral shall conclusively be deemed commercially reasonable
(but other conduct by FINOVA, including, but not limited to, FINOVA's use in its
sole discretion of other or different times, places and manners of noticing and
conducting any disposition of Collateral shall not be deemed unreasonable): Any
public or private disposition: (i) as to which on no later than the tenth
(calendar day prior thereto written notice thereof is mailed or personally
delivered to Borrower and, with respect to any public disposition, on no later
than the tenth calendar day prior thereto notice thereof describing in general
non-specific terms, the Collateral to be disposed of is published once in a
newspaper of general circulation in the county where the sale is to be conducted
(provided that no notice of any public or private disposition need be given t
the Borrower or published if the Collateral is perishable or threatens to
decline speedily in value or is of a type customarily sold on a recognized
market); (ii) which is conducted at any place designated by FINOVA, with or
without the Collateral being present; and (iii) which commences at any time
between 8:00 a.m. and 5:00 p.m. Without limiting the generality of the
foregoing, Borrower expressly agrees that, with respect to any disposition of
accounts, instruments and general intangibles, it shall be commercially
reasonable for FINOVA to direct any prospective purchaser thereof to ascertain
directly from Borrower any and all information concerning the same, including,
but not limited to, the terms of payment, aging and delinquency, if any, the
financial condition of any obligor or account debtor thereon or guarantor
thereof, and any collateral therefor.
8. EXPENSES AND INDEMNITIES
8.1 Expenses. Borrower covenants that, so long as any Obligation
remains outstanding and this Agreement remains in effect, it shall promptly
reimburse FINOVA for all costs, fees and expenses incurred by FINOVA in
connection with the negotiation, preparation, execution, delivery,
administration and enforcement of each of the Loan Documents, including, but not
limited to, the attorneys' and paralegals' fees of in-house and outside counsel,
expert witness fees, lien, title search and insurance fees, appraisal fees, all
charges and expenses incurred in connection with any and all environmental
reports and environmental remediation activities, and all other costs, expenses,
taxes and filing or recording fees payable in connection with the transactions
contemplated by this Agreement, including without limitation all such costs,
fees and expenses as FINOVA shall incur or for which FINOVA shall become
obligated in connection with (i) any inspection or verification of the
Collateral, (ii) any proceeding relating to the Loan Documents or the
Collateral, (iii) actions taken with respect to the Collateral and FINOVA's
security interest therein, including, without limitation, the defense or
prosecution of any action involving FINOVA and Borrower or any third party, (iv)
enforcement of any of FINOVA's rights and remedies with respect to the
Obligations or Collateral and (v) consultation with FINOVA's attorneys and
participation in any workout, bankruptcy or other insolvency or other proceeding
involving any Loan Party or any Affiliate, whether or not suit is filed or the
issues are peculiar to federal bankruptcy or state insolvency laws. Borrower
shall also pay all FINOVA charges in connection with bank wire transfers,
forwarding of loan proceeds, deposits of checks and other items of payment,
returned checks, establishment and maintenance of lockboxes and other Blocked
Accounts, and all other bank and administrative matters, in accordance with
FINOVA's schedule of bank and administrative fees and charges in effect from
time to time. FINOVA will not charge an accommodation fee or restructure fee if
at any time during the second Loan Year, Borrower and Lender agree to increase
the advance rates against Borrower's Eligible Inventory as set forth in Section
2.2 of the Schedule. The foregoing shall not however prevent FINOVA from
charging an accommodation fee or restructure fee in connection with any other
amendments to the Loan Documents or limit the ability of FINOVA to require that
the Borrowe reimburse FINOVA for FINOVA's attorneys' fees and costs incurred in
connection with any and all amendments to the Loan Documents, including those
dealing solely with an increase in the advance rates.
8.2 Environmental Matters.
The Environmental Certificate dated on or about the date of this
Agreement is incorporated herein for all purposes as if fully stated in this
Agreement.
9. MISCELLANEOUS.
9.1 Examination of Records; Financial Reporting.
(a) Examinations. FINOVA shall at all reasonable times have full access
to and the right to examine, audit, make abstracts and copies from and inspect
Borrower's records, files, books of account and all other documents, instruments
and agreements relating to the Collateral and the right to check, test and
appraise the Collateral. Borrower shall deliver to FINOVA any instrument
necessary for FINOVA to obtain records from any service bureau maintaining
records for Borrower. All instruments and certificates prepared by Borrower
showing the value of any of the Collateral shall be accompanied, upon FINOVA's
request, by copies of related purchase orders and invoices. FINOVA may, at any
time after the occurrence of an Event of Default, remove from Borrower's
premises Borrower's books and records (or copies thereof) or require Borrower to
deliver such books and records or copies to FINOVA. FINOVA may, without expense
to FINOVA, use such of Borrower's personnel, supplies and premises as may be
reasonably necessary for maintaining or enforcing FINOVA's security interest.
(b) Reporting Requirements. Borrower shall furnish FINOVA, upon
request, such information and statements as FINOVA shall request from time to
time regarding Borrower's business affairs, financial condition and the results
of its operations. Without limiting the generality of the foregoing, Borrower
shall provide FINOVA with: (i) FINOVA's standard form collateral and loan
report, daily, and upon FINOVA's request, copies of sales journals, cash receipt
journals, and deposit slips; (ii) upon FINOVA's request, copies of sales
invoices, customer statements and credit memoranda issued, remittance advices
and reports; (iii) copies of shipping and delivery documents, upon request; (iv)
on or prior to the date set forth on the Schedule, monthly agings (aged from due
date) and reconciliations of Receivables (with listings of concentrated
accounts), payables reports, inventory reports, compliance certificates and
unaudited financial statements (exclusive of changes in stockholder's equity and
changes in cash flow) with respect to the prior month prepared on a basis
consistent with such statements prepared in prior months and otherwise in
accordance with GAAP; (v) within forty five (45) days following the end of each
calendar quarter, quarterly unaudited changes in stockholder's equity and
changes in cash flow with respect to the prior quarter prepared on the basis
consistent with such statements prepared in prior quarters and otherwise in
accordance with GAAP; (vi) audited annual consolidated financia statements,
prepared in accordance with GAAP applied on a basis consistent with the most
recent Prepared Financials provided to FINOVA by Borrower, including balance
sheets, income and cash flow statements, accompanied by the unqualified report
thereon of independent certified public accountants acceptable to FINOVA, as
soon as available, and in any event, within ninety five (95) days after the end
of each of Borrower's fiscal years; and (vii) such certificates relating to the
foregoing as FINOVA may request, including, without limitation, a monthly
certificate from the president and the chief financial officer of Borrower
showing Borrower's compliance with each of the financial covenants set forth in
this Agreement, and stating whether any Event of Default or Incipient Default
has occurred, and if so, the steps being taken to prevent or cure such Event of
Default or Incipient Default. All reports or financial statements submitted by
Borrower shall be in reasonable detail and shall be certified by th principal
financial officer of Borrower as being complete and correct.
(c) Guarantor's Financial Statements and Tax Returns. Borrower shall cause
each of the Guarantors to deliver to FINOVA such Guarantor's annual financial
statement (in form acceptable to FINOVA) and a copy of such Guarantor's federal
income tax return with respect to the corresponding year, in each case on the
date when such tax return is due or, if earlier, on the date when available.
9.2 Term; Termination.
(a) Term. The Initial Term of the Revolving Credit Loans facility and the
obligation of FINOVA to made advances with respect thereto in accordance with
this Agreement shall be as set forth on the Schedule, and the Revolving Credit
Loans facility and this Agreement shall be automatically renewed for one or more
Renewal Term(s) as set forth in the Schedule, unless earlier terminated as
provided herein.
(b) Prior Notice. Each party shall have the right to terminate this
Agreement effective at the end of the Initial Term or at the end of any Renewal
Term by giving the other party written notice not less than sixty (60) days
prior to the effective date of such termination, by registered or certified
mail.
FINOVA Loan and Security Agreement
(c) Payment in Full. Upon the effective date of termination, the
Obligations shall become immediately due and payable in full in cash.
(d) Early Termination; Termination Fee. In addition to the procedure set
forth in Section 9.2(b), Borrower may terminate this Agreement at any time but
only upon sixty (60) days' prior written notice and prepayment of the
Obligations in full, and not in part. Upon any such early termination by
Borrower or any termination of this Agreement by FINOVA upon the occurrence of
an Event of Default, then, and in any such event, Borrower shall pay to FINOVA
upon the effective date of such termination a fee (the "Termination Fee") in an
amount equal to the amount shown on the Schedule.
9.3 Recourse to Security; Certain Waivers. All Obligations shall be payable
by Borrower as provided for herein and, in full, at the termination of this
Agreement; recourse to security shall not be required at any time. Borrower
waives presentment and protest of any instrument and notice thereof, notice of
default and, to the extent permitted by applicable law, all other notices to
which Borrower might otherwise be entitled.
9.4 No Waiver by FINOVA. Neither FINOVA's failure to exercise any right,
remedy or option under this Agreement, any supplement, the Loan Documents or
other agreement between FINOVA and Borrower nor any delay by FINOVA in
exercising the same shall operate as a waiver. No waiver by FINOVA shall be
effective unless in writing and then only to the extent stated. No waiver by
FINOVA shall affect its right to require strict performance of this Agreement.
FINOVA's rights and remedies shall be ------------------- cumulative and not
exclusive.
9.5 Binding on Successor and Assigns. All terms, conditions, promises,
covenants, provisions and warranties shall inure to the benefit of and bind
FINOVA's and Borrower's respective representatives, successors and assigns.
9.6 Severability. If any provision of this Agreement shall be prohibited or
invalid under applicable law, it shall be ineffective only to such extent,
without invalidating the remainder of this Agreement.
9.7 Amendments; Assignments. This Agreement may not be modified, altered or
amended, except by an agreement in writing signed by Borrower and FINOVA.
Borrower may not sell, assign or transfer any interest in this Agreement or any
other Loan Document, or any portion thereof, including, without limitation, any
of Borrower's rights, title, interests, remedies, powers and duties hereunder or
thereunder. Borrower hereby consents to FINOVA's participation, sale,
assignment, transfer or other disposition, at any time or times hereafter, of
this Agreement and any of the other Loan Documents, or of any portion hereof or
thereof, including, without limitation, FINOVA's rights, title, interests,
remedies, powers and duties hereunder or thereunder. In connection therewith,
FINOVA may disclose all documents and information which FINOVA now or hereafter
may have relating to Borrower or Borrower's business. To the extent that FINOVA
assigns its rights and obligations hereunder to a third party, FINOVA shall
thereafter be released from such assigned obligations to Borrower and such
assignment shall effect a novation between Borrower and such third party.
9.8 Integration. This Agreement, together with the Schedule (which is a
part hereof) and the other Loan Documents, reflect the entire understanding of
the parties with respect to the transactions contemplated hereby.
9.9 Survival. All of the representations and warranties of Borrower
contained in this Agreement shall survive the execution, delivery and acceptance
of this Agreement by the parties. No termination of this Agreement or of any
guaranty of the Obligations shall affect or impair the powers, obligations,
duties, rights, representations, warranties or liabilities of the parties hereto
and all shall survive such termination.
9.10 Evidence of Obligations. Each Obligation may, in FINOVA's discretion,
be evidenced by notes or other instruments issued or made by Borrower to FINOVA.
If not so evidenced, such Obligation shall be evidenced solely by entries upon
FINOVA's books and records.
9.11 Loan Requests. Each oral or written request for a loan by any Person
who purports to be any employee, officer or authorized agent of Borrower shall
be made to FINOVA on or prior to 11:00 a.m., Los Angeles, California time, on
the Business Day on which the proceeds thereof are requested to be paid to
Borrower and shall be conclusively presumed to be made by a Person authorized by
Borrower to do so and the crediting of a loan to Borrower's operating account
shall conclusively establish Borrower's obligation to repay such loan. Unless
and until Borrower otherwise directs FINOVA in writing, all loans shall be wired
to Borrower's operating account set forth on the Schedule.
9.12 Notices. Any notice required hereunder shall be in writing and
addressed to the Borrower and FINOVA at their addresses set forth at the
beginning of this Agreement. Notices hereunder shall be deemed received on the
earlier of receipt, whether by mail, personal delivery, facsimile, or otherwise,
or upon deposit in the United States mail, postage prepaid. -------
9.13 Brokerage Fees. Borrower represents and warrants to FINOVA that, with
respect to the financing transaction herein contemplated, no Person is entitled
to any brokerage fee or other commission and Borrower agrees to indemnify and
hold FINOVA harmless against any and all such claims. --------------
9.14 Disclosure. No representation or warranty made by Borrower in this
Agreement, or in any financial statement, report, certificate or any other
document furnished in connection herewith contains any untrue statement of a
material fact or omits to state any material fact necessary to make the
statements herein or therein not misleading. There is no fact known to Borrower
or which reasonably should be known to Borrower which Borrower has not disclosed
to FINOVA in writing with respect to the transactions contemplated by this
Agreement which materially and adversely affects the business, assets,
operations, prospects or condition (financial or otherwise), of Borrower.
9.15 Publicity. FINOVA is hereby authorized to issue appropriate press
releases and to cause a tombstone to be published announcing the consummation of
this transaction and the aggregate amount thereof. Borrower is also hereby
authorized to issue appropriate press releases and to cause a tombstone to be
published announcing the consummation of this transaction and the aggregate
amount thereof with the prior written consent of FINOVA which shall not be
unreasonably withheld.
9.16 Captions. The Section titles contained in this Agreement are without
substantive meaning and are not part of this Agreement.
9.17 Injunctive Relief. Borrower recognizes that, in the event Borrower
fails to perform, observe or discharge any of its Obligations under this
Agreement, any remedy at law may prove to be inadequate relief to FINOVA.
Therefore, FINOVA, if it so requests, shall be entitled to temporary and
permanent injunctive relief in any such case without the necessity of proving
actual damages.
9.18 Counterparts; Facsimile Execution. This Agreement may be executed in
one or more counterparts, each of which taken together shall constitute one and
the same instrument, admissible into evidence. Delivery of an executed
counterpart of this Agreement by telefacsimile shall be equally as effective as
delivery of a manually executed counterpart of this Agreement. Any party
delivering an executed counterpart of this Agreement by telefacsimile shall also
deliver a manually executed counterpart of this Agreement, but the failure to
deliver a manually executed counterpart shall not affect the validity,
enforceability, and binding effect of this Agreement.
9.19 Construction. The parties acknowledge that each party and its counsel
have reviewed this Agreement and that the normal rule of construction to the
effect that any ambiguities are to be resolved against the drafting party shall
not be employed in the interpretation of this Agreement or any amendments or
exhibits hereto.
9.20 Time of Essence. Time is of the essence for the performance by
Borrower of the Obligations set forth in this Agreement.
9.21 Limitation of Actions. Borrower agrees that any claim or cause of
action by Borrower against FINOVA, or any of FINOVA's directors, officers,
employees, agents, accountants or attorneys, based upon, arising from, or
relating to this Agreement, or any other present or future agreement, or any
other transaction contemplated hereby or thereby or relating hereto or thereto,
or any other matter, cause or thing whatsoever, whether or not relating hereto
or thereto, occurred, done, omitted or suffered to be done by FINOVA, or by
FINOVA's directors, officers, employees, agents, accountants or attorneys,
whether sounding in contract or in tort or otherwise, shall be barred unless
asserted by Borrower by the commencement of an action or proceeding in a court
of competent jurisdiction by the filing of a complaint within one year after the
first act, occurrence or omission upon which such claim or cause of action, or
any part thereof, is based and service of a summons and complaint on an officer
of FINOVA or any other Person authorized to accept service of process on behalf
of FINOVA, within thirty (30) days thereafter. Borrower agrees that such
one-year period of time is a reasonable and sufficient time for Borrower to
investigate and act upon any such claim or cause of action. The one-year period
provided herein shall not be waived, tolled, or extended except by a specific
written agreement of FINOVA. This provision shall survive any termination of
this Loan Agreement or any other agreement.
9.22 Liability. Neither FINOVA nor any FINOVA Affiliate shall be liable for
any indirect, special, incidental or consequential damages in connection with
any breach of contract, tort or other wrong relating to this Agreement or the
Obligations or the establishment, administration or collection thereof
(including without limitation damages for loss of profits, business
interruption, or the like), whether such damages are foreseeable or
unforeseeable, even if FINOVA has been advised of the possibility of such
damages. Neither FINOVA, nor any FINOVA Affiliate shall be liable for any
claims, demands, losses or damages, of any kind whatsoever, made, claimed,
incurred or suffered by the Borrower through the ordinary negligence of FINOVA,
or any FINOVA Affiliate. "FINOVA Affiliate" shall mean FINOVA's directors,
officers, employees, agents, attorneys or any other Person or entity affiliated
with or representing FINOVA. ----------------
9.23 Notice of Breach by FINOVA. Borrower agrees to give FINOVA written
notice of (i) any action or inaction by FINOVA or any attorney of FINOVA in
connection with any Loan Documents that may be actionable against FINOVA or any
attorney of FINOVA or (ii) any defense to the payment of the Obligations for any
reason, including, but not limited to, commission of a tort or violation of any
contractual duty or duty implied by law. Borrower agrees that unless such notice
is fully given as promptl as possible (and in any event within thirty (30) days)
after Borrower has knowledge, or with the exercise of reasonable diligence
should have had knowledge, of any such action, inaction or defense, Borrower
shall not assert, and Borrower shall be deemed to have waived, any claim or
defense arising therefrom.
9.24 Application of Insurance Proceeds. The net proceeds of any casualty
insurance insuring the Collateral, after deducting all costs and expenses
(including attorneys' fees) of collection, shall be applied, at FINOVA's option,
either toward replacing or restoring the Collateral, in a manner and on terms
satisfactory to FINOVA, or toward payment of the Obligations. Any proceeds
applied to the payment of Obligations shall be applied in such manner as FINOVA
may elect. In no event shall such application relieve Borrower from payment in
full of all installments of principal and interest which thereafter become due
in the order of maturity thereof.
9.25 Power of Attorney. Borrower appoints FINOVA and its designees as
Borrower's attorney, with the power to endorse Borrower's name on any checks,
notes, acceptances, money orders or other forms of payment or security that come
into FINOVA's possession; to sign Borrower's name on any invoice or ▇▇▇▇ of
lading relating to any Receivable, on drafts against customers, on assignments
of Receivables, on notices of assignment, financing statements and other public
records, on verifications of accounts and on notices to customers or account
debtors; to send requests for verification of Receivables to customers or
account debtors; after the occurrence of any Event of Default, to notify the
post office authorities to change the address for delivery of Borrower's mail to
an address designated by FINOVA and to open and dispose of all mail addressed to
Borrower; and to do all other things FINOVA deems necessary or desirable to
carry out the terms of this Agreement. Borrower hereby ratifies and approves all
acts of such attorney. Neither FINOVA nor any of its designees shall be liable
for any acts or omissions nor for any error of judgment or mistake of fact or
law while acting as Borrower's attorney. This power, being coupled with an
interest, is irrevocable until the Obligations have been fully satisfied and
FINOVA's obligation to provide loans hereunder shall have terminated
9.26 Governing Law; Waivers. THIS AGREEMENT, INCLUDING WITHOUT LIMITATION
ENFORCEMENT OF THE OBLIGATIONS, SHALL BE INTERPRETED IN ACCORDANCE WITH THE
INTERNAL LAWS (AND NOT THE CONFLICT OF LAWS RULES) OF THE STATE OF ARIZONA
GOVERNING CONTRACTS TO BE PERFORMED ENTIRELY WITHIN SUCH STATE. BORROWER HEREBY
CONSENTS TO THE EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED
WITHIN THE COUNTY OF MARICOPA IN THE STATE OF ARIZONA OR, AT THE SOLE OPTION OF
FINOVA, IN ANY OTHER COURT IN WHICH FINOVA SHALL INITIATE LEGAL OR EQUITABLE
PROCEEDINGS AND WHICH HAS SUBJECT MATTER JURISDICTION OVER THE MATTER IN
CONTROVERSY. BORROWER WAIVES ANY OBJECTION OF FORUM NON CONVENIENS AND VENUE.
BORROWER FURTHER WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT, AND
CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE IN THE MANNER SET FORTH IN
SECTION 9.12 HEREOF FOR THE GIVING OF NOTICE. BORROWER FURTHER WAIVES ANY RIGHT
IT MAY OTHERWISE HAVE TO COLLATERALLY ATTACK ANY JUDGMENT ENTERED AGAINST IT.
9.27 MUTUAL WAIVER OF RIGHT TO JURY TRIAL. FINOVA AND BORROWER EACH HEREBY
WAIVES THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON,
ARISING OUT OF, OR IN ANY WAY RELATING TO: (i) THIS AGREEMENT; (ii) ANY OTHER
PRESENT OR FUTURE INSTRUMENT OR AGREEMENT BETWEEN FINOVA AND BORROWER; OR (iii)
ANY CONDUCT, ACTS OR OMISSIONS OF FINOVA OR BORROWER OR ANY OF THEIR DIRECTORS,
OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH
FINOVA OR BORROWER; IN EACH OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT
OR TORT OR OTHERWISE.
[SIGNATURE PAGE FOLLOWS]
BORROWER:
PLAY CO. TOYS & ENTERTAINMENT CORP.,
a Delaware corporation
Witness: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Esq. By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Print Name: Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Its: Secretary
FINOVA:
FINOVA CAPITAL CORPORATION, a Delaware corporation
By: ▇▇▇▇▇▇ ▇. ▇▇▇▇
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇
Its: Assistant Vice President
STATE OF )
) ss.
COUNTY OF )
The foregoing instrument was acknowledged before me this _____
day of January 1998, by __________________________, the _____________________ of
PLAY CO. TOYS & ENTERTAINMENT CORP., a Delaware corporation, on behalf of the
corporation
Notary Public
My Commission Expires:
FINOVA Loan and Security Agreement
EXHIBIT 10.91
SCHEDULE TO LOAN AND SECURITY AGREEMENT
Schedule to Loan and Security Agreement
Borrower: Play Co. Toys & Entertainment Corp., a Delaware corporation
Address: ▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Date: January 21, 1998
This Schedule forms an integral part of the Loan and Security Agreement between
the above Borrower and FINOVA Capital Corporation dated the above date, and all
references herein and therein to this "Agreement" shall be deemed to refer to
said Agreement and to this Schedule.
TOTAL FACILITY (SECTION 2.1):
The "Total Facility" is: Seven Million One Hundred Thousand Dollars
($7,100,000).
LOANS (SECTION 2.2): Revolving Credit Loans: A revolving line of credit
consisting of loans against Borrower's Eligible Inventory and against the
Letters of Credit (collectively, the "Revolving Credit Loans") in an aggregate
outstanding principal amount not to exceed the sum of (a) and (b) below:
(a) the lesser of (i) or (ii) below:
(i) Four Million Six Hundred Thousand Dollars ($4,600,000) less the amount
of the Loan Reserves; or
(ii) the sum of
(A) one of the following subparagraphs (x) or (y), as applicable: (1)
during the calendar months of January through and including July of: (x) the
first Loan Year, fifty-five percent (55%) of the value of Borrower's Eligible
Inventory, or (y) each subsequent Loan Year, fifty percent (50%) of the value of
Borrower's Eligible Inventory, in each case calculated at the lower of cost or
market value and determined on a first-in, first-out basis, or (2) during the
calendar months of August through and including December of: (x) the first Loan
Year, sixty-five percent (65%) of the value of Borrower's Eligible Inventory, or
(y) each subsequent Loan Year, sixty percent (60%) of the value of Borrower's
Eligible Inventory, in each case calculated at the lower of cost or market value
and determined on a first-in, first-out basis; less (B) any Loan Reserves, less
(C) an amount equal to the Rent Reserve, less (D) an amount equal to the Lease
Termination Reserve; plus (b) the lesser of (i) or (ii) below: (i) Three Million
Dollars ($3,000,000) less the amount of the L/C Line Reserve; or (ii) the
aggregate principal amount of the Letters of Credit less the amount of the L/C
Line Reserve.
INTEREST AND FEES (SECTION 2.6): Revolving Interest Rate. Borrower shall
pay to FINOVA interest on the daily outstanding balance of Borrower's Revolving
Credit Loans at a per annum rate of one and one-half percent (1.50%) in excess
of the rate of interest announced publicly by Citibank, N.A., (or any successor
thereto), from time to time as its "prime rate" (the "Prime Rate") which may not
be such institution's lowest rate. The interest rate chargeable hereunder in
respect of the Revolving Credit Loans (herein, the "Revolving Interest Rate")
shall be increased or decreased, as the case may be, without notice or demand of
any kind, upon the announcement of any change in the Prime Rate. Each change in
the Prime Rate shall be effective hereunder on the first day following the
announcement of such change. Interest charges and all other fees and charges
herein shall be computed on the basis of a year of 360 days and actual days
elapsed and shall be payable to FINOVA in arrears on the first day of each
month. Minimum Interest Charge. With respect to each calendar month or portion
thereof during the term of this Agreement (excluding the calendar month in which
this Agreement is executed), Borrower shall also pay FINOVA, on the first day of
the next month, as a minimum charge, the amount by which accrued interest
pursuant to the Revolving Interest Rate section above for such month or portion
thereof is less than twenty Five Thousand Dollars ($25,000) (the "Minimum
Interest Charge"). Notwithstanding the occurrence of any Event of Default
hereunder, the Minimum Interest Charge shall be paid by Borrower for the
unexpired portion of the Initial Term or any Renewal Term of this Agreement
until this Agreement is terminated. Collateral Monitoring Fee. At the closing of
this transaction and on the first day of each calendar quarter thereafter,
Borrower shall pay FINOVA a fixed collateral monitoring fee of Ten Thousand
Dollars ($10,000) per fiscal quarter or portion thereof during the term of this
Agreement ("Collateral Monitoring Fee"); provided however, that Borrower agrees
and acknowledges that each fiscal quarter a full quarter's fee shall be deemed
earned at the beginning of the respective fiscal quarter. Closing Fee. At the
closing of this transaction, Borrower shall pay to FINOVA a closing fee in an
amount equal to one percent (1.0%) of the Total Facility ("Closing Fee"), which
shall be deemed fully earned on the date such payment is due. Annual Renewal
Fee. On the first anniversary of the date of this Agreement, Borrower shall pay
FINOVA a renewal fee in an amount equal to one-half of one percent (0.50%) of
the Total Facility, and on each subsequent anniversary of said date, if any
portion of the Obligations remains unpaid or unperformed, Borrower shall pay
FINOVA a renewal fee in an amount equal to one-quarter of one percent (0.25%) of
the Total Facility, (collectively the "Annual Renewal Fee"), which shall be
deemed fully earned on the date due and shall be non-refundable. Unused Line
Fee. With respect to each fiscal quarter, or portion thereof during the term of
this Agreement, Borrower shall pay to FINOVA a fee equal to one-half of one
percent (0.50%) per annum of the difference between the Total Facility and the
average daily outstanding balance of the Revolving Credit Loans during such
quarter, or portion thereof ("Unused Line Fee"), which fee shall be calculated
and payable quarterly, in arrears, and shall be due and payable, commencing on
the first Business Day of th Borrower's first fiscal quarter following the
Closing Date and continuing on the first Business Day of each fiscal quarter
thereafter. Examination Fee. Borrower agrees to pay to FINOVA an examination fee
in the amount of Six Hundred Dollars ($600) per person per day in connection
with each audit or examination of Borrower performed by FINOVA prior to or after
the date hereof, plus all costs and expenses incurred in connection therewith
(the "Examination Fee"). Without limiting the generality of the foregoing,
Borrower shall pay to FINOVA an initial Examination Fee in an amount equal to
Six Hundred Dollars ($600) per person per day, plu all costs and expenses
incurred in connection therewith. Such initial Examination Fee shall be deemed
fully earned at the time of payment and due and payable upon the closing of this
transaction, and shall be deducted from any good faith deposit paid by Borrower
to FINOVA prior to the date of this Agreement. Upon the request of Borrower,
FINOVA will provide Borrower with a breakdown of the costs and expenses incurred
in connection with each audit or examination of Borrower performed by FINOVA.
CONDITIONS OF CLOSING (SECTION 4.1): The obligation of FINOVA to make the
initial advance hereunder is subject to the fulfillment, to the satisfaction of
FINOVA and its counsel, of each of the following conditions, in addition to the
conditions set forth in Sections 4.1 and 4.2 above: (a) Minimum Excess
Availability (Section 4.1(b)). Not less than Six Hundred Thousand Dollars
($600,000). (b) Equity Investment. FINOVA shall have received satisfactory
evidence that, on or before the Closing Date, Borrower shall have raised
additional equity of not less than One Million Five Hundred Thousand Dollars
($1,500,000) either by: (i) having completed a secondary offering of its stock,
raising cash proceeds net to Borrower in such amount, or (ii) otherwise having
raised additional equity in such amount from third-party investors. (c)
Landlord's Waivers. Borrower shall have obtained Landlord's Waivers for all
locations where Collateral is located with the exception of no more than seven
(7) locations; or, for any such location where Borrower is not able to deliver a
Landlord's Waiver, FINOVA shall have approved of Borrower's storing Collateral
at such location (subject to the application of the Rent Reserve for each such
location). (d) Letters of Credit. Borrower shall have caused to be delivered to
FINOVA one or more irrevocable and unconditional letters of credit for FINOVA's
benefit (each, together with any substitutions, renewals or replacements
thereof, a "Letter of Credit"). The Letters of Credit shall be: (i) in an
aggregate amount of not less than Three Million United States Dollars
(US$3,000,000), (ii) in form and substance, and upon such terms (including,
without limitation, acceptable automatic renewa provisions) and subject to such
conditions, acceptable to FINOVA in its sole discretion, (iii) from an issuer
acceptable to FINOVA in its sole discretion (confirmed or advised by an
acceptable domestic bank in FINOVA's sole discretion); and (iv) having an expiry
not earlier than the end of the Initial Term. Borrower shall cause the
conditions precedent set forth in Section 4.1 of this Agreement and set forth
above in this Schedule to be satisfied, and shall provide evidence to FINOVA
that all such conditions precedent have been satisfied, on or before February 3,
1998.
BORROWER INFORMATION: Borrower's State of Incorporation (Section 5.1):
Delaware.
Borrower's Trademarks, Copyrights, Licenses and Patents (Section 5.5): See
Exhibit 1 to this Schedule.
Fictitious Names/Prior Corporate Names (Section 5.2):
Prior Corporate Names: Play Co. Toys, Inc.
Fictitious Names/Store Names: See Exhibit 2 to this Schedule.
Borrower Locations (Section 5.16): See Exhibit 2 to this Schedule.
Permitted Encumbrances (Section 1.1):
(a) Subordinate lien in all Collateral in favor of Multimedia, securing
Borrower's obligations to Multimedia with respect to Multimedia's providing the
Letters of Credit, pursuant to that certain Reimbursement and Compensation
Agreement dated January 21, 1998.
(b) Subordinate lien in all of the Collateral in favor of ▇▇▇▇▇▇▇, securing
Borrower's obligations to ▇▇▇▇▇▇▇ with respect to Borrower's acquisition of Toys
International, securing a remaining balance of not more than One Hundred Twenty
Five Thousand Dollars ($125,000).
(c) Capital Leases or purchase money financings by and between Borrower and
a lessor, vendor or their respective assignees with respect to the purchase of
Equipment or fixtures, provided that the entire principal amount incurred during
any fiscal year does not exceed Seven Hundred Fifty Thousand Dollars ($750,000),
in the aggregate.
(d) Subordinate lien in all of the Collateral in favor of ABC, securing
Borrower's obligations to ABC with respect to ABC's providing Letters of Credit,
pursuant to that certain 5% Convertible, Callable, Secured Subordinated
Debenture dated January 21, 1998.
FINANCIAL COVENANTS (SECTION 6.1.13): Borrower shall comply with the
following covenant. Compliance shall be determined as of the end of each month:
Net Worth: Borrower shall maintain a Net Worth of not less than Seven
Hundred Fifty Thousand Dollars ($750,000). The foregoing covenant shall tested
without taking into account any additional equity investment or contribution
made in or to Borrower following the Closing Date; it being agreed and
understood that the making of an additional equity investment or contribution in
or to Borrower after the Closing Date shall not constitute a cure of Borrower's
violation of this financial covenant.
NEGATIVE COVENANTS (SECTION 6.2):
Employee Advances: Borrower shall not make any loans or advances to
employees except in the ordinary course of business and consistent with past
practices of Borrower in an aggregate amount outstanding not exceeding at any
time Fifty Thousand Dollars ($50,000).
Existing Guaranties: None.
Capital Expenditures: Borrower shall not make or incur any Capital
Expenditure if, after giving effect thereto, the aggregate amount of all cash
Capital Expenditures and the full principal amount of all financed Capital
Expenditures, incurred by Borrower in any fiscal year (beginning with the 1998
fiscal year) would exceed One Million Dollars ($1,000,000.00).
Compensation: Borrower shall not pay total compensation, including
salaries, withdrawals, fees, bonuses, commissions, drawing accounts and other
payments, whether directly or indirectly, in money or otherwise, during any
fiscal year to all of Borrower's executives, officers and directors (or any
relative thereof) in an amount in excess in excess of one hundred twenty five
percent (125%) of such total compensation paid in the immediately preceding
fiscal year. Indebtedness: Borrower shall not create, incur, assume or permit to
exist any Indebtedness (including Indebtedness in connection with Capital
Leases) in excess of One Million Dollars ($1,000,000), inclusive of the Seven
Hundred Fifty Thousand Dollars ($750,000) of purchase money financings and
Capital Leases described in the Borrower Informative Section of this Schedule,
other than (i) the Obligations, (ii) trade payables and other contractual
obligations to supplier and customers incurred in the ordinary course of
business and (iii) other Indebtedness existing on the date of this Agreement and
constituting a Permitted Encumbrance (other than Indebtedness paid on the date
of this Agreement from proceeds of the initial advances hereunder). Lease
Defaults: Borrower shall not at any time permit Borrower's unsatisfied
obligations, under store leases that have been intentionally breached by
Borrower in connection with the closing of stores in the ordinary course of
Borrower's business, to exceed at any one time Seven Hundred Fifty Thousand
Dollars ($750,000).
REPORTING REQUIREMENTS (SECTION 9.1):
1. Upon request, Borrower shall provide FINOVA with monthly agings aged by
invoice date and reconciliations of Receivables within fifteen (15) days after
the end of each month (for purposes of this paragraph, payments received and to
be received by Borrower from credit card companies (e.g. Visa, Mastercard and
American Express) shall be deemed cash rather than a Receivable).
2. Borrower shall provide FINOVA with monthly accounts payable agings aged
by due date, outstanding or held check registers and inventory certificates
within ten (10) days after the end of each month.
3. Borrower shall provide FINOVA with monthly perpetual inventory reports
for the Inventory valued on a first-in, first-out basis at the lower of cost or
market (in accordance with GAAP) or such other inventory reports as are
reasonably requested by FINOVA, all within ten (10) days after the end of each
month.
4. Borrower shall provide FINOVA with monthly unaudited internally prepared
financial statements within thirty (30) days after the end of each month. The
monthly financial statements shall be subject to minor immaterial revisions for
a period of twenty (20) days following their delivery to FINOVA.
5. Borrower shall provide FINOVA with audited consolidated fiscal financial
statements within ninety five (95) days after the end of each fiscal year, as
more specifically described in Section 9.1(b) hereof, and with an opinion issued
by a Certified Public Accountant which is acceptable to FINOVA.
6. Borrower shall provide FINOVA with annual operating budgets (including
income statements, balance sheets and cash flow statements, by month) for the
upcoming fiscal year of Borrower within thirty (30) days prior to the end of
each fiscal year of Borrower, subject to year end audit adjustments.
7. Borrower's balance sheets for purposes of the definition of Prepared
Financials shall be as of September 30, 1997.
TERM (SECTION 9.2): The initial term of this Agreement shall commence on
the Closing Date and end on August 3, 2000 (such period of time being herein the
"Initial Term") and shall be automatically renewed for successive periods of one
(1) year each (each, a "Renewal Term"), unless earlier terminated as provided in
Section 7 or 9.2 above or elsewhere in this Agreement.
Notwithstanding anything to the contrary herein contained, the outstanding
principal balance of the Loans and all other Obligations, if not sooner payable
hereunder, shall in all events be due and payable on the Due Date.
TERMINATION FEE (SECTION 9.2): Revolving Credit Loans Facility. The
Termination Fee applicable to the Revolving Credit Loans facility provided for
in Section 9.2(d) shall be an amount equal to the following percentage of the
average daily outstanding balance of the Obligations for the 180-day period (or
lesser period if applicable) preceding the date of termination: (i) two percent
(2.0%), if such early termination occurs on or prior to the first anniversary of
the date of this Agreement; and (ii) one percent (1.0 %), if such early
termination occurs after the first anniversary of the date of this Agreement.
DISBURSEMENT (SECTION 9.11): Unless and until Borrower otherwise directs
FINOVA in writing, all loans shall be wired to Borrower's operating account as
set forth on Exhibit 4 to this Schedule.
ADDITIONAL PROVISIONS:
1. At Borrower's sole expense, Borrower shall cause an Inventory appraisal
and audit update to be performed each quarter by Hilco/Great American Group, for
FINOVA's benefit. FINOVA may in its sole discretion adjust the Eligible
Inventory advance ratio, the Loan Reserves or any other reserves based upon its
review of such inventory appraisal and audit update.
BORROWER: FINOVA:
PLAY CO. TOYS & ENTERTAINMENT CORP.,
a Delaware corporation FINOVA CAPITAL CORPORATION,
a Delaware corporation
By: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ By: ▇▇▇▇▇▇ ▇. ▇▇▇▇
Its: Secretary Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇
Its: Assistant Vice President
FINOVA Loan and Security Agreement
EXHIBITS TO THIS SCHEDULE:
Exhibit 1 - Borrower's Trademarks, Copyrights, Licenses and Patents
Exhibit 2 - Borrower's locations where Collateral is stored, and store names
/trade names associated with such locations
Exhibit 3 - Pending Litigation
Exhibit 4 - Borrower's wiring instructions
EXHIBIT 1 TO
LOAN AND SECURITY AGREEMENT
TRADEMARKS,
COPYRIGHTS, LICENSES AND PATENTS
TRADEMARKS OWNED BY PLAY CO. TOYS
& ENTERTAINMENT CORP., a Delaware corporation
Trademark Registration No. Issue Date
TUTTI ANIMALI 1,722,723 10/06/92
TOYS INTERNATIONAL (Design) 1,872,910 01/10/95
TRADEMARKS ORIGINALLY FILED BY PLAY CO. TOYS,
a California corporation
Trademark Registration No. Issue Date
KNOCK OUT YOUR OPPONENT WITH TKO 1,896,335 05/30/95
TKO 1,896,334 05/30/95
P.L. TOYS 1,784,649 07/27/93
PRESCOTT PANDA 1,786,274 08/03/93
PLAY CO. 1,460,385 10/06/87
FINOVA Loan and Security Agreement
EXHIBIT 2 TO
LOAN AND SECURITY AGREEMENT
BORROWER'S LOCATIONS WHERE
COLLATERAL IS STORED
STORE NO.
STORE LOCATION
Los Angeles County, California
22 Century City
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3 Santa Clarita
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10 Pasadena
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20 Woodland Hills
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24 Toys International
Redondo Beach
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Orange County, California
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4 Santa ▇▇▇▇▇▇▇▇▇
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11 Orange
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▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇ Plaza
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Riverside County, California
19 Corona
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San Bernardino County, California
15 Redlands
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25 Toy Co. Ontario ▇▇▇▇▇
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28 Rancho Cucamonga
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San Diego County, California
5 Chula Vista
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9 Encinitas
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16 Clairemont
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6 El Cajon
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-- Corporate ▇▇▇▇▇▇
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Ventura County, California
7 Simi Valley
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Maricopa County, Arizona
26 Toy Co.
Arizona ▇▇▇▇▇
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EXHIBIT 3 TO
LOAN AND SECURITY AGREEMENT
PENDING LITIGATION
Matter filed by PNS Stores, Inc. in the Los Angeles
County California Superior Court pertaining to a contract action seeking to
enforce the collection of Thirty Nine Thousand Nine Hundred Sixty Six and 92/100
Dollars ($39,966.92) under a sub-lease.
Matter filed by Shook Development Corporation in the
Los Angeles County California Superior Court pertaining to a contract action
seeking unspecified damages for unpaid rent and common area maintenance charges
under a lease.
Matter filed by Prudential Insurance Company of
America in Orange County California Superior Court pertaining to a contract
action seeking to enforce the collection of Fifty Two Thousand Five Hundred
Eight Six and 40/100 Dollars ($52,586.40) under a lease.
Matter filed by Foothill Marketplace in San
Bernardino County California Superior Court pertaining to a contract action
seeking compensatory damages of Three Hundred Thousand Dollars ($300,000) under
a lease.