1
EXHIBIT 10.6
$15,000,000.00
REVOLVING CREDIT AGREEMENT
DATED AS OF JUNE 16, 1997
BY AND AMONG
LOT$OFF CORPORATION (F/K/A 50-OFF STORES, INC.),
50-OFF TEXAS STORES, L.P.,
50-OFF MULTISTATE OPERATIONS, INC., AND
50-OFF OPERATING COMPANY,
AS BORROWERS
AND
GENERAL ELECTRIC CAPITAL CORPORATION,
AS LENDER
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TABLE OF CONTENTS
1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Accounting Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
1.3 Other Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
1.4 Certain Matters of Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2. AMOUNT AND TERMS OF CREDIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.1 Revolving Credit Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.2 Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.3 Collections: Prepayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.4 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
2.5 Single Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
2.6 Interest on Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
2.7 Receipt of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
2.8 Application of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
2.9 Accounting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
2.10 Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
2.11 Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
2.12 Eligible Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
2.13 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
2.14 Closing, Administration, and Non-Use Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
2.15 Guaranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
2.16 Joint and Several Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
2.17 Designation of Borrower Representative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
3. CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
3.1 Conditions to the Funding Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
3.2 Additional Conditions to Each Advance or Letter of Credit Obligation . . . . . . . . . . . . . . . . 41
4. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
4.1 Corporate/Partnership Existence and Qualifications; Compliance with Law . . . . . . . . . . . . . . 42
4.2 Executive Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
4.3 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
4.4 Corporate Power; Authorization; Enforceable Obligations . . . . . . . . . . . . . . . . . . . . . . 43
4.5 Subsidiary's Power and Authorization; Enforceable Obligations . . . . . . . . . . . . . . . . . . . 44
4.6 Financials; Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
4.7 Projections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
4.8 Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
4.9 Insurance Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
4.10 Schedule of Deposit Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
4.11 No Default; No Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
4.12 Labor Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
4.13 Partnerships and Affiliates; Other Ventures . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
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4.14 Investment Company Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
4.15 Margin Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
4.16 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
4.17 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
4.18 No Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
4.19 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
4.20 Outstanding Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
4.21 Employment and Labor Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
4.22 Patents, Trademarks, Copyrights and Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
4.23 Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
4.24 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
4.25 Hazardous Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
4.26 Employee Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
4.27 Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
4.28 Contracts and Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
5. FINANCIAL STATEMENTS AND INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
5.1 Reports and Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
5.2 Communication with Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
6. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
6.1 Maintenance of Existence and Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . 57
6.2 Payment of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
6.3 Lender's Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
6.4 Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
6.5 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
6.6 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
6.7 Compliance with Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
6.8 Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
6.9 Supplemental Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
6.10 Employee Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
6.11 SEC Filings and Certain Other Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
6.12 Leases: New Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
6.13 Inventory Valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
6.14 Inventory Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
6.15 Ineligibility and Returns of Inventory: No Consignment . . . . . . . . . . . . . . . . . . . . . . . 62
6.16 Deposit Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
6.17 Landlord's Agreements or Equivalent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
6.18 Application of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
6.19 Minimum Availability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
6.20 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
7. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
7.1 Mergers, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
7.2 Investments; Loans and Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
7.3 Capital Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
7.4 Maintenance of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
7.5 Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
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7.6 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
7.7 New Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
7.8 Guaranteed Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
7.9 Transfers of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
7.10 Cancellation of Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
7.11 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
7.12 Hedging Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
7.13 Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
7.14 Negative Pledge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
7.15 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
7.16 Hazardous Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
7.17 Consolidated EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
7.18 Consolidated Capital Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
7.19 Minimum Consolidated Gross Margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
7.20 Minimum Consolidated Inventory Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
7.21 Minimum Consolidated Working Capital Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
7.22 New Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
7.23 Changes in Officers; Change in Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
7.24 Accounting Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
7.25 Retail Stores . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
7.26 Employee Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
8. TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
8.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
8.2 Survival of Obligations Upon Termination of Financing Arrangement . . . . . . . . . . . . . . . . . 71
9. EVENTS OF DEFAULT: RIGHTS AND REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
9.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
9.2 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
9.3 Waivers by Borrowers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
9.4 Right of Setoff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
10. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
10.1 Complete Agreement: Modification of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
10.2 Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
10.3 No Waiver by Lender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
10.4 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
10.5 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
10.6 Binding Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
10.7 Conflict of Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
10.8 Authorized Signature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
10.9 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
10.10 Assignments; Participations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
10.11 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
10.12 Section Titles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
10.13 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
10.14 Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
10.15 GOVERNING LAW; CONSENT TO JURISDICTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
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10.16 Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
10.18 Time is of the Essence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
Exhibits:
Exhibit A - Form of Borrowing Base Certificate
Exhibit B - Form of Promissory Note
Exhibit C - Form of Notice of Advance
Exhibit D - Form of Blocked Account Agreement
Exhibit E - Form of Corporate Counsel Opinion
Exhibit F - Form of Reliance Letter
Exhibit G - Form of Compliance Certificate
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Schedules:
1 - Permitted Encumbrances
4.1(a) - Corporate/Partnership Existence and Qualifications
4.1(b) - Licenses, Permits, Consents, Approvals
4.2 - Executive Offices
4.3 - Subsidiaries
4.6 - Assets and Liabilities of Partners
4.8 - Real Property (leased and owned)
4.9 - Insurance
4.10 - Bank Accounts
4.11 - Defaults
4.13 - Partnerships/Joint Ventures; Affiliates
4.18 - Litigation
4.19 - Brokers
4.20 - Stock
4.21 - Employment/Labor Agreements
4.22 - Patents, Trademarks, Copyrights and Licenses
4.25 - Hazardous Materials
4.26 - Employee Loans
4.27 - Inventory Locations
4.28 - Material Contracts and Agreements
7.5 - Affiliate Transactions
7.7 - Indebtedness Existing on Closing Date
10.8 - Authorized Signatures
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$15,000,000
REVOLVING CREDIT AGREEMENT
This Revolving Credit Agreement dated as of June 16, 1997 between LOT$OFF
CORPORATION (formerly 50-OFF STORES, INC.), a Delaware corporation, 50-OFF
TEXAS STORES, L.P., a Texas limited partnership, 50-OFF MULTISTATE OPERATIONS,
INC., a Nevada corporation, and 50-OFF OPERATING COMPANY, a Nevada corporation,
each as a Borrower, and GENERAL ELECTRIC CAPITAL CORPORATION, a New York
corporation having an office at ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇.▇., ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇ ▇▇▇▇▇ ("Lender"), is based upon the following facts:
W I T N E S S E T H:
WHEREAS, the Borrowers are each a reorganized debtor in the Chapter 11 Case;
and
WHEREAS, the Borrowers and Lender are parties to that certain $15,000,000
Senior Secured Super Priority Debtor- in- Possession Revolving Credit Agreement
dated as of November 18, 1996, pursuant to which Lender has provided Borrowers
with financing for the Chapter 11 Case; and
WHEREAS, Borrowers have filed the Reorganization Plan, which was confirmed
pursuant to the Confirmation Order, and have requested that Lender provide
Borrowers with financing for the Reorganization Plan and other general
corporate purposes; and
WHEREAS, Lender is willing to provide such financing on the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, each Borrower and Lender agree as follows:
1. DEFINITIONS
1.1 Definitions. In addition to the defined terms appearing above or
defined in subsequent Sections of this Agreement, capitalized terms used in
this Agreement shall have (unless otherwise provided elsewhere in this
Agreement) the following respective meanings:
"ADVANCE" shall have the meaning assigned to it in Section 2.1(a)(i).
"AFFILIATE" shall mean with respect to any Person (i) each Person that,
directly or indirectly, owns or controls,
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whether beneficially, or as a trustee, guardian or other fiduciary, twenty
percent (20%) or more of the Stock having ordinary voting power in the election
of directors of such Person, (ii) each Person that controls, is controlled by
or is under common control with such Person or any Affiliate of such Person, or
(iii) each of such Person's officers, directors, joint venturers and partners;
provided, however, that in no case shall Lender be deemed to be an Affiliate of
Borrower for purposes of this Agreement. For the purpose of this definition,
"control" of a Person shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of its management or policies, whether
through the ownership of voting securities, by contract or otherwise.
"AGREEMENT" shall mean this $15,000,000 Revolving Credit Agreement,
including all amendments, modifications and supplements hereto and any
appendices, exhibits or schedules to any of the foregoing, and shall refer to
the Agreement as the same may be in effect at the time such reference becomes
operative.
"ANCILLARY AGREEMENTS" shall mean any supplemental agreement, undertaking,
instrument, document or other writing executed by any Borrower, Guarantor or
Partner as a condition to advances or funding under this Agreement or otherwise
in connection herewith, including the other Loan Documents, and all amendments
or supplements thereto.
"ASSIGNMENT OF PARTNERSHIP INTEREST" shall mean the Assignment of
Partnership Interest of even date herewith, entered into by 50-OFF Texas
Management, Inc. in favor of Lender, including all amendments, modifications
and supplements thereto, and shall refer to such Assignment of Partnership
Interest as the same may be in effect at the time such reference becomes
operative.
"AVAILABILITY" shall mean, at any time, the Borrowing Base minus the
outstanding amount of the Loan.
"BANKRUPTCY CODE" shall mean the provisions of ▇▇▇▇▇ ▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇
Code, as the same may be amended from time to time.
"BLOCKED ACCOUNT AGREEMENTS" shall have the meaning set forth in Section
2.3(a).
"BORROWERS" shall mean LOT$OFF Corporation (f/k/a 50-Off Stores, Inc.), a
Delaware corporation, 50-Off Texas Stores, L.P., a Texas limited partnership,
50-Off Multistate Operations, Inc., a Nevada corporation and 50-Off Operating
2
9
Company, a Nevada corporation, and "Borrower" shall mean any of the foregoing.
"BORROWER LOAN OBLIGATIONS" shall have the meaning set forth in Section
2.15(a).
"BORROWER REPRESENTATIVE" shall mean 50-Off Operating Company, or any other
Borrower selected by the Borrowers and approved by Lender.
"BORROWING BASE" shall mean, at any time, the lesser of (i) the Commitment
and (ii) the sum of:
(a) (i) from August 15 through December 15 in any year, up to sixty-five
percent (65%) of Eligible Inventory valued at the lower of fair
market value or cost (on a first-in, first-out basis), and (ii) from
December 16 through August 14 in any year, up to sixty percent (60%)
of Eligible Inventory valued at the lower of fair market value or
cost (on a first-in, first-out basis), minus
(b) the sum of: (i) a sales tax reserve equal to the outstanding sales
tax liability of Borrowers as of the date of such calculation and
(ii) the Reserves.
"BORROWING BASE CERTIFICATE" shall mean a Borrowing Base Certificate,
substantially in the form of Exhibit "A" hereto, duly executed by the
Controller, Chief Accounting Officer, Chief Executive Officer or Chief
Financial Officer of Borrower Representative.
"BUSINESS DAY" shall mean any day that is not a Saturday, a Sunday or a day
on which banks are required or permitted to be closed in the States of Georgia,
Texas, Connecticut or New York.
"CAPITAL EXPENDITURES" shall mean all payments for any fixed assets or
improvements or for replacements, substitutions or additions thereto, that have
a useful life of more than one year and which are required to be capitalized
under GAAP, including Capital Lease Obligations.
"CAPITAL LEASE" shall mean, with respect to any Person, any lease of any
property (whether real, personal or mixed) by such Person as lessee that, in
accordance with GAAP, either would be required to be classified and accounted
for as a capital lease on a balance sheet of such Person or
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otherwise be disclosed as such in a note to such balance sheet.
"CAPITAL LEASE OBLIGATION" shall mean, with respect to any Capital Lease,
the amount of the obligation of the lessee thereunder that, in accordance with
GAAP, would appear on a balance sheet of such lessee in respect of such Capital
Lease or otherwise be disclosed in a note to such balance sheet.
"CASH EQUIVALENTS" shall have the meaning assigned to it in Section 7.2.
"CHAPTER 11 CASE" shall mean the bankruptcy cases of the Borrowers pending
in the United States Bankruptcy Court for the Western District of Texas, San
Antonio Division, as Chapter 11 Case No. 96-54430-C through 96-54433-K, and
being jointly administered under Case No. 96-54430-C.
"CHARGES" shall mean all Federal, state, county, city, municipal, local,
foreign or other governmental (including PBGC) taxes at the time due and
payable, levies, assessments, charges, liens, claims or encumbrances upon or
relating to (i) the Collateral, (ii) the Obligations, (iii) employees, payroll,
income or gross receipts of any Borrower or any Subsidiary of any Borrower,
(iv) ownership or use of any of the assets of any Borrower or any Subsidiary of
any Borrower, or (v) any other aspect of the business of any Borrower or any
Subsidiary of any Borrower.
"CLOSING DATE" shall mean June 16, 1997.
"CLOSING FEE" shall have the meaning assigned to it in Section 2.14(a).
"COLLATERAL" shall mean the property covered by the Collateral Documents
and any other property, real or personal, tangible or intangible, now existing
or hereafter acquired, that may at any time be or become subject to a security
interest or Lien in favor of Lender to secure the Obligations.
"COLLATERAL DOCUMENTS" shall mean the Security Agreement, the Assignment of
Partnership Interest, the Trademark and License Security Agreement, the Stock
Pledge Agreement, the Blocked Account Agreements, the Deposit Account Pledge
Agreement, the Guaranty Agreement, and any other security agreements, pledge
agreements, mortgages, deeds of trust, deeds to secure debt, assignments or
other agreement or document pursuant to which Lender obtains or
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11
perfects a security interest in or Lien on any assets or property of any
Borrower or any Partner or Guarantor.
"COLLATERAL MONITORING FEE" shall have the meaning assigned to it in
Section 2.14(b).
"COLLECTING LENDERS" shall have the meaning assigned to it in Section
2.3(a).
"COLLECTION ACCOUNT" shall mean that certain account of Lender, Account
Number ▇▇-▇▇▇-▇▇▇, in the name of GECC/CAF Depository at Bankers Trust Company,
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, ABA Number ▇▇▇▇▇▇▇▇▇.
"COMMITMENT" shall mean the obligation of Lender to make the Loan to
Borrowers hereunder in the aggregate sum of up to $15,000,000.
"COMMITMENT LETTER" shall mean that certain Commitment Letter dated May 7,
1997, by and between Borrowers and Lender.
"COMMITMENT TERMINATION DATE" shall mean the earliest of: (i) the Maturity
Date; (ii) the date that Lender elects pursuant to Section 9.2 to terminate
Borrowers' rights to receive Advances or accommodations for Letters of Credit;
or (iii) the date of prepayment in full by Borrowers of the Loan in accordance
with the provisions of Section 2.3;
"COMPANIES" shall mean Parent and all of its Subsidiaries, on a
consolidated basis.
"CONFIRMATION ORDER" shall mean the Order of the Court entered in the
Chapter 11 Case on June 3, 1997, after a final hearing under Bankruptcy Rule
3020, and from which no appeal has been timely filed, or if timely filed, such
appeal has been dismissed, which confirms the Reorganization Plan.
"CONSOLIDATED CAPITAL EXPENDITURES" shall mean for any period the sum of
all Capital Expenditures of the Companies during such period calculated in
accordance with GAAP.
"CONSOLIDATED EBITDA" shall mean for any period, as to the Borrowers,
without duplication, the sum of the consolidated net income of the Borrowers
for such period plus consolidated interest charges of the Borrowers for such
period plus consolidated taxes of the Borrowers for such period deducted in
arriving at consolidated income of the Borrowers for such period plus
consolidated non-cash charges (including depreciation and amortization of the
Borrowers
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for such period minus any consolidated non-cash income of the Borrowers for
such period calculated in accordance with GAAP in a manner consistent with the
Projections for such period minus extraordinary cash gains of the Borrowers for
such period calculated in accordance with GAAP in a manner consistent with the
Projections.
"CONSOLIDATED GROSS MARGIN" shall mean, with respect to any period of the
Borrowers, (i)(a) Net Sales, minus (b) Cost of Good Sold (excluding
depreciation, if any), divided by (ii) Net Sales.
"CONSOLIDATED INVENTORY BALANCE" shall mean as of any calculation date, the
lower of fair market value or cost (on a first-in, first-out basis) of
Inventory, net of the Borrowers' shrink reserve accrued in accordance with
Borrowers' past practices consistently applied, owned by the Borrowers as of
such date.
"CONSOLIDATED WORKING CAPITAL RATIOS" shall mean the ratio of Borrowers'
current assets to Borrowers' current liabilities (excluding the Loan and the
current portion of any other long-term Indebtedness), calculated in accordance
with GAAP.
"COST OF GOODS SOLD" shall mean, for any period of the Borrowers, costs of
goods sold as determined in accordance with GAAP.
"COURT" shall mean the United States Bankruptcy Court for the Western
District of Texas, San Antonio Division.
"DEBTOR-IN-POSSESSION CREDIT AGREEMENT" shall mean that certain $15,000,000
Senior Secured Super Priority Debtor-in-Possession Revolving Credit Agreement
dated as of November 18, 1996, between the Borrowers, each in its capacity as
debtor and debtor-in-possession, and the Lender, as amended.
"DEFAULT" shall mean any event that, with the passage of time, the giving
of notice or both, would become an Event of Default, unless cured or waived as
specifically provided in this Agreement or the other Loan Documents.
"DEFERRED TAXES" shall mean, with respect to any Person at any date, the
amount of deferred taxes of such Person as shown on the balance sheet of such
Person prepared in accordance with GAAP of such date.
"DEPOSIT ACCOUNT PLEDGE AGREEMENT" shall mean the Deposit Account Pledge
Agreement of even date herewith, entered into between Lender and Borrowers,
including all
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amendments, modifications and supplements thereto, and shall refer to such
Deposit Account Pledge Agreement as the same may be in effect at the time such
reference becomes operative.
"EARLY TERMINATION FEE" shall have the meaning set forth in Section 2.3(e).
"ELIGIBLE INVENTORY" shall mean, as of any particular time, Inventory that
is owned by any Borrower and that:
(a) is not subject to any claim of reclamation, or Lien, adverse claim,
interest or right of equal or superior priority to the Liens of Lender;
(b) consists of finished goods purchased by such Borrower in the
ordinary course of its business and does not consist of Inventory in transit,
work-in-process or raw materials;
(c) is in good condition and meets all standards imposed by any Person
having regulatory authority over such goods, its use and/or sale, is not
obsolete, and is currently saleable in the normal course of such Borrower's
business;
(d) such Borrower has made the representations and warranties set forth
in Section 4.27 with respect to such Inventory, which representations and
warranties have been affirmed with respect thereto at the time the most recent
Schedule of Inventory was provided to Lender;
(e) is located in the United States on one of the premises listed in
Schedule 4.27, which is either (i) real property owned by any Borrower, or (ii)
leased real property in regard to which (x) the landlord thereof, and any
bailees, warehousemen or similar parties that will be in possession of such
Inventory, shall have executed and delivered to Lender a Landlord's Agreement,
in form and substance acceptable to Lender, or (y) the Lender has established a
Reserve against the Borrowing Base as set forth in Section 6.17 hereof.
(f) has not been consigned to or by any Person;
(g) has not been returned to such Borrower from customers and not yet
been returned to regular stock at one of the locations listed in Schedule 4.27;
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14
(h) is determined by Lender, in its reasonable business judgment, to
constitute adequate Collateral to support the Advance requested by Borrower
Representative;
(i) does not include any Inventory scheduled for return to vendors,
excess Inventory, slow-moving or obsolete Inventory, clearance Inventory,
damaged goods, display items, food products other than shelf-stable foods,
perishables, live plants, cash discounts, sample Inventory, packaging and
shipping materials or shrinkage; and
(j) does not consist of capitalized Inventory costs.
"EMPLOYEE BENEFIT PLAN" shall mean any "employee benefit plan" within the
meaning of ERISA Section 3(3).
"ENVIRONMENTAL LAWS" shall mean (i) the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended by the Superfund
Amendments and Reauthorization Act of 1986, 42 U.S.C.A. Section 9601 et seq.,
(ii) the Resource Conservation and Recovery Act, as amended by the Hazardous
and Solid Waste Amendment of 1984, 42 U.S.A. Section 6901 et seq., (iii) the
Clean Air Act, 42 U.S.C.A. Section 7401 et seq., (iv) the Clean Water Act of
1977, 33 U.S.C.A. Section 1251 et seq., (v) the Toxic Substances Control Act,
15 U.S.C.A. 2601 et seq., (vi) all other laws relating to air pollution, water
pollution, noise control and/or the handling, discharge, existence, disposal or
recovery of on-site or off-site hazardous, toxic or dangerous waste, substances
or materials, as each of the foregoing may be amended from time to time, and
(vii) the rules, regulations and ordinances of (a) the city, county and state
in which any Property is located or in which Parent or any Subsidiary of Parent
has disposed of Hazardous Materials, (b) the Environmental Protection Agency
and (c) all other applicable Federal, state, regional and local agencies and
bureaus.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA AFFILIATE" shall mean any Person that is now or at any time in the
future is required to be treated as a single employer with any Borrower under
IRC Sections 414(b), (c), (m) or (o).
"EVENT OF DEFAULT" shall have the meaning assigned to it in Section 9.1.
"FEDERAL RESERVE BOARD" shall have the meaning assigned to it in Section
4.15.
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"FINANCIALS" shall mean the financial statements referred to in Section
4.6.
"FISCAL PERIOD" shall mean each of the monthly accounting periods of
Borrowers comprising a Fiscal Year.
"FISCAL QUARTER" shall mean each of the quarterly accounting periods of
Borrowers comprising a Fiscal Year.
"FISCAL YEAR" shall mean a fiscal year of Borrowers, which is the 52/53
week period ending on the Friday which is nearest to January 31. Subsequent
changes of the fiscal year of Parent or any Subsidiary of Parent shall not
change the term "Fiscal Year," unless Lender shall consent in writing to each
change.
"FUNDING DATE" shall mean the first date on which all of the following have
occurred: (i) all conditions precedent set forth in Section 3 have been
satisfied or waived in writing by Lender as provided therein, and (ii) Lender
makes or is prepared to make its first Advance to Borrowers and notice of such
Advance has been given to the Borrower Representative.
"GAAP" shall mean generally accepted accounting principles in the United
States of America as in effect from time to time, provided, if there is a
change in GAAP, such change shall not, by itself, cause a Default or Event of
Default.
"GE CAPITAL" shall mean General Electric Capital Corporation, a New York
corporation having an office at ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇.▇., ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇ ▇▇▇▇▇.
"GUARANTEED INDEBTEDNESS" shall mean, as to any Person, any obligation of
such Person guaranteeing, directly or indirectly, any indebtedness, lease,
dividend, or other obligation ("primary obligation") of any other Person (the
"primary obligor") in any manner, or any hypothecation or pledge of such
Person's property as collateral for such a primary obligation of a primary
obligor even though such Person has no personal liability with respect to such
primary obligation, including any obligation or arrangement of such Person (a)
to purchase or repurchase any such primary obligation, (b) to advance or supply
funds (i) for the purchase or payment of any such primary obligation or (ii) to
maintain working capital or equity capital of the primary obligor or otherwise
to maintain the net worth or solvency or any balance sheet condition of the
primary
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16
obligor, (c) to purchase property, securities or services primarily for the
purpose of assuring the owner of any such primary obligation of the ability of
the primary obligor to make payment of such primary obligation, or (d) to
indemnify the owner of such primary obligation against loss in respect thereof.
"GUARANTORS" shall mean and include 50-Off Texas Management, Inc., a Nevada
corporation and any other Person that, after the Closing Date, assumes in
writing any liability for all or part of the Obligations; each being referred
to individually as a "Guarantor".
"GUARANTY AGREEMENT" shall mean the Subsidiary Guaranty, dated the date of
the closing hereof, made by Guarantor in favor of Lender.
"HAZARDOUS MATERIAL" shall have the meaning assigned to it in Section 4.25.
"INDEBTEDNESS", as applied to any Person, shall mean, at any time, without
duplication, (a) all indebtedness, obligations or other liabilities of such
Person (i) for borrowed money or evidenced by debt securities, debentures,
acceptance, notes or other similar instruments, and any accrued interest, fees
and charges relating thereto, (ii) in respect of obligations to redeem,
repurchase or exchange any Stock of such Person or to pay dividends in respect
of any Stock, (iii) with respect to letters of credit issued for such Person's
account, (iv) to pay the deferred purchase price of property or services,
except accounts payable and accrued expenses arising in the ordinary course of
business, (v) in respect of Capital Leases, (vi) which are Guaranteed
Indebtedness or (vii) under warranties and indemnities; (b) all indebtedness,
obligations or other liabilities of such Person or others secured by a Lien on
any property of such Person, whether or not such indebtedness, obligations or
liabilities are assumed by such Person, all as of such time; (c) all
indebtedness, obligations or other liabilities of such Person in respect of
interest rate contracts and foreign exchange contracts, net of liabilities owed
to such Person by the counterparts thereon, and factoring agreements; (d) all
preferred stock subject (upon the occurrence of any contingency or otherwise)
to mandatory redemption; and (e) all Charges of such Person and all contingent
contractual obligations with respect to any of the foregoing.
"INDEMNIFIED PERSON" shall have the meaning assigned to it in Section 2.10.
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"INDEX RATE" shall mean, on any given date, the latest annualized yield on
30-day commercial paper, as most recently published in the "Money Rate" section
of the Wall Street Journal. The Index Rate will be determined on a monthly
basis on the last business day of each month (except for the initial Index Rate
hereunder, which shall be determined as of the last Business Day prior to the
Closing Date), and the Index Rate so determined will be utilized for the next
succeeding month.
"INTERCREDITOR AGREEMENT" shall mean any Intercreditor Agreement entered
into between Lender and MetLife Capital Corporation on or after the Closing
Date.
"INVENTORY" shall mean any "inventory," as such term is defined in the UCC,
now or hereafter owned or acquired by any Borrower, wherever located, and, in
any event, including all Inventory, merchandise, goods and other personal
property which are held by or on behalf of such Borrower for sale or are
furnished or which constitute raw materials, work in process, or materials used
or consumed or to be used or consumed in such Borrower's business, or in the
processing, packaging, advertising, promotion, delivery or shipping of the
same, and all finished goods.
"IRC" shall mean the Internal Revenue Code of 1986, as amended, and any
successor thereto.
"IRS" shall mean the Internal Revenue Service or any Person succeeding to
the functions thereof.
"LANDLORD'S AGREEMENT" shall mean a Landlord's Agreement executed by the
lessor of any leased premises of any Borrower where Inventory of such Borrower
is at any time located, or any bailee, warehouseman or similar party that will
be in possession of such Inventory, waiving or subordinating any landlord's,
bailee's, warehouseman's, or other Lien rights such Person may have with
respect to such Inventory and granting access by Lender to such leased
premises, the use by Lender thereof and other rights consistent therewith in
order to permit Lender to exercise any and all rights with respect to any of
the Collateral in form and substance satisfactory to Lender.
"▇▇ ▇▇▇▇ COLLATERAL ACCOUNT" shall have the meaning assigned to it in
Section 2.2(c).
"LEASES" shall mean all of those leasehold estates in real property now
owned or hereafter acquired by Parent or any Subsidiary of Parent, as lessee,
including, without
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limitation, the leasehold estates described in Part 1 of Schedule 4.8 attached
hereto.
"LENDER" shall mean GE Capital and its assignees.
"LETTER OF CREDIT" shall mean any commercial or standby letter of credit
issued at the request of Borrower Representative for the account of any
Borrower, and any banker's acceptance accepted at the request of Borrower
Representative for the account of any Borrower, for which Lender has incurred
Letter of Credit Obligations.
"LETTER OF CREDIT OBLIGATIONS" shall mean all outstanding obligations
incurred by Lender at the request of Borrower Representative, whether direct or
indirect, contingent or otherwise, due or not due, in connection with providing
or arranging any Letter of Credit for any Borrower. The amount of such Letter
of Credit Obligations shall equal the maximum amount which may be payable by
Lender thereupon or pursuant thereto.
"LIEN" shall mean any mortgage, deed to secure debt or deed of trust,
pledge, hypothecation, assignment, deposit arrangement, lien (including
judgment liens, liens of mechanics, suppliers and other Persons for the
provision of goods or services, and all other liens arising under statute,
common law or judicial interpretation), Charge, claim (including reclamation
claims), security interest, easement or encumbrance, preference, priority or
other security agreement or preferential arrangement of any kind or nature
whatsoever (including any lease or title retention agreement, any financing
lease having substantially the same economic effect as any of the foregoing,
and the filing of, or agreement to give, any financing statement perfecting a
security interest under the UCC or comparable law of any jurisdiction).
"LOAN" shall mean the aggregate amount of Advances outstanding at any time
(including Letter of Credit Obligations), made on behalf of any Borrower.
"LOAN DOCUMENTS" shall mean this Agreement, the Note, the Collateral
Documents, the Release Agreement, the Intercreditor Agreement, those other
Ancillary Agreements as to which Lender is a party or a beneficiary on or after
the Funding Date, including, all other agreements, instruments, documents and
certificates, including pledges, powers of attorney, consents, assignments,
contracts, notices, and all other written matter whether heretofore, now or
hereafter executed by or on behalf of Parent or any of its Subsidiaries or
Affiliates, or any employee of Parent or any
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of its Subsidiaries or Affiliates, and delivered to Lender in connection with
this Agreement or the transactions contemplated hereby.
"LOAN PARTY" shall mean each Borrower and each Guarantor.
"MATERIAL ADVERSE EFFECT" shall mean a material adverse effect on (i) the
financial condition, operations assets, or business or financial prospects of
Borrowers, taken as one enterprise, (ii) the ability of Borrowers, taken as one
enterprise, to pay and/or perform their Obligations in accordance with the
terms hereof and of the other Loan Documents, (iii) the value of the Collateral
or, other than as a result of Lender's gross negligence or wilful misconduct,
Lender's Liens on the Collateral or the priority of such Liens, or (iv)
Lender's rights and remedies under the Loan Documents;
"MATURITY DATE" shall mean June 16, 2000.
"MAXIMUM LAWFUL RATE" shall have the meaning assigned to it in Section
2.6(e).
"MULTIEMPLOYER PLAN" shall mean a "multiemployer plan" within the meaning
of ERISA Section 4001(a)(3).
"NET CASH PROCEEDS" shall mean, with respect to any issuance by Parent of
any Stock, the aggregate amount of cash received for such Stock, net of
reasonable and customary transaction costs properly attributable to such
transaction and payable by Parent in connection with such issuance of Stock,
including without limitation, underwriting discounts.
"NET SALES" shall mean for any period of the Borrowers, the net sales of
the Borrowers determine in accordance with GAAP.
"NON-USE FEE" shall have the meaning assigned to it in Section 2.14(c).
"NOTE" shall mean the Promissory Note delivered by Borrowers, jointly and
severally, to Lender in the maximum outstanding principal amount of
$15,000,000, which note shall be in the form of Exhibit "B" hereto.
"NOTICE OF ADVANCE" shall mean a Notice of Advance delivered to Lender by
Borrower Representative substantially in the form attached as Exhibit "C."
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20
"OBLIGATIONS" shall mean all loans, advances, debts, guarantees,
liabilities and obligations for monetary amounts (whether or not such amounts
are contingent, liquidated or determinable) owing by any Borrower, Partner or
Guarantor to Lender, and all covenants and duties regarding such amounts, of
any kind or nature, present or future, whether or not evidenced by any note,
agreement or other instrument, arising under any of the Loan Documents. This
term includes, without limitation, all principal, interest (including interest
which accrues after the commencement of any case under the Bankruptcy Code),
fees, charges, expenses, attorneys' fees and any other sum chargeable to any
Borrower, Partner or Guarantor under any of the Loan Documents.
"OTHER TAXES" shall have the meaning assigned to it in Section 2.13(ii).
"PARENT" shall mean LOT$OFF Corporation (f/k/a 50-Off Stores, Inc.), a
Delaware corporation.
"PARTNERS" shall mean and include You Pay Half Investments, Inc., a Nevada
corporation, and 50-OFF Texas Management, Inc., a Nevada corporation; each
being referred to individually as a "Partner."
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any Person
succeeding to the functions thereof.
"PENSION PLAN" shall mean any "pension plan" within the meaning of ERISA
Section 3(2).
"PERMITTED ENCUMBRANCES" shall mean the following encumbrances and claims:
(i) Liens for taxes or assessments or other governmental charges or levies,
either not yet due and payable or to the extent that nonpayment thereof is
permitted by the terms of this Agreement; (ii) pledges or deposits securing
utility payments, bids, tenders, contracts (other than contracts for the
payment of money) to which any Borrower is a party, made in the ordinary course
of business; (iii) mechanics', suppliers', carriers', warehousemen's or other
similar liens arising in the ordinary course of business and securing
indebtedness that is either (a) not more than thirty (30) days past the date
such indebtedness first became due and payable, or (b) being contested in good
faith and, if required according to GAAP, appropriately reserved for on the
books of such Borrower; (iv) any attachment or judgment Liens securing the
payment of money, unless the judgment it secures shall not (x) have been
discharged within sixty (60) days after the entry
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thereof, (y) have been stayed pending appeal, or (z) have been discharged
within sixty (60) days after the expiration of any such stay; (v) purchase
money security interests provided that such Liens attach only to the asset so
purchased by the applicable Borrower and secures only Indebtedness incurred by
such Borrower in order to purchase such asset, but only to the extent permitted
by Section 7.7 hereof; (vi) Liens on assets of any Borrower existing on the
Closing Date and disclosed on Schedule 1 hereto, including the lien of MetLife
Capital Corporation on the Borrowers' furniture, fixtures, equipment, machinery
and rolling stock, as more fully described in the Reorganization Plan, and in
an aggregate principal amount not exceeding $850,000; (vii) Liens in favor of
Lender under the Collateral Documents; (viii) Liens of landlords of any leased
premises of any Borrower that have been subordinated to the Liens in favor of
Lender as security for the Loan, (ix) the Series B Preferred Stock Lien and the
Class 7 Lien (as those terms are defined in the Reorganization Plan); (x) all
contingent fee interests and claims of counsel (including, without limitation,
Akin, Gump, Strauss, ▇▇▇▇▇ & ▇▇▇▇, L.L.P.) prosecuting the Lawsuits (as defined
in the Reorganization Plan) on behalf of Borrowers, including claims for
reimbursement of expenses owing to such counsel; and (xi) such other Liens as
from time to time may be approved in writing by Lender; provided, however, that
the encumbrances and claims set forth and described in subclauses (ii) through
(iv) herein shall not exceed $150,000 in the aggregate.
"PERSON" shall mean any individual, sole proprietorship, partnership, joint
venture, limited liability company, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, entity or
government (whether Federal, state, county, city, municipal or otherwise,
including any instrumentality, division, agency, body or department thereof).
"PROHIBITED TRANSACTION" shall mean a "prohibited transaction" within the
meaning of ERISA Section 406 and/or IRC Sections 503 or 4975.
"PROJECTIONS" shall have the meaning assigned to it in Section 4.7.
"RECEIPTS" shall mean all cash, Cash Equivalents, checks, notes, drafts,
dividends and any items of payment or collection received by or on behalf of
any Borrower or by any Collecting Lender.
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"RELEASE AGREEMENT" shall mean that Release of even date herewith executed
by each of the Borrowers, in favor of the Lender.
"RELEASE DATE" shall have the meaning assigned to it in Section 2.10(a).
"REORGANIZATION PLAN" shall mean that certain Joint Plan of Reorganization
dated March 27, 1997, and filed by the Borrowers in the Chapter 11, and any
amendment or modification thereto consented to by Lender.
"REPORTABLE EVENT" shall mean a "reportable event" described in Section
4043 of ERISA.
"RESERVES" shall mean, as of any date of determination, such reserves as
Lender in its reasonable discretion deems proper and necessary from time to
time.
"RESTRICTED PAYMENT" shall mean, with respect to any Person (i) the
declaration of any dividend or the incurrence of any liability to make any
other payment or distribution of cash or other property or assets in respect of
such Person's Stock, (ii) any payment on account of the purchase, redemption or
other retirement of such Person's Stock or any other payment or distribution
made in respect thereof, either directly or indirectly, or any payment, loan,
contribution, or other transfer of funds or other property to any Stockholder
or any Subsidiary of such Person except for reasonably equivalent value.
"RIGHTS OFFERING" shall mean that certain offering of Series A Preferred
Stock and common stock of Parent more fully described in Article 7 of the
Reorganization Plan.
"SCHEDULE OF INVENTORY" shall have the meaning set forth in Section 5.1(f).
"SECURITY AGREEMENT" shall mean the Security Agreement of even date
herewith, entered into between Lender and Borrowers, including all amendments,
modifications and supplements thereto, and shall refer to such Security
Agreement as the same may be in effect at the time such reference becomes
operative.
"STATED INDEX RATE" shall have the meaning assigned to it in Section
2.6(a).
"STOCK" shall mean all shares, options, warrants, interests, participation
or other equivalents (regardless of how designated) of or in a corporation or
equivalent entity,
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whether voting or nonvoting, including common stock, preferred stock, or any
other "equity security" (as such term is defined in Rule 3a11-1 of the General
Rules and Regulations promulgated by the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as amended).
"STOCK PLEDGE AGREEMENT" shall mean the Stock Pledge Agreement of even date
herewith, entered into between Lender and Parent, including all amendments,
modifications and supplements thereto, and shall refer to such Stock Pledge
Agreement as the same may be in effect at the time such reference becomes
operative.
"SUBJECT PROPERTY" shall have the meaning set forth in Section 2.10(a).
"SUBSIDIARY" shall mean, with respect to any Person, (a) any corporation of
which an aggregate of more than fifty percent (50%) of the outstanding Stock
having ordinary voting power to elect a majority of the board of directors of
such corporation (irrespective of whether, at the time, Stock of any other
class or classes of such corporation shall have or might have voting power by
reason of the happening of any contingency) is at the time, directly or
indirectly, owned legally or beneficially by such Person and/or one or more
Subsidiaries of such Person, and (b) any partnership in which such Person
and/or one or more Subsidiaries of such Person shall have an interest (whether
in the form of voting or participation in profits or capital contribution) of
fifty percent (50%) or more of which any such Person is a general partner or
may exercise the powers of a general partner.
"TAXES" shall mean taxes, levies, imposts, deductions, charges or
withholdings, and all liabilities with respect thereto, excluding taxes imposed
on or measured by the net income of Lender by the United States of America, the
jurisdiction under the laws of which Lender is organized or the jurisdiction in
which Lender's applicable lending office is located or, in each case, any
political subdivision thereof.
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"TERMINATION DATE" shall mean the date on which Borrowers shall have no
further right to borrow any monies hereunder and all Obligations have been
completely satisfied and paid in full.
"TRADEMARK AND LICENSE SECURITY AGREEMENT" shall mean the Trademark and
License Security Agreement of even date herewith, entered into between Lender
and Borrowers, including all amendments, modifications and supplements thereto,
and shall refer to such Trademark and License Security Agreement as the same
may be in effect at the time such reference becomes operative.
"TRAILING SIX (6) FISCAL PERIODS" shall mean, as of any date of
determination, the previous six (6) Fiscal Periods of the Borrowers then ended.
"UCC" shall mean the Uniform Commercial Code of the jurisdiction with
respect to which such term is used, as in effect from time to time.
"WELFARE PLAN" shall mean any "welfare plan" within the meaning of ERISA
Section 3(1).
1.2 Accounting Terms. Any accounting term used in this Agreement shall,
unless otherwise specifically provided herein, have the meaning customarily
given such term in accordance with GAAP, and all financial computations
hereunder shall be computed, unless otherwise specifically provided herein, in
accordance with GAAP consistently applied. Certain terms or computations
explicitly modified by the phrase "in accordance with GAAP" shall in no way be
construed to limit the foregoing.
1.3 Other Terms. All other undefined terms contained in this Agreement
shall, unless the context indicates otherwise, have the meanings provided for
by the UCC as in effect in the State of Georgia to the extent the same are used
or defined therein.
1.4 Certain Matters of Construction. The words "herein," "hereof" and
"hereunder" and other words of similar import refer to this Agreement as a
whole, including the Exhibits and Schedules hereto, as the same may from time
to time be amended, modified or supplemented, and not to any particular
section, subsection or clause contained in this Agreement. Any reference to a
"Section," "Exhibit," or "Schedule" shall refer to the relevant Section of or
Exhibit or Schedule to this Agreement, unless specifically indicated to the
contrary. Wherever from the context it appears appropriate, each term stated
in either the singular or
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plural shall include the singular and plural, and pronouns stated in the
masculine, feminine or neuter gender shall include the masculine, the feminine
and the neuter. The term "including" shall not be limiting or exclusive,
unless specifically indicated to the contrary. The terms "reasonable,"
"reasonably" and the like, when used in reference to a decision, conduct or the
discretion of Lender, shall mean and refer to the reasonableness of the
conduct, decision or discretion at issue of a lender in a position equivalent
to that of Lender, including without limitation the normal and customary
concerns of a lender including, without limitation, impairment of collateral,
and the timeliness of any Borrower's compliance with its payment obligations.
2. AMOUNT AND TERMS OF CREDIT
2.1 Revolving Credit Advances.
(a) (i) Upon and subject to the terms and conditions of this
Agreement, on and after the Funding Date until the Commitment Termination Date,
Lender will make available to Borrowers, from time to time upon Borrower
Representative's request, revolving credit advances in an aggregate amount
which, when added to the aggregate amount of all outstanding Letter of Credit
Obligations for Borrowers, shall not at any time exceed the then current
Borrowing Base (each such advance being an "Advance").
(ii) Subject to the provisions of Section 2.3, and until all
amounts outstanding in respect of the Loan shall become due and payable on the
Commitment Termination Date, Borrowers may from time to time borrow, repay and
reborrow pursuant to this Section 2.1(a)(ii). Each Advance shall be made on
notice pursuant to a Notice of Advance given by Borrower Representative to
Lender no later than 12:00 noon (Eastern time) on the Business Day of the
proposed Advance. Each such notice shall be in writing, or by telephone to ▇▇.
▇▇▇▇▇ ▇▇▇▇▇▇▇ (or such other individual as Lender may designate from time to
time), GE Capital Commercial Finance, Inc. at (▇▇▇) ▇▇▇-▇▇▇▇, confirmed
immediately by facsimile transmission of a Notice of Advance at (▇▇▇) ▇▇▇-▇▇▇▇,
specifying therein the requested date and amount of such requested Advance.
Lender shall, on the date of the proposed Advance, upon satisfaction or waiver
of the applicable conditions in accordance with Section 3, wire to the bank
designated by Borrower Representative and reasonably acceptable to Lender, the
amount of such Advance for the account of the Borrower designated in the Notice
of Advance; provided, however, that any Advance made pursuant
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to telephonic notice from Borrower Representative shall be wired only to a bank
and account previously designated by Borrower Representative in writing.
(b) The Loan shall be evidenced by the Note. The Note shall represent
the joint and several obligation of Borrowers to pay the outstanding amount of
the Loan (including Letter of Credit Obligations), together with interest
thereon computed in accordance with Section 2.6(a). The date and amount of
each Advance, each payment of principal and interest with respect thereto and
the name of the Borrower for whom such Advance was made shall be recorded on
the books and records of Lender, which books and records shall constitute prima
facie evidence of the accuracy of the information therein recorded. Any
failure so to record or any error in doing so shall not, however, limit or
otherwise affect the obligation of any Borrower hereunder to pay any amount
owing with respect to the Loan or any Letter of Credit. Subject to Borrowers'
right to prepay the Loan pursuant to Section 2.3, the entire unpaid principal
of and all unpaid accrued interest on the Loan and all other Obligations shall
be due and payable on the Commitment Termination Date. In the absence of a
specific determination by Lender with respect to the application of any
payments received from or on behalf of any Borrower, such payments shall be
applied in accordance with Section 2.8.
(c) Lender may, at its option, make Advances for any Borrower's account
to the extent that any amounts are due and owing from Borrowers on account of
the Obligations, as set forth in Section 2.8.
2.2 Letters of Credit.
(a) Lender agrees, subject to the terms and conditions hereinafter set
forth, to incur Letter of Credit Obligations in respect of the issuance of
Letters of Credit supporting Indebtedness of any Borrower for its general
business purposes and operating expenses incurred in the ordinary course of
such Borrower's business, as Borrower Representative shall request by written
notice to Lender which is received by Lender not less than three (3) Business
Days prior to the proposed issuance of any such Letter of Credit; provided,
however, that the aggregate amount of all Letter of Credit Obligations incurred
by Lender for Borrowers pursuant to this Section 2.2(a) at any one time
outstanding (whether or not then due and payable) shall not exceed the lesser
of (i) $7,500,000 and (ii) the Borrowing Base minus the Loan; and provided,
however, that no such Letter of Credit shall have an expiry date which is later
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than the earlier of (i) 360 days following the date of issuance thereof and
(ii) the Maturity Date. It is understood that the determination of the bank or
other legally authorized Person (including Lender) which shall issue or accept,
as the case may be, any Letter of Credit contemplated by this Section 2.2(a)
shall be reasonably acceptable to Borrower Representative and Lender.
(b) In the event that Lender shall make any payment on or pursuant to
any Letter of Credit Obligation, such payment shall then be deemed to
constitute an Advance under Section 2.1(a), and shall bear interest as provided
in Section 2.6(a).
(c) In the event that any Letter of Credit Obligation, whether or not
then due and payable, shall for any reason be outstanding on the Commitment
Termination Date, Borrowers will either (i) obtain substitute letters of credit
so that Lender has no continuing Letter of Credit Obligation, or (ii) pay to
Lender cash or Cash Equivalents in an amount equal to one-hundred and five
percent (105%) of the maximum amount then available to be drawn under the
Letter of Credit. Such cash or Cash Equivalents shall be held by Lender in a
cash collateral account (the "▇▇ ▇▇▇▇ Collateral Account") which shall be in
the name, sole dominion and control of Lender (as a cash collateral account)
and subject to the terms of this Section 2.2. Each Borrower agrees to execute
and deliver to Lender such documentation with respect to the ▇▇ ▇▇▇▇ Collateral
Account as Lender may request, and each Borrower hereby pledges and grants to
Lender a security interest in all such cash or Cash Equivalents held in the ▇▇
▇▇▇▇ Collateral Account from time to time and all interest thereon and the
proceeds thereof, as additional security for the payment of all amounts due in
respect of the Letter of Credit Obligations, whether or not then due.
(d) From time to time after cash or Cash Equivalents are deposited in
the ▇▇ ▇▇▇▇ Collateral Account, Lender may apply such cash or Cash Equivalents
then held in the ▇▇ ▇▇▇▇ Collateral Account to the payment of any amounts, in
such order as Lender may elect, as shall be or shall become due and payable by
any Borrower to Lender with respect to such Letter of Credit Obligations and,
once all Letter of Credit Obligations have been satisfied, to any other
Obligations yet outstanding as and when due and payable.
(e) Neither any Borrower nor any Person claiming on behalf of or through
any Borrower shall have any right to withdraw any of the cash or Cash
Equivalents held in the ▇▇ ▇▇▇▇ Collateral Account, except that upon the
termination of
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any Letter of Credit Obligation in accordance with its terms and the payment of
all amounts payable by Borrowers to Lender in respect thereof, any funds
remaining in the ▇▇ ▇▇▇▇ Collateral Account in excess of the then remaining
Letter of Credit Obligations and any other outstanding Obligations to Lender
shall be returned to Borrower Representative within thirty (30) days after such
termination.
(f) Lender shall not have any obligation to invest any cash deposited in
the ▇▇ ▇▇▇▇ Collateral Account or to deposit any such cash in an
interest-bearing account, and interest and earnings thereon, if any, shall be
the property of Lender. Interest and earnings on the Cash Equivalents in the
▇▇ ▇▇▇▇ Collateral Account shall be the property of Borrowers.
(g) In the event that Lender shall incur any Letter of Credit
Obligations on behalf of any Borrower, Borrowers agree to pay to Lender, as
compensation to Lender for such Letter of Credit Obligations, until Lender has
paid or otherwise satisfied such Letter of Credit Obligations, commencing with
the month in which such Letter of Credit Obligations are incurred by Lender and
monthly thereafter for each month during which such Letter of Credit
Obligations shall remain outstanding, a fee in an amount equal to the quotient
of (i) an amount equal to (x) the sum of the daily outstanding amount of all
such Letter of Credit Obligations on each day during the previous month,
multiplied by (y) (1) a rate equal to 1.75%, or (2) upon the occurrence of a
Default, a rate equal to 3.75%, divided by (ii) 360. Borrowers will also pay
all costs incurred by or on behalf of Lender in connection with Letter of
Credit Obligations, including, without limitation, any applicable charges
assessed by the issuing banks. Fees and costs payable in respect of Letter of
Credit Obligations shall be paid to Lender, in arrears, on the first day of
each month.
2.3 Collections: Prepayment.
(a) Receipts shall be received and held by Borrowers, and any of their
respective officers, employees, agents or ther Persons acting for or in concert
with any Borrower to make collections for or on behalf of such Borrower
("Collecting Lenders"), in trust for Lender as the property of Lender. Each
Borrower and each Collecting Lender shall deposit all Receipts into the
Collection Account (directly or through such depository and intermediate
accounts that are (i) part of a comprehensive cash management system of
Borrowers which is acceptable to Lender, and (ii) lock box accounts subject to
executed
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blocked account agreements ("Blocked Account Agreements") in one of the forms
attached hereto collectively as Exhibit "D" or another form acceptable to
Lender) on or before the first Business Day following receipt thereof.
(b) So long as no acceleration pursuant to Section 9.2 has occurred, and
except to the extent otherwise provided in Section 2.3(d), upon deposit in the
Collection Account, any Receipts consisting of cash or wire or electronic
transfers in immediately available funds shall be applied by Lender to the Loan
and (x) for the purposes of determining the amount of funds available for
borrowing by Borrowers pursuant to Section 2.1(a), shall be deemed received by
Lender upon notice to Lender of such deposit, and (y) for the purposes of
calculating interest, shall be deemed received by Lender on the later of (i)
one (1) Business Day after deposit in the Collection Account and (ii) upon
notice to Lender of such deposit. All Receipts deposited in the Collection
Account consisting of checks, drafts or similar non-cash items of payment that
do not represent immediately available funds shall be applied by Lender to the
Loan and, (x) for the purposes of determining the amount of funds available for
borrowing by Borrowers, pursuant to Section 2.1(a), shall be deemed received on
the date on which Lender receives credit in the Collection Account in the form
of collected funds for such payment, and (y) for the purposes of calculating
interest, shall be deemed received one (1) Business Day after the date on which
Lender receives credit in the Collection Account in the form of collected funds
for such payment, provided, however, that, notwithstanding anything in this
Agreement or any of the other Loan Documents to the contrary, an actual payment
to Lender shall not be deemed to be made until the check, draft or other item
of payment that does not represent immediately available funds and that is
deposited in the Collection Account has actually been collected by Lender's
depository bank and such collection has been credited to Lender's account. Any
payments received by Lender under this Section 2.3(b) shall be applied in
accordance with Section 2.8 hereunder. At any time, if the outstanding
aggregate amount of the Loan (including the aggregate amount of the Letter of
Credit Obligations) exceeds the Borrowing Base, then Borrowers shall
immediately repay to Lender the amount of any such excess without notice or
demand by Lender.
(c) Each Borrower irrevocably makes, constitutes, and appoints Lender,
and all Persons designated by Lender for that purpose, at any time, as such
Borrower's true and lawful attorney and agent-in-fact to endorse such
Borrower's name on any checks, notes, drafts, or any other form of
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payment relating to Collateral or proceeds of Collateral that come into
Lender's possession or under Lender's control; provided, however, that such
appointment by such Borrower of Lender as such Borrower's attorney-in-fact
shall in no case impose upon Lender any obligation or duty to take any actions
on behalf of such Borrower or any fiduciary obligations with respect to such
Borrower.
(d) Unless otherwise agreed by Lender, in the event that no Advances are
outstanding, Borrowers shall continue to deposit all Receipts in the Collection
Account on a daily basis and, after application of such amounts against any
interest, fees or other Obligations that are then due and payable, Lender
shall, on or prior to the next Business Day, remit to Borrower Representative
the net amount of such Receipts.
(e) Borrowers shall have the right at any time, upon providing a notice
of prepayment given by Borrower Representative to Lender at least thirty (30)
Business Days prior to such payment, to prepay voluntarily the entire Loan
without premium or penalty; provided, however, Borrowers shall pay to Lender an
early termination fee (the "Early Termination Fee") equal to (i) the amount of
the Commitment on the Closing Date multiplied by 2.00%, if Borrowers prepay the
Loan on or prior to the second anniversary of the Closing Date, and (ii) the
amount of the Commitment on the Closing Date multiplied by 1.00%, if Borrowers
prepay the Loan after the second anniversary of the Closing Date but prior to
the Maturity Date. The Early Termination Fee shall be fully earned when due
and non- refundable when paid. Upon any prepayment of the entire Loan, each
Borrower's right to receive Advances hereunder shall terminate. Additionally,
if Lender terminated the Commitment during the continuance of an Event of
Default and such Event of Default, in Lender's reasonable judgment, was
intentionally caused by Borrowers to avoid payment of the Early Termination
Fee, then in view of the impracticality and extreme difficulty of ascertaining
actual damages and by mutual agreement by the parties as to a reasonable
calculation of Lender's lost profits as a result thereof, Borrowers shall pay
to Lender upon the effective date of such termination, a premium on the amount
of the Early Termination Fee which would have otherwise been payable had the
Borrowers voluntarily prepaid the Loan as of such termination date. The Early
Termination Fee shall be presumed to be the amount of damages sustained by
Lender as a result of the early termination and Borrowers agree that it is
reasonable under the circumstances currently existing.
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(f) In the event that after the Closing Date, Parent shall issue any
Stock, one hundred percent (100%) of the Net Cash Proceeds received by Parent
from such issuance shall be paid on the date of receipt of the proceeds thereof
by Parent to Lender as a mandatory payment of the Loan. The payment of the
Loan due hereunder shall not reduce the Commitment.
2.4 Use of Proceeds.
Borrowers shall use the proceeds of the Advances only for (i) the
refinancing of outstanding Indebtedness under the Debtor-in-Possession Credit
Agreement, (ii) the payment of costs and expenses of the financing transactions
contemplated by this Agreement that are payable by Borrowers, (iii) the
financing of the Reorganization Plan, and (iv) for working capital and other
corporate purposes permitted by the terms of this Agreement and the other Loan
Documents. No prepayment fee or early termination fee shall be payable by
Borrowers under the Debtor-in-Possession Credit Agreement or related documents
because of the refinancing of the Indebtedness thereunder with the proceeds of
the Loan.
2.5 Single Loan. The Loan and all of the other Obligations of any
Borrower arising under this Agreement and the other Loan Documents shall
constitute one general obligation of Borrowers secured by all of the Collateral
granted by Borrowers.
2.6 Interest on Loan.
(a) Borrowers shall be obligated to pay interest on the unpaid principal
amounts of the Loan owing to Lender from the Funding Date until the Loan is
paid in full at a floating rate per annum equal to the Index Rate in effect
from month to month plus 3.00% per annum (the "Stated Index Rate"), payable
monthly in arrears and due on the first day of each calendar month commencing
on July 1, 1997 and on the date the Loan shall be repaid in full; provided,
however, that upon the occurrence of a Default, interest on the Loan shall be
calculated at a default rate per annum equal to the Index Rate in effect from
month to month plus 5.00% per annum and shall be payable upon demand.
(b) The Stated Index Rate shall be determined on the last day of each
month (unless any such day is not a Business Day, in which event the next
succeeding Business Day will be used) for use in calculating the interest which
is payable for the following month.
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(c) If any payment on the Loan becomes due and payable on a day other
than a Business Day, the maturity thereof shall be extended to the next
succeeding Business Day and, with respect to payments of principal, interest
thereon shall be payable at the then applicable rate during such extension.
(d) All computations of interest shall be made by Lender on the basis of
a year of 360 days, in each case for the actual number of days occurring in the
period for which such interest is payable. Any change in the interest rate on
Advances or any portion thereof resulting from a change in the Index Rate shall
become effective as provided in Section 2.6(b) above. Each determination by
Lender of an interest rate hereunder shall be conclusive and binding for all
purposes, absent manifest error or bad faith.
(e) Notwithstanding anything to the contrary set forth in this Section
2.6, the Borrowers shall never be required to pay unearned interest on the Loan
and shall never be required to pay interest on the Loan at a rate in excess of
the Maximum Lawful Rate, and if the effective rate of interest which would
otherwise be payable under this Agreement would exceed the Maximum Lawful Rate,
or if Lender shall receive any unearned interest or shall receive monies that
are deemed to constitute interest which would increase the effective rate of
interest payable under this Agreement to a rate in excess of the Maximum Lawful
Rate, then (i) in lieu of the amount of interest which would otherwise be
payable under this Agreement, the Borrowers shall pay the Maximum Lawful Rate,
and (ii) any unearned interest paid by the Borrowers or any interest paid by
the Borrowers in excess of the Maximum Lawful Rate shall be credited on the
principal of the Loan, and, thereafter, refunded to the Borrower
Representative. It is further agreed that, without limitation of the
foregoing, all calculations of the rate of interest contracted for, charged or
received by Lender under this Agreement that are made for the purpose of
determining whether such rate exceeds the Maximum Lawful Rate shall be made, to
the extent permitted by usury laws applicable to Lender (now or hereafter
enacted), by amortizing, prorating and spreading in equal parts during the
period of the full stated term of the Loan all interest at any time contracted
for, charged or received by Lender in connection therewith. If at any time and
from time to time (i) the amount of interest payable to Lender on any date
shall be computed at the Maximum Lawful Rate pursuant to this Section 2.6 and
(ii) in respect of any subsequent interest computation period the amount of
interest otherwise payable to Lender would be less than the amount of interest
payable to Lender computed at the Maximum Lawful Rate, then the amount of
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interest payable to Lender in respect of such subsequent interest computation
period shall continue to be computed at the Maximum Lawful Rate until the total
amount of interest payable to Lender shall equal the total amount of interest
which would have been payable to Lender if the total amount of interest had
been computed without giving effect to this Section 2.6.
2.7 Receipt of Payments. Borrowers shall make each payment under this
Agreement not later than 2:00 P.M. (Eastern time) on the day when due in
lawful money of the United States of America in immediately available funds to
the Collection Account. Concurrently with the making of any such payment,
Borrower Representative shall notify Lender by telephone to ▇▇. ▇▇▇▇▇ ▇▇▇▇▇▇▇
(or such other individual as Lender may designate from time to time), GE
Capital Commercial Finance, Inc. at (▇▇▇) ▇▇▇-▇▇▇▇, telex or facsimile
confirmed immediately in writing.
2.8 Application of Payments. Except to the extent that Lender has
agreed to a specific application of payments in this Agreement, each Borrower
irrevocably waives the right to direct the application of any and all payments
at any time or times hereafter received by Lender from or on behalf of any
Borrower, and each Borrower irrevocable agrees that Lender shall have the
continuing exclusive right to apply any and all such payments against the then
due and payable Obligations of Borrowers and in repayment of the Loan and any
other Obligations of Borrowers as Lender may reasonably deem advisable. In the
absence of a specific determination by Lender with respect thereto, the same
shall be applied in the following order: (i) then due and payable fees and
expenses; (ii) then due and payable interest payments on the Loan; (iii) then
due and payable principal payments on the Loan; and (iv) then to any other
unpaid Obligations. Lender is authorized to, and at its option may, make
advances on behalf of any Borrower for payment of all fees, expenses, charges,
costs, principal and interest incurred by any Borrower hereunder. Such
advances shall be made when and as any Borrower fails to pay promptly such
fees, expenses, charges, costs, principal and interest and, at Lender's option
and to the extent permitted by law, shall be deemed Advances constituting part
of the Loan hereunder.
2.9 Accounting. Lender will provide Borrower Representative with a
monthly accounting of transactions under the Loan. Each and every such
accounting shall (absent manifest error) be deemed final, binding and
conclusive upon Borrowers in all respects as to all matters reflected therein,
unless Borrower Representative, within thirty (30) days after the date any such
accounting is
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received by Borrower Representative, shall notify Lender in writing of any
objection that Borrower Representative may have to any such accounting,
describing the basis for such objection with specificity. In that event, only
those items expressly objected to in such notice shall be deemed to be disputed
by Borrower Representative. Lender's determination, based upon the facts
available, of any item objected to by Borrower Representative in such notice
shall (absent manifest error) be final, binding and conclusive on Borrowers,
unless Borrower Representative shall request the independent auditors of Lender
to resolve such objection within thirty (30) days following Lender's
notification to Borrower Representative of such determination, in which event
the resolution made by Lender's independent auditors shall be final, binding
and conclusive on Borrowers and Lender.
2.10 Indemnity.
(a) Each Borrower shall indemnify and hold Lender and Lender's
respective Affiliates, officers, directors, employees, attorneys and agents
(each, an "Indemnified Person"), harmless from and against any and all suits,
actions, proceedings, claims, damages, losses, liabilities and expenses
(including reasonable attorneys' fees and disbursements and other costs of
investigations or defense, including those incurred upon any appeal) which may
be instituted or asserted against or incurred by such Indemnified Person as the
result of credit having been extended under the Loan Documents, any actions
taken or omitted to be taken pursuant to the Commitment Letter, or in
connection with or arising out of the transactions contemplated under the Loan
Documents or the Commitment Letter, including without limitation any claim,
action, suit, proceeding, loss, cost, damage, liability, deficiency, fine,
penalty, punitive damage or expense (including reasonable attorneys' and
consultants' fees, investigation and laboratory fees, court costs and
litigation expenses), directly or indirectly resulting from, arising out of, or
based upon (i) the presence, release, use, manufacture, installation,
generation, discharge, storage or
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disposal, at any time, of any Hazardous Materials on, under, in or about, or
the transportation of any such materials to or from, any real property owned,
leased or operated by any Borrower or any Affiliate or Subsidiary of Parent
(the "Subject Property") on or before the Release Date in violation of any
Environmental Law; or (ii) the violation or alleged violation by Parent or any
Subsidiary or Affiliate of Parent of any law, statute, ordinance, order, rule,
regulation, permit, judgment or license relating to the use, generation,
manufacture, installation, release, discharge, storage or disposal of Hazardous
Materials to or from the Subject Property on or before the Release Date; which
indemnity shall include, without limitation, (A) any damage, liability, fine,
penalty, punitive damage, cost or expense arising from or out of any claim,
action, suit or proceeding for personal injury (including sickness, disease,
death, pain or suffering), tangible or intangible property damage, compensation
for lost wages, business income, profits or other economic loss, damage to the
natural resources or the environment, nuisance, pollution, contamination, leak,
spill, release or other adverse effect on the environment, and (B) the cost of
any required or necessary repair, cleanup, treatment, remediation or
detoxification of the Subject Property and the preparation and implementation
of any closure, disposal, remedial or other required actions in connection with
the Subject Property; provided, however, that Borrowers shall not be liable for
any indemnification to such Indemnified Person to the extent that any such
suit, action, proceeding, claim, damage, loss, liability or expense is
determined by the final judgment of a court of competent jurisdiction to be the
result of such Indemnified Person's gross negligence or willful misconduct.
For purposes hereof, the "Release Date" shall mean the earlier of the following
two dates: (i) the date on which the Loan has been fully repaid and the
Commitment has been terminated, or (ii) the date on which the Liens of the
Collateral Documents are fully and finally foreclosed or a conveyance in lieu
of such foreclosure is fully and finally effective. Although the foregoing
indemnities may be based on acts or events occurring on or before the Release
Date, the indemnities themselves shall not terminate on the Release Date, but
will survive the Release Date, the foreclosure of Liens of the Collateral
Documents (or conveyance in lieu of foreclosure), the repayment of the Loan and
the discharge of the Obligations.
(b) Each Borrower, for itself and on behalf of its successors and
assigns, hereby waives, releases and forever discharges any now existing or
hereafter created or arising right or claim against Lender or its assigns for
contribution, reimbursement, indemnity or other similar rights against Lender
or its assigns in any way related to the use, storage, disposal, treatment or
presence of any Hazardous Materials on, in or about the Subject Property,
including any right to contribution that may exist in such Borrower's favor
pursuant to the Comprehensive Environmental Response, Compensation, and
Liability Act, 42 U.S.C. Section 9601 et seq., or any other similar law,
statute or regulation under any applicable Federal or State law, or under any
common law theory.
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(c) Each Borrower hereby acknowledges and agrees that (i) Lender is not
now, and has not ever been, in control of the Subject Property or such
Borrower's affairs; and (ii) Lender does not have the capacity to influence
such Borrower's conduct with respect to the ownership, operation or management
of the Subject Property.
2.11 Access. Lender and any of its officers, employees and agents shall
have the right, exercisable as frequently as Lender determines to be
appropriate, during normal business hours (or at such other times as may
reasonably be requested by Lender) to inspect the properties and facilities of
any Borrower and its Subsidiaries, and to audit and make extracts from all of
such Borrower's and its Subsidiaries' business and other records, files and
books of account; provided, however, if no Event of Default shall then exist,
Lender shall give Borrower Representative prior notice of any such inspection.
Each Borrower shall deliver copies of any document or instrument necessary for
Lender, as it may request, to obtain records from any service bureau
maintaining records for such Borrower and its Subsidiaries, and shall maintain
duplicate records or supporting documentation on media, including computer
tapes and discs owned by such Borrower. Each Borrower shall instruct its
banking and other financial institutions to make available to Lender such
information and records as Lender may reasonably request.
2.12 Eligible Inventory. Based on the Schedule of Inventory attached to
the most recent Borrowing Base Certificate delivered by Borrower Representative
to Lender and on other information available to Lender, Lender shall determine
which Inventory shall be deemed to be "Eligible Inventory" for purposes of
determining the amounts, if any, to be advanced to any Borrower. In
determining whether any particular Inventory constitutes Eligible Inventory,
Lender shall not include Inventory which does not meet the criteria set forth
in the definition thereof. Lender shall have discretion to classify Inventory
into any of the categories set forth in the definition thereof or such other
categories as Lender deems appropriate in determining the eligibility of
Inventory.
2.13 Taxes.
(i) Any and all payments by or on behalf of any Borrower hereunder
or under the Note, or any other Loan Document, shall be made, in accordance
with this Section 2.13, free and clear of and without deduction for any and all
present or future Taxes. If Borrowers shall be required
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by law to deduct any Taxes from or in respect of any sum payable hereunder or
under the Note, or any other Loan Document to Lender, (i) the sum payable shall
be increased as may be necessary so that after making all required deductions
(including deductions applicable to additional sums payable under this Section
2.13) Lender receives an amount equal to the sum it would have received had no
such deductions been made, (ii) Borrowers shall make such deductions, and (iii)
Borrowers shall pay the full amount deducted to the relevant taxing or other
authority in accordance with applicable law.
(ii) In addition, each Borrower agrees to pay any present or future
stamp or documentary taxes or any other excise or property taxes, charges or
similar levies that arise from any payment made hereunder or from the
execution, delivery or registration of, or otherwise with respect to, this
Agreement (hereinafter referred to as "Other Taxes").
(iii) Borrowers shall indemnify and pay, within ten (10) days of
demand therefor, Lender for the full amount of Taxes or Other Taxes (including
any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under
this Section 2.13) paid by Lender and any liability (including penalties,
interest and expenses) arising therefrom or with respect thereto, whether or
not such Taxes or Other Taxes were correctly or legally asserted.
(iv) Within thirty (30) days after the date of any such payment of
Taxes under (i) above or Other Taxes under (ii) above, Borrower Representative
shall furnish to Lender, the original or a certified copy of a receipt
evidencing payment thereof.
2.14 Closing, Administration, and Non-Use Fees.
(a) Borrowers shall pay to Lender a fully earned and non-refundable
closing fee in the amount of $100,000 (the "Closing Fee") on the Closing Date.
The Closing Fee shall be fully earned when due and non-refundable when paid;
provided, Lender shall credit against the balance due of the Closing Fee (i)
the commitment letter delivery fee in the amount of $50,000 received by Lender
from Borrowers on May 13, 1997, and (ii) the unused balance, net of expenses,
of any underwriting deposit received by Lender from Borrowers.
(b) As additional consideration for Lender's ongoing administrative
costs in making the Loan and other financial
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accommodations available to Borrowers, Borrowers agree to pay to Lender an
annual collateral monitoring fee in the amount of $50,000 (the "Collateral
Monitoring Fee"). The Collateral Monitoring Fee shall be payable in advance,
commencing on the Closing Date and on each anniversary of the Closing Date. The
Collateral Monitoring Fee shall be fully earned when due and non-refundable
when paid; provided, the unused portion (calculated on the basis of a year of
360 days for the actual number of days elapsed) of the Collateral Monitoring
Fee (as defined in the Debtor-in- Possession Credit Agreement) paid pursuant to
the Debtor-in-Possession Credit Agreement shall be credited against the amount
of the Collateral Monitoring Fee due on the Closing Date.
(c) As additional compensation for Lender's costs and risks in making
the total amount of the Commitment available to Borrowers, Borrowers agree to
pay to Lender, monthly in arrears, on the first Business Day of each month with
respect to the immediately prior month, prior to the Commitment Termination
Date and on the Commitment Termination Date, a fee (the "Non-Use Fee") for
Borrowers' non-use of available funds or Letter of Credit accommodations in an
amount equal to O.50% per annum of (x) the Commitment, minus (y) the daily
average of the Loan during the period for which the Non-Use Fee is due. The
Non-Use Fee shall be calculated based on a year of 360 days. The Non-Use Fee
shall be fully earned when due and non-refundable when paid.
2.15 Guaranty.
(a) Each Borrower hereby unconditionally guarantees to the Lender and
its successors and assigns and any subsequent holder of the Note, irrespective
of the validity and enforceability of this Agreement, the Note, or the other
Loan Documents or the obligations of any other Borrower or other guarantor
thereunder, the value or sufficiency of any Collateral or any other
circumstance that might otherwise affect the liability of a guarantor, that:
(i) the principal of and interest on the Advances made to any other Borrower,
the Note executed by any other Borrower, and all other obligations of any other
Borrower arising from, in connection with or related to any Advance to such
other Borrower, including, without limitation, taxes, fees, and any and all
reasonable expenses which may be incurred by the Lender in enforcing or
collecting any rights arising in connection with such Advances (collectively,
the "Borrower Loan Obligations"), shall be promptly paid in full when due,
whether at stated maturity, by acceleration or otherwise, in accordance with
the terms hereof and thereof; and (ii) in
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case of any extension of time of payment or renewal of any such Borrower Loan
Obligations, the same shall be promptly paid in full when due in accordance
with the terms of the extension or renewal, whether at stated maturity, by
acceleration or otherwise. Failing payment when due of any amount so
guaranteed for whatever reason, such Borrower will be obligated to pay the same
immediately.
(b) Except as provided herein, each Borrower hereby waives presentment,
protest, demand of payment, notice of dishonor and all other notices and
demands whatsoever. Each Borrower further agrees that, as between such
Borrower, on the one hand, and the Lender, on the other hand, (i) the maturity
of the Borrower Loan Obligations guaranteed hereby may be accelerated as
provided in Section 9.2 hereof for the purposes of this guarantee,
notwithstanding any stay, injunction or other prohibition preventing such
acceleration in respect of the Borrower Loan Obligations guaranteed hereby, and
(ii) in the event of any declaration of acceleration of such Borrower Loan
Obligations as provided in Section 9.2 hereof, such Borrower Loan Obligations
(whether or not due and payable) shall forthwith become due and payable by each
Borrower for purposes of this guarantee. The obligations of each Borrower
under this Section 2.15 shall be automatically reinstated if and to the extent
that for any reason any payment by or on behalf of any other Borrower is
rescinded or must otherwise be restored by any holder of any of the Borrower
Loan Obligations guaranteed hereunder, and each Borrower agrees that it will
indemnify the Lender on demand for all reasonable costs and expenses
(including, without limitation, reasonable fees and expenses of counsel)
incurred by the Lender in connection with such rescission or restoration.
(c) The guaranty of each Borrower set forth herein shall remain in full
force and effect until the Obligations are indefeasibly paid in full. No
payment or payments made by any other Borrower or any other Person or received
or collected by the Lender from any other Borrower or any other Person by
virtue of any action or proceeding or any set-off or appropriation or
application at any time or from time to time in reduction of or in payment of
the Borrower Loan Obligations shall be deemed to modify, reduce, release or
otherwise affect the liability of such Borrower pursuant to this Section 2.15,
which liability shall, notwithstanding any such payment or payments, other than
payments made by such Borrower in respect of the Borrower Loan Obligations,
remain for the Borrower Loan Obligations until the Borrower Loan Obligations
are paid in full. Each Borrower agrees that whenever, at any time, or from
time to time, it shall make any payment to the Lender on account of its
liability
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under this Section 2.15, it will notify the Lender in writing that such payment
is made under its guaranty obligations of this Section 2.15 for such purpose.
(d) Without in any manner limiting the generality of the foregoing, each
Borrower agrees that the Lender may, from time to time, consent to any action
or non-action of any Borrower which, in the absence of such consent, violates
or may violate this Agreement, with or without consideration, on such terms and
conditions as may be acceptable to the Lender, without in any manner affecting
or impairing the liability of any other Borrower hereunder. Each Borrower
authorizes the Lender, without notice or demand and without affecting such
Borrower's liability hereunder or under any of the other Loan Documents, from
time to time to: (i) renew, extend, accelerate or otherwise change the time or
place for payment of, the Obligations or any part thereof including, without
limitation, increase or decrease of the rate of interest thereon; (ii) take and
hold security, and exchange, enforce, waive and release any collateral or
security or any part thereof or any such other security or surrender, modify,
impair, change, alter, renew, continue, compromise or release in whole or in
part of any such security, or fail to perfect its interest in any such security
or to establish its priority with respect thereof; (iii) apply such security
and direct the order or manner or sale thereof as the Lender in its sole
discretion may determine; (iv) release or substitute any other Borrower, in
whole or in part or any of the endorser or guarantors of the Obligations or any
part thereof; (v) settle or compromise any or all of the Obligations with any
other Borrower or any endorser or guarantor of the Obligations; and (vi)
subordinate any or all of the Obligations to any other obligations of or claim
against any other Borrower, whether owing to or existing in favor of the Lender
or any other party.
(e) The Lender may, at its election, exercise any right or remedy it may
have against any Borrower or any security now or hereafter held by or for its
benefit including, without limitation, the right to foreclose upon any such
security by judicial or nonjudicial sale, without affecting or impairing in any
way the liability of any other Borrower hereunder, except to the extent the
Obligations may thereby be paid. Each Borrower waives any defense arising out
of the absence, impairment or loss of any right of reimbursement or other right
or remedy against any other Borrower or any such security, whether resulting
from the election by the Lender to exercise any right or remedy it may have
against any other Borrower, any defect in, failure of, or loss or absence of
priority with respect to the
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interest of the Lender in such security, or otherwise. In the event that any
foreclosure sale is deemed to be not commercially reasonable, each Borrower
waives any right that it may have to have any portion of the Obligations
discharged except to the extent of the amount actually bid and received by the
Lender at any such sale.
(f) Any part performance of the Obligations by a Borrower, or any other
event or circumstances, which operate to toll any statute of limitations as to
such Borrower, shall not operate to toll the statute of limitations as to any
other Borrower. Each Borrower waives any defense arising by reason of any
disability or other defense of any other Borrower or by reason of the cessation
from any cause whatsoever of the liability of any other Borrower. Each
Borrower waives any setoff, defense or counterclaim which any other Borrower
may have or claim to have against the Lender.
2.16 Joint and Several Liability.
(a) Each Borrower expressly represents and acknowledges that any
financial accommodations by the Lender to any other Borrower hereunder and
under the other Loan Documents are and will be of direct interest, benefit and
advantage to all the Borrowers. Each Borrower acknowledges that any notice
given by the Lender to any Borrower or the Borrower Representative shall be
effective with respect to all Borrowers. Each Borrower shall be entitled to
subrogation and contribution rights from and against any other Borrower to the
extent such Borrower is required to pay to the Lender any amount in excess of
the Advances advanced hereunder directly to such Borrower or as otherwise
available under applicable law; provided, however, that such subrogation and
contribution rights are and shall be subject to the terms and conditions of
Section 2.16(b) hereof. The provisions of this Section 2.16(a) shall in no way
limit the obligations and liabilities of any Borrower to the Lender and each
Borrower shall remain liable to the Lender for the full amount of the
Obligations.
(b) No Borrower will exercise any rights which it may acquire by way of
subrogation hereunder or under any other Loan Document or at law by any payment
made hereunder or otherwise, nor shall any Borrower seek or be entitled to seek
any contribution or reimbursement from any other Borrower in respect of
payments made by such Borrower hereunder or under any other Loan Document,
until all amounts owing to the Lender on account of the Obligations are paid in
full and the Commitment is terminated. If any amounts shall be paid to any
Borrower on account of such
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subrogation or contribution rights at any time when all of the Obligations
shall not have been paid in full, such amount shall be held by such Borrower in
trust for the Lender, segregated from other funds of such Borrower, and shall,
forthwith upon receipt by such Borrower, be turned over to the Lender in the
exact form received by such Borrower (duly endorsed by such Borrower to the
Lender, if required), to be applied against the Obligations, whether matured or
unmatured, as provided for herein.
2.17 Designation of Borrower Representative. Each of the Borrowers
hereby designates the Borrower Representative to act as its agent and
representative for all purposes hereunder and under any Loan Document. The
Borrowers shall have the right to change the identity of the Borrower
Representative upon notice to, and with the consent of, the Lender.
3. CONDITIONS PRECEDENT
3.1 Conditions to the Funding Date. Notwithstanding any other provision
of this Agreement and without affecting in any manner the rights of Lender
hereunder, Borrowers shall have no rights under this Agreement (but shall have
all applicable obligations hereunder), and Lender shall not be obligated to
make any Advances, to incur any Letter of Credit Obligations, or to take,
fulfill, or perform any other action hereunder, until the following conditions
have been fulfilled to the satisfaction of Lender or waived in writing by
Lender:
(a) This Agreement or counterparts thereof shall have been duly executed
by Borrowers, and delivered to Lender.
(b) Lender shall have received such documents, instruments and
agreements as Lender shall request in connection with the transactions
contemplated by this Agreement, in form and substance satisfactory to Lender,
including the following:
(i) A duly executed Note to the order of Lender;
(ii) A certificate of the Secretary or an Assistant Secretary of:
(A) Each Borrower certifying (x) all documents evidencing the
necessary corporate or partnership action by such Borrower and required
governmental and third party approvals with respect to each such Loan
Document,
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and (y) the names and true signatures of the authorized officers of such
Borrower;
(B) Guarantor certifying (x) the resolutions adopted by the Board
of Directors of Guarantor approving the Loan Documents to which it is a
party and the transactions contemplated thereby, (y) all documents
evidencing other necessary corporate action by Guarantor and required
governmental and third party approvals with respect to such Loan Documents,
and (z) the names and true signatures of the authorized officers of
Guarantor;
(iii) Each of the following documents:
(A) The certificate of incorporation or certificate of limited
partnership, as applicable, of each of Borrowers and Guarantor as in effect
on the Closing Date, certified by the Secretary of State or other
appropriate authority of the State of its incorporation as of a recent
date, together with a bring-down certificate from such Secretary of State
or other appropriate authority in the form of a telex or telecopy dated the
Closing Date, and the by-laws or partnership agreement as applicable, of
Borrowers and Guarantor as in effect on the Closing Date, certified by the
Secretary, Assistant Secretary or other appropriate officer or director of
Borrowers and Guarantor; and
(B) A good standing certificate for each of the Borrowers and
Guarantor from the Secretary of State or other appropriate authority of the
State of its incorporation and from each other jurisdiction in which the
character of such Borrower's or Guarantor's properties or the nature of its
respective business requires its qualification as a foreign corporation, as
of a recent date, together with a bring-down certificate in the form of a
telex or telecopy dated the Closing Date;
(iv) The Security Agreement, the Trademark and License Security
Agreement, the Stock Pledge Agreement, the Assignment of Partnership Interest
and the Deposit Account Pledge Agreement duly executed by the parties thereto,
together with delivery to Lender of:
(A) Uniform Commercial Code Financing Statements (Form UCC-l)
executed by each Borrower, as debtor, and naming the Lender, as secured
party, to be filed in all jurisdictions as may be necessary or, in the
opinion of Lender, desirable to perfect the Lien created by the Security
Agreement;
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44
(B) Uniform Commercial Code Financing Statements (Form UCC-1)
executed by 50-OFF Texas Management, Inc., as debtor, and naming the
Lender, as secured party, to be filed in all jurisdictions as may be
necessary or in the opinion of Lender, desirable to perfect the Lien
created by the Assignment of Partnership Interest, together with letters
executed by 50-OFF Texas Management, Inc. under Article 8 of the UCC with
respect to such partnership interests;
(C) Certified copies of Requests for Information (Form UCC-11), or
other evidence satisfactory to Lender, listing all effective financing
statements which name any Borrower (under its present name and any previous
name) as debtor and which are filed in the jurisdictions referred to in
said paragraph (i) above, together with copies of such financing statements
(none of which shall, in the Lender's discretion, impair the Lender's Lien
on the Collateral purported to be covered by any Collateral Document;
(D) Evidence that the insurance required by the terms of this
Agreement and the Security Agreement and hereunder is in full force and
effect, together with copies of such insurance policies and appropriate
loss payable and/or additional insured clauses or endorsements, as
appropriate, in favor of, and in form and substance satisfactory to,
Lender; and
(E) Certificates or other evidences of ownership representing the
Pledged Shares (as defined in the Stock Pledge Agreement) and appropriate
undated stock powers executed in blank;
(v) The Guaranty Agreement duly executed by Guarantor;
(vi) [Intentionally omitted.]
(vii) The duly executed Release Agreement;
(viii) All original promissory notes evidencing any intercompany
Indebtedness properly endorsed to Lender;
(ix) A bailee waiver duly executed by the owner of that certain warehouse
leased by one or more of the Borrowers in San Antonio, Texas, and a bailee
waiver duly executed by any other bailee, warehouseman or similar party in
possession of any of the Inventory, waiving any Lien of such Person on such
Inventory and granting access by Lender to such premises, the use by Lender
thereof and other rights
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consistent therewith in order to permit Lender to exercise any and all rights
with respect to any of the Collateral, all in form and substance satisfactory
to Lender;
(x) A legal opinion of ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ & ▇▇▇, P.C. (and/or Akin,
Gump, Strauss, ▇▇▇▇▇ & ▇▇▇▇, L.L.P.), corporate counsel to Borrowers and
Guarantor, in substantially the form of Exhibit "E";
(xi) Appraisals in form and substance satisfactory to Lender reflecting
values of Borrowers' assets at levels acceptable to Lender from appraisers
acceptable to Lender;
(xii) A business plan for each of the Borrowers for such time period and
containing such information as Lender may reasonably request, all in form and
substance satisfactory to Lender;
(xiii) An original Borrowing Base Certificate, duly executed by the
Controller, Chief Accounting Officer, Chief Executive Officer or Chief
Financial Officer of Borrower Representative;
(xiv) An original Notice of Advance, duly executed by the Controller,
Chief Accounting Officer, Chief Executive Officer or Chief Financial Officer
of Borrower Representative; and
(xv) Such additional documents, information and materials as Lender or
any Lender may reasonably request;
(c) The Lender shall have received the audited consolidated financial
statement of the Parent for the Fiscal Year ending January 31, 1997;
(d) Evidence satisfactory to Lender that all of the obligations of
Borrowers under the Debtor-in-Possession Credit Agreement will be paid in full
from the proceeds of the initial Advance.
(e) Evidence satisfactory to Lender that the Parent shall have received
an equity contribution pursuant to the Rights Offering of at least $3,050,000.
(f) Payment by Borrowers to Lender of all fees, costs, and expenses of
closing (including fees and expenses of consultants and counsel to Lender.
(g) No action, proceeding, investigation, regulation or legislation
shall have been instituted, threatened or proposed before any court,
governmental agency or legis-
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lative body to enjoin, restrain or prohibit, or to obtain damages in respect
of, or which is related to or arises out of this Agreement or any of the other
Loan Documents or the consummation of the transactions contemplated hereby and
thereby and which, in Lender's sole judgment, would make it inadvisable to
consummate the transactions contemplated by this Agreement or any of the other
Loan Documents.
(h) All of the assets supporting the initial Advance and the amount, if
any, of the reserves to be established on the Closing Date (including reserves
established in respect of Letter of Credit Obligations, if any) shall be
sufficient in value, on a pro forma basis after giving effect to the payment of
all anticipated closing expenditures, whether or not then paid, as determined
by Lender, and without any material deterioration of trade payables, to provide
Borrowers with Availability of not less than $1,500,000.
(i) The accuracy and completeness of the information previously or
hereafter provided to Lender by Borrowers and Partners, and no material
discrepancy therefrom shall have been discovered in the completion of Lender's
business and legal due diligence that could have a Material Adverse Effect.
(j) Since the Fiscal Period ending January 31, 1997: (i) there shall
have been no Material Adverse Effect; or (ii) no litigation shall have been
commenced against any Borrower or judgment shall have been entered or other
event shall have occurred which, in the judgment of Lender, could have a
Material Adverse Effect.
(k) There shall exist no event or condition which, with the giving of
notice, the passage of time, or both, would constitute a Default or Event of
Default under any of the Loan Documents, and the representations and warranties
of each Borrower therein shall be true and correct in all material respects.
(l) Lender shall have received evidence in form and substance
satisfactory to Lender that each Borrower has obtained all requisite judicial
consents and approvals for the borrowings and other credit extensions
contemplated under this Agreement and, subject only to the exceptions expressly
set forth herein, the granting to Lender of first-priority perfected security
interests in the Collateral.
(m) Lender shall have received evidence that the Court has entered the
Confirmation Order, and at least ten (10) days shall have elapsed since such
entry of the
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Confirmation Order on the docket of the Court, and all other conditions to the
confirmation of the Reorganization Plan shall have been satisfied.
(n) Each Borrower and each Guarantor shall be in compliance with all
federal, state and local laws and regulations, including those relating to
licensing, environmental, ERISA, labor, consumer credit and truth-in-lending
matters, except where such noncompliance could not have a Material Adverse
Effect.
(o) Each Borrower and each Guarantor each shall be duly qualified and in
good standing in all jurisdictions in which the character of its properties or
the nature of its business requires such qualification.
(p) Borrowers shall have established and implemented the cash management
system described in Section 2.3 and Borrowers shall have obtained executed
Blocked Account Agreements as acceptable to Lender.
(q) Lender shall be satisfied, in its reasonable judgment, with the
corporate, capital, tax, legal and management structure of Borrowers, and shall
be satisfied, in its sole judgment exercised reasonably, with the nature and
status of all contractual obligations, securities, labor, tax, ERISA, employee
benefit, environmental, health and safety matters, in each case, involving or
affecting any Borrower.
3.2 Additional Conditions to Each Advance or Letter of Credit
Obligation. From and after the Funding Date, it shall be a condition to each
subsequent Advance or Letter of Credit Obligation that the following statements
shall be true on the date of funding of each such Advance or the date of
incurring such Letter of Credit Obligation, as the case may be, and the
Borrowers shall be deemed to have made the following statements on each such
date:
(a) All of the representations and warranties of Borrower contained
herein or in any of the Loan Documents shall be correct in all material
respects on and as of the Funding Date and the date of funding each such
Advance or the date of incurring each such Letter of Credit Obligation, as the
case may be, as though made on and as of such date, except to the extent that
any such representation or warranty expressly relates to an earlier date and
for changes therein permitted or contemplated by this Agreement;
(b) No event shall have occurred and be continuing, or would result from
the funding of any Advance or the
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incurring of any Letter of Credit Obligation, which constitutes or would
constitute a Default or an Event of Default;
(c) The aggregate unpaid principal amount of the Loan, after giving
effect to such Advance or such Letter of Credit Obligation, shall not exceed
the Borrowing Base; and
(d) Lender shall have a first priority perfected security interest in the
Collateral.
The request and acceptance by any Borrower of the proceeds of any Advance, and
the request by Borrower Representative for the incurrence by Lender of any
Letter of Credit Obligation, as the case may be, shall be deemed to constitute,
as of the date of such request or acceptance, (i) a representation and warranty
by Borrowers that the conditions in this Section 3.2 have been satisfied and
(ii) a confirmation by Borrowers of the granting and continuance of Lender's
Liens pursuant to the Collateral Documents.
4. REPRESENTATIONS AND WARRANTIES
To induce Lender to make the Loan as provided for herein, each Borrower
makes the following representations and warranties to Lender, each and all of
which shall be true and correct as of the Funding Date, and shall also be true
and correct as of the date of any and all Advances and the incurring of Letter
of Credit Obligations:
4.1 Corporate/Partnership Existence and Qualifications; Compliance with
Law.
(a) Schedule 4.1(a) lists the state(s) of incorporation or organization
of Parent and each Subsidiary of Parent and all other states or jurisdictions
in which Parent or such Subsidiary qualified to do business as a foreign
corporation. Parent and each Subsidiary of Parent (other than 50-Off Texas
Stores, L.P.) (i) is a corporation duly organized, validly existing and, in
good standing under the laws of the state of its incorporation; and (ii) is
duly qualified as a foreign corporation and is in good standing under the laws
of each jurisdiction where its ownership or lease of property or the conduct of
its business requires such qualification. 50-Off Texas Stores, L.P. is a
limited partnership duly organized, validly existing and in good standing under
the laws of the State of Texas having Partners as its only partners. Parent
and each Subsidiary of Parent (i) has the requisite corporate or partnership,
as applicable, power and authority and the legal right to own, pledge, mortgage
or otherwise encumber and operate its
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properties, to lease the property it operates under lease, and to conduct its
business as now, heretofore and proposed to be conducted; and (ii) is in with
its certificate or articles of incorporation and bylaws or partnership
agreement, as applicable.
(b) Schedule 4.1(b) lists all material licenses, permits, consents or
approvals from or by, all material filings with, and all material notices to,
all governmental authorities having jurisdiction, to the extent required for
the ownership, operation and conduct of the properties and business of Parent
and each Subsidiary of Parent as now, heretofore and proposed to be owned,
operated and conducted. Parent and each Subsidiary of Parent (i) has all
material licenses, permits, consents or approvals from or by, and has made all
material filings with, and has given all material notices to, all governmental
authorities having jurisdiction, to the extent required for the ownership,
operation and conduct of its properties and business is now, heretofore and
proposed to be owned, operated and conducted; and (ii) is in material
compliance with all applicable provisions of law.
4.2 Executive Offices. The current location of Parent's and each
Subsidiary of Parent's chief executive office and principal place of business
is set forth in Schedule 4.2. During the prior five (5) years, no Borrower has
been known by or used any corporate, fictitious or trade name, other than its
respective name set forth on the signature pages hereof or as set forth on
Schedule 4.2 hereof.
4.3 Subsidiaries. Schedule 4.3 sets forth the authorized and
outstanding capital Stock of each Subsidiary of Parent, by class and number and
percentage of each class legally owned by Parent or by any other Person, or to
be so owned by the Funding Date. There are no options, warrants, rights to
purchase or similar rights covering capital Stock of any Subsidiary.
4.4 Corporate Power; Authorization; Enforceable Obligations. The
execution, delivery and performance by Parent of the Loan Documents, Ancillary
Agreements and all instruments and documents to be delivered by Parent
hereunder and thereunder and the creation of all Liens provided for herein and
therein: (a) are within Parent's corporate power; (b) have been, or by the
Funding Date will be, duly authorized by all necessary or proper corporate
action; (c) are not in contravention of any provision of Parent's Certificate
of Incorporation or Bylaws; (d) will not violate any law or regulation, or any
order or decree of
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any court or governmental instrumentality; (e) will not conflict with or result
in the breach or termination of, constitute a default under or accelerate any
performance required by, any indenture, mortgage, deed of trust, lease,
agreement or other instrument to which Parent is a party or by which Parent or
any of its property is bound; (f) will not result in the creation or imposition
of any Lien upon any of the property of Parent other than those in favor of
Lender, all pursuant to the Loan Documents; and (g) do not require the consent
or approval of any Governmental Authority or any other Person except those
already obtained. At or prior to the Closing Date, each of the Loan Documents
to which Parent is a party shall have been duly executed and delivered for the
benefit of or on behalf of Borrower and each shall then constitute a legal,
valid and binding obligation of Parent to the extent it is a party thereto,
enforceable against Parent in accordance with its terms, subject to applicable
bankruptcy, insolvency, moratorium, reorganization or other similar laws
affecting creditors' rights and to equitable principles of general
applicability.
4.5 Subsidiary's Power and Authorization; Enforceable Obligations. The
execution, delivery and performance by each Subsidiary of Parent of the Loan
Documents to which such Subsidiary is a party: (a) are within each
Subsidiary's corporate or partnership, as applicable, power; (b) have been, or
by the Funding Date will be, duly authorized by all necessary or proper
corporate or partnership action; (c) are not in contravention of any provision
of any Subsidiary's Certificate of Incorporation or Bylaws or partnership
agreement, as applicable; (d) will not violate any law or regulation, or any
order or decree of any court or governmental instrumentality; (e) will not
conflict with or result in the breach or termination of, constitute a default
under or accelerate any performance required by, any indenture, mortgage, deed
of trust, lease, agreement or other instrument to which such Subsidiary is a
party or by which such Subsidiary or any of its property is bound; (f) will not
result in the creation or imposition of any Lien upon any of the property of
such Subsidiary other than those in favor of Lender, all pursuant to the Loan
Documents; and (g) do not require the consent or approval of any Governmental
Authority or any other Person except those already obtained. At or prior to
the Closing Date, each of the Loan Documents to which such Subsidiary is a
party shall have been duly executed and delivered for the benefit of or on
behalf of such Subsidiary and each shall then constitute a legal, valid and
binding obligation of such Subsidiary to the extent it is a party thereto,
enforceable against such Subsidiary in accordance with its terms, subject to
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applicable bankruptcy, insolvency, moratorium, reorganization or other similar
laws affecting creditors' rights and to equitable principles of general
applicability.
4.6 Financials; Assets. (a) The most recent unaudited consolidated
balance sheet and income statement of Parent for the Fiscal Period ending May
2, 1997, and the audited consolidated balance sheets and income statements of
Parent, including detailed cash flow information, for the Fiscal Years ending
1997, 1996, and 1995, copies of all of which have been delivered by Borrower
Representative to Lender prior to the Funding Date, have been prepared in
accordance with GAAP (including year-end adjustments and footnotes) and present
fairly the consolidated financial position of Parent at such dates; (b) the
Partners have no assets or liabilities except those set forth on Schedule 4.6.
4.7 Projections. The monthly projections of Parent's (on a consolidated
basis with its Subsidiaries) balance sheet, income statement, cash flow
statement, capital expenditures and depreciation for Parent's (on a
consolidated basis with its Subsidiaries) Fiscal Periods through the end of the
Fiscal Year ending 1998, and the annual projection of such financial statements
through the end of the Fiscal Year ending 1999, which projections previously
were delivered to Lender and identified as the projections referenced in this
Section 4.7 (the "Projections"), are based upon the assumptions stated therein,
which assumptions Borrowers believe to be reasonable and fair in light of
current conditions, and reflect the reasonable estimate of Borrowers of the
results of operations and other information projected therein, except as
disclosed by Borrower Representative to Lender. Additional future projections
for such periods requested by Lender and delivered by Borrower Representative
shall become "Projections" hereunder and shall be subject to the terms of this
Section 4.7 and this Agreement. As of the date hereof, there has been no
material deviation from the Projections provided to Lender. Since January 31,
1997, no event has occurred or is continuing which would result in a Material
Adverse Effect.
4.8 Real Property. All real property presently leased by Parent or any
Subsidiary of Parent, and the name of the lessor of such real property, is set
forth in Part 1 of Schedule 4.8. Such leases are valid, enforceable and in
full force and effect, and have not been modified or amended, except as
otherwise set forth in Schedule 4.8. Parent and each Subsidiary, as the case
may be, are the sole holders of the lessees' interests under such leases except
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as qualified in Schedule 4.8. Neither Parent nor any Subsidiary of Parent has
made any pledge or assignment of any of their rights under such leases except
as set forth in Schedule 4.8 and, so far as is known to Parent and any such
Subsidiary, except as set forth in Schedule 4.11 or clause (a) of Section 4.11,
there is no default or condition which, with the passage of time or the giving
of notice, or both, would constitute a material default on the part of any
party under such leases. All real property presently owned by Parent or any
Subsidiary of Parent is set forth in Part 2 of Schedule 4.8. Neither Parent
nor any Subsidiary of Parent presently owns, leases or uses any real property
other than as set forth on Schedule 4.8. Parent and each of its Subsidiaries
own good and marketable fee simple title to all of their owned real property,
and none of their owned real property is subject to any Liens, except Permitted
Encumbrances. Part 3 of Schedule 4.8 accurately sets forth the outstanding
amount of all such Liens on the owned real property of Parent and its
Subsidiaries as of the Closing Date. Except as disclosed in Part 4 of Schedule
4.8, neither Parent nor any of its Subsidiaries owns or holds, or is obligated
under or a party to, any option, right of first refusal or any other
contractual right to purchase, acquire, sell, assign or dispose of any real
property owned or leased by it.
4.9 Insurance Policies. Schedule 4.9 lists all insurance of any nature
maintained for current occurrences by Parent and each Subsidiary of Parent, as
well as a summary of the terms of such insurance. All of such policies are in
full force and effect and provide coverage of such risks and for such amounts
as is customarily maintained for businesses of the scope and size of Parent and
each Subsidiary of Parent.
4.10 Schedule of Deposit Accounts. Schedule 4.10 lists all banks and
other financial institutions at which any Borrower maintains deposit and/or
other accounts, and such Schedule correctly identifies the name and address of
each depository, the name in which the account is held, the purpose of the
account, and the complete account number.
4.11 No Default; No Conflicts. Neither Parent nor any Subsidiary of
Parent is in default under or with respect to any contract, agreement, lease or
other instrument to which Parent or any Subsidiary of Parent is a party,
except: (a) pre-petition defaults and defaults occasioned by the Chapter 11
Case or permitted under the Bankruptcy Code, (b) any default which (either
individually or collectively with other defaults arising out of the same event
or events) would not have a Material Adverse Effect and (c) as set
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forth in Schedule 4.11 or otherwise in the Schedules to this Agreement. No
Default or Event of Default has occurred and is continuing. The execution,
delivery and performance by Parent and its Subsidiaries of the Loan Documents
to which each respectively is a party do not and will not contravene any
material instruments, document or agreement to which the Parent or any of its
Subsidiary is a party or by which the Parent or any of its Subsidiary or any of
their respective properties or assets are bound, or be in conflict with, result
in a breach of or constitute (with the giving of notice and/or the lapse of
time, or both) a default under any such material instrument, document or
agreement, or result in the creation or imposition of any lien upon any of the
Parent's or any Subsidiary's respective properties or assets pursuant to any
such instrument, document or agreement, except for the Liens in favor of Lender
created under this Agreement and the other Loan Documents.
4.12 Labor Matters. There are no strikes or, other labor disputes,
against Parent or any Subsidiary of Parent pending or, overtly threatened in a
written communication, that would have a Material Adverse Effect. Hours worked
by and payment made to the employees of each Borrower have not been in
violation of the Fair Labor Standards Act or any other applicable law dealing
with such matters which violation would have a Material Adverse Effect. All
payments due from Parent or each Subsidiary of Parent on account of employee
health and welfare insurance or any Employee Benefit Plan which would have a
Material Adverse Effect if not paid will be paid or, if not due, will be
accrued as a liability on the books of Parent or each Subsidiary of Parent, as
the case may be.
4.13 Partnerships and Affiliates; Other Ventures. Schedule 4.13 lists
(a) each interest held by Parent and each Subsidiary of Parent in any
partnership, joint venture or other business association, together with a
description of such interest, (b) all material agreements and documents
defining such interest, and (c) each Affiliate of Parent and each Subsidiary of
Parent, together with a description of the relationship between Parent and such
Affiliate and a list of all material agreements or documents defining such
relationship. Except as set forth in Schedule 4.13, neither Parent nor any
Subsidiary of Parent is engaged in any joint venture or partnership with any
other Person.
4.14 Investment Company Act. Neither Parent nor any Subsidiary of Parent
is an "investment company" or an "affiliated person" of, or "promoter" or
"principal underwriter" for, an "investment company," as such terms are defined
in the Investment Company Act of 1940, as amended.
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The making of the Advances, the application of the proceeds and repayment
thereof by Borrowers and the consummation of the transactions contemplated by
this Agreement and the other Loan Documents will not violate any provision of
such Act or any rule, regulation or order issued by the Securities and Exchange
Commission thereunder.
4.15 Margin Regulations. Neither Parent nor any Subsidiary of Parent
owns any "margin security," as that term is defined in Regulations G and U of
the Board of Governors of the Federal Reserve System (the "Federal Reserve
Board"), and the proceeds of the Advances will be used only for the purposes
contemplated hereunder. None of the Advances will be used, directly or
indirectly, for the purpose of purchasing or carrying any margin security, for
the purpose of reducing or retiring any indebtedness which was originally
incurred to purchase or carry any margin security or for any other purpose
which might cause any of the Advances under this Agreement to be considered a
"purpose credit" within the meaning of Regulations G, T, U or X of the Federal
Reserve Board. Parent and each Subsidiary of Parent will not take or permit
any agent acting on its behalf to take any action which might cause this
Agreement or any document or instrument delivered pursuant hereto to violate
any regulation of tho Federal Reserve Board.
4.16 Taxes. (a) All material federal, state, local and foreign tax
returns, reports and statements required to be filed by Parent and each
Subsidiary of Parent have been filed with the appropriate governmental agencies
or appropriate extensions have been granted and, except for charges and other
impositions which will be paid under the Reorganization Plan, all Charges and
other impositions shown thereon to be due and payable have been paid prior to
the date on which any fine, penalty, interest or late charge may be added
thereto for nonpayment thereof, or any such fine, penalty, interest or late
charge has been paid; (b) except as permitted by the Bankruptcy Code or as
provided in the Reorganization Plan or otherwise resolved in the Chapter 11
Case, Parent and each Subsidiary of Parent has paid when due and payable all
requisite Charges upon the books of such Person, as the case may be; (c) proper
and accurate amounts have been withheld by Parent and each Subsidiary of Parent
from its employees for all periods in full and complete compliance with the
tax, social security and unemployment withholding provisions of applicable
federal, state, local and foreign law and such withholdings have been timely
paid to the respective governmental agencies (d) except as provided in the
Reorganization Plan or otherwise resolved in the Chapter 11 Case, neither
Parent nor any Subsidiary of
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Parent has executed or filed with the IRS or any other governmental authority
any agreement or other document extending, or having the effect of extending,
the period for assessment or collection of any Charges; (e) neither Parent nor
any Subsidiary of Parent has filed a consent pursuant to IRC Section 341(f) or
agreed to have IRC Section 341(f)(2) apply to any disposition of subsection (f)
assets (as such term is defined in IRC Section 341(f)(4)); (f) none of the
property owned by Parent or any Subsidiary of Parent is "tax-exempt use
property" within the meaning of IRC Section 168(h); (g) neither Parent nor any
Subsidiary of Parent has agreed or been requested to make any adjustment under
IRC Section 481(a) by reason of a change in accounting method or otherwise; and
(h) neither Parent nor any Subsidiary of Parent has an obligation under any
written tax sharing agreement.
4.17 ERISA. Neither Parent, any Subsidiary of Parent, any ERISA
Affiliate, nor any other Person to which Parent, any Subsidiary of Parent, or
any ERISA Affiliate is a successor or parent corporation within the meaning of
ERISA Section 4069(b) has engaged in a transaction described in ERISA Section
4069. There is no lien in favor of any Pension Plan of Parent, any Subsidiary
of Parent, or of any ERISA Affiliate under Section 302(f) of ERISA. No Pension
Plan (other than an "individual account plan" within the meaning of ERISA
Section 3(34)) or Multiemployer Plan has ever been maintained or contributed
to by Parent, any Subsidiary of Parent, or any ERISA Affiliate (or any
predecessor to Parent, any Subsidiary of Parent, or any ERISA Affiliate) as of
the Funding Date. With respect to all Employee Benefit Plans of Parent, any
Subsidiary of Parent, or any ERISA Affiliate and all Employee Benefit Plans to
which Parent, any Subsidiary of Parent, or any ERISA Affiliate is obligated to
contribute:
(a) each plan and all its fiduciaries are in compliance in all material
respects with ERISA, all provisions of the IRC relating to qualification and
tax exemption or otherwise applicable to secure intended tax consequences, all
applicable state or federal securities laws and any other applicable federal or
state laws, except where noncompliance does not and will not have a Material
Adverse Effect;
(b) no event has occurred which will or could give rise to
disqualification of any Employee Benefit Plan of Parent, any Subsidiary of
Parent, or any ERISA Affiliate under IRC Sections 401(a) or 501(a) or to a tax
under IRC Section 511, to the extent applicable, as of the Funding Date;
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(c) no Reportable Events have occurred that, in the aggregate, could
reasonably be expected to result in a Material Adverse Effect;
(d) neither Parent, any Subsidiary of Parent nor any ERISA Affiliate has
engaged or participated in any Prohibited Transactions that, in the aggregate,
could reasonably be anticipated to result in liability (either to an Employee
Benefit Plan or/and its participants under Section 409 of ERISA, or/and for any
taxes or penalties, including, but not limited to, excise taxes imposed under
IRC Section 4975 and penalties imposed under Section 502(i) of ERISA) that
could reasonably be anticipated to result, in the aggregate, in a Material
Adverse Effect;
(e) neither Parent, any Subsidiary of Parent, nor any ERISA Affiliate
has maintained an Employee Benefit Plan providing welfare benefits (as defined
in ERISA Section 3(1)) to employees after retirement or other separation of
service which cannot be amended or terminated at any time and for any reason by
Parent, any Subsidiary of Parent, or any ERISA Affiliate;
(f) there are no delinquencies with respect to any returns, reports, or
premiums required to be filed with or paid to any governmental agency,
authority, or instrumentality, including the IRS, the Department of Labor, and
the PBGC, that could reasonably be anticipated to result, in the aggregate, in
a Material Adverse Effect; and
(g) no contributions due from Parent, any Subsidiary of Parent or any
ERISA Affiliate are delinquent or, if there are any delinquencies, the adverse
consequences of such delinquencies, such as financial penalties or, in the case
of insurance premiums, potential losses of coverage, could not, in the
aggregate, reasonably be expected to have a Material Adverse Effect.
4.18 No Litigation. Other than objections to claims which will be
resolved in the Chapter 11 Case or pursuant to the Reorganization Plan,
Schedule 4.18 sets forth a complete list of every pending action, suit or
proceeding and every action, suit or proceeding overtly threatened in a written
communication, against or affecting (a) Parent or any Subsidiary of Parent, (b)
the property of Parent or of any Subsidiary of Parent, (c) an Employee Benefit
Plan of Parent, any Subsidiary of Parent, or of any ERISA Affiliate, or (d) any
fiduciary of an Employee Benefit Plan of Parent, any Subsidiary of Parent, or
of any ERISA Affiliate, in any court, or before any arbitrator of any kind, or
before or by any governmental body. There is no such pending or
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threatened action, suit or proceeding which would have a Material Adverse
Effect, nor does a state of facts exist that is reasonably likely to give rise
to such a proceeding.
4.19 Brokers. Except as fully disclosed on Schedule 4.19, no broker or
finder acting on behalf of any Borrower brought about the obtaining, making or
closing of this Agreement or any of the loans made pursuant thereto or
hereunder, and no Borrower has an obligation to any Person in respect of any
finder's or brokerage fees in connection therewith.
4.20 Outstanding Stock. Schedule 4.20 correctly sets forth and
identifies the number of issued and outstanding shares of the voting Stock of
Parent held by any holder whom or which holds at least five percent (5%) of
such issued and outstanding shares on the date hereof. Parent has no
outstanding rights, options, warrants, or agreements pursuant to which it may
be required to issue or sell any Stock or other equity security, except as set
forth in Schedule 4.20.
4.21 Employment and Labor Agreements. Except as set forth in Schedule
4.21, there are no employment agreements and no agreements for the payment of
deferred compensation, severance, or change in pay covering the officers,
advisors and managers of Parent or any Subsidiary of Parent, and there are no
collective bargaining agreements or other labor agreements covering any
employees of Parent or any Subsidiary of Parent. A true and complete copy of
each agreement listed in Schedule 4.21 has been furnished to Lender.
4.22 Patents, Trademarks, Copyrights and Licenses. Parent and each
Subsidiary of Parent owns or has rights to all material licenses, patents,
patent applications, copyrights, service marks, trademarks, trademark
applications, and trade names necessary to continue to conduct its business as
heretofore conducted, now conducted, and as currently proposed to be conducted,
each of which is listed (except as to copyrights, where only each registered
copyright is listed), together with the United States Copyright or Patent and
Trademark Office application or registration numbers, where applicable, in
Schedule 4.22 hereto. Except as disclosed in Schedule 4.22, Parent and each
Subsidiary of Parent conducts its business without infringement or claim of
infringement of any license, patent, copyright, service ▇▇▇▇, trademark, trade
name, trade secret or other intellectual property right of others, except where
such infringement or claim of infringement would not have a Material Adverse
Effect. There is no
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infringement or claim of infringement by any Person of any material license,
patent, copyright, service ▇▇▇▇, trademark, trade name, trade secret or other
intellectual property right of Parent or any Subsidiary of Parent.
4.23 Full Disclosure. As of the date of this Agreement, no information
contained in this Agreement, the other Loan Documents, the Projections, or any
other documents furnished by or on behalf of any Borrower pursuant to the terms
of this Agreement contains any untrue statement of a material fact or, when
considered in light of disclosures otherwise made in writing by Borrowers to
Lender, omits to state a material fact necessary to make the statement
contained herein or therein not misleading in light of the circumstances under
which made.
4.24 Liens. None of the properties or assets of Borrowers or Guarantor
are subject to any Liens, except Permitted Encumbrances. The Liens granted to
Lender pursuant to the Collateral Documents will be fully perfected
first-priority Liens in and to the Collateral described therein at the Funding
Date, at the date of each Advance and so long as there are any Obligations
outstanding hereunder.
4.25 Hazardous Materials. The term "Hazardous Materials" shall mean any
substance, material or waste the generation, handling, storage, treatment or
disposal of which is regulated by any local or state government authority in
any jurisdiction in which Parent or any Subsidiary of Parent has owned, leased
or operated real property or disposed of hazardous materials, or by the United
States Government, including any material or substance which is (a) defined as
a "hazardous waste," "hazardous material," "hazardous substance," "extremely
hazardous waste" or "restricted hazardous waste" or other similar term of
phrase under any such law, (b) petroleum, (c) designated as a "hazardous
substance" pursuant to Section 311 of the Clean Water Act, 33 U.S.C. 1251 et
seq. (33 U.S.C. 1321) or listed pursuant to Section 307 of the Clean Water Act
(33 U.S.C. 1317), (d) defined as a "hazardous waste" pursuant to Section 1004
of the Resource Conservation and Recovery Act, 42 U.S.C. 6901, et seq. (42
U.S.C. 6903), or (e) defined as a "hazardous substance" pursuant to Section
101 of the Comprehensive Environmental Response, Compensation, and Liability
Act, 42 U.S.C. 9601, et seq. (42 U.S.C. 9601). Except as disclosed in Schedule
4.25, all such real property owned, leased, subleased or operated by Parent or
any Subsidiary of Parent and its current use and all off-site disposals by
Parent or any Subsidiary of Parent of any Hazardous Materials comply with all
Environmental Laws, any violation of which would
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have a Material Adverse Effect. In addition, Schedule 4.25 discloses potential
environmental liabilities of Parent or any Subsidiary of Parent of which any
Borrower has knowledge (i) not related to noncompliance with Environmental
Laws, or (ii) associated with properties not owned, leased, subleased or
operated by Parent or any Subsidiary of Parent.
4.26 Employee Loans. Except as set forth and described in Schedule 4.26,
neither Parent nor any Subsidiary of Parent has any loan (other than expense
advances) outstanding to any of its employees, officers, directors or any other
individual in excess of $10,000 for each such loan, and $25,000 in the
aggregate.
4.27 Inventory. Except as specifically disclosed in any Schedule of
Inventory provided to Lender by Borrower Representative under this Agreement or
otherwise disclosed to and acknowledged by Lender in writing, with respect to
all Eligible Inventory:
(a) Lender may rely upon all statements, warranties, or representations
made in any Schedule of Inventory in determining which items of Inventory
listed in such Schedule of Inventory are to be deemed Eligible Inventory;
(b) all such Inventory is located on the premises listed in Schedule
4.27 and is of good and merchantable quality;
(c) such Borrower has good, indefeasible and marketable title to such
Inventory and no such Inventory is subject to any Lien whatsoever, except for
Liens of Lender hereunder and Permitted Encumbrances;
(d) except as specified in Schedule 4.27 or as notified in writing to
Lender, no such Inventory is stored with a bailee, warehouseman, or similar
party; and
(e) no such Inventory has been consigned to any Person.
4.28 Contracts and Agreements. Schedule 4.28 lists all outstanding
material contracts and agreements to which any Borrower will be a party as of
the Funding Date, except (a) the leases listed in Part 1 of Schedule 4.8, (b)
purchase orders covering Inventory ordered in the ordinary course of business,
and (c) contracts entered into in the ordinary course of such Borrower's
business (other than with vendors or customers), which do not involve an
aggregate expenditure in any year of more than $150,000 and which do not have a
term exceeding one year. Except as set forth in
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Schedule 4.28, no such contract or agreement has been amended.
5. FINANCIAL STATEMENTS AND INFORMATION
5.1 Reports and Notices. Each Borrower covenants and agrees that from
and after the Funding Date and until the Termination Date, Borrower
Representative shall deliver to Lender:
(a) Within, thirty (30) days after the end of each Fiscal Period copies
of the unaudited balance sheet as of the end of such Fiscal Period and the
related statements of income and cash flow for such Fiscal Period, and for that
portion of the Fiscal Year ending as of the end of such Fiscal Period, for the
Parent on a consolidated basis with its Subsidiaries, together with, as of the
end of each Fiscal Quarter, management's discussion of such financial results,
including discussions of variances of actual results to budget and prior year,
respectively, accompanied by (i) a statement in reasonable detail showing the
calculations used in determining compliance with the financial covenants under
Sections 7.17, 7.18, 7.19, 7.20, and 7.21, respectively, and (ii) the
certification in the form of Exhibit "G" of the Controller, Chief Accounting
Officer or Chief Financial Officer of Parent that, to the best of such
officer's knowledge, all such financial statements are complete and correct in
all material respects and present fairly the financial position and the results
of operations of Parent together with its Subsidiaries, as at the end of such
Fiscal Period and for such portion of the Fiscal Year, and specifying, to the
best of such officer's knowledge, whether there was any Default or Event of
Default in existence as of such time;
(b) Within ninety (90) days after the close of each Fiscal Year, a copy
of the annual audited consolidated and consolidating financial statements
consisting of the consolidated and consolidating balance sheets and
consolidated and consolidating statements of income and retained earnings and
consolidated and consolidating statements of cash flow, setting forth in
comparative form in each case the consolidated and consolidating figures for
the previous Fiscal Year, which financial statements shall be prepared in
accordance with GAAP, accompanied by an auditor's report, without qualification
as to deviation from GAAP or material misstatement or omission and unqualified,
except for qualification regarding the Chapter 11 Case, by a firm of
independent certified public accountants of recognized national standing
selected by Borrower Representative and acceptable to Lender, together with
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management's discussion of such financial results, including discussions of
variances of actual results to budget and prior Fiscal Year, respectively, and
accompanied by (i) a statement in reasonable detail showing the calculations
used in determining compliance with the financial covenants under Sections
7.17, 7.18, 7.19, 7.20, and 7.21, respectively, (ii) a report from such
accountants to the effect that in connection with their audit examination,
nothing has come to their attention to cause them to believe that a Default or
Event of Default had occurred with regard to any of the Obligations and (iii) a
certification in the form of Exhibit "G" of the Controller, Chief Accounting
Officer or Chief Financial Officer of Parent that, to the best of such
officer's knowledge and belief, all such financial statements are complete and
correct in all material respects and present fairly in accordance with GAAP the
consolidated and consolidating financial position, the consolidated and
consolidating results of operations and the changes in consolidated and
consolidating financial position of Parent as at the end of such Fiscal Year
and specifying, to the best of such officer's knowledge, whether there was any
Default or Event of Default in existence as of such time;
(c) Within thirty (30) days prior to the close of each Fiscal Year, the
monthly projections of Parent's (on a consolidated basis with its Subsidiaries)
balance sheet, income statement, cash flow statement, capital expenditures and
depreciation for each Fiscal Period of Parent and its Subsidiaries for the
current Fiscal Year, together with a certification of the Controller, Chief
Accounting Officer or Chief Financial Officer of Parent stating that such
projections have been approved by Parent's board of directors;
(d) As soon as practicable, but in any event within two (2) Business
Days after any Borrower determines the existence of any Default or Event of
Default, or any development or other information which could be reasonably
expected to have a Material Adverse Effect, telephonic notice specifying the
nature of such Default or Event of Default or development or information,
including the anticipated effect thereof, which notice shall be promptly
confirmed in writing within seven (7) days;
(e) Upon the reasonable request of Lender, copies of all federal, state,
local and foreign tax returns and reports filed by or on behalf of any Borrower
in respect of income, franchise or other taxes on or measured by income, sales,
property, payroll or other taxes of such Borrower;
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(f) Weekly, on Tuesday of each week for the immediately preceding week
ending Friday, the Borrower Representative shall provide the Lender with the
following: (i) a Borrowing Base Certificate executed and certified as accurate
by the Chief Executive Officer, Chief Financial Officer, Controller or Chief
Accounting Officer of the Borrower Representative, (ii) a report showing Net
Sales by department and by store, (iii) a report showing outstanding aged trade
payables of the Borrowers by vendor, (iv) a report showing purchases by the
Borrowers by department classification, (v) a summary of Inventory of the
Borrowers by store and a summary of Inventory of the Borrowers by department
classification (a "Schedule of Inventory"), (vi) a report of the Borrowers'
pack and hold Inventory by department classification, (vii) a report of the
Borrowers' payroll by store as a percent of Net Sales, and (viii) an "Open to
Buy Report" of the Borrowers by department classification;
(g) Within twenty-five (25) days after the end of each Fiscal Period, a
copy of the "Inventory Control Report" as of such Fiscal Period end;
(h) Promptly after the preparation of same, copies of all material press
releases issued by Parent or any Subsidiary; and
(i) Such other information respecting Parent's and each Subsidiary of
Parent's business, financial condition or prospects as Lender may, from time to
time, reasonably request.
5.2 Communication with Accountants. Subject to the limitations set
forth in Section 2.11, each Borrower authorizes Lender to communicate directly
with its independent certified public accountants and authorizes those
accountants to disclose to Lender any and all financial statements and other
supporting financial data, including matters relating to the conduct of the
annual audit and copies of any management letter with respect to its business,
financial condition and other affairs. On or before the Funding Date, each
Borrower shall deliver a letter addressed to such accountants in the form of
Exhibit "F". Prior to the occurrence of an Event of Default, Lender agrees to
give Borrower Representative prior notice and the opportunity to be present or
otherwise participate in all such discussions and communications.
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6. AFFIRMATIVE COVENANTS
Each Borrower covenants and agrees that, unless Lender shall otherwise
consent in writing, from and after the date hereof and until the Obligations
are fully satisfied:
6.1 Maintenance of Existence and Conduct of Business. Parent shall and
shall cause each Subsidiary of Parent (a) to do or cause to be done all things
necessary to preserve and keep in full force and effect its corporate
existence; (b) to continue to conduct its business substantially as now
conducted or as otherwise permitted hereunder; (c) at all times to maintain,
preserve and protect all of its rights to enjoy and use patents, trademarks,
trade names, service marks, copyrights, and licenses set forth or described in
Schedule 4.22 hereto; (d) to preserve all the remainder of its property in use
or useful in the conduct of its business and keep the same in working order so
that the business carried on in connection therewith may be conducted
consistent with current operating practices at all times; and (e) to transact
business only under their respective names set forth on the signature pages
hereof.
6.2 Payment of Obligations.Parent shall and shall cause each Subsidiary
of Parent (i) to pay and discharge or cause to be paid and discharged all its
Indebtedness, including all the Obligations, as and when due and payable and
(ii) to promptly pay and discharge or cause to be paid and discharged all (A)
Charges imposed upon it, its income and profits, or any of its property (real,
personal or mixed) and (B) lawful claims for labor, materials, supplies and
services or otherwise, before any such Charges or claims shall become in
default; provided, that Borrowers shall not be required to pay any such Charge
or claim which is being contested in good faith by proper legal actions or
proceedings, so long as at the time of commencement of any such action or
proceeding and during the pendency thereof (i) adequate reserves with respect
thereto are established and are maintained in accordance with GAAP, (ii) such
contest operates to suspend collection of the contested Charges or claims and
is maintained and prosecuted continuously with diligence, (iii) none of the
Collateral would be subject to forfeiture or loss or any Lien by reason of the
institution or prosecution of such contest, (iv) no Lien (other than a Lien for
real or personal property taxes that are being contested pursuant to this
Section) shall exist, be imposed or be attempted to be imposed for such Charges
or claims during such action or proceeding unless the full amount of such
Charge or claim is covered by insurance satisfactory in all respects to Lender,
(v)
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Borrowers shall promptly pay or discharge such contested Charges and all
additional charges, interest penalties and expenses, if any, and shall deliver
to Lender evidence acceptable to Lender of such compliance, payment or
discharge, if such contest is terminated or discontinued adversely to
Borrowers, and (vi) Lender has not advised any Borrower in writing that Lender
reasonably believes that nonpayment or nondischarge thereof would result in a
Material Adverse Effect.
6.3 Lender's Fees. Borrowers shall pay to Lender, on demand, any and
all fees, costs or expenses that Lender shall pay to a bank or other similar
institution arising out of or in connection with the forwarding to any Borrower
or any other Person on behalf of Borrower the proceeds of any Advances.
6.4 Books and Records. Parent shall and shall cause each Subsidiary of
Parent to keep adequate records and books of account with respect to its
business activities, in which proper entries, reflecting all of its financial
transactions, are made in accordance with GAAP (subject to normal year-end
adjustments) and on a basis consistent with the Financials referred to in
Section 4.6.
6.5 Litigation. Borrower Representative shall promptly notify Lender in
writing upon learning of any litigation commenced against Parent or any
Subsidiary of Parent or the institution against any of them of any suit or
administrative proceeding subsequent to the date hereof that seeks damages in
excess of $50,000.
6.6 Insurance. Parent shall maintain, at its sole cost and expense, and
shall cause each Subsidiary of Parent to maintain:
(a) "All Risk" physical damage insurance on all real and personal
property, in an aggregate amount of $3,500,000 including fire and extended
coverage, boiler and machinery coverage, flood, earthquake, liquids, theft,
explosion, collapse, and all other hazards and risks ordinarily insured against
by owners or users of such properties in similar businesses with a deductible
per occurrence not to exceed $50,000. All policies of insurance on such
personal property shall contain an endorsement, in form and substance
acceptable to Lender, showing loss payable to Lender as its interests appear
and extra expense and business interruption endorsements. Such endorsement, or
an independent instrument furnished to Lender, shall provide that no act or
default of any Borrower or any other Person shall affect the
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right of Lender to recover under such policy or policies of insurance in case
of loss or damage;
(b) comprehensive general liability insurance on an "occurrence basis"
against claims for personal injury, bodily injury and property damage with a
minimum limit of $1,000,000 per occurrence and $1,000,000 in the aggregate with
a deductible of $25,000 per occurrence. Such coverage shall include but not be
limited to premises/operations, broad form contractual liability, underground,
explosion and collapse hazard, independent contractors, broad form property
coverage, products and completed operations liability. Each policy of
insurance shall contain an endorsement, in form and substance acceptable to
Lender, showing Lender as an additional insured on such insurance policy;
(c) statutory limits of workers' compensation insurance which includes
employee's occupational disease and employer's liability in the amount of
$1,000,000 for each accident or occurrence;
(d) automobile liability insurance for all owned, non-owned or hired
automobiles against claims for personal injury, bodily injury and property
damage with a minimum combined single limit of $1,000,000 per occurrence and
$1,000,000 in the aggregate; and
(e) umbrella/excess insurance of $20,000,000 per occurrence and
$20,000,000 in the aggregate. Each policy of insurance shall contain an
endorsement, in form and substance acceptable to Lender, showing Lender as an
additional insured on such insurance policy.
All policies of insurance required to be maintained under this Agreement shall
be in form and with insurers recognized as adequate by Lender and all such
policies shall be in such amounts as may be reasonably satisfactory to Lender
and shall, by an endorsement or independent instrument furnished to Lender
provide that the insurance companies will give Lender at least thirty (30) days
prior written notice before any such policy or policies of insurance shall be
altered or canceled. Borrower Representative shall deliver to Lender a copy of
each policy of insurance and a certificate of insurance that evidences the
existence of each policy of insurance, payment of all premiums therefor and
compliance with all provisions of this Agreement. In addition, Borrower
Representative shall notify Lender promptly of any occurrence causing a
material loss or decline in value of any real or personal property and the
estimated (or actual, if available) amount of such loss or decline. Each
Borrower
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hereby directs all insurers under the "All Risk" policies of insurance to pay
all proceeds payable thereunder directly to Lender. Each Borrower irrevocably
makes, constitutes and appoints Lender (and all officers, employees or agents
designated by Lender) as such Borrower's true and lawful agent and
attorney-in-fact for the purpose of making, settling and adjusting claims under
the "All Risk" policies of insurance (provided that Lender shall consult with
Borrower prior to finally making, settling or adjusting claims under such "All
Risk" policies of insurance), endorsing the name of such Borrower on any check,
draft, instrument or other item of payment for the proceeds of such "All Risk"
policies of insurance, and for making all determinations and decisions with
respect to such "All Risk" policies of insurance. In the event any Borrower at
any time or times hereafter shall fail to obtain or maintain any of the
policies of insurance required above or to pay any premium in whole or in part
relating thereto, Lender, without waiving or releasing any Obligations or
Default or Event of Default hereunder, may at any time or times thereafter (but
shall not be obligated to) obtain and maintain such policies of insurance and
pay such premium and take any other action with respect thereto which Lender
deems advisable. All sums so disbursed by Lender, including reasonable
attorneys' fees, court costs, expenses and other charges relating thereto,
shall be payable, on demand, by Borrowers to Lender and shall be additional
obligations hereunder secured by the Collateral. Lender reserves the right at
any time, upon review of any Borrower's risk profile, to require additional
forms and limits of insurance to, in Lender's sole opinion, adequately protect
Lender's interests.
6.7 Compliance with Law. Parent shall comply and shall cause each
Subsidiary of Parent to comply with all Federal, state and local laws and
regulations applicable to it, including those relating to ERISA, those
regarding the collection, payment and deposit of sales, employees' income,
unemployment and Social Security taxes, those relating to truth-in-lending and
consumer credit, and those relating to environmental matters, where the failure
to comply may have a Material Adverse Effect.
6.8 Agreements. Parent shall perform and shall cause each of its
Subsidiaries to perform within all required time periods (after giving effect
of any applicable grace periods), all of its obligations and enforce all of its
rights under each agreement, including leases, to which it is a party, where
the failure to so perform and enforce would have a Material Adverse Effect.
Neither Parent nor any Subsidiary of Parent shall terminate or modify in any
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manner adverse to any such company any provision of any agreement to which it
is a party which termination or modification could have a Material Adverse
Effect.
6.9 Supplemental Disclosure. From time to time as may be necessary (in
the event that such information is not otherwise delivered by Borrower
Representative to Lender pursuant to this Agreement), so long as there are
Obligations outstanding hereunder, Borrower Representative will disclose to
Lender in writing any material matter hereafter arising which, if existing or
occurring at the date of this Agreement, would have been required to be set
forth or described in a schedule or which is necessary to correct any
information in any Schedule which has been rendered inaccurate thereby.
6.10 Employee Plans.
(a) Borrower Representative shall notify Lender of any and all claims
(other than claims for benefits in the normal course), actions, or lawsuits
asserted or instituted, and of any litigation or claims, against any Borrower
or any ERISA Affiliate in connection with any Employee Benefit Plan maintained,
at any time, by any Borrower or any ERISA Affiliate, or to which any Borrower
or any ERISA Affiliate has or had at any time any obligation to contribute,
or/and against any such Employee Benefit Plan itself, or against any fiduciary
of or service provider to any such Employee Benefit Plan, which, if adversely
determined, could have a Material Adverse Effect.
(b) Borrower Representative shall notify Lender promptly upon the
occurrence of any Reportable Event with respect to any Employee Benefit Plan of
any Borrower or any ERISA Affiliate.
6.11 SEC Filings and Certain Other Notices. Borrower Representative
shall furnish to Lender (a) promptly after the filing thereof with the
Securities and Exchange Commission, a copy of each report, notice or other
filing, if any, by Parent or any Subsidiary of Parent with the Securities and
Exchange Commission, (b) a copy of each written communication received by
Parent or any Subsidiary of Parent from, or delivered by Parent or any
Subsidiary of Parent to (i) the Securities and Exchange Commission, or (ii) any
Secretary of State or any similar state agency or official, with respect to the
issuance or offering of securities, in each case promptly after each such
receipt or delivery.
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6.12 Leases: New Real Property. Upon the request of Lender, Borrower
Representative shall provide and shall cause each Subsidiary of Parent to
provide Lender with copies of all material leases or similar agreements (and
all amendments thereto) entered into by Parent or any Subsidiary of Parent
after the Funding Date, whether as lessor or lessee. Parent shall and shall
cause the appropriate Subsidiary: (a) to provide Lender with a copy of each
notice of default or termination received by Parent or such Subsidiary under
any material lease immediately upon receipt of any such notice, and deliver to
Lender a copy of each notice of default or termination sent by Parent or such
Subsidiary under any such lease simultaneously with its delivery of such notice
under such lease; (b) to notify Lender, not later than thirty (30) days prior
to the date of the expiration of the term of any material lease, of its
intention either to renew or not renew any such lease, and, if Parent or such
Subsidiary shall intend to renew such lease, the terms and conditions of such
renewal lease; and (c) to notify Lender at least twenty (20) days prior to the
date any Parent or any such Subsidiary takes possession or becomes liable under
any new leased premises or lease, whichever is earlier.
6.13 Inventory Valuation. Borrowers shall permit Lender, Universal
Asset-Based Services, Inc., and/or any other Inventory valuation specialist
acceptable to Lender to inspect, review and evaluate at Borrowers' expense each
Borrower's financial reports, Inventory, properties and facilities as often as
Lender may reasonably request upon prior notice to Borrower Representative and,
in any event, no less frequently than once each Fiscal Quarter.
6.14 Inventory Records. Each Borrower shall maintain a perpetual method
of Inventory control. Each Borrower's Inventory records shall be based upon
and evidence the results of physical Inventory cycle counts of a minimum of
fifteen (15) stores of Borrowers conducted in (a) June or July of each Fiscal
Year, (b) September of each Fiscal Year, and (c) January of each Fiscal year;
provided, however, no store shall be included more than one time in such cycle
counts unless all stores have been included at least once; and provided
further, however, Borrowers shall include more than fifteen (15) stores in any
such cycle count upon Lender's reasonable request. Inventory counts will be
performed by RGIS, or any other reputable firm acceptable to Lender, will be
observed by Lenders internal auditors, and in connection with the January cycle
count and either the June/July cycle count or the September cycle count, will
also be observed by an independent certified public accountant acceptable to
Lender. Borrower Representative
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shall deliver to Lender as soon as available copies of the results of any
physical Inventory cycle count showing in reasonable detail the locations of
and values for specific items of Inventory and such other information and
supporting documents regarding Inventory that Lender deems necessary.
6.15 Ineligibility and Returns of Inventory: No Consignment.Borrower
Representative shall notify Lender in writing promptly upon, but in no event
later than two (2) Business Days after, learning of any Eligible Inventory with
a value in excess of $25,000 that becomes, or any Borrower believes will
become, ineligible, other than Eligible Inventory that has or will become
ineligible because of the expiration of its shelf life, and of the cause of
such ineligibility. Borrowers shall not consign Inventory to any Person.
6.16 Deposit Accounts. Upon Lender's request, Borrower Representative
shall deliver to Lender copies of all bank statements describing the activities
in all of Borrowers' deposit accounts. Borrower Representative shall
immediately (i) notify Lender of any changes, additions or deletions to
Schedule 4.10, and (ii) prepare and deliver a new Schedule 4.10 reflecting
such changes, additions and deletions.
6.17 Landlord's Agreements or Equivalent. Borrowers shall use their best
efforts (without paying any fee or other consideration or otherwise incurring
any material or unreasonable expenses) to obtain a Landlord's Agreement from
the lessor of each leased premises of any Borrower where Inventory of any
Borrower is at any time located, and from any bailee, warehouseman or similar
party that will be in possession of such Inventory. To the extent Lender does
not receive an acceptable Landlord's Agreement from the lessor, bailee,
warehouseman or similar party of each such leased premises, each Borrower
agrees and acknowledges that Lender shall establish as a Reserve against the
Borrowing Base an amount equal to two (2) months' rent (or the equivalent in
the case of a bailee or warehouseman) for each such location.
6.18 Application of Proceeds. Borrowers shall use the proceeds of the
Loan as provided in Section 2.4.
6.19 Minimum Availability.Borrowers shall maintain at all times after the
Closing Date, and demonstrate to Lender upon Lender's request that Borrowers
have, Availability of not less than $300,000.
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6.20 Further Assurances.
(a) The Borrowers shall ensure that all written information, exhibits
and reports furnished to the Lender do not and will not contain any untrue
statement of a material fact and do not and will not omit to state any material
fact or any fact necessary to make the statements contained therein not
misleading in light of the circumstances in which made, and will promptly
disclose to the Lender and correct any material defect or error that may be
discovered therein or in any Loan Document or in the execution, acknowledgment
or recordation thereof.
(b) Promptly upon request by the Lender, the Borrowers shall do,
execute, acknowledge, deliver, record, re-record, file, re-file, register and
re-register, any and all such further acts, deeds, conveyances, security
agreements, mortgages, assignments, estoppel certificates, financing statements
and continuations thereof, termination statements, notices of assignment,
transfers, certificates, assurances and other instruments as the Lender may
reasonably require from time to time in order (i) to carry out more effectively
the purposes of this Agreement or any other Loan Document, (ii) to subject to
the Liens created by any of the Collateral Documents any of the properties,
rights or interests covered by any of the Collateral Documents, and (iii) to
perfect and maintain the validity, effectiveness and priority of any of the
Collateral Documents and the Liens intended to be created thereby.
7. NEGATIVE COVENANTS
Each Borrower covenants and agrees that, without Lender's prior written
consent, from and after the date hereof and until the Obligations are fully
satisfied:
7.1 Mergers, Etc. Neither Parent nor any Subsidiary of Parent shall
directly or indirectly, by operation of law or otherwise, merge with,
consolidate with, acquire all or substantially all of the assets or Stock of,
or otherwise combine with, any Person, dissolve or cease operations, sell any
interest in a Subsidiary nor form or acquire any Subsidiary.
7.2 Investments; Loans and Advances. Except as set forth on Schedule
4.26, Parent shall not and shall cause each Subsidiary of Parent not to make
any investment in, or make or accrue loans or advances of money to, any Person,
through the direct or indirect holding of securities or otherwise; provided,
however, that Parent and each Subsidiary of Parent may take and own investments
in time
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deposits, maturing no more than thirty (30) days from the date of creation
thereof with commercial banks each having membership in the Federal Deposit
Insurance Corporation or any successor entity, and in amounts not exceeding the
maximum amounts of insurance thereunder, (collectively, "Cash Equivalents")
provided that the same are subject to a first priority Lien in favor of Lender.
7.3 Capital Structure. Parent shall not permit any Subsidiary of Parent
to make any material change in its capital structure, including the issuance of
any shares of such Subsidiary's Stock, warrants to purchase any of such
Subsidiary's Stock or securities or debt instruments convertible into such
Subsidiary's Stock (including treasury shares or any shares that have been
permanently retired).
7.4 Maintenance of Business. Parent shall not and shall not permit any
Subsidiary of Parent to engage in any business other than the business
currently engaged in by Parent and each Subsidiary of Parent.
7.5 Transactions with Affiliates. Parent shall not and shall not permit
any Subsidiary of Parent to enter into or be a party to any agreement or
transaction with any Affiliate or Subsidiary of Parent except as permitted in
Section 2.4, as listed in Schedule 7.5, as otherwise permitted hereunder, or
in the ordinary course of and pursuant to the reasonable requirements of
Parent's and such Subsidiary's business and upon fair and reasonable terms that
are approved by Parent's and such Subsidiary's respective Boards of Directors,
fully disclosed to Lender and no less favorable to Parent or such Subsidiary
than it would obtain in a comparable arm's length transaction with a person not
an Affiliate of Parent or such Subsidiary; provided, however, upon request of
Lender, Parent shall cause any such Affiliate to enter into a subordination
agreement with Lender providing that any Indebtedness of Parent to any such
Affiliate shall be subordinate to the Obligations.
7.6 Liens. Parent shall not and shall cause each Subsidiary of Parent
not to create or permit any Lien on any of its properties or assets, other than
Permitted Encumbrances.
7.7 New Indebtedness. Parent shall not, and shall cause each Subsidiary
of Parent not to, create, incur, assume or permit to exist or incur any
Indebtedness except: (a) the Obligations; (b) Deferred Taxes; (c) Capital Lease
Obligations and Indebtedness secured by purchase money Liens on Equipment
permitted under clause (v) of the definition of
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"Permitted Encumbrances" in a maximum aggregate amount outstanding not to
exceed $150,000 outstanding at any time; (d) Indebtedness existing on the
Closing Date and set forth in Schedule 7.7 and Indebtedness permitted under
Section 7.8 below; and (e) unsecured current obligations for trade debt
incurred in the ordinary course of Parent's and such Subsidiary's business, and
obligations of the Parent and its Subsidiaries for the payment of rental for
any property (real, personal or mixed, tangible or intangible) under leases,
subleases or similar arrangements (other than Capital Leases) incurred in the
ordinary course of Parent's business.
7.8 Guaranteed Indebtedness. Parent shall not, and shall cause each
Subsidiary of Parent not to, incur any Guaranteed Indebtedness except: (a) by
endorsement of instruments or items of payment for deposit to the general
account of any Borrower; and (b) for performance bonds or indemnities entered
into in the ordinary course of business consistent with past practices.
7.9 Transfers of Assets. Except as otherwise permitted under this
Agreement, Parent shall not and shall not permit any Subsidiary of Parent to
sell, transfer, convey or otherwise dispose of any assets or properties, except
in the ordinary course of business, or engage in any sale-leaseback or similar
transaction involving any of its assets.
7.10 Cancellation of Indebtedness. Parent shall not and shall not permit
any Subsidiary of Parent to cancel any claim or debt owing to it except for
reasonable consideration and in the ordinary course of business.
7.11 Events of Default. Unless disclosed in writing by Borrower
Representative to Lender, Parent shall not and shall not permit any Subsidiary
of Parent to take or omit to take any action, which act or omission would
constitute (a) a Default or an Event of Default pursuant to, or noncompliance
with any of, the terms of any of the Loan Documents or the Ancillary Agreements
or (b) a material default or an event of default pursuant to, or noncompliance
with any other contract, lease, mortgage, deed to secure debt, or instrument to
which any of them is a party or by which any of them or any of its property is
bound, or any document creating a Lien, unless such default, event of default
or non-compliance would not have a Material Adverse Effect.
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7.12 Hedging Transactions. Parent shall not and shall not permit any
Subsidiary of Parent to engage in any speculative interest rate hedging or
similar transaction.
7.13 Restricted Payments. Parent shall not and shall cause each
Subsidiary of Parent not to make any Restricted Payments (including any refund
or cancellation of subscriptions under the Rights Offering which would cause
the total amount received by the Parent thereunder to be less than $3,050,000),
except the Parent's Subsidiaries may make Restricted Payments to Parent and
Parent may pay dividends as required by the terms of its Series A preferred
stock to the holders thereof.
7.14 Negative Pledge. Parent shall not and shall cause each Subsidiary
of Parent not to create or suffer to exist any Lien on the Collateral that
arises after the Funding Date, other than Permitted Encumbrances.
7.15 ERISA. Neither Parent nor any Subsidiary of Parent nor any ERISA
Affiliate shall without Lender's prior written consent acquire any new ERISA
Affiliate that maintains or has an obligation to contribute to a Pension Plan
that has either an "accumulated funding deficiency," as defined in Section 302
of ERISA, or any "unfunded vested benefits," as defined in Section
4006(a)(3)(E)(iii) of ERISA in the case of any plan other than a Multiemployer
Plan and in Section 4211 of ERISA in the case of a Multiemployer Plan.
Additionally, neither Parent nor any Subsidiary of Parent nor any ERISA
Affiliate shall, without Lender's prior written consent:
(a) terminate any Pension Plan that is subject to Title IV of ERISA
where such termination could reasonably be anticipated to result in liability
to Borrower in excess of $100,000;
(b) permit any accumulated funding deficiency, as defined in Section
302(a)(2) of ERISA, to be incurred with respect to any Pension Plan (without
regard to any waiver granted under Section 412(d) of the Code), which would
result in a Material Adverse Effect;
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(c) fail to make any contributions or fail to pay any amounts due and
owing as required by the terms of any Employee Benefit Plan before such
contributions or amounts become delinquent if the consequence of such
delinquencies could, in the aggregate, reasonably be expected to have a
Material Adverse Effect;
(d) make a complete or partial withdrawal (within the meaning of Section
4201 of ERISA) from any Multiemployer Plan that could reasonably be anticipated
to result in liability to Borrower in excess of $100,000; and
(e) at any time fail to provide Lender with copies of any Employee
Benefit Plan documents or governmental reports or filings, if reasonably
requested by Lender.
7.16 Hazardous Materials. Except as set forth in Schedule 4.25, Parent
shall not and shall not permit any Subsidiary of Parent or any other Person to
cause or permit the presence, use, generation, manufacture, installation,
release, discharge, storage or disposal of any Hazardous Materials (as defined
in Section 4.25) on, under, in or about any real property owned, leased,
subleased, occupied or used by Parent or any Subsidiary of Parent, or the
transportation of any Hazardous Materials to or from any such real property
where such presence, use, generation, manufacture, installation, release,
discharge, storage or disposal would violate any Environmental Laws the
violation of which would have a Material Adverse Effect.
7.17 Consolidated EBITDA.
(a) Borrowers will not permit cumulative Consolidated EBITDA for any
period beginning with the first day of Fiscal Period July 1997 and ending on
the last day of any of the following Fiscal Periods set forth below to be less
than the amount set forth opposite such Fiscal Period:
Fiscal Period/Year Amount
------------------ ------
July 1997 ($275,000)
August 1997 and
September 1997 $120,000
October 1997 $260,000
November 1997 $950,000
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(b) Borrowers will not permit cumulative Consolidated EBITDA,
calculated on a Trailing Six (6) Fiscal Periods basis, for any period ending on
the last day of any Fiscal Period set forth below to be less than the amount
set forth opposite such Fiscal Period:
Fiscal Period/Year Amount
------------------ ------
December 1997 $ 3,000,000
January 1998 $ 2,800,000
February 1998 $ 2,300,000
March 1998 $ 1,850,000
April 1998 $ 1,000,000
May 1998 $ - 0 -
June 1998 $(2,250,000)
July 1998 $(1,825,000)
August 1998 $(1,000,000)
September 1998 $( 500,000)
October 1998 $ 500,000
November 1998 $ 2,500,000
December 1998 and January 1999 $ 5,000,000
February 1999 and March 1999 $ 4,500,000
April 1999 $ 3,500,000
May 1999 $ 2,000,000
June 1999 $( 650,000)
July 1999 $ 300,000
August 1999 $ 1,500,000
September 1999 $ 2,500,000
October 1999 $ 4,500,000
November 1999 $ 6,000,000
December 1999 and each Fiscal $ 7,000,000
Period ended thereafter
7.18 Consolidated Capital Expenditures.
Borrowers will not permit Consolidated Capital Expenditures for any
period, calculated on a cumulative Fiscal Year-to-date basis, beginning with
the first day of such Fiscal Year and ending on the last day of any of the
following Fiscal Periods during such Fiscal Year set forth below to exceed the
amount set forth opposite such Fiscal Period:
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Fiscal Year 1998 Amount
---------------- ------
July 1997 $260,000
August 1997 $325,000
September 1997 $395,000
October 1997 $440,000
November 1997 $455,000
December 1997 $465,000
January 1998 $475,000
Fiscal Years 1999, 2000 and 2001
February 1998, February 1999 $ 40,000
and February 2000
March 1998, March 1999 and March 2000 $ 75,000
April 1998, April 1999 and April 2000 $115,000
May 1998, May 1999 and May 2000 $150,000
June 1998, June 1999 and June 2000 $185,000
July 1998 and July 1999 $225,000
August 1998 and August 1999 $260,000
September 1998 and September 1999 $300,000
October 1998 and October 1999 $335,000
November 1998 and November 1999 $375,000
December 1998 and December 1999 $410,000
January 1999 and January 2000 $445,000
7.19 Minimum Consolidated Gross Margin.
(a) Borrowers will not permit Consolidated Gross Margin for any period
beginning with the first day of Fiscal Period July 1997 and ending on the last
day of any of the following Fiscal Periods set forth below to be less than the
amount set forth opposite such Fiscal Period:
Fiscal Period/Year Margin
------------------ ------
July 1997 through November 1997 32.0%
(b) Borrowers will not permit Consolidated Gross Margin,
calculated on a Trailing Six (6) Fiscal Periods basis, for any period ending on
the last day of any Fiscal Period set forth below to be less than the amounts
set forth opposite such Fiscal Period:
Fiscal Period/Year Margin
------------------ ------
December 1997 and each 32.0%
Fiscal Period ended thereafter
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7.20 Minimum Consolidated Inventory Balance. Borrowers will not
permit the Consolidated Inventory Balance on the last day of any Fiscal Period
set forth below to be less than the amount set forth opposite such Fiscal
Period:
Fiscal Period/Year Amount
------------------ ------
July 1997 $14,000,000
August 1997 $13,500,000
September 1997 through November 1997 $14,000,000
December 1997 $13,500,000
January 1998 $13,250,000
February 1998 $14,000,000
March 1998 $15,000,000
April 1998 through June 1998 $14,000,000
July 1998 $15,000,000
August 1998 $14,000,000
September 1998 through November 1998 $15,000,000
December 1998 through February 1999 $14,000,000
March 1999 $15,000,000
April 1999 through June 1999 $14,000,000
July 1999 and each Fiscal Period $15,000,000
ended thereafter
7.21 Minimum Consolidated Working Capital Ratio. Borrowers will
not permit the Consolidated Working Capital Ratio on the last day of any Fiscal
Period, commencing with Fiscal Period July 1997 and each Fiscal Period ended
thereafter, to be less than 1.30 to 1.00.
7.22 New Accounts. Borrowers shall not open any deposit or other
account unless such account meets the criteria of subparts (i) and (ii) of
Section 2.3(a).
7.23 Changes in Officers; Change in Control:
(a) The Chief Executive Officer, Controller, or Chief Accounting
Officer of any Borrower shall not be changed from those persons in such offices
as of the Closing Date except as to the result of the death or disability of
any such person; and
(b) The Borrowers shall not allow any Person or group (as such
term is used in Rule 13d-5 under the Securities Exchange Act of 1934) of
Persons to, after the Closing Date, as a result of a tender or exchange offer,
open market purchases, merger, privately negotiated purchases or otherwise,
become, directly or indirectly, the beneficial owner (within the meaning of
Rule 13d-3 under the Securities Exchange Act of 1934) of securities having
twenty percent
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(20%) or more of the ordinary voting power of then outstanding securities of
Parent.
7.24 Accounting Changes. Borrowers shall not make any significant
change in accounting treatment or reporting practices, except as required by
GAAP, change the Fiscal Year of the Borrowers, or book any extraordinary
expenses or extraordinary gains, without the prior written consent of Lender.
7.25 Retail Stores. Without Lender's prior consent, Borrowers
shall not open any new retail store other than those which are open and
operating on the Closing Date.
7.26 Employee Agreements. Without Lender's prior consent,
Borrowers shall not alter, amend or otherwise modify any, or enter into any
new, employment agreement with any manager or executive employee.
8. TERM
8.1 Termination. Subject to the provisions of Section 2, the
financing arrangement contemplated hereby in respect of the Loan shall be in
effect until the Commitment Termination Date.
8.2 Survival of Obligations Upon Termination of Financing
Arrangement. Except as otherwise expressly provided for in the Loan Documents,
no termination or cancellation (regardless of cause or procedure) of any
financing arrangement under this Agreement shall in any way affect or impair
the powers, obligations, duties, rights and liabilities of any Borrower or the
rights of Lender relating to any transaction or event occurring prior to such
termination. Except as otherwise expressly provided herein or in any other Loan
Document, all undertakings, agreements, covenants, warranties, indemnities and
representations contained in the Loan Documents shall survive such termination
or cancellation and shall continue in full force and effect until such time as
all of the Obligations have been paid and performed in full in accordance with
the terms of the agreements creating such Obligations, at which time the same
shall terminate.
9. EVENTS OF DEFAULT: RIGHTS AND REMEDIES
9.1 Events of Default. The occurrence of any one or more of the
following events, regardless of the reason therefor, shall constitute an
immediate and automatic event of default ("Event of Default") hereunder and
shall permit Lender, among other things, (i) to declare the principal of,
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and accrued interest on, the Loan and all other Obligations to be immediately
due and payable in full, whereupon the same shall immediately become due and
payable in full without presentment, demand, protest or other notice of any
kind, all of which are hereby waived by each Borrower, and (ii) to terminate
the Commitment of Lender to make any further Advances or to incur any
additional Letter of Credit Obligations:
(a) (i) Any Borrower shall fail to make any payment of principal
of, or interest on, the Loan or the Note when such principal or interest is due
and payable; or (ii) any Borrower shall fail to make any payment of any fees or
other amount owing in respect of the Loan or any of the other Obligations
within three (3) days after such amount was due, or (iii) any Borrower shall
fail to perform or comply with any provision set forth in Article 5, Article 7
or Sections 6.5, 6.6, 6.10, 6.11, 6.12, 6.13, 6.15 or 6.19 hereof or any
covenant set forth in any Collateral Document; or
(b) The occurrence of any of the following against or with respect
to any Borrower (i) a judgment, liability or event in excess of $100,000 (other
than a money judgment fully covered by insurance as to which the insurance
company has acknowledged coverage), or (ii) general liability and workers
compensation costs (inclusive of insurance premiums with respect thereto)
during any Fiscal Year which in the aggregate exceed such costs for the
preceding Fiscal Year by more than $100,000; or (iii) any judgments,
liabilities or events, including but not limited to any occurrences specified
in subparts (i) and (ii) of this subsection (b), that would individually or in
the aggregate have a Material Adverse Effect; or
(c) A default by any Borrower shall occur under any other
agreement, document or instrument to which any Borrower is a party or by which
any Borrower or its property is bound, which default is not cured before the
expiration of any applicable grace or curative period under such agreement,
document or instrument or as otherwise may be granted to such Borrower by the
obligee, and such default (i) involves the failure to make any payment (whether
of principal, interest or otherwise) due (whether by scheduled maturity,
required prepayment, acceleration, demand or otherwise) in respect of any
Indebtedness of such Borrower in an aggregate amount exceeding $100,000, except
for payments lawfully withheld by such Borrower as a setoff in connection with
a good faith dispute between such Borrower and the holder of such Indebtedness,
or (ii) causes (or permits any holder of such Indebtedness or a trustee to
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cause) such Indebtedness, or a portion thereof in an aggregate amount exceeding
$100,000, to become due prior to its stated maturity or prior to its regularly
scheduled dates of payment; or
(d) The commencement of a suit or action against Lender and, as to
any suit or action brought by any Person other than Parent or a Subsidiary,
officer or employee of Parent or such Subsidiary, the continuation thereof
without dismissal for thirty (30) days after service thereof on Lender, that
assert, by or on behalf of any Borrower, the Environmental Protection Agency,
any state environmental protection or health and safety agency, any claim or
legal or equitable remedy which seeks subordination of the claim or Lien of
Lender; or
(e) Any of the assets of any Loan Party shall be attached, seized,
levied upon or subjected to a writ or distress warrant, or come within the
possession of any receiver, trustee, custodian or assignee for the benefit of
creditors of such Loan Party and shall remain unstayed or undismissed for
thirty (30) consecutive days; or any Person other than a Loan Party shall apply
for the appointment of a receiver, trustee or custodian for a Loan Party's
assets and shall remain unstayed or undismissed for thirty (30) consecutive
days; or any Loan Party shall have concealed, removed or permitted to be
concealed or removed, any part of its property, with intent to hinder, delay or
defraud its creditors or any of them or made or suffered a transfer of any of
its property or the incurring of an obligation which may be fraudulent under
any bankruptcy, fraudulent conveyance or other similar law; or
(f) A case or proceeding shall have been commenced against any
Loan Party in a court having competent jurisdiction seeking a decree or order
(i) under the Bankruptcy Code, as now constituted or hereafter amended, or any
other applicable federal, state or foreign bankruptcy or other similar law,
(ii) appointing a custodian, receiver, liquidator, assignee, trustee or
sequestrator (or similar official) of such Loan Party or of any substantial
part of its properties, or (iii) ordering the winding up or liquidation of the
affairs of such Loan Party and such case or proceeding shall remain undismissed
or unstayed for sixty (60) consecutive days or such court shall enter a decree
or order granting the relief sought in such case or proceeding; or
(g) Any Loan Party (i) shall file a petition seeking relief under
the Bankruptcy Code, as now constituted or hereafter amended, or any other
applicable federal, state or
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foreign bankruptcy or other similar law, (ii) shall consent to the institution
of proceedings thereunder or to the filing of any such petition or to the
appointment of or taking possession by a custodian, receiver, liquidator,
assignee, trustee or sequestrator (or similar official) of such Loan Party or
of any substantial part of such Loan Party's properties, (iii) shall fail
generally to pay its debts as such debts become due, or (iv) shall take any
corporate action in furtherance of any such action; or
(h) Any material provision of any Collateral Document shall for
any reason cease to be valid or enforceable in accordance with its terms, any
Collateral Document shall be repudiated or terminated, including by operation
of law, or any security interest created under any Collateral Document shall
cease to be a valid and perfected first-priority security interest or Lien
(except as otherwise provided in such Collateral Document) in any material
portion of the Collateral purported to be covered thereby; or
(i) (i) Any representation or warranty made herein, in any
other Loan Documents, in any written statement pursuant thereto or hereto, or
in any other report, financial statement or certificate made or delivered to
Lender by Parent or any Subsidiary of Parent shall be untrue or incorrect in
any material respect, as of the date when made or deemed made (including those
made or deemed made pursuant to Section 3.2), and (ii) the same shall remain
untrue or incorrect for fifteen (15) days after Borrower Representative shall
receive written notice of such fact from Lender or fifteen (15) days after any
Borrower shall become aware thereof; or
(j) (i) Any event other than those expressly set forth above
shall have occurred which, in the reasonable judgment of Lender, would have a
Material Adverse Effect, and (ii) such event continues for fifteen (15) days
after notice to Borrower Representative or for fifteen (15) days after any
Borrower shall become aware thereof; or
(k) (i) Any Borrower shall fail or neglect to perform, keep or
observe any provision of this Agreement or of any of the other Loan Documents,
other than those expressly set forth above, in any material respect, or any
Guarantor shall fail or neglect to perform, keep or observe any provision of
any Loan Document to which such Guarantor is a party in any material respect,
and (ii) the same has not been cured to Lender's satisfaction within the first
to occur of fifteen (15) days after Borrower Representative shall receive
written notice of any such failure from Lender
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or fifteen (15) days after any Borrower shall become aware thereof; or
(l) Any Borrower shall fail to make any rental payment due under
any Lease of such Borrower within ten (10) Business Days after such payment is
due; or
(m) An event or condition specified in Section 6.10 hereof shall
occur or exist with respect to any Plan or Multiemployer Plan and, as a result
of such event or condition, together with all other such events or conditions,
any Borrower or any ERISA Affiliate shall incur or in the opinion of Lender
shall be reasonably likely to incur a liability to a Plan, a Multiemployer Plan
or PBGC (or any combination of the foregoing) in excess of $50,000 in the
aggregate; or
(n) Any Partner shall sell, assign, transfer, convey, pledge or
otherwise encumber any of its partner interests in 50-OFF Texas Stores, L.P.
(except pursuant to the Assignment of Partnership Interest).
There shall be an Event of Default under subsection (i), (j) or (k) of
this Section 9.1 when and if there shall have occurred the events provided for
in both subpart (i) and subpart (ii) of such subsection. During any period of
grace afforded Borrowers under subpart (i) of either subsection (i), (j) or (k)
of this Section 9.1, Lender shall have no obligation to make Advances under the
Loan or to incur Letter of Credit Obligations.
9.2 Remedies. If any Event of Default shall have occurred and
until such Event of Default shall be waived in writing by Lender, Lender may,
without notice, (i) terminate this facility with respect to further Advances
and Letter of Credit Obligations, whereupon no further Advances may be made and
no further Letter of Credit Obligations may be incurred hereunder, (ii) declare
the principal of, and accrued interest on, the Loan and all other Obligations
to be immediately due and payable in full, whereupon the same shall immediately
become due and payable in full, (iii) require that all Letter of Credit
Obligations be fully cash collateralized in accordance with the terms of
Section 2.2(c); or (iv) exercise any rights and remedies provided to Lender
under the Loan Documents and/or at law or equity, including all remedies
provided under the UCC; provided that, upon the occurrence of an Event of
Default specified in Section 9.1 (e), (f) or (g), the Commitment shall
immediately terminate and the Obligations shall become immediately due and
payable, without declaration, notice or demand by Lender to any Person.
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9.3 Waivers by Borrowers. Except as otherwise provided for in
this Agreement, the other Loan Documents or applicable law, each Borrower
waives (i) presentment, demand and protest and notice of presentment, dishonor,
notice of intent to accelerate, notice of acceleration, protest, default,
nonpayment, maturity, release, compromise, settlement, extension or renewal of
any or all commercial paper, accounts, contract rights, documents, instruments,
chattel paper and guaranties at any time held by Lender on which such Borrower
may in any way be liable and hereby ratifies and confirms whatever Lender may
do in this regard, (ii) all rights to notice and a hearing prior to Lender's
taking possession or control of, or to Lender's replevy, attachment or levy
upon, the Collateral, or any bond or security which might be required by any
court prior to allowing Lender to exercise any of its remedies, and (iii) the
benefit of all valuation, appraisal and exemption laws. Each Borrower
acknowledges that it has been advised by counsel of its choice with respect to
the effect of the foregoing waivers and this Agreement, the other Loan
Documents and the transactions evidenced by this Agreement and the other Loan
Documents, generally.
9.4 Right of Setoff. Except as otherwise provided in this
Agreement, upon the occurrence of any Event of Default and until such Event of
Default is waived in writing by Lender, Lender is hereby authorized at any time
and from time to time, to the fullest extent permitted by the Confirmation
Order, and applicable law, to set off and apply any and all funds in the
possession of Lender, all deposits (general or special, time or demand,
provisional or final) at any time held and other indebtedness at any time owing
by Lender to or for the credit or the account of any Borrower, against any and
all of the Obligations of such Borrower now or hereafter existing under this
Agreement and the Note held by Lender that are then due and payable, whether by
maturity or acceleration.
10. MISCELLANEOUS
10.1 Complete Agreement: Modification of Agreement. The Loan
Documents constitute the complete agreement between the parties with respect to
the subject matter hereof and may not be modified, altered or amended except by
an agreement in writing signed by Borrower Representative and Lender; provided,
however, that expenses incurred prior to the date hereof and during the
effective term of the Commitment Letter shall be reimbursable to Lender in
accordance with the terms hereof. No amendment or waiver of any provision of
this Agreement or the Note or any other Loan Document, nor consent to any
departure by any Borrower, Lender or any
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other Person therefrom, shall in any event be effective unless the same shall
be in writing and signed by the Person to be charged thereby, and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given.
10.2 Fees and Expenses. Upon notice from Lender to Borrower
Representative, Borrowers shall reimburse Lender for all reasonable
out-of-pocket expenses of Lender in connection with the preparation of the Loan
Documents (including the expenses of Lender's field examiners and independent
auditors and the reasonable fees and expenses of all of Lender's counsel
retained in connection with the Loan Documents and the transactions
contemplated thereby). If, at any time or times, regardless of the existence
of an Event of Default, Lender shall employ counsel or other professional
advisors, including environmental and management consultants and independent
auditors, for advice or other representation or shall incur reasonable legal,
appraisal, auditing, accounting, consulting or other costs and expenses in
connection with:
(a) any amendment, modification, or waiver of, or consent with
respect to, any of the Loan Documents, or advice in connection with the
administration of the advances made pursuant hereto or Lender's rights
hereunder or thereunder, or any transfer or assignment of all or part of
Lender's interest therein to any other Person;
(b) any litigation, contest, dispute, suit, proceeding or action
(whether instituted by Lender, any Borrower or any other Person) in any way
related to the Collateral, any of the Loan Documents, or any other agreements
to be executed or delivered in connection therewith or herewith, including any
litigation, contest, dispute, suit, case, proceeding or action, and any appeal
or review thereof, in connection with a case commenced by or against any
Borrower or any other Person that may be obligated to Lender by virtue of the
Loan Documents, including any litigation, contest, dispute, suit, case,
proceeding or action (and any appeal or review) in connection with a case under
the Bankruptcy Code or any other applicable Federal, state or foreign
bankruptcy or similar insolvency law;
(c) any attempt to enforce any rights of Lender against any
Borrower, or any other Person that may be obligated to any Lender by virtue of
any of the Loan Documents;
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(d) any attempt to appraise, inspect, verify, protect, collect,
sell, liquidate or otherwise dispose of the Collateral;
then, and in any such event, the reasonable fees of such attorneys and other
professional advisors and consultants arising from such services, including
those of any appellate proceedings, and all reasonable expenses, costs, charges
and other fees incurred by such counsel or other professionals in any way or
respect arising in connection with or relating to any of the events or actions
described in this Section 10.2 shall be payable, on demand, by Borrowers to
Lender and shall be additional Obligations secured under the Loan Documents.
Without limiting the generality of the foregoing, such reasonable expenses,
costs, charges and fees may include: attorney and paralegal fees, costs and
expenses; accountants' fees, costs and expenses; appraisers' fees, costs and
expenses; management and other consultants' fees, costs and expenses; court
costs and expenses; photocopying and duplicating expenses; court reporter fees,
costs and expenses; long distance telephone charges; air express charges;
telegram charges; and expenses for travel, lodging and food paid or incurred in
connection with the performance of such legal or other professional services.
Upon the request of Borrower Representative, Lender shall provide to Borrower
available back-up documentation-with respect to such costs, fees and expenses.
It is anticipated that, pursuant to Lender's normal business practice and the
provisions of Section 2.1(c) hereof, that such costs, fees and expenses will be
paid by an Advance made by Lender for Borrowers' account. However, this
procedure shall not modify or alter the standards or other limitations on
Borrowers' obligation to reimburse Lender for such costs, fees and expenses,
nor shall it affect Borrowers' right to review such costs, fees and expenses or
to request additional documentation regarding same.
10.3 No Waiver by Lender. Lender's failure, at any time or times,
to require strict performance by any Borrower of any provision of this
Agreement and any of the other Loan Documents shall not waive, affect or
diminish any right of Lender thereafter to demand strict compliance and
performance therewith. Any suspension or waiver by Lender of an Event of
Default by any Borrower under the Loan Documents shall not suspend, waive or
affect any other Event of Default by such or any other Borrower under this
Agreement and any of the other
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Loan Documents whether the same is prior or subsequent thereto and whether of
the same or of a different type. None of the undertakings, agreements,
warranties, covenants and representations of any Borrower contained in this
Agreement or any of the other Loan Documents and no Event of Default by any
Borrower under this Agreement and no defaults by any Borrower under any of the
other Loan Documents shall be deemed to have been suspended or waived by
Lender, unless such suspension or waiver is by an instrument in writing signed
by an officer of Lender and directed to such Person specifying such suspension
or waiver.
10.4 Remedies. Lender's rights and remedies under this Agreement
shall be cumulative and nonexclusive of any other rights and remedies which
Lender may have under any other agreement, including the other Loan Documents,
by operation of law or otherwise. Recourse to the Collateral shall not be
required.
10.5 Severability. Wherever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of
this Agreement.
10.6 Binding Agreement. This Agreement and the other Loan Documents
shall be binding on and shall inure to the benefit of each Borrower, Lender,
and their respective successors and assigns, except as otherwise provided
herein or therein.
10.7 Conflict of Terms. Except as otherwise provided in this
Agreement or any of the other Loan Documents by specific reference to the
applicable provisions of this Agreement if any provision contained in this
Agreement is in conflict with, or inconsistent with, any provision in any of
the other Loan Documents, the provision contained in this Agreement shall
govern and control.
10.8 Authorized Signature. Until Lender shall be notified by
Borrower Representative to the contrary, the signature upon any document or
instrument delivered pursuant hereto of an officer of any Borrower listed in
Schedule 10.8, or in the loan certificate delivered to Lender on the Closing
Date, shall bind Borrowers and be deemed to be the act of Borrowers affixed
pursuant to and in accordance with all necessary corporate approval and action.
10.9 Notices. Except as otherwise provided herein, whenever this
Agreement provides that any notice, demand, request, consent, approval,
declaration or other communication shall or may be given to or served upon any
of
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the parties by another, or whenever any of the parties desires to give or serve
upon another any communication with respect to this Agreement, each such
notice, demand, request, consent, approval, declaration or other communication
shall be in writing and shall be delivered (i) in person with receipt
acknowledged, or (ii) by facsimile with receipt confirmed, or (iii) by
registered or certified mail, return receipt requested, postage prepaid, or
(iv) by overnight courier, addressed as follows:
(a) If to Lender at:
GENERAL ELECTRIC CAPITAL CORPORATION
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇.▇.
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇. ▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With copies to:
GENERAL ELECTRIC CAPITAL CORPORATION
▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: Commercial Finance, Inc.
▇▇▇▇▇ ▇▇▇▇▇▇, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
and
PAUL, HASTINGS, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, LLP
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇.▇.
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, III, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
(b) If to any Borrower, to the Borrower Representative at:
LOT$OFF Corporation
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇, President
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
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With copies to:
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ & ▇▇▇, P.C.
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration or other communication hereunder shall be deemed
to have been duly given or served on the date on which personally delivered or
sent by facsimile, with receipt acknowledged or confirmed, or three (3)
Business Days after the same shall have been deposited in the United States
mail, or one (1) Business Day after the same shall have been deposited with a
reputable overnight delivery service. Failure or delay in delivering copies of
any notice, demand, request, consent, approval, declaration or other
communication to the persons designated above to receive copies shall in no way
adversely affect the effectiveness of such notice, demand, request, consent,
approval, declaration or other communication.
10.10 Assignments; Participations. No Borrower may assign,
delegate, transfer, hypothecate or otherwise convey its rights, benefits,
obligations or duties hereunder or under any of the Loan Documents without the
prior express written consent of Lender. Any such purported assignment,
transfer, hypothecation or other conveyance by any Borrower without such prior
express written consent shall be void. Lender may assign, negotiate, pledge or
otherwise hypothecate all or any portion of this Agreement, or grant
participations herein, in the Loan, the Letter of Credit Obligations, or in any
of its rights or security hereunder and under the other Loan Documents or any
part thereof, including, without limitation, any instruments securing any
Borrower's obligations hereunder. Each Borrower hereby consents to Lender's
sale of participations, assignment, transfer or other disposition, at any time
or times, of any interest in any of the Loan Documents or of any portion
thereof or interest therein, including Lender's rights, title, interests,
remedies, powers or duties thereunder, whether evidenced by a writing or not;
provided, however, prior to the occurrence of an Event of Default, Lender shall
obtain Borrower Representative's prior consent to any such participation or
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assignment if such participation or assignment (a) individually or collectively
transfers an amount greater than forty-nine percent (49%) of Lender's interest
in this Agreement or the other Loan Documents; or (b) is to any Person that is
not a United States national or state bank, finance company or company
primarily engaged in asset-based lending having deposits or assets totaling
more than $100,000,000 and having short-term debt that is rated "P-1" or better
by ▇▇▇▇▇'▇ Investors Service, Inc. or "A-1 +" or better by Standard & Poors
Corporation, which consent shall not be unreasonably withheld. Each Borrower
agrees that it will use its best efforts to assist and cooperate with Lender in
any manner reasonably requested by Lender to effect the sale of participation
in or assignments of any of the Loan Documents or of any portion thereof or
interest therein, including assistance in the preparation of appropriate
disclosure documents or placement memoranda.
In the event Lender assigns or otherwise transfers all or any part of
the Note, each Borrower shall, upon the request of Lender, issue a new Note in
replacement of the then existing Note evidencing the Loan and an amendment to
this Agreement to effectuate such assignment or transfer.
10.11 Survival. The representations and warranties of Borrowers in
this Agreement shall survive the execution, delivery and acceptance hereof by
the parties hereto and the closing of the transactions described herein or
related hereto.
10.12 Section Titles. The Section titles and Table of Contents
contained in this Agreement are and shall be without substantive meaning or
content of any kind whatsoever and are not a part of the agreement between the
parties hereto.
10.13 Counterparts. This Agreement may be executed in any number of
separate counterparts, each of which shall be an original, but all of which
shall constitute one and the same agreement.
10.14 Third Party Beneficiaries. No person or entity other than
Borrowers and Lender (and any Indemnified Person) shall have or be construed to
have any legal or equitable right, remedy or claim under or in respect of or by
virtue of this letter, any provisions hereof or by their reliance thereon.
10.15 GOVERNING LAW; CONSENT TO JURISDICTION. This Agreement shall
be governed by, and construed in accordance with, the internal laws of the
State of Georgia without reference to principles of conflict of laws except as
to the perfection and the effect of perfection or nonperfection of
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a security interest in collateral, which matters may be governed by the law of
another jurisdiction(s) as provided in Section 9-103 of the UCC. Each Borrower
hereby consents and agrees that the state or federal courts located in Atlanta,
Georgia, shall have exclusive jurisdiction to hear and determine any claims or
disputes pertaining to this Agreement or any of the other Loan Documents or to
any matter arising out of or related to this Agreement or any of the other Loan
Documents; provided, that Lender and each Borrower acknowledge that any appeals
from those courts may have to be heard by a court located outside of Atlanta,
Georgia; and further provided, that nothing in this Agreement shall be deemed
or operate to preclude Lender from bringing suit or taking other legal action
in any other jurisdiction to collect the obligations, to realize on the
collateral or any other security for the obligations, or to enforce a judgment
or other court order in favor of Lender. Borrower expressly submits and
consents in advance to such jurisdiction in any action or suit commenced in any
such court, and each Borrower hereby waives any objection which such Borrower
may have based upon lack of personal jurisdiction, improper venue or forum non
conveniens and hereby consents to the granting of such legal or equitable
relief as is deemed appropriate by such court. Each Borrower hereby waives
personal service of the summons, complaint and other process issued in any such
action or suit and agrees that service of such summons, complaints and other
process may be made by registered or certified mail addressed to Borrower
representative at the address set forth in Section 10.9 of this Agreement and
that service so made shall be deemed completed upon the earlier of Borrower
representative's actual receipt thereof or three (3) days after deposit in the
U.S. mails, proper postage prepaid.
10.16 Waiver of Jury Trial. Because disputes arising in connection
with complex financial transactions are most quickly and economically resolved
by an experienced and expert person and the parties wish applicable state and
federal laws to apply (rather than arbitration rules), the parties desire that
their disputes be resolved by a judge applying such applicable law. Therefore,
to achieve the best combination of the benefits of the judicial system and of
arbitration (without submitting to arbitration), the parties hereto waive all
right to trial by jury in any action, suit, or proceeding brought to enforce or
defend any rights or remedies under this letter or any of the loan documents.
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10.17 Confirmation Order. If at any time after the Closing Date the
Confirmation Order is modified, overturned on appeal or otherwise revoked or
rescinded, then, at the election of Lender, the Debtor-in-Possession Credit
Agreement and the other Loan Documents (as defined in the Debtor-in-Possession
Credit Agreement), all rights, remedies and obligations of Lender, Borrowers,
and Guarantor thereunder, and all rights of Lender set forth in the Final Order
(as defined in the Debtor-in-Possession Credit Agreement), shall be
automatically revived and reinstated as if this Agreement and the Other Loan
Documents had never been executed, and Borrowers shall take all actions
necessary, if any, to effectuate such reinstatement.
10.18 Time is of the Essence. Time is of the essence of this
Agreement and each of the other Loan Documents.
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IN WITNESS WHEREOF, this Agreement has been duly executed as of the day
and year first written above.
LENDER: GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
------------------------------------
Title: Duly Authorized Signatory
---------------------------------
BORROWERS: LOT$OFF CORPORATION,
a Delaware corporation
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇
------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇
President
50-OFF MULTISTATE OPERATIONS, INC.,
a Nevada corporation
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇
------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇
President
50-OFF OPERATING COMPANY,
a Nevada corporation
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇
------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇
President
CREDIT AGREEMENT
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50-OFF TEXAS STORES, L.P.,
a Texas limited partnership
By:
50-OFF Texas Management, Inc.,
a Nevada corporation,
its managing general partner
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇
------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇
President
CREDIT AGREEMENT