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LOAN AND SECURITY AGREEMENT
This LOAN AND SECURITY AGREEMENT is entered into as of December 14, 1995 between
PEOPLE'S BANK, a Connecticut banking corporation ("People's"), with a place of
business located at Bridgeport Center, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇, and THE MILLBROOK PRESS, INC., a Delaware corporation ("Borrower"), with
its chief executive office located at ▇ ▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇.
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1 Definitions. As used in this Agreement, the following terms shall
have the following definitions:
"Account Debtor" which means any person who is or who may become
obligated under, with respect to, or on account of an Account.
"Accounts" means all currently existing and hereafter arising accounts,
contract rights, and all other forms of obligations owing to Borrower arising
out of the sale or lease of goods or the rendition of services by Borrower,
irrespective of whether earned by performance, and any and all credit insurance,
guaranties, or security therefor.
"Affiliate" means, as applied to any Person, any other Person directly
or indirectly controlling, controlled by, or under common control with, that
Person. For purposes of this definition, "control" as applied to any Person
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of that Person, whether through the
ownership of voting securities, or otherwise.
"Agreement" means this Loan and Security Agreement and any extensions,
riders, supplements, notes, amendments, or modifications to or in connection
with this Loan and Security Agreement.
"Authorized Officer" means any officer of Borrower.
"Bankruptcy Code" means the United States Bankruptcy Code (11 U.S.C.
#101 et seq.), as amended, and any successor statute.
"Borrower" has the meaning set forth in the preamble to this Agreement.
"Borrower's Books" means all of Borrower's books and records including:
ledgers, records indicating, summarizing, or evidencing Borrower's properties or
assets (including the Collateral) or liabilities; all information relating to
Borrower's business operations or financial condition; and all computer
programs, disc or tape files, printouts, runs, or other computer prepared
information.
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"Borrowing Base" has the meaning set forth in Section 2.1.
"Business Day" means any day which is not a Saturday, Sunday, or other
day on which national banks or banks in the State of Connecticut are authorized
or required to close.
"Change of Control" shall be deemed to have occurred at such time as a
"person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the
Securities Exchange Act of 1934) becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Securities Exchange Act of 1934), other than current
stockholders of the Borrower and their Affiliates, directly or indirectly, or
more than 50% of the total voting power of all classes of stock then outstanding
of Borrower normally entitled to vote in the election of directors.
"Closing Date" means the date of the initial advance hereunder.
"Code" means the Connecticut Uniform Commercial Code.
"Collateral means each of the following: the Accounts; Borrower's
Books; the Equipment; the General Intangibles; the Inventory; the Negotiable
Collateral; any money, or other assets of Borrower which now or hereafter come
into the possession, custody, or control of People's and the proceeds and
products, whether tangible or intangible, of any of the foregoing including
proceeds of insurance covering any or all of the Collateral, and any and all
Accounts, Borrower's Books, Equipment, General Intangibles, Inventory,
Negotiable Collateral, money deposit accounts, or other tangible or intangible
property resulting from the sale, exchange, collection, or other disposition of
any of the foregoing, or any portion thereof or interest therein, and the
proceeds thereof.
"Consolidated Current Assets" means, as of any date of determination,
the aggregate amount of all current assets of Borrower and its subsidiaries less
all prepaid expenses calculated on a consolidated basis that would, in
accordance with GAAP, be classified on a balance sheet as current assets.
"Consolidated Current Liabilities" means, as of any date of
determination, the aggregate amount of all current liabilities of Borrower and
its subsidiaries, calculated on a consolidated basis that would, in accordance
with GAAP, be classified on a balance sheet as current liabilities. For purposes
of this definition, all advances outstanding under this Agreement shall be
deemed to be current liabilities without regard to whether they would be deemed
to be so under GAAP.
"Daily Balance" means the amount of an Obligation owed at the end of a
given day.
"Debt Service Ratio" shall mean the ratio obtained by dividing (I) Net
Profit After Taxes plus all non-recurring items, discretionary expenses,
depreciation, amortization, interest expense on Indebtedness, less dividends,
less adjustments to retained earnings (other than accrued and unpaid dividends
on preferred stock), less internally funded capital expenditure costs and less
other adjustments to income by (ii) all current maturities of long term debt and
interest on all indebtedness plus fees and costs paid to People's and any other
holder of Indebtedness.
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"Early Termination Premium" has the meaning set forth in Section 3.5.
"Eligible Accounts" means those Accounts created by Borrower in the
ordinary course of business that arise out of Borrower's sale of goods, that
comply in all material respects with all of Borrower's representations and
warranties to People's, and that are and at all times shall continue to be
acceptable to People's in all respects; provided, however, that standards of
eligibility may be fixed and revised from time to time by People's in People's
reasonable credit judgment. Eligible Accounts shall not include the following:
(a) Accounts (due within 60 days) that the Account Debtor has failed to
pay within sixty (60) days of due date, Accounts (due within ninety (90) days)
that the Account Debtor has failed to pay within thirty (30) days and all
Accounts owed by an Account Debtor that has failed to pay fifty percent (50%) or
more of its Accounts owed to Borrower within sixty (60) days of due date;
(b) Accounts with respect to which the Account Debtor is an officer,
employee, Affiliate, or agent of Borrower;
(c) Accounts with respect to which goods are placed on consignment,
guaranteed sale, sale or return, sale on approval, ▇▇▇▇ and hold, or other terms
by reason of which the payment by the Account Debtor may be conditional;
provided, however, that this subsection shall not make ineligible, any Account
which otherwise would be eligible, if the Account Debtor is a wholesaler and has
the right within six (6) months from the creation of the sale to return the
purchased goods in accordance with normal industry standards; provided, however,
that People's shall have the right to impose reasonable reserves from time to
time in connection with any Accounts from Account Debtors who are wholesalers
who have or exercise such right of return;
(d) Accounts with respect to which the Account Debtor is not a resident
of the United States, and which are not either (I) covered by credit insurance
in form and amount, and by an insurer, satisfactory to People's, or (ii)
supported by one or more letters of credit that are assignable by their terms
and have been delivered to People's in an amount, of a tenor, and issued by a
financial institution, acceptable to People's;
(e) Accounts with respect to which the Account Debtor is the United
States or any department, agency, or instrumentality of the United States;
(f) Accounts with respect to which Borrower is or may become liable to
the Account Debtor for goods sold or services rendered by the Account Debtor to
Borrower;
(g) Accounts with respect to which the Account Debtor disputes
liability or makes any claim with respect thereto to the extent of such dispute
or claim, or is subject to any Insolvency Proceeding, or becomes insolvent, or
goes out of business;
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(h) Accounts the collection of which People's, in its reasonable credit
judgment, believes to be doubtful by reason of the Account Debtor's financial
condition;
(I) Accounts that are payable in other than United States Dollars; and
(j) Accounts that represent progress payments or advance ▇▇▇▇▇▇▇▇ that
are due proper to the completion of performance by Borrower of the subject
contract for goods or services; provided, however, that upon delivery of such
goods or services or completion of performance such account shall be deemed an
Eligible Account.
"Eligible Inventory" means Inventory consisting of books held for sale
in the ordinary course of Borrower's business, that are located at the premises
identified on Schedule E-1, are acceptable to People's in all respects, and
comply in all material respects with all of Borrower's representations and
warranties to People's. Eligible Inventory shall not include consignment
inventory, telemarketing packages, unbound books or loose sheets at a bindery,
intransit books or slow moving inventory (any book which has been in print and
available for sale for the past 24 months which has not sold) or obsolete items,
packaging and shipping materials, supplies used or consumed in Borrower's
business, Inventory at any location other than those set forth on Schedule E-1,
Inventory subject to a security interest or lien in favor of any third Person,
▇▇▇▇ and hold goods or Inventory that is not subject to People's perfected
security interest. Eligible Inventory shall be valued at the lower of Borrower's
cost or market value.
"Equipment" means all of Borrower's present and hereafter acquired
machinery, machine tools, motors, equipment, furniture, furnishings, fixtures,
vehicles (including motor vehicles and trailers), tools parts, dies, jigs, goods
(other than consumer goods, farm products, or Inventory), wherever located, and
any interest of Borrower in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located.
"ERISA" means the Employees Retirement Income Security Act of 1974, as
amended from time to time, or any predecessor, successor, or superseding laws of
the United States of America, together with all regulation promulgated
thereunder.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) which, within the meaning of Section 414 of the IRC, is: (I) under
common control with Borrower or (ii) treated, together with Borrower, as a
single employer.
"ERISA Event" means any one or more of the following: (I) a Reportable
Event with respect to a Qualified Plan or a Multiemployer Plan; (ii) a
Prohibited Transaction with respect to any Plan; (iii) a complete or partial
withdrawal by Borrower or any ERISA Affiliate from a Multiemployer Plan; (iv)
the complete or partial withdrawal of Borrower or an ERISA Affiliate from a
Qualified Plan during a plan year in which it was, or was treated as, a
"substantial employer" as defined in Section 4001(a)(2) of ERISA; (v) a failure
to make full payment when due of all amounts which, under the provisions of any
Plan or applicable law, Borrower or
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any ERISA Affiliate is required to make; (vi) the filing of a notice of intent
to terminate, or the treatment of a plan amendment as a termination, under
Sections 4041 or 4041A of ERISA; (vii) an event or condition which might
reasonably be expected to constitute ground under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any Qualified
Plan or Multiemployer Plan; (viii) the imposition of any liability under Title
IV of ERISA, other than PBGC premiums due but not delinquent under Section 4007
of ERISA, upon Borrower or any ERISA Affiliate; and (ix) a violation of the
applicable requirements of Sections 404 or 405 of ERISA, or the exclusive
benefit rule under Section 403(c) of ERISA, by any fiduciary or disqualified
person with respect to any Plan for which Borrower or any ERISA Affiliate may be
directly or indirectly liable.
"Event Of Default" has the meaning set forth in Section 8.
"FEIN" means Federal Employer Identification Number.
"GAAP" means generally accepted accounting principles as in effect from
time to time in the United States, consistently applied.
"General Intangibles" means all of Borrower's present and future
general intangibles and other personal property (including contract rights,
rights arising under common law, statutes, or regulations, chooses in action,
goodwill, patents, trade names, trademarks, servicemarks, copyrights,
blueprints, drawings, purchase orders, customer lists, monies due or recoverable
from pension funds, route lists, rights to payment and other rights under any
royalty or licensing agreements, infringements, claims, computer programs,
computer discs, computer tapes, literature, reports, catalogs, deposit accounts,
insurance premium rebates, tax refunds, and tax refund claims), other than
goods, Accounts, and Negotiable Collateral.
"Hazardous Materials" means all or any of the following: (a) substances
that are defined or listed in, or otherwise classified pursuant to, any
applicable laws or regulations as "hazardous substances", "hazardous materials",
"hazardous wastes", "toxic substances", or any other formulation intended to
define, list, or classify substances by reason of deleterious properties such as
ignitability, corrosivity, reactivity, carcinogenicity, reproductive toxicity,
or "EP toxicity"; (b) oil, petroleum, or petroleum derived substances, natural
gas, natural gas liquids, synthetic gas, drilling fluids, produced waters, and
other wastes associated with that exploration, development, or production of
crude oil, natural gas, or geothermal resources; (c) any flammable substances or
explosives or any radioactive materials; and (d) asbestos in any form or
electrical equipment which contains any oil or dielectric fluid containing
levels or polychlorinated biphenyls in excess of fifty (50) parts per million.
"Indebtedness" means: (a) all obligations of Borrower for borrowed
money; (b) all obligations of Borrower evidenced by bonds, debentures, notes or
other similar instruments and all reimbursement or other obligations of Borrower
in respect of letters of credit, letter of credit guaranties, bankers
acceptances, interest rate swaps, controlled disbursement accounts, or other
financial products; (c) all obligations under capital leases; (d) all
obligations or liabilities of others secured by a lien or security interest on
any property or asset of Borrower, irrespective of
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whether such obligation or liability is assumed; and (e) any obligation of
Borrower guaranteeing or intended to guarantee (whether guaranteed, endorsed,
co-made, discounted, or sold with recourse to Borrower) any indebtedness, lease,
dividend, letter of credit, or other obligation of any other Person.
"Insolvency Proceeding" means any proceeding commenced by or against
any Person under any provision of the Bankruptcy Code or under any other
bankruptcy or insolvency law, including assignments for the benefit of
creditors, formal or informal moratoria, compositions, extensions generally with
its creditors, or proceedings seeking reorganization, arrangement, or other
similar relief.
"Inventory" means all present and future inventory in which Borrower
has any interest, including goods held for sale or lease or to be furnished
under a contract of service, all current lists of title, all backlists, backlist
titles and rights to such titles and backlists and backlist titles, all rights
to the licensed rights to publish periodicals and books and Borrower's present
and future bound and unbound books, periodicals and reading material and all
plates, engravings, dies, type forms, printed copies and all other appliances
and materials used in publishing materials by Borrower.
"IRC" means the Internal Revenue Code of 1986, as amended, and the
regulations thereunder.
"Loan Documents" means this Agreement, any note or notes executed by
Borrower and payable to People's, and any other agreement entered into in
connection with this Agreement.
"Maximum Amount" has the meaning set forth in Section 2.1.
"Multiemployer Plan" means a multiemployer plan as defined in Sections
3(37) or 4001(a)(3) of ERISA or Section 414 of the IRC in which employees of
Borrower of an ERISA Affiliate participate or to which Borrower or any ERISA
Affiliate contribute or are required to contribute.
"Negotiable Collateral" means all of Borrower's present and future
letters of credit, notes, drafts, instruments, certificated and uncertificated
securities (including the shares of stock of subsidiaries of Borrower),
documents, personal property leases (wherein Borrower is the lessor), chattel
paper, and Borrower's Books relating to any of the foregoing.
"Net Profit After Taxes" means all of Borrower's income from whatever
source less all of Borrower's expenses of operation, both direct and indirect
including depreciation and amortization and less all taxes paid to all federal,
state and local governmental authorities.
"Obligations" means all loans, advances, debts, principal, interest
(including any interest that, but for the provisions of the Bankruptcy Code,
would have accrued), contingent reimbursement obligations owing to People's,
premiums (including Early Termination Premiums), liabilities (including all
amounts charged to Borrower's loan account pursuant to any agreement authorizing
People's to charge Borrower's loan account), obligations, fees, lease payments,
guaranties,
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covenants, and duties owing by Borrower to People's of any kind and description
(whether pursuant to or evidenced by the Loan Documents, by any note or other
instrument or pursuant to any other agreement between People's and Borrower, and
irrespective of whether for the payment of money), whether direct or indirect,
absolute or contingent, due or to become due, now existing or hereafter arising,
and including any debt, liability, or obligation owing from Borrower to others
that People's may have obtained by assignment or otherwise, and further
including all interest not paid when due and all People's Expenses that Borrower
is required to pay or reimburse by the Loan Documents, by law, or otherwise.
"Old Lender" means First Fidelity Bank.
"Overadvance" has the meaning set forth in Section 2.2.
"Pay-Off Letter" means a letter, in form and substance reasonably
satisfactory to People's, from Old Lender respecting the amount necessary to
repay in full all of the obligations of Borrower owing to Old Lender and obtain
a termination or release of all of the security interests or liens existing in
favor of Old Lender in and to the properties or assets of Borrower.
"PBGC" means the Pension Benefit Guaranty Corporation as defined in
Title IV of ERISA, or any successor thereto.
"People's" has the meaning set forth in the preamble to this Agreement.
"People's Expenses" means all: reasonable costs or expenses (including
taxes, photocopying, notarization, telecommunication and insurance premiums)
required to be paid by Borrower under any of the Loan Documents that are paid or
advanced by People's; documentation, filing, recording, publication, appraisal
(including periodic Collateral), environmental audit, and search fees assessed,
paid, or incurred by People's in connection with People's transactions with
Borrower; costs and expenses incurred by People's in the disbursement of funds
to Borrower (by wire transfer or otherwise); charges paid or incurred by
People's resulting from the dishonor of checks; costs and expenses paid or
incurred by People's to correct any default or enforce any provision of the Loan
Documents, or in gaining possession of, maintaining, handling, preserving,
storing, shipping, selling, preparing for sale, or advertising to sell the
Collateral or any portion thereof, irrespective of whether a sale is
consummated; costs and expenses paid or incurred by People's in examining
Borrower's Books; reasonable costs and expenses of third party claims or any
other suit paid or incurred by People's in enforcing or defending the Loan
Documents; People's fees and costs and its reasonable attorney's fees,
appraisal, recording and filing fees and costs incurred in documenting the loan
facility represented by this Agreement, up to a maximum of $13,200 in the
aggregate for all foregoing People's Expenses incurred on or prior to the
Closing Date (with $1,200 of such sum an agreed upon fee for the initial audit
and expenses of People's in connection with the approval of this loan facility)
and subsequent to the Closing Date People's reasonable attorney's fees and
expenses incurred in advertising, structuring, drafting, reviewing,
administering, amending, terminating, enforcing (including reasonable attorney's
fees and expenses incurred in connection with a "workout", a "restructuring", or
an Insolvency Proceeding concerning Borrower or any guarantor of the
Obligations),
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defending, or concerning the Loan Documents, irrespective of whether suit is
brought.
"Permitted Liens" means: (a) liens and security interests held by
People's; (b) liens for unpaid taxes that are not yet due and payable; (c) liens
and security interests set forth on Schedule P-1 attached hereto; (d) purchase
money security interests and liens of lessors under capital leases to the extent
that the acquisition or lease of the underlying asset was permitted under
Section 7.10, and so long as the security interest or lien only secures the
purchase price of the asset; (e) easements, rights of way, reservations,
covenants, conditions, restrictions, zoning variances, and other similar
encumbrances that do not materially interfere with the use or value of the
property subject thereto; (f) obligations and duties as lessee under any lease
existing on the date of this Agreement; (g) mechanics', materialmen's,
warehousemen's, or similar liens that arise by operation of law; (h) any lien
subject to a Permitted Protest and (I) any lien not described in (a)-(h) above,
and which lien does not materially interfere with the use and value of Property
subject thereto and which lien is extinguished or satisfied within thirty (30)
days.
"Permitted Protest" means the right of the Borrower to protest any
lien, tax, rental payment, or other charge, other than any such lien or charge
that secures the Obligations, provided (I) any such protest is instituted and
diligently prosecuted by Borrower in good faith, and (ii) People's is reasonably
satisfied that, while any such protest is pending, there will be no material
impairment of the enforceability, validity, or priority of any of the liens or
security interests of People's in and to the property or assets of Borrower.
"Person" means and includes natural persons, corporations, limited
partnerships, general partnerships, joint ventures, trusts, land trusts,
business trusts, or other organizations, irrespective of whether they are legal
entities, and governments and agencies and political subdivisions thereof.
"Plan" means an employee benefit plan (as defined in Section 3(3) of
ERISA) which Borrower or any ERISA Affiliate sponsors or maintains or to which
Borrower or any ERISA Affiliate makes, is making, or is obligated to make
contributions, including any Multiemployer Plan or Qualified Plan.
"Prohibited Transaction" means any transaction described in Section 406
of ERISA which is not exempt by reason of Section 408 of ERISA, and any
transaction described in Section 4975(c) of the IRC which is not exempt by
reason of Section 4975(c) of the IRC.
"Qualified Plan" means a pension plan (as defined in Section 3(2) of
ERISA) intended to be tax-qualified under Section 401(a) of the IRC which
Borrower or any ERISA Affiliate sponsors, maintains, or to which any such person
makes, is making, or is obligated to make, contributions, or, in the case of a
multiple-employer plan (as described in Section 4064(a) of ERISA), has made
contributions at any time during the immediately preceding period covering at
least five (5) plan years, but excluding any Multiemployer Plan.
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"Reference Rate" means the highest of the variable rates of interest,
per annum, most recently announced by People's or any successor to People's as
its "prime rate" or "reference rate", as the case may be, irrespective of
whether such announced rate is the best rate available.
"Renewal Date" has the meaning set forth in Section 3.3.
"Reportable Event" means any event described in Section 4043 (other
than Subsections (b)(7) and (b)(9) of ERISA.
"Solvent" means, with respect to any Person on a particular date, that
on such date (a) at fair valuations, all of the properties and assets of such
Person are greater than the sum of the debts, including contingent liabilities,
of such Person, (b) the present fair salable value of the properties and assets
of such Person is not less than the amount that will be required to pay the
probable liability of such Person on its debts as they become absolute and
matured, (c) such Person is able to realize upon its properties and assets and
pay its debts and other liabilities, contingent obligations and other
commitments as they mature in the normal course of business, (d) such Person
does not intend to, and does not believe that it will, incur debts beyond such
Person's ability to pay as such debts mature, and (e) such Person is not engaged
in business or a transaction, and is not about to engage in business or a
transaction, for which such Person's properties and assets would constitute
unreasonably small capital after giving due consideration to the prevailing
practices in the industry in which such Person is engaged. In computing the
amount of contingent liabilities at any time, it is intended that such
liabilities will be computed at the amount that, in light of all the facts and
circumstances existing at such time, represents the amount that reasonably can
be expected to become an actual or matured liability.
"Tangible Net Worth" means, as of the date any determination thereof is
to be made, the difference of: (a) Borrower's total stockholder's equity; minus
(b) the sum of: (I) all intangible assets of Borrower; (ii) all of Borrower's
prepaid expenses; (iii) capitalized costs for new Inventory titles and (iv) all
amounts due to Borrower from Affiliates, calculated on a consolidated basis.
"Unfunded Benefit Liability" means the excess of a Plan's benefit
liabilities (as defined in Section 4001(a)(16) of ERISA) over the current value
of such Plan's assets, determined in accordance with the assumptions used by the
Plan's actuaries for funding the Plan pursuant to Section 412 of the IRC for the
applicable plan year.
"Voidable Transfer" has the meaning set forth in Section 15.8.
"Working Capital" means the result of subtracting Consolidated Current
Liabilities from Consolidated Current Assets.
1.2 Accounting Terms. All accounting terms not specifically defined
herein shall be construed in accordance with GAAP. When used herein, the term
"financial statements" shall include the notes and schedules thereto. Whenever
the term "Borrower" is used in respect of a financial covenant or a related
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definition, it shall be understood to mean Borrower on a consolidated basis
unless the context clearly requires otherwise.
1.3 Code. Any terms used in this Agreement that are defined in the Code
shall be construed and defined as set forth in the Code unless otherwise defined
herein.
1.4 Construction. Unless the context of this Agreement clearly requires
otherwise, references to the plural include the singular, references to the
singular include the plural, the term "including" is not limiting, and the term
"or" has, except where otherwise indicated, the inclusive meaning represented by
the phrase "and/or". The words "hereof", "herein", "hereby", "hereunder", and
similar terms in this Agreement refer to this Agreement as a whole and not to
any particular provision of this Agreement. Section, subsection, clause,
schedule, and exhibit references are to this Agreement unless otherwise
specified. Any reference in this Agreement or in the Loan Documents to this
Agreement or any of the Loan Documents shall include all alterations,
amendments, changes, extensions, modifications, renewals, replacements,
substitutions, and supplements, thereto and thereof, as applicable.
1.5 Schedules And Exhibits. All of the schedules and exhibits attached
to this Agreement shall be deemed incorporated herein by reference.
2. LOAN AND TERMS OF PAYMENT.
2.1 Revolving Advances.
(a) Subject to the terms and conditions of this Agreement, People's
agrees to make revolving advances to Borrower in an amount at any one time
outstanding not to exceed the Borrowing Base. For purposes of this Agreement,
"Borrowing Base", as of any date of determination, shall mean (i) an amount
equal to eighty percent (80%) of the amount of Eligible Accounts plus (ii) an
amount equal to the lowest of: (x) fifty percent (50%) of the amount of Eligible
Inventory, (y) the amount of credit availability created by Section 2.1(a) above
or (z) One Million Five Hundred Thousand Dollars ($1,500,000).
(b) Anything to the contrary in Section 2.1(a) above notwithstanding,
People's may reduce its advance rates based upon Eligible Accounts or Eligible
Inventory without declaring an Event of Default if it determines, in its
reasonable discretion, that there is a material impairment of the prospect of
repayment of all or any portion of the Obligations or a material impairment of
the value or priority of People's security interests in the Collateral.
(c) People's shall have no obligation to make advances hereunder to the
extent they would cause the outstanding Obligations to exceed Two Million Seven
Hundred Thousand Dollars ($2,700,000) ("Maximum Amount").
(d) People's is authorized to make advances under this Agreement based
upon telephonic or other instructions received from anyone purporting to be an
Authorized Officer of Borrower. Borrower agrees to establish and maintain a
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single designated deposit account for the purpose of receiving the proceeds of
the advances requested by Borrower and made by People's hereunder. Unless
otherwise agreed by People's and Borrower, any advance requested by Borrower and
made by People's hereunder shall be made to such designated deposit account.
Amounts borrowed pursuant to this Section 2.1 may be repaid and, subject to the
terms and conditions of this Agreement, reborrowed at any time during the term
of this Agreement.
2.2 Overadvances. If, at any time or for any reason, the amount of
Obligations owed by Borrower to People's pursuant to Section 2.1 is greater than
either the dollar or percentage limitations set forth in Section 2.1 (an
"Overadvance"), Borrower immediately shall pay to People's, in cash, the amount
of such excess to be held by People's as cash collateral to secure Borrower's
obligation to repay People's.
2.3 Interest: Rates, Payments, and Calculations.
(a) Interest Rate. All Obligations shall bear interest, on the average
Daily Balance, at a per annum rate of one-half (0.5) percentage points above the
Reference Rate.
(b) Default Rate. All Obligations shall bear interest, from and after
the occurrence and during the continuance of an Event of Default, at a per annum
rate equal to four and one-half (4.5) percentage points above the Reference
Rate.
(c) Payments. Interest hereunder shall be due and payable, in arrears,
on the first day of each month during the term hereof. Borrower hereby
authorizes People's, at its option, without prior notice to Borrower, to charge
such interest, all People's Expenses (as and when incurred), and all
installments or other payments due under any note or other Loan Document to
Borrower's loan account, which unpaid amounts thereafter shall accrue interest
at the rate then applicable hereunder. Any interest not paid when due shall be
compounded by becoming a part of the Obligations, and such interest shall
thereafter accrue interest at the rate then applicable hereunder.
(d) Computation. The Reference Rate as of the date of this Agreement is
eight and three-quarters percent (8.75%) per annum. In the event the Reference
Rate is changed from time to time hereafter, the applicable rate of interest
hereunder automatically and immediately shall be increased or decreased by an
amount equal to such change in the Reference Rate. All interest and fees
chargeable under the Loan Documents shall be computed on the bases of a three
hundred sixty (360) day year for the actual number of days elapsed.
2.4 Crediting Payments; Application Of Collections. The receipt of any
wire transfer of funds, check, or other item of payment by People's immediately
shall be applied to provisionally reduce the Obligations, but shall not be
considered a payment on account unless such wire transfer is of immediately
available federal funds and is made to the appropriate deposit account of
People's or unless and until such check or other item of payment is honored when
presented for payment. From and after the Closing Date, People's shall be
entitled to charge Borrower for two (2) Business Days of "clearance" at the rate
set forth
12
in Section 2.3(a) or Section 2.3(b), as applicable, on all collections, checks,
wire transfers, or other items of payment that are received by People's, whether
provisionally applied to reduce the Obligations, or otherwise). This
across-the-board two (2) Business Day clearance charge on all receipts is
acknowledged by the parties to constitute an integral aspect of the pricing of
People's facility to Borrower, and shall apply irrespective of the
characterization of whether receipts are owned by Borrower or People's, and
irrespective of the level of Borrower's Obligations to People's. Should any
check or item of payment not be honored when presented for payment, then
Borrower shall be deemed not to have made such payment, and interest shall be
recalculated accordingly. Anything to the contrary contained herein
notwithstanding, any wire transfer, check, or other item of payment shall be
deemed received by People's only if it is received by People's on or before 2:00
p.m., it shall be deemed to have been received by People's as of the opening of
business on the immediately following Business Day.
2.5 Statements Of Obligations. On a monthly basis, People's shall
render statements to Borrower of the Obligations, including principal, interest,
fees, and including an itemization of all charges and expenses constituting
People's Expenses owing, and such statements shall be conclusively presumed to
be correct and accurate and constitute an account stated between Borrower and
People's unless, within thirty (30) days after receipt thereof by Borrower,
Borrower shall deliver to People's by registered or certified mail at its
address specified in Section 12, written objection thereto describing the error
or errors contained in any such statements.
2.6 Fees. Borrower shall pay to People's the following fees:
(a) Closing Fee. A one time commitment fee of Thirteen Thousand Five
Hundred Dollars ($13,500) which is earned, in full, and is due and payable by
Borrower to People's in connection with this Agreement on the Closing Date;
(b) Financial Examination, Documentation, and Appraisal Fees. People's
customary fee of Four Hundred Dollars ($400) per day per examiner, plus out-of
-pocket expenses for each financial analysis and examination of Borrower
performed by People's or its agents provided, however, so long as no Event of
Default has occurred and is continuing the maximum per diem fees for examiners
conducting periodic financial examinations would be limited to Four Thousand
Dollars ($4,000) per annum plus actual out of pocket costs; and
(c) Servicing Fee. On the first day of each month during the term of
this Agreement, and thereafter so long as any Obligations are outstanding, a
servicing fee in an amount equal to Two Hundred Dollars ($200) per month.
3. CONDITIONS; TERM OF AGREEMENT.
3.1 Conditions Precedent to Initial Advance. The obligation of People's
to make the initial advance is subject to the fulfillment, to the satisfaction
of People's and its counsel, of each of the following conditions on or before
the Closing Date:
13
(a) the closing Date shall occur on or before December 15, 1995;
(b) Old Lender shall have executed and delivered the Pay-Off Letter,
together with UCC termination statements and other documentation evidencing the
termination of its liens and security interests in and to the properties and
assets of Borrower or a subordination agreement in form and substance reasonably
satisfactory to People's;
(c) People's shall have received searches reflecting the filing of its
financing statements;
(d) People's shall have received each of the following documents, duly
executed, and each such document shall be in full force and effect:
Loan and Security Agreement with
Schedule E-1 - Eligible Inventory and Location
Schedule P-1 - Permitted Liens
Schedule 5.9 - Litigation
Schedule 5.12 - Pension Plan Disclosure
Borrowing Base Certificate
Copy of Warehouse and Distribution
Agreement with Mercedes Distribution Center, Incorporated
Collateral Assignment of Warehouse
and Distribution Agreement with
Mercedes Distribution Center, Incorporated
Listing of Authors Agreements
Assignment of Authors Agreements
Listing of Backlist Titles
UCC Search
The Millbrook Press, Inc.
▇ ▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
with Secretary of States of
Connecticut
New York
and with County Recorder/Clerk
Kings County, New York
List of Leased Locations
14
Conditional Assignment of Leases from
The Millbrook Press, Inc.
Copies of Leases
Landlord's Licenses and Waiver
Agreements/Agreements of Landlords to
Conditional Assignment of Leases
Fidelity/Validity Guaranty of
▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇
Opinion of Dow, ▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇▇
(e) People's shall have received a certificate from the Secretary of
Borrower attesting to the resolutions of Borrower's Board of Directors
authorizing its execution and delivery of this Agreement and the other Loan
Documents to which Borrower is a party and authorizing specific officers of
Borrower to execute same;
(f) People's shall have received copies of Borrower's By-laws and
Articles or Certificate of Incorporation, as amended, modified, or supplemented
to the Closing Date, certified by the Secretary of Borrower;
(g) People's shall have received a certificate of corporate status with
respect to Borrower, dated within ten (10) days of the Closing Date, by the
Secretary of State of the State of Delaware and from Connecticut, which
certificates shall indicate that Borrower is in good standing in such states;
(h) People's shall have received certificates of corporate status with
respect to Borrower, each dated within fifteen (15) days of the Closing Date,
such certificates to be issued by the Secretary Of State of the states in which
its failure to be duly qualified or licensed would have a material adverse
effect on the financial condition or properties and assets of Borrower, which
certificates shall indicate that Borrower is in good standing;
(I) People's shall have received the certified copies of the policies
of insurance, together with the endorsements thereto, as are required by Section
6.12 hereof, the form and substance of which shall be reasonably satisfactory to
People's and its counsel;
(j) People's shall have received satisfactory evidence that all returns
since the formation of Borrower required to be filed by Borrower have been
timely filed and all taxes upon Borrower or its properties, assets, income and
franchises have been paid prior to delinquency, except such taxes that are the
subject of a Permitted Protest; and
(k) All other documents and legal matters in connection with the
transactions contemplated by this Agreement shall have been delivered or
executed
15
or recorded and shall be in form and substance reasonably satisfactory to
People's and its counsel.
3.2 Conditions Precedent To All Advances. The following shall be
conditions precedent to all advances hereunder:
(a) the representations and warranties contained in this Agreement and
the other Loan Documents shall be true and correct in all material respects on
and as of the date of such advance as though made on and as of such date (except
to the extent that such representations and warranties relate solely to an
earlier date);
(b) no Event of Default or event which with the giving of notice or
passage of time would constitute an Event of Default shall have occurred and be
continuing on the date of such advance nor shall either result from the making
thereof; and
(c) no injunction, writ, restraining order, or other order of any
nature prohibiting, directly or indirectly, the making of such advance shall
have been issued and remain in force by any governmental authority against
Borrower, People's, or any of their Affiliates.
3.3 Term. This Agreement shall become effective upon the execution and
delivery hereof by Borrower and People's and shall continue in full force and
effect for a term ending on the date that is three (3) years from the Closing
Date. The foregoing notwithstanding, People's shall have the right to terminate
its obligations under this Agreement immediately and without notice upon the
occurrence and during the continuation of an Event of Default.
3.4 Effect Of Termination. On the date of termination, all Obligations
immediately shall become due and payable without notice or demand. No
termination of this Agreement, however, shall relieve or discharge Borrower of
Borrower's duties, Obligations, or covenants hereunder, and People's continuing
security interests in the Collateral shall remain in effect until all
Obligations have been fully and finally discharged and People's obligation to
provide advances hereunder is terminated.
3.5 Early Termination By Borrower. The provisions of Section 3.3 that
allow termination of this Agreement by Borrower only on the Renewal Date and
certain anniversaries thereof notwithstanding, Borrower has the option, at any
time upon ten (10) days prior written notice to People's, to terminate this
Agreement by paying to People's, in cash, the Obligations together with a
premium (the "Early Termination Premium") equal to Twenty Seven Thousand Dollars
($27,000) if termination occurs on or before last day of the twelfth (12) month
after the Closing Date or the sum of Five Thousand Dollars ($5,000) if
termination occurs on or after the first day of the thirteenth (13th) month
after the Closing Date through the day immediately preceding the third
anniversary of the Closing Date; provided, however, that Borrower shall have no
obligation to pay People's an Early Termination Premium if the monies used for
prepayment of the Obligations are derived from any contribution of additional
equity to Borrower (e.g., a public or private offering), or in the event of such
prepayment of this Agreement in connection with a merger or an acquisition.
16
3.6 Termination Upon Event Of Default. If as a result of the occurrence
of an Event of Default, People's shall conduct a liquidation of the Collateral
in accordance with the provisions of Section 9 hereof, People's shall be able to
collect in connection with such liquidation, a premium in an amount equal to the
Early Termination Premium. The Early Termination Premium shall be presumed to be
the amount of damages sustained by People's as the result of the early
termination and Borrower agrees that it is reasonable under the circumstances
currently existing. The Early Termination Premium provided for in this Section
3.6 shall be deemed included in the Obligations.
4. CREATION OF SECURITY INTEREST.
4.1 Grant Of Security Interest. Borrower hereby grants to People's a
continuing security interest in all currently existing and hereafter acquired or
arising Collateral in order to secure prompt repayment of any and all
Obligations and in order to secure prompt performance by Borrower of each of its
covenants and duties under the Loan Documents. People's security interests in
the Collateral shall attach to all Collateral without further action on the part
of People's or Borrower. Anything contained in this Agreement or any other Loan
Document on the contrary notwithstanding, except for sales of Inventory in the
ordinary course of business, Borrower has no authority, express or implied, to
dispose of any item or portion of the Collateral.
4.2 Negotiable Collateral. In the event that any Collateral, including
proceeds, is evidenced by or consists of Negotiable Collateral, Borrower shall,
promptly upon the request of People's, endorse and assign such Negotiable
Collateral to People's and deliver physical possession of such Negotiable
Collateral to People's.
4.3 Collection Of Accounts, General Intangibles, Negotiable Collateral.
On or before the Closing Date, People's and Borrower shall enter into the
Agreements, in form and substance reasonably satisfactory to People', pursuant
to which Borrower shall maintain all of its operating bank accounts with
People's (Borrower shall be responsible for all costs and charges assessed by
People's in connection with the maintenance of such accounts) and all of
Borrower's cash receipts, checks, and other items of payment (including
insurance proceeds, proceeds of cash sales, rental proceeds, and tax refunds)
will be forwarded to People's on a daily basis. At any time after the occurrence
of an Event of Default, People's or People's designee may: (a) notify customers
or Account Debtors of Borrower that the Accounts, General Intangibles, or
Negotiable Collateral have been assigned to People's or that People's has a
security interest therein; and (b) collect the Accounts, General Intangibles,
and Negotiable Collateral directly and charge the collection costs and expenses
to Borrower's loan account. Borrower agrees that it will hold in trust for
People's, as People's trustee, any cash receipts, checks, and other items of
payment (including, insurance proceeds, proceeds of cash sales, rental proceeds,
and tax refunds) that it receives and immediately will deliver said cash
receipts, checks, and other items of payment to People's in their original form
as received by Borrower.
17
4.4 Delivery Of Additional Documentation Required. At any time upon the
request of People's, Borrower shall execute and deliver to People's all
financing statements, continuation financing statements, fixture filings,
security agreements, chattel mortgages, pledges, assignments, endorsements of
certificates of titles, applications for title, affidavits, reports, notices,
schedules of accounts, letters of authority, and all other documents that
People's may reasonably request, in form reasonably satisfactory to People's, to
perfect and continue perfected People's security interests in the Collateral and
in order to fully comply with the terms of the Loan Documents.
4.5 Power Of Attorney. Upon the occurrence and during the continuance
of an Event of Default, Borrower hereby irrevocably makes, constitutes, and
appoints People's (and any of People's officers, employees, or agents designated
by People's ) as Borrower's true and lawful attorney, with power to: (a) if
Borrower refuses to, or fails timely to execute and deliver any of the documents
described in Section 4.4, sign the name of Borrower on any of the documents
described in Section 4.4 to perfect and continue perfected People's security
interests in the Collateral and in order to fully comply with the terms of the
Loan Documents; (b) sign Borrower's name on any invoice or ▇▇▇▇ of lading
relating to any Account, drafts against Account Debtors, schedules and
assignments of Accounts, verifications of Accounts, and notices to Account
Debtors; (c) send requests for verification of Accounts; (d) endorse Borrower's
name on any checks, notices, acceptances, money orders, drafts, or other item of
payment or security that may come into People's possession; (e) notify the post
office authorities to change the address for delivery of Borrower's mail to an
address designated by People's, to receive and open all mail addressed to
Borrower, and to retain all mail relating to the Collateral and forward all
other mail to Borrower; (f) make, settle, and adjust all claims under Borrower's
policies of insurance and make all determinations and decisions with respect to
such policies of insurance; and (g) settle and adjust disputes and claims
respecting the Accounts directly with Account Debtors, for amounts and upon
terms which People's determines to be reasonable, and People's may cause to be
executed and delivered any documents and releases which People's determines to
be necessary. The appointment of People's as Borrower's attorney, and each and
every one of People's rights and powers, being coupled with an interest, is
irrevocable until all of the Obligations have been fully and finally repaid and
performed and People's obligation to extend credit hereunder is terminated.
4.6 Right To Inspect. People's (through any of its officers, employees,
or agents) shall have the right, form time to time hereafter during ordinary
business hours and upon reasonable notice to Borrower, to inspect Borrower's
Books and to check, test, and appraise the Collateral in order to verify
Borrower's financial condition or the amount, quality, value, condition of, or
any other matter relating to, the Collateral.
5. REPRESENTATIONS AND WARRANTIES.
Borrower represents and warrants to People's as follows:
18
5.1 No Prior Encumbrances. Borrower has good and marketable title to
the Collateral, free and clear of liens, adverse claims, security interests, or
encumbrances, except for Permitted Liens
5.2 Eligible Accounts. The Eligible Accounts are, at the time of the
creation thereof and as of each date on which Borrower includes them in a
Borrowing Base calculation or certification, bona fide existing obligations
created by the sale and delivery of Inventory to Account Debtors in the ordinary
course of Borrower's business, unconditionally owed to Borrower without
defenses, disputes, offsets, counterclaims. The Inventory giving rise to such
Eligible Accounts has been delivered to the Account Debtor, or to the Account
Debtor's agent for immediate shipment to and unconditional acceptance by the
Account Debtor. At the time of the creation of an Eligible Account and as of
each date on which Borrower includes an Eligible Account in a Borrowing Base
calculation or certification, Borrower has not received notice of actual or
imminent bankruptcy, insolvency, or material impairment of the financial
condition of any applicable Account Debtor regarding such Eligible Account.
5.3 Eligible Inventory. All Eligible Inventory is now and at all times
hereafter shall be of good and merchantable quality.
5.4 Location Of Inventory And Equipment. The Inventory and Equipment
are located only at the locations identified on Schedule E-1 or otherwise
permitted by Section 6.15.
5.5 Inventory Records. Borrower now keeps, and hereafter at all times
shall keep, correct and accurate records itemizing and describing the kind and
quantity of the Inventory, and Borrower's cost therefor.
5.6 Location Of Chief Executive Office; FEIN. The chief executive
office of Borrower of located at the address indicated in the preamble to this
Agreement and Borrower's FEIN is ▇▇-▇▇▇-▇▇▇▇.
5.7 Due Organization And Qualification; No Subsidiaries. Borrower is
duly organized and existing and in good standing under the laws of the State of
Delaware and qualified and licensed to do business in Connecticut, and in good
standing in, any other state or jurisdiction where the failure to be so licensed
or qualified could reasonably be expected to have a material adverse effect on
the business, operations, condition (financial or otherwise), or finances of
Borrower or on the value of the Collateral to People's. Borrower has no
subsidiaries.
5.8 Due Authorization; No Conflict. The execution, delivery, and
performance of the Loan Documents are within Borrower's corporate powers, have
been duly authorized, and are not in conflict with nor constitute a b reach of
any provision contained in Borrower's Articles or Certificate of Incorporation,
or By-laws, nor will they constitute an event of default under any material
agreement to which Borrower is a party or by which its properties or assets may
be bound to the extent that such agreement has or could be reasonably expected
to have a material adverse effect on Borrower's business.
19
5.9 Litigation. There are no actions or proceedings pending by or
against Borrower before any court or administrative agency and Borrower does not
have knowledge of any pending, threatened, or imminent litigation, governmental
investigations, or claims, complaints, actions, or prosecutions involving
Borrower except for: (a) ongoing collection matters in which Borrower is the
plaintiff; (b) matters disclosed on Schedule 5.9; and (c) matters arising after
the date hereof that, if decided adversely to Borrower be reasonably expected to
materially impair the prospect of repayment of the Obligations or materially
impair the value or priority of People's security interests in the Collateral.
5.10 No Material Adverse Change In Financial Condition. All financial
statements relating to Borrower that have been delivered by Borrower to People's
have been prepared in accordance with GAAP and fairly present Borrower's
financial condition as of the date thereof and Borrower's results of operations
for the period then ended. As of the date hereof, there has not been a material
adverse change in the financial condition of Borrower since the date of the
latest financial statements submitted to People's on or before the Closing Date.
5.11 Solvency. Borrower is Solvent. No transfer of property is being
made by Borrower and no obligation is being incurred by Borrower in connection
with the transactions contemplated by this Agreement or the other Loan Documents
with the intent to hinder, delay, or defraud either present or future creditors
of Borrower.
5.12 Employee Benefits. Except as disclosed on Schedule 5.12, each Plan
is in compliance in all material respects with the applicable provisions of
ERISA and the IRC. Each Qualified Plan and Multiemployer Plan and each trust
maintained pursuant thereto is the subject of a favorable determination letter
issued by the Internal Revenue Service regarding their exemptions from federal
income taxation under ITC Section 501, and, to the best knowledge of Borrower,
nothing has occurred that would cause the loss of such qualification or
tax-exempt status. There are no outstanding liabilities under Title IV of ERISA
with respect to any Plan maintained or sponsored by Borrower or any ERISA
Affiliate, nor with respect to any Plan to which Borrower or any ERISA Affiliate
contributes or is obligated to contribute which could reasonably be expected to
have a material adverse effect on the financial condition of borrower. No Plan
subject to Title IV of ERISA has any Unfunded Benefit Liability which could
reasonably be expected to have a material adverse effect on the financial
condition of Borrower. Neither Borrower nor any ERISA Affiliate has transferred
any Unfunded Benefit Liability or has otherwise engaged in a transaction that
could be subject to Sections 4069 or 4212(c) of ERISA which could reasonably be
expected to have a material adverse effect on the financial condition of
Borrower. Neither Borrower nor any ERISA Affiliate has incurred nor reasonably
expects to incur (x) any liability (and no event has occurred which, with the
giving of notice under Section 4219 of ERISA, would result in such liability)
under Sections 4201 or 4243 of ERISA with respect to a Multiemployer Plan, or
(y) any liability under Title IV of ERISA (other than premiums due but not
delinquent under Section 4007 of ERISA) with respect to a Plan, which could, in
either event, reasonably be expected to have a material adverse effect on the
financial condition of Borrower. No application for a funding waiver or an
extension of any amortization period pursuant to Section 412 of the IRC has been
made with respect to any Plan. No ERISA Event has occurred or is
20
reasonably expected to occur with respect to any Plan which could reasonably be
expected to have a material adverse effect on the financial condition of
Borrower. Borrower and each ERISA Affiliate have complied in all material
respects with the applicable notice and continuation coverage requirements of
Section 4980B of the IRC.
5.13 Environmental Condition. None of Borrower's properties or assets
has ever been used by Borrower or, to the best of Borrower's knowledge, by
previous owners or operators in the disposal of, or to produce, store, handle,
treat, release, or transport, any Hazardous Materials to the extent that it has
or could be reasonably expected to have a material adverse effect on Borrower's
business. None of Borrower's properties or assets has ever been designated or
identified in any manner pursuant to any environmental protection statue as a
Hazardous Materials disposal site, or a candidate for closure pursuant to any
environmental protection statute. No lien arising under any environmental
protection statute has attached to any revenues or to any real or personal
property owned or operated by Borrower. Borrower has not received a summons,
citation, notice, or directive from the Environmental Protection Agency or any
other federal or state governmental agency concerning any action or omission by
Borrower resulting in the releasing or disposing of Hazardous Materials into the
environment.
5.14 Reliance By People's; Cumulative. Each warranty and representation
contained in this Agreement automatically shall be deemed repeated with each
advance and shall be conclusively presumed to have been relied on by People's
regardless of any investigation made or information possessed by People's. The
warranties and representations set forth herein shall be cumulative and in
addition to any and all other written warranties and representations that
Borrower now or hereafter shall give, or cause to be given, to People's.
6. AFFIRMATIVE COVENANTS.
Borrower covenants and agrees that, so long as any credit hereunder
shall be available and until full and final payment of the Obligations, and
unless People's shall otherwise consent in writing, Borrower shall do all of the
following:
6.1 Accounting System. Borrower shall maintain a standard and modern
system of accounting in accordance with GAAP with ledger and account cards or
computer tapes, discs, printouts, and records pertaining to the Collateral which
contain information as from time to time may be requested by People's. Borrower
also shall keep proper books of account showing all sales, claims, and
allowances on its Inventory in accordance with prevailing standards in the
publishing industry.
6.2 Collateral Reports. Borrower shall deliver to People's, no later
than the fifteenth (15th) day of each month during the term of this Agreement, a
detailed aging, by total, of the Accounts, a reconciliation statement, and a
summary aging, by vendor, of all accounts payable and any book overdraft.
Original sales invoices evidencing daily sales shall be mailed by Borrower to
each Account Debtor with a copy to People's, and, at People's direction after an
Event of Default has occurred, the invoices shall indicate on their face that
the Account has been
21
assigned to People's and that all payments are to be made directly to People's.
Borrower shall deliver to People's, daily collection reports and cash
application, and as People's may from time to time require, sales journals,
invoices, original delivery receipts, customer's purchase orders, shipping
instructions, bills of lading, and other documentation respecting shipment
arrangements. Absent such a request by People's, copies of all such
documentation shall be held by Borrower as custodian for People's. In addition,
from time to time, Borrower shall deliver to People's such other and additional
information or documentation as People's may reasonably request.
6.3 Schedules Of Accounts. With such regularity as People's shall
require, Borrower shall provide People's with schedules describing all Accounts.
People's failure to request such schedules or Borrower's failure to execute and
deliver such schedules shall not affect or limit People's security interests or
other rights in and to the Accounts.
6.4 Financial Statements, Reports, Certificates. Borrower agrees to
deliver to People's: (a) as soon as available, but in any event within thirty
(30) days after the end of each month during each of Borrower's fiscal years, a
company prepared balance sheet, income statement, and cash flow statement
covering Borrower's operations during such period; and (b) as soon as available,
but in any event within forty-five (45) days after the end of each fiscal
quarter during each of Borrower's fiscal years, a company prepared report on
slow moving Inventory; and (c) as soon as available, but in any event within
ninety (90) days after the end of each of Borrower's fiscal years, financial
statements of Borrower for each such fiscal year, audited by KPMG Peat Marwick
or such other independent certified public accountants reasonably acceptable to
People's and certified, without any qualifications, by such accountants to have
been prepared in accordance with GAAP, together with a certificate of such
accountants addressed to People's stating that such accountants do not have
knowledge of the existence of any event or condition constituting an Event of
Default, or that would, with the passage of time or the giving of notice,
constitute an Event of Default. Such audited financial statements shall include
a balance sheet, profit and loss statement, and cash flow statement, and, if
prepared, such accountants' letter to management. If Borrower is a parent
company of one or more subsidiaries, or Affiliates, or is a subsidiary or
Affiliate of another company, then, in addition to the financial statements
referred to above, Borrower agrees to deliver financial statements prepared on a
consolidating basis so as to present Borrower and each such related entity
separately, and on a consolidated basis. In addition to the above, annually with
Borrower's annual financial statements, Borrower shall provide People's with a
projection on an annual basis for the ensuing fiscal year of Borrower's cash
flow, financial performance, sales and expenses.
Together with the above, Borrower also shall deliver to People's Borrower's any
Form 10-Q Quarterly Reports, Form 10-K Annual Reports, and Form 8-K Current
Reports, and any other filings made by Borrower with the Securities and Exchange
Commission, if any, as soon as the same are filed, or any other information that
is provided by Borrower to its shareholders, in their capacity as shareholders,
and any other report reasonably requested by People's relating to the Collateral
or the financial condition of Borrower.
22
Each month, together with the financial statements provided pursuant to Section
6.4(a), Borrower shall deliver to People's a certificate signed by its chief
financial officer to the effect that: (i) all reports, statements, or computer
prepared information of any kind or nature delivered or caused to be delivered
to People's hereunder have been prepared in accordance with GAAP and fairly
present the financial condition of Borrower; (ii) Borrower is in timely
compliance with all of its covenants and agreements hereunder; (iii) the
representations and warranties of Borrower contained in this Agreement and the
other Loan Documents are true and correct in all material respects on and as of
the date of such certificate, as though made on and as of such date (except to
the extent that such representations and warranties relate solely to an earlier
date and except for changes resulting from events or transactions not expressly
prohibited by the terms hereof); and (iv) on the date of delivery of such
certificate to People's there does not exist any condition or event that
constitutes an Event of Default (or, in each case, to the extent of any
non-compliance, describing such non-compliance as to which he or she may have
knowledge and what action Borrower has taken, is taking, or proposes to take
with respect thereto).
Borrower shall have issued written instructions to its independent certified
public accountants authorizing them to communicate with People's and to release
to People's whatever financial information concerning Borrower that People's may
request. Borrower hereby irrevocably authorizes and directs all auditors,
accountants, or other third parties to deliver to People's, at Borrower's
expense, copies of Borrower's financial statements, papers related thereto, and
other accounting records of any nature in their possession, and to disclose to
people's any information they may have regarding Borrower's business affairs and
financial conditions.
6.5 Tax Returns. Borrower agrees to deliver to People's copies of each
of Borrower's future federal income tax returns, and any amendments thereto,
within thirty (30) days of the filing thereof with the Internal Revenue Service.
6.6 Intentionally Deleted.
6.7 Designation Of Inventory. Borrower shall now and from time to time
hereafter, but not less frequently than monthly, execute and deliver to People's
a designation of Inventory specifying Borrower's cost and the wholesale market
value thereof and further specifying such other information as People's may
reasonably request.
6.8 Returns. Returns and allowances, if any, as between Borrower and
its Account Debtors shall be on the same basis and in accordance with the usual
customary practices of Borrower, as they exist at the time of the execution and
delivery of this Agreement. If, at a time when no Event of Default has occurred
and is continuing, any Account Debtor returns any Inventory to Borrower,
Borrower promptly shall determine the reason for such return and, if Borrower
accepts such return, issue a credit memorandum (with a copy to be sent to
People's) in the appropriate amount to such Account Debtor. If, at a time when
an Event of Default has occurred and is continuing, any Account Debtor returns
any inventory to Borrower, Borrower promptly shall determine the reason for such
return and, if People's consents (which consent shall not be unreasonably
23
withheld), issue a credit memorandum (with a copy to be sent to People's) in the
appropriate amount to such Account Debtor. On a monthly basis, Borrower shall
notify People's of all returns and recoveries and of all disputes and claims.
6.9 Title To Equipment. Upon People's request, Borrower shall promptly
deliver to People's, properly endorsed, any and all evidences of ownership of,
certificates of title, or applications for title to any items of Equipment.
6.10 Maintenance Of Equipment. Borrower shall keep and maintain the
equipment in good operating condition and repair (ordinary wear and tear
excepted), and make all necessary replacements thereto to maintain equipment in
good operating condition, except for property which, in the good faith of
Borrower, may no longer be profitably employed in the business of Borrower.
6.11 Taxes. Except to the extent that such assessments and taxes, due
and payable by, imposed, levied or assessed against Borrower or any of its
property is the subject of a Permitted Lien or Permitted Protest, all
assessments and taxes, whether real, personal, or otherwise, due or payable by,
or imposed, levied, or assessed against Borrower or any of its property have
been paid, and shall hereafter be paid in full, before delinquency or before the
expiration of any extension period. Borrower shall make due and timely payment
or deposit of all federal, state, and local taxes, assessments, or contributions
required of it by law, and will execute and deliver to People's, on demand,
appropriate certificates attesting to the payment thereof or deposit with
respect thereto. Borrower will make timely payment or deposit of all tax
payments and withholding taxes required of it by applicable laws, including
those laws concerning F.I.C.A., F.U.T.A., state disability, and local, state,
and federal income taxes, and will, upon request, furnish People's with proof
reasonably satisfactory to People's indicating that Borrower has made such
payments or deposits.
6.12 Insurance.
(a) Borrower, at its expense, shall keep the Collateral insured against
loss or damage by fire, theft, explosion, sprinklers, and all other hazards and
risks, and in such amounts, as are ordinarily insured against by other owners in
similar businesses. Borrower also shall maintain product liability, public
liability and property damage insurance relating to Borrower's ownership and use
of the Collateral.
(b) All such policies of insurance shall be in such form, with such
companies, and in such amounts as is customary in the case of corporations of
established reputations engaged in the same or similar business and similarly
situated. All such policies of insurance (except those of public liability and
property damage) shall contain a 438BFU lender's loss payable endorsement, or an
equivalent endorsement in a form satisfactory to People's, showing People's as
sole loss payee thereof, and shall contain a waiver of warranties, and shall
specify that the insurer must give at least ten (10) days prior written notice
to People's before canceling its policy for any reason. Borrower shall deliver
to People's certified copies of such policies of insurance and evidence of the
payment of all premiums
24
therefor. All proceeds payable under any such policy shall be payable to
People's to be applied on account of the Obligations.
6.13 Financial Covenants. Borrower shall maintain:
(a) Current Ratio. A ratio of Consolidated Current Assets divided by
Consolidated Current Liabilities of at least 1.30 to 1.0 through April, 1996
(with no Current Ratio tested during the months of May, June and July of 1996),
1.35 to 1.0 during fiscal 1997 and 1.40 to 1.0 during fiscal 1998 and
thereafter, all measured on a calendar month-end basis;
(b) Total Liabilities to Tangible Net Worth Ratio. A ratio of
Borrower's total liabilities divided by Tangible Net Worth of not more than 2.0
to 1.0 during the term of this Agreement, measured on a calendar month-end
basis;
(c) Tangible Net Worth. Tangible Net Worth of at least $2,200,000
through April, 1996, $2,100,000 during the months of May, June and July of 1996,
$2,200,000 during fiscal 1997, $2,400,000 during fiscal 1998 and thereafter, all
measured on a calendar month-end basis; and
(d) Working Capital. Working Capital of not less than $1,300,000
through April, 1996 (with no Working Capital minimum during the months of May,
June and July of 1996), $1,400,000 during fiscal 1997, $1,500,000 during fiscal
1998 and thereafter, all measured on a calendar month-end basis.
(e) Debt Service. Borrower shall maintain a Debt Service Ratio of not
less than 2.0 to 1.0 during the term of this Agreement, measured on a calendar
month-end basis.
(f) Development Costs of New Titles. Borrower shall during each rolling
12 month period during the term of this Agreement limit its costs of development
of new titles to cash flow in excess of 1.25 times the Debt Service Ratio plus
additional paid in equity.
6.14 No Setoffs Or Counterclaims. All payments hereunder and under the
other Loan Documents made by or on behalf of Borrower shall be made without
setoff or counterclaim and free and clear of, and without deduction or
withholding for or on account of, any federal, state, or local taxes.
6.15 Location Of Inventory And Equipment. Borrower shall keep the
Inventory and Equipment only at the locations identified on Schedule E-1;
provided, however, that Borrower may amend Schedule E-1 so long as such
amendment occurs by written notice to People's not less than thirty (30) days
prior to the date on which the Inventory or Equipment is moved to such new
location, so long as such new location is within the continental United States,
and so long as, at the time of such written notification, Borrower provides any
financing statements or fixture filings necessary to perfect and continue
perfected People's security interests in such assets and also provides to
People's a landlord's waiver in form and substance satisfactory to People's.
25
6.16 Compliance With Laws. Borrower shall comply with the requirements
of all applicable laws, rules, regulations, and orders of any governmental
authority, including the Fair Labor Standards Act and the Americans With
Disabilities Act, other than laws, rules, regulations, and orders the
non-compliance with which, individually or in the aggregate, would not have and
could not reasonably be expected to have a material adverse effect on the
business, operations, condition (financial or otherwise) or finances of Borrower
or on the value of the Collateral to People's.
6.17 Employee Benefits.
(a) Borrower shall deliver to People's a written statement by the chief
financial officer of Borrower specifying the nature of any of the following
events and the actions which Borrower proposes to take with respect thereto
promptly, and in any event within ten (10 ) days of becoming aware of any of
them, and when known, any action taken or threatened by the Internal Revenue
Service, PBGC, Department of Labor, or other party with respect thereto: (i) an
ERISA Event with respect to any Plan which could reasonably be expected to have
a material adverse effect on the financial condition of Borrower; (ii) the
incurrent of an obligation to pay additional premium to the PBGC under Section
4006(a)(3)(E) of ERISA with respect to any Plan; and (iii) any lien on the
assets of Borrower arising in connection with any Plan.
(b) Borrower shall also promptly furnish to People's copies prepared or
received by Borrower or an ERISA Affiliate of: (i) at the request of People's,
each annual report (Internal Revenue Service Form 5500 series) and all
accompanying schedules, actuarial reports, financial information concerning the
financial status of each Plan, and schedules showing the amounts contributed to
each Plan by or on behalf of Borrower or its ERISA Affiliates for the most
recent three (3) plan years; (ii) all notices of intent to terminate or to have
a trustee appointed to or from the PBGC to administer any Plan; (iii) all
written demands by the PBGC under Subtitle D of Title IV of ERISA; (iv) all
notices required to be sent to employees or to the PBGC under Section 302 of
ERISA or Section 412 of the IRC; (v) all written notices received with respect
to a Multiemployer Plan concerning (x) the imposition or amount of withdrawal
liability pursuant to Section 4202 of ERISA, (y) a termination described in
Section 4041A of ERISA, or (z) a reorganization or insolvency described in
Subtitle E of Title IV of ERISA; (vi) the adoption of any new Plan that is
subject to Title IV of ERISA or Section 412 of the IRC by Borrower of any ERISA
Affiliate; (vii) the adoption of any amendment to any Plan that is subject to
Title IV of ERISA or Section 412 of the IRC, if such amendment results in a
material increase in benefits of Unfunded Benefit Liability; or (viii) the
commencement of contributions by Borrower or any ERISA Affiliate to any Plan
that is subject to Title IV of ERISA or Section 412 of the IRC.
6.18 Leases. Borrower shall pay when due all rents and other amounts
payable under any leases to which Borrower is a party or by which Borrower's
properties and assets are bound, unless such payments are the subject of a
Permitted Protest. To the extent that Borrower fails timely to make payment of
such rents and other amounts payable when due under its leases, People's shall
be entitled, in its discretion, and without the necessity of declaring an Event
of
26
Default, to reserve an amount equal to such unpaid amounts from the loan
availability created under Section 2.1 hereof.
7. NEGATIVE COVENANTS
Borrower covenants and agrees that, so long as any credit hereunder shall be
available and until full and final payment of the Obligations, Borrower will not
do any of the following without People's prior written consent which shall not
be unreasonably withhold:
7.1 Indebtedness. Create, incur, assume, permit, guarantee, or
otherwise become or remain, directly or indirectly, liable with respect to any
Indebtedness, except:
(a) Indebtedness evidenced by this Agreement;
(b) Indebtedness set forth in the latest financial statements of
Borrower submitted to People's on or prior to the Closing Date;
(c) Indebtedness secured by Permitted Liens; and
(d) Refinancings, renewals, or extensions of Indebtedness permitted
under clauses (b) and (c) of this Section 7.1 (and continuance or renewal of any
Permitted Liens associated therewith) so long as: (i) the terms and conditions
of such refinancings, renewals, or extensions do not materially impair the
prospects of repayment of the Obligations by Borrower, (ii) the net cash
proceeds of such refinancings, renewals, or extensions do not result in an
increase in the aggregate principal amount of the Indebtedness so refinanced,
renewed, or extended, (iii) such refinancings, renewals, refundings, or
extensions do not result in a shortening of the average weighted maturity of the
Indebtedness so refinanced, renewed, or extended, and (iv) to the extent that
Indebtedness that is refinanced was subordinated in right of payment to the
Obligations, then the subordination terms and conditions of the refinancing
Indebtedness must be at least as favorable to People's as those applicable to
the refinanced Indebtedness; and
(e) Other Indebtedness not otherwise permitted by this Section 7.1 in
an aggregate principal amount not to exceed $50,000 at any time provided,
however, that at all times, Borrower shall be in compliance with all of the
covenants contained in Section 6.13 hereof.
7.2 Liens. Create, incur, assume, or permit to exist, directly or
indirectly, any lien on or with respect to any of its property or assets, of any
kind, whether now owned or hereafter acquired, or any income or profits
therefrom, except for Permitted Liens (including liens that are replacements of
Permitted Liens to the extent that the original Indebtedness is refinanced under
Section 7.1(d) and so long as the replacement liens secure only those assets or
property that secured the original Indebtedness).
7.3 Restrictions On Fundamental Changes. Consummate any acquisition,
merger, consolidation, reorganization, or recapitalization, or reclassify
27
its capital stock, or liquidate, wind up, or dissolve itself (or suffer any
liquidation or dissolution), or convey, sell, assign, lease, transfer, or
otherwise dispose of, in one transaction or a series of transactions, all or any
substantial part of its business, property, or assets, whether now owned or
hereafter acquired, or acquire by purchase or otherwise all or substantially all
of the properties, assets, stock, or other evidence of beneficial ownership of
any Person.
7.4 Extraordinary Transactions And Disposal Of Assets. Consummate any
transaction not in the ordinary and usual course of Borrower's business,
including the sale, lease, or other disposition of, moving, relocation, or
transfer, whether by sale or otherwise, of any of Borrower's properties or
assets (other than sales of Inventory to buyers in the ordinary course of
Borrower's business as currently conducted).
7.5 Change Name. Change Borrower's name, FEIN, business structure, or
identity, or add any new fictitious name.
7.6 Guarantee. Guarantee or otherwise become in any way liable with
respect to the obligations of any third Person except by endorsement of
instruments or items of payment for deposit to the account of Borrower or which
are transmitted or turned over to People's.
7.7 Restructure. Make any change in Borrower's financial structure, the
principal nature of Borrower's business operations, or the date of its fiscal
year.
7.8 Prepayments. Except in connection with a refinancing permitted by
Section 7.1(d), prepay any Indebtedness owing to any third Person.
7.9 Change Of Control. Cause, permit, or suffer, directly or
indirectly, any Change Of Control.
7.10 Expenditures. Make any capital expenditure, or any commitment
therefor, in excess of One Hundred Twenty-Five Thousand Dollars ($125,000)
during the 1995 fiscal year or make any capital expenditure, or any commitment
therefor, in excess of One Hundred Fifty Thousand Dollars ($150,000) during the
1996, 1997 or 1998 fiscal years.
7.11 Intentionally Deleted.
7.12 Distributions. Make any distribution or declare or pay any
dividends (in cash or in stock) on, or purchase, acquire, redeem, or retire any
of Borrower's capital stock, of any class, whether now or hereafter outstanding;
provided, however, dividends on preferred stock may continue to accrue.
7.13 Accounting Methods. Modify or change its method of accounting or
enter into, modify, terminate any agreement currently existing, or at any time
hereafter entered into with any third party accounting firm or service bureau
for the preparation or storage of Borrower's accounting records without said
accounting firm or service bureau agreeing to provide People's information
regarding the Collateral or Borrower's financial condition. Borrower waives the
right to assert a confidential relationship, if any, it may have with any
accounting firm
28
or service bureau in connection with any information requested by People's
pursuant to or in accordance with this Agreement, and agrees that People's may
contact directly any such accounting firm or service bureau in order to obtain
such information.
7.14 Investments. Directly or indirectly make or acquire any beneficial
interest in (including stock, partnership interest, or other securities of) or
make any loan, advance, or capital contribution to , any Person, except:
(a) direct obligations of the United States Government maturing in one
year;
(b) certificates of deposit of a member bank of the Federal Reserve
System having capital, surplus and undivided profits in excess of $100,000,000;
(c) any investment in commercial paper which at the time of such
investment is assigned the highest quality rating in accordance with the rating
systems employed by either Mood's Investor's Service, Inc. or Standard & Poor's
Corporation;
(d) investments (including debt obligations) received in connection
with the bankruptcy or reorganization of Account Debtors or suppliers and in
settlement of delinquent obligations of, and other disputes, Account Debtors or
suppliers arising in the ordinary course of business; and
(e) deposit accounts of the Borrower maintained in the ordinary course
of business.
7.15 Transactions With Affiliates. Directly or indirectly enter into or
permit to exist any material transaction with any Affiliate of Borrower except
for transactions that are in the ordinary course of Borrower's business, upon
fair and reasonable terms, that are fully disclosed to People's, and that are no
less favorable to Borrower than would be obtained in arm's length transaction
with a non-Affiliate.
7.16 Suspension. Suspend or terminate a substantial portion of its
business.
7.17 Compensation. Increase the annual fee or per-meeting fees paid to
director during any year by more than fifteen percent (15%) over the prior year;
pay or accrue total cash compensation, during any year, to officers and senior
management employees in an aggregate amount in excess of one hundred fifteen
percent (115%) of that paid or accrued in the prior year.
7.18 Use Of Proceeds. Use the proceeds of the advances made hereunder
for any purpose other than: (a) on the Closing Date, to repay in full the
outstanding principal, accrued interest, and accrued fees and expenses owing to
Old Lender; (b) to pay transactional costs and expenses incurred in connection
with this Agreement; and (c) thereafter, consistent with the terms and
conditions hereof, for its lawful and permitted corporate purposes.
29
7.19 Change In Location Of Chief Executive Office; Inventory And
Equipment With Bailees. Borrower covenants and agrees that it will not, without
thirty (30) days prior written notification to People's, relocate its chief
executive office to a new location and so long as, at the time of such written
notification, Borrower provides any financing statements necessary to perfect
and continue perfected People's security interests and also provides to People's
a landlord's waiver in form and substance satisfactory to People's.
8. EVENTS OF DEFAULT.
Any one or more of the following events shall constitute an event of default
(each, an "Event of Default") under this Agreement:
8.1 If Borrower fails to pay when due and payable or when declared due
and payable, any portion of the Obligations (whether of principal, interest
(including any interest which, but for the provisions of the Bankruptcy Code,
would have accrued on such amounts, fees and charges due People's, reimbursement
of People's Expenses, or other amounts constituting Obligations);
8.2 If Borrower fails to perform, keep, or observe any term, provision,
condition, covenant, or agreement contained in this Agreement, in any of the
Loan Documents, or in any other present or future agreement between Borrower and
People's in relation thereto, and such failure shall continue for thirty (30)
days after becoming known to Borrower;
8.3 If there is a material impairment of the prospect of repayment of
any portion of the Obligations owing to People's or a material impairment of the
value or priority of People's security interests in the Collateral;
8.4 If any material portion of Borrower's properties or assets is
attached, seized, subjected to a writ or distress warrant, or is levied upon, or
comes into the possession of any third Person;
8.5 If an Insolvency Proceeding is commenced by Borrower;
8.6 If an Insolvency Proceeding is commenced against Borrower and any
of the following events occur: (a) Borrower consents to the institution of the
Insolvency Proceeding against it; (b) the petition commencing the Insolvency
Proceeding is not timely controverted; (c) the petition commencing the
Insolvency Proceeding is not dismissed with sixty (60) calendar days of the date
of the filing thereof; provided, however, that, during the pendency of such
period, People's shall be relieved of its obligation to make additional advances
hereunder; (d) a trustee is appointed to take possession of all or a substantial
portion of the properties or assets of, or to operate all or any substantial
portion of the business of, Borrower; or (e) an order for relief shall have been
issued or entered therein;
8.7 If Borrower is enjoined, restrained, or in any way prevented by
court order from continuing to conduct all or any material part of its business
affairs;
30
8.8 If a notice of lien, levy, or assessment is filed of record with
respect to any of Borrower's properties or assets by the United States
Government, or any department, agency, or instrumentality thereof, or by any
state, county, municipal, or governmental agency, or if any taxes or debts
owning at any time hereafter to any one or more of such entities becomes a lien,
whether ▇▇▇▇▇▇ or otherwise, upon any of borrower's properties or assets and the
same is not paid on the payment date thereof;
8.9 The Borrower shall suffer final judgments for payment of monies
aggregating in excess of $100,000, exclusive of amounts covered by insurance
proceeds, and shall not discharge the same within a period of thirty (30) days
unless, pending further proceedings, execution has not been commenced or, if
commenced, has been effectively stayed;
8.10 If there is a default in any material agreement to which Borrower
is a party with one or more third Persons resulting in a right by such third
Persons, irrespective of whether exercised, to accelerate the maturity of
Borrower's obligations thereunder;
8.11 If Borrower makes any payment on account of Indebtedness that has
been contractually subordinated in right of payment to the payment of the
Obligations, except to the extent such payment is permitted by the terms of the
subordination provisions applicable to such Indebtedness;
8.12 If any warranty, representation, statement, or report made to
People's by Borrower or any officer, employee, agent, or director of Borrower is
materially false when made;
8.13 If the obligation of any guarantor or other third Person under any
Loan Document is limited or terminated by operation of law or by the guarantor
or other third Person thereunder, or any such guarantor or other third Person
becomes the subject of an Insolvency Proceeding; or
8.14 If (a) with respect to any Plan, there shall occur any of the
following which would reasonably be expected to have a material adverse effect
on the financial condition of Borrower; (i) the violation of any of the
provisions of ERISA; (ii) the loss by a Plan intended to be a Qualified Plan of
its qualification under Section 401(a) of the IRC; (iii) the incurrence of
liability under Title IV of ERISA; (iv) a failure to make full payment when due
of all amounts which, under the provisions of any Plan or applicable law,
Borrower or any ERISA Affiliate is required to make; (v) the filing of a notice
of intent to terminate a Plan under Sections 4041 or 4041A of ERISA; (vi) a
complete or partial withdrawal of Borrower or an ERISA Affiliate from any Plan,
(vii) the receipt of a notice by the plan administrator of a Plan that the PBGC
has instituted proceedings to terminate such Plan or appoint a trustee to
administer such Plan, (viii) a commencement or increase of contributions to, or
the adoption of or the amendment or, a Plan; and (ix) the assessment against
Borrower or any ERISA Affiliate of a tax under Section 4980B of the IRC; or (b)
the Unfunded Benefit Liability of all of the Plans of Borrower and its ERISA
Affiliates shall, in the aggregate, exceed $100,000.
31
9. PEOPLE'S RIGHTS AND REMEDIES.
9.1 Rights And Remedies. Upon the occurrence and during the
continuation, of an Event of Default People's may, at its election, without
notice of its election and without demand, do any one or more of the following,
all of which are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this Agreement, by
any of the other Loan Documents, or otherwise, immediately due and payable;
(b) Cease advancing money or extending credit to or for the benefit of
Borrower under this Agreement, under any of the Loan Documents;
(c) Terminate this Agreement and any of the other Loan Documents as to
any future liability or obligation of People's, but without affecting People's
rights and security interests in the Collateral and without affecting the
Obligations;
(d) Settle or adjust disputes and claims directly with Account Debtors
for amounts and upon terms which People's considers advisable, and in such
cases, People's will credit Borrower's loan account with only the net amounts
received by People's in payment of such disputed Accounts after deducting all
People's Expenses incurred or expended in connection therewith;
(e) Cause Borrower to hold all returned Inventory in trust for
People's, segregate all returned Inventory from all other property of Borrower
or in Borrower's possession and conspicuously label said returned Inventory as
the property of People's;
(f) Without notice to or demand upon Borrower, make such payments and
do such acts as People's considers necessary or reasonable to protect its
security interests in the Collateral. Borrower agrees to assemble the Collateral
if People's so requires, and to make the Collateral available to People's as
People's may designate. Borrower authorizes People's to enter the premises where
the Collateral is located, to take and maintain possession of the Collateral, or
any part of it, and to pay, purchase, contest, or compromise any encumbrance,
charge, or lien that in People's determination appears to conflict with its
security interests and to pay all expenses incurred in connection therewith;
(g) Without notice to Borrower (such notice being expressly waived),
and without constituting a retention of any collateral in satisfaction of an
obligation (within the meaning of Section 9505 of the Code), set off and apply
to the Obligations any and all (i) balances and deposits of Borrower held by
People's or (ii) indebtedness at any time owing to or for the credit or the
account of Borrower held by People's;
(h) Hold, as cash collateral, any and all balances and deposits of
Borrower held by People's to secure the full and final repayment of all of the
Obligations;
(i) Ship, reclaim, recover, store, finish, maintain, repair, prepare
for sale, advertise for sale, and sell (in the manner provided for herein) the
Collateral.
32
For the purpose of enabling People's to exercise rights and remedies under this
Section 9 at such time as People's shall be lawfully entitled to exercise such
rights and remedies, People's is hereby granted, to the extent assignable, a
license or other right to use, without charge, Borrower's labels, patents,
copyrights, rights of use of any name, trade secrets, trade names, trademarks,
service marks, and advertising matter, or any property of a similar nature, as
it pertains to the Collateral, in completing production of, advertising for
sale, and selling any Collateral and Borrower's rights under all licenses and
all franchise agreements shall inure to People's benefit;
(j) Upon at least ten (10) days notice to Borrower, sell the Collateral
at either a public or private sale, or both, by way of one or more contracts or
transactions, for cash or on terms, in such manner and at such places (including
Borrower's premises) as is commercially reasonable. It is not necessary that the
Collateral be present at any such sale;
(k) People's shall give notice of the disposition of the Collateral as
follows:
(1) People's shall give Borrower and each holder of a security interest
in the Collateral who has filed with People's a written request for notice, a
notice in writing of the time and place of public sale, or, if the sale is a
private sale or some other disposition other than a public sale is to be made of
the Collateral, then the time on or after which the private sale or other
disposition is to be made;
(2) The notice shall be personally delivered or mailed, postage
prepaid, to Borrower as provided in Section 12, at least ten (10) days before
the date fixed for the sale or at least ten (10) days before the date on or
after which the private sale or other disposition is to be made; no notice needs
to be given prior to the disposition of any portion of the Collateral that is
perishable or threatens to decline speedily in value or that is of a type
customarily sold on a recognized market. Notice to Persons other than Borrower
claiming an interest in the Collateral shall be sent to such addresses as they
have furnished to People's;
(3) If the sale is to be made a public sale, People's also shall give
notice of the time and place by publishing a notice one time at least ten (10)
days before the date of the sale in a newspaper of general circulation in the
county in which the sale is to be held;
(l) People's may credit bid and purchase at any public sale; and
(m) Any deficiency that exists after disposition of the Collateral as
provided above will be paid immediately by Borrower. Any excess will be
returned, without interest and subject to the rights of third Persons, by
People's to Borrower.
9.2 Remedies Cumulative. People's rights and remedies under this
Agreement, the Loan Documents, and all other agreements shall be cumulative.
People's shall have all other rights and remedies not inconsistent herewith as
provided under the Code, by law, or in equity. No exercise by People's of one
right or remedy shall be deemed an election, and no waiver by People's of any
Event of
33
Default shall be deemed a continuing waiver. No delay by People's shall
constitute a waiver, election, or acquiescence by it.
10. TAXES AND EXPENSES.
If the Borrower fails to pay any monies (whether taxes, rents, assessments,
insurance premiums, or otherwise) due to third Persons, or fails to make any
deposits or furnish any required proof of payment or deposit, all as required
under the terms of this Agreement, then, to the extent that People's determines
that such failure by Borrower could have a material adverse effect on People's
interests in the Collateral in its discretion and without proper notice to
Borrower, People's may do any or all of the following: (a) make payment of the
same or any part thereof; (b) set up such reserves in Borrower's loan account as
People's deems necessary to protect People's from the exposure created by such
failure; or (c) obtain and maintain insurance policies of the type described in
Section 6.12, and take any action with respect to such policies as People's
deems prudent. Any such amounts paid by People's shall constitute People's
Expenses. Any such payment made by People's shall not constitute an agreement by
People's to make similar payments in the future or a waiver by People's of any
Event of Default under this Agreement. People's need not inquire as to, or
contest the validity of, any such expense, tax, security interest, encumbrance,
or lien and the receipt of the usual official notice for the payment thereof
shall be conclusive evidence that the same was validly due and owing.
11. WAIVERS; INDEMNIFICATION.
11.1 Demand; Protest; etc. Borrower waives demand, protest, notice of
protest, notice of default or dishonor, notice of payment and nonpayment, notice
of any default, nonpayment at maturity, release, compromise, settlement,
extension, or renewal of accounts, documents, instruments, chattel paper, and
guarantees at any time held by People's on which Borrower may in any way be
liable.
11.2 People's Liability For Collateral. So long as People's complies
with its obligations, if any, under Section 9207 of the Code, People's shall not
in any way or manner be liable or responsible for: (a) the safekeeping of the
Collateral; (b) any loss or damage thereto occurring or arising in any manner or
fashion from any cause; (c) any diminution in the value thereof; or (d) any act
or default of any carrier, warehouseman, bailee, forwarding agency, or other
Person. All risk of loss, damage, or destruction of the Collateral shall be
borne by Borrower.
11.3 Indemnification. Borrower agrees to defend, indemnify, save, and
hold People's and its officers, employees, and agents (referred to herein as
"Indemnified Persons") harmless against: (a) all obligations, demands, claims,
and liabilities claimed or asserted by any other Person arising out of or
relating to the transactions contemplated by this Agreement or any other Loan
Document, and (b) all losses (including reasonable attorneys fees and
disbursements) in any way suffered, incurred, or paid by People's as a result of
or in any way arising out of, following, or consequential to the transactions
contemplated by this Agreement or any other Loan Document; provided, however,
that the Borrower shall not be liable
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to any Indemnified Person, if there is a judicial determination that such
losses, liabilities, obligations, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulted solely from the gross negligence or
willful misconduct of an Indemnified Person. This provision shall survive the
termination of this Agreement.
12. NOTICES.
Unless otherwise provided in this Agreement, all notices or demands by any party
relating to this Agreement or any other Loan Document shall be in writing and
(except for financial statements and other informational documents which may be
sent first-class mail, postage prepaid) shall be personally delivered or sent by
registered or certified mail, postage prepaid, return receipt requested, by
reputable overnight courier service, or by prepaid telex, TWX, telefacsimile, or
telegram (with messenger delivery specified) to Borrower or to People's, as the
case may be, at its address set forth below:
If to Borrower: The Millbrook Press, Inc.
▇ ▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: Mr. ▇▇▇▇▇ ▇▇▇▇▇▇▇
Telefacsimile No. (▇▇▇)▇▇▇-▇▇▇▇
If to People's: People's Bank
Bridgeport Center
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telefacsimile No. (▇▇▇) ▇▇▇-▇▇▇▇
The parties hereto may change the address at which they are to receive notices
hereunder, by notice in writing in the foregoing manner given to the other. All
notices or demand sent in accordance with this Section 12, other than notices by
People's in connection with Sections 9504 or 9505 of the Code, shall be deemed
received on the earlier of the date of actual receipt or three (3) days after
the deposit thereof in the mail. Borrower acknowledges and agrees that notices
sent by People's in connection with Sections 9504 or 9505 of the Code shall be
deemed sent when deposited in the mail or transmitted by telefacsimile or other
similar method set forth above.
13. CHOICE OR LAW AND VENUE; JURY TRIAL WAIVER.
THE VALIDITY OF THIS AGREEMENT, ITS CONSTRUCTION, INTERPRETATION, AND
ENFORCEMENT, AND THE RIGHTS OF THE PARTIES HERETO WITH RESPECT TO ALL MATTERS
ARISING HEREUNDER OR RELATED HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CONNECTICUT, WITHOUT
GIVING EFFECT TO ITS CONFLICT OR LAWS PRINCIPLES. THE PARTIES AGREE THAT ALL
ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT SHALL BE TRIED
35
AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF
FAIRFIELD, STATE OF CONNECTICUT OR, AT THE SOLE OPTION OF PEOPLE'S IN ANY OTHER
COURT IN WHICH PEOPLE'S SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH
HAS SUBJECT MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY. EACH OF BORROWER
AND PEOPLE'S WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT
EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO
VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION
13. BORROWER AND PEOPLE'S HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL
AND PEOPLE'S HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM
OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY
OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT
CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS.
BORROWER AND PEOPLE'S REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH
KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRAIL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE
FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
BORROWER ACKNOWLEDGES ITS UNDERSTANDING THAT PEOPLE'S MAY HAVE RIGHTS AGAINST
BORROWER, NOW OR IN THE FUTURE, IN ITS CAPACITY AS SECURED PARTY, CREDITOR, OR
IN ANY OTHER CAPACITIES. SUCH RIGHTS MAY INCLUDE THE RIGHT TO DEPRIVE BORROWER
OF OR AFFECT THE USE OF OR POSSESSION OR ENJOYMENT OF BORROWER'S PROPERTY; AND
IN THE EVENT PEOPLE'S DEEMS IT NECESSARY TO EXERCISE ANY OF SUCH RIGHTS PRIOR TO
THE RENDITION OF A FINAL JUDGMENT AGAINST BORROWER, OR OTHERWISE, BORROWER MAY
BE ENTITLED TO NOTICE AND/OR HEARING UNDER THE LAWS OF THE STATE OF CONNECTICUT,
(TO DETERMINE WHETHER OR NOT PEOPLE'S HAS A PROBABLE CAUSE TO SUSTAIN THE
VALIDITY OF PEOPLE'S CLAIM), PRIOR TO THE EXERCISE BY PEOPLE'S OF ANY SUCH
RIGHTS. BORROWER EXPRESSLY AGREES THAT THIS AGREEMENT REPRESENTS A COMMERCIAL
TRANSACTION AND WAIVES ANY RIGHT UNDER TITLE 52, SECTION 278 OF THE CONNECTICUT
GENERAL STATUES, AS AMENDED, TO NOTICE OF ANY REQUEST FOR A PREJUDGMENT REMEDY
OR HEARING TO WHICH BORROWER MAY BE ENTITLED; PROVIDED, HOWEVER, THAT THIS
WAIVER SHALL NOT INCLUDE A WAIVER OF SUCH RIGHTS AS BORROWER SHALL HAVE TO PRIOR
NOTICE OF THE PROPOSED DISPOSITION OF COLLATERAL BY PEOPLE'S. SPECIFICALLY AND
WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, BORROWER RECOGNIZES THAT
PEOPLE'S HAS AND SHALL CONTINUE TO HAVE AN ABSOLUTE RIGHT TO EFFECT A SECURITY
INTEREST WITHOUT THE NECESSITY OF ACCORDING TO BORROWER ANY PRIOR NOTICE OR
HEARING. THIS SHALL BE A CONTINUING WAIVER AND REMAIN IN FULL FORCE AND EFFECT
SO LONG AS BORROWER IS OBLIGATED TO PEOPLE'S.
14. DESTRUCTION OF BORROWER'S DOCUMENTS.
15.1 Effectiveness. This Agreement shall be binding an deemed effective
when executed by Borrower and People's.
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15.2 Successors And Assigns. This Agreement shall bind and inure to the
benefit of the respective successors and assigns of each of the parties;
provided, however, that Borrower may not assign this Agreement or any rights or
duties hereunder without People's prior written consent and any prohibited
assignment shall be absolutely void. No consent to an assignment by People's
shall release Borrower from its Obligations. People's may assign this Agreement
and its rights and duties hereunder and no consent or approval by Borrower is
required in connection with any such assignment. People's reserves the right to
sell, assign, transfer, negotiate, or grant participation's in all or any part
of, or any interest in People's rights and benefits hereunder. In connection
with any such assignment or participation, People's may disclose all documents
and information which People's now or hereafter may have relating to Borrower or
Borrower's business. To the extent that People's assigns its rights and
obligations hereunder to a third Person, People's thereafter shall be released
from such assigned obligations to Borrower and such assignment shall effect a
notation between Borrower and such third Person.
15.3 Section Headings. Headings and numbers have been set forth herein
for convenience only. Unless the contrary is compelled by the context,
everything contained in each section applies equally to this entire Agreement.
15.4 Interpretation. Neither this Agreement nor any uncertainty or
ambiguity herein shall be construed or resolved against People's or Borrower,
whether under any rule of construction or otherwise. On the contrary, this
Agreement has been reviewed by all parties and shall be construed and
interpreted according to the ordinary meaning of the words used so as to fairly
accomplish the purposes and intentions of all parties hereto.
15.5 Severability Of Provisions. Each provision of this Agreement shall
be severable from every other provision of this Agreement for the purpose of
determining the legal enforceability of any specific provision.
15.6 Amendments In Writing. This Agreement can only be amended by a
writing signed by both People's and Borrower.
15.7 Counterparts; Telefacsimile Execution. This Agreement may be
executed in any number of counterparts and by different parties on separate
counterparts, each of which, when executed and delivered, shall be deemed to be
an original, and all of which, when taken together, shall constitute but one and
the same Agreement. Delivery of an executed counterpart of this Agreement by
telefacsimile shall be equally as effective as delivery of a manually executed
counterpart of this Agreement. Any party delivering an executed counterpart of
this Agreement by telefacsimile also shall deliver a manually executed
counterpart of this Agreement but the failure to deliver a manually executed
counterpart of this Agreement but the failure to deliver a manually executed
counterpart shall not affect the validity, enforceability, and binding effect of
this Agreement.
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IN WITNESS WHEREOF, Subordinating Creditor and Obligor have severally executed
this Agreement on December 14, 1995.
Obligor:
The Millbrook Press, Inc.
By:
Its Vice President
Subordinating Creditor (Debtor):
▇▇▇▇ ▇▇▇▇▇▇▇▇
Accepted by:
Secured Party:
People's Bank
By:
Its Vice President