AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
by and between
VICTORIA CREATIONS, INC.
and
FOOTHILL CAPITAL CORPORATION
Dated as of July 31, 1995
Page
1. DEFINITIONS AND CONSTRUCTION . . . . . . . . . . . . 1
1.1 Definitions . . . . . . . . . . . . . . . . . . 1
1.2 Accounting Terms. . . . . . . . . . . . . . . . 9
1.3 Code. . . . . . . . . . . . . . . . . . . . . . 10
1.4 Construction. . . . . . . . . . . . . . . . . . 10
1.5 Schedules and Exhibits. . . . . . . . . . . . . 10
2. LOAN AND TERMS OF PAYMENT. . . . . . . . . . . . . . 10
2.1 Revolving Advances. . . . . . . . . . . . . . . 10
2.2 Term Loan.. . . . . . . . . . . . . . . . . . . 11
2.3 Intentionally Omitted.. . . . . . . . . . . . . 11
2.4 Overadvances. . . . . . . . . . . . . . . . . . 11
2.5 Interest: Rates, Payments, and Calculations. . 11
2.6 Crediting Payments; Application of Collections. 12
2.7 Statements of Obligations . . . . . . . . . . . 13
2.8 Fees. . . . . . . . . . . . . . . . . . . . . . 13
3. CONDITIONS; TERM OF AGREEMENT. . . . . . . . . . . . 13
3.1 Conditions Precedent to Initial Advance . . . . 13
3.2 Conditions Precedent to All Advances. . . . . . 14
3.3 Term; Automatic Renewal . . . . . . . . . . . . 14
3.4 Effect of Termination . . . . . . . . . . . . . 14
3.5 Early Termination by Borrower . . . . . . . . . 15
4. CREATION OF SECURITY INTEREST. . . . . . . . . . . . 15
4.1 Grant of Security Interest. . . . . . . . . . . 15
4.2 Negotiable Collateral . . . . . . . . . . . . . 15
4.3 Collection of Accounts, General Intangibles, Negotiable
Collateral. . . . . . . . . . . . . . . . . . . 15
4.4 Delivery of Additional Documentation Required . 15
4.5 Power of Attorney . . . . . . . . . . . . . . . 16
4.6 Right to Inspect. . . . . . . . . . . . . . . . 16
5. REPRESENTATIONS AND WARRANTIES.. . . . . . . . . . . 16
5.1 No Prior Encumbrances . . . . . . . . . . . . . 16
5.2 Eligible Accounts . . . . . . . . . . . . . . . 16
5.3 Eligible Inventory. . . . . . . . . . . . . . . 17
5.4 Location of Inventory and Equipment . . . . . . 17
5.5 Inventory Records . . . . . . . . . . . . . . . 17
5.6 Location of Chief Executive Office; FEIN. . . . 17
5.7 Due Organization and Qualification. . . . . . . 17
5.8 Due Authorization; No Conflict. . . . . . . . . 17
5.9 Litigation. . . . . . . . . . . . . . . . . . . 17
5.10 No Material Adverse Change in Financial Condition 17
5.11 No Transfer . . . . . . . . . . . . . . . . . . 18
5.12 Employee Benefits . . . . . . . . . . . . . . . 18
5.13 Reliance by Foothill; Cumulative. . . . . . . . 18
6. AFFIRMATIVE COVENANTS. . . . . . . . . . . . . . . . 19
6.2 Collateral Reports. . . . . . . . . . . . . . . 19
6.3 Schedules of Accounts . . . . . . . . . . . . . 19
6.4 Financial Statements, Reports, Certificates . . 19
6.5 Tax Returns . . . . . . . . . . . . . . . . . . 20
6.6 Guarantor Reports . . . . . . . . . . . . . . . 21
6.7 Designation of Inventory. . . . . . . . . . . . 21
6.8 Returns.. . . . . . . . . . . . . . . . . . . . 21
6.9 Title to Equipment. . . . . . . . . . . . . . . 21
6.10 Maintenance of Equipment. . . . . . . . . . . . 21
6.11 Taxes . . . . . . . . . . . . . . . . . . . . . 21
6.12 Insurance . . . . . . . . . . . . . . . . . . . 22
6.13 Intentionally Omitted . . . . . . . . . . . . . 23
6.14 No Setoffs or Counterclaims . . . . . . . . . . 23
6.15 Location of Inventory and Equipment . . . . . . 23
6.16 Compliance with Laws. . . . . . . . . . . . . . 23
6.17 Employee Benefits . . . . . . . . . . . . . . . 23
6.18 Consigned Inventory.. . . . . . . . . . . . . . 24
7. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . 24
7.1 Indebtedness. . . . . . . . . . . . . . . . . . 24
7.2 Liens . . . . . . . . . . . . . . . . . . . . . 25
7.3 Restrictions on Fundamental Changes . . . . . . 25
7.4 Extraordinary Transactions and Disposal of Assets 25
7.5 Change Name . . . . . . . . . . . . . . . . . . 25
7.6 Guarantee . . . . . . . . . . . . . . . . . . . 25
7.7 Restructure . . . . . . . . . . . . . . . . . . 25
7.8 Prepayments . . . . . . . . . . . . . . . . . . 25
7.9 Change of Control . . . . . . . . . . . . . . . 25
7.10 Capital Expenditures. . . . . . . . . . . . . . 25
7.11 Consignments. . . . . . . . . . . . . . . . . . 26
7.12 Distributions . . . . . . . . . . . . . . . . . 26
7.13 Accounting Methods. . . . . . . . . . . . . . . 26
7.14 Investments . . . . . . . . . . . . . . . . . . 26
7.15 Transactions with Affiliates. . . . . . . . . . 26
7.16 Suspension. . . . . . . . . . . . . . . . . . . 26
7.17 Compensation. . . . . . . . . . . . . . . . . . 26
7.18 Use of Proceeds.. . . . . . . . . . . . . . . . 26
7.19 Change in Location of Chief Executive Office; Inventory
and Equipment with Bailees. . . . . . . . . . . 26
8. EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . 27
9. FOOTHILL'S RIGHTS AND REMEDIES.. . . . . . . . . . . 28
9.1 Rights and Remedies . . . . . . . . . . . . . . 29
9.2 Remedies Cumulative . . . . . . . . . . . . . . 31
10. TAXES AND EXPENSES REGARDING THE COLLATERAL. . . . . 31
11. WAIVERS; INDEMNIFICATION . . . . . . . . . . . . . . 31
11.1 Demand; Protest; etc. . . . . . . . . . . . . . 31
11.2 Foothill's Liability for Collateral . . . . . . 31
11.3 Indemnification . . . . . . . . . . . . . . . . 32
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.. . . . . 33
14. DESTRUCTION OF BORROWER'S DOCUMENTS. . . . . . . . . 33
15. GENERAL PROVISIONS . . . . . . . . . . . . . . . . . 34
15.1 Effectiveness . . . . . . . . . . . . . . . . . 34
15.2 Successors and Assigns. . . . . . . . . . . . . 34
15.3 Section Headings. . . . . . . . . . . . . . . . 34
15.4 Interpretation. . . . . . . . . . . . . . . . . 34
15.5 Severability of Provisions. . . . . . . . . . . 34
15.6 Amendments in Writing . . . . . . . . . . . . . 34
15.7 Counterparts; Telefacsimile Execution . . . . . 34
15.8 Revival and Reinstatement of Obligations. . . . 35
15.9 Lending Relationship. . . . . . . . . . . . . . 35
15.10Integration . . . . . . . . . . . . . . . . . . 35
15.11Confidentiality.. . . . . . . . . . . . . . . . 35
15.12Limitation of Liability . . . . . . . . . . . . 36
15.13Amendment and Restatement . . . . . . . . . . . 36
SCHEDULES
Schedule E-1 Eligible Inventory
Schedule 5.9 Litigation
Schedule 5.12 Employee Benefits
Schedule 6.15 Location of Inventory and Equipment
LOAN AND SECURITY AGREEMENT
This AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT,
is entered into as of July 31, 1995, between FOOTHILL CAPITAL
CORPORATION, a California corporation ("Foothill"), with a place of
business located at ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇, and VICTORIA CREATIONS, INC., a
Rhode Island 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" 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.
"Act" means all applicable laws, regulations, and
ordinances, where a property is located, of any federal, state, or
local government, instrumentality, or body, and that are related to
Hazardous Materials, as the same may be amended, modified, or
supplemented from time to time.
"ADA" means the Americans with Disabilities Act,
42 U.S.C. Section 12101, et. seq., and all applicable rules and regulations
promulgated thereunder.
"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, by contract, or otherwise.
"Agreement" means this Amended and Restated
Loan and Security Agreement and any extensions, riders
supplements, notes, amendments, or modifications to or in connection
with this Amended and Restated Loan and Security Agreement.
Borrower.
"Bankruptcy Code" means the United States
Bankruptcy Code (11 U.S.C. Section 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,
and the equipment containing such information.
"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 are
authorized or required to close.
"Change of Control" shall be deemed to have
occurred at such time as UM&M ceases to own, directly or indirectly,
a minimum of fifty one percent (51%) 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.
"Code" means the California 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 Foothill; 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.
"Daily Balance" means the amount of an Obligation
owed at the end of a given day.
"Eligible Accounts" means those Accounts created
Borrower's sale of goods or rendition of services, that strictly
comply with all of Borrower's representations and warranties to
Foothill, and that are and at all times shall continue to be acceptable
to Foothill in all respects; provided, however, that standards of
eligibility may be fixed and revised from time to time by Foothill in
Foothill's reasonable credit judgment. Eligible Accounts shall not
include the following:
(a) Accounts that the Account Debtor has failed
to pay within ninety (90) days of due date or Accounts with selling
terms of more than sixty (60) 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 ninety (90) 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 (provided, however, that Accounts in respect
of ▇▇▇▇ and hold goods may constitute Eligible Accounts if
documentation satisfactory to Foothill evidences the terms of such
▇▇▇▇ and hold relationship), or other terms by reason of which the
payment by the Account Debtor may be conditional;
(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 Foothill, or (ii) supported by one or more
letters of credit that are assignable by their terms and have been
delivered to Foothill in an amount, of a tenor, and issued by a
financial institution, reasonably acceptable to Foothill;
(e) Accounts with respect to which the Account
Debtor is the United States or any department, agency, or
instrumentality of the United States other than military exchanges,
including the Army and Navy Exchanges;
(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 an Account Debtor
whose total obligations owing to Borrower exceed fifteen percent
(15%) of all Eligible Accounts (or, in the case of ▇.▇. Penney
Company, Inc. and Sears, ▇▇▇▇▇▇▇ & Company, forty percent (40%)
each, or in the case of ▇▇▇▇▇▇▇'▇ Department Stores and The ▇▇▇▇▇
▇▇▇▇▇▇ Companies, twenty percent (20%) each), to the extent of the
obligations owing by such Account Debtor in excess of such
percentage;
(h) Accounts with respect to which the Account
Debtor disputes liability or makes any claim with respect thereto (to
Proceeding, or becomes insolvent, or goes out of business;
(i) Accounts the collection of which Foothill, in
its reasonable credit judgment, believes to be doubtful by reason of
the Account Debtor's financial condition;
(j) Accounts that are payable in other than
United States Dollars; and
(k) Accounts that represent progress payments
or other advance ▇▇▇▇▇▇▇▇ that are due prior to the completion of
performance by Borrower of the subject contract for goods or
services.
"Eligible Inventory" means Inventory consisting of
first quality finished goods held for sale in the ordinary course of
Borrower's business and raw materials for such finished goods, and
work in process, that are located at Borrower's premises identified
on Schedule E-1, that strictly comply with all of Borrower's
representations and warranties to Foothill, and that are acceptable
to Foothill in all respects; provided, however, that standards of
eligibility may be fixed and revised from time to time by Foothill in
Foothill's reasonable credit judgment. Eligible Inventory shall not
include the following: (a) slow moving or obsolete items, (b)
restrictive items, (c) spare parts, packaging, and shipping materials,
(d) supplies used or consumed in Borrower's business, (e) Inventory
at any location other than those set forth on Schedule E-1, (f)
Inventory subject to a security interest or lien in favor of any
third Person except for a junior Permitted Lien, (g) ▇▇▇▇ and hold
goods, (h) Inventory that is not subject to Foothill's perfected
security interests, (i) defective goods, (j) "seconds," and (k)
Inventory acquired by Borrower on consignment. 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 Employee 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 regulations 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;
(ii) treated, together with Borrower, as a single employer;
(iii) treated as a member of an affiliated service group of which
aggregated with the Borrower for purposes of the employee benefits
requirements listed in IRC Section 414(m)(4).
"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 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 grounds 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.
"Foothill" has the meaning set forth in the
preamble to this Agreement.
"Foothill Expenses" means all: 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 Foothill;
documentation, filing, recording, publication, appraisal (including
periodic Collateral appraisals), and search fees assessed, paid, or
incurred by Foothill in connection with Foothill's transactions with
Borrower; costs and expenses incurred by Foothill in preserving the
value of the Collateral; costs and expenses incurred by Foothill in
the disbursement of funds to Borrower (by wire transfer or
otherwise); charges paid or incurred by Foothill resulting from the
dishonor of checks; costs and expenses paid or incurred by Foothill
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
expenses of third party claims or any other suit paid or incurred by
Foothill in enforcing or defending the Loan Documents; and Foothill's
reasonable attorneys fees and expenses incurred in advising,
structuring, drafting, reviewing, administering, amending,
terminating, enforcing (including attorneys fees and expenses
incurred in connection with a "workout," a "restructuring," or an
Insolvency Proceeding concerning Borrower or any guarantor of the
Obligations), defending, or concerning the Loan Documents,
irrespective of whether suit is brought.
"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, choses or things in action, goodwill, patents,
trade names, trademarks, servicemarks, copyrights, blueprints,
drawings, purchase orders, customer lists, monies due or recoverable
from pension funds, route lists, rights to payment and other rights
under any royalty or licensing agreements, 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 and Accounts.
"Hazardous Materials" means:
(a) those substances as defined as "hazardous
substances," "hazardous materials," "toxic substances," or "solid
waste" in the Comprehensive Environmental Response, Compensation
and Liability Act, Resource Conservation and Recovery Act, 42 U.S.C.
Section 6901 et seq. ("RCRA"), or the Hazardous Materials Transportation
Act, 49 U.S.C. Section 1801 et seq., and in the regulations
promulgated pursuant thereto;
(b) those substances designated as a "hazardous
substance" under or pursuant to the Federal Water Pollution Control
Act, 33 U.S.C. Section 1257 et seq., or defined as a "hazardous waste"
under or pursuant to RCRA and in the regulations promulgated
pursuant thereto;
(c) those substances listed in the United States
Department of Transportation Table (40 CFR 172.101 and amendments
thereto) or by the Environmental Protection Agency (or any
successor agency) as hazardous substances (40 CFR Part 302 and
amendments thereto); and
(d) such other substances, materials and wastes
which are regulated under any act, or which are classified as
hazardous or toxic under any Act.
"Indebtedness" means: (a) all obligations of
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 capitalized leases; (d) all
obligations or liabilities of others secured by a lien or security
interest on any property or asset of Borrower, irrespective of
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.
"Indemnified Persons" means Foothill and its
parents, subsidiaries and affiliates, attorneys, and each of their
officers, directors, agents, employees, trustees, receivers, executors,
and administrators, and the heirs, successors, and assigns of all of
the foregoing.
"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 and
all of Borrower's present and future raw materials, work in process,
finished goods, and packing and shipping materials, wherever
located, and any documents of title representing any of the above.
"IRC" means the Internal Revenue Code of 1986, as
amended, and the regulations thereunder.
"Loan Documents" means this Agreement, the Term
Note, the Lock Box Agreements, any note or notes executed by
Borrower and payable to Foothill, and any other agreement entered
into in connection with this Agreement, including the Patent and
Trademark Security Agreement dated as of June 28, 1994.
"Lock Box" has the meaning provided in the
respective Lock Box Agreements.
"Lock Box Agreements" means those certain
Lockbox Operating Procedural Agreements and Depository Account
Agreements, each of which is among Borrower, Foothill, and the Lock
Box Bank.
"Lock Box Bank" means ▇▇▇▇▇▇ Trust and Savings
Bank.
contingent liabilities, damages, obligations, claims, contingent claims,
actions, suits, proceedings, disbursements, penalties, costs, and
expenses (including, without limitation, actual attorneys' fees and
costs of counsel retained by Foothill to monitor the proceedings and
actions of Borrower in satisfying its obligations hereunder, and to
advise and represent Foothill with respect to matters related hereto,
including, without limitation, fees incurred pursuant to 11 U.S.C.)
and all other professional or consultants' fees and expenses),
whether or not an action or proceeding is commenced or threatened.
"Maturity Date" has the meaning set forth in
Section 3.3.
"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 or 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.
"Obligations" means all loans, advances, debts,
principal, interest (including any interest that, but for the
provisions of the Bankruptcy Code, would have accrued), premiums,
liabilities (including all amounts charged to Borrower's loan account
pursuant to any agreement authorizing Foothill to charge Borrower's
loan account), obligations, fees, lease payments, guaranties,
covenants, and duties owing by Borrower to Foothill of any kind and
description (whether pursuant to or evidenced by the Loan
Documents, by any note or other instrument (including the Term
Note), or pursuant to any other agreement between Foothill 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 further including all
interest not paid when due and all Foothill Expenses that Borrower
is required to pay or reimburse by the Loan Documents, by law, or
otherwise.
"Overadvance" has the meaning set forth in
Section 2.4.
"PBGC" means the Pension Benefit Guaranty
Corporation as defined in Title IV of ERISA, or any successor
thereto.
interests held by Foothill; (b) liens for unpaid taxes that are not yet
due and payable; (c) purchase money security interests and liens of
lessors under capitalized 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; (d) 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; (e) obligations and duties
as lessee under any lease existing on the date of this Agreement;
(f) carriers', warehousemen's, mechanics', materialmen's, repairmen's
or other like liens arising in the ordinary course of business which
are not overdue for a period of more than thirty (30) days or which
are being contested in good faith and by appropriate proceedings if
adequate reserves with respect thereto are maintained on the books
of the Borrower in accordance with GAAP or for which a bond in the
full amount thereof has been posted; (g) pledges or deposits under
worker's compensation, unemployment insurance and other social
security legislation; and (h) deposits to secure the performance of
bids, trade contracts (other than for borrowed money), leases,
statutory obligations, surety and appeal bonds, performance bonds
and other obligations of a like nature incurred in the ordinary
course of business.
"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.
rates of interest, per annum, most recently announced by (a) Bank
of America, N.T. & S.A., (b) Mellon Bank, N.A., and (c) Citibank, N.A.,
or any successor to any of the foregoing institutions, as its "prime
rate" or "reference rate," as the case may be, irrespective of
whether such announced rate is the best rate available from such
financial institution.
"Reportable Event" means any event described in
Section 4043 (other than Subsections (b)(7) and (b)(9)) of ERISA.
"Term Note" has the meaning set forth in
Section 2.2.
"UM&M" means United Merchants and
Manufacturers, Inc., a Delaware corporation.
"UM&M Guaranty" means that certain Continuing
Guaranty, of even date herewith, by UM&M in favor of Foothill,
respecting the Obligations.
"UM&M Loan Agreement" means that certain Loan
and Security Agreement, dated as of June 28, 1994, between Foothill
and UM&M, and any amendments, replacements, renewals, and
substitutions thereto.
"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.
1.2 Accounting Terms. All accounting terms not
specifically defined herein shall be construed in accordance with
GAAP. When used herein, the term "financial statements" shall
include the notes and schedules thereto. Whenever the term
"Borrower" is used in respect of a financial covenant or a related
definition, it shall be understood to mean Borrower on a consolidated
basis unless the context clearly requires otherwise.
1.3 Code. Any terms used in this Agreement which
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,"
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, Foothill agrees to make revolving advances to Borrower
in an amount not to exceed the Borrowing Base. For purposes of this
Agreement, "Borrowing Base" shall mean the sum of: (i) an amount
equal to the lesser of: (v) seventy-five percent (75%) of the amount
of Eligible Accounts, and (w) an amount equal to Borrower's cash
collections for the immediately preceding ninety (90) day period; plus
(ii) an amount equal to the lowest of: (x) fifty percent (50%) of the
amount of Eligible Inventory, net of reserves not otherwise excluded
in the definition of Eligible Inventory, (y) two (2) times the amount
of credit availability created by Section 2.1(a)(i) above, and (z) Ten
Million Dollars ($10,000,000). Foothill shall establish reasonable
reserves against Eligible Inventory for obsolescence, shrinkage, and
damaged goods not otherwise excluded in the definition of Eligible
Inventory, and for Inventory, if any, that is subject to landlord
liens that are not subordinate to Foothill's security interests in such
Inventory.
(b) Anything to the contrary in Section 2.1(a)
above notwithstanding, Foothill 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 Foothill's security interests in the Collateral.
(c) Foothill shall have no obligation to make
advances hereunder to the extent they would cause the outstanding
advances under this Section 2.1 to exceed Fifteen Million Dollars
($15,000,000) ("Maximum Amount").
(d) Foothill 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, or without instructions if pursuant to Section 2.5(c).
Borrower agrees to establish and maintain a single designated
advances requested by Borrower and made by Foothill hereunder.
Unless otherwise agreed by Foothill and Borrower, any advance
requested by Borrower and made by Foothill 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 Term Loan. Foothill has agreed to make a term
loan to Borrower in the original principal amount of Five Million
Dollars ($5,000,000), to be evidenced by and repayable in accordance
with the terms and conditions of a promissory note (the "Term
Note"), of even date herewith, executed by Borrower in favor of
Foothill. All amounts evidenced by the Term Note shall constitute
Obligations.
2.3 Intentionally Omitted.
2.4 Overadvances. If, at any time or for any reason,
the amount of Obligations owed by Borrower to Foothill 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 Foothill, in cash, the amount of such excess to be used
by Foothill to repay Obligations.
2.5 Interest: Rates, Payments, and Calculations.
(a) Interest Rate. Commencing July 1, 1995, all
Obligations shall bear interest, on the average Daily Balance, at a
per annum rate of three and one-half (3.50) 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 seven and one-
half (7.50) percentage points above the Reference Rate.
(c) Minimum Interest. In no event shall the
rate of interest chargeable hereunder be less than nine percent (9%)
per annum. To the extent that interest accrued hereunder at the
rate set forth herein (including the minimum interest rate) would
yield less than the foregoing minimum amount, the interest rate
chargeable hereunder for the period in question automatically shall
be deemed increased to that rate that would result in the minimum
amount of interest being accrued and payable hereunder.
(d) Payments. Interest hereunder shall be due
and payable, in arrears, on the first day of each month during the
term hereof. Borrower hereby authorizes Foothill, at its option,
without prior notice to Borrower, to charge such interest, Foothill
Expenses arising after the occurrence and during the continuance
of an Event of Default (as and when incurred), and all installments
or other payments due under the Term Note, any note or other Loan
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.
(e) Computation. The Reference Rate as of this
date 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. The rates of interest charged hereunder
shall be based upon the average Reference Rate in effect during the
month. All interest and fees chargeable under the Loan Documents
shall be computed on the basis of a three hundred sixty (360) day
year for the actual number of days elapsed.
(f) Intent to Limit Charges to Maximum Lawful
Rate. In no event shall the interest rate or rates payable under
this Agreement and the Term Note, plus any other amounts paid in
connection herewith, exceed the highest rate permissible under any
law that a court of competent jurisdiction shall, in a final
determination, deem applicable. Borrower and Foothill, in executing
this Agreement and the Term Note intend to legally agree upon the
rate or rates of interest and manner of payment stated within it;
provided, however, that, anything contained herein or in the Term
Note to the contrary notwithstanding, if said rate or rates of
interest or manner of payment exceeds the maximum allowable under
applicable law, then, ipso facto as of the date of this Agreement,
Borrower is and shall be liable only for the payment of such
maximum as allowed by law, and payment received from Borrower in
excess of such legal maximum, whenever received, shall be applied
to reduce the principal balance of the Obligations to the extent of
such excess.
2.6 Crediting Payments; Application of Collections. The
receipt of any wire transfer of funds, check, or other item of
payment by Foothill (whether from transfers to Foothill by the Lock
Box Bank pursuant to the Lock Box Agreements or otherwise)
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 Foothill or unless and until such
check or other item of payment is honored when presented for
payment. 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 Foothill only if it is received into
Foothill's Operating Account (as such account is identified in the
Lock Box Agreements) on or before 11:00 a.m. Los Angeles time. If
any wire transfer, check, or other item of payment is received into
Foothill's Operating Account (as such account is identified in the
deemed to have been received by Foothill as of the opening of
business on the immediately following Business Day.
2.7 Statements of Obligations. Foothill shall render
statements to Borrower of the Obligations, including principal,
interest, fees, and including an itemization of all charges and
expenses constituting Foothill Expenses owing, and such statements
shall be conclusively presumed to be correct and accurate and
constitute an account stated between Borrower and Foothill unless,
within thirty (30) days after receipt thereof by Borrower, Borrower
shall deliver to Foothill 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.
2.8 Fees. Borrower shall pay to Foothill's customary
fee of Six Hundred Fifty Dollars ($650) per day per examiner, plus
reasonable out-of-pocket expenses for each financial analysis and
examination of Borrower performed by Foothill or its agents;
Foothill's customary appraisal fee of One Thousand Dollars ($1,000)
per day per appraiser, plus reasonable out-of-pocket expenses for
each appraisal of the Collateral performed by Foothill or its agents.
Prior to the occurrence of an Event of Default or Foothill deeming
itself insecure, financial examinations will not be conducted more
frequently than quarterly.
3. CONDITIONS; TERM OF AGREEMENT.
3.1 Conditions Precedent to Initial Advance. The
obligation of Foothill to make the initial advance is subject to the
fulfillment, to the satisfaction of Foothill and its counsel, of each of
the following conditions on or before the Closing Date:
(a) the Closing Date shall occur on or before
July 31, 1995;
(b) Foothill shall have received each of the
following documents, duly executed, and each such document shall be
in full force and effect:
i) a reaffirmation of the UM&M Guaranty;
and
ii) the Term Note.
(c) Foothill 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;
(d) Foothill shall have received a certificate of
corporate status with respect to Borrower, dated within ten (10)
incorporation of Borrower, which certificate shall indicate that
Borrower is in good standing in such state;
(e) Foothill 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;
(f) Foothill shall have received an opinion of
Borrower's counsel in form and substance satisfactory to Foothill in
its sole discretion; and
(g) all other documents and legal matters in
connection with the transactions contemplated by this Agreement
shall have been delivered or executed or recorded and shall be in
form and substance satisfactory to Foothill 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 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 of the advance; 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, Foothill, or any of
their Affiliates.
3.3 Term; Automatic Renewal. This Agreement shall
become effective upon the execution and delivery hereof by Borrower
and Foothill and shall continue in full force and effect for a term
ending on June 15, 1998 (the "Renewal Date") and automatically shall
be renewed for successive one (1) year periods thereafter, unless
sooner terminated pursuant to the terms hereof. Either party may
terminate this Agreement effective on the Renewal Date or on any
year anniversary of the Renewal Date by giving the other party at
least thirty (30) days prior written notice by registered or certified
mail, return receipt requested. The foregoing notwithstanding,
Foothill 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.
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 Foothill's continuing security interests in
the Collateral shall remain in effect until all Obligations have been
fully and finally discharged and Foothill'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 thirty
(30) days prior written notice to Foothill, to terminate this
Agreement by paying to Foothill, in cash, the Obligations, without
premium or penalty.
4. CREATION OF SECURITY INTEREST.
4.1 Grant of Security Interest. Borrower hereby
grants to Foothill 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. Foothill's security interests in
the Collateral shall attach to all Collateral without further act on the
part of Foothill or Borrower. Anything contained in this Agreement
or any other Loan Document to the contrary notwithstanding, and
other than sales of Inventory to buyers in the ordinary course of
business and those actions contemplated by Section 7.4 and
Schedule 7.4, 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, immediately upon the request
of Foothill, endorse and assign such Negotiable Collateral to Foothill
and deliver physical possession of such Negotiable Collateral to
Foothill.
4.3 Collection of Accounts, General Intangibles,
Negotiable Collateral. Foothill, Borrower, and the Lock Box Bank
shall enter into the Lock Box Agreements, in form and substance
satisfactory to Foothill in its sole discretion, pursuant to which 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 Foothill on a daily
basis. At any time after the occurrence and during the continuance
of an Event of Default or after Foothill, in its reasonable judgment,
deems itself insecure, Foothill or Foothill's designee may: (a) notify
customers or Account Debtors of Borrower that the Accounts, General
Intangibles, or Negotiable Collateral have been assigned to Foothill
or that Foothill has a security interest therein; and (b) collect the
Accounts, General Intangibles, and Negotiable Collateral directly and
Borrower agrees that it will hold in trust for Foothill, as Foothill'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
Foothill in their original form as received by Borrower except that
Treza sales proceeds will be transferred to the Lock Box weekly.
4.4 Delivery of Additional Documentation Required. At
any time upon the request of Foothill, Borrower shall execute and
deliver to Foothill all financing statements, continuation financing
statements, fixture filings, security agreements, chattel mortgages,
pledges, assignments, endorsements of certificates of title,
applications for title, affidavits, reports, notices, schedules of
accounts, letters of authority, and all other documents that Foothill
may reasonably request, in form satisfactory to Foothill, to perfect
and continue perfected Foothill's security interests in the Collateral
and in order to fully consummate all of the transactions contemplated
hereby and under the other the Loan Documents.
4.5 Power of Attorney. Borrower hereby irrevocably
makes, constitutes, and appoints Foothill (and any of Foothill's
officers, employees, or agents designated by Foothill) as Borrower's
true and lawful attorney, with power to: (a) send requests for
verification of Accounts; (b) endorse Borrower's name on any checks,
notices, acceptances, money orders, drafts, or other item of payment
or security that may come into Foothill's possession; (c) at any time
that an Event of Default has occurred and is continuing, settle and
adjust disputes and claims respecting the Accounts directly with
Account Debtors, for amounts and upon terms which Foothill
determines to be reasonable, and Foothill may cause to be executed
and delivered any documents and releases which Foothill determines
to be necessary. The appointment of Foothill as Borrower's attorney,
and each and every one of Foothill'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 Foothill's
obligation to extend credit hereunder is terminated.
4.6 Right to Inspect. Foothill (through any of its
officers, employees, or agents) shall have the right, from time to
time hereafter, during normal business hours, 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 Foothill as follows:
5.1 No Prior Encumbrances. Borrower has good and
indefeasible title to the Collateral, free and clear of liens, claims,
security interests, or encumbrances, except for Permitted Liens.
representations and warranties in this Section are based upon
Borrower's knowledge after reasonable review in accordance with
normal and prudent business practices. 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 or the rendition of services to Account
Debtors in the ordinary course of Borrower's business,
unconditionally owed to Borrower without defenses, disputes, offsets,
counterclaims, or rights of return or cancellation. Except for
Accounts arising from ▇▇▇▇ and hold sales, the property 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,
free from defects.
5.4 Location of Inventory and Equipment. The
Inventory and Equipment are not stored with a bailee,
warehouseman, or similar party (without Foothill's prior written
consent) and are located only at the locations identified on Schedule
6.15 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, type, quality, and quantity of the
Inventory, and Borrower's cost therefor.
5.6 Location of Chief Executive Office; FEIN. The chief
executive office of Borrower is located at the address indicated in
the preamble to this Agreement and Borrower's FEIN is ▇▇-▇▇▇▇▇▇▇.
5.7 Due Organization and Qualification. Borrower is
duly organized and existing and in good standing under the laws of
the state of its incorporation and qualified and licensed to do
business in, and in good standing in, any state 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), finances, or prospects of Borrower or on the
value of the Collateral to Foothill.
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 breach of any provision contained
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.
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 or belief of any
pending, threatened, or imminent litigation, governmental
investigations, or claims, complaints, actions, or prosecutions
involving Borrower or any guarantor of the Obligations, 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, would not
materially impair the prospect of repayment of the Obligations or
materially impair the value or priority of Foothill's security interests
in the Collateral.
No Material Adverse Change in Financial Condition.
All financial statements relating to Borrower or any guarantor of the
Obligations that have been delivered by Borrower to Foothill have
been prepared in accordance with GAAP and fairly present
Borrower's (or such guarantor's, as applicable) financial condition as
of the date thereof and Borrower's results of operations for the
period then ended. There has not been a material adverse change
in the financial condition of Borrower (or such guarantor, as
applicable) since the date of the latest financial statements submitted
to Foothill on or before the Closing Date.
5.11 No Transfer. 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 set forth in
Schedule 5.12, each of the following provisions of this Section 5.12
is true. Each Plan is in compliance in all material respects with the
applicable provisions of ERISA and the IRC. Each Qualified Plan and
Multiemployer Plan has been determined by the Internal Revenue
Service to qualify under Section 401 of the IRC, and the trusts
created thereunder have been determined to be exempt from tax
under Section 501 of the IRC, 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
ERISA Affiliate 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.
Within the past six (6) years, 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 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 notice
and continuation coverage requirements of Section 4980B of the IRC.
5.13 Reliance by Foothill; 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 Foothill regardless of any
investigation made or information possessed by Foothill. The
warranties and representations set forth herein shall be cumulative
and in addition to any and all other warranties and representations
that Borrower now or hereafter shall give, or cause to be given, to
Foothill.
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 Foothill 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 Foothill. Borrower also shall
keep proper books of account showing all sales, claims, and
allowances on its Inventory.
6.2 Collateral Reports. Borrower shall deliver to
Foothill, no later than the tenth (10th) day of each month during the
term of this Agreement, a detailed aging, by total, of the Accounts,
a reconciliation statement, and a summary, by vendor, of all accounts
payable, including due dates of invoices, and any book overdraft.
Original sales invoices evidencing daily sales shall be mailed by
Borrower to each Account Debtor with, at Foothill's request, a copy
an Event of Default, at Foothill's direction, the invoices shall indicate
on their face that the Account has been assigned to Foothill and
that all payments are to be made directly to Foothill. Borrower shall
deliver to Foothill, as Foothill may from time to time require,
collection reports, 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 Foothill, copies of all such documentation shall be
held by Borrower as custodian for Foothill.
6.3 Schedules of Accounts. With such regularity as
Foothill shall require, Borrower shall provide Foothill with schedules
describing all Accounts. Foothill's failure to request such schedules
or Borrower's failure to execute and deliver such schedules shall not
affect or limit Foothill's security interests or other rights in and to
the Accounts.
6.4 Financial Statements, Reports, Certificates.
Borrower agrees to deliver to Foothill: (a) as soon as available, but
in any event within forty-five (45) days after the end of each month
during each of Borrower's fiscal years, a company prepared income
statement and cash flow statement covering Borrower's operations
during such period; and (b) 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 by other independent certified
public accountants reasonably acceptable to Foothill and certified,
without any qualifications (other than going concern or consistency
with prior year in the case of a change of accounting principle), by
such accountants to have been prepared in accordance with GAAP,
together with a certificate of such accountants addressed to Foothill
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.
Together with the above, Borrower also shall
deliver to Foothill Borrower's 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, and
any other report reasonably requested by Foothill relating to the
Collateral and financial condition of Borrower.
provided pursuant to Section 6.4(a), Borrower shall deliver to
Foothill 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 Foothill hereunder have been prepared in accordance
with GAAP (except for footnotes for monthly statements) 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
(iv) on the date of delivery of such certificate to Foothill 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 after
the occurrence and during the continuance of an Event of Default
or with Borrower's cooperation prior thereto, to communicate with
Foothill and to release to Foothill whatever financial information
concerning Borrower that Foothill may request. After the occurrence
of an Event of Default, Borrower hereby irrevocably authorizes and
directs all auditors, accountants, or other third parties to deliver to
Foothill, 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 Foothill any
information they may have regarding Borrower's business affairs and
financial conditions.
6.5 Tax Returns. Borrower agrees to deliver to
Foothill 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 Guarantor Reports. For so long as the UM&M
Guaranty remains in effect, Borrower agrees to cause UM&M to
deliver its annual financial statements at the time when Borrower
provides its audited financial statements to Foothill and copies of all
federal income tax returns as soon as the same are available and in
any event no later than thirty (30) days after the same are required
to be filed by law.
6.7 Designation of Inventory. Borrower shall now and
from time to time hereafter, but not less frequently than monthly,
execute and deliver to Foothill a designation of Inventory specifying
the lower of Borrower's cost or market value of Borrower's raw
materials, work in process, and finished goods, and further
specifying such other information as Foothill may reasonably request.
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 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 Foothill
consents (which consent shall not be unreasonably withheld), issue
a credit memorandum (with a copy to be sent to Foothill) in the
appropriate amount to such Account Debtor. On a daily basis,
Borrower shall notify Foothill of all returns and recoveries and of
all disputes and claims of which it is aware.
6.9 Title to Equipment. Upon Foothill's request,
Borrower immediately shall deliver to Foothill, 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) in accordance with past practices,
and make all necessary replacements thereto so that the value and
operating efficiency thereof shall at all times be maintained and
preserved. Borrower shall not permit any item of Equipment to
become a fixture (other than a trade fixture) to real estate or an
accession to other property, and the Equipment is now and shall at
all times remain personal property.
6.11 Taxes. 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 Foothill, 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 Foothill
with proof satisfactory to Foothill 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
businesses. Borrower also shall maintain business interruption,
public liability, product liability, and property damage insurance, as
well as insurance against larceny, embezzlement, and criminal
misappropriation.
(b) All insurance required herein shall be
written by companies of recognized financial standing, satisfactory
to Foothill, which are authorized to do insurance business in the
State of California. Such insurance shall be in form satisfactory to
Foothill, shall with respect to hazard insurance and such other
insurance as Foothill shall specify, name as the loss payee
thereunder Borrower and Foothill, as their interests may appear, and
shall contain a California Form 438BFU (NS) mortgagee endorsement,
or its local equivalent. Every policy of insurance referred to in this
Section shall contain an agreement by the insurer that it will not
cancel such policy except after thirty (30) days' prior written notice
to Foothill and that any loss payable thereunder shall be payable
notwithstanding any act or negligence of Borrower or Foothill which
might, absent such agreement, result in a forfeiture of all or a part
of such insurance payment.
(c) Original policies or certificates thereof
satisfactory to Foothill evidencing such insurance shall be delivered
to Foothill at least thirty (30) days prior to the expiration of the
existing or preceding policies. Borrower shall give Foothill prompt
notice of any loss covered by such insurance and Foothill shall have
the right to adjust any loss. Foothill shall have the exclusive right
to adjust all losses in excess of One Hundred Fifty Thousand Dollars
($150,000) payable under any such insurance policies without any
liability to Borrower whatsoever in respect of such adjustments;
provided, however that Foothill will consult with Borrower with
respect of such adjustments and will act in a commercially
reasonable manner in respect thereto. Any monies received as
payment for any loss in excess of One Hundred Fifty Thousand
Dollars ($150,000) under any insurance policy including, but not
limited to, the insurance policies mentioned above, shall be paid over
to Foothill to be applied at the option of Foothill either to the
prepayment of the Obligations without premium, in such order or
manner as Foothill may elect, or shall be disbursed to Borrower
under stage payment terms satisfactory to Foothill for application to
the cost of repairs, replacements or restorations. All restorations
shall be effected with reasonable promptness and shall be of a value
at least equal to the value of the items or property to destroyed
prior to such damage or destruction. Upon the occurrence of an
Event of Default, all prepaid premiums shall be the sole and absolute
property of Foothill to be applied by Foothill to the payment of the
Obligations in such order or form as Foothill shall determine.
(d) Borrower shall not take out separate
insurance concurrent in form or contributing in the event of loss
with that required to be maintained under this Section 6.12, unless
Foothill is included thereon as named insured with the loss payable
to Foothill under a standard California 438BFU (NS) Mortgagee
notify Foothill whenever such separate insurance is taken out,
specifying the insurer thereunder and full particulars as to the
policies evidencing the same, and originals of such policies shall
immediately thereafter be provided to Foothill.
6.13 Intentionally Omitted.
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 6.15; provided, however, that Borrower may
amend Schedule 6.15 so long as such amendment occurs by written
notice to Foothill 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 Foothill's security interests in such
assets and also provides to Foothill a landlord's waiver in form and
substance satisfactory to Foothill.
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 ADA.
6.17 Employee Benefits.
(a) Borrower shall deliver to Foothill 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;
(ii) the incurrence 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
Foothill copies prepared or received by Borrower or an ERISA
Affiliate of: (i) at the request of Foothill, 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
intent to terminate or to have a trustee appointed 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 or 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 or 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 Consigned Inventory. Borrower agrees that each
Inventory designation provided under Section 6.7 shall also
separately identify and value all Inventory consigned to third
Persons.
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
Foothill's prior written consent:
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
or the Term Note;
(b) Indebtedness set forth in the latest financial
statements of Borrower submitted to Foothill 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
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 Foothill as those applicable to the refinanced
Indebtedness.
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(e) and so long as the replacement liens secure only those assets
or property that secured the original Indebtedness).
7.3 Restrictions on Fundamental Changes. Except as
provided in Schedule 7.4, enter into any acquisition, merger,
consolidation, reorganization, or recapitalization, or reclassify 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.
Enter into 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 and sales of obsolete Equipment in the
ordinary course of Borrower's business for prices at or above
Borrower's book value for such Equipment).
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 or instruments or items of payment for deposit to
the account of Borrower or which are transmitted or turned over to
Foothill.
7.7 Restructure. Except as provided in Schedule 7.4
or as previously disclosed to Foothill, 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
owing to any third Person.
7.9 Change of Control. Cause, permit, or suffer,
directly or indirectly, any Change of Control.
7.10 Capital Expenditures. Make capital expenditures
in the aggregate amount, in any fiscal year, in excess of Five
Hundred Thousand Dollars ($500,000).
7.11 Consignments. Consign any Inventory (except to
the Burlington Coat Factory), or sell any Inventory on sale or
return, sale on approval, or other conditional terms of sale.
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.
7.13 Accounting Methods. Modify or change its method
of accounting or enter into, modify, or terminate any agreement
currently existing, or at any time hereafter entered into with any
third party accounting firm or service bureau for the preparation
or storage of Borrower's accounting records without said accounting
firm or service bureau agreeing to provide Foothill information
regarding the Collateral or Borrower's financial condition.
7.14 Investments. Except for employee loans not to
exceed One Hundred Thousand Dollars ($100,000) in the aggregate
outstanding at any one time, 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.
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 Foothill, and that are no less favorable to
Borrower than would be obtained in arm's length transaction with a
non-Affiliate.
7.16 Suspension. Except as provided in Schedule 7.4,
suspend or go out of a substantial portion of its business.
7.17 Compensation. Increase the annual fee or per-
meeting fees paid to directors 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) to pay
this Agreement; and (b) thereafter, consistent with the terms and
conditions hereof, for its lawful and permitted corporate purposes.
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 Foothill, 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 or fixture filings
necessary to perfect and continue perfected Foothill's security
interests and also provides to Foothill a landlord's waiver in form
and substance satisfactory to Foothill. The Inventory and Equipment
shall not at any time now or hereafter be stored with a bailee,
warehouseman, or similar party without Foothill's prior written
consent.
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 Foothill, reimbursement of Foothill
Expenses, or other amounts constituting Obligations), and if such
failure results or would result in an Overadvance by virtue of
payment of interest and such amount is not fully paid within five (5)
days;
8.2 If Borrower fails or neglects to perform, keep, or
observe any material 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 Foothill;
8.3 If there is a material impairment of the value or
priority of Foothill'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
the filing thereof; provided, however, that, during the pendency of
such period, Foothill shall be relieved of its obligation to make
additional advances hereunder; (d) an interim 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 for three (3) Business Days or
more;
8.8 If a notice of lien, levy, or assessment is filed of
record with respect to any of Borrower's properties or assets (and
the same cannot be adequately reserved against by Foothill or is not
discharged within ten (10) days of its filing) 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 owing 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 If a judgment or other claim becomes a lien or
encumbrance upon any material portion of Borrower's properties or
assets;
8.10 If there is a default in any material agreement to
which Borrower is a party with one or more third Persons where
such third Persons have accelerated 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 material misstatement or misrepresentation
exists now or hereafter in any warranty, representation, statement,
or report made to Foothill by Borrower or any officer, employee,
agent, or director of Borrower, or if any such warranty or
representation is withdrawn;
8.13 If the obligations of UM&M under the UM&M
Guaranty are limited or terminated by operation of law or terminated
or purported to be terminated by UM&M; or
8.14 If (a) with respect to any Plan, there shall occur
any of the following which could 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
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 of, a Plan; and
(ix) the assessment against Borrower or any ERISA Affiliate of a tax
under Section 4980B of the IRC; or (b) if there shall be any
Unfunded Benefit Liability under any of the Plans of Borrower and
its ERISA Affiliates other than an Unfunded Benefit Liability of Plans
of UM&M.
9. FOOTHILL'S RIGHTS AND REMEDIES.
9.1 Rights and Remedies. Upon the occurrence of an
Event of Default Foothill 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, or under any other agreement between
Borrower and Foothill;
(c) Terminate this Agreement and any of the
other Loan Documents as to any future liability or obligation of
Foothill, but without affecting Foothill'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 Foothill
considers advisable, and in such cases, Foothill will credit
Borrower's loan account with only the net amounts received by
Foothill in payment of such disputed Accounts after deducting all
Foothill Expenses incurred or expended in connection therewith;
(e) Cause Borrower to hold all returned
Inventory in trust for Foothill, 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
Foothill;
(f) Without notice to or demand upon Borrower
or any guarantor, make such payments and do such acts as Foothill
in the Collateral. Borrower agrees to assemble the Collateral if
Foothill so requires, and to make the Collateral available to Foothill
as Foothill may designate. Borrower authorizes Foothill 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
Foothill's determination appears to conflict with its security interests
and to pay all expenses incurred in connection therewith. With
respect to any of Borrower's owned premises, Borrower hereby
grants Foothill a license to enter into possession of such premises
and to occupy the same, without charge, for up to one hundred
twenty (120) days in order to exercise any of Foothill's rights or
remedies provided herein, at law, in equity, or otherwise;
(g) Without notice to Borrower (such notice
being expressly waived), and without constituting a retention of any
collateral in satisfaction of an obligation (within the meaning of
Section 9505 of the Code), set off and apply to the Obligations any
and all (i) balances and deposits of Borrower held by Foothill
(including any amounts received in the Lock Boxes), or (ii)
indebtedness at any time owing to or for the credit or the account
of Borrower held by Foothill;
(h) Hold, as cash collateral, any and all balances
and deposits of Borrower held by Foothill, and any amounts received
in the Lock Boxes, 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. Foothill is hereby
granted 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 Foothill's benefit;
(j) Sell the Collateral at either a public or
private sale, or both, by way of one or more contracts or
transactions, for cash or on terms, in such manner and at such
places (including Borrower's premises) as Foothill determines is
commercially reasonable. It is not necessary that the Collateral be
present at any such sale;
(k) Foothill shall give notice of the disposition
of the Collateral as follows:
(1) Foothill shall give Borrower and each
holder of a security interest in the Collateral who has filed with
Foothill 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
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 five (5) days before the date fixed for the sale,
or at least five (5) 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 Foothill;
(3) If the sale is to be a public sale,
Foothill also shall give notice of the time and place by publishing a
notice one time at least five (5) 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) Foothill 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 Foothill to Borrower.
9.2 Remedies Cumulative. Foothill's rights and
remedies under this Agreement, the Loan Documents, and all other
agreements shall be cumulative. Foothill shall have all other rights
and remedies not inconsistent herewith as provided under the Code,
by law, or in equity. No exercise by Foothill of one right or remedy
shall be deemed an election, and no waiver by Foothill of any Event
of Default shall be deemed a continuing waiver. No delay by Foothill
shall constitute a waiver, election, or acquiescence by it.
10. TAXES AND EXPENSES REGARDING THE COLLATERAL.
If 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 or the Mortgages, then, to the extent that Foothill
reasonably determines that such failure by Borrower could have a
material adverse effect on Foothill's interests in the Collateral, in its
discretion and upon five (5) days prior notice to Borrower, Foothill
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 Foothill deems necessary to protect Foothill 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 Foothill deems prudent.
Any such payments made by Foothill shall not constitute an
agreement by Foothill to make similar payments in the future or a
waiver by Foothill of any Event of Default under this Agreement.
Foothill 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 Foothill on which Borrower may in any way be
liable.
11.2 Foothill's Liability for Collateral. So long as
Foothill complies with its obligations, if any, under Section 9207 of
the Code, Foothill 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 all 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
including, but not limited to, those claimed by any broker or finder
unless such obligations, demands, claims or liabilities result from the
gross negligence or willful misconduct of such Indemnified Person,
and (b) all Losses in any way suffered, incurred, or paid 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 unless such Losses result from the gross negligence or
willful misconduct of such 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 by
first-class mail, postage prepaid) shall be personally delivered or
sent by registered or certified mail, postage prepaid, return receipt
requested, or by prepaid telex, TWX, telefacsimile, or telegram (with
messenger delivery specified) to Borrower or to Foothill, as the case
If to Borrower:VICTORIA CREATIONS, INC.
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Attn.: Treasurer
Telefacsimile No. (▇▇▇) ▇▇▇-▇▇▇▇
With copy to: UNITED MERCHANTS AND MANUFACTURERS,
INC.
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Attn.: Treasurer
Telefacsimile No. (▇▇▇) ▇▇▇-▇▇▇▇
If to Foothill:FOOTHILL CAPITAL CORPORATION
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Attn.: Business Finance Division Manager
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 demands sent
in accordance with this Section 12, other than notices by Foothill 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 Foothill 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 OF 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 CALIFORNIA, WITHOUT GIVING EFFECT TO ITS
CONFLICT OF LAWS PRINCIPLES. THE PARTIES AGREE THAT ALL
ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS
AGREEMENT SHALL BE TRIED AND LITIGATED ONLY IN THE STATE
AND FEDERAL COURTS LOCATED IN THE COUNTY OF LOS ANGELES,
STATE OF CALIFORNIA OR, AT THE SOLE OPTION OF FOOTHILL, IN
ANY OTHER COURT WHERE IT IS NECESSARY TO ENFORCE OR PROTECT
FOOTHILL'S SECURITY INTERESTS IN THE COLLATERAL IN WHICH
FOOTHILL SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND
WHICH HAS SUBJECT MATTER JURISDICTION OVER THE MATTER IN
CONTROVERSY. EACH OF BORROWER AND FOOTHILL WAIVES, TO THE
EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY
HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO
ACCORDANCE WITH THIS SECTION 13. BORROWER AND FOOTHILL
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 FOOTHILL REPRESENT THAT
EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND
VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING
CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION,
A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT
TO A TRIAL BY THE COURT.
14. DESTRUCTION OF BORROWER'S DOCUMENTS.
All documents, schedules, invoices, agings, or other
papers delivered to Foothill may be destroyed or otherwise disposed
of by Foothill four (4) months after they are delivered to or
received by Foothill, unless Borrower requests, in writing, the
return of said documents, schedules, or other papers and makes
arrangements, at Borrower's expense, for their return.
15. GENERAL PROVISIONS.
15.1 Effectiveness. This Agreement shall be binding
and deemed effective when executed by Borrower and Foothill.
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
Foothill's prior written consent and any prohibited assignment shall
be absolutely void. No consent to an assignment by Foothill shall
release Borrower from its Obligations. Foothill 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. Foothill reserves the right to sell, assign, transfer,
negotiate, or grant participations in all or any part of, or any
interest in Foothill's rights and benefits hereunder. In connection
with any such assignment or participation, Foothill may disclose all
documents and information which Foothill now or hereafter may have
relating to Borrower or Borrower's business. To the extent that
Foothill assigns its rights and obligations hereunder to a third
Person, Foothill shall thereafter be released from such assigned
obligations to Borrower and such assignment shall effect a novation
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
against Foothill 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 Foothill 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 shall not
affect the validity, enforceability, and binding effect of this
Agreement.
15.8 Revival and Reinstatement of Obligations. If the
incurrence or payment of the Obligations by Borrower or any
guarantor of the Obligations or the transfer by either or both of
such parties to Foothill of any property of either or both of such
parties should for any reason subsequently be declared to be void
or voidable under any state or federal law relating to creditors'
rights, including provisions of the Bankruptcy Code relating to
fraudulent conveyances, preferences, and other voidable or
recoverable payments of money or transfers of property (collectively,
a "Voidable Transfer"), and if Foothill is required to repay or
restore, in whole or in part, any such Voidable Transfer, or elects
to do so upon the reasonable advice of its counsel, then, as to any
such Voidable Transfer, or the amount thereof that Foothill is
required or elects to repay or restore, and as to all reasonable
costs, expenses, and attorneys fees of Foothill related thereto, the
liability of Borrower or such guarantor automatically shall be
revived, reinstated, and restored and shall exist as though such
Voidable Transfer had never been made.
15.9 Lending Relationship. Nothing contained in the
this Agreement or any of the other Loan Documents shall be deemed
or construed by the parties hereto or by any third party to create
the relationship of principal and agent, partnership, joint venture,
or any association between Borrower and Foothill, it being expressly
understood and agreed that nothing contained in this Agreement or
between Borrower and Foothill other that the relationship of
borrower and lender.
15.10Integration. This Agreement, together with the
other Loan Documents, reflect the entire understanding of the
parties with respect to the transactions contemplated hereby and
shall not be contradicted or qualified by any other agreement, oral
or written, before the date hereof.
15.11Confidentiality. Foothill agrees (on behalf of itself
and each of its Affiliates, directors, officers, employees and
representatives) to use reasonable precautions to keep confidential
in accordance with its customary business practices, any non-public
information supplied to it by the Borrower, provided that nothing
herein shall limit the disclosure of any such information (i) to the
extent required by statute, rule, regulation or judicial process,
(ii) to counsel to Foothill, (iii) to regulators, auditors or accountants,
(iv) in connection with any litigation to which Foothill is a party or
(v) to any assignee or participant (or prospective assignee or
participant) so long as such assignee or participant (or prospective
assignee or participant) first agrees to this confidentiality provision
in writing. In connection with any potential disclosure under (i) or
(iii) above, Foothill agrees that it will promptly advise the Borrower
of any request for disclosure and use reasonable efforts to provide
the Borrower with as much time as possible prior to complying with
such request in order to allow the Borrower to obtain an injunction
or stay to the release of such information or an order providing for
the handling of such information in a confidential matter.
15.12Limitation of Liability. Except for a Person's
willful misconduct, none of Borrower's officers, directors, agents,
employees, nor any heir, successor or assign of the foregoing shall
be personally liable (whether by operation or law or otherwise) for
payments due hereunder or under any other Loan Document or for
the performance of any Obligations. The sole recourse of Foothill
for satisfaction of the Obligations shall be against the Borrower and
guarantor of Borrower's Obligations and the assets of Borrower and
any guarantor and not against any other Person.
15.13Amendment and Restatement. This Agreement
amends and restates in its entirety that certain Loan And Security
Agreement between Borrower and Foothill dated as of June 28, 1994.
IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be executed in Los Angeles, California.
FOOTHILL CAPITAL CORPORATION,
a California corporation
By /s/ ▇▇▇▇▇▇ ▇▇▇▇
Title: Vice President
VICTORIA CREATIONS, INC.,
a Rhode Island corporation
By /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Senior Vice President