Exhibit 10.21
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REVOLVING CREDIT AGREEMENT
dated as of
February 21, 2002
among
DECKERS OUTDOOR CORPORATION
and
UGG HOLDINGS, INC.,
as Borrowers,
and
COMERICA BANK -- CALIFORNIA,
as Bank
$20,000,000
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TABLE OF CONTENTS
Page(s)
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ARTICLE I DEFINITIONS AND INTERPRETATIONS....................................................1
1.1 Definitions...................................................................1
"ABL Borrowing Period"........................................................1
"ABL Trigger Amount"..........................................................1
"ABL Triggering Obligations"..................................................1
"Account" and "Account Debtor"................................................1
"Affiliate"...................................................................1
"Agreement"...................................................................1
"Applicable A/R Advance Rate".................................................2
"Applicable Base Lending Rate Margin".........................................2
"Applicable LIBOR Lending Rate Margin"........................................2
"Applicable Percentage".......................................................3
"Asset".......................................................................3
"Asset Sale"..................................................................3
"Audit Fee"...................................................................3
"Bank"........................................................................3
"Bankruptcy Code".............................................................3
"Base Lending Rate"...........................................................3
"Base Lending Rate Portion"...................................................4
"Base LIBOR"..................................................................4
"Base Rate"...................................................................4
"Borrowing"...................................................................4
"Borrowing Base"..............................................................4
"Borrowing Base Certificate"..................................................4
"Business Day"................................................................4
"Capital Expenditures"........................................................4
"Capital Lease"...............................................................5
"Capital Lease Obligations"...................................................5
"Capital Stock"...............................................................5
"Change of Control"...........................................................5
"Closing Date"................................................................5
"Collateral Access Agreement".................................................5
"Compliance Certificate"......................................................5
"Consolidated Effective Tangible Net Worth"...................................5
"Consolidated Net Profit" and "Consolidated Net Loss".........................5
"Consolidated Pretax Profit"..................................................5
"Consolidated Total Liabilities to Consolidated Effective Tangible Net
Worth Ratio"..............................................................5
"Currency Obligation".........................................................6
"Current Liabilities".........................................................6
"Debt"........................................................................6
"Dilution"....................................................................6
i
"Distributions"...............................................................6
"Dollars" or "$"..............................................................6
"Eligible Accounts"...........................................................6
"Eligible Assignee"...........................................................8
"Eligible Inventory"..........................................................8
"ERISA".......................................................................9
"ERISA Event".................................................................9
"ERISA Group".................................................................9
"Event of Default"............................................................9
"Excluded Subsidiaries"......................................................10
"Expenses"...................................................................10
"Fees".......................................................................10
"Financial Statement(s)".....................................................10
"Foreign Exchange Agreement".................................................10
"Foreign Exchange Reserve"...................................................10
"Foreign Exchange Sublimit"..................................................11
"GAAP".......................................................................11
"Governing Documents"........................................................11
"Governmental Authority".....................................................11
"Guaranties" and "Guaranty"..................................................11
"Guarantor(s)"...............................................................11
"Hazardous Materials"........................................................11
"Indemnified Person(s)"......................................................11
"Insolvency Proceeding"......................................................12
"Intangible Assets"..........................................................12
"Interest Payment Date"......................................................12
"Interest Period"............................................................12
"Internal Revenue Code"......................................................12
"Inventory"..................................................................12
"Inventory Sublimit".........................................................12
"Inventory Turnover Ratio"...................................................13
"ISP"........................................................................13
"Knowledge"..................................................................13
"Late Payment Fee"...........................................................13
"Lending Office".............................................................13
"Letter(s) of Credit"........................................................13
"Letter of Credit Application"...............................................13
"Letter of Credit Fee".......................................................13
"Letter of Credit Sublimit"..................................................13
"Letter of Credit Usage".....................................................13
"LIBOR"......................................................................13
"LIBOR Business Day".........................................................13
"LIBOR Lending Rate".........................................................13
"LIBOR Lending Rate Portion".................................................14
"LIBOR Reserve Percentage"...................................................14
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"Lien".......................................................................14
"Loan Document(s)"...........................................................14
"Loans"......................................................................15
"Material Adverse Effect"....................................................15
"Multiemployer Plan".........................................................15
"Net Cash Proceeds"..........................................................15
"Note".......................................................................15
"Notice of Borrowing"........................................................15
"Notice of Conversion or Continuation".......................................15
"Obligations"................................................................15
"Old Lender".................................................................16
"Overadvance"................................................................16
"Participant"................................................................16
"Patent and Trademark Security Agreement"....................................16
"Pay-Off Letter".............................................................16
"PBGC".......................................................................16
"Permitted Debt".............................................................16
"Permitted Investments"......................................................16
"Permitted Liens"............................................................17
"Person".....................................................................17
"Plan".......................................................................17
"Purchase Money Lien"........................................................17
"Quick Ratio"................................................................18
"Regulation D"...............................................................18
"Reimbursement Obligations"..................................................18
"Reportable Event"...........................................................18
"Responsible Officer"........................................................18
"Retiree Health Plan"........................................................18
"Revolving Credit Commitment"................................................18
"Revolving Loans"............................................................18
"Revolving Loans Daily Balances".............................................18
"Revolving Loans Maturity Date"..............................................18
"SEC"........................................................................18
"Security Agreement".........................................................18
"Shareholder"................................................................18
"Solvent"....................................................................18
"Stock Pledge Agreement".....................................................19
"Subsidiary".................................................................19
"Swaps"......................................................................19
"Taxes"......................................................................19
"Teva License Agreement".....................................................19
"Teva Option Agreement"......................................................19
"UCC"........................................................................19
"Uniform Customs"............................................................20
"Unmatured Event of Default".................................................20
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"Unused Revolving Commitment Fee"............................................20
1.2 Accounting Terms and Determinations..........................................20
1.3 Computation of Time Periods..................................................20
1.4 Construction.................................................................20
1.5 Exhibits and Schedules.......................................................20
1.6 No Presumption Against Any Party.............................................20
1.7 Independence of Provisions...................................................21
ARTICLE II TERMS OF THE CREDIT..............................................................21
2.1 Revolving Loans..............................................................21
2.2 Foreign Exchange Forward Contracts..........................................21
2.3 Reserved.....................................................................22
2.4 Interest Rates; Payments of Interest.........................................22
2.5 Notice of Borrowing Requirements.............................................23
2.6 Conversion or Continuation Requirements......................................24
2.7 Additional Costs.............................................................25
2.8 Illegality; Impossibility....................................................26
2.9 Disaster.....................................................................26
2.10 Increased Risk-Based Capital Cost............................................27
2.11 Note; Statements of Obligations..............................................27
2.12 Holidays.....................................................................27
2.13 Time and Place of Payments...................................................27
2.14 Mandatory Principal Reductions...............................................28
2.15 Fees.........................................................................28
ARTICLE III LETTERS OF CREDIT...............................................................29
3.1 Letters of Credit............................................................29
3.2 Procedure for Issuance of Letters of Credit..................................30
3.3 Fees, Commissions and Other Charges..........................................30
3.4 Reimbursement Obligations....................................................30
3.5 Obligations Absolute.........................................................31
3.6 Letter of Credit Payments....................................................31
3.7 Outstanding Letters of Credit Following Event of Default.....................32
3.8 Letter of Credit Applications................................................32
ARTICLE IV CONDITIONS PRECEDENT.............................................................32
4.1 Conditions to Initial Loans or Letter(s) of Credit...........................32
4.2 Conditions to all Loans and Letters of Credit................................34
ARTICLE V REPRESENTATIONS AND WARRANTIES....................................................34
5.1 Legal Status.................................................................35
5.2 No Violation; Compliance.....................................................35
5.3 Authorization; Enforceability................................................35
5.4 Approvals; Consents..........................................................36
5.5 Liens........................................................................36
5.6 Debt.........................................................................36
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5.7 Litigation...................................................................36
5.8 No Default...................................................................36
5.9 Subsidiaries.................................................................36
5.10 Taxes........................................................................36
5.11 Correctness of Financial Statements..........................................37
5.12 ERISA........................................................................37
5.13 Other Obligations............................................................37
5.14 Public Utility Holding Company Act...........................................37
5.15 Investment Company Act.......................................................37
5.16 Patents, Trademarks, Copyrights, and Intellectual Property, etc..............37
5.17 Environmental Condition......................................................38
5.18 Solvency.....................................................................38
5.19 Eligible Accounts............................................................38
5.20 Eligible Inventory...........................................................39
ARTICLE VI AFFIRMATIVE COVENANTS............................................................39
6.1 Punctual Payments............................................................39
6.2 Books and Records; Collateral Audits.........................................39
6.3 Collateral Reporting and Financial Statements................................40
6.4 Existence; Preservation of Licenses; Compliance with Law.....................41
6.5 Insurance....................................................................41
6.6 Assets.......................................................................42
6.7 Taxes and Other Liabilities..................................................42
6.8 Notice to Bank...............................................................43
6.9 Employee Benefits............................................................43
6.10 Further Assurances...........................................................44
6.11 Bank Accounts................................................................44
6.12 Environment..................................................................44
6.13 Additional Collateral........................................................45
6.14 Guarantors...................................................................45
6.15 Returns......................................................................45
ARTICLE VII NEGATIVE COVENANTS..............................................................45
7.1 Use of Funds; Margin Regulation..............................................45
7.2 Debt.........................................................................46
7.3 Liens........................................................................46
7.4 Merger, Consolidation, Transfer of Assets....................................46
7.5 Leases.......................................................................46
7.6 Sales and Leasebacks.........................................................46
7.7 Asset Sales..................................................................47
7.8 Investments..................................................................47
7.9 Character of Business........................................................47
7.10 Distributions................................................................48
7.11 Guaranty.....................................................................48
7.12 Capital Expenditures.........................................................48
7.13 Transactions with Affiliates.................................................48
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7.14 Stock Issuance...............................................................49
7.15 Financial Condition..........................................................49
7.16 Transactions Under ERISA. Directly or indirectly:...........................49
ARTICLE VIII EVENTS OF DEFAULT AND REMEDIES.................................................50
8.1 Events of Default............................................................50
8.2 Remedies.....................................................................52
8.3 Setoff.......................................................................53
8.4 Appointment of Receiver or Trustee...........................................53
8.5 Remedies Cumulative..........................................................53
ARTICLE IX TAXES............................................................................53
9.1 Taxes on Payments............................................................53
9.2 Indemnification For Taxes....................................................54
9.3 Evidence of Payment..........................................................54
ARTICLE X MISCELLANEOUS.....................................................................54
10.1 Notices......................................................................54
10.2 No Waivers...................................................................54
10.3 Expenses; Documentary Taxes; Indemnification.................................55
10.4 Amendments and Waivers.......................................................55
10.5 Successors and Assigns; Participations; Disclosure...........................56
10.6 Confidentiality..............................................................57
10.7 Counterparts; Effectiveness; Integration.....................................57
10.8 Severability.................................................................57
10.9 Knowledge....................................................................57
10.10 Additional Waivers...........................................................58
10.11 Destruction Of Borrowers' Documents..........................................58
10.12 CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER...................................58
ARTICLE XI JOINT AND SEVERAL LIABILITY; SINGLE LOAN ACCOUNT.................................59
11.1 Joint and Several Liability..................................................59
11.2 Primary Obligation; Waiver of Marshalling....................................60
11.3 Financial Condition of Borrowers.............................................60
11.4 Continuing Liability.........................................................60
11.5 Additional Waivers...........................................................60
11.6 Settlement or Releases.......................................................63
11.7 No Election..................................................................63
11.8 Indefeasible Payment.........................................................63
11.9 Single Loan Account..........................................................64
11.10 Apportionment of Proceeds of Loans...........................................64
11.11 Bank Held Harmless...........................................................64
11.12 Borrowers' Integrated Operations.............................................64
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EXHIBITS AND SCHEDULES
Exhibit 1.1B - Form of Borrowing Base Certificate
Exhibit 1.1L-1 - Form of Commercial Letter of Credit Application and Agreement
Exhibit 1.1L-2 - Form of Standby Letter of Credit Application and Agreement
Exhibit 2.5(b) - Form of Notice of Borrowing
Exhibit 2.6(b) - Form of Notice of Conversion or Continuation
Exhibit 4.1(b) - Form of Opinions of Borrowers' Counsel
Exhibit 6.3(d) - Form of Compliance Certificate
Schedule 1.1E - Locations of Eligible Inventory
Schedule 5.6 - Permitted Debt
Schedule 5.7 - Litigation
Schedule 5.9 - Subsidiaries
Schedule 5.12 - Employee Benefit Plans
Schedule 7.5 - Leases
REVOLVING CREDIT AGREEMENT
This REVOLVING CREDIT AGREEMENT, dated as of February 21, 2002, is
entered into among Deckers Outdoor Corporation, a Delaware corporation
("Parent"), and UGG HOLDINGS, INC., California corporation ("UGG") (collectively
sometimes referred to herein as "Borrowers" and individually as a "Borrower"),
on the one hand, and Bank, on the other hand.
The parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS AND INTERPRETATIONS
1.1 Definitions. The following terms, as used herein, shall have the
following meanings:
"ABL Borrowing Period" means any fiscal quarter of Parent in which the
outstanding ABL Triggering Obligations as of the first day of such fiscal
quarter, after giving effect to any Borrowings made, Letters of Credit issued
and/or Currency Obligations incurred on such date, are equal to or greater than
Ten Million Dollars ($10,000,000).
"ABL Trigger Amount" means Ten Million Dollars ($10,000,000).
"ABL Triggering Obligations" means, as of the date of determination, the
sum of (i) the principal amount of all outstanding Revolving Loans, (ii) the
outstanding Letter of Credit Usage, and (iii) the Foreign Exchange Reserve.
"Account" and "Account Debtor" have the meanings given to such terms in
the Security Agreement.
"Affiliate" means any Person (i) that, directly or indirectly, controls,
is controlled by or is under common control with any Borrower or any Subsidiary;
(ii) which to the Knowledge of Parent, directly or indirectly beneficially owns
or controls ten percent (10%) or more of any class of voting stock of any
Borrower or any Subsidiary; or (iii) ten percent (10%) or more of the voting
stock of which is directly or indirectly beneficially owned or held by any
Borrower or any Subsidiary. For purposes of the foregoing, control (including
controlled by and under common control with) shall mean the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of a Person, whether through the ownership of voting securities, by
contract or otherwise.
"Agreement" means this Revolving Credit Agreement, as amended or
restated from time to time in accordance with its terms.
1
"Applicable A/R Advance Rate" means the percentage set forth in the
table below opposite the applicable Dilution:
------------------------------------- --------------------------------
Dilution Applicable A/R Advance Rate
------------------------------------- --------------------------------
Equal to or less than 5% 80%
------------------------------------- --------------------------------
Greater than 5% but less than or 75%
equal to 10%
------------------------------------- --------------------------------
Greater than 10% but less than or 70%
equal to 15%
------------------------------------- --------------------------------
Greater than 15% but less than or 65%(2)
equal to 20%(1)
------------------------------------- --------------------------------
"Applicable Base Lending Rate Margin" means the margin set forth below opposite
the applicable Consolidated Total Liabilities to Consolidated Effective Tangible
Net Worth Ratio disclosed in the latest Compliance Certificate delivered
pursuant to Section 6.3(c):
------------------------- -----------------------
Consolidated Total Applicable Base
Liabilities to Lending Rate Margin
Consolidated Effective For All Revolving
Tangible Net Worth Ratio Loans
------------------------- -----------------------
Less than 0.50:1.0 -50 basis points
------------------------- -----------------------
Greater than or equal -50 basis points
to 0.50:1.0
------------------------- -----------------------
"Applicable LIBOR Lending Rate Margin" means the margin set forth below
opposite the applicable Consolidated Total Liabilities to Consolidated Effective
Tangible Net Worth Ratio disclosed in the latest Compliance Certificate
delivered pursuant to Section 6.3(c):
--------
(1) For every 5% increase in Dilution over 20%, the Applicable A/R Advance Rate
shall decrease by an additional 5%.
(2) For every 5% increase in Dilution over 20%, the Applicable A/R Advance Rate
shall decrease by an additional 5%.
2
------------------------- -----------------------
Consolidated Total Applicable LIBOR
Liabilities to Lending Rate Margin
Consolidated Effective For All Revolving
Tangible Net Worth Ratio Loans
------------------------- -----------------------
Less than 0.50:1.0 137.5 basis points
------------------------- -----------------------
Greater than or equal 162.5 basis points
to 0.50:1.0
------------------------- -----------------------
"Applicable Percentage" means the percentage set forth below opposite
the applicable Consolidated Total Liabilities to Consolidated Effective Tangible
Net Worth Ratio disclosed in the latest Compliance Certificate delivered
pursuant to Section 6.3(c):
----------------------- -----------------------
Consolidated Total
Liabilities to
Consolidated
Effective Tangible Applicable
Net Worth Ratio Percentage
----------------------- -----------------------
Less than 0.50:1.0 1.375%
----------------------- -----------------------
Greater than or equal 1.625%
to 0.50:1.0
----------------------- -----------------------
"Asset" means any interest of a Person in any kind of property or asset,
whether real, personal, or mixed real and personal, and whether tangible or
intangible.
"Asset Sale" means any sale, transfer or other disposition of any
Borrower's or any Subsidiary's (other than an Excluded Subsidiary) businesses or
Asset(s) now owned or hereafter acquired, including shares of stock and
indebtedness of any Subsidiary (other than an Excluded Subsidiary), receivables
and leasehold interests.
"Audit Fee" has the meaning given to such term in Section 6.2.
"Bank" means Comerica Bank -- California, a California banking
corporation.
"Bankruptcy Code" means The Bankruptcy Reform Act of 1978 (Pub. L. No.
95-598; 11 U.S.C.), as amended or supplemented from time to time, or any
successor statute, and any and all rules and regulations issued or promulgated
in connection therewith.
"Base Lending Rate" means the variable per annum rate equal to the Base
Rate plus the Applicable Base Lending Rate Margin.
3
"Base Lending Rate Portion" means any portion of any Loan designated by
a Borrower as bearing interest at the Base Lending Rate pursuant to Section 2.5
or 2.6.
"Base LIBOR" applicable to any Interest Period for a LIBOR Lending Rate
Portion means the offered rate per annum (rounded upward to the nearest
one-hundredth of one percent (.01%)), if any, to first-class banks in the LIBOR
market quoted by Bank at 11:00 a.m. Pacific time, two (2) LIBOR Business Days
prior to the first day of such Interest Period for Dollar deposits of an amount
comparable to the principal amount of the LIBOR Lending Rate Portion for which
the LIBOR Lending Portion is being determined with maturities comparable to the
Interest Period for which such LIBOR Lending Rate will apply.
"Base Rate" means the variable rate of interest announced by Bank at its
corporate headquarters as its base rate and which serves as the basis upon which
effective rates of interest are calculated for those loans making reference
thereto. The Base Rate is determined by Bank from time to time as a means of
pricing credit extensions to some customers and is neither directly tied to some
external rate of interest or index nor necessarily the lowest rate of interest
charged by Bank at any given time for any particular class of customers or
credit extensions.
"Borrowing" means a borrowing of Revolving Loans from Bank pursuant to
the terms and conditions hereof.
"Borrowing Base" means, as of the date of determination, the lesser of
(a) the Revolving Credit Commitment and (b) (i) the Eligible Accounts times the
Applicable A/R Advance Rate, plus (ii) the lesser of (x) 50% of the Eligible
Inventory, (y) the Inventory Sublimit, and (z) the aggregate Dollar amount of
outstanding Borrowings against Eligible Accounts; less the amount of outstanding
Obligations and less the Foreign Exchange Reserve; provided, however, Bank may
reduce the advance rates or create additional reserves against the Eligible
Accounts and/or the Eligible Inventory, in its sole and absolute discretion,
without declaring an Event of Default if it reasonably determines that there has
occurred a Material Adverse Effect.
"Borrowing Base Certificate" means a certificate from a Responsible
Officer of Parent certifying the Borrowing Base, in the form of Exhibit 1.1B.
"Business Day" means any day other than a Saturday, a Sunday, or a day
on which commercial banks in the City of Los Angeles, California are authorized
or required by law or executive order or decree to close.
"Capital Expenditures" means expenditures made in cash, or financed with
long term debt, by any Person for the acquisition of any fixed Assets or
improvements, replacements, substitutions, or additions thereto that have a
useful life of more than one (1) year, including the direct or indirect
acquisition of such Assets by way of increased product or service charges,
offset items, or otherwise, and the principal portion of payments with respect
to Capital Lease Obligations, calculated in accordance with GAAP.
4
"Capital Lease" means any lease of an Asset by a Person as lessee which
would, in conformity with GAAP, be required to be accounted for as an Asset and
corresponding liability on the balance sheet of that Person.
"Capital Lease Obligations" of a Person means the amount of the
obligations of such Person under all Capital Leases which would be shown as a
liability on a balance sheet of such Person prepared in accordance with GAAP.
"Capital Stock" means any and all shares, interests, participations or
other equivalents (however designated) of capital stock of a corporation, any
and all equivalent ownership interests in a Person (other than a corporation)
and any and all warrants or options to purchase any of the foregoing.
"Change of Control" means the time at which ▇▇▇▇▇▇▇ ▇. ▇▇▇▇ fails to be
the beneficial owner (as defined in Rule 13d-3 under the Securities Exchange Act
of 1934) of a percentage (based on voting power, in the event different classes
of stock shall have different voting powers) of the voting stock of Parent equal
to at least twenty-five percent (25%).
"Closing Date" means the date when all of the conditions set forth in
Section 4.1 have been fulfilled to the reasonable satisfaction of Bank and its
counsel.
"Collateral Access Agreement" has the meaning given to such term in the
Security Agreement.
"Compliance Certificate" means a certificate of compliance to be
delivered quarterly in accordance with Section 6.3(c), substantially in the form
of Exhibit 6.3(c).
"Consolidated Effective Tangible Net Worth" means, as of any date of
determination, the result of (a) Borrowers' and Subsidiaries consolidated total
stockholder's equity, minus (b) the sum of (i) all Intangible Assets of
Borrowers and Subsidiaries, and (ii) all amounts due to Borrowers from
Affiliates (other than Subsidiaries).
"Consolidated Net Profit" and "Consolidated Net Loss" mean,
respectively, with respect to any period, the consolidated net profit, or loss,
as applicable, of Borrowers and the Subsidiaries after all federal, state and
local income taxes reflected on Borrowers' Financial Statement for such period,
calculated in accordance with GAAP, plus any write-off of goodwill pursuant to
FASB 142.
"Consolidated Pretax Profit" means the consolidated annual profit of
Borrowers and the Subsidiaries before all federal, state and local income taxes
reflected on Borrowers' Financial Statement for such period, calculated in
accordance with GAAP, plus any write-off of goodwill pursuant to FASB 142.
"Consolidated Total Liabilities to Consolidated Effective Tangible Net
Worth Ratio" means, as of the date of determination, the ratio of (i) Borrowers'
and Subsidiaries consolidated total liabilities, calculated in accordance with
GAAP; to (ii) Consolidated Effective Tangible Net Worth.
5
"Currency Obligation" has the meaning given to such term in the Foreign
Exchange Agreement.
"Current Liabilities" means, as of the date of determination, Borrowers'
and Subsidiaries consolidated liabilities coming due within one year (including
all amounts due to any Borrower's or Subsidiary's shareholders, officers and
Affiliates), calculated in accordance with GAAP.
"Debt" means, as of the date of determination, the sum, but without
duplication, of any and all of a Person's: (i) indebtedness heretofore or
hereafter created, issued, incurred or assumed by such Person (directly or
indirectly) for or in respect of money borrowed; (ii) Capital Lease Obligations;
(iii) obligations evidenced by bonds, debentures, notes, or other similar
instruments; (iv) obligations for the deferred purchase price of property or
services (including trade obligations except accounts payable to trade creditors
for goods or services which are not aged more than 90 days from the billing date
and current operating liabilities (other than for borrowed money) which are not
more than 90 days past due, in each case incurred in the ordinary course of
business, as presently conducted, and paid within the specified time, unless
contested in good faith in appropriate proceedings (if applicable)); (v) current
liabilities in respect of unfunded vested benefits under any Plan; (vi)
obligations under letters of credit; (vii) obligations under acceptance
facilities; (viii) obligations under all guaranties, endorsements (other than
for collection or deposit in the ordinary course of business), and other
contingent obligations to purchase, to provide funds for payment, or supply
funds to invest in any other Person, or otherwise to assure a creditor against
loss; (ix) obligations secured by any Lien on any Asset of such Person, whether
or not such obligations have been assumed; and (x) Swaps.
"Dilution" means, as of any date of determination, a percentage, based
upon the experience of the immediately prior 365 days, as determined by Bank
based upon Bank's most recent audit of the Accounts, that is the result of
dividing the Dollar amount of (a) bad debt write-downs, discounts, advertising
allowances, credits, or other dilutive items with respect to the Accounts during
such period, by (b) Borrower's collections with respect to the Accounts during
such period (excluding extraordinary items) plus the Dollar amount of clause
(a). On the Closing date, Dilution is in excess of 5% but less than 10%.
"Distributions" means dividends or distributions of earnings made by a
Person to its shareholders, partners or members, as the case may be.
"Dollars" or "$" means lawful currency of the United States of America.
"Eligible Accounts" means those Accounts created by any Borrower in the
ordinary course of business, that arise out of such Borrower's sale of goods or
rendition of services, that strictly comply with each and all of the
representations and warranties respecting Accounts made by Borrowers to Bank in
this Agreement and the Loan Documents, and that are and at all times continue to
be acceptable to Bank in all respects; provided, however, that standards of
eligibility may be fixed and revised from time to time by Bank in Bank's
reasonable credit judgment. In determining the amount to be included, Eligible
Accounts shall be calculated net of customer deposits and unapplied cash
remitted to any Borrower. Eligible Accounts shall not include the following:
6
(i) Accounts that the Account Debtor has failed to pay within 90
days of invoice date; provided that Accounts with selling terms up to 120 days
from invoice date shall not be deemed ineligible under this clause (i) if the
invoice is created from November 1 through January 31 of each year; provided,
further, that any such Accounts shall no longer be eligible if they are past due
one day;
(ii) Accounts owed by an Account Debtor or its Affiliates where
25% or more of all Accounts owed by that Account Debtor (or its Affiliates) are
deemed ineligible under clause (i) above;
(iii) Accounts with respect to which the Account Debtor is an
officer, director, shareholder, employee, Affiliate, or agent of any Borrower;
(iv) Accounts with respect to which goods are placed on
consignment, guaranteed sale, sale or return, sale on approval, ▇▇▇▇ and hold,
or other terms by reason of which the payment by the Account Debtor may be
conditional;
(v) Accounts that are not payable in Dollars or with respect to
which the Account Debtor: (i) does not maintain its chief executive office in
the United States, or (ii) is not organized under the laws of the United States
or any State thereof, or (iii) is the government of any foreign country or
sovereign state, or of any state, province, municipality, or other political
subdivision thereof, or of any department, agency, public corporation, or other
instrumentality thereof, unless (y) the Account is supported by an irrevocable
letter of credit reasonably satisfactory to Bank (as to form, substance, and
issuer or domestic confirming bank) that must be directly drawn upon Bank, or
(z) the Account is covered by credit insurance in form and amount, and by an
insurer, reasonably satisfactory to Bank;
(vi) Accounts with respect to which the Account Debtor is either
(i) the United States or any department, agency, or instrumentality of the
United States (exclusive, however, of Accounts with respect to which the
applicable Borrower has complied, to the reasonable satisfaction of Bank, with
the Assignment of Claims Act, 31 USC Section 3727), or (ii) any state of the
United States (exclusive, however, of (y) Accounts owed by any state that does
not have a statutory counterpart to the Assignment of Claims Act, or (z)
Accounts owed by any state that does have a statutory counterpart to the
Assignment of Claims Act as to which the applicable Borrower has complied to
Bank's reasonable satisfaction),
(vii) Accounts with respect to which the Account Debtor is a
creditor of any Borrower, and either has or has asserted a right of setoff, has
disputed its liability, or has made any claim with respect to the Account, to
the extent of such setoff, dispute or claim;
(viii) Accounts with respect to an Account Debtor whose total
obligations owing to any Borrower exceed 20% of all Eligible Accounts, to the
extent of the obligations owing by such Account Debtor in excess of such
percentage;
(ix) Accounts with respect to which the Account Debtor is
subject to an Insolvency Proceeding, is not Solvent, has gone out of business,
or as to which any Borrower
7
has received notice of an imminent Insolvency Proceeding or a material
impairment of the financial condition of such Account Debtor, or whose credit
standing is reasonably unacceptable to Bank and Bank has so notified Borrower;
(x) Accounts the collection of which Bank, in its reasonable
credit judgment, believes to be doubtful by reason of the Account Debtor's
financial condition;
(xi) Accounts which are in default or collection;
(xii) Accounts on C.O.D. terms;
(xiii) Accounts with respect to which the goods giving rise to
such Account have not been shipped and billed to the Account Debtor, the
services giving rise to such Account have not been performed and accepted by the
Account Debtor, or the Account otherwise does not represent a final sale;
(xiv) Accounts that are not subject to a valid and perfected
first priority Lien in favor of Bank;
(xv) Accounts with respect to which the Account Debtor is
located in the states of New Jersey, Minnesota, Indiana, or West Virginia (or
any other state that requires a creditor to file a Business Activity Report or
similar document in order to bring suit or otherwise enforce its remedies
against such Account Debtor in the courts or through any judicial process of
such state), unless the applicable Borrower has qualified to do business in New
Jersey, Minnesota, Indiana, West Virginia, or such other states, or has filed a
Notice of Business Activities Report with the applicable division of taxation,
the department of revenue, or with such other state offices, as appropriate, for
the then-current year, or is exempt from such filing requirement; and
(xvi) Accounts that represent progress payments or other advance
▇▇▇▇▇▇▇▇ that are due prior to the completion of performance by the applicable
Borrower of the subject contract for goods or services.
"Eligible Assignee" means (a) a commercial bank, commercial finance
company or other asset based lender, having total assets in excess of
$1,000,000,000; (b) any Affiliate of Bank, and (c) if an Event of Default
exists, any Person reasonably acceptable to Bank.
"Eligible Inventory" means Inventory consisting of shoes, footwear and
apparel finished goods held for sale in the ordinary course of any Borrower's
business located at one of any Borrower's business locations set forth on
Schedule 1.1E (or in-transit between any such locations), that complies with
each of the representations and warranties respecting Eligible Inventory made by
Borrower in the Loan Documents, and that is not excluded as ineligible by virtue
of the one or more of the criteria set forth below; provided, however, that such
criteria may be fixed and revised from time to time by Bank in Bank's reasonable
credit judgment to address the results of any audit or appraisal performed by
Bank from time to time after the Closing Date. In determining the amount to be
so included, Inventory shall be valued at the lower of cost or market on a basis
consistent with Borrowers' historical accounting practices. An item of Inventory
shall not be included in Eligible Inventory if:
8
(i) a Borrower does not have good, valid, and marketable title
thereto,
(ii) it is not located at one of the locations in the United
States set forth on Schedule 1.1E or in transit from one such location to
another such location,
(iii) it is located on real property leased by a Borrower or in
a contract warehouse, in each case, unless it is subject to a Collateral Access
Agreement executed by the lessor, warehouseman, or other third party, as the
case may be, and unless it is segregated or otherwise separately identifiable
from goods of others, if any, stored on the premises,
(iv) it is not subject to a valid and perfected first priority
Lien in favor of Bank,
(v) it consists of goods returned or rejected by the applicable
Borrower's customers, or
(vi) it consists of goods that are (x) obsolete or not in the
following season's line and more than six (6) months old, (y) restrictive or
custom items, work-in-process, or raw materials, or (z) goods that constitute
spare parts, packaging and shipping materials, supplies used or consumed in a
Borrower's business, ▇▇▇▇ and hold goods, defective goods, "seconds," or
Inventory acquired on consignment.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, or any successor statute, and any and all regulations
thereunder.
"ERISA Event" means (a) a Reportable Event with respect to a Plan or
Multiemployer Plan, (b) the withdrawal of a member of the ERISA Group from a
Plan during a plan year in which it was a substantial employer (as defined in
Section 4001(a)(2) of ERISA), (c) the providing of notice of intent to terminate
a Plan in a distress termination (as described in Section 4041(c) of ERISA), (d)
the institution by the PBGC of proceedings to terminate a Plan or Multiemployer
Plan, (e) any event or condition (i) that provides a basis under Section
4042(a)(1), (2), or (3) of ERISA for the termination of or the appointment of a
trustee to administer, any Plan or Multiemployer Plan, of (ii) that may result
in termination of a Multiemployer Plan pursuant to Section 4041A of ERISA, (f)
the partial or complete withdrawal within the meaning of Sections 4203 and 4205
of ERISA of a member of the ERISA Group from a Multiemployer Plan, or (g)
providing any security to any Plan under Section 401(a)(29) of the Internal
Revenue Code by a member of the ERISA Group.
"ERISA Group" means Borrowers and all members of a controlled group of
corporations and all trades or business (whether or not incorporated) under
common control which, together with Borrowers are treated as a single employer
under Section 414 of the Internal Revenue Code.
"Event of Default" has the meaning set forth in Section 8.1.
9
"Excluded Subsidiaries" means all Subsidiaries of Borrowers that: (i)
are not organized under the laws of any state or any territory of the United
States of America, or (ii) are not wholly owned by any Borrower or any
Subsidiary.
"Expenses" means (i) all out-of-pocket expenses of Bank paid or incurred
in connection with their due diligence and investigation of Borrower, including
appraisal, filing, recording, documentation, publication and search fees and
other such expenses, and all attorneys' fees and expenses (including attorneys'
fees incurred pursuant to proceedings arising under the Bankruptcy Code)
incurred in connection with the structuring, negotiation, drafting, preparation,
execution and delivery of this Agreement, the Loan Documents, and any and all
other documents, instruments and agreements entered into in connection herewith;
(ii) all out-of-pocket expenses of Bank, including attorneys' fees and expenses
(including attorneys' fees incurred pursuant to proceedings arising under the
Bankruptcy Code) paid or incurred in connection with the negotiation,
preparation, execution and delivery of any waiver, forbearance, consent,
amendment or addition to this Agreement or any Loan Document, or the termination
hereof and thereof; (iii) all costs or expenses paid or advanced by Bank which
are required to be paid by Borrowers under this Agreement or the Loan Documents,
including taxes and insurance premiums of every nature and kind of Bank; and
(iv) if an Event of Default occurs, all expenses paid or incurred by Bank,
including attorneys' fees and expenses (including attorneys' fees incurred
pursuant to proceedings arising under the Bankruptcy Code), costs of collection,
suit, arbitration, judicial reference and other enforcement proceedings, and any
other out-of-pocket expenses incurred in connection therewith or resulting
therefrom, whether or not suit is brought, or in connection with any refinancing
or restructuring of the Obligations and the liabilities of Borrowers under this
Agreement, any of the Loan Documents, or any other document, instrument or
agreement entered into in connection herewith in the nature of a workout.
"Fees" means the Late Payment Fee, the Letter of Credit Fees, the Unused
Revolving Commitment Fee and the Audit Fees.
"Financial Statement(s)" means, with respect to any accounting period of
any Person, statements of income and statements of cash flows of such Person for
such period, and balance sheets of such Person as of the end of such period,
setting forth in each case in comparative form figures for the corresponding
period in the preceding fiscal year or, if such period is a full fiscal year,
corresponding figures from the preceding annual audit, all prepared in
reasonable detail and in accordance with GAAP, subject to year-end adjustments
in the case of monthly Financial Statements. Financial Statement(s) shall
include the schedules thereto and annual Financial Statements shall also include
the footnotes thereto.
"Foreign Exchange Agreement" means that certain Foreign Currency
Exchange Master Agreement, dated as of January 11, 2002, between Parent and
Bank, together with all other Bank's standard agreements, instruments and
documents executed by a Borrower in connection therewith.
"Foreign Exchange Reserve" means an amount equal to ten percent (10%) of
the Dollar equivalent of all of Borrower's outstanding Currency Obligations.
10
"Foreign Exchange Sublimit" means Ten Million Dollars ($10,000,000).
"GAAP" means generally accepted accounting principles in the United
States of America, consistently applied, which are in effect as of the date of
this Agreement. If any changes in accounting principles from those in effect on
the date hereof are hereafter occasioned by promulgation of rules, regulations,
pronouncements or opinions by or are otherwise required by the Financial
Accounting Standards Board or the American Institute of Certified Public
Accountants (or successors thereto or agencies with similar functions), and any
of such changes results in a change in the method of calculation of, or affects
the results of such calculation of, any of the financial covenants, standards or
terms found herein, then the parties hereto agree to enter into and diligently
pursue negotiations in order to amend such financial covenants, standards or
terms so as to equitably reflect such changes, with the desired result that the
criteria for evaluating financial condition and results of operations of
Borrower and the Subsidiaries shall be the same after such changes as if such
changes had not been made.
"Governing Documents" means the certificate or articles or certificate
of incorporation, by-laws, articles or certificate of organization, operating
agreement, or other organizational or governing documents of any Person.
"Governmental Authority" means any federal, state, local or other
governmental department, commission, board, bureau, agency, central bank, court,
tribunal or other instrumentality or authority or subdivision thereof, domestic
or foreign, exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
"Guaranties" and "Guaranty" means, individually or collectively as the
context requires, each certain Continuing Guaranty executed by a Guarantor in
favor of Bank.
"Guarantor(s)" means, individually or collectively as the context
requires, all Subsidiaries (other than Excluded Subsidiaries), and every other
Person who hereafter executes a Guaranty in favor of Bank with respect to the
Obligations. On the Closing Date there are no Guarantors.
"Hazardous Materials" means all or any of the following: (a) substances
that are defined or listed in, or otherwise classified pursuant to, any
applicable laws or regulations as hazardous substances, hazardous materials,
hazardous wastes, toxic substances, or any other formulation intended to define,
list, or classify substances by reason of deleterious properties such as
ignitability, corrosivity, reactivity, carcinogenicity, reproductive toxicity,
or EP toxicity or are otherwise regulated for the protection of persons,
property or the environment; (b) oil, petroleum, or petroleum derived
substances, natural gas, natural gas liquids, synthetic gas, drilling fluids,
produced waters, and other wastes associated with the exploration, development,
or production of crude oil, natural gas, or geothermal resources; (c) any
flammable substances or explosives or any radioactive materials; and (d)
asbestos in any form or electrical equipment which contains any oil or
dielectric fluid containing levels of polychlorinated biphenyls in excess of
fifty (50) parts per million.
"Indemnified Person(s)" has the meaning given to such term in Section
10.3(c).
11
"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, but not limited to, assignments for the
benefit of creditors, formal or informal moratoriums, compositions, or
extensions with some or all creditors.
"Intangible Assets" means, with respect to any Person, that portion of
the book value of all of such Person's assets that would be treated as
intangibles under GAAP.
"Interest Payment Date" means:
(i) with respect to each Base Lending Rate Portion, the last day
of each and every month commencing the first such day after the making of such
Loan, and the Revolving Loans Maturity Date; and
(ii) with respect to each LIBOR Lending Rate Portion, the
earlier of: (1) the last day of the Interest Period with respect thereto, or (2)
if the Interest Period has a duration of more than three months, every LIBOR
Business Day that occurs during such Interest Period every three months from the
first day of such Interest Period.
"Interest Period" means, with respect to each LIBOR Lending Rate
Portion, the period commencing on the date of such LIBOR Lending Rate Portion
and ending on the numerically corresponding day one (1), two (2), three (3) or
six (6) months thereafter as Parent may elect pursuant to the applicable Notice
of Borrowing or Notice of Conversion or Continuation; provided, however, that:
(i) any Interest Period which would otherwise end on a day which
is not a LIBOR Business Day shall be extended to the next succeeding LIBOR
Business Day unless such LIBOR Business Day falls in another calendar month in
which case such Interest Period shall end on the immediately preceding LIBOR
Business Day;
(ii) any Interest Period which begins on the last LIBOR Business
Day of the calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest Period)
shall end on the last LIBOR Business Day of the calendar month in which it would
have ended if there were a numerically corresponding day in such calendar month;
and
(iii) no Interest Period may extend beyond the Revolving Loans
Maturity Date.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended from time to time, or any successor statute, and any and all regulations
thereunder.
"Inventory" has the meaning given to such term in the Security
Agreement.
"Inventory Sublimit" means Seven Million Five Hundred Thousand Dollars
($7,500,000).
12
"Inventory Turnover Ratio" means, with respect to any fiscal quarter of
Parent, the ratio of (i) Borrowers' consolidated aggregate cost of all Inventory
sold during such period, to (ii) the Average Quarterly Inventory divided by four
(4). As used herein, "Average Quarterly Inventory" means the result of: (x) the
sum of (1) the consolidated aggregate value of all Inventory as of the first day
of the subject fiscal quarter plus (2) the consolidated aggregate value of all
Inventory as of the last day of the subject fiscal quarter, in each case valued
at the lesser of cost or market value, divided by (y) two (2).
"ISP" means the International Standby Practices (1998 version), and any
subsequent versions or revisions approved by a Congress of the International
Chamber of Commerce Publication 590 and adhered to by Bank.
"Knowledge" has the meaning given to such term in Section 10.9.
"Late Payment Fee" has the meaning given to such term in Section
2.15(b).
"Lending Office" means Bank's office located at its address set forth on
the signature pages hereof, or such other office of Bank as it may hereafter
designate as its Lending Office by notice to Parent.
"Letter(s) of Credit" has the meaning given to such term in Section
3.1(a).
"Letter of Credit Application" means a Commercial Letter of Credit
Application and Agreement or a Standby Letter of Credit Application and
Agreement, as applicable, substantially in the forms of Exhibits 1.1L-1 and
1.1L-2, respectively.
"Letter of Credit Fee" has the meaning given to such term in Section
3.3(a).
"Letter of Credit Sublimit" means Ten Million Dollars ($10,000,000).
"Letter of Credit Usage" means, on any date of determination, the
aggregate maximum amounts available to be drawn under all outstanding Letters of
Credit, without regard to whether any conditions to drawing could then be met.
"LIBOR" means London interbank offered rate.
"LIBOR Business Day" means any Business Day on which major commercial
banks are open for international business (including dealings in Dollar
deposits) in Los Angeles, California and London, England.
"LIBOR Lending Rate" means, with respect to a LIBOR Lending Rate
Portion, the rate per annum (rounded upwards if necessary to the nearest whole
one-hundredth of one percent (.01%)), determined as the sum of: (a) the quotient
of: (i) Base LIBOR for the relevant Interest Period of such LIBOR Lending Rate
Portion; divided by (ii) the number equal to one hundred percent (100%) minus
the LIBOR Reserve Percentage with respect to such Interest Period; plus (b) the
Applicable LIBOR Lending Rate Margin. The LIBOR Lending Rate shall be adjusted
automatically on the effective date of any change in the LIBOR Reserve
Percentage, such adjustment to
13
affect any LIBOR Lending Rate Portion outstanding on such effective date to the
extent such change is applied retroactively to eurocurrency funding of a member
bank in the Federal Reserve System. Each determination of a LIBOR Lending Rate
by Bank, including, but not limited to, any determination as to the
applicability or allocability of reserves to eurocurrency liabilities or as to
the amount of such reserves, shall be conclusive and final in the absence of
manifest error.
"LIBOR Lending Rate Portion" means any portion of any Loan designated by
a Borrower as bearing interest at the LIBOR Lending Rate pursuant to Section 2.5
or 2.6.
"LIBOR Reserve Percentage" means, for any Interest Period of any LIBOR
Lending Rate Portion, the daily average of the stated maximum rate (rounded
upward to the nearest one-hundredth of one percent (.01%)), as determined by
Bank in accordance with its usual procedures (which determination shall be
conclusive in the absence of manifest error), at which reserves are required to
be maintained during such Interest Period by Bank (including supplemental,
marginal, and emergency reserves) under Regulation D by Bank against
Eurocurrency liabilities (as such term is defined in Regulation D), but without
benefit or credit of proration, exemptions, or offsets that might otherwise be
available to Bank from time to time under Regulation D. Without limiting the
generality of the foregoing, LIBOR Reserve Percentage shall include any other
reserves required to be maintained by Bank against (i) any category of
liabilities that includes deposits by reference to which the LIBOR Lending Rate
for a LIBOR Lending Rate Portion is being determined and (ii) any category of
extension of credit or other assets that includes LIBOR Lending Rate Portion.
"Lien" means any mortgage, deed of trust, pledge, security interest,
hypothecation, assignment, deposit arrangement or other preferential
arrangement, charge or encumbrance (including, any conditional sale or other
title retention agreement, or finance lease) of any kind.
"Loan Document(s)" means each of the following documents, instruments,
and agreements individually or collectively, as the context requires:
(i) the Note;
(ii) the Security Agreement;
(iii) the Letter of Credit Applications;
(iv) the Guaranties;
(v) the Stock Pledge Agreement;
(vi) the Patent and Trademark Security Agreements;
(vii) the Foreign Exchange Agreement; and
(viii) such other documents, instruments, and agreements
(including intellectual property security agreements, control agreements,
financing statements and fixture filings) as Bank may reasonably request in
connection with the transactions contemplated hereunder or to perfect or protect
the liens and security interests granted to Bank in connection herewith.
14
"Loans" means the Revolving Loans (each, a "Loan").
"Material Adverse Effect" means a material adverse effect on (i) the
business, Assets, condition (financial or otherwise), or results of operations
of the Borrower and the Subsidiaries taken as a whole; (ii) the ability of any
Borrower to perform its obligations under this Agreement and the Loan Documents
to which it is a party (including, without limitation, repayment of the
Obligations as they come due), or the ability of any Guarantor to perform its
obligations under the Loan Documents to which it is a party, (iii) the validity
or enforceability of this Agreement, the Loan Documents, or the rights or
remedies of Bank hereunder and thereunder, (iv) the value of the Assets (taken
as a whole) assigned or pledged to Bank as collateral, or (v) the priority of
Bank's Liens with respect to the Assets assigned or pledged thereto as
collateral.
"Multiemployer Plan" means a multiemployer plan as defined in Section
4001(a)(3) of ERISA or Section 3(37) of ERISA to which any member of the ERISA
Group has contributed, or was obligated to contribute, within the preceding six
plan years (while a member of such ERISA Group) including for these purposes any
Person which ceased to be a member of the ERISA Group during such six year
period.
"Net Cash Proceeds" means in connection with any Asset Sale, the cash
proceeds (including any cash payments received by way of deferred payment
whether pursuant to a note, installment receivable or otherwise, but only as and
when actually received) from such Asset Sale, less any proceeds used to replace
the Asset which is the subject of the Asset Sale and net of (i) attorneys' fees,
accountants' fees, investment banking fees, brokerage commissions and amounts
required to be applied to the repayment of any portion of the Debt secured by a
Lien not prohibited hereunder on any Asset which is the subject of such sale,
(ii) other customary fees, expenses and commissions incurred in connection with
the Asset Sale, and (iii) taxes paid or reasonably estimated to be payable as a
result of such Asset Sale.
"Note" means, the Secured Promissory Note, dated as of even date
herewith, executed by Borrowers to the order of Bank, in the principal amount of
Twenty Million Dollars ($20,000,000).
"Notice of Borrowing" means an irrevocable notice from a Borrower to
Bank of such Borrower's request for a Borrowing pursuant to the terms of Section
2.5, substantially in the form of Exhibit 2.5(b).
"Notice of Conversion or Continuation" means a written notice given
pursuant to the terms of Section 2.6(b), substantially in the form of Exhibit
2.6(b).
"Obligations" means any and all indebtedness, liabilities, and
obligations of Borrower owing to Bank and to its successors and assigns,
previously, now, or hereafter incurred, and howsoever evidenced, whether direct
or indirect, absolute or contingent, joint or several, liquidated or
unliquidated, voluntary or involuntary, due or not due, legal or equitable,
whether incurred before, during, or after any Insolvency Proceeding and whether
recovery thereof is or becomes barred by a statute of limitations or is or
becomes otherwise unenforceable or unallowable as claims in any Insolvency
Proceeding, together with all interest thereupon (including interest under
15
Section 2.4(b) and including any interest that, but for the provisions of the
Bankruptcy Code, would have accrued during the pendency of an Insolvency
Proceeding. The Obligations shall include, without limiting the generality of
the foregoing, all principal and interest owing under the Loans, all
Reimbursement Obligations, all Expenses, the Fees, any other fees and expenses
due hereunder and under the Loan Documents (including any fees or expenses that,
but for the provisions of the Bankruptcy Code, would have accrued during the
pendency of an Insolvency Proceeding), and all other indebtedness evidenced by
this Agreement and/or the Loan Documents.
"Old Lender" means Congress Financial Corporation (Western).
"Overadvance" has the meaning set forth in Section 2.1(c).
"Participant" has the meaning set forth in Section 10.5(d).
"Patent and Trademark Security Agreement" means each certain Patent and
Trademark Security Agreement now or hereafter entered into by any Borrower and
Bank.
"Pay-Off Letter" means that certain letter, in form and substance
reasonably satisfactory to Bank, from Old Lender respecting the amount necessary
to repay in full all of the obligations of Borrowers or any Subsidiary owing to
Old Lender and obtain a termination or release of all of the Liens existing in
favor of Old Lender in and to the Assets of Borrowers and such Subsidiaries.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Permitted Debt" means (i) Debt owing to Bank in accordance with the
terms of this Agreement and the Loan Documents, (ii) Debt listed on Schedule
5.6, but no renewals, extensions or refinancings thereof, (iii) Debt up to a
maximum aggregate amount of Five Hundred Thousand Dollars ($500,000) outstanding
at any one time incurred in the ordinary course of business, (iv) trade
obligations and normal accruals in the ordinary course of its business not yet
due and payable, or with respect to which such Borrower is contesting in good
faith the amount of validity thereof by appropriate proceedings diligently
pursued and available to such Borrower, and (v) obligations or indebtedness
owing to another Borrower or Subsidiary to the extent permitted by Section 7.8,
and (vi) Debt issued in connection with Parent's exercise of its purchase option
as set forth in the Teva Option Agreement, provided that such Debt is on terms
and conditions, and in such amount, satisfactory to Bank in its sole and
absolute discretion, and is subordinated to the Obligations on terms and
conditions satisfactory to Bank in its sole and absolute discretion.
"Permitted Investments" means any of the following investments
denominated and payable in Dollars, maturing within one year from the date of
acquisition, selected by a Borrower: (i) marketable direct obligations issued or
unconditionally guaranteed by the United States government or issued by any
agency thereof and backed by the full faith and credit of the United States;
(ii) marketable direct obligations issued by any state of the United States or
any political subdivision of any such state or any public instrumentality
thereof and, at the time of acquisition, having a credit rating obtainable from
Standard & Poor's Corporation ("S&P") of not less than A-1
16
or not less than P-1 from ▇▇▇▇▇'▇ Investors Service, Inc. ("Moody's"); (iii)
commercial paper or corporate promissory notes bearing at the time of
acquisition a credit rating of S&P of not less than A-1 or not less than P-1
from Moody's issued by United States, Canadian, European or Japanese bank
holding companies or industrial or financial companies, with maturities of 180
days or less; (iv) certificates of deposit issued by and bankers acceptances of
and interest bearing deposits with Bank; and (v) money market funds organized
under the laws of the United States or any state thereof that invest
predominantly in any of the foregoing investments permitted under clauses (i),
(ii), (iii) and (iv).
"Permitted Liens" means (i) Liens for current taxes, assessments or
other governmental charges which are not delinquent or remain payable without
any penalty, or are being contested in good faith by appropriate proceedings,
provided that, if delinquent, adequate reserves have been set aside with respect
thereto as required by GAAP and, by reason of nonpayment, no property is subject
to a material risk of loss or forfeiture; (ii) Liens in favor of Bank, in
accordance with the Loan Documents, (iii) statutory Liens, such as inchoate
mechanics', inchoate materialmen's, landlord's, warehousemen's, and carriers'
liens, and other similar liens, other than those described in clause (i) above,
arising in the ordinary course of business with respect to obligations which are
not delinquent or are being contested in good faith by appropriate proceedings,
provided that, if delinquent, adequate reserves have been set aside with respect
thereto as required by GAAP and, by reason of nonpayment, no property is subject
to a material risk of loss or forfeiture; (iv) Liens relating to Capital Lease
Obligations permitted hereunder and Liens securing any leases permitted in
Section 7.5, (v) judgment Liens that do not constitute an Event of Default under
Section 8.1(i), and (vi) Liens, if they constitute such, of any true lease and
consignment UCC filings permitted hereunder, and (vii) Purchase Money Liens
securing Debt described in clauses (ii) and (iii) of the definition of
"Permitted Debt" hereinabove.
"Person" means and includes natural persons, corporations, limited
partnerships, general partnerships, limited liability companies, limited
liability partnerships, joint stock companies, joint ventures, associations,
companies, trusts, banks, trust companies, 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 in which any personnel of any member of the ERISA Group participate or
from which any such personnel may derive a benefit or with respect to which any
member of the ERISA Group may incur liability, excluding any Multiemployer Plan,
but including any plan either established or maintained by any member of the
ERISA Group or to which such Person contributes under the laws of any foreign
country.
"Purchase Money Lien" means a Lien on any item of equipment of a
Borrower; provided that (i) such Lien attaches only to that Asset and (ii) the
purchase-money obligation secured by such item of equipment does not exceed one
hundred percent (100%) of the purchase price of such item of equipment.
17
"Quick Ratio" means, as of the date of determination, the ratio of (i)
Borrowers' consolidated accounts receivable plus Borrowers' consolidated cash on
hand and marketable securities, to (ii) Current Liabilities plus outstanding
Revolving Loans.
"Regulation D" means Regulation D of the Board of Governors of the
Federal Reserve System, as such regulation may be amended or supplemented from
time to time.
"Reimbursement Obligations" means the obligations of Borrowers to
reimburse Bank pursuant to Section 3.4 amounts drawn under Letters of Credit.
"Reportable Event" means any of the events described in Section 4043(c)
of ERISA other than a Reportable Event as to which the provision of 30 days
notice to the PBGC is waived under applicable regulations.
"Responsible Officer" means either the Chief Executive Officer, Chief
Financial Officer or Controller of a Person, or such other officer, employee, or
Bank of such Person designated by a Responsible Officer in a writing delivered
to Bank.
"Retiree Health Plan" means an employee welfare benefit plan within the
meaning of Section 3(1) of ERISA that provides benefits to individuals after
termination of their employment, other than as required by Section 601 of ERISA.
"Revolving Credit Commitment" means Twenty Million Dollars
($20,000,000).
"Revolving Loans" has the meaning given to such term in Section 2.1.
"Revolving Loans Daily Balances" means the amount determined by taking
the amount of the obligations owed under the Revolving Loans at the beginning of
a given day, adding any new Revolving Loans advanced or incurred on such date,
and subtracting any payments or collections on the Revolving Loans which are
deemed to be paid on that date under the provisions of this Agreement.
"Revolving Loans Maturity Date" means June 1, 2004.
"SEC" means United States Securities and Exchange Commission.
"Security Agreement" means that certain Security Agreement, dated as of
even date herewith, among Borrowers and Bank.
"Shareholder" means a shareholder of any Borrower.
"Solvent" means, with respect to any Person on the date any
determination thereof is to be made, that on such date: (a) the present fair
valuation of the Assets of such Person is greater than such Person's probable
liability in respect of existing debts; (b) such Person does not intend to, and
does not believe that it will, incur debts beyond such Person's ability to pay
as such debts mature; and (c) such Person is not engaged in business or a
transaction, and is not about to engage in business or a transaction, which
would leave such Person with Assets remaining which would
18
constitute unreasonably small capital after giving effect to the nature of the
particular business or transaction. For purposes of this definition (i) the fair
valuation of any property or assets means the amount realizable within a
reasonable time, either through collection or sale of such Assets at their
regular market value, which is the amount obtainable by a capable and diligent
Person from an interested buyer willing to purchase such property or assets
within a reasonable time under ordinary circumstances; and (ii) the term debts
includes any payment obligation, whether or not reduced to judgment, equitable
or legal, matured or unmatured, liquidated or unliquidated, disputed or
undisputed, secured or unsecured, absolute, fixed or contingent.
"Stock Pledge Agreement" means that certain Security Agreement-Stock
Pledge, dated as of even date herewith, between Parent and Bank.
"Subsidiary" means any corporation, limited liability company,
partnership, trust or other entity (whether now existing or hereafter organized
or acquired) of which any Borrower or one or more Subsidiaries of any Borrower
at the time owns or controls directly or indirectly more than 50% of the shares
of stock or partnership or other ownership interest having general voting power
under ordinary circumstances to elect a majority of the board of directors,
managers or trustees or otherwise exercising control of such corporation,
limited liability company, partnership, trust or other entity (irrespective of
whether at the time stock or any other form of ownership of any other class or
classes shall have or might have voting power by reason of the happening of any
contingency).
"Swaps" means payment obligations with respect to interest rate swaps,
currency swaps and similar obligations obligating a Person to make payments,
whether periodically or upon the happening of a contingency. For the purposes of
this Agreement, the amount of the obligation under any Swap shall be the amount
determined, in respect thereof as of the end of the then most recently ended
fiscal quarter of Borrowers, based on the assumption that such Swap had
terminated at the end of such fiscal quarter, and in making such determination,
if any agreement relating to such Swap provides for the netting of amounts
payable by and to each party thereto or if any such agreement provides for the
simultaneous payment of amounts by and to each party, then in each such case,
the amount of such obligation shall be the net amount so determined.
"Taxes" has the meaning set forth in Section 9.1.
"Teva License Agreement" means that certain Teva License Agreement,
dated June 7, 1999, between ▇▇▇▇ ▇▇▇▇▇▇▇▇, as licensor, and Parent, as licensee,
wherein Parent licensed the right to manufacture, distribute, sell and advertise
the Licensed Products (as defined therein) under the Teva(R) brand name.
"Teva Option Agreement" means that certain Intellectual Property Option
Agreement, dated June 7, 1999, between ▇▇▇▇ ▇▇▇▇▇▇▇▇ and Parent.
"UCC" means the California Uniform Commercial Code, as amended or
supplemented from time to time.
19
"Uniform Customs" means the Uniform Customs and Practice for Documentary
Credits (1993 Revision), International Chamber of Commerce Publication No. 500,
as the same may be amended from time to time.
"Unmatured Event of Default" means any condition or event which with the
giving of notice or lapse of time or both would, unless cured or waived, become
an Event of Default.
"Unused Revolving Commitment Fee" has the meaning set forth in Section
2.15(a).
1.2 Accounting Terms and Determinations. Unless otherwise specified
herein, all accounting terms used herein shall be interpreted, all accounting
determinations hereunder shall be made, and all financial statements required to
be delivered hereunder shall be prepared in accordance with GAAP.
1.3 Computation of Time Periods. In this Agreement, with respect to the
computation of periods of time from a specified date to a later specified date,
the word from means from and including and the words to and until each mean to
but excluding. Periods of days referred to in this Agreement shall be counted in
calendar days unless otherwise stated.
1.4 Construction. Unless the context of this Agreement clearly requires
otherwise, references to the plural include the singular and to the singular
include the plural, references to any gender include any other gender, the part
includes the whole, the term including is not limiting, and the term or has,
except where otherwise indicated, the inclusive meaning represented by the
phrase and/or. References in this Agreement to determination by Bank include
good faith estimates by Bank (in the case of quantitative determinations), and
good faith beliefs by Bank (in the case of qualitative determinations). The
words hereof, herein, hereby, hereunder, and similar terms in this Agreement
refer to this Agreement as a whole and not to any particular provision of this
Agreement. Article, section, subsection, clause, exhibit and schedule references
are to this Agreement, unless otherwise specified. Any reference in this
Agreement or any of the Loan Documents to this Agreement or any of the Loan
Documents includes any and all permitted alterations, amendments, changes,
extensions, modifications, renewals, or supplements thereto or thereof, as
applicable.
1.5 Exhibits and Schedules. All of the exhibits and schedules attached
hereto shall be deemed incorporated herein by reference.
1.6 No Presumption Against Any Party. Neither this Agreement, any of the
Loan Documents, any other document, agreement, or instrument entered into in
connection herewith, nor any uncertainty or ambiguity herein or therein shall be
construed or resolved using any presumption against any party hereto, whether
under any rule of construction or otherwise. On the contrary, this Agreement,
the Loan Documents, and the other documents, instruments, and agreements entered
into in connection herewith have been reviewed by each of the parties and their
counsel and shall be construed and interpreted according to the ordinary
meanings of the words used so as to accomplish fairly the purposes and
intentions of all parties hereto.
20
1.7 Independence of Provisions. All agreements and covenants hereunder,
under the Loan Documents, and the other documents, instruments, and agreements
entered into in connection herewith shall be given independent effect such that
if a particular action or condition is prohibited by the terms of any such
agreement or covenant, the fact that such action or condition would be permitted
within the limitations of another agreement or covenant shall not be construed
as allowing such action to be taken or condition to exist.
ARTICLE II
TERMS OF THE CREDIT
2.1 Revolving Loans. Provided that no Event of Default or Unmatured
Event of Default has occurred and is continuing, and subject to the other terms
and conditions hereof, Bank agrees to make revolving loans ("Revolving Loans")
to Borrowers, upon notice in accordance with Section 2.5(b), from the Closing
Date up to but not including the Revolving Loans Maturity Date, the proceeds of
which shall be used only for the purposes allowed in Section 7.1(a), subject to
the following conditions and limitations:
(a) The outstanding ABL Triggering Obligations after giving
effect to any proposed Borrowing shall not exceed the Revolving Credit
Commitment; provided, however, during each and every ABL Borrowing Period, the
outstanding ABL Triggering Obligations after giving effect to any proposed
Borrowing shall not exceed the Borrowing Base;
(b) Borrowers shall not be permitted to borrow, and Bank shall
not be obligated to make, any Revolving Loans to Borrowers, unless and until all
of the conditions for a Borrowing set forth in Section 4.2 have been met to the
reasonable satisfaction of Bank; and
(c) If, at any time or for any reason, the amount of the ABL
Triggering Obligations is in excess of the ABL Trigger Amount and exceeds the
Borrowing Base (an "Overadvance"), Borrowers shall immediately pay to Bank, upon
Bank's election and demand, in cash, the amount of such Overadvance to be used
by Bank to repay outstanding Borrowings.
Borrowers may repay and, subject to the terms and conditions
hereof, reborrow Revolving Loans. All such repayments shall be without penalty
or premium except as otherwise required by Section 2.7 with respect to
repayments of LIBOR Lending Rate Portions. Borrowers shall give Bank at least
three (3) LIBOR Business Days' prior written notice of any repayment of a LIBOR
Lending Rate Portion. On the Revolving Loans Maturity Date, Borrowers shall pay
to Bank the entire unpaid principal balance of the Revolving Loans together with
all accrued but unpaid interest thereon.
2.2 Foreign Exchange Forward Contracts. Provided that no Event of
Default or Unmatured Event of Default has occurred and is continuing, and
subject to the other terms and conditions of this Agreement and the Foreign
Exchange Agreement, Parent may incur Currency Obligations from time to time from
the Closing Date up to but not including the Revolving Loans Maturity Date,
subject to the following conditions and limitations:
21
(a) Tenors for Parent's Currency Obligations shall not exceed
the lesser of 365 days and the Revolving Loans Maturity Date;
(b) The aggregate amount of Parent's Currency Obligations
outstanding at any one time after giving effect to any proposed incurrence of a
Currency Obligation by Parent shall not exceed the Foreign Exchange Sublimit;
(c) The outstanding ABL Triggering Obligations after giving
effect to any proposed incurrence of a Currency Obligation by Parent shall not
exceed the Revolving Credit Commitment; provided, however, during each and every
ABL Borrowing Period, the outstanding ABL Triggering Obligations after giving
effect to such proposed incurrence of a Currency Obligation by Parent shall not
exceed the Borrowing Base;
(d) The Currency Obligations shall be incurred by Parent only
for international transactions incurred in the ordinary course of business; and
(e) In connection with all Currency Obligations, Borrowers shall
pay all amounts due to Bank, including all fees, charges and expenses, in
accordance with the terms of the Foreign Exchange Agreement.
2.3 Reserved.
2.4 Interest Rates; Payments of Interest.
(a) Interest Rate Options.
(i) Revolving Loans. Subject to the terms and conditions
hereof, all Revolving Loans, or portions thereof, may be outstanding as either
Base Lending Rate Portions or LIBOR Lending Rate Portions, by designating, in
accordance with Sections 2.5(b) and 2.6(b), either the Base Lending Rate or the
LIBOR Lending Rate to apply to all or any portion of the unpaid principal
balance of the Revolving Loans.
(ii) Limitations on LIBOR Lending Rate Portions. There
shall be no more than three (3) LIBOR Lending Rate Portions outstanding at any
time. LIBOR Lending Rate Portions shall be in minimum aggregate amounts each of
One Million Dollars ($1,000,000).
(b) Default Rate. Upon the occurrence and during the continuance
of an Event of Default, in addition to and not in substitution of any of Bank's
other rights and remedies with respect to such Event of Default, the entire
unpaid principal balance of the Loans shall bear interest at the otherwise
applicable rate plus three hundred (300) basis points. In addition, interest,
Expenses, the Fees, and other amounts due hereunder not paid when due shall bear
interest at the Base Lending Rate plus three hundred (300) basis points until
such overdue payment is paid in full.
(c) Computation of Interest. All computations of interest shall
be calculated on the basis of a year of three hundred sixty (360) days for the
actual days elapsed. In the event that the Base Rate announced is, from time to
time, changed, adjustment in the rate of interest payable hereunder on all Base
Lending Rate Portions shall be made as of 12:01 a.m. (Pacific time)
22
on the effective date of the change in the Base Rate. Interest shall accrue from
the Closing Date to the date of repayment of the Loans in accordance with the
provisions of this Agreement; provided, however, if a Loan is repaid on the same
day on which it is made, then one (1) day's interest shall be paid on that Loan.
Any and all interest not paid when due shall thereafter be deemed to be a
Revolving Loan as a Base Lending Rate Portion made under Section 2.1 and shall
bear interest thereafter as provided for in Section 2.4(b).
(d) Change in Applicable Base Lending Rate Margin and Applicable
LIBOR Lending Rate Margin. Changes in the Applicable Base Lending Rate Margin
and Applicable LIBOR Lending Rate Margin resulting from a change in the
Consolidated Total Liabilities to Consolidated Effective Tangible Net Worth
Ratio, shall become effective on the first day of the calendar month following
Bank's receipt of the latest Compliance Certificate, and shall be based on the
Consolidated Total Liabilities to Consolidated Effective Tangible Net Worth
Ratio disclosed in such Compliance Certificate; provided, however, for purposes
of determining the aforementioned margins, (i) until such time as Parent has
delivered to Bank the first accurately completed Compliance Certificate when due
hereunder, the Consolidated Total Liabilities to Consolidated Effective Tangible
Net Worth Ratio shall be presumed to be less than 0.50:1.0 until the applicable
Compliance Certificate has been so completed and delivered to Bank, and (ii) if
Parent fails to deliver to Bank an accurately completed Compliance Certificate
when due hereunder, the Consolidated Total Liabilities to Consolidated Effective
Tangible Net Worth Ratio shall be conclusively presumed to be greater than
0.75:1.0 until the applicable Compliance Certificate has been so completed and
delivered to Bank. No reduction in the Applicable Base Lending Rate Margin or
Applicable LIBOR Lending Rate Margin shall be granted if an Event of Default has
occurred and is continuing.
(e) Maximum Interest Rate. In no event shall the interest rate
and other charges hereunder exceed the highest rate permissible under any law
which a court of competent jurisdiction shall, in a final determination, deem
applicable hereto. In the event that such a court determines that Bank has
received interest and other charges hereunder in excess of the highest rate
applicable hereto, such excess shall be deemed received on account of, and shall
automatically be applied to reduce, the Obligations, other than interest, in the
inverse order of maturity, and the provisions hereof shall be deemed amended to
provide for the highest permissible rate. If there are no Obligations
outstanding, Bank shall refund to Borrowers such excess.
(f) Payments of Interest. All accrued but unpaid interest on the
Loans, calculated in accordance with this Section 2.4, shall be due and payable,
in arrears, on each and every Interest Payment Date.
2.5 Notice of Borrowing Requirements.
(a) Each Borrowing of a Base Lending Rate Portion shall be made
on a Business Day and each Borrowing of a LIBOR Lending Rate Portion shall be
made on a LIBOR Business Day.
(b) Each Borrowing shall be made upon telephonic notice given by
a Responsible Officer of a Borrower, followed by a Notice of Borrowing, given by
facsimile or
23
personal service, delivered to Bank at the address set forth in the Notice of
Borrowing. If for a Base Lending Rate Portion, Bank shall be given such notice
no later than 11:00 a.m., Pacific time, one (1) Business Day prior to the day on
which such Borrowing is to be made, and, if for a LIBOR Lending Rate Portion,
Bank shall be given notice no later than 9:00 a.m., Pacific time, three (3)
LIBOR Business Days prior to the day on which such Borrowing is to be made, and
such notice shall state the amount and purpose thereof (subject to the
provisions of Section 2.1).
(c) Bank shall not incur any liability to Borrowers in acting
upon any telephonic notice which Bank believes in good faith to have been given
by a Responsible Officer of any Borrower, or for otherwise acting in good faith
under this Section 2.5, and in making any Loans pursuant to telephonic notice.
(d) So long as all of the conditions for a Borrowing of a Loan
set forth herein have been satisfied, Bank shall credit the proceeds of such
Loan on the applicable Borrowing date into Borrowers' general deposit account
number 1891922658 maintained with Bank.
2.6 Conversion or Continuation Requirements.
(a) Parent shall have the option to: (i) convert, at any time,
all or any portion of any of the outstanding Loans, subject to the limitations
and requirements of Section 2.4(a), from a portion bearing interest at one of
the interest rate options available pursuant to Section 2.4(a) to another; or
(ii) upon the expiration of any Interest Period applicable to a LIBOR Lending
Rate Portion, to continue all or any portion of such LIBOR Lending Rate Portion
as a LIBOR Lending Rate Portion with the succeeding Interest Period(s) of such
continued LIBOR Lending Rate Portion commencing on the expiration date of the
Interest Period previously applicable thereto, subject in the following
limitations:
(i) a LIBOR Lending Rate Portion may only be converted
to a Base Lending Rate Portion or continued as a LIBOR Lending Rate Portion on
the expiration date of the Interest Period applicable thereto;
(ii) no outstanding Loan, or portion thereof, may be
continued as, or be converted into, a LIBOR Lending Rate Portion in the event
that, on the earlier of the date of the delivery of the Notice of Conversion or
Continuation or the telephonic notice in respect thereof, any Event of Default
or Unmatured Event of Default has occurred and is continuing;
(iii) if Parent fails to deliver the appropriate Notice
of Conversion or Continuation or the telephonic notice in respect thereof
pursuant to the required notice period before the expiration of the Interest
Period of a LIBOR Lending Rate Portion, such LIBOR Lending Rate Portion shall
automatically be converted to a Base Lending Rate Portion; and
(iv) no outstanding Loan may be continued as, or be
converted into, a LIBOR Lending Rate Portion in the event that, after giving
effect to any such conversion or continuation, there would be more than three
(3) LIBOR Lending Rate Portions outstanding.
(b) Parent shall give telephonic notice of any proposed
continuation or conversion pursuant to this Section 2.6 followed by a Notice of
Conversion or Continuation, given
24
by facsimile or personal service, delivered to Bank at the address set forth in
the Notice of Conversion or Continuation, no later than 11:00 a.m., Pacific
time, on the Business Day which is the proposed conversion date (in the case of
a conversion to a Base Lending Rate Portion) and no later than 9:00 a.m.,
Pacific time, three (3) LIBOR Business Days in advance of the proposed
conversion or continuation date (in the case of a conversion to, or a
continuation of, a LIBOR Lending Rate Portion). If such Notice of Conversion or
Continuation is received by Bank not later than 11:00 a.m., Pacific time, on a
LIBOR Business Day, such day shall be treated as the first LIBOR Business Day of
the required notice period. In any other event, such notice will be treated as
having been received at the opening of business of the next LIBOR Business Day.
A Notice of Conversion or Continuation shall specify: (1) the proposed
conversion or continuation date (which shall be a Business Day or a LIBOR
Business Day, as applicable); (2) the amount of the Revolving Loan to be
converted or continued; (3) the nature of the proposed conversion or
continuation; and (4) in the case of a conversion to or continuation of a LIBOR
Lending Rate Portion, the requested Interest Period.
(c) Bank shall not incur any liability to Borrowers in acting
upon any telephonic notice referred to above which Bank believes in good faith
to have been given by a Responsible Officer of Parent or for otherwise acting in
good faith under this Section 2.6. Any Notice of Conversion or Continuation (or
telephonic notice in respect thereof) shall be irrevocable and Borrowers shall
be bound to convert or continue in accordance therewith.
2.7 Additional Costs.
(a) Borrowers shall reimburse Bank for any increase in Bank's
costs (which shall include, but not be limited to, taxes, other than taxes
imposed on the overall net income of Bank, fees or charges), or any loss or
expense (including, without limitation, any loss or expense incurred by reason
of the liquidation or re-employment of deposits or other funds acquired by Bank
to fund or maintain outstanding the principal amount of the Loans) incurred by
it directly or indirectly resulting from the making of any LIBOR Lending Rate
Portion due to: (i) the modification, adoption, or enactment of any law, rule,
regulation or treaty or the interpretation thereof by any governmental or other
authority (whether or not having the force of law) which becomes effective after
the date hereof; (ii) the modification or new application of any law, regulation
or treaty or the interpretation thereof by any governmental or other authority
(whether or not having the force of law) which becomes effective after the date
hereof; (iii) compliance by Bank with any request or directive (whether or not
having the force of law) of any monetary or fiscal agency or authority which
becomes effective after the date hereof; (iv) violations by Borrowers of the
terms of this Agreement; or (v) any prepayment of a LIBOR Lending Rate Portion
at any time prior to the end of the applicable Interest Period, including
pursuant to Section 8.2.
(b) The amount of such costs, losses, or expenses shall be
determined solely by Bank based upon the assumption that Bank funded one hundred
percent (100%) of each LIBOR Lending Rate Portion in the LIBOR market. In
attributing Bank's general costs relating to its eurocurrency operations to any
transaction under this Agreement or averaging any costs over a period of time,
Bank may use any reasonable attribution or averaging methods which it deems
appropriate and practical. Bank shall notify Borrowers of the amount due Bank
pursuant to this Section 2.7 and Borrowers shall pay to Bank the amount due
within fifteen (15) days of its receipt
25
of such notice. A certificate as to the amounts payable pursuant to the
foregoing sentence together with whatever detail is reasonably available to Bank
shall be submitted by such Bank to Borrowers. Such determination shall, if not
objected to within ten (10) days, be conclusive and binding upon Borrowers in
the absence of manifest error. If Bank claims increased costs, loss, or expenses
pursuant to this Section 2.7, then Bank, if requested by Borrower, shall use
reasonable efforts to take such steps that Borrowers reasonably requests,
including designating different Lending Offices, as would eliminate or reduce
the amount of such increased costs, losses, or expenses, so long as taking such
steps would not, in the reasonable judgment of Bank, otherwise be
disadvantageous to Bank. Any recovery by Bank or its Lending Office of amounts
previously borne by Borrowers pursuant to this Section 2.7 shall be promptly
remitted, without interest (unless Bank received interest on such recovered
amounts), to Borrowers by such Bank.
2.8 Illegality; Impossibility. Notwithstanding anything herein to the
contrary, if Bank determines (which determination shall be conclusive absent
manifest error) that any law, rule, regulation, treaty or directive, or any
change therein, or any change in the interpretation or administration thereof by
any Governmental Authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by Bank (or its Lending
Office) with any request or directive (whether or not having the force of law)
of any such authority, central bank or comparable agency shall make it unlawful
or impossible for Bank (or its Lending Office) to fund or maintain a LIBOR
Lending Rate Portion in the LIBOR market or to continue such funding or
maintaining, then Bank shall give notice of such circumstances to Borrowers and
(i) in the case of each and every LIBOR Lending Rate Portion which is
outstanding, Borrowers shall, if requested by Bank, prepay such LIBOR Lending
Rate Portion(s) on or before the date specified in such request, together with
interest accrued thereon, and the date so specified shall be deemed to be the
last day of the Interest Period of that LIBOR Lending Rate Portion, and
concurrent with any such prepayment, Bank shall make a Base Lending Rate Portion
to Borrowers in the principal amount equal to the principal amount of the LIBOR
Lending Rate Portions so prepaid, and (ii) Bank shall not be obligated to make
any further LIBOR Lending Rate Portions until Bank determines that it would no
longer be unlawful or impossible to do so.
2.9 Disaster. Notwithstanding anything herein to the contrary, if Bank
determines (which determination shall be conclusive absent manifest error) that
(i) Bank is unable to determine the LIBOR Lending Rate with respect to any
Notice of Borrowing or Notice of Conversion or Continuation selecting the LIBOR
Lending Rate because quotations of interest rates for the relevant deposits are
not being provided in the relevant amounts or for the relative maturities or
(ii) the LIBOR Lending Rate will not adequately reflect the cost to Bank of
making or funding LIBOR Lending Rate Portions, then (x) the right of Borrowers
to select the LIBOR Lending Rate shall be suspended until Bank notifies
Borrowers that the circumstances causing such suspension no longer exist, and
(y) Borrowers shall repay in full the then outstanding principal balance of all
LIBOR Lending Rate Portions, together with interest accrued thereon, on the last
day of the Interest Period applicable to each such LIBOR Lending Rate Portion,
and concurrent with any such prepayment, Bank shall make a Base Lending Rate
Portion to Borrowers in the principal amount equal to the principal amount of
the LIBOR Lending Rate Portions so repaid.
26
2.10 Increased Risk-Based Capital Cost. If the amount of capital
required or expected to be maintained by Bank or any Person directly or
indirectly owning or controlling Bank (each a "Control Person"), shall be
affected by:
(a) the introduction or phasing in of any law, rule or
regulation after the date hereof;
(b) any change after the date hereof in the interpretation of
any existing law, rule or regulation by any central bank or United States or
foreign governmental authority charged with the administration thereof; or
(c) compliance by Bank or such Control Person with any
directive, guideline or request from any central bank or United States or
foreign governmental authority (whether or not having the force of law)
promulgated or made after the date hereof, and Bank shall have reasonably
determined that such introduction, phasing in, change or compliance shall have
had or will thereafter have the effect of reducing (x) the rate of return on
Bank's or such Control Person's capital, or (y) the asset value to Bank or such
Control Person of the Loans made or maintained by Bank, in either case to a
level below that which Bank or such Control Person could have achieved or would
thereafter be able to achieve but for such introduction, phasing in, change or
compliance (after taking into account Bank's or such Control Person's policies
regarding capital), in either case by an amount which Bank in its reasonable
judgment deems material, then, on demand by Bank, Borrowers shall pay to Bank or
such Control Person such additional amount or amounts as shall be sufficient to
compensate Bank or such Control Person, as the case may be, for such reduction.
2.11 Note; Statements of Obligations. The Loans and Borrowers'
obligation to repay the same shall be evidenced by the Note, this Agreement and
the books and records of Bank. Bank shall render monthly statements of the Loans
to Borrowers, including statements of all principal and interest owing on the
Loans, and all Fees and Expenses owing, and such statements (absent manifest
error) shall be presumed to be correct and accurate and constitute an account
stated between Borrower and Bank's unless, within thirty (30) days after receipt
thereof by Parent, Parent delivers to Bank, at the address specified in Section
10.1, written objection thereof specifying the error or errors, if any,
contained in any such statement.
2.12 Holidays. Any principal or interest in respect of the Loans (other
than in respect of a LIBOR Lending Rate Portion) which would otherwise become
due on a day other than a Business Day, shall instead become due on the next
succeeding Business Day and such adjustment shall be reflected in the
computation of interest; provided, however, that in the event that such due date
shall, subsequent to the specification thereof by Bank, for any reason no longer
constitute a Business Day, Bank may change such specified due date in accordance
with this Section 2.12.
2.13 Time and Place of Payments.
(a) All payments due hereunder shall be made available to Bank
in immediately available Dollars, not later than 12:00 p.m., Pacific time, on
the day of payment, to the following address or such other address as Bank may
from time to time specify by notice to Parent:
27
Comerica Bank -- California
▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇
(b) Borrowers hereby authorizes Bank to charge Borrowers'
general demand deposit account number 1891922658 with Bank, or any other demand
deposit account maintained by any Borrower with Bank, for the amount of any
payment due or past due hereunder or under any Loan Document, for the full
amount thereof. Should there be insufficient funds in any such demand deposit
account to pay all such sums when due, the full amount of such deficiency shall
be immediately due and payable in cash by Borrowers.
(c) In addition, Borrowers hereby authorizes Bank at its option,
without prior notice to Borrowers, to advance a Revolving Loan as a Base Lending
Rate Portion for any payment due or past due hereunder, including principal and
interest owing on the Loans, the Fees and all Expenses, and to pay the proceeds
of such Revolving Loan to Bank for application toward such due or past due
payment.
2.14 Mandatory Principal Reductions. Each Borrower shall pay to Bank, on
the first Business Day following such Borrower's receipt thereof, one hundred
percent (100%) of the Net Cash Proceeds derived from each and all of its Asset
Sales (except to the extent such Net Cash Proceeds exceed the amount of all
outstanding Revolving Loans on such date), other than Asset Sales permitted by
Section 7.7; provided, however, in accordance with Section 7.7, Borrowers shall
not conduct or consummate any Asset Sales unless and until the prior written
consent of Bank has been obtained, or unless such Asset Sale is otherwise
permitted by Section 7.7. In the event that any payments are applied toward
outstanding Revolving Loans pursuant to this Section at any time when the
outstanding Revolving Loans plus the Letter of Credit Usage is in excess of Ten
Million Dollars ($10,000,000), the Revolving Credit Commitment shall be
permanently reduced by the amount of such payments.
2.15 Fees.
(a) Borrowers shall pay to Bank on a quarterly basis an unused
commitment fee (the "Unused Revolving Commitment Fee") in an amount equal to
one-eighth of one percent (0.125%) per annum times the difference of the
Revolving Credit Commitment minus the sum of (i) the average daily outstanding
Revolving Loans during the prior quarter plus (ii) the average daily Letter of
Credit Usage during the prior quarter plus (iii) the average daily Foreign
Exchange Reserve during the prior quarter. The Unused Commitment Fee shall begin
to accrue on the Closing Date and shall be due and payable, in arrears, on the
first Business Day of each and every December, March, June and September, and
the Revolving Loans Maturity Date. The Unused Commitment Fee shall be calculated
on the basis of a year of three hundred sixty (360) days for the actual days
elapsed. No Unused Revolving Commitment Fee will be payable for periods after
the Revolving Loans Maturity Date.
(b) If any payment due hereunder, whether for principal,
interest, or otherwise, is not paid on or before the tenth (10th) day after the
date such payment is due, in addition
28
to and not in substitution of any of Bank's other rights and remedies with
respect to such nonpayment, Borrowers shall pay to Bank a late payment fee (the
"Late Payment Fee") equal to five percent (5%) of the amount of such overdue
payment. The Late Payment Fee shall be due and payable on the eleventh (11th)
day after the due date of the overdue payment with respect thereto.
ARTICLE III
LETTERS OF CREDIT
3.1 Letters of Credit.
(a) Provided that no Event of Default or Unmatured Event of
Default is continuing and subject to the other terms and conditions hereof, Bank
agrees to issue standby and sight and usance commercial letters of credit
("Letters of Credit") for the account of Borrowers in such form as may be
approved from time to time by Bank, subject to the following limitations:
(i) The face amount of the Letter of Credit requested,
if and when issued, must not cause the ABL Triggering Obligations to exceed the
Revolving Credit Commitment; provided, however, during each and every ABL
Borrowing Period the face amount of the Letter of Credit requested, if and when
issued, must not cause the ABL Triggering Obligations to exceed the Borrowing
Base;
(ii) The face amount of the Letter of Credit requested
if and when issued must not cause the Letter of Credit Usage to exceed the
Letter of Credit Sublimit;
(iii) Standby Letters of Credit may not have an expiry
date or draw period which extends beyond the earlier of (x) 365 days following
the date of issuance, or (y) the date which is thirty (30) days prior to the
Revolving Loans Maturity Date;
(iv) Commercial Letters of Credit may not have an expiry
date or draw period which extends beyond the earlier of (x) 180 days following
the date of issuance, or (y) the date which is thirty (30) days prior to the
Revolving Loans Maturity Date; and
(v) The conditions specified in Section 4.2 shall have
been satisfied on the date of issuance of such Letter of Credit.
(b) Each Letter of Credit shall (i) be denominated in Dollars or
other currency acceptable to Bank, and (ii) be a standby or commercial letter of
credit issued to support obligations of a Borrower, contingent or otherwise, in
the ordinary course of business.
(c) Each Letter of Credit shall be subject to the Uniform
Customs or the ISP, as determined by Bank, in its sole discretion, and, to the
extent not inconsistent therewith, the laws of the State of California.
(d) Bank shall not at any time be obligated to issue any Letter
of Credit hereunder if such issuance would conflict with, or cause the Bank to
exceed any limits imposed by
29
its organizational or governing documents or by any applicable law, rule,
regulation or treaty or determination of an arbitrator or a court or other
governmental authority to which Bank is subject.
3.2 Procedure for Issuance of Letters of Credit. Any Borrower may
request that the Bank issue a Letter of Credit at any time prior to the date
which is thirty (30) days prior to the Revolving Loans Maturity Date by
delivering to the Bank a Letter of Credit Application at its address for notices
specified herein a Letter of Credit Application therefor, completed to the
reasonable satisfaction of the Bank, together with such other certificates,
documents and other papers and information as the Bank may reasonably request.
Upon receipt of any Letter of Credit Application, the Bank will process such
Letter of Credit Application and the certificates, documents and other papers
and information delivered to it in connection therewith in accordance with its
customary procedures and shall promptly issue the Letter of Credit requested
thereby (but in no event shall the Bank be required to issue any Letter of
Credit earlier than three (3) Business Days after its receipt of the Letter of
Credit Application therefor and all such other certificates, documents and other
papers and information relating thereto) by issuing the original of such Letter
of Credit to the beneficiary thereof or as otherwise may be agreed by the Bank
and such Borrower. The Bank shall furnish a copy of such Letter of Credit to
such Borrower promptly following the issuance thereof.
3.3 Fees, Commissions and Other Charges.
(a) Borrowers shall pay to Bank a fee in an amount equal to the
face amount of each and every Letter of Credit times the Applicable Percentage
(the "Letter of Credit Fee"). The Letter of Credit Fee shall be due and payable
upon issuance of the applicable Letter of Credit.
(b) In addition to the foregoing, Borrowers shall pay or
reimburse the Bank for such normal and customary costs and expenses as are
reasonably incurred or charged by the Bank in issuing, effecting payment under,
amending or otherwise administering any Letter of Credit.
3.4 Reimbursement Obligations.
(a) Borrowers agree to reimburse the Bank on the same Business
Day on which a draft is presented under any Letter of Credit and paid by the
Bank, provided that the Bank provides notice to Parent prior to 11:00 a.m.,
Pacific time, on such Business Day and otherwise Borrowers will reimburse the
Bank on the next succeeding Business Day; provided, further, that the failure to
provide such notice shall not affect Borrowers' absolute and unconditional
obligation to reimburse the Bank when required hereunder for any draft paid
under any Letter of Credit. The Bank shall provide notice to Borrower on such
Business Day as a draft is presented and paid by the Bank indicating the amount
of (i) such draft so paid and (ii) any taxes, fees, charges or other costs or
expenses incurred by the Bank in connection with such payment. Each such payment
shall be made to the Bank at its address specified on the signature pages hereof
in lawful money of the United States of America and in immediately available
funds.
(b) Interest shall be payable on any and all amounts remaining
unpaid by Borrowers under this Section from the date such amounts become payable
(whether at stated
30
maturity, by acceleration or otherwise) until payment in full at the rate which
would be payable on any outstanding Revolving Loans that are (i) in the case of
the first day on which such amounts become payable (except where such amounts
become payable by reason of the acceleration thereof), Base Lending Rate
Portions which were not then overdue and (ii) in all cases to which clause (i)
is not applicable, Base Lending Rate Portions which were then overdue.
(c) Each drawing under any Letter of Credit shall constitute a
request by Borrowers to Bank for a Borrowing of a Revolving Loan as a Base
Lending Rate Portion. The date of such drawing shall be deemed the date on which
such Borrowing is made.
3.5 Obligations Absolute.
(a) Borrowers' obligations under this Article III shall be
absolute and unconditional under any and all circumstances and irrespective of
any set-off, counterclaim or defense to payment which any Borrower may have or
have had against the Bank or any beneficiary of a Letter of Credit.
(b) Borrowers also agree with the Bank that Borrowers'
Reimbursement Obligations under Section 3.4 shall not be affected by, among
other things, (i) the validity or genuineness of documents or of any
endorsements thereon, even though such documents shall in fact prove to be
invalid, fraudulent or forged, or (ii) any dispute between or among any Borrower
and any beneficiary of any Letter of Credit or any other party to which such
Letter of Credit may be transferred or (iii) any claims whatsoever of any
Borrower against the beneficiary of such Letter of Credit or any such
transferee.
(c) Bank shall not be liable for any error, omission,
interruption or delay in transmission, dispatch or delivery of any message or
advice, however transmitted, in connection with any Letter of Credit, except for
errors or omissions caused by the Bank's gross negligence or willful misconduct.
(d) Borrowers agree that any action taken or omitted by the Bank
under or in connection with any Letter of Credit or the related drafts or
documents, if done in the absence of gross negligence or willful misconduct and
in accordance with the standards of care specified in the UCC, shall be binding
on Borrowers and shall not result in any liability of the Bank to Borrowers.
3.6 Letter of Credit Payments. If any draft shall be presented for
payment under any Letter of Credit, the responsibility of the Bank to Borrowers
in connection with such draft shall, in addition to any payment obligation
expressly provided for in such Letter of Credit, be limited to determining that
the documents (including each draft) delivered under such Letter of Credit in
connection with such presentment are in conformity with such Letter of Credit.
In determining whether to pay under any Letter of Credit, only the Bank shall be
responsible for determining that the documents and certificates required to be
delivered under the Letter of Credit have been delivered and that they comply on
their face with the requirements of such Letter of Credit.
31
3.7 Outstanding Letters of Credit Following Event of Default. With
respect to all Letters of Credit outstanding upon the occurrence of an Event of
Default, Borrowers shall either replace such Letters of Credit, whereupon such
Letters of Credit shall be canceled, with letters of credit issued by another
issuer acceptable to the beneficiary of such Letter of Credit, or provide the
Bank, as security for such Letters of Credit, with a cash collateral deposit in
an amount equal to one hundred and five percent (105%) of the Letter of Credit
Usage for so long as such Letters of Credit remain outstanding during the
continuance of such Event of Default. Borrowers hereby grant to Bank a security
interest in such cash collateral to secure all Obligations of Borrowers under
this Agreement and the other Loan Documents. Amounts held in such cash
collateral account shall be applied by Bank to the payment of drafts drawn under
such Letters of Credit and the payment of customary costs and expenses charged
or incurred by the Bank in connection therewith, and the unused portion thereof
after all such Letters of Credit shall have expired or been fully drawn upon, if
any, shall be applied to repay other Obligations. After all such Letters of
Credit shall have expired or been fully drawn upon, all Reimbursement
Obligations shall have been satisfied and all other Obligations shall have been
paid in full in cash, and the obligations of Bank hereunder have terminated the
balance, if any, in such cash collateral account shall be returned to Borrowers.
Borrowers shall execute and deliver to Bank such further documents and
instruments as Bank may request to evidence the creation and perfection of the
within security interest in such cash collateral account.
3.8 Letter of Credit Applications. In the event of any conflict between
the terms of this Article III and the terms of any Letter of Credit Application,
the terms of such Letter of Credit Application shall govern and control any such
conflict.
ARTICLE IV
CONDITIONS PRECEDENT
4.1 Conditions to Initial Loans or Letter(s) of Credit. Bank's
obligation to make the initial Loans and/or to issue the initial Letter(s) of
Credit is subject to and contingent upon the fulfillment of each of the
following conditions to the satisfaction of Bank and its counsel:
(a) receipt by Bank of this Agreement and each of the Loan
Documents, all duly executed by Borrowers and/or the other Persons party
thereto, acknowledged where required, and in form and substance satisfactory to
Bank;
(b) receipt by Bank, of a duly executed opinion of Borrowers'
counsel, dated as of the Closing Date, covering the matters set forth in Exhibit
4.1(b) and otherwise in form and substance satisfactory to Bank;
(c) with respect to each Borrower, receipt by Bank of a
Certificate of the Secretary of such Borrower, dated as of the Closing Date,
certifying (i) the incumbency and signatures of the Responsible Officers of such
Borrower who are executing this Agreement and the Loan Documents on behalf of
such Borrower; (ii) the By-Laws of such Borrower and all amendments thereto as
being true and correct and in full force and effect; and (iii) the resolutions
of the Board of Directors of such Borrower as being true and correct and in full
force and effect,
32
authorizing the execution and delivery of this Agreement and the Loan Documents,
and authorizing the transactions contemplated hereunder and thereunder, and
authorizing the Responsible Officers of such Borrower to execute the same on
behalf of such Borrower;
(d) receipt by Bank of each Borrower's Articles or Certificate
of Incorporation and all amendments thereto, certified by the Secretary of State
of its state of organization and dated a recent date prior to the Closing Date;
(e) receipt by Bank of a certificate of status and good standing
for each Borrower, dated a recent date prior to the Closing Date, showing that
such Borrower is in good standing under the laws of its state of organization;
(f) receipt by Bank of certificates of foreign qualification and
good standing for each Borrower, dated a recent date prior to the Closing Date,
showing that such Borrower is in good standing under the laws of the states
indicated in the table below opposite the name of such Borrower:
-------------------- ---------------------
Parent California
-------------------- ---------------------
UGG (not applicable)
-------------------- ---------------------
(g) receipt by Bank of a certificate signed by the President and
Chief Financial Officer of each Borrower, dated as of the Closing Date,
certifying that (i) both immediately before and immediately after giving effect
to the transactions contemplated by this Agreement and the Loan Documents, such
Borrower is and will be Solvent; (ii) to the best of their knowledge after due
and diligent inquiry, the representations and warranties of such Borrower
contained in this Agreement and the Loan Documents are true and correct, and
(iii) to the best of their knowledge after due and diligent inquiry, both
immediately before and immediately after giving effect to the transactions
contemplated by this Agreement and the Loan Documents, no Event of Default or
Unmatured Event of Default is continuing or shall occur;
(h) receipt by Bank of Uniform Commercial Code and other public
record searches with respect to Borrowers, in each case satisfactory to Bank;
(i) receipt by Bank of the original certificates evidencing one
hundred percent (100%) of the issued and outstanding Capital Stock of UGG,
together with undated stock powers with respect thereto, duly executed in blank,
and in form and substance reasonably satisfactory to Bank;
(j) receipt by Bank of all Expenses owing on the Closing Date;
(k) no Material Adverse Effect shall have occurred, as
determined by Bank in its reasonable discretion;
33
(l) receipt by Bank of copies of insurance binders or insurance
certificates evidencing Borrowers' having caused to be obtained insurance in
accordance with Section 6.5, including the Bank's loss payee endorsements
required by such Section;
(m) receipt by Bank of the Pay-Off Letter from the Old Lender,
and such UCC-2 Termination Statements and other Lien releases as Bank shall
require, duly executed by such Old Lender, all of the foregoing in form and
substance reasonably satisfactory to Bank;
(n) receipt by Bank of duly executed Collateral Access
Agreements with respect to ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, and ▇▇▇-▇
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇;
(o) receipt by Bank of such other documents, instruments and
agreements as Bank may reasonably request in connection with the transactions
contemplated hereunder or to perfect or protect the liens and security interests
granted to Bank for the ratable benefit of Bank's in connection herewith; and
(p) the Closing Date shall have occurred on or before February
28, 2002.
4.2 Conditions to all Loans and Letters of Credit. Bank's obligation
hereunder to make any Loans to Borrowers (including the initial Loans), and/or
to issue any Letters of Credit (including the initial Letter(s) of Credit), is
further subject to and contingent upon the fulfillment of each of the following
conditions to the satisfaction of Bank:
(a) (i) in the case of a Borrowing, receipt by Bank of a Notice
of Borrowing as required by Section 2.5(b) and written disbursement instructions
to Bank consistent with Section 7.1, and (ii) in the case of a Letter of Credit,
receipt by Bank of a Letter of Credit Application and the other papers and
information required under Section 3.2;
(b) the fact that, immediately before and after such Borrowing
or issuance of Letter of Credit, as the case may be, no Event of Default or
Unmatured Event of Default shall have occurred or be continuing; and
(c) the fact that the representations and warranties of
Borrowers contained in this Agreement shall be true on and as of the date of
such Borrowing, or issuance of Letter of Credit, as the case may be (except for
any representations and warranties made as of a specific earlier date, which
shall remain true as of such date).
ARTICLE V
REPRESENTATIONS AND WARRANTIES
In order to induce Bank to enter into this Agreement and to make Loans
and/or issue any Letters of Credit, each Borrower represents and warrants to
Bank that on the Closing Date and on the date of each Borrowing or issuance of a
Letter of Credit:
34
5.1 Legal Status. Each Borrower is a corporation duly organized and
existing under the laws of the state of its organization. Each Borrower and each
Subsidiary has the power and authority to own its own Assets and to transact the
business in which it is engaged, and is properly licensed, qualified to do
business and in good standing in every jurisdiction in which it is doing
business where failure to so qualify could have a Material Adverse Effect.
5.2 No Violation; Compliance.
(a) The execution, delivery and performance of this Agreement
and the Loan Documents to which each Borrower is a party are within such
Borrower's powers, are not in conflict with the terms of the Governing Documents
of such Borrower, and do not result in a breach of or constitute a default under
any contract, obligation, indenture or other instrument to which such Borrower
is a party or by which such Borrower is bound or affected, which breach or
default could reasonably be expected to have a Material Adverse Effect. To the
best Knowledge of Borrowers, there is no law, rule or regulation (including
Regulations T, U and X of the Federal Reserve Board), nor is there any judgment,
decree or order of any court or Governmental Authority binding on any Borrower
which would be contravened by the execution, delivery, performance or
enforcement of this Agreement and the Loan Documents to which any Borrower is a
party.
(b) The execution, delivery and performance of the Loan
Documents to which each Guarantor is a party are within such Guarantor's powers,
are not in conflict with the terms of the Governing Documents of such Guarantor,
and do not result in a breach of or constitute a default under any contract,
obligation, indenture or other instrument to which such Guarantor is a party or
by which such Guarantor is bound or affected, which breach or default could
reasonably be expected to have a Material Adverse Effect. To the best Knowledge
of Borrowers, there is no law, rule or regulation (including Regulations T, U
and X of the Federal Reserve Board), nor is there any judgment, decree or order
of any court or Governmental Authority binding on any Guarantor which would be
contravened by the execution, delivery, performance or enforcement of the Loan
Documents to which such Guarantor is a party.
5.3 Authorization; Enforceability.
(a) Each Borrower has taken all corporate action necessary to
authorize the execution and delivery of this Agreement and the Loan Documents to
which such Borrower is a party, and the consummation of the transactions
contemplated hereby and thereby. Upon their execution and delivery in accordance
with the terms hereof, this Agreement, and the Loan Documents to which each
Borrower is a party will constitute legal, valid and binding agreements and
obligations of such Borrower enforceable against such Borrower in accordance
with their respective terms, except as enforceability may be limited by
bankruptcy, insolvency, and similar laws and equitable principles affecting the
enforcement of creditors' rights generally.
(b) Each Guarantor has taken all corporate, partnership or
limited liability company action, as applicable, necessary to authorize the
execution and delivery of the Loan Documents to which such Guarantor is a party,
and the consummation of the transactions contemplated thereby. Upon their
execution and delivery in accordance with the terms hereof, the Loan Documents
to which each Guarantor is a party will constitute legal, valid and binding
35
agreements and obligations of such Guarantor enforceable against such Guarantor
in accordance with their respective terms, except as enforceability may be
limited by bankruptcy, insolvency, fraudulent conveyance, and similar laws and
equitable principles affecting the enforcement of creditors' rights generally.
5.4 Approvals; Consents. No approval, consent, exemption or other action
by, or notice to or filing with, any Governmental Authority is necessary in
connection with the execution, delivery, performance or enforcement of this
Agreement or the Loan Documents. All requisite Governmental Authorities and
third parties have approved or consented to the transactions contemplated by
this Agreement and Loan Documents, and all applicable waiting periods have
expired and there is no governmental or judicial action, actual or threatened,
that has or could have a reasonable likelihood of restraining, preventing or
imposing burdensome conditions on the transactions contemplated by this
Agreement and Loan Documents.
5.5 Liens. Each Borrower and each of the Subsidiaries (other than the
Excluded Subsidiaries) has good and marketable title to, or valid leasehold
interests in, all of its Assets, free and clear of all Liens or rights of
others, except for Permitted Liens.
5.6 Debt. Each Borrower and each of the Subsidiaries (other than the
Excluded Subsidiaries) has no Debt other than Permitted Debt.
5.7 Litigation. Except as set forth in Schedule 5.7, there are no suits,
proceedings, claims or disputes pending or, to the Knowledge of Borrowers,
threatened, against or affecting any Borrower or any of Borrower's Assets, or
any Subsidiary (other than the Excluded Subsidiaries) or any of such
Subsidiary's (other than the Excluded Subsidiaries) Assets, which are not fully
covered by applicable insurance and as to which no reservation of rights has
been taken by the insurer thereunder.
5.8 No Default. No Event of Default or Unmatured Event of Default has
occurred and is continuing or would result from the incurring of obligations by
any Borrower or any Subsidiary (other than the Excluded Subsidiaries) under this
Agreement or the Loan Documents.
5.9 Subsidiaries. Set forth in Schedule 5.9 is a complete and accurate
list of the Subsidiaries, showing the jurisdiction of incorporation of each and
showing the percentage of each Borrower's ownership of the Capital Stock of each
Subsidiary. All of the outstanding Capital Stock of each Subsidiary has been
validly issued, is fully paid and nonassessable, and is owned by Borrower free
and clear of all Liens except Permitted Liens.
5.10 Taxes. All tax returns required to be filed by each Borrower and
each of the Subsidiaries (other than the Excluded Subsidiaries) in any
jurisdiction have in fact been filed, and all taxes, assessments, fees and other
governmental charges upon each Borrower and each of the Subsidiaries (other than
the Excluded Subsidiaries) or upon any of their Assets, income or franchises,
which are due and payable have been paid. The provisions for taxes on the books
of each Borrower and each of the Subsidiaries (other than the Excluded
Subsidiaries) are adequate for all open years, and for each Borrower's and each
of the Subsidiaries (other than the Excluded Subsidiaries) current fiscal
period.
36
5.11 Correctness of Financial Statements. Borrowers' audited,
consolidated Financial Statement as of its fiscal year ended December 31, 2000,
and all other information and data furnished by Borrowers to Bank in connection
therewith, are complete and correct in all material respects and accurately and
fairly present in all material respects the financial condition and results of
operations of Borrowers and the Subsidiaries as of their respective dates. Any
forecasts of future financial performance delivered by Borrowers to Bank have
been made in good faith and are based on reasonable assumptions and
investigations by Borrowers. Said audited Financial Statement have been prepared
in accordance with GAAP. Since the date of such audited Financial Statement,
there has been no change in any Borrower's financial condition or results of
operations sufficient to have a Material Adverse Effect. Borrowers and the
Subsidiaries (other than the Excluded Subsidiaries) have no contingent
obligations, liabilities for taxes or other outstanding financial obligations
which are material in the aggregate, except as disclosed in such statements,
information and data.
5.12 ERISA. Neither any Borrower nor any member of the ERISA Group
maintains or contributes to any Plan or Multiemployer Plan, other than those
listed on Schedule 5.12. Each Borrower and each member of the ERISA Group have
satisfied the minimum funding standards of ERISA and the Internal Revenue Code
with respect to each Plan and Multiemployer Plan to which it is obligated to
contribute. No ERISA Event has occurred nor has any other event occurred that
may result in an ERISA Event that reasonably could be expected to result in a
Material Adverse Effect. None of Borrowers, any member of the ERISA Group, or
any fiduciary of any Plan is subject to any direct or indirect liability with
respect to any Plan that could reasonably be expected to result in a Material
Adverse Effect (other than to make regularly scheduled required contributions
and to pay Plan benefits in the normal course) under any applicable law, treaty,
rule, regulation, or agreement. Neither Borrowers nor any member of the ERISA
Group is required to provide security to any Plan under Section 401(a)(29) of
the Internal Revenue Code. Each Plan will be able to fulfill its benefit
obligations as they come due in accordance with the Plan documents and under
GAAP.
5.13 Other Obligations. Neither any Borrower nor any Subsidiary (other
than the Excluded Subsidiaries) is in default on any (i) Debt in the aggregate
principal amount among all Borrowers in excess of $500,000 or (ii) any other
lease, commitment, contract, instrument or obligation which is material to the
operation of its business.
5.14 Public Utility Holding Company Act. No Borrower is a holding
company, or an affiliate of a holding company or a subsidiary company of a
holding company, within the meaning of the Public Utility Holding Company Act of
1935, as amended.
5.15 Investment Company Act. No Borrower is an investment company, or a
company controlled by an investment company, within the meaning of the
Investment Company Act of 1940, as amended.
5.16 Patents, Trademarks, Copyrights, and Intellectual Property, etc.
Each Borrower and each Subsidiary (other than the Excluded Subsidiaries) has all
necessary, patents, patent rights, licenses, trademarks, trademark rights, trade
names, trade name rights, copyrights, permits, and franchises in order for it to
conduct its business and to operate its Assets, without known conflict with the
rights of third Persons. The consummation of the transactions contemplated by
this Agreement will not alter or impair any of such rights of any Borrower or
any Subsidiary
37
(other than the Excluded Subsidiaries). No adverse judgments or pending material
claims have been made with respect to each Borrower's and each Subsidiary's
(other than Excluded Subsidiaries) title to or the validity of any unexpired
trademark, trademark registration, trade name, patent, copyright, copyright
registration, except as may be as set forth on Schedule D to the Patent and
Trademark Security Agreement.
5.17 Environmental Condition. (i) None of any Borrower's or any
Subsidiary's (other than the Excluded Subsidiaries) Assets has ever been used by
any Borrower or such Subsidiary (other than the Excluded Subsidiaries) or by
previous owners or operators in the disposal of, or to produce, store, handle,
treat, release, or transport, any Hazardous Materials; (ii) none of any
Borrower's or any Subsidiary's (other than the Excluded Subsidiaries) Assets has
ever been designated or identified in any manner pursuant to any environmental
protection statute as a Hazardous Materials disposal site, or a candidate for
closure pursuant to any environmental protection statute; (iii) no Lien arising
under any environmental protection statute has attached to any revenues or to
any real or personal property owned or operated by any Borrower or any
Subsidiary; (other than the Excluded Subsidiaries) and (iv) neither Borrower nor
any Subsidiary has received a summons, citation, notice, or directive from the
Environmental Protection Agency or any other federal or state governmental
agency concerning any action or omission by any Borrower or any Subsidiary
(other than the Excluded Subsidiaries) resulting in the releasing or disposing
of Hazardous Materials into the environment.
5.18 Solvency. Each Borrower and each Subsidiary (other than the
Excluded Subsidiaries) is Solvent. No transfer of property is being made by any
Borrower or any Subsidiary (other than the Excluded Subsidiaries) and no
obligation is being incurred by any Borrower or any Subsidiary (other than the
Excluded Subsidiaries) in connection with the transactions contemplated by this
Agreement or the Loan Documents with the intent to hinder, delay, or defraud
either present or future creditors of any Borrower any Subsidiary (other than
the Excluded Subsidiaries).
5.19 Eligible Accounts. The Eligible Accounts are bona fide existing
payment obligations of Account Debtors created by the sale and delivery of
Inventory or the rendition of services to such Account Debtors in the ordinary
course of a Borrower's business, and, to the Knowledge of Borrowers, are owed to
such Borrower without defenses, disputes, offsets, counterclaims, or rights of
return or cancellation. As to each Eligible Account, such Account is not,
(a) owed by an employee, Affiliate, or agent of any Borrower,
(b) on account of a transaction wherein goods were placed on
consignment or were sold pursuant to a guaranteed sale, a sale or return, a sale
on approval, a ▇▇▇▇ and hold, or on any other terms by reason of which the
payment by the Account Debtor may be conditional,
(c) payable in a currency other than Dollars,
(d) owed by an Account Debtor that has or has asserted a right
of setoff, has disputed its liability, or has made any claim with respect to its
obligation to pay the Account,
38
(e) to the Knowledge of Borrowers, owed by an Account Debtor
that is subject to any Insolvency Proceeding or is not Solvent or as to which
any Borrower has received notice of an imminent Insolvency Proceeding or a
material impairment of the financial condition of such Account Debtor,
(f) on account of a transaction as to which the goods giving
rise to such Account have not been shipped and billed to the Account Debtor or
the services giving rise to such Account have not been performed and accepted by
the Account Debtor,
(g) a right to receive progress payments or other advance
▇▇▇▇▇▇▇▇ that are due prior to the completion of performance by the applicable
Borrower of the subject contract for goods or services, and
(h) an Account that has not been billed to the customer.
5.20 Eligible Inventory. All Eligible Inventory consists of shoes,
footwear and apparel of good and merchantable quality, free from defects. As to
each item of Eligible Inventory, such Inventory is (i) owned by the applicable
Borrower free and clear of all Liens other than Permitted Liens; (ii) either
located at one of the locations set forth on Schedule 1.1E or in transit from
one such location to another such location; (iii) not located on real property
leased by a Borrower or in a contract warehouse, in each case, unless subject to
a Collateral Access Agreement executed by the lessor, the warehouseman, or other
third party, as the case may be, and unless segregated or otherwise separately
identifiable from goods of others, if any, stored on the premises; (iv) not
goods that have been returned or rejected by the applicable Borrower's
customers, and (v) not goods that are obsolete or slow moving, restrictive or
custom items, raw materials work-in-process, or that constitute spare parts,
packaging and shipping materials, supplies used or consumed in a Borrower's
business, ▇▇▇▇ and hold goods, defective goods, "seconds," or Inventory acquired
on consignment.
ARTICLE VI
AFFIRMATIVE COVENANTS
Each Borrower covenants and agrees that from the Closing Date and
thereafter until the indefeasible payment, performance and satisfaction in full
of the Obligations, all of Bank's obligations hereunder have been terminated and
no Letters of Credit are outstanding, such Borrower shall:
6.1 Punctual Payments. Punctually pay the interest and principal on the
Loans, the Fees and all Expenses and any other fees and liabilities due under
this Agreement and the Loan Documents at the times and place and in the manner
specified in this Agreement or the Loan Documents.
6.2 Books and Records; Collateral Audits. Maintain, and cause each of
the Subsidiaries (other than the Excluded Subsidiaries) to maintain, adequate
books and records in accordance with GAAP, and permit any officer, employee or
agent of Bank, at any time (upon one
39
(1) Business Day's notice unless an Event of Default has occurred and is
continuing, in which event no notice shall be required) and from time to time
during which the amount of the ABL Triggering Obligations is greater than the
ABL Trigger Amount, (a) to inspect, audit and examine such books and records,
and to make copies of the same, and/or (b) to audit the Accounts and the
Inventory in order to verify such Borrower's financial condition or the amount,
quality, value, condition of, or any other matter relating to, the Accounts
and/or the Inventory. In connection therewith, Borrowers shall pay to Bank
Bank's standard audit fee ("Audit Fee") for each audit plus all Expenses in
connection therewith, payable upon demand. The Audit Fee shall in no event
exceed $1,500 per auditor per day.
6.3 Collateral Reporting and Financial Statements. Deliver to Bank the
following, all in form and detail reasonably satisfactory to Bank and in such
number of copies as Bank may reasonably request:
(a) (i) as soon as available but not later than thirty (30) days
after the end of each fiscal quarter of Parent, (x) a detailed aging, by total,
of the Accounts, and upon Bank's request, a reconciliation to the detailed
calculation of the Borrowing Base previously provided to Bank, (y) a summary
aging, by vendor, of Borrowers' accounts payable and any book overdraft, and (z)
back log reports, approved purchase order reports, pre-sold Inventory reports,
and Inventory reports; and (ii) during each and every ABL Borrowing Period, or
at any time upon Bank's request, as soon as available but not later than twenty
(20) days after the end of each month (x) a Borrowing Base Certificate, (y) an
accrued vendor invoice report (or similar accounts payable and accrual report),
and (z) an accrued Inventory recap report (or similar accounts payable and
accrual report);
(b) as soon as available but not later than forty-five (45) days
after the end of each fiscal quarter of Parent (or not later than thirty (30)
days after the end of each month during each and every ABL Borrowing period), a
consolidating and consolidated internally prepared Financial Statement for
Borrowers and the Subsidiaries which shall include Borrowers' and the
Subsidiaries' consolidating and consolidated balance sheet as of the close of
such period, and Borrowers' and the Subsidiaries' consolidating and consolidated
statement of income and retained earnings and consolidated statement of cash
flow for such period and year to date, certified by the Chief Financial Officer
of Borrowers, to the best of his or her knowledge after due and diligent
inquiry, as being complete and correct and fairly presenting in all material
respects Borrowers' and its Subsidiaries' financial condition and results of
operations for such period;
(c) as soon as available but not later than forty-five (45) days
after the end of each quarterly accounting period, a Compliance Certificate from
the Chief Financial Officer of Borrowers, stating, among other things, that he
or she has reviewed the provisions of this Agreement and the Loan Documents and
that, to the best of his or her knowledge after due and diligent inquiry there
exists no Event of Default or Unmatured Event of Default, and containing the
calculations and other details necessary to demonstrate compliance with Sections
7.12 and 7.15;
(d) as soon as available but not later than sixty (60) days
after the end of each fiscal year, an annual operating budget for the following
fiscal year;
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(e) as soon as available but not later than one hundred twenty
(120) days after the end of each fiscal year, a complete copy of Borrowers' and
the Subsidiaries' consolidated and consolidating audited Financial Statement,
which shall include at least Borrowers' and the Subsidiaries' balance sheet as
of the close of such fiscal year, and Borrowers' and the Subsidiaries' statement
of income and retained earnings and statement of cash flow for such fiscal year,
certified by KPMG LLP or another certified public accountant selected by
Borrower and reasonably satisfactory to Bank, which certificate shall not be
qualified in any manner whatsoever;
(f) as soon as available but not later than fifteen (15) days
after filing thereof with the SEC, (i) copies of each annual or quarterly
report, proxy or Financial Statement or other report or communications sent to
the Shareholders of Parent, and (ii) copies of all annual, regular, periodic and
special reports and registration statements which Parent may file or be required
to file with the SEC;
(g) promptly upon receipt by any Borrower, copies of any and all
reports and management letters submitted to a Borrower or any Subsidiary by any
certified public accountant in connection with any examination of any Borrower's
or any Subsidiary's financial records made by such accountant; and
(h) from time to time, operating statistics, operating plans and
any other information as Bank may reasonably request, promptly upon such
request.
6.4 Existence; Preservation of Licenses; Compliance with Law. Preserve
and maintain, and cause each Subsidiary (other than the Excluded Subsidiaries)
to preserve and maintain, its corporate existence and good standing in the state
of its organization, qualify and remain qualified, and cause each Subsidiary
(other than the Excluded Subsidiaries) to qualify and remain qualified, as a
foreign corporation in every jurisdiction where the failure to be so qualified
could have a Material Adverse Effect; and preserve, and cause each of the
Subsidiaries (other than the Excluded Subsidiaries) to preserve, all of its
licenses, permits, governmental approvals, rights, privileges and franchises
required for its operations; and comply, and cause each of the Subsidiaries
(other than the Excluded Subsidiaries) to comply, with the provisions of its
Governing Documents; and comply, and cause each of the Subsidiaries (other than
the Excluded Subsidiaries) to comply, with the requirements of all applicable
laws, rules, regulations, orders of any Governmental Authority having authority
or jurisdiction over it, except for such laws, rules and regulations where the
failure to so comply could not have a Material Adverse Effect, and comply, and
cause each of the Subsidiaries (other than the Excluded Subsidiaries) to comply,
with all requirements for the maintenance of its business, insurance, licenses,
permits, governmental approvals, rights, privileges and franchises.
6.5 Insurance.
(a) Maintain, at Borrowers' expense, insurance respecting its
Assets wherever located, covering loss or damage by fire, theft, explosion, and
all other hazards and risks as ordinarily are insured against by other Persons
engaged in the same or similar businesses. Borrowers also shall maintain
business interruption, public liability, and product liability insurance, as
well as insurance against larceny, embezzlement, and criminal misappropriation.
All such policies
41
of insurance shall be in such amounts and with such insurance companies as are
reasonably satisfactory to Bank. Borrowers shall deliver copies of all such
policies to Bank with a satisfactory lender's loss payable endorsement naming
Bank as sole loss payee or, in the case of equipment or real estate which is
subject to a Purchase Money Lien, an additional insured, and shall contain a
waiver of warranties; provided, however, that Bank shall be listed as an
additional insured with respect to losses of any equipment that are subject to a
Purchase Money Lien or otherwise financed by a lender other than under this
Agreement. Every policy of insurance or endorsement shall contain a clause
requiring the insurer to give not less than 30 days' prior written notice to
Bank in the event of cancellation of the policy for any reason whatsoever, and
the insurer's agreement that any loss payable thereunder shall be payable
notwithstanding any act or negligence of any Borrower or Bank which might,
absent such agreement, result in a forfeiture of all or a part of such insurance
payment.
(b) Original policies or certificates thereof satisfactory to
Bank evidencing such insurance shall be delivered to Bank as soon as available
but in no event less than one (1) day prior to the expiration of the existing or
preceding policies. Parent shall give Bank prompt notice of any loss covered by
such insurance in excess of $500,000. Upon the occurrence and during the
continuance of an Event of Default, Bank shall have the exclusive right to
adjust any losses payable under any such insurance policies, without any
liability to Borrower whatsoever in respect of such adjustments. Any monies
received as payment for any loss under any insurance policy mentioned above or
as payment of any award or compensation for condemnation or taking by eminent
domain, shall be paid over to Bank to be applied at the option of either to the
prepayment of the Obligations without premium or shall be disbursed to Parent
under staged payment terms reasonably satisfactory to Bank for application to
the cost of repairs, replacements, or restorations. Any such repairs,
replacements, or restorations shall be effected with reasonable promptness and
shall be of a value at least equal to the value of the items or property
destroyed prior to such damage or destruction. In the event of any prepayment of
the Obligations pursuant to the foregoing prior to the Revolving Loans Maturity
Date, the Revolving Credit Commitment shall be permanently reduced pro rata by
the amount of such prepayment. Upon the occurrence of an Event of Default, Bank
shall have the right to apply all prepaid premiums to the payment of the
Obligations in such order or form as Bank shall determine. Borrowers shall,
concurrently with the annual Financial Statements required to be delivered by
Borrowers pursuant to Section 6.3(e), deliver to Bank, as Bank may request,
copies of certificates describing all insurance of Borrowers and the
Subsidiaries then in effect.
6.6 Assets. Maintain, keep and preserve, and cause each Subsidiary
(other than the Excluded Subsidiaries) to maintain, keep and preserve, all of
its Assets (tangible or intangible) which are necessary to its business in good
repair and condition, and from time to time make necessary repairs, renewals and
replacements thereto so that such Assets shall be fully and efficiently
preserved and maintained.
6.7 Taxes and Other Liabilities. Pay and discharge when due, and cause
each Subsidiary (other than the Excluded Subsidiaries) to pay and discharge when
due, any and all assessments and taxes, both real or personal and including
federal and state income taxes, and any and all other Permitted Debt.
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6.8 Notice to Bank. Promptly, upon any Borrower acquiring Knowledge
thereof, give written notice to Bank of:
(a) all litigation affecting any Borrower or any Subsidiary
(other than the Excluded Subsidiaries) where the amount in controversy is in
excess of Five Hundred Thousand Dollars ($500,000);
(b) any material dispute which may exist between any Borrower or
any Subsidiary (other than the Excluded Subsidiaries), on the one hand, and any
Governmental Authority, on the other;
(c) any labor controversy resulting in or threatening to result
in a strike against any Borrower or any Subsidiary (other than the Excluded
Subsidiaries);
(d) any proposal by any Governmental Authority to acquire the
Assets or business, valued in the aggregate in excess of $500,000, of any
Borrower or any Subsidiary (other than the Excluded Subsidiaries), or to compete
with any Borrower or any Subsidiary (other than the Excluded Subsidiaries);
(e) any reportable event under Section 4043(c)(5), (6) or (13)
of ERISA with respect to any Plan, any decision to terminate or withdraw from a
Plan, any finding made with respect to a Plan under Section 4041(c) or (e) of
ERISA, the commencement of any proceeding with respect to a Plan under Section
4042 of ERISA, or any material increase in the actuarial present value of
unfunded vested benefits under all Plans over the preceding year;
(f) any Event of Default or Unmatured Event of Default; and
(g) any other matter which has resulted or reasonably could be
expected to have a Material Adverse Effect.
6.9 Employee Benefits.
(a) (i) Promptly, and in any event within ten (10) Business Days
after any Borrower obtains Knowledge that an ERISA Event has occurred that
reasonably could be expected to result in a Material Adverse Effect, deliver or
cause to be delivered a written statement of the Chief Financial Officer of
Parent describing such ERISA Event and any action that is being taken with
respect thereto by Borrowers or member of the ERISA Group, and any action taken
or threatened by the Internal Revenue Service, Department of Labor, or PBGC.
Each Borrower shall (i) be deemed to know all facts known by the administrator
of any Plan of which it is the plan sponsor; (ii) promptly and in any event
within three (3) Business Days after the filing thereof with the Internal
Revenue Service, deliver or cause to be delivered a copy of each funding waiver
request filed with respect to any Plan and all communications received by any
Borrower or, to the knowledge of any Borrower, any member of the ERISA Group
with respect to such request; and (iii) promptly and in any event within three
(3) Business Days after receipt by Borrowers or, to the Knowledge of Borrowers,
any member of the ERISA Group, of the PBGC's intention to terminate a Plan or to
have a trustee appointed to administer a Plan, copies of each such notice.
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(b) Cause to be delivered to Bank, upon Bank's request, each of
the following: (i) a copy of each Plan (or, where any such plan is not in
writing, complete description thereof) (and if applicable, related trust
agreements of other funding instruments) and all amendments thereto, all written
interpretations thereof and written descriptions thereof that have been
distributed to employees or former employees of any Borrower or its
Subsidiaries; (ii) the most recent determination letter issued by the IRS with
respect to each Plan; (iii) for the three (3) most recent Plan years, annual
reports on Form 5500 Series required to be filed with any governmental agency
for each Plan; (iv) all actuarial reports prepared for the last three (3) Plan
years for each Plan; (v) a listing of all Multiemployer Plans, with the
aggregate amount of the most recent annual contributions required to be made by
any Borrower or any member of the ERISA Group to each such plan and copies of
the collective bargaining agreements requiring such contributions; (vi) any
information that has been provided to any Borrower or any member of the ERISA
Group regarding withdrawal liability under any Multiemployer Plan; and (vii) the
aggregate amount of the most recent annual payments made to former employees of
Borrowers under any Retiree Health Plan.
6.10 Further Assurances. Execute and deliver, or cause to be executed
and delivered, upon the request of Bank and at Borrowers' expense, such
additional documents, instruments and agreements as Bank may reasonably
determine to be necessary or advisable to carry out the provisions of this
Agreement and the Loan Documents, and the transactions and actions contemplated
hereunder and thereunder.
6.11 Bank Accounts. Maintain, and cause each Subsidiary (other than the
Excluded Subsidiaries) to maintain, its cash on hand and cash equivalent
investments in deposit accounts at Bank or any of its Subsidiaries.
Notwithstanding the foregoing, Borrowers and the Subsidiaries shall be permitted
to maintain cash in deposit accounts other than at Bank, provided that (i) such
deposit accounts are listed on Schedule 1 to the Security Agreement, (ii) the
cash on deposit in all of such deposit accounts does not exceed $250,000, in the
aggregate, at any time, and (iii) upon Bank's request, Borrowers shall promptly
deliver to Bank such control agreements and/or other agreements, instruments and
documents, fully and duly executed, as Bank shall reasonably require to perfect
and maintain perfected Bank's security interest in such deposit accounts, all in
form and substance reasonably satisfactory to Bank.
6.12 Environment. Be and remain, and cause each Subsidiary (other than
the Excluded Subsidiaries) and each operator of any of any Borrower's or any
Subsidiary's (other than the Excluded Subsidiaries) Assets to be and remain, in
compliance with the provisions of all federal, state and local environmental,
health and safety laws, codes and ordinances, and all rules and regulations
issued thereunder; notify Bank immediately of any notice of a hazardous
discharge or environmental complaint received from any Governmental Authority or
any other Person; notify Bank immediately of any hazardous discharge from or
affecting its premises; immediately contain and remove the same, in compliance
with all applicable laws; promptly pay any fine or penalty assessed in
connection therewith; permit Bank to inspect the premises, to conduct tests
thereon, and to inspect all books, correspondence, and records pertaining
thereto; and at Bank's request, and at Borrowers' expense, provide a report of a
qualified environmental engineer, satisfactory in scope, form and content to
Bank, and such other and further assurances reasonably satisfactory to Bank that
the condition has been corrected.
44
6.13 Additional Collateral. With respect to any Assets (or any interest
therein) acquired after the Closing Date by any Borrower or any Subsidiary
(other than the Excluded Subsidiaries) that are of a type covered by the Lien
created by any of the Loan Documents but which are not so subject, promptly (and
in any event within thirty (30) days after the acquisition thereof): (i) execute
and deliver, or cause such Subsidiary (other than the Excluded Subsidiaries) to
execute and deliver, to Bank such amendments to the relevant Loan Documents or
such other documents as Bank shall deem necessary or advisable to grant to Bank
a Lien on such Assets (or such interest therein), (ii) take all actions, or
cause such Subsidiary (other than the Excluded Subsidiaries) to take all
actions, necessary or advisable to cause such Lien to be duly perfected in
accordance with all applicable law, including, without limitation, the filing of
financing statements in such jurisdictions as may be requested by Bank, (iii) if
requested by Bank, deliver to Bank legal opinions relating to the matters
described in the immediately preceding clauses (i) and (ii), which opinions
shall be in form and substance, and from counsel, reasonably satisfactory to
Bank, and (iv) if requested by Bank, deliver to Bank evidence of insurance as
required by Section 6.5.
6.14 Guarantors. Cause each and every now existing and hereafter
acquired or formed Subsidiary (other than any Borrower and the Excluded
Subsidiaries) to execute and deliver to Bank a Guaranty and security agreement,
in form and substance satisfactory to Bank.
6.15 Returns. Cause returns and allowances, as between any Borrower and
its Account Debtors, to be on the same basis and in accordance with the usual
customary practices of such 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 any
Borrower, such Borrower promptly shall determine the reason for such return and,
if Borrower accepts such return, issue a credit memorandum (with a copy to be
sent to Bank upon its request) 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 any Borrower, such Borrower promptly
shall determine the reason for such return and, if Bank consents (which consent
shall not be unreasonably withheld), issue a credit memorandum (with a copy to
be sent to Bank upon its request) in the appropriate amount to such Account
Debtor.
ARTICLE VII
NEGATIVE COVENANTS
Each Borrower further covenants and agrees that from the Closing Date
and thereafter until the indefeasible payment, performance and satisfaction in
full of the Obligations, all of Bank's, obligations hereunder have been
terminated and no Letters of Credit are outstanding, such Borrower shall not:
7.1 Use of Funds; Margin Regulation.
(a) Use any proceeds of the Revolving Loans for any purpose
other than for working capital; or
45
(b) Use any portion of the proceeds of the Loans in any manner
which might cause the Loans, the application of the proceeds thereof, or the
transactions contemplated by this Agreement to violate Regulation T, U, or X of
the Board of Governors of the Federal Reserve System, or any other regulation of
such board, or to violate the Securities and Exchange Act of 1934, as amended or
supplemented.
7.2 Debt. Create, incur, assume or suffer to exist, or permit any
Subsidiary (other than the Excluded Subsidiaries) to create, incur, assume or
suffer to exist, any Debt except Permitted Debt.
7.3 Liens. Create, incur, assume or suffer to exist, or permit any
Subsidiary (other than the Excluded Subsidiaries) to create, incur, assume or
suffer to exist, any Lien (including the lien of an attachment, judgment or
execution) on any of its Assets, whether now owned or hereafter acquired, except
Permitted Liens; or sign or file, or permit any Subsidiary (other than the
Excluded Subsidiaries) to sign or file, under the UCC as adopted in any
jurisdiction, a financing statement which names any Borrower or any Subsidiary
(other than the Excluded Subsidiaries) as a debtor, except with respect to
Permitted Liens, or sign, or permit any Subsidiary (other than the Excluded
Subsidiaries) to sign, any security agreement authorizing any secured party
thereunder to file such a financing statement, except with respect to Permitted
Liens.
7.4 Merger, Consolidation, Transfer of Assets. Wind up, liquidate or
dissolve, reorganize, reincorporate, merge or consolidate with or into any other
Person, or acquire all or substantially all of the Assets or the business of any
other Person, or permit any Subsidiary to do so; provided, however, upon prior
written notice to Bank, any Subsidiary may merge into or consolidate with or
transfer Assets to any Borrower or any other Subsidiary.
7.5 Leases. Create, incur, assume or suffer to exist, or permit any
Subsidiary (other than the Excluded Subsidiaries) to create, incur, assume or
suffer to exist, any obligation as a lessee for the rental or hire of any real
or personal property, other than (i) leases that have been or should be
capitalized in accordance with GAAP, (ii) leases (other than Capital Leases)
that do not in the aggregate require payments (including taxes, insurance,
maintenance, and similar expenses which any Borrower or any Subsidiary (other
than the Excluded Subsidiaries) is required to pay under the terms of any lease)
in excess of Five Hundred Thousand Dollars ($500,000) on a consolidated basis
for Borrowers and the Subsidiaries (other than the Excluded Subsidiaries) in any
fiscal year of Borrowers (or (x) One Million Dollars ($1,000,000) on a
consolidated basis for Borrowers and the Subsidiaries (other than the Excluded
Subsidiaries) in any fiscal year of Borrowers in the event that Parent shall,
subject to the terms of the Security Agreement, relocate its chief executive
office from the location listed on the signature page hereof, and/or (y) One
Million Dollars ($1,000,000) on a consolidated basis for Borrowers and the
Subsidiaries (other than the Excluded Subsidiaries) in any fiscal year of
Borrowers in the event that Parent shall, subject to the terms of the Security
Agreement, relocate its distribution center), and (iii) the leases identified on
Schedule 7.5.
7.6 Sales and Leasebacks. Sell, transfer, or otherwise dispose of, or
permit any Subsidiary (other than the Excluded Subsidiaries) to sell, transfer,
or otherwise dispose of, any real
46
or personal property to any Person, and thereafter directly or indirectly
leaseback the same or similar property.
7.7 Asset Sales. Conduct any Asset Sale, or permit any Subsidiary (other
than the Excluded Subsidiaries) to do so, other than (i) sales of Inventory in
the ordinary course of business, (ii) dispositions of obsolete, worn or
nonfunctional equipment, (iii) sales of Assets generating aggregate Net Cash
Proceeds of no more than $500,000 in any fiscal year, (iv) sales of marketable
securities, (v) licensing of intellectual property in the ordinary course of
business, and (vi) other Asset Sales approved in writing by Bank (which approval
shall not be unreasonably withheld or delayed).
7.8 Investments.
(a) Except as otherwise permitted by clauses (b), (c) and (d) of
this Section 7.8, make any loans or advances to, or any investment in, any
Person (other than Permitted Investments); or acquire, or permit any Subsidiary
to acquire, any Capital Stock, (other than pursuant to Parent's stock buyback
program), Assets, obligations, or other securities of, make any contribution to,
or otherwise acquire any interest in, any Person; or acquire or form or permit
any Subsidiary (other than the Excluded Subsidiaries) to acquire or form, any
new Subsidiary (other than the Excluded Subsidiaries); or participate, or permit
any Subsidiary to participate, as a partner or joint venturer with any other
Person.
(b) Notwithstanding the terms of Section 7.8(a), any Borrower
may acquire or form, and permit any Subsidiary to acquire or form, any new
Subsidiary or the Assets of another Person; provided that (i) the acquisition
costs for all such acquisitions (including the total consideration paid to the
seller(s), taxes, fees and other transaction costs), does not exceed, in the
aggregate, Ten Million Dollars ($10,000,000), (ii) such acquisition is of a
business engaged in the manufacture, design, marketing, distribution and/or sale
(wholesale or retail) of apparel, shoes, footwear and/or outdoor sporting goods,
(iii) Borrowers shall have complied with Sections 6.13 and 6.14, (iv) the
acquisition shall not be hostile, and (v) prior to the consummation of the
acquisition, Borrowers shall have demonstrated to the reasonable satisfaction of
Bank that both before and, on a pro forma basis after giving effect to such
acquisition, no Event of Default shall be continuing or will result therefrom.
(c) Notwithstanding the terms of Section 7.8(a), Parent shall be
permitted to exercise its purchase option set forth in the Teva Option
Agreement.
(d) Notwithstanding the terms of Section 7.8(a), Borrowers shall
be permitted to make loans and advances (i) to their employees, provided that
such loans and advances do not exceed Two Hundred Thousand Dollars ($200,000) in
the aggregate outstanding at any time, (ii) to any Subsidiary and (iii) to any
Excluded Subsidiary, provided that such loans and advances to Excluded
Subsidiaries do not exceed Five Hundred Thousand Dollars ($500,000) in the
aggregate outstanding at any time.
7.9 Character of Business. Engage in any business activities or
operations substantially different from or unrelated to its present business
activities and operations, or permit
47
any Subsidiary (other than the Excluded Subsidiaries) to do so (it being
specifically acknowledged by Bank that Borrowers may directly or indirectly
engage in the retail sale of apparel, footwear and shoes and in the licensing of
intellectual property to be used in connection with the sale of consumer goods).
7.10 Distributions.
(a) Except as otherwise permitted by Section 7.10(b), declare or
pay any Distributions; or purchase, redeem, retire, or otherwise acquire for
value any of its Capital Stock now or hereafter outstanding (other than pursuant
to Parent's stock buyback program provided that the proceeds of the Loans may
not be used for such purpose); or make any distribution of Assets to its
shareholders, whether in cash, Assets, or in obligations of any Borrower; or
allocate or otherwise set apart any sum for the payment of any Distribution on,
or for the purchase, redemption or retirement of, any of its Capital Stock; or
make any other distribution by reduction of capital or otherwise in respect of
any of its Capital Stock; or permit any Subsidiary (other than the Excluded
Subsidiaries) to purchase or otherwise acquire for value any Capital Stock of
any Borrower or any other Subsidiary (other than the Excluded Subsidiaries).
(b) Notwithstanding the terms of Section 7.10(a), any Borrower
(other than Parent) may declare and pay Distributions to its parent.
7.11 Guaranty. Assume, guaranty (other than any guaranty of the Debt
owing by ▇▇▇▇▇▇▇ ▇. ▇▇▇▇ to Bank), endorse (other than checks and drafts
received by a Borrower in the ordinary course of business so long as an Event of
Default has not occurred), or otherwise be or become directly or contingently
responsible or liable, or permit any Subsidiary (other than the Excluded
Subsidiaries) to assume, guaranty, endorse, or otherwise be or become directly
or contingently responsible or liable (including, any agreement to purchase any
obligation, stock, Assets, goods, or services or to supply or advance any funds,
Assets, goods, or services, or any agreement to maintain or cause such Person to
maintain, a minimum working capital or net worth, or otherwise to assure the
creditors of any Person against loss) for the obligations of any other Person
(other than a Borrower); or pledge or hypothecate, or permit any Subsidiary
(other than the Excluded Subsidiaries) to pledge or hypothecate, any of its
Assets as security for any liabilities or obligations of any other Person (other
than a Borrower).
7.12 Capital Expenditures. Make, or permit any Subsidiary (other than
the Excluded Subsidiaries) to make, any Capital Expenditures, or any commitments
therefor, in excess of Two Million Dollars ($2,000,000) in the aggregate, on a
consolidated basis, in any fiscal year.
7.13 Transactions with Affiliates. Enter into any transaction, including
borrowing or lending and the purchase, sale, or exchange of property or the
rendering of any service (including management services), with any Affiliate
(other than with Parent or with a Subsidiary that is not an Excluded
Subsidiary), or permit any Subsidiary (other than the Excluded Subsidiaries) to
enter into any transaction, including borrowing or lending and the purchase,
sale, or exchange of property or the rendering of any service (including
management services), with any Affiliate (other than with Parent or with a
Subsidiary that is not an Excluded Subsidiary), other than in the ordinary
course of and pursuant to the reasonable requirements of such Borrower's or such
Subsidiary's business and
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upon fair and reasonable terms no less favorable to such Borrower or such
Subsidiary than would obtain in a comparable arm's length transaction with a
Person not an Affiliate.
7.14 Stock Issuance. Permit any Subsidiary (other than the Excluded
Subsidiaries) to issue any additional Capital Stock.
7.15 Financial Condition. Permit or suffer:
(a) the Consolidated Total Liabilities to Consolidated Effective
Tangible Net Worth Ratio, measured as of the end of each fiscal quarter of
Parent, at any time to exceed 0.75:1.0.
(b) the Quick Ratio, (i) measured as of the end of each first
and fourth fiscal quarter of Parent, at any time to be less than 1.50:1.0 and
(ii) measured as of the end of each second and third fiscal quarter of Parent,
at any time to be less than 2.00:1.0.
(c) Consolidated Net Loss for the fiscal quarter of Parent ended
December 31, 2001 to be greater than $300,000, or Consolidated Net Profit at the
end of each subsequent fiscal quarter of Parent (excluding the third fiscal
quarter of each fiscal year of Parent) to be less than $50,000, or year-to-date
Consolidated Net Profit at the end of the third fiscal quarter of each year of
Parent to be less than zero;
(d) Consolidated Pretax Profit for each fiscal year of Parent,
commencing with the fiscal year ending December 31, 2002 to be less than
$1,000,000; or
(e) The Inventory Turnover Ratio, as of the end of each and
every ABL Borrowing Period, to be less than 3.00:1.0.
7.16 Transactions Under ERISA. Directly or indirectly:
(a) engage, or permit any member of the ERISA Group to engage,
in any prohibited transaction which is reasonably likely to result in a civil
penalty or excise tax described in Sections 406 of ERISA or 4975 of the Internal
Revenue Code for which a statutory or class exemption is not available or a
private exemption has not been previously obtained from the Department of Labor;
(b) permit to exist with respect to any Plan any accumulated
funding deficiency (as defined in Sections 302 of ERISA and 412 of the Internal
Revenue Code), whether or not waived;
(c) fail, or permit any member of the ERISA Group to fail, to
pay timely required contributions or installments due with respect to any waived
funding deficiency to any Plan;
(d) terminate, or permit any member of the ERISA Group to
terminate, any Plan where such event would result in any liability of any
Borrower or any member of ERISA Group under Title IV of ERISA;
49
(e) fail, or permit any member of the ERISA Group to fail, to
make any required contribution or payment to any Multiemployer Plan;
(f) fail, or permit any member of the ERISA Group to fail, to
pay to a Plan or Multiemployer Plan any required installment or any other
payment required under Section 412 of the Internal Revenue Code on or before the
due date for such installment or other payment;
(g) amend, or permit any member of the ERISA Group to amend, a
Plan resulting in an increase in current liability for the plan year such that
either of any Borrower or any member of the ERISA Group is required to provide
security to such Plan under Section 401(a)(29) of the Internal Revenue Code; or
(h) withdraw, or permit any member of the ERISA Group to
withdraw, from any Multiemployer Plan where such withdrawal is reasonably likely
to result in any liability of any such entity under Title IV of ERISA;
which, individually or in the aggregate, results in or reasonably would be
expected to result in a claim against or liability of any Borrower, any of the
Subsidiaries or any member of the ERISA Group in excess of Five Hundred Thousand
Dollars ($500,000).
ARTICLE VIII
EVENTS OF DEFAULT AND REMEDIES
8.1 Events of Default. The occurrence of any one or more of the
following events, acts or occurrences shall constitute an event of default (an
"Event of Default") hereunder:
(a) Borrowers fail to pay when due any payment of principal due
on the Loans, or fail to pay within three (3) days of the due date thereof any
interest due on the Loans, the Fees, any Expenses, or any other amount payable
hereunder or under any Loan Document;
(b) Borrowers fail to observe or perform any of the covenants
and agreements set forth in Article VII;
(c) Borrowers or any Guarantor fail to observe or perform any
covenant or agreement set forth in this Agreement or the Loan Documents (other
than those covenants and agreements described in Sections 8.1(a) and 8.1(b)),
and such failure continues for fifteen (15) days after the earlier to occur of
(i) Borrowers obtaining Knowledge of such failure or (ii) Bank's dispatch of
notice to Borrowers of such failure;
(d) Any representation, warranty or certification made by any
Borrower or any Guarantor or any officer or employee of any Borrower or any
Guarantor in this Agreement or any Loan Document, in any certificate, financial
statement or other document delivered pursuant to this Agreement or any Loan
Document proves to have been misleading or untrue in any material respect when
made or if any such representation, warranty or certification is withdrawn;
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(e) Any Borrower or any Guarantor fails to pay when due any
payment in respect of its Debt in the aggregate principal amount in excess of
$500,000 (other than under this Agreement) in the aggregate principal amount in
excess of $500,000;
(f) Any event or condition occurs that: (i) results in the
acceleration of the maturity of any of any Borrower's or any Guarantor's Debt in
the aggregate principal amount in excess of $500,000; or (ii) permits (or, with
the giving of notice or lapse of time or both, would permit) the holder or
holders of such Debt or any Person acting on behalf of such holder or holders to
accelerate the maturity thereof;
(g) Any Borrower or any Guarantor commences a voluntary
Insolvency Proceeding seeking liquidation, reorganization or other relief with
respect to itself or its Debt or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official over it or any substantial part
of its property, or consents to any such relief or to the appointment of or
taking possession by any such official in an involuntary Insolvency Proceeding
or fails generally to pay its Debt as it becomes due, or takes any action to
authorize any of the foregoing;
(h) An involuntary Insolvency Proceeding is commenced against
any Borrower or any Guarantor seeking liquidation, reorganization or other
relief with respect to it or its Debt or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property and any of the following events occur: (i) the
petition commencing the Insolvency Proceeding is not timely controverted; (ii)
the petition commencing the Insolvency Proceeding is not dismissed within
forty-five (45) calendar days of the date of the filing thereof; (iii) an
interim trustee is appointed to take possession of all or a substantial portion
of the Assets of, or to operate all or any substantial portion of the business
of, Borrower or such Guarantor; or (iv) an order for relief shall have been
issued or entered therein;
(i) Any Borrower or any Guarantor suffers (i) one or more money
judgments in excess of $500,000 in the aggregate over applicable insurance
coverage or (ii) one or more writs, warrants of attachment, or similar process
involving Assets valued in the aggregate in excess of $500,000, and any of the
foregoing shall continue in effect for a period of thirty (30) days without
being vacated, discharged, satisfied, stayed or bonded pending appeal;
(j) A judgment creditor obtains possession of any of the Assets
valued in the aggregate in excess of $500,000 of any Borrower or any Guarantor
by any means, including levy, distraint, replevin, or self-help,
(k) Any order, judgment or decree is entered decreeing the
dissolution of any Borrower or any Guarantor, or any Guarantor dies;
(l) Any Borrower or any Guarantor is enjoined, restrained or in
any way prevented by court order from continuing to conduct all or any material
part of its business affairs;
(m) A notice of lien, levy or assessment is filed of record with
respect to any or all of any Borrower's or any Guarantor's Assets valued in the
aggregate in excess of $500,000 by any Governmental Authority, or any taxes or
debts owing at any time hereafter to any
51
Governmental Authority becomes a Lien, whether inchoate or otherwise, upon any
or all of any Borrower's or any Guarantor's Assets valued in the aggregate in
excess of $500,000 and the same is not paid on the payment date thereof;
(n) If any Borrower's or any Guarantor's records are prepared
and kept by an outside computer service bureau on the Closing Date or during the
term of this Agreement such an agreement with an outside service bureau is
entered into, and at any time thereafter, without first obtaining the written
consent of Bank, such Borrower or Guarantor terminates, modifies, amends or
changes its contractual relationship with said computer service bureau or said
computer service bureau fails to provide Bank with any requested information or
financial data pertaining to Bank's Collateral, such Borrower's or Guarantor's
financial condition or the results of such Borrower's or Guarantor's operations;
(o) Any reportable event, which Bank determines constitutes
grounds for the termination of any Plan by the PBGC or for the appointment by
the appropriate United States District Court of a trustee to administer any such
Plan, shall have occurred and be continuing thirty (30) days after written
notice of such determination shall have been given to Parent by Bank, or any
such Plan shall be terminated within the meaning of Title IV of ERISA, or a
trustee shall be appointed by the appropriate United States District Court to
administer any such Plan, or the PBGC shall institute proceedings to terminate
any Plan and in case of any event described in this Section 8.1(p), the
aggregate amount of Borrowers' liability to the PBGC under Sections 4062, 4063
or 4064 of ERISA shall exceed five percent (5%) of the Consolidated Effective
Tangible Effective Net Worth;
(p) Any Change of Control occurs;
(q) If the Teva License Agreement shall be terminated or
cancelled, or fail to be in full force and effect in all material respects for
any reason, or if a breach, default or event of default shall occur under the
Teva License Agreement by either party thereto and is not cured within any
applicable cure period therefor;
(r) Any of the Loan Documents fails to be in full force and
effect for any reason, or Bank fails to have a perfected, first priority Lien in
and upon all of the collateral assigned or pledged to Bank thereunder, or a
breach, default or an event of default occurs under any Loan Document; or
(s) Any other Material Adverse Effect occurs.
8.2 Remedies. Upon the occurrence of any Event of Default described in
Section 8.1(g) or 8.1(h), Bank's obligation hereunder to make Loans to Borrowers
and/or Bank's to issue Letters of Credit shall immediately terminate and the
Obligations shall become immediately due and payable without any election or
action on the part of Bank, without presentment, demand, protest or notice of
any kind, all of which each Borrower hereby expressly waives. Upon the
occurrence and continuance of any other Event of Default, either or both of the
following actions may be taken: (i) Bank may without notice of its election and
without demand, immediately terminate the Revolving Credit Commitment, whereupon
Bank's obligation to make Loans to
52
Borrowers and/or to issue Letters of Credit shall immediately cease; and (ii)
Bank may, without notice of its election and without demand, declare the
Obligations to be due and payable, whereupon the Obligations shall become
immediately due and payable, without presentment, demand, protest or notice of
any kind, all of which each Borrower hereby expressly waives.
8.3 Setoff. During the continuance of an Event of Default, Bank is
hereby authorized at any time and from time to time, without notice to Borrowers
(any such notice being expressly waived by each Borrower), to set off and apply
any and all deposits (general or special, time or demand, provisional or final),
at any time held and other indebtedness at any time owing by Bank to or for the
credit or the account of Borrowers, against any and all of the Obligations owing
to Bank, irrespective of whether Bank shall have made any demand under this
Agreement or the Loan Documents, and although the Obligations may be unmatured.
Bank agrees promptly to notify Borrowers after any such setoff and application,
provided that the failure to give such notice shall not affect the validity of
such setoff and application.
8.4 Appointment of Receiver or Trustee. Borrowers hereby irrevocably
agree that Bank, has the right under this Agreement, upon the occurrence of an
Event of Default, to seek the appointment of a receiver, trustee or similar
official over Borrowers to effect the transactions contemplated by this
Agreement, and that Bank is entitled to seek such relief. Borrowers hereby
irrevocably agree not to object to such appointment on any grounds.
8.5 Remedies Cumulative. The rights and remedies of Bank herein and in
the Loan Documents are cumulative, and are not exclusive of any other rights,
powers, privileges, or remedies, now or hereafter existing, at law, in equity or
otherwise.
ARTICLE IX
TAXES
9.1 Taxes on Payments. All payments in respect of the Obligations shall
be made free and clear of and without any deduction or withholding for or on
account of any present and future taxes, levies, imposts, deductions, charges,
withholdings, assessments or governmental charges, and all liabilities with
respect thereto, imposed by the United States of America, any foreign
government, or any political subdivision or taxing authority thereof or therein,
excluding any taxes imposed on Bank under the Internal Revenue Code or similar
state and local laws and determined by such Bank's net income, and any franchise
taxes imposed on Bank by any state (or any political subdivision thereof) (all
such non-excluded taxes, levies, imposts, deductions, charges, withholdings,
assessments, charges and liabilities being hereinafter referred to as "Taxes").
If any Taxes are imposed and required by law to be deducted or withheld from any
amount payable to Bank, then Borrowers shall (i) increase the amount of such
payment so that Bank will receive a net amount (after deduction of all Taxes)
equal to the amount due hereunder, and (ii) pay such Taxes to the appropriate
taxing authority for the account of Bank prior to the date on which penalties
attach thereto or interest accrues thereon; provided, however, if any such
penalties or interest shall become due, Borrowers shall make prompt payment
thereof to the appropriate taxing authority.
53
9.2 Indemnification For Taxes. Borrowers shall indemnify Bank for the
full amount of Taxes (including penalties, interest, expenses and Taxes arising
from or with respect to any indemnification payment) arising therefrom or with
respect thereto, whether or not the Taxes were correctly or legally asserted.
This indemnification shall be made on demand. If Borrowers make a payment under
Section 9.1 or this Section 9.2 for account of Bank and Bank reasonably
determines that it has received or been granted a credit against or relief or
remission for, or repayment of, any Tax paid or payable by it in respect of or
calculated with reference to the deduction or withholding giving rise to such
payment, Bank shall, to the extent that it can do so without prejudice to the
retention of the amount of such credit, relief, remission or repayment, pay to
Borrower such amount as Bank shall have reasonably determined to be attributable
to such deduction or withholding. The amount paid by Bank to Borrowers pursuant
to the immediately preceding sentence shall not exceed: (x) in the case of a
refund of cash, the amount of cash refunded to Bank with respect to such Tax; or
(y) in the case of a refund taking the form of a credit against Tax, the
economic benefit to Bank with respect to the amount received as credit with
respect to such Tax. Borrowers further agree promptly to return to Bank the
amount of any credit or refund actually paid to Borrowers by Bank if Bank is
required to repay it.
9.3 Evidence of Payment. Within thirty (30) days after the date of
payment of any Taxes, Borrower shall furnish to Bank the original or a certified
copy of a receipt evidencing payment thereof. If no Taxes are payable in respect
of any payment due hereunder or under the Notes, Borrowers shall furnish to Bank
a certificate from each appropriate taxing authority, or an opinion of counsel
acceptable to Bank, in either case stating that such payment is exempt from or
not subject to Taxes.
ARTICLE X
MISCELLANEOUS
10.1 Notices. All notices, requests and other communications to any
party hereunder shall be in writing (including facsimile transmission or similar
writing) and shall be given to such party at its address or facsimile number set
forth on the signature pages hereof or such other address or facsimile number as
such party may hereafter specify by notice to the other party in accordance with
this Section 10.1. Each such notice, request or other communication shall be
deemed given on the second (2nd) business day after mailing; provided that
actual notice, however and from whomever given or received, shall always be
effective on receipt; provided further that notices to Bank pursuant to Article
II and Article III shall not be effective until received by a Responsible
Officer of Bank; provided further that notices sent by Bank in connection with
Bank's exercise of its enforcement rights against any of its collateral shall be
deemed given when deposited in the mail or personally delivered, or, where
permitted by law, transmitted by facsimile.
10.2 No Waivers. No failure or delay by Bank in exercising any right,
power or privilege hereunder or under any Loan Document shall operate as a
waiver thereof nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege.
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10.3 Expenses; Documentary Taxes; Indemnification.
(a) Borrowers shall pay all Expenses on demand.
(b) Borrowers shall pay all and indemnify Bank against any and
all transfer taxes, documentary taxes, assessments, or charges made by any
Governmental Authority and imposed by reason of the execution and delivery of
this Agreement, any of the Loan Documents, or any other document, instrument or
agreement entered into in connection herewith.
(c) Each Borrower shall and hereby agrees to indemnify, protect,
defend and hold harmless Bank and their respective directors, officers, Banks,
employees and attorneys (collectively, the "Indemnified Persons" and
individually, an "Indemnified Person") from and against (i) any and all losses,
claims, damages, liabilities, deficiencies, judgments, costs and expenses
(including attorneys' fees and attorneys' fees incurred pursuant to proceedings
arising under the Bankruptcy Code) incurred by any Indemnified Person (except to
the extent that it is finally judicially determined to have resulted from the
gross negligence or willful misconduct of any Indemnified Person) arising out of
or by reason of any litigations, investigations, claims or proceedings (whether
administrative, judicial or otherwise), including discovery, whether or not Bank
is designated a party thereto, which arise out of or are in any way related to
(1) this Agreement, the Loan Documents or the transactions contemplated hereby
or thereby, (2) any actual or proposed use by Borrowers of the proceeds of the
Loans, or (3) Bank's entering into this Agreement, the Loan Documents or any
other agreements and documents relating hereto; (ii) any such losses, claims,
damages, liabilities, deficiencies, judgments, costs and expenses arising out of
or by reason of the use, generation, manufacture, production, storage, release,
threatened release, discharge, disposal or presence on, under or about any
Borrower's operations or property or property leased by any Borrower of any
material, substance or waste which is or becomes designated as Hazardous
Materials; and (iii) any such losses, claims, damages, liabilities,
deficiencies, judgments, costs and expenses incurred in connection with any
remedial or other action taken by any Borrower or Bank in connection with
compliance by any Borrower with any federal, state or local environmental laws,
acts, rules, regulations, orders, directions, ordinances, criteria or guidelines
(except to the extent that it is finally judicially determined to have resulted
from the gross negligence or willful misconduct of any Indemnified Person). If
and to the extent that the obligations of Borrowers hereunder are unenforceable
for any reason, Borrowers hereby agree to make the maximum contribution to the
payment and satisfaction of such obligations to Bank which is permissible under
applicable law.
(d) Borrowers' obligations under this Section 10.3 and under
Section 9.2 shall survive any termination of this Agreement and the Loan
Documents and the payment in full of the Obligations, and are in addition to,
and not in substitution of, any other of its obligations set forth in this
Agreement.
10.4 Amendments and Waivers. Neither this Agreement nor any Loan
Document, nor any terms hereof or thereof may be amended, supplemented or
modified except in accordance with the provisions of this Section 10.4. Bank may
from time to time, (a) enter into with Borrowers or any other Person written
amendments, supplements or modifications hereto and to the Loan Documents or (b)
waive, on such terms and conditions as Bank may specify in such instrument, any
of the requirements of this Agreement or the Loan Documents or any Event Default
or Unmatured
55
Event of Default and its consequences, if, but only if, such amendment,
supplement, modification or waiver is in writing and is signed by the party
asserted to be bound thereby, and then such amendment, supplement, modification
or waiver shall be effective only in the specific instance and specific purpose
for which given. Any such waiver and any such amendment, supplement or
modification shall be binding upon Borrower, Bank and all future holders of the
Loans. In the case of any waiver, Borrower and Bank shall be restored to their
former positions and rights hereunder and under the Loan Documents, and any
Event of Default or Unmatured Event of Default waived shall be deemed to be
cured and not continuing; no such waiver shall extend to any subsequent or other
Event of Default or Unmatured Event of Default or impair any right consequent
thereon.
Borrowers may, from time to time, prospectively amend any Schedule
hereto or to any Loan Document. No such amendment shall be evidence, in and of
itself, that the representations and warranties in the corresponding section of
the applicable agreement previously made are no longer true and correct in all
material respects, nor shall any such amendment cure any Event of Default caused
by a misrepresentation previously made.
10.5 Successors and Assigns; Participations; Disclosure.
(a) This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns,
except that Borrowers may not assign or transfer any of its rights or
obligations under this Agreement without the prior written consent of all Bank's
and any such prohibited assignment or transfer by Borrowers shall be void.
(b) Bank may make, carry or transfer the Loans at, to or for the
account of, any of its branch offices or the office of an Affiliate of Bank or
to any Federal Reserve Bank, all without Borrowers' consent.
(c) Bank may, at its own expense, assign to one or more banks or
other Eligible Assignees all or a portion of its rights (including voting
rights) and obligations under this Agreement and the Loan Documents. In the
event of any such assignment by Bank pursuant to this Section 10.5(c), Bank's
obligations under this Agreement arising after the effective date of such
assignment shall be released and concurrently therewith, transferred to and
assumed by Bank's assignee to the extent provided for in the document evidencing
such assignment, and Bank shall give prompt notice of such assignment to
Borrowers. The provisions of this Section 10.5 relate only to absolute
assignments (whether or not arising as the result of foreclosure of a security
interest) and that such provisions do not prohibit assignments creating security
interests, including, without limitation, any pledge or assignment by Bank of
any Loan or the Note to any Federal Reserve Bank in accordance with applicable
law.
(d) Bank may at any time sell to one or more banks or other
financial institutions (each a "Participant") participating interests in the
Loans, the Letters of Credit and in any other interest of Bank hereunder. In the
event of any such sale by Bank of a participating interest to a Participant,
Bank's obligations under this Agreement shall remain unchanged, Bank shall
remain solely responsible for the performance thereof, and Borrowers shall
continue to deal solely and directly with Bank in connection with Bank's rights
and obligations under this Agreement. Each
56
Borrower agrees that each Participant shall, to the extent provided in its
participation agreement, be entitled to the benefits of Article IX with respect
to its participating interest.
(e) Each Borrower authorizes Bank to disclose to any assignee
under Section 10.5(c) or any Participant (either, a "Transferee") and any
prospective Transferee any and all financial information in Bank's possession
concerning Borrowers which has been delivered to Bank by Borrowers pursuant to
this Agreement or which has been delivered to Bank by Borrowers in connection
with Bank's credit evaluation prior to entering into this Agreement; provided
that such Transferee or prospective Transferee has first agreed to be bound by
the provisions of Section 11.6.
(f) Each Borrower agrees that Bank may use Borrower's and the
Subsidiaries' name(s) in advertising and promotional materials, and in
conjunction therewith, Bank may disclose the amount of the Loans and the purpose
thereof.
10.6 Confidentiality. Bank agrees to keep confidential any information
relating to Borrower and the Subsidiaries previously delivered or delivered from
time to time by Borrower hereunder; provided that nothing herein shall prevent
Bank from disclosing such information: (a) to any Affiliate of Bank or any
actual or potential Transferee that agrees to be bound by this Section 10.6, (b)
upon order, subpoena, or other process of any court or administrative agency,
(c) upon the request or demand of any regulatory agency or authority having
jurisdiction over Bank, (d) which has been publicly disclosed (other than by
Bank or any Transferee unless such disclosure was otherwise permitted
hereunder), (e) which has been obtained from any Person that is not a party
hereto or an Affiliate of any such party, (f) in connection with the exercise of
any remedy, or the resolution of any dispute, hereunder or under any Loan
Document, (g) to the legal counsel or certified public accountants for Bank or
(h) as otherwise permitted by Borrower or as expressly contemplated by this
Agreement.
10.7 Counterparts; Effectiveness; Integration. This Agreement may be
signed in any number of counterparts, each of which shall be an original, with
the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement shall be effective when executed by each of the
parties hereto. This Agreement constitutes the entire agreement and
understanding among the parties hereto and supersedes any and all prior
agreements and understandings, oral or written, relating to the subject matter
hereof.
10.8 Severability. The provisions of this Agreement are severable. The
invalidity, in whole or in part, of any provision of this Agreement shall not
affect the validity or enforceability of any other of its provisions. If one or
more provisions hereof shall be declared invalid or unenforceable, the remaining
provisions shall remain in full force and effect and shall be construed in the
broadest possible manner to effectuate the purposes hereof.
10.9 Knowledge. For purposes of this Agreement, an individual will be
deemed to have knowledge of a particular fact or other matter if: (a) such
individual is actually aware of such fact or other matter; or (b) a prudent
individual could be expected to discover or otherwise become aware of such fact
or other matter in the course of conducting a reasonably comprehensive
investigation concerning the existence of such fact or other matter. Each
Borrower will be deemed to have knowledge of a particular fact or other matter
if the chief executive officer, chief operating
57
officer, chief financial officer, controller, treasurer, president, senior vice
president or other such executive officer of such Borrower has, or at any time
had, knowledge of such fact or other matter. Parent will be deemed to have
knowledge of a partial fact or other matter if any other Borrower has knowledge
of such fact or other matter.
10.10 Additional Waivers.
(a) Each Borrower agrees that checks and other instruments
received by Bank in payment or on account of the Obligations constitute only
conditional payment until such items are actually paid to Bank and each Borrower
waives the right to direct the application of any and all payments at any time
or times hereafter received by Bank on account of the Obligations, and each
Borrower agrees that Bank shall have the continuing exclusive right to apply and
reapply such payments in any manner as Bank may deem advisable, notwithstanding
any entry by Bank upon its books.
(b) Each 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 any or all commercial paper, accounts, documents, instruments,
chattel paper, and guarantees at any time held by Bank on which such Borrower
may in any way be liable.
(c) Bank shall not in any way or manner be liable or responsible
for (a) the safekeeping of the Inventory or Equipment; (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 whomsoever. All risk of
loss, damage or destruction of Inventory shall be borne by Borrowers.
(d) Each Borrower waives the right and the right to assert a
confidential relationship, if any, it may have with any accountant, accounting
firm and/or service bureau or consultant in connection with any information
requested by Bank pursuant to or in accordance with this Agreement, and agrees
that Bank may contact directly any such accountants, accounting firm and/or
service bureau or consultant in order to obtain such information.
10.11 Destruction Of Borrowers' Documents. Any documents, schedules,
invoices or other papers delivered to Bank may be destroyed or otherwise
disposed of by Bank six (6) months after they are delivered to or received by
Bank, unless Parent requests, in writing, the return of the said documents,
schedules, invoices or other papers and makes arrangements, at Borrowers'
expense, for their return.
10.12 CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
(a) THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
(UNLESS EXPRESSLY PROVIDED TO THE CONTRARY IN ANOTHER LOAN DOCUMENT IN RESPECT
OF SUCH OTHER LOAN DOCUMENT), THE CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT
HEREOF AND THEREOF, AND THE RIGHTS OF THE PARTIES HERETO AND THERETO WITH
RESPECT TO ALL MATTERS ARISING HEREUNDER OR THEREUNDER OR
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RELATED HERETO OR THERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD
FOR PRINCIPLES OF CONFLICTS OF LAWS.
(b) THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN
CONNECTION WITH THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE TRIED AND
LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF LOS
ANGELES, STATE OF CALIFORNIA, PROVIDED, HOWEVER, THAT ANY SUIT SEEKING
ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT BANK'S
OPTION, IN THE COURTS OF ANY JURISDICTION WHERE BANK ELECTS TO BRING SUCH ACTION
OR WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. BORROWERS AND BANK
WAIVE, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO
ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT
ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 10.12.
(c) THE BORROWERS AND BANK HEREBY WAIVE THEIR RESPECTIVE RIGHTS
TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF
THIS AGREEMENT OR ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS
CONTEMPLATED HEREIN OR THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH
OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. THE BORROWERS AND
BANK 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.
ARTICLE XI
JOINT AND SEVERAL LIABILITY; SINGLE LOAN ACCOUNT
11.1 Joint and Several Liability. Each Borrower agrees that it is
jointly and severally, directly and primarily liable to Bank for payment,
performance and satisfaction in full of the Obligations and that such liability
is independent of the duties, obligations, and liabilities of the other
Borrower. Bank may bring a separate action or actions on each, any, or all of
the Obligations against any Borrower, whether action is brought against the
other Borrowers or whether the other Borrowers are joined in such action. In the
event that any Borrower fails to make any payment of any obligation on or before
the due date thereof, the other Borrowers immediately shall cause such payment
to be made or each of such obligations to be made or each of such Obligations to
be performed, kept, observed, or fulfilled.
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11.2 Primary Obligation; Waiver of Marshalling. This Agreement and the
Loan Documents to which Borrowers are a party are a primary and original
obligation of each Borrower, are not the creation of a surety relationship, and
are an absolute, unconditional, and continuing promise of payment and
performance which shall remain in full force and effect without respect to
future changes in conditions, including any change of law or any invalidity or
irregularity with respect to this Agreement or the Loan Documents to which
Borrowers are a party. Each Borrower agrees that its liability under this
Agreement and the Loan Documents which Borrowers are a party shall be immediate
and shall not be contingent upon the exercise or enforcement by Bank of whatever
remedies they may have against the other Borrowers, or the enforcement of any
lien or realization upon any security Bank may at any time possess. Each
Borrower consents and agrees that Bank shall be under no obligation to marshal
any assets of any Borrower against or in payment of any or all of the
Obligations.
11.3 Financial Condition of Borrowers. Each Borrower acknowledges that
it is presently informed as to the financial condition of the other Borrowers
and of all other circumstances which a diligent inquiry would reveal and which
bear upon the risk of nonpayment of the Obligations. Each Borrower hereby
covenants that it will continue to keep informed as to the financial condition
of the other Borrowers, the status of the other Borrowers and of all
circumstances which bear upon the risk of nonpayment. Absent a written request
from any Borrower to Bank for information, each Borrower hereby waives any and
all rights it may have to require Bank to disclose to such Borrower any
information which Bank may now or hereafter acquire concerning the condition or
circumstances of the other Borrowers.
11.4 Continuing Liability. The liability of each Borrower under this
Agreement and the Loan Documents to which Borrowers are a party includes
Obligations arising under successive transactions continuing, compromising,
extending, increasing, modifying, releasing, or renewing the Obligations,
changing the interest rate, payment terms, or other terms and conditions
thereof, or creating new or additional Obligations after prior Obligations have
been satisfied in whole or in part. To the maximum extent permitted by law, each
Borrower hereby waives any right to revoke its liability under this Agreement
and Loan Documents as to future indebtedness, and in connection therewith, each
Borrower hereby waives any rights it may have under Section 2815 of the
California Civil Code.
11.5 Additional Waivers. Each Borrower absolutely, unconditionally,
knowingly, and expressly waives:
(a) (1) notice of acceptance hereof; (2) notice of any Loans or
other financial accommodations made or extended under this Agreement and the
Loan Documents to which Borrowers are a party or the creation or existence of
any Obligations; (3) notice of the amount of the Obligations, subject, however,
to each Borrower's right to make inquiry of Bank to ascertain the amount of the
Obligations at any reasonable time; (4) notice of any adverse change in the
financial condition of the other Borrowers or of any other fact that might
increase such Borrower's risk hereunder; (5) notice of presentment for payment,
demand, protest, and notice thereof as to any instruments among the Loan
Documents to which Borrowers are a party; (6) notice of any Unmatured Event of
Default or Event of Default; and (7) all other notices (except if such notice is
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specifically required to be given to Borrowers hereunder or under the Loan
Documents to which Borrowers are a party) and demands to which such Borrower
might otherwise be entitled.
(b) its right, under Sections 2845 or 2850 of the California
Civil Code, or otherwise, to require Bank to institute suit against, or to
exhaust any rights and remedies which Bank has or may have against, the other
Borrowers or any third party, or against any collateral for the Obligations
provided by the other Borrowers, or any third party. Each Borrower further
waives any defense arising by reason of any disability or other defense (other
than the defense that the Obligations shall have been fully and finally
performed and indefeasibly paid) of the other Borrowers or by reason of the
cessation from any cause whatsoever of the liability of the other Borrowers in
respect thereof.
(c) (1) any rights to assert against Bank any defense (legal and
equitable), set-off, counterclaim, or claim which such Borrower may now or at
any time hereafter have against the other Borrowers or any other party liable to
Bank; (2) any defense, set-off, counterclaim, or claim, of any kind or nature,
arising directly or indirectly from the present or future lack of perfection,
sufficiency, validity, or enforceability of the Obligations or any security
therefor; (3) any defense such Borrower has to performance hereunder, and any
right such Borrower has to be exonerate, provided by Sections 2819, 2822, or
2825 of the California Civil Code, or otherwise, arising by reason of: the
impairment or suspension of Bank's rights or remedies against the other
Borrowers; the alteration by Bank of the Obligations; any discharge of the other
Borrowers' obligations to Bank by operation of law as a result of Bank's
intervention or omission; or the acceptance by Bank of anything in partial
satisfaction of the Obligations; and (4) the benefit of any statute of
limitations affecting such Borrower's liability hereunder or the enforcement
thereof, and any act which shall defer or delay the operation of any statute of
limitations applicable to the Obligations shall similarly operate to defer or
delay the operation of such statute of limitations applicable to such Borrower's
liability hereunder.
(d) Each Borrower absolutely, unconditionally, knowingly, and
expressly waives any defense arising by reason of or deriving from (i) any claim
or defense based upon an election of remedies by Bank including any defense
based upon an election of remedies by Bank under the provisions of Sections
580a, 580b, 580d, and 726 of the California Code of Civil Procedure or any
similar law of California or any other jurisdiction; or (ii) any election by
Bank under Section 1111(b) of the Bankruptcy Code to limit the amount of, or any
collateral securing, its claim against the Borrowers. Pursuant to California
Civil Code Section 2856(b):
(i) Each Borrower waives all rights and defenses arising
out of an election of remedies by the creditor, even though that election of
remedies, such as a nonjudicial foreclosure with respect to security for a
guaranteed obligation, has destroyed such Borrower's rights of subrogation and
reimbursement against the other Borrowers by the operation of Section 580(d) of
the California Code of Civil Procedure or otherwise.
(ii) Each Borrower waives all rights and defenses that
such Borrower may have because the Obligations are secured by real property.
This means, among other things: (1) Bank may collect from such Borrower without
first foreclosing on any real or personal property collateral pledged by the
other Borrowers; and (2) if Bank forecloses on any real property
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collateral pledged by the other Borrowers: (A) the amount of the Obligations may
be reduced only by the price for which that collateral is sold at the
foreclosure sale, even if the collateral is worth more than the sale price; and
(B) Bank may collect from such Borrower even if Bank, by foreclosing on the real
property collateral, has destroyed any right such Borrower may have to collect
from the other Borrowers. This is an unconditional and irrevocable waiver of any
rights and defenses each Borrower may have because the Obligations are secured
by real property. These rights and defenses include, but are not limited to, any
rights or defenses based upon Section 580a, 580b, 580d, or 726 of the California
Code of Civil Procedure.
(e) If any of the Obligations at any time are secured by a
mortgage or deed of trust upon real property, Bank may elect, in its sole
discretion, upon a default with respect to the Obligations, to foreclose such
mortgage or deed of trust judicially or nonjudicially in any manner permitted by
law, before or after enforcing this Agreement and the Loan Documents, without
diminishing or affecting the liability of any Borrower hereunder except to the
extent the Obligations are repaid with the proceeds of such foreclosure. Each
Borrower understands that (a) by virtue of the operation of California's
antideficiency law applicable to nonjudicial foreclosures, an election by Bank
nonjudicially to foreclose such a mortgage or deed of trust probably would have
the effect of impairing or destroying rights of subrogation, reimbursement,
contribution, or indemnity of such Borrower against the other Borrowers or other
guarantors or sureties, and (b) absent the waiver given by such Borrower, such
an election would prevent Bank from enforcing this Agreement and the Loan
Documents to which Borrowers are a party against such Borrower. Understanding
the foregoing, and understanding that such Borrower is hereby relinquishing a
defense to the enforceability of this Agreement and the Loan Documents to which
Borrowers are a party, such Borrower hereby waives any right to assert against
Bank any defense to the enforcement of this Agreement and the Loan Documents to
which Borrowers are a party, whether denominated "estoppel" or otherwise, based
on or arising from an election by Bank nonjudicially to foreclose any such
mortgage or deed of trust. Each Borrower understands that the effect of the
foregoing waiver may be that each Borrower may have liability hereunder for
amounts with respect to which such Borrower may be left without rights of
subrogation, reimbursement, contribution, or indemnity against the other
Borrower or other guarantors or sureties. Each Borrower also agrees that the
"fair market value" provisions of Section 580a of the California Code of Civil
Procedure shall have no applicability with respect to the determination of such
Borrower's liability under this Agreement and the Loan Documents to which
Borrowers are a party.
(f) Each Borrower hereby absolutely, unconditionally, knowingly,
and expressly waives: (i) any right of subrogation such Borrower has or may have
as against the other Borrowers with respect to the Obligations; (ii) any right
to proceed against the other Borrowers or any other Person, now or hereafter,
for contribution, indemnity, reimbursement, or any other suretyship rights and
claims, whether direct or indirect, liquidated or contingent, whether arising
under express or implied contract or by operation of law, which such Borrower
may now have or hereafter have as against the other Borrowers with respect to
the Obligations; and (iii) any right to proceed or seek recourse against or with
respect to any property or asset of the other Borrowers.
(g) WITHOUT LIMITING THE GENERALITY OF ANY OTHER WAIVER OR OTHER
PROVISION SET FORTH IN THIS AGREEMENT, EACH BORROWER HEREBY ABSOLUTELY,
KNOWINGLY, UNCONDITIONALLY, AND EXPRESSLY WAIVES
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AND AGREES NOT TO ASSERT ANY AND ALL BENEFITS OR DEFENSES ARISING DIRECTLY OR
INDIRECTLY UNDER ANY ONE OR MORE OF CALIFORNIA CIVIL CODE SECTIONS 2799, 2808,
2809, 2810, 2815, 2819, 2820, 2821, 2822, 2825, 2839, 2845, 2848, 2849, AND
2850, CALIFORNIA CODE OF CIVIL PROCEDURE SECTIONS 580a, 580b, 580c, 580d, AND
726, CALIFORNIA UNIFORM COMMERCIAL CODE SECTIONS 3116, 3118, 3119, 3419, AND
3605, AND CHAPTER 2 OF TITLE 14 OF PART 4 OF DIVISION 3 OF THE CALIFORNIA CIVIL
CODE.
11.6 Settlement or Releases. Each Borrower consents and agrees that
without notice to or by such Borrower, and without affecting or impairing the
liability of such Borrower hereunder, Bank may, by action or inaction:
(a) compromise, settle, extend the duration or the time for the
payment of, or discharge the performance of, or may refuse to or otherwise not
enforce this Agreement and the Loan Documents, or any part thereof, with respect
to the other Borrowers or any Guarantor;
(b) release the other Borrowers or any Guarantor or grant other
indulgences to the other Borrowers or any Guarantor in respect thereof; or
(c) release or substitute any Guarantor, if any, of the
Obligations, or enforce, exchange, release, or waive any security for the
Obligations or any other guaranty of the Obligations, or any portion thereof.
11.7 No Election. Bank shall have the right to seek recourse against
each Borrower to the fullest extent provided for herein, and no election by Bank
to proceed in one form of action or proceeding, or against any party, or on any
obligation, shall constitute a waiver of Bank's right to proceed in any other
form of action or proceeding or against other parties unless Bank has expressly
waived such right in writing. Specifically, but without limiting the generality
of the foregoing, no action or proceeding by Bank under this Agreement and the
Loan Documents shall serve to diminish the liability of any Borrower under this
Agreement and the Loan Documents to which Borrowers are a party except to the
extent that Bank finally and unconditionally shall have realized indefeasible
payment by such action or proceeding.
11.8 Indefeasible Payment. The Obligations shall not be considered
indefeasibly paid unless and until all payments to Bank are no longer subject to
any right on the part of any Person, including any Borrower, any Borrower as a
debtor in possession, or any trustee (whether appointed pursuant to the
Bankruptcy Code, or otherwise) of any Borrower's Assets to invalidate or set
aside such payments or to seek to recoup the amount of such payments or any
portion thereof, or to declare same to be fraudulent or preferential. Upon such
full and final performance and indefeasible payment of the Obligations, Bank
shall have no obligation whatsoever to transfer or assign its interest in this
Agreement and the Loan Documents to any Borrower. In the event that, for any
reason, any portion of such payments to Bank is set aside or restored, whether
voluntarily or involuntarily, after the making thereof, then the obligation
intended to be satisfied thereby shall be revived and continued in full force
and effect as if said payment or payments had not been made, and any Borrower
shall be liable for the full amount Bank is required to repay plus any and all
costs and
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expenses (including attorneys' fees and attorneys' fees incurred in proceedings
brought under the Bankruptcy Code) paid by Bank in connection therewith.
11.9 Single Loan Account. At the request of Borrowers to facilitate and
expedite the administration and accounting processes and procedures of the Loans
and Borrowings, Bank have agreed, in lieu of maintaining separate loan accounts
on Bank's books in the name of each of the Borrowers, that Bank may maintain a
single loan account under the name of all of both Borrowers (the "Loan
Account"). All Loans shall be made jointly and severally to Borrowers and shall
be charged to the Loan Account, together with all interest and other charges as
permitted under and pursuant to this Agreement. The Loan Account shall be
credited with all repayments of Obligations received by Bank, on behalf of
Borrowers, from either Borrower pursuant to the terms of this Agreement.
11.10 Apportionment of Proceeds of Loans. Each Borrower expressly agrees
and acknowledges that Bank shall have no responsibility to inquire into the
correctness of the apportionment or allocation of or any disposition by any of
Borrowers of (a) the Loans or any Borrowings, or (b) any of the expenses and
other items charged to the Loan Account pursuant to this Agreement. The Loans
and all such Borrowings and such expenses and other item shall be made for the
collective, joint, and several account of Borrowers and shall be charged to the
Loan Account.
11.11 Bank Held Harmless. Each Borrower agrees and acknowledges that the
administration of this Agreement on a combined basis, as set forth herein, is
being done as an accommodation to Borrowers and at their request, and that Bank
shall incur no liability to Borrowers as a result thereof. To induce Bank to do
so, and in consideration thereof, each Borrower hereby agrees to indemnify and
hold Bank harmless from and against any and all liability, expense, loss,
damage, claim of damage, or injury, made against Bank by Borrowers or by any
other person or entity, arising from or incurred by reason of such
administration of the Agreement.
11.12 Borrowers' Integrated Operations. Each Borrower represents and
warrants to Bank that the collective administration of the Loans is being
undertaken by Bank pursuant to this Agreement because Borrowers are integrated
in their operation and administration and require financing on a basis
permitting the availability of credit from time to time to Borrowers. Each
Borrower will derive benefit, directly and indirectly, from such collective
administration and credit availability because the successful operation of each
Borrower is enhanced by the continued successful performance of the integrated
group.
* * *
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* * *
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
DECKERS OUTDOOR CORPORATION
By /s/ M. ▇▇▇▇▇ ▇▇▇
----------------------------------
M. ▇▇▇▇▇ ▇▇▇, Chief Financial
Officer
Address for notices:
Deckers Outdoor Corporation
▇▇▇-▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: Chief Financial Officer
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇, Ext. 185
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
UGG HOLDINGS, INC.
By /s/ M. ▇▇▇▇▇ ▇▇▇
----------------------------------
M. ▇▇▇▇▇ ▇▇▇, Chief Financial
Officer
Address for notices:
UGG HOLDINGS, INC.
▇▇▇-▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: Chief Financial Officer
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇, Ext. 185
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
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COMERICA BANK - CALIFORNIA
By /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
----------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇, Vice President
Address for notices and Lending
Office:
Comerica Bank - California
▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
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