EXHIBIT 10.12
FOURTH AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
THIS FOURTH AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT (this
"Agreement") is made as of this _______ day of April, 1998, by and among
RESTORATION HARDWARE, INC. (sometimes herein "Restoration"), a California
corporation with its chief executive office and principal place of business at
▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇, ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ and THE MICHAELS FURNITURE
COMPANY, INC. (sometimes herein "Michael's") (each a "Borrower" and collectively
"Borrowers"); each of the lenders that is a signatory to this Agreement
(together with its successors and permitted assigns, individually, "Lender" and,
collectively, "Lenders"); and FLEET CAPITAL CORPORATION, a Rhode Island
corporation with an office at ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, as agent for the Lenders (in such capacity, together with its
successors, if any, in such capacity, "Agent"). Capitalized terms used in this
Agreement have the meanings assigned to them in Appendix A, General Definitions,
attached hereto. Accounting terms not otherwise specifically defined herein
shall be construed in accordance with GAAP consistently applied. This Agreement
amends and restates in full that certain Third Amended and Restated Loan and
Security Agreement dated December 11, 1997, among Restoration Hardware, Inc., as
the borrower, Sumitomo Bank of California, as a lender, and Fleet Capital
Corporation, as a lender and as agent (the "December 1997 Agreement").
SECTION 1. CREDIT FACILITY
Subject to the terms and conditions of, and in reliance upon the
representations and warranties made in, this Agreement and the other Loan
Documents, Lenders agree to make the Total Credit Facility available upon
Borrowers' request therefor, as follows:
1.1 Revolving Credit Loans.
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1.1.1 Loans and Reserves. Each Lender severally agrees, on the terms
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and conditions of this Agreement and for so long as no Default or Event of
Default exists, to make Revolving Credit Loans to Borrowers from time to time
from and after the Closing Date, as requested by Borrowers in the manner set
forth in subsection 3.1.1 hereof, in a maximum principal amount at any time
outstanding up to but not exceeding:
(A) for Restoration, the amount of the Restoration Commitment
of such Lender for Revolving Credit Loans as in effect from time to time,
provided that in no event shall the aggregate principal amount of all Revolving
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Credit Loans to Restoration plus the LC Amount exceed the lesser of (i) the
aggregate amount of the Restoration Commitments for Revolving Credit Loans as in
effect from time to time or (ii) the aggregate Restoration Borrowing Base at
such time minus reserves, if any, that may be established by Agent from time to
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time in accordance with this subsection; and provided, further that the
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aggregate outstanding amount of Revolving Credit Loans to Restoration plus the
LC Amount shall not, for a period of at least 30 consecutive days in the period
from January 1 to February 28 of each year, exceed, for any reason, $15,000,000;
and
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(B) For Michael's, the amount of the Michael's Revolving Credit
Commitment of such Lender as in effect from time to time, provided that in no
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event shall the aggregate principal amount of all Revolving Credit Loans to
Michael's exceed the lesser of (i) the aggregate amount of the Michael's
Revolving Credit Commitments as in effect from time to time or (ii) the
aggregate Michael's Borrowing Base at such time minus reserves, if any, that may
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be established by Agent from time to time in accordance with this subsection.
Agent shall have the right to establish reserves in such amounts, and with
respect to such matters for each Borrower, as Agent shall deem necessary or
appropriate in the exercise of its reasonable commercial judgment, against the
amount of Revolving Credit Loans to each Borrower which such Borrower may
otherwise request under this subsection 1.1.1, including, without limitation,
with respect to (i) price adjustments, damages, unearned discounts, returned
products or other matters for which credit memoranda are issued in the ordinary
course of such Borrower's business; (ii) shrinkage, spoilage and obsolescence of
Inventory; (iii) slow moving Inventory; (iv) other sums chargeable against such
Borrower's Loan Account as Revolving Credit Loans as expressly provided for in
this Agreement; (v) amounts owing by such Borrower to any Person to the extent
secured by a Lien on, or trust over, any Property of such Borrower; (vi) amounts
owing and obligations incurred by Michael's in respect of obligations of ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, and (vii) such other matters, events, conditions or contingencies as
to which Agent, in the exercise of its reasonable credit judgment, determines
reserves should be established from time to time hereunder.
1.1.2 Use of Proceeds. The Loans shall be used solely for (i) the
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satisfaction in full on the Closing Date of the Indebtedness of Restoration to
the Lenders under the December 1997 Agreement (as provided in Section 1.5
hereof), (ii) the acquisition by Restoration of 100% of the capital stock of
Michael's, (iii) the purposes specified in Section 1.2, and (iv) Borrowers'
general operating capital needs in a manner consistent with the provisions of
this Agreement and all applicable laws.
1.2 Seasonal Facility. During the period from February 1, 1998 $500,000
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and (ii) 100% of actual store to December 31, 1998 and during the opening costs,
net of tenant improvement period from February 1 to December 31 of allowances;
provided that the aggregate each year thereafter, for so long as no amount
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outstanding under the Seasonal Default or Event of Default exists, Facility
shall not exceed $10,000,000 at Lenders shall, ratably in accordance with any
time, and provided, further, that the their respective Restoration Commitments,
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balance of the Seasonal Facility shall be provide a seasonal facility ("Seasonal
paid in full at all times from and Facility") to Restoration to fund the
including January 1 to and including opening of new stores in an amount for
January 31 of each year. Amounts drawn each such store opening equal to the
under the Seasonal Facility (each, a lesser of (i) "Seasonal Loan") shall be
payable interest-only until January 1 of each year (commencing January 1, 1999)
at which time all amounts outstanding under the Seasonal Facility, along with
all accrued but unpaid interest thereon, shall be due and payable in full.
Within the foregoing requirements and during the foregoing time periods, amounts
drawn under the Seasonal Facility may repaid and reborrowed from time to time;
provided that Restoration may borrow only one time in connection with the
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opening of any particular store. All outstanding principal and interest on the
Seasonal Loans shall be due and payable upon any termination of this Agreement.
1.3 Letters Of Credit. Agent shall, for so long as no Default or Event of
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Default exists, and if requested by Restoration, cause to be issued letters of
credit for the account of Restoration (collectively with any guaranties thereof
given by Agent, "Letters of Credit"); provided that the aggregate outstanding
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amount, without duplication, of all Letters of Credit (the "LC Amount") at any
time shall not exceed $1,500,000. The Letters of Credit shall constitute a
subline of the Restoration Commitment. No Letter of Credit may have an
expiration date that is after the last day of the Original Term or the then
current Renewal Term. Immediately upon the issuance of each Letter of Credit,
the Agent shall be deemed to have sold and transferred to each Lender, and each
Lender shall be deemed to have purchased and received from the Agent, in each
case irrevocably and without any further action by any party, an undivided
interest and participation in such Letter of Credit, as applicable, each drawing
thereunder and the obligations of Restoration under this Agreement in respect
thereof in an amount equal to the product of (x) such Lender's Restoration
Commitment Percentage times (y) the maximum amount available to be drawn under
such Letter of Credit (assuming compliance with all conditions to drawing). Any
amounts paid by Agent or Lenders in connection with any Letter of Credit shall
be treated as Revolving Credit Loans to Restoration, shall be secured by all of
the Collateral and, unless and until converted in accordance with the terms of
this Agreement, shall bear interest and be payable at the same rate and in the
same manner as Base Rate Revolving Credit Loans. A reserve shall be charged
against the Restoration Borrowing Base based on 100% of the LC Amount from time
to time. All Letters of Credit will be processed through Agent's Treasury and
International Services Group.
1.4 Term Loan. Lenders agree, ratably in accordance with their respective
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Michael's Term Loan Commitments, to make a term loan to Michael's on the Closing
Date in the principal amount of $5,000,000. The Term Loan shall be repayable to
the Lenders in accordance with the terms of the Term Notes, shall be amortized
as set forth in the following schedule and shall be secured by all of the
Collateral.
Period Monthly Principal Payment
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July 1, 1998 through $ 41,666.67
September 1, 1998
October 1, 1998 $ 53,571.43
through April 1, 1999
May 1, 1999 through $ 41,666.67
April 1, 2000
May 1, 2000 through $ 83,333.33
April 1, 2001
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May 1, 2001 through $125,000.00
April 1, 2002
May 1, 2002 through $125,000.00
March 1, 2003 (with the final principal installment
being all remaining unpaid principal)
1.5 Amendment and Restatement. On the Closing Date, all loans outstanding
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under the December 1997 Agreement shall become Loans to Restoration under this
Agreement, of the same type and amount, and the Loans by each of the Lenders
shall be adjusted according to their Commitment Percentage hereunder.
SECTION 2. INTEREST, FEES AND CHARGES
2.1 Interest.
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2.1.1 Rates of Interest.
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(i) Interest shall accrue on the principal amount of the
Base Rate Portions of the Revolving Credit Loans outstanding at the end of
each day at a fluctuating rate per annum equal to the Base Rate, subject to
reduction as provided below in this subsection 2.1.2. If either Borrower
properly exercises its LIBOR Option, as provided in Section 2.3, interest
shall accrue on the principal amount of the LIBOR Revolving Credit Portions
outstanding at the end of each day at a rate per annum equal to 200 basis
points plus the LIBOR Rate applicable to each LIBOR Revolving Credit
Portion for the corresponding LIBOR Period. If Restoration raises between
$15,000,000 and $30,000,000, net of costs of issuance, from an initial
public offering of its stock, and if no Default or Event of Default then
exists, the interest rates applicable to the LIBOR Revolving Credit Loans
shall be reduced by 25 basis points, commencing on the first day of the
first month after Borrower receives the proceeds from such offering. If
Borrower raises in excess of $30,000,000, net of costs of issuance, from an
initial public offering of its stock, and no Default or Event of Default
then exists, the interest rates applicable to the LIBOR Revolving Credit
Loans shall be reduced by 50 basis points (but as to Michael's, only if its
Term Loan is paid in full from the proceeds thereof), commencing on the
first day of the first month after Borrower receives the proceeds from such
offering. The foregoing interest rate reductions shall not be applicable to
Revolving Credit Loans which bear interest based upon the Base Rate.
(ii) Interest shall accrue on the principal amount of the
Seasonal Loans outstanding at the end of each day at a fluctuating rate per
annum equal to the Base Rate plus 0.75%.
(iii) Interest shall accrue on the unpaid principal balance of
the Term Loan outstanding from time to time at a fluctuating rate per annum
equal to 1.25% plus the Base Rate.
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2.1.2 Adjustment of Interest Rates. The rate of interest on all Base
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Rate Loans shall increase or decrease by an amount equal to any increase or
decrease in the Base Rate, effective as of the opening of business on the day
that any such change in the Base Rate occurs.
2.1.3 Default Rate of Interest. Upon the occurrence of an Event of
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Default and during the continuation thereof, effective upon the serving of
notice by Agent to Borrowers, the principal amount of all Loans shall bear
interest at a fluctuating rate per annum equal to 2.0% in excess of the Base
Rate interest option then applicable to such Loans (the "Default Rate"). While
the Default Rate is in effect, the LIBOR Option shall not be available.
2.1.4 Letters of Credit. Restoration shall pay to Agent (for its own
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account as guarantor of a Letter of Credit) the following fees, payable as
indicated: (i) $95 upon issuance of a Letter of Credit, and (ii) $75 for any
amendment to a Letter of Credit, provided that automatic renewal or amendment to
increase and/or extend a Letter of Credit shall be billed as an issuance
thereof. In addition to the foregoing, if the LC Amount is in excess of
$100,000 at any time, Restoration shall pay to Agent, for the pro rata benefit
of Lenders, a fee equal to 2.0% of the LC Amount plus 2.0% of the face amount of
any Letter of Credit issued while the LC Amount is in excess of $100,000;
provided that such 2.0% fee shall be payable only once with respect to any
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particular Letter of Credit. No other fees or costs in connection with the
issuance or guaranty of Letters of Credit shall be payable by Restoration.
2.1.5 Maximum Interest. In no event whatsoever shall the aggregate
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of all amounts deemed interest hereunder and charged or collected pursuant to
the terms of this Agreement exceed the highest rate permissible under any law
which a court of competent jurisdiction shall, in a final determination, deem
applicable hereto.
2.2 Computation of Interest and Fees. Interest, unused line fees and
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collection charges hereunder shall be calculated daily and shall be computed on
the actual number of days elapsed over a year of 360 days. For the purpose of
computing interest hereunder, all items of payment received by Agent shall be
deemed applied by Agent on account of the Obligations (subject to final payment
of such items) on the day of receipt by Agent of such items in Agent's account
set forth in subsection 3.7.1 or in such other account to which Agent directs
payment.
2.3 LIBOR Option.
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(i) Upon the conditions that (1) Agent shall have received a
LIBOR Request from a Borrower at least 3 Business Days prior to the first
day of the LIBOR Period requested, (2) there shall have occurred no change
since the date of this Agreement in applicable law which would make it
unlawful for Lenders to obtain deposits of U.S. dollars in the London
interbank foreign currency deposits market, (3) as of the date of the LIBOR
Request and the first day of the LIBOR Period, there shall exist no Default
or Event of Default, (4) Lenders are able to determine the LIBOR Rate in
respect of the requested LIBOR Period and Lenders are able to obtain
deposits of U.S. dollars in the London interbank foreign currency deposits
market in the applicable amounts and for the requested LIBOR Period, and
(5) as of the first date of the LIBOR
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Period, there are no more than six (6) outstanding LIBOR Revolving Credit
Portions including the LIBOR Revolving Credit Portion being requested, then
interest on the LIBOR Revolving Credit Portion requested during the LIBOR
Period requested will be based on the applicable LIBOR Rate.
(ii) Each LIBOR Request shall be irrevocable and binding on
the requesting Borrower. Borrowers shall indemnify Lenders for any loss,
penalty or expense incurred by Lenders due to failure on the part of
Borrowers to fulfill, on or before the date specified in any LIBOR Request,
the applicable conditions set forth in this Agreement or due to the
prepayment of the applicable LIBOR Revolving Credit Portion prior to the
last day of the applicable LIBOR Period, including, without limitation, any
loss or expense incurred by reason of the liquidation or redeployment of
deposits or other funds acquired by Lenders to fund or maintain the
requested LIBOR Revolving Credit Portion.
(iii) If any Legal Requirement shall (1) make it unlawful for
Lenders to fund through the purchase of U.S. dollar deposits any LIBOR
Revolving Credit Portion or otherwise give effect to its obligations as
contemplated under this Section 2.3, or (2) shall impose on Lenders any
costs based on or measured by the excess above a specified level of the
amount of a category of deposits or other liabilities of Lenders which
includes deposits by reference to which the LIBOR Rate is determined as
provided herein or a category of extension of credit or other assets of
Lenders which includes any LIBOR Revolving Credit Portion or (3) shall
impose on Lenders any restrictions on the amount of such a category of
liabilities or assets which Lenders may hold, then, in each such case,
Agent may, by notice thereof to Borrowers, terminate the LIBOR Option. Any
LIBOR Revolving Credit Portion subject thereto shall immediately bear
interest thereafter at the rate and in the manner provided for the Base
Rate Revolving Credit Portion pursuant to subsection 2.1.1. Borrowers
shall indemnify Lenders against any loss, penalty or expense incurred by
Lenders due to liquidation or redeployment of deposits or other funds
acquired by Lender to fund or maintain any LIBOR Revolving Credit Portion
that is terminated hereunder.
(iv) Lenders shall receive payments of amounts of principal
of and interest on the Loans with respect to the LIBOR Revolving Credit
Portions free and clear of, and without deduction for, any Taxes. If (1)
Lenders shall be subject to any Tax in respect of any LIBOR Revolving
Credit Portion or any part thereof or, (2) Borrowers shall be required to
withhold or deduct any Tax from any such amount, the LIBOR Rate applicable
to such LIBOR Revolving Credit Portion shall be adjusted by Lenders to
reflect all additional costs incurred by Lenders in connection with the
payment by Lenders or the withholding by Borrowers of such Tax and
Borrowers shall provide Lenders with a statement detailing the amount of
any such Tax actually paid by Borrowers. Determination by Lenders of the
amount of such costs shall, in the absence of manifest error, be
conclusive. If after any such adjustment any part of any Tax paid by
Lenders is subsequently recovered by Lenders, Lenders shall reimburse
Borrowers to the extent of the amount so recovered. A certificate of an
officer of Agent setting forth the
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amount of such recovery and the basis therefor shall, in the absence of
manifest error, be conclusive.
(v) Prior to the date of the initial Borrowing in the case
of the Agent and each Lender listed on the signature pages hereof, and on
the date of any assignment pursuant to which it became a Lender in the case
of each other Lender, organized under the laws of a jurisdiction outside
the United States, shall provide the Agent and the Borrowers with the forms
prescribed by the Internal Revenue Service of the United States certifying
as to such Lender's or the Agent's status for purposes of determining
exemption from United States withholding taxes with respect to all payments
to be made to such Lender or the Agent hereunder or other documents
satisfactory to the Agent indicating that all payments to be made to such
Lender or the Agent, as the case may be, hereunder are subject to such
taxes at a rate reduced by an applicable tax treaty. Notwithstanding
paragraph (iv) above, unless the Borrowers and the Agent have received
forms or other documents satisfactory to them indicating that payments
hereunder are not subject to United States withholding tax, the Borrowers
or the Agent shall withhold taxes from such payments at the applicable
statutory rate or such lower rate as provided in an applicable tax treaty
(if such Lender or the Agent, if applicable, has provided the required
forms entitling it to such reduced withholding rate) in the case of
payments to or for any Lender or an Agent organized under the laws of a
jurisdiction outside the United States.
(vi) Any Lender claiming any additional amounts payable
pursuant to this Section 2.3 shall use its reasonable efforts (consistent
with its internal policy and legal and regulatory restrictions) to change
the jurisdiction of the office or branch in which it books the Loans if the
making of such a change would avoid the need for, or reduce the amount of,
any such additional amounts which may thereafter accrue and would not, in
the reasonable judgment of such Lender, be otherwise disadvantageous to
such Lender.
2.4 Closing Fee. Borrowers shall pay to Agent, on the Closing Date, a
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Closing Fee as set forth in the Fee Letter, which fee shall be fully earned and
nonrefundable and shall be paid concurrently with the making of the initial
Loans hereunder as set forth in Section 1.1 hereof.
2.5 Unused Line Fee.
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2.5.1 Restoration. Restoration shall pay to Agent, for the pro rata
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benefit of the Lenders, a fee equal to 0.25% per annum of the amount by which
(x) the average amount obtained during any month pursuant to clause (ii)(a) of
the definition of Restoration Borrowing Base exceeds (y) the sum of the average
outstanding principal balance of Restoration's Revolving Credit Loans plus the
average LC Amount during such month. Such unused line fee shall be payable
monthly in arrears on the first day of each calendar month hereafter.
2.5.2 Michael's. Michael's shall pay to Agent, for the pro rata
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benefit of the Lenders, a fee equal to 0.25% per annum of the amount by which
(x) the average Michael's Borrowing Base during any month exceeds (y) the
average outstanding principal balance of
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Michael's Revolving Credit Loans during such month. Such unused line fee shall
be payable monthly in arrears on the first day of each calendar month hereafter.
2.6 Reimbursement of Expenses. If, at any time or times regardless of
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whether or not an Event of Default then exists, Agent incurs legal or accounting
expenses or any other out-of-pocket costs or expenses in connection with (i) the
negotiation and preparation of this Agreement or any of the other Loan
Documents, including all search, recording, filing, title search, title policy
fees and the like, any amendment of or modification of this Agreement or any of
the other Loan Documents; (ii) the administration of this Agreement or any of
the other Loan Documents and the transactions contemplated hereby and thereby;
(iii) any litigation, contest, dispute, suit, proceeding or action (whether
instituted by Agent, any Lender, any Borrower or any other Person) in any way
relating to the Collateral, this Agreement or any of the other Loan Documents;
(iv) any attempt to enforce any rights of Agent, any Lender, or any
Participating Lender against any Borrower or any other Person which may be
obligated to Agent or any Lender by virtue of this Agreement or any of the other
Loan Documents, including, without limitation, the Account Debtors; (v) any
attempt to inspect (including audits and appraisals), verify, protect, preserve,
restore, collect, sell, liquidate or otherwise dispose of or realize upon the
Collateral or (vi) any Default or Event of Default and any enforcement or
collection proceedings (including any bankruptcy, reorganization, workout or
other similar proceeding) resulting from such Default or Event of Default or in
connection with the negotiation of any restructuring or "work-out" (whether or
not consummated) of the obligations of Borrowers under the Loan Documents; then
all such reasonable legal and other actual out of pocket costs and expenses
(collectively, "Lenders' Costs") shall, to the extent incurred, be charged to
Borrowers; provided, however, that Borrowers shall not be charged in excess of
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$10,000 in the aggregate under clauses (ii) and (v) of this Section 2.6 during
any calendar year in which no Event of Default has occurred or existed. All
amounts chargeable to Borrowers under this Section 2.6 shall be charged to the
Loan Account of the Borrower who incurred such charge to the extent
identifiable, and if not identifiable, at Agent's option, charged to each
Borrower's Loan Account in proportion to each Borrower's then outstanding
balance, in each case as Revolving Credit Loans, or otherwise be payable on
demand to Agent (for the account of the Person to whom such amount is payable),
shall be Obligations secured by all of the Collateral and shall bear interest
from the date charged to the Loan Account (or from the date following the date
demand is made, if not so charged) until paid in full at the rate applicable to
Base Rate Revolving Credit Loans from time to time (unless and until converted
in accordance with the terms of this Agreement). Borrowers shall also reimburse
Agent for expenses incurred by Agent in its administration of the Collateral to
the extent and in the manner provided in Section 6 hereof.
2.7 Bank Charges. Each Borrower shall pay to Agent, on demand, any and
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all fees, costs or expenses which Agent pays to a bank or other similar
institution arising out of or in connection with (i) the forwarding to such
Borrower or any other Person on behalf of such Borrower, by Agent, of proceeds
of loans made by Lenders to such Borrower pursuant to this Agreement and (ii)
the depositing for collection by Agent of any check or item of payment received
or delivered to Agent on account of the Obligations. Notwithstanding the
foregoing however, Borrowers shall not be responsible for fees, costs or
expenses incurred by Agent or Lenders in transferring funds between or among
Agent and Lenders.
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SECTION 3. LOAN ADMINISTRATION
3.1 Manner of Borrowing Loans. Borrowings under the credit facility
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established pursuant to Section 1 hereof shall be as follows:
3.1.1 Loan Requests.
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(i) A request for Revolving Credit Loans shall be made, or
shall be deemed to be made, in the following manner: (a) a Borrower may
give Agent notice of its intention to borrow, in which notice such Borrower
shall specify the amount of the proposed borrowing and the proposed
borrowing date (which shall be a Business Day), no later than 10:00 a.m.
Pacific time on the proposed borrowing date (subject to such additional
requirements as are set forth in Section 2.3 for the LIBOR Option),
provided, however, that Agent may, or, if so directed in writing by
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Required Lenders, shall (subject to Agent's right to make Discretionary
Extensions as provided in subsection 3.1.4 hereof) refuse such request at a
time when there exists a Default or an Event of Default; and (b) the
failure of any Borrower to pay when due any amount required to be paid
under this Agreement, whether as interest or for any other Obligation,
shall be deemed irrevocably to be a request by such Borrower for a Base
Rate Revolving Credit Loan on the due date in the amount required to pay
such interest or other Obligation and the advance of such Revolving Credit
Loan shall discharge such Obligation.
(ii) Restoration shall request a Seasonal Loan by giving
Agent notice of its intention to borrow, in which notice Restoration shall
specify the amount of the proposed borrowing and the proposed borrowing
date (which shall be a Business Day), no later than 10:00 a.m. Pacific time
on the proposed borrowing date, provided, however, that Agent may refuse,
or, if so directed in writing by Required Lenders, shall refuse, such
request at a time when there exists a Default or an Event of Default. Each
such request for a Seasonal Loan shall be accompanied by a Borrowing
Request Certificate in the form of Exhibit 3.1.1 hereto and such
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documentation relating to the store opening to be financed as Agent shall
reasonably require.
(iii) As an accommodation to Borrowers, Agent may, but shall
not be obligated to, permit telephonic requests for loans and electronic
transmittal of instructions, authorizations, agreements or reports to Agent
by Borrowers. Unless a Borrower or Required Lenders specifically directs
Agent in writing not to accept or act upon telephonic or electronic
communications from such Borrower, Agent shall have no liability to such
Borrower or Lenders for any loss or damage suffered by such Borrower or
Lenders as a result of Agent's honoring of any requests, execution of any
instructions, authorizations or agreements or reliance on any reports
communicated to it telephonically or electronically and purporting to have
been sent to Agent by such Borrower, and Agent shall have no duty to verify
the origin of any such communication or the authority of the person sending
it.
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3.1.2 Funding by Lenders. Agent shall from time to time, but no less
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frequently than weekly, notify each Lender of the date such Lender is to fund
its Loans and the amount to be made available by it. At the discretion of
Agent, the amount to be made available by a Lender on any date may be netted
against any amount owing to such Lender and otherwise payable by Agent on
account of payments received by it from Borrowers on such date. The amount to
be made available by each Lender on any date shall be made available by it on
such date to Agent, at account number [937-001-4304, ABA #▇▇▇▇▇▇▇▇▇] (or such
other account as Agent shall have designated in writing to Lenders) maintained
by Agent with Bank at its office located at ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇, in immediately available funds, not later than 1:00 p.m.
Pacific time on any day in the case of fundings of which Lenders have received
notice not later than 10:30 a.m. Pacific time on such day (or, if notice is
received after such time, not later than 10:00 a.m. Pacific time on the next
succeeding Business Day). Except as otherwise specifically set forth herein,
the obligation of each Lender to fund its Loans on the date specified by Agent
(even if made available by Agent to a Borrower prior to requiring the funding by
such Lender) is absolute and unconditional and shall not be affected by any
circumstance whatsoever, including (i) any set-off, counterclaim, recoupment,
defense or other right which such Lender may have against Agent, Borrowers or
any other Person for any reason whatsoever, (ii) the occurrence or continuation
of a Default or Event of Default, whether the same shall occur before or after
Agent shall have made the Loans available to Borrowers, (iii) the financial
condition or prospects of Borrowers, (iv) the failure of any other Lender to
make its Loans available to Agent, or (v) any other circumstance, happening or
event whatsoever, whether or not similar to any of the foregoing.
Notwithstanding the foregoing, any Lender may notify Agent during the
continuation of an Event of Default that such Lender will not fund future Loans
and, after receipt of such notice by Agent and until such notice is revoked or
such Event of Default is cured or waived as provided herein, such Lender shall
not be obligated to fund any Loans.
3.1.3 Disbursement by Agent. Borrowers and each Lender hereby
---------------------
irrevocably authorize Agent to disburse the proceeds of Loans requested, or
deemed to be requested, pursuant to this Agreement as follows: (i) the proceeds
of Revolving Credit Loans requested under subsection 3.1.1(i)(a) and Seasonal
Loans requested pursuant to subsection 3.1.1(ii), shall (subject, if applicable,
to receipt by Agent of funds from Lenders) be disbursed by Agent in lawful money
of the United States of America in immediately available funds, in the case of
the initial borrowing, in accordance with the terms of the written disbursement
letter from a Borrower, and in the case of each subsequent borrowing, by wire
transfer to such bank account as may be specified by each Borrower to Agent from
time to time; and (ii) the proceeds of Revolving Credit Loans deemed requested
under subsection 3.1.1(i)(b) shall (subject, if applicable, to receipt by Agent
of funds from Lenders) be disbursed by Agent by way of direct payment of the
relevant interest or other Obligation or, if applicable, retained by Lenders and
applied as set forth in Section 3.3.
3.1.4 Funding of Overadvances. Agent may, with the consent of all
-----------------------
Lenders, make Revolving Credit Loans or issue Letters of Credit on behalf of
Lenders as requested by Borrowers pursuant to subsection 3.1.1 or Section 1.3
hereof in excess of the Restoration Borrowing Base or the Michael's Borrowing
Base (as applicable, a "Discretionary Extension"). Any such Discretionary
Extensions shall be due on demand of Agent, and the making of any
10
such Discretionary Extensions at any time shall not be deemed to constitute a
waiver of any condition applicable to any future borrowing nor a waiver of any
Default or Event of Default, and Agent and Lenders reserve all of their rights
with respect thereto.
3.1.5 Authorization. Borrowers hereby irrevocably authorize Lenders,
-------------
in the sole discretion of Agent (should Borrowers not discharge such
obligation), to advance to Borrowers, and to charge to the applicable Borrower's
Loan Account hereunder as a Base Rate Revolving Credit Loan, a sum sufficient to
pay all interest accrued on such Borrower's Obligations during any calendar
month and to pay all costs, fees and expenses at any time owed by such Borrower
to Lenders or Agent hereunder. Amounts advanced pursuant to this subsection
3.1.5 shall be deemed to have been requested by Borrowers pursuant to subsection
3.1.1(i)(b), and the provisions of subsections 3.1.2 and 3.1.3 shall be
applicable to each such advance. Agent may, in its sole discretion, make
Discretionary Extensions of $2,000,000 in the aggregate, for a period not to
exceed 45 days (with respect to Michaels, not to exceed the lesser of (i)
$300,000 or (ii) 10% of the Borrowing Base).
3.1.6 Non-Receipt of Funds by Agent. Unless Agent shall have been
-----------------------------
notified by a Lender prior to the date on which such Lender is to make payment
to Agent of the proceeds of a Loan to be made by such Lender under this
Agreement (the "Required Payment"), which notice shall be effective upon
receipt, that such Lender does not intend to make the Required Payment to Agent,
Agent may assume that the Required Payment has been made and may, in reliance
upon such assumption (but shall not be required to), make the amount of such
payment available to a Borrower on such date. If for any reason such Lender has
not in fact made the Required Payment to Agent, Agent shall be entitled to
recover such amount on demand from such Lender, together with interest on such
amount in respect of each day during the period commencing on the date such
amount was so made available by Agent until the date Agent recovers such amount,
at a rate per annum equal to Agent's cost of funds as determined by Agent and
notified to such Lender.
3.1.7 Several Obligations; Remedies Independent. The failure of any
-----------------------------------------
Lender to make any Loan to be made by it on the date specified for such Loan
shall not relieve any other Lender of its obligation to make its Loan on such
date, but neither any Lender nor Agent shall be responsible for the failure of
any other Lender to make a Loan to be made by such other Lender, and no Lender
shall have any obligation to Agent or any other Lender for the failure by such
Lender to make any Loan required to be made by such Lender. The amounts payable
by Borrowers at any time under this Agreement and the other Loan Documents to
each Lender shall be separate and independent debts and each Lender shall be
entitled to protect and enforce its rights arising out of this Agreement and the
other Loan Documents (except that Agent shall be exclusively charged with the
enforcement of the Collateral on behalf of Lenders), and it shall not be
necessary for any other Lender or the Agent to consent to, or be joined as an
additional party in, any proceedings for such purposes.
3.2 Payments. Except where evidenced by notes or other instruments issued
--------
or made by a Borrower to Agent or any Lender specifically containing payment
provisions which are in
11
conflict with this Section 3.2 (in which event the conflicting provisions of
said notes or other instruments shall govern and control), the Obligations shall
be payable as follows:
3.2.1 Principal. Principal payable on account of Revolving Credit
---------
Loans shall be payable by Borrowers to Agent for the account of Lenders
immediately upon the earliest of (i) the receipt by Agent or Borrowers of any
proceeds in excess of $100,000 for any single transaction or event concerning
any of the Collateral (other than sales in the ordinary course of each
Borrower's business and collection by Restoration of TI Accounts), to the extent
of said proceeds, (ii) the occurrence of an Event of Default in consequence of
which Agent or Required Lenders elect to accelerate the maturity and payment of
the Obligations, or (iii) termination of this Agreement pursuant to Section 4
hereof; provided, however, that if an Overadvance shall exist at any time,
Borrowers shall, on demand of Agent, repay the Overadvance. Principal on
account of Seasonal Loans and Term Loan shall be payable in the manner set forth
in Sections 1.2 and 1.4, respectively.
3.2.2 Interest. Interest accrued on the Loans shall be due on the
--------
earliest of (i) the first calendar day of each calendar month (for the
immediately preceding calendar month), computed through the last calendar day of
the preceding calendar month, (ii) the occurrence of an Event of Default in
consequence of which Agent or Required Lenders elect to accelerate the maturity
and payment of the Obligations or (iii) termination of this Agreement pursuant
to Section 4 hereof.
3.2.3 Costs, Fees and Charges. Costs, fees and charges payable
-----------------------
pursuant to this Agreement shall be payable by Borrowers as and when provided in
Section 2 hereof.
3.2.4 Other Obligations. The balance of the Obligations requiring
-----------------
the payment of money, if any, shall be payable by Borrowers to Agent as and when
provided in this Agreement and the other Loan Documents, or on demand of Agent
if no date for payment is specified.
3.3 Application of Payments and Collections. All items of payment
---------------------------------------
received by Agent shall be deemed to be payments under this Agreement and
applied for purposes of computing interest (subject to Section 2.2 hereof) on
the day such payment is received. Borrowers irrevocably waive the right to
direct the application of any and all payments and collections at any time or
times hereafter received by Agent or any Lender from or on behalf of Borrowers,
and Borrowers do hereby irrevocably agree that Agent shall have the continuing
exclusive right to apply and reapply any and all such payments and collections
received at any time or times hereafter by Agent or Lenders (or their respective
agents) against the Obligations, in such manner as Agent may deem advisable,
notwithstanding any entry by Agent or any Lender upon any of its books and
records. If the amount in the Loan Account of a Borrower at any time exceeds
the outstanding Obligations of that Borrower, Agent will promptly transfer such
surplus funds to such Borrower's bank account, as identified to Agent in
accordance with this Agreement.
12
3.4 All Loans to Constitute One Obligation. The Loans shall constitute
--------------------------------------
one general joint and several Obligation of Borrowers, and shall be secured by
the Lien of Agent and Lenders upon all of the Collateral.
3.5 Loan Account. Agent shall enter all Loans by a Borrower as debits to
------------
such Borrower's Loan Account and shall also record in the Loan Account all
payments made by such Borrower on any Obligations and all proceeds of Collateral
which are finally paid to Agent and Lenders, and may record therein, in
accordance with customary accounting practice, other debits and credits,
including interest and all charges and expenses properly chargeable to such
Borrower.
3.6 Statements of Account. Agent will account to Borrowers and each
---------------------
Lender monthly with a statement of Loans, charges and payments made pursuant to
this Agreement, and any such account rendered by Agent shall be deemed final,
binding and conclusive upon each Borrower in the absence of manifest error
unless Agent is notified by a Borrower in writing to the contrary within 30 days
of the date such accounting is mailed to Borrowers. Such notice shall only be
deemed an objection to those items specifically objected to therein.
3.7 General Provisions.
------------------
3.7.1 Except to the extent otherwise provided in this Agreement or
any other Loan Document, all payments of any Obligations shall be made in U.S.
dollars, in immediately available funds, without deduction, set-off or
counterclaim, to Agent at account number 937-001-4304, ABA #▇▇▇▇▇▇▇▇▇ (or such
other account as Agent shall have designated in writing to Borrower) maintained
by Agent with Bank at its office located at ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇ (or such other account as Agent shall have designated in
writing to Borrower), not later than 10:00 a.m. Pacific time on the date on
which such payment shall become due (each such payment made after such time on
such due date to be deemed to have been made on the next succeeding Business
Day).
3.7.2 Each payment received by Agent under this Agreement of any
Obligation for the account of any Lender shall (subject to subsection 3.1.2
hereof) be paid by Agent promptly to such Lender, in immediately available
funds, to the account of such Lender specified in Annex 1 hereto (or to such
other account specified by such Lender in a written notice to Agent).
3.7.3 If the due date of any payment of any Obligation would
otherwise fall on a day that is not a Business Day, such date shall be extended
to the next succeeding Business Day, and interest shall be payable for any
principal so extended for the period of such extension.
3.8 Pro Rata Treatment. Except to the extent otherwise provided in this
------------------
Agreement: (a) the making and conversion of Loans shall be made pro rata among
the Lenders according to the amounts of their respective Commitments (in the
case of making of Loans) or their respective Loans (in the case of conversions
of Loans); and (b) each payment on account of any Obligations to or for the
account of one or more of the Lenders in respect of any Obligations due on a
13
particular day (or, if such day is not a Business Day, the next succeeding
Business Day) shall be entitled to priority over payments in respect of
Obligations not then due and shall be allocated among Lenders entitled to such
payments pro rata in accordance with the respective amounts due and payable to
such Lenders on such day (or Business Day) and shall be distributed accordingly.
Nothing in this Section 3.8 shall be deemed to prevent, except in the case of
shortfall, the differential indemnity and other amounts owing to or for the
account of a particular Lender or Lenders pursuant to any provisions of any Loan
Document which, by its terms, requires differential payments.
3.9 Sharing of Payments, Etc.
------------------------
3.9.1 Borrowers agree that, in addition to (and without limitation
of) any right of set-off, banker's lien or counterclaim any Lender may otherwise
have, each Lender shall be entitled during the continuation of an Event of
Default, at its option but only with the prior consent of Agent, to offset
balances held by it for the account of any Borrower at any of its offices, in
U.S. dollars or in any other currency, against any Obligations of such Borrower
to such Lender that are not paid when due (regardless of whether such balances
are then due to Borrower). Any Lender so entitled shall promptly notify such
Borrower and Agent of any offset effected by it, provided that such Lender's
failure to give such notice shall not affect the validity of such offset.
3.9.2 If any Lender shall obtain from a Borrower payment of any
Obligation through the exercise of any right of set-off, banker's lien or
counterclaim or similar right or otherwise (other than from Agent as provided in
this Agreement), and, as a result of such payment, such Lender shall have
received a greater amount of the Obligations than the amount allocable to such
Lender under Section 3.8 hereof, it shall promptly purchase from such other
Lenders participations in (or, if and to the extent specified by such Lender,
direct interests in) such Obligations owing to such other Lenders in such
amounts, and make such other adjustments from time to time as shall be
equitable, to the end that all Lenders shall share the benefit of such excess
payment (net of any expenses that may be incurred by such Lender in obtaining or
preserving such excess payment) pro rata in accordance with the unpaid
Obligations owing to each Lender. To such end all Lenders shall make
appropriate adjustments among themselves (by the resale of participations sold
or otherwise) if such payment is rescinded or must otherwise be restored.
3.9.3 Borrowers agree that any Lender so purchasing such a
participation (or direct interest) may during the continuation of an Event of
Default exercise all rights of set-off, banker's lien, counterclaim or similar
rights with respect to such participation as fully as if such Lender were a
direct holder of Loans or other amounts (as the case may be) owing to such
Lender in the amount of such participation.
3.9.4 Nothing contained in this Section 3.9 shall require any Lender
to exercise any such right or shall affect the right of any Lender to exercise,
and retain the benefits of exercising, any such right with respect to any other
indebtedness or obligation of Borrowers. If, under any applicable bankruptcy,
insolvency or other similar law, any Lender receives a secured
14
claim in lieu of a set-off to which this Section 3.9 applies, such Lender shall,
to the extent practicable, exercise its rights in respect of such secured claim
in a manner consistent with the rights of Lenders entitled under this Section
3.9 to share in the benefits of any recovery on such secured claim.
SECTION 4. TERM AND TERMINATION
4.1 Term of Agreement. Subject to the right of Lenders to cease making
-----------------
Loans and other credit accommodations to Borrowers in accordance with the
provisions of this Agreement upon or after the occurrence of any Default or
Event of Default, this Agreement shall be in effect until December 22, 1999 (the
"Original Term") and shall automatically terminate without notice by any party
at the end of the Original Term, unless earlier terminated as provided in
Section 4.2 hereof. This Agreement may be renewed or extended only by mutual
agreement of all of the parties hereto (each, a "Renewal Term").
4.2 Termination.
-----------
4.2.1 Termination by Required Lenders. Agent (upon direction of
-------------------------------
Required Lenders) may terminate the Commitments without notice upon or after the
occurrence of an Event of Default.
4.2.2 Termination by Borrowers. Upon at least 90 days prior written
------------------------
notice to Agent, Borrowers may, at their option, collectively and not
individually, terminate this Agreement; provided, however, no such termination
-------- -------
shall be effective until Borrowers have paid all of the Obligations (including
any applicable termination charges) then due in immediately available funds (and
made provision for identified contingent Obligations, including without
limitation, outstanding Letters of Credit, in form and substance acceptable to
Agent). Any notice of termination given by Borrowers shall be irrevocable
unless Agent otherwise agrees in writing, and Lenders shall have no obligation
to make any Loans on or after the termination date stated in such notice.
Borrowers may elect to terminate this Agreement in its entirety only. No
section of this Agreement or type of Loan available hereunder may be terminated
singly or by any Borrower acting on its own behalf.
4.2.3 Termination Charges. At the effective date of termination of
-------------------
this Agreement by Agent after an Event of Default or by Borrowers for any
reason, Borrowers shall pay to Agent for the account of Lenders (in addition to
the then outstanding principal, accrued interest and other charges owing under
the terms of this Agreement and any of the other Loan Documents) as liquidated
damages for the loss of the bargain and not as a penalty, an amount equal to the
following percentages of the average outstanding Loan balance (including the LC
Amount) during the 12 months preceding termination: (i) 0.5% if termination
occurs prior to December 22, 1998, and (ii) 0.25% if termination occurs
thereafter but prior to the end of the Original Term. If termination occurs on
the last day of the Original Term or any Renewal Term, no termination charge
shall be payable. If the Agreement is terminated and the Loans are paid in full
with the proceeds of an initial public offering of Restoration's stock
(substantially
15
concurrently with such offering), no termination charge under this subsection
4.2.3 shall be payable.
4.2.4 Effect of Termination. The Commitments shall terminate and all
---------------------
of the Obligations shall be immediately due and payable upon the maturity date
(including any termination date stated in any notice of termination of this
Agreement). All undertakings, agreements, covenants, warranties and
representations of Borrowers contained in the Loan Documents shall survive any
such termination and Agent and Lenders shall retain its and their Liens in the
Collateral and all of its and their rights and remedies under the Loan Documents
notwithstanding such termination until Borrowers have paid the Obligations then
due (and made provision for identified contingent Obligations, including without
limitation, outstanding Letters of Credit, in form and substance acceptable to
Agent) to Agent and Lenders, in full, in immediately available funds, together
with the applicable termination charge, if any. Notwithstanding the payment in
full of the Obligations then due (and the provision for contingent Obligations
as provided above), neither Agent nor Lenders shall be required to terminate its
or their security interests in the Collateral unless, with respect to any loss
or damage such Person may incur as a result of dishonored checks or other items
of payment received by Agent or Lenders from Borrowers or any Account Debtor and
applied to the Obligations, Agent shall, at its option, (i) have received a
written agreement, executed by Borrowers and by any Person whose loans or other
advances to Borrowers are used in whole or in part to satisfy the Obligations,
indemnifying Agent and Lenders from any such loss or damage; or (ii) have
retained such monetary reserves and Liens on the Collateral for such period of
time as Agent, in its reasonable discretion, may deem necessary to protect Agent
and Lenders from any such loss or damage. Subject to the foregoing, upon
payment in full of the Obligations then due (and provision for identified
contingent Obligations, including without limitation, outstanding Letters of
Credit, in form and substance acceptable to Agent) and termination of the
Commitments and this Agreement, Agent shall promptly cause to be assigned,
transferred and delivered, against receipt but without any recourse, warranty or
representation whatsoever, any remaining Collateral, to or on the order of
Borrowers, and Agent shall execute and deliver to Borrowers upon such
termination such Uniform Commercial Code termination statements and such other
documentation as shall be reasonably requested by Borrowers to effect the
termination and release of the Liens granted by this Agreement on the
Collateral, all at the cost and expense of Borrowers.
SECTION 5. SECURITY INTERESTS
5.1 Security Interest in Collateral. To secure the prompt payment and
-------------------------------
performance to Agent and Lenders of the Obligations, each Borrower hereby grants
to Agent, for the benefit of Agent and Lenders, a continuing Lien upon all of
such Borrower's now owned and hereafter acquired tangible and intangible
personal property, including all of the following Property and interests in
Property of each Borrower, whether now owned or existing or hereafter created,
acquired or arising and wheresoever located:
(i) Accounts;
16
(ii) Inventory;
(iii) Equipment;
(iv) General Intangibles;
(v) Deposit accounts;
(vi) All monies and other Property of any kind now or at any
time or times hereafter in the possession or under the control of Agent or
any Lender or a bailee or Affiliate of Agent or any Lender;
(vii) All investment property (as defined in the Code),
including, but not limited to, securities and security entitlements;
(viii) All accessions to, substitutions for and all
replacements, products and cash and non-cash proceeds of (i) through (vii)
above, including, without limitation, proceeds of and unearned premiums
with respect to insurance policies insuring any of the Collateral; and
(ix) All books and records (including, without limitation,
customer lists, credit files, computer programs, print-outs, and other
computer materials and records, copies of which may be retained by Borrower
if originals are required to be delivered to Agent in order to perfect any
security interest granted hereunder) of Borrowers pertaining to any of (i)
through (viii) above.
Notwithstanding the foregoing provisions of this Section 5.1, the grant of
a security interest as provided herein shall not extend to, and the term
"Collateral" shall not include, any Accounts or General Intangibles of any
Borrower relating to leases to the extent that (i) such Accounts or General
Intangibles are not assignable or capable of being encumbered under the terms of
any such lease or other agreement applicable thereto (but solely to the extent
that any such restriction shall be enforceable under applicable law), without
the consent of the lessor thereof or other applicable party thereto and (ii)
such consent has not been obtained; provided, however, that upon obtaining the
-------- -------
consent of any such lessor or other applicable party such Accounts or General
Intangibles as well as any and all proceeds thereof that might theretofore have
been excluded from such grant shall thenceforth be included within the security
interest granted by this Section 5.1 and the term "Collateral."
5.2 Lien Perfection; Further Assurances. Each Borrower shall execute such
-----------------------------------
UCC-1 financing statements and such other instruments, assignments or documents
as may be requested by Agent and as are necessary to perfect the Lien of Agent
and Lenders upon any of the Collateral and shall take such other action as may
be necessary to perfect or to continue the perfection of the Lien of Agent and
Lenders upon the Collateral. Unless prohibited by applicable law, each Borrower
hereby authorizes Agent to execute and file any such financing statement on such
Borrower's behalf. The parties agree that a carbon, photographic or other
reproduction of this Agreement shall be sufficient as a financing statement and
may be filed in any appropriate
17
office in lieu thereof. At Agent's request, Borrowers shall also promptly
execute or cause to be executed and shall deliver to Agent any and all
documents, instruments and agreements deemed reasonably necessary by Agent to
give effect to or carry out the terms or intent of the Loan Documents.
SECTION 6. COLLATERAL ADMINISTRATION
6.1 General
-------
6.1.1 Location of Collateral. All Collateral (except for deposit
----------------------
accounts and investment property), other than Inventory outside the United
States or in transit and motor vehicles, will at all times be kept by each
Borrower and its Subsidiaries, if any, at one or more of the respective business
locations set forth in Exhibit 6.1.1 hereto or other business location acquired
-------------
after the date hereof and for which notice has been given to Agent as provided
herein and shall not, without the prior written approval of Agent, be moved
therefrom (other than movements among the business locations of and for each
Borrower) except, prior to an Event of Default and acceleration of the maturity
of the Obligations in consequence thereof, for (i) sales of Inventory in the
ordinary course of business; and (ii) removals in connection with dispositions
of Equipment that are authorized by subsection 6.4.2 hereof.
6.1.2 Insurance of Collateral. Borrowers shall maintain and pay for
-----------------------
insurance upon all Collateral wherever located and with respect to Borrowers'
business, covering casualty, hazard, public liability and such other risks in
such amounts and with such insurance companies as are reasonably satisfactory to
Agent. Borrowers shall deliver copies of such policies to Agent with
satisfactory lender's loss payable endorsements, naming Agent, for the benefit
of Agent and Lenders, as sole loss payee, assignee or additional insured, as
appropriate; provided that the lessors of Restoration's leased locations may be
--------
named as additional loss payees, assignees or additional insureds with respect
to Restoration's tenant improvements at such locations. Each policy of
insurance or endorsement shall contain a clause requiring the insurer to give
not less than 30 days prior written notice to Agent in the event of cancellation
of the policy for any reason whatsoever and a clause specifying that the
interest of Agent and Lenders shall not be impaired or invalidated by any act or
neglect of a Borrower or the owner of the Property or by the use or occupancy
of the premises for purposes more hazardous than are permitted by said policy.
If either Borrower fails to provide and pay for such insurance, Agent may, at
its option, but shall not be required to, procure the same and charge such
Borrower therefor. Borrowers agree to deliver to Agent, promptly as rendered,
true copies of all reports made in any reporting forms to insurance companies.
6.1.3 Protection of Collateral. All expenses of protecting, storing,
------------------------
warehousing, insuring, handling, maintaining and shipping the Collateral, and
any and all excise, property, sales, and use taxes imposed by any state,
federal, or local authority on any of the Collateral or in respect of the sale
thereof shall be borne and paid by the respective Borrower. If such Borrower
fails promptly to pay any portion thereof when due, Agent may, at its option,
but shall not be required to, pay the same and charge such Borrower therefor.
Neither Agent nor any Lender shall be liable or responsible in any way for the
safekeeping of any of the Collateral or for any
18
loss or damage thereto (except for reasonable care in the custody thereof while
any Collateral is in Agent's or such Lender's actual possession) or for any
diminution in the value thereof, or for any act or default of any warehouseman,
carrier, forwarding agency, or other person whomsoever, but the same shall be at
Borrower's sole risk.
6.2 Administration of Accounts.
--------------------------
6.2.1 Records, Schedules and Assignments of Accounts. Restoration
----------------------------------------------
shall keep accurate and complete records of its TI Accounts and all payments and
collections thereon and shall submit to Agent on such periodic basis as Agent
shall reasonably request a report with respect thereto for the preceding period,
in form reasonably satisfactory to Agent. Michael's shall keep accurate and
complete records of its Accounts and all payments and collections thereon and
shall submit to Agent on such periodic basis as Agent shall request a sales and
collections report for the preceding period, in form satisfactory to Agent. On
or before the fifteenth day of each month from and after the date hereof,
Michael's shall deliver to Agent, in form acceptable to Agent, a detailed aged
trial balance of all Accounts existing as of the last day of the preceding
month, specifying the names, addresses, face value, dates of invoices and due
dates for each Account Debtor obligated on an Account so listed ("Schedule of
Accounts"), and, upon Agent's request therefor, copies of proof of delivery and
the original copy of all documents, including, without limitation, repayment
histories and present status reports relating to the Accounts so scheduled and
such other matters and information relating to the status of then existing
Accounts as Agent shall reasonably request. In addition, if Accounts in an
aggregate face amount in excess of $50,000 included in the Michael's Borrowing
Base become ineligible because they fall within one of the specified categories
of ineligibility set forth in the definition of Eligible Accounts or otherwise
established by Agent, Michael's shall notify Agent of such occurrence within one
week following such occurrence and the Michael's Borrowing Base shall thereupon
be adjusted to reflect such occurrence. If requested by Agent, Michael's shall
execute and deliver to Agent formal written assignments of all of its Accounts
weekly or daily, which shall include all Accounts that have been created since
the date of the last assignment, together with copies of invoices or invoice
registers related thereto.
6.2.2 Discounts, Allowances, Disputes. If Michael's grants any
-------------------------------
discounts, allowances or credits that are not shown on the face of the invoice
for the Account involved, Michael's shall report such discounts, allowances or
credits, as the case may be, to Agent as part of the next required Schedule of
Accounts. If any amounts due and owing in excess of $5,000 are in dispute
between Michael's and any Account Debtor, Michael's shall provide Agent with
written notice thereof at the time of submission of the next Schedule of
Accounts, explaining in detail the reason for the dispute, all claims related
thereto and the amount in controversy. Upon and after the occurrence of an Event
of Default, Agent shall have the right to settle or adjust all disputes and
claims directly with Account Debtors, including obligors on the TI Accounts, and
to compromise the amount or extend the time for payment thereof upon such terms
and conditions as Agent may deem advisable, and to charge the deficiencies,
costs and expenses thereof, including reasonable attorneys' fees, to the
respective Borrower.
19
6.2.3 Taxes. If an Account includes a charge for any tax payable to
-----
any governmental taxing authority, Agent is authorized, in its sole discretion,
to pay the amount thereof to the proper taxing authority for the account of the
applicable Borrower (with respect to Restoration, only upon and during the
continuation of an Event of Default, and with respect to Michaels, unless
Michaels is contesting such tax in good faith and appropriate reserves have been
established therefor) and to charge such Borrower therefor, provided, however,
-------- -------
that neither Agent nor any Lender shall be liable for any taxes to any
governmental taxing authority that may be due by such Borrower and, provided
--------
further, that any reserve established by Agent on account of any such tax shall
-------
be released upon payment of such tax.
6.2.4 Account Verification. Whether or not a Default or an Event of
--------------------
Default has occurred, Agent's officers, employees and agents shall have the
right, at any time or times, in the name of Agent and Lenders, any designee of
Agent or Lenders, or Borrowers, to verify the validity and amount of any
Accounts (with respect to Restoration, only TI Accounts) by mail, telephone,
telegraph or otherwise. Borrowers shall cooperate fully with Agent in an effort
to facilitate and promptly conclude any such verification process.
6.2.5 Maintenance of Dominion Account. Each Borrower shall maintain
-------------------------------
a Dominion Account acceptable to Agent with such bank or banks as may be
selected by such Borrower and be acceptable to Agent; provided, however, that
-------- -------
the Dominion Account of Restoration shall only be utilized, if Agent so elects
in its reasonable credit judgment, during the continuance of an Event of
Default; provided, that, if such Event of Default shall be cured Agent shall be
--------
entitled, in the exercise of its reasonable credit judgment, to maintain such
account for up to 60 days following such cure. Agent shall at all times have a
perfected security interest in such Dominion Accounts. Restoration shall issue
to any such bank or banks an irrevocable letter of instruction directing such
bank or banks, upon notice from Agent that an Event of Default has occurred and
is then continuing (or during such 60 day period), to deposit all payments or
other remittances to its Dominion Account for application on account of the
Obligations. As of the Closing Date, and at all times prior to the use of the
Dominion Account of Restoration, Restoration shall have control over its cash.
Once in effect (if ever), until released, all funds deposited in the Restoration
Dominion Account shall immediately become the property of Agent, for the account
of Lenders, and Restoration shall obtain the agreement by such bank or banks in
favor of Agent, for the benefit of Agent and Lenders, to waive any offset rights
against the funds so deposited. Michael's shall issue to any such bank or banks
an irrevocable letter of instruction directing such bank or banks to deposit all
payments or other remittances to its Dominion Account for application on account
of the Obligations. All funds deposited in the Michael's Dominion Account shall
immediately become the property of Agent, for the account of Lenders, and
Michael's shall obtain the agreement by such bank or banks in favor of Agent,
for the benefit of Agent and Lenders, to waive any offset rights against the
funds so deposited. Neither Agent nor any Lender assumes any responsibility for
any such arrangement, including, without limitation, any claim of accord and
satisfaction or release with respect to deposits accepted by any bank or banks
thereunder. No waiver or forbearance with respect to any Event of Default shall
act as a cure thereof for purposes of this subsection 6.2.5.
20
6.3 Administration of Inventory.
---------------------------
6.3.1 Records and Reports of Inventory. Each Borrower shall keep
--------------------------------
accurate and complete records of its Inventory. Each Borrower shall furnish to
Agent (who shall furnish to Lenders) Inventory reports in form and detail
satisfactory to Agent at such times as Agent may request, but at least once each
month, not later than the tenth Business Day of such month. Each Borrower shall
conduct a physical inventory no less frequently than annually and shall provide
to Agent (who shall furnish to Lenders) a report based on each such physical
inventory promptly thereafter, together with such supporting information as
Agent or any Lender shall reasonably request.
6.3.2 Returns of Inventory. If on any occasion hereafter Restoration
--------------------
returns Inventory to any vendor valued in excess of $100,000 in the aggregate
per occurrence, Restoration shall within two weeks notify Agent of the same,
specifying the reason for such return. If on any occasion hereafter any Account
Debtor returns Inventory to Michael's in excess of $25,000 the shipment of which
generated an Account, Michael's shall immediately notify Agent of the same,
specifying the reason for such return and the location, condition and intended
disposition of the returned Inventory.
6.4 Administration of Equipment.
---------------------------
6.4.1 Records and Schedules of Equipment. Each Borrower shall keep
----------------------------------
accurate records itemizing and describing the kind, type, quantity and value of
its Equipment and all dispositions made in accordance with subsection 6.4.2
hereof, and shall furnish Agent with a current schedule containing the foregoing
information on request by Agent. Promptly following request therefor by Agent,
Borrowers shall deliver to Agent any and all evidence of ownership, if any, of
any of the Equipment.
6.4.2 Dispositions of Equipment. Borrowers will not sell, lease or
-------------------------
otherwise dispose of or transfer any Equipment or any part thereof without the
prior written consent of Required Lenders; provided, however, that the foregoing
-------- -------
restriction shall not apply, for so long as no Default or Event of Default
exists, to (i) dispositions of Equipment which, in the aggregate during any
fiscal year of a Borrower, has a fair market value or book value, whichever is
less, of $100,000 (in the case of Restoration) or $50,000 (in the case of
Michael's) or less, provided that all proceeds thereof are remitted to Agent for
--------
application to the Loans in such order as Agent shall determine, (ii)
dispositions of Equipment in connection with sale-lease back transactions, or
(iii) replacements of Equipment that is substantially worn, damaged or obsolete,
provided that the replacement Equipment shall be acquired prior to or
substantially concurrently with any disposition of the Equipment that is to be
replaced, the replacement Equipment shall be free and clear of Liens other than
Permitted Liens.
6.5 Payment of Charges. All amounts chargeable to a Borrower under
------------------
Section 6 hereof shall be Obligations secured by all of the Collateral, shall be
payable on demand and shall bear interest from the date such advance was made
until paid in full at the rate applicable to Base Rate Revolving Credit Loans
from time to time.
21
SECTION 7. REPRESENTATIONS AND WARRANTIES
7.1 General Representations and Warranties. To induce Agent and Lenders
--------------------------------------
to enter into this Agreement and to make advances hereunder, each Borrower
warrants, represents and covenants to Agent and Lenders that:
7.1.1 Organization and Qualification. Each Borrower and its
------------------------------
Subsidiaries, if any, is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation. Each
Borrower and its Subsidiaries are duly qualified and are authorized to do
business and in good standing, respectively, as a foreign corporation (i) as of
the Closing Date, in each state or jurisdiction listed on Exhibit 7.1.1 hereto
-------------
and (ii) at all times in all other states and jurisdictions where the character
of its respective Properties or the nature of its respective activities make
such qualification necessary and in which the failure of such Borrower or any of
its Subsidiaries, if any, to be so qualified could have a material adverse
effect on the financial condition, business or Properties of such Borrower or
any of its Subsidiaries.
7.1.2 Corporate Power and Authority. Each Borrower is duly
-----------------------------
authorized and empowered to enter into, execute, deliver and perform this
Agreement and each of the other Loan Documents to which it is a party. The
execution, delivery and performance of this Agreement and each of the other Loan
Documents have been duly authorized by all necessary corporate action and do not
and will not (i) require any consent or approval of the shareholders of either
Borrower or its Subsidiaries; (ii) contravene either Borrower's or its
Subsidiaries' charter, articles or certificate of incorporation or by-laws;
(iii) violate, or cause either Borrower or its Subsidiaries to be in default
under, any provision of any material law, rule, regulation, order, writ,
judgment, injunction, decree, determination or award in effect having
applicability to such Borrower or its Subsidiaries; (iv) result in a breach of
or constitute a default under any material indenture or loan or credit agreement
or any other material agreement, lease or instrument to which either Borrower or
its Subsidiaries is a party or by which it or its Properties may be bound or
affected (except (x) to the extent that restrictions upon the payment of the
Cash Earn-Out (as defined in the Stock Purchase Agreement) under this Agreement
may be more restrictive than those in the Stock Purchase Agreement and (y) for
the breach of any such agreements which will be cured by payment in full on the
Closing Date); or (v) result in, or require, the creation or imposition of any
Lien (other than Permitted Liens) upon or with respect to any of the Properties
now owned or hereafter acquired by either Borrower or its Subsidiaries.
7.1.3 Legally Enforceable Agreement. This Agreement is, and each of
-----------------------------
the other Loan Documents when delivered under this Agreement will be, a legal,
valid and binding obligation of each Borrower enforceable against it in
accordance with its respective terms.
7.1.4 Capital Structure. Exhibit 7.1.4 hereto states as at the date
----------------- -------------
of this Agreement (i) the correct name of each Subsidiary of Borrowers, if any,
its jurisdiction of incorporation and the percentage of its Voting Stock owned
by such Borrower, (ii) the name of each Borrower's corporate or joint venture
Affiliates and the nature of the affiliation, (iii) the number, nature and
holder of all outstanding Securities of Borrowers and each Subsidiary of
Borrowers and (iv) the number of authorized, issued and treasury shares of each
Borrower and
22
each Subsidiary of Borrowers. Each Borrower has good title to all of the shares
it purports to own of the stock of its Subsidiaries free and clear in each case
of any Lien other than Permitted Liens. All such shares have been duly issued
and are fully paid and non-assessable. Except as set forth on Exhibit 7.1.4,
-------------
there are no outstanding options to purchase, or any rights or warrants to
subscribe for, or any commitments or agreements to issue or sell, or any
Securities or obligations convertible into, or any powers of attorney relating
to, shares of the capital stock of a Borrower or its Subsidiaries. Except as set
forth on Exhibit 7.1.4, there are no outstanding agreements or instruments
-------------
binding upon any of Borrowers' shareholders relating to the voting by them of
shares of capital stock of any Borrower.
7.1.5 Corporate Names. Neither Borrower nor any Subsidiary of such
---------------
Borrower has been known as or used any corporate, fictitious or trade names
except those listed on Exhibit 7.1.5 hereto. Except as set forth on Exhibit
------------- -------
7.1.5, neither Borrower nor any Subsidiary of such Borrower, has been the
-----
surviving corporation of a merger or consolidation or acquired all or
substantially all of the assets of any Person.
7.1.6 Business Locations; Agent for Process. Each of Borrowers' and
-------------------------------------
its Subsidiaries' chief executive office and other places of business as at the
date of this Agreement are as listed on Exhibit 6.1.1 hereto. During the
-------------
preceding one-year period, neither Borrowers nor any of their Subsidiaries has
had an office, place of business or agent for service of process other than as
listed on Exhibit 6.1.1. Except as shown on Exhibit 6.1.1, no Inventory is
------------- -------------
stored with a bailee, warehouseman or similar party, nor is any Inventory
consigned to any Person.
7.1.7 Title to Properties; Priority of Liens. Each of Borrower and
--------------------------------------
its Subsidiaries has good, indefeasible and marketable title to and fee simple
ownership of, or valid and subsisting leasehold interests in, all of its
respective real Property, and good title to all of the Collateral and all of its
other Property, in each case, free and clear of all Liens except Permitted
Liens. Borrowers have paid or discharged all lawful claims which, if unpaid,
might become a Lien against any of Borrowers' Properties that is not a Permitted
Lien. The Liens granted to Agent and Lenders under Section 5 hereof are first
priority Liens, subject only to Permitted Liens.
7.1.8 Intentionally Omitted.
---------------------
7.1.9 Equipment. The Equipment is in good operating condition and
---------
repair, and all necessary replacements of and repairs thereto shall be made so
that the value and operating efficiency of the Equipment shall be maintained and
preserved, reasonable wear and tear excepted.
7.1.10 Financial Statements; Fiscal Year. The balance sheets of
---------------------------------
Borrowers as of their respective audited 1997 fiscal year end financial
statements, and the related statements of income, changes in stockholder's
equity, and changes in financial position for the period ended on such date,
have been prepared in accordance with GAAP, and present fairly the financial
positions of Borrowers at such date and the results of Borrowers' operations for
such period. From January 31, 1998, to the date hereof, there has been no
material change in the condition,
23
financial or otherwise, of Borrowers as shown on their respective balance sheet
as of such date and no change in the aggregate value of Equipment and real
Property owned by Borrowers, except changes in the ordinary course of business,
none of which individually or in the aggregate has been materially adverse. The
fiscal year of Borrower and each of its Subsidiaries ends on the Saturday
nearest the last day of January of each year.
7.1.11 Full Disclosure. Neither this Agreement nor any other written
---------------
statement of Borrowers to Agent or Lenders, contain any untrue statement of a
material fact or omit a material fact necessary to make the statements contained
therein or herein not misleading. There is no fact which Borrowers have failed
to disclose to Agent and Lenders in writing which materially affects adversely
or, so far as Borrowers can now foresee, will materially affect adversely the
Properties, business, prospects, profits or condition (financial or otherwise)
of a Borrower or its Subsidiaries or the ability of a Borrower or its
Subsidiaries to perform this Agreement or the other Loan Documents.
7.1.12 Solvent Financial Condition. Each of Borrower and its
---------------------------
Subsidiaries is now and, after giving effect to the Loans to be made hereunder,
at all times will be, Solvent.
7.1.13 Surety Obligations. Neither Borrower nor any of its
------------------
Subsidiaries is, as of the Closing Date, obligated as surety or indemnitor under
any surety or similar bond or other contract or has issued or entered into any
agreement to assure payment, performance or completion of performance of any
undertaking or obligation of any Person.
7.1.14 Taxes. Restoration's federal tax identification number is 68-
-----
0140361. The federal tax identification number of Michael's is ▇▇-▇▇▇▇▇▇▇.
Borrowers and each of its Subsidiaries have filed all federal, state and local
tax returns and other reports it is required by law to file and has paid, or
made provision for the payment of, all taxes, assessments, fees, levies and
other governmental charges upon it, its income and Properties as and when such
taxes, assessments, fees, levies and charges are due and payable, unless and to
the extent any thereof are being actively contested in good faith and by
appropriate proceedings and Borrowers maintain reasonable reserves on its books
therefor. The provision for taxes on the books of Borrowers and its
Subsidiaries is adequate for all years not closed by applicable statutes, and
for its current fiscal year.
7.1.15 Brokers. There are no brokerage commissions, finder's fees or
-------
investment banking fees payable or agreed to by Borrowers in connection with the
transactions contemplated by this Agreement.
7.1.16 Patents, Trademarks, Copyrights and Licenses. Each Borrower
--------------------------------------------
and its Subsidiaries owns or possesses all the patents, trademarks, service
marks, trade names, copyrights and licenses necessary for the present and
planned future conduct of its business without any known conflict with the
rights of others. All such patents, trademarks, service marks, tradenames,
copyrights, licenses and other similar rights in effect for each Borrower as of
the Closing Date are listed on Exhibit 7.1.16 hereto.
--------------
24
7.1.17 Governmental Consents. Each Borrower and its Subsidiaries
---------------------
have, and are in good standing with respect to, all governmental consents,
approvals, licenses, authorizations, permits, certificates, inspections and
franchises necessary to continue to conduct its business as heretofore or
proposed to be conducted by it and to own or lease and operate its Properties as
now owned or leased by it, except where the failure to be so qualified would not
have a Material Adverse Effect.
7.1.18 Compliance with Laws. Each Borrower and its Subsidiaries have
--------------------
duly complied with, and their Properties, business operations and leaseholds are
in compliance in all material respects with, the provisions of all federal,
state and local laws, rules and regulations applicable to Borrower or such
Subsidiary, as applicable, its Properties or the conduct of its business and
there have been no citations, notices or orders of noncompliance issued to a
Borrower or any of its Subsidiaries under any such law, rule or regulation,
except where such failure or non-compliance would not, individually or in the
aggregate, have a Material Adverse Effect. Each Borrower and its Subsidiaries
have established and maintain an adequate monitoring system to insure that it
remains in compliance with all federal, state and local laws, rules and
regulations applicable to it. To the best of each Borrower's knowledge, no
Inventory has been produced or sold in violation of the Fair Labor Standards Act
(29 U.S.C. (S) 201 et seq.), as amended.
7.1.19 Restrictions. Neither Borrower nor any Subsidiary of a
------------
Borrower is a party or subject to any contract, agreement, or charter or other
corporate restriction, which materially and adversely affects its business or
the use or ownership of any of its Properties. Neither Borrower nor any
Subsidiary of a Borrower is a party or subject to any contract or agreement
which restricts its right or ability to incur Indebtedness, other than as set
forth on Exhibit 7.1.19 hereto, none of which prohibit the execution of or
--------------
compliance with this Agreement or the other Loan Documents by each Borrower or
its Subsidiaries as applicable.
7.1.20 Litigation. Except as set forth on Exhibit 7.1.20 hereto,
---------- --------------
there are no actions, suits, proceedings or investigations pending, or to the
knowledge of a Borrower, threatened, against or affecting a Borrower or any
Subsidiary of a Borrower or the business, operations, Properties, prospects,
profits or condition of a Borrower or any Subsidiary of a Borrower which if
adversely determined could reasonably be expected to have a Material Adverse
Effect. Neither Borrower nor any Subsidiary of Borrower is in default with
respect to any order, writ, injunction, judgment, decree or rule of any court,
governmental authority or arbitration board or tribunal.
7.1.21 No Defaults. No event has occurred and no condition exists
-----------
which would, upon or after the execution and delivery of this Agreement or a
Borrower's performance hereunder, constitute a Default or an Event of Default
(except as disclosed in clause (iv)(y) of Section 7.1.2 hereof). As of the
Closing Date, neither a Borrower nor any Subsidiary of a Borrower is in default,
and no event has occurred and no condition exists which constitutes, or which
with the passage of time or the giving of notice or both would constitute, a
default in the payment of any Indebtedness to any Person for Money Borrowed.
25
7.1.22 Leases. Exhibit 7.1.22(a) hereto is a complete listing of all
------ -----------------
capitalized leases of each Borrower and its Subsidiaries as of the Closing Date,
and Exhibit 7.1.22(b) hereto is a complete listing of all operating leases of
-----------------
each Borrower and its Subsidiaries, if any, as of the Closing Date. Each
Borrower and its Subsidiaries is in compliance in all material respects with all
of the terms of each of its respective capitalized and operating leases.
7.1.23 Pension Plans. Except as disclosed on Exhibit 7.1.23 hereto,
------------- --------------
no Borrower nor its Subsidiaries has at the Closing Date any Plan. Each
Borrower and its Subsidiaries is in full compliance with any applicable
requirements of ERISA and the regulations promulgated thereunder with respect to
each Plan. No fact or situation that could result in a material adverse change
in the financial condition of a Borrower or its Subsidiaries, if any, exists in
connection with any Plan. Neither Borrower nor its Subsidiaries has any
withdrawal liability in connection with a Multi-employer Plan.
7.1.24 Trade Relations. There exists no actual or threatened
---------------
termination, cancellation or limitation of, or any modification or change in,
the business relationship between a Borrower or any of its Subsidiaries and any
customer or any group of customers whose purchases individually or in the
aggregate are material to the business of a Borrower or any of its Subsidiaries
or with any material supplier, and there exists no present condition or state of
facts or circumstances which would materially affect adversely a Borrower or its
Subsidiaries or prevent a Borrower or its Subsidiaries from conducting such
business after the consummation of the transaction contemplated by this
Agreement in substantially the same manner in which it has heretofore been
conducted.
7.1.25 Labor Relations. Except as described on Exhibit 7.1.25
--------------- --------------
hereto, no Borrower nor its Subsidiaries is a party to any collective bargaining
agreement. There are no material grievances, disputes or controversies with any
union or any other organization of a Borrower's or its Subsidiaries' employees,
or threats of strikes, work stoppages or any asserted pending demands for
collective bargaining by any union or organization.
7.1.26 December 1997 Agreement. No Event of Default exists under and
-----------------------
as defined in the December 1997 Agreement.
7.2 Continuous Nature of Representations and Warranties. Each
---------------------------------------------------
representation and warranty contained in this Agreement and the other Loan
Documents shall be continuous in nature and shall remain accurate and complete
in all material respects and not materially misleading at all times during the
term of this Agreement (except to the extent that such representations and
warranties expressly relate to a specific date) and except for (i) such changes
as are the result of facts or events which would not constitute a material
adverse change in the business, property, financial condition or results of
operations of a Borrower and its Subsidiaries, taken as a whole, or (ii) changes
in the nature of a Borrower's or its Subsidiaries' business or operations that
would render the information in any exhibit attached hereto either inaccurate,
incomplete or misleading, so long as (x) such exhibit is updated no less often
than quarterly to reflect changes in a Borrower's business, provided, however, a
Borrower shall give prompt
26
notice of any event under subsections 7.1.20 or 7.1.21, or (y) Agent has
consented in writing to such changes, or (z) such changes are expressly
permitted by this Agreement.
7.3 Survival of Representations and Warranties. All representations and
------------------------------------------
warranties of a Borrower contained in this Agreement or any of the other Loan
Documents shall survive the execution, delivery and acceptance hereof and
thereof by Agent and Lenders and the parties hereto and thereto and the closing
of the transactions described herein or therein or related hereto or thereto.
SECTION 8. COVENANTS AND CONTINUING AGREEMENTS
8.1 Affirmative Covenants. During the term of this Agreement and
---------------------
thereafter, for so long as there are any outstanding Obligations, Borrowers'
covenant that, unless otherwise consented to by Agent in writing, they shall:
8.1.1 Visits and Inspections. Permit representatives of Agent and
----------------------
each Lender, from time to time, as often as may be reasonably requested, but
only during normal business hours (unless an Event of Default exists), to visit
and inspect the Properties of a Borrower and its Subsidiaries inspect, audit and
make extracts from its books and records, and discuss with its officers, its
employees and its independent accountants, a Borrower's and its Subsidiaries'
business, assets, liabilities, financial condition, business prospects and
results of operations.
8.1.2 Notices. Comply with the information update covenant set forth
-------
in Section 7.2 hereof and promptly notify Agent in writing of the occurrence of
any event or the existence of any fact which renders any representation or
warranty in this Agreement or any of the other Loan Documents materially
inaccurate or misleading, except as otherwise accepted in Section 7.2.
8.1.3 Financial Statements. Keep, and cause each Subsidiary of a
--------------------
Borrower to keep, adequate records and books of account with respect to its
business activities in which proper entries are made in accordance with GAAP
reflecting all its financial transactions; and cause to be prepared and
furnished to Agent and each Lender the following (all to be prepared in
accordance with GAAP applied on a consistent basis, unless Borrowers' certified
public accountants concur in any change therein and such change is disclosed to
Agent and each Lender and is consistent with GAAP):
(i) not later than 90 days after the close of each fiscal
year of a Borrower, unqualified audited financial statements of such
Borrower and its Subsidiaries as of the end of such fiscal year, on a
Consolidated and consolidating basis, certified by a firm of independent
certified public accountants of recognized standing selected by Borrower
and acceptable to Agent (except for a qualification for a change in
accounting principles with which the accountant concurs);
(ii) not later than 30 days after the end of each fiscal
month hereafter, including the last month of Borrowers' fiscal year, (a)
unaudited interim financial statements of Borrowers and its Subsidiaries as
of the end of such month and of the
27
portion of Borrower's fiscal year then elapsed, on a Consolidated and
consolidating basis, certified by the principal financial officer of each
Borrower as prepared in accordance with GAAP and fairly presenting the
Consolidated and consolidating financial position and results of operations
of Borrowers and its Subsidiaries for such month and period subject only to
changes from audit and year-end adjustments and except that such statements
need not contain notes, and (b) income statements for such month, on a
store-by-store basis;
(iii) promptly after the sending or filing thereof, as the
case may be, copies of any proxy statements, financial statements or
reports which Borrowers have made available to its shareholders and copies
of any regular, periodic and special reports or registration statements
which Borrowers file with the Securities and Exchange Commission or any
governmental authority which may be substituted therefor, or any national
securities exchange;
(iv) promptly after the filing thereof, copies of any annual
report to be filed with ERISA in connection with each Plan; and
(v) such other data and information (financial and
otherwise) as Agent or any Lender (through the Agent), from time to time,
may reasonably request, bearing upon or related to the Collateral or
Borrowers' and each of its Subsidiaries' financial condition or results of
operations.
Concurrently with the delivery of the financial statements described in
clause (i) of this subsection 8.1.3, Borrowers shall forward to Agent and each
Lender a copy of the accountants' letter to Borrowers' management (if any) that
is prepared in connection with such financial statements. Concurrently with the
delivery of the financial statements described in clauses (i) and (ii) of this
subsection 8.1.3, or more frequently if requested by Agent, Borrowers shall
cause to be prepared and furnished to Agent and each Lender a Compliance
Certificate in the form of Exhibit 8.1.3 hereto executed by the respective
-------------
principal financial officer of each Borrower.
8.1.4 Landlord and Storage Agreements. Provide Agent, upon request,
-------------------------------
with copies of all material agreements between a Borrower or any of its
Subsidiaries and any landlord or warehouseman which owns any premises at which
any Inventory may, from time to time, be kept, including copies of all leases
and landlord waivers currently in effect.
8.1.5 Projections. No later than 30 days prior to the end of each
-----------
fiscal year of Borrowers, deliver to Agent and each Lender Projections of
Borrowers for the forthcoming 2 years, year by year, and for the forthcoming
fiscal year, month by month. Lenders and Agent recognize that, once either of
the Borrowers becomes a public company within the meaning of the Securities Act
of 1933 (if ever), any projections provided to Agent and Lenders could be
insider information and agree that in such cases they shall keep such
information confidential in accordance with their usual business practices.
Borrowers' most recently prepared Projections shall be provided to Agent and
Lenders prior to the Closing Date.
28
8.1.6 Environmental Law Compliance. At all times comply and cause
----------------------------
its Subsidiaries, if any, to comply, in all material respects, with all
Environmental Laws; and promptly provide Agent with a copy of any notice
received by a Borrower or any Subsidiary from any governmental agency stating
that such Borrower or such Subsidiary has violated any Environmental Law or is
subject to a cleanup order or decree.
8.1.7 Warehouse Agreements. No later than 30 days after the Closing
--------------------
Date, Agent shall have received warehouse waivers, in form and substance
satisfactory to Agent and its counsel, with respect to a Borrower's public
warehouses, together with copies of the warehouse agreements relating thereto.
8.2 Negative Covenants. During the term of this Agreement and thereafter,
------------------
for so long as there are any Loans, any interest, fees or other charges with
respect thereto or any other Obligations for the payment of money outstanding,
each Borrower covenants that (as applicable), unless all Lenders have first
consented thereto in writing, it will not:
8.2.1 Mergers; Consolidations; Acquisitions. Merge or consolidate,
-------------------------------------
or permit any Subsidiary of Borrower, if any, to merge or consolidate, with any
Person; nor acquire, nor permit any Subsidiary of Borrower, if any, to acquire,
all or any substantial part of the Properties of any Person; provided, that, so
-------- ----
long as no Event of Default exists or would result therefrom, any Subsidiary of
Borrower may merge or consolidate with Borrower (as long as Borrower is the
surviving entity) or any Subsidiary of Borrower.
8.2.2 Loans. Make, or permit any Subsidiary of such Borrower, if
-----
any, to make, any loans or other advances of money (other than for reasonable
salary, travel advances, advances against commissions and other similar
reasonable advances in the ordinary course of such Borrower's business) to any
Person.
8.2.3 Total Indebtedness. Create, incur, assume, or suffer to exist,
------------------
or permit any Subsidiary of Borrower, if any, to create, incur or suffer to
exist, any Indebtedness, except:
(i) the Obligations;
(ii) Indebtedness of any Subsidiary of Borrower, if any, to
Borrower (except to the extent eliminated in consolidation) or to another
Subsidiary of Borrower;
(iii) accounts payable to trade creditors and current
operating expenses (other than for Money Borrowed) which on average are not
aged more than 90 days from billing date or more than 30 days from the due
date, in each case incurred in the ordinary course of Borrower's business
and paid within such time period, unless the same are being contested in
good faith; and Borrower or such Subsidiary shall have set aside such
reserves, if any, with respect thereto as are required by GAAP and deemed
adequate by Borrower or such Subsidiary and its independent accountants;
provided, however, that not more than 20% in dollar value of all accounts
-------- -------
payable and current operating expenses (other than for Money Borrowed) of
the Borrowers and their Subsidiaries may be aged more than 90 days from
billing date or more than 30 days from due date;
29
(iv) Obligations to pay rent permitted by subsection 8.2.13;
(v) Permitted Purchase Money Indebtedness;
(vi) contingent liabilities arising out of endorsements of
checks and other negotiable instruments for deposit or collection in the
ordinary course of business;
(vii) Indebtedness not included in paragraphs (i) through (vi)
above which does not exceed at any time, in the aggregate, the sum of
$500,000 with respect to Restoration and $125,000 with respect to
Michael's;
(viii) contingent liabilities with respect to Cash Earn-Out
payments and retentions in respect of SBA loans of ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇;
(ix) contingent liabilities arising from Restoration's
unsecured guaranty, which guaranty shall not exceed the amount of $750,000,
of certain obligations of Michaels owing to Hardwoods, Inc.
(x) Indebtedness paid in full on the Closing Date, provided
that any related liens or security interests are also terminated (or
arrangements acceptable to Agent for such termination are made) on the
Closing Date.
8.2.4 Affiliate Transactions. Enter into, or be a party to, or
----------------------
permit any Subsidiary of Borrower, if any, to enter into or be a party to, any
transaction with any Affiliate or stockholder of Borrower, except in the
ordinary course of and pursuant to the reasonable requirements of Borrower's or
such Subsidiary's business (other than as necessary in connection with an
initial public offering of Borrower's stock or the provision of professional
services in connection therewith) and upon fair and reasonable terms which are
disclosed to Agent and are no less favorable to Borrower than would obtain in a
comparable arm's length transaction with a Person not an Affiliate or
stockholder of Borrower or such Subsidiary. Notwithstanding anything to the
contrary herein, Restoration may make the Cash Earn-Out payments under and as
defined in the Stock Purchase Agreement, as and when the same are due; provided,
--------
in each case that (i) no Event of Default then exists or would result as a
consequence of such payment, and (ii) Restoration's Availability is not less
than $4,000,000 immediately before and immediately after making such payment.
8.2.5 Limitation on Liens. Create or suffer to exist, or permit any
-------------------
Subsidiary of Borrower, if any, to create or suffer to exist, any Lien upon any
of its Property, income or profits, whether now owned or hereafter acquired,
except:
(i) Liens at any time granted in favor of Agent and Lenders
to secure the Obligations;
(ii) Liens for taxes (excluding any Lien imposed pursuant to
any of the provisions of ERISA) not yet due, or being contested in the
manner described in subsection 7.1.14 hereof, but only if in Agent's
reasonable judgment such Lien does not
30
materially adversely affect Agent's or any Lender's rights or the priority
of Agent's or any Lender's Lien in the Collateral;
(iii) Liens arising in the ordinary course of Borrower's
business by operation of law or regulation but only if payment in respect
of any such Lien is not at the time required or is being contested in good
faith (but only if in Agent's reasonable judgment such Lien does not
materially adversely affect Agent's or any Lender's rights or the priority
of Agent's or any Lender's Lien in the Collateral) and such Liens do not,
in the aggregate, materially detract from the value of the Property of
Borrower or materially impair the use thereof in the operation of
Borrower's business;
(iv) Purchase Money Liens securing Permitted Purchase Money
Indebtedness and Capitalized Lease Obligations permitted pursuant to
subsection 8.2.3;
(v) Liens against a Subsidiary of Borrower, if any, securing
Indebtedness of such Subsidiary to Borrower or another such Subsidiary;
(vi) such other Liens as appear on Exhibit 8.2.5 hereto;
-------------
(vii) such other Liens as all Lenders may hereafter approve in
writing.
8.2.6 Subordinated Debt. Make, or permit any Subsidiary of Borrower,
-----------------
if any, to make, any payment of any part or all of any Subordinated Debt or take
any other action or omit to take any other action in respect of any Subordinated
Debt, except in accordance with the Subordination Agreement related thereto.
8.2.7 Distributions. Declare or make, or permit any Subsidiary of
Borrower to declare or make, any Distributions.
8.2.8 Capital Expenditures. With respect to Restoration, make
--------------------
Capital Expenditures gross of landlord allowances (including, without
limitation, by way of capitalized leases) which, in the aggregate, as to
Restoration exceed the amounts set forth below as of the end of the
corresponding period, measured on a fiscal year to date basis:
Fiscal Quarter Amount
-------------- ------
Fiscal Quarter ended 04/30/98 7,400,000
Fiscal Quarter ended 07/31/98 23,500,000
Fiscal Quarter ended 10/31/98 33,700,000
Fiscal Quarter ended 01/31/99 36,000,000
8.2.9 Disposition of Assets. Sell, lease or otherwise dispose of
---------------------
any of, or permit any Subsidiary of Borrower, if any, to sell, lease or
otherwise dispose of any of, its Properties, including any disposition of
Property as part of a sale and leaseback transaction, to or in favor of any
Person, except (i) sales of Inventory in the ordinary course of Borrower's
business unless
31
otherwise directed by Agent after the occurrence and during the continuance of
any Event of Default, (ii) transfers of Property to Borrower by a Subsidiary of
Borrower, if any, (iii) transfers by Restoration to Michael's in any fiscal year
of Property with an aggregate book value not in excess of $125,000, or (iv)
other sales, leases or dispositions expressly permitted by this Agreement.
8.2.10 Stock of Subsidiaries. Permit any Subsidiary of Borrower, if
any, to issue any additional shares of its capital stock except director's
qualifying shares.
8.2.11 Intentionally Omitted.
---------------------
8.2.12 Restricted Investment. Make or have, or permit any Subsidiary
---------------------
of Borrower, if any, to make or have, any Restricted Investment.
8.2.13 Operating Leases. With respect to Restoration, commit to, or
----------------
permit any Subsidiary of Restoration to commit to, as of December 31, 1998, more
than 20 leases for new stores to be opened after such date.
8.2.14 Tax Consolidation. File or consent to the filing of any
-----------------
consolidated income tax return with any Person other than a Subsidiary of
Borrower, if any.
8.2.15 Store Openings. With respect to Restoration, open stores
--------------
which, in the aggregate with all other stores of Restoration, would cause the
total number of stores to exceed the number set forth below as of the end of (or
at any time during) the corresponding fiscal quarters:
Fiscal Quarter Stores
-------------- ------
Fiscal Quarter ended 04/30/98 45
Fiscal Quarter ended 07/31/98 51
Fiscal Quarter ended 10/31/98 62
Fiscal Quarter ended 01/31/99 68
For purposes of this covenant, stores at any time opened by Restoration shall be
counted, whether or not such store remains open at the time of calculating this
covenant.
8.3 Financial Covenants. During the term of this Agreement, and
-------------------
thereafter for so long as there are any outstanding Obligations, each Borrower
as appropriate covenants that, unless otherwise consented to by all Lenders in
writing, it shall:
8.3.1 EBITDA. With respect to Restoration, achieve EBITDA, measured
------
on a trailing three month basis, of not less than the following respective
amounts as of the end of the following respective fiscal months:
32
Period Amount
------ ------
March 1998 $ (125,000.00)
April 1998 $ (525,000.00)
May 1998 $ (475,000.00)
June 1998 $ (350,000.00)
July 1998 $ (800,000.00)
August 1998 $ (425,000.00)
September 1998 $ (225,000.00)
October 1998 $ 1,025,000.00
November 1998 $ 2,300,000.00
December 1998 $12,075,000.00
January 1999 and thereafter $11,650,000.00
8.3.2 Inventory Turnover. With respect to Restoration, maintain an
------------------
Inventory Turnover Ratio of not less than the following respective amounts as of
the end of the following respective fiscal months (determined as of the last day
of each such month on a trailing 12-month basis):
Fiscal Quarter Ratio
-------------- -----
March 1998 1.95
April 1998 1.85
May 1998 1.76
June 1998 1.72
July 1998 1.67
August 1998 1.62
September 1998 1.62
October 1998 1.58
November 1998 1.59
December 1998 1.71
January 1999 and thereafter 1.73
8.3.3 Intentionally Deleted.
------------------------
8.3.4 Operating Cash Flow. With respect to Michael's, achieve
-------------------
Operating Cash Flow, on a cumulative basis for the first twelve months and
thereafter determined as of the last day of each such month on a trailing 12-
month basis:
33
Month Amount
----- ------
April 1998 $ 110,000.00
May 1998 $ 220,000.00
June 1998 $ 350,000.00
July 1998 $ 535,000.00
August 1998 $ 720,000.00
September 1998 $ 950,000.00
October 1998 $1,105,000.00
November 1998 $1,305,000.00
December 1998 $1,505,000.00
January 1999 $1,730,000.00
February 1999 $1,955,000.00
March 1999 and thereafter $2,200,000.00
8.3.5 Fixed Charge Coverage Ratio. With respect to Michael's,
---------------------------
maintain a Fixed Charge Coverage Ratio of not less than the following respective
amounts as of the end of each fiscal quarter on a cumulative basis for the first
four quarters and thereafter determined as of the last day of each such quarter
on a trailing 12-month basis:
Fiscal Quarter Ratio
-------------- -----
Fiscal Quarter ended 07/31/98 1.00:1.00
and thereafter
For future periods during the term of this Agreement, Agent shall
establish financial covenants in its reasonable credit judgment (based upon
similar criteria to those used by Agent for the existing covenants) under
subsections 8.2.8, 8.2.15, 8.3.1, 8.3.2, 8.3.4 and 8.3.5.
SECTION 9. CONDITIONS PRECEDENT
9.1 Conditions to Initial Advance. Notwithstanding any other provision of
-----------------------------
this Agreement or any of the other Loan Documents, and without affecting in any
manner the rights of Agent or any Lender under the other provisions of this
Agreement, this Agreement shall not become effective unless and until each of
the following conditions has been satisfied (and until such time, the December
1997 Agreement shall remain in full force and effect):
9.1.1 Documentation. Agent and Lenders shall have received, in form
-------------
and substance satisfactory to Agent, Lenders and their respective counsel, a
duly executed copy of this Agreement and the other Loan Documents, together with
such additional documents, instruments and certificates as Agent and its counsel
may request in connection therewith from time to time, all in form and substance
reasonably satisfactory to Agent and its counsel.
34
9.1.2 No Default. No Default or Event of Default shall exist
----------
hereunder or under the December 1997 Agreement.
9.1.3 Availability. Agent shall have determined that immediately
------------
after Lenders have made the initial Revolving Credit Loans contemplated hereby,
and paid all closing costs incurred in connection with the transactions
contemplated hereby, on the Closing Date, Availability under the Restoration
Borrowing Base shall not be less than $2,000,000 and Availability under the
Michael's Borrowing Base shall be not less than $400,000.
9.1.4 No Litigation. No action, proceeding, investigation,
-------------
regulation or legislation shall have been instituted, threatened or proposed
before any court, governmental agency or legislative body to enjoin, restrain or
prohibit, or to obtain damages in respect of, or which is related to or arises
out of this Agreement or the consummation of the transactions contemplated
hereby.
9.1.5 Dominion Account. One or more Dominion Accounts and all
----------------
lockbox arrangements shall have been established pursuant to agreement(s) in
form and substance satisfactory to Agent; provided that such arrangements shall
--------
be as described in subsection 6.2.5.
9.1.6 Adverse Change. No material adverse change shall have occurred
--------------
in Borrowers' financial condition since February 28, 1998.
9.1.7 Consents. All consents necessary to permit the secured
--------
financing transaction contemplated by this Agreement to be consummated pursuant
to the terms and conditions hereof shall have been obtained.
9.1.8 Solvency. Borrowers shall be Solvent, and all of Borrowers'
--------
assets supporting the Loans contemplated to be made hereby shall be sufficient
in value to provide Borrowers with adequate working capital and to enable
Borrowers to operate their respective businesses profitably.
9.1.9 Access Rights/Financial Information. Through the Closing Date,
-----------------------------------
Agent, Lenders or their respective representatives shall have been given access
at all reasonable times to inspect and evaluate the Collateral and the books and
records of Borrowers, and Borrowers shall have provided Lenders with all
financial and other information which Agent may have reasonably requested.
9.1.10 Landlord Waivers. Agent shall have received landlord waivers,
----------------
in form and substance satisfactory to Agent and its counsel, with respect to
Restoration's distribution centers and Michael's leased locations, together with
copies of the leases relating thereto.
9.1.11 Opinions of Counsel. Agent shall have received such opinions
-------------------
of counsel for Borrowers as Agent or its counsel may reasonably require.
35
9.1.12 Insurance. Agent shall have received insurance certificates,
---------
lender's loss payable endorsements and copies of all insurance policies
confirming insurance by Borrowers in amounts, coverage, form and by insurers
satisfactory to Agent.
9.1.13 Lien Priority. Agent shall have received file stamped UCC
-------------
financing statements and UCC amendments with respect to its security interest in
the Collateral consisting of Michael's Property, subject only to Permitted
Liens.
9.1.14 Fees. Agent and Lenders shall have received all fees payable
----
to them by Borrower as of the Closing Date.
9.1.15 Audit. Agent shall have conducted an updated audit of
-----
Borrowers' facilities and shall be satisfied with the results thereof.
9.1.16 Life Insurance. Within thirty days from Closing Date,
--------------
Restoration shall obtain key man life insurance on the life of ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇ in the face amount of $1,000,000 and Agent shall be designated as
beneficiary thereof in form and substance satisfactory to Agent.
9.1.17 Guaranties. Each Borrower shall have executed and delivered to
----------
Lender a Secured Continuing Corporate Guaranty ("Guaranty") with respect to the
obligations of the other Borrower to Lender, each such Guaranty to be
unconditional and in form and substance satisfactory to Lender in its sole
discretion.
9.1.18 Employment Agreement. Agent shall have reviewed and approved
--------------------
the terms of ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇'▇ employment agreement with Michael's.
9.1.19 Audit Memo. Lender shall have reviewed and approved the
----------
informal memorandum prepared by Deloitte & Touche with respect to the financial
condition and other business aspects of Michael's.
9.1.20 Acquisition. Agent shall have reviewed and approved the final
-----------
Purchase and Sale Agreement relating to the purchase by Restoration of the
capital stock of Michael's ("Acquisition Agreement"), and the transactions
contemplated by the Acquisition Agreement shall have been consummated
substantially in accordance with the terms thereof.
9.1.21 Fee Letter. Agent shall have received the Fee Letter from
----------
Borrowers.
9.2 Conditions to All Loans. Notwithstanding any other provision of this
-----------------------
Agreement or any of the other Loan Documents, and without affecting in any
manner the rights of Agent and Lenders under the other sections of this
Agreement, Lenders shall not be required to make any Loan under this Agreement
unless and until each of the following conditions precedent has been and
continues to be satisfied:
9.2.1 Representations and Warranties. The representations and
------------------------------
warranties made by Borrowers herein or in any of the Loan Documents, or which
are contained in any certificate, document or financial or other statement
furnished at any time under or in connection herewith
36
or therewith, shall be correct in all material respects on and as of the Closing
Date and, with respect to the making of each Loan after the Closing Date, as of
the borrowing date for such Loan (before and after giving effect to such Loan),
as if made on and as of such date (subject to Borrowers' right to update
representations and warranties as provided in Section 7.2), unless stated to
relate to a specific earlier date.
9.2.2 No Default or Event of Default. No Default or Event of Default
------------------------------
shall have occurred and be continuing on the Closing Date and, with respect to
the making of each Loan after the Closing Date, on the borrowing date for such
Loan or after giving effect to the Loan to be made on such date.
9.2.3 Litigation. No suit, action, investigation, inquiry or other
----------
proceeding by any governmental authority or other Person or any other legal or
administrative proceeding shall be pending or threatened (i) which questions the
validity or legality of the transactions contemplated by this Agreement, or
seeks damages in connection therewith and (ii) which if adversely determined
could reasonably be expected to have a Material Adverse Effect.
9.2.4 Solvency. Borrowers shall be Solvent, and all of Borrowers'
--------
assets supporting the Loans shall be sufficient in value, as reasonably
determined by Agent, to provide Borrowers with adequate working capital.
The borrowing by a Borrower of each Loan made after the Closing Date shall be
deemed to constitute a representation and warranty by it to the effect of each
subsection of this Section 9.2.
SECTION 10. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON DEFAULT
10.1 Events of Default. The occurrence of one or more of the following
-----------------
events shall constitute an "Event of Default":
10.1.1 Payment of Loans. Any Borrower shall fail to pay any of the
----------------
principal of, or interest or premium, if any, on the Loans on the due date
thereof (whether due at stated maturity, on demand, upon acceleration or
otherwise).
10.1.2 Payment of Other Obligations. Any Borrower shall fail to pay
----------------------------
any of the other Obligations on or within five (5) Business Days after the due
date thereof (whether due at stated maturity, on demand, upon acceleration or
otherwise).
10.1.3 Misrepresentations. Any representation, warranty or other
------------------
statement made or furnished to Agent or any Lender by or on behalf of any
Borrower or any Subsidiary of any Borrower, if any, in this Agreement, any of
the other Loan Documents or any instrument, certificate or financial statement
furnished in compliance with or in reference thereto proves to have been false
or misleading in any material respect when made or furnished, when reaffirmed or
modified pursuant to Section 7.2 hereof, or when reaffirmed pursuant to
subsection 9.2.1.
10.1.4 Breach of Specific Covenants. Any Borrower shall fail or
----------------------------
neglect to perform, keep or observe any covenant contained in Sections 5.2,
6.1.1, 6.2.5, 6.3.1, 8.1.1, 8.1.3,
37
8.2 or 8.3 hereof on the date that such Borrower is required to perform, keep or
observe such covenant; provided that the breach of the financial covenant in
--------
subsection 8.3.1 may be cured by a Borrower if within 30 days of such breach
such Borrower receives additional equity capital in an amount and manner
satisfactory to all Lenders.
10.1.5 Breach of Other Covenants. Any Borrower shall fail or neglect
-------------------------
to perform, keep or observe any covenant contained in this Agreement (other than
a covenant which is dealt with specifically elsewhere in Section 10.1 hereof)
and the breach of such other covenant is not cured to the satisfaction of Agent
within 15 days after the sooner to occur of such Borrower's receipt of notice of
such breach from Agent or the date on which such failure or neglect first
becomes known to any officer of such Borrower.
10.1.6 Default Under Security Documents/Other Agreements. Any
-------------------------------------------------
default or event of default (however defined) shall occur under, or a Borrower
or any other Person (other than Agent or Lenders) shall default in the
performance or observance of any material term, covenant, condition or agreement
contained in, any of the Security Documents or the Other Agreements.
10.1.7 Other Defaults. There shall occur any default or event of
--------------
default (however defined) on the part of a Borrower under any agreement,
document or instrument to which such Borrower is a party or by which such
Borrower or any of its Property is bound, creating or relating to any
Indebtedness (other than the Obligations and trade payables) with a principal
amount outstanding, individually or in the aggregate, in excess of $250,000 with
respect to Restoration and $50,000 with respect to Michael's, if the payment or
maturity of such Indebtedness is accelerated in consequence of such event of
default or demand for payment of such Indebtedness is made.
10.1.8 Uninsured Losses. Any loss, theft, damage or destruction of
----------------
any of the Collateral in excess of $1,000,000 with respect to Restoration and
$200,000 with respect to Michael's, that is not fully covered (subject to such
deductibles as Agent shall have permitted) by insurance shall occur.
10.1.9 Insolvency and Related Proceedings. A Borrower or any of its
----------------------------------
Subsidiaries, if any, shall cease to be Solvent or shall suffer the appointment
of a receiver, trustee, custodian or similar fiduciary, or shall make an
assignment for the benefit of creditors, or any petition for an order for relief
shall be filed by or against a Borrower or any of its Subsidiaries, if any,
under the Bankruptcy Code (if against a Borrower or such Subsidiary the
continuation of such proceeding for more than 30 days), or a Borrower or any of
its Subsidiaries, if any, shall make any offer of settlement, extension or
composition to its unsecured creditors generally.
10.1.10 Business Disruption; Condemnation. There shall occur a
---------------------------------
cessation of a substantial part of the business of a Borrower or a Subsidiary of
a Borrower, if any, for a period which has a Material Adverse Effect or could
reasonable be expected to have a Material Adverse Effect on the long terms
prospects of the Borrower and its Subsidiaries taken as a whole; or a
38
Borrower or a Subsidiary of a Borrower, if any, shall suffer the loss or
revocation of any license or permit now held or hereafter acquired by a Borrower
or such Subsidiary which is necessary to the continued or lawful operation of
their businesses, taken as a whole; or a Borrower or a Subsidiary of a Borrower,
if any, shall be enjoined, restrained or in any way prevented by court,
governmental or administrative order from conducting all or any material part of
their businesses, taken as a whole; or any material lease or agreement pursuant
to which a Borrower or a Subsidiary of a Borrower, if any, leases, uses or
occupies any Property shall be canceled or terminated prior to the expiration of
its stated term; or any part of the Collateral shall be taken through
condemnation or the value of such Property shall be impaired through
condemnation.
10.1.11 Change of Ownership or Management.
---------------------------------
(i) ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ shall cease to own and control, beneficially and
of record, at least 10% of the issued and outstanding voting stock of
Restoration; or any Person that does not as of the Closing Date own 8% or more
of the issued and outstanding voting stock of Restoration shall acquire (through
one or more transactions) an additional 10% or more of the issued and
outstanding voting stock of Restoration; or Restoration shall cease to own and
control, beneficially and of record, 100% of the issued and outstanding voting
stock of Michael's or such lesser amount as shall occur by reason of voting
stock of Michael's transferred to ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ pursuant to the earnout
terms in that certain Stock Purchase Agreement between Restoration and ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇. Notwithstanding the foregoing, if 51% or more in the aggregate of
the issued and outstanding voting stock of Restoration is owned by ▇▇▇▇▇
Capital, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇ Presidio, Cardinal Investors and/or Chase
Capital, no Event of Default shall have occurred under this clause (i) of
subsection 10.1.11; provided that nothing in this clause (i) shall restrict, and
--------
no default shall arise as a result of a change in control (as described in this
clause (i)) resulting from an initial public offering of Restoration's stock.
(ii) Any one of ▇▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ or ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
shall cease to be employed in an executive or managerial capacity by Restoration
or ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ in an executive or managerial capacity by Michael's and
shall not be replaced within 30 days of such cessation of employment with a
person acceptable to Agent in its discretion, reasonably exercised.
10.1.12 ERISA. A Reportable Event shall occur which Agent, in its
-----
sole discretion, shall determine in good faith constitutes grounds for the
termination by the Pension Benefit Guaranty Corporation of any Plan or for the
appointment by the appropriate United States district court of a trustee for any
Plan, or if any Plan shall be terminated or any such trustee shall be requested
or appointed, or if a Borrower or any Subsidiary of a Borrower is in "default"
(as defined in Section 4219(c)(5) of ERISA) with respect to payments to a
Multiemployer Plan resulting from Borrower's or such Subsidiary's complete or
partial withdrawal from such Plan.
10.1.13 Challenge to Agreement. A Borrower, any Subsidiary of
----------------------
Borrower or any Affiliate of any of them, shall challenge or contest in any
action, suit or proceeding the validity or enforceability of this Agreement, or
any of the Security Documents, the legality or
39
enforceability of any of the Obligations or the perfection or priority of any
Lien granted to Agent and Lenders.
10.1.14 Criminal Forfeiture. A Borrower, a Subsidiary of a Borrower
-------------------
or any of their respective senior managers shall be criminally indicted or
convicted under any law that could lead to a forfeiture of any material portion
of the Property of a Borrower or a Subsidiary of a Borrower, if any.
10.1.15 Judgments. Any money judgment against a Borrower, a
---------
Subsidiary of a Borrower or any of their respective Property in excess of
$500,000 in the aggregate with respect to Restoration and $125,000 in the
aggregate with respect to Michael's (exclusive of judgment amounts fully covered
by insurance where the insurer has admitted liability, in writing and without
qualification, in respect of such judgment) is rendered and remains undischarged
or unvacated for a period in excess of 30 days, or a stay of execution thereof
shall not have been procured within such 30-day period.
10.2 Acceleration of the Obligations. Without in any way limiting the
-------------------------------
right of Agent or Required Lenders to demand payment of any portion of the
Obligations payable on demand in accordance with Section 3.2 hereof, upon or at
any time during the continuance of an Event of Default, all or any portion of
the Obligations shall, at the option of Agent or Required Lenders and without
presentment, demand, protest or further notice by Agent or any Lender, become at
once due and payable upon demand and Borrowers shall forthwith pay to Agent and
Lenders, the full amount of such Obligations, provided, that upon the occurrence
--------
of an Event of Default specified in subsection 10.1.9 hereof, all of the
Obligations shall become automatically due and payable without declaration,
notice or demand by Agent or Lenders.
10.3 Other Remedies. Upon and after the occurrence of an Event of
--------------
Default, Agent and Lenders shall have and may exercise from time to time the
following rights and remedies:
10.3.1 All of the rights and remedies of a secured party under the
Code or under other applicable law, and all other legal and equitable rights to
which Agent and Lenders may be entitled, all of which rights and remedies shall
be cumulative and shall be in addition to any other rights or remedies contained
in this Agreement or any of the other Loan Documents, and none of which shall be
exclusive.
10.3.2 The right to take immediate possession of the Collateral, and
to (i) require Borrowers to assemble the Collateral, at Borrowers' expense, and
make it available to Agent and Lenders at a place designated by Agent, and (ii)
enter any premises where any of the Collateral shall be located and to keep and
store the Collateral on said premises until sold (and if said premises be the
Property of a Borrower, such Borrower agrees not to charge Agent or any Lender
for storage thereof).
10.3.3 The right to sell or otherwise dispose of all or any
Collateral in its then condition, or after any further manufacturing or
processing thereof, at public or private sale or sales, with such notice as may
be required by law, in lots or in bulk, for cash or on credit, all as
40
Agent or Required Lenders, in its or their sole discretion, may deem advisable.
Borrowers agree that 5 days written notice to Borrowers of any public or private
sale or other disposition of Collateral shall be reasonable notice thereof, and
such sale shall be at such locations as Agent may designate in said notice.
Agent shall have the right to conduct such sales on a Borrower's premises,
without charge therefor, and such sales may be adjourned from time to time in
accordance with applicable law. Agent shall have the right to sell, lease or
otherwise dispose of the Collateral, or any part thereof, for cash, credit or
any combination thereof, and Agent and Lenders may purchase all or any part of
the Collateral at public or, if permitted by law, private sale and, in lieu of
actual payment of such purchase price, may set off the amount of such price
against the Obligations. The proceeds realized from the sale of any Collateral
may be applied first to the costs, expenses and reasonable attorneys' fees
incurred by Agent in collecting the Obligations, in enforcing the rights of
Agent and Lenders under the Loan Documents and in collecting, retaking,
completing, protecting, removing, storing, advertising for sale, selling and
delivering any Collateral, second to the interest due upon any of the
Obligations; and third, to the principal of the Obligations. If any deficiency
shall arise, Borrowers shall remain liable to Agent and Lenders therefor.
10.3.4 Agent, for the benefit of Agent and Lenders, is hereby granted
a license or other right to use, without charge, Borrowers' labels, patents,
copyrights, rights of use of any name, trade secrets, tradenames, trademarks and
advertising matter, or any Property of a similar nature, as it pertains to the
Collateral, in advertising for sale and selling any Collateral and Borrowers'
rights under all licenses and all franchise agreements shall inure to Agent's
and Lenders' benefit.
10.4 Remedies Cumulative; No Waiver. All covenants, conditions,
------------------------------
provisions, warranties, guaranties, indemnities, and other undertakings of
Borrowers contained in this Agreement and the other Loan Documents, or in any
document referred to herein or contained in any agreement supplementary hereto
or in any schedule given to Agent or any Lender or contained in any other
agreement between Agent or Lenders and Borrowers, heretofore, concurrently, or
hereafter entered into, shall be deemed cumulative to and not in derogation or
substitution of any of the terms, covenants, conditions, or agreements of
Borrowers herein contained. The failure or delay of Agent or any Lender to
require strict performance by Borrowers of any provision of this Agreement or to
exercise or enforce any rights, Liens, powers, or remedies hereunder or under
any of the aforesaid agreements or other documents or security or Collateral
shall not operate as a waiver of such performance, Liens, rights, powers and
remedies, but all such requirements, Liens, rights, powers, and remedies shall
continue in full force and effect until all Loans and all other Obligations
owing or to become owing from Borrowers to Agent and Lenders shall have been
fully satisfied. None of the undertakings, agreements, warranties, covenants
and representations of Borrowers contained in this Agreement or any of the other
Loan Documents and no Event of Default by a Borrower under this Agreement or any
other Loan Documents shall be deemed to have been suspended or waived by Agent,
unless such suspension or waiver is by an instrument in writing specifying such
suspension or waiver and is signed by a duly authorized representative of Agent
and directed to such Borrower.
41
SECTION 11. THE AGENT
11.1 Appointment, Powers and Immunities. Each Lender hereby irrevocably
----------------------------------
appoints and authorizes Agent to act as its agent under this Agreement and the
other Loan Documents with such powers as are specifically delegated to Agent by
the terms of the Loan Documents, together with such other powers as are
reasonably incidental to such powers. Agent (which term as used in this
sentence and in Section 11.5 hereof and the first sentence of Section 11.6
hereof shall include reference to its affiliates and its own and its affiliates'
officers, directors, employees and agents): (a) shall have no duties or
responsibilities except those expressly set forth in the Loan Documents, and
shall not by reason of any Loan Document be a trustee for any Lender; (b) shall
not be responsible to Lenders for any recitals, statements, representations or
warranties contained in any Loan Document, or in any certificate or other
document referred to or provided for in, or received by any of them under, any
Loan Document, or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of any Loan Document or any other document
referred to or provided for in any Loan Document or for any failure by a
Borrower or any other Person to perform any of its obligations under any Loan
Document; (c) shall not be required to initiate or conduct any litigation or
collection proceedings under any Loan Document; and (d) shall not be responsible
for any action taken or omitted to be taken by it under any Loan Document or
under any other document or instrument referred to or provided for in any Loan
Document or in connection with any Loan Document, except for its own gross
negligence or willful misconduct. Agent may employ agents and attorneys-in-fact
and shall not be responsible for the negligence or misconduct of any such agents
or attorneys-in-fact selected by it in good faith. Agent may deem and treat the
payee of any Obligation as the holder thereof for all purposes of the Loan
Documents unless and until a notice of the assignment or transfer of such
Obligation shall have been filed with Agent. Each Lender further consents to
(x) the execution, delivery and performance by Agent of each Loan Document
entered into by Agent on behalf of Lenders as contemplated by this Agreement and
(y) the terms of such Loan Documents.
11.2 Reliance by Agent. Agent shall be entitled to rely upon any
-----------------
certification, notice or other communication (including any made by telephone,
telecopy, telex, telegram or cable) believed by it to be genuine and correct and
to have been signed or sent by or on behalf of the proper Person or Persons, and
upon advice and statements of legal counsel, independent accountants and other
experts selected by Agent. As to any matters not expressly provided for by any
Loan Document, Agent shall in all cases be fully protected in acting, or in
refraining from acting, under any Loan Document in accordance with instructions
given by Required Lenders or, if provided in this Agreement, in accordance with
the instructions given by all Lenders as is required in such circumstance, and
such instructions of such Lenders and any action taken or failure to act
pursuant to such instructions shall be binding on all Lenders.
11.3 Defaults. Agent shall not be deemed to have knowledge or notice of
--------
the occurrence of a Default or an Event of Default (other than the nonpayment of
principal of or interest on the Loans or of fees) unless Agent has received
notice from a Lender or a Borrower specifying such Default or Event of Default
and stating that such notice is a "Notice of Default". In the event that Agent
receives such a notice of the occurrence of a Default or Event of Default, Agent
shall give prompt notice of such receipt to each Lender (and shall give each
Lender
42
prompt notice of each such nonpayment). Agent shall (subject to Section
11.7) take such action with respect to such Default or Event of Default as shall
be directed by Required Lenders, provided that, unless and until Agent shall
--------
have received such directions, Agent may (but shall not be obligated to) take
such action, or refrain from taking such action, with respect to such Default or
Event of Default as it shall deem advisable in the best interest of Lenders
except to the extent that this Agreement expressly requires that such action be
taken, or not be taken, only with the consent or upon the authorization of
Required Lenders or all Lenders.
11.4 Rights as a Lender. With respect to its Commitments and the Loans
------------------
made by it, Fleet Capital Corporation (and any successor acting as Agent, if
any, as permitted by Section 11.8 hereof) in its capacity as a Lender under the
Loan Documents shall have the same rights, privileges and powers under the Loan
Documents as any other Lender and may exercise the same as though it were not
acting as Agent, and the term "Lender" or "Lenders" shall, unless the context
otherwise indicates, include Agent in its individual capacity. Fleet Capital
Corporation (and any successor acting as Agent) and its affiliates may (without
having to account for the same to any Lender) accept deposits from, lend money
to, make investments in and generally engage in any kind of banking, trust or
other business with a Borrower (and any of its Subsidiaries or Affiliates) as if
it were not acting as Agent, and Fleet Capital Corporation and its affiliates
may accept fees and other consideration from a Borrower for services in
connection with this Agreement or otherwise without having to account for the
same to Lenders.
11.5 Indemnification. Without limiting a Borrower's obligations under
---------------
this Agreement, Lenders agree to indemnify Agent and its affiliates, directors,
officers, employees, attorneys and agents (to the extent not otherwise
reimbursed by Borrowers under this Agreement or the other Loan Documents)
ratably in accordance with their respective Commitments, for any and all losses,
liabilities, damages or expenses (i) incurred by any of them in connection with
or by reason of any actual or threatened investigation, litigation or other
proceedings (including any such investigation, litigation or other proceedings
between Agent and any Lender) relating to the extensions of credit under, and
the transactions contemplated by, the Loan Documents or any actual or proposed
use by Borrower or any of its Subsidiaries of the proceeds of any such
extensions of credit (or arising under any Environmental Law as provided in
Section 12.2), including the reasonable fees and disbursements of counsel
incurred in connection with any such investigation, litigation or other
proceedings and (ii) otherwise payable or reimbursable by Borrowers to Agent
under this Agreement or the other Loan Documents but not paid or reimbursed by
or on behalf of Borrowers when due (but excluding in any such case any such
losses, liabilities, damages or expenses incurred by reason of the gross
negligence or willful misconduct of the Person to be indemnified).
11.6 Nonreliance on Agent and Other Lenders. Each Lender agrees that it
--------------------------------------
has, independently and without reliance on Agent or any other Lender, and based
on such documents and information as it has deemed appropriate, made its own
credit analysis of Borrowers and its Subsidiaries and decision to enter into
this Agreement and that it will, independently and without reliance upon Agent
or any other Lender, and based on such documents and information as it shall
deem appropriate at the time, continue to make its own analysis and decisions in
taking or not taking action under this Agreement. Agent shall not be required
to keep itself informed as to
43
the performance or observance by Borrower of any Loan Document or any other
document referred to or provided for in any Loan Document or to inspect the
Properties or books of Borrowers or any of its Subsidiaries. Except for notices,
reports and other documents and information expressly required to be furnished
to Lenders by Agent under this Agreement, Agent shall not have any duty or
responsibility to provide any Lender with any credit or other information
concerning the affairs, financial condition or business of Borrowers or any of
its Subsidiaries (or any of their Affiliates) that may come into the possession
of Agent or any of its affiliates.
11.7 Failure to Act. Except for action expressly required of Agent under
--------------
the Loan Documents, Agent shall in all cases be fully justified in failing or
refusing to act under any Loan Document unless it shall receive further
assurances to its satisfaction from Lenders of their indemnification obligations
under Section 11.5 against any and all liability and expense that may be
incurred by it by reason of taking or continuing to take any such action.
11.8 Resignation of Agent. Subject to the appointment and acceptance of a
--------------------
successor Agent as provided below, Agent may resign at any time by notice to
Lenders and Borrowers. Upon any such resignation, Required Lenders shall have
the right to appoint a successor Agent. Any successor Agent shall have a net
worth of at least $250,000,000. If no successor Agent shall have been appointed
by Required Lenders and have accepted such appointment within 30 days after the
retiring Agent's giving of notice of resignation, then the retiring Agent may,
on behalf of Lenders, appoint a successor Agent. Upon the acceptance of any
appointment as Agent by a successor Agent, such successor Agent shall thereupon
succeed to and become vested with all the rights, remedies, powers, privileges,
duties and obligations of the retiring Agent, and the retiring Agent shall be
discharged from its duties and obligations, under the Loan Documents. After any
retiring Agent's resignation as Agent, the provisions of this Section 11 shall
continue in effect for its benefit in respect of any actions taken or omitted to
be taken by it while it was acting as Agent.
11.9 Collateral Sub-Agents. Each Lender by its execution and delivery of
---------------------
this Agreement agrees that, in the event it shall hold any monies or other
investments on account of Borrowers, such monies or other investments shall be
held in the name and under the control of such Lender, and such Lender shall
hold such monies or other investments as a collateral sub-agent for Agent under
this Agreement and the other Loan Documents. Borrowers by their execution and
delivery of this Agreement hereby consents to the foregoing.
11.10 Communications by Borrower. Except as otherwise provided in this
--------------------------
Agreement, Borrowers' communications with respect to the Loan Documents shall be
with the Agent.
SECTION 12. MISCELLANEOUS
12.1 Power of Attorney. Each Borrower hereby irrevocably designates,
-----------------
makes, constitutes and appoints Agent (and any of its duly authorized
representatives or agents) as Borrowers' true and lawful attorney (and agent-in-
fact) and Agent may (or such Persons
44
designated by Agent may), without notice to Borrowers and in either Borrowers'
or Agent's name, but at the cost and expense of Borrowers:
12.1.1 At such time or times as Agent (or any such duly authorized
representatives or agents of Agent), in its sole discretion, may determine,
endorse Borrowers' name on any checks, notes, acceptances, drafts, money orders
or any other evidence of payment or proceeds of the Collateral which come into
the possession or control of Agent or any Lender.
12.1.2 At such time or times upon or during the continuance of an
Event of Default as Agent or its agent in its sole discretion may determine: (i)
demand payment of the Accounts from the Account Debtors, enforce payment of the
Accounts by legal proceedings or otherwise, and generally exercise all of
Borrowers' rights and remedies with respect to the collection of the Accounts;
(ii) settle, adjust, compromise, discharge or release any of the Accounts or
other Collateral or any legal proceedings brought to collect any of the Accounts
or other Collateral; (iii) sell or assign any of the Accounts and other
Collateral upon such terms, for such amounts and at such time or times as Agent
deems advisable; (iv) take control, in any manner, of any item of payment or
proceeds relating to any Collateral; (v) prepare, file and sign a Borrower's
name to a proof of claim in bankruptcy or similar document against any Account
Debtor or to any notice of lien, assignment or satisfaction of lien or similar
document in connection with any of the Collateral; (vi) receive, open and
dispose of all mail addressed to a Borrower and to notify postal authorities to
change the address for delivery thereof to such address as Agent may designate;
(vii) endorse the name of a Borrower upon any of the items of payment or
proceeds relating to any Collateral and deposit the same to the account of
Agent, for the benefit of Lenders ratably in accordance with their respective
Commitments, on account of the Obligations; (viii) endorse the name of a
Borrower upon any chattel paper, document, instrument, invoice, freight ▇▇▇▇,
▇▇▇▇ of lading or similar document or agreement relating to the Accounts,
Inventory and any other Collateral; (ix) use a Borrower's stationery and sign
the name of a Borrower to verifications of the Accounts and notices thereof to
Account Debtors; (x) use the information recorded on or contained in any data
processing equipment and computer hardware and software relating to the
Accounts, Inventory, Equipment and any other Collateral; (xi) make and adjust
claims under policies of insurance; and (xii) do all other acts and things
necessary, in Agent's determination, to fulfill Borrowers' obligations under
this Agreement.
12.2 Indemnity. Borrowers hereby agree to indemnify Agent and Lenders and
---------
hold Agent and Lenders harmless from and against any liability, loss, damage,
suit, action or proceeding ever suffered or incurred by Agent or Lenders
(including reasonable attorneys fees and legal expenses) as the result of
Borrowers' failure to observe, perform or discharge Borrowers' duties hereunder.
In addition, Borrowers shall defend Agent and Lenders against and save them
harmless from all claims of any Person with respect to the Collateral. Without
limiting the generality of the foregoing, these indemnities shall extend to any
claims asserted against Agent or Lenders by virtue of Agent's and Lenders' being
party to this Agreement by any Person under any Environmental Laws or similar
laws by reason of Borrowers' or any other Person's failure to comply with laws
applicable to solid or hazardous waste materials or other toxic substances.
Notwithstanding any contrary provision in this Agreement, the obligation of
45
Borrowers under this Section 12.2 shall survive the payment in full of the
Obligations and the termination of this Agreement.
12.3 Amendments, Etc. Except as otherwise expressly provided in this
---------------
Agreement, any provision of this Agreement and the other Loan Documents may be
modified or supplemented only by an instrument in writing signed by Borrowers,
Agent and all Lenders, or by Borrowers and Agent acting with the written consent
of all Lenders, and any provision of this Agreement and the other Loan Documents
may be waived by all Lenders or by Agent acting with the written consent of all
Lenders. Any modification, supplement or waiver shall be for such period and
subject to such conditions as shall be specified in the instrument effecting the
same and shall be binding upon Agent, Lenders and Borrowers, and any such waiver
shall be effective only in the specific instance and for the purpose for which
given.
12.4 Successors and Assigns. This Agreement shall be binding upon and
----------------------
inure to the benefit of the parties hereto and their respective successors and
permitted assigns.
12.5 Assignments and Participations.
------------------------------
12.5.1 Borrowers may not assign any of its rights or obligations
under this Agreement without the prior consent of all Lenders and Agent. Any
attempted or purported assignment in contravention of the preceding sentence
shall be null and void.
12.5.2 Each Lender may (with the consent of Borrowers, unless such
assignment is to another Lender or a subsidiary, sister company or parent of any
Lender, in which case Borrowers' consent shall not be required) assign all or
any part of its Loans and its Commitments (but only with the consent of Agent
and only pro rata among all of the various Loans and Commitments to the
Borrowers), together with, in any such case, its related rights, remedies,
powers and privileges under the Loan Documents; provided that (i) any such
--------
partial assignment shall be in an amount at least equal to $10,000,000 and the
assigning Lender shall have a retained interest at least equal to $10,000,000;
(iii) each such assignment by a Lender of its Loans and Commitments shall be
made in such manner so that the same portion of its Loans and Commitments is
assigned to the respective assignee; and (iv) the assigning Lender or the
respective assignee shall have paid to Agent an assignment fee of $5,000. Upon
execution and delivery by the assignee to Borrowers and Agent of an instrument
in writing pursuant to which such assignee agrees to become a "Lender" under
this Agreement (if not already a Lender) having the Commitment or Commitments
and Loans specified in such instrument, and upon the consent of Agent, the
assignee shall have, to the extent of such assignment (unless otherwise provided
in such assignment with the consent of Agent), the obligations, rights and
benefits of a Lender under the Loan Documents holding the Commitment or
Commitments and Loans assigned to it (in addition to the Commitment or
Commitments and Loans, if any, theretofore held by such assignee) and the
assigning Lender shall, to the extent of such assignment, be released from the
Commitment or Commitments so assigned. Any Lender may sell participations in its
Loans and Commitments, but only on terms acceptable to Agent in its reasonable
discretion.
46
12.5.3 In addition to the assignments and participations permitted
under the foregoing provisions of this Section 12.5, any Lender may assign and
pledge all or any portion of its Loans to any Federal Reserve Bank as collateral
security pursuant to Regulation A of the Board of Governors of the Federal
Reserve System and any Operating Circular issued by such Federal Reserve Bank.
No such assignment shall release the assigning Lender from its obligations under
the Loan Documents.
12.5.4 A Lender may furnish any information concerning Borrowers or
any of its Subsidiaries in the possession of such Lender from time to time to
assignees and participants (including prospective assignees and participants).
12.5.5 Notwithstanding anything in this Section 12.5 to the contrary,
no Lender may assign or participate to Borrowers or any of its Affiliates or
Subsidiaries any interest in any Obligation or Commitment (or any related
rights, remedies, powers or privileges) without the prior written consent of
each Lender and Agent.
12.6 Severability. Wherever possible, each provision of this Agreement
------------
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement.
12.7 Successors and Assigns. This Agreement, the Other Agreement and the
----------------------
Security Documents shall be binding upon and inure to the benefit of the
successors and permitted assigns of Borrowers, Agent and Lenders.
12.8 Cumulative Effect; Conflict of Terms. The provisions of the Other
------------------------------------
Agreements and the Security Documents are hereby made cumulative with the
provisions of this Agreement. Except as otherwise provided in Section 3.2
hereof and except as otherwise provided in any of the other Loan Documents by
specific reference to the applicable provision of this Agreement, if any
provision contained in this Agreement is in direct conflict with, or
inconsistent with, any provision in any of the other Loan Documents, the
provision contained in this Agreement shall govern and control.
12.9 Execution in Counterparts. This Agreement may be executed in any
-------------------------
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed to be an original
and all of which counterparts taken together shall constitute but one and the
same instrument.
12.10 Notices. Except as otherwise provided herein, all notices, requests
-------
and demands to or upon a party hereto, to be effective, shall be in writing and
shall be sent by certified or registered mail, return receipt requested, by
personal delivery against receipt, by overnight courier or by facsimile and,
unless otherwise expressly provided herein, shall be deemed to have been validly
served, given or delivered immediately when delivered against receipt, one
Business
47
Day after deposit in the mail, postage prepaid, or with an overnight courier or,
in the case of facsimile notice, when sent, addressed as follows:
If to Agent: Fleet Capital Corporation
▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: Loan Administration Manager
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to: ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ llp
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ - ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
If to Lenders: As specified below its name on Annex 1
If to either Borrower: Restoration Hardware, Inc.
▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. Low
Chief Financial Officer
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
and
The Michaels Furniture Company, Inc.
c/o Restoration Hardware, Inc.
▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. Low
Chief Financial Officer
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to: ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP
Two Embarcadero Place
▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
48
or to such other address as each party may designate for itself by notice given
in accordance with this Section 12.10; provided, however, that any notice,
-------- -------
request or demand to or upon Agent pursuant to subsection 3.1.1 or 4.2.2 hereof
shall not be effective until received by Agent.
12.11 Certain Consents. Whenever the consent of Agent or Lenders is
----------------
required to be obtained under this Agreement, any of the Other Agreements or any
of the Security Documents as a condition to any action, inaction, condition or
event, Agent and Lenders, as the case may be, shall, except as otherwise
expressly provided herein or in the other Loan Documents, be authorized to give
or withhold such consent in its or their sole and absolute discretion and to
condition such consent upon the giving of additional collateral security for the
Obligations, the payment of money or any other matter.
12.12 Credit Inquiries. Borrowers hereby authorize and permit Agent and
----------------
Lenders to respond to usual and customary credit inquiries from third parties
concerning Borrowers or any of their Subsidiaries.
12.13 Time of Essence. Time is of the essence of this Agreement, the
---------------
Other Agreements and the Security Documents.
12.14 Entire Agreement. This Agreement and the other Loan Documents,
----------------
together with all other instruments, agreements and certificates executed by the
parties in connection therewith or with reference thereto, embody the entire
understanding and agreement between the parties hereto and thereto with respect
to the subject matter hereof and thereof and supersede all prior agreements,
understandings and inducements, whether express or implied, oral or written.
12.15 Interpretation. No provision of this Agreement or any of the other
--------------
Loan Documents shall be construed against or interpreted to the disadvantage of
any party hereto by any court or other governmental or judicial authority by
reason of such party having or being deemed to have structured or dictated such
provision.
12.16 GOVERNING LAW; CONSENT TO FORUM. THIS AGREEMENT HAS BEEN
-------------------------------
NEGOTIATED, EXECUTED AND DELIVERED AT AND SHALL BE DEEMED TO HAVE BEEN MADE IN
LOS ANGELES, CALIFORNIA. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA; PROVIDED, HOWEVER, THAT IF
-------- -------
ANY OF THE COLLATERAL SHALL BE LOCATED IN ANY JURISDICTION OTHER THAN
CALIFORNIA, THE LAWS OF SUCH JURISDICTION SHALL GOVERN THE METHOD, MANNER AND
PROCEDURE FOR FORECLOSURE OF THE LIEN OF THE AGENT AND LENDERS UPON SUCH
COLLATERAL AND THE ENFORCEMENT OF AGENT'S AND LENDERS' OTHER REMEDIES IN RESPECT
OF SUCH COLLATERAL TO THE EXTENT THAT THE LAWS OF SUCH JURISDICTION ARE
DIFFERENT FROM OR INCONSISTENT WITH THE LAWS OF CALIFORNIA. AS PART OF THE
CONSIDERATION FOR NEW VALUE RECEIVED, AND REGARDLESS OF ANY PRESENT OR FUTURE
DOMICILE OR PRINCIPAL PLACE OF BUSINESS OF BORROWERS OR LENDERS, BORROWERS
HEREBY
49
CONSENT AND AGREE THAT THE SUPERIOR COURT OF LOS ANGELES COUNTY, OR, AT
THE OPTION OF AGENT OR ANY LENDER, THE UNITED STATES DISTRICT COURT FOR THE
CENTRAL DISTRICT OF CALIFORNIA, SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND
DETERMINE ANY CLAIMS OR DISPUTES BETWEEN BORROWERS AND AGENT AND/OR LENDERS
PERTAINING TO THIS AGREEMENT OR TO ANY MATTER ARISING OUT OF OR RELATED TO THIS
AGREEMENT. BORROWERS EXPRESSLY SUBMIT AND CONSENT IN ADVANCE TO SUCH
JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND BORROWERS
HEREBY WAIVE ANY OBJECTION WHICH BORROWERS MAY HAVE BASED UPON LACK OF PERSONAL
JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY CONSENT TO THE
--- ----------
GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH
COURT. BORROWERS HEREBY WAIVE PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND
OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREE THAT SERVICE OF SUCH
SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE IN ANY MANNER PERMITTED
PURSUANT TO SECTION 12.9 TO BORROWERS AT THE ADDRESSES SET FORTH IN THIS
AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF
BORROWERS' ACTUAL RECEIPT THEREOF OR THREE DAYS AFTER DEPOSIT IN THE U.S. MAIL,
PROPER POSTAGE PREPAID. NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO
AFFECT THE RIGHT OF AGENT OR ANY LENDER TO SERVE LEGAL PROCESS IN ANY OTHER
MANNER PERMITTED BY LAW, OR TO PRECLUDE THE ENFORCEMENT BY AGENT OR ANY LENDER
OF ANY JUDGMENT OR ORDER OBTAINED IN SUCH FORUM OR THE TAKING OF ANY ACTION
UNDER THIS AGREEMENT TO ENFORCE SAME IN ANY OTHER APPROPRIATE FORUM OR
JURISDICTION.
12.17 WAIVERS BY BORROWERS. BORROWERS WAIVE (i) THE RIGHT TO TRIAL BY
--------------------
JURY (WHICH AGENT AND LENDERS HEREBY ALSO WAIVE) IN ANY ACTION, SUIT, PROCEEDING
OR COUNTERCLAIM OF ANY KIND ARISING OUT OF OR RELATED TO ANY OF THE LOAN
DOCUMENTS, THE OBLIGATIONS OR THE COLLATERAL: (ii) PRESENTMENT, DEMAND AND
PROTEST AND NOTICE OF PRESENTMENT, PROTEST, DEFAULT, NON PAYMENT, MATURITY,
RELEASE, COMPROMISE, SETTLEMENT, EXTENSION OR RENEWAL OF ANY OR ALL COMMERCIAL
PAPER, ACCOUNTS, CONTRACT RIGHTS, DOCUMENTS, INSTRUMENTS CHATTEL PAPER AND
GUARANTIES AT ANY TIME HELD BY AGENT OR ANY LENDER ON WHICH BORROWERS MAY IN ANY
WAY BE LIABLE AND HEREBY RATIFIES AND CONFIRMS WHATEVER AGENT OR SUCH LENDER MAY
DO IN THIS REGARD; (iii) NOTICE PRIOR TO TAKING POSSESSION OR CONTROL OF THE
COLLATERAL OR ANY BOND OR SECURITY WHICH MIGHT BE REQUIRED BY ANY COURT PRIOR TO
ALLOWING AGENT OR ANY LENDER TO EXERCISE ANY OF AGENT'S OR SUCH LENDER'S
REMEDIES; (iv) THE BENEFIT OF ALL VALUATION, APPRAISEMENT AND EXEMPTION LAWS;
AND
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(v) NOTICE OF ACCEPTANCE HEREOF. BORROWERS ACKNOWLEDGE THAT THE FOREGOING
WAIVERS ARE A MATERIAL INDUCEMENT TO AGENT'S AND LENDERS' ENTERING INTO THIS
AGREEMENT AND THAT AGENT AND LENDERS ARE RELYING UPON THE FOREGOING WAIVERS IN
ITS FUTURE DEALINGS WITH BORROWERS. BORROWERS WARRANT AND REPRESENT THAT THEY
HAS REVIEWED THE FOREGOING WAIVERS WITH ITS LEGAL COUNSEL AND HAVE KNOWINGLY AND
VOLUNTARILY WAIVED THEIR JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN
CONSENT TO A TRIAL BY THE COURT.
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties in
Los Angeles, California as of the day and year specified at the beginning of
this Agreement.
RESTORATION HARDWARE, INC.
("Borrower")
By
-------------------------------------
Title
------------------------------
THE MICHAELS FURNITURE COMPANY, INC.
("Borrower")
By
-------------------------------------
Title
------------------------------
FLEET CAPITAL CORPORATION
(as "Agent" and as a "Lender")
By
-------------------------------------
Title
------------------------------
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Annex 1
Addresses for Notices, Payment Accounts and Commitments of Lenders
COMMITMENT
----------
FLEET CAPITAL CORPORATION $_________ Revolving Credit Loans
(Restoration)
$_________ Seasonal Loans
(Restoration)
$_________ Revolving Credit Loans
(Michael's)
$_________ Term Loan
(Michael's)
Address for Notices
-------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: Loan Administration Manager
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Payment Account
---------------
Fleet National Bank, N.A.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
ABA: ▇▇▇▇▇▇▇▇▇
Account: [937-001-4304]
Re: Restoration Hardware, Inc.
52