--------------------------------------------------
--------------------------------------------------
LOAN AGREEMENT
-------------------------------------------------
-------------------------------------------------
HILCO CAPITAL LP,AS LENDER
-------------------------------------------------
-------------------------------------------------
NATURAL WONDERS, INC.,
AS THE LEAD BORROWER
FOR:
NATURAL WONDERS, INC.
NATURAL WONDERS ACQUISITION COMPANY, INC.
NW CAPITAL MANAGEMENT, INC.
WORLD OF SCIENCE, INC.
WOSI ON THE WEB, INC.
THE BORROWERS
-------------------------------------------------
-------------------------------------------------
September 11, 2000
TABLE OF CONTENTS
PAGE
Article 1 - Definitions.........................................................................1
--
Article 2 - The Term Loan......................................................................16
--
(a) Commitment..........................................................................16
--
(b) Loan Request........................................................................16
--
(c) The Loan Account....................................................................17
--
(d) The Note............................................................................17
--
(e) Payment of The Loan.................................................................17
--
(f) Interest............................................................................18
--
(g) Fees................................................................................18
--
(h) Concerning Fees.....................................................................18
--
(i) Lender's Discretion.................................................................18
--
(J) Joint and Several Liability of the Borrowers........................................19
--
Article 3 - Designation of Lead Borrower as Borrowers' Agent...................................21
--
Article 4 - Conditions Precedent...............................................................21
--
(a) Corporate Due Diligence.............................................................21
--
(b) Opinion.............................................................................22
--
(c) Additional Documents................................................................22
--
(d) Officers' Certificates..............................................................22
--
(e) Representations and Warranties......................................................22
--
(f) Minimum Day One Availability........................................................22
--
(g) All Fees and Expenses Paid..........................................................22
--
(h) Completion of Merger................................................................22
--
(i) Subordinated Debt...................................................................22
--
(j) Celestron Agreement.................................................................23
--
(k) Engagement of Consultant............................................................23
--
(l) Completion of Due Diligence.........................................................23
--
(m) Perfection of Collateral Interests..................................................23
--
(n) Pro Forma Financial Statements......................................................23
--
(o) IBJ Agreement; Intercreditor Agreement..............................................23
--
(p) No Borrower InDefault...............................................................23
--
(q) No Adverse Change...................................................................23
--
(r) Warrants............................................................................24
--
(i)
Article 5 - General Representations, Covenants and Warranties..................................24
--
(a) Payment and Performance of Liabilities..............................................24
--
(b) Due Organization. Securities. Authorization. No Conflicts.........................24
--
(c) Trade Names.........................................................................26
--
(d) Infrastructure......................................................................26
--
(e) Indebtedness........................................................................26
--
(f) Licenses............................................................................27
--
(g) Leases..............................................................................27
--
(h) Requirements of Law.................................................................27
--
(i) Labor Relations.....................................................................27
--
(j) Taxes...............................................................................28
--
(k) No Margin Stock.....................................................................29
--
(l) ERISA...............................................................................29
--
(m) Hazardous Materials.................................................................30
--
(n) Litigation..........................................................................30
--
(o) Dividends. Investments. Corporate Action............................................30
--
(p) Loans...............................................................................31
--
(q) Line of Business....................................................................31
--
(r) Affiliate Transactions..............................................................31
--
(s) Adequacy of Disclosure..............................................................32
--
(t) No Restrictions on Liabilities......................................................32
--
(u) IBJ Agreement.......................................................................32
--
(v) Borrowing Base......................................................................33
--
(w) Liens...............................................................................34
--
(x) Prepayments and Amendments..........................................................34
--
(y) Markup and Markdown Policies........................................................34
--
(z) Maintainance of Insurance...........................................................34
--
(aa) Other Covenants....................................................................35
--
Article 6 - Financial Reporting and Performance Covenants......................................35
--
(a) Maintain Records....................................................................35
--
(b) Access to Records...................................................................36
--
(c) Immediate Notice to Administrative Agent............................................36
--
(d) Borrowing Base Certificate..........................................................37
--
(e) Weekly Reports......................................................................37
--
(f) Monthly Reports.....................................................................38
--
(g) Quarterly Reports...................................................................39
--
(h) Annual Reports......................................................................39
--
(i) Officers' Certificates..............................................................39
--
(j) Inventories, Appraisals, and Audits.................................................40
--
(k) Additional Financial Information....................................................41
--
(l) Financial Performance Covenants.....................................................42
--
(ii)
Article 7 - Cash Management. Payment of Liabilities............................................42
--
(a) Depository Accounts.................................................................42
--
(b The Operating Account................................................................42
--
Article 8 - Events of Default..................................................................42
--
(a) Failure to Pay the Loan.............................................................43
--
(b) Failure To Make Other Payments......................................................43
--
(c) Failure to Perform Covenant or Liability (No Grace Period)..........................43
--
(d) Failure to Perform Covenant or Liability (Grace Period).............................43
--
(e) Misrepresentation...................................................................44
--
(f) Acceleration of Other Debt. Breach of Lease........................................44
--
(g) Default Under Other Agreements......................................................44
--
(h) Uninsured Casualty Loss.............................................................44
--
(i) Attachment. Judgment. Restraint of Business.........................................45
--
(j) Business Failure....................................................................45
--
(k) Bankruptcy..........................................................................45
--
(l) Indictment - Forfeiture.............................................................45
--
(m) Challenge to Loan Documents.........................................................46
--
(n) Key Management......................................................................46
--
(o) Change in Control...................................................................46
--
Article 9 - Rights and Remedies Upon Default...................................................46
--
(a) Acceleration........................................................................46
--
(b) Rights and Remedies.................................................................46
--
Article 10 - Issuance of Equity Interest to the Lender.........................................47
--
(a) Authorization and Issuance of Warrants..............................................47
--
(b) Securities Act Matters..............................................................47
--
(c) Certain Taxes.......................................................................48
--
(d) Cancellation and Issuance...........................................................48
--
Article 11 - Assignments and Participations By The Lender......................................49
--
(a) Assignments and Participations......................................................49
--
Article 12 - Notices...........................................................................49
--
(a) Notice Addresses....................................................................49
--
(b) Notice Given........................................................................50
--
Article 13 - Term..............................................................................50
--
(a) Actions On Termination..............................................................50
--
Article 14 - General...........................................................................51
--
(a) Protection of Collateral............................................................51
--
(iii)
(b) Publicity...........................................................................51
--
(c) Successors and Assigns..............................................................51
--
(d) Severability........................................................................51
--
(e) Amendments. Course of Dealing......................................................52
--
(f) Power of Attorney...................................................................52
--
(g) Application of Proceeds.............................................................52
--
(h) Increased Costs.....................................................................52
--
(i) Costs and Expenses of the Lender....................................................54
--
(j) Copies and Facsimiles...............................................................54
--
(k) Illinois Law........................................................................55
--
(l) Consent to Jurisdiction.............................................................55
--
(m) Indemnification.....................................................................55
--
(n) Rules of Construction...............................................................56
--
(o) Intent..............................................................................57
--
(p) Right of Set-Off....................................................................58
--
(q) Maximum Interest Rate...............................................................58
--
(r) Waivers.............................................................................58
--
(iv)
EXHIBITS
1(a) Subordinated Debt2(b) : Notice of Borrowing
2(d) : Term Note
4(c) : Additional Documents
5(b) : Affiliates
5(c) : Trade Names
5(e) : Indebtedness
5(g) : Capital Leases and Other Leases
5(j) : Taxes
5(n) : Litigation
6(d) : Borrowing Base Certificate
6(l)(a) : Financial Performance Covenants
6(l)(b) : Business Plan
12(a) : Form of Warrant
12(b) Form of Registration Rights Agreement
(v)
LOAN AGREEMENT
This Loan Agreement is made as of the 11th day of September, 2000 by and
among
Natural Wonders, Inc. (the "LEAD BORROWER"), a Delaware corporation,
having a principal place of business at ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇,
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, as Lead Borrower for the "BORROWERS", such
being:
Natural Wonders, Inc; Natural Wonders Acquisition Company, Inc.,
a New York corporation ("NW ACQUISITION"), having a principal
place of business at ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇, NW Capital Management, Inc. a California corporation ("NW
CAPITAL"), having a principal place of business at ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, and, after
consummation of the Merger, World of Science, Inc., a New York
corporation ("WOS"), having a principal place of business in
Fremont, California, successor by merger with NW Acquisition, and
WOSI on the Web, Inc., a New York corporation, having a principal
place of business in Rochester, New York; and
Hilco Capital LP, a Delaware limited partnership (the "LENDER"), having
an office at One Northbrook Place, ▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇,
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
in consideration of the mutual covenants herein contained and benefits to be
derived herefrom.
W I T N E S S E T H:
RECITALS: The Lead Borrower has organized Natural Wonders Acquisition
Company, Inc. for the purpose of acquiring World of Science Inc. through a
merger of Natural Wonders Acquisition Company, Inc. with and into World of
Science, Inc. (the "Merger"). The Lead Borrower has requested that the Lender
make a term loan to the Borrowers to finance the Merger, for working capital and
for general corporate purposes of the Borrowers, and the Lender has agreed to do
so on the terms set forth herein.
-1-
ARTICLE 1 - DEFINITIONS:
As used herein, the following terms have the following meanings or are
defined in the section of this Agreement so indicated. (Terms used herein which
are defined in the Security Agreement are used as so defined):
"ACCELERATION": The making of demand or declaration that any
indebtedness, not otherwise due and payable, is due and payable. Derivations of
the word "Acceleration" (such as "Accelerate") are used with like meaning in
this Agreement.
"ADDITIONAL RESERVES": Such reserves as the Lender from time to time
determines in the Lender's reasonable discretion. Without limiting the
generality of the foregoing, Additional Reserves may include (but are not
limited to) reserves based on the following:
(i) Rent (but only if a landlord's waiver, acceptable to
the Lender, has not been received by the Lender).
(ii) Customer Credit Liabilities.
(iii) Taxes and other governmental charges, including, ad
valorem, personal property, and other taxes which
might have priority over the Collateral Interests of
the Collateral Agent in the Collateral.
(iv) Such other circumstances as the Lender determines in
its reasonable business judgment are an appropriate
basis for a reserve.
"AFFILIATE": The following:
(a) With respect to any two Persons, a relationship in which (i)
one holds, directly or indirectly, not less than Twenty Five Percent (25%) of
the capital stock, beneficial interests, partnership interests, or other equity
interests of the other; or (ii) one has, directly or indirectly, the right,
under ordinary circumstances, to vote for the election of a majority of the
directors (or other body or Person who has those powers customarily vested in a
board of directors of a corporation); or (iii) not less than Twenty Five Percent
(25%) of their respective ownership is directly or indirectly held by the same
third Person.
(b) Any Person which: is a parent, brother-sister, subsidiary, or
affiliate, of a Borrower; could have such enterprise's tax returns or financial
statements consolidated with that Borrower's; could be a member of the same
controlled group of corporations (within the meaning of Section 1563(a)(1), (2)
and (3) of the Internal Revenue Code of 1986, as amended from time to time) of
which any Borrower is a member; controls or is controlled by any Borrower.
-2-
"APPLICABLE LAW": As to any Person: (i) all statutes, rules,
regulations, orders, or other requirements having the force of law and (ii) all
court orders and injunctions, arbitrator's decisions, and/or similar rulings, in
each instance ((i) and (ii)) of or by any federal, state, municipal, and other
governmental authority, or court, tribunal, panel, or other body which has or
claims jurisdiction over such Person, or any property of such Person, or of any
other Person for whose conduct such Person would be responsible.
"APPRAISED INVENTORY LIQUIDATION VALUE": That percentage of the Cost of
Eligible Inventory (net of Inventory Reserves), which percentage is determined
from the then most recent appraisal of the Borrowers' Inventory undertaken at
the request of the Lender to reflect the appraiser's estimate of the net
recovery (after all expenses of liquidation) on the Borrowers' Inventory in the
event of an in-store liquidation of that Inventory, as such may be adjusted by
the Lender in its reasonable discretion.
"APPRAISED INVENTORY PERCENTAGE": The following percentages during the
periods indicated:
------------------------------------------- ------------------
PERIOD APPRAISED
INVENTORY
PERCENTAGE
------------------------------------------- ------------------
Closing Date through December 15, 2000 100%
------------------------------------------- ------------------
December 16, 2000 throughthe Maturity Date 90%
------------------------------------------- ------------------
"AVAILABILITY": Is defined in the IBJ Agreement.
"BANKRUPTCY CODE": Title 11, U.S.C., as amended from time to time.
"BASE RATE": The base commercial lending rate of LaSalle National Bank
as publicly announced to be in effect from time to time, such rate to be
adjusted automatically, without notice, on the effective date of any change in
such rate. This rate of interest is determined from time to time by LaSalle
National Bank as a means of pricing some loans to its customers and is neither
tied to any external rate of interest or index nor necessarily reflective of the
lowest rate of interest actually charged by LaSalle National Bank to any
particular class or category of customers of LaSalle National Bank.
"BORROWER" and "BORROWERS": Is defined in the Preamble.
"BORROWING BASE": The aggregate of the following:
-3-
The lesser of (a) the Cost of Eligible Inventory (net of Inventory
Reserves) MULTIPLIED by the Inventory Advance Rate or (b) the Appraised
Inventory Percentage of the Appraised Inventory Liquidation Value.
PLUS
The lesser of (a) face amount of Eligible Credit Card Receivables
multiplied by the Credit Card Advance Rate, or (b) $500,000.00.
MINUS
The Additional Reserves.
"BORROWING BASE CERTIFICATE": Is defined in Section 6(d).
"BUSINESS DAY": Any day other than (a) a Saturday or Sunday; or (b) any
day on which banks in New York, New York or in Chicago, Illinois generally are
not open to the general public for the purpose of conducting commercial banking
business.
"BUSINESS PLAN": The Borrowers' business plan annexed hereto as EXHIBIT
6(l)(b) and any revision, amendment, or update of such business plan reasonably
acceptable to the Lender.
"CAPITAL EXPENDITURES": The expenditure of funds or the incurrence of
liabilities which may be capitalized in accordance with GAAP.
"CAPITAL LEASE": Any lease which may be capitalized in accordance with
GAAP.
"CHANGE IN CONTROL": The occurrence of any of the following:
(a) The acquisition, by any group of persons (within the meaning
of the Securities Exchange Act of 1934, as amended) or by any Person, of
beneficial ownership (within the meaning of Rule 13d-3 of the Securities and
Exchange Commission) of 20% or more of the issued and outstanding capital stock
of the Lead Borrower (or of the issued and outstanding capital stock of any
parent corporation or other entity) having the right, under ordinary
circumstances, to vote for the election of directors of the Lead Borrower.
(b) More than half of the persons who were directors of the
Lead Borrower (or of any parent of the Lead Borrower) on the first day of any
period consisting of Twelve (12) consecutive calendar months (the first of which
Twelve (12) month periods commencing with
-4-
the first day of the month during which this Agreement was executed), cease, for
any reason other than death or disability, to be directors of the Lead Borrower
(or such parent, as applicable).
(c) Any failure of the Lead Borrower to own, beneficially and
of record, 100% of the capital stock of all other Borrowers.
"CLOSING DATE": The date on which the conditions specified in Article 5
are satisfied or waived and the Loan is to be made hereunder.
"COLLATERAL": All of the property and assets and all interests therein
and proceeds thereof now owned or hereafter acquired by any Person upon which a
Lien is granted or purported to be granted by such Person as security for all or
any part of the Loan and the other Liabilities.
"COLLATERAL AGENT": That Person designated as "Collateral Agent" from
time to time under the Intercreditor Agreement. Initially, the Collateral Agent
is IBJ Whitehall Retail Finance.
"COLLATERAL INTEREST": Any interest in Collateral to secure an
obligation to the Lender under the Loan Documents.
"COMMON STOCK": The common stock, par value $0.0001 per share, of the
Lead Borrower.
"CONSOLIDATED": When used to modify a financial term, test, statement,
or report, refers to the application or preparation of such term, test,
statement or report (as applicable) based upon the consolidation, in accordance
with GAAP, of the financial condition or operating results of the Borrowers.
"CONTRIBUTION AGREEMENT": The Indemnity, Subrogation and Contribution
Agreement of even date between the Lead Borrower and the Borrowers, on the one
hand, and the the Lender, on the other, as the same may be amended from time to
time hereafter.
"COST": The lower of (a) or (b), where:
(a) is the calculated cost of purchases, on a FIFO basis,
based upon the Borrowers' accounting practices, known to the Lender, which
practices are in effect on the date on which this Agreement was executed, as
such calculated cost is determined from: invoices received by the Borrowers; the
Borrowers' purchase journal; or the Borrowers' stock ledger.
(b) is the cost equivalent of the lowest ticketed or promoted
price at which the subject Inventory is offered to the public, after all
▇▇▇▇-▇▇▇▇▇ (whether or not such price is then reflected on the Borrowers'
accounting system), which cost equivalent is determined in accordance with the
retail method of accounting, reflecting the Borrowers' historic business
practices.
-5-
("Cost" does not include inventory capitalization costs or other non-purchase
price charges (such as freight) used in the Borrowers' calculation of cost of
goods sold).
"COSTS OF COLLECTION": Includes, without limitation, all reasonable
attorneys' fees and reasonable out-of-pocket expenses incurred by Lender's
attorneys, and all reasonable out-of-pocket costs incurred by Lender in the
administration of the Liabilities and/or the Loan Documents, including, without
limitation, reasonable costs and expenses associated with travel on behalf of
Lender, where such costs and expenses are directly or indirectly related to or
in respect of the Lender's: administration and management of the Liabilities;
negotiation, documentation, and amendment, modification or waiver of any Loan
Document; or efforts to preserve, protect, collect, or enforce the Collateral,
the Liabilities, and/or the Lender's Rights and Remedies and/or any of the
rights and remedies of Lender against or in respect of any guarantor or other
person liable in respect of the Liabilities (whether or not suit is instituted
in connection with such efforts). "Costs of Collection" shall also include all
of the costs and expenses described in Section 14(i) hereof and the reasonable
fees and expenses of Lender's Special Counsel. The Costs of Collection are
Liabilities, and at the Lender's option may bear interest at the rate then
applicable to the Loan pursuant to Section 2(j) hereof, commencing five (5)
Business Days after written demand for payment thereof from the Lender to the
Lead Borrower.
"CREDIT CARD ADVANCE RATE": 70%
"CUSTOMER CREDIT LIABILITY": Gift certificates, merchandise credits,
layaway obligations, frequent shopping programs, and similar liabilities of any
Borrower to its retail customers and prospective customers.
"DDA": Any checking or other demand daily depository account maintained
by any Borrower.
"DEFERRED INTEREST": As of any date of determination, the amount of all
interest accrued with respect to the Loan the payment of which has been
expressly deferred until the Termination Date in accordance with Section 2(j)(i)
hereof.
"EBITDA": The Borrowers' Consolidated earnings before interest, taxes,
depreciation, and amortization and allocation of UNICAP charges, each as
determined in accordance with GAAP.
"ELIGIBLE CREDIT CARD RECEIVABLES": Accounts due on a non-recourse
basis from major credit card processors (which, if due on account of a private
label credit card program, are deemed in the discretion of the Lender to be
eligible), which accounts have been outstanding for no more than 4 Business
Days.
"ELIGIBLE INVENTORY": Such of the Borrowers' Inventory, at such
locations, and of such types, character, qualities and quantities, as the Lender
in its discretion from time to time reasonably determines to be acceptable for
borrowing, as to which Inventory, the Collateral
-6-
Agent has a perfected security interest which is prior and superior to all
security interests, claims, and Liens (other than Permitted Liens having
priority over the Collateral Agent's Liens). Without limiting the foregoing, (a)
Eligible Inventory shall include Inventory for which the purchase price has been
prepaid or which is supported by a L/C and which is in transit to the Borrowers
if such in-transit Inventory is to be received in a Borrower's warehouse within
sixty (60) days after the date of its inclusion as "Eligible Inventory", if the
Lender (or the Collateral Agent on its behalf) has received an agreement with
the Borrowers' customs broker in form reasonably satisfactory to the Lender, and
if all other conditions set forth elsewhere in this definition for its inclusion
as "Eligible Inventory" have been satisfied; and (b) Eligible Inventory does not
include (i) any non-merchandise Inventory (such as labels, bags, and packaging
materials), damaged goods, return to vendor merchandise, packaways, consigned
Inventory, and other similar categories of goods and (ii) any in transit
Inventory with an aggregate Cost of Eligible Inventory in excess of $2,500,000.
"EMPLOYEE BENEFIT PLAN": As defined in ERISA.
"END DATE": The date upon which all Liabilities have been paid in full.
"ENVIRONMENTAL LAWS": All of the following:
(a) Applicable Law which regulates or relates to, or imposes
any standard of conduct or liability on account of or in respect to
environmental protection matters, including, without limitation, Hazardous
Materials, as are now or hereafter in effect.
(b) The common law relating to damage to Persons or property
from Hazardous Materials.
"ERISA": The Employee Retirement Income Security Act of 1974, as
amended.
"ERISA AFFILIATE": Any Person which is under common control with a
Borrower within the meaning of Section 4001 of ERISA or is part of a group which
includes any Borrower and which would be treated as a single employer under
Section 414 of the Internal Revenue Code of 1986, as amended.
"EVENTS OF DEFAULT": Is defined in Article 8. An "Event of Default"
shall be deemed to have occurred and to be continuing unless and until that
Event of Default has been cured (if capable of being cured) or duly waived by
the Lender.
"EXECUTIVE OFFICER": ▇▇▇▇▇ ▇▇▇▇▇▇ and any other Person who (without
regard to title) is the successor to any of the foregoing or who exercises a
substantial portion of the authority being exercised, at the execution of this
Agreement, by any of the foregoing or a combination of such authority of more
than one of the foregoing or who otherwise has Control of the Lead Borrower.
"FEE LETTER": That letter dated as of the Closing Date and styled "Fee
Letter" between the Lead Borrower and the Lender, as such letter may from time
to time be amended.
-7-
"FISCAL": When followed by "month" or "quarter", the relevant fiscal
period based on the Borrowers' fiscal year and accounting conventions. When
followed by reference to a specific year, the fiscal year which ends in a month
of the year to which reference is being made (e.g. if the Borrowers' fiscal year
ends in January 2001 reference to that year would be to the Borrowers' "Fiscal
2000").
"GAAP": Principles which are consistent with those promulgated or
adopted by the Financial Accounting Standards Board and its predecessors (or
successors) in effect and applicable to that accounting period in respect of
which reference to GAAP is being made.
"GROSS MARGIN": With respect to the subject accounting period for which
the gross margin is being calculated, the decimal equivalent of the following
(determined in accordance with the retail method of accounting):
Sales (Minus) Cost of Goods Sold
--------------------------------
Sales
"HAZARDOUS MATERIALS": Any (a) substance which is defined or regulated
as a hazardous material in or under any Environmental Law and (b) oil in any
physical state.
"IBJ AGREEMENT": That certain Loan Agreement of even date herewith
among the Borrowers, the financial institutions from time to time party thereto
and IBJ, providing for the making of revolving credit loans and the issuance of
letters of credit in an aggregate principal amount not to exceed $50,000,000
outstanding at any time, and all modifications, amendments, and supplements
thereto.
"IBJ ": IBJ Whitehall Retail Finance, as administrative agent for the
lenders under the IBJ Agreement.
"IBJ BORROWING BASE": The "Borrowing Base" as defined in the IBJ
Agreement.
"INDEBTEDNESS": All indebtedness and obligations of or assumed by any
Person on account of or in respect to any of the following:
(a) In respect of money borrowed (including any indebtedness
which is non-recourse to the credit of such Person but which is secured by a
Lien on any asset of such Person) whether or not evidenced by a promissory note,
bond, debenture or other written obligation to pay money.
(b) In connection with any letter of credit or acceptance
transaction (including, without limitation, the face amount of all letters of
credit and acceptances issued for the account of such Person or reimbursement on
account of which such Person would be obligated).
-8-
(c) In connection with the sale or discount of accounts
receivable or chattel paper of such Person.
(d) On account of deposits (greater than $100,000 in the
aggregate) or advances.
(e) As lessee under Capital Leases.
(f) In connection with any sale and leaseback transaction.
"Indebtedness" also includes:
(x) Indebtedness of others secured by a Lien on any asset of such
Person, whether or not such Indebtedness is assumed by such Person.
(y) Any guaranty, endorsement, suretyship or other undertaking pursuant
to which that Person may be liable on account of any obligation of any third
party.
(z) The Indebtedness of a partnership or joint venture for which such
Person is liable as a general partner or joint venturer.
"INDEFAULT": Any occurrence, circumstance, or state of facts with
respect to a Borrower which (a) is an Event of Default; or (b) would become an
Event of Default if any requisite notice were given and/or any requisite period
of time were to run and such occurrence, circumstance, or state of facts were
not absolutely cured within any applicable grace period.
"INDEMNIFIED PERSON": Is defined in Section 14(m).
"INTERCREDITOR AGREEMENT": That certain Intercreditor and Collateral
Agency Agreement of even date herewith among IBJ, the Lender and the Collateral
Agent, and acknowledged by the Borrowers, as modified, supplemented or amended
from time to time.
"INTEREST PAYMENT DATE": The first day of each month; the Termination
Date; and the End Date.
"INVENTORY": All goods and merchandise of the Borrowers, whether now
owned or hereafter acquired, and all such other property the sale or other
disposition of which would give rise to an account receivable or cash.
"INVENTORY ADVANCE RATE": The following percentages during the periods
indicated:
--------------------------------------- ----------------------------------
PERIOD INVENTORY ADVANCE RATE
--------------------------------------- ----------------------------------
Closing Date through
-9-
December 15, 2000 86%
--------------------------------------- ----------------------------------
December 16, 2000 through September 58%
15, 2001
--------------------------------------- ----------------------------------
September 16, 2001 through the 77%
Maturity Date
--------------------------------------- ----------------------------------
"INVENTORY RESERVES": Such Reserves as may be established from time to
time by the Lender in Lender's reasonable discretion with respect to the
determination of the saleability, at retail, of the Eligible Inventory or which
reflect such other factors as affect the market value of the Eligible Inventory.
Without limiting the generality of the foregoing, Inventory Reserves may include
(but are not limited to) reserves based on the following:
(i) Obsolescence (based upon Inventory on hand beyond a
given number of days).
(ii) Seasonality.
(iii) Shrinkage.
(iv) Imbalance.
(v) Change in Inventory character.
(vi) Change in Inventory composition
(vii) Change in Inventory mix.
(viii) Markdowns (both permanent and point of sale)
(ix) Retail markons and markups inconsistent with prior
period practice and performance; industry standards;
current business plans; or advertising calendar and
planned advertising events.
"L/C": Any letter of credit, the issuance of which is procured by IBJ
for the account of any Borrower under the IBJ Agreement.
"LEAD BORROWER": Is defined in the Preamble hereto.
"LEASE": Any lease or other agreement, no matter how styled or
structured, pursuant to which a Borrower is entitled to the use or occupancy of
any space.
"LENDER'S RIGHTS AND REMEDIES": Is defined in Section 9(b).
-10-
"LENDER'S SPECIAL COUNSEL": A single counsel, selected by the Lender,
to represent the interests of the Lender in connection with the enforcement,
attempted enforcement, or preservation of any rights and remedies under this, or
any other Loan Document, as well as in connection with any "workout",
forbearance, or restructuring of the credit facility contemplated hereby.
"LIABILITIES": Includes, without limitation, the following:
(a) All and each of the following, whether now existing or
hereafter arising under this Agreement or under any of the other Loan Documents:
(i) Any and all direct and indirect liabilities, debts,
and obligations of each Borrower to the Lender under this Agreement or any other
Loan Document, each of every kind, nature, and description.
(ii) Each obligation to repay any loan, advance,
indebtedness, note, obligation, overdraft, or amount now or hereafter owing by
any Borrower to the Lender, whether or not any of such are liquidated,
unliquidated, primary, secondary, secured, unsecured, direct, indirect,
absolute, contingent, or of any other type, nature, or description, or by reason
of any cause of action which the Lender may hold against any Borrower under this
Agreement or any other Loan Document.
(iii) All notes and other obligations of each Borrower now
or hereafter assigned to or held by the Lender under this Agreement or any other
Loan Document, each of every kind, nature, and description.
(iv) All interest (including Deferred Interest on
the Loan and any interest that, but for the provisions of the Bankruptcy
Code, would have accrued), fees, and charges and other amounts which may be
charged by the Lender to any Borrower and/or which may be due from any
Borrower to the Lender from time to time under this Agreement or any other
Loan Document.
(v) All costs and expenses payable by any Borrower to the
Lender in respect of this Agreement or any other Loan Document (including,
without limitation, Costs of Collection).
(vi) Any and all covenants of each Borrower to or with the
Lender and any and all obligations of each Borrower to act or to refrain from
acting in accordance with this Agreement or any other Loan Document.
(vii) Each of the foregoing as if each reference to the
"the Lender" were to each Affiliate of the Lender.
(b) Any and all direct or indirect liabilities, debts, and
obligations of each Borrower to the Lender or any Affiliate of the Lender, each
of every kind, nature, and description
-11-
owing on account of any service or accommodation provided to, or for the account
of any Borrower pursuant to this or any other Loan Document.
"LIEN": Any interest in property securing an obligation owed to, or a
claim by, any Person other than the owner of the property, whether such interest
shall be based on the common law, statute, or contract, whether such interest
shall be recorded or perfected, and whether such interest shall be contingent
upon the occurrence of some future event or events or the existence of some
future circumstance or circumstances, including the lien or security interest
arising from a mortgage, deed of trust, encumbrance, pledge, hypothecation,
assignment, deposit arrangement, security agreement, conditional sale or trust
receipt, or from a lease, consignment, or bailment for security purposes and
also including reservations, exceptions, encroachments, easements,
rights-of-way, covenants, conditions, restrictions, leases, and other title
exceptions and encumbrances affecting real property.
"LIQUIDATION": The exercise, by the Collateral Agent, of those rights
accorded to the Collateral Agent under the Security Agreement as a creditor of
the Borrowers following and on account of the occurrence of an Event of Default
looking towards the realization on the Collateral. Derivations of the word
"Liquidation" (such as "Liquidate") are used with like meaning in this
Agreement.
"LOAN": The loan made by the Lender to the Borrower on the Closing Date
pursuant to Section 2(a) hereof.
"LOAN ACCOUNT": Is defined in Section 2(g).
"LOAN DOCUMENTS": This Agreement, the Security Agreement, each Pledge
Agreement, each Trademark Security Agreement, the Note, the Intercreditor
Agreement, the Contribution Agreement, the Warrant, the Registration Rights
Agreement, the Fee Letter, each instrument and document executed and/or
delivered as contemplated by Article 4, below, and each other instrument or
document from time to time executed and/or delivered in connection with the
arrangements contemplated hereby or in connection with any transaction with the
Lender or any Affiliate of the Lender.
"MATERIAL ACCOUNTING CHANGE": Any change in GAAP applicable to
accounting periods subsequent to the Borrowers' fiscal year most recently
completed prior to the execution of this Agreement, which change has a material
effect on the Borrowers' Consolidated financial condition or operating results,
as reflected on financial statements and reports prepared by or for the
Borrowers, when compared with such condition or results as if such change had
not taken place or where preparation of the Borrowers' statements and reports in
compliance with such change results in the breach of a financial performance
covenant imposed pursuant to Section 6(l) where such a breach would not have
occurred if such change had not taken place or VISA VERSA.
"MATURITY DATE": December 15, 2001.
-12-
"MERGER": Is defined in the Preamble hereto.
"NOTE": each promissory note of the Borrowers, substantially in the
form of Exhibit 2(d) hereto, evidencing the Indebtedness resulting from the
making of the Loan and delivered to the Lender pursuant to Article 4 hereof, as
such promissory notes may be modified or extended form time to time, and any
promissory note or notes issued in exchange for replacement therefor.
"NOTICE OF BORROWING": is defined in Section 2(b)(i) hereof and shall
be substantially in the form of Exhibit 2(b) hereto.
"NW ACQUISITION": Is defined in the Preamble hereto.
"NW CAPITAL": Is defined in the Preamble hereto.
"OPERATING ACCOUNT": Account number ▇▇▇▇▇▇▇▇ of the Borrowers
maintained with IBJ Whitehall Bank.
"PARTICIPANT": Is defined in Section 11(a)(ii) hereof.
"PERMITTED LIENS": Each of the following:
(a) Liens in favor of the Collateral Agent.
(b) Liens securing the payment of taxes, either not
yet overdue or the validity of which are being contested
in good faith by appropriate proceedings and provided
that no lien has been filed in respect thereof.
(c) Non-consensual statutory liens (other than liens
securing the payment of taxes) arising in the ordinary
course of any Borrower's business to the extent: such liens
secure obligations which are not overdue or such liens
secure obligations relating to claims or liabilities which
are fully insured (subject to commercially reasonable
deductibles) and being defended at the sole cost and
expense and at the sole risk of the insurer or are being
contested in good faith by appropriate proceedings
diligently pursued and available to any Borrower, in each
instance prior to the commencement of foreclosure or
other similar proceedings and with respect to which adequate
reserves have been set aside on the Borrowers' books.
(d) Carriers', warehousemen's, mechanics, repairmen's
or similar liens incurred in the ordinary course of business.
(e) Zoning restrictions, easements, licenses,
covenants and other restrictions affecting the use of real
property.
-13-
(f) Deposits under workmen's compensation,
unemployment insurance and social security laws, or to
secure the performance of bids, tenders, contracts (other
than for the repayment of borrowed money) or leases, or to
secure statutory obligations or surety or appeal bonds, or
to secure indemnity, performance or other similar bonds
arising in the ordinary course of business.
(g) Landlord's liens by operation of law where waivers
thereof have not been obtained.
(h) Interests of lessors under Capital Leases.
(i) Liens consisting of security deposits made by any
Borrower.
(j) Liens set forth on EXHIBIT 3:3-2 annexed to the
Security Agreement.
The inclusion of any of the foregoing as a "Permitted Lien" shall not affect its
relative priority vis a vis any Collateral Interest created by a Borrower in
favor of the Collateral Agent.
"PERSON": Any natural person, and any corporation, limited liability
company, trust, partnership, joint venture, or other enterprise or entity.
"PLEDGE AGREEMENTS": Collectively, (a) the Stock Pledge Agreement of
even date between the Lead Borrower, on the one hand, and the Collateral Agent,
for the benefit of the Lender and the lenders under the IBJ Agreement, on the
other, and (b) the Stock Pledge Agreement of even date between WOS, on the one
hand, and the Collateral Agent, for the benefit of the Lender and the lenders
under the IBJ Agreement, on the other, in each case as the same may be amended
from time to time hereafter.
"REGISTRATION RIGHTS AGREEMENT": The Registration Rights Agreement, in
form and substance satisfactory to the Lender, by and between the Lead Borrower
and the Lender, with respect to the registration of the Warrant Stock.
"REQUIREMENTS OF LAW": As to any Person:
(a) Applicable Law.
(b) That Person's organizational documents.
(c) That Person's by-laws and/or other instruments
which deal with corporate or similar governance, as
applicable.
"RESERVES": The sum of the Additional Reserves and the Inventory
Reserves.
-14-
"SEC": The Securities and Exchange Commission or any other similar or
successor agency of the Federal government administering the Securities Act.
"SECURITIES ACT": The Securities Act of 1933, as amended, and all rules
and regulations promulgated thereunder.
"SECURITY AGREEMENT": The Security Agreement of even date between the
Lead Borrower and the Borrowers, on the one hand, and the Collateral Agent, for
the benefit of the Lender and the lenders under the IBJ Agreement, on the other,
as the same may be amended from time to time hereafter. Terms used herein which
are defined in the Security Agreement are used herein as so defined. In the
event that the Security Agreement is ever terminated or the definition of any
term used herein is deleted from the Security Agreement, then unless otherwise
agreed in writing, such term used herein which had been defined in the Security
Agreement shall continue to be used herein as then most recently defined in the
Security Agreement.
"SUBORDINATED DEBT": The 15% Convertible Subordinated Debentures listed
on EXHIBIT 1(a), annexed hereto, in the aggregate principal amount of
$1,200,000.
"TERMINATION DATE": The earliest of (a) the Maturity Date; or (b) the
occurrence of any event described in Section 8(k) hereof; or (c) the Lender's
notice to the Lead Borrower setting the Termination Date on account of the
occurrence of any Event of Default other than as described in Section 8(k)
hereof.
"TRADEMARK SECURITY AGREEMENT": Collectively, (a) the Trademark and
Trademark Applications Security Agreement of even date between the Lead
Borrower, on the one hand, and the Collateral Agent, for the benefit of the
Lender and the lenders under the IBJ Agreement, on the other, and (b) the
Trademark and Trademark Applications Security Agreement of even date between NW
Capital, on the one hand, and the Collateral Agent, for the benefit of the
Lender and the lenders under the IBJ Agreement, on the other, in each case as
the same may be amended from time to time hereafter.
"UCC": The Uniform Commercial Code as in effect from time to time in
Massachusetts.
"WARRANT": Is defined in Section 10(a).
"WARRANT STOCK": Each share of the Common Stock issuable by the Lead
Borrower upon the exercise of the Warrants.
"WOS": Is defined in the Preamble hereto.
-15-
ARTICLE 2 - THE TERM LOAN:
(A) LOAN.
(i) Subject to the terms and conditions and relying upon
the representations and warranties herein set forth, the Lender agrees to make a
single Loan to the Borrowers on the Closing Date in the principal amount equal
to $5,000,000.
(ii) Any principal amount of the Loan which is repaid may
not be reborrowed.
(iii) The proceeds of the Loan shall be used solely (A) to
make payments required in connection with the Merger, (B) in accordance with the
Business Plan for the Borrowers' working capital and Capital Expenditures, and
(C) to pay transaction costs in connection with this Agreement and the Merger,
all solely to the extent permitted by this Agreement. No proceeds of the Loan
may be used, nor shall any be requested, with a view towards the accumulation of
any general fund or funded reserve of the Borrowers other than in the ordinary
course of the Borrowers' business and consistent with the provisions of this
Agreement.
(B) LOAN REQUEST; MAKING OF THE LOAN.
(i) The Lead Borrower shall give the Lender prior written
notice (substantially in the form of Exhibit 2(b) hereto (a "Notice of
Borrowing")) no later than 11:00 A.M. at least two (2) Business Days prior to
the date of the Loan. The Notice of Borrowing shall be executed by the Lead
Borrower, shall be irrevocable and shall specify or include the date of the
Loan, which must be a Business Day and shall be the Closing Date. On the date
specified in the Notice of Borrowing and upon fulfillment of the applicable
conditions set forth in Article 4 hereof, the Lender will make available the
requested Loan to the Borrowers by causing an amount, in immediately available
funds, to be deposited into the Borrowers' Operating Account (or such other
account designated by the Lead Borrower to the Lender at a commercial bank
reasonably satisfactory to the Lender) on the date and in the amount set forth
in the Notice of Borrowing.
(ii) There shall not be any recourse to or liability of
the Lender on account of:
(A) Any delay by any bank or other depository
institution in treating the proceeds of the Loan as collected funds.
(B) Any delay in the receipt, and/or any loss,
of funds which constitute proceeds of the Loan, the wire transfer of
which was properly initiated by the Lender in accordance with wire
instructions provided to the Lender by the Lead Borrower.
-16-
(C) THE LOAN ACCOUNT.
(i) An account ("LOAN ACCOUNT") shall be opened on the
books of the Lender in which a record shall be kept of the Loan.
(ii) The Lender shall also keep a record (either in the
Loan Account or elsewhere, as the Lender may from time to time elect) of all
interest, fees, service charges, costs, expenses, and other debits owed to the
Lender.
(ii) Except as otherwise provided herein, all fees,
service charges, costs, and expenses for which any Borrower is obligated
hereunder are payable on demand.
(iv) Any statement rendered by the Lender to the Lead
Borrower concerning the Liabilities shall be considered correct and accepted by
each Borrower and shall be conclusively binding upon each Borrower unless the
Lead Borrower provides the Lender with written objection thereto within twenty
(20) days from the mailing of such statement, which written objection shall
indicate, with particularity, the reason for such objection. The Loan Account
and the Lender's books and records concerning the loan arrangement contemplated
herein and the Liabilities shall be prima facie evidence and proof of the items
described therein.
(D) THE NOTE. The Borrowers' obligation to repay the Loan, with
interest as provided herein, shall be evidenced by a single Note, executed by
each Borrower, payable to the Lender. Neither the original nor a copy of the
Note shall be required, HOWEVER, to establish or prove any Liability under or
with respect to the Loan. In the event that the Note is ever lost, mutilated, or
destroyed, each Borrower shall execute a replacement thereof and deliver such
replacement to the Lender.
(E) PAYMENT OF THE LOAN.
(i) The Borrowers may prepay the Loan, in whole or in
part, without premium or penalty, upon fifteen (15) Business Days' irrevocable
notice to the Lender, specifying (A) the date of payment and (B) the principal
amount to be prepaid, provided that of any such prepayments of the Loan shall be
in an amount of not less than $2,500,000. If any such notice is given, the
amount specified in such notice shall be due and payable on the date specified
therein, together with accrued interest to such date on the amount prepaid.
(ii) The Borrowers SHALL repay to the Lender (A)
$2,500,000 of the unpaid principal of the Loan on December 15, 2000 and (B) the
then entire unpaid balance of the Loan and all other outstanding Liabilities on
the Termination Date.
-17-
(F) INTEREST.
(i) The Loan shall bear interest on the principal amount
thereof from time to time outstanding from the date of the Loan until such
principal amount becomes due at a fluctuating interest rate per annum equal to
the Base Rate plus 10.5%; PROVIDED, HOWEVER, that on each Interest Payment Date,
interest on the principal amount of the Loan at a per annum rate equal to 5%
shall, in the absence of an election by the Lead Borrower to pay such interest
on such Interest Payment Date, be deferred and shall be paid on the Termination
Date; PROVIDED, FURTHER, HOWEVER, that if an Event of Default has occurred and
is continuing, the aggregate amount of all accrued and unpaid Deferred Interest
shall be paid-in-kind by being added to the principal balance of the Loan
(inclusive of any Deferred Interest theretofore so added).
(ii) The Borrowers shall pay accrued and unpaid interest
on the Loan in arrears as follows:
(A) On the Interest Payment Date for the Loan.
(B) Following the occurrence of any Event of
Default, with such frequency as may be determined by the
Lender.
(iii) Following the occurrence of any Event of Default (and
whether or not the Lender exercises the Lender's rights on account thereof), the
Loan (including all Deferred Interest) shall bear interest, at the option of the
Lender, at the rate which is applicable to the Loan under Section 2(f)(i) PLUS
three percent (3%) per annum.
(G) FEES. The Borrowers shall pay to the Lender the fees that are
set forth in the Fee Letter at the times set forth in the Fee Letter.
(H) CONCERNING FEES. The Borrowers shall not be entitled to
credit, rebate or repayment of any fee earned by any the Lender pursuant to this
Agreement or any Loan Document notwithstanding any termination of this
Agreement.
(I) LENDER'S DISCRETION.
(i) Each reference in the Loan Documents to the exercise
of discretion or the like by the Lender shall be to the Lender's exercise of its
judgment, in good faith (which shall be presumed), based upon the Lender's
consideration of any such factors as the Lender, taking into account information
of which that Person then has actual knowledge, believes:
(A) Will or reasonably could be expected to
affect the value of the Collateral, the enforceability of the
Collateral Agent's Collateral Interests therein, or the amount which
the Collateral Agent would likely realize therefrom (taking into
account delays which may possibly be encountered in the Collateral
Agent's realizing upon the Collateral and likely Costs of Collection).
-18-
(B) Indicates that any report or financial
information delivered to the Lender by or on behalf of any Borrower is
incomplete, inaccurate, or misleading in any material manner or was not
prepared in accordance with the requirements of this Agreement.
(C) Suggests an increase in the likelihood that
any Borrower will become the subject of a bankruptcy or insolvency
proceeding.
(D) Suggests that any Borrower is InDefault.
(ii) In the exercise of such judgement, the Lender also may
take into account any of the following factors:
(A) Those included in, or tested by, the
definitions of "Eligible Inventory" and "Cost".
(B) The current financial and business climate
of the industry in which each Borrower competes (having regard for that
Borrower's position in that industry).
(C) General macroeconomic conditions which have
a material effect on the Borrowers' cost structure.
(D) Material changes in or to the mix of the
Borrowers' Inventory.
(E) Seasonality with respect to the Borrowers'
Inventory and patterns of retail sales.
(F) Such other factors as the Lender determines
as having a material bearing on credit risks associated with the
providing of loans and financial accommodations to the Borrowers.
(iii) The burden of establishing the failure of the Lender to
have acted in a reasonable manner in such Person's exercise of such discretion
shall be the Borrowers' and may be made only by clear and convincing evidence.
(J) JOINT AND SEVERAL LIABILITY OF THE BORROWERS.
(A) Notwithstanding anything in this Agreement
or any other Loan Document to the contrary, each of the Borrowers hereby accepts
joint and several liability hereunder and under the other Loan Documents in
consideration of the financial accommodations to be provided by the Lender under
this Agreement and the other Loan Documents, for the mutual benefit, directly
and indirectly, of each of the Borrowers and in consideration of the
undertakings of the other Borrower to accept joint and several liability for the
Loan and the other Liabilities hereunder. Each of the Borrowers, jointly and
severally, hereby irrevocably and unconditionally accepts, not merely
-19-
as a surety but also as a co-debtor, joint and several liability with the other
Borrower, with respect to the payment and performance of all of the Liabilities
(including, without limitation, any Liabilities arising under this Section
2(j)), it being the intention of the parties hereto that all the Liabilities
shall be the joint and several obligations of each of the Borrowers without
preferences or distinction among them. If and to the extent that any of the
Borrowers shall fail to make any payment with respect to any of the Liabilities
as and when due or to perform any of the Liabilities in accordance with the
terms thereof, then in each such event the other Borrowers will make such
payment with respect to, or perform, such Liability. Subject to the terms and
conditions hereof, the Liabilities of each of the Borrowers under the provisions
of this Section 2(j) constitute the absolute and unconditional, full recourse
Liabilities of each of the Borrowers enforceable against each such Person to the
full extent of its properties and assets, irrespective of the validity,
regularity or enforceability of this Agreement, the other Loan Documents or any
other circumstances whatsoever.
(B) The provisions of this Section 2(j) are made for the
benefit of the Lender and its successors and assigns, and may be enforced by
them from time to time against any or all of the Borrowers as often as occasion
therefor may arise and without requirement on the part of the Lender or such
successors or assigns first to ▇▇▇▇▇▇▇▇ any of its or their claims or to
exercise any of its or their rights against any other Borrower or to exhaust any
remedies available to it or them against any other Borrower or to resort to any
other source or means of obtaining payment of any of the Liabilities hereunder
or to elect any other remedy. The provisions of this Section 2(j) shall remain
in effect until all of the Liabilities shall have been paid in full or otherwise
fully satisfied.
(C) Each of the Borrowers hereby agrees that it will not
enforce any of its rights of contribution or subrogation against the other
Borrower with respect to any liability incurred by it hereunder or under any of
the other Loan Documents, any payments made by it to the Lender with respect to
any of the Liabilities or any Collateral until such time as all of the
Liabilities have been paid in full in cash. Any claim which any Borrower may
have against the other Borrower with respect to any payments to the Lender
hereunder or under any other Loan Documents are hereby expressly made
subordinate and junior in right of payment, without limitation as to any
increases in the Liabilities arising hereunder or thereunder, to the prior
payment in full in cash of the Liabilities and, in the event of any insolvency,
bankruptcy, receivership, liquidation, reorganization or other similar
proceeding under the laws of any jurisdiction relating to any Borrower, its
debts or its assets, whether voluntary or involuntary, all such Liabilities
shall be paid in full in cash before any payment or distribution of any
character, whether in cash, securities or other property, shall be made to the
other Borrower therefor.
-20-
ARTICLE 3 - DESIGNATION OF LEAD BORROWER AS BORROWERS' AGENT.
(i) Each Borrower hereby designates the Lead Borrower as that
Borrower's agent to obtain the Loan hereunder, the proceeds of which shall be
available to each Borrower for those uses as those set forth in Section
2(a)(iii). As the disclosed principal for its agent, each Borrower shall be
obligated to the Lender on account of the Loan so made hereunder as if made
directly by the Lenders to that Borrower, notwithstanding the manner by which
the Loan is recorded on the books and records of the Lead Borrower and of any
Borrower.
(ii) Each Borrower recognizes that credit available to it hereunder
is in excess of and on better terms than it otherwise could obtain on and for
its own account and that one of the reasons therefor is its joining in the
credit facility contemplated herein with all other Borrowers. Consequently, each
Borrower hereby assumes and agrees to discharge all Liabilities of all other
Borrowers as if the Borrower so assuming were each other Borrower.
(iii) The Lead Borrower shall act as a conduit for each Borrower
(including itself, as a "Borrower") on whose behalf the Lead Borrower has
requested the Loan.
(iv) The proceeds of the Loan shall be deposited into the Operating
Account or as otherwise indicated by the Lead Borrower pursuant to the Notice of
Borrowing. The Lead Borrower shall cause the transfer of the proceeds thereof to
the (those) Borrower(s) on whose behalf the Loan was obtained. The Lender shall
not have any obligation to see to the application of such proceeds.
ARTICLE 4 - CONDITIONS PRECEDENT:
As a condition to the effectiveness of this Agreement, and the making
of the Loan hereunder, each of the documents respectively described in Sections
4(a) through and including 4(d) (each in form and substance satisfactory to the
Lender) shall have been delivered to the Lender, and the conditions respectively
described in Sections 4(e) through and including 4(r) shall have been satisfied:
(A) CORPORATE DUE DILIGENCE.
(i) Certificates of corporate good standing for each Borrower,
respectively issued by the Secretary of State for the state in which that
Borrower is incorporated.
(ii) Certificates of due qualification, in good standing,
issued by the Secretary(ies) of State of each State in which the nature a
Borrower's business conducted or assets owned could require such qualification.
(iii) Certificates of each Borrower's Secretary of the due
adoption, continued effectiveness, and setting forth the texts of, each
corporate resolution adopted in connection with the establishment of the loan
arrangement contemplated by the Loan Documents and attesting to the true
signatures of each Person authorized as a signatory to any of the Loan
Documents.
-21-
(B) OPINION. An opinion of counsel to the Borrowers in form and
substance reasonably satisfactory to the Lender.
(C) ADDITIONAL DOCUMENTS. Such additional instruments and
documents as the Lender or its counsel reasonably may require or request
including, without limitation, the documents on EXHIBIT 4(c).
(D) OFFICERS' CERTIFICATES. Certificates executed by the
President, the Chief Financial Officer or the Controller of the Lead Borrower
and stating that the representations and warranties made by the Borrowers to the
Lender in the Loan Documents are true and complete as of the date of such
Certificate, and that no event has occurred which is or which, solely with the
giving of notice or passage of time (or both) would be an Event of Default.
(E) REPRESENTATIONS AND WARRANTIES. Each of the representations
made by or on behalf of each Borrower in this Agreement or in any of the other
Loan Documents or in any other report, statement, document, or paper provided by
or on behalf of each Borrower shall be true and complete as of the date as of
which such representation or warranty was made.
(F) MINIMUM DAY ONE AVAILABILITY. After giving effect to the
funding of the Loan, the initial loans under the IBJ Agreement on the Closing
Date, any letters of credit issued under the IBJ Agreement on the Closing Date
and the payment of all transaction fees, costs and expenses relating to this
Agreement and the IBJ Agreement on the Closing Date and after reserving for
those amounts listed on Exhibit 1(b) to the IBJ Agreement, Availability shall
not be less than $7,000,000.00.
(G) ALL FEES AND EXPENSES PAID. All fees due on the Closing Date
and all costs and expenses incurred by the Lender in connection with the
establishment of the term loan facility contemplated hereby (including the fees
and expenses of counsel to the Lender) shall have been paid in full.
(H) COMPLETION OF MERGER. The Merger shall have been consummated
on terms reasonably satisfactory to the Lender. The Lender shall be satisfied
that each agreement executed and delivered in connection with the Merger (the
"Merger Documents") is in full force and effect. The Merger, including all of
the terms and conditions thereof, shall have been duly authorized and all Merger
Documents shall have been duly executed and delivered by the parties thereto and
shall be in full force and effect. The representations and warranties set forth
in the Merger Documents shall be true and correct in all respects as if made on
and as of the Closing Date. Each of the conditions precedent to the consummation
of the Merger as set forth in the Merger Documents shall have been satisfied or
waived with the consent of the Lender and the Merger shall have been consummated
in accordance with all Applicable Law and the Merger Documents.
(I) SUBORDINATED DEBT. The Borrowers shall have received not less than
$1,200,000 of Subordinated Debt consisting of $550,000 of cash net proceeds
therefrom and
-22-
$650,000 of such Subordinated Debt shall be in respect of deferred fees, on
terms and conditions reasonably acceptable to the Lender.
(J) CELESTRON AGREEMENT. The Borrowers shall have furnished the
Lender with a copy of a written agreement between the Borrower and Celestron
establishing a deferred payment schedule with respect to amounts due Celestron
and the agreement of Celestron to supply additional merchandise to the Borrowers
on credit, which agreement shall be on terms and conditions reasonably
satisfactory to the Lender.
(K) ENGAGEMENT OF CONSULTANT. The Borrowers shall have retained a
professional reasonably acceptable to the Lender to act as a consultant for the
Borrowers in connection with the planning and execution of, or to conduct as the
Borrowers' agent, the liquidation of the inventory and assets at the twelve
World of Science, Inc. store locations which the Borrowers have advised the
Lender are to be closed, and to dispose of any discontinued inventory being sold
at those locations.
(L) COMPLETION OF DUE DILIGENCE. The Lender shall have completed
and be satisfied with their due diligence, including, without limitation, the
completion of a commercial finance audit and a pre-closing audit, receipt of a
final appraisal of inventory, receipt of satisfactory results of background
information concerning the Borrowers' management team, customary customer and
credit checkings, and vendor references.
(M) PERFECTION OF COLLATERAL INTERESTS. The Lender shall have
received confirmation from the Collateral Agent, satisfactory to the Lender, of
the filing of all financing statements and other filings to perfect the
Collateral Interests of the Collateral Agent for the benefit of the Lender and
the lenders under the IBJ Agreement.
(N) PRO FORMA FINANCIAL STATEMENTS. The Lender shall have received
a pro forma consolidating balance sheet for the Borrowers, after giving effect
to the Merger, reviewed by the Borrowers' independent certified public
accountants, which balance sheet shall be reasonably satisfactory to the Lender.
(O) IBJ AGREEMENT; INTERCREDITOR AGREEMENT. The Borrowers shall
have entered into the IBJ Agreement (which shall be reasonably satisfactory to
the Lender). The Lender, IBJ and the Collateral Agent shall have entered into
the Intercreditor Agreement.
(P) NO BORROWER INDEFAULT. No Borrower is InDefault.
(Q) NO ADVERSE CHANGE. No event shall have occurred or failed to
occur, and no litigation shall exist, which occurrence, failure or litigation is
or could have a materially adverse effect upon any Borrower's assets, business,
financial condition, income or prospects since the date of the most recent
financial information delivered to the Lender when compared with such financial
condition at July 29, 2000. The Lender acknowledges and agrees that it is aware
of the pending litigation recently commenced by ▇▇▇▇▇ against the Lead Borrower
and that such litigation as it presently exists does not violate this
pre-condition to effectiveness.
-23-
(R) WARRANTS. The Lead Borrower shall have reserved out of its
authorized and unissued Common Stock, solely for the purpose of effecting the
exercise of the Warrants, 100,000 shares of Common Stock to provide for the
issuance of the Warrant Stock in accordance with the terms of the Warrants.
No document shall be deemed delivered to the Lender until received and accepted
by the Lender at its offices in Northbrook, Illinois. Under no circumstances
shall this Agreement take effect until executed and accepted by the Lender at
said offices.
ARTICLE 5 - GENERAL REPRESENTATIONS, COVENANTS AND WARRANTIES:
To induce the Lender to make the Loan, the Borrowers, in
addition to all other representations, warranties, and covenants made by any
Borrower in any other Loan Document, make those representations, warranties, and
covenants included in this Agreement.
(A) PAYMENT AND PERFORMANCE OF LIABILITIES. The Borrowers shall
pay each payment Liability when due (or when demanded, if payable on demand) and
shall promptly, punctually, and faithfully perform each other Liability.
(B) DUE ORGANIZATION. SECURITIES. AUTHORIZATION. NO CONFLICTS.
(i) Each Borrower presently is and hereafter shall remain
in good standing as a corporation under the laws of the State in which it is
organized, as set forth in the Preamble to this Agreement and is and shall
hereafter remain duly qualified and in good standing in every other State in
which, by reason of the nature or location of each Borrower's assets or
operation of each Borrower's business, such qualification may be necessary,
except where the failure to so qualify would have no more than a de minimis
adverse effect on the business or a assets of any Borrower.
(ii) Each Borrower's respective federal employer
identification number is as set forth on EXHIBIT 5(b) annexed hereto.
(iii) No Borrower shall change its State of organization;
or that Borrower's federal taxpayer identification number.
(iv) Each Affiliate and the ownership of its capital stock
is listed on EXHIBIT 5(b) annexed hereto, both before and after giving effect to
the Merger. The Lead Borrower shall provide the Lender with prior written notice
of any entity's becoming or ceasing to be an Affiliate.
(v) Set forth on EXHIBIT 5(b), is a complete and accurate
description of the authorized capital stock of Lead Borrower, by class, and, as
of the Closing Date, a description of the number of shares of each such class
that are issued and outstanding. All such shares have been validly issued and,
as of the Closing Date, are fully paid, non-assessable shares free of preemptive
rights or other similar rights suffered or permitted by the Lead Borrower. Other
than
-24-
as described on EXHIBIT 5(b), (A) there are no subscriptions, options, warrants,
rights to subscribe for, or calls or commitments relating to any shares of Lead
Borrower's capital stock, including any right of conversion or exchange under
any outstanding security or other instrument, (B) Lead Borrower is not subject
to any obligation (contingent or otherwise) to repurchase or otherwise acquire
or retire any shares of its capital stock or any security convertible into or
exchangeable for any of its capital stock, and (C) there are no agreements or
arrangements under which the Lead Borrower or any of its Affiliates is obligated
to register the sale of any of their securities under the Securities Act. Except
as disclosed on EXHIBIT 5(b), there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance of
the Warrant Stock as described in Warrants. The Lead Borrower has reserved, out
of its authorized but unissued Common Stock, a sufficient number of shares of
Common Stock to permit the Lender to purchase shares of the Warrant Stock in
accordance with the Warrants.
(vi) Upon issuance in accordance with the terms of the
Warrants , the Warrant Stock shall be (A) validly issued, fully paid, and
non-assessable, (B) free from all taxes, liens, and charges with respect to the
issue thereof and shall not be subject to preemptive rights or similar fights of
stockholders of the Lead Borrower, and (C) entitled to the rights and
preferences set forth herein.
(vii) Each Borrower has all requisite power and authority
to execute and deliver all Loan Documents to which that Borrower is a party and
has and will hereafter retain all requisite power to perform all Liabilities.
(viii) The execution and delivery by each Borrower of each
Loan Document to which it is a party; each Borrower's consummation of the
transactions contemplated by such Loan Documents (including, without limitation,
the creation of Collateral Interests by that Borrower to secure the
Liabilities); each Borrower's performance under those of the Loan Documents to
which it is a party; the borrowings hereunder; and the use of the proceeds
thereof:
(A) Have been duly authorized by all necessary
action.
(B) Do not, and will not, contravene in any
material respect any provision of any Requirement of Law or obligation
of that Borrower.
(C) Will not result in the creation or
imposition of, or the obligation to create or impose, any Lien upon any
assets of that Borrower pursuant to any Requirement of Law or
obligation, except pursuant to the Loan Documents.
(ix) The Loan Documents have been duly executed and
delivered by each Borrower and are the legal, valid and binding obligations of
each Borrower, enforceable against each Borrower in accordance with their
respective terms.
-25-
(C) TRADE NAMES.
(i) EXHIBIT 5(c), annexed hereto, is a listing of:
(A) All names under which any Borrower ever
conducted its business.
(B) All Persons with whom any Borrower ever
consolidated or merged, or from whom any Borrower ever acquired in a
single transaction or in a series of related transactions substantially
all of such Person's assets.
(ii) The Lead Borrower will provide the Lender with not
less than twenty-one (21) days prior written notice (with reasonable
particularity) of any change to any Borrower's name from that under which that
Borrower is conducting its business at the execution of this Agreement and will
not effect such change unless each Borrower is then in compliance with all
provisions of this Agreement.
(D) INFRASTRUCTURE.
(i) Each Borrower has and will maintain a sufficient
infrastructure to conduct its business as presently conducted and as
contemplated to be conducted following its execution of this Agreement.
(ii) Each Borrower owns and possesses, or has the right to
use (and will hereafter own, possess, or have such right to use) all patents,
industrial designs, trademarks, trade names, trade styles, brand names, service
marks, logos, copyrights, trade secrets, know-how, confidential information, and
other intellectual or proprietary property of any third Person necessary for
that Borrower's conduct of that Borrower's business.
(iii) The conduct by each Borrower of that Borrower's
business does not presently infringe (nor will any Borrower conduct its business
in the future so as to infringe) the patents, industrial designs, trademarks,
trade names, trade styles, brand names, service marks, logos, copyrights, trade
secrets, know-how, confidential information, or other intellectual or
proprietary property of any third Person.
(E) INDEBTEDNESS. The Borrowers do not and shall not hereafter
have any Indebtedness with the exceptions of:
(i) Any Indebtedness evidenced by this Agreement or the
other Loan Documents.
(ii) Any Indebtedness on account of the IBJ Agreement.
(iii) The Subordinated Debt.
(iv) The Indebtedness (if any) listed on EXHIBIT 5(e),
annexed hereto.
-26-
(F) LICENSES. Each license, distributorship, franchise, and
similar agreement issued to, or to which any Borrower is a party and which is
material to such Borrower's business is in full force and effect. No party to
any such license or agreement is in default or violation thereof. No Borrower
has received any notice or threat of cancellation of any such license or
agreement.
(G) LEASES. EXHIBIT 5(g), annexed hereto, is a schedule of all
presently effective Capital Leases. Such Exhibit also includes a list of all
other presently effective Leases, including, without limitation, all store
leases and, with respect to each such Lease, sets forth the name of the landlord
and the tenant, the location, the store identification number, the amount of
rent payable on a monthly basis (or other installment basis) and the expiration
date of the Lease. Each of such Leases and Capital Leases is in full force and
effect. No party to any such Lease or Capital Lease is in default or violation
of any such Lease or Capital Lease. No Borrower has received any notice or
threat of cancellation of any such Lease or Capital Lease. Each Borrower hereby
authorizes the Lender at any time and from time to time to contact any of the
Borrowers' respective landlords in order to confirm the Borrowers' continued
compliance with the terms and conditions of the Lease(s) between the subject
Borrower and that landlord and to discuss such issues, concerning the subject
Borrower's occupancy under such Lease(s), as the Lender may determine.
(H) REQUIREMENTS OF LAW. Each Borrower is in compliance with, and
shall hereafter comply with and use its assets in compliance with, all
Requirements of Law except where the failure of such compliance will not have
more than a DE MINIMIS adverse effect on the Borrowers' business or assets. No
Borrower has received any notice of any violation of any Requirement of Law
(other than of a violation which has no more than a DE MINIMIS adverse effect on
the Borrowers' business or assets), which violation has not been cured or
otherwise remedied.
(I) LABOR RELATIONS.
(i) No Borrower has been, and none is presently a party
to any collective bargaining or other labor contract.
(ii) There is not presently pending and, to any Borrower's
knowledge, there is not threatened any of the following:
(A) Any strike, slowdown, picketing, work
stoppage, or employee grievance process.
(B) Any proceeding against or affecting any
Borrower relating to the alleged violation of any Applicable Law
pertaining to labor relations or before National Labor Relations Board,
the Equal Employment Opportunity Commission, or any comparable
governmental body, organizational activity, or other labor or
employment dispute against or affecting any Borrower, which, if
determined adversely to that Borrower could have more than a DE MINIMIS
adverse effect on that Borrower.
-27-
(C) Any lockout of any employees by any Borrower
(and no such action is contemplated by any Borrower).
(D) Any application for the certification of a
collective bargaining agent.
(iii) No event has occurred or circumstance exists which
could provide the basis for any work stoppage or other labor dispute.
(iv) Each Borrower:
(A) Has complied in all material respects with
all Applicable Law relating to employment, equal employment
opportunity, nondiscrimination, immigration, wages, hours, benefits,
collective bargaining, the payment of social security and similar
taxes, occupational safety and health, and plant closing.
(B) Is not liable for the payment of more than a
DE MINIMIUS amount of compensation, damages, taxes, fines, penalties,
or other amounts, however designated, for that Borrower's failure to
comply with any Applicable Law referenced in Section 5(i)(iv)(A).
(J) TAXES.
(i) With respect to the Borrowers' federal, state, and
local tax liability and obligations:
(A) The Borrowers, in compliance with all
Applicable Law, have properly filed all returns due to be filed up to
the date of this Agreement.
(B) Except as described on EXHIBIT 5(j):
(I) At no time has any Borrower
received from any taxing authority any request to perform any
examination of or with respect to any Borrower nor any other
written or verbal notice in any way relating to any claimed
failure by any Borrower to comply with all Applicable Law
concerning payment of any taxes or other amounts in the nature
of taxes.
(II) No agreement is extant which waives
or extends any statute of limitations applicable to the right
of any taxing authority to assert a deficiency or make any
other claim for or in respect to federal income taxes.
(III) No issue has been raised in any tax
examination of any Borrower which, by application of similar
principles, reasonably could be
-28-
expected to result in the assertion of a deficiency for any
fiscal year open for examination, assessment, or claim by any
taxing authority.
(ii) The Borrowers have, and hereafter shall: pay, as they
become due and payable, all taxes and unemployment contributions and other
charges of any kind or nature levied, assessed or claimed against any Borrower
or the Collateral by any person or entity whose claim could result in a Lien
upon any asset of any Borrower or by any governmental authority; properly
exercise any trust responsibilities imposed upon any Borrower by reason of
withholding from employees' pay or by reason of any Borrower's receipt of sales
tax or other funds for the account of any third party; timely make all
contributions and other payments as may be required pursuant to any Employee
Benefit Plan now or hereafter established by any Borrower; and timely file all
tax and other returns and other reports with each governmental authority to whom
any Borrower is obligated to so file.
(K) NO MARGIN STOCK. No Borrower is engaged in the business of
extending credit for the purpose of purchasing or carrying any margin stock
(within the meaning of Regulations U, T, and X of the Board of Governors of the
Federal Reserve System of the United States). No part of the proceeds of any
borrowing hereunder will be used at any time to purchase or carry any such
margin stock or to extend credit to others for the purpose of purchasing or
carrying any such margin stock.
(L) ERISA.
(i) Neither any Borrower nor any ERISA Affiliate has
ever:
(A) Violated or failed to be in full compliance
with any Borrower's Employee Benefit Plan.
(B) Failed timely to file all reports and
filings required by ERISA to be filed by any Borrower.
(C) Engaged in any nonexempt "prohibited
transactions" or "reportable events" (respectively as described in
ERISA).
(D) Engaged in, or committed, any act such that
a tax or penalty reasonably could be imposed upon any Borrower on
account thereof pursuant to ERISA.
(E) Accumulate any material cumulative funding
deficiency within the meaning of ERISA.
(F) Terminated any Employee Benefit Plan such
that a lien could be asserted against any assets of any Borrower on
account thereof pursuant to ERISA.
-29-
(G) Been a member of, contributed to, or have
any obligation under any Employee Benefit Plan which is a multiemployer
plan within the meaning of Section 4001(a) of ERISA.
(ii) Neither any Borrower nor any ERISA Affiliate shall
ever engage in any action of the type described in Section 5(l)(i).
(M) HAZARDOUS MATERIALS.
(i) No Borrower has ever: (i) been legally responsible
for any release or threat of release of any Hazardous Material or (ii) received
notification of the incurrence of any expense in connection with the assessment,
containment, or removal of any Hazardous Material for which that Borrower would
be responsible.
(ii) Each Borrower shall: (i) dispose of any Hazardous
Material only in compliance with all Environmental Laws and (ii) have possession
of any Hazardous Material only in the ordinary course of that Borrower's
business and in compliance with all Environmental Laws.
(N) LITIGATION. Except as described in EXHIBIT 5(n), annexed
hereto, there is not presently pending or threatened by or against any Borrower
any suit, action, proceeding, or investigation which, if determined adversely to
any Borrower, would have more than a DE MINIMIS adverse effect upon a Borrower's
financial condition or ability to conduct its business as such business is
presently conducted or is contemplated to be conducted in the foreseeable
future.
(O) DIVIDENDS. INVESTMENTS. CORPORATE ACTION. No Borrower shall:
(i) Pay any cash dividend or make any other distribution
in respect of any class of that Borrower's capital stock.
(ii) Own, redeem, retire, purchase, or acquire any of any
Borrower's capital stock.
(iii) Invest in or purchase any stock or securities or
rights to purchase any such stock or securities, of any Person.
(iv) Merge or consolidate or be merged or consolidated
with or into any other Person except for the Merger.
(v) Consolidate any of that Borrower's operations with
those of any other Person other than of another Borrower.
(vi) Organize or create any Affiliate.
-30-
(vii) Subordinate any debts or obligations owed to that
Borrower by any third party to any other debts owed by such third party to any
other Person.
(viii) Acquire any assets other than in the ordinary course
and conduct of that Borrower's business as conducted at the execution of this
Agreement, except that the Borrowers may acquire any assets for an aggregate
purchase price not to exceed $1,000,000 so long as the Borrowers are not
InDefault or would be InDefault as a result of such asset acquisition.
(P) LOANS. No Borrower shall make any loans or advances to, nor
acquire the Indebtedness of, any Person, PROVIDED, HOWEVER, the foregoing does
not prohibit any of the following:
(i) Advance payments made to that Borrower's suppliers in
the ordinary course.
(ii) Advances to that Borrower's officers, employees, and
salespersons with respect to reasonable expenses to be incurred by such
officers, employees, and salespersons for the benefit of that Borrower, which
expenses are properly substantiated by the person seeking such advance and
properly reimbursable by that Borrower.
(iii) Security deposits and prepaid rent under Leases.
(Q) LINE OF BUSINESS. No Borrower shall engage in any business
other than the business in which it is currently engaged or a business
reasonably related thereto (the conduct of which reasonably related business is
reflected in the Business Plan).
(R) AFFILIATE TRANSACTIONS. No Borrower shall make any payment,
nor give any value to any Affiliate except for goods and services actually
purchased by that Borrower from, or sold by that Borrower to, such Affiliate for
a price and on terms which shall
(i) be competitive and fully deductible as an "ordinary
and necessary business expense" and/or fully depreciable under the Internal
Revenue Code of 1986 and the Treasury Regulations, each as amended; and
(ii) be no less favorable to that Borrower than those
which would have been charged and imposed in an arms length transaction.
-31-
(S) ADEQUACY OF DISCLOSURE.
(i) All financial statements furnished to the Lender by
each Borrower have been prepared in accordance with GAAP consistently applied
and present fairly the condition of the Borrowers at the date(s) thereof and the
results of operations and cash flows for the period(s) covered (PROVIDED
HOWEVER, that unaudited financial statements are subject to normal year end
adjustments and to the absence of footnotes). There has been no change in the
Consolidated financial condition, results of operations, or cash flows of the
Borrowers since the date(s) of such financial statements, other than changes in
the ordinary course of business, which changes have not been materially adverse,
either singularly or in the aggregate.
(ii) The pro forma consolidating balance sheet for the
Borrowers as at September 11, 2000, after giving effect to the Merger and
related financings, copies of which have been furnished to the Lender, were
believed at the time furnished to be reasonable, have been prepared on a
reasonable basis and in good faith by the Borrowers, and have been based on
assumptions believed by the Borrowers to be reasonable at the time made and upon
the best information then reasonably available to the Borrowers.
(iii) No Borrower has any contingent obligations or
obligation under any Lease or Capital Lease which is not noted in the Borrowers'
Consolidated financial statements furnished to the Lender prior to the execution
of this Agreement.
(iv) No document, instrument, agreement, or paper now or
hereafter given the Lender by or on behalf of each Borrower or any guarantor of
the Liabilities in connection with the execution of this Agreement by the Lender
contains or will contain any untrue statement of a material fact or omits or
will omit to state a material fact necessary in order to make the statements
therein not misleading. There is no fact known to any Borrower which has, or
which, in the foreseeable future could have, a material adverse effect on the
financial condition of any Borrower or any such guarantor which has not been
disclosed in writing to the Lender.
(T) NO RESTRICTIONS ON LIABILITIES. No Borrower has entered into
or shall enter into or directly or indirectly become subject to any agreement
which (i) is breached by the Borrower's execution and delivery of and
performance under this Agreement or any other Loan Document or the IBJ Agreement
or (ii) prohibits or restricts, in any manner, any Borrower's:
(A) Creation of, and granting of Collateral
Interests in favor of the Collateral Agent.
(B) Incurrence of Liabilities.
(U) IBJ AGREEMENT. The Borrowers shall not:
(i) effect or permit any change in or amendment to the
IBJ Agreement without the prior written consent of the Lender; or
-32-
(ii) except as permitted under the Intercreditor
Agreement, permit the sum of (A) the aggregate outstanding principal amount of
all revolving credit loans made to the Borrowers under the IBJ Agreement and (B)
the stated amount of all letters of credit issued for the account of the
Borrowers under the IBJ Agreement to exceed the lesser of (x) $50,000,000 and
(y) the difference between (1) IBJ Borrowing Base and (2) any Availability
Reserves (as defined in the IBJ Agreement).
(iii) except as permitted under the Intercreditor
Agreement, permit the aggregate outstanding principal amount of all revolving
credit loans made to the Borrowers under the IBJ Agreement with respect to
Eligible Credit Card Receivables to exceed $500,000.
(iv) furnish any collateral security to IBJ on account of
indebtedness due under the IBJ Agreement other than property which also secures
the Liabilities and which is the subject of the Intercreditor Agreement.
(V) BORROWING BASE. (i) The Borrowers shall not permit the sum of
(A) the outstanding principal amount of the Loan and all other Liabilities, (B)
the outstanding aggregate principal amount of all revolving credit loans made to
the Borrowers under the IBJ Agreement and (C) the stated amount of all letters
of credit issued for the account of the Borrowers under the IBJ Agreement to
exceed the Borrowing Base (the amount by which the sum of clauses (A), (B) and
(C) exceeds the Borrowing Base is hereafter referred to as the "EXCESS"),
provided that, if any Excess exists, the Borrowers shall, immediately upon the
occurrence of such Excess, take the following action in the following order:
(x) prepay the revolving credit loans
outstanding under the IBJ Agreement;
(y) cash collateralize the letters of credit
issued and outstanding under the IBJ Agreement; and
(z) prepay the Loan;
in each case by an amount necessary to eliminate such Excess.
(ii) The Borrowing Base shall be determined by the Lender
by reference to Borrowing Base Certificates furnished as provided in Section
6(d) and shall be subject to the following:
(A) Such determination shall take into account
those Reserves as the Lender may determine as being applicable thereto.
(B) The Cost of Eligible Inventory will be
determined in a manner consistent with current tracking practices,
based on the Borrowers' stock ledger inventory.
-33-
(W) LIENS. No Borrower shall create, incur, assume, or permit to
exist, directly or indirectly, any Lien on or with respect to any of its
property or assets, of any kind, whether now owned or hereafter acquired, or any
income or profits therefrom, except for Permitted Liens.
(X) PREPAYMENTS AND AMENDMENTS.
(i) No Borrower shall prepay, redeem, retire,
defease, purchase, or otherwise acquire any Indebtedness (including the
Subordinated Debt) owing to any third Person prior to the stated maturities of
such Indebtedness, except for the Liabilities in accordance with this Agreement
and any Indebtedness on account of the IBJ Agreement, and
(ii) No Borrower shall directly or indirectly (A)
amend, modify, alter, increase, or change any of the terms or conditions of any
agreement, instrument, document, indenture, or other writing evidencing or
concerning the Subordinated Debt or (B) materially amend, modify, alter,
increase, or change any of the terms or conditions of any agreement, instrument,
document, indenture, or other writing evidencing or concerning the Indebtedness
permitted under Section 5(e)(iv).
(iii) No Borrower shall make any payment on
account of the Subordinated Debt except as otherwise permitted under the terms
of the agreements, instruments, documents, indentures, or other writings
evidencing or concerning evidencing such Subordinated Debt.
(Y) MARKUP AND MARKDOWN POLICIES. The Borrowers shall not engage
in policies or procedures with respect to markups or markdowns of Inventory
which policies and procedures, including the timing, amount and implementation
of such markups and markdowns, are inconsistent in any material respect with the
past practices of the Borrowers absent the prior written consent of the Lender,
which shall not be unreasonably withheld or delayed.
(Z) MAINTENANCE OF INSURANCE. The Borrowers (or any other Person
on behalf of the Borrowers) shall maintain insurance with responsible and
reputable insurance companies or associations (including, without limitation,
comprehensive general liability, hazard, rent and business interruption
insurance) with respect to their properties (including all real properties
leased or owned by them) and business, in such amounts and covering such risks
as is required by any Governmental Authority having jurisdiction with respect
thereto or as is carried generally in accordance with sound business practice by
companies in similar businesses similarly situated and in any event in amount,
adequacy and scope reasonably satisfactory to the Lender. Subject to the
Intercreditor Agreement, all policies covering the Collateral are to be made
payable to the Lender, as its interests may appear, in case of loss, under a
standard non-contributory "lender" or "secured party" clause and are to contain
such other provisions as the Lender may require to fully protect the Lender's
interest in the Collateral and to any payments to be made under such policies.
All certificates of insurance are to be delivered to the Lender and the policies
are to be premium prepaid, with the loss payable and additional insured
endorsement in favor of Lender and such other Persons as the Lender may
designate for time to time, and shall provide for not
-34-
less than 30 days' prior written notice to the Lender of the exercise of any
right of cancellation. If the Borrowers fail to maintain such insurance, the
Lender may arrange for such insurance, but at the Borrowers' expense and without
any responsibility on the Lender's part for obtaining the insurance, the
solvency of the insurance companies, the adequacy of the coverage, or the
collection of claims. Upon the occurrence of an Event of Default but subject to
the Intercreditor Agreement, the Lender shall have the sole right, in the name
of the Lender and the Borrowers, to file claims under any insurance policies, to
receive, receipt and give acquittance for any payments that may be payable
thereunder, and to execute any and all endorsements, receipts, releases,
assignments, reassignments or other documents that may be necessary to effect
the collection, compromise or settlement of any claims under any such insurance
policies.
(AA) OTHER COVENANTS. No Borrower shall indirectly do or cause to
be done any act which, if done directly by that Borrower, would breach any
covenant contained in this Agreement.
ARTICLE 6 - FINANCIAL REPORTING AND PERFORMANCE COVENANTS:
(A) MAINTAIN RECORDS. The Borrowers shall:
(i) At all times, keep proper books of account, in which
full, true, and accurate entries shall be made of all of the Borrowers'
financial transactions, all in accordance with GAAP applied consistently with
prior periods to fairly reflect the Consolidated financial condition of the
Borrowers at the close of, and its results of operations for, the periods in
question.
(ii) Timely provide the Lender with those financial
reports, statements, and schedules required by this Article 6 or otherwise, each
of which reports, statements and schedules shall be prepared, to the extent
applicable, in accordance with GAAP applied consistently with prior periods to
fairly reflect the Consolidated financial condition of the Borrowers at the
close of, and the results of operations for, the period(s) covered therein.
(iii) At all times, keep accurate current records of the
Collateral including, without limitation, accurate current stock, cost, and
sales records of its Inventory, accurately and sufficiently itemizing and
describing the kinds, types, and quantities of Inventory and the cost and
selling prices thereof.
(iv) At all times, retain independent certified public
accountants who are reasonably satisfactory to the Lender and instruct such
accountants to fully cooperate with, and be available to, the Lender to discuss
the Borrowers' financial performance, financial condition, operating results,
controls, and such other matters, within the scope of the retention of such
accountants, as may be raised by the Lender.
(v) Not change any Borrower's fiscal year.
-35-
(B) ACCESS TO RECORDS.
(i) Each Borrower shall accord the Lender with access
from time to time as the Lender may require, upon reasonable advance notice to
the Lead Borrower if no Event of Default then exists, to all properties owned by
or over which any Borrower has control. The Lender shall have the right, and
each Borrower will permit the Lender from time to time as Lender may request, to
examine, inspect, copy, and make extracts from any and all of the Borrowers'
books, records, electronically stored data, papers, and files. Each Borrower
shall make all of that Borrower's copying facilities available to the Lender.
(ii) Each Borrower hereby authorizes the Lender to:
(A) Inspect, copy, duplicate, review, cause to
be reduced to hard copy, run off, draw off, and otherwise use any and
all computer or electronically stored information or data which relates
to any Borrower, or any service bureau, contractor, accountant, or
other person, and directs any such service bureau, contractor,
accountant, or other person fully to cooperate with the Lender with
respect thereto.
(B) Verify at any time the Collateral or any
portion thereof, including verification with Account Debtors, and/or
with each Borrower's computer billing companies, collection agencies,
and accountants and to sign the name of each Borrower on any notice to
each Borrower's Account Debtors or verification of the Collateral.
(iii) The Lender from time to time may designate one or
more representatives to exercise the Lender's rights under this Section 6(b) as
fully as if the Lender were doing so.
(C) IMMEDIATE NOTICE TO THE LENDER.
(i) The Lead Borrower shall provide the Lender with
written notice promptly upon the occurrence of any of the following events,
which written notice shall be with reasonable particularity as to the facts and
circumstances in respect of which such notice is being given:
(A) Any change in any Borrower's President,
chief executive officer, chief operating officer, chief financial
officer, controller and vice president of finance (without regard to
the title(s) actually given to the Persons discharging the duties
customarily discharged by officers with those titles).
(B) Any ceasing of any Borrower's making of
payment, in the ordinary course, to any of its creditors (other than
its ceasing of making of such payments on account of a de minimis
dispute).
(C) Any failure by any Borrower to pay rent at
any of that Borrower's locations, which failure continues for more than
three (3) days following the last day on
-36-
which such rent was payable without more than a de minimis adverse effect to
that Borrower.
(D) Any material adverse change in the business,
operations, or financial affairs of any Borrower.
(E) Any Borrower's becoming InDefault.
(F) Any intention on the part of any Borrower to
discharge that Borrower's present independent accountants or any
withdrawal or resignation by such independent accountants from their
acting in such capacity (as to which, SEE Subsection 6(a)(iv)).
(G) Any litigation which, if determined
adversely to any Borrower, might have a material adverse effect on the
financial condition of that Borrower.
(H) Any default under the IBJ Agreement.
(ii) The Lead Borrower shall:
(A) Provide the Lender, when so distributed,
with copies of any materials distributed to the shareholders of the
Lead Borrower (QUA such shareholders).
(B) Promptly after the sending or filing
thereof, furnish to the Lender copies of all statements, reports, press
releases and other information any Borrower sends to any holders of its
securities or files with the SEC or any national (domestic or foreign)
securities exchange.
(C) Add the Lender as an addressee on all
mailing lists maintained by or for each Borrower.
(D) At the request of the Lender, from time to
time, provide the Lender with copies of all advertising (including
copies of all print advertising and duplicate tapes of all video and
radio advertising).
(E) Provide the Lender, when received by any
Borrower, with a copy of any management letter or similar
communications from any accountant of any Borrower.
(D) BORROWING BASE CERTIFICATE. The Lead Borrower shall provide
the Lender by 1:00 p.m., daily with a Borrowing Base Certificate (substantially
in the form of EXHIBIT 6(d) annexed hereto, as such form may be revised from
time to time by the Lender). Such Certificate may be sent to the Lender by
facsimile transmission or electronic mail.
(E) WEEKLY REPORTS. Weekly, on Tuesday of each week (as of the
then immediately preceding Saturday) the Lead Borrower shall provide the Lender
with a sales audit
-37-
report and a flash collateral report (each in such form as may be specified from
time to time by the Lender). Such report may be sent to the Lender by facsimile
transmission, provided that the original thereof is forwarded to the Lender on
the date of such transmission.
(F) MONTHLY REPORTS.
(i) Monthly, the Lead Borrower shall provide the Lender
with original counterparts of the following (each in such form as the Lender
from time to time may specify):
(A) Within Fifteen (15) days of the end of the
previous month:
(I) A "Stock Ledger Inventory Report"
and a Certificate (signed by the Lead Borrower's
President or Chief Financial Officer) concerning the
Borrowers' Inventory.
(II) An aging of the Borrowers'
Inventory, if available under the Borrowers' computer
systems.
(III) An Open to Buy Report on which is
shown whether inventory levels are adequate to meet
sales forecasts.
(B) Within Thirty (30) days of the end of the
previous month:
(I) Reconciliation of the above
described Report and Inventory Certificate (Section
6(f)(i)(A)(I)) to Availability and to the general ledger as of
the end of the subject month.
(II) A Gross Margin Reconciliation.
(III) A schedule of purchases from the
Borrowers' ten largest vendors (in terms of year to date
purchases), which schedule shall be in such form as may be
satisfactory to the Administrative Agent and shall include
year to date cumulative purchases and an aging of payables to
each such vendor.
(IV) A due date aging of the Borrowers'
accounts payable.
(V) A store activity report.
(VI) The officer's compliance
certificate described in Section 6(i).
(VII) An internally prepared financial
statement of the Borrowers' Consolidated financial condition
and the results of its operations for, the period ending with
the end of the subject month, which financial statement shall
include, at a minimum, a balance sheet, income statement (on a
store specific and on a "consolidated" basis), cash flow and
comparison of same store sales for
-38-
the corresponding month of the then immediately previous year,
as well as to the Business Plan.
(ii) For purposes of Sections 6(f)(i)(A), above, and
6(f)(i)(B), above, the first "previous month" in respect of which the items
respectively required by those Sections shall be the month prior to that which
dates this Agreement, EXCEPT THAT the first group of items required to be
provided pursuant to Section 6(f)(i)(A) shall be included with those provided
pursuant to Section 6(f)(i)(B); thereafter, those items shall be provided in
accordance with the requirements of Section 6(f)(i)(A).
(G) QUARTERLY REPORTS. Quarterly, within Forty Five (45) days
following the end of each of the Borrowers' fiscal quarters, the Lead Borrower
shall provide the Lender with the following:
(i) A copy of Form 10-Q filed by the Lead Borrower with
the SEC, together with a certificate from the Lead Borrower's President or Chief
Financial Officer certifying that such Form 10-Q has been reviewed by the Lead
Borrower's independent certified public accountants.
(ii) A certificate from the Lead Borrower's President or
Chief Financial Officer certifying that EXHIBIT 5(g) remains true and correct
or, if EXHIBIT 5(g) is not accurate as of the date of such certificate,
providing an update to EXHIBIT 5(g) which, in respect of each new Lease, shall
contain the information described in Section 5(g).
(H) ANNUAL REPORTS.
Annually, within ninety (90) days following the end of the
Borrowers' fiscal year, the Lead Borrower shall furnish the Lender with the
following:
(i) An original signed counterpart of the Borrowers'
Consolidated annual financial statement, which statement shall have been
prepared by, and bear the unqualified opinion of, the Lead Borrower's
independent certified public accountants which are reasonably acceptable to the
Lender (i.e. said statement shall be "certified" by such accountants) and shall
include, at a minimum (with comparative information for the then prior fiscal
year) a balance sheet, income statement, statement of changes in shareholders'
equity, cash flows, and schedules of consolidation.
(ii) The officer's compliance certificate described in
Section 6(i).
(I) OFFICERS' CERTIFICATES. The Lead Borrower shall cause either
the Lead Borrower's President or its Chief Financial Officer, in each instance,
to provide such Person's Certificate with those monthly statements required
pursuant to Section 6(f)(i)(B) and annual statements to be furnished pursuant to
this Agreement, which Certificate shall:
-39-
(i) Indicate that the subject statement was prepared in
accordance with GAAP consistently applied and presents fairly the Consolidated
financial condition of the Borrowers at the close of, and the results of the
Borrowers' operations and cash flows for, the period(s) covered, SUBJECT,
HOWEVER to the following:
(A) Usual year end adjustments (this exception
shall not be included in the Certificate which accompanies such annual
statement).
(B) Material Accounting Changes (in which event,
such Certificate shall include a schedule (in reasonable detail) of the
effect of each such Material Accounting Change) not previously
specifically taken into account in the determination of the financial
performance covenant imposed pursuant to Section 6(l).
(ii) Indicate either that (i) no Borrower is InDefault, or
(ii) if such an event has occurred, its nature (in reasonable detail)
and the steps (if any) being taken or contemplated by the Borrowers to
be taken on account thereof.
(iii) Include calculations concerning the Borrowers'
compliance (or failure to comply) at the date of the subject statement
with each of the financial performance covenants included in Section
6(l) hereof.
(J) INVENTORIES, APPRAISALS, AND AUDITS.
(i) The Lender, at the expense of the Borrowers, may
participate in and/or observe each physical count and/or inventory of so much of
the Collateral as consists of Inventory which is undertaken on behalf of any
Borrower.
(ii) The Borrowers, at their own expense, shall cause not
less than two (2) physical inventories to be undertaken in each twelve (12)
month period during which this Agreement is in effect (the spacing of the
scheduling of which inventories shall be subject to the Lender's discretion)
conducted by such inventory takers and following such methodology as is
consistent with the Borrowers' past practices.
(A) The Lead Borrower shall provide the Lender
with a copy of the preliminary results of each such inventory (as well
as of any other physical inventory undertaken by any Borrower) within
ten (10) days following the completion of such inventory.
(B) The Lead Borrower, within thirty (30) days
following the completion of such inventory, shall provide the Lender
with a reconciliation of the results of each such inventory (as well as
of any other physical inventory undertaken by any Borrower) and shall
post such results to the Borrowers' stock ledger and, as applicable to
the Borrowers' other financial books and records .
-40-
(C) The Lender, in its discretion, if any
Borrower is InDefault, may cause such additional inventories to be
taken as the Lender determines (each, at the expense of the Borrowers).
(iii) The Lender may obtain appraisals of the Collateral,
from time to time (in all events, at the Borrowers' expense) conducted by such
appraisers as are satisfactory to the Lender. The Lender anticipates that it
will obtain (A) a desktop appraisal of the Collateral by September 30, 2000, (B)
a full appraisal of the Collateral by October 31, 2000, (B) desktop appraisals
of the Collateral at the end of each month, commencing November 30, 2000, and
(C) a full appraisal of the Collateral at the end of each fiscal quarter of the
Borrowers thereafter. The Borrowers agree to cooperate with and provide
information relating to the Collateral reasonably requested by each of the
appraisers engaged by the Lender to conduct the appraisals of the Collateral.
(iv) The Lender contemplates conducting Four (4)
commercial finance field examinations (in each event, at the Borrowers' expense)
of the Borrowers' books and records during any Twelve (12) month period during
which this Agreement is in effect, but in its discretion, may undertake
additional such audits during such period.
(K) ADDITIONAL FINANCIAL INFORMATION.
(i) In addition to all other information required to be
provided pursuant to this Article 6, the Lead Borrower promptly shall provide
the Lender (and any guarantor of the Liabilities), with such other and
additional information concerning the Borrowers, the Collateral, the operation
of the Borrowers' business, and the Borrowers' financial condition, including
original counterparts of financial reports and statements, as the Lender may
from time to time request from the Lead Borrower.
(ii) The Lead Borrower MAY provide the Lender, from time
to time hereafter, with updated forecasts of the Borrowers' anticipated
performance and operating results.
(iii) In all events, the Lead Borrower, no sooner than
ninety (90) nor later than sixty (60) days prior to the end of each of the
Borrowers' fiscal years, SHALL provide the Lender with an updated and extended
forecast which shall go out at least through the end of the then next fiscal
year and shall include a projection of Availability and an income statement,
balance sheet, and statement of cash flow, by month, each Consolidated (with
consolidating schedules) and each prepared in conformity with GAAP and
consistent with the Borrowers' then current practices.
(iv) Each Borrower recognizes that all appraisals,
inventories, analysis, financial information, and other materials which the
Lender may obtain, develop, or receive with respect to the Borrowers are
confidential to the Lender and that, except as otherwise provided herein, no
Borrower is entitled to receipt of any of such appraisals, inventories,
analysis, financial information, and other materials, nor copies or extracts
thereof or therefrom.
-41-
(L) FINANCIAL PERFORMANCE COVENANTS. The Borrowers shall observe
and comply with those financial performance covenants set forth on EXHIBIT
6(l)(a), annexed hereto, certain of which covenants are based on the Business
Plan set forth on EXHIBIT 6(l)(b), annexed hereto. Compliance with such
financial performance covenants shall be made as if no Material Accounting
Changes had been made (other than any Material Accounting Changes specifically
taken into account in the setting of such covenants). The Lender may determine
the Borrowers' compliance with such covenants based upon financial reports and
statements provided by the Lead Borrower to the Lender (whether or not such
financial reports and statements are required to be furnished pursuant to this
Agreement) as well as by reference to interim financial information provided to,
or developed by, the Lender.
ARTICLE 7 - CASH MANAGEMENT. PAYMENT OF LIABILITIES:
(A) DEPOSITORY ACCOUNTS.
(i) Annexed hereto as EXHIBIT 7(a) is a Schedule of all
present DDA's, which Schedule includes, with respect to each depository (A) the
name and address of that depository; (B) the account number(s) of the account(s)
maintained with such depository; and (C) a contact person at such depository.
(ii) The contents of each DDA (other than the Operating
Account) constitutes Collateral and Proceeds of Collateral.
(iii) The Borrowers shall pay all fees and charges of, and
maintain such impressed balances as may be required by the depository in which
any account is opened as required hereby (even if such account is opened by
and/or is the property of the Lender).
(iv) The Borrowers shall comply with the cash management
provisions contained in Article 7 of the IBJ Agreement.
(B) THE OPERATING ACCOUNT. Except as otherwise specifically
provided in, or permitted by, this Agreement, all checks shall be drawn by the
Lead Borrower upon, and other disbursements shall be made by the Lead Borrower
solely from, the Operating Account.
ARTICLE 8 - EVENTS OF DEFAULT:
The occurrence of any event described in this Article 8 respectively
shall constitute an "EVENT OF DEFAULT" herein. Upon the occurrence of any Event
of Default described in Section 8(k), any and all Liabilities shall become due
and payable without any further act on the part of the Lender. Upon the
occurrence of any other Event of Default, the Lender may declare any and all
Liabilities to be immediately due and payable. The occurrence of any Event of
Default shall also constitute, without notice or demand, a default under all
other agreements between the Lender and any Borrower and instruments and papers
heretofore, now, or hereafter given the Lender by any Borrower.
-42-
(A) FAILURE TO PAY THE LOAN. The failure by any Borrower to pay
when due any principal of, interest on, or fees in respect of, the Loan.
(B) FAILURE TO MAKE OTHER PAYMENTS. The failure by any Borrower to
pay when due (or upon demand, if payable on demand) any payment Liability other
than any payment liability on account of the principal of, or interest on, or
fees in respect of, the Loan.
(C) FAILURE TO PERFORM COVENANT OR LIABILITY (NO GRACE PERIOD).
The failure by any Borrower to promptly, punctually, faithfully and timely
perform, discharge, or comply with any covenant or Liability included in any of
the following provisions of this Agreement:
Section Relates to :
--------------------------- ---------------------------------------------------------------
5(e) Indebtedness
5(h) Requirements of Law
5(j) Pay taxes
5(o) Dividends. Investments. Other Corporate Actions
5(p) Loans
5(q) Line of Business
5(r) Affiliate Transactions
5(u) IBJ Agreement
5(v) Borrowing Base
5(w) Liens
5(x) Prepayments and Amendments
5(y) Markup and Markdown Policies
5(z) Maintenance of Insurance
6(l) Financial Performance Covenants
or in Article 3 of the Security Agreement.
(D) FAILURE TO PERFORM COVENANT OR LIABILITY (GRACE PERIOD).
(i) Except as provided in Section 8(d)(ii), the failure
by the Borrowers to furnish any information or reports required pursuant to
Article 6 hereof when due, provided that an Event of Default shall not be deemed
to have arisen hereunder if the Borrowers furnish the required information or
reports within ten (10) days after the date when due and the failure to deliver
such information or reports does not occur more than twice in any twelve month
period.
-43-
(ii) The failure of the Borrowers to furnish any borrowing
base certificate required pursuant to Section 6(d) hereof when due, PROVIDED
THAT an Event of Default shall not be deemed to have arisen hereunder if the
Borrowers furnish the required borrowing base certificate within two (2) days
after the date when due and the failure to deliver such borrowing base
certificate does not occur more than six times in any twelve month period.
(iii) The failure of the Borrowers to pay any taxes when
due as required under Section 5(j)(ii) hereof, PROVIDED THAT an Event of Default
shall not be deemed to have arisen hereunder if (A) the amount of any delinquent
tax is less than $5,000, the Borrowers shall pay such delinquent tax within
thirty (30) days after the date when due, or (B) (1) the amount of any
delinquent tax is greater than $5,000, the Borrowers shall pay such delinquent
tax within ten (10) days after the date when due and (2) the failure to pay such
taxes in excess of $5,000 does not occur more than twice in any twelve month
period, and (3) the aggregate amount of any such delinquent taxes does not
exceed $200,000.00.
(iv) The failure by any Borrower within ten (10) days
following the earlier of a breach of any covenant or Liability not described in
any of Sections 8(a), 8(b), 8(c) or 8(d)(i), (ii) and (iii) or of its receipt of
written notice from the Lender of the breach of any of any of such covenants or
Liabilities.
(E) MISREPRESENTATION. The determination by the Lender that any
representation or warranty at any time made by any Borrower to the Lender in any
Loan Document, certificate or financial information delivered to the Lender was
not true or complete in all material respects when given.
(F) ACCELERATION OF OTHER DEBT. BREACH OF LEASE. The occurrence of
any event such that any Indebtedness of any Borrower to any creditor other than
the Lender could be accelerated or, without the consent of any Borrower, any
Lease could be terminated (whether or not the subject creditor or lessor takes
any action on account of such occurrence). Without limiting the foregoing, the
occurrence of any default by the Borrowers under the IBJ Agreement (after giving
effect to any applicable grace periods provided therein) shall constitute an
immediate Event of Default hereunder, without notice or grace.
(G) DEFAULT UNDER OTHER AGREEMENTS. The occurrence of any breach
of any covenant or Liability imposed by, or of any default under, any agreement
(including any Loan Document) between the Lender and any Borrower or instrument
given by any Borrower to the Lender and the expiry, without cure, of any
applicable grace period (notwithstanding that the Lender may not have exercised
all or any of its rights on account of such breach or default).
(H) UNINSURED CASUALTY LOSS. The occurrence of any uninsured loss,
theft, damage, or destruction of or to any material portion of the Collateral.
-44-
(I) ATTACHMENT. JUDGMENT. RESTRAINT OF BUSINESS.
(i) The service of process upon any Borrower seeking to
attach, by trustee or other process, any funds of any Borrower or assets of any
Borrower.
(ii) The entry of any judgment against any Borrower, which
judgment is not satisfied (if a money judgment) or appealed from (with execution
or similar process stayed) within thirty (30) days of its entry, or (if not a
money judgment) could have a material adverse effect on the Borrowers' financial
condition or ability to conduct its business in the ordinary course.
(iii) The entry of any order or the imposition of any other
process having the force of law, the effect of which is to restrain in any
material way the conduct by any Borrower of its business in the ordinary course.
(J) BUSINESS FAILURE. Any act by, against, or relating to any
Borrower, or its property or assets, which act constitutes the determination, by
any Borrower, to initiate a program of self-liquidation of all or any material
portion of its business; application for, consent to, or sufferance of the
appointment of a receiver, trustee, or other person, pursuant to court action or
otherwise, over all, or any material part of any Borrower's property; the
granting of any trust mortgage or execution of an assignment for the benefit of
the creditors of any Borrower, or the occurrence of any other voluntary or
involuntary liquidation or extension of debt agreement for any Borrower; the
offering by or entering into by any Borrower of any composition, extension, or
any other arrangement seeking relief from or extension of the debts of any
Borrower; or the initiation of any judicial or non-judicial proceeding or
agreement by, against, or including any Borrower which seeks or intends to
accomplish a reorganization or arrangement with creditors; and/or the initiation
by or on behalf of any Borrower of the liquidation or winding up of all or any
part of any Borrower's business or operations.
(K) BANKRUPTCY. The failure by any Borrower to generally pay the
debts of that Borrower as they mature; adjudication of bankruptcy or insolvency
relative to any Borrower; the entry of an order for relief or similar order with
respect to any Borrower in any proceeding pursuant to the Bankruptcy Code or any
other federal bankruptcy law; the filing of any complaint, application, or
petition by any Borrower initiating any matter in which any Borrower is or may
be granted any relief from the debts of that Borrower pursuant to the Bankruptcy
Code or any other insolvency statute or procedure; the filing of any complaint,
application, or petition against any Borrower initiating any matter in which
that Borrower is or may be granted any relief from the debts of that Borrower
pursuant to the Bankruptcy Code or any other insolvency statute or procedure,
which complaint, application, or petition is not timely contested in good faith
by that Borrower by appropriate proceedings or, if so contested, is not
dismissed within thirty (30) days of when filed.
(L) INDICTMENT - FORFEITURE. The indictment of, or institution of
any legal process or proceeding against, any Borrower, under any Applicable Law
where the relief,
-45-
penalties, or remedies sought or available include the forfeiture of any
property of any Borrower and/or the imposition of any stay or other order, the
effect of which could be to restrain in any material way the conduct by any
Borrower of its business in the ordinary course.
(M) CHALLENGE TO LOAN DOCUMENTS.
(i) Any challenge by or on behalf of any Borrower or any
guarantor of the Liabilities to the validity of any Loan Document or the
applicability or enforceability of any Loan Document strictly in accordance with
the subject Loan Document's terms or which seeks to void, avoid, limit, or
otherwise adversely affect any security interest created by or in any Loan
Document or any payment made pursuant thereto.
(ii) Any determination by any court or any other judicial
or government authority that any Loan Document is not enforceable strictly in
accordance with the subject Loan Document's terms or which voids, avoids,
limits, or otherwise adversely affects any security interest created by any Loan
Document or any payment made pursuant thereto.
(N) KEY MANAGEMENT. The death, disability, or failure of ▇▇▇▇▇
▇▇▇▇▇▇ at any time to exercise that authority and discharge those management
responsibilities with respect to the Lead Borrower as are exercised and
discharged by such Person at the execution of this Agreement unless replaced by
the affirmative vote of the Lead Borrower's board of directors within 45 days of
such death, disability or failure with a person reasonably acceptable to the
Lender.
(O) CHANGE IN CONTROL. Any Change in Control.
ARTICLE 9 - RIGHTS AND REMEDIES UPON DEFAULT:
(A) ACCELERATION. Upon the occurrence of any Event of Default
described in 8(k) and at the Lender's option upon the occurrence of any other
Event of Default, and at all times thereafter, the Lender may declare all
indebtedness of the Borrower to the Lender to be immediately due and payable and
may exercise all of the Lender's Rights and Remedies as the Lender from time to
time thereafter determines as appropriate.
(B) RIGHTS AND REMEDIES. The rights, remedies, powers, privileges,
and discretions of the Lender hereunder and under Applicable Law (herein, the
"THE LENDER'S RIGHTS AND REMEDIES") shall be cumulative and not exclusive of any
rights or remedies which it would otherwise have. No delay or omission by the
Lender in exercising or enforcing any of the Lender's Rights and Remedies shall
operate as, or constitute, a waiver thereof. No waiver by the Lender of any
Event of Default or of any default under any other agreement shall operate as a
waiver of any other default hereunder or under any other agreement. No single or
partial exercise of any of the Lender's Rights or Remedies, and no express or
implied agreement or transaction of whatever nature entered into between the
Lender and any person, at any time, shall preclude the other or further exercise
of the Lender's Rights and Remedies. No waiver by the Lender of any of the
Lender's Rights and Remedies on any one occasion shall be deemed a
-46-
waiver on any subsequent occasion, nor shall it be deemed a continuing waiver.
The Lender's Rights and Remedies may be exercised at such time or times and in
such order of preference as the Lender may determine. The Lender's Rights and
Remedies may be exercised without resort or regard to any other source of
satisfaction of the Liabilities.
ARTICLE 10 - ISSUANCE OF EQUITY INTEREST TO THE LENDER:
(A) AUTHORIZATION AND ISSUANCE OF WARRANTS. On the Closing Date,
the Lead Borrower shall issue to the Lender one or more warrant certificates
covering the purchase of 100,000 shares of the Common Stock of the Lead Borrower
substantially in the form of EXHIBIT 10(a) annexed hereto (such certificates,
together with the rights to purchase Common Stock provided thereby and all
warrant certificates covering such stock issued upon transfer, division or
combination of, or in substitution for, any thereof, being herein called the
"Warrants"), all subject to adjustment in accordance with the terms of the
Warrants. It is understood and agreed that the Warrants contain provisions
affecting the number of shares of Common Stock that may be acquired by the
holder of such Warrant or issued by the Borrower, which provisions are set forth
in the Warrants.
(B) SECURITIES ACT MATTERS. The Lender represents and
warrants to the Lead Borrower that:
(i) The Lender is acquiring the Warrants
hereunder for its own account, without a view to the distribution thereof, all
without prejudice, however, to the right of the Lender at any time, in
accordance with this Agreement, lawfully to sell or otherwise to dispose of all
or any part of the Warrants or Warrant Stock held by it.
(ii) The Lender is an "accredited investor"
within the meaning of Regulation D under the Securities Act.
The Lead Borrower represents and warrants to the Lender that:
(i) Assuming the truth and accuracy of the
Lender's representations and warranties contained in the immediately preceding
paragraphs, the issuance of the Warrants to the Lender hereunder and the
issuance of shares of Common Stock to the Lender pursuant to the Warrants are
exempt from the registration and prospectus delivery requirements of the
Securities Act. [The Registration Rights Agreement will require the Lead
Borrower to file and maintain a shelf registration with the SEC during the term
of the Warrants]
(ii) All stock and securities of the Lead
Borrower heretofore issued and sold by the Lead Borrower were, and all
securities of the Lead Borrower issued and sold by the Lead Borrower on and
after the date hereof are or will be, issued and sold in accordance with all
applicable laws including, without limitation, the Securities Act.
(iii) The Lead Borrower agrees that neither it nor
any Person acting on its behalf has offered or will offer the Warrants or
Warrant Stock or any part thereof or any
-47-
similar securities for issue or sale to, or has solicited or will solicit any
offer to acquire any of the same from, any Person so as to bring the issuance
and sale of the Warrants or Warrant Stock hereunder within the provisions of the
registration and prospectus delivery requirements of the Securities Act.
(C) CERTAIN TAXES. The Lead Borrower shall pay all taxes
(other than Federal, state or local income taxes) which may be payable in
connection with the execution and delivery of this Agreement or the issuance of
the Warrants or Warrant Stock hereunder or in connection with any modification
of this Agreement or the Warrants and shall hold the Lender harmless without
limitation as to time against any and all liabilities with respect to all such
taxes. The obligations of the Lead Borrower under this Section 10(c) shall
survive any redemption, repurchase or acquisition of Warrants or Warrant Stock
by the Lead Borrower, any termination of this Agreement, and any cancellation or
termination of the Warrants.
(D) CANCELLATION AND ISSUANCE. If the Lender assigns or
otherwise transfers all or any of the Loan (including by selling participations
therein) to any Person, the Lender may request (upon 10 days' prior notice to
the Lead Borrower) that (a) a number of Warrants held by the Lender be canceled
on the date of such assignment and transfer and (b) a like number of Warrants be
issued by the Lead Borrower to the Person to whom such Loan is being assigned or
otherwise transferred. Upon the date specified in such request:
(i) The Lead Borrower shall issue, and the
Lender shall surrender (or cause to be surrendered) for cancellation,
such number of Warrants as aforesaid, provided that such issuance shall
not violate the Securities Act or any applicable state securities laws;
(ii) each Person that receives Warrants will
deliver a certificate to the Lead Borrower affirming the
representations and warranties contained in Section 10(b)(i) hereof as
of such date; and
(iii) The Lead Borrower will deliver a certificate
to each Person that receives Warrants affirming the representations and
warranties contained in Section 10(b)(ii) hereof as of such date.
-48-
ARTICLE 11 - ASSIGNMENTS AND PARTICIPATIONS BY THE LENDER:
(A) ASSIGNMENTS AND PARTICIPATIONS:
(i) This Agreement and the Note shall be binding upon and
inure to the benefit of the Borrower and the Lender and their respective
successors and assigns; PROVIDED, HOWEVER, that (A) the Borrower may not assign
or transfer any of its rights hereunder, or under the Note, without the prior
written consent of the Lender and any such assignment without the Lender's prior
written consent shall be null and void, and (B) the Lender may assign or
transfer any of its rights hereunder, or under the Note, to any Person without
the prior written consent of the Borrower. Except as provided in this Section
11, this Agreement shall not inure to the benefit of any party other than the
Borrower and the Lender.
(ii) The Lender may at any time sell, assign or
participate to an Affiliate of the Lender or any other Person (each, a
"Participant") its rights and obligations under this Agreement (including,
without limitation, all or a portion of the Loan and the Note held by it)
without the consent of the Borrower. The Borrower shall execute and deliver such
Note and any amendment or other modification restatement of this Agreement or
any Loan Document as may be requested by the Lender to reflect any such sale or
assignment.
ARTICLE 12 - NOTICES:
(A) NOTICE ADDRESSES. All notices, demands, and other
communications made in respect of any Loan Document shall be made to the
following addresses, each of which may be changed upon seven (7) days written
notice to all others given by certified mail, return receipt requested:
If to the Lender:
Hilco Capital LPOne Northbrook Place
▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: Portfolio Administrator Fax: ▇▇▇-▇▇▇-▇▇▇▇
WITH A COPY TO:
▇▇▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇ LLP900 Third AvenueNew York, New
York 10022Attention: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.Fax:
▇▇▇-▇▇▇-▇▇▇▇
If to the Lead BorrowerAnd All Borrowers:
Natural Wonders, Inc.4209 Technology DriveFreemont,
California 94538Attention: ▇▇▇▇▇ HaneltFax:
▇▇▇-▇▇▇-▇▇▇▇
-49-
WITH A COPY TO:
Sheppard, Mullin, ▇▇▇▇▇▇▇ & Hampton, LLPFour
Embarcadero Center, Suite 1700San Francisco,
California 94111Attention: A. ▇▇▇▇ ▇▇▇▇▇▇,
EsquireFax:: (▇▇▇) ▇▇▇-▇▇▇▇
(B) NOTICE GIVEN.
(i) Except as otherwise specifically provided herein,
notices shall be deemed made and correspondence received, as follows (all times
being local to the place of delivery or receipt):
(A) By mail: the sooner of when actually
received or Three (3) days following deposit in the United States mail, postage
prepaid.
(B) By recognized overnight express delivery:
the Business Day following the day when sent.
(C) By Hand: If delivered on a Business Day
after 9:00 AM and no later than Three (3) hours prior to the close of customary
business hours of the recipient, when delivered. Otherwise, at the opening of
the then next Business Day.
(D) By Facsimile transmission (which must
include a header on which the party sending such transmission is indicated): If
sent on a Business Day after 9:00 AM and no later than Three (3) hours prior to
the close of customary business hours of the recipient, one (1) hour after being
sent. Otherwise, at the opening of the then next Business Day.
(ii) Rejection or refusal to accept delivery and inability
to deliver because of a changed address or Facsimile Number for which no due
notice was given shall each be deemed receipt of the notice sent.
ARTICLE 13 - TERM:
(A) ACTIONS ON TERMINATION.
(i) On the Termination Date, the Borrowers shall pay the
Lender (whether or not then due), in immediately available funds, all then
Liabilities including, without limitation: the following:
(A) The entire balance of the Loan Account
(including the unpaid principal balance of the Loan).
(B) Any fees payable to the Lender pursuant to
Section 2(g), including, without limitation, the facility fee and the success
fee described in such Section.
-50-
(C) All unreimbursed costs and expenses of the
Lender and of Lender's Special Counsel for which each Borrower is responsible.
(ii) Until such payment (Section 12(b)(i)), all provisions
of this Agreement shall remain in full force and effect until all Liabilities
shall have been paid in full.
(iii) The release by the Collateral Agent of the Collateral
Interests granted the Collateral Agent by the Borrowers hereunder may be upon
such conditions and indemnifications as the Lender may require.
ARTICLE 14 - GENERAL:
(A) PROTECTION OF COLLATERAL. The Lender has no duty as to the
collection or protection of the Collateral beyond the safe custody of such of
the Collateral as may come into the possession of the Lender.
(B) PUBLICITY. The Lender may issue a "tombstone" notice of the
establishment of the term loan facility contemplated by this Agreement and may
make reference to the Lead Borrower (and may utilize any logo or other
distinctive symbol associated with the Lead Borrower) in connection with any
advertising, promotion, or marketing undertaken by the Lender.
(C) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
the Borrowers and their respective representatives, successors, and assigns and
shall enure to the benefit of the Lender and its respective successors and
assigns, PROVIDED, HOWEVER, no trustee or other fiduciary appointed with respect
to any Borrower shall have any rights hereunder. In the event that the Lender
assigns or transfers its rights under this Agreement, the assignee shall
thereupon succeed to and become vested with all rights, powers, privileges, and
duties of such assignor hereunder and such assignor shall thereupon be
discharged and relieved from its duties and obligations hereunder.
(D) SEVERABILITY. Any determination that any provision of this
Agreement or any application thereof is invalid, illegal, or unenforceable in
any respect in any instance shall not affect the validity, legality, or
enforceability of such provision in any other instance, or the validity,
legality, or enforceability of any other provision of this Agreement.
-51-
(E) AMENDMENTS. COURSE OF DEALING.
(i) This Agreement and the other Loan Documents
incorporate all discussions and negotiations between each Borrower and the
Lender, either express or implied, concerning the matters included herein and in
such other instruments, any custom, usage, or course of dealings to the contrary
notwithstanding. No such discussions, negotiations, custom, usage, or course of
dealings shall limit, modify, or otherwise affect the provisions thereof. No
failure by the Lender to give notice to the Lead Borrower of any Borrower's
having failed to observe and comply with any warranty or covenant included in
any Loan Document shall constitute a waiver of such warranty or covenant or the
amendment of the subject Loan Document. No change made by the Lender to the
manner by which Borrowing Base is determined shall obligate the Lender to
continue to determine Borrowing Base in that manner.
(ii) Each Borrower may undertake any action otherwise
prohibited hereby, and may omit to take any action otherwise required hereby,
upon and with the express prior written consent of the Lender. No consent,
modification, amendment, or waiver of any provision of any Loan Document shall
be effective unless executed in writing by or on behalf of the party to be
charged with such modification, amendment, or waiver (and if such party is the
Lender then by a duly authorized officer thereof). Any modification, amendment,
or waiver provided by the Lender shall be in reliance upon all representations
and warranties theretofore made to the Lender by or on behalf of the Borrowers
(and any guarantor, endorser, or surety of the Liabilities) and consequently may
be rescinded in the event that any of such representations or warranties was not
true and complete in all material respects when given.
(F) POWER OF ATTORNEY. In connection with all powers of attorney
included in this Agreement, each Borrower hereby grants unto the Lender full
power to do any and all things necessary or appropriate in connection with the
exercise of such powers as fully and effectually as that Borrower might or could
do, hereby ratifying all that said attorney shall do or cause to be done by
virtue of this Agreement. No power of attorney set forth in this Agreement shall
be affected by any disability or incapacity suffered by any Borrower and each
shall survive the same. All powers conferred upon the Lender or the Collateral
Agent by this Agreement, being coupled with an interest, shall be irrevocable
until this Agreement is terminated by a written instrument executed by a duly
authorized officer of the Lender.
(G) APPLICATION OF PROCEEDS. Subject to the terms of the
Intercreditor Agreement, the proceeds of any collection, sale, or disposition of
the Collateral, or of any other payments received hereunder, shall be applied
towards the Liabilities in such order and manner as the Lender determines in its
sole discretion, consistent, HOWEVER, with any other applicable provisions of
this Agreement. The Borrowers shall remain liable for any deficiency remaining
following such application.
(H) INCREASED COSTS. If, as a result of any requirement of law, or
of the interpretation or application thereof by any court or by any governmental
or other authority or entity charged with the administration thereof, whether or
not having the force of law, which:
-52-
(i) subjects the Lender to any taxes or changes the basis
of taxation, or increases any existing taxes, on payments of principal, interest
or other amounts payable by any Borrower to the Lender under this Agreement
(except for taxes on the Lender based on net income or capital imposed by the
jurisdiction in which the principal or lending offices of the Lender are
located);
(ii) imposes, modifies or deems applicable any reserve,
cash margin, special deposit or similar requirements against assets held by, or
deposits in or for the account of or loans by or any other acquisition of funds
by the relevant funding office of any the Lender;
(iii) imposes on the Lender any other condition with
respect to any Loan Document; or
(iv) imposes on the Lender a requirement to maintain or
allocate capital in relation to the Liabilities;
and the result of any of the foregoing, in the Lender's reasonable opinion, is
to increase the cost to the Lender of making or maintaining any loan, advance or
financial accommodation or to reduce the income receivable by the Lender in
respect of any loan, advance or financial accommodation by an amount which the
Lender deems to be material, then upon written notice from the Lender, from time
to time, to the Lead Borrower (such notice to set out in reasonable detail the
facts giving rise to and a summary calculation of such increased cost or reduced
income), the Borrowers shall forthwith pay to the Lender, upon receipt of such
notice, that amount which shall compensate the Lender for such additional cost
or reduction in income.
-53-
(I) COSTS AND EXPENSES OF THE LENDER.
(i) The Borrowers shall pay on demand, all documented
costs and expenses incurred by or on behalf of the Lender, regardless of whether
the transactions contemplated hereby are consummated, including, without
limitation, reasonable fees, costs, client charges and expenses of counsel for
the Lender, accounting, due diligence, periodic field audits, physical counts,
valuations, investigations, monitoring of assets, appraisals of Collateral,
miscellaneous disbursements, examination, travel, lodging and meals, arising
from or relating to: (A) the negotiation, preparation, execution, delivery,
performance and administration of this Agreement and the other Loan Documents,
(B) any requested amendments, waivers or consents to this Agreement or the other
Loan Documents whether or not such documents become effective or are given, (C)
the preservation and protection of any of the Lender's rights under this
Agreement or the other Loan Documents, (D) the defense of any claim or action
asserted or brought against the Lender by any Person that arises from or relates
to this Agreement, any other Loan Document, the Lender's claims against any
Borrower, or any and all matters in connection therewith, (E) the commencement
or defense of, or intervention in, any court proceeding arising from or related
to this Agreement or any other Loan Document, (F) the filing of any petition,
complaint, answer, motion or other pleading by the Lender, or the taking of any
action in respect of the Collateral or other security, in connection with this
Agreement or any other Loan Document, (G) the protection, collection, lease,
sale, taking possession of or liquidation of, any Collateral or other security
in connection with this Agreement or any other Loan Document, (H) any attempt to
enforce any Lien or security interest in any Collateral or other security in
connection with this Agreement or any other Loan Document, (I) any attempt to
collect from any Borrower, or (J) the receipt by the Lender of any advice from
its professionals with respect to any of the foregoing.
(ii) Each Borrower authorizes the Lender to pay all such
fees and expenses and in the Lender's discretion, to add such fees and expenses
to the Loan Account. Each Borrower further authorizes (A) the Lender to submit
to IBJ a request for payment of any Liabilities due and owing under this
Agreement that have not been paid by the Borrowers within 20 days after demand
by the Lender and (B) IBJ to charge the Borrowers' loan account under the IBJ
Agreement and pay such Liabilities to the Lender.
(iii) The undertaking on the part of each Borrower in this
Section 14(i) shall survive payment of the Liabilities and/or any termination,
release, or discharge executed by the Lender in favor of any Borrower, other
than a termination, release, or discharge which makes specific reference to this
Section 14(i).
(J) COPIES AND FACSIMILES. Each Loan Document and all documents
and papers which relates thereto which have been or may be hereinafter furnished
the Lender may be reproduced by the Lender by any photographic, microfilm,
xerographic, digital imaging, or other process, and such Person making such
reproduction may destroy any document so reproduced. Any such reproduction shall
be admissible in evidence as the original itself in any judicial or
administrative proceeding (whether or not the original is in existence and
whether or not such reproduction was made in the regular course of business).
Any facsimile which bears proof of
-54-
transmission shall be binding on the party which or on whose behalf such
transmission was initiated and likewise shall be so admissible in evidence as if
the original of such facsimile had been delivered to the party which or on whose
behalf such transmission was received.
(K) ILLINOIS LAW. This Agreement and all rights and obligations
hereunder, including matters of construction, validity, and performance, shall
be governed by the law of The State of Illinois.
(L) CONSENT TO JURISDICTION.
(i) Each Borrower agrees that any legal action,
proceeding, case, or controversy against any Borrower with respect to any Loan
Document may be brought in the State and Federal Courts located in ▇▇▇▇ County,
State of Illinois, as the Lender may elect in the Lender's sole discretion. By
execution and delivery of this Agreement, each Borrower, for itself and in
respect of its property, accepts, submits, and consents generally and
unconditionally, to the jurisdiction of the aforesaid courts.
(ii) Each Borrower WAIVES personal service of any and all
process upon it, and irrevocably consents to the service of process out of any
of the aforementioned courts in any such action or proceeding by the mailing of
copies thereof by certified mail, postage prepaid, to the Lead Borrower at the
Lead Borrower's address for notices as specified herein, such service to become
effective five (5) Business Days after such mailing.
(iii) Each Borrower WAIVES any objection based on FORUM NON
CONVENIENS and any objection to venue of any action or proceeding instituted
under any of the Loan Documents and consents to the granting of such legal or
equitable remedy as is deemed appropriate by the Court.
(iv) Nothing herein shall affect the right of the Lender
to bring legal actions or proceedings in any other competent jurisdiction.
(v) Each Borrower agrees that any action commenced by any
Borrower asserting any claim arising under or in connection with this Agreement
or any other Loan Document shall be brought solely in the State and Federal
Courts located in ▇▇▇▇ County, State of Illinois and that such Courts shall have
exclusive jurisdiction with respect to any such action.
(M) INDEMNIFICATION. Each Borrower shall indemnify, defend, and
hold the Lender and any Participant and any of their respective employees,
officers, or agents (each, an "INDEMNIFIED PERSON") harmless of and from any
claim brought or threatened against any Indemnified Person by any Borrower, any
guarantor or endorser of the Liabilities, or any other Person (as well as from
attorneys' reasonable fees, expenses, and disbursements in connection therewith)
arising under or related to the execution, delivery, enforcement, performance or
administration of the Liabilities, the Loan Documents or the transactions
contemplated thereby (each of claims which may be defended, compromised,
settled, or pursued by the Indemnified Person with counsel of the Lender's
selection, but at the expense of the Borrowers) other than
-55-
any claim as to which a final determination is made in a judicial proceeding (in
which the Lender and any other Indemnified Person has had an opportunity to be
heard), which determination includes a specific finding that the Indemnified
Person seeking indemnification had acted in a grossly negligent manner or in
actual bad faith. This indemnification shall survive payment of the Liabilities
and/or any termination, release, or discharge executed by the Lender in favor of
the Borrowers, other than a termination, release, or discharge duly executed on
behalf of the Lender which makes specific reference to this Section 17(m).
(N) RULES OF CONSTRUCTION. The following rules of construction
shall be applied in the interpretation, construction, and enforcement of this
Agreement and of the other Loan Documents:
(i) Unless otherwise specifically provided for herein,
interest and any fee or charge which is stated as a per annum percentage shall
be calculated based on a 360 day year and actual days elapsed.
(ii) Any term used herein to describe Collateral or a
Person, which term is defined in either (or both) the UCC as in effect on the
date when this Agreement was executed by the Borrowers or in UCC9'99, shall be
given the meaning which is the more encompassing of the two definitions.
(iii) Words in the singular include the plural and words in
the plural include the singular.
(iv) Titles, headings (indicated by being UNDERLINED or
shown in SMALL CAPITALS) and any Table of Contents are solely for convenience of
reference; do not constitute a part of the instrument in which included; and do
not affect such instrument's meaning, construction, or effect.
(v) The words "includes" and "including" are not
limiting.
(vi) Text which follows the words "including, without
limitation" (or similar words) is illustrative and not limitational.
(vii) Text which is shown in ITALICS, shown in BOLD, shown
IN ALL CAPITAL LETTERS, or in any combination of the foregoing, shall be deemed
to be conspicuous.
(viii) The words "may not" are prohibitive and not
permissive.
(ix) Any reference to a Person's "knowledge" (or words of
similar import) are to such Person's knowledge assuming that such Person has
undertaken reasonable and diligent investigation with respect to the subject of
such "knowledge" (whether or not such investigation has actually been
undertaken).
(x) Terms which are defined in one section of any Loan
Document are used with such definition throughout the instrument in which so
defined.
-56-
(xi) The symbol "$" refers to United States Dollars.
(xii) Unless limited by reference to a particular Section
or provision, any reference to "herein", "hereof", or "within" is to the entire
Loan Document in which such reference is made.
(xiii) References to "this Agreement" or to any other Loan
Document is to the subject instrument as amended to the date on which
application of such reference is being made.
(xiv) Except as otherwise specifically provided, all
references to time are to Chicago time.
(xv) In the determination of any notice, grace, or other
period of time prescribed or allowed hereunder:
(A) Unless otherwise provided (I) the day of the
act, event, or default from which the designated period of time begins to run
shall not be included and the last day of the period so computed shall be
included unless such last day is not a Business Day, in which event the last day
of the relevant period shall be the then next Business Day and (II) the period
so computed shall end at 5:00 PM on the relevant Business Day.
(B) The word "from" means "from and including".
(C) The words "to" and "until" each mean "to,
but excluding".
(D) The word "through" means "to and including".
(xvi) The Loan Documents shall be construed and interpreted
in a harmonious manner and in keeping with the intentions set forth in Section
14(o) hereof, provided, however, in the event of any inconsistency between the
provisions of this Agreement and any other Loan Document, the provisions of this
Agreement shall govern and control.
(O) INTENT. It is intended that:
(i) This Agreement take effect as a sealed instrument.
(ii) The scope of all Collateral Interests created by any
Borrower to secure the Liabilities be broadly construed in favor of the Lender
and that they cover all assets of each Borrower.
(iii) All Collateral Interests created in favor of the
Collateral Agent at any time and from time to time by any Borrower secure all
Liabilities, whether now existing or contemplated or hereafter arising.
-57-
(iv) All reasonable costs, expenses, and disbursements
incurred by Lender in connection with such Person's relationship(s) with any
Borrower shall be borne by the Borrowers.
(v) Unless otherwise explicitly provided herein, the
Lender's consent to any action of any Borrower which is prohibited unless such
consent is given may be given or refused by the Lender in its sole discretion
and without reference to Section 2(i) hereof.
(P) RIGHT OF SET-OFF. Any and all deposits or other sums at any
time credited by or due to any Borrower from the Lender or any Participant or
from any Affiliate of any of the foregoing, and any cash, securities,
instruments or other property of any Borrower in the possession of any of the
foregoing, whether for safekeeping or otherwise (regardless of the reason such
Person had received the same) shall at all times constitute security for all
Liabilities and for any and all obligations of each Borrower to the Lender or
any Participant or such Affiliate and may be applied or set off against the
Liabilities and against such obligations at any time, whether or not such are
then due and whether or not other collateral is then available to the Lender.
(Q) MAXIMUM INTEREST RATE. Regardless of any provision of any Loan
Document, the Lender shall not be entitled to contract for, charge, receive,
collect, or apply as interest on any Liability, any amount in excess of the
maximum rate imposed by Applicable Law. Any payment which is made which, if
treated as interest on a Liability would result in such interest's exceeding
such maximum rate shall be held, to the extent of such excess, as additional
collateral for the Liabilities as if such excess were "Collateral."
(R) WAIVERS.
(i) Each Borrower (and all guarantors, endorsers, and
sureties of the Liabilities) make each of the waivers included in Section
14(t)(ii), below, knowingly, voluntarily, and intentionally, and understands
that the Lender, in establishing the term loan facility contemplated hereby,
whether not or in the future, is relying on such waivers.
(ii) EACH BORROWER, AND EACH SUCH GUARANTOR, ENDORSER, AND
SURETY RESPECTIVELY WAIVES THE FOLLOWING:
(A) Except as otherwise specifically required
hereby, notice of non-payment, demand, presentment, protest and all forms of
demand and notice, both with respect to the Liabilities and the Collateral.
(B) Except as otherwise specifically required
hereby, the right to notice and/or hearing prior to the Lender's exercising of
the Lender's rights upon default.
(C) THE RIGHT TO A JURY IN ANY TRIAL OF ANY CASE
OR CONTROVERSY IN WHICH THE LENDER IS OR BECOMES A PARTY (WHETHER
-58-
SUCH CASE OR CONTROVERSY IS INITIATED BY OR AGAINST THE LENDER OR IN WHICH ANY
AGENT OR THE LENDER IS JOINED AS A PARTY LITIGANT), WHICH CASE OR CONTROVERSY
ARISES OUT OF OR IS IN RESPECT OF, ANY RELATIONSHIP AMONGST OR BETWEEN ANY
BORROWER OR ANY OTHER PERSON AND THE LENDER LIKEWISE WAIVES THE RIGHT TO A JURY
IN ANY TRIAL OF ANY SUCH CASE OR CONTROVERSY).
(D) The benefits or availability of any stay,
limitation, hindrance, delay, or restriction (including, without limitation, any
automatic stay which otherwise might be imposed pursuant to Section 362 of the
Bankruptcy Code) with respect to any action which any Agent may or may become
entitled to take hereunder.
(E) Any defense, counterclaim, set-off,
recoupment, or other basis on which the amount of any Liability, as stated on
the books and records of the Lender, could be reduced or claimed to be paid
otherwise than in accordance with the tenor of and written terms of such
Liability.
(F) Any claim to consequential, special, or
punitive damages.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-59-
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers thereunto duly authorized
as of the day and year first above written.
NATURAL WONDERS, INC.
("LEAD BORROWER")
By____________________________
Print Name:___________________
Title:________________________
"BORROWERS":
NATURAL WONDERS ACQUISITION
COMPANY, INC
By_____________________________
Print Name:____________________
Title:_________________________
NW CAPITAL MANAGEMENT, INC
By_____________________________
Print Name:____________________
Title:_________________________
WORLD OF SCIENCE, INC
By_____________________________
Print Name:____________________
Title:_________________________
-60-
WOSI ON THE WEB, INC
By_____________________________
Print Name:____________________
Title:_________________________
HILCO CAPITAL LP
("LENDER")
By_____________________________
Print Name:____________________
Title:_________________________
-61-
EXHIBIT 6(l)(a): FINANCIAL PERFORMANCE COVENANTS
--------------------------------------------------------
MINIMUM ROLLING EBITDA ($000): The Borrowers will be subject to a
Minimum EBITDA (as defined) covenant. EBITDA will be determined in
accordance with GAAP but will be before any allocation of UNICAP
charges. The covenant will be calculated on a cumulative year-to-date
basis for the month then ended. The Borrowers will not materially
change the methodology in which they calculate UNICAP adjustments, and
the Borrowers shall provide the lender with prior written notice of any
contemplated change. No change to the methodology shall take affect
without the prior written consent of the Lender. The Borrowers must
maintain a Minimum EBITDA as indicated below.
------------------------------------------ -------------------- -------------------- --------------------
PERIOD / ROLLING # MONTHS PROJ. EBITDA PROJ. ROLLING MIN. ROLLING EBITDA
EBITDA
------------------------------------------ -------------------- -------------------- --------------------
September 2000 / 1-month ($2,722) ($2,722) ($3,500)
------------------------------------------ -------------------- -------------------- --------------------
October 2000 / 2-months ($2,401) ($5,123) ($5,750)
------------------------------------------ -------------------- -------------------- --------------------
November 2000 / 3-months $4,096 ($1,027) ($1,650)
------------------------------------------ -------------------- -------------------- --------------------
December 2000 / 4-months $33,826 $32,799 $28,800
------------------------------------------ -------------------- -------------------- --------------------
January 2001 / 5-months ($3,434) $29,365 $25,200
------------------------------------------ -------------------- -------------------- --------------------
February 2001 / 1-month ($1,470) ($1,470) ($2,100)
------------------------------------------ -------------------- -------------------- --------------------
March 2001 / 2-months ($1,667) ($3,137) ($3,750)
------------------------------------------ -------------------- -------------------- --------------------
April 2001 / 3-months ($1,441) ($4,578) ($5,500)
------------------------------------------ -------------------- -------------------- --------------------
May 2001 / 4-months ($1,114) ($5,692) ($6,650)
------------------------------------------ -------------------- -------------------- --------------------
June 2001 / 5-months $402 ($5,290) ($6,200)
------------------------------------------ -------------------- -------------------- --------------------
July 2001 / 6-months ($913) ($6,203) ($7,100)
------------------------------------------ -------------------- -------------------- --------------------
August 2001 / 7- months ($555) ($6,758) ($8,100)
------------------------------------------ -------------------- -------------------- --------------------
September 2001 / 8-month ($1,046) ($7,804) ($9,400)
------------------------------------------ -------------------- -------------------- --------------------
October 2001 / 9-months ($1,287) ($9,091) ($10,150)
------------------------------------------ -------------------- -------------------- --------------------
November 2001 / 10-months $4,897 ($4,194) ($5,200)
------------------------------------------ -------------------- -------------------- --------------------
December 2001 / 11-months $37,103 $32,909 $29,300
------------------------------------------ -------------------- -------------------- --------------------
MAXIMUM CAPITAL EXPENDITURES: The Borrowers shall not permit or suffer
to exist Capital Expenditures which aggregate more than the amounts set
forth below:
Fiscal Year 2000: $6,500,000.
Fiscal Year 2001: $7,000,000.
-62-
In addition to the above referenced capital expenditures limitations,
the Borrowers may spend up to $1,000,000 in fiscal year 2000 to acquire
certain existing stores from a competitor, so long as it is in
compliance with the Loan Documents.
MINIMUM ACCOUNTS PAYABLE TO INVENTORY RATIO: The Borrowers shall not
suffer or permit its actual end of month ratio of accounts payable
(trade payables including merchandise and other operating payables) to
Inventory (general ledger including store, and distribution center), to
be less than the following (tested monthly):
--------------------------------------------- -------------------- --------------------
PERIOD PROJECTED REQUIRED
--------------------------------------------- -------------------- --------------------
September 2000 48% 40%
--------------------------------------------- -------------------- --------------------
October 2000 46% 40%
--------------------------------------------- -------------------- --------------------
November 2000 46% 40%
--------------------------------------------- -------------------- --------------------
December 2000 33% 25%
--------------------------------------------- -------------------- --------------------
January 2001 35% 20%
--------------------------------------------- -------------------- --------------------
February 2001 25% 20%
--------------------------------------------- -------------------- --------------------
March 2001 23% 17%
--------------------------------------------- -------------------- --------------------
April 2001 25% 20%
--------------------------------------------- -------------------- --------------------
May 2001 24% 20%
--------------------------------------------- -------------------- --------------------
June 2001 29% 20%
--------------------------------------------- -------------------- --------------------
July 2001 35% 25%
--------------------------------------------- -------------------- --------------------
August 2001 37% 25%
--------------------------------------------- -------------------- --------------------
September 2001 39% 25%
--------------------------------------------- -------------------- --------------------
October 2001 39% 25%
--------------------------------------------- -------------------- --------------------
November 2001 39% 25%
--------------------------------------------- -------------------- --------------------
December 2001 37% 25%
--------------------------------------------- -------------------- --------------------
For every month effective as of September of 2001, the required ratio
shall be equal to the ratio in the corresponding month.
In the event, the Borrowers violate the Accounts Payable to Inventory
ratio but maintains excess Availability of at least $7,000,000 (at the
time of the default), the covenant will be automatically waived.
MINIMUM HOLIDAY SALES: The Borrowers shall not suffer or permit its
actual net sales to be less than the following:
-63-
------------------------------------- ----------------------------------- -----------------------------------
PERIOD PROJECTED SALES REQUIRED
------------------------------------- ----------------------------------- -----------------------------------
Minimum Sales
------------------------------------- ----------------------------------- -----------------------------------
Fiscal November 2000 through Fiscal $102,988M $93,500M
December
------------------------------------- ----------------------------------- -----------------------------------
Fiscal November 2001 through $109,644M $99,000M
Fiscal December 2001
------------------------------------- ----------------------------------- -----------------------------------
The Minimum Holiday sales covenant will be calculated and reported to
the Lender no later than two days after the completion of fiscal
December 2000 and 2 days after the completion of fiscal December 2001.
-64-