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LOAN AND SECURITY AGREEMENT
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BANKBOSTON RETAIL FINANCE INC.
THE LENDER
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PAPER WAREHOUSE, INC.
AND
PAPER WAREHOUSE FRANCHISING, INC.
THE BORROWER
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June 7, 1999
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TABLE OF CONTENTS
ARTICLE I - DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
ARTICLE II - THE REVOLVING CREDIT. . . . . . . . . . . . . . . . . . . . . . . . . 24
2.1 ESTABLISHMENT OF REVOLVING CREDIT. . . . . . . . . . . . . . . . . . . . .24
2.2 ADVANCES IN EXCESS OF BORROWING BASE. . . . . . . . . . . . . . . . . . . 25
2.3 RISKS OF VALUE OF COLLATERAL. . . . . . . . . . . . . . . . . . . . . . . 25
2.4 LOAN REQUESTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
2.5 MAKING OF LOANS UNDER REVOLVING CREDIT. . . . . . . . . . . . . . . . . . 28
2.6 THE LOAN ACCOUNT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
2.7 THE REVOLVING CREDIT NOTE . . . . . . . . . . . . . . . . . . . . . . . . 30
2.8 PAYMENT OF THE LOAN ACCOUNT . . . . . . . . . . . . . . . . . . . . . . . 30
2.9 INTEREST. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
2.10 COMMITMENT FEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
2.11. FACILITY FEE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
2.12. LINE (UNUSED) FEE . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
2.13. EARLY TERMINATION FEE . . . . . . . . . . . . . . . . . . . . . . . . . 33
2.14. CONCERNING FEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
2.15. LENDER'S DISCRETION . . . . . . . . . . . . . . . . . . . . . . . . . . 35
2.16. PROCEDURES FOR ISSUANCE OF L/C'S. . . . . . . . . . . . . . . . . . . . 36
2.17. FEES FOR L/C'S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
2.18. CONCERNING L/C'S. . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
2.19. INCREASED COSTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
ARTICLE 3. CONDITIONS PRECEDENT:. . . . . . . . . . . . . . . . . . . . . . . . . 41
3.1. CORPORATE DUE DILIGENCE. . . . . . . . . . . . . . . . . . . . . . . . . 41
3.2. OPINION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
3.3. LANDLORD WAIVERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
3.4. ADDITIONAL DOCUMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . 42
3.5. OFFICERS' CERTIFICATES . . . . . . . . . . . . . . . . . . . . . . . . . 42
3.6. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . 43
3.7. MINIMUM EXCESS AVAILABILITY. . . . . . . . . . . . . . . . . . . . . . . 43
3.8. ALL FEES AND EXPENSES PAID . . . . . . . . . . . . . . . . . . . . . . . 43
3.9. NO SUSPENSION EVENT. . . . . . . . . . . . . . . . . . . . . . . . . . . 43
3.10 NO ADVERSE CHANGE. . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
ARTICLE 4 - GENERAL REPRESENTATIONS, COVENANTS AND WARRANTIES:. . . . . . . . . . 44
4.1. PAYMENT AND PERFORMANCE OF LIABILITIES . . . . . . . . . . . . . . . . . 44
4.2. DUE ORGANIZATION - CORPORATE AUTHORIZATION - NO CONFLICTS. . . . . . . . 44
4.3. TRADE NAMES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
4.4. INFRASTRUCTURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
4.5. YEAR 2000 COMPLIANCE . . . . . . . . . . . . . . . . . . . . . . . . . . 46
4.6. LOCATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
4.7. TITLE TO ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
4.8. INDEBTEDNESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
4.9. INSURANCE POLICIES . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
June 7, 1999
ii
4.10. LICENSES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
4.11. LEASES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
4.12. REQUIREMENTS OF LAW . . . . . . . . . . . . . . . . . . . . . . . . . . 52
4.13. MAINTAIN PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . 52
4.14. PAY TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
4.15. NO MARGIN STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
4.16. ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
4.17. HAZARDOUS MATERIALS . . . . . . . . . . . . . . . . . . . . . . . . . . 55
4.18. LITIGATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
4.19. DIVIDENDS OR INVESTMENTS. . . . . . . . . . . . . . . . . . . . . . . . 56
4.20. LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
4.21. PROTECTION OF ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . 57
4.22. LINE OF BUSINESS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
4.23. AFFILIATE TRANSACTIONS. . . . . . . . . . . . . . . . . . . . . . . . . 58
4.24. ADDITIONAL ASSURANCES . . . . . . . . . . . . . . . . . . . . . . . . . 58
4.25. ADEQUACY OF DISCLOSURE. . . . . . . . . . . . . . . . . . . . . . . . . 59
4.26. OTHER COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
ARTICLE 5 - FINANCIAL REPORTING AND PERFORMANCE COVENANTS: . . . . . . . . . . . . 60
5.1. MAINTAIN RECORDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
5.2. ACCESS TO RECORDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
5.3. IMMEDIATE NOTICE TO LENDER . . . . . . . . . . . . . . . . . . . . . . . 62
5.4. BORROWING BASE CERTIFICATE . . . . . . . . . . . . . . . . . . . . . . . 64
5.5. WEEKLY REPORTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
5.6. MONTHLY REPORTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
5.7. QUARTERLY REPORTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
5.8. ANNUAL REPORTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
5.9. OFFICERS' CERTIFICATES . . . . . . . . . . . . . . . . . . . . . . . . . 67
5.10. INVENTORIES, APPRAISALS, AND AUDITS . . . . . . . . . . . . . . . . . . 67
5.11. ADDITIONAL FINANCIAL INFORMATION. . . . . . . . . . . . . . . . . . . . 69
5.12. FINANCIAL PERFORMANCE COVENANTS . . . . . . . . . . . . . . . . . . . . 70
ARTICLE 6 - USE AND COLLECTION OF COLLATERAL: . . . . . . . . . . . . . . . . . . 71
6.1. USE OF INVENTORY COLLATERAL. . . . . . . . . . . . . . . . . . . . . . . 71
6.2. INVENTORY QUALITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
6.3. ADJUSTMENTS AND ALLOWANCES . . . . . . . . . . . . . . . . . . . . . . . 71
6.4. VALIDITY OF ACCOUNTS . . . . . . . . . . . . . . . . . . . . . . . . . . 71
6.5. NOTIFICATION TO ACCOUNT DEBTORS. . . . . . . . . . . . . . . . . . . . . 72
ARTICLE 7 - CASH MANAGEMENT. PAYMENT OF LIABILITIES:. . . . . . . . . . . . . . . 72
7.2. CREDIT CARD RECEIPTS . . . . . . . . . . . . . . . . . . . . . . . . . . 73
7.3. THE CONCENTRATION, BLOCKED, AND OPERATING ACCOUNTS . . . . . . . . . . . 73
7.4. PROCEEDS AND COLLECTION OF ACCOUNTS. . . . . . . . . . . . . . . . . . . 74
7.5. PAYMENT OF LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . 75
7.6. THE OPERATING ACCOUNT. . . . . . . . . . . . . . . . . . . . . . . . . . 76
ARTICLE 8 - GRANT OF SECURITY INTEREST: . . . . . . . . . . . . . . . . . . . . . 76
8.1. GRANT OF SECURITY INTEREST . . . . . . . . . . . . . . . . . . . . . . . 77
8.2. EXTENT AND DURATION OF SECURITY INTEREST . . . . . . . . . . . . . . . . 78
June 7, 1999
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ARTICLE 9 - LENDER AS BORROWER'S ATTORNEY-IN-FACT: . . . . . . . . . . . . . . . . 78
9.1. APPOINTMENT AS ATTORNEY-IN-FACT. . . . . . . . . . . . . . . . . . . . . 78
9.2. NO OBLIGATION TO ACT. . . . . . . . . . . . . . . . . . . . . . . . . . 79
ARTICLE 10 - EVENTS OF DEFAULT:. . . . . . . . . . . . . . . . . . . . . . . . . . 80
10.1. FAILURE TO PAY REVOLVING CREDIT . . . . . . . . . . . . . . . . . . . . 80
10.2. FAILURE TO MAKE OTHER PAYMENTS. . . . . . . . . . . . . . . . . . . . . 80
10.3. FAILURE TO PERFORM COVENANT OR LIABILITY (NO GRACE PERIOD). . . . . . . 80
10.4. FAILURE TO PERFORM COVENANT OR LIABILITY (GRACE PERIOD) . . . . . . . . 81
10.5. MISREPRESENTATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
10.6. ACCELERATION OF OTHER DEBT. BREACH OF LEASE . . . . . . . . . . . . . . 81
10.7. DEFAULT UNDER OTHER AGREEMENTS. . . . . . . . . . . . . . . . . . . . . 81
10.8. UNINSURED CASUALTY LOSS . . . . . . . . . . . . . . . . . . . . . . . . 82
10.9. JUDGMENT. RESTRAINT OF BUSINESS. . . . . . . . . . . . . . . . . . . . 82
10.10. BUSINESS FAILURE . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
10.11. BANKRUPTCY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
10.12. DEFAULT BY GUARANTOR OR RELATED ENTITY . . . . . . . . . . . . . . . . 83
10.13. INDICTMENT - FORFEITURE. . . . . . . . . . . . . . . . . . . . . . . . 83
10.14. TERMINATION OF GUARANTY. . . . . . . . . . . . . . . . . . . . . . . . 84
10.15. CHALLENGE TO LOAN DOCUMENTS. . . . . . . . . . . . . . . . . . . . . . 84
10.16. EXECUTIVE MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . 84
10.17. CHANGE IN CONTROL. . . . . . . . . . . . . . . . . . . . . . . . . . . 84
ARTICLE 11.- RIGHTS AND REMEDIES UPON DEFAULT: . . . . . . . . . . . . . . . . . . 84
11.1. RIGHTS OF ENFORCEMENT . . . . . . . . . . . . . . . . . . . . . . . . . 85
11.2. SALE OF COLLATERAL. . . . . . . . . . . . . . . . . . . . . . . . . . . 85
11.3. OCCUPATION OF BUSINESS LOCATION . . . . . . . . . . . . . . . . . . . . 86
11.4. GRANT OF NONEXCLUSIVE LICENSE . . . . . . . . . . . . . . . . . . . . . 87
11.5. ASSEMBLY OF COLLATERAL. . . . . . . . . . . . . . . . . . . . . . . . . 87
11.6. RIGHTS AND REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . 87
ARTICLE 12 - NOTICES:. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
12.1. NOTICE ADDRESSES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
12.2. NOTICE GIVEN. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
ARTICLE 13 - TERM: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
13.1. TERMINATION OF REVOLVING CREDIT . . . . . . . . . . . . . . . . . . . . 90
13.2. EFFECT OF TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . 90
ARTICLE 14 - GENERAL:. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
14.1. PROTECTION OF COLLATERAL. . . . . . . . . . . . . . . . . . . . . . . . 90
14.2. SUCCESSORS AND ASSIGNS. . . . . . . . . . . . . . . . . . . . . . . . . 91
14.3. SEVERABILITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
14.4. AMENDMENTS. COURSE OF DEALING. . . . . . . . . . . . . . . . . . . . . 91
14.5. POWER OF ATTORNEY . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
14.6. APPLICATION OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . 92
14.7. LENDER'S COSTS AND EXPENSES . . . . . . . . . . . . . . . . . . . . . . 93
14.8. COPIES AND FACSIMILES . . . . . . . . . . . . . . . . . . . . . . . . . 93
14.9. MASSACHUSETTS LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
14.10. CONSENT TO JURISDICTION. . . . . . . . . . . . . . . . . . . . . . . . 94
June 7, 1999
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14.11. INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
14.12. RULES OF CONSTRUCTION. . . . . . . . . . . . . . . . . . . . . . . . . 95
14.13. INTENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
14.14. RIGHT OF SET-OFF . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
14.15. MAXIMUM INTEREST RATE. . . . . . . . . . . . . . . . . . . . . . . . . 98
14.16. WAIVERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
June 7, 1999
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EXHIBITS
2-7 : Revolving Credit Note
4-2 : Related Entities
4-3 : Trade Names
4-5 : Year 2000 Compliance
4-6 : Locations, Leases, and Landlords
4-7 : Encumbrances
4-8 : Indebtedness
4-9 : Insurance Policies
4-11 : Capital Leases
4-14 : Taxes
4-18 : Litigation
5-4 : Borrowing Base Certificate
5-12(a) : Financial Performance Covenants
5-12(b) : Business Plan
7-1 : DDA's.
7-2 : Credit Card Arrangements
vi
June 7, 1999
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LOAN AND SECURITY AGREEMENT BANKBOSTON RETAIL FINANCE INC.
================================================================================
June 7, 1999
THIS AGREEMENT is made between
BANKBOSTON RETAIL FINANCE INC., a Delaware corporation with
offices at 00 Xxxxx Xxxxxx, Xxxxxx, Xxxxxxxxxxxxx 00000,
and
PAPER WAREHOUSE, INC. and PAPER WAREHOUSE FRANCHISING, INC.
(hereinafter collectively, the "BORROWER"), each a Minnesota corporation with
its principal executive offices at 0000 Xxxxxxxxx Xxxxxxxxx, Xxxxxxxxxxx,
Xxxxxxxxx 00000.
in consideration of the mutual covenants contained herein and benefits to be
derived herefrom,
WITNESSETH:
ARTICLE I - DEFINITIONS:
As herein used, the following terms have the following meanings or are
defined in the section of this Agreement so indicated:
"AGREEMENT": This Loan and Security Agreement dated as of June 7 1999,
between Borrower and Lender, as it may be amended, modified, restated and/ or
supplemented from time to time.
"ACCEPTABLE INVENTORY": Such of the Borrower's Inventory, at such
locations, and of such types, character, qualities and quantities,
as the Lender in its reasonable discretion from time to time
determines to be acceptable for borrowing, as to which Inventory,
the Lender has a perfected security interest which is prior and
1
superior to all security interests, claims, and all Encumbrances
other than Permitted Encumbrances.
"ACCOUNTS" and "ACCOUNTS RECEIVABLE" include, without limitation,
"accounts" as defined in the UCC, and also all: accounts,
accounts receivable, credit card receivables, notes, drafts,
acceptances, and other forms of obligations and receivables and
rights to payment for credit extended and for goods sold or
leased, or services rendered, whether or not yet earned by
performance; all "contract rights" as formerly defined in the UCC;
all Inventory which gave rise thereto, and all rights associated
with such Inventory, including the right of stoppage in transit;
all reclaimed, returned, rejected or repossessed Inventory (if
any) the sale of which gave rise to any Account.
"ACH": Automated clearing house.
"ACCOUNT DEBTOR": Has the meaning given that term in the UCC.
"AFFILIATE": With respect to any two Persons, a relationship in which
(a) 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
(b) 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
(c) not less than Twenty Five Percent (25%) of their respective
ownership is directly or indirectly held by the same third Person.
"AVAILABILITY": Is defined in Section 2-1(b)(i).
2
"AVAILABILITY RESERVES": Such reserves as the Lender from time to time
determines in the Lender's reasonable discretion as being
appropriate to reflect the impediments to the Lender's ability to
realize upon the Collateral. Without limiting the generality of
the foregoing, Availability Reserves may include (but are not
limited to) reserves based on the following:
(i) Rent (based upon past due rent and/or whether or not
Landlord's Waiver, acceptable to the Lender, has
been received by the Lender).
(ii) In store customer credits.
(iii) Gift Certificates.
(iv) Frequent Shopper Programs.
(v) Layaways and Customer Deposits
(vi) Taxes and other governmental charges, including, ad
valorem, personal property, and other taxes which
might have priority over the security interests of
the Lender in the Collateral.
(viii) L/C Landing Costs.
"BANKRUPTCY CODE": Title 11, U.S.C., as amended from time to time.
"BASE": The Base Rate announced from time to time by BankBoston,
N.A. (or any successor in interest to BankBoston, N.A.). In the
event that said bank (or any such successor) ceases to announce
such a rate, "Base" shall refer to that rate or index announced or
published from time to time as the Lender, in good faith,
designates as the functional equivalent to said Base Rate. Any
change in "Base" shall be effective, for purposes of the
calculation of interest due hereunder, when such change is made
effective generally by the bank on whose rate or index "Base" is
being set. In all events, interest which is determined by
reference to Base (or any successor to Base) shall be calculated
on a 360 day year and actual days elapsed.
3
"BASE MARGIN LOAN": Each Revolving Credit Loan while bearing interest at
the Base Margin Rate.
"BASE MARGIN RATE": The aggregate of Base plus Zero percent (0%) per
annum. If the Capital Infusion Event does not occur on or before
September 7, 1999, the Base Margin Rate shall be increased to the
aggregate of Base plus One Half of One percent (.5%) per annum
until such time as the Capital Infusion Event does occur, at which
time the Base Margin Rate shall be reinstated to the aggregate of
Base plus Zero percent (0%) per annum.
"BLOCKED ACCOUNT": Is defined in Section 7-3.
"BORROWER": Is defined in the Preamble.
"BORROWING BASE": Is defined in Section 2-1(b)(ii).
"BUSINESS DAY": Any day (with any references herein to time of day
requirements meaning such times based on Eastern time) other than
(a) a Saturday or Sunday; (b) any day on which banks in Boston,
Massachusetts generally are not open to the general public for the
purpose of conducting commercial banking business; or (c) a day on
which the Lender is not open to the general public to conduct
business.
"BUSINESS PLAN": The Borrower's business plan annexed hereto as
EXHIBIT 5-12(b) and any revision, amendment, or update of such
business plan to which the Lender has provided its written
sign-off.
"CAPITAL EXPENDITURES": The expenditure of funds or the incurrence of
liabilities which may be capitalized in accordance with GAAP.
4
"CAPITAL INFUSION EVENT": A transaction or event which results in at
least $2,000,000 of net cash proceeds available as additional
capital to the Borrowers resulting either from the contribution to
Borrower's capital by its shareholders, the sale of equity
securities of the Borrowers or from indebtedness which has been
subordinated to the Liabilities on terms satisfactory to the
Lender.
"CAPITAL LEASE": Any lease which may be capitalized in accordance
with GAAP.
"CASH FLOW": EBITDA MINUS unfunded Capital Expenditures MINUS
cash taxes.
"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 (in either case other than such a group or Person that
includes the current chief executive officer of the Borrower) 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 Borrower having the right,
under ordinary circumstances, to vote for the election of
directors of the Borrower, unless the current chief executive
officer of the Borrower owns or controls directly or through
voting trusts or agreements (in the case of such capital stock
owned by his family members or by trusts or by other entities
established for their benefit) at least 7% more of the issued and
outstanding capital stock of the Borrower than the issued and
outstanding capital stock of the Borrower acquired by such group
or Person.
(b) More than half of the persons (including the current
chief executive officer) who were directors of the 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 the first day of the month during which this
5
Agreement was executed), cease, for any reason other than death or
disability, to be directors of the Borrower.
"CHATTEL PAPER": Has the meaning given that term in the UCC.
"COLLATERAL": Is defined in Section 8-1.
"COMMITMENT FEE": Is defined in Section 2-10.
"CONCENTRATION ACCOUNT": Is defined in Section 7-3.
"CONTRACTUAL OBLIGATIONS": For any period, the sum (without duplication)
of current maturities of long term debt PLUS interest PLUS current
maturities of capital lease obligations (excluding real property
lease payments) PLUS dividends paid or payable by the Borrower.
"COST": The lower of
(a) the calculated cost of purchases, as determined from
invoices received by the Borrower, the Borrower's purchase journal
or stock ledger, based upon the Borrower's accounting practices,
known to the Lender, which practices are in effect on the date on
which this Agreement was executed; OR
(b) the cost equivalent of the lowest ticketed or
promoted price at which the subject inventory is offered to the
public, after all xxxx-xxxxx (whether or not such price is then
reflected on the Borrower's accounting system), which cost
equivalent is determined in accordance with the cost method of
accounting, reflecting the Borrower's historic business practices.
"Cost" does not include inventory capitalization costs or other
non-purchase price charges (such as freight) used in the Borrower's
calculation of cost of goods sold.
6
"COSTS OF COLLECTION": Includes, without limitation, all attorneys'
reasonable fees and reasonable out-of-pocket expenses incurred by
the Lender's attorneys, and all reasonable costs incurred by the
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 the Lender, which
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 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 Lender's rights and remedies 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). The Costs of Collection are Liabilities, and
at the Lender's option may bear interest at the highest
post-default rate which the Lender may charge the Borrower
hereunder as if such had been lent, advanced, and credited by the
Lender to, or for the benefit of, the Borrower.
"DDA": Any checking or other demand daily depository account maintained
by the Borrower.
"DEPOSIT ACCOUNT": Has the meaning given that term in the UCC.
"DOCUMENTS": Has the meaning given that term in the UCC.
"DOCUMENTS OF TITLE": Has the meaning given that term in the UCC.
"EARLY TERMINATION FEE": Is defined in Section 2-13.
"EBITDA": The Borrower's income from continuing operations before
interest, taxes, depreciation, and amortization, each as
determined in accordance with GAAP.
7
"EMPLOYEE BENEFIT PLAN": As defined in ERISA.
"ENCUMBRANCE": Each of the following:
(a) Any security interest, mortgage, pledge,
hypothecation, lien, attachment, or charge of any kind (including
any agreement to give any of the foregoing); the interest of a
lessor under a Capital Lease; conditional sale or other title
retention agreement; sale of accounts receivable or chattel paper;
or other arrangement pursuant to which any Person is entitled to
any preference or priority with respect to the property or assets
of another Person or the income or profits of such other Person or
which constitutes an interest in property to secure an obligation;
each of the foregoing whether consensual or non-consensual and
whether arising by way of agreement, operation of law, legal
process or otherwise.
(b) The filing of any financing statement under the UCC
or comparable law of any jurisdiction.
"END DATE": The date upon which both (a) all Liabilities have been paid
in full and (b) all obligations of the Lender to make loans and
advances and to provide other financial accommodations to the
Borrower hereunder shall have been irrevocably terminated.
"ENVIRONMENTAL LAWS": All of the following:
(a) Any and all federal, state, local or municipal laws,
rules, orders, regulations, statutes, ordinances, codes, decrees
or requirements which regulate or relate to, or impose 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.
8
"EQUIPMENT": Includes, without limitation, "equipment" as defined in
the UCC, and also all motor vehicles, rolling stock, machinery,
office equipment, plant equipment, tools, dies, molds, store
fixtures, furniture, and other goods, property, and assets
which are used and/or were purchased for use in the operation
or furtherance of the Borrower's business, and any and all
accessions or additions thereto, and substitutions therefor.
"ERISA": The Employee Retirement Security Act of 1974, as amended.
"ERISA AFFILIATE": Any Person which is under common control with the
Borrower within the meaning of Section 4001 of ERISA or is part of
a group which includes the 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 10.
"FACILITY FEE": Is defined in Section 2-11.
"FIXTURES": Has the meaning given that term in the UCC.
"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, PROVIDED, HOWEVER, in the event of a Material Accounting
Change, then unless otherwise specifically agreed to by the
Lender, (a) the Borrower's compliance with the financial
performance covenants imposed pursuant to Section 5-12 shall be
determined as if such Material Accounting Change had not taken
place and (b) the Borrower shall include, with its monthly and
annual
9
financial statements a schedule, certified by the Borrower's
chief financial officer, on which the effect of such Material
Accounting Change to the statements shall be described.
"GENERAL INTANGIBLES": Includes, without limitation, "general
intangibles" as defined in the UCC; and also all: rights to
payment for credit extended; deposits; amounts due to the
Borrower; credit memoranda in favor of the Borrower; warranty
claims; tax refunds and abatements; insurance refunds and premium
rebates; all means and vehicles of investment or hedging,
including, without limitation, options, warrants, and futures
contracts; records; customer lists; telephone numbers; goodwill;
causes of action; judgments; payments under any settlement or
other agreement; literary rights; rights to performance;
royalties; license and/or franchise fees; rights of admission;
licenses; franchises; license agreements, including all rights of
the Borrower to enforce same; permits, certificates of convenience
and necessity, and similar rights granted by any governmental
authority; patents, patent applications, patents pending, and
other intellectual property; internet addresses and domain names;
developmental ideas and concepts; proprietary processes;
blueprints, drawings, designs, diagrams, plans, reports, and
charts; catalogs; manuals; technical data; computer software
programs (including the source and object codes therefor),
computer records, computer software, rights of access to computer
record service bureaus, service bureau computer contracts, and
computer data; tapes, disks, semi-conductors chips and printouts;
trade secrets rights, copyrights, mask work rights and interests,
and derivative works and interests; user, technical reference, and
other manuals and materials; trade names, trademarks, service
marks, and all goodwill relating thereto; applications for
registration of the foregoing; and all other general intangible
property of the Borrower in the nature of intellectual property;
proposals; cost estimates, and reproductions on paper, or
otherwise, of any and all concepts or ideas, and any matter
related to, or connected with, the design, development,
manufacture, sale, marketing, leasing, or use of any
10
or all property produced, sold or leased, by the Borrower or
credit extended or services performed, by the Borrower, whether
intended for an individual customer or the general business of
the Borrower, or used or useful in connection with research by
the Borrower.
"GOODS": Has the meaning given that term in the UCC.
"GROSS MARGIN": With respect to the subject accounting period for
which being calculated, the decimal equivalent of the following
(determined in accordance with the cost method of accounting):
SALES (MINUS) COST OF GOODS SOLD
--------------------------------
Sales
"HAZARDOUS MATERIALS": Any (a) hazardous materials, hazardous waste,
hazardous or toxic substances, petroleum products, which (as to
any of the foregoing) are defined or regulated as a hazardous
material in or under any Environmental Law and (b) oil in any
physical state.
"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 an Encumbrance 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).
11
(c) In connection with the sale or discount of accounts
receivable or chattel paper of such Person.
(d) On account of deposits or advances.
(e) As lessee under Capital Leases.
"Indebtedness" also includes:
(x) Indebtedness of others secured by an
Encumbrance 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 in which such Person is a general partner or joint
venturer.
"INDEMNIFIED PERSON": Is defined in Section 14-11.
"INSTRUMENTS": Has the meaning given that term in the UCC.
"INTEREST PAYMENT DATE": With Reference to:
Each Base Margin Loans: the first day of each month, the
Termination Date, and the End Date,
Each Libor Loan: the last day of the Interest Period relating
thereto; the Termination Date and the End Date.
"INTEREST PERIOD": (a) With respect to each Libor Loan: Subject to
Subsection (c), below, the period commencing on the date of the
making or continuation of, or conversion to, the subject Libor
Loan and ending 30 days thereafter.
(b) With respect to each Base Margin Loan:
Subject to Subsection (c), below, the period commencing on the
date of the making or
12
continuation of or conversion to such Base Margin Loan and
ending on that date (i) as of which the subject Base Margin
Loan is converted to a Libor Loan, as the Borrower may elect by
notice (pursuant to Section 2-4(a)) to the Lender, or (ii) on
which the subject Base Margin Loan is paid by the Borrower.
(c) The setting of Interest Periods is in all
instances subject to the following:
(i) Any Interest Period for a Base Margin
Loan which would otherwise end on a day which is not
a Business Day shall be extended to the next
succeeding Business Day.
(ii) Any Interest Period for a Libor Loan
which would otherwise end on a day that is not a
Libor Business Day shall be extended to the next
succeeding Libor Business Day, unless that
succeeding Libor Business Day is in the next
calendar month, in which event such Interest Period
shall end on the last Libor Business Day of the
month during which the Interest Period ends.
(iii) Subject to Subsection (iv), below, any
Interest Period applicable to a Libor Loan, which
Interest Period begins on a day for which there is
no numerically corresponding day in the calendar
month during which such Interest Period ends, shall
end on the last Libor Business Day of the month
during which that Interest Period ends.
(iv) Any Interest Period which would
otherwise end after the Termination Date shall end
on the Termination Date.
(v) The number of Interest Periods in
effect at any one time is subject to Section 2-9(d)
hereof.
"INVENTORY": Includes, without limitation, "inventory" as defined in the
UCC and also all: packaging, advertising, and shipping materials
related to any of the foregoing, and all names or marks affixed or
to be affixed thereto for identifying or selling the
13
same; Goods held for sale or lease or furnished or to be
furnished under a contract or contracts of sale or service by
the Borrower, or used or consumed or to be used or consumed in
the Borrower's business; Goods of said description in transit:
returned, repossessed and rejected Goods of said description;
and all documents (whether or not negotiable) which represent
any of the foregoing.
"INVENTORY ADVANCE RATE": The following percentage of the Cost of
Acceptable Inventory (including the Cost of Inventory covered by
open import trade L/C's which have an expiry date within 60 days,
provided such L/C Inventory is scheduled for delivery within 60
days) during the period indicated:
DECEMBER 16TH THROUGH SEPTEMBER 30TH : 45%
OCTOBER 1ST THROUGH DECEMBER 15TH : 55%
"INVENTORY RESERVES": Such Reserves as may be established from time
to time by the Lender in the Lender's reasonable discretion with
respect to the determination of the saleability, at retail, of the
Acceptable Inventory or which reflect such other factors as affect
the market value of the Acceptable Inventory. Without limiting
the generality of the foregoing, Inventory Reserves may include
(but are not limited to) reserves based on the following:
(i) Obsolescence (determined 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) Seasonal Pack Aways
14
"INVESTMENT PROPERTY": Has the meaning given that term in the UCC.
"ISSUER": The issuer of any L/C.
"L/C": Any letter of credit, the issuance of which is procured by the
Lender for the account of the Borrower and any acceptance made on
account of such letter of credit.
"L/C LANDING COSTS": To the extent not included in the Stated Amount of
an L/C, customs, duty, freight, and other out-of-pocket costs and
expenses which will be expended to "land" the Inventory, the
purchase of which is supported by such L/C.
"LEASE": Any lease or other agreement, no matter how styled or
structured, pursuant to which the Borrower is entitled to the use
or occupancy of any space.
"LEASEHOLD INTEREST": Any interest of the Borrower as lessee under
any Lease.
"LENDER": Is defined in the Preamble to the within Agreement.
"LENDER'S RIGHTS AND REMEDIES": Is defined in Section 11-6.
"LIABILITIES" (in the singular, "LIABILITY"): Includes, without
limitation, all and each of the following, whether now existing or
hereafter arising:
(a) Any and all direct and indirect liabilities, debts,
and obligations of the Borrower to the Lender, each of every kind,
nature, and description.
(b) Each obligation to repay any loan, advance,
indebtedness, note, obligation, overdraft, or amount now or
hereafter owing by the Borrower to the Lender (including all
future advances whether or not made pursuant to a
15
commitment by 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 the Borrower.
(c) All notes and other obligations of the Borrower now
or hereafter assigned to or held by the Lender, each of every
kind, nature, and description.
(d) All interest, fees, and charges and other amounts
which may be properly charged by the Lender to the Borrower and/or
which may be due from the Borrower to the Lender from time to
time.
(e) All costs and expenses incurred or paid by the
Lender in respect of any agreement between the Borrower and the
Lender or instrument furnished by the Borrower to the Lender
(including, without limitation, Costs of Collection, attorneys'
reasonable fees, and all court and litigation costs and expenses).
(f) Any and all covenants of the Borrower to or with the
Lender and any and all obligations of the Borrower to act or to
refrain from acting in accordance with any agreement between the
Borrower and the Lender or instrument furnished by the Borrower to
the Lender.
(g) Each of the foregoing as if each reference to the "
Lender " therein were to each Affiliate of the Lender.
"LIBOR BUSINESS DAY": Any day which is both a Business Day and a
day on which the principal interbank market for Libor deposits in
London in which BankBoston, N.A. participates is open for dealings
in United States Dollar deposits.
"LIBOR LOAN": Any Revolving Credit Loan which bears interest at a Libor
Rate.
"LIBOR OFFER RATE": That rate of interest (rounded upwards, if
necessary, to the next 1/100 of 1%) determined by the Lender to be
the highest prevailing rate per annum at which deposits on U.S.
Dollars are offered to BankBoston, N.A., by first-class
16
banks in the London interbank market in which BankBoston, N.A.
participates at or about 10:00AM (Boston Time) Two (2) Libor
Business Days before the first day of the Interest Period for
the subject Libor Loan, for a deposit approximately in the
amount of the subject loan for a period of time approximately
equal to such Interest Period.
"LIBOR MARGIN": 250 basis points. If the Capital Infusion Event
does not occur on or before September 7, 1999, the Libor Margin
shall be increased to 325 basis points until such time as the
Capital Infusion Event does occur, at which time the Libor Margin
shall be reinstated to 250 basis points.
"LIBOR RATE": That per annum rate (calculated on a 360 day year and
actual days elapsed) which is the aggregate of the Libor Offer
Rate PLUS the Libor Margin EXCEPT THAT, in the event that it is
determined by the Lender that the Lender may be subject to the
Reserve Percentage, the "Libor Rate" shall mean, with respect to
any Libor Loans then outstanding (from the date on which that
Reserve Percentage first became applicable to such loans), and
with respect to all Libor Loans thereafter made, an interest rate
per annum equal to the sum of (a) plus (b), where:
(a) is the decimal equivalent of the following
fraction:
LIBOR OFFER RATE
1 minus Reserve Percentage
(b) is the applicable Libor Margin.
"LINE (UNUSED) FEE": Is defined in Section 2-12.
"LOAN ACCOUNT": Is defined in Section 2-6.
"LOAN CEILING": Fifteen Million Dollars ($15,000,000), or such
lesser amount as the Lender may establish following the occurrence
of an Event of Default hereunder.
17
"LOAN DOCUMENTS": This Agreement, each instrument and document
executed and/or delivered as contemplated by Article 3, 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, including, without limitation, any
transaction which arises out of any cash management, depository,
investment, letter of credit, interest rate protection, or
equipment leasing services provided by the Lender or any Affiliate
of the Lender, as each may be amended from time to time.
"LOCAL DDA": A depository account maintained by the Borrower, the only
contents of which may be transfers FROM the Operating Account and
actually used solely (i) for xxxxx cash purposes; (ii) for
payroll; or (iii) for medical insurance self funding.
"MATERIAL ACCOUNTING CHANGE": Any change in GAAP applicable to
accounting periods subsequent to the Borrower's fiscal year most
recently completed prior to the execution of this Agreement, which
change has a material effect on the Borrower's financial condition
or operating results, as reflected on financial statements and
reports prepared by or for the Borrower, when compared with such
condition or results as if such change had not taken place or
where preparation of the Borrower's statements and reports in
compliance with such change results in the breach of a financial
performance covenant imposed pursuant to Section 5-12 where such a
breach would not have occurred if such change had not taken place
or VISA VERSA.
"MATURITY DATE": June __, 2002.
"OPERATING ACCOUNT": Is defined in Section 7-3.
18
"PARTICIPANT": Is defined in Section 14-14, hereof.
"PERMITTED ENCUMBRANCES": Those Encumbrances permitted as provided in
Section 4-7(a) hereof.
"PERMITTED ACQUISITION": means a transaction where the Borrower is a
party to a merger, consolidation or exchange of stock, or purchase
or otherwise acquires all or substantially all of the assets or
stock of, or any partnership or joint venture interest in, any
other Person, and where such transaction meets the following
criteria:.
(a) no Suspension Event has occurred and is continuing and the
proposed transaction will not otherwise create an Event of Default
hereunder;
(b) the business to be acquired is consistent with Borrower's
current line of business and with the Business Plan;
(c) the business to be acquired operates in the United States
of America;
(d) in the case of an asset acquisition, all of the assets to
be acquired shall be owned by the Borrower or a newly created
Subsidiary of the Borrower, 100% of the stock of which has been or
will be pledged to the Lender or which is or will become a
Borrower or a guarantor, in the case of a stock acquisition or an
acquisition by merger, the acquired company shall become a wholly
owned subsidiary of the Borrower or shall be merged with the
Borrower or any wholly-owned Subsidiary of the Borrower;
(e) the aggregate cash consideration to be paid by the
Borrower in connection with any such transaction or
transactions(including the aggregate amount of all Indebtedness
assumed) shall be primarily for inventory purchases and
19
shall not exceed $250,000 in the aggregate in any fiscal year
without the consent of the Lender, which consent shall not be
unreasonably withheld;
(f) the transaction shall be preceded by the standard due
diligence practices of the Borrower;
(g) the board of directors and (if required by applicable
law) the stockholders, or the equivalent thereof, of the business
to be acquired has approved such acquisition; and
(h) in the case of transactions where the cash consideration
(including assumed Indebtedness) exceeds $250,000 but is not more
than $1,000,000, a Capital Infusion Event pursuant to which the
Borrower has received at least $4,000,000 shall have first
occurred, and the Lender shall have been provided with (i) a
Compliance Certificate demonstrating that the Borrowers are in
current compliance with and, giving effect to the proposed
Acquisition (including any borrowings made or to be made in
connection therewith), will continue to be in compliance with, all
of the financial covenants set forth in Section 5-12 hereof, (ii)
a copy of the purchase agreement, together with audited (if
available, or otherwise unaudited) financial statements for any
business to be acquired for the preceding two (2) fiscal years,
and (iii) a summary of the results of the Borrower's due diligence
investigations.
"PERSON": Any natural person, and any corporation, limited liability
company, trust, partnership, joint venture, or other enterprise or
entity.
"PROCEEDS": Includes, without limitation, "Proceeds" as defined in the
UCC (defined below), and each type of property described in
Section 8-1 hereof.
20
"RECEIPTS": All cash, cash equivalents, checks, and credit card slips
and receipts as arise out of the sale of the Collateral.
"RECEIVABLES COLLATERAL": That portion of the Collateral which consists
of the Borrower's Accounts, Accounts Receivable, General
Intangibles, Chattel Paper, Instruments, Documents of Title,
Documents, Investment Property, letters of credit for the benefit
of the Borrower, and bankers' acceptances held by the Borrower,
and any rights to payment.
"RELATED ENTITY": (a) Any corporation, limited liability company,
trust, partnership, joint venture, or other enterprise which: is a
parent, brother-sister, subsidiary, or affiliate, of the Borrower;
could have such enterprise's tax returns or financial statements
consolidated with the 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 the Borrower is a member;
controls or is controlled by the Borrower or by any Affiliate of
the Borrower.
(b) Any Affiliate.
"REQUIREMENT OF LAW": As to any Person:
(a)(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.
(b) That Person's charter, certificate of
incorporation, articles of organization, and/or other
organizational documents, as applicable; and (c) that
21
Person's by-laws and/or other instruments which deal with
corporate or similar governance, as applicable.
"RESERVE PERCENTAGE": The decimal equivalent of that rate
applicable to the Lender under regulations issued from time to time by the Board
of Governors of the Federal Reserve System for determining the maximum reserve
requirement of that Lender with respect to "Eurocurrency liabilities" as defined
in such regulations. The Reserve Percentage applicable to a particular Libor
Loan shall be based upon that in effect during the subject Interest Period, with
changes in the Reserve Percentage which take effect during such Interest Period
to take effect (and to consequently change any interest rate determined with
reference to the Reserve Percentage) if and when such change is applicable to
such loans.
"RESERVES": All (if any) Availability Reserves and Inventory Reserves.
"REVOLVING CREDIT": Is defined in Section 2-1.
"REVOLVING CREDIT LOAN": A term of convenience which refers to so much
of the unpaid principal balance of the Loan Account as bears the
same rate of interest for the same Interest Period (see Section
2-9(c)).
"REVOLVING CREDIT NOTE": Is defined in Section 2-7.
"STATED AMOUNT": The maximum amount for which an L/C may be honored.
"SUBORDINATED INDEBTEDNESS": Indebtedness which is expressly subordinated
to the Borrower's obligations to the Lender pursuant to a written
subordination agreement acceptable to Lender in its reasonable
discretion.
22
"SUSPENSION EVENT": Any occurrence, circumstance, or state of facts
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.
"TANGIBLE CAPITAL BASE": At any date, the Borrower's Tangible Net Worth
PLUS its Subordinated Indebtedness.
"TANGIBLE NET WORTH": At any date, the total of stockholders' equity of
the Borrower (determined in accordance with GAAP, consistently
applied, except the balance of the Loan Account shall in all
events be treated as current), SUBTRACTING THEREFROM (i)
intangibles (determined in accordance with GAAP so applied); (ii)
prepaid expenses and deferred charges, (iii) Indebtedness owed to
Borrower from any employee, stockholder, or parent or other
Affiliate of the Borrower; and (iv) write-ups in the value of
Borrower's assets occurring after January 31, 1999, but excluding
adjustments for write-ups to reflect physical inventory results.
"TERMINATION DATE": The earliest of (a) the Maturity Date; or (b) the
occurence of any event described in Section 10-11 hereof; or (c)
date set by notice by the Lender to the Borrower, which notice
sets the Termination Date on account of the occurrence of any
Event of Default other than as described in Section 10-11 hereof.
"UCC": The Uniform Commercial Code as presently in effect in
Massachusetts (Mass. Gen. Laws, Ch. 106).
"WORK FEE": As defined in Section 2.11.
23
"YEAR 2000 COMPLIANT": Computer applications, imbedded microchips,
and other systems and subsystems which properly recognize and
perform their intended function without any adverse effect on
account of their respective inability to recognize certain dates
prior to, on, and after December 31, 1999 or on account of their
treating any date prior to, on, or after December 31, 1999 other
than as the specific date in question.
ARTICLE II - THE REVOLVING CREDIT:
2.1 ESTABLISHMENT OF REVOLVING CREDIT.
(a) The Lender hereby establishes a revolving line of credit
(the "REVOLVING CREDIT") in the Borrower's favor pursuant to which the Lender,
subject to, and in accordance with, this Agreement, shall make loans and
advances and otherwise provide financial accommodations to and for the account
of the Borrower as provided herein. The amount available for borrowing under
the Revolving Credit shall be determined by the Lender by reference to
Availability, as determined by the Lender from time to time.
(b) As used herein, the following terms have the following
meanings:
(i) "AVAILABILITY" refers at any time to the result of
the following:
(A) Borrowing Base.
MINUS
(B) The then unpaid principal balance of the Loan
Account.
MINUS
(C) The then Stated Amount of all L/C's.
(ii) "BORROWING BASE" refers at any time to the lesser of
2-1(b)(ii)(A) or 2-1(b)(ii)(B), where:
(A) is the Loan Ceiling.
(B) is the result of the following:
(I) The Inventory Advance Rate of the Cost
of Acceptable Inventory (net of
Inventory Reserves).
MINUS
24
(II) The then aggregate of the Availability
Reserves.
(c) Availability shall be based upon Borrowing Base
Certificates furnished as provided in Section 5-4 hereof.
(d) The proceeds of borrowings under the Revolving Credit shall
be used to refinance Borrower's existing line of credit with Richfield Bank and
Trust, for working capital purposes of the Borrower, for the Borrower's Capital
Expenditures solely in accordance with the Business Plan (including the
acquisition of franchisee stores, if consistent with the Business Plan and
provided that such acquisitions do not exceed in the aggregate the maximum
amount for Permitted Acquisitions), and for start-up costs associated with the
Borrower's internet strategy, provided that matching funds are available from
other sources, all solely to the extent permitted by this Agreement.
2.2 ADVANCES IN EXCESS OF BORROWING BASE. The Lender does not have
any obligation to make any loan or advance, or otherwise to provide any credit
for the benefit of the Borrower such that the balance of the Loan Account
exceeds the Borrowing Base. The making of loans, advances, and credits and the
providing of financial accommodations in excess of the Borrowing Base is for the
benefit of the Borrower and does not affect the obligations of the Borrower
hereunder; such loans, advances, credits, and financial accommodations
constitute Liabilities. The making of any such loans, advances, and credits and
the providing of financial accommodations, on any one occasion such that the
Borrowing Base is exceeded shall not obligate the Lender to make any such loans,
credits, or advances or to provide any financial accommodation on any other
occasion nor to permit such loans, credits, or advances to remain outstanding.
2.3 RISKS OF VALUE OF COLLATERAL. The Lender's reference to a
given asset in connection with the making of loans, credits, and advances and
the providing of financial accommodations under the Revolving Credit and/or the
monitoring of compliance with the provisions hereof shall not be deemed a
determination by the Lender relative to the actual value of the asset in
question. All risks concerning the saleability of the Borrower's Inventory are
and remain upon the Borrower. All Collateral secures the prompt, punctual, and
faithful performance
25
of the Liabilities whether or not relied upon by the Lender in connection
with the making of loans, credits, and advances and the providing of
financial accommodations under the Revolving Credit.
2.4 LOAN REQUESTS.
(a) Subject to the provisions of this Agreement, a loan or
advance under the Revolving Credit duly and timely requested by the Borrower
shall be made pursuant hereto, PROVIDED THAT:
(i) Borrowing Base will not be exceeded; and
(ii) The Revolving Credit has not been suspended as
provided in Section 2-4(i).
(b) Requests for loans and advances under the Revolving Credit
may be requested by the Borrower in such manner as may from time to time be
reasonably acceptable to the Lender.
(c) Subject to provisions of this Agreement, a request
for a loan or advance (in each instance in an amount which is not less
than $10,000.00) shall be made by 11:30AM on a Business Day will be made
by the end of business on that Business Day; otherwise, by the end of the
then next Business Day. (i) If such Revolving Credit Loan is or is to be
converted to a Base Margin Loan: By 11:30 A.M. on the Business Day on
which the subject Revolving Credit Loan is to be made or is to be so
converted. Base Margin Loans requested by the Borrower, other than those
resulting from the conversion of a Libor Loan, shall not be less than
$10,000.00.
(ii) If such Revolving Credit Loan is, or is to be
continued as, or converted to, a Libor Loan: By 1:00 P.M. Two (2) Libor
Business Days before the end of the then applicable Interest Period.
Libor Loans and conversions to Libor Loans shall each be not less than
$1,000,000 and in increments of $50,000 in excess of such minimum.
(iii) Any Libor Loan which matures while a Suspension
Event is extant shall be converted, at the option of the Lender to a Base
Margin Loan notwithstanding any notice from the Borrower that such Loan
is to be continued as a Libor Loan.
26
(d) Any request for a Revolving Credit Loan or for the
conversion of a Revolving Credit Loan which is made after the applicable
deadline therefor, as set forth above, shall be deemed to have been made at the
opening of business on the then next Business Day or Libor Business Day, as
applicable. Each request for a Revolving Credit Loan or for the conversion of a
Revolving Credit Loan shall be made in such manner as may from time to time be
reasonably acceptable to the Lender.
(e) Intentionally deleted.
(f) The Borrower may request that the Lender cause the issuance
of L/C's for the account of the Borrower as provided in Section 2-16.
(g) The Lender may rely on any request for a loan or advance,
or other financial accommodation under the Revolving Credit which the Lender, in
good faith, believes to have been made by a Person duly authorized to act on
behalf of the Borrower and may decline to make any such requested loan or
advance, or issuance, or to provide any such financial accommodation pending the
Lender's being furnished with such documentation concerning that Person's
authority to act as may be reasonably satisfactory to the Lender.
(h) A request by the Borrower for loan or advance, or other
financial accommodation under the Revolving Credit shall be irrevocable and
shall constitute certification by the Borrower that as of the date of such
request, each of the following is true and correct:
(i) There has been no material adverse change in the
Borrower's financial condition from the most recent financial information
furnished Lender pursuant to this Agreement.
(ii) The Borrower is in compliance with, and there is no
pending breach of any of, its covenants contained in this Agreement.
(iii) All or a portion of any loan or advance so requested
will be set aside by the Borrower to the extent necessary to cover all of
the Borrower's obligations for sales tax on account of sales since the
then most recent borrowing pursuant to the Revolving Credit.
27
(iv) Each representation which is made herein or in any
of the Loan Documents (defined below) is then true and complete as of and
as if made on the date of such request.
(v) No Suspension Event is then extant.
(i) Upon the occurrence and during the continuance of, from
time to time, of any Suspension Event:
(i) The Lender may suspend the Revolving Credit
immediately.
(ii) The Lender shall not be obligated, during such
suspension, to make any loans or advance, or to provide any financial
accommodation hereunder or to seek the issuance of any L/C.
(iii) The Lender may suspend the right of the Borrower to
request any Libor Loan or to convert any Base Margin Loan to a Libor
Loan.
2.5 MAKING OF LOANS UNDER REVOLVING CREDIT.
(a) A loan or advance under the Revolving Credit shall be made
by the transfer of the proceeds of such loan or advance to the Operating Account
or as otherwise instructed by the Borrower.
(b) A loan or advance shall be deemed to have been made under
the Revolving Credit (and the Borrower shall be indebted to the Lender for the
amount thereof immediately) at the following:
(i) The Lender's initiation of the transfer of the
proceeds of such loan or advance in accordance with the Borrower's
instructions (if such loan or advance is of funds requested by the
Borrower).
(ii) The charging of the amount of such loan to the Loan
Account (in all other circumstances).
(c) There shall not be any recourse to or liability of the
Lender (except to the extent caused by the gross negligence or willful
misconduct of the Lender as determined by a court of competent jurisdiction), on
account of:
28
(i) Any delay in the making of any loan or advance
requested under the Revolving Credit.
(ii) Any delay in the proceeds of any such loan or
advance constituting collected funds.
(iii) Any delay in the receipt, and/or any loss, of funds
which constitute a loan or advance under the Revolving Credit, the wire
transfer of which was properly initiated by the Lender in accordance with
wire instructions provided to the Lender by the Borrower.
2.6 THE LOAN ACCOUNT.
(a) An account ("LOAN ACCOUNT") shall be opened on the books of
the Lender. A record may be kept in the Loan Account of all loans made under or
pursuant to this Agreement and of all payments thereon.
(b) The Lender may 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 the
Lender on account of the Liabilities and of all credits against such amounts so
owed.
(c) All credits against the Liabilities shall be conditional
upon final payment to the Lender of the items giving rise to such credits. The
amount of any item credited against the Liabilities which is charged back
against the Lender for any reason or is not so paid shall be a Liability and
shall be added to the Loan Account, whether or not the item so charged back or
not so paid is returned.
(d) Except as otherwise provided herein, all fees, service
charges, costs, and expenses for which the Borrower is obligated hereunder are
payable on demand. In the determination of Availability, the Lender may deem
fees, service charges, accrued interest, and other payments which will be due
and payable between the date of such determination and the first day of the then
next succeeding month as having been advanced under the Revolving Credit whether
or not such amounts are then due and payable.
29
(e) The Lender, without the request of the Borrower, may
advance under the Revolving Credit any interest, fee, service charge, or other
payment to which the Lender is entitled from the Borrower pursuant hereto and
may charge the same to the Loan Account notwithstanding that such amount so
advanced may result in Borrowing Base's being exceeded. Such action on the part
of the Lender shall not constitute a waiver of the Lender's rights and
Borrower's obligations under Section 2-8(b). Any amount which is added to the
principal balance of the Loan Account as provided in this Section 2-6(e) shall
bear interest.
(f) Any statement rendered by the Lender to the Borrower
concerning the Liabilities shall be considered correct and accepted by the
Borrower and shall be conclusively binding upon the Borrower unless the 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.
2.7 THE REVOLVING CREDIT NOTE. The obligation to repay loans and
advances under the Revolving Credit, with interest as provided herein, shall be
evidenced by a note (the "REVOLVING CREDIT NOTE") in the form of EXHIBIT 2-7,
annexed hereto, executed by the Borrower. Neither the original nor a copy of
the Revolving Credit Note shall be required, however, to establish or prove any
Liability. In the event that the Revolving Credit Note is ever lost, mutilated,
or destroyed, the Borrower shall execute a replacement thereof and deliver such
replacement to the Lender, subject to Lender's agreement to indemnify Borrower
from any claims asserted by any party holding the original Revolving Credit Note
who is not the Lender or the Lender's assignee.
2.8 PAYMENT OF THE LOAN ACCOUNT.
(a) The Borrower may repay all or any portion of the principal
balance of the Loan Account from time to time until the Termination Date. Such
payments shall be applied first to Base Margin Loans and only then to Libor
Loans
30
(b) The Borrower, without notice or demand from the Lender
shall pay the Lender that amount, from time to time, which is necessary so that
the unpaid balance of the Loan Account does not exceed the Borrowing Base. Such
payments shall be applied first to Base Margin Loans and only then to Libor
Loans
(c) The Lender shall endeavor to cause those application of
payments (if any), pursuant to Sections 2-8(a) and 2-8(b) against Libor Loans
then outstanding in such manner as results in the least cost to the Borrower,
but shall not have any affirmative obligation to do so nor liability on account
of the Lender's failure to have done so. In no event shall action or inaction
taken by the Lender excuse the Borrower from any indemnification obligation
under Section 2-8(e).
(d) The Borrower shall repay the then entire unpaid balance of
the Loan Account and all other Liabilities on the Termination Date.
(e) The Borrower shall indemnify Lender and hold Lender
harmless from and against any loss, cost or expense (including loss of
anticipated profits) which Lender may sustain or incur (including, without
limitation, by virtue of acceleration after the occurrence of any Event of
Default) as a consequence of the following:
(i) Default by the Borrower in payment of the principal
amount of or any interest on any Libor Loan as and when due and payable,
including any such loss or expense arising from interest or fees payable
by such Lender to lenders of funds obtained by it in order to maintain
its Libor Loans
(ii) Default by the Borrower in making a borrowing or
conversion after the Borrower has given (or is deemed to have given) a
request for a Revolving Credit Loan or a request to convert a Revolving
Credit Loan from one applicable interest rate to another.
(iii) The making of any payment on a Libor Loan or the
making of any conversion of any such Loan to a Base Margin Loan on a day
that is not the last day of the applicable Interest Period with respect
thereto, including interest or fees payable by Lender to lenders of funds
obtained by it in order to maintain any such Loans as "breakage fees"
(so-called).
2.9 INTEREST.
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(a) Each Revolving Credit Loan shall bear interest at the Base
Margin Rate unless timely notice is given (as provided in Section 2-4(a)) that
the subject Revolving Credit Loan (or a portion thereof) is, or is to be
converted to, a Libor Loan.
(b) Each Revolving Credit Loan which consists of a Libor Loan
shall bear interest at the applicable Libor Rate.
(c) Subject to the provisions hereof, the Borrower, by notice
to the Lender, may cause all or a part of the unpaid principal balance of the
Loan Account to bear interest at the Base Margin Rate or the Libor Rate as
specified from time to time by the Borrower. For ease of reference and
administration, each part of the Loan Account which bears interest at the same
interest and for the same Interest Period is referred to herein as if it were a
separate "Revolving Credit Loan".
(d) The Borrower shall not select, renew, or convert any
interest rate for a Revolving Credit Loan such that, in addition to interest at
the Base Margin Rate, there are more than Five (5) Libor Rates applicable to the
Revolving Credit Loans at any one time.
(e) The Borrower shall pay accrued and unpaid interest on each
Revolving Credit Loan in arrears as follows:
(i) On the Interest Payment Date for that Revolving
Credit Loan.
(ii) On the Termination Date and on the End Date.
(iii) Following the occurrence and during the continuance
of any Event of Default, with such frequency as may be determined by the
Lender.
(f) Following the occurrence and during the continuance of any
Event of Default (and whether or not the Lender exercises the Lender's rights on
account thereof), all Revolving Credit Loans shall bear interest, at the option
of the Lender at rate which is the aggregate of the Base Margin Rate PLUS Three
Percent (3%) per annum.
2.10 COMMITMENT FEE.
(a) As compensation for the Lender's commitment to make loans
and advances to the Borrower and as compensation for the Lender's maintenance of
sufficient funds available for such purpose, the Lender has earned a COMMITMENT
FEE (so referred to herein) of $130,000.
32
(b) The Commitment Fee shall be paid as follows: The Lender
acknowledges receipt of $65,000 paid by the Borrower upon the execution of the
commitment letter. The Borrower shall pay the $65,000 balance of the Commitment
Fee at closing.
2.11. FACILITY FEE.
(a) In addition to any other fee or expense paid by the
Borrower on account of the Revolving Credit, the Borrower shall pay the Lender a
FACILITY FEE (so referred to herein) of $54,000, which has been fully earned by
the Lender's execution of this Agreement. Subject to this Section 2-11, the
Facility Fee shall be paid to the Lender in monthly installments of $1,500 each.
(i) A proration of such monthly installment shall be
paid out of the first advance under the Revolving Credit for the period
beginning with the date on which this Agreement is executed and ending on
the last day of the month of such execution.
(ii) A monthly installment shall be paid on the first day
of the month next following that during which this Agreement is executed
and on the first day of each month thereafter, until the entire Facility
Fee has been paid.
(b) Upon the termination of the Revolving Credit and, at the
Lender's option, upon the occurrence of any Event of Default described in
Section 10-11, any remaining installments of the Facility Fee shall be
immediately due and payable.
2.12. LINE (UNUSED) FEE. In addition to any other fee by the
Borrower on account of the Revolving Credit, the Borrower shall pay the Lender a
LINE (UNUSED) FEE (so referred to herein) in arrears, on the first day of each
quarter (and on the Termination Date). The Line (Unused) Fee shall be equal to
fifteen tenths of one percent (0.15%) per annum of the average daily difference,
during the quarter just ended (or relevant period with respect to the payment
being made on the Termination Date) between the Loan Ceiling and the unpaid
principal balance of the Loan Account.
2.13. EARLY TERMINATION FEE.
(a) In the event that the Termination Date occurs, for any
reason (other than by reason of a refinancing or restructuring of the Revolving
Credit by Lender or an affiliate of
33
Lender or in a syndicated transaction where Lender or an affiliate of Lender
is the Agent or Co-Agent) prior to the Maturity Date, the Borrower shall pay
the Lender the EARLY TERMINATION FEE (so referred to herein) determined and
payable as follows:
(i) If the Termination Date occurs on or before
June 7, 2000, the Borrower shall pay an Early Termination Fee of one percent
(1%) of the Loan Ceiling. June 7, 2001, the Borrower shall pay an Early
Termination Fee of one half of one percent (0.5%) of the Loan Ceiling.
2.14. CONCERNING FEES.
(a) In addition to any other right to which the Lender is then
entitled on account thereof, the Lender may assess an additional fee payable by
the Borrower on account of the accommodation, from time to time, by the Lender
to the Borrower's request that the Lender depart or dispense with one or more of
the administrative provisions of this Agreement and/or the Borrower's failure to
comply with any of such provisions.
(i) By way of non-exclusive example, the Lender may
assess a fee on account of any of the following:
(A) The Borrower's failure to pay that amount
which is necessary so that the principal balance of the Loan
Account does not exceed Borrowing Base (as required under Section
2-8(b) hereof).
(B) The providing of a loan or advance under the
Revolving Credit or charging of the Loan Account such that the
Borrowing Base would be exceeded.
(C) The foreshortening of any of the time frames
with respect to the making of Revolving Credit Loans as set forth
in Section 2-4(a).
(D) The Borrower's failure to provide a financial
statement or report within the applicable timeframe provided for
such report under Article 5 hereof.
(ii) The inclusion of the foregoing right on the part of
the Lender to assess a fee does not constitute an obligation, on the part
of the Lender, to waive any
34
provision of this Agreement under any circumstances. The assessment of
any such fee in any particular circumstance shall not constitute the
Lender's waiver of any breach of this Agreement on account of which such
fee was assessed nor a course of action on which the Borrower may rely.
(b) The Borrower shall not be entitled to any credit, rebate or
repayment of the Commitment Fee, Facility Fee, Line (Unused) Fee, Early
Termination Fee, or other fee previously earned by the Lender pursuant to this
Agreement notwithstanding any termination of this Agreement or suspension or
termination of the Lender's obligation to make loans and advances hereunder.
2.15. LENDER'S DISCRETION.
(a) Each reference in the Loan Documents to the exercise of
discretion or the like by the Lender shall be to that Person's exercise of its
judgment, in good faith (which shall be presumed), based upon that Person's
consideration of any such factor as the Lender, taking into account information
of which that Person then has actual knowledge, believes:
(i) Will or reasonably could be expected to affect the
value of the Collateral, the enforceability of the Lender's security and
collateral interests therein, or the amount which the Lender would likely
realize therefrom (taking into account delays which may possibly be
encountered in the Lender's realizing upon the Collateral and likely
Costs of Collection).
(ii) Indicates that any report or financial information
delivered to the Lender by or on behalf of the Borrower is incomplete,
inaccurate, or misleading in any material manner or was not prepared in
accordance with the requirements of this Agreement.
(iii) Suggests an increase in the likelihood that the
Borrower will become the subject of a bankruptcy or insolvency
proceeding.
(iv) Constitutes a Suspension Event.
(b) In the exercise of such judgment, the Lender also may take
into account any of the following factors, to the extent not previously taken
into account:
35
(i) Those included in, or tested by, the definitions of
"Acceptable Inventory," and "Cost".
(ii) The current financial and business climate of the
industry in which the Borrower competes (having regard for the Borrower's
position in that industry).
(iii) General macroeconomic conditions which have a
material effect on the Borrower's cost structure.
(iv) Material changes in or to the mix of the Borrower's
Inventory.
(v) Seasonality with respect to the Borrower's Inventory
and patterns of retail sales.
(vi) 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 Borrower.
(c) The burden of establishing the failure of the Lender to
have acted in a reasonable manner in such Person's exercise of discretion shall
be the Borrower's.
2.16. PROCEDURES FOR ISSUANCE OF L/C'S.
(a) The Borrower may request that the Lender cause the issuance
of L/C's for the account of the Borrower by BankBoston or by another financial
institution reasonably acceptable to the Borrower. Each such request shall be
in such manner as may from time to time be acceptable to the Lender.
(b) The Lender will endeavor to cause the issuance of any L/C
so requested by the Borrower, PROVIDED THAT, at the time that the request is
made, the Revolving Credit has not been suspended as provided in Section 2-4(i)
and if so issued:
(i) The aggregate Stated Amount of all L/C's then
outstanding, does not exceed Two Million Five Hundred Thousand Dollars
($2,500,000).
(ii) The expiry of the L/C is not later than the earlier
of Thirty (30) days prior to the Maturity Date or the following:
(A) Standby's: One (1) year from initial
issuance.
36
(B) Documentary's: one hundred and eighty
(180) days from issuance.
(iii) Borrowing Base would not be exceeded.
(c) The Borrower shall execute such documentation to apply for
and support the issuance of an L/C as may be required by the Issuer.
(d) There shall not be any recourse to, nor liability of, the
Lender (except to the extent caused by the gross negligence or willful
misconduct of the Lender as determined by a court of competent jurisdiction) on
account of
(i) Any delay or refusal by an Issuer to issue an L/C;
(ii) Any action or inaction of an Issuer on account of or
in respect to, any L/C.
(e) The Borrower shall reimburse the Issuer for the amount of
any honoring of a drawing under an L/C on the same day on which such honoring
takes place. The Lender, without the request of the Borrower, may advance under
the Revolving Credit (and charge to the Loan Account) the amount of any honoring
of any L/C and other amount for which the Borrower, the Issuer, or the Lender
becomes obligated on account of, or in respect to, any L/C. Such advance shall
be made whether or not a Suspension Event is then extant or such advance would
result in Borrowing Base's being exceeded. Such action shall not constitute a
waiver of the Lender's rights under Section 2-8(b) hereof.
2.17. FEES FOR L/C'S.
(a) The Borrower shall pay to the Lender a fee, on account of
L/C's, the issuance of which had been procured by the Lender, monthly in
arrears, and on the Termination Date and on the End Date, equal to one and one
quarter of one percent (1.25%) per annum of the weighted average Stated Amount
of all L/C's outstanding during the period in respect of which such fee is being
paid.
(b) In addition to the fee to be paid as provided in Subsection
2-17(a), above, the Borrower shall pay to the Lender (or to the Issuer, if so
requested by Lender), on demand, all
37
issuance, processing, negotiation, amendment, and administrative fees and
other amounts charged by the Issuer on account of, or in respect to, any L/C.
2.18. CONCERNING L/C'S.
(a) None of the Issuer, the Issuer's correspondents, or any
advising, negotiating, or paying bank with respect to any L/C shall be
responsible in any way for:
(i) The performance by any beneficiary under any L/C of
that beneficiary's obligations to the Borrower.
(ii) The form, sufficiency, correctness, genuineness,
authority of any person signing; falsification; or the legal effect of;
any documents called for under any L/C if (with respect to the foregoing)
such documents on their face appear to be in order.
(b) The Issuer may honor, as complying with the terms of any
L/C and of any drawing thereunder, any drafts or other documents otherwise in
order, but signed or issued by an administrator, executor, conservator, trustee
in bankruptcy, debtor in possession, assignee for the benefit of creditors,
liquidator, receiver, or other legal representative of the party authorized
under such L/C to draw or issue such drafts or other documents.
(c) Unless otherwise agreed to, in the particular instance, the
Borrower hereby authorizes any Issuer to:
(i) Select an advising bank, if any.
(ii) Select a paying bank, if any.
(iii) Select a negotiating bank.
(d) All directions, correspondence, and funds transfers
relating to any L/C are at the risk of the Borrower. The Issuer shall have
discharged the Issuer's obligations under any L/C which, or the drawing under
which, includes payment instructions, by the initiation of the method of payment
called for in, and in accordance with, such instructions (or by any other
commercially reasonable and comparable method). Neither the Lender nor the
Issuer shall have any responsibility for any inaccuracy, interruption, error, or
delay in transmission or delivery by post, telegraph or cable, or for any
inaccuracy of translation.
38
(e) The Lender's and the Issuer's rights, powers, privileges
and immunities specified in or arising under this Agreement are in addition to
any heretofore or at any time hereafter otherwise created or arising, whether by
statute or rule of law or contract.
(f) Except to the extent otherwise expressly provided hereunder
or agreed to in writing by the Issuer and the Borrower, the L/C will be governed
by the Uniform Customs and Practice for Documentary Credits, International
Chamber of Commerce, Publication No. 500, and any subsequent revisions thereof.
(g) If any change in any law, executive order or regulation, or
any directive of any administrative or governmental authority (whether or not
having the force of law), or in the interpretation thereof by any court or
administrative or governmental authority charged with the administration
thereof, shall either:
(i) impose, modify or deem applicable any reserve,
special deposit or similar requirements against letters of credit
heretofore or hereafter issued by any Issuer or with respect to which the
Lender or any Issuer has an obligation to lend to fund drawings under any
L/C; or
(ii) impose on any Issuer any other condition or
requirements relating to any such letters of credit;
and the result of any event referred to in Section 2-18(g)(i) or 2-18(g)(ii),
above, shall be to increase the cost to any Issuer of issuing or maintaining any
L/C (which increase in cost shall be the result of such Issuer's reasonable
allocation among that Issuer's letter of credit customers of the aggregate of
such cost increases resulting from such events), then, upon demand by the Lender
and delivery by the Lender to the Borrower of a certificate of an officer of the
subject Issuer describing such change in law, executive order, regulation,
directive, or interpretation thereof, its effect on such Issuer, and the basis
for determining such increased costs and their allocation, the Borrower shall
immediately pay to the Lender, from time to time as specified by the Lender,
such amounts as shall be sufficient to compensate such Issuer for such increased
cost. Any Issuer's determination of costs incurred under Section 2-18(g)(i) or
2-18(g)(ii), above, and the allocation, if any, of such costs among the Borrower
and other letter of credit customers of
39
such Issuer, if done in good faith and made on an equitable basis and in
accordance with such officer's certificate, shall be conclusive and binding
on the Borrower.
(h) The obligations of the Borrower under this Agreement with
respect to L/C's are absolute, unconditional, and irrevocable and shall be
performed strictly in accordance with the terms hereof under all circumstances,
whatsoever including, without limitation, the following:
(i) Any lack of validity or enforceability or
restriction, restraint, or stay in the enforcement of this Agreement, any
L/C, or any other agreement or instrument relating thereto.
(ii) Any amendment or waiver of, or consent to the
departure from, any L/C.
(iii) The existence of any claim, set-off, defense, or
other right which the Borrower may have at any time against the
beneficiary of any L/C.
(iv) Any good faith honoring of a drawing under any L/C,
which drawing possibly could have been dishonored based upon a strict
construction of the terms of the L/C.
2.19. INCREASED COSTS. If, as a result of any change in 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:
(a) 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 the Borrower to the Lender under this Agreement (except
for taxes on the Lender's overall net income or capital imposed by the
jurisdiction in which the Lender's principal or lending offices are located);
(b) 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 the Lender;
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(c) imposes on the Lender any other condition with respect to
any Loan Document; or
(d) 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 the
Lender's giving written notice thereof, from time to time, to the 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 Borrower 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.
ARTICLE 3. CONDITIONS PRECEDENT:
As a condition to the effectiveness of this Agreement, the establishment
of the Revolving Credit, and the making of the first loan under the Revolving
Credit, each of the documents respectively described in Sections 3-1 through and
including 3-5, (each in form and substance satisfactory to the Lender) shall
have been delivered to the Lender, and the conditions respectively described in
Sections 3-6 through and including 3-10, shall have been satisfied:
3.1. CORPORATE DUE DILIGENCE FOR EACH BORROWER.
(a) A Certificate of corporate good standing issued by the
Secretary of State of Minnesota.
(b) Certificates of due qualification, in good standing, issued
by the Secretary(ies) of State of each State in which the nature of the
Borrower's business conducted or assets owned could require such qualification.
41
(c) A Certificate of the 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.
3.2. OPINION. An opinion of counsel to the Borrower in form and
substance satisfactory to the Lender.
3.3. LANDLORD WAIVERS. The delivery to the Lender of waivers or
subordinations (each in form satisfactory to the Lender) executed by each of
the Borrower's landlords with respect to those leased premises located in
Arizona and Washington, and any other additional state in which Borrower
opens a new store location that provides the landlord with a statutory lien
on Borrower's assets. To the extent the foregoing requirement is not met,
Borrower shall use its reasonable best efforts to obtain such waivers or
subordinations, and this condition shall not apply, provided that the Lender
will establish rent reserves as part of the Availability Reserves.
3.4. ADDITIONAL DOCUMENTS. Such additional instruments and
documents as the Lender or its counsel reasonably may require or request.
3.5. OFFICERS' CERTIFICATES. Certificates executed by the Chief
Executive Officer or the Chief Financial Officer of the Borrower and stating
that the representations and warranties made by the Borrower 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.
3.6. REPRESENTATIONS AND WARRANTIES. Each of the representations
made by or on behalf of the 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 the Borrower shall be true and complete as of the date as of
which such representation or warranty was made.
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3.7. MINIMUM EXCESS AVAILABILITY. The Borrowing Base, after giving
effect to the first funding under the Revolving Credit; all then held checks
(if any); accounts payable which are beyond credit terms then accorded the
Borrower; overdrafts; any charges to the Loan Account made in connection with
the establishment of the credit facility contemplated hereby; and L/C's to be
issued at, or immediately subsequent to, such establishment, is not less than
One Million Dollars ($1,000,000).
3.8. ALL FEES AND EXPENSES PAID. All fees due at or immediately
after the first funding under the Revolving Credit and all costs and expenses
incurred by the Lender in connection with the establishment of the credit
facility contemplated hereby (including the fees and expenses of counsel to
the Lender) shall have been paid.
3.9. NO SUSPENSION EVENT. No Suspension Event shall then exist.
3.10 NO ADVERSE CHANGE. No event shall have occurred or failed to
occur, which occurrence or failure is or could have a materially adverse effect
upon the Borrower's financial condition when compared with such financial
condition at April 30, 1999.
No document shall be deemed delivered to the Lender until received and accepted
by the Lender at its head offices in Boston, Massachusetts. Under no
circumstances will this Agreement take effect until executed and accepted by the
Lender at said head office.
ARTICLE 4 - GENERAL REPRESENTATIONS, COVENANTS AND WARRANTIES:
To induce the Lender to establish the loan arrangement contemplated
herein and to make loans and advances and to provide financial accommodations
under the Revolving Credit (each of which loans shall be deemed to have been
made in reliance thereupon) the Borrower, in addition
43
to all other representations, warranties, and covenants made by the Borrower
in any other Loan Document, makes those representations, warranties, and
covenants included in this Agreement, with the understanding that any such
representations and warranties that are stated as of a specific date or
referencing an exhibit or schedule that is subsequently updated, supplemented
or amended to provide the Lender with current information, shall be deemed to
incorporate, and to be made as of the date of, such additional information.
4.1. PAYMENT AND PERFORMANCE OF LIABILITIES. The Borrower shall pay
each Liability when due (or when demanded if payable on demand) and shall
promptly, punctually, and faithfully perform each other Liability.
4.2. DUE ORGANIZATION - CORPORATE AUTHORIZATION - NO CONFLICTS.
(a) The Borrower presently is and shall hereafter remain in
good standing as a Minnesota corporation 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 the Borrower's assets or operation of the Borrower's
business, the failure to obtain such qualification would have a material and
adverse effect on the Borrower's operations or the Lender's ability to realize
any Collateral located in such jurisdiction.
(b) Each Related Entity is listed on EXHIBIT 4-2, annexed
hereto. Each Related Entity (excluding individuals) is and shall hereafter
remain in good standing in the State in which incorporated and is and shall
hereafter remain duly qualified in which other State in which, by reason of that
entity's assets or the operation of such entity's business, such qualification
may be necessary. The Borrower shall provide the Lender with prior written
notice of any entity's becoming or ceasing to be a Related Entity.
(c) The Borrower shall not change its State of incorporation
nor its taxpayer identification number.
(d) The Borrower has all requisite corporate power and
authority to execute and deliver all Loan Documents to which the Borrower is a
party and has and will hereafter retain all requisite corporate power to perform
all Liabilities.
44
(e) The execution and delivery by the Borrower of each Loan
Document to which it is a party; the Borrower's consummation of the transactions
contemplated by such Loan Documents (including, without limitation, the creation
of security interests by the Borrower as contemplated hereby); the 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:
(i) Have been duly authorized by all necessary corporate
action.
(ii) Do not, and will not, contravene in any material
respect any provision of any Requirement of Law or obligation of the
Borrower.
(iii) Will not result in the creation or imposition of, or
the obligation to create or impose, any Encumbrance upon any assets of
the Borrower pursuant to any Requirement of Law or obligation, except
pursuant to the Loan Documents.
(f) The Loan Documents have been duly executed and delivered by
Borrower and are the legal, valid and binding obligations of the Borrower,
enforceable against the Borrower in accordance with their respective terms,
subject to the effect of bankruptcy and equitable principles.
4.3. TRADE NAMES.
(a) EXHIBIT 4-3, annexed hereto, is a listing of:
(i) All names under which the Borrower ever conducted
its business.
(ii) All entities and/or persons with whom the Borrower
ever consolidated or merged, or from whom the Borrower ever acquired in a
single transaction or in a series of related transactions substantially
all of such entity's or person's assets.
(b) The Borrower will not change its name or conduct its
business under any name not listed on EXHIBIT 4-3 except (i) upon not less than
twenty-one (21) days prior written notice (with reasonable particularity) to the
Lender and (ii) in compliance with all other provisions of this Agreement.
4.4. INFRASTRUCTURE.
45
(a) The Borrower has and will maintain a sufficient
infrastructure to conduct its business as presently conducted and as
contemplated to be conducted as described in the Business Plan.
(b) To the best of Borrower's knowledge, the 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 the Borrower's conduct of the
Borrower's business.
(c) To the best of Borrower's knowledge, the conduct by the
Borrower of the Borrower's business does not presently infringe (nor will the
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.
4.5. YEAR 2000 COMPLIANCE.
(a) Based upon a diligent inquiry undertaken by the Borrower,
it appears that, except as set forth on EXHIBIT 4-5, annexed hereto, the
Borrower's operations are Year 2000 Compliant.
(b) The Borrower shall have, on or before June 15, 1999
developed a preliminary plan and timetable, and a detailed final plan by July
30, 1999 (which shall be subject to the reasonable approval of the Lender) with
respect to the Borrower's operations becoming fully Year 2000 Compliant and
shall provide a copy or summary of such plan to be appended hereto as EXHIBIT
4-5 and shall have committed adequate resources to execute that plan and to meet
such timetable.
(c) Following the Borrower's operations becoming Year 2000
Compliant, the Borrower will not suffer or permit its operations thereafter to
cease to be Year 2000 Compliant in any manner which might have more than a DE
MINIMUS effect on its operations.
4.6. LOCATIONS.
46
(a) The Collateral, and the books, records, and papers of
Borrower pertaining thereto, are kept and maintained solely at the Borrower's
chief executive offices at
(i) 0000 Xxxxxxxxx Xxxxxxxxx, Xxxxxxxxxxx Xxxxxxxxx
00000; and
(ii) those locations which are listed on EXHIBIT 4-6,
annexed hereto, which EXHIBIT includes, with respect to each such
location, the name and address of the landlord on the Lease which covers
such location (or an indication that the Borrower owns the subject
location) and of all service bureaus with which any such records are
maintained and the names and addresses of each of the Borrower's
landlords.
(b) The Borrower shall not remove any of the Collateral from
said chief executive office or those locations listed on EXHIBIT 4-6 except to:
(i) accomplish sales of Inventory in the ordinary course
of business; or
(ii) move Inventory from one such location to another
such location; or
(iii) utilize such of the Collateral as is removed from
such locations in the ordinary course of business (such as motor
vehicles).
(c) The Borrower will not in any manner inconsistent with the
Business Plan:
(i) Execute, alter, modify, or amend any Lease.
(ii) Commit to, or open or close any location at which
the Borrower maintains, offers for sales, or stores any of the
Collateral.
(d) Except as otherwise disclosed pursuant to, or permitted by,
this Section 4-6, no tangible personal property of the Borrower is in the care
or custody of any third party or stored or entrusted with a bailee or other
third party and none shall hereafter be placed under such care, custody,
storage, or entrustment.
4.7. TITLE TO ASSETS.
(a) The Borrower is, and shall hereafter remain, the owner of
the Collateral free and clear of all Encumbrances with the exceptions of the
following (the "PERMITTED ENCUMBRANCES"):
(i) Encumbrances in favor of the Lender.
47
(ii) Encumbrances for taxes, fees, assessments, or other
governmental charges or statutory obligations which are not delinquent or
remain payable without penalty, or to the extent that non-payment thereof
is permitted by Section 4-14(d), provided that no notice of encumbrance
has been filed, levied or recorded;
(iii) Encumbrances arising in the ordinary course of
business in connection with Indebtedness (other than Indebtedness for
borrowed money) that are not overdue or which are being contested in good
faith and by appropriate proceedings, including, but not limited to
Encumbrances under bid, performance and other surety bonds, supersedeas
and appeal bonds, Encumbrances on advance or progress payments received
from customers under contracts for the sale, lease or license of goods,
software or services and upon the products being sold or licensed, in
each case securing performance of the underlying contract or the
repayment of such advances in the event final acceptance of performance
under such contracts does not occur; and Encumbrances upon funds
collected temporarily from other pending payment or remittance on their
behalf;
(iv) Encumbrances (other than any Encumbrances imposed by
ERISA) required in the ordinary course of business in connection with
workers' compensation, unemployment insurance and other social security
legislation;
(v) easements, rights-of-way, restrictions and other
similar Encumbrances incurred in the ordinary course of business which,
in the aggregate, are not substantial in amount, and which do not in any
case materially detract from the value of the property subject thereto or
interfere with the ordinary conduct of the businesses of the Borrower;
(vi) purchase money security interests or capitalized
equipment leases on any property acquired or held by the Borrower in the
ordinary course of business securing Indebtedness incurred or assumed for
the purpose of financing all or any part of the cost of acquiring such
property; provided, however, that (i) any such Encumbrances attaches to
such property concurrently with or within 20 days after the acquisition
thereof, (ii) such Encumbrances attaches solely to the property so
acquired in such transaction, and
48
(iii) the principal amount of the debt secured thereby does not exceed
100% of the cost of such property;
(vii) Encumbrances arising solely by virtue of any
statutory or common law provision relating to banker's liens, rights of
set-off or similar rights and remedies as to funds maintained with a
creditor depository institution; provided, however, that (i) such deposit
account is not the Blocked Account, or any DDA Account and is not subject
to restrictions against access by the Borrower in excess of those set
forth by regulations promulgated by the Federal Reserve Board, and (ii)
such deposit account is not intended by the Borrower to provide
collateral to the depository institution;
(viii) rights of holders of notes or debentures issued by
the Borrower in deposits in trust to legally or "in substance" defease
such notes or debentures; and
(ix) Those Encumbrances (if any) listed on EXHIBIT 4-7,
annexed hereto.
(b) The Borrower does not and shall not have possession of any
property on consignment to the Borrower.
(c) The Borrower shall not acquire or obtain the right to use
any Equipment, the acquisition or right to use of which Equipment is otherwise
permitted by this Agreement, in which Equipment any third party has an interest,
except for:
(i) Equipment which is merely incidental to the conduct
of the Borrower's business.
(ii) Equipment, the acquisition or right to use of which
has been consented to by the Lender, which consent may be conditioned
upon the Lender's receipt of such agreement with the third party which
has an interest in such Equipment as is satisfactory to the Lender.
4.8. INDEBTEDNESS. The Borrower does not and shall not hereafter have
any Indebtedness with the exceptions of:
(a) Any Indebtedness to the Lender.
(b) Subordinated Indebtedness.
49
(c) Indebtedness secured by a Permitted Lien.
(d) Indebtedness under capitalized equipment leases.
(e) The Indebtedness (if any) listed on EXHIBIT 4-8, annexed
hereto.
4.9. INSURANCE POLICIES.
(a) EXHIBIT 4-9, annexed hereto, is a schedule of all insurance
policies owned by the Borrower or under which the Borrower is the named insured.
Each of such policies is in full force and effect. Neither the issuer of any
such policy nor the Borrower is in default or violation of any such policy.
(b) The Borrower shall have and maintain at all times insurance
covering such risks, in such amounts, containing such terms, in such form, for
such periods, and written by such companies as may be satisfactory to the
Lender. The coverage reflected on EXHIBIT 4-9 presently satisfies the foregoing
requirements, it being recognized by the Borrower, HOWEVER, that such
requirements may change hereafter to reflect changing circumstances. All
insurance carried by the Borrower shall provide for a minimum of Thirty (30)
days' written notice of cancellation to the Lender and all such insurance which
covers the Collateral shall include an endorsement in favor of the Lender, which
endorsement shall provide that the insurance, to the extent of the Lender's
interest therein, shall not be impaired or invalidated, in whole or in part, by
reason of any act or neglect of the Borrower or by the failure of the Borrower
to comply with any warranty or condition of the policy. In the event of the
failure by the Borrower to maintain insurance as required herein, the Lender ,
at its option, may obtain such insurance, PROVIDED, HOWEVER, the Lender's
obtaining of such insurance shall not constitute a cure or waiver of any Event
of Default occasioned by the Borrower's failure to have maintained such
insurance. The Borrower shall furnish to the Lender certificates or other
evidence satisfactory to the Lender regarding compliance by the Borrower with
the foregoing insurance provisions.
(c) The Borrower shall advise the Lender of each claim in
excess of $100,000.00 made by the Borrower under any policy of insurance which
covers the Collateral and shall obtain the Lender's approval, which approval
shall not be unreasonably withheld, of any adjustment of such claims, provided
that all insurance proceeds shall be remitted to the Lender for
50
application to the Revolving Credit. The Borrower hereby appoints the
Lender as the Borrower's attorney in fact, during the pendency of a
Suspension Event, to obtain, adjust, settle, and cancel any insurance
described in this section and to endorse in favor of the Lender any and all
drafts and other instruments with respect to such insurance. The within
appointment, being coupled with an interest, is irrevocable until this
Agreement is terminated by a written instrument executed by a duly authorized
officer of the Lender. The Lender shall not be liable on account of any
exercise pursuant to said power except for any exercise in actual willful
misconduct and bad faith. The Lender may apply any proceeds of such
insurance against the Liabilities, whether or not such have matured, in such
order of application as the Lender may determine.
4.10. LICENSES. Each license, distributorship, franchise, and
similar agreement issued to, or to which the Borrower is a party is in full
force and effect to the extent that the stated term thereof has not expired.
No party to any such license or agreement is, to the best of Borrower's
knowledge, in default or violation thereof. The Borrower has not received any
notice or threat of cancellation of any such license or agreement.
4.11. LEASES. EXHIBIT 4-11, annexed hereto, is a schedule of all
presently effective Capital Leases. Exhibit 4-6 includes a list of all other
presently effective Leases. Each of such Leases and Capital Leases is in full
force and effect. To the best of Borrower's knowledge, no party to any such
Lease or Capital Lease is in default or violation of any such Lease or Capital
Lease and the Borrower has not received any notice or threat of cancellation of
any such Lease or Capital Lease. The Borrower hereby authorizes the Lender at
any time and from time to time to contact any of the Borrower's landlords in
order to confirm the Borrower's continued compliance with the terms and
conditions of the Lease(s) between the Borrower and that landlord and to discuss
such issues, concerning the Borrower's occupancy under such Lease(s), as the
Lender may determine, with the understanding however, that except during the
pendency of a Suspension Event, Lender will make arrangements for such
communications through or with the participation of Borrower.
51
4.12. REQUIREMENTS OF LAW. The Borrower is in compliance with, and shall
hereafter comply with and use its assets in compliance with, all Requirements of
Law. The Borrower has not received any notice of any violation of any
Requirement of Law (whether or not such violation is material), which violation
has not been cured or otherwise remedied.
4.13. MAINTAIN PROPERTIES. The Borrower shall:
(a) Keep the Collateral in good order and repair (ordinary
reasonable wear and tear and insured casualty excepted).
(b) Not suffer or cause the waste or destruction of any
material part of the Collateral.
(c) Not use any of the Collateral in violation of any policy of
insurance thereon.
(d) Not sell, lease, or otherwise dispose of any of the
Collateral, other than the following:
(i) The sale of Inventory in compliance with this
Agreement.
(ii) The disposal of Equipment which is obsolete, worn
out, or damaged beyond repair, which Equipment is replaced to the extent
necessary to preserve or improve the operating efficiency of the
Borrower.
(iii) The turning over to the Lender of all Receipts as
provided herein.
(iv) Collecting proceeds of Receivables Collateral.
4.14. PAY TAXES.
(a) The Borrower has received written notice from the Internal
Revenue Service that the Internal Revenue Service has completed its examination
of the Borrower's federal income tax returns for all tax years through and
including the Borrower's taxable year referenced on EXHIBIT 4-14, annexed
hereto, and that all deficiencies, assessments, and other amounts asserted as a
result of such examinations have been fully paid or settled. No agreement is
extant which waives or extends any statute of limitations applicable to the
right of the Internal Revenue Service to assert a deficiency or make any other
claim for or in respect to federal income taxes.
52
No issue has been raised in any such examination which, by application of
similar principles, reasonably could be expected to result in the assertion
of a deficiency for any fiscal year open for examination, assessment, or
claim by the Internal Revenue Service.
(b) The Borrower has received written notice from the
respective state and local taxing authorities to which the Borrower is subject
that such authorities have completed their respective examination of the
Borrower's returns for all state and local income, excise, sales, and other
taxes for which the Borrower is liable for the respective tax years referenced
on EXHIBIT 4-14, annexed hereto, and that all deficiencies, assessments, and
other amounts asserted as a result of such examinations have been fully paid or
settled. No agreement is extant which waives or extends any statute of
limitations applicable to the right of any state taxing authority to assert a
deficiency or make any other claim for or in respect to any such state taxes.
No issue has been raised in any such examination which, by application of
similar principles, reasonably could be expected to result in the assertion of a
deficiency for any fiscal year open for examination, assessment, or claim by any
state or local taxing authority.
(c) Except as disclosed on said EXHIBIT 4-14, there are no
examinations of or with respect to the Borrower presently being conducted by the
Internal Revenue Service or any other taxing authority.
(d) The Borrower has, 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 the Borrower or the
Collateral by any person or entity whose claim could result in an Encumbrance
upon any asset of the Borrower or by any governmental authority; properly
exercise any trust responsibilities imposed upon the Borrower by reason of
withholding from employees' pay or by reason of the 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 the Borrower; and timely file all
tax and other returns and other reports with each governmental authority to whom
the Borrower is obligated to so file, unless (in the case of such payment
obligations) Borrower is contesting the same in good faith and has established
adequate cash reserves therefore, and the non-payment thereof does not result in
the recording, filing or levying of an Encumbrance.
53
(e) At its option, the Lender may, but shall not be obligated
to, pay any taxes, unemployment contributions, and any and all other charges
levied or assessed upon the Borrower or the Collateral by any person or entity
or governmental authority, and make any contributions or other payments on
account of the Borrower's Employee Benefit Plan that are otherwise required
hereby to be paid as the Lender, in the Lender's discretion, may deem necessary
or desirable, to protect, maintain, preserve, collect, or realize upon any or
all of the Collateral or the value thereof or any right or remedy pertaining
thereto, PROVIDED, HOWEVER, the Lender's making of any such payment shall not
constitute a cure or waiver of any Event of Default occasioned by the Borrower's
failure to have made such payment.
4.15. NO MARGIN STOCK. The Borrower is not 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.
4.16. ERISA. Neither the Borrower nor any ERISA Affiliate ever has or
hereafter shall:
(a) Violate or fail to be in full compliance with the
Borrower's Employee Benefit Plan.
(b) Fail timely to file all reports and filings required by
ERISA to be filed by the Borrower.
(c) Engage in any "prohibited transactions" or "reportable
events" (respectively as described in ERISA).
(d) Engage in, or commit, any act such that a tax or penalty
could be imposed upon the Borrower on account thereof pursuant to ERISA.
(e) Accumulate any material funding deficiency within the
meaning of ERISA.
(f) Terminate any Employee Benefit Plan such that a lien could
be asserted against any assets of the Borrower on account thereof pursuant to
ERISA.
54
(g) Be a member of, contribute to, or have any obligation under
any Employee Benefit Plan which is a multiemployer plan within the meaning of
Section 4001(a) of ERISA.
4.17. HAZARDOUS MATERIALS.
(a) The Borrower has never:
(i) Been legally responsible for any release or threat
of release of any Hazardous Material in violation of any Environmental
Law.
(ii) Received notification of any release or threat of
release of any Hazardous Material in violation of any Environmental Law
from any site or vessel occupied or operated by the Borrower and/or of
the incurrence of any expense or loss in connection with the assessment,
containment, or removal of any release or threat of release of any
Hazardous Material in violation of any Environmental Law from any such
site or vessel.
(b) The Borrower shall:
(i) Dispose of any Hazardous Material only in compliance
with all Environmental Laws.
(ii) Not store on any site or vessel occupied or operated
by the Borrower and not transport or arrange for the transport of any
Hazardous Material, except if such storage or transport is in the
ordinary course of the Borrower's business and is in compliance with all
Environmental Laws.
(c) The Borrower shall provide the Lender with written notice
upon the Borrower's obtaining knowledge of any incurrence of any expense or loss
by any governmental authority or other Person in connection with the assessment,
containment, or removal of any Hazardous Material, for which expense or loss the
Borrower may be liable.
4.18. LITIGATION. Except as described in EXHIBIT 4-18, annexed hereto,
there is not presently pending or threatened by or against the Borrower any
suit, action, proceeding, or investigation which, if determined adversely to the
Borrower, would reasonably be expected to have a material adverse effect upon
the Borrower's financial condition or ability to conduct its
55
business as such business is presently conducted or is contemplated to be
conducted in the foreseeable future.
4.19. DIVIDENDS OR INVESTMENTS. The Borrower shall not:
(a) Pay any cash dividend or make any other distribution in
respect of any class of the Borrower's capital stock.
(b) Own, redeem, retire, purchase, or acquire any of the
Borrower's capital stock.
(c) Invest in or purchase any stock or securities or rights to
purchase any such stock or securities, of any corporation or other entity except
to the extent such purchases are Permitted Acquisitions.
(d) Merge or consolidate or be merged or consolidated with or
into any other corporation or other entity, except to the extent such
transaction is a Permitted Acquisition.
(e) Consolidate any of the Borrower's operations with those of
any other corporation or other entity except to the extent such transaction is a
Permitted Acquisition.
(f) Organize or create any Related Entity, except in connection
with a Permitted Acquisition.
(g) Subordinate any debts or obligations owed to the Borrower
by any third party to any other debts owed by such third party to any other
Person.
(h) Acquire any assets other than in the ordinary course or
fail to conduct the Borrower's business substantially as conducted at the
execution of this Agreement
4.20. LOANS. The Borrower shall not make any loans or advances to, nor
acquire the Indebtedness of, any Person, PROVIDED, HOWEVER, the foregoing does
not prohibit any of the following:
(a) Advance payments made to the Borrower's suppliers in the
ordinary course.
(b) Advances to the Borrower's officers, employees, and
salespersons with respect to reasonable expenses to be incurred by such
officers, employees, and salespersons for
56
the benefit of the Borrower, which expenses are properly substantiated by the
person seeking such advance and properly reimbursable by the Borrower.
(c) Advances made pursuant to the terms of any cash management
agreement between Borrower and Lender or any affiliate of Lender.
4.21. PROTECTION OF ASSETS. The Lender, in the Lender's discretion, and
from time to time, may discharge any tax or Encumbrance on any of the
Collateral, or take any other action that the Lender may deem necessary or
desirable to repair, insure, maintain, preserve, collect, or realize upon any of
the Collateral upon Borrower's failure to do. The Lender shall not have any
obligation to undertake any of the foregoing and shall have no liability on
account of any action so undertaken except where there is a specific finding in
a judicial proceeding (in which the Lender has had an opportunity to be heard),
from which finding no further appeal is available, that the Lender had acted in
actual bad faith or in a grossly negligent manner. The Borrower shall pay to
the Lender, on demand, or the Lender, in its discretion, may add to the Loan
Account, all amounts paid or incurred by the Lender pursuant to this section.
The obligation of the Borrower to pay such amounts is a Liability.
4.22. LINE OF BUSINESS. The Borrower shall not engage in any business
other than the business in which it is currently engaged or a business
reasonably related thereto, including the business contemplated in the
Borrower's internet strategy (the conduct of which reasonably related business
is reflected in the Business Plan).
4.23. AFFILIATE TRANSACTIONS. The Borrower shall not make any payment,
nor give any value to any Related Entity except for goods and services actually
purchased by the Borrower from, or sold by the Borrower to, such Related Entity
for a price and on terms which shall
(a) 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
57
(b) no be less favorable from those which would have been
charged in an arms length transaction.
4.24. ADDITIONAL ASSURANCES.
(a) The Borrower is not the owner of, nor has it any interest
in, any property or asset consisting of Collateral which, immediately upon the
satisfaction of the conditions precedent to the effectiveness of the credit
facility contemplated hereby (Article 3) will be not be subject to a perfected
security or other collateral interest in favor of the Lender (subject only to
Permitted Encumbrances) to secure the Liabilities.
(b) The Borrower will not hereafter acquire any asset or any
interest in property consisting of Collateral which is not, immediately upon
such acquisition, subject to such a perfected security or other collateral
interest in favor of the Lender to secure the Liabilities (subject only to
Permitted Encumbrances).
(c) The Borrower shall execute and deliver to the Lender such
instruments, documents, and papers, and shall do all such things from time to
time hereafter as the Lender may request to carry into effect the provisions and
intent of this Agreement; to protect and perfect the Lender's security interests
in the Collateral; and to comply with all applicable statutes and laws, and
facilitate the collection of the Receivables Collateral. The Borrower shall
execute all such instruments as may be required by the Lender with respect to
the recordation and/or perfection of the security interests created herein.
(d) The Borrower hereby designates the Lender as and for the
Borrower's true and lawful attorney, with full power of substitution, to sign
and file any financing statements in order to perfect or protect the Lender's
security and other collateral interests in the Collateral.
(e) A carbon, photographic, or other reproduction of this
Agreement or of any financing statement or other instrument executed pursuant to
this Section 4-24 shall be sufficient for filing to perfect the security
interests granted herein.
4.25. ADEQUACY OF DISCLOSURE.
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(a) All financial statements furnished to the Lender by the
Borrower have been prepared in accordance with GAAP consistently applied and
present fairly the condition of the Borrower at the date(s) thereof and the
results of operations and cash flows for the period(s) covered. There has been
no change in the financial condition, results of operations, or cash flows of
the Borrower since the date(s) of the most recently provided financial
statements, other than changes in the ordinary course of business, which changes
have not been materially adverse, either singularly or in the aggregate.
(b) The Borrower does not have any contingent obligations or
obligation under any Lease or Capital Lease which are not noted in the
Borrower's financial statements furnished to the Lender prior to the execution
of this Agreement or disclosed on the Schedules annexed hereto.
(c) No document, instrument, agreement, or paper now or
hereafter given the Lender by or on behalf of the 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 the Borrower which has, or
which, in the foreseeable future could have, a material adverse effect on the
financial condition of the Borrower or any such guarantor which has not been
disclosed in writing to the Lender.
4.26. OTHER COVENANTS. The Borrower shall not indirectly do or cause
to be done any act which, if done directly by the Borrower, would breach any
covenant contained in this Agreement.
ARTICLE 5 - FINANCIAL REPORTING AND PERFORMANCE COVENANTS:
5.1. MAINTAIN RECORDS. The Borrower shall:
(a) At all times, keep proper books of account, in which full,
true, and accurate entries shall be made of all of the Borrower's transactions,
all in accordance with GAAP (to the
59
extent applicable) applied consistently with prior periods to fairly reflect
the financial condition of the Borrower at the close of, and its results of
operations for, the periods in question.
(b) Timely provide the Lender with those financial reports,
statements, and schedules required by this Article 5 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 financial condition of the Borrower at the close of, and its results
of operations for, the period(s) covered therein.
(c) 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.
(d) 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 Borrower's 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.
(e) Not change the Borrower's fiscal year.
5.2. ACCESS TO RECORDS.
(a) The Borrower shall accord the Lender and the Lender's
representatives with access from time to time as the Lender and such
representatives may require to all properties owned by or over which the
Borrower has control. The Lender and the Lender's representatives shall have
the right, and the Borrower will permit the Lender and such representatives from
time to time as the Lender and such representatives may request, to examine,
inspect, copy, and make extracts from any and all of the Borrower's books,
records, electronically stored data, papers, and files. The Borrower shall make
all of the Borrower's copying facilities available to the Lender.
(b) The Borrower hereby authorizes the Lender and the Lender's
representatives to:
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(i) 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
the 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 and the Lender's
representatives with respect thereto.
(ii) Verify at any time the Collateral or any portion
thereof, including verification with Account Debtors, and/or with the
Borrower's computer billing companies, collection agencies, and
accountants and to sign the name of the Borrower on any notice to the
Borrower's Account Debtors or verification of the Collateral.
(c) Lender agrees that it will exercise prudent cautionary
measures in accordance with procedures adopted by Lender in good faith to
protect confidential information delivered to Lender to prevent disclosure to
any third parties of any information delivered or obtained by Lender by or on
behalf of Borrower that is proprietary in nature or was clearly marked or
labeled as confidential information (which term shall include Borrower's
financial information, projections and reports as well as the Business Plan),
other than such information that: (i) was publicly known or otherwise known to
Lender prior to the time of such disclosure; (ii) subsequently becomes publicly
known through no act or omission of Lender; (iii) otherwise becomes known to
Lender other than through disclosure by or on behalf of Borrower; or (iv)
constitutes financial statements or other information delivered to Lender that
are otherwise publicly available. The foregoing shall not preclude Lender from
delivering or disclosing such confidential information to: (i) its directors,
officers, employees, agents, attorneys and affiliates, (ii) its financial
advisors and other professional advisors who agree to maintain the
confidentiality of such information; (ii) to any assignee or participant (or any
prospective assignee or participant) in the Revolving Credit who agrees to
maintain the confidentiality of such information; (iv) to any governmental
authority having jurisdiction over the Lender; (v) in compliance with applicable
law, rule or regulation, including in response to subpoena or legal process, or
in connection with any litigation to which Lender is a party; or (vi) if any
Suspension Event has occurred and is continuing, to the extent Lender may
reasonably determine, such delivery and disclosure to be
61
necessary or appropriate in the enforcement or for the protection of the
Lender's rights and remedies under this Agreement or under the Loan Documents.
5.3. IMMEDIATE NOTICE TO LENDER.
(a) The Borrower shall provide the Lender with written notice
immediately 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:
(i) Any change in the Borrower's officers.
(ii) The completion of any physical count of the
Borrower's Inventory (together with a copy of the results thereof
certified by Borrower).
(iii) Any ceasing of the Borrower's making of payment, in
the ordinary course, to any of its creditors (including the ceasing of
the making of such payments on account of a dispute with the subject
creditor).
(iv) Any failure by the Borrower to pay rent at any of
the Borrower's locations, which failure continues for more than Five (5)
days following the day on which such rent is considered due.
(v) Any material change in the business, operations, or
financial affairs of the Borrower.
(vi) The occurrence of any Suspension Event.
(vii) Any intention on the part of the Borrower to
discharge the 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 5-1(d)).
(viii) Any litigation which, if determined adversely to the
Borrower, would reasonably be expected to have a material adverse effect
on the financial condition of the Borrower.
(ix) Any delay in the Borrower's meeting the timetable
for its operations becoming Year 2000 Compliant as described on EXHIBIT
4-5 or maintaining such operations as Year 2000 Compliant, except where
such delay or failure to so maintain will
62
would not reasonably be expected to have a material adverse effect on
the Borrower's operations.
(b) The Borrower shall:
(i) Provide the Lender, when so distributed, with copies
of any materials distributed to the stockholders of the Borrower (QUA
such stockholders).
(ii) Add the Lender as an addressee on all mailing lists
maintained by or for the Borrower, other than such mailings as are
expressly excluded or rejected by Lender.
(iii) 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).
(iv) Provide the Lender, when received by the Borrower,
with a copy of any management letter or similar communications from any
accountant of the Borrower.
5.4. BORROWING BASE CERTIFICATE. The Borrower shall provide the Lender
by 11:30AM, daily, with a Borrowing Base Certificate (in the form of EXHIBIT 5-4
annexed hereto, as such form may be reasonably revised from time to time by the
Lender). Such Certificate shall reflect inventory level adjustments rolling
forward not less frequently than weekly. Such Certificate 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.
5.5. WEEKLY REPORTS. Weekly, on Tuesday of each week (as of the
then immediately preceding week) the Borrower shall provide the Lender with an
Inventory report (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.
5.6. MONTHLY REPORTS.
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(a) Monthly, the Borrower shall provide the Lender with
original counterparts of the following (each in such form as the Lender from
time to time may specify):
(i) Within Fifteen (15) days of the end of the previous
month:
(A) An "Inventory Certificate" (signed by the
Borrower's Chairman, Chief Financial Officer, or Vice President of
Marketing concerning the Borrower's Inventory.
(B) JDA Inventory Print Out by Department. @ Cost
& Retail.
(C) Monthly Sales & Gross Margin % by Department.
(D) JDA Purchase Query by Department.
(ii) Within Thirty (30) days of the end of the previous
month:
(A) Reconciliation of the above described
Inventory Certificate (Section 5-6(a)(i)(A)) to Availability and
to the general ledger as of the end of the subject month.
(B) A Gross Margin Reconciliation.
(C) A schedule of purchases from the Borrower's
ten largest vendors (in terms of year to date purchases), which
schedule shall be in such form as may be satisfactory to the
Lender and shall include year to date cumulative purchases and an
aging of payables to each such vendor.
(D) An aging of the Borrower's accounts payable
or cash requirements.
(E) A Store Activity Report.
(F) An internally prepared financial statement of
the Borrower's financial condition 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 the
corresponding month of the then immediately previous year, as well
as to the Business Plan.
(b) For purposes of Section 5-6(a)(i), above, the first
"previous month" in respect of which the items required by that Section shall be
provided shall be May and for
64
purposes of Section 5-6(a)(ii), above, the first "previous month" in respect
of which the items required by that Section shall be provided shall be May.
5.7. QUARTERLY REPORTS. Quarterly, within Forty Five (45) days
following the end of each of the Borrower's fiscal quarters, the Borrower shall
provide the Lender with an original counterpart of the Borrower's Form 10Q
Report filed with the Security Exchange Commission.
5.8. ANNUAL REPORTS.
(a) Annually, within ninety (90) days following the end of the
Borrower's fiscal year, the Borrower shall furnish the Lender with an original
signed counterpart of the Borrower's annual financial statement, which statement
shall have been prepared by, and bear the unqualified opinion of, the Borrower's
independent certified public accountants (i.e. said statement shall be
"certified" by such accountants). Such annual statement 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 the Borrower's Form 10K Report filed with the Security and Exchange
Commision.
(b) No later than the earlier of Fifteen (15) days prior to the
end of each of the Borrower's fiscal years or the date on which such accountants
commence their work on the preparation of the Borrower's annual financial
statement, the Borrower shall give written notice to such accountants (with a
copy of such notice, when sent, to the Lender) that:
(i) Such annual financial statement will be delivered by
the Borrower to the Lender.
(ii) It is the primary intention of the Borrower, in its
engagement of such accountants, to satisfy the financial reporting
requirements set forth in this Article 5.
(iii) The Borrower has been advised that the Lender will
rely thereon with respect to the administration of, and transactions
under, the credit facility contemplated by this Agreement.
(c) Each annual statement shall be accompanied by such
accountant's Certificate indicating that, in the preparation of such annual
statement, such accountants did not
65
conclude that any Suspension Event had occurred during the subject fiscal
year (or if one or more had occurred, the facts and circumstances thereof).
5.9. OFFICERS' CERTIFICATES. The Borrower shall cause the
Borrower's Chief Executive Officer or Chief Financial Officer respectively to
provide such Person's Certificate with those monthly, and annual statements to
be furnished pursuant to this Agreement, which Certificate shall:
(a) Indicate that the subject statement was prepared in
accordance with GAAP consistently applied and presents fairly the financial
condition of the Borrower at the close of, and the results of the Borrower's
operations and cash flows for, the period(s) covered, SUBJECT, HOWEVER to the
following:
(i) usual year end adjustments and the absence of
footnotes (this exception shall not be included in the Certificate which
accompanies such annual statement).
(ii) 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 5-12.
(b) Indicate either that (i) no Suspension Event has occurred
or (ii) if such an event has occurred, its nature (in reasonable detail) and the
steps (if any) being taken or contemplated by the Borrower to be taken on
account thereof.
(c) Include calculations concerning the Borrower's compliance
(or failure to comply) at the date of the subject statement with each of the
financial performance covenants included in Section 5-12 hereof.
5.10. INVENTORIES, APPRAISALS, AND AUDITS.
(a) The Lender, at the expense of the Borrower, 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 the
Borrower.
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(b) The Borrower, at its own expense, shall cause not less than
one (i) physical inventory plus three seasonal pack-away inventories (Halloween,
Christmas and Easter) 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 as are satisfactory to the Lender and following such
methodology as may be satisfactory to the Lender.
(i) The 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 the Borrower) within twenty (20) days
following the completion of such inventory.
(ii) The Borrower shall provide the Lender with a
reconciliation of the results of each such inventory (as well as of any
other physical inventory undertaken by the Borrower) to the Borrower's
books and records within thirty (30) days following the completion of
such inventory.
(iii) The Lender, in its discretion, following the
occurrence of a Suspension Event, may cause such additional inventories
to be taken as the Lender determines (each, at the expense of the
Borrower).
(c) Upon the Lender's request from time to time, the Borrower
shall permit the Lender to obtain appraisals (in all events, at the Borrower's
expense) conducted by such appraisers as are satisfactory to the Lender.
(d) The Lender contemplates conducting Four (4) commercial
finance audits (in each event, at the Borrower's expense) of the Borrower's
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.
(e) The Lender from time to time (in all events, at the
Borrower's expense) may undertake "mystery shopping" (so-called) visits to all
or any of the Borrower's business premises. The Lender shall provide the
Borrower with a copy of any non-company confidential results of such mystery
shopping.
5.11. ADDITIONAL FINANCIAL INFORMATION.
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(a) In addition to all other information required to be
provided pursuant to this Article 5, the Borrower promptly shall provide the
Lender (and any guarantor of the Liabilities), with such other and additional
information concerning the Borrower, the Collateral, the operation of the
Borrower's business, and the Borrower's financial condition, including original
counterparts of financial reports and statements, as the Lender may from time to
time request from the Borrower.
(b) The Borrower may provide the Lender, from time to time
hereafter, with updated projections of the Borrower's anticipated performance
and operating results.
(c) In all events, the Borrower, no sooner than Ninety (90) nor
later than Sixty (60) days prior to the end of each of the Borrower's fiscal
years, shall furnish the Lender with an updated and extended projection which
shall go out at least through the end of the then next fiscal year.
(d) Such updated and extended projections shall be prepared
pursuant to a methodology and shall include such assumptions as are satisfactory
to the Lender.
(e) The Lender, following the receipt of any of such
projections, may, but shall not be under any obligation to, provide its written
sign-off on such projections (in which event, such Projections shall become the
Business Plan) and if it provides such written sign-off, may by written notice
to the Borrower, extend or revise the financial performance covenants included
on EXHIBIT 5-12, annexed hereto.
(f) In the event that the Lender does not provide its sign-off
with respect to the updated and extended projections to be provided at year-end
pursuant to Section 5-11(c), above, then the Lender, by written notice to the
Borrower, may revise, roll-over, or extend, for the then coming fiscal year, the
financial performance covenants applicable to the Borrower pursuant to Section
5-12 hereof by extrapolation from the Business Plan.
(g) The Borrower recognizes that all appraisals, inventories,
analysis, financial information, and other materials which the Lender may
obtain, develop, or receive with respect to the Borrower is confidential to the
Lender and that, except as otherwise provided herein, the Borrower is not
entitled to receipt of any of such appraisals, inventories, analysis, financial
information, and other materials, nor copies or extracts thereof or therefrom.
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5.12. FINANCIAL PERFORMANCE COVENANTS. The Borrower shall at all times
observe and comply with those financial performance covenants set forth in the
following subsections 5.12.1 and 5.12.2. Such financial performance covenants
are subject to change, revision, roll over, and extension as provided in Section
5-11(e) and (f) hereof, and shall in any event be reset following the occurrence
of the Capital Infusion Event. 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 Borrower's
compliance with such covenants based upon financial reports and statements
provided by the 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.
5.12.1 TANGIBLE CAPITAL BASE. The Borrower shall not permit or
suffer to exist a Tangible Capital Base, at any date, to be less than 85% of its
projected Tangible Capital Base, as calculable from the Borrower's projections,
and at such times as is set forth on the Business Plan set forth on EXHIBIT
5-12(a), annexed hereto and incorporated herein by reference.
5.12.2 FIXED CHARGE COVERAGE RATIO The Borrower shall not permit
or suffer to exist the ratio of its Cash Flow to its Contractual Obligations,
calculated on a cumulative basis for the period January 30, 1999 through January
29, 2000, and on a trailing twelve month basis, tested quarterly, commencing
with Borrower's fiscal quarter ending in July 1999, to be less than the amounts
set forth in the attached EXHIBIT 5-12(b), annexed hereto and incorporated
herein by reference, which amounts are based on the Business Plan.
ARTICLE 6 - USE AND COLLECTION OF COLLATERAL:
6.1. USE OF INVENTORY COLLATERAL.
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(a) The Borrower shall not engage in any sale of the Inventory
other than for fair consideration in the conduct of the Borrower's business in
the ordinary course and shall not engage in sales or other dispositions to
creditors; sales or other dispositions in bulk; and any use of any of the
Inventory in breach of any provision of their Agreement.
(b) No sale of Inventory shall be on consignment, approval, or
under any other circumstances such that, with the exception of the Borrower's
customary return policy applicable to the return of inventory purchased by the
Borrower's retail customers in the ordinary course, such Inventory may be
returned to the Borrower without the consent of the Lender.
6.2. INVENTORY QUALITY. All Inventory now owned or hereafter acquired
by the Borrower is and will be of good and merchantable quality and free from
defects (other than defects within customary trade tolerances).
6.3. ADJUSTMENTS AND ALLOWANCES. The Borrower may grant such
allowances or other adjustments to the Borrower's Account Debtors (exclusive
of extending the time for payment of any Account or Account Receivable, which
shall not be done without first obtaining the Lender's prior written consent
in each instance) as the Borrower may reasonably deem to accord with sound
business practice, PROVIDED, HOWEVER, the authority granted the Borrower
pursuant to this Section 6-3 may be limited or terminated by the Lender at
any time in the Lender's discretion.
6.4. VALIDITY OF ACCOUNTS.
(a) The amount of each Account shown on the books, records, and
invoices of the Borrower represented as owing by each Account Debtor is and will
be the correct amount actually owing by such Account Debtor and shall have been
fully earned by performance by the Borrower.
(b) The Borrower has no knowledge of any impairment of the
validity or collectibility of any of the Accounts and shall notify the Lender of
any such fact immediately after Borrower becomes aware of any such impairment.
70
(c) The Borrower shall not post any bond to secure the
Borrower's performance under any agreement to which the Borrower is a party nor
cause any surety, guarantor, or other third party obligee to become liable to
perform any obligation of the Borrower (other than to the Lender) in the event
of the Borrower's failure so to perform.
6.5. NOTIFICATION TO ACCOUNT DEBTORS. The Lender shall have the right
at any time following the occurrence and continuation of a Suspension Event to
notify any of the Borrower's Account Debtors to make payment directly to the
Lender and to collect all amounts due on account of the Collateral.
ARTICLE 7 - CASH MANAGEMENT. PAYMENT OF LIABILITIES:
7.1 DEPOSITORY ACCOUNTS.
(a) Annexed hereto as EXHIBIT 7-1 is a Schedule of all present
DDA's, which Schedule includes, with respect to each depository (i) the name and
address of that depository; (ii) the account number(s) of the account(s)
maintained with such depository; and (iii) a contact person at such depository.
(b) The Borrower shall deliver to the Lender, as a condition to
the effectiveness of this Agreement:
(i) Notification, executed on behalf of the Borrower, to
each depository institution with which any DDA is maintained (other than
the Operating Account or any Local DDA), in form satisfactory to the
Lender, of the Lender's interest in such DDA.
(ii) An agreement (generally referred to as a "Blocked
Account Agreement"), in form satisfactory to the Lender with any
depository institution at which both any DDA and the Operating Account is
maintained.
(iii) An agreement (generally referred to as a "Blocked
Account Agreement"), in form satisfactory to the Lender, with any
depository institution at which a Blocked Account is maintained
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(c) The Borrower will not establish any DDA hereafter (other
than a Local DDA) unless, contemporaneous with such establishment, the Borrower
delivers to the Lender an agreement (in form satisfactory to the Lender)
executed on behalf of the depository with which such DDA is being established.
7.2. CREDIT CARD RECEIPTS.
(a) Annexed hereto as EXHIBIT 7-2, is a Schedule which
describes all arrangements to which the Borrower is a party with respect to the
payment to the Borrower of the proceeds of all credit card charges for sales by
the Borrower.
(b) The Borrower shall deliver to the Lender, as a condition to
the effectiveness of this Agreement, notification, executed on behalf of the
Borrower, to each of the Borrower's credit card clearinghouses and processors of
notice (in form satisfactory to the Lender), which notice provides that payment
of all credit card charges submitted by the Borrower to that clearinghouse or
other processor and any other amount payable to the Borrower by such
clearinghouse or other processor shall be directed to the Concentration Account
or as otherwise designated from time to time by the Lender. The Borrower shall
not change such direction or designation except upon and with the prior written
consent of the Lender.
7.3. THE CONCENTRATION, BLOCKED, AND OPERATING ACCOUNTS.
(a) The following checking accounts have been or will be
established (and are so referred to herein):
(i) The CONCENTRATION ACCOUNT: Established by the Lender
with Richfield Bank & Trust Co.(interim) and BankBoston, N.A.
(ii) The BLOCKED ACCOUNT: Established by the Borrower
with Richfield Bank & Trust Co,.
(iii) The OPERATING ACCOUNT: Established by the Borrower
with Richfield Bank & Trust Co. (interim) and BankBoston, N.A.
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(b) The contents of each DDA (other than the Operating Account)
and of the Blocked Account constitutes Collateral and Proceeds of Collateral.
The contents of the Concentration Account constitutes the Lender's property.
(c) The Borrower:
(i) Contemporaneous with the execution of this
Agreement, shall provide the Lender with such agreement (generally
referred to as a "Blocked Account Agreement") of the depository with
which the Blocked Account is maintained as may be satisfactory to the
Lender; and
(ii) Shall not establish any Blocked Account hereafter
except upon not less than Thirty (30) days prior written notice to the
Lender and the delivery to the Lender of a similar such agreement.
(d) The Borrower shall pay all fees and charges of, and
maintain such impressed balances as may be required by the Lender or by any bank
in which any account is opened as required hereby (even if such account is
opened by and/or is the property of the Lender).
7.4. PROCEEDS AND COLLECTION OF ACCOUNTS.
(a) All Receipts constitute Collateral and proceeds of
Collateral and shall be held in trust by the Borrower for the Lender; shall not
be commingled with any of the Borrower's other funds; and shall be deposited
and/or transferred only to the Blocked Account.
(b) The Borrower shall cause the ACH or wire transfer to the
Blocked Account, no less frequently than daily (and whether or not there is then
an outstanding balance in the Loan Account) of
(i) the then contents of each DDA (other than (A) any
Local DDA and (B) the Operating Account), each such transfer to be net of
any minimum balance, not to exceed $1000.00, as may be required to be
maintained in the subject DDA by the bank at which such DDA is
maintained); and
(ii) the proceeds of all credit card charges not
otherwise provided for pursuant hereto.
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Telephone advice (confirmed by written notice) shall be provided to the Lender
on each Business Day on which any such transfer is made.
(c) Whether or not any Liabilities are then outstanding, the
Borrower shall cause the ACH or wire transfer to the Concentration Account, no
less frequently than daily, of then entire ledger balance of the Blocked
Account, net of such minimum balance, not to exceed $1000.00, as may be required
to be maintained in the Blocked Account by the bank at which the Blocked Account
is maintained.
(d) In the event that, notwithstanding the provisions of this
Section 7-4, the Borrower receives or otherwise has dominion and control of any
Receipts, or any proceeds or collections of any Collateral, such Receipts,
proceeds, and collections shall be held in trust by the Borrower for the Lender
and shall not be commingled with any of the Borrower's other funds or deposited
in any account of the Borrower other than as instructed by the Lender.
7.5. PAYMENT OF LIABILITIES.
(a) On each Business Day, the Lender shall apply, towards the
Liabilities, the then collected balance of the Concentration Account (net of
fees charged, and of such impressed balances as may be required by the bank at
which the Concentration Account is maintained.
(b) The following rules shall apply to deposits and payments
under and pursuant to this Agreement:
(i) Funds shall be deemed to have been deposited to the
Concentration Account on the Business Day on which deposited, PROVIDED
THAT notice of such deposit is available to the Lender by 2:00PM on that
Business Day.
(ii) Funds paid to the Lender, other than by deposit to
the Concentration Account, shall be deemed to have been received on the
Business Day when they are good and collected funds, PROVIDED THAT notice
of such payment is available to the Lender by 2:00PM on that Business
Day.
(iii) If notice of a deposit to the Concentration Account
(Section 7-5(b)(i)) or payment (Section 7-5(b)(ii)) is not available to
the Lender until after 2:00PM
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on a Business Day, such deposit or payment shall be deemed to have been
made at 9:00AM on the then next Business Day.
(iv) All deposits to the Concentration Account and other
payments to the Lender are subject to clearance and collection.
(c) The Lender shall transfer to the Operating Account any
surplus in the Concentration Account remaining after the application towards the
Liabilities referred to in Section 7-5(a), above (less those amount which are to
be netted out, as provided therein) PROVIDED, HOWEVER, in the event that both
(i) a Suspension Event has occurred and (ii) one or more L/C's are then
outstanding, the Lender may establish a funded reserve of up to 105% of the
aggregate Stated Amounts of such L/C's.
7.6. THE OPERATING ACCOUNT. Except as otherwise specifically provided
in, or permitted by, this Agreement, all checks shall be drawn by the Borrower
upon, and other disbursements shall be made by the Borrower solely from, the
Operating Account.
ARTICLE 8 - GRANT OF SECURITY INTEREST:
8.1. GRANT OF SECURITY INTEREST. To secure the Borrower's prompt,
punctual, and faithful performance of all and each of the Liabilities, the
Borrower hereby grants to the Lender a continuing security interest in and to,
and assigns to the Lender, the following, and each item thereof, whether now
owned or now due, or in which the Borrower has an interest, or hereafter
acquired, arising, or to become due, or in which the Borrower obtains an
interest, and all products, Proceeds, substitutions, and accessions of or to any
of the following (all of which, together with any other property in which the
Lender may in the future be granted a security interest, is referred to herein
as the "COLLATERAL"):
(a) All Accounts and accounts receivable.
(b) All Inventory.
(c) All General Intangibles.
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(d) All Equipment*.
(e) All Goods*.
(f) *EXCLUDING FIXTURES AND FURNITURE ASSOCIATED WITH LEASEHOLD
IMPROVEMENTS AND REAL PROPERTY OWNED OR LEASED BY THE
BORROWER, AND EXCLUDING EQUIPMENT THAT SUBSEQUENTLY BECOMES
LEASED TO BORROWER IN ONE OR MORE CAPITAL LEASE
TRANSACTIONS, PROVIDED THAT THE PROCEEDS OF ANY SALES OF
SUCH EQUIPMENT ARE REMITTED TO LENDER FOR APPLICATION TO
THE REVOLVING CREDIT.
(g) All Chattel Paper.
(h) All books, records, and information relating to the
Collateral and/or to the operation of the Borrower's
business, and all rights of access to such books, records,
and information, and all property in which such books,
records, and information are stored, recorded, and
maintained.
(i) All Investment Property, Instruments, Documents, Deposit
Accounts, policies and certificates of insurance, deposits,
impressed accounts, compensating balances, money, cash, or
other property.
(j) All insurance proceeds, refunds, and premium rebates,
including, without limitation, proceeds of fire and credit
insurance, whether any of such proceeds, refunds, and
premium rebates arise out of any of the foregoing.(8-1(a)
through 8-1(i)) or otherwise, subject to the prior rights,
if any, of holders of Permitted Ecumbrances, with respect
to Collateral or holders of Permitted Indebtedness on
assets which do not comprise Collateral.
(k) All liens, guaranties, rights, remedies, and privileges
pertaining to any of the foregoing (8-1(a) through 8-1(i)),
including the right of stoppage in transit.
(l) All Leasehold Interests.
8.2. EXTENT AND DURATION OF SECURITY INTEREST. The security interest
created and granted herein is in addition to, and supplemental of, any security
interest previously granted by the
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Borrower to the Lender and shall continue in full force and effect applicable
to all Liabilities until all Liabilities have been paid and/or satisfied in
full and the security interest granted herein is specifically terminated in
writing by a duly authorized officer of the Lender.
ARTICLE 9 - LENDER AS BORROWER'S ATTORNEY-IN-FACT:
9.1. APPOINTMENT AS ATTORNEY-IN-FACT. The Borrower hereby irrevocably
constitutes and appoints the Lender as the Borrower's true and lawful attorney,
with full power of substitution, to convert the Collateral into cash at the sole
risk, cost, and expense of the Borrower, but for the sole benefit of the Lender,
such power to be exercised by Lender only upon the occurrence and during the
continuation of a Suspension Event or Event of Default. The rights and powers
granted the Lender by the within appointment include but are not limited to the
right and power to:
(a) Prosecute, defend, compromise, or release any action
relating to the Collateral.
(b) Sign change of address forms to change the address to which
the Borrower's mail is to be sent to such address as the Lender shall designate;
receive and open the Borrower's mail; remove any Receivables Collateral and
Proceeds of Collateral therefrom and turn over the balance of such mail either
to the Borrower or to any trustee in bankruptcy, receiver, assignee for the
benefit of creditors of the Borrower, or other legal representative of the
Borrower whom the Lender determines to be the appropriate person to whom to so
turn over such mail.
(c) Endorse the name of the Borrower in favor of the Lender
upon any and all checks, drafts, notes, acceptances, or other items or
instruments; sign and endorse the name of the Borrower on, and receive as
secured party, any of the Collateral, any invoices, schedules of Collateral,
freight or express receipts, or bills of lading, storage receipts, warehouse
receipts, or other documents of title respectively relating to the Collateral.
(d) Sign the name of the Borrower on any notice to the
Borrower's Account Debtors or verification of the Receivables Collateral; sign
the Borrower's name on any Proof of
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Claim in Bankruptcy against Account Debtors, and on notices of lien, claims
of mechanic's liens, or assignments or releases of mechanic's liens securing
the Accounts.
(e) Take all such action as may be necessary to obtain the
payment of any letter of credit and/or banker's acceptance of which the Borrower
is a beneficiary.
(f) Repair, manufacture, assemble, complete, package, deliver,
alter or supply goods, if any, necessary to fulfill in whole or in part the
purchase order of any customer of the Borrower.
(g) Use, license or transfer any or all General Intangibles of
the Borrower.
9.2-. NO OBLIGATION TO ACT. The Lender shall not be obligated to
do any of the acts or to exercise any of the powers authorized by Section 9-1
herein, but if the Lender elects to do any such act or to exercise any of such
powers, it shall not be accountable for more than it actually receives as a
result of such exercise of power, and shall not be responsible to the Borrower
for any act or omission to act except for any act or omission to act as to which
there is a final determination made in a judicial proceeding (in which
proceeding the Lender has had an opportunity to be heard) which determination
includes a specific finding that the subject act or omission to act had been
grossly negligent or in actual bad faith.
ARTICLE 10 - EVENTS OF DEFAULT:
The occurrence of any event described in this Article 10 respectively
shall constitute an "EVENT OF DEFAULT" herein. Upon the occurrence of any Event
of Default described in Section 10-11, 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, any and all Liabilities shall become
immediately due and payable, at the option of the Lender and without notice or
demand. The occurrence of any Event of Default shall also constitute, without
notice or demand, a default under all other agreements between the Lender and
the Borrower and instruments and papers
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given the Lender by the Borrower, whether such agreements, instruments, or
papers now exist or hereafter arise.
10.1. FAILURE TO PAY REVOLVING CREDIT. The failure by the Borrower to
pay any amount when due under the Revolving Credit.
10.2. FAILURE TO MAKE OTHER PAYMENTS. The failure by the Borrower to
pay when due (or upon demand, if payable on demand) any payment Liability other
than under the Revolving Credit.
10.3. FAILURE TO PERFORM COVENANT OR LIABILITY (NO GRACE PERIOD). The
failure by the Borrower to promptly, punctually, faithfully and timely perform,
discharge, or comply with any covenant or Liability not otherwise described in
Section 10-1 or Section 10-2 hereof, and included in any of the following
provisions hereof:
Section Relates to :
------- -----------------------
4-6 Location of Collateral
4-7 Title to Assets
4-8 Indebtedness
4-9 Insurance Policies
4-14 Pay taxes
4-23 Affiliate Transactions
4-24 Additional Assurances
6-1 Use of Collateral
Article 5 Reporting Requirements and Financial Covenants
Article 7 Cash Management
10.4. FAILURE TO PERFORM COVENANT OR LIABILITY (GRACE PERIOD). The
failure by the Borrower, upon Ten (10) days written notice by the Lender , to
cure the Borrower's failure to promptly, punctually and faithfully perform,
discharge, or comply with any covenant or Liability not described in any of
Sections 10-1, 10-2, or 10-3 hereof.
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10.5. MISREPRESENTATION. The determination by the Lender that any
representation or warranty at any time made by the Borrower to the Lender, was
not true or complete in all material respects when given.
10.6. ACCELERATION OF OTHER DEBT. BREACH OF LEASE. The occurrence of
any event such that any Indebtedness of the Borrower in excess of $200,000 to
any creditor other than the Lender could be accelerated or, without the consent
of the Borrower, any Lease could be terminated (whether or not the subject
creditor or lessor takes any action on account of such occurrence).
10.7. DEFAULT UNDER OTHER AGREEMENTS. The occurrence of any breach or
default under any agreement between the Lender and the Borrower or instrument or
paper given the Lender by the Borrower, whether such agreement, instrument, or
paper now exists or hereafter arises and the failure of the Borrower to obtain a
waiver or to cure such default within the applicable cure period
(notwithstanding that the Lender may not have exercised its rights upon default
under any such other agreement, instrument or paper).
10.8. UNINSURED CASUALTY LOSS. The occurrence of any uninsured loss,
theft, damage, or destruction of or to any material portion of the Collateral.
10.9. JUDGMENT. RESTRAINT OF BUSINESS.
(a) The service of process upon the Lender or any Participant
seeking to attach, by trustee, mesne, or other process, any of the Borrower's
funds on deposit with, or assets of the Borrower in the possession of, the
Lender or such Participant.
(b) The entry of any judgment against the Borrower, which
judgment is not satisfied (if a money judgment) or appealed from or otherwise
stayed (with execution or similar process stayed) within the applicable appeals
period.
(c) 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 the Borrower of its business in the ordinary course.
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10.10. BUSINESS FAILURE. Any act by, against, or relating to the
Borrower, or its property or assets, which act constitutes the 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 part of the
Borrower's property; the granting of any trust mortgage or execution of an
assignment for the benefit of the creditors of the Borrower, or the occurrence
of any other voluntary or involuntary liquidation or extension of debt agreement
for the Borrower; the offering by or entering into by the Borrower of any
composition, extension, or any other arrangement seeking relief from or
extension of the debts of the Borrower; or the initiation of any judicial or
non-judicial proceeding or agreement by, against, or including the Borrower
which seeks or intends to accomplish a reorganization or arrangement with
creditors; and/or the initiation by or on behalf of the Borrower of the
liquidation or winding up of all or any part of the Borrower's business or
operations.
10.11. BANKRUPTCY. The failure by the Borrower to generally pay the
debts of the Borrower as they mature; adjudication of bankruptcy or insolvency
relative to the Borrower; the entry of an order for relief or similar order with
respect to the Borrower in any proceeding pursuant to the Bankruptcy Code or any
other federal bankruptcy law; the filing of any complaint, application, or
petition by the Borrower initiating any matter in which the Borrower is or may
be granted any relief from the debts of the Borrower pursuant to the Bankruptcy
Code or any other insolvency statute or procedure; the filing of any complaint,
application, or petition against the Borrower initiating any matter in which the
Borrower is or may be granted any relief from the debts of the 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 the
Borrower by appropriate proceedings or, if so contested, is not dismissed within
thirty (30) days of when filed.
10.12. DEFAULT BY GUARANTOR OR CERTAIN RELATED ENTITIES. The
occurrence of any of the foregoing Events of Default with respect to any
guarantor of the Liabilities, or the occurrence of any of the foregoing Events
of Default with respect to any parent (meaning an entity holding
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eighty percent (80%) or more of the common stock of the Borrower), or
subsidiary, as if such guarantor, subsidiary or parent were the "Borrower"
described therein.
10.13. INDICTMENT - FORFEITURE. The indictment of, or institution of
any legal process or proceeding against, the Borrower, under any federal, state,
municipal, and other civil or criminal statute, rule, regulation, order, or
other requirement having the force of law where the relief, penalties, or
remedies sought or available include the forfeiture of any property of the
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 the Borrower of its
business in the ordinary course.
10.14. TERMINATION OF GUARANTY. The termination or attempted
termination of any guaranty by any guarantor of the Liabilities.
10.15. CHALLENGE TO LOAN DOCUMENTS.
(a) Any challenge by or on behalf of the 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.
(b) 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.
10.16. EXECUTIVE MANAGEMENT. The death, disability, or failure of
any of Yale X. Xxxxxxxx, Chairman and Chief Executive Officer at any time to
exercise that authority and discharge those management responsibilities with
respect to the Borrower as are exercised and discharged by such Person at the
execution of this Agreement, and if, within sixty (60) days from the date of
the death, disability or failure of such Person, a management team that is
satisfactory to Lender in its sole discretion has assumed those management
responsibilities.
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10.17. CHANGE IN CONTROL. Any Change in Control.
ARTICLE 11.- RIGHTS AND REMEDIES UPON DEFAULT:
In addition to all of the rights, remedies, powers, privileges, and
discretions which the Lender is provided prior to the occurrence of an Event of
Default, the Lender shall have the following rights and remedies upon the
occurrence of any Event of Default and at any time thereafter during the
continuance thereof. No stay which otherwise might be imposed pursuant to
Section 362 of the Bankruptcy Code or otherwise shall stay, limit, prevent,
hinder, delay, restrict, or otherwise prevent the Lender's exercise of any of
such rights and remedies.
11.1. RIGHTS OF ENFORCEMENT. The Lender shall have all of the
rights and remedies of a secured party upon default under the UCC, in addition
to which the Lender shall have all and each of the following rights and
remedies:
(a) To collect the Receivables Collateral with or without the
taking of possession of any of the Collateral.
(b) To take possession of all or any portion of the Collateral.
(c) To sell, lease, or otherwise dispose of any or all of the
Collateral, in its then condition or following such preparation or processing as
the Lender deems advisable and with or without the taking of possession of any
of the Collateral.
(d) To conduct one or more going out of business sales which
include the sale or other disposition of the Collateral.
(e) To apply the Receivables Collateral or the Proceeds of the
Collateral towards (but not necessarily in complete satisfaction of) the
Liabilities.
(f) To exercise all or any of the rights, remedies, powers,
privileges, and discretions under all or any of the Loan Documents.
11.2. SALE OF COLLATERAL.
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(a) Any sale or other disposition of the Collateral may be at
public or private sale upon such terms and in such manner as the Lender deems
advisable, having due regard to compliance with any statute or regulation which
might affect, limit, or apply to the Lender's disposition of the Collateral.
(b) The Lender, in the exercise of the Lender's rights and
remedies upon default, may conduct one or more going out of business sales, in
the Lender's own right or by one or more agents and contractors. Such sale(s)
may be conducted upon any premises owned, leased, or occupied by the Borrower.
The Lender and any such agent or contractor, in conjunction with any such sale,
may augment the Inventory with other goods (all of which other goods shall
remain the sole property of the Lender or such agent or contractor). Any
amounts realized from the sale of such goods which constitute augmentations to
the Inventory (net of an allocable share of the costs and expenses incurred in
their disposition) shall be the sole property of the Lender or such agent or
contractor and neither the Borrower nor any Person claiming under or in right of
the Borrower shall have any interest therein.
(c) Unless the Collateral is perishable or threatens to decline
speedily in value, or is of a type customarily sold on a recognized market (in
which event the Lender shall provide the Borrower with such notice as may be
practicable under the circumstances), the Lender shall give the Borrower at
least seven (7) days prior written notice of the date, time, and place of any
proposed public sale, and of the date after which any private sale or other
disposition of the Collateral may be made. The Borrower agrees that such
written notice shall satisfy all requirements for notice to the Borrower which
are imposed under the UCC or other applicable law with respect to the exercise
of the Lender's rights and remedies upon default.
(d) The Lender may purchase the Collateral, or any portion of
it at any sale held under this Article.
(e) If any of the Collateral is sold, leased, or otherwise
disposed of by the Lender on credit, the Liabilities shall not be deemed to have
been reduced as a result thereof unless and until payment is finally received
thereon by the Lender.
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(f) The Lender shall apply the proceeds of any exercise of the
Lender's Rights and Remedies under this Article 11 towards the Liabilities in
such manner, and with such frequency, as the Lender determines.
11.3. OCCUPATION OF BUSINESS LOCATION. In connection with the Lender's
exercise of the Lender's rights under this Article 11, the Lender may enter
upon, occupy, and use any premises owned or occupied by the Borrower, and may
exclude the Borrower from such premises or portion thereof as may have been so
entered upon, occupied, or used by the Lender. The Lender shall not be required
to remove any of the Collateral from any such premises upon the Lender's taking
possession thereof, and may render any Collateral unusable to the Borrower. In
no event shall the Lender be liable to the Borrower for use or occupancy by the
Lender of any premises pursuant to this Article 11, nor for any charge (such as
wages for the Borrower's employees and utilities) incurred in connection with
the Lender's exercise of the Lender's Rights and Remedies.
11.4. GRANT OF NONEXCLUSIVE LICENSE. The Borrower hereby grants to
the Lender a royalty free nonexclusive irrevocable license to use, apply, and
affix any trademark, trade name, logo, or the like in which the Borrower now or
hereafter has rights, such license being with respect to the Lender's exercise
of the rights hereunder including, without limitation, in connection with any
completion of the manufacture of Inventory or sale or other disposition of
Inventory.
11.5. ASSEMBLY OF COLLATERAL. The Lender may require the Borrower to
assemble the Collateral and make it available to the Lender at the Borrower's
sole risk and expense at a place or places which are reasonably convenient to
both the Lender and Borrower.
11.6. RIGHTS AND REMEDIES. The rights, remedies, powers,
privileges, and discretions of the Lender hereunder (herein, 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
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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 waiver on any
subsequent occasion, nor shall it be deemed a continuing waiver. All of the
Lender's Rights and Remedies and all of the Lender's rights, remedies, powers,
privileges, and discretions under any other agreement or transaction are
cumulative, and not alternative or exclusive, and may be exercised by the Lender
at such time or times and in such order of preference as the Lender in its sole
discretion 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 12 - NOTICES:
12.1. NOTICE ADDRESSES. All notices, demands, and other
communications made in respect of this Agreement (other than a request for a
loan or advance or other financial accommodation under the Revolving Credit)
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:
BankBoston Retail Finance Inc.
00 Xxxxx Xxxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
Attention : Xxxxxxx Xxxxxx, Director
Fax : 000 000-0000
WITH A COPY TO:
00
Xxxxxxx & Xxxxxxx & Xxxxx LLP
000 Xxxxxxx Xxxxxx
Xxxxxx, Xx 00000
Attention : Xxxxx X. Xxxxxxxx, Esquire
Fax : (000)-000-0000
If to the Borrower:
Paper Warehouse, Inc.
0000 Xxxxxxxxx Xxxxxxxxx
Xxxxxxxxxxx, XX 00000
Attention : Xxxxxx X. Xxxxxx, Chief Financial
Officer
Fax (000)-000-0000
WITH A COPY TO:
Xxxxxxxxxxx, Xxxxx & Xxxxxxxx, LLP
00 Xxxxx Xxxxxxx Xxxxxx
Xxxxx 0000
Xxxxxxxxxxx, Xx. 00000 -1609
Attention : Xxxxxxxxxxx X. Xxxxxx, Esquire
Fax: : .(000) 000-0000.............
12.2. NOTICE GIVEN.
(a) 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):
(i) By mail: the sooner of when actually received or
Three (3) days following deposit in the United States mail, postage
prepaid.
(ii) By recognized overnight express delivery: the
Business Day following the day when sent.
(iii) 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.
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(iv) 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.
(b) 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:
13.1. TERMINATION OF REVOLVING CREDIT. The Revolving Credit shall
remain in effect (subject to suspension as provided in Section 2-4(i) hereof)
until the Termination Date.
13.2. EFFECT OF TERMINATION. On the Termination Date, the Borrower
shall pay the Lender (whether or not then due), in immediately available funds,
all then Liabilities including, without limitation: the entire balance of the
Loan Account; any then remaining installments of the Commitment Fee; any then
remaining balance of the Facility Fee; any accrued and unpaid Line Fee; and all
unreimbursed costs and expenses of the Lender for which the Borrower is
responsible; and shall make such arrangements concerning any L/C's then
outstanding are reasonably satisfactory to the Lender . Until such payment, all
provisions of this Agreement, other than those contained in Article 2 which
place an obligation on the Lender to make any loans or advances or to provide
financial accommodations under the Revolving Credit or otherwise, shall remain
in full force and effect until all Liabilities shall have been paid in full.
The release by the Lender of the security and other collateral interests granted
the Lender by the Borrower hereunder may be upon such conditions and
indemnifications as the Lender may require.
ARTICLE 14 - GENERAL:
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14.1. 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 and shall have no
duty as to the preservation of rights against prior parties or any other rights
pertaining thereto. The Lender may include reference to the Borrower (and may
utilize any logo or other distinctive symbol associated with the Borrower) in
connection with any advertising, promotion, or marketing undertaken by the
Lender.
14.2. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
the Borrower and the Borrower's representatives, successors, and assigns and
shall enure to the benefit of the Lender and the Lender's successors and assigns
PROVIDED, HOWEVER, no trustee or other fiduciary appointed with respect to the
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
the Lender hereunder and the Lender shall thereupon be discharged and relieved
from its duties and obligations hereunder.
14.3. 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.
14.4. AMENDMENTS. COURSE OF DEALING.
(a) This Agreement and the other Loan Documents incorporate all
discussions and negotiations between the 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 Borrower of the 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 in
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the manner by which Availability is determined shall obligate the Lender to
continue to determine Availability in that manner.
(b) The 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 Borrower (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.
14.5. POWER OF ATTORNEY. In connection with all powers of attorney
included in this Agreement, the 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 the 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 the Borrower and
each shall survive the same. All powers conferred upon the Lender 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.
14.6. APPLICATION OF PROCEEDS. 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. The Borrower shall remain liable for any
deficiency remaining following such application.
14.7. LENDER'S COSTS AND EXPENSES.
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(a) The Borrower shall pay on demand all Costs of Collection
and all reasonable expenses of the Lender in connection with the preparation,
execution, and delivery of this Agreement and of any other Loan Documents,
whether now existing or hereafter arising, and all other reasonable expenses
which may be incurred by the Lender in preparing or amending this Agreement and
all other agreements, instruments, and documents related thereto, or otherwise
incurred with respect to the Liabilities, and all costs and expenses of the
Lender which relate to the credit facility contemplated hereby.
(b) The 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.
(c) The undertaking on the part of the Borrower in this Section
14-7 shall survive payment of the Liabilities and/or any termination, release,
or discharge executed by the Lender in favor of the Borrower, other than a
termination, release, or discharge which makes specific reference to this
Section 14-7.
14.8. COPIES AND FACSIMILES. This Agreement and all documents which
relate 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 the Lender 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 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.
14.9. MASSACHUSETTS LAW. This Agreement and all rights and obligations
hereunder, including matters of construction, validity, and performance, shall
be governed by the laws of The Commonwealth of Massachusetts.
14.10. CONSENT TO JURISDICTION.
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(a) The Borrower agrees that any legal action, proceeding,
case, or controversy against the Borrower with respect to any Loan Document may
be brought in the Superior Court of Suffolk County Massachusetts or in the
United States District Court, District of Massachusetts, sitting in Boston,
Massachusetts, as the Lender may elect in the Lender's sole discretion. By
execution and delivery of this Agreement, the Borrower, for itself and in
respect of its property, accepts, submits, and consents generally and
unconditionally, to the jurisdiction of the aforesaid courts.
(b) The 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 Borrower at the Borrower's
address for notices as specified herein, such service to become effective five
(5) Business Days after such mailing.
(c) The 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.
(d) Nothing herein shall affect the right of the Lender to
bring legal actions or proceedings in any other competent jurisdiction.
(e) The Borrower agrees that any action commenced by the
Borrower asserting any claim or counterclaim arising under or in connection with
this Agreement or any other Loan Document shall be brought solely in the
Superior Court of Suffolk County Massachusetts or in the United States District
Court, District of Massachusetts, sitting in Boston, Massachusetts, and that
such Courts shall have exclusive jurisdiction with respect to any such action.
14.11. INDEMNIFICATION. The Borrower shall indemnify, defend, and
hold the Lender and any employee, officer, or agent of the Lender (each, an
"INDEMNIFIED PERSON") harmless of and from any claim brought or threatened
against any Indemnified Person by the Borrower, any guarantor or endorser of the
Liabilities, or any other Person (as well as from attorneys' reasonable fees and
expenses in connection therewith) on account of the relationship of the Borrower
or of
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any other guarantor or endorser of the Liabilities Lender (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
Borrower) other than 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 Borrower, other than a
termination, release, or discharge which makes specific reference to this
Section 14-11.
14.12. 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:
(a) Words in the singular include the plural and words in the
plural include the singular.
(b) 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.
(c) The words "includes" and "including" are not limiting.
(d) Text which follows the words "including, without
limitation" (or similar words) is illustrative and not limitational.
(e) Except where the context otherwise requires or where the
relevant subsections are joined by "or", compliance with any Section or
provision of any Loan Document which constitutes a warranty or covenant requires
compliance with all subsections (if any) of that Section or provision. Except
where the context otherwise requires, compliance with any warranty or covenant
of any Loan Document which includes subsections which are joined by "or" may be
accomplished by compliance with any of such subsections.
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(f) 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.
(g) The words "may not" are prohibitive and not permissive.
(h) The word "or" is not exclusive.
(i) 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).
(j) Terms which are defined in one section of any Loan Document
are used with such definition throughout the instrument in which so defined.
(k) The symbol "$" refers to United States Dollars.
(l) 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.
(m) 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.
(n) Except as otherwise specifically provided, all references
to time are to Boston time.
(o) In the determination of any notice, grace, or other period
of time prescribed or allowed hereunder:
(i) 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.
(ii) The word "from" means "from and including".
(iii) The words "to" and "until" each mean "to, but
excluding".
(iv) The work "through" means "to and including".
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(p) The Loan Documents shall be construed and interpreted in a
harmonious manner and in keeping with the intentions set forth in Section 14-13
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.
14.13. INTENT. It is intended that:
(a) This Agreement take effect as a sealed instrument.
(b) The scope of the security interests created by this
Agreement be broadly construed in favor of the Lender.
(c) The security interests created by this Agreement secure all
Liabilities, whether now existing or hereafter arising.
(d) All reasonable costs and expenses incurred by the Lender in
connection with the Lender's relationship(s) with the Borrower shall be borne by
the Borrower.
(e) Unless otherwise explicitly provided herein, the Lender's
consent to any action of the 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 2-15 hereof.
14.14. RIGHT OF SET-OFF. Any and all deposits or other sums at any
time credited by or due to the Borrower from the Lender or any participant (a
"PARTICIPANT") in the credit facility contemplated hereby or any from any
Affiliate of the Lender or any Participant and any cash, securities, instruments
or other property of the Borrower in the possession of the Lender any
Participant or any such Affiliate, 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 the
Borrower to the Lender or any Participant or any 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 or any Participant or any such Affiliate.
14.15. MAXIMUM INTEREST RATE. Regardless of any provision of any
Loan Document, the Lender shall never be entitled to contract for, charge,
receive, collect, or apply as interest on
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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."
14.16. WAIVERS.
(a) The Borrower (and all guarantors, endorsers, and sureties
of the Liabilities) make each of the waivers included in Section 14-16(b),
below, knowingly, voluntarily, and intentionally, and understands that the
Lender, in entering into the financial arrangements contemplated hereby and in
providing loans and other financial accommodations to or for the account of the
Borrower as provided herein, whether not or in the future, is relying on such
waivers.
(b) THE BORROWER, AND EACH SUCH GUARANTOR, ENDORSER, AND SURETY
RESPECTIVELY WAIVES THE FOLLOWING:
(i) 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.
(ii) 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.
(iii) THE RIGHT TO A JURY IN ANY TRIAL OF ANY CASE OR
CONTROVERSY IN WHICH THE LENDER IS OR BECOMES A PARTY (WHETHER SUCH CASE
OR CONTROVERSY IS INITIATED BY OR AGAINST THE LENDER OR IN WHICH 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 THE
BORROWER OR ANY OTHER PERSON AND THE LENDER (AND THE LENDER LIKEWISE
WAIVES THE RIGHT TO A JURY IN ANY TRIAL OF ANY SUCH CASE OR CONTROVERSY).
(iv) The benefits or availability of any stay,
limitation, hindrance, delay, or restriction (including, without
limitation, any automatic stay which otherwise might be
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imposed pursuant to Section 362 of the Bankruptcy Code) with respect to
any action which the Lender may or may become entitled to take hereunder.
(v) 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.
(vi) Any claim to consequential, special, or punitive
damages.
PAPER WAREHOUSE, INC.
("BORROWER")
By /s/ YALE X. XXXXXXXX
------------------------------
Yale X. Xxxxxxxx, Chairman and
Chief Executive Officer
PAPER FRANCHISING WAREHOUSE, INC.
("BORROWER")
By /s/ Yale X. Xxxxxxxx
------------------------------
Yale X. Xxxxxxxx, Chairman and
Chief Executive Officer
BANKBOSTON RETAIL FINANCE INC.
("LENDER")
By /s/ Xxxxxxx Xxxxxx
------------------------------
Xxxxxxx Xxxxxx, Director
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