1
EXHIBIT 10.17
LOAN AND SECURITY AGREEMENT
BY AND BETWEEN
CONGRESS FINANCIAL CORPORATION (CENTRAL)
AS LENDER
AND
STUART ENTERTAINMENT, INC.
AS BORROWER
DATED: NOVEMBER 20, 1997
2
TABLE OF CONTENTS
Page
SECTION 1. DEFINITIONS
SECTION 2. CREDIT FACILITIES
2.1 Revolving Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.2 Letter of Credit Accommodations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.3 Availability Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.4 Increases in Maximum Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 3. INTEREST AND FEES
3.1 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.2 Closing Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.3 Unused Line Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.5 Changes in Laws and Increased Costs of Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 4. CONDITIONS PRECEDENT
4.1 Conditions Precedent to Initial Loans and Letter of Credit Accommodations . . . . . . . . . . . . . 25
4.2 Conditions Precedent to All Loans and Letter of Credit Accommodations . . . . . . . . . . . . . . . 27
SECTION 5. GRANT OF SECURITY INTEREST
SECTION 6. COLLECTION AND ADMINISTRATION
6.1 Borrower's Loan Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.2 Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.3 Collection of Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.4 Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
6.5 Authorization to Make Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
6.6 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 7. COLLATERAL REPORTING AND COVENANTS
7.1 Collateral Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.2 Accounts Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.3 Inventory Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
7.4 Equipment Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
7.5 Power of Attorney . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
7.6 Right to Cure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
7.7 Access to Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 8. REPRESENTATIONS AND WARRANTIES
8.1 Corporate Existence, Power and Authority; Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . 40
8.2 Financial Statements; No Material Adverse Change. . . . . . . . . . . . . . . . . . . . . . . . . . 41
8.3 Chief Executive Office; Collateral Locations. . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
8.4 Priority of Liens; Title to Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
(i)
3
8.5 Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
8.6 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
8.7 Compliance with Other Agreements and Applicable Laws . . . . . . . . . . . . . . . . . . . . . . . . 42
8.8 Employee Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
8.9 Environmental Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
8.10 Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
8.11 Accuracy and Completeness of Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
8.12 Survival of Warranties; Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS
9.1 Maintenance of Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
9.2 New Collateral Locations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
9.3 Compliance with Laws, Regulations, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
9.4 Payment of Taxes and Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
9.5 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
9.6 Financial Statements and Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc. . . . . . . . . . . . . . . . . . . . . . . 51
9.8 Encumbrances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
9.9 Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
9.10 Loans, Investments, Guarantees, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
9.11 Dividends and Redemptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
9.12 Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
9.13 Additional Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
9.14 Adjusted Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
9.15 Compliance with ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
9.16 Costs and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
9.17 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
SECTION 10. EVENTS OF DEFAULT AND REMEDIES
10.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
10.2 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS
AND CONSENTS; GOVERNING LAW
11.1 Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver . . . . . . . . . . . . . . . 64
11.2 Waiver of Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
11.3 Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
11.4 Waiver of Counterclaims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
11.5 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS
12.1 Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
12.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
12.3 Partial Invalidity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
12.4 Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
12.5 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
12.6 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
(ii)
4
INDEX TO
EXHIBITS AND SCHEDULES
Exhibit A Information Certificate
Exhibit B Form of Borrowing Base Certificate
Schedule 5.3 Investment Account Excluded From Collateral
Schedule 8.4 Existing Liens
Schedule 8.8 Employee Benefit Matters
Schedule 8.9 Environmental Matters
Schedule 8.10 Bank Accounts
Schedule 9.9 Existing Indebtedness
Schedule 9.10 Existing Loans, Advances and Guarantees
(iii)
5
LOAN AND SECURITY AGREEMENT
This Loan and Security Agreement dated November 20, 1997 is entered
into by and between Congress Financial Corporation (Central), an Illinois
corporation ("Lender"), and Stuart Entertainment, Inc., a Delaware corporation
("Borrower").
W I T N E S S E T H:
WHEREAS, Borrower has requested that Lender enter into certain
financing arrangements with Borrower pursuant to which Lender may make loans
and provide other financial accommodations to Borrower; and
WHEREAS, Lender is willing to make such loans and provide such
financial accommodations on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual conditions and
agreements set forth herein, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
SECTION 1. DEFINITIONS
All terms used herein which are defined in Article 1 or Article 9 of
the Uniform Commercial Code shall have the meanings given therein unless
otherwise defined in this Agreement. All references to the plural herein shall
also mean the singular and to the singular shall also mean the plural unless
the context otherwise requires. All references to Borrower and Lender pursuant
to the definitions set forth in the recitals hereto, or to any other person
herein, shall include their respective successors and assigns. The words
"hereof", "herein", "hereunder", "this Agreement" and words of similar import
when used in this Agreement shall refer to this Agreement as a whole and not
any particular provision of this Agreement and as this Agreement now exists or
may hereafter be amended, modified, supplemented, extended, renewed, restated
or replaced. The word "including" when used in this Agreement shall mean
"including, without limitation". An Event of Default shall exist or continue
or be continuing until such Event of Default is waived in accordance with
Section 11.3 or is cured in a manner Lender, in good faith, deems satisfactory,
if such Event of Default is capable of being cured, as determined by Lender in
good faith. Any accounting term used herein unless otherwise defined in this
Agreement shall have the meanings customarily given to such term in accordance
with GAAP. For purposes of this Agreement, the
6
following terms shall have the respective meanings given to them below:
1.1 "Accounts" shall mean all present and future rights of
Borrower to payment for goods sold or leased or for services rendered, which
are not evidenced by instruments or chattel paper, and whether or not earned by
performance.
1.2 "Adjusted Eurodollar Rate" shall mean, with respect to each
Interest Period for any Eurodollar Rate Loan, the rate per annum (rounded
upwards, if necessary, to the next one-sixteenth (1/16) of one (1%) percent)
determined by dividing (a) the Eurodollar Rate for such Interest Period by (b)
a percentage equal to: (i) one (1) minus (ii) the Reserve Percentage. For
purposes hereof, "Reserve Percentage" shall mean the reserve percentage,
expressed as a decimal, prescribed by any United States or foreign banking
authority for determining the reserve requirement which is or would be
applicable to deposits of United States dollars in a non-United States or an
international banking office of Reference Bank used to fund a Eurodollar Rate
Loan or any Eurodollar Rate Loan made with the proceeds of such deposit,
whether or not the Reference Bank actually holds or has made any such deposits
or loans. The Adjusted Eurodollar Rate shall be adjusted on and as of the
effective day of any change in the Reserve Percentage.
1.3 "Adjusted Net Worth" shall mean as to any Person, at any time,
in accordance with GAAP (except as otherwise specifically set forth below), on
a consolidated basis for such Person and its subsidiaries (if any), the amount
equal to the difference between: (i) the aggregate net book value of all assets
of such Person and its subsidiaries, calculating the book value of inventory
for this purpose on a first-in-first-out basis, after deducting from such book
values all appropriate reserves in accordance with GAAP (including all reserves
for doubtful receivables, obsolescence, depreciation and amortization) and (ii)
the aggregate amount of the indebtedness and other liabilities of such Person
and its subsidiaries (including tax and other proper accruals); provided, that,
for purposes hereof, Adjusted Net Worth shall be calculated without giving
effect to extraordinary gains realized after the date hereof and without giving
effect to write-downs of goodwill taken after the date hereof.
1.4 "Amortized Equipment Value" shall mean, at any time, an amount
determined by Lender by subtracting from $4,443,750, the product obtained by
multiplying $74,062.50 by the number of months elapsed after the date hereof
through and including the date of determination; provided, that if any
appraisal delivered
-2-
7
to or obtained by Lender after the date hereof under Section 7.4 hereof with
respect to Equipment deemed acceptable to Lender for lending purposes indicates
that the Amortized Equipment Value exceeds seventy-five (75%) percent of the
orderly liquidation value of such acceptable Equipment, the Amortized Equipment
Value shall be reset by Lender to the amount equal to seventy-five (75%)
percent of such appraised orderly liquidation value and the Amortized Equipment
Value shall be reduced and further reduced each month thereafter on the first
day of each month (but not below zero), by the product obtained by multiplying
the Amortized Equipment Value, as so reset, by a fraction, the numerator of
which is one (1), and the denominator of which is the number equal to (x) sixty
(60) minus (y) the number of months elapsed after the date hereof.
1.5 "Applicable Margin" shall mean the respective percentage per
annum set forth in the table below for Prime Rate Loans and Eurodollar Rate
Loans, as the case may be, corresponding to the average daily Combined Excess
Availability as determined by Lender for the month immediately preceding the
month (or portion thereof) for which the Interest Rate is being determined
hereunder:
Average Daily Applicable Margin Applicable Margin
Combined Excess for for
Availability Prime Rate Loans Eurodollar Rate Loans
---------------- ----------------- ---------------------
$0 to $4,999,999 3/4% 2 3/4%
$5,000,000 to $14,999,999 1/2% 2 1/2%
$15,000,000 or more 1/4% 2 1/4%
;provided, however, if Borrower shall fail to deliver any Borrowing Base
Certificate on the date due hereunder, then, without limiting Lender's other
rights and remedies by reason thereof, if such Borrowing Base Certificate is
not delivered in accordance with the terms hereof within two (2) business days
after such date due hereunder, the Applicable Margin shall, at Lender's option,
be deemed to be three-quarters of one (3/4%) percent for Prime Rate Loans and
two and three-quarters (2 3/4%) percent for Eurodollar Rate Loans.
1.6 "Availability Reserves" shall mean, as of any date of
determination, such amounts as Lender may from time to time actually establish
and revise in good faith reducing the amount of Revolving Loans and Letter of
Credit Accommodations which would otherwise be available to Borrower under the
lending formula(s) provided for herein: (a) to reflect, without duplication,
and in amounts not in excess of a good faith
-3-
8
estimate by Lender of, the potential adverse effect of any events, conditions,
contingencies or risks which, as determined by Lender in good faith, do or may
affect either (i) the Collateral or any other property which is security for
the Obligations or its value, (ii) the assets, business or prospects of
Borrower or any Obligor or (iii) the security interests and other rights of
Lender in the Collateral (including the enforceability, perfection and priority
thereof) or (b) to reflect Lender's good faith belief that any collateral
report or financial information furnished by or on behalf of Borrower or any
Obligor to Lender is or may have been incomplete, inaccurate or misleading in
any material respect or (c) to reflect outstanding Letter of Credit
Accommodations as provided in Section 2.2 hereof, (d) in respect of any state
of facts which Lender determines in good faith constitutes an Event of Default
or may, with notice or passage of time or both, constitute an Event of Default
or (e) to effect any reserves required by Lender under Section 2.3(b) or any
other provision of this Agreement.
1.7 "Blocked Accounts" shall have the meaning set forth in Section
6.3 hereof.
1.8 "Borrowing Base Certificate" shall mean a certificate
substantially in the form of Exhibit B hereto, as such form may from time to
time be modified by Lender, in a manner consistent with the reporting
Obligations of Borrower hereunder, which is duly completed (including all
schedules thereto) and executed by the chief financial officer or other
appropriate financial officer of Borrower acceptable to Lender and delivered to
Lender.
1.9 "Business Day" or "business day" shall mean any day other than
a Saturday, Sunday, or other day on which commercial banks are authorized or
required to close under the laws of the State of Illinois or the Commonwealth
of Pennsylvania, and a day on which the Reference Bank and Lender are open for
the transaction of business, except that if a determination of a Business Day
shall relate to any Eurodollar Rate Loans, the term Business Day shall also
exclude any day on which banks are closed for dealings in dollar deposits in
the London interbank market or other applicable Eurodollar Rate market.
1.10 "Canadian Borrower" shall mean Borrower's wholly-owned
subsidiary, Bingo Press & Specialty Limited, an Ontario corporation, doing
business as Bazaar & Novelty, and its successors and assigns.
1.11 "Canadian Dollars" or "Cdn$" shall mean dollars of Canada or
other lawful currency of Canada.
-4-
9
1.12 "Canadian Financing Agreements" shall mean the "Financing
Agreements" as defined in the Canadian Loan Agreement.
1.13 "Canadian Letter of Credit Accommodations" shall mean the
"Letter of Credit Accommodations" as defined in, and from time to time issued
or caused to be issued by Congress (Canada) for the account of the Canadian
Borrower under, the Canadian Loan Agreement.
1.14 "Canadian Loan Agreement" shall mean that certain Loan
Agreement, dated on or about the date hereof, between Congress (Canada) and the
Canadian Borrower, as the same now exists or may hereafter be amended,
modified, supplemented, extended, renewed, restated or replaced.
1.15 "Canadian Loans" shall mean the "Loans" as defined in, and
from time to time made by Congress (Canada) to the Canadian Borrower under, the
Canadian Loan Agreement.
1.16 "Cash Equivalents" shall have the meaning set forth in Section
9.10 hereof.
1.17 "Change of Control" shall mean any "Change of Control" as
defined in the Indenture governing the Subordinated Notes, as in effect on the
date hereof.
1.18 "Code" shall mean the Internal Revenue Code of 1986, as the
same now exists or may from time to time hereafter be amended, modified,
recodified or supplemented, together with all rules, regulations and
interpretations thereunder or related thereto.
1.19 "Collateral" shall have the meaning set forth in Section 5
hereof.
1.20 "Combined Excess Availability" shall mean, at any time, as
determined by Lender, the amount equal to the sum of (a) the positive or
negative Excess Availability of Borrower at such time plus (b) the U.S. Dollar
Equivalent of the positive or negative "Excess Availability" (as defined in the
Canadian Loan Agreement) of the Canadian Borrower at such time.
1.21 "Congress (Canada)" shall mean Congress Financial Corporation
(Canada), an Ontario corporation, and its successors and assigns.
1.22 "Eligible Accounts" shall mean Accounts created by Borrower
which are and continue to be acceptable to Lender based on the criteria set
forth below. In general, Accounts shall be
-5-
10
Eligible Accounts if:
(a) such Accounts are payable in the United States in
U.S. Dollars and arise from the actual and bona fide sale and delivery of goods
by Borrower or rendition of services by Borrower in the ordinary course of its
business which transactions are completed in accordance with the terms and
provisions contained in any documents related thereto;
(b) such Accounts are not unpaid more than one hundred
twenty (120) days after the date of the original invoice for them;
(c) such Accounts comply with the terms and conditions
contained in Section 7.2(c) of this Agreement;
(d) such Accounts do not arise from sales on consignment,
guaranteed sale, sale and return, sale on approval, or other terms under which
payment by the account debtor may be conditional or contingent, and such
Accounts are not owed by any account debtor with respect to whom Borrower has
agreed, under any contingency or condition, to repurchase any inventory from
such account debtor or its lender or customers;
(e) the chief executive office of the account debtor with
respect to such Accounts is located in the United States of America, or, at
Lender's option, if either: (i) the account debtor has delivered to Borrower
an irrevocable letter of credit issued or confirmed by a bank satisfactory to
Lender and payable only in the United States of America and in U.S. dollars,
sufficient to cover such Account, in form and substance satisfactory to Lender
and, if required by Lender, the original of such letter of credit has been
delivered to Lender or Lender's agent and the issuer thereof notified of the
assignment of the proceeds of such letter of credit to Lender, or (ii) such
Account is subject to credit insurance payable to Lender issued by an insurer
and on terms and in an amount acceptable to Lender, or (iii) such Account is
otherwise acceptable in all respects to Lender (subject to such lending formula
with respect thereto as Lender may determine);
(f) such Accounts do not consist of progress ▇▇▇▇▇▇▇▇,
▇▇▇▇ and hold invoices or retainage invoices, except as to ▇▇▇▇ and hold
invoices, if Lender shall have received an agreement in writing from the
account debtor, in form and substance satisfactory to Lender, confirming the
unconditional obligation of the account debtor to take the goods related
thereto and pay such invoice;
-6-
11
(g) the account debtor with respect to such Accounts has
not asserted a counterclaim, defense or dispute and does not have, and does not
engage in transactions which may give rise to, any right of setoff against such
Accounts, other than those ordinary course deductions or allowances reflected
on the face of the invoices evidencing such Accounts and reflected as a
deduction in computing and reporting the net amount of the affected Accounts in
the Borrowing Base Certificates and all other Collateral reports delivered in
accordance with this Agreement with respect to Accounts (but the portion of the
Accounts of such account debtor in excess of the amount at any time and from
time to time owed by Borrower to such account debtor or claimed owed by such
account debtor may be deemed Eligible Accounts);
(h) there are no facts, events or occurrences which would
impair the validity, enforceability or collectability of such Accounts or
reduce the amount payable or delay payment thereunder;
(i) such Accounts are subject to the first priority,
valid and perfected security interest of Lender and any goods giving rise
thereto are not, and were not at the time of the sale thereof, subject to any
liens except those permitted in this Agreement;
(j) neither the account debtor nor any officer or
employee of the account debtor with respect to such Accounts is an officer,
employee or agent of or affiliated with Borrower directly or indirectly by
virtue of family membership, ownership, control, management or otherwise;
(k) the account debtors with respect to such Accounts are
not any Governmental Authority, unless (i) if the account debtor is the United
States of America, any State, political subdivision, department, agency or
instrumentality thereof, upon Lender's request, the Federal Assignment of
Claims Act of 1940, as amended or any similar State or local law, if
applicable, has been complied with in a manner satisfactory to Lender and (ii)
if the account debtors are North American Indian nations, tribes or tribal
authorities, or the account debtors are located or conduct business on North
American Indian lands, upon Lender's request, Lender shall have received
evidence, in form and substance satisfactory to Lender, that such account
debtor has waived any claim of sovereign immunity, which waiver shall be
unconditionally valid and enforceable by Lender against such account debtor
under all applicable laws, and the account debtor shall have consented to be
sued by Borrower and its assigns (including Lender) and consented to personal
jurisdiction in each
-7-
12
state and Federal court located in the state where it is located or conducts
business, and Lender shall have received evidence, in form and substance
satisfactory to Lender, that Lender has a valid and enforceable first priority
perfected security interest in the Accounts owing by such account debtor and
Lender may collect and otherwise realize thereon in the same manner as any
other Eligible Account;
(l) there are no proceedings or actions which are
threatened or pending against the account debtors with respect to such Accounts
which, if adversely determined against any such account debtor, could
reasonably be expected to result in any material adverse change in any such
account debtor's financial condition;
(m) such Accounts of a single account debtor or its
affiliates do not constitute more than ten (10%) percent of all otherwise
Eligible Accounts (but the portion of the Accounts not in excess of such
percentage may be deemed Eligible Accounts);
(n) such Accounts are not owed by an account debtor who
has Accounts unpaid more than one hundred twenty (120) days after the date of
the original invoice for them which constitute more than fifty (50%) percent of
the total Accounts of such account debtor;
(o) such Accounts are owed by account debtors whose total
indebtedness to Borrower does not exceed the credit limit (if any) with respect
to such account debtors that Lender has elected from time to time to establish
or revise for purposes of determining Eligible Accounts of such account debtors
(but the portion of the Accounts not in excess of such credit limit may be
deemed Eligible Accounts);
(p) such Accounts do not arise from the sale of
Borrower's "Power Bingo" products or rendition of services relating thereto;
and
(q) such Accounts are owed by account debtors deemed
creditworthy at all times by Lender, as determined by Lender in good faith.
General criteria for Eligible Accounts may be established and revised from time
to time by Lender in good faith. Any Accounts which are not Eligible Accounts
shall nevertheless be part of the Collateral.
1.23 "Eligible Inventory" shall mean Inventory located in the
United States consisting of finished goods held for resale in
-8-
13
the ordinary course of the business of Borrower which are acceptable to Lender
based on the criteria set forth below. In general, Eligible Inventory shall
not include (a) raw materials or work-in-process; (b) components which are not
part of finished goods; (c) spare parts for equipment; (d) packaging and
shipping materials; (e) supplies used or consumed in Borrower's business; (f)
Inventory at premises other than those owned and controlled by Borrower, except
if Lender shall have received an agreement in writing from the person in
possession of such Inventory and/or the owner or operator of such premises in
form and substance satisfactory to Lender acknowledging Lender's first priority
security interest in the Inventory, waiving security interests and claims by
such person against the Inventory and permitting Lender access to, and the
right to remain on, the premises so as to exercise Lender's rights and remedies
and otherwise deal with the Collateral; (g) Inventory subject to a security
interest or lien in favor of any person other than Lender except those
permitted in this Agreement; (h) ▇▇▇▇ and hold goods; (i) unserviceable,
obsolete or slow moving Inventory; (j) Inventory which is not subject to the
first priority, valid and perfected security interest of Lender; (k) returned,
damaged and/or defective Inventory; (l) Inventory as to which, or as to the
manufacture or sale or offering for sale of which by Borrower, there is a claim
of patent, trademark, copyright, infringement or other claim of violation of
intellectual property rights of others; (m) Inventory consisting of Borrower's
"Power Bingo" products; and (n) Inventory purchased or sold on consignment.
General criteria for Eligible Inventory may be established and revised from
time to time by Lender in good faith. Any Inventory which is not Eligible
Inventory shall nevertheless be part of the Collateral.
1.24 "Environmental Laws" shall mean all foreign, Federal, State
and local laws (including common law), legislation, rules, codes, licenses,
permits (including any conditions imposed therein), authorizations, judicial or
administrative decisions, injunctions or agreements between Borrower and any
governmental authority, (A) relating to pollution and the protection,
preservation or restoration of the environment (including air, water vapor,
surface water, ground water, drinking water, drinking water supply, surface
land, subsurface land, plant and animal life or any other natural resource), or
to human health or safety, (B) relating to the exposure to, or the use,
storage, recycling, treatment, generation, manufacture, processing,
distribution, transportation, handling, labeling, production, release or
disposal, or threatened release, of Hazardous Materials, or (C) relating to all
laws with regard to recordkeeping, notification, disclosure and reporting
requirements respecting Hazardous Materials. The term
-9-
14
"Environmental Laws" includes (i) the Federal Comprehensive Environmental
Response, Compensation and Liability Act of 1980, the Federal Superfund
Amendments and Reauthorization Act, the Federal Water Pollution Control Act of
1972, the Federal Clean Water Act, the Federal Clean Air Act, the Federal
Resource Conservation and Recovery Act of 1976 (including the Hazardous and
Solid Waste Amendments thereto), the Federal Solid Waste Disposal and the
Federal Toxic Substances Control Act, the Federal Insecticide, Fungicide and
Rodenticide Act, and the Federal Safe Drinking Water Act of 1974, (ii)
applicable state counterparts to such laws, and (iii) any common law or
equitable doctrine that may impose liability or obligations for injuries or
damages due to, or threatened as a result of, the presence of or exposure to
any Hazardous Materials.
1.25 "Equipment" shall mean all of Borrower's now owned and
hereafter acquired equipment, machinery, computers and computer hardware and
software (whether owned or licensed), vehicles, tools, furniture, fixtures, all
attachments, accessions and property now or hereafter affixed thereto or used
in connection therewith, and substitutions and replacements thereof, wherever
located.
1.26 "ERISA" shall mean the United States Employee Retirement
Income Security Act of 1974, as the same now exists or may hereafter from time
to time be amended, modified, recodified or supplemented, together with all
rules, regulations and interpretations thereunder or related thereto.
1.27 "ERISA Affiliate" shall mean any person required to be
aggregated with Borrower or any of its Subsidiaries under Sections 414(b),
414(c), 414(m) or 414(o) of the Code.
1.28 "Eurodollar Rate Loans" shall mean any Loans or portion
thereof on which interest is payable based on the Adjusted Eurodollar Rate in
accordance with the terms hereof.
1.29 "Eurodollar Rate" shall mean with respect to the Interest
Period for a Eurodollar Rate Loan, the interest rate per annum equal to the
arithmetic average of the rates of interest per annum (rounded upwards, if
necessary, to the next one-sixteenth (1/16) of one (1%) percent) at which
Reference Bank is offered deposits of United States dollars in the London
interbank market (or other Eurodollar Rate market selected by Borrower and
approved by Lender) on or about 9:00 a.m. (New York time) two (2) Business Days
prior to the commencement of such Interest Period in amounts substantially
equal to the principal amount of the Eurodollar Rate Loans requested by and
available to Borrower in accordance with this Agreement, with a maturity of
comparable
-10-
15
duration to the Interest Period selected by Borrower.
1.30 "Event of Default" shall mean the occurrence or existence of
any event or condition described in Section 10.1 hereof.
1.31 "Excess Availability" shall mean the amount, as determined by
Lender, calculated at any time, equal to: (a) the lesser of (i) the amount of
the Formula Availability at such time and (ii) the Maximum Credit, less the
face amount of outstanding Letter of Credit Accommodations, minus (b) the sum
of: (i) the amount of all then outstanding and unpaid Obligations (other than
the face amount of outstanding Letter of Credit Accommodations), plus (ii) the
aggregate amount of all trade payables of Borrower which are more than sixty
(60) days past due as of such time.
1.32 "Financing Agreements" shall mean, collectively, this
Agreement and all Borrowing Base Certificates, notes, guarantees, security
agreements and other agreements, documents and instruments now or at any time
hereafter executed and/or delivered by Borrower or any Obligor in connection
with this Agreement, as the same now exist or may hereafter be amended,
modified, supplemented, extended, renewed, restated or replaced.
1.33 "Formula Availability" shall mean the amount, as determined by
Lender, calculated at any time, equal to the amount of Revolving Loans
available to Borrower at such time, assuming (for purposes of such calculation)
that the outstanding principal balance of Revolving Loans and Letter of Credit
Accommodations is zero and based on the applicable lending formulas under
Section 2.1 hereof, subject to the sublimits and Availability Reserves from
time to time actually established by Lender hereunder.
1.34 "GAAP" shall mean generally accepted accounting principles in
the United States of America as in effect from time to time as set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and the statements and pronouncements
of the Financial Accounting Standards Board which are applicable to the
circumstances as of the date of determination consistently applied, except
that, for purposes of Section 9.14 hereof, GAAP shall be determined on the
basis of such principles in effect on the date hereof and consistent with those
used in the preparation of the audited financial statements delivered to Lender
prior to the date hereof.
1.35 "Gaming Authority" shall mean any Governmental Authority which
regulates gaming in a jurisdiction in which
-11-
16
Borrower or any of its subsidiaries conducts gaming activities or activities
relating to the design, manufacture or distribution of gaming machines,
equipment or systems or, whether or not included in the foregoing, bingo
supplies or bingo equipment.
1.36 "Gaming Laws" shall mean all laws, rules, regulations, orders,
and interpretations of any Governmental Authority relating to gaming activities
or activities relating to the design, manufacture or distribution of gaming
machines, equipment or systems or, whether or not included in the foregoing,
bingo supplies or bingo equipment.
1.37 "Gaming Licenses" shall mean all licenses, franchises, or
other authorizations required to design, manufacture or distribute gaming
machines, equipment or systems or, whether or not included in the foregoing,
bingo supplies or bingo equipment in any state or jurisdiction where Borrower
or any of its Subsidiaries conduct such business (including any North American
Indian lands where any account debtor of Borrower is located or conducts
business.)
1.38 "Governmental Authority" shall mean the United States of
America, any State of the United States of America, Canada, any Province of
Canada, any other foreign government, or a district, county or municipality or
other political subdivision, and any North American Indian nation or tribe, or
any body, department, authority, agency, public corporation or instrumentality,
of any of the foregoing.
1.39 "Guarantors" shall mean Video King Gaming Systems, Inc., a
Colorado corporation, and each other Person that guarantees payment of all or
any portion of the Obligations.
1.40 "Hazardous Materials" shall mean any hazardous, toxic or
dangerous substances, materials and wastes, including hydrocarbons (including
naturally occurring or man-made petroleum and hydrocarbons), flammable
explosives, asbestos, urea formaldehyde insulation, radioactive materials,
biological substances, polychlorinated biphenyls, pesticides, herbicides and
any other kind and/or type of pollutants or contaminants (including materials
which include hazardous constituents), sewage, sludge, industrial slag,
solvents and/or any other similar substances, materials, or wastes and
including any other substances, materials or wastes that are or become
regulated under any Environmental Law (including any that are or become
classified as hazardous or toxic under any Environmental Law).
1.41 "Information Certificate" shall mean the Information
-12-
17
Certificate of Borrower constituting Exhibit A hereto containing material
information with respect to Borrower, its business and assets provided by or on
behalf of Borrower to Lender in connection with the preparation of this
Agreement and the other Financing Agreements and the financing arrangements
provided for herein.
1.42 "Interest Period" shall mean for any Eurodollar Rate Loan, a
period of approximately one (1), two (2), or three (3) months duration as
Borrower may elect, the exact duration to be determined in accordance with the
customary practice in the applicable Eurodollar Rate market; provided, that,
Borrower may not elect an Interest Period which will end after the last day of
the then-current term of this Agreement.
1.43 "Interest Rate" shall mean, as to Prime Rate Loans, the per
annum rate equal to the Prime Rate plus the Applicable Margin, and, as to
Eurodollar Rate Loans, the per annum rate equal to the Adjusted Eurodollar Rate
(based on the Eurodollar Rate applicable for the Interest Period selected by
Borrower as in effect three (3) Business Days after the date of receipt by
Lender of the request of Borrower for such Eurodollar Rate Loans in accordance
with the terms hereof, whether such rate is higher or lower than any rate
previously quoted to Borrower) plus the Applicable Margin; provided, that, the
Interest Rate(s) shall be increased by two (2%) percent per annum above the
otherwise applicable Interest Rate(s), at Lender's option, without notice, (a)
for the period (i) from and after the effective date of termination or
non-renewal hereof until Lender has received full and final payment of all
Obligations (notwithstanding entry of any judgment against Borrower) and (ii)
from and after the date of the occurrence of an Event of Default for so long as
such Event of Default is continuing, and (b) on the Revolving Loans at any time
outstanding in excess of the amounts available to Borrower under Section 2
(whether or not such excess(es) arise or are made with or without Lender's
knowledge or consent and whether made before or after an Event of Default).
1.44 "Inventory" shall mean all of Borrower's now owned and
hereafter existing or acquired raw materials, work in process, finished goods
and all other inventory of whatsoever kind or nature, wherever located.
1.45 "Letter of Credit Accommodations" shall mean the letters of
credit, merchandise purchase or other guaranties denominated in U.S. Dollars
which are from time to time either (a) issued or opened by Lender for the
account of Borrower or any Obligor or (b) with respect to which Lender has
agreed to indemnify the issuer or guaranteed to the issuer the performance
-13-
18
by Borrower of its obligations to such issuer.
1.46 "Loans" shall mean the Revolving Loans.
1.47 "Material Adverse Change" shall mean a material adverse change
in the condition (financial or otherwise), operations, performance, properties,
business or affairs of the Borrower or any Obligor.
1.48 "Material Averse Effect" shall mean (a) a material adverse
change in, or a material adverse effect upon, the condition (financial or
otherwise), operations, business or affairs of Borrower or any Obligor, (b) any
existing or future impairment of the ability of Borrower or any Obligor to
perform any material Obligations under any of the Financing Agreements, or (c)
any existing or future impairment of Lender's rights or interests in any
Collateral, or Lender's ability to enforce any Obligations or realize upon any
Collateral.
1.49 "Maximum Credit" shall mean the amount of $6,666,667, subject
to increase as provided in Section 2.4 below.
1.50 "Net Amount of Eligible Accounts" shall mean the gross amount
of Eligible Accounts less (a) sales, excise or similar taxes included in the
amount thereof and (b) returns, discounts, claims, credits and allowances of
any nature at any time issued, owing, granted, outstanding, available or
claimed with respect to such Eligible Accounts; provided, that the amounts
deducted under clause (a) shall not duplicate items for which Availability
Reserves have been established by Lender.
1.51 "Obligations" shall mean any and all Revolving Loans, Letter
of Credit Accommodations and all other obligations, liabilities and
indebtedness of every kind, nature and description owing by Borrower to Lender
and/or its affiliates, including principal, interest, charges, fees, costs and
expenses, however evidenced, whether as principal, surety, endorser, guarantor
or otherwise, whether arising under this Agreement or otherwise, whether now
existing or hereafter arising, whether arising before, during or after the
initial or any renewal term of this Agreement or after the commencement of any
case with respect to Borrower under the United States Bankruptcy Code or any
similar statute (including the payment of interest and other amounts which
would accrue and become due but for the commencement of such case, whether or
not such amounts are allowed or allowable in whole or in part in such case),
whether direct or indirect, absolute or contingent, joint or several, due or
not due, primary or secondary, liquidated or unliquidated, secured or
unsecured, and however acquired by Lender.
-14-
19
1.52 "Obligor" shall mean each Guarantor and each endorser,
acceptor, surety or other person liable on or with respect to the Obligations
or who is the owner of any property which is security for the Obligations,
other than Borrower.
1.53 "Overformula Amount" shall mean, at any time, as calculated by
Lender, the amount (if any) by which (A) the aggregate amount of outstanding
Obligations (other than the face amount of outstanding Letter of Credit
Accommodations) at such time, exceeds (B) the lesser of (x) the Formula
Availability and (y) the Maximum Credit less the face amount of outstanding
Letter of Credit Accommodations, at such time.
1.54 "Payment Account" shall have the meaning set forth in Section
6.3 hereof.
1.55 "Person" or "person" shall mean any individual, sole
proprietorship, partnership, corporation (including any corporation which
elects subchapter S status under the Internal Revenue Code of 1986, as
amended), limited liability company, limited liability partnership, business
trust, unincorporated association, joint stock corporation, trust, joint
venture or other entity or any government or any agency or instrumentality or
political subdivision thereof.
1.56 "Prime Rate" shall mean the rate from time to time publicly
announced by CoreStates Bank, N.A., or its successors, at its office in
Philadelphia, Pennsylvania, as its prime rate, whether or not such announced
rate is the best rate available at such bank.
1.57 "Prime Rate Loans" shall mean any Loans or portion thereof on
which interest is payable based on the Prime Rate in accordance with the terms
thereof.
1.58 "Records" shall mean all of Borrower's present and future
books of account of every kind or nature, purchase and sale agreements,
invoices, ledger cards, bills of lading and other shipping evidence,
statements, correspondence, memoranda, credit files and other data relating to
the Collateral or any account debtor, together with the tapes, disks, diskettes
and other data and software storage media and devices, file cabinets or
containers in or on which the foregoing are stored (including any rights of
Borrower with respect to the foregoing maintained with or by any other person).
1.59 "Reference Bank" shall mean CoreStates Bank, N.A., or such
other bank as Lender may from time to time designate.
-15-
20
1.60 "Revolving Loans" shall mean the loans now or hereafter made
by Lender to or for the benefit of Borrower on a revolving basis (involving
advances, repayments and readvances) as set forth in Section 2.1 hereof.
1.61 "Subordinated Note Agreements" shall mean the Subordinated
Notes and the Indenture dated as of November 13, 1996 between Borrower and The
Trust Company of Washington, as the same now exist or may hereafter be amended,
modified, supplemented, extended, renewed, restated or replaced.
1.62 "Subordinated Notes" shall mean Borrower's Series B
12 1/2% Senior Subordinated Notes due 2004, in the aggregate principal amount
of $100,000,000, as the same now exist or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced.
1.63 "U.S. Dollar Equivalent" of an amount of money in Canadian
Dollars, shall mean an amount, as determined by Lender, equal to the value in
U.S. Dollars, of such amount of Canadian Dollars, based on the spot price for
buying U.S. Dollars with Canadian Dollars, as quoted to Lender by CoreStates
Bank N.A. or other financial institution acceptable to Lender. Lender may make
such determination utilizing the closing spot price for the preceding business
day or may, from time to time, at its option, utilize a more current spot price
with respect to any determination of U.S. Dollar Equivalent for purposes
hereof.
1.64 "U.S. Dollars" or "$" or "US$" shall mean dollars of the
United States or other lawful currency of the United States.
1.65 "Value" shall mean, as determined by Lender in good faith,
with respect to Inventory, the lower of (a) cost computed on a
first-in-first-out basis in accordance with GAAP or (b) market value.
SECTION 2. CREDIT FACILITIES
2.1 Revolving Loans.
(a) Subject to and upon the terms and conditions
contained herein, Lender agrees to make Revolving Loans to Borrower from time
to time in amounts requested by Borrower up to the amount equal to the sum of:
(i) eighty (80%) percent of the Net Amount of
Eligible Accounts, plus
-16-
21
(ii) the lesser of: (A) sixty (60%) percent of the
Value of Eligible Inventory or (B) $6,666,667, plus
(iii) the lesser of (A) $4,443,750 or (B) the
Amortized Equipment Value, less
(iv) any Availability Reserves.
(b) Lender may, in its discretion, from time to time,
upon not less than five (5) days prior notice to Borrower identifying the basis
for the action being taken under this provision, (i) reduce the lending formula
with respect to Eligible Accounts to the extent that Lender determines in good
faith that: (1) the dilution with respect to the Accounts for any period
(based on the ratio of (A) the aggregate amount of reductions in Accounts other
than as a result of payments in cash to (B) the aggregate amount of total
sales) has increased in any material respect or may be reasonably anticipated
to increase in any material respect above historical levels, or (2) the general
creditworthiness of account debtors has declined, or (ii) reduce the lending
formula(s) with respect to Eligible Inventory to the extent that Lender
determines that: (1) the number of days of the turnover of the Inventory for
any period has changed in any material respect or (2) the liquidation value of
the Eligible Inventory, or any category thereof, has decreased, or (3) the
nature and quality of the Inventory has deteriorated, or (iii) reduce the
amount available under Section 2.1(a)(iii) to the extent the Amortized
Equipment Value at any time exceeds seventy-five (75%) percent of the orderly
liquidation value of the Borrower's Equipment deemed acceptable by Lender for
lending purposes, as such value is set forth in an appraisal pursuant to
Section 7.4 hereof. In determining whether to reduce the lending formula(s),
Lender may, without duplication, consider events, conditions, contingencies or
risks which are also considered in determining Eligible Accounts, Eligible
Inventory or in establishing Availability Reserves.
(c) Except in Lender's discretion, the aggregate amount
of the Loans and the Letter of Credit Accommodations outstanding at any time
shall not exceed the Maximum Credit. In the event that the outstanding amount
of any component of the Loans, or the aggregate amount of the outstanding Loans
and Letter of Credit Accommodations, exceed the amounts available under the
lending formulas, the sublimits for Letter of Credit Accommodations set forth
in Section 2.2(d) or the Maximum Credit, as applicable, such event shall not
limit, waive or otherwise affect any rights of Lender in that circumstance or
on any future
-17-
22
occasions and Borrower shall, upon demand by Lender, which may be made at any
time or from time to time, immediately repay to Lender the entire amount of any
such excess(es) for which payment is demanded.
(d) For purposes of applying the sublimit set forth in
Section 2.1(a)(ii)(B) hereof, Lender may treat the amount of its reliance on
Eligible Inventory to be purchased under outstanding Letter of Credit
Accommodations as a Revolving Loan based on Eligible Inventory pursuant to
Section 2(a)(ii). In determining the amount of such reliance, the outstanding
Revolving Loans and Availability Reserves shall first be attributed to any
components of the lending formulas in Section 2.1(a) that are not subject to
such sublimit, before being attributed to components of the lending formulas
subject to such sublimit.
2.2 Letter of Credit Accommodations.
(a) Subject to and upon the terms and conditions
contained herein, at the request of Borrower, Lender agrees to provide or
arrange for Letter of Credit Accommodations for the account of Borrower
containing terms and conditions acceptable to Lender and the issuer thereof.
Any payments made by Lender to any issuer thereof and/or related parties in
connection with the Letter of Credit Accommodations shall constitute additional
Revolving Loans to Borrower pursuant to this Section 2.
(b) In addition to any charges, fees or expenses charged
by any bank or issuer in connection with the Letter of Credit Accommodations,
Borrower shall pay to Lender a letter of credit fee at a rate equal to two (2%)
percent per annum on the daily outstanding balance of the Letter of Credit
Accommodations for the immediately preceding month (or part thereof), payable
in arrears as of the first day of each succeeding month, except that Borrower
shall pay to Lender such letter of credit fee, at Lender's option, without
notice, at a rate equal to four (4%) percent per annum on such daily
outstanding balance for: (i) the period from and after the effective date of
termination or non-renewal hereof until Lender has received full and final
payment of all Obligations (notwithstanding entry of a judgment against
Borrower) and (ii) the period from and after the date of the occurrence of an
Event of Default for so long as such Event of Default is continuing. Such
letter of credit fee shall be calculated on the basis of a three hundred sixty
(360) day year and actual days elapsed and the obligation of Borrower to pay
such fee shall survive the termination or non-renewal of this Agreement.
(c) No Letter of Credit Accommodations shall be
-18-
23
available unless on the date of the proposed issuance of any Letter of Credit
Accommodations, the Revolving Loans available to Borrower (subject to the
Maximum Credit and any Availability Reserves) are equal to or greater than: (i)
if the proposed Letter of Credit Accommodation is for the purpose of purchasing
Eligible Inventory and the Letter of Credit Accommodation requires that all
negotiable documents of the title with respect to such Eligible Inventory shall
be consigned to the issuer of the Letter of Credit Accommodation, the sum of
(1) the percentage equal to one hundred (100%) percent minus the then
applicable percentage set forth in Section 2.1(a)(ii)(A) above of the Value of
such Eligible Inventory, plus (2) freight, taxes, duty and other amounts which
Lender estimates must be paid in connection with such Inventory upon arrival
and for delivery to one of Borrower's locations for Eligible Inventory within
the United States of America and (ii) if the proposed Letter of Credit
Accommodation is for any other purpose, an amount equal to one hundred (100%)
percent of the face amount thereof and all other commitments and obligations
made or incurred by Lender with respect thereto. Effective on the issuance of
each Letter of Credit Accommodation, an Availability Reserve shall be
established in the applicable amount set forth in Section 2.2(c)(i) or Section
2.2(c)(ii).
(d) Except in Lender's discretion, the amount of all
outstanding Letter of Credit Accommodations and all other commitments and
obligations made or incurred by Lender in connection therewith shall not at any
time exceed $3,333,333. At any time an Event of Default exists or has occurred
and is continuing, upon Lender's request, Borrower will either furnish cash
collateral to secure the reimbursement obligations to the issuer in connection
with any Letter of Credit Accommodations or furnish cash collateral to Lender
for the Letter of Credit Accommodations, and in either case, the Revolving
Loans otherwise available to Borrower shall not be reduced as provided in
Section 2.2(c) to the extent of such cash collateral.
(e) Borrower shall indemnify and hold Lender harmless
from and against any and all losses, claims, damages, liabilities, costs and
expenses which Lender may suffer or incur in connection with any Letter of
Credit Accommodations and any documents, drafts or acceptances relating
thereto, including any losses, claims, damages, liabilities, costs and expenses
due to any action taken by any issuer or correspondent with respect to any
Letter of Credit Accommodation, but excluding any losses, claims, damages,
liabilities, costs and expenses directly caused by the gross negligence or
willful misconduct of Lender, as determined by a final non-appealable judgment
of a court of competent jurisdiction. Borrower assumes all risks with respect
-19-
24
to the acts or omissions of the drawer under or beneficiary of any Letter of
Credit Accommodation and for such purposes the drawer or beneficiary shall be
deemed Borrower's agent. Borrower assumes all risks for, and agrees to pay,
all foreign, Federal, State and local taxes, duties and levies relating to any
goods subject to any Letter of Credit Accommodations or any documents, drafts
or acceptances thereunder. Borrower hereby releases and holds Lender harmless
from and against any acts, waivers, errors, delays or omissions, whether caused
by Borrower, by any issuer or correspondent or otherwise with respect to or
relating to any Letter of Credit Accommodation. The provisions of this Section
2.2(e) shall survive the payment of Obligations and the termination or
non-renewal of this Agreement.
(f) Nothing contained herein shall be deemed or construed
to grant Borrower any right or authority to pledge the credit of Lender in any
manner. Lender shall have no liability of any kind with respect to any Letter
of Credit Accommodation provided by an issuer other than Lender unless Lender
has duly executed and delivered to such issuer the application or a guarantee
or indemnification in writing with respect to such Letter of Credit
Accommodation. Borrower shall be bound by any interpretation made in good
faith by Lender, or any other issuer or correspondent under or in connection
with any Letter of Credit Accommodation or any documents, drafts or acceptances
thereunder, notwithstanding that such interpretation may be inconsistent with
any instructions of Borrower. Lender shall have the sole and exclusive right
and authority, exercised in good faith, to, and Borrower shall not: (i) at any
time an Event of Default exists or has occurred and is continuing, (1) approve
or resolve any questions of non-compliance of documents, (2) give any
instructions as to acceptance or rejection of any documents or goods or (3)
execute any and all applications for steamship or airway guaranties,
indemnities or delivery orders, and (ii) at all times, (1) grant any extensions
of the maturity of, time of payment for, or time of presentation of, any
drafts, acceptances, or documents, and (2) agree to any amendments, renewals,
extensions, modifications, changes or cancellations of any of the terms or
conditions of any of the applications, Letter of Credit Accommodations, or
documents, drafts or acceptances thereunder or any letters of credit included
in the Collateral. Lender may take such actions either in its own name or in
Borrower's name.
(g) Any rights, remedies, duties or obligations granted
or undertaken by Borrower to any issuer or correspondent in any application for
any Letter of Credit Accommodation, or any other agreement in favor of any
issuer or correspondent relating to any Letter of Credit Accommodation, shall
be deemed to have been granted or undertaken by Borrower to Lender. Any duties
or
-20-
25
obligations undertaken by Lender to any issuer or correspondent in any
application for any Letter of Credit Accommodation, or any other agreement by
Lender in favor of any issuer or correspondent relating to any Letter of Credit
Accommodation, shall be deemed to have been undertaken by Borrower to Lender
and to apply in all respects to Borrower.
2.3 Availability Reserves.
(a) All Revolving Loans otherwise available to Borrower
pursuant to the lending formulas and subject to the Maximum Credit and other
applicable limits hereunder shall be subject to Lender's continuing right to
establish and revise Availability Reserves. Lender shall notify Borrower of
the establishment of and any changes in Availability Reserves and the basis
therefor, as soon as practicable following each such establishment or change.
Upon Borrower's request in writing after being so advised, Lender will, if it
has not already done so, promptly confirm to Borrower, in writing, the
applicable establishment of or changes in Availability Reserves and the basis
therefor.
(b) Without limiting Lender's other rights with respect
to Availability Reserves (and without in any way affecting or impairing the
rights or remedies of Congress (Canada) under the Canadian Financing
Agreements), Lender may from time to time establish and revise Availability
Reserves in an amount sufficient to cover (i) the amount by which the
outstanding "Obligations" (as defined in the Canadian Loan Agreement) of the
Canadian Borrower to Congress (Canada) exceeds the "Maximum Credit" (as defined
in the Canadian Loan Agreement) and/or (ii) the amount by which the aggregate
amount of the Canadian Loans and Canadian Letter of Credit Accommodations
exceed the "Formula Availability" as defined in the Canadian Loan Agreement.
In the case of any Availability Reserves established under clause (ii) of this
Section 2.3(b), Lender may also treat such amount as a reduction in the Maximum
Credit hereunder.
2.4 Increases in Maximum Credit. The Maximum Credit shall be
increased, but not above $20,000,000, upon Borrower's written request(s) in
accordance with and subject to the following terms and conditions:
(a) Borrower may submit to Lender up to two (2) requests
for increases in the Maximum Credit hereunder;
(b) Each request shall be made in the form of a joint
written request by Borrower to Lender and by Canadian Borrower to Congress
(Canada) requesting an aggregate of $10,000,000 of
-21-
26
increases in the Maximum Credit and/or the U.S. Dollar amount used to calculate
the Canadian Maximum Credit under the Canadian Loan Agreement; provided,
however, in the case of any requested increase(s) of the Canadian Maximum
Credit, that the Canadian Maximum Credit as so increased shall not at any time
exceed the amount of Canadian Dollars that at the effective date of such
increase or at any time thereafter shall have a U.S. Dollar Equivalent of
$10,000,000;
(c) Each request received by Lender in accordance with
this Section 2.4 shall become effective as to Borrower on the fifth (5th)
business day following the date of Lender's receipt of such request; provided,
that such request shall not become effective for any purpose hereunder:
(i) if, upon the otherwise effective date of such
requested increase, any Event of Default, or any condition or event
that, with notice or passage of time, or both, would constitute an
Event of Default, shall then exist or shall have occurred and be then
continuing, or
(ii) during the final sixty (60) days of the
initial term or any renewal year hereunder, if Lender has given notice
of non-renewal to Borrower as permitted under Section 12.1(a) hereof,
or
(iii) if such request would otherwise take effect
after Borrower has given notice of non-renewal or termination as
permitted in Section 12.1(a) or (c) hereof; and
(d) upon the effective date of each increase in the
Maximum Credit under Section 2.4, Borrower shall pay to Lender (or Lender may,
at its option, charge directly to Borrower's Revolving Loan account) a fee
equal to three-quarters of one (3/4%) percent of the amount of such increase,
which amount shall be deemed earned in full as of such effective date.
SECTION 3. INTEREST AND FEES
3.1 Interest.
(a) Borrower shall pay to Lender interest at the Interest
Rate (i) on the outstanding principal amount of the Loans and (ii) except to
the extent expressly otherwise provided herein as to certain fees, costs,
expenses and other charges, on all other non-contingent Obligations. All
interest accruing
-22-
27
hereunder on and after the date of any Event of Default or termination or
non-renewal hereof shall be payable on demand.
(b) Borrower may from time to time request that Prime
Rate Loans be converted to Eurodollar Rate Loans or that any existing
Eurodollar Rate Loans continue for an additional Interest Period. Such request
from Borrower shall specify the amount of the Prime Rate Loans which will
constitute Eurodollar Rate Loans (subject to the limits set forth below) and
the Interest Period to be applicable to such Eurodollar Rate Loans. Subject to
the terms and conditions contained herein, three (3) Business Days after
receipt by Lender of such a request from Borrower, such Prime Rate Loans shall
be converted to Eurodollar Rate Loans or such Eurodollar Rate Loans shall
continue, as the case may be, provided, that, (i) no Event of Default, or event
which with notice or passage of time or both would constitute an Event of
Default exists or has occurred and is continuing, (ii) no party hereto shall
have sent any notice of termination or non-renewal of this Agreement, (iii)
Borrower shall have complied with such customary procedures as are established
by Lender and specified by Lender to Borrower from time to time for requests by
Borrower for Eurodollar Rate Loans, (iv) no more than four (4) Interest Periods
may be in effect at any one time, (v) the amount of the Eurodollar Rate Loans
for each Interest Period must be in an amount not less than $3,000,000 or an
integral multiple of $1,000,000 in excess thereof, (vi) the maximum amount of
the Eurodollar Rate Loans at any time requested by Borrower shall not exceed
the amount equal to eighty (80%) percent of the lowest principal amount of the
Revolving Loans which it is anticipated will be outstanding during the
applicable Interest Period, in each case as determined by Lender (but with no
obligation of Lender to make such Revolving Loans) and (vii) Lender shall have
determined that the Interest Period or Adjusted Eurodollar Rate is available to
Lender through the Reference Bank and can be readily determined as of the date
of the request for such Eurodollar Rate Loan by Borrower. Any request by
Borrower to convert Prime Rate Loans to Eurodollar Rate Loans or to continue
any existing Eurodollar Rate Loans shall be irrevocable. Notwithstanding
anything to the contrary contained herein, Lender and Reference Bank shall not
be required to purchase United States Dollar deposits in the London interbank
market or other applicable Eurodollar Rate market to fund any Eurodollar Rate
Loans, but the provisions hereof shall be deemed to apply as if Lender and
Reference Bank had purchased such deposits to fund the Eurodollar Rate Loans.
(c) Any Eurodollar Rate Loans shall automatically convert
to Prime Rate Loans upon the last day of the applicable Interest Period, unless
Lender has received and approved a
-23-
28
request to continue such Eurodollar Rate Loan at least three (3) Business Days
prior to such last day in accordance with the terms hereof. Any Eurodollar
Rate Loans shall, at Lender's option, upon notice by Lender to Borrower,
convert to Prime Rate Loans in the event that (i) an Event of Default or event
which, with the notice or passage of time, or both, would constitute an Event
of Default, shall exist, (ii) this Agreement shall terminate or not be renewed,
or (iii) the aggregate principal amount of the Prime Rate Loans which have
previously been converted to Eurodollar Rate Loans or existing Eurodollar Rate
Loans continued, as the case may be, at the beginning of an Interest Period
shall at any time during such Interest Period exceed either (A) the aggregate
principal amount of the Loans then outstanding, or (B) the Revolving Loans then
available to Borrower under Section 2 hereof. Borrower shall pay to Lender,
upon demand by Lender (or Lender may, at its option, charge any loan account of
Borrower) any amounts required to compensate Lender, the Reference Bank or any
participant with Lender for any loss (including loss of anticipated profits),
cost or expense incurred by such person, as a result of the conversion of
Eurodollar Rate Loans to Prime Rate Loans pursuant to any of the foregoing.
(d) Interest shall be payable by Borrower to Lender
monthly in arrears not later than the first day of each calendar month and
shall be calculated on the basis of a three hundred sixty (360) day year and
actual days elapsed. The interest rate on non-contingent Obligations (other
than Eurodollar Rate Loans) shall increase or decrease by an amount equal to
each increase or decrease in the Prime Rate effective on the first day of the
month after any change in such Prime Rate is announced. The increase or
decrease shall be based on the Prime Rate in effect on the last day of the
month in which any such change occurs. In no event shall charges constituting
interest payable by Borrower to Lender exceed the maximum amount or the rate
permitted under any applicable law or regulation, and if any such part or
provision of this Agreement is in contravention of any such law or regulation,
such part or provision shall be deemed amended to conform thereto.
3.2 Closing Fee. Borrower shall pay to Lender as a closing fee
the amount of $50,000, which shall be fully earned as of and payable on the
date hereof.
3.3 Unused Line Fee. Borrower shall pay to Lender monthly an
unused line fee at a rate equal to three- eighths of one (3/8%) percent per
annum calculated upon the amount (if any) by which eighty (80%) percent of the
Maximum Credit exceeds the average daily principal balance of the outstanding
Revolving Loans and Letter of Credit Accommodations during the immediately
preceding
-24-
29
month (or part thereof) while this Agreement is in effect and for so long
thereafter as any of the Obligations are outstanding, which fee shall be
payable on the first day of each month in arrears.
3.4 Servicing Fee. Borrower shall pay to Lender monthly a
servicing fee in an amount equal to $1,333 in respect of Lender's services for
each month (or part thereof) while this Agreement remains in effect and for so
long thereafter as any of the Obligations are outstanding, which fee shall be
fully earned as of and payable in advance on the date hereof and on the first
day of each month hereafter.
3.5 Changes in Laws and Increased Costs of Loans.
(a) Notwithstanding anything to the contrary contained
herein, all Eurodollar Rate Loans shall, upon notice by Lender to Borrower,
convert to Prime Rate Loans in the event that (i) any change in applicable law
or regulation (or the interpretation or administration thereof) shall either
(A) make it unlawful for Lender, Reference Bank or any participant to make or
maintain Eurodollar Rate Loans or to comply with the terms hereof in connection
with the Eurodollar Rate Loans, or (B) shall result in an increase in the costs
to Lender, Reference Bank or any participant of making or maintaining any
Eurodollar Rate Loans by an amount deemed by Lender in good faith to be
material, or (C) reduce the amounts received or receivable by Lender in respect
thereof, by an amount deemed by Lender to be material or (ii) the cost to
Lender, Reference Bank or any participant of making or maintaining any
Eurodollar Rate Loans shall otherwise increase by an amount deemed by Lender to
be material. Borrower shall pay to Lender, upon demand by Lender (or Lender
may, at its option, charge any loan account of Borrower) any amounts required
to compensate Lender, the Reference Bank or any participant with Lender for any
loss, cost or expense incurred by such person as a result of the foregoing,
including, without limitation, any such loss, cost or expense incurred by
reason of the liquidation or reemployment of deposits or other funds acquired
by such person to make or maintain the Eurodollar Rate Loans or any portion
thereof. A certificate of Lender setting forth the basis for the determination
of such amount necessary to compensate Lender as aforesaid shall be delivered
to Borrower and shall be conclusive, absent manifest error.
(b) If any payments or prepayments in respect of the
Eurodollar Rate Loans are received by Lender other than on the last day of the
applicable Interest Period (whether pursuant to acceleration, upon maturity or
otherwise), including any payments pursuant to the application of collections
under Section 6.3 or
-25-
30
any other payments made with the proceeds of Collateral, Borrower shall pay to
Lender upon demand by Lender (or Lender may, at its option, charge any loan
account of Borrower) any amounts required to compensate Lender, the Reference
Bank or any participant with Lender for any additional loss, cost or expense
incurred by such person as a result of such prepayment or payment, including,
without limitation, any loss, cost or expense incurred by reason of the
liquidation or reemployment of deposits or other funds acquired by such person
to make or maintain such Eurodollar Rate Loans or any portion thereof.
SECTION 4. CONDITIONS PRECEDENT
4.1 Conditions Precedent to Initial Loans and Letter of Credit
Accommodations. Each of the following is a condition precedent to Lender making
the initial Loans and providing the initial Letter of Credit Accommodations
hereunder:
(a) Lender shall have received, in form and substance
satisfactory to Lender, all releases, terminations and such other documents as
Lender may request to evidence and effectuate the termination by the existing
lender or lenders to Borrower and its subsidiaries of their respective
financing arrangements with Borrower and its subsidiaries and the termination
and release by it or them, as the case may be, of any interest in and to any
assets and properties of Borrower and each subsidiary, duly authorized,
executed and delivered by it or each of them, including, but not limited to,
(i) UCC termination statements for all UCC financing statements previously
filed by it or any of them or their predecessors, as secured party and Borrower
or any subsidiary, as debtor and (ii) satisfactions and discharges of any
mortgages, deeds of trust or deeds to secure debt by Borrower or any subsidiary
in favor of such existing lender or lenders, in form acceptable for recording
in the appropriate government office;
(b) Lender shall have received evidence, in form and
substance satisfactory to Lender, that Lender has valid perfected and first
priority security interests in and liens upon the Collateral and any other
property which is intended to be security for the Obligations or the liability
of any Obligor in respect thereof, subject only to the security interests and
liens permitted herein or in the other Financing Agreements;
(c) all requisite corporate action and proceedings in
connection with this Agreement and the other Financing Agreements shall be
satisfactory in form and substance to Lender, and Lender shall have received
all information and copies of all documents, including records of requisite
corporate action and proceedings
-26-
31
which Lender may have requested in connection therewith, such documents where
requested by Lender or its counsel to be certified by appropriate corporate
officers or governmental authorities;
(d) no Material Adverse Change shall have occurred since
the date of Lender's latest field examination;
(e) Lender shall have received a Borrowing Base
Certificate setting forth the Revolving Loans available to Borrower as of the
end of Borrower's fiscal month ended on or about October 31, 1997, as completed
in a manner satisfactory to Lender and duly authorized, executed and delivered
on behalf of Borrower;
(f) Lender shall have completed a field review of the
Records and such other information with respect to the Collateral as Lender may
require to determine the amount of Revolving Loans available to Borrower, the
results of which shall be satisfactory to Lender, not more than three (3)
business days prior to the date hereof;
(g) Lender shall have received, in form and substance
satisfactory to Lender, all consents, waivers, acknowledgments and other
agreements from third persons which Lender may deem necessary or desirable in
order to permit, protect and perfect its security interests in and liens upon
the Collateral or to effectuate the provisions or purposes of this Agreement
and the other Financing Agreements, including acknowledgements by lessors,
mortgagees and warehousemen of Lender's security interests in the Collateral,
waivers by such persons of any security interests, liens or other claims by
such persons to the Collateral and agreements permitting Lender access to, and
the right to remain on, the premises to exercise its rights and remedies and
otherwise deal with the Collateral;
(h) Lender shall have received evidence of insurance and
loss payee endorsements required hereunder and under the other Financing
Agreements, in form and substance satisfactory to Lender, and certificates of
insurance policies and/or endorsements naming Lender as loss payee;
(i) the Combined Excess Availability, as determined by
Lender as of the date hereof, shall be not less than $5,000,000 after giving
effect to the initial Loans made or to be made and Letter of Credit
Accommodations issued or to be issued in connection with the initial
transactions hereunder and after giving effect to the initial Canadian Loans
made or to be made and Canadian Letter of Credit Accommodations issued or to be
-27-
32
issued by Congress (Canada) under the Canadian Loan Agreement in connection
with the initial transactions hereunder and thereunder;
(j) Lender shall have received evidence that Borrower has
provided each Governmental Authority to whose jurisdiction it or any of its
subsidiaries is subject, with all required notices (if any) with respect to the
Financing Agreements, the Canadian Financing Agreements and all Obligations and
Collateral hereunder and thereunder;
(k) Lender shall have received, in form and substance
satisfactory to Lender, such opinion letters of counsel to Borrower and Video
King Systems, Inc. with respect to the Financing Agreements and with respect to
such other matters as Lender may request, including, without limitation, (i)
the status of the Obligations of Borrower to Lender and Congress (Canada) as
"Senior Indebtedness" and "Designated Senior Indebtedness," under the Indenture
governing the Subordinated Notes and (ii) the non-contravention of any
provision of the Subordinated Note Agreements by reason of the execution,
delivery or performance of the Financing Agreements and Canadian Financing
Agreements (including, without limitation, the loans and other financial
accommodations and guaranties hereunder and thereunder and the granting of
liens and security interests as herein and therein provided);
(l) Lender shall have received, in form and substance
satisfactory to Lender, a guarantee of payment by each Guarantor in favor of
Lender of all Obligations secured by a first and only security interest in
favor of Lender granted by each Guarantor in all of its existing and future
assets (except real property);
(m) the other Financing Agreements and all instruments
and documents hereunder and thereunder shall have been duly executed and
delivered to Lender, in form and substance satisfactory to Lender; and
(n) the Canadian Financing Agreement, and all instruments
and documents thereunder shall have been duly executed and delivered by the
Canadian Borrower and Congress (Canada), in form and substance satisfactory to
Congress (Canada), and all of the conditions precedent to the initial Loans
under the Canadian Loan Agreement contained in Sections 4.1(a) through 4.1(m)
thereof, shall have been fully satisfied.
4.2 Conditions Precedent to All Loans and Letter of Credit
Accommodations. Each of the following is an additional condition precedent to
Lender making Loans and/or providing Letter of
-28-
33
Credit Accommodations to Borrower, including the initial Loans and Letter of
Credit Accommodations and any future Loans and Letter of Credit Accommodations:
(a) all representations and warranties contained herein
and in the other Financing Agreements shall be true and correct in all material
respects with the same effect as though such representations and warranties had
been made on and as of the date of the making of each such Loan or providing
each such Letter of Credit Accommodation and after giving effect thereto
(except as to those representations and warranties expressly made as of a
specified earlier date, in which case, they shall be true and correct as of
such earlier date); and
(b) no Event of Default and no event or condition which,
with notice or passage of time or both, would constitute an Event of Default,
shall exist or have occurred and be continuing on and as of the date of the
making of such Loan or providing each such Letter of Credit Accommodation and
after giving effect thereto.
SECTION 5. GRANT OF SECURITY INTEREST
To secure payment and performance of all Obligations, Borrower hereby
grants to Lender a continuing security interest in, a lien upon, and a right of
set off against, and hereby assigns to Lender as security, the following
property and interests in property of Borrower, whether now owned or hereafter
acquired or existing, and wherever located (collectively, the "Collateral"):
5.1 Accounts;
5.2 all present and future contract rights, general intangibles
(including tax and duty refunds, registered and unregistered patents,
trademarks, service marks, copyrights, trade names, applications for the
foregoing, trade secrets, goodwill, processes, drawings, blueprints, customer
lists, licenses, whether as licensor or licensee, choses in action and other
claims and existing and future leasehold interests in equipment, real estate
and fixtures), chattel paper, documents, instruments, securities and other
investment property, letters of credit, bankers' acceptances and guaranties;
5.3 except for the short term investment account identified in
Schedule 5.3 hereto, all present and future monies, securities, credit
balances, deposits, deposit accounts and other property of Borrower now or
hereafter held or received by or in
-29-
34
transit to Lender or its affiliates or at any other depository or other
institution from or for the account of Borrower, whether for safekeeping,
pledge, custody, transmission, collection or otherwise, and all present and
future liens, security interests, rights, remedies, title and interest in, to
and in respect of Accounts and other Collateral, including (a) rights and
remedies under or relating to guaranties, contracts of suretyship, letters of
credit and credit and other insurance related to the Collateral, (b) rights of
stoppage in transit, replevin, repossession, reclamation and other rights and
remedies of an unpaid vendor, lienor or secured party, (c) goods described in
invoices, documents, contracts or instruments with respect to, or otherwise
representing or evidencing, Accounts or other Collateral, including returned,
repossessed and reclaimed goods, and (d) deposits by and property of account
debtors or other persons securing the obligations of account debtors;
5.4 Inventory;
5.5 Equipment;
5.6 Records; and
5.7 all products and proceeds of the foregoing, in any form,
including insurance proceeds and all claims against third parties for loss or
damage to or destruction of any or all of the foregoing.
SECTION 6. COLLECTION AND ADMINISTRATION
6.1 Borrower's Loan Account. Lender shall maintain one or more
loan account(s) on its books in which shall be recorded (a) all Loans, Letter
of Credit Accommodations and other Obligations and the Collateral, (b) all
payments made by or on behalf of Borrower and (c) all other appropriate debits
and credits as provided in this Agreement, including fees, charges, costs,
expenses and interest. All entries in the loan account(s) shall be made in
accordance with Lender's customary practices as in effect from time to time.
6.2 Statements. Lender shall render to Borrower each month a
statement setting forth the balance in the Borrower's loan account(s)
maintained by Lender for Borrower pursuant to the provisions of this Agreement,
including principal, interest, fees, costs and expenses. Each such statement
shall be subject to subsequent adjustment by Lender but shall, absent manifest
errors or omissions, be considered correct and deemed accepted by Borrower and
conclusively binding upon Borrower as an account
-30-
35
stated except to the extent that Lender receives a written notice from Borrower
of any specific exceptions of Borrower thereto within thirty (30) days after
the date such statement has been mailed by Lender. Until such time as Lender
shall have rendered to Borrower a written statement as provided above, the
balance in Borrower's loan account(s) shall be presumptive evidence of the
amounts due and owing to Lender by Borrower.
6.3 Collection of Accounts.
-31-
36
(a) Borrower shall establish and maintain, at its
expense, blocked accounts or lockboxes and related blocked accounts (in either
case, "Blocked Accounts"), as Lender may specify, with such banks as are
acceptable to Lender, into which Borrower shall promptly deposit and direct its
account debtors to directly remit all payments on Accounts and all payments
constituting proceeds of Inventory or other Collateral in the identical form in
which such payments are made, whether by cash, check or other manner. The
banks at which the Blocked Accounts are established shall enter into an
agreement, in form and substance satisfactory to Lender, providing that all
items received or deposited in the Blocked Accounts are the property of Lender,
that the depository bank has no lien upon, or right to setoff against, the
Blocked Accounts, the items received for deposit therein, or the funds from
time to time on deposit therein and that the depository bank will wire, or
otherwise transfer, in immediately available funds, on a daily basis, at such
time as Lender shall direct, all funds received or deposited into the Blocked
Accounts to such bank account of Lender as Lender may from time to time
designate for such purpose ("Payment Account"). Lender shall instruct the
depository banks at which the Blocked Accounts are maintained to transfer the
funds on deposit in the Blocked Accounts to such operating bank account of
Borrower as Borrower may specify in writing to Lender until such time as Lender
shall notify the depository bank otherwise. Lender may instruct the depository
banks at which the Blocked Accounts are maintained to transfer all funds
received or deposited into the Blocked Accounts to the Payment Account at any
time that any of the following shall occur or exist: (i) an Event of Default,
or event which with notice or passage of time or both would constitute an Event
of Default, shall exist or have occurred, or (ii) Borrower shall have failed to
deliver any Borrowing Base Certificate in accordance with the terms hereof when
due hereunder or within two (2) business days thereafter, or (iii) upon
Lender's good faith belief that any information contained in any Borrowing Base
Certificate is incomplete, inaccurate or misleading, or (iv) Combined Excess
Availability shall at any time be less than $5,000,000, or (v) the aggregate
outstanding principal amount of Loans and Letter of Credit Accommodations, plus
the aggregate outstanding principal amount of "Loans" and "Letter of Credit
Accommodations" under the Canadian Financing Agreements, shall equal or exceed
$15,000,000. Borrower agrees that all payments made to such Blocked Accounts
or Payment Account or other funds received and collected by Lender, whether on
the Accounts or as proceeds of Inventory or other Collateral or otherwise,
shall be the property of Lender to be applied in payment of the Obligations.
(b) For purposes of calculating the amount of the
-32-
37
Loans available to Borrower, such payments will be applied (conditional upon
final collection) to the Obligations on the business day of receipt by Lender
of immediately available funds in the Payment Account provided such payments
and notice thereof are received in accordance with Lender's usual and customary
practices as in effect from time to time and within sufficient time to credit
Borrower's loan account on such day, and if not, then on the next business day.
For the purposes of calculating interest on the Obligations, such payments or
other funds received will be applied (conditional upon final collection) to the
Obligations on the date of receipt of immediately available funds by Lender in
the Payment Account provided such payments or other funds and notice thereof
are received in accordance with Lender's usual and customary practices as in
effect from time to time and within sufficient time to credit Borrower's loan
account on such day, and if not, then on the next business day.
(c) Borrower and all of its subsidiaries, employees or
agents shall, acting as trustee for Lender, receive, as the property of Lender,
any monies, checks, notes, drafts or any other payment relating to and/or
proceeds of Accounts or other Collateral which come into their possession or
under their control and immediately upon receipt thereof, shall deposit or
cause the same to be deposited in the Blocked Accounts, or remit the same or
cause the same to be remitted, in kind, to Lender. In no event shall the same
be commingled with Borrower's own funds. Borrower agrees to reimburse Lender
on demand for any amounts owed or paid to any bank at which a Blocked Account
is established or any other bank or person involved in the transfer of funds to
or from the Blocked Accounts arising out of Lender's payments to or
indemnification of such bank or person. The obligation of Borrower to
reimburse Lender for such amounts pursuant to this Section 6.3 shall survive
the termination or non-renewal of this Agreement.
6.4 Payments. All Obligations shall be payable to the Payment
Account as provided in Section 6.3 or such other place as Lender may designate
from time to time. Lender may apply payments received or collected from
Borrower or for the account of Borrower (including the monetary proceeds of
collections or of realization upon any Collateral) to such of the Obligations,
whether or not then due, in such order and manner as Lender determines. At
Lender's option, all principal, interest, fees, costs, expenses and other
charges provided for in this Agreement or the other Financing Agreements may be
charged directly to the loan account(s) of Borrower; provided, however, that so
long as the outstanding principal amount of the Loans is zero ($0), Lender will
notify Borrower of any fees, costs, expenses or other charges due under this
Agreement, and will not debit the
-33-
38
Revolving Loan account of Borrower for such fees, costs, expenses and other
charges if Lender receives payment thereof from Borrower within five (5) days
after Borrower is so notified, and, in addition, if payment is so timely
received by Lender, Lender agrees that no interest will accrue on the fees,
costs, expenses or other charges so paid; provided, further, that in the case
of the monthly servicing fee under Section 3.5, (i) such fee may be charged to
the Revolving Loan account of Borrower and interest shall accrue thereon unless
payment of such fee is received by Lender on or before the fifth (5th) day of
each month, and (ii) Lender need not give Borrower any notice under the
preceding proviso, or otherwise. Borrower shall make all payments to Lender on
the Obligations free and clear of, and without deduction or withholding for or
on account of, any setoff, counterclaim, defense, duties, taxes, levies,
imposts, fees, deductions, withholding, restrictions or conditions of any kind.
If after receipt of any payment of, or proceeds of Collateral applied to the
payment of, any of the Obligations, Lender is required to surrender or return
such payment or proceeds to any Person for any reason, then the Obligations
intended to be satisfied by such payment or proceeds shall be reinstated and
continue and this Agreement shall continue in full force and effect as if such
payment or proceeds had not been received by Lender. Borrower shall be liable
to pay to Lender, and does hereby indemnify and hold Lender harmless for the
amount of any payments or proceeds surrendered or returned. This Section 6.4
shall remain effective notwithstanding any contrary action which may be taken
by Lender in reliance upon such payment or proceeds. This Section 6.4 shall
survive the payment of the Obligations and the termination or non-renewal of
this Agreement.
6.5 Authorization to Make Loans. Lender is authorized to make the
Loans and provide the Letter of Credit Accommodations based upon telephonic or
other instructions received from anyone purporting to be an officer of Borrower
or other authorized person or, at the discretion of Lender, if such Loans are
necessary to satisfy any Obligations. All requests for Loans or Letter of
Credit Accommodations hereunder shall specify the date on which the requested
advance is to be made or Letter of Credit Accommodations established (which day
shall be a business day) and the amount of the requested Loan. Requests
received after 12:00 noon Chicago, Illinois time on any day shall be deemed to
have been made as of the opening of business on the immediately following
business day. All Loans and Letter of Credit Accommodations under this
Agreement shall be conclusively presumed to have been made to, and at the
request of and for the benefit of, Borrower when deposited to the credit of
Borrower or otherwise disbursed or established in accordance with the
instructions of Borrower or in accordance with the terms and
-34-
39
conditions of this Agreement.
6.6 Use of Proceeds. All Loans made or Letter of Credit
Accommodations provided by Lender to Borrower pursuant to the provisions hereof
shall be used by Borrower only for general operating, working capital and other
proper corporate purposes and uses of Borrower not otherwise prohibited by the
terms hereof or by the Subordinated Note Agreements or any other agreement or
rule or regulation of any Gaming Authority or other Governmental Authority to
which Borrower or any subsidiary is a party or by which or to which Borrower or
any subsidiary or any of their property is bound or is subject. None of the
proceeds will be used, directly or indirectly, for the purpose of purchasing or
carrying any margin security or for the purposes of reducing or retiring any
indebtedness which was originally incurred to purchase or carry any margin
security or for any other purpose which might cause any of the Loans to be
considered a "purpose credit" within the meaning of Regulation G of the Board
of Governors of the Federal Reserve System, as amended.
SECTION 7. COLLATERAL REPORTING AND COVENANTS
7.1 Collateral Reporting.
(a) Borrower shall provide Lender with the following
documents in a form satisfactory to Lender:
(i) as soon as available, but in any event, by no later
than the seventh (7th) day after the end of each fiscal month of Borrower, a
Borrowing Base Certificate setting forth Borrower's calculation of the
Revolving Loans and Letter of Credit Accommodations available to Borrower
pursuant to the terms and conditions contained herein (x) with respect to
Accounts, as of the last business day of the month ended most recently prior to
the due date thereof and (y) with respect to Inventory, as of the last business
day of the month prior to the month ended most recently prior to such due date,
each such Borrowing Base Certificate to be duly completed and executed by the
chief financial officer or other appropriate financial officer acceptable to
Lender, together with all schedules required pursuant to the terms of the
Borrowing Base Certificate duly completed; provided, that, (I) for purposes of
clause (y) of Section 7.1(a)(i), upon Borrower's implementation of a perpetual
Inventory reporting system, each monthly Borrowing Base Certificate delivered
under this Section shall be prepared with respect to Inventory as of the last
business day of the month ended most recently prior to the due date of such
Borrowing Base Certificate, and (II) prior to the implementation of a perpetual
-35-
40
Inventory reporting system, upon Lender's request, Borrower shall update the
information set forth in each monthly Borrowing Base Certificate with respect
to Inventory as of the last business day of the month ended most recently prior
to the due date thereof, as soon as such information is available (but in any
event such information shall be contained in the next succeeding Borrowing Base
Certificate); provided, further that, without limiting any other rights of
Lender, upon Lender's request, Borrower shall provide Lender on a weekly basis
with a schedule of sales, collections received and credits issued and, on a
weekly basis to the extent available, inventory reports, in each case under
this proviso upon and after any of the following: (A) an Event of Default or
event which with notice or passage of time or both would constitute an Event of
Default, shall exist or have occurred and be continuing, or (B) Borrower shall
have failed to deliver any Borrowing Base Certificate in accordance with the
terms hereof when due or within two (2) business days thereafter, or (C) upon
Lender's good faith belief that any information contained in any Borrowing Base
Certificate is incomplete, inaccurate or misleading, or (D) the Combined Excess
Availability shall be less than $5,000,000, or (E) the aggregate outstanding
principal amount of Loans and Letter of Credit Accommodations, plus the
aggregate outstanding principal amount of "Loans" and "Letter of Credit
Accommodations" under the Canadian Financing Agreements shall equal or exceed
$15,000,000;
(ii) on a monthly basis, to the extent not included in a
schedule to the monthly Borrowing Base Certificate or otherwise delivered to
Lender hereunder, (A) perpetual inventory reports, to the extent available, and
inventory reports by category and location, (B) agings of accounts receivable,
and (C) agings of accounts payable;
(iii) upon Lender's request, (A) copies of customer statements
and credit memos, remittance advices and reports, and copies of deposit slips
and bank statements, (B) copies of shipping and delivery documents, and (C)
copies of purchase orders, invoices and delivery of documents for Inventory and
Equipment acquired by Borrower; and
(iv) such other reports as to the Collateral as Lender
shall reasonably request from time to time.
(b) Nothing contained in any Borrowing Base Certificate shall be
deemed to limit, impair or otherwise affect the rights of Lender contained
herein and in the event of any conflict or inconsistency between the
calculation of the Revolving Loans and Letter of Credit Accommodations
available to Borrower as set forth in any Borrowing Base Certificate and as
determined by
-36-
41
Lender, the determination of Lender in good faith (including the determination
in good faith of Letter of Credit Accommodations available based on the
provisions hereof) shall govern and be conclusive and binding upon Borrower.
Without limiting the foregoing, Borrower shall furnish to Lender any
information which Lender may reasonably request regarding the determination and
calculation of any of the amounts set forth in the Borrowing Base Certificate.
If any of Borrower's records or reports of the Collateral are prepared or
maintained by an accounting service, contractor, shipper or other agent,
Borrower hereby irrevocably authorizes such service, contractor, shipper or
agent to deliver such records, reports and related documents to Lender and to
follow Lender's instructions with respect to further services at any time that
an Event of Default exists or has occurred and is continuing.
7.2 Accounts Covenants.
(a) In addition to Borrower's other reporting Obligations
hereunder, Borrower shall notify Lender promptly and on a separate basis of:
(i) any material delay in Borrower's performance of any of its obligations to
any account debtor or the assertion of any claims, offsets, defenses or
counterclaims by any account debtor, or any disputes with account debtors, or
any settlement, adjustment or compromise thereof involving an amount greater
than $50,000, individually, or greater than $250,000, in the aggregate, (ii)
all material adverse information relating to the financial condition of any
account debtor obligated for Accounts in excess of $50,000, and (iii) any event
or circumstance which, to Borrower's knowledge would cause Lender to consider
any then existing Accounts involving an amount greater than $50,000,
individually, or greater than $250,000, in the aggregate, to no longer
constitute Eligible Accounts. No credit, discount, allowance or extension or
agreement for any of the foregoing shall be granted to any account debtor
without Lender's consent, except those granted in the ordinary course of
Borrower's business in accordance with practices and policies previously
disclosed in writing to Lender, and which are reported to Lender in accordance
with this Agreement. So long as no Event of Default exists or has occurred and
is continuing, Borrower shall settle, adjust or compromise any claim, offset,
counterclaim or dispute with any account debtor. At any time that an Event of
Default exists or has occurred and is continuing, Lender shall, at its option,
have the exclusive right to settle, adjust or compromise any claim, offset,
counterclaim or dispute with account debtors or grant any credits, discounts or
allowances with respect thereto in good faith and on a commercially reasonable
basis.
-37-
42
(b) Without limiting the obligation of Borrower to
deliver any other information to Lender, Borrower shall promptly and separately
report to Lender any return of Inventory by any one account debtor if the
inventory so returned in such case has a value in excess of $50,000. At any
time that Inventory is returned, reclaimed or repossessed, the Account (or
portion thereof) which arose from the sale of such returned, reclaimed or
repossessed Inventory shall not be deemed an Eligible Account. In the event
any account debtor returns Inventory when an Event of Default exists or has
occurred and is continuing, Borrower shall, upon Lender's request, (i) hold the
returned Inventory in trust for Lender, (ii) segregate all returned Inventory
from all of its other property, (iii) dispose of the returned Inventory solely
according to Lender's instructions, and (iv) not issue any credits, discounts
or allowances with respect thereto without Lender's prior written consent.
(c) With respect to each Account: (i) the amounts shown
on any invoice delivered to Lender or schedule thereof delivered to Lender
shall be true and complete, (ii) no payments shall be made thereon except
payments made to one of the Blocked Accounts, (iii) there shall be no setoffs,
deductions, contras, defenses, counterclaims or disputes existing or asserted
with respect thereto, other than those ordinary course deductions and
allowances reflected on the face of the invoice evidencing such Account and
reflected as a deduction in computing and reporting the net amount of the
affected Account in the Borrowing Base Certificates and all other Collateral
reports delivered in accordance with this Agreement with respect to Accounts,
and (iv) none of the transactions giving rise thereto will violate any
applicable State or Federal laws or regulations in any manner that does result
in, or could reasonably be expected to result in, a Material Adverse Effect,
all documentation relating thereto will be legally sufficient under such laws
and regulations and all such documentation will be legally enforceable in
accordance with its terms.
(d) Lender shall have the right at any time or times, in
Lender's name or in the name of a nominee of Lender, to verify the validity,
amount or any other matter relating to any Account or other Collateral, by
mail, telephone, facsimile transmission or otherwise.
(e) Borrower shall deliver or cause to be delivered to
Lender, with appropriate endorsement and assignment, with full recourse to
Borrower, all chattel paper and instruments which Borrower now owns or may at
any time acquire immediately upon Borrower's receipt thereof, except as Lender
may otherwise agree.
-38-
43
(f) Lender may, at any time or times that an Event of
Default exists or has occurred and is continuing, (i) notify any or all account
debtors that the Accounts have been assigned to Lender and that Lender has a
security interest therein and Lender may direct any or all account debtors to
make payment of Accounts directly to Lender, (ii) extend the time of payment
of, compromise, settle or adjust for cash, credit, return of merchandise or
otherwise, and upon any terms or conditions, any and all Accounts or other
obligations included in the Collateral and thereby discharge or release the
account debtor or any other party or parties in any way liable for payment
thereof without affecting any of the Obligations, (iii) demand, collect or
enforce payment of any Accounts or such other obligations, but without any duty
to do so, and Lender shall not be liable for its failure to collect or enforce
the payment thereof nor for the negligence of its agents or attorneys with
respect thereto and (iv) take whatever other action Lender may in good ▇▇▇▇▇
▇▇▇▇ necessary or desirable for the protection of its interests. At any time
that an Event of Default exists or has occurred and is continuing, at Lender's
request, all invoices and statements sent to any account debtor shall state
that the Accounts and such other obligations have been assigned to Lender and
are payable directly and only to Lender and Borrower shall deliver to Lender
such originals of documents evidencing the sale and delivery of goods or the
performance of services giving rise to any Accounts as Lender may require.
7.3 Inventory Covenants. With respect to the Inventory: (a)
Borrower shall at all times maintain inventory records reasonably satisfactory
to Lender, keeping correct and accurate records itemizing and describing the
kind, type, quality and quantity of Inventory, Borrower's cost therefor and
withdrawals therefrom and additions thereto; (b) Borrower shall, at its sole
cost and expense, conduct a physical count of the Inventory at least once
during each twelve (12) month period after the date hereof, and up to an
additional three (3) times during each twelve (12) month period as Lender may
request on or after an Event of Default, and at any other time or times as
Lender may request at Lender's sole cost and expense, and promptly following
such physical inventory shall supply Lender with a report in the form and with
such specificity as may be reasonably satisfactory to Lender concerning such
physical count; (c) Borrower shall not remove any Inventory from the locations
set forth or permitted herein, without the prior written consent of Lender,
except for sales of Inventory in the ordinary course of Borrower's business and
except to move Inventory directly from one location set forth or permitted
herein to another such location, including, without limitation, so long as no
Event of Default, and no event that with notice or passage of time, or both,
would constitute an
-39-
44
Event of Default, exists or has occurred and is continuing and no Overformula
Amount exists or would result therefrom, the movement of Inventory, in the
ordinary course of Borrower's business from Borrower's facilities in the United
States to the manufacturing facilities of Borrower's subsidiary in Reynosa,
Mexico, identified in the Information Certificate; provided, however, such
subsidiary shall not take title to any such Inventory; (d) upon Lender's
request, Borrower shall, at its sole cost and expense, no more than once in any
twelve (12) month period, and up to an additional three (3) times during each
twelve (12) month period at any time or times as Lender may request on or after
an Event of Default, and at any other time or times as Lender may request at
Lender's sole cost and expense, deliver or cause to be delivered to Lender
written reports or appraisals as to the Inventory in form, scope and
methodology acceptable to Lender and by an appraiser acceptable to Lender,
addressed to Lender or upon which Lender is expressly permitted to rely; (e)
Borrower shall produce, use, store and maintain the Inventory with all
reasonable care and caution and in accordance with applicable standards of any
insurance and in conformity with applicable laws (including the requirements of
the Federal Fair Labor Standards Act of 1938, as amended and all rules,
regulations and orders related thereto); (f) Borrower assumes all
responsibility and liability arising from or relating to the production, use,
sale or other disposition of the Inventory; (g) Borrower shall not sell
Inventory to any customer on approval, or any other basis which entitles the
customer to return or may obligate Borrower to repurchase such Inventory,
except for inventory repurchase agreements permitted under Section 9.9(e)
hereof; (h) Borrower shall keep the Inventory in good and marketable condition;
and (i) Borrower shall not, without prior written notice to Lender, acquire or
accept any Inventory on consignment or approval.
-40-
45
7.4 Equipment Covenants. With respect to the Equipment: (a) upon
Lender's request, Borrower shall, at its sole cost and expense, once during
each twelve (12) month period after the date hereof, and up to an additional
three times during each twelve (12) month period as Lender may request on or
after an Event of Default, or, at Lender's sole cost and expense, at any other
time or times, deliver or cause to be delivered to Lender written reports or
appraisals as to the orderly liquidation value of the Equipment in form, scope
and methodology acceptable to Lender and by an appraiser acceptable to Lender;
(b) Borrower shall keep the Equipment in good order, repair and marketable
condition (ordinary wear and tear excepted); (c) Borrower shall use the
Equipment in accordance with applicable standards of any insurance and in
conformity with all applicable laws; (d) Borrower shall not remove any
Equipment from the locations set forth or permitted herein, except to the
extent necessary to have any Equipment repaired or maintained in the ordinary
course of the business of Borrower or to move Equipment directly from one
location set forth or permitted herein to another such location and except for
the movement of motor vehicles used by or for the benefit of Borrower in the
ordinary course of business; (e) the Equipment is now and shall remain personal
property and Borrower shall not permit any of the Equipment to be or become a
part of or affixed to real property; and (f) Borrower assumes all
responsibility and liability arising from the use of the Equipment. Without
limiting the provisions of Section 7.4(d) above, Borrower shall not relocate
any of its Equipment to any location outside of the United States, other than
the manufacturing facilities of Borrower's subsidiary in Reynosa, Mexico;
provided, however, that: (w) no such relocation to such facilities in Reynosa,
Mexico shall be permitted unless Lender has received not less than twenty (20)
days prior written notice stating that such relocation notice is being given
under Section 7.4(d) of this Agreement and identifying, with make, model,
serial number and other identifying information, the Equipment proposed to be
relocated, (x) upon or at any time after receipt of each such relocation
notice, Lender shall be entitled to reduce the Amortized Equipment Value of
Borrower's Equipment by the product obtained by multiplying (1) seventy-five
(75%) percent of the orderly liquidation value of the Equipment to be relocated
identified in such notice as set forth in the most recent appraisal pursuant to
this Section 7.4 in respect of which the Amortized Equipment Value has been
reset by Lender as provided in the definition of Amortized Equipment Value (or
if no such reset has occurred, then as set forth in the appraisal dated October
27, 1997 by ▇▇▇▇▇-▇▇▇▇▇▇ Appraisal Corporation), by (2) a fraction, the
numerator which is the number of months elapsed after the date hereof (or, if
the Amortized Equipment Value has been reset by Lender, the number of months
elapsed after the date
-41-
46
of the most recent such reset) through and including the date such reduction is
to be made by Lender, and the denominator of which is sixty (60) (or if the
Amortized Equipment Value has been reset by Lender, the denominator of which is
the number equal to sixty (60) minus the number of months elapsed after the
date hereof through and including the date of such most recent reset), (y) as
of the date of relocation, no Event of Default, and no condition or event that,
with notice or passage of time, or both, would constitute an Event of Default,
exists or has occurred and is continuing, and (z) after giving effect to the
reduction in Amortized Equipment Value calculated under clause (x) of this
proviso, as of the date of relocation, there shall be no Overformula Amount.
7.5 Power of Attorney. Borrower hereby irrevocably designates and
appoints Lender (and all persons designated by Lender) as Borrower's true and
lawful attorney-in-fact, and authorizes Lender, in Borrower's or Lender's name,
to: (a) at any time an Event of Default or event which with notice or passage
of time or both would constitute an Event of Default exists or has occurred and
is continuing (i) demand payment on Accounts or other proceeds of Inventory or
other Collateral, (ii) enforce payment of Accounts by legal proceedings or
otherwise, (iii) exercise all of Borrower's rights and remedies to collect any
Account or other Collateral, (iv) sell or assign any Account upon such terms
and for such amount as are commercially reasonable, and at such time or times
as the Lender deems advisable, (v) settle, adjust, compromise, extend or renew
an Account, (vi) discharge and release any Account, (vii) prepare, file and
sign Borrower's name on any proof of claim in bankruptcy or other similar
document against an account debtor, (viii) notify the post office authorities
to change the address for delivery of Borrower's mail to an address designated
by Lender, and open and dispose of all mail addressed to Borrower, and (ix) do
all acts and things which are necessary, in Lender's determination, to fulfill
Borrower's obligations under this Agreement and the other Financing Agreements,
and (b) at any time after one of the events referred to in clauses (i) through
(iv) of Section 6.3(a) has occurred, to (i) take control in any manner of any
item of payment or proceeds thereof, (ii) have access to any lockbox or postal
box into which Borrower's mail is deposited, (iii) endorse Borrower's name upon
any items of payment or proceeds thereof and deposit the same in the Lender's
account for application to the Obligations and (iv) endorse Borrower's name
upon any chattel paper, document, instrument, invoice, or similar document or
agreement relating to any Account or any goods pertaining thereto or any other
Collateral, and (c) at any time to (i) sign Borrower's name on any verification
of Accounts and notices thereof to account debtors and (ii) execute in
Borrower's name
-42-
47
and file any UCC financing statements or amendments thereto. Borrower hereby
releases Lender and its officers, employees and designees from any liabilities
arising from any act or acts under this power of attorney and in furtherance
thereof, whether of omission or commission, except as a result of Lender's own
gross negligence or wilful misconduct as determined pursuant to a final
non-appealable order of a court of competent jurisdiction.
7.6 Right to Cure. Lender may, at its option, in good faith (a)
cure any default by Borrower under any agreement with a third party or pay or
bond on appeal any judgment entered against Borrower, if, in Lender's
commercially reasonable judgment, such action is necessary or appropriate to
preserve, protect, insure or maintain the Collateral and the rights of Lender
with respect thereto, (b) discharge taxes, liens, security interests or other
encumbrances at any time levied on or existing with respect to the Collateral,
except any of the foregoing the validity of which is being contested in good
faith by appropriate proceedings, diligently pursued by Borrower and as to
which no enforcement action has been commenced or taken against any Collateral,
and (c) pay any amount, incur any expense or perform any act which, in Lender's
commercially reasonable judgment, is necessary or appropriate to preserve,
protect, insure or maintain the Collateral and the rights of Lender with
respect thereto. Lender may add any amounts so expended to the Obligations and
charge Borrower's account therefor, such amounts to be repayable by Borrower on
demand. Lender shall be under no obligation to effect such cure, payment or
bonding and shall not, by doing so, be deemed to have assumed any obligation or
liability of Borrower. Any payment made or other action taken by Lender under
this Section shall be without prejudice to any right to assert an Event of
Default hereunder and to proceed accordingly.
7.7 Access to Premises. From time to time as requested by Lender,
at the cost and expense of Borrower, (a) Lender or its designee shall have
complete access to all of Borrower's premises during normal business hours and
after notice to Borrower, or at any time and without notice to Borrower if an
Event of Default exists or has occurred and is continuing, for the purposes of
inspecting, verifying and auditing the Collateral and all of Borrower's books
and records, including the Records, and (b) Borrower shall promptly furnish to
Lender such copies of such books and records or extracts therefrom as Lender
may request, and (c) use during normal business hours such of Borrower's
personnel, equipment, supplies and premises as may be reasonably necessary for
the foregoing and if an Event of Default exists or has occurred and is
continuing for the collection of Accounts and realization of other Collateral;
provided, however, that, prior to an Event of Default, Lender's use of
Borrower's personnel,
-43-
48
equipment, supplies and premises as provided in this Section 7.7 shall be
conducted in a reasonable manner with a view to avoiding unreasonable
interference with Borrower's operations.
SECTION 8. REPRESENTATIONS AND WARRANTIES
Borrower hereby represents and warrants to Lender the following (which
shall survive the execution and delivery of this Agreement), the truth and
accuracy of which are a continuing condition of the making of Loans and
providing Letter of Credit Accommodations by Lender to Borrower:
8.1 Corporate Existence, Power and Authority; Subsidiaries.
Borrower is a corporation duly organized and in good standing under the laws of
its state of incorporation and is duly qualified as a foreign corporation and
in good standing in all states or other jurisdictions where the nature and
extent of the business transacted by it or the ownership of assets makes such
qualification necessary, except for those jurisdictions in which the failure to
so qualify has not, individually or in the aggregate, resulted in, and could
not reasonably be expected to result in, a Material Adverse Effect. The
execution, delivery and performance of this Agreement, the other Financing
Agreements and the transactions contemplated hereunder and thereunder are all
within Borrower's corporate powers, have been duly authorized and are not in
contravention of law or the terms of Borrower's certificate of incorporation,
or by-laws, or any indenture, agreement or undertaking to which Borrower is a
party or by which Borrower or its property are bound, except any such
contravention that, individually or in the aggregate, has not resulted in, and
could not reasonably be expected to result in, a Material Adverse Effect,
excluding from this exception, however, any contravention of the Subordinated
Note Agreements. This Agreement and the other Financing Agreements constitute
legal, valid and binding Obligations of Borrower enforceable in accordance with
their respective terms, except to the extent enforceability thereof may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws generally affecting creditors' rights generally and by equitable
principles (regardless of whether enforcement is sought in equity or at law).
Borrower does not have any subsidiaries except as set forth on the Information
Certificate.
8.2 Financial Statements; No Material Adverse Change. All
financial statements relating to Borrower which have been or may hereafter be
delivered by Borrower to Lender have been prepared in accordance with GAAP and
fairly present the financial condition and the results of operation of Borrower
as at the
-44-
49
dates and for the periods set forth therein, subject, however, in the case of
Borrower's interim unaudited financial statements delivered hereunder, to
normal year-end adjustments and the absence of footnotes and formatting of
items as required under GAAP. Except as disclosed in any interim financial
statements furnished by Borrower to Lender prior to the date of this Agreement,
there has been no Material Adverse Change since the date of the most recent
audited financial statements furnished by Borrower to Lender prior to the date
of this Agreement.
8.3 Chief Executive Office; Collateral Locations. The chief
executive office of Borrower and Borrower's Records concerning Accounts are
located only at the address set forth below and its only other places of
business and the only other locations of Collateral, if any, are the addresses
set forth in the Information Certificate, subject to the right of Borrower to
establish new locations in accordance with Section 9.2 below. The Information
Certificate correctly identifies any of such locations which are not owned by
Borrower and sets forth the owners and/or operators thereof and to the best of
Borrower's knowledge, the holders of any mortgages on such locations.
8.4 Priority of Liens; Title to Properties. The security
interests and liens granted to Lender under this Agreement and the other
Financing Agreements constitute valid and perfected first priority liens and
security interests in and upon the Collateral subject only to the liens
indicated on Schedule 8.4 hereto and the other liens permitted under Section
9.8 hereof. Borrower has good and marketable title to all of its properties
and assets subject to no liens, mortgages, pledges, security interests,
encumbrances or charges of any kind, except those granted to Lender and such
others as are specifically listed on Schedule 8.4 hereto or permitted under
Section 9.8 hereof and except for such defects of title, individually or in the
aggregate, as have not resulted in, and could not, individually or in the
aggregate, be reasonably expected to result in, a Material Adverse Effect. As
to leased real and personal property, Borrower has valid leasehold interests,
which leasehold interests are subject to no liens, mortgages, pledges, security
interests, encumbrances or charges of any kind, except as are specifically
listed on Schedule 8.4 hereto or permitted under Section 9.8 hereof.
8.5 Tax Returns. Borrower has filed, or caused to be filed, in a
timely manner all tax returns, reports and declarations which are required to
be filed by it (without requests for extension except as previously disclosed
in writing to Lender). Borrower has paid or caused to be paid all taxes due
and payable or claimed due and payable in any assessment received
-45-
50
by it, except taxes the validity of which are being contested in good faith by
appropriate proceedings diligently pursued and available to Borrower.
8.6 Litigation. Except as set forth on the Information
Certificate, there is no present investigation by any governmental agency
pending, or to the best of Borrower's knowledge threatened, against or
affecting Borrower, its assets or business and there is no action, suit,
proceeding or claim by any Person pending, or to the best of Borrower's
knowledge threatened, against Borrower or its assets or its business, or
against or affecting any transactions contemplated by this Agreement, which, if
adversely determined against Borrower, could reasonably be expected to result
in a Material Adverse Effect.
8.7 Compliance with Other Agreements and Applicable Laws.
Borrower is not in default under, or in violation of any of the terms of, any
agreement, contract, instrument, lease or other commitment to which it is a
party or by which it or any of its assets are bound and, to Borrower's
knowledge, Borrower is in compliance with all applicable provisions of laws,
rules, regulations, licenses, permits, approvals and orders of any Gaming
Authority or other Governmental Authority, except any such defaults, violations
or non-compliance that, individually or in the aggregate, have not resulted in,
and could not reasonably be expected to result in, a Material Adverse Effect,
excluding from this exception, however, any defaults or violations under the
Subordinated Note Agreements.
8.8 Employee Benefits.
To the best of Borrower's knowledge:
(a) except as set forth in Schedule 8.8 hereto, Borrower
has not engaged in any transaction in connection with which Borrower or any of
its ERISA Affiliates could be subject to either a civil penalty assessed
pursuant to Section 502(i) of ERISA or a tax imposed by Section 4975 of the
Code, including any accumulated funding deficiency described in Section 8.8(c)
hereof and any deficiency with respect to vested accrued benefits described in
Section 8.8(d) hereof in an aggregate amount in excess of $500,000;
(b) except as set forth in Schedule 8.8 hereto, no
liability to the Pension Benefit Guaranty Corporation has been or is expected
by Borrower to be incurred with respect to any employee benefit plan of
Borrower or any of its ERISA Affiliates. There has been no reportable event
(within the meaning of Section 4043(b) of ERISA) or any other event or
condition with
-46-
51
respect to any employee pension benefit plan of Borrower or any of its ERISA
Affiliates which presents a risk of termination of any such plan by the Pension
Benefit Guaranty Corporation;
(c) full payment has been made of all amounts which
Borrower or any of its ERISA Affiliates is required under Section 302 of ERISA
and Section 412 of the Code to have paid under the terms of each employee
benefit plan as contributions to such plan as of the last day of the most
recent fiscal year of such plan ended prior to the date hereof, and no
accumulated funding deficiency (as defined in Section 302 of ERISA and Section
412 of the Code), whether or not waived, exists with respect to any employee
benefit plan, including any penalty or tax described in Section 8.8(a) hereof
and any deficiency with respect to vested accrued benefits described in Section
8.8(d) hereof;
(d) the current value of all vested accrued benefits
under all employee benefit plans maintained by Borrower that are subject to
Title IV of ERISA does not exceed the current value of the assets of such plans
allocable to such vested accrued benefits, including any penalty or tax
described in Section 8.8(a) hereof and any accumulated funding deficiency
described in Section 8.8(c) hereof. The terms "current value" and "accrued
benefit" have the meanings specified in ERISA; and
(e) neither Borrower nor any of its ERISA Affiliates is
or has ever been obligated to contribute to any "multiemployer plan" (as such
term is defined in Section 4001(a)(3) of ERISA) that is subject to Title IV of
ERISA.
8.9 Environmental Compliance.
(a) Except as set forth on Schedule 8.9 hereto, to the
best of Borrower's knowledge, Borrower has not generated, used, stored,
treated, transported, manufactured, handled, produced or disposed of any
Hazardous Materials, on or off its premises (whether or not owned by it) in any
manner which at any time violates any applicable Environmental Law or any
license, permit, certificate, approval or similar authorization thereunder, and
the operations of Borrower comply with all Environmental Laws and all licenses,
permits, certificates, approvals and similar authorizations thereunder, except
for any such violations or non-compliance that, individually or in the
aggregate, have not resulted in, and could not reasonably be expected to result
in, a Material Adverse Effect.
-47-
52
(b) Except as set forth on Schedule 8.9 hereto, there has
been no investigation, proceeding, complaint, order, directive, claim, citation
or notice by any governmental authority or any other person nor is any pending
or to the best of Borrower's knowledge threatened, with respect to any
non-compliance with or violation of the requirements of any Environmental Law
by Borrower or the release, spill or discharge, threatened or actual, of any
Hazardous Material or the generation, use, storage, treatment, transportation,
manufacture, handling, production or disposal of any Hazardous Materials or any
other environmental, health or safety matter that affects Borrower or its
business, operations or assets or any properties at which Borrower has
transported, stored or disposed of any Hazardous Materials, except with respect
to any such actual or alleged violation or non-compliance that, individually or
in the aggregate, has not resulted in, and could not reasonably be expected to,
result in a Material Adverse Effect (including, but not limited to, any
Material Adverse Effect if any such pending or threatened investigation or
proceeding were adversely determined against Borrower).
(c) Except as set forth on Schedule 8.9 hereto, Borrower
has no liability (contingent or otherwise) in connection with a release, spill
or discharge, threatened or actual, of any Hazardous Materials or the
generation, use, storage, treatment, transportation, manufacture, handling,
production or disposal of any Hazardous Materials.
(d) Except as set forth on Schedule 8.9 hereto, to the
best of Borrower's knowledge, Borrower has all licenses, permits, certificates,
approvals or similar authorizations required to be obtained or filed in
connection with the operations of Borrower under any Environmental Law and all
of such licenses, permits, certificates, approvals or similar authorizations
are valid and in full force and effect, except any of the foregoing where the
failure to obtain, file or maintain any of the foregoing as valid and in full
force and effect, individually or in the aggregate, has not resulted in, and
could not reasonably be expected to result in, a Material Adverse Effect.
8.10 Bank Accounts. All of the deposit accounts, investment
accounts or other accounts in the name of or used by Borrower maintained at any
bank or other financial institution are set forth on Schedule 8.10 hereto,
subject to the right of Borrower to establish new accounts in accordance with
Section 9.13 below.
8.11 Accuracy and Completeness of Information. All information
furnished by or on behalf of Borrower in writing to Lender in connection with
this Agreement or any of the other
-48-
53
Financing Agreements or any transaction contemplated hereby or thereby,
including all information on the Information Certificate is true and correct in
all material respects on the date as of which such information is dated or
certified and does not omit any material fact necessary in order to make such
information not misleading. No event or circumstance has occurred that,
individually or in the aggregate, has resulted in, or could reasonably be
expected to result in, a Material Adverse Effect, which has not been fully and
accurately disclosed to Lender in writing.
8.12 Survival of Warranties; Cumulative. All representations and
warranties contained in this Agreement or any of the other Financing Agreements
shall survive the execution and delivery of this Agreement and shall be deemed
to have been made again to Lender on the date of each additional borrowing or
other credit accommodation hereunder and shall be conclusively presumed to have
been relied on by Lender regardless of any investigation made or information
possessed by Lender. The representations and warranties set forth herein shall
be cumulative and in addition to any other representations or warranties which
Borrower shall now or hereafter give, or cause to be given, to Lender.
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS
9.1 Maintenance of Existence. Borrower shall at all times
preserve, renew and keep in full, force and effect its corporate existence and
rights and franchises with respect thereto. Borrower shall at all times
preserve and maintain in full force and effect all permits, licenses,
trademarks, tradenames, approvals, authorizations, leases and contracts
necessary to carry on the business as presently or proposed to be conducted,
except to the extent that any failure to do so, individually or in the
aggregate, does not, and could not reasonably be expected to, result in a
Material Adverse Effect. Borrower shall give Lender ten (10) days prior
written notice of any proposed change in its corporate name, which notice shall
set forth the new name and Borrower shall deliver to Lender a copy of the
amendment to the Certificate of Incorporation of Borrower providing for the
name change certified by the Secretary of State of the jurisdiction of
incorporation of Borrower as soon as it is available.
9.2 New Collateral Locations. Borrower may open any new location
within the continental United States provided Borrower (a) gives Lender ten
(10) days prior written notice of the intended opening of any such new location
and (b) executes and delivers, or causes to be executed and delivered, to
Lender such
-49-
54
agreements, documents, and instruments as Lender may deem reasonably necessary
or desirable to protect its interests in the Collateral at such location,
including UCC financing statements.
9.3 Compliance with Laws, Regulations, Etc.
(a) Borrower shall, at all times, comply with all laws,
rules, regulations, licenses, permits, approvals and orders applicable to it
and duly observe all requirements of any Governmental Authority, including the
Employee Retirement Security Act of 1974, as amended, the Occupational Safety
and Health Act of 1970, as amended, the Fair Labor Standards Act of 1938, as
amended, and all applicable statutes, rules, regulations, orders, permits and
stipulations relating to environmental pollution and employee health and
safety, including all of the Environmental Laws, and including all Gaming Laws
and all requirements of any Gaming Authority, except where the failure to so
comply does not, individually or in the aggregate, and could not reasonably be
expected to, result in a Material Adverse Effect.
(b) Borrower shall give both oral and written notice to
Lender immediately upon Borrower's receipt of any notice of, or Borrower's
otherwise obtaining knowledge of, (i) the occurrence of any event that could
reasonably be expected to result in any suspension, revocation or limitation on
any Gaming Licenses, or otherwise adversely affect the rights of Borrower to
operate its business in accordance with the Gaming Laws, or any material
liability pursuant to any Gaming Laws or (ii) any investigation, proceeding,
complaint, order, directive, claims, citation or notice with respect to any
non-compliance with or violation of any Gaming Laws by Borrower which, in the
case of clauses (i) and (ii), individually or in the aggregate, does result in,
or could (or, if adversely determined against Borrower, could) reasonably be
expected to result in, a Material Adverse Effect. Borrower shall indemnify and
hold harmless Lender, its directors, officers, employees, agents, invitees,
representatives, successors and assigns, from and against any and all losses,
claims, damages, liabilities, costs and expenses, including reasonable
attorneys' fees and legal expenses directly or indirectly arising out of or
attributable to the compliance by Borrower and/or (if applicable) by Lender
with any Gaming Laws, or actual or alleged non-compliance by Borrower with any
Gaming Laws, except that Borrower shall not be required to indemnify Lender for
any such losses, claims, damages, liabilities, costs and expenses resulting
from Lender's own gross negligence or wilful misconduct, as determined by a
final non-appealable judgment of a court of competent jurisdiction.
-50-
55
(c) Copies of all environmental surveys, audits,
assessments, feasibility studies and results of remedial investigations shall
be promptly furnished, or caused to be furnished, by Borrower to Lender.
Borrower shall take prompt and appropriate action to respond to any
non-compliance with any of the Environmental Laws (except for any such
non-compliance that, individually or in the aggregate, does not, and could not
reasonably be expected to, result in a Material Adverse Effect) and shall
regularly report to Lender on such response.
(d) Borrower shall give both oral and written notice to
Lender immediately upon Borrower's receipt of any notice of, or Borrower's
otherwise obtaining knowledge of, (i) the occurrence of any event involving the
release, spill or discharge, threatened or actual, of any Hazardous Material or
(ii) any investigation, proceeding, complaint, order, directive, claims,
citation or notice with respect to: (A) any non-compliance with or violation of
any Environmental Law by Borrower or (B) the release, spill or discharge,
threatened or actual, of any Hazardous Material or (C) the generation, use,
storage, treatment, transportation, manufacture, handling, production or
disposal of any Hazardous Materials or (D) any other environmental, health or
safety matter, which affects Borrower or its business, operations or assets or
any properties at which Borrower transported, stored or disposed of any
Hazardous Materials, except that such notice to Lender shall not be required as
to any such matter if the actual or potential liability or claimed liability of
Borrower, or actual or potential expenditures by Borrower as a result of any
such matter (including any such matter if adversely determined against
Borrower), individually or in the aggregate, does not, and could not reasonably
be expected to, result in a Material Adverse Effect.
-51-
56
(e) Without limiting the generality of the foregoing,
whenever Lender reasonably determines that there is non-compliance, or any
condition which requires any action by or on behalf of Borrower in order to
avoid any non-compliance, with any Environmental Law, where the failure to so
comply, individually or in the aggregate, does result in, or could reasonably
be expected to result in, a liability or expenditure of in excess of $500,000,
Borrower shall, at Lender's request and Borrower's expense: (i) cause an
independent environmental engineer acceptable to Lender and Borrower to conduct
such tests of the site where Borrower's non-compliance or alleged
non-compliance with such Environmental Laws has occurred as to such
non-compliance and prepare and deliver to Lender a report as to such non-
compliance setting forth the results of such tests, a proposed plan for
responding to any environmental problems described therein, and an estimate of
the costs thereof and (ii) provide to Lender a supplemental report of such
engineer whenever the scope of such non-compliance, or Borrower's response
thereto or the estimated costs thereof, shall change in any material respect.
(f) Borrower shall indemnify and hold harmless Lender,
its directors, officers, employees, agents, invitees, representatives,
successors and assigns, from and against any and all losses, claims, damages,
liabilities, costs, and expenses (including reasonable attorneys' fees and
legal expenses) directly or indirectly arising out of or attributable to the
use, generation, manufacture, reproduction, storage, release, threatened
release, spill, discharge, disposal or presence of a Hazardous Material,
including the costs of any required or necessary repair, cleanup or other
remedial work with respect to any property of Borrower and the preparation and
implementation of any closure, remedial or other required plans, except that
Borrower shall not be required to indemnify Lender for any such losses, claims,
damages, liabilities, costs and expenses resulting from Lender's own gross
negligence or wilful misconduct, as determined by a final non-appealable
judgment of a court of competent jurisdiction. All representations,
warranties, covenants and indemnifications in this Section 9.3 shall survive
the payment of the Obligations and the termination or non-renewal of this
Agreement.
9.4 Payment of Taxes and Claims. Borrower shall duly pay and
discharge all taxes, assessments, contributions and governmental charges upon
or against it or its properties or assets, except for taxes the validity of
which are being contested in good faith by appropriate proceedings diligently
pursued and available to Borrower. Borrower shall be liable for any tax or
penalties imposed on Lender as a result of the
-52-
57
financing arrangements provided for herein and Borrower agrees to indemnify and
hold Lender harmless with respect to the foregoing, and to repay to Lender on
demand the amount thereof, and until paid by Borrower such amount shall be
added and deemed part of the Loans, provided, that, nothing contained herein
shall be construed to require Borrower to pay any income or franchise taxes
attributable to the income of Lender from any amounts charged or paid hereunder
to Lender. The foregoing indemnity shall survive the payment of the
Obligations and the termination or non-renewal of this Agreement.
9.5 Insurance. Borrower shall, at all times, maintain insurance
with respect to the Collateral against loss or damage and all other insurance
of the kinds and in the amounts customarily insured against or carried by
corporations of established reputation engaged in the same or similar
businesses and similarly situated. Said policies of insurance shall be
satisfactory to Lender as to form, amount and insurer. Borrower shall furnish
certificates, policies or endorsements to Lender as Lender shall require as
proof of such insurance, and, if Borrower fails to do so, Lender is authorized,
but not required, to obtain such insurance at the expense of Borrower. All
policies shall provide for at least thirty (30) days prior written notice to
Lender of any cancellation or reduction of coverage and that Lender may act as
attorney for Borrower in obtaining, and at any time an Event of Default exists
or has occurred and is continuing, adjusting, settling, amending and canceling
such insurance. Borrower shall cause Lender to be named as a loss payee and an
additional insured (but without any liability for any premiums) under such
insurance policies and Borrower shall obtain non-contributory lender's loss
payable endorsements to all insurance policies in form and substance
satisfactory to Lender. Such lender's loss payable endorsements shall specify
that the proceeds of such insurance shall be payable to Lender as its interests
may appear and further specify that Lender shall be paid regardless of any act
or omission by Borrower or any of its affiliates. At its option, Lender may
apply any insurance proceeds received by Lender at any time to the cost of
repairs or replacement of Collateral and/or to payment of the Obligations,
whether or not then due, in any order and in such manner as Lender may
determine or hold such proceeds as cash collateral for the Obligations;
provided, however, so long as (i) no Event of Default, and no event or
condition that, with notice or passage of time, or both, exists or has occurred
and is continuing and (ii) there is Combined Excess Availability of at least
$5,000,000 after giving effect to the loss or damage to Collateral to which any
portion of the insurance proceeds relates and without regard to the insurance
proceeds themselves, then Lender shall make the insurance proceeds available to
Borrower.
-53-
58
9.6 Financial Statements and Other Information.
(a) Borrower shall keep proper books and records in which
true and complete entries shall be made of all dealings or transactions of or
in relation to the Collateral and the business of Borrower and its subsidiaries
(if any), which shall be reconciled and conformed to the requirements of GAAP
no less frequently than quarterly and Borrower shall furnish or cause to be
furnished to Lender: (i) within forty (40) days after the end of each fiscal
month, other than the end of the third, sixth, ninth and twelfth fiscal months,
in each fiscal year, and within ninety (90) days after the end of the twelfth
fiscal month in each fiscal year, monthly unaudited consolidated financial
statements of Borrower and its subsidiaries (including, in each case, balance
sheets and statements of operations), fairly presenting the financial position
and the results of the operations of Borrower and its subsidiaries as of the
end of and through such fiscal month, (ii) within forty-five (45) days after
the end of each fiscal quarter, unaudited consolidated financial statements of
Borrower and its subsidiaries (including, in each case, balance sheets and
statements of operations), fairly presenting the results of operations of
Borrower and its subsidiaries as of the end of and through such fiscal quarter,
and (iii) within ninety (90) days after the end of each fiscal year, audited
consolidated financial statements of Borrower and its subsidiaries (including,
in each case, balance sheets, statements of operations, statements of cash flow
and statements of shareholders' equity), and the accompanying notes thereto,
fairly presenting the financial position and the results of the operations of
Borrower and its subsidiaries as of the end of and for such fiscal year,
together with the unqualified opinion of independent certified public
accountants, which accountants shall be an independent accounting firm of
nationally recognized standing selected by Borrower, that such financial
statements have been prepared in conformity with GAAP, and present fairly, in
all material respects, the results of operations and financial condition of
Borrower and its subsidiaries as of the end of and for the fiscal year then
ended.
(b) Borrower shall promptly notify Lender in writing of
the details of (i) any loss, damage, investigation, action, suit, proceeding or
claim relating to the Collateral or any other property which is security for
the Obligations involving an amount in excess of $50,000 or which has resulted
in, or could reasonably be expected to result in, any Material Adverse Effect
and (ii) the occurrence of any Event of Default or event which, with the
passage of time or giving of notice or both, would constitute an Event of
Default.
-54-
59
(c) Borrower shall promptly notify Lender in writing in
the event that, at any time after the delivery of a Borrowing Base Certificate
by Borrower to Lender, but prior to the delivery of the next Borrowing Base
Certificate to be delivered by Borrower to Lender in accordance with the terms
hereof, the amount of Formula Availability is less than ninety (90%) percent of
the amount of Formula Availability calculated based on the information set
forth in the most recent Borrowing Base Certificate previously delivered by
Borrower to Lender pursuant to Section 7.1 hereof. Borrower will immediately
notify Lender in writing if (A) the Revolving Loans made by Lender to Borrower
and/or Letter of Credit Accommodations outstanding at any time exceed the
Formula Availability at any time under the terms and conditions hereof or (B)
the Combined Excess Availability shall be less than $5,000,000 at any time.
(d) Borrower shall promptly after the sending or filing
thereof furnish or cause to be furnished to Lender copies of all reports which
Borrower sends to its stockholders generally and copies of all reports and
prospectuses which Borrower files with the Securities and Exchange Commission,
any national securities exchange or the National Association of Securities
Dealers, Inc.
(e) Borrower shall furnish or cause to be furnished to
Lender such budgets, forecasts, projections and other information respecting
the Collateral and the business of Borrower, as Lender may, from time to time,
reasonably request; provided, that so long as no Event of Default exists or has
occurred and is continuing, the budgets, forecasts and projections required by
Lender under this Section 9.6(e) shall be limited to a twelve (12) month
financial statement projection which shall be provided to Lender once each
year. Lender is hereby authorized to deliver a copy of any financial statement
or any other information relating to the business of Borrower to any court or
other government agency or to any participant or assignee or prospective
participant or assignee. Borrower hereby irrevocably authorizes and directs
all accountants or auditors to deliver to Lender, at Borrower's expense, copies
of the financial statements of Borrower and any reports or management letters
prepared by such accountants or auditors on behalf of Borrower (unless the same
are furnished by Borrower to Lender) and to disclose to Lender, in conjunction
with Borrower (unless an Event of Default has occurred in which case such
disclosure need not be in conjunction with Borrower), such information as they
may have regarding the business of Borrower. Any documents, schedules,
invoices or other papers delivered to Lender may be destroyed or otherwise
disposed of by Lender one (1) year after the same are
-55-
60
delivered to Lender, except as otherwise designated by Borrower to Lender in
writing.
9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc.
Borrower shall not, directly or indirectly: (a) merge into or with or
consolidate with any other Person or permit any other Person to merge into or
with or consolidate with it; or (b) sell, assign, lease, transfer, abandon or
otherwise dispose of any stock or indebtedness to any other Person or any of
its assets to any other Person (except for (i) the issuance by Borrower (but
not any subsidiary) of its own capital stock in a transaction not otherwise
prohibited under this Agreement or the Subordinated Note Agreements, (ii) sales
of Inventory in the ordinary course of business and (iii) the disposition of
worn-out or obsolete Equipment or Equipment no longer used in the business of
Borrower upon prior written notice to Lender, so long as (A) if an Event of
Default exists or has occurred and is continuing, any proceeds are paid to
Lender and (B) such sales do not involve Equipment having an aggregate fair
market value in excess of $250,000 for all such Equipment disposed of in any
fiscal year of Borrower) and (C) whether or not an Event of Default exists or
has occurred and is continuing, an adjustment to the Amortized Equipment Value
shall be made upon such sale in the same manner as provided under Section 7.4
hereof (as if such Equipment were relocated to the facilities of Borrower's
subsidiary in Reynosa, Mexico), and no Overformula Loan shall exist after
giving affect to such adjustment); or (c) form or acquire any subsidiaries,
except in connection with investments permitted under, and upon compliance
with, Section 9.10(c) hereof; or (d) wind up, liquidate or dissolve; or (e)
agree to do any of the foregoing.
9.8 Encumbrances. Borrower shall not create, incur, assume or
suffer to exist any security interest, mortgage, pledge, lien, charge or other
encumbrance of any nature whatsoever on any of its assets or properties,
including the Collateral, except: (a) liens and security interests of Lender;
(b) liens securing the payment of taxes, either not yet overdue or the validity
of which are being contested in good faith by appropriate proceedings
diligently pursued and available to Borrower and provided no enforcement action
has been commenced or taken against any Collateral with respect thereto; (c)
non-consensual statutory liens (other than liens securing the payment of taxes)
arising in the ordinary course of Borrower's business to the extent: (i) such
liens secure indebtedness which is not overdue or (ii) such liens secure
indebtedness relating to claims or liabilities which are fully insured and
being defended at the sole cost and expense and at the sole risk of the insurer
or being contested in good faith by appropriate proceedings diligently pursued
and available to Borrower, in each case prior to the commencement of
-56-
61
foreclosure or other similar proceedings; (d) zoning restrictions, easements,
licenses, covenants and other restrictions affecting the use of real property
which do not interfere in any material respect with the use of such real
property or ordinary conduct of the business of Borrower as presently conducted
thereon or materially impair the value of the real property which may be
subject thereto; (e) purchase money security interests in Equipment (including
capital leases) and purchase money mortgages on real estate not to exceed
$2,500,000 of obligations (including capitalized lease obligations) secured
thereby incurred in any fiscal year of Borrower (and including for the purposes
of such limitation, the obligations of Borrower's subsidiaries secured by any
purchase money security interests in Equipment (including capitalized leases)
and purchase money mortgages in real estate incurred during such fiscal year),
provided, that, such security interests and mortgages do not apply to any
property of Borrower other than the Equipment or real estate so acquired, and
the indebtedness secured thereby does not exceed the cost of the Equipment or
real estate so acquired, as the case may be; and (f) the security interests and
liens set forth on Schedule 8.4 hereto.
9.9 Indebtedness. Borrower shall not incur, create, assume,
become or be liable in any manner with respect to, or permit to exist, any
obligations or indebtedness, except:
(a) the Obligations (including, without limitation, all
Obligations to Lender hereunder and all obligations, liabilities and
indebtedness of Borrower to Congress (Canada) under the Canadian Financing
Agreements);
(b) trade obligations and normal accruals in the ordinary
course of business not yet due and payable, or with respect to which the
Borrower is contesting in good faith the amount or validity thereof by
appropriate proceedings diligently pursued and available to Borrower;
(c) purchase money indebtedness (including capital leases) to
the extent not incurred or secured by liens (including capital leases) in
violation of any other provision of this Agreement;
(d) indebtedness of Borrower to its subsidiaries for short
term loans in the ordinary course of business not to exceed $7,000,000 in the
aggregate at any one time outstanding, provided, that any notes or other
instruments evidencing any such indebtedness shall be pledged and delivered to
Lender;
(e) contingent obligations of Borrower under inventory
-57-
62
repurchase agreements with its account debtors or their lenders or customers,
not to exceed, for the Borrower and its subsidiaries, and including the face
amount of Accounts and other accounts receivable or indebtedness owed to
Borrower and its subsidiaries by account debtors having the right to return any
goods sold by Borrower or its subsidiaries, $2,500,000 in the aggregate at any
time outstanding;
(f) unsecured indebtedness of Borrower under the Subordinated
Note Agreements, which indebtedness is subject and subordinate in right of
payment to the right of Lender to receive the prior final payment and
satisfaction in full of all of the Obligations; provided, that:
(i) the principal amount of such indebtedness shall not exceed
$100,000,000, less the aggregate amount of all repayments,
repurchases or redemptions, in respect thereof, plus interest
thereon at the rate provided for in such the Subordinated
Notes as in effect on the date hereof,
(ii) Borrower shall not, directly or indirectly, make any
payments in respect of such indebtedness, including, but not
limited to, any prepayments or other non-mandatory payments,
except that until an Event of Default, or condition or event
that, with notice or passage of time, or both, would
constitute an Event of Default, shall exist or have occurred
and be continuing, Borrower may make regularly scheduled
payments of principal and interest in accordance with the
terms of the Subordinated Notes as in effect on the date
hereof,
(iii) Borrower shall not, directly or indirectly, (A) amend,
modify, alter or change any terms of such indebtedness or any
agreement, document or instrument related thereto, or (B)
redeem, retire, defease, purchase or otherwise acquire such
indebtedness, or set aside or otherwise deposit or invest any
sums for such purpose; provided, that, so long as no Event of
Default, and no event or condition that would, with notice or
passage of time, or both, constitute on Event of Default,
exists or has occurred and is continuing, or would
-58-
63
result thereby, and no Overformula Loan exists or would result
thereby, Borrower may (1) on not less than fifteen (15) days
prior written notice to Lender, redeem up to thirty-five (35%)
percent of the Subordinated Notes with (but only with) the net
proceeds received in a common stock offering of Borrower
consummated substantially contemporaneously with such
redemption of Subordinated Notes, and/or (2) make open market
purchases of the Subordinated Notes if, for the period of
thirty (30) consecutive days immediately preceding each such
purchase and after giving effect thereto, there is Combined
Excess Availability of at least $10,000,000, and
(iv) Borrower shall furnish to Lender all notices, demands, or
other materials concerning such indebtedness either received
by Borrower or on its behalf, promptly after receipt thereof,
or sent by Borrower or on its behalf, concurrently with the
sending thereof, as the case may be;
(g) indebtedness of Borrower under forward contracts permitted
under Section 9.10(e) hereof;
(h) contingent obligations of Borrower, not to exceed
$750,000 in the aggregate at any one time outstanding, incurred in the ordinary
course of business in the form of guaranties by Borrower of indebtedness to
third parties of financing provided by such third parties to distributors of
Borrower or their customers used to finance purchases from Borrower or such
distributors of Borrower's products sold in the ordinary course of business;
(i) indebtedness (other than indebtedness described in clauses
(a) through (h) above) that is otherwise permitted to be incurred under the
Indenture governing the Subordinated Notes, as in effect on the date hereof;
provided that no Event of Default, and no condition or event that, with notice
of passage of time, or both, would constitute an Event of Default, exists or
has occurred and is continuing; and further, provided, that, (i) Borrower gives
Lender at least fifteen (15) days prior written notice of the proposed
incurrence of such indebtedness, accompanied by a certificate of the chief
financial officer of Borrower certifying compliance with this provision and
setting forth supporting calculations for purposes of evidencing
-59-
64
compliance with the provisions of the Indenture, as aforesaid, (ii) Borrower
may only make regularly scheduled payments of principal and interest in respect
of such indebtedness in accordance with the terms of the agreement or
instrument evidencing or giving rise to such indebtedness as in effect on the
date of issuance thereof, (iii) Borrower shall not, directly or indirectly, (A)
amend, modify, alter or change the terms of such indebtedness or any agreement,
document or instrument related thereto as in effect on the date of issuance
thereof, or (B) redeem, retire, defease, purchase or otherwise acquire such
indebtedness, or set aside or otherwise deposit or invest any sums for such
purpose, and (iv) Borrower shall furnish to Lender all demands and other
material notices in connection with such indebtedness either received by
Borrower or on its behalf, promptly after the receipt thereof, or sent by
Borrower or on its behalf, concurrently with the sending thereof, as the case
may be; and
(j) the existing indebtedness set forth on Schedule 9.9
hereto; provided, that, (i) Borrower may only make regularly scheduled payments
of principal and interest in respect of such indebtedness in accordance with
the terms of the agreement or instrument evidencing or giving rise to such
indebtedness as in effect on the date hereof, (ii) Borrower shall not, directly
or indirectly, (A) amend, modify, alter or change the terms of such
indebtedness or any agreement, document or instrument related thereto as in
effect on the date hereof, or (B) redeem, retire, defease, purchase or
otherwise acquire such indebtedness, or set aside or otherwise deposit or
invest any sums for such purpose, and (iii) Borrower shall furnish to Lender
all demands and other material notices in connection with such indebtedness
either received by Borrower or on its behalf, promptly after the receipt
thereof, or sent by Borrower or on its behalf, concurrently with the sending
thereof, as the case may be.
9.10 Loans, Investments, Guarantees, Etc. Borrower shall not,
directly or indirectly, make any loans or advance money or property to any
person, or invest in (by capital contribution, dividend or otherwise) or
purchase or repurchase the stock or indebtedness or all or a substantial part
of the assets or property of any person, or guarantee, assume, endorse, or
otherwise become responsible for (directly or indirectly) the indebtedness,
performance, obligations or dividends of any Person or agree to do any of the
foregoing, except:
(a) the endorsement of instruments for collection or deposit
in the ordinary course of business;
(b) investments in: (i) short-term direct obligations
-60-
65
of the United States Government, (ii) negotiable certificates of deposit issued
by any bank satisfactory to Lender, payable to the order of the Borrower or to
bearer and delivered to Lender, and (iii) commercial paper rated A1 or P1;
provided, that, as to any of the foregoing (collectively, "Cash Equivalents"),
unless waived in writing by Lender and except for the investment account
identified on Schedule 5.3 hereto, Borrower shall take such actions as are
deemed necessary by Lender to perfect the security interest of Lender in such
investments;
(c) repurchases of inventory from account debtors of
Borrower or their lenders or customers to the extent made pursuant to
agreements permitted under Section 9.9(e) hereof and guaranties permitted under
Section 9.9(h) hereof; and
(d) investments by Borrower, otherwise permitted by the
Indenture governing the Subordinated Notes as in effect on the date hereof, in
the form of cash equity contributions or cash loans to a wholly-owned
subsidiary of Borrower that either engages in a similar line of business as
Borrower or is newly formed to acquire the assets or capital stock of a Person
engaged in a similar line of business as Borrower; provided, that (i) Lender
receives not less than fifteen (15) days prior written notice of each such
proposed investment or loan accompanied by (A) copies of all agreements,
documents and instruments proposed to be entered into in connection therewith
and (B) a certificate of the chief financial officer of Borrower certifying
compliance with this provision and setting forth supporting calculations for
purposes of evidencing compliance with the provisions of the Indenture, as
aforesaid, (ii) such subsidiary receiving such investment or loan and each of
its direct and indirect subsidiaries (including any acquired subsidiaries)
shall have executed and delivered to Lender an absolute and unconditional
guaranty of payment of all Obligations of Borrower and of the Canadian Borrower
and granted to Lender a first priority perfected security interest in and lien
upon its assets (other than real property), together with such financing
statements and agreements of the kind referred to in Section 4.1(g), all in
form and substance satisfactory to Lender and as Lender shall require, (iii) no
Event of Default, and no condition or event that would, with notice or passage
of time, or both, constitute an Event of Default, shall have occurred and be
continuing, and (iv) there shall be Combined Excess Availability of not less
than $5,000,000 at all times during the period of thirty (30) consecutive days
immediately preceding the making of such investment or loan and after giving
effect thereto and after giving effect to all transactions substantially
related thereto;
(e) investments in forward contracts for purchases of
-61-
66
Canadian Dollars in amounts estimated by Borrower to be necessary for payment
of intercompany accounts or other intercompany obligations owed and payable by
Borrower to the Canadian Borrower in the ordinary course of business; and
(f) the loans, advances and guarantees set forth on Schedule
9.10 hereto; provided, that, as to such loans, advances and guarantees, (i)
Borrower shall not, directly or indirectly, (A) amend, modify, alter or change
the terms of such loans, advances or guarantees or any agreement, document or
instrument related thereto, or (B) as to such guarantees, redeem, retire,
defease, purchase or otherwise acquire the obligations arising pursuant to such
guarantees, or set aside or otherwise deposit or invest any sums for such
purpose, and (ii) Borrower shall furnish to Lender all demands or other
material notices in connection with such loans, advances or guarantees or other
indebtedness subject to such guarantees either received by Borrower or on its
behalf, promptly after the receipt thereof, or sent by Borrower or on its
behalf, concurrently with the sending thereof, as the case may be.
9.11 Dividends and Redemptions. Borrower shall not, directly or
indirectly, declare or pay any dividends on account of any shares of class of
capital stock of Borrower now or hereafter outstanding, or set aside or
otherwise deposit or invest any sums for such purpose, or redeem, retire,
defease, purchase or otherwise acquire any shares of any class of capital stock
(or set aside or otherwise deposit or invest any sums for such purpose) for any
consideration other than common stock or apply or set apart any sum, or make
any other distribution (by reduction of capital or otherwise) in respect of any
such shares or agree to do any of the foregoing; provided, that, Borrower may,
out of legally available funds therefor, declare and pay cash dividends
otherwise permitted to be paid under the terms of the Indenture governing the
Subordinated Notes, as in effect on the date hereof; provided, further, that
(i) Lender receives not less than fifteen (15) days prior written notice of
each such proposed dividend, accompanied by a certificate of the chief
financial officer of Borrower certifying compliance with this provision and
setting forth supporting calculation for purposes of evidencing compliance with
the provisions of the Indenture, as aforesaid, (ii) no Event of Default, and no
condition or event that would, with notice or passage of time, or both,
constitute an Event of Default, shall have occurred and be continuing, and
(iii) there shall be Combined Excess Availability of not less than $5,000,000
at all times during the period of thirty (30) consecutive days immediately
preceding the payment of such dividend and after giving effect thereto and
after giving effect to all transactions substantially related thereto.
-62-
67
9.12 Transactions with Affiliates. Borrower shall not, directly or
indirectly, (a) purchase, acquire or lease any property from, or sell, transfer
or lease any property to, any officer, director, agent or other person
affiliated with Borrower, except in the ordinary course of and pursuant to the
reasonable requirements of Borrower's business and upon fair and reasonable
terms no less favorable to the Borrower than Borrower would obtain in a
comparable arm's length transaction with an unaffiliated person or (b) make any
payments of management, consulting or other fees for management or similar
services, or of any indebtedness owing to any officer, employee, shareholder,
director or other person affiliated with Borrower except reasonable
compensation to officers, employees and directors for services rendered to
Borrower in the ordinary course of business and consistent with Borrower's past
practices.
9.13 Additional Bank Accounts. Borrower shall not, directly or
indirectly, open, establish or maintain any deposit account, investment account
or any other account with any bank or other financial institution, other than
the Blocked Accounts and the accounts set forth in Schedule 8.10 hereto,
except: (a) as to any new or additional Blocked Accounts and other such new or
additional accounts which contain any Collateral or proceeds thereof, with the
prior written consent of Lender and subject to such conditions thereto as
Lender may establish, (b) as to any accounts used by Borrower to make payments
of payroll, taxes or other obligations to third parties, after prior written
notice to Lender, and (c) bank accounts of Borrower not containing Collateral
or proceeds of Collateral and which have an average monthly balance,
individually, in an amount less than $80,000, and less than $160,000 in the
aggregate for all such bank accounts.
9.14 Adjusted Net Worth. Borrower shall, at all times when
Combined Excess Availability is less than $5,000,000, maintain Adjusted Net
Worth of not less than $13,000,000.
-63-
68
9.15 Compliance with ERISA.
(a) Borrower shall not with respect to any "employee
benefit plans" maintained by Borrower or any of its ERISA Affiliates: (i)
terminate any of such employee benefit plans so as to incur any liability to
the Pension Benefit Guaranty Corporation established pursuant to ERISA, (ii)
knowingly allow or suffer to exist any prohibited transaction involving any of
such employee benefit plans or any trust created thereunder which would subject
Borrower or such ERISA Affiliate to a tax or penalty or other liability on
prohibited transactions imposed under Section 4975 of the Code or ERISA, (iii)
knowingly fail to pay to any such employee benefit plan any contribution which
it is obligated to pay under Section 302 of ERISA, Section 412 of the Code or
the terms of such plan, (iv) knowingly allow or suffer to exist any accumulated
funding deficiency, whether or not waived, with respect to any such employee
benefit plan, (v) knowingly allow or suffer to exist any occurrence of a
reportable event or any other event or condition which presents a material risk
of termination by the Pension Benefit Guaranty Corporation of any such employee
benefit plan that is a single employer plan, which termination could result in
any liability to the Pension Benefit Guaranty Corporation or (vi) knowingly
incur any withdrawal liability with respect to any multiemployer pension plan
in an amount in excess of $500,000.
(b) As used in this Section 9.15, the terms "employee
benefit plans", "accumulated funding deficiency" and "reportable event" shall
have the respective meanings assigned to them in ERISA, and the term
"prohibited transaction" shall have the meaning assigned to it in Section 4975
of the Code and ERISA.
9.16 Costs and Expenses. Borrower shall pay to Lender on demand
all costs, expenses, filing fees and taxes paid or payable in connection with
the preparation, negotiation, execution, delivery, recording, administration,
collection, liquidation, enforcement and defense of the Obligations, Lender's
rights in the Collateral, this Agreement, the other Financing Agreements and
all other documents related hereto or thereto, including any amendments,
supplements or consents which may hereafter be contemplated (whether or not
executed) or entered into in respect hereof and thereof, including: (a) all
costs and expenses of filing or recording (including Uniform Commercial Code
financing statement filing taxes and fees, documentary taxes, intangibles taxes
and mortgage recording taxes and fees, if applicable); (b) costs and expenses
and fees for insurance premiums, environmental audits, surveys, assessments,
engineering reports and inspections, appraisal fees and search fees; (c) costs
and expenses of remitting loan proceeds, collecting checks and other
-64-
69
items of payment, and establishing and maintaining the Blocked Accounts and the
Payment Account, together with Lender's customary charges and fees with respect
thereto; (d) charges, fees or expenses charged by any bank or issuer in
connection with the Letter of Credit Accommodations; (e) costs and expenses of
preserving and protecting the Collateral; (f) costs and expenses paid or
incurred in connection with obtaining payment of the Obligations, enforcing the
security interests and liens of Lender, selling or otherwise realizing upon the
Collateral, and otherwise enforcing the provisions of this Agreement and the
other Financing Agreements or defending any claims made or threatened against
Lender arising out of the transactions contemplated hereby and thereby
(including preparations for and consultations concerning any such matters); (g)
all out-of-pocket expenses and costs heretofore and from time to time hereafter
incurred by Lender during the course of periodic field examinations of the
Collateral and Borrower's operations, plus a per diem charge at the rate of
$600 per person per day for Lender's examiners in the field and office; and (h)
the reasonable fees and disbursements of counsel (including legal assistants)
to Lender in connection with any of the foregoing.
9.17 Further Assurances. At the request of Lender at any time and
from time to time, Borrower shall, at its expense, duly execute and deliver, or
cause to be duly executed and delivered, such further agreements, documents and
instruments, and do or cause to be done such further acts as may be necessary
or proper to evidence, perfect, maintain and enforce the security interests and
the priority thereof in the Collateral and to otherwise effectuate the
provisions or purposes of this Agreement or any of the other Financing
Agreements. Lender may at any time and from time to time request a certificate
from an officer of Borrower representing that all conditions precedent to the
making of Loans and providing Letter of Credit Accommodations contained herein
are satisfied. In the event of such request by Lender, Lender may, at its
option, cease to make any further Loans or provide any further Letter of Credit
Accommodations until Lender has received such certificate and, in addition,
Lender has determined in good faith that such conditions are satisfied. Where
permitted by law, Borrower hereby authorizes Lender to execute and file one or
more UCC financing statements signed only by Lender.
SECTION 10. EVENTS OF DEFAULT AND REMEDIES
10.1 Events of Default. The occurrence or existence of any one or
more of the following events are referred to herein individually as an "Event
of Default", and collectively as
-65-
70
"Events of Default":
(a) Borrower (i) shall fail to pay any of the Obligations
when due or within two (2) days thereafter, or (ii) shall fail to perform any
of the terms, covenants, conditions or provisions contained in this Agreement
or any of the other Financing Agreements other than as described in Section
10.1(a)(i) and such failure shall continue for two (2) business days in the
case of a failure under Sections 7.1, 7.2, 7.3 or 7.4 hereof, or ten (10) days
in the case of a failure under any other provision; provided, that, such two
(2) business days or ten (10) day period (as the case may be) shall not apply
in the case of: (A) any failure to observe any such term, covenant, condition
or provision which is not capable of being cured at all or within such
applicable period or which has been the subject of a prior failure within a six
(6) month period or (B) an intentional breach by Borrower or any Obligor of any
such term, covenant, condition or provision, or (C) the failure to observe or
perform any of the covenants or provisions contained in Sections 6.3, 6.6, 7.7,
9.1, 9.7, 9.8, 9.9, 9.10, 9.11, 9.12 or 9.13 of this Agreement or any covenants
or agreements covering substantially the same matter as such sections in any of
the other Financing Agreements; or
(b) any representation, warranty or statement of fact
made by Borrower to Lender in this Agreement, the other Financing Agreements or
any other agreement, schedule, confirmatory assignment or otherwise shall when
made or deemed made be false or misleading in any material respect (or, if such
representation, warranty or statement of fact is itself qualified by reference
to materiality or a Material Adverse Effect, such representation, warranty or
statement of fact shall, when made or deemed made, be false or misleading in
any respect);
(c) any Obligor revokes, terminates or fails to perform
any of the terms, covenants, conditions or provisions of any guarantee,
endorsement or other agreement of such party in favor of Lender;
(d) any judgment for the payment of money is rendered
against Borrower or any Obligor in excess of $100,000 in any one case or in
excess of $300,000 in the aggregate and shall remain undischarged or unvacated
for a period in excess of thirty (30) days or execution shall at any time not
be effectively stayed, or any judgment other than for the payment of money, or
injunction, attachment, garnishment or execution is rendered against Borrower
or any Obligor or any of their assets;
(e) any Obligor (being a natural person or a general
-66-
71
partner of an Obligor which is a general partnership) dies or Borrower or any
Obligor, which is a partnership, limited liability company, limited liability
partnership or a corporation, dissolves or suspends or discontinues doing
business;
(f) Borrower or any Obligor becomes insolvent (however
defined or evidenced), makes an assignment for the benefit of creditors, makes
or sends notice of a bulk transfer or calls a meeting of its creditors or
principal creditors;
(g) a case or proceeding under the bankruptcy laws of the
United States of America now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction now or hereafter in effect (whether at law
or in equity) is filed against Borrower or any Obligor or all or any part of
its properties and such petition or application is not dismissed within thirty
(30) days after the date of its filing or Borrower or any Obligor shall file
any answer admitting or not contesting such petition or application or
indicates its consent to, acquiescence in or approval of, any such action or
proceeding or the relief requested is granted sooner;
(h) a case or proceeding under the bankruptcy laws of the
United States of America now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction now or hereafter in effect (whether at a law
or equity) is filed by Borrower or any Obligor or for all or any part of its
property;
(i) any default by Borrower or any Obligor under any
agreement, document or instrument relating to any indebtedness for borrowed
money owing to any person other than Lender, or any capitalized lease
obligations, contingent indebtedness in connection with any guarantee, letter
of credit, indemnity or similar type of instrument in favor of any person other
than Lender, in any case in an amount in excess of $100,000, which default
continues for more than the applicable cure period, if any, with respect
thereto, or any default by Borrower or any Obligor under any material contract,
lease, license or other obligation to any person other than Lender, which
default continues for more than the applicable cure period, if any, with
respect thereto;
(j) any Change of Control shall occur;
(k) the indictment or threatened indictment of
-67-
72
Borrower or any Obligor under any criminal statute, or commencement or
threatened commencement of criminal or civil proceedings against Borrower or
any Obligor, pursuant to which statute or proceedings the penalties or remedies
sought or available include forfeiture of any of the property of Borrower or
such Obligor;
(l) there shall have occurred a Material Adverse Change;
or
(m) there shall be an event of default under any of the
other Financing Agreements or there shall be an "Event of Default" as defined
in the Canadian Loan Agreement.
10.2 Remedies.
(a) At any time an Event of Default exists or has
occurred and is continuing, Lender shall have all rights and remedies provided
in this Agreement, the other Financing Agreements, the Uniform Commercial Code
and other applicable law, all of which rights and remedies may be exercised
without notice to or consent by Borrower or any Obligor, except as such notice
or consent is expressly provided for hereunder or required by applicable law.
All rights, remedies and powers granted to Lender hereunder, under any of the
other Financing Agreements, the Uniform Commercial Code or other applicable
law, are cumulative, not exclusive and enforceable, in Lender's discretion,
alternatively, successively, or concurrently on any one or more occasions, and
shall include, without limitation, the right to apply to a court of equity for
an injunction to restrain a breach or threatened breach by Borrower of this
Agreement or any of the other Financing Agreements. Lender may, at any time or
times, proceed directly against Borrower or any Obligor to collect the
Obligations without prior recourse to the Collateral.
(b) Without limiting the foregoing, at any time an Event
of Default exists or has occurred and is continuing, Lender may, in its
discretion and without limitation, (i) accelerate the payment of all
Obligations and demand immediate payment thereof to Lender (provided, that,
upon the occurrence of any Event of Default described in Sections 10.1(g) and
10.1(h), all Obligations shall automatically become immediately due and
payable), (ii) with or without judicial process or the aid or assistance of
others, enter upon any premises on or in which any of the Collateral may be
located and take possession of the Collateral or complete processing,
manufacturing and repair of all or any portion of the Collateral, (iii) require
Borrower, at Borrower's expense, to assemble and make available to Lender any
part or all of the Collateral at any place and time designated by
-68-
73
Lender, (iv) collect, foreclose, receive, appropriate, setoff and realize upon
any and all Collateral, (v) remove any or all of the Collateral from any
premises on or in which the same may be located for the purpose of effecting
the sale, foreclosure or other disposition thereof or for any other purpose,
(vi) sell, lease, transfer, assign, deliver or otherwise dispose of any and all
Collateral (including entering into contracts with respect thereto, public or
private sales at any exchange, broker's board, at any office of Lender or
elsewhere) at such prices or terms as are commercially reasonable, for cash,
upon credit or for future delivery, with the Lender having the right to
purchase the whole or any part of the Collateral at any such public sale, all
of the foregoing being free from any right or equity of redemption of Borrower,
which right or equity of redemption is hereby expressly waived and released by
Borrower and/or (vii) terminate this Agreement. If any of the Collateral is
sold or leased by Lender upon credit terms or for future delivery, the
Obligations shall not be reduced as a result thereof until payment therefor is
finally collected by Lender. If notice of disposition of Collateral is
required by law, five (5) days prior notice by Lender to Borrower designating
the time and place of any public sale or the time after which any private sale
or other intended disposition of Collateral is to be made, shall be deemed to
be reasonable notice thereof and Borrower waives any other notice. In the
event Lender institutes an action to recover any Collateral or seeks recovery
of any Collateral by way of prejudgment remedy, Borrower waives the posting of
any bond which might otherwise be required.
(c) Lender may apply the cash proceeds of Collateral
actually received by Lender from any sale, lease, foreclosure or other
disposition of the Collateral to payment of the Obligations, in whole or in
part and in such order as Lender may elect, whether or not then due. Borrower
shall remain liable to Lender for the payment of any deficiency with interest
at the highest rate provided for herein and all costs and expenses of
collection or enforcement, including reasonable attorneys' fees and legal
expenses.
(d) Without limiting the foregoing, upon the occurrence
of an Event of Default or an event which with notice or passage of time or both
would constitute an Event of Default, Lender may, at its option, without
notice, (i) cease making Loans or arranging for Letter of Credit Accommodations
or reduce the lending formulas or amounts of Revolving Loans and Letter of
Credit Accommodations available to Borrower and/or (ii) terminate any provision
of this Agreement providing for any future Loans or Letter of Credit
Accommodations to be made by Lender to Borrower.
-69-
74
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS
AND CONSENTS; GOVERNING LAW
11.1 Governing Law; Choice of Forum; Service of Process; Jury Trial
Waiver.
(a) The validity, interpretation and enforcement of this
Agreement and the other Financing Agreements and any dispute arising out of the
relationship between the parties hereto, whether in contract, tort, equity or
otherwise, shall be governed by the internal laws of the State of Illinois
(without giving effect to principles of conflicts of law).
(b) Borrower and Lender irrevocably consent and submit to
the non-exclusive jurisdiction of the Circuit Court, ▇▇▇▇ County, Illinois and
the United States District Court for the Northern District of Illinois and
waive any objection based on venue or forum non conveniens with respect to any
action instituted therein arising under this Agreement or any of the other
Financing Agreements or in any way connected with or related or incidental to
the dealings of the parties hereto in respect of this Agreement or any of the
other Financing Agreements or the transactions related hereto or thereto, in
each case whether now existing or hereafter arising, and whether in contract,
tort, equity or otherwise, and agree that any dispute with respect to any such
matters shall be heard only in the courts described above (except that Lender
shall have the right to bring any action or proceeding against Borrower or its
property in the courts of any other jurisdiction which Lender deems necessary
or appropriate in order to realize on the Collateral or to otherwise enforce
its rights against Borrower or its property).
(c) Borrower hereby waives personal service of any and
all process upon it and consents that all such service of process may be made
by certified mail (return receipt requested) directed to its address set forth
on the signature pages hereof and service so made shall be deemed to be
completed five (5) days after the same shall have been so deposited in the U.S.
mails, or, at Lender's option, by service upon Borrower in any other manner
provided under the rules of any such courts. Within thirty (30) days after
such service, Borrower shall appear in answer to such process, failing which
Borrower shall be deemed in default and judgment may be entered by Lender
against Borrower for the amount of the claim and other relief requested.
(d) BORROWER AND LENDER EACH HEREBY WAIVES ANY RIGHT TO
TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION
-70-
75
(i) ARISING UNDER THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR
(ii) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE
PARTIES HERETO IN RESPECT OF THIS AGREEMENT OR ANY OF THE OTHER FINANCING
AGREEMENTS OR THE TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE WHETHER
NOW EXISTING OR HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR
OTHERWISE. BORROWER AND LENDER EACH HEREBY AGREES AND CONSENTS THAT ANY SUCH
CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL
WITHOUT A JURY AND THAT BORROWER OR LENDER MAY FILE AN ORIGINAL COUNTERPART OF
A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF
THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
(e) Lender shall not have any liability to Borrower
(whether in tort, contract, equity or otherwise) for losses suffered by
Borrower in connection with, arising out of, or in any way related to the
transactions or relationships contemplated by this Agreement, or any act,
omission or event occurring in connection herewith, unless it is determined by
a final and non-appealable judgment or court order binding on Lender, that the
losses were the result of acts or omissions constituting gross negligence or
willful misconduct. In any such litigation, Lender shall be entitled to the
benefit of the rebuttable presumption that it acted in good faith and with the
exercise of ordinary care in the performance by it of the terms of this
Agreement.
11.2 Waiver of Notices. Borrower hereby expressly waives demand,
presentment, protest and notice of protest and notice of dishonor with respect
to any and all instruments and commercial paper, included in or evidencing any
of the Obligations or the Collateral, and any and all other demands and notices
of any kind or nature whatsoever with respect to the Obligations, the
Collateral and this Agreement, except such as are expressly provided for
herein. No notice to or demand on Borrower which Lender may elect to give
shall entitle Borrower to any other or further notice or demand in the same,
similar or other circumstances.
11.3 Amendments and Waivers. Neither this Agreement nor any
provision hereof shall be amended, modified, waived or discharged orally or by
course of conduct, but only by a written agreement signed by an authorized
officer of Lender, and as to amendments, as also signed by an authorized
officer of Borrower. Lender shall not, by any act, delay, omission or
otherwise be deemed to have expressly or impliedly waived any of its rights,
powers and/or remedies unless such waiver shall be in writing and signed by an
authorized officer of Lender. Any such waiver shall be enforceable only to the
extent specifically set forth therein. A waiver by Lender of any right, power
and/or remedy on any one
-71-
76
occasion shall not be construed as a bar to or waiver of any such right, power
and/or remedy which Lender would otherwise have on any future occasion, whether
similar in kind or otherwise.
11.4 Waiver of Counterclaims. Borrower waives all rights to
interpose any claims, deductions, setoffs or counterclaims of any nature (other
then compulsory counterclaims) in any action or proceeding with respect to this
Agreement, the Obligations, the Collateral or any matter arising therefrom or
relating hereto or thereto; without prejudice, however, to Borrower's rights to
assert by way of separate unconsolidated action, any such claims, deductions,
setoffs, or counterclaims (other than compulsory counterclaims).
11.5 Indemnification. Borrower shall indemnify and hold Lender,
and its directors, agents, employees and counsel, harmless from and against any
and all losses, claims, damages, liabilities, costs or expenses imposed on,
incurred by or asserted against any of them in connection with any litigation,
investigation, claim or proceeding commenced or threatened related to the
negotiation, preparation, execution, delivery, enforcement, performance or
administration of this Agreement, any other Financing Agreements, or any
undertaking or proceeding related to any of the transactions contemplated
hereby or any act, omission, event or transaction related or attendant thereto,
including amounts paid in settlement, court costs, and the reasonable fees and
expenses of counsel; provided, that Borrower shall not be required to indemnify
Lender for any losses, claims, damages, liabilities, costs or expenses caused
as a direct result of the gross negligence or wilful misconduct of Lender, as
determined by a final, non-appealable judgment of a court of competent
jurisdiction. To the extent that the undertaking to indemnify, pay and hold
harmless set forth in this Section may be unenforceable because it violates any
law or public policy, Borrower shall pay the maximum portion which it is
permitted to pay under applicable law to Lender in satisfaction of indemnified
matters under this Section. The foregoing indemnity shall survive the payment
of the Obligations and the termination or non-renewal of this Agreement.
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS
12.1 Term.
(a) This Agreement and the other Financing Agreements
shall become effective as of the date set forth on the first page hereof and
shall continue in full force and effect for a term ending on the date three (3)
years from the date hereof (the
-72-
77
"Renewal Date"), and from year to year thereafter, unless sooner terminated
pursuant to the terms hereof. Lender may terminate this Agreement and the
other Financing Agreements effective on the Renewal Date or on the anniversary
of the Renewal Date in any year by giving Borrower at least sixty (60) days'
prior written notice, and Borrower may terminate the Agreement at any time by
giving not less than sixty (60) days' prior written notice to Lender; provided,
that, this Agreement and all other Financing Agreements and the Canadian
Financing Agreements must be terminated simultaneously. Upon the effective
date of termination or non-renewal of the Financing Agreements, Borrower shall
pay to Lender, in full, all outstanding and unpaid Obligations and shall
furnish cash collateral to Lender in such amounts as Lender determines are
reasonably necessary to secure Lender from loss, cost, damage or expense,
including reasonable attorneys' fees and legal expenses, in connection with any
contingent Obligations, including issued and outstanding Letter of Credit
Accommodations and checks or other payments provisionally credited to the
Obligations and/or as to which Lender has not yet received final and
indefeasible payment. Such payments in respect of the Obligations and cash
collateral shall be remitted by wire transfer in Federal funds to such bank
account of Lender, as Lender may, in its discretion, designate in writing to
Borrower for such purpose. Interest shall be due until and including the next
business day, if the amounts so paid by Borrower to the bank account designated
by Lender are received in such bank account later than 12:00 noon, Chicago,
Illinois time.
(b) No termination of this Agreement or the other
Financing Agreements shall relieve or discharge Borrower of its respective
duties, obligations and covenants under this Agreement or the other Financing
Agreements until all Obligations have been fully and finally discharged and
paid, and Lender's continuing security interest in the Collateral and the
rights and remedies of Lender hereunder, under the other Financing Agreements
and applicable law, shall remain in effect until all such Obligations have been
fully and finally discharged and paid, after which, at Borrower's sole cost and
expense, Lender will execute and deliver to Borrower such Uniform Commercial
Code termination statements and such other lien releases reasonably requested
by Borrower as shall be necessary to evidence the termination and release of
the security interests held by Lender in the Collateral.
(c) If for any reason this Agreement is terminated prior
to the end of the then current term or renewal term of this Agreement, in view
of the impracticality and extreme difficulty of ascertaining actual damages and
by mutual agreement of the parties as to a reasonable calculation of Lender's
lost profits
-73-
78
as a result thereof, Borrower agrees to pay to Lender, upon the effective date
of such termination, an early termination fee in the amount set forth below if
such termination is effective in the period indicated:
Amount Period
------ ------
(i) 3% of the Maximum From the date hereof
Credit then in effect to and including
November 20, 1998
(ii) 1% of the Maximum From November 21, 1998
Credit then in effect to but not including
November 20, 2000
Such early termination fee shall be presumed to be the amount of damages
sustained by Lender as a result of such early termination and Borrower agrees
that it is reasonable under the circumstances currently existing. In addition,
Lender shall be entitled to such early termination fee upon the occurrence of
any Event of Default described in Sections 10.1(g) and 10.1(h) hereof, even if
Lender does not exercise its right to terminate this Agreement, but elects, at
its option, to provide financing to Borrower or permit the use of cash
collateral under the United States Bankruptcy Code. The early termination fee
provided for in this Section 12.1 shall be deemed included in the Obligations.
12.2 Notices. All notices, requests and demands hereunder shall be
in writing and (a) made to Lender at its address set forth below and to
Borrower at its chief executive office set forth below, or to such other
address as either party may designate by written notice to the other in
accordance with this provision, and (b) deemed to have been given or made: if
delivered in person, immediately upon delivery; if by telex, telegram or
facsimile transmission, immediately upon sending and upon confirmation of
receipt; if by nationally recognized overnight courier service with
instructions to deliver the next business day, one (1) business day after
sending; and if by certified mail, return receipt requested, five (5) days
after mailing.
12.3 Partial Invalidity. If any provision of this Agreement is
held to be invalid or unenforceable, such invalidity or unenforceability shall
not invalidate this Agreement as a whole, but this Agreement shall be construed
as though it did not contain the particular provision held to be invalid or
unenforceable and the rights and obligations of the parties shall
-74-
79
be construed and enforced only to such extent as shall be permitted by
applicable law.
12.4 Successors. This Agreement, the other Financing Agreements
and any other document referred to herein or therein shall be binding upon and
inure to the benefit of and be enforceable by Lender, Borrower and their
respective successors and assigns, except that Borrower may not assign its
rights under this Agreement, the other Financing Agreements and any other
document referred to herein or therein without the prior written consent of
Lender. Lender may, after notice to Borrower, assign its rights and delegate
its obligations under this Agreement and the other Financing Agreements and
further may assign, or sell participations in, all or any part of the Loans,
the Letter of Credit Accommodations or any other interest herein to another
financial institution or other person, in which event, the assignee or
participant shall have, to the extent of such assignment or participation, the
same rights and benefits as it would have if it were the Lender hereunder,
except as otherwise provided by the terms of such assignment or participation.
12.5 Confidentiality.
(a) Lender shall use all reasonable efforts to keep
confidential, in accordance with its customary procedures for handling
confidential information and safe and sound lending practices, any non-public
information supplied to it by Borrower pursuant to this Agreement which is
clearly and conspicuously marked as confidential at the time such information
is furnished by Borrower to Lender, provided, that, nothing contained herein
shall limit the disclosure of any such information: (i) to the extent required
by statute, rule, regulation, subpoena or court order, (ii) to bank examiners
and other regulators, auditors and/or accountants, (iii) in connection with any
litigation to which Lender is a party, (iv) to any assignee or participant (or
prospective assignee or participant) so long as such assignee or participant
(or prospective assignee or participant) shall have first agreed in writing to
treat such information as confidential in accordance with this Section 12.5, or
(v) to counsel for Lender or any participant or assignee (or prospective
participant or assignee).
(b) In no event shall this Section 12.5 or any other
provision of this Agreement or applicable law be deemed: (i) to apply to or
restrict disclosure of information that has been or is made public by Borrower
or any third party without breach of this Section 12.5 or otherwise become
generally available to the public other than as a result of a disclosure in
violation hereof, (ii) to apply to or restrict disclosure of information
-75-
80
that was or becomes available to Lender on a non-confidential basis from a
person other than Borrower, (iii) require Lender to return any materials
furnished by Borrower to Lender or (iv) prevent Lender from responding to
routine informational requests in accordance with the Code of Ethics for the
Exchange of Credit Information promulgated by The ▇▇▇▇▇▇ ▇▇▇▇▇▇ Associates or
other applicable industry standards relating to the exchange of credit
information. The obligations of Lender under this Section 12.5 shall supersede
and replace the obligations of Lender under any confidentiality letter signed
prior to the date hereof.
12.6 Entire Agreement. This Agreement, the other Financing
Agreements, any supplements hereto or thereto, and any instruments or documents
delivered or to be delivered in connection herewith or therewith represents the
entire agreement and understanding concerning the subject matter hereof and
thereof between the parties hereto, and supersede all other prior agreements,
understandings, negotiations and discussions, representations, warranties,
commitments, proposals, offers and contracts concerning the subject matter
hereof, whether oral or written. In the event of any inconsistency between the
terms of this Agreement and any schedule or exhibit hereto, the terms of this
Agreement shall govern.
-76-
81
IN WITNESS WHEREOF, Lender and Borrower have caused these presents to
be duly executed as of the day and year first above written.
LENDER BORROWER
CONGRESS FINANCIAL CORPORATION STUART ENTERTAINMENT, INC.
(CENTRAL)
By: By:
------------------------- ---------------------------
Title: Title:
------------------------- ---------------------------
Address: Chief Executive Office:
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇ Attention: President
Attention: ▇▇. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
-77-
