Loan and Security Agreement
by and between
CONGRESS FINANCIAL CORPORATION,
as Lender
and
JEAN GRAYSON'S BROWNSTONE STUDIO, INC.,
Debtor and Debtor-in-Possession,
as Borrower
Dated: February 28, 1997
TABLE OF CONTENTS
PAGE(S)
-------
SECTION 1. DEFINITIONS................................................................... 1
SECTION 2. CREDIT FACILITIES............................................................. 6
2.1 Revolving Loans.............................................................. 6
2.2 Letter of Credit Accommodations.............................................. 6
2.3 Availability Reserves........................................................ 8
2.4 Administrative Priority...................................................... 8
SECTION 3. INTEREST AND FEES............................................................. 9
3.1 Interest..................................................................... 9
3.2 Closing Fee.................................................................. 9
3.3 Servicing Fee................................................................ 9
3.4 Unused Line Fee.............................................................. 9
SECTION 4. CONDITIONS PRECEDENT.......................................................... 10
4.1 Conditions Precedent to Initial Loans and Letter of Credit Accommodations.... 10
4.2 Conditions Precedent to All Loans and Letter of Credit Accommodations........ 11
SECTION 5. GRANT OF SECURITY INTEREST.................................................... 12
SECTION 6. COLLECTION AND ADMINISTRATION................................................. 13
6.1 Borrower's Loan Account...................................................... 13
6.2 Statements................................................................... 13
6.3 Collection of Accounts....................................................... 14
6.4 Payments..................................................................... 14
6.5 Authorization to Make Loans.................................................. 15
6.6 Use of Proceeds.............................................................. 15
6.7 Tradestyles.................................................................. 15
SECTION 7. COLLATERAL REPORTING AND COVENANTS............................................ 16
7.1 Collateral Reporting......................................................... 16
7.2 Accounts Covenants........................................................... 16
7.3 Inventory Covenants.......................................................... 18
7.4 Equipment Covenants.......................................................... 18
7.5 Power of Attorney............................................................ 19
7.6 Right to Cure................................................................ 19
7.7 Access to Premises........................................................... 19
SECTION 8. REPRESENTATIONS AND WARRANTIES................................................ 20
8.1 Corporate Existence, Power and Authority; Subsidiaries....................... 20
8.2 Financial Statements; No Material Adverse Change............................. 20
TABLE OF CONTENTS
(continued)
PAGE(S)
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8.3 Chief Executive Office; Collateral Locations................................. 20
8.4 Priority of Liens; Title to Properties....................................... 21
8.5 Tax Returns.................................................................. 21
8.6 Litigation................................................................... 21
8.7 Compliance with Other Agreements and Applicable Laws......................... 21
8.8 ERISA........................................................................ 21
8.9 Accuracy and Completeness of Information..................................... 22
8.10 Survival of Warranties; Cumulative.......................................... 22
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS............................................ 22
9.1 Maintenance of Existence..................................................... 22
9.2 New Collateral Locations..................................................... 22
9.3 Compliance with Laws, Regulations, Etc....................................... 22
9.4 Payment of Taxes and Claims.................................................. 22
9.5 Insurance.................................................................... 23
9.6 Financial Statements and Other Information................................... 23
9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc...................... 24
9.8 Encumbrances................................................................. 25
9.9 Indebtedness................................................................. 25
9.10 Loans, Investments, Guarantees, Etc......................................... 25
9.11 Dividends and Redemptions................................................... 26
9.12 Transactions with Affiliates................................................ 26
9.13 [Intentionally Deleted]..................................................... 26
9.14 Adjusted Net Worth.......................................................... 26
9.15 Costs and Expenses.......................................................... 26
9.16 Further Assurances.......................................................... 27
SECTION 10. EVENTS OF DEFAULT AND REMEDIES............................................... 27
10.1 Events of Default........................................................... 27
10.2 Remedies.................................................................... 29
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS
AND CONSENTS; GOVERNING LAW ............................................. 31
11.1 Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver...... 31
11.2 Waiver of Notices.......................................................... 32
11.3 Amendments and Waivers..................................................... 32
11.4 Waiver of Counterclaims.................................................... 32
11.5 Indemnification............................................................ 32
TABLE OF CONTENTS
(continued)
PAGE(S)
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SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS............................................. 33
12.1 Term....................................................................... 33
12.2 Notices.................................................................... 34
12.3 Partial Invalidity......................................................... 34
12.4 Successors................................................................. 34
12.5 Entire Agreement........................................................... 34
INDEX TO
EXHIBITS AND SCHEDULES
Exhibit A Information Certificate
Schedule 1.8 Budget
Schedule 8.4 Existing Liens
LOAN AND SECURITY AGREEMENT
This Loan and Security Agreement dated February 28, 1997 is entered into by
and between CONGRESS FINANCIAL CORPORATION, a California corporation ("Lender")
and JEAN GRAYSON'S BROWNSTONE STUDIO, INC., a New York corporation and a debtor
and debtor-in-possession in Case No. 97-B-41214, United States Bankruptcy Court
for the Southern District of New York, under Chapter 11 of Title 11 of the
United States Code ("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. 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. An Event of Default shall exist or
continue or be continuing until such Event of Default is waived in accordance
with Section 11.3. 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 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, whether or not earned by performance,
and whether arising before or after the commencement of the
Case, and including, without limitation, all amounts payable by any charge,
credit, or debit card issuer or charge, credit, or debit card processor in
respect of charge, credit, or debit card sales.
1.2 "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: 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 the
aggregate amount of the indebtedness and other liabilities of such Person and
its subsidiaries (including tax and other proper accruals) plus indebtedness of
such Person and its subsidiaries which is subordinated in right of payment to
the full and final payment of all of the Obligations on terms and conditions
acceptable to Lender.
1.3 "Administrative Expense Priorities" shall mean, with respect to
administrative expenses payable by Borrower in connection with the Case, the
following order of priority:
first, (i) amounts payable pursuant to 28 U.S.C. Section 1930 (a)(6),
(ii) allowed fees and expenses of attorneys, accountants and other
professionals retained in the Case pursuant to Sections 327 and 1103
of the Bankruptcy Code and (iii) administrative expenses of the kind
specified in Section 503(b) of the Bankruptcy Code incurred in the
ordinary course of Borrowers's business, including, without
limitation, compensation and reimbursement of expenses for
professional persons allowed and payable under Sections 330 and 331 of
the Bankruptcy Code; in each case accrued from and after the date of
the filing of the petition initiating the Case; provided, that the
aggregate cumulative amount entitled to priority under this clause
first, including without limitation, amounts authorized by the
Bankruptcy Court and paid during the case on or prior to such
determination of priority, shall not exceed $200,000;
second, all Obligations; and
third, all other allowed administrative expenses.
1.4 "Availability Reserves" shall mean, as of any date of determination,
such amounts as Lender may from time to time 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 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) in
2
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.
1.5 "Bankruptcy Code" shall mean Title 11 of the United States Code, ss.ss.
101 et seq., as the same may be in effect from time to time.
1.6 "Bankruptcy Court" shall mean the United States Bankruptcy Court for
the Southern District of New York.
1.7 "Blocked Accounts" shall have the meaning set forth in Section 6.3
hereof.
1.8 "Budget" shall mean the budget in the form of Schedule 1.8 hereto and
each subsequent budget delivered to and approved by Lender pursuant to and in
accordance with Section 9.6(e) hereof.
1.9 "Case" shall mean Borrower's and Wilroy, Inc.'s cases in the Bankruptcy
Court under Chapter 11 of the Bankruptcy Code.
1.10 "Collateral" shall have the meaning set forth in Section 5 hereof.
1.11 "Eligible Inventory" shall mean Inventory consisting of finished goods
held for resale in 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 or leased and
controlled by Borrower and acceptable to Lender; (g) Inventory subject to a
security interest or lien in favor of any person other than Lender except those
permitted in this Agreement; (h) bill and hold goods; (i) Inventory consisting
either of goods appropriate for the then current season that are not included in
the then current catalogue or goods appropriate for another season that were not
included in the most recent catalogue for such season; (j) Inventory which is
not subject to the first priority, valid and perfected security interest of
Lender; (k) damaged and/or defective Inventory; and (l) 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.
1.12 "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, and whether acquired before or after the commencement of the Case.
1.13 "Event of Default" shall mean the occurrence or existence of any event
or condition described in Section 10.1 hereof.
1.14 "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
Revolving Loans available to Borrower as of such time based on the applicable
lending formulas multiplied by the Value of Eligible Inventory, as
3
determined by Lender, and subject to the sublimits and Availability Reserves
from time to time established by Lender hereunder and (ii) the Maximum Credit,
minus (b) the amount of all then outstanding and unpaid Obligations.
1.15 "Final Order" shall mean the order of the Bankruptcy Court, in form
and substance satisfactory to Lender and its counsel, entered after a final
hearing under Bankruptcy Rule 4001(c)(2) authorizing and approving the Financing
Agreements and the Transactions contemplated thereby, and which is no longer
subject to appeal.
1.16 "Financing Agreements" shall mean, collectively, this Agreement and
all 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.
1.17 "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 Boards 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.
1.18 "Information Certificate" shall mean the Information 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.
1.19 "Interim Order" shall mean the order of the Bankruptcy Court
contemplated by Section 4.1(a) hereof.
1.20 "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, and whether
acquired before or after the commencement of the Case.
1.21 "Letter of Credit Accommodations" shall mean the letters of credit,
merchandise purchase, or other guaranties 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 by Borrower of its obligations to such issuer.
1.22 "Loans" shall mean the Revolving Loans.
1.23 "Maximum Credit" shall mean the amount equal to the lesser of (a)
$5,500,000 or (b) the maximum outstanding principal amount of Loans permitted to
be made by Lender to Borrower under the Order.
4
1.24 "Obligations" shall mean any and all Revolving Loans and 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 Bankruptcy Code or any similar statute
(including, without limitation, the payment of interest and other amounts which
would accrue and become due but for the commencement of 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.
1.25 "Obligor" shall mean any guarantor, 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.
1.26 "Order" shall mean the Interim Order until the Final Order is entered,
and thereafter shall mean the Final Order.
1.27 "Payment Account" shall have the meaning set forth in Section 6.3
hereof.
1.28 "Person" or "person" shall mean any individual, sole proprietorship,
partnership, corporation (including, without limitation, any corporation which
elects subchapter S status under the Internal Revenue Code of 1986, as amended),
business trust, unincorporated association, limited liability company, joint
stock corporation, trust, joint venture or other entity or any government or any
agency or instrumentality or political subdivision thereof.
1.29 "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.
1.30 "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), and whether acquired before
or after the commencement of the Case.
1.31 "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.
1.32 "Value" shall mean, as determined by Lender in good faith, with
respect to Inventory, the lower of cost computed on a first-in-first-out basis
in accordance with GAAP or market value.
5
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) the lesser of (A) eighty (80%) percent of the orderly
liquidation value of Eligible Inventory (as determined by Lender in
good faith) or (B) sixty (60%) percent of the Value of Eligible
Inventory, other, in each case, than Inventory located at or being
offered for sale through Borrower's outlet store, plus
(ii) twenty (20%) percent of the Value of Eligible Inventory
located at or being offered for sale through Borrower's outlet store,
less
(iii) any Availability Reserves.
(b) Lender may, in its discretion, from time to time, upon not less
than five (5) days prior notice to Borrower, reduce the lending formula(s)
with respect to Eligible Inventory to the extent that Lender determines
that: (i) the number of days of the turnover of the Inventory for any
period has changed in any material respect or (ii) the liquidation value of
the Eligible Inventory, or any category thereof, has decreased, or (iii)
the nature and quality of the Inventory has deteriorated. In determining
whether to reduce the lending formula(s), Lender may consider events,
conditions, contingencies or risks which are also considered in determining
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(c), 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 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.
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.
6
(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 one and
one-half (1-1/2%) 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. 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 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: if the
proposed Letter of Credit Accommodation is for the purpose of purchasing
Eligible Inventory, the sum of fifty (50%) percent of the cost of such
Eligible Inventory, plus 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 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, the amount of
Revolving Loans which might otherwise be available to Borrower shall be
reduced by the applicable amount set forth in Section 2.2(c)(i) or Section
2.2(c)(ii).
(d) Except in Lender's discretion, (i) 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 $1,500,000 and (ii) the amount of all outstanding Letter of Credit
Accommodations for the purpose of purchasing Eligible Inventory and all
other commitments and obligations made or incurred by Lender in connection
therewith shall not at any time exceed: (A) the Maximum Credit; minus (B)
the amount of the then outstanding Revolving Loans. 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, but not limited to, 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. Borrower assumes all
risks with respect 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
7
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 to, and Borrower shall not: (i) at any time an Event of
Default exists or has occurred and is continuing, (A) approve or resolve
any questions of non-compliance of documents, (B) give any instructions as
to acceptance or rejection of any documents or goods or (C) execute any and
all applications for steamship or airway guaranties, indemnities or
delivery orders, and (ii) at all times, (A) grant any extensions of the
maturity of, time of payment for, or time of presentation of, any drafts,
acceptances, or documents, and (B) 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 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.
(b) In addition to and not in limitation of other Availability
Reserves established from time to time, Lender is establishing the
following special Availability Reserves: (i) a special Availability Reserve
of $150,000 shall be instituted as of April 1, 1997 and shall remain in
effect until May 1, 1997 at which time such Availability Reserve shall be
increased to $300,000 and remain in effect until June 1, 1997 at which time
such Availability Reserve shall be increased to $500,000 and remain in
effect at all times thereafter, unless and until Lender, in its sole
discretion, determines that such Availability Reserve be modified or
terminated (it being understood that Lender may continue such Availability
Reserve without modification until the Termination Date); (ii) a special
Availability Reserve, which shall apply at all times during which Lender
determines that the aggregate Value of that
8
Inventory consisting of "piece goods" is less than $500,000, equal to the
amount by which $500,000 exceeds such aggregate value; and (iii) a special
Availability Reserve in the amount of all administrative expenses having
payment priority over the Obligations to the extent so indicated in the
definition of Administrative Expense Priorities.
2.4 Administrative Priority. Borrower hereby agrees that the obligations
shall constitute allowed administrative expenses in the Case, having priority
over all other administrative expenses and unsecured claims against Borrower now
existing or hereafter arising, of any kind or nature whatsoever, including,
without limitation, all administrative expenses of the kind specified in
Sections 503(b) and 507(b) of the Bankruptcy Code, subject, as to priority of
payment, only to expenses having payment priority over the Obligations to the
extent so indicated in the definition of Administrative Expense Priorities.
SECTION 3. INTEREST AND FEES
3.1 Interest.
(a) Borrower shall pay to Lender interest on the outstanding principal
amount of the non-contingent Obligations at the rate of two (2%) percent
per annum in excess of the Prime Rate, except that Borrower shall pay to
Lender interest, at Lender's option, without notice, at the rate of five
(5%) percent per annum in excess of the Prime Rate: on the non-contingent
Obligations for the period from and after the date of termination or
non-renewal hereof, or the date of the occurrence of an Event of Default,
and for so long as such Event of Default is continuing as determined by
Lender and until such time as Lender has received full and final payment of
all such Obligations (notwithstanding entry of any judgment against
Borrower) and 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). All interest
accruing hereunder on and after the occurrence of any of the events
referred to in Sections 3.1(a)(i) or 3.1(a)(ii) above shall be payable on
demand.
(b) 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 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 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 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 $68,750 which shall be fully earned as of and payable on the date hereof.
3.3 Servicing Fee. Borrower shall pay to Lender annually a servicing fee in
an amount equal to $25,000 in respect of Lender's services for each twelve-month
period (or part thereof) while this
9
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 anniversary of the date hereof.
3.4 Unused Line Fee. Borrower shall pay to Lender monthly an unused line
fee equal at a rate equal to one-half (0.5%) percent per annum calculated upon
the amount by which the lesser of $4,700,000 or the Maximum Credit exceeds the
average daily principal balance of the outstanding Revolving Loans and Letter of
Credit Accommodations during the immediately preceding 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.
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 a certified copy of the Interim Order,
entered by the Bankruptcy Court after a hearing under Bankruptcy Rule
4001(c)(2) authorizing and approving the Financing Agreements and the
transactions contemplated thereby on an interim basis pending a hearing on
the Final Order, which Interim Order shall be in form and substance
satisfactory to Lender and its counsel. The Interim Order shall have not
been vacated, reversed, modified, or amended. No appeal from the Interim
Order shall be pending.
(b) Lender shall have received evidence, including, without
limitation, lien and judgment search results with respect to the Borrower
and Wilroy, Inc. in all applicable jurisdictions, 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, in the other Financing Agreements or in the Order.
(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, without limitation,
records of requisite corporate action and proceedings 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 in the assets,
business or prospects of Borrower since the date of Lender's latest field
examination and no change or event shall have occurred which would impair
the ability of Borrower or any Obligor to perform its obligations hereunder
or under any of the other Financing Agreements to which it is a party or of
Lender to enforce the Obligations or realize upon the Collateral;
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(e) 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;
(f) 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, without limitation: (i)
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; (ii) an agreement from each charge, credit, or debit card
issuer and charge, credit, or debt card sale processor with respect to each
charge, credit and debit card now accepted by Borrower, in which Borrower
notifies such person of Lender's security interest in the amounts due from
such Person to Borrower and irrevocably instructs such Person to pay such
amounts directly to the Blocked Account, and in which such Person waives
any security interest in such amounts; (iii) an agreement from each Person
in possession or control of Borrower's mailing or customer lists, or any
electronic or other medium of storage thereof, in which such person agrees
to deliver such list or storage medium to Lender at Lender's request; (iv)
an agreement with each Person who, on behalf of Borrower, licenses or rents
Borrower's mailing or customer lists to third parties, or collects the
proceeds from such licenses or rentals, in which such Person agrees to pay
all amounts due to Borrower in respect of such collections directly to the
Blocked Account and, upon Lender's request when an Event of Default has
occurred and is continuing, to comply with Lender's instructions with
respect to all such licenses and rentals; and (v) an acknowledgment and
agreement from Borrower's previous lender that should such lender come into
possession of any property of Borrower or any proceeds thereof, such
property and proceeds shall be forthwith turned over to Lender.
(g) 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;
(h) Lender shall have received, in form and substance satisfactory to
Lender, such opinion letters of counsel to Borrower with respect to the
Financing Agreements, the Case, and such other matters as Lender may
request;
(i) Lender shall have received, in form and substance satisfactory to
Lender, a Guarantee of the Obligations duly executed by Wilroy, Inc. and a
General Security Agreement duly executed by Wilroy, Inc. in which such
Person grants Lender a security interest in all of its personal property to
secure its Guarantee;
(j) the Excess Availability as determined by Lender, as of the date
hereof, shall be not less than $1,000,000 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;
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(k) the other Financing Agreements, including, without limitation,
agreements establishing the Blocked Account, 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
(l) Lender shall have received, in form and substance satisfactory to
Lender, Borrower's agreement to satisfy, within such time period(s)
acceptable to Lender, to Lender's satisfaction, any and all conditions
precedent set forth in this Section 4.1 which have not been satisfied as of
the date hereof and the date of Lender making the initial Loan or providing
the initial Letter of Credit Accommodations and which Lender is willing in
its sole discretion to allow Borrower to satisfy on a later date, and
Borrower acknowledges and agrees that satisfaction of such conditions is
not being waived by Lender.
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 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; 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, 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,
but not limited to, 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
and mailing lists and all proceeds from the license or rental thereof, 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, letters of credit, bankers' acceptances and
guaranties; in each case, whether arising or acquired before or after the
commencement of the Case;
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5.3 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 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,
without limitation, rights and remedies under or relating to guaranties,
contracts of suretyship, letters of credit and credit and other insurance
related to the Collateral, rights of stoppage in transit, replevin,
repossession, reclamation and other rights and remedies of an unpaid vendor,
lienor or secured party, goods described in invoices, documents, contracts or
instruments with respect to, or otherwise representing or evidencing, Accounts
or other Collateral, including, without limitation, returned, repossessed and
reclaimed goods, and deposits by and property of account debtors or other
persons securing the obligations of account debtors; and all recoveries received
or available to Borrower pursuant to Section 542, 543, 544, 545, 547, 548, 549,
550, or 553 of the Bankruptcy Code; in each case, whether arising or acquired
before or after the commencement of the Case;
5.4 Inventory;
5.5 Equipment;
5.6 Records; and
5.7 all products and proceeds of the foregoing, in any form, including,
without limitation, 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 all Loans, Letter of Credit
Accommodations, and other Obligations and the Collateral, all payments made by
or on behalf of Borrower and all other appropriate debits and credits as
provided in this Agreement, including, without limitation, 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 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.
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6.3 Collection of Accounts.
(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 (including,
without limitation, proceeds of cash sales of Inventory) 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, 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"). Borrower agrees that all
payments made to such Blocked Accounts 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.
(b) For purposes of calculating interest on the Obligations, such
payments or other funds received will be applied (conditional upon final
collection) to the Obligations two (2) business days following the date of
receipt of immediately available funds by Lender in the Payment Account.
For purposes of calculating the amount of the Revolving Loans available to
Borrower such payments will be applied (conditional upon final collection)
to the Obligations on the business day of receipt by Lender in the Payment
Account, if such payments are received within sufficient time (in
accordance with Lender's usual and customary practices as in effect from
time to 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 affiliates, subsidiaries, shareholders,
directors, 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, without limitation, 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
14
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. 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
11:00 a.m. New York City 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 conditions of this Agreement.
6.6 Use of Proceeds. Borrower shall use the initial proceeds of the Loans
provided by Lender to Borrower hereunder only for: (a) payments to each of the
persons listed in the disbursement direction letter furnished by Borrower to
Lender on or about the date hereof and set forth in the Budget and (b) costs,
expenses and fees in connection with the preparation, negotiation, execution and
delivery of this Agreement and the other Financing Agreements. All other Loans
made or Letter of Credit Accommodations provided by Lender to Borrower pursuant
to the provisions hereof shall be used by Borrower only in the amounts and for
the specific operating, working capital and other proper corporate purposes of
Borrower set forth in the Budget and not otherwise prohibited by the terms
hereof. 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.
6.7 Tradestyles. Borrower has indicated that in the conduct of its business
it may use the names "Brownstone Studio" or "Brownstone Studio, Inc." (each such
name a "Style") on letterhead, invoices and other materials and that Borrower
may receive payments made to or to the order of the Style. Borrower hereby
warrants and represents to Lender and covenants as follows:
15
(a) Any and all payments made to Borrower which are or may be made in
the name of any Style are and will be owned exclusively by Borrower and
shall constitute Accounts. All sales and services which may be construed to
have been billed under the name of any Style shall be represented by
Accounts in which Lender has a security interest pursuant to the terms of
this Agreement. All reports, schedules, and confirmations of Accounts
delivered by Borrower to Lender whether in Borrower's name or in the name
of any Style, shall show Borrower as the owner.
(b) All rights conferred upon Lender hereunder and all warranties
given by Borrower hereunder shall apply with equal force to any payment
made or Account billed as hereinabove stated.
(c) Without in any way limiting the generality of the foregoing,
Lender's right to endorse Borrower's name on checks or other forms of
remittance received whenever such endorsement is required to effectuate
collection is hereby extended to include the right on Lender's part to
endorse the Style or words of similar import upon any such check or other
form of remittance.
(d) Borrower shall give prior written notice to Lender whenever
Borrower adopts any additional name which may be used in Borrower's
business in the same manner as a Style. Each such additional name shall
constitute a Style to the same extent as if originally listed above.
SECTION 7. COLLATERAL REPORTING AND COVENANTS
7.1 Collateral Reporting. Borrower shall provide Lender with the following
documents in a form satisfactory to Lender: (a) on a daily or other regular
basis as required by Lender, a report of sales, credits and collections and a
report of Inventory by location; (b) on a weekly basis or more frequently as
Lender may request, inventory reports by category; (c) on a monthly basis or
more frequently as Lender may request, (i) perpetual inventory reports and (ii)
agings of accounts payable; (d) upon Lender's request, (i) copies of customer
statements and credit memos, remittance advices and reports, and copies of
deposit slips and bank statements, (ii) copies of shipping and delivery
documents, and (iii) copies of purchase orders, invoices and delivery documents
for Inventory and Equipment acquired by Borrower; (e) agings of accounts
receivable on a weekly basis or more frequently as Lender may request; (f) on a
weekly or other regular basis as required by Lender, a report of amounts paid by
and due from charge, credit, and debit card issuers and sale processors,
including a reconciliation of reserves, holdbacks, and chargebacks; and (g) such
other reports as to the Collateral as Lender shall request from time to time. 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) Borrower shall notify Lender promptly of: (i) any material delay
in Borrower's ability to fulfill a substantial portion of customer orders;
(ii) the assertion of any material claims,
16
offsets, defenses or counterclaims by any charge, credit, or debit card
issuer or processor with respect to any amounts payable by such issuer or
processor in connection with the Accounts, or (iii) the imposition by any
charge or credit card issuer or processor of any holdback or reserve or any
reduction in the percentage of the face amount of a sale paid to Borrower.
No credit, discount, allowance or extension or agreement with any customer
or with respect to any Account shall be granted without Lender's consent,
except in the ordinary course of Borrower's business in accordance with
practices and policies previously disclosed in writing to Lender. 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 customer or with respect to any Account. 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 or grant any credits, discounts or
allowances.
(b) Borrower shall promptly report to Lender any returns of Inventory
if, as a result thereof, the aggregate original sales price of all goods
returned during the preceding seven-day period is in excess of $5,000. In
the event any customer returns Inventory, Borrower shall segregate such
returned Inventory according to whether or not it is resalable and shall
not report as Eligible Inventory any returned goods that Borrower intends
to return to the supplier or manufacturer or to dispose of in any manner
other than retail sale in the ordinary course of business.
(c) With respect to each Account and each sale of Inventory: the
amounts shown on any schedule thereof delivered to Lender shall be true and
complete, no payments shall be made thereon except payments immediately
delivered to Lender pursuant to the terms of this Agreement, no credit,
discount, allowance or extension or agreement for any of the foregoing
shall be granted except as reported to Lender in accordance with this
Agreement and except for credits, discounts, allowances or extensions made
or given in the ordinary course of Borrower's business in accordance with
practices and policies previously disclosed to Lender, there shall be no
setoffs, deductions, contrast, defenses, counterclaims or disputes existing
or asserted with respect thereto except as reported to Lender in accordance
with the terms of this Agreement, and none of the transactions giving rise
thereto will violate any applicable State or Federal laws or regulations,
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.
(f) Whenever, after the date hereof, Borrower accepts any charge,
credit or debit card not accepted on the date hereof or changes or adds any
Person through which charge, credit or debit card sales are processed,
Borrower shall obtain from the card issuer or processor an agreement of the
type described in Section 4.1(f)(ii), in form and substance satisfactory to
Lender. Lender may, at any
17
time or times that an Event of Default exists or has occurred and is
continuing, 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 party or parties in any way
liable for payment thereof without affecting any of the Obligations,
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 take
whatever other action Lender may deem necessary or desirable for the
protection of its interests.
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 daily
withdrawals therefrom and additions thereto; (b) Borrower shall conduct a
physical count of the Inventory at least once each year in conjunction with its
audited financial statements for such year required to be delivered to Lender
pursuant to Section 9.6(a), but at any time or times as Lender may request on or
after an Event of Default, 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; (d)
upon Lender's request, Borrower shall, at its expense, no more than twice in any
calendar year, and as of dates acceptable to Lender, but at any time or times as
Lender may request on or after an Event of Default, deliver or cause to be
delivered to Lender 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, but not limited to,
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 keep the
Inventory in good and marketable condition; (h) Borrower shall not, without
prior written notice to Lender, acquire or accept any Inventory on consignment
or approval; and (i) Borrower shall send Lender a copy of each catalogue,
advertisement, or other sales material sent by Borrower to any customers, not
later than the time that it is sent to such customers.
7.4 Equipment Covenants. With respect to the Equipment: (a) upon Lender's
request, Borrower shall, at its expense, at any time or times as Lender may
request on or after an Event of Default, deliver or cause to be delivered to
Lender written reports or appraisals as to 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, running and marketable
condition (ordinary wear and tear excepted); (c) Borrower shall use the
Equipment with all reasonable care and caution and in accordance with applicable
standards of any insurance and in conformity with all applicable laws; (d) the
Equipment is and shall be used in Borrower's business and not for personal,
family, household or farming use; (e) 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
18
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; (f) 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 (g) Borrower assumes all responsibility
and liability arising from the use of the Equipment.
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, and in
a manner consistent with the intents and purposes of this Agreement and the
other Financing Agreements, 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, for such amount 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 a person obligated on an Account or other Collateral, (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 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, (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, (v) sign Borrower's name on any verification of Accounts and
notices thereof to any person obligated thereon and (vi) execute in Borrower's
name 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, (a) cure any default by
Borrower under any agreement with a third party or pay or bond on appeal any
judgment entered against Borrower, (b) discharge taxes, liens, security
interests or other encumbrances at any time levied on or existing with respect
to the Collateral and (c) pay any amount, incur any expense or perform any act
which, in Lender's 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.
19
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, without limitation, 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.
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
would not have a material adverse effect on Borrower's financial condition,
results of operation or business or the rights of Lender in or to any of the
Collateral. 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, after
giving effect to the Order, are not in contravention of law or the terms of
Borrower's certificate of incorporation, by-laws, or other organizational
documentation, or any indenture, agreement or undertaking to which Borrower is a
party or by which Borrower or its property are bound. After giving effect to the
Order, this Agreement and the other Financing Agreements constitute legal, valid
and binding obligations of Borrower enforceable in accordance with their
respective terms. 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 dates
and for the periods set forth therein. 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 in the assets, liabilities,
properties and condition, financial or otherwise, of Borrower, 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
20
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.
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). All information in such tax returns, reports and declarations is
complete and accurate in all material respects. Borrower has paid or caused to
be paid all taxes due and payable or claimed due and payable in any assessment
received by it, except (i) certain taxes with respect to periods prior to the
commencement of the Case as set forth on Schedule 8.5 and (ii) taxes the
validity of which are being contested in good faith by appropriate proceedings
diligently pursued and available to Borrower and with respect to which adequate
reserves have been set aside on its books. Adequate provision has been made for
the payment of all accrued and unpaid Federal, State, county, local, foreign and
other taxes whether or not yet due and payable and whether or not disputed.
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 goodwill, or against or affecting any transactions contemplated by
this Agreement, which if adversely determined against Borrower would result in
any material adverse change in the assets, business or prospects of Borrower or
would impair the ability of Borrower to perform its obligations hereunder or
under any of the other Financing Agreements to which it is a party or of Lender
to enforce any Obligations or realize upon any Collateral.
8.7 Compliance with Other Agreements and Applicable Laws. Borrower is not
in default in any material respect under, or in violation in any material
respect 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 (except for defaults or violations which have resulted from (i) the filing
or continuation of the Case, provided that any payments required to be made by
Borrower as a result thereof are currently stayed under applicable provisions of
the Bankruptcy Code or (ii) any rejection by Borrower of any such agreement,
contract, instrument, lease, or commitment pursuant to or in accordance with the
Bankruptcy Code and as approved or confirmed by the Bankruptcy Court in the
Case) and Borrower is in compliance in all material respects with all applicable
provisions of laws, rules, regulations, licenses, permits, approvals and orders
of any foreign, Federal, State or local governmental authority.
21
8.8 ERISA. Borrower does not maintain any employee benefit plan that is
subject to Title IV of the Employee Retirement Income Security Act of 1974, as
amended, or to the minimum fundings standards of Section 412 of the Internal
Revenue Code of 1986, as amended.
8.9 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 Financing Agreements or any transaction contemplated hereby
or thereby, including, without limitation, 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 which has had or could reasonably be expected to have
a material adverse affect on the business, assets or prospects of Borrower,
which has not been fully and accurately disclosed to Lender in writing.
8.10 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 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. Borrower shall give Lender thirty (30) 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 thirty (30) days
prior written notice of the intended opening of any such new location and
executes and (b) delivers, or causes to be executed and delivered, to Lender
such agreements, documents, and instruments as Lender may deem reasonably
necessary or desirable to protect its interests in the Collateral at such
location, including, without limitation, UCC financing statements.
9.3 Compliance with Laws, Regulations, Etc. Borrower shall, at all times,
comply in all material respects with all laws, rules, regulations, licenses,
permits, approvals and orders applicable to it and duly observe all requirements
of any Federal, State or local governmental authority applicable to it.
22
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 (i) the validity of which are being
contested in good faith by appropriate proceedings diligently pursued and
available to Borrower or (ii) which became due prior to the filing of the
petition initiating the Case, provided that collection and enforcement of
payment of, and the enforcement of any rights relating to, such taxes are stayed
pursuant to the Bankruptcy Code and no proceeding has been initiated in the Case
seeking relief from such stay and the Bankruptcy Court has not ordered payment
of such taxes and, in the case of taxes described in either of preceding clause
(i) or (ii), with respect to which adequate reserves have been set aside on its
books. Borrower shall be liable for any tax or penalties imposed on Lender as a
result of the 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 with financially
sound and reputable insurers 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.
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) in accordance with GAAP and Borrower shall furnish or
cause to be furnished to Lender: (i) within thirty (30) days after the end
of each fiscal month, monthly unaudited consolidated financial statements,
and, if Borrower has any subsidiaries, unaudited consolidating financial
statements (including in each case balance sheets, statements of income and
loss
23
and statements of shareholders' equity), all in reasonable detail, 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 and (ii) within ninety (90) days after the end of each fiscal year,
audited consolidated financial statements and, if Borrower has any
subsidiaries, audited consolidating financial statements of Borrower and
its subsidiaries (including in each case balance sheets, statements of
income and loss, statements of cash flow and statements of shareholders'
equity), and the accompanying notes thereto, all in reasonable detail,
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 opinion of independent certified public accountants,
which accountants shall be an independent accounting firm selected by
Borrower and reasonably acceptable to Lender, that such financial
statements have been prepared in accordance with GAAP, and present fairly
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
any (i) loss, damage, investigation, action, suit, proceeding or claim
relating to the Collateral or any other property which is security for the
Obligations or which would result in any material adverse change in
Borrower's business, properties, assets, goodwill or condition, financial
or otherwise 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.
(c) 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
registration statements which Borrower files with the Securities and
Exchange Commission, any national securities exchange or the National
Association of Securities Dealers, Inc.
(d) 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. 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 and to disclose to Lender 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 delivered to Lender, except as otherwise designated by Borrower to
Lender in writing.
(e) Not later than 60 days prior to the end of the period covered by
the Budget then in effect, Borrower shall deliver to Lender a budget of its
cash receipts and disbursements for the next succeeding twelve-month period
for review and approval by Lender.
(f) Borrower shall furnish to Lender a copy of each report or other
submission of information made to the United States Trustee or the Official
Committee of Unsecured Creditors, contemporaneously with sending such
report or submission to such recipient.
24
(g) To the extent not already required to send a copy thereof to
Lender, Borrower shall send to Lender a copy of each pleading, motion,
application, judicial information, financial information, or other document
filed with the Bankruptcy Court by Borrower.
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 sales of Inventory in the ordinary course of business) or (c)
form or acquire any subsidiaries, 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, without
limitation, 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 with respect to which adequate reserves
have been set aside on its books; (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 foreclosure or other similar proceedings and
with respect to which adequate reserves have been set aside on its books; (d)
purchase money security interests in Equipment (including capital leases) not to
exceed $50,000 in the aggregate at any time outstanding so long as such security
interests and mortgages do not apply to any property of Borrower other than the
Equipment so acquired, and the indebtedness secured thereby does not exceed the
cost of the Equipment so acquired, as the case may be; and (e) 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; (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,
and with respect to which adequate reserves have been set aside on its books;
(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; and (d) obligations or indebtedness set forth
on the Information Certificate and not repaid with the initial proceeds of the
Loans; 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 notices or demands in
connection with such indebtedness either received by
25
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 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, unless waived in writing by Lender, Borrower shall
take such actions as are deemed necessary by Lender to perfect the security
interest of Lender in such investments and (c) the guarantees set forth in the
Information Certificate.
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.
9.12 Transactions with Affiliates. Borrower shall not enter into any
transaction for the purchase, sale or exchange of property or the rendering of
any service to or by any affiliate, 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.
9.13 [Intentionally Deleted.]
9.14 Adjusted Net Worth. Borrower shall, at all times, maintain Adjusted
Net Worth of not less than negative $1,800,000.
9.15 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, but not limited to: (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 title insurance and other 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
26
items of payment, and establishing and maintaining the Blocked Accounts,
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, without
limitation, 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
fees and disbursements of counsel (including legal assistants) to Lender in
connection with any of the foregoing.
9.16 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
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 "Events of Default":
(a) Borrower fails to pay when due any of the Obligations or fails to
perform any of the terms, covenants, conditions or provisions contained in
this Agreement or any of the other Financing Agreements;
(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;
27
(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) except as set forth on the Information Certificate, any judgment
for the payment of money is rendered against Borrower or any Obligor in
excess of $25,000 in any one case or in excess of $25,000 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 partner of an
Obligor which is a partnership) dies or Borrower or any Obligor, which is a
partnership or corporation, dissolves or suspends or discontinues doing
business;
(f) any Obligor (other than Borrower) 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) except for the Case, 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 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 such 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) except for the Case, 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 (other than a default that existed prior
to the commencement of the Case or which is based upon the commencement of
the Case) 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 $25,000, which default continues for more than the
applicable cure period, if any, with respect thereto, or any default by
Borrower (other than a default that existed prior to the commencement of
the Case or which is based upon the commencement of the Case) 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;
28
(j) any change in the controlling ownership of Borrower;
(k) the indictment or threatened indictment of 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 be a material adverse change in the business, assets
or prospects of Borrower or any Obligor after the date hereof;
(m) there shall be an event of default under any of the other
Financing Agreements;
(n) Borrower or any Obligor shall fail to comply or shall default in
the performance of any term of the Order;
(o) the Bankruptcy Court shall enter an order appointing a trustee, an
examiner with enlarged powers, or any other fiduciary for Borrower or any
Obligor or any property of Borrower's or an Obligor's estate;
(p) the Bankruptcy Court or any other court with jurisdiction in the
matter shall enter an order modifying, reversing, revoking, staying,
rescinding, vacating, or amending the Order or any of the Financing
Agreements, without Lender's express written consent (and no such consent
shall be implied from any other action, inaction, or acquiescence of
Lender) or Borrower or any Obligor shall make a motion or application to do
so (except at Lender's request);
(q) any Person shall file a plan of reorganization in the Case which
does not provide for the full and final repayment of all Obligations upon
the confirmation of such plan, unless Lender has joined in or consented to
such plan in writing;
(r) any motion or application is filed in the Case which seeks
approval for or allowance of any claim, lien, or security interest ranking
equal or senior in priority to the claims, liens, and security interests of
Lender under the Order or Financing Agreements, or any such equal or prior
claim, lien, or security interest shall be established in any manner,
except, in either case, as expressly permitted under the Order or the
Financing Agreements;
(s) except for expiration or termination in accordance with the Order
or the terms of the Financing Agreements, any of the Financing Agreements,
or any lien or security interest of Lender created thereunder, shall cease
for any reason to be in full force and effect or to have the priority
provided in the Order, or any motion or application shall be filed or
adversary proceeding commenced in the case to challenge the validity,
enforceability, perfection, or priority of any of the Financing Agreements
or any of such liens and security interests;
(t) the automatic stay under Section 362 of the Bankruptcy Code as to
Borrower or any Obligor and its estate shall be modified or vacated for any
secured claim or claims to the extent that as a result thereof enforcement
of such claim against property of Borrower or any Obligor would be
permitted;
29
(u) the Bankruptcy Court enters an order dismissing the Case or
converting the Case to a case under Chapter 7 of the Bankruptcy Code;
(v) any appeal shall be taken from the Interim Order; or
(w) the Bankruptcy Court shall not have entered the Final Order on or
before March __, 1997 [30 days after entry of Interim Order].
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 the
Order, 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,
or any further order of the Bankruptcy Court, except as such notice or
consent is expressly provided for hereunder, in the Order, or required by
applicable law. All rights, remedies and powers granted to Lender
hereunder, under the Order, 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 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, without limitation, 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 Lender may
deem 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
30
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 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.
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 New
York (without giving effect to principles of conflicts of law).
(b) To the extent not inconsistent with the jurisdiction of the
Bankruptcy Court in the Case, Borrower and Lender irrevocably consent and
submit to the non-exclusive jurisdiction of the Supreme Court of the State
of New York, for New York County, and the United States District Court for
the Southern District of New York 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 the Order
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 Order 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)
31
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 ARISING UNDER THIS
AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR THE ORDER 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 ORDER 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. 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
occasion shall not be construed as a bar to or waiver of any such
32
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.
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 the Order,
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, without limitation, amounts paid in settlement, court costs, and the
fees and expenses of counsel (provided, that Borrower shall not be liable for
such indemnification with respect to any loss that is determined by a final and
non-appealable judgment or court order binding on Lender to have resulted from
Lender's gross negligence or wilful misconduct). 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, unless sooner terminated pursuant to the
terms hereof, for a term ending on the earlier of: (i) the date which is
eighteen months after the date hereof or (ii) the effective date of the
Bankruptcy Court order confirming a plan of reorganization in the Case (the
"Termination Date"). Upon the Termination Date, 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 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 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, New York City time.
33
(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 the
Order and applicable law, shall remain in effect until all such Obligations
have been fully and finally discharged and paid.
(c) If for any reason this Agreement is terminated other than upon the
effective date of the order confirming a plan of reorganization in the Case
or upon the conversion of the Case to a case under Chapter 7 of the
Bankruptcy Code, 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 as a result thereof,
Borrower agrees to pay to Lender, upon the effective date of such
termination, an early termination fee in the amount equal to two percent
(2%) of the Maximum Credit. 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. 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 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.
34
12.5 Entire Agreement. This Agreement, the other Financing Agreements, any
supplements hereto or thereto, the Order, and any instruments or documents
delivered or to be delivered in connection herewith or therewith, together with
the Order, represent 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.
35
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 JEAN GRAYSON'S BROWNSTONE
STUDIO, INC.
By:_/s/_________________________ Debtor and Debtor-in-Possession
Title:___________________________ By:__/s/________________________
Address: Title:___________________________
1133 Avenue of the Americas Chief Executive Office:
New York, New York 10036
685 Third Avenue
New York, New York 10017
and
1111 Secaucus Road
Secaucus, New Jersey 07094
================================================================================
CONGRESS FINANCIAL CORPORATION
1133 Avenue of the Americas
New York, New York 10036
September 17, 1997
Jean Grayson's Brownstone Studio, Inc.
685 Third Avenue
New York, New York 10017
Re: Amendment of Loan and Security Agreement
Ladies and Gentlemen:
We refer to the Loan and Security Agreement dated February 28, 1997 between
Congress Financial Corporation ("Lender") and Jean Grayson's Brownstone Studio,
Inc., a New York corporation as debtor and debtor-in-possession in Case No.
97-B-41214, United States Bankruptcy Court for the Southern District of New
York, under Chapter 11 of Title 11 of the United States Code ("Borrower"), as
the same may be amended from time to time (the "Loan Agreement"). Unless
otherwise defined in this letter, all capitalized terms used in this letter have
the same meanings as set forth in the Loan Agreement.
Borrower has requested Lender to amend certain provisions in the Loan
Agreement as set forth herein. Lender is willing to make such amendments, but
only on the terms and conditions set forth in this letter.
Accordingly, Borrower hereby agrees with Lender as follows:
1. Amendments to Loan Agreement. Upon the satisfaction of the conditions
set forth in Paragraph 2 of this letter, the Loan Agreement is amended hereby as
follows:
(a) Section 1 of the Loan Agreement is amended by adding the following
defined term in the appropriate alphabetical order:
"Participation Agreement" shall mean that certain Junior Participation
Agreement dated September 17, 1997 by and between Lender, Robert M.
Rubin and Jay M. Kaplowitz, in form and substance satisfactory to
Lender.
Jean Grayson's Brownstone
Studio, Inc. -2- September 17, 1997
(b) Section 2.1(a) of the Loan Agreement is amended in its entirety to
read as follows:
"(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) the lesser of (A) eighty (80%) percent of the orderly
liquidation value of Eligible Inventory (as determined by Lender in
good faith) or (B) sixty (60%) percent of the Value of Eligible
Inventory, other, in each case, than Inventory located at or being
offered for sale through Borrower's outlet store, plus
(ii) twenty (20%) percent of the Value of Eligible Inventory
located at or being offered for sale through Borrower's outlet store,
plus
(iii) one hundred (100%) percent of the outstanding amount of the
Participants' Interest (as defined in the Participation Agreement), so
long as (A) the Participation Agreement continues in full and force
and effect and (B) the order of the Bankruptcy Court approving the
amendment to this Agreement that added this clause (iii) has not been
modified or vacated and no appeal has been taken therefrom, less
(iv) any Availability Reserves."
(c) Section 9.15 of the Loan Agreement is amended by deleting the word
"and" before subsection (h) of such section and adding the following to the
end of such section:
"; and (i) the fees and disbursements of counsel (including legal
assistants) and other out-of-pocket expenses of the participants under
the Participation Agreement in connection with any of the foregoing".
2. Conditions Precedent. In addition to the relevant conditions set forth
in Section 4 of the Loan Agreement, Lender's obligation to make amendments to
the Loan Agreement is subject to the fulfillment, to the satisfaction of Lender
and its counsel, of each of the following conditions:
(a) Borrower shall have executed and delivered this letter to Lender;
Jean Grayson's Brownstone
Studio, Inc. -3- September 17, 1997
(b) Wilroy, Inc. ("Guarantor") shall have executed and delivered to
Lender its acknowledgment to this letter that its guarantee shall continue
to be in full force and effect on the date hereof;
(c) Lender and its counsel shall have received evidence to their
satisfaction that the Bankruptcy Court has entered an order authorizing and
approving this amendment to the Loan Agreement and that no appeal has been
taken therefrom; and
(d) On and as of the date such other conditions are satisfied, no
Event of Default, and no event or condition which with notice or passage of
time or both would constitute an Event of Default, has occurred and is
continuing or would result from the extension of the term of the Loan
Agreement or the amendments contemplated hereby.
3. No Other Modification. Except as expressly set forth herein, the
Financing Agreements are not amended or otherwise affected in any way by this
letter and continue in full force and effect.
4. No Waiver of Compliance. By entering into this letter, Lender has not
and shall not be deemed to have (a) waived any Event of Default now existing or
which may occur at any time hereafter or (b) limited any of Lender's rights and
remedies with respect to any Event of Default or (c) except as otherwise
expressly set forth herein, limited Lender's right to require Borrower to comply
strictly with each term and condition of the Financing Agreements.
5. This Letter a Financing Agreement. This letter constitutes one of the
Financing Agreements and is subject to all of the provisions of the Loan
Agreement applicable to the Financing Agreements.
6. Fees and Expenses. Borrower confirms that, under the Loan Agreement, it
shall pay Lender's attorneys' fees and expenses incurred in connection with this
letter and the transactions contemplated hereby.
7. Ratification. (a) Except as expressly set forth herein, the Loan
Agreement and the other Financing Agreements are not modified hereby and each
shall remain in full force and effect in accordance with the respective
provisions thereof on the date hereof, and the Loan Agreement and the other
Financing Agreements are each in all respects ratified and affirmed. Lender's
agreement herein shall not be construed to require Lender to increase
Jean Grayson's Brownstone
Studio, Inc. -4- September 17, 1997
the credit facility or make any other amendments on any other occasion,
regardless of the similarity of circumstances.
(b) Borrower confirms and agrees that the principal of, accrued
interest on, and other charges now or hereafter payable in connection with
the Loans, including, without limitation, those made after giving effect to
the amendments in this letter, constitute Obligations for all purposes of
the Financing Agreements, secured by all of the Collateral to the same
extent as any of the other Obligations incurred prior to or after the date
hereof.
(c) Guarantor hereby (i) acknowledges notice of the terms and
conditions of this letter, (ii) confirms and agrees that the Guaranteed
Obligations under and as defined in the Guarantee dated February 28, 1997
(the "Guarantee"), includes all Borrowers' Obligations for or in respect of
the principal of, accrued interest in, and other charges now or hereafter
payable in connection with the Loans, including, without limitation, those
made or continuing after giving effect to the amendments in this letter,
and (iii) confirms that, after giving effect to this letter and to the
making of the amendments to the Loan Agreement provided herein, the
Guarantee is its valid and binding obligation, enforceable against it in
accordance with its terms, without defenses, offsets, or counterclaims, and
continues in full force and effect.
8. Representations and Warranties. Without limiting any other provision of
this letter, and as an inducement to Lender to enter into this letter, Borrower
hereby: (a) represents, warrants and agrees that the Loan Agreement and the
other Financing Agreements are its valid and binding obligations enforceable
against it in accordance with their terms, without the right to interpose any
claims, deductions, offsets or counterclaims of any nature (other than
compulsory counterclaims); and (b) represents and warrants that:
(i) each of the representations and warranties of Borrower set forth in
the Loan Agreement and the other Financing Agreements is true and
correct in all material respects, as of the date hereof; and
(ii) after giving effect to this letter, no Event of Default, or event or
condition which with notice or the passage of time or both would
become an Event of Default, has occurred and is continuing.
9. Governing Law. This letter shall be construed in accordance with and be
governed by the laws (without giving effect to the conflicts of laws principles)
of the State of New York.
Jean Grayson's Brownstone
Studio, Inc. -5- September 17, 1997
10. Counterparts. This letter may be executed in one or more counterparts,
and by Lender and each other party hereto in separate counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
[THIS SPACE INTENTIONALLY LEFT BLANK]
Jean Grayson's Brownstone
Studio, Inc. -6- September 17, 1997
Please indicate Borrower's agreement to the terms of this letter by
countersigning it in the space provided below and returning it to Lender.
Very truly yours,
CONGRESS FINANCIAL CORPORATION
By: /s/
-------------------------------
Name:
Title:
Accepted and Agreed:
JEAN GRAYSON'S BROWNSTONE STUDIO, INC.
Debtor and Debtor-in-Possession
By: /s/
----------------------------------
Name:
Title:
Jean Grayson's Brownstone
Studio, Inc. -7- September 17, 1997
Accepted and Agreed for purposes of Paragraph 7(c) only:
WILROY, INC.
Debtor and Debtor-in-Possession
By: /s/
-------------------------------
Name:
Title: