1
EXHIBIT 10.28
TERM LOAN AND SECURITY AGREEMENT
AMONG
THE GYMBOREE CORPORATION
AND
GYMBOREE MANUFACTURING, INC.,
AS GUARANTORS
GYMBOREE LOGISTICS PARTNERSHIP,
AS BORROWER
AND
TRANSAMERICA BUSINESS CREDIT CORPORATION,
AS LENDER
CLOSING DATE: DECEMBER 28, 1998
AGGREGATE PRINCIPAL AMOUNT: $12,000,000
2
TABLE OF CONTENTS
-----------------
1. DEFINITIONS, TERMS AND REFERENCES........................................................1
1.1. CERTAIN DEFINITIONS............................................................1
1.2. USE OF DEFINED TERMS...........................................................7
1.3. ACCOUNTING TERMS...............................................................7
1.4. UCC TERMS......................................................................7
1.5. TERMINOLOGY....................................................................7
1.6. EXHIBITS.......................................................................7
2. THE FINANCING............................................................................7
2.1. TERM LOAN FACILITY.............................................................7
2.2. AMORTIZATION...................................................................8
2.3. INTEREST.......................................................................8
2.4. TERM NOTES.....................................................................8
2.5. LATE CHARGE; LIQUIDATED DAMAGES................................................8
2.6. VOLUNTARY PREPAYMENT...........................................................9
2.7. NATURE OF CHARGES IMPOSED.....................................................10
2.8. SAVINGS CLAUSE................................................................10
2.9. CLOSING FEE...................................................................11
2.10. GUARANTY.....................................................................11
3. SECURITY INTEREST -- COLLATERAL.........................................................16
3.1. REPRESENTATIONS AND WARRANTIES................................................16
3.2. PURCHASE MONEY LIENS; RELEASE PROVISION.......................................18
4. GENERAL REPRESENTATIONS AND WARRANTIES..................................................19
4.1. EXISTENCE.....................................................................19
4.2. AUTHORITY.....................................................................19
4.3. NO MATERIAL LITIGATION........................................................19
4.4. PAYMENT OF TAXES..............................................................20
4.5. NO VIOLATIONS, GENERALLY......................................................20
4.6. POLLUTION AND ENVIRONMENTAL CONTROL...........................................20
5. COVENANTS...............................................................................21
5.1. BOOKS AND RECORDS.............................................................21
5.2. PERIODIC FINANCIAL STATEMENTS.................................................21
5.3. ANNUAL FINANCIAL STATEMENTS...................................................21
5.4. COMPLIANCE CERTIFICATES.......................................................21
5.5. PAYMENT OF TAXES..............................................................21
5.6. MAINTENANCE OF INSURANCE......................................................22
5.7. PRESERVATION OF EXISTENCE.....................................................22
-i-
3
5.8. COMPLIANCE WITH LAWS..........................................................23
5.9. ENVIRONMENTAL LAW COMPLIANCE..................................................23
5.10. NOTICE OF LITIGATION; EVENTS OF DEFAULT, ETC.................................24
5.11. YEAR 2000 COMPLIANCE.........................................................24
5.12. INTERCOMPANY LEASE...........................................................25
6. EVENTS OF DEFAULT.......................................................................25
6.1. TERM NOTES...................................................................25
6.2. OTHER OBLIGATIONS............................................................25
6.3. MISREPRESENTATIONS...........................................................25
6.4. COVENANTS....................................................................25
6.5. OTHER DEBTS..................................................................25
6.6. VOLUNTARY BANKRUPTCY.........................................................26
6.7. INVOLUNTARY BANKRUPTCY.......................................................26
6.8. JUDGMENTS....................................................................26
6.9. CHANGE OF CONTROL............................................................26
6.10. LOSS OF COLLATERAL...........................................................26
6.11. GUARANTOR....................................................................27
6.12. MATERIAL AGREEMENTS..........................................................27
6.13. MATERIAL ADVERSE EFFECT......................................................27
6.14. FINANCIAL DEFAULTS...........................................................27
7. REMEDIES................................................................................28
7.1. ACCELERATION OF THE OBLIGATIONS...............................................28
7.2. REMEDIES OF A SECURED PARTY...................................................28
7.3. REPOSSESSION OF THE COLLATERAL................................................28
7.4. OTHER REMEDIES................................................................29
7.5. NOTICE TO GUARANTORS..........................................................29
8. MISCELLANEOUS...........................................................................29
8.1. WAIVER........................................................................29
8.2. GOVERNING LAW.................................................................29
8.3. SURVIVAL......................................................................29
8.4. NO ASSIGNMENT BY EITHER GUARANTOR OR BORROWER; LENDER MAY ASSIGN..............30
8.5. COUNTERPARTS..................................................................30
8.6. REIMBURSEMENT.................................................................30
8.7. SUCCESSORS AND ASSIGNS........................................................30
8.8. SEVERABILITY..................................................................31
8.9. NOTICES.......................................................................31
8.10. ENTIRE AGREEMENT - AMENDMENT.................................................31
8.11. TIME OF THE ESSENCE..........................................................32
8.12. INTERPRETATION...............................................................32
8.13. LENDER NOT A JOINT VENTURER..................................................32
-ii-
4
8.14. JURISDICTION.................................................................32
8.15. PAYMENT ON NON-BUSINESS DAYS.................................................32
8.16. WAIVER OF RIGHTS.............................................................33
8.17. CURE OF DEFAULTS BY LENDER...................................................33
8.18. RECITALS.....................................................................33
8.19. ATTORNEY-IN-FACT.............................................................33
8.20. SOLE BENEFIT.................................................................33
8.21. REMEDIES.....................................................................33
8.22. INDEMNITY....................................................................34
8.23. ACCEPTANCE...................................................................34
9. CONDITIONS PRECEDENT....................................................................34
-iii-
5
EXHIBITS
A - PERMITTED ENCUMBRANCES
B - SUBSIDIARIES
C - LITIGATION
D - FINANCIAL TEST COMPUTATIONS
-iv-
6
TERM LOAN AND SECURITY AGREEMENT
THIS TERM LOAN AND SECURITY AGREEMENT, made, entered into and effective
as of the Closing Date (defined below), by and among THE GYMBOREE CORPORATION, a
Delaware corporation ("Guarantor One"), GYMBOREE MANUFACTURING, INC., a
California corporation ("Guarantor Two"; Guarantor One and Guarantor Two each,
individually, a "Guarantor" and, collectively, the "Guarantors"), GYMBOREE
LOGISTICS PARTNERSHIP, a California general partnership ("Borrower"), and
TRANSAMERICA BUSINESS CREDIT CORPORATION, a Delaware corporation ("Lender");
W I T N E S S E T H :
WHEREAS, Borrower has applied to Lender for financing, in the
form of two term loans, described more particularly below, to be secured by
liens on, and security interests in, certain real property, machinery and
equipment of Borrower and Guarantors, as likewise described more particularly
below;
WHEREAS, the making of such term loans by Lender to Borrower will
inure to the direct and material benefit of Guarantor One as the owner, directly
or indirectly, of all of the equity interests in Borrower, and to Guarantor Two
as an affiliate of Guarantor One and Borrower who conducts its business as a
common enterprise with Guarantor One and Borrower, and, to induce Lender to make
such term loans to Borrower, Guarantors are willing to guaranty Borrower's
payment and performance of its obligations to Lender; and
WHEREAS, Lender has considered Borrower's request for such
financing and is willing to extend such financing to Borrower for such purposes
in accordance with the terms of this Agreement upon the execution of this
Agreement by Borrower and Guarantors and, compliance by Borrower and Guarantors
with all of the terms and provisions of this Agreement and fulfillment by
Borrower and Guarantors of all conditions precedent to Lender's obligations
herein contained;
NOW, THEREFORE, in consideration of the foregoing premises, to
induce Lender to extend the financing provided for herein, and for other good
and valuable consideration, the sufficiency and receipt of all of which are
acknowledged by Guarantors and Borrower, Lender, Guarantors and Borrower agree
as follows:
1. DEFINITIONS, TERMS AND REFERENCES.
1.1. CERTAIN DEFINITIONS. In addition to such other terms as are
elsewhere defined herein, as used in this Agreement and in any Exhibits, the
following terms shall have the following meanings, unless the context requires
otherwise:
7
"Agreement" shall mean this Term Loan and Security Agreement, as amended
or supplemented from time to time.
"Applicable Rate" shall mean the Fixed Rate or the Default Rate, as made
applicable to each Term Loan pursuant to Section 2.3 hereof.
"Authorized Officer" shall mean (i) for Borrower, any partner and (ii)
for each Guarantor, any officer, in each case authorized to execute the Loan
Documents on behalf of such entity.
"Bankruptcy Code" shall mean Title 11 of the United States Code, as
amended from time to time.
"Borrower" shall have the meaning ascribed thereto in the initial
recitals to this Agreement.
"Business Day" shall mean a day on which Lender is open for the conduct
of business at its offices in Atlanta, Georgia and Chicago, Illinois.
"Closing Date" shall mean the date of this Agreement, as specified on
the cover page of this Agreement.
"Collateral" shall mean, collectively, the Equipment Collateral, the
Real Estate Collateral and any and all other property of Borrower and each
Guarantor described in Article 3, or any part thereof, or elsewhere herein or in
any Loan Document, all as the context shall require, in which Lender has, or is
to have, or hereafter may obtain, a security interest, lien or encumbrance
pursuant thereto, as security for payment of the Obligations.
"Compliance Certificate" shall mean a certificate of each Guarantor and
Borrower executed by Authorized Officers of each Guarantor and Borrower, on each
Guarantor's and Borrower's behalf, stating that no Event of Default or Default
Condition has occurred or exists, or if an Event of Default or Default Condition
has occurred or exists, specifying the nature and period of existence thereof
and what action Guarantors and Borrower have taken or propose to take with
respect thereto.
"Contaminant" shall mean those substances which are regulated by or form
the basis of liability under federal, state or local environmental, health and
safety statutes or regulations including, without limitation, asbestos,
polychlorinated biphenyls ("PCBs"), radioactive substances, petroleum, petroleum
products, or any other material or substance which constitutes a material
health, safety or environmental hazard to any Person or Property.
"Default Condition" shall mean the occurrence of any event which, after
satisfaction of any requirement for the giving of notice or the lapse of time,
or both, would become an Event of Default.
"Default Rate" shall mean, as to each Term Loan, that simple interest
rate equal to four percent (4%) per annum in excess of the Fixed Rate applicable
to such Term Loan.
2
8
"Distribution Center" shall mean the warehouse and distribution center
located at 2299 Kids Way, Dixon, California owned by Borrower and leased by it
to Guarantor Two pursuant to the Intercompany Lease.
"Environmental Claim" shall mean any notice of violation, claim, suit,
demand, abatement or other order or direction (conditional or otherwise) by any
Governmental Authority or any Person for personal injury (including sickness,
disease or death), tangible or intangible property damage, damage to the
environment, nuisance, pollution, contamination or other adverse effects on the
environment, or for fines, penalties or restrictions, resulting from or based
upon (i) the existence, or the continuation of the existence, of a Release
(including, without limitation, sudden or non-sudden, accidental or
non-accidental Releases) of, or exposure to, any Contaminant, odor or audible
noise or other release or emission in, into or onto the environment (including,
without limitation, the air, ground, surface water, groundwater or any surface)
in, by, from, or related to any Property, (ii) the environmental aspects of the
transportation, storage, treatment or disposal of materials, in connection with
the operation of any Property or (iii) the violation, or alleged violation, of
any statutes, ordinances, orders, rules, regulations, Permits, licenses,
registrations or approvals of or from any Governmental Authority relating to
environmental matters connected with any Property.
"Environmental Laws" shall mean all laws, whether domestic or foreign,
or federal, state , provincial or local, relating to the environmental, safety,
health and the regulation of Contaminants, including, without limitation, the
Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C.
Section 9601 et seq.), the Superfund Amendments and Reauthorization Act of 1986,
Public Law No. 99-499, 100 Stat. 163, the Hazardous Material Transportation Act
(49 U.S.C. Section 1801 et seq.), the Resource Conservation and Recovery Act (42
U.S.C. Section 6901 et seq.), the Clean Water Act (33 U.S.C. Section 1251 et
seq.), the Clean Air Act (42 U.S.C. Section 7401 et seq.), the Toxic Substances
Control Act, as amended (15 U.S.C. Section 2601 et seq.), the Federal
Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. Section 136 et seq.), the
Occupational Safety and Health Act (29 U.S.C. Section 651 et seq.), as such laws
have been and hereafter may be amended or supplemented, and any analogous future
federal, or present or future domestic or foreign state, provincial or local
laws and all rules and regulations promulgated pursuant thereto.
"Equipment Collateral" shall mean all equipment, machinery, furniture,
furnishings and fixtures of Borrower and each Guarantor, at any time or from
time to time located at, or used or useful in the operation of, the Distribution
Center, together with any and all extensions, additions, improvements,
betterments, after-acquired property, renewals, replacements and substitutions
or proceeds from a voluntary or involuntary sale, liquidation or conversion of
any of the foregoing; and all attachments, additions and accessions thereto, and
any and all tools, repair parts and spare parts therefor; all whether now or
hereafter existing.
"Event of Default" shall mean any of the events or conditions described
in Article 6, provided that any requirement for the giving of notice or the
lapse of time, or both, has been satisfied.
3
9
"Fixed Rate," as of the Closing Date shall mean that interest rate
determined by Lender to be equal to (i) the then prevailing yield to maturity of
a U.S. Treasury Note having a term comparable to the term of the Term Note in
question, as published in the "Treasury Notes, Bonds and Bills" section of The
Wall Street Journal on or as of that date closest (but prior) to the Closing
Date; plus (ii) three percent (3%) per annum.
"GAAP" shall mean generally accepted accounting principles which are (a)
consistent with the principles promulgated or adopted by the Financial
Accounting Standards Board and its predecessors as in effect from time to time,
(b) such that a certified public accountant would, insofar as the use of
accounting principles is pertinent, be in a position to deliver an unqualified
opinion as to financial statements in which such principles have been properly
applied and (c) applied on a basis consistent with prior periods.
"Governmental Authority" shall mean any nation or government, federal,
state, provincial, city, town, municipality, county, local or political
subdivision thereof or thereto and any department, commission, instrumentality
or agency exercising executive, legislative, judicial, regulatory or
administrative functions on behalf thereof.
"Guarantor" and "Guarantors" shall have the meanings ascribed thereto in
the initial recitals to this Agreement.
"Guarantor One" shall have the meaning ascribed thereto in the initial
recitals to this Agreement.
"Guarantor Two" shall have the meaning ascribed thereto in the initial
recitals to this Agreement.
"Headquarters" shall mean the principal place of business and chief
executive office of Guarantors and Borrower, and the office where all books and
records of Guarantors and Borrower are maintained, being 700 Airport Boulevard,
Suite 200, Burlingame, California 94010-1912, together with any successor
principal place of business and chief executive office as to which Guarantors
and Borrower have complied with the provisions of Section
3.1(h).
"Independent Accountants" shall mean any firm of independent certified
public accountants selected by Guarantor and reasonably acceptable to Lender.
"Intercompany Lease" that certain lease agreement, dated as of July 15,
1997, pursuant to which Borrower leases the Distribution Center and the
Equipment Collateral to Guarantor Two, as amended or modified from time to time.
"Lender" shall have the meaning ascribed thereto in the initial recitals
to this Agreement. The term "Lender" shall also include any Participant to whom
Lender shall assign, in whole or in part, its right, title and interest in and
to the Obligations hereunder on or subsequent to the Closing Date.
4
10
"Loan Documents" shall mean this Agreement, each Term Note, the
Mortgage, each financing statement, and each and every other document,
instrument, certificate and agreement executed and/or delivered by Borrower or
either Guarantor in connection herewith, or any one, more, or all of the
foregoing, all as the context shall require.
"Material Adverse Change" shall mean (a) any change occurring in the
business, operations, properties or condition (financial or otherwise) of
Borrower or either Guarantor, which materially and adversely affects (i) the
ability of Borrower or such Guarantor to own or operate all, or any material
portion of, its assets or conduct its business as a going concern, (ii) the
collateral value to Lender of the whole of, or any material portion of, any
Collateral, or (iii) the ability of Borrower to pay the Obligations as and when
due and payable or otherwise perform its obligations hereunder or under the
other Loan Documents; or (iv) the ability of either Guarantor to perform its
obligations to Lender under its guaranty of the Obligations set forth in Section
2.10 hereof or to otherwise perform its obligations hereunder or under the other
Loan Documents; or (b) the failure or inability of Borrower or either Guarantor
to pay or perform its obligations to its creditors generally.
"Material Adverse Effect" shall mean an effect that has resulted in,
will result in, or is reasonably likely to result in, a Material Adverse Change.
"Material Agreements," in respect of Borrower and each Guarantor, shall
mean all loan and other debt instruments and agreements; all management,
employment and labor agreements; all real property leases; and any other
agreements, not specified hereinabove, the loss, diminution or impairment of
which would have, or would reasonably be expected to have, a Material Adverse
Effect; in each case, to the extent such instruments or agreements are binding
on Borrower or either Guarantor or any of their respective Property.
"Mortgage" shall mean each mortgage, deed of trust or similar instrument
pursuant to which Lender shall obtain a mortgage lien, security interest or
security title on or in the right, title and interest of Borrower in and to the
Distribution Center.
"Obligations" shall mean and include any and all indebtedness,
liabilities and obligations of Borrower or either Guarantor, and each of them,
jointly and severally, to Lender arising hereunder or as a result hereof,
whether evidenced by the Term Notes or otherwise, and any and all extensions or
renewals thereof in whole or in part; together with any and all other
indebtedness, liabilities and obligations of Borrower or either Guarantor, and
each of them, jointly and severally, to Lender, whether existing as of the date
hereof or hereafter arising, existing or incurred, whether under a loan, lease,
line of credit, letter of credit or other type of financing, whether direct,
indirect, absolute or contingent, as maker, endorser, guarantor, surety or
otherwise, and whether evidenced by, arising out of, or relating to, a
promissory note, bill of exchange, check, draft, bond, letter of credit,
guaranty agreement or otherwise issued in favor of, or acquired by, Lender.
"Participant" shall mean any Person to whom, now or hereafter, Lender
sells a participation interest in, or makes an assignment of, its right, title
or interest hereunder and in the Obligations (whether in whole or in part).
5
11
"Permit" shall mean any permit, approval, authorization, license,
variance, or permission required from a Governmental Authority having
jurisdiction under an applicable Environmental Law.
"Person" shall mean any individual, partnership, corporation, trust,
unincorporated association, business trust, sole proprietorship, or joint
venture, a government or any department, agency, political subdivision or
instrumentality thereof, or any other entity or organization.
"Property" or "Properties" shall mean any real or personal property
owned, leased or operated by Borrower or either Guarantor.
"Real Estate Collateral" shall mean all right, title and interest of
Borrower as owner in fee simple of the Distribution Center, inclusive of all
buildings and other improvements thereon and all appurtenances thereto.
"Release" shall mean any actual or threatened release, spill, emission,
leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching
or migration into the indoor or outdoor environment or into or out of any
Property, including the movement of Contaminants through or into the air, soil,
subsurface strata, surface water or groundwater.
"Remedial Action" shall mean all actions required to (1) clean up,
remove, treat or in any other way address Contaminants in the indoor or outdoor
environment; (2) prevent the Release or threat of Release or minimize the
further Release of Contaminants so they do not migrate or endanger or threaten
to endanger public health or welfare or the indoor or outdoor environment; or
(3) perform pre-remedial studies and investigations and post-remedial monitoring
and care in respect of actions contemplated in the preceding clauses (1) and
(2), in each instance in compliance with Environmental Laws.
"Subsidiary" shall mean, with respect to any Person, any corporation,
association or other business entity of which more than fifty percent (50%) of
the total voting power of shares of stock (or equivalent ownership or
controlling interest) entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by that Person or
one or more of the other Subsidiaries of that Person or a combination thereof.
"Term Loan" shall mean each term loan made by Lender to Borrower
pursuant to Section 2.1 below. "Term Loans" shall refer, collectively, to all
such loans from time to time outstanding.
"Term Loan Facility" shall mean the term loan facility in the maximum
amount of Twelve Million Dollars ($12,000,000) established by Lender in favor of
Borrower pursuant to Section 2.1.
6
12
"Term Note" shall mean each Term Promissory Note issued by Borrower to
Lender to evidence its repayment obligations associated with a given Term Loan,
together with any extensions or renewals thereof, in whole or in part.
"UCC" shall mean the Uniform Commercial Code of Illinois, as in effect
on the Closing Date.
1.2. USE OF DEFINED TERMS. All terms defined in this Agreement and the
Exhibits shall have the same defined meanings when used in any other Loan
Documents, unless the context shall require otherwise.
1.3. ACCOUNTING TERMS. All accounting terms not specifically defined
herein shall have the meanings generally attributed to such terms under GAAP.
1.4. UCC TERMS. The terms "equipment", "fixtures", "proceeds" and
"products", as and when used in the Loan Documents, together with any other or
similar terms not specifically defined herein but which are defined in the UCC
shall have the same meanings as given to such terms therein.
1.5. TERMINOLOGY. All personal pronouns used in this Agreement, whether
used in the masculine, feminine or neuter gender, shall include all other
genders; the singular shall include the plural, and the plural shall include the
singular. Titles of Articles and Sections in this Agreement are for convenience
only, and neither limit nor amplify the provisions of this Agreement, and all
references in this Agreement to Articles, Sections, Subsections, paragraphs,
clauses, subclauses or Exhibits shall refer to the corresponding Article,
Section, Subsection, paragraph, clause, subclause of, or Exhibit attached to,
this Agreement, unless specific reference is made to the articles, sections or
other subdivisions divisions of, or Exhibit to, another document or instrument.
1.6. EXHIBITS. All Exhibits attached hereto are by reference made a part
hereof as fully as if the contents thereof were set forth expressly herein.
2. THE FINANCING.
2.1. TERM LOAN FACILITY. Lender hereby creates the Term Loan Facility in
favor of Borrower so that Borrower may obtain two (2) Term Loans, as follows:
(i) a Term Loan of up to Three Million One Hundred Twenty-Five Thousand Dollars
($3,125,000) in principal amount (herein, sometimes called "Term Loan A"), and
(ii) a Term Loan of up to Eight Million Eight Hundred Seventy-Five Thousand
Dollars ($8,875,000) in principal amount (herein, sometimes called "Term Loan
B"). The Term Loans shall be cross-collateralized and cross-defaulted to and
with the other until both Term Loans are fully paid and satisfied and this
Agreement is terminated. Each Term Loan so obtained shall reduce,
dollar-for-dollar, the amount which may be borrowed under the Term Loan
Facility. Each Term Loan shall be disbursed in its entirety on the Closing Date.
No amount of either Term Loan may be reborrowed once disbursed, notwithstanding
its repayment.
7
13
2.2. AMORTIZATION. The principal amount of each Term Loan, together with
accrued interest thereon at the then Applicable Rate, shall be paid as follows:
(a) as to Term Loan A, in eighty-four (84) equal monthly installments of
principal and interest in the amount prescribed in the amortization schedule
attached to, and forming a part of, Term Note A, with payments commencing on
February 1, 1999 and continuing on the first day of each month thereafter
through January 1, 2006 provided that the final such payment shall, in any
event, be in such amount as necessary to pay Term Loan A in full; and (b) as to
Term Loan B, in one hundred nineteen (119) equal monthly installments of
principal and interest, in the amount prescribed in the amortization schedule
attached to and forming a part of Term Note B, with payments commencing on the
February 1, 1999 and continuing on the first day of each month thereafter
through December 1, 2008, followed by one (1) final, balloon payment, equal in
amount to the unpaid principal balance of Term Note B, together with all accrued
interest thereon, which shall be due and payable on January 1, 2009.
2.3. INTEREST. (a) Each Term Note shall bear interest at the Fixed Rate;
provided, however, that, notwithstanding the foregoing, however, from and after
the occurrence of any Event of Default, and continuing for so long thereafter as
such Event of Default shall be continuing, Lender shall have the right to
increase the interest rate payable on each Term Note to the Default Rate
applicable thereto upon giving Borrowers ten (10) calendar days' advance written
notice thereof, and Borrowers shall be responsible for the payment of the
additional interest resulting therefrom.
(b) Interest shall be computed on the basis of a year consisting
of twelve thirty day months. On January 1, 1999, Borrower shall make an interest
only payment on each Term Note as to interest accrued for the period from the
Closing Date through December 31, 1998. Thereafter, interest shall be paid as
part of the combined monthly payments of principal and interest described in
Section 2.2.
2.4. TERM NOTES. The indebtedness represented by each Term Loan shall be
evidenced by a Term Note corresponding in principal amount thereto. Each Term
Note shall be executed by Borrower and delivered to Lender on the closing date.
2.5. LATE CHARGE; LIQUIDATED DAMAGES. If payment of any principal of, or
interest on, any Term Note or any other sum payable hereunder or under any other
Loan Document is not received within ten (10) calendar days after its due date,
Lender shall have the right to impose a late charge relative to such payment in
an amount equal to up to five percent (5%) of the amount of such past due
payment, which charge, if imposed by Lender, shall be due and payable by
Borrower immediately upon receipt of notice thereof. In connection with the
foregoing, Borrower recognizes that any default in making, when due, any payment
of principal or interest due under any Term Note or any other sum payable
hereunder or under any other Loan Document, or the occurrence of any other Event
of Default, will require Lender to incur additional expense in servicing and
administering the Term Loans, in loss to Lender of the use of the money due and
in frustration to Lender in meeting its other financial and loan commitments and
that the damages caused thereby would be extremely difficult and impractical to
ascertain. Borrowers agree that (a) an amount equal to the late charge described
in the first sentence of this Section 2.5 plus the accrual of interest at the
default rate of interest set forth in Section 2.3(f) hereof is a reasonable
estimate of the damage to
8
14
Lender in the event of a late payment and (b) the accrual of interest at the
default rate of interest set forth in Section 2.3(f) hereof is a reasonable
estimate of the damages to Lender in the event of such other Event of Default,
regardless of whether there has been acceleration of the Term Loans. Nothing
herein shall be construed as an obligation on the part of Lender to accept, at
any time, less than the full amount then due hereunder, or as a waiver or
limitation of Lender's right to compel prompt performance.
2.6. VOLUNTARY PREPAYMENT. Provided that no Default Condition or Event
of Default has occurred which is then continuing, the Term Notes may be prepaid,
in whole or in part, by Borrowers at any time or from time to time after the
third (3rd) anniversary of the Closing Date; provided, however, that (i) any
such prepayment may be made only on a date on which a regularly scheduled
payment of principal is to be made; (ii) as between Term Loans, the order of
prepayment shall be, first, to Term Loan B, until it is paid in full; and then,
to Term Loan A, until it is paid in full; and (iii) any such prepayment must be
preceded by at least thirty (30) calendar days prior written notice thereof to
Lender; and, provided, further, that, any such prepayment must be accompanied by
the payment of all then accrued, but unpaid, interest on the principal amount to
be prepaid and a prepayment premium, representing liquidated damages to Lender
for the loss of its bargain and not a penalty, equal in amount to the product of
(A) the principal amount prepaid times (B) the applicable percentage described
in the table below:
The
Applicable
If Prepayment Occurs Percentage
-------------------- Shall Be
-----------
Term Loan A Term Loan B
----------- -----------
After 3rd Anniversary of Closing Date but on 3% 3%
or before 4th Anniversary of Closing Date
After 4th Anniversary of Closing Date but on 2% 2%
or before 6th Anniversary of Closing Date
After 6th Anniversary of Closing Date on or 1% 1%
before 7th Anniversary of Closing Date
After 7th Anniversary of Closing Date but on N/A 1%
or before 9th Anniversary of Closing Date
After 9th Anniversary of Closing Date N/A 0%
9
15
In the event that at any time hereafter, as a result of the occurrence and
continuation of any Event of Default, payment of the Term Notes is accelerated
by Lender in accordance with the provisions hereof or the provisions of any
other Loan Documents, Borrower shall become obligated to pay Lender, in addition
to any and all other sums payable hereunder, as liquidated damages for the loss
of its bargain and not as a penalty, an amount equal to the then applicable
amount of the prepayment premium described above which would have been due and
payable to Lender on the date on which such acceleration occurs as if, on such
date, the Term Notes then outstanding had been voluntarily prepaid in full,
which sum shall be added to the Obligations and be due and payable in full
automatically upon such acceleration occurring.
2.7. NATURE OF CHARGES IMPOSED. Lender and Borrower hereby agree that
(i) the only charges imposed by Lender upon Borrower for the use of money in
connection with the Term Loan Facility are and shall be accrued interest at the
rates per annum expressed in Section 2.3 hereinabove and in each Term Note and
(ii) all other charges imposed by Lender upon Borrowers in connection with the
Term Loan Facility, including, without limitation, the closing fee described in
Section 2.9, and any prepayment premium hereafter paid by Borrower pursuant to
Section 2.6, are and shall be deemed to be charges made to compensate Lender for
underwriting and administrative services and costs, and other services and costs
performed and incurred, and to be performed and incurred, by Lender in
connection with the creation and administration of the Term Loan Facility, and
shall under no circumstances be deemed to be charges for the use of money for
purposes of Illinois law.
2.8. SAVINGS CLAUSE. Notwithstanding the foregoing or any provision
contained in this Agreement, any Term Note or any other Loan Document to the
contrary, if at any time the amount of interest computed with respect to either
Term Note on the basis of the Applicable Rate would exceed the amount of such
interest computed upon the basis of the maximum rate of interest permitted by
applicable state or federal law in effect from time to time hereafter, after
taking into account, to the extent required by applicable law, any and all fees,
payments, charges and calculations provided for in this Agreement or in any
other agreement between Borrower and Lender (the "Maximum Legal Rate"), the
interest payable under this Agreement shall be computed upon the basis of the
Maximum Legal Rate, but any subsequent reduction in the Applicable Rate shall
not reduce such interest thereafter payable hereunder below the amount computed
on the basis of the Maximum Legal Rate until the aggregate amount of such
interest accrued and payable under this Agreement equals the total amount of
interest which would have accrued if such interest had been at all times
computed solely on the basis of the Applicable Rate. No agreements, conditions,
provisions or stipulations contained in this Agreement, any Term Note or any
other Loan Document or default of Borrower, or the exercise by the Lender of the
right to accelerate the payment of the maturity of principal and interest, or to
exercise any option whatsoever contained in this Agreement or any other Loan
Document, or arising of any contingency whatsoever, shall entitle Lender to
collect, in any event, interest exceeding the Maximum Legal Rate and in no event
shall Borrower be obligated to pay interest exceeding such Maximum Legal Rate
and all agreements, conditions or stipulations, if any, which may in any event
or contingency whatsoever operate to bind, obligate or compel Borrower to pay a
rate of interest exceeding the Maximum Legal Rate, shall be without binding
force or effect, at law or in equity, to the extent only of the excess of
interest over such
10
16
Maximum Legal Rate. In the event any interest is charged in excess of the
Maximum Legal Rate ("Excess Interest"), Borrower acknowledges and stipulates
that any such charge shall be the result of an accidental and bona fide error,
and such Excess Interest shall be, first, applied to reduce the principal then
unpaid hereunder; second, applied to reduce any other Obligations, until paid in
full; and third, returned to Borrower, it being the intention of the parties
hereto not to enter at any time into a usurious or otherwise illegal
relationship. Borrower recognizes that, with fluctuations in the Maximum Legal
Rate, such an unintentional result could inadvertently occur. By the execution
of this Agreement, Borrower covenants that (i) the credit or return of any
Excess Interest shall constitute the acceptance by the Borrower of such Excess
Interest, and (ii) the Borrower shall not seek or pursue any other remedy, legal
or equitable, against Lender, based in whole or in part upon the charging or
receiving of any interest in excess of the maximum authorized by applicable law.
For the purpose of determining whether or not any Excess Interest has been
contracted for, charged or received by Lender, all interest at any time
contracted for, charged or received by the Lender in connection with this
Agreement shall be amortized, prorated, allocated and spread in equal parts
during the entire term of this Agreement. The provisions of this Section shall
be deemed to be incorporated into each and every Term Note and other Loan
Document or communication relating to the Obligations which sets forth or
prescribes any account, right or claim or alleged account, right or claim of the
Lender with respect to Borrower (or any other obligor in respect of
Obligations), whether or not any provision of this Section is referred to
therein. All such documents and communications and all figures set forth therein
shall, for the sole purpose of computing the extent of the liabilities and
obligations of Borrower (or any other such obligor) asserted by the Lender
thereunder, be automatically recomputed by Borrower or any other obligor, and by
any court considering the same, to give effect to the adjustments or credits
required by this Section. If the applicable state or federal law is amended in
the future to allow a greater rate of interest to be charged under this
Agreement or any other Loan Documents than is presently allowed by applicable
state or federal law, then the limitation of interest under this Section shall
be increased to the maximum rate of interest allowed by applicable state or
federal law as amended, which increase shall be effective hereunder on the
effective date of such amendment, and all interest charges owing to the Lender
by reason thereof shall be payable upon demand.
2.9. CLOSING FEE. Borrower shall pay to Lender on the Closing Date a
closing fee of One Hundred Twenty Thousand Dollars ($120,000), which shall be
fully earned on the Closing Date, and not subject to rebate or refund once paid
by Borrower.
2.10. GUARANTY. (a) THE GUARANTEE. To induce Lender to make the Term
Loans to Borrower, Guarantors hereby, jointly and severally, guarantee to Lender
and its successors and assigns the prompt payment in full when due (whether at
stated maturity, by acceleration or otherwise) and performance of the
Obligations of Borrower to Lender (such Obligations herein called, collectively,
the "Guaranteed Obligations"), in each case strictly in accordance with the
terms hereof. Guarantors hereby further agree, jointly and severally, that if
Borrower shall fail to pay in full when due (whether at stated maturity, by
acceleration or otherwise) any of the Guaranteed Obligations, Guarantors will
promptly pay the same, upon demand, and that in the case of any extension of
time of payment or renewal of any of the Guaranteed Obligations, the same will
be
11
17
promptly paid in full when due (whether at extended maturity, by acceleration or
otherwise) in accordance with the terms of such extension or renewal.
(b) OBLIGATIONS UNCONDITIONAL. The obligations of each Guarantor
hereunder are absolute, unconditional and irrevocable, joint and several,
irrespective of the value, genuineness, validity, regularity or enforceability
of the obligations of Borrower under this Agreement, the Term Notes or any other
Loan Document or any substitution, release or exchange of any other guarantee of
or security for any of the Guaranteed Obligations, and, to the fullest extent
permitted by applicable law, irrespective of any other circumstance whatsoever
that might otherwise constitute a legal or equitable discharge or defense of a
surety or guarantor, it being the intent of this Section that the obligations of
each Guarantor hereunder shall be absolute, and unconditional and irrevocable
under any and all circumstances. Without limiting the generality of the
foregoing, it is agreed that the occurrence of any one or more of the following
shall not alter or impair the liability of each Guarantor hereunder which shall
remain absolute and unconditional as described above:
(i) at any time or from time to time, without notice to
Guarantors, the time for any performance of or compliance with any of
the Guaranteed Obligations shall be extended, or such performance or
compliance shall be waived;
(ii) any of the acts mentioned in any of the provisions of this
Agreement or the Term Notes or any other agreement or instrument
referred to herein or therein shall be done or omitted;
(iii) the maturity of any of the Guaranteed Obligations shall be
accelerated in accordance with the provisions of this Agreement or any
other Loan Document, or any of the Guaranteed Obligations shall be
modified, supplemented or amended in any respect, or any right under
this Agreement or the Term Notes or any other Loan Document shall be
waived or any other guarantee of any of the Guaranteed Obligations or
any security therefor shall be released or exchanged in whole or in part
or otherwise dealt with; or
(iv) any lien or security interest granted to, or in favor of,
Lender as security for any of the Guaranteed Obligations shall fail to
be created or perfected.
Each Guarantor hereby expressly waives diligence, presentment, demand of
payment, protest and all notices whatsoever, and any requirement that Lender
exhaust any right, power or remedy or proceed against Borrower under this
Agreement or the Term Notes or any other Loan Document, or against any other
Person under any other guaranty of, or security for, any of the Guaranteed
Obligations.
The obligations of each Guarantor hereunder shall not be affected, modified or
impaired by the occurrence of any of the following events, whether or not with
notice to, or the consent of, such Guarantor: (i) the surrender, compromise,
settlement, release or termination of any or all of the Guaranteed Obligations;
(ii) the failure to give notice to such Guarantor of the occurrence of any
breach, default of event or default under the Guaranteed Obligations; (iii) any
failure, omission,
12
18
delay or lack on the part of Lender to enforce, assert or exercise any right,
power or remedy conferred on Lender under the Guaranteed Obligations; (iv) the
voluntary or involuntary liquidation, dissolution, sale or other disposition of
all or substantially all of the assets, marshaling of assets and liabilities,
receivership, insolvency, bankruptcy, assignment for the benefit of creditors,
reorganization, arrangement, composition with creditor or adjustment of debts,
or other similar proceedings affecting the Borrower or either Guarantor or any
of the assets of any of them; (v) the release or discharge by operation of law
of the Borrower from the payment, performance, satisfaction or discharge of any
or all of the Guaranteed Obligations; (vi) the release or discharge by operation
of law of either Guarantor from any or all of the obligations of either
Guarantor hereunder; or (vii) the invalidity or unenforceability of any or all
of the Guaranteed Obligations; or (viii) the release by Lender of the other
Guarantor from its obligations hereunder.
The obligations of each Guarantor hereunder are independent of the Guaranteed
Obligations. Each Guarantor agrees that Lender shall have the right to proceed
against such Guarantor directly and independently of the Borrower and the other
Guarantor. A separate action may be brought and prosecuted against each
Guarantor whether or not an action is brought against the Borrower or the other
Guarantor or the Borrower or the other Guarantor is joined in any such action.
Each Guarantor authorizes Lender and the Borrower, without notice to, demand of,
or consent from such Guarantor and without releasing or affecting such
Guarantor's liability hereunder, from time to time to amend, modify, renew,
extend, supplement or replace the Guaranteed Obligations or otherwise change the
terms of the Guaranteed Obligations, to take and hold collateral or security for
the Guaranteed Obligations, and to enforce, waive, surrender, impair, compromise
or release any such collateral or security or any or all of the Guaranteed
Obligations or any person or entity liable for any or all of the Guaranteed
Obligations. Each Guarantor shall be and remain bound hereunder notwithstanding
any such act or omission by the Borrower or Lender.
Each Guarantor waives all rights under section 2845 of the California Civil Code
and waives the right, if any, to require Lender to proceed against the Borrower,
to proceed against or exhaust any collateral or security held by Lender, or to
pursue any other remedy in Lender's power. Lender shall have the right to
exercise or enforce any right or remedy it may have against the Borrower or any
collateral or security held by Lender. Each Guarantor waives all rights under
section 2849 of the California Civil Code and waives the right, if any, to the
benefit of, or to direct the application of, any collateral or security held by
Lender. Each Guarantor waives any defense arising from any impairment of any
Collateral or security for any or all of the Guaranteed Obligations. Each
Guarantor waives (i) any defense arising out of any alteration of the original
Guaranteed Obligations, (ii) any defense arising out of the absence, impairment
or loss of any right of reimbursement or subrogation or other right or remedy of
such Guarantor against the Borrower or any collateral or security held by
Lender, and (iii) any defense arising by reason of any disability or other
defense of the Borrower or by reason of the cessation or reduction from any
cause whatsoever of the liability of the Borrower other than full payment,
performance, satisfaction and discharge of the Guaranteed Obligations. The
cessation or reduction of the liability of the Borrower for any reason
whatsoever (including, without limitation, section 580d of the California Code
of Civil Procedure) other than full payment, performance, satisfaction and
discharge of the Guaranteed
13
19
Obligations shall not release or affect in any way the liability of either
Guarantor under this Guaranty.
EACH GUARANTOR HEREBY SPECIFICALLY AGREES THAT SUCH GUARANTOR SHALL NOT BE
RELEASED FROM LIABILITY HEREUNDER BY ANY ACTION TAKEN OR OMITTED TO BE TAKEN BY
LENDER, BORROWER OR ANY OF THEIR RESPECTIVE AFFILIATES, EMPLOYEES, AGENTS OR
REPRESENTATIVES, INCLUDING WITHOUT LIMITATION, A NON-JUDICIAL SALE OF COLLATERAL
UNDER ANY SECURITY AGREEMENT, MORTGAGE OR DEED OF TRUST THAT WOULD AFFORD A
BORROWER OR A GUARANTOR A DEFENSE BASED UPON THE LAWS (INCLUDING THE
ANTI-DEFICIENCY LAWS) OF ANY STATE. EACH GUARANTOR EXPRESSLY WAIVES (i) ANY
DEFENSE TO THE RECOVERY OF A DEFICIENCY AGAINST BORROWER OR A GUARANTOR
HEREUNDER AFTER SUCH NON-JUDICIAL SALE, NOTWITHSTANDING THAT SUCH SALE MAY
RESULT IN A LOSS BY A GUARANTOR OF THE RIGHT TO RECOVER FROM THE BORROWER OF ANY
SUCH DEFICIENCY, (ii) ANY DEFENSE OR BENEFITS THAT MAY BE DERIVED FROM
CALIFORNIA CODE OF CIVIL PROCEDURE SECTIONS 580(A), 580(D) OR 726, OR SIMILAR
LAWS OF OTHER JURISDICTIONS, AND (iii) ALL SURETYSHIP DEFENSES THAT IT WOULD
OTHERWISE HAVE UNDER THE LAWS OF ANY JURISDICTION. WITHOUT LIMITING THE
FOREGOING, EACH GUARANTOR UNDERSTANDS THAT IN THE ABSENCE OF THE WAIVERS MADE
HEREIN, INCLUDING THOSE MADE IN THIS PARAGRAPH, SUCH GUARANTOR MIGHT HAVE A
DEFENSE AGAINST AN ACTION BY LENDER TO RECOVER A DEFICIENCY FROM SUCH GUARANTOR
HEREUNDER FOLLOWING A NON-JUDICIAL FORECLOSURE SALE OF REAL PROPERTY OR OTHER
COLLATERAL SECURING THE LOAN, AND EACH GUARANTOR IS SPECIFICALLY WAIVING THESE
DEFENSES AND ALL OTHER DEFENSES. EACH GUARANTOR EXPRESSLY AGREES THAT SUCH
GUARANTOR SHALL BE AND REMAIN LIABLE FOR ANY DEFICIENCY REMAINING AFTER
FORECLOSURE OF ANY MORTGAGE OR SECURITY INTEREST SECURING ANY OF THE
OBLIGATIONS, WHETHER OR NOT THE LIABILITY OF BORROWER WITH RESPECT TO ANY OF THE
OBLIGATIONS FOR SUCH DEFICIENCY IS DISCHARGED PURSUANT TO STATUTE OR JUDICIAL
DECISION.
(c) REINSTATEMENT. The obligations of each Guarantor hereunder
shall be automatically reinstated if and to the extent that for any reason any
payment by or on behalf of Borrower in respect of the Guaranteed Obligations is
rescinded or must be otherwise restored by any holder of any of the Guaranteed
Obligations, whether as a result of any proceedings in bankruptcy or
reorganization or otherwise and Guarantors, jointly and severally, agree that
they will indemnify Lender on demand for all reasonable costs and expenses
(including, without limitation, fees of counsel) incurred by Lender in
connection with such rescission or restoration, including any such costs and
expenses incurred in defending against any claim alleging that such payment
constituted a preference, fraudulent transfer or similar payment under any
bankruptcy, insolvency or similar law.
(d) SUBROGATION. Each Guarantor hereby subordinates to the
indefeasible payment in full of the Obligations all rights of subrogation or
contribution against Borrower, whether arising by contract or operation of law
(including, without limitation, any such right arising under the Bankruptcy
Code) or otherwise by reason of any payment by it pursuant to the provisions
hereof and agrees that, unless and until the Obligations are indefeasibly paid
in full, it will not exercise any such right.
14
20
(e) REMEDIES. Each Guarantor agrees that, as between Guarantor
and Lender, the Guaranteed Obligations may be declared to be forthwith due and
payable as provided herein (and shall be deemed to have become automatically due
and payable in the circumstances provided herein) for purposes hereof,
notwithstanding any stay, injunction or other prohibition preventing such
declaration (or such obligations from becoming automatically due and payable) as
against Borrower and that, in the event of such declaration (whether or not due
and payable by the Borrower) shall forthwith become due and payable by
Guarantors for purposes hereof.
(f) INSTRUMENT FOR THE PAYMENT OF MONEY. Each Guarantor hereby
acknowledges that its guaranty herein constitutes an instrument for the payment
of money.
(g) CONTINUING GUARANTY. The guaranty set forth herein is a
continuing guaranty, and shall apply to all Guaranteed Obligations, whenever and
howsoever arising.
(h) ACKNOWLEDGMENTS. Each Guarantor assumes the responsibility
for being and keeping itself informed of the financial condition of the Borrower
and of all other circumstances bearing upon the risk of failure to pay, perform,
satisfy or discharge any of the Guaranteed Obligations that diligent inquiry
would reveal, and each Guarantor agrees that Lender has no duty to advise such
Guarantor of information known to Lender regarding such condition or any such
circumstance. Each Guarantor acknowledges that repeated and successive demands
may be made and payments or performances required hereunder in response to such
demands as and when, from time to time, the Borrower defaults in the payment
performance, satisfaction or discharge of the Guaranteed Obligations.
Notwithstanding any such payments and performances hereunder, each Guarantor's
obligations hereunder shall remain in full force and effect and shall apply to
any and all subsequent defaults by the Borrower. It is not necessary for Lender
to inquire into the capacity, authority or powers of the Borrower or the
partners, directors, officers, employees, agents or representatives acting or
purporting to act on behalf of the Borrower, and all of the Guaranteed
Obligations made or created in reliance upon the purported exercise of such
powers shall be guaranteed hereunder.
(i) REPRESENTATIONS. Each Guarantor represents and warrants to
Lender as of the date hereof as follows: such Guarantor has received reasonably
equivalent value in exchange for the execution, delivery and performance of this
guaranty. Each Guarantor is solvent and will not become insolvent as a result of
the execution, delivery or performance of this guaranty.
(j) RIGHTS OF CONTRIBUTION. Guarantors hereby agree, as between
themselves, that if any Guarantor shall become an "Excess Funding Guarantor" (as
defined below) by reason of the payment by such Guarantor of any Guaranteed
Obligations, the other Guarantor shall, on demand of such Excess Funding
Guarantor (but subject to the next sentence), pay to such Excess Funding
Guarantor an amount equal to such Guarantor's "Pro Rata Share" (as defined below
and determined, for this purpose, without reference to the properties, debts and
liabilities of such Excess Funding Guarantor) of the "Excess Payment" (as
defined below) in respect of such Guaranteed Obligations. The payment obligation
of a Guarantor to any Excess Funding Guarantor under this Section shall be
subordinate and subject in right of payment to the prior payment in full of the
obligations of such
15
21
Guarantor under the other provisions of this Section 2.10 and such Excess
Funding Guarantor shall not exercise any right or remedy with respect to such
excess until payment and satisfaction in full of all such obligations. For
purposes hereof, (i) "Excess Funding Guarantor" means, in respect of any
Guaranteed Obligations, a Guarantor that has paid an amount in excess of its Pro
Rata Share of such Guaranteed Obligations, (ii) "Excess Payment" means, in
respect of any Guaranteed Obligations, the amount paid by an Excess Funding
Guarantor in excess of its Pro Rata Share of such Guaranteed Obligations, (iii)
"Pro Rata Share" means, for any Guarantor, the ratio (expressed as a percentage)
of (x) the amount by which the aggregate present fair saleable value of all
assets of such Guarantor (excluding any shares of stock of any other Guarantor)
exceeds the amount of all the debts and liabilities of such Guarantor (including
contingent, subordinated, unmatured and unliquidated liabilities, but excluding
the obligations of such Guarantor hereunder and any obligations of any other
Guarantor that have been guaranteed by such Guarantor) to (y) the amount by
which the aggregate fair saleable value of all assets of all of the Guarantors
exceeds the amount of all the debts and liabilities (including contingent,
subordinated, unmatured and unliquidated liabilities, but excluding the
obligations of such Guarantor hereunder) of the Guarantors, determined as of the
Closing Date.
(k) GENERAL LIMITATION ON GUARANTEED OBLIGATIONS. In any action
or proceeding involving any state corporate law, or any state or Federal
bankruptcy, insolvency, reorganization or other law affecting the rights of
creditors generally, if the obligations of a Guarantor hereunder, after giving
effect to the contribution rights provided in Section 2.10(j), would otherwise
be held or determined to be void, invalid or unenforceable, or subordinated to
the claims of any other creditors, on account of the amount of its liability
hereunder, then, notwithstanding any other provision hereof to the contrary, the
amount of such liability shall, without any further action by any Guarantor, any
Lender or any other Person, be automatically limited and reduced to the highest
amount that is valid and enforceable and not subordinated to the claims of other
creditors as determined in such action or proceeding.
30 SECURITY INTEREST -- COLLATERAL. As security for the payment of the
Term Notes and all other Obligations, Borrower and each Guarantor hereby grant
to Lender a first priority, continuing, general lien upon, security interest in,
and security title to the Equipment Collateral owned by Borrower or such
Guarantor, together with any and all products and proceeds of the foregoing,
including, without limitation, insurance proceeds. The foregoing shall be in
addition to, and be cumulative with, the Real Estate Collateral obtained by
Lender pursuant to the Mortgage.
3.1. REPRESENTATIONS AND WARRANTIES. With respect to the Collateral,
Borrower and each Guarantor hereby represents, warrants and covenants to Lender
as follows:
(a) GOOD TITLE; NO EXISTING ENCUMBRANCES. Borrower or a Guarantor
owns the Collateral free and clear of any prior security interest, lien or
encumbrance thereon other than liens in favor of Lender and those liens listed
on Exhibit A attached hereto and incorporated herein by reference (collectively,
"Permitted Encumbrances"), and no financing statements, registration statements,
certificates of title or other evidences of the grant of a security interest
respecting the
16
22
Collateral exist on any public records as of the date hereof, other than any in
favor of Lender and those evidencing Permitted Encumbrances.
(b) RIGHT TO GRANT SECURITY INTEREST; NO FURTHER ENCUMBRANCES.
Borrower and each Guarantor has the right to grant the security interest in the
Collateral prescribed hereinabove in this Article 3; Borrower or a Guarantor
will pay all sales, use, franchise and other taxes and other charges against the
Collateral; neither Borrower nor either Guarantor will use the Collateral
illegally or allow the Collateral to be encumbered except for the security
interest in favor of Lender granted herein and except for any Permitted
Encumbrances (as described in Section 3.1(a)).
(c) CONDITION OF COLLATERAL; CASUALTY. All Equipment Collateral
is in good working order and repair as of the Closing Date. Borrower and each
Guarantor will maintain the Equipment Collateral in good working order and
repair subsequent to the Closing Date, ordinary wear and tear excepted, and
subject to Borrower's right to replace Equipment Collateral as provided in
Section 3.1(d) hereof. Borrower and each Guarantor further will take such
actions subsequent to the Closing Date as may be necessary to keep any
manufacturer's warranty in effect with respect to the Equipment Collateral.
Borrower and each Guarantor further will promptly report to Lender any material
loss, damage, theft or other casualty to any Equipment Collateral, and whether
Borrower or Guarantor has repaired (or caused to be repaired) or replaced, or
intends to repair (or cause to be repaired) or replace, such Equipment
Collateral.
(d) NO SALE OF COLLATERAL. Neither Borrower nor either Guarantor
will sell, assign, lease, license, exchange, mortgage, encumber, hypothecate,
grant a security interest in, or otherwise dispose of its right, title or
interest in any of the Collateral, without in each case first obtaining the
prior written consent of Lender thereto; provided, however, that (i) Borrower
may obtain purchase money financing of equipment purchases secured by liens on
such equipment to the extent permitted pursuant to Section 3.2, (ii) Borrower
may replace Collateral consisting of obsolete or worn out equipment and
machinery in the ordinary course of its business and consistent with past
practice so long as (x) the replacement Collateral has a value equal to or
greater than that of the Collateral being replaced, and (y) Lender has a
perfected first priority security interest in the replacement Collateral,
subject to no other security interests, liens or encumbrances and (iii) so long
as no Default Condition or Event of Default has occurred and is continuing,
Borrower may dispose of obsolete or worn out equipment and machinery in the
ordinary course of its business and consistent with past practice without
replacing same so long as the aggregate value of equipment so disposed of in any
calendar year does not exceed Twenty-Five Thousand Dollars ($25,000).
(e) WAIVERS. Borrower and Guarantors agree to obtain, on Lender's
behalf, such waivers or consents from third parties, including, without
limitation, any lessor, licensor, operator, servicer or vendor, as Lender may
reasonably request at any time, in order to assure Lender in regard to the
perfection and priority of its security interest in, and ability to realize on,
any Collateral.
(f) FURTHER ASSURANCES. Borrower and each Guarantor further shall
duly execute and/or deliver (or cause to be duly executed and/or delivered) to
Lender any instrument, invoice, registration certificate, certificate of title,
application, document, document of title, dock warrant,
17
23
dock receipt, warehouse receipt, bill of lading, order, financing statement,
assignment, waiver, consent or other writing which may be necessary to Lender to
carry out the terms of this Agreement and any of the other Loan Documents and to
perfect its security interest in and facilitate its realization on the
Collateral. Borrower and each Guarantor shall perform or cause to be performed
such acts as Lender may reasonably request to establish and maintain for Lender
a valid and perfected first priority security interest in the Collateral, free
and clear of any liens, encumbrances or security interests other than in favor
of Lender and other than Permitted Encumbrances.
(g) RIGHT TO INSPECT. Lender or any Participant shall have the
right to call at the Headquarters or the Distribution Center at any reasonable
time, and, without hindrance or delay, inspect, audit and check the Collateral
and make extracts from each Guarantor's and Borrower's books, records, journals,
orders, receipts and any correspondence and other data relating to the
transactions contemplated herein and to the Collateral. As long as no Default
Condition or Event of Default has occurred and is continuing, Lender shall give
Borrower three (3) days advance notice of any such visit. No notice of any such
visit shall be required at any time when a Default Condition or Event of Default
has occurred and is continuing.
(h) CHANGE OF NAME. Borrower and each Guarantor hereby
acknowledges and agrees that if, at any time hereafter, Borrower or either
Guarantor elects to move its chief executive office and principal place of
business from the Headquarters, or elects to change its name, identity or its
organization structure, Borrower or such Guarantor will notify Lender in writing
at least thirty (30) days prior thereto (provided that the foregoing shall not
be deemed a consent to any action otherwise prohibited by the terms of this
Agreement or any of the other Loan Documents) and execute (or cause to be
executed) such financing statements, or amendments thereto, or other documents
as Lender then may require in response to such changed condition in accordance
with Sections 3.1(e) and 3.1(f).
(i) CHANGE OF LOCATION. Borrower and each Guarantor further agree
not to remove any Collateral from the Distribution Center to any other location.
3.2. PURCHASE MONEY LIENS; RELEASE PROVISION. Notwithstanding anything
contained herein to the contrary, Borrower may permit purchase money liens to be
placed on items of equipment acquired by it after the Closing Date if and to the
extent that (i) at the time of the incurrence of any indebtedness to be secured
by such lien, no Default Condition or Event of Default shall have occurred and
be continuing, (ii) the aggregate amount of such purchase money indebtedness
incurred during the term of this Agreement, together with the cost of all items
of equipment purchased by Borrower with cash as to which Borrower has requested
releases pursuant to the next sentence hereof, shall not exceed $500,000, and
(iii) each item of equipment shall secure only the indebtedness incurred to
purchase such item, shall be readily distinguishable (by using serial numbers
and other identification) from the other Equipment Collateral and shall not
serve as a replacement for any item of Equipment Collateral existing on the
Closing Date or acquired thereafter. Upon Borrower's written request, (i) Lender
shall release its security interest in any item of equipment financed with
purchase money financing as to which all of the conditions set forth in the
preceding sentence have been satisfied and (ii) Lender shall release its
security interest in any
18
24
item of equipment purchased by Borrower after the Closing Date with cash if and
to the extent that (A) no Default Condition or Event of Default shall have
occurred and be continuing, (B) the aggregate amount of all purchase money
indebtedness as described in the preceding sentence and the cost of equipment
purchased by Borrower with cash and requested to be released hereby during the
term of this Agreement shall not exceed Five Hundred Thousand Dollars
($500,000), and (iii) each item of equipment requested to be released hereby
shall be readily distinguishable (by using serial numbers and other
identification) and shall not serve as a replacement for any item of Equipment
Collateral existing on the Closing Date or acquired thereafter.
40 GENERAL REPRESENTATIONS AND WARRANTIES. In order to induce Lender to
enter into this Agreement, each Guarantor and Borrower hereby represents and
warrants to Lender as set forth in Sections 4.1 through 4.6, inclusive.
4.1. EXISTENCE. Borrower is a general partnership duly organized,
validly existing and in good standing under the laws of the State of California.
Guarantor One is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and is qualified to do business
and in good standing under the laws of the State of California. Guarantor Two is
a corporation duly organized, validly existing and in good standing under the
laws of the State of California. The principal place of business and chief
executive office of each Guarantor and Borrower is located at the Headquarters.
Borrower and Guarantors keep their books and records concerning the Collateral
at the Headquarters. Borrower has no Subsidiaries. Guarantor One has only those
Subsidiaries listed on Exhibit B attached hereto and incorporated herein by
reference. Guarantor Two has no Subsidiaries.
4.2. AUTHORITY. Each Guarantor and Borrower has the power to make,
deliver and perform under this Agreement, the Term Notes and the other Loan
Documents to which it is party, and, in the case of Borrower, to borrow
hereunder, and has taken all necessary and appropriate legal action to authorize
the execution, delivery and performance of all such Loan Documents. This
Agreement constitutes, and the Term Notes and the remainder of the Loan
Documents to which each is party, when executed and delivered by a Guarantor or
Borrower for value received, will constitute, the valid obligations of such
Guarantor and Borrower, legally binding upon each of them and enforceable
against each of them in accordance with their respective terms, to the extent
that each is party thereto. The Persons whose names are inscribed below are
Authorized Officers of Guarantors and Borrower duly authorized and empowered to
execute, attest and deliver this Agreement, the Term Notes and the remainder of
the Loan Documents to which each is party, for and on behalf of Guarantors and
Borrower, and to bind Guarantors and Borrower accordingly thereby.
4.3. NO MATERIAL LITIGATION. Except as set forth on Exhibit C attached
hereto and incorporated herein by reference, there are no proceedings pending
or, so far as either Guarantor or Borrower knows, threatened, against either
Guarantor or Borrower, before any court, arbitration panel or administrative
agency, no material disputes with any contract party and no pending or
threatened labor action which, in each case, if decided adversely to either
Guarantor or Borrower, would have a Material Adverse Effect.
19
25
4.4. PAYMENT OF TAXES. Each Guarantor and Borrower has filed or caused
to be filed any federal income tax returns required to be filed by it, and all
other tax returns required to be filed by it, and has paid all taxes shown to be
due and payable by it on said returns or on any assessments made against it.
Neither of Guarantors nor Borrower has participated in any "prohibited
transaction" (as defined in Section 4975 of the Internal Revenue Code of 1986)
that could subject either Guarantor or Borrower to any tax or penalty.
4.5. NO VIOLATIONS, GENERALLY. The execution, delivery and performance
by each Guarantor and Borrower of this Agreement, the Term Notes and the other
Loan Documents to which each is party do not and will not require any consent or
approval of any Person, except to the extent obtained by a Guarantor or Borrower
on or prior to the Closing Date; or violate either Guarantor's certificate of
incorporation or bylaws or Borrower's partnership agreement or any provision of
any law, rule, regulation, order, writ, judgment, injunction, decree,
determination or award presently in effect having applicability to either
Guarantor or Borrower; or result in a breach of or constitute a default under
any agreement that is material to either Guarantor's or Borrower's business;
and, to the best of each Guarantor's and Borrower's knowledge following diligent
inquiry, neither of Guarantors nor Borrower is in default under any such law,
rule, regulation, order, writ, judgment, injunction, decree, determination or
award or material agreement.
4.6. POLLUTION AND ENVIRONMENTAL CONTROL.
(a) To the best knowledge of Guarantors and Borrower after due inquiry,
the business operations of each Guarantor and Borrower comply in all material
respects with all applicable Environmental Laws; each Guarantor and Borrower has
obtained all environmental, health and safety Permits necessary for the
operation of such Guarantor's and Borrower's businesses; and all such permits
are valid, and in good standing and Guarantors and Borrower are in compliance in
all material respects with all terms and conditions of such Permits.
(b) Further, to the best knowledge of Guarantors and Borrower after due
inquiry, (i) neither of Guarantors nor Borrower is subject to any outstanding
written order or agreement with any Governmental Authority or with any private
Person with respect to (A) any Environmental Laws, (B) any Remedial Actions, or
(C) any Environmental Claims arising from the Release of a Contaminant into the
environment with respect to the Distribution Center; (iii) none of the
operations of either Guarantor or Borrower at the Distribution Center is subject
to any judicial or administration proceeding alleging a violation of any
Environmental Law; (iv) none of the operations of either Guarantor or Borrower
is the subject of any federal or state investigation evaluating whether any
Remedial Action is needed to respond to a Release of any Contaminant into the
environment under any applicable law; (v) neither of Guarantors or Borrower nor
any predecessor of either Guarantor or Borrower has filed any notice under any
federal or state law indicating past or present treatment, storage, or disposal
of a hazardous waste or reporting a spill or Release of a Contaminant into the
environment under any applicable law; (vi) neither of Guarantors nor Borrower
has any contingent liability in connection with any Release of any Contaminant
into the environment; (vii) neither of Guarantors' nor Borrower's business
operations involve the generation, transportation, treatment or disposal of any
hazardous waste, as defined under 40 C.F.R.
20
26
Parts 260-270 or any state equivalent (other than any done in compliance with
all Environmental Laws); (viii) neither of Guarantors nor Borrower has disposed
of any Contaminant by placing it in or on the ground, groundwater or surface
water, and, with regard to the Distribution Center, neither has any lessee,
prior owner, or other Person; and (ix) no Lien in favor of any Governmental
Authority for (A) any liability under Environmental Laws or regulations, or (B)
damages arising from or costs incurred by such governmental authority in
response to a Release of a Contaminant into the environment has been filed or
attached to any Property.
50 COVENANTS. Guarantors and Borrower agree that, so long as any
Obligations are outstanding and this Agreement has not been terminated in
writing by Lender, each Guarantor and Borrower will comply with the following
covenants:
5.1. BOOKS AND RECORDS. Guarantors and Borrower shall maintain, at all
times, true and complete books, records and accounts in which true and correct
entries are made of their transactions in accordance with GAAP.
5.2. PERIODIC FINANCIAL STATEMENTS. Guarantors and Borrower shall, as
soon as practicable, and in any event within sixty (60) days after the end of
each fiscal quarter, furnish (or cause to be furnished) to Lender and each
Participant unaudited financial statements of Guarantor One and its consolidated
Subsidiaries, including, in each instance, balance sheets, income statements and
cash flow statements, on a consolidated and consolidating basis, as of and for
the quarterly period then ended and for their fiscal year to date, prepared in
accordance with GAAP, certified as to truth and accuracy by Authorized Officers
of Guarantor One and Borrower, together with a copy of Guarantor One's 10-Q
quarterly report filed with the Securities and Exchange Commission incorporating
such financial statements.
5.3. ANNUAL FINANCIAL STATEMENTS. Guarantors and Borrower shall, as soon
as practicable, and in any event within ninety (90) days after the end of each
fiscal year, furnish (or cause to be furnished) to Lender and each Participant
annual financial statements of Guarantor One and its consolidated Subsidiaries,
including, in each instance, balance sheets, income statements and cash flow
statements for the fiscal year then ended, on a consolidated and consolidating
basis, which have been audited by Guarantor One's Independent Accountants,
together with a copy of Guarantor One's 10-K annual report filed with the
Securities and Exchange Commission incorporating such financial statements.
5.4. COMPLIANCE CERTIFICATES. Together with each of the financial
statements described in Sections 5.2 and 5.3 above, and more frequently, if
requested by Lender, Guarantors and Borrower shall deliver a Compliance
Certificate and a covenant compliance worksheet to Lender, including
calculations of the financial tests set forth in Section 6.14, each signed by
Authorized Officers of Guarantors and Borrower.
5.5. PAYMENT OF TAXES. Each Guarantor and Borrower shall pay and
discharge all taxes, assessments and governmental charges pertaining to
Collateral, and the Distribution Center and all other material taxes,
assessments and governmental charges upon each of them, their respective
21
27
income and properties prior to the date on which penalties attach thereto,
unless and to the extent only that (i) such taxes, assessments and governmental
charges are being contested in good faith and by appropriate proceedings by
Borrower and (ii) the applicable Guarantor or Borrower maintains reasonable
reserves on its books therefor.
5.6. MAINTENANCE OF INSURANCE. Guarantors and Borrower shall insure the
Collateral against fire, theft and such other risks (including, but not limited
to boiler and machinery) as Lender shall require from time to time at the full
replacement cost thereof, and maintain at least six (6) months of business
interruption or loss of rental income insurance, with Lender shown by
endorsement and named on a certificate of insurance as loss payee, additional
insured and mortgagee thereof, with responsible insurance companies rated "A-"
or better by A.M. Best Company. As to other Properties and risks, including,
without limitation, liability coverage, Guarantors and Borrower shall maintain
such insurance, with such insurers (having the minimum qualifications described
above) on such Properties, in such amounts and against such risks as is
customarily maintained by similar businesses operating in the same vicinity;
provided that such insurance shall not be less, in terms of insurers, amounts,
coverages or limitations, than the insurance being maintained by Guarantors and
Borrower on the Closing Date; and, provided, further, that such insurance shall
include, in any event, at all times, comprehensive general liability (inclusive
of products liability coverage), in aggregate combined single limit coverage
acceptable to Lender; and, provided, further, that Lender shall be shown by
endorsement and named on a certificate of insurance as "additional insured"
thereon and with breach of warranty endorsement favoring Lender. All such
insurance in existence on the Closing Date shall not be cancellable or
modifiable by Guarantors or Borrower, thereafter, unless with the prior written
consent of Lender, or by Guarantors' or Borrower's insurer, unless with at least
thirty (30) days advance written notice to Lender thereof (except as may be
necessary to bring such insurance into compliance herewith from time to time).
Guarantors and Borrower shall file with Lender on the Closing Date and at least
annually thereafter or, at Lender's request at any time from and after the
occurrence of, and during the continuance of, any Event of Default, upon its
request, an insurer's certificate evidencing Guarantors' and Borrower's
compliance with the requirements of this Section 5.6. All casualty insurance
proceeds paid with respect to the Collateral shall, after deduction of
reasonable expenses of Lender actually incurred in collecting such proceeds (if
any), at Lender's option be (i) applied (upon compliance with such terms and
conditions as may be required by Lender) to repair or restoration, either partly
or entirely, of the Collateral or (ii) applied to the payment of the Obligations
in such order and manner as Lender may elect, whether or not due. In the event
that, notwithstanding the foregoing, Borrower or either Guarantor receives any
such insurance proceeds directly or that a check for such proceeds is made
payable to Borrower or a Guarantor and Lender jointly, Borrower or such
Guarantor shall take all actions necessary to convey such proceeds to Lender. In
the event that pursuant hereto such proceeds are to be used for repair or
restoration of the Collateral, at its option, Lender will either release such
proceeds directly to Borrower or use such proceeds to pay directly invoices for
repair or restoration work, in each case upon compliance with such terms and
conditions as it may require.
5.7. PRESERVATION OF EXISTENCE. Each Guarantor and Borrower shall
preserve and maintain its existence, rights, franchises and privileges, in each
local jurisdiction in which the Distribution Center exists and in each other
jurisdiction where the nature of the business conducted therein or the
22
28
location of any Property therein requires that such rights, franchises and
privileges be preserved and maintained; and obtain and maintain for itself all
Permits, licenses, certificates of convenience and necessity, operating rights,
authorizations and consents as shall be necessary or advisable to permit it to
continue to operate its business in the manner contemplated to be conducted by
it on the Closing Date.
5.8. COMPLIANCE WITH LAWS. Each Guarantor and Borrower shall comply with
the requirements of all applicable laws, rules, regulations, permits, hearings,
approvals and clearances and orders of any Governmental Authority, including
particularly, but without limitation, in respect of Environmental Laws.
5.9. ENVIRONMENTAL LAW COMPLIANCE.
(a) On or before the Closing Date, Borrower will provide Lender
with the environmental assessment described in Section 9(g)(7) below together
with copies of any environmental assessments or similar reports made by or on
behalf of Borrower with respect to any of the Real Estate Collateral within the
preceding five (5) years (if any); and, subsequent to the Closing Date, Borrower
will provide Lender with copies of any such assessments or reports thereafter
made by or on behalf of Borrower with respect to any location where Collateral
is located, promptly as and when made or received by Borrower, but not later
than thirty (30) days thereafter.
(b) Each Guarantor and Borrower will notify Lender in writing of
any Environmental Claim as to which a Guarantor or Borrower is reasonably likely
to have liability in excess of Fifty Thousand Dollars ($50,000) or any
accusation or allegations which may give rise to such an Environmental Claim
hereafter made against it or received by it within fifteen (15) days after it
first obtains knowledge or notice thereof. Each such notice to Lender shall
include a copy of any claim, citation, order, notice or other communication (to
the extent in writing) received by a Guarantor or Borrower from the person
making such Environmental Claim, allegation or accusation, a description of the
nature of such Environmental Claim, allegation or accusation, the name of the
Person making such Environmental Claim, allegation or accusation; such
Guarantor's or Borrower's anticipated defense to such Environmental Claim,
allegation or accusation or the action such Guarantor or Borrower proposes to
take in respect of such Environmental Claim, allegation or accusation and the
anticipated costs to be incurred by such Guarantor or Borrower in connection
with such Environmental Claim, allegation or accusation (including, with
limitation, that amount of any anticipated damages, the costs of defending such
Environmental Claims and the costs of any cleanup or corrective action).
(c) In addition, each Guarantor and Borrower will promptly notify
Lender of any Release with regard to any Property if such Release would or would
reasonably be expected to have a Material Adverse Effect or of material change
in the nature or extent of any Contaminants used, transported or stored by
either Guarantor or Borrower or any Subsidiary, and allow no material change in
the use thereof or either Guarantor's or Borrower's or any Subsidiary's
operations that would increase in any material amount the risk of violation of
the Environmental Laws without the express prior written approval of Lender.
23
29
(d) Guarantors and Borrower, jointly and severally, further agree
to indemnify and hold Lender, each Participant and the officers, directors,
agents, employees, affiliates and representatives of Lender and each Participant
(individually an "Indemnified Party" and collectively the "Indemnified Parties")
harmless from and against any and all damages, penalties, fines, claims, liens,
suits, liabilities, costs (including necessary and actual clean-up and response
costs), judgments, and expenses (including reasonable attorneys' fees and any
consultants' or other experts' fees and expenses) of every kind and nature
suffered by or asserted against any Indemnified Party (i) under or on account of
the Environmental Laws, including, without limitation, as a result of the past,
present or future institution of any suits, claims, actions, or proceedings by
any person against Borrower, either Guarantor or Lender in respect of any
alleged violation of the Environmental Laws by Borrower, either Guarantor or
Borrower's or either Guarantor's use, storage or disposition of Contaminants,
(ii) with respect to any past, present or future Release of Contaminants
affecting any Property, whether or not the same originates or emanates from any
Property or any contiguous real estate, (iii) with respect to any other past,
present, or future matters affecting any Property within the jurisdiction of any
Governmental Authority administering the Environmental Laws or (iv) with respect
to any past, present or future requirement under the Environmental Laws which
requires the elimination or removal of any Contaminants or other substances
regulated pursuant to any Environmental Laws, rules, or regulations of any
Governmental Authority having jurisdiction over Borrower or either Guarantor,
whether attributable to events occurring before or after the Closing Date. Any
payments required to be made hereunder shall be due and payable on demand.
(e) The agreements contained in this Section shall survive the
termination of this Agreement and shall continue in full force and effect for so
long as the prospect of any loss or liability covered by the indemnity contained
in such clause (d) above exists.
5.10. NOTICE OF LITIGATION; EVENTS OF DEFAULT, ETC. Promptly, after
receipt of notice or knowledge thereof, but not later than ten (10) days
thereafter, each Guarantor and Borrower will report to Lender: (i) any lawsuit
or administrative proceeding or arbitration proceeding in which Borrower or
either Guarantor is a defendant wherein the amount of damages claimed against
Borrower or either Guarantor exceeds One Hundred Thousand Dollars ($100,000) or
in which the validity of this Agreement or any Loan Document or any action taken
or to be taken pursuant hereto or thereto is questioned; (ii) any strike,
walkout, lockout or other related legal action, whether pending or threatened
pertaining to Borrower or either Guarantor which could have a Material Adverse
Effect; (iii) the existence and nature of any Default Condition or Event of
Default; and (iv) any Environmental Claim or an accusation or allegation which
may give rise to an Environmental Claim hereafter made against Borrower or
either Guarantor, or received by Borrower or either Guarantor or of which it
obtains knowledge, whether or not made against it, which either (A) relates to
the Distribution Center or (B) could reasonably be expected to result in
liability to Borrower or a Guarantor in excess of One Hundred Thousand Dollars
($100,000).
5.11. YEAR 2000 COMPLIANCE. Each Guarantor and Borrower shall take all
actions necessary or advisable to assure that its business operations will
handle date information involving any and all dates before, during and after
January 1, 2000, including, accepting and storing input,
24
30
providing output and performing date calculations, without any change in
performance or realiability from that existing on the Closing Date for dates
shorter than January 1, 2000.
5.12. INTERCOMPANY LEASE. Guarantor Two and Borrower shall keep the
Intercompany Lease in effect at all times until the Obligations have been paid
in full and shall not, amend or modify in any material respect, or terminate, or
acquiesce in any amendment or modification in a material respect, or termination
of, the Intercompany Lease without Lender's prior written consent.
6. EVENTS OF DEFAULT. The occurrence of any events or conditions shall
constitute an Event of Default hereunder, provided that any requirement for the
giving of notice or the lapse of time, or both, has been satisfied.
6.1. TERM NOTES. Borrower or a Guarantor shall fail to make any payments
of principal of, or interest on, either Term Note, within ten (10) calendar days
after the same shall become due and payable.
6.2. OTHER OBLIGATIONS. Borrower or a Guarantor shall fail to pay any
Obligations (other than as evidenced by the Term Notes) to Lender, within ten
(10) calendar days after the same shall become due and payable (unless a longer
or shorter grace period is provided therefor in any document, instrument or
agreement evidencing, pertaining to or securing the repayment of such other
Obligations, in which event such other grace period shall apply).
6.3. MISREPRESENTATIONS. Borrower or a Guarantor shall make any
representation or warranty, respectively, in this Agreement or any of the Loan
Documents or in any certificate or statement furnished at any time hereunder or
in connection with this Agreement or any of the Loan Documents which proves to
have been untrue or misleading in any material respect when made or furnished.
6.4. COVENANTS. Borrower or a Guarantor shall default in the observance
or performance of any covenant or agreement contained in Section 5; or Borrower
or a Guarantor shall default in the observance or performance of any other
covenant or agreement contained in this Agreement or any of the Loan Documents,
except for any default of the types described in Sections 6.1, 6.2 or 6.3 above,
and such default shall continue for a period of thirty (30) calendar days from
the date of receipt by Borrower or a Guarantor of written notice from Lender
specifying such default (unless a longer or shorter cure period is provided
therefor in any such Loan Document, in which case such other grace period shall
apply), without such default being waived or cured.
6.5. OTHER DEBTS. Borrower or a Guarantor shall default under any
agreement for indebtedness in excess of Two Hundred Fifty Thousand Dollars
($250,000) under which it is a borrower or guarantor if such default (i)
consists of the failure to pay any debt when due or to perform any other
obligation thereunder, (ii) gives the holder of the debt the right to accelerate
the debt and (iii) the holder has accelerated the debt and commenced the
exercise of remedies.
25
31
6.6. VOLUNTARY BANKRUPTCY. Borrower or a Guarantor shall file a
voluntary petition in bankruptcy or a voluntary petition or answer seeking
liquidation, reorganization, arrangement, readjustment of its debts, or for any
other relief under the Bankruptcy Code, or under any other act or law pertaining
to insolvency or debtor relief, whether state, federal, or foreign, now or
hereafter existing; or Borrower or a Guarantor shall enter into any agreement
indicating its consent to, approval of, or acquiescence in, any such petition or
proceeding; or Borrower or a Guarantor shall apply for or permit the appointment
by consent or acquiescence of a receiver, custodian or trustee for all or a
substantial part of its property; or Borrower or a Guarantor shall make an
assignment for the benefit of creditors; or Borrower or a Guarantor shall be
unable or shall fail to pay its debts generally as such debts become due; or
Borrower or a Guarantor shall admit, in writing, its inability or failure to pay
its debts generally as such debts become due.
6.7. INVOLUNTARY BANKRUPTCY. There shall have been filed against
Borrower or a Guarantor an involuntary petition in bankruptcy or seeking
liquidation, reorganization, arrangement, readjustment of its debts or for any
other relief under the Bankruptcy Code, or under any other act or law pertaining
to insolvency or debtor relief, whether state, federal or foreign, now or
hereafter existing; or Borrower or a Guarantor shall suffer or permit the
involuntary appointment of a receiver, custodian or trustee or for all or a
substantial part of its property; or Borrower or a Guarantor shall suffer or
permit the issuance of a warrant of attachment, execution or similar process
against all or any substantial part of its property; unless, in each such case,
such petition, appointment or process is fully bonded against, vacated or
dismissed within sixty (60) days from its effective date, but not later than ten
(10) days prior to any proposed disposition of any assets pursuant to any such
proceeding.
6.8. JUDGMENTS. If one or more final, nonappealable judgments or decrees
in excess of Two Hundred Fifty Thousand Dollars ($250,000) shall be entered
against Borrower or a Guarantor and such judgments or decrees shall not have
been vacated, discharged, stayed or bonded pending appeal within forty-five (45)
days from the date such judgment becomes nonappealable.
6.9. CHANGE OF CONTROL. If: (i) except as and to the extent consented to
by Lender in writing, Guarantor One shall cease to own, directly or indirectly,
all of the issued and outstanding equity interests of Borrower and Guarantor
Two; or (ii) except as and to the extent consented to by Lender in writing,
either Guarantor or Borrower shall merge with, or consolidate into, any other
corporation, partnership, company or other entity (except for a merger of
Borrower or Guarantor Two into Guarantor One if Guarantor One is the surviving
corporation); or (iii) either Guarantor or Borrower shall sell all, or
substantially all, of its assets.
6.10. LOSS OF COLLATERAL. If all or any material portion of the
Collateral: (i) suffers any loss, damage, theft or other casualty, in a single
occurrence or series of related occurrences not fully covered by insurance as
prescribed in Section 5.6 (provided that Borrower shall have the right to cure
one such loss in an amount not in excess of $250,000 by either prepaying the
Term Loans, together with any applicable prepayment premium pursuant to Section
2.6 hereof, in such amount as Lender determines to be necessary in connection
with such loss or providing to Lender substitute collateral satisfactory to
Lender in all respects in which Lender shall have a first priority security
26
32
interest); or (ii) becomes subject to any lien, claim or encumbrance not being
contested, in good faith, and, in any event, removed within ninety (90) days of
its imposition; or (iii) is made the subject of any proceeding in which the
existence, scope, coverage, or priority of the security interest of Lender
therein is disputed by the Borrower or Guarantor.
6.11. GUARANTOR. If either Guarantor shall default in its observance or
performance of any term of its guaranty of the Obligations set forth in Section
2.10 hereof.
6.12. MATERIAL AGREEMENTS. If (a) Borrower or Guarantor Two shall
default in the payment or performance of the Intercompany Lease or (b) Borrower
or a Guarantor shall default in the payment or performance of any Material
Agreement (other than the Intercompany Lease) which default described in this
clause (b) entitles the other party or parties thereto to terminate or repudiate
such contract.
6.13. MATERIAL ADVERSE EFFECT. The occurrence of any Material Adverse
Effect.
6.14. FINANCIAL DEFAULTS.
(a) If Guarantor One's Net Worth (as defined below and measured
quarterly) shall be less than: (i) $155,000,000 at any time from the Closing
Date through January 31, 2000, (ii) $160,000,000, at any time from February 1,
2000 through January 31, 2001 or (iii) $175,000,000 at any time from and after
January 31, 2001.
(b) If Guarantor One's Fixed Charge Coverage Ratio (as defined
below) shall be less than: (i) 1.50:1, for each fiscal quarter during Guarantor
One's fiscal year ended January 31, 2000, (ii) 1.75:1.00 for each fiscal quarter
during Guarantor One's fiscal year ending January 31, 2001 or (iii) 1.85:1.00
for each fiscal quarter of Guarantor One thereafter.
The tests described in this Section 6.13 shall be measured quarterly, at
the end of each fiscal quarter of Guarantor One, on a consolidated basis, for
Guarantor One and its consolidated Subsidiaries. In addition thereto:
(a) "NET WORTH" shall mean total shareholder's equity, as
determined in accordance with GAAP; and
(b) "FIXED CHARGE COVERAGE RATIO" shall mean the ratio which:
(i) the net income of Guarantor One and its consolidated Subsidiaries,
determined without regard to any extraordinary gains or losses, plus the
following, to the extent included in the computation thereof, taxes, interest
expense, depreciation and amortization and rent/operating lease expenses,
determined on a rolling four (4) quarters' basis, bears to (ii) the sum of
interest expense of Guarantor One and its consolidated Subsidiaries, plus the
current maturities of long-term debt (including capital leases) of Guarantor One
and its consolidated Subsidiaries plus cash paid for rent/operating leases of
Guarantor One and its consolidated Subsidiaries, each for the same four fiscal
quarters.
27
33
An example computation of each such test is set forth on Exhibit
D attached hereto.
7. REMEDIES. Upon the occurrence or existence of any Event of Default,
or at any time thereafter, without prejudice to the rights of Lender to enforce
its claims against each Guarantor and Borrower for damages for failure by
Guarantors and Borrower to fulfill any of their obligations hereunder, subject
only to prior receipt by Lender of payment in full of all Obligations then
outstanding in a form acceptable to Lender, Lender shall have all of the rights
and remedies described in Sections 7.1 through 7.4, inclusive, and it may
exercise any one, more, or all of such remedies, in its sole discretion, without
thereby waiving any of the others.
7.1. ACCELERATION OF THE OBLIGATIONS. Lender, at its option, may declare
all of the Obligations (including but not limited to that portion thereof
evidenced by the Term Notes) to be immediately due and payable, whereupon the
same shall become immediately due and payable without presentment, demand,
protest, notice of nonpayment or any other notice required by law relative
thereto, all of which are hereby expressly waived by Borrower, anything
contained herein to the contrary notwithstanding and, in connection therewith,
if Lender so elects, by further written notice to Borrower, Lender may increase
the rate of interest charged on each Term Note then outstanding for so long
thereafter as Lender further shall elect to the Default Rate. Thereafter,
Lender, at its option, may, but shall not be obligated to, accept less than the
entire amount of Obligations due, if tendered, provided, however, that unless
then agreed to in writing by Lender, no such acceptance shall or shall be deemed
to constitute a waiver of any Event of Default or a reinstatement of any
commitments of Lender hereunder.
7.2. REMEDIES OF A SECURED PARTY. Lender shall thereupon have the rights
and remedies of a secured party under the UCC in effect on the date thereof
(regardless of whether the same has been enacted in the jurisdiction where the
rights or remedies are asserted), including, without limitation, the right to
take possession of any of the Collateral or the proceeds thereof, to sell or
otherwise dispose of the same, to apply the proceeds therefrom to any of the
Obligations in such order as Lender, in its sole discretion, may elect. Lender
shall give Borrower and Guarantors written notice of the time and place of any
public sale of the Collateral or the time after which any other intended
disposition thereof is to be made. The requirement of sending reasonable notice
shall be met if such notice is given to Borrower and Guarantors pursuant to
Section 8.9 at least ten (10) days before such disposition. Expenses of
retaking, holding, insuring, preserving, protecting, preparing for sale or
selling or the like with respect to the Collateral shall include, in any event,
reasonable attorneys' fees and other legally recoverable collection expenses,
all of which shall constitute Obligations.
7.3. REPOSSESSION OF THE COLLATERAL. Lender may take the Collateral or
any portion thereof into its possession, by such means (without breach of the
peace) and through agents or otherwise as it may elect (and, in connection
therewith, demand that Borrower and Guarantors assemble the Collateral at a
place or places and in such manner as Lender shall prescribe), and sell, lease
or otherwise dispose of the Collateral or any portion thereof in its then
condition or following any commercially reasonable preparation or processing,
which disposition may be by public or private proceedings, by one or more
contracts, as a unit or in parcels, at any time and place and on any
28
34
terms, so long as the same are commercially reasonable. To facilitate the
foregoing, Borrower and Guarantors agree to make available to Lender the
Distribution Center or any other premises then owned or leased by Borrower or a
Guarantor on which any Collateral then may be situated for such purposes,
without charge or undue delay, and on such terms as Lender then may reasonably
request (including, without limitation, if Lender so requests, the temporary or
permanent vacation by Borrower or a Guarantor of any leased premises).
7.4. OTHER REMEDIES. Unless and except to the extent expressly provided
for to the contrary herein, the rights of Lender specified herein shall be in
addition to, and not in limitation of, Lender's rights under the UCC, as amended
from time to time, or any other statute or rule of law or equity, or under any
other provision of any of the Loan Documents, or under the provisions of any
other document, instrument or other writing executed by Borrower, a Guarantor or
any third party in favor of Lender, all of which may be exercised successively
or concurrently.
7.5. NOTICE TO GUARANTORS. Lender shall send to each Guarantor in the
manner provided in Section 8.9 a copy of any written notice of the occurrence of
an Event of Default which it sends to Borrower.
8. MISCELLANEOUS.
8.1. WAIVER. Each and every right granted to Lender under this
Agreement, or any of the other Loan Documents, or any other document delivered
hereunder or in connection herewith or allowed it by law or in equity, shall be
cumulative and may be exercised from time to time. No failure on the part of
Lender to exercise, and no delay in exercising, any right shall operate as a
waiver thereof, nor shall any single or partial exercise by Lender of any right
preclude any other or future exercise thereof or the exercise of any other
right. No waiver by Lender of any Default Condition or Event of Default shall
constitute a waiver of any subsequent Default Condition or Event of Default.
8.2. GOVERNING LAW. THIS AGREEMENT AND, UNLESS OTHERWISE EXPRESSLY
PROVIDED THEREIN, THE TERM NOTES AND THE OTHER LOAN DOCUMENTS, AND THE RIGHTS
AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER, SHALL BE GOVERNED BY,
AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
ILLINOIS.
8.3. SURVIVAL. All representations, warranties and covenants made herein
and in the other Loan Documents shall survive the execution and delivery of this
Agreement and such other Loan Documents. On the Closing Date, each Guarantor and
Borrower shall be deemed to have restated, renewed and reaffirmed as of each
such date all of such representations, warranties and covenants. The terms and
provisions of this Agreement shall continue in full force and effect,
notwithstanding the payment of the Term Notes, until all of the Obligations have
been paid in full and Lender has terminated this Agreement in writing.
29
35
8.4. NO ASSIGNMENT BY EITHER GUARANTOR OR BORROWER; LENDER MAY ASSIGN.
No assignment hereof shall be made by either Guarantor or Borrower without the
prior written consent of Lender. Lender may assign, or sell participations in,
its right, title and interest herein and in the Loan Documents at any time
hereafter without notice to or consent of either Guarantor or Borrower to any
Participant having at least Fifty Million Dollars ($50,000,000) in assets and
with the written consent of Guarantors and Borrower, to any Participant. Upon
any assignment by Lender, the assignee shall be entitled to all the rights,
powers, privileges and remedies of Lender to the extent assigned, and the
obligations of each Guarantor or Borrower shall not be subject, as against any
such assignee, to any defense, set-off or counterclaim available to Guarantor or
Borrower against Lender and any such defense, set-off or counterclaim may be
asserted only against Lender.
8.5. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which when fully executed shall be an original, and all of
said counterparts taken together shall be deemed to constitute one and the same
agreement.
8.6. REIMBURSEMENT. Guarantors and Borrower, jointly and severally,
agree to reimburse Lender for its out-of-pocket expenses, actually incurred,
including, without limitation, the reasonable fees and disbursements of its
legal counsel (including a reasonable allocation of the costs, compensation and
expenses of internal counsel), incurred in connection with the preparation of
the Loan Documents and any and all other documents, notes, and agreements
pursuant hereto, including the furnishing of any opinions which may be requested
of such counsel by the Lender on questions incident to this transaction, which
costs, exclusive of survey, title insurance and appraisal costs, are not
expected to exceed $20,000. Guarantors and Borrower will pay all expenses
incurred by Guarantors and Borrower in this transaction. If any taxes, fees or
other costs shall be payable on account of the execution, issuance, delivery or
recording of any of the Loan Documents, by reason of any existing or hereafter
enacted federal or state statute, Guarantors and Borrower, jointly and
severally, agree to pay all such taxes (other than taxes imposed on or measured
by Lender's net income), fees or other costs, including any applicable interest
and penalty, and to indemnify and hold Lender harmless from and against
liability in connection therewith. If any attorney (including, without
limitation, internal counsel) is engaged (a) to collect the Obligations, whether
or not legal proceedings are thereafter instituted by Lender, (b) to represent
Lender in any bankruptcy, reorganization, receivership or other proceedings
affecting creditors' rights and involving a claim under this Agreement or any of
the other Loan Documents, (c) to protect the lien of the Mortgage or any of the
other Loan Documents, (d) to represent Lender in any other proceedings
whatsoever in connection with this Agreement, the Mortgages or any other Loan
Documents, including, without limitation, post judgment proceedings to enforce
any judgment related to the Loan Documents, or (e) in connection with seeking of
an out-of-court workout or settlement of any of the foregoing, then Guarantors
and Borrower, jointly and severally, agree to pay to Lender all costs,
attorneys' fees and expenses in connection therewith (including a reasonable
allocation of the costs, compensation and expenses of internal counsel), in
addition to all other amounts due hereunder. This provision is separate and
several and shall survive the merger of this provision into any judgment.
8.7. SUCCESSORS AND ASSIGNS. This Agreement and every Loan Document
shall be binding upon and inure to the benefit of the successors and permitted
assigns of the parties hereto and
30
36
thereto. The foregoing shall expressly include, without limitation, in the case
of Lender, any Participant.
8.8. SEVERABILITY. If any provision of this Agreement or of the Loan
Documents or the application thereof to any party thereto or circumstances shall
be invalid or unenforceable to any extent, the remainder of such Loan Documents
and the application of such provisions to any other party thereto or
circumstance shall not be affected thereby and shall be enforced to the greatest
extent permitted by law.
8.9. NOTICES. All notices, requests and demands to or upon the
respective parties hereto shall be deemed to have been given or made when
personally delivered or deposited in the mail, registered or certified mail,
postage prepaid, or delivered by overnight courier, addressed as follows or to
such other address as may be designated hereafter in writing by the respective
parties hereto (which, in the case of Lender, may include the name and address
of each Participant):
Guarantor or Borrower:
The Gymboree Corporation
700 Airport Boulevard
Suite 200
Burlingame, California 94010
Attn: President
With a copy to:
Bartko, Zenkel, Tarrant & Miller
Attorneys at Law
900 Front Street
Suite 300
San Francisco, California 94111
Attn: Thomas E. Cooper, Esq.
Lender:
Transamerica Business Credit Corporation
Two Ravinia Drive, Suite 700
Atlanta, Georgia 30346
Attn: Region Credit Manager
except in cases where it is expressly provided herein or by applicable law that
such notice, demand to request is not effective until received by the party to
whom it is addressed.
8.10. ENTIRE AGREEMENT - AMENDMENT. This Agreement, together with the
Term Notes and the other Loan Documents, constitute the entire agreement between
the parties hereto with respect to the subject matter hereof and thereof and
supersedes any agreement or understanding, oral
31
37
or written, heretofore made in regard thereto. Neither this Agreement, the Term
Notes nor any other Loan Document may be changed, waived, discharged, modified
or terminated orally, but only by an instrument in writing signed by the party
against whom enforcement is sought.
8.11. TIME OF THE ESSENCE. Time is of the essence in this Agreement, the
Term Notes and the other Loan Documents.
8.12. INTERPRETATION. No provision of this Agreement or any Loan
Document shall be construed against or interpreted to the disadvantage of any
party hereto by any court or other governmental or judicial authority by reason
of such party having or being deemed to have structured or dictated such
provision.
8.13. LENDER NOT A JOINT VENTURER. Neither this Agreement nor any
agreements, instruments, documents or transactions contemplated hereby
(including the Loan Documents) shall in any respect be interpreted, deemed or
construed as making Lender a partner or joint venturer with either Guarantor or
Borrower or as creating any similar relationship or entity, and Guarantors and
Borrower each agree that they will not make any contrary assertion, contention,
claim or counterclaim in any action, suit or other legal proceeding involving
Lender and either Guarantor or Borrower.
8.14. JURISDICTION. GUARANTORS AND BORROWER AGREE THAT ANY LEGAL ACTION
OR PROCEEDING WITH RESPECT TO THIS AGREEMENT, THE TERM NOTES OR ANY OTHER LOAN
DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF ILLINOIS OR THE UNITED
STATES OF AMERICA FOR THE NORTHERN DISTRICT OF ILLINOIS, CHICAGO DIVISION, ALL
AS LENDER MAY ELECT. BY EXECUTION OF THIS AGREEMENT, EACH GUARANTOR AND BORROWER
HEREBY SUBMITS TO EACH SUCH JURISDICTION, HEREBY EXPRESSLY WAIVING WHATEVER
RIGHTS MAY CORRESPOND TO IT BY REASON OF ITS PRESENT OR FUTURE DOMICILE AND
CONSENTS TO SERVICE OF PROCESS BY WRITTEN NOTICE GIVEN IN THE MANNER SPECIFIED
FOR THE GIVING OF NOTICES IN SECTION 8.9 ABOVE; PROVIDED, HOWEVER, THAT NOTHING
HEREIN SHALL AFFECT THE RIGHT OF LENDER TO COMMENCE LEGAL PROCEEDINGS OR
OTHERWISE PROCEED AGAINST EITHER GUARANTOR OR BORROWER IN ANY OTHER JURISDICTION
OR TO SERVE PROCESS IN ANY MANNER PERMITTED OR REQUIRED BY LAW. EACH OF LENDER,
EACH GUARANTOR AND BORROWER WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY SUCH
PROCEEDING. EACH GUARANTOR AND BORROWER FURTHER AGREES THAT LENDER SHALL NOT BE
LIABLE TO IT FOR CONSEQUENTIAL OR SPECIAL DAMAGES ARISING FROM BREACH OF
CONTRACT, TORT OR OTHER WRONG OR CLAIM RELATING TO THE ESTABLISHMENT,
ADMINISTRATION OR COLLECTION OF ANY OBLIGATIONS OR ANY LOAN DOCUMENT OR ANY
ACTION (OR INACTION) BY LENDER THEREUNDER.
8.15. PAYMENT ON NON-BUSINESS DAYS. Whenever any payment to be made
hereunder or under the Term Notes shall be stated to be due on a Saturday,
Sunday or a public holiday under the
32
38
laws of the State of Georgia or the State of Illinois, such payment may be made
on the next succeeding Business Day, and such extension of time shall in such
case be included in the computation of payment of interest hereunder or under
the Term Notes.
8.16. WAIVER OF RIGHTS. EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT,
EACH GUARANTOR AND BORROWER HEREBY WAIVES ANY AND ALL RIGHTS, IF ANY, WHICH
EITHER GUARANTOR AND BORROWER OTHERWISE HAS OR MAY HAVE UNDER AND BY VIRTUE OF
ANY LAW, WITH RESPECT TO THE RIGHT OF EITHER GUARANTOR OR BORROWER TO NOTICE AND
TO A JUDICIAL OR ADMINISTRATIVE HEARING PRIOR TO SEIZURE OF ANY COLLATERAL BY
LENDER.
8.17. CURE OF DEFAULTS BY LENDER. If, hereafter, either Guarantor or
Borrower defaults in the performance of any duty or obligation to Lender
hereunder, Lender may, at its option, but without obligation, cure such default
and any costs, fees and expenses incurred by Lender in connection therewith
including, without limitation, for the purchase of insurance, the payment of
taxes and the removal or settlement of liens and claims, shall constitute
Obligations, be payable on demand and bear interest until paid at the Default
Rate applicable to the Term Note with the then highest contract rate.
8.18. RECITALS. All recitals contained herein are hereby incorporated by
reference into this Agreement and made part thereof.
8.19. ATTORNEY-IN-FACT. Each Guarantor and Borrower hereby designates,
appoints and empowers Lender irrevocably to act as its attorney-in-fact, at such
Guarantor's and Borrower's cost and expense, to do in the name of such Guarantor
and Borrower any and all actions which Lender may deem necessary or advisable to
carry out the terms hereof, upon the failure, refusal or inability of such
Guarantor or Borrower to do so, and each Guarantor and Borrower hereby, jointly
and severally, agrees to indemnify and hold Lender harmless from any costs,
damages, expenses or liabilities arising against or incurred by Lender in
connection therewith.
8.20. SOLE BENEFIT. The rights and benefits set forth in this Agreement
and in all the other Loan Documents are for the sole and exclusive benefit of
Lender, its Participants (if any), each Guarantor and Borrower and may be relied
upon only by them.
8.21. REMEDIES. UNLESS EXPRESSLY PROVIDED TO THE CONTRARY, LENDER MAY
ENFORCE ITS RIGHTS UNDER THIS AGREEMENT AND ALL OTHER LOAN DOCUMENTS WITHOUT
RESORT TO PRIOR JUDICIAL PROCESS OR JUDICIAL HEARING, AND EACH GUARANTOR AND
BORROWER EXPRESSLY WAIVES, RENOUNCES AND KNOWINGLY RELINQUISHES ANY LEGAL RIGHT
WHICH MIGHT OTHERWISE REQUIRE LENDER TO ENFORCE ITS RIGHTS BY JUDICIAL PROCESS.
IN SO PROVIDING FOR A NON-JUDICIAL REMEDY, EACH GUARANTOR AND BORROWER
RECOGNIZES AND CONCEDES THAT SUCH A REMEDY IS CONSISTENT WITH THE USAGE OF THE
TRADE, IS RESPONSIVE TO COMMERCIAL NECESSITY AND IS THE RESULT OF BARGAINING AT
ARM'S LENGTH. NOTHING IN THIS AGREEMENT IS
33
39
INTENDED TO PREVENT EITHER GUARANTOR, BORROWER OR LENDER FROM RESORTING TO
JUDICIAL PROCESS AT ANY PARTY'S OPTION.
8.22. INDEMNITY. Without limiting any provisions of Sections 5.10 or
8.6, Guarantors and Borrower, jointly and severally, agree to save, indemnify
and hold harmless Lender from and against any and all debts, liabilities,
obligations, damages, costs, expenses or other claims incurred by Lender as a
result of its entry into, and performance under, this Agreement or any other
Loan Documents, including, without limitation, with respect to the claims of any
broker or other intermediary, other than any of the foregoing resulting directly
from Lender's gross negligence or willful misconduct.
8.23. ACCEPTANCE. THIS AGREEMENT, TOGETHER WITH THE TERM NOTES AND ALL
OTHER LOAN DOCUMENTS, SHALL NOT BECOME EFFECTIVE UNLESS AND UNTIL (I) DULY
EXECUTED BY EACH GUARANTOR AND BORROWER, (II) DELIVERED TO LENDER FOR ACCEPTANCE
IN CHICAGO, ILLINOIS, (III) ACCEPTED BY LENDER IN CHICAGO, ILLINOIS AND (IV)
DULY EXECUTED BY LENDER, AS APPROPRIATE, IN CHICAGO, ILLINOIS. THE DISBURSEMENT
OF THE PROCEEDS OF THE TERM LOANS BY LENDER SHALL BE EVIDENCE THAT THE FOREGOING
CONDITIONS HAVE BEEN FULFILLED.
9. CONDITIONS PRECEDENT. Unless waived in writing by Lender at or prior
to the execution and delivery of this Agreement, the conditions set forth below
shall constitute express conditions precedent to any obligation of Lender
hereunder:
(a) NO INJUNCTION; ETC. No action, proceeding, investigation,
regulation or legislation shall have been instituted, threatened or proposed
before any court, governmental agency or legislative body to enjoin, restrain,
or prohibit, or to obtain substantial damages in respect of, or which is related
to or arises out of this Agreement, or the consummation of the transactions
contemplated hereby, or which Lender determines would make it inadvisable to
consummate the transactions contemplated hereby.
(b) NO DEFAULT. Lender shall have determined that no Default
Condition or Event of Default shall have occurred and be continuing.
(c) COMPLIANCE WITH LAWS GENERALLY; ENVIRONMENTAL LAW COMPLIANCE.
Lender shall be satisfied in all respects that Borrower and Guarantors are in
material compliance with all applicable federal, state and local laws and
regulations, including particularly, but without limitation, all Environmental
Laws.
(d) MATERIAL AGREEMENTS. Lender shall have reviewed all of
Borrower's and Guarantors' Material Agreements, and all of the foregoing shall
be satisfactory to Lender.
(e) LITIGATION. Lender shall have reviewed all existing
litigation, injunctions and proceedings, if any, pending or threatened against
Borrower and Guarantors and the results of such review shall be satisfactory to
Lender.
34
40
(f) NO MATERIAL ADVERSE CHANGE. Lender shall determine that no
Material Adverse Change has occurred. Without limitation of the foregoing,
Guarantor One's loss for its third quarter of its fiscal year ending January 31,
1999 shall not exceed $.03 per share.
(g) DOCUMENTATION. Lender shall have received the following
documents, each to be in form and substance satisfactory to Lender and its
counsel, and duly executed and delivered by the party or parties thereto:
(1) LOAN DOCUMENTS. This Agreement and all other Loan Documents to be
executed and delivered by Borrower and Guarantors hereunder and under the Loan
Documents on the Closing Date, to the extent not otherwise specified below;
(2) INSURANCE CERTIFICATES. Receipt by Lender of a certificate from
Borrower's insurer (or an authorized agent thereof) respecting all insurance
required hereunder, together with copies of all insurance policies evidencing
such insurance in each case in form and substance acceptable to Lender.
(3) AUTHORIZED OFFICER CERTIFICATES. Receipt by Lender of certificates
from Authorized Officers of Borrower and Guarantors, certifying as to their
respective partnership agreements or certificates or articles of incorporation
and bylaws, as applicable, and authority to consummate the transactions
contemplated hereby;
(4) TERM NOTES. Receipt by Lender of Term Notes in an aggregate
principal amount equal to the aggregate principal amount of the Term Loans;
(5) FINANCING STATEMENTS. Copies of all filing receipts or
acknowledgments issued by any Governmental Authority to evidence any filing or
recordation necessary to perfect the security interests of Lender in all
Collateral and evidence in a form acceptable to Lender that such security
interests constitute value and perfected first priority security interests in
Lender's favor;
(6) APPRAISAL. An appraisal, performed at Borrower's expense, of the
Real Estate Collateral, by a nationally recognized independent appraiser
selected by Borrower, but acceptable to Lender, using a methodology of appraisal
which is acceptable to Lender.
(7) ENVIRONMENTAL ASSESSMENT. As environmental regulatory review for the
Real Estate Collateral, prepared at Borrowers' expense, by independent
environmental experts selected by Lender, together with, if Lender shall so
request in its sole discretion, based on the results of such environmental
regulatory review, "Phase 1" environmental audits and such additional
environmental testing as Lender shall so require with respect to the Real Estate
Collateral, performed at Borrower's expense by independent environmental experts
selected by Lender (which conditions Lender acknowledges have been satisfied);
35
41
(8) SURVEY. A current "as-built" boundary survey for the Real Estate
Collateral together with a surveyor's certificate prepared at Borrower's expense
from a registered land surveyor;
(9) MORTGAGE. A deed of trust, mortgage, deed to secure debt or other,
similar instrument pursuant to which Borrower shall convey to Lender or to a
trustee for the benefit of Lender the entirety of its right, title and interest
in and to the Real Estate Collateral.
(10) MORTGAGEE'S TITLE INSURANCE POLICIES. A mortgagee's title insurance
policy, issued, at Borrower's expense, by a title insurer selected by Borrower,
but acceptable to Lender insuring Lender's security interest in the Real Estate
Collateral in such amount, and containing only such conditions, limitations and
exception as shall be acceptable to Lender;
(11) EVIDENCE OF INSURANCE. Evidence that the Distribution Center is
covered by the insurance required under Section 5.6 and in the other Loan
Documents and as otherwise may be reasonably required by Lender in connection
with the disbursement of the Term Loans; and
(12) OTHER DOCUMENTS. Such other document, instruments, agreements and
certificates as Lender shall require.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and Borrower has caused its seal to be affixed hereto, all as of the
day and year first above written.
"LENDER"
TRANSAMERICA BUSINESS CREDIT CORPORATION
By:
----------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
36
42
"GUARANTOR ONE"
THE GYMBOREE CORPORATION (SEAL)
By: /s/ GARY WHITE
------------------------------------------
Name: Gary White
Title: President
Attest:
--------------------------------------
Name:
Title:
"GUARANTOR TWO"
GYMBOREE MANUFACTURING, INC. (SEAL)
By: /s/ GARY WHITE
------------------------------------------
Name: Gary White
Title: President
Attest:
--------------------------------------
Name:
Title:
37
43
"BORROWER"
GYMBOREE LOGISTICS (SEAL)
PARTNERSHIP
By: Gymboree Retail Stores, Inc., Partner
By: /s/ GARY WHITE
----------------------------------------
Gary White
Partner
By: The Gymboree Stores, Inc., Partner
By: /s/ GARY WHITE
------------------------------------------
Gary White
President
38
44
EXHIBIT A
Permitted Encumbrances
1. In regard to the Real Estate Collateral, those matters identified as
"Permitted Encumbrances" in the Mortgage.
2. Financing Statement No. 9827360784 and 9827360789 filed September 25,
1998 with the Secretary of State of California covering one new 1998
Marathon Horizontal Bailer (S/N 108648), one used Komatsu Model FG25ST-3
Forklift (S/N FG25ST-8) and proceeds of such collateral.
39
45
EXHIBIT B
Subsidiaries
Detail Not Required.
40
46
EXHIBIT C
Litigation
Detail Not Required.
41
47
EXHIBIT D
Financial Test Computations
Detail Not Required.
42