EXHIBIT 10.6
RETOOL(TM)
FRANCHISE AGREEMENT
BETWEEN
GROW BIZ INTERNATIONAL, INC.
4200 Dahlberg Drive
Minneapolis, Minnesota 55422-4837
(612) 520-8500
AND
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Name(s) of Franchisee
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Street
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City State Zip Code
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Area Code Telephone
FRANCHISED LOCATION:
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Street
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City State Zip Code
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Area Code Telephone
RETOOL(TM)
FRANCHISE AGREEMENT
INDEX
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SECTION DESCRIPTION PAGE
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1. GRANT OF FRANCHISE; FRANCHISED LOCATION..........................1
2. TERM OF FRANCHISE; RENEWAL RIGHTS................................2
3. OWNERSHIP AND USE OF MARKS.......................................2
4. INITIAL FRANCHISE FEE............................................3
5. CONTINUING FEE...................................................4
6. ADVERTISING AND PROMOTION........................................4
7. FRANCHISOR'S OBLIGATIONS.........................................6
8. OPERATION OF THE FRANCHISEE'S BUSINESS...........................7
9. CONFIDENTIAL INFORMATION........................................10
10. INSURANCE; BONDING..............................................10
11. INDEPENDENT CONTRACTORS; INDEMNIFICATION........................11
12. SALES REPORTS, FINANCIAL STATEMENTS AND AUDIT RIGHTS............11
13. FRANCHISOR'S RIGHT OF FIRST REFUSAL TO PURCHASE.................12
14. ASSIGNMENT OF FRANCHISE AGREEMENT...............................13
15. FRANCHISOR'S TERMINATION RIGHTS.................................14
16. FRANCHISEE'S TERMINATION RIGHTS; NOTICE REQUIRED................15
17. FRANCHISEE'S OBLIGATIONS UPON TERMINATION.......................15
18. FRANCHISEE'S COVENANTS NOT TO COMPETE...........................16
19. ARBITRATION; ENFORCEMENT........................................16
20. SEVERABILITY AND CONSTRUCTION...................................17
21. NOTICES.........................................................18
22. ACKNOWLEDGMENTS.................................................18
EXHIBITS A - FRANCHISEE'S DEVELOPMENT AREA AND EXCLUSIVE TERRITORY
B - COMPUTER SOFTWARE LICENSE AGREEMENT
C - PERSONAL GUARANTY
01GK060498
RETOOL(TM)
FRANCHISE AGREEMENT
THIS FRANCHISE AGREEMENT is made and entered into this __________ day
of ___________, 19____, by and between GROW BIZ INTERNATIONAL, INC., a
Minnesota corporation ("Franchisor"), and ______________________ ("Franchisee").
BACKGROUND:
A. Franchisor franchises tool and small engine machinery resale
stores known as "ReTool" stores ("ReTool(TM) Stores") which feature quality used
and new tools and small engine machinery and related accessories. Franchisor
uses and licenses certain trademarks, including "ReTool," and may hereafter
adopt, use and license additional or substitute trademarks, service marks, logos
and commercial symbols in connection with the operation of ReTool(TM) Stores
(collectively, the "Marks"). ReTool(TM) Stores use Franchisor's methods,
procedures, standards, specifications and the Marks (all of which are
collectively referred to as the "Business System"), which Franchisor may
periodically improve, further develop or otherwise modify.
B. Franchisee has had an adequate opportunity to be thoroughly
advised of the provisions of this Agreement and Franchisor's Offering Circular
and has had sufficient time and opportunity to evaluate and investigate the
Business System and the procedures and financial requirements associated with
the Business System as well as the competitive market in which it operates.
C. Franchisee desires to operate a "ReTool" Store which will
conform to the uniform requirements and quality standards of the Business
System.
AGREEMENTS:
The Franchisor and Franchisee agree as follows:
1. GRANT OF FRANCHISE; FRANCHISED LOCATION
A. Grant of Franchise. Subject to the provisions stated below,
Franchisor grants to Franchisee a personal license and franchise to operate a
ReTool(TM) Store (the "Store") in conformity with Franchisor's Business System
at a location within the development area specified in Exhibit A attached
hereto. The specified area identified in Exhibit A is referred to as the
"Development Area." Franchisee will operate the Store under the Business System
in strict compliance with the provisions of this Agreement and only at a
location within the Development Area approved by Franchisor (the "Franchised
Location").
B. Franchisee's Protected Area; Rights Reserved By Franchisor.
During the term of this Agreement, Franchisor will not establish for its own
account or franchise others to operate a ReTool(TM) Store or any other business
generally classified as a tool or small engine machinery retail business within
the exclusive area specified in Exhibit A. The exclusive area identified in
Exhibit A, which includes the Development Area, is referred to as the "Exclusive
Territory." Franchisee understands, however, that Franchisor may sell any
products or services under trademarks other than the Marks (subject to those
restrictions described above). Franchisor also may sell products or services
under the Marks through other
channels of distribution, provided any such products or services Franchisor
intends to sell directly within the Exclusive Territory will first be offered to
Franchisee on the same terms and conditions as would otherwise be offered within
the Exclusive Territory. The rights and privileges granted to Franchisee under
this Agreement are personal in nature, and may not be used at any location other
than the Franchised Location. Franchisee will not relocate the Store without
Franchisor's prior written consent and will not open any other ReTool(TM) Store
in the Exclusive Territory. Franchisee will not have the right to subfranchise
or sublicense any of its rights under this Agreement. Franchisee will not use
the Franchised Location for any purposes other than the operation of a
ReTool(TM) Store.
2. TERM OF FRANCHISE; RENEWAL RIGHTS
A. Term. The term of this Agreement will be for ten (10) years
commencing on the date of this Agreement.
B. Renewal. Franchisee will have the right to renew its ReTool(TM)
franchise for the Franchised Location for continuing ten (10) year terms,
provided Franchisee meets the following conditions:
1. Franchisee has given Franchisor written notice at least one
hundred eighty (180) days before the end of the term of this Agreement
of its intention to renew;
2. Franchisee has complied with all of the material provisions
of this Agreement, including the payment of all monetary obligations
owed by Franchisee to Franchisor, and has complied with Franchisor's
material operating and quality standards and procedures;
3. Franchisee has at its expense made such reasonable capital
expenditures necessary to remodel, modernize and redecorate the Store
premises and to replace and modernize the supplies, fixtures, and
equipment used in Franchisee's business so that Franchisee's business
reflects the then-current physical appearance of new ReTool(TM) Stores;
4. Franchisee has paid a Renewal Fee of Five Thousand Dollars
($5,000) to Franchisor at least thirty (30) days before the expiration
of the initial (and any renewal) term of this Agreement expires;
5. Franchisee executes the standard Franchise Agreement then
being used by Franchisor; provided that Franchisee will be required to
pay the Renewal Fee in lieu of the Initial Franchise Fee stated in the
then-current Franchise Agreement; and
6. Franchisee is able to secure a renewal or extension of the
lease for the Franchised Location or is able to secure a new location
within the Development Area which has been accepted by Franchisor, such
acceptance not to be unreasonably withheld.
3. OWNERSHIP AND USE OF MARKS
A. Ownership. Franchisor is the owner of the Marks. Any and all
improvements by Franchisee relating to the Marks and Business System will become
the sole property of Franchisor who has the exclusive right to register and
protect all such improvements in its name.
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B. Use. Franchisee's right to use and identify with the Marks and
Business System applies only to the operation of the Store at the Franchised
Location, and exists concurrently with the term of this Agreement and only so
long as Franchisee is in complete compliance with Franchisor's quality
standards. Franchisee will have the right to use the Marks and Business System
only in the manner Franchisor directs and approves in writing. Franchisee will
not have or acquire any rights in any of the Marks or Business System other than
the right of use as governed by this Agreement. If, in the judgment of
Franchisor, Franchisee's acts infringe upon or harm the goodwill, standards of
uniformity or quality, or business standing associated with the Marks and
Business System, Franchisee will immediately, upon written notice from
Franchisor, modify its use of the Marks and Business System in the manner
Franchisor directs in writing. Franchisee will not during or after the term of
this Agreement do anything directly or indirectly which would infringe upon,
harm, mislead or contest Franchisor's rights in the Marks or Business System.
Franchisee cannot advertise any liquidation sale or similar type of activity.
C. Promotion. Franchisee will operate the Store so that it is
clearly identified and advertised as a ReTool(TM) Store. The style, form and use
of the words "ReTool" in any advertising, written materials or supplies must,
however, have Franchisor's prior written approval, which approval will not be
unreasonably withheld. Franchisee will use the name "ReTool" and the other Marks
which now or hereafter may form a part of the Business System, on all paper
supplies, business cards, letterhead, envelopes, uniforms, advertising
materials, signs or other articles in the identical combination and manner as
Franchisor may require in writing. Franchisee will comply with all trademark,
trade name, service mark and copyright notice marking requirements.
D. Identity. Franchisee will not use the words "ReTool" in its
corporate or partnership name. Franchisee will clearly indicate on its business
checks, purchase orders, business cards, receipts, promotional materials and
other written materials that Franchisee is the owner of the Store and that
Franchisee is a ReTool(TM) franchisee. Franchisee will display a sign which is
clearly visible to the general public indicating that the Store is independently
owned and operated.
E. Substitutions. If any third party claims that its rights to
use any of the Marks are superior and if Franchisor determines that such claim
is legally meritorious, Franchisee will, upon receiving written notice from the
Franchisor, immediately use such changes and amendments to the Marks as
Franchisor may require. Franchisee will not make any changes or amendments in or
to the use of the Marks and Business System unless directed by Franchisor in
writing.
F. Litigation. Franchisee will have no obligation to and will
not, without Franchisor's prior written consent, defend or enforce any of the
Marks in any court or other proceedings for or against imitation, infringement,
any claim of prior use, or for any other allegation. Franchisee will, however,
immediately notify Franchisor of any claims or complaints made against
Franchisee respecting the Marks and will, at its expense, cooperate in all
respects with Franchisor in any court or other proceedings involving the Marks.
Franchisor will pay the cost and expense of all litigation Franchisor incurs,
including attorneys' fees, specifically relating to the Marks. Franchisor and
its legal counsel will have the right to control and conduct any litigation
relating to the Marks.
4. INITIAL FRANCHISE FEE
A. Initial Franchise Fee. Franchisee will pay Franchisor a
nonrefundable Initial Franchise Fee of____________Thousand Dollars ($___),
which will be due and payable on the date of this Agreement. The Initia
Fee payable by Franchisee is payment to Franchisor for the costs that it
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will incur to get Franchisee into business including costs Franchisor incurs for
training, site evaluation, business overhead costs, travel costs, and for the
other initial services Franchisor provides hereunder.
B. Refund of Fee. If Franchisor subsequently determines that
Franchisee is not qualified to properly operate the Store, Franchisor will
refund to Franchisee the Initial Franchise Fee. Franchisor will notify
Franchisee in writing within one hundred eighty (180) days of the date of this
Agreement if this Agreement is subject to termination under this Section 4(B).
5. CONTINUING FEE
A. Continuing Fee. Franchisee will, for the term of this
Agreement, pay to Franchisor a Continuing Fee equal to four percent (4%) of
Franchisee's Gross Sales (as defined below). Franchisee's obligation to pay
Franchisor the Continuing Fee under the terms of this Agreement will remain in
full force and effect until this Agreement has expired or is terminated under
the provisions herein.
B. Payment. At Franchisor's request, Franchisee will promptly
execute and deliver to Franchisor appropriate pre-authorized check forms or such
other instruments or drafts Franchisor's bank requires payable against
Franchisee's bank account, so that Franchisor may electronically collect (draft
on Franchisee's account by electronic withdrawal) the Continuing Fee due
pursuant to Section 5(A) above. Franchisor will report to Franchisee on or
before Wednesday of each week its Gross Sales for the previous week. If
Franchisee fails to report its Gross Sales on a timely basis, Franchisor may
estimate Franchisee's Gross Sales to prepare a provisional estimate for billing
purposes for that week. On Thursday of each week, Franchisor will bill
Franchisee for all amounts due for the previous week and deposit into its
account Franchisee's pre-authorized check or other instrument for the amounts
due either pursuant to Franchisee's report or Franchisor's estimate. Any unpaid
Continuing Fee or other amounts past due and owing to Franchisor will bear
interest at the rate of eighteen percent (18%) per annum or the maximum rate
permitted by law, whichever is less. Franchisee will pay Franchisor for any and
all costs Franchisor incurs in collecting any unpaid and past due Continuing
Fees, including reasonable attorneys' fees.
C. Gross Sales. The term "Gross Sales" means the total amount of
all revenues Franchisee receives from the sale of goods and services, whether
for cash or by check, credit card or trade, in connection with the Store, less
customer refunds and returns. Gross Sales will include sales made through the
Internet and wholesale transactions involving any party other than a ReTool(TM)
franchisee who is in good standing with Franchisor. Gross Sales will not include
sales tax collected from customers and paid to appropriate tax authorities.
6. ADVERTISING AND PROMOTION
A. Cooperative Advertising. Franchisee will participate in,
support and contribute a proportionate share, but no more than an amount equal
to four percent (4%) of the Gross Sales for the Store, of the cost of regional
cooperative advertising programs either designated by Franchisor or approved by
a regional advertising council established by Franchisor or other ReTool(TM)
franchisees in Franchisee's area. Franchisor reserves the right to designate
regional advertising markets, to establish regional advertising councils and to
establish the rules under which such councils will operate.
B. Local Advertising Expenditures. To the extent Franchisee's
annual contributions to cooperative advertising programs described in Section
6(A) above are less than four percent (4%) of the Gross Sales for the Store, or
if the Franchisee cannot participate in any regional cooperative advertising
program because such a program has not been established in Franchisee's
geographic area, Franchisee will
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then be obligated to conduct advertising and promotional activities in
Franchisee's local geographic area; provided that Franchisee's local advertising
activities will not reduce, eliminate or otherwise impact Franchisee's
obligations under Section 6(A) above. Franchisee's local advertising
expenditures will include advertising, merchandising, sales promotion and other
forms of advertising at the local level. Within thirty (30) days following the
end of each calendar quarter, Franchisee will provide Franchisor with an
accounting of the monies that it has spent for approved regional cooperative
advertising and local advertising for the preceding calendar quarter.
If Franchisee has failed to spend at least four percent (4%) of its Gross Sales
for the calendar quarter for approved regional cooperative advertising or local
advertising, Franchisee will deposit with Franchisor the difference between what
it should have spent for advertising during the calendar quarter and what it
actually spent for advertising during the calendar quarter. Franchisor will
spend such amount for any type of advertising or promotion that Franchisor deems
appropriate for Franchisee's business, although Franchisor will use reasonable
efforts to spend such amounts in Franchisee's local geographic area.
C. Marketing Fee. In addition to Franchisee's local advertising
obligations described in Section 6(B) above, Franchisee will pay to Franchisor
an annual Marketing Fee of Five Hundred Dollars ($500) which will be payable in
two (2) installments of Two Hundred Fifty Dollars ($250) each on the first day
of January and July of each year. Franchisor will use the Marketing Fee to
develop marketing programs, produce advertising and/or promotional materials,
conduct advertising research, and implement advertising and promotional
campaigns.
D. Yellow Page Advertising. Franchisee will, at its expense,
obtain an annual yellow page listing in the primary yellow page directory
serving the geographic area in which the Store is located. At a minimum, this
listing will consist of a bold heading in such directory. Amounts spent for
yellow page advertising will be credited towards Franchisee's local advertising
obligations described in Section 6(B) above.
E. Future Advertising Programs. Franchisee acknowledges and
agrees that as the ReTool(TM) franchise system continues to expand and mature,
it will be necessary to revise Franchisee's advertising obligations. Franchisee
therefore agrees that Franchisor may increase Franchisee's minimum advertising
expenditures (as described in Section 6(B) above) up to a total of five percent
(5%) of Franchisee's Gross Sales. Franchisee further agrees that of the five
percent (5%), up to two percent (2%) of Franchisee's Gross Sales will be paid in
the form of an "Advertising Fee" to Franchisor for deposit in an "Advertising
Fund." In such event, Franchisee's advertising obligations under Section 6(A)
(and, if appropriate, Section 6(B)) above will be reduced to three percent (3%)
of the Gross Sales for the Store. Franchisor will provide Franchisee with at
least sixty (60) days' written notice before the commencement of an Advertising
Fee. All Advertising Fees will be placed in an Advertising Fund managed by
Franchisor. Reasonable disbursements from the Advertising Fund will be made
solely for the payment of expenses incurred in connection with the general
promotion of the Marks and the Business System, including the cost of
formulating, developing and implementing advertising and promotional campaigns;
and the reasonable costs of administering the Advertising Fund, including
accounting expenses and the actual costs of salaries and fringe benefits paid to
Franchisor's employees engaged in administration of the Advertising Fund.
Although Franchisor will strive to manage the Advertising Fund in such a manner
that benefits franchisees uniformly, taking into account regional and/or local
advertising costs and forms of media available, Franchisor cannot insure that
any individual franchisee will benefit directly or on a pro rata basis from the
future placement of any such advertising in its local market. The methods of
advertising, media employed and contents, terms and conditions of advertising
campaigns and promotional programs will be within Franchisor's sole discretion.
Franchisor will provide Franchisee an annual unaudited statement of the receipts
and disbursements of the Advertising Fund.
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F. Approved Advertising Materials. Franchisee will use only
approved advertising and promotional materials. If Franchisee desires to use any
unapproved advertising or promotional materials bearing the name "ReTool" or
other Marks, Franchisee must obtain written approval from Franchisor before
using any such materials, which approval will not be unreasonably withheld.
G. Promotion. Franchisee will use its best efforts to promote and
advertise its ReTool(TM) business and will participate in all advertising and
promotional programs Franchisor establishes. Franchisee will have the right to
advertise and sell its products at whatever prices Franchisee determines.
7. FRANCHISOR'S OBLIGATIONS
A. Location. Franchisor will provide Franchisee with assistance
respecting site location and evaluation for the Store. Franchisee acknowledges
that Franchisor's assistance in site location and acceptance of the premises
does not constitute a representation or guaranty by Franchisor that the location
will be a successful location for Franchisee's ReTool(TM) Store.
B. Lay-Out and Design. Franchisor will designate the standard
design, lay-out and motif for Franchisee's premises and will furnish prototype
specifications for the premises.
C. Equipment, Supplies and Inventory. Franchisor will designate
the standard fixtures, equipment, supplies, signs and initial inventory for use
in the Store. Franchisee will purchase only such types, models or brands of
fixtures, furniture, equipment, signs and supplies that Franchisor approves for
ReTool(TM) Stores as meeting its specifications and standards, including
specifications and standards for quality, design, warranties, appearance,
function and performance.
D. Training. Franchisor will, at its expense, provide a
three-part training program in Minneapolis, Minnesota or other location
Franchisor designates to educate, familiarize and acquaint Franchisee with the
business of operating a ReTool(TM) Store. The first session of the training
program will include instruction on general business issues related to the
ownership of a privately-owned retail business, including real estate matters,
business plan development, inventory management and point-of-sales systems. The
period of this session will be at Franchisor's discretion but generally will be
for not less than two and one-half (2 1/2) days and will be scheduled by
Franchisor at its discretion. The second session of the training program will
address personnel issues, store buildout, used product purchasing, Franchisor's
preferred vendor program and other topics Franchisor selects. The period of this
session will be at Franchisor's discretion but generally will be for not less
than two and one-half (2 1/2) days and will be scheduled by Franchisor in its
sole discretion. The third session of the training program will include
instruction on sales and marketing, inventory purchasing, computer operation,
store management and other topics Franchisor selects. The period of this session
will be at Franchisor's discretion but generally will be for not less than five
(5) days and will be scheduled by Franchisor in its sole discretion. Franchisee
must successfully complete all sessions of the training program. If Franchisee
fails to successfully complete all sessions, he/she will not be permitted or
authorized to manage Franchisee's business and Franchisor may terminate this
Agreement pursuant to Section 15(A)(2) below. Franchisee will be responsible for
travel costs, room and board, the salaries, fringe benefits and other expenses
Franchisee and its employees incur in attending all sessions of the training
program.
E. Opening Assistance. Franchisor will assist in scheduling the
opening of the Store. Franchisee will not open or commence business operations
until Franchisor has approved the opening. Franchisor will, at no charge,
provide at least one (1) person to assist Franchisee with the opening of the
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Store for at least two (2) days around the time of opening. If Franchisee is
opening its second or subsequent Store, Franchisee will provide this assistance
only at Franchisee's request.
F. Operations Manual. Franchisor will loan Franchisee one copy of
the Operations Manual wherein Franchisor will describe its operational policies,
standards, requirements and practices. Franchisee will comply with all
provisions of the Operations Manual. Franchisor reserves the right to revise the
Operations Manual at any time.
G. Additional Initial Assistance. Franchisor will assist
Franchisee in the development of a business plan. Franchisor and Franchisee may
also agree that Franchisor provide management assistance and other services, in
addition to the usual initial assistance and supervision Franchisor provides to
all franchisees, for additional agreed upon compensation.
H. Ongoing Assistance. During the operation of Franchisee's
business, Franchisor will: (1) inspect the Store as often as Franchisor deems
necessary and provide written reports to Franchisee on operations; (2) provide,
upon the written request of Franchisee, advisory services pertaining to
operation of Franchisee's business; (3) periodically make available to
Franchisee all changes, improvements and additions to the Business System to the
same extent as made available to other franchisees; (4) provide Franchisee with
all supplements and modifications to the Operations Manual; and (5) develop
advertising and marketing materials.
8. OPERATION OF THE FRANCHISEE'S BUSINESS
The Marks and Business System licensed to Franchisee represent valuable
goodwill distinctive of Franchisor's business and reputation. Franchisor will
periodically develop uniform standards of quality and service regarding the
business operations of the Store so as to protect (for the benefit of all
franchisees and Franchisor) the distinction, valuable goodwill and uniformity
represented and symbolized by the Marks and Business System. To insure that all
franchisees will maintain the uniform requirements and quality standards for
goods and services associated with the ReTool(TM) Stores and with the Marks and
Business System, Franchisee will maintain the uniformity and quality standards
Franchisor reasonably requires for all products and services and agrees to the
following provisions:
A. Managerial Responsibility. During the term of this Agreement,
the parties who have signed this Agreement on behalf of Franchisee will
personally manage and operate Franchisee's business and will not, without
Franchisor's prior written consent, delegate its authority and responsibility
with respect to management and operation. If Franchisee is a corporate entity or
a partnership, one individual will retain at least fifty percent (50%) of the
equity and voting interest in such corporation or partnership and will be
obligated to personally manage and operate the Franchisee's business.
B. Design and Appearance of Premises. The design and appearance
of the exterior and interior of the Store, including signage, are part of the
Business System. It is essential to the integrity of Franchisor's Business
System that as great a degree of uniformity as possible be maintained among the
various premises of ReTool(TM) franchisees. Franchisee agrees that: (1) no
material alteration or addition will be made to the premises without
Franchisor's prior written consent; (2) the painting and decor will be
maintained in such manner and form as Franchisor may reasonably require; (3)
Franchisee will follow Franchisor's reasonable instructions with respect to
layout and character of interior fixtures and furnishings; and (4) only such
signs, emblems, logos, lettering, and artwork as Franchisor may reasonably
require or periodically provide will be displayed on the Store premises.
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C. General Operation. Franchisee will use the Marks and Business
System in strict compliance with the standards, operating procedures,
specifications, requirements and instructions required of all ReTool(TM)
franchisees, which Franchisor may periodically amend and supplement.
D. Products and Services. Franchisee will sell only those
categories of products and services Franchisor approves in writing and will
offer for sale all products and services required by Franchisor. Franchisee will
conform to all quality and customer service standards Franchisor requires in
writing. FRANCHISOR DISCLAIMS ALL WARRANTIES, WHETHER EXPRESS OR IMPLIED,
INCLUDING ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE
IN CONNECTION WITH FRANCHISOR'S (AND/OR AN AFFILIATE'S) SALE OF ANY GOODS,
EQUIPMENT, FURNITURE, SIGNS OR SUPPLIES TO FRANCHISEE. Franchisee agrees to
execute any and all documents Franchisor reasonably requests, including letters
of credit, security agreements, and financing statements, to provide collateral
for amounts due to Franchisor for purchases of inventory and other items used in
Franchisee's business. Franchisor's approval is not required with respect to new
and used tools and small engine machinery and related accessories Franchisee
purchases from its customers or places in the Store on a consignment basis,
provided, however, that Franchisee may not sell or offer for sale any goods
which would be determined unsafe upon reasonable inspection.
E. Maintenance of Premises; Modernization. Franchisee will, at
its expense, repair, paint and keep in an attractive, clean and sanitary
condition the interior and exterior of the Store premises. Franchisee will
insure that all equipment will be kept in good working order and will meet
Franchisor's quality standards. Franchisee will periodically make reasonable
capital expenditures to remodel, modernize and redecorate the Store and to
replace and modernize the furniture, fixtures, signs, supplies and equipment
used in the Store so that the Store will reflect the then-current physical
appearance of new ReTool(TM) Stores. All remodeling, modernization or
redecoration of the Store must be done pursuant to Franchisor's then-current
standards and specifications and only with Franchisor's prior written approval.
Franchisee agrees to commence remodeling activities within ninety (90) days
after written notice from Franchisor, although Franchisee will not be required
to remodel, modernize and redecorate the Store more than once every five (5)
years during the term of this Agreement.
F. Compliance with Laws. Franchisee will, at its expense, comply
with all applicable local, state, federal and municipal laws, ordinances, rules
and regulations pertaining to the operation of the Store, including any and all
licensing and bonding requirements.
G. Payment of Liabilities. Franchisee will timely pay all of its
obligations and liabilities due and payable to Franchisor, suppliers, lessors
and creditors.
H. Taxes. Franchisee will promptly pay all federal, state and
local taxes arising out of the operation of Franchisee's business. Franchisor
will not be liable for these or any other taxes and Franchisee will indemnify
Franchisor for any such taxes that may be assessed or levied against Franchisor
which arise or result from Franchisee's business.
I. Standardization. Franchisee will require its employees to wear
such uniforms as Franchisor may designate and will comply with such programs of
standardization as Franchisor may periodically develop to promote the common
business image and to protect the goodwill associated with the Marks and
Business System.
J. Personnel. Franchisee will, at all times when open for
business, have a person designated as a management person on duty who will be
responsible for the business operations of Franchisee's
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business. Franchisee will employ and maintain a sufficient number of adequately
trained and competent employees to provide efficient service to Franchisee's
customers.
K. Hours of Operation. Franchisee's business will be open for
business for such days and hours as Franchisor may reasonably designate.
L. Additional Training Seminars. Franchisor may periodically
conduct refresher courses, seminars and other programs for all ReTool(TM)
franchisees. Franchisee and/or its employees will be required to attend any such
programs and will be responsible for any expenses incurred by them in attending
such programs including the cost of transportation, lodging, meals and any
wages.
M. Photographs. Franchisor will have the right to photograph the
Store premises and, with prior written consent, Store employees at all
reasonable times.
N. Operations Manual. To protect Franchisor's reputation and
goodwill and to maintain uniform operating standards under the Marks and
Business System, Franchisee will conduct its business in accordance with
Franchisor's Operations Manual, one copy of which Franchisee will have on loan
from Franchisor. Franchisee will treat the Operations Manual as confidential,
and will use all reasonable efforts to maintain the Operations Manual as secret
and confidential. The Operations Manual will remain Franchisor's sole property.
Franchisor may periodically revise the contents of the Operations Manual.
Franchisee agrees to comply with each new or changed standard. Franchisee will
insure that its copy of the Operations Manual is kept current. In the event of
any dispute as to the contents of the Operations Manual, the terms of the master
copy of the Operations Manual maintained by Franchisor will be controlling.
O. Lease. Franchisee's lease or sublease for the Store premises
must be approved by Franchisor before its execution, but such approval will not
be unreasonably withheld. Franchisee must provide Franchisor with an executed
copy of any lease for the Store. Franchisor makes no guarantees concerning the
success of the Store located on any site consented to by Franchisor. Franchisor
recommends that Franchisee employ an independent real estate broker to assist
Franchisee in locating a suitable site and negotiating a lease for such site.
Franchisee's lease must contain provisions requiring that: (i) so long as this
Agreement remains in effect, the premises will be used only for a ReTool(TM)
business; (ii) Franchisor will be granted the right (but not the duty) to take
possession of the premises and assume the lease in the event of a termination of
this Agreement or a threatened termination of the lease as a result of a breach
by Franchisee; (iii) the landlord will provide Franchisor written notice of any
Franchisee default and/or right to cure; and (iv) upon termination of this
Agreement or the Lease, Franchisee must remove all signs and materials bearing
the name "ReTool" and other Marks.
P. Point-of-Sale System. Franchisee will utilize in the Store the
point-of-sale system (the "POS System") which Franchisor has developed and/or
selected for the Business System, including all future updates, supplements and
modifications. The computer software package developed for use in Franchisee's
business will include a proprietary software program owned by Franchisor or
developed for Franchisor by a third party (the "Third Party Developer").
Franchisee must lease the proprietary software from Franchisor or the Third
Party Developer. Franchisee and Franchisor will enter into Franchisor's standard
form of Computer Software License Agreement attached hereto as Exhibit B ("the
Software License Agreement") in connection with Franchisee's use of such
software. Franchisor reserves the right to assign its rights, title and interest
in the Proprietary Software or the Software License Agreement to the Third Party
Developer. In such event, Franchisee may be required to enter into a separate
computer software license agreement specified by the Third Party Developer.
Franchisor also reserves the right, upon prior written notice to Franchisee, to
access information and data produced by Franchisee's POS System.
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The computer hardware component of the POS System must conform with
specifications Franchisor or the Third Party Developer develops and must be
configured as a package unit as Franchisor or the Third Party Developer
designates. If Franchisor or a third party designee is requested to configure
Franchisee's computer hardware component to conform with the designated computer
software component of the POS System, Franchisor or the third party designee may
provide such assistance for additional agreed upon compensation. Franchisee will
be required to utilize and, at Franchisor's discretion, pay for all future
updates, supplements and modifications to the POS System.
Q. Participation in Internet Web Site. Franchisee acknowledges
that the Internet is a powerful, expanding medium through which business is
conducted. Franchisee must have an e-mail address. In addition, Franchisor may,
upon ninety (90) days' prior written notice, require Franchisee, at Franchisee's
expense, to participate in a ReTool(TM) World Wide Web Site listed on the
Internet. Franchisor will, at its discretion, determine the content and use of a
ReTool(TM) Web Site and will establish the rules under which franchisees may or
will participate in such Web Site or separately use the Internet. Franchisor
will retain all rights relating to the ReTool(TM) Web Site and may alter or
terminate the Web Site upon thirty (30) days' notice to Franchisee. Franchisee's
general conduct on the Internet and specifically its use of the Marks on the
Internet (including the domain name and any other Marks Franchisor may develop
as a result of participation in the Internet) will be subject to the provisions
of this Agreement. Franchisee acknowledges that certain information obtained
through its participation in the ReTool(TM) Web Site may be considered
Confidential Information (as defined in Section 9 below), including access codes
and identification codes. Franchisee's right to participate in the ReTool(TM)
Web Site or otherwise use the Marks or Business System on the Internet will
terminate when this Agreement expires or terminates.
9. CONFIDENTIAL INFORMATION
A. Non-Disclosure of Confidential Information. Franchisee and
those individuals who have signed the Personal Guaranty attached hereto as
Exhibit C will not, during or after the term of this Agreement, communicate,
disclose or use for the benefit of any other person or entity any confidential
information, knowledge or know-how concerning the Business System which may be
communicated to Franchisee. Franchisee will disclose such confidential
information only to such of its employees as must have access to it in order to
operate Franchisee's business. Any and all information, knowledge and know-how,
including the Operations Manual, any other manuals created for use in the
operation of the Store, methods, supplier lists, procedures, specifications,
techniques, computer programs and other data which Franchisor copyrights or
designates as confidential will be deemed confidential for purposes of this
Agreement.
B. Confidentiality Agreements. All of Franchisee's employees who
have managerial duties respecting the Store and who have access to confidential
information of Franchisor, as well as all corporate officers, directors and
shareholders if Franchisee is a corporation (all partners if Franchisee is a
partnership), must sign agreements in a form satisfactory to Franchisor,
agreeing to maintain the confidentiality, during the course of their agreement
and thereafter, of all information Franchisor copyrights or designates as
confidential and proprietary. Copies of the executed agreements will be provided
to Franchisor upon request.
10. INSURANCE; BONDING
A. Insurance. Franchisee will obtain and maintain in force (under
policies of insurance issued by solvent and reputable carriers) and pay the
premiums for public liability insurance with complete
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operations coverage with minimum limits of $2,000,000 per person and $2,000,000
per occurrence, bailee insurance protecting Franchisee's consignment goods and
other insurance in such types and amounts as Franchisor may reasonably require.
Such insurance policies will expressly protect both Franchisee and Franchisor
and will require the insurer to defend both Franchisee and Franchisor in any
action. Franchisee will furnish to Franchisor a certificate of insurance as
stated above, naming Franchisor as an additional insured, and providing that
such policy will not be canceled, amended or modified except upon thirty (30)
days' prior written notice to Franchisor. Maintenance of the insurance
requirement will not relieve Franchisee of the obligations of indemnification
stated in Section 11 below. If Franchisee fails to obtain or maintain in force
any insurance as required by this Section or to furnish any certificate of
insurance required hereunder, Franchisor may, in addition to all other available
remedies, obtain such insurance or certificates, and Franchisee will promptly
reimburse Franchisor for all insurance premiums and other costs incurred in
obtaining such insurance.
B. Bonding. Franchisee will comply with any and all bonding
requirements which may be applicable to its ReTool(TM) business, including
bonding requirements resulting from the consignment portion of Franchisee's
business.
11. INDEPENDENT CONTRACTORS; INDEMNIFICATION
A. Relationship. Franchisor and Franchisee are independent
contractors. Neither Franchisor nor Franchisee will make any agreements,
representations or warranties in the name of or for the other or that their
relationship is other than franchisor and franchisee. Neither Franchisor nor
Franchisee will be obligated by or have any liability under any agreements,
representations or warranties made by the other. Franchisee alone will be
responsible for all loss or damage arising out of or relating to the operation
of Franchisee's business or arising out of the acts or omissions of Franchisee
or any of its agents, employees or contractors in connection with the
preparation and sale of products by Franchisee, and for all claims for damage to
property or for injury or death of any persons directly or indirectly resulting
therefrom. Franchisee will indemnify Franchisor against and will reimburse
Franchisor for all obligations and damages arising out of the operation of
Franchisee's business, including all costs Franchisor reasonably incurs in the
defense of any such claim brought against it or in any action in which it is
named as a party (including reasonable attorneys' fees). Franchisor will have
the right to defend any such claim against it. Franchisor will indemnify
Franchisee against and reimburse Franchisee for any obligations or liability for
damages attributable to agreements, representations or warranties of Franchisor,
or caused by Franchisor's negligence or willful action, and for costs Franchisee
reasonably incurs in the defense of any such claim brought against it or in any
action in which it is named as a party, provided that Franchisor will have the
right to participate in and, to the extent Franchisor deems necessary, to
control any litigation or proceeding which might result in liability of or
expense to Franchisee subject to such indemnification. The indemnities and
assumptions of liabilities and obligations stated in this Agreement will
continue in full force and effect following the expiration or termination of
this Agreement.
B. Enforcement. The non-prevailing party will pay all costs and
expenses, including reasonable attorneys' fees, incurred by the prevailing party
in any action or proceeding brought to enforce any provision of this Agreement
or to enjoin any violation of this Agreement.
12. SALES REPORTS, FINANCIAL STATEMENTS AND AUDIT RIGHTS
A. Sales Reports. Franchisee will maintain an accurate written
record of daily Gross Sales and will deliver to Franchisor a signed and verified
statement of the weekly Gross Sales of Franchisee's business using such forms as
Franchisor may require in writing. The weekly statement of Gross Sales must
11
be provided to Franchisor on or before Wednesday of each week for the preceding
week. Franchisor reserves the right to modify or substitute the required forms
and impose additional recordkeeping procedures.
B. Financial Statements. Franchisee will, at its expense, provide
Franchisor with quarterly and annual financial statements and such other
financial reports as Franchisor specifies using the forms and chart of accounts
Franchisor requires. All financial information provided to Franchisor under this
Section must be presented in the form Franchisor periodically requires in
writing. Franchisee will deliver the quarterly financial information to
Franchisor by the thirtieth (30th) day of the month following the end of the
preceding quarter. The annual financial statement must be provided on or before
March 1 of each year for the preceding calendar year.
C. Audit Rights. Franchisee will make all of its financial books
and records available to Franchisor or its designated representative at all
reasonable times for review and audit by Franchisor or its designee.
Franchisee's financial books and records for each fiscal and calendar year will
be kept in a secure place and will be available for audit by Franchisor for at
least five (5) years. If an audit conducted by Franchisor results in a
determination that the Continuing Fees paid to Franchisor are deficient
(underpaid) by more than two percent (2%), Franchisee will pay Franchisor for
the reasonable costs and expenses that it has incurred as a result of the audit.
If pursuant to audits, the Continuing Fees have been deficient by more than two
percent (2%) twice or more within any five (5) year period, this will be
considered a material breach of this Agreement.
13. FRANCHISOR'S RIGHT OF FIRST REFUSAL TO PURCHASE
A. Restrictions. Franchisee will not sell, assign, trade,
transfer, lease, sublease, or otherwise dispose of: (1) any interest in or any
part of the Franchised Location or this Agreement, or (2) any controlling
interest (whether through one or more related transactions) in Franchisee's
business or the assets of Franchisee's business to any third party, without
first offering the same to Franchisor in writing, at the same price and on the
same terms as stated in the proposed third-party offer. Franchisee's written
offer to Franchisor must contain all material provisions of the proposed sale or
transfer. Upon Franchisor's receipt of written notice specifying the proposed
price and terms of a proposed sale or transfer of Franchisee's business or
interest therein, Franchisor will give Franchisee written notice within ten (10)
business days thereafter if Franchisor has an interest in negotiating to
purchase the business or interest being offered according to the proposed terms.
If Franchisor commences negotiations to purchase Franchisee's business or
interest therein as described herein, Franchisee may not sell the business or
interest being offered to a third party for at least thirty (30) days or until
Franchisor and Franchisee agree in writing that the negotiations have
terminated, whichever comes first. If Franchisor waives its right to purchase,
Franchisee may complete the sale or transfer of the business or interest therein
according to the terms described in the written notice to Franchisor but not
upon more favorable terms. Any such sale, transfer or assignment to a third
party is subject to the provisions stated in Section 14 of this Agreement.
Franchisor's nonacceptance of Franchisee's written offer will not affect or
change Franchisee's obligations under this Agreement.
B. Corporate Franchisee. If Franchisee is a corporation, the
shareholders cannot sell, assign, pledge or otherwise dispose of a controlling
interest in the capital stock of Franchisee ("Capital Stock") (except to
immediate family members of the controlling shareholder(s) or to a trust
established for their benefit) until the Capital Stock has been first offered to
Franchisor in writing under the same terms and conditions offered to any third
party. A shareholder of Franchisee may, however, bequeath, sell, assign, trade
or transfer his/her Capital Stock to the other shareholders of Franchisee
corporation because of death or permanent disability without first offering it
to Franchisor, provided Franchisee provides Franchisor with
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written notice of all such transactions. All shares of Capital Stock issued by
Franchisee's corporation to its shareholders must bear the following legend on
the reverse side of each issued and outstanding stock certificate:
The shares of capital stock represented by this certificate
are subject to a written Franchise Agreement which grants Grow
Biz International, Inc. a right of first refusal to purchase
these shares of capital stock from the shareholder.
Nothing in this Section will be construed as prohibiting the shares of Capital
Stock of a corporate Franchisee from being pledged as security to an
institutional lender who has provided financing to or for the Store; provided
the institutional lender accepts such security interest subject to Franchisor's
reasonable conditions.
14. ASSIGNMENT OF FRANCHISE AGREEMENT
A. By Franchisor. This Agreement may be assigned and transferred
by Franchisor and will benefit Franchisor's successors and assigns. Any such
assignment or transfer will require the assignee to fulfill Franchisor's
obligations under this Agreement.
B. Corporate Franchisee. This Agreement may be transferred or
assigned by Franchisee to a corporation which is owned or controlled by
Franchisee, provided: (i) Franchisee and all other shareholders of the assignee
corporation owning at least ten percent (10%) of the Capital Stock thereof sign
the Personal Guaranty attached hereto as Exhibit C and agree to be bound by the
provisions of this Agreement; and (ii) Franchisee furnishes prior written proof
to Franchisor substantiating that the corporation will be financially able to
perform all of the provisions of this Agreement. Franchisee will give Franchisor
fifteen (15) days written notice before the proposed date of assignment or
transfer of this Agreement to a corporation owned or controlled by Franchisee;
however, the transfer or assignment of this Agreement will not be valid or
effective until Franchisor has received the legal documents which its legal
counsel deems necessary to properly document such transfer or assignment.
C. Conditions to Other Transfer or Assignment. Franchisee (and
its partners and shareholders, if any) will not transfer (whether voluntary or
involuntary), assign or otherwise dispose of, in one or more transactions,
Franchisee's business, the Franchised Location, substantially all or all of the
assets of Franchisee's business, this Agreement or any controlling interest in
Franchisee (a "controlling" interest will include a proposed transfer of fifty
percent (50%) or more of the Capital Stock of a corporate Franchisee) without
Franchisor's prior written consent, except to trusts established for
Franchisee's benefit. Franchisor will not unreasonably withhold its consent to a
transfer, subject to any or all of the following conditions described below
which Franchisor may, in its sole discretion, deem necessary:
1. All of Franchisee's accrued monetary obligations to
Franchisor will have been satisfied, and Franchisee is not in default
under this Agreement;
2. Franchisee executes a written agreement in a form
satisfactory to Franchisor, in which Franchisee covenants to observe
all applicable post-term obligations and covenants contained in this
Agreement;
3. The transferee-franchisee enters into a written agreement
in a form satisfactory to Franchisor assuming and agreeing to discharge
all of Franchisee's
13
obligations and covenants under this Agreement for
the remainder of its term or, at Franchisor's option, execute
Franchisor's then-current standard form of franchise agreement (which
may provide for different royalties, advertising contributions,
duration, and other rights and obligations from those provided in this
Agreement);
4. The transferee-franchisee is approved by Franchisor and
demonstrates to Franchisor's satisfaction that he/she meets
Franchisor's managerial, financial, and business standards for new
franchisees, possesses a good business reputation and credit rating,
and has the aptitude and ability to conduct the franchised business.
Franchisee understands that Franchisor may communicate directly with
the transferee-franchisee during the transfer process to respond to
inquiries, as well as to ensure that the transferee-franchisee meets
Franchisor's qualifications; and
5. The transferee-franchisee successfully completes
Franchisor's training program.
D. Transfer Fee. If this Agreement is assigned or transferred
pursuant to Section 14(C) above, Franchisee will pay Franchisor a transfer fee
of Five Thousand Dollars ($5,000) for the costs Franchisor incurs, including the
costs of any required training. There will be no transfer fee payable with
respect to transfers to immediate family members.
15. FRANCHISOR'S TERMINATION RIGHTS
A. Grounds. Franchisee will be in default, and Franchisor may, at
its option, terminate this Agreement, as provided herein, if: (1) Franchisee
fails to open and commence operations of the Store at such time as the premises
are ready for occupancy or within nine (9) months of the execution of this
Agreement, whichever occurs first; (2) Franchisee violates any material
provision or obligation of this Agreement; (3) Franchisee or any of its
managers, directors, officers or majority shareholders are convicted of, or
plead guilty to or no contest to (a) a charge of violating any law which
adversely impacts upon the reputation of the franchised business or (b) any
felony; (4) Franchisee fails to conform to the material requirements of the
Business System or the material standards of uniformity and quality for the
products and services Franchisor has established in connection with the Business
System; (5) Franchisee fails to timely pay Continuing Fees, Marketing or
Advertising Fees, buying group (inventory) obligations or any other obligations
or liabilities due and owing to Franchisor or fails to timely pay any
advertising cooperative obligations; (6) Franchisee is insolvent within the
meaning of any applicable state or federal law; (7) Franchisee makes an
assignment for the benefit of creditors or enters into any similar arrangement
for the disposition of its assets for the benefit of creditors; (8) Franchisee
voluntarily or otherwise "abandons" (as defined below) the franchised business;
(9) Franchisee is involved in any act or conduct which materially impairs the
goodwill associated with the name "ReTool" or any of the Marks or the Business
System; or (10) Franchisee's lease for the Store premises expires or is
terminated for any reason (unless, through no fault of Franchisee, the lessor of
the premises in which the Store is located refuses to renew Franchisee's lease
and Franchisee relocates within the Development Area to a site approved by
Franchisor within sixty (60) days thereafter). The term "abandon" means
Franchisee's failure to operate the Store during regular business hours for a
period of ten (10) consecutive days without Franchisor's prior written consent
unless such failure is due to an act of God, war, strikes or riots.
B. Procedure. Except as described below, Franchisee will have
thirty (30) days, or such longer period as applicable law may require, after its
receipt from Franchisor of a written Notice of Termination within which to
remedy any default hereunder, and to provide evidence thereof to Franchisor.
14
If Franchisee fails to correct the alleged default within that time (or such
longer period of time as applicable law may require), this Agreement will
terminate without further notice to Franchisee effective immediately when the
thirty (30) day period (or such longer period as applicable law may require)
expires. Franchisor may terminate this Agreement immediately upon delivery of
written notice to Franchisee, with no opportunity to cure, if the termination
results from any of the following: (1) Franchisee repeatedly fails to comply
with one or more material requirements of this Agreement; (2) the nature of
Franchisee's breach makes it not curable; (3) Franchisee willfully and
repeatedly deceivesc customers relative to the source, nature or quality of
goods sold; (4) any default under items (3), (6), (8) or (9) in Section 15(A)
above; or (5) Franchisee willfully and materially falsifies any report,
statement, or other written data furnished to Franchisor either during the
franchise application process or after Franchisee is awarded a franchise. Any
report submitted pursuant to Section 12 will be conclusively deemed to be
materially false if it understates Gross Sales by more than four percent (4%).
C. Applicable Law. If the provisions of this Section 15 are
inconsistent with applicable law, the applicable law will apply.
Franchisor's ability to terminate or fail to renew a Wisconsin franchise
will be governed by the Wisconsin Fair Dealership Law, Chap. 135, Wisc.
Stats. Minnesota law provides franchisees with certain termination and
non-renewal rights. As of the date of this Agreement, Minn. Stat.
Section 80C.14, Subd. 3, 4 and 5 require that, except in certain specified
cases, a franchisee be given 90 days notice of termination (with 60 days to
cure) and 180 days notice for non-renewal of the Agreement.
16. FRANCHISEE'S TERMINATION RIGHTS; NOTICE REQUIRED
A. Termination. Franchisee may terminate this Agreement if
Franchisor violates any material obligation of Franchisor to Franchisee and
fails to cure such violation within thirty (30) days after Franchisor's receipt
of written notice from Franchisee; provided, however, that Franchisee is in
substantial compliance with the Agreement at the time of giving such notice of
termination. Franchisee's written notice will identify the violation and demand
that it be cured.
B. Required Notice. A party must give the other party written
notice of an alleged default under or violation of this Agreement after it has
knowledge of, determines, or is of the opinion that there has been an alleged
default under or violation of this Agreement. If there is failure to give
written notice of an alleged default under this Agreement within one (1) year
from the date that the nonbreaching party has knowledge of, determines or is of
the opinion that there has been an alleged default, the alleged default will be
deemed to be approved and waived, and the alleged default or violation will not
be deemed to be a default under or violation of this Agreement.
17. FRANCHISEE'S OBLIGATIONS UPON TERMINATION
A. Post-Term Duties. If this Agreement is terminated for any
reason other than a termination as a result of a breach by Franchisor,
Franchisee will: (1) within five (5) days after termination, pay all amounts due
and owing to Franchisor under this Agreement; (2) return to Franchisor by first
class prepaid United States mail the Operations Manual and any other manuals,
advertising materials, and all other printed materials relating to the operation
of the franchised business; (3) assign to Franchisor the telephone number for
the Store; and (4) remove all signs and other materials bearing the name
"ReTool" and other Marks; (5) comply with all post-termination obligations under
the Software License Agreement, including the return of all copies of
Franchisor's proprietary software; and (6) comply with all other applicable
provisions of this Agreement, including the non-compete provisions. Upon
termination of this Franchise Agreement for any reason, Franchisee's right to
use the name "ReTool" and the other Marks and the
15
Business System will immediately terminate. If Franchisee fails to remove all
signs and other materials bearing the Marks, Franchisor may do so at
Franchisee's expense.
B. Redecoration. If this Agreement is terminated for any reason,
and Franchisor permits Franchisee to remain in possession of the Franchised
Location, Franchisee will, at its expense modify, both the exterior and interior
appearance of the business premises so that they will be easily distinguished
from the standard appearance of ReTool(TM) Stores. At a minimum, such changes
and modifications to the premises will include: (1) repainting the premises with
totally different colors; (2) removing all signs and other materials bearing the
name "ReTool" and other Marks; (3) removing from the premises all fixtures which
are indicative of ReTool(TM) Stores; (4) discontinuing use of the approved
employee uniforms and refraining from using any uniforms which are confusingly
similar; and (5) discontinuing use of all packaging and confidential information
regarding the operation of the Store.
18. FRANCHISEE'S COVENANTS NOT TO COMPETE
A. During Term. Franchisee (and the Personal Guarantors) will
not, during the term of this Agreement, on their own account or as an employee,
agent, consultant, partner, officer, director, or shareholder of any other
person, firm, entity, partnership or corporation, own, operate, lease,
franchise, conduct, engage in, be connected with, have any interest in, or
assist any person or entity engaged in any business involving wholesale or
retail tools or small engine machinery or related accessories, or any other
related business that is competitive with or similar to a ReTool(TM) Store,
except with Franchisor's prior written consent.
B. After Termination. Franchisee (and the Personal Guarantors)
will not, for a period of one (1) year after this Agreement expires or is
terminated (except for a termination as a result of a Franchisor's breach), on
their own account or as an employee, agent, consultant, partner, officer,
director, or shareholder of any other person, firm, entity, partnership or
corporation, own, operate, lease, franchise, conduct, engage in, be connected
with, have any interest in or assist any person or entity engaged in any
business involving wholesale or retail tools or small engine machinery or
related accessories or any other related business that is competitive with or
similar to a ReTool(TM) Store which is located at the Franchised Location or
within a six (6) mile radius of the Franchised Location or any ReTool(TM) Store.
Franchisee expressly agrees that the one (1) year period and the six (6) mile
radius are the reasonable and necessary time and distance needed to protect
Franchisor if this Agreement expires or is terminated for any reason.
C. Injunctive Relief. Franchisee agrees that damages alone cannot
adequately compensate Franchisor if there is a violation of these noncompetitive
covenants and that injunctive relief is essential for the protection of
Franchisor. Franchisee therefore agrees that in case of any alleged breach or
violation of this Section by it, Franchisor may seek injunctive relief without
posting any bond or security, in addition to all other remedies that may be
available to Franchisor at equity or law.
19. ARBITRATION; ENFORCEMENT
A. Arbitration Process. Except to the extent Franchisor elects to
enforce the provisions of this Agreement by judicial process and injunction as
provided herein, all disputes, claims and controversies between the parties
arising under or in connection with this Agreement or the making, performance or
interpretation thereof (including claims of fraud in the inducement and other
claims of fraud and the arbitrability of any matter) will be settled by
arbitration under the authority of the Federal Arbitration Act in
16
Minneapolis, Minnesota. The arbitrator will have the right to award specific
performance of this Agreement. The proceedings will be conducted under the
commercial arbitration rules of the American Arbitration Association, to the
extent such Rules are not inconsistent with the provisions of this arbitration
provision. The decision of the arbitrator will be final and binding on all
parties. This Section will survive termination or non-renewal of this Agreement
under any circumstances. Judgment upon the award of the arbitrator may be
entered in any court having jurisdiction thereof. During the pendency of any
arbitration proceeding, Franchisee and Franchisor will fully perform their
respective obligations under this Agreement.
B. Additional Proceedings. If, after Franchisor or Franchisee
institutes an arbitration proceeding, one or the other asserts a claim,
counterclaim or defense, the subject matter of which, under statute or current
judicial decision is nonarbitrable for public policy reasons, the party against
whom the claim, counterclaim or defense is asserted may elect to proceed with
the arbitration of all arbitrable claims, counterclaims or defenses or to
proceed to litigate all claims, counterclaims or defenses in a court having
competent jurisdiction.
C. Punitive Damages. Franchisor and Franchisee acknowledge that
judgment upon an arbitration award may be entered in any court of competent
jurisdiction and will be binding, final and nonappealable. Franchisor and
Franchisee (and their respective owners and guarantors, if applicable) agree to
waive, to the fullest extent permitted by law, the right to or claim for any
punitive or exemplary damages against the other and agree that in the event of a
dispute between them, each will be limited to the recovery of actual damages
sustained by it.
D. Enforcement of Franchise Agreement. Notwithstanding the other
provisions of this Section 19, Franchisee recognizes that the failure of a
single franchisee to comply with the terms of its ReTool(TM) franchise agreement
could cause irreparable damage to Franchisor or to some or all other ReTool(TM)
franchisees. Franchisor and Franchisee, therefore agree that, in the event of a
breach or threatened breach of Sections 3, 8, 9, 12, 13, 14, 17 and/or 18 of
this Agreement by Franchisee or in the event of any conduct by Franchisee which
is illegal or is dishonest or misleading to Franchisee's customers or
prospective customers or may impair the goodwill associated with the Marks,
Franchisor may seek an injunction restraining such breach or obtain a decree of
specific performance, without showing or proving any actual damage, until such
time as a final and binding determination is made by the arbitrator. The
foregoing equitable remedy will be in addition to, and not in lieu of, all other
remedies or rights which Franchisor might otherwise have by virtue of any breach
of this Agreement by Franchisee.
20. SEVERABILITY AND CONSTRUCTION
A. Severability. All provisions of this Agreement are severable
and this Agreement will be interpreted and enforced as if all completely invalid
or unenforceable provisions were not contained herein and partially valid and
enforceable provisions will be enforced to the extent valid and enforceable. If
any applicable law or rule of any jurisdiction requires a greater prior notice
period than is required hereunder, or if under any applicable law or rule of any
jurisdiction, any provision of this Agreement is invalid or unenforceable, the
prior notice required by such law or rule will be substituted for the notice
requirements hereof, or such invalid or unenforceable provision will be modified
to the extent required to be valid and enforceable. Such modifications to this
Agreement will be effective only in such jurisdiction and will be enforced as
originally made and entered into in all other jurisdictions.
B. Waiver. Franchisor and Franchisee may by written instrument
unilaterally waive any obligation of or restriction upon the other under this
Agreement. No acceptance by Franchisor of any payment by Franchisee and no
failure, refusal or neglect of Franchisor or Franchisee to exercise any right
17
under this Agreement or to insist upon full compliance by the other with its
obligations hereunder, including any mandatory specification, standard or
operating procedure, will constitute a waiver of any provision of this
Agreement.
C. Cumulative Rights. The rights of Franchisor and Franchisee
hereunder are cumulative and no exercise or enforcement by Franchisor or
Franchisee of any right or remedy hereunder will preclude the exercise or
enforcement by Franchisor or Franchisee of any other right or remedy hereunder
or which Franchisor or Franchisee is entitled by law to enforce.
D. Governing Law. Except to the extent governed by the United
States Trademark Act of 1946 (Lanham Act, 15 U.S.C. Section 1051 et seq.), this
Agreement and the franchise relationship will be governed by the laws of the
state in which the Franchised Location is located.
E. Binding Effect. This Agreement is binding upon the parties
hereto and their respective executors, administrators, heirs, assigns and
successors in interest.
F. Consents. Whenever a party's consent or approval is required
under this Agreement, such consent or approval will not be unreasonably withheld
or delayed.
G. Entire Agreement. The "Background" section is a part of this
Agreement which, together with exhibits, represents the entire agreement of the
parties. This Agreement supersedes and terminates any prior oral or written
understandings or agreements between Franchisor and Franchisee relating to the
subject matter of this Agreement. No modification of this Agreement will be
effective unless it is in writing and signed by Franchisor and Franchisee. The
term "Franchisee" as used herein is applicable (where relevant) to one or more
persons, a corporation or a partnership. References to "Franchisee," "assignees"
and "transferees" which are applicable to an individual or individuals mean the
principal owner or owners of the equity or operating control of Franchisee or
any such assignee or transferee if Franchisee or such assignee or transferee is
a corporation or partnership. If Franchisee consists of more than one
individual, all individuals will be bound jointly and severally by the
provisions of this Agreement.
21. NOTICES
All notices to Franchisor will be in writing and will be made by
personal service or sent by prepaid first class United States mail addressed to
Franchisor at its principal place of business, or at such other address as
Franchisor may designate in writing. All notices to Franchisee will be made by
prepaid first class United States mail addressed to Franchisee at the Franchised
Location, or such other address as Franchisee may designate in writing. Any
notice under this Agreement may also be made by a recognized delivery service
that requires a written receipt.
22. ACKNOWLEDGMENTS
A. Independent Investigation. Franchisee acknowledges that it has
conducted an independent investigation of the business franchised hereunder, and
recognizes that the business venture contemplated by this Agreement involves
business risks and that its success will largely depend on Franchisee's ability
as an independent business person. Franchisor expressly disclaims the making of,
and Franchisee acknowledges that it has not received, any warranty or guarantee,
express or implied, as to the potential volume, profits or success of the
business venture contemplated by this Agreement.
18
B. Franchise Agreement. Franchisee acknowledges that it has
received, read, and understood this Agreement and that Franchisor has fully and
adequately explained the provisions of it to Franchisee's satisfaction and that
Franchisee has had sufficient time and opportunity to consult with advisors of
its own choosing about the potential benefits and risks of entering into this
Agreement.
C. Other Franchises. Franchisee acknowledges that other
franchisees of Franchisor have or will be granted franchises at different times
and in different situations, and further acknowledges that the provisions of
such franchises may vary substantially from those contained in this Agreement.
D. Receipt of Documents. Franchisee acknowledges that it received
a copy of this Agreement at least five (5) business days before the date on
which this Agreement was executed. Franchisee further acknowledges that he/she
has received a Franchise Offering Circular at least ten (10) business days
before the date on which this Agreement was executed.
IN WITNESS WHEREOF, Franchisor and Franchisee have signed this
Agreement as of the day and year first above written.
FRANCHISOR DISCLAIMS ANY WARRANTY OR REPRESENTATION AS TO THE POTENTIAL SUCCESS
OF FRANCHISEE'S BUSINESS OPERATIONS UNDER THIS AGREEMENT.
This is a legal document which grants specific rights to and imposes certain
obligations upon Franchisor and Franchisee. Consult legal counsel to be sure
that you understand your rights and duties. Please insert the name and address
of your attorney:______________________________________________________________.
"FRANCHISOR" "FRANCHISEE"
GROW BIZ INTERNATIONAL, INC. If "Franchisee" is a corporation,
___________________________________________
(Print Corporate Name)
By ________________________________ By_________________________________________
Its___________________________ Its____________________________________
If "Franchisee" is one or more individuals,
__________________________________________
(Print Individual Name)
By_________________________________________
__________________________________________
(Print Individual Name)
By_________________________________________
19
__________________________________________
(Print Individual Name)
By_________________________________________
20
EXHIBIT A
TO FRANCHISE AGREEMENT
FRANCHISEE'S DEVELOPMENT AREA AND EXCLUSIVE TERRITORY
1. Description of Development Area:
2. Description of Exclusive Territory:
____________________________ __________________________
Franchisor Franchisee
EXHIBIT B
TO FRANCHISE AGREEMENT
COMPUTER SOFTWARE LICENSE AGREEMENT
2
EXHIBIT C
TO FRANCHISE AGREEMENT
PERSONAL GUARANTY AND AGREEMENT TO BE BOUND
PERSONALLY BY THE PROVISIONS OF THE FRANCHISE AGREEMENT
In consideration of Franchisor's execution of this Franchise Agreement,
and for other good and valuable consideration, the undersigned jointly and
severally: (1) guarantee Franchisee's payment of all amounts due Franchisor and
Franchisee's performance of the covenants and obligations in this Franchise
Agreement; and (2) agree to be personally bound by every provision contained in
this Franchise Agreement including the non-compete provisions and agree that
this Personal Guaranty will be construed as though the undersigned executed a
Franchise Agreement containing the identical provisions of this Franchise
Agreement.
A. Each of the undersigned waives:
(1) notice of demand for payment of any indebtedness or
nonperformance of any obligations hereby guaranteed;
(2) protest and notice of default to any party
respecting the indebtedness or nonperformance of any obligations hereb
guaranteed; and
(3) any right he/she may have to require that an action be
brought against Franchisee or any other person as a condition of
liability.
B. Each of the undersigned consents and agrees that:
(1) he/she will provide any payment or performance required
under the Agreement upon demand if Franchisee fails or refuses to do
so;
(2) such liability will not be contingent or conditioned upon
Franchisor's pursuit of any remedies against Franchisee or any other
person; and
(3) such liability will not be diminished, relieved or
otherwise affected by Franchisee's insolvency, bankruptcy or
reorganization, the invalidity, illegality or unenforceability of all
or any part of the Agreement, or the amendment or extension of the
Agreement with or without notice to the undersigned.
3
IN WITNESS WHEREOF, each of the undersigned has signed this Guaranty on
the same day and year as the Franchise Agreement was signed.
In the Presence of: PERSONAL GUARANTORS
__________________________ ______________________________________________
Individually
______________________________________________
Address
__________________________ ______________________________________________
Individually
______________________________________________
Address
__________________________ ______________________________________________
Individually
______________________________________________
Address
__________________________ ______________________________________________
Individually
______________________________________________
Address
GP:469983 v2
4
EXHIBIT 10.26
===============================================================================
AMENDED AND RESTATED CREDIT AGREEMENT
among
TCF NATIONAL BANK MINNESOTA,
GROW BIZ INTERNATIONAL, INC., and
GROW BIZ GAMES, INC.
Dated as of
October 14, 1998
================================================================================
TABLE OF CONTENTS
I General Assumptions....................................................... 1
II Scope of Agreement....................................................... 1
III Credit Facilities....................................................... 3
3.1 The Existing Revolving Advances and Bridge Advances............. 3
3.2 The Revolving Loan............................................. 3
(a) General Terms and Conditions.......................... 3
(b) Conditions Precedent.................................. 4
(c) Revolving Note........................................ 4
(d) Normal Rate of Interest............................... 4
(e) Use of Proceeds....................................... 4
(f) Other Prepayments; Prepayment Premium................. 4
3.3 Term Loan....................................................... 4
(a) General Terms and Conditions.......................... 4
(b) Conditions Precedent.................................. 5
(c) Term Loan Note........................................ 5
(d) Normal Rate of Interest............................... 5
(e) Use of Proceeds....................................... 6
(f) Prepayment; Prepayment Premium........................ 6
3.4 The Existing Term Loan.......................................... 6
3.5 Existing Letters of Credit...................................... 7
IV Terms and Conditions Applicable to all Credit Facilities................. 9
4.1 Procedures for Requesting Advances............................. 9
4.2 Payments....................................................... 9
4.3 Application of Payments........................................ 10
4.4 Computation of Interest and Fees............................... 10
4.5 Default Rate of Interest....................................... 10
4.6 Late Fees...................................................... 11
V Conditions Precedent to Advances.......................................... 11
5.1 Condition Precedent to Initial Advance......................... 11
5.2 Conditions Precedent to All Advances........................... 13
VI Representations and Warranties........................................... 13
6.1 Existence and Power............................................ 13
6.2 Authorization of Borrowing; No Conflict as to Law or Agreements 14
6.3 Legal Agreements............................................... 14
6.4 Subsidiaries................................................... 14
i
6.5 Financial Condition............................................ 14
6.6 Adverse Change................................................. 15
6.7 Litigation..................................................... 15
6.8 Regulation G................................................... 15
6.9 Taxes.......................................................... 15
6.10 Titles and Liens.............................................. 15
6.11 Plans......................................................... 16
6.12 Default....................................................... 16
6.13 Environmental Protection...................................... 16
6.14 Submissions to Bank........................................... 17
6.15 Stock Buy-Back Program........................................ 17
VII Affirmative Covenants.................................................. 17
7.1 Financial Statements...........................................17
7.2 Books and Records; Inspection and Examination..................19
7.3 Compliance with Laws...........................................19
7.4 Payment of Taxes and Other Claims..............................19
7.5 Maintenance of Properties, Rights to Intellectual Property.....20
7.6 Preservation of Existence......................................20
7.7 Insurance......................................................20
7.8 Public Exchange Listing........................................20
7.9 Current Ratio..................................................20
7.10 Capital Base Plus Repurchased Stock Amount.................... 21
7.11 Total Liabilities to Capital Base Ratio....................... 21
7.12 Minimum Debt Service Coverage Ratio........................... 21
VIII Negative Covenants..................................................... 22
8.1 Liens.......................................................... 22
8.2 Indebtedness................................................... 23
8.3 Guaranties..................................................... 23
8.4 Investments.................................................... 24
8.5 Consolidation and Merger....................................... 24
8.7 Restrictions on Nature of Business............................. 25
8.8 Transactions with Affiliates................................... 25
8.9 Sale or Transfer of Assets; Suspension of Business Operations.. 25
8.10 Sale and Leaseback............................................. 25
8.11 Defined Benefit Pension Plans.................................. 26
IX Events of Default, Rights and Remedies.................................. 26
9.1 Events of Default.............................................. 26
ii
9.2 Rights and Remedies............................................ 28
X Miscellaneous........................................................... 29
10.1 Restatement of Old Credit Documents........................... 29
10.2 Amendments, Etc............................................... 29
10.3 Notices, Etc.................................................. 29
10.4 No Waiver; Remedies........................................... 30
10.5 Indemnification by Borrower................................... 30
10.6 Costs and Expenses............................................ 31
10.7 Severability of Provisions.................................... 32
10.8 Binding Effect................................................ 32
10.9 Execution in Counterparts..................................... 32
10.10 Headings...................................................... 32
APPENDIX
Glossary of Terms
EXHIBITS
Exhibit A Revolving Note
Exhibit B Term Loan B Note
Exhibit C Compliance Certificate
Exhibit D Schedule of Trademarks and Tradenames
Exhibit E Schedule of Permitted Liens, Indebtedness and Guaranties
Grow Biz/A&R Credit Agreement
iii
AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of October 14, 1998
Grow Biz International, Inc., a Minnesota corporation
("International"), Grow Biz Games, Inc., a Minnesota corporation ("Games" and
together with International, the "Borrowers" and each, a "Borrower") and TCF
National Bank Minnesota, a national banking association (the "Bank") agree as
follows:
ARTICLEI
GENERAL ASSUMPTIONS I
General Assumptions
For all purposes of this Agreement, except as otherwise
expressly provided or unless the context otherwise requires:
(a) all terms defined in this Agreement include
the plural as well as the singular;
(b) all accounting terms not otherwise defined
herein have the meanings assigned to them in accordance
with GAAP;
(c) inventory shall be valued at the lower of
cost, computed on a first-in, first-out basis, or fair market
value; and
(d) all terms defined in the Glossary of Terms set
forth in the Appendix to this Agreement have the meanings
assigned to them in the Glossary of Terms.
ARTICLEII
SCOPE OF AGREEMENT II
Scope of Agreement
The Bank may, in its sole discretion, from time to time make
one or more loans, advances or other financial accommodations available to or
for the benefit of the Borrowers in addition to such loans, advances or other
financial accommodations initially made available to or
for the benefit of International and provided for in this Agreement. Any such
additional Obligations shall, to the extent applicable, except as otherwise
explicitly set forth in any promissory note or written agreement accepted by or
entered into with the Bank in connection with such Obligations, be governed by
and subject to the terms set forth herein. Nothing herein shall obligate the
Bank to make or permit any such additional loans, advances, accommodations or
Obligations.
Grow Biz/A&R Credit Agreement
2
ARTICLE III
CREDIT FACILITIES
SECTION 3.1 THE EXISTING REVOLVING ADVANCES AND BRIDGE
ADVANCES. THE BANK HAS MADE VARIOUS REVOLVING ADVANCES TO INTERNATIONAL PURSUANT
TO THE OLD CREDIT DOCUMENTS AND EVIDENCED BY THE OLD REVOLVING NOTE (THE
"EXISTING REVOLVING ADVANCES"). AS OF OCTOBER 14, 1998, THE OUTSTANDING
PRINCIPAL BALANCE OF THE EXISTING REVOLVING ADVANCES WAS $ 2,800,000. THE BANK
HAS ALSO MADE AN ADVANCE TO INTERNATIONAL AS EVIDENCED BY THE COMMERCIAL TERM
NOTE DATED AS OF SEPTEMBER 14, 1998 (THE "BRIDGE ADVANCE"). AS OF OCTOBER 14,
1998, THE OUTSTANDING PRINCIPAL BALANCE OF THE BRIDGE ADVANCE WAS $ 2,000,000.
UPON EXECUTION AND DELIVERY OF THIS AGREEMENT, THE EXISTING REVOLVING ADVANCES
SHALL BE DEEMED TO BE REVOLVING ADVANCES MADE PURSUANT TO SECTION 3.2 AND
REPAYABLE IN ACCORDANCE WITH THE REVOLVING NOTE, WHILE THE BRIDGE ADVANCE SHALL
BE DEEMED TO BE A TERM LOAN B ADVANCE MADE PURSUANT TO SECTION 3.3 AND REPAYABLE
IN ACCORDANCE WITH THE TERM LOAN B NOTE. TO THE EXTENT THE REVOLVING NOTE
EVIDENCES THE EXISTING REVOLVING ADVANCES, THE REVOLVING NOTE SHALL BE ISSUED IN
SUBSTITUTION FOR AND REPLACEMENT OF BUT NOT IN PAYMENT OF THE OLD REVOLVING
NOTE. TO THE EXTENT THE TERM LOAN B NOTE EVIDENCES THE BRIDGE ADVANCES, THE TERM
LOAN B NOTE SHALL BE ISSUED IN SUBSTITUTION FOR AND REPLACEMENT OF BUT NOT IN
PAYMENT OF THE COMMERCIAL TERM NOTE.
SECTION 3.2 THE REVOLVING LOAN
(a) GENERAL TERMS AND CONDITIONS. THE BANK AGREES, ON THE TERMS AND
CONDITIONS HEREIN SET FORTH, TO MAKE REVOLVING ADVANCES TO THE
BORROWERS FROM TIME TO TIME FROM THE DATE HEREOF TO AND INCLUDING
JULY 31, 1999, OR THE EARLIER TERMINATION OF THE COMMITMENT TO MAKE
REVOLVING ADVANCES PURSUANT TO SECTION 9.2 HEREOF, IN AN AGGREGATE
AMOUNT NOT TO EXCEED AT ANY TIME OUTSTANDING THE REVOLVING COMMITMENT
AMOUNT. THE MINIMUM AMOUNT OF EACH REVOLVING ADVANCE SHALL BE $50,000.
WITHIN THE ABOVE LIMITS, THE BORROWERS MAY BORROW, PREPAY AND REBORROW
REVOLVING ADVANCES UNDER THIS SECTION 3.2. FROM AND AFTER THE DATE OF
THE FIRST REVOLVING ADVANCE, ACCRUED INTEREST ON THE REVOLVING NOTE
SHALL BE DUE AND PAYABLE MONTHLY, COMMENCING ON
Grow Biz/A&R Credit Agreement
3
THE TENTH (10th) DAY OF THE MONTH FOLLOWING THE DATE OF
THE FIRST REVOLVING ADVANCE, AND ON THE SAME DAY OF EACH MONTH
THEREAFTER UNTIL PAYMENT IN FULL OF THE REVOLVING NOTE.
(b) CONDITIONS PRECEDENT. THE OBLIGATION OF THE BANK TO MAKE EACH
REVOLVING ADVANCE SHALL BE SUBJECT TO THE CONDITIONS PRECEDENT THAT ON
OR BEFORE THE DATE OF THE REQUESTED REVOLVING ADVANCE (i) THE BANK
SHALL HAVE RECEIVED ALL FINANCIAL REPORTS REQUIRED TO BE DELIVERED TO
THE BANK PURSUANT TO THE TERMS OF THIS AGREEMENT, AND (ii) ALL
CONDITIONS PRECEDENT IN ARTICLE V HEREOF SHALL HAVE BEEN SATISFIED.
(c) REVOLVING NOTE. THE REVOLVING ADVANCES MADE BY THE BANK SHALL BE
EVIDENCED BY, AND PAYABLE WITH INTEREST IN ACCORDANCE WITH, A SINGLE
PROMISSORY NOTE OF THE BORROWERS OF EVEN DATE HEREWITH, PAYABLE TO THE
ORDER OF THE BANK IN THE MAXIMUM PRINCIPAL AMOUNT OF $10,000,000 IN THE
FORM OF EXHIBIT A, ATTACHED HERETO (AS THE SAME MAY HEREAFTER BE
EXTENDED, RENEWED, AMENDED OR REPLACED FROM TIME TO TIME, THE
"REVOLVING NOTE").
(d) NORMAL RATE OF INTEREST. THE PRINCIPAL BALANCE OF THE REVOLVING
NOTE OUTSTANDING FROM TIME TO TIME SHALL BEAR INTEREST FROM THE DATE
HEREOF UNTIL PAID IN FULL AT AN ANNUAL RATE WHICH SHALL AT ALL TIMES BE
EQUAL TO THE BASE RATE, WHICH ANNUAL RATE SHALL CHANGE WHEN AND AS THE
BASE RATE CHANGES; SUBJECT, HOWEVER, TO IMPOSITION OF THE DEFAULT RATE
PURSUANT TO SECTION 4.5.
(e) USE OF PROCEEDS. THE BORROWERS SHALL USE THE PROCEEDS OF THE
INITIAL REVOLVING ADVANCE TO REFINANCE EXISTING INDEBTEDNESS OF THE
BORROWERS AND REPURCHASE CERTAIN SHARES OF STOCK. THE BORROWERS SHALL
USE THE PROCEEDS OF ALL OTHER REVOLVING ADVANCES FOR GENERAL WORKING
CAPITAL PURPOSES, ALONG WITH THE REPURCHASE OF OTHER SHARES OF
INTERNATIONAL STOCK.
(f) OTHER PREPAYMENTS. THE BORROWERS MAY, UPON AT LEAST ONE BUSINESS
DAY'S PRIOR NOTICE TO THE BANK, PREPAY THE PRINCIPAL BALANCE OF THE
REVOLVING ADVANCES VOLUNTARILY IN WHOLE OR IN PART AT ANY TIME, WITHOUT
PREMIUM OR PENALTY. ANY PREPAYMENT OF THE FULL AMOUNT OF THE REVOLVING
ADVANCES AT A TIME WHEN THE BANK HAS NO FURTHER COMMITMENT TO MAKE
REVOLVING ADVANCES SHALL INCLUDE ACCRUED INTEREST THEREON.
SECTION 3.3 TERM LOAN B.
(a) GENERAL TERMS AND CONDITIONS. THE BANK AGREES, ON THE TERMS AND
SUBJECT TO THE CONDITIONS HEREIN SET FORTH, TO MAKE
Grow Biz/A&R Credit Agreement
4
TERM LOAN B ADVANCES TO THE BORROWERS DURING THE PERIOD
FROM THE DATE HEREOF TO AND INCLUDING MARCH 31, 1999, OR THE EARLIER
TERMINATION OF THE COMMITMENT TO MAKE THE TERM LOAN B ADVANCES PURSUANT
TO SECTION 9.2 HEREOF, IN AN AGGREGATE AMOUNT NOT TO EXCEED $8,000,000.
THE TERM LOAN B ADVANCES SHALL BE REPAYABLE IN MONTHLY INSTALLMENTS OF
PRINCIPAL AND INTEREST. BEGINNING ON THE FIRST DAY OF THE FIRST MONTH
FOLLOWING THE FIRST TERM LOAN B ADVANCE, THE BORROWERS SHALL PAY TO THE
BANK ACCRUED INTEREST ON THE TERM LOAN B ADVANCES, FOR INTEREST ACCRUED
DURING THE IMMEDIATELY PRECEDING MONTH. BEGINNING APRIL 1, 1999, AND
CONTINUING ON THE TENTH (10th) DAY OF EACH MONTH THEREAFTER THROUGH
JANUARY 9, 2000, ACCRUED INTEREST FOR THE PREVIOUS MONTH SHALL BE DUE
AND PAYABLE, TOGETHER, EACH MONTH, WITH A PRINCIPAL PAYMENT IN THE
AMOUNT OF $100,000, OR, IF THE BEGINNING LOAN BALANCE WAS LESS THAN
$8,000,000, THEN 1.125% OF SUCH ACTUAL BEGINNING LOAN BALANCE.
BEGINNING JANUARY 10, 2000, AND CONTINUING ON THE TENTH (10th) DAY OF
EACH MONTH THEREAFTER THROUGH MARCH 9, 2004, ACCRUED INTEREST FOR THE
PREVIOUS MONTH SHALL BE DUE AND PAYABLE, TOGETHER, EACH MONTH, WITH A
PRINCIPAL PAYMENT IN THE AMOUNT OF $150,000, OR, IF THE BEGINNING LOAN
BALANCE WAS LESS THAN $8,000,000, THEN 1.875% OF SUCH ACTUAL BEGINNING
LOAN BALANCE. ON MARCH 10, 2004 (THE "TERM LOAN B MATURITY DATE"), THE
REMAINING PRINCIPAL TOGETHER WITH ANY AND ALL ACCRUED INTEREST SHALL BE
DUE AND PAYABLE. SUCH MONTHLY PAYMENT AMOUNT MAY CHANGE AS THE INTEREST
RATE CHANGES DUE TO ANY IMPLEMENTATION OF THE DEFAULT RATE.
(b) Conditions Precedent. The obligation of the Bank to make
each Term Loan B Advance shall be subject to the conditions precedent
that on or before the date of the requested Term Loan B Advance (i) the
Bank shall have received all financial reports required to be delivered
to the Bank pursuant to the terms of this Agreement, and (ii) all
conditions precedent in Article V hereof shall have been satisfied.
(c) TERM LOAN B NOTE. THE TERM LOAN B ADVANCES SHALL BE EVIDENCED BY,
AND PAYABLE WITH INTEREST IN ACCORDANCE WITH, THE BORROWERS' PROMISSORY
NOTE OF EVEN DATE HEREWITH, PAYABLE TO THE ORDER OF THE BANK IN THE
ORIGINAL PRINCIPAL AMOUNT OF $8,000,000 IN THE FORM OF EXHIBIT B,
ATTACHED HERETO (AS THE SAME MAY HEREAFTER BE EXTENDED, RENEWED,
AMENDED OR REPLACED FROM TIME TO TIME, THE "TERM LOAN B NOTE").
(d) NORMAL RATE OF INTEREST. THE PRINCIPAL BALANCE OF THE TERM LOAN B
NOTE OUTSTANDING FROM TIME TO TIME SHALL BEAR INTEREST FROM THE DATE
HEREOF UNTIL PAID IN FULL AT AN ANNUAL RATE WHICH SHALL AT ALL TIMES BE
EQUAL TO ONE-HALF OF ONE-PERCENT (0.50%) OVER THE BASE RATE; SUBJECT,
HOWEVER, TO IMPOSITION OF THE DEFAULT RATE PURSUANT TO SECTION 4.5.
Grow Biz/A&R Credit Agreement
5
(e) USE OF PROCEEDS. THE BORROWERS SHALL USE THE PROCEEDS OF THE TERM
LOAN B NOTE TO PREPAY THE BRIDGE ADVANCE, REPURCHASE CERTAIN SHARES OF
INTERNATIONAL COMMON STOCK, AND FOR EXPENDITURES RELATED TO THE OPENING
OF COMPANY OWNED RETAIL STORES.
(f) Prepayment; Prepayment Premium. Except as otherwise
provided herein, the Borrowers may, in their discretion, prepay the
principal balance of the Term Loan B Advances in whole at any time or
from time to time in part, provided that the Borrower (i) provides the
Bank with at least 30 days prior written notice of its intention to
prepay the Term Loan B Advances, and (ii) pays the Bank a prepayment
premium equal to (1) three percent (3.0%) of the outstanding Term Loan
B Advances as of the date of such notice if such prepayment is to occur
on or before April 1, 2000, (2) two percent (2.0%) of the outstanding
balance of the Term Loan B Advances as of the date of such notice if
such prepayment is to occur after April 1, 2000, but before April 1,
2002, or (3) one percent (1.0%) of the outstanding balance of the Term
Loan B Advances as of the date of such notice if such prepayment is to
occur after April 1, 2002, but prior to the Term Loan B Maturity Date;
provided, however, that the prepayment premium shall only be due and
payable in the event that, and to the extent that, the prepayment is
made with proceeds of debt provided by another financial institution;
provided, further, that the prepayment premium shall not be due and
payable upon refinancing by another financial institution, in the case
where such refinancing is solely the result of the Bank's decision not
to renew the revolving credit facility.
SECTION 3.4 THE EXISTING TERM LOAN.
(a) GENERAL TERMS AND CONDITIONS. ON AUGUST 8, 1997, THE BANK MADE A SINGLE
ADVANCE TERM LOAN TO INTERNATIONAL IN THE AMOUNT OF $4,500,000 (THE
"EXISTING TERM LOAN ADVANCE"). THE EXISTING TERM LOAN SHALL BE REPAID BY
THE BORROWERS IN EQUAL PRINCIPAL PAYMENTS OF $75,000 PER MONTH, WHICH SUCH
PAYMENTS BEGAN ON OCTOBER 10, 1997, AND SHALL CONTINUE UNTIL SEPTEMBER 10,
2002 (THE "EXISTING TERM LOAN MATURITY DATE"), AT WHICH TIME A FINAL
PAYMENT OF THE REMAINING UNPAID PRINCIPAL BALANCE AND ALL ACCRUED AND
UNPAID INTEREST THEREON SHALL BE MADE. INTEREST ON THE EXISTING TERM LOAN
ADVANCE SHALL BE PAYABLE MONTHLY ON THE TENTH (10th) DAY OF THE NEXT
SUCCEEDING MONTH AND AT MATURITY OR EARLIER PREPAYMENT IN FULL. AS OF
OCTOBER 14, 1998, THE OUTSTANDING PRINCIPAL BALANCE OF THE EXISTING TERM
LOAN ADVANCE WAS $3,525,000.
(b) THE EXISTING TERM LOAN NOTE. THE EXISTING TERM LOAN ADVANCE IS
EVIDENCED BY, AND PAYABLE WITH INTEREST IN ACCORDANCE WITH, THE
INTERNATIONAL'S PROMISSORY NOTE DATED AS OF AUGUST 8, 1997, PAYABLE TO THE
ORDER OF THE BANK IN THE ORIGINAL PRINCIPAL AMOUNT OF $4,500,000 (AS THE
SAME MAY HEREAFTER BE EXTENDED, RENEWED, AMENDED OR REPLACED FROM TIME TO
TIME, THE "EXISTING TERM LOAN NOTE")
Grow Biz/A&R Credit Agreement
6
(c) NORMAL RATE OF INTEREST. THE PRINCIPAL BALANCE OF THE EXISTING TERM
LOAN NOTE OUTSTANDING FROM TIME TO TIME SHALL BEAR INTEREST UNTIL PAID IN
FULL AT AN ANNUAL RATE WHICH SHALL AT ALL TIMES BE EQUAL TO ONE-HALF OF ONE
PERCENT (.50%) OVER THE BASE RATE, WHICH ANNUAL RATE SHALL CHANGE WHEN AND
AS THE BASE RATE CHANGES; SUBJECT, HOWEVER, TO THE IMPOSITION OF THE
DEFAULT RATE PURSUANT TO SECTION 4.5.
(d) PREPAYMENT. THE BORROWERS MAY, UPON AT LEAST ONE BUSINESS DAY'S PRIOR
NOTICE TO THE BANK, PREPAY THE PRINCIPAL BALANCE OF THE EXISTING TERM LOAN
ADVANCE VOLUNTARILY IN WHOLE OR IN PART AT ANY TIME, WITHOUT PREMIUM OR
PENALTY. PREPAYMENTS OF PRINCIPAL OF THE EXISTING TERM LOAN ADVANCE SHALL
BE APPLIED TO INSTALLMENTS BECOMING DUE AND PAYABLE THEREUNDER IN INVERSE
ORDER OF THEIR RESPECTIVE MATURITIES. NO PREPAYMENT OF THE EXISTING TERM
LOAN ADVANCE SHALL SUSPEND OR DELAY ANY REQUIRED PAYMENTS OF PRINCIPAL OR
INTEREST OTHERWISE DUE AND PAYABLE THEREUNDER.
SECTION 3.5 EXISTING LETTER OF CREDIT.
(a) ON MARCH 16, 1998, PURSUANT TO THE OLD CREDIT DOCUMENTS, THE BANK
ISSUED A LETTER OF CREDIT FOR THE ACCOUNT OF INTERNATIONAL IN THE ORIGINAL
AMOUNT OF $2,200,000 (THE "EXISTING LETTER OF CREDIT"). THE EXPIRATION DATE
OF THE EXISTING LETTER OF CREDIT IS MARCH 16, 1999. THE BORROWERS ARE NOT
ENTITLED TO REQUEST ANY ADDITIONAL LETTERS OF CREDIT FROM THE BANK.
(b) THE BORROWERS ACKNOWLEDGE THAT THEY ARE LIABLE FOR REIMBURSEMENT AND
OTHER OBLIGATIONS WITH RESPECT TO THE EXISTING LETTER OF CREDIT.
(c) THE BORROWERS AGREE TO PAY TO THE BANK, ON WRITTEN DEMAND BY THE BANK,
THE ADMINISTRATIVE FEES CHARGED BY THE BANK IN THE ORDINARY COURSE OF
BUSINESS IN CONNECTION WITH THE HONORING OF DRAFTS UNDER THE EXISTING
LETTER OF CREDIT, AND ALL OTHER ACTIVITY WITH RESPECT TO THE EXISTING
LETTER OF CREDIT AT THE THEN-CURRENT RATES OF THE BANK.
(d) DRAWS UNDER THE EXISTING LETTER OF CREDIT SHALL BE REIMBURSED TO THE
BANK IN ACCORDANCE WITH THE EXISTING LETTER OF CREDIT APPLICATION AND AS
FOLLOWS:
(i) Whenever a draft under the Existing Letter of
Credit is presented to the Bank for payment, the Borrowers
hereby agree to immediately reimburse the Bank for the amount
paid by the Bank under the Existing Letter of Credit, plus any
and all reasonable charges and expenses that the Bank may pay
or incur relative to such draw, plus interest on all such
amounts, charges and expenses as
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set forth below (all such amounts with respect to the Existin
Letter of Credit are hereinafter referred to, collectively, as
the "Obligation of Reimbursement").
(ii) The Borrowers hereby agree to pay to the Bank,
on demand of the Bank, interest on all amounts, charges and
expenses payable by the Borrowers to the Bank under this
Section 3.5, accrued from the date any such draft, charge or
expense is paid by the Bank until payment in full by the
Borrowers at the interest rate in effect under Section 3.2(d)
hereof.
(iii) If the Borrowers fail to pay to the Bank
promptly the amount of its Obligation of Reimbursement in
accordance with the terms of this Agreement and in accordance
with the terms of the Existing Letter of Credit Application,
the Bank is hereby irrevocably authorized and directed, in its
sole discretion, to make a Revolving Advance under Section 3.2
hereof in an amount sufficient to discharge the Obligation of
Reimbursement, including all interest accrued thereon but
unpaid at the time of such Revolving Advance, and such
Revolving Advance shall be added to the outstanding principal
balance of the Revolving Note.
(e) IN THE EVENT THAT THE BANK ELECTS TO EXTEND THE MATURITY OF THE
EXISTING LETTER OF CREDIT TO A DATE BEYOND THE REVOLVING LOAN MATURITY
DATE, THEN, ON THE REVOLVING LOAN MATURITY DATE, THE BORROWERS SHALL PAY TO
THE BANK IN IMMEDIATELY AVAILABLE FUNDS FOR DEPOSIT IN THE SPECIAL ACCOUNT
AN AMOUNT EQUAL TO THE MAXIMUM AGGREGATE AMOUNT AVAILABLE TO BE DRAWN UNDER
THE EXISTING LETTER OF CREDIT THEN OUTSTANDING, ASSUMING COMPLIANCE WITH
ALL CONDITIONS FOR DRAWING THEREUNDER. AMOUNTS ON DEPOSIT IN THE SPECIAL
ACCOUNT MAY BE APPLIED BY THE BANK AT ANY TIME OR FROM TIME TO TIME TO THE
BORROWERS' OBLIGATION OF REIMBURSEMENT OR ANY OTHER OBLIGATIONS OF THE
BORROWERS TO THE BANK ARISING UNDER THIS AGREEMENT OR OTHERWISE, IN THE
BANK'S SOLE DISCRETION, AND SHALL NOT BE SUBJECT TO WITHDRAWAL BY THE
BORROWERS SO LONG AS THE BANK MAINTAINS A SECURITY INTEREST THEREIN.
(f) The Borrowers hereby pledge, and grant to the
Bank a security interest in, all funds held in the Special
Account from time to time and all proceeds thereof, as
security for the payment of all present and future Obligations
of Reimbursement and all other amounts due and to become due
from the Borrowers to the Bank pursuant to this Agreement or
otherwise. The Bank shall have full ownership and control of
the Special Account, and the Borrowers shall have no right to
withdraw the funds maintained in the Special Account.
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8
ARTICLE IV
TERMS AND CONDITIONS APPLICABLE TO ALL CREDIT FACILITIES
SECTION 4.1 PROCEDURES FOR REQUESTING ADVANCES. THE BANK MUST
RECEIVE NOTICE OF THE BORROWERS' REQUEST FOR EACH ADVANCE NOT LATER THAN 12:00
NOON (MINNEAPOLIS TIME) ON THE BUSINESS DAY OF A PROPOSED REVOLVING ADVANCE AND
ON THE BUSINESS DAY OF A PROPOSED TERM LOAN B ADVANCE. EACH SUCH REQUEST FOR AN
ADVANCE MAY BE MADE IN WRITING OR BY TELEPHONE, SHALL BE EFFECTIVE UPON RECEIPT
BY THE BANK AND SHALL SPECIFY THE PROPOSED DATE FOR THE REQUESTED ADVANCE (WHICH
SHALL BE A BUSINESS DAY), THE AMOUNT OF THE REQUESTED ADVANCE AND WHETHER THE
BORROWERS DESIRE A REVOLVING ADVANCE OR TERM LOAN B ADVANCE. UNLESS THE BANK
DETERMINES THAT ANY CONDITION SET FORTH IN ARTICLE III, IV, OR V HAS NOT BEEN
SATISFIED, THE BANK WILL MAKE THE PROCEEDS OF THE ADVANCE AVAILABLE TO THE
BORROWERS ON THE APPROPRIATE DATE AS IDENTIFIED ABOVE BY DEPOSITING THE SAME TO
EITHER OF THE BORROWERS' DEMAND DEPOSIT ACCOUNTS MAINTAINED WITH THE BANK OR IN
SUCH OTHER MANNER AS THE BANK AND THE BORROWERS MAY FROM TIME TO TIME AGREE. THE
BORROWERS SHALL BE OBLIGATED TO REPAY ALL ADVANCES NOTWITHSTANDING THE FACT THAT
THE PERSON REQUESTING SAME WAS NOT IN FACT AUTHORIZED SO TO DO. ANY REQUEST FOR
AN ADVANCE, WHETHER WRITTEN OR TELEPHONIC, SHALL BE DEEMED TO BE A
REPRESENTATION THAT THE STATEMENTS SET FORTH IN SECTION 5.2 ARE CORRECT.
SECTION 4.2 PAYMENTS. WHENEVER ANY PAYMENT TO BE MADE UNDER
THIS AGREEMENT, ANY NOTE OR ANY OTHER EVIDENCE OF AN OBLIGATION SHALL BE STATED
TO BE DUE ON ANY DAY OTHER THAN A BUSINESS DAY, 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 INTEREST AND FEES. ALL PAYMENTS OF PRINCIPAL,
INTEREST, FEES AND OTHER AMOUNTS DUE UNDER THIS AGREEMENT, ALL NOTES AND ANY
OTHER EVIDENCE OF AN OBLIGATION SHALL BE MADE TO THE BANK IN IMMEDIATELY
AVAILABLE FUNDS. THE AMOUNT SHOWN ON THE BOOKS AND RECORDS OF THE BANK AS BEING
THE UNPAID BALANCE OF PRINCIPAL, ACCRUED INTEREST AND OTHER CHARGES, FEES AND
EXPENSES UNDER THIS AGREEMENT, ANY NOTE AND ANY OTHER EVIDENCE OF AN OBLIGATION
SHALL BE PRIMA FACIE EVIDENCE THEREOF. THE BORROWERS HEREBY IRREVOCABLY
AUTHORIZE THE BANK, IF AND TO THE EXTENT ANY PAYMENT FROM THE BORROWERS TO THE
BANK IS NOT MADE WHEN DUE, TO CHARGE AGAINST ANY AMOUNT OWING BY THE BANK TO THE
BORROWERS AN AMOUNT EQUAL TO THE PRINCIPAL, ACCRUED INTEREST AND OTHER CHARGES,
FEES AND EXPENSES THEN DUE. WITHOUT LIMITING THE FOREGOING, THE BORROWERS HEREBY
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9
IRREVOCABLY AUTHORIZE THE BANK TO COLLECT INTEREST, REQUIRED PRINCIPAL PAYMENTS,
OTHER CHARGES, FEES AND EXPENSES UNDER THIS AGREEMENT OR ANY NOTE WHEN DUE FROM
TIME TO TIME BY CHARGING ANY DEMAND DEPOSIT ACCOUNT MAINTAINED BY EITHER OF THE
BORROWERS WITH THE BANK.
SECTION 4.3 APPLICATION OF PAYMENTS. SO LONG AS NO DEFAULT OR
EVENT OF DEFAULT SHALL BE CONTINUING HEREUNDER, ANY PAYMENT HEREUNDER MAY BE
APPLIED FIRST TO PAYMENT OF ANY LATE CHARGES, FEES, COSTS AND EXPENSES UNDER
SECTION 10.6 OR OTHER AMOUNTS DUE, THEN TO UNPAID ACCRUED INTEREST AND THE
BALANCE, IF ANY, TO THE PRINCIPAL OUTSTANDING UNDER THE NOTES SPECIFIED BY THE
BORROWERS AT THE TIME OF THE PAYMENT; PROVIDED, HOWEVER, THAT IF THE BORROWERS
DO NOT SO SPECIFY ANY SUCH BALANCE MAY BE APPLIED TO THE PRINCIPAL OF THE NOTES
IN SUCH ORDER AS THE BANK, IN ITS DISCRETION, SHALL DETERMINE. DURING THE
CONTINUANCE OF ANY DEFAULT OR EVENT OF DEFAULT, THE BANK MAY APPLY PAYMENTS
HEREUNDER IN SUCH ORDER AS THE BANK, IN ITS DISCRETION, SHALL DETERMINE. ANY
APPLICATION OF A PAYMENT THAT OPERATES AS A PARTIAL PREPAYMENT OF ANY NOTE
EVIDENCING TERM ADVANCES SHALL BE APPLIED AGAINST THE INSTALLMENTS OF PRINCIPAL
IN INVERSE ORDER OF MATURITY AND SHALL NOT REDUCE THE AMOUNT OF OR POSTPONE THE
DUE DATE OF ANY INSTALLMENT OF PRINCIPAL AND INTEREST, UNLESS THE BANK OTHERWISE
AGREES IN WRITING.
SECTION 4.4 COMPUTATION OF INTEREST AND FEES. INTEREST UNDER
THE NOTES AND ALL OTHER FEES HEREUNDER OR IN RESPECT OF ANY OBLIGATIONS SHALL BE
COMPUTED ON THE BASIS OF THE ACTUAL NUMBER OF DAYS ELAPSED AND A 360-DAY YEAR.
SECTION 4.5 DEFAULT RATE OF INTEREST. IF AN EVENT OF DEFAULT
SHALL OCCUR AND CONTINUE FOR A PERIOD OF 30 DAYS AFTER THE BANK HAS GIVEN NOTICE
TO THE BORROWERS SPECIFYING SUCH EVENT OF DEFAULT AND STATING THE BANK'S INTENT
TO IMPLEMENT THE DEFAULT RATE (IT BEING UNDERSTOOD THAT SUCH GRACE PERIOD AND
NOTICE REQUIREMENT ARE CONDITIONS ONLY TO IMPOSING THE DEFAULT RATE), THE
BORROWERS SHALL PAY INTEREST ON THE UNPAID PRINCIPAL BALANCE OF THE OBLIGATIONS,
FROM THE FIRST DAY IMMEDIATELY FOLLOWING THE EXPIRATION OF SUCH 30-DAY PERIOD
UNTIL THE EARLIER OF PAYMENT IN FULL OF THE OBLIGATIONS OR THE DAY ON WHICH SUCH
EVENT OF DEFAULT IS CURED TO THE WRITTEN SATISFACTION OF THE BANK, AT AN ANNUAL
RATE AT ALL TIMES EQUAL TO TWO PERCENT (2%) OVER THE ANNUAL RATE OR RATES OF
INTEREST THAT WOULD OTHERWISE BE IN EFFECT FROM TIME TO TIME WITH RESPECT TO
SUCH OBLIGATIONS HAD THERE BEEN NO OCCURRENCE OF AN EVENT OF DEFAULT
(THE "DEFAULT RATE").
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10
SECTION 4.6 LATE FEES. IF ANY AMOUNT DUE HEREUNDER OR UNDER
THE NOTES OR OTHER OBLIGATIONS (WHETHER PRINCIPAL, INTEREST, FEES, COSTS,
EXPENSES OR OTHERWISE) IS PAID MORE THAN TEN (10) DAYS AFTER THE STATED DUE DATE
FOR SUCH PAYMENT, THE BORROWERS SHALL PAY TO THE BANK, ON DEMAND, A LATE PAYMENT
FEE EQUAL TO FIVE PERCENT (5%) OF THE PAST DUE AMOUNT.
ARTICLE V
CONDITIONS PRECEDENT TO ADVANCES
SECTION 5.1 CONDITION PRECEDENT TO INITIAL ADVANCES. THE
OBLIGATION OF THE BANK TO MAKE THE INITIAL ADVANCES IS SUBJECT TO THE CONDITION
PRECEDENT THAT THE BANK SHALL HAVE RECEIVED ON OR BEFORE THE DAY OF MAKING SUCH
ADVANCES THE FOLLOWING, EACH INFORM AND SUBSTANCE SATISFACTORY TO THE BANK IN
ITS SOLE DISCRETION:
(a) THE REVOLVING NOTE AND THE TERM LOAN B NOTE, EACH DULY EXECUTED ON
BEHALF OF THE BORROWERS.
(b) A Security Agreement, dated the date hereof, duly executed
on behalf of the Borrowers, granting to the Bank a security interest in
all of the Borrowers' present and future Equipment, Inventory,
Investment Property, Accounts and other rights to payment and general
intangibles to secure all Obligations.
(c) AN ACKNOWLEDGMENT, DATED THE DATE HEREOF, DULY EXECUTED ON BEHALF
OF THE BORROWERS IN FAVOR OF THE BANK, UNDER WHICH THE BORROWERS
ACKNOWLEDGE THAT THE LOAN DOCUMENTS DELIVERED PURSUANT TO THIS SECTION
5.1 AND ALL OTHER DOCUMENTS EXECUTED IN CONNECTION WITH THIS AGREEMENT
SET FORTH THE ENTIRE AGREEMENT AMONG THE BORROWERS AND THE BANK WITH
RESPECT TO THE MATTERS COVERED THEREIN AND THAT THERE ARE NO ORAL
AGREEMENTS BINDING ON THE BANK.
(d) AN AGREEMENT AND WAIVER, DATED THE DATE HEREOF, DULY EXECUTED ON
BEHALF OF THE BORROWERS, IN SUBSTANCE AND FORM ACCEPTABLE TO THE BANK,
PROVIDING THE STATE LAW TO GOVERN THE LOAN DOCUMENTS DELIVERED PURSUANT
TO THIS SECTION 5.1 AND ALL OTHER DOCUMENTS EXECUTED IN CONNECTION WITH
THIS AGREEMENT OR ANY OF THE OBLIGATIONS, CONSENTING TO PERSONAL
JURISDICTION AND VENUE IN CONNECTION WITH ANY
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CONTROVERSY INVOLVING ANY SUCH DOCUMENTS AND WAIVING THE RIGHT TO TRIAL
BY JURY IN CONNECTION WITH ANY SUCH CONTROVERSY.
(e) A FINANCING STATEMENT OR STATEMENTS DULY EXECUTED ON BEHALF OF EACH
OF THE BORROWERS SUFFICIENT WHEN FILED TO PERFECT THE SECURITY INTEREST
GRANTED UNDER THE SECURITY AGREEMENT DELIVERED PURSUANT TO SECTION
5.1(b) HEREOF TO THE EXTENT SUCH SECURITY INTEREST IS CAPABLE OF BEING
PERFECTED BY FILING.
(f) CURRENT SEARCHES OF APPROPRIATE FILING OFFICES SHOWING THAT (i) NO
STATE OR FEDERAL TAX LIENS HAVE BEEN FILED AND REMAIN IN EFFECT AGAINST
THE BORROWERS AND (ii) NO FINANCING STATEMENTS HAVE BEEN FILED AND
REMAIN IN EFFECT AGAINST THE BORROWERS EXCEPT FINANCING STATEMENTS
PERFECTING ONLY SECURITY INTERESTS PERMITTED UNDER SECTION 8.1 AND
THOSE FINANCING STATEMENTS FILED BY THE BANK.
(g) CURRENT FINANCIAL PROJECTIONS FOR THE BORROWERS FOR THE 12-MONTH
PERIOD ENDING DECEMBER 31, 1999, ACCEPTABLE TO THE BANK.
(h) A CERTIFIED COPY OF THE RESOLUTIONS OF THE BOARD OF DIRECTORS OF
THE BORROWERS EVIDENCING APPROVAL OF THE LOAN DOCUMENTS DELIVERED
PURSUANT TO THIS SECTION 5.1 AND OTHER MATTERS CONTEMPLATED HEREBY,
CERTIFIED BY AN OFFICER OF EACH OF THE BORROWERS AS BEING A TRUE,
CORRECT AND COMPLETE COPY THEREOF WHICH HAS BEEN DULY ADOPTED AND IS IN
FULL FORCE AND EFFECT, TOGETHER WITH A CERTIFICATE OF SUCH OFFICER OF
THE BORROWERS CERTIFYING THE NAMES AND TRUE SIGNATURES OF THE OFFICERS
OF THE BORROWERS AUTHORIZED TO SIGN EACH LOAN DOCUMENT TO WHICH THE
BORROWERS ARE A PARTY AND THE OTHER DOCUMENTS, CERTIFICATES AND
REQUESTS FOR ADVANCES TO BE DELIVERED BY THE BORROWERS HEREUNDER.
(i) COPIES OF THE ARTICLES OF INCORPORATION AND BY-LAWS OF EACH OF THE
BORROWERS, CERTIFIED BY THE SECRETARY OR ASSISTANT SECRETARY OF EACH OF
THE BORROWERS AS BEING TRUE, CORRECT AND COMPLETE COPIES THEREOF.
(j) CURRENT CERTIFICATES OF GOOD STANDING FOR EACH OF THE BORROWERS
FROM THE STATE OF MINNESOTA.
(k) A SIGNED COPY OF AN OPINION OF COUNSEL FOR THE BORROWERS, ADDRESSED
TO THE BANK, AS TO THE MATTERS SET FORTH IN SECTIONS 6.1, 6.2, 6.3,
6.7, AND 6.8 HEREOF AND AS TO SUCH OTHER MATTERS AS THE BANK AND ITS
COUNSEL SHALL REQUIRE.
(l) CERTIFICATES OF THE INSURANCE REQUIRED UNDER THE SECURITY AGREEMENT
DELIVERED PURSUANT TO SECTION 5.1(b) HEREOF, WITH A LENDER'S LOSS
PAYABLE ENDORSEMENT IN FAVOR OF THE BANK.
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(m) SUCH OTHER ITEMS AS THE BANK MAY REQUEST.
5.2 CONDITIONS PRECEDENT TO ALL ADVANCES. THE BANK'S
OBLIGATION TO MAKE EACH ADVANCE (INCLUDING THE INITIAL ADVANCES) SHALL BE
SUBJECT TO THE FURTHER CONDITIONS PRECEDENT THAT ON THE DATE OF MAKING SUCH
ADVANCE THE STATEMENTS SET FORTH IN (A) AND (B) BELOW SHALL BE TRUE (AND THE
BORROWERS' RECEIPT OF THE PROCEEDS OR BENEFIT OF SUCH ADVANCE SHALL BE DEEMED TO
CONSTITUTE A REPRESENTATION AND WARRANTY BY THE BORROWERS THAT SUCH STATEMENTS
ARE TRUE ON SUCH DATE):
(a) THE REPRESENTATIONS AND WARRANTIES CONTAINED IN ARTICLE VI OF THIS
AGREEMENT ARE CORRECT ON AND AS OF THE DATE OF SUCH ADVANCE AS THOUGH
MADE ON AND AS OF SUCH DATE; AND
(b) NO EVENT HAS OCCURRED AND IS CONTINUING, OR WOULD RESULT FROM THE
MAKING OF SUCH ADVANCE WHICH CONSTITUTES A DEFAULT OR AN EVENT OF
DEFAULT.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
The Borrowers represent and warrant to the Bank as follows:
6.1 EXISTENCE AND POWER. THE BORROWERS ARE A CORPORATIONS,
DULY FORMED, VALIDLY EXISTING AND IN GOOD STANDING UNDER THE LAWS OF THE STATE
OF MINNESOTA AND ARE DULY LICENSED OR QUALIFIED TO TRANSACT BUSINESS IN ALL
JURISDICTIONS WHERE THE CHARACTER OF THE PROPERTY OWNED OR LEASED OR THE NATURE
OF THE BUSINESS TRANSACTED BY THEM MAKES SUCH LICENSING OR QUALIFICATION
NECESSARY, AND THE FAILURE TO BE LICENSED OR QUALIFIED WOULD HAVE A MATERIAL
ADVERSE EFFECT ON THE FINANCIAL CONDITION, PROPERTIES, OR OPERATIONS OF EITHER
OF THE BORROWERS. THE BORROWERS HAVE ALL REQUISITE POWER AND AUTHORITY,
CORPORATE OR OTHERWISE, TO CONDUCT THEIR BUSINESS, TO OWN THEIR PROPERTIES AND
TO EXECUTE AND DELIVER, AND TO PERFORM ALL OF THEIR OBLIGATIONS UNDER, THE LOAN
DOCUMENTS.
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13
SECTION 6.2 AUTHORIZATION OF BORROWING; NO CONFLICT AS TO LAW
OR AGREEMENTS. THE EXECUTION, DELIVERY AND PERFORMANCE BY THE BORROWERS OF THE
LOAN DOCUMENTS AND THE BORROWINGS FROM TIME TO TIME HEREUNDER HAVE BEEN DULY
AUTHORIZED BY ALL NECESSARY CORPORATE ACTION AND DO AND WILL NOT (i) REQUIRE ANY
CONSENT OR APPROVAL OF THE STOCKHOLDERS OF EITHER OF THE BORROWERS, OR ANY
AUTHORIZATION, CONSENT OR APPROVAL BY ANY GOVERNMENTAL DEPARTMENT, COMMISSION,
BOARD, BUREAU, AGENCY OR INSTRUMENTALITY, DOMESTIC OR FOREIGN, (ii) VIOLATE ANY
PROVISION OF ANY LAW, RULE OR REGULATION OR OF ANY ORDER, WRIT, INJUNCTION OR
DECREE PRESENTLY IN EFFECT HAVING APPLICABILITY TO EITHER OF THE BORROWERS OR OF
THE ARTICLES OF INCORPORATION OR BYLAWS OF EITHER OF THE BORROWERS, (iii) RESULT
IN A BREACH OF OR CONSTITUTE A DEFAULT UNDER ANY INDENTURE OR LOAN OR CREDIT
AGREEMENT OR ANY OTHER AGREEMENT, LEASE OR INSTRUMENT TO WHICH EITHER OF THE
BORROWERS ARE A PARTY OR BY WHICH THEY OR THEIR PROPERTIES MAY BE BOUND OR
AFFECTED, OR (iv) RESULT IN, OR REQUIRE, THE CREATION OR IMPOSITION OF ANY
MORTGAGE, DEED OF TRUST, PLEDGE, LIEN, SECURITY INTEREST OR OTHER CHARGE OR
ENCUMBRANCE OF ANY NATURE (OTHER THAN THE SECURITY DOCUMENTS TO WHICH EITHER OF
THE BORROWERS ARE A PARTY) UPON OR WITH RESPECT TO ANY OF THE PROPERTIES NOW
OWNED OR HEREAFTER ACQUIRED BY EITHER OF THE BORROWERS.
SECTION 6.3 LEGAL AGREEMENTS. THIS AGREEMENT, THE SECURITY
DOCUMENTS TO WHICH THE BORROWERS ARE A PARTY AND THE NOTES CONSTITUTE, THE
LEGAL, VALID AND BINDING OBLIGATIONS OF THE BORROWERS ENFORCEABLE AGAINST EITHER
OF THE BORROWERS IN ACCORDANCE WITH THEIR RESPECTIVE TERMS.
SECTION 6.4 SUBSIDIARIES. INTERNATIONAL HAS TWO (2)
SUBSIDIARIES, GROW BIZ WORLDWIDE, LTD. AND GAMES. GAMES HAS NO SUBSIDIARIES.
SECTION 6.5 FINANCIAL CONDITION. INTERNATIONAL HAS HERETOFORE
FURNISHED TO THE BANK ITS AUDITED FINANCIAL STATEMENTS, AS OF AND FOR ITS FISCAL
YEAR ENDED DECEMBER 31, 1998, AND BOTH OF THE BORROWERS HAVE SUBMITTED INTERIM
MONTHLY FINANCIAL STATEMENTS AS OF AND FOR THE FISCAL YEAR-TO-DATE PERIOD ENDED
JUNE 30, 1998. THOSE FINANCIAL STATEMENTS FAIRLY PRESENT THE FINANCIAL CONDITION
OF THE BORROWERS ON THE DATES THEREOF AND THE RESULTS OF ITS OPERATIONS FOR THE
PERIODS THEN ENDED, AND, IN THE CASE OF SUCH ANNUAL FINANCIAL STATEMENTS, ITS
CASH FLOWS FOR THE FISCAL YEAR THEN ENDED, AND ALL SUCH FINANCIAL STATEMENTS
WERE PREPARED IN ACCORDANCE WITH GAAP, SUBJECT, IN THE CASE OF THE INTERIM
MONTHLY STATEMENTS, TO YEAR-END AUDIT ADJUSTMENTS AND THE ABSENCE OF FOOTNOTES.
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14
SECTION 6.6 ADVERSE CHANGE. THERE HAS BEEN NO MATERIAL ADVERSE
CHANGE IN THE BUSINESS, PROPERTIES OR CONDITION (FINANCIAL OR OTHERWISE) OF THE
BORROWERS SINCE THE DATE OF THE LATEST FINANCIAL STATEMENT REFERRED TO IN
SECTION 6.5.
SECTION 6.7 LITIGATION. EXCEPT AS PREVIOUSLY DISCLOSED TO THE
BANK IN WRITING, THERE ARE NO ACTIONS, SUITS OR PROCEEDINGS PENDING OR, TO THE
KNOWLEDGE OF THE BORROWERS, THREATENED AGAINST OR AFFECTING THE BORROWERS OR THE
PROPERTIES OF THE BORROWERS BEFORE ANY COURT OR GOVERNMENTAL DEPARTMENT,
COMMISSION, BOARD, BUREAU, AGENCY OR INSTRUMENTALITY, DOMESTIC OR FOREIGN,
WHICH, IF DETERMINED ADVERSELY TO THE BORROWERS, WOULD HAVE A MATERIAL ADVERSE
EFFECT ON THE FINANCIAL CONDITION, PROPERTIES, OR OPERATIONS OF EITHER OF THE
BORROWERS.
SECTION 6.8 REGULATION G. NEITHER OF THE BORROWERS IS ENGAGED
IN THE BUSINESS OF EXTENDING CREDIT FOR THE PURPOSE OF PURCHASING OR CARRYING
MARGIN STOCK (WITHIN THE MEANING OF REGULATION G OF THE BOARD OF GOVERNORS OF
THE FEDERAL RESERVE SYSTEM), AND NO PART OF THE PROCEEDS OF ANY ADVANCE OR
PROCEEDS RELATED TO ANY OTHER OBLIGATIONS WILL BE USED TO PURCHASE OR CARRY ANY
MARGIN STOCK OR TO EXTEND CREDIT TO OTHERS FOR THE PURPOSE OF PURCHASING OR
CARRYING ANY MARGIN STOCK.
SECTION 6.9 TAXES. THE BORROWERS HAVE PAID OR CAUSED TO BE
PAID TO THE PROPER AUTHORITIES WHEN DUE ALL FEDERAL, STATE AND LOCAL TAXES
REQUIRED TO BE WITHHELD BY THE BORROWERS. THE BORROWERS HAVE FILED ALL FEDERAL,
STATE AND LOCAL TAX RETURNS WHICH ARE REQUIRED TO BE FILED, AND THE BORROWERS
HAVE PAID OR CAUSED TO BE PAID TO THE RESPECTIVE TAXING AUTHORITIES ALL TAXES AS
SHOWN ON SAID RETURNS OR ON ANY ASSESSMENT RECEIVED BY THEM TO THE EXTENT SUCH
TAXES HAVE BECOME DUE.
SECTION 6.10 TITLES AND LIENS. THE BORROWERS HAVE GOOD TITLE
TO EACH OF THE RESPECTIVE PROPERTIES AND ASSETS REFLECTED IN THE LATEST BALANCE
SHEET REFERRED TO IN SECTION 6.5 (OTHER THAN ANY SOLD, AS PERMITTED BY ANY
SECURITY DOCUMENTS), FREE AND CLEAR OF ALL MORTGAGES, SECURITY INTERESTS, LIENS
AND ENCUMBRANCES, EXCEPT FOR MORTGAGES, SECURITY INTERESTS AND LIENS PERMITTED
BY SECTION 8.1 AND COVENANTS, RESTRICTIONS, RIGHTS, EASEMENTS AND MINOR
IRREGULARITIES IN TITLE WHICH DO NOT MATERIALLY INTERFERE WITH THE BUSINESS OR
OPERATIONS OF THE BORROWERS AS PRESENTLY CONDUCTED. NO FINANCING STATEMENT
NAMING EITHER OF THE BORROWERS AS DEBTOR IS ON FILE IN ANY OFFICE EXCEPT TO
PERFECT ONLY SECURITY INTERESTS PERMITTED BY SECTION 8.1. ALL REGISTERED UNITED
STATES TRADEMARKS AND TRADENAMES,
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IN WHICH EITHER OF THE BORROWERS HAS A LEGAL OR EQUITABLE INTEREST, WHICH ARE
UTILIZED IN EITHER OF THE BORROWERS' OPERATIONS ARE SET FORTH ON EXHIBIT D
HERETO.
SECTION 6.11 PLANS. NEITHER OF THE BORROWERS NOR ANY OF THEIR
AFFILIATES MAINTAINS OR HAS MAINTAINED ANY PLAN EXCEPT AS PREVIOUSLY
DISCLOSED TO THE BANK. NEITHER OF THE BORROWERS NOR ANY AFFILIATE HAS RECEIVED
ANY NOTICE OR HAS ANY KNOWLEDGE TO THE EFFECT THAT IT IS NOT IN FULL COMPLIANCE
WITH ANY OF THE REQUIREMENTS OF ERISA. NO REPORTABLE EVENT OR OTHER FACT OR
CIRCUMSTANCE WHICH MAY HAVE AN ADVERSE EFFECT ON THE PLAN'S TAX QUALIFIED STATUS
EXISTS IN CONNECTION WITH ANY PLAN. NEITHER OF THE BORROWERS NOR ANY OF ITS
AFFILIATES HAS:
(a) ANY ACCUMULATED FUNDING DEFICIENCY WITHIN THE MEANING OF ERISA; OR
(b) ANY LIABILITY OR KNOWS OF ANY FACT OR CIRCUMSTANCES WHICH COULD RESULT
IN ANY LIABILITY TO THE PENSION BENEFIT GUARANTY CORPORATION, THE INTERNAL
REVENUE SERVICE, THE DEPARTMENT OF LABOR OR ANY PARTICIPANT IN CONNECTION
WITH ANY PLAN (OTHER THAN ACCRUED BENEFITS WHICH OR WHICH MAY BECOME
PAYABLE TO PARTICIPANTS OR BENEFICIARIES OF ANY SUCH PLAN).
SECTION 6.12 DEFAULTS. EACH OF THE BORROWERS IS IN
COMPLIANCE WITH ALL PROVISIONS OF ALL AGREEMENTS, INSTRUMENTS, DECREES AND
ORDERS TO WHICH SUCH BORROWER IS A PARTY OR BY WHICH SUCH BORROWER OR SUCH
BORROWER'S PROPERTY IS BOUND OR AFFECTED, THE BREACH OR DEFAULT OF WHICH COULD
HAVE A MATERIAL ADVERSE EFFECT ON THE FINANCIAL CONDITION, PROPERTIES OR
OPERATIONS OF SUCH BORROWER.
SECTION 6.13 ENVIRONMENTAL PROTECTION. THE BORROWERS HAVE
OBTAINED AND DELIVERED TO THE BANK ALL PERMITS, LICENSES AND OTHER
AUTHORIZATIONS WHICH ARE REQUIRED UNDER FEDERAL, STATE AND LOCAL ENVIRONMENTAL
LAWS AT EITHER OF THE BORROWERS' FACILITIES OR IN CONNECTION WITH THE OPERATION
OF EITHER OF THEIR FACILITIES. THE BORROWERS AND ALL ACTIVITIES OF THE BORROWERS
AT THEIR FACILITIES COMPLY, IN ALL MATERIAL RESPECTS, WITH ALL ENVIRONMENTAL
LAWS AND WITH ALL TERMS AND CONDITIONS OF ANY REQUIRED PERMITS, LICENSES AND
AUTHORIZATIONS APPLICABLE TO THE BORROWER WITH RESPECT THERETO. THE BORROWERS
ARE ALSO IN COMPLIANCE WITH ALL LIMITATIONS, RESTRICTIONS, CONDITIONS,
STANDARDS, PROHIBITIONS, REQUIREMENTS, OBLIGATIONS, SCHEDULES AND TIMETABLES
CONTAINED IN ENVIRONMENTAL LAWS OR CONTAINED IN ANY PLAN, ORDER, DECREE,
JUDGMENT OR NOTICE OF WHICH THE BORROWERS ARE AWARE. THE BORROWERS ARE NOT AWARE
OF, NOR HAVE THE BORROWERS RECEIVED NOTICE OF, ANY EVENTS, CONDITIONS,
CIRCUMSTANCES, ACTIVITIES, PRACTICES, INCIDENTS, ACTIONS OR PLANS WHICH MAY
INTERFERE WITH OR PREVENT CONTINUED COMPLIANCE WITH, OR WHICH MAY GIVE RISE TO
ANY LIABILITY UNDER, ANY ENVIRONMENTAL LAWS.
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SECTION 6.14 SUBMISSIONS TO BANK. ALL FINANCIAL AND OTHER
INFORMATION PROVIDED TO THE BANK BY OR ON BEHALF OF EITHER OF THE BORROWERS IN
CONNECTION WITH THE BORROWERS' REQUEST FOR THE CREDIT FACILITIES CONTEMPLATED
HEREBY IS TRUE AND CORRECT IN ALL MATERIAL RESPECTS AND, AS TO PROJECTIONS,
VALUATIONS OR PROFORMA FINANCIAL STATEMENTS, PRESENT A GOOD FAITH OPINION AS TO
SUCH PROJECTIONS, VALUATIONS AND PROFORMA CONDITION AND RESULTS.
SECTION 6.15 STOCK BUY-BACK PROGRAM. INTERNATIONAL'S STOCK
BUY-BACK PROGRAM DOES NOT CONFLICT WITH ANY SECURITIES REGULATION, AND
THEREFORE, SUCH BUY-BACK PROGRAM WILL NOT CAUSE INTERNATIONAL'S STOCK TO NO
LONGER BE LISTED ON ANY PUBLIC SECURITIES EXCHANGE.
ARTICLE VI Affirmative Covenants
So long as any Note or other Obligation shall remain unpaid or
any Commitment shall be outstanding, the Borrowers will comply with the
following requirements, unless the Bank shall otherwise consent in writing:
SECTION 7.1 FINANCIAL STATEMENTS. THE BORROWERS WILL DELIVER
OR CAUSE TO BE DELIVERED TO THE BANK:
(a) AS SOON AS AVAILABLE, AND IN ANY EVENT WITHIN 90 DAYS AFTER THE END
OF EACH FISCAL YEAR OF INTERNATIONAL, A COPY OF THE ANNUAL AUDIT REPORT
FOR INTERNATIONAL WITH THE UNQUALIFIED OPINION ISSUED BY INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS SELECTED BY INTERNATIONAL AND ACCEPTABLE
TO THE BANK, WHICH ANNUAL REPORT SHALL INCLUDE THE BALANCE SHEET OF
INTERNATIONAL AS AT THE END OF SUCH FISCAL YEAR AND THE RELATED
STATEMENTS OF INCOME, RETAINED EARNINGS AND CASH FLOWS OF INTERNATIONAL
FOR THE FISCAL YEAR THEN ENDED, ALONG WITH ALL CONSOLIDATING SCHEDULES,
ALL IN REASONABLE DETAIL AND ALL PREPARED IN ACCORDANCE WITH GAAP
APPLIED ON A BASIS CONSISTENT WITH THE ACCOUNTING PRACTICES APPLIED IN
THE ANNUAL FINANCIAL STATEMENTS REFERRED TO IN SECTION 6.5, TOGETHER
WITH A COMPLIANCE CERTIFICATE DULY COMPLETED AND SIGNED BY AN OFFICER
OF THE BORROWERS BASED ON SUCH FINANCIAL STATEMENTS FOR SUCH FISCAL
YEAR.
(b) AT LEAST 30 DAYS PRIOR TO THE BEGINNING OF EACH FISCAL YEAR OF THE
BORROWERS, CONSOLIDATED FINANCIAL PROJECTIONS OF THE BORROWERS FOR SUCH
FISCAL YEAR, WHICH FINANCIAL PROJECTIONS SHALL BE ON A MONTH BY MONTH
BASIS AND SHALL BE IN SUCH DETAIL AND FORMAT AS IS SATISFACTORY TO THE
BANK, AND SHALL BE CERTIFIED BY THE CHIEF FINANCIAL OFFICER OF THE
BORROWERS AS BEING THE MOST ACCURATE FINANCIAL PROJECTIONS AVAILABLE
AND IDENTICAL TO THE FINANCIAL PROJECTIONS USED INTERNALLY BY THE
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BORROWERS, TOGETHER WITH SUCH SUPPORTING SCHEDULES AND INFORMATION AS
THE BANK MAY IN ITS SOLE DISCRETION REQUIRE.
(c) AS SOON AS AVAILABLE AND IN ANY EVENT WITHIN 20 DAYS AFTER EACH
MONTH END, CONSOLIDATED BALANCE SHEETS OF THE BORROWERS AS AT THE END
OF SUCH MONTH AND RELATED STATEMENTS OF EARNINGS OF THE BORROWERS FOR
SUCH MONTH AND FOR THE YEAR TO DATE, IN REASONABLE DETAIL AND STATING
IN COMPARATIVE FORM THE FIGURES FOR THE CORRESPONDING DATE AND PERIOD
IN THE PREVIOUS YEAR, ALL PREPARED IN ACCORDANCE WITH GAAP APPLIED ON A
BASIS CONSISTENT WITH THE ACCOUNTING PRACTICES REFLECTED IN THE ANNUAL
FINANCIAL STATEMENTS REFERRED TO IN SECTION 6.5 AND SUBJECT TO YEAR-END
AUDIT ADJUSTMENTS, AND ACCOMPANIED BY A COMPLIANCE CERTIFICATE DULY
COMPLETED AND SIGNED BY AN OFFICER OF THE BORROWERS BASED ON SUCH
FINANCIAL STATEMENTS.
(d) WITHIN 90 DAYS AFTER THE END OF EACH FISCAL YEAR OF THE
BORROWERS, A CERTIFICATION REPORT SIGNED BY AN OFFICER OF THE BORROWERS
AS TO THE BORROWERS' COMPLIANCE WITH SECTION 8.6 HEREOF IN SUCH FORM
AND CONTAINING SUCH DETAIL AND SUPPORT AS THE BANK MAY REQUIRE.
(e) IMMEDIATELY AFTER THE COMMENCEMENT THEREOF, NOTICE IN WRITING OF
ALL LITIGATION AND OF ALL PROCEEDINGS BEFORE ANY GOVERNMENTAL OR
REGULATORY AGENCY AFFECTING EITHER OF THE BORROWERS OF THE TYPE
DESCRIBED IN SECTION 6.7.
(f) AS PROMPTLY AS PRACTICABLE (BUT IN ANY EVENT NOT LATER THAN FIVE
BUSINESS DAYS) AFTER AN OFFICER OF EITHER OF THE BORROWERS OBTAINS
KNOWLEDGE OF THE OCCURRENCE OF ANY DEFAULT OR EVENT OF DEFAULT, NOTICE
OF SUCH OCCURRENCE, TOGETHER WITH A DETAILED STATEMENT BY A RESPONSIBLE
OFFICER OF SUCH BORROWER OF THE STEPS BEING TAKEN BY SUCH BORROWER TO
CURE THE EFFECT OF SUCH EVENT.
(g) AS PROMPTLY AS PRACTICABLE (BUT IN ANY EVENT NOT LATER THAN FIVE
BUSINESS DAYS) AFTER AN OFFICER OF EITHER OF THE BORROWERS OBTAINS
KNOWLEDGE OF THE OCCURRENCE OF ANY EVENT OR SERIES OF EVENTS WHICH IS
OR ARE, TAKEN TOGETHER, REASONABLY LIKELY TO HAVE A MATERIAL ADVERSE
EFFECT ON SUCH BORROWER OR ITS OPERATIONS, OR TO CAUSE THE OCCURRENCE
OF AN EVENT OF DEFAULT, NOTICE OF SUCH OCCURRENCE, TOGETHER WITH SUCH
INFORMATION CONCERNING SUCH OCCURRENCE AND THE EFFECT THEREOF AS THE
BANK SHALL REQUIRE.
(h) PROMPTLY AFTER THE FILING THEREOF, COPIES OF ALL FORMS 10-K, 10-Q
AND ALL OTHER REGULAR AND PERIODIC FINANCIAL REPORTS, REGISTRATION
STATEMENTS, PROSPECTUSES OR FILINGS WHICH EITHER OF THE BORROWERS SHALL
FILE WITH THE SECURITIES AND EXCHANGE COMMISSION OR ANY NATIONAL
SECURITIES EXCHANGE.
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(i) SUCH OTHER INFORMATION RESPECTING THE FINANCIAL CONDITION, RESULTS
OF OPERATIONS AND PROPERTY OF THE BORROWERS AS THE BANK MAY FROM TIME
TO TIME REASONABLY REQUEST.
SECTION 7.2 BOOKS AND RECORDS; INSPECTION AND EXAMINATION. THE
BORROWERS WILL KEEP ACCURATE BOOKS OF RECORD AND ACCOUNT FOR THEMSELF IN WHICH
TRUE AND COMPLETE ENTRIES WILL BE MADE IN ACCORDANCE WITH GAAP CONSISTENTLY
APPLIED AND, UPON REQUEST OF THE BANK, WILL GIVE ANY REPRESENTATIVE OF THE BANK
ACCESS TO, AND PERMIT SUCH REPRESENTATIVE TO EXAMINE, COPY OR MAKE EXTRACTS
FROM, ANY AND ALL BOOKS, RECORDS AND DOCUMENTS IN THEIR POSSESSION, TO INSPECT
ANY OF THEIR PROPERTIES AND TO DISCUSS THEIR AFFAIRS, FINANCES AND ACCOUNTS WITH
ANY OF THEIR PRINCIPAL OFFICERS, ALL AT SUCH TIMES DURING NORMAL BUSINESS HOURS
AND AS OFTEN AS THE BANK MAY REASONABLY REQUEST, AND WILL PERMIT THE BANK TO
SEND AND DISCUSS WITH EITHER OF BORROWERS' ACCOUNT DEBTORS REQUESTS FOR
VERIFICATION OF AMOUNTS OWED TO SUCH BORROWER, AS OFTEN AS THE BANK SHALL
DESIRE. THE BANK'S RIGHTS UNDER THIS SECTION 7.2 SHALL BE IN ADDITION TO ANY
RIGHTS UNDER ANY SECURITY DOCUMENT.
SECTION 7.3 COMPLIANCE WITH LAWS. EACH OF THE BORROWERS WILL
(a) COMPLY WITH THE REQUIREMENTS OF APPLICABLE LAWS AND REGULATIONS, THE
NONCOMPLIANCE WITH WHICH WOULD MATERIALLY AND ADVERSELY AFFECT ITS BUSINESS OR
FINANCIAL CONDITION, (b) COMPLY WITH ALL APPLICABLE ENVIRONMENTAL LAWS AND
OBTAIN ANY PERMITS, LICENSES OR SIMILAR APPROVALS REQUIRED BY ANY SUCH
ENVIRONMENTAL LAWS, THE NON-COMPLIANCE WITH WHICH WOULD MATERIALLY AND ADVERSELY
AFFECT ITS BUSINESS OR FINANCIAL CONDITION, AND (c) USE AND KEEP EACH OF THE
BORROWERS' PROPERTY, AND WILL REQUIRE THAT OTHERS USE AND KEEP SUCH PROPERTY,
ONLY FOR LAWFUL PURPOSES, WITHOUT VIOLATION OF ANY FEDERAL, STATE OR LOCAL LAW,
STATUTE OR ORDINANCE.
SECTION 7.4 PAYMENT OF TAXES AND OTHER CLAIMS. EACH OF THE
BORROWERS WILL PAY OR DISCHARGE, WHEN DUE, (a) ALL TAXES, ASSESSMENTS AND
GOVERNMENTAL CHARGES LEVIED OR IMPOSED UPON SUCH BORROWER OR UPON ANY PROPERTIES
BELONGING TO SUCH BORROWER, PRIOR TO THE DATE ON WHICH PENALTIES ATTACH THERETO,
(b) ALL FEDERAL, STATE AND LOCAL TAXES REQUIRED TO BE WITHHELD BY SUCH BORROWER,
AND (c) ALL LAWFUL CLAIMS FOR LABOR, MATERIALS AND SUPPLIES WHICH, IF UNPAID
MIGHT BY LAW BECOME A LIEN OR CHARGE UPON ANY PROPERTIES OF SUCH BORROWER;
PROVIDED THAT THE SUCH BORROWER SHALL NOT BE REQUIRED TO PAY ANY SUCH TAX,
ASSESSMENT, CHARGE OR CLAIM WHOSE AMOUNT, APPLICABILITY OR VALIDITY IS BEING
CONTESTED IN GOOD FAITH BY APPROPRIATE PROCEEDINGS.
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SECTION 7.5 MAINTENANCE OF PROPERTIES, RIGHTS TO INTELLECTUAL
PROPERTY. EACH OF THE BORROWERS WILL KEEP AND MAINTAIN ALL OF THEIR PROPERTIES
NECESSARY OR USEFUL IN THEIR BUSINESS IN GOOD CONDITION, REPAIR AND WORKING
ORDER. THE BORROWERS WILL AT ALL TIMES OWN OR HOLD A VALID LICENSE TO USE ALL
PATENTS, TRADEMARKS, COPYRIGHTS AND OTHER INTELLECTUAL PROPERTY INTERESTS WHICH
ARE UTILIZED IN SUCH BORROWERS' OPERATIONS OR WHICH ARE BEING DEVELOPED BY OR ON
BEHALF OF SUCH BORROWER OR FOR USE IN ITS OPERATIONS, INCLUDING WITHOUT
LIMITATION THOSE SET FORTH ON EXHIBIT D HERETO, AND THE BORROWERS WILL HAVE THE
RIGHT TO CONTROL AND MANAGE ALL SUCH INTELLECTUAL PROPERTY INTERESTS AS IT HAS
IN THE PAST. THE BORROWERS WILL PROTECT, DEFEND AND MAINTAIN ALL SUCH
INTELLECTUAL PROPERTY INTERESTS, INCLUDING WITHOUT LIMITATION PROSECUTION OF ALL
PATENT, TRADEMARK AND COPYRIGHT APPLICATIONS AND TIMELY PAYMENT OF ALL NECESSARY
MAINTENANCE AND OTHER FEES.
SECTION 7.6 PRESERVATION OF EXISTENCE. EACH OF THE BORROWERS
WILL PRESERVE AND MAINTAIN THEIR PRESENT LEGAL EXISTENCE AND ALL OF THEIR
RIGHTS, PRIVILEGES AND FRANCHISES; PROVIDED, HOWEVER, THAT NEITHER BORROWER
SHALL BE REQUIRED TO PRESERVE ANY OF ITS RIGHTS, PRIVILEGES AND FRANCHISES IF
ITS BOARD OF DIRECTORS SHALL DETERMINE THAT THE PRESERVATION THEREOF IS NO
LONGER DESIRABLE IN THE CONDUCT OF THE BUSINESS OF SUCH BORROWER AND THAT THE
LOSS THEREOF IS NOT DISADVANTAGEOUS IN ANY MATERIAL RESPECT TO THE BANK AS A
HOLDER OF ANY NOTE OR AS THE OBLIGEE OF ANY OTHER OBLIGATIONS.
SECTION 7.7 INSURANCE. EACH OF THE BORROWERS WILL OBTAIN AND
AT ALL TIMES MAINTAIN INSURANCE WITH INSURERS BELIEVED BY SUCH BORROWER TO BE
RESPONSIBLE AND REPUTABLE, IN SUCH AMOUNTS AND AGAINST SUCH RISKS AS MAY FROM
TIME TO TIME BE REQUIRED BY THE BANK, INCLUDING, BUT NOT LIMITED TO GENERAL
LIABILITY INSURANCE AND BUSINESS INTERRUPTION INSURANCE FOR A SIX MONTH PERIOD,
BUT IN ALL EVENTS IN SUCH AMOUNTS AND AGAINST SUCH RISKS AS IS REQUIRED UNDER
THE SECURITY DOCUMENTS AND ALSO AS IS USUALLY CARRIED BY COMPANIES ENGAGED
IN SIMILAR BUSINESS AND OWNING SIMILAR PROPERTIES IN THE SAME GENERAL AREAS IN
WHICH SUCH BORROWER OPERATES.
SECTION 7.8 PUBLIC EXCHANGE LISTING. INTERNATIONAL WILL
CONTINUE TO CAUSE ITS STOCK TO BE LISTED ON A PUBLIC SECURITIES EXCHANGE.
SECTION 7.9 CURRENT RATIO. FOR EACH PERIOD DESCRIBED BELOW,
INTERNATIONAL WILL MAINTAIN, ON A CONSOLIDATED BASIS, AT ALL TIMES THE RATIO OF
ITS CURRENT ASSETS TO ITS CURRENT LIABILITIES AT A RATIO OF NOT LESS THAN:
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Period Current Ratio
------ -------------
Date hereof to 12/25/98 1.00 to 1.00
12/26/98 to 6/25/99 1.00 to 1.00
6/26/99 to 12/24/99 1.00 to 1.00
12/25/99 to 6/23/00 1.15 to 1.00
6/24/00 to 12/30/00 1.10 to 1.00
12/31/00 to 12/28/01 1.20 to 1.00
12/29/01 and thereafter 1.20 to 1.00
SECTION 7.10 CAPITAL BASE. FOR EACH PERIOD DESCRIBED BELOW,
INTERNATIONAL WILL MAINTAIN, ON A CONSOLIDATED BASIS, AT ALL TIMES ITS CAPITAL
BASE IN AN AMOUNT NOT LESS THAN:
Period Minimum Capital Base
------ --------------------
Date hereof to 12/25/98 ($2,200,000)
12/26/98 to 6/25/99 ($2,200,000)
6/26/99 to 12/24/99 ($1,000,000)
12/25/99 to 6/23/00 $4,300,000
6/24/00 to 12/30/00 $6,000,000
12/31/00 to 12/28/01 $10,500,000
12/29/01 and thereafter $15,000,000
SECTION 7.11 TOTAL LIABILITIES TO CAPITAL BASE RATIO. FOR EACH
PERIOD DESCRIBED BELOW, INTERNATIONAL WILL MAINTAIN, ON A CONSOLIDATED BASIS,
AT ALL TIMES THE RATIO OF ITS TOTAL LIABILITIES, OTHER THAN SUBORDINATED DEBT,
TO CAPITAL BASE AT A RATIO OF NOT MORE THAN:
Period Liabilities to Capital Base
------ ---------------------------
12/24/99 to 6/23/00 4.00 to 1.00
6/24/00 to 12/30/00 3.50 to 1.00
12/31/00 to 12/28/01 2.00 to 1.00
12/29/01 and thereafter 1.50 to 1.00
SECTION 7.12 MINIMUM DEBT SERVICE COVERAGE RATIO. FOR EACH
PERIOD BELOW, INTERNATIONAL WILL MAINTAIN, ON A CONSOLIDATED BASIS, AT ALL TIMES
THE RATIO OF ITS CASH FLOW AVAILABLE FOR DEBT SERVICE TO ITS DEBT SERVICE
REQUIREMENTS AT A RATIO NOT LESS THAN:
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Period Debt Service Coverage
------ ---------------------
Date hereof to 12/25/98 1.50 to 1.00
12/26/98 to 6/25/99 1.50 to 1.00
6/26/99 to 12/24/99 1.00 to 1.00
12/25/99 to 6/23/00 1.50 to 1.00
6/24/00 to 12/30/00 1.50 to 1.00
12/31/00 to 12/28/01 1.50 to 1.00
12/29/01 and thereafter 1.50 to 1.00
ARTICLE VIII
NEGATIVE COVENANTS
So long as any Note or other Obligation shall remain unpaid or
any Commitment shall be outstanding, the Borrowers agree that, without the prior
written consent of the Bank:
SECTION 8.1 LIENS. NEITHER OF THE BORROWERS WILL CREATE,
INCUR, ASSUME OR SUFFER TO EXIST ANY MORTGAGE, DEED OF TRUST, PLEDGE, LIEN,
SECURITY INTEREST, OR OTHER CHARGE OR ENCUMBRANCE OF ANY NATURE ON ANY OF
THEIR ASSETS, NOW OWNED OR HEREAFTER ACQUIRED, OR ASSIGN OR OTHERWISE CONVEY ANY
RIGHT TO RECEIVE INCOME OR GIVE THEIR CONSENT TO THE SUBORDINATION OF ANY RIGHT
OR CLAIM OF EITHER BORROWER TO ANY RIGHT OR CLAIM OF ANY OTHER PERSON;
EXCLUDING, HOWEVER, FROM THE OPERATION OF THE FOREGOING:
(a) LIENS FOR TAXES, ASSESSMENTS OR OTHER GOVERNMENTAL CHARGES,
MATERIALMEN'S, MERCHANTS', CARRIERS', WORKER'S, REPAIRER'S OR OTHER
LIKE LIENS ARISING IN THE ORDINARY COURSE OF BUSINESS, TO THE EXTENT
NOT REQUIRED TO BE PAID BY SECTION 7.4;
(b) PLEDGES OR DEPOSITS TO SECURE OBLIGATIONS UNDER WORKER'S
COMPENSATION LAWS, UNEMPLOYMENT INSURANCE AND SOCIAL SECURITY LAWS, OR
TO SECURE THE PERFORMANCE OF BIDS, TENDERS, CONTRACTS (OTHER THAN FOR
THE REPAYMENT OF BORROWED MONEY) OR LEASES OR TO SECURE STATUTORY
OBLIGATIONS OR SURETY OR APPEAL BONDS, OR TO SECURE INDEMNITY,
PERFORMANCE OR OTHER SIMILAR BONDS IN THE ORDINARY COURSE OF BUSINESS;
(c) ZONING RESTRICTIONS, EASEMENTS, LICENSES, RESTRICTIONS ON THE USE
OF REAL PROPERTY OR MINOR IRREGULARITIES IN TITLE THERETO, WHICH DO
NOT MATERIALLY IMPAIR
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THE USE OF SUCH PROPERTY IN THE OPERATION OF THE BUSINESS OF EITHER OF
THE BORROWERS OR THE VALUE OF SUCH PROPERTY FOR THE PURPOSE OF SUCH
BUSINESS;
(d) MORTGAGES, LIENS, PLEDGES AND SECURITY INTERESTS ON ANY PROPERTY
OF EITHER OF THE BORROWERS SECURING ANY INDEBTEDNESS FOR BORROWED
MONEY IN EXISTENCE ON THE DATE HEREOF AND LISTED IN EXHIBIT E HERETO;
(e) SECURITY INTERESTS GRANTED TO THE BANK UNDER THE SECURITY
DOCUMENTS;
(f) LIENS ARISING OUT OF A JUDGMENT AGAINST EITHER OF THE BORROWERS FOR
THE PAYMENT OF MONEY WITH RESPECT TO WHICH AN APPEAL IS BEING
PROSECUTED AND A STAY OF EXECUTION PENDING SUCH APPEAL HAS BEEN ISSUED;
AND
(g) PURCHASE MONEY MORTGAGES, LIENS, OR SECURITY INTERESTS (WHICH TERM
FOR PURPOSES OF THIS SUBSECTION SHALL INCLUDE CONDITIONAL SALE
AGREEMENTS OR OTHER TITLE RETENTION AGREEMENTS AND LEASES IN THE NATURE
OF TITLE RETENTION AGREEMENTS) UPON OR IN PROPERTY ACQUIRED AFTER THE
DATE HEREOF, OR MORTGAGES, LIENS OR SECURITY INTERESTS EXISTING IN SUCH
PROPERTY AT THE TIME OF ACQUISITION THEREOF, PROVIDED THAT NO SUCH
MORTGAGE, LIEN OR SECURITY INTEREST EXTENDS OR SHALL EXTEND TO OR COVER
ANY PROPERTY OF EITHER OF THE BORROWERS OTHER THAN THE PROPERTY THEN
BEING ACQUIRED AND FIXED IMPROVEMENTS THEN OR THEREAFTER ERECTED
THEREON.
SECTION 8.2 INDEBTEDNESS. NEITHER OF THE BORROWERS WILL INCUR,
CREATE, ASSUME OR PERMIT TO EXIST ANY INDEBTEDNESS FOR BORROWED MONEY, OR ANY
OTHER INDEBTEDNESS OR LIABILITY EVIDENCED BY NOTES, BONDS, DEBENTURES OR SIMILAR
OBLIGATIONS, EXCEPT:
(a) INDEBTEDNESS OWED TO THE BANK;
(b) INDEBTEDNESS OF EITHER OF THE BORROWERS IN EXISTENCE ON THE
DATE HEREOF AND LISTED IN EXHIBIT E HERETO AND RENEWALS THEREOF;
(c) INDEBTEDNESS FOR BORROWED MONEY INCURRED BY EITHER OF THE BORROWERS
AFTER THE DATE OF THIS AGREEMENT WHICH HAS BEEN PERMITTED BY THE BANK
IN WRITING; AND
(d) PURCHASE MONEY INDEBTEDNESS OF EITHER OF THE BORROWERS, SECURED BY
SECURITY INTERESTS OR LIENS PERMITTED UNDER SECTION 8.1(g) HEREOF.
SECTION 8.3 GUARANTIES. NEITHER OF THE BORROWERS WILL ASSUME,
GUARANTEE, ENDORSE OR OTHERWISE BECOME DIRECTLY OR CONTINGENTLY LIABLE IN
CONNECTION WITH ANY OBLIGATIONS OF ANY OTHER PERSON, EXCEPT:
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(a) THE ENDORSEMENT OF NEGOTIABLE INSTRUMENTS BY EITHER OF THE
BORROWERS FOR DEPOSIT OR COLLECTION OR SIMILAR TRANSACTIONS IN THE
ORDINARY COURSE OF BUSINESS; AND
(b) GUARANTIES, ENDORSEMENTS AND OTHER DIRECT OR CONTINGENT LIABILITIES
IN CONNECTION WITH THE OBLIGATIONS OF OTHER PERSONS IN EXISTENCE ON THE
DATE HEREOF AND LISTED IN EXHIBIT E HERETO.
SECTION 8.4 INVESTMENTS. NEITHER OF THE BORROWERS WILL
(a) CREATE OR PERMIT TO EXIST ANY SUBSIDIARY, OTHER THAN THE SUBSIDIARIES IN
EXISTENCE AS OF THE DATE HEREOF, OR (b) PURCHASE OR HOLD BENEFICIALLY ANY STOCK
OR OTHER SECURITIES OR EVIDENCE OF INDEBTEDNESS OF, MAKE OR PERMIT TO EXIST ANY
LOANS OR ADVANCES TO, OR MAKE ANY INVESTMENT OR ACQUIRE ANY INTEREST WHATSOEVER
IN, ANY OTHER PERSON, EXCEPT:
(i) investments in direct obligations of the United States of
America or any agency or instrumentality thereof whose obligations
constitute full faith and credit obligations of the United States of
America having a maturity of one year or less, deposits with the Bank
or other financial institutions which are fully insured by the Federal
Deposit Insurance Corporation, or investments in money market funds or
commercial paper;
(ii) reasonable travel advances to officers and employees
of either of the Borrowers in the ordinary course of business;
(iii) advances in the form of progress payments, prepaid
rent or security deposits;
(iv) loans to account debtors which are obligations
previously evidenced as accounts receivable and are converted into
notes in either of the Borrowers' ordinary course of business provided
that such loans mature in twelve (12) months or less;
(v) loans to franchisees of either of the Borrowers
provided that such loans mature in twelve (12) months or less; and
(vi) loans to or investments in an Affiliate of either of
the Borrowers.
Section 8.5 Consolidation and Merger. Without the consent of
the Bank, neither of the Borrowers will consolidate with or merge into any
Person or permit any other Person to merge into it or acquire (in a transaction
analogous in purpose or effect to a consolidation or merger) all or
substantially all of the assets of any other Person.
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SECTION 8.6 HAZARDOUS SUBSTANCES. NEITHER OF THE BORROWERS
WILL CAUSE OR PERMIT ANY HAZARDOUS SUBSTANCE TO BE DISPOSED OF IN ANY MANNER
WHICH MIGHT RESULT IN ANY MATERIAL LIABILITY TO SUCH BORROWER.
SECTION 8.7 RESTRICTIONS ON NATURE OF BUSINESS. NEITHER OF THE
BORROWERS WILL ENGAGE IN ANY BUSINESS MATERIALLY DIFFERENT FROM THAT PRESENTLY
ENGAGED IN BY SUCH BORROWER.
SECTION 8.8 TRANSACTIONS WITH AFFILIATES. EXCEPT AS PERMITTED
BY SECTION 8.4 HEREOF, NEITHER OF THE BORROWERS SHALL MAKE ANY LOAN OR CAPITAL
CONTRIBUTION TO, OR ANY OTHER INVESTMENT IN, ANY AFFILIATE, OR MAKE ANY
DISTRIBUTION OR OTHER CASH TRANSFER OF ANY KIND TO, ANY AFFILIATE. NEITHER OF
THE BORROWERS SHALL ENGAGE IN ANY OTHER TRANSACTION (INCLUDING BUT NOT LIMITED
TO PURCHASES AND SALES OF GOODS AND SERVICES) WITH ANY AFFILIATE OTHER THAN THE
PURCHASE AND SALE OF GOODS AND SERVICES IN THE ORDINARY COURSE OF BUSINESS, ON
ORDINARY BUSINESS TERMS, AT FAIR MARKET PRICES DETERMINED FOR TRANSACTIONS
ENTERED ON AN ARM'S LENGTH BASIS. NOTWITHSTANDING THE FOREGOING, THE BORROWERS
MAY CONDUCT SUCH ACTIVITIES AS BETWEEN THEMSELVES.
SECTION 8.9 SALE OR TRANSFER OF ASSETS; SUSPENSION OF BUSINESS
OPERATIONS. WITHOUT THE CONSENT OF THE BANK, NEITHER OF THE BORROWERS WILL SELL,
LEASE, ASSIGN, TRANSFER OR OTHERWISE DISPOSE OF ALL OR A SUBSTANTIAL PART OF ITS
ASSETS (WHETHER IN ONE TRANSACTION OR IN A SERIES OF TRANSACTIONS) TO ANY OTHER
PERSON OTHER THAN IN THE ORDINARY COURSE OF BUSINESS AND WILL NOT IN ANY MANNER
TRANSFER ANY PROPERTY WITHOUT PRIOR OR PRESENT RECEIPT OF FULL AND ADEQUATE
CONSIDERATION. NEITHER OF THE BORROWERS WILL LIQUIDATE, DISSOLVE OR SUSPEND ITS
BUSINESS OPERATIONS. NOTWITHSTANDING THE FOREGOING, THE BORROWERS MAY CONDUCT
SUCH ACTIVITIES AS BETWEEN THEMSELVES.
SECTION 8.10 SALE AND LEASEBACK. NEITHER OF THE BORROWERS WILL
ENTER INTO ANY ARRANGEMENT, DIRECTLY OR INDIRECTLY, WITH ANY OTHER PERSON
WHEREBY SUCH BORROWER SHALL SELL OR TRANSFER ANY REAL OR PERSONAL PROPERTY,
WHETHER NOW OWNED OR HEREAFTER ACQUIRED, AND THEN OR THEREAFTER RENT OR LEASE AS
LESSEE SUCH PROPERTY OR ANY PART THEREOF OR ANY OTHER PROPERTY WHICH SUCH
BORROWER INTENDS TO USE FOR SUBSTANTIALLY THE SAME PURPOSE OR PURPOSES AS THE
PROPERTY BEING SOLD OR TRANSFERRED.
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SECTION 8.11 DEFINED BENEFIT PENSION PLANS. NEITHER OF THE
BORROWERS WILL ADOPT, CREATE, ASSUME OR BECOME A PARTY TO ANY DEFINED BENEFIT
PENSION PLAN WHICH IS NOT IN EXISTENCE ON THE DATE HEREOF AND DISCLOSED TO THE
BANK.
ARTICLE IX Events of Default, Rights and Remedies
SECTION 9.1 EVENTS OF DEFAULT. "EVENT OF DEFAULT", WHEREVER
USED HEREIN, MEANS ANY ONE OF THE FOLLOWING EVENTS:
(a) DEFAULT IN THE PAYMENT OF ANY PRINCIPAL OF ANY NOTE WHEN DUE,
INCLUDING, WITHOUT LIMITATION, ANY MANDATORY PREPAYMENT REQUIRED UNDER
SECTION 3.3(f) HEREOF.
(b) DEFAULT IN THE PAYMENT OF ANY INTEREST ON ANY NOTE OR ANY FEES,
COSTS, EXPENSES OR OTHER AMOUNTS PAYABLE UNDER THIS AGREEMENT (OTHER
THAN AMOUNTS DEALT WITH IN SECTION 9.1(a)) OR ANY OTHER LOAN DOCUMENT
WHEN DUE AND THE CONTINUANCE OF SUCH DEFAULT FOR A PERIOD OF 5 DAYS.
(c) DEFAULT IN THE PERFORMANCE, OR BREACH, OF ANY COVENANT OR AGREEMENT
ON THE PART OF EITHER OF THE BORROWERS CONTAINED IN SECTION 7.9, 7.10,
7.11, 7.12 OR ARTICLE VIII HEREOF.
(d) DEFAULT IN THE PERFORMANCE, OR BREACH, OF ANY COVENANT OR AGREEMENT
ON THE PART OF EITHER OF THE BORROWERS CONTAINED IN SECTION 7.1(a)
THROUGH 7.1(c) HEREOF AND THE CONTINUANCE OF SUCH DEFAULT OR BREACH FOR
A PERIOD OF 5 DAYS AFTER THE BANK SHALL HAVE GIVEN WRITTEN NOTICE
THEREOF TO SUCH BORROWER.
(e) DEFAULT IN THE PERFORMANCE, OR BREACH, OF ANY COVENANT OR AGREEMENT
ON THE PART OF EITHER OF THE BORROWERS CONTAINED IN THIS AGREEMENT
(OTHER THAN THOSE SPECIFICALLY DEALT WITH IN OTHER SUBSECTIONS OF THIS
SECTION) AND THE CONTINUANCE OF SUCH DEFAULT OR BREACH FOR A PERIOD OF
30 DAYS.
(f) ANY STATEMENT, REPRESENTATION OR WARRANTY MADE BY EITHER OF THE
BORROWERS IN THIS AGREEMENT OR BY EITHER OF THE BORROWERS (OR ANY OF
ITS OFFICERS) TO THE BANK AT ANY TIME, INCLUDING WITHOUT LIMITATION IN
ANY CERTIFICATE, INSTRUMENT, OR STATEMENT CONTEMPLATED BY OR MADE OR
DELIVERED PURSUANT TO OR IN CONNECTION WITH THIS AGREEMENT, SHALL PROVE
TO HAVE BEEN INCORRECT IN ANY MATERIAL RESPECT WHEN MADE.
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(g) A DEFAULT UNDER ANY BOND, DEBENTURE, NOTE OR OTHER EVIDENCE OF
INDEBTEDNESS OF EITHER OF THE BORROWERS WITH A FACE OBLIGATION OF
$50,000 (OTHER THAN TO THE BANK) OR UNDER ANY INDENTURE OR OTHER
INSTRUMENT WITH A FACE OBLIGATION OF $50,000 UNDER WHICH ANY SUCH
EVIDENCE OF INDEBTEDNESS HAS BEEN ISSUED OR BY WHICH IT IS GOVERNED AND
THE EXPIRATION OF THE APPLICABLE PERIOD OF GRACE, IF ANY, SPECIFIED IN
SUCH EVIDENCE OF INDEBTEDNESS, INDENTURE OR OTHER INSTRUMENT.
(h) DEFAULT IN THE PAYMENT WHEN DUE OF ANY AMOUNT OWED BY EITHER OF THE
BORROWERS TO THE BANK UNDER ANY OBLIGATIONS OTHER THAN HEREUNDER OR
UNDER ANY NOTE.
(i) EITHER OF THE BORROWERS SHALL BE ADJUDICATED A BANKRUPT OR
INSOLVENT, OR ADMIT IN WRITING THEIR INABILITY TO PAY THEIR DEBTS AS
THEY MATURE, OR MAKE AN ASSIGNMENT FOR THE BENEFIT OF CREDITORS; OR
SUCH BORROWER SHALL APPLY FOR OR CONSENT TO THE APPOINTMENT OF ANY
RECEIVER, TRUSTEE, OR SIMILAR OFFICER FOR IT OR FOR ALL OR ANY
SUBSTANTIAL PART OF ITS PROPERTY; OR SUCH RECEIVER, TRUSTEE OR SIMILAR
OFFICER SHALL BE APPOINTED WITHOUT THE APPLICATION OR CONSENT OF SUCH
BORROWER AND SUCH APPOINTMENT SHALL CONTINUE UNDISCHARGED FOR A PERIOD
OF 60 DAYS; OR SUCH BORROWER SHALL INSTITUTE (BY PETITION, APPLICATION,
ANSWER, CONSENT OR OTHERWISE) ANY BANKRUPTCY, INSOLVENCY,
REORGANIZATION, ARRANGEMENT, READJUSTMENT OF DEBT, DISSOLUTION,
LIQUIDATION OR SIMILAR PROCEEDING RELATING TO IT UNDER THE LAWS OF ANY
JURISDICTION; OR ANY SUCH PROCEEDING SHALL BE INSTITUTED (BY PETITION,
APPLICATION OR OTHERWISE) AGAINST SUCH BORROWER; OR ANY JUDGMENT, WRIT,
WARRANT OF ATTACHMENT OR EXECUTION OR SIMILAR PROCESS SHALL BE ISSUED
OR LEVIED AGAINST A SUBSTANTIAL PART OF THE PROPERTY OF EITHER OF THE
BORROWERS AND SUCH JUDGMENT, WRIT, OR SIMILAR PROCESS SHALL NOT BE
RELEASED, VACATED OR FULLY BONDED WITHIN 30 DAYS AFTER ITS ISSUE OR
LEVY.
(j) A PETITION SHALL BE FILED BY OR AGAINST EITHER OF THE BORROWERS
UNDER THE UNITED STATES BANKRUPTCY CODE NAMING SUCH BORROWER AS DEBTOR.
(k) THE RENDERING AGAINST EITHER OF THE BORROWERS OF A FINAL JUDGMENT,
DECREE OR ORDER FOR THE PAYMENT OF MONEY IN EXCESS OF $100,000 AND THE
CONTINUANCE OF SUCH JUDGMENT, DECREE OR ORDER UNSATISFIED AND IN EFFECT
FOR ANY PERIOD OF 30 CONSECUTIVE DAYS WITHOUT A STAY OF EXECUTION.
(l) A WRIT OF ATTACHMENT, GARNISHMENT, LEVY OR SIMILAR PROCESS SHALL BE
ISSUED AGAINST OR SERVED UPON THE BANK WITH RESPECT TO (i) ANY PROPERTY
OF EITHER OF THE BORROWERS IN THE POSSESSION OF THE BANK, OR (ii) ANY
INDEBTEDNESS OF THE BANK TO EITHER OF THE BORROWERS, AND SHALL REMAIN
UNCURED FOR A PERIOD OF 30 DAYS.
Grow Biz/A&R Credit Agreement
27
(m) ANY REPORTABLE EVENT, WHICH THE BANK DETERMINES IN GOOD FAITH MIGHT
CONSTITUTE GROUNDS FOR THE TERMINATION OF ANY PLAN OR FOR THE
APPOINTMENT BY THE APPROPRIATE UNITED STATES DISTRICT COURT OF A
TRUSTEE TO ADMINISTER ANY PLAN, SHALL HAVE OCCURRED AND BE CONTINUING
30 DAYS AFTER WRITTEN NOTICE TO SUCH EFFECT SHALL HAVE BEEN GIVEN TO
THE BORROWER BY THE BANK; OR A TRUSTEE SHALL HAVE BEEN APPOINTED BY AN
APPROPRIATE UNITED STATES DISTRICT COURT TO ADMINISTER ANY PLAN; OR THE
PENSION BENEFIT GUARANTY CORPORATION SHALL HAVE INSTITUTED PROCEEDINGS
TO TERMINATE ANY PLAN OR TO APPOINT A TRUSTEE TO ADMINISTER ANY PLAN;
OR EITHER OF THE BORROWERS SHALL HAVE FILED FOR A DISTRESS TERMINATION
OF ANY PLAN UNDER TITLE IV OF ERISA; OR EITHER OF THE BORROWERS SHALL
HAVE FAILED TO MAKE ANY QUARTERLY CONTRIBUTION REQUIRED WITH RESPECT TO
ANY PLAN UNDER SECTION 412(m) OF THE INTERNAL REVENUE CODE OF 1986, AS
AMENDED, WHICH THE BANK DETERMINES IN GOOD FAITH MAY BY ITSELF, OR IN
COMBINATION WITH ANY SUCH FAILURES THAT THE BANK MAY DETERMINE ARE
LIKELY TO OCCUR IN THE FUTURE, RESULT IN THE IMPOSITION OF A LIEN ON
THE ASSETS OF EITHER OF THE BORROWERS IN FAVOR OF THE PLAN.
(n) K. JEFFREY DAHLBERG AND RONALD G. OLSON, IN THE AGGREGATE, SHALL
FAIL TO HOLD AND OWN MORE THAN 50% OF ALL IMMEDIATE AND OUTSTANDING
VOTING STOCK OF INTERNATIONAL.
SECTION 9.2 RIGHTS AND REMEDIE. IF ANY EVENT OF DEFAULT SHALL
OCCUR AND BE CONTINUING, THE BANK MAY EXERCISE ANY ONE OR MORE OF THE RIGHTS AND
REMEDIES SET FORTH BELOW:
(a) THE BANK MAY, BY NOTICE TO THE BORROWERS, DECLARE ITS COMMITMENT TO
BE TERMINATED, WHEREUPON THE SAME SHALL FORTHWITH TERMINATE.
(b) THE BANK MAY, BY NOTICE TO THE BORROWERS, DECLARE ALL INDEBTEDNESS,
INTEREST, FEES AND OTHER AMOUNTS DUE AND PAYABLE UNDER THIS AGREEMENT
AND/OR ANY NOTE AND/OR ANY OTHER OBLIGATIONS TO BE FORTHWITH DUE AND
PAYABLE, WHEREUPON THE SAME SHALL BE FORTHWITH DUE AND PAYABLE, WITHOUT
PRESENTMENT, NOTICE OF DISHONOR, PROTEST, OR FURTHER NOTICE OF ANY
KIND, ALL OF WHICH ARE HEREBY EXPRESSLY WAIVED BY THE BORROWER.
(c) THE BANK MAY, WITHOUT NOTICE TO THE BORROWERS AND WITHOUT FURTHER
ACTION, APPLY ANY AND ALL MONEY OWING BY THE BANK TO THE BORROWERS
(WHETHER OR NOT THEN DUE) TO THE PAYMENT OF ANY NOTE THEN OUTSTANDING,
INCLUDING INTEREST ACCRUED THEREON, AND TO THE PAYMENT OF ALL OTHER
OBLIGATIONS THEN OWING TO THE BANK
Grow Biz/A&R Credit Agreement
28
(d) THE BANK MAY EXERCISE AND ENFORCE ITS RIGHTS AND REMEDIES
UNDER ANY ONE OR MORE OF THE LOAN DOCUMENTS.
(e) THE BANK MAY EXERCISE ANY OTHER RIGHTS AVAILABLE TO IT BY LAW
OR AGREEMENT.
Notwithstanding the foregoing, upon the occurrence of an Event of Default
described in Section 9.1(1) hereof with respect to the Borrowers, the Commitment
shall be automatically terminated and the entire unpaid principal amount of the
Notes and all other Obligations then outstanding, all interest accrued and
unpaid thereon and all other amounts payable under this Agreement or otherwise
payable to the Bank shall be immediately due and payable without presentment,
demand, protest or notice of any kind, all of which are hereby expressly waived
by the Borrowers.
ARTICLE X Miscellaneous
SECTION 10.1 RESTATEMENT OF OLD CREDIT DOCUMENTS. THIS
AGREEMENT IS EXECUTED FOR THE PURPOSE OF AMENDING AND RESTATING THE OLD CREDIT
DOCUMENTS.
SECTION 10.2 AMENDMENTS, ETC. NO AMENDMENT OR WAIVER OF ANY
PROVISION OF ANY LOAN DOCUMENT, NOR CONSENT TO ANY DEPARTURE BY THE BORROWERS
THEREFROM SHALL IN ANY EVENT BE EFFECTIVE UNLESS THE SAME SHALL BE IN WRITING
AND SIGNED BY THE BANK AND, IN THE CASE OF AN AMENDMENT, BY THE BORROWERS, AND
THEN SUCH AMENDMENT, WAIVER OR CONSENT SHALL BE EFFECTIVE ONLY IN THE SPECIFIC
INSTANCE AND FOR THE SPECIFIC PURPOSE FOR WHICH GIVEN.
SECTION 10.3 NOTICES, ETC. ALL NOTICES AND OTHER
COMMUNICATIONS PROVIDED FOR UNDER ANY LOAN DOCUMENT SHALL BE IN WRITING AND
MAILED, TELECOPIED, PERSONALLY DELIVERED OR DELIVERED BY OVERNIGHT CARRIER, TO
THE APPLICABLE PARTY AT ITS ADDRESS INDICATED BELOW:
Grow Biz/A&R Credit Agreement
29
If to the Borrowers:
Grow Biz International, Inc.
Grow Biz Games, Inc.
4200 Dahlberg Drive
Golden Valley, Minnesota 55422
Attention: David J. Osdoba, Jr.
Telecopier: (612) 520-8410
If to the Bank:
TCF National Bank Minnesota
801 Marquette Avenue
Minneapolis, Minnesota 55402
Attention: Commercial Lending
Telecopier: (612) 661-8504
or, as to each party, at such other address or telecopy number as shall be
designated in a written notice to the other party. Each such notice or
communication shall be effective (i) if given by mail, two (2) Business Days
after such notice or communication is deposited in the mail with first class
postage prepaid, addressed as aforesaid, (ii) if given by telecopy, when sent,
(iii) if personally delivered, when personally delivered and (iv) if delivered
by overnight carrier, one (1) Business Day after deposit with the overnight
carrier for next Business Day delivery, addressed as aforesaid; except that
notices to the Bank pursuant to the provisions of Article III or Article IV
hereof shall not be effective until received by the Bank.
SECTION 10.4 NO WAIVER; REMEDIES. NO FAILURE ON THE PART OF
THE BANK TO EXERCISE, AND NO DELAY IN EXERCISING, ANY RIGHT UNDER ANY LOAN
DOCUMENT SHALL OPERATE AS A WAIVER THEREOF; NOR SHALL ANY SINGLE OR PARTIAL
EXERCISE OF ANY RIGHT UNDER ANY LOAN DOCUMENT PRECLUDE ANY OTHER OR FURTHER
EXERCISE THEREOF OR THE EXERCISE OF ANY OTHER RIGHT. THE REMEDIES PROVIDED IN
THE LOAN DOCUMENTS ARE CUMULATIVE AND NOT EXCLUSIVE OF ANY REMEDIES PROVIDED BY
LAW.
SECTION 10.5 INDEMNIFICATION BY BORROWERS. IN ADDITION TO THE
PAYMENT OF EXPENSES PURSUANT TO SECTION 10.6 HEREOF, THE BORROWERS HEREBY AGREE
TO INDEMNIFY, DEFEND AND HOLD HARMLESS THE BANK AND ANY OF ITS PARTICIPANTS,
PARENT CORPORATIONS, SUBSIDIARY CORPORATIONS, AFFILIATED CORPORATIONS, SUCCESSOR
CORPORATIONS, AND ALL PRESENT AND FUTURE OFFICERS, DIRECTORS, EMPLOYEES AND
AGENTS OF THE FOREGOING (THE "INDEMNITEES"), FROM AND AGAINST ANY AND ALL
LIABILITIES, LOSSES, DAMAGES, PENALTIES, JUDGMENTS, SUITS, CLAIMS,
Grow Biz/A&R Credit Agreement
30
TRANSFER AND DOCUMENTARY TAXES, ASSESSMENTS OR CHARGES, COSTS AND EXPENSES OF
ANY KIND OR NATURE WHATSOEVER (INCLUDING, WITHOUT LIMITATION, THE REASONABLE
FEES AND DISBURSEMENTS OF COUNSEL) WHICH MAY BE IMPOSED ON, INCURRED BY OR
ASSERTED AGAINST SUCH INDEMNITEE, IN ANY MANNER RELATING TO OR ARISING OUT OF OR
IN CONNECTION WITH THE MAKING OF LOANS OR FINANCIAL ACCOMMODATIONS CONSTITUTING
OBLIGATIONS, THIS AGREEMENT AND ALL OTHER LOAN DOCUMENTS, OR THE USE OR INTENDED
USE OF THE PROCEEDS OF ANY SUCH LOANS OR FINANCIAL ACCOMMODATIONS, OR ANY PAST,
PRESENT OR FUTURE EXISTENCE, USE, HANDLING, STORAGE, TRANSPORTATION OR DISPOSAL
OF ANY HAZARDOUS SUBSTANCE BY THE BORROWERS OR ON PROPERTY OWNED, LEASED OR
CONTROLLED BY THE BORROWER (THE "INDEMNIFIED LIABILITIES"), EXCEPT TO THE EXTENT
THAT ANY SUCH LIABILITIES, LOSSES, DAMAGES, PENALTIES, JUDGMENTS, SUITS, CLAIMS
TAXES, ASSESSMENTS, CHARGES, COSTS AND EXPENSES ARE INCURRED AS A RESULT OF THE
GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH INDEMNITEES. UPON REQUEST OF AN
INDEMNITEE, THE BORROWERS, OR COUNSEL DESIGNATED BY THE BORROWERS AND
SATISFACTORY TO THE INDEMNITEE, WILL RESIST AND DEFEND ANY ACTION, SUIT OR
PROCEEDING BROUGHT AGAINST SUCH INDEMNITEE AND ARISING FROM ANY OF THE
FOREGOING, TO THE EXTENT AND IN THE MANNER DIRECTED BY THE INDEMNITEE, AT THE
BORROWERS' SOLE COST AND EXPENSE. IF THE FOREGOING UNDERTAKING TO INDEMNIFY,
DEFEND AND HOLD HARMLESS MAY BE HELD TO BE UNENFORCEABLE BECAUSE IT VIOLATES ANY
LAW OR PUBLIC POLICY, THE BORROWERS SHALL NEVERTHELESS MAKE THE MAXIMUM
CONTRIBUTION TO THE PAYMENT AND SATISFACTION OF EACH OF THE INDEMNIFIED
LIABILITIES WHICH IS PERMISSIBLE UNDER APPLICABLE LAW. THE OBLIGATION OF THE
BORROWERS UNDER THIS SECTION 10.5 SHALL SURVIVE THE TERMINATION OF THIS
AGREEMENT AND THE DISCHARGE OF THE OBLIGATIONS.
SECTION 10.6 COSTS AND EXPENSES. THE BORROWERS AGREE TO PAY ON
DEMAND ALL REASONABLE OUT-OF-POCKET COSTS, EXPENSES AND FEES RELATED TO THE
PREPARATION, EXECUTION, DELIVERY, FILING, RECORDING AND ADMINISTRATION OF THE
LOAN DOCUMENTS AND THE OTHER DOCUMENTS TO BE DELIVERED UNDER THE LOAN DOCUMENTS,
INCLUDING WITHOUT LIMITATION THE COSTS, EXPENSES AND FEES PAYABLE OR DETERMINED
TO BE PAYABLE IN CONNECTION WITH ANY AUDITS, INSPECTIONS, EXAMINATIONS DESCRIBED
IN SECTION 7.2 HEREOF OR PERMITTED UNDER ANY OF THE SECURITY DOCUMENTS, ANY
WAIVER OR CONSENT HEREUNDER OR ANY AMENDMENT HEREOF, INCLUDING, WITHOUT
LIMITATION, THE REASONABLE FEES AND OUT-OF-POCKET EXPENSES OF OUTSIDE OR
IN-HOUSE COUNSEL FOR THE BANK WITH RESPECT THERETO AND WITH RESPECT TO ADVISING
THE BANK AS TO ITS RIGHTS AND RESPONSIBILITIES UNDER THE LOAN DOCUMENTS, AND ALL
COSTS AND EXPENSES (INCLUDING REASONABLE OUTSIDE OR IN-HOUSE COUNSEL FEES AND
EXPENSES) IN CONNECTION WITH THE PERFORMANCE, COLLECTION AND ENFORCEMENT OF THE
LOAN DOCUMENTS AND THE OTHER DOCUMENTS TO BE DELIVERED UNDER THE LOAN DOCUMENTS.
Grow Biz/A&R Credit Agreement
31
SECTION 10.7 SEVERABILITY OF PROVISIONS. ANY PROVISION OF THIS
AGREEMENT OR OF ANY OTHER LOAN DOCUMENT WHICH IS PROHIBITED OR UNENFORCEABLE IN
ANY JURISDICTION SHALL, AS TO SUCH JURISDICTION, BE INEFFECTIVE TO THE EXTENT OF
SUCH PROHIBITION OR UNENFORCEABILITY WITHOUT INVALIDATING THE REMAINING
PROVISIONS HEREOF OR THEREOF OR AFFECTING THE VALIDITY OR ENFORCEABILITY OF SUCH
PROVISION IN ANY OTHER JURISDICTION.
SECTION 10.8 BINDING EFFECT. THIS AGREEMENT SHALL BE BINDING
UPON AND INURE TO THE BENEFIT OF THE BORROWERS AND THE BANK AND THEIR RESPECTIVE
SUCCESSORS AND ASSIGNS, EXCEPT THAT THE BORROWERS SHALL NOT HAVE THE RIGHT TO
ASSIGN ITS RIGHTS HEREUNDER OR ANY INTEREST HEREIN WITHOUT THE PRIOR WRITTEN
CONSENT OF THE BANK.
SECTION 10.9 EXECUTION IN COUNTERPARTS. THIS AGREEMENT AND TH
SECURITY DOCUMENTS MAY BE EXECUTED IN ANY NUMBER OF COUNTERPARTS, EACH OF WHICH
WHEN SO EXECUTED SHALL BE DEEMED TO BE AN ORIGINAL AND ALL OF WHICH WHEN TAKEN
TOGETHER SHALL CONSTITUTE BUT ONE AND THE SAME AGREEMENT.
SECTION 10.10 HEADINGS. ARTICLE AND SECTION HEADINGS IN THIS
AGREEMENT ARE INCLUDED HEREIN FOR CONVENIENCE OF REFERENCE ONLY AND SHALL NOT
CONSTITUTE A PART OF THIS AGREEMENT FOR ANY OTHER PURPOSE.
SECTION 10.11 CONFIDENTIALITY. PURSUANT TO THE TERMS OF THIS
AGREEMENT, THE BANK MAY COME INTO THE POSSESSION OF CERTAIN ITEMS AND OR
DOCUMENTS WHICH THE BORROWERS CONSIDER CONFIDENTIAL. THE BANK AGREES THAT IT
SHALL NOT SHARE ANY SUCH CONFIDENTIAL INFORMATION WITH ANY COMPETITOR OF THE
BORROWERS, NOR SHALL THE BANK MAKE ANY PUBLIC DISCLOSURE OF ANY OF THE
CONFIDENTIAL INFORMATION. NOTWITHSTANDING THE FOREGOING, THE BANK SHALL CONTINUE
TO HAVE THE RIGHT TO SHARE SUCH CONFIDENTIAL INFORMATION WITH ITS ACCOUNTANTS,
LAWYERS AND OTHER ADVISORS, ANY AND ALL DIRECT AND INDIRECT SUBSIDIARIES AND
AFFILIATES OF THE BANK AND ANY AND ALL REGULATORY AUTHORITIES ("PERMITTED
RECIPIENTS"), BUT SHALL TAKE REASONABLE ACTIONS TO ADVISE PERMITTED RECIPIENTS
OF THE CONFIDENTIAL NATURE OF SUCH CONFIDENTIAL INFORMATION. THE BORROWERS
HEREBY WAIVE ANY RIGHT TO MAKE A CLAIM AGAINST THE BANK WITH RESPECT TO BREACHES
BY PERMITTED RECIPIENTS OF CONFIDENTIALITY OBLIGATIONS.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK;
SIGNATURES TO FOLLOW]
Grow Biz/A&R Credit Agreement
32
Grow Biz/A&R Credit Agreement
33
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers thereunto duly authorized,
as of the date first above written.
GROW BIZ INTERNATIONAL, INC.
By /s/ David J. Osboba, Jr.
----------------------------------
David J. Osdoba, Jr.
Its Vice President of Finance and Chief
Financial Officer
GROW BIZ GAMES, INC.
By /s/ David J. Osboba, Jr.
------------------------
David J. Osdoba, Jr.
Its Vice President of Finance and Chief
Financial Officer
TCF NATIONAL BANK MINNESOTA
By /s/ R. James Hancock
--------------------
R. James Hancock
Its Vice President
And
By
----------------------------------
----------------------------------
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[SIGNATURE PAGE TO CREDIT AGREEMENT]
APPENDIX
Glossary of Terms
"Accounts" means the aggregate unpaid obligations of customers
and other account debtors owing to either of the Borrowers arising out of the
sale or lease of goods or rendition of services by either of the Borrowers in
the ordinary course of the Borrower's business, on an open account or deferred
payment basis.
"Advances" means Revolving Advances and Term Advances.
"Affiliate" means (i) any Person that, either directly or
indirectly, is in control of, is controlled by, or is under common control with
either of the Borrowers, or (ii) any Person who is a (A) shareholder, director,
officer or employee of the Borrowers, or (B) any Person who is a director,
officer or employee of any Person described in clause (i) above. For purposes of
this definition, control of a Person shall mean the power, direct or indirect,
(X) to vote more than 50% of the securities having ordinary voting power for the
election of directors of such Person, or (Y) to direct or cause the direction of
the management and policies of such Person, whether by contract or otherwise.
"Agreement" means this Amended and Restated Credit Agreement,
as the same may from time to time be supplemented or amended.
"Base Rate" means the variable rate of interest established by
the Bank from time to time as its "base rate" or, if the Bank ceases to
establish a rate so designated, any similar successor rate designated by the
Bank. The Bank may lend to its customers at rates that are at, above or below
the Base Rate.
"Bridge Advance" has the meaning as specified in Section 3.1
hereof.
"Business Day" means any day other than a Saturday, Sunday or
any other day on which banks are required by law or authorized to close in
Minneapolis, Minnesota.
"Capital Base" means, at any date, the sum of Tangible Net
Worth plus Subordinated Debt.
"Cash Flow Available for Debt Service" means for any twelve
month period, the pre-tax net income of International, on a consolidated basis,
plus interest expense plus depreciation, plus amortization and other non-cash
charges.
"Commercial Term Note" has the meaning specified in
Section 3.1 hereof.
"Commitment" means any obligation of the Bank to make loans,
advances or other financial accommodations to or for the benefit of the
Borrowers, including without limitation, the Bank's obligation to make Advances
to the Borrowers under Sections 3.2 and 3.3 hereof.
"Compliance Certificate" means a certificate of an officer of
International in the form of Exhibit C hereto setting forth in reasonable detail
all relevant information and the calculations necessary to determine
International's compliance with its covenants set forth in Sections 7.9, 7.10,
7.11 and 7.12 hereof.
"Current Assets" means, at any date, the aggregate amount of
all assets of International, on a consolidated basis, which would be classified
as current assets at such date, computed in accordance with GAAP.
"Current Liabilities" means, at any date, the aggregate amount
of all liabilities of International, on a consolidated basis, (including proper
accruals) which would be classified as current liabilities at such date,
computed in accordance with GAAP.
"Current Maturities of Long Term Debt" means the amount of
International's loan term debt and leases which became due during such period,
on a consolidated basis.
"Debt Service Requirements" means for any twelve month period,
Current Maturities of Long Term Debt, plus interest expense, plus income tax
expense.
"Default" means any event or condition that, with notice or
lapse of time or both, would become an Event of Default.
"Default Rate" has the meaning given in Section 4.5 hereof.
"Environmental Law" means the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. ss. 9601 et seq., the
Resource Conservation and Recovery Act, 42 U.S.C. ss. 6901 et seq., the
Hazardous Materials Transportation Act, 49 U.S.C. ss. 1802 et seq., the Toxic
Substances Control Act, 15 U.S.C. ss. 2601 et seq., the Federal Water Pollution
Control Act, 33 U.S.C. ss. 1251 et seq., the Clean Water Act, 33 U.S.C. ss. 1321
et seq., the Clean Air Act, 42 U.S.C. ss. 7401 et seq., and any other federal,
state, county, municipal, local or other statute, law, ordinance or regulation
which may relate to or deal with the environment, including such as protect
human health and natural resources, all as may be from time to time amended.
"Equipment" means all equipment (as such term is defined in
the Uniform Commercial Code as in effect from time to time in the State of
Minnesota) of the Borrowers as to which either of the Borrowers now has or
hereafter acquires good title.
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"ERISA" means Title IV of the Employee Retirement Income
Security Act of 1974, as amended.
"Event of Default" has the meaning specified in
Section 9.1 hereof.
"Existing Letter of Credit" has the meaning specified in
Section 3.5(a) hereof.
"Existing Letter of Credit Application" means the application
of International pursuant to which the Existing Letter of Credit was issued.
"Existing Revolving Advances" has the meaning as specified in
Section 3.1(a) hereof.
"Existing Term Loan Advance" has the meaning as specified in
Section 3.4 hereof.
"Existing Term Loan Note" has the meaning as specified in
Section 3.1(b) hereof.
"Existing Term Loan Maturity Date" has the meaning as
specified in Section 3.4(a) hereof.
"GAAP" means, at any particular time, generally accepted
accounting principles in the United States in effect at such time.
"Hazardous Substances" means asbestos, ureaformaldehyde,
polychlorinated biphenyls ("PCBs"), nuclear fuel or material, chemical waste,
radioactive material, explosives, known carcinogens, petroleum products and
by-products and other dangerous, toxic or hazardous pollutants, contaminants,
chemicals, materials or substances listed or identified in, or regulated by, any
Environmental Law.
"Inventory" means the aggregate of each of the Borrowers'
inventory of goods held for sale in the ordinary course of the Borrowers'
businesses.
"Investment Property" means all of the Borrowers' investment
property, as such term is defined in the UCC, whether now owned or hereafter
acquired, including but not limited to all securities, security entitlements,
securities accounts, commodity contracts, commodity accounts, stocks, bonds,
mutual fund shares, money market shares and U.S. Government securities.
"L/C Amount" means the sum of (i) the aggregate face amount of
the Existing Letter of Credit and (ii) the unpaid amount of the Obligation of
Reimbursement."
A-3
"Loan Documents" means this Agreement, all Notes, all Security
Documents, the Existing Letter of Credit Application, the acknowledgment
delivered pursuant to Section 5.1(c) and the agreement and waiver delivered
pursuant to Section 5.1(d).
"Maximum Line" means $10,000,000.
"Net Income" means for any period, International's after tax
net income from continuing operations as determined in accordance with GAAP, on
a consolidated basis.
"Notes" means collectively the Revolving Note, the Term Loan B
Note and any other promissory note now or hereafter evidencing any Obligation.
"Obligation of Reimbursement" has the meaning specified in
Section 3.5.
"Obligations" means each and every debt, liability and
obligation of every type and description which either or both of the Borrowers
may now or at any time hereafter owe to the Bank, whether such debt, liability
or obligation now exists or is hereafter created or incurred, whether it arises
in a transaction involving the Bank alone or in a transaction involving other
creditors of either or both of the Borrowers, and whether it is direct or
indirect, due or to become due, absolute or contingent, primary or secondary,
liquidated or unliquidated, or sole, joint, several or joint and several, and
including specifically, but not limited to, all indebtedness of the Borrowers
arising under this Agreement or any other loan or credit agreement or guaranty
between the Borrowers and the Bank, whether now in effect or hereafter entered
into.
"Old Credit Documents" means that Credit Agreement dated as of
July 31, 1996, as amended by a First Amendment to Credit Agreement and Revolving
Note dated as of August 8, 1997, a Second Amendment to Credit Agreement dated as
of March 20, 1998, a Third Amendment to Credit Agreement dated as of May 20,
1998, and a Fourth Amendment to Credit Agreement dated as of July 30, 1998.
"Old Revolving Note" means International's Revolving
Promissory Note dated as of July 31, 1996 payable to the order of the Bank in
the original principal amount of $5,000,000.
"Person" means any individual, corporation, limited liability
company, limited liability partnership, partnership, joint venture, association,
joint-stock company, trust, unincorporated organization or government or any
agency or political subdivision thereof.
"Plan" means an employee benefit plan or other plan maintained
for employees of either of the Borrowers and covered by ERISA.
"Reportable Event" means (i) a "reportable event" described in
Section 4043 of ERISA and the regulations issued thereunder, (ii) a withdrawal
from any Plan, as described in Section 4063 of ERISA, (iii) an action to
terminate a Plan for which a notice is required to be filed under Section 4041
of ERISA, (iv) any other event or condition that might constitute
A-4
grounds for termination of, or the appointment of a trustee to administer,
any Plan, or (v) a complete or partial withdrawal from a Multiemployer Plan as
described in Sections 4203 and 4205 of ERISA.
"Revolving Advance" means an advance made by the Bank to the
Borrowers pursuant to Section 3.2 hereof.
"Revolving Note" has the meaning given in Section 3.2(c)
hereof.
"Revolving Commitment Amount" means an amount equal to the
Maximum Line less the amount outstanding under the Existing Letter of Credit.
"Revolving Loan Maturity Date" means July 31, 1999.
"Security Documents" means all security agreements, pledge
agreements, collateral account agreements, assignments of life insurance policy,
guaranties, mortgages, deeds of trust, security documents, instruments and
assignments directly or indirectly securing or guaranteeing part or all of the
Obligations, now or hereafter delivered to the Bank, and all amendments,
supplements and modifications thereof.
"Special Account" means a cash collateral account maintained
by the Bank in connection with letters of credit, as contemplated by Section
3.5."
"Subordinated Debt" means indebtedness of either or both of
the Borrowers which has been subordinated in right of payment to the Borrowers'
Obligations to the Bank on terms accepted in writing by the Bank.
"Subsidiary" means any corporation of which more than 50% of
the outstanding shares of capital stock having general voting power under
ordinary circumstances to elect a majority of the board of directors of such
corporation, irrespective of whether or not at the time stock of any other class
or classes shall have or might have voting power by reason of the happening of
any contingency, is at the time directly or indirectly owned by either of the
Borrowers, by either of the Borrowers and one or more other Subsidiaries, or by
one or more other Subsidiaries.
"Tangible Net Worth" means, at any date, the excess of:
(a) the tangible assets of International, on
a consolidated basis, which, in accordance with GAAP, are
tangible assets, after deducting adequate reserves in each
case where, in accordance with GAAP, a reserve is proper, over
(b) Total Liabilities of International,
on a consolidated basis;
A-5
provided, however, that (i) Inventory shall be taken into account on the basis
of the cost or current market value, whichever is lower, (ii) in no event shall
there be included as such tangible assets, patents, trademarks, trade names,
copyrights, good will, deferred charges or any securities unless the same are
readily marketable in the United States of America or entitled to be used as a
credit against Federal income tax liabilities, (iii) securities included as such
tangible assets shall be taken into account at their current market price or
cost, whichever is lower, and (iv) any write-up in the book value of any assets
shall not be taken into account.
"Term Advances" means either Term Loan B Advances or Existing
Term Loan Advances.
"Term Loan B Advance" means an advance made by the Bank to the
Borrower pursuant to Section 3.3 hereof.
"Term Loan B Maturity Date" has the meaning as specified in
Section 3.3(a) hereof.
"Term Loan B Note" has the meaning given in Section 3.3(c)
hereof.
"Total Liabilities" means, at any date, the aggregate amount
of all liabilities of International, on a consolidated basis (including proper
accruals and deferrals), which would be included as liabilities on the balance
sheet of International at such date, computed in accordance with GAAP.
A-6
EXHIBIT A TO
AMENDED AND RESTATED
CREDIT AGREEMENT
REVOLVING NOTE
$10,000,000 Minneapolis, Minnesota
October 14, 1998
For Value Received, GROW BIZ INTERNATIONAL, INC., a Minnesota
corporation, GROW BIZ GAMES, INC., a Minnesota corporation (hereinafter,
collectively, the "Borrowers"), promise to pay to the order of TCF NATIONAL BANK
MINNESOTA, a national banking association (hereinafter the "Bank"), at its main
office at 801 Marquette Avenue in Minneapolis, Minnesota, or at such other place
as the holder hereof may from time to time in writing designate, in lawful money
of the United States of America, the principal sum of Ten Million Dollars
($10,000,000), together with interest on the principal balance of this Note
outstanding from time to time from the date hereof until paid in full at an
annual rate determined, and calculated, pursuant to the Credit Agreement.
This Note is the "Revolving Note" defined in and is subject to
the terms and provisions of the Amended and Restated Credit Agreement as of the
date hereof, by and among the Borrowers and the Bank (as the same may hereafter
be amended, supplemented or restated, the "Credit Agreement"). The Credit
Agreement provides for the acceleration of the principal balance hereof upon the
occurrence of certain events stated therein.
From and after the date of the first revolving advance
hereunder, interest accruing on the principal balance hereof shall be due and
payable monthly, commencing on the tenth (10th) day of the month following the
date of the first revolving advance, and on the same day of each month
thereafter until payment in full of the indebtedness evidenced by this Note.
This Note is issued in and shall be governed by the
substantive laws (but not conflicts laws) of the State of Minnesota.
No delay or omission on the part of the holder in exercising
any right hereunder shall operate as a waiver of such right or of any other
remedy under this Note. A waiver on any one occasion shall not be construed as a
waiver of any such right or remedy on a future occasion.
This Note is issued in substitution of and replacement for,
but not in repayment of, International's original Revolving Promissory Note
dated as of July 31, 1996, in the original principal amount of $5,000,000.
A-7
All makers, endorsers, sureties, guarantors and other
accommodation parties hereby waive presentment for payment, protest and notice
of nonpayment and consent, without affecting their liability hereunder, to any
and all extensions, renewals, substitutions and alterations of any of the terms
of this Note and to the release of or failure by the Bank to exercise any rights
against any party liable for or any property securing payment thereof.
GROW BIZ INTERNATIONAL, INC.
By /s/ David J. Osdoba, Jr.
------------------------
David J. Osdoba, Jr.
Its Vice President of Finance and Chief
Financial Officer
GROW BIZ GAMES, INC.
By /s/ David J. Osdoba, Jr.
------------------------
David J. Osdoba, Jr.
Its Vice President of Finance and Chief
Financial Officer
A-8
EXHIBIT B TO
AMENDED AND RESTATED
CREDIT AGREEMENT
TERM LOAN B NOTE
$8,000,000 Minneapolis, Minnesota
October 14, 1998
For Value Received, GROW BIZ INTERNATIONAL, INC., a Minnesota
corporation, GROW BIZ GAMES, INC., a Minnesota corporation (hereinafter,
collectively, the "Borrowers"), promise to pay to the order of TCF NATIONAL BANK
MINNESOTA, a national banking association (hereinafter the "Bank"), at its main
office at 801 Marquette Avenue in Minneapolis, Minnesota, or at such other place
as the holder hereof may from time to time in writing designate, in lawful money
of the United States of America, the principal sum of Eight Million Dollars
($8,000,000), together with interest on the principal balance of this Note
outstanding from time to time from the date hereof until paid in full at an
annual rate determined, and calculated, pursuant to the Credit Agreement.
This Note is the "Term Loan B Note" defined in and is subject
to the terms and provisions of the Amended and Restated Credit Agreement as of
the date hereof, by and among the Borrowers and the Bank (as the same may
hereafter be amended, supplemented or restated, the "Credit Agreement"). The
Credit Agreement provides for the acceleration of the principal balance hereof
upon the occurrence of certain events stated therein.
Interest accruing on the principal of this Note, as well as
the terms of repayment, are set forth in the Credit Agreement.
This Note is issued in and shall be governed by the
substantive laws (but not conflicts laws) of the State of Minnesota.
No delay or omission on the part of the holder in exercising
any right hereunder shall operate as a waiver of such right or of any other
remedy under this Note. A waiver on any one occasion shall not be construed as a
waiver of any such right or remedy on a future occasion.
All makers, endorsers, sureties, guarantors and other
accommodation parties hereby waive presentment for payment, protest and notice
of nonpayment and consent, without affecting their liability hereunder, to any
and all extensions, renewals, substitutions
A-9
and alterations of any of the terms of this Note and to the release of or
failure by the Bank to exercise any rights against any party liable for or any
property securing payment thereof.
GROW BIZ INTERNATIONAL, INC.
By /s/ David J. Osdoba, Jr.
------------------------
David J. Osdoba, Jr.
Its Vice President of Finance and Chief
Financial Officer
GROW BIZ GAMES, INC.
By /s/ David J. Osdoba, Jr.
------------------------
David J. Osdoba, Jr.
Its Vice President of Finance and Chief
Financial Officer
A-10
EXHIBIT C TO
AMENDED AND RESTATED
CREDIT AGREEMENT
COMPLIANCE CERTIFICATE
[To Come]
A-11
EXHIBIT D TO
AMENDED AND RESTATED
CREDIT AGREEMENT
SCHEDULE OF REGISTERED UNITED STATES TRADEMARKS AND TRADENAMES
A-12
EXHIBIT E TO
AMENDED AND RESTATED
CREDIT AGREEMENT
SCHEDULE OF PERMITTED INDEBTEDNESS AND LIENS
Indebtedness
Liens
A-13
GUARANTIES