SECOND AMENDED AND RESTATED REVOLVING CREDIT, TERM LOAN
AND
SECURITY AGREEMENT
IBJ WHITEHALL BUSINESS CREDIT CORPORATION
(LENDER)
WITH
SPAR MARKETING FORCE, INC.
SPAR GROUP, INC.
SPAR, INC.
SPAR/BURGOYNE RETAIL SERVICES, INC.
SPAR INCENTIVE MARKETING, INC.
SPAR TRADEMARKS, INC.
SPAR MCI PERFORMANCE GROUP, INC.
SPAR MARKETING, INC. (DE)
SPAR MARKETING, INC. (NV)
SPAR ACQUISITION, INC.
PIA MERCHANDISING CO., INC.
PACIFIC INDOOR DISPLAY CO., INC.
AND
PIVOTAL SALES COMPANY
(BORROWERS)
September 22, 1999
TABLE OF CONTENTS
-----------------
Page
1. (A) General Definitions...............................................................................2
(B) Accounting Terms.................................................................................14
(C) Uniform Commercial Code Terms....................................................................14
(D) Certain Matters of Construction..................................................................14
2. Revolving Advances......................................................................................14
2A. Letters of Credit.......................................................................................17
3. Repayment of Loans......................................................................................19
4. Procedure for Revolving Advances........................................................................19
5. Interest and Fees.......................................................................................20
(a) Interest.....................................................................................20
(b) Fees.........................................................................................20
(c) Increased Costs..............................................................................22
(d) Capital Adequacy.............................................................................23
6. Security Interest.......................................................................................23
7. Representations Concerning the Collateral...............................................................24
8. Covenants Concerning the Collateral.....................................................................24
9. Collection and Maintenance of Collateral and Records....................................................25
10. Inspections.............................................................................................26
11. Financial Information...................................................................................26
12. Additional Representations, Warranties and Covenants....................................................27
13. Conditions Precedent....................................................................................34
13.1 Conditions to Initial Advances...............................................................34
13.2 Conditions to Each Revolving Advance.........................................................38
14. Power of Attorney.......................................................................................38
15. Expenses................................................................................................39
16. Successors and Assigns; Assignments.....................................................................39
17. Waivers.................................................................................................40
18. Term of Agreement.......................................................................................40
19. Events of Default.......................................................................................40
20. Remedies................................................................................................42
21. Waiver; Cumulative Remedies.............................................................................43
22. Application of Payments.................................................................................43
23. Establishment of a Lockbox Account, Dominion Account....................................................43
24. Revival.................................................................................................44
25. Notice 44
26. Governing Law and Waiver of Jury Trial..................................................................45
27. Limitation of Liability.................................................................................46
28. Entire Understanding....................................................................................46
29. Indemnity...............................................................................................46
30. Severability............................................................................................46
31. Captions................................................................................................46
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32. Counterparts............................................................................................47
33. Construction............................................................................................47
34. Publicity...............................................................................................47
35. Borrowing Agency Provisions.............................................................................47
36. Subordination of Subrogation and Contribution Rights, Etc...............................................48
ii
SECOND AMENDED AND RESTATED REVOLVING CREDIT,
TERM LOAN AND SECURITY AGREEMENT
--------------------------------
Second Amended and Restated Revolving Credit, Term Loan and Security Agreement
("Agreement") dated September 22, 1999 among SPAR MARKETING FORCE, INC., a
corporation organized under the laws of the State of Nevada ("SMF"), SPAR, INC.,
a corporation organized under the laws of the State of Nevada ("SPAR"),
SPAR/BURGOYNE RETAIL SERVICES, INC., a corporation organized under the laws of
the State of Ohio ("SBRS") (SMF, SPAR and SBRS, each an "Existing Borrower" and
collectively, "Existing Borrowers"), SPAR GROUP, INC., a corporation organized
under the laws of the State of Delaware ("SGI"), SPAR INCENTIVE MARKETING, INC.,
a corporation organized under the laws of the State of Delaware ("SIM"), SPAR
TRADEMARKS, INC., a corporation organized under the laws of the State of Nevada
("STM"), SPAR MCI PERFORMANCE GROUP, INC., a corporation organized under the
laws of the State of Delaware ("SMCI"), SPAR MARKETING, INC. (DE), a corporation
organized under the laws of the State of Delaware ("SMIDE"), SPAR MARKETING,
INC. (NV), a corporation organized under the laws of the State of Nevada
("SMINV"), SPAR ACQUISITION, INC., a corporation organized under the laws of the
State of Nevada ("SAI"), PIA MERCHANDISING CO., INC., a corporation organized
under the laws of the State of California ("PIA"), PACIFIC INDOOR DISPLAY CO.,
INC., a corporation organized under the laws of the State of California
Pacific") and PIVOTAL SALES COMPANY, a corporation organized under the laws of
the State of California ("Pivotal") (SGI, SIM, STM, SMCI, SMIDE, SMNIV, SAI,
PIA, Pacific and Pivotal, each a "New Borrower" and collectively "New Borrowers"
and each Existing Borrower and each New Borrower shall hereafter each be a
"Borrower" and collectively, "Borrowers"), and IBJ WHITEHALL BUSINESS CREDIT
CORPORATION ("Lender").
BACKGROUND
----------
SMF entered into a Revolving Credit and Security Agreement with Lender
(as successor to IBJ Schroder Bank & Trust Company and IBJ Schroder Business
Credit Corporation) dated March 4, 1996 (as same may have been amended, modified
or supplemented, the "Original Loan Agreement"). Thereafter, Existing Borrowers
and Lender entered into an Amended and Restated Revolving Credit, Term Loan and
Security Agreement dated as of March 10, 1999 (as same may have been amended,
modified or supplemented, the "Existing Loan Agreement"). By execution of this
Agreement, Existing Borrowers and Lender wish to add certain other Persons as
Borrowers hereunder and to amend and restate the Existing Loan Agreement on the
terms and conditions herein set forth.
NOW, THEREFORE, in consideration of the mutual covenants and
undertakings herein contained, the parties hereto hereby agree as follows:
AMENDMENT AND RESTATEMENT
-------------------------
As of the date of this Agreement, the terms, conditions, covenants,
agreements, representations and warranties contained in the Original Loan
Agreement and the Existing Loan Agreement shall be deemed amended and restated
in their entirety as follows and the Existing Loan Agreement shall be
consolidated with and into and superseded by this Agreement; provided, however,
that nothing contained in this Agreement shall impair limit or effect the
security interests heretofore granted, pledged and/or assigned to Lender as
security for the Obligations to Lender under the Original Loan Agreement and the
Existing Loan Agreement, except as otherwise herein provided.
1. (A) General Definitions. When used in this Agreement, the following
terms shall have the following meanings:
"Acquisition Agreement" shall mean the Asset Purchase and Sale
Agreement between Sellers and SMF (as buyer) dated as of March 1, 1996,
including all exhibits and schedules thereto.
"Advance Rates" shall mean, collectively, the Receivables
Advance Rate and the Unbilled Receivables Advance Rate.
"Affiliate" of any Person shall mean (a) any Person (other
than a Subsidiary) which, directly or indirectly, is in control of, is
controlled by, or is under common control with such Person, or (b) any Person
who is a director or officer (i) of such Person, (ii) of any Subsidiary of such
Person or (iii) of any Person described in clause (a) above. For purposes of
this definition, control of a Person shall mean the power, direct or indirect,
(i) to vote 5% or more of the securities having ordinary voting power for the
election of directors of such Person, or (ii) to direct or cause the direction
of the management and policies of such Person whether by contract or otherwise.
"Agreement" shall have the meaning set forth in the preamble
hereof.
"Alternate Base Rate" shall mean, for any day, a rate per
annum equal to the higher of (i) the Federal Funds Rate in effect on such day
plus 1/2 of 1% and (ii) the Base Rate in effect on such day.
"Ancillary Agreements" shall mean all agreements, instruments,
and documents including, without limitation, mortgages, guaranties, pledges,
powers of attorney, consents, assignments, contracts, notices, security
agreements, trust agreements whether heretofore, concurrently, or hereafter
executed by or on behalf of Borrowers or delivered to Lender, relating to this
Agreement or to the transactions contemplated by this Agreement.
"Authority" shall have the meaning set forth in Section
12(f)(iii) hereof.
"Bank" shall mean IBJ Whitehall Bank & Trust Company together
with its successors and assigns.
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"Base Rate" shall mean the base commercial lending rate of
Lender as publicly announced to be in effect from time to time, such rate to be
adjusted automatically, without notice, on the effective date of any change in
such rate. This rate of interest is determined from time to time by Lender as a
means of pricing some loans to its customers and is neither tied to any external
rate of interest or index nor does it necessarily reflect the lowest rate of
interest actually charged by Lender to any particular class or category of
customers of Lender.
"Blocked Account" shall have the meaning set forth in Section
23 hereof.
"Borrower" or "Borrowers" shall have the meaning set forth in
the preamble to this Agreement and shall extend to all permitted successors and
assigns of such Persons.
"Borrowing Agent" shall mean SMF.
"Business Day" shall mean any day other than a day on which
commercial banks in New York are authorized or required by law to close.
"CERCLA" shall mean the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, 42 U.S.C. ss.ss.9601 et seq.
"Change of Ownership" shall mean (a) any transfer (whether in
one or more transactions) of common stock of any Borrower that results in more
than 50% of the common stock of any Borrower being held by Persons other than
the Original Owners (including for the purposes of the calculation of percentage
ownership, any shares of common stock into which any capital stock of any
Borrower is convertible or for which any such shares of the capital stock of any
Borrower or of any other Person may be exchanged and any shares of common stock
issuable upon exercise of any warrants, options or similar rights which may at
the time of calculation be held by such Persons) or (b) any merger,
consolidation or sale of substantially all of the property or assets of any
Borrower other than a merger, consolidation or sale of substantially all of the
property or assets of one Borrower to, with, or into, another Borrower.
"Closing Date" shall mean September 22, 1999 or such other
date as may be agreed upon by the parties hereto.
"Collateral" shall mean and include:
(a) all Receivables;
(b) all Equipment;
(c) all General Intangibles;
(d) all Inventory;
(e) all Subsidiary Stock;
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(f) all of each Borrower's right, title and interest
in and to: (i) its respective goods and other property including, but not
limited to all merchandise returned or rejected by Customers, relating to or
securing any of the Receivables; (ii) all of each Borrower's rights as a
consignor, a consignee, an unpaid vendor, mechanic, artisan, or other lienor,
including stoppage in transit, setoff, detinue, replevin, reclamation and
repurchase; (iii) all additional amounts due to any Borrower from any Customer
relating to the Receivables; (iv) other property, including warranty claims,
relating to any goods securing this Agreement; (v) all of each Borrower's
contract rights, rights of payment which have been earned under a contract
right, instruments, documents, chattel paper, warehouse receipts, deposit
accounts, money, securities and investment property; (vi) if and when obtained
by any Borrower, all real and personal property of third parties in which such
Borrower has been granted a lien or security interest as security for the
payment or enforcement of Receivables; and (vii) any other goods, personal
property or real property now owned or hereafter acquired in which any Borrower
has expressly granted a security interest or may in the future grant a security
interest to Lender hereunder, under any Ancillary Agreement, or in any amendment
or supplement hereto or thereto, or under any other agreement between Lender and
any Borrower;
(g) all of each Borrower's ledger sheets, ledger
cards, files, correspondence, records, books of account, business papers,
computers, computer software (whether owned by Borrower or in which it has an
interest), computer programs, tapes, disks and documents relating to (a), (b),
(c), (d), (e) or (f) of this Section; and
(h) all proceeds and products of (a), (b), (c), (d),
(e), (f) and (g) in whatever form, including, but not limited to: cash, deposit
accounts (whether or not comprised solely of proceeds), certificates of deposit,
insurance proceeds (including hazard, flood and credit insurance), negotiable
instruments and other instruments for the payment of money, chattel paper,
security agreements or documents, eminent domain proceeds, condemnation proceeds
and tort claim proceeds.
"Consents" shall mean all filings and all licenses, permits,
consents, approvals, authorizations, qualifications and orders of governmental
authorities and other third parties, domestic or foreign, necessary to carry on
Borrower's business, including, without limitation, any Consents required under
all applicable federal, state or other applicable law.
"Contract Rate" shall mean, as applicable, the Revolving
Interest Rate or the Term Loan Rate.
"Current Assets" at a particular date, shall mean all cash,
cash equivalents, accounts and inventory of Borrowers on a consolidated basis
and all other items which would, in conformity with GAAP, be included under
current assets on a balance sheet of Borrowers on a consolidated basis as at
such date; provided, however, that such amounts shall not include (a) any
amounts for any indebtedness owing by an Affiliate of any Borrower, unless such
indebtedness arose in connection with the sale of goods or other property or the
rendition of services in the ordinary course of business and would otherwise
constitute current assets in conformity with GAAP, (b) any shares of stock
issued by an Affiliate of any Borrower, (c) the
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cash surrender value of any life insurance policy (d) any assets which would be
classified as intangible assets under GAAP, or (e) any prepaid expenses.
"Current Liabilities" at a particular date, shall mean all
amounts which would, in conformity with GAAP, be included under current
liabilities on a balance sheet of Borrowers on a consolidated basis as at such
date, but in any event including, without limitation, the amounts of (a) all
indebtedness payable on demand, or, at the option of the Person to whom such
indebtedness is owed, not more than twelve (12) months after such date, (b) any
payments in respect of any indebtedness (whether installment, serial maturity,
sinking fund payment or otherwise) required to be made not more than twelve (12)
months after such date, (c) all reserves in respect of liabilities or
indebtedness payable on demand or, at the option of the Person to whom such
indebtedness is owed, not more than twelve (12) months after such date, the
validity of which is contested at such date, (d) all accruals for federal or
other taxes measured by income payable within a twelve (12) month period and (e)
all Revolving Advances.
"Customer" shall mean and include the account debtor with
respect to any Receivable and/or the prospective purchaser of goods, services or
both with respect to any contract or contract right, and/or any party who enters
into or proposes to enter into any contract or other arrangement with any
Borrower, pursuant to which such Borrower is to deliver any personal property or
perform any services.
"Debt" of any Borrower at a particular date shall mean all
amounts which would, in conformity with GAAP, be included under liabilities on a
balance sheet of such Borrower at such date.
"Default" shall mean an event which, with the giving of notice
or passage of time or both, would constitute an Event of Default.
"Default Rate" shall mean a rate equal to two (2%) percent per
annum in excess of the applicable Contract Rate or per annum rate for Letter of
Credit Fees.
"Depository Accounts" shall have the meaning set forth in
Section 23 hereof.
"Dollar" and the sign "$" shall mean lawful money of the
United States of America.
"Earnings Before Interest and Taxes" shall mean for any period
the sum of (i) net income (or loss) of Borrowers on a consolidated basis for
such period (excluding extraordinary gains), plus (ii) all interest expense of
Borrowers on a consolidated basis for such period, plus (iii) all charges
against income of Borrowers on a consolidated basis for such period for federal,
state and local taxes actually paid.
"EBITDA" shall mean for any period the sum of (i) Earnings
Before Interest and Taxes for such period plus (ii) depreciation expenses of
Borrowers on a consolidated basis for such period, plus (iii) amortization
expenses of Borrowers on a consolidated basis for such
5
period plus (iv) any non-recurring expenses incurred by Borrowers in connection
with the Merger Transaction.
"Eligible Receivables" shall mean and include with respect to
each Borrower each Receivable of such Borrower arising in the ordinary course of
such Borrower's business which Lender, in its sole credit judgment, shall deem
to be an Eligible Receivable, based on the following criteria and such other
considerations as Lender may from time to time reasonably deem appropriate. A
Receivable shall not be deemed eligible unless such Receivable is subject to
Lender's perfected security interest and no other lien other than Permitted
Liens, and is evidenced by an invoice, bill of lading or other documentary
evidence satisfactory to Lender. In addition, no Receivable shall be an Eligible
Receivable if:
(a) it arises out of a sale made by any Borrower to
an Affiliate of any Borrower or to a Person controlled by an Affiliate of any
Borrower;
(b) it is due or unpaid more than ninety (90) days
after the original invoice date;
(c) fifty percent (50%) or more of the Receivables
from the Customer are not deemed Eligible Receivables hereunder. Such percentage
may, in Lender's sole discretion, be increased or decreased from time to time;
(d) any covenant, representation or warranty
contained in this Agreement with respect to such Receivable has been breached;
(e) the Customer shall (i) apply for, suffer, or
consent to the appointment of, or the taking of possession by, a receiver,
custodian, trustee or liquidator of itself or of all or a substantial part of
its property or call a meeting of its creditors, (ii) admit in writing its
inability, or be generally unable, to pay its debts as they become due or cease
operations of its present business, (iii) make a general assignment for the
benefit of creditors, (iv) commence a voluntary case under any state or federal
bankruptcy laws (as now or hereafter in effect), (v) be adjudicated a bankrupt
or insolvent, (vi) file a petition seeking to take advantage of any other law
providing for the relief of debtors, (vii) acquiesce to, or fail to have
dismissed, any petition which is filed against it in any involuntary case under
such bankruptcy laws, or (viii) take any action for the purpose of effecting any
of the foregoing;
(f) the sale is to a Customer outside the continental
United States of America, unless the sale is on letter of credit, guaranty or
acceptance terms, in each case acceptable to Lender in its sole discretion;
(g) the sale to the Customer is on a bill-and-hold,
guaranteed sale, sale-and-return, sale on approval, consignment or any other
repurchase or return basis or is evidenced by chattel paper;
6
(h) Lender believes, in its sole judgment, that
collection of such Receivable is insecure or that such Receivable may not be
paid by reason of the Customer's financial inability to pay;
(i) the Customer is the United States of America, any
state or any department, agency or instrumentality of any of them, unless the
applicable Borrower effectuates an assignment of its right to payment of such
Receivable to Lender pursuant to the Assignment of Claims Act of 1940, as
amended (31 U.S.C. Sub-Section 3727 and 41 U.S.C. Sub-Section 15 et seq.) or has
otherwise complied with other applicable statutes or ordinances;
(j) the goods giving rise to such Receivable have not
been shipped and delivered to and accepted by the Customer or the services
giving rise to such Receivable have not been performed by the applicable
Borrower and accepted by the Customer or the Receivable otherwise does not
represent a final sale;
(k) such Receivable causes the aggregate amount of
Receivables of the Customer to exceed a credit limit determined by Lender in its
sole discretion;
(l) the Receivable is subject to any offset,
deduction, defense, dispute, or counterclaim, the Customer is also a creditor or
supplier of a Borrower or the Receivable is contingent in any respect or for any
reason;
(m) the applicable Borrower has made any agreement
with a Customer for any deduction therefrom, except for discounts or allowances
made in the ordinary course of business, all of which discounts or allowances
are reflected in the calculation of the face value of each respective invoice
related thereto;
(n) shipment of the merchandise or the rendition of
services has not been completed;
(o) any return, rejection or repossession of the
merchandise has occurred;
(p) such Receivable is not payable to a Borrower; or
(q) such Receivable is not otherwise satisfactory to
Lender as determined in good faith by Lender in the exercise of its discretion
in a reasonable manner.
"Eligible Unbilled Receivables" at any date, shall mean
Receivables of Borrowers created no more than sixty (60) days prior to such date
which, but for the fact invoices for payment have not yet been sent to
Customers, would constitute Eligible Receivables hereunder.
"Equipment" shall mean and include as to each Borrower all of
such Borrower's goods (other than Inventory) whether now owned or hereafter
acquired and wherever located including, without limitation, all equipment,
machinery, apparatus, motor vehicles, fittings,
7
furniture, furnishings, fixtures, parts, accessories and all replacements and
substitutions therefor or accessions thereto.
"Event of Default" shall mean the occurrence of any of the
events set forth in Section 19.
"Excess Cash Flow" for any fiscal period shall mean EBITDA of
Borrowers on a consolidated basis for such fiscal period minus non-financed
capital expenditures made by Borrowers on a consolidated basis during such
fiscal period minus taxes actually paid by Borrowers on a consolidated basis
during such fiscal period plus decreases in working capital of Borrowers on a
consolidated basis for such fiscal period minus increases in working capital of
Borrowers on a consolidated basis during such fiscal period.
"Federal Funds Rate" shall mean, for any day, the weighted
average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers, as published for such
day (or if such day is not a Business Day, for the next preceding Business Day)
by the Federal Reserve Bank of New York, or if such rate is not so published for
any day which is a Business Day, the average of quotations for such day on such
transactions received by Lender from three Federal funds brokers of recognized
standing selected by Lender.
"Fixed Charge Coverage Ratio" shall mean and include with
respect to any fiscal period the ratio of (a) EBITDA of Borrowers on a
consolidated basis minus capital expenditures made during such period to (b) all
principal and interest payments made on the Loans hereunder plus all dividends
and other payments or distributions made or paid with respect to any
indebtedness for money borrowed during such period.
"Formula Amount" shall mean, collectively, the SPAR Borrowers
Formula Amount and the PIA Borrowers Formula Amount.
"GAAP" shall mean generally accepted accounting principles,
practices and procedures in the United States of America in effect from time to
time.
"General Intangibles" shall mean and include as to each
Borrower all of such Borrower's general intangibles, whether now owned or
hereafter acquired including, without limitation, all choses in action, causes
of action, corporate or other business records, inventions, designs, patents,
patent applications, equipment formulations, manufacturing procedures, quality
control procedures, trademarks, service marks, trade secrets, goodwill,
copyrights, design rights, registrations, licenses, franchises, customer lists,
tax refunds, tax refund claims, computer programs, all claims under guaranties,
security interests or other security held by or granted to such Borrower to
secure payment of any of the Receivables by a Customer, all rights of
indemnification and all other intangible property of every kind and nature
(other than Receivables).
"Guarantor" shall mean Robert G. Brown, William H. Bartels,
PIA Merchandising Limited, and any other Person who may hereafter guarantee
payment or
8
performance of the whole or any part of the Obligations and "Guarantors" means
collectively all such Persons.
"Guaranty" shall mean any guaranty of the obligations of
Borrowers executed by a Guarantor in favor of Lender.
"Hazardous Substance" shall mean, without limitation, any
flammable explosives, radon, radioactive materials, asbestos, urea formaldehyde
foam insulation, polychlorinated byphenyls, petroleum and petroleum products,
methane, hazardous materials, hazardous wastes, hazardous or toxic substances or
related materials as defined in CERCLA, the Hazardous Materials Transportation
Act, as amended (49 U.S.C. Sections 1801, et seq.), RCRA or any other applicable
environmental law and in the regulations adopted pursuant thereto.
"Holdings" shall mean SPAR Group, Inc.
"Increase Event" shall have the meaning set forth in Section
2(m) hereof.
"Individual Maximum Revolving Advance Amount" shall mean (i)
with respect to the SPAR Borrowers, $12,500,000 and (ii) with respect to the PIA
Borrowers, (x) initially, $6,000,000 and (y) following the Increase Event,
$10,000,000.
"Inventory" shall mean and include as to each Borrower all of
such Borrower's now owned or hereafter acquired inventory, goods, merchandise
and other personal property, wherever located, to be furnished under any
contract of service or held for sale or lease, all raw materials, work in
process, finished goods and materials and supplies of any kind, nature or
description which are or might be used or consumed in such Borrower's business
or used in selling or furnishing such goods, merchandise and other personal
property, and all documents of title or other documents representing them.
"Issuer" shall mean any Person who issues a Letter of Credit
and/or accepts a draft pursuant to the terms hereof.
"Leased Premises Reserve" shall mean (x) initially, $50,000
and (y) at such time as Lender has received Landlord's Waivers in form and
substance satisfactory to Lender for Borrowers' leased premises at each of (i)
14 Industrial Avenue, Mahwah, New Jersey, (ii) 30 West Third Street, Cincinnati,
Ohio and (iii) 303 South Broadway, Tarrytown, New York, $0.
"Lender" shall have the meaning ascribed to such term in the
Preamble and shall include each person which is a transferee, successor or
assign of Lender.
"Letter of Credit Fees" shall have the meaning set forth in
Section 5(b)(v).
"Letters of Credit" shall have the meaning set forth in
Section 2A(a).
"Loans" means the Revolving Advances, the Term Loan, the
Letters of Credit and all other extensions of credit hereunder.
9
"Maximum Loan Amount" means $15,000,000 less repayments of the
Term Loan.
"Maximum Revolving Amount" means $12,500,000.
"Merger Transaction" shall mean the transactions contemplated
under or in connection with the SPAR Merger Agreement and the SPAR
Reorganization Agreement.
"Net Worth" shall mean, at a particular date (a) the aggregate
amount of all assets of Borrowers on a consolidated basis as may be properly
classified as such in accordance with GAAP consistently applied less (b) the
aggregate amount of all liabilities of Borrowers on a consolidated basis.
"Obligations" shall mean and include all Loans, all advances,
debts, liabilities, obligations, covenants and duties owing by each Borrower to
Lender (or any corporation that directly or indirectly controls or is controlled
by or is under common control with Lender) of every kind and description
(whether or not evidenced by any note or other instrument and whether or not for
the payment of money or the performance or non-performance of any act), direct
or indirect, absolute or contingent, due or to become due, contractual or
tortious, liquidated or unliquidated, whether existing by operation of law or
otherwise now existing or hereafter arising including, without limitation, any
debt, liability or obligation owing from any Borrower to others which Lender may
have obtained by assignment or otherwise and further including, without
limitation, all interest, charges or any other payments any Borrower is required
to make by law or otherwise arising under or as a result of this Agreement and
the Ancillary Agreements, together with all reasonable expenses and reasonable
attorneys' fees chargeable to Borrowers' account or incurred by Lender in
connection with Borrowers' account whether provided for herein or in any
Ancillary Agreement.
"Original Closing Date" shall mean March 4, 1996.
"Original Owners" shall mean (1) as to Holdings; Robert G.
Brown and William H. Bartels and any Permitted Transferees, (2) as to PIA and
SAI; Holdings; (3) as to Pacific and Pivotal; PIA, (4) as to SIM, STM and SMF;
SAI, (5) as to SMCI; SIM and (6) as to SMF, SMINV, SPAR, SBRS; SMIDE.
"Payment Office" shall mean initially One State Street, New
York, New York 10004; thereafter, such other office of Lender in New York, New
York, if any, which it may designate by notice to Borrowing Agent to be the
Payment Office.
"Permitted Liens" shall mean (i) liens of carriers,
warehousemen, mechanics and materialmen incurred in the ordinary course of
business securing sums (a) not overdue or (b) being diligently contested in good
faith, provided that adequate reserves with respect thereto are maintained on
the books of Borrowers in conformity with GAAP and no such lien shall have any
effect on the priority of the liens in favor of Lender; (ii) liens incurred in
the ordinary course of business in connection with worker's compensation,
unemployment insurance or other forms of
10
governmental insurance or benefits, relating to employees, securing sums (a) not
overdue or (b) being diligently contested in good faith provided that adequate
reserves with respect thereto are maintained on the books of Borrowers in
conformity with GAAP; (iii) liens in favor of Lender; (iv) liens for taxes (a)
not yet due or (b) being diligently contested in good faith, provided that
adequate reserves with respect thereto are maintained on the books of Borrowers
in conformity with GAAP; (v) liens incurred in respect of judgments and awards
not exceeding $10,000 in the aggregate and which are satisfied, vacated,
discharged, stayed or bonded within 30 days from the making thereof; (vi) in the
case of real estate, easements, rights-of-way, restrictions, covenants or other
agreements of record and other similar charges or encumbrances not interfering
with the ordinary conduct of the business of Borrowers; (vii) security or
similar deposits made, or collateral pledged to secure performance bonds
delivered, in the ordinary course of business to secure the performance of
tenders, bids, leases or contracts (other than foreign indebtedness); (viii) the
security interests (including leases treated as security interests) in assets
purchased or leased with financings permitted by Section 12(n)(i) hereof so long
as they respectively secure only the corresponding purchase money indebtedness
or capitalized lease obligations; and (ix) liens specified on Schedule 1(a)
hereto including any renewals or extensions thereof, but those liens or pledges
shall not be increased or extended to other indebtedness unless otherwise
permitted by the terms and provisions of this Agreement.
"Permitted Transferees" shall mean with respect to any person,
his/her parents, spouse, siblings and/or any of their children, or a trust for
the benefit of any of them, provided, that, with respect to any such trust, such
Person retains the sole right to vote such common stock.
"Person" shall mean an individual, partnership, corporation,
trust or unincorporated organization, or a government or agency or political
subdivision thereof.
"PIA Borrowers" shall mean individually and collectively, PIA,
Pacific and Pivotal.
"Pledge Agreements" shall mean collectively, the Pledge
Agreements executed by each of Holdings, PIA, SAI, SIM and SMF in favor of
Lender pursuant to which each such Person pledges 100% of the stock of each of
its Subsidiaries to Lender as Collateral for the Obligations.
"Receivables" shall mean and include as to each Borrower all
of such Borrower's accounts, contract rights, instruments (including those
evidencing indebtedness owed to Borrowers by their Affiliates), documents,
chattel paper, general intangibles relating to accounts, drafts and acceptances,
and all other forms of obligations owing to such Borrower arising out of or in
connection with the sale or lease of Inventory or the rendition of services, all
guarantees and other security therefor, whether secured or unsecured, now
existing or hereafter created, and whether or not specifically sold or assigned
to Lender hereunder.
"Receivables Advance Rate" shall have the meaning set forth in
the definition of Receivables Availability.
11
"Receivables Availability" means the amount of Revolving
Advances against Eligible Receivables Lender may from time to time during the
term of this Agreement make available to Borrowers up to 85% ("Receivables
Advance Rate") of the net face amount of Borrowers' Eligible Receivables.
"Revolving Advances" shall mean Loans made other than Letters
of Credit and the Term Loan.
"Revolving Credit Note" shall mean the $12,500,000 Amended and
Restated Revolving Credit Note substantially in the form of Exhibit 1(a) dated
the Closing Date executed by Borrowers in favor of Lender.
"Revolving Interest Rate" shall mean an interest rate per
annum equal to (i) the Alternate Base Rate plus (ii) one-half of one percent
(.50%).
"Seller" and "Sellers" shall respectively mean any and all of
Marketing Force, Inc., a Delaware corporation, ADVO Investment Company, Inc., a
Delaware corporation, and ADVO, Inc., a Delaware corporation.
"Shareholder Notes" shall mean ____________________________.
"SPAR Borrowers" shall mean, individually and collectively,
SGI, SMF, SPAR, SBRS, SIM, STM, SMCI, SMIDE, SMINV and SAI.
"SPAR Merger Agreement" shall mean that certain Agreement and
Plan of Merger, dated as of February 28, 1999 (as the same may be supplemented,
modified, amended, restated or replaced from time to time in the manner provided
therein), made by and among PIA Merchandising Services, Inc., SG Acquisition,
Inc., PIA Merchandising Co., Inc., the Borrowers, and SPAR Acquisition, Inc.,
SPAR Marketing, Inc., SPAR Incentive Marketing, Inc., SPAR MCI Performance
Group, Inc., and SPAR Trademarks, Inc. (the Borrowers, SPAR Acquisition, Inc.,
SPAR Marketing, Inc., SPAR Incentive Marketing, Inc., SPAR MCI Performance
Group, Inc., and SPAR Trademarks, Inc. are referred to therein collectively as
the "SPAR Parties".)
"SPAR Reorganization Agreement" shall mean that certain
Agreement, dated as of February 28, 1999 (as the same may be supplemented,
modified, amended, restated or replaced from time to time in the manner provided
therein) made by and among the SPAR Parties pursuant which the "SPAR
Reorganization Transactions" (as defined therein) are to be effectuated.
"Subordinated Note" shall mean the Subordinated Promissory
Note issued by SMF in favor of Sellers dated as of March 1, 1996, in the
original principal amount of $12,000,000 subject to adjustment in accordance
with its terms as in effect on the Original Closing Date.
"Subordinated Debt Documentation" shall mean the Subordinated
Note, the Subordinated Security Agreement, the various other assignments,
instruments and other
12
documents creating or evidencing the creation or perfection of the security
interests in the collateral under (and as defined in) the Subordinated Security
Agreement, the Subordination Agreement, and all other agreements and documents
executed and delivered in connection therewith.
"Subordinated Right" and "Subordinated Rights" shall
respectively mean for each Borrower any and all subrogation, contribution and
other similar rights of such Borrower against or in respect of (i) any other
Borrower, or (ii) any of their respective assets and properties, whether
resulting from any payment made by such Borrower or otherwise; in each case
whether now or hereafter existing, acquired or created.
"Subordinated Security Agreement" shall mean the Security
Agreement between SMF and Sellers dated as of March 1, 1996, together with all
schedules and exhibits thereto.
"Subordination Agreement" shall mean the Subordination and
Intercreditor Agreement dated March 4, 1996 among Lender, SMF and Sellers.
"Subsidiary" shall mean a corporation or other entity of whose
shares of stock or other ownership interests having ordinary voting power (other
than stock or other ownership interests having such power only by reason of the
happening of a contingency) to elect a majority of the directors of such
corporation, or other Persons performing similar functions for such entity, are
owned, directly or indirectly, by such Person.
"Subsidiary Stock" means all of the issued and outstanding
shares of stock owned by (1) PIA of Pacific and Pivotal, (2) SAI of SIM, STM and
SMIDE, (3) SIM of SMCI (the pledge of which shall be delivered within five (5)
Business Days following the payment in full of the Wile Note), (4) SMIDE of SMF,
SMINV, SPAR and SBRS and (5) SGI of PIA and SAI.
"Term" shall mean the Closing Date through September 21, 2002
subject to acceleration upon the occurrence of an Event of Default hereunder or
other termination hereunder.
"Term Loan" shall have the meaning set forth in paragraph
2(i).
"Term Loan Rate" means an interest rate per annum equal to (i)
the Alternate Base Rate plus (ii) three-quarters of one percent (.75%).
"Term Note" shall have the meaning set forth in paragraph
2(i).
"Transactions" shall mean the transactions contemplated by
this Agreement.
"Unbilled Receivables Availability" means the amount of
Revolving Advances against Eligible Unbilled Receivables Lender may from time to
time during the term of this Agreement make available to Borrowers up to 60%
("Unbilled Receivables Advance Rate") of the net face amount of Borrowers'
Eligible Unbilled Receivables.
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"Undrawn Availability" at a particular date shall mean an
amount equal to (a) the lesser of (i) the Formula Amount or (ii) the Maximum
Revolving Amount, minus (b) the sum of (i) the outstanding amount of Loans
(other than the Term Loan) plus (ii) all amounts due and owing to Borrowers'
trade creditors which are outstanding beyond sixty (60) days from due date other
than those items specifically listed on Schedule 13 hereto.
"Wile Note" shall mean the promissory note dated as of January
15, 1999 issued by MCI to BIMA Group, Inc. f/k/a MCI Performance Group, Inc. in
the adjusted original principal amount of $8,822,189.00, as amended by a second
amendment to the purchase agreement relating thereto dated as of the Closing
Date, as same may be amended, modified or restated from time to time.
"Working Capital" at a particular date shall mean the excess,
if any, of Current Assets over Current Liabilities at such date.
(B) Accounting Terms. As used in this Agreement, the Revolving
Credit Note, Term Note or any certificate, report or other document made or
delivered pursuant to this Agreement, accounting terms not defined in Section 1
or elsewhere in this Agreement and accounting terms partly defined in Section 1
to the extent not defined, shall have the respective meanings given to them
under GAAP.
(C) Uniform Commercial Code Terms. All terms used herein and
defined in the Uniform Commercial Code as adopted in the State of New York shall
have the meaning given therein unless otherwise defined herein.
(D) Certain Matters of Construction. The terms "herein",
"hereof" and "hereunder" and other words of similar import refer to this
Agreement as a whole and not to any particular section, paragraph or
subdivision. Any pronoun used shall be deemed to cover all genders. Wherever
appropriate in the context, terms used herein in the singular also include the
plural and vice versa. All references to statutes and related regulations shall
include any amendments of same and any successor statutes and regulations.
Unless otherwise provided in the respective definitions thereof, all references
to any instruments or agreements, including, without limitation, references to
any of the Ancillary Agreements, the Acquisition Agreement and the Subordinated
Debt Documentation, shall include any and all modifications or amendments
thereto and any and all extensions or renewals thereof.
2. Revolving Advances.
(a) (A) SPAR Borrowers Borrowing Base. Subject to the terms and
conditions set forth herein and in the Ancillary Agreements, Lender will (at the
request of Borrowing Agent) make Revolving Advances to the SPAR Borrowers from
time to time during the Term which, in the aggregate at any time outstanding,
will not exceed the lesser of (x) the lesser of (i) SPAR Borrowers' Individual
Maximum Revolving Amount or (ii) the Maximum Revolving Advance Amount less the
outstanding Revolving Advances made to or for the benefit of the PIA Borrowers,
in each case less the aggregate amount of outstanding Letters of Credit or (y)
an amount equal to the sum of:
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(i) Receivables Availability of the SPAR Borrowers , plus
(ii) Unbilled Receivables Availability of the SPAR Borrowers,
minus
(iii) the aggregate amount of outstanding Letters of Credit
made to or for the benefit of the SPAR Borrowers, minus
(iv) the Leased Premises Reserve and such other reserves as
Lender may reasonably deem proper and necessary from time to time.
The sum of 2(a)(A)(i) plus (ii) minus (iii) shall be referred to as the
"SPAR Borrowers Formula Amount".
(a) (B) PIA Borrowers Borrowing Base. Subject to the terms and
conditions set forth herein and in the Ancillary Agreements, Lender will (at the
request of Borrowing Agent) make Revolving Advances to the PIA Borrowers from
time to time during the Term which, in the aggregate at any time outstanding,
will not exceed the lesser of (x) the lesser of (i) the PIA Borrowers'
Individual Maximum Revolving Amount or (ii) the Maximum Revolving Advance Amount
less the outstanding Revolving Advances made to or for the benefit of the SPAR
Borrowers, in each case less the aggregate amount of outstanding Letters of
Credit or (y) an amount equal to the sum of:
(i) Receivables Availability of the PIA Borrowers , plus
(ii) Unbilled Receivables Availability of the PIA
Borrowers, minus
(iii) the aggregate amount of outstanding Letters of
Credit made to or for the benefit of the PIA Borrowers.
The sum of 2(a)(B)(i) plus (ii) minus (iii) shall be referred
to as the "PIA Borrowers Formula Amount".
(b) Notwithstanding the limitations set forth above or
elsewhere in this Agreement, Lender retains the right to lend Borrowers (at
Borrowing Agent's request) or permit to continue outstanding from time to time
such amounts in excess of such limitations as Lender may determine in its sole
discretion.
(c) Borrowers acknowledge that the exercise of Lender's
discretionary rights hereunder may result during the Term in one or more
increases or decreases in the Advance Rates and Borrowers hereby consent to any
such increases or decreases which may limit or restrict advances requested by
Borrowers. Lender will notify Borrowing Agent of any change in the Advance Rates
or any new eligibility criteria for Eligible Receivables or Eligible Unbilled
Receivables; provided, however, that failure by Lender to give any such notice
shall not give rise to any cause of action by Borrowers against Lender.
15
(d) If Borrowers do not pay any interest, fees, costs or
charges to Lender when due, Borrowers shall thereby be deemed to have requested,
and Lender is hereby authorized at its discretion to make and charge to
Borrowers' account, a Revolving Advance to Borrowers as of such date in an
amount equal to such unpaid interest, fees, costs or charges.
(e) Any sums expended by Lender due to any Borrower's failure
to perform or comply with its obligations under this Agreement, including but
not limited to the payment of taxes, insurance premiums or leasehold
obligations, shall be charged to Borrowers' account as a Revolving Advance and
added to the Obligations.
(f) Lender will account to Borrowing Agent monthly with a
statement of all Revolving Advances and other advances, charges and payments
made pursuant to this Agreement, and such account rendered by Lender shall be
deemed final, binding and conclusive upon Borrowers unless Lender is notified by
Borrowing Agent in writing to the contrary within thirty (30) days of the date
each account was rendered specifying the item or items to which objection is
made.
(g) During the Term, Borrowers may borrow, prepay and reborrow
Revolving Advances, all in accordance with the terms and conditions hereof. Any
prepayment in full shall be subject to the provisions of Section 18 hereof, if
applicable. No reduction in the Maximum Revolving Amount shall occur without an
amendment to this Agreement.
(h) Borrowers shall apply the proceeds of (i) the Revolving
Loans to provide for their working capital needs and to finance capital
expenditures, to make the distributions permitted under Section 12(n)(ii)
hereof, to pay off existing Indebtedness to Mellon Bank, to repay the Wile Note
in the amounts of $2,000,000 on September 24, 1999, $2,350,000 on October 1,
1999, and thereafter to the extent permitted by Section 12(n) hereof and (ii)
the Term Loan to reduce the outstanding amount of Revolving Loans.
(i) On March 10, 1999, Lender made a term loan to Existing
Borrowers in the sum of $3,000,000 ("Term Loan"). The Term Loan is payable with
respect to principal, subject to acceleration upon the occurrence of an Event of
Default hereunder or termination of this Agreement, in equal monthly
installments of $83,334 payable on the first day of each month commencing with
April 1, 1999. The Term Loan shall be evidenced by a secured promissory note in
the original principal amount of $2,499,996 in substantially the form of the
note attached hereto as Exhibit 2(i) ("Term Note").
(j) In addition to the payments required by Section 2(i)
above, Borrowers shall prepay the outstanding amount of the Loans in an amount
equal to 25% of Excess Cash Flow for each fiscal year commencing with the fiscal
year ending December 31, 1999, payable upon delivery of the financial statements
to Lender referred to in and required by Section 11(a) for such fiscal year but
in any event not later than June 30th of each year, which amount shall be
applied (x) first, to the outstanding principal installments of the Term Loan in
the inverse order of the maturities thereof and (y) second, to the remaining
Loans in such order as Lender may determine subject to Borrowers' ability to
reborrow Revolving Advances in accordance with the terms hereof; provided,
however, in no event shall Borrowers be obligated to make a payment in
16
excess of $250,000 per annum. In the event that the financial statements are not
so delivered, then a calculation based upon estimated amounts shall be made by
Lender upon which calculation Borrowers shall make the prepayment required by
this Section 2(j), subject to adjustment when the financial statements are
delivered to Lender as required hereby. The calculation made by Lender shall not
be deemed a waiver of any rights Lender may have as a result of the failure by
Borrowers to deliver such financial statement.
(k) The aggregate balance of Revolving Advances plus Letters
of Credit outstanding at any time shall not exceed the lesser of the Formula
Amount or the Maximum Revolving Amount, and the aggregate balance of Loans
outstanding shall not exceed the Maximum Loan Amount.
(l) Each New Borrower hereby adopts the Existing Loan
Agreement and each of the Ancillary Agreements and assumes in full, and
acknowledges that it is jointly and severally liable for, the payment,
discharge, satisfaction and performance of all Obligations under the Existing
Loan Agreement and the Ancillary Agreements.
(m) The "Increase Events" shall have been deemed to have
occurred at any time that all of the following conditions shall be satisfied:
(1) no Default or Event of Default has occurred, (2) Lender shall have completed
a field examination of all of the assets, properties and business operations of
each Borrower and the results thereof shall be satisfactory to Lender in all
respects, (3) Lender shall have received (x) balance sheets of (i) each Borrower
and (ii) Borrowers on a consolidated basis, as at the end of August, 1999 and
(y) the related statements of income, retained earnings and cash flow (i) each
Borrower and (ii) Borrowers on a consolidated basis for such month which shall
be in all respects satisfactory to Lender, (4) Lender shall have received a
written report of all Borrowers' properties and assets prepared by a Person
acceptable to Lender which report shall include an evaluation and assessment of
cost cutting measures instituted by Borrowers which assessment shall be
satisfactory to Lender in all respects and (5) Borrowers shall have Undrawn
Availability of at least $1,000,000 after giving effect to such increase.
2A. Letters of Credit.
(a) Subject to the terms and conditions hereof, Lender shall
issue or cause the issuance of standby Letters of Credit by the Issuer ("Letters
of Credit") on behalf of Borrowers provided, however, that Lender will not be
required to issue or cause to be issued any Letters of Credit to the extent that
the face amount of such Letters of Credit would then cause the sum of (A) (i)
the outstanding Revolving Advances plus (ii) outstanding Letters of Credit (with
the requested Letter of Credit being deemed to be outstanding for purposes of
this calculation) to exceed the lesser of (x) the Maximum Revolving Amount or
(y) the Formula Amount or (B) (i) the outstanding Revolving Advances to the SPAR
Borrowers or the PIA Borrowers, respectively plus (ii) the outstanding Letters
of Credit issued or caused to be issued on behalf of the SPAR Borrowers or the
PIA Borrowers, respectively to exceed the lesser of (x) the SPAR Borrowers' or
the PIA Borrowers', respectively, Individual Maximum Revolving Advance Amount or
(y) the SPAR Borrowers' or the PIA Borrowers', respectively, Individual Formula
Amount. The maximum amount of outstanding Letters of Credit shall not exceed
$750,000 in the aggregate at
17
any time. All disbursements or payments related to Letters of Credit shall be
deemed to be Revolving Advances and shall bear interest at the Revolving
Interest Rate; Letters of Credit that have not been drawn upon shall not bear
interest.
(b) Borrowing Agent may request Lender to issue or cause the
issuance of a Letter of Credit by delivering to Lender at the Payment Office,
Lender's and/or Issuer's standard form of Letter of Credit Application and
Letter of Credit and Security Agreement (collectively, the "Letter of Credit
Application") completed to the satisfaction of Lender, and such other
certificates, documents and other papers and information as Lender may
reasonably request. Letters of Credit shall be subject to the terms and
conditions set forth in the Letter of Credit Application.
(c) Each Letter of Credit shall, among other things, (i)
provide for the payment of sight drafts when presented for honor thereunder in
accordance with the terms thereof and when accompanied by the documents
described therein and (ii) have an expiry date no event later than the last day
of the Term. Each Letter of Credit Application and each Letter of Credit shall
be subject to the Uniform Customs and Practice for Documentary Credits (1993
Revision), International Chamber of Commerce Publication No. 500, and any
amendments or revision thereof adhered to by the Issuer and, to the extent not
inconsistent therewith, the laws of the State of New York.
(d) In connection with the issuance of any Letter of Credit,
each Borrower shall indemnify, save and hold Lender and each Issuer harmless
from any loss, cost, expense or liability, including, without limitation,
payments made by Lender or any Issuer, and expenses and reasonable attorneys'
fees incurred by Lender arising out of, or in connection with, any Letter of
Credit to be issued or created for any Borrower. Borrowers shall be bound by
Lender's or any Issuer's regulations and good faith interpretations of any
Letter of Credit issued for Borrowers' account, although this interpretation may
be different from any Borrower's own; and, neither Lender, nor any Issuer nor
any of their correspondents shall be liable for any error, negligence, or
mistakes, whether of omission or commission, in following any Borrower's or
Borrowing Agent's instructions or those contained in any Letter of Credit or of
any modifications, amendments or supplements thereto or in issuing or paying any
Letter of Credit, except for Lender's or any Issuer's or such correspondents'
gross (not mere) negligence or willful misconduct.
(e) Borrowing Agent shall authorize and direct Issuer to name
the applicable Borrower as the "Applicant" or "Account Party" therein and to
deliver to Lender all instruments, documents, and other writings and property
received by the Issuer pursuant to the Letter of Credit and to accept and rely
upon Lender's instructions and agreements with respect to all matters arising in
connection with the Letter of Credit, the application therefor or any acceptance
created thereunder.
(f) In connection with all Letters of Credit issued or caused
to be issued or created by Lender under this Agreement, each Borrower hereby
appoints Lender, or its designee, as its attorney, with full power and authority
(i) to sign and/or endorse such Borrower's name upon any warehouse or other
receipts, letter of credit applications and acceptances; (ii) to sign
18
such Borrower's name on bills of lading; (iii) to clear Inventory through the
United States of America Customs Department ("Customs") in the name of such
Borrower or Lender or Lender's designee, and to sign and deliver to Customs
officials powers of attorney in the name of such Borrower for such purpose; and
(iv) to complete in such Borrower's name or Lender's, or in the name of Lender's
designee, any order, sale or transaction, obtain the necessary documents in
connection therewith, and collect the proceeds thereof. Neither Lender nor its
attorneys will be liable for any acts or omissions nor for any error of judgment
or mistakes of fact or law, except for Lender's or its attorney's gross (not
mere) negligence or willful misconduct. This power, being coupled with an
interest, is irrevocable as long as any Letters of Credit remain outstanding.
3. Repayment of Loans.
-------------------
(a) Borrowers shall be required to (i) make a mandatory
prepayment hereunder at any time that the aggregate outstanding principal
balance of the Revolving Advances made by Lender to (x) Borrowers hereunder is
in excess of the lesser of the Maximum Revolving Amount or the Formula Amount or
(y) to the SPAR Borrowers or the PIA Borrowers is in excess of the lesser of the
Individual Maximum Revolving Amount or Individual Formula Amount of the SPAR
Borrowers or PIA Borrowers, as the case may be, in each case in an amount equal
to such excess, and (ii) repay on the expiration of the Term (x) the then
aggregate outstanding principal balance of Revolving Advances made by Lender to
Borrowers hereunder together with accrued and unpaid interest, fees and charges
and (y) all other amounts owed Lender under this Agreement and the Ancillary
Agreements. The Term Loan shall be due and payable as provided in paragraph 2(i)
hereof and in the Term Note.
(b) Each Borrower recognizes that the amounts evidenced by
checks, notes, drafts or any other items of payment relating to and/or proceeds
of Collateral may not be collectible by Lender on the date received. In
consideration of Lender's agreement to conditionally credit Borrowers' account
as of the Business Day on which Lender receives those items of payment, each
Borrower agrees that, in computing the charges under this Agreement, all items
of payment shall be deemed applied by Lender on account of the Obligations one
(1) Business Day following the Business Day Lender receives such remittances via
wire transfer or electronic depository check from either the Blocked Account
bank or Depository Account bank. Lender is not, however, required to credit
Borrowers' account for the amount of any item of payment which is unsatisfactory
to Lender and Lender may charge Borrowers' account for the amount of any item of
payment which is returned to Lender unpaid.
4. Procedure for Revolving Advances. In accordance with Section 25
hereof, Borrowing Agent may notify Lender prior to 11:00 A.M on a Business Day
of a Borrower's request to incur, on that day, a Revolving Advance hereunder.
All Revolving Advances shall be disbursed from whichever office or other place
Lender may designate from time to time and, together with any and all other
Obligations of Borrowers to Lender, shall be charged to Borrowers' account on
Lender's books. The proceeds of each Revolving Advance made by Lender shall be
made available to the applicable Borrower on the day so requested by way of
credit to such Borrower's operating account maintained with Lender or such other
bank as Borrowing Agent may designate following notification to Lender. Any and
all Obligations due and owing hereunder may be charged to Borrowers' account and
shall constitute Revolving
19
Advances. Lender shall give Borrowing Agent prompt written notice of any and all
Revolving Advances (other than interest and fees pursuant to Section 5 hereof)
made pursuant to Lender's authority hereunder to charge Borrowers' account or
make any Revolving Advance sufficient to cover any amount due hereunder to
Lender; provided, however, that failure by Lender to give any such notice shall
not give rise to any cause of action by Borrowers against Lender.
5. Interest and Fees.
------------------
(a) Interest.
-------------
(i) Interest on Loans shall be payable in arrears on the first
day of each month. Interest charges shall be computed on the actual principal
amount of Loans outstanding during the month at a rate per annum equal to (i)
with respect to Revolving Advances, the Revolving Interest Rate and (ii) with
respect to the Term Loan, the Term Loan Rate (as applicable, the "Contract
Rate"). Whenever, subsequent to the date of this Agreement, the Alternate Base
Rate is increased or decreased, the applicable Contract Rate shall be similarly
changed without notice or demand of any kind by an amount equal to the amount of
such change in the Alternate Base Rate during the time such change or changes
remain in effect.
(ii) Interest shall be computed on the basis of actual days
elapsed over a 360-day year. At Lender's option, Lender may charge Borrowers'
account for the applicable amount of such interest.
(iii) Upon the occurrence and during the continuance of an
Event of Default, interest and the Letter of Credit Fees shall be payable at the
Default Rate.
(iv) Notwithstanding the foregoing, in no event shall interest
exceed the maximum rate permitted under any applicable law or regulation, and if
any provision of this Agreement or an Ancillary Agreement is in contravention of
any such law or regulation, such provision shall be deemed amended to provide
for interest at said maximum rate and any excess amount shall either be applied,
at Lender's option, to the outstanding Revolving Advances in such order as
Lender shall determine or refunded by Lender to Borrowers.
(v) Borrowers shall pay principal, interest and all other
amounts payable hereunder, or under any Ancillary Agreement, without any
deduction whatsoever, including, but not limited to, any deduction for any
set-off or counterclaim.
(b) Fees.
---------
(i) Closing Fee. Upon the execution of this Agreement,
Borrowers shall pay to Lender a closing fee in an amount equal to $300,000 which
shall be fully earned, nonrefundable and due on the Closing Date. The closing
fee may be charged to Borrowers' account. The unused portion, if any, of the
deposit fee of $100,000 previously paid by Borrowers to Lender shall be credited
by Lender to the Closing Fee.
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(ii) Unused Line Fee. In the event the average closing daily
unpaid balances of all Revolving Advances hereunder during any calendar month is
less than the Maximum Revolving Amount, Borrower shall pay to Lender a fee at a
rate per annum equal to three-eighths of one percent (.375%) on the amount by
which the Maximum Revolving Amount exceeds such average daily unpaid balance.
Such fee shall be calculated on the basis of a year of 360 days and actual days
elapsed, and shall be charged to Borrowers' account on the first day of each
month with respect to the prior month.
(iii) Collateral Evaluation Fee. Borrowers shall pay Lender a
collateral evaluation fee equal to $2,500 per month commencing on the first day
of the month following the Closing Date and on the first day of each month
thereafter during the Term. The collateral evaluation fee shall be deemed earned
in full on the date when same is due and payable hereunder and shall not be
subject to rebate or proration upon termination of this Agreement for any
reason.
(iv) Collateral Monitoring Fee. Upon Lender's performance of
any collateral monitoring - namely any field examination, collateral analysis or
other business analysis, the need for which is to be determined by Lender and
which monitoring is undertaken by Lender or for Lender's benefit, an amount
equal to $700 per day, per person, for each person employed to perform such
monitoring together with all costs, disbursements and expenses incurred by
Lender and the person performing such collateral monitoring shall be charged to
Borrowers' account; provided, however, Lender shall not charge Borrowers'
account for the performance of more than four (4) field examinations in any
calendar year unless an Event of Default shall have occurred.
(v) Letter of Credit Fees.
--------------------------
Borrowers shall pay (x) to Lender, fees for each Letter of
Credit for the period from and excluding the date of issuance of same to and
including the date of expiration or termination, equal to the average daily face
amount of each outstanding Letter of Credit multiplied by two and one-quarter
percent (2.25%) per annum, such fees to be calculated on the basis of a 360-day
year for the actual number of days elapsed and to be payable monthly in arrears
on the first day of each month and on the last day of the Term and (y) to the
Issuer, any and all fees and expenses as agreed upon by the Issuer and Borrowers
in connection with any Letter of Credit, including, without limitation, in
connection with the opening, amendment or renewal of any such Letter of Credit
and any acceptances created thereunder and shall reimburse Lender for any and
all fees and expenses, if any, paid by Lender to the Issuer (all of the
foregoing fees, the "Letter of Credit Fees"). All such charges shall be deemed
earned in full on the date when the same are due and payable hereunder and shall
not be subject to rebate or proration upon the termination of this Agreement for
any reason. Any such charge in effect at the time of a particular transaction
shall be the charge for that transaction, notwithstanding any subsequent change
in the Issuer's prevailing charges for that type of transaction. All Letter of
Credit Fees payable hereunder shall be deemed earned in full on the date when
the same are due and payable hereunder and shall not be subject to rebate or
proration upon the termination of this Agreement for any reason.
21
On demand following an Event of Default, Borrowers will cause
cash to be deposited and maintained in an account with Lender, as cash
collateral, in an amount equal to one hundred and five percent (105%) of the
outstanding Letters of Credit, and each Borrower hereby irrevocably authorizes
Lender, in its discretion, on such Borrower's behalf and in such Borrower's
name, to open such an account and to make and maintain deposits therein, or in
an account opened by such Borrower, in the amounts required to be made by such
Borrower, out of the proceeds of Receivables or other Collateral or out of any
other funds of Borrowers coming into Lender's possession at any time. Lender
will invest such cash collateral (less applicable reserves) in such short-term
money-market items as to which Lender and Borrowers mutually agree and the net
return on such investments shall be credited to such account and constitute
additional cash collateral. Borrowers may not withdraw amounts credited to any
such account except upon payment and performance in full of all Obligations and
termination of this Agreement.
(vi) Success Fee.
-----------------
Lender shall be permitted to purchase 16,667 shares of the
common stock of SGI at a purchase price of one penny per share at Lender's
option at any time after the average closing price on the NASDAQ Stock Exchange
of SGI's common stock over any consecutive ten (10) trading day period (the
"Average Share Price") during the term of this Agreement shall be at least
$15.00 per share. Such purchase shall be effectuated by three (3) business days
prior written notice from Lender to SGI. Lender's right to purchase SGI's common
stock shall be deemed a right earned in full on the Closing Date and shall not
be subject to adjustment upon termination of this Agreement for any reason. Any
sale of such stock by Lender shall be subject to any and all restrictions
imposed under any and all applicable federal, state and local securities laws.
(c) Increased Costs. In the event that any adoption of or
change in any applicable law, treaty or governmental regulation, or any change
in the interpretation or application thereof, or compliance by Lender therewith
(for purposes of this Section 5(c), the term "Lender" shall include Lender and
any corporation or bank controlling Lender) and the office or branch where
Lender (as so defined) makes or maintains any Eurodollar Rate Loans with any
request or directive (whether or not having the force of law) from any central
bank or other financial, monetary or other authority, shall:
(i) subject Lender to any tax of any kind whatsoever with
respect to this Agreement or change the basis of taxation of payments to Lender
of principal, fees, interest or any other amount payable hereunder or under any
Ancillary Agreements (except for changes in the rate of tax on the overall net
income of Lender, the components of such income or the calculation of such
income by the jurisdiction in which it maintains its principal office);
(ii) impose, modify or hold applicable any reserve, special
deposit, assessment or similar requirement against assets held by, or deposits
in or for the account of, advances or loans by, or other credit extended by, any
office of Lender, including (without limitation) pursuant to Regulation D of the
Board of Governors of the Federal Reserve System; or
22
(iii) impose on Lender any other condition with respect to
this Agreement or any Ancillary Agreements; and the result of any of the
foregoing is to increase the cost to Lender of making, renewing or maintaining
its Loans hereunder by an amount that Lender deems to be material or to reduce
the amount of any payment (whether of principal, interest or otherwise) in
respect of any of the Loans by an amount that Lender deems to be material, then,
to the extent the base rate does not reflect such increased costs, in any case
Borrowers shall promptly pay Lender, upon its demand, such additional amount as
will compensate Lender for such additional cost or such reduction, as the case
may be. Lender shall certify the amount and calculation of such additional cost
or reduced amount to Borrowers, and such certification shall be conclusive
absent manifest error.
(d) Capital Adequacy.
-----------------
(i) In the event that Lender shall have determined that any
adoption of or change in any applicable law, rule, regulation or guideline
regarding capital adequacy, or any change in the interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by Lender therewith (for purposes of this Section 5(d), the term "Lender" shall
include Lender and any corporation or bank controlling Lender) with any request
or directive regarding capital adequacy (whether or not having the force of law)
of any such authority, central bank or comparable agency, has or would have the
effect of reducing the rate of return on Lender's capital as a consequence of
its obligations hereunder to a level below that which Lender could have achieved
but for such adoption, change or compliance (taking into consideration Lender's
policies with respect to capital adequacy) by an amount deemed by Lender to be
material, then, from time to time, then, to the extent the base rate does not
reflect such changes, Borrowers shall pay upon demand to Lender such additional
amount or amounts as will compensate Lender for such reduction. In determining
such amount or amounts, Lender may use any reasonable averaging or attribution
methods. The protection of this Section shall be available to Lender regardless
of any possible contention of invalidity or inapplicability with respect to the
applicable law, regulation or condition.
(ii) A certificate of Lender setting forth such amount or
amounts as shall be necessary to compensate Lender with respect to Section
5(d)(i) hereof, and calculation thereof, when delivered to Borrowers shall be
conclusive absent manifest error.
6. Security Interest.
------------------
(a) To secure the prompt payment to Lender of the Obligations,
Existing Borrowers hereby acknowledge, confirm and agree that Lender has and
shall continue to have a continuing security interest in and upon all of the
Collateral heretofore granted to Lender pursuant to the Existing Loan Agreement,
and to the extent not otherwise granted thereunder, each Borrower hereby
assigns, pledges and grants to Lender a continuing security interest in and to
its Collateral, whether now owned or existing or hereafter acquired or arising
and wheresoever located (whether or not the same is subject to Article 9 of the
Uniform Commercial Code). All of each Borrower's ledger sheets, files, records,
books of account, business papers and
23
documents relating to its Collateral shall, until delivered to or removed by
Lender, be kept by such Borrower in trust for Lender until all Obligations have
been paid in full. Each confirmatory assignment schedule or other form of
assignment hereafter executed by any Borrower shall be deemed to include the
foregoing grant, whether or not the same appears therein.
(b) Lender may file one or more financing statements
disclosing Lender's security interest in the Collateral without any Borrower's
signature appearing thereon or Lender may sign on Borrower's behalf as provided
in Section 14 hereof. Upon a Borrower's request, Lender shall provide such
Borrower with copies of any and all financing statements and modifications filed
by Lender. The parties agree that a carbon, photographic or other reproduction
of this Agreement shall be sufficient as a financing statement. If any
Receivable becomes evidenced by a promissory note or any other instrument for
the payment of money, Borrowers will immediately deliver such instrument to
Lender appropriately endorsed or assigned.
7. Representations Concerning the Collateral. Each Borrower represents
and warrants (each of which such representations and warranties shall be deemed
repeated upon the making of each request for a Revolving Advance and made as of
the time of each and every Revolving Advance hereunder):
(a) all the Collateral: (i) is owned by such Borrower free and
clear of all claims, liens, security interests and encumbrances (including
without limitation any claims of infringement), except (A) those in Lender's
favor and (B) Permitted Liens; and (ii) is not subject to any agreement
prohibiting the granting of a security interest or requiring notice of or
consent to the granting of a security interest;
(b) all Receivables (i) represent complete bona fide
transactions which require no further act under any circumstances on such
Borrower's part to make such Receivables payable by the Customers, except for
Receivables whereby such Borrower estimates its time spent and bills Receivables
on such basis, (ii) to the best of such Borrower's knowledge, are not subject to
any present, future or contingent offsets or counterclaims (other than
allowances, accommodations, compromises or adjustments made in the ordinary
course of business or which have the effect of reducing availability under this
Agreement), and (iii) do not represent bill and hold sales, consignment sales,
guaranteed sales, sale or return or other similar understandings or obligations
of any Affiliate or Subsidiary of such Borrower.
8. Covenants Concerning the Collateral. During the Term, each Borrower
covenants that it shall:
(a) not dispose of any of the Collateral whether by sale,
lease or otherwise except for (i) the sale of Inventory in the ordinary course
of business, and (ii) the disposition or transfer of obsolete or worn-out
Equipment in the ordinary course of business during any fiscal year having an
aggregate fair market value of not more than $25,000 in the aggregate for such
Borrower and only to the extent that (x) the proceeds of any such disposition
are used to acquire replacement Equipment which is subject to Lender's first
priority security interest or (y) the proceeds of which are remitted to Lender
in reduction of the Obligations;
24
(b) not encumber, mortgage, pledge, assign or grant any
security interest in any Collateral or any of such Borrower's other assets to
anyone other than Lender except for Permitted Liens;
(c) place notations upon its books of account and disclose in
appropriate footnotes under GAAP in any financial statement prepared by it to
disclose Lender's security interest in the Collateral;
(d) defend the Collateral against the claims and demands of
all parties;
(e) keep and maintain the Equipment in good operating
condition, except for ordinary wear and tear, and shall make all necessary
repairs and replacements thereof so that the value and operating efficiency
shall at all times be maintained and preserved. No Borrower shall permit any
such items to become a fixture to real estate or accessions to other personal
property;
(f) not extend the payment terms of any Receivable without
prompt notice thereof to Lender; and
(g) perform all other steps requested by Lender to create and
maintain in Lender's favor a valid perfected first security interest in all
Collateral.
9. Collection and Maintenance of Collateral and Records. Lender may at
any time verify each Borrower's Receivables utilizing an audit control company
or any other agent of Lender. Lender or Lender's designee may notify Customers,
at any time at Lender's sole discretion, of Lender's security interest in
Receivables, collect them directly and charge the collection costs and expenses
to Borrowers' account, but, unless and until Lender does so or gives any
Borrower other instructions, each Borrower shall collect all Receivables for
Lender, receive all payments thereon for Lender's benefit in trust as Lender's
trustee and immediately deliver them to Lender in their original form with all
necessary endorsements or, as directed by Lender, deposit such payments as
directed by Lender pursuant to Section 23 hereof. On a weekly basis, or more
frequently if requested by Lender, each Borrower shall provide Lender with
schedules describing all Receivables created or acquired by such Borrower since
the date of the previous schedule of Receivables created or acquired and shall
execute and deliver confirmatory written assignments of such Receivables to
Lender, but such Borrower's failure to execute and deliver such schedules or
written confirmatory assignments of such Receivables shall not affect or limit
Lender's security interest or other rights in and to the Receivables. Each
Borrower shall furnish, at Lender's request, copies of contracts, invoices or
the equivalent, and any original shipping and delivery receipts for all
merchandise sold or services rendered and such other documents and information
as Lender may require. Each Borrower shall also provide Lender on a monthly
(within ten (10) days after the end of each month) or more frequent basis, as
requested by Lender, a detailed or aged trial balance of all of such Borrower's
existing Receivables specifying the names and balances due for each Customer and
such other information pertaining to the Receivables as Lender may request. Each
Borrower shall provide Lender on a monthly (within ten (10) days after the end
of each month), or more frequent basis, as requested by Lender, an aged trial
balance of such Borrower's existing accounts payable.
25
Each Borrower shall provide Lender, as requested by Lender, such other
schedules, documents and/or information regarding the Collateral as Lender may
require.
10. Inspections. At all times during normal business hours, Lender
shall have the right to (a) visit and inspect each Borrower's properties and the
Collateral, (b) inspect, audit and make extracts from each Borrower's relevant
books and records, including, but not limited to, management letters prepared by
independent accountants, and (c) discuss with each Borrower's principal
officers, and independent accountants, such Borrower's business, assets,
liabilities, financial condition, results of operations and business prospects.
Each Borrower will deliver to Lender any instrument necessary for Lender to
obtain records from any service bureau maintaining records for such Borrower.
11. Financial Information. Borrowers shall provide Lender (a) as soon
as available, but in any event within one hundred twenty (120) days after the
end of Borrowers' fiscal year, a balance sheet on a consolidated basis as at the
end of such fiscal year and the related statements of income, retained earnings
and changes in cash flow for such fiscal year, setting forth in comparative form
the figures as at the end of and for the previous fiscal year, which shall have
been reported on by independent certified public accountants who shall be
satisfactory to Lender and shall be accompanied by an unqualified audit report
issued by such independent certified public accountants; (b) as soon as
available, drafts of a balance sheet for each Borrower individually and
Borrowers on a consolidated basis as at the end of each of Borrower s' fiscal
years and the related statements of income, retained earnings and changes in
cash flow for each Borrower individually and Borrowers on a consolidated basis
for such fiscal year, which have been internally prepared by Borrowers; (c) as
soon as available, but in any event within thirty (30) days after the close of
each month and quarter, the balance sheet for each Borrower individually and
Borrowers on a consolidated basis as at the end of such month and quarter and
the related statements of income, retained earnings and changes in cash flow for
each Borrower individually and Borrowers on a consolidated basis for such month
and quarter, which have been internally prepared by Borrowers. All financial
statements required under (a), (b) and (c) above shall be prepared in accordance
with GAAP, subject to year-end adjustments in the case of monthly and quarterly
statements. Together with the financial statements furnished pursuant to (a)
above, Borrowers shall deliver a certificate of Borrowers' certified public
accountants addressed to Lender stating that (i) they have caused this Agreement
and the Ancillary Agreements to be reviewed and (ii) in making the examination
necessary for the issuance of such financial statements, nothing has come to
their attention to lead them to believe that any Event of Default exists and, in
particular, they have no knowledge of any Event of Default or, if such is not
the case, specifying such Event of Default and its nature, when it occurred and
whether it is continuing. At the times the financial statements are furnished
pursuant to (a), (b) and (c) above, a certificate of each Borrower's President
or Chief Financial Officer shall be delivered to Lender stating that, based on
an examination sufficient to enable him to make an informed statement, no Event
of Default exists, or, if such is not the case, specifying such Event of Default
and its nature, when it occurred, whether it is continuing and the steps being
taken by Borrowers with respect to such event. If any internally prepared
financial information, including that required under this Section, is
unsatisfactory in any manner to Lender, Lender may request that Borrowers'
independent certified public accountants review same.
26
In addition to the foregoing financial statements, Borrowers shall
furnish Lender no less than thirty (30) days after the beginning of each fiscal
year commencing with fiscal year 1999, a month by month projected operating
budget and cash flow for such fiscal year (including an income statement for
each month and a balance sheet as at the end of the last month in each fiscal
quarter), such projections to be accompanied by a certificate signed by
Borrower's President or Chief Financial Officer to the effect that such
projections have been prepared on the basis of sound financial planning practice
consistent with past budgets and financial statements and that such officer has
no reason to question the reasonableness of any material assumptions on which
such projections were prepared.
12. Additional Representations, Warranties and Covenants. Each Borrower
represents and warrants (each of which such representations and warranties shall
be deemed repeated upon the making of a request for a Revolving Advance and made
as of the time of each Revolving Advance made hereunder), and covenants that:
(a) Such Borrower is duly incorporated and in good standing under
the laws of the states listed on Schedule 12(a) and is qualified to do business
and is in good standing in the states listed on Schedule 12(a), which constitute
all states in which qualification and good standing are necessary for Borrower
to conduct its business and own its property and where the failure to so qualify
would have a material adverse effect on such Borrower or its business; and such
Borrower has delivered to Lender true and complete copies of its certificate of
incorporation and by-laws and will promptly notify Lender of any amendment or
changes thereto.
(b) Except as set forth on Schedule 12(b) hereof, such Borrower has
no Subsidiaries;
(c) the execution, delivery and performance of this Agreement and
the Ancillary Agreements (i) have been duly authorized, (ii) are not in
contravention of such Borrower's certificate of incorporation, by-laws or of any
material indenture, material agreement or material undertaking to which such
Borrower is a party or by which such Borrower is bound and (iii) are within such
Borrower's corporate powers;
(d) this Agreement and the Ancillary Agreements executed and
delivered by such Borrower are such Borrower's legal, valid and binding
obligations, enforceable in accordance with their terms;
(e) such Borrower keeps and will continue to keep all of its
books and records concerning the Collateral at such Borrower's executive offices
located at the addresses set forth on Schedule 12(e) and will not move such
books and records without giving Lender at least thirty (30) days prior written
notice;
(f) (i) the operation of such Borrower's business is and will
continue to be in compliance in all material respects with all applicable
federal, state and local laws, including but not limited to all applicable
environmental laws and regulations;
27
(ii) such Borrower will establish and maintain a system to
assure and monitor continued compliance with all applicable environmental laws,
which system shall include periodic reviews of such compliance.
(iii) In the event such Borrower obtains, gives or receives
notice of any release or threat of release of a reportable quantity of any
Hazardous Substances on its property (any such event being hereinafter referred
to as a "Hazardous Discharge") or receives any notice of violation, request for
information or notification that it is potentially responsible for investigation
or cleanup of environmental conditions on its property, demand letter or
complaint, order, citation, or other written notice with regard to any Hazardous
Discharge or violation of any environmental laws affecting its property or such
Borrower's interest therein (any of the foregoing is referred to herein as an
"Environmental Complaint") from any Person or entity, including any state agency
responsible in whole or in part for environmental matters in the state in which
such property is located or the United States Environmental Protection Agency
(any such person or entity hereinafter the "Authority"), then such Borrower
shall, within five (5) Business Days, give written notice of same to Lender
detailing facts and circumstances of which any Borrower is aware giving rise to
the Hazardous Discharge or Environmental Complaint and periodically inform
Lender of the status of the matter. Such information is to be provided to allow
Lender to protect its security interest in the Collateral and is not intended to
create nor shall it create any obligation upon Lender with respect thereto.
(iv) such Borrower shall respond promptly to any Hazardous
Discharge for which such Borrower is or may be responsible or liable or
Environmental Complaint directed at such Borrower alleging such Borrower's
responsibility or liability and take all necessary action in order to safeguard
the health of any Person and to avoid subjecting the Collateral to any lien,
charge, claim or encumbrance. If such Borrower shall fail to respond promptly to
any such Hazardous Discharge or Environmental Complaint or such Borrower shall
fail to comply with any of the requirements of any environmental laws to which
such Borrower is subject, Lender may, but without the obligation to do so, to
the extent reasonably required to protect, and for the sole purpose of
protecting, Lender's interest in Collateral: (A) give such notices or (B) enter
onto such Borrower's property (or authorize third parties to enter onto such
property) and take such actions as Lender (or such third parties as directed by
Lender) deem reasonably necessary or advisable, to clean up, remove, mitigate or
otherwise deal with any such Hazardous Discharge or Environmental Complaint. All
reasonable costs and expenses incurred by Lender (or such third parties) in the
exercise of any such rights, including any sums paid in connection with any
judicial or administrative investigation or proceedings, fines and penalties,
together with interest thereon from the date expended at the Default Rate for
Revolving Advances shall be paid upon demand by such Borrower, and until paid
shall be added to and become a part of the Obligations secured by the liens
created by the terms of this Agreement or any other agreement between Lender and
any or all Borrowers.
(v) Borrowers shall defend and indemnify Lender and hold
Lender harmless from and against all loss, liability, damage and expense,
claims, costs, fines and penalties, including attorney's fees, suffered or
incurred by Lender under or on account of any environmental laws (including,
without limitation, the assertion of any lien thereunder) with respect to any
Hazardous Discharge, the presence of any hazardous substances affecting any
28
Borrower's property (whether or not the same originates or emerges from any
Borrower's property or any contiguous real estate) including any loss of value
of the Collateral as a result of the foregoing, except to the extent such loss,
liability, damage and expense is attributable to any Hazardous Discharge
resulting from actions on the part of Lender. Each Borrower's obligations under
this Section 12(f) shall arise upon the discovery of the presence of any
Hazardous Substances on any Borrower's property, whether or not any federal,
state, or local environmental agency has taken or threatened any action in
connection with the presence of any hazardous substances. Each Borrower's
obligation and the indemnifications hereunder shall survive the termination of
this Agreement.
(vi) For purposes of this Section 12(f) all references to any
Borrower's property shall be deemed to include all of each Borrower's right,
title and interest in and to all owned and/or leased premises.
(g) based upon the Employee Retirement Income Security Act of
1974 ("ERISA"), and the regulations and published interpretations thereunder:
(i) no Borrower maintains or contributes to any plan other than those listed on
Schedule 12(g) hereto; (ii) no Borrower has engaged in any Prohibited
Transactions as defined in paragraph 406 of ERISA and paragraph 4975 of the
Internal Revenue Code, as amended; (iii) each Borrower has met all applicable
minimum funding requirements under paragraph 302 of ERISA in respect of its
plans; (iv) no Borrower has any knowledge of any event or occurrence which would
cause the Pension Benefit Guaranty Corporation to institute proceedings under
Title IV of ERISA to terminate any employee benefit plan(s); (v) no Borrower has
any fiduciary responsibility for investments with respect to any plan existing
for the benefit of persons other than such Borrower's employees; and (vi) no
Borrower has withdrawn, completely or partially, from any multi-employer pension
plan so as to incur liability under the Multiemployer Pension Plan Amendments
Act of 1980;
(h) such Borrower is solvent, able to pay its debts as they
mature, has capital sufficient to carry on its business and all businesses in
which it is about to engage and the fair saleable value of its assets
(calculated on a going concern basis) is in excess of the amount of its
liabilities;
(i) there is no pending or threatened litigation, actions or
proceeding which involve the possibility (if adversely determined) of materially
and adversely affecting such Borrower's business, assets, operations, condition
or prospects, financial or otherwise, or the Collateral or the ability of such
Borrower to perform this Agreement except as disclosed on Schedule 12(i);
(j) all balance sheets and income statements which have been
delivered to Lender fairly, accurately and properly state such Borrower's
financial condition as at the indicated dates or for the indicated periods on a
basis consistent with that of previous financial statements and there has been
no material adverse change in such Borrower's financial condition as reflected
in such statements since the date thereof and such statements do not fail to
disclose any fact or facts which might materially and adversely affect such
Borrower's financial condition;
29
(k) (x) such Borrower possesses all of the licenses, patents,
copyrights, trademarks, tradenames and permits necessary to conduct its
business, (y) there has been no assertion or claim of violation or infringement
with respect thereof and (z) all such licenses, patents, copyrights, trademarks,
tradenames and permits are listed on Schedule 12(k);
(l) such Borrower's federal tax identification number is set
forth on Schedule 12(l). Such Borrower has filed all federal, state and local
tax returns and other reports each is required by law to file and has paid all
taxes, assessments, fees and other governmental charges that are due and
payable. The provision for taxes on the books of such Borrower are adequate for
all years not closed by applicable statutes, and for the current fiscal year,
and such Borrower does not have any knowledge of any deficiency or additional
assessment in connection therewith not provided for on its books. Such Borrower
will pay or discharge when due all taxes, assessments and governmental charges
or levies imposed upon it;
(m) it will promptly inform Lender in writing of: (i) the
commencement of all proceedings and investigations by or before and/or the
receipt of any notices from, any governmental or nongovernmental body and all
actions and proceedings in any court or before any arbitrator against or in any
way concerning any of such Borrower's properties, assets or business, which
might singly or in the aggregate, have a materially adverse effect on such
Borrower; (ii) any amendment of such Borrower's certificate of incorporation or
by-laws; (iii) any change in such Borrower's business, assets, liabilities,
condition (financial or otherwise), results of operations or business prospects
which has had or could be reasonably likely to have a materially adverse effect
on such Borrower; (iv) any Event of Default; (v) any default or any event which
with the passage of time or giving of notice or both would constitute a default
under any agreement for the payment of money to which such Borrower is a party
or by which such Borrower or any of such Borrower's properties may be bound
which would have a material adverse effect on such Borrower's business,
operations, property or condition (financial or otherwise) or the Collateral;
(vi) any change in the location of such Borrower's executive offices; (vii) any
change in the location of such Borrower's Inventory or Equipment from the
locations listed on Schedule 12(m) attached hereto to a location not listed on
Schedule 12(m), (viii) any change in such Borrower's corporate name; (ix) any
material delay in any Borrower's performance of any of its obligations to any
Customer and of any assertion of any material claims, offsets or counterclaims
by any Customer and of any allowances, credits and/or other monies granted by it
to any Customer; (x) furnish to and inform Lender of all material adverse
information relating to the financial condition of any Customer; and (xi) any
material return of goods;
(n) it will not (i) create, incur, assume or suffer to exist
any indebtedness (exclusive of trade debt) whether secured or unsecured other
than Borrowers' indebtedness to Lender and indebtedness incurred or assumed
under the Acquisition Agreement, except for (A) purchase money indebtedness not
exceeding $250,000 in the aggregate for all Borrowers for the period following
the Closing Date through December 31, 1999 and in each fiscal year thereafter
incurred in the purchase of Equipment in the ordinary course of business so long
as each is secured only by the Equipment purchased and (B) obligations
constituting indebtedness under GAAP arising under capitalized leases not
exceeding $250,000 in the aggregate for all Borrowers in any fiscal year entered
into in the ordinary course of business; (ii) declare, pay or
30
make any dividend or distribution on any shares of its common stock or preferred
stock other than as permitted in Section 12(x) hereof, or apply any of its
funds, property or assets to the purchase, redemption or other retirement of any
common or preferred stock; (iii) directly or indirectly, prepay any indebtedness
(other than to Lender or any other Borrower as permitted in this section) or
make any payment or prepayment on the Wile Note unless the Borrowers shall have
Undrawn Availability of at least $1,000,000 after giving effect to any such
payment or prepayment, make any payment on the Shareholder Notes or repurchase,
redeem, retire or otherwise acquire any indebtedness of Borrowers in advance of
the maturity thereof; (iv) make advances, loans or extensions of credit to any
Person, except for (A) the granting of customary payment terms to customers, (B)
loans or advances by Borrowers to employees in the ordinary course of business,
including for purposes of relocation, provided that such loans and advances do
not exceed $50,000 in the aggregate during any fiscal year and (C) services,
advances and transfers among Borrowers made in the ordinary course of business
provided that such services, advances and transfers are paid for or repaid, as
the case may be, within ninety (90) days; (v) become either directly or
contingently liable upon the obligations of any Person by assumption,
endorsement or guaranty thereof or otherwise, except for (A) checks and other
instruments endorsed for collection or deposit in the ordinary course of
business, (B) any guaranty of any obligation of an Affiliate of any Borrower if
such Borrower could have incurred such obligation directly under this Agreement,
or (C) any guaranty of any loan to an employee of any Borrower if such Borrower
could have made such loan directly under this Section; (vi) enter into any
merger, consolidation or other reorganization with or into any other Person or
acquire all or a portion of the assets or stock of any Person or permit any
other Person to consolidate with or merge with it; (vii) form any Subsidiary or
enter into any partnership, joint venture or similar arrangement; (viii)
materially change the nature of the business in which it is presently engaged;
(ix) change its fiscal year or make any changes in accounting treatment and
reporting practices or in the tax reporting treatment except as required by GAAP
or except as required by law and upon written notice to Lender; (x) enter into
any transaction with any Affiliate, except in ordinary course on arms-length
terms; (xi) bill Receivables under any name except the present name of such
Borrower; (xii) directly or indirectly, redeem, repurchase, retire or otherwise
acquire or make any payment or distribution with respect to the Subordinated
Note as in effect on the Original Closing Date, except to the extent permitted
by the Subordination Agreement or (xiii) enter into any amendment to the
Subordinated Debt Documentation without the prior written consent of Lender;
(o) it shall cause to be maintained for Borrowers on a
consolidated basis at the end of the fiscal quarter ending September 30, 1999
Net Worth of at least $12,000,000 and it shall increase such Net Worth at the
end of each fiscal quarter thereafter by at least an additional $100,000 for
each fiscal quarter;
(p) commencing with the fiscal quarter ending September 30,
1999, it shall maintain a Fixed Charge Coverage Ratio for Borrowers on a
consolidated basis at the end of each fiscal quarter with respect to the four
(4) fiscal quarters then ended of not less than 1.1 to1.0;
(q) it will not make capital expenditures in any fiscal year
in an aggregate amount in excess of $2,000,000 for all Borrowers;
31
(r) (i) it shall cause to be maintained at all times a ratio
of Debt to EBITDA for Borrowers on a consolidated basis of not less than (x) 7.0
to 1.0 on September 30, 1999, (y) 5.0 to 1.0 on December 31, 1999, March 31,
2000, June 30, 2000 and September 30 2000 and (z) 4.0 to 1.0 on December 31,
2000 at the end of each fiscal quarter thereafter; and
(ii) the PIA Borrowers shall maintain EBITDA not less
than the amounts set forth below as at the end of the corresponding month below:
--------------------------------------------------- --------------------
Month Ended EBITDA
--------------------------------------------------- --------------------
August 31, 1999 ($700,000)
--------------------------------------------------- --------------------
September 30, 1999 ($600,000)
--------------------------------------------------- --------------------
October 31, 1999 ($500,000)
--------------------------------------------------- --------------------
November 30, 1999 ($400,000)
--------------------------------------------------- --------------------
December 31, 1999 ($300,000)
--------------------------------------------------- --------------------
January 31, 2000 ($200,000)
--------------------------------------------------- --------------------
February 29, 2000 ($100,000)
--------------------------------------------------- --------------------
March 31, 2000 $0
--------------------------------------------------- --------------------
(s) all financial projections of each Borrower's performance
prepared by Borrowers or at Borrowers' direction and delivered to Lender will
represent, at the time of delivery to Lender, each Borrower's best estimate of
such Borrower's future financial performance and will be based upon assumptions
which are reasonable in light of such Borrower's past performance and then
current business conditions;
(t) none of the proceeds of the Revolving Advances hereunder
will be used directly or indirectly to "purchase" or "carry" "margin stock" or
to repay indebtedness incurred to "purchase" or "carry" "margin stock" within
the respective meanings of each of the quoted terms under Regulation U of the
Board of Governors of the Federal Reserve System as now and from time to time
hereafter in effect;
(u) it will bear the full risk of loss from any loss of any
nature whatsoever with respect to the Collateral. At it's own cost and expense
in amounts and with carriers acceptable to Lender, it shall (i) keep all its
insurable properties and properties in which it has an interest insured against
the hazards of fire, flood, sprinkler leakage, those hazards covered by extended
coverage insurance and such other hazards, and for such amounts, as is customary
in the case of companies engaged in businesses similar to each Borrower's
including, without limitation, business interruption insurance; (ii) maintain a
bond or insurance in such amounts as is customary in the case of companies
engaged in businesses similar to each Borrower's insuring against larceny,
embezzlement or other criminal misappropriation of insured's officers and
employees who may either singly or jointly with others at any time have access
to the assets or funds of any Borrower either directly or through authority to
draw upon such funds or to direct generally the disposition of such assets;
(iii) maintain public and product liability insurance against claims for
personal injury, death or property damage suffered by others; (iv) maintain all
such worker's compensation or similar insurance as may be required under the
laws of any state or jurisdiction in which such Borrower is engaged in business;
(v) furnish Lender with (x) copies
32
of all policies and evidence of the maintenance of such policies at least thirty
(30) days before any expiration date, and (y) appropriate loss payable
endorsements in form and substance satisfactory to Lender, naming Lender as loss
payee and providing that as to Lender the insurance coverage shall not be
impaired or invalidated by any act or neglect of any Borrower and the insurer
will provide Lender with at least thirty (30) days notice prior to cancellation.
Each Borrower shall instruct the insurance carriers that in the event of any
loss thereunder, the carriers shall make payment for such loss to Lender and not
to such Borrower and Lender jointly. If any insurance losses are paid by check,
draft or other instrument payable to any Borrower and Lender jointly, Lender may
endorse such Borrower's name thereon and do such other things as Lender may deem
advisable to reduce the same to cash. Lender is hereby authorized to adjust and
compromise claims. All loss recoveries received by Lender upon any such
insurance may be applied to the Obligations, in such order as Lender in its sole
discretion shall determine (which prepayment shall be without any premium or
penalty or any reduction in the Maximum Revolving Amount). Any surplus shall be
paid by Lender to the applicable Borrower or applied as may be otherwise
required by law. Each Borrower acknowledges that it shall remain liable for any
Obligations remaining unpaid after any such application in accordance with the
terms of this Agreement.
(v) it has reviewed the areas within its business and
operations which could be adversely affected by, and have developed or are
developing a program to address on a timely basis, the risk that certain
computer applications used by such Borrower (or any of their respective material
suppliers, customers or vendors) may be unable to recognize and perform properly
date-sensitive functions involving dates prior to and after December 31, 1999
(the "Year 2000 Problem"). The Year 2000 Problem will not have a material
adverse effect on such Borrower;
(w) Lender has received complete copies of the Acquisition
Agreement (including all exhibits, schedules and disclosure letters referred to
therein or delivered pursuant thereto, if any) and all amendments thereto,
waivers relating thereto and other side letters or agreements affecting the
terms thereof. None of such documents and agreements has been amended or
supplemented, nor have any of the provisions thereof been waived, except
pursuant to a written agreement or instrument which has heretofore been
delivered to Lender. Borrower will enforce all of its rights under the
Acquisition Agreement and all documents executed in connection therewith
including, but not limited to, all indemnification rights, and pursue all
remedies available to it with diligence and in good faith in connection with the
enforcement of any such rights;
(x) So long as (a) no Event of Default or Default shall be
continuing prior to the payment of such dividend and no Event of Default or
Default shall exist after giving effect to the payment of such dividend, and (b)
the purpose for such dividend shall be as set forth in writing to Lender at
least ten (10) days prior to such dividend and such dividend shall in fact be
used for such purpose, each Borrower shall be permitted to pay dividends with
respect to those years when such Borrower was a subchapter S corporation, to its
stockholders in an aggregate amount equal to the "Increased Tax Burden" (as
hereinafter defined) of its stockholders. Payments to stockholders shall be made
so as to be available when the tax is due, including in respect of estimated tax
payments. In the event (x) the actual dividend to stockholders pursuant
33
to this Section exceeds the actual income tax liability of any stockholder due
to such Borrower's status as a subchapter S corporation, or (y) such Borrower
would be entitled to a refund of income taxes previously paid as a result of a
tax loss during a year in which such Borrower is a subchapter S corporation,
then the stockholders shall repay such Borrower the amount of such excess or
refund, as the case may be, no later than the date the annual tax return must be
filed by such Borrower (without giving effect to any filing extensions). In the
event such amounts are not repaid in a timely manner by any stockholder, then
such Borrower shall not pay or make any dividend or distribution with respect
to, or purchase, redeem or retire, any stock of such Borrower held or controlled
by, directly or indirectly, such stockholder until such payment has been made.
"Increased Tax Burden" with respect to any Borrower shall mean the additional
federal, state or local taxes payable by a shareholder as a result of such
Borrower's status as a subchapter S corporation assuming all stockholders are
taxed at the highest marginal rate; provided, however, at Lender's request such
Borrower shall provide Lender with proof of the accuracy of the foregoing
assumption including, without limitation, the tax returns filed by (a) such
Borrower as a subchapter S corporation and (b) by such stockholders;
(y) SMF will not reduce any payment obligation to Sellers (i)
under the Subordinated Note or (ii) as an offset against any payment obligations
under Section 2.11 of the Acquisition Agreement owed by Sellers to SMF, in each
case without Lender's prior written consent; and
(z) within thirty (30) days of the Closing Date, deliver to
Lender a security agreement executed by PIA Merchandising Limited ("PML")
pursuant to which PML secures its Guaranty by granting a security interest to
Lender in all of its assets as collateral for the Obligations.
(aa) within five (5) days after the last Business Day of each
month, Borrowers shall deliver to Lender a report listing the Average Share
Price for the month then ended.
13. Conditions Precedent.
---------------------
13.1 Conditions to Initial Advances. The agreement of Lender to make
the Revolving Advances requested to be made on the Closing Date is subject to
the satisfaction, or waiver by Lender, immediately prior to or concurrently with
the making of such Revolving Advances, of the following conditions precedent:
(i) Notes. Lender shall have received the Revolving Credit
Note and the Term Note duly executed and delivered by an authorized officer of
each Borrower;
(ii) Filings, Registrations and Recordings. Each document
(including, without limitation, any Uniform Commercial Code financing statement)
required by this Agreement, any related agreement or under law or reasonably
requested by Lender to be filed, registered or recorded in order to create, in
favor of Lender, a perfected security interest in or lien upon the Collateral
shall have been properly filed, registered or recorded in each jurisdiction in
which the filing, registration or recordation thereof is so required or
requested, and Lender shall have received an acknowledgment copy, or other
evidence satisfactory to it, of each such
34
filing, registration or recordation and satisfactory evidence of the payment of
any necessary fee, tax or expense relating thereto;
(iii) Corporate Proceedings of Borrowers. Lender shall have
received copy of the resolutions in form and substance reasonably satisfactory
to Lender, of the Board of Directors of each Borrower authorizing (i) the
execution, delivery and performance of this Agreement and the Ancillary
Agreements and (ii) the granting by such Borrower of the security interests in
and liens upon the Collateral in each case certified by the Secretary or an
Assistant Secretary of such Borrower as of the Closing Date; and, such
certificate shall state that the resolutions thereby certified have not been
amended, modified, revoked or rescinded as of the date of such certificate;
(iv) Incumbency Certificates of Borrowers. Lender shall have
received a certificate of the Secretary or an Assistant Secretary or other
officer of Borrower, dated the Closing Date, as to the incumbency and signature
of the officers of such Borrower executing this Agreement, any certificate or
other documents to be delivered by it pursuant hereto, together with evidence of
the incumbency of such Secretary or Assistant Secretary;
(v) Corporate Proceedings of Guarantors. Agent shall have
received a copy of the resolutions in form and substance reasonably satisfactory
to Agent, of the Board of Directors of each corporate Guarantor authorizing the
execution, delivery and performance of its Guaranty certified by the Secretary
or an Assistant Secretary of such Guarantor as of the Closing Date; and, such
certificate shall state that the resolutions thereby certified have not been
amended, modified, revoked or rescinded as of the date of such certificate;
(vi) Incumbency Certificates of Guarantors. Agent shall have
received a certificate of the Secretary or an Assistant Secretary of each
corporate Guarantor, dated the Closing Date, as to the incumbency and signature
of the officers of such Guarantor executing this Agreement, any certificate or
other documents to be delivered by it pursuant hereto, together with evidence of
the incumbency of such Secretary or Assistant Secretary;
(vii) Certificates. Lender shall have received a copy of the
Articles or Certificate of Incorporation of each Borrower and each corporate
Guarantor, and all amendments thereto, certified by the Secretary of State or
other appropriate official of its jurisdiction of incorporation together with
copies of the By-Laws of each Borrower and each corporate Guarantor and all
agreements of each Borrower's and each corporate Guarantor's shareholders
certified as accurate and complete by the Secretary of such Borrower and such
corporate Guarantor;
(viii) Good Standing Certificates. Lender shall have received
good standing certificates for each Borrower and each corporate Guarantor,
issued by the Secretary of State or other appropriate official of each
Borrower's and each corporate Guarantor's jurisdiction of incorporation and each
jurisdiction where the conduct of each Borrower's and each corporate Guarantor's
business activities or the ownership of its properties necessitates
qualification;
35
(ix) Legal Opinion. Lender shall have received the executed
legal opinions of Parker Chapin Flattau & Klimpl LLP and/or Riordan & McKinzie
in form and substance satisfactory to Lender which shall cover such matters
incident to the transactions contemplated by this Agreement, the Notes, the
Guaranty, the Pledge Agreements and the Ancillary Agreements as Lender may
reasonably require and Borrower hereby authorizes and directs such counsel to
deliver such opinions to Lender;
(x) No Litigation. (x) No litigation, investigation or
proceeding before or by any arbitrator or governmental authority shall be
continuing or threatened against any Borrower or against the officers or
directors of any Borrower (A) in connection with the this Agreement or the
Ancillary Agreements or any of the transactions contemplated thereby and which,
in the reasonable opinion of Lender, is deemed material or (B) which if
adversely determined, would, in the reasonable opinion of Lender, have a
material adverse effect on the business, assets, operations or condition
(financial or otherwise) of any Borrower; and (y) no injunction, writ,
restraining order or other order of any nature materially adverse to any
Borrower or the conduct of its business or inconsistent with the due
consummation of the Transactions shall have been issued by any governmental
authority;
(xi) Financial Condition Certificate. Lender shall have
received an executed Officers Certificate substantially in the form of Exhibit
13.1(ix) attached hereto.
(xii) Collateral Examination. Lender shall have completed
Collateral examinations and received appraisals, the results of which shall be
satisfactory in form and substance to Lender, of the Receivables, Inventory,
General Intangibles and Equipment of each Borrower and all books and records in
connection therewith;
(xiii) Fees. Lender shall have received all fees payable to
Lender on or prior to the Closing Date pursuant to Section 5(b) hereof;
(xiv) Guaranties; Ancillary Agreements. Lender shall have
received executed copies of the Guaranties, the Pledge Agreements and all
Ancillary Agreements listed in Lender's checklist of closing documents dated the
Closing Date, each in form and substance satisfactory to Lender;
(xv) Insurance. Lender shall have received in form and
substance satisfactory to Lender, certified copies of each Borrower's casualty
insurance policies, together with loss payable endorsements on Lender's standard
form of loss payee endorsement naming Lender as loss payee, and certified copies
of each Borrower's liability insurance policies, together with endorsements
naming Lender as a co-insured;
(xvi) Payment Instructions. Lender shall have received written
instructions from Borrowers directing the application of proceeds of the
Revolving Advances made pursuant to this Agreement and stating that such
Borrower has Eligible Receivables and Eligible Unbilled Receivables (based upon
the objective criteria set forth in this Agreement) in amounts sufficient in
value and amount to support Revolving Advances in the amount by or on behalf of
Borrower on the date of such certificate;
36
(xvii) Blocked Accounts. Lender shall have received duly
executed agreements establishing the Blocked Accounts or Depository Accounts
with financial institutions acceptable to Lender for the collection or servicing
of the Receivables and proceeds of the Collateral;
(xviii) Consents. Lender shall have received (a) any and all
Consents necessary to permit the effectuation of the transactions contemplated
by this Agreement and the Ancillary Agreements and (b) such Consents and waivers
of such third parties as might assert claims with respect to the Collateral
listed in Lender's checklist of closing documents dated the Closing Date;
(xix) No Adverse Material Change. (i) Since December 31, 1998,
there shall not have occurred (x) any material adverse change in the condition,
financial or otherwise, operations, properties or prospects of Borrowers, (y)
any material damage or destruction to any of the Collateral or any material
depreciation in the value thereof and (z) any event, condition or state of facts
which would reasonably be expected materially and adversely to affect the
business, financial condition or results of operations of Borrowers and (ii) no
representations made or information supplied to Lender shall have been proven to
be inaccurate or misleading in any material respect;
(xx) Undrawn Availability. After giving effect to the initial
Revolving Advances hereunder and any outstanding Revolving Advances under the
Existing Loan Agreement, Borrowers shall have aggregate Undrawn Availability of
at least $4,000,000.
(xxi) Contract Review. Lender shall have reviewed all material
contracts of Borrowers including, without limitation, leases, union contracts,
labor contracts, vendor supply contracts, license agreements and distributorship
agreements and such contracts and agreements shall be satisfactory in all
respects to Lender;
(xxii) Closing Certificate. Lender shall have received a
closing certificate signed by the Chief Financial Officer of each Borrower dated
as of the Closing Date, stating that (i) all representations and warranties set
forth in this Agreement and the Ancillary Agreements are true and correct on and
as of such date, (ii) Borrowers on such date is in compliance with all the terms
and provisions set forth in this Agreement and the Ancillary Agreements, (iii)
on such date no Default or Event of Default has occurred or is continuing and
(iv) each Borrower is in compliance in all material respects with all relevant
federal, state and local regulations;
(xxiii) Balance Sheet. Lender shall have received the balance
sheet of Borrowers on a consolidated basis dated as of the Closing Date and
certified by the Chief Financial Officer of Borrowers;
(xxiv) Debt. Lender shall have reviewed the terms and
conditions of all of Borrowers' Debt which terms and conditions shall be
satisfactory to Lender;
37
(xxv) Compliance with Laws. Each Borrower is in compliance
with all relevant federal, state and local regulations; and
(xxvi) Other. All corporate and other proceedings, and all
documents, instruments and other legal matters in connection with the
Transactions shall be satisfactory in form and substance to Lender and its
counsel.
13.2 Conditions to Each Revolving Advance. The agreement of Lender to
make any Revolving Advance requested to be made on any date (including, without
limitation, its initial Revolving Advance), is subject to the satisfaction of
the following conditions precedent as of the date such Revolving Advance is
made:
(i) Representations and Warranties. Each of the
representations and warranties made by Borrowers in or pursuant to this
Agreement and any related agreements to which it is a party shall be true and
correct in all material respects on and as of such date as if made on and as of
such date, and each of the representations and warranties contained in any
certificate, document or financial or other statement furnished at any time
under or in connection with this Agreement or any related agreement shall be
true and correct in all material respects on and as of the date made;
(ii) No Default. No Event of Default or Default shall have
occurred and be continuing on such date, or would exist after giving effect to
the Revolving Advances requested to be made, on such date; provided, however
that Lender in its sole discretion, may continue to make Revolving Advances
notwithstanding the existence of an Event of Default or Default and that any
Revolving Advances so made shall not be deemed a waiver of any such Event of
Default or Default; and
(iii) Maximum Revolving Advances. In the case of any Revolving
Advances requested to be made or Letters of Credit requested to be issued, after
giving effect thereto, the aggregate Revolving Advances and Letters of Credit
shall not exceed the maximum amount of Revolving Advances permitted under
Section 2 hereof.
Each request for a Revolving Advance or Letter of Credit by any Borrower or
Borrowing Agent hereunder shall constitute a representation and warranty by each
Borrower as of the date of such request that the conditions contained in this
subsection shall have been satisfied.
14. Power of Attorney. Each Borrower hereby appoints Lender or any
other Person whom Lender may designate as such Borrower's attorney, with power
to: (i) endorse such Borrower's name on any checks, notes, acceptances, money
orders, drafts or other forms of payment or security that may come into Lender's
possession; (ii) sign such Borrower's name on any invoice or bill of lading
relating to any Receivables, drafts against customers, schedules and assignments
of Receivables, notices of assignment, financing statements and other public
records, verifications of account and notices to or from customers; (iii) verify
the validity, amount or any other matter relating to any Receivable by mail,
telephone, telegraph or otherwise with Customers; (iv) execute customs
declarations and such other documents as may be required to clear Inventory
through Customs; (v) do all things necessary to carry out this Agreement and
38
any Ancillary Agreement; and (vi) on or after the occurrence and continuation of
an Event of Default, notify the post office authorities to change the address
for delivery of such Borrower's mail to an address designated by Lender, and to
receive, open and dispose of all mail addressed to such Borrower. Each Borrower
hereby ratifies and approves all acts of the attorney. Neither Lender nor the
attorney will be liable for any acts or omissions or for any error of judgment
or mistake of fact or law, other than those occasioned by gross (not mere)
negligence or willful misconduct. This power, being coupled with an interest, is
irrevocable so long as any Receivable which is assigned to Lender or in which
Lender has a security interest remains unpaid and until the Obligations have
been fully satisfied.
15. Expenses. Borrowers shall pay all of Lender's out-of-pocket costs
and expenses, including without limitation reasonable fees and disbursements of
counsel and appraisers, in connection with the preparation, execution and
delivery of this Agreement and the Ancillary Agreements, and in connection with
the prosecution or defense of any action, contest, dispute, suit or proceeding
concerning any matter in any way arising out of, related to or connected with
this Agreement or any Ancillary Agreement. Borrowers shall also pay all of
Lender's out-of-pocket costs and expenses, including without limitation
reasonable fees and disbursements of counsel, in connection with (a) the
preparation, execution and delivery of any waiver, any amendment thereto or
consent proposed or executed in connection with the transactions contemplated by
this Agreement or the Ancillary Agreements, (b) Lender's obtaining performance
of the Obligations under this Agreement and any Ancillary Agreements, including,
but not limited to, the enforcement or defense of Lender's security interests,
assignments of rights and liens hereunder as valid perfected security interests,
(c) any attempt to inspect, verify, protect, collect, sell, liquidate or
otherwise dispose of any Collateral, and (d) any consultations in connection
with any of the foregoing. Borrowers shall also pay Lender's customary bank
charges for all bank services performed or caused to be performed by Lender for
any Borrower at Borrowing Agent's request or on any Borrower's behalf. All such
costs and expenses together with all filing, recording and search fees, taxes
and interest payable by Borrowers to Lender shall be payable on demand and shall
be secured by the Collateral. If any tax by any governmental authority is or may
be imposed on or as a result of any transaction between Borrowers and Lender
which Lender is or may be required to withhold or pay, each Borrower agrees to
indemnify and hold Lender harmless in respect of such taxes, and Borrowers will
repay to Lender the amount of any such taxes which shall be charged to
Borrowers' account; and until Borrowers shall furnish Lender with indemnity
therefor (or supply Lender with evidence satisfactory to it that due provision
for the payment thereof has been made), Lender may hold without interest any
balance standing to Borrowers' credit and Lender shall retain its security
interests in any and all Collateral.
16. Successors and Assigns; Assignments.
------------------------------------
(i) This Agreement shall be binding upon and inure to the
benefit of Borrowers, Lender, all future holders of the Revolving Credit Note
and Term Note and their respective successors and assigns, except that no
Borrower may assign or transfer any of its respective rights or obligations
under this Agreement without the prior written consent of Lender.
39
(ii) Lender may assign any or all of the Obligations together
with any or all of the security therefor and any transferee shall succeed to all
of Lender's rights with respect thereto. Upon such transfer, Lender shall be
released from all responsibility for the Collateral to the extent same is
assigned to any transferee. Lender may from time to time sell or otherwise grant
participations in any of the Obligations and the holder of any such
participation shall, subject to the terms of any agreement between Lender and
such holder, be entitled to the same benefits as Lender with respect to any
security for the Obligations in which such holder is a participant. Each
Borrower agrees that each such holder may exercise any and all rights of
banker's lien, set-off and counterclaim with respect to its participation in the
Obligations as fully as though Borrowers were directly indebted to such holder
in the amount of such participation.
17. Waivers. Each Borrower waives presentment and protest of any
instrument and notice thereof, notice of default and all other notices to which
such Borrower might otherwise be entitled.
18. Term of Agreement. This Agreement shall continue in full force and
effect until the expiration of the Term. Borrowers may terminate this Agreement
at any time upon thirty (30) days' prior written notice upon payment in full of
the Obligations; provided, that Borrowers pay an early termination fee in an
amount equal to the Required Percentage of the Maximum Loan Amount. For the
purposes hereof, Required Percentage shall mean (a) 2% from the Closing Date to
and including the date immediately preceding the first anniversary of the
Closing Date, (b) 1% from the first anniversary of the Closing Date to and
including the date immediately preceding the second anniversary of the Closing
Date, and (c) 1/2 of 1% from the second anniversary of the Closing Date to and
including the date immediately preceding the third anniversary of the Closing
Date.
19. Events of Default. The occurrence of any of the following shall
constitute an Event of Default:
(i) failure to make payment of any of the Obligations when
required hereunder;
(ii) failure to pay any taxes when due unless such taxes are
being contested in good faith by appropriate proceedings and with respect to
which adequate reserves have been provided on the applicable Borrower's books;
(iii) failure to perform under and/or committing any breach of
this Agreement or any Ancillary Agreement or any other agreement between any
Borrower and Lender;
(iv) occurrence of a default under any agreement to which any
Borrower is a party with third parties which is not cured within any applicable
grace period and which has a material adverse affect upon such Borrower's
business, operations, property or condition (financial or otherwise) including
all leases for any premises where any Borrower's books, records, Inventory or
Equipment is located;
40
(v) any representation, warranty or statement made by any
Borrower hereunder, in any Ancillary Agreement, any certificate, statement or
document delivered pursuant to the terms hereof, or in connection with the
transactions contemplated by this Agreement should at any time prove to have
been false or misleading when made, in any material respect;
(vi) an attachment or levy is made upon any of Borrowers'
assets having an aggregate value in excess of $100,000 in the aggregate for all
Borrowers, or a judgment is rendered against any Borrower or any of Borrowers'
property involving a liability of more than $100,000 in the aggregate for all
Borrowers, which shall not have been vacated, discharged, stayed or bonded
pending appeal within forty (40) days from the entry thereof;
(vii) any change in any Borrower's condition or affairs
(financial or otherwise) which in Lender's opinion impairs the Collateral or the
ability of any Borrower to perform its Obligations;
(viii) any lien created hereunder or under any Ancillary
Agreement for any reason ceases to be or is not a valid and perfected lien
having a first priority interest, excluding, however, (i) liens upon Collateral
that may be collected, sold or otherwise disposed of from time to time as
contemplated under this Agreement or any Ancillary Agreement or (ii) liens whose
perfection lapses through the action or inaction of Lender based upon accurate
information timely provided to Lender by Borrowers;
(ix) if any Borrower shall (i) apply for or consent to the
appointment of, or the taking of possession by, a receiver, custodian, trustee
or liquidator of itself or of all or a substantial part of its property, (ii)
make a general assignment for the benefit of creditors, (iii) commence a
voluntary case under the federal bankruptcy laws (as now or hereafter in
effect), (iv) be adjudicated a bankrupt or insolvent, (v) file a petition
seeking to take advantage of any other law providing for the relief of debtors,
(vi) acquiesce to, or fail to have dismissed, within thirty (30) days, (x) any
petition filed against it in any involuntary case under such bankruptcy laws, or
(y) any proceeding or petition seeking the appointment of a receiver, custodian,
trustee or liquidator of itself or all or a substantial part of its property, or
(vii) take any action for the purpose of effecting any of the foregoing;
(x) any Borrower shall admit in writing its inability, or be
generally unable, to pay its debts as they become due, or cease operations of
its present business;
(xi) any Guarantor, any Affiliate or any Subsidiary shall (i)
apply for or consent to the appointment of, or the taking possession by, a
receiver, custodian, trustee or liquidator of itself or of all or a substantial
part of its property, (ii) admit in writing its inability, or be generally
unable, to pay its debts as they become due or cease operations of its present
business, (iii) make a general assignment for the benefit of creditors, (iv)
commence a voluntary case under the federal bankruptcy laws (as now or hereafter
in effect), (v) be adjudicated a bankrupt or insolvent, (vi) file a petition
seeking to take advantage of any other law providing for the relief of debtors,
(vii) acquiesce to, or fail to have dismissed, within thirty (30) days, (x) any
petition filed against it in any involuntary case under such bankruptcy laws, or
(y) any
41
proceeding or petition seeking the appointment of a receiver, custodian, trustee
or liquidator of itself or all or a substantial part of its property or (viii)
take any action for the purpose of effecting any of the foregoing;
(xii) any Borrower directly or indirectly sells, assigns,
transfers, conveys, or suffers or permits to occur any sale, assignment,
transfer or conveyance of any of its assets or any interest therein, except as
permitted in, or not prohibited by, this Agreement or any Ancillary Agreement;
(xiii) any Borrower fails to generally operate its business in
the ordinary course of business;
(xiv) Lender shall in good faith deem itself insecure or
unsafe or shall fear diminution in value, removal or waste of the Collateral;
(xv) a default by any Borrower in the payment, when due, of
any principal of or interest on any indebtedness for money borrowed with an
original principal amount in excess of $100,000;
(xvi) an event of default has occurred and been declared under
the Subordinated Debt Documentation which default shall not have been cured or
waived within any applicable grace period;
(xvii) any Change of Ownership;
(xviii) a failure by any stockholder of any Borrower to comply
with the requirements of Section 12(x) hereof; or
(xix) termination or breach of any Guarantor or similar
agreement executed and delivered to Lender in connection with the Obligations of
Borrowers, or if any Guarantor attempts to terminate, challenges the validity
of, or its liability under any such Guaranty or similar agreement.
20. Remedies. Upon the occurrence of an Event of Default pursuant to
Section 19(ix) herein, all Obligations shall be immediately due and payable and
this Agreement shall be deemed terminated; upon the occurrence and continuation
of any other of the Events of Default, Lender shall have the right to demand
repayment in full of all Obligations by written notice to Borrowing Agent
whether or not otherwise due. Until all Obligations have been fully satisfied,
Lender shall retain its security interest in all Collateral. Lender shall have,
in addition to all other rights provided herein, the rights and remedies of a
secured party under the Uniform Commercial Code, and under other applicable law,
all other legal and equitable rights to which Lender may be entitled, including
without limitation, the right to take immediate possession of the Collateral, to
require Borrowers to assemble the Collateral, at Borrowers' expense, and to make
it available to Lender at a place designated by Lender which is reasonably
convenient to both parties and to enter any of the premises of Borrowers or
wherever the Collateral shall be located, with or without force or process of
law, and to keep and store the same on said premises
42
until sold (and if said premises be the property of any Borrower, such Borrower
agrees not to charge Lender for storage thereof for a period up to at least
sixty (60) days after sale or disposition of said Collateral). Further, Lender
may, at any time or times after default by Borrowers, sell and deliver all
Collateral held by or for Lender at public or private sale for cash, upon credit
or otherwise, at such prices and upon such terms as Lender, in Lender's sole
discretion, deems advisable or Lender may otherwise recover upon the Collateral
in any commercially reasonable manner as Lender, in its sole discretion, deems
advisable. Except as to that part of the Collateral which is perishable or
threatens to decline speedily in nature or is of a type customarily sold on a
recognized market, the requirement of reasonable notice shall be met if such
notice is mailed postage prepaid to Borrowing Agent at its address as shown in
Lender's records, at least ten (10) days before the time of the event of which
notice is being given. Lender may be the purchaser at any sale, if it is public.
In connection with the exercise of the foregoing remedies, Lender is granted
permission to use all of each Borrower's trademarks, tradenames, tradestyles,
patents, patent applications, licenses, franchises and other proprietary rights
which are used in connection with (a) Inventory for the purpose of disposing of
such Inventory and (b) Equipment for the purpose of completing the manufacture
of unfinished goods. The proceeds of sale shall be applied first to all costs
and expenses of sale, including attorneys' fees, and second to the payment (in
whatever order Lender elects) of all Obligations. Lender will return any excess
to Borrowers or as otherwise required by law and Borrowers shall remain liable
to Lender for any deficiency.
21. Waiver; Cumulative Remedies. Failure by Lender to exercise any
right, remedy or option under this Agreement or any supplement hereto or any
other agreement between Borrowers and Lender or delay by Lender in exercising
the same, will not operate as a waiver; no waiver by Lender will be effective
unless it is in writing and then only to the extent specifically stated.
Lender's rights and remedies under this Agreement will be cumulative and not
exclusive of any other right or remedy which Lender may have.
22. Application of Payments. Each Borrower irrevocably waives the right
to direct the application of any and all payments at any time or times hereafter
received by Lender from or on any Borrower's behalf and each Borrower hereby
irrevocably agrees that Lender shall have the continuing exclusive right to
apply and reapply any and all payments received at any time or times hereafter
against the Obligations hereunder in such manner as Lender may deem advisable
notwithstanding any entry by Lender upon any of Lender's books and records.
23. Establishment of a Lockbox Account, Dominion Account. All proceeds
of Collateral shall, at the direction of Lender, be deposited by the applicable
Borrower into a lockbox account, dominion account or such other "blocked
account" ("Blocked Accounts") as Lender may require pursuant to an arrangement
with such bank as may be selected by Borrowers and be acceptable to Lender.
Borrowers shall issue to any such bank an irrevocable letter of instruction
directing said bank to transfer such funds so deposited to Lender, either to any
account maintained by Lender at said bank or by wire transfer to appropriate
account(s) of Lender. All funds deposited in such Blocked Account shall
immediately become the property of Lender and shall be applied to the
Obligations in accordance with the terms of this Agreement, and Borrowers shall
obtain the agreement by such bank to waive any offset rights against the funds
so deposited. Lender assumes no responsibility for such Blocked Account
arrangement,
43
including without limitation, any claim of accord and satisfaction or release
with respect to deposits accepted by any bank thereunder. Alternatively, Lender
may establish depository accounts ("Depository Accounts") in the name of Lender
at a bank or banks for the deposit of such funds and Borrowers shall deposit all
proceeds of Collateral or cause same to be deposited, in kind, in such
Depository Accounts of Lender in lieu of depositing same to the Blocked
Accounts.
24. Revival. Each Borrower further agrees that to the extent any
Borrower makes a payment or payments to Lender, which payment or payments or any
part thereof are subsequently invalidated, declared to be fraudulent or
preferential, set aside and/or required to be repaid to a trustee, receiver or
any other party under any bankruptcy act, state or federal law, common law or
equitable cause, then, to the extent of such payment or repayment, the
obligation or part thereof intended to be satisfied shall be revived and
continued in full force and effect as if said payment had not been made.
25. Notice. Any notice or request hereunder may be given to Borrowers
or to Lender at their respective addresses set forth below or at such other
address as may hereafter be specified in a notice designated as a notice of
change of address under this Section. Any notice or request hereunder shall be
given by (a) hand delivery, (b) overnight courier, (c) registered or certified
mail, return receipt requested, (d) telex or telegram, subsequently confirmed by
registered or certified mail, or (e) telecopy to the number set out below (or
such other number as may hereafter be specified in a notice designated as a
notice of change of address) with telephone communication to a duly authorized
officer of the recipient confirming its receipt as subsequently confirmed by
registered or certified mail. Any notice or other communication required or
permitted pursuant to this Agreement shall be deemed given (a) when personally
delivered to any officer of the party to whom it is addressed, (b) on the
earlier of actual receipt thereof or five (5) days following posting thereof by
certified or registered mail, postage prepaid, or (c) upon actual receipt
thereof when sent by a recognized overnight delivery service or (d) upon actual
receipt thereof when sent by telecopier to the number set forth below, in each
case addressed to each party at its address set both below or at such other
address as has been furnished in writing by a party to the other by like notice:
(A) If to Lender at: IBJ Whitehall Business Credit Corporation
One State Street
New York, New York 10004
Attention: Robert Wallace
Telephone: (212) 858-2985
Telecopier: (212) 858-2151
with a copy to: Hahn & Hessen LLP
350 Fifth Avenue
New York, New York 10118
Attention: Steven J. Seif, Esq.
Telephone: (212) 736-1000
Telecopier: (212) 594-7167
44
(B) If to Borrowing
Agent or any
Borrower at: The SPAR Group
580 White Plains Road
Tarrytown, New York 10591
Attention: Robert G. Brown, Chairman
Telephone: (914) 332-4100
Telecopier: (914) 332-0741
with a copy to: Parker Chapin Flattau & Klimpl, LLP
1211 Avenue of the Americas
New York, New York 10036
Attention: Lawrence David Swift, Esq.
Telephone: (212) 704-6000
Telecopier: (212) 704-6159
26. Governing Law and Waiver of Jury Trial. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF NEW YORK. LENDER SHALL HAVE THE RIGHTS AND REMEDIES OF A SECURED PARTY UNDER
APPLICABLE LAW INCLUDING, BUT NOT LIMITED TO, THE UNIFORM COMMERCIAL CODE OF NEW
YORK. EACH BORROWER AGREES THAT ALL ACTIONS AND PROCEEDINGS RELATING DIRECTLY OR
INDIRECTLY TO THIS AGREEMENT OR ANY ANCILLARY AGREEMENT OR ANY OTHER OBLIGATIONS
SHALL BE LITIGATED IN THE FEDERAL DISTRICT COURT OF THE SOUTHERN DISTRICT OF NEW
YORK OR, AT LENDER'S OPTION, IN ANY OTHER COURTS LOCATED IN NEW YORK STATE OR
ELSEWHERE AS LENDER MAY SELECT AND THAT SUCH COURTS ARE CONVENIENT FORUMS AND
EACH BORROWER SUBMITS TO THE PERSONAL JURISDICTION OF SUCH COURTS. EACH BORROWER
WAIVES PERSONAL SERVICE OF PROCESS AND CONSENTS THAT SERVICE OF PROCESS UPON
SUCH BORROWER MAY BE MADE BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT
REQUESTED, DIRECTED TO SUCH BORROWER AT SUCH BORROWER'S ADDRESS APPEARING ON
LENDER'S RECORDS, AND SERVICE SO MADE SHALL BE DEEMED COMPLETED TWO (2) DAYS
AFTER THE SAME SHALL HAVE BEEN SO MAILED. EACH PARTY HERETO WAIVES THE RIGHT TO
A TRIAL BY JURY IN ANY ACTION OR PROCEEDING BETWEEN ANY BORROWER, LENDER AND
EACH BORROWER WAIVES THE RIGHT TO ASSERT IN ANY ACTION OR PROCEEDING INSTITUTED
BY LENDER WITH REGARD TO THIS AGREEMENT OR ANY OF THE OBLIGATIONS ANY OFFSETS OR
COUNTERCLAIMS WHICH IT MAY HAVE.
27. Limitation of Liability. Each Borrower acknowledges and understands
that in order to assure repayment of the Obligations hereunder Lender may be
required to exercise any and all of Lender's rights and remedies hereunder and
agrees that neither Lender nor any of Lender's agents shall be liable for acts
taken or omissions made in connection herewith or therewith except for actual
bad faith or gross (not mere) negligence.
45
28. Entire Understanding. This Agreement and the Ancillary Agreements
contain the entire understanding between Borrowers and Lender and any promises,
representations, warranties or guarantees not herein contained shall have no
force and effect unless in writing, signed by each Borrower's and Lender's
respective officers. Neither this Agreement, the Ancillary Agreements, nor any
portion or provisions thereof may be changed, modified, amended, waived,
supplemented, discharged, cancelled or terminated orally or by any course of
dealing, or in any manner other than by an agreement in writing, signed by the
party to be charged.
29. Indemnity. Each Borrower shall indemnify Lender and each of its
officers, directors, employees, and agents from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses and disbursements of any kind or nature whatsoever (including,
without limitation, fees and disbursements of counsel) which may be imposed on,
incurred by, or asserted against Lender in any litigation, proceeding or
investigation instituted or conducted by any governmental agency or
instrumentality or any other Person with respect to any aspect of, or any
transaction contemplated by, or referred to in, or any matter related to, this
Agreement, whether or not Lender is a party thereto, except to the extent that
any of the foregoing arises out of the willful misconduct or gross (not mere)
negligence of the party being indemnified.
30. Severability. Wherever possible each provision of this Agreement or
the Ancillary Agreements shall be interpreted in such manner as to be effective
and valid under applicable law, but if any provision of this Agreement or the
Ancillary Agreements shall be prohibited by or invalid under applicable law such
provision shall be ineffective to the extent of such prohibition or invalidity,
without invalidating the remainder of such provision or the remaining provisions
thereof.
31. Captions. All captions are and shall be without substantive meaning
or content of any kind whatsoever.
32. Counterparts. This Agreement may be executed in one or more
counterparts, all of which when taken together shall constitute one and the same
agreement.
33. Construction. The parties acknowledge that each party and its
counsel have reviewed this Agreement and that the normal rule of construction to
the effect that any ambiguities are to be resolved against the drafting party
shall not be employed in the interpretation of this Agreement or any amendments,
schedules or exhibits thereto.
34. Publicity. Each Borrower hereby authorizes Lender to make
appropriate announcements of the financial arrangement entered into by and among
Borrowers and Lender, including, without limitation, announcements which are
commonly known as tombstones, in such publications and to such selected parties
as Lender shall in its sole and absolute discretion deem appropriate.
46
35. Borrowing Agency Provisions.
----------------------------
(i) Borrowers hereby irrevocably designate Borrowing Agent to
be their attorney and agent and in such capacity to borrow, sign and endorse
notes, and execute and deliver all instruments, documents, writings and further
assurances now or hereafter required hereunder, on behalf of Borrowers, and
hereby authorize Lender to pay over or credit all loan proceeds hereunder in
accordance with the request of Borrowing Agent.
(ii) The handling of this credit facility as a co-borrowing
facility with a borrowing agent in the manner set forth in this Agreement is
solely as an accommodation to Borrowers and at their request. Lender shall not
incur liability to Borrowers as a result thereof. To induce Lender to do so and
in consideration thereof, each Borrower hereby indemnifies Lender and holds
Lender harmless from and against any and all liabilities, expenses, losses,
damages and claims of damage or injury asserted against Lender by any Person
arising from or incurred by reason of the handling of the financing arrangements
of Borrowers as provided herein, reliance by Lender on any request or
instruction from Lender or any other action taken by Lender with respect to this
Section 35 except due to gross negligence (but not mere negligence) or willful
misconduct by the indemnified party.
(iii) All Obligations shall be joint and several, and each
Borrower shall be obligated to make payment (with the understanding that any
payment made by any Borrower shall be applied to reduce the amount of the Loans
and the remaining payment obligations of all of the Borrowers) upon the maturity
of the Obligations by acceleration or otherwise, and, unless Lender otherwise
agrees in writing, such obligation and liability on the part of each Borrower
shall in no way be affected by any renewals and forbearance granted by Lender to
any Borrower, failure of Lender to give any Borrower notice of borrowing or any
other notice, any failure of Lender to pursue to preserve its rights against any
Borrower, the release by Lender of any Collateral now or thereafter acquired
from any Borrower, and such agreement by each Borrower to pay upon any notice
issued pursuant thereto is unconditional and unaffected by prior recourse by
Lender to another Borrower or any Collateral for such Borrower's Obligations or
the lack thereof.
36. Subordination of Subrogation and Contribution Rights, Etc. Each
Borrower covenants and agrees that until the Obligations have been fully paid
and satisfied, any and all Subordinated Rights of such Borrower shall be
subordinate to the Obligations and such Borrower shall not be entitled to any
payment or satisfaction (in whole or in part) until, all of the Obligations have
been fully paid and satisfied. Until such time (if ever) as the Obligations have
been fully paid and satisfied and this Agreement has been terminated: (A) no
Borrower shall seek any payment or exercise or enforce any right, power,
privilege, remedy or interest that such Borrower may have with respect to any
Subordinated Right and (B) any payment, asset or property delivered to or for
the benefit of any Borrower in respect of any Subordinated Right shall be
accepted in trust for the benefit of the Lender and shall be promptly paid or
delivered to the Lender to be credited and applied to the payment and
satisfaction of the Obligations, whether contingent, matured or unmatured, or to
be held by the Lender as additional collateral, as the Lender may elect in its
sole and absolute discretion.
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48
IN WITNESS WHEREOF, this Agreement has been duly executed as of the day
and year first above written.
WITNESS: SPAR MARKETING FORCE, INC.
/s/ Leslie W. Chervokas
- -------------------------- By: /s/ James H. Ross
---------------------------
Name: James H. Ross
Title: Chief Financial Officer
WITNESS: SPAR, INC.
/s/ Leslie W. Chervokas
- -------------------------- By: /s/ James H. Ross
---------------------------
Name: James H. Ross
Title: Chief Financial Officer
WITNESS: SPAR/BURGOYNE RETAIL SERVICES, INC.
/s/ Leslie W. Chervokas
- -------------------------- By: /s/ James H. Ross
---------------------------
Name: James H. Ross
Title: Chief Financial Officer
WITNESS: SPAR INCENTIVE MARKETING, INC.
/s/ Leslie W. Chervokas
- -------------------------- By: /s/ James H. Ross
---------------------------
Name: James H. Ross
Title: Chief Financial Officer
WITNESS: SPAR TRADEMARKS, INC.
/s/ Leslie W. Chervokas
- -------------------------- By: /s/ James H. Ross
---------------------------
Name: James H. Ross
Title: Chief Financial Officer
49
WITNESS: SPAR MCI PERFORMANCE GROUP, INC.
/s/ Leslie W. Chervokas
- -------------------------- By: /s/ James H. Ross
---------------------------
Name: James H. Ross
Title: Chief Financial Officer
WITNESS: SPAR MARKETING, INC. (DE)
/s/ Leslie W. Chervokas
- -------------------------- By: /s/ James H. Ross
---------------------------
Name: James H. Ross
Title: Chief Financial Officer
WITNESS: SPAR MARKETING, INC. (NV)
/s/ Leslie W. Chervokas
- -------------------------- By: /s/ James H. Ross
---------------------------
Name: James H. Ross
Title: Chief Financial Officer
WITNESS: SPAR ACQUISITION, INC.
/s/ Leslie W. Chervokas
- -------------------------- By: /s/ James H. Ross
---------------------------
Name: James H. Ross
Title: Chief Financial Officer
WITNESS: PIA MERCHANDISING CO., INC.
/s/ Leslie W. Chervokas
- -------------------------- By: /s/ James H. Ross
---------------------------
Name: James H. Ross
Title: Treasurer
50
WITNESS: PACIFIC INDOOR DISPLAY CO., INC.
/s/ Leslie W. Chervokas
- -------------------------- By: /s/ James H. Ross
---------------------------
Name: James H. Ross
Title: Treasurer
WITNESS: PIVOTAL SALES COMPANY
/s/ Leslie W. Chervokas
- -------------------------- By: /s/ James H. Ross
---------------------------
Name: James H. Ross
Title: Treasurer
WITNESS: SPAR GROUP, INC.
/s/ Leslie W. Chervokas
- -------------------------- By: /s/ James H. Ross
---------------------------
Name: James H. Ross
Title: Treasurer
IBJ WHITEHALL BUSINESS CREDIT
CORPORATION
/s/ Leslie W. Chervokas
- -------------------------- By: /s/ Edward A. Jesser
---------------------------
Name: Edward A. Jesser
Title: Senior Vice President
51
EXHIBITS
Exhibit 1(a) Revolving Credit Note
Exhibit 2(i) Term Note
Exhibit 13.1(xi) Financial Condition Certificate
SCHEDULES
Schedule 1(a) Permitted Liens
Schedule 12(a) State of Incorporation and Qualification
Schedule 12(b) Subsidiaries
Schedule 12(e) Books and Records
Schedule 12(g) Plans
Schedule 12(i) Litigation
Schedule 12(k) Licenses, Patents, Trademarks and Copyrights
Schedule 12(l) Federal Tax Identification Number
Schedule 12(m) Inventory Locations
Schedule 13 Excluded Trade Creditors
52