Exhibit 10.6
AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
by and between
THE CHILDREN'S PLACE RETAIL STORES, INC.
and
FOOTHILL CAPITAL CORPORATION
Dated as of July 31, 1997
TABLE OF CONTENTS
Page
1. DEFINITIONS AND CONSTRUCTION.......................................... 1
1.1 Definitions...................................................... 1
1.2 Accounting Terms................................................. 9
1.3 Code............................................................. 10
1.4 Construction..................................................... 10
1.5 Schedules and Exhibits........................................... 10
2. LOAN AND TERMS OF PAYMENT............................................. 10
2.1 Revolving Advances............................................... 10
2.2 Letters of Credit and Letter of Credit Guarantees................ 11
2.3 Intentionally Omitted............................................ 12
2.4 Overadvances..................................................... 12
2.5 Interest: Rates, Payments, and Calculations..................... 13
2.6 Crediting Payments; Application of Collections................... 14
2.7 Statements of Obligations........................................ 14
2.8 Fees............................................................. 14
3. CONDITIONS; TERM OF AGREEMENT......................................... 15
3.1 Conditions Precedent to Initial Advance, L/C, or L/C Guaranty.... 15
3.2 Conditions Precedent to All Advances, L/Cs, or L/C Guarantees.... 16
3.3 Term; Automatic Renewal.......................................... 16
3.4 Effect of Termination............................................ 16
3.5 Early Termination by Borrower.................................... 17
4. CREATION OF SECURITY INTEREST......................................... 17
4.1 Grant of Security Interest....................................... 17
4.2 Negotiable Collateral............................................ 17
4.3 Collection of Accounts, General Intangibles, Negotiable
Collateral..................................................... 17
4.4 Delivery of Additional Documentation Required.................... 18
4.5 Power of Attorney................................................ 18
4.6 Right to Inspect................................................. 18
5. REPRESENTATIONS AND WARRANTIES........................................ 19
5.1 No Prior Encumbrances............................................ 19
5.2 Eligible Accounts................................................ 19
5.3 Eligible Inventory............................................... 19
5.4 Location of Inventory and Equipment.............................. 19
5.5 Inventory Records................................................ 19
5.6 Location of Chief Executive Office; FEIN......................... 19
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Page
5.7 Due Organization and Qualification............................... 19
5.8 Due Authorization; No Conflict................................... 20
5.9 Litigation....................................................... 20
5.10 No Material Adverse Change in Financial Condition................ 20
5.11 Ability to Meet Obligations...................................... 20
5.12 Employee Benefits................................................ 20
5.13 Environmental Condition.......................................... 21
5.14 Reliance by Foothill; Cumulative................................. 21
6. AFFIRMATIVE COVENANTS................................................. 21
6.1 Accounting System................................................ 22
6.2 Collateral and Financial Reports................................. 22
6.3 Schedules of Accounts............................................ 22
6.4 Financial Statements, Reports, Certificates...................... 22
6.5 Tax Returns...................................................... 23
6.6 Designation of Inventory......................................... 23
6.7 Store Openings and Closings and Rent Reports..................... 23
6.8 Landlord Waivers................................................. 24
6.9 Title to Equipment............................................... 24
6.10 Maintenance of Equipment......................................... 24
6.11 Taxes............................................................ 24
6.12 Insurance........................................................ 24
6.13 Financial Covenants.............................................. 25
6.14 No Setoffs or Counterclaims...................................... 26
6.15 Location of Inventory and Equipment.............................. 26
6.16 Compliance with Laws............................................. 26
6.17 Employee Benefits................................................ 27
7. NEGATIVE COVENANTS.................................................... 27
7.1 Indebtedness..................................................... 27
7.2 Liens............................................................ 28
7.3 Restrictions on Fundamental Changes.............................. 28
7.4 Extraordinary Transactions and Disposal of Assets................ 28
7.5 Change Name...................................................... 28
7.6 Guarantee........................................................ 28
7.7 Restructure...................................................... 28
7.8 Prepayments...................................................... 28
7.9 Change of Control................................................ 28
7.10 Capital Expenditures............................................. 28
7.11 Consignments..................................................... 29
7.12 Distributions.................................................... 29
7.13 Accounting Methods............................................... 29
7.14 Advances, Investments and Loans.................................. 29
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7.15 Transactions with Affiliates..................................... 29
7.16 Suspension....................................................... 29
7.17 Compensation..................................................... 29
7.18 Use of Proceeds.................................................. 29
7.19 Change in Location of Chief Executive Office; Inventory and
Equipment with Bailees......................................... 30
8. EVENTS OF DEFAULT..................................................... 30
9. FOOTHILL'S RIGHTS AND REMEDIES........................................ 32
9.1 Rights and Remedies.............................................. 32
9.2 Remedies Cumulative.............................................. 34
10. TAXES AND EXPENSES REGARDING THE COLLATERAL........................... 34
11. WAIVERS; INDEMNIFICATION.............................................. 34
11.1 Demand; Protest; etc............................................. 34
11.2 Foothill's Liability for Collateral.............................. 35
11.3 Indemnification.................................................. 35
12. NOTICES............................................................... 35
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER............................ 36
14. DESTRUCTION OF BORROWER'S DOCUMENTS................................... 37
15. GENERAL PROVISIONS.................................................... 37
15.1 Effectiveness.................................................... 37
15.2 Successors and Assigns........................................... 37
15.3 Section Headings................................................. 37
15.4 Interpretation................................................... 37
15.5 Severability of Provisions....................................... 38
15.6 Amendments in Writing............................................ 38
15.7 Counterparts; Telefacsimile Execution............................ 38
15.8 Revival and Reinstatement of Obligations......................... 38
15.9 Integration...................................................... 38
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Page
SCHEDULES
Schedule E-1 Eligible Inventory
Schedule P-1 Permitted Liens
Schedule 5.13 Environmental Condition
Schedule 6.15 Location of Inventory and Equipment
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AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
This AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT, is entered into
as of July 31, 1997, between FOOTHILL CAPITAL CORPORATION, a California
corporation ("Foothill"), with a place of business located at 11111 Santa
Monica Boulevard, Suite 1500, Los Angeles, California 90025-3333, and THE
CHILDREN'S PLACE RETAIL STORES, INC., a Delaware corporation ("Borrower"),
with its chief executive office located at One Dodge Drive, West Caldwell,
New Jersey 07006.
A. Borrower and Foothill entered into that certain Loan and Security
Agreement, dated as of April 12, 1995 (as amended by Amendments One through
Five dated June 1, 1995, August 29, 1995, December 1, 1995, February 15,
1996, and May 1, 1996, respectively, the "1995 Loan Agreement").
B. Borrower and Foothill wish to amend and restate in its entirety the
1995 Loan Agreement, as provided in this Agreement.
The parties agree that the 1995 Loan Agreement is restated as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1 Definitions. As used in this Agreement, the following terms
shall have the following definitions:
"Account Debtor" means any Person who is or who may become obligated
under, with respect to, or on account of an Account.
"Accounts" means all currently existing and hereafter arising
accounts, contract rights, Revolving Accounts, and all other forms of
obligations owing to Borrower arising out of the sale or lease of goods or the
rendition of services by Borrower, irrespective of whether earned by
performance, and any and all credit insurance, guaranties, or security therefor.
"Affiliate" means, as applied to any Person, any other Person
directly or indirectly controlling, controlled by, or under common control
with, that Person. For purposes of this definition, "control" as applied to
any Person means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of that Person,
whether through the ownership of voting securities, by contract, or otherwise.
"Agreement" means this Amended and Restated Loan and Security
Agreement and any extensions, riders supplements, notes, amendments, or
modifications to or in connection with this Amended and Restated Loan and
Security Agreement.
"Authorized Officer" means any officer of Borrower.
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"Bankruptcy Code" means the United States Bankruptcy Code (11
U.S.C. Section 101 et seq.), as amended, and any successor statute.
"Borrower" has the meaning set forth in the preamble to this
Agreement.
"Borrower's Books" means all of Borrower's books and records
including: ledgers; records indicating, summarizing, or evidencing
Borrower's properties or assets (including the Collateral) or liabilities;
all information relating to Borrower's business operations or financial
condition; and all computer programs, disc or tape files, printouts, runs, or
other computer prepared information, and the equipment containing such
information.
"Borrower's Cost" means Borrower's retail selling price for
Inventory multiplied by Borrower's weighted cost of goods sold for the
rolling twelve (12) month period ending on the last day of the Fiscal Month
immediately prior to the date of calculation expressed as a percentage of
Borrower's Net Sales for such period.
"Borrowing Base" has the meaning set forth in Section 2.1.
"Business Day" means any day which is not a Saturday, Sunday, or
other day on which national banks are authorized or required to close.
"Change of Control" shall be deemed to have occurred at such time
as Borrower's existing shareholders cease to be the "beneficial owners" (as
defined in Rule 13d-3 under the Securities Exchange Act of 1934), directly or
indirectly, of more than 50% of the total voting power of all classes of
stock then outstanding of Borrower normally entitled to vote in the election
of directors.
"Closing Date" means the date of the initial advance or the date of
the initial issuance of an L/C or an L/C Guaranty, whichever occurs first.
"Code" means the California Uniform Commercial Code.
"Collateral" means each of the following: the Accounts; Borrower's
Books; the Equipment; the General Intangibles; the Inventory; the Negotiable
Collateral; any money, or other assets of Borrower which now or hereafter
come into the possession, custody, or control of Foothill; and the proceeds
and products, whether tangible or intangible, of any of the foregoing
including proceeds of insurance covering any or all of the Collateral, and
any and all Accounts, Borrower's Books, Equipment, General Intangibles,
Inventory, Negotiable Collateral, money, deposit accounts, or other tangible
or intangible property resulting from the sale, exchange, collection, or
other disposition of any of the foregoing, or any portion thereof or interest
therein, and the proceeds thereof.
"Consolidated Current Assets" means, as of any date of
determination, the aggregate amount of all current assets of Borrower and its
subsidiaries calculated on a
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consolidated basis that would, in accordance with GAAP, be classified on a
balance sheet as current assets.
"Consolidated Current Liabilities" means, as of any date of
determination, the aggregate amount of all current liabilities of Borrower
and its subsidiaries, calculated on a consolidated basis that would, in
accordance with GAAP, be classified on a balance sheet as current
liabilities. For purposes of this definition, all advances outstanding under
this Agreement shall be deemed to be current liabilities without regard to
whether they would be deemed to be so under GAAP.
"Daily Balance" means the amount of an Obligation owed at the end
of a given day.
"EBITDA" for a period means the consolidated net income of the
Borrower and its Subsidiaries (excluding extraordinary items) for the period
(a) plus all interest expense, income tax expense, depreciation and
amortization (including amortization of any goodwill or other intangibles)
for the period, (b) less gains and losses attributable to any fixed asset
sales in the period and (c) plus or minus any other non-cash charges which
have been subtracted or added in calculating consolidated net income for the
period.
"Eligible Accounts" means those Accounts created by Borrower in the
ordinary course of business that arise out of Borrower's sale of goods or
rendition of services, that strictly comply with all of Borrower's
representations and warranties to Foothill, and that are and at all times
shall continue to be reasonably acceptable to Foothill in all respects;
provided, however, that standards of eligibility may be fixed and revised
from time to time by Foothill in Foothill's reasonable credit judgment.
Eligible Accounts shall not include the following:
(a) Accounts that the Account Debtor has failed to pay within
ninety (90) days of invoice date and all Accounts owed by an Account Debtor
that has failed to pay fifty percent (50%) or more of its Accounts owed to
Borrower within ninety (90) days of invoice date;
(b) Accounts with respect to which the Account Debtor is an
officer, employee, Affiliate, or agent of Borrower;
(c) Accounts with respect to which the Account Debtor is not
a resident of the United States;
(d) Accounts with respect to which the Account Debtor is the
United States or any department, agency, or instrumentality of the United
States;
(e) Accounts with respect to which Borrower is or may become
liable to the Account Debtor for goods sold or services rendered by the
Account Debtor to Borrower, to the extent of such liability;
(f) Accounts with respect to which the Account Debtor
disputes liability or makes any claim with respect thereto, or is subject to
any Insolvency Proceeding, or becomes insolvent, or goes out of business; and
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(g) Accounts the collection of which Foothill, in its
reasonable credit judgment, believes to be doubtful by reason of the Account
Debtor's financial condition.
"Eligible Inventory" means Inventory consisting of first quality
finished goods held for sale in the ordinary course of Borrower's business,
that is reasonably acceptable to Foothill in all respects, that is located at
Borrower's premises identified on Schedule E-1 or that is in transit to
Borrower if: (a) title to such Inventory has been transferred to Borrower,
(b) the Inventory is insured to Foothill's reasonable satisfaction and (c)
documentation regarding such Inventory is reasonably acceptable to Foothill,
and such Inventory strictly complies with all of Borrower's representations
and warranties to Foothill. If Eligible Inventory is in transit to Borrower
and has been acquired pursuant to a Foothill L/C or L/C Guarantee, the L/C or
L/C Guarantee must have been drawn upon. Eligible Inventory shall not
include slow moving Inventory (as determined in Foothill's reasonable
business judgment based upon industry practices), or obsolete items,
restrictive or custom items, raw materials, work-in-process, components that
are not part of finished goods, spare parts, packaging and shipping
materials, supplies used or consumed in Borrower's business, Inventory
subject to a security interest or lien in favor of any third Person, bill and
hold goods, Inventory that is not subject to Foothill's perfected security
interests, defective goods (except for minor defects that do not affect
saleability), "seconds," and Inventory acquired on consignment.
"Equipment" means all of Borrower's present and hereafter acquired
machinery, machine tools, motors, equipment, furniture, furnishings,
fixtures, vehicles (including motor vehicles and trailers), tools, parts,
dies, jigs, goods (other than consumer goods, farm products, or Inventory),
wherever located, and any interest of Borrower in any of the foregoing, and
all attachments, accessories, accessions, replacements, substitutions,
additions, and improvements to any of the foregoing, wherever located.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended from time to time, or any predecessor, successor, or superseding
laws of the United States of America, together with all regulations
promulgated thereunder.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) which, within the meaning of Section 414 of the IRC, is: (i)
under common control with Borrower; (ii) treated, together with Borrower, as
a single employer; (iii) treated as a member of an affiliated service group
of which Borrower is also treated as a member; or (iv) is otherwise
aggregated with the Borrower for purposes of the employee benefits
requirements listed in IRC Section 414(m)(4).
"ERISA Event" means any one or more of the following: (i) a
Reportable Event with respect to a Qualified Plan or a Multiemployer Plan;
(ii) a Prohibited Transaction with respect to any Plan; (iii) a complete or
partial withdrawal by Borrower or any ERISA Affiliate from a Multiemployer
Plan; (iv) the complete or partial withdrawal of Borrower or an ERISA
Affiliate from a Qualified Plan during a plan year in which it was, or was
treated as, a "substantial employer" as defined in Section 4001(a)(2) of
ERISA; (v) a failure to make full payment when due of all amounts which,
under the provisions of any Plan or applicable law,
4
Borrower or any ERISA Affiliate is required to make; (vi) the filing of a
notice of intent to terminate, or the treatment of a plan amendment as a
termination, under Sections 4041 or 4041A of ERISA; (vii) an event or
condition which might reasonably be expected to constitute grounds under
Section 4042 of ERISA for the termination of, or the appointment of a trustee
to administer, any Qualified Plan or Multiemployer Plan; (viii) the
imposition of any liability under Title IV of ERISA, other than PBGC premiums
due but not delinquent under Section 4007 of ERISA, upon Borrower or any
ERISA Affiliate; and (ix) a violation of the applicable requirements of
Sections 404 or 405 of ERISA, or the exclusive benefit rule under Section
403(c) of ERISA, by any fiduciary or disqualified person with respect to any
Plan for which Borrower or any ERISA Affiliate may be directly or indirectly
liable.
"Event of Default" has the meaning set forth in Section 8.
"FEIN" means Federal Employer Identification Number.
"Fiscal Month" means months computed on the retail basis of four
(4) weeks, five (5) weeks and four (4) weeks per fiscal quarter.
"Fiscal Year" means a retail year ending on the Saturday closest to
January 31.
"Foothill" has the meaning set forth in the preamble to this
Agreement.
"Foothill Expenses" means all: reasonable costs or expenses
(including taxes, photocopying, notarization, telecommunication and insurance
premiums) required to be paid by Borrower under any of the Loan Documents
that are paid or advanced by Foothill; documentation, filing, recording,
publication, appraisal (including periodic Collateral appraisals),
environmental audit, and search fees assessed, paid, or incurred by Foothill
in connection with Foothill's transactions with Borrower; costs and expenses
incurred by Foothill in the disbursement of funds to Borrower (by wire
transfer or otherwise); charges paid or incurred by Foothill resulting from
the dishonor of checks; costs and expenses paid or incurred by Foothill to
correct any default or enforce any provision of the Loan Documents, or in
gaining possession of, maintaining, handling, preserving, storing, shipping,
selling, preparing for sale, or advertising to sell the Collateral, or any
portion thereof, irrespective of whether a sale is consummated; costs and
expenses paid or incurred by Foothill in examining Borrower's Books; costs
and expenses of third party claims or any other suit paid or incurred by
Foothill in enforcing or defending the Loan Documents; and Foothill's
reasonable attorneys fees and expenses incurred in advising, structuring,
drafting, reviewing, administering, amending, terminating, enforcing,
defending, or concerning the Loan Documents (including attorneys fees and
expenses incurred in connection with a "workout," a "restructuring," or an
Insolvency Proceeding concerning Borrower or any guarantor of the
Obligations), irrespective of whether suit is brought. Foothill Expenses
payable to third Persons shall not be marked up by Foothill.
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"GAAP" means generally accepted accounting principles as in effect
from time to time in the United States, consistently applied.
"General Intangibles" means all of Borrower's present and future
general intangibles and other personal property (including contract rights,
rights arising under common law, statutes, or regulations, choses or things
in action, goodwill, patents, trade names, trademarks, servicemarks,
copyrights, blueprints, drawings, purchase orders, customer lists, monies due
or recoverable from pension funds, route lists, rights to payment and other
rights under any royalty or licensing agreements, infringements, claims,
computer programs, computer discs, computer tapes, literature, reports,
catalogs, deposit accounts, insurance premium rebates, tax refunds, and tax
refund claims), other than goods and Accounts.
"Hazardous Materials" means all or any of the following: (a)
substances that are defined or listed in, or otherwise classified pursuant
to, any applicable laws or regulations as "hazardous substances," "hazardous
materials," "hazardous wastes," "toxic substances," or any other formulation
intended to define, list, or classify substances by reason of deleterious
properties such as ignitability, corrosivity, reactivity, carcinogenicity,
reproductive toxicity, or "EP toxicity"; (b) oil, petroleum, or petroleum
derived substances, natural gas, natural gas liquids, synthetic gas, drilling
fluids, produced waters, and other wastes associated with the exploration,
development, or production of crude oil, natural gas, or geothermal
resources; (c) any flammable substances or explosives or any radioactive
materials; and (d) asbestos in any form or electrical equipment which
contains any oil or dielectric fluid containing levels of polychlorinated
biphenyls in excess of fifty (50) parts per million.
"Indebtedness" means: (a) all obligations of Borrower for borrowed
money; (b) all obligations of Borrower evidenced by bonds, debentures, notes,
or other similar instruments and all reimbursement or other obligations of
Borrower in respect of letters of credit, letter of credit guaranties,
bankers acceptances, interest rate swaps, controlled disbursement accounts,
or other financial products; (c) all obligations under capitalized leases;
(d) all obligations or liabilities of others secured by a lien or security
interest on any property or asset of Borrower, irrespective of whether such
obligation or liability is assumed; and (e) any obligation of Borrower
guaranteeing or intended to guarantee (whether guaranteed, endorsed, co-made,
discounted, or sold with recourse to Borrower) any indebtedness, lease,
dividend, letter of credit, or other obligation of any other Person.
"Insolvency Proceeding" means any proceeding commenced by or
against any Person under any provision of the Bankruptcy Code or under any
other bankruptcy or insolvency law, including assignments for the benefit of
creditors, formal or informal moratoria, compositions, extensions generally
with its creditors, or proceedings seeking reorganization, arrangement, or
other similar relief.
"Inventory" means all present and future inventory in which
Borrower has any interest, including but not limited to children's shorts,
tops, shirts, overalls, and bathing suits and other goods held for sale or
lease or to be furnished under a contract of service and all of
6
Borrower's present and future raw materials, work in process, finished goods,
and packing and shipping materials, wherever located, and any documents of
title representing any of the above.
"IPO" means Borrower's initial public offering of shares of its
Common Stock, $.10 par value, pursuant to that certain S-1 Registration
Statement filed by Borrower with the Securities and Exchange Commission on
July 18, 1997, as amended from time to time.
"IRC" means the Internal Revenue Code of 1986, as amended, and the
regulations thereunder.
"L/C" has the meaning set forth in Section 2.2(a).
"L/C Guaranty" has the meaning set forth in Section 2.2(a).
"Libor Supplement" means that certain Libor Supplement to Amended
and Restated Loan and Security Agreement between Borrower and Foothill dated
as of July 31, 1997.
"Loan Documents" means this Agreement, the Lock Box Agreements, the
Security Agreement (Trademark and Service Marks), any note or notes executed
by Borrower and payable to Foothill, and any other agreement entered into in
connection with this Agreement.
"Lock Box" has the meaning provided in the respective Lock Box
Agreements.
"Lock Box Agreements" means those certain Blocked Depository
Account Agreements, in form and substance satisfactory to Foothill, each of
which is among Borrower, Foothill, and one of the Lock Box Banks.
"Lock Box Banks" means First Fidelity Bank, N.A., New Jersey or any
replacement bank chosen by Borrower and approved by Foothill.
"Maximum Amount" has the meaning set forth in Section 2.1.
"Multiemployer Plan" means a multiemployer plan as defined in
Sections 3(37) or 4001(a)(3) of ERISA or Section 414 of the IRC in which
employees of Borrower or an ERISA Affiliate participate or to which Borrower
or any ERISA Affiliate contribute or are required to contribute.
"Negotiable Collateral" means all of Borrower's present and future
letters of credit, notes, drafts, instruments, certificated and
uncertificated securities (including the shares of stock of subsidiaries of
Borrower), investment property, security entitlements, documents, personal
property leases (wherein Borrower is the lessor), chattel paper, and
Borrower's Books relating to any of the foregoing.
"Net Sales" means Borrower's gross sales less discounts, returns
and similar adjustments.
"Obligations" means all loans, advances, debts, principal, interest
(including any interest that, but for the provisions of the Bankruptcy Code,
would have accrued), contingent reimbursement obligations owing to Foothill
under any outstanding L/Cs or L/C Guarantees, premiums, liabilities (including
all amounts charged to Borrower's loan account pursuant to any agreement
authorizing Foothill to charge Borrower's loan account), obligations, fees,
lease payments, guaranties, covenants, and duties owing by
7
Borrower to Foothill of any kind and description (whether pursuant to or
evidenced by the Loan Documents, by any note or other instrument, or pursuant
to any other agreement between Foothill and Borrower, and irrespective of
whether for the payment of money), whether direct or indirect, absolute or
contingent, due or to become due, now existing or hereafter arising, and
including any debt, liability, or obligation owing from Borrower to others
that Foothill may have obtained by assignment or otherwise, and further
including all interest not paid when due and all Foothill Expenses that
Borrower is required to pay or reimburse by the Loan Documents, by law, or
otherwise.
"Overadvance" has the meaning set forth in Section 2.4.
"PBGC" means the Pension Benefit Guaranty Corporation as defined in
Title IV of ERISA, or any successor thereto.
"Permitted Investment" means any Investment permitted under Section
7.14.
"Permitted Liens" means: (a) liens and security interests held by
Foothill; (b) liens for unpaid taxes that are not yet due and payable; (c)
liens and security interests set forth on Schedule P-1 attached hereto; (d)
purchase money security interests and liens of lessors under capitalized
leases to the extent that the acquisition or lease of the underlying asset
was permitted under Section 7.10, and so long as the security interest or
lien only secures the purchase price of the asset; (e) easements, rights of
way, reservations, covenants, conditions, restrictions, zoning variances, and
other similar encumbrances that do not materially interfere with the use or
value of the property subject thereto; (f) obligations and duties as lessee
under any lease existing on the date of this Agreement; (g) mechanics',
materialmen's, warehousemen's, or similar liens; and (h) lease financing of
Borrower's presently owned Equipment.
"Person" means and includes natural persons, corporations, limited
partnerships, general partnerships, joint ventures, trusts, land trusts,
business trusts, or other organizations, irrespective of whether they are
legal entities, and governments and agencies and political subdivisions
thereof.
"Plan" means an employee benefit plan (as defined in Section 3(3)
of ERISA) which Borrower or any ERISA Affiliate sponsors or maintains or to
which Borrower or any ERISA Affiliate makes, is making, or is obligated to
make contributions, including any Multiemployer Plan or Qualified Plan.
"Prohibited Transaction" means any transaction described in Section
406 of ERISA which is not exempt by reason of Section 408 of ERISA, and any
transaction described in Section 4975(c) of the IRC which is not exempt by
reason of Section 4975(c) of the IRC.
"Qualified Plan" means a pension plan (as defined in Section 3(2) of
ERISA) intended to be tax-qualified under Section 401(a) of the IRC which
Borrower or any ERISA
8
Affiliate sponsors, maintains, or to which any such person makes, is making,
or is obligated to make, contributions, or, in the case of a
multiple-employer plan (as described in Section 4064(a) of ERISA), has made
contributions at any time during the immediately preceding period covering at
least five (5) plan years, but excluding any Multiemployer Plan.
"Reference Rate" means the variable rate of interest, per annum,
most recently announced by Norwest Bank Minnesota, National Association, or
any successor thereto, as its "base rate," irrespective of whether such
announced rate is the best rate available from such financial institution.
"Renewal Date" has the meaning set forth in Section 3.3.
"Reportable Event" means any event described in Section 4043 (other
than Subsections (b)(7) and (b)(9)) of ERISA.
"Revolving Accounts" means any Account arising from an agreement to
extend credit on an ongoing basis through the use of a device such as a
credit card or the like, whether or not subject to regulation under Federal
Reserve Board Regulation Z, or any state statute or regulation on
truth-in-lending.
"Tangible Net Worth" means, as of the date any determination
thereof is to be made, the difference of: (a) Borrower's total stockholder's
equity; minus (b) the sum of: (i) all intangible assets of Borrower; (ii) all
of Borrower's prepaid expenses; and (iii) all amounts due to Borrower from
Affiliates, calculated on a consolidated basis.
"Unfunded Benefit Liability" means the excess of a Plan's benefit
liabilities (as defined in Section 4001(a)(16) of ERISA) over the current
value of such Plan's assets, determined in accordance with the assumptions
used by the Plan's actuaries for funding the Plan pursuant to Section 412 of
the IRC for the applicable plan year.
"Voidable Transfer" has the meaning set forth in Section 15.8.
"Working Capital" means the result of subtracting Consolidated
Current Liabilities from Consolidated Current Assets.
1.2 Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP. When used herein,
the term "financial statements" shall include the notes and schedules
thereto. Whenever the term "Borrower" is used in respect of a financial
covenant or a related definition, it shall be understood to mean Borrower on
a consolidated basis unless the context clearly requires otherwise.
1.3 Code. Any terms used in this Agreement which are defined in the
Code shall be construed and defined as set forth in the Code unless otherwise
defined herein.
9
1.4 Construction. Unless the context of this Agreement clearly
requires otherwise, references to the plural include the singular, references
to the singular include the plural, the term "including" is not limiting, and
the term "or" has, except where otherwise indicated, the inclusive meaning
represented by the phrase "and/or." The words "hereof," "herein," "hereby,"
"hereunder," and similar terms in this Agreement refer to this Agreement as a
whole and not to any particular provision of this Agreement. Section,
subsection, clause, schedule, and exhibit references are to this Agreement
unless otherwise specified. Any reference in this Agreement or in the Loan
Documents to this Agreement or any of the Loan Documents shall include all
alterations, amendments, changes, extensions, modifications, renewals,
replacements, substitutions, and supplements, thereto and thereof, as
applicable.
1.5 Schedules and Exhibits. All of the schedules and exhibits
attached to this Agreement shall be deemed incorporated herein by reference.
2. LOAN AND TERMS OF PAYMENT.
2.1 Revolving Advances. (a) Subject to the terms and conditions of
this Agreement, Foothill agrees to make revolving advances to Borrower in an
amount not to exceed the Borrowing Base. For purposes of this Agreement,
"Borrowing Base" shall mean an amount equal to:
(1) an amount equal to ninety percent (90%) of the amount of
Eligible Accounts; plus
(2) an amount equal to thirty percent (30%) of the retail
selling price of Eligible Inventory, but not to exceed sixty-five percent
(65%) of Borrower's Cost of such Eligible Inventory; plus
(3) an amount equal to thirty percent (30%) of the retail
selling price of Inventory to be acquired pursuant to outstanding commercial
L/Cs and L/C Guarantees issued by Foothill, but not to exceed the lower of:
(a) the amount of the L/C or L/C Guarantee or (b) sixty five percent (65%) of
Borrower's Cost for such Inventory. Such L/Cs and L/C Guarantees must not
allow partial draws unless such draws are for finished goods Inventory
concurrently transferred to Borrower, and draws thereunder must require
documentation reflecting the transfer of title to Borrower (in form and
substance satisfactory to Foothill) of first quality finished goods Inventory
conforming to Borrower's contract with the seller.
Provided, however, that the Borrowing Base cannot exceed an
amount equal to Borrower's cash, credit card and check collections for the
immediately preceding sixty (60) days.
10
(b) Anything to the contrary in Section 2.1(a) above
notwithstanding, Foothill may reduce its Borrowing Base percentages based
upon Eligible Accounts or Eligible Inventory without declaring an Event of
Default if it determines, in its reasonable discretion, that there is a
material impairment of the prospect of repayment of all or any portion of the
Obligations or a material impairment of the value or priority of Foothill's
security interests in the Collateral.
(c) Foothill shall have no obligation to make advances
hereunder to the extent they would cause the outstanding Obligations to
exceed Thirty Million Dollars ($30,000,000) ("Maximum Amount").
(d) Foothill is authorized to make advances under this
Agreement based upon telephonic or other instructions received from anyone
purporting to be an Authorized Officer of Borrower, or without instructions
if pursuant to Section 2.5(d). Borrower agrees to establish and maintain a
single designated deposit account for the purpose of receiving the proceeds
of the advances requested by Borrower and made by Foothill hereunder. Unless
otherwise agreed by Foothill and Borrower, any advance requested by Borrower
and made by Foothill hereunder shall be made to such designated deposit
account. Amounts borrowed pursuant to this Section 2.1 may be repaid and,
subject to the terms and conditions of this Agreement, reborrowed at any time
during the term of this Agreement.
2.2 Letters of Credit and Letter of Credit Guarantees.
(a) Subject to the terms and conditions of this Agreement,
Foothill agrees to issue commercial or standby letters of credit for the
account of Borrower (each, an "L/C") or to issue standby letters of credit or
guarantees of payment (each such letter of credit or guaranty, an "L/C
Guaranty") with respect to commercial or standby letters of credit issued by
another Person for the account of Borrower in an aggregate face amount not to
exceed the lesser of: (i) the Borrowing Base less the amount of advances
outstanding pursuant to Section 2.1, and (ii) Twenty Million Dollars
($20,000,000). Borrower expressly understands and agrees that Foothill shall
have no obligation to arrange for the issuance by other financial
institutions of letters of credit that are to be the subject of L/C
Guarantees. Borrower and Foothill acknowledge and agree that certain of the
letters of credit that are to be the subject of L/C Guarantees may be
outstanding on the Closing Date. Each such L/C (including those that are the
subject of L/C Guarantees) shall have an expiry date no later than sixty (60)
days prior to the date on which this Agreement is scheduled to terminate
under Section 3.3 (without regard to any potential unexercised, renewal term)
and all such L/Cs and L/C Guarantees shall
11
be in form and substance acceptable to Foothill in its sole discretion.
Foothill shall not have any obligation to issue L/Cs or L/C Guarantees to the
extent that the face amount of all outstanding L/Cs and L/C Guarantees, plus
the amount of advances outstanding pursuant to Section 2.1, would exceed the
Maximum Amount. The L/Cs and the L/C Guarantees issued under this Section
2.2 shall be used by Borrower, consistent with this Agreement, to purchase
Inventory or for the other business purposes. If Foothill is obligated to
advance funds under an L/C or L/C Guaranty, the amount so advanced
immediately shall be deemed to be an advance made by Foothill to Borrower
pursuant to Section 2.1 and, thereafter, shall bear interest at the rates
then applicable under Section 2.5.
(b) Borrower hereby agrees to indemnify, save, defend, and
hold Foothill harmless from any loss, cost, expense, or liability, including
payments made by Foothill, expenses, and reasonable attorneys fees incurred
by Foothill arising out of or in connection with any L/Cs or L/C Guarantees.
Borrower agrees to be bound by the issuing bank's regulations and
interpretations of any letters of credit guarantied by Foothill and opened to
or for Borrower's account or by Foothill's interpretations of any L/C issued
by Foothill to or for Borrower's account, even though this interpretation may
be different from Borrower's own, and Borrower understands and agrees that
Foothill shall not be liable for any error, negligence, or mistakes, whether
of omission or commission, in following Borrower's instructions or those
contained in the L/Cs or any modifications, amendments, or supplements
thereto. Borrower understands that the L/C Guarantees may require Foothill
to indemnify the issuing bank for certain costs or liabilities arising out of
claims by Borrower against such issuing bank. Borrower hereby agrees to
indemnify, save, defend, and hold Foothill harmless with respect to any loss,
cost, expense (including attorneys fees), or liability incurred by Foothill
under any L/C Guaranty as a result of Foothill's indemnification of any such
issuing bank.
(c) Borrower hereby authorizes and directs any bank that
issues a letter of credit guaranteed by Foothill to deliver to Foothill all
instruments, documents, and other writings and property received by the
issuing bank pursuant to the letter of credit, and to accept and rely upon
Foothill's instructions and agreements with respect to all matters arising in
connection with the letter of credit and the related application. Borrower
may or may not be the "applicant" or "account party" with respect to such
letter of credit.
(d) Any and all service charges, commissions, fees, and costs
incurred by Foothill (without markup by Foothill) relating to the L/Cs
guaranteed by Foothill shall be considered Foothill Expenses for purposes of
this Agreement and immediately shall be reimbursable by Borrower to Foothill.
On the first day of each month, Borrower will pay Foothill a fee equal to
three quarters of one percent (0.75%) per annum times the average Daily
Balance of the undrawn L/Cs and L/C Guarantees that were outstanding during
the immediately preceding month. Service charges, commissions, fees, and
costs may be charged to Borrower's loan account at the time the service is
rendered or the cost is incurred.
(e) Immediately upon the termination of this Agreement,
Borrower agrees to: (i) provide cash collateral to be held by Foothill in an
amount equal to the maximum amount of Foothill's
12
obligations under L/Cs plus the maximum amount of Foothill's obligations to
any Person under outstanding L/C Guarantees, (ii) cause to be delivered to
Foothill releases of all of Foothill's obligations under its outstanding L/Cs
and L/C Guarantees, or (iii) cause to be issued to Foothill an irrevocable
back to back letter of credit issued or confirmed by a bank acceptable to
Foothill in form and substance reasonably acceptable to Foothill. At
Foothill's discretion, any proceeds of Collateral received by Foothill after
the occurrence and during the continuation of an Event of Default may be held
as the cash collateral required by this Section 2.2(e).
(f) Notwithstanding anything to the contrary contained in
this Agreement, Borrower may allow other Persons to issue letters of credit
on its behalf. As a condition to Borrower's establishing new letter of
credit facilities, the Person issuing letters of credit must enter into an
Intercreditor Agreement with Foothill, in form and substance reasonably
satisfactory to Foothill.
2.3 Intentionally Omitted.
2.4 Overadvances. If, at any time or for any reason, the amount
of Obligations owed by Borrower to Foothill pursuant to Sections 2.1 and 2.2
is greater than either the dollar or percentage limitations set forth in
Sections 2.1 or 2.2 (an "Overadvance"), Borrower immediately shall pay to
Foothill, in cash, the amount of such excess to be used by Foothill first, to
repay non-contingent Obligations and, thereafter, to be held by Foothill as
cash collateral to secure Borrower's obligation to repay Foothill for all
amounts paid pursuant to L/Cs or L/C Guarantees.
2.5 Interest: Rates, Payments, and Calculations.
(a) Interest Rate. All Obligations, except for undrawn L/Cs
and L/C Guarantees, and except for Obligations as to which Borrower has
elected to have interest charged based upon the Libor Supplement, shall bear
interest, on the average Daily Balance, at a per annum rate equal to the
Reference Rate.
(b) Default Rate. All Obligations, except for undrawn L/Cs
and L/C Guarantees, shall bear interest, from and during the continuance of
an Event of Default, at a per annum rate equal to three (3.00) percentage
points above the Reference Rate. From and during the continuance of an Event
of Default, the fee provided in Section 2.2(d) shall be increased to a fee
equal to three percent (3.00%) per annum times the average Daily Balance of
the undrawn L/Cs and L/C Guarantees that were outstanding during the
immediately preceding month.
(c) [Intentionally Deleted].
13
(d) Payments. Interest hereunder shall be due and payable on
the first day of each month during the term hereof. Borrower hereby
authorizes Foothill, at its option, without prior notice to Borrower, to
charge such interest, all Foothill Expenses (as and when incurred), and all
installments or other payments due under any note or other Loan Document to
Borrower's loan account, which amounts shall thereafter accrue interest at
the rate then applicable hereunder. Any interest not paid when due shall be
compounded by becoming a part of the Obligations, and such interest shall
thereafter accrue interest at the rate then applicable hereunder.
(e) Computation. The Reference Rate as of this date is eight
and one-half percent (8.50%) per annum. In the event the Reference Rate is
changed from time to time hereafter, the applicable rate of interest
hereunder automatically and immediately shall be increased or decreased by an
amount equal to such change in the Reference Rate. The rates of interest
charged hereunder shall be based upon the average Reference Rate in effect
during the month. All interest and fees chargeable under the Loan Documents
shall be computed on the basis of a three hundred sixty (360) day year for
the actual number of days elapsed.
(f) Intent to Limit Charges to Maximum Lawful Rate. In no
event shall the interest rate or rates payable under this Agreement, plus any
other amounts paid in connection herewith, exceed the highest rate
permissible under any law that a court of competent jurisdiction shall, in a
final determination, deem applicable. Borrower and Foothill, in executing
this Agreement, intend to legally agree upon the rate or rates of interest
and manner of payment stated within it; provided, however, that, anything
contained herein to the contrary notwithstanding, if said rate or rates of
interest or manner of payment exceeds the maximum allowable under applicable
law, then, ipso facto as of the date of this Agreement, Borrower is and shall
be liable only for the payment of such maximum as allowed by law, and payment
received from Borrower in excess of such legal maximum, whenever received,
shall be applied to reduce the principal balance of the Obligations to the
extent of such excess.
2.6 Crediting Payments; Application of Collections. The receipt
of any wire transfer of funds, check, or other item of payment by Foothill
(whether from transfers to Foothill, the Lock Box or otherwise) immediately
shall be applied to provisionally reduce the Obligations, but shall not be
considered a payment on account unless such wire transfer is of immediately
available federal funds and is made to the Lock Box or to another appropriate
deposit account of Foothill or unless and until such check or other item of
payment is honored when presented for payment. Should any check or item of
payment not be honored when presented for payment, then Borrower shall be
deemed not to have made such payment, and interest shall be recalculated
accordingly. Anything to the contrary contained herein notwithstanding, any
wire transfer, check, or other item of payment shall be deemed received by
Foothill only if it is received by Foothill on or before 11:00 a.m. Los
Angeles time. If any wire transfer, check, or other item of payment is
received by Foothill after 11:00 a.m. Los
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Angeles time it shall be deemed to have been received by Foothill as of the
opening of business on the immediately following Business Day. Prior to the
occurrence of an Event of Default or Foothill reasonably deeming itself
insecure, and so long as: (a) the outstanding balance of the Obligations is
Thirteen Million Five Hundred Thousand Dollars ($13,500,000) or less, and (b)
the outstanding balance of the Obligations (other than L/Cs and L/C
Guarantees) is Five Million Dollars ($5,000,000) or less, monies shall, at
Borrower's option, be transferred from the Lock Box to Foothill or to
Borrower's operating account on a daily basis, and if transferred to
Borrower's operating account such monies will not be applied to the
Obligations.
2.7 Statements of Obligations. Foothill shall render monthly
statements to Borrower of the Obligations, including principal, interest,
fees, and including an itemization of all charges and expenses constituting
Foothill Expenses owing, and such statements shall be conclusively presumed
to be correct and accurate and constitute an account stated between Borrower
and Foothill unless, within sixty (60) days after receipt thereof by
Borrower, Borrower shall deliver to Foothill by registered or certified mail
at its address specified in Section 12, written objection thereto describing
the error or errors contained in any such statements.
2.8 Fees. Borrower shall pay to Foothill the following fees:
(a) Closing Fee. A one time closing fee of Seventy-Fifty
Thousand Dollars ($75,000) which is earned, in full, on the Closing Date and
is due and payable by Borrower to Foothill in connection with this Agreement
on the Closing Date;
(b) Annual Facility Fee. On the earlier of the first
anniversary of the Closing Date or the termination of this Agreement for any
reason, a fee (which shall be fully earned as of the Closing Date) in an
amount equal to one quarter of one percent (0.25%) of the Maximum Amount, and
on the second anniversary of the Closing Date and each anniversary
thereafter, a fee in an amount equal to one-eighth of one percent (0.125%) of
the Maximum Amount, such fees to be fully earned on each such anniversary;
(c) Financial Examination, Documentation, and Appraisal Fees.
(i) Foothill's customary fee of Six Hundred Fifty Dollars ($650) per day per
examiner, plus out-of-pocket expenses for each financial analysis and
examination of Borrower performed by Foothill or its agents. Prior to the
occurrence of an Event of Default hereunder or Foothill deeming itself
insecure, (i) Borrower shall not be required to pay for more than one
financial analysis and examination during each twelve (12) month period; and
(ii) Foothill shall not have third party Inventory appraisals conducted more
than once in each twelve (12) month period, at a cost not to exceed One
Thousand Dollars ($1,000) per day, plus out-of-pocket expenses; and
(d) Collateral Management Fee. On the first day of each
month during the term of this Agreement, commencing August 1, 1997 and
thereafter so long as any Obligations are outstanding, a collateral
management fee in an amount equal to Two Thousand Dollars ($2,000) per month
(or a prorated portion thereof for any partial month) during the term hereof,
such fee to be fully earned on the first day of each month.
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3. CONDITIONS; TERM OF AGREEMENT.
3.1 Conditions Precedent to Initial Advance, L/C, or L/C Guaranty.
The obligation of Foothill to make the initial advance or to provide the
initial L/C or L/C Guaranty is subject to the fulfillment, to the
satisfaction of Foothill and its counsel, of each of the following conditions
on or before the Closing Date:
(a) Foothill shall have received a fully executed copy of
this Agreement;
(b) Foothill shall have received the Closing Fee;
(c) Foothill shall have received a certificate of corporate
status with respect to Borrower, dated within ten (10) days of the Closing
Date, by the Secretary of State of the state of incorporation of Borrower,
which certificate shall indicate that Borrower is in good standing in such
state;
(d) Foothill shall have received a certificate from
Borrower's Secretary in form and substance satisfactory to Foothill in its
sole discretion; and
(e) all other documents and legal matters in connection with
the transactions contemplated by this Agreement shall have been delivered or
executed or recorded and shall be in form and substance satisfactory to
Foothill and its counsel.
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3.2 Conditions Precedent to All Advances, L/Cs, or L/C Guarantees.
The following shall be conditions precedent to all advances, L/Cs, or L/C
Guarantees hereunder:
(a) the representations and warranties contained in this
Agreement and the other Loan Documents shall be true and correct in all
material respects on and as of the date of such advance, L/C, or L/C
Guaranty, as though made on and as of such date (except to the extent that
such representations and warranties relate solely to an earlier date);
(b) except for good faith disputes by Borrower with one or
more landlords of its stores, no Event of Default or event which with the
giving of notice or passage of time would constitute an Event of Default
shall have occurred and be continuing on the date of such advance, L/C, or
L/C Guaranty, nor shall either result from the making of the advance; and
(c) no injunction, writ, restraining order, or other order of
any nature prohibiting, directly or indirectly, the making of such advance or
the issuance of such L/C or L/C Guaranty shall have been issued and remain in
force by any governmental authority against Borrower, Foothill, or any of
Borrower's Affiliates.
3.3 Term; Automatic Renewal. This Agreement shall become
effective upon the execution and delivery hereof by Borrower and Foothill and
shall continue in full force and effect for a term ending on the date (the
"Renewal Date") that is three (3) years from the Closing Date and
automatically shall be
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renewed for successive one (1) year periods thereafter, unless sooner
terminated pursuant to the terms hereof. Either party may terminate this
Agreement effective on the Renewal Date or on any anniversary of the Renewal
Date by giving the other party at least ninety (90) days prior written notice
by registered or certified mail, return receipt requested. The foregoing
notwithstanding, Foothill shall have the right to terminate its obligations
under this Agreement immediately and without notice upon the occurrence and
during the continuation of an Event of Default.
3.4 Effect of Termination. On the date of termination, all
Obligations (including contingent reimbursement obligations under any
outstanding L/Cs or L/C Guarantees) immediately shall become due and payable
without notice or demand. No termination of this Agreement, however, shall
relieve or discharge Borrower of Borrower's duties, Obligations, or covenants
hereunder, and Foothill's continuing security interests in the Collateral
shall remain in effect until all Obligations have been fully and finally
discharged and Foothill's obligation to provide advances hereunder is
terminated. If Borrower has sent a notice of termination pursuant to the
provisions of Section 3.3, but fails to pay all Obligations on the date set
forth in said notice, then Foothill may, but shall not be required to, renew
this Agreement for an additional term of one (1) year. Once all Obligations
have been fully repaid and this Agreement has been terminated, Foothill will
promptly deliver to Borrower terminations of its financing statements.
3.5 Early Termination by Borrower. The provisions of Section 3.3
that allow termination of this Agreement by Borrower only on the Renewal Date
and certain anniversaries thereof notwithstanding, Borrower has the option,
at any time upon ninety (90) days prior written notice to Foothill, to
terminate this Agreement by paying to Foothill, in cash, the Obligations
(including an amount equal to the full amount of the L/Cs or L/C Guarantees
unless the L/C or L/C Guarantee is replaced by another Person without
liability to Foothill).
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4. CREATION OF SECURITY INTEREST.
4.1 Grant of Security Interest. Borrower hereby grants to
Foothill a continuing security interest in all currently existing and
hereafter acquired or arising Collateral in order to secure prompt repayment
of any and all Obligations and in order to secure prompt performance by
Borrower of each of its covenants and duties under the Loan Documents.
Foothill's security interests in the Collateral shall attach to all
Collateral without further act on the part of Foothill or Borrower. Anything
contained in this Agreement or any other Loan Document to the contrary
notwithstanding, and other than: (a) sales of Inventory to buyers in the
ordinary course of business, (b) sales of Equipment in any twelve (12) month
period having an aggregate net book value of One Hundred Thousand Dollars
($100,000) with the proceeds being applied to the Obligations, and (c) sale
or disposal of Collateral (other than Inventory) in connection with the
closing of Borrower's stores, Borrower has no authority, express or implied,
to dispose of any item or portion of the Collateral.
4.2 Negotiable Collateral. In the event that any Collateral,
including proceeds, is evidenced by or consists of Negotiable Collateral,
Borrower shall, immediately upon the request of Foothill, endorse and assign
such Negotiable Collateral to Foothill and deliver physical possession of
such Negotiable Collateral to Foothill.
4.3 Collection of Accounts, General Intangibles, Negotiable
Collateral. Foothill, Borrower, and the Lock Box Banks shall enter into the
Lock Box Agreements, in form and substance satisfactory to Foothill in its
sole discretion, pursuant to which all of Borrower's cash receipts, checks,
and other items of payment (including, insurance proceeds, proceeds of cash
sales, rental proceeds, and tax refunds) will be forwarded to Foothill on a
daily basis. At any time, Foothill or Foothill's designee may: (a) notify
customers or Account Debtors of Borrower that the Accounts, General
Intangibles, or Negotiable Collateral have been assigned to Foothill or that
Foothill has a security interest therein; and (b) collect the Accounts,
General Intangibles, and Negotiable Collateral directly and charge the
collection costs and expenses to Borrower's loan account. Borrower agrees
that it will hold in trust for Foothill, as Foothill's trustee, any cash
receipts, checks, and other items of payment (including, insurance proceeds,
proceeds of cash sales, rental proceeds, and tax refunds) that it receives
and immediately will deliver said cash receipts, checks, and other items of
payment to Foothill in their original form as received by Borrower, except as
otherwise provided in Section 2.6.
4.4 Delivery of Additional Documentation Required. At any time
upon the request of Foothill, Borrower shall execute and deliver to Foothill
all financing statements, continuation financing statements, fixture filings,
security agreements, chattel mortgages, pledges, assignments, endorsements of
certificates of title, applications for title, affidavits, reports, notices,
schedules of accounts, letters of authority, and all other documents that
Foothill may reasonably request, in form satisfactory to Foothill, to perfect
and continue perfected Foothill's security interests in the Collateral and in
order to fully consummate all of the transactions contemplated hereby and
under the other the Loan Documents.
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4.5 Power of Attorney. Borrower hereby irrevocably makes,
constitutes, and appoints Foothill (and any of Foothill's officers,
employees, or agents designated by Foothill) as Borrower's true and lawful
attorney, with power to: (a) if Borrower refuses to, or fails timely to
execute and deliver any of the documents described in Section 4.4, sign the
name of Borrower on any of the documents described in Section 4.4; (b) at any
time that an Event of Default has occurred and is continuing or Foothill
reasonably deems itself insecure (in accordance with Section 1208 of the
Code), sign Borrower's name on any invoice or bill of lading relating to any
Account, drafts against Account Debtors, schedules and assignments of
Accounts, verifications of Accounts, and notices to Account Debtors; (c) send
requests for verification of Accounts; (d) endorse Borrower's name on any
checks, notices, acceptances, money orders, drafts, or other item of payment
or security that may come into Foothill's possession; (e) at any time that an
Event of Default has occurred and is continuing or Foothill deems itself
insecure (in accordance with Section 1208 of the Code), notify the post
office authorities to change the address for delivery of Borrower's mail to
an address designated by Foothill, to receive and open all mail addressed to
Borrower, and to retain all mail relating to the Collateral and forward all
other mail to Borrower; (f) at any time that an Event of Default has occurred
and is continuing or Foothill deems itself insecure (in accordance with
Section 1208 of the Code), make, settle, and adjust all claims under
Borrower's policies of insurance and make all determinations and decisions
with respect to such policies of insurance; and (g) at any time that an Event
of Default has occurred and is continuing or Foothill deems itself insecure
(in accordance with Section 1208 of the Code), settle and adjust disputes and
claims respecting the Accounts directly with Account Debtors, for amounts and
upon terms which Foothill determines to be reasonable, and Foothill may cause
to be executed and delivered any documents and releases which Foothill
determines to be necessary. The appointment of Foothill as Borrower's
attorney, and each and every one of Foothill's rights and powers, being
coupled with an interest, is irrevocable until all of the Obligations have
been fully and finally repaid and performed and Foothill's obligation to
extend credit hereunder is terminated.
4.6 Right to Inspect. Foothill (through any of its officers,
employees, or agents) shall have the right, from time to time hereafter to
inspect Borrower's Books and to check, test, and appraise the Collateral in
order to verify Borrower's financial condition or the amount, quality, value,
condition of, or any other matter relating to, the Collateral.
5. REPRESENTATIONS AND WARRANTIES.
Borrower represents and warrants to Foothill as follows:
5.1 No Prior Encumbrances. Borrower has good and indefeasible
title to the Collateral, free and clear of liens, claims, security interests,
or encumbrances, except for Permitted Liens.
5.2 Eligible Accounts. The Eligible Accounts are, at the time of
the creation thereof and as of each date on which Borrower includes them in a
Borrowing Base calculation or certification, bona fide existing obligations
created by the sale and delivery of Inventory or the rendition of services to
Account Debtors in the ordinary course of Borrower's business,
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unconditionally owed to Borrower without defenses, disputes, offsets,
counterclaims, or rights of return or cancellation other than normal returns
or disputes in the normal course of business. The property giving rise to such
Eligible Accounts has been delivered to the Account Debtor, or to the Account
Debtor's agent for immediate shipment to and unconditional acceptance by the
Account Debtor. At the time of the creation of an Eligible Account and as of
each date on which Borrower includes an Eligible Account in a Borrowing Base
calculation or certification, Borrower has not received notice of actual or
imminent bankruptcy, insolvency, or material impairment of the financial
condition of any applicable Account Debtor regarding such Eligible Account.
5.3 Eligible Inventory. All Eligible Inventory is now and at all
times hereafter shall be of good and merchantable quality, free from defects,
except for minor defects arising in the ordinary course of business.
5.4 Location of Inventory and Equipment. The Inventory and
Equipment are not stored with a bailee, warehouseman, or similar party
(without Foothill's prior written consent) and are located only at the
locations identified on Schedule 6.15 or in transit, or otherwise permitted
by Section 6.15.
5.5 Inventory Records. Borrower now keeps, and hereafter at all
times shall keep, correct and accurate records itemizing and describing the
kind, type, quality, and quantity of the Inventory, and Borrower's cost
therefor in accordance with the retail method of accounting.
5.6 Location of Chief Executive Office; FEIN. The chief executive
office of Borrower is located at the address indicated in the preamble to
this Agreement and Borrower's FEIN is 31-1241495.
5.7 Due Organization and Qualification. Borrower is duly
organized and existing and in good standing under the laws of the state of
its incorporation and qualified and licensed to do business in, and in good
standing in, any state where the failure to be so licensed or qualified could
reasonably be expected to have a material adverse effect on the business,
operations, condition (financial or otherwise), finances, or prospects of
Borrower or on the value of the Collateral to Foothill.
5.8 Due Authorization; No Conflict. The execution, delivery, and
performance of the Loan Documents are within Borrower's corporate powers,
have been duly authorized, and are not in conflict with nor constitute a
breach of any provision contained in Borrower's Certificate of Incorporation,
or By-laws, nor will they constitute an event of default under any material
agreement to which Borrower is a party or by which its properties or assets
may be bound.
5.9 Litigation. There are no actions or proceedings pending by or
against Borrower before any court or administrative agency and Borrower does
not have knowledge or belief of any pending, threatened, or imminent
litigation, governmental investigations, or claims, complaints, actions, or
prosecutions
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involving Borrower or any guarantor of the Obligations, except for: (a)
ongoing collection matters in which Borrower is the plaintiff; and (b)
current matters that, if decided adversely to Borrower, would not materially
impair the prospect of repayment of the Obligations or materially impair the
value or priority of Foothill's security interests in the Collateral.
5.10 No Material Adverse Change in Financial Condition. All
financial statements relating to Borrower or any guarantor of the Obligations
that have been delivered by Borrower to Foothill have been prepared in
accordance with GAAP and fairly present Borrower's (or such guarantor's, as
applicable) financial condition as of the date thereof and Borrower's results
of operations for the period then ended. There has not been a material
adverse change in the financial condition of Borrower (or such guarantor, as
applicable) since the date of the latest financial statements submitted to
Foothill on or before the Closing Date.
5.11 Ability to Meet Obligations. No transfer of property is being
made by Borrower and no obligation is being incurred by Borrower in
connection with the transactions contemplated by this Agreement or the other
Loan Documents with the intent to hinder, delay, or defraud either present or
future creditors of Borrower, and Borrower is able to meet its obligations as
they come due.
5.12 Employee Benefits. Each Plan is in compliance in all material
respects with the applicable provisions of ERISA and the IRC. Each Qualified
Plan and Multiemployer Plan has been determined by the Internal Revenue
Service to qualify under Section 401 of the IRC, and the trusts created
thereunder have been determined to be exempt from tax under Section 501 of
the IRC, and, to the best knowledge of Borrower, nothing has occurred that
would cause the loss of such qualification or tax-exempt status. There are
no outstanding liabilities under Title IV of ERISA with respect to any Plan
maintained or sponsored by Borrower or any ERISA Affiliate, nor with respect
to any Plan to which Borrower or any ERISA Affiliate contributes or is
obligated to contribute which could reasonably be expected to have a material
adverse effect on the financial condition of Borrower. No Plan subject to
Title IV of ERISA has any Unfunded Benefit Liability which could reasonably
be expected to have a material adverse effect on the financial condition of
Borrower. Neither Borrower nor any ERISA Affiliate has transferred any
Unfunded Benefit Liability to a person other than Borrower or an ERISA
Affiliate or has otherwise engaged in a transaction that could be subject to
Sections 4069 or 4212(c) of ERISA which could reasonably be expected to have
a material adverse effect on the financial condition of Borrower. Neither
Borrower nor any ERISA Affiliate has incurred nor reasonably expects to incur
(x) any liability (and no event has occurred which, with the giving of notice
under Section 4219 of ERISA, would result in such liability) under Sections
4201 or 4243 of ERISA with respect to a Multiemployer Plan, or (y) any
liability under Title IV of ERISA (other than premiums due but not delinquent
under Section 4007 of ERISA) with respect to a Plan, which could, in either
event, reasonably be expected to have a material adverse effect on the
financial condition of Borrower. No application for a funding waiver or an
extension of any amortization period pursuant to Section 412 of the IRC has
been made with respect to any Plan. No ERISA Event has occurred or is
reasonably expected to occur with respect to any Plan which could reasonably
be expected to
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have a material adverse effect on the financial condition of Borrower.
Borrower and each ERISA Affiliate have complied in all material respects with
the notice and continuation coverage requirements of Section 4980B of the IRC.
5.13 Environmental Condition. Except as set forth on Schedule
5.13, none of Borrower's properties or assets has ever been used by Borrower
or, to the best of Borrower's knowledge, by previous owners or operators in
the disposal of, or to produce, store, handle, treat, release, or transport,
any Hazardous Materials. None of Borrower's properties or assets has ever
been designated or identified in any manner pursuant to any environmental
protection statute as a Hazardous Materials disposal site, or a candidate for
closure pursuant to any environmental protection statute. No lien arising
under any environmental protection statute has attached to any revenues or to
any real or personal property owned or operated by Borrower. Borrower has
not received a summons, citation, notice, or directive from the Environmental
Protection Agency or any other federal or state governmental agency
concerning any action or omission by Borrower resulting in the releasing or
disposing of Hazardous Materials into the environment.
5.14 Reliance by Foothill; Cumulative. Each warranty and
representation contained in this Agreement automatically shall be deemed
repeated with each advance or issuance of an L/C or L/C Guaranty and shall be
conclusively presumed to have been relied on by Foothill regardless of any
investigation made or information possessed by Foothill. The warranties and
representations set forth herein shall be cumulative and in addition to any
and all other warranties and representations that Borrower now or hereafter
shall give, or cause to be given, to Foothill.
6. AFFIRMATIVE COVENANTS.
Borrower covenants and agrees that, so long as any credit hereunder
shall be available and until full and final payment of the Obligations, and
unless Foothill shall otherwise consent in writing, Borrower shall do all of
the following:
6.1 Accounting System. Borrower shall maintain a standard and
modern system of accounting in accordance with GAAP with ledger and account
cards or computer tapes, discs, printouts, and records pertaining to the
Collateral which contain information as from time to time may be requested by
Foothill. Borrower also shall keep proper books of account showing all
sales, claims, and allowances on its Inventory.
6.2 Collateral and Financial Reports. Borrower shall deliver to
Foothill, no later than the thirtieth (30th) day of each month during the
term of this Agreement, a detailed aging, by total, of the Accounts, a
reconciliation statement, and a summary aging, by vendor, of all accounts
payable and any book overdraft. Borrower shall deliver to Foothill, as
Foothill may from time to time require, collection reports, sales journals,
bills of lading, and other documentation respecting shipment arrangements.
Absent such a request by Foothill, copies of all such documentation shall be
held by Borrower as custodian for Foothill.
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6.3 Schedules of Accounts. With such regularity as Foothill shall
require, Borrower shall provide Foothill with schedules describing all
Accounts. Foothill's failure to request such schedules or Borrower's failure
to execute and deliver such schedules shall not affect or limit Foothill's
security interests or other rights in and to the Accounts.
6.4 Financial Statements, Reports, Certificates. Borrower agrees
to deliver to Foothill: (a) as soon as available, but in any event within
thirty (30) days after the end of each month (or forty-five (45) days after
the end of fiscal quarter) during each of Borrower's fiscal years, a company
prepared balance sheet, income statement, and cash flow statement covering
Borrower's operations during such period; and (b) as soon as available, but
in any event within ninety (90) days after the end of each of Borrower's
Fiscal Years, financial statements of Borrower for each such Fiscal Year,
audited by independent certified public accountants reasonably acceptable to
Foothill and certified, without any going concern or other material
qualifications, by such accountants to have been prepared in accordance with
GAAP, together with a certificate of such accountants addressed to Foothill
stating that such accountants do not have knowledge of the existence of any
event or condition constituting an Event of Default, or that would, with the
passage of time or the giving of notice, constitute an Event of Default.
Such audited financial statements shall include a balance sheet, profit and
loss statement, and cash flow statement, and, if prepared, such accountants'
letter to management. If Borrower is a parent company of one or more
subsidiaries, or Affiliates, or is a subsidiary or Affiliate of another
company, then, in addition to the financial statements referred to above,
Borrower agrees to deliver financial statements prepared on a consolidating
basis so as to present Borrower and each such related entity separately, and
on a consolidated basis.
Together with the above, Borrower also shall deliver to
Foothill Borrower's Form 10-Q Quarterly Reports, Form 10-K Annual Reports,
and Form 8-K Current Reports, and any other filings made by Borrower with the
Securities and Exchange Commission, if any, as soon as the same are filed, or
any other information that is provided by Borrower to its public
shareholders, and any other report reasonably requested by Foothill relating
to the Collateral and financial condition of Borrower.
Each month, together with the financial statements provided
pursuant to Section 6.4(a), Borrower shall deliver to Foothill a certificate
signed by its chief financial officer to the effect that: (i) all reports,
statements, or computer prepared information of any kind or nature delivered
or caused to be delivered to Foothill hereunder have been prepared in
accordance with GAAP and fairly present the financial condition of Borrower;
(ii) Borrower is in timely compliance with all of its covenants and
agreements hereunder; (iii) the representations and warranties of Borrower
contained in this Agreement and the other Loan Documents are true and correct
in all material respects on and as of the date of such certificate, as though
made on and as of such date (except to the extent that such representations
and warranties relate solely to an earlier date); and (iv) on the date of
delivery of such certificate to Foothill there does not exist any condition
or event that constitutes an Event of Default (or, in each case, to the
extent of any non-compliance, describing such non-compliance as to which he
or she may have knowledge and what action Borrower has taken, is taking, or
proposes to take with respect thereto).
-24-
Borrower shall have issued written instructions to its
independent certified public accountants authorizing them to communicate with
Foothill and to release to Foothill whatever financial information concerning
Borrower that Foothill may request. Borrower hereby irrevocably authorizes
and directs all auditors, accountants, or other third parties to deliver to
Foothill, at Borrower's expense, copies of Borrower's financial statements,
papers related thereto, and other accounting records of any nature in their
possession, and to disclose to Foothill any information they may have
regarding Borrower's business affairs and financial conditions.
6.5 Tax Returns. Borrower agrees to deliver to Foothill copies of
each of Borrower's future federal income tax returns, and any amendments
thereto, within thirty (30) days of the filing thereof with the Internal
Revenue Service.
6.6 Designation of Inventory. Borrower shall now and from time to
time hereafter, but not less frequently than weekly (to be delivered each
Monday based upon the close of business on the preceding Saturday), execute
and deliver to Foothill a designation of Inventory specifying the retail
selling price of Borrower's Inventory, and not less frequently than monthly,
execute and deliver to Foothill a designation of Inventory specifying
Borrower's Cost, and further specifying such other information as Foothill
may reasonably request. Such designation shall separately report Inventory
that is subject to a letter of credit issued by any Person other than
Foothill. Borrower will not include Inventory in transit in its Inventory
reports until such Inventory has been paid for by draws under applicable
letters of credit or has been acquired by Borrower without letter of credit
financing.
6.7 Store Openings and Closings and Rent Reports. Borrower shall
give Foothill reasonable prior notice of new store openings and closing of
its stores. Borrower shall make timely payment of all rents on real property
leases where Borrower is the lessee within applicable grace periods, and
shall provide Foothill with a monthly report specifying the status of such
payments. In the event that Borrower becomes delinquent in its rent
payments, then Foothill can establish reserves against the Borrowing Base for
the amount of any landlord liens arising from such delinquency.
6.8 Landlord Waivers. Borrower will use its best efforts to
obtain landlord waivers from the landlords of its store locations in the
State of Pennsylvania.
6.9 Title to Equipment. Upon Foothill's request, Borrower shall
within thirty (30) days of such request deliver to Foothill, properly
endorsed, any and all evidences of ownership of, certificates of title, or
applications for title to any items of Equipment with a market value of
Twenty Five Thousand Dollars ($25,000) or more other than Equipment leased or
to be leased.
6.10 Maintenance of Equipment. Borrower shall keep and maintain
the Equipment in good operating condition and repair (ordinary wear and tear
excepted), and make all necessary replacements thereto so that the value and
operating efficiency thereof shall at all times be maintained and preserved.
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6.11 Taxes. Except as contested in good faith by Borrower, all
assessments and taxes, whether real, personal, or otherwise, due or payable
by, or imposed, levied, or assessed against Borrower or any of its property
have been paid, and shall hereafter be paid in full, before delinquency or
before the expiration of any extension period. Borrower shall make due and
timely payment or deposit of all federal, state, and local taxes,
assessments, or contributions required of it by law, and will execute and
deliver to Foothill, on demand, appropriate certificates attesting to the
payment thereof or deposit with respect thereto. Borrower will make timely
payment or deposit of all tax payments and withholding taxes required of it
by applicable laws, including those laws concerning F.I.C.A., F.U.T.A., state
disability, and local, state, and federal income taxes, and will, upon
request, furnish Foothill with proof satisfactory to Foothill indicating that
Borrower has made such payments or deposits.
6.12 Insurance.
(a) Borrower, at its expense, shall keep the Collateral
insured against loss or damage by fire, theft, explosion, sprinklers, and all
other hazards and risks, and in such amounts, as are ordinarily insured
against by other owners in similar businesses. Borrower also shall maintain
business interruption, public liability, product liability, and property
damage insurance relating to Borrower's ownership and use of the Collateral,
as well as insurance against larceny, embezzlement, and criminal
misappropriation.
(b) All such policies of insurance shall be in such form,
with such companies, and in such amounts as may be reasonably satisfactory to
Foothill. All such policies of insurance (except those of public liability
and property damage) shall contain a 438BFU lender's loss payable
endorsement, or an equivalent endorsement in a form satisfactory to Foothill,
showing Foothill as sole loss payee thereof, and shall contain a waiver of
warranties, and shall specify that the insurer must give at least ten (10)
days prior written notice to Foothill before canceling its policy for any
reason. Borrower shall deliver to Foothill certified copies of such policies
of insurance and evidence of the payment of all premiums therefor. All
proceeds payable under any such policy shall be payable to Foothill to be
applied on account of the Obligations.
6.13 Financial Covenants. Borrower shall maintain:
(a) Current Ratio. A ratio of Consolidated Current Assets
divided by Consolidated Current Liabilities of at least the following,
measured on a fiscal quarter-end basis:
Quarters During
Fiscal Year
Ratio Ending on or About
----- ------------------
1.0-1.0 October 31, 1997 and
January 31, 1998 only
1.25-1.0 April 30, 1998 through
January 31, 1999
1.50-1.0 April 30, 1999 and thereafter
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(b) Tangible Net Worth. Tangible Net Worth of not less than
the following, measured on a fiscal quarter-end basis:
Tangible Quarters
Net Worth Ending on or About
--------- ------------------
$ 4,000,000 October 31, 1997
11,000,000 January 31, 1998
10,000,000 April 30, 1998
10,000,000 July 31, 1998
20,000,000 October 31, 1998
25,000,000 January 31, 1999
30,000,000 April 30, 1999
30,000,000 July 31, 1999
40,000,000 October 31, 1999
$45,000,000 January 31, 2000 and thereafter
(c) Working Capital. Working Capital of not less than the
following, measured on a fiscal quarter-end basis:
Quarters
Working Capital Ending on or About
--------------- ------------------
$ 9,000,000 October 31, 1997
18,000,000 January 31, 1998
15,000,000 April 30, 1998
15,000,000 July 31, 1998
20,000,000 October 31, 1998
25,000,000 January 31, 1999
25,000,000 April 30, 1999
25,000,000 July 31, 1999
30,000,000 October 31, 1999
$35,000,000 January 31, 2000 and thereafter
6.14 No Setoffs or Counterclaims. All payments hereunder and under
the other Loan Documents made by or on behalf of Borrower shall be made
without setoff or counterclaim and free and clear of, and without deduction
or withholding for or on account of, any federal, state, or local taxes.
6.15 Location of Inventory and Equipment. Borrower shall keep the
Inventory and Equipment only at the locations identified on Schedule 6.15 and
additional locations reported to Foothill in accordance with Section 6.7;
provided, however, that Borrower shall amend Schedule 6.15 not less
frequently than annually. For each new location within the continental
United States, Borrower shall provide any financing statements or fixture
filings necessary to perfect and continue perfected Foothill's security
interests in such assets and also uses its best efforts to provide to
Foothill a landlord's waiver,
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in form and substance satisfactory to Foothill, if such location is in the
State of Pennsylvania or another state where landlords have a right of
distraint upon the tenant's property, to the extent that this does not impede
Borrower's ability to obtain favorable terms from the landlord.
6.16 Compliance with Laws. Borrower shall comply with the
requirements of all applicable laws, rules, regulations, and orders of any
governmental authority, including the Fair Labor Standards Act and the
Americans With Disabilities Act, other than laws, rules, regulations, and
orders the non-compliance with which, individually or in the aggregate, would
not have and could not reasonably be expected to have a material adverse
effect on the business, operations, condition (financial or otherwise),
finances, or prospects of Borrower or on the value of the Collateral to
Foothill.
6.17 Employee Benefits.
(a) Borrower shall deliver to Foothill a written statement by
the chief financial officer of Borrower specifying the nature of any of the
following events and the actions which Borrower proposes to take with respect
thereto promptly, and in any event within ten (10) days of becoming aware of
any of them, and when known, any action taken or threatened by the Internal
Revenue Service, PBGC, Department of Labor, or other party with respect
thereto: (i) an ERISA Event with respect to any Plan; (ii) the incurrence of
an obligation to pay additional premium to the PBGC under Section
4006(a)(3)(E) of ERISA with respect to any Plan; and (iii) any lien on the
assets of Borrower arising in connection with any Plan.
(b) Borrower shall also promptly furnish to Foothill copies
prepared or received by Borrower or an ERISA Affiliate of: (i) at the
request of Foothill, each annual report (Internal Revenue Service Form 5500
series) and all accompanying schedules, actuarial reports, financial
information concerning the financial status of each Plan, and schedules
showing the amounts contributed to each Plan by or on behalf of Borrower or
its ERISA Affiliates for the most recent three (3) plan years; (ii) all
notices of intent to terminate or to have a trustee appointed to administer
any Plan; (iii) all written demands by the PBGC under Subtitle D of Title IV
of ERISA; (iv) all notices required to be sent to employees or to the PBGC
under Section 302 of ERISA or Section 412 of the IRC; (v) all written notices
received with respect to a Multiemployer Plan concerning (x) the imposition
or amount of withdrawal liability pursuant to Section 4202 of ERISA, (y) a
termination described in Section 4041A of ERISA, or (z) a reorganization or
insolvency described in Subtitle E of Title IV of ERISA; (vi) the adoption of
any new Plan that is subject to Title IV of ERISA or Section 412 of the IRC
by Borrower or any ERISA Affiliate; (vii) the adoption of any amendment to
any Plan that is subject to Title IV of ERISA or Section 412 of the IRC, if
such amendment results in a material increase in benefits or Unfunded Benefit
Liability; or (viii) the commencement of contributions by Borrower or any
ERISA Affiliate to any Plan that is subject to Title IV of ERISA or Section
412 of the IRC.
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7. NEGATIVE COVENANTS.
Borrower covenants and agrees that, so long as any credit hereunder
shall be available and until full and final payment of the Obligations,
Borrower will not do any of the following without Foothill's prior written
consent:
7.1 Indebtedness. Create, incur, assume, permit, guarantee, or
otherwise become or remain, directly or indirectly, liable with respect to
any Indebtedness, except:
(a) Indebtedness evidenced by this Agreement;
(b) Indebtedness set forth in the latest financial statements
of Borrower submitted to Foothill on or prior to the Closing Date;
(c) Indebtedness secured by Permitted Liens;
(d) refinancings, renewals, or extensions of Indebtedness
permitted under clauses (b) and (c) of this Section 7.1 (and continuance or
renewal of any Permitted Liens associated therewith) so long as: (i) the
terms and conditions of such refinancings, renewals, or extensions do not
materially impair the prospects of repayment of the Obligations by Borrower,
(ii) the net cash proceeds of such refinancings, renewals, or extensions do
not result in an increase in the aggregate principal amount of the
Indebtedness so refinanced, renewed, or extended, (iii) such refinancings,
renewals, refundings, or extensions do not result in a shortening of the
average weighted maturity of the Indebtedness so refinanced, renewed, or
extended, and (iv) to the extent that Indebtedness that is refinanced was
subordinated in right of payment to the Obligations, then the subordination
terms and conditions of the refinancing Indebtedness must be at least as
favorable to Foothill as those applicable to the refinanced Indebtedness;
(e) Leases, whether operating leases or capital leases of
existing or after acquired Equipment; and
(f) Indebtedness subordinated to the Obligations on terms and
conditions satisfactory to Foothill.
7.2 Liens. Create, incur, assume, or permit to exist, directly or
indirectly, any lien on or with respect to any of its property or assets, of
any kind, whether now owned or hereafter acquired, or any income or profits
therefrom, except for Permitted Liens (including liens that are replacements
of Permitted Liens to the extent that the original Indebtedness is refinanced
under Section 7.1(d) and so long as the replacement liens secure only those
assets or property that secured the original Indebtedness).
-29-
7.3 Restrictions on Fundamental Changes. Without Foothill's prior
written consent, enter into any acquisition, merger, consolidation,
reorganization, or recapitalization, or liquidate, wind up, or dissolve
itself (or suffer any liquidation or dissolution), or convey, sell, assign,
lease, transfer, or otherwise dispose of, in one transaction or a series of
transactions, all or any substantial part of its business, property, or
assets, whether now owned or hereafter acquired, or acquire by purchase or
otherwise all or substantially all of the properties, assets, stock, or other
evidence of beneficial ownership of any Person.
7.4 Extraordinary Transactions and Disposal of Assets. Enter into
any transaction not in the ordinary and usual course of Borrower's business,
including the sale, lease, or other disposition of, moving, relocation, or
transfer, whether by sale or otherwise, of any material portion of Borrower's
properties or assets (other than sales of Inventory to buyers in the ordinary
course of Borrower's business as currently conducted).
7.5 Change Name. Change Borrower's name, FEIN, business
structure, or identity, or add any new fictitious name.
7.6 Guarantee. Without Foothill's prior written consent,
guarantee or otherwise become in any way liable with respect to the
obligations of any third Person except by endorsement or instruments or items
of payment for deposit to the account of Borrower or which are transmitted or
turned over to Foothill.
7.7 Restructure. Make any change in the principal nature of
Borrower's business operations, or the date of its fiscal year.
7.8 Prepayments. Except in connection with a refinancing
permitted by Section 7.1(d), prepay any Indebtedness owing to any third
Person except for the repayment of Borrower's outstanding 12% Senior
Subordinated Notes Due 2002 from net proceeds of the IPO.
7.9 Change of Control. Except for transfers of shares by
Borrower's existing shareholders to members of their immediate family, cause,
permit, or suffer, directly or indirectly, any Change of Control.
7.10 Capital Expenditures. Make any capital expenditure, or any
commitment therefor, where the aggregate amount of such capital expenditures
(other than capital expenditures for the purchase of a new headquarters and
distribution center for Borrower), made or committed for in each fiscal year
ending on or about January 31 for each of the years set forth below is in
excess of the applicable amount set forth below:
Maximum Capital Fiscal Year Ending
Expenditures on or About January 31
--------------- ----------------------
$20,000,000 1998
26,000,000 1999
$32,000,000 2000
7.11 Consignments. Consign any Inventory or sell any Inventory on
bill and hold, sale or return, sale on approval, or other conditional terms
of sale.
7.12 Distributions. Except for: (a) the repurchase of Warrants to
purchase shares of Borrowers Series A Common Stock from net proceeds of the
IPO, and (b) the repayment of $488,000 to Ezra Dabah for his stock
subscription, make any distribution or declare or pay any dividends (in cash)
on, or purchase, acquire, redeem, or retire any of Borrower's capital stock,
of any class, whether now or hereafter outstanding.
-30-
7.13 Accounting Methods. Modify or change its method of accounting
or enter into, modify, or terminate any agreement currently existing, or at
any time hereafter entered into with any third party accounting firm or
service bureau for the preparation or storage of Borrower's accounting
records without said accounting firm or service bureau agreeing to provide
Foothill information regarding the Collateral or Borrower's financial
condition. Borrower waives the right to assert a confidential relationship,
if any, it may have with any accounting firm or service bureau in connection
with any information requested by Foothill pursuant to or in accordance with
this Agreement, and agrees that Foothill may contact directly any such
accounting firm or service bureau in order to obtain such information.
7.14 Advances, Investments and Loans. Make any Investment except:
(a) Investments in cash and cash equivalents;
(b) so long as no Event of Default shall have occurred and be
continuing, or would occur as a consequence thereof, Borrower and its
Subsidiaries may make loans and advances to employees for moving and travel
expenses and other similar expenses, in each case incurred in the ordinary
course of business, and may make loans and advances to directors, officers
and employees, in an aggregate principal amount not to exceed $100,000 at any
time outstanding (determined without respect to any write-down or write-off
of any such loans or advances); and
(c) Investments in existence on the date hereof and so long
as no Event of Default shall have occurred and be continuing, or would occur
as a consequence thereof, extensions, renewals, modifications, restatements
or replacements thereof so long as the aggregate dollar amount of all such
extensions, renewals, modifications, restatements, or replacements does not
exceed the amount of such Investments in existence on the date hereof.
7.15 Transactions with Affiliates. Directly or indirectly enter
into or permit to exist any material transaction with any Affiliate of
Borrower except for: (a) transactions that are in the ordinary course of
Borrower's business, upon fair and reasonable terms, that are fully disclosed
to Foothill, and that are no less favorable to Borrower than would be
obtained in arm's length transaction with a non-Affiliate, (b) the employment
agreement between Borrower and Ezra Dabah, and (c) the advisory agreement
between Borrower and SKM Investors.
7.16 Suspension. Suspend or go out of a substantial portion of its
business.
7.17 Compensation. Pay or accrue fees to outside directors in an
aggregate amount in excess of Fifty Thousand Dollars ($50,000) in any year;
nor pay or accrue total cash compensation, during any year, to officers and
senior management employees (other than newly hired or promoted senior
management employees who are not replacements for current employees) in an
aggregate amount in excess of one hundred fifteen percent (115%) of that paid
or accrued in the prior year, except for payments or accruals pursuant to
Borrower's existing bonus plan, a copy of which as previously been provided
to Foothill. This Section shall be automatically deleted and of no further
force and effect upon the closing of the IPO.
7.18 Use of Proceeds. Use the proceeds of the advances made
hereunder for any purpose other than: (a) to pay transactional fees, costs
and expenses incurred in connection with this Agreement; and (b) consistent
with the terms and conditions hereof, for its lawful and permitted corporate
purposes.
7.19 Change in Location of Chief Executive Office; Inventory and
Equipment with Bailees. Borrower covenants and agrees that it will not,
without thirty (30) days prior written notification to Foothill, relocate its
chief executive office to a new location and so long as, at the time of such
written notification, Borrower provides any financing statements or fixture
filings necessary to perfect and continue perfected Foothill's security
-31-
interests and also provides to Foothill a landlord's waiver in form and
substance satisfactory to Foothill. The Inventory and Equipment shall not at
any time now or hereafter be stored with a bailee, warehouseman, or similar
party without Foothill's prior written consent.
8. EVENTS OF DEFAULT.
Any one or more of the following events shall constitute an event
of default (each, an "Event of Default") under this Agreement:
8.1 If Borrower fails to pay when due and payable or when declared
due and payable, any portion of the Obligations (whether of principal,
interest (including any interest which, but for the provisions of the
Bankruptcy Code, would have accrued on such amounts), fees and charges due
Foothill, reimbursement of Foothill Expenses, or other amounts constituting
Obligations);
8.2 If Borrower fails or neglects to perform, keep, or observe any
term, provision, condition, covenant, or agreement contained in this
Agreement, in any of the Loan Documents, or in any other present or future
agreement between Borrower and Foothill; provided, however, that Borrower's
failure or neglect to comply with Sections 6.2, 6.3, 6.4, 6.5, 6.6, 6.7, 6.9,
6.11, 6.15 and 6.17 shall not constitute an Event of Default hereunder unless
such failure or neglect continues for five (5) days or more;
8.3 If there is a material impairment of the prospect of repayment
of any portion of the Obligations owing to Foothill or a material impairment
of the value or priority of Foothill's security interests in the Collateral;
8.4 If any material portion of Borrower's properties or assets is
attached, seized, subjected to a writ or distress warrant, or is levied upon,
or comes into the possession of any third Person;
8.5 If an Insolvency Proceeding is commenced by Borrower;
8.6 If an Insolvency Proceeding is commenced against Borrower and
any of the following events occur: (a) Borrower consents to the institution
of the Insolvency Proceeding against it; (b) the petition commencing the
Insolvency Proceeding is not timely controverted; (c) the petition commencing
the Insolvency Proceeding is not dismissed within forty-five (45) calendar
days of the date of the filing thereof; provided, however, that, during the
pendency of such period, Foothill shall be relieved of its obligation to make
additional advances or issue additional L/Cs or L/C Guarantees hereunder; (d)
an interim trustee is appointed to take possession of all or a substantial
portion of the properties or assets of, or to operate all or any substantial
portion of the business of, Borrower; or (e) an order for relief shall have
been issued or entered therein;
8.7 If Borrower is enjoined, restrained, or in any way prevented
by court order from continuing to conduct all or any material part of its
business affairs;
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8.8 If a notice of lien, levy, or assessment is filed of record
with respect to any of Borrower's properties or assets by the United States
Government, or any department, agency, or instrumentality thereof, or by any
state, county, municipal, or governmental agency, or if any taxes or debts
owing at any time hereafter to any one or more of such entities becomes a
lien, whether choate or otherwise, upon any of Borrower's properties or
assets and the same is not paid on the payment date thereof;
8.9 If (a) an action or proceeding is brought against Borrower
which is reasonably likely to be decided adversely to Borrower, and such
adverse decision would materially impair the prospect of repayment of the
Obligations or materially impair the value or priority of Foothill's security
interests in the Collateral, or (b) if a judgment or other claim in excess of
Two Hundred Fifty Thousand Dollars ($250,000) becomes a lien or encumbrance
upon any material portion of Borrower's properties or assets and shall remain
outstanding thirty (30) days or longer;
8.10 If there is a default in an agreement involving Indebtedness
of Two Hundred Fifty Thousand Dollars ($250,000), or more, or any material
agreement to which Borrower is a party with one or more third Persons
resulting in a right by such third Persons, irrespective of whether
exercised, to accelerate the maturity of Borrower's obligations thereunder;
8.11 If Borrower makes any payment on account of Indebtedness that
has been contractually subordinated in right of payment to the payment of the
Obligations, except to the extent such payment is permitted by the terms of
the subordination provisions applicable to such Indebtedness or is permitted
by Section 7.8;
8.12 If any material misstatement or misrepresentation exists now
or hereafter in any warranty, representation, statement, or report made to
Foothill by Borrower or any officer, employee, agent, or director of
Borrower, or if any such warranty or representation is withdrawn;
8.13 If the obligation of any guarantor or other third Person under
any Loan Document is limited or terminated by operation of law or by the
guarantor or other third Person thereunder, or any such guarantor or other
third Person becomes the subject of an Insolvency Proceeding; or
8.14 If (a) with respect to any Plan, there shall occur any of the
following which could reasonably be expected to have a material adverse
effect on the financial condition of Borrower: (i) the violation of any of
the provisions of ERISA; (ii) the loss by a Plan intended to be a Qualified
Plan of its qualification under Section 401(a) of the IRC; (iii) the
incurrence of liability under Title IV of ERISA; (iv) a failure to make full
payment when due of all amounts which, under the provisions of any Plan or
applicable law, Borrower or any ERISA Affiliate is required to make; (v) the
filing of a notice of intent to terminate a Plan under Sections 4041 or 4041A
of ERISA; (vi) a complete or partial withdrawal of Borrower or an ERISA
Affiliate from any Plan; (vii) the receipt of a notice by the plan
administrator of a Plan that the PBGC has instituted proceedings to terminate
such Plan or appoint a trustee to administer such Plan; (viii) a commencement
or increase of contributions to, or the adoption of or the amendment of, a
Plan; and (ix) the assessment against Borrower or any ERISA Affiliate of a
tax under Section 4980B of the IRC; or (b) the Unfunded Benefit Liability of
all of the Plans of Borrower and its
33
ERISA Affiliates shall, in the aggregate, exceed Two Hundred Fifty Thousand
Dollars ($250,000).
9. FOOTHILL'S RIGHTS AND REMEDIES.
9.1 Rights and Remedies. Upon the occurrence of an Event of
Default Foothill may, at its election, without notice of its election and
without demand, do any one or more of the following, all of which are
authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this
Agreement, by any of the other Loan Documents, or otherwise, immediately due
and payable;
(b) Cease advancing money or extending credit to or for the
benefit of Borrower under this Agreement, under any of the Loan Documents, or
under any other agreement between Borrower and Foothill;
(c) Terminate this Agreement and any of the other Loan
Documents as to any future liability or obligation of Foothill, but without
affecting Foothill's rights and security interests in the Collateral and
without affecting the Obligations;
(d) Settle or adjust disputes and claims directly with
Account Debtors for amounts and upon terms which Foothill considers
advisable, and in such cases, Foothill will credit Borrower's loan account
with only the net amounts received by Foothill in payment of such disputed
Accounts after deducting all Foothill Expenses incurred or expended in
connection therewith;
(e) Cause Borrower to hold all returned Inventory in trust
for Foothill, segregate all returned Inventory from all other property of
Borrower or in Borrower's possession and conspicuously label said returned
Inventory as the property of Foothill;
(f) Without notice to or demand upon Borrower or any
guarantor, make such payments and do such acts as Foothill considers
necessary or reasonable to protect its security interests in the Collateral.
Borrower agrees to assemble the Collateral if Foothill so requires, and to
make the Collateral available to Foothill as Foothill may designate.
Borrower authorizes Foothill to enter the premises where the Collateral is
located, to take and maintain possession of the Collateral, or any part of
it, and to pay, purchase, contest, or compromise any encumbrance, charge, or
lien that in Foothill's determination appears to conflict with its security
interests and to pay all expenses incurred in connection therewith. With
respect to any of Borrower's owned premises, Borrower hereby grants Foothill
a license to enter into possession of such premises and to occupy the same,
without charge, for up to one hundred twenty (120) days in order to exercise
any of Foothill's rights or remedies provided herein, at law, in equity, or
otherwise;
(g) Without notice to Borrower (such notice being expressly
waived), and without constituting a retention of any collateral in
satisfaction of an obligation (within the
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meaning of Section 9505 of the Code), set off and apply to the Obligations
any and all (i) balances and deposits of Borrower held by Foothill (including
any amounts received in the Lock Boxes), or (ii) indebtedness at any time
owing to or for the credit or the account of Borrower held by Foothill;
(h) Hold, as cash collateral, any and all balances and
deposits of Borrower held by Foothill, and any amounts received in the Lock
Boxes, to secure the full and final repayment of all of the Obligations;
(i) Ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sale, and sell (in the manner provided for
herein) the Collateral. Foothill is hereby granted a license or other right
to use, without charge, Borrower's labels, patents, copyrights, rights of use
of any name, trade secrets, trade names, trademarks, service marks, and
advertising matter, or any property of a similar nature, as it pertains to
the Collateral, in completing production of, advertising for sale, and
selling any Collateral and Borrower's rights under all licenses and all
franchise agreements shall inure to Foothill's benefit;
(j) Sell the Collateral at either a public or private sale,
or both, by way of one or more contracts or transactions, for cash or on
terms, in such manner and at such places (including Borrower's premises) as
Foothill determines is commercially reasonable. It is not necessary that the
Collateral be present at any such sale;
(k) Foothill shall give notice of the disposition of the
Collateral as follows:
(1) Foothill shall give (i) each holder of a security
interest in the Collateral who has filed with Foothill a written request for
notice and (ii) Borrower, a notice in writing of the time and place of public
sale, or, if the sale is a private sale or some other disposition other than
a public sale is to be made of the Collateral, then the time on or after
which the private sale or other disposition is to be made;
(2) The notice shall be personally delivered or mailed,
postage prepaid, to Borrower as provided in Section 12, at least five (5)
days before the date fixed for the sale, or at least five (5) days before the
date on or after which the private sale or other disposition is to be made;
no notice needs to be given prior to the disposition of any portion of the
Collateral that is perishable or threatens to decline speedily in value or
that is of a type customarily sold on a recognized market. Notice to Persons
other than Borrower claiming an interest in the Collateral shall be sent to
such addresses as they have furnished to Foothill;
(3) If the sale is to be a public sale, Foothill also
shall give notice of the time and place by publishing a notice one time at
least five (5) days before the date of the sale in a newspaper of general
circulation in the county in which the sale is to be held;
(l) Foothill may credit bid and purchase at any public sale;
and
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(m) Any deficiency that exists after disposition of the
Collateral as provided above will be paid immediately by Borrower. Any
excess will be returned, without interest and subject to the rights of third
Persons, by Foothill to Borrower.
9.2 Remedies Cumulative. Foothill's rights and remedies under
this Agreement, the Loan Documents, and all other agreements shall be
cumulative. Foothill shall have all other rights and remedies not
inconsistent herewith as provided under the Code, by law, or in equity. No
exercise by Foothill of one right or remedy shall be deemed an election, and
no waiver by Foothill of any Event of Default shall be deemed a continuing
waiver. No delay by Foothill shall constitute a waiver, election, or
acquiescence by it.
10. TAXES AND EXPENSES REGARDING THE COLLATERAL.
If Borrower fails to pay any monies (whether taxes, rents,
assessments, insurance premiums, or otherwise) due to third Persons within
applicable grace periods, or fails to make any deposits or furnish any
required proof of payment or deposit, all as required under the terms of this
Agreement, then, to the extent that Foothill reasonably determines that such
failure by Borrower could have a material adverse effect on Foothill's
interests in the Collateral, in its discretion and without prior notice to
Borrower, Foothill may do any or all of the following: (a) make payment of
the same or any part thereof; (b) set up such reserves in Borrower's loan
account as Foothill deems necessary to protect Foothill from the exposure
created by such failure; or (c) obtain and maintain insurance policies of the
type described in Section 6.12, and take any action with respect to such
policies as Foothill deems prudent. Any such amounts paid by Foothill shall
constitute Foothill Expenses. Any such payments made by Foothill shall not
constitute an agreement by Foothill to make similar payments in the future or
a waiver by Foothill of any Event of Default under this Agreement. Foothill
need not inquire as to, or contest the validity of, any such expense, tax,
security interest, encumbrance, or lien and the receipt of the usual official
notice for the payment thereof shall be conclusive evidence that the same was
validly due and owing.
11. WAIVERS; INDEMNIFICATION.
11.1 Demand; Protest; etc. Borrower waives demand, protest, notice
of protest, notice of default or dishonor, notice of payment and nonpayment,
notice of any default, nonpayment at maturity, release, compromise,
settlement, extension, or renewal of accounts, documents, instruments,
chattel paper, and guarantees at any time held by Foothill on which Borrower
may in any way be liable.
11.2 Foothill's Liability for Collateral. So long as Foothill
complies with its obligations, if any, under Section 9207 of the Code,
Foothill shall not in any way or manner be liable or responsible for: (a)
the safekeeping of the Collateral; (b) any loss or damage thereto occurring
or arising in any manner or fashion from any cause; (c) any diminution in the
value thereof; or (d) any act or default of any carrier, warehouseman,
bailee, forwarding agency, or other Person. All risk of loss, damage, or
destruction of the Collateral shall be borne by Borrower.
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11.3 Indemnification. Borrower agrees to defend, indemnify, save, and
hold Foothill and its officers, employees, and agents harmless against: (a) all
obligations, demands, claims, and liabilities claimed or asserted by any other
Person arising out of or relating to the transactions contemplated by this
Agreement or any other Loan Document, and (b) all losses (including attorneys
fees and disbursements) in any way suffered, incurred, or paid by Foothill as a
result of or in any way arising out of, following, or consequential to the
transactions contemplated by this Agreement or any other Loan Document. This
provision shall survive the termination of this Agreement.
12. NOTICES.
Unless otherwise provided in this Agreement, all notices or demands by
any party relating to this Agreement or any other Loan Document shall be in
writing and (except for financial statements and other informational documents
which may be sent by first-class mail, postage prepaid) shall be personally
delivered or sent by registered or certified mail, postage prepaid, return
receipt requested, or by prepaid telex, TWX, telefacsimile, or telegram (with
messenger delivery specified) to Borrower or to Foothill, as the case may be, at
its address set forth below:
If to Borrower: THE CHILDREN'S PLACE RETAIL STORES, INC.
One Dodge Drive
West Caldwell, New Jersey 07006
Attn.: Mr. Stanley B. Silver, Chief Operating Officer and
Attn.: General Counsel
Telefacsimile No. (201) 808-5637
With copy to: STROOCK & STROOCK & LAVAN LLP
180 Maiden Lane
New York, New York 10038
Attn: Jeffrey S. Lowenthal
Telefacsimile No. (212) 806-6006
If to Foothill: FOOTHILL CAPITAL CORPORATION
11111 Santa Monica Boulevard
Suite 1500
Los Angeles, California 90025-3333
Attn.: Business Finance Division Manager
Telefacsimile No. (310) 479-2690
37
The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other. All notices or demands sent in accordance with this Section 12, other
than notices by Foothill in connection with Sections 9504 or 9505 of the Code,
shall be deemed received on the earlier of the date of actual receipt or three
(3) days after the deposit thereof in the mail. Borrower acknowledges and
agrees that notices sent by Foothill in connection with Sections 9504 or 9505 of
the Code shall be deemed sent when deposited in the mail or transmitted by
telefacsimile or other similar method set forth above.
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
THE VALIDITY OF THIS AGREEMENT, ITS CONSTRUCTION, INTERPRETATION, AND
ENFORCEMENT, AND THE RIGHTS OF THE PARTIES HERETO WITH RESPECT TO ALL MATTERS
ARISING HEREUNDER OR RELATED HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT GIVING
EFFECT TO ITS CONFLICT OF LAWS PRINCIPLES. THE PARTIES AGREE THAT ALL ACTIONS
OR PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT SHALL BE TRIED AND
LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF LOS
ANGELES, STATE OF CALIFORNIA OR, AT THE SOLE OPTION OF FOOTHILL, IN ANY OTHER
COURT IN WHICH FOOTHILL SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH
HAS SUBJECT MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY. EACH OF
BORROWER AND FOOTHILL WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY
RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT
TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION
13. BORROWER AND FOOTHILL HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL
OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN
DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT
CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR
STATUTORY CLAIMS. BORROWER AND FOOTHILL REPRESENT THAT EACH HAS REVIEWED THIS
WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING
CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS
AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
14. DESTRUCTION OF BORROWER'S DOCUMENTS.
All documents, schedules, invoices, agings, or other papers delivered
to Foothill may be destroyed or otherwise disposed of by Foothill four (4)
months after they are delivered
38
to or received by Foothill, unless Borrower requests, in writing, the return of
said documents, schedules, or other papers and makes arrangements, at Borrower's
expense, for their return.
15. GENERAL PROVISIONS.
15.1 Effectiveness. This Agreement shall be binding and deemed
effective when executed by Borrower and Foothill.
15.2 Successors and Assigns. This Agreement shall bind and inure to
the benefit of the respective successors and assigns of each of the parties;
provided, however, that Borrower may not assign this Agreement or any rights or
duties hereunder without Foothill's prior written consent and any prohibited
assignment shall be absolutely void. No consent to an assignment by Foothill
shall release Borrower from its Obligations. Foothill may assign this Agreement
and its rights and duties hereunder and no consent or approval by Borrower is
required in connection with any such assignment. Foothill reserves the right to
sell, assign, transfer, negotiate, or grant participations in all or any part
of, or any interest in Foothill's rights and benefits hereunder. In connection
with any such assignment or participation, Foothill may disclose all documents
and information which Foothill now or hereafter may have relating to Borrower or
Borrower's business. To the extent that Foothill assigns its rights and
obligations hereunder to a third Person, Foothill shall thereafter be released
from such assigned obligations to Borrower and such assignment shall effect a
novation between Borrower and such third Person.
15.3 Section Headings. Headings and numbers have been set forth
herein for convenience only. Unless the contrary is compelled by the context,
everything contained in each section applies equally to this entire Agreement.
15.4 Interpretation. Neither this Agreement nor any uncertainty or
ambiguity herein shall be construed or resolved against Foothill or Borrower,
whether under any rule of construction or otherwise. On the contrary, this
Agreement has been reviewed by all parties and shall be construed and
interpreted according to the ordinary meaning of the words used so as to fairly
accomplish the purposes and intentions of all parties hereto.
15.5 Severability of Provisions. Each provision of this Agreement
shall be severable from every other provision of this Agreement for the purpose
of determining the legal enforceability of any specific provision.
15.6 Amendments in Writing. This Agreement can only be amended by a
writing signed by both Foothill and Borrower.
15.7 Counterparts; Telefacsimile Execution. This Agreement may be
executed in any number of counterparts and by different parties on separate
counterparts, each of which, when executed and delivered, shall be deemed to be
an original, and all of which, when taken together, shall constitute but one and
the same Agreement. Delivery of an executed counterpart of this Agreement by
telefacsimile shall be equally as effective as delivery of a
39
manually executed counterpart of this Agreement. Any party delivering an
executed counterpart of this Agreement by telefacsimile also shall deliver a
manually executed counterpart of this Agreement but the failure to deliver a
manually executed counterpart shall not affect the validity, enforceability,
and binding effect of this Agreement.
15.8 Revival and Reinstatement of Obligations. If the incurrence or
payment of the Obligations by Borrower or any guarantor of the Obligations or
the transfer by either or both of such parties to Foothill of any property of
either or both of such parties should for any reason subsequently be declared to
be void or voidable under any state or federal law relating to creditors'
rights, including provisions of the Bankruptcy Code relating to fraudulent
conveyances, preferences, and other voidable or recoverable payments of money or
transfers of property (collectively, a "Voidable Transfer"), and if Foothill is
required to repay or restore, in whole or in part, any such Voidable Transfer,
or elects to do so upon the reasonable advice of its counsel, then, as to any
such Voidable Transfer, or the amount thereof that Foothill is required or
elects to repay or restore, and as to all reasonable costs, expenses, and
attorneys fees of Foothill related thereto, the liability of Borrower or such
guarantor automatically shall be revived, reinstated, and restored and shall
exist as though such Voidable Transfer had never been made.
15.9 Integration. This Agreement, together with the other Loan
Documents, reflect the entire understanding of the parties with respect to the
transactions contemplated hereby and shall not be contradicted or qualified by
any other agreement, oral or written, before the date hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed in Los Angeles, California.
FOOTHILL CAPITAL CORPORATION,
a California corporation
By
----------------------------------------
Title: Vice President
THE CHILDREN'S PLACE RETAIL STORES, INC.,
a Delaware corporation
By
----------------------------------------
Title: President
40
LIBOR SUPPLEMENT TO AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
This Libor Supplement ("Supplement") is a supplement to the Amended
and Restated Loan and Security Agreement between THE CHILDREN'S PLACE RETAIL
STORES, INC. ("Borrower") and FOOTHILL CAPITAL CORPORATION ("Foothill") dated as
of July 31, 1997 (as amended, the "Agreement"). This Supplement is: (a) hereby
incorporated into the Agreement; (b) made a part thereof; and (c) subject to the
other terms, conditions, covenants and warranties thereof. All terms (including
capitalized terms) used herein shall have the meanings ascribed to them
respectively in the Agreement, unless otherwise defined in this Supplement.
1. DEFINITIONS. The following terms shall have the meanings set
forth below:
"ADJUSTED LIBOR RATE" means, for any Interest Period, the rate
per annum (rounded upwards, if necessary, to the next 1/16 of 1%) determined
pursuant to the following formula:
Adjusted = Libor Rate
------------------------------
Libor Rate 1-Reserve Percentage
For purposes hereof, "LIBOR RATE" means the one month London Interbank Offered
Rate set in London two Business days prior to the commencement of each Interest
Period as published in The Wall Street Journal.
"BUSINESS DAY" means a day on which banks in California are open
for the transaction of business.
"BUSINESS DAY IN LONDON" means a day which is a Business Day and
a day on which banks in London, England are open for the transaction of banking
business.
"FUNDING LOSSES" has the meaning set forth in SECTION 3(B)
hereof.
"INTEREST PERIOD' means, with respect to that portion of the
Loans bearing interest based on the Adjusted Libor Rate, a period of one month
duration; PROVIDED, HOWEVER, that: (a) if any Interest Period would otherwise
end on a day which shall not be a Business Day in London, such Interest Period
shall be extended to the next succeeding Business Day in London, subject to
clauses (c)-(e) below; (b) interest shall accrue from and including the first
day of each Interest Period to, but excluding, the day on which any Interest
Period expires; (c) any Interest Period which would otherwise end on a day which
is not a Business Day in London shall be extended to the next succeeding
Business Day in London unless such Business Day in London falls in another
calendar
41
month, in which case such Interest Period shall end on the next preceding
Business Day in London; (d) with respect to an Interest Period which begins on
the last Business Day in London of a calendar month (or on a day for which there
is no numerically corresponding day in the calendar month at the end of such
Interest Period), the Interest Period shall end on the last Business Day in
London of the calendar month which is one month after the date on which the
Interest Period began, as applicable and (e) Borrower may not elect an Interest
Period which will end after the Maturity Date.
"LIBOR DEADLINE" has the meaning set forth in SECTION 3(A)
hereof.
"LIBOR OPTION" has the meaning set forth in SECTION 2 hereof.
"LOAN" or "LOANS" means Borrower's Obligations to Foothill that
arise under the Agreement.
"MATURITY DATE" means, at the time of selection of an Interest
Period, the last day of the then current term of the Agreement.
"RESERVE PERCENTAGE" means, on any day, the percentage (expressed
as a decimal) prescribed by the Board of Governors of the Federal Reserve System
(or any successor or any other banking authority to which federal or state
chartered banks are subject, including any board or governmental or
administrative agency of the United States or any other jurisdiction to which
banks are subject), for determining the reserve requirement (including without
limitation any basic, supplemental, marginal or emergency reserves) which is or
would be applicable to deposits of United States Dollars in a non-United States
or an international banking office of a bank used to fund a loan subject to an
Adjusted Libor Rate or any loan made with the proceeds of such deposit. The
Adjusted Libor Rate shall be adjusted on and as of the effective day of any
change in the Reserve Percentage.
2. INTEREST AND INTEREST PAYMENT DATES. In lieu of having charged
based upon the Reference Rate, Borrower shall have the option (the "Libor
Option") to have interest on a portion of its Loans be charged based on the
Adjusted Libor Rate. For purposes hereof, interest "based on the Adjusted Libor
Rate" shall mean interest at the Adjusted Libor Rate PLUS 2.0% per annum;
PROVIDED, HOWEVER, that during any calendar month in which the Borrower's EBITDA
(for the most recent 12 months) is at least $20,000,000, "based on the Adjusted
Libor Rate" shall mean interest at the Adjusted Libor Rate PLUS 1.50% per annum.
Interest on that portion of the Loans bearing interest based on the Adjusted
Libor Rate ("Adjusted Libor Rate Loans") shall be payable on the last day of
each month and on the last day of each Interest Period and may, at Foothill's
option, be charged directly to Borrower's loan account maintained by Foothill.
Interest based on the Adjusted Libor Rate shall be calculated for each month (or
portion thereof) based on the number of days elapsed and a year of 360 days. On
and after the date of any Event of Default or termination or non-renewal of the
Agreement, interest on all outstanding Adjusted
42
Libor Rate Loans shall accrue at a rate equal to two percent per annum in excess
of the pre-default rate set forth above from the date of such Event of Default
or termination or non-renewal until the end of the Interest Period, and all such
interest accruing hereunder shall thereafter be payable on demand. Upon
expiration of the Interest Period, or earlier at Foothill's option following an
Event of Default or termination or non-renewal of the Agreement, and until
Borrower's subsequent permitted exercise, if any, of the Libor Option, all Loans
shall accrue interest in accordance with SECTION 2.3 of the Agreement. In no
event shall charges constituting interest, payable by Borrower under this
Supplement, exceed the rate permitted under any applicable law or regulation,
and if any part or provision of this Supplement is in contravention of any such
law or regulation, such part or provision shall be deemed amended to conform
thereto.
3. LIBOR ELECTION.
(a) Borrower may, at any time prior to an Event of Default or
termination or non-renewal of the Agreement, exercise the Libor Option by
Notifying Foothill prior to 3:00 p.m. (Los Angeles time) at least three Business
Days in London prior to the commencement of the proposed Interest Period (the
"Libor Deadline"). Notice of Borrower's election of the Libor Option for a
permitted portion of the Loans and an Interest Period pursuant to this SECTION 3
shall be made by delivery to Foothill of a Libor Notice in a form reasonably
requested by Foothill via facsimile teletransmission received by Foothill before
the Libor Deadline, or by telephonic notice received by Foothill before the
Libor Deadline (to be confirmed by facsimile teletransmission to Foothill of the
Libor Notice to be received by Foothill prior to 5:00 p.m. (Los Angeles time) on
the same day; PROVIDED, HOWEVER, that Borrower's failure to deliver such
confirming Libor Notice shall not affect the applicability of such rate if
Borrower's election is implemented by Foothill).
(b) Each Libor Notice pursuant to this SECTION 3 shall be
irrevocable and binding on Borrower. In connection with the Adjusted Libor Rate
Loans, Borrower shall indemnify Foothill against a loss, cost or expense
incurred by Foothill as a result of any failure to fulfill on or before the date
specified in the Libor Notice, the applicable conditions set forth herein or the
termination prior to the end of an Interest Period of the applicability of
interest based on the Adjusted Libor Rate, as provided hereunder, including,
without limitation, any loss (including loss of anticipated profits), cost or
expense incurred by reason of the liquidation or reemployment of deposits or
other funds acquired or committed to be acquired by Foothill or its participants
to fund the requested Adjusted Libor Rate Loans which, as a result of such
failure, are not so employed on such date (such losses, costs, and expenses,
collectively "Funding Losses").
(c) Borrower shall only have two Interest Periods in existence
at any given time. Borrower may only exercise the Libor Option for Adjusted
Libor Rate Loans of at least $500,000 and integral multiples of $500,000 in
excess thereof. The maximum amount of Adjusted Libor Rate Loans at any given
time shall not exceed 90% of the projected average daily balance of the Loans
for the Interest Period in question as
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determined by Foothill, based upon information furnished by Borrower, but
without creating any obligation on Foothill's part to make any Loans available
other than on the terms and conditions set forth in the Agreement.
4. PREPAYMENTS.
(a) Borrower may elect to prepay any Adjusted Rate Loans only on
the last day of the applicable Interest Period, PROVIDED, that in the event of
the prepayment of any such Loans, including any automatic prepayment through
required application by Foothill of proceed of Accounts and other Collateral
received by Foothill,on a date other than the last day of an Interest Period for
any reason, including, without limitation, acceleration pursuant to SECTION 4(B)
hereof or pursuant to the Agreement, Borrower shall indemnify Foothill for
Funding Losses which may arise in connection with such prepayment.
Notwithstanding anything to the contrary contained herein, if the outstanding
Loans are reduced below the balance of the outstanding Adjusted Libor Rate by
virtue of automatic prepayment from proceeds of Accounts and other collateral,
then Foothill will automatically make an advance to Borrower so that the
outstanding Loans will equal the outstanding Adjusted Libor Rate Loans so long
as Borrower has sufficient borrowing availability under the formulas set forth
in the Agreement and subject to the reserves and applicable sublimits
thereunder.
(b) In the event that the aggregate amount with respect to which
the Borrower has exercised the Libor Option exceeds the amount of Loans actually
outstanding at any time, or in the event that the Adjusted Libor Rate Loans
shall at any time exceed the amounts of Loans under the Agreement which Foothill
determines are available under the lending formulas and subject to reserves, the
definitions of Maximum Credit and Maximum Revolving Credit and applicable
sublimits, all as set forth in the Agreement, then, in addition to all other
rights and remedies to Foothill, Foothill may, at its option, require that such
Adjusted Libor Rate Loans cease to accrue based on the Adjusted Libor Rate. In
such event, the Adjusted Libor Rate Loans will bear interest as provided in
SECTION 2.5(A) of the Agreement, and Borrower shall indemnify Foothill for
Funding Losses which may arise in connection with the termination of
applicability of interest based on the Adjusted Libor Rate.
5. SPECIAL PROVISIONS APPLICABLE TO ADJUSTED LIBOR RATE.
(a) The Adjusted Libor Rate may be automatically adjusted by
Foothill on a prospective basis to take into account the additional or increased
cost to Foothill of maintaining any necessary reserves for Eurodollar deposits
or increased costs due to change in applicable law occurring subsequent to the
commencement of the then applicable Interest Period, including but not limited
to changes in tax laws (except changes of general applicability in corporate
income tax laws) and changes in the reserve requirements imposed by the Board of
Governors of the Federal Reserve System (or any successor), excluding the
Reserve Percentage, that increase or would increase the costs of
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funding loans bearing interest based on the Adjusted Libor Rate. Foothill shall
give Borrower's notice of such determination and adjustment and Borrower may, by
notice to Foothill: (i) require Foothill to furnish to Borrower a statement
setting forth the basis for adjusting such Adjusted Libor Rate and the method
for determining the amount of such adjustment; and/or (ii) repay the Adjusted
Libor Rate Loans, or portions thereof, with respect to which such adjustment is
made, as appropriate.
(b) In the event that any change in circumstances or any law,
regulation, treaty or directive, or any change therein or the interpretation of
application thereof, shall at any time after the date hereof, in the reasonable
opinion of Foothill, make it unlawful or impractical for Foothill to fund or
maintain an Adjusted Libor Loan or to continue such funding or maintaining or to
determine or change interest rates based on the Adjusted Libor Rate, Foothill
shall give notice of such circumstances to the Borrower and (i) in the case of
any Adjusted Libor Rate Loans which are outstanding, the date specified in
Foothill's notice shall be deemed to be the last day of the Interest Period of
such Adjusted Libor Rate Loans, and interest upon the Adjusted Libor Loans then
outstanding shall thereafter accrue as provided in SECTION 2.5(A) of the
Agreement, and (ii) Foothill shall not be obligated to permit Borrower to elect
the Libor Option as to any Loan until Foothill determines that it would no
longer be unlawful or impractical to do so.
6. NO REQUIREMENT FOR MATCHED FUNDING. Notwithstanding anything to
the contrary contained in this Supplement, neither Foothill nor any participant
is required to actually acquire United States dollar deposits on the London
Interbank Market to fund or otherwise match fund any Loans as to which interest
accrues based on the Adjusted Libor Rate. Provisions of SECTION 4 of this
Supplement shall apply as if Foothill and/or its participants had match funded
any Loans as to which interest is accruing based on the Adjusted Libor Rate by
acquiring United States dollar deposits in the London Interbank Market for each
Interest Period in the amount of the Adjusted Libor Rate Loan. Funding
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Losses of Foothill under this Supplement shall include the aggregate Funding
Losses of Foothill and its participants in the Adjusted Libor Rate Loans.
IN WITNESS WHEREOF, this Supplement has been executed as of July 31,
1997.
THE CHILDREN'S PLACE RETAIL STORES, INC.,
a Delaware corporation
By_____________________________________________________
Title__________________________________________________
FOOTHILL CAPITAL CORPORATION,
a California corporation
By_____________________________________________________
Title__________________________________________________
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