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EXECUTION COPY
EXHIBIT 10.7[7][b]
AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
Dated as of March 31, 1995
between
LEWIS GALOOB TOYS, INC.
500 Forbes Boulevard
South San Francisco, CA 94080
and
CONGRESS FINANCIAL CORPORATION (CENTRAL)
100 South Wacker Drive
Chicago, Illinois 60606
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TABLE OF CONTENTS
Page
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SECTION 1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Interrelationship with the Original Agreement . . . . . . . . . . . . . . . 18
SECTION 2. LOANS; TERM; EARLY TERMINATION . . . . . . . . . . . . . . . . . . . . . . 18
2.1 Revolving Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.2 Loan Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.3 Maximum Loan Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.4 Amounts Charged to Debtor's Account; Place of Payment . . . . . . . . . . . 20
2.5 Term of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.6 Early Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 3. INTEREST AND FEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.1 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.2 Default Interest Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.3 Interest Calculation . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.4 Unused Line Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.5 Management Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.6 Closing Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.7 Maximum Credit Increase Fee . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 4. LETTER OF CREDIT FACILITY . . . . . . . . . . . . . . . . . . . . . . . . 23
4.1 Letter of Credit Facility . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.2 Letter of Credit Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.3 Letter of Credit Risks . . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.4 Letter of Credit Claims . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 5. SECURITY INTEREST AND COLLATERAL . . . . . . . . . . . . . . . . . . . . . 25
5.1 Grant of Security Interest . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 6. COLLECTION AND ADMINISTRATION OF ACCOUNTS AND CASH
MANAGEMENT RELATIONSHIPS . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.1 Collection by Debtor . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.2 Rights of Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.3 Reclaimed Goods; Account Adjustments . . . . . . . . . . . . . . . . . . . 27
6.4 Lockboxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 7. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . 28
7.1 Collateral Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.2 Location of Records. . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.3 Representations as to Eligible Accounts . . . . . . . . . . . . . . . . . . 29
7.4 Investigations and Litigation . . . . . . . . . . . . . . . . . . . . . . . 29
7.5 Non-Contravention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.6 Corporate Organization; Foreign Qualification; Subsidiaries . . . . . . . . 30
7.7 Use of Corporate Name . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.8 No Default Under Other Contracts . . . . . . . . . . . . . . . . . . . . . 30
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7.9 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.10 Adequate Licenses, Patents, etc. . . . . . . . . . . . . . . . . . . . . 30
7.11 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.12 Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.13 Environmental . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.14 Representations as to Inventory and Equipment . . . . . . . . . . . . . 31
7.15 Location of Cash Accounts . . . . . . . . . . . . . . . . . . . . . . . 32
7.16 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.17 Internal Controversies . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 8. COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
8.1 Financial Information; Maintenance of Forms . . . . . . . . . . . . . . 33
8.2 Payment of Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.3 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.4 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.5 Sale of Assets; Preservation of Corporate Existence . . . . . . . . . . 35
8.6 Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
8.7 Liability for Indebtedness of Third Parties . . . . . . . . . . . . . . 36
8.8 Officer Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . 36
8.9 Redemption of Capital Stock; Dividends . . . . . . . . . . . . . . . . . 36
8.10 Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . 37
8.11 Payment on Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . 37
8.12 Amendment of Articles of Incorporation . . . . . . . . . . . . . . . . . 37
8.13 Maintenance of Liability and Casualty Insurance . . . . . . . . . . . . 37
8.14 Litigation; Contested Taxes . . . . . . . . . . . . . . . . . . . . . . 38
8.15 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
8.16 Environmental . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
8.17 Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
8.18 Notices of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
8.19 Maintenance of Records of Accounts . . . . . . . . . . . . . . . . . . . 42
8.20 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
8.21 Covenants as to Inventory and Equipment . . . . . . . . . . . . . . . . 42
8.22 Financial Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . 44
(a) Consolidated Tangible Net Worth . . . . . . . . . . . . . . . . . . . 44
(b) Capital Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . 44
8.23 Loan Agreement as Financing Statement . . . . . . . . . . . . . . . . . 44
8.24 Location and Use of Collateral . . . . . . . . . . . . . . . . . . . . . 44
8.25 Location of Chief Executive Office . . . . . . . . . . . . . . . . . . . 44
SECTION 9. CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . . . . 44
9.1 Conditions Precedent to Rollover Advance . . . . . . . . . . . . . . . . 44
9.2 Conditions Precedent to All Advances . . . . . . . . . . . . . . . . . . 46
SECTION 10. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
10.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
10.2 Effect of Event of Default; Remedies . . . . . . . . . . . . . . . . . . 49
10.3 Possession of Collateral by Judicial Process . . . . . . . . . . . . . . 49
10.4 Notice of Public Sale . . . . . . . . . . . . . . . . . . . . . . . . . 49
10.5 Net Cash Proceeds Deficiency or Excess . . . . . . . . . . . . . . . . . 49
10.6 Remedies Not Exclusive . . . . . . . . . . . . . . . . . . . . . . . . . 50
10.7 No Waiver of Remedies . . . . . . . . . . . . . . . . . . . . . . . . . 50
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10.8 Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
10.9 Additional Remedies in Respect of Inventory . . . . . . . . . . . . . . 50
SECTION 11. TAXES; EXPENSES; INDEMNITY . . . . . . . . . . . . . . . . . . . . . . 51
11.1 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
11.2 General Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
11.3 Capital Adequacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
11.4 Benefits of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 12. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
12.1 GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL;
WAIVER OF DAMAGES . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
12.2 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
12.3 Modification of Agreement . . . . . . . . . . . . . . . . . . . . . . . 55
12.4 Reimbursement for Congress' Costs . . . . . . . . . . . . . . . . . . . 55
12.5 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
12.6 Power of Attorney . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
12.7 Waiver of Notice, Hearing and Bond . . . . . . . . . . . . . . . . . . 57
12.8 Advice of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
12.9 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
12.10 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
12.11 Participations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
12.12 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
12.13 No Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . 59
12.14 Existing Agreements Superseded . . . . . . . . . . . . . . . . . . . . 59
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Schedules
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Page
Schedule 1.1(a) - Description of Headquarters Property
Schedule 1.1(b) - Certain Permitted Indebtedness
Schedule 1.1(c) - Galco Investment
Schedule 1.1(d) - Inactive Subsidiaries
Schedule 7.2 - Location of Offices and Records
Schedule 7.4 - Investigations and Litigation
Schedule 7.6 - Subsidiaries
Schedule 7.9 - Compliance with Laws
Schedule 7.10 - Licenses
Schedule 7.11(a) - ERISA Matters
Schedule 7.11(b) - Multi-Employer Plans
Schedule 7.13 - Environmental Matters
Schedule 7.14(b) - Locations of Collateral
Schedule 7.15 - Locations of Cash Accounts
Schedule 8.4 - Certain Permitted Liens
Schedule 8.6 - Certain Permitted Investments
Schedule 8.7 - Accommodation Obligations
Schedule 8.8 - Officer's Compensation
Schedule 8.15 - Funding Deficiencies
Schedule 9.1(b)(ii) - Form of Amended and Restated Revolving Note
Schedule 9.1(b)(vi) - UCC Search Results
Schedule 9.1(b)(vii) - Form of Debtor Secretary's Certificate
Schedule 9.1(b)(viii) - Form of Closing Certificate
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AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
THIS AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT dated as
of March 31, 1995 (as the same may be modified, amended, extended, restated or
supplemented from time to time, this "Agreement") is entered into by and
between LEWIS GALOOB TOYS, INC., a Delaware corporation ("Debtor"), whose
principal place of business is located at 500 Forbes Boulevard, South San
Francisco, California 94080, and CONGRESS FINANCIAL CORPORATION (CENTRAL), an
Illinois corporation ("Congress"), having an office at 100 South Wacker Drive,
Suite 1940, Chicago, Illinois 60606, AMENDS AND RESTATES IN FULL the Loan and
Security Agreement dated as of April 1, 1993, among the Debtor and Congress, as
previously amended by that certain First Amendment dated as of November 17,
1993 (such agreement, as so amended, the "Original Agreement").
W I T N E S S E T H:
WHEREAS, the Debtor and Congress entered into the Original
Agreement pursuant to which the Debtor obtained from Congress a $40,000,000
revolving credit facility for the purposes indicated therein;
WHEREAS, the Debtor and Congress desire to amend and restate
the Original Agreement in full as set forth herein;
WHEREAS, the Debtor has requested that Congress enter into
this Agreement in order to continue to make Revolving Loans to the Debtor in an
aggregate amount of up to $60,000,000 and to provide Letters of Credit to the
Debtor in order to refinance the existing indebtedness under the Original
Agreement and to continue to obtain revolving loans and advances to provide for
its letter of credit and ongoing working capital requirements;
WHEREAS, it is the intent of the Debtor and Congress that this
Agreement amend and restate in its entirety the Original Agreement and that,
from and after the date hereof, the Original Agreement shall be of no force and
effect except to evidence the terms and conditions under which the Debtor
heretofore has incurred obligations and liabilities to Congress as evidenced by
the Original Agreement and Congress' books and records.
WHEREAS, this Agreement is made in renewal, amendment,
restatement and modification of the obligations under the Original Agreement;
NOW, THEREFORE, in consideration of the premises, the mutual
covenants set forth herein, and for other good and
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valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Debtor and Congress agree as follows:
SECTION 1. DEFINITIONS.
1.1 Definitions. All terms used herein which are defined in
Article 1 or Article 9 of the Illinois Uniform Commercial Code (the "UCC")
shall have the meanings given therein, unless otherwise defined in this
Agreement, and all references to the plural shall also mean the singular. Any
accounting term used herein and not specifically defined herein shall have the
meaning customarily given to such term in accordance with GAAP. When used
herein, the following terms shall have the following meanings:
"Accommodation Obligation" of any Person shall mean any direct
or indirect guaranty or other contractual obligation, contingent or otherwise,
of such Person with respect to any Indebtedness or other obligation or
liability of another, including any such Indebtedness, obligation or liability
directly or indirectly guaranteed, endorsed (other than for collection or
deposit in the ordinary course of business), co-made or discounted or sold with
recourse by such Person, or in respect of which such Person is otherwise
directly or indirectly liable, including any contractual obligations
(contingent or otherwise) arising through any agreement to purchase,
repurchase, or otherwise acquire such Indebtedness, obligation or liability or
any security therefor, or to provide funds for the payment or discharge thereof
(whether in the form of loans, advances, stock purchases, capital contributions
or otherwise), or to maintain solvency, assets, level of income, or other
financial condition.
"Account Debtor" shall mean each account debtor or obligor in
any way obligated on or in connection with any Account.
"Accounts" shall mean all of Debtor's present and future
accounts, as such term is defined in the UCC, including, without limitation,
all obligations for the payment of money arising out of Debtor's sale, lease or
other disposition of goods or other property or rendition of services.
"Acquisition" shall mean the Debtor's acquisition of all of
the capital stock or assets of another company in the same or similar line of
business as the Debtor, which acquisition shall be subject to the conditions
set forth in the definition of "Permitted Investments" set forth herein.
"Advance" shall mean any loan or extension of credit by
Congress pursuant to the Loan Documents, including the face amount of any
Letter of Credit issued pursuant to Section 4.1 hereof.
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"Affiliate" shall mean any Person (i) that directly or
indirectly, through one or more intermediaries, controls or is controlled by,
or is under common control with Debtor, other than officers and directors of
Debtor, unless any such officer or director satisfies clause (ii) below, (ii)
that directly or beneficially owns or holds thirty-five percent (35%) or more
of any class of the voting stock of Debtor or (iii) thirty-five percent (35%)
or more of whose voting stock equity interests are owned directly or
beneficially or held by Debtor. Nothing herein shall be deemed to constitute
an agreement by the Debtor with respect to the definition of "Affiliate" for
the purposes of the securities laws of the United States.
"Agreement" shall have the meaning set forth in the preamble
to this Agreement.
"Availability Report" shall mean with respect to any date, a
borrowing base certificate of the chief financial officer or any controller of
Debtor in such form as Congress may prescribe from time to time, certifying,
among other things, (i) a schedule of Debtor's calculation of the Net Amount of
Eligible Accounts and (ii) a schedule of Debtor's calculation of the Value of
Eligible Inventory, in each case, giving effect to all objectively determinable
standards of eligibility known by the Debtor to be in effect (which
calculations shall not be binding on Congress).
"Bankruptcy Code" shall mean Title 11 of the United States
Code (11 U.S.C. Section 101 et seq.) as amended from time to time, and any
successor statute.
"Benefit Plan" shall mean any employee benefit plan as defined
in Section 3(3) of ERISA, other than a Multiemployer Plan, which is subject to
Title IV of ERISA and in respect of which Debtor, or any ERISA Affiliate of
Debtor, is, or at any time during the immediately preceding five years was, an
"employer" (as defined in Section 3(5) of ERISA).
"Business Day" shall mean any day other than a Saturday,
Sunday or public holiday or the equivalent for banks in Chicago, Illinois or
New York, New York.
"Capital Lease" shall mean any lease which is or should be
capitalized on the balance sheet of lessee in accordance with GAAP.
"Cash Equivalents" shall mean (i) securities issued,
guaranteed or insured by the United States or any of its agencies with
maturities of not more than one year from the date acquired, (ii) certificates
of deposit with maturities of not more than one year from the date acquired
issued by a U.S. federal or state chartered commercial bank of recognized
standing, which has capital and unimpaired surplus in excess of $200,000,000
and
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which bank or its holding company has a short term commercial paper rating of
at least A-2 or the equivalent by Standard & Poor's Corporation or at least P-2
or the equivalent by Moody's Investors Services, Inc., (iii) commercial paper
or finance company paper issued by any Person incorporated under the laws of
the United States or any state thereof and rated at least A-2 or the equivalent
by Standard & Poor's Corporation or at least P-2 or the equivalent by Moody's
Investors Services, Inc., in each case with maturities of not more than one
year from the date acquired, (iv) investments in money market funds registered
under the Investment Company Act of 1940, which have net assets of at least
$200,000,000 and at least eighty five percent (85%) of whose assets consist of
securities and other obligations of the type described in clauses (i) through
(iii) above, and (v) interest bearing or time deposits which are insured by the
Federal Deposit Insurance Corporation or a similar federal insurance program;
provided, however, that the Debtor may, in the ordinary course of its business,
maintain in its disbursement accounts from time to time amounts in excess of
such then applicable program insurance limits.
"Change in Control" shall mean one or more of the following
events:
(a) less than a majority of the members of the Debtor's board
of directors (other than members of the Board of Directors elected by holders
of the Debtor's preferred stock) shall be persons (i) who were serving as
directors on the Closing Date or (ii) who are elected or nominated for election
after the Closing Date by at least a majority of directors who comprised the
Board of Directors as of the date of such election or nomination; or
(b) the stockholders of the Debtor shall approve any plan or
proposal for the liquidation or dissolution of the Debtor; or
(c) a Person or group of Persons acting in concert (other
than the direct or indirect beneficial owners of the capital stock of the
Debtor as of the Closing Date) shall, as a result of a tender or exchange
offer, open market purchases, privately negotiated purchases or otherwise, have
become the direct or indirect beneficial owner (within the meaning of Rule
13d-3 under the Securities Exchange Act of 1934, as amended from time to time)
of securities of the Debtor representing more than thirty- five percent (35%)
of the combined voting power of the outstanding voting securities for the
election of directors or shall have the right to elect a majority of the Board
of directors of the Debtor.
"Closing Date" shall mean the first date on which all of the
conditions to Congress' obligation to make the Rollover Advance have been
satisfied.
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"Collateral" shall have the meaning set forth in Section 5.1
hereof.
"Collections" shall mean all cash, checks, remittances and
other cash proceeds of Collateral or other property received by or payable to
or in respect of Debtor.
"Consolidated Tangible Net Worth" shall mean, as of any date,
(a) the excess of the Debtor's total assets over its total liabilities (other
than any Indebtedness under the Convertible Subordinated Debentures), as
determined in accordance with GAAP on a consolidated basis, less (b) the value
of all intangible assets as defined by GAAP including, without limitation,
goodwill, organization costs, patents, trademarks, copyrights, franchises,
research and development expenses, and any amount reflected as treasury stock.
"Convertible Subordinated Debentures" shall mean the Debtor's
$14,000,000 principal amount of 8.0% Convertible Subordinated Debentures due
2000 issued pursuant to the Convertible Subordinated Debenture Indenture.
"Convertible Subordinated Debenture Indenture" shall mean the
indenture governing the Convertible Subordinated Debentures, dated as of
November 17, 1993, from the Debtor to Continental Stock Transfer & Trust
Company, as Trustee.
"Credit Reserve" shall mean on any day (a "Measurement Day"):
(A) during the period commencing August 1 of each year and
ending on the last day of December of such year an amount equal to the lesser
of:
(i) $3,000,000, or such greater amount as Congress
shall determine is necessary in the exercise of its Permitted
Discretion based upon, among other things, a review of the actual
level of Cumulative Daily Sales during such period, and
(ii) the sum of (a) five percent (5%) of Cumulative
Daily Sales through the day immediately preceding such Measurement Day
less (b) the Cumulative Daily Credits through the day immediately
preceding such Measurement Day, or such greater amount as Congress
shall determine in the exercise of its Permitted Discretion; or
(B) during the period commencing January 1 of each year and
ending on the last day of July of such year an amount equal to the Credit
Reserve in effect as of December 31 as calculated pursuant to clause (A) above
as such amount may be reduced by Congress from time to time in the exercise of
its Permitted
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Discretion based upon a review of the level of actual credits against
the Eligible Accounts;
provided, however, that at no time during the year shall the amount of the
Credit Reserve as calculated pursuant to clause (A) or (B) above be less than
$1,000,000 or such other amount as Congress shall determine from time to time
in the exercise of its Permitted Discretion.
"Cumulative Daily Credits" shall mean on any day during the
period commencing December 1 and ending December 31, the aggregate amount of
domestic non-cash credits or reductions of Accounts during such period through
such day.
"Cumulative Daily Sales" shall mean on any day during the
period commencing August 1 and ending on the immediately succeeding November
30, the aggregate amount of domestic non-cash sales during such period through
such day.
"Customer Sales Reports" shall mean the retail tracking
reports generated by the Debtor from information received from Toys-R-Us and
other retail customers detailing such retail customer's (i) inventory stock
status of the Debtor's products and (ii) sales of the Debtor's products.
"Eligible Accounts" shall mean Accounts created by Debtor in
the ordinary course of business arising out of Debtor's sale of goods or
rendition of services, which are and at all times shall continue to be
acceptable to Congress in all respects. Standards of eligibility may be fixed
and revised from time to time solely by Congress in the exercise of its
Permitted Discretion, based upon the information then available to Congress.
In determining eligibility, Congress may, but need not, rely on agings, reports
and schedules of Accounts furnished by Debtor, but reliance by Congress thereon
from time to time shall not be deemed to limit Congress' right to revise
standards of eligibility at any time as to both Debtor's present and future
Accounts in accordance with the terms hereof. In general, an Account shall not
be deemed eligible unless: (a) the Account Debtor on such Account is and at all
times continues to be acceptable to Congress, (b) such Account complies in all
respects with the representations, covenants and warranties hereinafter set
forth, and (c) no more than 120 days have elapsed since the invoice date of
such Account and no more than 30 days have elapsed since the original due date
of such Account; provided, however, that (i) upon the written request of the
Debtor, Congress may, in the exercise of its Permitted Discretion, from time to
time, elect to include as an Eligible Account an Account where more than 120
days but less than 151 days have elapsed since the invoice date of such
Account, (ii) Congress will not treat Accounts owing by Toys-R-Us or Kay-bee
Toys which are subject to December 10 dating terms as ineligible by virtue of
such Account's failure to meet the foregoing condition contained
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in clause (c) hereof and (iii) Congress may, in the exercise of its Permitted
Discretion, upon the written request of the Debtor, approve as Eligible
Accounts December 10 dating terms from other Account Debtors from time to time.
In addition, without limiting the generality of Congress' Permitted Discretion
in determining eligibility, the following Accounts shall be deemed to be
ineligible:
(a) Accounts with respect to which the Account Debtor is a
director, officer, employee, Subsidiary or Affiliate of Debtor;
(b) all Accounts owing by a single Account Debtor if Accounts
constituting fifty percent (50%) or more of the aggregate balance
owing by such Account Debtor to Debtor remain unpaid more than 30 days
past the applicable due dates of such Accounts or 120 days, or such
longer period as may be applicable in connection with any approved
dating program, after the applicable invoice dates of such Accounts;
(c) Accounts from any Account Debtor who is also a creditor
of Debtor, but only to the extent of the outstanding amount owing by
Debtor to such Account Debtor;
(d) Accounts owing in a currency other than U.S. Dollars or
with respect to which the Account Debtor is not a resident of the
United States of America or Canada unless the Account Debtor has
supplied Debtor with an irrevocable letter of credit that: (i) has
been issued by a financial institution satisfactory to Congress; (ii)
is satisfactory in form and substance to Congress; and (iii) such
letter of credit has been endorsed in blank and delivered to Congress;
in which event such Accounts may be eligible to the extent of the face
amount of such letter of credit;
(e) Accounts with respect to which Congress does not have a
first and valid fully perfected security interest;
(f) Except as approved by Congress from time to time in
writing, Accounts with respect to which the Account Debtor is the
subject of bankruptcy or a similar insolvency proceeding or has made
an assignment for the benefit of creditors or whose assets have been
conveyed to a receiver or trustee;
(g) Accounts with respect to which the Account Debtor's
obligation to pay the Account is conditional upon the Account Debtor's
approval or is otherwise subject to any repurchase obligation or
return right other than return rights for defective products, as with
sales made on a bill-and-hold, guaranteed sale, sale-and-return, sale
on approval or consignment basis;
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(h) Accounts with respect to which Toys-R-Us is the Account
Debtor which are subject to December 10 dating terms, to the extent
that such Accounts exceed sixty percent (60%) of the aggregate amount
of all Accounts with respect to which the Account Debtor is a resident
of the United States or Canada.
"Eligible Inventory" shall mean Inventory deemed by Congress
to meet the following requirements:
(a) The Inventory is a finished toy product that is in good
condition, meets all standards imposed by any governmental agency, or
department or division thereof, having regulatory authority over the
Inventory, its use and/or sale and is either currently usable or
currently saleable in the ordinary course of Debtor's business and is
not otherwise unacceptable to Congress because of age, type, category,
quality and/or quantity;
(b) The Inventory has not been consigned to a customer of
Debtor, has not been used or repossessed, and has not been attached,
seized, made subject to a writ or distress warrant, levied upon or
brought within the possession of any receiver, trustee, custodian or
assignee for the benefit or creditors;
(c) Each of the warranties and representations set forth in
this Agreement has been reaffirmed with respect thereto at the time
the most recent Availability Report was delivered to Congress;
(d) The Inventory was not purchased by Debtor in or as
part of a "bulk" transfer or sale of assets and was not acquired in
any transaction other than in the ordinary course of business unless
(i) Debtor has complied with all applicable bulk sales or bulk
transfer laws or (ii) Congress has given its prior written consent to
Debtor's non-compliance with such laws in connection with an
Acquisition approved by Congress as a Permitted Investment, which
consent shall not be unreasonably withheld; and
(e) The Inventory is at a location permitted under Section
8.24 hereof.
In addition, without limiting the generality of Congress' Permitted Discretion
in determining eligibility, the following Inventory shall be deemed to be
ineligible: raw materials, work-in-process, slow-moving items, obsolete
Inventory, discontinued or close-out Inventory and any other category of
Inventory that Congress deems, in the exercise of its Permitted Discretion, to
be ineligible.
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"Environmental Laws" shall mean any federal, state, district,
local and foreign laws, to the extent applicable to the Debtor, and all rules,
regulations, or orders issued, promulgated or entered thereunder, and any
licenses, permits or other requirements issued to or for the benefit of Debtor
or its Subsidiaries pursuant thereto, relating to pollution or protection of
the environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata), including, without limitation,
(a) laws relating to the identification, reporting, generation, manufacture,
processing, distribution, use, treatment, storage, disposal, transport or other
handling of any pollutants, contaminants, chemicals or any other industrial,
toxic or hazardous substances, materials or wastes, (b) laws relating to
emission, discharge, or other release or threatened release of any pollutants,
contaminants, chemicals, or any other industrial, toxic or hazardous
substances, materials or wastes into the environment, and (c) laws relating to
any liability for the performance or payment of the costs of any response to
any release or threatened release of hazardous substances.
"Equipment" shall mean all of the Debtor's equipment,
including, without limitation, machinery, equipment, office equipment and
supplies, computers and related equipment, furniture, furnishings, tools,
tooling, jigs, dies, fixtures, manufacturing implements, fork lifts, trucks,
trailers, motor vehicles, and other equipment.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time, and any successor statute.
"ERISA Affiliate" shall mean with respect to any Person (i)
any corporation that is a member of the same controlled group of corporations
(within the meaning of Section 414(b) of the Internal Revenue Code) as such
Person; (ii) a trade or business under common control (within the meaning of
Section 414(c) of the Internal Revenue Code) with such Person; or (iii) a
member of the same affiliated service group (within the meaning of Section
414(m) of the Internal Revenue Code) as any corporation described in clause (i)
above, or as any trade or business described in clause (ii) above.
"Event of Default" shall have the meaning set forth in Section
10.1 hereof.
"Existing Revolving Loans" shall mean the "Revolving Loans"
outstanding under the Original Agreement on the Closing Date.
"GAAP" shall mean generally accepted accounting principles as
in effect from time to time, consistently applied.
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"Galco" shall mean Galco International Toys, N.V., a
Netherlands Antilles corporation and a subsidiary of the Debtor, or the
successor entity resulting from the merger or sale of stock or assets of such
corporation to a Hong Kong corporation owned by the Debtor.
"Governmental Authority" shall mean any nation or government,
any state or other political subdivision thereto and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Guarantor" shall mean any guarantor of the Obligations.
"Hazardous Substances" shall mean any pollutants,
contaminants, chemicals or toxic or hazardous substance, material or waste,
including, without limitation, more than 100 gallons of petroleum (or any
volume of petroleum that is released into the environment), PCBs, asbestos
(when in a friable condition, when removed or contained or when required to be
removed or contained pursuant to Environmental Laws), flammable explosives,
radioactive materials, and any other substance, material or waste that is
regulated pursuant to any Environmental Laws.
"Headquarters Property" shall mean the tract of real property
owned by the Debtor located at 500 Forbes Boulevard, South San Francisco,
California 94080, described in Schedule 1.1(a) hereto, and (i) all rights,
title and interests appurtenant thereto, including, all water, water rights,
reservoirs, ponds, ditches, flumes and related equipment and fixtures
appurtenant to or used in connection with such real property and (ii) all
buildings, parking areas and improvements, and any and all additions,
alterations or appurtenances thereto now or at any time hereafter existing,
placed or constructed on such real property or any part thereof.
"Indebtedness" of any Person shall mean, without duplication,
(i) any obligation of such Person for borrowed money, including, without
limitation, (a) any obligation of such Person evidenced by bonds, debentures,
notes or other similar debt instruments, and (b) any obligation for borrowed
money which is non-recourse to the credit of such person but which is secured
by any asset of such Person, up to the lesser of the amount of such obligation
and the value of such asset as indicated in an appraisal delivered to Congress
that is reasonably satisfactory to Congress, (ii) any obligation of such Person
on account of deposits or advances, (iii) any obligation of such Person for the
deferred purchase price of any property or services other than trade payables
arising in the ordinary course of such Person's business, (iv) any obligation
of such Person as lessee under a Capital Lease, (v) any Indebtedness of another
Person secured by a Lien on any asset of such first Person up to the amount of
such
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Indebtedness, except that if such Indebtedness is not assumed by such first
Person, then up to the lesser of the amount of such Indebtedness or the value
of such asset as indicated in an appraisal delivered to Congress that is
reasonably satisfactory to Congress, and (vi) any Accommodation Obligation of
such Person. Notwithstanding anything to the contrary in the foregoing, the
following shall not constitute "Indebtedness:" payroll liabilities, accounts
payable, normal accruals and other normal and customary expenses incident to
the Debtor's business incurred in the ordinary course of such business.
"Indemnitees" shall have the meaning set forth in Section 11.2
hereof.
"Internal Revenue Code" shall mean the Internal Revenue Code
of 1986, as amended from time to time, and the regulations and rules
promulgated thereunder in effect from time to time.
"Inventory" shall mean all inventory, including, without
limitation, raw materials, work in process, parts, components, assemblies,
supplies and materials used, sold or consumed in Debtor's business, finished
toy products and other goods, and all other inventory of whatsoever kind or
nature, wherever located, whether now owned or hereafter existing or acquired
by Debtor, including without limitation, all wrapping, packaging, advertising,
shipping materials, and all other goods consumed in Debtor's business, all
labels and other devices, names or marks affixed or to be affixed thereto for
purposes of selling or of identifying the same or the seller or manufacturer
thereof and all of Debtor's right, title and interest therein and thereto;
Inventory shall also include all goods, wares and merchandise, finished or
unfinished, held for sale or lease or furnished or to be furnished under
contracts of service, and all goods returned to or repossessed by Debtor.
"Investment" shall mean any investment, made in cash or by
delivery of any kind of property or asset, in any Person, whether by
acquisition of shares of stock or similar interest, indebtedness or other
obligation or security, or by loan, advance or capital contribution, or
otherwise.
"Issuing Bank" shall have the meaning set forth in Section 4.1
hereof.
"L/C Fee" shall have the meaning set forth in Section 4.2
hereof.
"Letter of Credit Outstandings" shall mean, at any time, the
sum of (i) the aggregate maximum amount available for drawing under the then
outstanding Letters of Credit and (ii) any unpaid reimbursement obligations of
Debtor with respect to Letters of Credit.
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"Letters of Credit" shall mean any standby or commercial
letters of credit which are now or at any time hereafter guaranteed, issued, or
caused to be issued by Congress at the request of and for the account of Debtor
and which have not expired or been rescinded, revoked or terminated.
"Lien" shall mean any interest in any kind of property or
asset, whether real, personal or mixed, tangible or intangible ("Property")
securing an obligation owed to, or a claim by, a Person other than the owner of
the Property, whether such interest is based on the common law, statute or
contract, and including, but not limited to, the security interest, charge,
claim, or lien arising from a mortgage, deed of trust, encumbrance, pledge,
hypothecation, assignment, deposit arrangement, security agreement, conditional
sale or trust receipt or a lease, consignment or bailment for security
purposes. The term "Lien" shall include reservations, exceptions,
encroachments, easements, rights-of-way, covenants, conditions, restrictments,
leases and other title exceptions and encumbrances affecting Property.
"Loan Documents" shall mean this Agreement, the Stock Pledge
Agreement, the Patent Collateral Assignment, the Trademark Security Agreement,
the Mortgage, the Revolving Note and all other security agreements, financing
statements, lease assignments, guaranties, blocked account agreements, Letters
of Credit and other agreements, instruments, documents and written indicia of
contractual obligations between Debtor and Congress, any Affiliate of Debtor
and Congress, any Person owning Collateral and Congress, any Guarantor and
Congress, or any Participant and Congress delivered to Congress in connection
with the Original Agreement, this Agreement or the transactions contemplated
hereby, as each such document may be amended or supplemented from time to time.
"Material Judgment" shall mean any final judgment rendered
against Debtor which (i) materially adversely affects Debtor's business, (ii)
adversely affects the priority of Congress' liens or (iii) require the payment
of more than $750,000.
"Maximum Credit" shall mean $40,000,000 or such increased
amount requested by the Debtor in accordance with Section 2.3(b) hereof;
provided, however, that at no time shall such amount exceed $60,000,000.
"Mortgage" shall mean the Deed of Trust and Assignment of
Rents made by the Debtor in favor of Congress, encumbering the Headquarters
Property, as amended by the Mortgage Amendment and as the same may be
supplemented, amended, extended, assigned or otherwise modified from time to
time.
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"Mortgage Amendment" shall mean the Amendment to Deed of Trust
and Assignment of Rents, of even date herewith, made by the Debtor in favor of
Congress.
"Multiemployer Plan" shall mean any multiemployer plan (as
such term is defined in Sections 3(37)(A) and 4001(a)(3) of ERISA) with respect
to which Debtor or any ERISA Affiliate of Debtor has had an obligation to
contribute that has not been satisfied.
"Net Amount of Eligible Accounts" shall mean, at any time, the
gross amount of Eligible Accounts less (i) the Credit Reserve and less (ii)
sales, excise or similar taxes, and less returns, discounts, claims, credits
and allowances of any nature at any time issued, owing, granted, outstanding,
available or claimed.
"Obligations" shall mean any and all loans, Indebtedness,
liabilities and obligations of any kind owing by Debtor to Congress, however
evidenced, whether as principal, Guarantor or otherwise, arising under this
Agreement or any other Loan Document (including, without limitation, all
Letters of Credit issued hereunder) or any supplement thereto, whether now
existing or hereafter arising, whether direct or indirect, absolute or
contingent, joint or several, due or not due, primary or secondary, liquidated
or unliquidated, secured or unsecured, original, renewed or extended, and
whether arising directly or acquired from others (including, without
limitation, Congress' participations or interests in Debtor's obligations to
others) and including, without limitation, Congress' charges, commissions,
interest, expenses, costs and attorneys' and paralegal fees and disbursements
chargeable to Debtor in connection with all of the foregoing.
"Original Agreement" shall have the meaning set forth in the
preamble to this Agreement.
"Participant" shall mean any Affiliate of Congress or any
other Person who participates in a Participation.
"Participation" shall mean any arrangement by which a
Participant, now or at any time or times hereafter, participates (whether
through the purchase of a participation or an assignment) with Congress or any
other participant or assignee in the Obligations of Debtor pursuant to the Loan
Documents.
"Patent Collateral Assignment" shall mean the Patent
Collateral Assignment, dated as of April 1, 1993, between Debtor and Congress.
"Permitted Discretion" shall mean Congress' judgment exercised
in good faith based upon Congress' consideration of any factor which Congress
believes in good faith: (a) could affect
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the value of any Collateral, the enforceability or priority of Congress' Liens
thereon, or the amount which Congress would be likely to receive (after giving
consideration to delays in payment and costs of enforcement) in the liquidation
of any Collateral, (b) suggests that any collateral report or financial
information delivered to Congress by Debtor or by Debtor's accountants or other
advisors on Debtor's behalf is incomplete, inaccurate or misleading in any
material respect, (c) materially increases the likelihood of a bankruptcy,
reorganization or other insolvency proceeding involving Debtor or any of the
Collateral, or (d) creates or, with notice or the passage of time, would create
an Event of Default or a breach of any condition set forth in Section 9 hereof.
In the exercise of such judgment, Congress may take into account factors which
are already included in or tested by the definitions of Eligible Accounts or
Eligible Inventory, as well as any of the following: (i) the current financial
and business climate of Debtor's industry (giving due regard to the Debtor's
position within such industry) and general macroeconomic conditions which
impact Debtor's cost structure, (ii) material changes in the average collection
history and the average dilution with respect to the Accounts, (iii) changes in
levels of back-orders and demand for, and pricing of, Inventory, (iv) changes
in any concentration of risk with respect to Accounts and Inventory and (v) any
other factors that change the credit risk of lending to Debtor based upon the
security of the Collateral. The burden of establishing Congress' lack of good
faith shall be on Debtor.
"Permitted Indebtedness" shall mean (i) the Obligations; (ii)
Indebtedness issued in exchange for, or the proceeds of which are used to
refinance or refund, outstanding Indebtedness, other than Indebtedness incurred
pursuant to clause (i) or (iii), so long as the principal amount of the
Indebtedness so issued does not exceed the principal amount of, premium, if
any, and accrued interest on the Indebtedness so exchanged, refinanced or
refunded; (iii) Indebtedness of Debtor incurred in connection with the
redemption, acquisition or other retirement for value of capital stock of
Debtor or a Subsidiary, stock options or stock appreciation rights held by
officers, employees or employee benefit plans upon death, disability,
retirement or termination of employment so long as the amount of such
Indebtedness at any one time outstanding does not exceed $250,000; (iv)
Indebtedness of Galco in an aggregate amount not to exceed at any one time
$1,000,000; (v) Indebtedness assumed as part of an Acquisition in an aggregate
amount not to exceed at any one time an amount to be determined by Congress at
the time of its approval of the Acquisition; (vi) Indebtedness secured by a
mortgage on the Headquarters Property in an amount not to exceed $5,000,000,
which mortgage may be a first priority mortgage; (vii) Indebtedness described
on Schedule 1.1(b) hereto; (viii) Indebtedness permitted under Section 8.7
hereof; and (ix) Indebtedness owed pursuant to the Convertible Subordinated
Debentures.
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"Permitted Investments" shall mean any of the following: (i)
any Investment in Galco existing on the date hereof and described on Schedule
1.1(c) hereto; (ii) any additional Investment in Galco after the date hereof,
to the extent that the cumulative amount of such additional Investments do not
exceed $250,000 in the aggregate; (iii) Acquisitions; (iv) any Investment in
Debtor by any Subsidiary; (v) loans or advances to employees made in the
ordinary course of business and consistent with past practices of Debtor and
its Subsidiaries; (vi) sales of goods on trade credit terms, consistent with
the past practices of Debtor or any Subsidiary or as otherwise consistent with
trade credit terms in common use in the industry; (vii) negotiable instruments
held for collection, lease, utility and other similar deposits, or stock,
obligations or securities received in settlement of debts owing to Debtor or a
Subsidiary as a result of foreclosure, perfection or enforcement of any Lien,
in each case as to debt that arose in the ordinary course of business of Debtor
or any such Subsidiary; and (viii) as long as there are no Obligations
outstanding under this Agreement (other than the aggregate maximum amount
available for drawing under the then outstanding Letters of Credit),
investments in Cash Equivalents, provided that, unless waived in writing by
Congress, Debtor shall take any actions deemed necessary by Congress to perfect
its security interest in such Cash Equivalents; provided, however, that, with
respect to any Investment by Debtor described in clause (ii) or (iii) of this
definition, all of the following conditions must have been satisfied:
(a) The aggregate amount of Revolving Loans available to
Debtor pursuant to Section 2 hereof minus the outstanding Revolving Loans minus
the face amount of the Letters of Credit minus the total amount of such
Investment ("Availability") immediately after such Investment is made is not
less than $1,500,000;
(b) The Availability (determined for the days during
which the applicable loans were outstanding) for the 30 days preceding the date
of the making of such Investment is not less than $1,500,000;
(c) Debtor shall have delivered financial projections
(setting forth the reasonable assumptions therefor approved by Congress) for
the 90-day period subsequent to the date of the making of such Investment
demonstrating that the Availability is not less than $1,500,000 at any time
during such 90-day period. Such financial projections shall be accompanied by
a certificate signed by an officer of Debtor stating that, to the best
knowledge of such officer, such financial projections are based upon reasonable
assumptions of fact, no known material facts are inconsistent with such
projections, and such projections accurately reflect such officer's
expectations for Debtor during the period covered by such projections;
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(d) Debtor's accounts payable are all current or are paid to
an extent and in a manner which Congress, in its Permitted Discretion, deems
satisfactory;
(e) There shall not have occurred an Event of Default; and
(f) At least five days (or such shorter time as Congress
agrees) prior to the making of such Investment, Debtor shall have provided
Congress with written notice which (i) sets forth the total amount of such
Investment, (ii) has attached to it a certified aging report which contains
information to verify the satisfaction of the condition set forth in clause (d)
above, and (iii) certifies that the conditions set forth in clauses (a) through
(e) above shall have been satisfied as of the date on which such Investment is
to be made;
provided, further, that with respect to any Investment by Debtor described in
clause (iii) of this definition, all of the following additional conditions
must have been satisfied:
(g) Congress shall have completed its due diligence
inspection, testing, credit investigation, analysis and review of the assets
and liabilities of the proposed target company and shall be satisfied with the
results thereof in all respects; and
(h) the structure and documentation of the Acquisition shall
be in form and substance reasonably satisfactory to Congress and its counsel in
all material respects.
"Person" shall mean any individual, sole proprietorship,
partnership, joint venture, trust, unincorporated organization, association,
corporation, institution, entity, party or government (whether national,
federal, state, provincial, county, city, municipal or otherwise, including,
without limitation, any instrumentality, division, agency, body or department
thereof).
"Pledged Securities" shall mean and include (i) one share
less than sixty-six and two-thirds percent (66.67%) of the issued and
outstanding shares of Galco, or such lesser percentage of such shares as
Congress may require in the exercise of its Permitted Discretion because of the
adverse tax impact on the Debtor of the pledge of such shares, (ii) all of the
issued and outstanding shares, whether now owned or hereafter acquired by
Debtor, of the capital stock of any Subsidiaries of the Debtor other than the
inactive Subsidiaries set forth on Schedule 1.1(d) hereto, (iii) all shares of
any other Person owned or held by the Debtor which, after the date of the
Original Agreement, is or becomes a Subsidiary of the Debtor and (iv) any
shares, stock, certificates, instruments, warrants, options or rights issued as
an addition to, in substitution of, or in exchange for any such shares
described in the preceding clauses, and any and all
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proceeds thereof and dividends and distributions with respect thereto, now or
hereafter owned or acquired by Debtor.
"Prime Rate" shall mean the prime commercial interest rate
from time to time publicly announced by The Philadelphia National Bank,
incorporated as CoreStates Bank, N.A., Philadelphia, Pennsylvania, whether or
not such announced rate is the best rate available at such bank.
"Prohibited Transaction" shall mean any "prohibited
transaction" (as defined in Section 4975 of the Internal Revenue Code or
Section 406 of ERISA) to which a statutory, regulatory, class or individual
exemption does not exist.
"Records" shall mean all books, records, documents, ledger
cards, computer programs, and other property and general intangibles evidencing
or relating to the Accounts, the Inventory, the Equipment and any other
Collateral or any Account Debtor, together with the file cabinets or containers
in which the foregoing are stored.
"Reportable Event" shall mean any event described in Section
4043(b)(6) of ERISA and the regulations issued thereunder.
"Revolving Loans" shall mean the loans advanced pursuant to
Section 2 hereof.
"Revolving Note" shall have the meaning set forth in Section
9.1(b)(ii) hereof.
"Rollover Advance" shall mean the rollover of the Existing
Revolving Loans into Revolving Loans hereunder.
"Stock Pledge Agreement" shall mean the Stock Pledge
Agreement, dated as of April 1, 1993, between Debtor and Congress.
"Subsidiary" shall mean any Person of which or in which Debtor
and its other Subsidiaries own directly or indirectly more than fifty percent
(50%) of (i) the combined voting power of all classes of stock having general
voting power to elect a majority of the board of directors of such Person, if
it is a corporation, (ii) the capital interest or profit interest of such
Person, if it is a partnership, or (iii) the beneficial interest of such
Person, if it is a trust, association or other unincorporated organization.
"Taxes" with respect to any Person shall mean taxes,
assessments or other governmental charges or levies imposed upon such Person,
its income or any of its properties, franchises or assets.
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"Termination Event" shall mean (i) with respect to any Benefit
Plan, a Reportable Event; (ii) the withdrawal of Debtor or any of its ERISA
Affiliates from a Benefit Plan during a Plan Year (as defined in Section 3(39)
of ERISA) in which it is a "substantial employer" as defined in Section
4001(a)(2) of ERISA; (iii) the provision by Debtor or any of its ERISA
Affiliates to participants and other affected parties of a written notice of
intent to terminate a Benefit Plan in a distress termination described in
Section 4041(c) of ERISA; (iv) the institution of proceedings to terminate a
Benefit Plan of Debtor or any of its ERISA Affiliates by the Pension Benefit
Guaranty Corporation; (v) the Pension Benefit Guaranty Corporation's
application under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Benefit Plan of Debtor or any of
its ERISA Affiliates; or (vi) the partial or complete withdrawal (within the
meaning of Sections 4205 and 4203, respectively, of ERISA) of Debtor or any of
its ERISA Affiliates from a Multiemployer Plan.
"Trademark Security Agreement" shall mean the Amended and
Restated Trademark Agreement, of even date herewith, in which, among other
things, Debtor (i) grants to Congress a security interest in certain
trademarks, (ii) upon an Event of Default, grants to Congress a license to use
such trademarks and (iii) upon an Event of Default, if requested by Congress,
agrees to assign to Congress all of its right, title and interest in and to
such trademarks.
"Value" shall mean FIFO cost or market price, as determined by
Congress, whichever is lower.
1.2 Interrelationship with the Original Agreement. As stated
in the preamble hereof, this Agreement is intended to amend and restate the
provisions of the Original Agreement and, notwithstanding the substitution of
the Revolving Note on the Closing Date, the Debtor and Congress agree that,
upon (i) the execution and delivery by each of the parties hereto of this
Agreement and (ii) the satisfaction of each of the conditions set forth in
Section 9 hereof, the terms and provisions of the Original Agreement shall be
and hereby are amended and restated in their entirety by the terms and
provisions of this Agreement. This Agreement is not intended to and shall not
constitute a novation. All Existing Revolving Loans made and Obligations
incurred under the Original Agreement which are outstanding on the Effective
Date shall continue as Revolving Loans and Obligations under (and shall be
governed by the terms of) this Agreement. All references in the Revolving Note
and the other Loan Documents to the Original Agreement, as it may be amended
from time to time, shall be deemed to include references to this Agreement.
SECTION 2. LOANS; TERM; EARLY TERMINATION
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2.1 Revolving Loans. On the terms and conditions set forth
in this Agreement, Congress agrees to roll over Existing Revolving Loans into
Revolving Loans and to continue, in the exercise of its Permitted Discretion,
to make Revolving Loans (net of applicable reserves pursuant to Section 4.1
hereof) to Debtor from time to time, at Debtor's request, of (a) up to seventy
five percent (75%) of the Net Amount of Eligible Accounts (or such greater or
lesser percentage thereof as Congress shall, in the exercise of its Permitted
Discretion, determine from time to time), plus (b) up to the following
percentages of the Value of Eligible Inventory during the relevant periods set
forth below (or such greater or lesser percentages thereof as Congress shall,
in the exercise of its Permitted Discretion, determine from time to time):
Period Percentage
------ ----------
March 15 through September 30 50%
October 1 through March 14 35%
less (c) the Letter of Credit Outstandings, and less (d) such reserves as
Congress may, in its Permitted Discretion, establish from time to time,
including reserves on account of judgments not yet satisfied. Except as may be
expressly permitted by Congress in Congress' sole discretion, the outstanding
aggregate principal amount of Advances by Congress to Debtor hereunder with
respect to Eligible Inventory shall not exceed, at any time, the lesser of (a)
the aggregate amount of the above percentages of Value of the above categories
of Eligible Inventory or (b) $8,000,000. The Revolving Loans made pursuant to
this Section 2.1 shall be repaid in full upon termination of this Agreement in
accordance with Section 2.5 hereof. On each day that Debtor shall request an
Advance, and on any other day that Congress may reasonably request, Debtor
shall deliver to Congress an assignment schedule, a remittance report and a
report of credit returns and allowances together with such other documents as
Congress may reasonably request, including, without limitation, documents
setting forth total sales, total non-cash credits and cash collections of
Debtor. In addition, Debtor shall furnish to Congress on the first Business
Day of each week, and on any other day that Congress may reasonably request, an
Availability Report as of the last Business Day of the preceding week or as of
such other date as Congress may reasonably request. In no event shall the
information set forth in the Availability Report or otherwise delivered to
Congress in connection therewith limit Congress' Permitted Discretion to
determine the Eligible Accounts, the Eligible Inventory, the Net Amount of
Eligible Accounts or the Value of Eligible Inventory.
2.2 Loan Account. All loans shall be charged to a loan
account in Debtor's name on Congress' books. Congress shall render to Debtor
each month a statement of Debtor's loan account, which shall be considered
correct and deemed accepted by, and
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conclusively binding upon, Debtor as an account stated, except to the extent
that Congress receives a written notice of any specific exceptions by Debtor
thereto within 30 days after the date of such statement.
2.3 Maximum Loan Amount.
(a) Except as may be expressly permitted by Congress in
Congress' sole discretion, the outstanding aggregate principal amount of all
Advances by Congress to Debtor hereunder or under any supplement hereto shall
not exceed the Maximum Credit at any time.
(b) Upon at least five (5) Business Days written notice to
Congress, the Debtor may request a permanent increase in the Maximum Credit
available hereunder in multiples of $5,000,000 up to an aggregate Maximum
Credit amount of $60,000,000. Such increase shall be effective on the date set
forth by the Debtor in the notice (which date shall not be earlier than the
fifth Business Day after receipt of such notice), subject to the payment of the
fee required by Section 3.7 hereof.
(c) Without limiting Congress' right to demand payment of the
Obligations, or any portion thereof, in accordance with any other terms of this
Agreement, or any supplement hereto, in the event that the outstanding
aggregate principal amount of Advances by Congress to Debtor exceeds the
Maximum Credit or the formula set forth in Section 2.1 hereof, Debtor shall
remain liable therefor and the entire amount of such excess(es) shall, at
Congress' option, become immediately due and payable upon Congress' demand, and
all payments thereof shall be applied to the Revolving Loans or to cash
collateralize any outstanding Letters of Credit.
2.4 Amounts Charged to Debtor's Account; Place of Payment.
At Congress' option, all principal, interest, fees, commissions, costs,
expenses or other charges with respect to this Agreement or any other Loan
Document and any and all loans and Advances by Congress to Debtor may be
charged directly to Debtor's account maintained by Congress. All loans shall
be payable at Congress' office specified above or at such other place as
Congress may hereafter designate from time to time and, at Congress' option and
upon Congress' request, Debtor shall execute and deliver to Congress one or
more promissory notes in form and substance reasonably satisfactory to Congress
to further evidence such loans.
2.5 Term of Agreement. This Agreement shall be effective as
of its date and shall continue in full force and effect for a term ending on
March 31, 1997 unless sooner terminated pursuant to the terms hereof. This
Agreement may be renewed for one year from the termination date hereof, or any
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future termination date, upon the mutual agreement of the Debtor and Congress
no later than 60 days prior to such termination date. Congress shall have the
right to terminate this Agreement immediately at any time upon the occurrence
of an Event of Default. No termination of this Agreement, however, shall
relieve or discharge Debtor of its duties, obligations and covenants hereunder
until all Obligations have been paid in full, and Congress' continuing security
interest in the Collateral shall remain in effect until such Obligations have
been fully discharged.
2.6 Early Termination. If Congress terminates this Agreement
(i) upon the occurrence of an Event of Default (other than an Event of Default
arising out of the Debtor's inability to repay), and Congress is repaid prior
to March 31, 1997, (ii) at Debtor's request (other than because the Debtor is
required to pay amounts under Section 11.3 hereof), and Congress is repaid
prior to March 1, 1997 or (iii) at Debtor's request, and Congress is repaid on
or after March 1, 1997 and prior to March 31, 1997 from any source other than
from the proceeds of an offering of equity or unsecured Indebtedness of the
Debtor, in view of the impracticability and extreme difficulty in ascertaining
actual damages and by mutual agreement of the parties as to a reasonable
calculation of Congress' lost profits as a result thereof, Debtor hereby agrees
that it shall pay to Congress, upon the effective date of such termination, an
early termination fee in an amount equal to one percent (1.00%) of the Maximum
Credit; provided, however, that if the Debtor wishes to terminate this
Agreement because it is required to pay amounts under Section 11.3 hereof, it
shall notify Congress of such intent to terminate within thirty (30) days of
the charging of such amounts by Congress, and, unless Congress agrees to waive
the payment of such amounts within fifteen (15) days of such notice, this
Agreement will terminate no later than ninety (90) days from such notice. Such
termination fee shall be presumed to be the amount of damages sustained by said
early termination and Debtor agrees that it is reasonable under the
circumstances currently existing. The early termination fee provided for in
this Section 2.6 shall be deemed included in the Obligations.
SECTION 3. INTEREST AND FEES.
3.1 Interest. Interest shall be payable by Debtor to
Congress in arrears on the first day of each month upon the closing daily
balances in Debtor's loan account for each day during the immediately preceding
month, at a rate equal to one percent (1.00%) per annum in excess of the Prime
Rate. The interest rate charged hereunder shall increase or decrease by an
amount equal to each increase or decrease, respectively, in the Prime Rate,
effective on the first day of the month after any change in the Prime Rate
based on the Prime Rate in effect on the last day of the month in which any
such change occurs.
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3.2 Default Interest Rate. On and after the date of any
Event of Default or termination or non-renewal hereof, Congress may elect to
charge and collect interest on all outstanding unpaid Obligations at a rate
equal to two percent (2%) 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, and
all interest accruing hereunder shall thereafter be payable on demand.
3.3 Interest Calculation. Interest shall be calculated for
actual days elapsed on the basis of a 360-day year and shall be included in
each monthly statement of Debtor's loan account. Congress shall have the
right, at Congress' option, to charge all interest to Debtor's loan account on
the first day of each month, and such interest shall be deemed to be paid by
the first amounts subsequently credited thereto. In no event shall charges
constituting interest, payable by Debtor under this Agreement or any other Loan
Document, exceed the rate permitted under any applicable law or regulation, and
if any part or provision of this Agreement or other Loan Document is in
contravention of any such law or regulation, such part or provision shall be
deemed amended to conform thereto.
3.4 Unused Line Fee. If the average outstanding daily
principal balance of the sum of all Revolving Loans plus Letter of Credit
Outstandings in any calendar month shall be less than the Maximum Credit,
Debtor shall pay to Congress in arrears on or before the tenth (10th) day of
the next succeeding calendar month an unused line fee equal to one quarter of
one percent (0.25%) per annum upon the difference between (A) the average
outstanding daily principal balance of all such Revolving Loans plus Letter of
Credit Outstandings in respect of such month and (B) the greater of (i) the
applicable base amount for such month as set forth below or (ii) the percentage
for such month as set forth below of the Maximum Credit:
Period Amount Percentage
------ ------ ----------
January through June $22,500,00 56.25%
July through August $30,000,00 75.00%
September through November $40,000,00 100.00%
December $22,500,00 56.25%
3.5 Management Fee. Debtor shall pay to Congress a fee in an
amount equal to $12,500 on or before the tenth (10th) day of each calendar
quarter, in respect of Congress' collateral management services for such
quarter during the term, including all renewal terms, of this Agreement or so
long as any of the Obligations are outstanding. The management fee is intended
to cover Congress' internal costs of (i) monitoring the Collateral, (ii)
performing Congress' routine field examinations and (iii) other loan
administration activities performed by Congress, in each case in the ordinary
course prior to the occurrence of an Event of Default. From and after the
occurrence of an
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Event of Default, all such out-of-pocket costs and expenses of Congress
incurred in connection with such activities shall be payable by Debtor.
3.6 Closing Fees. Debtor shall pay Congress closing fees in
an amount equal to $100,000, payable on the date hereof.
3.7 Maximum Credit Increase Fee. Debtor shall pay Congress a
fee in the amount of $50,000 for each $5,000,000 increase in Maximum Credit
requested pursuant to Section 2.3(b) hereof, payable on the date on which such
increase becomes effective in accordance with such Section.
SECTION 4. LETTER OF CREDIT FACILITY.
4.1 Letter of Credit Facility. Subject to the terms and
conditions of this Agreement, and provided there does not then exist an Event
of Default, or any event or condition which, with notice, lapse of time and/or
the issuance of such Letter of Credit, would constitute an Event of Default,
Congress shall, upon Debtor's request and upon execution and delivery of
whatever documents or applications Congress, in its sole discretion, may
require of Debtor, guarantee or cause to be issued one or more Letters of
Credit. All such Letters of Credit shall be issued by banks or other financial
institutions designated by Congress in its sole discretion (an "Issuing Bank"),
and Congress makes no representation to Debtor that any particular bank or
financial institution will serve as Issuing Bank hereunder. The aggregate face
amount of all Letters of Credit outstanding at any time shall not exceed
$4,000,000, and each Letter of Credit shall be in form and substance
satisfactory to Congress. In no event shall any Letter of Credit be issued if
the face amount of such proposed Letter of Credit exceeds the amount then
available for Revolving Loans pursuant to the formula set forth in Section 2.1
hereof. In addition, Congress may, in the exercise of its reasonable
discretion, reserve from the availability of Revolving Loans the expected
amount of any import duties, insurance and freight which may be applicable to
any goods being acquired in connection with the issuance of any Letter of
Credit. Debtor shall reimburse Congress on demand for any and all amounts
which Congress at any time pays with respect to a Letter of Credit including,
without limitation, application fees, opening fees, bank charges, commissions
and all other fees, expenses and amounts of any nature whatsoever payable to
the Issuing Bank and for any other out-of-pocket costs, fees, commissions and
expenses incurred by Congress in connection with the application for and
issuance of any Letter of Credit. Congress shall have the right, at its
option, to charge all such Letter of Credit charges to Debtor's loan account on
the first day of each month, and such charges shall be deemed to be paid, after
amounts charged
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pursuant to Section 2.4 hereof are paid, by the first amounts subsequently
credited thereto.
4.2 Letter of Credit Fees. In addition to any fees,
expenses, commissions or other amounts payable to Congress or the Issuing Bank
pursuant to Section 4.1 hereof, for each outstanding Letter of Credit, Debtor
shall pay to Congress each month in advance a fee (an "L/C Fee") equal to (i)
one-half percent (.50%) of the average daily face amount of such Letter of
Credit for the initial 60 days after issuance, and (ii) two-tenths of one
percent (.20%) of the average daily face amount of such Letter of Credit
thereafter; provided, however, if any Letter of Credit expires with any amount
remaining undrawn thereunder the L/C Fee shall continue until the earlier of
(i) the payment of any undrawn amount under such Letter of Credit or (ii) a
period of 30 days after the stated expiration of such Letter of Credit. On and
after the occurrence of an Event of Default or termination of this Agreement,
Congress may, in its sole discretion, elect to charge and collect an L/C Fee
not in excess of (i) the applicable L/C Fee due and owing pursuant to the
immediately preceding sentence, plus (ii) two percent (2.00%) per annum on the
average daily face amount of each Letter of Credit. All L/C Fees shall be
computed on the basis of a 360-day year for the actual number of days elapsed.
The L/C Fee for each Letter of Credit shall be payable in advance (i) upon the
issuance of such Letter of Credit for the number of days remaining in the month
during which such Letter of Credit is issued and (ii) thereafter, monthly, on
the first day of each month during which such Letter of Credit remains
outstanding. Any L/C Fees not paid upon these terms shall immediately
constitute part of the Obligations and shall be payable by Debtor to Congress
in accordance with the terms of this Agreement.
4.3 Letter of Credit Risks. Debtor assumes all risks of the
acts and omissions of, or misuse of Letters of Credit by, the respective
beneficiaries of the Letters of Credit. In furtherance and not in limitation
of the foregoing, subject to the provisions of the Letter of Credit
applications, Congress, its correspondents and agents, the Issuing Bank and any
correspondent banks or financial institutions used in connection with the
issuance of Letters of Credit, shall not be responsible: (a) for the form,
validity, sufficiency, accuracy, genuineness or legal effect of any document
submitted by any party in connection with the application for and issuance of
the Letters of Credit, even if it should in fact prove to be in any or all
respects invalid, insufficient, inaccurate, fraudulent or forged; (b) for the
validity or sufficiency of any instrument transferring or assigning or
purporting to transfer or assign a Letter of Credit or the rights or benefits
thereunder or proceeds thereof, in whole or in part, which may prove to be
invalid or ineffective for any reason; (c) for failure of the beneficiary of a
Letter of Credit to comply fully with conditions required in order to draw upon
such Letter of Credit; (d) for errors, omissions,
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interruptions or delays in transmission or delivery of any messages, by mail,
cable, telegraph, telex or otherwise, whether or not they be in cipher; (e) for
errors in interpretation of technical terms; (f) for any loss or delay in the
transmission or otherwise of any document required in order to make a drawing
under any Letter of Credit or of the proceeds thereof; (g) for the
misapplication by the beneficiary of a Letter of Credit of the proceeds of any
drawing under such Letter of Credit; or (h) for any consequences arising from
causes beyond the control of Congress, the Issuing Bank or of the various
correspondents, agents, and banks or financial institutions used in connection
with the issuance of Letters of Credit, including, without limitation, any
governmental acts. In furtherance of the foregoing, and without limiting the
generality thereof, Debtor agrees to indemnify and hold harmless Congress, and
any such correspondent, agent, and bank or financial institution used in
connection with the issuance of Letters of Credit, from and against each and
every claim which might arise against them by reason of any transfer, sale,
delivery, surrender or endorsement of any bill of lading, warehouse receipt or
other document held by Congress or for its account, except to the extent that
it is finally determined by a court of competent jurisdiction that such claim
shall have resulted from their own fraud or gross negligence. None of the
above shall affect, impair, or prevent the vesting of any of Congress' rights
or powers hereunder, or Debtor's obligation to make reimbursement.
4.4 Letter of Credit Claims. Debtor shall promptly examine
(a) the copy of any Letter of Credit, including any amendments thereof, sent to
it by or on behalf of Congress and (b) all documents and instruments delivered
to it by or on behalf of Congress in connection with such Letters of Credit.
In the event of any claim of noncompliance with Debtor's instructions or other
irregularity, Debtor will immediately notify Congress thereof in writing.
Debtor will be conclusively deemed to have waived any such claim against
Congress, the Issuing Bank, their respective correspondents and agents, and any
banks or other financial institutions used in connection with the issuance of
Letters of Credit, unless such notice is given as aforesaid.
SECTION 5. SECURITY INTEREST AND COLLATERAL.
5.1 Grant of Security Interest. As security for the prompt
performance, observance and payment in full of all Obligations, Debtor hereby
grants to Congress a continuing security interest in, the following (which,
together with any of Debtor's other property in which Congress may at any time
have a Lien, whether pursuant to this Agreement, any other Loan Document or
otherwise, are herein collectively referred to as the "Collateral"):
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All present and future
(a) Accounts;
(b) moneys, securities and other property (including all
Cash Equivalents) and the proceeds thereof, now or hereafter held or received
by, or in transit to, Congress from or for Debtor, whether for safekeeping,
pledge, custody, transmission, collection or otherwise, and all of Debtor's
deposits (general or special), balances, sums and credits with Congress at any
time existing;
(c) Inventory;
(d) Equipment;
(e) Pledged Securities;
(f) right, title and interest of Debtor, and all of
Debtor's rights, remedies, security and liens, in, to and in respect of the
Accounts and other Collateral, including, without limitation, rights of
stoppage in transit, replevin, repossession and reclamation and other rights
and remedies of an unpaid vendor, lienor or secured party, guaranties or other
contracts of suretyship with respect to the Accounts, deposits or other
security for the obligation of any Account Debtor, and credit and other
insurance;
(g) right, title and interest of Debtor in, to and in
respect of all goods relating to, or which by sale have resulted in, Accounts,
including, without limitation, all goods described in invoices, documents,
contracts or instruments with respect to, or otherwise representing or
evidencing, any Accounts or other Collateral, including without limitation, all
returned, reclaimed or repossessed goods;
(h) deposit accounts of Debtor;
(i) Records;
(j) general intangibles of every kind and description of
Debtor and licenses, to the extent reasonably necessary to facilitate
liquidation of other Collateral;
(k) the Headquarters Property; and
(l) products and proceeds of the foregoing, in any form,
including, without limitation, identifiable proceeds in deposit accounts of
Debtor, insurance proceeds and any claims against third parties for loss or
damage to or destruction of any or all of the foregoing.
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SECTION 6. COLLECTION AND ADMINISTRATION OF ACCOUNTS AND CASH
MANAGEMENT RELATIONSHIPS.
6.1 Collection by Debtor. Until Debtor's authority to do so
is curtailed or terminated at any time by Congress, Debtor shall, at its
expense, collect all remittances and all amounts unpaid on Accounts and all
other Collections, and Debtor shall not commingle such Collections with
Debtor's funds. Debtor shall, on the day received, remit all Collections to
Congress in the form received, duly endorsed by Debtor for deposit with
Congress, unless Congress shall direct Debtor otherwise. All amounts collected
on Accounts, when received by Congress, shall be credited to Debtor's loan
account after adding one and one-half Business Days for collection, clearance
and transfer of remittances, conditional upon final payment to Congress.
6.2 Rights of Inspection. Congress or Congress'
representatives shall at all reasonable times have free access to and right of
inspection of the Collateral and have full access to and the right to examine
and make copies of Debtor's Records, to confirm and verify all Accounts, to
perform general audits and to do whatever else Congress deems reasonably
necessary to protect its interests. Congress may, at any time that an Event of
Default has occurred and is continuing, remove from Debtor's premises or
require Debtor, or require Debtor to instruct any accountants and auditors
employed by Debtor, to deliver any Records and Congress may, without cost or
expense to Congress, use such of Debtor's personnel, supplies, computer
equipment and space at Debtor's places of business as may be reasonably
necessary for the handling of Collections.
6.3 Reclaimed Goods; Account Adjustments. Debtor shall, as
soon as practicable upon obtaining knowledge thereof, report to Congress, in
each Availability Report and the related reports and schedules delivered in
connection therewith, (a) all reclaimed, repossessed and returned goods and (b)
all Account Debtor claims and any other matter affecting the value,
enforceability or collectability of any of the Accounts. All claims and
disputes relating to Accounts are to be promptly adjusted within a reasonable
time, at Debtor's own cost and expense. Congress may, after the occurrence of
an Event of Default, settle, adjust or compromise claims and disputes relating
to Accounts which are not adjusted by Debtor within a reasonable time.
6.4 Lockboxes. Without limiting the generality of Congress'
discretion regarding Debtor's collection and administration of Accounts as
provided in Sections 6.1, 6.2 and 6.3 hereof, Debtor shall at all times
hereafter maintain lockboxes ("Lockboxes") with such banks as are acceptable to
Congress ("Collecting Banks") to which Debtor shall promptly remit, and shall
direct its Account Debtors to remit, all payments on Accounts and all payments
made for Inventory or other
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payments constituting proceeds of Collateral in the identical form in which
such payments are made, whether by cash or check. The Collecting Banks shall
acknowledge and agree, in a manner satisfactory to Congress, that all payments
made, and items submitted, to the Lockboxes are the sole and exclusive property
of Congress and the Debtor, that the Collecting Banks have no right to setoff
against the Lockboxes and that the Collecting Banks will wire, or otherwise
transfer immediately available funds in a manner satisfactory to Congress,
collected funds deposited into the Lockboxes to Congress on a daily basis.
Debtor hereby agrees that all payments made to such Lockboxes or otherwise
received and collected by Congress, whether on the Accounts or as proceeds of
other Collateral or otherwise will be the sole and exclusive property of
Congress and for purposes of calculating (i) interest on the Obligations, will
be applied (which application shall be conditional upon final collection) on
account of the Obligations upon the expiration of one and one-half Business
Days following the date of receipt by Congress of funds or other items of
payment from the Collecting Banks and (ii) availability of Advances to Debtor
in accordance with the guidelines set forth in Section 2 hereof, will be
applied (which application shall be conditional upon final collection) on
account of the Obligations upon receipt by Congress from such Collecting Banks.
Debtor agrees to pay Congress any and all reasonable fees and actual costs and
expenses, that Congress incurs in connection with opening and maintaining the
Lockboxes and depositing for collection by Congress any check or item of
payment received and/or delivered to the Collecting Banks or Congress on
account of the Obligations; and Debtor agrees to reimburse Congress for any
amounts paid to any Collecting Bank arising out of Congress' indemnification of
such Collecting Bank against damages incurred by the Collecting Banks in the
operation of the Lockboxes.
SECTION 7. REPRESENTATIONS AND WARRANTIES.
Debtor hereby represents and warrants to Congress as of the
date hereof and continuing so long as any Obligations remain outstanding, and
(even if there shall be no Obligations outstanding) so long as this Agreement
remains in effect, the following, the truth and accuracy of which, or
compliance with, being a continuing condition of the making of Advances
hereunder by Congress:
7.1 Collateral Ownership. Other than the Liens permitted
under Section 8.4 hereof, Debtor is and shall be, with respect to all
Collateral now existing or hereafter acquired, the owner of such Collateral
free from any Lien, security interest, claim or encumbrance of any kind, except
in Congress' favor and as otherwise consented to in writing by Congress, and
Debtor shall defend the same against the claims of all Persons.
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7.2 Location of Records. The office where Debtor keeps
Debtor's Records, Debtor's chief executive office, all of Debtor's other places
of business, and all locations and places of business of each of Debtor's
Subsidiaries as of the date hereof are set forth on Schedule 7.2 hereto.
7.3 Representations as to Eligible Accounts.
(a) Each Account classified by Debtor as an "Eligible
Account" on the most recently submitted Availability Report delivered to
Congress represents a valid and legally enforceable Indebtedness based upon an
actual and bona fide sale and delivery of goods or rendition of services in the
ordinary course of Debtor's business which has been finally accepted by the
Account Debtor and for which the Account Debtor is unconditionally liable
(except for return rights for defective products) to make payment of the amount
stated in each invoice, document or instrument evidencing the Eligible Account
in accordance with the terms thereof, without offset, defense or counterclaim,
and is expected by Debtor to be paid in full at maturity; and
(b) All statements made and all unpaid balances appearing
in the invoices, documents and instruments evidencing each Eligible Account are
true and correct in all material respects and are in all respects what they
purport to be and, to the Debtor's knowledge, all signatures and endorsements
that appear thereon are genuine and all signatories and endorsers have full
capacity to contract and each Account Debtor is financially able to pay in full
the Eligible Account when it matures. None of the transactions underlying or
giving rise to any Account violate any state or federal laws or regulations,
and all documents relating to the Accounts are legally sufficient in all
material respects under such laws or regulations and are legally enforceable in
accordance with their terms and all recording, filing and other requirements of
giving public notice under any applicable law have been duly complied with in
all material respects.
7.4 Investigations and Litigation. Except as set forth on
Schedule 7.4 hereto, there is no present investigation by any governmental
agency pending or, to the best of Debtor's knowledge, threatened against
Debtor. Except as otherwise disclosed to Congress in writing prior to the date
hereof, there is no action, suit, proceeding or claim pending or, to the best
of Debtor's knowledge, threatened against Debtor or its assets or goodwill, or
affecting any transactions contemplated by this Agreement or any of the other
Loan Documents before any court, arbitrator, or governmental or administrative
body or agency which, if adversely determined with respect to Debtor, would
result in any material adverse change in Debtor's business, properties, assets
(tangible or intangible), goodwill, or condition (financial or otherwise).
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7.5 Non-Contravention. The execution, delivery and
performance of this Agreement or any of the other Loan Documents are within
Debtor's corporate powers, have been duly authorized, are not in contravention
of (a) any indenture, agreement or undertaking to which Debtor is a party or by
which it is bound, (b) law, or (c) the terms of Debtor's Articles of
Incorporation or by-laws.
7.6 Corporate Organization; Foreign Qualification;
Subsidiaries. Debtor is a corporation duly organized and in good standing
under the laws of the State of Delaware. Debtor is duly qualified as a foreign
corporation in all other states where the nature and extent of the business
transacted by it or the ownership of its assets makes such qualification
necessary. The corporations listed on Schedule 7.6 hereto are all of the
Subsidiaries and are duly organized and in good standing in their respective
states, provinces or countries shown on Schedule 7.6.
7.7 Use of Corporate Name. Except as otherwise
disclosed to Congress prior to the date hereof, Debtor has not used and has no
current plans to use, any corporate or fictitious name other than the corporate
name shown on Debtor's Articles of Incorporation.
7.8 No Default Under Other Contracts. Except as otherwise
disclosed to Congress in writing prior to the date hereof, Debtor is not in
default under any material contract, lease or commitment to which it is a party
or by which it is bound. Debtor knows of no disputes regarding any such
contract, lease or commitment that is material to the financial position and
well- being of Debtor.
7.9 Compliance with Laws. Except as set forth on Schedule
7.9 hereto, Debtor and each of its Subsidiaries are in compliance in all
material respects with all laws, orders, regulations and ordinances of all
federal, foreign, state and local governmental authorities (excluding
Environmental Laws) relating to the business operations and the assets of
Debtor and such Subsidiaries the violation of which might materially adversely
affect the conditions (financial or otherwise), operations, properties or
prospects of Debtor or any such Subsidiary.
7.10 Adequate Licenses, Patents, etc.. Debtor possesses
adequate licenses, patents, patent applications, copyrights, service marks,
trademarks, trademark applications and trade names to continue to conduct its
business as heretofore conducted. All such licenses are listed on Schedule
7.10 attached hereto and made a part hereof.
7.11 ERISA.
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(a) Except as set forth on Schedule 7.11(a) hereto (i)
neither Debtor nor any Subsidiary has received from any Governmental Authority
any notice to the effect that any of them is not in compliance with any of the
requirements of ERISA and the regulations promulgated thereunder (including,
without limitation, minimum funding requirements); (ii) to the best of Debtor's
knowledge, there exists no Reportable Event with respect to any Benefit Plan
maintained by Debtor or any of its ERISA Affiliates which could result in a
material liability to Debtor or its Subsidiaries; and (iii) neither Debtor nor
any of its ERISA Affiliates has incurred any withdrawal liability under Section
4201 of ERISA with respect to any Multiemployer Plan that has not been
satisfied.
(b) As of the date hereof, neither Debtor nor any ERISA
Affiliate of Debtor is a party to, or is obligated to contribute under, any
defined benefit plan (as defined in ERISA) or a Multiemployer Plan except as
set forth on Schedule 7.11(b).
7.12 Solvency. Debtor is solvent, is able to pay its debts
as they become due and has capital sufficient to carry on its business and all
businesses in which it is about to engage. Debtor will not be rendered
insolvent by the execution and delivery of this Agreement or any of the other
agreements, documents or instruments executed in connection with this Agreement
or by the transactions contemplated hereunder or thereunder.
7.13 Environmental. Except as set forth on Schedule 7.13
hereto, to the knowledge of Debtor ("knowledge" for purposes hereof shall mean
the actual knowledge of William G. Catron or other officers or employees
charged by Debtor's board of directors (or a duly designated committee thereof)
or executive officers with responsibility for environmental or legal matters):
(a) the operations and facilities owned or controlled by Debtor or any of its
Subsidiaries (i) are in compliance in all material respects with all
Environmental Laws, (ii) are not the subject of any United States federal or
state or Canadian federal or provincial investigation of which Debtor or any of
its Subsidiaries has notice evaluating whether any remedial action is required
or purported to be required pursuant to any Environmental Laws to respond to a
release of any Hazardous Substance into the environment, and (iii) are not
contaminated with any Hazardous Substance that may reasonably be expected to
require a remedial action requiring the expenditure of $250,000 or more in
remediation costs; and (b) neither Debtor nor or any of its Subsidiaries has
received written notice to the effect that any of them is or may be liable to
any Person (including, without limitation, any individual or government,
whether federal, state, provincial, or local) as a result of the release or
threatened release of any Hazardous Substance into the environment.
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7.14 Representations as to Inventory and Equipment.
(a) Debtor is and shall be, with respect to the Equipment,
the owner of such Equipment free from any lien, security interest, claim and
encumbrance of any kind, except in Congress' favor or as permitted by Section
8.4(d) hereof.
(b) All of the Collateral is located at the addresses set
forth on Schedule 7.14(b) hereto or at such other addresses as are hereafter
approved in writing by Congress pursuant to Section 8.24 hereof.
(c) The Inventory and the Equipment are and shall be used
in Debtor's business and not for personal, family, household or farming use.
(d) The Equipment is now and shall remain personal
property. Debtor shall not permit any of the Equipment to be or become a part
of or affixed to real property without (i) prior written notice to Congress and
(ii) first making all arrangements, and delivering or causing to be delivered
to Congress, such agreements and other documentation requested by Congress for
the protection and preservation of Congress' security interests and liens, in
form and substance reasonably satisfactory to Congress, including, without
limitation, waivers and subordination agreements by any landlords or mortgagees
of statutory and non- statutory liens and rights of distraint.
7.15 Location of Cash Accounts. Except as set forth on
Schedule 7.15 hereto, Debtor has no cash accounts with any bank, savings and
loan or similar institution, and Schedule 7.15 accurately reflects the location
of each such account.
7.16 Financial Statements. All financial statements,
including the notes thereto, provided to Congress by Debtor fairly present the
financial condition of Debtor as of the respective dates thereof, all
Indebtedness of Debtor is reflected thereon or has been previously disclosed to
Congress in writing, and there has been no material adverse change in Debtor's
operations, properties, assets (tangible or intangible) or condition (financial
or otherwise) since December 31, 1994.
7.17 Internal Controversies. There are no controversies
pending or, to the best of Debtor's knowledge, threatened between Debtor or any
Subsidiary of Debtor and any of its employees (other than employee grievances
arising in the ordinary course of business) which, if adversely determined with
respect to Debtor, would result in any material adverse change in Debtor's
business, properties, assets (tangible or intangible), goodwill, or condition
(financial or otherwise).
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SECTION 8. COVENANTS.
Debtor covenants and agrees that, so long as any Obligations
remain outstanding, and (even if there shall be no Obligations outstanding) so
long as this Agreement remains in effect (unless Congress shall give its prior
written consent thereto):
8.1 Financial Information; Maintenance of Forms. Debtor
shall maintain Debtor's shipping forms, invoices and other related documents in
a form reasonably satisfactory to Congress and shall maintain Debtor's books,
records and accounts in accordance with GAAP. Debtor agrees to furnish
Congress monthly with accounts receivable agings, inventory reports (if
requested by Congress) and interim financial statements (including a balance
sheet and statements of income and cash flows) and to furnish Congress, at any
time or from time to time with such other information regarding Debtor's
business affairs and financial condition as Congress may reasonably request,
including, without limitation, balance sheets, statements of profit and loss,
financial statements, cash flow and other projections, earnings forecasts,
schedules, agings and reports. Debtor agrees to provide Congress with copies
of all Customer Sales Reports generated by the Debtor. Debtor hereby
irrevocably authorizes and directs all accountants, auditors or other similar
third parties to deliver to Congress, at Debtor's expense, copies of Debtor's
financial statements and to provide Congress with access to, and the right to
copy, at Debtor's expense, all papers related thereto, and other accounting
records of any nature in such parties' possession and to disclose to Congress
any information such parties may have regarding Debtor's business affairs and
financial condition. Debtor shall provide Congress with a copy of all filings
made by Debtor with the Securities and Exchange Commission within five (5)
Business Days of the filing thereof, including, without limitation, all filings
and reports made in connection with the Securities Act of 1933, as amended, the
Securities Exchange Act of 1934, as amended, and all applicable rules and
regulations promulgated thereunder. Debtor shall furnish Congress with audited
financial statements on an annual basis certified by independent public
accountants selected by Debtor and acceptable to Congress within 120 days from
year end. Congress hereby designates Price Waterhouse & Co. LLP as acceptable
for purposes of this Section 8.1. All such statements and information shall
fairly present Debtor's financial condition as of the dates, and the results of
Debtor's operations for the periods, for which the same are furnished. Any
documents, schedules, invoices or other papers delivered to Congress may be
destroyed or otherwise disposed of by Congress one year after the date the same
are delivered to Congress, unless Debtor makes a written request therefor and
pays all expenses attendant to their return, in which event Congress shall
return same when Congress' actual or anticipated need therefor has ceased.
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8.2 Payment of Taxes. Debtor shall duly pay and discharge
all taxes, assessments, contributions and governmental charges upon or against
Debtor or its properties or assets (tangible or intangible) prior to the date
on which penalties attach thereto, other than taxes the liability for which is
being contested in good faith by appropriate proceedings, and as to which (i)
Debtor shall, if appropriate under GAAP, have set aside on its books and
records adequate reserves; and (ii) Congress has determined the maximum amount
of the asserted tax liability and reduced the loan availability by such amount.
Debtor shall be liable for any tax or penalty imposed on it arising out of this
Agreement or any supplement hereto or giving rise to the Accounts or any other
Collateral or which Congress may be required to withhold or pay for any reason
and Debtor agrees to indemnify and hold Congress harmless with respect thereto,
and to repay to Congress on demand the amount thereof, and until paid by Debtor
such amount shall be added to and deemed part of Congress' loans to Debtor.
8.3 Further Assurances. Debtor shall, at Debtor's expense,
duly execute and deliver, or shall cause to be duly executed and delivered,
such further agreements, instruments and documents, including, without
limitation, additional security agreements, collateral assignments, UCC
financing statements or amendments or continuations thereof, landlord's or
mortgagee's waivers of liens and consents to the exercise by Congress of all
Congress' rights and remedies hereunder, under any supplement hereto, or under
any other Loan Document or applicable law with respect to the Collateral, and
do or cause to be done such further acts as may be necessary or proper in
Congress' opinion to evidence, perfect, maintain and enforce Congress' security
interest and the priority thereof in the Collateral and to otherwise effectuate
the provisions or purposes of this Agreement or any other Loan Document. Where
permitted by law, Debtor hereby authorizes Congress to execute and file one or
more UCC financing statements signed only by Congress.
8.4 Liens. Debtor will not, and will not cause Galco or any
of its active Subsidiaries to, create, incur, assume or suffer to exist any
Lien or other encumbrance of any nature whatsoever on any of its assets, except
for:
(a) Liens in favor of Congress;
(b) the Liens set forth on Schedule 8.4 hereto;
(c) Liens securing the payment of taxes, either not yet due
and payable or the validity of which are being contested in good faith by
appropriate proceedings, and as to which (i) Debtor shall, if appropriate under
GAAP, have set aside on its books and records adequate reserves; and (ii)
Congress has determined the maximum amount of the asserted tax liability and
reduced the loan availability by such amount;
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(d) purchase money Liens relating to Equipment (including the
interest of a lessor under a capital lease or an operating lease having
substantially the same economic effect and Liens to which any property is
subject at the time of Debtor's purchase thereof) securing an amount not to
exceed $250,000 in the aggregate at any time, provided that such Liens shall
not apply to any property of Debtor other than that purchased or leased, as the
case may be;
(e) deposits under worker's compensation, unemployment
insurance, social security and other similar laws, or to secure the performance
of bids, tenders or contracts (other than for the repayment of borrowed money)
or to secure indemnity, performance or other similar bonds for the performance
of bids, tenders or contracts (other than for the repayment of borrowed money)
or to secure statutory obligations or surety or appeal bonds, or to secure
indemnity, performance or other similar bonds in the ordinary course of
business;
(f) Liens on the stock of the target company in favor of the
seller of such stock to the Debtor in the Acquisition, which Liens may only
secure obligations owing by the Debtor to such seller in connection with the
Acquisition; and
(g) Liens on the Headquarters Property securing Indebtedness
(other than the Obligations hereunder) in an amount not to exceed $5,000,000,
which liens may be first priority liens.
Debtor acknowledges that Congress has consented only to the Liens permitted by
this Section 8.4.
8.5 Sale of Assets; Preservation of Corporate Existence.
Debtor shall not, and shall not permit its Subsidiaries to, sell, lease,
transfer, abandon or otherwise dispose of its properties, assets or rights
(tangible or intangible), except for (a) sales of Inventory in the ordinary
course of Debtor's business, (b) the sale of assets, other than Inventory in
the ordinary course of Debtor's business (which shall include close-out sales
of Inventory), during any fiscal year which have an aggregate value based upon
the higher of fair market value and appraised orderly liquidation value not in
excess of $500,000, (c) the sale of the Headquarters Property and (d) the sale,
lease, transfer, or other disposition of Equipment so long as (i) such
Equipment is promptly replaced with like-kind Equipment of the same or greater
value or (ii) the Debtor determines in its reasonable business judgment that
such Equipment is not necessary to its business. On or before the twentieth
day of each month, Debtor shall deliver to Congress a report of dispositions of
assets during the preceding month pursuant to Section 8.5(c) hereof. Debtor
shall not, and shall cause each of its Subsidiaries not to, consolidate or
merge with or into any other entity or permit any other entity to
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consolidate or merge with or into Debtor or its Subsidiaries, except for
mergers of any Subsidiary with Debtor solely to effect a name change as
permitted in accordance with the immediately following sentence. Debtor shall
give Congress 30 days' prior written notice of any proposed change in Debtor's
corporate name or merger with any wholly owned Subsidiary of Debtor solely to
effect such name change, which notice shall set forth the new name. Debtor
will at all times preserve, renew and keep in full force and effect Debtor's
existence as a corporation and the rights and franchises with respect thereto
and continue to engage in business of the same type as Debtor is engaged as of
the date hereof.
8.6 Investments. Except as set forth on Schedule 8.6 hereto
and as otherwise provided herein, Debtor shall not make or permit to exist any
investments other than Permitted Investments.
8.7 Liability for Indebtedness of Third Parties. Debtor
shall not, and shall cause its Subsidiaries not to, directly or indirectly,
create or become liable in respect of any Accommodation Obligation, except (i)
the Obligations, (ii) trade obligations and other normal accruals in the
ordinary course of business not yet due and payable, (iii) guarantees resulting
from endorsement of negotiable instruments which are being collected in
accordance with Section 6 hereof, (iv) Accommodation Obligations existing on
the date hereof which are listed on Schedule 8.7 hereto, (v) the guaranty of
Indebtedness of Galco in an aggregate amount not to exceed $500,000 outstanding
at any time and (vi) as permitted under Section 8.4(d) hereof.
8.8 Officer Compensation. Except as set forth in Schedule
8.8 hereto, Debtor shall not, and shall cause its Subsidiaries not to, make any
loans to, or pay any bonuses, management or other fees, amounts or other form
of compensation to any officers, directors, employees or stockholders of Debtor
or its Subsidiaries, except for (a) advances or reimbursements by Debtor or its
Subsidiaries for reasonable travel, entertainment or other expenses to Debtor's
or such Subsidiaries's officers, directors or employees in the ordinary course
of Debtor's business, (b) compensation (including reasonable bonuses and
benefits) for all officers, directors and other personnel which has been
approved by the Debtor's board of directors or a duly designated committee
thereof, and (c) professional, legal and consulting fees incurred in the
ordinary course of Debtor's and its Subsidiaries' business.
8.9 Redemption of Capital Stock; Dividends. Debtor shall
not, except with the prior written consent of Congress, which consent shall not
be unreasonably withheld, (a) redeem, purchase or otherwise retire any of its
shares of capital stock, and shall not permit its Subsidiaries to redeem,
purchase, or otherwise retire any of their shares of capital stock, (b) declare
or pay any dividends in any fiscal year on any class of
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stock or classes of stock, (c) return capital to its stockholders, (d) make any
other distribution on or in respect of any shares of any class of capital stock
of Debtor, or (e) issue or distribute any capital stock or other securities for
consideration or otherwise, except capital stock of the Debtor granted, issued
or otherwise distributed to the Debtor's employees or directors pursuant to a
stock option plan of the Debtor existing on the date hereof.
8.10 Transactions with Affiliates. Debtor shall not enter
into any transaction, including, without limitation, the purchase, sale or
exchange of property or the rendering of any service to or by any Affiliate,
except in the ordinary course of Debtor's business and upon fair and reasonable
terms no less favorable to Debtor than Debtor would obtain in a comparable
arm's- length transaction with a Person who is not an Affiliate.
8.11 Payment on Indebtedness. Except for (i) scheduled
payments of interest on Permitted Indebtedness and (ii) the repayment of any
Permitted Indebtedness in connection with the permitted refinancing or
refunding thereof, Debtor shall not pay or agree to pay any of Debtor's
existing Indebtedness (including, without limitation, Indebtedness owed
pursuant to the Convertible Subordinated Debentures), or pay or make any
distribution or loan to permit the payment of any existing Indebtedness of any
of its Subsidiaries or Affiliates, prior to the scheduled maturity of such
Indebtedness.
8.12 Amendment of Articles of Incorporation. Debtor may
amend its Articles of Incorporation (including, without limitation, to effect a
change in its corporate name), provided that Debtor provides Congress with 30
days' prior written notice thereof and thereafter furnishes to Congress a copy
of such amendment, certified by the Secretary of State of Delaware, within ten
days after the date such amendment is filed with the Secretary of State of
Delaware.
8.13 Maintenance of Liability and Casualty Insurance. Debtor
shall maintain, at its expense, such public liability and third party property
damage insurance in such amounts, with such deductibles and with such insurance
companies, as are reasonably acceptable to Congress. Debtor shall not, without
Congress' prior written consent, amend, modify or change in any way any such
insurance policy and shall provide Congress with written notice of any
expiration of any such policy or any failure by Debtor to renew any such policy
within five Business Days of such expiration or failure to renew. Debtor shall
at all times maintain, with financially sound and reputable insurers, casualty
and hazard insurance with respect to the Collateral for not less than its full
market value and against all risks to which it may be exposed for which such
insurance is customary in Debtor's industry. All such insurance policies shall
be in such form, substance, amounts and coverage as in effect on the date of
the
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Original Agreement or as otherwise may be satisfactory to Congress and shall
provide for ten days' minimum prior cancellation notice in writing to Congress.
In the event that the Debtor fails to timely act hereunder, Congress may act as
attorney for Debtor in obtaining, adjusting, settling, amending and cancelling
such insurance. Debtor shall promptly (i) obtain endorsements to all existing
and future insurance policies with respect to the Collateral specifying that
the proceeds of such insurance shall be payable to Congress and Debtor as their
interests may appear and further specifying that Congress shall be paid
regardless of any act, omission or breach of warranty by Debtor, (ii) deliver
to Congress original executed copies of such endorsements and, at Congress'
request, originals or certified duplicate copies of the underlying insurance
policies, (iii) deliver to Congress certificates of insurance executed by such
insurers (or their agents) stating that such policies are presently in effect
and the amounts and types of coverage of such policies, (iv) deliver to
Congress copies of the insurance binders describing the terms of such insurance
policies, and (v) deliver to Congress such other evidence which is satisfactory
to Congress of compliance with the provisions hereof. Congress hereby
acknowledges that it presently considers the insurance in effect as of the date
hereof to be acceptable for purposes of this Section 8.13. Any insurance
monies received at any time shall, at Congress' option, (i) be applied to the
cost of repairs to or replacement for the damaged Collateral on account of
which such proceeds were paid or (ii) be applied to payment of any of the
Obligations, whether or not due, in any order and in such manner as Congress,
in its sole discretion, may determine.
8.14 Litigation; Contested Taxes. Debtor shall, as soon as
possible, and in any event within ten Business Days after Debtor learns of the
following, give written notice to Congress of (i) any proceeding(s) being
instituted or overtly threatened to be instituted by or against Debtor or any
of its Subsidiaries in any federal, state, local or foreign court or before any
commission or other regulatory body (federal, state, local or foreign) in which
money damages in excess of $500,000 are claimed or any material nonmonetary
relief is requested, and (ii) any material adverse change in the business,
properties, assets (tangible or intangible) or condition (financial or
otherwise) of Debtor, any of its Subsidiaries or any Guarantor. Debtor shall
promptly notify Congress of any taxes, assessments, contributions and
governmental charges which are not paid prior to the date on which penalties
attach thereto.
8.15 ERISA.
(a) Debtor shall, and will cause each Subsidiary to, (i)
refrain from terminating any Benefit Plan that is presently in existence unless
such Benefit Plan can be terminated without liability that is material to
Debtor in connection with such termination; (ii) make contributions to all of
Debtor's and its
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Subsidiaries' Benefit Plans in a timely manner and in a sufficient amount to
comply with the minimum funding requirements of ERISA so that no liability of
Debtor arises as a result of a failure to make such contributions; (iii) comply
with all requirements of ERISA that relate to any Benefit Plan so that no
material liability of Debtor with respect to any non-compliance will arise; and
(iv) notify Congress immediately upon receipt by Debtor or any of its
Subsidiaries of any notice issued by the Pension Benefit Guaranty Corporation
of the institution of any proceeding to terminate any Benefit Plan.
(b) Debtor shall notify Congress in writing as soon as
reasonably practicable upon becoming aware of the occurrence of any Termination
Event or Prohibited Transaction in connection with any Benefit Plan or trust
created thereunder, specifying the nature thereof, what action Debtor or its
ERISA Affiliates have taken and, when known, any action taken or threatened by
the Internal Revenue Service, the Department of Labor or the Pension Benefit
Guaranty Corporation with respect thereto, and shall provide Congress as soon
as reasonably practicable, copies of (i) all notices received by Debtor or any
of its ERISA Affiliates of the Pension Benefit Guaranty Corporation's intent to
terminate any Benefit Plan or to have a trustee appointed to administer any
Benefit Plan, (ii) all notices received by Debtor or any of its ERISA
Affiliates from the sponsor of a Multiemployer Plan pursuant to Section 4201 of
ERISA involving any withdrawal liability, and (iii) all funding waiver requests
filed by Debtor or any of its ERISA Affiliates with the Internal Revenue
Service with respect to any Benefit Plan, and all communications received by
Debtor or any of its ERISA Affiliates from the Internal Revenue Service with
respect to any such funding waiver request.
(c) Debtor shall not (i) engage or permit any Subsidiary
to engage in any Prohibited Transaction which could result in material
liability to Debtor or any Subsidiary; (ii) except as set forth on Schedule
8.15 hereto, permit to exist any accumulated funding deficiency, as defined in
Section 302(a) of ERISA and Section 412(a) of the Internal Revenue Code, or
fail to pay any installment necessary to amortize any waived funding
deficiency, with respect to any Benefit Plan maintained by Debtor or any
Subsidiary; (iii) fail to make any payments to any Multiemployer Plan that
Debtor may be required to make under any agreement relating to such
Multiemployer Plan or any law pertaining thereto; (iv) terminate any Benefit
Plan so as to result in any material liability of Debtor or any Subsidiary
under Title IV of ERISA; or (v) permit to exist any occurrence of any
Reportable Event which presents a material risk of material liability of such
Debtor or any Subsidiary of Debtor under ERISA or the Internal Revenue Code.
(d) Debtor will provide to Congress from time to time as
necessary to keep such information complete and current, a description of all
Benefit Plans maintained by Debtor and its
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Subsidiaries and confirmation satisfactory to Congress that (i) except as set
forth on Schedule 8.15 hereto, such Benefit Plans are adequately funded in
accordance with at least the minimum statutory requirements for funding; (ii)
no Reportable Event with respect thereto has occurred which could result in a
material liability to Debtor or any Subsidiary that has not been satisfied; and
(iii) no termination of, or withdrawal from, such Benefit Plans has occurred or
is contemplated by Debtor or any Subsidiary which could result in a material
liability to Debtor or any Subsidiary that has not been satisfied.
(e) Upon the written request of Congress, Debtor shall
provide Congress with an officer's certificate stating that Debtor and each of
its Subsidiaries have made all payments required to be made by Debtor and its
Subsidiaries to the Benefit Plans.
(f) Debtor shall prior to becoming a party to or
obligated to make payments under any Multiemployer Plan (i) provide Congress
with an analysis of Debtor's projected funding obligations under such
Multiemployer Plan over the immediately succeeding two-year period together
with such other financial or other relevant information as Congress may
reasonably request and (ii) obtain Congress' prior written consent, which
consent shall not be unreasonably withheld.
8.16 Environmental.
(a) Debtor shall, and shall cause each of its
Subsidiaries to, conduct its business and maintain its facilities so as to
comply in all material respects with all Environmental Laws, provided, however,
that nothing contained in this Section 8.16 shall prevent Debtor or any such
Subsidiary from contesting, in good faith by appropriate legal proceedings, any
Environmental Laws or the application thereof. Notwithstanding the foregoing,
an Event of Default shall not arise hereunder if, after discovery of any
material noncompliance with any Environmental Laws Debtor within 15 Business
Days of such discovery notifies Congress and corrects or remedies such material
noncompliance within the earlier of a reasonable period of time after discovery
or as required pursuant to any judicial or administrative order or any other
Environmental Laws, that is not the subject of a good faith contest in any
appropriate legal proceeding.
(b) If Debtor or any Subsidiary shall receive written
notice (i) that any violation of any Environmental Laws may have occurred or is
about to occur in connection with the facilities or operations owned or
controlled by Debtor or any such Subsidiary; (ii) that any administrative or
judicial complaint or order has been filed or is about to be filed against
Debtor or any such Subsidiary alleging any violation of Environmental Laws or
requiring Debtor or any such Subsidiary to take any action in connection with
the release or threatened release of any
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Hazardous Substance into the environment, or (iii) that Debtor or any such
Subsidiary may be liable or responsible for response costs associated with a
release or threatened release of any Hazardous Substance into the environment
or any damages caused thereby, then and in each case Debtor shall provide
Congress with a copy of such notice within 15 Business Days of Debtor's receipt
thereof.
(c) If Debtor or any Subsidiary discovers or otherwise
becomes aware of (i) any release of any Hazardous Substance at or from the
operations and facilities owned or controlled by Debtor or any Subsidiary, or
(ii) any violation of Environmental Laws arising out of or in connection with
the operations and facilities owned or controlled by Debtor or any such
Subsidiary, which release or violation will have a material adverse effect on
the operations or facilities (solely for the purpose of this subparagraph (c),
"material adverse effect" shall mean requiring the expenditure of $250,000 or
more in remediation costs or directly related expense or costs or interfering
in a material respect with the operation of any plant or major production line
of Debtor), then Debtor shall provide Congress with written notice of such
release or violation within 15 Business Days of discovery and confirmation
thereof by Debtor or any such Subsidiary.
(d) Debtor shall provide Congress with a copy of any
report of any environmental audit, study, or other investigation relating to
the operations and facilities owned or controlled by Debtor or the Subsidiaries
within 20 Business Days of Debtor's receipt thereof.
(e) Within 30 Business Days of Debtor having become aware
of the enactment, promulgation or issuance of any Environmental Laws that may
result in any material adverse change in the condition, financial or otherwise,
of Debtor, Debtor shall provide Congress with written notice thereof.
(f) Within 30 Business Days of Debtor having received
notice, discovered or otherwise become aware of any non- compliance with any
Environmental Laws, Debtor shall deliver (i) an estimate of the costs and
related expenses of any response or remedial action required pursuant to any
Environmental Laws, but only if such estimate exceeds $250,000 and, (ii) if
such estimate is required to be delivered pursuant to this Section 8.16(f), a
statement setting forth in reasonable detail projections showing compliance
with financial covenants after giving effect to the payment of such costs and
expenses, including all premises or assumptions on which such projections are
based.
8.17 Indebtedness. Debtor shall not, and shall not permit
its Subsidiaries to, incur or permit to remain outstanding any Indebtedness
other than Permitted Indebtedness.
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8.18 Notices of Default. Debtor shall provide Congress with
a copy of all notices of default under any material contract (as defined in
Section 10.1(i) hereof) (other than notice of Event of Default delivered to
Debtor by Congress) delivered to Debtor or any of its Subsidiaries no later
than two Business Days after Debtor receives such notice. In the event Debtor
is informed orally of an Event of Default by any Person other than Congress,
Debtor shall immediately notify Congress by telephone of such Event of Default,
with written confirmation thereof to be delivered to Congress no later than two
Business Days after Debtor was initially informed of such Event of Default.
8.19 Maintenance of Records of Accounts. Debtor shall keep
and maintain, at its cost and expense, satisfactory and complete books and
records of all Accounts, all payments received or credits granted thereon, and
all other dealings therewith. At such times as Congress may reasonably
request, Debtor shall deliver to Congress copies of documents evidencing the
sale and delivery of goods or the performance of services which created any
Accounts, including but not limited to any contracts, orders, invoices, bills
of lading, warehouse receipts, delivery tickets and shipping receipts, together
with schedules describing the Accounts and/or written confirmatory assignments
to Congress of each Account, in form and substance reasonably satisfactory to
Congress and duly executed by Debtor, together with such other information as
Congress may reasonably request. In no event shall the making or the failure
to make or the content of any schedule or assignment or Debtor's failure to
comply with the provisions hereof be deemed or construed as a waiver,
limitation or modification of Congress' security interest in, Lien upon and
assignment of the Collateral or Debtor's representations, warranties or
covenants under this Agreement or any other Loan Document.
8.20 Use of Proceeds. Debtor agrees that the funds advanced
to it by Congress pursuant to the terms of this Agreement shall be utilized
only for the following purposes:
(a) for Debtor's working capital purposes;
(b) to make capital expenditures to the extent otherwise
permitted hereunder; and
(c) for the Acquisition and fees and expenses incurred in
connection therewith to the extent otherwise permitted hereunder; and
.
8.21 Covenants as to Inventory and Equipment.
(a) Debtor shall promptly notify Congress in writing of
the details of any loss, damage, investigation, action, suit,
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proceeding or claim relating to the Collateral which would result in any
material adverse change in Debtor's business, properties (tangible or
intangible) or condition (financial or otherwise).
(b) Upon Congress' request, but in any case prior to an
Event of Default no more than once during any fiscal year of Debtor, Debtor
shall, at Debtor's sole cost and expense, execute and deliver to Congress
written reports or updated appraisals as to the Inventory and Equipment listing
all items and categories thereof, describing the condition of same and setting
forth the value thereof (the lower of cost or market value of the Inventory and
the lower of net cost less depreciation, fair market value and/or liquidation
value of the Equipment), in such form as is satisfactory to Congress.
(c) Debtor shall, at Debtor's own expense, keep the
Equipment in good working order, repair, and operating condition, subject to
normal wear and tear.
(d) Debtor shall (i) use, store and maintain the
Inventory and the Equipment with all reasonable care and caution, and (ii) use
the Inventory and Equipment for lawful purposes only and in conformity with
applicable laws, ordinances and regulations.
(e) All Inventory shall be produced in accordance with
the requirements of the Federal Fair Labor Standards Act of 1938, as amended
and all rules, regulations and orders related thereto.
(f) Debtor shall assume, as against Congress, all
responsibility and liability arising from or relating to the use, sale or other
disposition of the Inventory and the Equipment.
(g) In addition to the requirements of (a)-(f) above and
without limiting the generality of Congress' discretion in requesting written
inventory records and reports, Debtor shall at all times hereafter maintain a
perpetual inventory, keeping correct and accurate records itemizing and
describing the kind, type, quality and quantity of Inventory, Debtor's cost
therefor and daily withdrawals therefrom and additions thereto, all of which
records shall be maintained in accordance with GAAP, if applicable, and
consistent with Debtor's past practice and which records shall be available
during Debtor's usual business hours at the request of any of Congress'
officers, employees or agents. Debtor shall conduct a physical count of the
Inventory for which a statistical sampling will be sufficient, provided that
such statistical sampling is consistent with prior practice of Debtor and
performed in accordance with generally accepted auditing standards, at least
once a year and promptly following such physical inventory shall supply
Congress with a report in a form and with such specificity as may be
satisfactory to Congress concerning such physical count of the Inventory.
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8.22 Financial Covenants. From the date hereof and
thereafter until the Obligations have been satisfied, Debtor shall:
(a) Consolidated Tangible Net Worth. Maintain at all times a
Consolidated Tangible Net Worth of not less $20,000,000.
(b) Capital Expenditures. Not, and not permit any
Subsidiary to, purchase or otherwise acquire (including, without
limitation, acquisition by way of Capital Lease), or commit to
purchase or otherwise acquire, any fixed asset if, after giving
effect to such purchases or other acquisition, the aggregate cost of
all fixed assets purchased or otherwise acquired by Debtor and its
Subsidiaries on a consolidated basis in any one fiscal year would
exceed $1,000,000; provided, however, that expenses incurred in
connection with the development and acquisition of tools and molds for
the manufacture of Inventory shall not be considered capital
expenditures for the purposes of this Section 8.22(b).
8.23 Loan Agreement as Financing Statement. Debtor agrees
that a carbon, photographic or other reproduction of this Agreement or of a
financing statement is sufficient as a financing statement.
8.24 Location and Use of Collateral. Debtor shall not keep
Collateral at any location not set forth on Schedule 7.14(b) unless a financing
statement with respect to such Collateral is on file in the appropriate filing
office and in effect for such location and Debtor has delivered to Congress a
bailee letter satisfactory to Congress in its sole discretion. Debtor shall
use the Collateral only in Debtor's business and not for personal, family,
household or farming use.
8.25 Location of Chief Executive Office. Debtor shall not
change the location of its chief executive office without Congress' prior
written consent, which shall not be unreasonably withheld, and prior to making
any such change, Debtor shall execute any additional financing statements or
other documents or notices which Congress may require in order to maintain
Congress' perfected security interest in the Collateral.
SECTION 9. CONDITIONS PRECEDENT.
9.1 Conditions Precedent to Rollover Advance. The
effectiveness of this amendment and restatement of the Original Agreement and
the obligation of Congress to roll over the Existing Revolving Loans into
Revolving Loans hereunder shall be subject to the satisfaction of each of the
following conditions:
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(a) There shall have been no material adverse change in the
business, assets, properties, conditions (financial or otherwise) or prospects
of Debtor from the date of completion of Congress' latest field audit to the
date hereof and no information reasonably deemed by Congress to be reliable
shall have been received on or prior to the date hereof by Congress
demonstrating or reflecting a material adverse change from the results obtained
in Congress' latest field audit.
(b) Congress shall have received all of the following, each
fully executed by the appropriate parties and in form and substance satisfactory
to Congress as Congress, in its sole discretion, shall determine:
(i) this Agreement, together with all schedules and exhibits
hereto which are in each case true, complete and correct;
(ii) an Amended and Restated Revolving Note in the form
attached hereto as Schedule 9.1(b)(ii) duly executed by Debtor (the
"Revolving Note");
(iii) an opinion letter from Shereff, Friedman, Hoffman &
Goodman, LLP;
(iv) the Trademark Security Agreement;
(v) the Mortgage Amendment and such evidence of the
condition of title to the Headquarters Property as shall be reasonably
acceptable to Congress, including, without limitation, title insurance
with respect to the Headquarters Property;
(vi) current Uniform Commercial Code searches made in such
places as Congress may specify, covering Debtor and any Subsidiary
which executes any of the Loan Documents showing no filings relating
to, or which could relate to, the Collateral or the improvements on
the Property, other than (i) those filings made under the Original
Agreement and (ii) those other filings set forth on Schedule
9.1(b)(vi) hereto;
(vii) a certificate of the Secretary of Debtor in the form of
Schedule 9.1(b)(vii) hereto, dated as of the date of the Rollover
Advance certifying, among other things, (a) the names and true
signatures of the officers of Debtor authorized to sign any of the
Loan Documents to which Debtor is a party; (b) that attached thereto
is a true and complete copy of the Articles of Incorporation and the
by-laws of Debtor as in effect on the date of such certification; and
(c) that attached thereto is a true and complete copy of the
resolutions of Debtor's Board of Directors approving and authorizing
the execution and delivery of the Loan Documents to which Debtor is a
party;
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(viii) a certificate in the form of Schedule 9.1(b)(viii)
hereto confirming representations and warranties and the satisfaction
of conditions precedent;
(ix) good standing certificates for Debtor issued by the
Secretary of State of each of Delaware and California;
(x) copies of the Articles of Incorporation of Debtor
certified by the Secretary of State of Delaware; and
(xi) any other documents required pursuant to the terms of
any Loan Document or as Congress, in its sole discretion, may require.
(c) there shall be remaining Availability immediately after
the Rollover Advance of not less than $1,500,000.
(d) Congress shall have sold Participations in an aggregate
amount equal to at least $40,000,000.
(e) No Event of Default (as defined in the Original
Agreement) or event that with time or notice or both would result in an Event
of Default (as defined in the Original Agreement), in each case under the
Original Agreement, shall have occurred and be continuing.
9.2 Conditions Precedent to All Advances. The obligation of
Congress to make any Advance (including the Rollover Advance) shall be subject
to the satisfaction of each of the following conditions:
(a) During the period commencing on the date of the most
recent audited financial statement delivered to Congress prior to the date
hereof and ending on the date on which Congress makes such Advance, Debtor's
operations shall have been conducted in the ordinary course and there shall have
been no material adverse change, as determined by Congress, in its sole
discretion, in the business, operations, properties, assets, condition
(financial or otherwise) or prospects of Debtor;
(b) All of Debtor's representations and warranties contained
in this Agreement and any other agreement executed in connection therewith
(other than the representations and warranties that are expressly made as of a
certain date, which shall be true and correct on and as of such date) shall be
true and correct on and as of the date on which Congress makes such Advance as
though made on and as of that date;
(c) No Event of Default or event that with time or notice or
both would result in an Event of Default shall have occurred and be continuing
or would result from the making of any Advance as of the date on which Congress
makes such Advance;
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(d) No law or regulation shall prohibit, and no order,
judgment or decree of any Governmental Authority shall enjoin or restrain,
Congress from making such Advance; and
(e) Debtor shall have paid to Congress the fees and
expenses due and payable under this Agreement on or before the date of the
making of such Advance.
SECTION 10. EVENTS OF DEFAULT.
10.1 Events of Default. All Obligations shall be, at
Congress' option, immediately due and payable without notice or demand
(notwithstanding any deferred or installment payments allowed, if any, by any
instrument evidencing or relating to the Obligations) and any provision of this
Agreement or any supplement hereto, as to future loans and advances by Congress
shall, at Congress' option, terminate forthwith, upon the termination or
non-renewal of this Agreement or upon the occurrence of any one or more of the
following ("Events of Default"):
(a) if Debtor (i) shall fail to pay to Congress interest
and fees and, when due any other Obligations owing to Congress, (ii) shall
breach any of the terms, covenants, conditions or provisions contained in
Sections 8.15(b), 8.15(c), 8.15(d), 8.15(e) or 8.22 hereof, (iii) shall breach
any of the reporting requirements contained in Sections 2.1 or 8.1 hereof,
which breach is not cured by the Debtor within five (5) Business Days of the
receipt of written notice thereof from Congress, (iv) shall breach and continue
to breach for the period provided therein any covenant, condition or provision
of this Agreement or any of the Loan Documents which contains an express cure
period, or (v) shall breach any other term, covenant, condition or provision of
this Agreement or any of the Loan Documents;
(b) if any Guarantor, endorser or other Person liable on
the Obligations shall terminate or breach any of the terms, covenants,
conditions or provisions of any guarantee, endorsement or other agreement of
such person with, or in favor of, Congress;
(c) if any representation, warranty, or statement of fact
made to Congress at any time by Debtor or on Debtor's behalf is false or
misleading in any material respect when made;
(d) if Debtor, or any Guarantor, endorser or other Person
liable on the Obligations, shall become insolvent, fail to meet Debtor's or its
debts as they mature, call a meeting of creditors or have a creditors'
committee appointed, make an assignment for the benefit of creditors, commence
or have commenced against Debtor or any of them any action or proceeding for
relief under any bankruptcy law, or if Debtor or any of them suspend or
discontinue doing business for any reason, or if a
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receiver, custodian or trustee of any kind is appointed for Debtor or any of
them or any of Debtor's or their respective properties;
(e) if there shall be a material adverse change in
Debtor's business, assets or condition (financial or otherwise) from the date
of the Original Agreement;
(f) if at any time Congress shall, in Congress' Permitted
Discretion, consider the Obligations insecure or any part of the Collateral
insufficient and Debtor shall not on Congress' demand furnish other Collateral
or make payment on account, satisfactory to Congress;
(g) upon the occurrence of any Material Judgment;
(h) upon the occurrence of any Change in Control;
(i) upon the occurrence of a default or an event that
will mature into an event of default with notice or the passage of time or both
by Debtor or any Subsidiary of Debtor (subject to any applicable grace period)
under any material contract, lease or commitment by which Debtor or any
Subsidiary of Debtor or any Guarantor is bound. For purposes of this Section
10.1(i), "material contract" shall mean any contract the breach in question of
which could reasonably be expected to have a material adverse effect upon
Debtor and its Subsidiaries taken as a whole, or upon any Collateral;
(j) upon the occurrence of a default in the payment when
due, whether by acceleration or otherwise (subject to any applicable grace
period), of any Indebtedness of, or guaranteed by, Debtor, any Subsidiary or
any Guarantor (other than (i) any Indebtedness under this Agreement, (ii) any
Indebtedness of any Subsidiary to Debtor or to any other Subsidiary, or (iii)
any Indebtedness which does not exceed $250,000). Debtor shall provide
Congress with a copy of all notices of default (other than notice of Event of
Default delivered to Debtor by Congress) delivered to Debtor no later than two
Business Days after Debtor receives such notice. In the event Debtor is
informed orally of any default by any Person other than Congress, Debtor shall
immediately notify Congress by telephone of such default, with written
confirmation thereof to be delivered to Congress no later than two Business
Days after Debtor was initially informed of such default;
(k) upon the occurrence of any event or condition which
results in the acceleration of the maturity of any Indebtedness in an amount
not less than $250,000 of, or guaranteed by, Debtor, any Subsidiary or any
Guarantor (other than (i) any Indebtedness under this Agreement or (ii) any
Indebtedness of any Subsidiary to Debtor or to any other Subsidiary) or enables
the holder or holders of such other
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Indebtedness or any trustee or agent for such holders (any required notice of
default having been given and any applicable grace period having expired) to
accelerate the maturity of such other Indebtedness; and
(l) upon the occurrence of a default or an event of
default under the Convertible Subordinated Debenture Indenture.
10.2 Effect of Event of Default; Remedies. Upon the
occurrence and during the continuance of any Event of Default which has not
been waived in writing and at any time thereafter, Congress shall have the
right (in addition to any other rights Congress may have under this Agreement,
the other Loan Documents or otherwise) without further notice to Debtor, to
appropriate, set off and apply to the payment of any or all of the Obligations,
any or all Collateral, in such manner as Congress shall in Congress' sole
discretion determine, to enforce payment of any Collateral, to cash
collateralize any Letter of Credit, to settle, compromise or release in whole
or in part, any amounts owing on the Collateral, to prosecute any action, suit
or proceeding with respect to the Collateral, to extend the time of payment of
any and all Collateral, to make allowances and adjustments with respect
thereto, to issue credits in Congress' or Debtor's name, to sell, assign and
deliver the Collateral (or any part thereof), at public or private sale, at
broker's board, for cash, upon credit or otherwise, at Congress' sole option
and discretion, and Congress may bid or become purchaser at any such sale, if
public, free from any right of redemption which is hereby expressly waived.
10.3 Possession of Collateral by Judicial Process. In the
event Congress seeks to take possession of all or any portion of the Collateral
by judicial process, Debtor irrevocably waives: (a) the posting of any bond,
surety or security with respect thereto which might otherwise be required, (b)
any demand for possession prior to the commencement of any suit or action to
recover the Collateral, and (c) any requirement that Congress retains
possession and does not dispose of any Collateral until after trial or final
judgment.
10.4 Notice of Public Sale. Debtor agrees that the giving of
ten days notice by Congress sent by ordinary mail, postage prepaid, to Debtor's
address set forth below, designating the place and time of any public sale or
of the time after which any private sale or other intended disposition of the
Collateral is to be made, shall be deemed to be reasonable notice thereof and
Debtor waives any other notice with respect thereto.
10.5 Net Cash Proceeds Deficiency or Excess. The net cash
proceeds resulting from the exercise of any of the foregoing rights or remedies
shall be applied by Congress to the payment of the Obligations in such order as
Congress may elect, and Debtor shall remain liable to Congress for any
deficiency. Without
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limiting the generality of the foregoing, if Congress enters into any credit
transaction, directly or indirectly, in connection with the disposition of any
Collateral, Congress shall have the option, at any time, in Congress' sole
discretion, to reduce the Obligations by the principal amount of such credit
transaction or to defer the reduction thereof until actual receipt by Congress
of cash or other immediately available funds in connection therewith.
10.6 Remedies Not Exclusive. The enumeration of the
foregoing rights and remedies is not intended to be exclusive, and such rights
and remedies are in addition to and not by way of limitation of any other
rights or remedies Congress may have under the UCC or other applicable law.
Congress shall have the right, in its sole discretion, to determine which
rights and remedies, and in which order any of the same, are to be exercised,
and to determine which Collateral is to be proceeded against and in which
order, and the exercise of any right or remedy shall not preclude the exercise
of any others, all of which shall be cumulative.
10.7 No Waiver of Remedies. No act, failure or delay by
Congress shall constitute a waiver of any of Congress' rights and remedies. No
single or partial waiver by Congress of any provision of this Agreement or any
other Loan Document, or breach or default hereunder, or of any right or remedy
which Congress may have shall operate as a waiver of any other provision,
breach, default, right or remedy or of the same provision, breach, default,
right or remedy on a future occasion.
10.8 Waivers. Debtor waives presentment, notice of dishonor,
protest and notice of protest of all instruments included in or evidencing any
of the Obligations or the Collateral and any and all notices or demands
whatsoever (except as expressly provided herein). Congress may, at all times,
proceed directly against Debtor to enforce payment of the Obligations and shall
not be required to take any action of any kind to preserve, collect or protect
its or Debtor's rights in the Collateral.
10.9 Additional Remedies in Respect of Inventory and
Equipment. Congress shall have the right (in addition to any other rights it
may have under this Agreement, without notice to Debtor, at any time and from
time to time, in Congress' discretion, with or without judicial process or the
aid or assistance of others and without cost to Congress):
(a) To enter upon any premises on or in which any of the
Inventory or Equipment may be located and, without resistance or interference
by Debtor, take possession of the Inventory and Equipment;
(b) To complete processing, manufacturing and repair of
all or any portion of the Inventory;
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(c) To sell, foreclose or otherwise dispose of any part
or all of the Inventory and Equipment on or in any of Debtor's premises or
premises of any other party;
(d) To require Debtor, at Debtor's expense, to assemble
and make available to Congress any part or all of the Inventory or Equipment at
any place and time designated by Congress; and
(e) To remove any or all of the Inventory and Equipment
from any premises on or in which the same may be located, for the purpose of
effecting the sale, foreclosure or other disposition thereof or for any other
purpose.
SECTION 11. TAXES; EXPENSES; INDEMNITY.
11.1 Taxes. All payments by Debtor of principal of, and
interest on, the Obligations and all other amounts payable hereunder shall be
made free and clear of and without deduction for any present or future income,
excise, stamp or franchise taxes and other taxes, fees, duties, withholdings or
other charges of any nature whatsoever imposed by any taxing authority, but
excluding taxes imposed on or measured by any net income or receipts of
Congress or any Participant (such non-excluded items being herein called
"Non-excluded Taxes"). In the event that any withholding or deduction from any
payment to be made by Debtor hereunder is required in respect of any
Non-excluded Taxes pursuant to applicable law, rule or regulation, then Debtor
will:
(a) pay directly to the relevant authority the full
amount required to be so withheld or deducted;
(b) promptly forward to Congress an official receipt or
other documentation satisfactory to Congress evidencing such payment to such
authority; and
(c) pay to Congress any additional amount necessary to
ensure that the net amount actually received by Congress (and its Participants)
will equal the full amount Congress (and its Participants) would have received
had not such withholding or deduction been required.
Moreover, if any Non-excluded Taxes are directly asserted against Congress or
any Participant with respect to any payment received by Congress or such
Participant hereunder, Congress or such Participant may pay such Non-excluded
Taxes and Debtor will promptly pay any additional amount (including any
penalties, interest or expenses) necessary in order that the net amount
received by such Person after the payment of such Non-excluded Taxes (including
any Non-excluded Taxes on such additional amount) shall equal that amount such
Person would have received had such Non-excluded Taxes not been asserted. If
Debtor fails
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to pay any Non-excluded Taxes (other than any such Taxes which (i) are being
contested by Debtor in good faith and by appropriate proceedings and (ii) if
not paid, will not result in the imposition of any penalty on Congress or any
Participant, as reasonably determined by such Person) when due to the
appropriate taxing authority or fails to remit to Congress the required
receipts or other required documentary evidence, Debtor shall compensate
Congress and each Participant for and hold each harmless against, any
incremental Non-excluded Taxes, interest or penalties that may become payable
as a result of such failure. A distribution hereunder by Congress to or for
the account of any Participant shall be deemed a payment by Debtor.
11.2 General Indemnity. Whether or not the transactions
contemplated hereby shall be consummated, Debtor agrees to indemnify, pay and
hold Congress and each Participant, and the officers, directors, employees,
agents, and affiliates thereof (collectively the "Indemnitees"), harmless from
and against any and all other liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, claims, costs, expenses and disbursements
of any kind or nature whatsoever (including, without limitation, the reasonable
fees and disbursements of counsel for any of such Indemnitees in connection
with any investigative, administrative or judicial proceeding commenced or
threatened, whether or not any of such Indemnitees shall be designated a party
thereto) that may be imposed on, incurred by, or asserted against any
Indemnitee in any manner relating to or arising out of this Agreement or any
other agreements executed and delivered by Debtor in connection herewith, the
statements contained in any proposal or commitment letter, any Indemnitee's
agreement to make the Advances or to issue Letters of Credit hereunder, the use
or intended use of any Letters of Credit, or the use or intended use of the
proceeds of any of the Advances hereunder (the "indemnified liabilities"). To
the extent that the undertaking to indemnify, pay and hold harmless set forth
in the preceding sentence may be unenforceable because it is violative of any
law or public policy, Debtor shall contribute the maximum portion that it is
permitted to pay and satisfy under applicable law to the payment and
satisfaction of all indemnified liabilities incurred by the Indemnitees or any
of them. The provisions of the undertakings and indemnification set out in
this Section 11.2 shall survive satisfaction and payment of the Obligations and
termination of this Agreement.
11.3 Capital Adequacy. If Congress or any Participant shall
reasonably determine that the application, adoption or phase-in of any law,
rule, regulation, directive, interpretation, treaty or guideline regarding
capital adequacy, or any change therein or in the interpretation or
administration thereof, whether or not having the force of law (including,
without limitation, application of changes to Regulation H and Regulation Y of
the Federal Reserve Board issued by the Federal Reserve Board on January 19,
1989 and regulations of the Comptroller of
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the Currency, Department of the Treasury, 12 CFR Part 3, Appendix A, issued by
the Comptroller of the Currency on January 27, 1989) increases from that
required at closing the amount of capital required or expected to be maintained
by Congress or such Participant or any Person controlling such Person, and such
increase is based upon the existence of such Person's obligations hereunder and
other commitments of this type, then from time to time, within 10 days after
demand from such Person, Debtor shall pay to such Person such amount or amounts
as will compensate such Person or such controlling Person, as the case may be,
for such increased capital requirement. The determination of any amount to be
paid by Debtor under this Section 11.3 shall take into consideration the
policies of Congress or such Participant or any Person controlling Congress or
such Participant with respect to capital adequacy and shall be based upon any
reasonable averaging, attribution and allocation methods. A certificate of the
applicable Person setting forth the amount or amounts as shall be necessary to
compensate such Person as specified in this Section 11.3 shall be delivered to
Debtor and shall be conclusive in the absence of manifest error. If Debtor so
requests, Congress shall use its best efforts to replace any Participant who
makes a demand for payment pursuant to this Section 11.3, provided that Debtor
shall have made such request no later than 90 days following Debtor's receipt
of such demand for payment.
11.4 Benefits of Agreement. Debtor agrees that the
provisions of this Section 11 are for the express benefit of Congress and the
Participants and such provisions may be enforced by Congress on behalf of such
Participants.
SECTION 12. MISCELLANEOUS.
12.1 GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVER OF
JURY TRIAL; WAIVER OF DAMAGES.
(a) THIS AGREEMENT AND, UNLESS OTHERWISE EXPRESSLY STATED,
EACH LOAN DOCUMENT TO WHICH DEBTOR IS A PARTY (COLLECTIVELY THE "AGREEMENTS")
SHALL BE GOVERNED BY AND INTERPRETED UNDER THE INTERNAL LAWS (AS OPPOSED TO
CONFLICTS OF LAWS PROVISIONS) AND DECISIONS OF THE STATE OF ILLINOIS, AND ANY
DISPUTE ARISING OUT OF, CONNECTED WITH, RELATED TO OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED BETWEEN DEBTOR AND CONGRESS IN CONNECTION WITH THE
AGREEMENTS AND WHETHER ARISING IN CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE
RESOLVED IN ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO THE CONFLICTS OF
LAWS PROVISIONS) AND DECISIONS OF THE STATE OF ILLINOIS.
(b) EXCEPT AS PROVIDED IN THE NEXT PARAGRAPH, CONGRESS BY
ITS ACCEPTANCE HEREOF AND DEBTOR AGREE THAT ALL DISPUTES BETWEEN THEM ARISING
OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP
ESTABLISHED BETWEEN THEM IN CONNECTION WITH THE AGREEMENTS, AND WHETHER ARISING
IN CONTRACT, TORT, EQUITY, OR OTHERWISE, SHALL BE RESOLVED ONLY BY STATE OR
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FEDERAL COURTS LOCATED IN CHICAGO, ILLINOIS, BUT CONGRESS BY ITS ACCEPTANCE
HEREOF AND DEBTOR ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE
HEARD BY A COURT LOCATED OUTSIDE OF CHICAGO, ILLINOIS. IN ANY SUCH DISPUTE,
DEBTOR WAIVES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT
CONSIDERING SUCH DISPUTE INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE
LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS.
(c) DEBTOR AGREES THAT CONGRESS SHALL HAVE THE RIGHT, TO
THE EXTENT PERMITTED BY APPLICABLE LAW, TO PROCEED AGAINST DEBTOR OR ANY
COLLATERAL IN A COURT IN ANY LOCATION REASONABLY SELECTED IN GOOD FAITH TO
ENABLE CONGRESS TO REALIZE ON ANY COLLATERAL, OR TO ENFORCE A JUDGMENT OR OTHER
COURT ORDER ENTERED IN FAVOR OF CONGRESS. DEBTOR AGREES THAT IT WILL NOT
ASSERT ANY PERMISSIVE COUNTERCLAIMS IN ANY SUCH PROCEEDING BROUGHT BY CONGRESS
(OUTSIDE OF COURTS LOCATED IN CHICAGO) TO REALIZE ON ANY COLLATERAL OR TO
ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF CONGRESS. TO THE EXTENT
THAT CONGRESS PROCEEDS WITH ANY DISPUTE IN A COURT LOCATED IN NEW YORK,
CALIFORNIA OR ILLINOIS, DEBTOR WAIVES ANY OBJECTION THAT IT MAY HAVE TO THE
LOCATION OF THE COURT IN WHICH CONGRESS HAS COMMENCED A PROCEEDING DESCRIBED IN
THIS PARAGRAPH INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF
VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS.
(d) CONGRESS BY ITS ACCEPTANCE HEREOF AND DEBTOR EACH
WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER
SOUNDING IN CONTRACT, TORT, OR OTHERWISE ARISING OUT OF, CONNECTED WITH,
RELATED TO OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN
CONNECTION WITH THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. INSTEAD, ANY
DISPUTES RESOLVED IN COURT WILL BE RESOLVED IN A BENCH TRIAL WITHOUT A JURY.
(e) DEBTOR HEREBY IRREVOCABLY DESIGNATES CT CORPORATION
SYSTEM, CHICAGO, ILLINOIS, AS THE DESIGNEE, APPOINTEE AND AGENT OF DEBTOR TO
RECEIVE, FOR AND ON BEHALF OF DEBTOR, SERVICE OF PROCESS IN SUCH RESPECTIVE
JURISDICTIONS IN ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT
OR ANY DOCUMENTS RELATED HERETO. IT IS UNDERSTOOD THAT A COPY OF SUCH PROCESS
SERVED ON SUCH AGENT WILL BE PROMPTLY FORWARDED BY MAIL TO DEBTOR AT ITS
ADDRESS SET FORTH IN THIS AGREEMENT, BUT THE FAILURE OF DEBTOR TO RECEIVE SUCH
COPY SHALL NOT AFFECT IN ANY WAY THE SERVICE OF SUCH PROCESS. DEBTOR FURTHER
IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED
COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY
REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO DEBTOR AT ITS SAID ADDRESS,
SUCH SERVICE TO BECOME EFFECTIVE FOUR DAYS AFTER SUCH MAILING.
(f) NOTHING HEREIN SHALL AFFECT THE RIGHT OF CONGRESS, OR
ANY HOLDER OF A NOTE TO SERVE PROCESS IN ANY OTHER MANNER
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PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST
DEBTOR IN ANY OTHER JURISDICTION.
(g) DEBTOR (I) AGREES THAT CONGRESS SHALL NOT HAVE ANY
LIABILITY TO DEBTOR (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) FOR
LOSSES SUFFERED BY DEBTOR IN CONNECTION WITH, ARISING OUT OF, OR IN ANY WAY
RELATED TO, THE TRANSACTIONS CONTEMPLATED AND THE RELATIONSHIP ESTABLISHED BY
THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, OR ANY ACT, OMISSION OR EVENT
OCCURRING IN CONNECTION HEREWITH, UNLESS IT IS DETERMINED BY A JUDGMENT OF A
COURT THAT IS BINDING ON CONGRESS (WHICH JUDGMENT SHALL BE FINAL AND NOT
SUBJECT TO REVIEW ON APPEAL), THAT SUCH LOSSES WERE THE RESULT OF ACTS OR
OMISSIONS ON THE PART OF CONGRESS CONSTITUTING WILLFUL MISCONDUCT OR KNOWING
VIOLATIONS OF LAW AND (II) WAIVES, RELEASES AND AGREES NOT TO SUE UPON ANY
CLAIM AGAINST CONGRESS (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE),
EXCEPT A CLAIM BASED UPON WILLFUL MISCONDUCT OR KNOWING VIOLATIONS OF LAW.
WHETHER OR NOT SUCH DAMAGES ARE RELATED TO A CLAIM THAT IS SUBJECT TO THE
WAIVER EFFECTED ABOVE AND WHETHER OR NOT SUCH WAIVER IS EFFECTIVE, CONGRESS
SHALL NOT HAVE ANY LIABILITY WITH RESPECT TO, AND DEBTOR HEREBY WAIVES,
RELEASES AND AGREES NOT TO SUE UPON ANY CLAIM FOR, ANY SPECIAL, INDIRECT,
CONSEQUENTIAL OR PUNITIVE DAMAGES SUFFERED BY DEBTOR IN CONNECTION WITH,
ARISING OUT OF, OR IN ANY WAY RELATED TO THE TRANSACTIONS CONTEMPLATED OR THE
RELATIONSHIP ESTABLISHED BY THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, OR ANY
ACT, OMISSION OR EVENT OCCURRING IN CONNECTION THEREWITH, UNLESS IT IS
DETERMINED BY A JUDGMENT OF A COURT THAT IS BINDING ON CONGRESS (WHICH JUDGMENT
SHALL BE FINAL AND NOT SUBJECT TO REVIEW ON APPEAL), THAT SUCH DAMAGES WERE THE
RESULT OF ACTS OR OMISSIONS ON THE PART OF CONGRESS CONSTITUTING WILLFUL
MISCONDUCT OR KNOWING VIOLATIONS OF LAW.
12.2 Entire Agreement. This Agreement, any supplement
hereto, the other Loan Documents and any agreements, instruments or documents
delivered or to be delivered in connection herewith or therewith represent the
parties' entire agreement and understanding concerning the subject matter
hereof and thereof, and supersede all other prior and contemporaneous
agreements, understandings, negotiations and discussions, representations,
warranties, commitments, offers, contracts, whether oral or written.
12.3 Modification of Agreement. No provision hereof shall be
modified or amended orally or by course of conduct but only by a written
instrument expressly referring hereto signed by both parties.
12.4 Reimbursement for Congress' Costs. Upon Congress'
request Debtor shall pay to Congress, or reimburse Congress for, (i) all sums,
costs and expenses (including the reasonable fees and disbursements of counsel
to Congress) which Congress may pay or incur in connection with or related to
the
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negotiation, preparation and consummation of this Agreement, the other Loan
Documents and all other agreements, instruments and documents in connection
herewith and therewith, and the transactions contemplated hereunder and
thereunder, (ii) the reasonable fees and disbursements of counsel to Congress
relating to any amendments, supplements, consents or modifications which may be
hereafter made or entered into in respect hereof or thereof, (iii) filing fees
and taxes, title insurance premiums, recording taxes, expenses for searches,
expenses heretofore incurred by Congress during the course of periodic field
examinations of the Collateral and Debtor's operations, wire transfer fees and
check dishonor fees, (iv) the reasonable fees and disbursements of counsel to
Congress in connection with the ongoing interpretation and administration of
this Agreement (including, without limitation, field audit expenses billed at
$500 per day for field and office time plus out-of-pocket disbursements related
to travel by the auditors), the other Loan Documents and all other agreements,
instruments and documents in connection herewith and therewith, and the
transactions contemplated hereunder and thereunder, and (v) all sums, costs and
expenses (including the reasonable fees and disbursements of counsel to
Congress) which Congress may pay or incur in connection with or related to the
enforcement of this Agreement, the other Loan Documents and all other
agreements, instruments and documents in connection herewith and therewith, and
all efforts made to defend, protect or enforce the security interest granted
herein or therein or in enforcing payment of the Obligations, including without
limitation, all fees and expenses for the service and filing of papers,
premiums on bonds and undertakings, fees of marshals, sheriffs, custodians,
auctioneers and others, travel expenses and all court costs and collection
charges, all of which shall be part of the Obligations and shall accrue
interest after demand thereof at a rate equal to the highest rate then payable
on any of the Obligations.
12.5 Notices. All notices, requests and demands to or upon
the respective parties hereto shall be deemed to have been duly given or made:
if by hand, telex, telegram or facsimile, immediately upon sending; if by
Federal Express, Express Mail or any other overnight delivery service, one (1)
day after dispatch; and if mailed by certified mail, return receipt requested,
five (5) days after mailing. All notices, requests and demands are to be given
or made to the respective parties at the addresses (or to such other addresses
as either party may designate by notice in accordance with the provisions of
this paragraph) set forth herein.
12.6 Power of Attorney. Debtor hereby constitutes Congress
and Congress' agent and any designee, as Debtor's attorney-in-fact, at Debtor's
own cost and expense, to exercise at any time all or any of the following
powers which, being coupled with an interest, shall be irrevocable until all
Obligations have been paid in full: (a) to receive, take,
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endorse, assign, deliver, accept and deposit any and all checks, notes, drafts,
remittances and other instruments and documents relating to the Collateral; (b)
on or after the occurrence and during the continuance of an Event of Default to
receive, open and dispose of all mail addressed to Debtor and to notify postal
authorities to change the address for delivery thereof to such address as
Congress may designate; (c) on or after the occurrence and during the
continuance of an Event of Default to transmit to Account Debtors notice of
Congress' interest therein and to request from such Account Debtors at any
time, in Congress' or Debtor's name or that of Congress' designees, information
concerning the Accounts and the amounts owing thereon; (d) on or after the
occurrence and during the continuance of an Event of Default, to notify Account
Debtors to make payment directly to Congress; (e) on or after the occurrence
and during the continuance of an Event of Default, to take or bring, in
Congress' or Debtor's name, all steps, actions, suits or proceedings deemed by
you necessary or desirable to effect collection of the Collateral; and (f) to
execute in Debtor's name and on Debtor's behalf any UCC financing statements or
amendments thereto. Debtor hereby releases Congress and its officers,
employees and designees from any liability arising from any act or acts under
this Agreement or in furtherance thereof, whether of omission or commission,
and whether based upon any error of judgment or mistake of law or fact, except
to the extent that it is finally determined by a court of competent
jurisdiction that such liability shall have resulted from their own fraud or
gross negligence.
12.7 Waiver of Notice, Hearing and Bond. Debtor waives all
rights of notice and hearing of any kind prior to the exercise by Congress of
its rights from and after the occurrence of an Event of Default to repossess
the Collateral with judicial process or to replevy, attach or levy upon the
Collateral, real property, or other security for the Obligations. Debtor
waives the posting of any bond otherwise required of Congress in connection
with any judicial process or proceeding to obtain possession of, replevy,
attach or levy upon Collateral, real property, or other security for the
Obligations, to enforce any judgment or other court order entered in favor of
Congress, or to enforce by specific performance, temporary restraining order,
preliminary or permanent injunction, this Agreement or any other agreement or
document between Congress and Debtor.
12.8 Advice of Counsel. Debtor represents to Congress that
it has discussed this Agreement and the other Loan Documents with Debtor's
lawyers.
12.9 Confidentiality. Congress shall hold all information
with respect to Debtor or any Subsidiary that is obtained pursuant to or in
connection with this Agreement (including, without limitation, the Customer
Sales Reports) in accordance with its customary procedures for handling
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confidential information of such nature and in accordance with safe and sound
banking practices; it being understood that Congress may disclose such
information (a) to any of its examiners, Affiliates, outside auditors, counsel
and other professional advisors in connection with this Agreement, (b) to any
actual or prospective Participant, (c) as required or requested by any
governmental agency or representative thereof or pursuant to legal process or
(d) in connection with any action by Congress to enforce this Agreement or to
assert, defend or substantiate any rights of Congress hereunder; provided,
however, that
(a) unless specifically prohibited by applicable law or
court order, Congress shall notify Debtor of any request by any governmental
agency or representative thereof (other than any such request in connection
with an examination of the financial condition of Congress by such governmental
agency) for disclosure of any such information prior to disclosure of such
information; and
(b) prior to any disclosure by Congress to an actual or
prospective Participant (except those Participants participating in the
Advances on the date of the Rollover Advance, in which case prior to the date
of the Rollover Advance), Congress shall require such Participant to agree in
writing
(i) to be bound by this Section 12.9; and
(ii) to require any other Person to whom such Participant
discloses such information to be similarly bound by this Section 12.9.
Notwithstanding the foregoing, Congress may disclose any information that (i)
becomes publicly available other than as a result of a breach of this
Agreement, (ii) becomes available to Congress on a nonconfidential basis from a
source other than Debtor or a Subsidiary and not in contravention of any other
confidentiality obligations of which Congress has actual knowledge or (iii) was
available to Congress on a nonconfidential basis prior to its disclosure to
Congress by Debtor or a Subsidiary.
12.10 Survival. All representations and warranties contained
in this Agreement shall survive the execution and delivery of this Agreement.
Notwithstanding any investigation by Congress, all covenants, agreements,
representations and warranties made herein by Debtor shall be deemed to be
material to and to have been relied upon by Congress. Any indemnification that
Debtor has granted to Congress in this Agreement and in connection therewith
shall survive the execution, delivery and termination of this Agreement.
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12.11 Participations. Congress shall be entitled to sell
Participations in the Advances without the consent of Debtor. Congress agrees
that any agreement between Congress and any such Participants in respect of such
Participations shall not restrict Congress' right to agree to any immaterial
amendment, supplement, waiver or modification to this Agreement or any other
Loan Document.
12.12 Severability. If any part of this Agreement is invalid
or in contravention of any applicable law or regulation, such part or provision
shall be severable without affecting the validity of any other part or
provision of this Agreement.
12.13 No Third Party Beneficiaries. Nothing expressed or
implied in this Agreement is intended, or shall be construed, to confer upon or
give any Person, other than the signatories to this Agreement and the
Participants, any rights or remedies under or by reason of this Agreement. Any
benefit conferred to any other Person which is not a signatory to this
Agreement or a Participant is incidental and unintended.
12.14 Existing Agreements Superseded. As set forth in
Section 1.2 hereof, the Original Agreement is superseded by this Agreement,
which has been executed in renewal, amendment, restatement and modification of
the obligations under the Original Agreement.
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IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered as of the day and year first above written.
LEWIS GALOOB TOYS, INC.
By:
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Name:
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Title:
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ATTEST:
By:
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Name:
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Title:
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CONGRESS FINANCIAL CORPORATION
(CENTRAL)
By:
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Name:
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Title:
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