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Exhibit 10.40
LOAN AND SECURITY AGREEMENT
by and among
CONGRESS FINANCIAL CORPORATION (WESTERN)
as Lender
and
DECKERS OUTDOOR CORPORATION,
DECKERS OUTDOOR CORPORATION INTERNATIONAL,
SIMPLE SHOES, INC.,
UGG HOLDINGS, INC.
and
HEIRLOOMS, INC.
collectively, as Borrowers
Dated: January 21, 1999
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TABLE OF CONTENTS
Page
SECTION 1. DEFINITIONS....................................................................1
SECTION 2. CREDIT FACILITIES.............................................................11
2.1 Revolving Loans.............................................................11
2.2 Letter of Credit Accommodations.............................................15
SECTION 3. INTEREST AND FEES.............................................................17
3.1 Interest....................................................................17
3.2 Closing Fee.................................................................18
3.3 Loan Servicing Fee..........................................................18
3.4 Unused Line Fee.............................................................19
3.5 Compensation Adjustment.....................................................19
SECTION 4. CONDITIONS PRECEDENT AND SUBSEQUENT...........................................21
4.1 Conditions Precedent to Initial Loans and the Letter of Credit
Accommodations..............................................................21
4.2 Conditions Precedent to All Loans and Letter of Credit Accommodations.......23
4.3 Condition Subsequent to All Loans and Letter of Credit Accommodations.......24
SECTION 5. GRANT OF SECURITY INTEREST....................................................24
SECTION 6. COLLECTION AND ADMINISTRATION.................................................25
6.1 Borrowers' Loan Accounts....................................................25
6.2 Statements..................................................................25
6.3 Collection of Accounts......................................................25
6.4 Payments....................................................................26
6.5 Authorization to Make Loans.................................................27
6.6 Use of Proceeds.............................................................27
SECTION 7. COLLATERAL REPORTING AND COVENANTS............................................27
7.1 Collateral Reporting........................................................27
7.2 Accounts Covenants..........................................................28
7.3 Inventory Covenants.........................................................29
7.4 Equipment Covenants.........................................................31
7.5 Power of Attorney...........................................................31
7.6 Right to Cure...............................................................32
7.7 Access to Premises..........................................................32
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TABLE OF CONTENTS
(continued)
Page
SECTION 8. REPRESENTATIONS AND WARRANTIES................................................32
8.1 Corporate Existence, Power and Authority; Subsidiaries......................33
8.2 Financial Statements; No Material Adverse Change............................33
8.3 Chief Executive Office; Collateral Locations................................33
8.4 Priority of Liens; Title to Properties......................................33
8.5 Tax Returns.................................................................34
8.6 Litigation..................................................................34
8.7 Compliance with Other Agreements and Applicable Laws........................34
8.8 Bank Accounts...............................................................34
8.9 Environmental Compliance....................................................34
8.10 Employee Benefits...........................................................35
8.11 Accuracy and Completeness of Information....................................36
8.12 Survival of Warranties; Cumulative..........................................36
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS............................................36
9.1 Maintenance of Existence....................................................36
9.2 New Collateral Locations....................................................36
9.3 Compliance with Laws, Regulations, Etc......................................37
9.4 Payment of Taxes and Claims.................................................37
9.5 Insurance...................................................................38
9.6 Financial Statements and Other Information..................................38
9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc.....................39
9.8 Encumbrances................................................................40
9.9 Indebtedness................................................................40
9.10 Loans, Investments, Guarantees, Etc.........................................41
9.11 Dividends and Redemptions...................................................42
9.12 Transactions with Affiliates................................................42
9.13 Additional Bank Accounts....................................................42
9.14 Compliance with ERISA.......................................................43
9.15 Year 2000 Compliance........................................................43
9.16 Adjusted Net Worth..........................................................43
9.17 Costs and Expenses..........................................................44
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TABLE OF CONTENTS
(continued)
Page
9.18 Further Assurances..........................................................44
SECTION 10. EVENTS OF DEFAULT AND REMEDIES................................................45
10.1 Events of Default...........................................................45
10.2 Remedies....................................................................47
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS;
GOVERNING LAW..........................................................48
11.1 Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver.......48
11.2 Waiver of Notices...........................................................49
11.3 Amendments and Waivers......................................................49
11.4 Indemnification.............................................................50
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS..............................................50
12.1 Term........................................................................50
12.2 Notices.....................................................................51
12.3 Partial Invalidity..........................................................52
12.4 Successors..................................................................52
12.5 Entire Agreement............................................................52
12.6 Publicity...................................................................52
SECTION 13. JOINT AND SEVERAL LIABILITY AND SURETYSHIP WAIVERS............................52
13.1 Independent Obligations; Subrogation........................................52
13.2 Authority to Modify Obligations and Security................................53
13.3 Waiver of Defenses..........................................................53
13.4 Exercise of Lender's Rights.................................................54
13.5 Additional Waivers..........................................................54
13.6 Additional Indebtedness.....................................................54
13.7 Notices, Demands, Etc.......................................................54
13.8 Subordination...............................................................55
13.9 Revival.....................................................................55
13.10 Understanding of Waivers....................................................55
13.11 Limited Liability...........................................................56
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Exhibit A Information Certificate
Schedule 8.4 Other Liens
Schedule 8.8 Bank Accounts
Schedule 8.9 Environmental Disclosure
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LOAN AND SECURITY AGREEMENT
This Loan and Security Agreement dated January 21, 1999 is entered into
by and among CONGRESS FINANCIAL CORPORATION (WESTERN), a California corporation
("Lender") and DECKERS OUTDOOR CORPORATION, a Delaware corporation ("DOC"),
DECKERS OUTDOOR CORPORATION INTERNATIONAL, a Delaware corporation ("DOCI"),
SIMPLE SHOES, INC., a California corporation ("SSI"), UGG HOLDINGS, INC., a
California corporation ("UHI"), and HEIRLOOMS, INC., a California corporation
("Heirlooms") (DOC, DOCI, SSI, UHI and Heirlooms, collectively referred to
herein as "Borrowers" and individually, a "Borrower").
W I T N E S S E T H:
WHEREAS, Borrowers have requested that Lender enter into certain
financing arrangements with each Borrower pursuant to which Lender may make
loans and provide other financial accommodations to each Borrower and each
Borrower shall be jointly and severally liable for the obligations of the other
Borrowers hereunder; and
WHEREAS, DOCI, SSI, UHI and Heirlooms are subsidiaries of DOC and DOC
with DOCI, SSI, UHI and Heirlooms are interrelated entities which, collectively
constitute an integrated footwear and apparel production and distribution
operation, with DOC operating such subsidiaries in coordination with its own
operations; and
WHEREAS, the directors of DOC, DOCI, SSI, UHI and Heirlooms view the
entities as sufficiently dependent upon each other and so interrelated that any
advances made by Lender hereunder to any of the constituent entities would
benefit all of the constituent entities as a result of their consolidated
operations and identity of interests; and
WHEREAS, DOC, DOCI, SSI, UHI and Heirlooms have each requested that
Lender treat them as co-Borrowers hereunder, jointly and severally responsible
for the obligations hereunder of each other Borrower except as provided in
Section 13.11 hereof; and
WHEREAS, Lender is willing to make such loans and provide such financial
accommodations on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual conditions and agreements
set forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Lender and each Borrower (with
each Borrower acting and being obligated jointly and severally with each other)
agree as follows:
SECTION 1. DEFINITIONS.
All terms used herein which are defined in Article 1 or Article 9 of the
California Uniform Commercial Code shall have the respective meanings given
therein unless otherwise defined in this Agreement. All references to the plural
herein shall also mean the singular and to the singular shall also mean the
plural. All references to a Borrower and Lender pursuant to the
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definitions set forth in the recitals hereto, or to any other person herein,
shall include their respective successors and assigns. The words "hereof",
"herein", "hereunder", "this Agreement" and words of similar import when used in
this Agreement shall refer to this Agreement as a whole and not any particular
provision of this Agreement and as this Agreement now exists or may hereafter be
amended, modified, supplemented, extended, renewed, restated or replaced. An
Event of Default shall exist or continue or be continuing until such Event of
Default is waived in accordance with Section 11.3. Any accounting term used
herein unless otherwise defined in this Agreement shall have the meaning
customarily given to such term in accordance with GAAP. For purposes of this
Agreement, the following terms shall have the respective meanings given to them
below:
1.1 "Accounts" shall mean all present and future rights of a Borrower to
payment for goods sold or leased or for services rendered, which are not
evidenced by instruments or chattel paper, and whether or not earned by
performance.
1.2 "Adjusted Eurodollar Rate" shall mean, with respect to each Interest
Period for any Eurodollar Rate Loan, the rate per annum (rounded upwards, if
necessary, to the next one-sixteenth (1/16) of one (1%) percent) determined by
dividing (a) the Eurodollar Rate for such Interest Period by (b) a percentage
equal to: (i) one (1) minus (ii) the Reserve Percentage. For purposes hereof,
"Reserve Percentage" shall mean the reserve percentage, expressed as a decimal,
prescribed by any United States or foreign banking authority for determining the
reserve requirement which is or would be applicable to deposits of United States
dollars in a non-United States or an international banking office of Reference
Bank used to fund a Eurodollar Rate Loan or any Eurodollar Rate Loan made with
the proceeds of such deposit, whether or not the Reference Bank actually holds
or has made any such deposits or loans. The Adjusted Eurodollar Rate shall be
adjusted on and as of the effective day of any change in the Reserve Percentage.
1.3 "Adjusted Net Worth" shall mean as to any Borrower, at any time, in
accordance with GAAP (except as otherwise specifically set forth below), on a
consolidated basis for such Borrower and its subsidiaries (if any), the amount
equal to: (a) the difference between: (i) the aggregate net book value of all
assets of such Borrower and its subsidiaries, calculating the book value of
inventory for this purpose on a first-in-first-out basis, after deducting from
such book values all appropriate reserves in accordance with GAAP (including all
reserves for doubtful receivables, obsolescence, depreciation and amortization)
and (ii) the aggregate amount of the indebtedness and other liabilities of such
Borrower and its subsidiaries (including tax and other proper accruals) plus (b)
indebtedness of such Borrower and its subsidiaries which is subordinated in
right of payment to the full and final payment of all of the Obligations on
terms and conditions acceptable to Lender less (c) intangibles of such Borrower
and its subsidiaries.
1.4 "Availability Reserves" shall mean, as of any date of determination,
such amounts as Lender may from time to time establish and revise in good faith
reducing the amount of Revolving Loans and Letter of Credit Accommodations which
would otherwise be available to a Borrower, under the lending formula(s)
provided for herein: (a) to reflect events, conditions, contingencies or risks
which, as determined by Lender in good faith, do or may affect either (i) the
Collateral or any other property which is security for the Obligations or its
value, including, without limitation, the mix in size, age or style of such
Borrower's Inventory, (ii) the assets,
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business or prospects of such Borrower or (iii) the security interests and other
rights of Lender in the Collateral (including the enforceability, perfection and
priority thereof) or (b) to reflect Lender's good faith belief that any
collateral report or financial information furnished by or on behalf of such
Borrower to Lender is or may have been incomplete, inaccurate or misleading in
any material respect or (c) to reflect any state of facts which Lender
determines in good faith constitutes an Event of Default or may, with notice or
passage of time or both, constitute an Event of Default. Without limiting the
generality of the foregoing, Lender shall establish an Availability Reserve in
the aggregate amount of Eight Hundred Thousand Dollars ($800,000) until such
time that Lender has received a lien search reflecting Lender's first priority
security interest in any and all Inventory located in Canada. Such Availability
Reserve shall be allocated among the Borrowers owning such Inventory.
1.5 "Blocked Account" shall have the meaning set forth in Section 6.3
hereof.
1.6 "Business Day" shall mean any day other than a Saturday, Sunday, or
other day on which commercial banks are authorized or required to close under
the laws of the State of New York or the State of North Carolina, and a day on
which the Reference Bank and Lender are open for the transaction of business,
except that if a determination of a "Business Day" shall relate to any
Eurodollar Rate Loan, the term "Business Day" shall also exclude any day on
which banks are closed for dealings in dollar deposits in the London interbank
market or other applicable Eurodollar market.
1.7 "Closing Date" shall mean the date of the first to occur of the
making of the initial Loans or the issuance of the initial Letter of Credit
Accommodation to or on behalf of any Borrower.
1.8 "Code" shall mean the Internal Revenue Code of 1986, as the same now
exists or may from time to time hereafter be amended, modified, recodified or
supplemented, together with all rules, regulations and interpretations
thereunder or related thereto.
1.9 "Collateral" shall have the meaning set forth in Section 5 hereof.
1.10 "Deckers Europe" shall mean Deckers Europe, B.V., a private company
with limited liability organized under the laws of the Netherlands.
1.11 "Deckers Japan" shall mean Deckers Japan, Inc., a corporation
organized under the laws of the State of California.
1.12 "Eligible Accounts" shall mean as to any Borrower, Accounts created
by such Borrower which are and continue to be acceptable to Lender based on the
criteria set forth below. Accounts of a Borrower shall be Eligible Accounts of
such Borrower if:
(a) such Accounts arise from the actual and bona fide sale and
delivery (based upon terms of shipment) of goods by such Borrower or rendition
of services by such Borrower in the ordinary course of its business which
transactions are completed in accordance with the terms and provisions contained
in any documents related thereto;
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(b) such Accounts are not unpaid more than sixty (60) days past
the original due date thereof or are not unpaid more than one hundred twenty
(120) days after the date of the original invoice for them (other than Accounts
described in Section 1.12(c) hereof);
(c) such Accounts are originally subject to extended payment
terms; provided, that (i) such Accounts are not unpaid more than thirty (30)
days past the original due date thereof or are not unpaid more than one hundred
fifty (150) days from the original invoice date and (ii) such Accounts are not
owed by an account debtor who has Accounts unpaid more than thirty (30) days
past the original due date thereof or unpaid more than one hundred fifty (150)
days from the original invoice for them which constitute more than fifty percent
(50%) of the total Accounts of such account debtor; provided, however, no more
than Eight Million Five Hundred Thousand Dollars ($8,500,000) of aggregate
Revolving Loans advanced against all such Eligible Accounts with extended
payment terms shall be outstanding at any time and Lender may reasonably
establish a minimum amount of each Account with extended payment terms in order
for it to be an Eligible Account;
(d) such Accounts comply with the terms and conditions contained
in Section 7.2(c) of this Agreement;
(e) such Accounts do not arise from sales on consignment,
guaranteed sale, sale and return, sale on approval, or other terms under which
payment by the account debtor may be conditional or contingent;
(f) the chief executive office of the account debtor with respect
to such Accounts is located in the United States of America or Canada, or if
either: (i) the account debtor has delivered to such Borrower an irrevocable
letter of credit issued or confirmed by a bank satisfactory to Lender and
payable only in the United States of America and in U.S. dollars, sufficient to
cover such Account, in form and substance satisfactory to Lender and, if
required by Lender, the original of such letter of credit has been delivered to
Lender or Lender's agent and the issuer thereof notified of the assignment of
the proceeds of such letter of credit to Lender, or (ii) such Account is subject
to credit insurance payable to Lender issued by an insurer and on terms and in
an amount acceptable to Lender, or (iii) with respect to an Account of an
account debtor whose chief executive office is located in Europe, such Account
is subject to credit insurance payable to Lender and on terms and in an amount
acceptable to Lender and is guaranteed as to payment or is factored and in
either case by a factor acceptable to Lender pursuant to a factoring agreement,
in form and substance reasonably satisfactory to Lender and such factor has
entered into an intercreditor agreement with Lender, in form and substance
reasonably satisfactory to Lender, or (iv) such Account is otherwise acceptable
in all respects to Lender (subject to the terms and conditions set forth in
Section 2.1(g) hereof and such lending formulas and sublimit amounts with
respect thereto as Lender may determine);
(g) such Accounts do not consist of progress billings, bill and
hold invoices or retainage invoices, except as to bill and hold invoices, if
Lender shall have received an agreement in writing from the account debtor, in
form and substance satisfactory to Lender, confirming the unconditional
obligation of the account debtor to take the goods related thereto and pay such
invoice;
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(h) the account debtor with respect to such Accounts has not
asserted a counterclaim, defense or dispute and does not have, and does not
engage in transactions which may give rise to, any right of setoff against such
Accounts (but the portion of the Accounts of such account debtor in excess of
the amount at any time and from time to time owed by all Borrowers collectively
to such account debtor or claimed owed by such account debtor will be deemed
Eligible Accounts of such Borrower);
(i) there are no facts, events or occurrences which would impair
the validity, enforceability or collectability of such Accounts or reduce the
amount payable or delay payment thereunder;
(j) such Accounts are subject to the first priority, valid and
perfected security interest of Lender and any goods giving rise thereto are not,
and were not at the time of the sale thereof, subject to any liens except those
permitted in this Agreement;
(k) neither the account debtor nor any officer or employee of the
account debtor with respect to such Accounts is an executive officer of such
Borrower directly or indirectly by virtue of family membership, ownership,
control, management or otherwise;
(l) the account debtors with respect to such Accounts are not any
foreign government, the United States of America, any State, political
subdivision, department, agency or instrumentality thereof, unless, if the
account debtor is the United States of America, any State, political
subdivision, department, agency or instrumentality thereof, upon Lender's
request, the Federal Assignment of Claims Act of 1940, as amended or any similar
State or local law, if applicable, has been complied with in a manner
satisfactory to Lender;
(m) there are no proceedings or actions which are threatened or
pending against the account debtors with respect to such Accounts which might
result in any material adverse change in any such account debtor's financial
condition;
(n) such Accounts of a single account debtor or its affiliates do
not constitute more than ten percent (10%) of all otherwise Eligible Accounts of
all Borrowers in the aggregate (but the portion of the Accounts of the Borrowers
not in excess of such percentage will be deemed Eligible Accounts of the
Borrowers);
(o) such Accounts are not owed by an account debtor who has
Accounts unpaid more than sixty (60) days past the original due date thereof or
unpaid more than one hundred twenty (120) days after the date of the original
invoice for them (other than Accounts described in Section 1.12(c) hereof) which
constitute more than fifty percent (50%) of the total Accounts of such account
debtor; and
(p) such Accounts are owed by account debtors deemed creditworthy
at all times by Lender, as reasonably determined by Lender.
Any Accounts which are not Eligible Accounts shall nevertheless be part of the
Collateral.
1.13 "Eligible Assignee" shall mean a financial institution acceptable
to Lender organized under (a) the laws of the United States of America, or any
State thereof or (b) the laws
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of any other country which is a member of the Organization for Economic
Corporation and Development, or a political subdivision of any such country,
provided that such bank is acting through a branch, subsidiary or agency located
in the United States of America.
1.14 "Eligible In-Transit Inventory" shall mean as to any Borrower,
Inventory owned by such Borrower consisting of footwear and apparel finished
goods in transit on the water from an overseas port of shipping to Borrower
which (a) are subject to bailee agreements, bills of lading, documents of title,
warehouse receipts or other documentation, which documentation is in possession
and control of Lender or its agent; (b) are insured in a manner acceptable to
Lender; and (c) meet all other eligibility criteria set forth in the definition
of "Eligible Inventory"; provided, however, the aggregate amount of Revolving
Loans outstanding advanced against all Eligible In-Transit Inventory of all
Borrowers shall not exceed Eight Million Dollars ($8,000,000) during the period
commencing November 15 and ending April 15 of each calendar year and Five
Million Dollars ($5,000,000) during the remaining portion of each calendar year.
General criteria for Eligible In-Transit Inventory may be established and
revised from time to time by Lender in its reasonable credit judgment. Any
Inventory in transit which is not Eligible In-Transit Inventory shall
nevertheless be part of the Collateral.
1.15 "Eligible Inventory" shall mean as to any Borrower, Inventory
consisting of footwear and apparel finished goods held for resale in the
ordinary course of the business of such Borrower which are acceptable to Lender
based on the criteria set forth below. In general, Eligible Inventory shall not
include (a) raw materials; (b) work-in-process; (c) components which are not
part of finished goods; (d) spare parts for equipment; (e) packaging and
shipping materials; (f) supplies used or consumed in such Borrower's business;
(g) Inventory at premises other than those owned and controlled by such
Borrower, except if Lender shall have received an agreement in writing from the
person in possession of such Inventory and/or the owner or operator of such
premises in form and substance satisfactory to Lender acknowledging Lender's
first priority security interest in the Inventory, waiving security interests
and claims by such person against the Inventory and permitting Lender access to,
and the right to remain on, the premises so as to exercise Lender's rights and
remedies and otherwise deal with the Collateral; (h) Inventory in transit (other
than Eligible In-Transit Inventory); (i) Inventory subject to a security
interest or lien in favor of any person other than Lender except those permitted
in this Agreement; (j) bill and hold goods; (k) unserviceable, obsolete or slow
moving Inventory; (l) Inventory which has been produced as finished goods and
remains unsold more than the lesser of six (6) months or one (1) selling season,
the period for which shall be determined by Lender in its reasonable discretion;
(m) Inventory which is not subject to the first priority, valid and perfected
security interest of Lender; (n) returned, damaged and/or defective Inventory;
(o) Inventory at premises located outside the United States of America or Canada
(provided, that, Inventory located in Canada must be located at a warehouse, the
owner or operator of which has entered into a bailee agreement in favor of
Lender, in form and substance satisfactory to Lender, in order for such
Inventory to be deemed Eligible Inventory); and (p) Inventory purchased or sold
on consignment. General criteria for Eligible Inventory may be established and
revised from time to time by Lender in its reasonable credit judgment. Any
Inventory which is not Eligible Inventory shall nevertheless be part of the
Collateral.
1.16 "Environmental Laws" shall mean all federal, state, district, local
and foreign laws, rules, regulations, ordinances, and consent decrees relating
to health, safety, hazardous
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substances, pollution and environmental matters, as now or at any time hereafter
in effect, applicable to any Borrower's business and facilities (whether or not
owned by it), including laws relating to emissions, discharges, releases or
threatened releases of pollutants, contamination, chemicals, or hazardous, toxic
or dangerous substances, materials or wastes into the environment (including,
without limitation, ambient air, surface water, ground water, land surface or
subsurface strata) or otherwise relating to the generation, manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of pollutants, contaminants, chemicals, or hazardous, toxic or
dangerous substances, materials or wastes.
1.17 "Equipment" shall mean all of a Borrower's now owned and hereafter
acquired equipment, machinery, computers and computer hardware and software
(whether owned or licensed), vehicles, tools, furniture, fixtures, all
attachments, accessions and property now or hereafter affixed thereto or used in
connection therewith, and substitutions and replacements thereof, wherever
located.
1.18 "ERISA" shall mean the United States Employee Retirement Income
Security Act of 1974, as the same now exists or may hereafter from time to time
be amended, modified, recodified or supplemented, together with all rules,
regulations and interpretations thereunder or related thereto.
1.19 "ERISA Affiliate" shall mean any person required to be aggregated
with any Borrower or any of its affiliates under Sections 414(b), 414(c), 414(m)
or 414(o) of the Code.
1.20 "Eurodollar Rate" shall mean with respect to the Interest Period
for a Eurodollar Rate Loan, the interest rate per annum equal to the arithmetic
average of the rates of interest per annum (rounded upwards, if necessary, to
the next one-sixteenth (1/16) of one (1%) percent) at which Reference Bank is
offered deposits of United States dollars in the London interbank market (or
other Eurodollar Rate market selected collectively by Borrowers and approved by
Lender) on or about 9:00 a.m. (New York time) two (2) Business Days prior to the
commencement of such Interest Period in amounts substantially equal to the
aggregate principal amount of the Eurodollar Rate Loans requested by and
available to Borrowers in accordance with this Agreement, with a maturity of
comparable duration to the Interest Period selected by Borrowers.
1.21 "Eurodollar Rate Loans" shall mean any Loans or portion thereof on
which interest is payable based on the Adjusted Eurodollar Rate in accordance
with the terms hereof.
1.22 "Event of Default" shall mean the occurrence or existence of any
event or condition described in Section 10.1 hereof.
1.23 "Excess Availability" shall mean the amount, as determined by
Lender, calculated at any time, equal to:
(a) the lesser of (i) the aggregate amount of the Revolving Loans
available to Borrowers as of such time (based on the applicable advance rates
set forth in Sections 2.1(a)(i) or 2.1(a)(ii) hereof), subject to the sublimits
and Availability Reserves from time to time established by Lender hereunder and
(ii) the Maximum Credit, minus
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(b) the sum of: (i) the aggregate amount of all then outstanding
and unpaid Obligations, (ii) the aggregate amount of all trade payables of
Borrowers which are more than thirty (30) days past due as of such time, (iii)
the aggregate amount of Borrowers' book overdrafts, and (iv) the aggregate
amount of Borrowers' past due lease and notes payable.
1.24 "Financing Agreements" shall mean, collectively, this Agreement and
all notes, guarantees, security agreements and other agreements, documents and
instruments now or at any time hereafter executed and/or delivered by any
Borrower or Obligor in connection with this Agreement, as the same now exist or
may hereafter be amended, modified, supplemented, extended, renewed, restated or
replaced.
1.25 "GAAP" shall mean generally accepted accounting principles in the
United States of America as in effect from time to time as set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and the statements and pronouncements
of the Financial Accounting Standards Boards which are applicable to the
circumstances as of the date of determination consistently applied, except that,
for purposes of Section 9.16 hereof, GAAP shall be determined on the basis of
such principles in effect on the date hereof and consistent with those used in
the preparation of the audited financial statements delivered to Lender prior to
the date hereof.
1.26 "Hazardous Materials" shall mean any hazardous, toxic or dangerous
substances, materials and wastes, including, without limitation, hydrocarbons
(including naturally occurring or man-made petroleum and hydrocarbons),
flammable explosives, asbestos, urea formaldehyde insulation, radioactive
materials, biological substances, polychlorinated biphenyls, pesticides,
herbicides and any other kind and/or type of pollutants or contaminants
(including, without limitation, materials which include hazardous constituents),
sewage, sludge, industrial slag, solvents and/or any other similar substances,
materials, or wastes and including any other substances, materials or wastes
that are or become regulated under any Environmental Law (including, without
limitation any that are or become classified as hazardous or toxic under any
Environmental Law).
1.27 "Holbrook" shall mean Holbrook, Ltd., a limited company organized
under the laws of Hong Kong.
1.28 "Information Certificate" shall mean as to any Borrower, the
Information Certificate of such Borrower collectively constituting Exhibit A
hereto containing material information with respect to such Borrower, its
business and assets provided by or on behalf of such Borrower to Lender in
connection with the preparation of this Agreement and the other Financing
Agreements and the financing arrangements provided for herein.
1.29 "Interest Period" shall mean for any Eurodollar Rate Loan, a period
of approximately one (1), two (2), or three (3) months duration as Borrowers may
collectively elect, the exact duration to be determined in accordance with the
customary practice in the applicable Eurodollar Rate market; provided, that,
Borrowers may not elect an Interest Period which will end after the last day of
the then-current term of this Agreement.
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1.30 "Interest Rate" shall mean, as to Prime Rate Loans, a rate per
annum equal to the Prime Rate and, as to Eurodollar Rate Loans, a rate of two
percent (2%) per annum in excess of the Adjusted Eurodollar Rate (based on the
Eurodollar Rate applicable for the Interest Period collectively selected by
Borrowers as in effect three (3) Business Days after the date of receipt by
Lender of the request of Borrowers for such Eurodollar Rate Loans in accordance
with the terms hereof, whether such rate is higher or lower than any rate
previously quoted to Borrowers); provided, that, the Interest Rate shall mean
the rate of two percent (2%) per annum in excess of the Prime Rate as to Prime
Rate Loans and the rate of four percent (4%) per annum in excess of the Adjusted
Eurodollar Rate as to Eurodollar Rate Loans, at Lender's option, without notice,
(a) for the period (i) from and after the date of termination or non-renewal
hereof until Lender has received full and final payment of all obligations
(notwithstanding entry of a judgment against any Borrower) and (ii) from and
after the date of the occurrence of an Event of Default for so long as such
Event of Default is continuing as determined by Lender, and (b) on the Revolving
Loans at any time outstanding in excess of the amounts available to a Borrower
under Section 2 (whether or not such excess(es), arise or are made with or
without Lender's knowledge or consent and whether made before or after an Event
of Default).
1.31 "Inventory" shall mean all of a Borrower's now owned and hereafter
existing or acquired raw materials, work in process, finished goods and all
other inventory of whatsoever kind or nature, wherever located.
1.32 "Inventory Advance Rate" shall mean as to any Borrower, the advance
rate applicable to the Eligible Inventory of such Borrower as determined in
accordance with Section 2.1 hereof.
1.33 "Inventory Maximum Credit" shall mean the amount of Twenty Five
Million Dollars ($25,000,000).
1.34 "Letter of Credit Accommodations" shall mean the letters of credit,
merchandise purchase or other guaranties which are from time to time either (a)
issued, opened or provided by Lender for the account of any Borrower or Obligor
or (b) with respect to which Lender has agreed to indemnify the issuer or
guaranteed to the issuer the performance by any Borrower of its obligations to
such issuer.
1.35 "Loans" shall mean the Revolving Loans.
1.36 "Maximum Credit" shall mean, with reference to the Revolving Loans
and the Letter of Credit Accommodations, the amount of Fifty Million Dollars
($50,000,000).
1.37 "Net Amount of Eligible Accounts" shall mean as to any Borrower,
the gross amount of Eligible Accounts of such Borrower less (a) sales, excise or
similar taxes included in the amount thereof and (b) returns, discounts, claims,
credits and allowances of any nature at any time issued, owing, granted,
outstanding, available or claimed with respect thereto.
1.38 "Obligations" shall mean any and all Revolving Loans, the Letter of
Credit Accommodations and all other obligations, liabilities and indebtedness of
every kind, nature and description owing by any Borrower (or Borrowers) to
Lender and/or its affiliates, including principal, interest, charges, fees,
costs and expenses, however evidenced, whether as principal,
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surety, endorser, guarantor or otherwise, whether arising under this Agreement
or otherwise, whether now existing or hereafter arising, whether arising before,
during or after the initial or any renewal term of this Agreement or after the
commencement of any case with respect to any Borrower (or Borrowers) under the
United States Bankruptcy Code or any similar statute (including, without
limitation, the payment of interest and other amounts which would accrue and
become due but for the commencement of such case), whether direct or indirect,
absolute or contingent, joint or several, due or not due, primary or secondary,
liquidated or unliquidated, secured or unsecured, and however acquired by
Lender.
1.39 "Obligor" shall mean Holbrook, Deckers Japan, Deckers Europe,
Phillipsburg, Picante and any other guarantor, endorser, acceptor, surety or
other person liable on or with respect to the Obligations or who is the owner of
any property which is security for the Obligations, other than a Borrower.
1.40 "OLV" shall mean, with respect to Inventory, the orderly
liquidation value (net of liquidation expenses) as determined by Lender and in
part based upon the written reports or appraisals as to Inventory heretofore
delivered to Lender and hereafter delivered to Lender pursuant to Section 7.3
(d) hereof.
1.41 "Participant" shall mean any Eligible Assignee which at any time
participates with Lender in respect of the Loans, the Letter of Credit
Accommodations or other Obligations or any portion thereof.
1.42 "Payment Account" shall have the meaning set forth in Section 6.3
hereof.
1.43 "Person" or "person" shall mean any individual, sole
proprietorship, partnership, corporation (including, without limitation, any
corporation which elects subchapter S status under the Internal Revenue Code of
1986, as amended), limited liability company, limited liability partnership,
business trust, unincorporated association, joint stock corporation, trust,
joint venture or other entity or any government or any agency or instrumentality
or political subdivision thereof.
1.44 "Phillipsburg" shall mean Phillipsburg, Limited, a limited company
organized under the laws of Hong Kong.
1.45 "Picante" shall mean Picante, S.A., a sociedad anonima organized
under the laws of Guatemala.
1.46 "Prime Rate" shall mean the rate from time to time publicly
announced by the Reference Bank from time to time as its prime rate, whether or
not such announced rate is the best rate available at such bank.
1.47 "Prime Rate Loans" shall mean any Loans or portion thereof on which
interest is payable based on the Prime Rate in accordance with the terms
thereof.
1.48 "Records" shall mean all of a Borrower's present and future books
of account of every kind or nature, purchase and sale agreements, invoices,
ledger cards, bills of lading and other shipping evidence, statements,
correspondence, memoranda, credit files and other data
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relating to the Collateral or any account debtor, together with the tapes,
disks, diskettes and other data and software storage media and devices, file
cabinets or containers in or on which the foregoing are stored (including any
rights of any Borrower with respect to the foregoing maintained with or by any
other person).
1.49 "Reference Bank" shall mean First Union National Bank, or its
successors, or such other bank as Lender may from time to time designate.
1.50 "Renewal Date" shall have the meaning set forth in Section 12.1(a)
hereof.
1.51 "Revolving Loans" shall mean the loans now or hereafter made by
Lender to or for the benefit of any Borrower on a revolving basis (involving
advances, repayments and readvances) as set forth in Section 2.1 hereof.
1.52 "Teva License Agreement" shall mean collectively (a) that certain
License Agreement dated as of March 13, 1991 between Mark Thatcher, an
individual doing business as TEVA Sport Sandals, and DOC and (b) that certain
License Agreement for Europe dated as of November 15, 1991 between Mark
Thatcher, an individual doing business as TEVA Sport Sandals, and DOC, as all of
the foregoing now exists or may hereafter be amended, modified, supplemented,
extended, renewed, restated or replaced.
1.53 "Value" shall mean, as determined by Lender in good faith, with
respect to Inventory, the lower of (a) cost under the first-in-first-out method,
net of vendor discounts or (b) market value.
SECTION 2. CREDIT FACILITIES.
2.1 Revolving Loans.
(a) Subject to, and upon the terms and conditions contained
herein, Lender agrees to make Revolving Loans to DOC from time to time in
amounts requested by DOC up to the amount equal to the sum of:
(i) eighty-five percent (85%) of the Net Amount of
Eligible Accounts of DOC, plus
(ii) the lesser of: (A) sixty-five percent (65%) of the
Value of Eligible Inventory (including Eligible In-Transit Inventory) of DOC; or
(B) eighty-five percent (85%) of the OLV of Eligible Inventory (including
Eligible In-Transit Inventory) of DOC; minus
(iii) the then undrawn amounts of outstanding Letter of
Credit Accommodations for the account of DOC, multiplied by the applicable
percentages as provided for in Section 2.2(c)(i) or Section 2.2(c)(ii) hereof;
minus
(iv) any Availability Reserves with respect to DOC.
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(b) Subject to, and upon the terms and conditions contained
herein, Lender agrees to make Revolving Loans to DOCI from time to time in
amounts requested by DOCI up to the amount equal to the sum of:
(i) eighty-five percent (85%) of the Net Amount of
Eligible Accounts of DOCI, plus
(ii) the lesser of: (A) sixty-five percent (65%) of the
Value of Eligible Inventory (including Eligible In-Transit Inventory) of DOCI;
or (B) eighty-five percent (85%) of the OLV of Eligible Inventory (including
Eligible In-Transit Inventory) of DOCI; minus
(iii) the then undrawn amounts of outstanding Letter of
Credit Accommodations for the account of DOCI, multiplied by the applicable
percentages as provided for in Section 2.2(c)(i) or Section 2.2(c)(ii) hereof;
minus
(iv) any Availability Reserves with respect to DOCI.
(c) Subject to, and upon the terms and conditions contained
herein, Lender agrees to make Revolving Loans to SSI from time to time in
amounts requested by SSI up to the amount equal to the sum of:
(i) eighty-five percent (85%) of the Net Amount of
Eligible Accounts of SSI, plus
(ii) the lesser of: (A) sixty-five percent (65%) of the
Value of Eligible Inventory (including Eligible In-Transit Inventory) of SSI; or
(B) eighty-five percent (85%) of the OLV of Eligible Inventory (including
Eligible In-Transit Inventory) of SSI; minus
(iii) the then undrawn amounts of outstanding Letter of
Credit Accommodations for the account of SSI, multiplied by the applicable
percentages as provided for in Section 2.2(c)(i) or Section 2.2(c)(ii) hereof;
minus
(iv) any Availability Reserves with respect to SSI.
(d) Subject to, and upon the terms and conditions contained
herein, Lender agrees to make Revolving Loans to UHI from time to time in
amounts requested by UHI up to the amount equal to the sum of:
(i) eighty-five percent (85%) of the Net Amount of
Eligible Accounts of UHI, plus
(ii) the lesser of: (A) sixty-five percent (65%) of the
Value of Eligible Inventory (including Eligible In-Transit Inventory) of UHI; or
(B) eighty-five percent (85%) of the OLV of Eligible Inventory (including
Eligible In-Transit Inventory) of UHI; minus
(iii) the then undrawn amounts of outstanding Letter of
Credit Accommodations for the account of UHI, multiplied by the applicable
percentages as provided for in Section 2.2(c)(i) or Section 2.2(c)(ii) hereof;
minus
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(iv) any Availability Reserves with respect to UHI.
(e) Subject to, and upon the terms and conditions contained
herein, Lender agrees to make Revolving Loans to Heirlooms from time to time in
amounts requested by Heirlooms up to the amount equal to the sum of:
(i) eighty-five percent (85%) of the Net Amount of
Eligible Accounts of Heirlooms, plus
(ii) the lesser of: (A) sixty-five percent (65%) of the
Value of Eligible Inventory (including Eligible In-Transit Inventory) of
Heirlooms; or (B) eighty-five percent (85%) of the OLV of Eligible Inventory
(including Eligible In-Transit Inventory) of Heirlooms; minus
(iii) the then undrawn amounts of outstanding Letter of
Credit Accommodations for the account of Heirlooms, multiplied by the applicable
percentages as provided for in Section 2.2(c)(i) or Section 2.2(c)(ii) hereof;
minus
(iv) any Availability Reserves with respect to Heirlooms.
(f) Lender may, in its discretion, from time to time, upon not
less than ten (10) Business Days prior notice to Borrowers:
(i) reduce the lending formula(s) with respect to Eligible
Accounts of any Borrower to the extent that Lender determines in good faith
that: (A) the dilution with respect to the Accounts of such Borrower or the
aggregate Accounts of all Borrowers (based on the ratio of (1) the aggregate
amount of reductions in such Accounts other than as a result of payments in cash
to (2) the aggregate amount of total sales) has increased above five percent
(5%) in the aggregate during any three (3) month period ended on the last day of
the immediately preceding month as of the date of determination (in which case
the lending formula(s) with respect to Eligible Accounts of each Borrower shall
be reduced by one percent (1%) for each percent that dilution exceeds five
percent (5%)) or for which dilution may be reasonably anticipated to increase in
any material respect above historical levels; or (B) the general
creditworthiness of account debtors has declined; or
(ii) reduce the lending formula(s) with respect to
Eligible Inventory of any Borrower to the extent that Lender determines that:
(A) the number of days of the turnover, age or the mix, of the Inventory of such
Borrower or the aggregate Inventory of all Borrowers for any period has changed
in any materially adverse respect; or (B) the liquidation value of the Eligible
Inventory of such Borrower or the aggregate Inventory of all Borrowers, or any
category thereof, has decreased in any material respect; or (C) the nature and
quality of the Inventory of such Borrower or the aggregate Inventory of all
Borrowers has deteriorated in any material respect.
In determining whether to reduce the lending formula(s), Lender may consider
events, conditions, contingencies or risks which are also considered in
determining Eligible Accounts, Eligible Inventory or in establishing
Availability Reserves and may allocate any such consideration to such Borrower
or Borrowers that it deems appropriate.
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(g) Except in Lender's discretion, (i) the aggregate amount of
the Loans, the Letter of Credit Accommodations and other Obligations of all
Borrowers outstanding at any time shall not exceed the Maximum Credit, (ii) the
aggregate amount of Revolving Loans outstanding at any time advanced against all
Eligible Inventory of all Borrowers shall not exceed the Inventory Maximum
Credit and (iii) the aggregate amount of Revolving Loans outstanding at any time
advanced against all Eligible Inventory consisting of Inventory of all Borrowers
within the "Simple" product line shall not exceed Eight Million Dollars
($8,000,000). In the event that the outstanding amount of any component of the
Loans and Letter of Credit Accommodations, or the aggregate amount of the
outstanding Loans and Letter of Credit Accommodations and other Obligations,
exceeds the amounts available under the lending formulas set forth in Section
2.1(a) hereof, the sublimits for Letter of Credit Accommodations set forth in
Section 2.2(d), any other sublimits with respect to specific types of Eligible
Accounts or Eligible Inventory, the Inventory Maximum Credit or the Maximum
Credit, as applicable, such event shall not limit, waive or otherwise affect any
rights of Lender in that circumstance or on any future occasions and Borrowers
shall, upon demand by Lender, which may be made at any time or from time to
time, immediately repay to Lender the entire amount of any such excess(es) for
which payment is demanded.
(h) Lender may from time to time provide Revolving Loans advanced
against a Borrower's Inventory located in the Netherlands and a Borrower's
foreign Accounts, the account debtor of which is located outside the United
States of America or Canada, provided, that each Borrower and Lender shall have
entered into an Amendment to this Agreement, in form and substance satisfactory
to Lender, which shall set forth the terms and conditions to which Lender shall
provide such Revolving Loans, Lender and its counsel shall be satisfied that
Lender has valid, perfected and first priority security interests in and liens
upon such Inventory located in the Netherlands and such foreign Accounts,
subject only to the security interests and liens permitted herein or in the
other Financing Agreements, and such Inventory and Accounts meet the other
eligibility requirements for Eligible Inventory (other than the requirement that
the Inventory be located at a premises within the United States or Canada) and
Eligible Accounts, respectively, set forth herein.
2.2 Letter of Credit Accommodations.
(a) Subject to, and upon the terms and conditions contained
herein, at the request of any Borrower, Lender agrees to provide or arrange for
Letter of Credit Accommodations for the account of such Borrower containing
terms and conditions acceptable to Lender and the issuer thereof. Any payments
made by Lender to any issuer thereof and/or related parties in connection with
the Letter of Credit Accommodations shall constitute additional Revolving Loans
to such Borrower requesting such Letter of Credit Accommodation pursuant to this
Section 2.
(b) In addition to any charges, fees or expenses charged by any
bank or issuer in connection with the Letter of Credit Accommodations, each
Borrower shall pay to Lender a letter of credit fee at a rate equal to one and
one-quarter percent (1.25%) per annum on the daily aggregate outstanding balance
of all Letter of Credit Accommodations for such Borrower for the immediately
preceding month (or part thereof), payable in arrears as of the first day of
each succeeding month; provided, however, that such letter of credit fee shall
be increased, at
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Lender's option without notice, to three and one-quarter percent (3.25%) per
annum for the period on or after the date of termination or non-renewal of this
Agreement, or the date of the occurrence of an Event of Default. Such letter of
credit fee shall be calculated on the basis of a three hundred sixty (360) day
year and actual days elapsed and the obligation of each Borrower to pay such fee
shall survive the termination or non-renewal of this Agreement.
(c) No Letter of Credit Accommodations shall be available to a
Borrower requesting such Letter of Credit Accommodation unless on the date of
the proposed issuance of such Letter of Credit Accommodations, the Revolving
Loans available to such Borrower (subject to the Inventory Maximum Credit, the
Maximum Credit and any Availability Reserves) are equal to or greater than:
(i) if the proposed Letter of Credit Accommodation is for
the purpose of purchasing Eligible Inventory, the sum of: (A) the product of the
Value of such Eligible Inventory multiplied by one minus the Inventory Advance
Rate of such Borrower under Section 2.1 as applicable, plus (B) freight, taxes,
duty and other amounts which Lender estimates must be paid in connection with
such Inventory upon arrival and for delivery to one of such Borrower's locations
for Eligible Inventory within the United States of America or Canada; and
(ii) if the proposed Letter of Credit Accommodation is for
standby letters of credit guaranteeing the purchase of Eligible Inventory or for
any other purpose, an amount equal to one hundred percent (100%) of the face
amount thereof and all other commitments and obligations made or incurred by
Lender with respect thereto.
Effective on the issuance of each Letter of Credit Accommodation, the amount of
Revolving Loans which might otherwise be available to a Borrower requesting such
Letter of Credit Accommodation shall be reduced by the applicable amount set
forth in Section 2.2(c)(i) or Section 2.2(c)(ii); provided, however, with
respect to Letter of Credit Accommodations provided to indemnify Wells Fargo
Bank, N.A. for open documentary letters of credit issued prior to date hereof,
the amount of Revolving Loans available to a Borrower requesting such Letter of
Credit Accommodation shall be reduced by an amount equal to the face amount of
such Letter of Credit Accommodation allocated to such Borrower by Lender (based
upon the aggregate amount of Letters of Credit issued on behalf of such Borrower
as an account party) multiplied by one minus the applicable Inventory Advance
Rate of such Borrower under Section 2.1.
(d) Except in Lender's discretion, the aggregate amount of all
outstanding Letter of Credit Accommodations and all other commitments and
obligations made or incurred by Lender in connection therewith for all Borrowers
shall not at any time exceed Fifteen Million Dollars ($15,000,000). At any time
an Event of Default exists or has occurred and is continuing, upon Lender's
request, each Borrower will either furnish cash collateral to secure the
reimbursement obligations to the issuer in connection with any Letter of Credit
Accommodations or furnish cash collateral to Lender for the Letter of Credit
Accommodations, and in either case, the Revolving Loans otherwise available to
such Borrower shall not be reduced as provided in Section 2.2(c) to the extent
of such cash collateral.
(e) Each Borrower shall indemnify and hold Lender harmless from
and against any and all losses, claims, damages, liabilities, costs and expenses
which Lender may
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suffer or incur in connection with any Letter of Credit Accommodations and any
documents, drafts or acceptances relating thereto, including, but not limited
to, any losses, claims, damages, liabilities, costs and expenses due to any
action taken by any issuer or correspondent with respect to any Letter of Credit
Accommodation, unless such losses, claims, damages, liabilities, costs and
expenses arise from Lender's gross negligence or willful misconduct. Each
Borrower assumes all risks with respect to the acts or omissions of the drawer
under or beneficiary of any Letter of Credit Accommodation and for such purposes
the drawer or beneficiary shall be deemed such Borrower's agent. Each Borrower
assumes all risks for, and agrees to pay, all foreign, Federal, State and local
taxes, duties and levies relating to any goods subject to any Letter of Credit
Accommodations or any documents, drafts or acceptances thereunder. Each Borrower
hereby releases and holds Lender harmless from and against any acts, waivers,
errors, delays or omissions, whether caused by any Borrower, by any issuer or
correspondent or otherwise, unless caused by the gross negligence or willful
misconduct of Lender, with respect to or relating to any Letter of Credit
Accommodation. The provisions of this Section 2.2(e) shall survive the payment
of Obligations and the termination or non-renewal of this Agreement.
(f) Nothing contained herein shall be deemed or construed to
grant any Borrower any right or authority to pledge the credit of Lender in any
manner. Lender shall have no liability of any kind with respect to any Letter of
Credit Accommodation provided by an issuer other than Lender unless Lender has
duly executed and delivered to such issuer the application or a guarantee or
indemnification in writing with respect to such Letter of Credit Accommodation.
Each Borrower shall be bound by any interpretation made in good faith by Lender,
or any other issuer or correspondent under or in connection with any Letter of
Credit Accommodation or any documents, drafts or acceptances thereunder,
notwithstanding that such interpretation may be inconsistent with any
instructions of such Borrower. Lender shall have the sole and exclusive right
and authority to, and no Borrower shall: (i) at any time an Event of Default
exists or has occurred and is continuing, (A) approve or resolve any questions
of non-compliance of documents, (B) give any instructions as to acceptance or
rejection of any documents or goods or (C) execute any and all applications for
steamship or airway guaranties, indemnities or delivery orders, and (ii) at all
times, (A) grant any extensions of the maturity of, time of payment for, or time
of presentation of, any drafts, acceptances, or documents, and (B) agree to any
amendments, renewals, extensions, modifications, changes or cancellations of any
of the terms or conditions of any of the applications, Letter of Credit
Accommodations, or documents, drafts or acceptances thereunder or any letters of
credit included in the Collateral. Lender may take such actions either in its
own name or in any Borrower's name.
(g) Any rights, remedies, duties or obligations granted or
undertaken by any Borrower to any issuer or correspondent in any application for
any Letter of Credit Accommodation, or any other agreement in favor of any
issuer or correspondent relating to any Letter of Credit Accommodation, shall be
deemed to have been granted or undertaken by such Borrower to Lender. Any duties
or obligations undertaken by Lender to any issuer or correspondent in any
application for any Letter of Credit Accommodation, or any other agreement by
Lender in favor of any issuer or correspondent relating to any Letter of Credit
Accommodation, shall be deemed to have been undertaken by each Borrower to
Lender and to apply in all respects to each Borrower.
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SECTION 3. INTEREST AND FEES.
3.1 Interest.
(a) Borrowers shall pay to Lender interest on the outstanding
principal amount of the non-contingent Obligations at the Interest Rate. All
interest accruing hereunder on and after the date of any Event of Default or
termination or non-renewal hereof shall be payable on demand.
(b) Borrowers may from time to time request that Prime Rate Loans
be converted to Eurodollar Rate Loans or that any existing Eurodollar Rate Loans
continue for an additional Interest Period. Such request from Borrowers shall
specify the amount of the Prime Rate Loans which will constitute Eurodollar Rate
Loans (subject to the limits set forth below) and the Interest Period to be
applicable to such Eurodollar Rate Loans. Subject to the terms and conditions
contained herein, three (3) Business Days after receipt by Lender of such a
request from Borrowers, such Prime Rate Loans shall be converted to Eurodollar
Rate Loans or such Eurodollar Rate Loans shall continue, as the case may be,
provided, that, (i) no Event of Default, or event which with notice or passage
of time or both would constitute an Event of Default exists or has occurred and
is continuing, (ii) no party hereto shall have sent any notice of termination or
non-renewal of this Agreement, (iii) Borrowers shall have complied with such
customary procedures as are established by Lender and specified by Lender to
Borrowers from time to time for requests by Borrower for Eurodollar Rate Loans,
(iv) no more than four (4) Interest Periods may be in effect at any one time,
(v) the aggregate amount of the Eurodollar Rate Loans must be in an amount not
less than Five Million Dollars ($5,000,000) or an integral multiple of One
Million Dollars ($1,000,000) in excess thereof, (vi) the maximum amount of the
Eurodollar Rate Loans at any time requested by Borrowers shall not exceed the
amount equal to eighty percent (80%) of the lowest principal amount of the
Revolving Loans which it is anticipated will be outstanding in the aggregate
during the applicable Interest Period, in each case as determined by Lender (but
with no obligation of Lender to make such Revolving Loans) and (vii) Lender
shall have determined that the Interest Period or Adjusted Eurodollar Rate is
available to Lender through the Reference Bank and can be readily determined as
of the date of the request for such Eurodollar Rate Loan by Borrowers. Any
request by Borrowers to convert Prime Rate Loans to Eurodollar Rate Loans or to
continue any existing Eurodollar Rate Loans shall be irrevocable.
Notwithstanding anything to the contrary contained herein, Lender and Reference
Bank shall not be required to purchase United States Dollar deposits in the
London interbank market or other applicable Eurodollar Rate market to fund any
Eurodollar Rate Loans, but the provisions hereof shall be deemed to apply as if
Lender and Reference Bank had purchased such deposits to fund the Eurodollar
Rate Loans.
(c) Any Eurodollar Rate Loans shall automatically convert to
Prime Rate Loans upon the last day of the applicable Interest Period, unless
Lender has received and approved a request to continue such Eurodollar Rate Loan
at least three (3) Business Days prior to such last day in accordance with the
terms hereof. Any Eurodollar Rate Loans shall, at Lender's option, upon notice
by Lender to Borrowers, convert to Prime Rate Loans in the event that (i) an
Event of Default or event which, with the notice or passage of time, or both,
would constitute an Event of Default, shall exist, (ii) this Agreement shall
terminate or not be renewed, or (iii) the aggregate principal amount of the
Prime Rate Loans which have previously been
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converted to Eurodollar Rate Loans or existing Eurodollar Rate Loans continued,
as the case may be, at the beginning of an Interest Period shall at any time
during such Interest Period exceed either (A) the aggregate principal amount of
the Loans then outstanding, or (B) the Revolving Loans then available to any
Borrower under Section 2 hereof. Borrowers shall pay to Lender, upon demand by
Lender (or Lender may, at its option, charge any loan account of Borrower) any
amounts required to compensate Lender, the Reference Bank or any Participant
with Lender for any loss (including loss of anticipated profits), cost or
expense incurred by such person, as a result of the conversion of Eurodollar
Rate Loans to Prime Rate Loans pursuant to any of the foregoing.
(d) Interest shall be payable by Borrowers to Lender monthly in
arrears not later than the first day of each calendar month and shall be
calculated on the basis of a three hundred sixty (360) day year and actual days
elapsed. The interest rate on non-contingent Obligations (other than Eurodollar
Rate Loans) shall increase or decrease by an amount equal to each increase or
decrease in the Prime Rate effective on the first day of the month after any
change in such Prime Rate is announced based on the Prime Rate in effect on the
last day of the month in which any such change occurs. In no event shall charges
constituting interest payable by any Borrower to Lender exceed the maximum
amount or the rate permitted under any applicable law or regulation, and if any
such part or provision of this Agreement is in contravention of any such law or
regulation, such part or provision shall be deemed amended to conform thereto.
3.2 Closing Fee. Borrowers shall pay to Lender as a closing fee Two
Hundred Fifty Thousand Dollars ($250,000) which fee shall be fully earned as of
and payable on the Closing Date. Such closing fee shall be allocated among
Borrowers as determined by Lender and payable by Borrowers in accordance with
such allocation.
3.3 Loan Servicing Fee. Borrowers collectively shall pay to Lender a
monthly loan servicing fee in an aggregate amount equal to Two Thousand Dollars
($2,000) each month, plus reasonable out-of-pocket costs and expenses, in
respect of Lender's services for each month (or part thereof) while this
Agreement remains in effect and for so long thereafter as any of the Obligations
are outstanding, which fee shall be fully earned as of the date hereof and on
the first day of each month hereafter, and payable in advance, with the first of
such monthly payments payable on the date hereof and on the first day of each
month hereafter; provided, however, in the event that any Loans are advanced by
Lender to any Borrower against any factored Eligible Account or Eligible
Inventory located in Europe, such service fee shall increase to Four Thousand
Dollars ($4,000) per month. Such loan servicing fee shall be allocated among
Borrowers as determined by Lender and payable by Borrowers in accordance with
such allocation.
3.4 Unused Line Fee. Borrowers shall pay to Lender monthly an unused
line fee equal to a rate of one-quarter of one percent (0.25 %) per annum
calculated upon the amount by which the Maximum Credit exceeds the average daily
principal balance of the aggregate outstanding Revolving Loans and Letter of
Credit Accommodations for all Borrowers during the immediately preceding month
while this Agreement is in effect and for so long thereafter as any of the
Obligations are outstanding, which fee shall be payable on the first day of each
month in
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arrears. Such unused line fee shall be allocated among Borrowers as determined
by Lender and payable by Borrowers in accordance with such allocation.
3.5 Compensation Adjustment.
(a) If after the date of this Agreement the introduction of, or
any change in, any law or any governmental rule, regulation, policy, guideline
or directive (whether or not having the force of law), or any interpretation
thereof, or compliance by Lender or any Participant therewith:
(i) subjects Lender to any tax, duty, charge or
withholding on or from payments due from any Borrower (excluding franchise taxes
imposed upon, and taxation of the overall net income of, Lender or any
Participant), or changes the basis of taxation of payments, in either case in
respect of amounts due it hereunder, or
(ii) imposes or increases or deems applicable any reserve
requirement or other reserve, assessment, insurance charge, special deposit or
similar requirement against assets of, deposits with or for the account of, or
credit extended by Lender or any Participant, or
(iii) imposes any other condition the result of which is
to increase the cost to Lender or any Participant of making, funding or
maintaining the Loans or Letter of Credit Accommodations or reduces any amount
receivable by Lender or any Participant in connection with the Loans or Letter
of Credit Accommodations, or requires Lender or any Participant to make payment
calculated by references to the amount of loans held or interest received by it,
by an amount deemed material by Lender or any Participant, or
(iv) imposes or increases any capital requirement or
affects the amount of capital required or expected to be maintained by Lender or
any Participant or any corporation controlling Lender or any Participant, and
Lender or any Participant reasonably determines that such imposition or increase
in capital requirements or increase in the amount of capital expected to be
maintained is based upon the existence of this Agreement or the Loans or Letter
of Credit Accommodations hereunder, all of which may be determined by Lender's
reasonable allocation of the aggregate of its impositions or increases in
capital required or expected to be maintained, and the result of any of the
foregoing is to increase the cost to Lender or any Participant of making,
renewing or maintaining the Loans or Letter of Credit Accommodations, or to
reduce the rate of return to Lender or any Participant on the Loans or Letter of
Credit Accommodations, then upon demand by Lender, Borrowers shall pay to
Lender, and continue to make periodic payments to Lender or any Participant,
such additional amounts as may be necessary to compensate Lender or any
Participant for any such additional cost incurred or reduced rate of return
realized.
(b) A certificate of Lender claiming entitlement to compensation
as set forth above will be conclusive in the absence of manifest error. Such
certificate will set forth the nature of the occurrence giving rise to such
compensation, the additional amount or amounts to be paid and the compensation
and the method by which such amounts were determined. In determining any
additional amounts due from Borrowers under this Section 3.5, Lender shall act
reasonably and in good faith and will, to the extent that the increased costs,
reductions, or
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amounts received or receivable relate to the Lender's or a Participant's loans
or commitments generally and are not specifically attributable to the Loans and
commitments hereunder, use averaging and attribution methods which are
reasonable and equitable and which cover all loans and commitments under this
Agreement by the Lender or such Participant, as the case may be, whether or not
the loan documentation for such other loans and commitments permits the Lender
or such Participant to receive compensation costs of the type described in this
Section 3.5.
3.6 Changes in Laws and Increased Costs of Loans.
(a) Notwithstanding anything to the contrary contained herein,
all Eurodollar Rate Loans shall, upon notice by Lender to Borrowers, convert to
Prime Rate Loans in the event that (i) any change in applicable law or
regulation (or the interpretation or administration thereof) shall either (A)
make it unlawful for Lender, Reference Bank or any Participant to make or
maintain Eurodollar Rate Loans or to comply with the terms hereof in connection
with the Eurodollar Rate Loans, or (B) shall result in the increase in the costs
to Lender, Reference Bank or any Participant of making or maintaining any
Eurodollar Rate Loans by an amount deemed by Lender to be material, or (C)
reduce the amounts received or receivable by Lender in respect thereof, by an
amount deemed by Lender to be material or (ii) the cost to Lender, Reference
Bank or any Participant of making or maintaining any Eurodollar Rate Loans shall
otherwise increase by an amount deemed by Lender to be material. Borrowers shall
pay to Lender, upon demand by Lender (or Lender may, at its option, charge any
loan account of any Borrower) any amounts required to compensate Lender, the
Reference Bank or any Participant with Lender for any reasonable loss (including
loss of anticipated profits), cost or expense incurred by such person as a
result of the foregoing, including, without limitation, any such reasonable
loss, cost or expense incurred by reason of the liquidation or reemployment of
deposits or other funds acquired by such person to make or maintain the
Eurodollar Rate Loans or any portion thereof. A certificate of Lender setting
forth the basis for the determination of such amount necessary to compensate
Lender as aforesaid shall be delivered to Borrowers and shall be conclusive,
absent manifest error.
(b) If any payments or prepayments in respect of the Eurodollar
Rate Loans are received by Lender other than on the last day of the applicable
Interest Period (whether pursuant to acceleration, upon maturity or otherwise),
including any payments pursuant to the application of collections under Section
6.3 or any other payments made with the proceeds of Collateral, Borrowers shall
pay to Lender upon demand by Lender (or Lender may, at its option, charge any
loan account of any Borrower) any amounts required to compensate Lender, the
Reference Bank or any Participant with Lender for any additional reasonable loss
(including loss of anticipated profits), cost or expense incurred by such person
as a result of such prepayment or payment, including, without limitation, any
reasonable loss, cost or expense incurred by reason of the liquidation or
reemployment of deposits or other funds acquired by such person to make or
maintain such Eurodollar Rate Loans or any portion thereof.
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SECTION 4. CONDITIONS PRECEDENT AND SUBSEQUENT.
4.1 Conditions Precedent to Initial Loans and the Letter of Credit
Accommodations. Each of the following is a condition precedent to Lender making
the initial Loans and providing the initial Letter of Credit Accommodations
hereunder:
(a) Lender shall have received, in form and substance
satisfactory to Lender, all releases, terminations and such other documents as
Lender may request to evidence and effectuate the termination of any interest in
and to any assets and properties of each Borrower, duly authorized, executed and
delivered by it or each of them, including, but not limited to, UCC termination
statements for all UCC financing statements and Lender shall have satisfied
itself that it has valid, perfected and first priority security interests in and
liens upon the Collateral and any other property which is intended as security
for the Obligations or the liability of any Obligor in respect thereto, subject
only to the security interests and liens permitted herein or in the other
Financing Agreements;
(b) all requisite corporate action and proceedings in connection
with this Agreement and the other Financing Agreements shall be satisfactory in
form and substance to Lender, and Lender shall have received all information and
copies of all documents, including, without limitation, records of requisite
corporate action and proceedings which Lender may have requested in connection
therewith, such documents where requested by Lender or its counsel to be
certified by appropriate corporate officers or governmental authorities;
(c) no material adverse change shall have occurred in the assets,
business or prospects of any Borrower since the date of Lender's latest field
examination and no change or event shall have occurred which would impair the
ability of any Borrower or Obligor to perform its obligations hereunder or under
any of the other Financing Agreements to which it is a party or of Lender to
enforce the Obligations or realize upon the Collateral;
(d) Lender shall have completed an updated field review of the
Records and of such other financial information, projections, budgets, business
plans, cash flows as Lender shall reasonably request from time to time,
including, but not limited to, current agings of receivables, current perpetual
inventory records and/or rollforwards of Accounts and Inventory through the date
of closing (including test counts of the Inventory by a third party acceptable
to Lender), together with supporting documentation, including documentation with
respect to Inventory in-transit, goods in bonded warehouses or at other
third-party locations, that will enable Lender to accurately identify and verify
the Eligible Inventory at or before the Closing Date in a manner satisfactory to
Lender, the results of which shall be satisfactory to Lender;
(e) Lender shall have received, in form and substance
satisfactory to Lender, all consents, waivers, acknowledgments and other
agreements from third persons which Lender may deem necessary or desirable in
order to permit, protect and perfect its security interests in and liens upon
the Collateral or to effectuate the provisions or purposes of this Agreement and
the other Financing Agreements, including, without limitation, acknowledgments
by lessors, mortgagees and warehousemen of Lender's security interests in the
Collateral, waivers by such persons of any security interests, liens or other
claims by such persons to the Collateral and
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agreements permitting Lender access to, and the right to remain on, the premises
to exercise its rights and remedies and otherwise deal with the Collateral;
(f) each of Holbrook, Deckers Japan, Deckers Europe,
Phillipsburg, and Picante shall have duly executed and delivered to Lender, in
form and substance satisfactory to Lender, a guarantee of the Obligations;
(g) Lender shall have received, in form and substance
satisfactory to Lender, a Stock Pledge Agreement executed by Robert W. Eason, an
individual, pledging all of his capital stock of Heirlooms as security for the
Obligations;
(h) any holders of a security interest in any Borrower's assets,
including, without limitation, vendors of inventory of such Borrower, shall have
executed and delivered terminations, intercreditor and/or subordination
agreements in form and substance satisfactory to Lender;
(i) Lender shall have received audited financial statements of
each Borrower, on a consolidated basis, and the accompanying notes thereto, for
the fiscal year ended December 31, 1997, together with the unqualified opinion a
certified public accountant acceptable to Lender that such financial statements
have been prepared in accordance with GAAP, and present fairly the results of
operations and financial condition of such Borrower for the fiscal year then
ended;
(j) Lender shall have received unaudited financial statements of
each Borrower having any subsidiaries, on a consolidating basis, for the fiscal
year ended December 31, 1997, in detail reasonably satisfactory to Lender,
fairly presenting the financial position and the results of operations of such
Borrower and its subsidiaries for the fiscal year then ended;
(k) Lender shall have received, in form and substance
satisfactory to Lender, consolidated pro-forma balance sheets of each Borrower
reflecting the initial transactions contemplated hereunder, including, but not
limited to, the Loans and Letter of Credit Accommodations provided by Lender to
such Borrower on the Closing Date and the use of the proceeds of the initial
Loans as provided herein, accompanied by a certificate, dated of even date
herewith, of the chief financial officer of such Borrower, stating that such
pro-forma balance sheet represents the reasonable, good faith opinion of such
officer as to the subject matter thereof as of the date of such certificate;
(l) Lender shall have received the latest available certified
public accountant management letter;
(m) Lender shall have received and reviewed to its satisfaction
any and all licensing agreements to which any Borrower is a party, including
without limitation the Teva License Agreements, together with a schedule setting
forth the expiration dates of each of such licensing agreements and such
consents by any party thereto as Lender deems necessary to perfect Lender's
first priority security interests in such licensing agreements and to exercise
its remedies provided hereunder;
(n) Lender shall have received evidence of insurance and loss
payee endorsements required hereunder and under the other Financing Agreements,
in form and
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substance satisfactory to Lender, and certificates of insurance policies and/or
endorsements naming Lender as loss payee;
(o) Lender shall have received, in form and substance
satisfactory to Lender, such opinion letters of counsel to Borrowers and Deckers
Japan with respect to the Financing Agreements and such other matters as Lender
may request;
(p) the Excess Availability as determined by Lender as of the
Closing Date, shall be not less than an amount acceptable to Lender after giving
effect to the initial Loans made or to be made hereunder and the payment of all
fees and expenses payable upon the consummation of the initial transactions
contemplated by this Agreement;
(q) Lender shall have received, in form and substance
satisfactory to Lender and its counsel, the assignment of all of each Borrower's
rights in registered patents, trademarks, service marks and copyrights, as
Collateral hereunder, on Lender's standard forms of Collateral Assignments; and
(r) the other Financing Agreements and all instruments and
documents hereunder and thereunder shall have been duly executed and delivered
to Lender, in form and substance satisfactory to Lender.
4.2 Conditions Precedent to All Loans and Letter of Credit
Accommodations. Each of the following is an additional condition precedent to
Lender making Loans and/or providing Letter of Credit Accommodations to any
Borrower, including the initial Loans and Letter of Credit Accommodations and
any future Loans and Letter of Credit Accommodations:
(a) all representations and warranties contained herein and in
the other Financing Agreements shall be true and correct in all material
respects with the same effect as though such representations and warranties had
been made on and as of the date of the making of each such Loan or providing
each such Letter of Credit Accommodation and after giving effect thereto; and
(b) no Event of Default and no event or condition which, with
notice or passage of time or both, would constitute an Event of Default, shall
exist or have occurred and be continuing on and as of the date of the making of
such Loan or providing each such Letter of Credit Accommodation and after giving
effect thereto.
4.3 Condition Subsequent to All Loans and Letter of Credit
Accommodations. Performance of the following conditions shall be completed
within the time frame set forth below, and the failure to satisfy any condition
with the time frame will constitute an Event of Default hereunder:
(a) as soon as practicable, but in no event later than thirty
(30) days after the Closing Date, Borrowers shall deliver to Lender the bylaws
of UHI duly certified as the true, correct and complete bylaws of UHI by the
Secretary of UHI.
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(b) on or before January 30, 1999, Lender shall have received, in
form and substance satisfactory to Lender, executed copies of Blocked Account
Agreements with respect to each Borrower, pursuant to Section 6.3(a) hereof,
among Lender, such Borrower and Wells Fargo Bank, N.A.; and
(c) as soon as practicable, but in no event later than thirty
(30) days after the Closing Date, Borrowers shall deliver or cause to be
delivered to Lender all original stock certificates evidencing the shares issued
to Robert W. Eason, an individual, and pledged to Lender, together with undated
Stock Powers, executed in blank by Robert W. Eason with respect to such shares.
SECTION 5. GRANT OF SECURITY INTEREST.
To secure payment and performance of all Obligations, each Borrower
hereby grants to Lender a continuing security interest in, a lien upon, and a
right of set off against, and hereby assigns to Lender as security, the
following property and interests in property of such Borrower, whether now owned
or hereafter acquired or existing, and wherever located (collectively, the
"Collateral"):
5.1 Accounts and other indebtedness owed to such Borrower;
5.2 all present and future contract rights, general intangibles
(including, but not limited to, tax and duty refunds, registered and
unregistered patents, trademarks, service marks, copyrights, trade names,
applications for the foregoing, trade secrets, goodwill, processes, drawings,
blueprints, customer lists, licenses, whether as licensor or licensee, choses in
action and other claims and existing and future leasehold interests in
equipment, real estate and fixtures), chattel paper, documents, instruments,
investment property, federal and state tax refunds and credits, letters of
credit, proceeds of letters of credit, bankers' acceptances and guaranties;
5.3 all present and future monies, securities, credit balances,
deposits, deposit accounts and other property of such Borrower now or hereafter
held or received by or in transit to Lender or its affiliates or at any other
depository or other institution from or for the account of such Borrower,
whether for safekeeping, pledge, custody, transmission, collection or otherwise,
and all present and future liens, security interests, rights, remedies, title
and interest in, to and in respect of Accounts and other Collateral, including,
without limitation, (a) rights and remedies under or relating to guaranties,
contracts of suretyship, letters of credit and credit and other insurance
related to the Collateral, (b) rights of stoppage in transit, replevin,
repossession, reclamation and other rights and remedies of an unpaid vendor,
lienor or secured party, (c) goods described in invoices, documents, contracts
or instruments with respect to, or otherwise representing or evidencing,
Accounts or other Collateral, including, without limitation, returned,
repossessed and reclaimed goods, and (d) deposits by and property of account
debtors or other persons securing the obligations of account debtors;
5.4 Inventory;
5.5 Equipment;
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5.6 Records; and
5.7 all products and proceeds of the foregoing, in any form, including,
without limitation, insurance proceeds and all claims against third parties for
loss or damage to or destruction of any or all of the foregoing.
SECTION 6. COLLECTION AND ADMINISTRATION.
6.1 Borrowers' Loan Accounts. Lender shall maintain one or more loan
account(s) for each Borrower on its books in which shall be recorded (a) all
Loans, all Letter of Credit Accommodations and all other Obligations and the
Collateral with respect to such Borrower, (b) all payments made by or on behalf
of such Borrower and (c) all other appropriate debits and credits as provided in
this Agreement, including, without limitation, reasonable fees, charges, costs,
expenses and interest. All entries in the loan account(s) shall be made in
accordance with Lender's customary practices as in effect from time to time.
6.2 Statements. Lender shall render to Borrowers each month a statement
setting forth the balance in each Borrower's loan account(s) maintained by
Lender for such Borrower pursuant to the provisions of this Agreement, including
principal, interest, fees, costs and expenses. Each such statement shall be
subject to subsequent adjustment by Lender but shall, absent manifest errors or
omissions, be considered correct and deemed accepted by each Borrower and
conclusively binding upon each Borrower as an account stated except to the
extent that Lender receives a written notice from Borrowers of any specific
exceptions of any Borrower thereto within thirty (30) days after the date such
statement has been mailed by Lender. Until such time as Lender shall have
rendered to Borrowers a written statement as provided above, the balance in each
Borrower's loan account(s) shall be presumptive evidence of the amounts due and
owing to Lender by Borrowers.
6.3 Collection of Accounts.
(a) Each Borrower shall establish and maintain, at its expense, a
blocked account or lockboxes and related blocked accounts (in either case, each
a "Blocked Account" and collectively the "Blocked Accounts"), as Lender may
specify, with such bank or banks as are acceptable to Lender into which such
Borrower shall promptly deposit and direct its account debtors to directly remit
all payments on Accounts and all payments constituting proceeds of Inventory or
other Collateral (including, without limitation, any federal or state tax
refunds or credits) in the identical form in which such payments are made,
whether by cash, check or other manner. Each bank at which a Blocked Account is
established shall enter into an agreement, in form and substance satisfactory to
Lender, providing (unless otherwise agreed to by Lender) that all items received
or deposited in such Blocked Account are the Collateral of Lender, that the
depository bank has no lien upon, or right to setoff against, the Blocked
Accounts, the items received for deposit therein, or the funds from time to time
on deposit therein and that the depository bank will wire, or otherwise
transfer, in immediately available funds, on a daily basis, all funds received
or deposited into such Blocked Account to such bank account of Lender as Lender
may from time to time designate for such purpose (the "Payment Account"). Each
Borrower agrees that all amounts deposited in the Blocked Account(s) or other
funds received
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and collected by Lender, whether as proceeds of Inventory, the collection of
Accounts or other Collateral or otherwise shall be the Collateral of Lender.
(b) For purposes of calculating interest on the Obligations, such
payments or other funds received will be applied (conditional upon final
collection) to the Obligations one (1) Business Day following the date of
receipt of immediately available funds by Lender in the Payment Account, or one
(1) Business Day following the date of receipt of funds that are not immediately
available to Lender in the Payment Account, as applicable. For purposes of
calculating the amount of the Revolving Loans available to each Borrower such
payments will be applied (conditional upon final collection) to the Obligations
on the Business Day of receipt by Lender in the Payment Account, if such
payments are received within sufficient time (in accordance with Lender's usual
and customary practices as in effect from time to time) to credit such
Borrower's loan account on such day, and if not, then on the next Business Day.
(c) Each Borrower and all of its affiliates, subsidiaries,
shareholders, directors, employees or agents shall, acting as trustee for
Lender, receive, as the property of Lender, any monies, cash, checks, notes,
drafts or any other payment relating to and/or proceeds of Accounts or from
sales of Inventory or other Collateral which come into their possession or under
their control and immediately upon receipt thereof, shall deposit or cause the
same to be deposited in the Blocked Accounts, or remit the same or cause the
same to be remitted, in kind, to Lender. In no event shall any such monies,
checks, notes, drafts or other payments be commingled with any Borrower's own
funds. Each Borrower agrees to reimburse Lender on demand for any amounts owed
or paid to any bank at which a Blocked Account is established or any other bank
or person involved in the transfer of funds to or from the Blocked Accounts
arising out of Lender's payments to or indemnification of such bank or person,
unless such payment or indemnification obligation of Lender was a result of
Lender's gross negligence or willful misconduct. The obligation of each Borrower
to reimburse Lender for such amounts pursuant to this Section 6.3 shall survive
the termination or non-renewal of this Agreement.
6.4 Payments. All Obligations shall be payable to the Payment Account as
provided in Section 6.3 or such other place as Lender may designate from time to
time. Lender may apply payments received or collected from any Borrower or for
the account of any Borrower (including, without limitation, the monetary
proceeds of collections or of realization upon any Collateral) to such of the
Obligations owed by such Borrower, whether or not then due, in such order and
manner as Lender determines. At Lender's option, all principal, interest, fees,
costs, expenses and other charges provided for in this Agreement or the other
Financing Agreements and owed by a Borrower may be charged directly to the loan
account(s) of such Borrower. Each Borrower shall make all payments to Lender on
the Obligations free and clear of, and without deduction or withholding for or
on account of, any setoff, counterclaim, defense, duties, taxes, levies,
imposts, fees, deductions, withholding, restrictions or conditions of any kind.
If after receipt of any payment of, or proceeds of Collateral applied to the
payment of, any of the Obligations, Lender is required to surrender or return
such payment or proceeds to any Person for any reason, then the Obligations
intended to be satisfied by such payment or proceeds shall be reinstated and
continue and this Agreement shall continue in full force and effect as if such
payment or proceeds had not been received by Lender. Each Borrower shall be
liable to pay to Lender, and does hereby indemnify and hold Lender harmless for
the amount of any payments or proceeds surrendered or returned. This Section 6.4
shall remain effective notwithstanding any
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contrary action which may be taken by Lender in reliance upon such payment or
proceeds. This Section 6.4 shall survive the payment of the Obligations and the
termination or non-renewal of this Agreement.
6.5 Authorization to Make Loans. Lender is authorized to make the Loans
and provide the Letter of Credit Accommodations to a Borrower based upon
telephonic or other instructions received from anyone purporting to be an
officer of such Borrower or other authorized person or, at the discretion of
Lender, if such Loans are necessary to satisfy any Obligations. All requests for
Loans or Letter of Credit Accommodations hereunder shall specify the date on
which the requested advance is to be made or Letter of Credit Accommodations
established (which day shall be a Business Day) and the amount of the requested
Loan. Requests received after 10:30 a.m. (Los Angeles time) on any day shall be
deemed to have been made as of the opening of business on the immediately
following Business Day. All Loans and Letter of Credit Accommodations under this
Agreement shall be conclusively presumed to have been made to, and at the
request of and for the benefit of, a Borrower when deposited to the credit of
such Borrower or otherwise disbursed or established in accordance with the
instructions of such Borrower or in accordance with the terms and conditions of
this Agreement.
6.6 Use of Proceeds. Borrowers shall use the initial proceeds of the
Loans provided by Lender to any Borrower hereunder only for: (a) payments to
each of the persons listed in the disbursement direction letter furnished by
Borrowers to Lender on or about the Closing Date and (b) reasonable costs,
expenses and fees in connection with the preparation, negotiation, execution and
delivery of this Agreement and the other Financing Agreements. All other Loans
made or Letter of Credit Accommodations provided by Lender to Borrower pursuant
to the provisions hereof shall be used by such Borrower only for general
operating, working capital and other proper corporate purposes of such Borrower
not otherwise prohibited by the terms hereof. None of the proceeds will be used,
directly or indirectly, for the purpose of purchasing or carrying any margin
security or for the purposes of reducing or retiring any indebtedness which was
originally incurred to purchase or carry any margin security or for any other
purpose which might cause any of the Loans to be considered a "purpose credit"
within the meaning of Regulation U of the Board of Governors of the Federal
Reserve System, as amended.
SECTION 7. COLLATERAL REPORTING AND COVENANTS.
7.1 Collateral Reporting. Each Borrower shall provide Lender with the
following documents of such Borrower in a form satisfactory to Lender: (a) on a
regular basis as required by Lender, a schedule of Accounts, sales made, credits
issued and cash received; (b) on a monthly basis, on or before the tenth (10th)
Business Day of such month for the immediately preceding month or more
frequently as Lender may reasonably request, (i) perpetual inventory reports,
(ii) inventory reports by major category and (iii) agings of accounts payable,
lease payables and other payables; (c) within thirty (30) days after the end of
each fiscal quarter, a report setting forth any new patents, trademark
registrations or copyright registrations and any applications for any of the
foregoing; (d) upon Lender's request, (i) copies of customer statements and
credit memos, remittance advices and reports, and copies of deposit slips and
bank statements, (ii) copies of shipping and delivery documents, and (iii)
copies of purchase orders, invoices and delivery documents for Inventory and
Equipment acquired by such
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Borrower; (e) agings of accounts receivable on a monthly basis or more
frequently as Lender may reasonably request; and (f) such other reports as to
the Collateral or other property which is security for the Obligations as Lender
shall reasonably request from time to time. If any of a Borrower's records or
reports of the Collateral or other property which is security for the
Obligations are prepared or maintained by an accounting service, contractor,
shipper or other agent, such Borrower hereby irrevocably authorizes such
service, contractor, shipper or agent to deliver such records, reports, and
related documents to Lender and to follow Lender's instructions with respect to
further services at any time that an Event of Default exists or has occurred and
is continuing.
7.2 Accounts Covenants.
(a) Borrowers shall include in its collateral reporting to Lender
pursuant to Section 7.1 hereof: (i) any material delay in any Borrower's
performance of any of its obligations to account debtors or the assertion of any
claims, offsets, defenses or counterclaims by account debtors, or any disputes
with account debtors, or any settlement, adjustment or compromise thereof, (ii)
all material adverse information relating to the financial condition of any
account debtor and (iii) any event or circumstance which, to any Borrower's
knowledge would cause Lender to consider any then existing Accounts as no longer
constituting Eligible Accounts. No credit, discount, allowance or extension or
agreement for any of the foregoing shall be granted to any account debtor of a
Borrower except in the ordinary course of such Borrower's business in accordance
with its most recent past practices and policies. So long as no Event of Default
exists or has occurred and is continuing, any Borrower may settle, adjust or
compromise any claim, offset, counterclaim or dispute with any account debtor of
such Borrower in the ordinary course of such Borrower's business in accordance
with its most recent past practices and policies. At any time that an Event of
Default exists or has occurred and is continuing, Lender shall, at its option,
have the exclusive right to settle, adjust or compromise any claim, offset,
counterclaim or dispute with account debtors or grant any credits, discounts or
allowances.
(b) Without limiting the obligation of Borrowers to deliver any
other information to Lender, Borrowers shall include in its collateral reporting
to Lender pursuant to Section 7.1 hereof, any returns of Inventory by account
debtors. At any time that Inventory is returned, reclaimed or repossessed, the
Account (or portion thereof) which arose from the sale of such returned,
reclaimed or repossessed Inventory shall not be deemed an Eligible Account. In
the event any account debtor returns Inventory when an Event of Default exists
or has occurred and is continuing, each Borrower shall, upon Lender's request,
(i) hold the returned Inventory in trust for Lender, (ii) segregate all returned
Inventory from all of its other property, (iii) dispose of the returned
Inventory solely according to Lender's instructions, and (iv) not issue any
credits, discounts or allowances with respect thereto without Lender's prior
written consent.
(c) With respect to each Account: (i) the amounts shown on any
invoice delivered to Lender or schedule thereof delivered to Lender shall be
true and complete, (ii) no payments shall be made thereon except payments
delivered to Lender pursuant to the terms of this Agreement, (iii) no credit,
discount, allowance or extension or agreement for any of the foregoing shall be
granted to any account debtor except as reported to Lender in accordance with
this Agreement and except for credits, discounts, allowances or extensions made
or given in the ordinary course of Borrower's business in accordance with
practices and policies previously
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disclosed to Lender, (iv) there shall be no setoffs, deductions, contras,
defenses, counterclaims or disputes existing or asserted with respect thereto
except as reported to Lender in accordance with the terms of this Agreement, (v)
none of the transactions giving rise thereto will violate any applicable State
or Federal Laws or regulations, all documentation relating thereto will be
legally sufficient under such laws and regulations and all such documentation
will be legally enforceable in accordance with its terms.
(d) Lender shall have the right at any time or times, in Lender's
name or in the name of a nominee of Lender, to verify the validity, amount or
any other matter relating to any Account or other Collateral, by mail,
telephone, facsimile transmission or otherwise.
(e) Each Borrower shall deliver or cause to be delivered to
Lender, with appropriate endorsement and assignment, with full recourse to such
Borrower, all chattel paper and instruments which such Borrower now owns or may
at any time acquire immediately upon such Borrower's receipt thereof, except as
Lender may otherwise agree.
(f) Lender may, at any time or times that an Event of Default
exists or has occurred, (i) notify any or all account debtors that the Accounts
have been assigned to Lender and that Lender has a security interest therein and
Lender may direct any or all account debtors to make payments of Accounts
directly to Lender, (ii) extend the time of payment of, compromise, settle or
adjust for cash, credit, return of merchandise or otherwise, and upon any terms
or conditions, any and all Accounts or other obligations included in the
Collateral and thereby discharge or release the account debtor or any other
party or parties in any way liable for payment thereof without affecting any of
the Obligations, (iii) demand, collect or enforce payment of any Accounts or
such other obligations, but without any duty to do so, and Lender shall not be
liable for its failure to collect or enforce the payment thereof or for the
negligence of its agents or attorneys with respect thereto and (iv) take
whatever other action Lender may deem necessary or desirable for the protection
of its interests. At any time that an Event of Default exists or has occurred
and is continuing, at Lender's request, all invoices and statements sent to any
account debtor shall state that the Accounts due from such account debtor and
such other obligations have been assigned to Lender and are payable directly and
only to Lender and Borrowers shall deliver to Lender such originals of documents
evidencing the sale and delivery of goods or the performance of services giving
rise to any Accounts as Lender may require.
7.3 Inventory Covenants. With respect to the Inventory:
(a) each Borrower shall at all times maintain inventory records
reasonably satisfactory to Lender, keeping correct and accurate records
itemizing and describing the kind, type, quality and quantity of Inventory, such
Borrower's cost therefor and daily withdrawals therefrom and additions thereto;
(b) Borrowers shall cause a third party firm acceptable to Lender
to conduct a physical count of the Inventory, in form and detail reasonably
acceptable to Lender and consistent with Borrowers' past practices, at a minimum
of once every twelve (12) months but at any time as Lender may request upon the
occurrence of an Event of Default, and promptly following such physical count
such firm shall supply Lender with a report in the form and with such
specificity as may be reasonably satisfactory to Lender concerning such physical
count;
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(c) no Borrower shall remove any Inventory from the locations set
forth or permitted herein, without the prior written consent of Lender, except
for sales of Inventory in the ordinary course of such Borrower's business and
except to move Inventory directly from one location set forth or permitted
herein to another such location;
(d) upon Lender's request, Borrowers shall, at their expense, no
more than twice in any twelve (12) month period, but at any time or times as
Lender may request upon the occurrence of an Event of Default, deliver or cause
to be delivered to Lender written reports or appraisals as to the Inventory in
form, scope and methodology acceptable to Lender by an appraiser acceptable to
Lender, addressed to Lender or upon which Lender is expressly permitted to rely
(with the understanding that Lender may revise the definition of "Eligible
Inventory" hereunder or establish Availability Reserves as Lender may deem
advisable in its sole discretion based upon the results of such updated
appraisals);
(e) each Borrower shall produce, use, store and maintain the
Inventory, with all reasonable care and caution and in accordance with
applicable standards of any insurance and in conformity with applicable laws
(including, but not limited to, the requirements of the Federal Fair Labor
Standards Act of 1938, as amended and all rules, regulations and orders related
thereto);
(f) each Borrower assumes all responsibility and liability
arising from or relating to the production, use, sale or other disposition of
the Inventory;
(g) no Borrower shall sell Inventory to any customer on approval,
or any other basis which entitles the customer to return or may obligate a
Borrower to repurchase such Inventory;
(h) each Borrower shall keep the Inventory in good and marketable
condition;
(i) no Borrower shall, without prior written notice to Lender,
acquire or accept any Inventory on consignment or approval;
(j) each Borrower shall cause First Union National Bank (as
Lender's agent) to be named as consignee on any and all import documentation
relating to the Inventory, including, without limitation, all forwarder cargo
receipts and bills of lading, all in form and substance satisfactory to Lender
and adequate as determined by Lender, to perfect Lender's first priority
security interest in such documents of title and the Inventory relating thereto;
and
(k) upon the occurrence of an Event of Default, no Borrower shall
return any Inventory to its vendors without the prior consent of Lender.
7.4 Equipment Covenants. With respect to the Equipment:
(a) upon Lender's request, Borrowers shall, at their expense, at
any time or times as Lender may request on or after an Event of Default, deliver
or cause to be delivered to Lender written reports or appraisals as to the
Equipment in form, scope and methodology acceptable to Lender and by an
appraiser acceptable to Lender;
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(b) each Borrower shall keep the Equipment in good order, repair,
running and marketable condition (ordinary wear and tear excepted);
(c) each Borrower shall use the Equipment with all reasonable
care and caution and in accordance with applicable standards of any insurance
and in conformity with all applicable laws;
(d) the Equipment is and shall be used in a Borrower's business
and not for personal, family, household or farming use;
(e) no Borrower shall remove any Equipment from the locations set
forth or permitted herein, except to the extent necessary to have any Equipment
repaired or maintained in the ordinary course of the business of such Borrower
or to move Equipment directly from one such location set forth or permitted
herein to another such location and except for the movement of motor vehicles
used by or for the benefit of such Borrower in the ordinary course of business;
(f) the Equipment is now and shall remain personal property and
no Borrower shall permit any of the Equipment to be or become a part of or
affixed to real property; and
(g) each Borrower assumes all responsibility and liability
arising from the use of the Equipment.
7.5 Power of Attorney. Each Borrower hereby irrevocably designates and
appoints Lender (and all persons designated by Lender) as such Borrower's true
and lawful attorney-in-fact, and authorizes Lender, in such Borrower's or
Lender's name, to:
(a) at any time an Event of Default or event with notice or
passage of time or both would constitute an Event of Default exists or has
occurred and is continuing: (i) demand payment on Accounts or other proceeds of
Inventory or other Collateral; (ii) enforce payment of Accounts or other
Obligations included in the Collateral by legal proceedings or otherwise; (iii)
exercise all of such Borrower's rights and remedies to collect any Account or
other proceeds of Inventory or other Collateral; (iv) sell or assign any Account
upon such terms, for such amount and at such time or times as the Lender deems
advisable; (v) settle, adjust, compromise, extend or renew an Account; (vi)
discharge and release any Account or other Obligations included in the
Collateral; (vii) prepare, file and sign such Borrower's name on any proof of
claim in bankruptcy or other similar document against an account debtor; (viii)
notify the post office authorities to change the address for delivery of such
Borrower's mail to an address designated by Lender, and open and dispose of all
mail addressed to such Borrower; (ix) have access to any postal box into which
such Borrower's mail is deposited; and (x) do all acts and things which are
necessary, in Lender's determination, to fulfill such Borrower's obligations
under this Agreement and the other Financing Agreements; and
(b) at any time, subject to the terms of the agreement(s)
relating to the Blocked Account(s) to: (i) take control in any manner of any
item of payment or proceeds thereof; (ii) have access to any lockbox; (iii)
endorse such Borrower's name upon any items of payment or proceeds thereof and
deposit the same in the Lender's account for application to the Obligations;
(iv) endorse such Borrower's name upon any chattel paper, document, instrument,
invoice, or similar document or agreement relating to any Account or any goods
pertaining
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thereto or any other Collateral; (v) sign such Borrower's name on any
verification of Accounts and notices thereof to account debtors; and (vi)
execute in such Borrower's name and file any UCC financing statements or
amendments thereto.
Each Borrower hereby releases Lender and its officers, employees and designees
from any liabilities arising from any act or acts under this power of attorney
and in furtherance thereof, whether of omission or commission, except as a
result of an indemnified party's own gross negligence or willful misconduct as
determined pursuant to a final non-appealable order of a court of competent
jurisdiction.
7.6 Right to Cure. Lender may, at its option, (a) cure any default by
any Borrower under any agreement with a third party or pay or bond on appeal any
judgment entered against such Borrower, (b) discharge taxes, liens, security
interests or other encumbrances at any time levied on or existing with respect
to the Collateral and (c) pay any amount, incur any expense or perform any act
which, in Lender's judgment, is necessary or appropriate to preserve, protect,
insure or maintain the Collateral and the rights of Lender with respect thereto.
Lender may add any amounts so expended to the Obligations and charge a
Borrower's account therefor, such amounts to be repayable by such Borrower on
demand. Lender shall be under no obligation to effect such cure, payment or
bonding and shall not, by doing so, be deemed to have assumed any obligation or
liability of any Borrower. Any payment made or other action taken by Lender
under this Section 7.6 shall be without prejudice to any right to assert an
Event of Default hereunder and to proceed accordingly.
7.7 Access to Premises. From time to time as requested by Lender, at the
cost and expense of Borrowers, (a) Lender or its designee shall have complete
access to all of each Borrower's premises during normal business hours and after
notice to such Borrower, or at any time and without notice to such Borrower if
an Event of Default exists or has occurred and is continuing, for the purposes
of inspecting, verifying and auditing the Collateral and all of such Borrower's
books and records, including, without limitation, the Records, and (b) such
Borrower shall promptly furnish to Lender such copies of such books and records
or extracts therefrom as Lender may request to the extent that furnishing Lender
with such books and records or extracts therefrom does not impair such
Borrower's legal right to keep such books and records or extracts therefrom
privileged between such Borrower and the preparer of such books and records, and
(c) use during normal business hours such of any Borrower's personnel,
equipment, supplies and premises as may be reasonably necessary for the
foregoing and if an Event of Default exists or has occurred and is continuing
for the collection of Accounts and realization of other Collateral.
SECTION 8. REPRESENTATIONS AND WARRANTIES.
Each Borrower hereby represents and warrants to Lender the following
(which shall survive the execution and delivery of this Agreement), the truth
and accuracy of which are a continuing condition of the making of Loans and the
providing of Letter of Credit Accommodations by Lender to each Borrower:
8.1 Corporate Existence, Power and Authority; Subsidiaries. Each
Borrower is a corporation duly organized and in good standing under the laws of
its state of incorporation and
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is duly qualified as a foreign corporation and in good standing in all states or
other jurisdictions where the nature and extent of the business transacted by it
or the ownership of assets makes such qualification necessary, except for those
jurisdictions in which the failure to so qualify would not have a material
adverse effect on such Borrower's financial condition, results of operation or
business or the rights of Lender in or to any of the Collateral. The execution,
delivery and performance of this Agreement, the other Financing Agreements and
the transactions contemplated hereunder and thereunder are all within each
Borrower's corporate powers, have been duly authorized and are not in
contravention of law or the terms of such Borrower's certificate of
incorporation, by-laws, or other organizational documentation, or any indenture,
agreement or undertaking to which such Borrower is a party or by which such
Borrower or its property are bound. This Agreement and the other Financing
Agreements constitute legal, valid and binding obligations of each Borrower
enforceable in accordance with their respective terms. Each Borrower does not
have any subsidiaries except as set forth on the Information Certificate of such
Borrower.
8.2 Financial Statements; No Material Adverse Change. All financial
statements relating to any Borrower which have been or may hereafter be
delivered by any Borrower to Lender have been prepared in accordance with GAAP
and fairly present the financial condition and the results of operations of such
Borrower as at the dates and for the periods set forth therein. Except as
disclosed in any interim financial statements furnished by Borrowers to Lender
prior to the date of this Agreement, there has been no material adverse change
in the assets, liabilities, properties and condition, financial or otherwise, of
any Borrower, since the date of the most recent audited financial statements
furnished by such Borrower to Lender prior to the date of this Agreement.
8.3 Chief Executive Office; Collateral Locations. The chief executive
office of each Borrower and such Borrower's Records concerning Accounts are
located only at the address set forth below such Borrower's signature hereto and
its only other places of business and the only other locations of Collateral, if
any, are the addresses set forth in such Borrower's Information Certificate,
subject to the right of each Borrower to establish new locations in accordance
with Section 9.2 below. The Information Certificate of each Borrower correctly
identifies any of such locations which are not owned by such Borrower and sets
forth the owners and/or operators thereof and, to the best of such Borrower's
knowledge, the holders of any mortgages on such locations.
8.4 Priority of Liens; Title to Properties. The security interests and
liens granted to Lender under this Agreement and the other Financing Agreements
constitute valid and perfected first priority liens and security interests in
and upon the Collateral subject only to the liens indicated on Schedule 8.4
hereto and the other liens permitted under Section 9.8 hereof. Each Borrower has
good and marketable title to all of its properties and assets subject to no
liens, mortgages, pledges, security interests, encumbrances or charges of any
kind, except those granted to Lender and such others as are specifically listed
on Schedule 8.4 hereto or permitted under Section 9.8 hereof.
8.5 Tax Returns. Each Borrower has filed, or caused to be filed, in a
timely manner all tax returns, reports and declarations which are required to be
filed by it (without requests for extension except as previously disclosed in
writing to Lender). All information in such tax
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returns, reports and declarations is complete and accurate in all material
respects. Each Borrower has paid or caused to be paid all taxes due and payable
or claimed due and payable in any assessment received by it, except taxes the
validity of which are being contested in good faith by appropriate proceedings
diligently pursued and available to such Borrower and with respect to which
adequate reserves have been set aside on its books. Adequate provision has been
made for the payment of all accrued and unpaid Federal, State, county, local,
foreign and other taxes whether or not yet due and payable and whether or not
disputed.
8.6 Litigation. Except as set forth on the Information Certificate of a
Borrower, there is no present investigation by any governmental agency pending,
or to the best of any Borrower's knowledge threatened, against or affecting any
Borrower, its assets or business and there is no action, suit, proceeding or
claim by any Person pending, or to the best of any Borrower's knowledge
threatened, against any Borrower or its assets or goodwill, or against or
affecting any transactions contemplated by this Agreement, which if adversely
determined against such Borrower would result in any material adverse change in
the assets, business or prospects of such Borrower or would impair the ability
of such Borrower to perform its obligations hereunder or under any of the other
Financing Agreements to which it is a party or of Lender to enforce any
Obligations or realize upon any Collateral.
8.7 Compliance with Other Agreements and Applicable Laws. No Borrower is
in default in any material respect under, or in violation in any material
respect of any of the terms of, any agreement, contract, instrument, lease or
other commitment to which it is a party or by which it or any of its assets are
bound and each Borrower is in compliance in all material respects with all
applicable provisions of laws, rules, regulations, licenses, permits, approvals
and orders of any foreign, Federal, State or local governmental authority.
8.8 Bank Accounts. All of the deposit accounts, investment accounts or
other accounts in the name of or used by any Borrower maintained at any bank or
other financial institution are set forth on Schedule 8.8 hereto, subject to the
right of each Borrower to establish new accounts in accordance with Section 9.13
below.
8.9 Environmental Compliance.
(a) Except as set forth on Schedule 8.9 hereto, no Borrower has
generated, used, stored, treated, transported, manufactured, handled, produced
or disposed of any Hazardous Materials, on or off its premises (whether or not
owned by it) in any manner which at any time violates any applicable
Environmental Law or any license, permit, certificate, approval or similar
authorization thereunder and the operations of each Borrower complies in all
material respects with all Environmental Laws and all licenses, permits,
certificates, approvals and similar authorizations thereunder.
(b) Except as set forth on Schedule 8.9 hereto, there has been no
investigation, proceeding, complaint, order, directive, claim, citation or
notice by any governmental authority or any other person nor is any pending or
to the best of any Borrower's knowledge threatened, with respect to any
non-compliance with or violation of the requirements of any Environmental Law by
any Borrower or the release, spill or discharge, threatened or actual, of any
Hazardous Material or the generation, use, storage, treatment, transportation,
manufacture, handling,
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production or disposal of any Hazardous Materials or any other environmental,
health or safety matter, which affects any Borrower or its business, operations
or assets or any properties at which any Borrower has transported, stored or
disposed of any Hazardous Materials.
(c) No Borrower has material liability (contingent or otherwise)
in connection with a release, spill or discharge, threatened or actual, of any
Hazardous Materials or the generation, use, storage, treatment, transportation,
manufacture, handling, production or disposal of any Hazardous Materials.
(d) Each Borrower has all licenses, permits, certificates,
approvals or similar authorizations required to be obtained or filed in
connection with the operations of such Borrower under any Environmental Law and
all of such licenses, permits, certificates, approvals or similar authorizations
are valid and in full force and effect.
8.10 Employee Benefits.
(a) No Borrower has engaged in any transaction in connection with
which any Borrower or any of its ERISA Affiliates could be subject to either a
civil penalty assessed pursuant to Section 502(i) of ERISA or a tax imposed by
Section 4975 of the Code, including any accumulated funding deficiency described
in Section 8.10(c) hereof and any deficiency with respect to vested accrued
benefits described in Section 8.10(d) hereof.
(b) No liability to the Pension Benefit Guaranty Corporation has
been or is expected by any Borrower to be incurred with respect to any employee
pension benefit plan of any Borrower or any of its ERISA Affiliates. There has
been no reportable event (within the meaning of Section 4043(b) of ERISA) or any
other event or condition with respect to any employee pension benefit plan of
any Borrower or any of its ERISA Affiliates which presents a risk of termination
of any such plan by the Pension Benefit Guaranty Corporation.
(c) Full payment has been made of all amounts which any Borrower
or any of its ERISA Affiliates is required under Section 302 of ERISA and
Section 412 of the Code to have paid under the terms of each employee pension
benefit plan as contributions to such plan as of the last day of the most recent
fiscal year of such plan ended prior to the date hereof, and no accumulated
funding deficiency (as defined in Section 302 of ERISA and Section 412 of the
Code), whether or not waived, exists with respect to any employee pension
benefit plan, including any penalty or tax described in Section 8.10(a) hereof
and any deficiency with respect to vested accrued benefits described in Section
8.10(c) hereof.
(d) The current value of all vested accrued benefits under all
employee pension benefit plans maintained by any Borrower that are subject to
Title IV of ERISA does not exceed the current value of the assets of such plans
allocable to such vested accrued benefits, including any penalty or tax
described in Section 8.10(a) hereof and any accumulated funding deficiency
described in Section 8.10(c) hereof. The terms "current value" and "accrued
benefit" have the meanings specified in ERISA.
(e) No Borrower nor any of its ERISA Affiliates is or has ever
been obligated to contribute to any "multiemployer plan" (as such term is
defined in Section 4001(a)(3) of ERISA) that is subject to Title IV of ERISA.
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8.11 Accuracy and Completeness of Information. All information furnished
by or on behalf of any Borrower in writing to Lender in connection with this
Agreement or any of the other Financing Agreements or any transaction
contemplated hereby or thereby, including, without limitation, all information
on the Information Certificate is true and correct in all material respects on
the date as of which such information is dated or certified and does not omit
any material fact necessary in order to make such information not misleading. No
event or circumstance has occurred which has had or could reasonably be expected
to have a material adverse affect on the business, assets or prospects of any
Borrower, which has not been fully and accurately disclosed to Lender in
writing.
8.12 Survival of Warranties; Cumulative. All representations and
warranties contained in this Agreement or any of the other Financing Agreements
shall survive the execution and delivery of this Agreement and shall be deemed
to have been made again to Lender on the date of each additional borrowing or
other credit accommodation hereunder and shall be conclusively presumed to have
been relied on by Lender regardless of any investigation made or information
possessed by Lender. The representations and warranties set forth herein shall
be cumulative and in addition to any other representations or warranties which
any Borrower shall now or hereafter give, or cause to be given, to Lender.
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS.
9.1 Maintenance of Existence. Each Borrower shall at all times preserve,
renew and keep in full, force and effect its corporate existence and rights and
franchises with respect thereto and maintain in full force and effect all
permits, licenses, trademarks, trade names, approvals, authorizations, leases
and contracts necessary to carry on the business as presently or proposed to be
conducted. Borrowers shall give Lender thirty (30) days prior written notice of
any proposed change in any Borrower's corporate name, which notice shall set
forth the new name and Borrowers shall deliver to Lender a copy of the amendment
to the Certificate of Incorporation of such Borrower with the new corporate name
providing for the name change certified by the Secretary of State of the
jurisdiction of incorporation of such Borrower as soon as it is available.
9.2 New Collateral Locations. A Borrower may open any new location
within the continental United States provided Borrowers: (a) give Lender thirty
(30) days prior written notice of the intended opening of any such new location;
and (b) execute and deliver, or cause to be executed and delivered, to Lender
such agreements, documents, and instruments as Lender may deem reasonably
necessary or desirable to protect its interests in the Collateral at such
location, including, without limitation, UCC financing statements and, if such
Borrower leases such new location, provides a landlord waiver or subordination
reasonably acceptable to Lender.
9.3 Compliance with Laws, Regulations, Etc.
(a) Each Borrower shall, at all times, comply in all material
respects with all laws, rules, regulations, licenses, permits, approvals and
orders applicable to it and duly observe all requirements of any Federal, State
or local governmental authority, including, without limitation, the Employee
Retirement Security Act of 1974, as amended, the Occupational Safety and Hazard
Act of 1970, as amended, the Fair Labor Standards Act of 1938, as amended, and
all
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statutes, rules, regulations, orders, permits and stipulations relating to
environmental pollution and employee health and safety, including, without
limitation, all of the Environmental Laws.
(b) Each Borrower shall take prompt and appropriate action to
respond to any non-compliance with any of the Environmental Laws and shall
report to Lender on such response.
(c) Borrowers shall give both oral and written notice to Lender
immediately upon any Borrower's receipt of any notice of, or any Borrower's
otherwise obtaining knowledge of: (i) the occurrence of any event involving the
release, spill or discharge, threatened or actual, of any Hazardous Material; or
(ii) any investigation, proceeding, complaint, order, directive, claims,
citation or notice with respect to: (A) any non-compliance with or violation of
any Environmental Law by any Borrower; (B) the release, spill or discharge,
threatened or actual, of any Hazardous Material; (C) the generation, use,
storage, treatment, transportation, manufacture, handling, production or
disposal of any Hazardous Materials; or (D) any other environmental, health or
safety matter, which affects any Borrower or its business, operations or assets
or any properties at which any Borrower transported, stored or disposed of any
Hazardous Materials.
(d) Each Borrower shall indemnify and hold harmless Lender, its
directors, officers, employees, agents, invitees, representatives, successors
and assigns, from and against any and all losses, claims, damages, liabilities,
costs, and expenses (including reasonable attorneys' fees and legal expenses)
directly or indirectly arising out of or attributable to the use, generation,
manufacture, reproduction, storage, release, threatened release, spill,
discharge, disposal or presence of a Hazardous Material, including, without
limitation, the costs of any required or necessary repair, cleanup or other
remedial work with respect to any property of any Borrower and the preparation
and implementation of any closure, remedial or other required plans. All
representations, warranties, covenants and indemnifications in this Section 9.3
shall survive the payment of the Obligations and the termination or non-renewal
of this Agreement.
9.4 Payment of Taxes and Claims. Each Borrower shall duly pay and
discharge all taxes, assessments, contributions and governmental charges upon or
against it or its properties or assets, except for taxes the validity of which
are being contested in good faith by appropriate proceedings diligently pursued
and available to such Borrower and with respect to which adequate reserves have
been set aside on its books. Each Borrower shall be liable for any tax or
penalties imposed on Lender as a result of the financing arrangements provided
for herein and each Borrower agrees to indemnify and hold Lender harmless with
respect to the foregoing, and to repay to Lender on demand the amount thereof,
and until paid by Borrowers such amount shall be added and deemed part of the
Loans, provided, that, nothing contained herein shall be construed to require
Borrowers to pay any income or franchise taxes attributable to the income of
Lender from any amounts charged or paid hereunder to Lender. The foregoing
indemnity shall survive the payment of the Obligations and the termination or
non-renewal of this Agreement.
9.5 Insurance. Each Borrower shall, at all times, maintain with
financially sound and reputable insurers insurance with respect to the
Collateral against loss or damage and all other insurance of the kinds and in
the amounts customarily insured against or carried by corporations of
established reputation engaged in the same or similar businesses and similarly
situated. Said policies of insurance shall be satisfactory to Lender as to form,
amount and insurer. Each
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Borrower shall furnish certificates, policies or endorsements to Lender as
Lender shall require as proof of such insurance, and, if any Borrower fails to
do so, Lender is authorized, but not required, to obtain such insurance at the
expense of such Borrower. All policies shall provide for at least thirty (30)
days prior written notice to Lender of any cancellation or reduction of coverage
and that Lender may act as attorney for each Borrower in obtaining, and at any
time an Event of Default exists or has occurred and is continuing, adjusting,
settling, amending and canceling such insurance. Each Borrower shall cause
Lender to be named as a loss payee and an additional insured (but without any
liability for any premiums) under such insurance policies and each Borrower
shall obtain non-contributory lender's loss payable endorsements to all
insurance policies in form and substance satisfactory to Lender. Such lender's
loss payable endorsements shall specify that the proceeds of such insurance
shall be payable to Lender as its interests may appear and further specify that
Lender shall be paid regardless of any act or omission by any Borrower or any of
its affiliates. At its option, Lender may apply any insurance proceeds received
by Lender at any time to the cost of repairs or replacement of Collateral and/or
to payment of the Obligations, whether or not then due, in any order and in such
manner as Lender may determine or hold such proceeds as cash collateral for the
Obligations.
9.6 Financial Statements and Other Information.
(a) Each Borrower shall keep proper books and records in which
true and complete entries shall be made of all dealings or transactions of or in
relation to the Collateral and the business of such Borrower and its
subsidiaries (if any) in accordance with GAAP and each Borrower shall furnish or
cause to be furnished to Lender: (i) within thirty (30) days after the end of
each fiscal month, (A) monthly unaudited consolidated financial statements of
such Borrower, and, if such Borrower has any subsidiaries, unaudited
consolidating financial statements of such Borrower and its subsidiaries
(including in each case balance sheets and statements of income and loss), all
in detail satisfactory to Lender, fairly presenting the financial position and
the results of the operations of such Borrower and its subsidiaries as of the
end of and through such fiscal month and (B) a monthly report setting forth the
amount of any transfer of money or property to another Borrower during the
preceding fiscal month; (ii) within thirty (30) days after the end of each
fiscal quarter, a consolidated balance sheet of such Borrower, which shall
reflect in each case, without limitation, any outstanding indebtedness owed to
or owing by another Borrower, all in detail satisfactory of Lender, fairly
presenting the financial position and the results of the operations of such
Borrower as of the end of and for such fiscal quarter; and (iii) within ninety
(90) days after the end of each fiscal year, (A) audited consolidated financial
statements of such Borrower (including in each case balance sheets and
statements of income and loss), and the accompanying notes thereto, all in
detail satisfactory to Lender, fairly presenting the financial position and the
results of the operations of such Borrower as of the end of and for such fiscal
year, together with the opinion of independent certified public accountants,
which accountants shall be an independent accounting firm selected by Borrowers
and reasonably acceptable to Lender, that such financial statements have been
prepared in accordance with GAAP, and present fairly the results of operations
and financial condition of such Borrower and its subsidiaries as of the end of
and for the fiscal year then ended and (B) if such Borrower has any
subsidiaries, unaudited consolidating financial statements of such Borrower and
its subsidiaries (including in each case balance sheets and statements of income
and loss), all in detail satisfactory to Lender, fairly presenting the financial
position and the
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results of the operations of such Borrower and its subsidiaries as of the end of
and for such fiscal year.
(b) Borrowers shall promptly notify Lender in writing of the
details of (i) any loss, damage, investigation, action, suit, proceeding or
claim relating to the Collateral or any other property which is security for the
Obligations or which would result in any material adverse change in any
Borrower's business, properties, assets, goodwill or condition, financial or
otherwise and (ii) the occurrence of any Event of Default or event which, with
the passage of time or giving of notice or both, would constitute an Event of
Default.
(c) Each Borrower shall promptly after the sending or filing
thereof furnish or cause to be furnished to Lender copies of all financial
reports which such Borrower sends to its stockholders generally and copies of
all reports and registration statements which such Borrower files with the
Securities and Exchange Commission, any national securities exchange or the
National Association of Securities Dealers, Inc.
(d) Each Borrower shall furnish or cause to be furnished to
Lender such budgets, forecasts, projections and other information in respect of
the Collateral and the business of such Borrower, as Lender may, from time to
time, reasonably request. Lender is hereby authorized to deliver a copy of any
financial statement or any other information relating to the business of any
Borrower to any court or other government agency or to any Eligible Assignee or
prospective Eligible Assignee. Each Borrower hereby irrevocably authorizes and
directs all accountants or auditors to deliver to Lender upon Lender's request
to such Borrower, at such Borrower's expense, copies of the financial statements
of such Borrower and any reports or management letters prepared by such
accountants or auditors on behalf of such Borrower and to disclose to Lender
such information as they may have regarding the business of such Borrower so
long as such disclosure does not impair such Borrower's legal right to keep such
report or information privileged between such accountants or auditors and such
Borrower. Any documents, schedules, invoices or other papers delivered to Lender
may be destroyed or otherwise disposed of by Lender one (1) year after the same
are delivered to Lender, except as otherwise designated by Borrower to Lender in
writing.
9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc. No Borrower
shall, directly or indirectly, (a) merge into or with or consolidate with any
other Person or permit any other Person to merge into or with or consolidate
with it, or (b) sell, assign, lease, transfer, abandon or otherwise dispose of
any stock (except for stock issued pursuant to an employee stock option program
of such Borrower) or indebtedness to any other Person or any of its assets to
any other Person (except for (i) sales of its Inventory in the ordinary course
of business and (ii) the disposition of its worn-out or obsolete Equipment or
Equipment no longer used in the business of such Borrower so long as (A) if an
Event of Default exists or has occurred and is continuing, any proceeds are paid
to Lender and (B) such sales do not involve Equipment having an aggregate fair
market value in excess of One Hundred Fifty Thousand Dollars ($150,000) for all
such Equipment of all Borrowers disposed of in any fiscal year of Borrowers);
provided, however, upon Lender's prior written consent, which shall not be
unreasonably withheld, a Borrower may assign on a temporary basis its rights to
certain trademarks to a third party for the sole purpose of pursuing litigation
involving such trademarks, provided, that such trademarks shall be reassigned to
such Borrower immediately upon the conclusion of such litigation, or (c)
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form or acquire any subsidiaries, or (d) wind up, liquidate or dissolve or (e)
agree to do any of the foregoing.
9.8 Encumbrances. No Borrower shall create, incur, assume or suffer to
exist any security interest, mortgage, pledge, lien, charge or other encumbrance
of any nature whatsoever on any of its assets or properties, including, without
limitation, the Collateral, except:
(a) the liens and security interests of Lender;
(b) liens securing the payment of taxes, either not yet overdue
or the validity of which are being contested in good faith by appropriate
proceedings diligently pursued and available to such Borrower and with respect
to which adequate reserves have been set aside on its books;
(c) security deposits in the ordinary course of its business;
(d) non-consensual statutory liens (other than liens securing the
payment of taxes) arising in the ordinary course of such Borrower's business to
the extent: (i) such liens secure indebtedness which is not overdue; or (ii)
such liens secure indebtedness relating to claims or liabilities which are fully
insured and being defended at the sole cost and expense and at the sole risk of
the insurer (subject to applicable deductibles) or being contested in good faith
by appropriate proceedings diligently pursued and available to such Borrower, in
each case prior to the commencement of foreclosure or other similar proceedings
and with respect to which adequate reserves have been set aside on its books;
(e) zoning restrictions, easements, licenses, covenants and other
restrictions affecting the use of real property which do not interfere in any
material respect with the use of such real property or ordinary conduct of the
business of such Borrower as presently conducted thereon or materially impair
the value of the real property which may be subject thereto;
(f) purchase money security interests in Equipment (including
capital leases) and purchase money mortgages on real estate not so long as such
security interests and mortgages do not apply to any property of such Borrower
other than the Equipment or real estate so acquired, and the indebtedness
secured thereby does not exceed the cost of the Equipment or real estate so
acquired, as the case may be; and
(g) the security interests and liens set forth on Schedule 8.4
hereto.
9.9 Indebtedness. No Borrower shall incur, create, assume, become or be
liable in any manner with respect to, or permit to exist, any obligations or
indebtedness, except:
(a) the Obligations;
(b) trade obligations and normal accruals in the ordinary course
of its business not yet due and payable, or with respect to which such Borrower
is contesting in good faith the amount or validity thereof by appropriate
proceedings diligently pursued and available to such Borrower, and with respect
to which adequate reserves have been set aside on its books;
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(c) purchase money indebtedness (including capital leases) to the
extent not incurred or secured by liens (including capital leases) in violation
of any other provision of this Agreement;
(d) obligations or indebtedness owed to another Borrower;
provided, however, such obligations or indebtedness shall be (i) disclosed in
the financial statements provided to Lender pursuant to Section 9.6 hereof, (ii)
limited to amounts which would not render such Borrower insolvent, unable to pay
its debts as they mature or to have insufficient capital to carry on its
business, and (iii) on a basis subordinate to all other indebtedness of such
Borrower, and provided, further, however, after giving effect to such
obligations or indebtedness, no Event of Default, or event which with notice or
passage of time or both, would constitute an Event of Default, shall exist or
have occurred and be continuing; and
(e) obligations or indebtedness set forth on the Information
Certificate of such Borrower; provided, that, (i) such Borrower may only make
regularly scheduled payments of principal and interest in respect of such
indebtedness in accordance with the terms of the agreement or instrument
evidencing or giving rise to such indebtedness as in effect on the date hereof,
(ii) such Borrower shall not, directly or indirectly, (A) amend, modify, alter
or change the terms of such indebtedness or any agreement, document or
instrument related thereto as in effect on the date hereof, or (B) except as
otherwise permitted under this Agreement, redeem, retire, defease, purchase or
otherwise acquire such indebtedness, or set aside or otherwise deposit or invest
any sums for such purpose, and (iii) such Borrower shall furnish to Lender all
notices or demands in connection with such indebtedness either received by such
Borrower or on its behalf, promptly after the receipt thereof, or sent by such
Borrower or on its behalf, concurrently with the sending thereof, as the case
may be.
9.10 Loans, Investments, Guarantees, Etc. No Borrower shall, directly or
indirectly, make any loans or advance money or property to any Person, or invest
in (by capital contribution, dividend or otherwise) or purchase or repurchase
the stock or indebtedness or all or a substantial part of the assets or property
of any Person, or guarantee, assume, endorse, or otherwise become responsible
for (directly or indirectly) the indebtedness, performance, obligations or
dividends of any Person or agree to do any of the foregoing, except:
(a) the guarantee of another Borrower's Obligations hereunder to
the extent permitted under Section 13.11 hereof;
(b) loans or advances of money or property to another Borrower or
an Obligor; provided, however, such loans or advances shall be (i) disclosed in
the financial statements provided to Lender pursuant to Section 9.6 hereof, (ii)
limited to amounts which would not render the Borrower or Obligor receiving such
loans or advances insolvent, unable to pay its debts as they mature or to have
insufficient capital to carry on its business, (iii) on a basis subordinate to
all other indebtedness of the other Borrower or Obligor receiving such loans or
advances; (iv) with respect to advances to Holbrook, Deckers Japan, Deckers
Europe, Phillipsburg and Picante, limited to an aggregate amount not to exceed
Thirty Million Dollars ($30,000,000) at any time; provided, further, however,
after giving effect to such loans or advances of money or property, no Event of
Default, or event which with notice or passage of
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time or both, would constitute an Event of Default, shall exist or have occurred
and be continuing;
(c) the endorsement of instruments for collection or deposit in
the ordinary course of its business;
(d) investments in: (i) short-term direct obligations of the
United States Government; (ii) negotiable certificates of deposit issued by any
bank satisfactory to Lender, payable to the order of such Borrower or to bearer
and delivered to Lender; and (iii) commercial paper rated A1 or P1; provided,
that, as to any of the foregoing, unless waived in writing by Lender, each
Borrower shall take such actions as are deemed necessary by Lender to perfect
the security interest of Lender in such investments;
(e) the repurchase of its own stock, provided, that, after giving
effect to such repurchase, (i) no Event of Default, or event which with notice
or passage of time or both, would constitute an Event of Default, shall exist or
have occurred and be continuing and (ii) Excess Availability shall not be less
than One Hundred Thousand Dollars ($100,000) in the aggregate; and
(f) the guarantees set forth in the Information Certificate of
such Borrower.
9.11 Dividends and Redemptions. No Borrower shall, directly or
indirectly, declare or pay any dividends on account of any shares of any class
of capital stock of such Borrower now or hereafter outstanding other than
dividends paid in capital stock, or set aside or otherwise deposit or invest any
sums for such purpose, or redeem, retire, defease, purchase or otherwise acquire
any shares of any class of capital stock (or set aside or otherwise deposit or
invest any sums for such purpose) for any consideration other than common stock
and except as set forth in Section 9.10(e) hereof or apply or set apart any sum,
or make any other distribution (by reduction of capital or otherwise) in respect
of any such shares or agree to do any of the foregoing.
9.12 Transactions with Affiliates. No Borrower shall enter into any
transaction for the purchase, sale or exchange of property or the rendering of
any service to or by any affiliate, except in the ordinary course of and
pursuant to the reasonable requirements of such Borrower's business and upon
fair and reasonable terms no less favorable to such Borrower than such Borrower
would obtain in a comparable arm's length transaction with an unaffiliated
person.
9.13 Additional Bank Accounts. No Borrower shall, directly or
indirectly, open, establish or maintain any deposit account, investment account
or any other account with any bank or other financial institution, other than
the Blocked Accounts and the accounts set forth in Schedule 8.8 hereto, except:
(a) as to any new or additional Blocked Accounts and other such new or
additional accounts which contain any Collateral or proceeds thereof, with the
prior written consent of Lender and subject to such conditions thereto as Lender
may establish and (b) as to any accounts used by such Borrower to make payments
of payroll, taxes or other obligations to third parties, after prior written
notice to Lender.
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9.14 Compliance with ERISA.
(a) No Borrower shall with respect to any "employee pension
benefit plans" maintained by such Borrower or any of its ERISA Affiliates: (i)
terminate any of such employee pension benefit plans so as to incur any
liability to the Pension Benefit Guaranty Corporation established pursuant to
ERISA; (ii) allow or suffer to exist any prohibited transaction involving any of
such employee pension benefit plans or any trust created thereunder which would
subject any Borrower or such ERISA Affiliate to a tax or penalty or other
liability on prohibited transactions imposed under Section 4975 of the Code or
ERISA; (iii) fail to pay to any such employee pension benefit plan any
contribution which it is obligated to pay under Section 302 of ERISA, Section
412 of the Code or the terms of such plan; (iv) allow or suffer to exist any
accumulated funding deficiency, whether or not waived, with respect to any such
employee pension benefit plan; (v) allow or suffer to exist any occurrence of a
reportable event or any other event or condition which presents a material risk
of termination by the Pension Benefit Guaranty Corporation of any such employee
pension benefit plan that is a single employer plan, which termination could
result in any liability to the Pension Benefit Guaranty Corporation; or (vi)
incur any withdrawal liability with respect to any multiemployer pension plan.
(b) As used in this Section 9.14, the term "employee pension
benefit plans," "employee benefit plans", "accumulated funding deficiency" and
"reportable event" shall have the respective meanings assigned to them in ERISA,
and the term "prohibited transaction" shall have the meaning assigned to it in
Section 4975 of the Code and ERISA.
9.15 Year 2000 Compliance. Each Borrower agrees to perform all acts
reasonably necessary to ensure that: (a) each Borrower and any business in which
such Borrower holds a substantial interest; and (b) on a best efforts basis by
such Borrower, that all customers, suppliers and vendors that are material to
such Borrower's business, become Year 2000 Compliant in a timely manner. Such
acts shall include, without limitation, performing a comprehensive review and
assessment of all of each Borrower's systems and adopting a detailed plan, with
itemized budget, for the remediation, monitoring and testing of such systems. As
used herein, "Year 2000 Compliant" shall mean, in regard to any entity, that all
software, hardware, firmware, equipment, goods or systems utilized by or
material to the business operations or financial condition of such entity, will
properly perform date sensitive functions before, during and after the year
2000. Borrowers shall, immediately upon request, provide to Lender such
certifications or other evidence of each Borrower's compliance with the terms
hereof as Lender may from time to time reasonably require.
9.16 Adjusted Net Worth. Borrowers' Adjusted Net Worth, on a
consolidated basis, shall not, as of the end of each calendar quarter, be less
than Thirty Million Dollars ($30,000,000).
9.17 Amendments to Teva License Agreements. Without the prior written
consent of Lender, which consent shall not be unreasonably withheld, no Borrower
shall enter into or consent to any amendment, adjustment and/or modification to
the Teva License Agreements which would in Lender's determination (a) adversely
affect the economic terms of the Teva
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License Agreements for Borrowers, (b) shorten the duration or term of the Teva
License Agreements, (c) adversely affect the material benefits of any Borrower
under the Teva License Agreements; or (d) amend, modify or change in any way
paragraph 4 of that certain Letter Agreement dated November 4, 1994 between Mark
Thatcher and DOC, granting Lender the right to sell any Inventory subject to the
Teva License Agreements.
9.18 TEVA Acknowledgement. As soon as practicable, Borrowers shall use
their reasonable best efforts to deliver to Lender an acknowledgment, in form
and substance satisfactory to Lender, by Mark Thatcher, an individual, of
Lender's right to dispose of any Inventory subject to the Teva License
Agreements.
9.19 Costs and Expenses. Each Borrower shall pay to Lender on demand all
reasonable costs, expenses, filing fees and taxes paid or payable in connection
with the preparation, negotiation, execution, delivery, recording,
administration, collection, liquidation, enforcement and defense of the
Obligations, Lender's rights in the Collateral, this Agreement, the other
Financing Agreements and all other documents related hereto or thereto,
including any amendments, supplements or consents which may hereafter be
contemplated (whether or not executed) or entered into in respect hereof and
thereof, including, but not limited to:
(a) all costs and expenses of filing or recording (including
Uniform Commercial Code financing statement filing taxes and fees, documentary
taxes, intangibles taxes and mortgage recording taxes and fees, if applicable);
(b) all reasonable costs and expenses and fees for title
insurance and other insurance premiums, environmental audits, surveys,
assessments, engineering reports and inspections, appraisal fees and search
fees;
(c) all reasonable costs and expenses of remitting loan proceeds,
collecting checks and other items of payment, and establishing and maintaining
the Blocked Accounts, together with Lender's customary charges and fees with
respect thereto;
(d) all charges, fees or expenses charged by any bank or issuer
in connection with the Letter of Credit Accommodations;
(e) all reasonable costs and expenses of preserving and
protecting the Collateral;
(f) all reasonable costs and expenses paid or incurred in
connection with obtaining payment of the Obligations, enforcing the security
interests and liens of Lender, selling or otherwise realizing upon the
Collateral, and otherwise enforcing the provisions of this Agreement and the
other Financing Agreements or defending any claims made or threatened against
Lender arising out of the transactions contemplated hereby and thereby
(including, without limitation, preparations for and consultations concerning
any such matters);
(g) all reasonable out-of-pocket expenses and costs incurred by
Lender's examiners in the conduct of their periodic field examinations of the
Collateral and any Borrower's operations, plus a per diem charge at the rate of
Six Hundred Fifty Dollars ($650) per person per day for Lender's examiners in
the field; and
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(h) the reasonable fees and disbursements of counsel (including
legal assistants) to Lender in connection with any of the foregoing.
9.20 Further Assurances. At the request of Lender at any time and from
time to time, each Borrower shall, at its expense, duly execute and deliver, or
cause to be duly executed and delivered, such further agreements, documents and
instruments, and do or cause to be done such further acts as may be necessary or
proper to evidence, perfect, maintain and enforce the security interests and the
priority thereof in the Collateral and to otherwise effectuate the provisions or
purposes of this Agreement or any of the other Financing Agreements. Lender may
at any time and from time to time request a certificate from an officer of any
Borrower representing on behalf of such Borrower that all conditions precedent
to the making of Loans and providing Letter of Credit Accommodations contained
herein are satisfied. In the event of such request by Lender, Lender may, at its
option, cease to make any further Loans or provide any further Letter of Credit
Accommodations until Lender has received such certificate and, in addition,
Lender has determined that such conditions are satisfied. Where permitted by
law, each Borrower hereby authorizes Lender to execute and file one or more UCC
financing statements signed only by Lender.
SECTION 10. EVENTS OF DEFAULT AND REMEDIES.
10.1 Events of Default. The occurrence or existence of any one or more
of the following events are referred to herein individually as an "Event of
Default," and collectively as "Events of Default":
(a) any Borrower fails to pay when due any of the Obligations;
(b) any Borrower fails to perform any of the terms, covenants,
conditions or provisions contained in this Agreement or any of the other
Financing Agreements and such failure shall continue for five (5) Business Days;
provided; that, such five (5) Business Day period shall not apply in the case
of: (i) any failure to observe any such term, covenant, condition or provision
which is not capable of being cured at all or within such five (5) Business Day
period or which has previously been the subject of a prior failure or (ii) an
intentional breach by such Borrower of such term, covenant, condition or
provision;
(c) any representation, warranty or statement of fact made by any
Borrower to Lender in this Agreement, the other Financing Agreements or any
other agreement, schedule, confirmatory assignment or otherwise shall when made
or deemed made be false or misleading in any material respect;
(d) any Obligor revokes, terminates or fails to perform any of
the terms, covenants, conditions or provisions of any guarantee, endorsement or
other agreement of such party in favor of Lender and such failure shall continue
for five (5) Business Days; provided, that, such five (5) Business Day period
shall not apply in the case of: (i) any failure to observe any such term,
covenant, condition or provision which is not capable of being cured at all or
within such five (5) Business Day period or which has previously been the
subject of a prior failure or (ii) an intentional breach by such Obligor of such
term, covenant, condition or provision;
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(e) any judgment for the payment of money is rendered against any
Borrower in excess of One Hundred Thousand Dollars ($100,000) in any one case or
in excess of Two Hundred Fifty Thousand Dollars ($250,000) in the aggregate with
respect to any one Borrower and shall remain undischarged or unvacated for a
period in excess of forty-five (45) days or execution shall at any time not be
effectively stayed, or any material judgment other than for the payment of
money, or injunction, attachment, garnishment or execution is rendered against
any Borrower or any of their assets;
(f) any Borrower dissolves or suspends or discontinues doing
business or without the prior written consent of Lender, which consent shall not
be unreasonably withheld, any Obligor if such Obligor is in possession of any
assets of any Borrower or is indebted to any Borrower, dissolves or suspends or
discontinues doing business;
(g) any Borrower becomes insolvent (however defined or
evidenced), makes an assignment for the benefit of creditors, makes or sends
notice of a bulk transfer, or without the prior written consent of Lender, which
consent shall not be unreasonably withheld, any Obligor if such Obligor is in
possession of any assets of any Borrower or is indebted to any Borrower becomes
insolvent (however defined or evidenced), makes an assignment for the benefit of
creditors, makes or sends notice of a bulk transfer;
(h) a case or proceeding under the bankruptcy laws of the United
States of America now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction now or hereafter in effect (whether at law or
in equity) is filed against any Borrower, or all or any part of its properties
and such petition or application is not dismissed within thirty (30) days after
the date of its filing or any such Borrower shall file any answer admitting or
not contesting such petition or application or indicates its consent to,
acquiescence in or approval of, any such action or proceeding or the relief
requested is granted sooner;
(i) without the prior written consent of Lender, which consent
shall not be unreasonably withheld, a case or proceeding under the bankruptcy
laws of the United States of America now or hereafter in effect or under any
insolvency, reorganization, receivership, readjustment of debt, dissolution or
liquidation law or statute of any jurisdiction now or hereafter in effect
(whether at law or in equity) is filed against any Obligor if such Obligor is in
possession of any assets of any Borrower or is indebted to any Borrower, or all
or any part of its properties and such petition or application is not dismissed
within thirty (30) days after the date of its filing or any such Obligor shall
file any answer admitting or not contesting such petition or application or
indicates its consent to, acquiescence in or approval of, any such action or
proceeding or the relief requested is granted sooner;
(j) a case or proceeding under the bankruptcy laws of the United
States of America now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction now or hereafter in effect (whether at a law
or equity) is filed by any Borrower, or for all or any part of its property or
without the prior written consent of Lender, which consent shall not be
unreasonably withheld, a case or proceeding under the bankruptcy laws of the
United States of America now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt,
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dissolution or liquidation law or statute of any jurisdiction now or hereafter
in effect (whether at a law or equity) is filed by any Obligor if such Obligor
is in possession of any assets of any Borrower or is indebted to any Borrower,
or for all or any part of its property;
(k) any default by any Borrower under any agreement, document or
instrument relating to any indebtedness for borrowed money owing to any person
other than Lender, or any capitalized lease obligations, contingent indebtedness
in connection with any guarantee, letter of credit, indemnity or similar type of
instrument in favor of any person other than Lender, in any case in an amount in
excess of One Hundred Thousand Dollars ($100,000), which default continues for
more than the applicable cure period, if any, with respect thereto, or any
default by any Borrower under any material contract, lease, license or other
obligation to any person other than Lender, including without limitation, the
Teva License Agreement, which default continues for more than the applicable
cure period, if any, with respect thereto;
(l) Douglas Otto, an individual, ceases to be the largest
shareholder of DOC or without the prior written consent of Lender, DOCI, SSI, or
UHI ceases to be wholly owned subsidiaries of DOC;
(m) the indictment or threatened indictment of any Borrower under
any criminal statute, or the commencement or threatened commencement of criminal
or civil proceedings against any Borrower, pursuant to which statute or
proceedings the penalties or remedies sought or available include forfeiture of
any of the property of such Borrower;
(n) there shall be a material adverse change in the business,
assets or prospects of any Borrower after the date hereof; or
(o) there shall be an event of default under any of the other
Financing Agreements.
10.2 Remedies.
(a) At any time an Event of Default exists or has occurred and is
continuing, Lender shall have all rights and remedies provided in this
Agreement, the other Financing Agreements, the California Uniform Commercial
Code, as the same now exists or may from time to time hereafter be amended,
modified, recodified or supplemented, and other applicable law, all of which
rights and remedies may be exercised without notice to or consent by any
Borrower or Obligor, except as such notice or consent is expressly provided for
hereunder or required by applicable law. All rights, remedies and powers granted
to Lender hereunder, under any of the other Financing Agreements, the Uniform
Commercial Code or other applicable law, are cumulative, not exclusive and
enforceable, in Lender's discretion, alternatively, successively, or
concurrently on any one or more occasions, and shall include, without
limitation, the right to apply to a court of equity for an injunction to
restrain a breach or threatened breach by any Borrower of this Agreement or any
of the other Financing Agreements. Lender may, at any time or times, proceed
directly against any Borrower or Obligor to collect the Obligations without
prior recourse to the Collateral.
(b) Without limiting the foregoing, at any time an Event of
Default exists or has occurred and is continuing, Lender may, in its discretion
and without limitation, (i)
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accelerate the payment of all Obligations and demand immediate payment thereof
to Lender (provided, that, upon the occurrence of any Event of Default described
in Sections 10.1(h) and 10.1(i), all Obligations shall automatically become
immediately due and payable), (ii) with or without judicial process or the aid
or assistance of others, enter upon any premises on or in which any of the
Collateral may be located and take possession of the Collateral or complete
processing, manufacturing and repair of all or any portion of the Collateral,
(iii) require any Borrower, at such Borrower's expense, to assemble and make
available to Lender any part or all of the Collateral at any place and time
designated by Lender, (iv) collect, foreclose, receive, appropriate, setoff and
realize upon any and all Collateral, (v) remove any or all of the Collateral
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, (vi) sell, lease, transfer, assign, deliver or otherwise dispose of any
and all Collateral (including, without limitation, entering into contracts with
respect thereto, public or private sales at any exchange, broker's board, at any
office of Lender or elsewhere) at such prices or terms as Lender may deem
reasonable, for cash, upon credit or for future delivery, with the Lender having
the right to purchase the whole or any part of the Collateral at any such public
sale, all of the foregoing being free from any right or equity of redemption of
any Borrower, which right or equity of redemption is hereby expressly waived and
released by each Borrower and/or (vii) terminate this Agreement. If any of the
Collateral is sold or leased by Lender upon credit terms or for future delivery,
the Obligations shall not be reduced as a result thereof until payment therefor
is finally collected by Lender. If notice of disposition of Collateral is
required by law, five (5) days prior notice by Lender to only the Borrower whose
Collateral is to be sold or disposed, designating the time and place of any
public sale or the time after which any private sale or other intended
disposition of Collateral is to be made, shall be deemed to be reasonable notice
thereof and each Borrower waives any other notice. In the event Lender
institutes an action to recover any Collateral or seeks recovery of any
Collateral by way of prejudgment remedy, each Borrower waives the posting of any
bond which might otherwise be required. Each Borrower waives any right to
require Lender to marshall the Collateral or proceed among them in any manner.
(c) Lender may apply the cash proceeds of Collateral actually
received by Lender from any sale, lease, foreclosure or other disposition of the
Collateral to payment of the Obligations, in whole or in part and in such order
as Lender may elect, whether or not then due. Each Borrower shall remain liable
to Lender for the payment of any deficiency with interest at the highest rate
provided for herein and all reasonable costs and expenses of collection or
enforcement, including reasonable attorneys' fees and legal expenses. Lender may
allocate any payments received or amounts realized among the Borrowers in its
sole discretion.
(d) Without limiting the foregoing, upon the occurrence of an
Event of Default or an event which with notice or passage of time or both would
constitute an Event of Default, Lender may, at its option, without notice, (i)
cease making Loans or arranging Letter of Credit Accommodations or reduce the
lending formulas or amounts of Loans and Letter of Credit Accommodations
available to any Borrower and/or (ii) terminate any provision of this Agreement
providing for any future Loans or Letter of Credit Accommodations to be made by
Lender to any Borrower.
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SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING LAW.
11.1 Governing Law; Choice of Forum; Service of Process; Jury Trial
Waiver.
(a) The validity, interpretation and enforcement of this
Agreement and the other Financing Agreements and any dispute arising out of the
relationship between the parties hereto, whether in contract, tort, equity or
otherwise, shall be governed by the internal laws of the State of California
(without giving effect to principles of conflicts of law).
(b) Each Borrower and Lender irrevocably consent and submit to
the non-exclusive jurisdiction of the state courts of the County of Los Angeles,
State of California and of the United States District Court for the Central
District of California and waive any objection based on venue or forum non
conveniens with respect to any action instituted therein arising under this
Agreement or any of the other Financing Agreements or in any way connected with
or related or incidental to the dealings of the parties hereto in respect of
this Agreement or any of the other Financing Agreements or the transactions
related hereto or thereto, in each case whether now existing or hereafter
arising, and whether in contract, tort, equity or otherwise, and agree that any
dispute with respect to any such matters shall be heard only in the courts
described above (except that Lender shall have the right to bring any action or
proceeding against any Borrower or its property in the courts of any other
jurisdiction which Lender deems necessary or appropriate in order to realize on
the Collateral or to otherwise enforce its rights against such Borrower or its
property).
(c) Each Borrower and Lender hereby consents that any and all
service of process may be made by certified mail (return receipt requested)
directed to its address set forth on the signature pages hereof and service so
made shall be deemed effective and to be completed five (5) days after the same
shall have been so deposited in the U.S. mails.
(d) EACH BORROWER AND LENDER EACH HEREBY WAIVES ANY RIGHT TO
TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i) ARISING UNDER
THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR (ii) IN ANY WAY
CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO IN
RESPECT OF THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR THE
TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR
HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. EACH
BORROWER AND LENDER EACH HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND,
ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND
THAT ANY BORROWER OR LENDER MAY FILE AN ORIGINAL COUNTERPART OF A COPY OF THIS
AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES
HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
(e) Lender shall not have any liability to any Borrower (whether
in tort, contract, equity or otherwise) for losses suffered by any Borrower in
connection with, arising out of, or in any way related to the transactions or
relationships contemplated by this Agreement, or
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any act, omission or event occurring in connection herewith, unless it is
determined by a final and non-appealable judgment or court order binding on
Lender, that the losses were the result of acts or omissions constituting gross
negligence or willful misconduct. In any such litigation, Lender shall be
entitled to the benefit of the rebuttable presumption that it acted in good
faith and with the exercise of ordinary care in the performance by it of the
terms of this Agreement.
11.2 Waiver of Notices. Each Borrower hereby expressly waives demand,
presentment, protest and notice of protest and notice of dishonor with respect
to any and all instruments and commercial paper, included in or evidencing any
of the Obligations or the Collateral, and any and all other demands and notices
of any kind or nature whatsoever with respect to the Obligations, the Collateral
and this Agreement, except such as are expressly provided for herein. No notice
to or demand on any Borrower which Lender may elect to give shall entitle such
Borrower to any other or further notice or demand in the same, similar or other
circumstances.
11.3 Amendments and Waivers. Neither this Agreement nor any provision
hereof shall be amended, modified, waived or discharged orally or by course of
conduct, but only by a written agreement signed by an authorized officer of
Lender. Lender shall not, by any act, delay, omission or otherwise be deemed to
have expressly or impliedly waived any of its rights, powers and/or remedies
unless such waiver shall be in writing and signed by an authorized officer of
Lender. Any such waiver shall be enforceable only to the extent specifically set
forth therein. A waiver by Lender of any right, power and/or remedy on any one
occasion shall not be construed as a bar to or waiver of any such right, power
and/or remedy which Lender would otherwise have on any future occasion, whether
similar in kind or otherwise.
11.4 Indemnification. Each Borrower shall indemnify and hold Lender, and
its directors, agents, employees and counsel, harmless from and against any and
all losses, claims, damages, liabilities, costs or expenses imposed on, incurred
by or asserted against any of them in connection with any litigation,
investigation, claim or proceeding commenced or threatened related to the
negotiation, preparation, execution, delivery, enforcement, performance or
administration of this Agreement, any other Financing Agreements, or any
undertaking or proceeding related to any of the transactions contemplated hereby
or any act, omission, event or transaction related or attendant thereto,
including, without limitation, amounts paid in settlement, court costs, and the
reasonable fees and expenses of counsel, unless such losses, claims, damages,
liabilities, costs or expenses arose from an indemnified party's gross
negligence or willful misconduct. To the extent that the undertaking to
indemnify, pay and hold harmless set forth in this Section 11.4 may be
unenforceable because it violates any law or public policy, each Borrower shall
pay the maximum portion which it is permitted to pay under applicable law to
Lender in satisfaction of indemnified matters under this Section 11.4. The
foregoing indemnity shall survive the payment of the Obligations and the
termination or non-renewal of this Agreement.
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SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS.
12.1 Term.
(a) This Agreement and the other Financing Agreements shall
become effective as of the date set forth on the first page hereof and shall
continue in full force and effect for an initial term ending sixty (60) days
prior to the expiration date of either Teva License Agreements, whichever date
is earlier, provided, however, if the expiration dates of both the Teva License
Agreements are extended beyond August 31, 2001 upon terms and conditions
acceptable to Lender, then the initial term of this Agreement shall end on the
earlier of sixty (60) days preceding the new expiration date of either Teva
License Agreements, whichever date is earlier or the date three (3) years from
the date hereof (the end of the initial term of this Agreement shall be referred
to herein as, the "Renewal Date"). Borrowers (collectively, but not
individually) or Lender may terminate this Agreement and the other Financing
Agreements effective on the Renewal Date or on the anniversary of the Renewal
Date in any year by giving to the other party at least sixty (60) days prior
written notice. Borrowers (collectively, but not individually) may terminate
this Agreement prior to the end of the then current term, including any renewal
term, for any reason upon sixty (60) days prior written notice to Lender, and in
such case Borrowers agree to pay to Lender the applicable early termination fee
provided for in Section 12.1(c) hereof; provided, however that no such fee shall
be payable if this Agreement is so terminated after the third anniversary date
of this Agreement. Regardless of the timing of termination, this Agreement and
all other Financing Agreements must be terminated simultaneously. Upon the
effective date of termination or non-renewal of the Financing Agreements,
Borrowers shall pay to Lender, in full, all outstanding and unpaid Obligations
and shall furnish cash collateral to Lender in such amounts as Lender determines
are reasonably necessary to secure Lender from loss, cost, damage or expense,
including reasonable attorneys' fees and legal expenses, in connection with any
contingent Obligations, including issued and outstanding Letter of Credit
Accommodations and checks or other payments provisionally credited to the
Obligations and/or as to which Lender has not yet received final and
indefeasible payment. Such cash collateral shall be remitted by wire transfer in
Federal funds to such bank account of Lender, as Lender may, in its discretion,
designate in writing to Borrowers for such purpose. Interest shall be due until
and including the next Business Day, if the amounts so paid by Borrowers to the
bank account designated by Lender are received in such bank account later than
10:30 a.m., Los Angeles time.
(b) No termination of this Agreement or the other Financing
Agreements shall relieve or discharge any Borrower of its respective duties,
obligations and covenants under this Agreement or the other Financing Agreements
until all Obligations have been fully and finally discharged and paid, and
Lender's continuing security interest in the Collateral and the rights and
remedies of Lender hereunder, under the other Financing Agreements and
applicable law, shall remain in effect until all such Obligations have been
fully and finally discharged and paid.
(c) If for any reason this Agreement is terminated prior to the
end of the then current term of this Agreement, in view of the impracticality
and extreme difficulty of
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ascertaining actual damages and by mutual agreement of the parties as to a
reasonable calculation of Lender's lost profits as a result thereof, Borrowers
agree to pay to Lender, upon the effective date of such termination, an early
termination fee in the amount set forth below if such termination is effective
in the period indicated:
Amount Period
------ ------
(i) 3% of the Maximum Credit from the date of this Agreement to
and including the first anniversary
date of this Agreement;
(ii) 2% of the Maximum Credit from the date after the first
anniversary of this Agreement to and
including the second anniversary date
of this Agreement; or
(iii) 1% of the Maximum Credit from the date after the second
anniversary of this Agreement to and
including the third anniversary date
of this Agreement.
Notwithstanding the foregoing, such early termination fee shall be waived by
Lender in the event that at any time after the first anniversary date of this
Agreement, the Obligations are satisfied in full with the proceeds of a
refinancing provided by First Union National Bank and no Event of Default or
event which with notice or passage of time or both would constitute an Event of
Default exists or has occurred and is continuing. Such early termination fee
shall be presumed to be the amount of damages sustained by Lender as a result of
such early termination and each Borrower agrees that it is reasonable under the
circumstances currently existing. The early termination fee provided for in this
Section 12.1 shall be deemed included in the Obligations.
12.2 Notices. All notices, requests and demands hereunder shall be in
writing and (a) made to Lender at its address set forth below and to Borrowers
at their respective chief executive offices set forth below, or to such other
address as either party may designate by written notice to the other in
accordance with this provision, and (b) deemed to have been given or made: if
delivered in person, immediately upon delivery; if by telex, telegram or
facsimile transmission, immediately upon sending and upon confirmation of
receipt; if by nationally recognized overnight courier service with instructions
to deliver the next Business Day, one (1) Business Day after sending; and if by
certified mail, return receipt requested, five (5) days after mailing. Notice by
Lender to one Borrower shall be effective notice to all Borrowers. Lender shall
use its best efforts to provide to DOC copies of any notices sent by Lender
hereunder to any other Borrower.
12.3 Partial Invalidity. If any provision of this Agreement is held to
be invalid or unenforceable, such invalidity or unenforceability shall not
invalidate this Agreement as a whole, but this Agreement shall be construed as
though it did not contain the particular provision held to
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be invalid or unenforceable and the rights and obligations of the parties shall
be construed and enforced only to such extent as shall be permitted by
applicable law.
12.4 Successors. This Agreement, the other Financing Agreements and any
other document referred to herein or therein shall be binding upon and inure to
the benefit of and be enforceable by Lender, each Borrower and their respective
successors and assigns, except that no Borrower may assign its rights under this
Agreement, the other Financing Agreements and any other document referred to
herein or therein without the prior written consent of Lender. Lender may, after
notice to Borrowers, assign its rights and delegate its obligations under this
Agreement and the other Financing Agreements and further may assign, or sell
participations in, all or any part of the Loans, the Letter of Credit
Accommodations or any other interest herein to any Eligible Assignee, in which
event, the Eligible Assignee shall have, to the extent of such assignment or
participation, the same rights and benefits as it would have if it were the
Lender hereunder, except as otherwise provided by the terms of such assignment
or participation.
12.5 Entire Agreement. This Agreement, the other Financing Agreements,
any supplements hereto or thereto, and any instruments or documents delivered or
to be delivered in connection herewith or therewith represents the entire
agreement and understanding concerning the subject matter hereof and thereof
between the parties hereto, and supersede all other prior agreements,
understandings, negotiations and discussions, representations, warranties,
commitments, proposals, offers and contracts concerning the subject matter
hereof, whether oral or written.
12.6 Publicity. Each Borrower consents to Lender publishing a tombstone
or similar advertising material, the content of which shall be mutually
acceptable to Borrowers and Lender, relating to the financing transaction
contemplated by this Agreement.
SECTION 13. JOINT AND SEVERAL LIABILITY AND SURETYSHIP WAIVERS.
13.1 Independent Obligations; Subrogation. The obligations of each
Borrower, as guarantor of another Borrower's Obligations hereunder are joint and
several. To the maximum extent permitted by law, each Borrower hereby waives any
claim, right or remedy which either may now have or hereafter acquire against
any other Borrower that arises hereunder including, without limitation, any
claim, remedy or right of subrogation, reimbursement, exoneration, contribution,
indemnification, or participation in any claim, right or remedy of Lender
against any Borrower or any Collateral which Lender now has or hereafter
acquires, whether or not such claim, right or remedy arises in equity, under
contract, by statute, under common law or otherwise until the Obligations are
fully paid and finally discharged. In addition, each Borrower hereby waives any
right to proceed against the other Borrower, now or hereafter, for contribution,
indemnity, reimbursement, and any other suretyship rights and claims, whether
direct or indirect, liquidated or contingent, whether arising under express or
implied contract or by operation of law, which any Borrower may now have or
hereafter have as against the other Borrower with respect to the Obligations
until the Obligations are fully paid and finally discharged. Each Borrower also
hereby waives any rights of recourse to or with respect to any asset of the
other Borrower until the Obligations are fully paid and finally discharged.
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13.2 Authority to Modify Obligations and Security. Each Borrower
authorizes Lender, without notice or demand and without affecting any Borrower's
liability hereunder, from time to time, whether before or after any notice of
termination hereof or before or after any default in respect of the Obligations,
to: (i) renew, extend, accelerate, or otherwise change the time for payment of,
or otherwise change any other term or condition of, any document or agreement
evidencing or relating to any Obligations as such Obligations relate to the
other Borrower, including, without limitation, to increase or decrease the rate
of interest thereon; (ii) accept, substitute, waive, defease, increase, release,
exchange or otherwise alter any Collateral, in whole or in part, securing the
other Borrower's Obligations; (iii) apply any and all such Collateral and direct
the order or manner of sale thereof as Lender, in its sole discretion, may
determine; (iv) deal with the other Borrower as Lender may elect; (v) in
Lender's sole discretion, settle, release on terms satisfactory to Lender, or by
operation of law or otherwise, compound, compromise, collect or otherwise
liquidate any of the other Borrower's Obligations and/or any of the Collateral
in any manner, and bid and purchase any of the collateral at any sale thereof;
(vi) apply any and all payments or recoveries from the other Borrower as Lender,
in its sole discretion, may determine, whether or not such indebtedness relates
to the Obligations; all whether such Obligations are secured or unsecured or
guaranteed or not guaranteed by others; and (vii) apply any sums realized from
Collateral furnished by the other Borrower upon any of its indebtedness or
obligations to Lender as Lender, in its sole discretion, may determine, whether
or not such indebtedness relates to the Obligations; all without in any way
diminishing, releasing or discharging the liability of any Borrower hereunder.
13.3 Waiver of Defenses. Upon an Event of Default by any Borrower in
respect of any Obligations, Lender may, at its option and without notice to the
Borrowers, proceed directly against any Borrower to collect and recover the full
amount of the liability hereunder, or any portion thereof, and each Borrower
waives any right to require Lender to: (i) proceed against the other Borrower or
any other person whomsoever; (ii) proceed against or exhaust any Collateral
given to or held by Lender in connection with the Obligations; (iii) give notice
of the terms, time and place of any public or private sale of any of the
Collateral except as otherwise provided herein; or (iv) pursue any other remedy
in Lender's power whatsoever. A separate action or actions may be brought and
prosecuted against any Borrower whether or not action is brought against the
other Borrower and whether the other Borrower be joined in any such action or
actions; and each Borrower waives the benefit of any statute of limitations
affecting the liability hereunder or the enforcement hereof, and agrees that any
payment of any Obligations or other act which shall toll any statute of
limitations applicable thereto shall similarly operate to toll such statute of
limitations applicable to the liability hereunder.
13.4 Exercise of Lender's Rights. Each Borrower hereby authorizes and
empowers Lender in its sole discretion, without any notice or demand to such
Borrower whatsoever and without affecting the liability of such Borrower
hereunder, to exercise any right or remedy which Lender may have available to it
against the other Borrower.
13.5 Additional Waivers. Each Borrower waives any defense arising by
reason of any disability or other defense of the other Borrower or by reason of
the cessation from any cause whatsoever of the liability of the other Borrower
or by reason of any act or omission of Lender or others which directly or
indirectly results in or aids the discharge or release of the other Borrower or
any Obligations or any Collateral by operation of law or otherwise. The
Obligations
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shall be enforceable against each Borrower without regard to the validity,
regularity or enforceability of any of the Obligations with respect to any of
the other Borrower or any of the documents related thereto or any collateral
security documents securing any of the Obligations. No exercise by Lender of,
and no omission of Lender to exercise, any power or authority recognized herein
and no impairment or suspension of any right or remedy of Lender against any
Borrower or any Collateral shall in any way suspend, discharge, release,
exonerate or otherwise affect any of the Obligations or any Collateral furnished
by the Borrowers or give to the Borrowers any right of recourse against Lender.
The Borrowers specifically agree that the failure of Lender: (i) to perfect any
lien on or security interest in any property heretofore or hereafter given by
Borrowers to secure payment of the Obligations, or to record or file any
document relating thereto or (ii) to file or enforce a claim against the estate
(either in administration, bankruptcy or other proceeding) of any Borrower shall
not in any manner whatsoever terminate, diminish, exonerate or otherwise affect
the liability of any Borrower hereunder.
13.6 Additional Indebtedness. Additional Obligations may be created from
time to time at the request of any Borrower and without further authorization
from or notice to any other Borrower even though the borrowing Borrower's
financial condition may deteriorate since the date hereof. Each Borrower waives
the right, if any, to require Lender to disclose to such Borrower any
information it may now have or hereafter acquire concerning the other Borrower's
character, credit, Collateral, financial condition or other matters. Each
Borrower has established adequate means to obtain from the other Borrower on a
continuing basis financial and other information pertaining to such Borrower's
business and affairs, and assumes the responsibility for being and keeping
informed of the financial and other conditions of the other Borrower and of all
circumstances bearing upon the risk of nonpayment of the Obligations which
diligent inquiry would reveal. Lender need not inquire into the powers of any of
the Borrowers or the authority of any of their respective officers, directors,
partners or agents acting or purporting to act in their behalf, and any
obligations created in reliance upon the purported exercise of such power or
authority is hereby guaranteed. All obligations of Borrowers to Lender
heretofore, now or hereafter created shall be deemed to have been granted at
Borrowers' special insistence and request and in consideration of and in
reliance upon this Agreement.
13.7 Notices, Demands, Etc. Except as expressly provided by this
Agreement, Lender shall be under no obligation whatsoever to make or give to any
Borrower, and each Borrower hereby waives diligence, all rights of setoff and
counterclaim against Lender, all demands, presentments, protests, notices of
protests, notices of protests, notices of nonperformance, notices of dishonor,
and all other notices of every kind or nature, including notice of the
existence, creation or incurring of any new or additional Obligations.
13.8 Subordination. Except as otherwise provided in this Section 13.8,
any indebtedness of any Borrower now or hereafter owing to any other Borrower is
hereby subordinated to the Obligations, whether heretofore, now or hereafter
created, and whether before or after notice of termination hereof, and,
following the occurrence and during the continuation of an Event of Default, no
Borrower shall, without the prior consent of Lender, pay in whole or in part any
of such indebtedness nor will any such Borrower accept any payment of or on
account of any such indebtedness at any time while such Borrower remains liable
hereunder. At the request of Lender, after the occurrence and during the
continuance of an Event
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of Default, each Borrower shall pay to Lender all or any part of such
subordinated indebtedness and any amount so paid to Lender at its request shall
be applied to payment of the Obligations. Each payment on the indebtedness of
any Borrower to the other Borrower received in violation of any of the
provisions hereof shall be deemed to have been received by any other Borrower as
trustee for Lender and shall be paid over to Lender immediately on account of
the Obligations, but without otherwise affecting in any manner any such
Borrower's liability under any of the provisions of this Agreement. Each
Borrower agrees to file all claims against the other Borrower in any bankruptcy
or other proceeding in which the filing of claims is required by law in respect
of any indebtedness of the other Borrower to such Borrower, and Lender shall be
entitled to all of any such Borrower's rights thereunder. If for any reason any
such Borrower fails to file such claim at least thirty (30) days prior to the
last date on which such claim should be filed, Lender, as such Borrower's
attorney-in-fact, is hereby authorized to do so in Borrowers' name or, in
Lender's discretion, to assign such claim to, and cause a proof of claim to be
filed in the name of, Lender's nominee. In all such cases, whether in
administration, bankruptcy or otherwise, the person or persons authorized to pay
such claim shall pay to Lender the full amount payable on the claim in the
proceeding, and to the full extent necessary for that purpose any such Borrower
hereby assigns to Lender all such Borrower's rights to any payments or
distributions to which such Borrower otherwise would be entitled. If the amount
so paid is greater than any such Borrower's liability hereunder, Lender will pay
the excess amount to the party entitled thereto.
13.9 Revival. If any payments of money or transfers of property made to
Lender by any Borrower should for any reason subsequently be declared to be, or
in Lender's counsel's good faith opinion be determined to be, fraudulent (within
the meaning of any state or federal law relating to fraudulent conveyances),
preferential or otherwise voidable or recoverable in whole or in part for any
reason (hereinafter collectively called "voidable transfers") under the
Bankruptcy Code or any other federal or state law and Lender is required to
repay or restore, or in Lender's counsel's opinion may be so liable to repay or
restore, any such voidable transfer, or the amount or any portion thereof, then
as to any such voidable transfer or the amount repaid or restored and all
reasonable costs and expenses (including reasonable attorneys' fees) of Lender
related thereto, such Borrower's liability hereunder shall automatically be
revived, reinstated and restored and shall exist as though such voidable
transfer had never been made to Lender.
13.10 Understanding of Waivers. Each Borrower warrants and agrees that
the waivers set forth in this Section 13 are made with full knowledge of their
significance and consequences. If any of such waivers are determined to be
contrary to any applicable law or public policy, such waivers shall be effective
only to the maximum extent permitted by law.
13.11 Limited Liability. The Obligations of each Borrower shall be owed
and payable jointly and severally; provided, however, notwithstanding any other
provision of this Agreement, at Lender's option and upon Lender's acceleration
of the Obligations following an Event of Default, the aggregate liability of
each Borrower for Obligations owed by the other Borrowers (exclusive of the
Obligations owed by such Borrower directly to Lender which shall be unlimited
and not reduced in any way) shall be limited to the respective dollar amount set
forth below opposite such Borrower's name:
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Borrower Liability Amount
-------- ----------------
Deckers Outdoor Corporation $50,000,000
Deckers Outdoor Corporation International $ 5,000,000
Simple Shoes, Inc. $ 5,000,000
UGG Holdings, Inc. $10,000,000
Heirlooms, Inc. $ 5,000,000;
it being understood that payments and prepayments of the Obligations by another
Borrower, any Obligor or any other Person, or the application of any proceeds
from foreclosure or other exercise of remedies against any Collateral, for
purposes of this Section 13.11, shall be applied by Lender in its sole
determination. Lender shall at any time have the right, without notice to any
Borrower, to reduce the limitation amount set forth above for any Borrower and
each Borrower hereby consents to any such unilateral reduction by Lender at any
time. No Borrower may benefit from such limitations set forth herein by Lender
except as agreed to by Lender in writing. Such limitations shall not be used by
any Borrower as a defense to or limitation of payment or in satisfaction of any
Obligation as asserted by Lender to be owed and do not alter, modify or limit
the terms of this Agreement except as to the extent as Lender agrees in writing.
57
63
IN WITNESS WHEREOF, Lender and each Borrower have caused this Agreement
to be duly executed as of the day and year first above written.
LENDER BORROWER
CONGRESS FINANCIAL CORPORATION DECKERS OUTDOOR CORPORATION,
(WESTERN) a Delaware corporation
By: /s/ June M. Cowgill By: /s/ M. Scott Ash
----------------------------- --------------------------------
Name: June M. Cowgill Name: M. Scott Ash
----------------------------- --------------------------------
Title: Vice President Title:
----------------------------- --------------------------------
Address Chief Executive Office
225 South Lake Avenue, Suite 1000 495-A South Fairview Avenue
Pasadena, California 91101 Goleta, California 93117
DECKERS OUTDOOR CORPORATION
INTERNATIONAL, a Delaware corporation
By: /s/ M. Scott Ash
--------------------------------
Name: M. Scott Ash
--------------------------------
Title:
--------------------------------
Chief Executive Office
495-A South Fairview Avenue
Goleta, California 93117
58
64
SIMPLE SHOES, INC.,
a California corporation
By: /s/ M. Scott Ash
--------------------------------
Name: M. Scott Ash
--------------------------------
Title:
--------------------------------
Chief Executive Office
495-A South Fairview Avenue
Goleta, California 93117
UGG HOLDINGS, INC.,
a California corporation
By: /s/ M. Scott Ash
--------------------------------
Name: M. Scott Ash
--------------------------------
Title:
--------------------------------
Chief Executive Office
495-A South Fairview Avenue
Goleta, California 93117
HEIRLOOMS, INC.,
a California corporation
By: /s/ M. Scott Ash
--------------------------------
Name: M. Scott Ash
--------------------------------
Title:
--------------------------------
Chief Executive Office
495-A South Fairview Avenue
Goleta, California 93117
59