EXHIBIT 10.54
CIT AS SOLE LENDER
EXECUTION VERSION
FINANCING AGREEMENT
THE CIT GROUP/COMMERCIAL SERVICES, INC.
(AS LENDER)
AND
R.G. BARRY CORPORATION
(AS BORROWER)
DATED: MARCH 31, 2005
TABLE OF CONTENTS
Page
SECTION 1. DEFINITIONS...................................................................................... 1
1.1. DEFINED TERMS.............................................................................. 1
SECTION 2. CONDITIONS PRECEDENT............................................................................. 15
2.1. CONDITIONS PRECEDENT TO INITIAL FUNDING.................................................... 15
SECTION 3. REVOLVING LOANS AND COLLECTIONS.................................................................. 18
3.1. FUNDING CONDITIONS AND PROCEDURES.......................................................... 18
3.2. HANDLING OF PROCEEDS OF COLLATERAL; CASH DOMINION.......................................... 18
3.3. REVOLVING LOAN ACCOUNT..................................................................... 19
3.4. REPAYMENT OF OVERADVANCES.................................................................. 19
3.5. APPLICATION OF PROCEEDS OF COLLATERAL...................................................... 20
3.6. MONTHLY STATEMENT.......................................................................... 20
3.7. ACCESS TO CIT'S SYSTEM..................................................................... 20
SECTION 4. RESERVED......................................................................................... 21
SECTION 5. LETTERS OF CREDIT................................................................................ 21
5.1. ASSISTANCE AND PURPOSE..................................................................... 21
5.2. AUTHORITY TO CHARGE REVOLVING LOAN ACCOUNT................................................. 21
5.3. INDEMNITY RELATING TO LETTERS OF CREDIT.................................................... 21
5.4. COMPLIANCE OF GOODS, DOCUMENTS AND SHIPMENTS WITH AGREED TERMS............................. 22
5.5. HANDLING OF GOODS, DOCUMENTS AND SHIPMENTS................................................. 22
5.6. COMPLIANCE WITH LAWS; PAYMENT OF LEVIES AND TAXES.......................................... 23
5.7. SUBROGATION RIGHTS......................................................................... 23
SECTION 6. COLLATERAL....................................................................................... 23
6.1. GRANT OF SECURITY INTEREST................................................................. 23
6.2. LIMITED LICENSE............................................................................ 24
6.3. REPRESENTATIONS, COVENANTS AND AGREEMENTS REGARDING COLLATERAL GENERALLY................... 24
6.4. REPRESENTATIONS REGARDING ACCOUNTS AND INVENTORY........................................... 24
6.5. COVENANTS AND AGREEMENTS REGARDING ACCOUNTS AND INVENTORY.................................. 25
6.6. COVENANTS AND AGREEMENTS REGARDING EQUIPMENT............................................... 26
6.7. GENERAL INTANGIBLES........................................................................ 26
6.8. COMMERCIAL TORT CLAIMS..................................................................... 26
6.9. LETTER OF CREDIT RIGHTS.................................................................... 26
6.10. REAL PROPERTY.............................................................................. 26
6.11. KEY MAN LIFE INSURANCE..................................................................... 26
6.12. REFERENCE TO OTHER LOAN DOCUMENTS.......................................................... 27
6.13. CREDIT BALANCES; ADDITIONAL COLLATERAL..................................................... 27
SECTION 7. REPRESENTATIONS, WARRANTIES AND COVENANTS........................................................ 27
7.1. INITIAL DISCLOSURE REPRESENTATIONS AND WARRANTIES.......................................... 27
7.2. AFFIRMATIVE COVENANTS...................................................................... 29
7.3. FINANCIAL COVENANTS........................................................................ 34
7.4. NEGATIVE COVENANTS......................................................................... 35
SECTION 8. INTEREST, FEES AND EXPENSES...................................................................... 37
8.1. INTEREST ON REVOLVING LOANS................................................................ 37
8.2. DEFAULT INTEREST RATE...................................................................... 37
8.3. FEES AND EXPENSES RELATING TO LETTERS OF CREDIT............................................ 37
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8.4. OUT-OF POCKET EXPENSES..................................................................... 38
8.5. LINE OF CREDIT FEE; COLLECTION DAYS........................................................ 38
8.6. INTENTIONALLY OMITTED...................................................................... 38
8.7. COLLATERAL MANAGEMENT FEE.................................................................. 38
8.8. STANDARD OPERATIONAL FEES.................................................................. 38
8.9. CAPITAL ADEQUACY........................................................................... 38
8.10. TAXES, RESERVES AND OTHER CONDITIONS....................................................... 39
8.11. AUTHORITY TO CHARGE REVOLVING LOAN ACCOUNT................................................. 40
SECTION 9. POWERS........................................................................................... 40
9.1. AUTHORITY.................................................................................. 40
9.2. LIMITATIONS ON EXERCISE.................................................................... 41
SECTION 10. EVENTS OF DEFAULT AND REMEDIES............................................................. 41
10.1. EVENTS OF DEFAULT.......................................................................... 41
10.2. REMEDIES WITH RESPECT TO OUTSTANDING LOANS................................................. 42
10.3. REMEDIES WITH RESPECT TO COLLATERAL........................................................ 42
10.4. GENERAL INDEMNITY.......................................................................... 43
SECTION 11. TERMINATION................................................................................ 44
SECTION 12. MISCELLANEOUS.............................................................................. 45
12.1. WAIVERS.................................................................................... 45
12.2. ENTIRE AGREEMENT; AMENDMENTS............................................................... 45
12.3. USURY LIMIT................................................................................ 45
12.4. SEVERABILITY............................................................................... 45
12.5. WAIVER OF JURY TRIAL; SERVICE OF PROCESS................................................... 45
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12.6. NOTICES.................................................................................... 46
12.7. CHOICE OF LAW.............................................................................. 47
EXHIBITS
Exhibit A - Form of Compliance Certificate
SCHEDULES
Schedule 1.1(a) - Existing Indebtedness
Schedule 7.1(b) - Company and Collateral Information
Schedule 7.4(e) - Guaranty Obligations
Schedule 8.3 - Letter of Credit Fee Schedule
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THE CIT GROUP/COMMERCIAL SERVICES, INC., a New York corporation, with an
office located at 1211 Avenue of the Americas, New York, New York 10036 ("CIT"),
is pleased to confirm the terms and conditions under which CIT shall make
revolving loans and other financial accommodations to R.G. Barry Corporation, an
Ohio corporation (the "Company"), with its principal place of business at 13405
Yarmouth Road N.W., Pickerington, Ohio 43147.
SECTION 1. DEFINITIONS.
1.1. DEFINED TERMS. As used in this Financing Agreement:
ACCOUNTANTS shall mean KPMG LLP or such other firm of independent
certified public accountants selected by the Company and reasonably acceptable
to CIT.
ACCOUNTS shall mean any and all of the Company's present and future: (a)
accounts (as defined in the UCC)), and any and all other receivables (whether or
not specifically listed on schedules furnished to CIT), including, without
limitation, all accounts created by, or arising from, all of the Company's
sales, leases, rentals of goods or renditions of services to their customers,
including but not limited to, those accounts arising under any of the Company's
trade names or styles, or through any of the Company's divisions; (b)
instruments, documents, chattel paper (including electronic chattel paper) (all
as defined in the UCC); (c) unpaid seller's or lessor's rights (including
rescission, replevin, reclamation, repossession and stoppage in transit)
relating to the foregoing or arising therefrom; (d) rights to any goods
represented by any of the foregoing, including rights to returned, reclaimed or
repossessed goods; (e) reserves and credit balances arising in connection with
or pursuant to this Financing Agreement; (f) guaranties, other supporting
obligations, payment intangibles and letter of credit rights (all as defined in
the UCC); (g) insurance policies or rights relating to any of the foregoing; (h)
general intangibles pertaining to any of the foregoing (including rights to
payment, including those arising in connection with bank and non-bank credit
cards), and all books and records and any electronic media and software relating
thereto; (i) notes, deposits or other property of the Company's account debtors
securing the obligations owed by such account debtors to the Company; and (j)
all Proceeds of any of the foregoing.
AFFILIATE of any Person shall mean (a) any Person (other than a
Subsidiary) which, directly or indirectly, is in control of, is controlled by,
or is under common control with such Person, or (b) any Person who is a director
or officer (i) of such Person, (ii) of any Subsidiary of such Person or (iii) of
any Person described in clause (a) above. For purposes of this definition,
control of a Person shall mean the power, direct or indirect, (x) to vote 10% or
more of the securities having ordinary voting power for the election of
directors of such Person, or (y) to direct or cause the direction of the
management and policies of such Person whether by contract or otherwise.
AVAILABILITY RESERVE shall mean an amount equal to the sum of:
(a) any reserve which CIT may establish from time to time pursuant to the
express terms of this Financing Agreement; plus
(b) (i) three (3) months rental payments or similar charges for any of the
Company's leased premises or other leased Collateral locations for which the
Company has not delivered to CIT a landlord's waiver in form and substance
reasonably satisfactory to CIT, and (ii) three (3) months estimated payments
(plus any other fees or charges owing by the Company) to any applicable
warehousemen or third party processor (as determined by CIT in the exercise of
its reasonable business judgment), provided that any of the foregoing amounts
shall be adjusted from time to time hereafter upon (x) delivery to CIT of any
such acceptable waiver, (y) the opening or closing of a Collateral location
and/or (z) any change in the amount of rental, storage or processor payments or
similar charges.
ASSIGNMENT OF FACTORING PROCEEDS AGREEMENT shall mean the Assignment of
Factoring Proceeds dated as of the Closing Date, among Factor, CIT and the
Company, pursuant to which, inter alia, the Company assigns and transfers to CIT
all of its rights to the proceeds or monies due it under the Factoring
Agreement.
BALANCE SHEET shall mean a balance sheet for the Company on a consolidated
basis, eliminating all inter company transactions, and prepared in accordance
with GAAP.
BORROWING BASE shall mean, at any time, the sum of:
(a) the sum at such time of: (i) eighty percent (80%) of the Company's
outstanding Due from Factor Receivables; plus (ii) eighty percent (80%) of the
Company's Eligible Accounts Receivable; plus
(b) the lesser of (x) $16,000,000 or (y) the Inventory Formula
Availability; plus
(c) solely during the period of January 1 through October 31 of each year,
the lesser of (x) $4,000,000 or (y) an amount equal to fifty percent (50%) of
the Distressed Fair Market Value of the Company's Eligible Intellectual Property
Assets; plus
(d) if and when applicable and utilized by the Company, the Overformula
Amount; less
(e) the amount of the Availability Reserve in effect at such time.
BUSINESS DAY shall mean any day on which CIT and JPMorgan Chase Bank are
open for business.
CAPITAL EXPENDITURES shall mean, for any period, the aggregate
expenditures of the Company during such period on account of property, plant,
equipment or similar fixed assets that, in conformity with GAAP, are required to
be reflected on the balance sheet of the Company.
CAPITAL LEASE shall mean any lease of property (whether real, personal or
mixed) which, in conformity with GAAP, is accounted for as a capital lease or a
Capital Expenditure on the balance sheet of the Company.
CASUALTY PROCEEDS shall mean (a) payments or other proceeds from an
insurance carrier
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with respect to any loss, casualty or damage to Collateral, and (b) payments
received on account of any condemnation or other governmental taking of any of
the Collateral.
CHASE BANK RATE shall mean the rate of interest per annum announced by
JPMorgan Chase Bank (or its successor) from time to time as its "prime rate" in
effect at its principal office in New York City. (The prime rate is not intended
to be the lowest rate of interest charged by JPMorgan Chase Bank to its
borrowers).
CHASE BANK RATE LOANS shall mean any loans or advances made pursuant to
this Financing Agreement that bear interest based upon the Chase Bank Rate.
CIT'S BANK ACCOUNT shall mean CIT's bank account at JPMorgan Chase Bank
(or its successor) in New York, New York.
CIT'S SYSTEM shall mean CIT's internet-based "Commercial Services On-Line
System" located at http://www.citcommercialfinance.com.
CLOSING DATE shall mean the date on which this Financing Agreement is
executed by the parties hereto and delivered to CIT.
COLLATERAL shall mean, collectively, all present and future Accounts,
Equipment, Inventory and other Goods, Documents of Title, General Intangibles,
Investment Property, the Real Property, the Life Insurance Policy, the Equity
Interests in each Subsidiary (other than Escapade S.A.) and Other Collateral of
the Company.
COLLECTION DAYS shall mean a period of two (2) Business Days after the
deposit of proceeds of Collateral or other monies into CIT's Bank Account, for
which interest may be charged on the aggregate amount of such deposits at the
rate provided for in Section 8.1 or 8.2 (if applicable) of this Financing
Agreement.
COMMITMENT LETTER shall mean the Commitment Letter dated March 9, 2005
issued by CIT to, and accepted by, the Company.
COPYRIGHTS shall mean all present and hereafter acquired copyrights,
copyright registrations, recordings, applications, designs, styles, licenses,
marks, prints and labels bearing any of the foregoing, all reissues and renewals
thereof, all licenses thereof, all other general intangible, intellectual
property and other rights pertaining to any of the foregoing, together with the
goodwill associated therewith, and all income, royalties and other Proceeds of
any of the foregoing.
DEFAULT shall mean any event specified in Section 10.1 hereof, regardless
of whether any requirement for the giving of notice, the lapse of time, or both,
or any other condition, event or act, has occurred or been satisfied.
DEFAULT RATE of Interest shall mean a rate of interest equal to two
percent (2%) per annum greater than the interest rate accruing on the
Obligations pursuant to Section 8.1 hereof, which CIT shall be entitled to
charge the Company in the manner set forth in Section 8.2 of this Financing
Agreement.
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DEPOSITORY ACCOUNT shall mean each bank account (and the related lockbox,
if any) subject to CIT's control that is established by CIT or the Company
pursuant to Section 2.1(i) or Section 3.2(c) of this Financing Agreement.
DEPOSITORY ACCOUNT CONTROL AGREEMENT shall mean a three-party agreement in
form and substance satisfactory to CIT among CIT, the Company and the bank which
will maintain a Depository Account, (a) which provides CIT with control of such
Depository Account and provides for the transfer of funds in a manner consistent
with the provisions of Section 3.2(b) of this Financing Agreement, and (b)
pursuant to which such bank agrees that (i) all cash, checks, wires and other
items received or deposited into the Depository Account are the property of CIT,
and (ii) except as otherwise provided in the Depository Account Control
Agreement, such bank has no lien upon, or right of set off against, the
Depository Account and any cash, checks, wires and other items from time to time
on deposit therein.
DILUTION PERCENTAGE shall mean, with respect to the Company during any
period of measurement, the quotient (expressed as a percentage) obtained by
dividing (a) the aggregate amount of the Company's non-cash reductions against
Trade Accounts Receivable, during such period, by (b) the average amount of the
Company's gross sales during such period, as determined by CIT in the exercise
of its reasonable business judgment. The Dilution Percentage shall be determined
by CIT based on its reviews of the periodic financial and collateral reports
submitted by the Company to CIT as well as the results of the periodic field
examinations of the Company conducted by CIT from time to time. The period of
measurement for calculating the Dilution Percentage shall be determined by CIT
from time to time in the exercise of its reasonable business judgment.
DISTRESSED FAIR MARKET VALUE shall mean, with respect to the Company's
Eligible Intellectual Property Assets, the amount of monetary compensation that
would be paid by a buyer to a seller for such Eligible Intellectual Property
Assets in a liquidation or distressed situation allowing only for a limited time
frame to sell and with the seller acting under duress to consummate a sale, as
determined by HILCO Enterprise Valuation Services or another appraisal firm as
approved and engaged by CIT.
DOCUMENTATION FEES shall mean CIT's standard fees for the use of CIT's
in-house legal department relating to any and all modifications, waivers,
releases, legal file reviews or additional collateral with respect to this
Financing Agreement, the Collateral and/or the Obligations.
DOCUMENTS OF TITLE shall mean all present and future documents (as defined
in the UCC), and any and all warehouse receipts, bills of lading, shipping
documents, chattel paper, instruments and similar documents, all whether
negotiable or non-negotiable, together with all Inventory and other Goods
relating thereto, and all Proceeds of any of the foregoing.
DUE FROM FACTOR RECEIVABLES shall mean amounts due from Factor with
respect to Accounts generated in the ordinary course of business of the Company
which were purchased in each case by Factor under the Factoring Agreement and
continue to be subject to the Assignment of Factoring Proceeds Agreement.
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EARLY TERMINATION FEE shall mean the fee payable by the Company to CIT in
the event the Company terminates the Line of Credit or this Financing Agreement
on a date prior to the Anniversary Date, which shall be determined by
multiplying the Maximum Facility Amount by (i) three percent (3%) if the Early
Termination Date occurs on or before one year from the Closing Date; (ii) one
and one-half percent (1.5%) if the Early Termination Date occurs after one (1)
year from the Closing Date but prior to two (2) years from the Closing Date and
(iii) 0% thereafter.
EBITDA shall mean, for any period, all earnings before all interest, tax
obligations and depreciation and amortization expense of the Company for such
period, all determined in conformity with GAAP on a basis consistent with the
latest audited financial statements of the Company, but excluding the effect of
extraordinary and/or nonrecurring gains or losses and restructuring and asset
impairment charges, for such period.
ELECTRONIC TRANSMISSION shall have the meaning given to such term in
Section 7.2(g) of this Financing Agreement.
ELIGIBLE ACCOUNTS RECEIVABLE shall mean the gross amount of the Company's
Trade Accounts Receivable that are subject to a valid, first priority and fully
perfected security interest in favor of CIT, and which conform to the warranties
contained herein and which, at all times, continue to be acceptable to CIT in
the exercise of its reasonable business judgment, less, without duplication, the
sum of:
(f) actual returns, discounts, claims, credits and allowances of any
nature (whether issued, owing, granted, claimed or outstanding), plus
(g) reserves for such Trade Accounts Receivable that arise from, or are
subject to or include: (i) sales to the United States of America, any state or
other governmental entity or to any agency, department or division thereof,
except for any such sales as to which the Company has complied with the
Assignment of Claims Act of 1940 or any other applicable statute, rules or
regulation to CIT's satisfaction in the exercise of its reasonable business
judgment; (ii) foreign sales, other than sales which otherwise comply with all
of the other criteria for eligibility hereunder and are either (x) to Wal-Mart
Canada, (y) secured by letters of credit (in form and substance satisfactory to
CIT) issued or confirmed by, and payable at, banks acceptable to CIT having a
place of business in the United States of America or subject to credit insurance
acceptable to CIT or (z) to customers in Canada other than Wal-Mart Canada
deemed eligible by CIT from time to time in its sole discretion, provided such
Accounts are payable in United States Dollars; (iii) Accounts that remain unpaid
more than the earlier of ninety (90) days from invoice date or sixty (60) days
from due date; (iv) contra accounts; (v) sales to any Affiliate of the Company;
(vi) bill and hold (deferred shipment) or consignment sales; (vii) sales to any
customer which is either (w) insolvent, (x) the debtor in any bankruptcy,
insolvency, arrangement, reorganization, receivership or similar proceedings
under any federal or state law, (y) negotiating, or has called a meeting of its
creditors for purposes of negotiating, a compromise of its debts, or (z)
financially unacceptable to CIT or has a credit rating unacceptable to CIT;
(viii) all sales to any customer if fifty percent (50%) or more of the aggregate
dollar amount of all outstanding invoices to such customer are unpaid more than
the earlier of ninety (90) days from invoice date or sixty (60) days from due
date; (ix) sales to any customer and/or its affiliates,
5
other than Wal-Mart, to the extent the aggregate outstanding amount of such
sales at any time exceed twenty percent (20%) or more of all Eligible Accounts
Receivable at such time; (x) pre-billed receivables and receivables arising from
progress billings; and (xi) sales not payable in United States currency, other
than sales to Wal-Mart Canada which may be payable either in United States or
Canadian currency (provided, however, that CIT shall have the right to impose
reserves with respect to currency conversion and currency conversion
fluctuation); plus
(h) reserves established by CIT to account for increases in the Company's
Dilution Percentage above the Company's historical Dilution Percentage, and such
other reserves against Trade Accounts Receivable as CIT deems necessary in the
exercise of its reasonable business judgment and which are customary either in
the commercial finance industry or in the lending practices of CIT.
ELIGIBLE DOCUMENTARY LETTERS OF CREDIT shall mean documentary Letters of
Credit issued hereunder covering the Company's purchase of finished goods
Inventory which has been shipped or is to-be-shipped to an Inventory location of
Borrower in the United States for which CIT has obtained a warehouseman waiver
or imposed an Availability Reserve, provided that, with respect to the relevant
Inventory: (a) title to such Inventory has passed to the Company, (b) such
Inventory either (A) is the subject of a negotiable bill of lading (1) that is
consigned to CIT (either directly or by means of endorsements), (2) that was
issued by the carrier respecting the subject Inventory, and (3) that is in the
possession of CIT or a customs broker or other bailee, in all cases, acting on
CIT's behalf, or (B) is the subject of a cargo receipt and such cargo receipt
was issued by a consolidator respecting the subject Inventory and is either (1)
consigned to CIT (either directly or by means of endorsements) or (2) is in the
possession of CIT or a customs broker or other bailee, in all cases, acting on
CIT's behalf, (c) such Inventory is insured against types of loss, damage,
hazards and risks, and in amount, satisfactory to CIT in its discretion, and CIT
has received a copy of the certificate of marine cargo insurance in connection
therewith in which it has been named as an additional insured and loss payee in
a manner acceptable to CIT, (d) the Company has provided the following to CIT:
(i) a collateral access agreement, duly authorized, executed and delivered by a
customs broker or other bailee handling the shipping and delivery of such
Inventory, and (ii) a copy of the invoice, packing slip and manifest with
respect thereto or other documents acceptable to CIT, (e) such Inventory shall
not have been in transit for more than forty-five (45) days, and (f) such
Inventory would otherwise constitute Eligible Finished Goods Inventory once in
the United States.
ELIGIBLE FINISHED GOODS INVENTORY shall mean the gross amount of the
Company's Inventory that is subject to a valid first priority and fully
perfected security interest in favor of CIT and which conforms to the warranties
contained herein and which, at all times continues to be acceptable to CIT in
the exercise of its reasonable business judgment, less, without duplication, (a)
all work in process, (b) all supplies (other than raw materials), (c) all
Inventory not present in the United States of America, (d) all Inventory
returned or rejected by the Company's customers (other than goods that are
undamaged and resalable in the normal course of business) and goods to be
returned to the Company's suppliers, (e) all Inventory in transit or in the
possession of a warehouseman, bailee, third party processor, or other third
party, unless such warehouseman, bailee or third party has executed a notice of
security interest agreement (in form and substance satisfactory to CIT) or for
which CIT has established an Availability Reserve for rent, and (f) the amount
of such other reserves against Inventory as CIT deems necessary in the
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exercise of its reasonable business judgment, including, without limitation,
reserves for special order, licensed or private label goods, discontinued,
slow-moving and obsolete Inventory, market value declines, bill and hold
(deferred shipment), consignment sales, shrinkage and any applicable customs,
freight, duties and Taxes.
ELIGIBLE INTELLECTUAL PROPERTY ASSETS shall mean the "Dearfoams", "Ezfeet"
and "Terrasoles" Trademarks of the Company and any other Trademarks which may be
relevant from time with respect to the Company's Inventory.
EQUIPMENT shall mean all present and hereafter acquired equipment (as
defined in the UCC) including, without limitation, all machinery, equipment,
rolling stock, furnishings and fixtures, and all additions, substitutions and
replacements thereof, wherever located, together with all attachments,
components, parts, equipment and accessories installed thereon or affixed
thereto and all Proceeds of any of the foregoing.
EQUITY INTERESTS of any Person shall mean any and all shares, rights to
purchase, options, warrants, general, limited or limited liability partnership
interests, member interests, participation or other equivalents of or interest
in (regardless of how designated) equity of such Person, whether voting or
nonvoting, including common stock, preferred stock, convertible securities or
any other "equity security" (as such term is defined in Rule 3a11-1 of the
General Rules and Regulations promulgated by the SEC under the Exchange Act).
ERISA shall mean the Employee Retirement Income Security Act or 1974, as
amended from time to time, and the rules and regulations promulgated thereunder
from time to time.
EVENT(S) OF DEFAULT shall have the meaning given to such term in Section
10.1 of this Financing Agreement.
FACTOR shall mean The CIT Group/Commercial Services, Inc. in its capacity
as factor pursuant to the Factoring Agreement.
FACTORING AGREEMENT shall mean that certain factoring agreement between
Factor and the Company dated March 29, 2004, as such agreement may have been or
may hereafter be supplemented, modified, amended or amended and restated from
time to time.
FIXED CHARGE COVERAGE RATIO shall mean, for any period, the quotient
(expressed as a ratio) obtained by dividing (a) EBITDA of the Company on a
consolidated basis for such period by (b) Fixed Charges of the Company on a
consolidated basis for such period.
FIXED CHARGES shall mean, for any period, the sum of (a) all interest
obligations of the Company paid or due during such period, (b) the amount of
principal repaid or scheduled to be repaid on Indebtedness of the Company (other
than the Revolving Loans) during such period, (c) unfinanced Capital
Expenditures, as incurred by the Company during such period, (d) all federal,
state and local income tax expenses due and payable by the Company during such
period and (e) Permitted Distributions paid to shareholders.
GAAP shall mean generally accepted accounting principles in the United
States of America as in effect from time to time and for the period as to which
such accounting principles
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are to apply.
GENERAL INTANGIBLES shall mean all present and hereafter acquired general
intangibles (as defined in the UCC), and shall include, without limitation, all
present and future right, title and interest in and to: (a) all Trademarks, (b)
Patents, utility models, industrial models, and designs, (c) Copyrights, (d)
trade secrets, (e) licenses, permits and franchises, (f) any other forms of
intellectual property, (g) all customer lists, distribution agreements, supply
agreements, blueprints, indemnification rights and tax refunds, (h) all monies
and claims for monies now or hereafter due and payable in connection with the
foregoing, including, without limitation, payments for infringement and
royalties arising from any licensing agreement between the Company and any
licensee of any of the Company's General Intangibles, and (i) all Proceeds of
any of the foregoing.
GOODS shall mean all present and hereafter acquired "Goods", as defined in
the UCC, and all Proceeds thereof.
GUARANTIES shall mean the amended and restated guaranty agreements
executed and delivered to CIT by Guarantors.
GUARANTORS shall mean The Dearfoams Company, an Ohio corporation, RGB
Technology, Inc., a North Carolina corporation and any other future guarantor of
all or any part of the Obligations.
INDEBTEDNESS shall mean, without duplication, all liabilities, contingent
or otherwise, which are either (a) obligations in respect of borrowed money or
for the deferred purchase price of property, services or assets, other than
Inventory, or (b) obligations with respect to Capital Leases.
INDEMNIFIED PARTY shall have the meaning given to such term in Section
10.4 of this Financing Agreement.
INVENTORY shall mean all present and hereafter acquired inventory (as
defined in the UCC) including, without limitation, all merchandise and inventory
in all stages of production (from raw materials through work in process to
finished goods), and all additions, substitutions and replacements thereof,
wherever located, together with all goods and materials used or usable in
manufacturing, processing, packaging or shipping of the foregoing, and all
Proceeds of any of the foregoing.
INVENTORY FORMULA AVAILABILITY shall mean an amount equal to the sum of
(x) the lesser of (i) up to 60% of the value of Eligible Finished Goods
Inventory calculated at the lower of cost or market value or (ii) 85% of the
appraised Net Orderly Liquidation Value of Eligible Finished Goods Inventory,
plus (y) up to 60% of the face amount of Eligible Documentary Letters of Credit.
INVESTMENT PROPERTY shall mean all present and hereafter acquired
"Investment Property", as defined in the UCC, together with all stock and other
equity interests in the Company's subsidiaries, and all Proceeds thereof.
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ISSUING BANK shall mean any bank issuing a Letter of Credit for the
Company.
LEDGER DEBT shall mean the outstanding amount of any indebtedness for
goods and services purchased by the Company or its Affiliates from any company
or entity whose accounts are factored by Factor.
LETTERS OF CREDIT shall mean all letters of credit issued for or on behalf
of the Company with the assistance of CIT by an Issuing Bank in accordance with
Section 5 hereof.
LETTER OF CREDIT GUARANTY shall mean any guaranty or similar agreement
delivered by CIT to an Issuing Bank of the Company's reimbursement obligation
under such Issuing Bank's reimbursement agreement, application for letter of
credit or other like document.
LETTER OF CREDIT GUARANTY FEE shall mean the fee that CIT may charge the
Company under Section 8.3(a) of this Financing Agreement for issuing a Letter of
Credit Guaranty or otherwise assisting the Company in obtaining Letters of
Credit.
LETTER OF CREDIT SUB-LINE shall mean the commitment of CIT to assist the
Company in obtaining Letters of Credit in an aggregate amount of up to
$3,000,000 with respect to documentary and standby Letters of Credit.
LIFE INSURANCE POLICY shall mean that certain Policy No. VP6514126-0
issued by Pacific Life Insurance Company, and any supplemental contracts issued
in connection therewith, upon the life of Gordon B. Zacks, in the face amount of
not less than $5,000,000.
LINE OF CREDIT shall mean the commitment of CIT in an aggregate amount
equal to the Maximum Facility Amount to (a) make Revolving Loans pursuant to
Section 3 of this Financing Agreement, and (b) assist the Company in opening
Letters of Credit pursuant to Section 5 of this Financing Agreement.
LINE OF CREDIT FEE shall mean, for any month, the product obtained by
multiplying (a) (i) the Maximum Facility Amount minus (ii) the average daily
principal balance of Revolving Loans and the average daily undrawn amount of
Letters of Credit outstanding during such month, times (b) one-half of one
percent (0.5%) per annum for the number of days in said month.
LOAN DOCUMENTS shall mean this Financing Agreement, the Guaranties, the
other closing documents executed by the Company or the Guarantors, and any other
ancillary loan and security agreements executed by the Company or the Guarantors
from time to time in connection with this Financing Agreement and/or the
Factoring Agreement, all as may be renewed, amended, restated or supplemented
from time to time.
LOAN FACILITY FEE shall mean the fee payable to CIT in accordance with,
and pursuant to, the provisions of Section 8.6 of this Financing Agreement.
LOCKBOX ACCOUNT shall mean each lockbox maintained by CIT, and the related
account at CIT, that is established pursuant to Section 2.1(i) or Section 3.2(a)
of this Financing Agreement.
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MATERIAL ADVERSE EFFECT shall mean a material adverse effect on either (a)
the business, condition (financial or otherwise), operations, performance, or
properties of the Company, (b) the ability of the Company to perform its
obligations under this Financing Agreement or any other Loan Document, or to
enforce its rights against account debtors of the Company, (c) the value of the
Collateral or (d) the ability of CIT to enforce the Obligations or its rights
and remedies under this Financing Agreement or any of the other Loan Documents.
MAXIMUM FACILITY AMOUNT shall mean $35,000,000.
MORTGAGE shall mean the Open-End Mortgage, Assignment of Rents and
Security Agreement executed by the Company in favor of CIT dated June 24, 2004
with respect to the Company's Real Property located at 13405 Yarmouth Road,
N.W., Pickerington, Ohio 43147.
NET AVAILABILITY shall mean, at any time, the amount by which (a) the
Borrowing Base of the Company at such time exceeds (b) the sum at such time of
(i) the principal amount of all outstanding Revolving Loans, plus (ii) the
undrawn amount of all outstanding Letters of Credit.
NET ORDERLY LIQUIDATION VALUE shall mean, at any time, the aggregate value
of the Company's Inventory at such time in an orderly liquidation, taking into
account all costs, fees and expenses estimated to be incurred by CIT in
connection with such liquidation, based upon the most recent appraisal of the
Company's Inventory conducted by an appraiser selected by CIT.
OBLIGATIONS shall mean: (a) all loans, advances and other extensions of
credit made by CIT to the Company or to others for the Company's account
(including, without limitation, all Revolving Loans, and all obligations of CIT
under Letter of Credit Guaranties, incurred hereunder or relating hereto;
whether principal, interest, fees, costs, expenses or otherwise); (b) any and
all other indebtedness, obligations and liabilities which may be owed by the
Company to CIT and arising out of, or incurred in connection with, this
Financing Agreement or any of the other Loan Documents (including all
Out-of-Pocket Expenses), or incurred by the Company to Factor under the
Factoring Agreement, whether (i) now in existence or incurred by the Company
from time to time hereafter, (ii) secured by pledge, lien upon or security
interest in any of the Company's assets or property or the assets or property of
any other person, firm, entity or corporation, (iii) such indebtedness is
absolute or contingent, joint or several, matured or unmatured, direct or
indirect, or (iv) the Company is liable to CIT for such indebtedness as
principal, surety, endorser, guarantor or otherwise; (c) all indebtedness,
obligations and liabilities owed by the Company to CIT under any other agreement
or arrangement now or hereafter entered into between the Company, on the one
hand, and CIT, on the other hand, whether or not such agreement or arrangement
relates to the transactions contemplated by this Financing Agreement; (d)
indebtedness, obligations and liabilities incurred by, or imposed on, CIT as a
result of environmental claims relating to the Company's operations, premises or
waste disposal practices or disposal sites; (e) the Company's liabilities to CIT
as maker or endorser on any promissory note or other instrument for the payment
of money; (f) the Company's liabilities to CIT under any instrument of guaranty
or indemnity, or arising under any guaranty, endorsement or undertaking which
CIT may make or issue to others for the Company's account, including any
accommodations extended by CIT with respect to applications for Letters of
Credit, CIT's acceptance of drafts or CIT's endorsement of notes or other
instruments for the Company's
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account and benefit; (g) the Company's liability to Factor under the Factoring
Agreement and for Ledger Debt.
OPERATING LEASES shall mean all leases of property (whether real, personal
or mixed) other than Capital Leases.
OTHER COLLATERAL shall mean: (a) all present and hereafter established
lockbox, blocked account and other deposit accounts maintained with any bank or
financial institution into which the proceeds of Collateral are or may be
deposited (including the Depository Accounts); (b) all cash and other monies and
property in the possession or control of CIT (including negative balances in the
Revolving Loan Account and cash collateral held by CIT pursuant to Section
3.5(b) hereof); (c) all books, records, ledger cards, disks and related data
processing software at any time evidencing or containing information relating to
any of the Collateral described herein or otherwise necessary or helpful in the
collection thereof or realization thereon; and (d) all Proceeds of any of the
foregoing.
OUT OF POCKET EXPENSES shall mean all of CIT's present and future
reasonable costs, fees and expenses incurred in connection with this Financing
Agreement and the other Loan Documents, including, without limitation, (a) the
cost of lien searches (including tax lien and judgment lien searches), pending
litigation searches and similar items, (b) fees and taxes imposed in connection
with the filing of any financing statements or other personal property security
documents; (c) all costs and expenses incurred by CIT in opening and maintaining
the Depository Accounts and any related lockboxes, depositing checks, and
receiving and transferring funds (including charges imposed on CIT for
"insufficient funds" and the return of deposited checks); (d) any amounts paid
by, incurred by or charged to CIT by an Issuing Bank under any Letter of Credit
or the reimbursement agreement relating thereto, any application for Letter of
Credit, Letter of Credit Guaranty or other like document which pertains either
directly or indirectly to Letters of Credit, and CIT's standard fees relating to
the Letters of Credit and any drafts thereunder, to the extent not already
provided for in Section 8.3; (e) title insurance premiums, real estate survey
costs, note taxes, intangible taxes and mortgage or recording taxes and fees;
(f) all appraisal fees and expenses payable by the Company hereunder, and all
reasonable costs, fees and expenses incurred by CIT in connection with any
action taken under Section 7.2(a) hereof, including reasonable travel, meal and
lodging expenses of CIT personnel; (g) all reasonable costs that CIT may incur
to maintain the Required Insurance, and all reasonable costs, fees and expenses
incurred by CIT in connection with the collection of Casualty Proceeds; (h) all
reasonable costs, fees, expenses and disbursements of outside counsel hired by
CIT to consummate the transactions contemplated by this Financing Agreement
(including the documentation and negotiation this Financing Agreement, the other
Loan Documents and all amendments, supplements and restatements thereto or
thereof), and to advise CIT as to matters relating to the transactions
contemplated hereby; (i) all reasonable costs, fees and expenses incurred by CIT
in connection with any action taken under Section 10.3 hereof; and (j) without
duplication, all reasonable costs, fees and expenses incurred by CIT in
connection with the collection, liquidation, enforcement, protection and defense
of the Obligations, the Collateral and CIT's rights under this Financing
Agreement, including, without limitation, all reasonable fees and disbursements
of in-house and outside counsel to CIT incurred as a result of a workout,
restructuring, reorganization, liquidation, insolvency proceeding and in any
appeals arising therefrom, whether incurred before, during or after the
termination of this Financing
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Agreement or the commencement of any case with respect to the Company, any
Guarantor or any subsidiary of the Company (as the case may be) under the United
States Bankruptcy Code or any similar statute.
OVERADVANCES shall mean, at any time, the amount by which (a) the sum at
such time of the principal amount of all outstanding Revolving Loans plus the
undrawn amount of all outstanding Letters of Credit exceeds (b) the Borrowing
Base at such time.
OVERFORMULA AMOUNT shall mean, solely during the period from April 1st to
and including October 31st of each year, a sum of up to $3,500,000, as CIT may
determine in its sole and absolute discretion and subject to, among other
things, review by CIT of the Company's cash flow projections and such other
information concerning the Company as CIT may request from time to time.
PATENTS shall mean all present and hereafter acquired patents, patent
applications, registrations, all reissues and renewals thereof, all licenses
thereof, all inventions and improvements claimed thereunder, all general
intangible, intellectual property and other rights of the Company with respect
thereto, and all income, royalties and other Proceeds of the foregoing.
PERMITTED DISTRIBUTIONS shall mean:
(i) dividends from a wholly-owned subsidiary of the Company to the
Company;
(j) dividends payable solely in stock or other equity interests of the
Company; and
(k) cash distributions or cash dividends to the Company's shareholders in
the ordinary course of the Company's business provided that no Default or Event
of Default shall have occurred and remain outstanding on the date of the making
of such distribution or dividend, or would be created thereby.
PERMITTED ENCUMBRANCES shall mean: (a) all liens existing on the Closing
Date on specific items of Equipment; (b) Purchase Money Liens; (c) statutory
liens of landlords and liens of carriers, warehousemen, bailees, mechanics,
materialmen and other like liens imposed by law, created in the ordinary course
of business and securing amounts not yet due (or which are being contested in
good faith, by appropriate proceedings or other appropriate actions which are
sufficient to prevent imminent foreclosure of such liens), and with respect to
which adequate reserves or other appropriate provisions are being maintained by
the Company in accordance with GAAP; (d) deposits made (and the liens thereon)
in the ordinary course of business of the Company (including, without
limitation, security deposits for leases, indemnity bonds, surety bonds and
appeal bonds) in connection with workers' compensation, unemployment insurance
and other types of social security benefits or to secure the performance of
tenders, bids, contracts (other than for the repayment or guarantee of borrowed
money or purchase money obligations), statutory obligations and other similar
obligations arising as a result of progress payments under government contracts;
(e) liens granted to CIT by the Company; (f) the liens granted to Factor
pursuant to the Factoring Agreement, to the extent subject to the Assignment of
Factoring Proceeds Agreement; (g) liens of judgment creditors, provided that
such liens do not exceed $100,000 in the aggregate at any time (other than liens
bonded or insured to the reasonable satisfaction of CIT); and (h) Permitted Tax
Liens.
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PERMITTED INDEBTEDNESS shall mean: (a) current Indebtedness maturing in
less than one year and incurred in the ordinary course of business for raw
materials, supplies, equipment, services, Taxes or labor; (b) Indebtedness
secured by Purchase Money Liens; (c) Indebtedness arising under the Letters of
Credit and this Financing Agreement; (d) deferred Taxes and other expenses
incurred in the ordinary course of business; (e) the Indebtedness due to Factor
pursuant to the Factoring Agreement; (f) Subordinated Debt and (g) other
Indebtedness existing on the Closing Date and listed on Schedule 1.1(a) attached
hereto.
PERMITTED TAX LIENS shall mean liens for Taxes not due and payable and
liens for Taxes that the Company is contesting in good faith, by appropriate
proceedings which are sufficient to prevent imminent foreclosure of such liens,
and with respect to which adequate reserves are being maintained by the Company
in accordance with GAAP; provided that in either case, such liens (a) are not
filed of record in any public office, (b) are not senior in priority to the
liens granted by the Company to CIT, or (c) do not secure taxes owed to the
United States of America (or any department or agency thereof) or any State or
State authority, if applicable State law provides for the priority of tax liens
in a manner similar to the laws of the United States of America.
PERSON shall mean any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated organization, association, corporation, limited
liability company, institution, public benefit corporation, other entity or
government (whether federal, state, county, city, municipal, local, foreign, or
otherwise, including any instrumentality, division, agency, body or department
thereof).
PROCEEDS shall have the meaning given to such term in the UCC, including,
without limitation, all Casualty Proceeds.
PURCHASE MONEY LIENS shall mean liens on any item of Equipment acquired by
the Company after the date of this Financing Agreement, provided that (a) each
such lien shall attach only to the Equipment acquired, (b) a description of the
Equipment so acquired is furnished by the Company to CIT, and (c) the
indebtedness incurred by the Company in connection with such acquisitions shall
not exceed $100,000 in any fiscal year of the Company.
REAL PROPERTY shall mean all of the Company's present and future fee and
leasehold interests in real property, including the real property owned by the
Company as of the Closing Date, located at 13405 Yarmouth Road, N.W.,
Pickerington, Ohio, that is subject to the Mortgage.
REGULATORY CHANGE shall mean any change after the Closing Date in United
States federal, state or foreign law or regulation (including, without
limitation, Regulation D of the Board of Governors of the Federal Reserve
System), or the adoption or making after the Closing Date of any interpretation,
directive or request applying to a class of lenders including CIT of or under
any United States federal, state or foreign law or regulation, in each case
whether or not having the force of law and whether or not failure to comply
therewith would be unlawful.
REQUIRED INSURANCE shall have the meaning provided for in Section 7.2(c)
of this Financing Agreement.
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REVOLVING LOAN ACCOUNT shall mean the account on CIT's books, in the
Company's name, in which the Company will be charged with all Obligations when
due or incurred by CIT.
REVOLVING LOANS shall mean the loans and advances made from time to time
to or for the account of the Company by CIT pursuant to Section 3 of this
Financing Agreement.
SUBORDINATED DEBT shall mean all indebtedness of the Company (and the
note(s) evidencing such indebtedness) that is subordinated to the prior payment
and satisfaction of the Obligations pursuant to a Subordination Agreement.
SUBORDINATION AGREEMENT shall mean (a) each agreement (in form and
substance satisfactory to CIT) among the Company, S. Goldberg & Co., Inc. (or
any other subordinating creditor) and CIT, pursuant to which Subordinated Debt
is subordinated to the prior payment and satisfaction of the Obligations, and
(b) any note, indenture, note purchase agreement or similar instrument or
agreement, pursuant to which the indebtedness evidenced thereby or issued
thereunder is subordinated to the Obligations by the express terms of such note,
indenture, note purchase agreement or similar instrument or agreement.
SUBSIDIARY shall mean each corporation or other entity of whose Equity
Interests having ordinary voting power (other than Equity Interests having such
power only by reason of the happening of a contingency) to elect a majority of
the directors of such corporation, or other Persons performing similar functions
for such entity, are owned, directly or indirectly, by such Person; provided,
however, that except as otherwise specifically provided herein, the Company's
Mexican Subsidiaries shall not be deemed to be a Subsidiaries of the Company
hereunder.
TANGIBLE NET WORTH shall mean, at a particular date, (a) the aggregate
amount of all assets of the Company as may be properly classified according to
GAAP consistently applied excluding such other assets as are properly classified
as intangible assets under GAAP, and excluding any write-up or reevaluation of
any asset including tax assets, less (b) the aggregate amount of all liabilities
of the Company in accordance with GAAP.
TAXES shall mean all federal, state, municipal and other governmental
taxes, levies, charges, claims and assessments which are or may be owed or
collected by the Company with respect to its business, operations, Collateral or
otherwise.
TERMINATION DATE shall mean the date occurring two (2) years from the
Closing Date and the same date in every year thereafter.
TRADE ACCOUNTS RECEIVABLE shall mean that portion of the Company's
Accounts which arises from the sale of Inventory or the rendition of services in
the ordinary course of the Company's business.
TRADEMARKS shall mean all present and hereafter acquired trademarks,
trademark registrations, recordings, applications, tradenames, trade styles,
corporate names, business names, service marks, logos and any other designs or
sources of business identities, prints and labels (on which any of the foregoing
may appear), all reissues and renewals thereof, all licenses thereof, all other
general intangible, intellectual property and other rights pertaining to any of
the foregoing, together with the goodwill associated therewith, and all income,
royalties and other
14
Proceeds of any of the foregoing.
UCC shall mean the Uniform Commercial Code as the same may be amended and
in effect from time to time in the State of New York.
WORKING DAY shall mean any Business Day on which dealings in foreign
currencies and exchanges between banks may be transacted.
SECTION 2. CONDITIONS PRECEDENT.
2.1. CONDITIONS PRECEDENT TO INITIAL FUNDING. The obligation of CIT to
make the initial loans and to assist the Company in obtaining initial Letters of
Credit hereunder is subject to the satisfaction of, extension of or waiver in
writing of, immediately prior to or concurrently with the making of such loans
or the issuance of such Letters of Credit, the following conditions precedent:
(a) LIEN SEARCHES. CIT shall have received tax lien, judgment lien and
Uniform Commercial Code searches from all jurisdictions reasonably required by
CIT, and such searches shall verify that CIT has a first priority security
interest in the Collateral, except as otherwise provided herein.
(b) CASUALTY INSURANCE. The Company shall have delivered to CIT evidence
satisfactory to CIT that all Required Insurance is in full force and effect, and
CIT shall have confirmed that CIT has been named as a loss payee or additional
insured with respect to the Required Insurance in a manner satisfactory to CIT.
(c) UCC FILINGS. All UCC financing statements and similar documents
required to be filed in order to create in favor of CIT a perfected security
interest in the Collateral (to the extent that such a security interest may be
perfected by a filing under the UCC or applicable law), shall have been properly
filed in each office in each jurisdiction required, which such security interest
shall be (x) of first priority status and (y) exclusive, subject only to
Permitted Encumbrances. CIT shall have received (i) acknowledgement copies of
all such filings (or, in lieu thereof, CIT shall have received other evidence
satisfactory to CIT that all such filings have been made), and (ii) evidence
that all necessary filing fees, taxes and other expenses related to such filings
have been paid in full.
(d) RESOLUTIONS. CIT shall have received a copy of the resolutions of the
Board of Directors of the Company authorizing the execution, delivery and
performance of the Loan Documents to be executed by the Company, certified by
the Secretary or Assistant Secretary of the Company as of the date hereof,
together with a certificate of such Secretary or Assistant Secretary as to the
incumbency and signature of the officer(s) executing the Loan Documents on
behalf of the Company.
(e) ORGANIZATIONAL DOCUMENTS. CIT shall have received a copy of the
Certificate or Articles of Incorporation of the Company, certified by the
applicable authority in the Company's State of incorporation, and copies of the
by laws (as amended through the date hereof) of the Company, certified by the
Secretary or an Assistant Secretary thereof.
15
(f) OFFICER'S CERTIFICATE. CIT shall have received an executed Officer's
Certificate for the Company, satisfactory in form and substance to CIT,
certifying that as of the Closing Date (i) the representations and warranties
contained herein are true and correct in all material respects, (ii) the Company
is in compliance with all of the terms and provisions set forth herein and (iii)
no Default or Event of Default has occurred.
(g) DISBURSEMENT AUTHORIZATIONS. The Company shall have delivered to CIT
all information necessary for CIT to issue wire transfer instructions on behalf
of the Company for the initial and subsequent loans and/or advances to be made
under this Financing Agreement, including disbursement authorizations in form
acceptable to CIT.
(h) PROJECTIONS. Company shall have delivered to CIT, and CIT shall be
satisfied with, balance sheet, income statement, cash flows and Net Availability
projections for the Company for not less than nine (9) months following the
Closing Date and no material adverse change has occurred in the financial
condition, business, prospects, profits, operations or assets of the Company,
the Company's Subsidiaries or the Guarantors since December 31, 2004.
(i) DEPOSITORY AND LOCKBOX ACCOUNTS. (i) The Company or CIT shall have
established one or more Lockbox Accounts at CIT with respect to the collection
of Accounts and the deposit of proceeds of Collateral, and (ii) CIT, the Company
and each depository bank shall have entered into a Depository Account Control
Agreement with respect to each Depository Account where the Company maintains
any deposit account into which the proceeds of Collateral are deposited, if any.
(j) MORTGAGE; TITLE INSURANCE. CIT shall have received, in form and
substance to CIT, (i) an executed Modification Agreement with respect to the
Mortgage and (ii) an update to the mortgagee title insurance policy in effect
prior to the Closing Date in favor of CIT, which shall continue to insure the
Mortgage as a valid Lien on the Real Property with no exceptions which CIT shall
not have approved in writing and no survey exceptions.
(k) GUARANTY AND RELATED DOCUMENTS; PLEDGE AGREEMENT. The Guarantors shall
have executed and delivered to CIT (i) the Guaranties and (ii) if applicable,
the items described in Sections 2.1(d), 2.1(e) and 2.1(m) hereof with respect to
the Guarantors.
(l) OPINIONS. Subject to the filing, priority and remedies provisions of
the UCC, the provisions of the Bankruptcy Code, insolvency statutes or other
like laws, the equity powers of a court of law and such other matters as may be
agreed upon with CIT, counsel for the Company and the Guarantors shall have
delivered to CIT opinion(s) satisfactory to CIT opining, inter alia, that the
execution and delivery of the Loan Documents by the Company and the Guarantors
are (i) valid, binding and enforceable according to their respective terms, (ii)
duly authorized, (iii) do not violate any terms, provisions, representations or
covenants in the articles of incorporation, by laws or other organizational
agreement of the Company or guarantors, as the case may be, and (iv) to the best
knowledge of such counsel, do not violate any terms, provisions, representations
or covenants in any loan agreement, mortgage, deed of trust, note, security
agreement, indenture or other material contract to which the Company or any
Guarantor is a signatory, or by which the Company or any Guarantor (or any of
the Company's or any Guarantor's assets) are bound.
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(m) LEGAL RESTRAINTS/LITIGATION. As of the Closing Date, there shall be no
(x) injunction, writ or restraining order restraining or prohibiting the
consummation of the financing arrangements contemplated under this Financing
Agreement, or (y) suit, action, investigation or proceeding (judicial or
administrative) pending against the Company, any Guarantor, any subsidiary of
the Company or any of their assets, which, in the opinion of CIT, if adversely
determined, could have a Material Adverse Effect.
(n) ADDITIONAL DOCUMENTS. The Company shall have executed and delivered to
CIT the Loan Documents necessary to consummate the lending arrangement
contemplated by this Financing Agreement.
(o) BACKGROUND CHECKS. CIT shall have received and be satisfied with
background checks on key managers and stockholders of the Company as CIT shall
designate.
(p) COMMITMENT LETTER. The Company shall have fully complied with all of
the terms and conditions of the Commitment Letter.
(q) FACTORING AGREEMENT. The Factoring Agreement with CIT shall remain in
full force and effect, provided, however, that CIT and the Company shall have
entered into (i) an amendment thereto which shall provide that no further
advances or purchases of Accounts shall be made thereunder and (ii) the
Assignment of Factoring Proceeds Agreement which shall provide, inter alia, that
all monies payable to the Company pursuant to the Factoring Agreement shall be
paid directly to CIT in its capacity as the lender hereunder. CIT shall be the
sole factor of the Company.
(r) PLEDGE AGREEMENT. The Company shall have executed and delivered to CIT
a pledge agreement in form and substance satisfactory to CIT covering 100% of
the Equity Interests in each Subsidiary of the Company (other than Escapade S.A.
and Fargeot et Compagnie, S.A.), together with all stock certificates and other
certificates and other documents and instruments evidencing ownership of Equity
Interests in each Subsidiary of the Company, and duly executed stock powers
(undated and in-blank) with respect thereto.
(s) LIFE INSURANCE ASSIGNMENTS. CIT shall have received one or more
assignments, each in form and substance satisfactory to CIT, of the Life
Insurance Policy.
(t) SUBORDINATED DEBT. CIT shall have received a Subordination Agreement
executed by S. Goldberg & Co., Inc. and each other holder of the Subordinated
Debt (or the trustee or agent for such holder).
(u) PAYMENT OF FEES AND EXPENSES. The Company shall have directly
satisfied or reimbursed CIT for all Out-of-Pocket Expenses incurred on or prior
to the date thereof, in accordance with the provisions of Section 8.4 hereof,
and the Company shall have paid the Loan Facility Fee, if any, pursuant to
Section 8.6.
Upon the execution of this Financing Agreement and the initial disbursement of
the initial loans hereunder, all of the above conditions precedent shall have
been deemed satisfied, except as the Company and CIT shall otherwise agree in a
separate writing.
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SECTION 3. REVOLVING LOANS AND COLLECTIONS.
3.1. FUNDING CONDITIONS AND PROCEDURES.
(a) AMOUNTS AND REQUESTS. Subject to the terms and conditions of this
Financing Agreement, CIT agrees to make loans and advances to the Company on a
revolving basis (i.e. subject to the limitations set forth herein, the Company
may borrow, repay and re borrow Revolving Loans). In no event shall CIT have an
obligation to make a Revolving Loan to the Company, nor shall the Company be
entitled to request or receive a Revolving Loan, if (i) a Default or Event of
Default shall have occurred and remain outstanding on the date of request for
such Revolving Loan or the date of the funding thereof, (ii) the amount of such
Revolving Loan, when added to the principal amount of the Revolving Loans
outstanding plus the undrawn amount of all Letters of Credit on the date of the
request therefor or the funding thereof, would exceed the Maximum Facility
Amount, or (iii) amount of such Revolving Loan would exceed the Net Availability
of the Company on the date of the request therefor or the funding thereof. Any
request for Revolving Loan must be received by an officer of CIT no later than
11:00 a.m., New York time, on the Business Day on which such Revolving Loan is
required.
(b) PHONE AND ELECTRONIC LOAN REQUESTS. The Company hereby authorizes CIT
to make Revolving Loans to the Company based upon a telephonic or e-mail request
(or, if permitted by CIT, based upon a request posted on CIT's System) made by
any officer or other employee of the Company that the Company has authorized in
writing to request Revolving Loans hereunder, as reflected by CIT's records.
Each telephonic, e-mail or posted request by the Company shall be irrevocable,
and the Company agrees to confirm any such request for a Revolving Loan in a
writing approved by CIT and signed by such authorized officer or employee,
within one (1) Business Day of CIT's request for such confirmation. CIT shall
have the right to rely on any telephonic, e-mail or posted request for a
Revolving Loan made by anyone purporting to be an officer or other employee of
the Company that the Company has authorized in writing to request Revolving
Loans hereunder, without further investigation.
(c) REAFFIRMATION OF REPRESENTATIONS AND WARRANTIES. Except for the
representations and warranties set forth in Sections 6.7, 6.8, 6.9 and 7.1, all
of the representations and warranties made by the Company in this Financing
Agreement shall be deemed to be remade by the Company each time that the Company
requests a Revolving Loan or a Letter of Credit under this Financing Agreement,
and each such request shall also constitute a representation and warranty by the
Company that, after giving effect to the requested Revolving Loan or Letter of
Credit, no Default or Event of Default shall have occurred and remain
outstanding.
3.2. HANDLING OF PROCEEDS OF COLLATERAL; CASH DOMINION.
(a) COLLECTION OF ACCOUNTS AND OTHER PROCEEDS. To the extent not directly
paid to Factor pursuant to the Factoring Agreement, the Company, at its expense,
will enforce and collect payments and other amounts owing on all Accounts in the
ordinary course of the Company's business subject to the terms hereof. The
Company agrees to direct its account debtors to send payments on all Accounts
(other than those Accounts which have been purchased by Factor and as to which
payments have been directed to Factor in accordance with the provisions of the
Factoring Agreement) directly to a Lockbox Account and/or a Depository
18
Account, and to include on all of the Company's invoices the address of the
applicable lockbox as the sole address for remittance of payment.
Notwithstanding the foregoing, should the Company ever receive any payment on an
Account or other Proceeds of the sale of Collateral, including checks, cash,
receipts from credit card sales and receipts, notes or other instruments or
property with respect to any Collateral, the Company agrees to hold such
proceeds in trust for CIT, separate from the Company's other property and funds,
and to deposit such proceeds directly into a Lockbox Account or Depository
Account within two (2) Business Days of receipt.
(b) TRANSFER OF FUNDS FROM DEPOSITORY ACCOUNTS. Funds remaining on deposit
in a Depository Account shall be transferred to CIT's Bank Account on each
Business Day in accordance with the terms and provisions of the applicable
Depository Account Control Agreement, and the Company agrees to take all actions
reasonably required by CIT or any bank at which a Depository Account is
maintained in order to effectuate the transfer of funds in this manner. Subject
to charges for Collection Days, all amounts received from a Depository Account
and any other proceeds of the Collateral deposited into CIT's Bank Account will,
for purposes of calculating Net Availability and interest, be credited to the
Revolving Loan Account on the date of deposit in CIT's Bank Account. No checks,
drafts or other instruments received by CIT shall constitute final payment to
CIT unless and until such instruments have actually been collected.
(c) NEW DEPOSITORY ACCOUNTS. The Company agrees not to open any lockbox or
new bank account into which Proceeds of Collateral are to be delivered or
deposited unless concurrently with the opening of such lockbox and/or bank
account, CIT, the Company and the bank which will maintain such lockbox or at
which such account will be maintained, execute a Depository Account Control
Agreement with respect to such lockbox and/or related bank account. Upon
compliance with the terms set forth above, such lockbox and/or bank account
shall constitute a Depository Account for purposes of this Financing Agreement.
3.3. REVOLVING LOAN ACCOUNT. CIT shall charge the Revolving Loan Account
for all loans and advances made by CIT to the Company or for the Company's
account, and for all any other Obligations, including Out-of-Pocket Expenses,
when due and payable hereunder. Subject to the provisions of Section 3.5 below,
CIT will credit the Revolving Loan Account with all amounts received by CIT from
each Depository Account or from others for the Company's account, including, as
set forth above, all amounts received by CIT in payment of Accounts, and such
amounts will be applied to payment of the Obligations in the order and manner
set forth herein. In no event shall prior recourse to any Account or other
security granted to or by the Company be a prerequisite to CIT's right to demand
payment of any of the Obligations. In addition, the Company agrees that CIT
shall have no obligation whatsoever to perform in any respect any of the
Company's contracts or obligations relating to the Accounts.
3.4. REPAYMENT OF OVERADVANCES. If at any time (a) the sum of the
outstanding balance of Revolving Loans and undrawn amount of Letters of Credit
exceed the Maximum Facility Amount, or (b) an Overadvance exists, the amount of
such excess (in the case of clause (a)) or the amount of the Overadvance (in the
case of clause (b)) shall be immediately due and payable, unless CIT otherwise
agrees in writing. Should CIT for any reason honor requests for
19
Overadvances, such Overadvances shall be made in CIT's sole discretion and
subject to any additional terms CIT deems necessary.
3.5. APPLICATION OF PROCEEDS OF COLLATERAL.
(a) GENERALLY. Unless this Financing Agreement expressly provides
otherwise, so long as no Event of Default shall have occurred and remain
outstanding, CIT agrees to apply (i) all Proceeds of Trade Accounts Receivable
to the Revolving Loan Account, and (ii) all Proceeds of all other Collateral,
and any other payment received by CIT with respect to the Obligations, in such
order and manner as CIT shall elect in the exercise of its reasonable business
judgment.
(b) APPLICATION OF PROCEEDS DURING AN EVENT OF DEFAULT. If an Event of
Default shall have occurred and remain outstanding, CIT may apply all Proceeds
of Collateral and all other payments received by CIT to the payment of the
Obligations in such manner and in such order as CIT may elect in its sole
discretion.
3.6. MONTHLY STATEMENT. After the end of each month, CIT agrees to prepare
and make available to the Company (by mail, facsimile, e-mail or posting to
CIT's System, as mutually agreed to by the Company and CIT), a statement showing
the accounting for the charges, loans, advances and other transactions occurring
between CIT and the Company during that month. Absent manifest error, each
monthly statement shall be deemed correct and binding upon the Company and shall
constitute an account stated between the Company and CIT unless CIT receives a
written statement of exception from the Company within thirty (30) days of the
date of such monthly statement.
3.7. ACCESS TO CIT'S SYSTEM. CIT shall provide to the Company access to
CIT's System during normal business hours, for the purposes of (i) obtaining
information regarding loan balances, and (ii) if permitted by CIT, making
requests for Revolving Loans. Such access shall be subject to the following
terms, in addition to all terms set forth on the website for CIT's System:
(a) CIT shall provide to the Company an initial password for secured
access to CIT's System. The Company shall provide CIT with a list of officers
and employees that are authorized from time to time access CIT's System, and the
Company agrees to limit access to the password and CIT's System to such
authorized officers and employees. After the initial access, the Company shall
be solely responsible for (i) changing and maintaining the integrity of the
Company's password and (ii) any unauthorized use of the Company's password or
CIT's System by the Company's officers and employees.
(b) The Company shall use the CIT's System and the Company's information
thereon solely for the purposes permitted above, and shall not access the CIT's
System for the benefit of third parties or provide any information obtained from
the CIT's System to third parties. CIT makes no representation that loan balance
information is or will be available, accurate, complete, correct or current at
all times. CIT's System may be inoperable or inaccessible from time to time,
whether for required website maintenance, upgrades to CIT's System, or for other
reasons, and in any such event the Company must obtain loan balance information,
and (if permitted by CIT) make requests for Revolving Loans using other
available means.
20
(c) The Company hereby confirms and agrees that CIT's System consist of
proprietary software, data, tools, scripts, algorithms, business logic, website
designs and interfaces and related intellectual property, information and
documentation. CIT's System and related intellectual property, information and
documentation are the sole and exclusive property of CIT, and the Company shall
have no right, title or interest therein or thereto, except for the limited
right to access CIT's System for the purposes permitted above. Upon termination
of this Financing Agreement, the Company agrees to cease any use of CIT's
System.
(d) All agreements, covenants and representations and warranties made by
the Company in any document submitted to CIT by means of CIT's System are
incorporated herein by reference.
SECTION 4. RESERVED.
SECTION 5. LETTERS OF CREDIT.
In order to assist the Company in establishing or opening Letters of
Credit with an Issuing Bank, the Company has requested that CIT join in the
applications for such Letters of Credit, and/or guarantee payment or performance
of such Letters of Credit and any drafts or acceptances thereunder through the
issuance of one or more Letter of Credit Guaranties, thereby lending CIT's
credit to the Company, and CIT has agreed to do so. These arrangements shall be
handled by CIT subject to satisfaction of the conditions set forth in Section
2.1 hereof and the terms and conditions set forth below.
5.1. ASSISTANCE AND PURPOSE. Within the Maximum Facility Amount and
subject to sufficient Net Availability, CIT shall assist the Company in
obtaining Letters of Credit in an aggregate undrawn amount outstanding at any
time not to exceed the Letter of Credit Sub-Line. The term, form and purpose of
each Letter of Credit and all documentation in connection therewith, and any
amendments, modifications or extensions thereof, must be mutually acceptable to
CIT, the Issuing Bank and the Company. Notwithstanding any other provision of
this Financing Agreement to the contrary, if a Default or an Event of Default
shall have occurred and remain outstanding, CIT's assistance in connection with
any Letter of Credit shall be in CIT's sole discretion.
5.2. AUTHORITY TO CHARGE REVOLVING LOAN ACCOUNT. The Company hereby
authorizes CIT, without notice to the Company, to charge the Revolving Loan
Account with the amount of all indebtedness, liabilities and obligations of any
kind incurred by CIT under a Letter of Credit Guaranty, including the charges of
an Issuing Bank, as such indebtedness, liabilities and obligations are charged
to or paid by CIT, or, if earlier, upon the occurrence of an Event of Default.
Any amount charged to the Revolving Loan Account shall be deemed a Chase Bank
Rate Loan hereunder and shall incur interest at the rate provided in Section 8.1
(or Section 8.2, if applicable) of this Financing Agreement. The Company
confirms that any charges which CIT may make to the Revolving Loan Account as
provided herein will be made as an accommodation to the Company and solely at
CIT's discretion.
5.3. INDEMNITY RELATING TO LETTERS OF CREDIT. The Company unconditionally
indemnifies CIT and holds CIT harmless from any and all loss, claim or liability
incurred by CIT
21
arising from any transactions or occurrences relating to Letters of Credit
established or opened for the Company's account, the Collateral relating thereto
and any drafts or acceptances thereunder, and all Obligations thereunder,
including any such loss, claim or liability arising from any error, omission,
negligence, misconduct or other action taken by an Issuing Bank, other than for
any such loss, claim or liability arising out of the gross negligence or willful
misconduct by CIT with respect to a Letter of Credit Guaranty. This indemnity
shall survive the termination of this Financing Agreement and the repayment of
the Obligations.
5.4. COMPLIANCE OF GOODS, DOCUMENTS AND SHIPMENTS WITH AGREED TERMS. CIT
shall not be responsible for: (a) the existence, character, quality, quantity,
condition, packing, value or delivery of the goods purporting to be represented
by any documents relating to any Letter of Credit; (b) any difference or
variation in the character, quality, quantity, condition, packing, value or
delivery of the goods from that expressed in such documents; (c) the validity,
sufficiency or genuineness of such documents or of any endorsements thereon,
even if such documents should in fact prove to be in any or all respects
invalid, insufficient, fraudulent or forged; (d) the time, place, manner or
order in which shipment is made; (e) partial or incomplete shipment, or failure
or omission to ship any or all of the goods referred to in the Letters of Credit
or documents relating thereto; (f) any deviation from instructions; (g) delay,
default, or fraud by the shipper and/or anyone else in connection with the goods
or the shipping thereof; or (h) any breach of contract between the shipper or
vendors and the Company.
5.5. HANDLING OF GOODS, DOCUMENTS AND SHIPMENTS. The Company agrees that
any action taken by CIT, if taken in good faith, or any action taken by the
Issuing Bank of whatever nature, under or in connection with the Letters of
Credit, the Letter of Credit Guaranties, drafts or acceptances relating to
Letters of Credit, or the goods subject thereto, shall be binding on the Company
and shall not result in any liability whatsoever of CIT to the Company. CIT
shall have the full right and authority, in CIT's name, subject in each case to
the prior consent of the Company unless either (x) an Event of Default has
occurred which is then continuing or (y) the obtaining of prior consent is
impractical given CIT's obligations under the related Letter of Credit or Letter
of Credit Guaranty issued hereunder, to (a) clear and resolve any questions of
non compliance of documents, (b) give any instructions as to acceptance or
rejection of any documents or goods, (c) execute any and all steamship or
airways guaranties (and applications therefor), indemnities or delivery orders,
(d) grant any extensions of the maturity of, time of payment for, or time of
presentation of, any drafts, acceptances, or documents, and (e) agree to any
amendments, renewals, extensions, modifications, changes or cancellations of any
of the terms or conditions of any of the applications, the Letters of Credit,
the Letter of Credit Guaranties or drafts or acceptances relating to Letters of
Credit. An Issuing Bank shall be entitled to comply with and honor any and all
such documents or instruments executed by or received solely from CIT, without
any notice to or any consent from the Company. Notwithstanding any prior course
of conduct or dealing with respect to the foregoing (including amendments to and
non-compliance with any documents, and/or the Company's instructions with
respect thereto), CIT may exercise its rights under this Section 5.5 in its sole
but reasonable business judgment. In addition, the Company agrees not to: (a) at
any time, (i) execute any application for steamship or airway guaranties,
indemnities or delivery orders, (ii) grant any extensions of the maturity of,
time of payment for, or time of presentation of, any drafts, acceptances or
documents, except with the prior written consent of CIT, or (iii) agree to any
amendments, renewals, extensions, modifications, changes or cancellations of any
of the terms or
22
conditions of any of the applications, Letters of Credit, drafts or acceptances,
except with the prior written consent of CIT; and (b) if an Event of Default
shall have occurred and remain outstanding, (i) clear and resolve any questions
of non compliance of documents or (ii) give any instructions as to acceptances
or rejection of any documents or goods.
5.6. COMPLIANCE WITH LAWS; PAYMENT OF LEVIES AND TAXES. The Company agrees
that (a) all necessary import and export licenses and certificates necessary for
the import or handling of the Collateral will be promptly procured, (b) all
foreign and domestic governmental laws and regulations in regard to the shipment
and importation of the Collateral or the financing thereof will be promptly and
fully complied with, and (c) any certificate in that regard that CIT may at any
time request will be promptly furnished to CIT. In connection herewith, the
Company represents and warrants to CIT that all shipments made under any Letter
of Credit are and will be in compliance with the laws and regulations of the
countries in which the shipments originate and terminate, and are not prohibited
by any such laws and regulations. The Company assumes all risk, liability and
responsibility for, and agrees to pay and discharge, all present and future
local, state, federal or foreign Taxes, duties, or levies pertaining to the
importation and delivery of the Collateral. Any embargo, restriction, law,
custom or regulation of any country, state, city, or other political
subdivision, where the Collateral is or may be located, or wherein payments are
to be made, or wherein drafts may be drawn, negotiated, accepted, or paid, shall
be solely the Company's risk, liability and responsibility.
5.7. SUBROGATION RIGHTS. Upon any payments made to an Issuing Bank under a
Letter of Credit Guaranty, CIT shall acquire by subrogation, any rights,
remedies, duties or obligations granted to or undertaken by the Company to the
Issuing Bank in any application for Letter of Credit, any standing agreement
relating to Letters of Credit or otherwise, all of which shall be deemed to have
been granted to CIT and apply in all respects to CIT and shall be in addition to
any rights, remedies, duties or obligations contained herein.
SECTION 6. COLLATERAL.
6.1. GRANT OF SECURITY INTEREST.
(a) As security for the prompt payment in full of all Obligations, the
Company hereby acknowledges and reaffirms its earlier pledge and grant to CIT of
a security interest in connection with the Factoring Agreement (and related
documents), and hereby further pledges and grants to CIT a continuing general
lien upon, and security interest in, all of the Collateral.
(b) Extent of Security Interests. The security interests granted hereunder
shall extend and attach to:
(i) all Collateral which is presently in existence and which is owned by
the Company or in which the Company has any interest, whether held by the
Company or by others for the Company's account, and, if any Collateral is
Equipment, whether the Company's interest in such Equipment is as owner, lessee
or conditional vendee;
(ii) all Equipment whether the same constitutes personal property or
fixtures, including, but without limiting the generality of the foregoing, all
dies, jigs, tools, benches, molds, tables, accretions, component parts thereof
and additions thereto, as well as all
23
accessories, motors, engines and auxiliary parts used in connection with, or
attached to, the Equipment; and
(iii) all Inventory and any portion thereof which may be returned,
rejected, reclaimed or repossessed by either CIT or the Company from the
Company's customers, as well as to all supplies, goods, incidentals, packaging
materials, labels and any other items which contribute to the finished goods or
products manufactured or processed by the Company, or to the sale, promotion or
shipment thereof.
6.2. LIMITED LICENSE. Regardless of whether CIT's security interests in
any of the General Intangibles has attached or is perfected, the Company hereby
irrevocably grants to CIT a royalty-free, non-exclusive license to use the
Company's Trademarks, Copyrights, Patents and other proprietary and intellectual
property rights, in connection with the (i) advertisement for sale, and the sale
or other disposition of, any finished goods Inventory by CIT in accordance with
the provisions of this Financing Agreement, and (ii) the manufacture, assembly,
completion and preparation for sale of any unfinished Inventory by CIT in
accordance with the provisions of this Financing Agreement.
6.3. REPRESENTATIONS, COVENANTS AND AGREEMENTS REGARDING COLLATERAL
GENERALLY.
(a) REPRESENTATIONS AND WARRANTIES. The Company hereby represents and
warrants to CIT that, (i) upon the filing of UCC financing statements covering
the Collateral in all required jurisdictions, this Financing Agreement creates a
valid, perfected, first priority and exclusive (except with respect to the
Accounts sold to Factor and with respect to Permitted Encumbrances) security
interest in all personal property of the Company as to which perfection may be
achieved by filing, (ii) CIT's security interests in the Collateral constitute,
and will at all times constitute, first priority and exclusive (except with
respect to the Accounts sold to Factor and with respect to Permitted
Encumbrances) liens on the Collateral, and (iii) the Company is, or will be at
the time additional Collateral is acquired by the Company, the absolute owner of
the Collateral with full right to pledge, sell, transfer and create a security
interest therein, free and clear of any and all claims or liens other than
Permitted Encumbrances.
(b) COVENANTS. The Company, at its expense, agrees to forever warrant and
defend the Collateral from any and all claims and demands of any other person,
other than holders of Permitted Encumbrances.
6.4. REPRESENTATIONS REGARDING ACCOUNTS AND INVENTORY. The Company
represents and warrants to CIT that:
(a) each Trade Account Receivable is based on an actual and bona fide sale
and delivery of Inventory or rendition of services to customers, made by the
Company in the ordinary course of its business;
(b) the Inventory being sold and the Trade Accounts Receivable created by
such sales are the exclusive property of the Company and are not subject to any
lien, consignment arrangement, encumbrance, security interest or financing
statement whatsoever, other than Permitted Encumbrances;
24
(c) the invoices evidencing such Trade Accounts Receivable are in the name
of the Company;
(d) the customers of the Company have accepted the Inventory or services,
owe and are obligated to pay the full amounts stated in the invoices according
to their terms, without dispute, offset, defense, counterclaim or contra, except
for disputes and other matters arising in the ordinary course of business of
which the Company has notified CIT pursuant to Section 7.2(g) hereof; and
(e) the Company's Inventory is marketable in the ordinary course of the
Company's business, and no Inventory has been produced in violation of the Fair
Labor Standards Act (29 U.S.C. Section 201 et seq.), as amended.
6.5. COVENANTS AND AGREEMENTS REGARDING ACCOUNTS AND INVENTORY.
(a) The Company confirms to CIT that all Taxes and fees relating to the
Company's business, the Company's sales, and the Accounts or Inventory relating
thereto, are the Company's sole responsibility, and that same will be paid by
the Company when due, subject to Section 7.2(d) hereof, and that none of said
Taxes or fees represent a lien on or claim against the Accounts, other than a
Permitted Tax Lien.
(b) The Company agrees not to acquire any Inventory on a consignment
basis, nor co-mingle its Inventory with any goods of its customers or any other
person (whether pursuant to any bill and hold sale or otherwise).
(c) The Company agrees to maintain such books and records regarding
Accounts and Inventory as CIT reasonably may require and agrees that the books
and records of the Company will reflect CIT's interest in the Accounts and
Inventory. In support of the continuing assignment and security interest of CIT
in the Accounts and Inventory, the Company also agrees to deliver to CIT all of
the schedules, reports and other information described in Section 7.2(g) of this
Financing Agreement. The Company's failure to maintain its books in the manner
provided herein or to deliver to CIT any of the foregoing information shall in
no way affect, diminish, modify or otherwise limit the security interests
granted to CIT in the Accounts and Inventory.
(d) The Company agrees to issue credit memoranda promptly after accepting
returns or granting allowances, and to deliver to CIT copies of such credit
memoranda as and when required to do so under Section 7.2(g) hereof.
(e) The Company agrees to safeguard, protect and hold all Inventory for
CIT's account and to make no sale or other disposition thereof except in the
ordinary course of the Company's business, on open account and on commercially
reasonable terms consistent with the Company's past practices. Notwithstanding
the ordinary course of the Company's business and the Company's past practices,
the Company agrees not sell inventory on a consignment basis, nor retain any
lien on or security interest in any Inventory sold by the Company. As to any
sale or other disposition of Inventory, CIT shall have all of the rights of an
unpaid seller, including stoppage in transit, replevin, rescission and
reclamation. The Company agrees to handle all Proceeds of sales of Inventory in
accordance with the provisions of Section 3.2 hereof.
25
6.6. COVENANTS AND AGREEMENTS REGARDING EQUIPMENT. The Company agrees to
(i) maintain the Equipment in as good and substantial repair and condition as
the Equipment is now maintained (or at the time that CIT's security interest may
attach to the Equipment), reasonable wear and tear excepted, (ii) make any and
all repairs and replacements when and where necessary, and (iii) safeguard,
protect and hold all Equipment in accordance with the terms hereof and subject
to CIT's security interest. The Equipment will only be used by the Company in
the operation of its business and will not be sold or held for sale or lease,
other than (x) sales or other dispositions of Equipment that is obsolete or that
is no longer used or useful in the conduct of Borrower's business and (y) other
sales or dispositions of Equipment, the net proceeds of which shall not exceed
$25,000 per occurrence and $250,000 in the aggregate per fiscal year.
6.7. GENERAL INTANGIBLES. The Company represents and warrants to CIT that
as of the date hereof, the Company possesses all General Intangibles necessary
to conduct the Company's business as presently conducted. The Company agrees to
maintain the Company's rights in, and the value of, all such General
Intangibles, and to pay when due all payments required to maintain in effect any
licensed rights; provided, that, Borrower shall be permitted to abandon Patents,
Trademarks or Copyrights (other than the Eligible Intellectual Property Assets
and any other intellectual property then used in the manufacture of Inventory or
identified therein or thereon) that are no longer used or useful in Borrower's
business. The Company shall provide CIT with adequate notice of the acquisition
of rights with respect to any additional Patents, Trademarks and Copyrights so
that CIT may, to the extent permitted under the documentation granting such
rights or applicable law, perfect its security interest in such rights in a
timely manner.
6.8. COMMERCIAL TORT CLAIMS. The Company represents and warrants to CIT
that as of the date hereof, the Company holds no interest in any commercial tort
claim. If the Company at any time holds or acquires a commercial tort claim, the
Company agrees to promptly notify CIT in writing of the details thereof, and in
such writing the Company shall grant to CIT a security interest in such
commercial tort claim and in the Proceeds thereof, all upon the terms of this
Agreement.
6.9. LETTER OF CREDIT RIGHTS. The Company represents and warrants to CIT
that as of the date hereof, the Company is not the beneficiary of any letter of
credit. If the Company becomes a beneficiary under any letter of credit, the
Company agrees to promptly notify CIT, and upon request by CIT, the Company
agrees to either (a) cause the issuer of such letter of credit to consent to the
assignment of the proceeds of such letter of credit to CIT pursuant to an
agreement in form and substance satisfactory to CIT, or (b) cause the issuer of
such letter of credit to name CIT as the transferee beneficiary of such letter
of credit.
6.10. REAL PROPERTY. Upon the request of CIT, the Company agrees to
execute and deliver to CIT from time to time, a mortgage or deed of trust (as
appropriate) in form and substance satisfactory to CIT on any Real Property
acquired by the Company after the date hereof as CIT shall require to obtain a
valid first priority lien thereon, subject only to Permitted Encumbrances.
6.11. KEY MAN LIFE INSURANCE. The Company agrees to maintain in effect at
all times one or more life insurance policies on the life of Gordon B. Zacks in
the aggregate amount of not
26
less than $5,000,000, which Life Insurance Policy shall be assigned to CIT
pursuant to collateral assignments each in form and substance satisfactory to
CIT.
6.12. REFERENCE TO OTHER LOAN DOCUMENTS. Reference is hereby made to the
other Loan Documents for additional representations, covenants and other
agreements of the Company regarding the Collateral covered by such Loan
Documents.
6.13. CREDIT BALANCES; ADDITIONAL COLLATERAL.
(a) The rights and security interests granted to CIT hereunder shall
continue in full force and effect, notwithstanding the termination of this
Financing Agreement or the fact that the Revolving Loan Account may from time to
time be temporarily in a credit position, until the termination of this
Financing Agreement and the full and final payment and satisfaction of the
Obligations. Any reserves or balances to the credit of the Company (in the
Revolving Loan Account or otherwise), and any other property or assets of the
Company in the possession of CIT, may be held by CIT as Other Collateral, and
applied in whole or partial satisfaction of such Obligations when due, subject
to the terms of this Financing Agreement. The liens and security interests
granted to CIT herein and any other lien or security interest which CIT may have
in any other assets of the Company secure payment and performance of all present
and future Obligations.
(b) Notwithstanding CIT's security interests in the Collateral, to the
extent that the Obligations are now or hereafter secured by any assets or
property other than the Collateral, or by the guaranty, endorsement, assets or
property of any other person, CIT shall have the right in its sole discretion to
determine which rights, security, liens, security interests or remedies CIT
shall at any time pursue, foreclose upon, relinquish, subordinate, modify or
take any other action with respect to, without in any way modifying or affecting
any of such rights, security, liens, security interests or remedies, or any of
CIT's rights under this Financing Agreement.
SECTION 7. REPRESENTATIONS, WARRANTIES AND COVENANTS.
7.1. INITIAL DISCLOSURE REPRESENTATIONS AND WARRANTIES. The Company
represents and warrants to CIT that as of the date hereof:
(a) FINANCIAL CONDITION. (i) The amount of the Company's assets, at fair
valuation, exceeds the book value of the Company's liabilities, (ii) the Company
is generally able to pay its debts as they become due and payable, and (iii) the
Company does not have unreasonably small capital to carry on its business as
currently conducted absent extraordinary and unforeseen circumstances. All
financial statements of the Company previously furnished to CIT present fairly,
in all material respects, the financial condition of the Company as of the date
of such financial statements.
(b) ORGANIZATION MATTERS; COLLATERAL LOCATIONS. Schedule 7.1(b) attached
hereto correctly and completely sets forth (w) the Company's exact name, as
currently reflected by the records of the Company's State of incorporation or
formation, (x) the Company's State of incorporation or formation, (y) the
Company's federal employer identification number and State organization
identification number (if any), and (z) the address of the Company's chief
executive office and all locations of Collateral.
27
(c) POWER AND AUTHORITY; CONFLICTS; ENFORCEABILITY.
(i) The Company has full power and authority to execute and deliver this
Financing Agreement and the other Loan Documents to which it is a party, and to
perform all of the Company's obligations thereunder.
(ii) The execution and delivery by the Company of this Financing Agreement
and the other Loan Documents to which it is a party, and the performance of the
Company's obligations thereunder, have been duly authorized by all necessary
corporate or other relevant action, and do not (w) require any consent or
approval of any director, shareholder, partner or member of the Company that has
not been obtained, (x) violate any term, provision or covenant contained in the
organizational documents of the Company (such as the certificate or articles of
incorporation, certificate of origin, partnership agreement, by-laws or
operating agreement), (y) violate, or cause the Company to be in default under,
any law, rule, regulation, order, judgment or award applicable to the Company or
its assets, or (z) violate any term, provision, covenant or representation
contained in, or constitute a default under, or result in the creation of any
lien under, any loan agreement, lease, indenture, mortgage, deed of trust, note,
security agreement or pledge agreement to which the Company is a signatory or by
which the Company or any of the Company's assets are bound or affected.
(iii) This Financing Agreement and the other Loan Documents to which the
Company is a party constitute legal valid and binding obligations of the
Company, enforceable in accordance with their respective terms, subject to
applicable bankruptcy, insolvency, moratorium, fraudulent transfer and other
laws affecting creditors' rights generally, and subject to general principals of
equity, regardless of whether considered in a proceeding at law or in equity.
(d) SCHEDULES. Each of the Schedules attached to this Financing Agreement
set forth a true, correct and complete description of the matter or matters
covered thereby.
(e) COMPLIANCE WITH LAWS. The Company and the Company's properties are in
compliance with all federal, state and local acts, rules and regulations, and
all orders of any federal, state or local legislative, administrative or
judicial body or official, except to the extent the failure to so comply would
not have a Material Adverse Effect. The Company has obtained and maintains all
permits, approvals, authorizations and licenses necessary to conduct its
business as presently conducted, except to the extent the failure to have such
permits, approvals, authorizations or licenses would not have a Material Adverse
Effect.
(f) ENVIRONMENTAL MATTERS.
(i) None of the operations of the Company are the subject of any federal,
state or local investigation to determine whether any remedial action is needed
to address the presence or disposal of any environmental pollution, hazardous
material or environmental clean-up of any of the Company's leased real property.
No enforcement proceeding, complaint, summons, citation, notice, order, claim,
litigation, investigation, letter or other communication from a federal, state
or local authority has been filed against or delivered to the Company, regarding
or involving any
28
release of any environmental pollution or hazardous material on any real
property now or previously owned or operated by the Company.
(ii) The Company has no known contingent liability with respect to any
release of any environmental pollution or hazardous material on any real
property now or previously owned or operated by the Company.
(iii) The Company is in compliance with all environmental statutes, acts,
rules, regulations and orders applicable to the operation of the Company's
business, except to the extent that the failure to so comply would not have a
Material Adverse Effect.
(g) PENDING LITIGATION. Except as previously disclosed by the Company to
CIT in writing, there exist no actions, suits or proceedings of any kind by or
against the Company pending in any court or before any arbitrator or
governmental body, that, individually or in the aggregate, could reasonably be
expected to have a Material Adverse Effect.
7.2. AFFIRMATIVE COVENANTS. Until the termination of this Financing
Agreement and the full and final payment and satisfaction of the Obligations:
(a) MAINTENANCE OF FINANCIAL RECORDS; INSPECTIONS. The Company agrees to
maintain books and records pertaining to the Company's financial matters in such
detail, form and scope as CIT reasonably shall require. The Company agrees that
CIT or its agents may enter upon the Company's premises at any time during
normal business hours, and from time to time, in order to (i) examine and
inspect the books and records of the Company, and make copies thereof and take
extracts therefrom, and (ii) verify, inspect and perform physical counts and
other valuations of the Collateral and any and all records pertaining thereto.
The Company irrevocably authorizes the Accountants and third parties to disclose
and deliver directly to CIT, at the Company's expense, all financial statements
and information, books, records, work papers and management reports generated by
them or in their possession regarding the Company or the Collateral. Subject to
the provisions of Section 8.8, all costs, fees and expenses incurred by CIT in
connection with such examinations, inspections, physical counts and other
valuations shall constitute Out-of-Pocket Expenses for purposes of this
Financing Agreement.
(b) FURTHER ASSURANCES. The Company agrees to comply with the requirements
of all state and federal laws in order to grant to CIT valid and perfected first
priority security interests in the Collateral, subject only to the Permitted
Encumbrances. CIT is hereby authorized by the Company to file any financing
statements, continuations and amendments covering the Collateral without the
Company's signature in accordance with the provisions of the UCC. The Company
hereby consents to and ratifies the filing of any financing statements covering
the Collateral by CIT on or prior to the Closing Date. The Company agrees to do
whatever CIT reasonably may request from time to time, by way of (i) filing
notices of liens, financing statements, amendments, renewals and continuations
thereof, (ii) cooperating with CIT's agents and employees, (iii) keeping
Collateral records, (iv) transferring proceeds of Collateral to CIT's possession
in accordance with the terms hereof and (v) performing such further acts as CIT
reasonably may require in order to effect the purposes of this Financing
Agreement, including the execution of control agreements with respect to
Depository Accounts and Investment Property.
29
(c) INSURANCE AND CONDEMNATION.
(i) REQUIRED INSURANCE. The Company agrees to maintain insurance on the
Equipment and Inventory under such policies of insurance, with such insurance
companies, in such reasonable amounts and covering such insurable risks as are
at all times reasonably satisfactory to CIT (the "Required Insurance"). All
policies covering the Equipment and Inventory are, subject to the rights of any
holder of a Permitted Encumbrance having priority over the security interests of
CIT, to be made payable solely to CIT, in case of loss, under a standard non
contributory "mortgagee", "secured party" or "lender's loss payable" clause or
endorsement, and are to contain such other provisions as CIT reasonably may
require to fully protect CIT's interest in the Inventory and Equipment and to
any payments to be made under such policies. Each loss payable endorsement in
favor of CIT shall provide (x) for not less than thirty (30) days prior written
notice to CIT of the exercise of any right of cancellation and (y) that CIT's
right to payment under any property insurance policy will not be invalidated by
any act or neglect of, or any breach of warranty or condition by, the Company or
any other party. If an Event of Default shall have occurred and remain
outstanding, CIT, subject to the rights of any holder of a Permitted Encumbrance
having priority over the security interests of CIT, shall have the sole right,
in the name of CIT or the Company, to file claims under any insurance policies,
to receive, receipt and give acquittance for any payments that may be payable
thereunder, and to execute any and all endorsements, receipts, releases,
assignments, reassignments or other documents that may be necessary to effect
the collection, compromise or settlement of any claims under any such insurance
policies.
(ii) CIT'S PURCHASE OF INSURANCE. Unless the Company provides CIT with
evidence of the Required Insurance in the manner set forth in Section 7.2(c)(i)
above, CIT may purchase insurance at the Company's expense to protect CIT's
interests in the Collateral. The insurance purchased by CIT may, but need not,
protect the Company's interests in the Collateral, and therefore such insurance
may not pay any claim which the Company make or any claim which is made against
the Company in connection with the Collateral. The Company may later request
that CIT cancel any insurance purchased by CIT, but only after providing CIT
with satisfactory evidence that the Company has the Required Insurance. If CIT
purchases insurance covering all or any portion of the Collateral, the Company
shall be responsible for the costs of such insurance, including interest (at the
applicable rate set forth hereunder) and other charges accruing on the purchase
price therefor, until the effective date of the cancellation or the expiration
of the insurance, and CIT may charge all of such costs, interest and other
charges to the Revolving Loan Account. The costs of the premiums of any
insurance purchased by CIT may exceed the costs of insurance which the Company
may be able to purchase on its own. In the event that CIT purchases insurance,
CIT will notify the Company of such purchase within thirty (30) days after the
date of such purchase. If, within thirty (30) days after the date of receipt of
such notice, the Company provides CIT with proof that the Company had the
Required Insurance as of the date on which CIT purchased insurance and the
Company has continued at all times thereafter to have the Required Insurance,
then CIT agrees to cancel the insurance purchased by CIT and credit the
Revolving Loan Account for the amount of all costs, interest and other charges
associated with such insurance that CIT previously charged to the Revolving Loan
Account.
30
(iii) APPLICATION OF INSURANCE AND CONDEMNATION PROCEEDS. So long as no
Default or Event of Default shall have occurred and remain outstanding as of the
date of CIT's receipt of any Casualty Proceeds:
(w) In the event of any loss or damage to any Inventory by condemnation,
fire or other casualty, CIT agrees to apply the Casualty Proceeds to repay the
outstanding Revolving Loans.
(x) In the event of any loss or damage to any item of Collateral other
than Inventory by condemnation, fire or other casualty, if the Casualty Proceeds
relating to such condemnation, fire or other casualty are less than or equal to
$100,000, CIT agrees to apply such Casualty Proceeds to repay the outstanding
Revolving Loans.
(y) In the event of any loss or damage to any item of Equipment by
condemnation, fire or other casualty, if the Casualty Proceeds relating to such
condemnation, fire or other casualty exceed $100,000, the Company may elect (by
delivering written notice to CIT within ten (10) Business Days following CIT's
receipt of such Casualty Proceeds) to utilize such Casualty Proceeds to replace
or repair such item of Equipment and CIT shall remit such Casualty Proceeds to
Borrower.
(z) In the event of any loss or damage to any property leased by the
Company by condemnation, fire or other casualty, the Company may use the
Casualty Proceeds in the manner required or permitted by the lease agreement
relating thereto.
If a Default or an Event of Default shall have occurred and remain outstanding
as of the date of CIT's receipt of any Casualty Proceeds, or if the Company does
not or cannot elect to use the Casualty Proceeds in the manner set forth in
paragraphs (y) or (z) above, CIT may, subject to the rights of any holder of a
Permitted Encumbrance having priority over the security interests of CIT, apply
the Casualty Proceeds to the payment of the Obligations in such manner and in
such order as CIT may elect in its sole discretion.
(d) PAYMENT OF TAXES. The Company agrees to pay when due all Taxes
lawfully levied, assessed or imposed upon the Company or the Collateral
(including all sales taxes collected by the Company on behalf of the Company's
customers in connection with sales of Inventory and all payroll taxes collected
by the Company on behalf of the Company's employees), unless the Company is
contesting such Taxes in good faith, by appropriate proceedings, and is
maintaining adequate reserves for such Taxes in accordance with GAAP.
Notwithstanding the foregoing, if a lien securing any Taxes is filed in any
public office and such lien is not a Permitted Tax Lien, then the Company shall
pay all taxes secured by such lien immediately and remove such lien of record
promptly. Pending the payment of such taxes and removal of such lien, CIT may,
at its election and without curing or waiving any Event of Default which may
have occurred as a result thereof, (i) establish an Availability Reserve in the
amount of such Taxes (or such other amount as CIT shall deem appropriate in the
exercise of its reasonable business judgment) or (ii) pay such taxes on behalf
of the Company, and the amount paid by CIT shall become an Obligation which is
due and payable on demand by CIT.
(e) COMPLIANCE WITH LAWS.
31
(i) The Company agrees to comply with all federal, state and local acts,
rules and regulations, and all orders of any federal, state or local
legislative, administrative or judicial body or official, if the failure to so
comply would have a Material Adverse Effect, provided that the Company may
contest any acts, rules, regulations, orders and directions of such bodies or
officials in any reasonable manner which CIT determines, in the exercise of its
reasonable business judgment, will not materially and adversely effect CIT's
rights or priorities in the Collateral.
(ii) Without limiting the generality of the foregoing, the Company agrees
to comply with all environmental statutes, acts, rules, regulations or orders,
as presently existing or as adopted or amended in the future, applicable to the
ownership and/or use of its real property and operation of its business, if the
failure to so comply would have a Material Adverse Effect. The Company shall not
be deemed to have breached any provision of this Section 7.2(e) if (x) the
failure to comply with the requirements of this Section 7.2(e) resulted from
good faith error or innocent omission, (y) the Company promptly commences and
diligently pursues a cure of such breach and (z) such failure is cured within
thirty (30) days following the Company's receipt of notice from CIT of such
failure, or if such breach cannot in good faith be cured within thirty (30) days
following the Company's receipt of such notice, then such breach is cured within
a reasonable time frame based on the extent and nature of the breach and the
necessary remediation, and in conformity with any applicable consent order,
consensual agreement and applicable law.
(f) NOTICES CONCERNING ENVIRONMENTAL, EMPLOYEE BENEFIT AND PENSION
MATTERS. The Company agrees to notify CIT in writing of:
(i) any expenditure (actual or anticipated) in excess of $100,000 for
environmental clean up, environmental compliance or environmental testing and
the impact of said expenses on the affected Company's working capital;
(ii) the Company's receipt of notice from any local, state or federal
authority advising the Company of any environmental liability (real or
potential) arising from the Company's operations, its premises, its waste
disposal practices, or waste disposal sites used by the Company; and
(iii) the Company's receipt of notice from any governmental agency or any
sponsor of any "multiemployer plan" (as that term is defined in ERISA) to which
the Company has contributed, relating to any of the events described in Section
10.1(g) hereof.
The Company agrees to provide CIT promptly with copies of all such notices and
other information pertaining to any matter set forth above if CIT so requests.
(g) COLLATERAL REPORTING - SEE ANNEX A.
(h) FINANCIAL REPORTING. The Company agrees to furnish to CIT:
(i) within ninety (90) days after the end of each fiscal year of the
Company, a Balance Sheet as at the close of such year, and statements of profit
and loss and cash flow of the Company on a consolidated basis for such year,
audited by the Accountants, together with (x) the
32
opinion of the Accountants preparing such financial statements and (y) if
requested by CIT, the Accountants' management practice letter;
(ii) within thirty (30) days after the end of each fiscal month, (x) a
Balance Sheet as at the end of such month, (y) statements of profit and loss and
cash flow of the Company on a consolidated basis for such month and for the
period commencing on the first day of the current fiscal year through the end of
such month, and (z) comparative statements of profit and loss and cash flow of
the Company on a consolidated basis for the same fiscal month and same fiscal
year-to-date period in the prior fiscal year, certified by the treasurer or
chief financial officer of the Company (or any other authorized officer
satisfactory to CIT);
(iii) as and when filed by the Company, copies of all (x) financial
reports, registration statements and other documents filed by the Company with
the U.S. Securities and Exchange Commission, as and when filed by the Company,
and (ii) annual reports filed pursuant to ERISA in connection with each benefit
plan of the Company subject to ERISA; and
(iv) no later than thirty (30) days prior to the beginning of each fiscal
year of the Company, monthly projections of the Company's Balance Sheet and
statements of profits and loss and cash flow of the Company on a consolidated
basis, as well as monthly projected Net Availability for the Company for such
fiscal year.
Each financial statement which the Company is required to submit pursuant to
clauses (i), (ii) and (iii) above must be accompanied by an officer's
certificate substantially in the form set forth on Exhibit A attached hereto,
signed by the treasurer or chief financial officer of the Company (or any other
authorized officer satisfactory to CIT). In addition, should the Company modify
its accounting principles and procedures from those in effect on the Closing
Date, the Company agrees to prepare and deliver to CIT statements of
reconciliation in form and substance reasonably satisfactory to CIT.
(i) ASSET APPRAISALS. From time to time upon the request of CIT, the
Company agrees to permit CIT to perform appraisals of the Company's Inventory
and Equipment. The Company agrees to reimburse CIT for the costs and expenses
relating to (x) one (1) Inventory appraisal (and one (1) Equipment appraisal) in
any twelve-month period, so long as no Event of Default shall have occurred and
remain outstanding, and (y) all such appraisals performed while an Event of
Default remains outstanding. All appraisals shall be performed by qualified
appraisers selected by CIT. To the extent that the Company is required by this
Section 7.2(i) to reimburse CIT for CIT's costs and expenses relating to
appraisals, such costs and expenses shall constitute Out-of-Pocket Expenses.
(j) BUSINESS QUALIFICATION. The Company agrees to qualify to do business,
and to remain qualified to do business and in good standing, in each
jurisdiction where the failure to so qualify or to remain qualified or in good
standing, would have a Material Adverse Effect.
(k) ANTI-MONEY LAUNDERING AND TERRORISM REGULATIONS. The Company agrees to
comply with all applicable anti-money laundering and terrorism laws, regulations
and executive orders in effect from time to time (including, without limitation,
the USA Patriot Act (Pub. L. No. 107-56)). The Company also agrees to ensure
that no person who owns a controlling interest
33
in or otherwise controls the Company is a person designated under Section 1(b),
(c) or (d) of Executive Order No. 13224 (issued September 23, 2001) or any other
similar Executive Order. The Company acknowledges that CIT's performance
hereunder is subject to compliance with all such laws, regulations and executive
orders, and in furtherance of the foregoing, the Company agrees to provide to
CIT all information about the Company's ownership, officers, directors,
customers and business structure as CIT reasonably may require to comply with,
such laws, regulations and executive orders.
7.3. FINANCIAL COVENANTS. Until termination of this Financing Agreement
and the full and final payment and satisfaction of all Obligations, the Company
agrees, on a consolidated basis:
(a) EBITDA. To maintain as of the end of the fiscal quarter ending on or
about June 30, 2005, for the two quarter periods then ended, a negative EBITDA
of not more than $5,719,000.
(b) FIXED CHARGE COVERAGE. To maintain a Fixed Charge Coverage Ratio of
not less than 1.25 to 1.00 for the fiscal year ending on or about December 31,
2005 and each 12-month period ending at the end of each fiscal quarter
thereafter.
(c) MINIMUM NET AVAILABILITY. To maintain Net Availability (for the
avoidance of doubt, calculated without the inclusion of any amounts attributable
to Eligible Intellectual Property Assets as described in clause (c) of the
definition of "Borrowing Base") of not less than $5,000,000 as of the end of the
fiscal year ending on or about December 31, 2005 and at the end of each fiscal
year thereafter.
(d) MINIMUM TANGIBLE NET WORTH. To maintain, as of the end of each fiscal
quarter during the periods below, Tangible Net Worth of not less than:
MINIMUM
TANGIBLE NET
FISCAL PERIOD WORTH
Fiscal quarter ending on or about March 31, 2005 $ 1,100,000
Fiscal quarter ending on or about June 30, 2005 ($ 1,850,000)
Fiscal quarter ending on or about September 30, 2005 $ 1,250,000
Fiscal quarter ending on or about December 31, 2005 $ 7,500,000
Fiscal quarter ending on or about March 31, 2006 $ 2,000,000
Fiscal quarter ending on or about June 30, 2006 0
Fiscal quarter ending on or about September 30, 2006 $ 2,500,000
Fiscal quarter ending on or about December 31, 2006 $ 9,000,000
(e) OPERATING LEASES AND CAPITAL EXPENDITURES. Not to (i) enter into any
Operating Lease if after giving effect thereto the aggregate obligations with
respect to new Operating Leases entered into during such fiscal year would
exceed (A) $200,000 for the fiscal year ending on or about December 31, 2005
(plus up to $300,000 exclusively with respect to the
34
purchase of computer equipment during such fiscal year or (B) $250,000 for the
fiscal year ending on or about December 31, 2006 and for each fiscal year
thereafter; or (ii) contract for, purchase, make expenditures for, lease
pursuant to a Capital Lease or otherwise incur obligations with respect to
Capital Expenditures (whether subject to a security interest or otherwise)
during any fiscal year of the Company in the aggregate amount in excess of:
(x) $1,000,000 for the fiscal year ending on or about December 31, 2005;
or
(y) $1,000,000 for the fiscal year ending on or about December 31, 2006;
and for each fiscal year thereafter.
7.4. NEGATIVE COVENANTS. Until termination of this Financing Agreement and
full and final payment and satisfaction of all Obligations, the Company agrees
not to, and will cause each Guarantor and each other Subsidiary of the Company
not to:
(a) LIENS AND ENCUMBRANCES. Mortgage, assign, pledge, transfer (other than
sales or other dispositions otherwise permitted hereunder) or otherwise permit
any lien, charge, security interest, encumbrance or judgment (whether as a
result of a purchase money or title retention transaction, or other security
interest, or otherwise) to exist on any of the Collateral or its other assets
(including, without limitation, its Equity Interests in Escapade S.A.), whether
now owned or hereafter acquired, except for the Permitted Encumbrances.
(b) INDEBTEDNESS. Incur or create any Indebtedness other than the
Permitted Indebtedness.
(c) SALE OF ASSETS. Sell, lease, assign, transfer or otherwise dispose of
(i) Collateral, except as otherwise specifically permitted by this Financing
Agreement, or (ii) all or any substantial part of its assets, if any, which do
not constitute Collateral.
(d) CORPORATE CHANGE. (i) Merge or consolidate with any other entity, (ii)
change its name or principal place of business, (iii) change its structure or
organizational form, or reincorporate or reorganize in a new jurisdiction, (iv)
enter into or engage in any operation or activity materially different from that
presently being conducted by the Company, any Guarantor or any other Subsidiary
of the Company, as the case may be; provided that the Company, any Guarantor and
any other Subsidiary of the Company may change its name or its principal place
of business so long as the Company provides CIT with thirty (30) days prior
written notice thereof and the Company, any Guarantor or any other Subsidiary of
the Company, as the case may be executes and delivers to CIT, prior to making
such change, all documents and agreements required by CIT in order to ensure
that the liens and security interests granted to CIT hereunder continue in
effect without any break or lapse in perfection.
(e) GUARANTY OBLIGATIONS. Except as set forth on Schedule 7.4(e), assume,
guarantee, endorse, or otherwise become liable upon the obligations of any
person, firm, entity or corporation, except pursuant to the Guaranties and by
the endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business.
(f) DIVIDENDS AND DISTRIBUTIONS. Declare or pay any dividend or
distribution of any kind on, or purchase, acquire, redeem or retire, any of its
equity interests (of any class or type
35
whatsoever), whether now or hereafter issued and outstanding, other than
Permitted Distributions.
(g) INVESTMENTS. (i) Create any new subsidiary, or (ii) make any advance
or loan to, or any investment in, any firm, entity, person or corporation, other
than loans to employees in an amount not to exceed $150,000 in the aggregate
outstanding at any time, or (iii) acquire all or substantially all of the assets
of, or any capital stock or any equity interests in, any firm, entity or
corporation, other than current investments of the Company, any Guarantor and
any other Subsidiary of the Company, as the case may be, in existing
subsidiaries of such entities; provided, however, that the Company may continue
to make advances or loans to its Subsidiaries located in Mexico in amounts
required to meet ongoing normal and customary expenses incurred in the ordinary
course of business (including rental lease payments), not to exceed the sum of
$100,000 in the aggregate during any fiscal month, but only until the earlier of
(x) the conclusion of the orderly liquidation of the Mexican Subsidiaries of the
Company or (y) the end of the fiscal month ending on or about June 30, 2006.
(h) RELATED PARTY TRANSACTIONS. Enter into any transaction, including,
without limitation, any purchase, sale, lease, loan or exchange of property,
with any shareholder, officer, director, parent (direct or indirect), subsidiary
(direct or indirect) or other person or entity otherwise affiliated with the
Company, any Guarantor or any other Subsidiary of the Company, unless (i) such
transaction otherwise complies with the provisions of this Financing Agreement,
and (ii) such transaction is for the sale of goods or services rendered in the
ordinary course of business and pursuant to the reasonable requirements of the
Company, any Guarantor or any other Subsidiary of the Company, as the case may
be, and upon standard terms and conditions and fair and reasonable terms, no
less favorable to such entity than such entity could obtain in a comparable arms
length transaction with an unrelated third party.
(i) RESTRICTED PAYMENTS. (i) Make any payment of the principal of, or
interest on, any Subordinated Debt, or purchase, acquire or redeem any of the
Subordinated Debt, unless (x) such payment, purchase, acquisition or redemption
is expressly permitted by the terms of the applicable Subordination Agreement
and (y) no Default or Event of Default shall have occurred and remain
outstanding on the date on which such payment or transaction occurs, or would
occur as a result thereof; (ii) pay any management, consulting or other similar
fees to any shareholder, director, parent (direct or indirect), subsidiary
(direct or indirect) or other person or entity otherwise affiliated with the
Company, any Guarantor or any other Subsidiary of the Company, which shall not
be deemed to preclude the payment of salaries, bonuses and customary directors
fees all paid in the ordinary course of the Company's business.
(j) PROHIBITED USES OF PROCEEDS. Use the proceeds of any Revolving Loan
made under this Financing Agreement, directly or indirectly, in violation of any
applicable law or regulation, including without limitation Regulations T, U or X
of the Board of Governors of the Federal Reserve System as from time to time in
effect (and any successor regulation or official interpretation of such Board),
or to purchase or carry any "margin stock", as defined in Regulations U and X,
or any "margin security", "marginable OTC stock" or "foreign margin stock"
within the meaning of Regulation T, U or X.
36
SECTION 8. INTEREST, FEES AND EXPENSES.
8.1. INTEREST ON REVOLVING LOANS. Interest on the outstanding principal
balance of the Revolving Loans shall be due and payable monthly on the first day
of each month and shall accrue at a rate per annum equal to the Chase Bank Rate
plus one percent (1%) (the "Contract Rate") on the average net principal balance
of such Revolving Loans at the close of each day during the immediately
preceding month, as reflected by CIT's System. Commencing on the first day of
the month following receipt by CIT of the Company's financial statements for the
fiscal year ending December 31, 2005 audited by the Accountants and delivered to
CIT in accordance with Section 7.2(h)(i) (the "2005 Financials"), in the event
the 2005 Financials indicate that (a) the Company's Tangible Net Worth as of
December 31, 2005 is not less than $7,500,000 and (b) the Company's "Net Income"
(as determined in accordance with GAAP by the Accountants) for its 2005 fiscal
year is not less than $3,675,000, and, at the time of receipt of the Company's
financial statements, no Event of Default has occurred which is then continuing
and CIT is satisfied, in its sole reasonable discretion, with the Company's
ability to comply with the provisions of Section 7.3 for each relevant testing
period during fiscal year 2006 based upon the Company's projections for the 2006
fiscal year delivered to CIT in accordance with Section 7.2 (h)(v), then,
commencing on the later of (x) the date such financial statements and
projections are received by CIT or (y) April 1, 2006, the Contract Rate shall be
reduced so as to equal the Chase Bank Rate plus one-half of one percent (0.5%).
In the event of any change in the Chase Bank Rate, the then applicable Contract
Rate shall change, effective as of the first day of the month following such
change, so as to remain equal to the then applicable margin plus the new Chase
Bank Rate. All interest rates shall be calculated based on a 360 day year and
actual days elapsed. The Contract Rate in effect at any time shall be increased
by one-half of one percent (0.5%) during each month when utilization by the
Company of the Line of Credit for such month requires the inclusion of the
Overformula Amount in the calculation of the Borrowing Base.
8.2. DEFAULT INTEREST RATE. Upon the occurrence of an Event of Default,
provided that CIT has given the Company written notice of such Event of Default
(other than an Event of Default described in Section 10.1(c) of this Financing
Agreement, for which no written notice shall be required), all Obligations shall
bear interest at the Default Rate of Interest until such Event of Default is
waived.
8.3. FEES AND EXPENSES RELATING TO LETTERS OF CREDIT.
(a) LETTER OF CREDIT GUARANTY FEE. In consideration of the issuance of any
Letter of Credit Guaranty by CIT or other assistance of CIT in obtaining Letters
of Credit pursuant to Section 5 hereof, the Company agrees to pay to CIT a
Letter of Credit Guaranty Fee equal to the applicable fees set forth on Schedule
8.3 (the "Letter of Credit Guaranty Fees"). All Letter of Credit Guaranty Fees
shall be due and payable monthly on the first day of each month, unless
otherwise set forth on Schedule 8.3.
(b) CHARGES OF ISSUING BANK. The Company agrees to reimburse CIT for any
and all charges, fees, commissions, costs and expenses charged to CIT for the
Company's account by an Issuing Bank in connection with, or arising out of,
Letters of Credit or out of transactions relating
37
thereto, when charged to or paid by CIT, or as may be due upon any termination
of this Financing Agreement.
8.4. OUT-OF POCKET EXPENSES. The Company agrees to reimburse CIT for all
Out of Pocket Expenses when charged to or paid by CIT.
8.5. LINE OF CREDIT FEE; COLLECTION DAYS. On the last day of each month,
commencing on April 30, 2005, (a) the Company agrees to pay to CIT the Line of
Credit Fee, and (b) CIT shall charge the Company for interest at the rate set
forth in Section 8.1 (or Section 8.2, if applicable) hereof on the Collection
Days for the month then ending.
8.6. INTENTIONALLY OMITTED.
8.7. COLLATERAL MANAGEMENT FEE. On the first day of each month, commencing
on April 1, 2005, the Company agrees to pay to CIT a collateral management fee
in the sum of $4,000 per month.
8.8. STANDARD OPERATIONAL FEES. In addition to all Out-of-Pocket Expenses
incurred by CIT in connection with any action taken under Section 7.2(a) hereof
(but without duplication), the Company agrees to pay to CIT (a) all
Documentation Fees, (b) CIT's standard charges for any employee of CIT used to
conduct any of the examinations, verifications, inspections, physical counts and
other valuations described in Section 7.2(a) hereof (currently $850 per person,
per day), and (c) CIT's standard charges for each wire transfer made by CIT to
or for the benefit of the Company (currently $30) and for Dunn and Bradstreet
searches conducted by CIT for the Company's account (currently $65), provided
that such standard charges may be increased by CIT from time to time. Such
charges shall be due and payable in accordance with CIT's standard practices, as
in effect from time to time. Unless an Event of Default has occurred which is
then continuing, Borrower shall not be responsible to pay for, or reimburse CIT
for, the fees and charges associated with more than four (4) field examinations
(including, without limitation, physical counts and inspections) during any
fiscal year or more than four (4) verifications during any fiscal year.
8.9. CAPITAL ADEQUACY. In the event that CIT (or any financial institution
that purchases from CIT a participation in the loans made by CIT to the Company
hereunder), subsequent to the Closing Date, determines in the exercise of its
reasonable business judgment that (x) any change in applicable law, rule,
regulation or guideline regarding capital adequacy, or (y) any change in the
interpretation or administration thereof, or (z) compliance by CIT or such
financial institution with any new request or directive regarding capital
adequacy (whether or not having the force of law) of any central bank or other
governmental or regulatory authority, has or would have the effect of reducing
the rate of return on CIT's or such financial institution's capital as a
consequence of its obligations hereunder to a level below that which CIT or such
financial institution could have achieved but for such change or compliance
(taking into consideration CIT's or such financial institution's policies with
respect to capital adequacy) by an amount deemed material by CIT or such
financial institution in the exercise of their reasonable business judgment, the
Company agrees to pay to CIT, no later than five (5) days following demand by
CIT, such additional amount or amounts as will compensate CIT or such financial
institution for such reduction in rate of return. In determining such amount or
38
amounts, CIT and such financial institution may use any reasonable averaging or
attribution methods. The protection of this Section 8.9 shall be available to
CIT and such financial institution regardless of any possible contention of
invalidity or inapplicability with respect to the applicable law, regulation or
condition. A certificate of CIT or such financial institution setting forth such
amount or amounts as shall be necessary to compensate CIT or such financial
institution with respect to this Section 8.9 and the calculation thereof, when
delivered to the Company, shall be conclusive and binding on the Company absent
manifest error. In the event CIT or such financial institution exercises its
rights pursuant to this Section 8.9, and subsequent thereto determines that the
amounts paid by the Company exceeded the amount which CIT or such financial
institution actually required to compensate CIT or such financial institution
for any reduction in rate of return on its capital, such excess shall be
returned to the Company by CIT or such financial institution, as the case may
be.
8.10. TAXES, RESERVES AND OTHER CONDITIONS. In the event that any
applicable law, treaty or governmental regulation, or any change therein or in
the interpretation or application thereof, or compliance by CIT (or by any
financial institution that purchases from CIT a participation in the loans made
by CIT to the Company hereunder) with any new request or directive (whether or
not having the force of law) of any central bank or other governmental or
regulatory authority, shall:
(a) subject CIT or such financial institution to any tax of any kind
whatsoever with respect to this Financing Agreement or the other Loan Documents,
or change the basis of taxation of payments to CIT or such financial institution
of principal, fees, interest or any other amount payable hereunder or under any
of the other Loan Documents (except for changes in the rate of tax on the
overall net income of CIT or such financial institution by the federal
government or other jurisdiction in which it maintains its principal office);
(b) impose, modify or hold applicable any reserve, special deposit,
assessment or similar requirement against assets held by, or deposits in or for
the account of, advances or loans by, or other credit extended by CIT or such
financial institution by reason of or in respect to this Financing Agreement and
the Loan Documents, including (without limitation) pursuant to Regulation D of
the Board of Governors of the Federal Reserve System; or
(c) impose on CIT or such financial institution any other condition with
respect to this Financing Agreement or any other document;
and the result of any of the foregoing is to (i) increase the cost to CIT of
making, renewing or maintaining CIT's loans hereunder (or the cost to such
financial institution in participating in such loans) by an amount deemed
material by CIT or such financial institution in the exercise of their
reasonable business judgment, or (ii) reduce the amount of any payment (whether
of principal, interest or otherwise) in respect of any of the loans made
hereunder by an amount that CIT or such financial institution deems to be
material in the exercise of its reasonable business judgment, the Company agrees
to pay to CIT, no later than five (5) days following demand by CIT, such
additional amount or amounts as will compensate CIT or such financial
institution for such increase in cost or reduction in payment, as the case may
be. A certificate of CIT or such financial institution setting forth such amount
or amounts as shall be necessary to compensate CIT or such financial institution
with respect to this Section 8.13 and the calculation thereof,
39
when delivered to the Company, shall be conclusive and binding on the Company
absent manifest error. In the event CIT or such financial institution exercises
its rights pursuant to this Section 8.13, and subsequent thereto determines that
the amounts paid by the Company in whole or in part exceeded the amount which
CIT or such financial institution actually required to compensate CIT or such
financial institution for any increase in cost or reduction in payment, such
excess shall be returned to the Company by CIT or such financial institution, as
the case may be.
8.11. AUTHORITY TO CHARGE REVOLVING LOAN ACCOUNT. The Company hereby
authorizes CIT to charge the Revolving Loan Account with the amount of all
payments due under this Section 8 as such payments become due. Any amount
charged to the Revolving Loan Account shall be deemed a Chase Bank Rate Loan
hereunder and shall bear interest at the rate provided in Section 8.1 (or
Section 8.2, if applicable) of this Financing Agreement. The Company confirms
that any charges which CIT may make to the Revolving Loan Account as provided
herein will be made as an accommodation to the Company and solely at CIT's
discretion.
SECTION 9. POWERS.
9.1. AUTHORITY. The Company hereby authorizes CIT, or any person or agent
which CIT may designate, at the Company's cost and expense, to exercise all of
the following powers, which authority shall be irrevocable until the termination
of this Financing Agreement and the full and final payment and satisfaction of
the Obligations:
(a) To receive, take, endorse, sign, assign and deliver, all in the name
of CIT or the Company, any and all checks, notes, drafts, and other documents or
instruments relating to the Collateral;
(b) To receive, open and dispose of all mail addressed to the Company and
to notify postal authorities to change the address for delivery thereof to such
address as CIT may designate;
(c) To request from customers indebted on Accounts at any time, in the
name of CIT, information concerning the amounts owing on the Accounts;
(d) To request from customers indebted on Accounts at any time, in the
name of the Company, any certified public accountant designated by CIT or any
other designee of CIT, information concerning the amounts owing on the Accounts;
(e) To transmit to customers indebted on Accounts notice of CIT's interest
therein and to notify customers indebted on Accounts to make payment directly to
CIT for the Company's account; and
(f) To take or bring, in the name of CIT or the Company, all steps,
actions, suits or proceedings deemed by CIT necessary or desirable to enforce or
effect collection of the Accounts.
40
9.2. LIMITATIONS ON EXERCISE. Notwithstanding any other provision of this
Financing Agreement to the contrary, the powers set forth in Sections 9.1(b),
(c), (e) and (f) may only be exercised if an Event of Default shall have
occurred and remain outstanding.
SECTION 10. EVENTS OF DEFAULT AND REMEDIES.
10.1. EVENTS OF DEFAULT. Each of the following events shall constitute an
"Event of Default" under this Agreement:
(a) the cessation of the business of the Company, any Guarantor or any
other Subsidiary of the Company, or the calling of a meeting of the creditors of
the Company, any Guarantor or any other Subsidiary of the Company for purposes
of compromising its debts and obligations;
(b) the failure of either the Company, any Guarantor or any other
Subsidiary of the Company to generally meet its debts as those debts mature;
(c) (i) the commencement by the Company, any Guarantor or any other
Subsidiary of the Company of any bankruptcy, insolvency, arrangement,
reorganization, receivership or similar proceedings under any federal or state
law; or (ii) the commencement against the Company, any Guarantor or any other
Subsidiary of the Company of any bankruptcy, insolvency, arrangement,
reorganization, receivership or similar proceeding under any federal or state
law by creditors of any of them, but only if such proceeding is not contested by
the Company, any Guarantor or any other Subsidiary of the Company, as
applicable, within ten (10) days and not dismissed or vacated within thirty (30)
days of commencement, or any of the actions or relief sought in any such
proceeding shall occur or be authorized by the Company, any Guarantor or any
other Subsidiary of the Company;
(d) the breach or violation by the Company of any warranty, representation
or covenant contained in this Financing Agreement (other than those referred to
in Section 10.1(e) below), provided that such breach or violation shall not be
deemed to be an Event of Default unless the Company fails to cure such breach or
violation to CIT's reasonable satisfaction within ten (10) days from the date of
such breach or violation;
(e) the breach or violation by the Company of any warranty, representation
or covenant contained in Sections 3.2, 6.3, 6.4, 6.5, 7.2(c), 7.2(d), 7.2(g),
7.3 and 7.4;
(f) the failure of the Company to pay any of the Obligations within five
(5) Business Days of the due date thereof, provided that nothing contained
herein shall prohibit CIT from charging such amounts to the Revolving Loan
Account on the due date thereof;
(g) the Company shall (i) engage in any "prohibited transaction" as
defined in ERISA, (ii) incur any "accumulated funding deficiency" as defined in
ERISA, (iii) incur any "reportable event" as defined in ERISA, (iv) terminate
any "plan", as defined in ERISA or (v) become involved in any proceeding in
which the Pension Benefit Guaranty Corporation shall seek appointment, or is
appointed, as trustee or administrator of any "plan", as defined in ERISA, and
with respect this Section 10.1(g), such event or condition either (x) remains
uncured for a period of thirty (30) days from date of occurrence and (y) could,
in CIT's reasonable
41
business judgment, subject the Company to any tax, penalty or other liability
having a Material Adverse Effect;
(h) the occurrence of any default or event of default (after giving effect
to any applicable grace or cure period) under any of the other Loan Documents,
or any of the other Loan Documents ceases to be valid, binding and enforceable
in accordance with its terms, is declared to be null and void, or the Company or
any Guarantor denies that it has any further liability under any Loan Documents
to which it is party, or gives notice to such effect;
(i) the occurrence of any default or event of default under the Factoring
Agreement;
(j) the occurrence of any default or event of default (after giving effect
to any applicable grace or cure period) if the effect of such default or event
of default could permit acceleration of such indebtedness under any instrument
or agreement evidencing or governing (i) the Subordinated Debt or (ii) other
Indebtedness of the Company having a principal amount in excess of $100,000; or
(k) the Company shall modify the terms or provisions of any agreement,
instrument or other document relating to any Subordinated Debt without CIT's
prior written consent, unless such modification is permitted by the applicable
Subordination Agreement.
10.2. REMEDIES WITH RESPECT TO OUTSTANDING LOANS. Upon the occurrence of a
Default or an Event of Default, at the option of CIT, all loans, advances and
extensions of credit provided for in Sections 3 and 5 of this Financing
Agreement thereafter shall be made in CIT's sole discretion, and the obligation
of CIT to make Revolving Loans, and to assist the Company in opening Letters of
Credit, shall cease unless such Default is cured to CIT's satisfaction or such
Event of Default is waived in accordance herewith. In addition, upon the
occurrence of an Event of Default, CIT may, at its option (a) declare all
Obligations immediately due and payable, (b) charge the Company the Default Rate
of Interest on all then outstanding or thereafter incurred Obligations in lieu
of the interest provided for in Sections 8.1 of this Financing Agreement,
provided that CIT has given the Company written notice of such Event of Default
if required by Section 8.2, and (c) immediately terminate this Financing
Agreement upon notice to the Company. Notwithstanding the foregoing, (x) CIT's
commitment to make loans, advances and extensions of credit provided for in
Sections 3 and 5 of this Financing Agreement automatically shall terminate
without any declaration, notice or demand by CIT upon the commencement of any
proceeding described in clause (ii) of Section 10.1(c), and (y) this Financing
Agreement automatically shall terminate and all Obligations shall become due and
payable immediately without any declaration, notice or demand by CIT, upon the
commencement of any proceeding described in clause (i) of Section 10.1(c) or the
occurrence of an Event of Default described in clause (ii) of Section 10.1(c).
The exercise of any option is not exclusive of any other option that may be
exercised at any time by CIT.
10.3. REMEDIES WITH RESPECT TO COLLATERAL. Immediately after the
occurrence of an Event of Default, CIT may, at its option, to the extent
permitted by applicable law: (a) remove from any premises where same may be
located any and all books and records, computers, electronic media and software
programs associated with any Collateral (including electronic records, contracts
and signatures pertaining thereto), documents, instruments and files, and any
42
receptacles or cabinets containing same, relating to the Accounts, and CIT may
use, at the Company's expense, such of the Company's personnel, supplies or
space at the Company's places of business or otherwise, as may be necessary to
properly administer and control the Accounts or the handling of collections and
realizations thereon; (b) bring suit, in the name of the Company or CIT, and
generally shall have all other rights respecting the Accounts, including,
without limitation, the right to (i) accelerate or extend the time of payment,
(ii) settle, compromise, release in whole or in part any amounts owing on any
Accounts and (iii) issue credits in the name of the Company or CIT; (c) sell,
assign and deliver the Collateral and any returned, reclaimed or repossessed
merchandise, with or without advertisement, at public or private sale, for cash,
on credit or otherwise, at CIT's sole option and discretion, and CIT may bid or
become a purchaser at any such sale, free from any right of redemption, which
right is hereby expressly waived by the Company; (d) foreclose CIT's security
interests in the Collateral by any available judicial procedure, or take
possession of any or all of the Collateral without judicial process, and to
enter any premises where any Collateral may be located for the purpose of taking
possession of or removing the same; and (e) exercise any other rights and
remedies provided in law, in equity, by contract or otherwise. CIT shall have
the right, without notice or advertisement, to sell, lease, or otherwise dispose
of all or any part of the Collateral whether in its then condition or after
further preparation or processing, in the name of the Company or CIT, or in the
name of such other party as CIT may designate, either at public or private sale
or at any broker's board, in lots or in bulk, for cash or for credit, with or
without warranties or representations (including, without limitation, warranties
of title, possession, quiet enjoyment and the like), and upon such other terms
and conditions as CIT in its sole discretion may deem advisable, and CIT shall
have the right to purchase at any such sale. If any Inventory and Equipment
shall require rebuilding, repairing, maintenance or preparation, CIT shall have
the right, at its option, to do such of the aforesaid as is necessary, for the
purpose of putting the Inventory and Equipment in such saleable form as CIT
shall deem appropriate. The Company agrees, at the request of CIT, to assemble
the Inventory and Equipment, and to make it available to CIT at premises of the
Company or elsewhere and to make available to CIT the premises and facilities of
the Company for the purpose of CIT's taking possession of, removing or putting
the Inventory and Equipment in saleable form. If notice of intended disposition
of any Collateral is required by law, it is agreed that ten (10) days notice
shall constitute reasonable notification and full compliance with the law. The
net cash proceeds resulting from CIT's exercise of any of the foregoing rights
(after deducting all Out-of-Pocket Expenses relating thereto) shall be applied
by CIT to the payment of the Obligations, whether due or to become due, in such
order as CIT may elect, and the Company shall remain liable to CIT for any
deficiencies, and CIT in turn agrees to remit to the Company or its successors
or assigns, any surplus resulting therefrom. The enumeration of the foregoing
rights is not intended to be exhaustive and the exercise of any right shall not
preclude the exercise of any other right of CIT under applicable law or the
other Loan Documents, all of which shall be cumulative.
10.4. GENERAL INDEMNITY. In addition to the Company's agreement to
reimburse CIT for Out-of-Pocket Expenses, but without duplication, the Company
hereby agrees to indemnify CIT and its officers, directors, employees, attorneys
and agents (each, an "Indemnified Party") from, and to defend and hold each
Indemnified Party harmless against, any and all losses, liabilities,
obligations, claims, actions, judgments, suits, damages, penalties, costs, fees,
expenses (including reasonable attorney's fees) of any kind or nature which at
any time may be imposed on, incurred by, or asserted against, any Indemnified
Party:
43
(a) as a result of CIT's exercise of (or failure to exercise) any of CIT's
rights and remedies hereunder, including, without limitation, (i) any sale or
transfer of the Collateral, (ii) the preservation, repair, maintenance,
preparation for sale or securing of any Collateral, and (iii) the defense of
CIT's interests in the Collateral (including the defense of claims brought by
the Company, as a debtor-in-possession or otherwise, any secured or unsecured
creditors of the Company, or any trustee or receiver in bankruptcy);
(b) as a result of any environmental pollution, hazardous material or
environmental clean up relating to the Company's operation and use of its leased
premises;
(c) arising from or relating to (i) the maintenance and operation of any
Depository Account, (ii) any Depository Account Control Agreements and (iii) any
action taken (or failure to act) by any Indemnified Party with respect thereto;
(d) in connection with any regulatory investigation or proceeding by any
regulatory authority or agency having jurisdiction over the Company; and
(e) otherwise relating to or arising out of the transactions contemplated
by this Financing Agreement and the other Loan Documents, or any action taken
(or failure to act) by any Indemnified Party with respect thereto;
provided that an Indemnified Party's conduct in connection with the any of the
foregoing matters does not constitute gross negligence or willful misconduct, as
finally determined by a court of competent jurisdiction. This indemnification
shall survive the termination of this Financing Agreement and the payment and
satisfaction of the Obligations. CIT may from time to time establish
Availability Reserves with respect to this indemnity as CIT may deem advisable
in the exercise of its reasonable business judgment, and upon termination of
this Financing Agreement, CIT may hold such reserves as cash reserves as
security for this indemnity.
SECTION 11. TERMINATION.
Except as otherwise provided in Section 10.2 hereof, CIT may terminate
this Financing Agreement and the Line of Credit only as of the initial or any
subsequent Termination Date, and then only by giving the Company at least sixty
(60) days prior written notice of termination. The Company may terminate this
Financing Agreement at any time prior to any Termination Date upon forty-five
(45) days prior written notice to CIT, provided that the Company pays to CIT
immediately upon demand any applicable Early Termination Fee. THIS FINANCING
AGREEMENT, UNLESS TERMINATED AS HEREIN PROVIDED, SHALL AUTOMATICALLY CONTINUE
FROM TERMINATION DATE TO TERMINATION DATE. All Obligations shall become due and
payable in full on the date of any termination hereunder and, pending a final
accounting of the Obligations, CIT may withhold any credit balances in the
Revolving Loan Account (unless supplied with an indemnity satisfactory to CIT)
as a cash reserve to cover any contingent Obligation then outstanding,
including, but not limited to, an amount equal to 110% of the face amount of any
outstanding Letters of Credit. All of CIT's rights, liens and security interests
granted pursuant to the Loan Documents shall continue after any termination of
this Financing Agreement until all Obligations have been fully and finally paid
and satisfied.
44
SECTION 12. MISCELLANEOUS.
12.1. WAIVERS. The Company hereby waives diligence, demand, presentment,
protest and any notices thereof as well as notices of nonpayment, intent to
accelerate and acceleration. No waiver of an Event of Default by CIT shall be
effective unless such waiver is in writing and signed by CIT. No delay or
failure of CIT to exercise any right or remedy hereunder, whether before or
after the happening of any Event of Default, shall impair any such right or
remedy, or shall operate as a waiver of such right or remedy, or as a waiver of
such Event of Default. A waiver on any one occasion shall not be construed as a
bar to or waiver of any right or remedy on any future occasion. No single or
partial exercise by CIT of any right or remedy precludes any other or further
exercise thereof, or precludes any other right or remedy.
12.2. ENTIRE AGREEMENT; AMENDMENTS. This Financing Agreement and the other
Loan Documents: (a) constitute the entire agreement between the Company and CIT;
(b) supersede any prior agreements (including the agreements set forth in the
Commitment Letter); (c) may be amended only by a writing signed by the Company
and CIT; and (d) shall bind and benefit the Company and CIT and their respective
successors and assigns. Should the provisions of any Loan Document conflict with
the provisions of this Financing Agreement, the provisions of this Financing
Agreement shall apply and govern.
12.3. USURY LIMIT. In no event shall the Company, upon demand by CIT for
payment of any indebtedness relating hereto, by acceleration of the maturity
thereof, or otherwise, be obligated to pay interest and fees in excess of the
amount permitted by law. Regardless of any provision herein or in any agreement
made in connection herewith, CIT shall never be entitled to receive, charge or
apply, as interest on any indebtedness relating hereto, any amount in excess of
the maximum amount of interest permissible under applicable law. If CIT ever
receives, collects or applies any such excess, it shall be deemed a partial
repayment of principal and treated as such. If as a result, the entire principal
amount of the Obligations is paid in full, any remaining excess shall be
refunded to the Company. This Section 12.3 shall control every other provision
of the Financing Agreement, the other Loan Documents and any other agreement
made in connection herewith.
12.4. SEVERABILITY. If any provision hereof or of any other Loan Document
is held to be illegal or unenforceable, such provision shall be fully severable,
and the remaining provisions of the applicable agreement shall remain in full
force and effect and shall not be affected by such provision's severance.
Furthermore, in lieu of any such provision, there shall be added automatically
as a part of the applicable agreement a legal and enforceable provision as
similar in terms to the severed provision as may be possible.
12.5. WAIVER OF JURY TRIAL; SERVICE OF PROCESS. THE COMPANY AND CIT EACH
HEREBY WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING ARISING
OUT OF OR RELATING TO THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED
THEREUNDER. THE COMPANY HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS
AND CONSENTS TO SERVICE OF PROCESS BY CERTIFIED OR REGISTERED MAIL, RETURN
RECEIPT REQUESTED. IN NO EVENT WILL CIT BE LIABLE FOR LOST PROFITS OR OTHER
SPECIAL OR CONSEQUENTIAL DAMAGES.
45
12.6. NOTICES. Except as otherwise herein provided, any notice or other
communication required hereunder shall be in writing (messages sent by e-mail or
other electronic transmission (other than by telecopier) shall not constitute a
writing, however any signature on a document or other writing that is
transmitted by e-mail or telecopier shall constitute a valid signature for
purposes hereof), and shall be deemed to have been validly served, given or
delivered when received by the recipient if hand delivered, sent by commercial
overnight courier or sent by facsimile, or three (3) Business Days after deposit
in the United States mail, with proper first class postage prepaid and addressed
to the party to be notified as follows:
(a) if to CIT, at:
The CIT Group/Commercial Services, Inc.
1211 Avenue of the Americas
New York, NY 10038
Attn: Marc Theisinger
Telecopier No.: 212.382.7260;
With a courtesy copy of any material notice to CIT's counsel at:
Hahn & Hessen, LLP
488 Madison Avenue, 14th Floor
New York, NY 10022
Attn: Daniel J. Krauss, Esq.
Fax No.: 212.478.7400
(b) if to the Company at:
R.G. Barry Corporation
13405 Yarmouth Road, N.W.
Pickerington, OH 43147
Attn: Thomas Von Lehman, President and CEO
Telecopier No.: 614.866.9787;
With a courtesy copy of any material notice to the Company's counsel at:
Blank Rome LLP
The Chrysler Building
405 Lexington Avenue
New York, NY 10174
Attn: Robert Stein, Esq.
Fax No.: 212.885.5001; or
(c) to such other address as any party may designate for itself by
like notice.
46
12.7. CHOICE OF LAW. THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF
THIS FINANCING AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY
THE LAWS OF THE STATE OF NEW YORK, EXCEPT TO THE EXTENT THAT ANY OTHER
LOAN DOCUMENT INCLUDES AN EXPRESS ELECTION TO BE GOVERNED BY THE LAWS OF
ANOTHER JURISDICTION.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK]
[SIGNATURE PAGE FOLLOWS]
47
IN WITNESS WHEREOF, the parties hereto have caused this Financing
Agreement to be executed, accepted and delivered at New York, New York, by their
proper and duly authorized officers as of the date set forth above.
THE COMPANY: CIT:
R.G. BARRY CORPORATION THE CIT GROUP/COMMERCIAL
SERVICES, INC.
By: /s/ Thomas Von Lehman By: /s/ Marc Theisinger
---------------------- ----------------------
Name: Thomas Von Lehman Name: Marc Theisinger
Title: President and CEO Title: Vice President
EXHIBIT A
COMPLIANCE CERTIFICATE
[Date]
The CIT Group/Commercial Services, Inc.
1211 Avenue of the Americas
New York, New York 10036
RE: Financing Agreement dated as of March 31, 2005 (the "Financing
Agreement") between The CIT Group/Commercial Services, Inc. ("CIT")
and R.G. Barry Corporation (the "Company")
Ladies and Gentlemen:
Reference is made to the Financing Agreement. Capitalized terms used
herein and not specifically defined shall have the meanings given to such terms
in the Financing Agreement.
Pursuant to Section 7.2(h) of the Financing Agreement, I enclose the
Company's financial statements for the fiscal month ended _______, 200__ (the
"Reporting Month") and the fiscal year-to-date period ended _______, 200__. As
the ________ of the Company, I hereby certify to CIT that: (a) the financial
statement(s) fairly and accurately the Company's financial condition at the end
of the particular accounting periods covered by such financial statements, as
well as the Company's operating results during such accounting periods, subject
to year end audit adjustments; (b) during the Reporting Month, (i) to my
knowledge, there has occurred no Default or Event of Default under the Financing
Agreement, or, if I have knowledge that any Default or Event of Default has
occurred during such period, a detailed description thereof is set forth on the
Exhibit __ attached hereto, and (ii) the Company has not received any notice of
cancellation with respect to its property insurance policies; and (c) Exhibit __
attached hereto sets forth detailed calculations showing compliance with all
financial covenants contained in the Financing Agreement, for the periods of
measurement covered by or ending on the last day of the Reporting Month.
Very truly yours,
[ATTACH APPROPRIATE EXHIBITS]
SCHEDULE 1.1(a) - EXISTING INDEBTEDNESS
INDEBTEDNESS OF R. G. BARRY CORPORATION
The CIT Factoring and Financing Agreement
Cash Surrender Value Life Insurance Policy Loan
Indebtedness to S. Goldberg & Co., Inc.
INDEBTEDNESS OF SUBSIDIARIES
Indebtedness of Fargeot et Cie, S. A. to its banks
50
SCHEDULE 7.1(b) - COMPANY AND COLLATERAL INFORMATION
EXACT COMPANY NAME IN STATE OF - R. G. BARRY CORPORATION. Incorporated in the
State of Ohio
INCORPORATION OR FORMATION: Corporation
STATE OF INCORPORATION OR FORMATION: Ohio
F.E.I.N.: 31-4362899
STATE ORGANIZATIONAL NO.: 631200
ADDRESS OF CHIEF EXECUTIVE OFFICE: 13405 Yarmouth Road NW, Pickerington, Ohio
43147
COLLATERAL LOCATIONS:
13405 YARMOUTH ROAD NW., PICKERINGTON, OHIO 43147, HEADQUARTERS
6335 CAMP BULLIS ROAD, SUITE 1, SAN ANTONIO, TEXAS 78257,
SMALL TWO PERSON OFFICE - MONTH TO MONTH RENTAL
350 FIFTH AVENUE, SUITE 1209, NEW YORK, NY, SALES OFFICE
BARRY OF SAN ANGELO - DISTRIBUTION CENTER
3301 BARRY AVENUE, SAN ANGELO, TEXAS 76901
BARRY OF SAN ANGELO - WAREHOUSING and DISTRIBUTION CENTER
2800 LOOP 306 & FALLS CREEK DRIVE, SAN ANGELO, TEXAS 76904
HUDD DISTRIBUTION SERVICES, Inc.
18215 EAST ROWLAND, CITY OF INDUSTRY, CALIFORNIA 91748-1239
WAREHOUSING AND DISTRIBUTION
1004 BEAU TERRE DRIVE, SUITE 506,BENTONVILLE, ARKANSAS 72712
SALES OFFICE
51
SCHEDULE 7.4(e) - GUARANTY OBLIGATIONS
R. G. Barry Corporation has guaranteed a subsidiary's Lease obligation in Nuevo
Laredo, Mexico.
52
SCHEDULE 8.3 - LETTER OF CREDIT FEE SCHEDULE
LETTER OF CREDIT FEE SCHEDULE
TRANSACTION FEE MINIMUM
- ---------------- ----------- -------
ISSUANCE 1/4% of face amount $ 70.00
Plus: Processing Fee $ 70.00
Cable Fee $ 35.00
AMENDMENTS
L/C Amount Increase 1/4% of the increased amount $ 70.00
Plus: Processing Fee
First four amendments $ 95.00
After fourth $125.00
GUARANTEES $ 50.00
Plus: Processing Fee $ 50.00
DISCREPANCIES $ 50.00
CANCELLATIONS $ 50.00
UNUTILIZED L/C FEE $100.00
MONTHLY COMMISSIONS 3% per annum
charged monthly $100.00
PAYMENTS
Sight 1/4% of draft amount $ 55.00
Time 1-1/2% per annum $ 85.00
on draft amount for term
53
STANDBY L/C'S
ISSUANCE 3% per annum of the face
amount of the standby L/C $1,000.00
Payment fee $1,000.00
Amendment fee $1,000.00
All above scheduled fees do not include bank charges which are also payable
by the Company
54
ANNEX A - COLLATERAL REPORTING PROVISIONS
COLLATERAL REPORTING AND INFORMATION. (i) The Company agrees to furnish to
CIT:
(1) At least once each week (but more frequently upon CIT's reasonable
request), a borrowing base certificate in form and substance satisfactory to
CIT, certified by the treasurer or chief financial officer of the Company (or
any other authorized officer satisfactory to CIT), together with such
confirmatory schedules of Trade Accounts Receivable and Inventory (in form and
substance satisfactory to CIT) as CIT reasonably may request. CIT, in its sole
discretion, may permit the Company to access CIT's System for the purpose (in
addition to those set forth in Section 3.7) of completing and submitting
borrowing base certificates when required hereunder.
(2) On or before the fifth (5th) Business Day of each fiscal month (but
more frequently upon CIT's reasonable request), a detailed and summary aging
report of Trade Accounts Receivable existing as of the last day of the preceding
fiscal month, a roll-forward of Trade Accounts Receivable from the first day of
the preceding month through the last day of the preceding fiscal month, and, on
or before the tenth (10th) Business Day of each fiscal month, a summary of
Inventory as of the last day of the preceding fiscal month, all in such form as
CIT reasonably shall require, certified by the treasurer or the chief financial
officer of the Company (or any other authorized officer satisfactory to CIT),
together with (x) a reconciliation, as of the last day of the preceding fiscal
month, of the Company's Trade Accounts Receivable aging report to the Company's
general ledger and applicable borrowing base certificate delivered by the
Company to CIT, and (z) if required by CIT, such other information sufficient to
allow CIT to update the amount of Eligible Accounts Receivable and Eligible
Inventory.
(3) On or before the 20th day of each fiscal month (but more frequently
upon CIT's reasonable request), an aged trial balance of all the Company's
accounts payable as of the last day of the preceding fiscal month.
(4) Prompt written disclosure of (x) all matters adversely affecting the
value, enforceability or collectibility of the Trade Accounts Receivable of the
Company, (y) all customer disputes, offsets, defenses, counterclaims, returns,
rejections and all reclaimed or repossessed merchandise or goods, and (z) all
matters adversely effecting the value or marketability of the Inventory, all in
such detail and format as CIT reasonably may require, provided that to the
extent that any such matter would not have a Material Adverse Effect, the
Company may disclose such matter to CIT when the Company provides CIT with the
borrowing base certificate described in clause (i) above.
(5) Prior written notice of any change in the location of any Collateral
and any material change in type, quantity, quality or mix of the Inventory.
(6) From time to time, access to the Company's computers, electronic
media, software programs (including any electronic records, contracts and
signatures) and such other documentation and information relating to the Trade
Accounts Receivable, Inventory and other Collateral as CIT reasonably may
require.
(ii) The Company may deliver to CIT any borrowing base certificate,
collateral report or other material that the Company is required to deliver to
CIT under clauses (1), (2) and (3) of
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Section 7.2(g)(i) by e-mail or other electronic transmission (an "Electronic
Transmission"), subject to the following terms:
(1) Each Electronic Transmission must be sent by the treasurer or chief
financial officer of the Company (or any other authorized officer satisfactory
to CIT), and must be addressed to the loan officer of CIT that handle the
Company's account, as designated by CIT from time to time. If any Electronic
Transmission is returned to the sender as undeliverable, the material included
in such Electronic Transmission must be delivered to the intended recipient in
the manner required by Section 12.6 hereof.
(2) Each certificate, collateral report or other material contained in an
Electronic Transmission must be in a "pdf" or other imaging format and, to the
extent that such material must be certified by an officer of the Company under
this Section 7.2(g)), must contain the signature of the officer submitting the
Electronic Transmission. As provided in Section 12.6, any signature on a
certificate, collateral report or other material contained in an Electronic
Transmission shall constitute a valid signature for purposes hereof. CIT may
rely upon, and assume the authenticity of, any such signature, and any material
containing such signature shall constitute an "authenticated" record for
purposes of the Uniform Commercial Code and shall satisfy the requirements of
any applicable statute of frauds.
(3) Each Electronic Transmission must contain the name and title of the
officer of the Company transmitting the Electronic Transmission, and shall
include following text in the body of the Electronic Transmission:
"Pursuant to the Financing Agreement dated as of March 31, 2005
between The CIT Group/Commercial Services, Inc. ("CIT") and R.G.
Barry Corporation (the "Company"), the undersigned __________ [title
of submitting officer] of the Company hereby delivers to CIT the
Company's ____________ [describe submitted reports]. The Company
represents and warrants to CIT that the materials included in this
Electronic Transmission are true, correct, and complete in all
material respects. The name of the officer of the Company set forth
in this e-mail constitutes the signature of such officer, and this
e-mail shall constitute an authenticated record of the Company."
(4) The Company agrees to maintain the original versions of all
certificates, collateral reports and other materials delivered to CIT by means
of an Electronic Transmission and agrees to furnish to CIT such original
versions within five (5) Business Days of CIT's request for such materials,
signed and certified (to the extent required hereunder) by the officer
submitting the Electronic Transmission.
(iii) The Company hereby authorizes CIT to regard the Company's printed
name or rubber stamp signature on assignment schedules or invoices as the
equivalent of a manual signature by one of the Company's authorized officers or
agents. The Company's failure to promptly deliver to CIT any schedule, report,
statement or other information set forth in this Section 7.2(g) shall not
affect, diminish, modify or otherwise limit CIT's security interests in the
Collateral.
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