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Exhibit 10.11
LOAN AND SECURITY AGREEMENT
DATED AS OF
JUNE 6, 1997
BETWEEN
AMERICAN EAGLE OUTFITTERS, INC.
AND
AZTECA PRODUCTION INTERNATIONAL, INC.
Porter, Wright, Morris & Arthur
41 South High Street
Columbus, Ohio 43215
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TABLE OF CONTENTS
SECTION HEADING PAGE #
1 THE LOAN........................................................................................1
2 ELIGIBLE INVENTORY..............................................................................1
3 TERMS AND USES OF LOAN..........................................................................1
3.1 INTEREST RATE..........................................................................1
3.2 TERMS OF REPAYMENT.....................................................................1
3.3 COSTS AND EXPENSES.....................................................................1
3.4 USE OF PROCEEDS........................................................................2
3.5 DEMAND LOAN............................................................................2
3.6 THE GUARANTORS.........................................................................2
3.7 INTERCREDITOR AGREEMENT................................................................2
3.8 MAXIMUM CHARGES. ......................................................................2
4 SECURITY AGREEMENT..............................................................................2
4.1 GRANT OF SECURITY INTEREST.............................................................2
4.2 REPRESENTATIONS AND COVENANTS REGARDING THE COLLATERAL.................................3
4.3 PERFECTION; LIEN NOTATION. ............................................................3
4.4 COLLATERAL INSURANCE...................................................................4
4.5 BOOKS AND RECORDS......................................................................4
4.6 COLLATERAL ADMINISTRATION..............................................................4
4.7 PRESERVATION AND DISPOSITION OF COLLATERAL.............................................5
4.8 EXTENSIONS AND COMPROMISES.............................................................5
4.9 FINANCING STATEMENTS...................................................................5
4.10 LENDER'S APPOINTMENT AS ATTORNEY-IN-FACT...............................................6
4.11 REMEDIES ON DEFAULT....................................................................6
5 WARRANTIES AND REPRESENTATIONS..................................................................7
5.1 CORPORATE ORGANIZATION AND AUTHORITY. .................................................7
5.2 BORROWING IS LEGAL AND AUTHORIZED......................................................8
5.3 TAXES..................................................................................8
5.4 CAPITAL STRUCTURE......................................................................8
5.5 COMPLIANCE WITH LAW....................................................................8
5.6 FINANCIAL STATEMENTS; FULL DISCLOSURE..................................................9
5.7 LITIGATION: ADVERSE EFFECTS. ..........................................................9
5.8 NO INSOLVENCY. .......................................................................9
5.9 GOVERNMENT CONSENT.....................................................................9
5.10 TITLE TO PROPERTIES...................................................................10
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5.11 NO DEFAULTS...........................................................................10
5.12 ENVIRONMENTAL PROTECTION..............................................................10
5.13 REGARDING THE INVENTORY. .............................................................11
6 BORROWER BUSINESS COVENANTS....................................................................11
6.1 PAYMENT OF TAXES AND CLAIMS...........................................................11
6.2 MAINTENANCE OF PROPERTIES AND CORPORATE EXISTENCE. ...................................11
6.3 SALE OF ASSETS, MERGER, SUBSIDIARIES, TRADENAMES, CONDUCT OF
BUSINESS...........................................................................12
6.4 NEGATIVE PLEDGE.......................................................................12
6.5 NO CONSIGNMENT........................................................................13
6.6 MINIMUM SECURITY......................................................................13
6.7 MANAGEMENT............................................................................13
6.8 ACQUISITION OF CAPITAL STOCK..........................................................13
6.9 TRANSACTIONS WITH AFFILIATES..........................................................13
6.10 NO OFFSET.............................................................................13
6.11 MINIMUM INVENTORY ON HAND.............................................................13
6.12 ENVIRONMENTAL COMPLIANCE AND INDEMNIFICATION..........................................14
7 FINANCIAL INFORMATION AND REPORTING. .........................................................14
8 DEFAULT........................................................................................15
8.1 EVENTS OF DEFAULT.....................................................................15
8.2 DEFAULT REMEDIES......................................................................16
9 MISCELLANEOUS..................................................................................16
9.1 NOTICES...............................................................................16
9.2 ACCESS TO ACCOUNTANTS. ...............................................................17
9.3 REPRODUCTION OF DOCUMENTS.............................................................17
9.4 SURVIVAL, SUCCESSORS AND ASSIGNS......................................................17
9.5 AMENDMENT AND WAIVER, DUPLICATE ORIGINALS.............................................17
9.6 ACCOUNTING TREATMENT AND FISCAL YEAR..................................................18
9.7 ENFORCEABILITY AND GOVERNING LAW......................................................18
9.8 WAIVER OF RIGHT TO TRIAL BY JURY. ....................................................18
9.9 NO CONSEQUENTIAL DAMAGES. ............................................................19
9.10 INDEMNITY. ...........................................................................19
9.11 CONDITIONS PRECEDENT .................................................................19
10 DEFINITIONS....................................................................................19
10.1 UNIFORM COMMERCIAL CODE TERMS. .......................................................20
10.2 ACCOUNTING TERMS. ....................................................................20
10.3 OTHER DEFINITIONAL PROVISIONS. .......................................................20
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LOAN AND SECURITY AGREEMENT
This Loan and Security Agreement (this "Agreement") is entered into
between American Eagle Outfitters, Inc. (the "Lender") and Azteca Production
International, Inc. (the "Borrower") as of the 6th day of June, 1997.
1 THE LOAN. The Lender, subject to the terms and conditions hereof, will extend
credit to the Borrower up to the aggregate principal sum of $3,000,000.00 (the
"Loan"). The Loan shall be comprised of a demand loan facility up to the sum of
$3,000,000.00. The proceeds of the Loan may be advanced in partial amounts
prior to July 1, 1997; provided, however, that the Lender shall have no
obligation to make any advance at any time that there exists a Pending Default.
The principal balance of the Loan shall not exceed an amount equal to 100% of
Eligible Inventory (the "Borrowing Base"). The Lender, in its sole discretion,
reserves the right upon notice to the Borrower to decrease the foregoing
percentage.
2 ELIGIBLE INVENTORY. The term "Eligible Inventory" means the difference
between (a) that portion of the Borrower's inventory on which the Lender has a
perfected security interest that is junior only to the lien or security
interest of NationsBanc Commercial Corporation ("NationsBanc") and that the
Lender determines from time to time, based on credit policies, market
conditions, the Borrower's business and other matters, is eligible for use in
calculating the Borrowing Base, and (b) the aggregate outstanding balance of
all obligations of the Borrower to NationsBanc. For purposes of determining the
Borrowing Base, Eligible Inventory (unless the Lender agrees otherwise in
writing) shall not include obsolete or discontinued inventory, supply items,
packaging, or the freight portion of raw materials, inventory in the control of
a third person for processing, storage or any other reason, inventory located
outside the United States, inventory for which the Borrower has not obtained a
landlord's or bailee's waiver in favor of the Lender, consigned inventory, or
inventory in transit, and all inventory shall be valued at the lesser of cost
(on a FIFO basis) or market.
3 TERMS AND USES OF LOAN.
3.1 INTEREST RATE. The Borrower agrees to pay the Lender each month interest on
the unpaid balance of the Loan at the rates of interest set forth in the note
or notes evidencing the Loan.
3.2 TERMS OF REPAYMENT. The Loan shall be evidenced by a note, or by one or
more notes subsequently executed in substitution therefor, each in
substantially the form set forth in EXHIBIT A-1 attached hereto. Repayment of
the Loan shall be made in accordance with the terms of the promissory notes
then outstanding pursuant to this Agreement.
3.3 COSTS AND EXPENSES. The Borrower further agrees to pay all costs and
expenses incidental to or in connection with the Loan or any service provided
by the Lender, the enforcement of the Lender's rights in connection therewith,
any amendment or modification of this Agreement or any other loan documents,
any litigation, contest, dispute, proceeding or action in any way relating to
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the Collateral or to this Agreement, whether any of the foregoing are incurred
prior to or after maturity, the occurrence of an Event of Default, or the
rendering of a judgment. Such costs shall include, but not be limited to, fees
and out-of-pocket expenses of the Lender's counsel, recording fees, inspection
fees, revenue stamps and note and mortgage taxes.
3.4 USE OF PROCEEDS. The net proceeds of the Loan will be used to provide for
working capital requirements of the Borrower and for any other lawful business
purpose in the Borrower's business.
3.5 DEMAND LOAN. The Loan shall be due ON DEMAND, but if not sooner demanded,
shall be due and payable in full on April 1, 1998. In addition, the Loan, at
the option of the Lender, shall become immediately due and payable without
notice or demand upon the occurrence of any Event of Default.
3.6 THE GUARANTORS. Hubert Guez and Paul Guez (collectively the "Guarantors"
and separately a Guarantor) shall each unconditionally guarantee the full and
prompt payment of the Loan. In addition, Roxanne Marie Guez and David Charvet
(collectively, the "Pledgors" and separately a "Pledgor") shall each grant to
the Lender a security interest in such Plegor's membership interests in S.H.D.
Investments, LLC.
3.7 INTERCREDITOR AGREEMENT. The Borrower shall cause NationsBanc to enter into
an intercreditor agreement with the Lender that is satisfactory to the Lender
in its sole and absolute discretion.
3.8 MAXIMUM CHARGES. In no event whatsoever shall the interest rate and other
charges hereunder exceed the highest rate permissible under law which a court
of competent jurisdiction shall, in a final determination, deem applicable
hereto. In the event such a court determines that the Lender has received
interest or other charges hereunder in excess of the highest rate applicable
thereto, the Lender shall promptly refund such excess amount to the Borrower,
and the provisions hereof shall be deemed amended to provide for such
permissible rate.
4 SECURITY AGREEMENT.
4.1 GRANT OF SECURITY INTEREST. The Borrower hereby grants, pledges, conveys
and assigns to the Lender continuing security interests in the following
property, whether the Borrower's interest therein be as owner, co-owner,
lessee, consignee, secured party or otherwise, and whether the same be now
owned or existing or hereafter arising or acquired, and wherever located,
together with all substitutions, replacements, additions and accessions
therefor or thereto, all documents, negotiable documents, documents of title,
warehouse receipts, storage receipts, dock receipts, dock warrants, express
bills, freight bills, airbills, bills of lading, and other documents relating
thereto, all products thereof and all cash and non-cash proceeds thereof
including, but not limited to, notes, drafts, checks, instruments, insurance
proceeds, indemnity proceeds, warranty and guaranty proceeds (herein the
"Proceeds"): all inventory including, but not limited to, all goods,
merchandise and other personal property furnished under any contract of service
or intended for sale or lease, all parts, supplies, raw
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materials, work in process, finished goods, materials used or consumed, and
repossessed and returned goods (herein the "Inventory") (all of the Inventory
and the Proceeds herein are collectively termed the "Collateral").
The security interests hereby granted are to secure the prompt and
full payment and complete performance of all Obligations to the Lender. The
word "Obligations" means all indebtedness, debts and liabilities (including
principal, interest, late charges, collection costs, attorneys' fees and the
like) of the Borrower to the Lender, whether now existing or hereafter arising,
either created by the Borrower alone or together with another or others,
primary or secondary, secured or unsecured, absolute or contingent, liquidated
or unliquidated, direct or indirect, whether evidenced by note, draft,
application for letter of credit or otherwise, and any and all renewals of or
substitutes therefor, including all indebtedness owed to the Lender in
connection with the Loan.
The continuing security interests granted hereby shall extend to all
present and future Obligations, whether or not the Obligations are reduced or
extinguished and thereafter increased or reincurred, whether or not the
Obligations are related to the indebtedness identified above by class, type or
kind and whether or not the Obligations are specifically contemplated as of the
date hereof. The absence of any reference to this Agreement in any documents,
instruments or agreements evidencing or relating to any Obligation secured
hereby shall not limit or be construed to limit the scope or applicability of
this Agreement.
4.2 REPRESENTATIONS AND COVENANTS REGARDING THE COLLATERAL. The Borrower
represents and warrants that except for the security interests granted hereby,
any liens set forth in Exhibit B, and liens permitted by this Agreement, the
Borrower is, or as to Collateral arising or to be acquired after the date
hereof, shall be, the sole and exclusive owner of the Collateral, and the
Collateral is and shall remain free from any and all liens, security interests,
encumbrances, claims and interests, and no security agreement, financing
statement, equivalent security or lien instrument or continuation statement
covering any of the Collateral is on file or of record in any public office.
The Borrower shall not create, permit or suffer to exist, shall take such
action as is necessary to remove, any claim to or interest in or lien or
encumbrance upon the Collateral except the security interest granted hereby and
any liens or encumbrances set forth in Exhibit B, and shall defend the right,
title and interest of the Lender in and to the Collateral against all claims
and demands of all persons and entities at any time claiming the same or any
interest therein. The Borrower shall (a) maintain its principal place of
business and chief executive office at the address set forth in paragraph 9.1
of this Agreement, and the records concerning the Collateral shall be kept at
that address unless the Lender shall give its prior written consent otherwise;
(b) keep the Collateral at the locations set forth in Exhibit C attached hereto
and maintain no other place of business or place where Collateral is located,
except as shown in Exhibit C attached hereto; and (c) deliver to the Lender at
least thirty (30) days prior to the occurrence of any of the following events,
written notice of such impending events: (i) a change in the principal place of
business or chief executive office; (ii) the opening or closing of any place of
business; or (iii) a change in name, identity or corporate structure.
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4.3 PERFECTION; LIEN NOTATION. The Borrower agrees to execute, deliver, file
and record all such notices, affidavits, assignments, financing statements and
other instruments as shall in the judgment of the Lender be necessary or
desirable to evidence, validate and perfect the security interest of the Lender
in the Inventory.
4.4 COLLATERAL INSURANCE. The Borrower shall have and maintain insurance at all
times with respect to all Inventory insuring against risks of fire (including
so-called extended coverage), explosion, theft, sprinkler leakage and such
other casualties as the Lender may designate, containing such terms, in such
form, for such amounts, for such periods and written by such companies as may
be satisfactory to the Lender, and each such policy shall contain a clause or
endorsement satisfactory to the Lender that names the Lender as additional
insured and loss payee, as its interests may appear, that provides that no act,
default or breach of warranty or condition of the insured or any other person
shall affect the right of the Lender to recover under such policy or policies
of insurance or to pay any premium in whole or in part relating thereto, and
that provides for thirty (30) days' written minimum notice of cancellation or
alteration to the Lender. The Borrower shall deliver to the Lender certified
copies of all policies of insurance and evidence of the payment of all premiums
therefor. The Borrower hereby irrevocably appoints the Lender (and any of the
Lender's officers, employees or agents designated by the Lender) as
attorney-in-fact in obtaining and cancelling such insurance and in making,
settling and adjusting all claims under such policies of insurance, endorsing
any check, draft, instrument or other item of payment for the proceeds of such
policies of insurance and for making all determinations and decisions with
respect to such policies of insurance; provided, however, that the Lender shall
not exercise the power of attorney granted by this section until and unless (a)
an Event of Default shall have occurred or (b) an event of loss shall have
occurred and the Lender in good faith deems that the Borrower is not diligently
pursuing its claims. In the event of failure to provide insurance as herein
provided, the Lender may, at its option, provide such insurance, and the
Borrower shall pay to the Lender, upon demand, the cost thereof. Should said
sum not be paid to the Lender upon demand, interest shall accrue thereon from
the date of demand until paid in full at the highest rate set forth in any
document or instrument evidencing any of the Obligations.
4.5 BOOKS AND RECORDS. The Borrower shall (a) at all times keep accurate and
complete records of the Collateral in accordance with GAAP, including without
limitation, a perpetual inventory and complete and accurate stock records, and
at all reasonable times and from time to time, shall allow the Lender, by or
through any of its officers, agents, attorneys or accountants, to examine,
inspect and make extracts from such books and records and to examine and
inspect the Collateral wherever located, and (b) upon request of the Lender,
provide the Lender with copies of agreements with, purchase orders from, and
invoices to, the account debtors, and copies of all shipping documents,
delivery receipts, and such other documentation and information relating to the
Collateral as the Lender may require.
4.6 COLLATERAL ADMINISTRATION. The Borrower shall promptly perform, on request
of the Lender, such acts as the Lender may determine to be necessary or
advisable to create, perfect, maintain, preserve, protect and continue the
perfection of any lien and security interest provided for in this
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Agreement or otherwise to carry out the intent of this Agreement, including,
without limitation, (i) obtaining waivers or other similar documents reasonably
necessary to permit the enforcement of the remedies of the Lender hereunder,
(ii) delivering to the Lender warehouse receipts covering any portion of the
Inventory located in warehouses and for which warehouse receipts are issued,
(iii) transferring Inventory to warehouses designated by the Lender or leasing
warehouses containing the Inventory to the Lender or its designee, and (iv) if
any Inventory is at any time in the possession or control of a warehouseman,
bailee or any agent, notifying such person of the Lender's lien and security
interest in the Collateral and, upon the Lender's request, instructing such
persons to hold all Collateral for the Lender's account subject to the Lender's
instruction.
4.7 PRESERVATION AND DISPOSITION OF COLLATERAL. The Borrower shall (a) obtain,
prior to the placement of any Collateral in or upon any leased or mortgaged
real property, a waiver from the lessor and/or the mortgagee, as the case may
be, with respect to the rights (whether present or future) of the lessor or
mortgagee with respect to that Collateral; (b) advise the Lender promptly, in
writing and in reasonable detail, (i) of any material encumbrance or claim
asserted against any of the Collateral; (ii) of any material change in the
composition of the Collateral; and (iii) of the occurrence of any other event
that would have a material adverse effect upon the aggregate value of the
Collateral or upon the security interest of the Lender; (c) keep the Collateral
in good condition and shall not misuse, abuse, secrete, waste or destroy any of
the same; (d) not use the Collateral in violation of any statute, ordinance,
regulation, rule, decree or order; and (e) not permit any taxes, assessments,
charges or levies to become liens or encumbrances upon the Inventory or in
respect to the income or profits therefrom. At its option, the Lender may
discharge taxes, liens, security interests or other encumbrances at any time
levied or placed on the Collateral and may pay for the maintenance and
preservation of the Collateral. The Borrower agrees to reimburse the Lender
upon demand for any payment made or any expense incurred (including reasonable
attorneys' fees) by the Lender pursuant to the foregoing authorization. Should
said sum not be paid to the Lender upon demand, interest shall accrue thereon,
from the date of demand until paid in full, at the highest rate set forth in
any document or instrument evidencing any of the Obligations.
4.8 EXTENSIONS AND COMPROMISES. With respect to any Collateral, the Borrower
assents to all extensions or postponements of the time of payment thereof or
any other indulgence in connection therewith, to each substitution, exchange or
release of Collateral, to the addition or release of any party primarily or
secondarily liable, to the acceptance of partial payments thereon and to the
settlement, compromise or adjustment thereof, all in such manner and at such
time or times as the Lender may deem advisable. The Lender shall have no duty
as to the collection or protection of Collateral or any income therefrom, nor
as to the preservation of rights against prior parties, nor as to the
preservation of any right pertaining thereto, beyond the safe custody of
Collateral in the possession of the Lender.
4.9 FINANCING STATEMENTS. At the request of the Lender, the Borrower shall join
with the Lender in executing, delivering and filing one or more financing
statements in a form satisfactory to the Lender and shall pay the cost of
filing the same in all public offices wherever filing is deemed by
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the Lender to be necessary or desirable. A carbon, photographic or other
reproduction of this Agreement or of a financing statement shall be sufficient
as a financing statement.
4.10 LENDER'S APPOINTMENT AS ATTORNEY-IN-FACT. The Borrower hereby irrevocably
constitutes and appoints the Lender and any officer or agent thereof, with full
power of substitution, as the Borrower's true and lawful attorney-in-fact with
full irrevocable power and authority in its place and stead and in its name or
in the Lender's own name, from time to time in the Lender's discretion, for the
purpose of carrying out the terms of this Agreement, to take any and all
appropriate action and to execute any and all documents and instruments that
may be necessary or desirable to accomplish the purposes of this Agreement and,
without limiting the generality of the foregoing, hereby grants to the Lender
the power and right, on behalf of the Borrower, without notice to or assent:
(a) to execute, file and record all such financing statements, certificates of
title and other certificates of registration and operation and similar
documents and instruments as the Lender may deem necessary or desirable to
protect, perfect and validate the Lender's security interest in the Collateral;
(b) to receive, collect, take, indorse, sign, and deliver in the Borrower's or
the Lender's name, any and all checks, notes, drafts, or other documents or
instruments relating to the Collateral; and (c) upon the occurrence of an Event
of Default, (i) to notify postal authorities to change the address for delivery
of the Borrower's mail to an address designated by the Lender, (ii) to open
such mail delivered to the designated address, (iii) to sign and indorse any
invoices, freight or express bills, bills of lading, storage or warehouse
receipts, drafts against debtors, assignments, verifications and notices in
connection with accounts and other documents relating to the Collateral; (iv)
to commence and prosecute any suits, actions or proceedings at law or in equity
in any court of competent jurisdiction to collect the Collateral or any part
thereof and to enforce any other right in respect of any Collateral; (v) to
defend any suit, action or proceeding brought with respect to any Collateral;
(vi) to negotiate, settle, compromise or adjust any account, suit, action or
proceeding described above and, in connection therewith, to give such
discharges or releases as the Lender may deem appropriate; and (vii) generally,
to sell, transfer, pledge, make any agreement with respect to or otherwise deal
with any of the Collateral as fully and completely as though the Lender were
the absolute owner thereof for all purposes, and to do, at the Lender's option,
at any time or from time to time, all acts and things which the Lender deems
necessary to protect, preserve or realize upon the Collateral and the Lender's
security interest therein, in order to effect the intent of this Agreement.
The Borrower hereby ratifies all that said attorneys shall lawfully do
or cause to be done by virtue hereof. This power of attorney is a power coupled
with an interest and shall be irrevocable. The powers conferred upon the Lender
hereunder are solely to protect its interests in the Collateral and shall not
impose any duty upon the Lender to exercise any such powers. The Lender shall
be accountable only for amounts that the Lender actually receives as a result
of the exercise of such powers and neither the Lender nor any of its officers,
directors, employees or agents shall be responsible to the Borrower for any act
or failure to act, except for the Lender's own gross negligence or willful
misconduct, as determined by a final non-appealable judgment by a court of
competent jurisdiction.
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4.11 REMEDIES ON DEFAULT. Upon the occurrence of an Event of Default, the
Lender shall have the rights and remedies of a secured party under this
Agreement, under any other instrument or agreement securing, evidencing or
relating to the Obligations and under the law of the State of Ohio or any other
applicable state law. Without limiting the generality of the foregoing, the
Lender shall have the right to take possession of the Collateral and all books
and records relating to the Collateral and for that purpose the Lender may
enter upon any premises on which the Collateral or books and records relating
to the Collateral or any part thereof may be situated and remove the same
therefrom. Except for the notices specified below of time and place of public
sale or disposition or time after which a private sale or disposition is to
occur, the Borrower expressly agrees that the Lender, without demand of
performance or other demand, advertisement or notice of any kind to or upon the
Borrower or any other person or entity (all and each of which demands,
advertisements and/or notices are hereby expressly waived), may forthwith
collect, receive, appropriate and realize upon the Collateral, or any part
thereof, and/or may forthwith sell, lease, assign, give option or options to
purchase or sell or otherwise dispose of and deliver the Collateral (or
contract to do so), or any part thereof, in one or more parcels at public or
private sale or sales, at any of the Lender's offices or elsewhere at such
prices as the Lender may deem best, for cash or on credit or for future
delivery without assumption of any credit risk. The Lender shall have the right
upon any such public sale or sales, and, to the extent permitted by law, upon
any such private sale or sales, to purchase the whole or any part of the
Collateral so sold, free of any right or equity of redemption. The Borrower
further agrees, (a) at the Lender's request, to assemble the Collateral and to
make it available to the Lender at such places as the Lender may reasonably
select and (b) to allow the Lender to use or occupy the Borrower's premises,
without charge, for the purpose of effecting the Lender's remedies in respect
of the Collateral. The Lender shall apply the net proceeds of any such
collection, recovery, receipt, appropriation, realization or sale, after
deducting all reasonable costs and expenses of every kind incurred in
connection therewith or incidental to the care or safekeeping of any or all of
the Collateral or in any way relating to the rights of the Lender hereunder,
including reasonable attorneys' fees and legal expenses, to the payment in
whole or in part of the Obligations, in such order as the Lender may elect, and
only after so paying over such net proceeds and after the payment by the Lender
of any other amount required by any provision of law, need the Lender account
for the surplus, if any. To the extent permitted by applicable law, the
Borrower waives all claims, damages and demands against the Lender arising out
of the repossession, retention, sale or disposition of the Collateral and
agrees that the Lender need not give more than 10 days' notice pursuant to the
terms of this Agreement of the time and place of any public sale or of the time
after which a private sale may take place and that such notice is reasonable
notification of such matters. The Borrower shall remain liable for any
deficiency if the proceeds of any sale or disposition of the Collateral are
insufficient to pay all amounts to which the Lender is entitled and shall also
be liable for the costs of collecting any of the Obligations or otherwise
enforcing the terms thereof or of this Agreement, including reasonable
attorneys' fees.
5 WARRANTIES AND REPRESENTATIONS. In order to induce the Lender to enter into
this Agreement and to make the Loan and the other financial accommodations to
the Borrower, the Borrower represents and warrants to the Lender that each of
the following statements is true and correct:
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5.1 CORPORATE ORGANIZATION AND AUTHORITY. The Borrower (a) is a corporation
duly organized, validly existing and in good standing under the laws of the
State of California; (b) has all requisite corporate power and authority and
all necessary licenses and permits to own and operate its properties and to
carry on its business as now conducted and as presently proposed to be
conducted; and (c) is not doing business or conducting any activity in any
jurisdiction in which it has not duly qualified and become authorized to do
business.
5.2 BORROWING IS LEGAL AND AUTHORIZED. (a) The Board of Directors of the
Borrower has duly authorized the execution and delivery of this Agreement and
of the notes and documents contemplated herein; this Agreement, the notes and
other documents executed in connection with this Agreement will constitute
valid and binding obligations enforceable in accordance with their respective
terms; (b) the execution of this Agreement and related notes and documents and
the compliance with all the provisions of this Agreement (i) are within the
corporate powers of the Borrower; and (ii) are legal and will not conflict
with, result in any breach in any of the provisions of, constitute a default
under, or result in the creation of any lien or encumbrance upon any property
of the Borrower under the provisions of, any agreement, charter instrument,
bylaw, or other instrument to which the Borrower is a party or by which it may
be bound; (c) there are no limitations in any indenture, contract, agreement,
mortgage, deed of trust or other agreement or instrument to which the Borrower
is now a party or by which the Borrower may be bound with respect to the
payment of principal or interest on any indebtedness, or the Borrower's ability
to incur indebtedness including the notes to be executed in connection with
this Agreement.
5.3 TAXES. All tax returns required to be filed by the Borrower in any
jurisdiction have in fact been filed, and all taxes, assessments, fees and
other governmental charges upon the Borrower, or upon any of its properties,
which are due and payable have been paid. The Borrower does not know of any
proposed additional tax assessment against it. The accruals for taxes on the
books of the Borrower for its current fiscal period are adequate.
5.4 CAPITAL STRUCTURE. EXHIBIT D attached hereto accurately represents to the
Lender the following: (a) the classes of capital stock of the Borrower and par
value of each such class, all as authorized by the Borrower's Articles of
Incorporation , (b) the number of shares of each such class of stock issued and
outstanding, (c) the registered owner or holder (legally or beneficially)
thereof, (d) the certificate numbers evidencing the foregoing, and (e) the
Borrower's employer tax identification number. All shares of all classes of
capital stock issued are fully paid and nonassessable. The Borrower does not
have outstanding any other stock or other equity security, or any other
instrument convertible to an equity security of the Borrower, or any
commitment, understanding, agreement or arrangement to issue, sell or have
outstanding any of the foregoing.
5.5 COMPLIANCE WITH LAW. The Borrower (a) is not in violation of any laws,
ordinances, governmental rules or regulations to which it is subject, including
without limitation any laws, rulings or regulations relating to the Employee
Retirement Income Security Act of 1974 or Section 4975 of the Internal Revenue
Code and (b) has not failed to obtain any licenses, permits, franchises
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or other governmental or environmental authorizations necessary to the
ownership of its properties or to the conduct of its business, which violation
or failure might have a Material Adverse Effect.
5.6 FINANCIAL STATEMENTS; FULL DISCLOSURE. The financial statements for the
fiscal year ending January 31, 1997, which have been supplied to the Lender,
have been prepared in accordance with GAAP and fairly represent the Borrower's
financial condition as of such date. No material adverse change in the
Borrower's financial condition has occurred since such dates. The financial
statements referred to in this paragraph do not, nor does this Agreement or any
written statement furnished by the Borrower to the Lender in connection with
obtaining the Loan, contain any untrue statement of a material fact or omit a
material fact necessary to make the statements contained therein or herein not
misleading. The Borrower has disclosed to the Lender in writing all facts,
including, without limitation, all pending litigation, administrative
proceedings, and arbitration proceedings, which materially affect the
properties, business, prospects, profits or condition (financial or otherwise)
of the Borrower or the ability of the Borrower to perform this Agreement.
5.7 LITIGATION: ADVERSE EFFECTS. Except as set forth in Schedule 5.7 attached
hereto, there is no action, suit, audit, proceeding, investigation or
arbitration (or series of related actions, suits, proceedings, investigations
or arbitrations) before or by any governmental authority or private arbitrator
pending or, to the knowledge of the Borrower, threatened against the Borrower
or any property of the Borrower (i) challenging the validity or the
enforceability of any of this Agreement, or any loan document, agreement, or
instrument executed in connection herewith, or (ii) which has had, shall have
or is reasonably likely to have a Material Adverse Effect. The Borrower is not
(A) in violation of any applicable requirements of law which violation shall
have or is likely to result in a Material Adverse Effect, or (B) subject to or
in default with respect to any final judgment, writ, injunction, restraining
order or order of any nature, decree, rule or regulation of any court or
governmental authority, in each case which shall have or is likely to have a
Material Adverse Effect. "Material Adverse Effect" means a material adverse
effect upon (a) the business, condition (financial or otherwise), operations,
performance, properties or prospects of the Borrower or any Guarantor, (b) the
ability of the Borrower or any Guarantor to perform its obligations under this
Agreement or any document, agreement, guaranty, or instrument executed in
connection herewith, or (c) the ability of the Lender to enforce the terms of
this Agreement, or any document, agreement, guaranty, or instrument executed in
connection herewith.
5.8 NO INSOLVENCY. On the date of this Agreement and after giving effect to all
indebtedness of the Borrower (including the Loan), the Borrower (a) will be
able to pay its obligations as they become due and payable; (b) has assets, the
present fair saleable value of which exceeds the amount that will be required
to pay its probable liability on its obligations as the same become absolute
and matured; (c) has sufficient property, the sum of which at a fair valuation
exceeds all of its indebtedness; and (d) will have sufficient capital to engage
in its business. In addition, the Borrower's grant of the Collateral for the
Loan constitutes fair consideration and reasonably equivalent value because the
Borrower has received the proceeds of the Loan.
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5.9 GOVERNMENT CONSENT. Neither the nature of the Borrower or of its business
or properties, nor any relationship between the Borrower and any other entity
or person, nor any circumstance in connection with the execution of this
Agreement, is such as to require a consent, approval or authorization of, or
filing, registration or qualification with, any governmental authority on the
part of the Borrower as a condition to the execution and delivery of this
Agreement and the notes and documents contemplated herein.
5.10 TITLE TO PROPERTIES. The Borrower (a) has good title to all the property
in which it has a property interest, free from any liens and encumbrances,
except as set forth on EXHIBIT B attached to this Agreement, and (b) has not
agreed or consented to cause or permit in the future (upon the happening of a
contingency or otherwise) any of its property whether now owned or hereafter
acquired to be subject to a lien or encumbrance except as provided in this
paragraph.
5.11 NO DEFAULTS. No event has occurred and no condition exists which would
constitute an Event of Default pursuant to this Agreement, and no set of facts
or circumstances exists that, upon the giving of notice, the lapse of time, or
any one or more of the foregoing, would constitute an Event of Default pursuant
to this Agreement (a "Pending Default"). The Borrower is not in violation in
any material respect of any term of any agreement, charter instrument, bylaw or
other instrument to which it is a party or by which it may be bound.
5.12 ENVIRONMENTAL PROTECTION. The Borrower (a) has no actual knowledge of the
permanent placement, burial or disposal of any Hazardous Substances (as
hereinafter defined) on any real property owned, leased, or used by the
Borrower (the "Premises"), of any spills, releases, discharges, leaks, or
disposal of Hazardous Substances that have occurred or are presently occurring
on, under, or onto the Premises, or of any spills, releases, discharges, leaks
or disposal of Hazardous Substances that have occurred or are occurring off the
Premises as a result of the improvement, operation, or use of the Premises
which would result in non-compliance with any of the Environmental Laws (as
hereinafter defined); (b) is and has been in compliance with all applicable
Environmental Laws; (c) knows of no pending or threatened environmental civil,
criminal or administrative proceedings against the Borrower relating to
Hazardous Substances; (d) knows of no facts or circumstances that would give
rise to any future civil, criminal or administrative proceeding against the
Borrower relating to Hazardous Substances; and (e) will not permit any of its
employees, agents, contractors, subcontractors, or any other person occupying
or present on the Premises to generate, manufacture, store, dispose or release
on, about or under the Premises any Hazardous Substances which would result in
the Premises not complying with the Environmental Laws.
As used herein, "Hazardous Substances" shall mean and include all
hazardous and toxic substances, wastes, materials, compounds, pollutants and
contaminants (including, without limitation, asbestos, polychlorinated
biphenyls, and petroleum products) which are included under or regulated by the
Comprehensive Environmental Response, Compensation and Liability Act, as amended
(42 U.S.C. Section 9601, et seq.), the Hazardous Materials Transportation Act,
as amended (49 U.S.C. Section 1801, et seq.), the Toxic Substances Control Act,
as amended (15 U.S.C. Section 2601, et seq.), the Resource Conservation and
Recovery Act, as amended (42 U.S.C. Section 6901, et seq.), the Water
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14
Quality Act of 1987, as amended (33 U.S.C. Section 1251, et seq.), the Clean
Water Act, as amended (33 U.S.C. Section 1321 et seq.), the Federal Insecticide,
Fungicide, and Rodenticide Act, as amended (7 U.S.C. Section 136, et seq.), the
National Environmental Policy Act of 1969, as amended (42 U.S.C. Section 4321,
ET SEQ.), and the Clean Air Act, as amended (42 U.S.C. Section 7401, et seq.),
and any other federal, state or local statute, ordinance, law, code, rule,
regulation or order regulating or imposing liability (including strict
liability) or standards of conduct regarding Hazardous Substances (hereinafter
the "Environmental Laws"), but does not include such substances as are
permanently incorporated into a structure or any part thereof in such a way as
to preclude their subsequent release into the environment, or the permanent or
temporary storage or disposal of household hazardous substances by tenants, and
which are thereby exempt from or do not give rise to any violation of any
Environmental Laws.
5.13 REGARDING THE INVENTORY. All of the inventory referenced on the Borrower's
most recent inventory report or other Borrowing Base certificate against which
the Borrower has requested an advance under the Loan is Eligible Inventory.
6 BORROWER BUSINESS COVENANTS. The Borrower covenants that on and after the
date of this Agreement until terminated pursuant to the terms of this
Agreement, or so long as any of the indebtedness provided for herein remains
unpaid:
6.1 PAYMENT OF TAXES AND CLAIMS. The Borrower will pay (a) all taxes, estimated
payments, assessments and governmental charges or levies imposed upon it or its
property or assets or in respect of any of its franchises, businesses, income
or property before any penalty or interest accrues thereon; and (b) all claims
of materialmen, mechanics, carriers, warehousemen, landlords, bailees and other
like persons, (including, without limitation, claims for labor, services,
materials and supplies) for sums which have become due and payable and which by
law have or may become a lien or encumbrance upon any of the Borrower's
property or assets, prior to the time when any penalty or fine shall be
incurred with respect thereto; provided, however, that no such taxes,
assessments and governmental charges referred to in clause (a) above or claims
referred to in clause (B) above are required to be paid if being contested in
good faith by the Borrower, by appropriate proceedings diligently instituted
and conducted, without danger of any material risk to the Collateral or the
Lender's interest therein, without any of the same becoming a lien upon the
Collateral, and if such reserve or other appropriate provision, if any, as
shall be required in conformity with GAAP, shall have been made therefor.
6.2 MAINTENANCE OF PROPERTIES AND CORPORATE EXISTENCE. The Borrower shall (a)
maintain its property in good condition and make all renewals, replacements,
additions, betterments and improvements thereto which it deems necessary; (b)
maintain, with financially sound and reputable insurers, insurance with respect
to its properties and business against such casualties and contingencies, of
such types (including but not limited to fire and casualty, public liability,
products liability, larceny, embezzlement or other criminal misappropriation
insurance) and in such amounts as is customary in the case of entities of
established reputations engaged in the same or a similar business and similarly
situated, with each such policy of insurance containing a clause or
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15
endorsement satisfactory to the Lender that names the Lender as additional
insured and loss payee, as its interest may appear, and that provides that no
act, default or breach of warranty or condition of the Borrower or any other
person shall affect the right of the Lender to recover under such policy or
policies of insurance or to pay any premium in whole or in part relating
thereto, in such amounts as is customary in the case of entities of established
reputations engaged in the same or a similar business and similarly situated;
(c) reflect in its financial statements adequate accruals and appropriations to
reserves and keep and maintain proper books of record and account in which
entries in conformity with GAAP shall be made of all dealings and transactions
in relation to its businesses and activities, including, without limitation,
transactions and other dealings with respect to the Collateral; (d) do or cause
to be done all things necessary (i) to preserve and keep in full force and
effect its existence, rights and franchises, and (ii) to maintain its status as
a corporation duly organized and existing and in good standing under the laws
of the state of its incorporation; (e) conduct continuously and operate
actively its business and take all actions necessary to enforce and protect the
validity of any intellectual property; and (f) not be in violation of any laws,
ordinances, or governmental rules and regulations or fail to obtain any
licenses, permits, franchises or other governmental authorizations necessary to
the ownership of its properties or to the conduct of its business, which
violation or failure to obtain might have a Material Adverse Effect.
6.3 SALE OF ASSETS, MERGER, SUBSIDIARIES, TRADENAMES, CONDUCT OF BUSINESS. The
Borrower shall not (a) except in the ordinary course of business, sell, lease,
transfer or otherwise dispose of, any of its assets, (b) consolidate with,
merge into, enter into partnerships or joint ventures with or make investments
in any other entity, or permit any other entity to consolidate with or merge
into it, (c) acquire all or substantially all of the assets or business of any
other company, person or entity, or (d) create or acquire any subsidiaries or
conduct business under any other tradenames without the prior written consent
of the Lender. Without limiting the generality of the foregoing, including the
prohibition against the sale of assets set forth therein, all proceeds of any
sale, transfer or other disposition of the interests of the Borrower in
Commerce Clothing Company, LLC shall be applied first to the payment of the
Loan. The Borrower has no subsidiaries and conducts business only in the
name(s) of the Borrower and _________________________. The Borrower shall not
engage in any business other than the businesses engaged in by the Borrower on
the date hereof and any business or activities which are substantially similar
or related thereto.
6.4 NEGATIVE PLEDGE. The Borrower will not cause or permit or permit to exist
or agree or consent to cause or permit in the future (upon the happening of a
contingency or otherwise), any of its real or personal property, whether now
owned or hereafter acquired, to become subject to a lien or encumbrance,
except: (i) liens in connection with deposits required by workers'
compensation, unemployment insurance, social security and other like laws; (ii)
taxes, assessments, reservations, exceptions, encroachments, easements, rights
of way, covenants, conditions, restrictions, leases and other similar title
exceptions or encumbrances affecting real property, provided they do not in the
aggregate materially detract from the value of said property or materially
interfere with its use in the ordinary conduct of business; (iii) inchoate
liens arising under ERISA to secure the contingent liability of the Borrower;
and (iv) liens as set forth in Exhibit B attached to this Agreement. In
addition, the Borrower will not grant or agree to provide in the future (upon
the happening of a
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16
contingency or otherwise), a "negative pledge" or other covenant or agreement
similar to this Section 6.4 in favor of any other lender, creditor or third
party.
6.5 NO CONSIGNMENT. The Borrower shall not permit any of its Inventory to be
sold or transferred on consignment or acquire or possess any of its Inventory
on consignment.
6.6 MINIMUM SECURITY. The Borrower shall maintain, as minimum security for the
Loan, Eligible Inventory having an aggregate value such that the Borrowing Base
will equal or exceed the aggregate unpaid principal balance of the Loan, and if
the Borrower fails to do so, the Borrower shall immediately pay to the Lender
the difference between the aggregate unpaid principal balance of the Loan and
the Borrowing Base.
6.7 MANAGEMENT. The Borrower shall not replace or change its chief executive
officer of the Borrower unless such replacement or change will not materially
or adversely affect the Borrower's business, prospects, profits, property or
condition (financial or otherwise).
6.8 ACQUISITION OF CAPITAL STOCK. The Borrower shall not redeem or acquire any
of its own capital stock, or any warrants or any securities for its capital
stock, except through the use of the net proceeds from the simultaneous sale of
an equivalent amount of its capital stock for the same purchase or redemption
price.
6.9 TRANSACTIONS WITH AFFILIATES. The Borrower shall not directly or indirectly
enter into or permit to exist any transactions (including, without limitation,
the purchase, sale, lease or exchange of any property or the rendering of any
service) with any of its Affiliates, shareholders or any Affiliates of either
of the foregoing, on terms that are less favorable to the Borrower than those
which might be obtained at the time from persons or entities who are not
affiliated with the Borrower or its shareholders. "Affiliate" shall mean any
individual, partnership, corporation, or other entity which, directly or
indirectly, is in control of, is controlled by, or is under common control with
the Borrower, or any individual who is a family member related by birth or
marriage to any of the foregoing individuals. For the purposes of this
definition,"control" of such entity shall mean the power, directly or
indirectly, to vote 5% or more of the securities, units or other measures
having ordinary voting power for the election of directors, management
committees, or similar committees of such entity, or the power to direct or
cause the direction of the management and policies of such entity, whether by
contract or otherwise.
6.10 NO OFFSET. Except to the extent of twenty percent of the face amount of
invoices for goods sold to the Lender by the Borrower, provided that such goods
are accepted by the Lender in its sole discretion (the "Permitted Offset"), the
Borrower shall not offset against amounts due under the Loan any amounts due
from the Lender to the Borrower for goods sold to the Lender by the Borrower.
Except for the Permitted Offset, Lender shall not offset against amounts due
and owing to the Borrower for goods sold to the Lender any amounts due and
owing under the Loan.
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6.11 MINIMUM INVENTORY ON HAND. The Borrower shall maintain at all times
Inventory against which the Lender has a perfected security interest having a
value (measured at the lesser of cost (on a FIFO basis) or market) of not less
than $22,000,000.00.
6.12 ENVIRONMENTAL COMPLIANCE AND INDEMNIFICATION. The Borrower hereby
indemnifies the Lender and holds the Lender harmless from and against any loss,
damage, cost, expense or liability (including strict liability) directly or
indirectly arising from or attributable to the generation, storage, release,
threatened release, discharge, disposal or presence (whether prior to or during
the term of the Loan) of Hazardous Substances on, under or about the Premises
(whether by the Borrower or any employees, agents, contractors or
subcontractors of the Borrower or any predecessor in title or any third persons
occupying or present on the Premises), or the breach of any of the
representations and warranties regarding the Premises, including, without
limitation: (a) those damages or expenses arising under the Environmental Laws;
(b) the costs of any repair, cleanup or detoxification of the Premises,
including the soil and ground water thereof, and the preparation and
implementation of any closure, remedial or other required plans; (c) damage to
any natural resources; and (d) all reasonable costs and expenses incurred by
the Lender in connection with clauses (a), (b) and (c) including, but not
limited to reasonable attorneys' fees.
The indemnification provided for herein shall not apply to any losses,
liabilities, damages, injuries, expenses or costs which: (i) arise from the
gross negligence or willful misconduct of the Lender, or (ii) relate to
Hazardous Substances placed or disposed of on the Premises after the Lender
acquires title to the Premises through foreclosure or otherwise.
7 FINANCIAL INFORMATION AND REPORTING. The Borrower shall deliver the following
to the Lender:
(a) as soon as practicable and in any event within 20 days after the
end of each month, financial statements, including a balance sheet and
statements of income and surplus, and statement of cash flows, certified by the
president or chief financial officer of the Borrower (a "Financial Officer") as
fairly representing the Borrower's financial condition as of the end of such
period;
(b) as soon as practicable and within 20 days after the end of each
month, statements signed by a Financial Officer of the Borrower certifying the
compliance of the Borrower with the terms of this Agreement and the calculation
of the financial covenants contained in Section 6 above;
(c) within 20 days after the end of each month, an inventory report of
the Borrower, substantially in the terms of Exhibit 7(c) attached hereto,
signed by a Financial Officer in form satisfactory to the Lender;
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(d) within 20 days after the end of each month, a report, in form
satisfactory to the Bank, signed by a Financial Officer setting forth the
dollar amount outstanding of receivables sold or assigned to NationsBanc for
which NationsBanc has not received payment;
(e) immediately upon becoming aware of the existence of any Pending
Default, Event of Default or breach of any term or conditions of this
Agreement, a written notice specifying the nature and period of existence
thereof and what action the Borrower is taking or proposes to take with respect
thereto; and
(f) at the request of the Lender, such other information as the Lender
may from time to time reasonably require.
8 DEFAULT.
8.1 EVENTS OF DEFAULT. Each of the following shall constitute an "Event of
Default" hereunder: (a) the Borrower fails to make any payment of principal,
interest or any other sum due and payable under any note or reimbursement
agreement executed in connection with this Agreement on or before the date such
payment is due; (b) the Borrower fails to perform or observe any agreement,
term, or covenant contained in Sections 1, 3, 4, 6, or 7 of this Agreement; (c)
the Borrower fails to comply with any other provision of this Agreement, or
fails to perform or observe any covenant contained in any mortgage, security
agreement or other agreement in favor of the Lender, and any such failure
continues for more than 15 days after such failure shall first become known to
any officer of the Borrower; (d) any warranty, representation or other
statement made or deemed to be made contained in this Agreement or in any
instrument furnished in compliance with or in reference to this Agreement is
false or misleading in any material respect; (e) the Borrower becomes insolvent
or makes an assignment for the benefit of creditors, or consents to the
appointment of a trustee, receiver or liquidator; (f) bankruptcy,
reorganization, arrangement, insolvency or liquidation proceedings are
instituted by or against the Borrower; (g) a final judgment or judgments for
the payment of money aggregating in excess of $25,000.00 or are outstanding
against the Borrower, and any such judgment or judgments have not been
discharged in full or stayed; (h) the occurrence of any event which allows the
acceleration of the maturity of any indebtedness of the Borrower to the Lender
or to any of the Lender's affiliates; (i) the occurrence of any event which
allows the acceleration of the maturity of any material indebtedness of the
Borrower, S.H.D. Investments, LLC, the Guarantors, any of their Affiliates, or
their successors or assigns, or any of them (including without limitation any
obligations of the Borrower, S.H.D. Investments, LLC, the Guarantors or their
Affiliates, or any of them, or any of their respective successors or assigns,
to National City Bank, Columbus or to Schottenstein Stores Corporation), or
which constitutes a default or breach under any material lease or material
contract of the Borrower, the Guarantors, the Pledgors, or any of them, to any
other person, corporation or entity (other than the Lender) under any
indenture, agreement or undertaking; (j) the default by, dissolution of, or
death of any guarantor or other surety for the Borrower with respect to any
obligation or liability to the Lender or any of the Lender's affiliates; (k) a
Change of Control of the Borrower shall have occurred ("Change of Control"
shall mean (1)
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the replacement of a majority of the Board of Directors of any entity from the
directors who constituted the Board of Directors on the date of this Agreement
for any reason other than death or disability, and such replacement shall not
have been approved by the Board of Directors of the Borrower as constituted on
the date of this Agreement (or as changed over time with the approval of the
Board of Directors of such entity) or (2) a company, person, entity or group of
companies, person or entities acting in concert, shall, as a result of a tender
or exchange offer, open market purchases, privately negotiated purchases,
exercise of the stock pledge or otherwise, have become the beneficial owner
(within the meaning of Rule 13d.3 under the Securities Exchange Act of 1934, as
amended) of securities of the Borrower representing more than 10% of the
combined voting power of the outstanding securities of the Borrower ordinarily
having the right to vote in the election of directors from the beneficial
owners as of the date hereof ); (l) the property furnished as Collateral
declines in value, and the Borrower does not immediately, upon demand, furnish
additional security satisfactory to the Lender; (m) the Lender, in its sole
good faith discretion, determines that a Material Adverse Effect has occurred
or that a material adverse change has occurred in the financial condition,
operations or business of the Borrower, in the value of the Collateral or in
the Lender's interest in the Collateral; or (m) the Lender for any reason in
good faith deems itself insecure with respect to the repayment of the
indebtedness provided for herein.
8.2 DEFAULT REMEDIES. Upon the occurrence of an Event of Default, the Lender
may immediately exercise any right, power or remedy permitted to the Lender by
law or any provision of this Agreement, and shall have, in particular, without
limiting the generality of the foregoing, the right to declare the entire
principal, all interest accrued, and all other charges accruing on all
Obligations to be forthwith due and payable, without any presentment, demand,
protest or other notice of any kind, all of which are hereby expressly waived
by the Borrower.
9 MISCELLANEOUS.
9.1 NOTICES. (a) All communications under this Agreement or under the notes
executed pursuant hereto shall be in writing and shall be sent by facsimile or
by a nationally recognized overnight delivery service (1) if to the Lender, at
the following address, or at such other address as may have been furnished in
writing to the Borrower by the Lender:
American Eagle Outfitters, Inc.
150 Thorn Hill Drive
Warrendale, PA 15086-7528
Attn: George Kolber
Telecopier No.: (412) 779-5539
(2) if to the Borrower, at the following address, or at such other address as
may have been furnished in writing to the Lender by the Borrower:
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Azteca Production International
5804 East Slauson
City of Commerce, CA
Attn: Hubert Guez
Telecopier No.: 213-890-9680
(b) any notice so addressed and sent by telecopier shall be deemed to be given
when confirmed, and any notice sent by nationally recognized overnight delivery
service shall be deemed to be given the next day after the same is delivered to
such carrier.
9.2 ACCESS TO ACCOUNTANTS. The Borrower hereby irrevocably authorizes its
certified public accountants to provide to the Lender any and all information
that the Lender requests from time to time with regard to the Borrower, and to
discuss with the Lender from time to time any and all matters relating to the
Borrower. In furtherance of the foregoing, the Borrower hereby waives any
privilege or claim of confidentiality to the extent such might otherwise
prevent such accountants from providing such information to the Lender or
discussing such matters with the Lender.
9.3 REPRODUCTION OF DOCUMENTS. This Agreement and all documents relating
hereto, including, without limitation, (a) consents, waivers and modifications
which may hereafter be executed, (b) documents received by the Lender at the
closing or otherwise, and (c) financial statements, certificates and other
information previously or hereafter furnished to the Lender, may be reproduced
by the Lender by any photographic, photostatic, microfilm, micro-card,
miniature photographic or other similar process and the Lender may destroy any
original document so reproduced. The Borrower agrees and stipulates that any
such reproduction shall be admissible in evidence as the original itself in any
judicial or administrative proceeding (whether or not the original is in
existence and whether or not such reproduction was made by the Lender in the
regular course of business) and that any enlargement, facsimile or further
reproduction of such reproduction shall likewise be admissible in evidence.
9.4 SURVIVAL, SUCCESSORS AND ASSIGNS. All warranties, representations, and
covenants made by the Borrower herein or on any certificate or other instrument
delivered by it or on its behalf under this Agreement shall be considered to
have been relied upon by the Lender and shall survive the closing of the Loan
regardless of any investigation made by the Lender on its behalf. All
statements in any such certificate or other instrument shall constitute
warranties and representations by the Borrower. This Agreement shall inure to
the benefit of and be binding upon the heirs, successors and assigns of each of
the parties.
9.5 AMENDMENT AND WAIVER, DUPLICATE ORIGINALS. All references to this Agreement
shall also include all amendments, extensions, renewals, modifications, and
substitutions thereto and thereof made in writing and executed by both the
Borrower and the Lender. This Agreement may be amended, and the observance of
any term of this Agreement may be waived, with (and only with) the written
consent of the Borrower and the Lender; provided however that nothing herein
shall change the Lender's sole discretion (as set forth elsewhere in this
Agreement) to make advances,
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21
determinations, decisions or to take or refrain from taking other actions. No
delay or failure or other course of conduct by the Lender in the exercise of
any power or right shall operate as a waiver thereof; nor shall any single or
partial exercise of the same preclude any other or further exercise thereof, or
the exercise of any other power or right. Two or more duplicate originals of
this Agreement may be signed by the parties, each of which shall be an original
but all of which together shall constitute one and the same instrument.
9.6 ACCOUNTING TREATMENT AND FISCAL YEAR. The Borrower shall not change its
fiscal year for accounting or tax purposes from a period consisting of the
twelve month period ending on January 31 of each calendar year. The Borrower
shall not make any material (as defined in GAAP) change in accounting treatment
and reporting practices or tax reporting treatment, except as required by GAAP
or law and disclosed to the Lender.
9.7 ENFORCEABILITY AND GOVERNING LAW. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction, as to such jurisdiction, shall
be inapplicable or ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other jurisdiction. No delay or
omission on the part of the Lender in exercising any right shall operate as a
waiver of such right or any other right. All of the Lender's rights and
remedies, whether evidenced hereby or by any other agreement or instrument,
shall be cumulative and may be exercised singularly or concurrently. This
Agreement shall be governed by and construed in accordance with the laws of the
State of Ohio (without giving effect to the conflict of laws rules thereof).
The Borrower agrees that any legal suit, action or proceeding arising out of or
relating to this Agreement may be instituted in a state or federal court of
appropriate subject matter jurisdiction in the State of Ohio, waives any
objection which it may have now or hereafter to the venue of any suit, action
or proceeding, and irrevocably submits to the jurisdiction of any such court in
any such suit, action or proceeding.
9.8 WAIVER OF RIGHT TO TRIAL BY JURY. EACH PARTY TO THIS AGREEMENT HEREBY
EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR
CAUSE OF ACTION (1) ARISING UNDER THIS AGREEMENT OR ANY OTHER INSTRUMENT,
DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR (2) IN
ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES
HERETO OR ANY OF THEM WITH RESPECT TO THIS AGREEMENT OR ANY OTHER INSTRUMENT,
DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR THE
TRANSACTIONS RELATED HERETO OR THERETO, IN EACH CASE WHETHER NOW EXISTING OR
HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE; AND
EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR
CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY
PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS
SECTION WITH ANY COURT
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AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR
RIGHT TO TRIAL BY JURY.
9.9 NO CONSEQUENTIAL DAMAGES. No claim may be made by the Borrower, any
officers, directors, or agents against the Lender or its affiliates, directors,
officers, employees, attorneys or agents for any special, indirect, punitive,
or consequential damages in respect of any breach or wrongful conduct (whether
the claim therefor is based in contract, tort or duty imposed by law) in
connection with, arising out of or in any way related to the transactions
contemplated and relationship established by this Agreement, or any act,
omission or event occurring in connection therewith, and the Borrower hereby
waives, releases and agrees not to sue upon any such claim for any such
damages, whether or not accrued and whether or not known or suspected to exist
in its favor.
9.10 INDEMNITY. The Borrower shall indemnify the Lender from and against any
and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses and disbursements of any kind or nature
whatsoever (including, without limitation, fees and disbursements of counsel)
which may be imposed on, incurred by, or asserted against the Lender in any
litigation, proceeding or investigation instituted or conducted by any
governmental agency or instrumentality or any other person or entity with
respect to any aspect of, or any transaction contemplated by, or referred to
in, or any matter related to, this Agreement, whether or not the Lender is a
party thereto, except to the extent that any of the foregoing arises out of the
willful misconduct of the Lender, as determined in a final, non-appealable
judgment by a court of competent jurisdiction. The indemnity contained in this
paragraph shall survive the payment in full of the Loan.
9.11 CONDITIONS PRECEDENT. The obligation of the Lender to make the Loan
requested to be made shall be subject to satisfaction, immediately prior to or
concurrently with the making of the Loan of the following conditions precedent:
(a) The Lender shall receive on or before the date of the initial
advance hereunder in the amount of $1,500,000.00 all of the following: (i) this
Agreement, the promissory notes and other agreements, documents and instruments
described in SCHEDULE 9.11A attached hereto, each duly executed where
appropriate and in form and substance satisfactory to the Lender; and (ii) the
fulfillment of all the conditions described thereon and the delivery of such
additional documentation as the Lender may reasonably request.
(b) The Lender shall receive on or before the date of the subsequent
advance hereunder in the amount of $1,500,000.00 (i) the agreements, documents
and instruments described in SCHEDULE 9.11B attached hereto, each duly executed
where appropriate and in form and substance satisfactory to the Lender, (ii)
the fulfillment of all the conditions described thereon and the delivery of
such additional documentation as the Lender may reasonably request.
(c) Without limiting the foregoing, the Borrower hereby directs its
counsel to prepare and deliver to the Lender the opinion referred to in
SCHEDULE 9.11B attached hereto.
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10 DEFINITIONS.
10.1 UNIFORM COMMERCIAL CODE TERMS. All terms defined in the Uniform Commercial
Code as adopted in the State of Ohio shall have the meanings given therein
unless otherwise defined herein.
10.2 ACCOUNTING TERMS. As used in this Agreement, and any promissory notes,
certificates, reports or other documents made or delivered pursuant hereto,
accounting terms not defined in this Agreement shall have the respective
meanings given to such terms under GAAP. "GAAP" means generally accepted
accounting principles set forth in the opinions and pronouncements of the
Accounting Principles Board, the American Institute of Certified Public
Accountants and the Financial Accounting Standards Board as in effect on the
date hereof.
10.3 OTHER DEFINITIONAL PROVISIONS.
(a) The words "hereof," "herein," and "hereunder," and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement;
(b) Whenever required by the context of this Agreement, the promissory
notes or other loan documents execution in connection herewith, the singular
shall include the plural, and vice versa and the masculine and feminine genders
shall include the neuter gender and vice versa.
Each of the parties has signed this Agreement as of the date set forth
in the preamble above.
LENDER:
AMERICAN EAGLE OUTFITTERS, INC.
By: /s/ George Kolber
-----------------------------
Its: Vice Chairman and Chief
Operating Officer
-----------------------------
BORROWER:
AZTECA PRODUCTION INTERNATIONAL
By: /s/ Hubert Guez
-----------------------------
Its: President
-----------------------------
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EXHIBIT A-1
AMERICAN EAGLE OUTFITTERS, INC.
COMMERCIAL LOAN NOTE
BUSINESS PURPOSE
$3,000,000.00 June 6, 1997
FOR VALUE RECEIVED, the undersigned promises to pay to the order of
American Eagle Outfitters, Inc. (hereinafter called the "Lender," which term
shall include any holder hereof), at such place as the Lender may designate or,
in the absence of such designation, at any of the Lender's offices, the sum of
Three Million Dollars ($3,000,000.00) or so much as shall have been advanced by
the Lender and not repaid (hereinafter called the "Principal Sum"), together
with interest as hereinafter provided. The proceeds of the loan evidenced
hereby may be advanced in partial amounts during the term of this note (this
"Note") prior to the earlier of demand or July 1, 1997. Each such advance shall
be made to the undersigned upon receipt by the Lender of the undersigned's
application therefor and disbursement instructions, which shall be in such form
as the Lender shall from time to time prescribe. The Lender shall be entitled
to rely on any oral or telephonic communication requesting an advance and/or
providing disbursement instructions hereunder, which shall be received by it in
good faith from anyone reasonably believed by the Lender to be the undersigned,
or the undersigned's authorized agent. The undersigned agrees that all advances
made by the Lender will be evidenced by entries made by the Lender into its
electronic data processing system and/or internal memoranda maintained by the
Lender. The undersigned further agrees that the sum or sums shown on the most
recent printout from the Lender's electronic data processing system, the grid
attached hereto, or on such memoranda shall be rebuttably presumptive evidence
of the amount of the Principal Sum and of the amount of any accrued interest.
The undersigned promises to pay the Principal Sum and the interest thereon at
the time and in the manner hereinafter provided in this Note.
This Note is executed and the advances contemplated hereunder are to
be made pursuant to a Loan and Security Agreement by and between the
undersigned and the Lender dated as of June 6, 1997, and all amendments,
modifications and supplements thereto from time to time (hereinafter called the
"Loan Agreement"), and all the covenants, representations, agreements, terms
and conditions contained therein, including but not limited to additional
conditions of default, are incorporated herein as if fully rewritten.
INTEREST
Interest will accrue on the unpaid balance of the Principal Sum until
paid at a rate of interest equal to the Effective Rate. As used herein,
"Effective Rate" shall mean seven percent (7%) per annum plus the Margin. As
used herein, "Margin" shall mean, as of the last day of immediately preceding
calendar month, the difference between (a) 8.50 percent and (b) the rate of
interest announced by National City Bank, Columbus as its prime rate as of such
date. The Effective Rate shall be adjusted as of the first day of each calendar
month.
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At the election of the Lender, upon the occurrence of an "Event of
Default" pursuant to the Loan Agreement, interest will accrue on the unpaid
balance of the Principal Sum and unpaid interest, if any, until paid at the
rate of ten percent (10%) per annum.
All interest shall be calculated on the basis of a 360 day year for
the actual number of days the Principal Sum or any part thereof remains unpaid.
MANNER OF PAYMENT
The Principal Sum shall be payable ON DEMAND; provided, however, that
if the Principal Sum is not sooner demanded, the Principal Sum shall be due and
payable on April 1, 1998. Twenty percent of the face amount of each invoice for
goods that are sold to the Lender by the undersigned (provided that such goods
are accepted by the Lender in its sole discretion) shall by applied by the
Lender as a payment of the Principal Sum. In addition, installments of the
Principal Sum shall be due and payable on the first of each month, beginning
July 1, 1997 and continuing on the first day of each month thereafter. Each
such installment shall be in the amount of the lesser of
(a) the difference between (i) $300,000.00, and (ii) twenty percent of
the face amount of all goods sold to the Lender by the undersigned
during the month preceding the date such installment is due, provided
that such goods are accepted by the Lender in its sole discretion, or
(b) the unpaid balance of the Principal Sum.
Accrued interest shall be due and payable monthly beginning on July 1, 1997,
and continuing on the first day of each month thereafter, and at maturity,
whether by demand, acceleration or otherwise.
LATE CHARGE
Any installment or other payment not made within 10 days of the date
such payment or installment is due shall be subject to a late charge equal to
5% of the amount of the installment or payment.
SECURITY
This Note is secured by the security interests granted by or referred
to in the Loan Agreement and by the assignments and the mortgages or other
security documents dated of even date herewith or given contemporaneously
herewith.
DEFAULT
Without limiting the right of the Lender to demand payment of the
Principal Sum and all accrued interest thereon at any time, upon the occurrence
of any of the following events:
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(a) the undersigned fails to make any payment of interest or of the
Principal Sum on or before the date such payment is due;
(b) an "Event of Default" under the Loan Agreement shall have
occurred;
the Lender may, at its option, without notice or demand, accelerate the
maturity of the obligations evidenced hereby, which obligations shall become
immediately due and payable. In the event the Lender shall institute any action
for the enforcement or collection of the obligations evidenced hereby, the
undersigned agrees to pay all costs and expenses of such action, including
reasonable attorneys' fees, to the extent permitted by law.
GENERAL PROVISIONS
The undersigned, and any indorser, surety, or guarantor, hereby
severally waive presentment, notice of dishonor, protest, notice of protest,
and diligence in bringing suit against any party hereto, and consent that,
without discharging any of them, the time of payment may be extended an
unlimited number of times before or after maturity without notice. The Lender
shall not be required to pursue any party hereto, including any guarantor, or
to exercise any rights against any collateral herefor before exercising any
other such rights.
The obligations evidenced hereby may from time to time be evidenced by
another note or notes given in substitution, renewal or extension hereof. Any
security interest or mortgage which secures the obligations evidenced hereby
shall remain in full force and effect notwithstanding any such substitution,
renewal, or extension.
The captions used herein are for reference only and shall not be
deemed a part of this Note. If any of the terms or provisions of this Note
shall be deemed unenforceable, the enforceability of the remaining terms and
provisions shall not be affected. This Note shall be governed by and construed
in accordance with the law of the State of Ohio.
WAIVER OF RIGHT TO TRIAL BY JURY
THE UNDERSIGNED HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF
ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (1) ARISING UNDER THIS NOTE OR ANY
OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION
HEREWITH, OR (2) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE
DEALINGS OF THE UNDERSIGNED OR THE LENDER WITH RESPECT TO THIS NOTE OR ANY
OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION
HEREWITH, OR THE TRANSACTIONS RELATED HERETO OR THERETO, IN EACH CASE WHETHER
NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR
OTHERWISE; AND THE UNDERSIGNED HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION SHALL BE
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DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT THE UNDERSIGNED OR THE LENDER
MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS
WRITTEN EVIDENCE OF THE CONSENT OF THE UNDERSIGNED TO THE WAIVER OF THE RIGHT
OF THE UNDERSIGNED TO TRIAL BY JURY.
Borrower:
AZTECA PRODUCTION INTERNATIONAL
By: /s/ Hubert Guez
------------------------------
Its: President
------------------------------
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