LOAN AND SECURITY AGREEMENT
by and between
BRENDLE'S INCORPORATED
and
FOOTHILL CAPITAL CORPORATION
Dated as of April 21, 1994
TABLE OF CONTENTS
Page
1.DEFINITIONS AND CONSTRUCTION 1
1.1 Definitions 1
1.2 Accounting Terms 10
1.3 Code 10
1.4 Construction 10
1.5 Schedules and Exhibits. 10
2.LOAN AND TERMS OF PAYMENT 10
2.1 Revolving Advances. 10
2.2 Letters of Credit and Letter of Credit Guarantees. 11
2.3 Intentionally omitted. 12
2.4 Overadvances 13
2.5 Interest: Rates, Payments, and Calculations 13
2.6 Crediting Payments; Application of Collections 14
2.7 Statements of Obligations 14
2.8 Fees 15
3.CONDITIONS; TERM OF AGREEMENT 15
3.1 Conditions Precedent to Initial Advance, L/C,
or L/C Guaranty 15
3.2 Conditions Precedent to All Advances, L/Cs,
or L/C Guarantees. 17
3.3 Term 18
3.4 Effect of Termination 18
3.5 Early Termination by Borrower 18
3.6 Termination Upon Event of Default 18
4.CREATION OF SECURITY INTEREST 19
4.1 Grant of Security Interest 19
4.2 Negotiable Collateral 19
4.3 Collection of Accounts, General Intangibles,
Negotiable Collateral 19
4.4 Delivery of Additional Documentation Required 19
4.5 Power of Attorney 20
4.6 Right to Inspect 20
5.REPRESENTATIONS AND WARRANTIES. 20
5.1 No Prior Encumbrances 21
5.2 Plan of Reorganization 21
5.3 Eligible Inventory 21
5.4 Location of Inventory and Equipment 21
5.5 Inventory Records 21
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5.6 Location of Chief Executive Office; FEIN 21
5.7 Due Organization and Qualification,
and Subsidiaries 21
5.8 Due Authorization; No Conflict 21
5.9 Litigation 22
5.10 No Material Adverse Change in Financial Condition 22
5.11 Solvency 22
5.12 Employee Benefits 22
5.13 Environmental Condition 23
5.14 Reliance by Foothill; Cumulative 23
6.AFFIRMATIVE COVENANTS. 23
6.1 Accounting System 24
6.2 Collateral Reports 24
6.3 Financial Statements, Reports, Certificates 24
6.4 Tax Returns 25
6.5 Designation of Inventory 25
6.6 Returns. 25
6.7 Title to Equipment 25
6.8 Maintenance of Equipment 26
6.9 Taxes 26
6.10 Insurance 26
6.11 Financial Covenants 26
6.12 No Setoffs or Counterclaims 27
6.13 Location of Inventory and Equipment 27
6.14 Compliance with Laws 27
6.15 Employee Benefits 27
6.16 Store Openings and Closings 28
6.17 Inventory Audits 28
6.18 Real Property Leases 28
6.19 Landlord Waivers. 28
7.NEGATIVE COVENANTS 28
7.1 Indebtedness 29
7.2 Liens 29
7.3 Restrictions on Fundamental Changes 29
7.4 Extraordinary Transactions and Disposal of Assets 29
7.5 Change Name 30
7.6 Guarantee 30
7.7 Restructure 30
7.8 Prepayments 30
7.9 Change of Control 30
7.10 Capital Expenditures 30
7.11 Distributions 30
7.12 Accounting Methods 30
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7.13 Investments 30
7.14 Transactions with Affiliates 31
7.15 Suspension 31
7.16 Compensation 31
7.17 Use of Proceeds. 31
7.18 Change in Location of Chief Executive Office;
Inventory and Equipment with Bailees. 31
8.EVENTS OF DEFAULT. 31
9.FOOTHILL'S RIGHTS AND REMEDIES. 33
9.1 Rights and Remedies 33
9.2 Remedies Cumulative 35
10.TAXES AND EXPENSES REGARDING THE COLLATERAL 36
11.WAIVERS; INDEMNIFICATION 36
11.1 Demand; Protest; etc. 36
11.2 Foothill's Liability for Collateral 36
11.3 Indemnification 36
12.NOTICES 37
13.CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER. 37
14.DESTRUCTION OF BORROWER'S DOCUMENTS 38
15.GENERAL PROVISIONS 38
15.1 Effectiveness 38
15.2 Successors and Assigns 38
15.3 Section Headings 39
15.4 Interpretation 39
15.5 Severability of Provisions 39
15.6 Amendments in Writing 39
15.7 Counterparts; Telefacsimile Execution 39
15.8 Revival and Reinstatement of Obligations 39
15.9 Integration 40
iii
SCHEDULES
Schedule E-1 Eligible Inventory
Schedule P-1 Permitted Liens
Schedule 5.9 Litigation
Schedule 5.12 Employee Benefits
Schedule 6.13 Location of Inventory and Equipment
Schedule 7.14 Transactions with Affiliates
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LOAN AND SECURITY AGREEMENT
This LOAN AND SECURITY AGREEMENT, is entered into as of April 21, 1994,
between FOOTHILL CAPITAL CORPORATION, a California corporation ("Foothill"),
with a place of business located at 11111 Santa Monica Boulevard, Suite 1500,
Los Angeles, California 90025-3333, and BRENDLE'S INCORPORATED, a North
Carolina corporation ("Borrower"), with its chief executive office located at
1919 North Bridge Street, Elkin, North Carolina 28621.
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1 Definitions. As used in this Agreement, the
following terms shall have the following definitions:
"Account Debtor" means any Person who is or who may
become obligated under, with respect to, or on account of an Account.
"Accounts" means all currently
existing and hereafter arising accounts,
contract rights, and all other forms of obligations owing to
Borrower arising out of the sale
or lease of goods or the rendition of services by Borrower,
irrespective of whether earned
by performance, and any and all guaranties, or security
therefor, together with monies due
from Monogram pursuant to that certain Credit Card Program
Agreement between Borrower
and Monogram dated as of March 20, 1989, as the same may be
amended from time to
time.
"Affiliate" means, as applied to any
Person, any other Person directly or indirectly controlling, controlled by,
or under common control with, that Person. For
purposes of this definition, "control" as applied to any
Person means the possession, directly
or indirectly, of the power to direct or cause the direction
of the management and policies
of that Person, whether through the ownership of voting
securities, by contract, or otherwise.
"Agreement" means this Loan and
Security Agreement and any extensions,
riders supplements, notes, amendments, or modifications to
or in connection with this Loan and Security Agreement.
"Authorized Officer" means the Chief
Executive Officer or Chief Financial Officer of Borrower.
1
"Average Unused Portion of Maximum
Amount" means (a) the Maximum Amount; less (b) the sum of: (i) the average
Daily Balance of advances made by Foothill
under Section 2.1 that were outstanding during the
immediately preceding month; plus (ii)
the average Daily Balance of the undrawn L/Cs and L/C
Guarantees issued by Foothill
under Section 2.2 that were outstanding during the
immediately preceding month.
"Bankruptcy Case" means Borrower's
bankruptcy case number B-92-14519C-
11W filed by Borrower under Chapter 11 of the Bankruptcy
Code on November 22, 1992.
"Bankruptcy Code" means the United
States Bankruptcy Code (11 U.S.C.
(section mark) 101 et seq.), as amended, and any successor statute.
"Bankruptcy Court" has the meaning set
forth in Section 5.2.
"Borrower" has the meaning set forth
in the preamble to this Agreement.
"Borrower's Books" means all of
Borrower's books and records including:
ledgers; records indicating, summarizing, or evidencing
Borrower's properties or assets
(including the Collateral) or liabilities; all information
relating to Borrower's business
operations or financial condition; and all computer
programs, disc or tape files, printouts,
runs, or other computer prepared information, and the
equipment containing such information.
"Borrowing Base" has the meaning set
forth in Section 2.1.
"Business Day" means any day which is
not a Saturday, Sunday, or other day
on which national banks are authorized or required to close.
"Change of Control" shall be deemed to
have occurred at such time as a
"person" or "group" (within the meaning of Sections 13(d)
and 14(d)(2) of the Securities
Exchange Act of 1934) becomes the "beneficial owner" (as
defined in Rule 13d-3 under the
Securities Exchange Act of 1934), directly or indirectly, of
more than 10% of the total
voting power of all classes of stock then outstanding of
Borrower normally entitled to vote
in the election of directors.
"Closing Date" means the date of the
initial advance or the date of the initial
issuance of an L/C or an L/C Guaranty, whichever occurs
first.
"Code" means the California Uniform
Commercial Code.
"Collateral" means each of the
following: the Accounts; Borrower's Books;
the Equipment; the General Intangibles; the Inventory; the
Negotiable Collateral; any
money, or other assets of Borrower which now or hereafter
come into the possession,
custody, or control of Foothill; and the proceeds and
products, whether tangible or
2
intangible, of any of the foregoing including proceeds of
insurance covering any or all of
the Collateral, and any and all Accounts, Borrower's Books,
Equipment, General
Intangibles, Inventory, Negotiable Collateral, money,
deposit accounts, or other tangible or
intangible property resulting from the sale, exchange,
collection, or other disposition of any
of the foregoing, or any portion thereof or interest
therein, and the proceeds thereof.
"Consolidated Current Assets" means,
as of any date of determination, the
aggregate amount of all current assets of Borrower and its
subsidiaries calculated on a
consolidated basis that would, in accordance with GAAP, be
classified on a balance sheet as current assets.
"Consolidated Current Liabilities"
means, as of any date of determination,
the aggregate amount of all current liabilities of Borrower
and its subsidiaries, calculated
on a consolidated basis that would, in accordance with GAAP,
be classified on a balance
sheet as current liabilities. For purposes of this
definition, all advances outstanding under
this Agreement shall be deemed to be current liabilities
without regard to whether they
would be deemed to be so under GAAP.
"Daily Balance" means the amount of an
Obligation owed at the end of a
given day.
"Early Termination Premium" has the
meaning set forth in Section 3.5.
"Eligible Inventory" means Inventory
consisting of first quality finished goods
held for sale in the ordinary course of Borrower's business,
that are located at Borrower's
premises identified on Schedule E-1, are acceptable to
Foothill in all respects, and strictly
comply with all of Borrower's representations and warranties
to Foothill. Eligible Inventory
shall not include any of the following categories of
Inventory: (a) health and beauty
(Department No. 90), domestics (Department No. 91), (c) in-
out promotions (Department
No. 92), (d) food items/sauce cookies (Department No. 97),
(e) cigarettes/lighters
(Department 98), (f) miscellaneous clearing (Department 99),
(g) slow moving or obsolete
items which have been discontinued from Borrower's current
inventory selection for more
than one (1) year and are categorized by Borrower as C or D
Inventory, (h) restrictive or
custom items, (i) packaging and shipping materials, (j)
supplies used or consumed in
Borrower's business, (k) Inventory subject to a security
interest or lien in favor of any third
Person, (l) bill and hold goods, (m) Inventory that is not
subject to Foothill's perfected
security interests, (n) returned or defective goods, (o)
"seconds," and (p) Inventory acquired
on consignment. Eligible Inventory shall be valued at the
lower of Borrower's cost or
market value.
"Equipment" means all of Borrower's
present and hereafter acquired
machinery, machine tools, motors, equipment, furniture,
furnishings, fixtures, vehicles
(including motor vehicles and trailers), tools, parts, dies,
jigs, goods (other than consumer
goods, farm products, or Inventory), wherever located, and
any interest of Borrower in any
3
of the foregoing, and all attachments, accessories,
accessions, replacements, substitutions,
additions, and improvements to any of the foregoing,
wherever located.
"ERISA" means the Employee Retirement
Income Security Act of 1974, as
amended from time to time, or any predecessor, successor, or
superseding laws of the
United States of America, together with all regulations
promulgated thereunder.
"ERISA Affiliate" means any trade or
business (whether or not incorporated)
which, within the meaning of Section 414 of the IRC, is:
(i) under common control with
Borrower; (ii) treated, together with Borrower, as a single
employer; (iii) treated as a
member of an affiliated service group of which Borrower is
also treated as a member; or
(iv) is otherwise aggregated with the Borrower for purposes
of the employee benefits
requirements listed in IRC Section 414(m)(4).
"ERISA Event" means any one or more of
the following: (i) a Reportable
Event with respect to a Qualified Plan or a Multiemployer
Plan; (ii) a Prohibited
Transaction with respect to any Plan; (iii) a complete or
partial withdrawal by Borrower or
any ERISA Affiliate from a Multiemployer Plan; (iv) the
complete or partial withdrawal of
Borrower or an ERISA Affiliate from a Qualified Plan during
a plan year in which it was,
or was treated as, a "substantial employer" as defined in
Section 4001(a)(2) of ERISA; (v) a
failure to make full payment when due of all amounts which,
under the provisions of any
Plan or applicable law, Borrower or any ERISA Affiliate is
required to make; (vi) the filing
of a notice of intent to terminate, or the treatment of a
plan amendment as a termination,
under Sections 4041 or 4041A of ERISA; (vii) an event or
condition which might
reasonably be expected to constitute grounds under Section
4042 of ERISA for the
termination of, or the appointment of a trustee to
administer, any Qualified Plan or
Multiemployer Plan; (viii) the imposition of any liability
under Title IV of ERISA, other
than PBGC premiums due but not delinquent under Section 4007
of ERISA, upon Borrower
or any ERISA Affiliate; and (ix) a violation of the
applicable requirements of Sections 404
or 405 of ERISA, or the exclusive benefit rule under Section
403(c) of ERISA, by any
fiduciary or disqualified person with respect to any Plan
for which Borrower or any ERISA
Affiliate may be directly or indirectly liable.
"Event of Default" has the meaning set
forth in Section 8.
"FEIN" means Federal Employer
Identification Number.
"Financing Order" means a final, non-
appealable order of the Bankruptcy
Court approving financing pursuant to this Agreement.
"Foothill" has the meaning set forth
in the preamble to this Agreement.
"Foothill Expenses" means all: costs
or expenses (including taxes,
photocopying, notarization, telecommunication and insurance
premiums) required to be paid
4
by Borrower under any of the Loan Documents that are paid or
advanced by Foothill;
documentation, filing, recording, publication, appraisal
(including periodic Collateral
appraisals), real estate survey, environmental audit, and
search fees assessed, paid, or
incurred by Foothill in connection with Foothill's
transactions with Borrower; costs and
expenses incurred by Foothill in the disbursement of funds
to Borrower (by wire transfer
or otherwise); charges paid or incurred by Foothill
resulting from the dishonor of checks;
costs and expenses paid or incurred by Foothill to correct
any default or enforce any
provision of the Loan Documents, or in gaining possession
of, maintaining, handling,
preserving, storing, shipping, selling, preparing for sale,
or advertising to sell the
Collateral, or any portion thereof, irrespective of whether
a sale is consummated; costs and
expenses paid or incurred by Foothill in examining
Borrower's Books; costs and expenses
of third party claims or any other suit paid or incurred by
Foothill in enforcing or defending
the Loan Documents; and Foothill's reasonable attorneys fees
and expenses incurred in
advising, structuring, drafting, reviewing, administering,
amending, terminating, enforcing
(including attorneys fees and expenses incurred in
connection with a "workout," a
"restructuring," or an Insolvency Proceeding concerning
Borrower or any guarantor of the
Obligations), defending, or concerning the Loan Documents,
irrespective of whether suit
is brought.
"GAAP" means generally accepted
accounting principles as in effect from
time to time in the United States, consistently applied.
"General Intangibles" means all of
Borrower's present and future general
intangibles and other personal property (including contract
rights, rights arising under
common law, statutes, or regulations, choses or things in
action, goodwill, patents, trade
names, trademarks, servicemarks, copyrights, blueprints,
drawings, purchase orders,
customer lists, monies due or recoverable from pension
funds, route lists, rights to payment
and other rights under any royalty or licensing agreements,
infringements, claims, computer
programs, computer discs, computer tapes, literature,
reports, catalogs, deposit accounts,
insurance premium rebates, tax refunds, and tax refund
claims), other than goods and
Accounts.
"Hazardous Materials" means all or any
of the following: (a) substances that
are defined or listed in, or otherwise classified pursuant
to, any applicable laws or
regulations as "hazardous substances," "hazardous
materials," "hazardous wastes," "toxic
substances," or any other formulation intended to define,
list, or classify substances by
reason of deleterious properties such as ignitability,
corrosivity, reactivity, carcinogenicity,
reproductive toxicity, or "EP toxicity"; (b) oil, petroleum,
or petroleum derived substances,
natural gas, natural gas liquids, synthetic gas, drilling
fluids, produced waters, and other
wastes associated with the exploration, development, or
production of crude oil, natural gas,
or geothermal resources; (c) any flammable substances or
explosives or any radioactive
materials; and (d) asbestos in any form or electrical
equipment which contains any oil or
dielectric fluid containing levels of polychlorinated
biphenyls in excess of fifty (50) parts
per million.
5
"Indebtedness" means: (a) all obligations of Borrower
for borrowed money; (b) all obligations of Borrower evidenced by bonds,
debentures, notes, or other similar
instruments and all reimbursement or other obligations of
Borrower in respect of letters of
credit, letter of credit guaranties, bankers acceptances,
interest rate swaps, controlled
disbursement accounts, or other financial products; (c) all
obligations under capitalized
leases; (d) all obligations or liabilities of others secured
by a lien or security interest on any
property or asset of Borrower, irrespective of whether such
obligation or liability is
assumed; and (e) any obligation of Borrower guaranteeing or
intended to guarantee (whether
guaranteed, endorsed, co-made, discounted, or sold with
recourse to Borrower) any
indebtedness, lease, dividend, letter of credit, or other
obligation of any other Person.
"Insolvency Proceeding" means any
proceeding commenced by or against any
Person under any provision of the Bankruptcy Code, except
for the Bankruptcy Case, or
under any other bankruptcy or insolvency law, including
assignments for the benefit of
creditors, formal or informal moratoria, compositions,
extensions generally with its
creditors, or proceedings seeking reorganization,
arrangement, or other similar relief.
"Inventory" means all present and
future inventory in which Borrower has
any interest, including, but not limited to, jewelry,
housewares, toys, consumer electronics,
hardgoods and gifts, and packing and shipping materials,
wherever located, and any
documents of title representing any of the above.
"IRC" means the Internal Revenue Code
of 1986, as amended, and the
regulations thereunder.
"L/C" has the meaning set forth in
Section 2.2(a).
"L/C Guaranty" has the meaning set
forth in Section 2.2(a).
"Loan Documents" means this Agreement,
the Lock Box Agreement, any
note or notes executed by Borrower and payable to Foothill,
and any other agreement
entered into in connection with this Agreement.
"Lock Box" means the Foothill Account,
as defined in the Lock Box
Agreement.
"Lock Box Agreement" means that
certain Depository Account Agreement,
in form and substance satisfactory to Foothill, which is
among Borrower, Foothill, and the
Lock Box Bank.
"Lock Box Bank" means First Union
National Bank of North Carolina.
"Maximum Amount" has the meaning set
forth in Section 2.1.
6
"Maximum Foothill Amount" means that portion of the
Maximum Amount for which Foothill shall be responsible, exclusive of any
participations with Participants,
which amount is Thirty Five Million Dollars ($35,000,000).
"Monogram" means Monogram Credit Card
Bank of Georgia, a Georgia banking corporation.
"Multiemployer Plan" means a
multiemployer plan as defined in Sections
3(37) or 4001(a)(3) of ERISA or Section 414 of the IRC in
which employees of Borrower
or an ERISA Affiliate participate or to which Borrower or
any ERISA Affiliate contribute
or are required to contribute.
"Negotiable Collateral" means all of
Borrower's present and future letters of
credit, notes, drafts, instruments, certificated and
uncertificated securities (including the
shares of stock of subsidiaries of Borrower), documents,
personal property leases (wherein
Borrower is the lessor), chattel paper, and Borrower's Books
relating to any of the
foregoing.
"Obligations" means all loans,
advances, debts, principal, interest (including
any interest that, but for the provisions of the Bankruptcy
Code, would have accrued),
contingent reimbursement obligations owing to Foothill under
any outstanding L/Cs or L/C
Guarantees, premiums, liabilities (including all amounts
charged to Borrower's loan account
pursuant to any agreement authorizing Foothill to charge
Borrower's loan account),
obligations, fees (including Early Termination Premiums),
lease payments, guaranties,
covenants, and duties owing by Borrower to Foothill of any
kind and description (whether
pursuant to or evidenced by the Loan Documents, by any note
or other instrument, or
pursuant to any other agreement between Foothill and
Borrower, and irrespective of whether
for the payment of money), whether direct or indirect,
absolute or contingent, due or to
become due, now existing or hereafter arising, and including
any debt, liability, or
obligation owing from Borrower to others that Foothill may
have obtained by assignment
or otherwise, and further including all interest not paid
when due and all Foothill Expenses
that Borrower is required to pay or reimburse by the Loan
Documents, by law, or
otherwise.
"Old Lender" means CIT Group/Business
Credit, Inc.
"Overadvance" has the meaning set
forth in Section 2.4.
"Participant" means any Person, other
than Foothill, that has committed to
provide a portion of the financing contemplated herein.
"Pay-Off Letter" means a letter, in
form and substance reasonably satisfactory
to Foothill, from Old Lender respecting the amount necessary
to repay in full all of the
obligations of Borrower owing to Old Lender and obtain a
termination or release of all of
7
the security interests or liens existing in favor of Old
Lender in and to the properties or
assets of Borrower.
"PBGC" means the Pension Benefit
Guaranty Corporation as defined in Title
IV of ERISA, or any successor thereto.
"Permitted Liens" means: (a) liens and
security interests held by Foothill; (b)
liens for unpaid taxes that are not yet due and payable; (c)
liens and security interests set
forth on Schedule P-1 attached hereto; (d) purchase money
security interests and liens of
lessors under capitalized leases to the extent that the
acquisition or lease of the underlying
asset was permitted under Section 7.10, and so long as the
security interest or lien only
secures the purchase price of the asset; (e) easements,
rights of way, reservations,
covenants, conditions, restrictions, zoning variances, and
other similar encumbrances that
do not materially interfere with the use or value of the
property subject thereto; (f)
obligations and duties as lessee under any lease existing on
the date of this Agreement; and
(g) mechanics', materialmen's, warehousemen's, or similar
liens.
"Person" means and includes natural
persons, corporations, limited
partnerships, general partnerships, joint ventures, trusts,
land trusts, business trusts, or other
organizations, irrespective of whether they are legal
entities, and governments and agencies
and political subdivisions thereof.
"Plan" means an employee benefit plan
(as defined in Section 3(3) of ERISA)
which Borrower or any ERISA Affiliate sponsors or maintains
or to which Borrower or any
ERISA Affiliate makes, is making, or is obligated to make
contributions, including any
Multiemployer Plan or Qualified Plan.
"Plan of Reorganization" means that
certain First Amended Joint Plan of
Reorganization filed on November 10, 1993 by Borrower and
Brendle's Stores, Inc., as
modified and confirmed on December 20, 1993.
"Prohibited Transaction" means any
transaction described in Section 406 of
ERISA which is not exempt by reason of Section 408 of ERISA,
and any transaction
described in Section 4975(c) of the IRC which is not exempt
by reason of Section 4975(c)
of the IRC.
"Qualified Plan" means a pension plan
(as defined in Section 3(2) of ERISA)
intended to be tax-qualified under Section 401(a) of the IRC
which Borrower or any ERISA
Affiliate sponsors, maintains, or to which any such person
makes, is making, or is obligated
to make, contributions, or, in the case of a multiple-
employer plan (as described in Section
4064(a) of ERISA), has made contributions at any time during
the immediately preceding
period covering at least five (5) plan years, but excluding
any Multiemployer Plan.
8
"Reference Rate" means the highest
of the variable rates of interest, per
annum, most recently announced by (a) Bank of America, N.T.
& S.A., (b) Mellon Bank,
N.A., and (c) Citibank, N.A., or any successor to any of the
foregoing institutions, as its
"prime rate" or "reference rate," as the case may be,
irrespective of whether such
announced rate is the best rate available from such
financial institution.
"Reportable Event" means any event
described in Section 4043 (other than
Subsections (b)(7) and (b)(9)) of ERISA.
"Solvent" means, with respect to any
Person on a particular date, that on such
date (a) at fair valuations, all of the properties and
assets of such Person are greater than
the sum of the debts, including contingent liabilities, of
such Person, (b) the present fair
salable value of the properties and assets of such Person is
not less than the amount that will
be required to pay the probable liability of such Person on
its debts as they become absolute
and matured, (c) such Person is able to realize upon its
properties and assets and pay its
debts and other liabilities, contingent obligations and
other commitments as they mature in
the normal course of business, (d) such Person does not
intend to, and does not believe that
it will, incur debts beyond such Person's ability to pay as
such debts mature, and (e) such
Person is not engaged in business or a transaction, and is
not about to engage in business
or a transaction, for which such Person's properties and
assets would constitute
unreasonably small capital after giving due consideration to
the prevailing practices in the
industry in which such Person is engaged. In computing the
amount of contingent liabilities
at any time, it is intended that such liabilities will be
computed at the amount that, in light
of all the facts and circumstances existing at such time,
represents the amount that
reasonably can be expected to become an actual or matured
liability.
"Syndicated Amount" means that portion
of the Maximum Amount, if any,
equal to the aggregate financing commitments (to the extent
not breached or terminated) of
all Participants.
"Tangible Net Worth" means, as of the
date any determination thereof is to
be made, the difference of: (a) Borrower's total
stockholder's equity; minus (b) the sum of:
(i) all intangible assets of Borrower; (ii) all of
Borrower's prepaid expenses except for
prepaid Inventory; and (iii) all amounts due to Borrower
from Affiliates, calculated on a
consolidated basis.
"Unfunded Benefit Liability" means the
excess of a Plan's benefit liabilities
(as defined in Section 4001(a)(16) of ERISA) over the
current value of such Plan's assets,
determined in accordance with the assumptions used by the
Plan's actuaries for funding the
Plan pursuant to Section 412 of the IRC for the applicable
plan year.
"Voidable Transfer" has the meaning
set forth in Section 15.8.
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1.2 Accounting Terms. All accounting terms
not specifically defined
herein shall be construed in accordance with GAAP. When
used herein, the term "financial
statements" shall include the notes and schedules thereto.
Whenever the term "Borrower"
is used in respect of a financial covenant or a related
definition, it shall be understood to
mean Borrower on a consolidated basis unless the context
clearly requires otherwise.
1.3 Code. Any terms used in this
Agreement which are defined in the
Code shall be construed and defined as set forth in the Code
unless otherwise defined
herein.
1.4 Construction. Unless the context
of this Agreement clearly requires
otherwise, references to the plural include the singular,
references to the singular include
the plural, the term "including" is not limiting, and the
term "or" has, except where
otherwise indicated, the inclusive meaning represented by
the phrase "and/or." The words
"hereof," "herein," "hereby," "hereunder," and similar terms
in this Agreement refer to this
Agreement as a whole and not to any particular provision of
this Agreement. Section,
subsection, clause, schedule, and exhibit references are to
this Agreement unless otherwise
specified. Any reference in this Agreement or in the Loan
Documents to this Agreement
or any of the Loan Documents shall include all alterations,
amendments, changes,
extensions, modifications, renewals, replacements,
substitutions, and supplements, thereto
and thereof, as applicable.
1.5 Schedules and Exhibits. All of the
schedules and exhibits attached
to this Agreement shall be deemed incorporated herein by
reference.
2. LOAN AND TERMS OF PAYMENT.
2.1 Revolving Advances. (a) Subject to
the terms and conditions of this
Agreement, Foothill agrees to make revolving advances to
Borrower in an amount not to
exceed the Borrowing Base. For purposes of this Agreement,
"Borrowing Base" shall mean
an amount equal to fifty-five percent (55%) of the amount of
Eligible Inventory net of
reserves during the period of December 15th through July
31st of each year and sixty-five
(65%) of the amount of Eligible Inventory net of reserves
during the period of August 1st
through December 14th of each year. Foothill shall
establish reasonable reserves against
Eligible Inventory for price protection, volume rebates and
for Inventory, if any, that is
subject to landlord liens that are not subordinate to
Foothill's security interests in Inventory.
(b) Anything to the
contrary in Section 2.1(a) above
notwithstanding, Foothill may reduce its advance rates based
upon Eligible Inventory
without declaring an Event of Default if it determines, in
its reasonable discretion, that there
is a material impairment of the prospect of repayment of all
or any portion of the
Obligations or a material impairment of the value or
priority of Foothill's security interests
in the Collateral.
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(c) Foothill shall have no obligation to make advances
hereunder to the extent they would cause the outstanding Obligations
to exceed the lesser of: (i) Forty
Five Million Dollars ($45,000,000) ("Maximum Amount"), or
(ii) the Maximum Foothill
Amount plus the Syndicated Amount.
(d) Foothill is
authorized to make advances under this Agreement
based upon telephonic or other instructions received from
anyone purporting to be an
Authorized Officer of Borrower, or without instructions if
pursuant to Section 2.5(d).
Borrower agrees to establish and maintain a single
designated deposit account for the
purpose of receiving the proceeds of the advances requested
by Borrower and made by
Foothill hereunder. Unless otherwise agreed by Foothill and
Borrower, any advance
requested by Borrower and made by Foothill hereunder shall
be made to such designated
deposit account. Amounts borrowed pursuant to this Section
2.1 may be repaid and, subject
to the terms and conditions of this Agreement, reborrowed at
any time during the term of
this Agreement.
2.2 Letters of Credit and Letter of
Credit Guarantees.
(a) Subject to the
terms and conditions of this Agreement, Foothill
agrees to issue commercial or standby letters of credit for
the account of Borrower (each,
an "L/C") or to issue standby letters of credit or
guarantees of payment (each such letter
of credit or guaranty, an "L/C Guaranty") with respect to
commercial or standby letters of
credit issued by another Person for the account of Borrower
in an aggregate face amount
not to exceed the lesser of: (i) the Borrowing Base less the
amount of advances outstanding
pursuant to Section 2.1, and (ii) Ten Million Dollars
($10,000,000). Borrower expressly
understands and agrees that Foothill shall have no
obligation to arrange for the issuance by
other financial institutions of letters of credit that are
to be the subject of L/C Guarantees.
Borrower and Foothill acknowledge and agree that certain of
the letters of credit that are
to be the subject of L/C Guarantees may be outstanding on
the Closing Date. Each such
L/C (including those that are the subject of L/C Guarantees)
shall have an expiry date no
later than sixty (60) days prior to the date on which this
Agreement is scheduled to
terminate under Section 3.3 (without regard to any potential
renewal term) and all such L/Cs
and L/C Guarantees shall be in form and substance acceptable
to Foothill in its sole
discretion. Foothill shall not have any obligation to issue
L/Cs or L/C Guarantees to the
extent that the face amount of all outstanding L/Cs and L/C
Guarantees, plus the amount
of advances outstanding pursuant to Section 2.1, would
exceed the lesser of: (y) the
Maximum Amount, or (z) the Maximum Foothill Amount plus the
Syndicated Amount. The
L/Cs and the L/C Guarantees issued under this Section 2.2
shall be used by Borrower,
consistent with this Agreement, for its general working
capital purposes or to support its
obligations with respect to workers' compensation premiums
or other similar obligations.
If Foothill is obligated to advance funds under an L/C or
L/C Guaranty, the amount so
advanced immediately shall be deemed to be an advance made
by Foothill to Borrower
pursuant to Section 2.1 and, thereafter, shall bear interest
at the rates then applicable under
Section 2.5.
11
(b) Borrower hereby agrees to indemnify, save,
defend, and hold
Foothill harmless from any loss, cost, expense, or
liability, including payments made by
Foothill, expenses, and reasonable attorneys fees incurred
by Foothill arising out of or in
connection with any L/Cs or L/C Guarantees. Borrower agrees
to be bound by the issuing
bank's regulations and interpretations of any letters of
credit guarantied by Foothill and
opened to or for Borrower's account or by Foothill's
interpretations of any L/C issued by
Foothill to or for Borrower's account, even though this
interpretation may be different from
Borrower's own, and Borrower understands and agrees that
Foothill shall not be liable for
any error, negligence, or mistakes, whether of omission or
commission, in following
Borrower's instructions or those contained in the L/Cs or
any modifications, amendments,
or supplements thereto. Borrower understands that the L/C
Guarantees may require Foothill
to indemnify the issuing bank for certain costs or
liabilities arising out of claims by
Borrower against such issuing bank. Borrower hereby agrees
to indemnify, save, defend,
and hold Foothill harmless with respect to any loss, cost,
expense (including attorneys fees),
or liability incurred by Foothill under any L/C Guaranty as
a result of Foothill's
indemnification of any such issuing bank.
(c) Borrower hereby
authorizes and directs any bank that issues
a letter of credit guaranteed by Foothill to deliver to
Foothill all instruments, documents,
and other writings and property received by the issuing bank
pursuant to the letter of credit,
and to accept and rely upon Foothill's instructions and
agreements with respect to all matters
arising in connection with the letter of credit and the
related application. Borrower may or
may not be the "applicant" or "account party" with respect
to such letter of credit.
(d) Any and all
service charges, commissions, fees, and costs
incurred by Foothill relating to the L/Cs guaranteed by
Foothill shall be considered Foothill
Expenses for purposes of this Agreement and immediately
shall be reimbursable by
Borrower to Foothill. On the first day of each month,
Borrower will pay Foothill a fee
equal to two and one-half percent (2.50%) per annum times
the average Daily Balance of
the undrawn L/Cs and L/C Guarantees that were outstanding
during the immediately
preceding month. Service charges, commissions, fees, and
costs may be charged to
Borrower's loan account at the time the service is rendered
or the cost is incurred.
(e) Immediately
upon the termination of this Agreement, Borrower
agrees to either: (i) provide cash collateral to be held by
Foothill in an amount equal to the
maximum amount of Foothill's obligations under L/Cs plus the
maximum amount of
Foothill's obligations to any Person under outstanding L/C
Guarantees, or (ii) cause to be
delivered to Foothill releases of all of Foothill's
obligations under its outstanding L/Cs and
L/C Guarantees. At Foothill's discretion, any proceeds of
Collateral received by Foothill
after the occurrence and during the continuation of an Event
of Default may be held as the
cash collateral required by this Section 2.2(e).
2.3 Intentionally omitted.
12
2.4 Overadvances. If, at any time or for any
reason, the amount of
Obligations owed by Borrower to Foothill pursuant to
Sections 2.1 and 2.2 is greater than
either the dollar or percentage limitations set forth in
Sections 2.1 or 2.2 (an
"Overadvance"), Borrower immediately shall pay to Foothill,
in cash, the amount of such
excess to be used by Foothill first, to repay non-contingent
Obligations and, thereafter, to
be held by Foothill as cash collateral to secure Borrower's
obligation to repay Foothill for
all amounts paid pursuant to L/Cs or L/C Guarantees.
2.5 Interest: Rates, Payments, and
Calculations.
(a) Interest Rate.
All Obligations, except for undrawn L/Cs and
L/C Guarantees, shall bear interest, on the average Daily
Balance, at a per annum rate of
one and forty-four one hundredths (1.44) percentage points
above the Reference Rate.
(b) Default Rate.
All Obligations, except for undrawn L/Cs and
L/C Guarantees, shall bear interest, from and after the
occurrence and during the
continuance of an Event of Default, at a per annum rate
equal to four and forty-four one
hundredths (4.44) percentage points above the Reference
Rate. From and after the
occurrence and during the continuance of an Event of
Default, the fee provided in Section
2.2(d) shall be increased to a fee equal to five and one
half percent (5.50%) per annum
times the average Daily Balance of the undrawn L/Cs and L/C
Guarantees that were
outstanding during the immediately preceding month.
(c) Minimum
Interest. In no event shall the rate of interest
chargeable hereunder be less than seven percent (7%) per
annum.
(d) Payments.
Interest hereunder shall be due and payable on the
first day of each month during the term hereof. Borrower
hereby authorizes Foothill, at its
option, without prior notice to Borrower, to charge such
interest, all Foothill Expenses (as
and when incurred), and all installments or other payments
due under the Term Note or any
other note or other Loan Document to Borrower's loan
account, which amounts shall
thereafter accrue interest at the rate then applicable
hereunder. Any interest not paid when
due shall be compounded by becoming a part of the
Obligations, and such interest shall
thereafter accrue interest at the rate then applicable
hereunder.
(e) Computation.
The Reference Rate as of this date is six and
three quarters percent (6.75%) per annum. In the event the
Reference Rate is changed from
time to time hereafter, the applicable rate of interest
hereunder automatically and
immediately shall be increased or decreased by an amount
equal to such change in the
Reference Rate. The rates of interest charged hereunder
shall be based upon the average
Reference Rate in effect during the month. All interest and
fees chargeable under the Loan
Documents shall be computed on the basis of a three hundred
sixty (360) day year for the
actual number of days elapsed.
13
(f) Intent to Limit Charges to
Maximum Lawful Rate. In no event
shall the interest rate or rates payable under this
Agreement or the Term Note, plus any
other amounts paid in connection herewith, exceed the
highest rate permissible under any
law that a court of competent jurisdiction shall, in a final
determination, deem applicable.
Borrower and Foothill, in executing this Agreement and the
Term Note, intend to legally
agree upon the rate or Rates of interest and manner of
payment stated within it; provided,
however, that, anything contained herein or in the Term Note
to the contrary
notwithstanding, if said rate or rates of interest or manner
of payment exceeds the maximum
allowable under applicable law, then, ipso facto as of the
date of this Agreement and the
Term Note, Borrower is and shall be liable only for the
payment of such maximum as
allowed by law, and payment received from Borrower in excess
of such legal maximum,
whenever received, shall be applied to reduce the principal
balance of the Obligations to the
extent of such excess.
2.6 Crediting Payments; Application of
Collections. The receipt of any
wire transfer of funds, check, or other item of payment by
Foothill (whether from transfers
to Foothill by the Lock Box Banks pursuant to the Lock Box
Agreements or otherwise)
immediately shall be applied to provisionally reduce the
Obligations, but shall not be
considered a payment on account unless such wire transfer is
of immediately available
federal funds and is made to the appropriate deposit account
of Foothill or unless and until
such check or other item of payment is honored when
presented for payment. From and
after the Closing Date, Foothill shall be entitled to charge
Borrower for three (3) Business
Days of `clearance' at the applicable rates set forth in
Sections 2.5(a) and 2.5(b) (applicable
to advances under Section 2.1) on all collections, checks,
wire transfers, or other items of
payment that are received by Foothill (regardless of whether
forwarded by the Lock Box
Banks to Foothill, whether provisionally applied to reduce
the Obligations, or otherwise).
This across-the-board three (3) Business Day clearance
charge on all receipts is
acknowledged by the parties to constitute an integral aspect
of the pricing of Foothill's
facility to Borrower, and shall apply irrespective of the
characterization of whether receipts
are owned by Borrower or Foothill, and irrespective of the
level of Borrower's Obligations
to Foothill. Should any check or item of payment not be
honored when presented for
payment, then Borrower shall be deemed not to have made such
payment, and interest shall
be recalculated accordingly. Anything to the contrary
contained herein notwithstanding, any
wire transfer, check, or other item of payment shall be
deemed received by Foothill only
if it is received into Foothill's Operating Account (as such
account is identified in the Lock
Box Agreements) on or before 11:00 a.m. Los Angeles time.
If any wire transfer, check,
or other item of payment is received into Foothill's
Operating Account (as such account is
identified in the Lock Box Agreements) after 11:00 a.m. Los
Angeles time it shall be
deemed to have been received by Foothill as of the opening
of business on the immediately
following Business Day.
2.7 Statements of Obligations.
Foothill shall render statements to
Borrower of the Obligations, including principal, interest,
fees, and including an itemization
of all charges and expenses constituting Foothill Expenses
owing, and such statements shall
14
be conclusively presumed to be correct and accurate and
constitute an account stated
between Borrower and Foothill unless, within thirty (30)
days after receipt thereof by
Borrower, Borrower shall deliver to Foothill by registered
or certified mail at its address
specified in Section 12, written objection thereto
describing the error or errors contained in
any such statements.
2.8 Fees. Borrower shall pay to
Foothill the following fees:
(a) Commitment Fee.
A one time commitment fee of Four
Hundred Fifty Thousand Dollars ($450,000) which is earned,
in full, upon approval of the
financing contemplated by this Agreement by the Bankruptcy
Court and is due and payable
by Borrower to Foothill in connection with this Agreement
concurrently with such approval;
(b) Unused Line
Fee. On the first day of each month during the
term of this Agreement, a fee in an amount equal to one half
of one percent (.50%) per
annum times the Average Unused Portion of the Maximum
Amount;
(c) Annual Facility
Fee. On the Closing Date and on each
anniversary of the Closing Date, a fee in an amount equal to
one half of one percent (.50%)
of the Maximum Amount, such fee to be fully earned on each
such date;
(d) Financial
Examination, Documentation, and Appraisal Fees.
Foothill's customary fee of Six Hundred Dollars ($600) per
day per examiner, plus out-of-
pocket expenses for each financial analysis and examination
of Borrower performed by
Foothill or its agents; Foothill's customary appraisal fee
of One Thousand Dollars ($1,000)
per day per appraiser, plus out-of-pocket expenses for each
appraisal of the Collateral
performed by Foothill or its agents; and, on each
anniversary of the Closing Date, Foothill's
customary fee of One Thousand Dollars ($1,000) per year for
its loan documentation
review; and
(e) Servicing Fee.
On the first day of each month during the term
of this Agreement, and thereafter so long as any Obligations
are outstanding, a servicing
fee in an amount equal to Three Thousand Five Hundred
Dollars ($3,500) per month.
3. CONDITIONS; TERM OF AGREEMENT.
3.1 Conditions Precedent to Initial
Advance, L/C, or L/C Guaranty.
The obligation of Foothill to make the initial advance or to
provide the initial L/C or L/C
Guaranty is subject to the fulfillment, to the satisfaction
of Foothill and its counsel, of each
of the following conditions on or before the Closing Date:
(a) the Closing
Date shall occur on or before April 30, 1994;
15
(b) Foothill shall have received a certificate
from an Authorized Officer, and such other evidence as Foothill shall
reasonably require, to the effect that all
conditions to the substantial consummation of the Plan of
Reorganization and the satisfaction
or release of all liens and security interests in the
Collateral (other than Permitted Liens)
shall have been satisfied (other than the funding of the
obligations under the Plan of
Reorganization from the initial advances hereunder);
(c) The Financing
Order shall have been entered and shall remain
in full force and effect;
(d) Foothill shall
have received searches reflecting the filing of its
financing statements;
(e) Foothill shall
have received each of the following documents,
duly executed, and each such document shall be in full force
and effect:
i) the Lock Box Agreement; and
ii) a security agreement from
BFS, Inc. on the trademarks owned by such corporation;
(f) Foothill shall
have received a certificate from the Secretary of
Borrower attesting to the resolutions of Borrower's Board of
Directors authorizing its
execution and delivery of this Agreement and the other Loan
Documents to which Borrower
is a party and authorizing specific officers of Borrower to
execute same;
(g) Foothill shall
have received copies of Borrower's By-laws and
Articles of Incorporation, as amended, modified, or
supplemented to the Closing Date,
certified by the Secretary of Borrower;
(h) Foothill shall
have received a certificate of corporate status
with respect to Borrower, dated within ten (10) days of the
Closing Date, by the Secretary
of State of the state of incorporation of Borrower, which
certificate shall indicate that
Borrower is in good standing in such state;
(i) Foothill shall
have received certificates of corporate status with
respect to Borrower, each dated within fifteen (15) days of
the Closing Date, such
certificates to be issued by the Secretary of State of the
states in which its failure to be duly
qualified or licensed would have a material adverse effect
on the financial condition or
properties and assets of Borrower, which certificates shall
indicate that Borrower is in good
standing;
16
(j) Foothill shall have received the certified
copies of the policies
of insurance, together with the endorsements thereto, as are
required by Section 6.10
hereof, the form and substance of which shall be
satisfactory to Foothill and its counsel;
(k) Foothill shall
have received duly executed certificates of title
with respect to that portion of the Collateral that is
subject to certificates of title and is not
subject to Permitted Liens;
(l) Foothill shall
have received landlord waivers from Brenco, as
to all properties leased by Brenco to Borrower, and from the
lessor of Borrower's
distribution center;
(m) Foothill shall
have completed its appraisal of Borrower's
Inventory and the results of such appraisal shall be
reasonably satisfactory to Foothill;
(n) Foothill shall
have received an opinion of Borrower's counsel
in form and substance satisfactory to Foothill in its sole
discretion;
(o) Foothill shall
have received evidence that Brendle's Stores, Inc.
has merged into Borrower;
(p) Borrower and
Brenco shall have agreed to renewals and
modifications of the real property leases between them on
terms and conditions satisfactory
to Foothill; and
(q) all other
documents and legal matters in connection with the
transactions contemplated by this Agreement shall have been
delivered or executed or
recorded and shall be in form and substance satisfactory to
Foothill and its counsel.
3.2 Conditions Precedent to All
Advances, L/Cs, or L/C Guarantees.
The following shall be conditions precedent to all advances,
L/Cs, or L/C Guarantees hereunder:
(a) the
representations and warranties contained in this Agreement
and the other Loan Documents shall be true and correct in
all respects on and as of the date
of such advance, L/C, or L/C Guaranty, as though made on and
as of such date (except to
the extent that such representations and warranties relate
solely to an earlier date);
(b) no Event of
Default or event which with the giving of notice
or passage of time would constitute an Event of Default
shall have occurred and be
continuing on the date of such advance, L/C, or L/C
Guaranty, nor shall either result from
the making of the advance; and
17
(c) no injunction, writ, restraining
order, or other order of any
nature prohibiting, directly or indirectly, the making of
such advance or the issuance of such
L/C or L/C Guaranty shall have been issued and remain in
force by any governmental
authority against Borrower, Foothill, or any of their
Affiliates.
3.3 Term. This Agreement shall become
effective upon the execution and
delivery hereof by Borrower and Foothill and shall continue
in full force and effect for a
term ending on the date (the "Maturity Date") that is five
(5) years from the Closing Date,
unless sooner terminated pursuant to the terms hereof. The
foregoing notwithstanding,
Foothill shall have the right to terminate its obligations
under this Agreement immediately
and without notice upon the occurrence and during the
continuation of an Event of Default.
3.4 Effect of Termination. On the date
of termination, all Obligations
(including contingent reimbursement obligations under any
outstanding L/Cs or L/C
Guarantees) immediately shall become due and payable without
notice or demand. No
termination of this Agreement, however, shall relieve or
discharge Borrower of Borrower's
duties, Obligations, or covenants hereunder, and Foothill's
continuing security interests in
the Collateral shall remain in effect until all Obligations
have been fully and finally
discharged and Foothill's obligation to provide advances
hereunder is terminated. If
Borrower has sent a notice of termination pursuant to the
provisions of Section 3.3, but fails
to pay all Obligations on the date set forth in said notice,
then Foothill may, but shall not
be required to, renew this Agreement for an additional term
of one (1) year.
3.5 Early Termination by Borrower. The
provisions of Section 3.3 that
allow termination of this Agreement only on the Maturity
Date notwithstanding, Borrower
has the option, at any time upon ninety (90) days prior
written notice to Foothill, to
terminate this Agreement by paying to Foothill, in cash, the
Obligations (including an
amount equal to the full amount of the L/Cs or L/C
Guarantees), together with a premium
(the "Early Termination Premium") equal to the greater of:
(a) an amount equal to one-half
of the total interest and L/C and L/C Guaranty fees for the
immediately preceding twelve
(12) months; and (b) Three Hundred Thousand Dollars
($300,000).
3.6 Termination Upon Event of Default.
If Foothill terminates this
Agreement upon the occurrence of an Event of Default, in
view of the impracticability and
extreme difficulty of ascertaining actual damages and by
mutual agreement of the parties as
to a reasonable calculation of Foothill's lost profits as a
result thereof, Borrower shall pay
to Foothill upon the effective date of such termination, a
premium in an amount equal to
the Early Termination Premium. The Early Termination
Premium shall be presumed to be
the amount of damages sustained by Foothill as the result of
the early termination and
Borrower agrees that it is reasonable under the
circumstances currently existing. The Early
Termination Premium provided for in this Section 3.6 shall
be deemed included in the
Obligations.
18
4. CREATION OF SECURITY INTEREST.
4.1 Grant of Security Interest.
Borrower hereby grants to Foothill a
continuing security interest in all currently existing and
hereafter acquired or arising
Collateral in order to secure prompt repayment of any and
all Obligations and in order to
secure prompt performance by Borrower of each of its
covenants and duties under the Loan
Documents. Foothill's security interests in the Collateral
shall attach to all Collateral
without further act on the part of Foothill or Borrower.
Anything contained in this
Agreement or any other Loan Document to the contrary
notwithstanding, and other than
sales of Inventory to buyers in the ordinary course of
business and sales of surplus
Equipment in individual transactions not exceeding Twenty
Thousand Dollars ($20,000)
each and in aggregate transactions not exceeding Two Hundred
Thousand Dollars
($200,000) in any fiscal year, Borrower has no authority,
express or implied, to dispose of
any item or portion of the Collateral. The security
interest of Foothill in monies due from
Monogram to Borrower will be subordinate only to the
Permitted Lien on monies due from
Monogram to Borrower, as described in Schedule P-1, to
secure any claims that Monogram
might have against the Borrower directly related to its
processing of Borrower's credit card
sales and arising under the Monogram Credit Card Bank of
Georgia Program Agreement
dated as of March 20, 1989, as subsequently amended.
4.2 Negotiable Collateral. In the
event that any Collateral, including
proceeds, is evidenced by or consists of Negotiable
Collateral, Borrower shall, immediately
upon the request of Foothill, endorse and assign such
Negotiable Collateral to Foothill and
deliver physical possession of such Negotiable Collateral to
Foothill.
4.3 Collection of Accounts, General
Intangibles, Negotiable Collateral.
Foothill, Borrower, and the Lock Box Banks shall enter into
the Lock Box Agreements, in
form and substance satisfactory to Foothill in its sole
discretion, pursuant to which all of
Borrower's cash receipts, checks, and other items of payment
(including, insurance
proceeds, proceeds of cash sales, rental proceeds, and tax
refunds) will be forwarded to
Foothill on a daily basis. At any time, Foothill or
Foothill's designee may: (a) notify
customers or Account Debtors of Borrower that the Accounts,
General Intangibles, or
Negotiable Collateral have been assigned to Foothill or that
Foothill has a security interest
therein; and (b) collect the Accounts, General Intangibles,
and Negotiable Collateral directly
and charge the collection costs and expenses to Borrower's
loan account. Borrower agrees
that it will hold in trust for Foothill, as Foothill's
trustee, any cash receipts, checks, and
other items of payment (including, insurance proceeds,
proceeds of cash sales, rental
proceeds, and tax refunds) that it receives and immediately
will deliver said cash receipts,
checks, and other items of payment to Foothill in their
original form as received by
Borrower.
4.4 Delivery of Additional
Documentation Required. At any time upon
the request of Foothill, Borrower shall execute and deliver
to Foothill all financing
statements, continuation financing statements, fixture
filings, security agreements, chattel
19
mortgages, pledges, assignments, endorsements of
certificates of title, applications for title,
affidavits, reports, notices, schedules of accounts, letters
of authority, and all other
documents that Foothill may reasonably request, in form
satisfactory to Foothill, to perfect
and continue perfected Foothill's security interests in the
Collateral and in order to fully
consummate all of the transactions contemplated hereby and
under the other the Loan
Documents.
4.5 Power of Attorney. Borrower hereby
irrevocably makes, constitutes,
and appoints Foothill (and any of Foothill's officers,
employees, or agents designated by
Foothill) as Borrower's true and lawful attorney, with power
to: (a) if Borrower refuses
to, or fails timely to execute and deliver any of the
documents described in Section 4.4, sign
the name of Borrower on any of the documents described in
Section 4.4; (b) at any time that
an Event of Default has occurred and is continuing or
Foothill deems itself insecure (in
accordance with Section 1208 of the Code), sign Borrower's
name on any invoice or bill
of lading relating to any Account, drafts against Account
Debtors, schedules and
assignments of Accounts, verifications of Accounts, and
notices to Account Debtors; (c)
send requests for verification of Accounts; (d) endorse
Borrower's name on any checks,
notices, acceptances, money orders, drafts, or other item of
payment or security that may
come into Foothill's possession; (e) at any time that an
Event of Default has occurred and
is continuing or Foothill deems itself insecure (in
accordance with Section 1208 of the
Code), notify the post office authorities to change the
address for delivery of Borrower's
mail to an address designated by Foothill, to receive and
open all mail addressed to
Borrower, and to retain all mail relating to the Collateral
and forward all other mail to
Borrower; (f) at any time that an Event of Default has
occurred and is continuing or Foothill
deems itself insecure (in accordance with Section 1208 of
the Code), make, settle, and
adjust all claims under Borrower's policies of insurance and
make all determinations and
decisions with respect to such policies of insurance; and
(g) at any time that an Event of
Default has occurred and is continuing or Foothill deems
itself insecure (in accordance with
Section 1208 of the Code), settle and adjust disputes and
claims respecting the Accounts
directly with Account Debtors, for amounts and upon terms
which Foothill determines to
be reasonable, and Foothill may cause to be executed and
delivered any documents and
releases which Foothill determines to be necessary. The
appointment of Foothill as
Borrower's attorney, and each and every one of Foothill's
rights and powers, being coupled
with an interest, is irrevocable until all of the
Obligations have been fully and finally repaid
and performed and Foothill's obligation to extend credit
hereunder is terminated.
4.6 Right to Inspect. Foothill
(through any of its officers, employees,
or agents) shall have the right, from time to time hereafter
to inspect Borrower's Books and
to check, test, and appraise the Collateral in order to
verify Borrower's financial condition
or the amount, quality, value, condition of, or any other
matter relating to, the Collateral.
5. REPRESENTATIONS AND WARRANTIES.
Borrower represents and warrants to
Foothill as follows:
20
5.1 No Prior
Encumbrances. Upon consummation of the Plan of
Reorganization, Borrower shall have good and indefeasible
title to the Collateral, free and
clear of liens, claims, security interests, or encumbrances,
except for Permitted Liens.
5.2 Plan of Reorganization. An order
confirming Borrower's Plan of
Reorganization was entered by the United States Bankruptcy
Court for the Middle District
of North Carolina (the "Bankruptcy Court") on December 20,
1993.
5.3 Eligible Inventory. All Eligible
Inventory is now and at all times
hereafter shall be of good and merchantable quality, free
from defects.
5.4 Location of Inventory and
Equipment. The Inventory and
Equipment are not stored with a bailee, warehouseman, or
similar party (without Foothill's
prior written consent) and are located only at the locations
identified on Schedule 6.13 or
otherwise permitted by Section 6.13.
5.5 Inventory Records. Borrower now
keeps, and hereafter at all times
shall keep, correct and accurate records itemizing and
describing the kind, type, quality, and
quantity of the Inventory, and Borrower's cost therefor. In
the ordinary course of
Borrower's business, Borrower regularly and timely marks
down the cost and retail value
of its Inventory so as to accurately reflect current values
at all times.
5.6 Location of Chief Executive Office;
FEIN. The chief executive
office of Borrower is located at the address indicated in
the preamble to this Agreement and
Borrower's FEIN is 56-0497852.
5.7 Due Organization and Qualification,
and Subsidiaries. Borrower
is duly organized and existing and in good standing under
the laws of the state of its
incorporation and qualified and licensed to do business in,
and in good standing in, any state
where the failure to be so licensed or qualified could
reasonably be expected to have a
material adverse effect on the business, operations,
condition (financial or otherwise),
finances, or prospects of Borrower or on the value of the
Collateral to Foothill. Borrower
has the following wholly-owned subsidiaries: Brendle's
Acceptance Corporation, a
Delaware corporation, The Electronic Sports Collection USA,
Inc., a New York
corporation, Brendle Transport, Inc., a North Carolina
corporation, BFS, Inc., a Delaware
corporation, BIC, Inc., a North Carolina corporation and
Alexander's/Brendle's, Inc., a
South Carolina corporation. BFS, Inc. merely owns certain
trademarks that are used by
Borrower. Brendle Transport, Inc. contracts with third
parties to provide transportation for
Borrower; Borrower pays for such transportation without
Brendle Transport, Inc. receiving
any markup or profit. None of the other subsidiaries is
engaged in business, and none of
such corporations has any assets.
5.8 Due Authorization; No Conflict.
The execution, delivery, and
performance of the Loan Documents are within Borrower's
corporate powers, have been
21
duly authorized, and are not in conflict with nor constitute
a breach of any provision
contained in Borrower's Articles of Incorporation, or By-
laws, nor will they constitute an
event of default under any material agreement to which
Borrower is a party or by which its
properties or assets may be bound.
5.9 Litigation. There are no actions
or proceedings pending by or against
Borrower before any court or administrative agency and
Borrower does not have knowledge
or belief of any pending, threatened, or imminent
litigation, governmental investigations,
or claims, complaints, actions, or prosecutions involving
Borrower or any guarantor of the
Obligations, except for: (a) ongoing collection matters in
which Borrower is the plaintiff;
(b) matters disclosed on Schedule 5.9; (c) the Bankruptcy
Case; and (d) matters arising after
the date hereof that, if decided adversely to Borrower,
would not materially impair the
prospect of repayment of the Obligations or materially
impair the value or priority of
Foothill's security interests in the Collateral. Except for
the appeal disclosed on
Schedule 5.9, there are no appeals, stays, injunctions or
other legal proceedings or other
legal, equitable, or administrative actions in respect of
the Bankruptcy Case, the Plan of
Reorganization, the Financing Order, or otherwise, that
would materially and adversely
affect the consummation of the financing contemplated hereby
on the terms set forth herein.
5.10 No Material Adverse Change in
Financial Condition. All financial
statements relating to Borrower that have been delivered by
Borrower to Foothill have been
prepared in accordance with GAAP and fairly present
Borrower's financial condition as of
the date thereof and Borrower's results of operations for
the period then ended. There has
not been a material adverse change in the financial
condition of Borrower since the date of
the latest financial statements submitted to Foothill on or
before the Closing Date.
5.11 Solvency. Upon consummation of
the Plan of Reorganization,
Borrower shall be Solvent. No transfer of property is being
made by Borrower and no
obligation is being incurred by Borrower in connection with
the transactions contemplated
by this Agreement or the other Loan Documents with the
intent to hinder, delay, or defraud
either present or future creditors of Borrower.
5.12 Employee Benefits. Except as set
forth on Schedule 5.12, each Plan
is in compliance in all material respects with the
applicable provisions of ERISA and the
IRC. Each Qualified Plan and Multiemployer Plan has been
determined by the Internal
Revenue Service to qualify under Section 401 of the IRC, and
the trusts created thereunder
have been determined to be exempt from tax under Section 501
of the IRC, and, to the best
knowledge of Borrower, nothing has occurred that would cause
the loss of such qualification
or tax-exempt status. There are no outstanding liabilities
under Title IV of ERISA with
respect to any Plan maintained or sponsored by Borrower or
any ERISA Affiliate, nor with
respect to any Plan to which Borrower or any ERISA Affiliate
contributes or is obligated
to contribute which could reasonably be expected to have a
material adverse effect on the
financial condition of Borrower. No Plan subject to Title
IV of ERISA has any Unfunded
Benefit Liability which could reasonably be expected to have
a material adverse effect on
22
the financial condition of Borrower. Neither Borrower nor
any ERISA Affiliate has
transferred any Unfunded Benefit Liability to a person other
than Borrower or an ERISA
Affiliate or has otherwise engaged in a transaction that
could be subject to Sections 4069
or 4212(c) of ERISA which could reasonably be expected to
have a material adverse effect
on the financial condition of Borrower. Neither Borrower
nor any ERISA Affiliate has
incurred nor reasonably expects to incur (x) any liability
(and no event has occurred which,
with the giving of notice under Section 4219 of ERISA, would
result in such liability) under
Sections 4201 or 4243 of ERISA with respect to a
Multiemployer Plan, or (y) any liability
under Title IV of ERISA (other than premiums due but not
delinquent under Section 4007
of ERISA) with respect to a Plan, which could, in either
event, reasonably be expected to
have a material adverse effect on the financial condition of
Borrower. No application for
a funding waiver or an extension of any amortization period
pursuant to Section 412 of the
IRC has been made with respect to any Plan. Except as set
forth on Schedule 5.12, no
ERISA Event has occurred or is reasonably expected to occur
with respect to any Plan
which could reasonably be expected to have a material
adverse effect on the financial
condition of Borrower. Borrower and each ERISA Affiliate
have complied in all material
respects with the notice and continuation coverage
requirements of Section 4980B of the
IRC.
5.13 Environmental Condition. None of
Borrower's properties or assets
has ever been used by Borrower or, to the best of Borrower's
knowledge, by previous
owners or operators in the disposal of, or to produce,
store, handle, treat, release, or
transport, any Hazardous Materials. None of Borrower's
properties or assets has ever been
designated or identified in any manner pursuant to any
environmental protection statute as
a Hazardous Materials disposal site, or a candidate for
closure pursuant to any
environmental protection statute. No lien arising under any
environmental protection statute
has attached to any revenues or to any real or personal
property owned or operated by
Borrower. Borrower has not received a summons, citation,
notice, or directive from the
Environmental Protection Agency or any other federal or
state governmental agency
concerning any action or omission by Borrower resulting in
the releasing or disposing of
Hazardous Materials into the environment.
5.14 Reliance by Foothill; Cumulative.
Each warranty and representation
contained in this Agreement automatically shall be deemed
repeated with each advance or
issuance of an L/C or L/C Guaranty and shall be conclusively
presumed to have been relied
on by Foothill regardless of any investigation made or
information possessed by Foothill.
The warranties and representations set forth herein shall be
cumulative and in addition to
any and all other warranties and representations that
Borrower now or hereafter shall give,
or cause to be given, to Foothill.
23
6. AFFIRMATIVE COVENANTS.
Borrower covenants and agrees that, so
long as any credit hereunder shall be
available and until full and final payment of the
Obligations, and unless Foothill shall
otherwise consent in writing, Borrower shall do all of the
following:
6.1 Accounting System. Borrower shall
maintain a standard and modern
system of accounting in accordance with GAAP with ledger and
account cards or computer
tapes, discs, printouts, and records pertaining to the
Collateral which contain information
as from time to time may be requested by Foothill. Borrower
also shall keep proper books
of account showing all sales, claims, and allowances on its
Inventory.
6.2 Collateral Reports. Borrower shall
deliver to Foothill, no later than
the tenth (10th) Business Day after the end of each of
Borrower's monthly accounting
periods during the term of this Agreement, a detailed aging,
by total, of the Accounts, a
reconciliation statement, and a summary aging, by vendor, of
all accounts payable and any
book overdraft. Borrower shall deliver to Foothill, as
Foothill may from time to time
require, collection reports and sales journals. Absent such
a request by Foothill, copies of
all such documentation shall be held by Borrower as
custodian for Foothill.
6.3 Financial Statements, Reports,
Certificates. Borrower agrees to
deliver to Foothill: (a) as soon as available, but in any
event within thirty (30) days after
the end of each month during each of Borrower's fiscal
years, a company prepared balance
sheet, income statement, and cash flow statement covering
Borrower's operations during
such period; and (b) as soon as available, but in any event
within ninety (90) days after the
end of each of Borrower's fiscal years, financial statements
of Borrower for each such fiscal
year, audited by independent certified public accountants
reasonably acceptable to Foothill
and certified, without any qualifications, by such
accountants to have been prepared in
accordance with GAAP, together with a certificate of such
accountants addressed to Foothill
stating that such accountants do not have knowledge of the
existence of any event or
condition constituting an Event of Default, or that would,
with the passage of time or the
giving of notice, constitute an Event of Default. Such
audited financial statements shall
include a balance sheet, profit and loss statement, and cash
flow statement, and, if prepared,
such accountants' letter to management. Borrower agrees to
deliver financial statements
prepared on a consolidating basis so as to present Borrower
and Parent on a consolidated
basis.
Together with the
above, Borrower also shall deliver to Foothill
Borrower's Form 10-Q Quarterly Reports, Form 10-K Annual
Reports, and Form 8-K
Current Reports, and any other filings made by Borrower with
the Securities and Exchange
Commission, if any, as soon as the same are filed, or any
other information that is provided
by Borrower to its shareholders.
24
Each month, together with the financial
statements provided pursuant
to Section 6.3(a), Borrower shall deliver to Foothill a
certificate signed by its chief financial
officer to the effect that: (i) all reports, statements, or
computer prepared information of
any kind or nature delivered or caused to be delivered to
Foothill hereunder have been
prepared in accordance with GAAP and fairly present the
financial condition of Borrower;
(ii) Borrower is in timely compliance with all of its
covenants and agreements hereunder;
(iii) the representations and warranties of Borrower
contained in this Agreement and the
other Loan Documents are true and correct in all material
respects on and as of the date of
such certificate, as though made on and as of such date
(except to the extent that such
representations and warranties relate solely to an earlier
date); and (iv) on the date of
delivery of such certificate to Foothill there does not
exist any condition or event that
constitutes an Event of Default (or, in each case, to the
extent of any non-compliance,
describing such non-compliance as to which he or she may
have knowledge and what action
Borrower has taken, is taking, or proposes to take with
respect thereto).
Borrower shall
have issued written instructions to its independent
certified public accountants authorizing them to communicate
with Foothill and to release
to Foothill whatever financial information concerning
Borrower that Foothill may request.
Borrower hereby irrevocably authorizes and directs all
auditors, accountants, or other third
parties to deliver to Foothill, at Borrower's expense,
copies of Borrower's financial
statements, papers related thereto, and other accounting
records of any nature in their
possession, and to disclose to Foothill any information they
may have regarding Borrower's
business affairs and financial conditions.
6.4 Tax Returns. Borrower agrees to
deliver to Foothill copies of each
of Borrower's future federal income tax returns, and any
amendments thereto, within thirty
(30) days of the filing thereof with the Internal Revenue
Service.
6.5 Designation of Inventory. Borrower
shall now and from time to time
hereafter, but not less frequently than weekly, execute and
deliver to Foothill a designation
of Inventory specifying Borrower's cost and the retail value
of Borrower's Inventory, and
further specifying such other information as Foothill may
reasonably request.
6.6 Returns. Returns and allowances,
if any, as between Borrower and
its Account Debtors shall be on the same basis and in
accordance with the usual customary
practices of Borrower, as they exist at the time of the
execution and delivery of this
Agreement. If, at a time, any customer returns any
Inventory to Borrower, Borrower
promptly shall determine the reason for such return and, if
Borrower accepts such return,
issue a credit memorandum in the appropriate amount to such
Account Debtor.
6.7 Title to Equipment. Upon
Foothill's request, Borrower immediately
shall deliver to Foothill, properly endorsed, any and all
evidences of ownership of,
certificates of title, or applications for title to any
items of Equipment.
25
6.8 Maintenance
of Equipment. Borrower shall keep and maintain the
Equipment in good operating condition and repair (ordinary
wear and tear excepted), and
make all necessary replacements thereto so that the value
and operating efficiency thereof
shall at all times be maintained and preserved. Borrower
shall not permit any item of
Equipment to become a fixture to real estate or an accession
to other property, and the
Equipment is now and shall at all times remain personal
property.
6.9 Taxes. All assessments and taxes,
whether real, personal, or
otherwise, due or payable by, or imposed, levied, or
assessed against Borrower or any of
its property have been paid, and shall hereafter be paid in
full, before delinquency or before
the expiration of any extension period or in a manner
consistent with the Plan of
Reorganization. Borrower shall make due and timely payment
or deposit of all federal,
state, and local taxes, assessments, or contributions
required of it by law, and will execute
and deliver to Foothill, on demand, appropriate certificates
attesting to the payment thereof
or deposit with respect thereto. Borrower will make timely
payment or deposit of all tax
payments and withholding taxes required of it by applicable
laws, including those laws
concerning F.I.C.A., F.U.T.A., state disability, and local,
state, and federal income taxes,
and will, upon request, furnish Foothill with proof
satisfactory to Foothill indicating that
Borrower has made such payments or deposits.
6.10 Insurance.
(a) Borrower, at
its expense, shall keep the Collateral insured
against loss or damage by fire, theft, explosion,
sprinklers, and all other hazards and risks,
and in such amounts, as are ordinarily insured against by
other owners in similar businesses.
Borrower also shall maintain business interruption, public
liability, product liability, and
property damage insurance relating to Borrower's ownership
and use of the Collateral, as
well as insurance against larceny, embezzlement, and
criminal misappropriation.
(b) All such
policies of insurance shall be in such form, with such
companies, and in such amounts as may be reasonably
satisfactory to Foothill. All such
policies of insurance (except those of public liability and
property damage) shall contain a
438BFU lender's loss payable endorsement, or an equivalent
endorsement in a form
satisfactory to Foothill, showing Foothill as sole loss
payee thereof, and shall contain a
waiver of warranties, and shall specify that the insurer
must give at least ten (10) days prior
written notice to Foothill before canceling its policy for
any reason. Borrower shall deliver
to Foothill certified copies of such policies of insurance
and evidence of the payment of all
premiums therefor. All proceeds payable under any such
policy shall be payable to Foothill
to be applied on account of the Obligations.
6.11 Financial Covenants. Borrower
shall maintain:
26
(a) Current Ratio. A ratio of Consolidated Current
Assets divided by Consolidated Current Liabilities of at least one and
forty-five one hundredths to one
(1.45:1.0), measured on a fiscal quarter-end basis; and
(b) Total
Liabilities to Tangible Net Worth Ratio. A ratio of
Borrower's total liabilities divided by Tangible Net Worth
of not more than two and one
tenth to one (2.1:1.0), measured on a fiscal quarter-end
basis.
6.12 No Setoffs or Counterclaims. All
payments hereunder and under the
other Loan Documents made by or on behalf of Borrower shall
be made without setoff or
counterclaim and free and clear of, and without deduction or
withholding for or on account
of, any federal, state, or local taxes.
6.13 Location of Inventory and
Equipment. Borrower shall keep the
Inventory and Equipment only at the locations identified on
Schedule 6.13; provided,
however, that Borrower may amend Schedule 6.13 so long as
such amendment occurs by
written notice to Foothill not less than thirty (30) days
prior to the date on which the
Inventory or Equipment is moved to such new location, so
long as such new location is
within the continental United States, and so long as, at the
time of such written notification,
Borrower provides any financing statements or fixture
filings necessary to perfect and
continue perfected Foothill's security interests in such
assets and also provides to Foothill
a landlord's waiver in form and substance satisfactory to
Foothill.
6.14 Compliance with Laws. Borrower
shall comply with the
requirements of all applicable laws, rules, regulations, and
orders of any governmental
authority, including the Fair Labor Standards Act and the
Americans With Disabilities Act,
other than laws, rules, regulations, and orders the non-
compliance with which, individually
or in the aggregate, would not have and could not reasonably
be expected to have a material
adverse effect on the business, operations, condition
(financial or otherwise), finances, or
prospects of Borrower or on the value of the Collateral to
Foothill.
6.15 Employee Benefits.
(a) Unless already
disclosed on Schedule 5.12, Borrower shall
deliver to Foothill a written statement by the chief
financial officer of Borrower specifying
the nature of any of the following events and the actions
which Borrower proposes to take
with respect thereto promptly, and in any event within ten
(10) days of becoming aware of
any of them, and when known, any action taken or threatened
by the Internal Revenue
Service, PBGC, Department of Labor, or other party with
respect thereto: (i) an ERISA
Event with respect to any Plan; (ii) the incurrence of an
obligation to pay additional
premium to the PBGC under Section 4006(a)(3)(E) of ERISA
with respect to any Plan; and
(iii) any lien on the assets of Borrower arising in
connection with any Plan.
27
(b) Borrower shall also promptly furnish to
Foothill copies prepared or received by Borrower or an ERISA Affiliate
of: (i) at the request of Foothill,
each annual report (Internal Revenue Service Form 5500
series) and all accompanying
schedules, actuarial reports, financial information
concerning the financial status of each
Plan, and schedules showing the amounts contributed to each
Plan by or on behalf of
Borrower or its ERISA Affiliates for the most recent three
(3) plan years; (ii) all notices of
intent to terminate or to have a trustee appointed to
administer any Plan; (iii) all written
demands by the PBGC under Subtitle D of Title IV of ERISA;
(iv) all notices required to
be sent to employees or to the PBGC under Section 302 of
ERISA or Section 412 of the
IRC; (v) all written notices received with respect to a
Multiemployer Plan concerning
(x) the imposition or amount of withdrawal liability
pursuant to Section 4202 of ERISA,
(y) a termination described in Section 4041A of ERISA, or
(z) a reorganization or
insolvency described in Subtitle E of Title IV of ERISA;
(vi) the adoption of any new Plan
that is subject to Title IV of ERISA or Section 412 of the
IRC by Borrower or any ERISA
Affiliate; (vii) the adoption of any amendment to any Plan
that is subject to Title IV of
ERISA or Section 412 of the IRC, if such amendment results
in a material increase in
benefits or Unfunded Benefit Liability; or (viii) the
commencement of contributions by
Borrower or any ERISA Affiliate to any Plan that is subject
to Title IV of ERISA or Section
412 of the IRC.
6.16 Store Openings and Closings.
Borrower shall give Foothill
reasonable prior notice of new store openings and closing of
its stores.
6.17 Inventory Audits. Borrower shall
continue to take physical counts
of its Inventory at least once in each fiscal year. Such
physical inventory taking will be
observed by Borrower's independent certified public
accountants.
6.18 Real Property Leases. Borrower
shall make timely payment of all
rents and other monies payable on real property leases where
Borrower is lessee unless such
payments are contested in good faith by Borrower and the
failure to pay such monies could
not reasonably be expected to materially and adversely
affect Borrower or the Collateral.
Borrower shall also make timely payments to consignors of
Inventory, if any, and in the
event that Borrower does not make the such payments,
Foothill may, in its discretion
establish reasonable reserves for delinquent payments.
6.19 Landlord Waivers. Borrower shall
use its best efforts to obtain
landlord waivers from the lessors of its stores to the
extent that such waivers are not
otherwise required on or before the Closing Date.
7. NEGATIVE COVENANTS.
Borrower covenants and agrees that, so
long as any credit hereunder shall be
available and until full and final payment of the
Obligations, Borrower will not do any of
the following without Foothill's prior written consent:
28
7.1 Indebtedness. Create, incur, assume, permit, guarantee, or otherwise
become or remain, directly or indirectly, liable with
respect to any Indebtedness, except:
(a) Indebtedness evidenced by this Agreement;
(b) Indebtedness set forth in the latest financial statements of
Borrower submitted to Foothill on or prior to the Closing Date;
(c) Indebtedness secured by Permitted Liens; and
(d) refinancings, renewals, or extensions of Indebtedness permitted
under clauses (b) and (c) of this Section 7.1 (and
continuance or renewal of any Permitted
Liens associated therewith) so long as: (i) the terms and
conditions of such refinancings,
renewals, or extensions do not materially impair the
prospects of repayment of the
Obligations by Borrower, (ii) the net cash proceeds of such
refinancings, renewals, or
extensions do not result in an increase in the aggregate
principal amount of the Indebtedness
so refinanced, renewed, or extended, (iii) such
refinancings, renewals, refundings, or
extensions do not result in a shortening of the average
weighted maturity of the Indebtedness
so refinanced, renewed, or extended, and (iv) to the extent
that Indebtedness that is
refinanced was subordinated in right of payment to the
Obligations, then the subordination
terms and conditions of the refinancing Indebtedness must be
at least as favorable to Foothill
as those applicable to the refinanced Indebtedness.
7.2 Liens. Create, incur, assume, or
permit to exist, directly or
indirectly, any lien on or with respect to any of its
property or assets, of any kind, whether
now owned or hereafter acquired, or any income or profits
therefrom, except for Permitted
Liens (including liens that are replacements of Permitted
Liens to the extent that the original
Indebtedness is refinanced under Section 7.1(d) and so long
as the replacement liens secure
only those assets or property that secured the original
Indebtedness).
7.3 Restrictions on Fundamental
Changes. Enter into any acquisition,
merger, consolidation, reorganization, or recapitalization,
or reclassify its capital stock, or
liquidate, wind up, or dissolve itself (or suffer any
liquidation or dissolution), or convey,
sell, assign, lease, transfer, or otherwise dispose of, in
one transaction or a series of
transactions, all or any substantial part of its business,
property, or assets, whether now
owned or hereafter acquired, or acquire by purchase or
otherwise all or substantially all of
the properties, assets, stock, or other evidence of
beneficial ownership of any Person.
7.4 Extraordinary Transactions and
Disposal of Assets. Enter into any
transaction not in the ordinary and usual course of
Borrower's business, including the sale,
lease, or other disposition of, moving, relocation, or
transfer, whether by sale or otherwise,
of any of Borrower's properties or assets (other than sales
of Inventory to buyers in the
ordinary course of Borrower's business as currently
conducted).
29
7.5 Change Name. Change Borrower's name, FEIN, business structure,
or identity, or add any new fictitious name.
7.6 Guarantee. Guarantee or otherwise
become in any way liable with
respect to the obligations of any third Person except by
endorsement or instruments or items
of payment for deposit to the account of Borrower or which
are transmitted or turned over
to Foothill.
7.7 Restructure. Make any change in
Borrower's financial structure, the
principal nature of Borrower's business operations, or the
date of its fiscal year.
7.8 Prepayments. Except in connection with a refinancing permitted by
Section 7.1(d), prepay any Indebtedness owing to any third Person.
7.9 Change of Control. Except for the
issuance of shares by Borrower
pursuant to the Plan of Reorganization, cause, permit, or
suffer, directly or indirectly, any
Change of Control.
7.10 Capital Expenditures. Make any
capital expenditure in excess of
Two Hundred Fifty Thousand Dollars ($250,000) for any
individual transaction or where
the aggregate amount of such capital expenditures, made or
in the fiscal year ending
January 31, 1995 is in excess of One Million Dollars
($1,000,000) or in excess of Three
Million Dollars ($3,000,000) in any subsequent fiscal year.
7.11 Distributions. Make any
distribution or declare or pay any dividends
(in cash or in stock) on, or purchase, acquire, redeem, or
retire any of Borrower's capital
stock, of any class, whether now or hereafter outstanding.
7.12 Accounting Methods. Modify or
change its method of accounting
or enter into, modify, or terminate any agreement currently
existing, or at any time
hereafter entered into with any third party accounting firm
or service bureau for the
preparation or storage of Borrower's accounting records
without said accounting firm or
service bureau agreeing to provide Foothill information
regarding the Collateral or
Borrower's financial condition. Borrower waives the right
to assert a confidential
relationship, if any, it may have with any accounting firm
or service bureau in connection
with any information requested by Foothill pursuant to or in
accordance with this
Agreement, and agrees that Foothill may contact directly any
such accounting firm or
service bureau in order to obtain such information.
7.13 Investments. Directly or
indirectly make or acquire any beneficial
interest in (including stock, partnership interest, or other
securities of), or make any loan,
advance, or capital contribution to, any Person.
30
7.14 Transactions with Affiliates. Directly or indirectly
enter into or permit to exist any material transaction with any Affiliate
of Borrower except for transactions set forth on Schedule 7.14.
7.15 Suspension. Suspend or go out of
a substantial portion of its business.
7.16 Compensation. Increase the annual
fee or per-meeting fees paid to
directors during any year by more than fifteen percent (15%)
over the prior year; pay or
accrue total cash compensation, during any year, to officers
and senior management
employees in an aggregate amount in excess of one hundred
fifteen percent (115%) of that
paid or accrued in the prior year. In addition, Borrower
may pay performance bonuses to
officers and senior management employees with the approval
of Foothill, which approval
will not be unreasonably withheld.
7.17 Use of Proceeds. Use the proceeds
of the advances made hereunder
for any purpose other than: (a) to pay that portion of
Borrower's obligations under the Plan
that is not funded with other monies held by Borrower; (b)
to pay transactional fees, costs
and expenses incurred in connection with this Agreement; and
(c) thereafter, consistent with
the terms and conditions hereof, for its lawful and
permitted corporate purposes.
7.18 Change in Location of Chief
Executive Office; Inventory and
Equipment with Bailees. Borrower covenants and agrees that
it will not, without thirty
(30) days prior written notification to Foothill, relocate
its chief executive office to a new
location and so long as, at the time of such written
notification, Borrower provides any
financing statements or fixture filings necessary to perfect
and continue perfected Foothill's
security interests and also provides to Foothill a
landlord's waiver in form and substance
satisfactory to Foothill. The Inventory and Equipment shall
not at any time now or
hereafter be stored with a bailee, warehouseman, or similar
party without Foothill's prior
written consent.
8. EVENTS OF DEFAULT.
Any one or more of the following
events shall constitute an event of default
(each, an "Event of Default") under this Agreement:
8.1 If Borrower fails to pay when due
and payable or when declared due
and payable, any portion of the Obligations (whether of
principal, interest (including any
interest which, but for the provisions of the Bankruptcy
Code, would have accrued on such
amounts), fees and charges due Foothill, reimbursement of
Foothill Expenses, or other
amounts constituting Obligations);
8.2 If Borrower fails or neglects to
perform, keep, or observe any term,
provision, condition, covenant, or agreement contained in
this Agreement, in any of the
31
Loan Documents, or in any other present or future agreement
between Borrower and
Foothill;
8.3 If there is a material impairment
of the prospect of repayment of any
portion of the Obligations owing to Foothill or a material
impairment of the value or
priority of Foothill's security interests in the Collateral;
8.4 If any material portion of
Borrower's properties or assets is attached,
seized, subjected to a writ or distress warrant, or is
levied upon, or comes into the
possession of any third Person;
8.5 If an Insolvency Proceeding is commenced by Borrower;
8.6 If an Insolvency Proceeding is
commenced against Borrower and any
of the following events occur: (a) Borrower consents to the
institution of the Insolvency
Proceeding against it; (b) the petition commencing the
Insolvency Proceeding is not timely
controverted; (c) the petition commencing the Insolvency
Proceeding is not dismissed within
forty-five (45) calendar days of the date of the filing
thereof; provided, however, that,
during the pendency of such period, Foothill shall be
relieved of its obligation to make
additional advances or issue additional L/Cs or L/C
Guarantees hereunder; (d) an interim
trustee is appointed to take possession of all or a
substantial portion of the properties or
assets of, or to operate all or any substantial portion of
the business of, Borrower; or (e) an
order for relief shall have been issued or entered therein;
8.7 If Borrower is enjoined,
restrained, or in any way prevented by court
order from continuing to conduct all or any material part of
its business affairs;
8.8 If a notice of lien, levy, or
assessment is filed of record with respect
to any of Borrower's properties or assets by the United
States Government, or any
department, agency, or instrumentality thereof, or by any
state, county, municipal, or
governmental agency, or if any taxes or debts owing at any
time hereafter to any one or
more of such entities becomes a lien, whether choate or
otherwise, upon any of Borrower's
properties or assets and the same is not paid on the payment
date thereof;
8.9 If a judgment or other claim
becomes a lien or encumbrance upon any
material portion of Borrower's properties or assets;
8.10 If there is a default in any
material agreement to which Borrower is
a party with one or more third Persons resulting in a right
by such third Persons,
irrespective of whether exercised, to accelerate the
maturity of Borrower's obligations
thereunder;
8.11 If Borrower makes any payment on
account of Indebtedness that has
been contractually subordinated in right of payment to the
payment of the Obligations,
32
except to the extent such payment is permitted by the terms
of the subordination provisions
applicable to such Indebtedness;
8.12 If any misstatement or
misrepresentation exists now or hereafter in any
warranty, representation, statement, or report made to
Foothill by Borrower or any officer,
employee, agent, or director of Borrower, or if any such
warranty or representation is
withdrawn;
8.13 If the obligation of any third
Person under any Loan Document is
limited or terminated by operation of law or by such third
Person thereunder, or any such
third Person becomes the subject of an Insolvency
Proceeding;
8.14 If (a) with respect to any Plan,
there shall occur any of the following
which could reasonably be expected to have a material
adverse effect on the financial
condition of Borrower: (i) the violation of any of the
provisions of ERISA; (ii) the loss by
a Plan intended to be a Qualified Plan of its qualification
under Section 401(a) of the IRC;
(iii) the incurrence of liability under Title IV of ERISA;
(iv) a failure to make full payment
when due of all amounts which, under the provisions of any
Plan or applicable law,
Borrower or any ERISA Affiliate is required to make; (v) the
filing of a notice of intent to
terminate a Plan under Sections 4041 or 4041A of ERISA; (vi)
a complete or partial
withdrawal of Borrower or an ERISA Affiliate from any Plan;
(vii) the receipt of a notice
by the plan administrator of a Plan that the PBGC has
instituted proceedings to terminate
such Plan or appoint a trustee to administer such Plan;
(viii) a commencement or increase
of contributions to, or the adoption of or the amendment of,
a Plan; and (ix) the assessment
against Borrower or any ERISA Affiliate of a tax under
Section 4980B of the IRC; or
(b) the Unfunded Benefit Liability of all of the Plans of
Borrower and its ERISA Affiliates
shall, in the aggregate, exceed Eight Hundred Thousand
Dollars ($800,000); or
8.15 If there shall occur an "Event of
Default" as defined in Section 3.1
of the Financing Order.
9. FOOTHILL'S RIGHTS AND REMEDIES.
9.1 Rights and Remedies. Upon the
occurrence of an Event of Default
Foothill may, at its election, without notice of its
election and without demand, do any one
or more of the following, all of which are authorized by
Borrower:
(a) Declare all Obligations, whether evidenced by this Agreement,
by any of the other Loan Documents, or otherwise,
immediately due and payable;
(b) Cease advancing money or extending credit to or for the benefit
of Borrower under this Agreement, under any of the Loan
Documents, or under any other agreement between Borrower and Foothill;
33
(c) Terminate this Agreement and any of the other Loan
Documents as to any future liability or obligation of
Foothill, but without affecting
Foothill's rights and security interests in the Collateral
and without affecting the Obligations;
(d) Settle or adjust disputes and claims directly with Account
Debtors for amounts and upon terms which Foothill considers
advisable, and in such cases,
Foothill will credit Borrower's loan account with only the
net amounts received by Foothill
in payment of such disputed Accounts after deducting all
Foothill Expenses incurred or expended in connection therewith;
(e) Cause Borrower to hold all returned Inventory in trust for
Foothill, segregate all returned Inventory from all other
property of Borrower or in
Borrower's possession and conspicuously label said returned
Inventory as the property of
Foothill;
(f) Without notice to or demand upon Borrower or any guarantor,
make such payments and do such acts as Foothill considers
necessary or reasonable to
protect its security interests in the Collateral. Borrower
agrees to assemble the Collateral
if Foothill so requires, and to make the Collateral
available to Foothill as Foothill may
designate. Borrower authorizes Foothill to enter the
premises where the Collateral is
located, to take and maintain possession of the Collateral,
or any part of it, and to pay,
purchase, contest, or compromise any encumbrance, charge, or
lien that in Foothill's
determination appears to conflict with its security
interests and to pay all expenses incurred
in connection therewith. With respect to any of Borrower's
owned premises, Borrower
hereby grants Foothill a license to enter into possession of
such premises and to occupy the
same, without charge, for up to one hundred twenty (120)
days in order to exercise any of
Foothill's rights or remedies provided herein, at law, in
equity, or otherwise;
(g) Without notice to Borrower (such notice being expressly
waived), and without constituting a retention of any
collateral in satisfaction of an obligation
(within the meaning of Section 9505 of the Code), set off
and apply to the Obligations any
and all (i) balances and deposits of Borrower held by
Foothill (including any amounts
received in the Lock Boxes), or (ii) indebtedness at any
time owing to or for the credit or
the account of Borrower held by Foothill;
(h) Hold, as cash
collateral, any and all balances and deposits of
Borrower held by Foothill, and any amounts received in the
Lock Box, to secure the full
and final repayment of all of the Obligations;
(i) Ship, reclaim, recover, store, finish, maintain, repair, prepare
for sale, advertise for sale, and sell (in the manner
provided for herein) the Collateral.
Foothill is hereby granted a license or other right to use,
without charge, Borrower's labels,
patents, copyrights, rights of use of any name, trade
secrets, trade names, trademarks,
service marks, and advertising matter, or any property of a
similar nature, as it pertains to
34
the Collateral, in completing production of, advertising for
sale, and selling any Collateral
and Borrower's rights under all licenses and all franchise
agreements shall inure to
Foothill's benefit;
(j) Sell the Collateral at either a public or private sale, or both,
by way of one or more contracts or transactions, for cash or
on terms, in such manner and
at such places (including Borrower's premises) as Foothill
determines is commercially
reasonable. It is not necessary that the Collateral be
present at any such sale;
(k) Foothill shall give notice of the disposition of the Collateral as
follows:
(1) Foothill shall give Borrower and each holder of a
security interest in the Collateral who has filed with
Foothill a written request for notice,
a notice in writing of the time and place of public sale,
or, if the sale is a private sale or
some other disposition other than a public sale is to be
made of the Collateral, then the time
on or after which the private sale or other disposition is
to be made;
(2) The notice shall be personally delivered or mailed,
postage prepaid, to Borrower as provided in Section 12, at
least five (5) days before the date
fixed for the sale, or at least five (5) days before the
date on or after which the private sale
or other disposition is to be made; no notice needs to be
given prior to the disposition of
any portion of the Collateral that is perishable or
threatens to decline speedily in value or
that is of a type customarily sold on a recognized market.
Notice to Persons other than
Borrower claiming an interest in the Collateral shall be
sent to such addresses as they have
furnished to Foothill;
(3) If the sale is to be a public sale, Foothill also shall
give notice of the time and place by publishing a notice one time
at least five (5) days before the
date of the sale in a newspaper of general circulation in
the county in which the sale is to
be held;
(l) Foothill may
credit bid and purchase at any public sale; and
(m) Any deficiency
that exists after disposition of the Collateral as
provided above will be paid immediately by Borrower. Any
excess will be returned,
without interest and subject to the rights of third Persons,
by Foothill to Borrower.
9.2 Remedies Cumulative. Foothill's
rights and remedies under this
Agreement, the Loan Documents, and all other agreements
shall be cumulative. Foothill
shall have all other rights and remedies not inconsistent
herewith as provided under the
Code, by law, or in equity. No exercise by Foothill of one
right or remedy shall be deemed
an election, and no waiver by Foothill of any Event of
Default shall be deemed a continuing
waiver. No delay by Foothill shall constitute a waiver,
election, or acquiescence by it.
35
10. TAXES AND EXPENSES REGARDING THE COLLATERAL.
If Borrower fails to pay any monies
(whether taxes, rents, assessments,
insurance premiums, or otherwise) due to third Persons, or
fails to make any deposits or
furnish any required proof of payment or deposit, all as
required under the terms of this
Agreement, then, to the extent that Foothill determines that
such failure by Borrower could
have a material adverse effect on Foothill's interests in
the Collateral, in its discretion and
without prior notice to Borrower, Foothill may do any or all
of the following: (a) make
payment of the same or any part thereof; (b) set up such
reserves in Borrower's loan
account as Foothill deems necessary to protect Foothill from
the exposure created by such
failure; or (c) obtain and maintain insurance policies of
the type described in Section 6.10,
and take any action with respect to such policies as
Foothill deems prudent. Any such
amounts paid by Foothill shall constitute Foothill Expenses.
Any such payments made by
Foothill shall not constitute an agreement by Foothill to
make similar payments in the future
or a waiver by Foothill of any Event of Default under this
Agreement. Foothill need not
inquire as to, or contest the validity of, any such expense,
tax, security interest,
encumbrance, or lien and the receipt of the usual official
notice for the payment thereof
shall be conclusive evidence that the same was validly due
and owing.
11. WAIVERS; INDEMNIFICATION.
11.1 Demand; Protest; etc. Borrower
waives demand, protest, notice of
protest, notice of default or dishonor, notice of payment
and nonpayment, notice of any
default, nonpayment at maturity, release, compromise,
settlement, extension, or renewal of
accounts, documents, instruments, chattel paper, and
guarantees at any time held by Foothill
on which Borrower may in any way be liable.
11.2 Foothill's Liability for
Collateral. So long as Foothill complies with
its obligations, if any, under Section 9207 of the Code,
Foothill shall not in any way or
manner be liable or responsible for: (a) the safekeeping of
the Collateral; (b) any loss or
damage thereto occurring or arising in any manner or fashion
from any cause; (c) any
diminution in the value thereof; or (d) any act or default
of any carrier, warehouseman,
bailee, forwarding agency, or other Person. All risk of
loss, damage, or destruction of the
Collateral shall be borne by Borrower.
11.3 Indemnification. Borrower agrees
to defend, indemnify, save, and
hold Foothill and its officers, employees, and agents
harmless against: (a) all obligations,
demands, claims, and liabilities claimed or asserted by any
other Person arising out of or
relating to the transactions contemplated by this Agreement
or any other Loan Document,
and (b) all losses (including attorneys fees and
disbursements) in any way suffered,
incurred, or paid by Foothill as a result of or in any way
arising out of, following, or
consequential to the transactions contemplated by this
Agreement or any other Loan
Document. This provision shall survive the termination of
this Agreement.
36
12. NOTICES.
Unless otherwise provided in this
Agreement, all notices or demands by any
party relating to this Agreement or any other Loan Document
shall be in writing and (except
for financial statements and other informational documents
which may be sent by first-class
mail, postage prepaid) shall be personally delivered or sent
by registered or certified mail,
postage prepaid, return receipt requested, or by prepaid
telex, TWX, telefacsimile, or
telegram (with messenger delivery specified) to Borrower or
to Foothill, as the case may
be, at its address set forth below:
If to Borrower: BRENDLE'S INCORPORATED
1919 North Bridge Street
Elkin, North Carolina 28621
Attn.: David E. Renegar,
Chief Financial Officer
Telefacsimile No. (910) 526-6632
If to Foothill: FOOTHILL CAPITAL CORPORATION
11111 Santa Monica Boulevard
Suite 1500
Los Angeles, California 90025-3333
Attn.: Business Finance Division Manager
Telefacsimile No. (310) 479-2690
The parties hereto may change the
address at which they are to receive
notices hereunder, by notice in writing in the foregoing
manner given to the other. All
notices or demands sent in accordance with this Section 12,
other than notices by Foothill
in connection with Sections 9504 or 9505 of the Code, shall
be deemed received on the
earlier of the date of actual receipt or three (3) days
after the deposit thereof in the mail.
Borrower acknowledges and agrees that notices sent by
Foothill in connection with Sections
9504 or 9505 of the Code shall be deemed sent when deposited
in the mail or transmitted
by telefacsimile or other similar method set forth above.
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
THE VALIDITY OF THIS AGREEMENT, ITS CONSTRUCTION,
INTERPRETATION, AND ENFORCEMENT, AND THE RIGHTS OF THE PARTIES
HERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER OR
RELATED HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
CALIFORNIA, WITHOUT GIVING EFFECT TO ITS CONFLICT OF LAWS
PRINCIPLES. THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS
ARISING IN CONNECTION WITH THIS AGREEMENT SHALL BE TRIED AND
37
LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE
COUNTY OF LOS ANGELES, STATE OF CALIFORNIA OR, AT THE SOLE
OPTION OF FOOTHILL, IN ANY OTHER COURT IN WHICH FOOTHILL
SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS
SUBJECT MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY. EACH OF
BORROWER AND FOOTHILL WAIVES, TO THE EXTENT PERMITTED UNDER
APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE
DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE
EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS
SECTION 13. BORROWER AND FOOTHILL HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF
ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS
OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING
CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL
OTHER COMMON LAW OR STATUTORY CLAIMS. BORROWER AND
FOOTHILL REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND
EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF
LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A
WRITTEN CONSENT TO A TRIAL BY THE COURT.
14. DESTRUCTION OF BORROWER'S DOCUMENTS.
All documents, schedules, invoices,
agings, or other papers delivered to
Foothill may be destroyed or otherwise disposed of by
Foothill four (4) months after they
are delivered to or received by Foothill, unless Borrower
requests, in writing, the return of
said documents, schedules, or other papers and makes
arrangements, at Borrower's expense,
for their return.
15. GENERAL PROVISIONS.
15.1 Effectiveness. This Agreement
shall be binding and deemed effective
when executed by Borrower and Foothill.
15.2 Successors and Assigns. This
Agreement shall bind and inure to the
benefit of the respective successors and assigns of each of
the parties; provided, however,
that Borrower may not assign this Agreement or any rights or
duties hereunder without
Foothill's prior written consent and any prohibited
assignment shall be absolutely void. No
consent to an assignment by Foothill shall release Borrower
from its Obligations. Foothill
may assign this Agreement and its rights and duties
hereunder and no consent or approval
by Borrower is required in connection with any such
assignment. Foothill reserves the right
to sell, assign, transfer, negotiate, or grant
participations in all or any part of, or any
interest in Foothill's rights and benefits hereunder. In
connection with any such assignment
or participation, Foothill may disclose all documents and
information which Foothill now
38
or hereafter may have relating to Borrower or Borrower's
business. To the extent that
Foothill assigns its rights and obligations hereunder to a
third Person, Foothill shall
thereafter be released from such assigned obligations to
Borrower and such assignment shall
effect a novation between Borrower and such third Person.
15.3 Section Headings. Headings and
numbers have been set forth herein
for convenience only. Unless the contrary is compelled by
the context, everything contained
in each section applies equally to this entire Agreement.
15.4 Interpretation. Neither this
Agreement nor any uncertainty or
ambiguity herein shall be construed or resolved against
Foothill or Borrower, whether under
any rule of construction or otherwise. On the contrary,
this Agreement has been reviewed
by all parties and shall be construed and interpreted
according to the ordinary meaning of
the words used so as to fairly accomplish the purposes and
intentions of all parties hereto.
15.5 Severability of Provisions. Each
provision of this Agreement shall
be severable from every other provision of this Agreement
for the purpose of determining
the legal enforceability of any specific provision.
15.6 Amendments in Writing. This
Agreement can only be amended by
a writing signed by both Foothill and Borrower.
15.7 Counterparts; Telefacsimile
Execution. This Agreement may be
executed in any number of counterparts and by different
parties on separate counterparts,
each of which, when executed and delivered, shall be deemed
to be an original, and all of
which, when taken together, shall constitute but one and the
same Agreement. Delivery of
an executed counterpart of this Agreement by telefacsimile
shall be equally as effective as
delivery of a manually executed counterpart of this
Agreement. Any party delivering an
executed counterpart of this Agreement by telefacsimile also
shall deliver a manually
executed counterpart of this Agreement but the failure to
deliver a manually executed
counterpart shall not affect the validity, enforceability,
and binding effect of this Agreement.
15.8 Revival and Reinstatement of
Obligations. If the incurrence or
payment of the Obligations by Borrower or any guarantor of
the Obligations or the transfer
by either or both of such parties to Foothill of any
property of either or both of such parties
should for any reason subsequently be declared to be void or
voidable under any state or
federal law relating to creditors' rights, including
provisions of the Bankruptcy Code
relating to fraudulent conveyances, preferences, and other
voidable or recoverable payments
of money or transfers of property (collectively, a "Voidable
Transfer"), and if Foothill is
required to repay or restore, in whole or in part, any such
Voidable Transfer, or elects to
do so upon the reasonable advice of its counsel, then, as to
any such Voidable Transfer, or
the amount thereof that Foothill is required or elects to
repay or restore, and as to all
reasonable costs, expenses, and attorneys fees of Foothill
related thereto, the liability of
39
Borrower or such guarantor automatically shall be revived,
reinstated, and restored and shall
exist as though such Voidable Transfer had never been made.
15.9 Integration. This Agreement,
together with the other Loan
Documents, reflect the entire understanding of the parties
with respect to the transactions
contemplated hereby and shall not be contradicted or
qualified by any other agreement, oral
or written, before the date hereof.
IN WITNESS WHEREOF, the parties hereto
have caused this Agreement to
be executed in Los Angeles, California.
FOOTHILL CAPITAL CORPORATION,
a California corporation
By_________________________________
Title:______________________________
BRENDLE'S INCORPORATED,
a North Carolina corporation
By_________________________________
Title:______________________________
SCHEDULE 5.9
TO THE LOAN AND SECURITY AGREEMENT
BY AND BETWEEN
BRENDLE'S INCORPORATED AND FOOTHILL CAPITAL CORPORATION
DATED AS OF APRIL 21, 1994
LITIGATION
1. Objections to claims filed or to be filed in the Bankruptcy
Case consistent with the terms of the Plan of Reorganization.
2. Claims resulting from an investigation by the United States
Department of Labor. An agreement between the Borrower and
the United States Department of Labor has been reached whereby
the Borrower will pay certain employees an aggregate of
18,007.20 as cost of administration claims and an aggregate of
$31,903.20 as priority wage claims. Additionally, an
aggregate total of $216,367.00 will be treated as allowed
general unsecured claims, subject to treatment under Class 9
of the Plan of Reorganization. A motion seeking approval
of this compromise will be filed in the Bankruptcy Case.
3. The issue of whether the Class 8 claimants identified in the
Plan of Reorganization are entitled to any adequate assurance
of future performance is subject to Bankruptcy Court
determination.
4. RODNEY ROCKETT V. BRENDLE'S STORES, INC., Case Number 2:93-CV-
339 (E.D.Tenn.) involves a post-petition action brought by a
terminated employee seeking reinstatement, back pay, and
attorneys' fees. This action is being actively defended by
the Borrower.
SCHEDULE 6.13
TO THE LOAN AND SECURITY AGREEMENT
BY AND BETWEEN
BRENDLE'S INCORPORATED AND FOOTHILL CAPITAL CORPORATION
DATED AS OF APRIL 21, 1994
LOCATION OF INVENTORY AND EQUIPMENT
No. Location Address
1 Elkin 1925 North Bridge Street
Elkin, NC 28621
2 Winston-Salem 2610 Peters Creek Parkway
Winston-Salem, NC 27107
3 Hickory Route 3, Box 1502
Hwy 64-70
Newton, NC 28658
4 Greensboro 3726 Battleground Avenue
Greensboro, NC 27404
5 Chapel Hill 1801 Chapel/Durham Blvd.
Chapel Hill, NC 27514
6 Asheville Innsbrook Mall
Asheville, NC 28805
7 Kingsport, TN 1505 East Stone Drive
Kingsport, TN 37660
9 Concord 210 Cloverleaf Plaza
Concord, NC 287025
10 Raleigh 4440 Creedmoor Road
Raleigh, NC 27612
11 Winston-Salem 2890 Reynolda Manor Shp Ctr
Winston-Salem, NC 27106
13 Burlington Edgewood Village Shp Ctr
3010 S. Church
Burlington, NC 27215
14 Wilson 2101 South Tarboro Street
Wilson, NC 27893
15 Myrtle Beach 3454 Hwy 501 West
Myrtle Beach, SC 29577
16 Raleigh 3219 South Wilmington St.
Raleigh, NC 27603
17 Greensboro 3020 High Point Road
Greensboro, NC 27403
18 Jacksonville 1291 Hargett Street
Jacksonville, NC 28540
19 Roanoke, VA 4208 Electric Rd
Roanoke, VA 24014
23 Boone 300 Greenway Road
Boone 28607
24 Kinston 601 Plaza Blvd.
Kinston, NC 28501
25 Roanoke-Rapids Hwy 158 & T Ave.
Roanoke Rapids, NC 27870
26 Salisbury 1811 East Innes Street
Salisbury, NC 28144
29 Anderson, SC 3719 Clemson Blvd.
Anderson, SC 29621
30 Spartanburg 1185 Ashville Highway
Spartanburg, SC 29303
31 Florence 2853 David J. McLeod Blvd.
Florence, SC 29501
34 Enka 901 Smoky Pk Hwy
West Ridge Market Place
Enka, NC 2828
38 Wilmington 127 S. College Road, Suite 50
Wilmington, NC 28403
42 Greenville, NC 3700 S. Memorial Drive
Greenville, NC 27834
46 Christiansburg 2505 Market Street
Christiansburg, VA 24073
50 New Bern 3003 Clarendon Blvd. Ste 13
New Bern, NC 28562
52 Fayetteville 505 Cross Creek Mall
Morganton Road
Fayetteville, NC 28303
Distribution
Center Highway 21, Poplar Springs Road
Elkin, NC 28621
95 Corporate
Headquarters 1919 North Bridge Street
Elkin, NC 28621
SCHEDULE E-1
TO THE LOAN AND SECURITY AGREEMENT
BY AND BETWEEN
BRENDLE'S INCORPORATED AND FOOTHILL CAPITAL CORPORATION
DATED AS OF APRIL 21, 1994
LOCATION OF ELIGIBLE INVENTORY
See Schedule 6.13
SCHEDULE P-1
TO THE LOAN AND SECURITY AGREEMENT
BY AND BETWEEN
BRENDLE'S INCORPORATED AND FOOTHILL CAPITAL CORPORATION
DATED AS OF APRIL 21, 1994
PERMITTED LIENS
1. The first priority lien and security interest of Monogram
Credit Card Bank (Monogram) arising from monies due from
Monogram to Borrower with respect to any claims of Monogram
against Borrower directly related to its processing of
Borrower's credit card sales arising under the Monogram Credit
Card Bank of Georgia Program Agreement dated as of March 20,
1989, as subsequently amended.
2. The lien of Hyster Credit Company, 222 S.W. Columbia, Suite
800, Portland, Oregon 97201 on 8 Hyster Lift Trucks.
3. The lien of Litton Systems, Inc., Airtron Division, Diamonair
Products Group, 200 East Hanover Avenue, Morris Plains, NJ
07950 on all 14-carat gold jewelry, rings, pendants, earrings,
all cubic zirconia or other related items with the "Li" symbol
stamped in gold jewelry.
4. The Borrower from time to time enters into consignment
relationships, primarily with reference to jewelry. The
only consignment relationship currently existing is with
Diamonair Products Group and there is currently in
consigned inventory items of a cost of $266.25.
Consigned inventory is specially coded and is itemized
separately from the Borrower's general inventory.
SCHEDULE 7.14
TO THE LOAN AND SECURITY AGREEMENT
BY AND BETWEEN
BRENDLE'S INCORPORATED AND FOOTHILL CAPITAL CORPORATION
DATED AS OF APRIL 21, 1994
TRANSACTIONS WITH AFFILIATES
1. SHAREHOLDERS' AGREEMENTS:
In April of 1986, prior to the initial public offering of the Company's
Common Stock, all of the then shareholders of the Company (including Douglas
D. Brendle, S. Floyd Brendle, Patty Brendle Redway, and William F. Cosby)
entered into a Shareholders'
Agreement with the Company. Therein, the shareholders agreed, among other
things, to
restrict the transfer of their Common Stock to any unrelated party
(as defined) without the
written consent of all remaining shareholders who are parties to the Agreement
unless the
transferring shareholder gives a right of first refusal to related parties
(as defined) of the
transferring shareholder and to the remaining shareholders who are parties to
the Agreement, and such right of first refusal is not exercised. In addition,
the Shareholders'
Agreement gives the right, exercisable within nine months of death, to the
personal
representative of certain deceased shareholders who were parties to the
Agreement, to cause
the Company to redeem from the deceased shareholder's estate up to that number
of shares
of Common Stock of the Company owned by the deceased shareholder at his death
valued
at the average of the closing prices for the 20 trading days prior to the date
of death, not
to exceed the life insurance proceeds received the Company as a result of such
death. The
Company has purchased life insurance in the face amounts set forth at a net
aggregate cost
(premiums less dividends and increase in cash surrender value) for the fiscal
year ended
January 30, 1993 of approximately $294,926: Douglas D. Brendle, $5,000,000;
S. Floyd
Brendle, $5,250,000; William F. Crosby, $3,070,000; and Patty Brendle Redway,
$3,000,000.
The Company has borrowed $1,983,000, in the aggregate, against these policies.
2. SPLIT DOLLAR INSURANCE AGREEMENTS:
The Company has entered into split dollar life insurance agreements for
the benefit
of six of its executive officers and/or directors or their spouses and
families. Upon the death
of any such officer or director, the Company will receive not less than the
net premiums
paid, and the insured's beneficiary will receive the balance of the insurance
proceeds.
Pursuant to the agreements, life insurance coverage, the premiums for which
are paid by the
Company, has been purchased on the following persons in the following
aggregate policy
amounts: Douglas D. Brendle, $3,000,000; S, Floyd Brendle, $2,000,000;
Aubrey L. Miller,
$153,097; W. Steven Day, $132,785; Steven W. Luka, $123,758 and David R.
Renegar,
$113,220. The Company's net aggregate cost (premiums less dividends and
increase in cash
surrender value) for such insurance for the fiscal year ended January 30,
1993 was
approximately $103,994.00. Borrower may allow the insureds to buy the
respective policies
for an amount equal to the cash surrender value of the respective policy;
however, if the
Borrower retains an interest in the policies, Foothill shall be designated
as a beneficiary of
the policies in place of the Borrower and these policies will be deemed
additional Collateral.
SCHEDULE 7.14
Page 2
3. LEASES:
Brenco, a partnership consisting of Douglas D. Brendle, S. Floyd
Brendle, William
F. Cosby, and two Trusts under an Agreement with J. Harold Brendle, dated
October 20,
1982 ("Brenco"), leases 13 stores and the Borrower's corporate office building
and
contiguous warehouse to the Borrower. These leases will be the subject of a
motion made
in the Borrower's Bankruptcy Case to assume the leases with modifications as
are more
particularly set forth in a document entitled "Terms of Proposed Master
Amendment to
Brenco Leases" which was furnished to Foothill on April 29, 1994.
Brenco is the owner and franchisee of the Holiday Inn located in Elkin,
North
Carolina in which the Borrower holds various meetings and corporate
functions. The
Borrower is charged standard corporate rates for these services.
4. TRANSPORTATION ACTIVITIES:
The Borrower occasionally uses an airplane owned by Sky-Lease, Inc., the
voting
securities of which are owned by Douglas D. Brendle, S. Floyd Brendle, William
F. Cosby,
and a Trust under an Agreement dated October 20, 1982 with J. Harold Brendle.
In fiscal
year ending January 30, 1993 Sky-Lease, Inc. was paid an aggregate of $35,820
in rent
charges for such airplanes. For so long as Foothill remains obligated to make
advances
under the loan, its transactions with Sky-Lease shall be on fair and
reasonable terms no less
favorable to Borrower than would obtain in a comparable arm's length
transaction with an
unaffiliated third party and, in any event, the amount paid to Sky-Lease,
Inc. in any fiscal
year shall not exceed Fifty Thousand Dollars ($50,000).
5. BRENDLE'S TRANSPORT, INC.
Brendle's Transport, Inc. (BTI) is a wholly owned subsidiary of the
Borrower which
will be merged into the Borrower on or before June 30, 1994. BTI arranges
for the
transportation of the Borrower's inventory from the Borrower's distribution
center to the
Borrower's stores. BTI owns trailers and hires contract haulers. The
Borrower pays BTI
on the average of $50,000 per month for these services.
6. BFS, INC.:
BFS, Inc., is a wholly owned subsidiary of the Borrower which will be
merged into the
Borrower on or before June 30, 1994. BFS, Inc. owns certain trademarks
used by the
Borrower in the operation of its business. The Borrower is charged a
royalty for the use of
the trademarks based on .0075% of sales. This royalty is reflected by
journal entries made
on the Borrowers books; however, no payments are actually made by the
Borrower to BFS,
Inc. and no payments will be made by the Borrower to BFS, Inc. at any time
prior to the
merger of BFS, Inc. into the Borrower.
7. CONTRACTS WITH OFFICERS AND/OR DIRECTORS:
(a) S. Floyd Brendle has a retirement agreement with the
Borrower, which provides,
inter alia, for a salary continuation through June 16, 1995 at an annual rate
of $125,000.
(b) The Borrower has employment agreements dated November 17, 1992
with
Messers Renegar, Luka, Miller, Stegall and Day which provide for a one year
term of
SCHEDULE 7.14
Page 3
employment, automatically renewable on January 1 of each year, and
automatically extended
by one additional quarter successively on the first day of each calendar
quarter.
(c) The Borrower has a Tandem Stock Option Grant and Agreement with
William
V. Grady dated December 21, 1992. Mr. Grady also has an employment contract
with the
Borrower dated December 9, 1992.
(d) In addition to the standard provisions in the by-laws of the
Borrower relating to
indemnity for individuals serving on the board of directors, the Borrower
is a party to
agreements with Thomas H. Davis, James B. Edwards and John D. Gray,
non-employee
directors of the Borrower, to hold each harmless, subject to certain
limitations under
applicable law, from liabilities arising from service as a director of the
Borrower. The
agreements contain certain assurances that the provisions of the Borrower's
by-laws relating
to indemnification of directors will not be changed. It is anticipated that
any non-employee
director who may be elected or designated to serve on the board in the future
will require the same contractual protection.