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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
January 14, 2000
PARTY CITY CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 0-27826 22-3033692
(State or other jurisdiction of (Commission File (IRS Employer
incorporation) Number) Identification No.)
400 Commons Way, Bldg. C
Rockaway, New Jersey 07866
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(Address of principal executive offices) (Zip Code)
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(973) 983-0888
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name or former address, if changed from last report)
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Item 5. Other Events.
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On January 14, 2000, Party City Corporation ("Party City" or the "Company")
announced that it had replaced its existing senior credit facility with a new
revolving credit facility with Congress Financial Corporation ("Congress"), as
lender. The Company also received $7 million in financing from a group of its
existing investors.
Under the terms of the Loan and Security Agreement (the "Loan Agreement")
which the Company entered into with Congress, the Company may from time to time
borrow amounts based on a percentage of its eligible inventory, up to a maximum
of $40 million at any time outstanding. Advances will bear interest, at the
Company's option, (i) at the adjusted Eurodollar rate plus the applicable
margin, which will initially be 2.75% per annum (subject to possible reduction
to an interest rate as low as 2.25% from and after June 30, 2001, based on the
Company's pre-tax income and excess availability) or (ii) at the rate of 3/4%
per annum above the prime rate. The term of the Loan Agreement is three years,
and the credit facility is secured by a lien on substantially all of the assets
of the Company. The foregoing description is qualified in its entirety by
reference to the Loan and Security Agreement, which is attached hereto as
Exhibit 10.1 and is incorporated herein by reference.
Party City also received an infusion of $7 million from the proceeds from
the sale to certain of its existing investors (the "Investors") of a new series
of senior secured notes pursuant to a First Amendment (the "First Amendment") to
the Securities Purchase Agreement dated as of August 16, 1999. Pursuant to the
First Amendment, the Company issued $7,000,000 in aggregate principal amount of
its 14.0% Secured Notes due 2002 (the "E Notes"). The E Notes are secured by a
lien on substantially all of the Company's assets. The Investors, together with
other existing investors and Congress, have entered into an intercreditor
agreement.
The Company also announced today that, in consideration for waivers and
forbearances granted by certain existing investors to various defaults under the
terms of the Company's existing senior secured notes, the Company has agreed to
amend and restate the terms of existing warrants (the "Existing Warrants") held
by such investors to acquire 6,880,000 shares of the Company's Common Stock. The
amended and restated warrants (the "Amended Warrants") will provide for an
exercise price of $1.07 per share and will be issued upon surrender of the
Existing Warrants, which have an exercise price of $3.00 per share. These shares
represent approximately 35% of the shares outstanding after giving effect to the
exercise of the Amended Warrants. The form of Amended Warrant is attached hereto
as Exhibit 4.1 and is incorporated herein by reference. The form of E Notes is
attached hereto as Exhibit 4.2 and is incorporated herein by reference.
The foregoing is qualified in its entirety by reference to the First
Amendment, which is attached hereto as Exhibit 4.3 and which is incorporated
herein by reference.
The Company will use the proceeds from the sale of the E Notes and initial
amounts borrowed under the Loan Agreement (i) to pay off all amounts owing under
its current credit facility, (ii) to pay all amounts owing on the trade notes
issued to certain of its vendors in August 1999, (iii) to pay amounts owing to
various seasonal trade vendors for credit extended for inventory purchased by
the Company for the 1999 Halloween, Thanksgiving and Christmas
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seasons, (iv) to pay fees and expenses in connection with entering into the Loan
Agreement and the issuance of the E Notes, and (v) for working capital purposes.
A copy of the press release announcing the foregoing transactions is attached
hereto as Exhibit 99.1 and is incorporated herein by reference.
Item 7. Financial Statements and Exhibits.
(a) Financial statements of business acquired: None
(b) Pro forma financial information: None
(c) Exhibits:
4.1 Form of Amended and Restated Warrant.
4.2 Form of E Note.
4.3 First Amendment to Securities Purchase Agreement, dated as of January
14, 2000, by and between Party City Corporation and the Purchasers
identified therein.
10.1 Loan and Security Agreement, dated as of January 14, 2000, by and
between Party City Corporation and Congress Financial Corporation.
99.1 Press Release issued by Party City Corporation on January 17, 2000.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PARTY CITY CORPORATION
By: /s/ Thomas E. Larson
------------------------------
Name: Thomas E. Larson
Title: CFO
Date: January 19, 2000
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EXHIBIT INDEX
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Exhibit
Number Description
- ------ -----------
4.1 Form of Amended and Restated Warrant.
4.2 Form of E Note.
4.3 First Amendment to Securities Purchase Agreement, dated as
of January 14, 2000, by and between Party City Corporation
and the Purchasers identified therein.
10.1 Loan and Security Agreement, dated as of January 14, 2000,
by and between Party City Corporation and Congress Financial
Corporation.
99.1 Press Release issued by Party City Corporation on January
17, 2000.
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[FORM OF AMENDED AND RESTATED WARRANT]
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS, AND MAY NOT BE OFFERED OR
SOLD, UNLESS THEY HAVE BEEN REGISTERED UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS OR UNLESS AN EXEMPTION FROM REGISTRATION IS AVAILABLE AND THEN
ONLY IN COMPLIANCE WITH THE RESTRICTIONS ON TRANSFER SET FORTH IN THE SECURITIES
PURCHASE AGREEMENT DATED AS OF AUGUST 16, 1999, AS AMENDED ON JANUARY __, 2000,
A COPY OF WHICH MAY BE OBTAINED FROM PARTY CITY CORPORATION AT ITS PRINCIPAL
OFFICE.
PARTY CITY CORPORATION
WARRANT TO PURCHASE COMMON STOCK
No. W-__ January __, 2000
THIS AMENDED AND RESTATED WARRANT ("Warrant") of Party City Corporation, a
corporation organized and existing under the laws of the State of Delaware (the
"Company"), shall amend, restate and supersede that certain warrant of the
Company, dated as of August 16, 1999, bearing the same number as this Warrant.
The Company acknowledges that the effective issuance date of the Warrant shall
continue to be deemed to be August 16, 1999.
This Warrant entitles ______________ or its transferees and assigns
(collectively, the "Holder"), for value received, to purchase from the Company
during the period commencing as of the date hereof and ending at 5:00 p.m. (New
York City time) on August 16, 2006 (the "Expiration Date") __________________
(______) shares of Common Stock, par value $0.01 per share, of the Company (the
"Common Stock" and such number of shares, as adjusted, being referred to herein
as the "Shares") at a price of $1.07 per share (as adjusted, the "Exercise
Price").
The Holder of this Warrant agrees with the Company that this Warrant is
issued and all rights hereunder shall be held subject to all of the conditions,
limitations and provisions set forth herein.
1. Exercise of Warrant.
1.1. Exercise by Payment of Cash or Surrender of Notes. The Holder may
exercise this Warrant at any time or from time to time on any business day prior
to or on the Expiration Date, for the full or any lesser number of shares of
Common Stock purchasable hereunder, by surrendering this Warrant to the Company
at its principal office, together with a duly executed Notice of Exercise (in
substantially the form attached hereto as Annex I), and:
(a) payment in cash or by check of the aggregate Exercise Price
then in effect for the number of shares for which this Warrant is being
exercised; or
(b) the surrender for cancellation at the principal office of the
Company of any Note (as defined in that certain Securities Purchase
Agreement dated as of August 16, 1999 by and among the Company and certain
investors named therein, as amended on January __, 2000
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(collectively, the "Purchase Agreement")) or portion thereof, in a
principal amount equal to the Exercise Price then in effect for the number
of shares for which this Warrant is being exercised.
Promptly after such exercise, the Company shall issue and deliver to
the Holder a certificate or certificates representing the number of shares of
Common Stock issuable upon such exercise. Upon issuances by the Company in
accordance with the terms of this Warrant, all such shares of Common Stock shall
be validly issued, fully paid and non-assessable, and free from all taxes, liens
and encumbrances with respect to the issuance thereof, except as set forth in
the Company's Certificate of Incorporation or bylaws, each as may be amended,
any applicable restrictions on sale set forth therein or pursuant to federal or
state securities laws and any restrictions on transfer set forth herein, in the
Purchase Agreement or in that certain Investors Rights Agreement by and among
the Company, the Holder and the other parties set forth therein (the "Investors
Rights Agreement"). To the extent permitted by law, this Warrant shall be deemed
to have been exercised immediately prior to the close of business on the date of
its surrender for exercise as provided herein, even if the Company's stock
transfer books are at that time closed and the Holder shall be treated for all
purposes as the holder of record of the Common Stock to be issued upon such
exercise as of the close of business on such date. Upon any exercise of this
Warrant for fewer than all Shares represented by this Warrant, the Company shall
cancel this Warrant and execute and deliver a new Warrant or Warrants in
substantially identical form for the remaining shares of Common Stock subject to
this Warrant.
1.2. Net Issue Exercise. Notwithstanding any provisions herein to the
contrary, if the Current Market Price (as defined in Section 2.5 hereof) of one
share of the Company's Common Stock is greater than the Exercise Price (at the
date of calculation as set forth below), in lieu of exercising this Warrant by
payment with cash, certified or cashier's check, the Holder may elect to make a
cash-free exercise of this Warrant and thereby to receive Shares equal to the
value (as determined below) of this Warrant (or the portion thereof being
canceled) by surrender of this Warrant at the principal office of the Company
together with the properly endorsed Notice of Exercise and notice of such
election, in which event the Company shall issue to the Holder a number of
Shares of Common Stock computed using the following formula:
X = Y (A-B)
-------
A
Where X = the number of Shares of Common Stock to be
issued to the Holder
Y = the gross number of Shares of Common Stock
purchasable under this Warrant or, if only a
portion of this Warrant is being exercised,
the gross number of Shares purchased under
this Warrant being canceled (at the date of
such calculation)
A = the Current Market Price (as defined in
Section 2.5 hereof) of one share of the
Company's Common Stock (at the date of such
calculation)
B = Exercise Price (as adjusted to the date of
such calculation)
2. Adjustment of Exercise Price and Number of Shares Issuable. The Exercise
Price and the number of Shares issuable upon the exercise of the Warrant are
subject to adjustment from time to time upon the occurrence of the events
enumerated in this Section 2. For purposes of this Section 2, "Common Stock"
means shares now or hereafter authorized of any class of common stock of the
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Company and any other stock of the Company, however designated, that has the
right (subject to any prior rights of any class or series of preferred stock) to
participate in any distribution of the assets or earnings of the Company without
limit as to per share amount.
2.1 Adjustment for Change in Capital Stock. If the Company:
(a) declares or pays a dividend or makes a distribution on its
Common Stock in shares of its Common Stock;
(b) subdivides its outstanding shares of Common Stock into a
greater number of shares;
(c) combines its outstanding shares of Common Stock into a
smaller number of shares;
(d) makes a distribution on its Common Stock in shares of its
capital stock other than Common Stock or preferred stock; or
(e) issues by reclassification of its Common Stock any shares of
its capital stock;
then the Exercise Price and the number and kind of shares of capital stock of
the Company issuable upon the exercise of the Warrant as in effect immediately
prior to such action shall be proportionately adjusted so that the Holder may
receive the aggregate number and kind of shares of capital stock of the Company
which the Holder would have owned immediately following such action if the
Warrant had been exercised immediately prior to such action. The adjustment
shall become effective immediately after the record date in the case of a
dividend or distribution and immediately after the effective date in the case of
a subdivision, combination or reclassification.
If after an adjustment the Holder upon exercise of the Warrant
may receive shares of two or more classes of capital stock of the Company, the
Company shall determine the allocation of the adjusted Exercise Price between
the classes of capital stock. After such allocation, which shall be made by the
Board of Directors of the Company in good faith and on a reasonable basis, the
exercise privilege and the Exercise Price of each class of capital stock shall
thereafter be subject to adjustment on terms comparable to those applicable to
Common Stock in this Section 2.
The above adjustments shall be made successively whenever any
event listed above shall occur.
2.2 Adjustment for Rights Issue. If the Company sets a record date for
the distribution of any rights, options or warrants to all holders of its Common
Stock entitling them for a period expiring within sixty (60) days after the
record date mentioned below to purchase shares of Common Stock at a price per
share less than the Current Market Price per share on that record date, the
Exercise Price shall be adjusted in accordance with the formula:
O+(N x P)
E'=Ex M
---------
O+N
Where E'= the adjusted Exercise Price.
E = the current Exercise Price.
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O = the number of shares of Common Stock outstanding
on the record date.
N = the number of additional shares of Common
Stock offered pursuant to such rights
issuance.
P = the offering price per share of the additional
shares.
M = the Current Market Price per share of Common
Stock on the record date.
The adjustment shall be made successively whenever any such rights,
options or warrants are issued and shall become effective immediately after the
record date for the determination of stockholders entitled to receive the
rights, options or warrants. If no rights, options or warrants are distributed
or at the end of the period during which such rights, options or warrants are
exercisable, not all rights, options or warrants shall have been exercised, the
Exercise Price shall be immediately readjusted to what it would have been if "N"
in the above formula had been the number of shares actually issued.
2.3 Adjustment for Certain Other Distributions. If the Company sets a
record date for distribution to all holders of its Common Stock any of its
assets (including but not limited to cash, but excluding ordinary dividends),
debt securities, preferred stock, or any rights or warrants to purchase debt
securities, preferred stock, assets or other securities of the Company, the
Exercise Price shall be adjusted in accordance with the formula:
E'=Ex(M - F)
-------
M
Where E'= the adjusted Exercise Price.
E = the current Exercise Price.
M = the Current Market Price per share of
Common Stock on the record date mentioned
above.
F = the fair market value on the record date
of the assets, securities, rights or
warrants applicable to one share of Common
Stock. The Board of Directors shall
determine the fair market value in good
faith and on a reasonable basis.
The adjustment shall be made successively whenever any such
distribution is made and shall become effective immediately after the record
date for the determination of stockholders entitled to receive the distribution.
If such distribution is not made, the Exercise Price shall be immediately
readjusted to what it would have been without regard to such distribution.
This subsection does not apply to rights, options or warrants referred
to in Section 2.2.
2.4 Adjustment for Distribution in Settlement of Legal Claims. In the
event the Company agrees to issue, grant or otherwise distribute shares of its
Common Stock or any securities exercisable for, or exchangeable into, shares of
its Common Stock in respect of any claims by its stockholders under that certain
litigation filed in the United States District Court for the District of New
Jersey under the caption In re Party City Corp. Securities Litigation, or other
claims from stockholders of the Company arising out of similar facts or
circumstances, the number of shares of Common Stock (calculated to the nearest
hundredth) issuable upon exercise of this Warrant and the Exercise Price shall
be adjusted in accordance with the following formulas:
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N'=N+(S * N)
-------
I
E'=E*N
---
N'
Where N'= the adjusted number of Shares issuable
upon exercise of the Warrant by payment of
the adjusted Exercise Price.
N = the number of Shares issuable upon
exercise of the Warrant prior to the
adjustment.
S = the number of shares of Common Stock
issued in respect of the claim (or shares of
Common Stock issuable upon conversion of
securities issued in respect of the claim).
I = the aggregate number of issued and
outstanding shares of Common Stock prior to
the issuance of shares of Common Stock (or
convertible securities) in respect of the
claim.
E'= the adjusted Exercise Price.
E = the current Exercise Price.
The adjustment shall be made successively whenever any such
distribution is made and shall become effective immediately after the record
date for the determination of stockholders entitled to receive the distribution.
If such distribution is not made, the Exercise Price shall be immediately
readjusted to what it would have been without regard to such distribution.
2.5 Current Market Price. The "Current Market Price" per share of the
Common Stock is the last reported sales price of the Common Stock as reported by
the Nasdaq National Market ("NMS"), or the primary national securities exchange
on which the Common Stock is then quoted; provided, however, that if the Common
Stock is neither traded on the NMS nor on a national securities exchange, the
price referred to above shall be the price reflected on Nasdaq, or if the Common
Stock is not then traded on Nasdaq, the price reflected in the over-the-counter
market as reported by the National Quotation Bureau, Inc. or any organization
performing a similar function, and provided, further, that if the Common Stock
is not publicly traded, the Current Market Price of the Common Stock shall be
the fair market value as determined in good faith by the Board of Directors of
the Company.
2.6 When De Minimis Adjustment May Be Deferred. No adjustment in the
Exercise Price and/or the number of Shares subject to this Warrant shall be made
if such adjustment would result in a change in (a) the Exercise Price of less
than one cent ($0.01) per share or (b) the number of Shares represented by this
Warrant of less than one share (the "Adjustment Threshold Amount"). Any
adjustment not made because the Adjustment Threshold Amount is not satisfied
shall be carried forward and made, together with any subsequent adjustments, at
such time as (i) the aggregate amount of all such adjustments is at least equal
to the Adjustment Threshold Amount or (ii) this Warrant is exercised.
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2.7 When No Adjustment Required.
(a) No adjustment need be made for a transaction referred to in
Sections 2.1, 2.2 or 2.3 to the extent the Holder participates in the
transaction by virtue of the Holder's position as the holder of this Warrant.
(b) No adjustment need be made for rights to purchase Common
Stock pursuant to a Company plan for reinvestment of dividends or interest
approved by the Board of Directors of the Company.
(c) No adjustment need be made for a change in the par value or
no par value of the Common Stock.
2.8 Voluntary Reduction. The Company from time to time may reduce the
Exercise Price by any amount for any period of time if the period is at least
twenty (20) days and if the reduction is irrevocable during the period;
provided, however, that in no event may the Exercise Price be less than the par
value of a share of Common Stock.
Whenever the Exercise Price is reduced, the Company shall provide the
Holder a notice of the reduction. The Company shall provide notice at least
fifteen (15) days before the date the reduced Exercise Price takes effect. The
notice shall state the reduced Exercise Price and the period it will be in
effect.
A reduction hereunder of the Exercise Price does not change or adjust
the Exercise Price otherwise in effect for purposes of Sections 2.1, 2.2 and
2.3.
2.9 Notice of Certain Transactions. If:
(a) The Company takes any action that would require an adjustment
in the Exercise Price pursuant to Sections 2.1, 2.2 or 2.3;
(b) The Company takes any action that would require a
supplemental Warrant pursuant to Section 2.10; or
(c) there is a liquidation or dissolution of the Company;
the Company shall provide the Holder a notice stating the proposed record date
for a dividend or distribution or the proposed effective date of a subdivision,
combination, reclassification, consolidation, merger, transfer, lease,
liquidation or dissolution. The Company shall provide notice at least fifteen
(15) days before such date. Failure to provide the notice or any defect in it
shall not affect the validity of the transaction or the rights of the Holder
hereunder.
2.10 Reorganization of Company. If the Company consolidates or merges
with or into, or transfers or leases all or substantially all its assets to, any
person, upon consummation of such transaction the Warrant shall automatically
become exercisable for the kind and amount of securities, cash or other assets
which the Holder would have owned immediately after the consolidation, merger,
transfer or lease if the Holder had exercised the Warrant immediately before the
effective date of the transaction. Concurrently with, and as a condition to
effectiveness of, the consummation of such transaction, the corporation formed
by or surviving any such consolidation or merger if other than the Company, or
the person to which such sale or conveyance shall have been made, shall enter
into a supplemental Warrant so providing and further providing for adjustments
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which shall be as nearly equivalent as may be practical to the adjustments
provided for in this Section 2. The successor Company shall provide the Holder a
notice describing the supplemental Warrant.
If the issuer of securities deliverable upon exercise of Warrants
under the supplemental Warrant is an affiliate of the formed, surviving,
transferee or lessee corporation, that issuer shall join in the supplemental
Warrant.
If this Section 2.10 applies, Sections 2.1, 2.2 and 2.3 do not apply.
2.11 Company Determination Final. Any determination that the Company
or the Board of Directors must make pursuant to this Section 2 must be made by
consent of at least three-fourths of the members of the Board of Directors. Any
such determination shall be deemed presumptively correct absent manifest error.
2.12 Adjustment in Number of Shares. Upon each adjustment of the
Exercise Price pursuant to this Section 2, the Warrant shall thereafter evidence
the right to receive upon payment of the adjusted Exercise Price that number of
shares of Common Stock (calculated to the nearest hundredth) obtained from the
following formula (other than Section 2.4 in which case the number of Shares
will be adjusted in accordance with the provisions of said section):
N'= N x E
---
E'
Where N'= the adjusted number of Shares issuable
upon exercise of the Warrant by payment of
the adjusted Exercise Price.
N = the number or Shares previously issuable
upon exercise of the Warrant by payment of
the Exercise Price prior to adjustment.
E'= the adjusted Exercise Price.
E = the Exercise Price prior to adjustment.
2.13 Notice of Adjustment of Exercise Price. Whenever the Company
shall take any action resulting in any adjustment provided for in this Section
2, the Company shall forthwith deliver or cause to be delivered notice of such
action to the Holder, which notice shall set forth the number of Shares then
subject to the Warrant and the purchase price thereof resulting from such
adjustment. Written notice shall be delivered in accordance with the provisions
of Section 10.
3. Rights of the Holder.
3.1 No Rights as Stockholder. The Holder shall not, by virtue hereof,
be entitled to any rights of a stockholder in the Company, either at law or
equity, and the rights of the Holder are limited to those expressed in this
Warrant. Nothing contained in this Warrant shall be construed as conferring upon
the Holder the right to vote or to consent or to receive notice as a stockholder
of the Company on any matters or with respect to any rights whatsoever as a
shareholder of the Company. No dividends or interest shall be payable or accrued
in respect of this Warrant or the interest represented hereby or the shares of
Common Stock purchasable hereunder until, and only to the extent that, this
Warrant shall have been exercised in accordance with its terms.
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3.2 Registration Rights. The Holder shall have those registration
rights and obligations as defined in the applicable provisions of the Investor
Rights Agreement.
4. No Impairment. The Company will not, by any voluntary action, avoid or
seek to avoid the observance or performance of any of the terms of this Warrant,
but shall at all times in good faith assist in effecting the terms of this
Warrant and in taking all actions necessary or appropriate in order to protect
the rights of the Holder against dilution or other impairment of its rights
hereunder.
5. No Fractional Shares. No fractional shares shall be issued upon exercise
of this Warrant. In lieu of issuing any fractional share, the Company shall pay
the Holder entitled to such fraction a sum in cash equal to such fraction
multiplied by the Current Market Price.
6. Reservation of Stock Issuable upon Exercise of Warrant. The Company
covenants and agrees that during the period of time during which this Warrant is
exercisable, it will at all times have authorized and reserved solely for
issuance and delivery upon the exercise of this Warrant, all such shares of
Common Stock and other stock, securities and property as from time to time are
receivable upon the exercise of this Warrant. If at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the exercise of this Warrant, the Company will take such corporate action as
may, in the opinion of its counsel, be necessary to increase its authorized but
unissued shares of Common Stock to such number of shares as shall be sufficient
for such purposes. The Company further covenants that all shares issuable upon
exercise of this Warrant and payment of the Exercise Price, all as set forth
herein, will be free from all taxes, liens and charges in respect of the issue
of such shares (other than taxes in respect of any transfer occurring
contemporaneously with such exercise and payment or otherwise specified herein).
The Company agrees that its issuance of this Warrant shall constitute full
authority to its officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for Shares of
Common Stock upon the exercise of this Warrant and covenants that all such
Shares, when issued, sold and delivered in accordance with the terms of this
Warrant for the consideration expressed herein, will be duly and validly issued,
fully paid and nonassessable, and will be free of restrictions on transfer other
than restrictions on transfer set forth in this Warrant and applicable state and
federal securities laws.
7. Issue Tax. The issuance of certificates for shares of Common Stock upon
the exercise of this Warrant shall be made without charge to the Holder of this
Warrant for any issue tax (other than applicable income taxes) in respect
thereof, provided, however, that the Company shall not be required to pay any
tax that may be payable in respect of any transfer involved in the issuance and
delivery of any certificate in a name other than that of the then Holder of this
Warrant being exercised.
8. Transfer Restrictions. This Warrant may be transferred in whole or in
part. Any transfer of this Warrant permitted under this Section 8 shall be made
only upon surrender for exchange of this Warrant (in negotiable form, if not
surrendered by the Holder named on the face hereof) to the Company at its
principal office, in which event the Company will issue and deliver a new
Warrant or Warrants in substantially identical form representing in the
aggregate, the same number of shares of Common Stock, in the denomination or
denominations requested, to or on the order of such Holder upon payment by such
Holder of any applicable transfer taxes; and provided further that all
reasonable expenses incurred in connection with such re-issuance and delivery
shall be borne by the Holder. The terms of this Warrant shall be binding upon
the executors, administrators. heirs, successors and assigns of the Holder.
9. Replacement of Warrant. Upon receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction or mutilation of this Warrant,
and (in the case of loss, theft or
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destruction) upon delivery of an indemnity agreement in such reasonable amount
as the Company may determine, or (in the case of mutilation) upon surrender and
cancellation hereof, the Company, at its expense, shall issue a new Warrant in
substantially identical form in replacement hereof.
10. Notices. Notices and other communications under this Warrant shall be
in writing and shall be delivered by facsimile transmission, hand or courier
service, or mailed by registered or certified mail, return receipt requested,
addressed, (a) if to the original Holder, at the address set forth in Schedule A
to the Purchase Agreement or at such other address as the Holder shall have
furnished to the Company in writing, or (b) if to any other Holder, at such
address as such other Holder shall have furnished to the Company in writing, or,
until any such other Holder so furnishes to the Company an address, then to and
at the address of the last Holder of such Note who has furnished an address to
the Company, or (c) if to the Company, at its address set forth in the Purchase
Agreement, to the attention of Corporate Secretary, or at such other address, or
to the attention of such other officer, as the Company shall have furnished to
the Holder in writing. Any notice so addressed and delivered by facsimile
transmission, hand or courier shall be deemed to be given when received, and any
notice so addressed and mailed by registered or certified mail shall be deemed
to be given three business days after being so mailed.
11. Governing Law. This Warrant shall be construed in accordance with and
governed by the laws of the State of New York.
12. Expiration Date. If the last day on which this Warrant may be
exercised, or on which it may be exercised at a particular Exercise Price, is a
Saturday, Sunday or a legal holiday or a day on which banking institutions doing
business in Los Angeles or the City of New York are authorized by law to close,
this Warrant may be exercised prior to 5:00 p.m. (New York City time) on the
next full business day with the same force and effect and at the same Exercise
Price as if exercised on such last day specified herein.
13. Modification and Waiver. The terms of this Warrant or any term hereof
may be changed, waived, discharged or terminated only by the written consent of
the Holder.
14. Headings. The descriptive headings in this Warrant are included for
convenience only, and do not constitute a part hereof.
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed and delivered on the date first set forth above.
PARTY CITY CORPORATION
400 Commons Way
Rockaway, New Jersey 07866
By:
------------------------------
Name:
Title:
H-II-9
<PAGE>
Annex I
NOTICE OF EXERCISE
(To be signed only upon exercise of Warrant)
To: Party City Corporation
400 Commons Way
Rockaway, New Jersey 07866
Attn: Corporate Secretary
The undersigned, Holder of the attached Warrant No. W-____, hereby
irrevocably elects to exercise the purchase right represented by this Warrant as
follows:
[ ] The undersigned elects to purchase _________ shares of Common Stock of
Party City Corporation for cash or check and herewith makes payment of
$_______ for those shares.
[ ] The undersigned elects to purchase _________ shares of Common Stock of
Party City Corporation through the surrender of Notes (as such term is
used in the Warrant) in the principal amount of $_______ as payment
for those shares.
[ ] The undersigned elects to effect a net exercise of this Warrant,
exercising this Warrant as to the following gross number of shares:
___________. The undersigned understands that the actual number of
shares issuable will be determined in accordance with Section 1.2 of
this Warrant.
The undersigned requests that the certificates for the shares be issued in
the name of, and delivered to, _______________________________________________*,
whose address is ___________________________________________.
Dated: ___________, ____ _____________________________
Signature
(Signature must conform in all respects
to name of Holder as specified on the
face of the attached Warrant.)
Holder: ________________________________
By: ____________________________________
Title: _________________________________
________________________________________
Address
________________________________________
________________________________________
* If the stock is to be issued to anyone other than the registered Holder of
this Warrant, this Notice of Exercise must be accompanied by an opinion of
counsel to the effect that such transfer may be effected without compliance with
the registration and prospectus delivery requirements of the Securities Act of
1933, as amended.
<PAGE>
[FORM OF E NOTE]
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, as
AMENDED, or any state SECURITIES laws, AND MAY NOT BE OFFERED OR SOLD, UNLESS IT
HAS BEEN REGISTERED UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR
UNLESS AN EXEMPTION FROM REGISTRATION IS AVAILABLe AND THEN ONLY IN COMPLIANCE
WITH THE RESTRICTIONS ON TRANSFER SET FORTH IN THE SECURITIES PURCHASE
AGREEMENT, DATED AS OF AUGUST 16, 1999, AS AMENDED ON JANUARY __, 2000
(COLLECTIVELY, the "PURCHASE AGREEMENT"), A COPY OF WHICH MAY BE OBTAINED FROM
PARTY CITY CORPORATION AT ITS PRINCIPAL OFFICE.
PAYMENT OF THIS OBLIGATION IS SUBJECT TO THE TERMS AND CONDITIONS OF THE
INTERCREDITOR AGREEMENT (AS SUCH TERM IS DEFINED IN THE PURCHASE AGREEMENT), A
COPY OF WHICH MAY BE OBTAINED FROM PARTY CITY CORPORATION AT ITS PRINCIPAL
OFFICE.
PARTY CITY CORPORATION
14.0% SENIOR SECURED NOTE DUE JANUARY __, 2002
No. E-_____
$___________ New York, New York
January __, 2000
FOR VALUE RECEIVED, the undersigned, PARTY CITY CORPORATION, a corporation
organized and existing under the laws of Delaware (the "Company"), hereby
promises to pay to ___________, or registered assigns, the principal sum of
_____________ DOLLARS ($_________) on January __, 2002 (the "Maturity Date").
This Note is one of the Company's 14.0% Senior Secured Notes due 2002 issued
pursuant to a Securities Purchase Agreement dated as of August 16, 1999, as
amended on January __, 2000, by and among the Company and certain investors
named therein (collectively, the "Purchase Agreement"), and is also entitled to
the benefits thereof to the extent provided in the Purchase Agreement.
1. Payment of Principal and Interest. On the tenth (10th) day of each
January, April, July and October during the term of this Note, commencing on the
first such date to follow the date hereof, and continuing thereafter until the
Maturity Date, the Company shall pay to holder of this Note all accrued interest
as of the end of the immediately preceding calendar quarter at the rate of 14.0%
per annum (computed on the basis of a 360-day year of twelve 30-day months). On
the Maturity Date, the Company shall pay to the holder in full the entire
remaining balance of the principal sum and all accrued interest. Payments of
principal of and interest on this Note are to be made in lawful money of the
United States of America at the address required by the Purchase Agreement.
2. Optional Prepayment. As provided in the Purchase Agreement, the
principal amount of the Note is subject to prepayment, in whole or in part, at
any time at the option of the Company.
A-1
<PAGE>
3. Event of Default. If an Event of Default, as defined in the Purchase
Agreement, occurs and is continuing, the principal of this Note may be declared
or otherwise become due and payable in the manner, at the amount and with the
effect provided in the Purchase Agreement.
4. Intercreditor Agreement. This Note is a subject to the terms of the
Intercreditor Agreement in the form attached to the Purchase Agreement, as
amended.
5. Security Interest and Guaranty. The obligations of the Company are
secured by that certain Security Agreement (Parent), dated as of August 16,
1999, in the form attached to the Purchase Agreement, and other agreements
described in the Purchase Agreement, subject to the provisions of the
Intercreditor Agreement. The holder of this Note is further entitled to the
benefits of a certain Guaranty Agreement dated as of August 16, 1999 by the
subsidiaries of the Company in the form attached to the Purchase Agreement.
6. Transfer. This Note is a registered Note and is transferable only upon
surrender of this Note for registration of transfer, duly endorsed, or
accompanied by a written instrument of transfer duly executed, by the holder
hereof or such holder's attorney duly authorized in writing. Reference in this
Note to a "holder" shall mean the person in whose name this Note is at the time
registered on the register kept by the Company as provided in the Purchase
Agreement and the Company may treat such person as the owner of this Note for
the purpose of receiving payment and for all other purposes, and the Company
shall not be affected by any notice to the contrary.
7. Governing Law. This Note shall be construed and enforced in accordance
with the laws of the State of New York.
PARTY CITY CORPORATION
By:
------------------------------
Name:
Title:
A-2
<PAGE>
- --------------------------------------------------------------------------------
PARTY CITY CORPORATION
$10,000,000
12.5% Secured Notes due 2003
("A Notes")
$5,000,000
13.0% Secured Notes due 2003
("B Notes")
$5,000,000
13.0% Secured Notes due 2002
("C Notes")
$10,000,000
14.0% Secured Notes due 2004
("D Notes")
$7,000,000
14.0% Senior Secured Notes due 2002
("E Notes")
Warrants To Purchase Common Stock
------------------
FIRST AMENDMENT TO
SECURITIES PURCHASE AGREEMENT
------------------
Dated as of January 14, 2000
------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
----
1. Relation to Securities Purchase Agreement.................................1
2. Capitalized Terms.........................................................1
3. Issuance of 14.0% Senior Secured Notes due 2002...........................1
4. Representations and Warranties of the Company.............................6
5. Representations and Warranties of the New Purchasers......................8
6. Prepayment of E Notes.....................................................8
7. Covenants.................................................................9
8. Events of Default........................................................15
9. Certain Definitions......................................................15
10. Transfer and Exchange of Notes...........................................17
11. Expenses, etc............................................................18
12. Default Interest on Initial Notes........................................18
13. Amendment to Warrants....................................................19
14. Amendment to Security Documents..........................................19
15. Termination of Old Intercreditor Agreement...............................19
16. License..................................................................19
17. Waiver of Defaults under Agreement.......................................19
18. Miscellaneous............................................................20
19. Counterparts.............................................................20
i
<PAGE>
Exhibits, Annexes and Schedules
EXHIBIT A..................... Form of E Note
EXHIBIT B..................... Form of Intercreditor Agreement
EXHIBIT C..................... Form of Stock Pledge Agreement
EXHIBIT D-I................... Form of Blocked Account Agreement (Parent)
EXHIBIT D-II.................. Form of Blocked Account Agreement (Subsidiary)
EXHIBIT E..................... Form of Credit Agreement (Congress)
EXHIBIT F..................... Form of Opinion of Counsel to Company
EXHIBIT G..................... Form of Collateral Agency Agreement
EXHIBIT H-I................... Form of Consent to Amendment of Securities
EXHIBIT H-II.................. Form of Amended and Restated Warrant
EXHIBIT I..................... Form of Acknowledgment and Consent of Franchisees
EXHIBIT J..................... Form of Release
ANNEX I Schedule of Purchasers
SCHEDULE 5.2.................. Schedule of Subsidiaries
SCHEDULE 5.4(a)............... Schedule of Financial Statements
SCHEDULE 5.4(b)............... Schedule of Financial Projections
SCHEDULE 5.5.................. Schedule of Changes, etc.
SCHEDULE 5.6.................. Schedule of Federal Tax Identification Numbers
SCHEDULE 5.7(a)............... Schedule of Debt
SCHEDULE 5.7(b)............... Schedule of Post-Closing Debt
SCHEDULE 5.7(c)............... Schedule of Defaults on Debt
SCHEDULE 5.8.................. Schedule of Liens
SCHEDULE 5.9.................. Schedule of Outstanding Stock Options
SCHEDULE 5.10................. Schedule of Title to Properties
SCHEDULE 5.11................. Schedule of Insurance
SCHEDULE 5.12................. Schedule of Litigation
SCHEDULE 5.13................. Schedule of Compliance with Instruments
SCHEDULE 5.15................. Schedule of Proprietary Rights
SCHEDULE 5.16................. Schedule of Principal Corporate Offices
SCHEDULE 5.17................. Schedule of Tradenames
SCHEDULE 5.21................. Schedule of Employment Agreements
SCHEDULE 5.23................. Schedule of Fees
SCHEDULE 5.24................. Schedule of Year 2000 Compliance
SCHEDULE 5.25................. Schedule of Lease Payments
SCHEDULE 5.27(a).............. Form of Franchise Agreement
SCHEDULE 5.27(b).............. Schedule of Franchisees
ii
<PAGE>
First Amendment to Securities Purchase Agreement
This FIRST AMENDMENT TO SECURITIES PURCHASE AGREEMENT (this "Amendment") is
made and entered into as of January 14, 2000, by and among Party City
Corporation, a Delaware corporation (the "Company"), and each of the purchasers
listed on the attached Annex I (the "Purchasers").
RECITALS
WHEREAS, each of the Company and the Purchasers or their assignors entered
into Securities Purchase Agreements dated as of August 16, 1999 (collectively,
the "Agreement");
WHEREAS, a Supermajority in Interest of the holders of the Notes (as such
terms are defined in the Agreement) is required to effect an amendment to the
Agreement, and the Purchasers constitute a Supermajority in Interest; and
WHEREAS, the Company and the Purchasers desire to amend certain terms and
provisions of the Agreement as set forth herein and to provide for the issuance
of additional Notes as provided herein.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
and other valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Company and the Purchasers amend the Agreement as
follows:
1. Relation to Securities Purchase Agreement. Except as hereby amended, the
Agreement shall continue in full force and effect.
2. Capitalized Terms. Capitalized terms used and not otherwise defined
herein are used with the meanings attributed thereto in the Agreement. The
definitions of capitalized terms which are defined herein shall be deemed to
supercede any conflicting definition in the Agreement.
3. Issuance of 14.0% Senior Secured Notes due 2002.
(a) Authorization of Notes. The Company will authorize the issue and
sale of $7,000,000 aggregate principal amount of its 14.0% Senior Secured Notes
due 2002 (the "E Notes"), to be substantially in the form of note attached
hereto as Exhibit A, with such changes therefrom, if any, as may be approved by
each New Purchaser and the Company. The E Notes shall be considered a separate
"tranche" of Notes for purposes of the Agreement and the term "Notes" as used in
the Agreement shall include the E Notes.
(b) Sale and Purchase of Notes. The Company will issue and sell to the
Purchasers identified on Annex I as purchasers of E Notes (the "New Purchasers")
and, subject to the terms and conditions of this Amendment, the E Note Holders
will purchase from the Company, at the E Note Closing provided for in Section
3(d) below, the E Notes in the principal amount specified opposite their names
in Annex I at the purchase price of 100% of such principal amount.
(c) Security Interest. Each of the E Notes shall be secured
obligations of the Company and shall be secured by the Security Agreement
(Parent), the other agreements described in Section 4.5 of the Agreement and the
Stock Pledge Agreement described below (collectively, and, in each case, as
amended by Section 14(a) of this Amendment, the "Security Documents"), provided
that:
1
<PAGE>
(i) the relative priorities of the holders of the E Notes and the
holders of Notes purchased under the Agreement on August 16, 1999 (such notes
being referred to herein as the "Initial Notes" and such holders being referred
to herein as the "Initial Purchasers") with respect to the collateral identified
in the Security Documents shall be subject to that certain Intercreditor
Agreement, dated as of the date hereof (the "Intercreditor Agreement"), by and
among the New Purchasers, the Initial Purchasers and Congress Financial
Corporation, a Delaware corporation ("Congress") attached hereto as Exhibit B;
and
(ii) the obligations of the Company shall be further secured by
that certain Stock Pledge Agreement, dated as of the date hereof, by the Company
in favor of ERF as agent for the Purchasers (the "Stock Pledge Agreement") in
the form attached hereto as Exhibit C.
(d) Closing; Fees.
(i) Closing. The sale of the E Notes to be purchased by the New
Purchasers shall take place at the offices of Otterbourg, Steindler, Houston &
Rosen, P.C., 230 Park Avenue, New York, New York at 10:00 a.m., New York City
time, at a closing (the "E Note Closing") on January 13, 1999 (the "E Note
Closing Date") or on such other Business Day thereafter as may be agreed upon by
the Company and the New Purchasers. At the E Note Closing, the Company will
deliver to the New Purchasers the E Notes indicated opposite each New
Purchaser's name on Annex I hereto subject to the following:
(A) the E Notes to be issued to each New Purchaser shall be
issued in the form of single notes (or such greater number of notes in
denominations of at least $100,000 as shall be set forth in Annex I or as each
New Purchaser may request) dated the E Note Closing Date and registered in such
New Purchaser's name (or in the name of such New Purchaser's nominee);
(B) each New Purchaser shall deliver to the Company or its
order immediately available funds in the amount of the purchase price for such E
Notes.
If at the E Note Closing the Company shall fail to tender such E Notes as
provided above in this Section 3, or any of the conditions specified in Section
3(e) shall not have been fulfilled to the satisfaction of the New Purchasers,
the New Purchasers shall, at their election, be relieved of all further
obligations under this Agreement, without thereby waiving any other rights they
may have by reason of such failure or such nonfulfillment.
(ii) Funding Fees.
(A) On the E Note Closing Date, the Company will pay to each
New Purchaser (or to the Person designated for payment in written notice to the
Company), in immediately available funds, a funding fee equal to 6.0% of the
aggregate purchase price for the E Notes purchased by such New Purchaser on the
E Note Closing Date, by crediting the account specified by such New Purchaser in
writing for the payment of funding fees.
(B) On the date that is one (1) year from the E Note Closing
Date (or the first Business Day thereafter), the Company will pay to each New
Purchaser (or to the Person designated for payment in written notice to the
Company), in immediately available funds, an additional funding fee equal to
3.0% of the aggregate purchase price for the E Notes purchased by such New
Purchaser on the E Note Closing Date, by crediting the account specified by such
New Purchaser in writing for the payment of funding fees.
2
<PAGE>
(iii) Legal and Accounting Fees. Whether or not the E Notes are
sold, on the E Note Closing Date the Company will pay to the New Purchasers the
reasonable fees and disbursements of their legal counsel and accountants and
such other expenses including search fees, documentation fees and filing fees
incurred by them in connection with the transactions contemplated by this
Amendment and set forth in a statement delivered to the Company on or prior to
the E Note Closing Date, and thereafter the Company will pay, promptly upon
receipt of a supplemental statement therefor, additional reasonable fees and
disbursements, if any, related to the foregoing and incurred in connection with
such transactions.
(iv) Obligation of New Purchasers. The Company hereby
acknowledges and agrees that the New Purchasers shall have no obligation to
purchase the E Notes or otherwise consummate the transactions contemplated by
this Amendment if any of the conditions to closing described in Section 3(e)
below have not been satisfied to the approval of the New Purchasers prior to the
E Note Closing.
(e) Conditions to Closing. The New Purchasers' obligation to purchase
and pay for the E Notes to be sold to at the E Note Closing is subject to the
fulfillment to the New Purchasers' satisfaction, prior to or at the E Note
Closing, of the following conditions:
(i) Representations and Warranties. The representations and
warranties of the Company contained in Section 5 of the Agreement, as amended
hereby, and those otherwise made in writing by or on behalf of the Company in
connection with the transactions contemplated by this Agreement shall be correct
in all material respects when made and at the time of the E Note Closing, except
as affected by the consummation of such transactions.
(ii) Performance; No Default. The Company shall have performed
and complied in all material respects with all agreements and conditions
contained in this Amendment required to be performed or complied with by it
prior to or at the E Note Closing and, at the time of the E Note Closing, no
Event of Default or Potential Event of Default shall have occurred and be
continuing under the Agreement, after giving effect to the amendments and
modifications thereto pursuant to this Amendment.
(iii) Compliance Certificate. The Company shall have delivered to
each of the New Purchasers an Officers' Certificate, dated the date of the E
Note Closing, certifying that the conditions specified in Sections 3(e)(i)-(ii)
have been fulfilled.
(iv) Pledge Agreement and Blocked Account Agreement. The Company
shall have executed the Stock Pledge Agreement and shall have delivered the
stock of Party City Michigan in accordance therewith, and PNC Bank, National
Association ("PNC") and the Company shall have executed a Blocked Account
Agreement in the form attached hereto as Exhibit D-I with respect to its
collection account for franchisee royalty payments (the "Collection Account").
(v) Bank Financing. Each of the New Purchasers shall have
received, in form and substance satisfactory to it, evidence that the Company
and Congress, shall have entered into that certain Loan and Security Agreement
substantially in the form attached hereto as Exhibit E and such other agreements
as may be contemplated by such Loan and Security Agreement shall have been
executed by the parties thereto. Such Loan and Security Agreement shall provide
for financing for the Company on terms materially similar to those set forth in
the Business Plan provided by the Company to the New Purchasers on January 12,
2000 (the "Business Plan").
3
<PAGE>
(vi) Intercreditor Agreement. Each of the New Purchasers shall
have received, in form and substance satisfactory to it, evidence that the
Intercreditor Agreement has been duly executed by all parties thereto.
(vii) Termination of Certain Agreements.
(A) Each of the New Purchasers shall have received, in form
and substance satisfactory to it, all releases, terminations and such other
documents as it requests to evidence and effectuate the termination of that
certain Credit Agreement, dated as of April 22, 1998, by and among the Company,
PNC, as agent, and the lenders named therein (the "Old Credit Agreement"), and
all related notes, guaranties, security documents, instruments and agreements
executed in connection therewith, including that certain Standstill and
Forbearance Agreement, dated as of July 1, 1999, by and among the Company, Party
City Michigan, PNC and the other lenders named therein. Such releases and
terminations shall include UCC termination statements for all UCC financing
statements previously filed in connection with the Old Credit Agreement.
(B) Each of the New Purchasers shall have received, in form
and substance satisfactory to it, all releases, terminations and such other
documents as it requests to evidence and effectuate the termination of that
certain Vendor Security Agreement, dated as of August 16, 1999, and all related
notes, guaranties, security documents, instruments and agreements executed in
connection therewith. Such releases and terminations shall include UCC
termination statements for all UCC financing statements previously filed in
connection with the Vendor Security Agreement.
(C) Each of the New Purchasers shall have received, in form
and substance satisfactory to it, all releases, terminations and such other
documents as it requests to evidence and effectuate the termination of that
certain Intercreditor Agreement, dated as of July 1, 1999, and all related
notes, guaranties, security documents, instruments and agreements executed in
connection therewith (collectively, the "Old Intercreditor Agreement").
(viii) Opinion of Counsel. Each of the New Purchasers shall have
received from Willkie Farr & Gallagher, special counsel for the Company in
connection with the transactions contemplated by this Agreement, a favorable
opinion substantially in the form set forth in Exhibit F, addressed to it, dated
the E Note Closing Date and otherwise satisfactory in substance and form to such
New Purchaser.
(ix) Due Diligence. The Company shall have provided such
documents, information and materials as may be requested by each New Purchaser
in connection with its due diligence review of the Company and its business, and
such due diligence review shall have been completed to the sole satisfaction of
each New Purchaser.
(x) Projections. On the E Note Closing Date, the inventories,
accounts payable, cash balances, trade debt and bank debt shall be at levels
materially similar to those set forth in the Business Plan, and no material
adverse change in the business, operations or the condition of the assets of the
Company shall have occurred since the date of the latest field examination by
the New Purchasers.
(xi) Consents, Agreements. The Company shall have obtained all
consents and waivers, under any term of any material agreement or instrument to
which it is a party or by which it or any of its properties is bound, or any
term of any applicable law, ordinance, rule or regulation of any governmental
authority, or any term of any applicable order, judgment or decree of any court,
arbitrator or
4
<PAGE>
governmental authority, necessary or appropriate in connection with the
transactions contemplated by this Amendment, and such consents and waivers shall
be in full force and effect on the E Note Closing Date. A complete and correct
copy of each of such consents and waivers shall have been delivered to each New
Purchaser.
(xii) Compliance with Securities Laws. Subject to the accuracy of
the representations in Section 5 of this Amendment, the offering and sale of the
E Notes shall have complied with all applicable requirements of federal and
state securities laws.
(xiii) Purchase Permitted By Applicable Law, etc. On the E Note
Closing Date, the purchase of the E Notes (a) shall be permitted by the laws and
regulations of each jurisdiction to which any New Purchaser is subject and (b)
shall not subject any New Purchaser to any additional tax, penalty or, in the
reasonable judgment of the New Purchasers, other onerous condition by reason of
any change after the date of this Amendment in any applicable law or
governmental regulation. If requested by any New Purchaser, it shall have
received, at least five (5) Business Days prior to the E Note Closing, an
Officers' Certificate certifying as to such matters of fact as such New
Purchaser may reasonably specify to enable it to determine whether such purchase
is so permitted.
(xiv) No Adverse U.S. Legislation, Action or Decision, etc. No
legislation shall have been enacted by either house of Congress or favorably
reported by any committee thereof, no other action shall have been taken by any
governmental authority, whether by order, regulation, rule, ruling or otherwise,
and no decision shall have been rendered by any court of competent jurisdiction,
which would materially and adversely affect the E Notes being purchased
hereunder.
(xv) No Actions Pending. There shall be no suit, action,
investigation, inquiry or other proceeding by any governmental body or any other
Person or any other legal or administrative proceeding pending or, to the
Company's knowledge, threatened which questions the validity or legality of the
transactions contemplated by this Amendment or the other Operative Agreements or
which seeks damages or injunctive or other equitable relief in connection
therewith.
(xvi) Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated by this Amendment
and all documents and instruments incident to such transactions shall be
reasonably satisfactory to each New Purchaser and its counsel, and they shall
have received all such counterpart originals or certified or other copies of
such documents as they may reasonably request.
(xvii) Sale of Other E Notes. At the E Note Closing, each New
Purchaser shall purchase from, and the Company shall sell to each New Purchaser,
the E Notes identified opposite its name in Annex I.
(xviii) Fees. The fees required to be paid by Sections
3(d)(ii)-(iii) shall have been paid as therein provided.
(xix) Perfected Security Interest. Each New Purchaser shall have
received, in form and substance satisfactory to it, evidence that the security
interest granted by the Company to the New Purchasers, or ERF as their agent,
pursuant to the Security Documents shall have been perfected.
5
<PAGE>
(xx) Amendment to Warrants. Each of the New Purchasers shall have
received, in form and substance satisfactory to it, evidence that the amendment
to the Warrants contemplated in Section 13 shall have occurred.
(xxi) Acknowledgment and Consent of Franchisees. Each of the New
Purchasers shall have received, in form and substance satisfactory to it,
evidence that the Company has sent to its current franchisees the form of
Acknowledgment and Consent attached hereto as Exhibit I.
(xxii) Release. The Company shall have executed a Release in the
form attached hereto as Exhibit J and delivered the same to each of the
Purchasers.
(xxiii) No Other Conditions to Closing. For the avoidance of
doubt, the conditions to closing described in Section 4 of the Agreement do not
apply to the E Note Closing, subject to the above enumerated conditions, and the
"Intercreditor Agreement" referred to in Section 4.6 of the Agreement is
referred to herein as the "Old Intercreditor Agreement" as defined in Section
3(e)(vii)(A) above).
4. Representations and Warranties of the Company. Except as modified below,
the Company hereby reaffirms and makes the representations and warranties in
Section 5 of the Agreement provided that where any such representation or
warranty speaks as of the date of the Agreement or the Closing Date, such date
shall be deemed to be the date of this Amendment or the E Note Closing Date,
respectively. Any Schedule referred to in the Agreement or this Amendment shall
be deemed superseded by any Schedule bearing the same number which is attached
hereto.
(a) Section 5.4 of the Agreement is hereby amended by deleting it in
its entirety and inserting the following in lieu thereof:
"5.4 Financial Information
(a) As of the date hereof, the Company has provided the
Purchasers with (i) the audited consolidated financial statements of the
Company and its consolidated Subsidiaries for the fiscal period from
January 1, 1998 to July 3, 1999, and (ii) unaudited consolidated financial
statements of the Company and its consolidated Subsidiaries for the fiscal
period from July 4, 1999 to December 4, 1999, including consolidated
balance sheets, consolidated income statements and consolidated statements
of cash flow, copies of which are attached hereto as Schedule 5.4(a). Such
financial statements have been prepared in accordance with GAAP and fairly
present, as of the date thereof and for the periods covered thereby, the
financial position and results of operations of the Company and its
Subsidiaries.
(b) As of the date hereof, the Business Plan attached hereto as
Schedule 5.4(b), including the forecasted financial statements of the
Company and its Subsidiaries included therein, consisting of balance
sheets, income statements and cash flow statements for the Company and its
Subsidiaries, and the projected schedules of excess availability, giving
effect to the consummation of the transactions contemplated by this
Agreement and the New Credit Agreement, (i) are based on reasonable
estimates and assumptions and (ii) reflected, as of the date prepared, and
continue to reflect, as of the date of this Agreement and the E Note
Closing Date, the reasonable estimate of the Company of the results of
operations and other matters projected therein for the periods covered
thereby, it
6
<PAGE>
being understood that the projections are subject to the uncertainty
inherent in all financial forecasts, and do not constitute a representation
or warranty that the results and other matters projected therein will in
fact be achieved."
(b) Section 5.5 of the Agreement is hereby amended by deleting it in
its entirety and inserting the following in lieu thereof:
"5.5 Absence of Changes. Other than as specifically described in
Schedule 5.5, since December 4, 1999, (a) there has been no change in the
assets, liabilities or financial condition of the Company or any of its
Subsidiaries, other than changes in the ordinary course of business which
have not been, either in any case or in the aggregate, materially adverse
to the Company or any of its Subsidiaries, (b) neither the business,
operations or affairs nor any of the properties or assets of the Company or
its Subsidiaries have been affected by any occurrence or development
(whether or not insured against) which has been, either in any case or in
the aggregate, materially adverse to the Company or any of its Subsidiaries
and (c) the Company has not as of the date of this Agreement directly or
indirectly declared, ordered, paid, made or set apart any sum or property
for any Restricted Payment or agreed to do so."
(c) Section 5.9 of the Agreement is hereby amended by deleting the
number "12,455,538" (shares of Common Stock outstanding as of August 16, 1999)
and inserting the following in lieu thereof: "12,722,205" (shares of Common
Stock outstanding as of the date of this Amendment).
(d) Section 5.23 of the Agreement is hereby amended by deleting it in
its entirety and inserting the following in lieu thereof:
"5.23 Certain Fees. Except as set forth on Schedule 5.23 and for the
fees referred to in Section 3.2 and 3.3 of the Agreement and Section 3(d)
of the Amendment, no broker's or finder's fee or commission has been paid
or will be payable by the Company with respect to the offer, issue and sale
of the Securities."
(e) Section 5 of the Agreement is hereby further amended by adding the
following subsections thereto:
"5.27 Franchise Agreements.
(a) The Company's current form of franchise agreement attached
hereto as Schedule 5.27(a), is true and correct. The Company has entered
into franchise agreements that contain no substantial deviations from such
form of franchise agreement with approximately 55% of its current
franchisees.
(b) A complete list of all franchisees that have entered into
written franchise agreements with the Company is attached hereto as
Schedule 5.27(b). Neither (i) the execution and delivery by the Company of
this Agreement, the Amendment or the Credit Agreement, nor (ii) the
collateral assignment by the Company of its rights under any of its
franchise agreements will, in either case, cause a breach or result in any
default under any such franchise agreements or otherwise give any
franchisee of the Company the right to terminate its respective franchise
agreement as a result of the transactions contemplated hereby.
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<PAGE>
5.28 Use of Proceeds from Initial Notes. The Company applied
the proceeds of the sale of the Initial Notes, promptly following the
Closing, (a) to acquire seasonal inventory for "Halloween" in the
aggregate amount of approximately $20,000,000, (b) to the repayment of
outstanding debt under the Old Credit Agreement in the aggregate amount
of approximately $4,000,000, (c) to the payment of fees and expenses
incurred in connection with the offering and sale of the Initial Notes
in the aggregate amount of approximately $450,000 and (d) the balance
of approximately $5,550,000 to working capital needs."
5. Representations and Warranties of the New Purchasers. Each of the New
Purchasers hereby reaffirms and makes the representations in Section 6 of the
Agreement as of the date of this Amendment.
6. Prepayment of E Notes. The heading to Section 7 and the text of Section
7.1 are hereby amended by deleting them in their entirety and inserting the
following in lieu thereof:
"7. Prepayment of Notes.
7.1 Optional Prepayments of A, B and E Notes
(a) General. Unless an Event of Default shall have occurred and
be continuing, the Company may, at its option, upon notice as provided in
Section 7.1(c), prepay at any time, or from time to time, all or any part
(in an amount of at least $1,000,000 in the aggregate or an integral
multiple of $1,000 in excess thereof) of: first, the E Notes at the
principal amount so prepaid and second, provided the Company has previously
prepaid the E Notes in full pursuant to this Section 7.1, the A Notes
and/or B Notes at the principal amount so prepaid.
(b) Allocation of Partial Prepayments. In the case of each
partial prepayment paid or to be prepaid pursuant to this Section 7.1, the
principal amount of the tranche(s) of Notes selected to be prepaid shall be
allocated pro rata among all of the Notes of such series at the time
outstanding in proportion, as nearly as practicable, to the respective
unpaid principal amounts thereof not theretofore called for prepayment,
with adjustments, to the extent practicable, to compensate for any prior
prepayments not made exactly in such proportion.
(c) Notice. The Company will give each holder of any A Notes, B
Notes, and/or the E Notes, as applicable, written notice of each optional
prepayment under this Section 7.1 not less than thirty (30) days and not
more than sixty (60) days prior to the date fixed for such prepayment, in
each case specifying such date, the aggregate principal amount of the Notes
to be prepaid, the principal amount of each Note held by such holder to be
prepaid. Such notice shall be accompanied by an Officers' Certificate
certifying that the conditions of this Section 7 have been fulfilled and
specifying the particulars of such fulfillment.
(d) Maturity, Surrender, etc. In the case of each prepayment
pursuant to this Section 7.1, the principal amount of each Note to be
prepaid shall mature and become due and payable on the date fixed for such
prepayment, together with interest on such principal amount accrued to such
date and the applicable premium, if any. From
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and after such date, unless the Company shall fail to pay such principal
amount when so due and payable, together with the interest and premium, if
any, as aforesaid, interest on such principal amount shall cease to accrue.
Any Note paid or prepaid in full shall be surrendered to the Company and
canceled and shall not be reissued, and no Note shall be issued in lieu of
any prepaid principal amount of any Note."
7. Covenants.
(a) Section 9.1(b) of the Agreement is hereby amended by deleting the
reference to "forty (40) days following any fiscal quarter " and inserting the
following in lieu thereof: "forty-five (45) days following any fiscal quarter."
(b) Section 9.1 of the Agreement is hereby amended by adding the
following subsection (j) thereto:
"(j) Reports under Credit Agreement. Simultaneously with the
sending of reports or other notices to Congress pursuant to Section 7.1 of
the Credit Agreement, copies of any such reports and notices, including,
without limitation, inventory and borrowing base reports."
(c) Section 9.3 of the Agreement is hereby amended by deleting it in
its entirety and inserting the following in lieu thereof:
"9.3 Financial Covenants.
(a) Limitation on Net Debt. The Company will not have outstanding
Net Debt in excess of the amounts set forth in the table below:
End of Fiscal Month Amount
------------------- ------
January 2000 22,500,000
February 2000 22,500,000
March 2000 22,500,000
April 2000 22,500,000
May 2000 22,500,000
June 2000 22,500,000
July 2000 22,500,000
August 2000 30,000,000
September 2000 30,000,000
October 2000 20,000,000
November 2000 20,000,000
December 2000 20,000,000
January 2001 20,000,000
February 2001 20,000,000
March 2001 20,000,000
April 2001 20,000,000
May 2001 20,000,000
June 2001 20,000,000
July 2001 20,000,000
August 2001 30,000,000
September 2001 30,000,000
October 2001 20,000,000
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<PAGE>
End of Fiscal Month Amount
------------------- ------
November 2001 20,000,000
December 2001 20,000,000
January 2002 20,000,000
February 2002 20,000,000
March 2002 20,000,000
April 2002 20,000,000
May 2002 20,000,000
June 2002 20,000,000
July 2002 20,000,000
August 2002 30,000,000
September 2002 30,000,000
October 2002 20,000,000
November 2002 20,000,000
December 2002 20,000,000
January 2003 20,000,000
February 2003 20,000,000
March 2003 20,000,000
April 2003 20,000,000
May 2003 20,000,000
June 2003 20,000,000
July 2003 20,000,000
August 2003 30,000,000
September 2003 30,000,000
October 2003 20,000,000
November 2003 20,000,000
December 2003 20,000,000
and thereafter.
(b) Limitation on Funded Debt. The Company will not permit the
ratio of (i) Funded Debt as of each date listed in the table below, to (ii)
Consolidated EBITDA for the period of four consecutive fiscal quarters of
the Company ending on such date, to be greater than the ratio set forth
opposite such date in the table below:
End of Fiscal Quarter Ratio
--------------------- ------
December 1999 2.80 to 1.0
March 2000 3.80 to 1.0
June 2000 3.80 to 1.0
September 2000 3.80 to 1.0
December 2000 2.30 to 1.0
March 2001 1.90 to 1.0
June 2001 1.90 to 1.0
September 2001 2.20 to 1.0
December 2001 1.80 to 1.0
March 2002 1.80 to 1.0
June 2002 1.80 to 1.0
September 2002 2.20 to 1.0
December 2002 1.80 to 1.0
March 2003 1.80 to 1.0
June 2003 1.80 to 1.0
September 2003 1.80 to 1.0
December 2003 1.80 to 1.0
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<PAGE>
End of Fiscal Quarter Ratio
--------------------- ------
and thereafter.
(c) Minimum Interest Coverage. The Company will not permit the
ratio of (i) Consolidated EBITDA for the period of four consecutive fiscal
quarters of the Company ending on each date listed in the table below, to
(ii) Interest Expense for such period, to be less than the ratio set forth
opposite such date in the table below:
End of Fiscal Quarter Ratio
--------------------- ------
December 1999 2.75 to 1.0
March 2000 2.00 to 1.0
June 2000 1.90 to 1.0
September 2000 2.00 to 1.0
December 2000 2.20 to 1.0
March 2001 2.70 to 1.0
June 2001 3.00 to 1.0
September 2001 3.50 to 1.0
December 2001 3.50 to 1.0
March 2002 3.50 to 1.0
June 2002 3.50 to 1.0
September 2002 3.50 to 1.0
December 2002 3.50 to 1.0
March 2003 3.50 to 1.0
June 2003 3.50 to 1.0
September 2003 3.50 to 1.0
December 2003 3.50 to 1.0
and thereafter.
(d) Limitation on Capital Expenditures. The Company will not make
or commit to make any Capital Expenditure if the amount thereof, taken
together with all other Capital Expenditures made by the Company during the
then fiscal year, would exceed $10,000,000 without obtaining the prior
written consent of a Supermajority in Interest of the Notes, provided that:
(i) in the 2000 calendar year, the Company may not make
Capital Expenditures in respect of any newly opened, acquired or relocated
stores in excess of $1,000,000;
(ii) in the 2001 calendar year and thereafter, the Company
may not, on an annual basis, make Capital Expenditures in respect of any
newly opened, acquired or relocated stores in excess of (A) $1,000,000 plus
(B) up to $3,000,000 in proceeds (after fees, expenses and capital gains
taxes but excluding the book value of inventory sold) from the sale or
disposition of existing stores of the Company during the applicable year.
(e) Capital Leases. The Company's obligations under Capital
Leases for any fiscal year shall not exceed $1,000,000, excluding any
Capital Leases entered into in respect of Systems Expenditures, as provided
in Section 9.8(f) of the Credit Agreement.
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<PAGE>
(f) Minimum EBITDA. The Company will not have Consolidated EBITDA
that is less than the amounts set forth in the table below for the
preceding four quarters indicated opposite each such amount (i.e., "rolling
quarters"):
End of Fiscal Quarter Amount
--------------------- ------
December 1999 18,500,000
March 2000 17,000,000
June 2000 18,000,000
September 2000 19,500,000
December 2000 21,000,000
March 2001 22,500,000
June 2001 24,000,000
September 2001 24,000,000
December 2001 26,000,000
March 2001 27,000,000
June 2002 27,500,000
September 2002 28,000,000
December 2002 29,000,000
March 2003 30,000,000
June 2003 31,000,000
September 2003 31,500,000
December 2003 31,500,000
and thereafter.
(g) 2000 Halloween Sales. The Company will have:
(i) Net Sales (as such term is defined in the Company's financial
statements prepared in accordance with GAAP) for the Fiscal
Months of September 2000 and October 2000, together, that are not
less than $100,000,000; provided that if the Company sells any
Company-Owned Stores (as defined in the Credit Agreement) prior
to the end of Fiscal October 2000 in compliance with the
Agreement, such $100,000,000 amount shall be reduced by the Net
Sales represented by such stores as set forth in the Business
Plan; and
(ii) Excess Availability (as such term is defined in and
determined in accordance with the Credit Agreement) at the end of
Fiscal October 2000 in an amount not less than $27,500,000.
Not later than the fifth (5th) Business Day after the end of Fiscal October
2000, the Company shall provide to the Purchasers a certificate signed by
its Chief Financial Officer stating whether the Company is in compliance
with this Section 9.3(g) and further setting forth the amount of Net Sales
and Excess Availability determined hereunder."
(d) Section 9.8(c) of the Agreement is hereby amended by deleting it
in its entirety and inserting the following in lieu thereof:
"(c) sell, lease, abandon or otherwise dispose of any of its
assets (except in a transaction permitted by subdivision (b) or (d) of this
Section 9.8), except that (i) the
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<PAGE>
Company and its Subsidiaries may sell their inventory in the ordinary
course of business, and (ii) the Company and its Subsidiaries may dispose
of obsolete equipment in the ordinary course of business; and (iii) the
Company may sell up to twenty (20) stores, and the holders of the Notes
shall release without payment any Lien securing the Notes against such
stores at the time of any such sale; or"
(e) Section 9.10 of the Agreement is hereby amended by deleting it in
its entirety and inserting the following in lieu thereof:
"9.10 Corporate Existence, Business and Franchise Relations. The
Company will at all times preserve and keep in full force and effect its
corporate existence, and rights and franchises deemed material to its
business (including, without limitation, the operations of the Company's
franchisees), and those of each of its Subsidiaries, except as otherwise
specifically permitted by Section 9.8 and except that the corporate
existence of any Subsidiary may be terminated if, in the good faith
judgment of the Board, such termination is in the best interest of the
Company and is not disadvantageous to the holders of the Notes. The Company
will not, and will not permit any Subsidiary to, engage in any business
other than the business of (a) selling party goods and supplies and
rendering related services and (b) conducting its franchise operations for
the purposes described in the foregoing clause (a). The Company shall use
commercially reasonable efforts to maintain good business relationships
with its franchisees. Without limiting the generality of the foregoing, the
Company shall at all times conduct itself in a manner consistent with the
terms of its franchise agreements. The Company agrees to enter into the
form of franchise agreement attached hereto as Schedule 5.27(a) with all
future franchisees with no material deviations from such form; provided
that the Company may utilize such other form as may be agreed to in advance
and in writing by a Supermajority in Interest of the Notes."
(f) Section 9.15 of the Agreement is hereby amended by deleting it in
its entirety and inserting the following in lieu thereof:
"9.15 Other Loan Agreements. The Company will not enter into any
amendment or modification of the Credit Agreement that would:
(a) accelerate the amount or the time of any prepayment or payment of
the principal amount of Debt outstanding under the Credit Agreement; or
(b) provide for per annum interest rates payable on the Debt
outstanding under the Credit Agreement at any time in excess of 1.0% over
the per annum interest rates that would otherwise be payable on such Debt
at such time in accordance with the applicable provisions of the Credit
Agreement as in effect on the E Note Closing Date; or
(c) reduce the commitment of the lender under the Credit Agreement to
provide revolving credit loans to the Company or it Subsidiaries (excluding
a voluntary reduction by the Company of the revolving credit commitment
pursuant to the terms of the Credit Agreement); without, in each case,
obtaining the prior written consent to such amendment or change of a
Supermajority in Interest of the Notes."
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<PAGE>
(g) Section 9.18 of the Agreement is hereby amended by deleting it in
its entirety and inserting the following in lieu thereof:
"9.18 Use of Proceeds. The Company will apply the proceeds of the sale
of the E Notes, promptly following the E Note Closing, (a) to the payment
of all outstanding amounts under the Trade Notes (as defined in the Vendor
Standstill Agreement) and the payment of additional amounts to Seasonal
Vendors (as defined in the Vendor Standstill Agreement) in the aggregate
principal amount of approximately $6,580,000 and (b) to the payment of fees
and expenses incurred in connection with the offering and sale of the Notes
in the aggregate amount of approximately $420,000."
(h) Section 9.20 of the Agreement is hereby amended by deleting it in
its entirety and inserting the following in lieu thereof:
"9.20 [reserved]"
(i) Section 9.24 of the Agreement is hereby amended by deleting it in
its entirety and inserting the following in lieu thereof:
"9.24 [reserved]"
(j) Section 9.25 of the Agreement is hereby amended by deleting it in
its entirety and inserting the following in lieu thereof:
"9.25 [reserved]"
(k) Section 9.26 of the Agreement is hereby amended by deleting it in
its entirety and inserting the following in lieu thereof:
"9.26 Perfection of Security Interest. The Company covenants and
agrees to take all actions necessary to provide a perfected security
interest in favor of the holders of the Notes, including, without
limitation, the E Notes."
(l) Section 9 of the Agreement is hereby further amended by adding the
following subsections thereto:
"9.28 Form of Franchise Agreement. The Company covenants and agrees
that from and after the E Note Closing Date, it will not enter into a
franchise agreement with any franchisee that differs in any material
respect from the form of franchise agreement attached hereto as Schedule
5.27(a), or such other form as may be agreed to in writing and in advance
by a Supermajority in Interest of the Notes.
9.29 Franchisee Consents. The Company covenants and agrees to use its
best efforts to cause its franchisees to execute the form of Acknowledgment
and Consent attached hereto as Exhibit I, provided that, such best efforts
shall not be deemed to require the Company to pay any consideration to or
on behalf of any franchisee in exchange for such franchisee's execution and
delivery of such Acknowledgement and Consent. The Company further agrees to
pay to the New Purchasers on the day that is forty-five (45) days from the
E Note Closing Date (or the first Business Day thereafter), a fee equal to
1.0% of the aggregate purchase price for the E Notes purchased by such New
Purchaser
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<PAGE>
unless on or prior to such date the Company has delivered Acknowledgments
and Consents (in the form attached hereto as Exhibit I and to the
satisfaction of the E Note Purchasers) executed by the Company's
franchisees which franchisees together represent not less than 80.0% of the
royalties received by the Company in the calendar year ended December 31,
1999."
9.30 Credit Agreement. The Company covenants and agrees that it will
not permit or cause the aggregate principal amount of Debt at any time
outstanding under the Credit Agreement to exceed the amount of the $40
million, irrespective of any changes in the terms and conditions of the
Credit Agreement."
9.31 Blocked Account Agreement. The Company covenants and agrees that
the Collection Account will remain subject to the Blocked Account Agreement
described in Section 3(e)(iv) of the Amendment provided that the Company
may establish a replacement collection account in the name of Party City
Michigan with PNC that is subject to a Blocked Account Agreement by Party
City Michigan and PNC in the form attached hereto as Exhibit D-II.
8. Events of Default.
(a) Subsection (m) of Section 10 of the Agreement is hereby amended by
deleting it in its entirety and inserting the following in lieu thereof:
"(m) any material breach of the provisions of the January Letter
Agreement;"
(b) Section 10 of the Agreement is hereby further amended by adding
the following thereto and at the end of such Section:
"Notwithstanding the provisions of this Section 10, any payment
in respect of the C Notes or the D Notes must be made in accordance with
each of the requirements for a Legal Defeasance under Section 7.2 of this
Agreement."
9. Certain Definitions.
(a) Section 13.1 of the Agreement is hereby amended by inserting the
following definitions therein:
"January Letter Agreement: means that certain letter, dated January
14, 2000, from the Company to the Purchasers."
"Provision for Taxes: shall mean an amount equal to all taxes imposed
on or measured by net income, whether federal, state or local, and whether
foreign or domestic, that are paid or payable by the Company or its
Subsidiaries in respect of such fiscal year on a consolidated basis in
accordance with GAAP."
(b) The definition of "Collateral Agency Agreement" in Section 13.1 of
the Agreement is hereby amended by deleting it in its entirety and inserting the
following in lieu thereof:
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"Collateral Agency Agreement: that certain Collateral Agency
Agreement dated as of August 16, 1999, as amended on January 14, 2000,
by and among the Collateral Agent named therein, the New Purchasers and
the Initial Purchasers, a copy of which is attached to the Amendment as
Exhibit G."
(c) The definition of "Consolidated EBITDA" in Section 13.1 of the
Agreement is hereby amended by deleting it in its entirety and inserting the
following in lieu thereof:
"Consolidated EBITDA: for any period, without duplication, (i)
Consolidated Net Income, plus (ii) for such period, any Interest
Expense deducted in the determination of Consolidated Net Income; plus
(iii) any income, ad valorem, and franchise taxes paid in cash and
deducted in the determination of Consolidated Net Income; plus (iv)
amortization and depreciation and other non-cash charges deducted in
the determination of Consolidated Net Income for such period; plus (v)
restructuring costs including related professional fees for the period
from March 1, 1999 to January 1, 2000 (which amount shall not exceed
$12,000,000) and for the period from January 2, 2000 to July 1, 2000
(which amount shall not exceed $1,500,000)."
(d) The definition of "Consolidated Net Income" in Section 13.1 of the
Agreement is hereby amended by deleting it in its entirety an inserting the
following in lieu thereof:
"Consolidated Net Income: for any period, the aggregate of the
net income (or net loss) of the Company and its Subsidiaries for such
period, determined on a consolidated basis without duplication in
accordance with GAAP; provided that (i) "Consolidated Net Income"
excludes (A) any gain (but not loss) together with any related
Provision for Taxes for such gain (but not loss) realized upon the sale
or other disposition of any assets that are not sold in the ordinary
course of business (including, without limitation, dispositions
pursuant to sale and leaseback transactions) or of any capital stock of
the Company or its Subsidiaries, (B) any loss in connection with the
write-off of goodwill and (C) any net income realized as a result of
changes in accounting principles or the application thereof to the
Company and its Subsidiaries, and (ii) "Consolidated Net Income" shall
not be reduced by any interest expense not paid in cash."
(e) The definition of "Credit Agreement" in Section 13.1 of the
Agreement is hereby amended by deleting it in its entirety and inserting the
following in lieu thereof:
"Credit Agreement: that certain Loan and Security Agreement,
dated as of January 14, 2000, by and between Congress and the Company,
and all related notes, guaranties, security documents, instruments and
agreements executed in connection therewith and all other Financing
Agreements (as such term is defined in the New Credit Agreement), as
such loan agreement and related documents and Financing Agreements may
be amended, restated, supplemented, extended, renewed, refinanced,
refunded, replaced or otherwise modified from time to time (subject to
the approval requirements of Section 9.15) whether or not with the same
agent, trustee, representative, lender or holder.
(f) The definition of "Funded Debt" in Section 13.1 of the Agreement
is hereby amended by deleting it in its entirety and inserting the following in
lieu thereof:
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"Funded Debt: Debt of the Company which would, in accordance with
GAAP, constitute long-term debt and have a security interest in any of the
assets of the Company or any of its Subsidiaries, including, without
limitation, (a) any Debt with a maturity more than one year after the
creation of such Debt, (b) any portion thereof included in current
liabilities, (c) any Debt outstanding under the Notes,(d) any Debt
outstanding under the Credit Agreement and (e) any Debt outstanding under
another revolving credit or similar agreement providing for borrowings (and
any renewals and extensions thereof) over a period of more than one year,
notwithstanding that any such indebtedness may be payable on demand or
within one year after the creation thereof, and excluding all Debt solely
by and between two or more of the Company or its Subsidiaries, provided
that, notwithstanding the foregoing, "Funded Debt" shall not include any
Debt in respect of Systems Expenditures, as defined in Section 9.8(f) of
the Credit Agreement."
(g) The definition of "Interest Expense" in Section 13.1 of the
Agreement is hereby amended by deleting it in its entirety an inserting the
following in lieu thereof:
"Interest Expense: for any period, the total amount of all charges for
the use of funds (whether characterized as interest, debt service or
otherwise) payable during such period with respect to all Debt of the
Company or a Subsidiary for such period, including the amortization of debt
discount and the amortization of all fees payable in connection with the
incurrence of such Debt, determined in accordance with GAAP."
(h) The definition of "Supermajority in Interest of the Notes" in
Section 13.1 of the Agreement is hereby amended by deleting it in its entirety
and inserting the following in lieu thereof:
"Supermajority in Interest of the Notes: at least eighty-one
percent (81.0%) in aggregate principal amount of the then outstanding Notes,
considered together (or the voting rights with respect thereto, if different),
subject to Section 14.4; provided, however, that all references to a
"Supermajority in Interest of the Notes" in Section 10 of the Agreement shall be
deemed to require either (i) the foregoing required percentage of outstanding
Notes (including E Notes) or (ii) at least eighty-one percent (81.0%) in
aggregate principal amount of the then outstanding E Notes (or the voting rights
with respect thereto, if different), subject to Section 14.4."
10. Transfer and Exchange of Notes. Section 14.2 of the Agreement is hereby
amended by deleting it in its entirety and inserting the following in lieu
thereof:
"14.2 Transfer and Exchange of Notes. Upon surrender of any Note for
registration of transfer or for exchange to the Company at its principal
office, the Company at its expense will execute and deliver in exchange
therefor a new Note or Notes in denominations of at least $100,000 (except
one Note may be issued in a lesser principal amount if the unpaid principal
amount of the surrendered Note is not evenly divisible by, or is less than
$100,000), as requested by the holder or transferee, which aggregate the
unpaid principal amount of such surrendered Note, registered as such holder
or transferee may request, dated so that there will be no loss of interest
on such surrendered Note and otherwise of like tenor. Upon the transfer or
exchange of any Note, the transferee may waive its rights as a holder of
Notes to receive reports under Section 9.1 or any subsection thereof or any
other right it may have under the covenants of Section 9 upon the delivery
of a notice referencing this Section 14.2 and containing the waiver of the
applicable covenant
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<PAGE>
or covenants and stating whether such waiver is irrevocable or revocable by
such transferee.
11. Expenses, etc. Section 16 of the Agreement is hereby amended by
deleting it in its entirety and inserting the following in lieu thereof:
"16. Expenses, etc. Whether or not the transactions contemplated by
this Agreement shall be consummated, the Company will pay all expenses
described in Section 3.2 hereof. In addition to the foregoing, the Company
will (i) pay all reasonable legal and consultant fees and expenses incurred
by the Purchasers in connection with the amendment or enforcement of this
Agreement or the Securities or in protecting their interests in any
bankruptcy, receivership, reorganization, insolvency or liquidation
proceeding by or affecting the Company and (ii) pay to the Collateral Agent
its fees and Administrative Expenses (as such term is defined in the
Collateral Agency Agreement) under the Collateral Agency Agreement and the
other Operative Agreements. The Company also will pay, and will save each
holder of any Notes harmless from, all claims in respect of the fees, if
any, of brokers and finders and any and all liabilities with respect to any
taxes (including interest and penalties) which may be payable in respect of
the execution and delivery of this Agreement, the issue of the Securities
and any amendment or waiver under or in respect of this Agreement or the
Notes. The obligation of the Company under this Section 16 shall survive
any disposition or payment of the Securities and the termination of this
Agreement."
12. Default Interest on Initial Notes.
(a) Increase in Interest Rate. The Company hereby acknowledges the
occurrence of an Event of Default on or about November 23, 1999 under the
Securities Purchase Agreement which Event of Default is more particularly
described in that certain Tolling Agreement, dated as of November 24, 1999 by
and among the Company and the Purchasers. The Company further acknowledges and
agrees that the interest payable on the Notes outstanding as of November 23,
1999 (the "Initial Notes") shall increase by 450 basis points above the rate of
interest on the face of each such Initial Note on and after the E Note Closing
Date.
(b) Payment in Kind. Notwithstanding any other term or provision of
the Agreement or the Initial Notes, the Company may, at its option, pay the
incremental interest on each Initial Note required by subsection (a) above
(i.e., 450 basis points) on any regular interest payment date for each Initial
Note by adding the amount of such interest to the outstanding principal amount
due thereunder ("PIK Interest"). Any such election by the Company may be
effected by delivery of written notice to the holder of such Initial Note at
least two (2) Business Days prior to the scheduled interest payment date. If the
cash interest due under an Initial Note is not paid by the applicable interest
payment date, then the holder of such Initial Note shall be entitled to the
addition of PIK Interest hereunder. Any PIK Interest when so added to the
outstanding principal amount due under an Initial Note shall, for all purposes
of this Note, be deemed to have been part of the principal indebtedness
originally evidenced by such Initial Note, including, without limitation, for
purposes of determining interest thereafter payable under such Initial Note.
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13. Amendment to Warrants. The Company and the Purchasers hereby consent to
the amendment to the exercise price of each of the Warrants issued on August 16,
1999 under the Agreement (as such Warrants may have been subsequently
transferred or assigned) in consideration of certain consents, waivers and
forbearance by the holders of such Warrants. In order to implement such
amendment to the Warrants, the Company and the Purchasers have entered into a
Consent to Amendment of Securities on or about the date of this Amendment in the
form attached hereto as Exhibit H-I, which provides that (i) the Company shall
execute an Amended and Restated Warrant in the form attached hereto as Exhibit
H-II to replace each Warrant previously issued by the Company under the
Agreement and (ii) each holder of a Warrant so replaced shall surrender such
Warrant to the Company for cancellation.
14. Amendment to Security Documents.
(a) Exclusion of "Ad Fund." Notwithstanding the provisions of any of
the Security Documents to the contrary, the Company, the Purchasers (and, for
the avoidance of doubt, ERF, as a Purchaser and as agent for the Purchasers),
hereby agree that the Notes shall not be secured by funds paid or held in trust
or escrow as or into the Company's "ad fund" as such term is defined in its
franchise agreements. To the extent any of the Security Documents conflicts with
the preceding sentence, such Security Document shall be deemed to be amended
hereby.
(b) Current Franchise Agreements. The Company, the Purchasers (and,
for the avoidance of doubt, ERF, as a Purchaser and as agent for the
Purchasers), hereby agree that the Collateral Assignment of Contract Rights
(Franchise), dated as of August 16, 1999 (the "Collateral Assignment"), shall be
deemed amended to include within the defined term "Franchise Agreement" the
current list of franchise agreements of the Company set forth as Schedule
5.27(b) to the extent such list differs from the schedule of franchisees
attached to the Collateral Assignment.
15. Termination of Old Intercreditor Agreement. Each Purchaser hereby
agrees that the Old Intercreditor Agreement (defined in Section 3(e)(vii)(C)
above) shall be terminated as of the date of this Amendment and that the Old
Intercreditor Agreement shall be of no further force and effect.
16. License. For purposes of enabling the holders of the Notes to exercise
the rights and remedies hereunder, the Company hereby grants to the ERF (and its
successors and assigns), as agent for the holders of the Notes, an irrevocable,
non-exclusive license (exercisable without payment of royalty or other
compensation to the Company) to use, assign, license or sublicense any of the
trademarks, service-marks, trade names, business names, trade styles, designs,
logos and other source of business identifies and other Proprietary Rights now
owned or hereafter acquired by the Company, wherever the same may be located,
including in such license reasonable access to all media in which any of the
licensed items may be recorded or stored and to all computer programs used for
the compilation or printout thereof; provided that ERF shall not exercise any of
its rights under such license until such time as an Event of Default has
occurred and is continuing.
17. Waiver of Defaults under Agreement. Each of the Purchasers hereby
waives all Defaults and Events of Default that have occurred under the Agreement
prior to the date of this Amendment; provided that this waiver shall not extend
to or affect any subsequent Default or Event of Default or impair any right of
the Purchasers consequent thereon.
19
<PAGE>
18. Miscellaneous. This Amendment shall be governed and construed on the
same basis as the Agreement, as set forth therein.
19. Counterparts. This Amendment may be executed in counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
20
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment on the
date first above written.
PARTY CITY CORPORATION
By: /s/ Thomas E. Larson
------------------------------
Name: Thomas E. Larson
Date:
SPECIAL VALUE BOND FUND, LLC TCO/PARTY, LLC
By: /s/ Michael E. Tennenbaum By: /s/ Michael E. Tennenbaum
------------------------------ ------------------------------
Name: Michael E. Tennenbaum Name: Michael E. Tennenbaum
Date: January 13, 2000 Date: January 13, 2000
GOLDMAN, SACHS & CO. GOLDMAN SACHS CREDIT PARTNERS, L.P.
By: /s/ John Urban By: /s/ John Urban
------------------------------ ------------------------------
Name: John Urban Name: John Urban
Date: 1/13/00 Date: 1/13/00
ENHANCED RETAIL FUNDING, LLC RICHMOND ASSOCIATES, L.P.
By: /s/ Bradley W. Snyder By: /s/ John F. Clausen
------------------------------ ------------------------------
Name: Vice President Name: John F. Clausen
Date: Date: Jan. 12, 2000
CLYDE STREET INVESTMENT, LLC
By: /s/ Manager
------------------------------
Name: Ralph D. Dillon
Date: 1-12-00
21
<PAGE>
<TABLE>
Annex I
-------
<CAPTION>
- -------------------------------------- ------------- -------------- ------------- ------------- -------------- --------------
Purchaser, Principal Principal Principal Principal Principal Shares
Address and Amount of A Amount of B Amount of C Amount of D Amount of E Subject to
Taxpayer I.D. No. Note Note Note Note Note Warrants
- -------------------------------------- ------------- -------------- ------------- ------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Special Value Bond Fund, LLC* -- -- $2,250,000 $4,500,000 $3,250,000 3,096,000
11100 Santa Monica Blvd., Suite 210
Los Angeles, CA 90025
Taxpayer I.D. No. 95-4758920
- -------------------------------------- ------------- -------------- ------------- ------------- -------------- --------------
TCO/Party City, LLC $10,000,000 $5,000,000 -- -- -- --
11100 Santa Monica Blvd., Suite 210
Los Angeles, CA 90025
Taxpayer I.D. No. _________________
- -------------------------------------- ------------- -------------- ------------- ------------- -------------- --------------
Goldman Sachs Credit Partners L.P.* -- -- $2,085,000 $4,165,000 $3,250,000 --
85 Broad Street
New York, NY 10004
Taxpayer I.D. No. 13-3666668
- -------------------------------------- ------------- -------------- ------------- ------------- -------------- --------------
Goldman, Sachs & Co. -- -- -- -- -- 2,867,000
85 Broad Street
New York, NY 10004
Taxpayer I.D. No. 13-5108880
- -------------------------------------- ------------- -------------- ------------- ------------- -------------- --------------
Enhanced Retail Funding, LLC -- -- $333,333 $666,667 $500,000 458,667
40 Broad Street
Boston, MA 02109
Taxpayer I.D. No. 04-3310726
- -------------------------------------- ------------- -------------- ------------- ------------- -------------- --------------
Clyde Street Investment, LLC -- -- $166,667 $333,333 -- 229,333
5015 Wenlock Rose Court
Middleton, WI 53562
Taxpayer I.D. No. 391959953
- -------------------------------------- ------------- -------------- ------------- ------------- -------------- --------------
Richmond Associates, L.P. -- -- $165,000 $335,000 -- 229,000
4 Aldgate Drive, West
North Hills, NY 11030
Taxpayer I.D. No. ___________
- -------------------------------------- ------------- -------------- ------------- ------------- -------------- ----------------
Total $10,000,000 $5,000,000 $5,000,000 $10,000,000 $7,000,000 6,888,000
- -------------------------------------- ------------- -------------- ------------- ------------- -------------- ----------------
*Indicates New Purchaser for purposes of the Amendment
</TABLE>
<PAGE>
LOAN AND SECURITY AGREEMENT
by and between
CONGRESS FINANCIAL CORPORATION
as Lender
and
PARTY CITY CORPORATION
as Borrower
Dated: January 14, 2000
<PAGE>
TABLE OF CONTENTS
Page
----
SECTION 1. DEFINITIONS........................................................1
SECTION 2. CREDIT FACILITIES.................................................17
2.1. Loans...............................................................17
2.2. Letter of Credit Accommodations.....................................19
2.3. Availability Reserves...............................................21
SECTION 3. INTEREST AND FEES.................................................22
3.1. Interest............................................................22
3.2. Closing Fee.........................................................23
3.3. Servicing Fee.......................................................23
3.4. Unused Line Fee.....................................................23
3.5. Changes in Laws and Increased Costs of Loans........................23
SECTION 4. CONDITIONS PRECEDENT..............................................24
4.1. Conditions Precedent to Initial Loans and Letter of Credit
Accommodations......................................................24
4.2. Conditions Precedent to All Loans and Letter of Credit
Accommodations......................................................27
SECTION 5. SECURITY INTEREST.................................................28
SECTION 6. COLLECTION AND ADMINISTRATION.....................................29
6.1. Borrower's Loan Account.............................................29
6.2. Statements..........................................................29
6.3. Collection of Accounts..............................................29
6.4. Payments............................................................31
6.5. Authorization to Make Loans.........................................32
6.6. Use of Proceeds.....................................................32
SECTION 7. COLLATERAL REPORTING AND COVENANTS................................32
7.1. Collateral Reporting................................................32
7.2. Accounts Covenants..................................................33
7.3. Inventory Covenants.................................................34
7.4. Equipment Covenants.................................................35
7.5. Power of Attorney...................................................35
7.6. Right to Cure.......................................................36
7.7. Access to Premises..................................................36
SECTION 8. REPRESENTATIONS AND WARRANTIES....................................36
8.1. Corporate Existence, Power and Authority; Subsidiaries..............37
8.2. Financial Statements; No Material Adverse Change....................37
8.3. Chief Executive Office; Collateral Locations........................37
8.4. Priority of Liens; Title to Properties..............................38
(i)
<PAGE>
8.5. Tax Returns.........................................................38
8.6. Litigation..........................................................38
8.7. Compliance with Other Agreements and Applicable Laws................39
8.8. Environmental Compliance............................................39
8.9. Credit Card Agreements..............................................40
8.10. Employee Benefits..................................................41
8.11. Bank Accounts......................................................41
8.12. Accuracy and Completeness of Information...........................41
8.13. Year 2000 Compliance...............................................42
8.14. Old Payables.......................................................42
8.15. Trade Notes........................................................42
8.16. Survival of Warranties; Cumulative.................................42
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS................................42
9.1. Maintenance of Existence............................................42
9.2. New Collateral Locations............................................42
9.3. Compliance with Laws, Regulations, Etc..............................43
9.4. Payment of Taxes and Claims.........................................44
9.5. Insurance...........................................................45
9.6. Financial Statements and Other Information..........................45
9.7. Sale of Assets, Consolidation, Merger, Dissolution, Etc.............46
9.8. Encumbrances........................................................48
9.9. Indebtedness........................................................50
9.10. Loans, Investments, Guarantees, Etc................................52
9.11. Dividends and Redemptions..........................................53
9.12. Transactions with Affiliates.......................................54
9.13. Credit Card Agreements.............................................54
9.14. Adjusted Net Worth.................................................54
9.15. Compliance with ERISA..............................................55
9.16. Additional Bank Accounts...........................................55
9.17. Year 2000 Compliance...............................................55
9.18. Changes in Business................................................55
9.19. Costs and Expenses.................................................55
9.20. Further Assurances.................................................56
9.21. Old Payables.......................................................56
9.22. Minimum EBITDA.....................................................57
9.23. Departments........................................................57
9.24. Vendors............................................................57
SECTION 10. EVENTS OF DEFAULT AND REMEDIES...................................57
10.1. Events of Default..................................................57
10.2. Remedies...........................................................59
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING........61
11.1. Governing Law; Choice of Forum; Service of Process; Jury Trial
Waiver.............................................................61
(ii)
<PAGE>
11.2. Waiver of Notices..................................................62
11.3. Amendments and Waivers.............................................62
11.4. Waiver of Counterclaims............................................62
11.5. Indemnification....................................................62
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS.................................63
12.1. Term...............................................................63
12.2. Notices............................................................64
12.3. Partial Invalidity.................................................64
12.4. Successors.........................................................64
12.5. Entire Agreement...................................................65
(iii)
<PAGE>
INDEX TO
EXHIBITS AND SCHEDULES
----------------------
Exhibit A Information Certificate
Exhibit 1.43 Franchise Agreement
Schedule 1.21 Departments
Schedule 1.39 Existing Lenders
Schedule 1.44 Franchise Locations
Schedule 1.68 Off-Site Storage Locations
Schedule 1.69 Old Payables
Schedule 6.3 Bank Accounts
Schedule 8.4 Existing Liens
Schedule 8.5 Tax Returns
Schedule 8.7 Permits
Schedule 8.8 Environmental Matters
Schedule 8.9 Credit Card Agreements
Schedule 8.15 Trade Notes
Schedule 9.9 Existing Indebtedness
Schedule 9.10 Loans, Investments, Guarantees
(iv)
<PAGE>
LOAN AND SECURITY AGREEMENT
---------------------------
This Loan and Security Agreement dated January 14, 2000 is entered into by
and between Congress Financial Corporation, a Delaware corporation ("Lender")
and Party City Corporation, a Delaware corporation ("Borrower").
W I T N E S S E T H:
WHEREAS, Borrower has requested that Lender enter into certain financing
arrangements with Borrower pursuant to which Lender may make loans and provide
other financial accommodations to Borrower; and
WHEREAS, Lender is willing to make such loans and provide such financial
accommodations on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual conditions and agreements
set forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
SECTION 1. DEFINITIONS
-----------
All terms used herein which are defined in Article 1 or Article 9 of the
Uniform Commercial Code shall have the meanings given therein unless otherwise
defined in this Agreement. All references to the plural herein shall also mean
the singular and to the singular shall also mean the plural unless the context
otherwise requires. All references to Borrower and Lender pursuant to the
definitions set forth in the recitals hereto, or to any other person herein,
shall include their respective successors and assigns. The words "hereof",
"herein", "hereunder", "this Agreement" and words of similar import when used in
this Agreement shall refer to this Agreement as a whole and not any particular
provision of this Agreement and as this Agreement now exists or may hereafter be
amended, modified, supplemented, extended, renewed, restated or replaced. The
word "including" when used in this Agreement shall mean "including, without
limitation". An Event of Default shall exist or continue or be continuing until
such Event of Default is waived in accordance with Section 11.3 or cured in a
manner satisfactory to Lender, if such Event of Default is capable of being
cured as determined by Lender. Any accounting term used herein unless otherwise
defined in this Agreement shall have the meanings customarily given to such term
in accordance with GAAP. For purposes of this Agreement, the following terms
shall have the respective meanings given to them below:
1.1. "Accounts" shall mean all present and future rights of Borrower to
payment for goods sold or leased or for services rendered, whether or not
evidenced by instruments or chattel paper, and whether or not earned by
performance, and including, without limitation, Credit Card Receivables.
1.2. "Adjusted Eurodollar Rate" shall mean, with respect to each Interest
Period for any Eurodollar Rate Loan, the rate per annum (rounded upwards, if
necessary, to the next one-sixteenth (1/16) of one (1%) percent) determined by
dividing the Eurodollar Rate for such Interest Period by a percentage equal to:
(i) one (1) minus (ii) the Reserve Percentage. For
<PAGE>
purposes hereof, "Reserve Percentage" shall mean the reserve percentage,
expressed as a decimal, prescribed by any United States or foreign banking
authority for determining the reserve requirement which is or would be
applicable to deposits of United States dollars in a non-United States or an
international banking office of Reference Bank used to fund a Eurodollar Rate
Loan or any Eurodollar Rate Loan made with the proceeds of such deposit, whether
or not the Reference Bank actually holds or has made any such deposits or loans.
The Adjusted Eurodollar Rate shall be adjusted on and as of the effective day of
any change in the Reserve Percentage.
1.3. "Adjusted Net Worth" shall mean as to any Person, at any time, in
accordance with GAAP (except as otherwise specifically set forth below), on a
consolidated basis for such Person and its subsidiaries (if any), the amount
equal to the difference between: the aggregate net book value of all assets of
such Person and its subsidiaries (in each case, exclusive of goodwill),
calculating the book value of inventory for this purpose principally on a
weighted average cost basis, after deducting from such book values all
appropriate reserves in accordance with GAAP (including all reserves for
doubtful receivables, obsolescence, depreciation and amortization) and the
aggregate amount of the indebtedness and other liabilities of such Person and
its subsidiaries (including tax and other proper accruals).
1.4. "Applicable Calendar Period Advance Rate Percentage" shall mean for
purposes of Section 2.1(a) hereof, the advance rate percentage indicated with
respect to each category of Eligible Inventory for the corresponding calendar
period set forth below:
<TABLE>
<CAPTION>
- -------------------------------- ------------------- -------------------- --------------------- ------------------------
Jan. 1 through May 1 through and Sept. 1 through and Nov. 1 through and
Category of Eligible and including including including including
Inventory April 30 Aug. 31 Oct. 31 Dec. 31
- -------------------------------- ------------------- -------------------- --------------------- ------------------------
<S> <C> <C> <C> <C>
Eligible Everyday Inventory 65% 60% 75% 65%
- -------------------------------- ------------------- -------------------- --------------------- ------------------------
Eligible Fall/Winter Inventory 15% 10% 45% 65%
- -------------------------------- ------------------- -------------------- --------------------- ------------------------
Eligible Spring/Summer 50% 50% 20% 25%
Inventory
- -------------------------------- ------------------- -------------------- --------------------- ------------------------
90%(commencing 90%(commencing
Eligible New Halloween N/A Aug. 1 through and Sept. 1 through and treated as Eligible
Inventory including Aug. 31) including Oct. 30) Packaway Halloween
Inventory commencing
Oct. 31
- -------------------------------- ------------------- -------------------- --------------------- ------------------------
Eligible Packaway Halloween 15% 30% 30%(commencing 15%(from Oct. 31
Inventory Sept. 1 through and through Dec. 31)
including Oct. 30)
- -------------------------------- ------------------- -------------------- --------------------- ------------------------
</TABLE>
1.5. "Availability Reserves" shall have the meaning set forth in Section
2.3 hereof.
1.6. "Blocked Accounts" shall have the meaning set forth in Section 6.3
hereof.
1.7. "Business Day" shall mean any day other than a Saturday, Sunday, or
other day on which commercial banks are authorized or required to close under
the laws of the State of New York or the State of North Carolina, and a day on
which the Reference Bank and Lender are open
2
<PAGE>
for the transaction of business, except that if a determination of a Business
Day shall relate to any Eurodollar Rate Loans, the term Business Day shall also
exclude any day on which banks are closed for dealings in dollar deposits in the
London interbank market or other applicable Eurodollar Rate market.
1.8. "Capital Stock" shall mean, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated) of
such Person's capital stock, partnership interests or limited liability company
interests at any time outstanding, and any and all rights, warrants or options
exchangeable for or convertible into such capital stock or other interests (but
excluding any debt security that is exchangeable for or convertible into such
capital stock).
1.9. "Cash Equivalents" shall mean, at any time, (a) any evidence of
Indebtedness with a maturity date of one hundred eighty (180) days or less
issued or directly and fully guaranteed or insured by the United States of
America of any agency or instrumentality thereof; provided, that, the full faith
and credit of the United States of America is pledged in support thereof; (b)
certificates of deposit or bankers' acceptances with a maturity of one hundred
eighty (180) days or less of any financial institution that is a member of the
Federal Reserve System having combined capital and surplus and undivided profits
of not less than US$250,000,000; (c) commercial paper (including variable rate
demand notes) with a maturity of one hundred eighty (180) days or less issued by
a corporation (except an Affiliate of Borrower) organized under the laws of any
State of the United States of America or the District of Columbia and rated at
least A-1 by Standard & Poor's Ratings Service, a division of The McGraw-Hill
Companies, Inc. or at least P-1 by Moody's Investors Service, Inc.; (d)
repurchase obligations with a term of not more than thirty (30) days for
underlying securities of the types described in clause (a) above entered into
with any financial institution having combined capital and surplus and undivided
profits of not less than US$250,000,000; (e) repurchase agreements and reverse
repurchase agreements relating to marketable direct obligations issued or
unconditionally guaranteed by the United States of America or issued by any
governmental agency thereof and backed by the full faith and credit to the
United States of America, in each case maturing within one hundred eighty (180)
days or less from the date of acquisition; provided, that, the terms of such
agreements comply with the guidelines set forth in the Federal Financial
Agreements of Depository Institutions with Securities Dealers and Others, as
adopted by the Comptroller of the Currency on October 31, 1985; and (f)
investments in money market funds and mutual funds which invest substantially
all of their assets in securities of the types described in clauses (a) through
(e) above.
1.10. "Change of Control" shall mean (a) the transfer (in one transaction
or a series of transactions) of all or substantially all of the assets of
Borrower to any Person or group (as such term is used in Section 13(d)(3) of the
Exchange Act); (b) the liquidation or dissolution of Borrower or the adoption of
a plan by the stockholders of Borrower relating to the dissolution or
liquidation of Borrower; (c) the acquisition by any Person or group (as such
term is used in Section 13(d)(3) of the Exchange Act) of beneficial ownership,
directly or indirectly, of fifty (50%) percent or more of the voting power of
the total outstanding Voting Stock of Borrower or the Board of Directors of
Borrower; (d) during any period of two (2) consecutive years, individuals who at
the beginning of such period constituted the Board of Directors of Borrower
cease for any reason to constitute a majority of the Board of Directors of
Borrower then still in
3
<PAGE>
office; or (e) failure of Borrower to own one hundred (100%) percent of the
voting power of the total outstanding voting stock of Party City Michigan.
1.11. "Code" shall mean the Internal Revenue Code of 1986, as the same now
exists or may from time to time hereafter be amended, modified, recodified or
supplemented, together with all rules, regulations and interpretations
thereunder or related thereto.
1.12. "Collateral" shall have the meaning set forth in Section 5 hereof.
1.13. "Collateral Access Agreement" shall mean an agreement in writing, in
form and substance satisfactory to Lender, from any lessor of premises to
Borrower, or any other person to whom any Collateral (including Inventory,
Equipment, bills of lading or other documents of title) is consigned or who has
custody, control or possession of any such Collateral or is otherwise the owner
or operator of any premises on which any of such Collateral is located, pursuant
to which such lessor, consignee or other person, inter alia, acknowledges the
first priority security interest of Lender in such Collateral, agrees to waive
any and all claims such lessor, consignee or other person may, at any time, have
against such Collateral, whether for processing, storage or otherwise, and
agrees to permit Lender access to, and the right to remain on, the premises of
such lessor, consignee or other person so as to exercise Lender's rights and
remedies and otherwise deal with such Collateral and in the case of any person
who at any time has custody, control or possession of any bills of lading or
other documents of title, agrees to hold such bills of lading or other documents
as bailee for Lender and to follow all instructions of Lender with respect
thereto.
1.14. "Company-Owned Stores" shall mean the stores operated by the Borrower
directly pursuant to leasehold rights to a particular location and which are not
Franchise Locations. All Company-Owned Stores are described in the Information
Certificate.
1.15. "Cost" shall mean, as to the Inventory as of any date, the cost of
such Inventory as of such date, determined on a weighted average cost basis in
accordance with GAAP consistent with current practices of Borrower in effect on
the date hereof.
1.16. "Credit Card Acknowledgments" shall mean, individually and
collectively, the agreements by Credit Card Issuers or Credit Card Processors
who are parties to Credit Card Agreements in favor of Lender acknowledging
Lender's first priority security interest in the monies due and to become due to
Borrower (including, without limitation, credits and reserves) under the Credit
Card Agreements, and agreeing to transfer all such amounts to the Blocked
Accounts, as the same now exist or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced.
1.17. "Credit Card Agreements" shall mean all agreements now or hereafter
entered into by Borrower with any Credit Card Issuer or any Credit Card
Processor, as the same now exist or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced, including, but not
limited to, the agreements set forth on Schedule 8.9 hereto.
1.18. "Credit Card Issuer" shall mean any person (other than Borrower) who
issues or whose members issue credit cards, including, without limitation,
MasterCard or VISA bank credit
4
<PAGE>
or debit cards or other bank credit or debit cards issued through MasterCard
International, Inc., Visa, U.S.A., Inc. or Visa International and American
Express, Discover, Diners Club, Carte Blanche and other non-bank credit or debit
cards, including, without limitation, credit or debit cards issued by or through
American Express Travel Related Services Company, Inc. and Novus Services, Inc.
1.19. "Credit Card Processor" shall mean any servicing or processing agent
or any factor or financial intermediary who facilitates, services, processes or
manages the credit authorization, billing transfer and/or payment procedures
with respect to any of Borrower's sales transactions involving credit card or
debit card purchases by customers using credit cards or debit cards issued by
any Credit Card Issuer.
1.20. "Credit Card Receivables" shall mean collectively, all present and
future rights of Borrower to payment from any Credit Card Issuer, Credit Card
Processor or other third party arising from sales of goods or rendition of
services to customers who have purchased such goods or services using a credit
or debit card and all present and future rights of Borrower to payment from any
Credit Card Issuer, Credit Card Processor or other third party in connection
with the sale or transfer of Accounts arising pursuant to the sale of goods or
rendition of services to customers who have purchased such goods or services
using a credit card or a debit card, including, but not limited to, all amounts
at any time due or to become due from any Credit Card Issuer or Credit Card
redit Card Agreements or otherwise.
1.21. "Department" shall mean each "Department" used by Borrower to
identify and classify categories of Eligible Inventory.
1.22. "EBITDA" shall mean, as to any Person, with respect to any period, an
amount equal to: (a) the Net Income of such Person and its Subsidiaries for such
period on a consolidated basis determined in accordance with GAAP, plus (b)
depreciation, amortization and other non-cash charges (including, but not
limited to, non-cash interest and deferred compensation) for such period (to the
extent deducted in the computation of Net Income), all in accordance with GAAP,
plus (c) the Interest Expense for such period (to the extent deducted in the
computation of Net Income), plus (d) charges for Federal, State, district,
municipal, local and foreign income taxes for such period (to the extent
deducted in the computation of Net Income), plus (e) restructuring costs
including related professional fees for the period from March 1, 1999 to January
1, 2000 (which amount shall not exceed $12,000,000) and for the period from
January 2, 2000 to June 30, 2000 (which amount shall not exceed $1,500,000).
1.23. "Eligible Current Season Inventory" shall mean (i) Eligible Everyday
Inventory, at all times throughout the calendar year, (ii) Eligible
Spring/Summer Inventory from January 1 through and including August 31 of each
calendar year, (iii) Eligible Fall/Winter Inventory from September 1 through and
including December 31 of each calendar year, and (iv) Eligible New Halloween
Inventory and Eligible Packaway Halloween Inventory from August 1 through and
including October 30 of each calendar year.
1.24. "Eligible Everyday Inventory" shall mean Inventory of Borrower which
is otherwise Eligible Inventory consisting of products that the Borrower stocks
and sells on a daily
5
<PAGE>
basis throughout each calendar year, which Inventory is recorded in Departments
1 through and including 16, 33 and 37 on Borrower's books and Records.
1.25. "Eligible Fall/Winter Inventory" shall mean Inventory of Borrower
which is otherwise Eligible Inventory consisting of products Borrower stocks for
specific holidays and events which occur during the Fall and Winter seasons,
which Inventory is recorded in Departments 18, 28, 29, 30, 31, and 32 on
Borrower's books and Records, including, without limitation, Inventory of
Borrower stocked for the following holidays and events: Thanksgiving, Chanukah,
Christmas, New Year's, Kwanzaa, and Football/Superbowl, but excluding all
Halloween Inventory.
1.26. "Eligible Halloween Inventory" shall mean Inventory of the Borrower
which is otherwise Eligible Inventory consisting of products Borrower stocks for
Halloween which Inventory is recorded in Departments 26 and 27 on Borrower's
books and Records.
1.27. "Eligible Inventory" shall mean Inventory consisting of finished
goods held for resale in the ordinary course of the business of Borrower that
are acceptable to Lender based on the criteria set forth below. In general,
Eligible Inventory shall not include(a) packaging and shipping materials; (b)
supplies used or consumed in Borrower's business; (c) Inventory at premises
other than those owned and controlled by Borrower, except for (i) Inventory at
Company Owned Stores of Borrower which are leased by it if either (A) Lender
shall have received a Collateral Access Agreement duly authorized, executed and
delivered by the owner and lessor of such premises or (B) if Lender has not
received such Collateral Access Agreement, then Lender may, at its option,
establish an Availability Reserve in respect of (i) any amounts which are past
due owing to the owner and lessor of such retail store location (without
limiting any other rights and remedies of Lender under this Agreement or under
the other Financing Agreements with respect to the establishment of Availability
Reserves or otherwise) and (ii) any rental payments and other amounts which will
be due and owing to the owner and lessor of such retail store location in
respect of the immediately succeeding month, and (ii) Inventory at Off-Site
Storage Locations or other locations of Borrower which are leased by it, if
either (A) Lender shall have received a Collateral Access Agreement from the
owner and lessor of such Off-Site Storage Location or other premises in form and
substance satisfactory to Lender or (B) if Lender has not received such
Collateral Access Agreement, then Lender may, at its option, establish an
Availability Reserve in respect of (i) any amounts which are past due owing to
the owner and lessor of such Off-Site Storage location (without limiting any
other rights and remedies of Lender under this Agreement or under the other
Financing Agreements with respect to the establishment of Availability Reserves
or otherwise,) and (ii) any rental payments and other amounts which will be due
and owing to the owner and lessor of such Off-Site Storage location in respect
of the immediately succeeding month; (d) Inventory subject to a security
interest or lien in favor of any person other than Lender except those permitted
in this Agreement; (e) bill and hold goods; (f) Inventory which is not subject
to the first priority, valid and perfected security interest of Lender; (g)
damaged and/or defective Inventory (h) returned Inventory that is not held for
resale; (i) Inventory to be returned to vendors; (j) Inventory subject to
deposits made by customers for sales of Inventory that has not been delivered;
(k) samples, (l) Inventory purchased or sold on consignment, and (m) Inventory
not saleable by Borrower in the ordinary course. General criteria for Eligible
Inventory may be established and revised from time to time by Lender in good
faith
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based on an event, condition or other circumstance arising after the date
hereof, or existing on the date hereof to the extent Lender has no written
notice thereof from Borrower, which adversely affects or could reasonably be
expected to adversely affect the Inventory in the good faith determination of
Lender. Any Inventory which is not Eligible Inventory shall nevertheless be part
of the Collateral.
1.28. "Eligible New Halloween Inventory" shall mean Eligible Halloween
Inventory purchased by Borrower during the period commencing August 1 through
and including October 30 of each calendar year.
1.29. "Eligible Out of Season Inventory" shall mean (i) Eligible
Fall/Winter Inventory from January 1 through and including August 31 of each
calendar year, (ii) Eligible Spring/Summer Inventory from September 1 through
and including December 31 of each calendar year, and (iii) Eligible Packaway
Halloween Inventory from October 30 of one calendar year through and including
July 31 of the immediately succeeding calendar year.
1.30. "Eligible Packaway Halloween Inventory" is all Eligible Halloween
Inventory unsold on November 1 of each calendar year which will be packed away
and stored by Borrower until next year's Halloween season.
1.31. "Eligible Spring/Summer Inventory" shall mean Inventory of Borrower
which is otherwise Eligible Inventory consisting of products Borrower stocks for
specific holidays and events which occur during the Spring and Summer seasons of
each calendar year, which Inventory is recorded in Departments 19, 20, 21, 22,
23, 24, 25, 34, 35, and 36 on Borrower's books and Records; including, without
limitation, Inventory of Borrower stocked for the following holidays and events:
Valentine's Day, St. Patrick's Day, Presidents' Day, Easter, Passover, communion
and confirmation, graduation, Fourth of July, Summer-Luau, Mother's/Father's Day
and Specialty/Regional.
1.32. "Environmental Laws" shall mean all applicable foreign, Federal,
State and local laws (including common law), rules, codes, licenses, permits
(including any conditions imposed therein), authorizations, judicial or
administrative decisions, injunctions or agreements between Borrower and any
governmental authority, (a) relating to pollution and the protection,
preservation or restoration of the environment (including air, water vapor,
surface water, ground water, drinking water, drinking water supply, surface
land, subsurface land, plant and animal life or any other natural resource), or
to human health or safety, (b) relating to the use, storage, recycling,
treatment, generation, manufacture, processing, distribution, transportation,
handling, labeling, production, release or disposal, or threatened release, of
Hazardous Materials, or (c) relating to all laws with regard to recordkeeping,
notification, disclosure and reporting requirements respecting Hazardous
Materials. The term "Environmental Laws" includes (i) the Federal Comprehensive
Environmental Response, Compensation and Liability Act of 1980, the Federal
Superfund Amendments and Reauthorization Act, the Federal Water Pollution
Control Act of 1972, the Federal Clean Water Act, the Federal Clean Air Act, the
Federal Resource Conservation and Recovery Act of 1976 (including the Hazardous
and Solid Waste Amendments thereto), the Federal Solid Waste Disposal and the
Federal Toxic Substances Control Act, the Federal Insecticide, Fungicide and
Rodenticide Act, and the Federal Safe Drinking Water Act of
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1974, (ii) applicable state counterparts to such laws, and (iii) any common law
or equitable doctrine that may impose liability or obligations for injuries or
damages due to, or threatened as a result of, the presence of any Hazardous
Materials.
1.33. "Equipment" shall mean all of Borrower's now owned and hereafter
acquired equipment, machinery, computers and computer hardware and software
(whether owned or licensed), vehicles, tools, furniture, fixtures, all
attachments, accessions and property now or hereafter affixed thereto or used in
connection therewith, and substitutions and replacements thereof, wherever
located.
1.34. "ERISA" shall mean the United States Employee Retirement Income
Security Act of 1974, as the same now exists or may hereafter from time to time
be amended, modified, recodified or supplemented, together with all rules,
regulations and interpretations thereunder or related thereto.
1.35. "ERISA Affiliate" shall mean any person required to be aggregated
with Borrower or any of its subsidiaries under Sections 414(b), 414(c), 414(m)
or 414(o) of the Code.
1.36. "Eurodollar Rate" shall mean with respect to the Interest Period for
a Eurodollar Rate Loan, the interest rate per annum equal to the arithmetic
average of the rates of interest per annum (rounded upwards, if necessary, to
the next one-sixteenth (1/16) of one (1%) percent) at which Reference Bank is
offered deposits of United States dollars in the London interbank market (or
other Eurodollar Rate market selected by Borrower and approved by Lender) on or
about 9:00 a.m. (New York time) two (2) Business Days prior to the commencement
of such Interest Period in amounts substantially equal to the principal amount
of the Eurodollar Rate Loans requested by and available to Borrower in
accordance with this Agreement, with a maturity of comparable duration to the
Interest Period selected by Borrower.
1.37. "Eurodollar Rate Loans" shall mean any Loans or portion thereof on
which interest is payable based on the Adjusted Eurodollar Rate in accordance
with the terms hereof.
1.38. "Excess Availability" shall mean the amount, as determined by Lender,
calculated at any time, equal to: (a) the lesser of (i) the amount of the Loans
which would be available to Borrower as of such time based on the applicable
lending formulas multiplied by the Value of Eligible Inventory, as determined by
Lender, and subject to the applicable sublimits and Availability Reserves at
such time established by Lender, and (ii) the Maximum Credit minus (b) the sum
of: (i) the amount of all then outstanding and unpaid Obligations, plus (ii) the
aggregate amount of all then outstanding and unpaid trade payables and other
obligations of Borrower which are more than thirty (30) days past due as of such
time (exclusive of Old Payables for the period commencing on the date hereof
through and including October 14, 2000), plus (iii) the amount of checks issued
by Borrower to pay trade payables and other obligations which are more than
thirty (30) days past due as of such time, but not yet sent; provided, that, for
purposes of determining Excess Availability in respect of compliance with
Section 9.9(d)(iv)(A) and Section 9.9(e)(iv)(A) only, the amount in clause (a)
above shall be increased by the amount of cash or Cash Equivalents of Borrower
subject to the first priority perfected pledge and security interest of Lender.
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1.39. "Existing Lenders" shall mean lenders to Borrower listed on Schedule
1.39 hereto (and including PNC Bank, National Association, as Agent for such
lenders).
1.40. "Event of Default" shall mean the occurrence or existence of any
event or condition described in Section 10.1 hereof.
1.41. "Exchange Act" shall mean the Securities and Exchange Act of 1934, as
the same now exists or may hereafter from time to time be amended, modified,
recodified or supplemented, together with all rules, regulations and
interpretations thereunder or related thereto.
1.42. "Financing Agreements" shall mean, collectively, this Agreement and
all notes, guarantees, security agreements and other agreements, documents and
instruments now or at any time hereafter executed and/or delivered by Borrower
or any Obligor in connection with this Agreement, as the same now exist or may
hereafter be amended, modified, supplemented, extended, renewed, restated or
replaced.
1.43. "Franchise Agreements" shall mean the agreements between Borrower and
the Franchisees pursuant to which Franchisees operate "Party City" stores at the
Franchise Locations, the current form of which is annexed hereto as Exhibit
1.43.
1.44. "Franchise Locations" shall mean the locations at which Franchisees
operate on a given date "Party City" stores pursuant to an effective Franchise
Agreement; all current Franchise Locations (including address and size) are
described on Schedule 1.44.
1.45. "Franchise Note Agreements" shall mean, collectively Borrower's 14.0%
Senior Secured Notes, dated the date hereof, made by Borrower in favor of each
of the Franchise Noteholders (collectively, the "E Notes"), the Investment
Agreements (exclusive of the A Notes, B Notes, C Notes and D Notes) and all
agreements, documents and instruments at any time executed and/or delivered by
Borrower, any of Obligors or any other person with, to or in favor of Franchise
Noteholders in connection therewith or related thereto, as all of the foregoing
now exist or may hereafter be amended, modified, supplemented, extended,
renewed, restated or replaced.
1.46. "Franchise Noteholders" shall mean, collectively, Special Value Bond
Fund, LLC, Goldman Sachs Credit Partners, L.P. and Enhanced Retail Funding, LLC
and their respective successors and assigns (and including any other lender or
group of lenders that at any time refinances, replaces or succeeds to all or any
portion of the Indebtedness owing to Franchise Noteholders in respect of the E
Notes or is otherwise party to the Franchise Note Agreements).
1.47. "Franchise Royalties" shall mean all payments due to be made to the
Borrower from Franchisees, including without limitation, those pursuant to
Franchise Agreements and other payments, charges, contributions and assessments
but excluding funds paid or held in trust or escrow as or into the Borrower's
"ad fund" (as such term is defined in the Franchise Agreements).
1.48. "Franchises" and "Franchisees" shall mean, respectively, (i) the
franchises of "Party City" stores and the business operations of those stores,
and (ii) the Persons who operate such stores pursuant to an effective Franchise
Agreement with Borrower as franchisor.
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1.49. "GAAP" shall mean generally accepted accounting principles in the
United States of America as in effect from time to time as set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and the statements and pronouncements
of the Financial Accounting Standards Boards which are applicable to the
circumstances as of the date of determination consistently applied, except that,
for purposes of Section 9.14, GAAP shall be determined on the basis of such
principles in effect on the date hereof and consistent with those used in the
preparation of the audited financial statements delivered to Lender prior to the
date hereof.
1.50. "Hazardous Materials" shall mean any hazardous, toxic or dangerous
substances, materials and wastes, including hydrocarbons (including naturally
occurring or man-made petroleum and hydrocarbons), flammable explosives,
asbestos, urea formaldehyde insulation, radioactive materials, biological
substances, polychlorinated biphenyls, pesticides, herbicides and any other kind
and/or type of pollutants or contaminants (including materials which include
hazardous constituents), sewage, sludge, industrial slag, solvents and/or any
other similar substances, materials, or wastes and including any other
substances, materials or wastes that are or become regulated under any
Environmental Law (including any that are or become classified as hazardous or
toxic under any Environmental Law).
1.51. "Indebtedness" shall mean, with respect to any Person, any liability,
whether or not contingent, (a) in respect of borrowed money (whether or not the
recourse of the lender is to the whole of the assets of such Person or only to a
portion thereof) or evidenced by bonds, notes, debentures or similar
instruments; (b) representing the balance deferred and unpaid of the purchase
price of any property or services (except any such balance that constitutes an
account payable to a trade creditor (whether or not an Affiliate) created,
incurred, assumed or guaranteed by such Person in the ordinary course of
business of such Person in connection with obtaining goods, materials or
services that is not overdue by more than ninety (90) days, unless the trade
payable is being contested in good faith); (c) all obligations as lessee under
leases which have been, or should be, in accordance with GAAP recorded as
Capital Leases; (d) any contractual obligation, contingent or otherwise, of such
Person to pay or be liable for the payment of any indebtedness described in this
definition of another Person, including, without limitation, any such
indebtedness, directly or indirectly guaranteed, or any agreement to purchase,
repurchase, or otherwise acquire such indebtedness, obligation or liability or
any security therefor, or to provide funds for the payment or discharge thereof,
or to maintain solvency, assets, level of income, or other financial condition;
(e) all obligations with respect to redeemable stock and redemption or
repurchase obligations under any Capital Stock or other equity securities issued
by such Person; (f) all reimbursement obligations and other liabilities of such
Person with respect to surety bonds (whether bid, performance or otherwise),
letters of credit, banker's acceptances or similar documents or instruments
issued for such Person's account; and (g) all indebtedness of such Person in
respect of indebtedness of another Person for borrowed money or indebtedness of
another Person otherwise described in this definition which is secured by any
consensual lien, security interest, collateral assignment, conditional sale,
mortgage, deed of trust, or other encumbrance on any asset of such Person,
whether or not such obligations, liabilities or indebtedness are assumed by or
are a personal liability of such Person, all as of such time.
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1.52. "Information Certificate" shall mean the Information Certificate of
Borrower constituting Exhibit A hereto containing material information with
respect to Borrower, its business and assets provided by or on behalf of
Borrower to Lender in connection with the preparation of this Agreement and the
other Financing Agreements and the financing arrangements provided for herein.
1.53. "Intellectual Property" shall mean Borrower's now owned and hereafter
arising or acquired: patents, patent rights, patent applications, copyrights,
works which are the subject matter of copyrights, copyright registrations,
trademarks, trade names, trade styles, trademark and service mark applications,
and licenses and rights to use any of the foregoing; all extensions, renewals,
reissues, divisions, continuations, and continuations-in-part of any of the
foregoing; all rights to sue for past, present and future infringement of any of
the foregoing; inventions, trade secrets, formulae, processes, compounds,
drawings, designs, blueprints, surveys, reports, manuals, and operating
standards; goodwill; customer and other lists in whatever form maintained; and
trade secret rights, copyright rights, rights in works of authorship, and
contract rights relating to computer software programs, in whatever form created
or maintained.
1.54. "Interest Expense" shall mean, for any period, as to any Person, all
of the following as determined in accordance with GAAP: (a) total interest
expense, paid in cash during such period (including the interest component of
Capital Leases for such period), including, without limitation, all bank fees,
commissions, discounts and other fees and charges owed with respect to letters
of credit (but excluding amortization of discount and amortization of deferred
financing fees paid in cash in connection with the transactions contemplated
hereby, interest paid in property other than cash and any other interest expense
not paid in cash), minus (b) any net payments received during such period as
interest income received in respect of its investments in cash.
1.55. "Interest Period" shall mean for any Eurodollar Rate Loan, a period
of approximately one (1), two (2), or three (3) months duration as Borrower may
elect, the exact duration to be determined in accordance with the customary
practice in the applicable Eurodollar Rate market; provided, that, Borrower may
not elect an Interest Period which will end after the last day of the
then-current term of this Agreement.
1.56. "Interest Rate" shall mean:
(a) subject to clauses (b) and (c) below, as to Prime Rate Loans, a
rate of three-quarters (3/4%) percent per annum in excess of the Prime Rate and
as to Eurodollar Rate Loans a rate of two and three-quarters (2 3/4%) percent
per annum in excess of the Adjusted Eurodollar Rate (based on the Eurodollar
Rate applicable for the Interest Period selected by Borrower as in effect two
(2) Business Days after the date of receipt by Lender of the request of Borrower
for such Eurodollar Rate Loans in accordance with the terms hereof, whether such
rate is higher or lower than any Eurodollar Rate previously quoted to Borrower);
provided, that;
(b) the Interest Rate applicable to Eurodollar Rate Loans shall be
reduced, by one-quarter (1/4%) percent, effective as of the first day of each
month after each of the following conditions is satisfied as determined by
Lender: (i) the Pre-Tax Income of Borrower and its
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Subsidiaries calculated on a consolidated basis, for the fiscal year ending June
30, 2001 and for any fiscal year thereafter, as set forth in the audited
consolidated financial statements of Borrower and its Subsidiaries for such
fiscal year delivered to Lender, together with the unqualified opinion of the
independent certified accountants, in accordance with Section 9.6 hereof, shall
equal or exceed $3,000,000, (ii) no Event of Default or act, condition or event
which with notice or passage of time would constitute an Event of Default shall
exist or have occurred, and be continuing, and (iii) the Excess Availability of
Borrower for each of the immediately preceding thirty (30) consecutive days
prior to the date of such determination shall have been not less than
$20,000,000, and as of the date of any such reduction and after giving effect
thereto, the Excess Availability of Borrower shall be not less than $20,000,000;
provided, that, in the event that the Interest Rate applicable to Eurodollar
Rate Loans is reduced as provided in this clause (b), if in any subsequent
fiscal year thereafter the condition set forth in clause (b)(i) is not
satisfied, effective as of the first day of the month after the receipt by
Lender of the audited consolidated financial statements of Borrower and its
Subsidiaries for such fiscal year, the Interest Rate shall increase to the rate
set forth in clause (a) above; and, provided, that, the lowest Interest Rate
applicable to Eurodollar Rate Loans, after giving effect to this clause (b),
shall be a rate of two and one-quarter (2 1/4%) percent per annum in excess of
the Adjusted Eurodollar Rate (based on the Eurodollar Rate applicable for the
Interest Period selected by Borrower as in effect three (3) Business Days after
the date of receipt by Lender of the request of Borrower for such Eurodollar
Rate Loans in accordance with the terms hereof, whether such rate is higher or
lower than any Eurodollar Rate previously quoted to Borrower), and
(c) notwithstanding anything to the contrary contained herein, the
Interest Rate shall mean the rate of two and one-quarter (2 1/4%) percent per
annum in excess of the Prime Rate as to Prime Rate Loans and the rate of four
and three-quarters (4 3/4%) percent per annum in excess of the Adjusted
Eurodollar Rate as to Eurodollar Rate Loans, at Lender's option, without notice,
(i) either (A) for the period from and after the date of termination or
non-renewal hereof until Lender has received full and final payment of all
obligations (notwithstanding entry of a judgment against a Borrower) or (B) from
and after the date of the occurrence of an Event of Default for so long as such
Event of Default is continuing as determined by Lender, and (ii) on the Loans to
any Borrower at any time outstanding in excess of the amounts available to such
Borrower under Section 2 (whether or not such excess(es), arise or are made with
or without Lender's knowledge or consent and whether made before or after an
Event of Default).
1.57. "Inventory" shall mean all of Borrower's now owned and hereafter
existing or acquired raw materials, work in process, finished goods and all
other inventory of whatsoever kind or nature, wherever located.
1.58. "Investment Agreements" shall mean, collectively, (a) the Securities
Purchase Agreement dated as of August 16, 1999 by and among Borrower and the
Investors, as amended by First Amendment to Securities Purchase Agreement, dated
the date hereof, by and among Borrower, each Franchise Noteholder and each
Investor, (b) Borrower's $10,000,000 of 12.5% Secured Notes due 2000 ("A
Notes"), Borrower's $5,000,000 of 13.0% Secured Notes due 2003 ("B Notes"),
Borrower's $5,000,000 of 13.0% Secured Notes due 2002 ("C Notes") and Borrower's
$10,000,000 of 14.0% Secured Notes due 2004 ("D Notes"), and (c) all other
agreements, documents and instruments at any time executed and/or delivered by
Borrower, any
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of Obligors or any other person with, to or in favor of Investors in connection
therewith or related thereto, as all of the foregoing now exist or may hereafter
be amended, modified, supplemented, extended, renewed, restated or replaced; the
Investment Agreements do not include the E Notes.
1.59. "Investors" shall mean Special Value Bond Fund, LLC, TCO/Party City,
LLC, Enhanced Retail Funding, LLC, Clyde Street Investment, LLC, Richmond
Associates, Goldman Sachs Credit Partners, L.P., and each of their respective
successors and assigns.
1.60. "Letter of Credit Accommodations" shall mean the letters of credit,
merchandise purchase or other guaranties which are from time to time either (a)
issued or opened by Lender for the account of Borrower or any Obligor or (b)
with respect to which Lender has agreed to indemnify the issuer or guaranteed to
the issuer the performance by Borrower of its obligations to such issuer.
1.61. "Loans" shall mean collectively, the loans now or hereafter made by
Lender to or for the benefit of Borrower on a revolving basis (involving
advances, repayments and readvances) as set forth in Section 2.1 hereof.
1.62. "Material Adverse Effect" shall mean a material adverse effect on (a)
the condition (financial or otherwise), business, performance, operations or
properties of Borrower and its Subsidiaries, taken as a whole; (b) the legality,
validity or enforceability of this Agreement or any of the other Financing
Agreements; (c) the legality, validity, enforceability, perfection or priority
of the security interests and liens of Lender upon the Collateral or any other
property which is security for the Obligations; (d) the Collateral or any other
property which is security for the Obligations, or the value of the Collateral
or such other property; (e) the ability of Borrower or any Obligor to repay the
Obligations or of Borrower or any Obligor to perform its Obligations under this
Agreement or any of the other Financing Agreements; or (f) the ability of Lender
to enforce the Obligations or realize upon the Collateral or otherwise with
respect to the rights and remedies of Lender under this Agreement or any of the
other Financing Agreements.
1.63. "Maximum Credit" shall mean $40,000,000.
1.64. "Net Income" shall mean, with respect to any Person, for any period,
the aggregate of the net income (loss) of such Person and its Subsidiaries, on a
consolidated basis, for such period (excluding to the extent included therein
any extraordinary, one-time or non-recurring gains) after deducting all charges
which should be deducted before arriving at the net income (loss) for such
period and after deducting the Provision for Taxes for such period, all as
determined in accordance with GAAP; provided, that, (a) the net income of any
Person that is not a wholly-owned Subsidiary or that is accounted for by the
equity method of accounting shall be included only to the extent of the amount
of dividends or distributions paid or payable to such Person or a wholly-owned
Subsidiary of such Person; (b) the effect of any change in accounting principles
adopted by such Person or its Subsidiaries after the date hereof shall be
excluded; and (c) the net income (if positive) of any wholly-owned Subsidiary to
the extent that the declaration or payment of dividends or similar distributions
by such wholly-owned Subsidiary to such Person or to any other wholly-owned
subsidiary of such Person is not at the time permitted by operation of the terms
of its charter or any agreement, instrument, judgment, decree, order, statute,
rule or
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governmental regulation applicable to such wholly-owned Subsidiary shall be
excluded. For the purpose of this definition, (i) net income excludes (A) any
gain (but not loss) together with any related Provision for Taxes for such gain
(but not loss) realized upon the sale or other disposition of any assets that
are not sold in the ordinary course of business (including, without limitation,
dispositions pursuant to sale and leaseback transactions) or of any Capital
Stock of such Person or a Subsidiary of such Person, (B) any loss in connection
with the writeoff of goodwill and (C) any net income realized as a result of
changes in accounting principles or the application thereof to such Person and
(ii) net income shall not be reduced by any interest expense not paid in cash.
1.65. "Net Recovery Cost Percentage" shall mean the fraction, expressed as
a percentage, the numerator of which is the amount equal to the recovery on the
aggregate amount of the Inventory at such time on a "going out of business sale"
basis as set forth in the most recent acceptable appraisal of Inventory received
by Lender in accordance with Section 7.3, net of operating expenses, liquidation
expenses and commissions, and the denominator of which is the original Cost of
the aggregate amount of the Inventory subject to such appraisal.
1.66. "Obligations" shall mean any and all Loans, Letter of Credit
Accommodations and all other obligations, liabilities and indebtedness of every
kind, nature and description owing by Borrower to Lender and/or its affiliates,
including principal, interest, charges, fees, costs and expenses, however
evidenced, whether as principal, surety, endorser, guarantor or otherwise,
whether arising under this Agreement or otherwise, whether now existing or
hereafter arising, whether arising before, during or after the initial or any
renewal term of this Agreement or after the commencement of any case with
respect to Borrower under the United States Bankruptcy Code or any similar
statute (including, without limitation, the payment of interest and other
amounts which would accrue and become due but for the commencement of such case,
whether or not such amounts are allowed or allowable in whole or in part in such
case), whether direct or indirect, absolute or contingent, joint or several, due
or not due, primary or secondary, liquidated or unliquidated, secured or
unsecured, and however acquired by Lender.
1.67. "Obligor" shall mean any guarantor, endorser, acceptor, surety or
other person liable on or with respect to the Obligations or who is the owner of
any property which is security for the Obligations, other than Borrower.
1.68. "Off-Site Storage Locations" shall mean the locations listed on
Schedule 1.68 at which all of the tangible property (including Inventory) of
Borrower and its Subsidiaries is kept, other than inventory stored at
Company-Owned Store locations. Schedule 1.68 includes the addresses (including
county) of such locations, the owner or lessor thereof, the monthly rent payable
under the applicable leases, and the Company-Owned Store(s) whose inventory are
stored at such location. Schedule 1.68 also includes a listing of certain
trailers and containers located at Company-Owned Store locations which contain
inventory, but these trailers and containers shall not be deemed to be Off-Site
Storage locations for purposes of this Agreement.
1.69. "Old Payables" shall mean all trade payables of Borrower which were
outstanding and unpaid on May 1, 1999 and which are still outstanding as of the
date hereof; such Old Payables are listed on Schedule 1.69 annexed hereto and
made a part hereof.
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1.70. "Party City Michigan" shall mean Party City of Michigan, Inc., a
Delaware corporation, which is a wholly-owned subsidiary of Borrower and its
successors and assigns.
1.71. "Payment Account" shall have the meaning set forth in Section 6.3
hereof.
1.72. "Permits" shall have the meaning set forth in Section 8.7 hereof.
1.73. "Person" or "person" shall mean any individual, sole proprietorship,
partnership, corporation (including, without limitation, any corporation which
elects subchapter S status under the Code), limited liability company, limited
liability partnership, business trust, unincorporated association, joint stock
corporation, trust, joint venture or other entity or any government or any
agency or instrumentality or political subdivision thereof.
1.74. "Plan" means an employee benefit plan (as defined in Section 3(3) of
ERISA) which Borrower sponsors, maintains, or to which it makes, is making, or
is obligated to make contributions, or in the case of a Multiemployer Plan (as
defined in Section 4001(a)(3) of ERISA) has made contributions at any time
during the immediately preceding six (6) plan years.
1.75. "Pre-Tax Income" shall mean, with respect to any Person, for any
period, the aggregate of the net income (loss) of such Person and its
Subsidiaries, on a consolidated basis, for such period (excluding to the extent
included therein any extraordinary or one-time or non-recurring gains) after
deducting all charges which should be deducted before arriving at the net income
(loss) for such period and before deducting the Provision for Taxes for such
period, all as determined in accordance with GAAP, provided, that, the net
income of any Person that is not a wholly-owned Subsidiary or that is accounted
for by the equity method of accounting shall be included only to the extent of
the amount of dividends or distributions paid or payable to Borrower or a
wholly-owned Subsidiary of such person; the effect of any change in accounting
principles adopted by such Person or its Subsidiaries after the date hereof
shall be excluded; and the net income (if positive) of any wholly-owned
Subsidiary to the extent that the declaration or payment of dividends or similar
distributions by such wholly-owned Subsidiary to Borrower or to any other
wholly-owned Subsidiary of Borrower is not at the time permitted by operation of
the terms of its charter or any agreement (other than under this Agreement),
instrument, judgment, decree, order, statute, rule or government regulation
applicable to such wholly-owned Subsidiary shall be excluded. For the purpose of
this definition, net income excludes (a) any gain (but not loss), together with
any related Provision for Taxes for such gain (but not loss) realized upon the
sale or other disposition of any assets that are not sold in the ordinary course
of business (including, without limitation, dispositions pursuant to sale and
leaseback transactions), or of any Capital Stock of such Person or a Subsidiary
of such Person, (b) any loss in connection with the writeoff of goodwill and (c)
any net income realized as a result of changes in accounting principles or the
application thereof to such Person.
1.76. "Prime Rate" shall mean the rate from time to time publicly announced
by First Union National Bank, or its successors, as its prime rate, whether or
not such announced rate is the best rate available at such bank.
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1.77. "Prime Rate Loans" shall mean any Loans or portion thereof on which
interest is payable based on the Prime Rate in accordance with the terms hereof.
1.78. "Provision for Taxes" shall mean an amount equal to all taxes imposed
on or measured by net income, whether Federal, State or local, and whether
foreign or domestic, that are paid or payable by any Person and its Subsidiaries
in respect of such fiscal year on a consolidated basis in accordance with GAAP.
1.79. "Real Property" shall mean all now owned and hereafter acquired real
property of Borrower, including leasehold interests, together with all
buildings, structures, and other improvements located thereon and all licenses,
easements and appurtenances relating thereto, wherever located.
1.80. "Receivables" shall mean: (a) all Accounts; (b) all amounts at any
time payable to Borrower in respect of the sale or other disposition by Borrower
of any Account or other obligation for the payment of money; (c) all interest,
fees, late charges, penalties, collection fees and other amounts due or to
become due or otherwise payable in connection with any Account; (d) all letters
of credit, indemnities, guarantees, security or other deposits and proceeds
thereof issued payable to Borrower or otherwise in favor of or delivered to
Borrower or Guarantor in connection with any Account; and (e) all other contract
rights, chattel paper, instruments, notes, general intangibles and other forms
of obligations owing to Borrower, whether from the sale and lease of goods or
other property, licensing of any property (including Intellectual Property or
other general intangibles), rendition of services or from loans or advances by
Borrower or Guarantor or to or for the benefit of any third person (including
loans or advances to any Affiliates or Subsidiaries) or otherwise associated
with any Accounts, Inventory or general intangibles of Borrower (including,
without limitation, choses in action, causes of action, tax refunds, tax refund
claims, any funds which may become payable to Borrower or Guarantor in
connection with the termination of any Plan or other employee benefit plan and
any other amounts payable to Borrower from any Plan or other employee benefit
plan, rights and claims against carriers and shippers, rights to
indemnification, business interruption insurance and proceeds thereof, casualty
or any similar types of insurance and any proceeds thereof and proceeds of
insurance covering the liens of employees on which Borrower is beneficiary).
1.81. "Records" shall mean all of Borrower's present and future books of
account of every kind or nature, purchase and sale agreements, invoices, ledger
cards, bills of lading and other shipping evidence, statements, correspondence,
memoranda, credit files and other data relating to the Collateral or any account
debtor, together with the tapes, disks, diskettes and other data and software
storage media and devices, file cabinets or containers in or on which the
foregoing are stored (including any rights of Borrower with respect to the
foregoing maintained with or by any other person).
1.82. "Reference Bank" shall mean First Union National Bank or such other
bank as Lender may designate from time to time.
1.83. "Renewal Date" shall have the meaning set forth in Section 12.1
hereof.
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1.84. "Value" shall mean, with respect to Inventory, the lower of Cost or
market value.
1.85. "Vendor Forbearance Agreement" shall mean the Vendor Forbearance
Agreement and Standstill Agreement dated August 16, 1999 by and among Borrower
and each of Borrower's vendors signatory thereto together with the First
Amendment to Vendor Forbearance and Standstill Agreement dated November 24, 1999
as the same now exists or may hereafter be amended, modified, supplemented,
extended, renewed, restated or replaced.
1.86. "Voting Stock" shall mean with respect to any Person, (a) one (1) or
more classes of Capital Stock of such Person having general voting powers to
elect at least a majority of the board of directors, managers or trustees of
such Person, irrespective of whether at the time Capital Stock of any other
class or classes have or might have voting power by reason of the happening of
any contingency, and (b) any Capital Stock of such Person convertible or
exchangeable without restriction at the option of the holder hereof into Capital
Stock of such Person described in clause (a) of this definition.
SECTION 2. CREDIT FACILITIES
-----------------
2.1. Loans.
(a) Subject to, and upon the terms and conditions contained herein,
Lender agrees to make Loans to Borrower from time to time in amounts requested
by Borrower up to the amount equal to:
(i) the lesser of:
(A) the sum of:
(i) the Value of Eligible Everyday Inventory multiplied by
the corresponding Applicable Calendar Period Advance
Rate Percentage for such Eligible Everyday Inventory;
(ii) the Value of Eligible Fall/Winter Inventory multiplied
by the corresponding Applicable Calendar Period Advance
Rate Percentage for such Eligible Fall/Winter
Inventory;
(iii) the Value of Eligible Spring/Summer Inventory
multiplied by the corresponding Applicable Calendar
Period Advance Rate Percentage for such Eligible
Spring/Summer Inventory;
(iv) the Value of New Eligible Halloween Inventory
multiplied by the corresponding Applicable Calendar
Period Advance Rate Percentage for such New Eligible
Halloween Inventory; and
(v) the Value of Eligible Packaway Halloween Inventory
multiplied by the corresponding Applicable Calendar
Period Advance Rate Percentage for such Eligible
Packaway
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Halloween Inventory; or
(B) the sum of:
(i) eighty-five (85%) percent of the Net Recovery
Percentage with respect to Eligible Everyday Inventory
multiplied by the Value of such Eligible Everyday
Inventory;
(ii) eighty-five (85%) percent of the Net Recovery
Percentage with respect to Eligible Current Season
Inventory multiplied by the Value of such Eligible
Current Season Inventory; and
(iii) eighty (80%) percent of the Net Recovery Percentage
with respect to Eligible Out of Season Inventory
multiplied by the Value of such Eligible Out of Season
Inventory;
minus
-----
(ii) Availability Reserves.
(b) Lender may, in its discretion, from time to time, upon not less
than five (5) days prior notice to Borrower reduce the lending formula with
respect to Eligible Inventory to the extent that Lender determines that: (i) the
number of days of the turnover of the Inventory, taken as a whole, for any
period has increased in any material respect or (ii) the nature, quality or mix
of the Inventory, taken as a whole, has deteriorated in any material respect. To
the extent Lender shall have established an Availability Reserve which is
sufficient to address any event, condition or matter in a manner satisfactory to
Lender, Lender shall not exercise its rights under this Section 2.1(b) to reduce
the lending formula(s) to address such event, condition or matter. The amount of
any reduction in the lending formula by Lender pursuant to this Section 2.1(b)
shall have a reasonable relationship to the matter which is the basis for such
reduction. In determining whether to reduce the lending formula(s), Lender may
consider events, conditions, contingencies or risks which are also considered in
determining Eligible Inventory or in establishing Availability Reserves.
(c) Notwithstanding anything to the contrary set forth herein, except
in Lender's discretion, (i) the aggregate amount of the Loans and the Letter of
Credit Accommodations outstanding at any time shall not exceed the Maximum
Credit, (ii) the aggregate amount of Loans and Letter of Credit Accommodations
based on Eligible New Halloween Inventory and Eligible Packaway Halloween
Inventory outstanding at any time shall not exceed $25,000,000, (iii) the
aggregate amount of Loans and Letter of Credit Accommodations based on Eligible
Out of Season Inventory outstanding at any time shall not exceed $4,000,000;
provided, that, the Value of Eligible Out of Season Inventory does not exceed
thirty (30%) percent of the Value of all Eligible Inventory and (iv) the
aggregate outstanding amount of Loans and Letter of Credit Accommodations based
on Eligible Inventory in respect of a specific holiday/event (exclusive of
Halloween) within a category of Eligible Inventory shall not exceed $300,000
during the period commencing the day after the occurrence of such holiday/event
through but excluding
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the date occurring the immediately succeeding calendar year on which Borrower
would commence its purchases of Inventory in respect of such holiday/event
consistent with current practices of Borrower in effect on the date hereof. In
the event that the outstanding amount of any component of the Loans, or the
aggregate amount of the outstanding Loans and Letter of Credit Accommodations,
exceed the amounts available under the lending formulas, the sublimits set forth
herein or the sublimit for Letter of Credit Accommodations set forth in Section
2.2 (d) or the Maximum Credit, as applicable, such event shall not limit, waive
or otherwise affect any rights of Lender in that circumstance or on any future
occasions and Borrower shall, upon demand by Lender, which may be made at any
time or from time to time, immediately repay to Lender the entire amount of any
such excess(es) for which payment is demanded.
2.2. Letter of Credit Accommodations.
(a) Subject to, and upon the terms and conditions contained herein, at
the request of Borrower, Lender agrees to provide or arrange for Letter of
Credit Accommodations for the account of Borrower containing terms and
conditions acceptable to Lender and the issuer thereof. Any payments made by
Lender to any issuer thereof and/or related parties in connection with the
Letter of Credit Accommodations shall constitute additional Loans to Borrower
pursuant to this Section 2.
(b) In addition to any charges, fees or expenses charged by any bank
or issuer in connection with the Letter of Credit Accommodations, Borrower shall
pay to Lender a letter of credit fee at a rate equal to two (2%) percent per
annum on the daily outstanding balance of the Letter of Credit Accommodations
for the immediately preceding month (or part thereof), payable in arrears as of
the first day of each succeeding month, except that Borrower shall pay to Lender
such letter of credit fee, at Lender's option, without notice, at a rate equal
to three (3%) percent per annum for the period from and after the date of
termination or non-renewal hereof until Lender has received full and final
payment of all Obligations (notwithstanding entry of a judgment against
Borrower) and the period from and after the date of the occurrence of an Event
of Default and for so long as such Event of Default is continuing. Such letter
of credit fee shall be calculated on the basis of a three hundred sixty (360)
day year and actual days elapsed and the obligation of Borrower to pay such fee
shall survive the termination or non-renewal of this Agreement.
(c) No Letter of Credit Accommodations shall be available unless on
the date of the proposed issuance of any Letter of Credit Accommodations, the
Loans available to Borrower (subject to the Maximum Credit and any Availability
Reserves) are equal to or greater than (i) if the proposed Letter of Credit
Accommodation is for the purpose of purchasing Eligible Inventory, which is (A)
Eligible Inventory other than Eligible Halloween Inventory, the sum of (1) fifty
(50%) percent multiplied by the Value of such Eligible Inventory, plus (2)
freight, taxes, duty and other amounts that Lender estimates must be paid in
connection with such Inventory upon arrival and for delivery to one of
Borrower's locations for Eligible Inventory, and (B) Eligible New Halloween
Inventory due to arrive at one of Borrower's locations prior to October 15, the
sum of (1) twenty-five (25%) percent multiplied by the Value of such Eligible
New Halloween Inventory, plus (2) freight, taxes, duty and other amounts that
Lender estimates must be paid in connection with such Inventory upon arrival and
for delivery to one of Borrower's locations for
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Eligible Inventory; and (ii) if the proposed Letter of Credit Accommodation is
for any other purpose an amount equal to one hundred (100%) percent of the face
amount thereof and all other commitments and obligations made or incurred by
Lender with respect thereto. Effective on the issuance of each Letter of Credit
Accommodations, an Availability Reserve shall be established in the applicable
amount set forth in Section 2.2(c)(i) or Section 2.2(c)(ii).
(d) Except in Lender's discretion, the amount of all outstanding
Letter of Credit Accommodations and all other commitments and obligations made
or incurred by Lender in connection therewith, shall not at any time exceed
$20,000,000. At any time an Event of Default exists or has occurred and is
continuing, upon Lender's request, Borrower will either furnish cash collateral
to secure the reimbursement obligations to the issuer in connection with any
Letter of Credit Accommodations or furnish cash collateral to Lender for the
Letter of Credit Accommodations, and in either case, the Loans otherwise
available to Borrower shall not be reduced as provided in Section 2.2(c) to the
extent of such cash collateral.
(e) Borrower shall indemnify and hold Lender harmless from and against
any and all losses, claims, damages, liabilities, costs and expenses which
Lender may suffer or incur in connection with any Letter of Credit
Accommodations and any documents, drafts or acceptances relating thereto,
including, but not limited to, any losses, claims, damages, liabilities, costs
and expenses due to any action taken by any issuer or correspondent with respect
to any Letter of Credit Accommodation. Borrower assumes all risks with respect
to the acts or omissions of the drawer under or beneficiary of any Letter of
Credit Accommodation and for such purposes the drawer or beneficiary shall be
deemed Borrower's agent. Borrower assumes all risks for, and agrees to pay, all
foreign, Federal, State and local taxes, duties and levies relating to any goods
subject to any Letter of Credit Accommodations or any documents, drafts or
acceptances thereunder. Borrower hereby releases and holds Lender harmless from
and against any acts, waivers, errors, delays or omissions, whether caused by
Borrower, by any issuer or correspondent or otherwise with respect to or
relating to any Letter of Credit Accommodation. The provisions of this Section
2.2(e) shall survive the payment of Obligations and the termination or
non-renewal of this Agreement.
(f) Nothing contained herein shall be deemed or construed to grant
Borrower any right or authority to pledge the credit of Lender in any manner.
Lender shall have no liability of any kind with respect to any Letter of Credit
Accommodation provided by an issuer other than Lender unless Lender has duly
executed and delivered to such issuer the application or a guarantee or
indemnification in writing with respect to such Letter of Credit Accommodation.
Borrower shall be bound by any interpretation made in good faith by Lender, or
any other issuer or correspondent under or in connection with any Letter of
Credit Accommodation or any documents, drafts or acceptances thereunder,
notwithstanding that such interpretation may be inconsistent with any
instructions of Borrower. (i) Lender shall have the sole and exclusive right and
authority to, and Borrower shall not: (i) at any time an Event of Default exists
or has occurred and is continuing, (A) approve or resolve any questions of
non-compliance of documents, (B) give any instructions as to acceptance or
rejection of any documents or goods or (C) execute any and all applications for
steamship or airway guaranties, indemnities or delivery orders, and (ii) at all
times, (A) grant any extensions of the maturity of, time of payment for, or time
of presentation of, any drafts, acceptances, or documents, and (B) agree to any
amendments,
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renewals, extensions, modifications, changes or cancellations of any of the
terms or conditions of any of the applications, Letter of Credit Accommodations,
or documents, drafts or acceptances thereunder or any letters of credit included
in the Collateral. Lender may take such actions either in its own name or in
Borrower's name.
(g) Any rights, remedies, duties or obligations granted or undertaken
by Borrower to any issuer or correspondent in any application for any Letter of
Credit Accommodation, or any other agreement in favor of any issuer or
correspondent relating to any Letter of Credit Accommodation, shall be deemed to
have been granted or undertaken by Borrower to Lender. Any duties or obligations
undertaken by Lender to any issuer or correspondent in any application for any
Letter of Credit Accommodation, or any other agreement by Lender in favor of any
issuer or correspondent relating to any Letter of Credit Accommodation, shall be
deemed to have been undertaken by Borrower to Lender and to apply in all
respects to Borrower.
2.3. Availability Reserves. Without limiting any other rights and remedies
of Lender hereunder or under the other Financing Agreements, all Loans and
Letter of Credit Accommodations otherwise available to Borrower shall be subject
to the right of Lender to from time to time establish and revise in good faith
reserves reducing the amount of Loans and Letter of Credit Accommodations that
would otherwise be available to Borrower ("Availability Reserves"): (a) to
reflect events, conditions or contingencies that, as determined by Lender in the
exercise of its good faith judgment, adversely affect or have a reasonable
likelihood of adversely affecting either (i) the Collateral or any other
property which is security for the Obligations, its value or the amount which
may be realized by Lender from the sale or other disposition thereof, or (ii)
the assets or financial condition of Borrower, or (iii) the security interests
and other rights of Lender in the Collateral (including the enforceability,
perfection and priority thereof), or (b) to reflect Lender's good faith belief
that any collateral report or financial information furnished by or on behalf of
Borrower to Lender is or may have been incomplete, inaccurate or misleading in
any material respect, or (c) in respect of any state of facts which Lender
determines in good faith constitutes an Event of Default or may, with notice or
passage of time or both, constitute an Event of Default, or (d) to reflect
inventory shrinkage, or (e) to reflect the aggregate amount of deposits, if any,
received by Borrower from its customers, or (f) to reflect amounts due or to
become due in respect of sales, use and/or withholding taxes, or (g) to reflect
amounts owing by Borrower to Credit Card Issuers or Credit Card Processors in
connection with the Credit Card Agreements. To the extent Lender may revise the
lending formula set forth in Section 2.1 hereof or establish new criteria or
revise existing criteria for Eligible Inventory, so as to address any
circumstance, condition, event or contingency in a manner satisfactory to
Lender, Lender shall not establish an Availability Reserve for the same purpose.
The amount of any Availability Reserve established by Lender shall have a
reasonable relationship to the event, condition or other matter which is the
basis for such reserve as determined by Lender in the exercise of its good faith
judgment.
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SECTION 3. INTEREST AND FEES
-----------------
3.1. Interest.
(a) Borrower shall pay to Lender interest on the outstanding principal
amount of the non-contingent Obligations at the Interest Rate. All interest
accruing hereunder on and after the date of any Event of Default or termination
or non-renewal hereof shall be payable on demand.
(b) Borrower may from time to time request that Prime Rate Loans be
converted to Eurodollar Rate Loans or that any existing Eurodollar Rate Loans
continue for an additional Interest Period. Such request from Borrower shall
specify the amount of the Prime Rate Loans which will constitute Eurodollar Rate
Loans (subject to the limits set forth below) and the Interest Period to be
applicable to such Eurodollar Rate Loans. Subject to the terms and conditions
contained herein, three (3) Business Days after receipt by Lender of such a
request from Borrower, such Prime Rate Loans shall be converted to Eurodollar
Rate Loans or such Eurodollar Rate Loans shall continue, as the case may be,
provided, that, as of such date each of the following conditions is satisfied as
determined by Lender: (i) no Event of Default, or act, condition or event which
with notice or passage of time or both would constitute an Event of Default
shall exist or have occurred and be continuing, (ii) no party hereto shall have
sent any notice of termination or non-renewal of this Agreement, (iii) Borrower
shall have complied with such customary procedures as are established by Lender
and specified by Lender to Borrower from time to time for requests by Borrower
for Eurodollar Rate Loans, (iv) no more than four (4) Interest Periods may be in
effect at any one time, (v) the aggregate amount of the Eurodollar Rate Loans
must be in an amount not less than $3,000,000 or an integral multiple of
$1,000,000 in excess thereof, and (vi) Lender shall have determined that the
Interest Period or Adjusted Eurodollar Rate is available to Lender through the
Reference Bank and can be readily determined as of the date of the request for
such Eurodollar Rate Loan by Borrower. Any request by Borrower to convert Prime
Rate Loans to Eurodollar Rate Loans or to continue any existing Eurodollar Rate
Loans shall be irrevocable. Notwithstanding anything to the contrary contained
herein, Lender and Reference Bank shall not be required to purchase United
States Dollar deposits in the London interbank market or other applicable
Eurodollar Rate market to fund any Eurodollar Rate Loans, but the provisions
hereof shall be deemed to apply as if Lender and Reference Bank had purchased
such deposits to fund the Eurodollar Rate Loans.
(c) Any Eurodollar Rate Loans shall automatically convert to Prime
Rate Loans upon the last day of the applicable Interest Period, unless Lender
has received and approved a request to continue such Eurodollar Rate Loan at
least three (3) Business Days prior to such last day in accordance with the
terms hereof. Any Eurodollar Rate Loans shall, at Lender's option, upon notice
by Lender to Borrower, convert to Prime Rate Loans in the event that (i) an
Event of Default or act, condition or event which with the notice or passage of
time or both would constitute an Event of Default, shall exist or have occurred,
or (ii) this Agreement shall terminate or not be renewed. Borrower shall pay to
Lender, upon demand by Lender (or Lender may, at its option, charge any loan
account of Borrower) any amounts required to compensate Lender, the Reference
Bank or any participant with Lender for any loss (excluding of
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any loss of anticipated profits), cost or expense incurred by such person, as a
result of the conversion of Eurodollar Rate Loans to Prime Rate Loans pursuant
to any of the foregoing.
(d) Interest shall be payable by Borrower to Lender monthly in arrears
not later than the first day of each calendar month and shall be calculated on
the basis of a three hundred sixty (360) day year and actual days elapsed. The
interest rate on non-contingent Obligations (other than Eurodollar Rate Loans)
shall increase or decrease by an amount equal to each increase or decrease in
the Prime Rate effective on the first day of the month after any change in such
Prime Rate is announced based on the Prime Rate in effect on the last day of the
month in which any such change occurs. In no event shall charges constituting
interest payable by Borrower to Lender exceed the maximum amount or the rate
permitted under any applicable law or regulation, and if any such part or
provision of this Agreement is in contravention of any such law or regulation,
such part or provision shall be deemed amended to conform thereto.
3.2. Closing Fee. Borrower shall pay to Lender as a closing fee the amount
of $300,000 which shall be fully earned as of and payable on the date hereof.
3.3. Servicing Fee. Borrower shall pay to Lender monthly a servicing fee in
an amount equal to $3,000 for each month (or part thereof) while this Agreement
is in effect and for so long thereafter as any of the Obligations are
outstanding, which fee shall be fully earned as of and payable in advance on the
date hereof for the month in which the date of this Agreement occurs and on the
first day of each month hereafter.
3.4. Unused Line Fee. Borrower shall pay to Lender monthly an unused line
fee at a rate equal to three-eighths (3/8%) percent per annum calculated upon
the amount by which $32,000,000 exceeds the average daily principal balance of
the outstanding Loans and Letter of Credit Accommodations during the immediately
preceding month (or part thereof) while this Agreement is in effect and for so
long thereafter as any of the Obligations are outstanding, which fee shall be
payable on the first day of each month in arrears.
3.5. Changes in Laws and Increased Costs of Loans.
(a) Notwithstanding anything to the contrary contained herein, all
Eurodollar Rate Loans shall, upon notice by Lender to Borrower, convert to Prime
Rate Loans in the event that (i) any change in applicable law or regulation (or
the interpretation or administration thereof) shall either (A) make it unlawful
for Lender, Reference Bank or any participant to make or maintain Eurodollar
Rate Loans or to comply with the terms hereof in connection with the Eurodollar
Rate Loans, or (B) shall result in the increase in the costs to Lender,
Reference Bank or any participant of making or maintaining any Eurodollar Rate
Loans or by an amount deemed by Lender to be material, or (C) reduce the amounts
received or receivable by Lender in respect thereof, by an amount deemed by
Lender to be material or (ii) the cost to Lender, Reference Bank or any
participant of making or maintaining any Eurodollar Rate Loans shall otherwise
increase by an amount deemed by Lender, acting in good faith, to be material.
Borrower shall pay to Lender, upon demand by Lender (or Lender may, at its
option, charge any loan account of Borrower) any amounts required to compensate
Lender, the Reference Bank or any participant with Lender for any loss
(excluding any loss of anticipated profits), cost or expense incurred by such
person as a
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result of the foregoing, including, without limitation, any such loss, cost or
expense incurred by reason of the liquidation or reemployment of deposits or
other funds acquired by such person to make or maintain the Eurodollar Rate
Loans or any portion thereof. A certificate of Lender setting forth the basis
for the determination of such amount necessary to compensate Lender as aforesaid
shall be delivered to Borrower and shall be conclusive, absent manifest error.
(b) If any payments or prepayments in respect of the Eurodollar Rate
Loans are received by Lender other than on the last day of the applicable
Interest Period (whether pursuant to acceleration, upon maturity or otherwise),
including any payments pursuant to the application of collections under Section
6.3 or any other payments made with the proceeds of Collateral, Borrower shall
pay to Lender upon demand by Lender (or Lender may, at its option, charge any
loan account of Borrower) any amounts required to compensate Lender, the
Reference Bank or any participant with Lender for any additional loss (excluding
any loss of anticipated profits), cost or expense incurred by such person as a
result of such prepayment or payment, including, without limitation, any loss,
cost or expense incurred by reason of the liquidation or reemployment of
deposits or other funds acquired by such person to make or maintain such
Eurodollar Rate Loans or any portion thereof.
SECTION 4. CONDITIONS PRECEDENT
--------------------
4.1. Conditions Precedent to Initial Loans and Letter of Credit
Accommodations. Each of the following is a condition precedent to Lender making
the initial Loans and providing the initial Letter of Credit Accommodations
hereunder:
(a) Lender shall have received, in form and substance satisfactory to
Lender, all releases, terminations and such other documents as Lender may
request to evidence and effectuate the termination by the Existing Lenders to
Borrower of their respective financing arrangements with Borrower and the
termination and release by it or them, as the case may be, of any interest in
and to any assets and properties of Borrower and each Obligor, duly authorized,
executed and delivered by it or each of them, including, but not limited to, UCC
termination statements for all UCC financing statements previously filed by it
or any of them or their predecessors, as secured party and Borrower or any
Obligor, as debtor;
(b) Lender shall have received, in form and substance satisfactory to
Lender, evidence that (i) the Intercreditor Agreement dated July 1, 1999 by and
among the Existing Lenders, the Investors and Zahn Associates, Inc., as the
agent for the "Seasonal Trade Creditors" (as such quoted term is defined in such
Intercreditor Agreement) has been terminated, (ii) all releases, terminations
and such other documents as Lender may request to evidence and effectuate the
termination by the Seasonal Trade Creditors of any lien, security interest or
other interest in and to any assets and properties of Borrower and each Obligor,
duly authorized, executed and delivered by the agent for the Seasonal Trade
Creditors (iii) or each of them, including, but not limited to, UCC termination
statements for all UCC financing statements previously filed by it or any of
them or their predecessors, as secured party and Borrower or any Obligor, as
debtor and the Seasonal Trade Creditors have been paid in full in cash (or
amounts, not to exceed $750,000 in the aggregate shall have been set aside or
placed in escrow sufficient to so pay such Seasonal
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Trade Creditors) all amounts owing to them under the "Seasonal Vendor Security
Agreement" (as defined in such Intercreditor Agreement);
(c) Lender shall have received evidence, in form and substance
satisfactory to Lender, that Lender has valid perfected and first priority
security interests in and liens upon the Collateral and any other property which
is intended to be security for the Obligations or the liability of any Obligor
in respect thereof, subject only to the security interests and liens permitted
herein or in the other Financing Agreements;
(d) Lender shall have received, in form and substance satisfactory to
Lender, an intercreditor agreement by and among Investors, Franchise Noteholders
and Lender, as acknowledged and agreed to by Borrower and Obligors, providing
for, among other things, the relative rights and priorities with respect to the
assets and properties of Borrower and Obligors as among Investors, Lender and
Franchise Noteholders;
(e) Lender shall have received, in form and substance satisfactory to
Lender, (A) evidence that the Franchise Note Agreements have been duly executed
and delivered by and to the appropriate parties thereto and that such Franchise
Note Agreements provide for, among other things, (i) a committed term loan
facility from Franchise Noteholders to Borrower in a principal amount of
$7,000,000 or such greater amount as is necessary for Borrower to meet the
Excess Availability requirement set forth in Section 4.1(n) hereof, and (ii)
true and complete copies of all of the Franchise Note Agreements;
(f) Lender shall have received, in form and substance satisfactory to
Lender, an intercreditor agreement by and among Investors, Franchise Noteholders
and Lender, as acknowledged and agreed to by Borrower and Obligors, providing
for, among other things, the relative rights and priorities with respect to the
assets and properties of Borrower and Obligors as among Investors, Lender and
Franchise Noteholders;
(g) all requisite corporate action and proceedings in connection with
this Agreement and the other Financing Agreements shall be satisfactory in form
and substance to Lender, and Lender shall have received all information and
copies of all documents, including, without limitation, records of requisite
corporate action and proceedings which Lender may have requested in connection
therewith, such documents where requested by Lender or its counsel to be
certified by appropriate corporate officers or governmental authorities;
(h) no material adverse change shall have occurred in the assets,
business or financial condition of Borrower since the date of Lender's latest
field examination and no change or event shall have occurred which would impair
the ability of Borrower or any Obligor, in any material respect, to perform its
obligations hereunder or under any of the other Financing Agreements to which it
is a party or of Lender to enforce the Obligations or realize upon the
Collateral;
(i) Lender shall have completed a field review of the Records and such
other information with respect to the Collateral as Lender may require to
determine the amount of Loans available to Borrower (including, without
limitation, current perpetual inventory records
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and/or roll-forwards of Accounts and Inventory through the date of closing and
test counts of the Inventory in a manner satisfactory to Lender, together with
such supporting documentation as may be necessary or appropriate, and other
documents and information that will enable Lender to accurately identify and
verify the Collateral), the results of which in each case shall be satisfactory
to Lender, not more than three (3) Business Days prior to the date hereof;
(j) Lender shall have received, in form and substance satisfactory to
Lender, all consents, waivers, acknowledgments and other agreements from third
persons which Lender may deem necessary or desirable in order to permit, protect
and perfect its security interests in and liens upon the Collateral or to
effectuate the provisions or purposes of this Agreement and the other Financing
Agreements, including, without limitation, acknowledgments by lessors,
mortgagees and warehousemen of Lender's security interests in the Collateral,
waivers by such persons of any security interests, liens or other claims by such
persons to the Collateral and agreements permitting Lender access to, and the
right to remain on, the premises to exercise its rights and remedies and
otherwise deal with the Collateral;
(k) Borrower shall have established the Blocked Accounts and Lender
shall have received, in form and substance satisfactory to Lender, all
agreements with the depository banks and Borrower with respect to such Blocked
Accounts as Lender may require pursuant to Section 6.3 hereof, duly authorized,
executed and delivered by such depository banks and Borrower;
(l) Lender shall have received evidence, in form and substance
satisfactory to Lender, that all local banks used by Borrower for collections
from retail store locations have been irrevocably authorized and directed in
writing to remit such amounts to the Blocked Accounts;
(m) Lender shall have received Credit Card Acknowledgments in each
case, duly authorized, executed and delivered by the Credit Card Issuers and
Credit Card Processors;
(n) (i) the Excess Availability as determined by Lender, as of the
date hereof, shall not be less than $10,000,000 after giving effect to the
initial Loans made or to be made and Letter of Credit Accommodations issued or
to be issued in connection with the initial transactions hereunder and (ii) the
aggregate amount of all outstanding and unpaid current liabilities of Borrower
(including without limitation, Old Payables) as determined by Lender, as of the
date hereof, shall not exceed $45,000,000, after giving effect to receipt by
Borrower of (A) the Loans to be made to Borrower on the date hereof and (B) the
proceeds of the issuance of the E Notes, and the application of the foregoing
amounts in accordance with the terms hereof and the Franchise Note Agreements;
(o) Lender shall have received evidence of insurance and loss payee
endorsements required hereunder and under the other Financing Agreements, in
form and substance satisfactory to Lender, and certificates of insurance
policies and/or endorsements naming Lender as loss payee;
(p) Lender shall have received, in form and substance satisfactory to
Lender, (i) evidence that the "Trade Notes" (as such term is defined in the
Vendor Forbearance and
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Standstill Agreement dated August 16, 1999 by and among Borrower and each of
Borrower's vendors signatory thereto) have been paid in cash in full, (ii)
Borrower's on-going plan for repayment of outstanding accounts payable owing to
suppliers of inventory, trade goods and services, which plan is included in the
Business Plan of Borrower dated as of January 12, 2000 provided to Lender prior
to the date hereof, and copies of all agreements with trade creditors with
respect to outstanding accounts payable, and (iii) fully executed payoff
letters, in form and substance satisfactory to Lender, from holders of Trade
Notes aggregating at least $3,250,000 in outstanding principal amount;
(q) Lender shall have received true, correct and complete copies of
the Franchise Note Agreements, in form and substance satisfactory to Lender, and
all other agreements, documents and instruments executed by any Borrower or any
Obligor with, to or in favor of Franchise Noteholders in connection therewith;
(r) Lender shall have received true, correct and complete copies of
the Investment Agreements, as amended through the date hereof, in form and
substance satisfactory to Lender, and all other agreements, documents and
instruments executed by any Borrower or any Obligor with, to or in favor of
Investors in connection therewith,
(s) Lender shall have received, in form and substance satisfactory to
Lender, the opinion letter of counsel(s) to Borrower with respect to the
Financing Agreements and the security interests and liens of Lender with respect
to the Collateral and such other matters as Lender may request; and
(t) the other Financing Agreements and all instruments and documents
hereunder and thereunder shall have been duly executed and delivered to Lender,
in form and substance satisfactory to Lender.
4.2. Conditions Precedent to All Loans and Letter of Credit Accommodations.
Each of the following is an additional condition precedent to Lender making
Loans and/or providing Letter of Credit Accommodations to Borrower, including
the initial Loans and Letter of Credit Accommodations and any future Loans and
Letter of Credit Accommodations:
(a) all representations and warranties contained herein and in the
other Financing Agreements shall be true and correct in all material respects
with the same effect as though such representations and warranties had been made
on and as of the date of the making of each such Loan or providing each such
Letter of Credit Accommodation and after giving effect thereto; and
(b) no Event of Default and no act, condition or event which, with
notice or passage of time or both, would constitute an Event of Default, shall
exist or have occurred and be continuing on and as of the date of the making of
such Loan or providing each such Letter of Credit Accommodation and after giving
effect thereto.
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SECTION 5. SECURITY INTEREST
-----------------
To secure payment and performance of all Obligations, Borrower hereby
grants to Lender a continuing security interest in, a lien upon, and a right of
set off against, and hereby assigns to Lender as security, the following
property and interests in property of Borrower, whether now owned or hereafter
acquired or existing, and wherever located (together with all other collateral
security for the Obligations at any time granted to or held or acquired by
Lender, collectively, the "Collateral"):
5.1. Receivables;
5.2. all other present and future general intangibles (including Franchise
Royalties and all Borrower's rights to royalty payments or any other rights
pursuant to any Franchise Agreement or related agreement to the extent permitted
to be assigned or pledged) Intellectual Property and existing and future
leasehold interests in equipment, real estate and fixtures), chattel paper,
documents, instruments, investment property (including securities, whether
certificated or uncertificated, securities accounts, security entitlements,
commodity contracts or commodity accounts), letters of credit, bankers'
acceptances and guaranties;
5.3. all present and future monies, securities and other investment
property, credit balances, deposits, deposit accounts and other property of
Borrower now or hereafter held or received by or in transit to Lender or its
Affiliates or at any other depository or other institution from or for the
account of Borrower, whether for safekeeping, pledge, custody, transmission,
collection or otherwise, and all present and future liens, security interests,
rights, remedies, title and interest in, to and in respect of Receivables and
other Collateral, including (a) rights and remedies under or relating to
guaranties, contracts of suretyship, letters of credit and credit and other
insurance related to the Collateral, (b) rights of stoppage in transit,
replevin, repossession, reclamation and other rights and remedies of an unpaid
vendor, lienor, secured party, (c) goods described in invoices, documents,
contracts or instruments with respect to, or otherwise representing or
evidencing, Receivables or other Collateral, including returned, repossessed and
reclaimed goods, and (d) deposits by and property of account debtors or other
persons securing the obligations of account debtors;
5.4. Inventory;
5.5. Equipment;
5.6. Real Property;
5.7. Records; and
5.8. all products and proceeds of the foregoing, in any form, including
insurance proceeds and all claims against third parties for loss or damage to or
destruction of any or all of the foregoing.
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Notwithstanding the foregoing, the Collateral shall not include funds paid
or held in trust or escrow as or into the "Ad Fund" (as defined in Exhibit 1.43
hereof). Borrower agrees that at no time will an amount in excess of $2,000,000
be held in the Ad Fund.
SECTION 6. COLLECTION AND ADMINISTRATION
-----------------------------
6.1. Borrower's Loan Account. Lender shall maintain one or more loan
account(s) on its books in which shall be recorded all Loans, Letter of Credit
Accommodations and other Obligations and the Collateral, all payments made by or
on behalf of Borrower and all other appropriate debits and credits as provided
in this Agreement, including, without limitation, fees, charges, costs, expenses
and interest. All entries in the loan account(s) shall be made in accordance
with Lender's customary practices as in effect from time to time.
6.2. Statements. Lender shall render to Borrower each month a statement
setting forth the balance in the Borrower's loan account(s) maintained by Lender
for Borrower pursuant to the provisions of this Agreement, including principal,
interest, fees, costs and expenses. Each such statement shall be subject to
subsequent adjustment by Lender but shall, absent manifest errors or omissions,
be considered correct and deemed accepted by Borrower and conclusively binding
upon Borrower as an account stated except to the extent that Lender receives a
written notice from Borrower of any specific exceptions of Borrower thereto
within thirty (30) days after the date such statement has been mailed by Lender.
Until such time as Lender shall have rendered to Borrower a written statement as
provided above, the balance in Borrower's loan account(s) shall be presumptive
evidence of the amounts due and owing to Lender by Borrower.
6.3. Collection of Accounts.
(a) Borrower shall establish and maintain, at its expense, deposit
account arrangements and merchant payment arrangements with the banks set forth
on Schedule 6.3 hereto and after prior written notice to Lender, subject to
Section 9.16, such other banks as Borrower may hereafter select as are
acceptable to Lender. The banks set forth on Schedule 6.3 constitute all of the
banks with whom Borrower has deposit account arrangements and merchant payment
arrangements as of the date hereof and identifies each of the deposit accounts
at such banks to a retail store location of Borrower or otherwise describes the
nature of the use of such deposit account by Borrower.
(i) Borrower shall deposit all proceeds from sales of Inventory
in every form, including, without limitation, cash, checks, credit card sales
drafts, credit card sales or charge slips or receipts and other forms of daily
store receipts, from each retail store location of Borrower on each Business Day
into the deposit accounts of Borrower used solely for such purpose and
identified to each retail store location as set forth on Schedule 6.3 (together
with any other deposit accounts at any time established or used by Borrower for
receiving such store receipts from any retail store location, collectively, the
"Store Bank Accounts") or as otherwise provided in Section 6.3(a)(ii) below.
Borrower shall, on each Business Day, authorize and direct, and shall use its
best efforts to cause, all available funds deposited into the Store Bank
Accounts
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to be sent by wire transfer or by transfer using the automated clearinghouse
network ("ACH transfer") not less frequently than on each Business Day, and all
other proceeds of Collateral (other than Franchise Royalties) to be sent by wire
transfer or by ACH transfer, to the Blocked Account as provided in Section
6.3(a)(ii) below (except nominal amounts which are required to be maintained in
such Store Bank Accounts under the terms of Borrower's arrangements with the
bank at which such Store Bank Accounts are maintained as in effect on the date
hereof, not to exceed $850,000 in the aggregate in all such deposit accounts at
any time). Borrower shall irrevocably authorize and direct in writing, in form
and substance satisfactory to Lender, each of the banks into which proceeds from
sales of Inventory from each retail store location of Borrower are at any time
deposited as provided above to (a) honor all wire or ACH transfer requests,
provided that any and all amounts released and/or transferred by such bank
pursuant to such requests are sent to the Blocked Account and (b) follow any
contrary instructions sent to such banks by Lender. Such authorization and
direction shall not be rescinded, revoked or modified without the prior written
consent of Lender. In the event any of such banks fails to send such funds to
the Blocked Account as provided herein, Borrower shall pursue all of its rights
and remedies, as requested by Lender, as a result of such failure.
Notwithstanding the foregoing, for those Store Bank Accounts that transfer funds
daily by ACH transfer initiated by Borrower's store management notifying a third
party processor, Borrower shall irrevocably authorize and direct in writing, in
form and substance satisfactory to Lender, the third party processor that
establishes the routing and executes the ACH transfer to send funds only to the
Blocked Accounts and to agree to do so at any time upon Lender's request and
Lender shall receive an agreement from such third party processor confirming its
agreement to do so. Such authorization and direction shall not be rescinded,
revoked or modified without the prior written consent of Lender.
(ii) Borrower shall establish and maintain, at its expense,
deposit accounts with such banks as are acceptable to Lender (the "Blocked
Accounts") into which Borrower shall promptly either cause all amounts on
deposit in its Store Bank Accounts to be sent as provided in Section 6.3(a)(i)
above or shall itself deposit or cause to be deposited all proceeds from sales
of Inventory, all amounts payable to Borrower from Credit Card Issuers and
Credit Card Processors and all other proceeds of Collateral (other than
Franchise Royalties). The banks at which the Blocked Accounts are established
shall enter into an agreement, in form and substance satisfactory to Lender,
providing that all items received or deposited in the Blocked Accounts are the
property of Lender, that the depository bank has no lien upon, or right of
setoff against, the Blocked Accounts, the items received for deposit therein, or
the funds from time to time on deposit therein and that the depository bank will
wire, or otherwise transfer, in immediately available funds, on a daily basis,
all funds received or deposited into the Blocked Accounts to such bank account
of Lender as Lender may from time to time designate for such purpose ("Payment
Account"). Borrower agrees that all amounts deposited in such Blocked Accounts
or in the Store Bank Accounts or other funds received and collected by Lender,
whether as proceeds of Inventory or other Collateral or otherwise shall be
treated as payments to Lender in respect of the Obligations and therefore shall
constitute property of Lender to the extent of the then outstanding Obligations.
(b) For purposes of calculating the amount of the Loans
available to Borrower such payments will be applied (conditional upon final
collection) to the Obligations on the Business Day of receipt by Lender of
immediately available funds in the Payment Account
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provided such payments and notice thereof are received in accordance with
Lender's usual and customary practices as in effect from time to time and within
sufficient time to credit Borrower's loan account on such day, and if not, then
on the next Business Day. For purposes of calculating interest on the
Obligations, such payments or other funds received will be applied (conditional
upon final collection) to the Obligations one (1) Business Days following the
date of receipt of immediately available funds by Lender in the Payment Account
provided such payments or other funds and notice thereof are received in
accordance with Lender's usual and customary practices as in effect from time to
time and within sufficient time to credit Borrower's loan account on such day,
and if not, then on the next Business Day.
(c) Borrower and all of its affiliates, subsidiaries, shareholders,
directors, employees or agents shall, acting as trustee for Lender, receive, as
the property of Lender, any cash, checks, credit card sales drafts, credit card
sales or charge slips or receipts, notes, drafts, all forms of store receipts or
any other payment relating to and/or proceeds of Accounts or other Collateral
which come into their possession or under their control and immediately upon
receipt thereof, shall deposit or cause the same to be deposited in the Blocked
Accounts, or remit the same or cause the same to be remitted, in kind, to
Lender, provided, that, if at any time the Excess Availability shall be less
than $1,000,000, Borrower shall promptly upon Lender's request cause the portion
thereof representing sales and/or use taxes payable in connection with such
sales or otherwise to be deposited into a separate bank account or accounts
established for such purpose. In no event shall and such cash, checks, credit
card sales drafts, credit card sales or charge slips or receipts, notes, drafts
or other payments be commingled with Borrower's own funds. Borrower agrees to
reimburse Lender on demand for any amounts owed or paid to any bank at which a
Blocked Account is established or any other bank or person involved in the
transfer of funds to or from the Blocked Accounts arising out of Lender's
payments to or indemnification of such bank or person. The obligation of
Borrower to reimburse Lender for such amounts pursuant to this Section 6.3 shall
survive the termination or non-renewal of this Agreement.
6.4. Payments. All Obligations shall be payable to the Payment Account as
provided in Section 6.3 or such other place as Lender may designate from time to
time. Lender shall apply payments received or collected from Borrower or for the
account of Borrower (including, without limitation, the monetary proceeds of
collections or of realization upon any Collateral) to such of the Obligations,
whether or not then due, in such order and manner as Lender determines;
provided, that, all such payments shall be applied to Prime Rate Loans before
being applied to Eurodollar Rate Loans. At Lender's option, all principal,
interest, fees, costs, expenses and other charges provided for in this Agreement
or the other Financing Agreements may be charged directly to the loan account(s)
of Borrower. Borrower shall make all payments to Lender on the Obligations free
and clear of, and without deduction or withholding for or on account of, any
setoff, counterclaim, defense, duties, taxes, levies, imposts, fees, deductions,
withholding, restrictions or conditions of any kind. If after receipt of any
payment of, or proceeds of Collateral applied to the payment of, any of the
Obligations, Lender is required to surrender or return such payment or proceeds
to any Person for any reason, then the Obligations intended to be satisfied by
such payment or proceeds shall be reinstated and continue and this Agreement
shall continue in full force and effect as if such payment or proceeds had not
been received by Lender. Borrower shall be liable to pay to Lender, and does
hereby indemnify and hold Lender harmless for the amount of any payments or
proceeds surrendered or returned. This Section 6.4 shall remain
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effective notwithstanding any contrary action which may be taken by Lender in
reliance upon such payment or proceeds. This Section 6.4 shall survive the
payment of the Obligations and the termination or non-renewal of this Agreement.
6.5. Authorization to Make Loans. Lender is authorized to make the Loans
and provide the Letter of Credit Accommodations based upon telephonic or other
instructions received from anyone purporting to be an officer of Borrower or
other authorized person or, at the discretion of Lender, if such Loans are
necessary to satisfy any Obligations. All requests for Loans or Letter of Credit
Accommodations hereunder shall specify the date on which the requested advance
is to be made or Letter of Credit Accommodations established (which day shall be
a Business Day) and the amount of the requested Loan. Requests received after
11:00 a.m. New York City time on any day shall be deemed to have been made as of
the opening of business on the immediately following Business Day. All Loans and
Letter of Credit Accommodations under this Agreement shall be conclusively
presumed to have been made to, and at the request of and for the benefit of,
Borrower when deposited to the credit of Borrower or otherwise disbursed or
established in accordance with the instructions of Borrower or in accordance
with the terms and conditions of this Agreement.
6.6. Use of Proceeds. Borrower shall use the initial proceeds of the Loans
provided by Lender to Borrower hereunder only for: (a) payments to each of the
persons listed in the disbursement direction letter furnished by Borrower to
Lender on or about the date hereof and (b) costs, expenses and fees in
connection with the preparation, negotiation, execution and delivery of this
Agreement and the other Financing Agreements. All other Loans made or Letter of
Credit Accommodations provided by Lender to Borrower pursuant to the provisions
hereof shall be used by Borrower only for general operating, working capital and
other proper corporate purposes of Borrower not otherwise prohibited by the
terms hereof. None of the proceeds will be used, directly or indirectly, for the
purpose of purchasing or carrying any margin security or for the purposes of
reducing or retiring any indebtedness which was originally incurred to purchase
or carry any margin security or for any other purpose which might cause any of
the Loans to be considered a "purpose credit" within the meaning of Regulation U
of the Board of Governors of the Federal Reserve System, as amended.
SECTION 7. COLLATERAL REPORTING AND COVENANTS
----------------------------------
7.1. Collateral Reporting. Borrower shall provide Lender with the following
documents in a form satisfactory to Lender:
(a) on a weekly basis or more frequently as Lender may request, (i)
perpetual inventory reports by Department and location, (ii) reports of sales of
Inventory, indicating gross sales, returns, allowances and net sales, (iii)
reports of aggregate Inventory purchases (including all costs related thereto,
such as freight, duty and taxes, if and to the extent Borrower includes such
costs in the cost of such Inventory), and (iv) reports of outstanding
documentary and stand-by letters of credit by category of Eligible Inventory by
Department;
(b) on a monthly basis or more frequently as Lender may request,
agings of accounts payable (including without limitation, a status of payments
to owners and lessors of all
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leased premises of Borrower, warehouses and Off-Site Storage Locations) together
with a certification of the chief financial officer of Borrower that Borrower is
current with respect to all such payments to owners and lessors of leased
premises of Borrower, warehouses and Off-Site Storage Locations;
(c) upon Lender's request, (i) copies of customer statements and
credit memos, remittance advices and reports, and copies of deposit slips and
bank statements, (ii) copies of shipping and delivery documents, (iii) copies of
purchase orders, invoices and delivery documents for Inventory and Equipment
acquired by Borrower, (iv) reports on sales and use tax collections, deposits
and payments, including monthly sales and use tax accruals, and (v) reports by
retail store location of sales and operating profits for each such retail store
location;
(d) as soon as available, but in any event not later than five (5)
days after receipt by Borrower, the monthly statements received by Borrower from
any Credit Card Issuers or Credit Card Processors, together with such additional
information with respect thereto as shall be sufficient to enable Lender to
monitor the transactions pursuant to the Credit Card Agreements; and
(e) such other reports as to the Collateral as Lender shall request
from time to time.
If any of Borrower's records or reports of the Collateral are prepared or
maintained by an accounting service, contractor, shipper or other agent,
Borrower hereby irrevocably authorizes such service, contractor, shipper or
agent to deliver such records, reports, and related documents to Lender and to
follow Lender's instructions with respect to further services at any time that
an Event of Default exists or has occurred and is continuing.
7.2. Accounts Covenants.
(a) Borrower shall notify Lender promptly of: (i) any notice of a
material default by Borrower under any of the Credit Card Agreements or of any
default which might result in the Credit Card Issuer or Credit Card Processor
ceasing to make payments or suspending payments to Borrower, (ii) any notice
from any Credit Card Issuer or Credit Card Processor that such person is ceasing
or suspending, or will cease or suspend, any present or future payments due or
to become due to Borrower from such person, or that such person is terminating
or will terminate any of the Credit Card Agreements, and (iii) the failure of
Borrower to comply with any material terms of the Credit Card Agreements or any
terms thereof which might result in the Credit Card Issuer or Credit Card
Processor ceasing or suspending payments to Borrower.
(b) Lender may, at any time or times that an Event of Default exists
or has occurred, (i) notify any or all account debtors, Credit Card Issuers and
Credit Card Processors that the Accounts have been assigned to Lender and that
Lender has a security interest therein and Lender may direct any or all account
debtors, Credit Card Issuers and Credit Card Processors to make payments of
Accounts directly to Lender, (ii) extend the time of payment of, compromise,
settle or adjust for cash, credit, return of merchandise or otherwise, and upon
any terms or conditions, any and all Accounts or other obligations included in
the Collateral and thereby
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discharge or release the account debtor or any other party or parties in any way
liable for payment thereof without affecting any of the Obligations, (iii)
demand, collect or enforce payment of any Accounts or such other obligations,
but without any duty to do so, and Lender shall not be liable for its failure to
collect or enforce the payment thereof nor for the negligence of its agents or
attorneys with respect thereto and (iv) take whatever other action Lender may
deem necessary or desirable for the protection of its interests. At any time
that an Event of Default exists or has occurred and is continuing, at Lender's
request, all invoices and statements sent to any account debtor, Credit Card
Issuer or Credit Card Processor shall state that the Accounts due from such
account debtor, Credit Card Issuer or Credit Card Processor and such other
obligations have been assigned to Lender and are payable directly and only to
Lender and Borrower shall deliver to Lender such originals of documents
evidencing the sale and delivery of goods or the performance of services giving
rise to any Accounts as Lender may require.
(c) Lender shall have the right at any time or times, in Lender's name
or in the name of a nominee of Lender, to verify the validity, amount or any
other matter relating to any Collateral, by mail, telephone, facsimile
transmission or otherwise; provided, that, if no Event of Default has occurred
and is continuing, Lender shall not contact any vendor of Borrower or any
Franchisee without first notifying Borrower.
(d) Borrower shall deliver or cause to be delivered to Lender, with
appropriate endorsement and assignment, with full recourse to Borrower, all
chattel paper and instruments which Borrower now owns or may at any time acquire
immediately upon Borrower's receipt thereof, except as Lender may otherwise
agree.
7.3. Inventory Covenants. With respect to the Inventory: (a) Borrower shall
at all times maintain inventory records reasonably satisfactory to Lender,
keeping correct and accurate records itemizing and describing the kind, type,
quality and quantity of Inventory, Borrower's cost therefor and daily
withdrawals therefrom and additions thereto; (b) commencing March, 2000 and
monthly thereafter, Borrower shall within twenty (20) days of the end of the
previous month deliver to Lender cycle counts of its Inventory at not less than
eight (8) Company Owned Stores selected by Lender each month (Lender shall
notify Borrower of the stores at which such cycle counts are to be taken on or
before the fifteenth (15th) day of the month prior to which cycle counts are to
be taken), such counts to be conducted by RGIS Inventory Specialists, Inc. or
such other inventory counting service as is acceptable to Lender, and at any
time or times and at as many stores as Lender may request on or after the
occurrence of an Event of Default; (c) Borrower shall not remove any Inventory
from the locations set forth or permitted herein, without the prior written
consent of Lender, except for sales of Inventory in the ordinary course of
Borrower's business and except to move Inventory directly from one location set
forth or permitted herein to another such location; (d) upon Lender's request,
Borrower shall, at its expense, no more than four (4) times in any twelve (12)
month period, but at any time or times as Lender may request at Lender's
expense, or at any time or times as Lender may request at Borrower's expense on
or after an Event of Default, deliver or cause to be delivered to Lender written
reports or appraisals as to the Inventory in form, scope and methodology
acceptable to Lender and by an appraiser acceptable to Lender, addressed to
Lender and upon which Lender is expressly permitted to rely; (e) upon Lender's
request, Borrower shall, at its expense, conduct through an inventory counting
service acceptable to Lender, a physical count of the Inventory in
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form, scope and methodology acceptable to Lender no more than once in any twelve
(12) month period, but at any time or times as Lender may request on or after an
Event of Default or at any time or times as Lender may request in the event of
test count variances in excess of the shrinkage reserve established by Borrower,
the results of which shall be reported directly by such inventory counting
service to Lender and Borrower shall promptly deliver confirmation in a form
satisfactory to Lender that appropriate adjustments have been made to the
inventory records of Borrower to reconcile the inventory count to Borrower's
inventory records; (f) Borrower shall produce, use, store and maintain the
Inventory, with all reasonable care and caution and in accordance with
applicable standards of any insurance and in conformity with applicable laws
(including, but not limited to, the requirements of the Federal Fair Labor
Standards Act of 1938, as amended and all rules, regulations and orders related
thereto); (g) Borrower assumes all responsibility and liability arising from or
relating to the production, use, sale or other disposition of the Inventory; (h)
Borrower shall not sell Inventory to any customer on approval, or any other
basis which entitles the customer to return or may obligate Borrower to
repurchase such Inventory except for the right of return given to retail
customers of Borrower in the ordinary course of the business of Borrower in
accordance with the then current return policy of Borrower; (i) Borrower shall
keep the Inventory in good and marketable condition; and (j) Borrower shall not
acquire or accept any Inventory on consignment or approval, except to the extent
such Inventory is reported to Lender in accordance with the terms hereof.
7.4. Equipment Covenants. With respect to the Equipment and Real Property:
(a) Borrower shall keep the Equipment in good order, repair, running and
marketable condition (ordinary wear and tear excepted); (b) Borrower shall use
the Equipment with all reasonable care and caution and in accordance with
applicable standards of any insurance and in conformity with all applicable
laws; (c) the Equipment is and shall be used in Borrower's business and not for
personal, family, household or farming use; (d) Borrower shall not remove any
Equipment from the locations set forth on permitted herein, except to the extent
necessary to have any Equipment repaired or maintained in the ordinary course of
business of Borrower or to move Equipment directly from one location set forth
or permitted herein to another such location and except for the movement of
motor vehicles used by or for the benefit of Borrower in the ordinary course of
business; (e) the Equipment is now and shall remain personal property and
Borrower shall not permit any of the Equipment to be or become a part of or
affixed to real property; and (f) Borrower assumes all responsibility and
liability arising from the use of the Equipment.
7.5. Power of Attorney. Borrower hereby irrevocably designates and appoints
Lender (and all persons designated by Lender) as Borrower's true and lawful
attorney-in-fact, and authorizes Lender, in Borrower's or Lender's name, to: (a)
at any time an Event of Default has occurred and is continuing (i) demand
payment on Accounts or other proceeds of Inventory or other Collateral, (ii)
enforce payment of Accounts by legal proceedings or otherwise, (iii) exercise
all of Borrower's rights and remedies to collect any Account or other
Collateral, sell or assign any Account upon such terms, for such amount and at
such time or times as the Lender deems advisable, (v) settle, adjust,
compromise, extend or renew an Account, (vi) discharge and release any Account,
(vii) prepare, file and sign Borrower's name on any proof of claim in bankruptcy
or other similar document against an account debtor, (viii) notify the post
office authorities to change the address for delivery of Borrower's mail to an
address designated by Lender, and open and dispose of all mail addressed to
Borrower, and (ix) do all acts and things which are necessary,
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in Lender's determination, to fulfill Borrower's obligations under this
Agreement and the other Financing Agreements and at any time to (i) take control
in any manner of any item of payment or proceeds thereof, (ii) have access to
any lockbox or postal box into which Borrower's mail is deposited, (iii) endorse
Borrower's name upon any items of payment or proceeds thereof and deposit the
same in the Lender's account for application to the Obligations, endorse
Borrower's name upon any chattel paper, document, instrument, invoice, or
similar document or agreement relating to any Account or any goods pertaining
thereto or any other Collateral, (v) sign Borrower's name on any verification of
Accounts and notices thereof to account debtors and (vi) execute in Borrower's
name and file any UCC financing statements or amendments thereto. Borrower
hereby releases Lender and its officers, employees and designees from any
liabilities arising from any act or acts under this power of attorney and in
furtherance thereof, whether of omission or commission, except as a result of
Lender's own gross negligence or wilful misconduct as determined pursuant to a
final non-appealable order of a court of competent jurisdiction.
7.6. Right to Cure. Lender may, at its option, (a) cure any default by
Borrower under any agreement with a third party or pay or bond on appeal any
judgment entered against Borrower, (b) discharge taxes, liens, security
interests or other encumbrances at any time levied on or existing with respect
to the Collateral and (c) pay any amount, incur any expense or perform any act
which, in Lender's good faith judgment, is necessary or appropriate to preserve,
protect, insure or maintain the Collateral and the rights of Lender with respect
thereto. Lender may add any amounts so expended to the Obligations and charge
Borrower's account therefor, such amounts to be repayable by Borrower on demand.
Lender shall be under no obligation to effect such cure, payment or bonding and
shall not, by doing so, be deemed to have assumed any obligation or liability of
Borrower. Any payment made or other action taken by Lender under this Section
shall be without prejudice to any right to assert an Event of Default hereunder
and to proceed accordingly.
7.7. Access to Premises. From time to time as reasonably requested by
Lender, at the cost and expense of Borrower, (a) Lender or its designee shall
have complete access to all of Borrower's premises during normal business hours
and after notice to Borrower, or at any time and without notice to Borrower if
an Event of Default exists or has occurred and is continuing, for the purposes
of inspecting, verifying and auditing the Collateral and all of Borrower's books
and records, including, without limitation, the Records, (b) Borrower shall
promptly furnish to Lender such copies of such books and records or extracts
therefrom as Lender may reasonably request, and (c) Lender or its designee may
use during normal business hours such of Borrower's personnel, equipment,
supplies and premises as may be reasonably necessary for the foregoing and if an
Event of Default exists or has occurred and is continuing for the collection of
Accounts and realization of other Collateral.
SECTION 8. REPRESENTATIONS AND WARRANTIES
------------------------------
Borrower hereby represents and warrants to Lender the following (which
shall survive the execution and delivery of this Agreement), the truth and
accuracy of which are a continuing condition of the making of Loans and
providing Letter of Credit Accommodations by Lender to Borrower:
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8.1. Corporate Existence, Power and Authority; Subsidiaries. Borrower and
each of its Subsidiaries is a corporation duly organized and in good standing
under the laws of its state of incorporation and is duly qualified as a foreign
corporation and in good standing in all states or other jurisdictions where the
nature and extent of the business transacted by it or the ownership of assets
makes such qualification necessary, except for those jurisdictions in which the
failure to so qualify would not have a material adverse effect on Borrower's
financial condition, results of operation or business or the rights of Lender in
or to any of the Collateral. The execution, delivery and performance of this
Agreement, the other Financing Agreements and the transactions contemplated
hereunder and thereunder are all within corporate powers of Borrower and each of
its Subsidiaries, have been duly authorized and are not in contravention of law
or the terms of Borrower's or any Obligor's certificate of incorporation,
by-laws, or other organizational documentation, or any indenture, agreement or
undertaking to which Borrower or any of its Subsidiaries is a party or by which
Borrower or any of its Subsidiaries or its property are bound. This Agreement
and the other Financing Agreements constitute legal, valid and binding
obligations of Borrower enforceable in accordance with their respective terms.
Borrower does not have any Subsidiaries other than Party City Michigan.
8.2. Financial Statements; No Material Adverse Change. All financial
statements relating to Borrower and its Subsidiaries which have been or may
hereafter be delivered by Borrower to Lender have been prepared in accordance
with GAAP and fairly present the financial condition and the results of
operation of Borrower as at the dates and for the periods set forth therein.
Except as disclosed in any interim financial statements furnished by Borrower to
Lender prior to the date of this Agreement, there has been no material adverse
change in the assets, liabilities, properties and condition, financial or
otherwise, of Borrower and its Subsidiaries, taken as a whole, since the date of
the most recent audited financial statements furnished by Borrower to Lender
prior to the date of this Agreement.
8.3. Chief Executive Office; Collateral Locations. (a) The chief executive
office of Borrower and Borrower's Records concerning Accounts and Inventory are
located only at the address set forth on the signature page hereto and its only
other places of business and the only other locations of Collateral, if any, are
the addresses set forth in the Information Certificate, subject to the right of
Borrower to establish new locations in accordance with Section 9.2 below. The
Information Certificate correctly identifies any of such locations which are not
owned by Borrower and sets forth the owners and/or operators thereof and to the
best of Borrower's knowledge, the holders of any mortgages on such locations.
(b) Each of the Franchise Locations is described on 1.43. Each of the
Company-Owned Stores (and their locations) is described on the Information
Certificate. The Off-Site Storage Locations are described on Schedule 1.68.
There are no Borrower stores which are not described in the Information
Certificate and neither Borrower nor any of its Subsidiaries conducts any retail
businesses other than at such locations or the locations listed on Information
Certificate.
(c) All of Borrower's Inventory is kept at all times at either (i) the
Company-Owned Stores or (ii) the Off-Site Storage Locations described on
Schedule 1.68. No Subsidiary of Borrower owns or has rights to any Inventory. No
Inventory at any Company-Owned Store is
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subject to any consignment or conditional sale and is owned free and clear by
Borrower and none of Borrower's Inventory is located at any Franchise Locations.
Neither Borrower nor any of its Subsidiaries purchases or holds Inventory on
behalf of any Franchisee.
8.4. Priority of Liens; Title to Properties. The security interests and
liens granted to Lender under this Agreement and the other Financing Agreements
constitute valid and perfected first priority liens and security interests in
and upon the Collateral subject only to the liens indicated on Schedule 8.4
hereto and the other liens permitted under Section 9.8 hereof. Borrower and each
of its Subsidiaries has good and marketable title to or valid leasehold
interests in all of its properties and assets subject to no liens, mortgages,
pledges, security interests, encumbrances or charges of any kind, except those
granted to Lender and such others as are specifically listed on Schedule 8.4
hereto or permitted under Section 9.8 hereof.
8.5. Tax Returns. Borrower and each of its Subsidiaries has filed, or
caused to be filed, in a timely manner all tax returns, reports and declarations
which are required to be filed by it (without requests for extension except as
set forth on Schedule 8.5 hereto). All information in such tax returns, reports
and declarations is complete and accurate in all material respects. Borrower and
each of its Subsidiaries, as the case may be has paid or caused to be paid all
taxes due and payable or claimed due and payable in any assessment received by
it, and has collected, deposited and remitted in accordance with all applicable
laws all sales and/or use taxes applicable to the conduct of its business,
except taxes the validity of which are being contested in good faith by
appropriate proceedings diligently pursued and available to Borrower or any of
its Subsidiaries, as the case may be and with respect to which adequate reserves
have been set aside on its books. Adequate provision has been made for the
payment of all accrued and unpaid Federal, State, county, local, foreign and
other taxes whether or not yet due and payable and whether or not disputed.
Borrower has collected and deposited in a separate bank account or remitted to
the appropriate tax authority all sales and/or use taxes applicable to its
business required to be collected under the laws of the United States and each
possession or territory thereof, and each State or political subdivision
thereof, including any State in which Borrower owns any Inventory or owns or
leases any other property.
8.6. Litigation. Except as set forth on the Information Certificate, there
is no present investigation by any governmental agency pending, or to the best
of Borrower's knowledge threatened, against or affecting Borrower or any of its
Subsidiaries, their assets or business and there is no action, suit, proceeding
or claim by any Person pending, or to the best of Borrower's knowledge
threatened, against Borrower or any of its Subsidiaries or their respective
assets or goodwill, or against or affecting any transactions contemplated by
this Agreement, which if adversely determined against Borrower or any of its
Subsidiaries would result in any material adverse change in the assets, business
or financial condition of Borrower and its Subsidiaries, taken as a whole, or
would impair the ability of Borrower or any of its Subsidiaries to perform its
obligations hereunder or under any of the other Financing Agreements to which it
is a party or of Lender to enforce any Obligations or realize upon any
Collateral.
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8.7. Compliance with Other Agreements and Applicable Laws.
(a) Neither Borrower nor any of its Subsidiaries is in default in any
respect under, or in violation in any respect of any of the terms of, any
agreement, contract, instrument, lease or other commitment to which it is a
party or by which it or any of its assets are bound where such default or
violation would have a Material Adverse Effect. Each of Borrower and its
Subsidiaries is in compliance in all material respects with the requirements of
all applicable laws, rules, regulations and orders of any governmental authority
relating to its business (other than Environmental Laws which are specifically
addressed in Section 8.8 hereof), including, without limitation, those set forth
in or promulgated pursuant to the Occupational Safety and Health Act of 1970, as
amended, the Fair Labor Standards Act of 1938, as amended, ERISA, the Code, as
amended, and the rules and regulations thereunder, all Federal, State and local
statutes, regulations, rules and orders relating to consumer credit (including,
without limitation, as each has been amended, the Truth-in-Lending Act, the Fair
Credit Billing Act, the Equal Credit Opportunity Act and the Fair Credit
Reporting Act, and regulations, rules and orders promulgated thereunder), all
Federal, State and local states, regulations, rules and orders pertaining to
sales of consumer goods (including, without limitation, the Consumer Products
Safety Act of 1972, as amended, and the Federal Trade Commission Act of 1914, as
amended, and all regulations, rules and orders promulgated thereunder).
(b) Borrower and each of its Subsidiaries has obtained all material
permits, licenses, approvals, consents, certificates, orders or authorizations
of any governmental agency required for the lawful conduct of its business.
Schedule 8.7 hereto sets forth all material permits, licenses, approvals,
consents, certificates, orders or authorizations (the "Permits") issued to or
held by Borrower and its Subsidiaries as of the date hereof by any Federal,
State or local governmental agency and any applications pending by Borrower with
such federal, state or local governmental agency. The Permits constitute all
permits, licenses, approvals, consents, certificates, orders or authorizations
necessary for Borrower and each of its Subsidiaries to own and operate its
business as presently conducted or proposed to be conducted where the failure to
have such Permits would have a material adverse effect on the business,
performance, operations or properties of Borrower or the legality, validity or
enforceability of this Agreement or the other Financing Agreements or the
ability of Borrower or any of its Subsidiaries to perform its obligations under
the Agreement or any of the other Financing Agreements or the rights and
remedies of Lender under this Agreement or any of the other Financing
Agreements. All of the Permits are valid and subsisting and in full force and
effect. There are no actions, claims or proceedings pending or threatened that
seek the revocation, cancellation, suspension or modification of any of the
Permits.
8.8. Environmental Compliance.
(a) Except as set forth on Schedule 8.8 hereto, neither Borrower nor
any of its Subsidiaries has generated, used, stored, treated, transported,
manufactured, handled, produced or disposed of any Hazardous Materials, on or
off its premises (whether or not owned by it) in any manner which at any time
violates any applicable Environmental Law or any Permit issued to Borrower or
any of its Subsidiaries thereunder where such violation would have a Material
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Adverse Effect and the operations of Borrower and each of its Subsidiaries
comply in all material respects with all applicable Environmental Laws and all
Permits thereunder.
(b) Except as set forth on Schedule 8.8 hereto, there is no
investigation, proceeding, complaint, order, directive, claim, citation or
notice by any governmental authority or any other person pending or to the best
of Borrower's knowledge threatened, with respect to any non-compliance with or
violation of the requirements of any applicable Environmental Law by Borrower or
any of its Subsidiaries which if adversely determined against Borrower or any of
its Subsidiaries would result in a Material Adverse Effect, nor has there been
any release, spill or discharge, overtly threatened or actual, of any Hazardous
Material on any properties of Borrower or any of its Subsidiaries, or to the
best of Borrower's knowledge, releases, spills or discharges from any properties
at which Borrower or any of its Subsidiaries has transported, stored or disposed
of any Hazardous Materials which would result in a Material Adverse Effect.
(c) Except as set forth in Schedule 8.8 hereto, neither Borrower nor
any of its Subsidiaries has any material liability (contingent or otherwise) in
connection with a release, spill or discharge, overtly threatened or actual, of
any Hazardous Materials or the generation, use, storage, treatment,
transportation, manufacture, handling, production or disposal of any Hazardous
Materials.
(d) Borrower and each of its Subsidiaries has all Permits required to
be obtained or filed in connection with the operations of Borrower and each of
its Subsidiaries under any Environmental Law and all of such Permits are valid
and in full force and effect in each case where the failure to obtain, file or
maintain such Permits would have a Material Adverse Effect.
8.9. Credit Card Agreements. Set forth in Schedule 8.9 hereto is a correct
and complete list of (a) all of the Credit Card Agreements and all other
material agreements, documents and instruments existing as of the date hereof
between or among Borrower, any of its affiliates, the Credit Card Issuers, the
Credit Card Processors and any of their affiliates, (b) the percentage of each
sale payable to the Credit Card Issuer or Credit Card Processor under the terms
of the Credit Card Agreements, (c) all other fees and charges payable by
Borrower under or in connection with the Credit Card Agreements and (d) the term
of such Credit Card Agreements. The Credit Card Agreements constitute all of
such agreements necessary for Borrower to operate its business as presently
conducted with respect to credit cards and debit cards and no Accounts of
Borrower arise from purchases by customers of Inventory with credit cards or
debit cards, other than those which are issued by Credit Card Issuers with whom
Borrower has entered into one of the Credit Card Agreements set forth on
Schedule 8.9 hereto or with whom Borrower has entered into a Credit Card
Agreement in accordance with Section 9.13 hereof. Each of the Credit Card
Agreements constitutes the legal, valid and binding obligations of Borrower and
to the best of Borrower's knowledge, the other parties thereto, enforceable in
accordance with their respective terms and are in full force and effect. No
default or event of default, or act, condition or event which after notice or
passage of time or both, would constitute a default or an event of default under
any of the Credit Card Agreements exists or has occurred. Borrower and the other
parties thereto have complied with all of the terms and conditions of the Credit
Card Agreements to the extent necessary for Borrower to be entitled to receive
all payments thereunder. Borrower
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has delivered, or caused to be delivered to Lender, true, correct and complete
copies of all of the Credit Card Agreements.
8.10. Employee Benefits.
(a) Borrower nor any of its Subsidiaries has engaged in any
transaction in connection with which Borrower or any of its ERISA Affiliates
could be subject to either a civil penalty assessed pursuant to ERISA or a tax
imposed the Code which would have a Material Adverse Effect.
(b) No liability to the Pension Benefit Guaranty Corporation has been
or is expected by Borrower to be incurred with respect to any employee benefit
plan of Borrower or any of its ERISA Affiliates. There has been no reportable
event (within the meaning of ERISA) or any other event or condition with respect
to any employee benefit plan of Borrower or any of its ERISA Affiliates which
presents a risk of termination of any such plan by the Pension Benefit Guaranty
Corporation.
(c) Full payment has been made, or will be made with the periods
prescribed by the Code and ERISA, of all amounts which Borrower or any of its
ERISA Affiliates is required under ERISA and the Code to have paid under the
terms of each employee benefit plan as contributions to such plan as of the last
day of the most recent fiscal year of such plan ended prior to the date hereof,
and no accumulated funding deficiency (as defined in ERISA and the Code),
whether or not waived, exists with respect to any employee pension benefit plan.
(d) The current value of all vested accrued benefits under all
employee pension benefit plans maintained by Borrower that are subject to Title
IV of ERISA does not exceed the current value of the assets of such plans
allocable to such vested accrued benefits. The terms "current value" and
"accrued benefit" have the meanings specified in ERISA.
(e) Neither Borrower nor any of its ERISA Affiliates is or has ever
been obligated to contribute to any "multiemployer plan" (as such term is
defined in ERISA) that is subject to Title IV of ERISA.
8.11. Bank Accounts. All of the deposit accounts, investment accounts or
other accounts in the name of or used by Borrower maintained at any bank or
other financial institution are set forth on Schedule 6.3 hereto, subject to the
right of Borrower to establish new accounts in accordance with Section 9.16
below.
8.12. Accuracy and Completeness of Information. All information furnished
by or on behalf of Borrower in writing to Lender in connection with this
Agreement or any of the other Financing Agreements or any transaction
contemplated hereby or thereby, including, without limitation, all information
on the Information Certificate is true and correct in all material respects on
the date as of which such information is dated or certified and does not omit
any material fact necessary in order to make such information not misleading. No
event or circumstance has occurred which has had or could reasonably be expected
to have a material adverse affect on the
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business, assets or financial condition of Borrower and its Subsidiaries, taken
as a whole, which has not been fully and accurately disclosed to Lender in
writing.
8.13. Year 2000 Compliance. Borrower has taken all action which may be
required so that its computer-based information systems, including, without
limitation, all of its proprietary computer hardware and software and all
computer hardware and software leased or licensed from third parties (and
whether supplied by others or with which Borrower's systems interface) are able
to operate effectively and correctly process data using dates on or after
January 1, 2000. Compliance with the foregoing shall mean that the systems will
operate and correctly process data without human intervention such that (a)
there is correct century recognition, (b) calculations properly accommodate same
century and multi-century formulas and date values, (c) all leap years shall be
calculated corrected and (d) the information systems shall otherwise comply with
applicable industry standards and regulatory guidelines regarding the change of
the century and year 2000 compliance.
8.14. Old Payables. The aggregate amount of all Old Payables outstanding
and unpaid as of the date hereof is not greater than $18,500,000.
8.15. Trade Notes. Schedule 8.15 lists all of the holders of Trade Notes
(as such term is defined in the Vendor Forbearance Agreement). There are no
holders of Trade Notes other than those listed on Schedule 8.15.
8.16. Survival of Warranties; Cumulative. All representations and
warranties contained in this Agreement or any of the other Financing Agreements
shall survive the execution and delivery of this Agreement and shall be deemed
to have been made again to Lender on the date of each additional borrowing or
other credit accommodation hereunder and shall be conclusively presumed to have
been relied on by Lender regardless of any investigation made or information
possessed by Lender. The representations and warranties set forth herein shall
be cumulative and in addition to any other representations or warranties which
Borrower shall now or hereafter give, or cause to be given, to Lender.
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS
----------------------------------
9.1. Maintenance of Existence. Borrower shall and shall cause each of its
Subsidiaries to at all times preserve, renew and keep in full, force and effect
its corporate existence and rights and franchises with respect thereto and
maintain in full force and effect all permits, licenses, trademarks, tradenames,
approvals, authorizations, leases and contracts necessary to carry on the
business as presently or proposed to be conducted. Borrower shall and shall
cause each of its Subsidiaries to give Lender thirty (30) days prior written
notice of any proposed change in its corporate name, which notice shall set
forth the new name and Borrower shall deliver to Lender a copy of the amendment
to the Certificate of Incorporation of Borrower or such Subsidiary, as the case
may be, providing for the name change certified by the Secretary of State of the
jurisdiction of incorporation of Borrower or such Subsidiary as soon as it is
available.
9.2. New Collateral Locations. Borrower may open any new location within
the continental United States provided Borrower gives Lender thirty (30) days
prior written notice of
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the intended opening of any such new location and executes and delivers, or
causes to be executed and delivered, to Lender such agreements, documents, and
instruments as Lender may deem reasonably necessary or desirable to protect its
interests in the Collateral at such location, including UCC financing
statements.
9.3. Compliance with Laws, Regulations, Etc.
(a) Borrower shall and shall cause its Subsidiaries to at all times
comply in all material respects with all applicable provisions of laws, rules,
regulations, licenses, permits, approvals and orders and duly observe all
material requirements, of any foreign, Federal, State or local governmental
authority, including the Occupational Safety and Health Act of 1970, as amended,
the Code, the Fair Labor Standards Act of 1938, as amended, and the rules and
regulations thereunder, all Federal, State and local statutes, regulations,
rules and orders relating to consumer credit (including, without limitation, as
each has been amended, the Truth-in-Lending Act, the Fair Credit Billing Act,
the Equal Credit Opportunity Act and the Fair Credit Reporting Act, and
regulations, rules and orders promulgated thereunder), all Federal, State and
local statutes, regulations, rules and orders pertaining to sales of consumer
goods (including, without limitation, the Consumer Products Safety Act of 1972,
as amended, and the Federal Trade Commission Act of 1914, as amended, and all
regulations, rules and orders promulgated thereunder) and all statutes, rules,
regulations, orders, permits and stipulations relating to environmental
pollution and employee health and safety, including all Environmental Laws.
(b) At the reasonable request of Lender and in any event, to the
extent required by applicable law, Borrower shall establish and maintain, at its
expense, a system to assure and monitor its and each of its Subsidiaries
continued compliance with all Environmental Laws in all of its operations, which
system shall include annual reviews of such compliance by employees or agents of
Borrower who are familiar with the requirements of the Environmental Laws. Upon
the reasonable request of Lender, copies of all environmental surveys, audits,
assessments, feasibility studies and results of remedial investigations shall be
promptly furnished, or caused to be furnished, by Borrower to Lender. Borrower
shall take prompt and appropriate action to respond to any non-compliance by
Borrower or any of its Subsidiaries with any Environmental Law of which Borrower
or any of its Subsidiaries becomes aware which non-compliance would have a
Material Adverse Effect and shall regularly report to Lender on such response.
(c) Borrower shall give prompt written notice to Lender upon
Borrower's or any Subsidiary's receipt of any notice of, or Borrower's or any of
its Subsidiaries otherwise obtaining knowledge of, (i) the occurrence of any
event involving the release, spill or discharge, threatened or actual, of any
Hazardous Material in violation of applicable Environmental Law or (ii) any
investigation, proceeding, complaint, order, directive, claims, citation or
notice with respect to: (A) any non-compliance with or violation of any
Environmental Law by Borrower or any of its Subsidiaries or (B) the release,
spill or discharge, threatened or actual, of any Hazardous Material or (C) the
generation, use, storage, treatment, transportation, manufacture, handling,
production or disposal of any Hazardous Materials other than in accordance with
applicable Environmental Laws in all material respects or (D) any other
environmental, health or safety matter, which in the case of (i) or (ii) would
have a Material Adverse Effect.
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(d) Without limiting the generality of the foregoing, whenever Lender
reasonably determines that there is material non-compliance, or any condition
which requires any action by or on behalf of Borrower or any of its Subsidiaries
in order to avoid any material non-compliance, with any applicable Environmental
Law, Borrower promptly shall and shall cause each of its Subsidiaries to, at
Lender's reasonable request and Borrower's expense: (i) cause an independent
environmental engineer acceptable to Lender to conduct such assessments or tests
of the site where Borrower's or any of its Subsidiaries non-compliance or
alleged non-compliance with such Environmental Laws has occurred as to such
non-compliance and prepare and deliver to Lender a report as to such
non-compliance setting forth the results of such assessments or tests, a
proposed plan for responding to any environmental problems described therein,
and an estimate of the costs thereof and (ii) provide to Lender a supplemental
report of such engineer whenever the scope of such non-compliance, or Borrower's
response thereto or the estimated costs thereof, shall change in any material
respect.
(e) Borrower shall indemnify and hold harmless Lender, its directors,
officers, employees, agents, invitees, representatives, successors and assigns,
from and against any and all losses, claims, damages, liabilities, costs, and
expenses (including reasonable attorneys' fees and legal expenses) directly or
indirectly arising out of or attributable to the use, generation, manufacture,
reproduction, storage, release, threatened release, spill, discharge, disposal
or presence of a Hazardous Material at the property of Borrower, including the
costs of any required or necessary repair, cleanup or other remedial work with
respect to any property of Borrower and the preparation and implementation of
any closure, remedial or other required plans, provided, however, that Borrower
shall have no obligation under this Section 9.3 with respect to any and all
losses, claims, damages, liabilities, costs or expenses resulting from the gross
negligence or willful misconduct of Lender, its directors, officers, employees,
agents, invitees, representatives, successors or assigns as determined pursuant
to a final, non-appealable order of a court of competent jurisdiction or the
taking of title of the property of Borrower by Lender, whether by foreclosure,
deed in lieu of foreclosure, power of sale or otherwise. All representations,
warranties, covenants and indemnifications in this Section 9.3 shall survive the
payment of the Obligations and the termination or non-renewal of this Agreement.
9.4. Payment of Taxes and Claims. Borrower shall and shall cause each of
its Subsidiaries to duly pay and discharge all taxes, assessments, contributions
and governmental charges upon or against it or its properties or assets, except
for taxes the validity of which are being contested in good faith by appropriate
proceedings diligently pursued and available to Borrower or such Subsidiary and
with respect to which adequate reserves have been set aside on its books.
Borrower shall be liable for any tax or penalties imposed on Lender as a result
of the financing arrangements provided for herein and Borrower agrees to
indemnify and hold Lender harmless with respect to the foregoing, and to repay
to Lender on demand the amount thereof, and until paid by Borrower such amount
shall be added and deemed part of the Loans, provided, that, nothing contained
herein shall be construed to require Borrower to pay any income or franchise
taxes attributable to the income of Lender from any amounts charged or paid
hereunder to Lender. The foregoing indemnity shall survive the payment of the
Obligations and the termination or non-renewal of this Agreement.
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9.5. Insurance. Borrower shall and shall cause its Subsidiaries to, at all
times, maintain with financially sound and reputable insurers insurance with
respect to the Collateral against loss or damage and all other insurance of the
kinds and in the amounts customarily insured against or carried by corporations
of established reputation engaged in the same or similar businesses and
similarly situated. Said policies of insurance shall be reasonably satisfactory
to Lender as to form, amount and insurer. Borrower shall furnish certificates,
policies or endorsements to Lender as Lender shall reasonably require as proof
of such insurance, and, if Borrower fails to do so, Lender is authorized, but
not required, to obtain such insurance at the expense of Borrower. All policies
shall provide for at least thirty (30) days prior written notice to Lender of
any cancellation or reduction of coverage and that Lender may act as attorney
for Borrower in obtaining, and at any time an Event of Default exists or has
occurred and is continuing, adjusting, settling, amending and canceling such
insurance. Borrower shall cause Lender to be named as a loss payee and an
additional insured (but without any liability for any premiums) under such
insurance policies and Borrower shall obtain non-contributory lender's loss
payable endorsements to all insurance policies in form and substance reasonably
satisfactory to Lender. Such lender's loss payable endorsements shall specify
that the proceeds of such insurance shall be payable to Lender as its interests
may appear and further specify that Lender shall be paid regardless of any act
or omission by Borrower, any of its Subsidiaries or any of its affiliates. At
its option, Lender may apply any insurance proceeds received by Lender at any
time to the cost of repairs or replacement of Collateral and/or to payment of
the Obligations, whether or not then due, in any order and in such manner as
Lender may determine or hold such proceeds as cash collateral for the
Obligations.
9.6. Financial Statements and Other Information
(a) Borrower shall and shall cause each of its Subsidiaries to keep
proper books and records in which true and complete entries shall be made of all
dealings or transactions of or in relation to the Collateral and the business of
Borrower and its Subsidiaries (if any) in accordance with GAAP and Borrower
shall furnish or cause to be furnished to Lender: (i) within (A) forty-five (45)
days after the end of each fiscal month that is also the end of a fiscal quarter
and (B) thirty (30) days after the end of each other fiscal month, monthly
unaudited consolidated financial statements, and, if Borrower has any
subsidiaries, unaudited consolidating financial statements (including in each
case balance sheets, statements of income and loss, statements of cash flow and
statements of shareholders' equity), all in reasonable detail, fairly presenting
the financial position and the results of the operations of Borrower and its
Subsidiaries as of the end of and through such fiscal month, and (ii) within
ninety (90) days after the end of each fiscal year, audited consolidated
financial statements and, if Borrower has any subsidiaries, audited
consolidating financial statements of Borrower and its Subsidiaries (including
in each case balance sheets, statements of income and loss, statements of cash
flow and statements of shareholders' equity), and the accompanying notes
thereto, all in reasonable detail, fairly presenting the financial position and
the results of the operations of Borrower and its Subsidiaries as of the end of
and for such fiscal year, together with the unqualified opinion of independent
certified public accountants, which accountants shall be an independent
accounting firm selected by Borrower and reasonably acceptable to Lender, that
such financial statements have been prepared in accordance with GAAP, and
present fairly the results of operations and financial condition of Borrower and
its Subsidiaries as of the end of and for the fiscal year then ended.
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(b) Borrower shall promptly notify Lender in writing of the details of
(i) any material loss, damage, investigation, action, suit, proceeding or claim
relating to the Collateral or any other property which is security for the
Obligations or which would result in any material adverse change in Borrower's
business, properties, assets, goodwill or condition, financial or otherwise and
(ii) the occurrence of any Event of Default or act, condition or event which,
with the passage of time or giving of notice or both, would constitute an Event
of Default.
(c) Borrower shall promptly after the sending or filing thereof
furnish or cause to be furnished to Lender copies of all reports which Borrower
sends to its stockholders generally and copies of all reports and registration
statements which Borrower files with the Securities and Exchange Commission, any
national securities exchange or the National Association of Securities Dealers,
Inc.
(d) Without limiting the rights of Lender under any other provision of
this Agreement, as soon as available, but in any event not later than three (3)
days after the end of each calendar month, Borrower shall deliver to Lender, in
form and substance satisfactory to Lender, in each case certified by the chief
financial officer of Borrower as true and correct: (i) a statement confirming
the payment of rent and other amounts due to owners and lessors of real property
used by Borrower in the immediately preceding month, subject to year-end or
periodic adjustments, (ii) the addresses of all new retail store locations of
Borrower opened and existing retail store locations closed or sold, in each case
since the date of the most recent certificate delivered to Lender containing the
information required under this clause, and (ii) a report of any new deposit
account, investment account, security accounts or other accounts established or
used by Borrower with any bank or other financial institution, including the
Borrower in whose name the account is maintained, the account number, the name
and address of the financial institution at which such account is maintained,
the purpose of such account and, if any, the amount held in such account on or
about the date of such report.
(e) Borrower shall furnish or cause to be furnished to Lender such
budgets, forecasts, projections and other information respecting the Collateral
and the business of Borrower and its Subsidiaries, as Lender may, from time to
time, reasonably request. Lender is hereby authorized to deliver a copy of any
financial statement or any other information relating to the business of
Borrower to any court or other government agency or to any participant or
assignee or prospective participant or assignee. Borrower hereby irrevocably
authorizes and directs all accountants or auditors to deliver to Lender, at
Borrower's expense, copies of the financial statements of Borrower and its
Subsidiaries and any reports or management letters prepared by such accountants
or auditors on behalf of Borrower and to disclose to Lender such information as
they may have regarding the business of Borrower. Any documents, schedules,
invoices or other papers delivered to Lender may be destroyed or otherwise
disposed of by Lender one (1) year after the same are delivered to Lender,
except as otherwise designated by Borrower to Lender in writing.
9.7. Sale of Assets, Consolidation, Merger, Dissolution, Etc. Borrower
shall not and shall not permit any of its Subsidiaries to, directly or
indirectly:
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(a) merge into or with or consolidate with any other Person or permit
any other Person to merge into or with or consolidate with it, or
(b) sell, assign, lease, transfer, abandon or otherwise dispose of any
Capital Stock or indebtedness to any other Person or any of its assets to any
other Person, except for: (i) sales of Inventory in the ordinary course of
business,
(ii) the disposition of worn-out or obsolete Equipment so long as
such disposition shall not, in the good faith determination of Lender, have a
material adverse effect on the condition (financial or otherwise), business,
performance, operations or properties of Borrower; the ability of Borrower to
repay the Obligations or of Borrower to perform its obligations under this
Agreement or any of the other Financing Agreements,
(iii) sales or other dispositions by Borrower of assets in
connection with the closing or sale of a retail store location of Borrower in
the ordinary course of Borrower's business which consist of leasehold interests
in the premises of such store, the Equipment and fixtures located at such
premises and the books and records relating exclusively and directly to the
operations of such store; provided, that, as to each and all such sales, (A) on
the date of, and after giving effect to, any such sale, in any calendar year,
Borrower shall not have closed or sold retail store locations accounting for
more than ten (10%) percent of all sales of Borrower in the immediately
preceding twelve (12) month period, (B) Lender shall have received not less than
ten (10) Business Days prior written notice of such sale, which notice shall set
forth in reasonable detail satisfactory to Lender, the parties to such sale or
other disposition, the assets to be sold or otherwise disposed of, the purchase
price and the manner of payment thereof and such other information with respect
thereto as Lender may request, (C) as of the date of such sale or other
disposition and after giving effect thereto, no Event of Default, or act,
condition or event which with notice or passage of time would constitute an
Event of Default, shall exist or have occurred, (D) such sale shall be on
commercially reasonable prices and terms in a bona fide arm's length
transaction, and (E) any and all net proceeds payable or delivered to Borrower
in respect of such sale or other disposition shall be paid or delivered, or
caused to be paid or delivered, to Lender in accordance with the terms of this
Agreement either, at Lender's option, for application to the Obligations in
accordance with the terms hereof (except to the extent such proceeds reflect
payment in respect of indebtedness secured by a properly perfected first
priority security interest in the assets sold, in which case, such proceeds
shall be applied to such indebtedness secured thereby) or to be held by Lender
as cash collateral for the Obligations on terms and conditions acceptable to
Lender;
(iv) the issuance and sale by Borrower of Capital Stock of
Borrower after the date hereof, provided, that, (A) Borrower shall not be
required to pay any dividends or repurchase or redeem such Capital Stock or make
any other payments in respect thereof, unless otherwise permitted in Section
9.11 hereof, (B) the terms of such Capital Stock, and the terms and conditions
of the purchase and sale thereof, shall not include any terms that limit the
right of Borrower to request or receive Loans or Letter of Credit Accommodations
or to amend or modify any of the terms and conditions of this Agreement or any
of the other Financing Agreements or otherwise in any way relate to or affect
the arrangements of Borrower with Lender
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or are more restrictive or burdensome to Borrower than the terms of any Capital
Stock in effect on the date hereof, and (C) as of the date of such issuance and
sale and after giving effect thereto, no Event of Default shall exist or have
occurred and be continuing;
(v) the issuance of Capital Stock of Borrower consisting of
common stock pursuant to a stock option plan or 401(k) plan of Borrower for the
benefit of its employees, directors and consultants, provided, that, in no event
shall Borrower be required to issue, or shall Borrower issue, Capital Stock
pursuant to such stock option plan or 401(k) plan which would result in an Event
of Default;
(vi) payments to the "ad fund" (as such term is defined in the
Franchise Agreement) by Borrower on behalf of Company-Owned Stores, provided,
that, on the date of any such payment each of the following conditions is
satisfied in the determination of Lender: (A) as of the date of any such payment
and after giving effect thereto, the daily Excess Availability of Borrower shall
be not less than $1,000,000, and (B) as of the date of any such payment and
after giving effect thereto, no Event of Default, or act, condition or event
which with notice or passage of time or both would constitute an Event of
Default, shall exist or have occurred;
(vii) any grant of a Franchise;
(viii) transfers permitted under Section 9.11(a) hereof;
(c) form or acquire any Subsidiaries other than those listed in the
Information Certificate, or
(d) wind up, liquidate or dissolve, or
(e) agree to do any of the foregoing.
9.8. Encumbrances. Borrower shall not, and shall not permit any of its
Subsidiaries to create, incur, assume or suffer to exist any security interest,
mortgage, pledge, lien, charge or other encumbrance of any nature whatsoever on
any of its assets or properties, including the Collateral, except:
(a) the liens and security interests of Lender;
(b) liens securing the payment of taxes, either not yet overdue or the
validity of which are being contested in good faith by appropriate proceedings
diligently pursued and available to Borrower or such Subsidiary and with respect
to which adequate reserves have been set aside on its books;
(c) non-consensual statutory liens (other than liens securing the
payment of taxes) arising in the ordinary course of Borrower's or such
Subsidiary's business (including carriers', warehousemen's, materialmen's,
landlord's and mechanics lien) to the extent: such liens secure indebtedness
which is not overdue or such liens secure indebtedness relating to claims or
liabilities which are fully insured and being defended at the sole cost and
expense and at the sole risk of the insurer or being contested in good faith by
appropriate proceedings diligently pursued
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and available to Borrower or such Subsidiary, in each case prior to the
commencement of foreclosure or other similar proceedings and with respect to
which adequate reserves have been set aside on its books;
(d) zoning restrictions, easements, licenses, covenants and other
restrictions affecting the use of real property which do not interfere in any
material respect with the use of such real property or ordinary conduct of the
business of Borrower or such Subsidiary as presently conducted thereon or
materially impair the value of the real property which may be subject thereto;
(e) purchase money security interests in Equipment, exclusive of
purchase money security interests in respect of Systems Expenditures described
in Section 9.8(f) below (including capital leases), and purchase money mortgages
on real estate not to exceed $1,000,000 in the aggregate at any time outstanding
so long as such security interests and mortgages do not apply to any property of
Borrower other than the Equipment or real estate so acquired, and the
indebtedness secured thereby does not exceed the cost of the such Equipment or
real estate so acquired, as the case may be;
(f) purchase money security interests in Equipment, software, services
and costs relating solely to Borrower's point of sale systems and information
systems (collectively, the "Systems Expenditures") purchased after the date
hereof (including capital leases) with prior approval of Borrower's board of
directors, not to exceed $10,000,000 in the aggregate at any time outstanding so
long as such security interests do not apply to any property of Borrower other
than assets related to Systems Expenditures (the "Systems Assets") and the
indebtedness secured thereby does not exceed the cost of such Systems Assets so
acquired;
(g) liens arising from operating leases and the precautionary UCC
financing statements filed in respect thereof;
(h) setoff or credit balances of Borrower with Credit Card Issuers,
but not liens on or rights of setoff against any other property or assets of
Borrower pursuant to the Credit Card Agreements (as in effect on the date
hereof) to secure the obligations of Borrower to the Credit Card Issuers as a
result of fees and chargebacks;
(i) security interests and liens on the Collateral to secure the
Indebtedness of Borrower to Investors permitted under Section 9.9(d) below; and
(j) security interests and liens on the Collateral to secure the
Indebtedness of Borrower to Franchise Noteholders permitted under Section 9.9(e)
below; and
(k) pledges and deposits of cash by Borrower after the date hereof in
the ordinary course of business in connection with workers' compensation,
unemployment insurance and other types of social security benefits consistent
with the current practices of Borrower as of the date hereof;
(l) pledges and deposits of cash by Borrower after the date hereof to
secure the performance of tenders, bids, leases, trade contracts (other than for
the repayment of
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Indebtedness), statutory obligations and other similar obligations in each case
in the ordinary course of business consistent with the current practice of
Borrowers as of the date hereof; provided, that, in connection with any
performance bonds issued by a surety or other person, not secured solely by the
cash deposit, the issuer of such bond shall have waived in writing any rights in
or to, or other interest in, any of the Collateral in an agreement, in form and
substance satisfactory to Lender; and
(m) the security interests and liens set forth on Schedule 8.4 hereto.
9.9. Indebtedness. Borrower shall not, and shall not permit any of its
Subsidiaries to incur, create, assume, become or be liable in any manner with
respect to, or permit to exist, any obligations or Indebtedness, except:
(a) the Obligations;
(b) trade obligations and normal accruals in the ordinary course of
business not yet due and payable, or with respect to which Borrower is
contesting in good faith the amount or validity thereof by appropriate
proceedings diligently pursued and available to Borrower and with respect to
which adequate reserves have been set aside on its books;
(c) purchase money indebtedness (including capital leases) to the
extent not incurred or secured by liens (including capital leases) in violation
of any other provision of this Agreement;
(d) the Indebtedness of Borrower to Investors arising in respect of
the A Notes, B Notes, C Notes and D Notes pursuant to the Investment Agreements,
provided, that:
(i) the principal amount of such Indebtedness shall not exceed in
the aggregate $30,000,000, less the aggregate amount of all mandatory repayments
or repurchases of principal in respect thereof, plus interest thereon at the
rate provided for in the Investment Agreements as in effect on the date hereof;
provided, that, the foregoing limitation shall not preclude Borrower from
complying with the terms of such Indebtedness that permits the addition of
interest to the principal amount of such Indebtedness (e.g., "PIK" interest),
(ii) such Indebtedness shall only be secured by a third priority
security interest and lien in favor of Investors on the Collateral,
(iii) Borrower may make regularly scheduled payments of interest
in respect of such Indebtedness, provided, that, on the date of any such payment
and after giving effect thereto, no Event of Default or act, condition or event
which with notice or passage of time or both would constitute an Event of
Default shall exist or have occurred and be continuing,
(iv) Borrower may make regularly scheduled payments of principal
in respect of such Indebtedness, provided, that, each of the following
conditions is satisfied in the determination of Lender: (A) the Excess
Availability on the date of any such payment and after giving effect thereto
shall be not less than $10,000,000 and (B) as of the date of any such payment
and after giving effect thereto, no Event of Default, or act, condition or event
which with notice
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or passage of time or both would constitute an Event of Default, shall exist or
have occurred and be continuing,
(v) Borrower shall not, directly or indirectly, amend, modify,
alter or change any terms of the Investment Agreements, except, that, Borrower
may, after prior written notice to Lender, amend, modify, alter or change the
terms thereof so as to (1) extend the maturity thereof or defer the timing of
any payments in respect thereof, or (2) to forgive or cancel any portion of such
Indebtedness other than pursuant to payments thereof, or (3) to reduce the
interest rate or any fees in connection therewith, or to release any liens or
security interests in any assets and properties of Borrower, or to (4) make any
provision of the Investment Agreements less burdensome or restrictive as to
Borrower than that in effect with respect to such Indebtedness on the date
hereof, or make any principal payments in respect of or redeem, retire, defease,
purchase or otherwise acquire such Indebtedness, or set aside or otherwise
deposit or invest any sums for such purpose other than those payments of
principal permitted pursuant to Section 9.9(d)(iv) above, and
(vi) Borrower shall furnish to Lender copies of all material
notices, demands or other materials concerning such Indebtedness either received
by Borrower or on its behalf, promptly after receipt thereof, or sent by
Borrower, or on its behalf, concurrently with the sending thereof, as the case
may be,
(e) the Indebtedness of Borrower to Franchise Noteholders arising in
respect of the E Notes pursuant to the Franchise Note Agreements, provided,
that:
(i) the outstanding aggregate principal amount of such
Indebtedness shall be at $7,000,000 or such greater amount as is necessary to
satisfy the requirements of Section 4.1(n) hereof plus interest thereon at the
rate provided for in the Franchise Note Agreements as in effect on the date
hereof; provided, that, the foregoing limitation shall not preclude Borrower
from complying with the terms of such Indebtedness that permits the addition of
interest to the principal amount of such Indebtedness (e.g., "PIK" interest),
(ii) such Indebtedness shall only be secured by a first priority
security interest and lien in favor of Franchise Noteholders on the Franchise
Royalties of Borrower and a second priority security interest and lien on all
other Collateral,
(iii) Borrower may make regularly scheduled payments of interest
in respect of such Indebtedness, provided, that, on the date of any such payment
and after giving effect thereto, no Event of Default, or act, condition or event
which with notice or passage of time or both would constitute an Event of
Default shall exist or have occurred and be continuing,
(iv) Borrower may make regularly scheduled payments of principal
in respect of such Indebtedness due on January __, 2002, provided, that, each of
the following conditions is satisfied in the determination of Lender: the Excess
Availability on the date of any such payment and after giving effect thereto
shall not be less than $20,000,000; and as of the date of any such payment and
after giving effect thereto, no Event of Default or act, condition or event
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which with notice or passage of time or both would constitute an Event of
Default, shall exist or have occurred and be continuing,
(v) Borrower shall not, directly or indirectly, amend, modify,
alter or change any terms of the Franchise Note Agreements, except, that,
Borrower may, after prior written notice to Lender, amend, modify, alter or
change the terms thereof so as to (1) extend the maturity thereof or defer the
timing of any payments in respect thereof, or (2) to forgive or cancel any
portion of such Indebtedness other than pursuant to payments thereof, or (3) to
reduce the interest rate or any fees in connection therewith, or to release any
liens or security interests in any assets and properties of Borrower, or to (4)
make any provision of the Franchise Note Agreements less burdensome or
restrictive as to Borrower than that in effect with respect to such Indebtedness
on the date hereof, or make any principal payments in respect of, redeem,
retire, defease, purchase or otherwise acquire such Indebtedness (except
pursuant to regularly scheduled payments of interest permitted herein), or set
aside or otherwise deposit or invest any sums for such purpose other than those
payments of principal permitted pursuant to Section 9.9(e)(iv) above, and
(vi) Borrower shall furnish to Lender copies of all material
notices, demands or other materials concerning such Indebtedness either received
by Borrower or on its behalf, promptly after receipt thereof, or sent by
Borrower, or on its behalf, concurrently with the sending thereof, as the case
may be; and
(f) Old Payables in accordance with Section 9.21 hereof.
9.10. Loans, Investments, Guarantees, Etc. Borrower shall not and shall not
permit any of its Subsidiaries to, directly or indirectly, make any loans or
advance money or property to any person, or invest in (by capital contribution,
dividend or otherwise) or purchase or repurchase the Capital Stock or
indebtedness or all or a substantial part of the assets or property of any
person, or guarantee, assume, endorse, or otherwise become responsible for
(directly or indirectly) the indebtedness, performance, obligations or dividends
of any Person or agree to do any of the foregoing, except:
(a) the endorsement of instruments for collection or deposit in the
ordinary course of business,
(b) investments in cash or Cash Equivalents, provided, that, no Loans
are then outstanding, and as to any of the foregoing, unless waived in writing
by Lender, Borrower shall take such actions as are deemed necessary by Lender to
perfect the security interest of Lender in such investments, except, that, even
if Loans are outstanding Borrower may invest in cash or Cash Equivalents on an
overnight basis for cash management purposes;
(c) the existing loans, advances and guarantees by Borrower
outstanding as of the date hereof as set forth on Schedule 9.10 hereto;
provided, that, as to such loans, advances and guarantees, (i) Borrower shall
not, directly or indirectly, (A) amend, modify, alter or change the terms of
such loans, advances or guarantees or any agreement, document or instrument
related thereto, or (B) as to such guarantees, redeem, retire, defease, purchase
or otherwise
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acquire such guarantee or set aside or otherwise deposit or invest any sums for
such purpose and (ii) Borrower shall furnish to Lender all notices, demands or
other materials in connection with such loans, advances or guarantees either
received by Borrower or on its behalf, promptly after the receipt thereof, or
sent by Borrower or on its behalf, concurrently with the sending thereof, as the
case may be;
(d) loans or advances by Borrower to any of its employees, after the
date hereof, or guaranties made by any Borrower of indebtedness or obligations
of any of its employees not to exceed the principal amount of $500,000 in the
aggregate at any time outstanding in the ordinary course of Borrower's business
for reasonable and necessary work-related travel, moving, entertainment and
other ordinary business expenses to be incurred by such employees in connection
with their employment with such Borrower, provided, that, as of the date of any
such loan or guarantee thereof by Borrower and after giving effect thereto, no
Event of Default shall exist or have occurred and be continuing;
(e) the guarantees by Party City Michigan of (i) the Obligations of
Borrower in favor of Lender and (ii) the Indebtedness of Borrower in favor of
the Franchise Noteholders and the Investors;
(f) the existing equity investments of Borrower as of the date hereof
in its Subsidiaries listed in the Information Certificate, provided, that,
Borrower shall not have any obligation to make any other investment in or loans
to, or other payments in respect of, any such Subsidiaries, except that the
foregoing shall not be construed to prohibit loans and investments otherwise
permitted in this Agreement;
(g) investments consisting of the extension of trade credit by
Borrower in the ordinary course of business not involving (i) the borrowing of
money or (ii) the obtaining of credit except for credit on an open account basis
customarily extended and in fact extended in connection with the normal sales of
goods and services;
(h) purchases of Capital Stock permitted under Section 9.11(b) hereof.
9.11. Dividends and Redemptions. Borrower shall not and shall not permit
any of its Subsidiaries to, directly or indirectly, declare or pay any dividends
on account of any shares of class of Capital Stock of Borrower or any Subsidiary
now or hereafter outstanding, or set aside or otherwise deposit or invest any
sums for such purpose, or redeem, retire, defease, purchase or otherwise acquire
any shares of any class of Capital Stock (or set aside or otherwise deposit or
invest any sums for such purpose) for any consideration other than common stock
or apply or set apart any sum, or make any other distribution (by reduction of
capital or otherwise) in respect of any such shares or agree to do any of the
foregoing, except, that, (a) any Subsidiary of Borrower may pay dividends to
Borrower, and (b) Borrower may repurchase Capital Stock consisting of common
stock held by employees pursuant to any employee stock ownership plan thereof
upon the termination, retirement or death of any such employee in accordance
with the provisions of such plan, provided, that, as to any such repurchase,
each of the following conditions is satisfied: (i) as of the date of the payment
for such repurchase and after giving effect thereto, no Event of Default shall
exist or have occurred and be continuing, (ii) such repurchase shall be paid
with
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funds legally available therefor, (iii) such repurchase shall not violate any
law or regulation or the terms of any indenture, agreement or undertaking to
which Borrower or any Obligor is a party or by which Borrower or any Obligor or
its respective properties are bound, and (iv) the aggregate amount of all
payments for such repurchases in any calendar year shall not exceed $250,000.
9.12. Transactions with Affiliates. Borrower shall not directly or
indirectly, (a) purchase, acquire or lease any property from, or sell, transfer
or lease any property to, any officer, employee, shareholder, director, agent or
any other person affiliated with Borrower, except in the ordinary course of and
pursuant to the reasonable requirements of Borrower's business and upon fair and
reasonable terms no less favorable to Borrower than Borrower would obtain in a
comparable arm's length transaction with an unaffiliated person except as
permitted pursuant to Section 9.11(b) hereof, or (b) make any payments of
management, consulting or other fees for management or similar services, or of
any Indebtedness, in each case, owing to any officer, employee, shareholder,
director or other person affiliated with Borrower except reasonable compensation
to officers, employees and directors for services rendered to Borrower in the
ordinary course of business.
9.13. Credit Card Agreements. Borrower shall (a) observe and perform all
material terms, covenants, conditions and provisions of the Credit Card
Agreements to be observed and performed by it at the times set forth therein;
(b) not do, permit, suffer or refrain from doing anything, as a result of which
there could be a default under or breach of any of the terms of any of the
Credit Card Agreements and (c) at all times maintain in full force and effect
the Credit Card Agreements and not terminate, cancel, surrender, modify, amend,
waive or release any of the Credit Card Agreements, or consent to or permit to
occur any of the foregoing; except, that, (i) Borrower may terminate or cancel
any of the Credit Card Agreements in the ordinary course of the business of
Borrower; provided, that, Borrower shall give Lender not less than fifteen (15)
days prior written notice of its intention to so terminate or cancel any of the
Credit Card Agreements; (d) not enter into any new Credit Card Agreements with
any new Credit Card Issuer unless (i) Lender shall have received not less than
thirty (30) days prior written notice of the intention of Borrower to enter into
such agreement (together with such other information with respect thereto as
Lender may request) and (ii) Borrower delivers, or causes to be delivered to
Lender, a Credit Card Acknowledgment in favor of Lender; (e) give Lender
immediate written notice of any Credit Card Agreement entered into by Borrower
after the date hereof, together with a true, correct and complete copy thereof
and such other information with respect thereto as Lender may request; and (f)
furnish to Lender, promptly upon the request of Lender, such information and
evidence as Lender may require from time to time concerning the observance,
performance and compliance by Borrower or the other party or parties thereto
with the terms, covenants or provisions of the Credit Card Agreements.
9.14. Adjusted Net Worth. Borrower shall, at all times that Excess
Availability is less than $10,000,000, maintain Adjusted Net Worth of not less
than $8,500,000, for the period commencing the date hereof through and including
October 31, 2000, and of not less than $18,500,000, for the period commencing
November 1, 2000 and at all times thereafter.
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9.15. Compliance with ERISA.
(a) Borrower shall not with respect to any "employee benefit plans"
maintained by Borrower or any of its ERISA Affiliates: (i) terminate any of such
employee pension plans so as to incur any liability to the Pension Benefit
Guaranty Corporation established pursuant to ERISA, (ii) allow or suffer to
exist any prohibited transaction involving any of such employee benefit plans or
any trust created thereunder which would subject Borrower or such ERISA
Affiliate to a tax or penalty or other liability on prohibited transactions
imposed under the Code or ERISA, (iii) fail to pay to any such employee benefit
plan any contribution which it is obligated to pay under ERISA, the Code or the
terms of such plan, (iv) allow or suffer to exist any accumulated funding
deficiency, whether or not waived, with respect to any such employee benefit
plan, (v) allow or suffer to exist any occurrence of a reportable event or any
other event or condition which presents a material risk of termination by the
Pension Benefit Guaranty Corporation of any such employee benefit plan that is a
single employer plan, which termination could result in any liability to the
Pension Benefit Guaranty Corporation or (vi) incur any withdrawal liability with
respect to any multiemployer pension plan, except where in each of the foregoing
cases, such actions would not have a Material Adverse Effect.
(b) As used in this Section 9.15, the term "employee pension benefit
plans," "employee benefit plans", "accumulated funding deficiency" and
"reportable event" shall have the respective meanings assigned to them in ERISA,
and the term "prohibited transaction" shall have the meaning assigned to it in
the Code and ERISA.
9.16. Additional Bank Accounts. Borrower shall not, directly or indirectly,
open, establish or maintain any deposit account, investment account or any other
account with any bank or other financial institution, other than the Blocked
Accounts and the accounts set forth in Schedule 6.3 hereto, except: as to any
new or additional Blocked Accounts and other such new or additional accounts
which contain any Collateral or proceeds thereof, with the prior written consent
of Lender and subject to such conditions thereto as Lender may establish and as
to any accounts used by Borrower to make payments of payroll, taxes or other
obligations to third parties, after prior written notice to Lender.
9.17. Year 2000 Compliance. Borrower shall take all action which may be
required so that the computer-based information systems of Borrower are and
shall be, and with ordinary course upgrading and maintenance, will continue to
be sufficient to permit Borrower to conduct its business without any adverse
effect as a result of the year 2000.
9.18. Changes in Business. Borrower and its Subsidiaries shall not engage
in any business other than the businesses of Borrower and its Subsidiaries on
the date hereof and any businesses reasonably related, ancillary or
complementary to the businesses in which Borrower and its Subsidiaries are
engaged on the date hereof.
9.19. Costs and Expenses. Borrower shall pay to Lender on demand all costs,
expenses, filing fees and taxes paid or payable in connection with the
preparation, negotiation, execution, delivery, recording, administration,
collection, liquidation, enforcement and defense of the Obligations, Lender's
rights in the Collateral, this Agreement, the other Financing Agreements and
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all other documents related hereto or thereto, including any amendments,
supplements or consents which may hereafter be contemplated (whether or not
executed) or entered into in respect hereof and thereof, including: (a) all
costs and expenses of filing or recording (including Uniform Commercial Code
financing statement filing taxes and fees, documentary taxes, intangibles taxes
and mortgage recording taxes and fees, if applicable); (b) costs and expenses
and fees for insurance premiums, environmental audits, surveys, assessments,
engineering reports and inspections, appraisal fees and search fees; (c) costs
and expenses of remitting loan proceeds, collecting checks and other items of
payment, and establishing and maintaining the Blocked Accounts, together with
Lender's customary charges and fees with respect thereto; (d) charges, fees or
expenses charged by any bank or issuer in connection with the Letter of Credit
Accommodations; (e) costs and expenses of preserving and protecting the
Collateral; (f) costs and expenses paid or incurred in connection with obtaining
payment of the Obligations, enforcing the security interests and liens of
Lender, selling or otherwise realizing upon the Collateral, and otherwise
enforcing the provisions of this Agreement and the other Financing Agreements or
defending any claims made or threatened against Lender arising out of the
transactions contemplated hereby and thereby (including preparations for and
consultations concerning any such matters); (g) all out-of-pocket expenses and
costs heretofore and from time to time hereafter incurred by Lender during the
course of periodic field examinations of the Collateral and Borrower's
operations, plus a per diem charge at the rate of $650 per person per day for
Lender's examiners in the field and office; and (h) the fees and disbursements
of counsel (including legal assistants) to Lender in connection with any of the
foregoing.
9.20. Further Assurances. At the request of Lender at any time and from
time to time, Borrower shall, at its expense, duly execute and deliver, or cause
to be duly executed and delivered, such further agreements, documents and
instruments, and do or cause to be done such further acts as may be necessary or
proper to evidence, perfect, maintain and enforce the security interests and the
priority thereof in the Collateral and to otherwise effectuate the provisions or
purposes of this Agreement or any of the other Financing Agreements. Lender may
at any time and from time to time request a certificate from an officer of
Borrower representing that all conditions precedent to the making of Loans and
providing Letter of Credit Accommodations contained herein are satisfied. In the
event of such request by Lender, Lender may, at its option, cease to make any
further Loans or provide any further Letter of Credit Accommodations until
Lender has received such certificate and, in addition, Lender has determined
that such conditions are satisfied. Where permitted by law, Borrower hereby
authorizes Lender to execute and file one or more UCC financing statements
signed only by Lender.
9.21. Old Payables. Borrower shall have paid (or shall have reconciled or
settled the balance with any vendor and paid such agreed upon amount or shall
have made a final determination that such Old Payables are not obligations of
Borrower) such an amount of Old Payables such that the aggregate outstanding
amount of Old Payables is not in excess of $5,000,000 on April 30, 2000 and, the
remaining aggregate outstanding amount of the Old Payables shall have been
reduced to zero by no later than October 15, 2000 and Borrower shall provide
evidence, in form and substance satisfactory to Lender, of each of such
payments, reconcilements and settlements to Lender by the applicable date.
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9.22. Minimum EBITDA. At all times that Excess Availability is less than
$10,000,000, the EBITDA of Borrower for the immediately preceding four
consecutive fiscal quarters of Borrower, as of any date of determination, shall
be not less than $16,500,000.
9.23. Departments. The Departments set forth in Schedule 1.21 are all of
the departments utilized by Borrower on the date hereof and Schedule 1.21
correctly identifies each category of Eligible Inventory with respect thereto.
Borrower shall not revise or make any changes, or additions to or reassign any
Departments to any category of Eligible Inventory other than that identified on
Schedule 1.21 without prior written notification to Lender.
9.24. Vendors. Lender shall have received confirmation no later than ten
(10) days after the date hereof that all holders of Trade Notes (as such term is
defined in the Vendor Forbearance Agreement) have been paid the Indebtedness
evidenced by such Trade Notes.
SECTION 10. EVENTS OF DEFAULT AND REMEDIES
------------------------------
10.1. Events of Default. The occurrence or existence of any one or more of
the following events are referred to herein individually as an "Event of
Default", and collectively as "Events of Default":
(a) (i) Borrower fails to pay any of the Obligations within three (3)
Business Days after the same becomes due and payable or (ii) Borrower or any
Obligor fails to perform any of the covenants contained in Sections 9.3, 9.4,
9.6, 9.13, 9.15, 9.16, 9.17, 9.19 and 9.24 of this Agreement and such failure
shall continue for ten (10) days; provided, that, such ten (10) day period shall
not apply in the case of: (A) any failure to observe any such covenant which is
not capable of being cured at all or within such ten (10) day period or which
has been the subject of a prior failure within a six (6) month period or (B) an
intentional breach of Borrower or any Obligor of any such covenant or (iii)
Borrower fails to perform any of the terms, covenants, conditions or provisions
contained in this Agreement or any of the other Financing Agreements other than
those described in Sections 10.1(a)(i) and 10.1(a)(ii) above;
(b) any representation, warranty or statement of fact made by Borrower
to Lender in this Agreement, the other Financing Agreements or any other
agreement, schedule, confirmatory assignment or otherwise shall when made or
deemed made be false or misleading in any material respect;
(c) any Obligor revokes, terminates or fails to perform any of the
terms, covenants, conditions or provisions of any guarantee, endorsement or
other agreement of such party in favor of Lender;
(d) any judgment for the payment of money is rendered against Borrower
or any Obligor in excess of $500,000 in any one case or in excess of $1,000,000
in the aggregate (in each case, other than judgments fully covered by insurance
(subject to standard deductible provisions of such policies) where the insurer
has admitted in writing that it is responsible to pay all amounts in connection
with such judgment or defend any action resulting in such judgment and make
payment to Borrower or any Obligor if Borrower or such Obligor is required to
make any
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payment in respect of such judgment) and shall remain undischarged or unvacated
for a period in excess of thirty (30) days or execution shall at any time not be
effectively stayed, or any judgment other than for the payment of money, or
injunction, attachment, garnishment or execution is rendered against Borrower or
any Obligor or any of their assets;
(e) any Obligor (being a natural person or a general partner of an
Obligor which is a partnership) dies or Borrower or any Obligor, which is a
partnership, limited liability company, limited liability partnership or a
corporation, dissolves or suspends or discontinues doing business;
(f) Borrower or any Obligor becomes insolvent (however defined or
evidenced), makes an assignment for the benefit of creditors, makes or sends
notice of a bulk transfer or calls a meeting of its creditors or principal
creditors other than the Investors and Franchise Noteholders;
(g) a case or proceeding under the bankruptcy laws of the United
States of America now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction now or hereafter in effect (whether at law or
in equity) is filed against Borrower or any Obligor or all or any part of its
properties and such petition or application is not dismissed within thirty (30)
days after the date of its filing or Borrower or any Obligor shall file any
answer admitting or not contesting such petition or application or indicates its
consent to, acquiescence in or approval of, any such action or proceeding or the
relief requested is granted sooner;
(h) a case or proceeding under the bankruptcy laws of the United
States of America now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction now or hereafter in effect (whether at a law
or equity) is filed by Borrower or any Obligor or for all or any part of its
property; or
(i) any default by Borrower or any Obligor under any agreement,
document or instrument relating to any indebtedness for borrowed money owing to
any person other than Lender (including, without limitation, the Franchise Note
Agreements and the Investment Agreements), or any capitalized lease obligations,
contingent indebtedness in connection with any guarantee, letter of credit,
indemnity or similar type of instrument in favor of any person other than
Lender, in any case in an amount in excess of $1,000,000, which default
continues for more than the applicable cure period, if any, with respect
thereto, or any default by Borrower or any Obligor under any material contract
(including, without limitation, any of the Credit Card Agreements), lease,
license or other obligation to any person other than Lender, which default
continues for more than the applicable cure period, if any, with respect thereto
or any Credit Card Issuer or Credit Card Processor withholds payment of any
material amounts otherwise payable to Borrower to fund a reserve account or
otherwise hold as collateral, or shall require Borrower to pay funds into a
reserve account or for such Credit Card Issuer or Credit Card Processor to
otherwise hold as collateral, or any Credit Card Issuer or Credit Card Processor
shall debit or deduct any material amounts from any deposit account of Borrower;
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(j) any Credit Card Issuer or Credit Card Processor shall send notice
to Borrower that it is ceasing to make or suspending payments to Borrower of
amounts due or to become due to Borrower or shall cease or suspend such
payments, or shall send notice to Borrower that it is terminating its
arrangements with Borrower or such arrangements shall terminate as a result of
any event of default under such arrangements, which continues for more than the
applicable cure period, if any, with respect thereto, unless Borrower shall have
entered into arrangements with another Credit Card Issuer or Credit Card
Processor, as the case may be, within thirty (30) days after the date of any
such notice;
(k) any Change of Control;
(l) the indictment or threatened indictment of Borrower or any Obligor
under any criminal statute, or commencement or threatened commencement of
criminal or civil proceedings against Borrower or any Obligor, pursuant to which
statute or proceedings the penalties or remedies sought or available include
forfeiture of any material portion of the property of Borrower or such Obligor;
(m) (i) any "Event of Default" shall have occurred under the Vendor
Forbearance Agreement, or (ii) the termination of the Vendor Forbearance
Agreement;
(n) there shall be a material adverse change in the business, assets
or financial condition of Borrower and its Subsidiaries, taken as a whole; or
(o) there shall be an event of default under any of the other
Financing Agreements.
10.2. Remedies.
(a) At any time an Event of Default exists or has occurred and is
continuing, Lender shall have all rights and remedies provided in this
Agreement, the other Financing Agreements, the Uniform Commercial Code and other
applicable law, all of which rights and remedies may be exercised without notice
to or consent by Borrower or any Obligor, except as such notice or consent is
expressly provided for hereunder or required by applicable law. All rights,
remedies and powers granted to Lender hereunder, under any of the other
Financing Agreements, the Uniform Commercial Code or other applicable law, are
cumulative, not exclusive and enforceable, in Lender's discretion,
alternatively, successively, or concurrently on any one or more occasions, and
shall include, without limitation, the right to apply to a court of equity for
an injunction to restrain a breach or threatened breach by Borrower of this
Agreement or any of the other Financing Agreements. Lender may, at any time or
times, proceed directly against Borrower or any Obligor to collect the
Obligations without prior recourse to the Collateral.
(b) Without limiting the foregoing, at any time an Event of Default
exists or has occurred and is continuing, Lender may, in its discretion and
without limitation, accelerate the payment of all Obligations and demand
immediate payment thereof to Lender (provided, that, upon the occurrence of any
Event of Default described in Sections 10.1(g) and 10.1(h), all Obligations
shall automatically become immediately due and payable), (ii) with or without
judicial
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process or the aid or assistance of others, enter upon any premises on or in
which any of the Collateral may be located and take possession of the Collateral
or complete processing, manufacturing and repair of all or any portion of the
Collateral, (iii) require Borrower, at Borrower's expense, to assemble and make
available to Lender any part or all of the Collateral at any place and time
designated by Lender, (iv) collect, foreclose, receive, appropriate, setoff and
realize upon any and all Collateral, (v) remove any or all of the Collateral
from any premises on or in which the same may be located for the purpose of
effecting the sale, foreclosure or other disposition thereof or for any other
purpose, (vi) sell, lease, transfer, assign, deliver or otherwise dispose of any
and all Collateral (including, without limitation, entering into contracts with
respect thereto, public or private sales at any exchange, broker's board, at any
office of Lender or elsewhere) at such prices or terms as Lender may deem
reasonable, for cash, upon credit or for future delivery, with the Lender having
the right to purchase the whole or any part of the Collateral at any such public
sale, all of the foregoing being free from any right or equity of redemption of
Borrower, which right or equity of redemption is hereby expressly waived and
released by Borrower and/or (vii) terminate this Agreement. If any of the
Collateral is sold or leased by Lender upon credit terms or for future delivery,
the Obligations shall not be reduced as a result thereof until payment therefor
is finally collected by Lender. If notice of disposition of Collateral is
required by law, five (5) days prior notice by Lender to Borrower designating
the time and place of any public sale or the time after which any private sale
or other intended disposition of Collateral is to be made, shall be deemed to be
reasonable notice thereof and Borrower waives any other notice. In the event
Lender institutes an action to recover any Collateral or seeks recovery of any
Collateral by way of prejudgment remedy, Borrower waives the posting of any bond
which might otherwise be required.
(c) For the purpose of enabling Lender to exercise the rights and
remedies hereunder, Borrower hereby grants to Lender, an irrevocable,
non-exclusive license (exercisable without payment of royalty or other
compensation to Borrower) to use, assign, license or sublicense any of the
trademarks, service-marks, trade names, business names, trade styles, designs,
logos and other source of business identifiers and other Intellectual Property
now owned or hereafter acquired by Borrower, wherever the same may be located,
including in such license reasonable access to all media in which any of the
licensed items may be recorded or stored and to all computer programs used for
the compilation or printout thereof; provided, that, Lender shall not exercise
any of its rights under such license until such time as an Event of Default has
occurred and is continuing.
(d) Lender may apply the cash proceeds of Collateral actually received
by Lender from any sale, lease, foreclosure or other disposition of the
Collateral to payment of the Obligations, in whole or in part and in such order
as Lender may elect, whether or not then due. Borrower shall remain liable to
Lender for the payment of any deficiency with interest at the highest rate
provided for herein and all costs and expenses of collection or enforcement,
including attorneys' fees and legal expenses.
(e) Without limiting the foregoing, upon the occurrence of an Event of
Default or an event which with notice or passage of time or both would
constitute an Event of Default, Lender may, at its option, without notice, cease
making Loans or arranging for Letter of Credit Accommodations or reduce the
lending formulas or amounts of Loans and Letter of Credit
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Accommodations available to Borrower and/or terminate any provision of this
Agreement providing for any future Loans or Letter of Credit Accommodations to
be made by Lender to Borrower.
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING
--------------------------------------------------------
11.1. Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver
(a) The validity, interpretation and enforcement of this Agreement and
the other Financing Agreements and any dispute arising out of the relationship
between the parties hereto, whether in contract, tort, equity or otherwise,
shall be governed by the internal laws of the State of New York (without giving
effect to principles of conflicts of law).
(b) Borrower and Lender irrevocably consent and submit to the
non-exclusive jurisdiction of the Supreme Court of the State of New York in New
York County and the United States District Court for the Southern District of
New York and waive any objection based on venue or forum non conveniens with
respect to any action instituted therein arising under this Agreement or any of
the other Financing Agreements or in any way connected with or related or
incidental to the dealings of the parties hereto in respect of this Agreement or
any of the other Financing Agreements or the transactions related hereto or
thereto, in each case whether now existing or hereafter arising, and whether in
contract, tort, equity or otherwise, and agree that any dispute with respect to
any such matters shall be heard only in the courts described above (except that
Lender shall have the right to bring any action or proceeding against Borrower
or its property in the courts of any other jurisdiction which Lender deems
necessary or appropriate in order to realize on the Collateral or to otherwise
enforce its rights against Borrower or its property).
(c) Borrower hereby waives personal service of any and all process
upon it and consents that all such service of process may be made by certified
mail (return receipt requested) directed to its address set forth on the
signature pages hereof and service so made shall be deemed to be completed five
(5) days after the same shall have been so deposited in the U.S. mails, or, at
Lender's option, by service upon Borrower in any other manner provided under the
rules of any such courts. Within thirty (30) days after such service, Borrower
shall appear in answer to such process, failing which Borrower shall be deemed
in default and judgment may be entered by Lender against Borrower for the amount
of the claim and other relief requested.
(d) BORROWER AND LENDER EACH HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY
OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER THIS AGREEMENT OR
ANY OF THE OTHER FINANCING AGREEMENTS OR IN ANY WAY CONNECTED WITH OR RELATED OR
INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO IN RESPECT OF THIS AGREEMENT OR
ANY OF THE OTHER FINANCING AGREEMENTS OR THE TRANSACTIONS RELATED HERETO OR
THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER IN
CONTRACT, TORT, EQUITY OR OTHERWISE. BORROWER AND LENDER EACH HEREBY AGREE AND
CONSENT THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE
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DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT BORROWER OR LENDER MAY FILE AN
ORIGINAL COUNTERPART OR A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN
EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO
TRIAL BY JURY.
(e) Lender shall not have any liability to Borrower (whether in tort,
contract, equity or otherwise) for losses suffered by Borrower in connection
with, arising out of, or in any way related to the transactions or relationships
contemplated by this Agreement, or any act, omission or event occurring in
connection herewith, unless it is determined by a final and non-appealable
judgment or court order binding on Lender, that the losses were the result of
acts or omissions constituting gross negligence or willful misconduct. In any
such litigation, Lender shall be entitled to the benefit of the rebuttable
presumption that it acted in good faith and with the exercise of ordinary care
in the performance by it of the terms of this Agreement.
11.2. Waiver of Notices. Borrower hereby expressly waives demand,
presentment, protest and notice of protest and notice of dishonor with respect
to any and all instruments and commercial paper, included in or evidencing any
of the Obligations or the Collateral, and any and all other demands and notices
of any kind or nature whatsoever with respect to the Obligations, the Collateral
and this Agreement, except such as are expressly provided for herein. No notice
to or demand on Borrower which Lender may elect to give shall entitle Borrower
to any other or further notice or demand in the same, similar or other
circumstances.
11.3. Amendments and Waivers. Neither this Agreement nor any provision
hereof shall be amended, modified, waived or discharged orally or by course of
conduct, but only by a written agreement signed by an authorized officer of
Lender, and as to amendments, as also signed by an authorized officer of
Borrower. Lender shall not, by any act, delay, omission or otherwise be deemed
to have expressly or impliedly waived any of its rights, powers and/or remedies
unless such waiver shall be in writing and signed by an authorized officer of
Lender. Any such waiver shall be enforceable only to the extent specifically set
forth therein. A waiver by Lender of any right, power and/or remedy on any one
occasion shall not be construed as a bar to or waiver of any such right, power
and/or remedy which Lender would otherwise have on any future occasion, whether
similar in kind or otherwise.
11.4. Waiver of Counterclaims. Borrower waives all rights to interpose any
claims, deductions, setoffs or counterclaims of any nature (other then
compulsory counterclaims) in any action or proceeding with respect to this
Agreement, the Obligations, the Collateral or any matter arising therefrom or
relating hereto or thereto.
11.5. Indemnification. Borrower shall indemnify and hold Lender, and its
directors, agents, employees and counsel, harmless from and against any and all
losses, claims, damages, liabilities, costs or expenses imposed on, incurred by
or asserted against any of them in connection with any litigation,
investigation, claim or proceeding commenced or threatened related to the
negotiation, preparation, execution, delivery, enforcement, performance or
administration of this Agreement, any other Financing Agreements, or any
undertaking or proceeding related to any of the transactions contemplated hereby
or any act, omission, event or transaction related or attendant thereto,
including, without limitation, amounts paid in settlement, court costs, and the
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fees and expenses of counsel, except for such losses, claims, damages,
liabilities, costs or expenses resulting from the gross negligence or wilful
misconduct of Lender, its directors, agents, employees or counsel as determined
pursuant to a final, non-appealable order of a court of competent jurisdiction.
To the extent that the undertaking to indemnify, pay and hold harmless set forth
in this Section may be unenforceable because it violates any law or public
policy, Borrower shall pay the maximum portion which it is permitted to pay
under applicable law to Lender in satisfaction of indemnified matters under this
Section. The foregoing indemnity shall survive the payment of the Obligations
and the termination or non-renewal of this Agreement.
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS
--------------------------------
12.1. Term.
(a) This Agreement and the other Financing Agreements shall become
effective as of the date set forth on the first page hereof and shall continue
in full force and effect for a term ending on the date three (3) years from the
date hereof (the "Renewal Date"), and from year to year thereafter, unless
sooner terminated pursuant to the terms hereof, Lender or Borrower (subject to
Lender's right to extend the Renewal Date as provided above) may terminate this
Agreement and the other Financing Agreements effective on the Renewal Date or on
the anniversary of the Renewal Date in any year by giving to the other party at
least sixty (60) days prior written notice; provided, that, this Agreement and
all other Financing Agreements must be terminated simultaneously. Upon the
effective date of termination or non-renewal of the Financing Agreements,
Borrower shall pay to Lender, in full, all outstanding and unpaid Obligations
and shall furnish cash collateral to Lender in such amounts as Lender determines
are reasonably necessary to secure Lender from loss, cost, damage or expense,
including attorneys' fees and legal expenses, in connection with any contingent
Obligations, including issued and outstanding Letter of Credit Accommodations
and checks or other payments provisionally credited to the Obligations and/or as
to which Lender has not yet received final and indefeasible payment. Such
payments in respect of the Obligations and cash collateral shall be remitted by
wire transfer in Federal funds to such bank account of Lender, as Lender may, in
its discretion, designate in writing to Borrower for such purpose. Interest
shall be due until and including the next Business Day, if the amounts so paid
by Borrower to the bank account designated by Lender are received in such bank
account later than 12:00 noon, New York City time.
(b) No termination of this Agreement or the other Financing Agreements
shall relieve or discharge Borrower of its respective duties, obligations and
covenants under this Agreement or the other Financing Agreements until all
Obligations have been fully and finally discharged and paid, and Lender's
continuing security interest in the Collateral and the rights and remedies of
Lender hereunder, under the other Financing Agreements and applicable law, shall
remain in effect until all such Obligations have been fully and finally
discharged and paid. Upon the receipt by Lender of (i) payment in full in cash
or other immediately available funds of all of the Obligations (which are not
contingent) and cash collateral in such amounts and on such terms as Lender
shall deem reasonably acceptable to secure Lender from loss, cost, damage or
expense, including attorneys' fees and legal expenses, in connection with any
contingent Obligations, including issued and outstanding Letter of Credit
Accommodations and checks or other payments provisionally credited to the
Obligations and/or as to which Lender has not yet received final and
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indefeasible payment, and (ii) Borrower's request, at the expense of Borrower,
except as otherwise required by applicable law, Lender shall execute and deliver
to Borrower UCC-3 termination statements and such other release documents with
respect to the Collateral as may be reasonably requested by Borrower, in form
and substance satisfactory to Lender, to effectuate the termination of the
security interests granted by Borrower and Obligors to Lender herein and in the
other Financing Agreements.
(c) If for any reason this Agreement is terminated prior to the end of
the then current term or renewal term of this Agreement, in view of the
impracticality and extreme difficulty of ascertaining actual damages and by
mutual agreement of the parties as to a reasonable calculation of Lender's lost
profits as a result thereof, Borrower agrees to pay to Lender, upon the
effective date of such termination, an early termination fee in the amount of
one (1%) of the Maximum Credit. Such early termination fee shall be presumed to
be the amount of damages sustained by Lender as a result of such early
termination and Borrower agrees that it is reasonable under the circumstances
currently existing. In addition, Lender shall be entitled to such early
termination fee upon the occurrence of any Event of Default described in
Sections 10.1(g) and 10.1(h) hereof, even if Lender does not exercise its right
to terminate this Agreement, but elects, at its option, to provide financing to
Borrower or permit the use of cash collateral under the United States Bankruptcy
Code. The early termination fee provided for in this Section 12.1 shall be
deemed included in the Obligations.
12.2. Notices. All notices, requests and demands hereunder shall be in
writing and (a) made to Lender at its address set forth below and to Borrower at
its chief executive office set forth below, or to such other address as either
party may designate by written notice to the other in accordance with this
provision, and (b) deemed to have been given or made: if delivered in person,
immediately upon delivery; if by telex, telegram or facsimile transmission,
immediately upon sending and upon confirmation of receipt; if by nationally
recognized overnight courier service with instructions to deliver the next
Business Day, one (1) Business Day after sending; and if by certified mail,
return receipt requested, five (5) days after mailing.
12.3. Partial Invalidity. If any provision of this Agreement is held to be
invalid or unenforceable, such invalidity or unenforceability shall not
invalidate this Agreement as a whole, but this Agreement shall be construed as
though it did not contain the particular provision held to be invalid or
unenforceable and the rights and obligations of the parties shall be construed
and enforced only to such extent as shall be permitted by applicable law.
12.4. Successors. This Agreement, the other Financing Agreements and any
other document referred to herein or therein shall be binding upon and inure to
the benefit of and be enforceable by Lender, Borrower and their respective
successors and assigns, except that Borrower may not assign its rights under
this Agreement, the other Financing Agreements and any other document referred
to herein or therein without the prior written consent of Lender. Lender may,
after notice to Borrower, assign its rights and delegate its obligations under
this Agreement and the other Financing Agreements and further may assign, or
sell participations in, all or any part of the Loans, the Letter of Credit
Accommodations or any other interest herein to another financial institution or
other person, in which event, the assignee or participant shall have, to the
extent of such assignment or participation, the same rights and benefits as it
would have if it
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were the Lender hereunder, except as otherwise provided by the terms of such
assignment or participation.
12.5. Entire Agreement. This Agreement, the other Financing Agreements, any
supplements hereto or thereto, and any instruments or documents delivered or to
be delivered in connection herewith or therewith represents the entire agreement
and understanding concerning the subject matter hereof and thereof between the
parties hereto, and supersede all other prior agreements, understandings,
negotiations and discussions, representations, warranties, commitments,
proposals, offers and contracts concerning the subject matter hereof, whether
oral or written. In the event of any inconsistency between the terms of this
Agreement and any schedule or exhibit hereto, the terms of this Agreement shall
govern.
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IN WITNESS WHEREOF, Lender and Borrower have caused these presents to be
duly executed as of the day and year first above written.
LENDER BORROWER
- ------ --------
CONGRESS FINANCIAL CORPORATION PARTY CITY CORPORATION
By: /s/ Robert Strack By: /s/ Thomas E. Larson
------------------------------ ------------------------------
Title: First Vice President Title: CFO
Address Chief Executive Office
- ------- ----------------------
1133 Avenue of the Americas 400 Commons Way
New York, New York 10036 Rockaway, New Jersey 07866
<PAGE>
[GRAPHIC OMITTED]
NEWS RELEASE
Contacts: Gordon Keil Thomas E. Larson
Senior Vice President Chief Financial Officer
(973) 983-0888 Ext. 244 (973) 983-0888 Ext. 481
FOR IMMEDIATE RELEASE
- ---------------------
PARTY CITY ANNOUNCES COMPLETION OF REFINANCING TRANSACTIONS
Rockaway, New Jersey, January 17, 2000 -- Party City Corporation, a leading
party goods retailer with over 400 company-owned and franchise stores, today
announced that it has replaced its existing senior credit facility with a new
revolving credit facility with Congress Financial Corporation, as lender. Under
the terms of this new credit facility, the Company may borrow amounts based on a
percentage of its eligible inventory, up to a maximum of $40 million. The
Company also announced that it has received additional financing from a group of
its existing investors. The Company used the proceeds from this refinancing to
pay off all amounts owed under its current credit facility, to pay all amounts
owed on the trade notes issued to certain of its vendors in August 1999, and to
pay amounts due to certain seasonal trade vendors.
James Shea, Chief Executive Officer stated, "The completion of this
refinancing is a major milestone in moving the Company forward and helps
position the Company to meet its future challenges."
Except for historical information contained herein, the statements in this
release are forward-looking and made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. Forward-looking statements
involve known and unknown risks and uncertainties, which may cause the Company's
actual results in future periods to differ materially from forecasted results.
Those risks include, among other things, the competitive environment in the
party goods industry in general and in the Company's specific market areas,
inflation, changes in costs of goods and services and economic conditions in
general. Those and other risks are more fully described in the Company's filings
with the Securities and Exchange Commission.
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