<PAGE> 1
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 3, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number 333-57883
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SPINCYCLE, INC
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(Exact name of registrant as specified in its charter)
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<S> <C>
Delaware 41-1821793
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(State of Incorporation) (I.R.S. Employer Identification No.)
15990 N. Greenway Hayden Loop, Suite #400, Scottsdale, Arizona 85260
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(Address of principal executive offices) (Zip Code)
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(480) 707-9999
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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As of October 31, 1999, the Company had 303,165 shares of capital stock
outstanding, comprised of 27,763 shares of common stock, 76,974 shares of series
A convertible preferred stock, 125,498 shares of series B convertible preferred
stock, and 72,930 shares of series C convertible preferred stock.
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SPINCYCLE, INC.
<TABLE>
<CAPTION>
INDEX PAGE
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<S> <C>
PART I - FINANCIAL INFORMATION................................................................................... 3
Item 1. Financial Statements............................................................................... 3
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................................................... 10
Item 3. Quantitative and Qualitative Disclosures about Market Risk ....................................... 16
PART II - OTHER INFORMATION...................................................................................... 17
Item 1. Legal Proceedings.................................................................................. 17
Item 2. Changes in Securities and Use of Proceeds.......................................................... 17
Item 3. Defaults Upon Senior Securities.................................................................... 17
Item 4. Submission of Matters to a Vote of Security Holders................................................ 17
Item 5. Other Information.................................................................................. 17
Item 6. Exhibits and Reports on Form 8-K................................................................... 17
</TABLE>
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SPINCYCLE, INC.
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
October 3, December 27,
1999 1998
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,567,158 $ 4,239,909
Landlord allowances 231,033 781,628
Prepaid expenses 207,056 582,006
Inventory 287,575 112,964
Land held for sale-leaseback 1,918,809 2,194,533
Other current assets 623,357 687,483
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Total current assets 5,834,988 8,597,713
Property and equipment, net 99,127,209 100,657,304
Goodwill, net 12,880,589 13,610,471
Other assets 4,964,689 5,390,972
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Total assets $122,807,475 $128,256,460
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 2,207,829 $ 5,376,389
Accrued utilities 953,339 1,003,766
Accrued expenses 2,251,593 2,626,384
Current portion of deferred rent 493,335 311,557
Current portion of long-term debt 216,695 210,275
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Total current liabilities 6,122,791 9,528,371
Long-term debt 123,271,592 103,221,752
Deferred rent 2,649,606 2,650,724
Other liabilities -- 192,308
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Total liabilities 132,043,989 115,593,155
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Shareholders' equity (deficit):
Series A, Series B and Series C
convertible preferred stock,
$.01 par value, 370,000 shares
authorized, 275,402 shares
issued and outstanding 50,845,810 50,845,810
Common stock, $.01 par value,
630,000 shares authorized,
27,763 shares issued and
outstanding 278 278
Common stock warrants 5,625,000 5,625,000
Additional paid-in capital -
common stock 1,430,259 1,430,259
Accumulated deficit (67,137,861) (45,238,042)
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Total shareholders' equity
(deficit) (9,236,514) 12,663,305
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Total liabilities and
shareholders' equity $122,807,475 $128,256,460
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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SPINCYCLE, INC.
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STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTERS ENDED YEAR-TO-DATE
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OCTOBER 3, SEPTEMBER 6, OCTOBER 3, SEPTEMBER 6,
1999 1998 1999 1998
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<S> <C> <C> <C> <C>
Revenues $14,759,013 $ 6,925,053 $ 38,327,717 $ 18,400,288
Cost of revenues -- store operating expenses, excluding
depreciation and amortization 11,110,047 5,901,454 29,049,740 15,111,076
----------- ----------- ------------ ------------
Gross operating profit 3,648,966 1,023,599 9,277,977 3,289,212
Preopening costs 2,586 162,232 116,970 363,483
Depreciation and amortization 4,465,303 1,451,024 10,931,586 4,295,166
Selling, general and administrative expenses 2,909,680 2,657,008 7,915,512 7,133,347
Loss on disposal of property & equipment 391,246 3,175 466,482 3,175
----------- ----------- ------------ ------------
Operating loss (4,119,849) (3,249,840) (10,152,573) (8,505,959)
Interest income 35,370 514,306 98,958 974,534
Interest expense, net of amount capitalized (4,969,804) (3,154,387) (11,846,205) (6,204,865)
----------- ----------- ------------ ------------
Net loss before extraordinary loss $(9,054,283) $(5,889,921) $(21,899,820) $(13,736,290)
Extraordinary loss from early extinguishment of debt -- -- -- (333,596)
----------- ----------- ------------ ------------
Net loss $(9,054,283) $(5,889,921) $(21,899,820) $(14,069,886)
Repricing of Series C preferred stock -- -- -- (1,459,000)
Accretion of redeemable preferred stock -- -- -- (755,667)
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Net loss applicable to holders of common stock $(9,054,283) $(5,889,921) $(21,899,820) $(16,284,553)
=========== =========== ============ ============
Net loss per common share (both basic and diluted):
Net loss applicable to holders of common stock
before extraordinary loss $ (326.13) $ (212.15) $ (788.81) $ (548.97)
Extraordinary loss from early extinguishment of debt -- -- -- (11.48)
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Net loss applicable to holders of common stock $ (326.13) $ (212.15) $ (788.81) $ (560.45)
=========== =========== ============ ============
Weighted average number of common shares outstanding 27,763 27,763 27,763 29,056
=========== =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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SPINCYCLE, INC.
_______________________________________________________________________________
STATEMENTS OF CASH FLOWS
(Unaudited)
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<CAPTION>
Year-To-Date
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October 3, September 6,
1999 1998
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<S> <C> <C>
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net loss................................................................................ $(21,899,820) $(14,069,886)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization......................................................... 10,931,586 4,295,166
Extraordinary loss from early extinguishment of debt.................................. - 333,596
Loss on disposal of property and equipment............................................ 466,482 -
Amortization of debt issuance costs................................................... 757,650 388,221
Amortization of discount on long-term debt............................................ 10,780,035 4,542,718
Changes in assets and liabilities:
Landlord allowances................................................................. 550,595 548,465
Prepaid expenses.................................................................... 374,950 (290,780)
Inventory........................................................................... (174,611) (66,778)
Other current assets................................................................ 64,126 112,678
Prepaid rent........................................................................ - (2,740,580)
Other assets........................................................................ 18,860 (160,791)
Accounts payable.................................................................... (2,779,167) (4,234,163)
Construction payables............................................................... (389,393) (523,954)
Accrued utilities................................................................... (50,427) 184,658
Accrued expenses and other liabilities.............................................. (567,099) 266,528
Deferred rent....................................................................... 180,660 1,208,917
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Net cash provided by (used in) operating activities .............................. (1,735,573) (10,205,985)
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CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Purchase of fixed assets................................................................ (9,150,053) (17,371,001)
Proceeds from sale of fixed assets...................................................... 49,760 17,743
Net proceeds from sale-leaseback transactions........................................... 534,333 1,896,637
Acquisition of businesses, net of cash acquired......................................... - (14,874,852)
Capitalized interest.................................................................... (156,902) (103,227)
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Net cash provided by (used in) investing activities............................... (8,722,862) (30,434,700)
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CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Payments of debt........................................................................ (266,597) (46,675,836)
Debt issuance costs paid................................................................ (336,909) (5,369,916)
Increase in debt........................................................................ 9,390,000 103,149,974
Proceeds from issuance of common stock warrants......................................... - 5,625,000
Proceeds from stock subscriptions....................................................... - 2,904,500
Stock issuance costs paid............................................................... - (165,033)
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Net cash provided by (used in) financing activities............................... 8,786,494 59,468,689
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Net increase (decrease) in cash and cash equivalents..................................... (1,671,941) 18,828,004
Cash and cash equivalents, beginning of period........................................... 4,239,099 8,249,161
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Cash and cash equivalents, end of period................................................. $ 2,567,158 $ 27,077,165
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SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
Equipment financed with long-term debt.................................................. $ 152,823 $ 1,998,428
Sale-leaseback financed with note receivable............................................ $ - $ 4,930,381
Accretion of mandatorily redeemable preferred stock..................................... $ - $ 2,107,719
CASH FLOW DURING THE YEAR FOR THE FOLLOWING:
Interest paid........................................................................... $ 353,043 $ 1,370,023
</TABLE>
The accompanying notes are an integral part of these financial statements.
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SPINCYCLE, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
1. UNAUDITED FINANCIAL INFORMATION - BASIS OF PRESENTATION
The unaudited financial information presented herein has been prepared in
accordance with the instructions to Form 10-Q and Regulation S-X and does
not include all of the information and note disclosures required by
generally accepted accounting principles. Therefore, this information should
be read in conjunction with the audited financial statements for the year
ended December 27, 1998 and notes thereto included in the Form 10-K of
SpinCycle, Inc. (the "Company") filed with the Securities and Exchange
Commission ("SEC") on March 29, 1999. This information reflects all
adjustments that are, in the opinion of management, necessary for a fair
statement of the Company's financial position, results of operations and
cash flows for the interim periods reported. These adjustments are of a
normal and recurring nature.
2. UNAUDITED INTERIM RESULTS OF OPERATIONS
The results of operations for the periods ended October 3, 1999 and
September 6, 1998 are not necessarily indicative of the results to be
expected for a full fiscal year. The Company's first, second and third
quarters consisted of three periods (12 weeks) in 1998, while the fourth
quarter contained four periods (16 weeks). In 1999 and thereafter, the
Company's first, second and fourth quarters will contain three periods, and
the Company's third quarter will contain four periods.
3. EARNINGS PER SHARE
Net loss per common share is computed using the provisions of Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share,"
which requires the presentation of basic earnings per share ("EPS") and
diluted EPS.
Basic EPS is computed by dividing the net loss applicable to holders of
common stock by the weighted average number of common shares outstanding
during each period. Diluted EPS is computed by dividing the net loss by the
weighted average number of common shares outstanding during the period
adjusted for dilutive stock options and warrants and dilutive common shares
assumed to be issued on conversion of preferred stock to common stock.
Diluted EPS has not been presented, as the computation is anti-dilutive due
to the Company's net loss in each period.
4. ACQUISITIONS
During the quarter ended October 3, 1999, the Company did not acquire any
existing coin laundry businesses. During the quarter ended September 6,
1998, the Company acquired 15 existing coin laundry businesses for a total
cash outlay of $8,429,000, all of which were financed, net of cash acquired.
These acquisitions were accounted for under the purchase method of
accounting. In connection with these acquisitions, the Company recorded
goodwill of $1,665,000 and did not assume any liabilities of the sellers.
Goodwill is amortized on a straight-line basis over 15 years.
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5. INTEREST EXPENSE, NET OF AMOUNT CAPITALIZED
The Company's interest expense, net of amount capitalized, consists of the
following:
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<CAPTION>
QUARTERS ENDED YEAR-TO-DATE
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OCTOBER 3, SEPTEMBER 6, OCTOBER 3, SEPTEMBER 6,
1999 1998 1999 1998
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<S> <C> <C> <C> <C>
Accretion of Senior Discount Notes $ 4,428,643 $ 2,935,302 $ 10,780,035 $ 4,542,718
Interest expense on Raytheon and LaSalle debt -- -- -- 1,348,531
Interest expense on Heller 230,028 -- 422,842 --
Amortization of debt issue costs 316,351 210,107 757,650 388,221
Other interest expense 16,738 14,516 42,580 28,622
Capitalized interest (21,956) (5,538) (156,902) (103,227)
----------- ----------- ------------ -----------
Interest expense, net $ 4,969,804 $ 3,154,387 $ 11,846,205 $ 6,204,865
=========== =========== ============ ===========
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6. LONG-TERM DEBT
At October 3, 1999 and December 27, 1998, long-term debt included the
following:
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<CAPTION>
OCTOBER 3, DECEMBER 27,
1999 1998
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<S> <C> <C>
12.75% Senior Discount Notes Due 2005 ($144,990,000 principal
amount), net of unamortized discount $ 113,740,564 $ 102,960,529
Heller Credit Facility; interest at LIBOR plus 2.75% or prime
plus 0.50%, matures April 28, 2002 9,300,000 --
Other notes payable; interest at 11% due in various installments
through September 2001 447,723 471,498
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123,488,287 103,432,027
Less current portion (216,695) (210,275)
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$ 123,271,592 $ 103,221,752
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</TABLE>
7. SALE-LEASEBACK TRANSACTION
On June 17, 1999, the Company entered into a sale-leaseback transaction
with MBI Leasing, Inc. One property consisting of land of $220,000 and
improvements of $750,000 thereon that was previously acquired by the
Company was sold to MBI Leasing, Inc. for approximately $535,000, then
leased back under an operating lease with a 20 year term. The Company
received cash for this transaction. The transaction qualifies for
sale-leaseback accounting in accordance with SFAS No. 98 "Accounting for
Leases - Sale-Leaseback Transactions Involving Real Estate". The Company
recognized a loss on the sale of approximately $390,000.
8. RECLASSIFICATIONS
For comparative purposes, certain prior year amounts have been
reclassified to conform to the current year presentation.
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9. SUBSEQUENT EVENTS
A. On October 18, 1999, the Company closed one store in Cleveland, Ohio. The
store was originally acquired as a part of an 11 store acquisition in
October 1997. Based on pre-acquisition performance, the lease for this
location was negotiated to allow the Company to terminate the lease after
one year. Based on post-acquisition performance, the Company elected to
terminate the lease and transfer the majority of the equipment for use in
other locations in Cleveland. No goodwill was recorded at the time of
acquisition relating to the purchase of this location. Closing this store
is not expected to have a material adverse effect on the financial
condition or results of operations of the Company.
B. On October 31, 1999 the Company closed one store in Capitol Heights,
Maryland. The store was originally acquired as part of a 4 store
acquisition in 1998. Based on post-acquisition performance, the company
decided to close this location and divert customers to other company owned
locations in the surrounding area. No goodwill was recorded at the time of
acquisition relating to the purchase of this location. This store closure
is not expected to have a material adverse effect on the financial
condition or results of operations of the Company.
C. On November 17, 1999 LaSalle Bank National Association ("LaSalle") took
assignment of SpinCycle, Inc.'s (the "Company") secured revolving credit
facility (the "Heller Facility") from Heller Financial, Inc. and Finova
Capital Corporation (collectively, "Heller"). The Company had borrowing
capacity of $9.3 million under this $40.0 million facility. Availability
under the Heller Facility was based upon a borrowing base formula
determined by income from store operations and net book value of laundry
equipment. At the time of the assignment, the Company had borrowed $9.3
million and had no additional borrowing capacity under the Heller Facility.
In connection with the assignment, LaSalle decreased the maximum
principal amount to $12.0 million and restructured the financial covenants
(the "LaSalle Facility"). The restructured financial covenants include a
minimum tangible net worth, a senior interest coverage ratio and minimum
net book value of laundry equipment. The LaSalle Facility will mature on
September 30, 2001, and requires monthly payment of interest only until
that date. All principal and interest accrued but unpaid at maturity are
payable on the maturity date.
Obligations under the LaSalle Facility shall bear interest with reference
to either the "Reference Rate" or the "LIBOR Rate" as determined by the
Company at the time each such obligation is incurred. "Reference Rate
Loans" shall bear interest at the rate of 1.0% plus the variable per annum
rate of interest announced from time to time by LaSalle as its prime or
equivalent rate. "LIBOR Rate Loans" shall bear interest at the rate of 3.0%
plus the interest rate per annum equal to the quotient obtained by dividing
(x) the rate of interest determined by LaSalle to be the average of the
rate per annum at which deposits in U.S. dollars are generally offered to
LaSalle in the London Interbank Market at 11:00 A.M. London time, two
business days before the first day of such interest period, for a period
equal to such interest period and in the amount of the applicable "LIBOR
Rate Loan" by (y) the difference between one hundred percent (100%) and any
applicable reserve requirements (rounded upward to the nearest whole
multiple of one hundredth (1/100) of one percent per annum), including
without limitation, any statutory maximum requirement for LaSalle to hold
reserves for "Eurocurrency Liabilities" under Regulation D of the Board of
Governors of the of the Federal Reserve System (or any similar reserves
under any successor regulation or regulations).
Simultaneous with the closing of the LaSalle Facility, the Company
entered into a term credit facility with Alliance Laundry Systems LLC
("Alliance") in the maximum principal amount of $3.0 million (the "Alliance
Facility"). Alliance is the Company's main laundry equipment supplier. The
Alliance Facility requires monthly payments of interest only until
September 30, 2001. Thereafter, 60 monthly payments comprised of $50,000 of
principal plus accrued interest on the unpaid outstanding principal balance
will be payable. Obligations under the Alliance Facility shall bear
interest at the rate of 1.0% plus the variable per annum rate of interest
announced from time to time by LaSalle as its prime or equivalent rate. The
financial covenants under the Alliance Facility include minimum tangible
net worth, senior interest coverage ratio and minimum net book value of
laundry equipment.
On November 17, 1999 LaSalle and Alliance entered into an intercreditor
agreement pursuant to which they agreed to allocate between them first
priority security interests in (I) all of the Company's now owned and
hereafter acquired real and personal property, including equipment, and all
proceeds thereof and (II) all general intangibles and other intangible
assets (including, without limitation, trademarks and trade names) of the
Company, if any, and the proceeds thereof such that Alliance has first
priority with respect to assets at and in connection with 15 of the
Company's stores and LaSalle has a first priority security interest in the
balance of the Company's assets. The proceeds of the Alliance Facility were
used to pay down
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<PAGE> 9
the $9.3 million outstanding under the LaSalle Facility as a result of the
assignment from Heller and to finance outstanding Company payables to
Alliance. In addition to drawing $6.3 million on the LaSalle Facility to
repay Heller, the Company drew approximately $1.7 million to fund ongoing
corporate expenses and to cover costs associated with the closing of the
LaSalle and Alliance Facilities. Following the approximately $8.0 million
net of initial draws on the LaSalle Facility at closing, the Company had
approximately $4.0 million of borrowing availability under the LaSalle
Facility. LaSalle has reserved the right to reduce the Company's
availability under the LaSalle Facility in an amount not to exceed $1.0
million if the Company has not obtained all consents from the landlords of
the Company's stores on or before December 26, 1999. Obtaining these
consents was a closing condition which LaSalle waived at closing. As of
November 17, 1999 the Company had obtained approximately 81% of the
required consents. During the fourth quarter of fiscal 1999 the Company
could incur a charge to write off deferred financing charges related to the
Heller Facility.
The LaSalle and Alliance Facilities specify customary events of
default including non-payment of principal, interest or fees, violation of
covenants, inaccuracy of representations and warranties, cross defaults to
other agreements, bankruptcy and insolvency events and material judgments
and liabilities.
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<PAGE> 10
SPINCYCLE, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
SpinCycle is a specialty retailing company engaged in the coin laundry
business. We were founded in October 1995 to develop and implement SpinCycle's
unique concept of a national chain of branded coin-operated laundromats and to
serve as a platform for a nationwide consolidation in the coin-operated
laundromat industry. We were formed with the goal of becoming the leading
operator of high quality coin-operated laundromats in the United States by
establishing SpinCycle as a national brand, providing a superior level of
customer service and by exercising disciplined management control in our
expansion and business plan.
To date, our primary use of capital has been for the development and
acquisition of laundromats and for general corporate purposes. Our store count
has grown rapidly since our first store was opened in April 1996, and at year
end 1996, 1997 and 1998 we had opened a total of 14, 71 and 163 stores,
respectively. As of October 3, 1999, we had opened 12 additional stores and
closed one store bringing our total store count to 174. As of October 3, 1999,
we had no other stores under construction and were party to six leases for
stores that we do not intend to develop and open by year-end 1999. We have made
no new commitments for store acquisitions or new store developments. However, we
continue to maintain a significant backlog of potential acquisition and
development sites, but do not expect to enter into additional commitments to
purchase or develop stores prior to procuring additional growth capital or
generating sufficient cash flow from operations.
As of October 3, 1999 we had closed two stores, one during 1998, following
a lease buy out by our landlord at that location and the other in the third
quarter of 1999 due to poor performance. Since October 3, 1999 we have closed
two additional acquired stores due to poor performance. Closing these stores is
not expected to have a material adverse effect on the financial condition or
results of operations of the Company.
Our rapid development and acquisition of laundromats has required
significant capital resources. Our expansion has been facilitated through
private equity investments, proceeds from the issuance of our senior discount
notes, borrowings from our credit facilities and revenue generated from our
stores. To date, we have not been profitable and have generated net operating
losses and negative cash flow from operations. We had expected to access the
public equity markets in late 1998 or early 1999 to provide additional growth
capital for our planned expansion, but have found that SpinCycle's valuation
under current market conditions would provide an unfavorable return to our
investors. Until such time as we can access the public equity markets, or other
sources of capital, we have elected to proceed cautiously with our planned
expansion, slowing our growth through development or acquisition to judiciously
utilize available sources of growth capital.
We ended the third quarter of 1999 with approximately $737,000 of EBITDA.
This was the third consecutive quarter in which we generated positive EBITDA.
EBITDA for the quarter ended October 3, 1999 excludes the loss on disposal of
property and equipment of approximately $391,000. For the remainder of 1999, we
will continue to focus on strategies to improve unit level economics and reduce
general and administrative expenses.
During the fourth quarter of 1998 and the first three quarters of 1999 we
slowed our growth through acquisitions and development of new stores
dramatically as a result of our inability to access additional growth capital
through the equity capital markets. We had previously expected to be able to
access the equity capital markets during the fourth quarter of 1998 or the first
quarter of 1999. As part of our slowdown, we made two reductions in force during
1999. In February 1999 and again in April 1999 we reduced general and
administrative personnel. These reductions in force were primarily focused on
our growth-related personnel, including regional directors of development and
acquisitions, corporate and field level construction managers, management
information systems personnel and corporate level support personnel related to
these areas. We believe that as a result of these reductions in force and other
cost cutting measures, we have reduced our general and administrative expenses
by approximately 18% in salary, benefit and travel
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<PAGE> 11
related expenses.
RESULTS OF OPERATIONS
Our first, second and third quarters consisted of three periods (12 weeks)
in 1998, while the fourth quarter contained four periods (16 weeks). In 1999 and
thereafter, our first, second and fourth quarters will contain three periods,
and our third quarter will contain four periods. All references to years in this
document are to fiscal years, unless otherwise stated.
In our quarterly comparative analysis, comparing third quarter 1999 to third
quarter 1998, we will also discuss change in average periodic performance for
the respective periods in order to enhance the analytical comparability. Average
periodic performance is defined as quarterly performance divided by the
number of four week periods associated with each corresponding period (four for
third quarter 1999 and three for third quarter 1998).
EBITDA is defined as earnings before interest expense, taxes, depreciation
and amortization. EBITDA is presented because we believe it is a widely accepted
financial indicator of an entity's ability to incur and service debt. While
EBITDA is not intended to represent cash flow from operations as defined by
generally accepted accounting principles ("GAAP") and should not be considered
as an indicator of operating performance or an alternative to cash flow (as
measured by GAAP) as a measure of liquidity, it is included herein to provide
additional information with respect to our ability to meet our future debt
service, capital expenditures and working capital requirements.
Store EBITDA is defined as EBITDA before allocation of any selling, general
and administrative expenses. While Store EBITDA is not intended to represent
operating income or loss as defined by GAAP (as GAAP operating income or loss
includes such allocation of selling, general and administrative expenses) and
should not be considered as an indicator of operating performance as measured by
GAAP, it is included herein to provide additional information with respect to
store-level cash operating margins.
Third Quarter and Year-To-Date 1999 Compared to
Third Quarter and Year-To-Date 1998
Revenues. Our revenues were approximately $14.8 million for the third
quarter 1999, an increase of approximately $7.9 million from approximately $6.9
million in the corresponding period in 1998. Revenues were approximately $38.3
million for year-to-date 1999, an increase of approximately $19.9 million from
approximately $18.4 million in the corresponding period of 1998. Approximately
$4.1 million of the revenue increase was due to the third quarter and
year-to-date 1999 including one additional four week period compared to the
comparable 1998 periods. On an average periodic basis, revenues were
approximately $3.7 million for the third quarter 1999 an increase of
approximately $1.4 million from approximately $2.3 million for the average
corresponding period in 1998. Our growth in revenue was primarily attributable
to the addition of 40 stores since the end of the third quarter of 1998. The
continued maturation of our developed and acquired stores opened during fiscal
1998 and fiscal 1999 also contributed substantial incremental revenue to the
third quarter of 1999.
Store operating expenses, excluding depreciation and amortization. Our store
operating expenses, excluding depreciation and amortization were approximately
$11.1 million in the third quarter of 1999, an increase of approximately $4.2
million from approximately $5.9 million in the corresponding period in 1998.
Store operating expenses, excluding depreciation and amortization for
year-to-date 1999 were approximately $29.0 million, an increase of approximately
$13.9 million from approximately $15.1 million in the corresponding period of
1998. Approximately $3.0 million of the increase in store operating expenses,
excluding depreciation and amortization was due to third quarter and
year-to-date 1999 including one additional four week period compared to the
comparable 1998 periods. On an average periodic basis, store operating expenses,
excluding depreciation and amortization were approximately $2.8 million for the
third quarter 1999, an increase of approximately $800,000 from approximately
$2.0 million for the average corresponding period in 1998. The increase in our
store operating expenses, excluding depreciation and amortization was primarily
attributable to the addition of 40 stores since the end of the third quarter of
1998. Operating expenses as a percentage of revenues were approximately 85% for
the third quarter 1998 and approximately 82% for year-to-date 1998. Operating
expenses as a percentage of revenues decreased to approximately 75% for the
third
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<PAGE> 12
quarter of 1999, and approximately 76% for year-to-date 1999, which is a result
of the maturation of certain of our stores' revenue and our implementation of
initiatives designed to reduce store operating expenses.
Gross operating profit (loss). Our gross operating profit was approximately
$3.6 million in the third quarter of 1999, an increase of approximately $2.6
million from approximately $1.0 million in the corresponding period in 1998.
Gross operating profit was approximately $9.3 million year-to-date 1999, an
increase of approximately $6.0 million from a profit of approximately $3.3
million in the corresponding period in 1998. Approximately $1.0 million of the
gross operating profit increase was due to the third quarter and year-to-date
1999 including one additional four week period compared to the comparable 1998
periods. On an average periodic basis, gross operating profit was approximately
$910,000 for the third quarter of 1999, an increase of approximately $570,000
from a profit of approximately $340,000 for the average corresponding period in
1998. The increases were primarily attributable to our aforementioned increase
in revenues during the period and our initiatives to reduce store operating
expenses.
Preopening costs. Our preopening costs were approximately $3,000 in the
third quarter of 1999, a decrease of approximately $159,000 from approximately
$162,000 in the corresponding period in 1998. Preopening costs were
approximately $117,000 year-to-date 1999, a decrease of approximately $246,000
from approximately $363,000 in the corresponding period of 1998. We expense
preopening costs as incurred. During the third quarter of 1998 we opened 27
stores and had 22 stores under construction. For the year-to-date period ended
September 6, 1998 we had opened 63 stores and had 22 under construction. During
the third quarter of 1999 we opened three stores and had no stores under
construction. For the year-to-date period ended October 3, 1999 we opened 12
stores and had no stores under construction. We have delayed the opening of
approximately six stores indefinitely.
Store EBITDA. Our store EBITDA was approximately $3.6 million in the third
quarter of 1999, an increase of approximately $2.6 million from approximately
$1.0 million for the corresponding period in 1998. Store EBITDA was
approximately $9.2 million year-to-date 1999, an increase of $6.3 million from
approximately $2.9 million for the corresponding period in 1998. Approximately
$1.0 million of the increase in store EBITDA was due to the third quarter and
year-to-date period in 1999 including one additional four week period compared
to the comparable 1998 periods. On an average periodic basis, store EBITDA was
approximately $912,000 for the third quarter of 1999, an increase of
approximately $625,000 from approximately $287,000 for the corresponding period
of 1998. The increases were primarily attributable to increased revenue from the
maturation of our stores and a reduction in our store operating expenses.
Depreciation and amortization. Our depreciation and amortization expense was
approximately $4.5 million in the third quarter of 1999, an increase of
approximately $3.0 million from approximately $1.5 million for the corresponding
period in 1998. Depreciation and amortization expense was approximately $10.9
million year-to-date 1999, an increase of approximately $6.6 million from
approximately $4.3 million in the corresponding period in 1998. Approximately
$1.1 million of the depreciation and amortization increase was due to the third
quarter and year-to-date 1999 including one additional four week period. On an
average periodic basis, depreciation and amortization expense was approximately
$1.1 million for third quarter 1999, an increase of approximately $616,000 from
approximately $484,000 for the corresponding period in 1998. The increases were
principally due to property and equipment acquired in connection with our
expansion.
Selling, general and administrative expenses. Our selling, general and
administrative expenses were approximately $2.9 million in the third quarter of
1999, an increase of approximately $200,000 from approximately $2.7 million in
the corresponding period of 1998. Approximately $700,000 of the selling, general
and administrative expense was due to third quarter 1999 including one
additional four week period. Without the additional four week period, selling,
general and administrative costs would have decreased to approximately $2.2
million, a decrease of approximately $500,000 from the corresponding period in
1998. Selling, general and administrative expenses were approximately $7.9
million year-to-date 1999, an increase of approximately $700,000 from
approximately $7.2 million for the corresponding period of 1998. Approximately
$700,000 of the selling, general and administrative expense increase was due to
the year-to-date period in 1999 including one additional four week period. On an
average periodic basis, selling, general and administrative expenses were
approximately $727,000 a decrease of approximately $158,000 from approximately
$885,000 for the corresponding period in 1998. The decrease in our average
periodic selling, general and administrative expenses is attributable to our two
reductions in force that we have undertaken in 1999. Third quarter 1999 selling,
general and administrative expenses decreased as a percentage of revenues from
38% for the
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<PAGE> 13
quarter ended September 6, 1998 to 20% for the quarter ended October 3, 1999.
Selling, general and administrative expenses decreased as a percentage of
revenues from 39% for year-to-date 1998 to 21% for year-to-date 1999. These
decreases were due to the maturation of our stores opened in 1998 and our
implementation of certain initiatives to reduce these expenses, including our
February and April 1999 reductions in force.
EBITDA. Our EBITDA in the third quarter of 1999 was approximately $737,000,
an increase of $2.5 million from a loss of approximately $1.8 million for the
corresponding period in 1998. EBITDA was approximately $1.2 million year-to-date
1999, an increase of approximately $5.4 million from a loss of approximately
$4.2 million for year-to-date 1998. Approximately $283,000 of the EBITDA
increase was due to the third quarter and year-to-date 1999 including one
additional four week period compared to the comparable 1998 periods. EBITDA for
the third quarter 1999 excludes the loss on disposal of property and equipment
of approximately $391,000 related to the sale-lease back transaction referred to
in the financial statements. The increases were primarily attributable to
increased gross profits from additional stores opened as well as from the
continued maturation of our stores.
Interest income and interest expense, net. Our interest income decreased to
approximately $35,000 in the third quarter of 1999, a decrease of approximately
$479,000 from approximately $514,000 in the third quarter of 1998. Approximately
$8,000 of the interest income was due to third quarter 1999 including one
additional four week period. Interest income was approximately $99,000
year-to-date 1999, a decrease of approximately $876,000 from approximately
$975,000 for the corresponding period in 1998. On an average periodic basis,
interest income was approximately $9,000 in third quarter of 1999, a decrease of
approximately $162,000 from approximately $171,000 for the corresponding period
in 1998. The decrease in interest income was primarily attributable to a lower
average cash balance during the third quarter 1999 and year-to-date 1999
compared to the third quarter 1998 and year-to-date 1998. Our interest expense,
net of capitalized interest was approximately $5.0 million in the third quarter
of 1999, an increase of approximately $1.8 million from approximately $3.2
million in the corresponding period in 1998. Interest expense, net was
approximately $11.8 million year-to-date 1999, an increase of approximately $5.6
million from approximately $6.2 million for the corresponding period of 1998.
Approximately $1.3 million of the interest expense, net increase was due to the
third quarter and year-to-date 1999 including one additional four week period
compared to the comparable 1998 periods. On an average periodic basis, interest
expense, net was approximately $1.3 million for the third quarter of 1999, an
increase of approximately $200,000 from approximately $1.1 million for the
corresponding period of 1998. The increase in interest expense, net was
primarily attributable to the accretion of interest expense related to our April
1998 offering of senior discount notes and warrants and interest expense accrued
for borrowings under our existing credit facility. We had no outstanding
borrowings under our existing credit facility at the end of fiscal year 1998 and
had approximately $9.3 million in borrowings at the end of the third quarter of
1999.
Net loss. Our net loss recorded in the third quarter of 1999 was $9.1
million, an increase of approximately $3.2 million from a $5.9 million net loss
recorded in the corresponding period of 1998. Net loss was approximately $21.9
million year-to-date 1999, an increase of approximately $7.8 million from $14.1
million for the corresponding period in 1998. Approximately $2.1 million of the
net loss increase was due to the third quarter and year-to-date 1999 including
one additional four week period compared to the comparable 1998 periods. On an
average periodic basis, net loss was approximately $2.3 million for the third
quarter of 1999, an increase of approximately $300,000 from approximately $2.0
million for the corresponding period of 1998. The increased loss was primarily
attributable to the depreciation and amortization associated with the 40 new
stores that we both acquired and developed since the end of the third quarter of
1998, the interest expense related to our April 1998 offering of senior discount
notes and warrants, and the interest expense associated with our outstanding
borrowings under our credit facility.
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<PAGE> 14
LIQUIDITY AND CAPITAL RESOURCES
At October 3, 1999, we had total assets of approximately $123.0 million,
including current assets of approximately $5.8 million. Cash and cash
equivalents were approximately $2.6 million.
Our cash used in operations during the year-to-date period ended October 3,
1999 was approximately $1.7 million, a $8.5 million decrease from our cash used
in operations during the corresponding period in 1998 of approximately $10.2
million. Our use of cash in each period was primarily attributable to the use of
working capital for the payment of our corporate expenses. The decrease in our
cash used in operating activities in the year-to-date period ended October 3,
1999 was the result of the continued maturation of our stores and reductions in
our selling, general and administrative expenses as discussed above.
Our cash used in investing activities during the year-to-date period ended
October 3, 1999 was approximately $8.7, a $21.7 million decrease from our cash
used in investing activities of approximately $30.4 million for the
corresponding period in 1998. Our reduced spending on investing activities in
the year-to-date period ended October 3, 1999 is due to the substantial decrease
in our expansion activities. We expect to make aggregate capital expenditures
approximately $11.0 million in capital expenditures for fiscal 1999 to fund our
planned 1999 store rollout.
Our cash provided by financing activities was approximately $8.8 million
during the year-to-date period ended October 3, 1999, a decrease of
approximately $50.7 million from our cash provided by financing activities of
approximately $59.5 million during the corresponding period in 1998. We borrowed
funds primarily to pay for our capital expenditures related to our 1999 store
rollout. The funds were obtained primarily from our credit facility.
We generated approximately $737,000 of positive EBITDA during our third
quarter of fiscal 1999. We expect to generate positive EBITDA in all 13 periods
of 1999. Going forward, we expect to be able to meet our current obligations
with cash flows from our store operations. On November 17, 1999 LaSalle Bank
National Association took assignment from Heller Financial, Inc. and FINOVA
Capital Corporation of our secured revolving credit facility. We had $9.3
million of borrowing capacity under this $40.0 million facility. Availability
under the Heller facility was based upon a borrowing base formula determined by
income from store operations and net book value of laundry equipment. At the
time of the assignment, we had borrowed $9.3 million and had no additional
borrowing capacity on the Heller facility.
In connection with the assignment, LaSalle decreased the maximum principal
amount to $12.0 million and restructured the financial covenants. The
restructured financial covenants include minimum tangible net worth, a senior
interest coverage ratio and a minimum net book value of laundry equipment. The
LaSalle facility will mature on September 30, 2001, and requires monthly payment
of interest only until that date. All principal and interest accrued but unpaid
at maturity are payable on the maturity date.
Obligations under the LaSalle facility shall bear interest with reference to
either the "Reference Rate" or the "LIBOR Rate" as we determine at the time we
incur each obligation. "Reference Rate Loans" shall bear interest at the rate of
prime (as set by LaSalle from time to time) plus 1.0%. "LIBOR Rate Loans" shall
bear interest at the rate of 3.0% plus the interest rate per annum equal to the
quotient obtained by dividing (x) the rate of interest determined by LaSalle to
be the average of the rate per annum at which deposits in U.S. dollars are
generally offered to LaSalle in the London Interbank Market at 11:00 A.M. London
time, two business days before the first day of such interest period, for a
period equal to such interest period and in the amount of the applicable "LIBOR
Rate Loan" by (y) the difference between 100% and any applicable reserve
requirements (rounded upward to the nearest whole multiple of 1/100 of one
percent per annum), including without limitation, any statutory maximum
requirement for LaSalle to hold reserves for "Eurocurrency Liabilities" under
Regulation D of the Board of Governors of the of the Federal Reserve System (or
any similar reserves under any successor regulation or regulations).
Simultaneous with the closing of the LaSalle facility, we entered into a
term credit facility with Alliance Laundry Systems LLC in the maximum principal
amount of $3.0 million. Alliance is our main laundry equipment supplier. The
Alliance facility requires monthly payments of interest only until September 30,
2001. Thereafter, 60 monthly payments comprised of $50,000 of principal plus
interest on the unpaid outstanding principal balance will be payable.
Obligations under the Alliance facility shall bear interest at the rate of prime
(as set by LaSalle from time to time) plus 1.0%. The financial covenants under
the Alliance facility include minimum tangible net worth, a senior interest
coverage ratio and a minimum net book value of laundry equipment.
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<PAGE> 15
In connection with these loans, LaSalle and Alliance entered into an
intercreditor agreement pursuant to which they agreed to allocate between them
first priority security interests in (I) all of our now owned and hereafter
acquired real and personal property, including equipment, and all proceeds
thereof and (II) all general intangibles and other intangible assets (including,
without limitation, trademarks and trade names) of ours, if any, and the
proceeds thereof such that Alliance has first priority with respect to those
assets at and in connection with 15 of our stores and LaSalle has a first
priority security interest in the balance of our assets. We used the proceeds of
the Alliance facility to pay down the $9.3 million outstanding under the LaSalle
facility and to finance outstanding amounts we owed Alliance. In addition to
drawing $6.3 million on the LaSalle facility to repay Heller, we drew
approximately $1.7 million to fund ongoing corporate expenses and to cover costs
associated with the closing of the LaSalle and Alliance facilities. Following
the approximately $8.0 million net of initial draws on the LaSalle Facility at
closing, we had approximately $4.0 million of borrowing availability under the
LaSalle facility. LaSalle has reserved the right to reduce our availability
under their facility in an amount not to exceed $1.0 million if we have not
obtained appropriate consents from the landlords of all of our stores on or
before December 26, 1999. Obtaining these consents was a closing condition which
LaSalle waived at closing. As of November 17, 2000 we had obtained approximately
81% of the required consents. During the fourth quarter of fiscal 1999 we could
be required to write off deferred financing charges which had been capitalized
in connection with the Heller facility.
The LaSalle and Alliance facilities specify customary events of default
including non-payment of principal, interest or fees, violation of covenants,
inaccuracy of representations and warranties, cross defaults to other
agreements, bankruptcy and insolvency events and material judgments and
liabilities.
We believe that our cash flow from operations and availability under our
credit facility will provide us with sufficient capital resources through
October of 2000. Significant variances in budgeted store revenue or Store EBITDA
or unforeseen capital requirements could result in insufficient capital
resources.
Beginning November 1, 2001, we will be required to make semi-annual cash
payments of approximately $9.24 million on our senior discount notes. These
payments, which are substantially in excess of any historic net cash flow we
have generated, will be in addition to our selling, general and administrative
expense and any other interest or other expenses we may have at that time.
POTENTIAL LOSS OF NET OPERATING LOSSES
As of October 3, 1999, we had net operating losses ("NOLs") of approximately
$50.0 million for U.S. federal income tax purposes. These NOLs, if not utilized
to offset taxable income in future periods, will begin to expire in 2011.
Section 382 of the Internal Revenue Code of 1986, as amended, and regulations
promulgated thereunder, impose limitations on the ability of corporations to use
NOLs if the corporation experiences a more than 50% change in ownership during
any three year period. It is probable that we have experienced one or more
ownership changes in 1996, 1997 and 1998 as a result of raising various rounds
of private equity or that such an ownership change may have occurred or be
deemed to have occurred due to events beyond our control (such as transfers of
common stock by certain stockholders or the exercise or treatment of our issued
and outstanding warrants, conversion rights or stock options). Further, there
can be no assurance that we will not take additional actions, such as the
issuance of additional stock, that would cause an ownership change to occur. In
addition, the NOLs are subject to examination by the Internal Revenue Service
("IRS"), and are thus subject to adjustment or disallowance resulting from any
such IRS examination.
DEPENDENCE ON MANAGEMENT INFORMATION SYSTEMS; YEAR 2000 COMPLIANCE
The Year 2000 problem is the result of many management information systems
("MIS") using two digits (rather than four) to define the applicable year. Thus,
time sensitive MIS may recognize a date ending in "00" as the Year 1900 rather
than the Year 2000. This could result in a system failure or miscalculations
causing disruptions in a company's operations. As a result, in less than a year,
MIS used by many organizations may need to be upgraded to comply with Year 2000
requirements. Significant uncertainty exists in the software industry concerning
the potential effects associated with the failure to become Year 2000 compliant.
We depend on MIS to monitor daily revenues and machine utilization in each
of our stores, exercise centralized cash and management controls and compile and
analyze critical marketing and operations data. Any disruption in the operation
of our MIS, the loss of employees knowledgeable about such systems or our
failure to continue to effectively modify such systems as we expand could have a
material adverse effect on our business, financial condition and results of
operations.
SpinCycle's Readiness. Based on our tests and certifications received from
MIS providers, we believe that both our critical software systems and store
hardware systems are currently Year 2000 compliant. Our assessment of exposure
to Year 2000 problems began in March 1998 with a test of all MIS for Year 2000
readiness. Since that time, management has obtained certifications from
providers of our accounting, revenue control and other critical software systems
that such MIS are Year 2000 compliant. We have completed final test procedures
for Year 2000 compliance and believe that our MIS are 100% Year 2000 compliant.
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<PAGE> 16
Readiness of Third Parties. We have taken reasonable precautions to verify
the Year 2000 readiness of any third party that could cause a material impact on
our operations. Alliance Laundry Systems LLC, the major supplier of our laundry
machines, has represented that the electronic controls embedded in the machines
we have purchased from them will not malfunction as a result of the Year 2000.
Alliance has further represented that the electronic controls embedded in their
machines have been tested without incident by simulating the Year 2000 date
change. In addition, SpinCycle's providers of essential software systems have
certified that such systems are Year 2000 compliant.
Historical and Estimated Costs. We have not established a separate Year 2000
compliance budget and do not expect to do so. To date, the only costs for Year
2000 compliance have been the expenditure of approximately $50,000 to replace
certain personal computers in our stores. Although no assurances can be given,
we do not expect future costs related to Year 2000 compliance to have a material
adverse effect on results of operations or financial condition. Costs are based
on current estimates and actual results may vary significantly from such
estimates.
Most Reasonably Likely Worst Case Scenario. The most reasonably likely worst
case Year 2000 scenario facing us would be our inability to implement variable
pricing in our laundry machines in an effort to boost off-peak customer traffic,
revenues and profitability. Variable pricing may temporarily malfunction on
January 2, 2000, since the machines recognize each day of the week based upon
the calendar date contained in their embedded computer chips and the price
programmed for a certain day of the week may in fact appear on a different day.
In the unlikely event that the dates in the embedded chips can not be reset,
store personnel will be able to manually set the laundry machines to charge a
fixed price until such time as we resolve defects in our variable pricing
system.
SEASONALITY
Coin-operated laundromat industry data, as well as data generated from our
mature and maturing stores, indicates that the coin-operated laundry business
experiences seasonal variations in operating performance during the later spring
and summer seasons. We believe this seasonality is a result of the reduced
volume of heavier clothing worn during the spring and summer months, which
results in lower laundry machine usage. We observed the effect of such
seasonality in the 70 stores opened for the entire 1998 fiscal year. During
fiscal 1998, revenues in these stores fluctuated approximately 11.5%, from a
peak during the third period (approximately March) to a low in the ninth period
(approximately August). These 70 stores experienced a significant increase in
revenues in the final quarter of the year, completing the seasonal cycle. As we
now have a significant base of data regarding seasonality, we believe we can
better predict the impact of these seasonal changes on our operating results.
FORWARD-LOOKING STATEMENTS
Statements that are not historical facts, including statements about our
confidence in our prospects, strategies and expectations about expansion into
new markets, growth in existing markets, comparable store sales and ability to
attract new sources of financing, are forward-looking statements that involve
risks and uncertainties. These risks and uncertainties include, but are not
limited to, (1) our historical and anticipated losses and negative cash flow;
(2) debt service requirements, restrictions and covenants related to our
substantially leveraged financial position; (3) considerable competition from
local and regional operators in all of our markets; (4) our ability to hire,
train, retain and assimilate competent management and store-level employees; (5)
our ability to identify new markets in which to successfully compete; (6) our
ability to locate suitable sites for building or acquisition; (7) our ability to
negotiate acceptable lease terms; (7) our ability to adopt purchasing systems
and MIS to accommodate expanded operations; (8) our dependence on timely
fulfillment by landlords and others of their contractual obligations; and (9)
our maintenance of construction schedules and the speed with which local zoning
and construction permits can be obtained. No assurance can be given that new
stores will achieve sales and profitability comparable to the existing stores or
to our strategic plan. There can be no assurance that an adequate revenue base
will be established or that we will generate positive cash flow from operations.
Any investor or potential investor in SpinCycle must consider these risks and
others that are detailed in this report.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
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<PAGE> 17
SPINCYCLE, INC.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
We are currently involved in various legal proceedings of a character
normally incident to businesses of our nature. We do not believe that the
outcome of these proceedings will have a material adverse effect on the
financial condition or results of operations of SpinCycle.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
<TABLE>
<S> <C>
(a). Exhibit 10.1 Amended and Restated Loan and Security between SpinCycle, Inc. and LaSalle Bank
National Association dated as of November 17, 1999
Exhibit 10.2 Revolving Loan Note by SpinCycle, Inc. to LaSalle Bank National Association dated November 17, 1999
Exhibit 10.3 Loan and Security Agreement between SpinCycle, Inc. and Alliance Laundry Systems LLC dated as of
November 17, 1999
Exhibit 10.4 Note by SpinCycle, Inc. to Alliance Laundry Systems LLC dated November 17, 1999
Exhibit 10.5 Intercreditor Agreement between LaSalle Bank National Association and Alliance Laundry Systems
LLC dated November 17, 1999
Exhibit 27.1 Financial Data Schedule
</TABLE>
(b). None.
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<PAGE> 18
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on behalf by the
undersigned thereunto duly authorized.
SPINCYCLE, INC.
Date: November 17, 1999 By /s/ Peter L. Ax
--------------------------------
Peter L. Ax
Chief Executive Officer
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<PAGE> 19
Exhibit Index
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------------ ------------
<S> <C>
Exhibit 10.1 Amended and Restated Loan and Security between SpinCycle, Inc. and LaSalle Bank
National Association dated as of November 17, 1999
Exhibit 10.2 Revolving Loan Note by SpinCycle, Inc. to LaSalle Bank
National Association dated November 17, 1999
Exhibit 10.3 Loan and Security Agreement between SpinCycle, Inc. and Alliance Laundry Systems LLC
dated as of November 17, 1999
Exhibit 10.4 Note by SpinCycle, Inc. to Alliance Laundry Systems LLC
dated November 17, 1999
Exhibit 10.5 Intercreditor Agreement between LaSalle Bank National
Association and Alliance Laundry Systems LLC dated November 17, 1999
Exhibit 27.1 Financial Data Schedule
</TABLE>
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<PAGE> 1
Exhibit 10.1
- --------------------------------------------------------------------------------
AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
Dated as of November 17, 1999
between
SPINCYCLE, INC.,
as Borrower
and
LASALLE BANK NATIONAL ASSOCIATION,
as Lender
- --------------------------------------------------------------------------------
<PAGE> 2
AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
THIS AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT ("Agreement"),
dated as of November 17, 1999, is entered into between "Lender" and "Borrower"
(hereinafter defined).
R E C I T A L S:
A. Borrower and Lender, as assignee of Heller Financial, Inc. and
Finova Capital Corporation ("Prior Lenders"), are parties to a Loan and Security
Agreement dated as of April 28, 1998, as amended and supplemented from time to
time (collectively, the "Prior Agreements"), pursuant to which Lender made
revolving loans to Borrower and Borrower granted Lender, as successor to Heller
Financial, Inc., as Agent, a lien on the Collateral.
B. Borrower desires, upon the terms and conditions set forth in this
Agreement, to amend and restate the Prior Agreements in their entirety.
NOW, THEREFORE, in consideration of the parties' mutual agreements
contained herein, the parties hereto agree as follows:
1. DEFINITIONS
1.1 General Terms. As used in this Agreement, the following
terms shall have the following definitions:
"Accounts" shall mean all of Borrower's presently existing and
hereafter arising accounts, accounts receivable, contract
rights, instruments, documents, chattel paper, and all other
forms of obligations owing to Borrower arising out of the sale
or lease of goods or the rendition of services by Borrower,
whether or not earned by performance, and any and all credit
insurance, guarantees, letters of credit and other security
therefor, as well as all merchandise returned to or reclaimed
by Borrower, and all products and proceeds of the foregoing.
"Affiliate" shall mean any Person that directly or indirectly,
through one or more intermediaries, controls or is controlled
by, or is under common control with, Borrower.
-1-
<PAGE> 3
"Agreement" shall mean this Amended and Restated Loan and
Security Agreement, any and all exhibits or schedules hereto,
any and all concurrent or subsequent riders to this Amended and
Restated Loan and Security Agreement and any extensions,
supplements, amendments, modifications or restatements to or of
this Amended and Restated Loan and Security Agreement and/or to
or of any such rider.
"Alliance" means Alliance Laundry Systems LLC.
"Alliance Financing" shall mean the term loan by Alliance to
Borrower in the original principal amount of $3,000,000,
evidenced by the Alliance Loan Documents.
"Alliance Loan Documents" shall mean the Loan and Security
Agreement dated November 17, 1999 between Alliance and
Borrower and all other Loan Documents (as such term is
defined therein).
"Alliance Senior Collateral" shall have the meaning provided
therefor in the Intercreditor Agreement.
"Borrower" shall mean SpinCycle, Inc.
"Borrower's Books" shall mean all of Borrower's books and
records including, but not limited to: minute books; ledgers;
records indicating, summarizing, or evidencing Borrower's
assets, liabilities, the Accounts and all information relating
thereto; records indicating, summarizing, or evidencing
Borrower's business operations or financial condition; records
indicating, summarizing, or evidencing Borrower's compliance
with or problems or activities concerning Environmental Laws;
and all computer programs, disc or tape files, printouts, runs,
and other computer prepared information and the equipment
containing such information and any software necessary to
operate the same.
"Business Day(s)" shall mean (a) any day other than a Saturday,
Sunday or other day on which banks in Illinois are closed, and
(b) relative to Eurodollar Loans, any day on which dealings in
Dollars are carried on in the interbank Eurodollar market which
also satisfies the criteria set forth in (a) above.
"Capital Expenditures" shall mean, with respect to any period,
the aggregate of all expenditures (whether paid in cash or
accrued as liabilities and including expenditures for the
portion of capitalized lease obligations amortizable in the
fiscal period of measurement) by Borrower during such period
that are required by Generally Accepted Accounting Principles
to be
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<PAGE> 4
included in or reflected by the property, plant, or equipment
or similar fixed asset accounts in the balance sheet of
Borrower.
"Closing" shall have the meaning set forth in Section 5.1
hereof.
"Code" shall mean the Uniform Commercial Code of the State of
Illinois as in effect from time to time during the Initial Term
and any renewal term hereof, and any and all terms used in this
Agreement which are not otherwise defined herein but are
defined in the Code shall be construed and defined in
accordance with the meaning and definition ascribed to such
terms under the Code.
"Collateral" shall mean each and all of the following wherever
located and whether now existing or owned or hereafter created
or acquired by Borrower: the Accounts; the General Intangibles;
the Negotiable Collateral; the Inventory; Borrower's Books; the
Equipment; any money, deposit accounts or other assets of
Borrower in which Lender receives a Lien or which hereafter
comes into the possession, custody or control of Lender or any
bailee of Lender; and all products and proceeds of every nature
of any of the foregoing, including, but not limited to,
proceeds of insurance covering the Collateral and any and all
Accounts, General Intangibles, Negotiable Collateral,
Inventory, contract rights, instruments, documents and chattel
paper, Equipment, money, deposit accounts or other tangible and
intangible property of Borrower resulting from the sale or
other disposition of the Collateral, and the proceeds and
products thereof.
"Default Rate" shall have the meaning set forth in Section
2.14(c) hereof.
"EBITDA" shall have the meaning provided therefor in the
definition of Senior Interest Coverage Ratio set forth in this
Section.
"Effective Date" shall mean the date on which the conditions
precedent for initial Revolving Loans under Section 5 hereof
have been satisfied and the initial Revolving Loans have been
made.
"Environmental Laws" shall mean any applicable laws, statutes,
rules, regulations, orders, consent decrees, permits or
licenses of any governmental authority, relating to prevention,
remediation, reduction or control of pollution, or protection
of the environment, natural resources and/or human health and
safety, including, without limitation, such applicable laws,
statutes, rules, regulations, orders, consent decrees, permits
or licenses relating to (a) solid waste and/or Hazardous
Materials treatment, storage, disposal, generation and
transactions, (b) air, water, and noise pollution, (c) soil,
ground, water or groundwater contamination, (d) the generation,
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handling, storage, transportation or Release into the
environment of Hazardous Materials, and (e) regulation of
underground and above ground storage tanks.
"Equipment" shall mean the machinery and equipment of Borrower,
including, without limitation, laundry equipment, processing
equipment, data processing and computer equipment with software
and peripheral equipment, and all engineering, processing and
manufacturing equipment, office machinery, furniture, materials
handling equipment, tools, molds, dies, attachments,
accessories, automotive equipment, trailers, trucks, motor
vehicles, leasehold improvements and cranes, and other
equipment of every kind and nature, and fixtures, all whether
now owned or hereafter acquired, and wheresoever situated,
together with all additions and accessions thereto,
replacements therefor, all parts therefor, and all manuals,
drawings, instructions, warranties, and rights with respect
thereto, and all products and proceeds of the foregoing, and
condemnation awards and insurance proceeds with respect
thereto.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended, and all references to sections thereof
shall include such sections and any predecessor and successor
provisions thereto.
"Eurodollar Loan" shall mean any Revolving Loan with respect to
which the Borrower shall have selected an interest rate based
on the LIBOR Rate in accordance with the provisions of Section
2.2(a) of this Agreement; provided, however that there shall
not be in excess of three (3) Eurodollar Loans outstanding at
any one time.
"Event of Default" shall mean the occurrence of any one or more
of the events set forth in Section 12 of this Agreement.
"Excess Issuance Proceeds" shall mean the proceeds of any
issuance of Subordinated Indebtedness consented to by Lender or
any sale of equity securities by Borrower not required to be
paid to Lender by Section 9.9 of this Agreement.
"Fiscal Quarter" shall mean the four (4) fiscal quarterly
periods of Borrower during each Fiscal Year consisting of three
(3), three (3), four (4), and three (3) Reporting Periods,
respectively.
"Fiscal Year" shall mean with respect to Borrower, the fiscal
accounting period of Borrower each year consisting of thirteen
(13) four calendar week accounting periods ending on the last
Sunday of December of each calendar year.
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"Free Cash Flow" shall mean with respect to Borrower for any
period of measurement, the sum of EBITDA for such period, less
Maintenance Capital Expenditures during such period, less
income taxes paid during such period, less interest expense
paid during such period.
"Funded Debt" shall mean Indebtedness of Borrower incurred
under this Agreement, the other Loan Documents, and the
Alliance Loan Documents.
"Funded Debt Interest Expense" shall have the meaning provided
therefor in the definition of Senior Interest Coverage Ratio
set forth in this Section.
"General Intangibles" shall mean all of the Borrower's present
and future general intangibles, contract rights and other
personal property rights of Borrower to all choses or things in
action, tax refund claims, credits, claims, demands, goodwill,
licenses, franchise agreements, subscription costs, patents,
trade names, trademarks, copyrights, rights to royalties,
blueprints, drawings, customer lists, purchase orders, computer
programs, computer discs, computer tapes, literature, reports,
catalogs, methods, sales literature, video tapes, confidential
information and trade secrets, consulting agreements,
employment agreements, leasehold interests in real and personal
property, insurance policies, deposits with insurers relating
to workmen's compensation liabilities, deposit accounts, tax
refunds and proprietary rights in any Equipment, other than
Equipment, Inventory and Accounts, as well as Borrower's Books
relating to any of the foregoing, and all products and proceeds
of the foregoing.
"Generally Accepted Accounting Principles" shall mean, with
respect to any date of determination, generally accepted
accounting principles as used by the Financial Accounting
Standards Board and/or the American Institute of Certified
Public Accountants consistently applied and maintained
throughout the periods indicated.
"Hazardous Materials" shall mean any flammable or explosive
materials, petroleum (including crude oil and its fractions),
radioactive materials, hazardous wastes, toxic substances or
related hazardous materials, including without limitation
polychlorinated biphenyls, friable asbestos, and any substances
defined as, or included in the definition of toxic or hazardous
substances, wastes, or materials under any federal or
applicable state or local laws, ordinances, rules or
regulations including Environmental Laws.
"Indebtedness" shall mean, with respect to any Person, (a)
indebtedness for borrowed money or for the deferred purchase
price of property or services in respect of which such Person
is liable, contingently or otherwise, as obligor or otherwise,
including without limitation accounts payable and accrued
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indebtedness owed by such Person or any commitment by which
such Person assures a creditor against loss, including
contingent reimbursement obligations with respect to letters of
credit, (b) indebtedness guaranteed in any manner by such
Person, including guarantees in the form of an agreement to
repurchase or reimburse, (c) obligations under leases which
shall have been or should be, in accordance with Generally
Accepted Accounting Principles, recorded as capital leases, in
respect of which obligations such Person is liable,
contingently or otherwise, as obligor, guarantor or otherwise,
or in respect of which obligations such Person assures a
creditor against loss, and (d) any unfunded obligation of such
Person to any Benefit Plan or Multiemployer Plan.
"Indemnified Persons" shall have the meaning set forth in
Section 18.1 hereof.
"Initial Term" shall have the meaning set forth in Section
3.1 hereof.
"Insolvency Proceeding" shall mean, with respect to any Person,
any proceeding commenced by or against such Person, under any
provision of the United States Bankruptcy Code, as amended, or
under any other bankruptcy, reorganization or insolvency law,
or any assignment for the benefit of creditors, formal or
informal moratorium, or compositions or extensions with some or
all creditors of such Person.
"Intercreditor Agreement" shall mean the Intercreditor
Agreement of even date herewith between Alliance and Lender.
"Interest Period" shall mean: (i) as to any Eurodollar Loan,
the period commencing on the date of such Eurodollar Loan and
ending on the numerically corresponding day (or, if there is no
numerically corresponding day, on the last day) in the calendar
month that is 1, 2 or 3 months thereafter, as the Borrower may
elect, and (ii) as to any Reference Rate Loan, the period
commencing on the date of such Reference Rate Loan and ending
on the earlier of (A) the last Business Day of each calendar
month, and (B) the expiration or earlier termination of this
Agreement; provided, however, that (i) if any Interest Period
would end on a day that shall not be a Business Day, such
Interest Period shall be extended to the next succeeding
Business Day unless, with respect to Eurodollar Loans only,
such next succeeding Business Day would fall in the next
calendar month, in which case such Interest Period shall end on
the immediately preceding Business Day, (ii) no Interest Period
with respect to any Revolving Loan shall end later than the
expiration of the term of this Agreement, (iii) interest shall
accrue from and including the first day of an Interest Period
to and excluding the last day of such Interest Period, and (iv)
no Interest Period may be
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selected if after giving effect thereto Borrower will be unable
to make a principal payment scheduled to be made during such
Interest Period without paying part of a Eurodollar Loan on a
date other than on the last day of an Interest Period
applicable thereto.
"Inventory" shall mean all present and future inventory in
which Borrower has any interest, including, but not limited to,
goods held by Borrower for sale or lease or to be finished
under a contract of service and all of Borrower's present and
future raw materials, work in process, finished goods, supplies
and packing and shipping materials, wherever located, and any
documents of title representing any of the above.
"IRC" shall mean the Internal Revenue Code of 1986, as amended,
and all references to sections thereof shall include such
sections and any predecessor and successor provisions thereto.
"Lender" shall mean LaSalle Bank National Association, a
national banking association.
"Letter of Credit Facility" shall have the meaning set forth in
Section 2.4 hereof.
"Letters of Credit" shall mean any standby letters of credit
which are now or hereafter at any time issued by Lender at the
request of and for the account of Borrower pursuant to the
terms of this Agreement, in form and substance acceptable to
Lender.
"LIBOR Rate" shall mean, with respect to any Eurodollar Loan
for any Interest Period, the interest rate per annum equal to
the quotient obtained by dividing (x) the rate of interest
determined by Lender to be the average of the rate per annum at
which deposits in U.S. dollars are generally offered to Lender
in the London Interbank Market at 11:00 A.M. London time, two
(2) Business Days before the first day of such Interest Period,
for a period equal to such Interest Period and in the amount of
the applicable Eurodollar Loan, by (y) the difference between
one hundred percent (100%) and any applicable reserve
requirements (rounded upward to the nearest whole multiple of
one hundredth (1/100) of one percent per annum), including,
without limitation, any statutory maximum requirement for
Lender to hold reserves for "Eurocurrency Liabilities" under
Regulation D of the Board of Governors of the Federal Reserve
System (or any similar reserves under any successor regulation
or regulations).
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<PAGE> 9
"Lien" shall mean any mortgage, deed of trust, pledge, fixed or
floating charge, lien, security interest, or encumbrance or
security arrangement of any nature whatsoever, whether arising
by written or oral agreement or by operation of law, including
without limitation any conditional sale or title retention
arrangement and any assignment, deposit arrangement or lease
intended as or having the effect of, security.
"Loan Documents" shall mean all agreements, instruments and
documents, including without limitation security agreements,
loan agreements (including without limitation this Agreement),
notes, guarantees, mortgages, deeds of trust, subordination
agreements, intercreditor agreements, pledges, affidavits,
certificates, powers of attorney, consents, assignments,
landlord and mortgagee waivers, opinions, collateral
assignments, reimbursement agreements, contracts, notices,
leases, financing statements, and all amendments, supplements,
restatements and renewals thereof, and all other written
matter, whether heretofore, now or hereafter executed by or on
behalf of Borrower, or any other Person in connection with the
Obligations or the transactions contemplated hereby (including
without limitation any guaranty of the Obligations), and
delivered to Lender, together with all agreements, instruments
and documents referred to therein or contemplated thereby,
whether heretofore, now or hereafter executed by or on behalf
of Borrower or any such other Persons and delivered to Lender,
and all amendments, supplements, restatements and renewals
thereof, but not including any proposal letter, commitment
letter or other comparable documents delivered by Lender prior
to the date hereof and not expressly incorporated herein and
made a part hereof.
"Losses" shall have the meaning set forth in Section 18.1
hereof.
"Maintenance Capital Expenditures" shall have the meaning set
forth in Section 8.20 hereof.
"Maximum Revolving Credit Facility" shall mean $12,000,000.
"Negotiable Collateral" shall mean a letter of credit, advice
of credit, instrument, money, negotiable document, warehouse
receipt, bill of lading, certificated security, certificate of
title, certificate of deposit, chattel paper, or similar
property, and the proceeds thereof.
"Net Worth" means the total of Borrower's stated capital, paid
in surplus and retained earnings, less treasury stock, all as
determined in accordance with Generally Accepted Accounting
Principles.
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<PAGE> 10
"Obligations" shall mean all loans, advances, overdrafts,
debts, liabilities (including, without limitation, any and all
amounts charged to Borrower's account pursuant to any agreement
authorizing Lender to charge the loan account maintained by
Lender with respect to Borrower), obligations, reimbursement
and indemnity obligations with respect to Letters of Credit,
covenants, lease payments, guarantees and duties owing by
Borrower to Lender of any kind or description (whether advanced
pursuant to or evidenced by this Agreement, by the Revolving
Loan Note, by any other Loan Document or other agreement,
instrument or document or otherwise), whether direct or
indirect, absolute or contingent, due or to become due, now
existing or hereafter arising, and including without limitation
any debt, liability or obligation owing from Borrower to
another Person which Lender may have obtained by assignment of
which notice is provided to Borrower (or otherwise as a result
of a payment made by Lender on behalf of Borrower as permitted
under this Agreement or any other Loan Documents) and further
including without limitation all interest, all Out-of-Pocket
Fees and Costs which Borrower is required to pay or reimburse
by this Agreement or any other Loan Document, by law or
otherwise.
"Out-of-Pocket Fees and Costs" shall have the meaning set forth
in Section 2.15(c) hereof.
"Participant" shall mean any Person now or from time to time
hereafter participating with Lender in any of the Revolving
Loans made by Lender to Borrower pursuant to this Agreement.
"Permitted Liens" shall have the meaning set forth in Section
8.1 hereof.
"Person" shall mean any individual, sole proprietorship,
partnership, joint venture, trust, unincorporated organization,
association, corporation, limited liability corporation,
institution, entity or governmental entity.
"Potential Default" shall mean any event which through the
passage of time, service of notice or both, would mature into
an Event of Default.
"Pro Formas" shall have the meaning set forth in Section 7.11
hereof.
"Rate" shall have the meaning set forth in Section 2.14(a)
hereof.
"Reference Rate" shall mean the variable per annum rate of
interest announced from time to time by Lender at its corporate
headquarters in Chicago, Illinois, as its prime or equivalent
rate. The "Reference Rate" is one of Lender's index rates and
merely serves as a basis under which effective rates of
interest are calculated for loans making reference thereto
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<PAGE> 11
and may not be the lowest or best rate at which Lender
calculates interest or extends credit.
"Reference Rate Loan" shall mean any Loan with respect to which
Borrower shall have selected an interest rate based upon the
Reference Rate in accordance with the provisions of Section
2.2(a) of this Agreement.
"Release" shall mean any actual or threatened past, present or
future releasing, spilling, leaking, pumping, pouring,
emitting, emptying, discharging, seeping, injecting, escaping,
leaching, dumping or disposing, whether intentional or not.
"Reporting Period" shall mean each of Borrower's thirteen (13)
annual four week fiscal reporting periods.
"Restriction Agreement" shall have the meaning set forth in
Section 8.8 hereof.
"Revolving Loan Note" shall have the meaning set forth in
Section 2.1 hereof.
"Revolving Loans" shall have the meaning set forth in Section
2.1 hereof.
"Senior Discount Notes" shall mean Borrower's $144,990,000
principal amount of 12-3/4% Series B Senior Discount Notes due
2005, issued pursuant to an Indenture dated as of April 29,
1998 between Borrower and Norwest Bank Minnesota, N.A., as
Trustee (the "Note Indenture").
"Senior Interest Coverage Ratio" shall mean with respect to
Borrower for any period of measurement (a) the total of (i)
Borrower's net income after income taxes (exclusive of any gain
or loss in such period from an asset disposition other than
Inventory in the ordinary course of business and excluding
other extraordinary gains and losses) for such period, plus
(ii) Borrower's amortization, depreciation and other non-cash
charges (excluding Accounts reserves, Inventory reserves and
other reserves incurred in the ordinary course of business) for
such period ("EBITDA"), divided by (b) interest expense paid or
accrued on Funded Debt for such period ("Funded Debt Interest
Expense").
"Subordinated Indebtedness" shall mean Borrower's Indebtedness,
if any, to any Person, the repayment of which has been
subordinated to the repayment of the Obligations on terms and
by written agreement in form and substance acceptable to
Lender.
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"Subsidiary" shall mean any corporation of which more than
fifty percent (50%) of the outstanding capital stock having
ordinary voting power to elect a majority of the board of
directors of such corporation (irrespective of whether at the
time stock of any other class or classes of such corporation
shall have or might have voting power by reason of the
happening of any contingency) is at the time, directly or
indirectly, owned by Borrower, or any partnership, limited
liability company or joint venture of which more than fifty
percent (50%) of the outstanding equity interests are at the
time, directly or indirectly, owned by Borrower.
"Tangible Net Worth" means the sum of the Net Worth of
Borrower, plus the outstanding principal balance of the Senior
Discount Notes, less all of the following: (i) all prepaid
expenses and deposits, (ii) the book value of all such assets
which would be treated as an intangible under Generally
Accepted Accounting Principles, including without limitation,
goodwill, trademarks, tradenames, copyrights, patents,
licenses, deferred charges, unamortized debt discount and
expenses and covenants not to compete, and (iii) accounts,
notes and other receivables due from Affiliates and/or
employees of Borrower.
"Term" shall mean the term of this Agreement, including the
Initial Term and any renewal term.
"Uncured Default" shall mean an Event of Default which shall
be continuing.
1.2 Accounting Terms. Any accounting terms used in this Agreement
which are not specifically defined herein shall have the
meanings customarily given them in accordance with Generally
Accepted Accounting Principles. In the event that changes in
Generally Accepted Accounting Principles shall be mandated by
the Financial Accounting Standards Board and/or the American
Institute of Certified Public Accountants or any similar
accounting body of comparable standing, or shall be recommended
by Borrower's certified public accountants, to the extent that
such changes would modify such accounting terms or the
interpretation or computation thereof as contemplated by this
Agreement at the time of execution hereof, then in such event
such changes shall be followed in defining such accounting
terms only after the Borrower and Lender shall have agreed to
amend this Agreement to reflect the original intent of such
terms in light of such changes, and such terms shall continue
to be applied and interpreted without such change until such
agreement.
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1.3 Certain Matters of Construction. The terms "herein", "hereof"
and "hereunder" and other words of similar import refer to this
Agreement as a whole and not to any particular section,
paragraph or subdivision. Any pronoun used shall be deemed to
cover all genders. The section titles, table of contents and
list of exhibits appear as a matter of convenience only and
shall not affect the interpretation of this Agreement. All
references to statutes and related regulations shall include
any amendments of same and any successor statutes and
regulations. All references to any instruments or agreements,
including, without limitation, references to any of the Loan
Documents shall include any and all modifications or amendments
thereto and any and all extensions or renewals thereof. The
Recitals to this Agreement are incorporated into this Agreement
in their entirety and deemed to be a part hereof.
2. LOANS; FEES; TERMS OF PAYMENT
2.1 Revolving Credit Facility. Subject to the terms and
provisions of this Agreement including without limitation, that
no Event of Default or Potential Default has occurred and all
other conditions precedent to lending under Section 5 hereof
have been satisfied, upon the request of Borrower, made at any
time and from time to time during the term of this Agreement,
the Lender agrees to make loans and advances (individually, a
"Revolving Loan" and collectively, "Revolving Loans") to
Borrower from time to time in the amount requested by Borrower
so long as the aggregate amount of the Revolving Loans
outstanding at any time does not exceed the sum of the Maximum
Revolving Credit Facility, less the outstanding face amount of
all Letters of Credit.
Lender is hereby authorized to make the Revolving Loans
provided for in this Agreement based upon telephonic or other
instructions received from anyone purporting to be (and which
Lender in good faith believes to be) an authorized
representative of Borrower, or at the discretion of Lender, if
such Revolving Loans are necessary to satisfy any Obligation of
Borrower to Lender.
The Revolving Loans shall be evidenced by, and repayable in
accordance with, the Revolving Loan Note substantially in the
form of Exhibit A to this Agreement ("Revolving Loan Note").
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2.2 Borrowing Procedures.
(a) Lender shall have received, on or before 11:00 a.m.
Chicago time, on the day a Revolving Loan is to be
made, if a Reference Rate Loan, or three (3) Business
Days prior to the date a Revolving Loan is to be made,
if a Eurodollar Loan, including continuations and
conversions (i) an oral request from Borrower for a
Revolving Loan in a specific amount (and a request in
writing, which shall be delivered to Lender on the
same Business Day, executed by an authorized
representative of Borrower), (ii) designation whether
the Revolving Loan is to be a Eurodollar Loan or a
Reference Rate Loan, and if such Revolving Loan is to
be a Eurodollar Loan, the Interest Period or Interest
Periods with respect thereto, and (iii) copies of all
other documents which the Borrower is required to
deliver to Lender hereunder. If such request for a
Revolving Loan is received by Lender before 11:00 a.m.
Chicago time on the day a Reference Rate Loan is to be
made, or before 11:00 a.m. Chicago time three (3)
Business Days prior to the date a Eurodollar Loan is
to be made, subject to the other terms and conditions
of this Agreement, Lender will make such Revolving
Loan on the applicable day on which such Revolving
Loan is to be funded hereunder, subject to any delays
beyond Lender's reasonable control, provided that
Lender shall not be liable for any damages or
liabilities for the failure to so make any Revolving
Loan on the day requested, unless such failure was due
to Lender's gross negligence or wilful misconduct. If
no election as to the type of Revolving Loan is
specified in any such notice by Borrower, then such
Revolving Loan shall be a Reference Rate Loan. If no
Interest Period is specified with respect to a
Eurodollar Loan in such notice, then Borrower shall be
deemed to have selected an Interest Period of one
month's duration. Notwithstanding anything contained
in this Agreement to the contrary, Borrower may not
have more than three (3) Eurodollar Loans outstanding
at any one time, and each request for a Eurodollar
Loan shall be in a minimum initial increment of
$1,000,000.
2.3 Renewals: Conversion and Continuation of Revolving Loans.
(a) Provided no Potential Default or Event of Default has
occurred, upon maturity of any Revolving Loan, upon
notice to Lender given in the manner and at the times
specified in Section 2.2(a) of this Agreement with
respect to Revolving Loans to be renewed, the Borrower
may renew all or any part of any Revolving Loan to it
from Lender with a Revolving Loan of the same or a
different type from Lender, subject to the conditions
and limitations set forth herein and elsewhere in this
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<PAGE> 15
Agreement. Any Revolving Loan or part thereof so
renewed shall be deemed to be repaid in accordance
with this Section 2.3(a) with the proceeds of a new
borrowing hereunder and the proceeds of the new
Revolving Loan, to the extent such proceeds do not
exceed the principal amount of the Revolving Loan
being renewed, shall not be paid by Lender to
Borrower.
(b) Provided no Potential Default or Event of Default has
occurred, the Borrower shall have the right at any
time, upon notice to Lender given in the manner and at
the times specified in Section 2.2(a) of this
Agreement with respect to the Revolving Loans to be
converted or continued, to convert its Eurodollar
Loans into Reference Rate Loans, to convert its
Reference Rate Loans into Eurodollar Loans (specifying
the Interest Period to be applicable thereto), to
convert the Interest Period applicable to any of its
Eurodollar Loans to another permissible Interest
Period, and to continue any of its Revolving Loans
into a subsequent Interest Period of any permissible
duration, subject to the terms and conditions of this
Agreement, and to the following:
(i) each conversion shall be effected by Lender by
applying the proceeds of the new Reference
Rate Loan or Eurodollar Loan, as the case may
be, to the Reference Rate Loan or Eurodollar
Loan (or portion thereof) being converted;
(ii) accrued interest on a Revolving Loan (or
portion thereof) being converted or continued
shall be paid by the Borrower at the time of
conversion or continuation;
(iii) if any Eurodollar Loan is converted at any
time other than the end of an Interest
Period applicable thereto, the Borrower
shall make such payments associated
therewith as are required pursuant to
Section 2.4 at the time such Eurodollar Loan
shall be converted to a Reference Rate Loan;
and
(iv) the Interest Period applicable to any
Eurodollar Loan resulting from a conversion or
continuation shall be specified by the
Borrower in the notice of conversion or
continuation delivered pursuant to this
Section 2.3 provided, however, that if no such
Interest Period shall be specified, the
Borrower shall be deemed to have selected an
Interest Period of one month's duration.
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<PAGE> 16
2.4 Indemnity.
The Borrower hereby agrees to indemnify Lender against any
loss, fee, claim, damage, liability or expense which Lender may
sustain or incur as a consequence of (i) any failure by the
Borrower to fulfill on the date of any borrowing of a
Eurodollar Loan hereunder the applicable conditions set forth
in this Agreement which Borrower is required to fulfill as of
such date with respect to a Revolving Loan, (ii) any failure by
the Borrower to borrow hereunder after notice of borrowing
pursuant to this Agreement has been given to Lender, except
where the availability of Eurodollar Loans is suspended by
Lender pursuant to Section 2.6 of this Agreement, (iii) any
payment, prepayment or conversion of a Eurodollar Loan required
by any provision of this Agreement, or otherwise made on a date
other than the last day of the applicable Interest Period, or
(iv) the occurrence of any Event of Default, including, but not
limited to, any loss or reasonable expense sustained or
incurred or to be sustained or incurred in liquidating or
employing deposits from third parties acquired to effect or
maintain such Revolving Loan or any part thereof as a
Eurodollar Loan. Such loss or reasonable expense shall include,
without limitation, an amount equal to the excess, if any, as
reasonably determined by Lender of its cost of obtaining the
funds for the Eurodollar Loan being paid, prepaid or converted
or not borrowed (based on the LIBOR Rate applicable thereto)
for the period from the date of such payment, prepayment or
conversion or failure to borrow to the last day of the Interest
Period for such Eurodollar Loan (or, in the case of a failure
to borrow, the Interest Period for such Eurodollar Loan which
would have commenced on the date of such failure to borrow)
over the amount of interest (as reasonably determined by
Lender) that could be realized by Lender in reemploying during
such period the funds so paid, prepaid or converted or not
borrowed. A certificate of Lender setting forth any amount or
amounts which Lender is entitled to receive pursuant to this
Section 2.4 shall be conclusive absent manifest error.
2.5 Change in Legality.
(a) Notwithstanding anything to the contrary herein
contained, if any change in any law or regulation or
in the interpretation thereof by any governmental
authority charged with the administration or
interpretation thereof shall make it unlawful for
Lender to make or maintain any Eurodollar Loan or to
give effect to its obligations as contemplated hereby
(an "Illegality"), or if Lender determines that
maintenance of Eurodollar Loans would cause Lender to
implement or modify any reserve, special deposit or
assessment or other requirement, or impose any other
condition on Lender affecting the Revolving Loans
(each of the foregoing circumstances called a
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"Regulatory Action"), then, by written notice to the
Borrower, Lender shall:
(i) declare that Eurodollar Loans will not
thereafter be made by Lender hereunder,
whereupon the Borrower shall be prohibited
from requesting Eurodollar Loans from Lender
hereunder unless such declaration is
subsequently withdrawn; provided, however,
that if after the date of any such declaration
there shall occur any change in law or
regulation or in the interpretation thereof by
any government authority charged with the
administration or interpretation thereof that
shall eliminate such Illegality, Lender shall
as promptly as reasonably practicable notify
the Borrower of such occurrence and withdraw
such declaration; and
(ii) require that all outstanding Eurodollar Loans
made by Lender be converted to Reference Rate
Loans, in which event (1) all such Eurodollar
Loans shall be automatically converted to
Reference Rate Loans as of the effective date
of such notice as provided in paragraph (b)
below and, (2) all payments and prepayments of
principal which would otherwise have been
applied to repay the converted Eurodollar
Loans shall instead be applied to repay the
Reference Rate Loans resulting from the
conversion of such Eurodollar Loans
(b) for purposes of this Section 2 a notice to the
Borrower by Lender pursuant to paragraph (a) above
shall be effective on the date of receipt by the
Borrower.
2.6 Unavailability of Deposits or Inability to Ascertain, or
Inadequacy of LIBOR Rate.
If on or prior to the first day of any Interest Period for any
borrowing of Eurodollar Loans:
(a) the Lender advises the Borrower that deposits in
United States Dollars (in the applicable amounts) are
not being offered to it in the off-shore U.S. Dollar
interbank market for such Interest Period, or
(b) the Lender advises the Borrower that the LIBOR Rate as
determined by the Lender will not adequately and
fairly reflect the cost to Lender of funding the
Eurodollar Loans for such Interest Period, until it
notifies the Borrower that the circumstances giving
rise to such
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<PAGE> 18
suspension no longer exist, the obligations of the
Lender to make Eurodollar Loans shall be suspended
without liability to Lender.
2.7 Increased Cost and Reduced Return.
(a) If on or after the date hereof, the adoption of any
applicable law, rule or regulation, or any change
therein, or any change in the interpretation or
administration thereof by any governmental authority,
central bank or comparable agency charged with the
interpretation or administration thereof, or
compliance by Lender with any request or directive
(whether or not having the force of law) of any such
authority, central bank or comparable agency:
(i) shall subject Lender to any tax, duty or other
charge with respect to its Eurodollar Loans,
the Revolving Loan Note or its obligation to
make Eurodollar Loans, or shall change the
basis of taxation of payments to Lender of the
principal of or interest on its Eurodollar
Loans or any other amounts due under this
Agreement in respect of its Eurodollar Loans
or its obligation to make Eurodollar Loans
(except for changes in the rate of tax on the
overall net income of Lender imposed by the
jurisdiction in which Lender's principal
executive office is located); or
(ii) shall impose, modify or deem applicable any
reserve, special deposit or similar
requirement (including, without limitation,
any such requirement imposed by the Board of
Governors of the Federal Reserve System),
against assets of, deposits with or for the
account of, or credit extended by, Lender or
shall impose on Lender or on the interbank
market any other condition affecting Lender's
Eurodollar Loans, the Revolving Loan Note or
its obligation to make Eurodollar Loans;
and the result of any of the foregoing is to increase the cost
to Lender of making or maintaining any Eurodollar Loan, or to
reduce the amount of any sum received or receivable by such
Lender under this Agreement or under the Revolving Loan Note
with respect thereto, by an amount deemed reasonably and in
good faith by Lender to be material, then, Borrower shall,
within fifteen (15) days after demand by Lender setting forth
the computation of the amount of any increased costs, be
obligated to pay Lender such additional amount or amounts as
will compensate Lender for such increased cost or reduction
(computed commencing on the effective date of any event
mentioned herein). Lender agrees to use its best efforts to
give the Borrower notice of the occurrence of any event
mentioned herein.
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<PAGE> 19
In addition, Lender may, upon notice to Borrower, elect to
increase the interest rate applicable to all Eurodollar Loans
made subsequent thereto, to compensate Lender for such
increased cost or reduced yield.
2.8 Regulations Affecting Loans. If (a) Regulation D, Regulation M
or any other regulation of the Board of Governors of the
Federal Reserve System or any other Federal regulation, or (b)
after the date hereof, the adoption of any applicable law, rule
or regulation, or any change, amendment to, deletion from or
revision, modification or other change therein, or any change
in the interpretation or administration thereof by any
governmental authority, central bank or comparable agency
charged with the interpretation or administration thereof, or
by any court, or compliance by Lender with any request or
directive (whether or not having the force of law) of any such
authority, central bank or comparable agency,
(a) shall impose, modify or deem applicable any reserve
(including, without limitation, any reserve imposed by
the Federal Reserve Board), special deposit, special
assessment or similar requirement against assets of,
deposits with or for the account of, or credit
extended by, Lender; or
(b) shall impose on Lender any other condition affecting
the Revolving Loans;
and the result of any of the foregoing is to increase the cost
to Lender of making or maintaining the Revolving Loans, or to
reduce the amount of any sum received or receivable by Lender
under this Agreement or under the Revolving Loan Note with
respect thereto, then on the earlier of termination of this
Agreement or fifteen (15) days after demand by Lender setting
forth the computation of the amount of any increased costs,
Borrower shall pay directly to Lender from time to time such
additional amount or amounts as Lender reasonably determines
will compensate Lender for such increased cost or such
reduction. Lender agrees to use its best efforts to give the
Borrower notice of the occurrence of any event mentioned herein
prior to Lender's demand for payment.
2.9 Letter of Credit Facility.
(a) Subject to the terms and provisions of this Agreement,
including without limitation, that no Event of Default
or Potential Default has occurred and all other
conditions precedent to lending under Section 5 hereof
have been satisfied, Lender may, at Borrower's request
and for the account of Borrower, issue Letters of
Credit; provided, that the aggregate undrawn face
amount of the Letters of Credit shall not
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<PAGE> 20
at any time exceed the sum of Five Hundred Thousand
Dollars ($500,000.00) (the "Letter of Credit
Facility") and no Letter of Credit shall have a term
extending beyond the term of this Agreement.
(b) Borrower agrees to pay to (i) Lender upon the opening
of a Letter of Credit and thereafter on demand,
Lender's standard administrative and operating fees
and charges in effect from time to time for issuing,
administering and paying draws under any Letters of
Credit, plus (ii) a fee, payable upon issuance of each
Letter of Credit and annually thereafter equal to two
percent (2.00%) per annum of the aggregate face amount
available to be drawn under such Letter of Credit.
Borrower shall execute Lender's customary form of
application and related documents for each Letter of
Credit requested by it.
(c) Borrower agrees to reimburse Lender, within one (1)
Business Day after demand, for each payment made by
Lender under or pursuant to any Letter of Credit
issued by Lender on behalf of Borrower. Borrower
further agrees to pay to Lender, on demand, interest
at the Default Rate on any amount paid by Lender under
or pursuant to any such Letter of Credit from the due
date of payment until the date of reimbursement to
Lender. Lender shall, upon the request of Borrower
when no Event of Default or Potential Default exists
(to the extent the Revolving Credit Facility shall
then be in effect and there is additional availability
for Revolving Loans thereunder, but without regard to
the other conditions precedent set forth in Section
5), provide for the payment of any reimbursement
obligations due to Lender and any interest accrued
thereon under the Letter of Credit Facility by
advancing the amount thereof to Borrower as a
Revolving Loan.
(d) Borrower's obligation to reimburse Lender for payments
and disbursements made by Lender under any Letter of
Credit requested by Borrower and issued by Lender
shall be absolute and unconditional under any and all
circumstances and irrespective of any setoff,
counterclaim or defense to payment which Borrower may
have or have had against Lender, including, without
limitation, any defense based on the failure of the
demand for payment under such Letter of Credit to
conform to the terms of such Letter of Credit, the
legality, validity, regularity or enforceability of
such Letter of Credit, or the identity of the
transferee of such Letter of Credit or the sufficiency
of any transfer if such Letter of Credit is
transferable; provided, however that Borrower shall
not be obligated to reimburse Lender for any wrongful
payment or disbursement made under any Letter of
Credit as a result of acts or omissions constituting
gross
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<PAGE> 21
negligence or willful misconduct on the part of Lender
or any of its officers, employees or agents.
(e) Notwithstanding anything to the contrary herein, upon
the occurrence of an Event of Default or upon
termination of the Letter of Credit Facility or
termination of this Agreement whether by expiration of
the existence of such facility or the term or
otherwise, an amount equal to the aggregate amount of
the outstanding Obligations of Borrower under or in
connection with Letters of Credit shall, at Lender's
option and without demand upon or further notice to
Borrower, be deemed (as between Lender and Borrower)
to have been paid or disbursed by Lender under the
Letters of Credit issued by Lender (notwithstanding
that such amounts may not in fact have been so paid or
disbursed), and a Revolving Loan to Borrower in the
amount of such Obligations to have been made and
accepted, which Revolving Loan shall be immediately
due and payable. In lieu of the foregoing, at the
election of Lender at any time after an Event of
Default, or upon expiration or termination of the
Letter of Credit Facility or this Agreement, whether
by expiration of the term or otherwise, Borrower
shall, upon Lender's demand, deliver to Lender cash or
wire transfer of immediately available funds, in an
amount equal to the aggregate outstanding face amount
of all Letters of Credit. Any such cash and/or any
amounts received by Lender in payment of the Revolving
Loan made pursuant to this paragraph shall be
delivered to and held by Lender in a separate account
appropriately designated as a cash collateral account
in relation to this Agreement and the Letters of
Credit and shall be retained by Lender as collateral
security in respect of, first, Borrower's Obligations
under or in connection with the Letters of Credit and
then, all other Obligations. Such amounts shall not be
used by Lender to pay any amounts drawn or paid under
or pursuant to any Letter of Credit, but may be
applied to reimburse Lender for drawings or payments
under or pursuant to Letters of Credit which Lender
has paid, or if no such reimbursement is required, to
payment of such other Obligations as Lender shall
determine. Any amounts remaining in any cash
collateral account established pursuant to this
paragraph following payment in full of all Obligations
shall be returned to Borrower.
(f) In determining whether to make any payment under or
pursuant to any Letter of Credit, Lender shall have no
obligation to Borrower or any other Person other than
to confirm that any documents required to be delivered
have been delivered and that such documents comply on
their face with the requirements of such Letter of
Credit. No other
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<PAGE> 22
action taken or omitted by Lender under or in
connection with any Letter of Credit, if taken or
omitted in the absence of gross negligence or willful
misconduct, shall put Lender under any resulting
liability to Borrower.
2.10 Payments.
(a) Borrower shall make each payment in respect of the
principal of and interest on the Revolving Loans and
any other payments due under this Agreement not later
than 12:00 p.m. Chicago time on the day when due, in
United States dollars, to Lender at its office in
Chicago, Illinois in immediately available funds.
(b) Borrower shall, at the time of making such payment
under this Agreement or the Revolving Credit Note,
specify to Lender the amounts payable by Borrower
hereunder to which such payment is to be applied (and
in the event that it fails to so specify, or if an
Event of Default has occurred and has not been cured
or waived as set forth in this Agreement, Lender shall
distribute such payment in such manner as Lender may
determine to be appropriate).
2.11 Sharing of Payments, Etc. Borrower agrees that, in addition to
(and without limitation of) any right of set-off, bankers' lien
or counterclaim Lender might otherwise have, Lender shall be
entitled, at its option, to offset balances held by it for the
account of Borrower at any of its offices, against any
Obligations which are not paid when due subject to any
applicable grace periods (regardless of whether such balances
are then due to Borrower), in which case it shall promptly
notify Borrower thereof, provided that Lender's failure to
provide such notice shall not affect the validity thereof.
2.12 All Loans One Obligation. All Loans by Lender to Borrower under
this Agreement shall constitute Obligations of Borrower,
secured by Lender's Lien on the Collateral, and by any Lien
heretofore, now or at any time or times hereafter granted by
Borrower to Lender under any Loan Document.
2.13 Payment of Over Advances. If, at any time and for any reason,
the outstanding Revolving Loans exceed the Maximum Revolving
Credit Facility, any such excess shall immediately be due and
payable by Borrower to Lender, and prior to such repayment such
over advances shall bear interest at the Default Rate.
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2.14 Interest.
(a) Rate. All Obligations owed by Borrower to Lender
(except for Eurodollar Loans and those Obligations
evidenced by a note other than the Revolving Loan
Note, or covered by any other Section of this
Agreement or other agreement which specifically
provides for a rate of interest different from that
provided for herein) shall bear interest on the unpaid
principal balance thereof, at a rate per annum
(computed on the basis of the actual number of days
elapsed over a 360 day year) equal to the Reference
Rate, plus one percent (1.00%) (the "Rate"). Interest
owed on the Obligations (other than Eurodollar Loans)
shall be payable monthly in arrears on the first
Business Day of each month.
In addition to calculations of the Rate as provided
above, in the event that the Reference Rate announced
is, from time to time hereafter, changed, adjustment
in the Rate shall be made on the effective date of
such change in the Reference Rate. Lender shall use
reasonable efforts to notify Borrower of each change
in the Reference Rate as soon as practicable, but
Borrower's obligation to pay all interest at the Rate
and Default Rate as provided in this Agreement shall
not be affected by, nor shall Lender have any
liability for, any failure to so notify Borrower.
(b) LIBOR Rate. Subject to the provisions of Section 2.14
of this Agreement, each Eurodollar Loan shall bear
interest on the unpaid principal balance thereof at a
rate per annum (computed on the basis of the actual
number of days elapsed over a 360 day year) equal to
the LIBOR Rate for the Interest Period in effect for
such Eurodollar Loan, plus three percent (3.00%).
Interest on Eurodollar Loans shall be payable in
arrears on the last day of the applicable Interest
Period.
(c) Default Rate. Notwithstanding the foregoing, the
Obligations shall bear interest, from and after
written notice by Lender to Borrower of the occurrence
of an Event of Default and for so long as such Event
of Default has not been cured or waived as set forth
in this Agreement, and without constituting a waiver
of any such Event of Default, on the balances owing
from time to time, at a rate per annum equal to two
percentage (2.00%) points above the Rate (the "Default
Rate"), payable on demand.
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<PAGE> 24
(d) Maximum Interest. It is the intention of Lender and
Borrower to comply with the laws of the State of
Illinois, and notwithstanding any provision to the
contrary contained herein or in the other Loan
Documents, Borrower shall not be required to pay, and
Lender shall not be permitted to collect, any amount
in excess of the maximum amount of interest permitted
by applicable law ("Excess Interest"). If any Excess
Interest is provided for or determined to have been
provided for by a court of competent jurisdiction in
this Agreement or in any of the other Loan Documents,
then in such event (i) the provisions of this Section
2.14(d) shall govern and control; (ii) Borrower shall
not be obligated to pay any Excess Interest; (iii) any
Excess Interest that Lender may have received
hereunder shall be, at Lender's option, (A) applied as
a credit against either the outstanding principal
balance of the Revolving Loans or accrued and unpaid
interest hereon, (B) refunded to the payor thereof, or
(C) any combination of the foregoing; (iv) the
interest rate provided for herein shall be
automatically reduced to the maximum rate allowed
under applicable law, and this Agreement and the other
Loan Documents shall be deemed to have been, and shall
be, reformed and modified to reflect such reduction;
and (v) Borrower shall not have any action against
Lender for any damages arising out of the payment or
collection of any Excess Interest. Notwithstanding the
foregoing, if any interest payment or other charge or
fee payable hereunder or under any of the other Loan
Documents exceeds the maximum amount then permitted by
applicable law, then to the extent permitted by law,
Borrower shall be obligated to pay the maximum amount
then permitted by applicable law and Borrower shall
continue to pay the maximum amount from time to time
permitted by applicable law until all such interest
payments and other charges and fees otherwise due
hereunder or under any of the other Loan Documents (in
the absence of such restraint imposed by applicable
law) have been paid in full.
(e) Charges to Loan Account. Notwithstanding anything in
this Agreement to the contrary, Lender may, at its
option, charge any principal, interest or fees payable
hereunder or under any of the other Loan Documents to
the loan account maintained by Lender with respect to
Borrower, and any amounts so charged shall thereupon
constitute Obligations hereunder and shall thereafter
accrue interest as provided for in this Agreement.
2.15 Fees. In consideration of Lender's establishing the Maximum
Revolving Credit Facility hereunder and making of the Revolving
Loans hereunder, Borrower shall pay to Lender the following
fees and charges:
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<PAGE> 25
(a) Unused Line Fee. An unused line fee of one-half of one
percent (.50%) per annum (computed on the basis of a
year of 360 days and charged for the actual number of
days elapsed) of the amount by which the Maximum
Revolving Credit Facility exceeds the average daily
balance of the Revolving Loans, payable monthly in
arrears, on the first day of each month commencing the
first day of the first calendar month following the
Closing date.
(b) Closing Fee. A one-time closing fee equal to
$120,000.00, payable at the Closing.
(c) Out-of-Pocket Fees, Costs and Expenses. All reasonable
out-of-pocket fees, costs and expenses ("Out-of-Pocket
Fees and Costs"), incurred by Lender in connection
with the documentation, negotiation and closing of
this Agreement and the other Loan Documents and the
ongoing administration of the Revolving Loans and any
and all reasonable costs of enforcement of this
Agreement or the other Loan Documents or collection of
the Obligations, including, without limitation, the
reasonable fees, costs and expenses of attorneys and
paralegals in connection with all of the foregoing,
all of which shall be part of the Obligations, payable
on demand. Prior to an Event of Default, Lender shall
provide Borrower with copies of invoices of charges
and expenses setting forth all Out-of-Pocket Fees and
Costs. There shall be included as Out-of-Pocket Fees
and Costs, but without limitation of the foregoing
sentence, certain specific categories of Out-of-Pocket
Fees and Costs related to Collateral as follows: (i)
any reasonable costs or expenses incurred by Lender
concerning any property of Borrower relating to
Environmental Laws, including without limitation, for
consultants or engineers; (ii) any out-of-pocket fees,
costs and expenses for audits or examinations by
Lender or its agents or representatives, of Borrower
or the Collateral; and (iii) any reasonable appraisal
and evaluation fees and expenses, including for
appraisers retained by Lender in Lender's discretion
to appraise Equipment, Inventory or any other
Collateral or property of Borrower which are
undertaken pursuant to and as limited by Section
6.2(c).
2.16 Lender Rights to Collect Directly. Lender or Lender's designee
may, after the occurrence of an Event of Default which has been
declared by Lender by notice to Borrower, (i) notify customers
or account debtors of Borrower that the Accounts have been
assigned to Lender and that Lender has a Lien thereon, and (ii)
collect the Accounts directly, and charge the reasonable
collection costs and expenses to Borrower's account.
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<PAGE> 26
2.17 Disputes, Returns and Allowances. Returns and allowances, if
any, as between Borrower and its customers, will be on the same
basis and in accordance with the usual customary practices of
Borrower, as they exist at this time. After the occurrence of
an Event of Default which has not been cured or waived as set
forth in this Agreement, no discount, credit or allowance shall
be granted by Borrower to any account debtor without Lender's
consent, and no return of merchandise shall be accepted by
Borrower outside the ordinary course of its business without
Lender's consent. Lender may, in its discretion, after the
occurrence of an Event of Default which has not been cured or
waived as set forth in this Agreement, settle or adjust
disputes and claims directly with account debtors for amounts
and upon terms which Lender considers advisable, and in such
cases, Lender will credit Borrower's account with only the net
amounts received by Lender in payment of such disputed
Accounts, after deducting all Out-of-Pocket Fees and Costs
incurred or expended in connection therewith.
2.18 Lender Statements. Lender may render from time to time,
statements of the Obligations owing by Borrower to Lender,
including statements of all principal, interest, and Out-of-
Pocket Fees and Costs owing, and such statements shall be
presumed to be correct and accurate and constitute an account
stated between Borrower and Lender unless, within sixty (60)
days after receipt thereof by Borrower, Borrower shall deliver
to Lender, in accordance with Section 16 of this Agreement, at
Lender's place of business indicated in Section 16 hereof,
written objection thereto specifying the error or errors, if
any, contained in any such statement.
3. TERM OF THIS AGREEMENT; PREPAYMENTS
3.1 Term.
(a) Initial Term and Renewal Terms. This Agreement shall
have a term (the "Initial Term") commencing on the
Effective Date and expiring on September 30, 2001.
(b) Lender Right to Terminate. Notwithstanding the
foregoing, upon the occurrence of an Event of Default,
Lender may in accordance with Section 13.1 of this
Agreement terminate this Agreement without notice,
except that this Agreement shall terminate
automatically upon an Event of Default under Section
12.6 or 12.7.
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<PAGE> 27
(c) Effects of Termination. On the date of termination or
expiration of this Agreement, all Obligations owed by
Borrower shall become immediately due and payable
without notice or demand and shall be repaid in cash
or by a wire transfer of immediately available funds.
Notwithstanding termination, until all Obligations
have been fully repaid, Lender shall retain its Lien
on the Collateral of Borrower, and Borrower shall
continue to immediately turn over to Lender, in kind,
all collections received with respect to the Accounts.
3.2 Prepayment. Subject to Sections 2.3 and 2.4 of this Agreement,
Borrower may borrow, repay and reborrow Revolving Loans subject
to the terms of this Agreement.
3.3 Termination.
The indemnifications set forth in Sections 2, 18 and elsewhere
in this Agreement shall survive termination of this Agreement.
4. CREATION OF LIEN AND COLLATERAL
4.1 Security Interest. Borrower hereby grants to Lender, a
continuing Lien and security interest in all presently existing
and hereafter arising Collateral which Borrower now or
hereafter owns or has an interest in, wherever located, to
secure prompt repayment of any and all Obligations owed and to
be owed by Borrower to Lender and to secure prompt performance
by Borrower of each and all of its covenants and obligations
under this Agreement and the other Loan Documents. Lender's
Lien and security interest in the Collateral shall attach to
all Collateral without further act on the part of Lender or
Borrower. In the event that any Collateral, including proceeds,
is evidenced by or consists of Negotiable Collateral, Borrower
shall, immediately upon receipt thereof, endorse and assign
such Negotiable Collateral over to Lender (or in blank if
requested by Lender) and deliver actual physical possession of
the Negotiable Collateral to Lender.
4.2 Preservation of Collateral and Perfection of Security
Interests. Borrower shall execute and deliver to Lender,
concurrently with Borrower's execution of this Agreement, and
at any time or times hereafter immediately at the request of
Lender, all financing statements, amendments or continuations
of financing statements, fixture filings, security agreements,
chattel mortgages, assignments, endorsements of certificates of
title, affidavits, reports, notices, schedules of accounts,
letters of authority and all other documents that Lender may
reasonably request, in form satisfactory to Lender, that are
required to perfect and maintain perfected Lender's Liens in
the Collateral and to fully consummate all of the transactions
contemplated under this
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<PAGE> 28
Agreement. Borrower hereby irrevocably makes, constitutes and
appoints Lender (and any of Lender's officers, employees or
agents designated by Lender), with full power of substitution
by Lender, as Borrower's true and lawful attorney with power to
sign the name of Borrower on any of the above-described
documents or on any other similar documents which need to be
executed, recorded and/or filed to perfect or continue
perfected Lender's Lien in the Collateral upon the failure of
Borrower to do so after a request by Lender. For purposes
hereof, photocopies of this Agreement or any other Loan
Document constituting a security agreement may be filed by
Lender as a financing statement.
4.3 Inspection, Appointment as Attorney-in-Fact. Lender (through
any of its officers, employees or agents) shall have the right,
at any time or times during Borrower's usual business hours, or
during the usual business hours of any third party having
control over the records of Borrower, to inspect and verify
Borrower's Books and the Collateral in order to verify the
amount or condition of, or any other matter relating to, the
Collateral and Borrower's financial condition; provided that,
unless an Event of Default has occurred or Lender in good faith
believes that Borrower has breached a representation, warranty
or covenant hereunder, Lender shall give Borrower two (2)
Business Days' notice of Lender's inspections. In addition,
Borrower hereby appoints Lender (and any of Lender's officers,
employees or agents designated by Lender), with full power of
substitution by Lender, as Borrower's attorney-in-fact, with
power: to endorse Borrower's name on any checks, notes,
acceptances, money orders, drafts or other forms of payment or
security that may come into Lender's possession; to sign
Borrower's name on any invoice or bill of lading relating to
any Accounts, on drafts against account debtors, on schedules
and assignments of Accounts, on verifications of Accounts and
on notices to account debtors; after an occurrence of an Event
of Default, to notify the post office authorities to change the
address for delivery of Borrower's mail to an address
designated by Lender, to receive and open all mail addressed to
Borrower, and to retain all mail relating to the Collateral and
forward all other mail to Borrower; to send, whether in writing
or by telephone, request for verifications of Accounts and
request for verifications of trade and other Indebtedness of
Borrower; and after the occurrence of an Event of Default, to
do all things necessary to carry out this Agreement. Borrower
ratifies and approves all acts of the attorney acting in
accordance with this Section 4.3 (other than those acts which
constitute gross negligence or willful misconduct) and neither
Lender nor any other Person acting as Borrower's attorney
hereunder will be liable for any acts or omissions or for any
error of judgment or mistake of fact or law made in good faith
except as result of gross negligence or willful misconduct. The
appointment of Lender as Borrower's attorney, and each and
every one of Lender's rights and powers
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<PAGE> 29
as set forth in this Section 4.3, being coupled with an
interest, are irrevocable so long as any Accounts in which
Lender has a Lien remain unpaid and until all of the
Obligations have been fully repaid and this Agreement shall
have expired or been terminated.
5. CONDITIONS PRECEDENT
5.1 Closing: Conditions to Initial Loan and Closing. The initial
Revolving Loan hereunder shall be made upon the Effective Date
hereunder at the offices of Lender's counsel ("Closing"). In
addition to those conditions set forth in Section 2 of this
Agreement and set forth in Section 5.2 with respect to all
Revolving Loans hereunder, prior to or contemporaneously with
the making of the initial Revolving Loan hereunder at Closing,
Lender shall be satisfied that all of the following conditions
precedent shall have been satisfied in a manner satisfactory to
Lender.
(a) Satisfactory Due Diligence. Lender shall have
completed and shall be satisfied with the results of
(i) due diligence by Lender and its counsel with
respect to Borrower; (ii) Lender's examination of
Borrower, including a review of prior years'
"management letters" by Borrower's independent
certified public accountants, to the extent such
management letters exist; (iii) the results of
investigations, including any consultants' reports,
concerning Environmental Laws; (iv) all appraisals
reasonably required by Lender; and (v) any
governmental approvals, waivers or consents.
(b) No Adverse Change. There shall have been, as
determined by Lender in its reasonable discretion (i)
no material adverse change since August 8, 1999 in the
operations (financial or otherwise) of Borrower, and
(ii) no material litigation or claims with respect to
this Agreement or otherwise which could have a
material adverse effect on the condition, financial or
otherwise, business, property or assets of Borrower or
the results of the operation of Borrower, the
Collateral, Lender's Liens or ability to enforce its
rights and remedies hereunder or the ability of
Borrower to pay or perform the Obligations.
(c) Senior Loan. Lender shall have received evidence
reasonably satisfactory to it that Lender has a first
priority perfected Lien on the Collateral (other than
the Alliance Senior Collateral) and a second priority
perfected Lien on the Alliance Senior Collateral, and
all financing statements and other documents Lender
deems reasonably necessary to perfect such Lien shall
have been filed and recorded.
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(d) Required Documents. Lender shall have received all of
the following documents, each in form and substance
reasonably satisfactory to Lender and its counsel,
duly executed and dated the Effective Date (or such
other date prior thereto as shall be reasonably
satisfactory to Lender), where required:
(i) Agreement. Multiple copies of this Agreement
as requested by Lender.
(ii) Revolving Loan Note. The Revolving Loan Note.
(iii) Intercreditor Agreement. The Intercreditor
Agreement.
(iv) Assignments of Leases. Assignments to Lender,
for collateral purposes, of all leases of
Borrower for any of Borrower's places of
business or leased locations where Collateral
is located, other than locations where the
Alliance Senior Collateral is located.
(v) Landlord and Mortgagee Waivers. Landlord,
mortgagee and bailee waivers for any of
Borrower's places of business, equipment
locations or Inventory storage or processing
locations, including without limitation, all
leased locations or where any Collateral is
located or where payroll and Accounts are
processed, except for such premises which are
owned by Borrower and subject only to the Lien
of Lender, together with any necessary
landlord consents to any subleases or lease
assignments to Borrower.
(vi) Certificate for Certified Resolutions,
Incumbency By-Laws. A secretary's certificate
for the Borrower with respect to resolutions
of the directors of Borrower authorizing this
Agreement and all related transactions and the
incumbency of Borrower's officers.
(vii) Legal Opinion. A legal opinion of Pedersen &
Houpt, counsel for Borrower, in form and
substance reasonably acceptable to Lender.
(viii) Organizational Documents. A copy of the
by-laws and the Certificate of Incorporation
of the Borrower, as amended to and including
the Closing date, certified by the Secretary
of State of the State of incorporation of
Borrower.
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(ix) Insurance. A certified list with copies of
insurance policies of Borrower; certificates
of liability and other third party insurance
of Borrower, each showing Lender as
certificate holder and additional insured;
certificates of property and boiler and
machinery insurance, each showing Lender as
certificate holder and lender loss payee, with
a form of lender's loss payable clause in form
and in accordance with the requirements of
Section 9.2 of this Agreement to Lender
attached to each such certificate; a
certificate of business interruption insurance
of Borrower, showing Lender as certificate
holder, lender's loss payee, and assignee of
such policy, with lender's loss payable clause
and the collateral assignment of such
insurance policy, in form and substance
satisfactory to Lender.
(x) Good Standing Certificates. Good standing
certificates and qualifications to do business
for Borrower in the State of its incorporation
and in each other State in which the failure
of Borrower to be qualified to transact
business as a corporation would have a
material adverse impact on Borrower.
(xi) Officer's Certificate. A certificate executed
by the President of Borrower in his capacity
as such officer, stating that (a) no Event of
Default or Potential Default has occurred and
is continuing, (b) no material adverse change
in the condition or operations, financial or
otherwise, or in the business prospects of
such Borrower's business, has occurred since
August 8, 1999, and (c) no litigation,
investigation or proceeding, or injunction,
writ or restraining order of the type
described in Section 7.8 or Section 9.3 hereof
is pending or threatened.
(xii) Releases. Evidence of releases of any other
Liens on the Collateral other than Permitted
Liens.
(xiii) Completion of Transactions. Satisfactory
evidence of completion of the Alliance
Financing.
(xiv) Remarketing Agreement An agreement of Alliance
for the benefit of Lender pursuant to which
Alliance agrees to assist Lender in
liquidating the Equipment in the event of the
exercise by Lender of its remedies after the
occurrence of an Event of Default.
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(xv) Payoff Letters and Releases. Payoff letters,
releases and UCC-3 termination statements,
executed by any secured party designated by
Lender, in a form appropriate for recording
and filing, as to any Lien recorded against
the Collateral and which is not permitted
hereunder.
(xvi) Pro Formas. The Pro Formas.
(xvii) Other. Such other documents as Lender shall
reasonably request.
(e) Out-of-Pocket Fees and Costs. Lender shall have
received reimbursement for all Out-of-Pocket Fees and
Costs which then have been paid or incurred by Lender.
5.2 Condition to All Loans. Notwithstanding any other provisions
contained in this Agreement, the making of each Revolving Loan
provided for in this Agreement shall be conditioned upon the
satisfaction of the matters set forth in this Section 5.2, and
each request by the Borrower for a Revolving Loan shall
constitute a representation to Lender that each such condition
set forth below has been met or satisfied.
(a) Warranties and Representations. All of the warranties
and representations contained in this Agreement or any
other Loan Document shall be true and correct in all
material respects on and as of the date of such
Revolving Loan as if made on such date and each
request for a Revolving Loan shall constitute an
affirmation by Borrower that such warranties and
representations are then true and correct in all
material respects.
(b) Borrower's Request. Lender shall have received a
request in the manner set forth in Section 2.2 of this
Agreement and copies of all other documents required
to have been delivered to Lender hereunder. Lender
shall be entitled, but not required, to rely on oral
requests for Revolving Loans from officers from time
to time designated by Borrower to Lender in writing,
and shall be fully protected in doing so.
(c) No Default. As determined by Lender in its reasonable
discretion, no Potential Default shall have occurred
and be continuing or will result from such Revolving
Loan and no Event of Default shall have occurred which
has not been cured or waived as set forth in this
Agreement or will result from such Revolving Loan.
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(d) Other Requirements and Other Documents. Lender shall
have received, in form and substance reasonably
satisfactory to Lender, all certificates, orders,
authorizations, consents, affidavits, schedules,
instruments, security agreements, financing
statements, and other documents which are provided for
hereunder, or which Lender may at any time reasonably
request.
6. WARRANTIES, REPRESENTATIONS, AND COVENANTS --
COLLATERAL
Borrower warrants, represents, covenants and agrees that:
6.1 Collateral Warranties Generally. Borrower has and will continue
to have good and marketable title to the portion of the
Collateral owned by it; the Collateral is free and clear of all
Liens, except (i) as may be consented to in writing by Lender,
(ii) as held by Lender, or (iii) Permitted Liens.
6.2 Account Warranties and Covenants. The Accounts are and will, at
all times pertinent hereto, be bona fide existing obligations
created by the sale and delivery of merchandise or the
rendition of services to account debtors in the ordinary course
of business, free of Liens (except those described in Section
6.1), and are unconditionally owed to Borrower without
defenses, disputes, offsets or counterclaims which have been
asserted, rights of return or cancellation, except for any such
defenses, offsets or counterclaims which may arise in the
ordinary course of Borrower's business.
6.3 Inventory and Equipment Warranties and Covenants.
(a) Borrower shall keep the Inventory and Equipment only
at the locations specified in Schedule 6.3 hereto or
at (i) locations consented to by Lender upon 30 days'
prior written notice to Lender, or (ii) new store
locations permitted by Section 8.20 of this
Agreement, and in the case of (i) and (ii) above,
execution by Borrower or any other Persons of such
financing statements, landlord, mortgagee, bailee,
warehouseman or other agreements requested by Lender
in its reasonable discretion.
(b) All Inventory is now and at all times hereafter shall
be of good and merchantable quality, free from defects
that make the Inventory unsalable in the ordinary
course of Borrower's business (as determined by Lender
in its reasonable discretion).
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(c) Borrower shall keep and maintain the Equipment in good
operating condition and repair (normal wear and tear
excepted) in a manner consistent with that maintained
by prudent business people in similar circumstances
and, subject to the terms of this Agreement, make
necessary or appropriate replacements thereto.
Borrower shall not permit any items of Equipment to
become a fixture to real estate or an accession to
other property and the Equipment is now and shall at
all times remain and be personal property to the
extent that under applicable law, such Equipment would
be deemed to be fixtures and/or otherwise part of the
real property, except where Lender first receives a
landlord's waiver satisfactory to it, establishing the
priority of Lender's Lien in such Equipment. Borrower
shall promptly deliver to Lender any and all evidence
of ownership, if any, of any of the Equipment
including, without limitation, certificates of title
and applications for title. Borrower shall maintain
accurate, itemized records describing the kind, type,
quality, quantity and value of the Equipment and shall
furnish Lender with a current schedule containing the
foregoing information when requested, and Borrower
shall not sell, lease, or otherwise dispose of or
transfer any of the Equipment or any part thereof,
except as otherwise permitted under the terms of this
Agreement. Borrower shall, as and when requested by
Lender, procure and supply to Lender, at Borrower's
expense, annual appraisals of the Equipment Collateral
by appraisers and in form reasonably satisfactory to
Lender; provided, however, that upon or after the
occurrence of an Event of Default, Borrower's
obligations for such appraisals shall not be limited
to annual appraisals and Lender may request or procure
additional appraisals at Borrower's expense.
(d) The Inventory and Equipment is not now and shall not
at any time or times hereafter be stored with a
bailee, warehouseman or similar party without Lender's
prior written consent, and, in such event, Borrower
will upon Lender's request, concurrent therewith,
cause any such bailee, warehouseman or similar party
to issue and deliver to Lender, in a form acceptable
to Lender, warehouse receipts in Lender's name
evidencing the storage of the Inventory or Equipment.
(e) Borrower shall keep correct and accurate records
itemizing and describing the kind, type, quality and
quantity of the Inventory, and its costs therefor, all
of which records shall be available at all times after
demand to any of Lender's officers, agents, and
employees for inspection and copying.
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(f) Lender shall have the right at all times during
Borrower's usual business hours, to inspect and
examine the Inventory and Equipment and to check and
test the same as to quality, quantity, value, and
condition; provided that prior to an Event of Default,
Lender shall provide Borrower two (2) Business Days'
prior notice of any such inspection, and Lender shall
use its good faith efforts to minimize interference
with Borrower's business in conducting such
inspections.
7. GENERAL CONTINUING WARRANTIES AND REPRESENTATIONS
Borrower warrants, represents, covenants and agrees that:
7.1 Office. The chief executive office or principal place of
business of Borrower is at the address indicated in Section 16
hereof, and Borrower covenants and agrees that it will not,
during the term of this Agreement, without at least thirty (30)
days prior written notification to Lender and the delivery to
Lender, if requested, of an executed landlord's or mortgagee's
waiver and Code financing statements in form acceptable to
Lender, relocate either such chief executive office or
principal place of business.
7.2 Existence. Borrower is and shall at all times hereafter be a
corporation, duly organized and existing under the laws of the
state of its organization and qualified and licensed to do
business, and is good standing, in any state in which it
conducts its business or in which the failure to qualify would
have a material adverse effect on the condition, financial or
otherwise, business, property or results of operations of
Borrower, which states include, as of the date hereof and as of
the Closing date, the states listed on Schedule 7.2.
7.3 Authority. Borrower has the right and power and is duly
authorized to enter into this Agreement and the other Loan
Documents.
7.4 Validity. This Agreement and all of the other Loan Documents
are the legal, valid and binding obligations of Borrower,
enforceable in accordance with their respective terms, except
as limited by applicable bankruptcy, reorganization, insolvency
or similar laws affecting the enforcement of creditor's rights
generally.
7.5 No Breach. The execution by Borrower of this Agreement and the
other Loan Documents shall not constitute a breach of any
provision contained in Borrower's Certificate of Incorporation
or by-laws, nor does it constitute an event of default under
any material agreement to which Borrower is now or hereafter
becomes a party, nor does it violate any order, decree or
judgment of any court or governmental commission or agency.
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7.6 Solvency. On the Effective Date both prior to and after the
transactions contemplated in connection with the Closing and
the Alliance Financing, and at all times thereafter, Borrower's
assets (determined at present fair saleable value) are and
shall be greater than Borrower's liabilities (taking into
account all liabilities of Borrower, whether fixed or
contingent, direct or indirect, disputed or undisputed and
whether or not required to be reflected on a balance sheet
prepared in accordance with Generally Accepted Accounting
Principles other than Borrower's liabilities under the Senior
Discount Notes); Borrower is and shall at all times hereafter
be able to pay its debts as they mature, and Borrower does not
and will not have an unreasonably small amount of capital.
Borrower has and at all times hereafter will have sufficient
capital to carry on its business and transactions as now
conducted and as planned to be conducted in the future.
7.7 Compliance With Laws. Borrower is in compliance in all material
respects with all applicable laws, rules and regulations of any
governmental authority, including but not limited to the
Securities Act of 1933, the Securities Exchange Act of 1934,
the Fair Labor Standards Act, Environmental Laws, laws relating
to income, unemployment, payroll or social security taxes and
Benefit Plans (as defined in Section 7.15 hereof) as required
by ERISA, except for those laws, rules and regulations the
violation of which would not have a material adverse effect on
the condition, financial or otherwise, business, property or
results of operations of Borrower.
7.8 Actions or Proceedings. Except as disclosed on Schedule 7.8,
there are no actions or proceedings pending by or against
Borrower before any court, administrative agency or other
governmental entity and Borrower has no knowledge of any
pending, threatened or imminent litigation, governmental
investigations or claims, complaints, actions or prosecutions
involving Borrower, or any breaches by Borrower or any other
Person of any agreement to which Borrower is a party, except
for actions, proceedings, litigation, investigations, claims,
complaints, actions, prosecutions and breaches that involve
claims that do not exceed $100,000 individually or $200,000 in
the aggregate.
7.9 Trademarks, Licenses, etc. Borrower owns or possesses rights to
use all licenses, patents, patent applications, copyrights,
service marks, trademarks and trade names required to continue
to conduct its business as heretofore or presently conducted.
All such licenses, patents, patent applications, copyright
registrations, service marks, trademarks and trade names are
listed on Schedule 7.9. No such license or trademark has been
declared invalid, been limited by order of any governmental
authority or by agreement, or is the subject of any
infringement, interference or similar proceeding or
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challenge, except for those licenses or trademarks which if
challenged, limited or rendered invalid, would not have a
material adverse effect on the condition, financial or
otherwise, business, property or results of operations of
Borrower, the Collateral, Lender's Liens or Lender's ability to
enforce its rights and remedies hereunder.
7.10 Financial Statements. All financial statements relating to
Borrower which have been or may hereafter be delivered by
Borrower to Lender fairly present the financial condition of
Borrower for the periods related thereto and have been prepared
in accordance with Generally Accepted Accounting Principles,
subject to year-end adjustments and the absence of footnotes
with respect to interim financial statements, and there has
been no material adverse change in the financial condition of
Borrower since the submission of such financial information to
Lender.
7.11 Pro Formas. Borrower has furnished to Lender, (i) profit and
loss statements and cash flow projections for each Reporting
Period after the Closing through December 21, 2003, and (ii)
balance sheets, profit and loss statements and cash flow
projections reflected annually for the next five (5) Fiscal
Years, including the Fiscal Year 1999, all certified by the
Chief Executive Officer or a Vice President of Borrower and
(except as stated above), based on Generally Accepted
Accounting Principles, and on financial data as of the
Effective Date, and which are attached hereto as Schedule 7.11
(the "Pro Formas"). The Pro Formas are complete and accurate,
and fairly present Borrower's assets, liabilities and financial
condition, on the bases described above, as of the Effective
Date, but taking into account the transactions contemplated by
this Agreement and those contemplated as of the Effective Date
under the other Loan Documents. There are no omissions from the
Pro Formas or other facts and circumstances not reflected in
the Pro Formas which are or may be material.
7.12 Conduct of Business. Except as contemplated hereby, since
August 8, 1999, Borrower has not (i) incurred any debts,
obligations, or liabilities (absolute, accrued, or contingent
and whether due or to become due) except current liabilities
incurred in the ordinary course of business, none of which
(individually or in the aggregate) materially and adversely
affects the business or properties of Borrower, except as set
forth in Schedule 7.12; (ii) paid any obligation or liability
other than current liabilities in the ordinary course of
business, or discharged or satisfied any Liens or encumbrances
other than those securing current liabilities, in each case in
the ordinary course of business or as required by the terms of
this Agreement; (iii) declared or made any payment to or
distribution to its stockholders as such, or purchased or
redeemed any of its shares of capital stock, or obligated
itself to do so; (iv) mortgaged, pledged, or subjected to any
Lien any of its
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assets, tangible or intangible (other than Permitted Liens);
(v) sold, transferred or leased any of its assets except in the
usual and ordinary course of business; (vi) suffered any
physical damage, destruction or loss (whether or not covered by
insurance) materially and adversely affecting its properties or
business; (vii) except as set forth in Schedule 7.12, entered
into any transaction other than in the usual and ordinary
course of business and other than as contemplated hereby;
(viii) encountered any strikes or work stoppages or labor union
organizing activities; (ix) issued or sold any shares of
capital stock or other securities or granted any options or
similar rights with respect thereto other than pursuant to
Borrower's existing stock option plans, as such plans may be
amended with the approval of Borrower's stockholders; or (x)
agreed to do any of the foregoing other than pursuant hereto.
To Borrower's knowledge after due inquiry, there has been no
material adverse change in the business, financial condition,
operations or results of operations of Borrower since August 8,
1999.
7.13 Environmental Laws. Except as disclosed on Schedule 7.13: (i)
Borrower and all properties owned or operated by Borrower
comply with all Environmental Laws; (ii) Borrower is not
subject to any actual or threatened judicial or administrative
proceeding, investigation or inquiry into the possibility of
violation of any Environmental Laws; (iii) neither the Borrower
nor its properties is the subject of actual or, to the best of
Borrower's knowledge after due inquiry, threatened governmental
authority investigation or inquiry evaluating whether any
remedial action is needed to respond to a Release of any
Hazardous Material or other substance into the environment, and
Borrower does not have knowledge or notice of the presence on
or under any property owned or operated by it, or of the
Release of, any Hazardous Material; (iv) there is no claim
pending or, to the best of Borrower's knowledge after due
inquiry, threatened against Borrower relating to damage,
contribution, cost recovery compensation, loss, or injury
resulting from the Release of, or exposure to, any Hazardous
Material other than as listed on Schedule 7.13, which Hazardous
Material is stored in or under Borrower's properties in the
ordinary course of business in accordance with Environmental
Laws; and (v) Borrower has not filed, nor was required to file,
any notice under any law, regulation or rule indicating past or
present generation, transportation, treatment, storage or
disposal of a Hazardous Material or reporting a Release of a
Hazardous Material into the environment and has not engaged in
such activity other than in accordance with Environmental Laws
where failure to file such notice or report will not have a
material adverse effect on Borrower. Borrower does not have any
known contingent liability in connection with any Release of
any Hazardous Material into the environment; and Borrower has
not received notice, nor has reason to expect notice, of any
potential liability under any Environmental Law.
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7.14 Permits and Licenses. Borrower has not been in breach or
default under, and is current and in good standing with respect
to, all governmental approvals, permits, certificates,
licenses, inspections, consents and franchises necessary to
continue to conduct its business and to own or lease and
operate its respective properties as heretofore conducted,
owned, leased or operated, including, without limitation, any
and all governmental approvals, permits, certificates,
licenses, inspections, consents and franchises related to
Environmental Laws.
7.15 ERISA. Neither Borrower nor any ERISA Affiliate (defined below)
of Borrower, nor any Benefit Plan (defined below) is in
violation in any material respect of any of the provisions of
ERISA or any of the qualification requirements of Section
401(a) of the IRC; no Prohibited Transaction (defined below) or
Reportable Event (defined below) has occurred with respect to
any Benefit Plan, nor has any Benefit Plan been the subject of
a waiver of the minimum funding standard under Section 412 of
the IRC; nor has any Benefit Plan experienced an accumulated
funding deficiency under Section 412 of the IRC; nor has any
Lien been imposed upon Borrower or any ERISA Affiliate of
Borrower under Section 412(n) of the IRC; nor has any Benefit
Plan been amended in such a way that the security requirements
of Section 401(a)(29) of the IRC apply; no notice of intent to
terminate a Benefit Plan has been distributed to affected
parties or filed with the Pension Benefit Guaranty Corporation,
or any successor agency (the "PBGC"), under Section 4041 of
ERISA, nor has any Benefit Plan been terminated under Section
4041(e) of ERISA; the PBGC has not instituted proceedings to
terminate, or appoint a trustee to administer, a Benefit Plan
and no event has occurred or condition exists which might
constitute grounds under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer,
any Benefit Plan; neither Borrower nor any ERISA Affiliate of
Borrower would be liable for any amount pursuant to Sections
4062, 4063 or 4064 of ERISA if all Benefit Plans terminated as
of the most recent valuation dates of such Benefit Plans;
neither Borrower nor any ERISA Affiliate of Borrower maintains
any employee welfare benefit plan, as defined in Section 3(l)
of ERISA, which provides any benefits to an employee or the
employee's dependents with respect to claims incurred after the
employee separates from service other than is required by
applicable law; and neither Borrower nor any ERISA Affiliate of
Borrower has incurred or expects to incur any withdrawal
liability to any Multiemployer Plan (defined below), or
contributes to a Multiemployer Plan. As used herein, (a)
"Benefit Plan" shall mean an employee benefit plan of Borrower
or an ERISA Affiliate, as defined in Section 3(3) of ERISA; (b)
"ERISA Affiliate" shall mean any Person which, together with
Borrower, would be treated as a single employer under Section
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4001(a)(14) of ERISA or IRC Section 414(b), (c), (m), (n) or
(o), as applicable; (c) "Multiemployer Plan" shall mean a plan
described in Section 4001(a)(3) of ERISA which covers employees
of Borrower or any ERISA Affiliate; (d) "Prohibited
Transaction" shall mean any transaction described in Section
406 of ERISA which is not exempt by reason of Section 408 of
ERISA, and any transaction described in Section 4975(c) of the
IRC which is not exempt by reason of Sections 4975(c)(2) or (d)
of the IRC, and which could result in any excise tax, fine,
penalty or other liability being imposed on Borrower; and (e)
"Reportable Event" shall mean a reportable event described in
Section 4043 of ERISA or the regulations thereunder, for which
the thirty (30) day notice requirement has not been waived.
7.16 Customer and Trade Relations. There exists no actual or to the
best of Borrower's knowledge after diligent inquiry, threatened
termination, cancellation or limitation of, or any modification
or change in, the business relationship between Borrower and
any customer or any group of customers whose purchases
individually or in the aggregate are material to the business
of Borrower, or with any material supplier, and there exists no
present condition or state of facts or circumstances which
would materially adversely affect Borrower or prevent Borrower
from conducting such business after the consummation of the
transactions contemplated by this Agreement in substantially
the same manner in which it has heretofore been conducted by
Borrower.
7.17 Other Names. The businesses conducted by Borrower have not been
conducted under any corporate, trade or fictitious name other
than those names listed on Schedule 7.17 hereto.
7.18 Tax Obligations. Borrower has filed complete and correct
federal, state and local tax reports and returns required to be
filed by them, prepared in accordance with any applicable laws
or regulations, and except for extensions duly obtained, have
either duly paid all taxes, duties and charges owed by it, or
made adequate provision for the payment thereof. There are no
material unresolved questions or claims concerning any tax
liability of Borrower. None of the transactions contemplated
hereby or under any agreements referred to hereunder will
result in any material tax liability for Borrower or result in
any other material adverse tax consequence for Borrower.
7.19 Employee Controversies. There are no strikes, work stoppages or
controversies pending or, to the best of Borrower's knowledge
after diligent inquiry and investigation, threatened, between
Borrower and any of its employees, other than employee
grievances arising in the ordinary course of
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business which are not, in the aggregate, material to the
financial condition, results of operations or business of
Borrower.
7.20 Investment Company Act. Borrower is not an "investment company"
nor a company "controlled" by an investment company within the
meaning of the Investment Company Act of 1940, as amended.
7.21 Full Disclosure. This Agreement, the financial statements
delivered in connection herewith, and the representations and
warranties of Borrower herein and in any other document
delivered or to be delivered by or on behalf of Borrower in
connection therewith, do not and will not contain any untrue
statement of a material fact or omit a material fact necessary
to make the statements contained therein or herein, in light of
the circumstances under which they were made, not misleading.
There is no material fact which Borrower has not disclosed to
Lender in writing which materially and adversely affects or, so
far as Borrower can foresee, would materially and adversely
affect the assets, business, prospects, profits, or condition
(financial or otherwise) of Borrower, the rights of Lender or
the ability of Borrower to perform this Agreement.
7.22 Year 2000 Compliance. The Borrower and its Affiliates have
reviewed the areas within their business and operations which
could be adversely affected by, and have developed or are
developing a program to address on a timely basis, the "Year
2000 Problem" (that is, the risk that computer applications
used by the Borrower and its Affiliates may be unable to
recognize and perform properly date-sensitive functions
involving certain dates prior to and any date after December
31, 1999), and have made related appropriate inquiry of
material suppliers and vendors. Based on such review and
program, the Borrower believes that the "Year 2000 Problem"
will not have a material adverse effect on the Borrower, its
financial condition, business and operations, and its ability
to pay and perform the Obligations. From time to time, at the
request of Lender, the Borrower and its Affiliates shall
provide to Lender such updated information or documentation as
is reasonably requested regarding the status of its efforts to
address the "Year 2000 Problem".
8. NEGATIVE COVENANTS
The Borrower will not, without Lender's prior written consent:
8.1 Sale, Transfer or Encumbrance of Assets. Sell, lease, pledge,
encumber, grant or permit a Lien on (other than Permitted
Liens), or otherwise dispose of or transfer, whether by sale or
otherwise, any of its assets, except for (a) sales of Inventory
in the ordinary course of business, (b) sales of items of
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Equipment which are obsolete, worn-out or otherwise not useable
in Borrower's businesses up to an aggregate of $100,000 in
sales proceeds in any Fiscal Year so long as (i) no Event of
Default has occurred and which has not been cured or waived as
set forth in this Agreement, or Potential Default exists, (ii)
the proceeds thereof are applied to the principal balance of
the Obligations, (iii) Lender has prior written notice thereof,
(iv) such sales are on price and other terms, and Borrower
proposes to apply the proceeds of each such sale to the
Obligations in a manner, reasonably acceptable to Lender, and
(v) the transfer of assets in each such sale will not result in
any impairment in use or value of the Collateral remaining
after each such sale, or (c) the closure of Borrower's
locations listed on Schedule 8.1 hereto or such other locations
consented to by Lender in writing, which consent shall not be
unreasonably withheld, provided that the Equipment located at
any closed facility is transferred to locations of Borrower
listed on Schedule 6.3 hereto or locations permitted by Section
6.3(a) of this Agreement. For purposes of this Agreement,
"Permitted Liens" shall mean any or all of the following: (i)
Liens to Lender, (ii) Liens securing the payment of taxes or
other governmental charges not yet due and payable, (iii) Liens
securing claims or demands of materialmen, mechanics, carriers,
warehousemen, landlords and other like Persons imposed without
action of such parties, provided that the payment thereof is
not yet required; (iv) Liens incurred or deposits made in the
ordinary course of Borrower's business in connection with
worker's compensation, unemployment insurance, social security
and other like laws, (v) easements, rights of way, restrictions
and other similar encumbrances incurred in the ordinary course
of business that, in the aggregate, are not substantial in
amount and that do not in any case materially detract from the
value of the property subject thereto or materially interfere
with the ordinary conduct of Borrower's business, (vi) Liens in
connection with purchase money security interests for the
purchase of Equipment up to an aggregate sum not to exceed One
Hundred Thousand Dollars ($100,000) for any purchase and One
Hundred Thousand Dollars ($100,000) in the aggregate for
purchases during any Fiscal Year, provided the documents
relating to any such purchases must be in form and substance
reasonably satisfactory to Lender, (vii) Liens listed on
Schedule 8.1, and (viii) Liens in favor of Alliance.
8.2 Name or Identity Change. Change Borrower's name, business
structure, or identity, or add any new fictitious name.
8.3 Guaranties. Guarantee or otherwise become in any way liable
with respect to the obligations of any third party except by
endorsement of instruments or items of payments for deposit to
the general account of Borrower or which are transmitted or
turned over to Lender.
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8.4 Change in Business. Enter into any business not related to
Borrower's present business or make any change in Borrower's
financial structure or in any of its business objectives,
purposes, or operations which would adversely affect the
ability of Borrower to repay the Obligations, the value of the
Collateral or Lender's rights and remedies hereunder, or create
any Subsidiary or change the form of Borrower's business entity
from a corporation.
8.5 Loans and Investments. Except as set forth on Schedule 8.5,
make any advance, loan, investment or material acquisition of
assets other than (i) advances made to employees in the
ordinary course of business for travel and business related
expenses so long as the amount of such advances do not exceed
Fifty Thousand Dollars ($50,000) in the aggregate outstanding
at any time; (ii) investments in short-term direct obligations
of the United States government; (iii) investments in
negotiable certificates of deposit issued by a bank having
capital and surplus of not less than $100,000,000, payable to
the order of Borrower or to bearer, and (iv) investments in
commercial paper rated A-1 or P-1; provided, that with respect
to clauses (ii), (iii) and (iv), Borrower shall assign all such
investments to Lender in form acceptable to Lender.
8.6 Indebtedness. Incur or make any commitments or agreements to
incur or suffer to exist any Indebtedness, other than (i)
unsecured trade debt and accrued expenses arising in the
ordinary course of Borrower's business, (ii) Indebtedness
incurred with respect to Maintenance Capital Expenditures in
accordance with Section 8.20 hereof up to the aggregate sum of
$500,000 in any Fiscal Year, (iii) Indebtedness incurred in
connection with Liens arising under Section 8.1(v) of this
Agreement, (iv) Indebtedness incurred in connection with the
Alliance Financing, or (v) obligations under the Note
Indenture.
8.7 Prepayments. Prepay any existing Indebtedness owing to any
Person, except that (i) Borrower may prepay trade creditors in
the ordinary course of business, and (ii) Borrower may prepay
Lender as provided in this Agreement.
8.8 Affiliate Transactions. Transfer any cash or property to any
direct or indirect owner of or beneficial owner of any interest
in Borrower or other Affiliate or enter into any transaction,
including without limitation the purchase, lease, sale or
exchange of property or the rendering of any service to or by
any direct or indirect owner of or beneficial owner of any
interest in Borrower or other Affiliate; provided that Borrower
may (i) sell Inventory to Affiliates, for cash for fair value
in the ordinary course of business pursuant to terms that are
no less favorable to Borrower than the terms upon which
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such transactions would have been made had such transfers or
transactions been made at arm's length to or with a Person that
is not an Affiliate, and notice thereof has been given to
Lender, (ii) pay compensation for services to employees who are
direct or indirect owners of or beneficial owners of any
interest in Borrower in the ordinary course of Borrower's
business, (iii) pay Pedersen & Houpt for legal services
performed for Borrower, and (iv) repurchase common stock of
Borrower pursuant to that certain Stock Transfer Restriction
Agreement between Borrower and certain of its shareholders
("Restriction Agreement") as permitted by Section 8.12 hereof.
8.9 Consolidations, Mergers. Merge or consolidate with any other
Person, or enter into any joint venture or become a partner in
any partnership.
8.10 Liquidations. Adopt or undertake a plan of liquidation or
dissolution.
8.11 Suspension of Business. Suspend or terminate the transaction of
its business or abandon the Collateral.
8.12 Redemptions and Distributions. Except for the purchase or
redemption of capital stock of officers of Borrower who
terminate their employment with Borrower or whose employment is
terminated by Borrower and repurchases by Borrower of capital
stock of Borrower pursuant to the Restriction Agreement, up to
the aggregate sum of $50,000 in any Fiscal Year, purchase,
redeem, retire or otherwise acquire any shares of its capital
stock or declare or pay, directly or indirectly, any cash or
other property, dividends or distributions to its shareholders.
8.13 Unpermitted Uses of Loans. Use any part of the proceeds of the
Revolving Loans hereunder for any purpose which constitutes a
violation of, or is inconsistent with, any applicable
regulations of the Board of Governors of the Federal Reserve
System, including without limitation, the purchase or carrying
of (or refinancing of indebtedness originally incurred to
purchase or carry) margin securities.
8.14 ERISA. Adopt or agree to contribute to any tax qualified
Benefit Plan, except for a 401(k) Plan or as previously
approved by Lender in writing.
8.15 Consignment. Sell any goods on consignment, bill and hold, or
similar terms, except as permitted in writing by Lender.
8.16 Bank Accounts. Unless Borrower first notifies Lender and
obtains any necessary blocked account agreements from such
financial institution, establish any depository, operating or
other account at any financial institution other than those
accounts listed on Schedule 8.16 hereof.
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8.17 Compensation. Unless approved by Borrower's board of directors,
pay total compensation, including salaries, withdrawals, fees,
bonuses, commissions, drawing accounts, and other payments,
whether directly or indirectly, in money or otherwise, to the
officers of Borrower in any fiscal year, in amounts in excess
of one hundred twenty percent (120%) of the total compensation
for the immediately preceding fiscal year, paid or accrued by
Borrower or its Affiliates to or for the benefit of such
Persons (individually).
8.18 Lease Modifications. Modify or amend the material terms of or
terminate any lease of real property, except for the
termination of the leases for the stores listed on Schedule 8.1
hereto.
8.19 New Leases. Enter into any lease of real property without
obtaining an executed landlord's waiver and except where such
lease contains a consent to assignment thereof to Lender, both
in form attached hereto as Exhibit C.
8.20 Capital Expenditures. Make any Capital Expenditures except for
(i) Capital Expenditures to maintain or upgrade existing
business locations of Borrower, up to the aggregate sum of
$1,000,000 in any Fiscal Year ("Maintenance Capital
Expenditures"), (ii) Capital Expenditures either to maintain or
upgrade existing business locations or for the construction and
equipping of new business locations, up to the aggregate sum of
seventy-five percent (75%) of Free Cash Flow in any Fiscal
Year, and (iii) Capital Expenditures either to maintain or
upgrade existing business locations or for the construction of
new business locations, up to the aggregate sum of ninety
percent (90%) of any Excess Issuance Proceeds, provided such
sums are actually spent on Capital Expenditures within twelve
(12) months of their receipt by Borrower.
9. AFFIRMATIVE COVENANTS - GENERAL
So long as any Obligations are outstanding, Borrower covenants and
agrees that:
9.1 Taxes. All assessments and taxes, whether real, personal or
otherwise, due or payable by, or imposed, levied or assessed
against, Borrower or any of its property have been paid, and
shall hereafter be paid in full, before delinquency, except
those assessments and taxes the validity of which is being
contested in good faith by appropriate proceedings, do not
impair the priority of Lender's Liens on the Collateral and as
to which Borrower shall have set aside adequate reserves (as
determined by Lender in its reasonable discretion). Borrower
will make timely payment or deposit of all FICA payments and
withholding taxes required of it by applicable laws, and will,
upon request, furnish Lender with proof reasonably satisfactory
to it that Borrower has made such payments or deposits.
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9.2 Insurance. Borrower, at its expense, shall keep and maintain
the Collateral insured under "all risk" or equivalent types of
policies against loss or damage by fire, theft, explosion,
sprinklers and all other hazards and risks ordinarily insured
against by other owners who use such properties in similar
business for the full insurable value thereof as necessary to
prevent application of any co-insurance provisions. Borrower
shall also keep and maintain business interruption insurance
and public liability and property damage insurance relating to
Borrower's ownership and use of the Inventory, Equipment and
its other assets. All such policies of insurance shall be in
such form, with such companies, and in such amounts as may be
reasonably satisfactory to Lender. Borrower shall deliver to
Lender certified copies of such policies of insurance and
evidence of the payments of all premiums therefor. All such
policies of insurance (except those of public liability and
those insuring improvements to real estate leased by Borrower
(the "Real Property Improvement Insurance") shall contain an
endorsement in a form reasonably satisfactory to Lender showing
Lender as the lender loss payee on all Collateral with a waiver
of warranties, and absent the occurrence of a Potential Default
or an Event of Default, all proceeds payable thereunder in
excess of the aggregate sum of One Hundred Thousand Dollars
($100,000) shall be payable to Lender and, upon receipt by
Lender, shall be applied on account of the Obligations owing to
Lender. Absent the occurrence of a Potential Default or Event
of Default, Borrower may retain proceeds up to the aggregate
sum of One Hundred Thousand Dollars ($100,000) to be used by
Borrower for the repair or replacement of any damaged or
destroyed Collateral. Upon the occurrence of a Potential
Default or Event of Default, all insurance proceeds (other than
the Real Property Improvement Insurance proceeds) shall be paid
to Lender. To secure the payment of the Obligations, Borrower
grants Lender a Lien in and to all such policies of insurance
(except those of public liability and the Real Property
Improvement Insurance) and the proceeds thereof, and except as
provided above, Borrower shall direct all insurers under such
policies of insurance to pay all proceeds thereof directly to
Lender as its interest may appear. After the occurrence of a
Potential Default or Event of Default, Borrower hereby
irrevocably appoints Lender (and any of Lender's officers,
employees or agents designated by Lender) as Borrower's
attorney-in-fact for the purpose of making, settling and
adjusting claims under such policies of insurance, endorsing
the name of Borrower on any check, draft, instrument or other
item of payment for the proceeds of such policies of insurance
and for making all determinations and decisions with respect to
such policies of insurance. Prior to an Event of Default or
Potential Default, Borrower shall not make, settle or adjust
claims in excess of One Hundred Thousand Dollars ($100,000)
under such policies of insurance without prior consultation
with and written consent of Lender. Borrower will not cancel
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any of such policies without Lender's prior written consent.
Borrower shall obtain by endorsement upon the policy or
policies of insurance issued to Borrower as required above, or
by independent instruments furnished to Lender, an agreement
from each insurer that it will give Lender at least thirty (30)
days' written notice before any such policy or policies of
insurance shall be materially altered or canceled, and that no
act or default of Borrower, or any other Person, shall affect
the right of Lender to recover under such policy or policies of
insurance required above or to pay any premium in whole or in
part relating thereto. Lender, without waiving or releasing any
Obligations or any Event of Default may, but shall have no
obligation to, obtain and maintain such policies of insurance
that Borrower is required to carry hereunder and pay such
premiums and take any other action with respect to such
policies which Lender deems advisable. All sums disbursed by
Lender in accordance with this Section 9.2, as well as
reasonable attorneys' fees, court costs, expenses and other
charges relating thereof, shall constitute Out-of-Pocket Fees
and Costs and shall be payable on demand.
9.3 Litigation. Borrower shall immediately notify Lender in writing
of any suit in law or equity or administrative proceeding
involving money or property, and seeking damages in excess of
$100,000 individually or $200,000 in the aggregate.
9.4 Books and Records. Borrower at all times hereafter shall keep
proper books of record and account in which full and true
entries will be made of all dealings or transactions with
respect to or in relation to the business and affairs of
Borrower, and shall maintain a standard and modern system of
accounting, in accordance with Generally Accepted Accounting
Practices with ledger and account cards and/or computer tapes,
discs, printouts, and records pertaining to the Collateral
which contain information as may from time to time be
reasonably requested by Lender. Borrower agrees to permit
Lender and any of its employees, officers or agents, at all
times during Borrower's usual business hours, or the usual
business hours of third Persons having control thereof, to have
access to and examine all of Borrower's Books relating to the
Collateral, the Obligations, Borrower's financial condition and
the results of Borrower's operations, and, in connection
therewith, permit Lender or any of its agents, employees or
officers to copy and make extracts therefrom; provided that
prior to an Event of Default, Lender shall provide Borrower two
(2) Business Days' prior notice of such examinations and Lender
shall use its good faith efforts to minimize interference with
Borrower's business.
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9.5 Compliance with Laws. Borrower shall comply in all material
respects with all Federal, State, local and foreign laws, rules
and regulations, including, but not limited to the Securities
Act of 1933, the Securities Exchange Act of 1934, the Fair
Labor Standards Act, Environmental Laws, laws relating to
income, unemployment, payroll or social security taxes and
pension funds and retirement benefit programs as required by
ERISA.
9.6 Expense Reimbursements. Borrower shall within five (5) Business
Days of demand by Lender, reimburse Lender for all sums
expended by Lender which constitute Out-of-Pocket Fees and
Costs if Borrower fails to pay same. Absent the occurrence of
an Event of Default, Lender shall provide Borrower with copies
of invoices for such Out-of-Pocket Fees and Costs. Lender may
charge any or all of such amounts expended for Out-of-Pocket
Fees and Costs to the loan account maintained by Lender with
respect to Borrower and such amounts shall be part of the
Obligations subject to interest at the Rate or Default Rate, as
applicable.
9.7 ERISA Reportable Events. Borrower shall furnish to Lender: (a)
as soon as possible, but in no event later than thirty (30)
days after it knows or has reason to know that any Reportable
Event with respect to any Benefit Plan has occurred, a
statement of the Chief Executive Officer of Borrower setting
forth the details concerning such Reportable Event and the
action which it proposes to take with respect thereto, together
with a copy of the notice of such Reportable Event given to the
PBGC, if a copy of such notice is available to Borrower; (b)
upon request by Lender, promptly after the filing thereof with
the United States Internal Revenue Service or the PBGC, copies
of each annual report with respect to each Benefit Plan; (c)
promptly after receipt thereof, a copy of any notice of any
potential material liability, adverse determination letter,
ruling or opinion it may receive from the PBGC or the Internal
Revenue Service with respect to any Benefit Plan; (d) when the
same is made available to participants in a Benefit Plan, all
notices of a significant reduction in the rate of benefit
accrual or plan termination to the participants by the
administrator of such Benefit Plan; and (e) promptly after
receipt thereof, any notice from any Multiemployer Plan to
which it or any of its ERISA Affiliates contributes which
quantifies any actual or potential withdrawal liability which
will or may be imposed upon the withdrawal of Borrower or any
ERISA Affiliate of Borrower from such Multiemployer Plan.
9.8 Intellectual Property. Upon Borrower's acquisition of any
patents, trademarks, licenses or other intellectual property
rights, Borrower shall notify Lender of same in writing and
take all steps that Lender reasonably deems necessary to create
a first priority lien and security interest in such assets in
favor of Lender.
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9.9 Prepayment of Obligations. Borrower shall utilize the net
proceeds of any issuance of Subordinated Indebtedness or
issuance and sale of equity securities permitted by this
Agreement or otherwise consented to by Lender (after deduction
of all issuance and underwriting fees and reasonable costs
associated therewith), to prepay the outstanding Obligations to
the extent of such proceeds. Any excess proceeds remaining
after prepayment of the Obligations in full may be utilized by
Borrower for any purpose permitted by this Agreement and
Borrower shall not be permitted to request additional Revolving
Loans hereunder until it has fully utilized such excess
proceeds. Borrower shall further prepay the Obligations with
any Excess Issuance Proceeds not used to fund Capital
Expenditures, to the extent permitted by Section 8.20 of this
Agreement, within twelve (12) months of Borrower's receipt of
such Excess Issuance Proceeds.
10. AFFIRMATIVE COVENANTS - REPORTING
Borrower shall furnish or cause to be furnished to Lender the
following:
10.1 (a) Periodic Financial Statements. As soon as practicable
and in any event within thirty (30) days following the
end of each Reporting Period (i) a statement of income
and a statement of cash flow of Borrower for each such
Reporting Period and for the period from the beginning
of the then current fiscal year of Borrower to the end
of such Reporting Period, (ii) a balance sheet of
Borrower as of the end of such Reporting Period, and
(iii) with respect to such statement of income and
balance sheet, in comparative form, figures for the
corresponding Reporting Periods in the preceding
Fiscal Year of Borrower, all in reasonable detail and
certified by the Chief Executive Officer of Borrower
as fairly presenting the financial condition of
Borrower in accordance with Generally Accepted
Accounting Principles, subject to changes resulting
from normal year-end adjustments and the absence of
footnotes.
(b) Yearly Financial Statements. As soon as practicable
and in any event within ninety (90) days after the end
of each Fiscal Year of Borrower, a statement of income
of Borrower for such Fiscal Year, and a balance sheet
of Borrower as of the end of such Fiscal Year, and a
statement of cash flow of Borrower for such Fiscal
Year, all setting forth in comparative form,
corresponding figures for the period covered by the
preceding annual audit and as of the end of the
preceding Fiscal Year of Borrower, all in reasonable
detail and in scope in accordance with audits
performed for Borrower in prior years and examined and
certified by independent certified public
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accountants of recognized national standing selected
by Borrower and reasonably satisfactory to Lender,
whose opinion shall be unqualified and shall be in
scope in accordance with audits performed for Borrower
in prior years, in form and substance satisfactory to
Lender.
(c) Projections. As soon as practicable and in any event
not later than thirty (30) days prior to the beginning
of each Fiscal Year of Borrower hereafter, preliminary
drafts of projected balance sheets, statements of
income and cash flow for Borrower, for each month
during such Fiscal Year, which shall include the
assumptions used therein, together with final versions
of same within sixty (60) days after the beginning of
each Fiscal Year containing appropriate supporting
details as requested by Lender, along with
consolidated calculations with respect to compliance
with covenants in the same manner as required in
connection with the delivery of financial statements
under (a) and (b) above.
(d) Management Letters, Tax Distributions. As soon as
practicable and in any event within ten (10) days of
delivery to Borrower a copy of any letter issued by
Borrower's independent public accountants or other
management consultants, if any are issued, with
respect to Borrower's financial or accounting systems
or controls, including all so-called "management
letters".
(e) Yearly Reports. In conjunction with the delivery of
the annual presentation of projections or budgets
referred to in subsection (c) above, a letter signed
by the Chief Executive Officer of Borrower,
describing, comparing and analyzing, in reasonable
detail, all changes and developments between the
anticipated financial results included in such
projections or budgets for the prior Fiscal Year and
the historical financial statements of Borrower for
such prior Fiscal Year.
(f) SEC Reports. Within five (5) days after the same are
sent, copies of all financial statements and reports
that Borrower sends to the Securities and Exchange
Commission or any holders of other Indebtedness.
(g) Other Information. With reasonable promptness, such
other business or financial data, reports, appraisals
and projections as Lender may reasonably request.
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All financial statements delivered to Lender pursuant to the
requirements of this subsection (except where otherwise
expressly indicated) shall be prepared in accordance with
Generally Accepted Accounting Principles as provided in this
Agreement. Together with each delivery of financial statements
required by subsections (a) and (b) above, Borrower shall
deliver to Lender an officer's certificate in the form of
Exhibit B hereto stating that (i) there exists no Event of
Default or Potential Default, or if an Event of Default or
Potential Default exists, specifying the nature thereof, the
period of existence thereof and what action Borrower proposes
to take with respect thereto, (ii) no material adverse change
in the condition, financial or otherwise, business, property,
including without limitation, with respect to Environmental
Laws, or results of operations of Borrower has occurred since
the previous certificate was sent to Lender by Borrower or, if
any such change has occurred, specifying the nature thereof and
what action Borrower has taken or proposes to take with respect
thereto, (iii) all insurance premiums then due have been paid
before delinquent, (iv) all taxes then due have been paid or,
for those taxes which have not been paid before delinquent, a
statement of the taxes not paid and a description of Borrower's
rationale therefor, (v) except as previously reported to
Lender, no litigation, investigation or proceeding, or
injunction, writ or restraining order involving claims in
excess of $100,000 individually or $200,000 in the aggregate is
pending or to the best of Borrower's knowledge after diligent
inquiry, threatened, and (vi) stating whether or not Borrower
is in compliance with the representations, warranties and
covenants in this Agreement, including a calculation of
financial covenants in the schedule attached to such officer's
certificate in form satisfactory to Lender. Lender shall
exercise reasonable efforts to keep such information, and all
information acquired as a result of any inspection conducted in
accordance with this Agreement, confidential, provided that
Lender may communicate such information (A) to any other Person
in accordance with the customary practices of commercial
lenders relating to routine trade inquiries, (B) to any
regulatory authority, or pursuant to any order, judgement or
decree of any court having jurisdiction over Lender, (C) to any
other Person in connection with the exercise of Lender's rights
hereunder, or (D) with Borrower's consent, which consent will
not be unreasonably withheld, conditioned or delayed, to any
Participant or prospective Participant.
10.2 Accounting Information. Borrower authorizes Lender to discuss
the financial condition of Borrower with Borrower's independent
public accountants and agrees that such discussion or
communication shall be without liability to either Lender or
Borrower's independent public accountants. Prior to the
occurrence of a Potential Default or Event of Default, Lender
shall use its best efforts to notify Borrower of Lender's
discussions with Borrower's accountants. Borrower shall deliver
a letter
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addressed to such accountants authorizing them to comply with
the provisions of this subsection, and authorizing Lender to
rely on financial statements of Borrower issued by such
accountants, which letter shall be acknowledged and consented
to in writing by such accountants, and be in form and substance
satisfactory to Lender.
10.3 Other Information and Changes. Borrower shall promptly supply
Lender with such other information concerning its affairs as
Lender may request from time to time hereafter, and shall
promptly notify Lender of any material adverse change in
Borrower's financial condition and of any condition or event
which constitutes a breach of or an Event of Default under this
Agreement.
11. AFFIRMATIVE COVENANTS - FINANCIAL
11.1 Tangible Net Worth. Borrower shall maintain its Tangible Net
Worth in an amount of not less than the amount set forth
opposite each period set forth below, measured quarterly, as of
the last day of each Fiscal Quarter.
MINIMUM TANGIBLE NET WORTH
Period Minimum Level
Closing Date to and including
December 26, 1999 $90,000,000
December 27, 1999 to and including $85,000,000
June 11, 2000
June 12, 2000 and thereafter $80,000,000
11.2 Senior Interest Coverage Ratio. Borrower shall maintain a
Senior Interest Coverage Ratio, calculated and tested as of the
last day of each respective Fiscal Quarter, cumulatively for
the rolling thirteen (13) Reporting Periods ending on the last
day of each such Fiscal Quarter of not less 3.00 : 1.00;
provided that for purposes of determining the ratio described
above for the Fiscal Quarters ending December 26, 1999, March
19, 2000, and June 11, 2000, EBITDA and Funded Debt Interest
Expense shall be deemed to equal EBITDA and Funded Debt
Interest Expense for such Fiscal Quarter (and, in the case of
the later two such determinations, each previous Fiscal Quarter
commencing with the Closing), multiplied by 13/3rds, 13/3rds,
and 13/3rds respectively.
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11.3 Minimum Net Book Value of Laundry Equipment. Borrower shall own
at all times, laundry Equipment having a net book value of not
less than $30,000,000.
12. EVENTS OF DEFAULT
Any one or more of the following shall constitute an Event of Default
by Borrower under this Agreement:
12.1 Payment. If Borrower fails to pay, when due and payable or when
declared due and payable, all or any portion of the Obligations
representing principal or interest owing to Lender, or Borrower
fails to pay, when due and payable or when declared due and
payable, any other Obligations and such failure is not cured
within five (5) days of such breach.
12.2 Breach of Covenants. If Borrower fails or neglects to perform,
keep or observe any term, provision, condition, covenant, or
agreement contained in this Agreement, any other Loan Document,
or any other present or future agreement between Borrower and
Lender and/or evidencing and/or securing the Obligations,
except the failure to comply with Sections 8.2, 8.18, 9.1, 9.3,
9.4, 9.5, 9.7 and 9.8 of this Agreement shall not be an Event
of Default unless such failure continues for a period of thirty
(30) days following notice by Lender to Borrower.
12.3 Breach of Representation. If any representation, warranty,
statement, report, or certificate made or delivered by
Borrower, or any of its officers, employees or agents on behalf
of Borrower, to Lender is false in any material respect when
made or deemed to be made.
12.4 Material Adverse Change. If in Lender's reasonable discretion
(i) there is a material impairment of the prospect of repayment
of all or any portion of the Obligations, (ii) there is any
impairment of the priority of Lender's Liens on all or a
portion of the Collateral (including without limitation a Lien,
levy or assessment in any amount of the type referred to in
Section 12.9 hereof), or (iii) a material adverse change has
occurred in the condition (financial or otherwise), business,
property or results of operations of Borrower.
12.5 Attachment or Levy. If all or any of Borrower's assets in
excess of Fifty Thousand Dollars ($50,000) in the aggregate are
attached, seized, subjected to a writ or distress warrant, or
are levied upon, or come into the possession of any trustee,
receiver, controller, custodian or assignee for the benefit of
creditors (or any other Person with similar powers or duties)
unless, with respect to any such assets, such attachment,
seizure, writ, warrant or levy
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shall be dismissed, released or stayed within thirty (30) days
of issuance thereof.
12.6 Voluntary Insolvency. If an Insolvency Proceeding is commenced
by Borrower.
12.7 Involuntary Insolvency. If an Insolvency Proceeding is
commenced against Borrower except that if Borrower is
contesting such Insolvency Proceeding in good faith, such
Insolvency Proceeding shall not constitute an Event of Default
unless such Insolvency Proceeding is not dismissed within sixty
(60) days of the commencement of such Insolvency Proceedings.
12.8 Injunction. If Borrower is enjoined, restrained or in any way
prevented by court order from continuing to conduct all or any
material part of its business affairs and such order continues
for more than thirty (30) days.
12.9 Governmental Lien. Except as permitted by Section 9.1, if a
notice of Lien, levy or assessment in excess of Ten Thousand
Dollars ($10,000) in the aggregate, is filed of record with
respect to any or all of Borrower's assets by the United States
Government, or any department, agency or instrumentality
thereof, or by any state, county, municipal or other
governmental agency, or if any taxes or debts owing at any time
hereafter to any one or more of such entities in excess of Ten
Thousand Dollars ($10,000) in the aggregate, becomes a Lien,
whether choate or otherwise, upon any or all of Borrower's
assets and the same is not paid on or before the due date
thereof.
12.10 Judgment. If a judgment or other claim in excess of Fifty
Thousand Dollars ($50,000) individually, or One Hundred
Thousand Dollars ($100,000) in the aggregate, becomes a Lien
upon any or all of Borrower's assets, or any individual
judgment or other claim in excess of One Hundred Thousand
Dollars ($100,000) is entered against Borrower and is not
stayed, vacated or discharged within thirty (30) days of the
entry thereof.
12.11 Other Indebtedness. If there is a default in any agreement with
respect to Indebtedness in excess of One Hundred Thousand
Dollars ($100,000) to which Borrower is a party with another
Person resulting in a right by such Person to accelerate the
maturity of Borrower's Indebtedness or to exercise any other
right or remedy.
12.12 Prepayment. If Borrower makes any prepayment on account of
Indebtedness for borrowed money, except for prepayments to
Lender.
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12.13 ERISA Reportable Event. If (a) any Reportable Event which
Lender determines constitutes grounds for the termination of
any Benefit Plan by the PBGC or for the appointment by the
appropriate United States District Court of a trustee to
administer any such Plan, shall have occurred and be continuing
thirty (30) days after written notice of such determination
shall have been given to Borrower by Lender, or any such
Benefit Plan shall be terminated within the meaning of Title IV
of ERISA, or a trustee shall be appointed by the appropriate
United States District Court to administer any such Plan, or
the PBGC shall institute proceedings to terminate any Benefit
Plan; and (b) in case of any event described above in this
Section 12.13, the aggregate amount of Borrower's liability
under Sections 4062, 4063 or 4064 of ERISA shall exceed one
percent (1.00%) of its Net Worth, or (c) there shall be a
withdrawal from any Multiemployer Plan as a result of which the
aggregate amount of Borrower's liability in relation thereto
shall exceed one percent (1%) of its Net Worth.
12.14 Change of Control. If any "person" or "group" (as such terms
are used in Sections 13(d) and 14(d) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act")), shall become, or
obtain rights (whether by means of warrants, options or
otherwise) to become the "beneficial owner" (as defined in
Rules 13(d)-3 and 13(d)-5 under the Exchange Act, directly or
indirectly, of more than 30% of the outstanding common stock of
Borrower or the occurrence of a Change of Control (as defined
in the Note Indenture).
12.15 Default Under the Alliance Financing. If an Event of Default or
(as defined therein) occurs under the Alliance Loan Agreement.
Notwithstanding anything contained in this Section 12 or contained in
any other provision of this Agreement or the other Loan Documents to
the contrary, in the event of the institution of Insolvency Proceedings
against Borrower, Lender shall not be obligated to make advances to
Borrower during the sixty (60) day grace period under Section 12.7
13. RIGHTS AND REMEDIES
13.1 Rights and Remedies Generally. Upon the occurrence of an Event
of Default by Borrower under this Agreement and notice thereof
by Lender to Borrower, except as hereinafter provided, Lender
may, at its sole election, without notice of its election and
without demand, do any one or more of the following, all of
which are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this
Agreement, by the Revolving Loan Note, or otherwise,
immediately due and payable; provided, that all
Obligations shall be immediately due and payable
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without notice or demand upon an Event of Default
under Section 12.6 or 12.7;
(b) Cease advancing money or extending credit to or for
the benefit of Borrower under this Agreement, or any
other agreement between Borrower and Lender;
(c) Terminate this Agreement as to any future liability or
obligation of Lender with respect to the Revolving
Loans and Letters of Credit but without affecting
Lender's rights and Lien in the Collateral and without
affecting the Obligations owing by Borrower to Lender;
(d) Without notice to or demand upon Borrower, make such
payments and do such acts as Lender considers
necessary or reasonable to protect its Lien in the
Collateral. Borrower agrees to assemble the Collateral
if Lender so requires, and to make the Collateral
available to Lender at such location as Lender may
designate. Borrower authorizes Lender to enter the
premises where the Collateral is located subject to
the terms of the related real estate leases, take and
maintain possession of the Collateral, or any part of
it, and to pay, purchase, contest or compromise any
Lien which in the opinion of Lender appears to be
prior or superior to its Lien (exclusive of the Lien
of Alliance on the Alliance Collateral) and to pay all
expenses incurred in connection therewith;
(e) Ship, reclaim, recover, store, finish, maintain,
repair, prepare for sale, advertise for sale and sell
(in the manner provided for herein) the Collateral;
(f) Sell some or all of the Collateral at either public or
private sales, or both, by way of one or more
contracts or transactions, for cash or on terms, in
such manner and at such places (including Borrower's
premises subject to the terms of the related real
estate leases) as is commercially reasonable in the
opinion of Lender. It is not necessary that the
Collateral be present at any such sale.
Lender is hereby granted a license or other right to
use, without charge, Borrower's labels, patents,
copyrights, rights of use of any name, logo, trade
secrets, trade names, trademarks, customer lists and
advertising matter, or any property of a similar
nature, as it pertains to the Collateral, in
completing production of, advertising for sale and
selling any Collateral and Borrower's rights under all
licenses and all franchise agreements shall inure to
Lender's benefit.
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13.2 Notice of Disposition. Lender shall give notice of the
disposition of the Collateral as follows:
(i) Lender shall give Borrower and each holder of
a Lien in the Collateral who has filed with
Lender a written request for notice, a notice
in writing of the time and place of public
sale, or, if the sale is a private sale or
some other disposition other than a public
sale is to be made of the Collateral, the time
on or after which the private sale or other
disposition is to be made;
(ii) The notice to Borrower shall be personally
delivered or mailed, postage prepaid, as
provided in Section 16, at least ten (10)
calendar days before the date fixed for the
sale, or at least ten (10) calendar days
before the date on or after which the private
sale or other disposition is to be made,
unless the Collateral is perishable or
threatens to decline speedily in value. Notice
to Persons other than Borrower claiming an
interest in the Collateral shall be sent to
such addresses as they have furnished to
Lender; and
(iii) If the sale is to be a public sale, Lender
shall also give notice of the time and place
by publishing a notice one time at least ten
(10) calendar days before the date of the sale
in a newspaper of general circulation in the
county in which the sale is to be held. Lender
may bid in any way permitted by applicable law
and purchase at any public sale.
13.3 Expenses of Enforcement. Borrower shall pay all Out-of-Pocket
Fees and Costs incurred in connection with Lender's enforcement
and exercise of any of its rights and remedies as herein
provided, whether or not suit is commenced by Lender. Any
deficiency which exists after disposition of the Collateral as
provided above will be paid immediately by Borrower. Any excess
will be returned, without interest to Borrower or such other
Person as may be entitled thereto by Lender.
13.4 Rights Cumulative. Lender's rights and remedies under this
Agreement, all other Loan Documents and all other agreements
with Borrower shall be cumulative. Lender shall have all other
rights and remedies not inconsistent herewith as provided under
the Code, by law, or in equity. No exercise by Lender of one
right or remedy shall be deemed an election, and no waiver by
Lender of any default on Borrower's part shall be deemed a
continuing waiver. No delay by Lender shall constitute a
waiver, election or acquiescence by it.
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14. TAXES AND EXPENSES REGARDING THE COLLATERAL
14.1 If Borrower fails to pay promptly when due to any other Person,
monies which Borrower is required to pay by reason of any
provision in this Agreement in accordance with the provisions
of this Agreement (including without limitation for any tax,
expense or with respect to any Lien), or to promptly contest
same by proper proceedings diligently pursued and establish
adequate reserves therefor as required by the terms of this
Agreement, Lender may, but need not, pay the same after any
notice required hereunder and charge Borrower's account
therefor, and Borrower shall promptly reimburse Lender. All
such sums shall become additional Obligations owing to Lender,
shall bear interest at the applicable interest rate hereunder
and shall be secured by the Collateral. Any payments made by
Lender shall not constitute: (i) an agreement by Lender to make
similar payments in the future, or (ii) a waiver by Lender of
any Event of Default under this Agreement. In connection with
any payment made by Lender pursuant to this Section 14.1,
Lender need not inquire as to, or contest the validity of, any
such expense, tax or Lien and the receipt of the usual official
notice for the payment thereof shall be conclusive evidence
that the same was validly due and owing, and the receipt of any
other notice with respect to all other such monies due
hereunder shall be prima facia evidence that the same was
validly due and owing.
15. CERTAIN WAIVERS
15.1 Application of Payments. Except as expressly provided in this
Agreement, Borrower waives the right to direct the application
of any and all payments at any time or times hereafter received
by Lender on account of any Obligations owed by Borrower,
including without limitation amounts received which are the
proceeds of any insurance policy, and Borrower agrees that
Lender shall have the continuing exclusive right to apply and
reapply such payments in any manner as Lender may deem
advisable, notwithstanding any entry by Lender upon its books.
15.2 Demand, etc. Except as specifically provided herein, Borrower
waives demand, protest, notice of protest, notice of default or
dishonor, notice of payment and nonpayment, notice of any
default, notice of nonpayment at maturity, notice of intent to
accelerate, and notice of acceleration, notice prior to
Lender's taking possession or control of any of the Collateral,
or any bond or security which might be required by any court
prior to allowing Lender to exercise any of Lender's remedies,
including the issuance of an immediate writ of possession, the
release, compromise, settlement, extension or renewal of any or
all commercial paper, accounts, documents, instruments, chattel
paper, and guarantees at any time held by Lender on
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which Borrower may in any way be liable, the benefit of all
valuation, appraisement and exemption laws, and any right to
require a marshalling of assets by Lender or to require that
Lender first resort to some or any portion of any Collateral
before sale, foreclosure or realization on any other portion
thereof.
15.3 Risk of Loss Regarding Collateral. Beyond the safe custody of
the Collateral in its possession, Lender shall not in any way
or manner be liable or responsible for: (a) the Collateral in
its possession (or in the possession or control of any agent or
bailee); (b) any loss or damage thereto occurring or arising in
any manner or fashion from any cause, including without
limitation, lost profits, incidental or consequential damages;
or (c) any diminution in the value thereof. Except where
occasioned by gross negligence or willful misconduct of Lender,
all risk of loss, damage or destruction of the Collateral shall
be borne by Borrower.
15.4 Confidentiality. Borrower authorizes its accounting firm and/or
service bureau to provide Lender with such information
requested by Lender pursuant to or in accordance with Section
10.2 of this Agreement, and authorizes Lender to contact
directly any such accounting firm and/or service bureau in
order to obtain such information. Prior to the occurrence of a
Potential Default or Event of Default, Lender shall notify
Borrower prior to contacting such accounting firm or service
bureau, but in no event shall Lender be liable to Borrower for
failure to provide such notice.
16. NOTICES
Except as otherwise expressly provided herein, any notice required or
desired to be served, given or delivered hereunder shall be in the form
and manner specified below, and shall be addressed to the party to be
notified as follows:
If to Lender at: LaSalle Bank National Association
135 South LaSalle Street
Chicago, Illinois 60603
Attn: John Thurston
Facsimile No. 312/904-6225
With a copy to: Jenner & Block
One IBM Plaza
Chicago, Illinois 60611
Attn: Jeffrey L. Elegant, Esq.
Facsimile No. 312/840-7720
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<PAGE> 60
If to Borrower at: SpinCycle, Inc.
15990 N. Greenway/Hayden Loop, Suite 400
Scottsdale, AZ 85260
Attn: Peter Ax
Facsimile No. 602/707-9967
With copies to: Pedersen & Houpt
161 N. Clark Street, Suite 3100
Chicago, Illinois 60601
Attn: Amy Yates, Esq.
Facsimile No. 312/641-6895
or to such other address as each party designates to the other by
notice in the manner herein prescribed. Notice shall be deemed given
hereunder if (i) delivered personally or otherwise actually received,
(ii) sent by overnight delivery service, (iii) mailed by first-class
United States mail, postage prepaid, registered or certified, with
return receipt requested, or (iv) sent via telecopy machine with a
duplicate signed copy sent on the same day as provided in clause (ii)
above. Notice mailed as provided in clause (iii) above shall be
effective upon the expiration of three (3) Business Days after its
deposit in the United States mail, and notice telecopied as provided in
clause (iv) above shall be effective upon receipt of such telecopy if
the duplicate signed copy is sent under clause (ii) above. Notice given
in any other manner described in this section shall be effective upon
receipt by the addressee thereof; provided, however, that if any notice
is tendered to an addressee and delivery thereof is refused by such
addressee, such notice shall be effective upon such tender unless
expressly set forth in such notice.
17. CHOICE OF LAW AND VENUE
17.1 This Agreement shall be deemed to have been made in the State
of Illinois and the validity of this Agreement, its
construction, interpretation and enforcement, and the rights of
parties hereunder and concerning the Collateral, shall be
determined under, governed by and construed in accordance with
the laws of the State of Illinois. The parties agree that at
Lender's election, all actions or proceedings arising in
connection with this Agreement shall be tried and litigated
only in the state and federal courts located in the County of
Cook, State of Illinois. Borrower waives any right it may have
to assert the doctrine of forum non conveniens or to object to
such venue and hereby consents to any court ordered relief.
Borrower consents that all service of process upon it be made
by registered mail or messenger directed to it at the address
set forth in Section 16 above and that service so made shall be
deemed to be completed upon the earlier of actual receipt or
three (3) Business Days after the same shall have been posted
to Borrower's address. Nothing contained in this Section 17
shall affect the
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right of Lender to serve legal process in any other manner
permitted by law or affect the right of Lender to bring any
action or proceeding against Borrower or its property in the
courts of any other jurisdiction.
18. INDEMNITY
18.1 Borrower hereby shall indemnify, hold harmless and defend
Lender and its directors, officers, agents, counsel and
employees ("Indemnified Persons") from and against all losses,
claims, damages, costs, expenses and liabilities ("Losses"),
whether such Losses arise or notice thereof is received by
Lender during the Initial Term or any renewal term or after
termination of this Agreement, incurred by any of them arising
principally out of or relating to this Agreement or under any
other transaction contemplated hereby except for any such
Losses caused by the gross negligence or willful misconduct of
such Indemnified Persons, and shall reimburse Lender and each
other Indemnified Person for any reasonable expenses including
in connection with the investigation of, preparation for or
defense of any actual or threatened claim, action or proceeding
arising therefrom (including any such costs of responding to
discovery requests or subpoenas), regardless of whether any
Indemnified Person is a party thereto. Each Indemnified Person
may select its own counsel with respect to any Losses, in
addition to Borrower's counsel, and shall be indemnified
therefor hereunder.
19. GENERAL PROVISIONS
19.1 Acceptance. This Agreement shall be binding and deemed
effective when executed by Borrower and accepted and executed
by Lender.
19.2 Binding Agreement. This Agreement shall bind and inure to the
benefit of the respective successors and assigns of each of the
parties, provided, however, that Borrower may not assign this
Agreement or any rights hereunder without Lender's prior
written consent and any prohibited assignment shall be
absolutely void. No consent to an assignment by Lender shall
release Borrower from its Obligations to Lender. Lender may not
assign this Agreement and its rights and duties hereunder,
without Borrower's written consent, such consent not to be
unreasonably withheld, conditioned or delayed, and Borrower
shall execute and deliver such documents in connection with
such assignment as Lender or such assignee may reasonably
request. Lender may not transfer, negotiate or grant
participations in all or any part of, or any interest in its
rights and benefits hereunder without Borrower's written
consent, such consent not to be unreasonably withheld,
conditioned or delayed. In connection therewith, Lender may
disclose all documents and information which Lender now or
hereafter may have relating to Borrower or Borrower's business,
but shall
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use all reasonable efforts to ensure that the recipient of such
information maintains the confidentiality of such information
as required by the terms of this Agreement.
19.3 Section Headings. Section headings and section numbers have
been set forth herein for convenience only. Unless the contrary
is compelled by the context, everything contained in each
paragraph applies equally to this entire Agreement.
19.4 Construction. Neither this Agreement nor any uncertainty or
ambiguity herein shall be construed or resolved against Lender
or Borrower, whether under any rule of construction or
otherwise. On the contrary, this Agreement has been reviewed by
all parties and shall be construed and interpreted according to
the ordinary meaning of the words used so as to fairly
accomplish the purposes and intentions of the parties hereto.
19.5 Severability. Each provision of this Agreement shall be
severable from every other provision of this Agreement for the
purpose of determining the legal enforceability of any specific
provision.
19.6 Entire Agreement. This Agreement cannot be changed or
terminated orally. All prior agreements, understandings,
representations, warranties, and negotiations, if any, are
merged into this Agreement. This Agreement may be amended only
by a written agreement signed by duly authorized officers of
Borrower and Lender.
19.7 No Fiduciary Relationship or Joint Venture. No provision herein
or in any of the other Loan Documents and no course of dealing
between the parties hereto shall be deemed to create any
fiduciary relationship between Lender and Borrower nor to
create any partnership or joint venture between Lender and
Borrower.
19.8 Publicity. Subject to the other confidentiality provisions of
this Agreement, Borrower hereby consents to the issuance or
dissemination by Lender to the public of information describing
the credit accommodations entered into pursuant to this
Agreement (as it may be amended, modified and supplemented from
time to time) including without limitation the name and address
of Borrower, a general description of Borrower's business and
the use of Borrower's name and logo in connection therewith.
19.9 Counterparts. This Agreement may be executed in two (2) or more
counterparts, each of which shall be deemed an original but all
of which shall together constitute one and the same instrument.
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19.10 Conflict. In the event of a conflict between the terms of this
Agreement and the terms of any other Loan Documents, the terms
of this Agreement shall be controlling.
19.11 WAIVER OF JURY TRIAL
LENDER AND BORROWER ACKNOWLEDGE THAT THE RIGHT TO A TRIAL BY
JURY IS A CONSTITUTIONAL RIGHT, BUT THAT THE RIGHT MAY BE
WAIVED. BORROWER AND LENDER EACH KNOWINGLY, VOLUNTARILY,
IRREVOCABLY AND WITHOUT COERCION, WAIVE ALL RIGHTS TO TRIAL BY
JURY OF ALL DISPUTES BETWEEN THEM. NEITHER LENDER NOR BORROWER
SHALL BE DEEMED TO HAVE GIVEN UP THIS WAIVER OF JURY TRIAL
UNLESS THE PARTY CLAIMING THAT THIS WAIVER HAS BEEN
RELINQUISHED HAS A WRITTEN INSTRUMENT SIGNED BY THE OTHER PARTY
STATING THAT THIS WAIVER HAS BEEN GIVEN UP.
19.12 Restatement of Prior Agreement. This Agreement constitutes an
amendment and restatement of, and a replacement and substitute
for the Prior Agreements. The Obligations under the Prior
Agreements are continuing indebtedness and nothing contained in
this Agreement shall be deemed to constitute payment,
settlement or novation of the Obligations under the Prior
Agreement or otherwise effect Lender's Lien on the Collateral
under the Prior Agreements, which shall continue in full force
and effect. Borrower hereby confirms that the Obligations under
the Prior Agreements are validly existing and enforceable and
that Borrower presently has no defenses, rights of setoff or
counterclaims against Lender arising out of the Prior
Agreements. Upon execution of this Agreement, this Agreement
shall amend and supersede and is substituted for the Prior
Agreements in their entirety. All references to Heller
Financial, Inc., Finova Capital Corporation, Agent or Lenders
in any other Loan Documents assigned by Heller Financial, Inc.
and/or Finova Capital Corporation to Lender pursuant to that
certain Assignment and Assumption Agreement dated November 17,
1999 among Borrower, Lender, Heller Financial, Inc., and Finova
Capital Corporation, shall be deemed to refer to Lender and
except as amended and restated hereby, shall remain unchanged
and in full force and effect and are hereby ratified and
affirmed by the parties hereto.
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IN WITNESS WHEREOF, Borrower has executed and delivered this Agreement.
SPINCYCLE, INC.
By: /s/ Tim Yost
------------------------------------
Title: Vice President
------------------------------------
Address: 15590 N. Greenway/Hayden Loop
Suite 400
Attention: Peter Ax
Facsimile: 602/707-9967
ACCEPTED this 17th day of November, 1999 at Lender's place of business
in the City of Chicago, State of Illinois.
LASALLE BANK NATIONAL ASSOCIATION
By: /s/ John Thurston
------------------------------------
Title: Vice President
------------------------------------
Address: 135 South LaSalle Street
Chicago, Illinois 60603
Attn: John Thurston
Facsimile: 312/904-6225
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<PAGE> 65
Schedules and Exhibits
EXHIBITS
Exhibit A Form of Revolving Loan Note
Exhibit B Form of Compliance Certificate
Exhibit C Form of Landlord's Waiver and Lease Assignment Provision
SCHEDULES
Schedule 6.3 - Location of Inventory
Schedule 7.2 - States Where Borrower is Qualified
Schedule 7.8 - Litigation
Schedule 7.9 - Intellectual Property
Schedule 7.11 - Pro Formas
Schedule 7.12 - Conduct of Business
Schedule 7.13 - Environmental Compliance
Schedule 7.17 - Fictitious Names
Schedule 8.1 - Permitted Liens, Facilities to be Closed
Schedule 8.16 - Bank Accounts
<PAGE> 1
Exhibit 10.2
AMENDED AND RESTATED REVOLVING LOAN NOTE
$12,000,000 November 17, 1999
SPINCYCLE, INC., a Delaware corporation ("Borrower"), for
value received, hereby promises to pay to the order of LaSalle Bank National
Association (the "Bank"), on September 30, 2001, the principal sum of Twelve
Million and No/100 Dollars ($12,000,000), or such lesser amount of all of the
then outstanding advances made by the Bank to Borrower pursuant to Section 2.1
of the "Loan Agreement" (as hereinafter defined), together with interest on any
and all principal amounts remaining unpaid hereunder from time to time from the
date hereof until paid, at the rate(s) set forth in Section 2.14 of the Loan
Agreement, payable on each "Interest Payment Date" (as such term is defined in
the Loan Agreement).
Upon the occurrence of any Event of Default (hereinafter
defined), the outstanding principal balance of this Note shall bear interest
payable on demand, at the "Default Rate" (as such term is defined in the Loan
Agreement).
All payments of principal and interest on this Note shall be
payable in lawful money of the United States of America. In no event shall the
interest payable exceed the highest rate permitted by law. Principal and
interest shall be paid to Bank at its office at LaSalle Bank National
Association, 135 South LaSalle Street, Chicago, Illinois 60603, or at such other
place as the holder of this Note may designate in writing to Borrower. All
payments hereunder shall be applied as provided in the Loan Agreement. In
determining Borrower's liability to the Bank hereunder, the books and records of
the Bank shall be controlling absent arithmetic or manifest error.
This Note evidences certain indebtedness incurred under the
Amended and Restated Loan and Security Agreement, dated as of the date hereof,
between Borrower and Bank (as heretofore or hereafter amended, the "Loan
Agreement"), to which reference is hereby made for a statement of the terms and
conditions under which the due date of this Note or any payment thereon may be
accelerated or is automatically accelerated, or under which this Note may be
prepaid or is required to be prepaid. All capitalized terms used herein shall,
unless otherwise defined herein, have the meanings set forth in the Loan
Agreement. The holder of this Note is entitled to all of the benefits provided
in said Loan Agreement and the Loan Documents referred to therein. Borrower
agrees to pay all costs of collection and all reasonable attorneys' fees paid or
incurred in enforcing any of the Bank's rights hereunder promptly on demand of
the Bank and as more fully set forth in the Loan Agreement.
This Note may be prepaid in whole or in part in accordance
with the terms of the Loan Agreement.
<PAGE> 2
Except as set forth in the Loan Agreement, the Borrower,
endorsers and all other parties to this Note waive presentment, demand, notice,
protest and all other demands and notices in connection with the delivery,
acceptance, performance, default or enforcement of this Note and the Loan
Agreement. In any action on this Note, the Bank or its assignee need not file
the original of this Note, but need only file a photocopy of this Note certified
by the Bank or such assignee to be a true and correct copy of this Note.
This is the Revolving Loan Note referred to in the Loan
Agreement. This Note is secured by, among other things, a security interest in
the Collateral granted to the Bank pursuant to the Loan Agreement and the other
Loan Documents.
No delay on the part of the Bank in exercising any right under
this Note, any security agreement, guaranty or other undertaking affecting this
Note, shall operate as a waiver of such right or any other right under this
Note, nor shall any omission in exercising any right on the part of the Bank
under this Note operate as a waiver of any other rights.
The occurrence of an Event of Default under the Loan Agreement
(as such term is defined therein) shall constitute an Event of Default
hereunder. Upon the occurrence of an Event of Default, the outstanding
indebtedness evidenced by this Note, together with all accrued interest, shall
be due and payable in accordance with the terms of the Loan Agreement, without
notice to or demand upon the Borrower except as otherwise provided in the Loan
Agreement, and the Bank may exercise all of its rights and remedies reserved to
it under the Loan Agreement or applicable law.
If any provision of this Note or the application thereof to
any party of circumstance is held invalid or unenforceable, the remainder of
this Note and the application of such provision to other parties or
circumstances will not be affected thereby and the provisions of this Note shall
be severable in any such instance.
BORROWER HEREBY WAIVES ANY RIGHT BORROWER MAY NOW OR HEREAFTER
HAVE TO SUBMIT ANY CLAIM, ISSUE OR DEFENSE ARISING HEREUNDER OR UNDER THE OTHER
LOAN DOCUMENTS TO A TRIAL BY JURY.
This Note shall be an amendment and restatement of and
substitution and replacement for those certain Revolving Notes dated August 29,
1998 in the respective original principal amounts of $25,000,000 and $15,000,000
made by Borrower and payable to the order of Bank, as assignee of Heller
Financial, Inc. and Finova Capital Corporation (the "Prior Lenders"),
respectively, and all amendments, extensions, substitutions, replacements and
renewals thereto (the "Original Notes"). The indebtedness evidenced by the
Original Notes is continuing indebtedness and nothing contained herein shall be
deemed to constitute payment, settlement or a novation of the Original Notes, or
the indebtedness evidenced thereby, or release or otherwise adversely affect any
lien or security interest securing such indebtedness.
This Note shall be deemed to have been made under and shall be
governed in accordance with the internal laws and not the conflict of law rules
of the State of Illinois.
-2-
<PAGE> 3
IN WITNESS WHEREOF, Borrower has caused this Note to be
executed by its duly authorized officer as of the date first above written.
SPINCYCLE, INC.
By: /s/ Tim Yost
-------------------------------
Title: Vice President
----------------------------
-3-
<PAGE> 1
Exhibit 10.3
LOAN AND SECURITY AGREEMENT
Dated as of November 17, 1999
between
SPINCYCLE, INC.,
as Borrower
and
ALLIANCE LAUNDRY SYSTEMS LLC,
as Lender
<PAGE> 2
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT ("Agreement"), dated as of November
17, 1999, is entered into between "Lender" and "Borrower" (hereinafter
defined).
R E C I T A L S
A. Borrower desires to borrow from Lender the sum of Three Million Dollars
($3,000,000) to refinance existing debt and pay closing costs.
B. Lender desires, upon the terms and conditions set forth in this
Agreement, to make the loan requested by Borrower.
NOW, THEREFORE, in consideration of the parties' mutual agreements
contained herein, the parties hereto agree as follows:
1. DEFINITIONS
1.1 General Terms. As used in this Agreement, the following
terms shall have the following definitions:
"Accounts" shall mean all of Borrower's presently existing and
hereafter arising accounts, accounts receivable, contract rights,
instruments, documents, chattel paper, and all other forms of
obligations owing to Borrower arising out of the sale or lease of
goods or the rendition of services by Borrower, whether or not
earned by performance, and any and all credit insurance, guarantees,
letters of credit and other security therefor, as well as all
merchandise returned to or reclaimed by Borrower, and all products
and proceeds of the foregoing.
"Affiliate" shall mean any Person that directly or indirectly,
through one or more intermediaries, controls or is controlled by, or
is under common control with, Borrower.
"Agreement" shall mean this Loan and Security Agreement, any and all
exhibits or schedules hereto, any and all concurrent or subsequent
riders to this Loan and Security Agreement and any extensions,
supplements, amendments, modifications or restatements to or of this
Loan and Security Agreement and/or to or of any such rider.
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<PAGE> 3
"Bank" shall mean LaSalle Bank National Association, a national
banking association.
"Bank Financing" shall mean the term loan by Bank to Borrower in the
maximum principal amount of $12,000,000, to be evidenced by the Bank
Loan Documents.
"Bank Loan Documents" shall mean the Loan and Security Agreement
between Bank and Borrower of even date herewith and all other
documents which are defined therein as "Loan Documents."
"Bank Senior Collateral" shall have the meaning provided therefor in
the Intercreditor Agreement.
"Borrower" shall mean SpinCycle, Inc.
"Borrower's Books" shall mean all of Borrower's books and records
including, but not limited to: minute books; ledgers; records
indicating, summarizing, or evidencing Borrower's assets,
liabilities, the Accounts and all information relating thereto;
records indicating, summarizing, or evidencing Borrower's business
operations or financial condition; records indicating, summarizing,
or evidencing Borrower's compliance with or problems or activities
concerning Environmental Laws; and all computer programs, disc or
tape files, printouts, runs, and other computer prepared information
and the equipment containing such information and any software
necessary to operate the same.
"Business Day(s)" shall mean any day other than a Saturday, Sunday
or other day on which banks in Illinois are closed.
"Capital Expenditures" shall mean, with respect to any period, the
aggregate of all expenditures (whether paid in cash or accrued as
liabilities and including expenditures for the portion of
capitalized lease obligations amortizable in the fiscal period of
measurement) by Borrower during such period that are required by
Generally Accepted Accounting Principles to be included in or
reflected by the property, plant, or equipment or similar fixed
asset accounts in the balance sheet of Borrower.
"Closing" shall have the meaning set forth in Section 5.1 hereof.
"Closing Date" shall mean the date of the Closing.
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<PAGE> 4
"Code" shall mean the Uniform Commercial Code of the State of
Illinois as in effect from time to time during the Initial Term and
any renewal term hereof, and any and all terms used in this
Agreement which are not otherwise defined herein but are defined in
the Code shall be construed and defined in accordance with the
meaning and definition ascribed to such terms under the Code.
"Collateral" shall mean each and all of the following wherever
located and whether now existing or owned or hereafter created or
acquired by Borrower: the Accounts; the General Intangibles; the
Negotiable Collateral; the Inventory; Borrower's Books; the
Equipment; any money, deposit accounts or other assets of Borrower
in which Lender receives a Lien or which hereafter comes into the
possession, custody or control of Lender or any bailee of Lender;
and all products and proceeds of every nature of any of the
foregoing, including, but not limited to, proceeds of insurance
covering the Collateral and any and all Accounts, General
Intangibles, Negotiable Collateral, Inventory, contract rights,
instruments, documents and chattel paper, Equipment, money, deposit
accounts or other tangible and intangible property of Borrower
resulting from the sale or other disposition of the Collateral, and
the proceeds and products thereof.
"Default Rate" shall have the meaning set forth in Section 2.2(b)
hereof.
"EBITDA" shall have the meaning provided therefor in the definition
of Senior Interest Coverage Ratio set forth in this Section.
"Environmental Laws" shall mean any applicable laws, statutes,
rules, regulations, orders, consent decrees, permits or licenses of
any governmental authority, relating to prevention, remediation,
reduction or control of pollution, or protection of the environment,
natural resources and/or human health and safety, including, without
limitation, such applicable laws, statutes, rules, regulations,
orders, consent decrees, permits or licenses relating to (a) solid
waste and/or Hazardous Materials treatment, storage, disposal,
generation and transactions, (b) air, water, and noise pollution,
(c) soil, ground, water or groundwater contamination, (d) the
generation, handling, storage, transportation or Release into the
environment of Hazardous Materials, and (e) regulation of
underground and above ground storage tanks.
"Equipment" shall mean the machinery and equipment of Borrower,
including, without limitation, laundry equipment, processing
equipment, data processing and computer equipment with software and
peripheral equipment, and all engineering, processing and
manufacturing equipment,
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<PAGE> 5
office machinery, furniture, materials handling equipment, tools,
molds, dies, attachments, accessories, automotive equipment,
trailers, trucks, motor vehicles, leasehold improvements and cranes,
and other equipment of every kind and nature, and fixtures, all
whether now owned or hereafter acquired, and wheresoever situated,
together with all additions and accessions thereto, replacements
therefor, all parts therefor, and all manuals, drawings,
instructions, warranties, and rights with respect thereto, and all
products and proceeds of the foregoing, and condemnation awards and
insurance proceeds with respect thereto.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended, and all references to sections thereof shall
include such sections and any predecessor and successor provisions
thereto.
"Event of Default" shall mean the occurrence of any one or more of
the events set forth in Section 12 of this Agreement.
"Extended Maturity Date" shall mean September 30, 2006.
"Fiscal Quarter" shall mean the four (4) fiscal quarterly periods of
Borrower during each Fiscal Year consisting of three (3), three (3),
four (4), and three (3) Reporting Periods, respectively.
"Fiscal Year" shall mean with respect to Borrower, the fiscal
accounting period of Borrower each year consisting of thirteen (13)
four calendar week accounting periods ending on the last Sunday of
December of each calendar year.
"Free Cash Flow" shall mean with respect to Borrower for any period
of measurement, the sum of EBITDA for such period, less Maintenance
Capital Expenditures during such period, less income taxes paid
during such period, less interest expense paid during such period.
"Funded Debt" shall mean Indebtedness of Borrower incurred under
this Agreement, the other Loan Documents, and the Bank Loan
Documents.
"Funded Debt Interest Expense" shall have the meaning provided
therefor in the definition of Senior Interest Coverage Ratio set
forth in this Section.
"General Intangibles" shall mean all of the Borrower's present and
future general intangibles, contract rights and other personal
property rights of Borrower to all choses or things in action, tax
refund claims, credits, claims, demands, goodwill, licenses,
franchise agreements, subscription costs,
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<PAGE> 6
patents, trade names, trademarks, copyrights, rights to royalties,
blueprints, drawings, customer lists, purchase orders, computer
programs, computer discs, computer tapes, literature, reports,
catalogs, methods, sales literature, video tapes, confidential
information and trade secrets, consulting agreements, employment
agreements, leasehold interests in real and personal property,
insurance policies, deposits with insurers relating to workmen's
compensation liabilities, deposit accounts, tax refunds and
proprietary rights in any Equipment, other than Equipment, Inventory
and Accounts, as well as Borrower's Books relating to any of the
foregoing, and all products and proceeds of the foregoing.
"Generally Accepted Accounting Principles" shall mean, with respect
to any date of determination, generally accepted accounting
principles as used by the Financial Accounting Standards Board
and/or the American Institute of Certified Public Accountants
consistently applied and maintained throughout the periods
indicated.
"Hazardous Materials" shall mean any flammable or explosive
materials, petroleum (including crude oil and its fractions),
radioactive materials, hazardous wastes, toxic substances or related
hazardous materials, including without limitation polychlorinated
biphenyls, friable asbestos, and any substances defined as, or
included in the definition of toxic or hazardous substances, wastes,
or materials under any federal or applicable state or local laws,
ordinances, rules or regulations including Environmental Laws.
"Indebtedness" shall mean, with respect to any Person, (a)
indebtedness for borrowed money or for the deferred purchase price
of property or services in respect of which such Person is liable,
contingently or otherwise, as obligor or otherwise, including
without limitation accounts payable and accrued indebtedness owed by
such Person or any commitment by which such Person assures a
creditor against loss, including contingent reimbursement
obligations with respect to letters of credit, (b) indebtedness
guaranteed in any manner by such Person, including guarantees in the
form of an agreement to repurchase or reimburse, (c) obligations
under leases which shall have been or should be, in accordance with
Generally Accepted Accounting Principles, recorded as capital
leases, in respect of which obligations such Person is liable,
contingently or otherwise, as obligor, guarantor or otherwise, or in
respect of which obligations such Person assures a creditor against
loss, and (d) any unfunded obligation of such Person to any Benefit
Plan or Multiemployer Plan.
"Indemnified Persons" shall have the meaning set forth in Section 18
hereof.
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<PAGE> 7
"Insolvency Proceeding" shall mean, with respect to any Person, any
proceeding commenced by or against such Person, under any provision
of the United States Bankruptcy Code, as amended, or under any other
bankruptcy, reorganization or insolvency law, or any assignment for
the benefit of creditors, formal or informal moratorium, or
compositions or extensions with some or all creditors of such
Person.
"Intercreditor Agreement" shall mean the Intercreditor Agreement of
even date herewith between Bank and Lender.
"Inventory" shall mean all present and future inventory in which
Borrower has any interest, including, but not limited to, goods held
by Borrower for sale or lease or to be finished under a contract of
service and all of Borrower's present and future raw materials, work
in process, finished goods, supplies and packing and shipping
materials, wherever located, and any documents of title representing
any of the above.
"IRC" shall mean the Internal Revenue Code of 1986, as amended, and
all references to sections thereof shall include such sections and
any predecessor and successor provisions thereto.
"Lender" shall mean Alliance Laundry Systems LLC, a Delaware limited
liability company.
"Lien" shall mean any mortgage, deed of trust, pledge, fixed or
floating charge, lien, security interest, or encumbrance or security
arrangement of any nature whatsoever, whether arising by written or
oral agreement or by operation of law, including without limitation
any conditional sale or title retention arrangement and any
assignment, deposit arrangement or lease intended as or having the
effect of, security.
"Loan" shall have the meaning set forth in Section 2.1 hereof.
"Loan Documents" shall mean all agreements, instruments and
documents, including without limitation security agreements, loan
agreements (including without limitation this Agreement), notes,
guarantees, mortgages, deeds of trust, subordination agreements,
intercreditor agreements, pledges, affidavits, certificates, powers
of attorney, consents, assignments, landlord and mortgagee waivers,
opinions, collateral assignments, reimbursement agreements,
contracts, notices, leases, financing statements, and all
amendments, supplements, restatements and renewals thereof, and all
other written matter, whether heretofore, now or hereafter executed
by or on
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<PAGE> 8
behalf of Borrower, or any other Person in connection with the
Obligations or the transactions contemplated hereby (including
without limitation any guaranty of the Obligations), and delivered
to Lender, together with all agreements, instruments and documents
referred to therein or contemplated thereby, whether heretofore, now
or hereafter executed by or on behalf of Borrower or any such other
Persons and delivered to Lender, and all amendments, supplements,
restatements and renewals thereof, but not including any proposal
letter, commitment letter or other comparable documents delivered by
Lender prior to the date hereof and not expressly incorporated
herein and made a part hereof.
"Losses" shall have the meaning set forth in Section 18.1 hereof.
"Maintenance Capital Expenditures" shall have the meaning set forth
in Section 8.20 hereof.
"Maturity Date" shall mean September 30, 2001.
"Negotiable Collateral" shall mean a letter of credit, advice of
credit, instrument, money, negotiable document, warehouse receipt,
bill of lading, certificated security, certificate of title,
certificate of deposit, chattel paper, or similar property, and the
proceeds thereof.
"Net Worth" means the total of Borrower's stated capital, paid in
surplus and retained earnings, less treasury stock, all as
determined in accordance with Generally Accepted Accounting
Principles.
"Note" shall have the meaning set forth in Section 2.1 hereof.
"Obligations" shall mean all loans, advances, overdrafts, debts,
liabilities, obligations, covenants, lease payments, guarantees and
duties owing by Borrower to Lender of any kind or description
(whether advanced pursuant to or evidenced by this Agreement, by the
Note, by any other Loan Document or other agreement, instrument or
document or otherwise), whether direct or indirect, absolute or
contingent, due or to become due, now existing or hereafter arising,
and including without limitation any debt, liability or obligation
owing from Borrower to another Person which Lender may have obtained
by assignment of which notice is provided to Borrower (or otherwise
as a result of a payment made by Lender on behalf of Borrower as
permitted under this Agreement or any other Loan Documents) and
further including without limitation all interest, all Out-of-Pocket
Fees and Costs which Borrower is required to pay or reimburse by
this Agreement or any other Loan Document, by law or otherwise.
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<PAGE> 9
"Out-of-Pocket Fees and Costs" shall have the meaning set forth in
Section 2.3(b) hereof.
"Permanent Term" shall have the meaning set forth in Section 3.1
hereof.
"Permitted Liens" shall have the meaning set forth in Section 8.1
hereof.
"Person" shall mean any individual, sole proprietorship,
partnership, joint venture, trust, unincorporated organization,
association, corporation, limited liability corporation,
institution, entity or governmental entity.
"Potential Default" shall mean any event which through the passage
of time, service of notice or both, would mature into an Event of
Default.
"Pro Formas" shall have the meaning set forth in Section 7.11
hereof.
"Rate" shall have the meaning set forth in Section 2.14(a) hereof.
"Reference Rate" shall mean the variable per annum rate of interest
announced from time to time by Bank at its corporate headquarters in
Chicago, Illinois, as its prime or equivalent rate. The "Reference
Rate" is one of Bank's index rates and merely serves as a basis
under which effective rates of interest are calculated for loans
making reference thereto and may not be the lowest or best rate at
which Bank calculates interest or extends credit.
"Release" shall mean any actual or threatened past, present or
future releasing, spilling, leaking, pumping, pouring, emitting,
emptying, discharging, seeping, injecting, escaping, leaching,
dumping or disposing, whether intentional or not.
"Reporting Period" shall mean each of Borrower's thirteen (13)
annual four week fiscal reporting periods.
"Restriction Agreement" shall have the meaning set forth in Section
8.8 hereof.
"Senior Discount Notes" shall mean Borrower's $144,990,000 principal
amount of 12-3/4% Series B Senior Discount Notes due 2005, issued
pursuant to an Indenture dated as of April 29, 1998 between Borrower
and Norwest Bank Minnesota, N.A., as Trustee (the "Note Indenture").
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<PAGE> 10
"Senior Interest Coverage Ratio" shall mean with respect to Borrower
for any period of measurement (a) the total of (i) Borrower's net
income after income taxes (exclusive of any gain or loss in such
period from an asset disposition other than Inventory in the
ordinary course of business and excluding other extraordinary gains
and losses) for such period, plus (ii) Borrower's amortization,
depreciation and other non-cash charges (excluding Accounts
reserves, Inventory reserves and other reserves incurred in the
ordinary course of business) for such period ("EBITDA"), divided by
(b) interest expense paid or accrued on Funded Debt for such period
("Funded Debt Interest Expense").
"Subordinated Indebtedness" shall mean Borrower's Indebtedness, if
any, to any Person, the repayment of which has been subordinated to
the repayment of the Obligations on terms and by written agreement
in form and substance acceptable to Lender.
"Subsidiary" shall mean any corporation of which more than fifty
percent (50%) of the outstanding capital stock having ordinary
voting power to elect a majority of the board of directors of such
corporation (irrespective of whether at the time stock of any other
class or classes of such corporation shall have or might have voting
power by reason of the happening of any contingency) is at the time,
directly or indirectly, owned by Borrower, or any partnership,
limited liability company or joint venture of which more than fifty
percent (50%) of the outstanding equity interests are at the time,
directly or indirectly, owned by Borrower.
"Tangible Net Worth" means the sum of the Net Worth of Borrower,
plus the outstanding principal balance of the Senior Discount Notes,
less all of the following: (i) all prepaid expenses and deposits,
(ii) the book value of all such assets which would be treated as an
intangible under Generally Accepted Accounting Principles, including
without limitation, goodwill, trademarks, tradenames, copyrights,
patents, licenses, deferred charges, unamortized debt discount and
expenses and covenants not to compete, and (iii) accounts, notes and
other receivables due from Affiliates and/or employees of Borrower.
"Term" shall mean the term of this Agreement, commencing on the
Closing Date and ending on the Maturity Date, unless extended.
"Uncured Default" shall mean an Event of Default which shall be
continuing.
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<PAGE> 11
1.2 Accounting Terms. Any accounting terms used in this
Agreement which are not specifically defined herein shall have the
meanings customarily given them in accordance with Generally Accepted
Accounting Principles. In the event that changes in Generally Accepted
Accounting Principles shall be mandated by the Financial Accounting
Standards Board and/or the American Institute of Certified Public
Accountants or any similar accounting body of comparable standing, or
shall be recommended by Borrower's certified public accountants, to the
extent that such changes would modify such accounting terms or the
interpretation or computation thereof as contemplated by this Agreement at
the time of execution hereof, then in such event such changes shall be
followed in defining such accounting terms only after the Borrower and
Lender shall have agreed to amend this Agreement to reflect the original
intent of such terms in light of such changes, and such terms shall
continue to be applied and interpreted without such change until such
agreement.
1.3 Certain Matters of Construction. The terms "herein",
"hereof" and "hereunder" and other words of similar import refer to this
Agreement as a whole and not to any particular section, paragraph or
subdivision. Any pronoun used shall be deemed to cover all genders. The
section titles, table of contents and list of exhibits appear as a matter
of convenience only and shall not affect the interpretation of this
Agreement. All references to statutes and related regulations shall
include any amendments of same and any successor statutes and regulations.
All references to any instruments or agreements, including, without
limitation, references to any of the Loan Documents shall include any and
all modifications or amendments thereto and any and all extensions or
renewals thereof. The Recitals to this Agreement are incorporated into
this Agreement in their entirety and deemed to be a part hereof.
2. LOAN; FEES; TERMS OF PAYMENT
2.1 Term Loan. Subject to the terms and provisions of this
Agreement including without limitation, that no Event of Default or
Potential Default has occurred and all other conditions precedent to
lending under Section 5 hereof have been satisfied, Lender agrees to make
a term loan (the "Loan") to Borrower on the Closing Date in the amount of
Three Million Dollars ($3,000,000).
The Loan shall be evidenced by, and repayable in accordance
with, the Note, which shall be substantially in the form of Exhibit A to
this Agreement ("Note").
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<PAGE> 12
2.2 Interest.
(a) Rate. All Obligations owed by Borrower to Lender
shall bear interest on the unpaid principal balance thereof, at a
rate per annum (computed on the basis of the actual number of days
elapsed over a 360 day year) equal to the Reference Rate, plus one
percent (1.00%) (the "Rate"). Interest owed on the Obligations shall
be payable monthly in arrears on the first Business Day of each
month.
In addition to calculations of the Rate as provided
above, in the event that the Reference Rate announced is, from time
to time hereafter, changed, adjustment in the Rate shall be made on
the effective date of such change in the Reference Rate. Lender
shall use reasonable efforts to notify Borrower of each change in
the Reference Rate as soon as practicable, but Borrower's obligation
to pay all interest at the Rate and Default Rate as provided in this
Agreement shall not be affected by, nor shall Lender have any
liability for, any failure to so notify Borrower.
(b) Default Rate. Notwithstanding the foregoing, the
Obligations shall bear interest, from and after written notice by
Lender to Borrower of the occurrence of an Event of Default and for
so long as such Event of Default has not been cured or waived as set
forth in this Agreement, and without constituting a waiver of any
such Event of Default, on the balances owing from time to time, at a
rate per annum equal to two percentage (2.00%) points above the Rate
(the "Default Rate"), payable on demand.
(c) Maximum Interest. It is the intention of Lender and
Borrower to comply with the laws of the State of Illinois, and
notwithstanding any provision to the contrary contained herein or in
the other Loan Documents, Borrower shall not be required to pay, and
Lender shall not be permitted to collect, any amount in excess of
the maximum amount of interest permitted by applicable law ("Excess
Interest"). If any Excess Interest is provided for or determined to
have been provided for by a court of competent jurisdiction in this
Agreement or in any of the other Loan Documents, then in such event
(i) the provisions of this Section 2.14(d) shall govern and control;
(ii) Borrower shall not be obligated to pay any Excess Interest;
(iii) any Excess Interest that Lender may have received hereunder
shall be, at Lender's option, (A) applied as a credit against either
the outstanding principal balance of the Loan or accrued and unpaid
interest hereon, (B) refunded to the payor thereof, or (C) any
combination of the foregoing; (iv) the interest rate provided for
herein shall be automatically reduced to the maximum rate allowed
under
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<PAGE> 13
applicable law, and this Agreement and the other Loan Documents
shall be deemed to have been, and shall be, reformed and modified to
reflect such reduction; and (v) Borrower shall not have any action
against Lender for any damages arising out of the payment or
collection of any Excess Interest. Notwithstanding the foregoing, if
any interest payment or other charge or fee payable hereunder or
under any of the other Loan Documents exceeds the maximum amount
then permitted by applicable law, then to the extent permitted by
law, Borrower shall be obligated to pay the maximum amount then
permitted by applicable law and Borrower shall continue to pay the
maximum amount from time to time permitted by applicable law until
all such interest payments and other charges and fees otherwise due
hereunder or under any of the other Loan Documents (in the absence
of such restraint imposed by applicable law) have been paid in full.
2.3 Fees. In consideration of Lender's making of the Loan
hereunder, Borrower shall pay to Lender the following fees and charges:
(a) Closing Fee. A one-time closing fee equal to
$30,000.00, payable at the Closing.
(b) Out-of-Pocket Fees, Costs and Expenses. All
reasonable out-of-pocket fees, costs and expenses ("Out-of-Pocket
Fees and Costs"), incurred by Lender in connection with the
documentation, negotiation and closing of this Agreement and the
other Loan Documents and the ongoing administration of the Loan and
any and all reasonable costs of enforcement of this Agreement or the
other Loan Documents or collection of the Obligations, including,
without limitation, the reasonable fees, costs and expenses of
attorneys and paralegals in connection with all of the foregoing,
all of which shall be part of the Obligations, payable on demand.
Prior to an Event of Default, Lender shall provide Borrower with
copies of invoices of charges and expenses setting forth all
Out-of-Pocket Fees and Costs. There shall be included as
Out-of-Pocket Fees and Costs, but without limitation of the
foregoing sentence, certain specific categories of Out-of-Pocket
Fees and Costs related to Collateral as follows: (i) any reasonable
costs or expenses incurred by Lender concerning any property of
Borrower relating to Environmental Laws, including without
limitation, for consultants or engineers; (ii) any out-of-pocket
fees, costs and expenses for audits or examinations by Lender or its
agents or representatives, of Borrower or the Collateral; and (iii)
any reasonable appraisal and evaluation fees and expenses, including
for appraisers retained by Lender in Lender's discretion to appraise
Equipment, Inventory or any other Collateral or property of Borrower
which are undertaken pursuant to and as limited by Section 6.2(c).
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<PAGE> 14
2.4 Lender Rights to Collect Directly. Lender or Lender's
designee may, after the occurrence of an Event of Default which has been
declared by Lender by notice to Borrower, (i) notify customers or account
debtors of Borrower that the Accounts have been assigned to Lender and
that Lender has a Lien thereon, and (ii) collect the Accounts directly,
and charge the reasonable collection costs and expenses to Borrower's
account.
2.5 Disputes, Returns and Allowances. Returns and allowances,
if any, as between Borrower and its customers, will be on the same basis
and in accordance with the usual customary practices of Borrower, as they
exist at this time. After the occurrence of an Event of Default which has
not been cured or waived as set forth in this Agreement, no discount,
credit or allowance shall be granted by Borrower to any account debtor
without Lender's consent, and no return of merchandise shall be accepted
by Borrower outside the ordinary course of its business without Lender's
consent. Lender may, in its discretion, after the occurrence of an Event
of Default which has not been cured or waived as set forth in this
Agreement, settle or adjust disputes and claims directly with account
debtors for amounts and upon terms which Lender considers advisable, and
in such cases, Lender will credit Borrower's account with only the net
amounts received by Lender in payment of such disputed Accounts, after
deducting all Out-of-Pocket Fees and Costs incurred or expended in
connection therewith.
2.6 Lender Statements. Lender may render from time to time,
statements of the Obligations owing by Borrower to Lender, including
statements of all principal, interest, and Out-of-Pocket Fees and Costs
owing, and such statements shall be presumed to be correct and accurate
and constitute an account stated between Borrower and Lender unless,
within sixty (60) days after receipt thereof by Borrower, Borrower shall
deliver to Lender, in accordance with Section 16 of this Agreement, at
Lender's place of business indicated in Section 16 hereof, written
objection thereto specifying the error or errors, if any, contained in any
such statement.
2.7 Payments.
(a) Borrower shall make each payment in respect of the
Loan and any other payments due under this Agreement not later than
12:00 p.m. Chicago time on the day when due, in United States
dollars, to Lender at its office in Ripon, Wisconsin in immediately
available funds.
(b) Borrower shall, at the time of making such payment
under this Agreement or the Note, specify to Lender the amounts
payable by Borrower hereunder to which such payment is to be applied
(and in the
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<PAGE> 15
event that it fails to so specify, or if an Event of Default has
occurred and has not been cured or waived as set forth in this
Agreement, Lender shall distribute such payment in such manner as
Lender may determine to be appropriate).
2.8 All Collateral Secures Borrower's Obligations. The Loan
made by Lender to Borrower under this Agreement shall be secured not only
by Lender's Lien on the Collateral, but also by any Lien heretofore, now
or at any time or times hereafter granted by Borrower to Lender under any
of the Loan Documents.
3. TERM OF THIS AGREEMENT; PREPAYMENTS
3.1 Term. This Agreement shall have a term (the "Initial
Term") commencing on the Closing Date and maturing on the Maturity Date.
Provided that no Event of Default exists at the expiration of the Initial
Term, an additional term (the "Permanent Term") shall commence on that
date and expire on the Extended Maturity Date.
3.2 Prepayment. Borrower may voluntarily prepay the
Obligations in whole or in part, at any time, without premium or penalty
of any kind.
3.3 Effect of Termination. The indemnifications set forth in
Section 18 and elsewhere in this Agreement shall survive the termination
of this Agreement.
4. CREATION OF LIEN AND COLLATERAL
4.1 Security Interest. Borrower hereby grants to Lender, a
continuing Lien and security interest in all presently existing and
hereafter arising Collateral which Borrower now or hereafter owns or has
an interest in, wherever located, to secure prompt repayment of any and
all Obligations owed and to be owed by Borrower to Lender and to secure
prompt performance by Borrower of each and all of its covenants and
obligations under this Agreement and the other Loan Documents. Lender's
Lien and security interest in the Collateral shall attach to all
Collateral without further act on the part of Lender or Borrower. In the
event that any Collateral, including proceeds, is evidenced by or consists
of Negotiable Collateral, Borrower shall, immediately upon receipt
thereof, endorse and assign such Negotiable Collateral over to Lender (or
in blank if requested by Lender) and deliver actual physical possession of
the Negotiable Collateral to Lender.
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4.2 Preservation of Collateral and Perfection of Security
Interests. Borrower shall execute and deliver to Lender, concurrently with
Borrower's execution of this Agreement, and at any time or times hereafter
immediately at the request of Lender, all financing statements, amendments
or continuations of financing statements, fixture filings, security
agreements, chattel mortgages, assignments, endorsements of certificates
of title, affidavits, reports, notices, schedules of accounts, letters of
authority and all other documents that Lender may reasonably request, in
form satisfactory to Lender, that are required to perfect and maintain
perfected Lender's Liens in the Collateral and to fully consummate all of
the transactions contemplated under this Agreement. Borrower hereby
irrevocably makes, constitutes and appoints Lender (and any of Lender's
officers, employees or agents designated by Lender), with full power of
substitution by Lender, as Borrower's true and lawful attorney with power
to sign the name of Borrower on any of the above-described documents or on
any other similar documents which need to be executed, recorded and/or
filed to perfect or continue perfected Lender's Lien in the Collateral
upon the failure of Borrower to do so after a request by Lender. For
purposes hereof, photocopies of this Agreement or any other Loan Document
constituting a security agreement may be filed by Lender as a financing
statement.
4.3 Inspection, Appointment as Attorney-in-Fact. Lender
(through any of its officers, employees or agents) shall have the right,
at any time or times during Borrower's usual business hours, or during the
usual business hours of any third party having control over the records of
Borrower, to inspect and verify Borrower's Books and the Collateral in
order to verify the amount or condition of, or any other matter relating
to, the Collateral and Borrower's financial condition; provided that,
unless an Event of Default has occurred or Lender in good faith believes
that Borrower has breached a representation, warranty or covenant
hereunder, Lender shall give Borrower two (2) Business Days' notice of
Lender's inspections. In addition, Borrower hereby appoints Lender (and
any of Lender's officers, employees or agents designated by Lender), with
full power of substitution by Lender, as Borrower's attorney-in-fact, with
power: to endorse Borrower's name on any checks, notes, acceptances, money
orders, drafts or other forms of payment or security that may come into
Lender's possession; to sign Borrower's name on any invoice or bill of
lading relating to any Accounts, on drafts against account debtors, on
schedules and assignments of Accounts, on verifications of Accounts and on
notices to account debtors; after an occurrence of an Event of Default, to
notify the post office authorities to change the address for delivery of
Borrower's mail to an address designated by Lender, to receive and open
all mail addressed to Borrower, and to retain all mail relating to the
Collateral and forward all other mail to Borrower; to send, whether in
writing or by telephone, request for verifications of Accounts and request
for verifications of trade and other Indebtedness of Borrower; and after
the occurrence of an Event of Default, to do
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<PAGE> 17
all things necessary to carry out this Agreement. Borrower ratifies and
approves all acts of the attorney acting in accordance with this Section
4.3 (other than those acts which constitute gross negligence or willful
misconduct) and neither Lender nor any other Person acting as Borrower's
attorney hereunder will be liable for any acts or omissions or for any
error of judgment or mistake of fact or law made in good faith except as
result of gross negligence or willful misconduct. The appointment of
Lender as Borrower's attorney, and each and every one of Lender's rights
and powers as set forth in this Section 4.3, being coupled with an
interest, are irrevocable so long as any Accounts in which Lender has a
Lien remain unpaid and until all of the Obligations have been fully repaid
and this Agreement shall have expired or been terminated.
5. CONDITIONS PRECEDENT
5.1 Closing: Conditions to Closing. The Loan shall be made on
the Closing Date hereunder at the offices of Bank's counsel, or at such
other place as may be designated by Lender ("Closing"). In addition to
those conditions set forth in Section 2 of this Agreement, prior to or
contemporaneously with the making of the Loan hereunder at Closing, Lender
shall be satisfied that all of the following conditions precedent shall
have been satisfied in a manner satisfactory to Lender:
(a) Satisfactory Due Diligence. Lender shall have
completed and shall be satisfied with the results of (i) due
diligence by Lender and its counsel with respect to Borrower; (ii)
Lender's examination of Borrower, including a review of prior years'
"management letters" by Borrower's independent certified public
accountants, to the extent such management letters exist; (iii) the
results of investigations, including any consultants' reports,
concerning Environmental Laws; (iv) all appraisals reasonably
required by Lender; and (v) any governmental approvals, waivers or
consents.
(b) No Adverse Change. There shall have been, as
determined by Lender in its reasonable discretion (i) no material
adverse change since August 8, 1999 in the operations (financial or
otherwise) of Borrower, and (ii) no material litigation or claims
with respect to this Agreement or otherwise which could have a
material adverse effect on the condition, financial or otherwise,
business, property or assets of Borrower or the results of the
operation of Borrower, the Collateral, Lender's Liens or ability to
enforce its rights and remedies hereunder or the ability of Borrower
to pay or perform the Obligations.
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(c) Senior Loan. Lender shall have received evidence
reasonably satisfactory to it that Lender has a first priority
perfected Lien on the Collateral (other than the Bank Senior
Collateral) and a second priority perfected Lien on the Bank Senior
Collateral, and all financing statements and other documents Lender
deems reasonably necessary to perfect such Lien shall have been
filed and recorded.
(d) Required Documents. Lender shall have received all
of the following documents, each in form and substance reasonably
satisfactory to Lender and its counsel, duly executed and dated the
Closing Date (or such other date prior thereto as shall be
reasonably satisfactory to Lender), where required:
(i) Agreement. Multiple copies of this Agreement
as requested by Lender.
(ii) Note. The Note.
(iii) Intercreditor Agreement. The Intercreditor
Agreement.
(iv) Assignments of Leases. Assignments to Lender,
for collateral purposes, of all leases of Borrower for any of
Borrower's places of business or leased locations where
Collateral is located, other than locations where the Bank
Senior Collateral is located.
(v) Landlord and Mortgagee Waivers. Landlord,
mortgagee and bailee waivers for any of Borrower's places of
business, equipment locations or Inventory storage or
processing locations, including without limitation, all leased
locations or where any Collateral is located or where payroll
and Accounts are processed, except for such premises which are
owned by Borrower and subject only to the Lien of Lender,
together with any necessary landlord consents to any subleases
or lease assignments to Borrower.
(vi) Certificate for Certified Resolutions,
Incumbency By-Laws. A secretary's certificate for the Borrower
with respect to resolutions of the directors of Borrower
authorizing this Agreement and all related transactions and
the incumbency of Borrower's officers.
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(vii) Legal Opinion. A legal opinion of Pedersen &
Houpt, counsel for Borrower, in form and substance reasonably
acceptable to Lender.
(viii) Organizational Documents. A copy of the
by-laws and the Certificate of Incorporation of the Borrower,
as amended to and including the Closing Date, certified by the
Secretary of State of the State of incorporation of Borrower.
(ix) Insurance. A certified list with copies of
insurance policies of Borrower; certificates of liability and
other third party insurance of Borrower, each showing Lender
as certificate holder and additional insured; certificates of
property and boiler and machinery insurance, each showing
Lender as certificate holder and lender loss payee, with a
form of lender's loss payable clause in form and in accordance
with the requirements of Section 9.2 of this Agreement to
Lender attached to each such certificate; a certificate of
business interruption insurance of Borrower, showing Lender as
certificate holder, lender's loss payee, and assignee of such
policy, with lender's loss payable clause and the collateral
assignment of such insurance policy, in form and substance
satisfactory to Lender.
(x) Good Standing Certificates. Good standing
certificates and qualifications to do business for Borrower in
the State of its incorporation and in each other State in
which the failure of Borrower to be qualified to transact
business as a corporation would have a material adverse impact
on Borrower.
(xi) Officer's Certificate. A certificate executed
by the President of Borrower in his capacity as such officer,
stating that (a) no Event of Default or Potential Default has
occurred and is continuing, (b) no material adverse change in
the condition or operations, financial or otherwise, or in the
business prospects of such Borrower's business, has occurred
since August 8, 1999, and (c) no litigation, investigation or
proceeding, or injunction, writ or restraining order of the
type described in Section 7.8 or Section 9.3 hereof is pending
or threatened.
(xii) Releases. Evidence of releases of any other
Liens on the Collateral other than Permitted Liens.
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<PAGE> 20
(xiii) Completion of Transactions. Satisfactory
evidence of completion of the Bank Financing.
(xiv) [Intentionally not used.]
(xv) Payoff Letters and Releases. Payoff letters,
releases and UCC-3 termination statements, executed by any
secured party designated by Lender, in a form appropriate for
recording and filing, as to any Lien recorded against the
Collateral and which is not permitted hereunder.
(xvi) Pro Formas. The Pro Formas.
(xvii) Other. Such other documents as Lender shall
reasonably request.
(e) Out-of-Pocket Fees and Costs. Lender shall have
received reimbursement for all Out-of-Pocket Fees and Costs which
then have been paid or incurred by Lender.
(f) Warranties and Representations. All of the
warranties and representations contained in this Agreement or any
other Loan Document shall be true and correct in all material
respects on and as of the Closing Date of the Loan as if made on
such date.
(g) No Default. As determined by Lender in its
reasonable discretion, no Potential Default shall have occurred and
be continuing or will result from the funding of the Loan, and no
Event of Default shall have occurred which has not been cured or
waived as set forth in this Agreement or will result from the
funding of the Loan.
(h) Other Requirements and Other Documents. Lender shall
have received, in form and substance reasonably satisfactory to
Lender, all certificates, orders, authorizations, consents,
affidavits, schedules, instruments, security agreements, financing
statements, and other documents which are provided for hereunder, or
which Lender may at any time reasonably request.
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6. WARRANTIES, REPRESENTATIONS, AND COVENANTS -- COLLATERAL
Borrower warrants, represents, covenants and agrees that:
6.1 Collateral Warranties Generally. Borrower has and will
continue to have good and marketable title to the portion of the
Collateral owned by it; the Collateral is free and clear of all Liens,
except (i) as may be consented to in writing by Lender, (ii) as held by
Lender, or (iii) Permitted Liens.
6.2 Account Warranties and Covenants. The Accounts are and
will, at all times pertinent hereto, be bona fide existing obligations
created by the sale and delivery of merchandise or the rendition of
services to account debtors in the ordinary course of business, free of
Liens (except those described in Section 6.1), and are unconditionally
owed to Borrower without defenses, disputes, offsets or counterclaims
which have been asserted, rights of return or cancellation, except for any
such defenses, offsets or counterclaims which may arise in the ordinary
course of Borrower's business.
6.3 Inventory and Equipment Warranties and Covenants.
(a) Borrower shall keep the Inventory and Equipment only
at the locations specified in Schedule 6.3 hereto or at (i)
locations consented to by Lender upon 30 days' prior written notice
to Lender, or (ii) new store locations permitted by Section 8.20 of
this Agreement, and in the case of (i) and (ii) above, execution by
Borrower or any other Persons of such financing statements,
landlord, mortgagee, bailee, warehouseman or other agreements
requested by Lender in its reasonable discretion.
(b) All Inventory is now and at all times hereafter
shall be of good and merchantable quality, free from defects that
make the Inventory unsalable in the ordinary course of Borrower's
business (as determined by Lender in its reasonable discretion).
(c) Borrower shall keep and maintain the Equipment in
good operating condition and repair (normal wear and tear excepted)
in a manner consistent with that maintained by prudent business
people in similar circumstances and, subject to the terms of this
Agreement, make necessary or appropriate replacements thereto.
Borrower shall not permit any items of Equipment to become a fixture
to real estate or an accession to other property and the Equipment
is now and shall at all times remain and be personal property to the
extent that under applicable law, such Equipment would be deemed to
be fixtures and/or otherwise part of the real
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property, except where Lender first receives a landlord's waiver
satisfactory to it, establishing the priority of Lender's Lien in
such Equipment. Borrower shall promptly deliver to Lender any and
all evidence of ownership, if any, of any of the Equipment
including, without limitation, certificates of title and
applications for title. Borrower shall maintain accurate, itemized
records describing the kind, type, quality, quantity and value of
the Equipment and shall furnish Lender with a current schedule
containing the foregoing information when requested, and Borrower
shall not sell, lease, or otherwise dispose of or transfer any of
the Equipment or any part thereof, except as otherwise permitted
under the terms of this Agreement. Borrower shall, as and when
requested by Lender, procure and supply to Lender, at Borrower's
expense, annual appraisals of the Equipment Collateral by appraisers
and in form reasonably satisfactory to Lender; provided, however,
that upon or after the occurrence of an Event of Default, Borrower's
obligations for such appraisals shall not be limited to annual
appraisals and Lender may request or procure additional appraisals
at Borrower's expense.
(d) The Inventory and Equipment is not now and shall not
at any time or times hereafter be stored with a bailee, warehouseman
or similar party without Lender's prior written consent, and, in
such event, Borrower will upon Lender's request, concurrent
therewith, cause any such bailee, warehouseman or similar party to
issue and deliver to Lender, in a form acceptable to Lender,
warehouse receipts in Lender's name evidencing the storage of the
Inventory or Equipment.
(e) Borrower shall keep correct and accurate records
itemizing and describing the kind, type, quality and quantity of the
Inventory, and its costs therefor, all of which records shall be
available at all times after demand to any of Lender's officers,
agents, and employees for inspection and copying.
(f) Lender shall have the right at all times during
Borrower's usual business hours, to inspect and examine the
Inventory and Equipment and to check and test the same as to
quality, quantity, value, and condition; provided that prior to an
Event of Default, Lender shall provide Borrower two (2) Business
Days' prior notice of any such inspection, and Lender shall use its
good faith efforts to minimize interference with Borrower's business
in conducting such inspections.
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7. GENERAL CONTINUING WARRANTIES AND REPRESENTATIONS
Borrower warrants, represents, covenants and agrees that:
7.1 Office. The chief executive office or principal place of
business of Borrower is at the address indicated in Section 16 hereof, and
Borrower covenants and agrees that it will not, during the term of this
Agreement, without at least thirty (30) days prior written notification to
Lender and the delivery to Lender, if requested, of an executed landlord's
or mortgagee's waiver and Code financing statements in form acceptable to
Lender, relocate either such chief executive office or principal place of
business.
7.2 Existence. Borrower is and shall at all times hereafter be
a corporation, duly organized and existing under the laws of the state of
its organization and qualified and licensed to do business, and is good
standing, in any state in which it conducts its business or in which the
failure to qualify would have a material adverse effect on the condition,
financial or otherwise, business, property or results of operations of
Borrower, which states include, as of the date hereof and as of the
Closing Date, the states listed on Schedule 7.2.
7.3 Authority. Borrower has the right and power and is duly
authorized to enter into this Agreement and the other Loan Documents.
7.4 Validity. This Agreement and all of the other Loan
Documents are the legal, valid and binding obligations of Borrower,
enforceable in accordance with their respective terms, except as limited
by applicable bankruptcy, reorganization, insolvency or similar laws
affecting the enforcement of creditor's rights generally.
7.5 No Breach. The execution by Borrower of this Agreement and
the other Loan Documents shall not constitute a breach of any provision
contained in Borrower's Certificate of Incorporation or by-laws, nor does
it constitute an event of default under any material agreement to which
Borrower is now or hereafter becomes a party, nor does it violate any
order, decree or judgment of any court or governmental commission or
agency.
7.6 Solvency. On the Closing Date both prior to and after the
transactions contemplated in connection with the Closing and the Bank
Financing, and at all times thereafter, Borrower's assets (determined at
present fair saleable value) are and shall be greater than Borrower's
liabilities (taking into account all liabilities of Borrower, whether
fixed or contingent, direct or indirect, disputed or undisputed and
whether or not required to be reflected on a balance sheet prepared in
accordance with Generally Accepted Accounting Principles other than
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<PAGE> 24
Borrower's liabilities under the Senior Discount Notes); Borrower is and
shall at all times hereafter be able to pay its debts as they mature, and
Borrower does not and will not have an unreasonably small amount of
capital. Borrower has and at all times hereafter will have sufficient
capital to carry on its business and transactions as now conducted and as
planned to be conducted in the future.
7.7 Compliance With Laws. Borrower is in compliance in all
material respects with all applicable laws, rules and regulations of any
governmental authority, including but not limited to the Securities Act of
1933, the Securities Exchange Act of 1934, the Fair Labor Standards Act,
Environmental Laws, laws relating to income, unemployment, payroll or
social security taxes and Benefit Plans (as defined in Section 7.15
hereof) as required by ERISA, except for those laws, rules and regulations
the violation of which would not have a material adverse effect on the
condition, financial or otherwise, business, property or results of
operations of Borrower.
7.8 Actions or Proceedings. Except as disclosed on Schedule
7.8, there are no actions or proceedings pending by or against Borrower
before any court, administrative agency or other governmental entity and
Borrower has no knowledge of any pending, threatened or imminent
litigation, governmental investigations or claims, complaints, actions or
prosecutions involving Borrower, or any breaches by Borrower or any other
Person of any agreement to which Borrower is a party, except for actions,
proceedings, litigation, investigations, claims, complaints, actions,
prosecutions and breaches that involve claims that do not exceed $100,000
individually or $200,000 in the aggregate.
7.9 Trademarks, Licenses, etc. Borrower owns or possesses
rights to use all licenses, patents, patent applications, copyrights,
service marks, trademarks and trade names required to continue to conduct
its business as heretofore or presently conducted. All such licenses,
patents, patent applications, copyright registrations, service marks,
trademarks and trade names are listed on Schedule 7.9. No such license or
trademark has been declared invalid, been limited by order of any
governmental authority or by agreement, or is the subject of any
infringement, interference or similar proceeding or challenge, except for
those licenses or trademarks which if challenged, limited or rendered
invalid, would not have a material adverse effect on the condition,
financial or otherwise, business, property or results of operations of
Borrower, the Collateral, Lender's Liens or Lender's ability to enforce
its rights and remedies hereunder.
7.10 Financial Statements. All financial statements relating
to Borrower which have been or may hereafter be delivered by Borrower to
Lender fairly present the financial condition of Borrower for the periods
related thereto and have been prepared in accordance with Generally
Accepted Accounting Principles,
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<PAGE> 25
subject to year-end adjustments and the absence of footnotes with respect
to interim financial statements, and there has been no material adverse
change in the financial condition of Borrower since the submission of such
financial information to Lender.
7.11 Pro Formas. Borrower has furnished to Lender, (i) profit
and loss statements and cash flow projections for each Reporting Period
after the Closing through December 21, 2003, and (ii) balance sheets,
profit and loss statements and cash flow projections reflected annually
for the next five (5) Fiscal Years, including the Fiscal Year 1999, all
certified by the Chief Executive Officer or a Vice President of Borrower
and (except as stated above), based on Generally Accepted Accounting
Principles, and on financial data as of the Closing Date, and which are
attached hereto as Schedule 7.11 (the "Pro Formas"). The Pro Formas are
complete and accurate, and fairly present Borrower's assets, liabilities
and financial condition, on the bases described above, as of the Closing
Date, but taking into account the transactions contemplated by this
Agreement and those contemplated as of the Closing Date under the other
Loan Documents. There are no omissions from the Pro Formas or other facts
and circumstances not reflected in the Pro Formas which are or may be
material.
7.12 Conduct of Business. Except as contemplated hereby, since
August 8, 1999, Borrower has not (i) incurred any debts, obligations, or
liabilities (absolute, accrued, or contingent and whether due or to become
due) except current liabilities incurred in the ordinary course of
business, none of which (individually or in the aggregate) materially and
adversely affects the business or properties of Borrower, except as set
forth in Schedule 7.12; (ii) paid any obligation or liability other than
current liabilities in the ordinary course of business, or discharged or
satisfied any Liens or encumbrances other than those securing current
liabilities, in each case in the ordinary course of business or as
required by the terms of this Agreement; (iii) declared or made any
payment to or distribution to its stockholders as such, or purchased or
redeemed any of its shares of capital stock, or obligated itself to do so;
(iv) mortgaged, pledged, or subjected to any Lien any of its assets,
tangible or intangible (other than Permitted Liens); (v) sold, transferred
or leased any of its assets except in the usual and ordinary course of
business; (vi) suffered any physical damage, destruction or loss (whether
or not covered by insurance) materially and adversely affecting its
properties or business; (vii) except as set forth in Schedule 7.12,
entered into any transaction other than in the usual and ordinary course
of business and other than as contemplated hereby; (viii) encountered any
strikes or work stoppages or labor union organizing activities; (ix)
issued or sold any shares of capital stock or other securities or granted
any options or similar rights with respect thereto other than pursuant to
Borrower's existing stock option plans, as such plans may be amended with
the approval of Borrower's stockholders; or (x) agreed to do any of the
foregoing other than pursuant hereto.
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To Borrower's knowledge after due inquiry, there has been no material
adverse change in the business, financial condition, operations or results
of operations of Borrower since August 8, 1999.
7.13 Environmental Laws. Except as disclosed on Schedule 7.13:
(i) Borrower and all properties owned or operated by Borrower comply with
all Environmental Laws; (ii) Borrower is not subject to any actual or
threatened judicial or administrative proceeding, investigation or inquiry
into the possibility of violation of any Environmental Laws; (iii) neither
the Borrower nor its properties is the subject of actual or, to the best
of Borrower's knowledge after due inquiry, threatened governmental
authority investigation or inquiry evaluating whether any remedial action
is needed to respond to a Release of any Hazardous Material or other
substance into the environment, and Borrower does not have knowledge or
notice of the presence on or under any property owned or operated by it,
or of the Release of, any Hazardous Material; (iv) there is no claim
pending or, to the best of Borrower's knowledge after due inquiry,
threatened against Borrower relating to damage, contribution, cost
recovery compensation, loss, or injury resulting from the Release of, or
exposure to, any Hazardous Material other than as listed on Schedule 7.13,
which Hazardous Material is stored in or under Borrower's properties in
the ordinary course of business in accordance with Environmental Laws; and
(v) Borrower has not filed, nor was required to file, any notice under any
law, regulation or rule indicating past or present generation,
transportation, treatment, storage or disposal of a Hazardous Material or
reporting a Release of a Hazardous Material into the environment and has
not engaged in such activity other than in accordance with Environmental
Laws where failure to file such notice or report will not have a material
adverse effect on Borrower. Borrower does not have any known contingent
liability in connection with any Release of any Hazardous Material into
the environment; and Borrower has not received notice, nor has reason to
expect notice, of any potential liability under any Environmental Law.
7.14 Permits and Licenses. Borrower has not been in breach or
default under, and is current and in good standing with respect to, all
governmental approvals, permits, certificates, licenses, inspections,
consents and franchises necessary to continue to conduct its business and
to own or lease and operate its respective properties as heretofore
conducted, owned, leased or operated, including, without limitation, any
and all governmental approvals, permits, certificates, licenses,
inspections, consents and franchises related to Environmental Laws.
7.15 ERISA. Neither Borrower nor any ERISA Affiliate (defined
below) of Borrower, nor any Benefit Plan (defined below) is in violation
in any material respect of any of the provisions of ERISA or any of the
qualification requirements of Section 401(a) of the IRC; no Prohibited
Transaction (defined
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<PAGE> 27
below) or Reportable Event (defined below) has occurred with respect to
any Benefit Plan, nor has any Benefit Plan been the subject of a waiver of
the minimum funding standard under Section 412 of the IRC; nor has any
Benefit Plan experienced an accumulated funding deficiency under Section
412 of the IRC; nor has any Lien been imposed upon Borrower or any ERISA
Affiliate of Borrower under Section 412(n) of the IRC; nor has any Benefit
Plan been amended in such a way that the security requirements of Section
401(a)(29) of the IRC apply; no notice of intent to terminate a Benefit
Plan has been distributed to affected parties or filed with the Pension
Benefit Guaranty Corporation, or any successor agency (the "PBGC"), under
Section 4041 of ERISA, nor has any Benefit Plan been terminated under
Section 4041(e) of ERISA; the PBGC has not instituted proceedings to
terminate, or appoint a trustee to administer, a Benefit Plan and no event
has occurred or condition exists which might constitute grounds under
Section 4042 of ERISA for the termination of, or the appointment of a
trustee to administer, any Benefit Plan; neither Borrower nor any ERISA
Affiliate of Borrower would be liable for any amount pursuant to Sections
4062, 4063 or 4064 of ERISA if all Benefit Plans terminated as of the most
recent valuation dates of such Benefit Plans; neither Borrower nor any
ERISA Affiliate of Borrower maintains any employee welfare benefit plan,
as defined in Section 3(l) of ERISA, which provides any benefits to an
employee or the employee's dependents with respect to claims incurred
after the employee separates from service other than is required by
applicable law; and neither Borrower nor any ERISA Affiliate of Borrower
has incurred or expects to incur any withdrawal liability to any
Multiemployer Plan (defined below), or contributes to a Multiemployer
Plan. As used herein, (a) "Benefit Plan" shall mean an employee benefit
plan of Borrower or an ERISA Affiliate, as defined in Section 3(3) of
ERISA; (b) "ERISA Affiliate" shall mean any Person which, together with
Borrower, would be treated as a single employer under Section 4001(a)(14)
of ERISA or IRC Section 414(b), (c), (m), (n) or (o), as applicable; (c)
"Multiemployer Plan" shall mean a plan described in Section 4001(a)(3) of
ERISA which covers employees of Borrower or any ERISA Affiliate; (d)
"Prohibited Transaction" shall mean any transaction described in Section
406 of ERISA which is not exempt by reason of Section 408 of ERISA, and
any transaction described in Section 4975(c) of the IRC which is not
exempt by reason of Sections 4975(c)(2) or (d) of the IRC, and which could
result in any excise tax, fine, penalty or other liability being imposed
on Borrower; and (e) "Reportable Event" shall mean a reportable event
described in Section 4043 of ERISA or the regulations thereunder, for
which the thirty (30) day notice requirement has not been waived.
7.16 Customer and Trade Relations. There exists no actual or
to the best of Borrower's knowledge after diligent inquiry, threatened
termination, cancellation or limitation of, or any modification or change
in, the business relationship between Borrower and any customer or any
group of customers whose
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purchases individually or in the aggregate are material to the business of
Borrower, or with any material supplier, and there exists no present
condition or state of facts or circumstances which would materially
adversely affect Borrower or prevent Borrower from conducting such
business after the consummation of the transactions contemplated by this
Agreement in substantially the same manner in which it has heretofore been
conducted by Borrower.
7.17 Other Names. The businesses conducted by Borrower have
not been conducted under any corporate, trade or fictitious name other
than those names listed on Schedule 7.17 hereto.
7.18 Tax Obligations. Borrower has filed complete and correct
federal, state and local tax reports and returns required to be filed by
them, prepared in accordance with any applicable laws or regulations, and
except for extensions duly obtained, have either duly paid all taxes,
duties and charges owed by it, or made adequate provision for the payment
thereof. There are no material unresolved questions or claims concerning
any tax liability of Borrower. None of the transactions contemplated
hereby or under any agreements referred to hereunder will result in any
material tax liability for Borrower or result in any other material
adverse tax consequence for Borrower.
7.19 Employee Controversies. There are no strikes, work
stoppages or controversies pending or, to the best of Borrower's knowledge
after diligent inquiry and investigation, threatened, between Borrower and
any of its employees, other than employee grievances arising in the
ordinary course of business which are not, in the aggregate, material to
the financial condition, results of operations or business of Borrower.
7.20 Investment Company Act. Borrower is not an "investment
company" nor a company "controlled" by an investment company within the
meaning of the Investment Company Act of 1940, as amended.
7.21 Full Disclosure. This Agreement, the financial statements
delivered in connection herewith, and the representations and warranties
of Borrower herein and in any other document delivered or to be delivered
by or on behalf of Borrower in connection therewith, do not and will not
contain any untrue statement of a material fact or omit a material fact
necessary to make the statements contained therein or herein, in light of
the circumstances under which they were made, not misleading. There is no
material fact which Borrower has not disclosed to Lender in writing which
materially and adversely affects or, so far as Borrower can foresee, would
materially and adversely affect the assets, business, prospects, profits,
or condition (financial or otherwise) of Borrower, the rights of Lender or
the ability of Borrower to perform this Agreement.
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7.22 Year 2000 Compliance. The Borrower and its Affiliates
have reviewed the areas within their business and operations which could
be adversely affected by, and have developed or are developing a program
to address on a timely basis, the "Year 2000 Problem" (that is, the risk
that computer applications used by the Borrower and its Affiliates may be
unable to recognize and perform properly date-sensitive functions
involving certain dates prior to and any date after December 31, 1999),
and have made related appropriate inquiry of material suppliers and
vendors. Based on such review and program, the Borrower believes that the
"Year 2000 Problem" will not have a material adverse effect on the
Borrower, its financial condition, business and operations, and its
ability to pay and perform the Obligations. From time to time, at the
request of Lender, the Borrower and its Affiliates shall provide to Lender
such updated information or documentation as is reasonably requested
regarding the status of its efforts to address the "Year 2000 Problem".
8. NEGATIVE COVENANTS
The Borrower will not, without Lender's prior written consent:
8.1 Sale, Transfer or Encumbrance of Assets. Sell, lease,
pledge, encumber, grant or permit a Lien on (other than Permitted Liens),
or otherwise dispose of or transfer, whether by sale or otherwise, any of
its assets, except for (a) sales of Inventory in the ordinary course of
business, (b) sales of items of Equipment which are obsolete, worn-out or
otherwise not useable in Borrower's businesses up to an aggregate of
$100,000 in sales proceeds in any Fiscal Year so long as (i) no Event of
Default has occurred and which has not been cured or waived as set forth
in this Agreement, or Potential Default exists, (ii) the proceeds thereof
are applied to the principal balance of the Obligations, (iii) Lender has
prior written notice thereof, (iv) such sales are on price and other
terms, and Borrower proposes to apply the proceeds of each such sale to
the Obligations in a manner, reasonably acceptable to Lender, and (v) the
transfer of assets in each such sale will not result in any impairment in
use or value of the Collateral remaining after each such sale, or (c) the
closure of Borrower's locations listed on Schedule 8.1 hereto or such
other locations consented to by Lender in writing, which consent shall not
be unreasonably withheld, provided that the Equipment located at any
closed facility is transferred to locations of Borrower listed on Schedule
6.3 hereto or locations permitted by Section 6.3(a) of this Agreement. The
parties agree that, with respect to those locations which constitute the
Alliance Senior Collateral, as defined in the Intercreditor Agreement, it
shall be reasonable for Lender to condition its consent to the closure of
any location pursuant to the preceding clause (c) upon either (A) a
proportional reduction (based upon the percentage which the closed
location constituted of the total number of locations comprising Alliance
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Senior Collateral, as defined in the Intercreditor Agreement) of the then
outstanding principal balance of the Loan or (B) the grant of a senior
security interest in the Collateral located at a substitute location
acceptable to Lender, with the effect that such substitute location
becomes Alliance Senior Collateral, within the meaning of the
Intercreditor Agreement. For purposes of this Agreement, "Permitted Liens"
shall mean any or all of the following: (i) Liens to Lender, (ii) Liens
securing the payment of taxes or other governmental charges not yet due
and payable, (iii) Liens securing claims or demands of materialmen,
mechanics, carriers, warehousemen, landlords and other like Persons
imposed without action of such parties, provided that the payment thereof
is not yet required; (iv) Liens incurred or deposits made in the ordinary
course of Borrower's business in connection with worker's compensation,
unemployment insurance, social security and other like laws, (v)
easements, rights of way, restrictions and other similar encumbrances
incurred in the ordinary course of business that, in the aggregate, are
not substantial in amount and that do not in any case materially detract
from the value of the property subject thereto or materially interfere
with the ordinary conduct of Borrower's business, (vi) Liens in connection
with purchase money security interests for the purchase of Equipment up to
an aggregate sum not to exceed One Hundred Thousand Dollars ($100,000) for
any purchase and One Hundred Thousand Dollars ($100,000) in the aggregate
for purchases during any Fiscal Year, provided the documents relating to
any such purchases must be in form and substance reasonably satisfactory
to Lender, (vii) Liens listed on Schedule 8.1, and (viii) Liens in favor
of Bank.
8.2 Name or Identity Change. Change Borrower's name, business
structure, or identity, or add any new fictitious name.
8.3 Guaranties. Guarantee or otherwise become in any way
liable with respect to the obligations of any third party except by
endorsement of instruments or items of payments for deposit to the general
account of Borrower or which are transmitted or turned over to Lender.
8.4 Change in Business. Enter into any business not related to
Borrower's present business or make any change in Borrower's financial
structure or in any of its business objectives, purposes, or operations
which would adversely affect the ability of Borrower to repay the
Obligations, the value of the Collateral or Lender's rights and remedies
hereunder, or create any Subsidiary or change the form of Borrower's
business entity from a corporation.
8.5 Loans and Investments. Except as set forth on Schedule
8.5, make any advance, loan, investment or material acquisition of assets
other than (i) advances made to employees in the ordinary course of
business for travel and business related expenses so long as the amount of
such advances do not exceed
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Fifty Thousand Dollars ($50,000) in the aggregate outstanding at any time;
(ii) investments in short-term direct obligations of the United States
government; (iii) investments in negotiable certificates of deposit issued
by a bank having capital and surplus of not less than $100,000,000,
payable to the order of Borrower or to bearer, and (iv) investments in
commercial paper rated A-1 or P-1; provided, that with respect to clauses
(ii), (iii) and (iv), Borrower shall assign all such investments to Lender
in form acceptable to Lender.
8.6 Indebtedness. Incur or make any commitments or agreements
to incur or suffer to exist any Indebtedness, other than (i) unsecured
trade debt and accrued expenses arising in the ordinary course of
Borrower's business, (ii) Indebtedness incurred with respect to
Maintenance Capital Expenditures in accordance with Section 8.20 hereof up
to the aggregate sum of $500,000 in any Fiscal Year, (iii) Indebtedness
incurred in connection with Liens arising under Section 8.1(v) of this
Agreement, (iv) Indebtedness incurred in connection with the Bank
Financing, or (v) obligations under the Note Indenture.
8.7 Prepayments. Prepay any existing Indebtedness owing to any
Person, except that (i) Borrower may prepay trade creditors in the
ordinary course of business, and (ii) Borrower may prepay Lender as
provided in this Agreement.
8.8 Affiliate Transactions. Transfer any cash or property to
any direct or indirect owner of or beneficial owner of any interest in
Borrower or other Affiliate or enter into any transaction, including
without limitation the purchase, lease, sale or exchange of property or
the rendering of any service to or by any direct or indirect owner of or
beneficial owner of any interest in Borrower or other Affiliate; provided
that Borrower may (i) sell Inventory to Affiliates, for cash for fair
value in the ordinary course of business pursuant to terms that are no
less favorable to Borrower than the terms upon which such transactions
would have been made had such transfers or transactions been made at arm's
length to or with a Person that is not an Affiliate, and notice thereof
has been given to Lender, (ii) pay compensation for services to employees
who are direct or indirect owners of or beneficial owners of any interest
in Borrower in the ordinary course of Borrower's business, (iii) pay
Pedersen & Houpt for legal services performed for Borrower, and (iv)
repurchase common stock of Borrower pursuant to that certain Stock
Transfer Restriction Agreement between Borrower and certain of its
shareholders ("Restriction Agreement") as permitted by Section 8.12
hereof.
8.9 Consolidations, Mergers. Merge or consolidate with any
other Person, or enter into any joint venture or become a partner in any
partnership.
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8.10 Liquidations. Adopt or undertake a plan of liquidation or
dissolution.
8.11 Suspension of Business. Suspend or terminate the
transaction of its business or abandon the Collateral.
8.12 Redemptions and Distributions. Except for the purchase or
redemption of capital stock of officers of Borrower who terminate their
employment with Borrower or whose employment is terminated by Borrower and
repurchases by Borrower of capital stock of Borrower pursuant to the
Restriction Agreement, up to the aggregate sum of $50,000 in any Fiscal
Year, purchase, redeem, retire or otherwise acquire any shares of its
capital stock or declare or pay, directly or indirectly, any cash or other
property, dividends or distributions to its shareholders.
8.13 Unpermitted Uses of Loans. Use any part of the proceeds
of the Loan for any purpose which constitutes a violation of, or is
inconsistent with, any applicable regulations of the Board of Governors of
the Federal Reserve System, including without limitation, the purchase or
carrying of (or refinancing of indebtedness originally incurred to
purchase or carry) margin securities.
8.14 ERISA. Adopt or agree to contribute to any tax qualified
Benefit Plan, except for a 401(k) Plan or as previously approved by Lender
in writing.
8.15 Consignment. Sell any goods on consignment, bill and
hold, or similar terms, except as permitted in writing by Lender.
8.16 Bank Accounts. Unless Borrower first notifies Lender and
obtains any necessary blocked account agreements from such financial
institution, establish any depository, operating or other account at any
financial institution other than those accounts listed on Schedule 8.16
hereof.
8.17 Compensation. Unless approved by Borrower's board of
directors, pay total compensation, including salaries, withdrawals, fees,
bonuses, commissions, drawing accounts, and other payments, whether
directly or indirectly, in money or otherwise, to the officers of Borrower
in any fiscal year, in amounts in excess of one hundred twenty percent
(120%) of the total compensation for the immediately preceding fiscal
year, paid or accrued by Borrower or its Affiliates to or for the benefit
of such Persons (individually).
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8.18 Lease Modifications. Modify or amend the material terms
of or terminate any lease of real property, except for the termination of
the leases for the stores listed on Schedule 8.1 hereto.
8.19 New Leases. Enter into any lease of real property without
obtaining an executed landlord's waiver and such lease contains a consent
to assignment thereof to Lender, both in form attached hereto as Exhibit
C.
8.20 Capital Expenditures. Make any Capital Expenditures
except for (i) Capital Expenditures to maintain or upgrade existing
business locations of Borrower, up to the aggregate sum of $1,000,000 in
any Fiscal Year ("Maintenance Capital Expenditures"), (ii) Capital
Expenditures either to maintain or upgrade existing business locations or
for the construction and equipping of new business locations, up to the
aggregate sum of seventy-five percent (75%) of Free Cash Flow in any
Fiscal Year, and (iii) Capital Expenditures either to maintain or upgrade
existing business locations or for the construction of new business
locations, up to the aggregate sum of ninety percent (90%) of any Excess
Issuance Proceeds, provided such sums are actually spent on Capital
Expenditures within twelve (12) months of their receipt by Borrower.
9. AFFIRMATIVE COVENANTS - GENERAL
So long as any Obligations are outstanding, Borrower covenants and agrees that:
9.1 Taxes. All assessments and taxes, whether real, personal
or otherwise, due or payable by, or imposed, levied or assessed against,
Borrower or any of its property have been paid, and shall hereafter be
paid in full, before delinquency, except those assessments and taxes the
validity of which is being contested in good faith by appropriate
proceedings, do not impair the priority of Lender's Liens on the
Collateral and as to which Borrower shall have set aside adequate reserves
(as determined by Lender in its reasonable discretion). Borrower will make
timely payment or deposit of all FICA payments and withholding taxes
required of it by applicable laws, and will, upon request, furnish Lender
with proof reasonably satisfactory to it that Borrower has made such
payments or deposits.
9.2 Insurance. Borrower, at its expense, shall keep and
maintain the Collateral insured under "all risk" or equivalent types of
policies against loss or damage by fire, theft, explosion, sprinklers and
all other hazards and risks ordinarily insured against by other owners who
use such properties in similar business for the full insurable value
thereof as necessary to prevent application of any co-insurance
provisions. Borrower shall also keep and maintain business interruption
insurance and public liability and property damage insurance relating to
Borrower's ownership and use of the Inventory, Equipment and its other
assets.
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All such policies of insurance shall be in such form, with such companies,
and in such amounts as may be reasonably satisfactory to Lender. Borrower
shall deliver to Lender certified copies of such policies of insurance and
evidence of the payments of all premiums therefor. All such policies of
insurance (except those of public liability and those insuring
improvements to real estate leased by Borrower (the "Real Property
Improvement Insurance") shall contain an endorsement in a form reasonably
satisfactory to Lender showing Lender as the lender loss payee on all
Collateral with a waiver of warranties, and absent the occurrence of a
Potential Default or an Event of Default, all proceeds payable thereunder
in excess of the aggregate sum of One Hundred Thousand Dollars ($100,000)
shall be payable to Lender and, upon receipt by Lender, shall be applied
on account of the Obligations owing to Lender. Absent the occurrence of a
Potential Default or Event of Default, Borrower may retain proceeds up to
the aggregate sum of One Hundred Thousand Dollars ($100,000) to be used by
Borrower for the repair or replacement of any damaged or destroyed
Collateral. Upon the occurrence of a Potential Default or Event of
Default, all insurance proceeds (other than the Real Property Improvement
Insurance proceeds) shall be paid to Lender. To secure the payment of the
Obligations, Borrower grants Lender a Lien in and to all such policies of
insurance (except those of public liability and the Real Property
Improvement Insurance) and the proceeds thereof, and except as provided
above, Borrower shall direct all insurers under such policies of insurance
to pay all proceeds thereof directly to Lender as its interest may appear.
After the occurrence of a Potential Default or Event of Default, Borrower
hereby irrevocably appoints Lender (and any of Lender's officers,
employees or agents designated by Lender) as Borrower's attorney-in-fact
for the purpose of making, settling and adjusting claims under such
policies of insurance, endorsing the name of Borrower on any check, draft,
instrument or other item of payment for the proceeds of such policies of
insurance and for making all determinations and decisions with respect to
such policies of insurance. Prior to an Event of Default or Potential
Default, Borrower shall not make, settle or adjust claims in excess of One
Hundred Thousand Dollars ($100,000) under such policies of insurance
without prior consultation with and written consent of Lender. Borrower
will not cancel any of such policies without Lender's prior written
consent. Borrower shall obtain by endorsement upon the policy or policies
of insurance issued to Borrower as required above, or by independent
instruments furnished to Lender, an agreement from each insurer that it
will give Lender at least thirty (30) days' written notice before any such
policy or policies of insurance shall be materially altered or canceled,
and that no act or default of Borrower, or any other Person, shall affect
the right of Lender to recover under such policy or policies of insurance
required above or to pay any premium in whole or in part relating thereto.
Lender, without waiving or releasing any Obligations or any Event of
Default may, but shall have no obligation to, obtain and maintain such
policies of insurance that Borrower is required to carry hereunder and pay
such premiums and take any other action with respect to such
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policies which Lender deems advisable. All sums disbursed by Lender in
accordance with this Section 9.2, as well as reasonable attorneys' fees,
court costs, expenses and other charges relating thereof, shall constitute
Out-of-Pocket Fees and Costs and shall be payable on demand.
9.3 Litigation. Borrower shall immediately notify Lender in
writing of any suit in law or equity or administrative proceeding
involving money or property, and seeking damages in excess of $100,000
individually or $200,000 in the aggregate.
9.4 Books and Records. Borrower at all times hereafter shall
keep proper books of record and account in which full and true entries
will be made of all dealings or transactions with respect to or in
relation to the business and affairs of Borrower, and shall maintain a
standard and modern system of accounting, in accordance with Generally
Accepted Accounting Practices with ledger and account cards and/or
computer tapes, discs, printouts, and records pertaining to the Collateral
which contain information as may from time to time be reasonably requested
by Lender. Borrower agrees to permit Lender and any of its employees,
officers or agents, at all times during Borrower's usual business hours,
or the usual business hours of third Persons having control thereof, to
have access to and examine all of Borrower's Books relating to the
Collateral, the Obligations, Borrower's financial condition and the
results of Borrower's operations, and, in connection therewith, permit
Lender or any of its agents, employees or officers to copy and make
extracts therefrom; provided that prior to an Event of Default, Lender
shall provide Borrower two (2) Business Days' prior notice of such
examinations and Lender shall use its good faith efforts to minimize
interference with Borrower's business.
9.5 Compliance with Laws. Borrower shall comply in all
material respects with all Federal, State, local and foreign laws, rules
and regulations, including, but not limited to the Securities Act of 1933,
the Securities Exchange Act of 1934, the Fair Labor Standards Act,
Environmental Laws, laws relating to income, unemployment, payroll or
social security taxes and pension funds and retirement benefit programs as
required by ERISA.
9.6 Expense Reimbursements. Borrower shall within five (5)
Business Days of demand by Lender, reimburse Lender for all sums expended
by Lender which constitute Out-of-Pocket Fees and Costs if Borrower fails
to pay same. Absent the occurrence of an Event of Default, Lender shall
provide Borrower with copies of invoices for such Out-of-Pocket Fees and
Costs. All of such amounts expended for Out-of-Pocket Fees and Costs shall
be part of the Obligations subject to interest at the Rate or Default
Rate, as applicable.
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9.7 ERISA Reportable Events. Borrower shall furnish to Lender:
(a) as soon as possible, but in no event later than thirty (30) days after
it knows or has reason to know that any Reportable Event with respect to
any Benefit Plan has occurred, a statement of the Chief Executive Officer
of Borrower setting forth the details concerning such Reportable Event and
the action which it proposes to take with respect thereto, together with a
copy of the notice of such Reportable Event given to the PBGC, if a copy
of such notice is available to Borrower; (b) upon request by Lender,
promptly after the filing thereof with the United States Internal Revenue
Service or the PBGC, copies of each annual report with respect to each
Benefit Plan; (c) promptly after receipt thereof, a copy of any notice of
any potential material liability, adverse determination letter, ruling or
opinion it may receive from the PBGC or the Internal Revenue Service with
respect to any Benefit Plan; (d) when the same is made available to
participants in a Benefit Plan, all notices of a significant reduction in
the rate of benefit accrual or plan termination to the participants by the
administrator of such Benefit Plan; and (e) promptly after receipt
thereof, any notice from any Multiemployer Plan to which it or any of its
ERISA Affiliates contributes which quantifies any actual or potential
withdrawal liability which will or may be imposed upon the withdrawal of
Borrower or any ERISA Affiliate of Borrower from such Multiemployer Plan.
9.8 Intellectual Property. Upon Borrower's acquisition of any
patents, trademarks, licenses or other intellectual property rights,
Borrower shall notify Lender of same in writing and take all steps that
Lender reasonably deems necessary to create a first priority lien and
security interest in such assets in favor of Lender.
10. AFFIRMATIVE COVENANTS - REPORTING
Borrower shall furnish or cause to be furnished to Lender the following:
10.1 (a) Periodic Financial Statements. As soon as
practicable and in any event within thirty (30) days following the
end of each Reporting Period (i) a statement of income and a
statement of cash flow of Borrower for each such Reporting Period
and for the period from the beginning of the then current fiscal
year of Borrower to the end of such Reporting Period, (ii) a balance
sheet of Borrower as of the end of such Reporting Period, and (iii)
with respect to such statement of income and balance sheet, in
comparative form, figures for the corresponding Reporting Periods in
the preceding Fiscal Year of Borrower, all in reasonable detail and
certified by the Chief Executive Officer of Borrower as fairly
presenting the financial condition of Borrower in accordance with
Generally Accepted Accounting Principles, subject to changes
resulting from normal year-end adjustments and the absence of
footnotes.
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(b) Yearly Financial Statements. As soon as practicable
and in any event within ninety (90) days after the end of each
Fiscal Year of Borrower, a statement of income of Borrower for such
Fiscal Year, and a balance sheet of Borrower as of the end of such
Fiscal Year, and a statement of cash flow of Borrower for such
Fiscal Year, all setting forth in comparative form, corresponding
figures for the period covered by the preceding annual audit and as
of the end of the preceding Fiscal Year of Borrower, all in
reasonable detail and in scope in accordance with audits performed
for Borrower in prior years and examined and certified by
independent certified public accountants of recognized national
standing selected by Borrower and reasonably satisfactory to Lender,
whose opinion shall be unqualified and shall be in scope in
accordance with audits performed for Borrower in prior years, in
form and substance satisfactory to Lender.
(c) Projections. As soon as practicable and in any event
not later than thirty (30) days prior to the beginning of each
Fiscal Year of Borrower hereafter, preliminary drafts of projected
balance sheets, statements of income and cash flow for Borrower, for
each month during such Fiscal Year, which shall include the
assumptions used therein, together with final versions of same
within sixty (60) days after the beginning of each Fiscal Year
containing appropriate supporting details as requested by Lender,
along with consolidated calculations with respect to compliance with
covenants in the same manner as required in connection with the
delivery of financial statements under (a) and (b) above.
(d) Management Letters, Tax Distributions. As soon as
practicable and in any event within ten (10) days of delivery to
Borrower a copy of any letter issued by Borrower's independent
public accountants or other management consultants, if any are
issued, with respect to Borrower's financial or accounting systems
or controls, including all so-called "management letters".
(e) Yearly Reports. In conjunction with the delivery of
the annual presentation of projections or budgets referred to in
subsection (c) above, a letter signed by the Chief Executive Officer
of Borrower, describing, comparing and analyzing, in reasonable
detail, all changes and developments between the anticipated
financial results included in such projections or budgets for the
prior Fiscal Year and the historical financial statements of
Borrower for such prior Fiscal Year.
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(f) SEC Reports. Within five (5) days after the same are
sent, copies of all financial statements and reports that Borrower
sends to the Securities and Exchange Commission or any holders of
other Indebtedness.
(g) Other Information. With reasonable promptness, such
other business or financial data, reports, appraisals and
projections as Lender may reasonably request.
All financial statements delivered to Lender pursuant to the
requirements of this subsection (except where otherwise expressly
indicated) shall be prepared in accordance with Generally Accepted
Accounting Principles as provided in this Agreement. Together with each
delivery of financial statements required by subsections (a) and (b)
above, Borrower shall deliver to Lender an officer's certificate in the
form of Exhibit B hereto stating that (i) there exists no Event of Default
or Potential Default, or if an Event of Default or Potential Default
exists, specifying the nature thereof, the period of existence thereof and
what action Borrower proposes to take with respect thereto, (ii) no
material adverse change in the condition, financial or otherwise,
business, property, including without limitation, with respect to
Environmental Laws, or results of operations of Borrower has occurred
since the previous certificate was sent to Lender by Borrower or, if any
such change has occurred, specifying the nature thereof and what action
Borrower has taken or proposes to take with respect thereto, (iii) all
insurance premiums then due have been paid before delinquent, (iv) all
taxes then due have been paid or, for those taxes which have not been paid
before delinquent, a statement of the taxes not paid and a description of
Borrower's rationale therefor, (v) except as previously reported to
Lender, no litigation, investigation or proceeding, or injunction, writ or
restraining order involving claims in excess of $100,000 individually or
$200,000 in the aggregate is pending or to the best of Borrower's
knowledge after diligent inquiry, threatened, and (vi) stating whether or
not Borrower is in compliance with the representations, warranties and
covenants in this Agreement, including a calculation of financial
covenants in the schedule attached to such officer's certificate in form
satisfactory to Lender. Lender shall exercise reasonable efforts to keep
such information, and all information acquired as a result of any
inspection conducted in accordance with this Agreement, confidential,
provided that Lender may communicate such information (A) to any other
Person in accordance with the customary practices of commercial lenders
relating to routine trade inquiries, (B) to any regulatory authority, or
pursuant to any order, judgement or decree of any court having
jurisdiction over Lender, or (C) to any other Person in connection with
the exercise of Lender's rights hereunder.
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10.2 Accounting Information. Borrower authorizes Lender to
discuss the financial condition of Borrower with Borrower's independent
public accountants and agrees that such discussion or communication shall
be without liability to either Lender or Borrower's independent public
accountants. Prior to the occurrence of a Potential Default or Event of
Default, Lender shall use its best efforts to notify Borrower of Lender's
discussions with Borrower's accountants. Borrower shall deliver a letter
addressed to such accountants authorizing them to comply with the
provisions of this subsection, and authorizing Lender to rely on financial
statements of Borrower issued by such accountants, which letter shall be
acknowledged and consented to in writing by such accountants, and be in
form and substance satisfactory to Lender.
10.3 Other Information and Changes. Borrower shall promptly
supply Lender with such other information concerning its affairs as Lender
may request from time to time hereafter, and shall promptly notify Lender
of any material adverse change in Borrower's financial condition and of
any condition or event which constitutes a breach of or an Event of
Default under this Agreement.
11. AFFIRMATIVE COVENANTS - FINANCIAL
11.1 Tangible Net Worth. Borrower shall maintain its Tangible
Net Worth in an amount of not less than the amount set forth opposite each
period set forth below, measured quarterly, as of the last day of each
Fiscal Quarter.
MINIMUM TANGIBLE NET WORTH
<TABLE>
<CAPTION>
----------------------------------------------------------------
Period Minimum Level
----------------------------------------------------------------
<S> <C>
Closing Date to and including $90,000,000
December 26, 1999
----------------------------------------------------------------
December 27, 1999 to and $85,000,000
including June 11, 2000
----------------------------------------------------------------
June 12, 2000 and thereafter $80,000,000
----------------------------------------------------------------
</TABLE>
11.2 Senior Interest Coverage Ratio. Borrower shall maintain a
Senior Interest Coverage Ratio, calculated and tested as of the last day
of each respective Fiscal Quarter, cumulatively for the rolling thirteen
(13) Reporting Periods ending on the last day of each such Fiscal Quarter
of not less 3.00 : 1.00; provided that for purposes of determining the
ratio described above for the Fiscal Quarters ending December 26, 1999,
March 19, 2000, and June 11, 2000, EBITDA and Funded Debt Interest Expense
shall be deemed to equal EBITDA and Funded Debt Interest Expense for such
Fiscal Quarter (and, in the case of the later two such
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<PAGE> 40
determinations, each previous Fiscal Quarter commencing with the Closing),
multiplied by 13/3rds, 13/3rds, and 13/3rds respectively.
11.3 Minimum Net Book Value of Laundry Equipment. Borrower
shall own at all times, laundry Equipment having a net book value of not
less than $30,000,000.
12. EVENTS OF DEFAULT
Any one or more of the following shall constitute an Event of Default by
Borrower under this Agreement:
12.1 Payment. If Borrower fails to pay, when due and payable
or when declared due and payable, all or any portion of the Obligations
representing principal or interest owing to Lender, or Borrower fails to
pay, when due and payable or when declared due and payable, any other
Obligations and such failure is not cured within five (5) days of such
breach.
12.2 Breach of Covenants. If Borrower fails or neglects to
perform, keep or observe any term, provision, condition, covenant, or
agreement contained in this Agreement, any other Loan Document, or any
other present or future agreement between Borrower and Lender and/or
evidencing and/or securing the Obligations, except the failure to comply
with Sections 8.2, 8.18, 9.1, 9.3, 9.4, 9.5, 9.7 and 9.8 of this Agreement
shall not be an Event of Default unless such failure continues for a
period of thirty (30) days following notice by Lender to Borrower.
12.3 Breach of Representation. If any representation,
warranty, statement, report, or certificate made or delivered by Borrower,
or any of its officers, employees or agents on behalf of Borrower, to
Lender is false in any material respect when made or deemed to be made.
12.4 Material Adverse Change. If in Lender's reasonable
discretion (i) there is a material impairment of the prospect of repayment
of all or any portion of the Obligations, (ii) there is any impairment of
the priority of Lender's Liens on all or a portion of the Collateral
(including without limitation a Lien, levy or assessment in any amount of
the type referred to in Section 12.9 hereof), or (iii) a material adverse
change has occurred in the condition (financial or otherwise), business,
property or results of operations of Borrower.
12.5 Attachment or Levy. If all or any of Borrower's assets in
excess of Fifty Thousand Dollars ($50,000) in the aggregate are attached,
seized, subjected to a writ or distress warrant, or are levied upon, or
come into the
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<PAGE> 41
possession of any trustee, receiver, controller, custodian or assignee for
the benefit of creditors (or any other Person with similar powers or
duties) unless, with respect to any such assets, such attachment, seizure,
writ, warrant or levy shall be dismissed, released or stayed within thirty
(30) days of issuance thereof.
12.6 Voluntary Insolvency. If an Insolvency Proceeding is
commenced by Borrower.
12.7 Involuntary Insolvency. If an Insolvency Proceeding is
commenced against Borrower except that if Borrower is contesting such
Insolvency Proceeding in good faith, such Insolvency Proceeding shall not
constitute an Event of Default unless such Insolvency Proceeding is not
dismissed within sixty (60) days of the commencement of such Insolvency
Proceedings.
12.8 Injunction. If Borrower is enjoined, restrained or in any
way prevented by court order from continuing to conduct all or any
material part of its business affairs and such order continues for more
than thirty (30) days.
12.9 Governmental Lien. Except as permitted by Section 9.1, if
a notice of Lien, levy or assessment in excess of Ten Thousand Dollars
($10,000) in the aggregate, is filed of record with respect to any or all
of Borrower's assets by the United States Government, or any department,
agency or instrumentality thereof, or by any state, county, municipal or
other governmental agency, or if any taxes or debts owing at any time
hereafter to any one or more of such entities in excess of Ten Thousand
Dollars ($10,000) in the aggregate, becomes a Lien, whether choate or
otherwise, upon any or all of Borrower's assets and the same is not paid
on or before the due date thereof.
12.10 Judgment. If a judgment or other claim in excess of
Fifty Thousand Dollars ($50,000) individually, or One Hundred Thousand
Dollars ($100,000) in the aggregate, becomes a Lien upon any or all of
Borrower's assets, or any individual judgment or other claim in excess of
One Hundred Thousand Dollars ($100,000) is entered against Borrower and is
not stayed, vacated or discharged within thirty (30) days of the entry
thereof.
12.11 Other Indebtedness. If there is a default in any
agreement with respect to Indebtedness in excess of One Hundred Thousand
Dollars ($100,000) to which Borrower is a party with another Person
resulting in a right by such Person to accelerate the maturity of
Borrower's Indebtedness or to exercise any other right or remedy.
12.12 Prepayment. If Borrower makes any prepayment on account
of Indebtedness for borrowed money, except for prepayments to Lender.
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<PAGE> 42
12.13 ERISA Reportable Event. If (a) any Reportable Event
which Lender determines constitutes grounds for the termination of any
Benefit Plan by the PBGC or for the appointment by the appropriate United
States District Court of a trustee to administer any such Plan, shall have
occurred and be continuing thirty (30) days after written notice of such
determination shall have been given to Borrower by Lender, or any such
Benefit Plan shall be terminated within the meaning of Title IV of ERISA,
or a trustee shall be appointed by the appropriate United States District
Court to administer any such Plan, or the PBGC shall institute proceedings
to terminate any Benefit Plan; and (b) in case of any event described
above in this Section 12.13, the aggregate amount of Borrower's liability
under Sections 4062, 4063 or 4064 of ERISA shall exceed one percent
(1.00%) of its Net Worth, or (c) there shall be a withdrawal from any
Multiemployer Plan as a result of which the aggregate amount of Borrower's
liability in relation thereto shall exceed one percent (1%) of its Net
Worth.
12.14 Change of Control. If any "person" or "group" (as such
terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act")), shall become, or obtain rights
(whether by means of warrants, options or otherwise) to become the
"beneficial owner" (as defined in Rules 13(d)-3 and 13(d)-5 under the
Exchange Act, directly or indirectly, of more than 30% of the outstanding
common stock of Borrower or the occurrence of a Change of Control (as
defined in the Note Indenture).
12.15 Default Under the Bank Financing. If an Event of Default
or (as defined therein) occurs under the Bank Loan Agreement.
Notwithstanding anything contained in this Section 12 or
contained in any other provision of this Agreement or the other Loan
Documents to the contrary, in the event of the institution of Insolvency
Proceedings against Borrower, Lender shall not be obligated to make
advances to Borrower during the sixty (60) day grace period under Section
12.7
13. RIGHTS AND REMEDIES
13.1 Rights and Remedies Generally. Upon the occurrence of an
Event of Default by Borrower under this Agreement and notice thereof by
Lender to Borrower, except as hereinafter provided, Lender may, at its
sole election, without notice of its election and without demand, do any
one or more of the following, all of which are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this
Agreement, by the Note, or otherwise, immediately due and payable;
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<PAGE> 43
provided, that all Obligations shall be immediately due and payable
without notice or demand upon an Event of Default under Section 12.6
or 12.7;
(b) Without notice to or demand upon Borrower, make such
payments and do such acts as Lender considers necessary or
reasonable to protect its Lien in the Collateral. Borrower agrees to
assemble the Collateral if Lender so requires, and to make the
Collateral available to Lender at such location as Lender may
designate. Borrower authorizes Lender to enter the premises where
the Collateral is located subject to the terms of the related real
estate leases, take and maintain possession of the Collateral, or
any part of it, and to pay, purchase, contest or compromise any Lien
which in the opinion of Lender appears to be prior or superior to
its Lien (exclusive of the Lien of Bank on the Bank Senior
Collateral) and to pay all expenses incurred in connection
therewith;
(c) Ship, reclaim, recover, store, finish, maintain,
repair, prepare for sale, advertise for sale and sell (in the manner
provided for herein) the Collateral;
(d) Sell some or all of the Collateral at either public
or private sales, or both, by way of one or more contracts or
transactions, for cash or on terms, in such manner and at such
places (including Borrower's premises subject to the terms of the
related real estate leases) as is commercially reasonable in the
opinion of Lender. It is not necessary that the Collateral be
present at any such sale.
Lender is hereby granted a license or other right to use,
without charge, Borrower's labels, patents, copyrights, rights of use of
any name, logo, trade secrets, trade names, trademarks, customer lists and
advertising matter, or any property of a similar nature, as it pertains to
the Collateral, in completing production of, advertising for sale and
selling any Collateral and Borrower's rights under all licenses and all
franchise agreements shall inure to Lender's benefit.
13.2 Notice of Disposition. Lender shall give notice of the
disposition of the Collateral as follows:
(a) Lender shall give Borrower and each holder of a Lien
in the Collateral who has filed with Lender a written request for
notice, a notice in writing of the time and place of public sale,
or, if the sale is a private sale or some other disposition other
than a public sale is to be made of the Collateral, the time on or
after which the private sale or other disposition is to be made;
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<PAGE> 44
(b) The notice to Borrower shall be personally delivered
or mailed, postage prepaid, as provided in Section 16, at least ten
(10) calendar days before the date fixed for the sale, or at least
ten (10) calendar days before the date on or after which the private
sale or other disposition is to be made, unless the Collateral is
perishable or threatens to decline speedily in value. Notice to
Persons other than Borrower claiming an interest in the Collateral
shall be sent to such addresses as they have furnished to Lender;
and
(c) If the sale is to be a public sale, Lender shall
also give notice of the time and place by publishing a notice one
time at least ten (10) calendar days before the date of the sale in
a newspaper of general circulation in the county in which the sale
is to be held. Lender may bid in any way permitted by applicable law
and purchase at any public sale.
13.3 Expenses of Enforcement. Borrower shall pay all
Out-of-Pocket Fees and Costs incurred in connection with Lender's
enforcement and exercise of any of its rights and remedies as herein
provided, whether or not suit is commenced by Lender. Any deficiency which
exists after disposition of the Collateral as provided above will be paid
immediately by Borrower. Any excess will be returned, without interest to
Borrower or such other Person as may be entitled thereto by Lender.
13.4 Rights Cumulative. Lender's rights and remedies under
this Agreement, all other Loan Documents and all other agreements with
Borrower shall be cumulative. Lender shall have all other rights and
remedies not inconsistent herewith as provided under the Code, by law, or
in equity. No exercise by Lender of one right or remedy shall be deemed an
election, and no waiver by Lender of any default on Borrower's part shall
be deemed a continuing waiver. No delay by Lender shall constitute a
waiver, election or acquiescence by it.
14. TAXES AND EXPENSES REGARDING THE COLLATERAL
14.1 If Borrower fails to pay promptly when due to any other
Person, monies which Borrower is required to pay by reason of any
provision in this Agreement in accordance with the provisions of this
Agreement (including without limitation for any tax, expense or with
respect to any Lien), or to promptly contest same by proper proceedings
diligently pursued and establish adequate reserves therefor as required by
the terms of this Agreement, Lender may, but need not, pay the same after
any notice required hereunder and charge Borrower's account therefor, and
Borrower shall promptly reimburse Lender. All such sums shall become
additional Obligations owing to Lender, shall bear interest at the
applicable interest rate hereunder and shall be secured by the Collateral.
Any
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<PAGE> 45
payments made by Lender shall not constitute: (i) an agreement by Lender
to make similar payments in the future, or (ii) a waiver by Lender of any
Event of Default under this Agreement. In connection with any payment made
by Lender pursuant to this Section 14.1, Lender need not inquire as to, or
contest the validity of, any such expense, tax or Lien and the receipt of
the usual official notice for the payment thereof shall be conclusive
evidence that the same was validly due and owing, and the receipt of any
other notice with respect to all other such monies due hereunder shall be
prima facia evidence that the same was validly due and owing.
15. CERTAIN WAIVERS
15.1 Application of Payments. Except as expressly provided in
this Agreement, Borrower waives the right to direct the application of any
and all payments at any time or times hereafter received by Lender on
account of any Obligations owed by Borrower, including without limitation
amounts received which are the proceeds of any insurance policy, and
Borrower agrees that Lender shall have the continuing exclusive right to
apply and reapply such payments in any manner as Lender may deem
advisable, notwithstanding any entry by Lender upon its books.
15.2 Demand, etc. Except as specifically provided herein,
Borrower waives demand, protest, notice of protest, notice of default or
dishonor, notice of payment and nonpayment, notice of any default, notice
of nonpayment at maturity, notice of intent to accelerate, and notice of
acceleration, notice prior to Lender's taking possession or control of any
of the Collateral, or any bond or security which might be required by any
court prior to allowing Lender to exercise any of Lender's remedies,
including the issuance of an immediate writ of possession, the release,
compromise, settlement, extension or renewal of any or all commercial
paper, accounts, documents, instruments, chattel paper, and guarantees at
any time held by Lender on which Borrower may in any way be liable, the
benefit of all valuation, appraisement and exemption laws, and any right
to require a marshalling of assets by Lender or to require that Lender
first resort to some or any portion of any Collateral before sale,
foreclosure or realization on any other portion thereof.
15.3 Risk of Loss Regarding Collateral. Beyond the safe
custody of the Collateral in its possession, Lender shall not in any way
or manner be liable or responsible for: (a) the Collateral in its
possession (or in the possession or control of any agent or bailee); (b)
any loss or damage thereto occurring or arising in any manner or fashion
from any cause, including without limitation, lost profits, incidental or
consequential damages; or (c) any diminution in the value thereof. Except
where occasioned by gross negligence or willful misconduct of Lender, all
risk of loss, damage or destruction of the Collateral shall be borne by
Borrower.
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<PAGE> 46
15.4 Confidentiality. Borrower authorizes its accounting firm
and/or service bureau to provide Lender with such information requested by
Lender pursuant to or in accordance with Section 10.2 of this Agreement,
and authorizes Lender to contact directly any such accounting firm and/or
service bureau in order to obtain such information. Prior to the
occurrence of a Potential Default or Event of Default, Lender shall notify
Borrower prior to contacting such accounting firm or service bureau, but
in no event shall Lender be liable to Borrower for failure to provide such
notice.
16. NOTICES
Except as otherwise expressly provided herein, any notice required or desired to
be served, given or delivered hereunder shall be in the form and manner
specified below, and shall be addressed to the party to be notified as follows:
If to Lender at: Alliance Laundry Systems LLC
Shepard Street
P.O. Box 990
Ripon, Wisconsin 54971-0990
Attn: Bruce Rounds
Facsimile No. 920/748-1629
With a copy to: Gammage & Burnham, PLC
Two North Central Avenue
Eighteenth Floor
Phoenix, Arizona 85004
Attn: Kevin R. Merritt, Esq.
Facsimile No. 602/256-4475
If to Borrower at: SpinCycle, Inc.
15990 N. Greenway/Hayden Loop, Suite 400
Scottsdale, AZ 85260
Attn: Peter Ax
Facsimile No. 602/707-9967
With copies to: Pedersen & Houpt
161 N. Clark Street, Suite 3100
Chicago, Illinois 60601
Attn: Amy Yates, Esq.
Facsimile No. 312/641-6895
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<PAGE> 47
or to such other address as each party designates to the other by notice
in the manner herein prescribed. Notice shall be deemed given hereunder if
(i) delivered personally or otherwise actually received, (ii) sent by
overnight delivery service, (iii) mailed by first-class United States
mail, postage prepaid, registered or certified, with return receipt
requested, or (iv) sent via telecopy machine with a duplicate signed copy
sent on the same day as provided in clause (ii) above. Notice mailed as
provided in clause (iii) above shall be effective upon the expiration of
three (3) Business Days after its deposit in the United States mail, and
notice telecopied as provided in clause (iv) above shall be effective upon
receipt of such telecopy if the duplicate signed copy is sent under clause
(ii) above. Notice given in any other manner described in this section
shall be effective upon receipt by the addressee thereof; provided,
however, that if any notice is tendered to an addressee and delivery
thereof is refused by such addressee, such notice shall be effective upon
such tender unless expressly set forth in such notice.
17. CHOICE OF LAW AND VENUE
This Agreement shall be deemed to have been made in the State of Illinois and
the validity of this Agreement, its construction, interpretation and
enforcement, and the rights of parties hereunder and concerning the Collateral,
shall be determined under, governed by and construed in accordance with the laws
of the State of Illinois. The parties agree that at Lender's election, all
actions or proceedings arising in connection with this Agreement shall be tried
and litigated only in the state and federal courts located in the County of
Cook, State of Illinois. Borrower waives any right it may have to assert the
doctrine of forum non conveniens or to object to such venue and hereby consents
to any court ordered relief. Borrower consents that all service of process upon
it be made by registered mail or messenger directed to it at the address set
forth in Section 16 above and that service so made shall be deemed to be
completed upon the earlier of actual receipt or three (3) Business Days after
the same shall have been posted to Borrower's address. Nothing contained in this
Section 17 shall affect the right of Lender to serve legal process in any other
manner permitted by law or affect the right of Lender to bring any action or
proceeding against Borrower or its property in the courts of any other
jurisdiction.
18. INDEMNITY
Borrower hereby shall indemnify, hold harmless and defend Lender and its
directors, officers, agents, counsel and employees ("Indemnified Persons") from
and against all losses, claims, damages, costs, expenses and liabilities
("Losses"), whether such Losses arise or notice thereof is received by Lender
during the Initial Term or any renewal term or after termination of this
Agreement, incurred by any of them arising principally out of or relating to
this Agreement or under any other transaction contemplated hereby except for any
such Losses caused by the gross negligence or willful misconduct of such
Indemnified Persons, and shall reimburse Lender and each other Indemnified
Person for
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<PAGE> 48
any reasonable expenses including in connection with the investigation of,
preparation for or defense of any actual or threatened claim, action or
proceeding arising therefrom (including any such costs of responding to
discovery requests or subpoenas), regardless of whether any Indemnified Person
is a party thereto. Each Indemnified Person may select its own counsel with
respect to any Losses, in addition to Borrower's counsel, and shall be
indemnified therefor hereunder.
19. GENERAL PROVISIONS
19.1 Acceptance. This Agreement shall be binding and deemed
effective when executed by Borrower and accepted and executed by Lender.
19.2 Binding Agreement. This Agreement shall bind and inure to
the benefit of the respective successors and assigns of each of the
parties, provided, however, that Borrower may not assign this Agreement or
any rights hereunder without Lender's prior written consent and any
prohibited assignment shall be absolutely void. No consent to an
assignment by Lender shall release Borrower from its Obligations to
Lender. Lender may not assign this Agreement and its rights and duties
hereunder, without Borrower's written consent, such consent not to be
unreasonably withheld, conditioned or delayed, and Borrower shall execute
and deliver such documents in connection with such assignment as Lender or
such assignee may reasonably request. Lender may not transfer, negotiate
or grant participations in all or any part of, or any interest in its
rights and benefits hereunder without Borrower's written consent, such
consent not to be unreasonably withheld, conditioned or delayed. In
connection therewith, Lender may disclose all documents and information
which Lender now or hereafter may have relating to Borrower or Borrower's
business, but shall use all reasonable efforts to ensure that the
recipient of such information maintains the confidentiality of such
information as required by the terms of this Agreement.
19.3 Section Headings. Section headings and section numbers
have been set forth herein for convenience only. Unless the contrary is
compelled by the context, everything contained in each paragraph applies
equally to this entire Agreement.
19.4 Construction. Neither this Agreement nor any uncertainty
or ambiguity herein shall be construed or resolved against Lender or
Borrower, whether under any rule of construction or otherwise. On the
contrary, this Agreement has been reviewed by all parties and shall be
construed and interpreted according to the ordinary meaning of the words
used so as to fairly accomplish the purposes and intentions of the parties
hereto.
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<PAGE> 49
19.5 Severability. Each provision of this Agreement shall be
severable from every other provision of this Agreement for the purpose of
determining the legal enforceability of any specific provision.
19.6 Entire Agreement. This Agreement cannot be changed or
terminated orally. All prior agreements, understandings, representations,
warranties, and negotiations, if any, are merged into this Agreement. This
Agreement may be amended only by a written agreement signed by duly
authorized officers of Borrower and Lender.
19.7 No Fiduciary Relationship or Joint Venture. No provision
herein or in any of the other Loan Documents and no course of dealing
between the parties hereto shall be deemed to create any fiduciary
relationship between Lender and Borrower nor to create any partnership or
joint venture between Lender and Borrower.
19.8 Publicity. Subject to the other confidentiality
provisions of this Agreement, Borrower hereby consents to the issuance or
dissemination by Lender to the public of information describing the credit
accommodations entered into pursuant to this Agreement (as it may be
amended, modified and supplemented from time to time) including without
limitation the name and address of Borrower, a general description of
Borrower's business and the use of Borrower's name and logo in connection
therewith.
19.9 Counterparts. This Agreement may be executed in two (2)
or more counterparts, each of which shall be deemed an original but all of
which shall together constitute one and the same instrument.
19.10 Conflict. In the event of a conflict between the terms
of this Agreement and the terms of any other Loan Documents, the terms of
this Agreement shall be controlling.
19.11 WAIVER OF JURY TRIAL
LENDER AND BORROWER ACKNOWLEDGE THAT THE RIGHT TO A TRIAL BY
JURY IS A CONSTITUTIONAL RIGHT, BUT THAT THE RIGHT MAY BE WAIVED. BORROWER
AND LENDER EACH KNOWINGLY, VOLUNTARILY, IRREVOCABLY AND WITHOUT COERCION,
WAIVE ALL RIGHTS TO TRIAL BY JURY OF ALL DISPUTES BETWEEN THEM. NEITHER
LENDER NOR BORROWER SHALL BE DEEMED TO HAVE GIVEN UP THIS WAIVER OF JURY
TRIAL UNLESS THE PARTY CLAIMING THAT THIS WAIVER HAS BEEN RELINQUISHED
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<PAGE> 50
HAS A WRITTEN INSTRUMENT SIGNED BY THE OTHER PARTY STATING THAT THIS
WAIVER HAS BEEN GIVEN UP.
IN WITNESS WHEREOF, Borrower has executed and delivered this
Agreement.
SPINCYCLE, INC.
/s/ Tim Yost
By: ______________________________________
Tim Yost
Vice President
Address: 15590 N. Greenway/Hayden
Loop, Suite 400
Attn: Peter Ax
Facsimile: 602/707-9967
17th
ACCEPTED this ____ day of November, 1999 at Lender's place of
business in the City of Ripon, State of Wisconsin.
ALLIANCE LAUNDRY SYSTEMS LLC
/s/ Bruce P. Rounds
_________________________________________
By: Bruce P. Rounds
Title: Vice President Chief Financial
Officer
Address: Shepard Street
P.O. Box 990
Ripon, Wisconsin 54971-0990
Attn: Bruce Rounds
Facsimile: 920/748-1629
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SCHEDULES AND EXHIBITS
EXHIBITS
Exhibit A Form of Note
Exhibit B Form of Compliance Certificate
Exhibit C Form of Landlord's Waiver and Lease Assignment Provision
SCHEDULES
Schedule 6.3 - Location of Inventory
Schedule 7.2 - States Where Borrower is Qualified
Schedule 7.8 - Litigation
Schedule 7.9 - Intellectual Property
Schedule 7.11 - Pro Formas
Schedule 7.12 - Conduct of Business
Schedule 7.13 - Environmental Compliance
Schedule 7.17 - Fictitious Names
Schedule 8.1 - Permitted Liens, Facilities to be Closed
Schedule 8.16 - Bank Accounts
<PAGE> 1
Exhibit 10.4
NOTE
$3,000,000 November 17, 1999
SPINCYCLE, INC., a Delaware corporation ("Borrower"), for
value received, hereby promises to pay to the order of Alliance Laundry Systems
LLC ("Alliance"), the principal sum of Three Million and No/100 Dollars
($3,000,000), together with interest on the unpaid principal amount hereunder
from time to time from the date hereof until paid, all as set forth below.
Upon the occurrence of any Event of Default (hereinafter
defined), the outstanding principal balance of this Note shall bear interest
payable on demand, at the "Default Rate" (as such term is defined in the Loan
Agreement).
All payments of principal and interest on this Note shall be
payable in lawful money of the United States of America. In no event shall the
interest payable exceed the highest rate permitted by law. Principal and
interest shall be paid to Alliance at its office at Alliance Laundry Systems
LLC, Shepard Street, P.O. Box 990, Ripon, WI 54971-0990, or at such other place
as the holder of this Note may designate in writing to Borrower. All payments
hereunder shall be applied as provided in the Loan Agreement. In determining
Borrower's liability to Alliance hereunder, the books and records of Alliance
shall be controlling absent arithmetic or manifest error.
This Note evidences certain indebtedness incurred under the
Loan and Security Agreement, dated as of the date hereof, between Borrower and
Alliance, to which reference is hereby made for a statement of the terms and
conditions under which the due date of this Note or any payment thereon may be
accelerated or is automatically accelerated, or under which this Note may be
prepaid or is required to be prepaid. All capitalized terms used herein shall,
unless otherwise defined herein, have the meanings set forth in the Loan
Agreement. The holder of this Note is entitled to all of the benefits provided
in said Loan Agreement and the Loan Documents referred to therein. Borrower
agrees to pay all costs of collection and all reasonable attorneys' fees paid or
incurred in enforcing any of Alliance's rights hereunder promptly on demand of
Alliance and as more fully set forth in the Loan Agreement.
Accrued interest shall be paid monthly on this Note beginning
on December 1, 1999 and on the first Business Day (as defined in the Loan
Agreement) of each month thereafter through September 1, 2001.
Provided that no Event of Default exists on September 30, 2001,
this Note shall be repaid in immediately available funds in sixty (60) monthly
installments of principal and interest calculated in the manner set forth below.
The first such monthly installment shall be due
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<PAGE> 2
and payable on October 1, 2001, and subsequent monthly installments shall be
due and payable on the first Business Day of each and every month thereafter.
The principal portion of each of the first fifty-nine (59) installments shall
equal Fifty Thousand Dollars ($50,000). The interest portion of each installment
shall equal interest at the Interest Rate on the unpaid principal balance of
this Note as in effect from time to time.
If an Event of Default exists on September 30, 2001 or if
Borrower is not otherwise in compliance with all terms and conditions of the
Loan Agreement on such date, then the entire unpaid principal balance of this
Note, together with all accrued interest and other charges thereon, shall be
immediately due and payable.
Notwithstanding anything herein to the contrary, if not sooner
paid, the sixtieth (60th) monthly installment, which shall equal the remaining
unpaid principal balance of this Note, together with all accrued interest and
all other sums due and owing, shall be due and payable in full on September 1,
2006 (the "Maturity Date").
This Note shall bear interest at a variable rate per annum
equal to the Reference Rate (hereinafter defined) plus one percent (1.00%) (the
"Interest Rate"), with changes in the Interest Rate being effective immediately
upon any change in the Reference Rate and without notice. The term "Reference
Rate" shall mean the variable per annum rate of interest announced from time to
time by LaSalle Bank National Association ("Bank") at its corporate headquarters
in Chicago, Illinois, as its prime or equivalent rate. The Reference Rate is one
of Bank's index rates and merely serves as a basis under which effective rates
of interest are calculated for loans making reference thereto and may not be the
lowest or best rate at which Bank calculates interest or extends credit.
This Note may be prepaid in whole or in part in accordance
with the terms of the Loan Agreement.
Except as set forth in the Loan Agreement, the Borrower,
endorsers and all other parties to this Note waive presentment, demand, notice,
protest and all other demands and notices in connection with the delivery,
acceptance, performance, default or enforcement of this Note and the Loan
Agreement. In any action on this Note, Alliance or its assignee need not file
the original of this Note, but need only file a photocopy of this Note certified
by Alliance or such assignee to be a true and correct copy of this Note.
This is the Note referred to in the Loan Agreement. This Note
is secured by, among other things, a security interest in the Collateral granted
to Alliance pursuant to the Loan Agreement and the other Loan Documents.
No delay on the part of Alliance in exercising any right under
this Note, any security agreement, guaranty or other undertaking affecting this
Note, shall operate as a waiver
2
<PAGE> 3
of such right or any other right under this Note, nor shall any omission in
exercising any right on the part of Alliance under this Note operate as a waiver
of any other rights.
The occurrence of an Event of Default under the Loan Agreement
(as such term is defined therein) shall constitute an Event of Default
hereunder. Upon the occurrence of an Event of Default, the outstanding
indebtedness evidenced by this Note, together with all accrued interest, shall
be due and payable in accordance with the terms of the Loan Agreement, without
notice to or demand upon the Borrower except as otherwise provided in the Loan
Agreement, and Alliance may exercise all of its rights and remedies reserved to
it under the Loan Agreement or applicable law.
If any provision of this Note or the application thereof to
any party of circumstance is held invalid or unenforceable, the remainder of
this Note and the application of such provision to other parties or
circumstances will not be affected thereby and the provisions of this Note shall
be severable in any such instance.
BORROWER HEREBY WAIVES ANY RIGHT BORROWER MAY NOW OR HEREAFTER
HAVE TO SUBMIT ANY CLAIM, ISSUE OR DEFENSE ARISING HEREUNDER OR UNDER THE OTHER
LOAN DOCUMENTS TO A TRIAL BY JURY.
This Note shall be deemed to have been made under and shall be
governed in accordance with the internal laws and not the conflict of law rules
of the State of Illinois.
IN WITNESS WHEREOF, Borrower has caused this Note to be
executed by its duly authorized officer as of the date first above written.
SPINCYCLE, INC.
By: /s/ Tim Yost
------------------------
Title: Vice President
3
<PAGE> 1
Exhibit 10.5
INTERCREDITOR AGREEMENT
THIS INTERCREDITOR AGREEMENT ("Agreement") dated as of
November 17, 1999, is between LASALLE BANK NATIONAL ASSOCIATION (hereinafter
referred to as "Bank"), having offices at 135 South LaSalle Street, Chicago,
Illinois 60603, and ALLIANCE LAUNDRY SYSTEMS LLC, having offices at Shepard
Street, PO Box 990, Ripon, Wisconsin 54971-0990 (hereinafter referred to as
"Alliance"), with respect to certain financing arrangements with SPINCYCLE,
INC., having its office at 15990 Greenway/Hayden Loop, Suite 400, Scottsdale,
Arizona 85260 ("Borrower").
BACKGROUND:
A. Pursuant to a certain Amended and Restated Loan and
Security Agreement dated as of November 17, 1999 and certain instruments,
documents and other agreements related thereto, defined therein or contemplated
thereby (the foregoing, together with all amendments and modifications thereof
now and from time to time hereafter entered into between Bank and Borrower are
individually or collectively referred to as the "Bank Agreements"), Bank has or
will from time to time hereafter, make loans and advances to Borrower secured by
liens on the Collateral (hereinafter defined).
B. Borrower is obligated and indebted to Alliance in the
amount of Three Million Dollars ($3,000,000) as evidenced by a Promissory Note
("Note") and secured by liens on the Collateral as set forth in a Loan and
Security Agreement dated as of November 17, 1999, between Borrower and Alliance
and certain instruments, documents and other agreements related thereto, defined
therein or contemplated thereby (the foregoing, together with all amendments and
modifications thereof now and from time to time hereafter entered into between
Alliance and Borrower are individually or collectively referred to as the
"Alliance Agreements").
C. Alliance and Bank have each (i) been granted liens on the
Collateral, and (ii) filed or may hereafter file financing statements under the
Uniform Commercial Code and other title documents or assignments.
D. Alliance and Bank desire to agree to the relative priority
of their respective security interests in and liens on the Collateral and
certain other rights, priorities and interests.
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants herein contained, and for other good and valuable
consideration, it is hereby agreed as follows:
I. DEFINITIONS
1.1 Accounts shall mean all of Borrower's presently existing
and hereafter arising or acquired accounts, accounts receivable, book debts,
instruments, documents, contracts, contract rights, choses in action, notes,
drafts, acceptances, chattel paper, and other forms of obligations now or
hereafter owned or held by or payable to Borrower relating in any way to
<PAGE> 2
Inventory or arising from the sale of Inventory or the rendering of services by
Borrower, together with all merchandise represented by any of the Accounts;
all such merchandise that may be reclaimed or repossessed or returned to
Borrower; all of Borrower's rights as an unpaid vendor, including stoppage in
transit, reclamation, replevin, and sequestration; all pledged assets and all
letters of credit, guaranty claims, liens, and security interests held by or
granted to Borrower to secure payment of any Accounts and which are delivered
for or on behalf of any account debtor; all proceeds and products and any
accessions to all of the foregoing described properties and interests in
properties; and all proceeds of insurance with respect thereto, including the
proceeds of any applicable casualty or credit insurance or fidelity bond,
whether payable in cash or in kind; and the proceeds of all of the foregoing;
and all customer lists, ledgers, books of account, records, computer programs,
computer disks or tape files, computer printouts, computer runs, and other
computer prepared information relating to any of the foregoing.
1.2 Equipment shall mean all of Borrower's equipment,
machinery, furniture, furnishings, fixtures, tools, supplies and motor vehicles
and rolling stock, of every kind and description, now or at any time hereafter
owned by and in the custody or possession, actual or constructive, of Borrower,
wherever located, together with any and all parts, improvements, additions,
replacements, accessions, and substitutions thereto or therefor, and all
licenses and other rights of Borrower relating thereto, whether in the
possession and control of Borrower, or in the possession and control of a third
party for the account of Borrower and all claims under and proceeds of insurance
thereon, and all maintenance and warranty records relating thereto.
1.3 General Intangibles shall mean all of Borrower's now owned
or hereafter acquired general intangibles, causes of action, goodwill,
franchises, sales literature, name plates, catalogs, dealer contracts, supplier
contracts, distributor agreements, consulting agreements, engineering contracts,
and such other assets which uniquely reflect the goodwill of the business of
Borrower, rights to refunds or indemnification, deposit accounts, letters of
credit, income tax refunds, claims for tax or other refunds against any city,
county, state, or federal government, or any agency or authority or other
subdivision thereof, contracts, personal property lease agreements, and
corporate or other business records relating to any of the foregoing, other than
any Intellectual Property.
1.4 Intellectual Property shall mean all of Borrower's now
owned or hereafter acquired trademarks, trademark applications, trade styles,
trade names, trade secrets, patents, patent applications, copyrights, copyright
applications and registrations, designs, service marks, service mark
applications, inventions, license rights, methods, processes, knowhow, drawings,
specifications, descriptions and confidential information.
1.5 Inventory shall mean all of the inventory of Borrower of
every kind and description, now or at any time hereafter owned by or in the
custody or possession, actual or constructive, of Borrower, wherever located,
including, but not limited to, the following:
(a) all raw materials;
(b) all finished goods which constitute Inventory;
and
-2-
<PAGE> 3
(c) all work in process consisting of goods and all
other raw materials in the process of being converted into finished
goods; together with all the containers, packing, packaging, shipping,
and similar materials, and all rights of Borrower relating thereto,
proceeds (including but not limited to all proceeds of insurance with
respect thereto, including the proceeds of any applicable casualty
insurance) and products thereof; and all ledgers, books of account,
records, computer printouts, computer runs, and other computer prepared
information relating to any of the foregoing.
1.6 Leaseholds shall mean all of Borrower's rights, title and
interest under any lease of real property where any Collateral is located.
1.7 Alliance Claim shall mean all obligations of Borrower to
Alliance as set forth in the Alliance Agreements, up to the aggregate sum of
$3,000,000, plus any interest thereon, any costs of collection or enforcement,
including reasonable attorneys' and paralegals' fees and costs, and any
prepayment penalties.
1.8 Bank Claim shall mean all obligations of Borrower to Bank
as set forth in the Bank Agreements at any time and from time to time
outstanding, including but not limited to, all sums loaned or advanced to or for
the benefit of Borrower at any time, any interest thereon, any future advances,
any costs of collection or enforcement, including reasonable attorneys' and
paralegals' fees and costs, and any prepayment penalties.
1.9 Collateral shall mean all the property or interests in
property described in paragraphs 1.1 through 1.6 hereof, and the proceeds and
products thereof, and where applicable, the proceeds of insurance or escrow
accounts covering any such property.
1.10 Enforcement shall mean, collectively or individually for
one or both of Alliance or Bank, to commence repossession of any material amount
of Collateral or commence the judicial enforcement of any of their rights and
remedies under the Bank Agreements, the Alliance Agreements, any related
agreements or applicable law.
1.11 Enforcement Period shall mean the period of time
following the receipt by either Bank or Alliance of an "Enforcement Notice" (as
hereinafter defined) from another Lender until either (i) the final payment or
indefeasible satisfaction in full of either the Bank Claim or the Alliance
Claim, or (ii) Bank and Alliance agree in writing to terminate the Enforcement
Period.
1.12 Alliance Senior Collateral shall mean the Equipment
listed and described on Exhibit A attached hereto, and the Leaseholds listed and
described on Exhibit A attached hereto, any General Intangibles directly
associated with such Leaseholds and Equipment and the rights to the use of any
Intellectual Property to the extent necessary to the continued operation of
business at such Leaseholds.
1.13 Enforcement Notice shall mean a written notice delivered,
at a time when an "Event of Default" (as defined in the Bank Agreements or the
Alliance Agreements, respectively) has occurred and is continuing, by either
Bank or Alliance to the other announcing that an
-3-
<PAGE> 4
Enforcement Period has commenced, specifying the relevant Event of Default,
stating the current balance of the Bank Claim or Alliance Claim and requesting
the current balance of the other Lender's Claim.
1.14 Lender shall mean each of Bank or Alliance.
1.15 Lenders shall mean the collective reference to Bank and
Alliance.
II. INTERCREDITOR AGREEMENT
2.1 Lien Priorities. Notwithstanding the date, manner or order
of perfection of the security interests and liens granted Alliance or Bank, or
the acquisition of purchase money or other security interests, or the time of
giving or failure to give notice of the acquisition or expected acquisition of
purchase money or other security interests, and notwithstanding any provisions
of the Uniform Commercial Code, or any applicable law or decision or the
Alliance Agreements or the Bank Agreements, or whether either Alliance or Bank
holds possession of all or any part of the Collateral, the following, as between
Alliance and Bank shall be the relative priority of the security interests and
liens of Alliance and Bank in the Collateral:
(a) Bank shall have a first and prior security interest
in the Collateral (exclusive of the Alliance Senior
Collateral), all documents, instruments, books and
records pertaining to the foregoing and all proceeds
thereof, including insurance proceeds relating
thereto, and products thereof (the "Bank Senior
Collateral"), and a second and subordinate security
interest in the Alliance Senior Collateral; and
(b) Alliance shall have a second and subordinate security
interest in the Bank Senior Collateral and a first
and senior security interest in the Alliance Senior
Collateral, all documents, instruments, books and
records pertaining thereto and all proceeds thereof,
including insurance proceeds relating thereto, and
products thereof.
2.2 Distribution of Proceeds of Collateral. At any time
(whether or not an Enforcement Period exists), all proceeds of Collateral shall
be distributed in accordance with the following procedure:
(a) Proceeds of the Bank Senior Collateral shall be first
applied to the Bank Claim. After the Bank Claim is
paid in full and the Bank Agreements are terminated
and fully paid or otherwise satisfied, any remaining
proceeds of the Bank Senior Collateral shall be
applied to the Alliance Claim.
(b) Proceeds of the Alliance Senior Collateral shall be
first applied to the Alliance Claim. After the
Alliance Claim is paid in full and the Alliance
Agreements are terminated and fully paid or otherwise
satisfied, any remaining proceeds of the Alliance
Senior Collateral shall be applied to the Bank Claim.
-4-
<PAGE> 5
Notwithstanding the foregoing, at any time prior to commencement of or after the
termination of any ongoing Enforcement Period, Borrower may utilize working
capital generated in the ordinary course of its business to pay obligations due
Alliance under the Alliance Agreements, whether or not such working capital
represents proceeds of the Bank Senior Collateral.
2.3 Enforcement Actions. Each Lender agrees not to commence
Enforcement until an Enforcement Notice has been given to the other Lender.
Subject to the foregoing and Section 2.2 above, Bank and Alliance agree that
during an Enforcement Period:
(a) Alliance may, at its option, take any action to
accelerate payment of the Alliance Claim and to
foreclose or realize upon or enforce any of its
rights with respect to the Alliance Senior
Collateral, provided that Alliance shall reasonably
cooperate with Bank in any such action in order to
maximize any recovery on the Collateral and shall
provide Bank notice of sale and any offer to purchase
the Alliance Senior Collateral;
(b) Bank may, at its option, take any action to
accelerate payment of the Bank Claim and to foreclose
or realize upon or enforce any of its rights with
respect to the Bank Senior Collateral; provided that
Bank shall reasonably cooperate with Alliance in any
such action in order to maximize any recovery on the
Collateral and shall provide Alliance notice of sale
and any offer to purchase the Bank Senior Collateral.
(c) The parties hereto shall execute and deliver such
additional documents and take such additional action
as may be reasonably necessary to effectuate the
provisions and purposes of this Agreement. If
requested, the parties shall execute filings to be
recorded in accordance with Uniform Commercial Code
provisions in the appropriate locations reflecting
the provisions of this Agreement.
(d) If Alliance or Bank has any security interest in or
lien on any of the Collateral as security for payment
of any indebtedness of Borrower, or of any other
party, other than indebtedness incurred pursuant to
the Alliance Agreements or the Bank Agreements, then
Alliance or Bank, as the case may be, may not apply
the proceeds of any of the Collateral to satisfy such
other indebtedness until the Alliance Claim and the
Bank Claim are paid in full or otherwise satisfied.
2.4 Accountings. Alliance and Bank agree to render accountings
to the other upon reasonable request, giving effect to the application of
proceeds of Collateral as hereinbefore provided.
2.5 Notices of Defaults. Alliance and Bank agree to use their
best efforts to give to the other copies of any notice of the occurrence or
existence of an Event of Default or Potential Default sent to Borrower under the
Bank Agreements or the Alliance Agreements, as applicable, simultaneously with
the sending of such notice to Borrower, but the failure to do so shall not
affect the validity of such notice or create a cause of action against the party
failing to give such
-5-
<PAGE> 6
notice or create any claim or right on behalf of any third party. The sending of
such notice shall not impose upon the recipient the obligation to cure such
Event of Default or Potential Default.
2.6 Action Upon Repayment of Alliance or Bank. If either the
Alliance Claim or the Bank Claim is paid in full, but not both, then the Lender
whose claim is thus fully paid shall transfer any Collateral or excess proceeds
therefrom held by it to the other Lender, unless otherwise required to remit the
proceeds according to law, and shall assign its security interest and all of its
rights under financing statements to the other Lender, unless otherwise agreed
to in writing by the other Lender. Any such transfer or assignment shall be
without recourse.
2.7 Insurance. Notwithstanding anything to the contrary
herein, Borrower shall obtain satisfactory Lender's Loss Payable Endorsements
naming both Alliance and Bank, as their interests may appear, with respect to
policies which insure Collateral hereunder.
2.8 UCC Notices. In the event that Alliance or Bank shall be
required by the Uniform Commercial Code or any other applicable law to give
notice to the other of intended disposition of Collateral, such notice shall be
given in accordance with paragraph 3.1 hereof and ten (10) days' notice shall be
deemed to be commercially reasonable.
2.9 Agency for Perfection. Alliance and Bank each hereby
appoint each other as agent for purposes of perfecting their respective security
interests and liens on the Collateral. To the extent that Bank or Alliance
obtain possession of any Collateral, they shall notify each other of such fact.
2.10 Successor Entity. Alliance warrants and represents that
it is the successor to Raytheon Commercial Laundry LLC and the priorities
established hereby are binding upon Raytheon Commercial Laundry LLC.
III. MISCELLANEOUS
3.1 Notices. All notices hereunder shall be effective upon
receipt, and shall be in writing and sent by either certified mail, return
receipt requested, receipted overnight delivery or facsimile, to the addresses
as set forth above, but to the attention of the following: (a) Alliance,
attention: Bruce Rounds, Facsimile No. 920/748-1629, or (b) Bank, attention:
John Thurston, Facsimile No. 312/904-6225, or to such other address or person as
any of the parties hereto may designate in writing to the other parties. Notice
shall be deemed received on the earlier of the date of actual receipt or three
(3) Business Days (as defined in the Bank Agreement) after the deposit thereof
with the United States Post Office or the date telecommunicated if telecopied.
3.2 Contesting Liens or Security Interests. Neither Alliance
nor Bank shall contest the validity, perfection, priority or enforceability of
any lien or security interest granted to the other Lender and each of the
Lenders agrees to cooperate in the defense of any action contesting the
validity, perfection, priority or enforceability of such liens or security
interest. Each Lender shall also use its best efforts to notify the other Lender
of any change in the location of any of the Collateral or the business
operations of the Borrower or of any change in law which would make it necessary
or advisable for the other Lender to file additional financing statements in
another
-6-
<PAGE> 7
location as against the Borrower, but the failure to do so shall not create a
cause of action against the party failing to give such notice or create any
claim or right on behalf of any third party and Alliance shall not be required
to notify Bank of its shipment of new Equipment to new locations of Borrower.
3.3 No Additional Rights for Borrower Hereunder. If any Lender
shall enforce its rights or remedies in violation of the terms of this
Agreement, Borrower agrees that it shall not use such violation as a defense to
the Enforcement by such Lender under the Alliance Agreements and/or the Bank
Agreements nor assert such violation as a counterclaim or basis for set-off or
recoupment against any Lender. Notwithstanding anything to the contrary
contained in the Bank Agreements and the Alliance Agreements, the execution and
delivery of the Bank Agreements and the Alliance Agreements shall not be deemed
an Event of Default under either the Bank Agreements or the Alliance Agreements.
3.4 Independent Credit Investigations. Neither of the Lenders
nor any of their respective directors, officers, agents or employees shall be
responsible to the other or to any other person, firm or corporation, for
Borrower's solvency, financial condition or ability to repay the Alliance Claim
or the Bank Claim, or for statements of Borrower, oral or written, or for the
validity, sufficiency or enforceability of the Alliance Claim or the Bank Claim,
the Alliance Agreements, the Bank Agreements, or any liens or security interests
granted by Borrower to the Lender in connection therewith. Each Lender has
entered into its respective financing agreements with Borrower based upon its
own independent investigation, and makes no warranty or representation to the
other Lender nor does it rely upon any representation of the other Lender with
respect to matters identified or referred to in this paragraph.
3.5 Amendments to Financing Arrangements or to this Agreement.
Alliance and Bank shall use their best efforts to notify each other of any
amendment or modification in the Alliance Agreements or the Bank Agreements, but
the failure to do so shall not create a cause of action against the party
failing to give such notice or create any claim or right on behalf of any third
party. Alliance and Bank shall, upon request of the other party, provide copies
of all such modifications or amendments and copies of all other documentation
relevant to the Collateral hereunder. All modifications or amendments of this
Agreement must be in writing and duly executed by an authorized officer of each
Lender to be binding and enforceable.
3.6 Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the respective successors and assigns of each
of the parties hereto, but does not otherwise create, and shall not be construed
as creating, any rights enforceable by any person not a party to this Agreement
(including, without limitation, Borrower).
3.7 Governing Law. This Agreement shall be governed as to
validity, interpretation, enforcement and effect by the laws of the State of
Illinois.
-7-
<PAGE> 8
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the day and year first above written.
LASALLE BANK NATIONAL ASSOCIATION
By: /s/ John Thurston
-----------------------------
Title: Vice President
ALLIANCE LAUNDRY SYSTEMS LLC
By: /s/ Bruce P. Rounds
--------------------------------
Title: Vice President and
Chief Financial Officer
The undersigned acknowledges and agrees to the foregoing terms
and provisions. By executing this Agreement, the undersigned agrees to be bound
by the provisions hereof as they relate to the relative rights of Bank and
Alliance as between such Lenders; provided, however, that nothing in this
Agreement shall amend, modify, change or supersede the respective terms of the
Bank Agreements or the Alliance Agreements (or any other document to which the
undersigned may be a party) as between either such Lender and the undersigned,
and in the event of any conflict or inconsistency between the terms of this
Agreement and the Bank Agreements or the Alliance Agreements (or any such other
documents as the case may be), as between the undersigned and the applicable
Lender, the terms of the Bank Agreements and the Alliance Agreements (and such
other documents) shall govern. The undersigned further agrees that the terms of
this Agreement shall not give the undersigned any substantive rights vis-a-vis
either Bank or Alliance.
SPINCYCLE, INC.
By: /s/ Tim Yost
-----------------------------
Title: Vice President
-----------------------------
-8-
<PAGE> 9
EXHIBIT A
All of Borrower's Equipment located at and Leaseholds in the following business
locations of Borrower:
<TABLE>
<CAPTION>
Store No. Address
- --------- -------
<S> <C>
230 Broad Street and Glenwood Avenue, Philadelphia, PA
239 57th and Vine Streets, Philadelphia, PA
115 1491 University Avenue, St. Paul, MN
114 1010 W. Lake Street, Minneapolis, MN
501 4020 West 12th Avenue & West 41st Street, Hialeah, FL
504 54th and 27th Avenue, Miami, FL
521 North Decatur Shopping Center, Decatur, GA
505 1760 NE 163rd Street, North Miami, FL
506 1080 E. Commercial and Dixie, Ft. Lauderdale, FL
507 3051 NW 7th Street, Miami, FL
511 1313 Coral Way, Miami, FL
512 5441 Memorial, Stone Mountain, GA
523 3537 Memorial Drive, Decatur, GA
525 5590 W. Oakland Park Blvd., Lauderhill, FL
324 510 W. 35th Street, Austin, TX
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FOR THE QUARTER ENDED OCTOBER 3, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-26-1999
<PERIOD-END> OCT-03-1999
<CASH> 2,567
<SECURITIES> 0<F1>
<RECEIVABLES> 0<F1>
<ALLOWANCES> 0<F1>
<INVENTORY> 288
<CURRENT-ASSETS> 5,835
<PP&E> 121,074
<DEPRECIATION> 21,947
<TOTAL-ASSETS> 122,807
<CURRENT-LIABILITIES> 6,123
<BONDS> 125,921
0<F1>
50,846
<COMMON> 0<F1>
<OTHER-SE> (60,083)
<TOTAL-LIABILITY-AND-EQUITY> 122,807
<SALES> 14,759
<TOTAL-REVENUES> 14,759
<CGS> 0<F1>
<TOTAL-COSTS> 11,110
<OTHER-EXPENSES> 7,769
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,934
<INCOME-PRETAX> (9,054)
<INCOME-TAX> 0<F1>
<INCOME-CONTINUING> (9,054)
<DISCONTINUED> 0<F1>
<EXTRAORDINARY> 0<F1>
<CHANGES> 0<F1>
<NET-INCOME> (9,054)
<EPS-BASIC> (326.13)
<EPS-DILUTED> 0
<FN>
<F1>AMOUNTS INAPPLICABLE OR NOT DISCLOSED AS A SEPARATE LINE ON THE BALANCE
SHEET OR STATEMENT OF OPERATIONS ARE REPORTED AS 0 HEREIN.
</FN>
</TABLE>
