<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 27, 1997
Commission file number 21859.
FACTORY CARD OUTLET CORP.
-----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 36-3652087
---------------------------- --------------------------
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
745 Birginal Drive
Bensenville, Illinois 60106
-----------------------------------------------------------------------------
(Address of principal executive offices, zip code)
Registrant's telephone number, including area code: (630) 238-0010
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 ____.
The number of shares of common stock outstanding at November 3, 1997 was
7,249,235.
<PAGE>
Factory Card Outlet Corp.
Form 10-Q
For the Quarter Ended September 27, 1997
Index
Part I. Financial Information Page No.
Item 1. Financial Statements (unaudited):
Consolidated Balance Sheets as of
September 27, 1997 and June 28, 1997. 3
Consolidated Statements of Income for the
three fiscal months ended September 27, 1997
and September 28, 1996. 4
Consolidated Statements of Cash Flows
for the three fiscal months ended September 27, 1997
and September 28, 1996. 5
Notes to Consolidated Financial Statements 6-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-11
Part II. Other Information 12
Signatures 13
2
<PAGE>
PART I - FINANCIAL INFORMATION, ITEM 1, FINANCIAL STATEMENTS
FACTORY CARD OUTLET CORP.
AND SUBSIDIARY
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 27, June 28,
1997 1997
------------ -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash................................................. $ 201,358 $ 51,180
Receivables.......................................... 1,184,735 947,583
Inventories.......................................... 70,368,206 55,358,616
Prepaid expenses..................................... 1,408,937 1,322,420
Deferred income taxes................................ 2,026,559 207,333
------------ -----------
Total current assets............................... 75,189,795 57,887,132
Fixed assets, net...................................... 30,893,946 26,063,766
Other assets........................................... 2,348,770 1,750,709
------------ -----------
Total assets....................................... $108,432,511 $85,701,607
------------ -----------
------------ -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term obligations.......... $ 1,725,473 $ 1,138,654
Accounts payable..................................... 21,703,065 14,361,283
Due to related parties............................... 2,724,905 3,192,596
Income taxes payable................................. -- 503,544
Accrued expenses..................................... 5,906,032 3,091,532
------------ -----------
Total current liabilities.......................... 32,059,475 22,287,609
Revolving credit note payable.......................... 17,471,400 3,775,400
Long-term debt......................................... 11,052 20,602
Capital lease obligations.............................. 3,760,378 2,755,510
Deferred rent liabilities.............................. 4,763,839 4,411,584
Deferred income taxes.................................. 177,467 177,467
------------ -----------
Total liabilities.................................. 58,243,611 33,428,172
------------ -----------
Stockholders' equity:
Common stock - $.01 par value. Voting class -
authorized 50,000,000 shares: 7,239,195 shares
issued and outstanding at September 27, 1997 and
7,231,211 shares issued and outstanding at
June 28, 1997. Non-voting class - authorized
205,000 shares, no shares issued or outstanding.... 72,392 72,312
Additional paid-in capital........................... 50,941,341 50,950,900
Retained (deficit) earnings.......................... (824,833) 1,327,532
Less: cost of common stock held in treasury,
8,697 shares at June 28, 1997..................... -- (77,309)
------------ -----------
Total stockholders' equity......................... 50,188,900 52,273,435
------------ -----------
Total liabilities and stockholders' equity......... $108,432,511 $83,701,607
------------ -----------
------------ -----------
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
FACTORY CARD OUTLET CORP.
AND SUBSIDIARY
Consolidated Statements of Income
<TABLE>
<CAPTION>
Three Fiscal Months Ended
-----------------------------
September 27, September 28,
1977 1996
------------- -------------
(Unaudited)
<S> <C> <C>
Net sales............................................ $35,315,504 $25,031,848
Cost of sales and occupancy........................ 23,573,930 16,996,375
----------- -----------
Gross profit......................................... 11,741,574 8,035,473
Selling, general and administrative expenses......... 14,946,953 9,664,842
----------- -----------
Loss from operations............................... (3,205,379) (1,629,369)
Interest expense.................................... 380,866 597,297
----------- -----------
Loss before taxes.................................. (3,586,245) (2,226,666)
Income tax benefit (1,433,880) (935,200)
----------- -----------
Net loss........................................... $(2,152,365) $(1,291,466)
----------- -----------
----------- -----------
Net loss per common and common equivalent share.... $ (0.27) $ (0.26)
----------- -----------
----------- -----------
Weighted average common and common equivalent
shares outstanding............................... 7,894,139 5,049,869
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
FACTORY CARD OUTLET CORP.
AND SUBSIDIARY
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Three fiscal Months Ended
-----------------------------------
September 27, September 28,
1997 1996
------------- -------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss.......................................................... $ (2,152,365) $ (1,291,466)
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization of fixed assets................ 1,197,580 752,590
Amortization of deferred financing costs and debt discount -- 181,890
Deferred income taxes........................................ (1,498,821) (935,200)
Loss (gain) on the disposal of equipment and vehicles........ 16,894 1,382
Compensation expense related to stock options................ 14,751 164,355
Change in assets and liabilities:
Decrease (increase) in assets:
Receivables........................................ (237,152) 156,897
Inventories........................................ (15,009,590) (8,806,309)
Prepaid expenses................................... (86,517) (164,779)
Other assets....................................... (598,061) (27,558)
Increase (decrease) in liabilities:
Accounts payable................................... 6,874,091 4,362,626
Accrued expenses................................... 2,797,839 531,700
Deferred rent liabilities.......................... 352,255 117,044
Income taxes payable............................... (823,949) (348,233)
------------- -------------
Net cash used in operating activities.................................. (9,153,045) (5,305,061)
------------- -------------
Net cash used in investing activities -- purchase of fixed assets, net. (4,130,237) (2,046,642)
------------- -------------
Cash flows from financing activities:
Borrowings under revolving credit note............................ 22,683,000 15,536,737
Repayment of borrowings under revolving credit note............... (8,987,000) (19,263,892)
Payment of long-term debt and capital lease obligations........... (332,280) (112,719)
Proceeds from issuance of subordinated debentures................. -- 2,910,836
Proceeds from issuance of Series C convertible preferred stock.... -- 8,617,083
Proceeds from exercise of employee stock options.................. 14,217 --
Sale of treasury stock to employee stock purchase plan............ 55,523 --
------------- -------------
Net cash provided by financing activities.............................. 13,433,460 7,488,045
------------- -------------
Net increase in cash................................................... 150,178 136,342
Cash at beginning of period............................................ 51,180 202,344
------------- -------------
Cash at end of period.................................................. $ 201,358 $ 338,686
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Basis of Presentation
The consolidated financial statements included herein include the accounts of
Factory Card Outlet Corp. (the Company) and its wholly owned subsidiary, Factory
Card Outlet of America, Ltd. (FCO). FCO is a chain of company-owned superstores
offering an extensive selection of party supplies, greeting cards, gift wrap,
and other special occasion merchandise at everyday value prices in 20 states.
These financial statements have been prepared by management without audit and
should be read in conjunction with the consolidated financial statements and
notes thereto for the fiscal year 1997. Due to the seasonality of the Company's
business, the results for the interim periods are not necessarily indicative of
the results for the year. The accompanying consolidated financial statements
reflect, in the opinion of management, all adjustments necessary for a fair
presentation of the interim financial statements. In the opinion of management,
all such adjustments are of a normal and recurring nature.
(2) Management Estimates
The preparation of these consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of expenses
during the reported period and related disclosures. Significant estimates made
as of and for the three month periods ended September 27, 1997 and September 28,
1996 include provisions for shrinkage, capitalized overhead costs related to
inventory and markdowns of merchandise inventories. Actual results could
differ from those estimates.
(3) Earnings Per Share
Earnings per share were computed by dividing net income by the weighted average
number of common shares and common equivalent shares outstanding during the
period. Common equivalent shares consist of common shares issuable upon the
exercise of warrants and common stock options. Stock options issued during the
twelve-month period prior to the Company's initial public offering have been
included in the calculation as if they were outstanding for the periods
presented, even if antidilutive, using the treasury stock method.
(4) Debt
Loan and Security Agreement
On October 15, 1997, the Company entered into a Loan and Security Agreement with
its Bank increasing its existing line of credit facility from $25,000,000 to the
lessor of $35,000,000 or a predetermined advance rate (not to exceed 50%)
against net inventory as determined by an appraisal. Interest will be payable
at an annual rate equal to the bank's prime rate or, at the Company's option, a
rate based on LIBOR plus additional basis points (ranging from 125 to 225
points) variable on the Company's effective debt ratio. In addition, a fee of
0.25% per year will be assessed quarterly on the unused portion of the facility.
This agreement contains restrictive covenants including, among others, the
maintenance of minimum ratios of fixed charges to earnings and maximum ratios of
liabilities to net worth and debt to earnings.
Lease Commitments
During the three months ended September 27, 1997, financing for additional
computer equipment was incorporated into an existing master lease agreement in
the amount of $1,914,000. Payments on the additional amounts financed will be
made over the next three years.
6
<PAGE>
(5) Supplemental Cash Flow Information
Three Fiscal Months Ended
----------------------------
September 27, September 28,
1997 1996
------------- -------------
Cash paid during the period ended for:
Interest $ 330,097 $ 397,277
Income taxes 856,815 371,750
Supplemental disclosure of non-cash financing activities:
Capital lease obligations incurred, primarily for point of sale computer
equipment, and notes payable on vehicle purchases were $1,914,000 and
$86,408 in the three month periods ended September 27, 1997 and September
28, 1996, respectively.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis contains certain "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Company, or industry results, to be materially different
from any future results, performance, or achievements expressed or implied by
such forward-looking statements. Such factors include, among others, the
following: ability to open and operate new stores; weather and economic
conditions; dependence on key personnel; competition; ability to anticipate
merchandise trends and consumer demand; ability to maintain relationships with
suppliers; successful implementation of information systems; consolidation and
relocation of distribution facilities; inventory shrinkage; ability to meet
future capital needs; governmental regulations and other factors both referenced
and not referenced in this Quarterly Report on Form 10-Q. When used in this
Quarterly Report on Form 10-Q, the words "estimate," "project," "expect,"
"intend," "believe," and similar expressions are intended to identify
forward-looking statements.
Due to the importance of the spring and fall selling seasons, the second
and fourth fiscal quarters have historically contributed, and the Company
expects they will continue to contribute, disproportionately to the Company's
profitability for the entire fiscal year. As a result, the Company's quarterly
results of operations may fluctuate. In addition, results of a period shorter
than a full year may not be indicative of results expected for the entire year.
The Company has been notified by Party Express, the party goods division of
Hallmark, that as of November 30, 1997, it will no longer ship party goods,
which include many Disney and Warner Bros. licensed products to Factory Card
Outlet. The Company believes that this decision will not have a material impact
on its earnings for the next 12 months, but could impact earnings beyond that
time. The Company is continuing discussions with Hallmark, Disney and Warner
Bros. in an attempt to resolve this situation or to allow Factory Card Outlet to
acquire the licensed product through other sources.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, selected statement of
operations data expressed as a percentage of net sales and the number of stores
open at the end of each such period:
Three Fiscal Months Ended
--------------------------------
September 27, September 28,
1997 1996
------------ -------------
Net sales................................... 100.0% 100.0%
Cost of sales and occupancy................. 66.8 67.9
------------ -------------
Gross Profit.............................. 33.2 32.1
Selling, general and administrative
expenses.................................. 42.3 38.6
------------ -------------
Loss from operations...................... (9.1) (6.5)
Interest expense............................ 1.1 2.4
------------ -------------
Loss before taxes......................... (10.2) (8.9)
Income tax benefit.......................... (4.1) (3.7)
------------ -------------
Net loss.................................. (6.1)% (5.2)%
------------ -------------
------------ -------------
Number of stores open at end of period 162 112
8
<PAGE>
THREE FISCAL MONTHS ENDED SEPTEMBER 27, 1997 AND SEPTEMBER 28, 1996
NET SALES. Net sales increased $10.3 million, or 41.2%, to $35.3 million
for the three-month period ended September 27, 1997 from $25.0 million for the
three-month period ended September 28, 1996. The increase resulted from (i) net
sales of $2.7 million from new stores opened during the three-month period, (ii)
net sales increase of $6.7 million from stores opened prior to July 1997 not
included in the comparable store base, and (iii) a comparable store sales
increase of $877,000, or 3.6%. The Company substantially reduced the number of
non mall-sponsored sidewalk sale events due to their unprofitability; this
change reduced comparable store sales. The Company includes stores opened 13 or
14 months after their opening date in the calculation of comparable sales. If
the opening date of a store falls in the first 14 days of a period, the store is
included in the comparable store calculation on its 13th month of operation;
otherwise, a store is included in the comparable store calculation in its 14th
month of operation.
GROSS PROFIT. Cost of sales includes merchandise, store occupancy,
purchasing and distribution costs. Gross profit increased $3.7 million, or
46.3%, to $11.7 million for the three-month period ended September 27, 1997 from
$8.0 million for the three-month period ended September 28, 1996. As a
percentage of net sales, gross profit was 33.2% for the three-month period ended
September 27, 1997 compared to 32.1% for the same period in the prior year.
Gross profit as a percentage of net sales increased as a result of volume
rebates from vendors, a lower shrinkage reserve and the leveraging of
distribution costs offset by higher freight costs associated with new markets
and higher occupancy costs related to the increased number of new stores opened
during the quarter.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses include labor, advertising, depreciation, other store
operating and corporate administrative expenses. Selling, general and
administrative expenses increased $5.2 million, or 53.6%, to $14.9 million for
the three-month period ended September 27, 1997 from $9.7 million for the
three-month period ended September 28, 1996. Approximately $4.6 million of this
increase resulted from the operation of 53 additional new superstores. The
remainder of the increase in selling, general and administrative expenses
resulted primarily from higher salaries, benefits and travel costs for
additional field and corporate management and administrative personnel along
with higher professional fees and recruiting and relocation costs. As a
percentage of sales, net selling, general and administrative expenses increased
to 42.3% in the three-month period ending September 27, 1997 from 38.6% in the
three-month period ended September 28, 1996.
INTEREST EXPENSE. Interest expense was $380,900 in the three months ended
September 27, 1997 compared to $597,300 in the three months ended September 28,
1996. This decrease resulted from reduction in debt from applying proceeds
received from the Company's initial public offering partially offset by the
increased borrowing to support the opening of new superstores and increased
inventory levels.
INCOME TAX. The income tax benefit recognized for the three-month period
ended September 27, 1997 was approximately $499,000 higher than the benefit
recognized during the three-month period ended September 28, 1996 due to a
higher net loss before taxes for the period.
9
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash needs are primarily for working capital to support its
opening of new superstores and for opening the new administrative distribution
center. In recent years, the Company has financed its expanding operations
primarily through proceeds from its initial public offering effective on
December 13, 1996, borrowings under the Business Loan Agreement between the
Company and Bank One, Chicago, NA (Bank One), proceeds from issuance of
convertible preferred stock and subordinated debentures and internally generated
funds.
At September 28, 1997 and September 27, 1996, the Company's working capital
was $43.1 million and $30.0 million, respectively. Net cash used in operations
for the three months ended September 27, 1997 and September 28, 1996 was $9.2
million and $5.3 million, respectively. In these two periods, $15.0 million and
$8.8 million, respectively, of cash from operations was used to increase
inventory levels to support both new and existing stores.
Net cash used in investing activities during the three months ended
September 27, 1997 and September 28, 1996 was $4.1 million and $2.0 million,
respectively. These investments were primarily a result of opening new
superstores and investing in information systems. During the three months ended
September 27, 1997 and September 28, 1996, the Company spent $3.6 million and
$1.3 million, respectively, for capital expenditures for new superstores.
Net cash provided by financing activities during the three months ended
September 27, 1997 and September 28, 1996 was $13.4 million and $7.5 million,
respectively. At September 28, 1997 and September 27, 1996, the outstanding
balance under the Company's Business Loan Agreement with Bank One was $17.5
million and $9.2 million, respectively.
On November 1, 1996, the Company entered into the Business Loan Agreement
with Bank One, which provides for a line of credit facility and allows for
borrowings by the Company in an amount not to exceed the lesser of $25 million
or 50% of merchandise inventories at cost. The line of credit facility expires
on October 1, 1998. Borrowings outstanding under the line of credit facility
bear interest on the average daily outstanding balance, paid monthly, at Bank
One's prime rate or, at the Company's option, at 2.75% over the London Interbank
Offered Rate (LIBOR). The Company is required to pay an annual commitment fee
of 0.25% on the unused portion of the line of credit facility (except that if
the unused portion exceeds $20.0 million the fee increases to 0.40% on the
unused portion) and to comply with certain covenants. The line of credit
facility is secured by a senior lien on substantially all of the Company's
assets.
On October 15, 1997, the Company entered into a Loan and Security Agreement
with Bank One increasing its existing line of credit facility from $25.0 million
to the lesser of $35.0 million or a predetermined advance rate (not to exceed
50%) against net inventory as determined by an appraisal. Interest will be
payable at an annual rate equal to Bank One's prime rate or, at the Company's
option, a rate based on LIBOR plus additional basis points (ranging from 125 to
225 basis points) variable on the Company's effective debt ratio. In addition,
a fee of 0.25% per year will be assessed quarterly on the unused portion of the
facility. This agreement contains restrictive covenants including, among
others, the maintenance of minimum ratios of fixed charges to earnings and
maximum ratios of liabilities to net worth and debt to earnings.
In December 1996, the Company completed an initial public offering of
2,550,000 shares of its common stock. An additional 394,050 shares of common
stock were sold as a result of the exercise by the underwriters of an
over-allotment option in January 1997. The net proceeds of the offering, which
were $22.9 million after deducting associated expenses, were used to retire all
outstanding subordinated debentures, a term loan and the outstanding borrowings
under the revolving credit facility.
In October 1996, the Company entered into two capital lease agreements for
point-of-sale (POS) computer equipment and related software having a total cost
of $2.1 million. During February 1997, financing for $2.4 million of additional
computer equipment was incorporated into one of the leases. During July and
August 1997,
10
<PAGE>
financing for $1.9 million of additional POS and other computer equipment was
also incorporated. These leases have terms of four and five years.
The Company does not intend to pay cash dividends in the foreseeable future
and under its Loan and Security Agreement is restricted from paying dividends on
its capital stock. The Company believes that its cash generated from operations
and its borrowing capacity under the proposed line of credit facility will be
adequate to fund its cash requirements for at least the next 12 months.
11
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
Information with respect to changes in securities is set forth in the
Company's Registration Statement on the Form S-1 (Registration No.
333-13827) dated December 12, 1996, together with the Exhibits
thereto, which is hereby incorporated by reference herein.
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 of Form 8-K
(a) Exhibits.
3.1 Amended and Restated Certificate of Incorporation of the
Company. (1)
3.2 Amended and Restated Bylaws of the Company. (2)
4.1 Specimen of the Company's common stock certificate. (1)
10.7 Loan and Security Agreement dated October 15, 1997 among the
Company, FCO and Bank One, Illinois, NA.
27.1 Financial Data Schedule.
(b) No reports on Form 8-K were filed during the quarter ended
September 27, 1997.
__________________________________
(1) Previously filed as an exhibit to the Company's Registration Statement on
Form S-1 (Registration No. 333-13827), dated December 12, 1996, and
incorporated by reference.
(2) Previously filed as an exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended June 28, 1997, and incorporated by reference.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FACTORY CARD OUTLET CORP.
Dated: November ____, 1997 By: __________________________
Charles R. Cumello,
President
Dated: November ____, 1997 By: __________________________
Glen J. Franchi,
Executive Vice President and Treasurer
(principal financial officer)
13
<PAGE>
LOAN AND SECURITY AGREEMENT
Dated: October 15, 1997
$35,000,000
among
FACTORY CARD OUTLET CORP.
and
FACTORY CARD OUTLET OF AMERICA, LTD.
as Borrowers,
THE LENDERS NAMED HEREIN
as Lenders,
and
BANK ONE, ILLINOIS N.A.
as Agent and Lender
<PAGE>
TABLE OF CONTENTS
Page
SECTION 1. GENERAL DEFINITIONS...............................................1
1.1 Defined Terms.....................................................1
1.2 Accounting Terms.................................................14
1.3 Other Terms......................................................14
1.4 Certain Matters of Construction..................................14
SECTION 2. CREDIT FACILITY..................................................14
2.1 Revolving Credit Loans...........................................15
2.2 Manner of Borrowing Revolving Credit Loans.......................17
2.3 Letters of Credit; LC Guaranties.................................17
2.4 All Loans to Constitute One Obligation...........................18
2.5 Loan Account.....................................................18
SECTION 3. INTEREST, FEES, TERM AND REPAYMENT...............................19
3.1 Interest, Fees and Charges.......................................19
3.2 Letter of Credit and LC Guaranty Fees............................22
3.3 Term of Agreement................................................23
3.4 Termination......................................................23
3.5 Payments.........................................................24
3.6 Application of Payments and Collections..........................25
3.7 Sharing of Payments, Etc.........................................26
3.8 Statements of Account............................................26
SECTION 4. COLLATERAL: GENERAL TERMS.......................................27
4.1 Security Interest in Collateral..................................27
4.2 Lien on Realty...................................................27
4.3 Representations, Warranties and Covenants -- Collateral..........28
4.4 Lien Perfection..................................................28
4.5 Location of Collateral...........................................29
4.6 Insurance of Collateral..........................................29
4.7 Protection of Collateral.........................................30
4.8 Release..........................................................30
SECTION 5. PROVISIONS RELATING TO ACCOUNTS..................................30
5.1 Borrowing Base Certificates, Assignments, Records and
Schedules of Accounts...........................................30
5.2 Collection of Accounts...........................................31
5.3 Notice Regarding Disputed Accounts...............................31
<PAGE>
SECTION 6. PROVISIONS RELATING TO INVENTORY.................................32
6.1 Representations, Warranties and Covenants........................32
6.2 Inventory Reports................................................32
6.3 Returns of Inventory.............................................32
SECTION 7. PROVISIONS RELATING TO EQUIPMENT.................................33
7.1 Representations, Warranties and Covenants........................33
7.2 Evidence of Ownership of Equipment...............................33
7.3 Records and Schedules of Equipment...............................33
SECTION 8. REPRESENTATIONS AND WARRANTIES...................................33
8.1 General Representations and Warranties...........................33
8.2 Reaffirmation....................................................38
8.3 Survival of Representations and Warranties.......................39
SECTION 9. COVENANTS AND CONTINUING AGREEMENTS..............................39
9.1 Affirmative Covenants............................................39
9.2 Negative Covenants...............................................44
9.3 Specific Financial Covenants.....................................49
SECTION 10. CONDITIONS PRECEDENT.............................................50
10.1 Documentation....................................................50
10.2 Other Conditions.................................................52
SECTION 11. EVENTS OF DEFAULT: RIGHTS AND REMEDIES ON DEFAULT................52
11.1 Events of Default................................................52
11.2 Acceleration of the Obligations..................................55
11.3 Remedies.........................................................56
11.4 Remedies Cumulative; No Waiver...................................57
SECTION 12. THE AGENT........................................................57
12.1 Authorization and Action.........................................57
12.2 Agent's Reliance, Etc............................................58
12.3 Bank One and Affiliates..........................................58
12.4 Lender Credit Decision...........................................58
12.5 Indemnification..................................................58
12.6 Successor Agent..................................................59
SECTION 13. MISCELLANEOUS....................................................59
13.1 Power of Attorney................................................59
13.2 Indemnity........................................................60
ii
<PAGE>
13.3 Complete Agreement; Modification of Agreement; Sale of Interest..60
13.4 Reimbursement of Expenses........................................62
13.5 Indulgences Not Waivers..........................................63
13.6 Severability.....................................................64
13.7 Successors and Assigns...........................................64
13.8 Cumulative Effect; Conflict of Terms.............................64
13.9 Execution in Counterparts........................................64
13.10 Notice...........................................................64
13.11 Agent's or Required Lenders' Consent.............................65
13.12 Demand Obligations...............................................65
13.13 Time of Essence..................................................66
13.14 Entire Agreement.................................................66
13.15 Interpretation...................................................66
13.16 GOVERNING LAW; CONSENT TO FORUM..................................66
13.17 WAIVERS BY BORROWERS.............................................67
13.18 Publicity........................................................68
13.19 Reimbursement....................................................68
iii
<PAGE>
SCHEDULES & EXHIBITS
Exhibit A Form of Revolving Credit Note
Exhibit B Form of Borrowing Base Certificate
Exhibit C Form of Compliance Certificate
Exhibit D Form of Opinion Letter
Schedule 4.5 Borrowers' Business Locations
Schedule 8.1(A) Jurisdictions in Which Borrowers are Authorized to do
Business
Schedule 8.1(B) Corporate Names
Schedule 8.1(H) Patents, Trademarks, Copyrights and Licenses
Schedule 8.1(I) Capital Structure
Schedule 8.1(K) Contracts Restricting Borrowers' Right to Incur Debts
Schedule 8.1(L) Litigation
Schedule 8.1(P) Pension Plans
Schedule 8.1(R) Labor Contracts
Schedule 8.1(S) Exceptions to Compliance with Laws
Schedule 8.1(T) Surety Obligations
Schedule 8.1(Y)-1 Capitalized Leases
Schedule 8.1(Y)-2 Operating Leases
Schedule 9.2(H) Permitted Liens
iv
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LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT is made this 15th day of October, 1997 by
and among FACTORY CARD OUTLET CORP., a Delaware corporation ("Factory Corp.")
having its chief executive office at 745 Birginal Drive, Bensenville, Illinois
60106, FACTORY CARD OUTLET OF AMERICA, LTD., an Illinois corporation ("Factory
Ltd.") having its chief executive office at 745 Birginal Drive, Bensenville,
Illinois 60106, the lenders who are or who may from time to time become
signatories hereto ("Lenders"), and BANK ONE, ILLINOIS N.A., a national banking
association having an office at 200 South Wacker Drive, Chicago, Illinois 60606
("Bank One"), as agent for the Lenders hereunder (Bank One, in such capacity,
being "Agent"). Factory Corp. and Factory Ltd. are sometimes hereinafter
collectively referred to as "Borrowers" and individually as a "Borrower".
SECTION 1. GENERAL DEFINITIONS
1.1 Defined Terms. When used herein, the following terms shall have the
following meanings (terms defined in the singular to have the same meaning when
used in the plural and vice versa):
Account Debtor - any Person who is or may become obligated under or on
account of an Account.
Accounts - all accounts, contract rights, chattel paper, instruments
and documents, whether now owned or hereafter created or acquired by either
Borrower or in which either Borrower now has or hereafter acquires any
interest.
Accounts Payable - at any date means the amount at which all of the
accounts payable of a Person would be properly classified as accounts
payable on a balance sheet at such date in accordance with GAAP.
Adjusted Tangible Assets - all assets except: (i) any surplus
resulting from any write-up of assets subsequent to March 31, 1997;
(ii) deferred assets, other than prepaid insurance and prepaid taxes;
(iii) patents, copyrights, trademarks, trade names, non-compete agreements,
franchises and other similar intangibles; (iv) goodwill, including any
amounts, however designated on a Consolidated balance sheet of a Person or
its Subsidiaries, representing the excess of the purchase price paid for
assets or stock over the value assigned thereto on the books of such
Person; (v) unamortized debt discount and expense; (vi) assets located and
notes and receivables due from obligors outside of the United States of
America; and (vii) Accounts, notes and other receivables due from
Affiliates or employees.
Adjusted Tangible Net Worth - at any date means a sum equal to:
(i) the net book value (after deducting related depreciation, obsolescence,
amortization, valuation, and other
<PAGE>
proper reserves) at which the Adjusted Tangible Assets of a Person would
be shown on a balance sheet at such date in accordance with GAAP, minus
(ii) the amount at which such Person's liabilities (other than capital
stock and surplus) would be shown on such balance sheet in accordance with
GAAP.
Affiliate - a Person (other than a Subsidiary): (i) which directly or
indirectly through one or more intermediaries controls, or is controlled
by, or is under common control with, either Borrower; (ii) which
beneficially owns or holds 5% or more of any class of the Voting Stock of
either Borrower; or (iii) 5% or more of the Voting Stock (or in the case of
a Person which is not a corporation, 5% or more of the equity interest) of
which is beneficially owned or held by either Borrower or a Subsidiary of
either Borrower. For purposes hereof, "control" means the possession,
directly or indirectly, of the power to direct or cause the direction of
the management and policies of a Person, whether through the ownership of
Voting Stock, by contract or otherwise.
Agent - as defined in the first paragraph of this Agreement.
Agreement - this Loan and Security Agreement.
ALTA Survey - a survey prepared in accordance with the standards
adopted by the American Land Title Association and the American Congress on
Surveying and Mapping in 1986, known as the "Minimum Standard Detail
Requirements of Land Title Surveys". The ALTA Survey shall be in
sufficient form to satisfy the requirements of Chicago Title Insurance
Company (or such other title insurance company as is reasonably acceptable
to Agent) to provide extended coverage over survey defects and shall also
show the location of all easements, utilities, and covenants of record,
dimensions of all improvements, encroachments from any adjoining property,
and certify as to the location of any flood plain area affecting the
subject real estate. The ALTA Survey shall contain the following
certification: "[Name of applicable Borrower], Bank One, Illinois N.A. as
Agent, and Chicago Title Insurance Company (or such other title insurance
company as is reasonably acceptable to Agent). This is to certify that
this map of plat and the survey on which it is based were made in
accordance with the "Minimum Standard Detail Requirements for Land Title
Surveys" jointly established and adopted by ALTA and ACSM in 1992. (signed
(SEAL) License No. _________________".
Applicable LIBOR Margin - an amount (in basis points) determined by
Borrowers' Maximum Effective Debt Ratio (calculated on a rolling four
quarter basis) as follows:
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Maximum
Effective Debt Ratio Applicable LIBOR Margin
LESS THAN 6.25 125
6.26 GREATER THAN OR EQUAL TO 6.50 150
6.51 GREATER THAN OR EQUAL TO 6.75 175
6.76 GREATER THAN OR EQUAL TO 7.00 200
GREATER THAN 7.00 225
The Applicable LIBOR Margin shall be calculated or recalculated on the
date on which the financial statements for each fiscal quarter of Borrowers are
delivered pursuant to Section 9.1(J) hereof. Each change in the Applicable
LIBOR Margin resulting from a calculation or recalculation thereof shall be
applicable from the date of calculation or recalculation to the next date of
calculation or recalculation (e.g., the Applicable LIBOR Margin determined using
financial statements for the fiscal period ending September 30, 1997 will apply
for the fiscal quarter ending March 31, 1998). Until the calculation date
attributable to the financial statements for the fiscal period ended
December 31, 1997, the Applicable LIBOR Margin shall be one hundred fifty basis
points (150).
Bank One - as defined in the first paragraph of this Agreement.
Board - the Board of Governors of the Federal Reserve System of the
United States.
Borrowed Money - as applied to Indebtedness, means (i) Indebtedness
for borrowed money; (ii) Indebtedness, whether or not in any such case the
same was for borrowed money, (A) which is represented by notes payable or
drafts accepted that evidence extensions of credit, (B) which constitutes
obligations evidenced by bonds, debentures, notes or similar instruments,
or (C) upon which interest charges are customarily paid (other than
accounts payable) or that was issued or assumed as full or partial payment
for Property; (iii) Indebtedness that constitutes a Capitalized Lease
Obligation; (iv) reimbursement obligations with respect to letters of
credit and (v) Indebtedness under any guaranty of obligations that would
constitute Indebtedness for Borrowed Money under clauses (i) through (iv)
hereof.
Borrowers - as defined in the first paragraph of this Agreement.
Borrowing Base - as at any date of determination thereof, an amount
equal to the lesser of:
(a) the Maximum Revolving Credit Loan; and
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<PAGE>
(b) an amount equal to fifty percent (50%), or such lesser
percentage as Required Lenders may in the exercise of their reasonable
credit judgement determine from time to time, of the value of Eligible
Inventory at such date consisting of finished goods, calculated on the
basis of the lower of cost or market, as determined by Agent, in its
reasonable discretion, on a first-in, first-out ("FIFO") basis;
MINUS (subtract from the lesser of clauses (a) and (b)
above)
(c) an amount equal to the sum of (i) the face amount of all LC
Guaranties and Letters of Credit issued by Agent or any Lender and
outstanding at such date, plus (ii) any amounts which Agent and/or
Lenders may then be obligated to pay for the account of Borrowers
under this Agreement.
Business Day - (i) when used with respect to the LIBOR Option, shall
mean a day on which dealings may be effected in deposits of United States
dollars in the London interbank foreign currency deposits market and on
which the Lenders are conducting business and on which banks may conduct
business in London, England, Chicago, Illinois, and New York, New York and
(ii) when used with respect to the other provisions of this Agreement,
shall mean any day that is not a Saturday, a Sunday or a day on which banks
are required or permitted to be closed in the State of Illinois.
Capitalized Lease Obligation - any monetary obligations under a lease
that is required to be capitalized for financial reporting purposes in
accordance with GAAP and the amount of such obligations shall be the
capitalized amount of such thereof determined in accordance with GAAP.
Cash and Cash Equivalents - at any time, any assets of Borrowers which
are in the form of, or are readily convertible into money, including
without limitation, cash, checks, and other demand negotiable instruments,
deposits with any bank or financial institution (whether as demand deposits
or time deposits, and whether or not evidenced by certificates of deposit),
and readily marketable securities of any type.
Closing Date - the date on which all of the conditions precedent in
Section 10 are satisfied and the initial Revolving Credit Loan is made
hereunder.
Code - the Uniform Commercial Code as adopted and in force in the
State of Illinois, as from time to time in effect.
Collateral - all of the Property and interests in Property described
in Section 4 hereof, and all other Property and interest in Property that
now or hereafter secure the payment and performance of any of the
Obligations.
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<PAGE>
Commitment Termination Date - the earliest of (i) June 30, 1999, (ii)
the date of termination of the commitment to make further Revolving Credit
Loans pursuant to Section 3.3 or 3.4 hereof, and (iii) the date of
termination of the commitment to make further Revolving Credit Loans
pursuant to Section 11.2 hereof.
Consolidated and Consolidating - the consolidation and consolidating
in accordance with GAAP of the accounts or other items as to which such
term applies.
Current Assets - at any date means the amount at which all of the
current assets of a Person would be properly classified as current assets
shown on a balance sheet at such date in accordance with GAAP except that
amounts due from Affiliates and investments in Affiliates shall be excluded
therefrom.
Current Liabilities - at any date means the amount at which all of the
current liabilities of a Person would be properly classified as current
liabilities on a balance sheet at such date in accordance with GAAP except
amounts owed to Affiliates.
Default - an event or condition the occurrence of which would, with
the lapse of time or the giving of notice, or both, become an Event of
Default.
Default Rate - as defined in Section 3.1(C) of this Agreement.
Distribution - in respect of any corporation means and includes: (i)
the payment of any dividends or other distributions on capital stock of the
corporation (except distributions in such stock) and (ii) the redemption or
acquisition of Securities unless made contemporaneously from net proceeds
of the sale of Securities, or made by the exchange of capital stock or
warrants or options for the Securities.
EBIDA - for any period shall mean Borrowers' Consolidated earnings for
such period before interest expense, depreciation and amortization expense
for such period.
EBIDAR - for any period shall mean Borrowers' Consolidated earnings
for such period before interest expense, depreciation and amortization
expense, and rent expense for such period.
Eligible Inventory - Inventory of either Borrower (other than
packaging materials, supplies, distribution costs and inventory
capitalization charges) which Agent, in the exercise of its reasonable
credit judgment, deems to be Eligible Inventory. Without limiting the
generality of the foregoing, no Inventory shall be Eligible Inventory
unless, in Agent's opinion, it (i) is in good, new and saleable condition,
(ii) is not obsolete or unmerchantable, (iii) meets all standards imposed
by any governmental agency or authority, (iv) conforms in all respects to
the warranties and representations set forth in Section 6.1 hereof, (v) is
at all times subject to Agent's duly perfected, first priority security
interest and no other Lien
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<PAGE>
except a Permitted Lien, (vi) is located at a Borrower location with
respect to which a landlord or warehouseman waiver has been delivered
to Agent (provided that this provision shall only be arequirement for
Eligible Inventory following January ___, 1998), and (vii) is situated at
a location in compliance with Section 4.5 hereof and is not in-transit.
Environmental Laws - all federal, state and local laws, rules,
regulations, ordinances, programs, permits, guidances, orders and consent
decrees relating to health, safety and environmental matters, including,
but not limited to, the Resource Conservation and Recovery Act, the
Comprehensive Environmental Response, Compensation and Liability Act of
1980, the Toxic Substances Control Act, as amended, the Clean Water Act,
the River and Harbor Act, Water Pollution Control Act, the Marine
Protection Research and Sanctuaries Act, the Deep-Water Port Act, the Safe
Drinking Water Act, the SuperFund Amendments and Reauthorization Act of
1986, the Federal Insecticide, Fungicide and Rodenticide Act, the Mineral
Lands and Leasing Act, the Surface Mining Control and Reclamation Act,
state and federal superlien and environmental clean up programs and laws,
and U.S. Department of Transportation regulations.
Equipment - all machinery, apparatus, equipment, fittings, furniture,
fixtures, motor vehicles and other tangible personal Property (other than
Inventory) of every kind and description, whether now owned or hereafter
acquired by either Borrower and wherever located, and all parts,
accessories and special tools therefor and all increases and accessions
thereto and substitutions and replacements therefor.
ERISA - the Employee Retirement Income Security Act of 1974 as amended
and all final rules and regulations from time to time promulgated
thereunder.
Event of Default - as defined in Section 11.1 of this Agreement.
GAAP - generally accepted accounting principles in the United States
of America.
General Intangibles - all general intangibles of Borrowers, whether
now owned or hereafter created or acquired by either Borrower, including,
without limitation, all choses in action, causes of action, corporate or
other business records, deposit accounts, inventions, designs, patents,
patent applications, trademarks, trade names, trade secrets, goodwill,
copyrights, registrations, licenses, franchises, customer lists, tax refund
claims, computer programs, all claims under guaranties, security interests
or other security held by or granted to either Borrower to secure payment
of any of the Accounts by an Account Debtor, all rights to indemnification
and all other intangible property of every kind and nature (other than
Accounts).
Hazardous Substance - the meaning given such term in 42 USC Section
9601(14), 42 USC Section 9601(33) and 42 USC Section 6991(8) or any state
or local counterpart Environmental Law.
6
<PAGE>
Indebtedness - as applied to a Person means, without duplication (i)
all items which in accordance with GAAP would be included in determining
total liabilities as shown on the liability side of a balance sheet of such
Person as at the date as of which Indebtedness is to be determined,
including, without limitation, Capitalized Lease Obligations, (ii) all
obligations of other Persons which such Person has guaranteed, (iii)
reimbursement obligations in connection with letters of credit issued for
the benefit of such Person and (iv) in the case of Borrowers (without
duplication), the Obligations.
Inventory - all of Borrowers' inventory, whether now owned or
hereafter acquired by either Borrower, including, but not limited to, all
goods intended for sale or lease by either Borrower, or for display or
demonstration; all work in process; all raw materials and other materials
and supplies of every nature and description used or which might be used in
connection with the manufacture, printing, packing, shipping, advertising,
selling, leasing or furnishing of such goods or otherwise used or consumed
in either Borrower's business; and all documents evidencing and General
Intangibles relating to any of the foregoing, whether now owned or
hereafter acquired by either Borrower.
LC Guaranty - a guaranty executed by any Lender or by Agent, as agent
for Lenders, at either Borrower's request in favor of a Person who has
issued a letter of credit for the account of either Borrower.
Legal Requirement - any requirement imposed upon any Lender by any law
of the United States of America or the United Kingdom or by any regulation,
order, interpretation, ruling or official directive (whether or not having
the force of law) of the Board, the Bank of England or any other board,
central bank or governmental or administrative agency, institution or
authority of the United States of America, the United Kingdom or any
political subdivision of either thereof.
Letter of Credit - a standby or documentary letter of credit at any
time issued by Agent or any Lender for the account of either Borrower.
LIBOR Interest Payment Date - with respect to any LIBOR Revolving
Credit Portion, the last day of the applicable LIBOR Period.
LIBOR Option - the option granted pursuant to Section 3.1(B) to have
the interest on all or any portion of the principal amount of the Revolving
Credit Loan based on a LIBOR Rate.
LIBOR Period - any period, selected as provided below in Section
3.1(B) of 1 month, 2 months or 3 months, commencing on any Business Day,
subject to the provisions of Section 3.1(B); provided, however, that no
LIBOR Period shall extend beyond the last day of the term of this
Agreement, unless Borrowers and all Lenders have agreed to an extension of
such term, beyond the expiration of the LIBOR Period in question. If any
LIBOR Period
7
<PAGE>
so selected shall end on a date that is not a Business Day, such LIBOR
Period shall instead end on the next preceding or succeeding Business Day as
determined by the Agent in accordance with the then current banking practice
in London; provided, that Borrowers shall not be required to pay double
interest, even though the preceding LIBOR Period ends and the new LIBOR
Period begins on the same day. Each determination by the Agent of LIBOR
Period shall, in the absence of manifest error, be conclusive, and at
either Borrower's request Agent shall demonstrate the basis of such
determination.
LIBOR Rate - with respect to any LIBOR Revolving Credit Portion for
the related LIBOR Period, an interest rate per annum (rounded upwards, if
necessary, to the next higher 1/16 of 1%) equal to the product of (a) the
Base LIBOR Rate (as hereinafter defined) and (b) Statutory Reserves. For
purposes of this definition, the term "Base LIBOR Rate" shall mean the rate
(rounded to the nearest 1/16 of 1% or, if there is no nearest 1/16 of 1%,
the next higher 1/16 of 1%) at which deposits of U.S. dollars approximately
equal in principal amount to the LIBOR Revolving Credit Portion specified
in the applicable LIBOR Request are offered to major banks in the London
interbank foreign currency deposits market at approximately 11:00 a.m.,
London time, two (2) Business Days prior to the commencement of such LIBOR
Period, for delivery on the first day of such LIBOR Period. Each
determination of Agent of any LIBOR Rate shall in the absence of manifest
error, be conclusive, and at either Borrower's request, Agent shall
demonstrate the basis for such determination.
LIBOR Request - a notice in writing (or by telephonic communication
confirmed by telex, telecopy or other facsimile transmission on the same
day as the telephone request) from Borrowers to Agent requesting that
interest on a LIBOR Revolving Credit Loan be based on the LIBOR Rate,
specifying: (i) the first day of the LIBOR Period, (ii) the length of the
LIBOR Period consistent with the definition of that term, and (iii) a
dollar amount of the LIBOR Revolving Credit Portion consistent with the
definition of such terms.
LIBOR Revolving Credit Portion - that portion of the Revolving Credit
Loan specified in a LIBOR Request (including any Revolving Credit Loan
which is being borrowed by Borrowers concurrently with such LIBOR Request)
which is not less than $1,000,000 and an integral multiple of $500,000,
which does not exceed the outstanding balance of Revolving Credit Loans
(including any Revolving Credit Loan which is being borrowed by Borrowers
concurrently with such LIBOR Request) not already subject to a LIBOR Option
and, which, as of the date of the LIBOR Request specifying such LIBOR
Revolving Credit Portion, has met the conditions for basing interest on the
LIBOR Rate in Section 3.1(B) hereof and the LIBOR Period of which was
commenced and not terminated. Each LIBOR Revolving Credit Portion shall be
allocated among Lenders in accordance with their respective Revolving
Credit Percentage.
Lien - any interest in Property securing an obligation owed to, or a
claim by, a Person other than the owner of the Property, whether such
interest is based on the common law,
8
<PAGE>
statute or contract, and including, but not limited to, the security
interest, security title or lien arising from a security agreement,
mortgage, deed of trust, deed to secure debt, encumbrance, pledge,
conditional sale or trust receipt or a lease, consignment or bailment for
security purposes. The term "Lien", when used in respect to real Property,
shall include reservations, exceptions, encroachments, easements,
rights-of-way, covenants, conditions, restrictions, leases and other
title exceptions and encumbrances affecting Property. For the purpose of
this Agreement, Borrowers shall be deemed to be the owner of any Property
which either of them has acquired or holds subject to a conditional sale
agreement or other arrangement pursuant to which title to the Property has
been retained by or vested in some other Person for security purposes.
Loan Account - the loan account established on the books of Agent
pursuant to Section 2.5 hereof.
Loan Documents - this Agreement, the Other Agreements and the Security
Documents.
Loans - all loans and advances made by Lenders pursuant to this
Agreement, including, without limitation, all Revolving Credit Loans, and
each payment made pursuant to an LC Guaranty and each payment made by Agent
or Lender pursuant to a Letter of Credit.
Lockbox Account - the lockbox account of Borrowers at Bank created
pursuant to the lockbox agreement in the form customarily prescribed by
Bank.
Maximum Effective Debt Ratio - at any date of determination, the ratio
of (i) Borrowers' average Consolidated Indebtedness for Money Borrowed for
the immediately preceding four fiscal quarters ended with such date, plus
eight times the Borrowers' consolidated operating real estate lease expense
for the four consecutive fiscal quarters ended on such date to (ii) the
Borrowers' Consolidated EBIDA for the four fiscal consecutive quarters
ended on such date; plus without duplication,
(A) any increase in inventory capitalization during such period; minus
(B) any decrease in inventory capitalization during such period; plus
(C) any non-reoccurring items of expense or loss for such period; minus
(D) any non-reoccurring items of income or gain for such period; plus
(E) all operating real estate lease expense for such period.
Maximum Revolving Credit Loan - Thirty-Five Million Dollars
($35,000,000).
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<PAGE>
Minimum Fixed Charge Ratio - with respect to any fiscal period, the
ratio of (x) EBIDAR, minus (i) an increase in inventory capitalization,
plus (ii) a decrease in inventory capitalization, plus or minus (iii) other
nonrecurring items, to (y) the sum of regularly scheduled principal
payments on Money Borrowed paid in cash within such period, plus (i)
interest expense, plus (ii) operating lease expense, plus (iii) an increase
in deferred rent expense, minus (iv) a decrease in deferred rent expense.
Money Borrowed - as applied to Indebtedness, means (i) Indebtedness
for borrowed money; (ii) Indebtedness, whether or not in any such case the
same was for borrowed money, (A) which is represented by notes payable or
drafts accepted that evidence extensions of credit, (B) which constitutes
obligations evidenced by bonds, debentures, notes or similar instruments,
or (C) upon which interest charges are customarily paid (other than
accounts payable) or that was issued or assumed as full or partial payment
for Property; (iii) Indebtedness that constitutes a Capitalized Lease
Obligation; (iv) reimbursement obligations with respect to letters of
credit and (v) Indebtedness under any guaranty of obligations that would
constitute Indebtedness for Money Borrowed under clauses (i) through (iv)
hereof.
Multiemployer Plan - has the meaning set forth in Section 4001(a)(3)
of ERISA.
New Mortgages - as defined in Section 4.2 hereof.
Note(s) - the Revolving Credit Notes.
Obligations - all Loans and all other advances, letter of credit
reimbursement obligations, and/or any debts, liabilities, obligations,
covenants and duties owing, arising, due or payable from Borrowers to Agent
and/or any Lender of any kind or nature, present or future, whether or not
evidenced by any note, guaranty or other instrument, arising under this
Agreement or any of the other Loan Documents or under any interest rate
protection agreements or products with any Lender (including those acquired
by assignment pursuant to the terms hereof), whether absolute or
contingent, primary or secondary, due or to become due, now existing or
hereafter arising and however acquired. The term includes, without
limitation, all interest, charges, expenses, fees, attorney's fees and any
other sums chargeable to Borrowers under any of the Loan Documents.
Original Term - as defined in Section 3.3 of this Agreement.
OSHA - the Occupational Safety and Health Act and all rules and
regulations from time to time promulgated thereunder.
Other Agreements - any and all agreements, instruments and documents
(other than this Agreement and the Security Documents), heretofore, now or
hereafter executed by Borrowers or either one of them and delivered to
Agent and/or Lenders in respect to the
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<PAGE>
transactions contemplated by this Agreement, including, without limitation,
the Revolving Credit Notes.
Participating Lender - each Person who shall be granted the right by
any Lender to participate in any of the Loans described in this Agreement
and who shall have entered into a participation agreement.
Permitted Investments - the investments described in clauses (i)
through (vii) of the definition of Restricted Investment.
Permitted Liens - any Lien of a kind specified in subparagraphs (i)
through (ix) of Section 9.2(H) of this Agreement.
Permitted Purchase Money Indebtedness - Purchase Money Indebtedness of
Borrowers incurred after the date hereof which is secured by a Purchase
Money Lien and which, when aggregated with the principal amount of all
other such Purchase Money Indebtedness and Capitalized Lease Obligations of
Borrowers at the time outstanding, does not exceed Twelve Million Dollars
($12,000,000). For the purposes of this definition, the principal amount
of any Purchase Money Indebtedness consisting of capitalized leases shall
be computed as a Capitalized Lease Obligation.
Person - an individual, partnership, corporation, joint stock company,
land trust, business trust, or unincorporated organization, or a government
or agency or political subdivision thereof.
Plan - an employee benefit plan now or hereafter maintained for
employees of Borrowers to which Title IV of ERISA applies.
Prime Rate - on any day, the "prime rate" of interest quoted by Bank
One, Illinois N.A.
Prime Revolving Credit Loan Portion - that portion of the Revolving
Credit Loan not subject to a LIBOR Option.
Prohibited Transaction - any transaction set forth in Section 406 of
ERISA or Section 4975 of the Internal Revenue Code of 1986.
Projections - Borrowers' forecasted Consolidated and Consolidating (a)
balance sheets, (b) profit and loss statements, (c) cash flow statements,
and (d) capitalization statements, all prepared on a consistent basis with
Borrowers' historical financial statements, together with appropriate
supporting details and a statement of underlying assumptions.
Property - any interest in any kind of property or asset, whether
real, personal or mixed, or tangible or intangible.
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<PAGE>
Purchase Money Indebtedness - means and includes (i) Indebtedness
(other than the Obligations) for the payment of all or any part of the
purchase price of any fixed assets, (ii) any Indebtedness (other than the
Obligations) incurred at the time of or within ten (10) days prior to or
after the acquisition of any fixed assets for the purpose of financing all
or any part of the purchase price thereof, and (iii) any renewals,
extensions or refinancings thereof, but not any increases in the principal
amounts thereof outstanding at the time.
Purchase Money Lien - a Lien upon fixed assets which secure Purchase
Money Indebtedness, but only if such Lien shall at all times be confined
solely to the fixed assets the purchase price of which was financed through
the incurrence of the Purchase Money Indebtedness secured by such Lien plus
any down payment or initial payment.
Release - as defined in 42 USC Section 9601 (22).
Rentals - as defined in Section 9.2(V) of this Agreement.
Renewal Terms - as defined in Section 3.3 of this Agreement.
Reportable Event - any of the events set forth in Section 4043(b) of
ERISA, as to which the requirement of PBGC notice has not been waived by
regulations.
Required Lenders - as of any date, the holders of Notes evidencing at
least sixty-six percent (66%) of the aggregate principal amount of the
Notes.
Restricted Investment - any investment in cash or by delivery of
Property to any Person, whether by acquisition of stock, Indebtedness or
other obligation or Security, or by loan, advance or capital contribution,
or otherwise, or in any Property except the following: (i) investments in
one or more Subsidiaries of either Borrower; (ii) Property to be used in
the ordinary course of Borrowers' business; (iii) current assets arising
from the sale of goods and services in the ordinary course of business of
either Borrower and its Subsidiaries; (iv) investments in direct
obligations of the United States of America, or any agency thereof or
obligations guaranteed by the United States of America, provided that such
obligations mature within one year from the date of acquisition thereof;
(v) investments in certificates of deposit maturing within one year from
the date of acquisition issued by a bank or trust company organized under
the laws of the United States or any state thereof having capital surplus
and undivided profits aggregating at least $100,000,000 (a "Qualified
Bank"); (vi) investments in commercial paper given the highest or second
highest rating by a national credit rating agency and maturing not more
than two hundred seventy (270) days from the date of creation thereof; and
(vii) money market instruments with maturities not greater than 90 days at
a Qualified Bank.
Revolving Credit Loan - a Loan made by Lenders as provided in Section
2.1 of this Agreement.
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Revolving Credit Notes - the Revolving Credit Notes to be executed by
Borrowers on or prior to the Closing Date in favor of Lenders to evidence
the Revolving Credit Loans, which shall be in the form of Exhibit A
attached hereto.
Security - shall have the same meaning as in Section 2(1) of the
Securities Act of 1933, as amended.
Security Documents - each New Mortgage, the Trademark Assignment and
all other instruments and agreements now or at any time hereafter securing
the whole or any part of the Obligations.
Solvent - as to any Person, such Person (i) owns Property with a fair
saleable value greater than the amount required to pay all of such Person's
Indebtedness (including contingent debts), (ii) is able to pay all of its
Indebtedness as such Indebtedness matures in the normal course and (iii)
has capital sufficient to carry on its business and transactions and all
business and transactions in which it is about to engage.
Statutory Reserves - a fraction (expressed as a decimal), the
numerator of which is the number one and the denominator of which is the
number one minus the aggregate of the maximum reserve percentages
(including, without limitation, any marginal, special, emergency or
supplemental reserves), expressed as a decimal, established by the Board
and any other banking authority to which the Agent or any Lender is subject
for Eurocurrency Liabilities (as defined in Regulation D of the Board or
any successor thereto). Such reserve percentages shall include, without
limitation, those imposed under such Regulation D. LIBOR Revolving Credit
Portions shall be deemed to constitute Eurocurrency Liabilities and as such
shall be deemed to be subject to such reserve requirements without benefit
of or credit for proration, exceptions or offsets which may be available
from time to time to Agent or any Lender under such Regulation D.
Statutory Reserves shall be adjusted automatically on and as of the
effective date of any change in any reserve percentage.
Subordinated Debt - Indebtedness of either Borrower that is
subordinated to the Obligations, pursuant to terms satisfactory to the
Required Lenders.
Subsidiary - any corporation of which a Person owns, directly or
indirectly through one or more intermediaries, more than 50% of the Voting
Stock at the time of determination.
Tax - in relation to any LIBOR Revolving Credit Portion and the
applicable LIBOR Rate, any tax, levy, impost, duty, deduction, withholding
or charges of whatever nature required by any Legal Requirement (i) to be
paid by any Lender and/or (ii) to be withheld or deducted from any payment
otherwise required hereby to be made by Borrowers to any Lender; provided,
that the term "Tax" shall not include any taxes imposed upon the net income
of any Lender.
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Trademark Assignment - the Trademark and License Security Agreement to
be executed by Borrowers on or about the Closing Date in favor of Agent,
for its benefit and the ratable benefit of Lenders, and by which Borrowers
shall assign to Agent, for its benefit and the ratable benefit of Lenders,
and grant to Agent, for its benefit and the ratable benefit of Lenders, a
security interest in, as security for the Obligations all of Borrowers'
right, title and interest in and to all of its trademarks.
Voting Stock - Securities of any class or classes of a corporation the
holders of which are ordinarily, in the absence of contingencies, entitled
to elect a majority of the corporate directors (or Persons performing
similar functions).
1.2 Accounting Terms. All accounting terms not specifically defined
herein shall be construed in accordance with GAAP and all financial data
pursuant to the Agreement shall be prepared in accordance with such principles.
1.3 Other Terms. All other terms contained in this Agreement shall have,
when the context so indicates, the meanings provided for by the Code to the
extent the same are used or defined therein.
1.4 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. Unless otherwise specified, all references to
statutes and related regulations shall include any amendments of same and any
successor statutes and regulations. Unless otherwise specified, all references
to any instruments or agreements, including, without limitation, references to
any of the Loan Documents, shall include any and all modifications thereto and
any and all extensions or renewals thereof. Wherever from the context it
appears appropriate, each term stated in either the singular or plural shall
include the singular and the plural, and pronouns stated in the masculine,
feminine or neuter gender shall include the masculine, the feminine and the
neuter.
SECTION 2. CREDIT FACILITY
Subject to the terms and conditions of, and in reliance upon the
representations and warranties made in, this Agreement and the other Loan
Documents, Lenders severally agree to make a total credit facility of up to
Thirty-Five Million Dollars ($35,000,000) available upon Borrowers' request
therefor, as follows:
2.1 Revolving Credit Loans.
(A) The maximum aggregate amount of the Revolving Credit Loans to be
made by each Lender (such Lender's "Revolving Credit Loan Commitment"), pursuant
to the terms hereof,
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shall be the amount set below such Lender's name on the signature pages
hereof. The aggregate principal amount of the Revolving Credit Loan
Commitments is Thirty-Five Million Dollars ($35,000,000). The percentage
equal to the quotient of (x) each Lender's Revolving Credit Loan Commitment,
divided by (y) the aggregate of all Revolving Credit Loan Commitments, is
that Lender's "Revolving Credit Percentage". Subject to all of the terms and
conditions of this Agreement, each Lender agrees, for so long as no Default
or Event of Default exists, to make Revolving Credit Loans to Borrowers from
time to time, as requested by Borrowers in accordance with the terms of
Section 2.2 hereof, up to a maximum principal amount at any time outstanding
equal to the product of (A) the Borrowing Base at such time, multiplied by
(B) such Lender's Revolving Credit Percentage. It is expressly understood
and agreed that Agent and Lenders may use the Borrowing Base as a maximum
ceiling on Revolving Credit Loans outstanding to Borrowers at any time. If
the unpaid balance of the Revolving Credit Loans should exceed the ceiling so
determined or any other limitation set forth in this Agreement, such
Revolving Credit Loans shall nevertheless constitute Obligations that are
secured by the Collateral and entitled to all the benefits thereof. In no
event shall Lenders be required to make a Loan at any time that there exists
a Default or an Event of Default. Notwithstanding the foregoing provisions of
this Section 2.1(A), Agent shall have the right to establish reserves in such
amounts, and with respect to such matters, as Agent shall, in the reasonable
exercise of its discretion, deem necessary or appropriate, against the amount
of Revolving Credit Loans which Borrowers may otherwise request under this
Section 2.1(A), including, without limitation, with respect to (i) price
adjustments, damages, unearned discounts, returned products or other matters
for which credit memoranda are issued in the ordinary course of Borrowers'
business; (ii) shrinkage, spoilage and obsolescence of Inventory; (iii) slow
moving Inventory; (iv) other sums chargeable against Borrowers' Loan Account
as Revolving Credit Loans under any section of this Agreement; and (v) such
other matters, events, conditions or contingencies as to which Agent, in the
commercially reasonable exercise of its credit judgment, determines reserves
should be established from time to time hereunder. Except as otherwise
provided in Section 3.1(B), each Revolving Credit Loan shall be made on
notice, given not later than 11:00 a.m. (Chicago time) on the Business Day of
the proposed Revolving Credit Loan, by Borrowers to Agent, which shall give
to each Lender prompt written notice thereof by telecopy, telex or cable.
Each such notice (a "Notice of Revolving Credit Loan") shall be in writing or
by telex, telecopy or other facsimile transmission confirmed by original copy
delivered within one Business Day to the account executive of Agent in charge
of Borrowers' account (Karen Orlich at Closing) of Agent or by telephone to
Karen Orlich of Agent at (312) 627-5824, confirmed immediately in writing,
specifying therein the requested date and amount of such Revolving Credit
Loan. Each Lender shall, not later than 1:00 p.m. (Chicago time) on each
requested date, wire to the Agent the amount of that Lender's Revolving
Credit Percentage of the requested Revolving Credit Loan. The failure of any
Lender to make the Revolving Credit Loan to be made by it shall not relieve
any other Lender of its obligation hereunder to make its Revolving Credit
Loan. Neither Agent nor any other Lender shall be responsible for the
failure of any other Lender to make the Revolving Credit Loan to be made by
such other Lender. The foregoing notwithstanding, unless otherwise notified
by any Lender, Agent in its sole discretion, may from its own funds, make a
Revolving Credit Loan on behalf of any Lender hereto for a period not to
exceed one (1) week. In such event, the Lender on behalf of whom Agent made
the Revolving Credit Loan shall reimburse Agent for the amount of Revolving
Credit
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Loan so made on its behalf, on a weekly (or more frequent basis as determined
by Agent, in its sole discretion) basis and the entire amount of interest
attributable to such Revolving Credit Loan for the period from the date on
which said Revolving Credit Loan was made by Agent on such Lender's behalf
until Agent is reimbursed by such Lender, shall be paid to Agent. The entire
amount of interest attributable to such Revolving Credit Loans made by Agent
on behalf of any such Lender for the period from the date on which said
Revolving Credit Loan was made by Agent on such Lender's behalf until Agent
is reimbursed by such Lender, shall be paid to Agent.
If at any time one or more Lenders refuse or fail to make a requested
Revolving Credit Loan when all conditions to a Revolving Credit Loan have been
satisfied or waived, then Agent may, at its option, but shall have no obligation
whatsoever to, purchase all, but not less than all, of the Revolving Credit
Notes held by the Lender(s) who so fail or refuse, and to assume such Lender's
commitments to make Revolving Credit Loans and each such Lender shall be
obligated to sell and transfer such Revolving Credit Notes to Agent for a price
in cash equal to the principal balance outstanding plus all accrued but unpaid
interest thereon plus all accrued fees due any such Lender under the terms
hereof, and the foregoing provisions of this Section will be applicable to Agent
with respect to the Revolving Credit Notes so purchased by it. Any such
purchase, however, shall not relieve any such Lender from any breach of contract
claims available to Agent and/or Borrowers against such Lender as a result of
its failure to make any such Revolving Credit Loan.
(B) The Revolving Credit Loans shall be evidenced by promissory notes
to be executed and delivered by Borrowers at the time of the initial Revolving
Credit Loan, the form of which is attached hereto and made a part hereof as
Exhibit A. Each Revolving Credit Note shall be payable to the order of Lender
and shall represent the obligation of Borrowers to pay the amount of such
Lender's Revolving Credit Loan Commitment or, if less, the aggregate unpaid
principal amount of all Revolving Credit Loans made by such Lender to Borrowers
with interest thereon as prescribed in Section 3.1 and any other amounts owed
Lenders with respect to such Revolving Credit Loans, including but not limited
to, any amounts owed pursuant to Section 3.1(B)(ii) hereof.
Borrower may pay the Revolving Credit Loan in whole or in part,
without premium or penalty, and (subject to the terms and conditions hereof) may
reborrow the Revolving Credit Loans at any time and from time to time.
(C) The Revolving Credit Loans shall be used for the satisfaction of
existing Indebtedness for Money Borrowed of Borrowers, for Borrowers' general
operating capital needs and for other general corporate purposes to the extent
not inconsistent with the provisions of this Agreement.
2.2 Manner of Borrowing Revolving Credit Loans. Borrowings under the
credit facility established pursuant to Section 2.1 hereof shall be as follows:
(A) A request for a Revolving Credit Loan shall be made, or shall be
deemed to be made, in the following manner: (i) Borrowers may give Agent notice
of its intention to borrow
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in accordance with the provisions contained in Section 2.1 hereof and, if
applicable Section 3.1(B) hereof; (ii) the becoming due of any amount
required to be paid under this Agreement as interest shall be deemed
irrevocably to be a request for a Revolving Credit Loan on the due date in
the amount required to pay such interest; and (iii) the becoming due of any
other Obligations, after notice thereof to the Borrowers by the Agent, shall
be deemed irrevocably to be a request for a Revolving Credit Loan on the due
date in the amount then so due;
(B) Borrowers hereby irrevocably authorize Agent to disburse the
proceeds of each Revolving Credit Loan requested, or deemed to be requested,
pursuant to this Section 2.2 as follows: (i) the proceeds of each Revolving
Credit Loan requested under Section 2.2(A)(i) shall be disbursed by Agent in
lawful money of the United States of America in immediately available funds, in
the case of the initial Revolving Credit Loan, in accordance with the terms of
the written disbursement letter from Borrowers, and in the case of each
subsequent borrowing, by wire transfer to such bank account as may be agreed
upon by Borrowers and Agent from time to time; and (ii) the proceeds of each
Revolving Credit Loan requested under Section 2.2(A)(ii) or Section 2.2(A)(iii)
shall be disbursed by Agent by way of direct payment of the relevant Obligation.
2.3 Letters of Credit; LC Guaranties. (A) Subject to all of the terms and
conditions of this Agreement, if requested to do so by Borrowers, Agent shall,
on behalf of Lenders, issue its, or cause to be issued Letters of Credit for the
account of Borrowers or shall execute LC Guaranties by which Lenders shall
guaranty the payment or performance by Borrowers of their reimbursement
obligation with respect to Letters of Credit issued for Borrowers' account by
any Lender or Agent; provided that the aggregate face amount of all Letters of
Credit and LC Guaranties outstanding at any time shall not exceed Five Million
Dollars ($5,000,000) and no Letter of Credit may have an expiration date that is
after the Commitment Termination Date, unless Borrowers provide Agent with cash
collateral for said Letter of Credit or LC Guaranty, in a manner and amount
acceptable to Agent. Any amounts paid by Agent or any Lender under any LC
Guaranty or in connection with any Letter of Credit (i) shall become part of the
Obligations, (ii) shall be paid from the proceeds of a Revolving Credit Loan
requested pursuant to Section 2.1(A) above, to the extent Lenders are required
to make a Revolving Credit Loan pursuant to the terms hereof, and (iii)
otherwise, shall be payable on demand. In no event shall Agent, or Lenders be
required to issue or cause to be issued Letters of Credit or LC Guaranties at
any time there exists a Default or an Event of Default.
(B) Immediately upon the issuance of each Letter of Credit by Agent
or any Lender or LC Guaranty by the Agent or a Lender hereunder, each Lender
shall be deemed to have automatically, irrevocably and unconditionally
purchased from the Agent or issuing Lender, as the case may be, an undivided
interest and participation in and to such Letter of Credit or LC Guaranty,
the obligations of Borrowers in respect thereof and the liability of the
Agent or issuing Lender, as the case may be, thereunder in an amount equal to
the amount available for drawing under such Letter of Credit or, in the case
of a LC Guaranty, the amount guaranteed thereunder, multiplied by such
Lender's Revolving Credit Percentage. The Agent or the issuing Lender, as the
case may be, will notify each Lender promptly upon presentation to it of a
draw under a Letter of Credit or a demand for payment under a LC Guaranty. On
or before the Business Day on which the Agent or the issuing Lender, as the
case may be, will notify each Lender promptly upon presentation to it of a
draw under a Letter of Credit or a demand for payment under a LC Guaranty.
On or before the Business Day on which the Agent
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or the issuing Lender, as the case may be, makes payment under a Letter of
Credit or LC Guaranty each Lender shall make payment to the Agent or issuing
Lender, as the case may be, in immediately available funds of an amount equal
to such Lender's pro rata share of the amount of such payment. The
obligation of each Lender to reimburse the Agent or issuing Lender, as the
case may be, under this Section 2.3(B) shall be unconditional, continuing,
irrevocable and absolute. In the event that any Lender fails to make payment
to the Agent or issuing Lender, as the case may be, of any amount due under
this Section 2.3(B), the Agent or the issuing Lender, as the case may be,
shall be entitled to receive, retain and apply against such obligation the
principal and interest otherwise payable to such Lender hereunder until the
Agent or issuing Lender, as the case may be, receives such payment from such
Lender or such obligation is otherwise fully satisfied; provided, however,
that nothing contained in this sentence shall relieve such Lender of its
obligation to reimburse the Agent or issuing Lender, as the case may be, for
such amount in accordance with this Section 2.3(B).
(C) Borrowers agree to unconditionally, irrevocably and absolutely
pay immediately to the Agent, for the account of the Lenders, the amount
drawn under a Letter of Credit or paid pursuant to a LC Guaranty. If
Borrowers at any time fail to make such payment, Borrowers shall be deemed to
have elected to borrow from the Lenders on such date Revolving Credit Loans
equal in aggregate amount to the amount paid by Agent or the issuing Lender,
as the case may be, under such Letter of Credit or LC Guaranty.
2.4 All Loans to Constitute One Obligation. The Loans shall constitute
one general Obligation of Borrowers, and shall be secured by Agent's security
interest in and Lien upon all of the Collateral for Agent's benefit and the
ratable benefit of all Lenders, and by all other security interests, Liens,
claims and encumbrances heretofore, now or at any time or times hereafter
granted by Borrowers to Agent for its benefit and the ratable benefit of
Lenders.
2.5 Loan Account. Agent shall enter all Loans as debits to the Loan
Account and shall also record in the Loan Account as credits all payments
made by Borrowers on any Obligations and all proceeds of Collateral which are
finally paid to Agent, for its own account or Lenders' benefit, and may
record therein, in accordance with customary accounting practice, other
debits and credits, including all charges and expenses properly chargeable to
Borrowers and any other Obligation.
SECTION 3. INTEREST, FEES, TERM AND REPAYMENT
3.1 Interest, Fees and Charges.
(A) Interest. (i) Interest shall accrue on the Prime Revolving
Credit Loan Portion outstanding at the end of each day (computed on the basis
of a calendar year of 360 days for actual days elapsed) at a fluctuating rate
per annum equal to the Prime Rate, as in effect from time to time. After the
date hereof, the foregoing rate of interest shall be increased or decreased,
as the case may be, by an amount equal to any increase or decrease in the
Prime Rate, with such adjustments to be effective as of the opening of
business on the day that any such change in the Prime Rate becomes effective.
The Prime Rate in effect on the date hereof shall be the Prime Rate
effective on the
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opening of business on the date hereof, but if this Agreement is executed on
a day that is not a Business Day, the Prime Rate in effect on the date hereof
shall be the Prime Rate effective as of the opening of business on the last
Business Day immediately preceding the date hereof.
(ii) Interest shall accrue on each LIBOR Revolving Credit Portion
outstanding at the end of each day (computed on the basis of a calendar year of
360 days for actual days elapsed) at rates equal to the sum of the LIBOR Rate
applicable to each such LIBOR Revolving Credit Portion plus the Applicable LIBOR
Margin, as in effect from time to time.
(B) LIBOR Option.
(i) Conditions for Basing Interest on the LIBOR Rate. Upon the
condition that:
(a) Agent shall have received a LIBOR Request from
Borrowers at least three (3) Business Days prior to the first day of
the LIBOR Period requested;
(b) There shall have occurred no change in applicable law
which would make it unlawful for Lenders to obtain deposits of U.S.
dollars in the London interbank foreign currency deposits market;
(c) As of the date of the LIBOR Request and the first day
of the LIBOR Period, there shall exist no Default or Event of Default
which has not been waived by Required Lenders;
(d) Agent shall not have determined in good faith that
Lenders are unable to determine the LIBOR Rate in respect of the
requested LIBOR Period or that Lenders are unable to obtain deposits
of U.S. dollars in the London interbank foreign currency deposits
market in the applicable amounts and for the requested LIBOR Period;
and
(e) As of the first date of the LIBOR Period, there are no
more than four (4) outstanding LIBOR Revolving Credit Portions
including the LIBOR Revolving Credit Portion in question;
then interest on the LIBOR Revolving Credit Portion requested during the LIBOR
Period requested will be based on the applicable LIBOR Rate. Agent shall give
each Lender prompt written notice by telecopier, telex or cable of any LIBOR
Request made by Borrowers in accordance with the terms hereof.
(ii) Indemnification for Funding and Other Losses. Each LIBOR
Request shall be irrevocable and binding on Borrowers. Borrowers shall
indemnify Agent and Lenders as a result of any failure on the part of Borrowers
to fulfill, on or before the date specified in any
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LIBOR Request, the applicable conditions set forth in this Agreement or as a
result of the prepayment of the applicable LIBOR Revolving Credit Portion
prior to the last day of the applicable LIBOR Period, including, without
limitation, any loss (including loss of anticipated profits) or expense
incurred by reason of the liquidation or redeployment of deposits or other
funds acquired by Agent or Lenders to fund or maintain the requested LIBOR
Revolving Credit Portion, when, as a result of such failure on the part of
Borrowers or prepayment by Borrowers (including, without limitation, any
prepayment resulting from the Obligations being declared due and payable in
accordance with their terms hereof), interest on such LIBOR Revolving Credit
Portion is not based on the applicable LIBOR Rate for the requested LIBOR
Period.
(iii) Change in Applicable Laws, Regulations, etc. If any
Legal Requirement shall make it unlawful for any Lender to fund through the
purchase of U.S. dollar deposits any LIBOR Revolving Credit Portion, or
otherwise to give effect to its obligations as contemplated under this
Section 3.1(B), or shall impose on any Lender any costs based on or measured
by the excess above a specified level of the amount of a category of deposits
or other liabilities of such Lender which includes deposits by reference to
which the LIBOR Rate is determined as provided herein or a category of
extensions of credit or other assets of such Lender which includes any LIBOR
Revolving Credit Portion, or shall impose on any Lender any restrictions on
the amount of such a category of liabilities or assets which such Lender may
hold, (i) Agent may by notice thereof to Borrowers terminate the LIBOR
Option, with respect to the Loans made or to be made by such Lender (ii) any
LIBOR Revolving Credit Portion of such Lender's Loans subject thereto shall
immediately bear interest thereafter at the rate provided for in Section
3.1(A) payable on the dates provided for in Section 3.5(B)(1). Borrowers
shall indemnify Agent and Lenders against any loss, penalty or expense
incurred by Lenders by reason of the liquidation or redeployment of deposits
or other funds acquired by Lender to fund or maintain such LIBOR Revolving
Credit Portion. If conditions subsequently change so that the foregoing
conditions no longer exist, such Lender shall promptly notify Borrowers and
Agent and upon receipt of such notice the LIBOR Option shall be reinstated.
(iv) Taxes. It is the understanding of Borrowers and Agent
and Lenders that Lenders shall receive payments of amounts of principal of
and interest on the Notes, with respect to the LIBOR Revolving Credit
Portions from time to time subject to a LIBOR Option free and clear of, and
without deduction for, any Taxes. If (i) any Lender shall be subject to any
such Tax in respect of any such LIBOR Revolving Credit Portion or any part
thereof or, (ii) Borrowers shall be required to withhold or deduct any such
Tax from any such amount, the LIBOR Rate applicable to such LIBOR Revolving
Credit Portion shall be adjusted by Agent on behalf of any such Lender to
reflect all additional costs incurred by such Lender in connection with the
payments by any such Lender or the withholding by Borrowers of such Tax and
Borrowers shall provide Agent and such Lender with a statement detailing the
amount of any such Tax actually paid by Borrowers. Determination by Agent of
the amount of such costs shall, in the absence of manifest error, be
conclusive, and at Borrowers' request, Agent shall demonstrate the basis of
such determination. If after any such adjustment, any part of any Tax paid
by any such Lender is subsequently recovered by any such Lender, such Lender
shall reimburse Borrowers to the extent of the amount so
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recovered. A certificate of an officer of such Lender setting forth the
amount of such recovery and the basis therefor shall, in the absence of
manifest error, be conclusive.
(C) Default Rate of Interest. Upon and after the occurrence of an
Event of Default, and during the continuation thereof, the principal amount of
all Loans shall bear interest at a rate per annum equal to three percent (3%)
above the interest rate otherwise applicable thereto (the "Default Rate").
Borrowers acknowledge that after and during the occurrence of an Event of
Default it shall not have the option to request any additional LIBOR Revolving
Credit Portions. Any LIBOR Revolving Credit Portions that have a LIBOR Period
that expires after an Event of Default has occurred and is continuing shall be
converted to Prime Revolving Credit Loan Portion and shall bear interest at the
rates provided in Section 3.1(A) as adjusted by this Section 3.1(C).
(D) Unused Revolving Line Fee. At the end of each fiscal quarter,
Borrowers shall pay to Agent, on behalf of Lenders in accordance with each
Lender's Revolving Credit Percentage, a fee equal to .25% per annum of the
average daily amount during such fiscal quarter by which Thirty-Five Million
Dollars ($35,000,000) exceeds the sum of the outstanding principal balance of
the Revolving Credit Loans, plus the outstanding balance of Letters of Credit
and L/C Guaranties. This fee shall be payable quarterly in arrears on the first
day of each calendar quarter hereafter.
(E) Capital Adequacy Charge. In the event that any Lender shall have
determined that the adoption (effected after the date hereof) of any law, rule
or regulation regarding capital adequacy, or any change therein or in the
interpretation or application thereof or compliance by any Lender with any
request or directive regarding capital adequacy (whether or not having the force
of law) from any central bank or governmental authority, does or shall have the
effect of reducing the rate of return on such Lender's capital as a consequence
of its obligations hereunder to a level below that which such Lender could have
achieved but for such adoption, change or compliance (taking into consideration
such Lender's policies with respect to capital adequacy) by an amount deemed by
such Lender, in its reasonable discretion, to be material, then from time to
time, after submission by such Lender to Borrowers of a written demand therefor,
which demand shall be made within sixty (60) days of such reduction, the
Borrowers shall pay to such Lender such additional amount or amounts as will
compensate such Lender for such reduction. A certificate of such Lender
claiming entitlement to payment as set forth above shall be conclusive in the
absence of manifest error. Such certificate shall set forth the nature of the
occurrence giving rise to such payment, the additional amount or amounts to be
paid to such Lender, and the method by which such amounts were determined. In
determining such amount, such Lender may use any reasonable averaging and
attribution methods. Each Lender and Agent agrees to allocate any such cost
increase among its similarly situated customers in good faith and on an
equitable basis.
(F) Field Audit and Appraisal Fees. Borrowers shall reimburse Agent
and Lenders for any reasonable out-of-pocket expenses incurred by Agent or any
Lender in connection with quarterly field audits or appraisals conducted in
accordance with the terms hereof; provided,
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however, so long as no Event of Default exists, the Agent and Lenders agree
that the expenses to be reimbursed by the Borrowers shall not exceed $2,500
per field audit.
(G) Maximum Interest. In no contingency or event whatsoever shall
the aggregate of all amounts deemed interest hereunder or under the Notes and
charged or collected pursuant to the terms of this Agreement or pursuant to
the Notes exceed the highest rate permissible under any law which a court of
competent jurisdiction shall, in a final determination deem applicable
hereto. In the event that such a court determines that Lenders have charged
or received interest hereunder in excess of the highest applicable rate, the
rate in effect hereunder shall automatically be reduced to the maximum rate
permitted by applicable law and Lenders shall promptly refund to Borrowers
any interest received by Lenders in excess of the maximum lawful rate or, if
so requested by Borrowers, shall apply such excess to the principal balance
of the Obligations. It is the intent hereof that Borrowers not pay or
contract to pay, and that Lenders not receive or contract to receive,
directly or indirectly in any manner whatsoever, interest in excess of that
which may be paid by Borrowers under applicable law.
3.2 Letter of Credit and LC Guaranty Fees. As additional consideration
for issuing or causing to be issued, Letters of Credit for Borrowers' account
or for issuing its LC Guaranties at either Borrower's request pursuant to
Section 2.3 hereof, Borrowers agree to pay fees in respect to each Letter of
Credit or LC Guaranty so issued. Said fees shall be payable to Agent for
distribution to each Lender, in accordance with such Lender's Revolving
Credit Percentage, on the date which such Letter of Credit or LC Guaranty is
issued and monthly thereafter and shall be in an amount equal to the quotient
of (x) an amount equal to (A) the sum of the daily outstanding amount of such
Letter of Credits or L/C Guaranties outstanding on each day during the
previous month multiplied by (B) a rate equal to one percent (1%) for Standby
Letters of Credit, or (z) one-quarter percent (.25%) for Documentary Letters
of Credit, divided by (y) 360. In the event a Letter of Credit or LC Guaranty
is renewed or extended, a fee calculated in the manner provided above shall
be payable for any such renewal or extended period. Further, Borrowers shall
pay and/or reimburse Agent and/or Lenders all fees and charges paid by Agent
or Lenders on account of any Letter of Credit or L/C Guaranty, including, but
not limited to, (i) an issuance fee of $200 for Standby Letters of Credit and
an issuance fee of $75 for Documentary Letters of Credit, and (ii) an
amendment fee of $100 for Standby Letters of Credit and an amendment fee of
$45 for Documentary Letters of Credit.
3.3 Term of Agreement. Subject to Lenders' right to cease making Loans
to Borrowers at any time upon or after the occurrence and during the
continuance of any Default or Event of Default and subject to Borrowers'
right to terminate this Agreement pursuant to Section 3.4, (i) this Agreement
shall be in effect for a period from the date hereof, through and including
June 30, 1999 (the "Original Term"), and (ii) the Revolving Credit Loan
Commitment shall be in effect through and including the Commitment
Termination Date; provided, however, not less than sixty (60) days prior to
the Commitment Termination Date, the Borrowers may advise the Agent in
writing of their desire to extend the Commitment Termination Date for an
additional twelve (12) months. In the event that the Agent and the Lenders
are agreeable to such extension (it being understood that the
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Agent and each Lender may accept or decline such a request in its sole
discretion), the Agent shall so notify the Borrowers and the Borrowers and
the Agent shall enter into such documents as the Agent may reasonably deem
necessary or appropriate to reflect such extension and to assure that all
extensions of credit pursuant to the Revolving Credit Loan Commitment as so
extended are secured by the liens of the Security Documents and the Agent may
call for financing statement searches to assure that such is the case, all
costs and expenses incurred by the Agent in connection therewith to be paid
by the Borrowers unless prior to that date Agent and Borrowers renew the term
hereof (if applicable, the "Renewal Terms").
3.4 Termination.
(A) Upon at least thirty (30) days' prior written notice to Agent and
Lenders, Borrowers may, at their option, terminate this Agreement; provided,
however, no such termination shall be effective until Borrowers have paid all of
the Obligations in immediately available funds and all Letters of Credit issued
by Agent or any Lender and all LC Guaranties have expired or Borrowers have
provided substitute or replacement Letters of Credit, or cash collateral as
provided in Section 3.4(C) below, in amounts satisfactory to Agent and, if
applicable, the issuing Lender.
(B) All of the Obligations shall be due and payable upon any
termination of this Agreement, including, without limitation, any earned but
unpaid fees. Except as otherwise expressly provided for in this Agreement or
the other Loan Documents, no termination or cancellation (regardless of cause or
procedure) of this Agreement, or any of the other Loan Documents shall in any
way affect or impair the rights, powers or privileges of Agent or Lenders or the
obligations, duties, or liabilities of Borrowers or Agent or Lenders in any way
relating to (i) any transaction or event occurring prior to such termination or
cancellation or (ii) any of the undertakings, agreements, covenants, warranties
or representations of Borrowers contained in this Agreement, or any of the other
Loan Documents. All such undertakings, agreements, covenants, warranties and
representations of Borrowers shall survive such termination or cancellation and
Agent, for its benefit and the ratable benefit of Lenders, shall retain all of
its rights and remedies under this Agreement and the other Loan Documents
notwithstanding such termination or cancellation, and Agent, for its benefit and
the ratable benefit of Lenders, shall retain its Liens in the Collateral until
Borrowers have paid the Obligations to Agent and Lenders, in full, in
immediately available funds.
(C) With respect to the face amount of all LC Guaranties and Letters
of Credit issued by Agent or any Lender outstanding on any proposed date of
termination, Borrowers may provide replacement or substitute Letters of Credit
and, if Borrowers do not, Agent or any Lender may require Borrowers to deposit
with Agent funds equal to such face amount, in order for any such termination to
become effective. Any such deposit or advance shall be held by Agent as a
reserve to fund future payments on such LC Guaranties and future drawings
against such Letters of Credit. At such time as all LC Guaranties have been
paid or terminated and all Letters of Credit have been drawn upon or expired,
any amounts remaining in such reserve shall be applied against any outstanding
Obligations, or to the extent all Obligations have been indefeasibly paid in
full, returned to Borrowers. Agent shall invest such funds deposited with it in
an interest bearing account and
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interest and earnings thereon, if any, after paying any outstanding
Obligations, shall be the property of the Borrowers.
(D) It is understood that Borrowers may elect to terminate this
Agreement in its entirety only; no section or lending facility may be terminated
singly.
3.5 Payments. Except where evidenced by notes or other instruments issued
or made by Borrowers to Lenders specifically containing payment provisions which
are in conflict with this Section 3.5 (in which event the conflicting provisions
of said notes or other instruments shall govern and control), that portion of
the Obligations consisting of:
(A) Principal, payable on account of Revolving Credit Loans made by
Lenders to Borrowers pursuant to Section 2.1 of this Agreement, shall be payable
by Borrowers to Agent, on behalf of Lenders, immediately upon the earliest of
(i) the receipt by Agent or any Lenders of any proceeds of any of the Collateral
consisting of Accounts or Inventory, to the extent of said proceeds, (ii) the
occurrence of an Event of Default in consequence of which Required Lenders elect
to accelerate the maturity and payment of the Obligations, and (iii) termination
of this Agreement pursuant to Section 3.4 hereof; provided, however, that if the
principal balance of Revolving Credit Loans outstanding at any time shall exceed
the Borrowing Base at such time, Borrowers shall, on demand, repay the Revolving
Credit Loans in an amount sufficient to reduce the aggregate unpaid principal
amount of such Revolving Credit Loans by an amount equal to such excess;
(B) (1) Interest accrued on the Prime Revolving Credit Loan Portion,
shall be due on the earliest of (i) the first day of each month (for the
immediately preceding month), computed through the last calendar day of the
preceding month, (ii) the occurrence of an Event of Default in the consequence
of which Required Lenders elect to accelerate the maturity and payment of the
Obligations or (iii) termination of this Agreement pursuant to Section 3.4
hereof; provided, however, the Borrowers hereby irrevocably authorize Lenders,
in Agent's sole discretion, to advance to Borrowers and to charge to Borrowers'
Loan Account hereunder as a Revolving Credit Loan, a sum sufficient each month
to pay all interest accrued on the Prime Revolving Credit Loan Portion, during
the immediately preceding month.
(2) Interest on the LIBOR Revolving Credit Portion shall be due
on the earliest of (i) each LIBOR Interest Payment Date applicable to each such
LIBOR Revolving Credit Portion, (ii) the occurrence of an Event of Default in
consequence of which Required Lenders elect to accelerate the maturity and
payment of the Obligations or (iii) termination of this Agreement pursuant to
Section 3.4; provided, however, that Borrowers irrevocably authorize Lenders, in
Lenders' sole discretion, to advance to Borrowers, and to charge Borrowers' Loan
Account hereunder as a Revolving Credit Loan on each LIBOR Interest Payment
Date, a sum sufficient to pay all interest accrued and payable with respect to
each LIBOR Revolving Credit Portion.
(C) Costs, fees and expenses payable pursuant to this Agreement shall
be payable by Borrowers, on demand, to Agent or to any other Person designated
by Agent in writing; and
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(D) The balance of the Obligations requiring the payment of money, if
any, shall be payable by Borrowers to Lenders and/or Agent as and when provided
in this Agreement, the Other Agreements or the Security Documents, or if no such
specific payment provision is so provided, then on demand.
3.6 Application of Payments and Collections. If there has not occurred an
Event of Default which is continuing, all payments and collections shall be
applied against the Obligations, which are due and payable at the time of
payment and/or collections, (i) as provided herein or (ii) if no specific
provision therefor is contained herein, then as directed by Borrowers. After
the occurrence and during the continuation of an Event of Default, (i) Borrowers
irrevocably waive the right to direct the application of any and all payments
and collections at any time or times thereafter received by Agent or any Lender
from or on behalf of Borrowers, and (ii) Borrowers do hereby irrevocably agree
that Agent or any Lender shall have the continuing exclusive right to apply and
reapply any and all such payments and collections received at any time or times
thereafter by Agent or any Lender against the Obligations, in such manner as
Agent or Required Lenders may deem advisable, notwithstanding any entry by Agent
or any Lender upon any of its books and records. If as the result of
collections of Accounts as authorized by Section 5.1 hereof a credit balance
exists in the Loan Account, such credit balance shall be remitted to the
Borrower as the Borrower shall designate. After the occurrence and during the
continuation of an Event of Default, all payments and collections shall be
applied against the Obligations as follows:
first, to Agent and/or Lenders in an amount sufficient to pay in
full the reasonable expenses of Agent or the Lenders, as the case may
be, in connection with the enforcement of this Agreement, the Security
Documents or the other Loan Documents or the preservation of the
Collateral, including all expenses, liabilities and advances incurred
or made by Agent and/or the Lenders in connection therewith,
including, without limitation, reasonable attorney's fees;
second, to Lenders in an amount equal to the then unpaid
principal of and accrued interest and prepayment premiums, if any, on
the Obligations and to Agent to fund any deposits required to be paid
to Agent in accordance herewith;
third, to Lenders in an amount equal to any other Obligations
which are then unpaid; and
finally, upon payment in full of all of the Obligations, to pay
to Borrowers, or their representatives or as a court of competent
jurisdiction may direct, any surplus then remaining from such payments
and collections.
Upon receipt from Borrowers of good funds, Agent will, subject to the
foregoing, promptly thereafter cause to be distributed like funds relating to
the payment of principal, interest or, if applicable, fees ratably to Lenders
based upon each Lender's respective Revolving Loan Percentage.
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3.7 Sharing of Payments, Etc. If any Lender shall obtain any payment
(whether voluntary, involuntary, through the exercise of any right of set-off,
or otherwise) on account of the Revolving Credit Loan made by it in excess of
its ratable share of payments on account of the Revolving Credit Loan made by
all Lenders, such Lender shall forthwith purchase from each other Lender such
participation in the Revolving Credit Loan as shall be necessary to cause such
purchasing Lender to share the excess payment ratably with each other Lender;
provided, however, that if all or any portion of such excess payment is
thereafter recovered from such purchasing Lender, such purchase from each Lender
shall be rescinded and such Lender shall repay to the purchasing Lender the
purchase price to the extent of such recovery together with an amount equal to
such Lender's ratable share (according to the proportion of (i) the amount of
such Lender's required repayment to (ii) the total amount so recovered from the
purchasing Lender) of any interest or other amount paid or payable by the
purchasing Lender in respect of the total amount so recovered. Borrowers agree
that any Lender so purchasing a participation from another Lender pursuant to
this Section 3.7 may, to the fullest extent permitted by law, exercise all its
rights of payment (including the right of set-off) with respect to such
participation as fully as if such Lender were the direct creditor of Borrowers
or either one of them in the amount of such participation.
3.8 Statements of Account. Agent will account to Borrowers monthly with a
statement of Loans, charges and payments made pursuant to this Agreement, a copy
of which shall be sent to each Lender and such account rendered by Agent shall
be deemed final, binding and conclusive upon Borrowers unless Agent is notified
by Borrowers in writing to the contrary within thirty (30) days of the date each
account is mailed to Borrowers. Such notice shall only be deemed an objection
to those items specifically objected to therein.
SECTION 4. COLLATERAL: GENERAL TERMS
4.1 Security Interest in Collateral. To secure the prompt payment and
performance to Agent and Lenders of the Obligations, Borrowers hereby grant to
Agent, for its benefit and the ratable benefit of Lenders, a continuing security
interest in and Lien upon the following Property of each Borrower, whether now
owned or existing or hereafter created, acquired or arising and wheresoever
located:
(A) Accounts;
(B) Inventory;
(C) Equipment;
(D) General Intangibles;
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(E) All monies and other Property of any kind, now or at any time or
times hereafter, in the possession or under the control of Agent or any Lender
or a bailee of Agent or any Lender;
(F) All accessions to, substitutions for and all replacements,
products and cash and non-cash proceeds of (A), (B), (C), (D) and (E) above,
including, without limitation, proceeds of and unearned premiums with respect to
insurance policies insuring any of the Collateral;
(G) All books and records (including, without limitation, customer
lists, credit files, computer programs, print-outs, and other computer materials
and records) of Borrowers pertaining to any of (A), (B), (C), (D), (E) or (F)
above.
Notwithstanding the foregoing, Collateral shall not include (1) any
licenses or permits the encumbrance of which would violate any law, statute or
regulation; or (2) any contract rights (including, without limitation, any
contracts or leases), the encumbrance of which would violate the terms of the
agreements establishing such rights; provided that Borrowers shall use
reasonable good faith efforts to obtain any necessary consent to enable any such
contract right to be included within the Collateral.
4.2 Lien on Realty. If either Borrower shall acquire at any time or times
hereafter any interest in real Property (other than leasehold interests), such
Borrower agrees promptly to execute and deliver to Agent, for its benefit and
the ratable benefit of Lenders, as additional security and Collateral for the
Obligations, deeds of trust, security deeds, mortgages or other collateral
assignments satisfactory in form and substance to Agent, and its counsel (herein
collectively referred to as "New Mortgages") covering such real Property. Each
New Mortgage shall be duly recorded in each office where such recording is
required to constitute a valid Lien on the real Property covered thereby. In
respect to each New Mortgage, the applicable Borrower shall deliver to Agent, at
such Borrower's expense, mortgagee title insurance policies issued by a title
insurance company satisfactory to Agent, for its benefit and the ratable benefit
of Lenders, insuring Agent, for its benefit and the ratable benefit of Lenders,
as mortgagee; such policies shall be in form and substance satisfactory to Agent
and shall insure a valid first Lien in favor of Agent, for its benefit and the
ratable benefit of Lenders, on the Property covered thereby, subject only to
those exceptions acceptable to Agent and its counsel. Said policies shall be in
form and substance satisfactory to Agent. Such Borrower shall also deliver to
Agent such other documents, including, without limitation, ALTA Surveys of the
real Property, as Agent and its counsel may reasonably request relating to the
real Property subject to any such New Mortgage.
4.3 Representations, Warranties and Covenants -- Collateral. To induce
Agent and Lenders to enter into this Agreement, Borrowers represent, warrant,
and covenant to Agent and Lenders:
(A) The Collateral is now, and so long as any of the Obligations are
outstanding, prior to any sale, disposition or condemnation permitted by the
terms hereof, will continue to be,
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owned solely by Borrowers. No Person other than the Borrowers has or will
have any right, title, interest, claim, or Lien in any Property designated as
Collateral, other than Permitted Liens.
(B) Except as specifically consented to in writing by Required
Lenders and except for the Permitted Liens, the Liens granted to Agent, for its
benefit and the ratable benefit of Lenders, shall be first and prior on the
Collateral and as to the Accounts and proceeds, including insurance proceeds,
resulting from the sale, disposition, or loss thereof.
(C) All goods evidenced by the Collateral constituting chattel paper,
documents, or instruments, the possession of which has been given to Agent, are
owned by Borrowers and the same are free and clear of any prior Lien, except for
Permitted Liens. Borrowers further warrant and guarantee the value, quantities,
sound condition, grades, and qualities of the goods and services described
therein. Borrowers shall pay and discharge when due all taxes, levies, and
other charges upon said Collateral and upon the goods evidenced by any documents
constituting Collateral and shall defend Agent and Lenders against and save it
harmless from all claims of any Person with respect to the Collateral. This
indemnity shall include reasonable attorneys' fees and legal expenses.
4.4 Lien Perfection. Borrowers agree to execute the UCC-1 financing
statements provided for by the Code or otherwise together with any and all other
instruments, assignments or documents and shall take such other action as may be
required to perfect or to continue the perfection of Agent's security interest
in the Collateral, including, without limitation, the execution at Agent's
request of all documents deemed necessary by Agent to cause Agent's Lien to be
noted on any motor vehicle title certificates for motor vehicles forming a part
of the Collateral. Unless prohibited by applicable law, Borrowers hereby
authorize Agent to execute and file any such financing statement on Borrowers'
behalf. The parties agree that a carbon, photographic or other reproduction of
this Agreement shall be sufficient as a financing statement and may be filed in
any appropriate office in lieu thereof.
4.5 Location of Collateral. All Collateral, other than Inventory in
transit and motor vehicles, or Collateral in the possession of Agent or Lenders,
will at all times be kept by Borrowers at one or more of the business locations
set forth in Schedule 4.5 and shall not, without the prior written approval of
Agent, be moved therefrom except, prior to an Event of Default and the
acceleration of the maturity of the Obligations in consequence thereof, for (A)
sales of Inventory in the ordinary course of business; (B) the storage of
Inventory at locations within the continental United States other than those
shown on Schedule 4.5 if (i) Borrowers give Agent written notice of the new
storage location at least thirty (30) days prior to storing Inventory at such
location, (ii) Agent's security interest in such Inventory is and continues to
be a duly perfected, first priority Lien thereon, subject only to Permitted
Liens (iii) neither Borrowers' nor Agent's right of entry upon the premises
where such Inventory is stored, or their right to remove the Inventory
therefrom, is restricted, other than by applicable law, in any material respect,
(iv) the owner of such premises agrees with Agent not to assert any landlord's,
bailee's or other Lien in respect of the Inventory for unpaid rent or storage
charges and (v) all negotiable documents and receipts in respect of any
Collateral maintained at such premises are promptly delivered to Agent; (C)
transfers of Equipment
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from a location set forth on Schedule 4.5 to another location set forth on
Schedule 4.5 and (D) removals in connection with dispositions of Equipment
that are permitted by Section 9.2(O) hereof.
4.6 Insurance of Collateral. Borrowers agree to maintain and pay for
insurance upon all Inventory and Equipment wherever located, in storage or in
transit in vehicles, including goods evidenced by documents, covering casualty,
hazard, public liability and such other risks and in such amounts and with such
insurance companies as shall be reasonably satisfactory to Agent to insure
Agent's interest in the Collateral. In respect to casualty and hazard insurance
policies, Borrowers shall deliver the originals or certified copies of such
policies to Agent with satisfactory lender's loss payable endorsements naming
Agent loss payee, for the ratable benefit of Lenders. In respect to public
liability and other insurance policies, Borrowers shall deliver a certificate of
insurance in respect to each such policy. Each policy of insurance or
endorsement shall contain a clause requiring the insurer to give not less than
thirty (30) days prior written notice to Agent in the event of cancellation of
the policy for any reason whatsoever and a clause that the interest of Agent
shall not be impaired or invalidated by any act or neglect of either Borrowers
or owner of the Property nor by the occupation of the premises for purposes more
hazardous than are permitted by said policy. If Borrowers fail to provide and
pay for such insurance, Agent may, at Borrowers' expense, procure the same, but
shall not be required to do so. Borrowers agree to deliver to Agent, true
copies of all reports (which relate to any matter which could reasonably be
expected to involve $100,000 or more) made in any reporting forms to casualty
and hazard insurance companies. Borrowers will maintain, with financially sound
and reputable insurers, insurance with respect to their respective Properties
and business against such casualties and contingencies of such type (including
public liability, product liability, larceny, embezzlement, or other criminal
misappropriation insurance) and in such amounts as is customary in the business
or as otherwise reasonably required by Agent.
4.7 Protection of Collateral. All insurance expenses and all expenses of
protecting, storing, warehousing, insuring, handling, maintaining and shipping
the Collateral, any and all excise, property, sales, and use taxes imposed by
any state, federal, or local authority on any of the Collateral or in respect of
the sale thereof shall be paid by Borrowers. If Borrowers fail to promptly pay
any portion thereof when due, Agent may, at its option, but shall not be
required to, pay the same and charge the Loan Account therefor. Borrowers agree
to reimburse Agent promptly therefor with interest accruing thereon daily at the
Default Rate provided in this Agreement. All sums so paid or incurred by Agent
for any of the foregoing and all costs and expenses (including reasonable
attorneys' fees, legal expenses, and court costs) which Agent may incur in
enforcing or protecting its Lien on or rights and interest in the Collateral or
any of its rights or remedies under this or any other agreement between the
parties hereto or in respect of any of the transactions to be had hereunder
until paid by Borrowers to Agent with interest at a rate per annum equal to
three percent (3%) above the Prime Rate, shall be considered Obligations owing
by Borrowers to Agent hereunder. Such Obligations shall be secured by all
Collateral and by any and all other collateral, security, assets, reserves, or
funds of Borrowers in or coming into the hands or inuring to the benefit of
Agent or any Lender. Agent shall not be liable or responsible in any way for
the safekeeping of any of the Collateral or for any loss or damage thereto
(except for reasonable care in the custody thereof while any Collateral is in
Agent's actual possession) or for any diminution in the value
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thereof, or for any act or default of any warehouseman, carrier, forwarding
agency, or other person whomsoever, but the same shall be at Borrowers' sole
risk.
4.8 Release. Upon full and final payment of all of the Obligations, the
Agent shall execute all releases and termination statements necessary to
evidence the termination of its Liens in the assets of the Borrowers.
SECTION 5. PROVISIONS RELATING TO ACCOUNTS
5.1 Borrowing Base Certificates, Assignments, Records and Schedules of
Accounts. Borrowers shall execute and deliver to Agent a Borrowing Base
Certificate, in the form attached hereto as Exhibit B, each time a draw request
is made hereunder, and in any event, on a monthly basis. Borrowers shall keep
accurate and complete records of its Accounts and all payments and collections
thereon and, if requested by Agent, shall submit to Agent a sales and
collections report for the preceding day, in form satisfactory to Agent. On or
before the tenth day of each month from and after the date hereof, Borrowers
shall deliver to Agent, in form acceptable to Agent, a detailed aged trial
balance of all Accounts existing as of the last day of the preceding month,
specifying the names, face value and due dates for the Account Debtor obligated
on an Account so listed ("Schedule of Accounts"). Upon Agent's request
therefor, Borrowers shall deliver to Agent such other matters and information
relating to the status of the existing Accounts as Agent shall reasonably
request.
5.2 Collection of Accounts.
(A) Upon the occurrence and during the continuance of an Event of
Default, (i) all cash, checks, notes, drafts or other remittances received by
Borrowers on account of Accounts or which constitute Collateral or proceeds
thereof shall be held as Agent's property (for its benefit and the ratable
benefit of Lenders) by Borrowers as trustee of an express trust for Agent's
benefit and Borrowers shall immediately deposit same in the Lockbox Account, and
(ii) Agent retains the right at all times to notify Account Debtors that
Accounts have been assigned to Agent and to collect Accounts directly in its own
name and to charge the collection costs and expenses, including reasonable
attorneys' fees to Borrowers. Agent has no duty to protect, insure, collect or
realize upon the Accounts or preserve rights in them. After the occurrence of
and during the continuation of an Event of Default, for the purpose of computing
interest hereunder, all items of payment received by Agent shall be deemed
applied by Agent on account of the Obligations in accordance with Section 3.6
and the other provisions of this Agreement (subject to final payment of such
items) two (2) Business Days after receipt by Agent of such items in immediately
available funds. Prior to the occurrence of an Event of Default, all items of
payment received by Agent shall be deemed applied by Agent on account of the
Obligations in accordance with Section 3.6 and the other provisions of this
Agreement (subject to the final payment of such items) upon receipt by Agent of
such items in immediately available funds.
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(B) Upon the occurrence and during the continuance of an Event of
Default if so requested by the Agent, Borrowers shall deposit all proceeds of
the Collateral or cause the same to be deposited in kind in a Lockbox Account
pursuant to a lockbox arrangement with Bank One. All funds deposited in the
Lockbox Account shall immediately become the property of Agent (for its benefit
and the ratable benefit of Lenders), to the extent of the Obligations, and
Borrowers shall obtain the agreement by such banks to waive any offset rights
against the funds so deposited. Agent assumes no responsibility for such
lockbox arrangement, including, without limitation, any claim of accord and
satisfaction or release with respect to deposits accepted by any bank thereunder
other than to account for any amounts withdrawn therefrom.
5.3 Notice Regarding Disputed Accounts. In the event of any dispute
between either Borrower and any Account Debtor involving disputed amounts of
Fifty Thousand Dollars ($50,000) or more, Borrowers shall provide Agent with
written notice thereof at the time of submission of the next Schedule of
Accounts, explaining in detail the reason for the dispute, all claims related
thereto and the amount in controversy.
SECTION 6. PROVISIONS RELATING TO INVENTORY
6.1 Representations, Warranties and Covenants. With respect to Inventory,
Borrowers represent and warrant to Agent and Lenders that Agent may rely, in
determining which items of Inventory constitute Eligible Inventory, on all
statements and representations made by Borrowers with respect to any Inventory
and that, unless otherwise indicated in writing:
(A) All Inventory is presently and will continue to be located at
Borrowers' places of business listed on Schedule 4.5 and will not be removed
therefrom except as authorized by Section 4.5 of this Agreement;
(B) No Inventory is now, nor shall any Inventory at any time or times
hereafter be, stored with a bailee, warehouseman or similar party without
Agent's prior written consent and, if Agent gives such consent, Borrowers will
concurrently therewith cause any such bailee, warehouseman, or similar party to
issue and deliver to Agent, in form and substance acceptable to Agent, warehouse
receipts therefor in Agent's name or other undertakings reasonably satisfactory
to Agent;
(C) Except as provided below, no Inventory is or will be consigned to
any Person without Agent's prior written consent, and, if such consent is given,
Borrowers shall, prior to the delivery of any Inventory on consignment, (i)
provide Agent with all consignment agreements to be used in connection with such
consignment, all of which shall be acceptable to Agent, (ii) prepare, execute
and file appropriate financing statements with respect to any consigned
Inventory, showing Agent as assignee, for its benefit and the ratable benefit of
Lenders, (iii) conduct a search of all filings made against the consignee in all
jurisdictions in which any consigned Inventory is to be located and deliver to
Agent copies of the results of all such searches and (iv) notify, in writing,
all the creditors of the consignee which are or may be holders of Liens in the
Inventory to be consigned
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that Borrowers expect to deliver certain Inventory to the consignee, all of
which Inventory shall be described in such notice by item or type; and
(D) No Inventory is or will be produced in violation of the Fair
Labor Standards Act.
6.2 Inventory Reports. Borrowers agree to furnish Agent with Inventory
reports at such times as Agent may request, but at least once each month, on the
tenth day of each fiscal month of Borrowers. Such reports shall be in form and
detail satisfactory to Agent. Borrowers shall conduct a physical inventory no
less frequently than annually and shall provide to Agent a report based on each
such physical inventory promptly thereafter, together with such supporting
information as Agent shall in its reasonable discretion request.
6.3 Returns of Inventory. If at any time or times hereafter any Account
Debtor returns any Inventory to either Borrower, which returned Inventory had a
sales price of One Hundred Thousand Dollars ($100,000) or more, Borrowers shall
notify Agent of the same immediately, specifying the reason for such return and
the location and condition of the returned Inventory. After the occurrence of
an Event of Default and during the continuation thereof, Borrowers shall hold
all returned Inventory in trust for Agent, for its benefit and the ratable
benefit of Lenders, shall segregate all returned Inventory from all other
Property owned by Borrowers or in their respective possession and shall
conspicuously label such Inventory as the Property of Agent, for its benefit and
the ratable benefit of Lenders.
SECTION 7. PROVISIONS RELATING TO EQUIPMENT
7.1 Representations, Warranties and Covenants. With respect to the
Equipment, Borrowers represent, warrant and covenant to and with Agent and
Lenders that:
(A) The Equipment is in good operating condition and repair, and all
necessary replacements of and repairs thereto shall be made so that the value
and operating efficiency of the Equipment shall be maintained and preserved,
reasonable wear and tear and insured theft and casualty losses excepted; and
(B) After the Closing Date, Borrowers will not permit any of the
Equipment to become affixed to any real Property leased to either Borrower so
that an interest arises therein under the real estate laws of the applicable
jurisdiction unless the landlord of such real Property has executed a landlord
waiver or leasehold mortgage in favor of Agent, for its benefit and the ratable
benefit of Lenders, and Borrowers will not permit any of the Equipment to become
an accession to any personal Property other than Equipment subject to first
priority Liens in favor of Agent, for its benefit and the ratable benefit of
Lenders, or subject to Permitted Liens.
7.2 Evidence of Ownership of Equipment. Promptly on request therefor by
Agent, Borrowers shall deliver to Agent any and all evidence of ownership, if
any, of any of the Equipment
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which constitutes Collateral (including, without limitation, certificates of
title and applications for title).
7.3 Records and Schedules of Equipment. Borrowers shall maintain accurate
records itemizing and describing the kind, type, quality, quantity and value of
its Equipment and all dispositions thereof and, if requested by Agent or
Required Lenders, shall furnish Agent with a current schedule containing the
foregoing information on at least an annual basis and more often if requested by
Agent or Required Lenders.
SECTION 8. REPRESENTATIONS AND WARRANTIES
8.1 General Representations and Warranties. To induce Agent and Lenders
to enter into this Agreement and to make advances hereunder, Borrowers warrant
and represent to Agent and Lenders that:
(A) Organization and Qualification. Each Borrower is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware. Each Borrower has duly qualified and is authorized to do
business and is in good standing as a foreign corporation in each state or
jurisdiction listed on Schedule 8.1(A) attached hereto and made a part hereof
and in all other states and jurisdictions where the character of its Properties
or the nature of its activities make such qualification necessary, and in which
the failure of either Borrower to be so qualified would have a material adverse
effect on the financial condition, business or Properties of such Borrower.
(B) Corporate Names. During the preceding five (5) years, neither
Borrower has been known as or used any corporate, fictitious or trade names
except as disclosed on Schedule 8.1(B) attached hereto and made a part hereof.
Except as set forth on Schedule 8.1(B), neither Borrower has, during the
preceding five (5) years, been the surviving corporation of a merger or
consolidation or acquired all or substantially all of the assets of any Person.
(C) Corporate Power and Authority. Each Borrower has the legal right
and power and is duly authorized and empowered to enter into, execute, deliver
and perform this Agreement and each of the other Loan Documents to which it is a
party. The execution, delivery and performance of this Agreement and each of
the other Loan Documents have been duly authorized by all necessary corporate
action and do not and will not (i) require any consent or approval of the
shareholders of either Borrower; (ii) contravene either Borrower's certificate
of incorporation or by-laws; (iii) violate, or cause either Borrower to be in
default under, any provision or any law, rule, regulation, order, writ,
judgment, injunction, decree, determination or award in effect having
applicability to either Borrower; (iv) result in a breach of or constitute a
default under any indenture or loan or credit agreement or any other agreement,
lease or instrument to which either Borrower is a party or by which it or its
Properties may be bound or affected; or (v) result in, or require, the creation
or imposition of a Lien (other than Permitted Liens) upon or with respect to any
of the Properties now owned or hereafter acquired by either Borrower.
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(D) Legally Enforceable Agreement. This Agreement is, and each of
the other Loan Documents when delivered under this Agreement will be, legal,
valid and binding obligations of each Borrower (to the extent a party thereto),
enforceable against each such Borrower in accordance with their respective
terms, except to the extent that such enforcement may be limited by applicable
bankruptcy, insolvency, fraudulent conveyance and other similar laws affecting
creditors' rights generally or by principles of equity.
(E) Use of Proceeds. Borrowers' uses of the proceeds of any Loans
made pursuant to this Agreement are, and will continue to be, legal and proper
corporate uses, duly authorized by their respective Board of Directors where
necessary, and such uses will not violate any applicable laws, including,
without limitation, the Foreign Assets Control Regulations, the Foreign Funds
Control Regulations and the Transaction Control Regulations of the United States
Treasury Department (31 CFR, Subtitle B, Chapter V, as amended).
(F) Margin Stock. Neither Borrower is engaged principally, or as one
of its important activities, in the business of purchasing or carrying "margin
stock" (within the meaning of Regulation G, T or U of the Board of Governors of
the Federal Reserve System), and no part of any Loans to either Borrower will be
used to purchase or carry any margin stock or to extend credit to others for the
purpose of purchasing or carrying any margin stock or be used for any purpose
which violates or is inconsistent with the provisions of Regulation G, T, U or X
of said Board of Governors.
(G) Governmental Consents. Each Borrower has, and is in good
standing with respect to, all governmental consents, approvals, authorizations,
permits, certificates, inspections, and franchises necessary to continue to
conduct its business as heretofore or proposed to be conducted by it and to own
or lease and operate its Properties as now owned or leased by it except where
the failure to obtain such approval or consent or make such filing would not
have any material adverse effect on such Borrower and would not have any adverse
effect on the enforceability of any of the Loan Documents.
(H) Patents, Trademarks, Copyrights and Licenses. Each Borrower owns
or possesses all the patents, trademarks, service marks, trade names,
copyrights, licenses, and rights with respect to the foregoing necessary for the
present and planned future conduct of its business without any known conflict
with the rights of others. All such patents, trademarks, service marks,
tradenames, copyrights, licenses and other similar rights are listed on Schedule
8.1(H) attached hereto and made a part hereof.
(I) Capital Structure. Schedule 8.1(I) attached hereto and made a
part hereof states (a) the correct name of each of the Subsidiaries of each
Borrower, the jurisdiction of incorporation and the percentage of Voting Stock
owned by each Borrower, (b) the name of each Borrower's corporate or joint
venture Affiliates and the nature of the affiliation, (c) the number and nature
of all outstanding Securities of each Borrower and the number, nature and holder
of all outstanding Securities of each Subsidiary of each Borrower and (d) the
number of authorized, issued
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and treasury shares of each Borrower and each Subsidiary of Borrower. Each
Borrower has good and marketable title to all of the shares it purports to
own of the stock of each of its Subsidiaries, free and clear in each case of
any Lien other than Permitted Liens Factory Corp. has good and marketable
title to all of the shares of the capital stock of Factory Ltd., free and
clear in each case of any Lien other than Permitted Liens. Except as set
forth on Schedule 8.1(I), as of the date hereof, there are not outstanding
any options to purchase, or any rights or warrants to subscribe for, or any
commitments or agreements to issue or sell, or any Securities or obligations
convertible into, or any powers of attorney relating to, shares of the
capital stock of either Borrower. Except as set forth on Schedule 8.1(I), as
of the date hereof, there are not outstanding any agreements or instruments
binding upon any of either Borrower's shareholders relating to the ownership
of its shares of capital stock.
(J) Solvent Financial Condition. Each Borrower is now and, after
giving effect to initial Loans to be made hereunder, at all times will be,
Solvent.
(K) Restrictions. Neither Borrower is a party or subject to any
contract, agreement, or charter or other corporate restriction, which materially
and adversely affect its business or the use or ownership of any of its
Properties. Neither Borrower is a party or subject to any contract or agreement
which restricts its right or ability to incur Indebtedness, other than as set
forth on Schedule 8.1(K) attached hereto, none of which prohibit the execution
of or compliance with this Agreement by either Borrower. Neither Borrower nor
any of its respective Subsidiaries has agreed or consented to cause or permit in
the future (upon the happening of a contingency or otherwise) any of its
Property, whether now owned or hereafter acquired, to be subject to a Lien that
is not a Permitted Lien.
(L) Litigation. Except as set forth on Schedule 8.1(L) attached
hereto and made a part hereof or in respect to matters which could not be
reasonably expected to have an adverse effect on either Borrower, there are no
actions, suits, proceedings or investigations pending, or to the knowledge of
either Borrower, threatened, against or affecting either Borrower or any of
their respective Subsidiaries, or the business, operations, Properties,
prospects, profits or condition of either Borrower or any of their respective
Subsidiaries, in any court or before any governmental authority or arbitration
board or tribunal. Except as otherwise specifically disclosed on Schedule
8.1(L), as of the date hereof, no action, suit, proceeding or investigation
shown on Schedule 8.1(L) involves the possibility of materially and adversely
affecting the Properties, business, prospects, profits or condition (financial
or otherwise) of either Borrower or the ability of either Borrower to perform
this Agreement. Neither Borrower nor any of their respective Subsidiaries is in
default with respect to any order, writ, injunction, judgment, decree or rule of
any court, governmental authority or arbitration board or tribunal.
(M) Title to Properties. Each Borrower and each of its Subsidiaries
has good, indefeasible and marketable title to and fee simple ownership of, or
valid and subsisting leasehold interests in, all of its real Property, and good
title to all of its other Property, including all of the Collateral, in each
case, free and clear of all Liens except Permitted Liens.
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(N) Financial Statements; Fiscal Year. The Consolidated and
Consolidating balance sheets of Borrowers and their respective Subsidiaries as
of March 31, 1997, and the related statements of income, changes in
stockholder's equity, and changes in financial position for the periods ended on
such dates, have been prepared in accordance with GAAP (except for changes in
application in which Borrowers' independent certified public accountants
concur), and present fairly the financial position of Borrowers and their
respective Subsidiaries at such date and the results of Borrowers' operations
for such periods. Since March 31, 1997, there has been no material change in
the condition, financial or otherwise, of Borrowers and their respective
Subsidiaries as shown on the Consolidated balance sheet as of such date and no
change in the aggregate value of Equipment and real Property owned by Borrowers
and their respective Subsidiaries, except for changes in the ordinary course of
business, none of which individually or in the aggregate has been materially
adverse. The fiscal year of each Borrower and each of their respective
Subsidiaries ends on March 31 of each year.
(O) Full Disclosure. The financial statements referred to in Section
8.1(N) above, do not, nor does this Agreement or any other written statement of
either Borrower to Agent or any Lender (including, without limitation, filings
with the Securities and Exchange Commission (the "SEC")), when taken together as
a whole, contain any untrue statement of a material fact or omit a material fact
necessary to make the statements contained therein or herein not misleading.
There is no fact which either Borrower has failed to disclose to Agent or any
Lender in writing which materially affects adversely or, so far as either
Borrower can now foresee, will materially affect adversely the Properties,
business, profits, or condition (financial or otherwise) of either Borrower or
could reasonably be expected to adversely affect, in any material respect, each
Borrower's respective Properties, business, profits or condition or the ability
of Borrowers to perform pursuant to this Agreement.
(P) Pension Plans. Except as disclosed on Schedule 8.1(P) attached
hereto and made a part hereof, neither Borrowers nor any of their respective
Subsidiaries has any Plan. Except as set forth on Schedule 8.1(P), neither
Borrowers nor any of their respective Subsidiaries has received any notice from
the Department of Labor to the effect that it is not in compliance, in all
material respects, with any of the requirements of ERISA and the regulations
promulgated thereunder. No fact or situation that could lead to a material
adverse change in the financial condition of Borrowers, including, but not
limited to, any Reportable Event, or Prohibited Transaction, which is not exempt
under ERISA, exists in connection with any Plan. Except as set forth on
Schedule 8.1(P), neither Borrowers nor any of their respective Subsidiaries has
any withdrawal liability in connection with a Multiemployer Plan.
(Q) Taxes. The federal tax identification number of Factory Corp. is
36-3652087 and of Factory Ltd. is 36-3387269. Each Borrower and each of their
Subsidiaries have filed all federal, state and local tax returns and other
reports it is required by law to file and has paid, or made provision for the
payment of, all taxes, assessments, fees and other governmental, charges that
are due and payable, except where the failure to so file, pay or make provision
would not have a material adverse effect on a Borrower or its respective
business or operations or where any such taxes,
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assessments or charges are being contested in good faith and by appropriate
proceedings and where such Borrower maintains reasonable reserves on its
books therefor. The provision for taxes on the books of each Borrower and
its Subsidiaries are adequate for all years not closed by applicable
statutes, and for its current fiscal year.
(R) Labor Relations. Except as described on Schedule 8.1(R) attached
hereto and made a part hereof, neither of the Borrowers nor any of their
respective Subsidiaries is a party to any collective bargaining agreement, and
there are no material grievances, disputes or controversies with any union or
any other organization of either Borrower's employees, or threats of strikes,
work stoppages or any asserted pending demands for collective bargaining by any
union or organization.
(S) Compliance With Laws. Except as disclosed on Schedule 8.1(S),
(i) each Borrower has duly complied with, and its Properties, business
operations and leaseholds are in compliance with, the provisions of all federal,
state and local laws, rules and regulations applicable to such Borrower, its
Properties or the conduct of its business, including, without limitation, OSHA
and all Environmental Laws, except where the failure to so comply would not have
a material adverse effect on such Borrower or its business or operations and
(ii) there have been no citations, notices or orders of noncompliance issued to
either Borrower or any of its Subsidiaries under any such law, rule or
regulation.
(T) Surety Obligations. Except as disclosed on Schedule 8.1(T),
neither Borrower is obligated as surety or indemnitor under any surety or
similar bond or other contract issued or entered into any agreement to assure
payment, performance or completion of performance of any undertaking or
obligation of any Person.
(U) No Defaults. No event has occurred and no condition exists which
would, upon the execution and delivery of this Agreement or Borrowers'
performance hereunder, constitute a Default or an Event of Default. Neither
Borrowers nor any of their respective Subsidiaries is in default, and no event
has occurred and no condition exists which constitutes, or which with the
passage of time or the giving of notice or both would constitute, a default in
the payment of any Indebtedness to any Person for Money Borrowed.
(V) Brokers. Except as otherwise disclosed in writing to Agent prior
to the Closing, there are no claims for brokerage commissions, finder's fees or
investment banking fees in connection with the transactions contemplated by this
Agreement.
(W) Business Locations. During the preceding five (5) year period,
Borrowers have had no office or place of business located in any state or county
other than as shown on Schedule 4.5.
(X) Trade Relations. There exists no actual or threatened
termination, cancellation or limitation of, or any modification or change in,
the business relationship between either Borrower and any customer or any group
of customers whose purchases individually or in the aggregate are
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material to the business of either Borrower, or with any material supplier,
and there exists no present condition or state of facts or circumstances
which would materially affect adversely either Borrower or prevent either
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.
(Y) Leases. Schedule 8.1(Y)-1 attached hereto is a complete listing
of all capitalized leases of each Borrower as of the date hereof and Schedule
8.1(Y)-2 attached hereto is a complete listing of all operating leases involving
annual Rentals of Ten Thousand Dollars ($10,000) or more of either Borrower as
of the date hereof.
(Z) Investment Company Act. Neither Borrower is an "investment
company" or a company "controlled" by an "investment company" within the meaning
of the Investment Company Act of 1940, as amended.
8.2 Reaffirmation. Each request for a Loan made by Borrowers pursuant to
this Agreement or any of the other Loan Documents shall constitute (i) an
automatic representation and warranty by Borrowers to Agent and Lenders that
there does not then exist any Default or Event of Default; (ii) a reaffirmation
as of the date of said request that the representations and warranties of
Borrowers as to the completeness and accuracy of any Exhibit were true and
correct as of the date thereof; (iii) a reaffirmation as of the date of such
request that any representation and warranty relating to a specific time was
true in all material respects as of such time; and (iv) a reaffirmation as of
the date of said request that all of the other representations and warranties of
Borrowers contained in this Agreement and the other Loan Documents are true in
all material respects except for changes in Borrowers' business or operations
that would render the information in any Exhibit attached hereto either
inaccurate or incomplete, in any material respect, so long as Required Lenders
has consented to such changes or such changes are not prohibited by this
Agreement.
8.3 Survival of Representations and Warranties. Borrowers covenant,
warrant and represent to Agent and Lenders that all representations and
warranties of Borrowers contained in this Agreement or any of the other Loan
Documents shall be true at the time of Borrowers' execution of this Agreement
and the other Loan Documents, and shall survive the execution, delivery and
acceptance thereof by Agent and Lenders and the parties thereto and the closing
of the transactions described therein or related thereto.
SECTION 9. COVENANTS AND CONTINUING AGREEMENTS
9.1 Affirmative Covenants. During the term of this Agreement, and
thereafter for so long as there are any Obligations to Agent or any Lender,
Borrowers covenant that, unless otherwise consented to by Required Lenders in
writing, they shall:
(A) Taxes and Liens. Pay and discharge, and cause each Subsidiary to
pay and discharge, all taxes, assessments and governmental charges upon either
of them, their income and
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Properties as and when such taxes, assessments and charges are due and
payable, unless and to the extent only that such taxes, assessments and
charges are being contested in good faith and by appropriate proceedings and
Borrowers maintain reasonable reserves on their books therefor. Borrowers
shall also pay and discharge any lawful claims which, if unpaid, might become
a Lien against any of Borrowers' Properties except for Permitted Liens and
any Lien which would, as a matter of law, exist notwithstanding such contest
and late payment.
(B) Tax Returns. File, and cause each of their Subsidiaries to file,
all federal, state and local tax returns and other reports Borrowers or such
Subsidiaries are required by law to file, except where the failure to so file
would not have a material adverse effect on Borrowers or their respective
business or operations and maintain adequate reserves for the payment of all
taxes, assessments, governmental charges, and levies imposed upon either of
them, their income, or their profits, or upon any Property belonging to either
of them.
(C) Payment of Bank Charges. Pay to Agent, on demand, any and all
reasonable and customary fees, costs or expenses which Agent or any Lender pays
to a bank or other similar institution (including, without limitation, any fees
paid by the Agent to any Lender) arising out of or in connection with (i) the
forwarding to either Borrower or any other Person on behalf of either Borrower;
by Agent or any Lender, proceeds of loans made by Lenders to Borrowers pursuant
to this Agreement and (ii) the depositing for collection, by Agent or any
Lender, of any check or item of payment received or delivered to Agent or any
Lender on account of the Obligations.
(D) Business and Existence. Preserve and maintain, and cause each
Subsidiary to preserve and maintain, its separate corporate existence and all
rights, privileges, and franchises in connection therewith except where not
necessary to the conduct of its business, and maintain, and cause each
Subsidiary to maintain, its qualification and good standing in all states in
which such qualification is necessary in order for, Borrowers or their
respective Subsidiaries to conduct their respective businesses in such states.
(E) Maintain Properties. Maintain, and cause each Subsidiary to
maintain, their or its Properties (ordinary wear and tear excepted) in good
condition and make, and cause each Subsidiary to make, all necessary renewals,
repairs, replacements, additions and improvements thereto consistent with past
practices.
(F) Compliance with Laws. Comply, and cause each of their
Subsidiaries to comply, with all laws, ordinances, governmental rules and
regulations to which they or it are or is subject, and obtain and keep in force
any and all licenses, permits, franchises, or other governmental authorizations
necessary to the ownership of their or its Properties or to the conduct of their
or its business, except where such violation or failure to obtain could not
reasonably be expected to materially and adversely affect the respective
businesses, prospects, profits, Properties, or conditions (financial or
otherwise) of Borrowers.
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(G) ERISA Compliance. (i) At all times make prompt payment of
contributions required to meet the minimum funding standards set forth in ERISA
with respect to each Plan; (ii) if requested by Agent, promptly after the filing
thereof, furnish to Agent copies of any annual report (Form 5500) required to be
filed pursuant to ERISA in connection with each Plan and any other employee
benefit plan of it and its Affiliates subject to ERISA; (iii) notify Agent as
soon as practicable of any Reportable Event and of any additional act or
condition arising in connection with any Plan which Borrowers believe might
constitute grounds for the termination thereof by the Pension Benefit Guaranty
Corporation or for the appointment by the appropriate United States district
court of a trustee to administer the Plan; and (iv) furnish to Agent, promptly
upon Agent's request therefor, such additional information concerning any Plan
or any other such employee benefit plan as may be reasonably requested.
(H) Business Records. Keep, and cause each of their Subsidiaries to
keep, adequate records and books of account with respect to their or its
business activities in which proper entries are made in accordance with GAAP
reflecting all its financial transactions.
(I) Visits and Inspections. Permit representatives of Agent or any
Lender, from time to time, as often as may be reasonably requested, but only
during normal business hours, to visit and inspect the Properties of Borrowers,
inspect and make extracts from their books and records, and discuss with their
officers, their employees and their independent accountants, Borrowers'
businesses, assets, liabilities, financial condition, business prospects and
results of operations. Borrowers further agree to permit audits at the request
of any Lender as coordinated by Agent, including but not limited to, four (4)
field audits per year, the cost of which shall be paid by Borrowers.
(J) Information and Reporting. Cause to be prepared and furnished to
Agent the following (all to be kept and prepared in accordance with GAAP applied
on a consistent basis, unless Borrowers' certified public accountants concur
with any change therein and such change is disclosed to Agent and Lenders and is
consistent with GAAP):
(i) as soon as possible, but not later than ninety (90) days
after the close of each fiscal year of Borrowers, unqualified audited
Consolidated financial statements of Borrowers and their Subsidiaries as of the
end of such year, certified by a firm of independent certified public
accountants of recognized standing selected by Borrowers but acceptable to Agent
(except for a qualification for a change in accounting principles with which the
accountant concurs);
(ii) as soon as possible, but not later than thirty (30) days
after the end of each fiscal month hereafter which is not the end of any fiscal
quarter, (a) unaudited interim Consolidated financial statements of Borrowers
and each of their respective Subsidiaries as of the end of such month and of the
portion of Borrowers' fiscal year then elapsed, certified by the principal
financial officer of each Borrower as prepared in accordance with GAAP and
fairly presenting the Consolidated financial position and results of operations
of Borrowers and each of their respective Subsidiaries for such month and period
subject only to changes from audit and
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year-end adjustments and except that such statements need not contain notes,
and (b) a monthly sales report that includes a listing of sales for each
location of Borrowers compared to the prior month's sales and prior year's
sales;
(iii) as soon as possible, but not later than thirty (30)
days after the end of each fiscal quarter hereafter, (a) unaudited interim
Consolidated financial statements of Borrowers and each of their respective
Subsidiaries as of the end of such fiscal quarter and of the portion of
Borrowers' financial year then elapsed, certified by the principal financial
officer of each Borrower as prepared in accordance with GAAP and fairly
presenting the Consolidated financial position and results of operations of
Borrowers and each of their respective Subsidiaries for such fiscal quarter and
period subject only to changes from audit and year-end adjustments and except
that such statements need not contain notes, and (b) a monthly sales report that
includes a listing of sales for each location of Borrowers compared to the prior
month's sales and prior year's sales;
(iv) promptly after the sending or filing thereof, as the case
may be, copies of any proxy statements, financial statements or reports which
Borrowers have made available to its shareholders and copies of any regular,
periodic and special reports or registration statements which Borrowers file
with the SEC or any governmental authority which may be substituted therefor, or
any national securities exchange; and
(v) such other data and information (financial and otherwise) as
Agent or any Lender, from time to time, may reasonably request, bearing upon or
related to the Collateral or Borrowers' financial condition or results of
operations, including, without limitation, federal income tax returns of either
Borrower, accounts payable ledgers, and bank statements.
Concurrently with the delivery of the financial statements described in
clause (i) of this Section 9.1(J), Borrowers shall forward to Agent a copy of
the accountants' letter to Borrowers' management that is prepared in connection
with such financial statements and also shall cause to be prepared and shall
furnish to Agent a certificate of the aforesaid certified public accountants
certifying to Agent and Lenders that, based upon their examination of the
financial statements of Borrowers and their respective Subsidiaries performed in
connection with their examination of said financial statements, they are not
aware of any Default or Event of Default, or, if they are aware of such Default
or Event of Default, specifying the nature thereof. Concurrently with the
delivery of the financial statements described in clauses (i), (ii) and (iii) of
this Section 9.1(J), Borrowers shall cause to be prepared and furnished to Agent
a Compliance Certificate in the form of Exhibit C attached hereto, with
appropriate insertions, from the Chief Financial Officer of each Borrower
certifying to Agent and Lenders that to the best of his knowledge, Borrowers
have kept, observed, performed and fulfilled each and every covenant, obligation
and agreement binding upon Borrowers in this Agreement and the other Loan
Documents and that no Default or Event of Default has occurred and is
continuing, or, if such Default or Event of Default has occurred and is
continuing, specifying the nature thereof. Borrowers authorize Agent or its
designated representatives to communicate directly with its independent
certified public accountants and authorizes those accountants to disclose to
Agent any and all financial statements and other supporting financial
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documents and schedules. At or before the initial Closing Date, Borrowers
shall deliver a letter addressed to such accountants instructing them to
comply with the provisions of this Section 9.1(J). Further within five (5)
days after the earlier of the last day of each fiscal year of Borrowers or
the date Borrowers engaged independent certified public accountants to audit
Borrowers' financial statements, Borrowers shall deliver to such independent
certified public accountants a letter from Borrowers addressed to such
independent certified public accountants indicating that it is a primary
intention of Borrowers in engaging such accountants that Agent and Lenders
rely upon such financial statements of Borrowers and their Subsidiaries.
Agent shall promptly forward to Lenders all financial statements,
certificates, reports, and other information received by it from Borrowers or
any other Person pursuant to this Section 9.1(J).
(K) Notices to Agent and Lenders. Notify Agent and Lenders in
writing: (i) promptly after either Borrower's learning thereof, of the
commencement of any litigation affecting either Borrower or any of its
Properties, whether or not the claim is considered by either Borrower to be
covered by insurance, and of the institution of any administrative proceeding,
which litigation or proceeding could reasonably be expected to materially and
adversely affect either Borrower's operations, financial condition, Properties
or business or Agent's Lien upon any of the Collateral; (ii) at least thirty
(30) days prior thereto, of either Borrower's opening of any new office or place
of business or either Borrower's closing of any existing office or place of
business; (iii) promptly after either Borrower's learning thereof, of any labor
dispute to which either Borrower may become a party which could reasonably be
expected to have a materially adverse effect on either Borrower, any strikes or
walkouts relating to any of its plants or other facilities, and the expiration
of any labor contract to which it is a party or by which it is bound; (iv)
promptly after either Borrower's learning thereof, of any material default by
either Borrower under any note, indenture, loan agreement, mortgage, lease,
deed, guaranty or other similar agreement relating to any Indebtedness of either
Borrower exceeding Two Hundred Fifty Thousand Dollars ($250,000); (v) promptly
after the occurrence thereof, any Default or Event of Default; (vi) promptly
after the occurrence thereof, of any default by any obligor under any note or
other evidence of Indebtedness in excess of One Hundred Thousand Dollars
($100,000) payable to either Borrower, and (vii) promptly after the rendition
thereof, of any judgment in excess of Fifty Thousand Dollars ($50,000) rendered
against either Borrower or any of their Subsidiaries.
(L) Landlord and Storage Agreements. Provide Agent with copies of
all agreements between either Borrower and any landlord or warehouseman which
owns any premises at which any Inventory may, from time to time, be kept.
(M) Further Assurances. At Agent's request, promptly execute or
cause to be executed and deliver to Agent any and all documents, instruments and
agreements deemed necessary by Agent or Required Lenders to give effect to or
carry out the terms or intent of this Agreement or any of the other Loan
Documents. Without limiting the generality of the foregoing, if any of the
Accounts, the face value of which exceeds One Thousand Dollars ($1,000) arises
out of a contract with the United States of America, or any department, agency,
subdivision or instrumentality thereof, Borrowers shall notify Agent thereof in
writing after the end of each month and shall
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execute any instruments and take any other action required or requested by
Agent to comply with the provisions of the Federal Assignment of Claims Act.
(N) Book Entry System. Borrowers shall maintain, if requested by
Agent, a book entry system with respect to the Notes, and any transfers thereof,
in accordance with the requirements set forth in temporary Treasury Regulation
Section 5f.103-1(c).
(O) Projections. As soon as available, and in any event no later
than thirty (30) days after the end of each fiscal year of Borrowers, deliver to
Agent monthly Projections of each Borrower on a Consolidated basis for the
forthcoming year.
(P) Environmental Matters. (i) Borrowers shall and shall cause each
of their respective Subsidiaries to (a) comply strictly and in all material
respects with all applicable Environmental Laws, (b) take promptly any
remediation and/or corrective action necessary to cure any violation of
Environmental Laws of which either Borrower has knowledge, (c) notify the proper
governmental agency promptly in the event of any Release of any Hazardous
Substance reportable under 42 USC Section 9603, 42 USC Section 11044, 33 USC
Section 1321(b)(5) or any counterpart or similar state or local requirement, (d)
promptly forward to Agent, upon its request, a copy of any order, notice,
permit, application, or any other communication or report in connection with any
such Release of any Hazardous Substance or any other matter relating to the
Environmental Laws as they may affect its premises, and (e) promptly forward to
Agent a copy of any order, notice, permit, application or other communication or
report in connection with any material Release of any Hazardous Substance or any
other material matter relating to the Environmental Laws as they may affect its
premises.
(ii) Borrowers shall indemnify Lenders and Agent and hold Lenders
and Agent harmless from and against any loss, liability, damage or expense,
including reasonable attorneys' fees, suffered or incurred by Lender and Agent,
whether as mortgagee pursuant to any New Mortgage, as mortgagee in possession,
or as successor in interest to either Borrower or any of their respective
Subsidiaries as owner or lessee of any premises by virtue of foreclosure or
acceptance of deed in lieu of foreclosure (a) under or on account of the
Environmental Laws, including the assertion of any Lien thereunder; (b) with
respect to any Release of any Hazardous Substance reportable under 42 USC
Section 9603, 42 USC Section 11044, 33 USC Section 1321(b)(5) or any counterpart
or similar state or local requirement, affecting such premises or the premises
of any other place, including any loss of value of such premises as a result of
a Release of any Hazardous Substance; and (c) with respect to any other
environmental matter within the jurisdiction of any federal, state, or municipal
official administering the Environmental Laws; provided, however, that Borrowers
will not be liable for such indemnification to Lenders and/or Agent to the
extent that any such loss, liability, damage or expense results from the gross
negligence or willful misconduct of the Person who would otherwise be entitled
to be indemnified pursuant to this Section 9.1(P)(ii). The procedures to be
followed as to any indemnity pursuant to this Section shall be as set forth in
Sections 13.2 and 13.4 hereof.
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(iii) Borrowers shall provide Agent with such evidence,
reports and/or other documentation as reasonably requested by Agent or Required
Lenders to insure that Borrower is in compliance with the terms of this Section
9.1(P).
(Q) Landlord Waivers. Borrowers shall use their best efforts to deliver
on or before a date ninety (90) days from the date hereof, landlord or
warehouseman waivers or agreements with respect to those premises leased by
either Borrower and which are disclosed on Annex 1 of Schedule 4.5 attached
hereto; provided, however, that any Inventory located at any Borrower location
with respect to which no landlord or warehouseman waiver has been delivered to
Agent within ninety (90) days from the date hereof shall be excluded from
Eligible Inventory until a landlord or warehouseman waiver has been delivered to
Agent with respect to such Borrower location.
9.2 Negative Covenants. During the term of this Agreement, and thereafter
for so long as there are any Obligations to Agent or any Lender, Borrowers
covenant that, unless Required Lenders have first consented thereto in writing,
they will not:
(A) Mergers; Consolidations; Acquisitions. Merge or consolidate, or
permit any Subsidiary to merge or consolidate, with any Person, except a
consolidation or merger involving only (i) a Borrower and one or more wholly
owned Subsidiaries or (ii) two or more wholly owned Subsidiaries; nor acquire
all or any substantial part of the Properties or capital stock of any Person;
provided however, the Borrowers may acquire the Properties or capital stock of a
Person if (i) such acquisition has a purchase price (including any non-compete
payments and other forms of deferred payments) equal to or less than $5,000,000,
(ii) the Borrowers remain in compliance with all covenants provided for herein
on a pro-forma basis after giving effect to the proposed acquisition assuming
such acquisition occurred as of a date which is the beginning of a four (4)
quarter period immediately preceding completion of the acquisition, and
(iii) such acquisition has the approval of the acquired company's board of
directors or other governing body, as appropriate.
(B) Loans. Make, or permit any Subsidiary of either Borrower to
make, any loans or other advances of money (other than for salary, travel
advances, advances against commissions, loans to employees for the purchase of
personal computers and other similar advances in the ordinary course of business
and employee relocation loans provided that the aggregate amount of all employee
relocation loans shall not exceed at any time Ten Thousand Dollars ($10,000)) to
any Person, including, without limitation, any of either Borrower's Affiliates,
officers or employees other than any Permitted Investment.
(C) Total Indebtedness. Create, incur, assume, or suffer to exist,
or permit any Subsidiary of either Borrower to create, incur or suffer to exist,
any Indebtedness, except: (i) Obligations owing to Agent and Lenders; (ii)
Indebtedness of any Subsidiary of either to such Borrower; or (iii) accounts
payable to trade creditors which are not more than sixty (60) days past due and
current operating expenses (other than for Money Borrowed) which are not more
than sixty (60) days past due, in each case incurred in the ordinary course of
business and paid within such time period, unless the same are actively being
contested in good faith and, if appropriate, and lawful
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proceedings and the contesting Borrowers shall have set aside such reserves,
if any, with respect thereto as are required by GAAP and deemed adequate by
such Borrower and, in respect to reserves contained on year-end statements,
its independent accountants; (iv) obligations to pay Rentals permitted by
Section 9.2(V); (v) Permitted Purchase Money Indebtedness; (vi) contingent
liabilities arising out of endorsements of checks and other negotiable
instruments for deposit or collection in the ordinary course of business;
(vii) Indebtedness to Agent, any Lender or any Affiliate of either under any
interest rate hedging, swap, cap or similar agreement between such Borrower
and such Person; (viii) obligations under Capitalized Leases to the extent
not prohibited by any other section of this Section 9.2; and (ix)
Indebtedness for deferred taxes.
(D) Affiliate Transactions. Except as provided below, enter into, or
be a party to, or permit any Subsidiary of either Borrower to enter into or be a
party to, any transaction with any Affiliate, except in the ordinary course of
and pursuant to the reasonable requirements of either Borrower's or such
Subsidiary's business and upon fair and reasonable terms which are fully
disclosed to Agent and are no less favorable to a Borrower than would be
obtainable in a comparable arm's length transaction with a Person not an
Affiliate of such Borrower or such Subsidiary. Without limiting the foregoing,
neither Borrower shall pay any management fee or similar compensation to any
Affiliate of Borrowers unless Required Lenders have consented to the payment of
any such fee or compensation.
(E) Partnership or Joint Ventures. Become or agree to become a
general or limited partner in any general or limited partnership or a joint
venturer in any joint venture.
(F) Adverse Transactions. Enter into any transaction, or permit any
Subsidiary of either Borrower to enter into any transaction, which materially
and adversely affects or could reasonably be expected to materially and
adversely affect the Collateral or Borrowers' ability to repay the Obligations.
(G) Guaranties. Guarantee, assume, endorse or otherwise, in any way,
become directly or contingently liable, or permit any Subsidiary of either
Borrower to guarantee, assume, endorse, or otherwise, in any way become directly
or contingently liable, with respect to the Indebtedness of any Person.
(H) Limitation on Liens. Create or suffer to exist, or permit any
Subsidiary of either Borrower to create or suffer to exist, any Lien upon any of
their respective Properties, incomes or profits, whether now owned or hereafter
acquired, except: (i) Liens at any time granted in favor of Agent, for its
benefit and the ratable benefit of Lenders; (ii) Liens for taxes (excluding any
Lien imposed pursuant to any of the provisions of ERISA) not yet due or which
are being contested as permitted by Section 9.1(A) hereof other than any Lien
which would, as a matter of law, exist notwithstanding such contest and late
payment, but only if in Agent's judgment such Lien does not affect adversely
Agent's or Lenders' rights or the priority of Agent's Lien in Collateral; (iii)
Liens securing the claims or demands of materialmen, mechanics, carriers,
warehousemen, landlords and other like Persons for labor, materials, supplies or
rentals incurred in the ordinary course of
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Borrowers' business, but only if the payment thereof is not at the time
required; (iv) deposits made in the ordinary course of business in connection
with workmen's compensation, unemployment insurance, social security and
other like laws; (v) attachment, judgment and other similar non-tax Liens
arising in connection with court proceedings, but only if and for so long as
the execution or other enforcement of such Liens is and continues to be
effectively stayed and bonded on appeal, the validity and amount of the
claims secured thereby are being actively contested in good faith and by
appropriate lawful proceedings and such Liens do not, in the aggregate,
materially detract from the value of the Properties of Borrowers or
materially impair the use thereof in the operation of Borrowers' businesses;
(vi) Purchase Money Liens securing Permitted Purchase Money Indebtedness;
(vii) reservations, exceptions, easements, rights of way, and other similar
encumbrances affecting real Property, provided that, in Agent's sole
judgment, they do not in the aggregate materially detract from the value of
said Properties or materially interfere with their use in the ordinary
conduct of Borrowers' businesses and, if said real Property constitutes
Collateral, such Liens existed as of the Closing Date or Agent has consented
thereto; (viii) such other Liens as appear on Schedule 9.2(H) attached
hereto; or (ix) such other Liens as Required Lenders may hereafter approve in
writing.
(I) Subordinated Debt. Make, or permit any Subsidiary of either
Borrower to make, any payment of any part or all of the principal amount of any
Subordinated Debt, or otherwise repurchase, redeem or retire any instrument
evidencing any such Subordinated Debt; or enter into any agreement (oral or
written) amending, modifying, altering or terminating any one or more of the
instruments or agreements evidencing or relating to any such Subordinated Debt
which materially and adversely affects the interests of Lenders and Agent or of
either Borrower.
(J) Distributions. Declare or make, or permit any Subsidiary of
either Borrower to declare or make, any Distributions, except for Distributions
from a Subsidiary to a Borrower.
(K) Subsidiaries. Hereafter create any Subsidiary or divest
themselves of any material assets by transferring them to any Subsidiary of
either Borrower.
(L) Business Locations. Transfer the principal place of business or
chief executive office of either Borrower, or open new manufacturing plants, or
transfer existing manufacturing plants, or maintain warehouses or records with
respect to Accounts or Inventory, to or at any locations other than those set
forth on Schedule 4.5 hereto, except upon at least thirty (30) days prior
written notice to Agent and after the delivery to Agent of financing statements,
if required by Agent, in form satisfactory to Agent to perfect or continue the
perfection of Agent's Lien, for its benefit and the ratable benefit of Lenders,
and security interest hereunder.
(M) Change of Business. Enter into any new business or make any
material change in any of either Borrower's business objectives, purposes and
operations.
(N) Disposition of Assets. Sell, lease or otherwise dispose of any
of their Properties, or permit any Subsidiary to sell, lease or otherwise
dispose of any of their Properties
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including in either case any disposition of Property as part of a sale and
leaseback transaction, to or in favor of any Person, except (i) sales of
Inventory in the ordinary course of Borrowers' businesses or bulk sales of
slow-moving, obsolete or other Inventory which is not Eligible Inventory, for
so long as no Event of Default exists hereunder, (ii) a transfer of Property
to a Borrower by a Subsidiary, (iii) dispositions expressly authorized by
this Agreement, or (iv) sales or dispositions of Equipment and/or real
Property which would not alone or in conjunction with other sales or
dispositions materially and adversely affect Borrowers business operations or
abilities to repay the Obligations.
(O) Name of Either Borrower. Except upon thirty (30) days prior
written notice to Agent, use any corporate name (other than their own) or any
fictitious name, tradestyle or "d/b/a" except for the names disclosed on
Schedule 8.1(B) attached hereto.
(P) Bill-and-Hold Sales, Etc. Make a sale to any customer on a
bill-and-hold, guaranteed sale, sale and return, sale on approval or consignment
basis, or any sale on a repurchase or return basis.
(Q) Use of Agent's or any Lender's Name. Without the prior written
consent of Agent or the applicable Lender, use the name of Agent or any Lender
or the name of any Affiliates of Agent or any Lender in connection with any of
either Borrower's business or activities, except in connection with internal
business matters, as required in dealings with governmental agencies and
financial institutions and to trade creditors of Borrowers solely for credit
reference purposes and in financial statements and SEC Reports and similar
reports.
(R) Margin Securities. Own, purchase or acquire (or enter into any
contract to purchase or acquire) any "margin security" as defined by any
regulation of the Federal Reserve Board as now in effect or as the same may
hereafter be in effect unless, prior to any such purchase or acquisition or
entering into any such contract, Agent shall have received an opinion of counsel
satisfactory to Agent to the effect that such purchase or acquisition will not
cause this Agreement to violate Regulations G, T or U or any other regulation of
the Federal Reserve Board then in effect.
(S) Restricted Investment. Except as otherwise permitted under
Section 9.2(A), make or have, or permit any Subsidiary either to make or have,
any Restricted Investment.
(T) Fiscal Year. Change, or permit any Subsidiary of either Borrower
to change, its fiscal year, or permit any Subsidiary of either Borrower to have
a fiscal year different from that of Borrowers; provided, however, the Borrowers
shall be permitted to change their respective fiscal year end to the Saturday
closest to January 31, commencing in January 1998.
(U) Stock of Subsidiary, Etc. Sell or otherwise dispose of any
shares of capital stock of any Subsidiary of either Borrower, except in
connection with a transaction permitted under Section 9.2(A), or permit any
Subsidiary of either Borrower to issue any additional shares of its capital
stock except director's qualifying shares.
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(V) Leases. Become a lessee under any operating lease of real
Property if the aggregate Rentals payable during any current or future period of
twelve (12) consecutive months during the Original Term hereof under the lease
in question and all other leases under which Borrowers are then lessee would
exceed Forty-Five Million Dollars ($45,000,000). The term "Rentals" means, as
of the date of determination, all payments which the lessee is required to make
by the terms of any lease, exclusive of payments for taxes, insurance, common
area maintenance and the like.
(W) Tax Consolidation. File or consent to the filing of any
consolidated income tax return with any Person other than a Subsidiary.
(X) Limitation on Foreign Investment. Borrowers shall not invest an
aggregate amount in excess of Five Hundred Thousand Dollars ($500,000) in assets
located outside the United States at any point in time.
9.3 Specific Financial Covenants. During the Term of this Agreement, and
thereafter for so long as there are any Obligations to Agent or any Lender,
Borrowers covenant that, unless otherwise consented to by Required Lenders in
writing:
(A) Maximum Total Liability To Adjusted Tangible Net Worth -
Borrowers shall not permit the ratio of (x) its Consolidated Indebtedness less
Subordinated Debt to (y) Adjusted Tangible Net Worth , as of the last day of
each three month period for each of the three month periods ending on the dates
listed below, to exceed the ratios set forth opposite such dates in the
following schedule:
DATES RATIO
June 28, 1997 1.25 to 1
September 27, 1997
through March 28, 1998 1.50 to 1
June 27, 1998 1.25 to 1
September 26, 1998 2.00 to 1
December 26, 1998 1.50 to 1
March 27, 1999 1.55 to 1
June 26, 1999 1.25 to 1
(B) Minimum Fixed Charge Ratio. Have at the end of each fiscal
quarter ending on the dates listed below, a Minimum Fixed Charge Ratio
(calculated on a rolling four quarter basis)
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equal to or greater than the Minimum Fixed Charge Ratio set forth opposite
such period in the following schedule:
PERIOD FIXED CHARGE
RATIO
June 28, 1997 1.00 to 1.00
September 27, 1997 1.00 to 1.00
December 27, 1997
through Revolving
Credit Termination Date 1.15 to 1.00
(C) Maximum Effective Debt Ratio. Borrowers shall not permit the
Maximum Effective Debt Ratio for each of the fiscal quarters ending on the dates
set forth below (calculated on a rolling four quarter basis) to exceed the
ratios set forth opposite such dates in the following schedule:
DATES RATIO
June 28, 1997 7.20 to 1.00
September 27, 1997 7.70 to 1.00
December 27, 1997 through
Revolving Credit Termination
Date 7.20 to 1.00
(D) Clean Down Covenant. The Revolving Credit Loans outstanding
shall not exceed $17,500,000 as of June 27, 1998. As of June 27, 1998, Accounts
Payable to Eligible Inventory shall not exceed .35 to 1.00.
SECTION 10. CONDITIONS PRECEDENT
Notwithstanding any other provision of this Agreement or any of the other
Loan Documents, and without affecting in any manner the rights of Agent or
Lenders under the other Sections of this Agreement, it is understood and agreed
that Lenders will not make any Loans or be required to issue any Letters of
Credit or LC Guaranties under Section 2 of this Agreement unless and until each
of the following conditions has been and continues to be satisfied or has been
waived in writing by Required Lenders, all in form and substance satisfactory to
Lenders, Agent and Agent's and Lender's counsel:
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10.1 Documentation. Prior to the Initial Loan, Agent shall have received
the following documents, each to be in form and substance satisfactory to Agent
and its counsel and each Lender:
(A) Certified copies of each Borrower's casualty insurance policies,
together with loss payable endorsements on Agent's standard form of Loss Payee
Endorsement naming Agent, for its benefit and the ratable benefit of Lenders, as
loss payee, and certificates of insurance in respect to each Borrower's
liability insurance policies together with endorsements naming Agent, for its
benefit and the ratable benefit of Lenders, as a co-insured;
(B) Appropriate UCC-1 Financing Statements to be filed against the
Borrower in all applicable jurisdictions, in each case, executed by the
appropriate Borrower, in a form acceptable to Agent that such Liens constitute
valid and perfected security interests and Liens, having the Lien priority
specified in Section 4.3(B) hereof;
(C) A copy of the Certificate of Incorporation of each Borrower and
all amendments thereto, certified by the Secretary of State or other appropriate
official of its jurisdiction of incorporation;
(D) Good standing certificates for each Borrower issued by the
Secretary of State or other appropriate official of each Borrower's,
jurisdiction of incorporation and each jurisdiction where the conduct of such
Borrower's business activities or the ownership of their respective Properties
necessitates qualification and in which the failure to qualify would have a
material adverse effect on such Borrower or their respective business or
operations;
(E) A Certificate of the Secretary of each Borrower, together with
true and correct copies of the Certificate of Incorporation and Bylaws of each
Borrower, and all amendments thereto, true and correct copies of the resolutions
of the Board of Directors of each Borrower authorizing or ratifying the
execution, delivery and performance of this Agreement, the Notes, the Security
Documents and the Other Agreements and the names of the officer or officers of
each Borrower authorized to sign this Agreement, the Notes, the Security
Documents and the Other Agreements together with a sample of the true signature
of each such officer;
(F) The Security Documents duly executed, accepted and acknowledged
by or on behalf of each of the signatories thereto;
(G) The Other Agreements duly executed and delivered by each
Borrower;
(H) The favorable, written opinion of Sonnenschein Nath & Rosenthal,
counsel to Borrowers as to the transactions contemplated by this Agreement and
any of the other Loan Documents, to be substantially in the form of Exhibit D
attached hereto;
(I) Written instructions from each Borrower directing the application
of proceeds of the initial Revolving Credit Loan made pursuant to this
Agreement, and an initial Borrowing Base
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Certificate from Borrowers reflecting that Borrowers have Eligible Inventory
in amounts sufficient in value and amount to support the Revolving Credit
Loans in the amount requested by Borrowers on the date of such certificate;
(J) An appraisal, in form and substance acceptable to Bank in its
sole discretion, reflecting the value of the Inventory of Borrower as of the
Closing Date;
(K) Results of UCC searches in all jurisdictions where the Borrowers
have assets;
(L) Pay-off letters, in form and substance satisfactory to the Agent,
from Borrowers' existing senior lenders;
(M) An executed copy of the Accountant's Letter;
(N) Such certificates and documents reflecting the Solvency of
Borrowers, after giving effect to the transactions contemplated by this
Agreement, as Agent and Lenders shall find acceptable, including, without
limitation, pro-forma balance sheets, forecasted financial statements consisting
of balance sheets, income statements and cash flow statements for Borrowers
covering at least the three-year period commencing on the Closing Date, prepared
by Borrowers and a fair valuation balance sheet for Borrowers showing that
Borrowers are Solvent; and
(O) Such other documents, instruments and agreements as Agent shall
reasonably request in connection with the foregoing matters.
10.2 Other Conditions. The following conditions have been and shall
continue to be satisfied:
(A) No Default or Event of Default shall exist;
(B) Each of the conditions precedent set forth in the other Loan
Documents shall have been satisfied;
(C) Since the date of the most recent audited financial statements
delivered to the Agent there shall not have occurred any material adverse change
in the business, financial condition or results of operations of Borrowers, or
the existence or value of any Collateral, or any event, condition or state of
facts which would reasonably be expected materially and adversely to affect the
business, financial condition or results of operations of Borrowers; and
(D) No action, proceeding, investigation, regulation or legislation
shall have been instituted, threatened or proposed before any court,
governmental agency or legislative body to enjoin, restrain or prohibit, or to
obtain damages in respect of, or which is related to or arises out of this
Agreement or the consummation of the transactions contemplated hereby or which,
in Lenders' sole discretion, would make it inadvisable to make the initial
Revolving Credit Loan.
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SECTION 11. EVENTS OF DEFAULT: RIGHTS AND REMEDIES ON
DEFAULT
11.1 Events of Default. The occurrence of one or more of the following
events shall constitute an "Event of Default":
(A) Payment of Notes. Borrowers shall fail to pay any installment of
principal, interest or premium, if any, owing on the Notes on the due date of
such installment.
(B) Payment of Obligations. Borrowers shall fail to pay any of the
Obligations that are not evidenced by the Notes on the due date thereof (whether
due at stated maturity, on demand, upon acceleration or otherwise) and such
failure shall continue for five (5) days.
(C) Misrepresentations. Any warranty, representation, or other
statement made or furnished to Agent or any Lender by or on behalf of Borrowers
or in any instrument, certificate or financial statement furnished in compliance
with or in reference to this Agreement or any of the other Loan Documents when
taken together as a whole proves to have been false or misleading in any
material respect when made or furnished.
(D) Breach of Covenants. Borrowers shall fail or neglect to perform,
keep or observe (i) any covenant contained in Sections 4.3, 4.4, 4.5, 4.6,
5.2(B), 9.1(A), 9.2 or 9.3 of this Agreement or (ii) any other covenant
contained in this Agreement (other than a covenant default in the performance or
observance of which is dealt with specifically elsewhere in this Section 11.1)
and the breach of such other covenant is not cured to Required Lenders'
satisfaction within thirty (30) days (five (5) days in respect to Section 9.1(J)
and 9.1(O) after the sooner to occur of Borrowers' receipt of notice of such
breach from Agent or any Lender or the date on which such failure or neglect
becomes known to any officer of Borrowers.
(E) Default Under Other Agreements. Any event of default shall occur
under, or either Borrower shall default in any material respect in the
performance or observance of any term, covenant, condition or agreement
contained in, any of the Other Agreements and such Borrower shall have received
any required notice of such default and such default shall continue beyond any
applicable period of grace.
(F) Default Under Security Documents. Any event of default shall
occur under, or either Borrower shall default in the performance or observance
of any term, covenant, condition or agreement contained in, any of the Security
Documents, in either case in any material respect, and such default shall
continue beyond any applicable period of grace, or the Agent shall cease to have
a valid perfected first priority lien in any of the Collateral.
(G) Other Defaults. There shall occur any default or event of
default on the part of either Borrower (including specifically, but without
limitation, due to non-payment) under any agreement, document or instrument to
which Borrower is a party or by which either Borrower or any
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of their Properties is bound, creating or relating to any Indebtedness in the
aggregate principal amount of One Hundred Thousand Dollars ($100,000) more
(other than the Obligations) if the payment or maturity of such Indebtedness
is accelerated (or in the case of Indebtedness due on demand, demanded) in
consequence of such event of default.
(H) Uninsured Losses; Unauthorized Dispositions. Any material loss,
theft, damage or destruction not covered by insurance (to the extent required by
this Agreement), or sale, lease or encumbrance of any of the Collateral by
either Borrower or the making of any levy, seizure, or attachment thereof or
thereon except in all cases as may be specifically permitted by other provisions
of this Agreement.
(I) Adverse Changes. There shall occur any material adverse change
in the financial condition or business prospects of either Borrower.
(J) Insolvency, etc. Either Borrower shall cease to be Solvent or
shall suffer the appointment of a receiver, trustee, custodian or similar
fiduciary, or shall make an assignment for the benefit of creditors, or any
petition for an order for relief shall be filed by or against either Borrower
under the Bankruptcy Code (if against either Borrower the continuation of such
proceeding for more than thirty (30) days unless prior to the expiration of such
period, either Borrower consents to, or is no longer actively contesting such
order of relief), or either Borrower shall make any offer of settlement,
extension or composition to their respective unsecured creditors generally.
(K) Business Disruption; Condemnation. There shall occur a cessation
of a substantial part of the business of Borrowers for a period which
significantly affects either Borrower's capacity to continue its business, on a
profitable basis; or either Borrower shall suffer the loss or revocation of any
material license or permit now held or hereafter acquired by either Borrower
which is necessary to the continued or lawful operation of all or a substantial
part of its business; or either Borrower shall be enjoined, restrained or in any
way prevented by court, governmental or administrative order from conducting all
or a substantial part of its business affairs; or any material lease or
agreement pursuant to which either Borrower leases, uses or occupies any
Property shall be canceled or terminated prior to the expiration of its stated
term other than by the exercise of a purchase option; or any material portion of
the Collateral shall be taken through condemnation or the value of such Property
shall be materially impaired through condemnation.
(L) Change of Ownership. There shall have occurred a "Change in
Control." "Change of Control" shall mean the occurrence of any of the
foregoing: (1) any Person, or any group within the meaning of Section 13(d)(3)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and the
rules and regulations promulgated thereunder, shall have acquired after the date
hereof beneficial ownership (within the meaning of Rule 13d-3 of the Exchange
Act), directly or indirectly, of Securities (or other Securities convertible
into such Securities) representing fifty percent (50%) of the combined voting
power of all Securities of Factory Ltd. entitled to vote in the election of
directors, other than Securities having such power only by reason of the
happening of a contingency (hereinafter called a "Controlling Person"); or (2) a
majority of the Board of Directors
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of Factory Ltd. shall cease for any reason to consist of (A) individuals who
on the date hereof were serving as directors of Factory Ltd. and (B)
individuals who subsequently become members of the Board if such individuals'
nomination for election or election to the Board is recommended or approved
by a majority of the Board of Directors or stockholders of Factory Ltd. For
purposes of clause (1) above, a person or group shall not be a Controlling
Person if such Person or group holds voting power in good faith and not for
the purposes of circumventing this provision as an agent, bank, broker,
nominee, trustee, or holder of revocable proxies given in response to a
solicitation pursuant to the Exchange Act, for one or more beneficial owners
who do not individually, or, if they are a group acting in concert, as a
group, have the voting power specified in clause (1)
(M) ERISA. A Reportable Event shall occur which Required Lenders, in
their sole discretion, shall determine in good faith constitutes reasonable
grounds for the termination by the Pension Benefit Guaranty Corporation of any
Plan or for the appointment by the appropriate United States district court of a
trustee for any Plan, or if any Plan shall be terminated other than in a
standard termination or any such trustee shall be requested or appointed, or if
either Borrower is in "default" (as defined in Section 4219(c) (5) of ERISA)
with respect to payments to a Multiemployer Plan resulting from either
Borrower's complete or partial withdrawal from such Plan aggregating One Hundred
Thousand Dollars ($100,000) or more.
(N) Litigation. Either Borrower, or any Affiliate of either
Borrower, shall challenge or contest in any action, suit or proceeding the
validity or enforceability of this Agreement, or any of the other Loan
Documents, the legality or enforceability of any of the Obligations or the
perfection or priority of any Lien granted to Agent, for its benefit and the
ratable benefit of Lenders.
(O) Criminal Forfeiture. Either Borrower shall be criminally
indicted or convicted under any law that could lead to a forfeiture of any
Property of either Borrower having an aggregate book value of Twenty Five
Thousand Dollars ($25,000) or more.
(P) Judgments. Final judgment or judgments (after the expiration of
all times to appeal therefrom) for the payment of money in excess of One Hundred
Thousand Dollars ($100,000) in the aggregate shall be rendered against either
Borrower and the same shall not (i) be fully covered by insurance (subject to
reasonable deductibles), or (ii) within thirty (30) days after the entry
thereof, have been discharged or execution thereof stayed pending appeal or
other post-trial motion, or shall not have been discharged within ten (10) days
after the expiration of any such stay.
11.2 Acceleration of the Obligations. Upon the occurrence of an Event of
Default and during the continuance thereof, Agent shall, at request of the
Required Lenders, without notice, (i) terminate this facility with respect to
further Revolving Credit Loans whereupon no Revolving Credit Loans may be made
hereunder, and/or (ii) declare all Obligations to be forthwith due and payable,
whereupon all Obligations shall become and be due and payable, without
presentment, demand, protest or further notice of any kind, all of which are
expressly waived by Borrowers; provided, however, that upon the occurrence of an
Event of Default specified in Section 11.1(J)
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hereof, the Obligations shall become due and payable without declaration,
notice or demand by Agent.
Agent shall take such action with respect to any Default or Event of
Default as shall be directed by the Required Lenders; provided that, unless and
until Agent shall have received such directions, Agent may (but shall not be
obligated to) take such action, or refrain from taking such action, with respect
to such Default or Event of Default as it shall deem advisable in the best
interests of Agent and Lenders holding Notes taken as a whole, including any
action (or the failure to act) pursuant to the Loan Documents.
11.3 Remedies. After the occurrence of an Event of Default and during the
continuance thereof, Agent and/or Lenders shall have and may exercise from time
to time the following rights and remedies:
(A) All of the rights and remedies of a secured party under the Code
or under other applicable law, and all other legal and equitable rights to which
Agent or any Lender may be entitled, all of which rights and remedies shall be
cumulative, and none of which shall be exclusive, and shall be in addition to
any other rights or remedies contained in this Agreement or any of the other
Loan Documents.
(B) The right to take immediate possession of the Collateral, and (i)
to require Borrowers to assemble the Collateral, at Borrowers' expense, and make
it available to Agent at a place designated by Agent which is reasonably
convenient to both parties, and (ii) to enter any of the premises of either
Borrower or wherever any of the Collateral shall be located, and to keep and
store the same on said premises until sold (and if said premises be the Property
of either Borrower, such Borrower agrees not to charge Agent for storage
thereof).
(C) The right to sell or otherwise dispose of all or any Collateral
in its then condition, or after any further manufacturing or processing thereof,
at public or private sale or sales, with such notice as may be required by law,
in lots or in bulk, for cash or on credit, all as Agent, in its sole discretion,
may deem advisable. Borrowers agree that ten (10) days written notice to
Borrowers of any public or private sale or other disposition of Collateral shall
be reasonable notice thereof, and such sale shall be at such locations as Agent
may designate in said notice. Agent shall have the right to conduct such sales
on Borrowers' premises, without charge therefor, and such sales may be adjourned
from time to time in accordance with applicable law. Agent shall have the right
to sell, lease or otherwise dispose of the Collateral, or any part thereof, for
cash, credit or any combination thereof, and Agent or any Lender may purchase
all or any part of the Collateral at public or, if permitted by law, private
sale and, in lieu of actual payment of such purchase price, may set off the
amount of such price against the Obligations.
(D) Except as otherwise limited by any applicable contract, Agent is
hereby granted a license or other right to use, without charge, Borrowers'
labels, patents, copyrights, rights of use of any name, trade secrets,
tradenames, trademarks and advertising matter, or any Property
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of a similar nature, as it pertains to the Collateral, in advertising for
sale and selling any Collateral and Borrowers' rights under all licenses and
all franchise agreements shall inure to Agent's benefit and the ratable
benefit of Lenders.
(E) The proceeds realized from the sale of any Collateral may be
applied, after allowing one (1) Business Day for collection, first to the costs,
expenses and reasonable attorneys' fees incurred by Agent or any Lender in
collecting the Obligations, in enforcing the rights of Agent and Lenders under
the Loan Documents and in collecting, retaking, completing, protecting,
removing, storing, advertising for sale, selling and delivering any Collateral,
secondly to the interest due upon any of the Obligations; and thirdly, to the
principal of the Obligations. If any deficiency shall arise, Borrowers shall
remain liable to Agent and Lenders therefor.
(F) With respect to the face amount of all LC Guaranties and Letters
of Credit issued by Agent or any Lender then outstanding, Agent or Lenders may,
at its or their option, require Borrowers to deposit with Agent funds equal to
such face amount, and if Borrowers fail to promptly make such deposit, Lenders
may advance such amount as a Revolving Credit Loan (whether or not an
overadvance is created thereby). Any such deposit or advance shall be held by
Agent as a reserve to fund future payments on such LC Guaranties and future
drawings against such Letters of Credit. At such time as all LC Guaranties have
been paid or terminated and all Letters of Credit have been drawn upon or
expired, any amounts remaining in such reserve shall be applied against any
outstanding Obligations, or to the extent all Obligations have been indefeasibly
paid in full, returned to Borrowers.
11.4 Remedies Cumulative; No Waiver. All covenants, conditions,
provisions, warranties, guaranties, indemnities, and other undertakings of
Borrowers contained in this Agreement and the other Loan Documents, or in any
document referred to herein or contained in any agreement supplementary hereto
or in any schedule given to Agent or any Lender or contained in any other
agreement between Agent or any Lender and Borrowers, heretofore, concurrently,
or hereafter entered into, shall be deemed cumulative to and not in derogation
or substitution of any of the terms, covenants, conditions, or agreements of
Borrowers herein contained. The failure or delay of Agent or any Lender to
exercise or enforce any rights, Liens, powers, or remedies hereunder or under
any of the aforesaid agreements or other documents or security or Collateral
shall not operate as a waiver of such Liens, rights, powers and remedies, but
all such Liens, rights, powers, and remedies shall continue in full force and
effect until all Loans and all other Obligations owing or to become owing from
Borrowers to Agent or any Lender shall have been fully satisfied and Lenders
shall have no further obligations to make Loans or issue Letters of Credit or LC
Guaranties, and all Liens, rights, powers, and remedies herein provided for are
cumulative and none are exclusive.
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SECTION 12. THE AGENT
12.1 Authorization and Action. Each Lender hereby appoints and authorizes
Agent to take such action on its behalf and to exercise such powers under this
Agreement, and the other Loan documents as are delegated to Agent by the terms
hereof and thereof, together with such powers as are reasonably incidental
thereto. As to any matters not expressly provided for by this Agreement and the
other Loan Documents (including, without limitation, enforcement or collection
of the Notes), Agent shall not be required to exercise any discretion or take
any action, but shall be required to act or to refrain from acting (and shall be
fully protected in so acting or refraining from acting) upon the instructions of
the Required Lenders, and such instructions shall be binding upon all Lenders;
provided, however, that Agent shall not be required to take any action which
exposes Agent to personal liability or which is contrary to this Agreement or
the other Loan Documents or applicable law. Agent agrees to give each Lender
promptly a copy of each notice given to it by Borrowers pursuant to the terms of
this Agreement and the other Loan Documents.
12.2 Agent's Reliance, Etc. Neither Agent nor any of its directors,
officers, agents or employees shall be liable for any action taken or omitted to
be taken by it or them under or in connection with this Agreement or the other
Loan Documents, except for its or their own gross negligence or willful
misconduct. Without limitation of the generality of the foregoing, Agent: (i)
may treat the payee of any Note as the holder thereof until Agent receives
written notice of the assignment or transfer thereof signed by such payee and in
form satisfactory to Agent; (ii) may consult with legal counsel, independent
public accountants and other experts selected by it and shall not be liable for
any action taken or omitted to be taken in good faith by it in accordance with
the advice of such counsel, accountants or experts, (iii) makes no warranty or
representations to any Lender and shall not be responsible to any Lender for any
statements, warranties or representations made in or in connection with this
Agreement or the other Loan Documents; (iv) shall not have any duty beyond
Agent's customary practices to ascertain or to inquire as to the performance or
observance of any of the terms, covenants or conditions of this Agreement or the
other Loan Documents on the part of Borrowers or to inspect the property
(including the books and records) of Borrowers; (v) shall not be responsible to
any Lender for the due execution, legality, validity, enforceability,
genuineness, sufficiency or value of this Agreement or the other Loan Documents
or any other instrument or document furnished pursuant hereto or thereto; and
(vi) shall incur no liability under or in respect of this Agreement or the other
Loan Documents by acting upon any notice, consent, certificate or other
instrument or writing (which may be by telecopy, telegram, cable or telex)
believed in good faith by it to be genuine and signed or sent by the proper
party or parties.
12.3 Bank One and Affiliates. With respect to its commitment hereunder to
make Revolving Credit Loans made by it, Bank One shall have the same rights and
powers under this Agreement and the other Loan Documents as any other Lender and
may exercise the same as though it were not Agent; and the term "Lender" or
"Lenders" shall, unless otherwise expressly indicated, include Bank One in its
individual capacity. Bank One and its Affiliates may lend money to, and
generally engage in any kind of business with, Borrowers, any of their
Subsidiaries and any Person
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who may do business with or own securities of either Borrower or any such
Subsidiary, all as if Bank One were not Agent and without any duty to account
therefor to Lenders.
12.4 Lender Credit Decision. Each Lender acknowledges that it has,
independently and without reliance upon Agent or any other Lender and based on
the financial statements referred to in Section 8.1(N) and such other documents
and information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement. Each Lender also acknowledges that it
will, independently and without reliance upon Agent or any other Lender and
based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not taking action
under this Agreement.
12.5 Indemnification. Lenders agree to indemnify Agent (to the extent not
reimbursed by Borrowers), ratably according to the respective principal amounts
of the Notes then held by each of them, from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever which may be
imposed on, incurred by, or asserted against Agent in any way relating to or
arising out of this Agreement or any other Loan Document or any action taken or
omitted by Agent under this Agreement, provided that no Lender shall be liable
for any portion of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements resulting from
Agent's gross negligence or wilful misconduct. Without limitation of the
foregoing, each Lender agrees to reimburse Agent promptly upon demand for its
ratable shares of any out-of-pocket expenses (including reasonable counsel fees)
incurred by Agent in connection with the preparation, execution, delivery,
administration, modification, amendment or enforcement (whether through
negotiations, legal proceedings or otherwise) of, or legal advice in respect of
rights or responsibilities under, this Agreement and each other Loan Document,
to the extent that Agent is not reimbursed for such expenses by Borrowers.
12.6 Successor Agent. Agent may resign at any time by giving written
notice thereof to Lenders and Borrowers. Upon any such resignation, the
Required Lenders shall have the right to appoint a successor. If no successor
Agent shall have been so appointed by the Required Lenders, and shall have
accepted such appointment, within 30 days after the retiring Agent's giving
notice of resignation, then the retiring Agent may, on behalf of the Lenders,
appoint a successor Agent, which shall be a commercial bank or financial
institution organized under the laws of the United States of America or of any
State thereof and having a combined capital and surplus of at least One Hundred
Million Dollars ($100,000,000). Upon the acceptance of any appointment as Agent
hereunder by a successor Agent, such successor Agent shall thereupon succeed to
and become vested with all the rights, powers, privileges and duties of the
retiring Agent, and the retiring Agent shall be discharged from its duties and
obligations under this Agreement and the other Loan Documents. After any
retiring Agent's resignation hereunder as Agent, the provisions of this Section
12 shall inure to its benefit as to any actions taken or omitted to be taken by
it while it was Agent under this Agreement and the other Loan Documents.
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SECTION 13. MISCELLANEOUS
13.1 Power of Attorney. Borrowers hereby irrevocably designate, make,
constitute and appoint Agent (and all Persons designated by Agent) as Borrowers'
true and lawful attorney (and agent-in-fact) and Agent, or agent of Agent, may,
without notice to Borrowers and in either Borrowers' or Agent's names or name,
but at the cost and expense of Borrowers:
(A) At such time or times hereafter as Agent or said agent, in its
sole discretion, may determine, endorse either Borrower's name on any checks,
notes, acceptances, drafts, money orders or any other evidence of payment or
proceeds of the Collateral which come into the possession of Agent or under
Agent's control; and
(B) At such time or times upon or after the occurrence of an Event of
Default and during the continuance thereof as Agent or its agent in its sole
discretion may determine: (i) demand payment of the Accounts from the Account
Debtors, enforce payment of the Accounts by legal proceedings or otherwise, and
generally exercise all of either Borrower's rights and remedies with respect to
the collection of the Accounts; (ii) settle, adjust, compromise, discharge or
release any of the Accounts or other Collateral or any legal proceedings brought
to collect any of the Accounts or other Collateral; (iii) sell or assign any of
the Accounts and other Collateral upon such terms, for such amounts and at such
time or times as Agent or Required Lenders deems or deem advisable; (iv) take
control, in any manner, of any item of payment or proceeds relating to any
Collateral; (v) prepare, file and sign either Borrower's name to a proof of
claim in bankruptcy or similar document against any Account Debtor or to any
notice of lien, assignment or satisfaction of lien or similar document in
connection with any of the Collateral; (vi) receive, open and dispose of all
mail addressed to either Borrower and to notify postal authorities to change the
address for delivery thereof to such address as Agent may designate; (vii)
endorse the name of either Borrower upon any of the items of payment or proceeds
relating to any Collateral and deposit the same to the account of Agent on
account of the Obligations; (viii) endorse the name of either Borrower upon any
chattel paper, document, instrument, invoice, freight bill, bill of lading or
similar document or agreement relating to the Accounts, Inventory and any other
Collateral; (ix) use either Borrower's stationery and sign the name of either
Borrower to verifications of the Accounts and notices thereof to Account
Debtors; (x) use the information recorded on or contained in any data processing
equipment and computer hardware and software relating to the Accounts,
Inventory, Equipment and any other Collateral and to which either Borrower has
access; (xi) make and adjust claims under policies of insurance; and (xii) do
all other acts and things necessary, in Agent's determination, to fulfill
Borrowers' obligations under this Agreement.
13.2 Indemnity. Borrowers hereby agree to indemnify Agent and each Lender
and hold Agent and each Lender harmless from and against any liability, loss,
damage, suit, action or proceeding ever suffered or incurred by Agent or any
Lender as the result of Borrowers' failure to observe, perform or discharge
Borrowers' duties hereunder. This indemnity shall extend to any claims asserted
against Agent or any Lender by any Person under any Environmental Laws or
similar laws by reason of Borrowers' failure to comply with laws applicable to
solid or hazardous waste
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materials or other toxic substances. Notwithstanding any contrary provision
in this Agreement, the obligations of Borrowers under this Section 13.2 shall
survive the payment in full of the Obligations and the termination of this
Agreement, but shall not thereafter be secured by the Collateral.
13.3 Complete Agreement; Modification of Agreement; Sale of Interest. (a)
The Loan Documents constitute the complete agreement between the parties with
respect to the subject matter hereof and may not be modified, altered or amended
except by an agreement in writing signed by Borrowers, Agent and Required
Lenders. Borrowers may not sell, assign or transfer any of the Loan Documents
or any portion thereof, including without limitation, Borrowers' rights, title,
interests, remedies, powers and duties hereunder or thereunder. Borrowers
hereby consent to Agent's and any Lender's sale of participation, assignment,
transfer or other disposition, at any time or times, of any of the Loan
Documents or of any portion thereof or interest therein, including, without
limitation, Agent's and any Lender's rights, title, interests, remedies, powers
or duties thereunder, whether evidenced by a writing or not; Borrowers agree
that it will use commercially reasonable efforts to assist and cooperate with
Agent and any Lender in any manner reasonably requested by Agent or such Lender
to effect the sale of participation in or assignment of any of the Loan
Documents or of any portion thereof or interest therein, including, without
limitation, assistance in the preparation of appropriate disclosure documents or
placement memoranda and executing appropriate amendments to the signature pages
hereto to reflect the addition of any Lenders and such Lender's respective
commitments. The foregoing notwithstanding, except with respect to sales,
assignments or transfers to Affiliates under common control pursuant to which
the selling, assigning or transferring Lender retains its voting rights, no
Lender shall sell participation or assign, transfer or otherwise dispose of any
of the Loan Documents or any portion thereof or interest therein, without the
prior written consent of Agent, which shall not be unreasonably withheld.
(b) In respect to any assignment by a Lender of its rights and obligations
under this Agreement (including, without limitation, all or a portion of its
Revolving Loan Commitments and of the Revolving Credit Loans owed to it and the
Revolving Credit Note(s) held by it) (i) each such assignment shall be of a
uniform, and not a varying, percentage of all rights and obligations, (ii)
except in the case of an assignment of all of a Lender's rights and obligations
under this Agreement, (A) the aggregate amount of the Revolving Loan Commitment
of the assigning Lender being assigned pursuant to each such assignment
(determined as of the date of the Assignment and Acceptance with respect to such
assignment) shall in no event be less than Five Million Dollars ($5,000,000),
and in integral multiples of One Million Dollars ($1,000,000) thereafter, or
such lesser amount as to which the Borrowers and the Agent may consent to and
(B) after giving effect to each such assignment, the aggregate amount of the
Revolving Loan Commitments of the assigning Lender shall in no event be less
than Five Million Dollars ($5,000,000), (iii) the parties to each such
assignment shall execute and deliver to the Agent, for its acceptance, an
Assignment and Acceptance Agreement in a form acceptable to the Agent (an
"Assignment and Acceptance"), together with any Revolving Credit Notes subject
to such assignment and a processing and recordation fee payable to Agent of
$2,500, and (iv) any Lender may without the consent of Borrowers or the Agent,
and without paying any fee, assign to any Affiliate of such Lender that is a
bank or financial institution all of its rights and obligations under this
Agreement. Upon such execution, delivery, acceptance
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and recording, from and after the effective date specified in such Assignment
and Acceptance (x) the assignee thereunder shall be a party hereto and, to
the extent that rights and obligations hereunder have been assigned to it
pursuant to such Assignment and Acceptance, have the rights and obligations
of a Lender hereunder and (y) the Lender assignor thereunder shall, to the
extent that rights and obligations hereunder have been assigned by it
pursuant to such Assignment and Acceptance, relinquish its rights and be
released from its obligations under this Agreement (and, in the case of an
Assignment and Acceptance covering all of the remaining portion of an
assigning Lender's rights and obligations under this Agreement, such Lender
shall cease to be a party hereto). If, pursuant to this Section 13.3, any
interest in this Agreement or any Revolving Credit Loan, Letter of Credit or
LC Guaranty is transferred to any transferee which is organized under the
laws of any jurisdiction other than the United States or any state thereof,
the transferor Lender shall cause such transferee (other than any
participant), and may cause any participant, concurrently with the
effectiveness of such transfer, (a) to represent to the transferor Lender
(for the benefit of the transferor Lender, the Agent, and Borrowers) that
under applicable law and treaties no Taxes will be required to be withheld by
Agent, Borrowers or the transferor Lender with respect to any payments to be
made to such transferee in respect of the Revolving Credit Loans, Letters of
Credit or LC Guaranties, (b) to furnish to the transferor Lender, Agent and
Borrowers either U.S. Internal Revenue Service Form 4224 or U.S. Internal
Revenue Service Form 1001 (wherein such transfer claims entitlement to
complete exemption form U.S. federal withholding tax on all interest payments
hereunder), and (c) to agree (for the benefit of the transferor Lender, Agent
and Borrowers) to provide the transferor Lender, Agent and Borrowers a new
Form 4224 or Form 1001 upon the obsolescence of any previously delivered form
and comparable statements in accordance with applicable U.S. laws and
regulations and amendments duly executed and completed by such transferee,
and to comply from time to time with all applicable U.S. laws and regulations
with regard to such withholding tax exemption.
(c) In the event any Lender assigns or otherwise transfers all or any part
of its Revolving Credit Note, any such Lender shall so notify Borrowers and
Borrowers shall record the assignment pursuant to Section 9.1(N) hereof, and
shall, upon the request of such Lender, issue new Revolving Credit Notes in
exchange for the old Revolving Credit Notes.
(d) No amendment or waiver of any provision of this Agreement or the Notes
or any other Loan Document, nor consent to any departure by Borrowers therefrom,
shall in any event be effective unless the same shall be in writing and signed
by the Required Lenders, and then such waiver or consent shall be effective only
in the specific instance and for the specific purpose for which given; provided,
however: (a) that no amendment, waiver or consent shall, unless in writing and
signed by each Lender do any of the following: (i) increase the Maximum
Revolving Credit Loan to be made hereunder or subject any Lender to any
additional obligations, (ii) reduce the principal of, or rate of interest on,
the Notes or other amount payable hereunder other than those payable only to
Bank One in its capacity as Agent which may be reduced by Bank One unilaterally,
(iii) postpone any date fixed for any payment of principal of, or interest on,
the Notes or other amounts payable hereunder, other than those payable only to
Bank One in its capacity as Agent which may be postponed by Bank One
unilaterally, (iv) change the aggregate unpaid principal
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amount of the Notes, or the number of Lenders which shall be required for the
Lenders or any of them to take any action hereunder, (v) release or discharge
any Person liable for the performance of any obligations of Borrowers
hereunder or under any of the Loan Documents, (vi) increase the advance rates
contained in the definition of the Borrowing Base, (vii) to the extent
Agent's or Lenders' consent is required by the terms hereof, release all or
substantially all of the Collateral, (viii) amend this Section 13.3; (b) that
no amendment, waiver or consent shall be effective unless in writing and
signed by Agent and either Required Lenders or all Lenders, as required by
the terms hereof.
13.4 Reimbursement of Expenses. If, at any time or times prior or
subsequent to the date hereof, regardless of whether or not an Event of Default
then exists or any of the transactions contemplated hereunder are concluded,
(i) Agent employs counsel for advice or other representation, or incurs legal
expenses or other costs or out-of-pocket expenses in connection with: (A) the
negotiation and preparation of this Agreement or any of the other Loan
Documents, any amendment of or modification of this Agreement or any of the
other Loan Documents, or, except as provided below, any sale or attempted sale
of any interest herein to a Lender or Participating Lender; or (B) the
administration of this Agreement or any of the other Loan Documents and the
transactions contemplated hereby and thereby; or (ii) Agent, Lender or any
Participating Lender hereunder employs counsel for advice or other
representation, or incurs legal expenses or other costs or out-of-pocket
expenses in connection with: (A) any litigation, contest, dispute, suit,
proceeding or action (whether instituted by Agent, any Lender, either Borrowers
or any other Person) in any way relating to the Collateral, this Agreement or
any of the other Loan Documents or Borrowers' affairs; (B) any attempt to
enforce any rights of Agent or any Lender or any Participating Lender against
Borrowers or any other Person which may be obligated to Agent or any Lender by
virtue of this Agreement or any of the other Loan Documents, including, without
limitation, the Account Debtors; or (C) any attempt to inspect, verify, protect,
preserve, restore, collect, sell, liquidate or otherwise dispose of or realize
upon the Collateral; then in any such event, the reasonable attorneys' fees
arising from such services and all reasonable expenses, costs, charges and other
fees of such counsel or of Agent or any Lender or relating to any of the events
or actions described in this Section shall be payable, on demand, by Borrowers
to Agent, any Lender or to such Participating Lender, as the case may be, and
shall be additional Obligations hereunder secured by the Collateral. Without
limiting the generality of the foregoing, such expenses, costs, charges and fees
may include reasonable accountants' fees, costs and expenses; court costs and
expenses; reasonable photocopying and duplicating expenses; reasonable court
reporter fees, costs and expenses; long distance telephone charges; air express
charges; telegram charges; reasonable secretarial over-time charges; and
reasonable expenses for travel, lodging and food paid or incurred in connection
with the performance of such legal services. Additionally, if any taxes
(excluding taxes imposed upon or measured by the net income of Agent or any
Lender) shall be payable on account of the execution or delivery of this
Agreement, or the execution, delivery, issuance or recording of any of the other
Loan Documents, or the creation of any of the Obligations hereunder, by reason
of any existing or hereafter enacted federal or state statute, Borrowers will
pay all such taxes, including, but not limited to, any interest and penalties
thereon, and will indemnify and hold Agent and any Lender harmless from and
against
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liability in connection therewith. Borrowers' obligations pursuant to this
Section 13.4 shall survive the termination of this Agreement.
13.5 Indulgences Not Waivers. Agent's or Required Lenders' failure, at any
time or times hereafter, to require strict performance by Borrowers of any
provision of this Agreement shall not waive, affect or diminish any right of
Agent or Required Lenders thereafter to demand strict compliance and performance
therewith. Any suspension or waiver by Agent or Required Lenders of an Event of
Default by Borrowers under this Agreement or any of the other Loan Documents
shall not suspend, waive or affect any other Event of Default by Borrowers under
this Agreement or any of the other Loan Documents, whether the same is prior or
subsequent thereto and whether of the same or of a different type. None of the
undertakings, agreements, warranties, covenants and representations of Borrowers
contained in this Agreement or any of the other Loan Documents and no Event of
Default by Borrowers under this Agreement or any of the other Loan Documents
shall be deemed to have been suspended or waived by Agent or Required Lenders,
unless such suspension or waiver is by an instrument in writing specifying such
suspension or waiver and is signed by a duly authorized representative of Agent
and Required Lenders and directed to Borrowers.
13.6 Severability. Wherever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement.
13.7 Successors and Assigns. This Agreement, the Other Agreements and the
Security Documents shall be binding upon and inure to the benefit of the
successors and assigns of Borrowers, Agent and Lenders. This provision,
however, shall not be deemed to modify Section 13.3 hereof.
13.8 Cumulative Effect; Conflict of Terms. The provisions of the Other
Agreements and the Security Documents are hereby made cumulative with the
provisions of this Agreement. Except as otherwise provided in Section 3.5 of
this Agreement and except as otherwise provided in any of the other Loan
Documents by specific reference to the applicable provision of this Agreement,
if any provision contained in this Agreement is in direct conflict with, or
inconsistent with, any provision in any of the other Loan Documents, the
provision contained in this Agreement shall govern and control.
13.9 Execution in Counterparts. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed to be an original
and all of which counterparts taken together shall constitute but one and the
same instrument.
13.10 Notice. Except as otherwise provided herein, whenever it is
provided herein that any notice, demand, request, consent, approval, declaration
or other communication shall or may be
63
<PAGE>
given to or served upon any of the parties by another, or whenever any of the
parties desires to give or serve upon another any communication with respect
to this Agreement, each such notice, demand, request, consent, approval,
declaration or other communication shall be in writing shall be delivered in
person (by personal delivery, delivery service or overnight courier service)
with receipt acknowledged, or telecopied with receipt acknowledged, or sent
by certified mail, return receipt requested, postage prepaid, addressed as
hereafter set forth, or mailed by registered or certified mail, return
receipt requested, postage prepaid, addressed as follows:
(A) If to Agent: Bank One, Illinois N.A.
200 South Wacker Drive
Chicago, Illinois 60606
Attention: Karen Orlich
Telecopier No.: (312) 627-5960
With a copy to:
Vedder, Price, Kaufman & Kammholz
222 North LaSalle Street
Suite 2600
Chicago, Illinois 60601
Attention: Lane R. Moyer
Telecopier No.: (312) 609-5005
(B) If to Borrowers: Factory Card Outlet of America, Ltd.
745 Birginal Drive
Bensenville, Illinois 60106
Attention: Tom Stoltz
Telecopier No.: (630) 238-9547
With a copy to:
Sonnenschein, Nath & Rosenthal
8000 Sears Tower
Chicago, Illinois 60606
Attention: Victoria A. Gilbert
Telecopier No.: (312) 876-7934
(C) If to any Lender, at its address indicated on the signature pages hereof or
in a Notice to Borrowers of assignment of a Note, or to such other address as
each party may designate for itself by like notice given in accordance with this
Section 13.10;
64
<PAGE>
The foregoing notwithstanding, any notice, request or demand to or upon
Agent and Lenders pursuant to Section 3.3 or 3.4 shall not be effective until
received by Agent and Lenders.
13.11 Agent's or Required Lenders' Consent. Except as otherwise
specifically provided for herein whenever Agent's or Required Lenders' consent
is required to be obtained under this Agreement, any of the Other Agreements or
any of the Security Documents as a condition to any action, inaction, condition
or event, Agent or Required Lenders shall be authorized to give or withhold such
consent in its or their sole and absolute discretion and to condition its or
their consent upon the giving of additional collateral security for the
Obligations, the payment of money or any other matter.
13.12 Demand Obligations. Nothing in this Agreement shall affect or
abrogate the demand nature of any portion of the Obligations expressly made
payable on demand by this Agreement or by any instrument evidencing or securing
same, and the occurrence of an Event of Default shall not be a prerequisite for
Agent or any Lender requiring payment of such Obligations.
13.13 Time of Essence. Time is of the essence of this Agreement, the
Other Agreements and the Security Documents.
13.14 Entire Agreement. This Agreement and the other Loan Documents,
together with all other instruments, agreements and certificates executed by the
parties in connection therewith or with reference thereto, embody the entire
understanding and agreement between the parties hereto and thereto with respect
to the subject matter hereof and thereof and supersede all prior agreements,
understandings and inducements, whether express or implied, oral or written.
13.15 Interpretation. No provision of this Agreement or any of the
other Loan Documents shall be construed against or interpreted to the
disadvantage of any party hereto by any court or other governmental or judicial
authority by reason of such party having or being deemed to have structured or
dictated such provision.
13.16 GOVERNING LAW; CONSENT TO FORUM. THIS AGREEMENT HAS BEEN
NEGOTIATED, EXECUTED AND DELIVERED AT AND SHALL BE DEEMED TO HAVE BEEN MADE IN
CHICAGO, ILLINOIS. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS; PROVIDED, HOWEVER, THAT IF
ANY OF THE COLLATERAL SHALL BE LOCATED IN ANY JURISDICTION OTHER THAN ILLINOIS,
THE LAWS OF SUCH JURISDICTION SHALL GOVERN THE METHOD, MANNER AND PROCEDURE FOR
FORECLOSURE OF AGENT'S LIEN UPON SUCH COLLATERAL AND THE ENFORCEMENT OF AGENT'S
OR LENDERS' OTHER REMEDIES IN RESPECT OF SUCH COLLATERAL TO THE EXTENT THAT THE
LAWS OF SUCH JURISDICTION ARE DIFFERENT FROM OR INCONSISTENT WITH THE LAWS OF
ILLINOIS. AS PART OF THE CONSIDERATION FOR NEW VALUE RECEIVED, AND REGARDLESS
OF ANY PRESENT OR FUTURE DOMICILE OR PRINCIPAL PLACE OF BUSINESS OF BORROWERS,
AGENT OR ANY LENDER,
65
<PAGE>
BORROWERS, AGENT AND LENDERS HEREBY CONSENT AND AGREE THAT THE CIRCUIT COURT
OF COOK COUNTY, ILLINOIS, OR, AT REQUIRED LENDERS' OPTION, THE UNITED STATES
DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS, EASTERN DIVISION, SHALL
HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES
BETWEEN BORROWERS AND AGENT AND LENDERS PERTAINING TO THIS AGREEMENT OR TO
ANY MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT. BORROWERS, AGENT AND
LENDERS EXPRESSLY SUBMIT AND CONSENT IN ADVANCE TO SUCH JURISDICTION IN ANY
ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND BORROWERS HEREBY WAIVE ANY
OBJECTION WHICH BORROWERS MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION,
IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY CONSENTS TO THE GRANTING
FOR SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT.
BORROWERS HEREBY WAIVE PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER
PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH
SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED
MAIL ADDRESSED TO BORROWERS AT THE ADDRESS SET FORTH IN THIS AGREEMENT AND
THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF BORROWERS'
ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS,
PROPER POSTAGE PREPAID. NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE
TO AFFECT THE RIGHT OF AGENT OR LENDERS TO SERVE LEGAL PROCESS IN ANY OTHER
MANNER PERMITTED BY LAW, OR TO PRECLUDE THE ENFORCEMENT BY AGENT OR LENDERS
OF ANY JUDGMENT OR ORDER OBTAINED IN SUCH FORUM OR THE TAKING OF ANY ACTION
UNDER THIS AGREEMENT TO ENFORCE SAME IN ANY OTHER APPROPRIATE FORUM OR
JURISDICTION.
13.17 WAIVERS BY BORROWERS. BORROWERS WAIVE (i) THE RIGHT TO TRIAL BY
JURY (WHICH AGENT AND LENDERS HEREBY ALSO WAIVE) IN ANY ACTION, SUIT, PROCEEDING
OR COUNTERCLAIM OF ANY KIND ARISING OUT OF OR RELATED TO ANY OF THE LOAN
DOCUMENTS, THE OBLIGATIONS OR THE COLLATERAL; (ii) PRESENTMENT, DEMAND AND
PROTEST AND NOTICE OF PRESENTMENT, PROTEST, DEFAULT, NON PAYMENT, MATURITY,
RELEASE, COMPROMISE, SETTLEMENT, EXTENSION OR RENEWAL OF ANY OR ALL ACCOUNTS,
CONTRACT RIGHTS, DOCUMENTS, INSTRUMENTS CHATTEL PAPER AND GUARANTIES AT ANY TIME
HELD BY AGENT OR LENDERS ON WHICH BORROWERS MAY IN ANY WAY BE LIABLE AND HEREBY
RATIFY AND CONFIRM WHATEVER AGENT OR LENDERS MAY DO IN THIS REGARD; (iii) EXCEPT
AS OTHERWISE EXPLICITLY PROVIDED HEREIN OR IN THE UCC, NOTICE PRIOR TO TAKING
POSSESSION OR CONTROL OF THE COLLATERAL OR ANY BOND OR SECURITY WHICH MIGHT BE
REQUIRED BY ANY COURT PRIOR TO ALLOWING AGENT OR ANY LENDER TO EXERCISE ANY OF
AGENT'S OR LENDERS' REMEDIES; (iv) THE BENEFIT OF ALL VALUATION, APPRAISEMENT
AND EXEMPTION LAWS; (v) ANY RIGHT
66
<PAGE>
BORROWERS MAY HAVE UPON PAYMENT IN FULL OF THE OBLIGATIONS TO REQUIRE AGENT
TO TERMINATE ITS SECURITY INTEREST IN THE COLLATERAL OR IN ANY OTHER PROPERTY
OF BORROWERS UNTIL TERMINATION OF THIS AGREEMENT IN ACCORDANCE WITH ITS TERMS
AND THE EXECUTION BY BORROWERS, AND BY ANY PERSON WHOSE SECURED LOANS TO
BORROWERS ARE USED IN WHOLE OR IN PART TO SATISFY THE OBLIGATIONS, OF AN
AGREEMENT INDEMNIFYING AGENT AND LENDERS FROM ANY LOSS OR DAMAGE AGENT OR ANY
LENDER MAY INCUR AS THE RESULT OF DISHONORED CHECKS OR OTHER ITEMS OF PAYMENT
RECEIVED BY AGENT OR ANY LENDER FROM BORROWERS OR ANY ACCOUNT DEBTOR AND
APPLIED TO THE OBLIGATIONS; AND (vi) NOTICE OF ACCEPTANCE HEREOF AND
BORROWERS ACKNOWLEDGE THAT THE FOREGOING WAIVERS ARE A MATERIAL INDUCEMENT TO
AGENT'S AND LENDERS' ENTERING INTO THIS AGREEMENT AND THAT AGENT AND LENDERS
ARE RELYING UPON THE FOREGOING WAIVERS IN THEIR FUTURE DEALINGS WITH
BORROWERS. BORROWERS WARRANT AND REPRESENT THAT THEY HAVE REVIEWED THE
FOREGOING WAIVERS WITH THEIR LEGAL COUNSEL AND HAVE KNOWINGLY AND VOLUNTARILY
WAIVED THEIR JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT
TO A TRIAL BY THE COURT.
13.18 Publicity. Borrowers hereby consent to Agent's use of the name
or tradestyle of Borrowers in any announcements or advertisements relating to
the completion of the transactions contemplated hereby and the role played by
Agent in providing financing to Borrowers hereunder in such media and in such
manner as Agent, in its sole discretion, determines.
13.19 Reimbursement. The undertaking by Borrowers to repay the
Obligations and each representation, warranty or covenant of Borrowers are and
shall be joint and several. To the extent that either Borrower shall be
required to pay a portion of the Obligations which shall exceed the amount of
loans, advances or other extensions of credit received by any such Borrower and
all interest, costs, fees and expenses attributable to such loans, advances or
other extensions of credit, then such Borrower shall be reimbursed by the other
Borrower for the amount of such excess pro rata, based on their respective net
worth as of the date hereof. This Section 13.19 is intended only to define the
relative rights of the Borrowers, and nothing set forth in Section 13.19 is
intended or shall impair the obligations of each Borrower, jointly and
severally, to pay Agent and Lenders the Obligations as and when the same shall
become due and payable in accordance with the terms hereof.
67
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed in Chicago,
Illinois, on the day and year specified at the beginning hereof.
BORROWERS:
FACTORY CARD OUTLET BANK ONE, ILLINOIS N.A.
CORP. ("Agent and a "Lender")
By:_____________________________ By:_____________________________
Name:______________________ Name:______________________
Title:_____________________ Title:_____________________
Revolving Loan Commitment: $20,000,000
FACTORY CARD OUTLET OF LASALLE NATIONAL BANK
AMERICA, LTD. (a "Lender")
By:_____________________________ By:_____________________________
Name:______________________ Name:______________________
Title:_____________________ Title:_____________________
Revolving Loan Commitment: $7,500,000
BANK OF AMERICA
(a "Lender")
By:_____________________________
Name:______________________
Title:_____________________
Revolving Loan Commitment: $7,500,000
68
<PAGE>
Schedule 4.5
BORROWERS' BUSINESS LOCATIONS
(1) Borrowers currently have the following business locations, and not
others:
(2) Borrowers maintain their books and records relating to Accounts and
General Intangibles at:
(3) During the preceding five-year period, Borrowers have had no office,
place of business or agent for process located in any county other than as set
forth above, except:
<PAGE>
Schedule 8.1(A)
JURISDICTION IN WHICH BORROWERS
ARE AUTHORIZED TO DO BUSINESS
(1)
(2)
<PAGE>
Schedule 8.1(B)
CORPORATE NAMES
(1) Each Borrower's correct corporate name, as registered with the
Secretary of State (Commonwealth) of its State (Commonwealth) of incorporation
is:
Name State (Commonwealth) of Incorporation
---- -------------------------------------
(a)
(b)
(c)
(d)
(2) During the preceding five-year period, each Borrower has used the
following names:
<PAGE>
Schedule 8.1(H)
PATENTS, TRADEMARKS, COPYRIGHTS AND LICENSES
(1) Borrowers have no patents [, except].
(2) Borrowers have no trademarks [, except].
(3) Borrowers have no copyrights [, except].
(4) Borrowers have no licenses, other than routine business licenses,
authorizing them to transact business in local jurisdictions [and the
following:].
<PAGE>
Schedule 8.1(I)
CAPITAL STRUCTURE
(1) The number of authorized shares of common stock of Factory Corp. is
___________. The number of issued shares of common stock of Factory Corp. is
_________. Factory Corp. has no treasury stock.
(2) All of the issued shares of Factory Corp. are fully paid and
non-assessable and are owned by the following Persons:
(3) Factory Corp. has no Subsidiaries [, except the following:]
State of Percent of Voting
Name Incorporation Stock Borrower Owns
- ---- ------------- -------------------
(4) The number of authorized shares of common stock of Factory Ltd. is
_____________. The number of issued shares of common stock of Factory Ltd. is
__________. Factory Ltd. has no treasury stock.
(5) All of the issued shares of Factory Ltd. are fully paid and
non-assessable and are owned by the following Persons:
(6) Factory Ltd. has no Subsidiaries [, except the following:]
State of Percent of Voting
Name Incorporation Stock Borrower Owns
- ---- ------------- -------------------
<PAGE>
Schedule 8.1(K)
CONTRACTS RESTRICTING BORROWERS' RIGHT TO INCUR DEBTS
There are no contracts that restrict the right of either Borrower to incur
Indebtedness, except the following:
(1)
(2)
None of the foregoing contracts restricts or prohibits either Borrower from
executing, delivering and performing this Agreement, the Other Agreements or the
Security Documents or incurring any Obligations to Agent and Lenders in
accordance with this Agreement.
<PAGE>
Schedule 8.1(L)
LITIGATION
(1) There are no proceedings pending against either Borrower in any court,
except as follows:
---------------------
---------------------
(2) The only threatened litigation of which either Borrower is aware is as
follows:
---------------------
---------------------
<PAGE>
Schedule 8.1(P)
PENSION PLANS
<PAGE>
Schedule 8.1(R)
LABOR CONTRACTS
Neither Borrower has any agreements with any organization of its employees
[, except the following:]
<PAGE>
Schedule 8.1(S)
EXCEPTIONS TO COMPLIANCE WITH LAWS
<PAGE>
Schedule 8.1(T)
SURETY OBLIGATIONS
<PAGE>
Schedule 8.1(Y)-1
CAPITALIZED LEASES
Borrowers have the following capitalized leases:
<PAGE>
Schedule 8.1(Y)-2
OPERATING LEASES
Borrowers have the following operating leases:
<PAGE>
EXHIBIT C
COMPLIANCE CERTIFICATE
[LETTERHEAD OF BORROWER]
________, 19__
TO: Bank One, Illinois N.A.
200 South Wacker Drive
Chicago, Illinois 60606
The undersigned, in his capacity as the chief financial officer of Factory
Card Outlet Corporation ("Factory Corp.") and Factory Card Outlet of America,
Ltd. ("Factory Ltd.") ("Factory Corp.", and together with "Factory Ltd.",
"Borrowers") gives this certificate to Bank One, Illinois N.A. ("Agent") in
accordance with the requirements of Section 9.1(J) of that certain Loan and
Security Agreement dated September ____, 1997, among Borrowers, the "Lenders"
(as defined therein) and Bank One, Illinois N.A., as agent for said Lenders (the
"Loan Agreement"). Capitalized terms used in this Certificate, unless otherwise
defined herein, shall have the meanings ascribed to them in the Loan Agreement:
(1) Based upon my review of the balance sheets and statements of income of
Borrowers for the [fiscal year] [fiscal quarter] [fiscal month] ending
_________, 19__, copies of which are attached hereto, I hereby certify that:
(a) The ratio of Maximum Total Liability to Adjusted Tangible Net
Worth as of __________________, 199___ is ________ to 1;
(b) The Minimum Fixed Charge Ratio as of _________, 199____ is
______________ to 1; and
(c) The Maximum Effective Debt Ratio as of _________, 199__ is ______
to 1.
(2) No Default exists on the date hereof, other than:
(if none, so state); and
(3) No Event of Default exists on the date hereof, other than:
(If none, so state).
Very truly yours,
Chief Financial Officer
<PAGE>
Schedule 9.1(Q)
Landlord or Warehouse Locations
<PAGE>
Schedule 9.2(H)
PERMITTED LIENS
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUN-29-1997
<PERIOD-END> SEP-27-1997
<CASH> 201,358
<SECURITIES> 0
<RECEIVABLES> 1,184,735
<ALLOWANCES> 0
<INVENTORY> 70,368,206
<CURRENT-ASSETS> 75,189,795
<PP&E> 40,988,027
<DEPRECIATION> 10,094,081
<TOTAL-ASSETS> 108,432,511
<CURRENT-LIABILITIES> 32,059,475
<BONDS> 3,771,430
0
0
<COMMON> 73,392
<OTHER-SE> 50,116,508
<TOTAL-LIABILITY-AND-EQUITY> 108,432,511
<SALES> 35,315,504
<TOTAL-REVENUES> 35,315,504
<CGS> 23,573,930
<TOTAL-COSTS> 14,946,953
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 380,866
<INCOME-PRETAX> (3,586,245)
<INCOME-TAX> (1,433,880)
<INCOME-CONTINUING> (2,152,365)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,152,365)
<EPS-PRIMARY> (.27)
<EPS-DILUTED> (.27)
</TABLE>
