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 Quarter Ended May 2, 1998
Commission File Number: 0-28410
LOEHMANN'S, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 22-2341356
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2500 Halsey Street
Bronx, New York 10461
- ------------------------------- -------------------
Registrant's telephone number, including area code (718) 409-2000
--------------
Indicate by a 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 as 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 [ ]
Number of shares outstanding of Registrant's Common Stock and Class B
Convertible Common Stock, as of June 12, 1998; 9,029,370 and 48,431,
respectively.
<PAGE>
Loehmann's, Inc.
Quarter ended May 2, 1998
CONTENTS
PART I--FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheets--May 2, 1998 and January 31, 1998................ 1
Consolidated Statements of Operations--Quarter ended
May 2, 1998 and May 3, 1997............................................... 2
Consolidated Statements of Cash Flows--Quarter ended
May 2, 1998 and May 3, 1997............................................... 3
Notes to Consolidated Financial Statements................................... 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................. 5
PART II--OTHER INFORMATION
Item 5. Other Information.................................................... 7
Item 6. Exhibits and Reports on Form 8-K..................................... 7
Signatures................................................................... 8
<PAGE>
Loehmann's, Inc.
Consolidated Balance Sheets (Unaudited)
<TABLE>
<CAPTION>
May 2, January 31,
1998 1998
------------------- ------------------
(IN THOUSANDS, EXCEPT
SHARE AMOUNTS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,132 $ 1,767
Accounts receivable and other assets 7,220 5,575
Merchandise inventory 77,774 67,521
------------------- ------------------
Total current assets 87,126 74,863
Property, equipment and leaseholds, net 71,856 71,612
Deferred debt issuance costs and other assets, net 3,118 3,228
Purchase price in excess of net assets acquired 39,199 39,523
------------------- ------------------
Total assets $ 201,299 $ 189,226
=================== ==================
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY Current liabilities:
Accounts payable $ 31,372 $ 21,570
Accrued expenses 19,539 23,632
Accrued interest 5,331 2,496
Current portion of long-term debt 73 73
------------------- ------------------
Total current liabilities 56,315 47,771
Long-term debt:
Revolving Line of Credit 35,588 33,771
11-7/8% senior secured notes 95,000 95,000
Revenue bonds and notes 2,571 2,589
------------------- ------------------
Total long-term debt 133,159 131,360
Other noncurrent liabilities 377 389
Common stockholders' equity:
Common stock, 25,000,000 shares authorized; 8,976,932 shares
issued and outstanding at May 2, 1998 and January 31, 1998 89 89
Class B convertible common stock, 469,237 shares authorized;
48,431 shares issued and outstanding at May 2, 1998 and January
31, 1998 244 244
Additional paid-in capital 81,597 81,597
Accumulated deficit (70,482) (72,224)
------------------- ------------------
Total common stockholders' equity 11,448 9,706
------------------- ------------------
Total liabilities and common stockholders' equity $ 201,299 $ 189,226
=================== ==================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
</TABLE>
1
<PAGE>
Loehmann's, Inc.
Consolidated Statements of Operations (Unaudited)
<TABLE>
<CAPTION>
QUARTER ENDED
MAY 2, May 3,
1998 1997
-------------------- ------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
Net sales $110,227 $112,595
Cost of sales 73,182 77,489
-------------------- ------------------
Gross profit 37,045 35,106
Sales, general and administrative expenses 28,604 28,868
Depreciation and amortization 3,135 2,864
-------------------- ------------------
Operating income 5,306 3,374
Interest expense, net 3,540 2,972
-------------------- ------------------
Income before income taxes 1,766 402
Provision for income taxes 24 22
-------------------- ------------------
Net income applicable to common stock $ 1,742 $ 380
Basic earnings per share $ 0.19 $ 0.04
Diluted earnings per share $ 0.19 $ 0.04
==================== ==================
Weighted average number of common shares
outstanding 9,025 8,901
Weighted average number of common shares and
common share equivalents outstanding 9,188 9,418
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
</TABLE>
2
<PAGE>
Loehmann's, Inc.
Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
QUARTER ENDED
MAY 2, 1998 May 3, 1997
------------------------------------
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,742 $ 380
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 3,135 2,864
Changes in current assets and liabilities:
Accounts receivable and other assets (1,645) (1,750)
Merchandise inventory (10,253) (14,241)
Accounts payable 9,802 10,791
Accrued expenses (4,093) (2,345)
Accrued interest 2,835 2,802
----------------- ------------------
Net changes in current assets and liabilities (3,354) (4,743)
Net change in other non current assets and liabilities (67) 93
----------------- ------------------
Net adjustments (286) (1,786)
Net cash provided by (used in) operating activities 1,456 (1,406)
----------------- ------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (2,890) (2,338)
Net cash used in investing activities (2,890) (2,338)
----------------- ------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under credit facility, net 1,817 3,955
Sale of common stock - 17
Other financing activities, net (18) (22)
Net cash provided by financing activities 1,799 3,950
----------------- ------------------
Net increase in cash and cash equivalents 365 206
Cash and cash equivalents at beginning of period 1,767 2,292
----------------- ------------------
Cash and cash equivalents at end of period $ 2,132 $ 2,498
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash interest paid during period $ 513 $ 292
================= ==================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
</TABLE>
3
<PAGE>
Loehmann's, Inc.
Notes to Consolidated Financial Statements (Unaudited)
May 2, 1998
1. BASIS OF PRESENTATION
The balance sheet at May 2, 1998 and the statements of operations and cash flows
for the quarters ended May 2, 1998 and May 3, 1997 include, in the opinion of
management, all adjustments (consisting of only normal recurring adjustments)
considered necessary for a fair presentation.
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information.
Certain information and footnote disclosures normally included in financial
statements required by generally accepted accounting principles have been
omitted. Operating results for the quarter ended May 2, 1998 are not necessarily
indicative of the results that may be expected for the fiscal year ended January
30, 1999. It is suggested that these unaudited consolidated financial statements
be read in conjunction with the financial statements and notes for the fiscal
year ended January 31, 1998 included in the Company's Annual Report on Form 10-K
for such year.
2. INCOME TAXES
The provision for income taxes primarily represents alternative minimum tax and
state and local taxes for states that do not allow net operating loss
carryforwards.
3. USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles for interim financial information requires
management to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual amounts could differ
from the estimates.
4. SUBSEQUENT EVENT
On May 12, 1998, the Company refinanced the indebtedness under its existing
credit agreement with borrowings under a new secured credit facility with
Congress Financial Corporation (the "New Credit Facility") and an $8.0 million
unsecured term loan with another bank (the "Unsecured Loan"). The New Credit
Facility provides for a revolving line of credit and a letter of credit facility
aggregating $60.0 million. The availability of the revolving line of credit and
letters of credit under the New Credit Agreement is subject to certain
inventory-related borrowing base requirements. The indebtedness under the New
Credit Facility bears interest at variable rates based on LIBOR or the prime
rate and matures in three years. The New Credit Facility contains certain
customary covenants (including limitations on indebtedness, liens and restricted
payments) but does not contain any financial covenants. The New Credit Facility
is secured by the Company's inventory, accounts receivable and certain assets.
The Unsecured Loan is a three year term loan that bears interest at a variable
rate based on LIBOR. The repayment of the indebtedness under the Unsecured Loan
is supported by a letter of credit issued under the New Credit Facility.
4
<PAGE>
Loehmann's, Inc.
Management's Discussion and Analysis of Financial Condition
and Results of Operations
RESULT OF OPERATIONS--COMPARISON OF THE QUARTERS ENDED MAY 2, 1998 AND MAY 3,
1997
Net sales for the thirteen week period ended May 2, 1998, were $110.2 million as
compared to $112.6 million for the comparable period in the prior year, a
decrease of approximately $2.4 million or 2.1%. Comparable store sales (sales at
stores that were in operation for both periods) decreased by 3.9%. The decrease
in net sales was due to (i) the closure of twelve stores during the preceding 52
weeks, including nine stores closed in March 1998 and (ii) the decrease in
comparable store sales, partially offset by the opening of six new stores during
the preceding 52 weeks.
Gross profit for the thirteen week period ended May 2, 1998, was $37.0 million
as compared to $35.1 million for the same period in the prior year, an increase
of $1.9 million or 5.5%. Gross margin increased to 33.6% from 31.2% in the prior
year period. The improvement in margin percent was primarily a result of the
continuing shift in the Company's sales mix towards merchandise, such as men's,
accessories and intimate apparel, with higher average gross margins coupled with
a reduction of markdowns.
Selling, general and administrative expenses for the thirteen week period ended
May 2, 1998, were $28.6 million as compared to $28.9 million during the same
period in the prior year, a decrease of $0.3 million, or 0.9%.
Depreciation and amortization expense for the thirteen week period ended May 2,
1998, was $3.1 million as compared to $2.9 million for the same period in the
prior year, an increase of approximately $0.2 million, or 9.5%. This was
primarily due to an increase in depreciation related to store expansion.
Net interest expense for the thirteen week period ended May 2, 1998 was $3.5
million as compared to $3.0 million for the same period in the prior year, an
increase of approximately $0.5 million or 19.1%. The increase in net interest
expense primarily resulted from interest expense incurred on increased
borrowings under the revolving line of credit.
5
<PAGE>
Loehmann's, Inc.
Management's Discussion and Analysis of Financial Condition
and Results of Operations
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities totaled $1.5 million during the
quarter ended May 2, 1998. Cash of $4.9 million was provided from operations
after adding back non-cash charges, offset by the use of net working capital of
approximately $3.4 million primarily related to seasonal needs, and the opening
of two new stores in Long Beach, California, and Cincinnati, Ohio, during the
quarter. Net cash used in investing activities totaled $2.9 million during the
quarter ended May 2, 1998. These expenditures were principally related to
capital expenditures for leasehold improvements and fixtures primarily
associated with the opening of the two new stores. Net cash provided by
financing activities was approximately $1.8 million during the quarter ended May
2, 1998, and reflects the proceeds from borrowings under the Company's revolving
line of credit (the "Prior Credit Facility").
On May 12, 1998, the Company refinanced the indebtedness under the Prior Credit
Facility with borrowings under a new secured credit facility with Congress
Financial Corporation (the "New Credit Facility") and an $8.0 million unsecured
term loan with another bank as explained in note 5 to the accompanying financial
statements (unaudited). The Company believes that cash generated from operations
and funds available under the New Credit Facility will be sufficient to satisfy
its cash requirements through fiscal 1998.
YEAR 2000
The Company presently believes that the year 2000 issue will not pose
significant operational problems for its computer systems. The company has
outside service contracts to maintain its computer software programs and expects
that all modifications and conversions will be completed on a timely basis. The
total dollar amount that the company estimates will be spent to address its year
2000 issues is not expected to have a material financial impact. However, if
such modifications and conversions are not made, or are not completed in a
timely manner, the year 2000 issue could have a material adverse impact upon
Company operations.
6
<PAGE>
PART II--OTHER INFORMATION
ITEM 5. OTHER INFORMATION
Certain statements in this quarterly report on Form 10-Q under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and elsewhere in this quarterly report and in future filings by the
Company with the Securities and Exchange Commission, constitute "forward looking
statements." 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 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: general
economic and business conditions; competition; success of operating initiatives;
development and operating costs; advertising and promotional efforts; brand
awareness; the existence or adherence to development schedules; the existence or
absence of adverse publicity; availability, locations and terms of sites for
store development; changes in business strategy or development plans; quality of
management; availability, terms and deployment of capital; business abilities
and judgment of personnel; availability of qualified personnel; labor and
employee benefit costs; changes in, or the failure to comply with, government
regulations; construction costs and other factors referenced in this quarterly
report.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
4.1 Loan and Security Agreement by and between the Company and
Congress Financial Corporation dated May 12, 1998.
4.2 Loan Agreement by and between the Company and Fleet Bank, N.A. dated
May 12, 1998.
27 Financial Data Schedule (for SEC use only)
(b) No reports on Form 8-K were filed during the quarter ended May 2, 1998.
7
<PAGE>
Loehmann's, Inc.
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.
Dated: June 12, 1998
Loehmann's, Inc.
By: /s/ Robert Glass
--------------------
Robert Glass
President, Chief Operating Officer and Director
By: /s/ Dennis R. Hernreich
---------------------------
Dennis R. Hernreich
Vice President Finance, Chief Financial Officer,
Treasurer and Assistant Secretary
8
EXHIBIT 4.1
LOAN AND SECURITY AGREEMENT
BY AND BETWEEN
CONGRESS FINANCIAL CORPORATION
AS LENDER
AND
LOEHMANN'S, INC.
AS BORROWER
DATED: MAY 12, 1998
<PAGE>
TABLE OF CONTENTS
SECTION 1. DEFINITIONS.................................................... 1
SECTION 2. CREDIT FACILITY................................................ 12
2.1 Revolving Loan Facility........................................ 12
2.2 Letter of Credit Facility...................................... 14
2.3 Availability Reserves.......................................... 16
2.4 Maximum Credit................................................. 17
SECTION 3. INTEREST AND FEES.............................................. 18
3.1 Interest....................................................... 18
3.2 Closing Fee.................................................... 20
3.3 Servicing Fee.................................................. 20
3.4 Unused Line Fee................................................ 21
3.5 Changes in Laws and Increased Costs of Loans................... 21
SECTION 4. CONDITIONS PRECEDENT........................................... 22
4.1 Conditions Precedent to Initial Loans and Letter of
Credit Accommodations.......................................... 22
4.2 Conditions Precedent to All Loans and Letter of
Credit Accommodations.......................................... 24
SECTION 5. SECURITY INTEREST.............................................. 25
SECTION 6. COLLECTION AND ADMINISTRATION.................................. 26
6.1 Borrower's Loan Account........................................ 26
6.2 Statements..................................................... 26
6.3 Collection of Accounts......................................... 26
6.4 Payments....................................................... 28
6.5 Authorization to Make Loans.................................... 29
6.6 Use of Proceeds................................................ 29
SECTION 7. COLLATERAL REPORTING AND COVENANTS............................. 29
7.1 Collateral Reporting........................................... 29
7.2 Accounts Covenants............................................. 30
7.3 Inventory Covenants............................................ 32
7.4 Equipment Covenants............................................ 33
7.5 Power of Attorney.............................................. 33
7.6 Right to Cure.................................................. 34
7.7 Access to Premises............................................. 34
SECTION 8. REPRESENTATIONS AND WARRANTIES................................. 35
8.1 Corporate Existence, Power and Authority; Subsidiaries......... 35
(i)
<PAGE>
8.2 Financial Statements; No Material Adverse Change............... 35
8.3 Chief Executive Office; Collateral Locations................... 35
8.4 Priority of Liens; Title to Properties......................... 36
8.5 Tax Returns.................................................... 36
8.6 Litigation..................................................... 36
8.7 Compliance with Other Agreements and Applicable Laws........... 37
8.8 Environmental Compliance....................................... 37
8.9 Credit Card Agreements......................................... 38
8.10 Employee Benefits.............................................. 39
8.11 Bank Accounts.................................................. 39
8.12 Accuracy and Completeness of Information....................... 40
8.13 Survival of Warranties; Cumulative............................. 40
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS............................. 40
9.1 Maintenance of Existence....................................... 40
9.2 New Collateral Locations....................................... 40
9.3 Compliance with Laws, Regulations, Etc......................... 41
9.4 Payment of Taxes and Claims.................................... 41
9.5 Insurance...................................................... 41
9.6 Financial Statements and Other Information..................... 42
9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc........ 43
9.8 Encumbrances................................................... 44
9.9 Indebtedness................................................... 45
9.10 Loans, Investments, Guarantees, Etc............................ 48
9.11 Dividends and Redemptions...................................... 48
9.12 Transactions with Affiliates................................... 49
9.13 Credit Card Agreements......................................... 49
9.14 Compliance with ERISA.......................................... 50
9.15 Additional Bank Accounts....................................... 50
9.16 Costs and Expenses............................................. 50
9.17 Certain Notices................................................ 51
9.18 Further Assurances............................................. 51
SECTION 10. EVENTS OF DEFAULT AND REMEDIES................................. 52
10.1 Events of Default.............................................. 52
10.2 Remedies....................................................... 54
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS;
GOVERNING LAW.................................................. 55
11.1 Governing Law; Choice of Forum; Service of Process; Jury Trial
Waiver......................................................... 55
11.2 Waiver of Notices.............................................. 56
11.3 Amendments and Waivers......................................... 57
11.4 Waiver of Counterclaims........................................ 57s
(ii)
<PAGE>
11.5 Indemnification................................................ 57
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS............................... 58
12.1 Term........................................................... 58
12.2 Notices........................................................ 59
12.3 Confidentiality................................................ 59
12.4 Partial Invalidity............................................. 60
12.5 Successors..................................................... 60
12.6 Entire Agreement............................................... 61
(iii)
<PAGE>
INDEX TO
EXHIBITS AND SCHEDULES
----------------------
Exhibit A Information Certificate
Schedule 6.3 Bank Accounts
Schedule 8.4 Existing Liens
Schedule 8.8 Environmental Matters
Schedule 8.9 Credit Card Agreements
Schedule 8.10 Employee Benefits Matters
Schedule 9.9 Existing Indebtedness
Schedule 9.10 Loans, Investments, Guarantees
(iv)
<PAGE>
LOAN AND SECURITY AGREEMENT
---------------------------
This Loan and Security Agreement dated May 12, 1998 is entered into by
and between Congress Financial Corporation, a Delaware corporation ("Lender")
and Loehmann's, Inc., a Delaware corporation ("Borrower").
W I T N E S S E T H:
WHEREAS, Borrower has requested that Lender enter into certain
financing arrangements with Borrower pursuant to which Lender may make loans and
provide other financial accommodations to Borrower; and
WHEREAS, Lender is willing to make such loans and provide such
financial accommodations on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual conditions and
agreements set forth herein, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
SECTION 1. DEFINITIONS
All terms used herein which are defined in Article 1 or Article 9 of
the Uniform Commercial Code of the State of New York shall have the meanings
given therein unless otherwise defined in this Agreement. All references to the
plural herein shall also mean the singular and to the singular shall also mean
the plural unless the context otherwise requires. All references to Borrower and
Lender pursuant to the definitions set forth in the recitals hereto, or to any
other person herein, shall include their respective successors and assigns. The
words "hereof", "herein", "hereunder", "this Agreement" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not any particular provision of this Agreement and as this Agreement now exists
or may hereafter be amended, modified, supplemented, extended, renewed, restated
or replaced. The word "including" when used in this Agreement shall mean
"including, without limitation". An Event of Default shall exist or continue or
be continuing until such Event of Default is waived in accordance with Section
11.3 or cured in a manner satisfactory to Lender in good faith, if such Event of
Default is capable of being cured as determined by Lender in good faith. Any
accounting term used herein unless otherwise defined in this Agreement shall
have the meanings customarily given to such term in accordance with GAAP. For
purposes of this Agreement, the following terms shall have the respective
meanings given to them below:
<PAGE>
1.1 "Accounts" shall mean all present and future rights of Borrower to
payment for goods sold or leased or for services rendered, which are not
evidenced by instruments or chattel paper, and whether or not earned by
performance, and including, without limitation, Credit Card Receivables.
1.2 "Adjusted Eurodollar Rate" shall mean, with respect to each
Interest Period for any Eurodollar Rate Loan, the rate per annum (rounded
upwards, if necessary, to the next one-sixteenth (1/16) of one (1%) percent)
determined by dividing (a) the Eurodollar Rate for such Interest Period by (b) a
percentage equal to: (i) one (1) minus (ii) the Reserve Percentage. For purposes
hereof, "Reserve Percentage" shall mean the reserve percentage, expressed as a
decimal, prescribed by any United States or foreign banking authority for
determining the reserve requirement which is or would be applicable to deposits
of United States dollars in a non-United States or an international banking
office of Reference Bank used to fund a Eurodollar Rate Loan or any Eurodollar
Rate Loan made with the proceeds of such deposit, whether or not the Reference
Bank actually holds or has made any such deposits or loans. The Adjusted
Eurodollar Rate shall be adjusted on and as of the effective day of any change
in the Reserve Percentage.
1.3 "Applicable Margin" shall mean, subject to adjustment as provided
in Section 3.1(b) hereof, (a) one-half of one (1/2%) percent as to Prime Rate
Loans, and (b) two and one-quarter (2- 1/4%) percent as to Eurodollar Rate
Loans.
1.4 "Availability Reserves" shall mean, as of any date of
determination, such amounts as Lender may from time to time establish and revise
in good faith reducing the amount of Loans that would otherwise be available to
Borrower under the lending formula(s) provided for herein: (a) to reflect
events, conditions, contingencies or risks that, as determined by Lender in good
faith, do or may affect either (i) the Collateral or any other property which is
security for the Obligations or its value, or (ii) the security interests and
other rights of Lender in the Collateral (including the enforceability,
perfection and priority thereof) or (b) to reflect Lender's good faith belief
that any collateral report or financial information furnished by or on behalf of
Borrower or any Obligor to Lender is or may have been incomplete, inaccurate or
misleading in any material respect, or (c) in respect of any state of facts
which Lender determines in good faith constitutes an Event of Default, or (d) in
respect of any condition that exists or event that has occurred that Lender in
good faith determines would, with passage of time, become an Event of Default
under Section 10.1(a)(ii), or (e) to reflect the L/C Base Availability Block in
respect of certain outstanding Letter of Credit Accommodations under the Letter
of Credit Facility, as provided in Section 2.2 hereof or (f) as otherwise
provided in Section 2.3 hereof or elsewhere in this Agreement.
1.5 "Backup Letter of Credit" shall mean a Letter of Credit
Accommodation in the form of an irrevocable, non-transferable standby letter of
credit issued or caused to be issued by Lender for Borrower's account, in favor
of the Unsecured Working Capital Lender, in a face amount, not to exceed
$8,000,000, subject to other terms and provisions of this Agreement.
2
<PAGE>
1.6 "Base Eligible Inventory" shall mean Inventory of Borrower
consisting of finished goods held for resale in the ordinary course of the
business of Borrower (including Reserve Inventory), in each case that are
acceptable to Lender as determined in good faith in accordance with its
customary business practices based on the criteria set forth below. In general,
Base Eligible Inventory shall not include (a) raw materials and supplies used or
consumed in Borrower's business, (b) work-in-process; (c) Inventory at premises
other than those owned and controlled by Borrower located in the United States,
except for Inventory located at retail stores, distribution centers, warehouses
or other locations of Borrower in the United States that are leased by it or
operated by third party warehousemen, or that are owned by it subject to a
mortgage in favor of any Person other than lender and otherwise permitted
hereunder; provided, that, Borrower shall use reasonable efforts to obtain a
Landlord Agreement, Warehouseman's Agreement and/or Mortgagee Agreement (as
defined in Section 2.3(b) hereof), as applicable, with respect to each of such
locations (it being agreed that Borrower shall not be required to make economic
concessions in favor of the landlord, mortgagee or warehouseman, as the case may
be, in order to obtain such agreement); (d) Inventory subject to a security
interest or lien in favor of any person other than Lender except those permitted
in this Agreement; (e) Inventory which is not subject to the first priority,
valid and perfected security interest of Lender; (f) obsolete or unmerchantable
Inventory; (g) newly purchased Inventory that is in transit to a location of
Borrower in the United States, unless Lender has a first priority security
interest and control of the documents of title covering such goods; (h)
Inventory sold on consignment; (i) Inventory located at retail stores that are
closed; (j) Inventory that is held for return to vendors; and (k) samples. In
addition to, and without limiting the foregoing, (x) at no time shall Base
Eligible Inventory include (A) packaging and shipping material, supplies,
returned or defective Inventory or Inventory delivered to Borrower on
consignment, or (B) more than twenty-five (25%) percent of Reserve Inventory
(such twenty-five (25%) percent limitation under this clause (B), the "Reserve
Inventory Percentage Limitation"), and (y) the amount of Base Eligible Inventory
shall be reduced by an amount equal to seventy-five (75%) of the Cost value of
merchandise credits and gift certificates outstanding. Any Inventory which is
not Base Eligible Inventory shall nevertheless be part of the Collateral.
1.7 "Blocked Accounts" shall have the meaning set forth in Section 6.3
hereof.
1.8 "Bronx IRB" shall mean the industrial development bond financing
for Borrower pursuant to the $2,250,000 New York City Industrial Development
Agency Industrial Development Revenue and Refunding Bonds (1983 Loehmann's Inc.
Project) and related Lease Agreement, dated as of December 1, 1983, between the
New York City Industrial Development Agency, as lessor, and Borrower, as lessee,
with respect to the real property located at 2500 Halsey Street, Bronx, New
York, together with all agreements, documents and instruments related thereto or
in connection therewith.
1.9 "Business Day" shall mean any day other than a Saturday, Sunday, or
other day on which commercial banks are authorized or required to close under
the laws of the State of New York or the Commonwealth of Pennsylvania, and a day
on which the Reference Bank and Lender are open for the transaction of business,
except that if a determination of a Business Day
3
<PAGE>
shall relate to any Eurodollar Rate Loans, the term Business Day shall also
exclude any day on which banks are closed for dealings in dollar deposits in the
London interbank market or other applicable Eurodollar Rate market.
1.10 "Capital Stock" shall mean any and all shares, interests,
participations, or other equivalents (however designated) of corporate stock or
partnership interests and any options or warrants with respect to any of the
foregoing.
1.11 "Code" shall mean the Internal Revenue Code of 1986, as the same
now exists or may from time to time hereafter be amended, modified, recodified
or supplemented, together with all rules, regulations and interpretations
thereunder or related thereto.
1.12 "Collateral" shall have the meaning set forth in Section 5 hereof.
1.13 "Consolidated EBITDA" shall mean, as to Borrower, for any fiscal
period, the amount equal to the sum of (i) the Consolidated Pre-Tax Income of
Borrower and its subsidiaries, if any, for such fiscal period, plus (ii) the
aggregate amount of interest, depreciation and amortization expenses recorded
for such period, to the extent deducted in arriving at Consolidated Pre-Tax
Income for such period.
1.14 "Consolidated Pre-Tax Income" shall mean, as to Borrower, for any
fiscal period, the consolidated income (or loss) of Borrower and its
subsidiaries, if any, for such fiscal period, determined in accordance with GAAP
consistently applied, before deducting an amount equal to all taxes imposed on
or measured by income, whether federal, state or local, and whether foreign or
domestic, except that notwithstanding GAAP, for purposes hereof, there shall be
excluded from the calculation of Consolidated Pre-Tax Income, all extraordinary
and/or unusual gains and non-cash losses (other than Inventory write-downs) and
there shall also be excluded from such calculation all income or gains and
non-cash losses (other than Inventory write-downs) attributable to changes in
Borrower's accounting practices made after February 1, 1997.
1.15 "Cost" shall mean, as to the Inventory as of any date, the cost of
such Inventory as of such date, determined on a first-in-first-out basis under
the retail method of accounting in accordance with GAAP.
1.16 "Credit Card Acknowledgments" shall mean, individually and
collectively, the agreements by Credit Card Issuers or Credit Card Processors
who are parties to Credit Card Agreements in favor of Lender acknowledging
Lender's first priority security interest in the monies due and to become due to
Borrower (including, without limitation, credits and reserves) under the Credit
Card Agreements, and agreeing to transfer all such amounts to the Blocked
Accounts, as the same now exist or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced.
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1.17 "Credit Card Agreements" shall mean all agreements now or
hereafter entered into by Borrower with any Credit Card Issuer or any Credit
Card Processor, as the same now exist or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced, including, but not
limited to, the agreements set forth on Schedule 8.9 hereto.
1.18 "Credit Card Issuer" shall mean any person (other than Borrower)
who issues or whose members issue credit cards, including, without limitation,
MasterCard or VISA bank credit or debit cards or other bank credit or debit
cards issued through MasterCard International, Inc., Visa, U.S.A., Inc. or Visa
International, and American Express, Discover, Diners Club, Carte Blanche and
other non-bank credit or debit cards.
1.19 "Credit Card Processor" shall mean any servicing or processing
agent or any factor or financial intermediary who facilitates, services,
processes or manages the credit authorization, billing transfer and/or payment
procedures with respect to any of Borrower's sales transactions involving credit
card or debit card purchases by customers using credit cards or debit cards
issued by any Credit Card Issuer (including, but not limited to Midwest Payment
Systems, Inc. and The Fifth Third Bank, each of Cincinnati, Ohio).
1.20 "Credit Card Receivables" shall mean collectively, (a) all present
and future rights of Borrower to payment from any Credit Card Issuer, Credit
Card Processor or other third party arising from sales of goods or rendition of
services to customers who have purchased such goods or services using a credit
or debit card and (b) all present and future rights of Borrower to payment from
any Credit Card Issuer, Credit Card Processor or other third party in connection
with the sale or transfer of Accounts arising pursuant to the sale of goods or
rendition of services to customers who have purchased such goods or services
using a credit card or a debit card, including, but not limited to, all amounts
at any time due or to become due from any Credit Card Issuer or Credit Card
Processor under the Credit Card Agreements or otherwise.
1.21 "Credit Facility" shall mean, collectively, the Revolving Loan
Facility and the Letter of Credit Facility.
1.22 "Eligible Inventory" shall mean, at any time (i) Base Eligible
Inventory determined by Lender at such time, but, for purposes of this
definition, without regard to the Reserve Inventory Percentage Limitation (as
defined in the definition of Base Eligible Inventory) and (ii) finished goods to
be purchased under commercial Letter of Credit Accommodations outstanding under
the Letter of Credit Facility that Lender believes, in good faith, will become
Eligible Inventory and for which a drawing has not been presented under the
applicable Letter of Credit Accommodation covering the purchase of such goods.
Any Inventory which is not Eligible Inventory shall nevertheless be part of the
Collateral.
1.23 "Environmental Laws" shall mean all foreign, Federal, State and
local laws (including common law), legislation, rules, codes, licenses, permits
(including any conditions imposed therein), authorizations, judicial or
administrative decisions, injunctions or agreements between
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Borrower and any governmental authority, (a) relating to pollution and the
protection, preservation or restoration of the environment (including air, water
vapor, surface water, ground water, drinking water, drinking water supply,
surface land, subsurface land, plant and animal life or any other natural
resource), or to human health or safety, (b) relating to the exposure to, or the
use, storage, recycling, treatment, generation, manufacture, processing,
distribution, transportation, handling, labeling, production, release or
disposal, or threatened release, of Hazardous Materials, or (c) relating to all
laws with regard to recordkeeping, notification, disclosure and reporting
requirements respecting Hazardous Materials. The term "Environmental Laws"
includes (i) the Federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980, the Federal Superfund Amendments and Reauthorization Act,
the Federal Water Pollution Control Act of 1972, the Federal Clean Water Act,
the Federal Clean Air Act, the Federal Resource Conservation and Recovery Act of
1976 (including the Hazardous and Solid Waste Amendments thereto), the Federal
Solid Waste Disposal and the Federal Toxic Substances Control Act, the Federal
Insecticide, Fungicide and Rodenticide Act, and the Federal Safe Drinking Water
Act of 1974, (ii) applicable state counterparts to such laws, and (iii) any
common law or equitable doctrine that imposes liability or obligations for
injuries or damages due to, or threatened as a result of, the presence of or
exposure to any Hazardous Materials.
1.24 "Equipment" shall mean all of Borrower's now owned and hereafter
acquired equipment, machinery, computers and computer hardware and software
(whether owned or licensed), vehicles, tools, furniture, fixtures, all
attachments, accessions and property now or hereafter affixed thereto or used in
connection therewith, and substitutions and replacements thereof, wherever
located.
1.25 "ERISA" shall mean the United States Employee Retirement Income
Security Act of 1974, as the same now exists or may hereafter from time to time
be amended, modified, recodified or supplemented, together with all rules,
regulations and interpretations thereunder or related thereto.
1.26 "ERISA Affiliate" shall mean any person required to be aggregated
with Borrower or any of its subsidiaries under Sections 414(b), 414(c), 414(m)
or 414(o) of the Code.
1.27 "Eurodollar Rate" shall mean with respect to the Interest Period
for a Eurodollar Rate Loan, the interest rate per annum equal to the arithmetic
average of the rates of interest per annum (rounded upwards, if necessary, to
the next one-sixteenth (1/16) of one (1%) percent) at which Reference Bank is
offered deposits of United States dollars in the London interbank market (or
other Eurodollar Rate market selected by Borrower and approved by Lender) on or
about 9:00 a.m. (New York City time) two (2) Business Days prior to the
commencement of such Interest Period in amounts substantially equal to the
principal amount of the Eurodollar Rate Loans requested by and available to
Borrower in accordance with this Agreement, with a maturity of comparable
duration to the Interest Period selected by Borrower.
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1.28 "Eurodollar Rate Loans" shall mean any Loans or portion thereof on
which interest is payable based on the Adjusted Eurodollar Rate in accordance
with the terms hereof.
1.29 "Excess Availability" shall mean the amount, as determined by
Lender, calculated at any time, equal to: (a) the lesser of (i) the amount of
the Loans available to Borrower as of such time based on the applicable lending
formula(s) set forth in Section 2.1(a) hereof, as determined by Lender in good
faith, and, without limitation, subject to the sublimits and Availability
Reserves from time to time established by Lender hereunder and (ii) the
Revolving Loan Limit, minus (b) the sum of: (i) the amount of all then
outstanding and unpaid Obligations in respect of the Loans, plus (ii) the
aggregate amount of all trade payables of Borrower which are more than
forty-five (45) days past due as of such time, other than up to $300,000 of such
trade payables being disputed at such time in good faith by Borrower, plus (iii)
the amount of interest, principal or other obligations or indebtedness due and
payable or scheduled to become due and payable on or within the thirty (30) day
period following the date of determination pursuant to the terms of the Senior
Notes and/or the Senior Note Indenture.
1.30 "Event of Default" shall mean the occurrence or existence of any
event or condition described in Section 10.1 hereof.
1.31 "Financing Agreements" shall mean, collectively, this Agreement
and all notes, guarantees, security agreements (including, without limitation,
the Leasehold Mortgages) and other agreements, documents and instruments, now or
at any time hereafter executed and/or delivered by Borrower or any Obligor in
connection with this Agreement, as the same now exist or may hereafter be
amended, modified, supplemented, extended, renewed, restated or replaced.
1.32 "GAAP" shall mean generally accepted accounting principles in the
United States of America as in effect from time to time as set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and the statements and pronouncements
of the Financial Accounting Standards Board(s) which are applicable to the
circumstances as of the date of determination consistently applied.
1.33 "Indebtedness" shall mean, as to any Person, any obligation or
liability which is required by generally accepted accounting principles to be
shown as part of liabilities on a balance sheet of such Person (other than
unsecured trade accounts payable and accrued unsecured expenses, incurred in the
ordinary course of business) and, in any event, shall also include: (a)
obligations for borrowed money or capital leases (but not operating leases); (b)
obligations evidenced by bonds, debentures, notes or other similar instruments;
(c) obligations to pay the deferred purchase price of property or for services
(other than unsecured trade accounts payable incurred in the ordinary course of
business); (d) obligations or liabilities secured by a lien on any asset of such
Person, whether or not such obligation or liability is assumed; (e) contingent
obligations (other than those unsecured contingent obligations incurred in the
ordinary course of business); (f) obligations under or in connection with
letters or credit or acceptances; (g)
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obligations under hedging transactions, interest rate swaps or foreign exchange
facilities; and (h) any guarantees of any of the foregoing obligations.
1.34 "Information Certificate" shall mean the Information Certificate
of Borrower constituting Exhibit A hereto containing material information with
respect to Borrower, its business and assets provided by or on behalf of
Borrower to Lender in connection with the preparation of this Agreement and the
other Financing Agreements and the financing arrangements provided for herein.
1.35 "Inventory" shall mean all of Borrower's now owned and hereafter
existing or acquired raw materials, work in process, finished goods and all
other inventory of whatsoever kind or nature, wherever located.
1.36 "Inventory Advance Rate" shall mean seventy-five (75%) percent,
subject to reduction pursuant to Section 2.1(b) or 2.1(c) hereof.
1.37 "Interest Period" shall mean for any Eurodollar Rate Loan, a
period of approximately one (1), two (2), or three (3) months duration as
Borrower may elect, the exact duration to be determined in accordance with the
customary practice in the applicable Eurodollar Rate market; provided, that,
Borrower may not elect an Interest Period which will end after the last day of
the then-current term of this Agreement.
1.38 "Interest Rate" shall mean (a) as to Prime Rate Loans, a rate per
annum equal to the Prime Rate plus the Applicable Margin for Prime Rate Loans,
and (b) as to Eurodollar Rate Loans, a rate per annum equal to the Adjusted
Eurodollar Rate (based on the Eurodollar Rate applicable for the Interest Period
selected by Borrower as in effect three (3) Business Days after the date of
receipt by Lender of the request of Borrower for such Eurodollar Rate Loans in
accordance with the terms hereof, whether such rate is higher or lower than any
rate previously quoted to Borrower) plus the Applicable Margin for Eurodollar
Rate Loans; provided, that the Interest Rate shall be increased to a rate two
(2%) percent per annum in excess of the pre-default variable interest rate under
clause (a) or (b) otherwise applicable to Prime Rate Loans or Eurodollar Rate
Loans, as the case may be, at Lender's option, without notice, (x) for the
period on and after (i) the date of termination or non-renewal hereof and until
such time as all Obligations are indefeasibly paid in full (notwithstanding
entry of any judgment against Borrower), or (ii) the date of the occurrence of
any Event of Default, and for so long as such Event of Default is continuing as
determined by Lender and (y) on the Loans at any time outstanding in excess of
the amounts available to Borrower under Section 2 (whether or not such
excess(es), arise or are made with or without Lender's knowledge or consent and
whether made before or after an Event of Default); provided, however, that if
such excess(es) arise solely as a result of the establishment or increase of
Availability Reserves in the absence of the existence or occurrence of an Event
of Default that is continuing, then the increased rate of interest otherwise
effective under clause (y) shall not take effect for a period of three (3) days
after Lender notifies Borrower of the establishment or increase of such
Availability Reserves.
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1.39 "L/C Base Availability Block" shall mean, at any time, the amount
equal to the sum of (i) the amount equal to forty (40%) percent of the aggregate
outstanding face amount of Letter of Credit Accommodations issued for the
purchase of Eligible Inventory, other than Reserve Inventory, plus (ii) one
hundred (100%) percent of the aggregate outstanding face amount of Letter of
Credit Accommodations issued for the purchase of Reserve Inventory, plus (iii)
the aggregate amount of freight, taxes, duty and other amounts that Lender
reasonably estimates must be paid in connection with Inventory under Letter of
Credit Accommodations under clauses (i) and (ii) upon arrival and for delivery
to one of Borrower's locations for Eligible Inventory, plus (iv) one hundred
(100%) percent of the aggregate outstanding face amount of Letter of Credit
Accommodations issued for purposes other than the purchase of Eligible
Inventory, excluding the Backup Letter of Credit.
1.40 "L/C Line Block" shall mean, at any time, the amount equal to the
sum of (i) one hundred (100%) percent of the aggregate outstanding face amount
of Letter of Credit Accommodations issued for the purchase of Eligible
Inventory, plus, (ii) the aggregate amount of freight, taxes, duty and other
amounts that Lender reasonably estimates must be paid in connection with such
Inventory upon arrival and for delivery to one of Borrower's locations for
Eligible Inventory, plus (iii) one hundred (100%) percent of the aggregate
outstanding face amount of Letter of Credit Accommodations issued for purposes
other than the purchase of Eligible Inventory, excluding the Backup Letter of
Credit.
1.41 "Leasehold Mortgages" shall mean the Leasehold Mortgages now or
hereafter executed and delivered by Borrower in favor of Lender, encumbering
Borrower's leasehold interests in real property, as the same may be amended,
modified, supplemented, restated or replaced.
1.42 "Letter of Credit Accommodations" shall mean the letters of credit
which are from time to time either (a) issued or opened by Lender for the
account of Borrower or, in Lender's discretion, any Obligor or (b) with respect
to which Lender has agreed to indemnify the issuer or guaranteed to the issuer
the performance by Borrower of its obligations to such issuer.
1.43 "Letter of Credit Facility" shall mean the letter of credit
facility set forth in this Agreement, pursuant to which Lender has agreed, on
the terms and conditions set forth herein and in the other Financing Agreements,
to issue or provide or arrange to be issued or provided to Borrower, Letter of
Credit Accommodations, within the availability formula for Total L/C Usage set
forth in Section 2.2(c) hereof, but not to exceed the applicable sublimits and
the Letter of Credit Limit, at any one time outstanding.
1.44 "Letter of Credit Limit" shall mean the amount of $10,000,000,
less outstanding letters of credit issued for the account of the Borrower that
are not Letter of Credit Accommodations hereunder (including, without
limitation, letters of credit issued or arranged through BankAmerica Business
Credit Corporation, as Agent, prior to the date hereof under the financing
arrangements being terminated pursuant to Section 4.1(a) hereof.
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1.45 "Loans" shall mean the loans now or hereafter made by Lender to or
for the benefit of Borrower on a revolving basis (involving advances, repayments
and readvances) as set forth in Section 2.1 hereof.
1.46 "Material Adverse Effect" shall mean a material adverse effect on
(i) the business, assets or financial condition of Borrower, or (ii) the
legality, validity or enforceability of this Agreement or the other Financing
Agreements, or (iii) the ability of Borrower to perform its Obligations under
this Agreement or any of the other Financing Agreements, or (iv) the rights and
remedies of Lender under this Agreement or any of the other Financing
Agreements.
1.47 "Maximum Credit" shall mean $60,000,000.
1.48 "Net Recovery Cost Percentage" shall mean the fraction, expressed
as a percentage, (a) the numerator of which is the amount equal to the median
recovery on the aggregate amount of the Inventory at such time on a "going out
of business sale" basis as set forth in the most recent acceptable appraisal of
Inventory received by Lender in accordance with Section 7.3, or, if applicable,
as determined pursuant to the appraisal procedure in accordance with Section
2.1(c) hereof, in either case net of operating expenses, liquidation expenses
and commissions, and (b) the denominator of which is the original Cost of the
aggregate amount of the Inventory subject to appraisal.
1.49 "Obligations" shall mean any and all Loans, Letter of Credit
Accommodations and all other obligations, liabilities and indebtedness of every
kind, nature and description owing by Borrower to Lender and/or any of its
affiliates that issue any Letter of Credit Accommodations, including principal,
interest, charges, fees, costs and expenses, however evidenced, whether as
principal, surety, endorser, guarantor or otherwise, to the extent arising under
or in connection with this Agreement or the other Financing Agreements, whether
now existing or hereafter arising, whether arising before, during or after the
initial or any renewal term of this Agreement or after the commencement of any
case with respect to Borrower under the United States Bankruptcy Code or any
similar statute (including, without limitation, the payment of interest and
other amounts which would accrue and become due but for the commencement of such
case, whether or not such amounts are allowed or allowable in whole or in part
in such case), whether direct or indirect, absolute or contingent, joint or
several, due or not due, primary or secondary, liquidated or unliquidated,
secured or unsecured, and however acquired by Lender.
1.50 "Obligor" shall mean any guarantor, endorser, acceptor, surety or
other person liable on or with respect to the Obligations or who is the owner of
any property which is security for the Obligations, other than Borrower.
1.51 "Payment Account" shall have the meaning set forth in Section 6.3
hereof.
1.52 "Permits" shall have the meaning set forth in Section 8.7 hereof.
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1.53 "Person" or "person" shall mean any individual, sole
proprietorship, partnership, corporation (including, without limitation, any
corporation which elects subchapter S status under the Code), limited liability
company, limited liability partnership, business trust, unincorporated
association, joint stock corporation, trust, joint venture or other entity or
any government or any agency or instrumentality or political subdivision
thereof.
1.54 "Prime Rate" shall mean the rate from time to time publicly
announced by CoreStates Bank, N.A., or its successors, at its office in
Philadelphia, Pennsylvania, as its prime rate, whether or not such announced
rate is the best rate available at such bank.
1.55 "Prime Rate Loans" shall mean any Loans or portion thereof on
which interest is payable based on the Prime Rate in accordance with the terms
hereof.
1.56 "Real Property" shall mean all now owned and hereafter acquired
real property of Borrower, including leasehold interests, together with all
buildings, structures, and other improvements located thereon and all licenses,
easements and appurtenances relating thereto, wherever located.
1.57 "Records" shall mean all of Borrower's present and future books of
account of every kind or nature, purchase and sale agreements, invoices, ledger
cards, bills of lading and other shipping evidence, statements, correspondence,
memoranda, credit files and other data relating to the Collateral or any account
debtor, together with the tapes, disks, diskettes and other data and software
storage media and devices, file cabinets or containers in or on which the
foregoing are stored (including any rights of Borrower with respect to the
foregoing maintained with or by any other person).
1.58 "Reference Bank" shall mean CoreStates Bank, N.A. or such other
bank as Lender may designate from time to time.
1.59 "Renewal Date" shall have the meaning set forth in Section 12.1
hereof.
1.60 "Reserve Inventory" shall mean, as of any time, Inventory held as
reserve inventory by Borrower for sale in future periods in accordance with
current practice.
1.61 "Revolving Loan Limit" shall mean, at any time, the amount equal
to (i) $50,000,000, minus (ii) the L/C Line Block in effect at such time.
1.62 "Revolving Loan Facility" shall mean the revolving credit
facility, set forth in this Agreement, pursuant to which Lender has agreed, on
the terms and conditions set forth herein and in the other Financing Agreements,
to make Loans to Borrower, based on the lending formula(s) set forth in Section
2.1(a) hereof, but not to exceed the Revolving Loan Limit, at any one time
outstanding.
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1.63 "Senior Notes" shall mean the 11-7/8% Senior Notes due 2003, in
the aggregate original principal amount of $100,000,000, issued by Borrower
pursuant to the Senior Note Indenture, as such notes now exist or may hereafter
be amended, modified, supplemented, extended, exchanged, restated or replaced.
1.64 "Senior Note Indenture" shall mean the Indenture, dated as of May
10, 1996, between Borrower and United States Trust Company, as Trustee, with
respect to the 11 7/8% Senior Notes due 2003 issued by Borrower in the original
principal amount of $100,000,000, as the same now exists or may hereafter be
amended, modified, supplemented, extended, renewed, restated, exchanged or
replaced.
1.65 "Total L/C Usage" shall have the meaning set forth in Section
2.2(c) hereof.
1.66 "Unsecured Term Lender" shall mean a financial institution
acceptable to Lender, which shall be the beneficiary of the Backup Letter of
Credit, and who shall make an unsecured loan to Borrower to the extent permitted
by Section 9.9(f) hereof, and its successors and assigns.
1.67 "Value" shall mean, as determined by Lender in good faith, with
respect to Inventory, the lower of (a) Cost or (b) market value.
SECTION 2. CREDIT FACILITY
2.1 Revolving Loan Facility.
(a) Subject to, and upon the terms and conditions contained
herein, Lender agrees to make Loans to Borrower from time to time in amounts
requested by Borrower up to the amount equal to the lesser of:
(i) the amount equal to (A) the Inventory Advance
Rate multiplied by the Value of the Eligible Inventory, minus
(B) the Total L/C Usage, minus (C) any Availability Reserves,
other than the L/C Base Availability Block; or
(ii) the amount equal to (A) the greater of (1)
$35,000,000, or (2) sixty (60%) percent multiplied by the
Value of the Base Eligible Inventory, minus (B) any
Availability Reserves (including, without limitation, the L/C
Base Availability Block).
(b) Lender may, in its discretion, at any time or times upon
notice to Borrower after and during the continuance of an Event of Default
reduce the Inventory Advance Rate. Lender may also, in its discretion, from time
to time, upon not less than five (5) days prior notice to Borrower, reduce the
Inventory Advance Rate to the extent that Lender determines, in good faith,
that: (i) the number of days of the turnover of the Inventory for any period has
changed in
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any material respect or (ii) the nature, quality or mix of the Inventory has
materially deteriorated or (iii) whether or not clause (i) or (ii) otherwise
applies, eighty-two (82%) percent of the Net Recovery Cost Percentage shall be
less than the Inventory Advance Rate at any time after the date hereof. In
determining whether to reduce the Inventory Advance Rate, Lender may consider
events, conditions, contingencies or risks which are also considered in
determining Base Eligible Inventory or in establishing Availability Reserves
pursuant to the terms hereof, so long as any resulting reduction in Loan or
Letter of Credit Accommodation availability is not duplicative of any other
reduction made in respect of the same event, condition, contingency, or risk
pursuant to such other provisions.
(c) Unless an Event of Default exists or has occurred and is
continuing, any reduction of the Inventory Advance Rate under clause (iii) of
Section 2.1(b) shall only be made by Lender after compliance with the provisions
of this Section 2.1(c). Lender shall request or arrange for an appraisal of the
Inventory in accordance with the provisions of Section 7.3, including the
provisions as to form, scope and methodology and reliance by Lender thereon
(including the provisions of Section 7.3 regarding payment of the expense of the
appraisal so requested or arranged), such appraisal to be conducted by an
appraiser selected by Lender from the following list (the "Approved Appraiser
List"): BGA Consulting division of Buxbaum Ginsburg & Associates, Inc., Gordon
Brothers, The Ozer Group LLC, Schottenstein, Hilco/Great American Group.
Borrower shall have the right, at its sole expense, to arrange for a second
appraisal of the Inventory by an appraiser selected by Borrower from the
Approved Appraiser List, to be conducted and completed concurrently with the
appraisal conducted by the appraiser chosen by Lender, and otherwise in
accordance with the provisions of Sections 7.3 including the provisions as to
form, scope, methodology and reliance by Lender thereon (but excluding the
provision of Section 7.3 as to the expense of such second appraisal, which
expense shall be borne by Borrower in all events). If Borrower shall obtain such
second appraisal in accordance herewith, the Net Recovery Cost Percentage used
for purposes of clause (iii) of Section 2.1(b) shall be calculated as set forth
in the definition of Net Recovery Cost Percentage except that the median
recovery amount used as the numerator under clause (a) of such definition shall
be the average of the median recovery amounts set forth in the appraisals
obtained, respectively, by Lender and Borrower pursuant to this Section.
(d) The aggregate amount of the Loans outstanding at any time
shall not exceed the Revolving Loan Limit. In the event that the outstanding
amount of the Loans exceeds the amount available under the lending formula(s) or
the Revolving Loan Limit, as applicable, such event shall not limit, waive or
otherwise affect any rights of Lender in that circumstance or on any future
occasions and Borrower shall, immediately upon demand by Lender, which may be
made at any time or from time to time, (unless the outstanding amount of the
Loans shall exceed the amount available under the lending formula(s) solely by
reason of the establishment or increase of Availability Reserves at a time when
no Event of Default exists or has occurred and is continuing, in which case,
Lender may not make such demand with respect to such excess(es) until three (3)
days after Borrower is notified by Lender of such Availability Reserves or such
excess(es)), repay to Lender the entire amount of any such excess(es) for which
payment is demanded.
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2.2 Letter of Credit Facility.
(a) Subject to, and upon the terms and conditions contained
herein, at the request of Borrower, Lender agrees to provide or arrange for
Letter of Credit Accommodations for the account of Borrower containing terms and
conditions acceptable to Lender and the issuer thereof. Any payments made by
Lender to any issuer thereof and/or related parties in connection with the
Letter of Credit Accommodations shall be immediately due from and payable by
Borrower to Lender, without the need for demand for payment thereof, and to the
extent Lender determines there is sufficient Loan availability under the lending
formula set forth in Section 2.1(a) hereof, Lender may, but shall not be
required to, make a Loan to Borrower in the amount of such payment by debiting
Borrower's revolving loan account therefor.
(b) In addition to any charges, fees or expenses charged by
any bank or issuer in connection with the Letter of Credit Accommodations
(presently consisting of an opening charge plus a fee at the rate of one-half
(1/2%) percent per annum on the face amount of each Letter of Credit
Accommodation), Borrower shall pay to Lender a letter of credit fee at a rate
equal to one and one-half (1-1/2%) percent per annum on the daily outstanding
balance of the Letter of Credit Accommodations for the immediately preceding
month (or part thereof), payable in arrears as of the first day of each
succeeding month, except that Borrower shall pay to Lender such letter of credit
fee, at Lender's option, without notice, at a rate equal to three and one-half
(3-1/2%) percent per annum for (i) the period from and after the date of
termination or non-renewal hereof until Lender has received full and final
payment of all Obligations (notwithstanding entry of a judgment against
Borrower) and (ii) the period from and after the date of the occurrence of an
Event of Default and for so long as such Event of Default is continuing. Such
letter of credit fee shall be calculated on the basis of a three hundred sixty
(360) day year and actual days elapsed and the obligation of Borrower to pay
such fee shall survive the termination or non-renewal of this Agreement.
(c) The Total L/C Usage shall not, at any time, exceed the
lesser of (i) the Letter of Credit Limit, or (ii) the amount equal to 2.2.3.2.1
the Inventory Advance Rate multiplied by the Value of Eligible Inventory, minus
2.2.3.2.2 the outstanding amount of Obligations in respect of the Loans, minus
(C) any Availability Reserves, other than the L/C Base Availability Block.
"Total L/C Usage" shall mean, at any time, the sum of (x) one hundred (100%)
percent of the aggregate face amount of Letter of Credit Accommodations for the
purchase of Eligible Inventory, plus (y) the aggregate amount of freight, taxes,
duty and other amounts that Lender reasonably estimates must be paid in
connection with such Inventory upon arrival and for delivery to one of
Borrower's locations for Eligible Inventory, plus (z) one hundred (100%) percent
of the aggregate face amount of Letter of Credit Accommodations issued for any
purpose other than for the purchase of Eligible Inventory and all other
commitments and obligations made or incurred by Lender with respect thereto. In
the event the aggregate amount of Total L/C Usage exceeds the lesser of the
amounts calculated by Lender under clauses (i) and (ii) of this Section 2.2(c),
such event shall not limit, waive or otherwise affect any rights of Lender in
that circumstances or on any future occasions and Borrower shall, upon request
by Lender, which may be made at any time
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or from time to time, immediately pledge to Lender, or Lender may, at its
option, retain from the proceeds of Collateral, cash collateral in an amount
equal to the entire amount of any such excess for which such cash collateral is
requested; provided, however, that if such excess arises solely as a result of
the establishment or increase of Availability Reserves in the absence of the
existence or occurrence of an Event of Default that is continuing, then the
requirement for cash collateral shall not take effect for a period of three (3)
days after Lender notifies Borrower of the establishment or increase of such
Availability Reserves. Effective on the issuance of each Letter of Credit
Accommodation, other than the Backup Letter of Credit, the L/C Line Block shall
be established and/or adjusted, and an Availability Reserve shall be established
and/or adjusted, so as to equal the amount of the L/C Availability Block as
calculated by Lender at such time.
(d) Except in Lender's discretion, the amount of all
outstanding Letter of Credit Accommodations and all other commitments and
obligations made or incurred by Lender in connection therewith, shall not at any
time exceed the Letter of Credit Limit, the outstanding face amount of the
Backup Letter of Credit shall not exceed the amount of $8,000,000, and the
aggregate outstanding face amount of all other Letter of Credit Accommodations
shall not at any time exceed the amount of $2,000,000. At any time an Event of
Default exists or has occurred and is continuing, upon Lender's request,
Borrower will either furnish cash collateral to secure the reimbursement
obligations to the issuer in connection with any Letter of Credit Accommodations
or furnish cash collateral to Lender for the Letter of Credit Accommodations or
Lender, at its option, may retain such cash collateral from the proceeds of
Collateral. To the extent of cash collateral pledged or retained pursuant to
Section 2.2(c) or this Section 2.2(d), the L/C Block and Total L/C Usage shall
be reduced by an amount equal to such cash collateral held by Lender.
(e) Borrower shall indemnify and hold Lender harmless from and
against any and all losses, claims, damages, liabilities, costs and expenses
which Lender may suffer or incur in connection with any Letter of Credit
Accommodations and any documents, drafts or acceptances relating thereto,
including, but not limited to, any losses, claims, damages, liabilities, costs
and expenses due to any action taken by any issuer or correspondent with respect
to any Letter of Credit Accommodation, but excluding any such losses, claims,
damages, liabilities, costs or expenses incurred as a result of Lender's own
gross negligence or willful misconduct, as determined by a final non-appealable
judgment of a court of competent jurisdiction. Borrower assumes all risks with
respect to the acts or omissions of the drawer under or beneficiary of any
Letter of Credit Accommodation and for such purposes the drawer or beneficiary
shall be deemed Borrower's agent. Borrower assumes all risks for, and agrees to
pay, all foreign, Federal, State and local taxes, duties and levies relating to
any goods subject to any Letter of Credit Accommodations or any documents,
drafts or acceptances thereunder. Borrower hereby releases and holds Lender
harmless from and against any acts, waivers, errors, delays or omissions,
whether caused by Borrower, by any issuer or correspondent or otherwise with
respect to or relating to any Letter of Credit Accommodation, other than acts,
waivers, errors, delays or omissions of Lender constituting Lender's own gross
negligence or willful misconduct, as determined by a final non-appealable
judgment of a court of competent jurisdiction. The
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provisions of this Section 2.2(e) shall survive the payment of Obligations and
the termination or non-renewal of this Agreement.
(f) Nothing contained herein shall be deemed or construed to
grant Borrower any right or authority to pledge the credit of Lender in any
manner. Lender shall have no liability of any kind with respect to any Letter of
Credit Accommodation provided by an issuer other than Lender unless Lender has
duly executed and delivered to such issuer the application or a guarantee or
indemnification in writing with respect to such Letter of Credit Accommodation.
Borrower shall be bound by any interpretation made in good faith by Lender, or
any other issuer or correspondent under or in connection with any Letter of
Credit Accommodation or any documents, drafts or acceptances thereunder,
notwithstanding that such interpretation may be inconsistent with any
instructions of Borrower. In connection with any Letter of Credit Accommodation
and any documents, drafts or acceptances thereunder, Lender shall have the sole
and exclusive right and authority to, and Borrower shall not: (i) at any time an
Event of Default exists or has occurred and is continuing, (A) approve or
resolve any questions of non-compliance of documents, (B) give any instructions
as to acceptance or rejection of any documents or goods or (C) execute any and
all applications for steamship or airway guaranties, indemnities or delivery
orders, and (ii) at all times, (A) grant any extensions of the maturity of, time
of payment for, or time of presentation of, any drafts, acceptances, or
documents, and (B) agree to any amendments, renewals, extensions, modifications,
changes or cancellations of any of the terms or conditions of any of the
applications, Letter of Credit Accommodations, or documents, drafts or
acceptances thereunder or any letters of credit included in the Collateral.
Lender may take such actions either in its own name or in Borrower's name.
(g) Any rights, remedies, duties or obligations granted or
undertaken by Borrower to any issuer or correspondent in any application for any
Letter of Credit Accommodation, or any other agreement in favor of any issuer or
correspondent relating to any Letter of Credit Accommodation, shall be deemed to
have been granted or undertaken by Borrower to Lender. Any duties or obligations
undertaken by Lender to any issuer or correspondent in any application for any
Letter of Credit Accommodation, or any other agreement by Lender in favor of any
issuer or correspondent relating to any Letter of Credit Accommodation, shall be
deemed to have been undertaken by Borrower to Lender and to apply in all
respects to Borrower.
2.3 Availability Reserves. All Loans and Letter of Credit
Accommodations otherwise available to Borrower pursuant to the lending formulas
and subject to the Revolving Loan Limit and Letter of Credit Limit (as the case
may be) and other applicable limits hereunder shall be subject to Lender's
continuing right to establish and revise Availability Reserves in accordance
with the definition of Availability Reserves and the provisions of this Section.
Lender shall promptly notify Borrower of the establishment of any new
Availability Reserves. Without limiting any other rights or remedies of Lender
under this Agreement or any of the other Financing Agreements with respect to
the establishment of Availability Reserves or otherwise, (a) Lender may, without
duplication, establish and revise Availability Reserves to reflect Inventory
shrinkage if and to the extent that the Inventory shrinkage reserves reported by
Borrower as reductions in
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Inventory are not consistent with the most recent Inventory shrinkage rate
experienced by Borrower; or (b) if Excess Availability shall ever fall below
$5,000,000 for a period of seven (7) or more consecutive days, then at any time
or times thereafter, Lender may establish and revise Availability Reserves equal
to (i) amounts already due, together with any amounts reasonably estimated by
Lender to become due, with respect to the then-current billing or settlement
period under any consignment, sale on approval, or licensed or leased retail
store department arrangements with respect to goods located on Borrowers
premises or under Borrower's control, plus (ii) all accrued and unpaid rent,
service charges, debt service or other accounts due to lessors, mortgagees
and/or warehousemen or other third party operators of Inventory locations (the
"Location Charges") plus (iii) an additional one month's Location Charges, with
respect to any locations of Inventory not covered by a Landlord Agreement,
Mortgagee Agreement, and/or Warehouseman's Agreement, as applicable; or (c) if
Excess Availability shall ever fall below $5,000,000 for a period of seven (7)
or more consecutive days, then at any time or times thereafter, Lender may
establish and revise Availability Reserves equal to amounts already due,
together with any amounts reasonably estimated by Lender to become due, with
respect to the then-current period in respect of sales, use and/or withholding
taxes, except as to sales or use taxes that are not yet due and are the subject
of separate deposit arrangements implemented pursuant to the proviso to Section
6.3(c) hereof. As used herein with respect to Inventory at retail stores,
distribution centers, warehouses or other locations of Borrower in the United
States which are leased by it or operated by third party warehousemen, or that
are owned by it subject to a mortgage in favor of any Person other than Lender,
a "Landlord Agreement", "Warehouseman's Agreement" or "Mortgagee Agreement", as
applicable, shall mean an agreement in writing from the owner and lessor, or
operator of such premises, or in the case of mortgaged premises, from the
mortgagee thereof, in form and substance satisfactory to Lender acknowledging
Lender's first priority security interest in the Inventory and other Collateral,
waiving security interests and claims by such person against the Inventory and
other Collateral and permitting Lender access to, and the right to remain on,
the premises so as to exercise Lender's rights and remedies and otherwise deal
with Inventory and other Collateral. In determining whether to establish
Availability Reserves, Lender may consider events, conditions or contingencies
or risks which are also considered in determining Base Eligible Inventory
hereunder or in reducing the Inventory Advance Rate pursuant to Sections 2.1(b)
or 2.1(c) hereof, so long as any resulting reduction in Loan or Letter of Credit
Accommodation availability is not duplicative of any other reduction made in
respect of the same event, condition, contingency, or risk pursuant to such
other provisions.
2.4 Maximum Credit. The aggregate amount of the Loans and the Letter of
Credit Accommodations outstanding at any time shall not exceed the Maximum
Credit. In the event the aggregate outstanding amount of the Loans and Letter of
Credit Accommodations exceeds the Maximum Credit, such event shall not limit,
waive or otherwise affect any rights of Lender in that circumstance or on any
future occasions and Borrower shall, upon demand by Lender, which may be made at
any time or from time to time, immediately repay to Lender the entire amount of
any such excess for which payment is demanded.
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SECTION 3. INTEREST AND FEES
3.1 Interest.
(a) Borrower shall pay to Lender interest on the outstanding
principal amount of the non-contingent Obligations at the Interest Rate.
(b) The Applicable Margin with respect to fiscal quarters
commencing after the date hereof (each such quarter so commencing, a "Subject
Quarter") is subject to adjustment following the end of each fiscal quarter of
Borrower ending after the date hereof (each such quarter so ending, a
"Determination Quarter") to the extent provided below:
(i) If Borrower's Consolidated Pre-Tax Income is at
least $1,000,000 for the four full fiscal quarters of Borrower ending with the
end of a Determination Quarter, then the Applicable Margin for the Subject
Quarter immediately following such Determination Quarter will be adjusted so
that the Applicable Margin shall equal or shall remain equal to, one-quarter of
one (1/4%) percent as to Prime Rate Loans, and two (2%) percent as to Eurodollar
Rate Loans.
(ii) If, following a decrease in the Applicable
Margin under Section 3.1(b)(i) hereof, Borrower's Pre-Tax Consolidated Income is
less than $1,000,000 for the four full fiscal quarters ending with the end of
any Determination Quarter, then, in lieu of the Applicable Margin percentages
provided in Section 3.1(b)(i) above, the Applicable Margin for the Subject
Quarter immediately following such Determination Quarter will be adjusted so
that the Applicable Margin shall equal or shall remain equal to, one-half of one
(1/2%) percent as to Prime Rate Loans, and two and one-quarter (2-1/4%) percent
as to Eurodollar Rate Loans.
(iii) Each adjustment in the Applicable Margin under
Sections 3.1(b)(i) or (ii), as the case may be, shall be effective in any
Subject Quarter (each date of adjustment to the Applicable Margin under this
Section 3.1(b), an "Adjustment Date"), as of the first day of the month after,
or, at Lender's option, in the case of Eurodollar Rate Loans, as of the first
day of any Interest Period commencing after, the delivery to Lender of
internally prepared, unaudited financial statements of Borrower, as required by
Section 9.6(a) hereof with respect to the Determination Quarter and for the four
full fiscal quarters of Borrower ended with the end of the Determination
Quarter. Any adjustment of the Applicable Margin hereunder based on internally
prepared, unaudited financial statements delivered by Borrower for a
Determination Quarter which is the last fiscal quarter of a fiscal year of
Borrower shall be subject to retroactive adjustment or readjustment, to be
effective as of the respective Adjustment Date, based on the Borrower's
financial results shown in the audited financial statements of the Borrower
delivered to Lender in the form required by Section 9.6(a) hereof with respect
to such fiscal year, accompanied by the unqualified audit report and opinion
thereon of independent certified public accountants acceptable to Lender.
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(iv) If any financial statements of Borrower are not
timely delivered hereunder as required, or, in the case of audited financial
statements required hereunder, are not accompanied by the unqualified audit
report and opinion required hereunder, the Applicable Margin percentages for
Prime Rate Loans and Eurodollar Rate Loans shall be adjusted to be (or remain
as) the percentages described in Section 3.1(b)(ii), any such adjustment to be
made effective as of the date of required delivery of such financial statements
under Section 9.6(a) or, if earlier, as of the Adjustment Date occurring most
recently prior to the date of required delivery, such adjustment being without
prejudice to Lender's rights to increase the Interest Rate to the applicable
default rates if such failure is or becomes an Event of Default hereunder.
(c) Borrower may from time to time request that Prime Rate
Loans be converted to Eurodollar Rate Loans or that any existing Eurodollar Rate
Loans continue for an additional Interest Period. Such request from Borrower
shall specify the amount of the Prime Rate Loans which will constitute
Eurodollar Rate Loans (subject to the limits set forth below) and the Interest
Period to be applicable to such Eurodollar Rate Loans. Subject to the terms and
conditions contained herein, three (3) Business Days after receipt by Lender of
such a request from Borrower, such Prime Rate Loans shall be converted to
Eurodollar Rate Loans or such Eurodollar Rate Loans shall continue, as the case
may be, provided, that, (i) no Event of Default, or event which with notice or
passage of time or both would constitute an Event of Default exists or has
occurred and is continuing, (ii) no party hereto shall have sent any notice of
termination or non-renewal of this Agreement, (iii) Borrower shall have complied
with such customary procedures as are established by Lender and specified by
Lender to Borrower from time to time for requests by Borrower for Eurodollar
Rate Loans, (iv) no more than four (4) Interest Periods may be in effect at any
one time, (v) the amount of the Eurodollar Rate Loans, for each Interest Period,
must be in an amount not less than $5,000,000 or an integral multiple of
$1,000,000 in excess thereof, (vi) the maximum amount of the Eurodollar Rate
Loans at any time requested by Borrower shall not exceed the amount equal to
eighty (80%) percent of the lowest principal amount of the Loans which it is
anticipated will be outstanding during the applicable Interest Period, in each
case as reasonably estimated by Lender (but with no obligation of Lender by
reason of such estimation to make such Loans) and (vii) Lender shall have
determined that the Interest Period or Adjusted Eurodollar Rate is available to
Lender through the Reference Bank and can be readily determined as of the date
of the request for such Eurodollar Rate Loan by Borrower. Any request by
Borrower to convert Prime Rate Loans to Eurodollar Rate Loans or to continue any
existing Eurodollar Rate Loans shall be irrevocable. Notwithstanding anything to
contrary contained herein, Lender and Reference Bank shall not be required to
purchase United States Dollar deposits in the London interbank market or other
applicable Eurodollar Rate market to fund any Eurodollar Rate Loans, but the
provisions hereof shall be deemed to apply as if Lender and Reference Bank has
purchased such deposits to fund the Eurodollar Rate Loans.
(d) Any Eurodollar Rate Loans shall automatically convert to
Prime Rate Loans upon the last day of the applicable Interest Period, unless
Lender has received and approved a request to continue such Eurodollar Rate Loan
at least three (3) Business Days prior to such last day in accordance with the
terms hereof. Any Eurodollar Rate Loans shall, at Lender's option,
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upon notice by Lender to Borrower, convert to Prime Rate Loans in the event that
(i) an Event of Default shall exist or have occurred, (ii) this Agreement shall
terminate or not be renewed, or (iii) the aggregate principal amount of the
Prime Rate Loans which have previously been converted to Eurodollar Rate Loans
or existing Eurodollar Rate Loans continued, as the case may be, at the
beginning of an Interest Period shall at any time during such Interest Period
exceed either (A) the aggregate principal amount of the Loans then outstanding,
or (B) the Loans then available to Borrower under Section 2 hereof (unless the
excess arises solely upon the establishment or increase of Availability Reserves
at a time when no Event of Default exists or has occurred and is continuing, in
which case such conversion under clause (iii)(B) may not be effected by Lender
if such excess has been fully eliminated and there are no other excess amounts
outstanding as of the close of business on the third day after Lender has
notified Borrower of such excess or Availability Reserves.) Borrower shall pay
to Lender, upon demand by Lender (or Lender may, at its option, charge any loan
account of Borrower) any amounts required to compensate Lender, the Reference
Bank or any participant with Lender for any loss (including loss of anticipated
profits), cost or expense incurred by such person, as a result of the conversion
of Eurodollar Rate Loans to Prime Rate Loans pursuant to any of the foregoing.
(e) Interest shall be payable by Borrower to Lender monthly in
arrears not later than the first day of each calendar month and shall be
calculated on the basis of a three hundred sixty (360) day year and actual days
elapsed. The interest rate on non-contingent Obligations (other than Eurodollar
Rate Loans) shall increase or decrease by an amount equal to each increase or
decrease in the Prime Rate effective on the first day of the month after any
change in such Prime Rate is announced based on the Prime Rate in effect on the
last day of the month in which any such change occurs. In no event shall charges
constituting interest payable by Borrower to Lender exceed the maximum amount or
the rate permitted under any applicable law or regulation, and if any such part
or provision of this Agreement is in contravention of any such law or
regulation, such part or provision shall be deemed amended to conform thereto.
3.2 Closing Fee. Borrower shall pay to Lender, as a closing fee, the
amount of $450,000, which shall be fully earned as of the date hereof, $150,000
of which shall be payable on the date hereof, $150,000 of which shall be payable
on the first anniversary of the date hereof, and $150,000 of which shall be
payable on the second anniversary of the date hereof, each of the installments
payable after the date hereof being subject to acceleration upon any Event of
Default or termination hereof; provided, however, that the installment of
$150,000 in respect of the closing fee that is otherwise payable on the second
anniversary of the date hereof shall be deemed waived if this Agreement is in
effect on such date and Borrower has earned Consolidated EBITDA of at least
$30,000,000 for its full fiscal year ended on or about January 31, 2000, as
shown in its audited financial statements for such fiscal year delivered to
Lender in the form and accompanied by the unqualified audit opinion thereon as
required under Section 9.6(a) hereof.
3.3 Servicing Fee. Borrower shall pay to Lender monthly a servicing fee
in an amount equal to $2,000 for each month (or part thereof) while this
Agreement is in effect and for so long thereafter as any of the non-contingent
Obligations are outstanding, which fee shall be fully
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earned as of and payable in advance on the date hereof and on the first day of
each month hereafter.
3.4 Unused Line Fee. Borrower shall pay to Lender monthly an unused
line fee at a rate equal to three-eighths of one (3/8%) percent per annum
calculated upon the amount by which $50,000,000 exceeds the average daily
principal balance of the outstanding Loans and Letter of Credit Accommodations
during the immediately preceding month (or part thereof) while this Agreement is
in effect and for so long thereafter as any of the Obligations are outstanding,
which fee shall be payable on the first day of each month in arrears.
3.5 Changes in Laws and Increased Costs of Loans.
(a) Notwithstanding anything to the contrary contained herein,
all Eurodollar Rate Loans shall, upon notice by Lender to Borrower, subject to
Borrower's option (if applicable) set forth in the following sentence, convert
to Prime Rate Loans in the event that (i) any change in applicable law or
regulation (or the interpretation or administration thereof) shall either (A)
make it unlawful for Lender, Reference Bank or any participant to make or
maintain Eurodollar Rate Loans or to comply with the terms hereof in connection
with the Eurodollar Rate Loans, or (B) shall result in the increase in the costs
to Lender, Reference Bank or any participant of making or maintaining any
Eurodollar Rate Loans or by an amount deemed by Lender to be material, or (C)
reduce the amounts received or receivable by Lender in respect thereof, by an
amount deemed by Lender to be material or (ii) the cost to Lender, Reference
Bank or any participant of making or maintaining any Eurodollar Rate Loans shall
otherwise increase by an amount deemed by Lender to be material. In the
circumstances described in clauses (i)(B), (i)(C) or (ii) of this Section
3.5(a), in lieu of conversion to Prime Rate Loans, Borrower shall have the
option, for the balance of the Interest Period(s) for then-outstanding
Eurodollar Rate Loans, of paying any and all increased costs to Lender,
Reference Bank and each participant, together with the aggregate amount by which
the amounts received or receivable by them have been reduced in respect of such
Eurodollar Rate Loans. In the event of any conversion of Eurodollar Rate Loans
to Prime Rate Loans, Borrower shall pay to Lender, upon demand by Lender (or
Lender may, at its option, charge any loan account of Borrower) any amounts
required to compensate Lender, the Reference Bank or any participant with Lender
for any loss (excluding loss of anticipated profits), cost or expense incurred
by such person as a result of the foregoing, including, without limitation, any
such loss, cost or expense incurred by reason of the liquidation or reemployment
of deposits or other funds acquired by such person to make or maintain the
Eurodollar Rate Loans or any portion thereof. A certificate of Lender setting
forth the basis for the determination of such amount necessary to compensate
Lender as aforesaid shall be delivered to Borrower and shall be conclusive,
absent manifest error.
(b) If any payments or prepayments in respect of the
Eurodollar Rate Loans are received by Lender other than on the last day of the
applicable Interest Period (whether pursuant to acceleration, upon maturity or
otherwise), including any payments pursuant to the application of collections
under Section 6.3 or any other payments made with the proceeds of Collateral,
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Borrower shall pay to Lender upon demand by Lender (or Lender may, at its
option, charge any loan account of Borrower) any amounts required to compensate
Lender, the Reference Bank or any participant with Lender for any additional
loss (excluding loss of anticipated profits), cost or expense incurred by such
person as a result of such prepayment or payment, including, without limitation,
any loss, cost or expense incurred by reason of the liquidation or reemployment
of deposits or other funds acquired by such person to make or maintain such
Eurodollar Rate Loans or any portion thereof.
SECTION 4. CONDITIONS PRECEDENT
4.1 Conditions Precedent to Initial Loans and Letter of Credit
Accommodations. Each of the following is a condition precedent to Lender making
the initial Loans and providing the initial Letter of Credit Accommodations
hereunder:
(a) Lender shall have received, in form and substance
satisfactory to Lender, a release agreement and all releases, terminations and
such other documents as Lender may request to evidence and effectuate the
termination by BankAmerica Business Credit, Inc., in its capacity as agent for
the existing working capital lenders of Borrower ("BABC"), of all of its and
their financing arrangements with Borrower and the termination and release by
BABC and such lenders of any interest in and to any assets and properties of
Borrower and each subsidiary, duly authorized, executed and delivered by BABC
and, if necessary, such lenders, including, but not limited to, (i) UCC
termination statements for all UCC financing statements previously filed by BABC
or its predecessors, as secured party and Borrower or any subsidiary, as debtor
and (ii) a trademark release agreement, in each case in form acceptable for
recording in the appropriate governmental office;
(b) Lender shall have received evidence, in form and substance
satisfactory to Lender, that Lender has valid perfected and first priority
security interests in and liens upon the Collateral and any other property which
is intended to be security for the Obligations or the liability of any Obligor
in respect thereof, subject only to the security interests and liens permitted
herein or in the other Financing Agreements;
(c) Lender shall have received, in form and substance
satisfactory to Lender, unlimited guarantees of payment of the Obligations by
each subsidiary of Borrower in favor of Lender, and, with respect to each
subsidiary of Borrower, (i) a security agreement by such subsidiary in favor of
Lender, granting Lender a first priority security interest in such subsidiary's
assets, and (ii) UCC-1 financing statements with respect thereto, in each case
duly authorized, executed and delivered by such subsidiary;
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(d) all requisite corporate action and proceedings in
connection with this Agreement and the other Financing Agreements shall be
satisfactory in form and substance to Lender, and Lender shall have received all
information and copies of all documents, including, without limitation, records
of requisite corporate action and proceedings which Lender may have requested in
connection therewith, such documents where requested by Lender or its counsel to
be certified by appropriate corporate officers or governmental authorities;
(e) no material adverse change shall have occurred in the
assets, business or prospects of Borrower since the date of Lender's latest
field examination and no change or event shall have occurred which would impair
the ability of Borrower or any Obligor to perform its obligations hereunder or
under any of the other Financing Agreements to which it is a party or of Lender
to enforce the Obligations or realize upon the Collateral;
(f) Lender shall have completed a field review of the Records
and such other information with respect to the Collateral as Lender may require
to determine the amount of Loans available to Borrower including, without
limitation, current agings of receivables, current perpetual inventory records
and/or roll-forwards of Accounts and Inventory through the date of closing,
together with such supporting documentation as may be necessary or appropriate,
and other documents and information that will enable Lender to accurately
identify and verify the Collateral, the results of which shall be satisfactory
to Lender, not more than three (3) Business Days prior to the date hereof;
(g) Lender shall have received, in form and substance
satisfactory to Lender, all consents, waivers, acknowledgments and other
agreements from third persons which Lender may deem necessary or desirable in
order to permit, protect and perfect its security interests in and liens upon
the Collateral or to effectuate the provisions or purposes of this Agreement and
the other Financing Agreements, including, without limitation, acknowledgements
by lessors, mortgagees and warehousemen of Lender's security interests in the
Collateral, waivers by such persons of any security interests, liens or other
claims by such persons to the Collateral and agreements permitting Lender access
to, and the right to remain on, the premises to exercise its rights and remedies
and otherwise deal with the Collateral;
(h) Borrower shall have established the Blocked Accounts and
Lender shall have received, in form and substance satisfactory to Lender, all
agreements with the depository banks and Borrower with respect to such Blocked
Accounts as Lender may require pursuant to Section 6.3 hereof, duly authorized,
executed and delivered by such depository banks and Borrower;
(i) Lender shall have received evidence, in form and substance
satisfactory to Lender, that Borrower has (i) directed the banks at which
Borrower maintains deposit accounts for the initial receipt of cash, checks and
other items from Borrower's retail store locations to transfer all immediately
available funds deposited in such bank only to the Blocked Accounts as required
pursuant to Section 6.3 hereof or as otherwise directed by Lender and (ii)
notified such banks of the security interests of Lender in such funds and the
other Collateral;
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(j) Lender shall have received Credit Card Acknowledgements in
each case, duly authorized, executed and delivered by the Credit Card Issuers
and Credit Card Processors;
(k) the Excess Availability as determined by Lender, as of the
date hereof, shall not be less than $6,000,000 after giving effect to the
initial Loans made or to be made and Letter of Credit Accommodations issued or
to be issued in connection with the initial transactions hereunder;
(l) Lender shall have received evidence of insurance and loss
payee endorsements required hereunder and under the other Financing Agreements,
in form and substance satisfactory to Lender, and certificates of insurance
policies and/or endorsements naming Lender as loss payee;
(m) Borrower shall have entered into financing arrangements
with the Unsecured Term Lender, on terms and conditions satisfactory to Lender,
as set forth in agreements and instruments in form and substance satisfactory to
Lender, and true copies thereof shall have been delivered to Lender;
(n) Lender shall have received, in form and substance
satisfactory to Lender, the opinion letter of counsel(s) to Borrower and each
Obligor with respect to the Financing Agreements and the security interests and
liens of Lender with respect to the Collateral, the arrangements with the
Unsecured Term Lender and such other matters and Lender may request; and
(o) the other Financing Agreements and all instruments and
documents hereunder and thereunder shall have been duly executed and delivered
to Lender, in form and substance satisfactory to Lender.
4.2 Conditions Precedent to All Loans and Letter of Credit
Accommodations. Each of the following is an additional condition precedent to
Lender making Loans and/or providing Letter of Credit Accommodations to
Borrower, including the initial Loans and Letter of Credit Accommodations and
any future Loans and Letter of Credit Accommodations:
(a) all representations and warranties contained herein and in
the other Financing Agreements shall be true and correct in all material
respects with the same effect as though such representations and warranties had
been made on and as of the date of the making of each such Loan or providing
each such Letter of Credit Accommodation and after giving effect thereto; and
(b) no Event of Default and no event or condition which, with
notice or passage of time or both, would constitute an Event of Default, shall
exist or have occurred and be continuing on and as of the date of the making of
such Loan or providing each such Letter of Credit Accommodation and after giving
effect thereto.
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SECTION 5. SECURITY INTEREST
To secure payment and performance of all Obligations, Borrower hereby
grants to Lender a continuing security interest in, a lien upon, and a right of
set off against, and hereby assigns to Lender as security, the following
property and interests in property of Borrower, whether now owned or hereafter
acquired or existing, and wherever located (collectively, the "Collateral"):
5.1 Accounts;
5.2 all present and future contract rights, general intangibles
(including, but not limited to, tax and duty refunds, registered and
unregistered patents, trademarks, service marks, copyrights, trade names,
applications for the foregoing, trade secrets, goodwill, processes, drawings,
blueprints, customer lists, licenses, whether as licensor or licensee, choses in
action and other claims and existing and future leasehold interests in
equipment, real estate and fixtures), chattel paper, documents, instruments,
securities and other investment property, credit card sales drafts, credit card
sales slips or charge slips or receipts and other forms of store receipts,
letters of credit, bankers' acceptances and guaranties;
5.3 all present and future monies, securities, credit balances,
deposits, deposit accounts and other property of Borrower now or hereafter held
or received by or in transit to Lender or its affiliates or at any other
depository or other institution from or for the account of Borrower, whether for
safekeeping, pledge, custody, transmission, collection or otherwise, and all
present and future liens, security interests, rights, remedies, title and
interest in, to and in respect of Accounts and other Collateral, including,
without limitation, (i) rights and remedies under or relating to guaranties,
contracts of suretyship, letters of credit and credit and other insurance
related to the Collateral, (ii) rights of stoppage in transit, replevin,
repossession, reclamation and other rights and remedies of an unpaid vendor,
lienor or secured party, (iii) goods described in invoices, documents, credit
card sales drafts, credit card sales slips or charge slips or receipts and other
forms of store receipts, contracts or instruments with respect to, or otherwise
representing or evidencing, Accounts or other Collateral, including, without
limitation, returned, repossessed and reclaimed goods, and (iv) deposits by and
property of account debtors or other persons securing the obligations of account
debtors;
5.4 Inventory;
5.5 Equipment;
5.6 Real Property, excluding (i) Real Property that is encumbered as
permitted pursuant to Sections 9.8(e) or 9.8(f) under arrangements not
permitting a junior lien on such Real Property in favor of Lender, and (ii) any
leasehold interests of Borrower in real property under any leases under which a
pledge or encumbrance of the leasehold interest in favor of Lender would
constitute an event of default or other violation of the terms of the lease or
an event permitting the Landlord to terminate the lease;
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5.7 Records; and
5.8 all products and proceeds of the foregoing, in any form, including,
without limitation, insurance proceeds and all claims against third parties for
loss or damage to or destruction of any or all of the foregoing.
SECTION 6. COLLECTION AND ADMINISTRATION
6.1 Borrower's Loan Account. Lender shall maintain one or more loan
account(s) on its books in which shall be recorded (a) all Loans under the
Revolving Loan Facility, all Letter of Credit Accommodations under the Letter of
Credit Facility and other Obligations and the Collateral, (b) all payments made
by or on behalf of Borrower and (c) all other appropriate debits and credits as
provided in this Agreement, including, without limitation, fees, charges, costs,
expenses and interest. All entries in the loan account(s) shall be made in
accordance with Lender's customary practices as in effect from time to time.
6.2 Statements. Lender shall render to Borrower each month a statement
setting forth the balance in the Borrower's loan account(s) maintained by Lender
for Borrower pursuant to the provisions of this Agreement, including principal,
interest, fees, costs and expenses. Each such statement shall be subject to
subsequent adjustment by Lender but shall, absent manifest errors or omissions,
be considered correct and deemed accepted by Borrower and conclusively binding
upon Borrower as an account stated except to the extent that Lender receives a
written notice from Borrower of any specific exceptions of Borrower thereto
within forty-five (45) days after the date such statement has been mailed by
Lender. Until such time as Lender shall have rendered to Borrower a written
statement as provided above, the balance in Borrower's loan account(s) shall be
presumptive evidence of the amounts due and owing to Lender by Borrower.
6.3 Collection of Accounts.
(a) Borrower shall establish and maintain, at its expense,
deposit account arrangements and merchant payment arrangements with the banks
set forth on Schedule 6.3 hereto and after prior written notice to Lender,
subject to Section 9.15, such other banks as Borrower may hereafter select as
are reasonably acceptable to Lender. The banks set forth on Schedule 6.3
constitute all of the banks with whom Borrower has deposit account arrangements
and merchant payment arrangements as of the date hereof and identifies each of
the deposit accounts at such banks to a retail store location of Borrower or
otherwise describes the nature of the use of such deposit account by Borrower.
(i) Borrower shall deposit all proceeds from sales of
Inventory in every form, including, without limitation, cash, checks, credit
card sales drafts, credit card sales or charge slips or receipts and other forms
of daily store receipts, from each retail store location of Borrower on each
business day into the deposit accounts of Borrower used solely for such purpose
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and identified to each retail store location as set forth on Schedule 6.3, or on
a written update thereto from time to time provided by Borrower to Lender. All
such funds deposited into the separate deposit accounts in excess of the amounts
of cash, not be exceed an average of $5,000 per retail store, retained by such
retail store for its daily cash needs consistent with past practices, or, if an
Event of Default exists or has occurred and is continuing, all such funds
deposited into the separate deposit accounts, shall be sent by wire transfer on
a daily basis and all other proceeds of Collateral shall be sent by wire
transfer, to the Blocked Accounts as provided in Section 6.3(a)(ii) below.
Borrower shall irrevocably authorize and direct in writing, in form and
substance satisfactory to Lender, each of the banks into which proceeds from
sales of Inventory from each retail store location of Borrower are at any time
deposited as provided above to send all funds deposited in such account by wire
transfer on a daily basis to the Blocked Accounts and, if at any time required
by Lender, Borrower shall use its reasonable efforts to obtain the written
agreement by such banks to do so. Such authorization and direction shall not be
rescinded, revoked or modified without the prior written consent of Lender.
(ii) Borrower shall establish and maintain, at its
expense, deposit accounts with such banks as are acceptable to Lender (the
"Blocked Accounts") into which Borrower shall promptly either cause all amounts
on deposit in its deposit accounts used by each retail store location to be sent
as provided in Section 6.3(a)(i) above or shall itself deposit or cause to be
deposited all proceeds from sales of Inventory, all amounts payable to Borrower
from Credit Card Issuers and Credit Card Processors and all other proceeds of
Collateral. The banks at which the Blocked Accounts are established shall enter
into an agreement, in form and substance satisfactory to Lender, providing that
all items received or deposited in the Blocked Accounts are the property of
Lender, that the depository bank has no lien upon, or right of setoff against,
the Blocked Accounts, the items received for deposit therein, or the funds from
time to time on deposit therein and that the depository bank will wire, or
otherwise transfer, in immediately available funds, on a daily basis, all funds
received or deposited into the Blocked Accounts to such bank account of Lender
as Lender may from time to time designate for such purpose ("Payment Account").
Borrower agrees that all amounts deposited in such Blocked Accounts or other
funds received and collected by Lender, whether as proceeds of inventory or
other Collateral or otherwise shall be the property of Lender.
(b) For purposes of calculating the amount of the Loans or
Letter of Credit Accommodations available to Borrower under the Revolving Loan
Facility and Letter of Credit Facility, respectively, all funds received in the
Payment Account for Borrower's account will be applied (conditional upon final
collection) to the Obligations on the Business Day of receipt by Lender of
immediately available funds in the Payment Account provided such payments and
notice thereof are received in accordance with Lender's usual and customary
practices as in effect from time to time and within sufficient time to credit
Borrower's loan account on such day, and if not, then on the next Business Day.
For purposes of calculating interest on the Obligations, such funds received for
Borrower's account in the Payment Account will be applied (conditional upon
final collection) to the Obligations one (1) Business Day following the date of
receipt of immediately available funds by Lender in the Payment Account provided
such payments or other
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funds and notice thereof are received in accordance with Lender's usual and
customary practices as in effect from time to time and within sufficient time to
credit Borrower's loan account on such day, and if not, then on the next
Business Day.
(c) Borrower and all of its subsidiaries, employees or agents
shall, acting as trustee for Lender, receive, as the property of Lender, any
cash, checks, credit card sales drafts, credit card sales or charge slips or
receipts, notes, drafts, all forms of store receipts or any other payment
relating to and/or proceeds of Accounts or other Collateral which come into
their possession or under their control and immediately upon receipt thereof,
shall deposit or cause the same to be deposited in the Blocked Accounts, or
remit the same or cause the same to be remitted, in kind, to Lender, provided,
that, if at any time the Excess Availability shall be less than $1,000,000,
Borrower shall promptly upon Lender's request cause the portion thereof
representing sales and/or use taxes payable in connection with such sales or
otherwise to be deposited into a separate bank account or accounts established
for such purpose. In no event shall and such cash, checks, credit card sales
drafts, credit card sales or charge slips or receipts, notes, drafts or other
payments be commingled with Borrower's own funds. Borrower agrees to reimburse
Lender on demand for any amounts owed or paid to any bank at which a Blocked
Account is established or any other bank or person involved in the transfer of
funds to or from the Blocked Accounts arising out of Lender's payments to or
indemnification of such bank or person. The obligation of Borrower to reimburse
Lender for such amounts pursuant to this Section 6.3 shall survive the
termination or non-renewal of this Agreement.
6.4 Payments. All Obligations shall be payable to the Payment Account
as provided in Section 6.3 or such other place as Lender may designate from time
to time. Lender may apply payments received or collected from Borrower or for
the account of Borrower (including, without limitation, the monetary proceeds of
collections or of realization upon any Collateral) to such of the Obligations,
whether or not then due, in such order and manner as Lender determines in good
faith. At Lender's option, all principal, interest, fees, costs, expenses and
other charges provided for in this Agreement or the other Financing Agreements
may be charged directly to the loan account(s) of Borrower. Borrower shall make
all payments to Lender on the Obligations free and clear of, and without
deduction or withholding for or on account of, any setoff, counterclaim,
defense, duties, taxes, levies, imposts, fees, deductions, withholding,
restrictions or conditions of any kind (Borrower's Obligation under this
sentence, the "Gross-Up Obligation"); provided, that, in the case of any such
payments made to an assignee of Lender, Borrower's Gross-Up Obligation to any
such assignee with respect to the deduction or withholding for or on account of
taxes, duties, levies, imposts or fees, shall be determined as if such payments
were to be made to the initial Lender hereunder. If after receipt of any payment
of, or proceeds of Collateral applied to the payment of, any of the Obligations,
Lender is required to surrender or return such payment or proceeds to any Person
for any reason, then the Obligations intended to be satisfied by such payment or
proceeds shall be reinstated and continue and this Agreement shall continue in
full force and effect as if such payment or proceeds had not been received by
Lender. Borrower shall be liable to pay to Lender, and does hereby indemnify and
hold Lender harmless for the amount of any payments or proceeds surrendered or
returned. This Section 6.4 shall remain effective
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notwithstanding any contrary action which may be taken by Lender in reliance
upon such payment or proceeds. This Section 6.4 shall survive the payment of the
Obligations and the termination or non-renewal of this Agreement.
6.5 Authorization to Make Loans. Lender is authorized to make the Loans
and provide the Letter of Credit Accommodations based upon telephonic or other
instructions received from anyone purporting to be an officer of Borrower or
other authorized person or, at the discretion of Lender, if such Loans are
necessary to satisfy any Obligations. All requests for Loans or Letter of Credit
Accommodations hereunder shall specify the date on which the requested advance
is to be made or Letter of Credit Accommodations established (which day shall be
a Business Day) and the amount of the requested Loan. Requests received after
11:00 a.m. New York City time on any day shall be deemed to have been made as of
the opening of business on the immediately following Business Day. All Loans and
Letter of Credit Accommodations under this Agreement shall be conclusively
presumed to have been made to, and at the request of and for the benefit of,
Borrower when deposited to the credit of Borrower or otherwise disbursed or
established in accordance with the instructions of Borrower or in accordance
with the terms and conditions of this Agreement.
6.6 Use of Proceeds. Borrower shall use the initial proceeds of the
Loans provided by Lender to Borrower hereunder only for: (a) payments to each of
the persons listed in the disbursement direction letter furnished by Borrower to
Lender on or about the date hereof and (b) costs, expenses and fees in
connection with the preparation, negotiation, execution and delivery of this
Agreement and the other Financing Agreements. All other Loans made or Letter of
Credit Accommodations provided by Lender to Borrower pursuant to the provisions
hereof shall be used by Borrower only for general operating, working capital and
other proper corporate purposes of Borrower not otherwise prohibited by the
terms hereof. None of the proceeds will be used, directly or indirectly, for the
purpose of purchasing or carrying any margin security or for the purposes of
reducing or retiring any indebtedness which was originally incurred to purchase
or carry any margin security or for any other purpose which might cause any of
the Loans to be considered a "purpose credit" within the meaning of Regulation U
of the Board of Governors of the Federal Reserve System, as amended.
SECTION 7. COLLATERAL REPORTING AND COVENANTS
7.1 Collateral Reporting. Borrower shall provide Lender with the
following documents in a form satisfactory to Lender: (a) on a weekly basis or
more frequently as Lender may request, a schedule of sales, credits and
collections and Inventory purchases (including all costs related thereto, such
as freight, duty and taxes), accompanied by a certificate of Borrower's chief
financial officer setting forth, in form satisfactory to Lender, the items
necessary for the calculation of the amount of Loans and Letter of Credit
Accommodations available to Borrower as of the date of the weekly schedule
delivered to Lender under this clause (a) which such certificate accompanies (it
being agreed that, notwithstanding the delivery to or acceptance of such
certificate by Lender,
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Lender shall be entitled at all times to determine the amount of Loans and
Letter of Credit Accommodations available to Borrower, as elsewhere provided
herein); (b) on a monthly basis or more frequently as Lender may request, (i)
perpetual Inventory reports at Cost for warehouses, distribution center(s) and
retail stores by product category (including, separately, Reserve Inventory by
product category), (ii) agings of accounts payable, and (iii) reports of
markdowns taken with respect to Inventory in Borrower's retail stores; (c) upon
Lender's request, (i) as soon as available, but in any event not later than five
(5) Business Days after receipt by Borrower, the monthly statements received by
Borrower from any Credit Card Issuers or Credit Card Processors, together with
such additional information with respect thereto as shall be sufficient to
enable Lender to monitor the transactions pursuant to the Credit Card
Agreements, (ii) copies of customer statements and credit memos, remittance
advices and reports, and copies of deposit slips and bank statements, (iii)
copies of shipping and delivery documents, (iv) copies of purchase orders,
invoices and delivery documents for Inventory and Equipment acquired by
Borrower, (v) reports by retail store location of sales and operating profits
for each such retail store location and (vi) reports on sales and use tax
collections, deposits and payments, including monthly sales and use tax
accruals; and (d) such other reports as to the Collateral as Lender shall
request from time to time. If any of Borrower's records or reports of the
Collateral are prepared or maintained by an accounting service, contractor,
shipper or other agent, Borrower hereby irrevocably authorize such service,
contractor, shipper or agent to deliver such records, reports, and related
documents to Lender and to follow Lender's instructions with respect to further
services at any time that an Event of Default exists or has occurred and is
continuing.
7.2 Accounts Covenants.
(a) Borrower shall notify Lender promptly of (i) the assertion
of any claims, offsets, defenses or counterclaims by any account debtor, Credit
Card Issuer or Credit Card Processor or any disputes with any of such persons or
any settlement, adjustment or compromise sthereof, involving an amount of
$150,000 or more in any one instance or an amount of $300,000 or more in the
aggregate, and (ii) all material adverse information relating to the financial
condition of any Credit Card Issuer or Credit Card Processor. No credit,
discount, allowance or extension or agreement for any of the foregoing shall be
granted to any account debtor, Credit Card Issuer or Credit Card Processor
except in the ordinary course of Borrower's business in accordance with the
current practices of Borrower as in effect on the date hereof. So long as no
Event of Default exists or has occurred and is continuing, Borrower shall
settle, adjust or compromise any claim, offset, counterclaim or dispute with any
account debtor, Credit Card Issuer, Credit Card Processor. At any time that an
Event of Default exists or has occurred and is continuing, Lender shall, at its
option, have the exclusive right to settle, adjust or compromise any claim,
offset, counterclaim or dispute with account debtors, Credit Card Issuers or
Credit Card Processors or grant any credits, discounts or allowances.
(b) Borrower shall notify Lender promptly of: (i) any notice
of a material default by Borrower under any of the Credit Card Agreements or of
any default which might result in the Credit Card Issuer or Credit Card
Processor ceasing to make payments or suspending payments to
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Borrower, (ii) any notice from any Credit Card Issuer or Credit Card Processor
that such person is ceasing or suspending, or will cease or suspend, any present
or future payments due or to become due to Borrower from such person, or that
such person is terminating or will terminate any of the Credit Card Agreements,
and (iii) the failure of Borrower to comply with any material terms of the
Credit Card Agreements or any terms thereof which might result in the Credit
Card Issuer or Credit Card Processor ceasing or suspending payments to Borrower.
(c) With respect to each Account: (i) the amounts shown on any
invoice delivered to Lender or schedule thereof delivered to Lender shall be
true and complete, (ii) no payments shall be made thereon except payments
delivered to Lender pursuant to the terms of this Agreement, (iii) no credit,
discount, allowance or extension or agreement for any of the foregoing shall be
granted to any account debtor, Credit Card Issuer or Credit Card Processor,
except as reported to Lender in accordance with this Agreement and except for
credits, discounts, allowances or extensions made or given in the ordinary
course of Borrower's business in accordance with practices and policies
previously disclosed to Lender, (iv) there shall be no setoffs, deductions,
contras, defenses, counterclaims or disputes existing or asserted with respect
thereto except as reported to Lender in accordance with the terms of this
Agreement, (v) none of the transactions giving rise thereto will violate, in any
material respect, any applicable State or Federal Laws or regulations, all
documentation relating thereto will be legally sufficient under such laws and
regulations and all such documentation will be legally enforceable in accordance
with its terms.
(d) Lender may, at any time or times that an Event of Default
exists or has occurred, (i) notify any or all account debtors, Credit Card
Issuers and Credit Card Processors that the Accounts have been assigned to
Lender and that Lender has a security interest therein and Lender may direct any
or all account debtors, Credit Card Issuers and Credit Card Processors to make
payments of Accounts directly to Lender, (ii) extend the time of payment of,
compromise, settle or adjust for cash, credit, return of merchandise or
otherwise, and upon any terms or conditions, any and all Accounts or other
obligations included in the Collateral and thereby discharge or release the
account debtor or any other party or parties in any way liable for payment
thereof without affecting any of the Obligations, (iii) demand, collect or
enforce payment of any Accounts or such other obligations, but without any duty
to do so, and Lender shall not be liable for its failure to collect or enforce
the payment thereof nor for the negligence of its agents or attorneys with
respect thereto and (iv) take whatever other action Lender may deem necessary or
desirable for the protection of its interests. At any time that an Event of
Default exists or has occurred and is continuing, at Lender's request, all
invoices and statements sent to any account debtor, Credit Card Issuer or Credit
Card Processor shall state that the Accounts owed by such account debtor, Credit
Card Issuer or Credit Card Processor and such other obligations have been
assigned to Lender and are payable directly and only to Lender and Borrower
shall deliver to Lender such originals of documents evidencing the sale and
delivery of goods or the performance of services giving rise to any Accounts as
Lender may require.
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(e) Lender shall have the right at any time or times, in
Lender's name or in the name of a nominee of Lender, to verify the validity,
amount or any other matter relating to any Account or other Collateral, by mail,
telephone, facsimile transmission or otherwise.
(f) Borrower shall deliver or cause to be delivered to Lender,
with appropriate endorsement and assignment, with full recourse to Borrower, all
chattel paper and instruments which Borrower now owns or may at any time acquire
immediately upon Borrower's receipt thereof, except as Lender may otherwise
agree.
7.3 Inventory Covenants. With respect to the Inventory: (a) Borrower
shall at all times maintain inventory records reasonably satisfactory to Lender,
keeping correct and accurate records itemizing and describing the kind, type,
quality and quantity of Inventory, Borrower's Cost therefor and daily
withdrawals therefrom and additions thereto; (b) Borrower shall not remove any
Inventory from the locations set forth or permitted herein, without the prior
written consent of Lender, except for sales of Inventory in the ordinary course
of Borrower's business and except to move Inventory directly from one location
set forth or permitted herein to another such location; (c) Borrower shall, at
Lender's request not more than twice in every twelve (12) month period, and, if
Excess Availability is less than $20,000,000, at Borrower's expense, but at any
time or times as Lender may request at Lender's expense, or at Borrower's
expense at any time or times as Lender may request after and during the
continuance of an Event of Default, deliver or cause to be delivered to Lender
written reports or appraisals as to the Inventory in form, scope and methodology
acceptable to Lender and by an appraiser acceptable to Lender, addressed to
Lender or upon which Lender is expressly permitted to rely; (d) Borrower shall
conduct, at its expense, a physical count of the Inventory located at Borrower's
distribution center(s), warehouse(s) and retail stores at least twice during
each twelve (12) month period, in form, scope and methodology equivalent to that
utilized and described in the Inventory Liquidation Analysis, dated January 27,
1998 (dated on the cover page erroneously as January 27, 1997), prepared by BGA
Consulting division of Buxbaum Ginsburg & Associates, Inc., and, upon Lender's
request after and during the continuance of an Event of Default, Borrower shall,
at its expense, conduct through RGIS Inventory Specialists, Inc. or another
inventory counting service acceptable to Lender, such cycle counts of the
Inventory located at Borrower's retail stores, warehouse(s) and distribution
center(s) and such physical count of the Inventory at Borrower's distribution
center(s) and warehouse(s), in form, scope and methodology acceptable to Lender,
and, in each case, the results of such counts shall be reported to Lender by
Borrower or, if applicable, directly to Lender by such inventory counting
service, in such form and with such specificity as Lender may reasonably
require, and Borrower shall promptly deliver confirmation in a form satisfactory
to Lender that appropriate adjustments have been made to the Inventory records
of Borrower to reconcile the Inventory counts to Borrower's Inventory records;
(e) Borrower shall produce, use, store and maintain the Inventory, with all
reasonable care and caution and in accordance with applicable standards of any
insurance and in conformity with applicable laws (including, but not limited to,
the requirements of the Federal Fair Labor Standards Act of 1938, as amended and
all rules, regulations and orders related thereto); (f) Borrower assumes all
responsibility and liability arising from or relating to the production, use,
sale or other disposition of the Inventory; (g) Borrower shall not sell
Inventory to
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any customer on approval, or any other basis which entitles the customer to
return or may obligate Borrower to repurchase such Inventory, except for the
right of return given to retail customers of Borrower in the ordinary course of
the business of Borrower in accordance with the then-current return policy of
Borrower as disclosed in writing to Lender; (h) Borrower shall keep the
Inventory in good and marketable condition; (i) without limiting the other
reporting obligations of Borrower hereunder, if an Event of Default exists or
has occurred and is continuing, Borrower shall provide three (3) days' prior
written notice to Lender on a separate basis of any proposed return of Inventory
to the vendors thereof if the Inventory proposed to be so returned has a value
in excess of $100,000; (j) without Lender's prior written approval, no Inventory
shall be returned to vendors after and during the continuance of an Event of
Default, or, if as a result thereof, Excess Availability would be less than one
dollar ($1.00); and (k) Borrower shall not, except in the ordinary course of
business consistent with past practices, enter into arrangements after the date
hereof, whereby Borrower shall acquire, accept or hold any goods on consignment
or approval or under a retail store department lease or license arrangement, and
if the goods will have a value in excess of $1,000,000 under any one such
arrangement or $5,000,000 in the aggregate at any one time for all such
arrangements, then Borrower shall give Lender prior written notice before
entering into such arrangements, and, in any event, will provide Lender with
such information with respect to all such arrangements (without regard to the
value of goods involved) on such periodic basis as Lender shall from time to
time reasonably request.
7.4 Equipment Covenants. With respect to the Equipment: (a) Borrower
shall keep the Equipment in good order, repair, running and marketable condition
(ordinary wear and tear excepted); (b) Borrower shall use the Equipment with all
reasonable care and caution and in accordance with applicable standards of any
insurance and in conformity with all applicable laws; (c) the Equipment is and
shall be used in Borrower's business and not for personal, family, household or
farming use; (d) Borrower shall not remove any Equipment from the locations set
forth or permitted herein, except to the extent necessary to have any Equipment
repaired or maintained in the ordinary course of the business of Borrower or to
move Equipment directly from one location set forth or permitted herein to
another such location and except for the movement of motor vehicles used by or
for the benefit of Borrower in the ordinary course of business; (e) the
Equipment is now and shall remain personal property and Borrower shall not
permit any of the Equipment to be or become a part of or a permanent fixture to
real property; and (f) Borrower assumes all responsibility and liability arising
from its use of the Equipment.
7.5 Power of Attorney. Borrower hereby irrevocably designates and
appoints Lender (and all persons designated by Lender) as Borrower's true and
lawful attorney-in-fact, and authorizes Lender, in Borrower's or Lender's name,
to: (a) at any time an Event of Default or event which with notice or passage of
time or both would constitute an Event of Default exists or has occurred and is
continuing (i) demand payment on Accounts or other proceeds of Inventory or
other Collateral, (ii) enforce payment of Accounts by legal proceedings or
otherwise, (iii) exercise all of Borrower's rights and remedies to collect any
Account or other Collateral, (iv) sell or assign any Account upon such terms,
for such amount and at such time or times as the Lender deems advisable, (v)
settle, adjust, compromise, extend or renew an Account, (vi) discharge and
release
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any Account, (vii) prepare, file and sign Borrower's name on any proof of claim
in bankruptcy or other similar document against an account debtor, (viii) notify
the post office authorities to change the address for delivery of Borrower's
mail to an address designated by Lender, and open and dispose of all mail
addressed to Borrower, and (ix) do all acts and things which are necessary, in
Lender's determination, to fulfill Borrower's obligations under this Agreement
and the other Financing Agreements and (b) at any time to (i) take control in
any manner of any item of payment or proceeds thereof, (ii) have access to any
lockbox or postal box into which Borrower's mail is deposited, (iii) endorse
Borrower's name upon any items of payment or proceeds thereof and deposit the
same in the Lender's account for application to the Obligations, (iv) endorse
Borrower's name upon any chattel paper, document, instrument, invoice, or
similar document or agreement relating to any Account or any goods pertaining
thereto or any other Collateral, (v) sign Borrower's name on any verification of
Accounts and notices thereof to account debtors and (vi) execute in Borrower's
name and file any UCC financing statements or foreign equivalents thereof
amendments thereto. Borrower hereby releases Lender and its officers, employees
and designees from any liabilities arising from any act or acts under this power
of attorney and in furtherance thereof, whether of omission or commission,
except as a result of Lender's own gross negligence or wilful misconduct as
determined pursuant to a final non-appealable judgment of a court of competent
jurisdiction.
7.6 Right to Cure. Lender may, at its option (a) if an Event of
Default, or event or condition that would, with notice or elapse of time, or
both, constitute an Event of Default, exists or has occurred and is continuing,
cure any default by Borrower under any agreement with a third party or pay or
bond on appeal any judgment entered against Borrower, or (b) at any time,
discharge taxes, liens, security interests or other encumbrances at any time
levied on or existing with respect to the Collateral, other than a lien that is
and continues to be permitted by the terms hereof, and (c) at any time, pay any
amount, incur any expense or perform any act which, in Lender's judgment, is
necessary or appropriate to preserve, protect, insure or maintain the Collateral
and the rights of Lender with respect thereto. Lender may add any amounts so
expended to the Obligations and charge Borrower's account therefor, such amounts
to be repayable by Borrower on demand. Lender shall be under no obligation to
effect such cure, payment or bonding and shall not, by doing so, be deemed to
have assumed any obligation or liability of Borrower. Any payment made or other
action taken by Lender under this Section shall be without prejudice to any
right to assert an Event of Default hereunder and to proceed accordingly.
7.7 Access to Premises. From time to time as requested by Lender, in
good faith, at the cost and expense of Borrower, (a) Lender or its designee
shall have complete access to all of Borrower's premises during normal business
hours and after notice to Borrower, or at any time and without notice to
Borrower if an Event of Default exists or has occurred and is continuing, for
the purposes of inspecting, verifying and auditing the Collateral and all of
Borrower's books and records, including, without limitation, the Records, and
(b) Borrower shall promptly furnish to Lender such copies of such books and
records or extracts therefrom as Lender may request, and (c) use during normal
business hours such of Borrower's personnel, equipment, supplies and
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premises as may be reasonably necessary for the foregoing and if an Event of
Default exists or has occurred and is continuing for the collection of Accounts
and realization of other Collateral. Notwithstanding the foregoing provisions of
this Section 7.7, Borrower's Obligation to pay Lender's expenses and per diem
charges in connection with Lender's periodic field examinations of the
Collateral and Borrower's operations shall be limited to $15,000 in each
calendar year (excluding any field examinations prior to the date hereof),
except after and during the continuance of an Event of Default, in which case
the foregoing limitation shall not apply.
SECTION 8. REPRESENTATIONS AND WARRANTIES
Borrower hereby represents and warrants to Lender the following (which
shall survive the execution and delivery of this Agreement), the truth and
accuracy of which are a continuing condition of the making of Loans and
providing Letter of Credit Accommodations by Lender to Borrower:
8.1 Corporate Existence, Power and Authority; Subsidiaries. Borrower is
a corporation duly organized and in good standing under the laws of its state of
incorporation and is duly qualified as a foreign corporation and in good
standing in all states or other jurisdictions where the nature and extent of the
business transacted by it or the ownership of assets makes such qualification
necessary, except for those jurisdictions in which the failure to so qualify
would not have a material adverse effect on Borrower's financial condition,
results of operation or business or the rights of Lender in or to any of the
Collateral. The execution, delivery and performance of this Agreement, the other
Financing Agreements and the transactions contemplated hereunder and thereunder
are all within Borrower's corporate powers, have been duly authorized and are
not in contravention of law or the terms of Borrower's certificate of
incorporation, by-laws, or other organizational documentation, or any indenture,
agreement or undertaking to which Borrower is a party or by which Borrower or
its property are bound. This Agreement and the other Financing Agreements
constitute legal, valid and binding obligations of Borrower enforceable in
accordance with their respective terms. Borrower does not have any subsidiaries
except as set forth on the Information Certificate.
8.2 Financial Statements; No Material Adverse Change. All financial
statements relating to Borrower which have been or may hereafter be delivered by
Borrower to Lender have been prepared in accordance with GAAP and fairly present
the financial condition and the results of operation of Borrower as at the dates
and for the periods set forth therein. Except as disclosed in any interim
financial statements furnished by Borrower to Lender prior to the date of this
Agreement, there has been no material adverse change in the assets, liabilities,
properties and condition, financial or otherwise, of Borrower, since the date of
the most recent audited financial statements furnished by Borrower to Lender
prior to the date of this Agreement.
8.3 Chief Executive Office; Collateral Locations. The chief executive
office of Borrower and Borrower's Records concerning Accounts and Inventory are
located only at the address set
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forth below and its only other places of business and the only other locations
of Collateral, if any, are the addresses set forth in the Information
Certificate, subject to the right of Borrower to establish new locations in
accordance with Section 9.2 below. The Information Certificate correctly
identifies any of such locations which, as of the date hereof, are not owned by
Borrower and sets forth the owners and/or operators thereof.
8.4 Priority of Liens; Title to Properties. The security interests and
liens granted to Lender under this Agreement and the other Financing Agreements
constitute valid and perfected first priority liens and security interests in
and upon the Collateral subject only to the liens indicated on Schedule 8.4
hereto and the other liens permitted under Section 9.8 hereof. Borrower has good
and marketable title to all of its properties and assets subject to no liens,
mortgages, pledges, security interests, encumbrances or charges of any kind,
except those granted to Lender and such others as are specifically listed on
Schedule 8.4 hereto or permitted under Section 9.8 hereof.
8.5 Tax Returns. Borrower has filed, or caused to be filed, in a timely
manner all tax returns, reports and declarations which are required to be filed
by it (without requests for extension except as previously disclosed in writing
to Lender). All information in such tax returns, reports and declarations is
complete and accurate in all material respects. Borrower has paid or caused to
be paid all taxes due and payable or claimed due and payable in any assessment
received by it, and has collected, deposited and remitted in accordance with all
applicable laws all sales and/or use taxes applicable to the conduct of its
business, except taxes the validity of which are being contested in good faith
by appropriate proceedings diligently pursued and available to Borrower and with
respect to which adequate reserves have been set aside on its books. Adequate
provision has been made for the payment of all accrued and unpaid Federal,
State, county, local, foreign and other taxes whether or not yet due and payable
and whether or not disputed. Borrower has collected and, when and if required by
this Agreement, deposited in a separate bank account, and, in all events, timely
remitted, when due, to the appropriate tax authority, all sales and/or use taxes
applicable to its business required to be collected under the laws of the United
States and each possession or territory thereof, and each State or political
subdivision thereof, including any State in which Borrower owns any Inventory or
owns or leases any other property, and under the applicable laws of any foreign
jurisdiction.
8.6 Litigation. Except as set forth on the Information Certificate,
there is no present investigation by any governmental agency pending, or to the
best of Borrower's knowledge threatened, against or affecting Borrower, its
assets or business and there is no action, suit, proceeding or claim by any
Person pending, or to the best of Borrower's knowledge threatened, against
Borrower or its assets or goodwill, or against or affecting any transactions
contemplated by this Agreement, which could reasonably be expected to result in
any Material Adverse Effect and, except where such action, suit, proceeding or
claim is against or involves transactions contemplated by this Agreement, there
is a reasonable possibility of such an adverse determination.
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8.7 Compliance with Other Agreements and Applicable Laws.
(a) Borrower is not in default in any respect under, or in
violation in any respect of any of the terms of, any material agreement,
contract, instrument, lease or other commitment to which it is a party or by
which it or any of its assets are bound. Borrower is in compliance in all
material respects with the requirements of all applicable laws, rules,
regulations and orders of any governmental authority relating to its business,
including, without limitation, those set forth in or promulgated pursuant to the
Occupational Safety and Health Act of 1970, as amended, the Fair Labor Standards
Act of 1938, as amended, ERISA, the Code, as amended, and the rules and
regulations thereunder, all federal, state and local statutes, regulations,
rules and orders relating to consumer credit (including, without limitation, as
each has been amended, the Truth-in-Lending Act, the Fair Credit Billing Act,
the Equal Credit Opportunity Act and the Fair Credit Reporting Act, and
regulations, rules and orders promulgated thereunder), all federal, state, local
and foreign statutes, regulations, rules and orders pertaining to sales of
consumer goods (including, without limitation, the Consumer Products Safety Act
of 1972, as amended, and the Federal Trade Commission Act of 1914, as amended,
and all regulations, rules and orders promulgated thereunder), except where the
failure to so comply has not resulted in and could not reasonably be expected to
result in a Material Adverse Effect.
(b) Borrower has obtained all material permits, licenses,
approvals, consents, certificates, orders or authorizations of any governmental
agency required for the lawful conduct of its business (the "Permits"). The
Permits constitute all permits, licenses, approvals, consents, certificates,
orders or authorizations necessary for Borrower to own and operate its business
as presently conducted or proposed to be conducted, except where the failure to
have such Permits has not resulted in and could not reasonably be expected to
result in a Material Adverse Effect. All of the Permits are valid and subsisting
and in full force and effect and there are no actions, claims or proceedings
pending or threatened that seek the revocation, cancellation, suspension or
modification of any of the Permits, except where the invalidity, lack of
continued subsistence, revocation, cancellation, suspension or modification of
any Permit has not resulted in and could not reasonably be expected to result in
a Material Adverse Effect.
8.8 Environmental Compliance.
(a) Except as set forth on Schedule 8.8 hereto, Borrower has
not generated, used, stored, treated, transported, manufactured, handled,
produced or disposed of any Hazardous Materials, on or off its premises (whether
or not owned by it) in any manner which at any time violates, in any material
respect, any applicable Environmental Law or any license, permit, certificate,
approval or similar authorization issued to Borrower thereunder and the
operations of Borrower comply in all material respects with all applicable
Environmental Laws and all licenses, permits, certificates, approvals and
similar authorizations thereunder.
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(b) Except as set forth on Schedule 8.8 hereto, there is no
investigation, proceeding, complaint, order, directive, claim, citation or
notice by any governmental authority or any other person pending or to the best
of Borrower's knowledge threatened, which alleges any non-compliance with or
violation of the requirements of any applicable Environmental Law by Borrower,
which could reasonably be expected to result in a Material Adverse Effect, nor
has there been any release, spill or discharge, overtly threatened or actual, of
any Hazardous Material on any properties of Borrower, or to the best of
Borrower's knowledge, releases, spills or discharges from any properties at
which Borrower has transported, stored or disposed of any Hazardous Materials,
or the generation, use, storage, treatment, transportation, manufacture,
handling, production or disposal of any Hazardous Materials or any other
environmental matter which has resulted in or could reasonably be expected to
result in a Material Adverse Effect.
(c) Except as set forth in Schedule 8.8 hereto, Borrower has
no material liability (contingent or otherwise) in connection with a release,
spill or discharge, threatened or actual, of any Hazardous Materials or the
generation, use, storage, treatment, transportation, manufacture, handling,
production or disposal of any Hazardous Materials.
(d) Borrower has all licenses, permits, certificates,
approvals or similar authorizations required to be obtained or filed in
connection with the operations of Borrower under any Environmental Law and all
of such licenses, permits, certificates, approvals or similar authorizations are
valid and in full force and effect, in each case where the failure to obtain or
maintain such licenses, permits, certificates, approvals or similar
authorizations has resulted in or could reasonably be expected in result in a
Material Adverse Effect.
8.9 Credit Card Agreements. Set forth in Schedule 8.9 hereto is a
correct and complete list of (a) all of the Credit Card Agreements and all other
agreements, documents and instruments existing as of the date hereof between or
among Borrower, any of its affiliates, the Credit Card Issuers, the Credit Card
Processors and any of their affiliates, (b) the percentage of each sale payable
to the Credit Card Issuer or Credit Card Processor under the terms of the Credit
Card Agreements, (c) all other material fees and charges payable by Borrower
under or in connection with the Credit Card Agreements and (d) the term of such
Credit Card Agreements. The Credit Card Agreements constitute all of the
material agreements necessary for Borrower to operate its business as presently
conducted with respect to credit cards and debit cards and no Accounts of
Borrower arise from purchases by customers of Inventory with credit cards or
debit cards, other than those which are issued by Credit Card Issuers with whom
Borrower has entered into one of the Credit Card Agreements set forth on
Schedule 8.9 hereto or with whom Borrower has entered into a Credit Card
Agreement in accordance with Section 9.13 hereof. Each of the Credit Card
Agreements constitutes the legal, valid and binding obligations of Borrower and
to the best of Borrower's knowledge, the other parties thereto, enforceable in
accordance with their respective terms in all material respects, and are in full
force and effect. No default or event of default, or act, condition or event
which after notice or passage of time or both, would constitute a default or an
event of default under any of the Credit Card Agreements exists or has occurred.
Borrower and the other parties thereto have complied with all of the terms and
conditions of the Credit Card
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Agreements to the extent necessary for Borrower to be entitled to receive all
payments thereunder. Borrower has delivered, or caused to be delivered to
Lender, true, correct and complete copies of all of the Credit Card Agreements.
8.10 Employee Benefits.
Except as set forth in Schedule 8.10 hereto:
(a) Borrower has not engaged in any transaction in connection
with which Borrower or any of its ERISA Affiliates could be subject to either a
civil penalty assessed pursuant to ERISA or a tax imposed under, the Code,
including by reason of any accumulated funding deficiency described in Section
8.10(c) hereof and any deficiency with respect to vested accrued benefits
described in Section 8.10(d) hereof.
(b) No liability to the Pension Benefit Guaranty Corporation
(other than the payment of premiums) has been or is expected by Borrower to be
incurred with respect to any employee benefit plan of Borrower or any of its
ERISA Affiliates. There has been no reportable event (within the meaning of
ERISA) or any other event or condition with respect to any employee benefit plan
of Borrower or any of its ERISA Affiliates which presents a material risk of
involuntary termination of any such plan by the Pension Benefit Guaranty
Corporation.
(c) Full payment has been made of all amounts which Borrower
or any of its ERISA Affiliates is required under ERISA and the Code to have paid
under the terms of each employee benefit plan as contributions to such plan as
of the last day of the most recent fiscal year of such plan ended prior to the
date hereof, and no accumulated funding deficiency (as defined in ERISA and the
Code), whether or not waived, exists with respect to any employee benefit plan,
including any penalty or tax described in Section 8.10(a) hereof and any
deficiency with respect to vested accrued benefits described in Section 8.10(d)
hereof.
(d) The current value of all vested accrued benefits under all
employee benefit plans maintained by Borrower that are subject to Title IV of
ERISA does not exceed the current value of the assets of such plans allocable to
such vested accrued benefits, including any penalty or tax described in Section
8.10(a) hereof and any accumulated funding deficiency described in Section
8.10(d) hereof. The terms "current value" and "accrued benefit" have the
meanings specified in ERISA.
(e) Neither Borrower nor any of its ERISA Affiliates is or
has, within the period of five (5) years prior to the date hereof, ever been
obligated to contribute to any "multiemployer plan" (as such term is defined in
ERISA) that is subject to Title IV of ERISA.
8.11 Bank Accounts. All of the deposit accounts, investment accounts or
other accounts in the name of or used by Borrower maintained at any bank or
other financial institution are set forth
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on Schedule 6.3 hereto, subject to the right of Borrower to establish new
accounts in accordance with Section 9.13 below.
8.12 Accuracy and Completeness of Information. All information
furnished by or on behalf of Borrower in writing to Lender in connection with
this Agreement or any of the other Financing Agreements or any transaction
contemplated hereby or thereby, including, without limitation, all information
on the Information Certificate is true and correct in all material respects on
the date as of which such information is dated or certified and does not omit
any material fact necessary in order to make such information not misleading. No
event or circumstance has occurred after February 1, 1997, which has resulted in
or could reasonably be expected to result in a Material Adverse Effect, which
has not been fully and accurately disclosed to Lender in writing.
8.13 Survival of Warranties; Cumulative. All representations and
warranties contained in this Agreement or any of the other Financing Agreements
shall survive the execution and delivery of this Agreement and shall be deemed
to have been made again to Lender on the date of each additional borrowing or
other credit accommodation hereunder and shall be conclusively presumed to have
been relied on by Lender regardless of any investigation made or information
possessed by Lender. The representations and warranties set forth herein shall
be cumulative and in addition to any other representations or warranties which
Borrower shall now or hereafter give, or cause to be given, to Lender.
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS
9.1 Maintenance of Existence. Borrower shall at all times preserve,
renew and keep in full, force and effect its corporate existence and rights and
franchises with respect thereto and maintain in full force and effect all
material permits, licenses, trademarks, tradenames, approvals, authorizations,
leases and contracts necessary to carry on the business as presently or proposed
to be conducted. Borrower shall give Lender thirty (30) days prior written
notice of any proposed change in its corporate name, which notice shall set
forth the new name and Borrower shall deliver to Lender a copy of the amendment
to the Certificate of Incorporation of Borrower providing for the name change
certified by the Secretary of State of the jurisdiction of incorporation of
Borrower as soon as it is available.
9.2 New Collateral Locations. Borrower may open any new location within
the continental United States provided Borrower (a) gives Lender thirty (30)
days prior written notice of the intended opening of any such new location and
(b) executes and delivers, or causes to be executed and delivered, to Lender
such agreements, documents, and instruments as Lender may deem reasonably
necessary or desirable to protect its interests in the Collateral at such
location, including UCC financing statements, Leasehold Mortgages, Landlord
Agreements, Mortgagee's Agreements and Warehouseman's Agreements, as applicable.
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9.3 Compliance with Laws, Regulations, Etc. Borrower shall at all times
comply in all material respects with all applicable provisions of laws, rules,
regulations, licenses, permits, approvals and orders and duly observe all
material requirements, of any foreign, Federal, State or local governmental
authority, including, without limitation, the Occupational Safety and Health Act
of 1970, as amended, the Code, the Fair Labor Standards Act of 1938, as amended,
and the rules and regulations thereunder, all Federal, State and local statutes,
regulations, rules and orders relating to consumer credit (including, without
limitation, as each has been amended, the Truth-in- Lending Act, the Fair Credit
Billing Act, the Equal Credit Opportunity Act and the Fair Credit Reporting Act,
and regulations, rules and orders promulgated thereunder), all Federal, State
and local statutes, regulations, rules and orders pertaining to sales of
consumer goods (including, without limitation, the Consumer Products Safety Act
of 1972, as amended, and the Federal Trade Commission Act of 1914, as amended,
and all regulations, rules and orders promulgated thereunder) and all statutes,
rules, regulations, orders, permits and stipulations relating to environmental
pollution and employee health and safety, including, without limitation, all
Environmental Laws, except where the failure to comply will not and could not
reasonably be expected to result in a Material Adverse Effect.
9.4 Payment of Taxes and Claims. Borrower shall duly pay and discharge
all taxes, assessments, contributions and governmental charges upon or against
it or its properties or assets, except for taxes the validity of which are being
contested in good faith by appropriate proceedings diligently pursued and
available to Borrower. Borrower shall be liable for any tax or penalties imposed
on Lender as a result of the financing arrangements provided for herein and
Borrower agrees to indemnify and hold Lender harmless with respect to the
foregoing, and to repay to Lender on demand the amount thereof, and until paid
by Borrower such amount shall be added and deemed part of the Loans, provided,
that, nothing contained herein shall be construed to require Borrower to pay any
income or franchise taxes attributable to the income of Lender from any amounts
charged or paid hereunder to Lender, or to indemnify Lender for any tax or
penalty incurred by Lender solely as a result of its own gross negligence or
willful misconduct, as determined by a final, non-appealable judgment by a court
of competent jurisdiction. The foregoing indemnity shall survive the payment of
the Obligations and the termination or non-renewal of this Agreement.
9.5 Insurance. Borrower shall, at all times, maintain with financially
sound and reputable insurers insurance with respect to the Collateral against
loss or damage and all other insurance of the kinds and in the amounts
customarily insured against or carried by corporations of established reputation
engaged in the same or similar businesses and similarly situated. Said policies
of insurance shall be satisfactory to Lender, in its reasonable determination,
as to form, amount and insurer. Borrower shall furnish certificates, policies or
endorsements to Lender as Lender shall require as proof of such insurance, and,
if Borrower fails to do so, Lender is authorized, but not required, to obtain
such insurance at the expense of Borrower. All policies shall provide for at
least thirty (30) days prior written notice to Lender of any cancellation or
reduction of coverage and that Lender may act as attorney for Borrower in
obtaining, and at any time an Event of Default exists or has occurred and is
continuing, adjusting, settling, amending and canceling such
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insurance. Borrower shall cause Lender to be named as a loss payee and an
additional insured (but without any liability for any premiums) under such
insurance policies and Borrower shall obtain non-contributory lender's loss
payable endorsements to all insurance policies in form and substance
satisfactory to Lender. Such lender's loss payable endorsements shall specify
that the proceeds of such insurance shall be payable to Lender as its interests
may appear and further specify that Lender shall be paid regardless of any act
or omission by Borrower or any of its affiliates. At its option, Lender may
apply any insurance proceeds received by Lender at any time to the cost of
repairs or replacement of Collateral and/or to payment of the Obligations,
whether or not then due, in any order and in such manner as Lender may determine
or hold such proceeds as cash collateral for the Obligations.
9.6 Financial Statements and Other Information.
(a) Borrower shall keep proper books and records in which true
and complete entries shall be made of all dealings or transactions of or in
relation to the Collateral and the business of Borrower and its subsidiaries (if
any) in accordance with GAAP and Borrower shall furnish or cause to be furnished
to Lender: (i) within thirty (30) days after the end of each fiscal month,
monthly unaudited consolidated financial statements, and, if Borrower has any
subsidiaries, unaudited consolidating financial statements (including in each
case balance sheets, statements of income and loss, statements of cash flow and
statements of shareholders' equity), all in reasonable detail, fairly presenting
the financial position and the results of the operations of Borrower and its
subsidiaries as of the end of and through such fiscal month and (ii) within
ninety (90) days after the end of each fiscal year, audited consolidated
financial statements of Borrower and its subsidiaries (including in each case
balance sheets, statements of income and loss, statements of cash flow and
statements of shareholders' equity), and the accompanying notes thereto, all in
reasonable detail, fairly presenting the financial position and the results of
the operations of Borrower and its subsidiaries as of the end of and for such
fiscal year, together with the unqualified opinion of independent certified
public accountants, which accountants shall be Ernst & Young, LLP or a different
independent accounting firm selected by Borrower and reasonably acceptable to
Lender, that such financial statements have been prepared in accordance with
GAAP, and present fairly the results of operations and financial condition of
Borrower and its subsidiaries as of the end of and for the fiscal year then
ended.
(b) Borrower shall promptly notify Lender in writing of the
details of (i) any loss, damage, investigation, action, suit, proceeding or
claim relating to the Collateral or any other property which is security for the
Obligations or which would result in any material adverse change in Borrower's
business, properties, assets, goodwill or condition, financial or otherwise and
(ii) the occurrence of any Event of Default or act, condition or event which,
with the passage of time or giving of notice or both, would constitute an Event
of Default.
(c) Borrower shall promptly after the sending or filing
thereof furnish or cause to be furnished to Lender copies of all reports which
Borrower sends to its stockholders generally and copies of all reports and
registration statements which Borrower files with the Securities and
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Exchange Commission, any national securities exchange or the National
Association of Securities Dealers, Inc.
(d) Borrower shall furnish or cause to be furnished to Lender
such budgets, forecasts, projections and other information respecting the
Collateral and the business of Borrower, as Lender may, from time to time,
reasonably request. Lender is hereby authorized, subject to the provisions of
Section 12.3 hereof, to deliver a copy of any financial statement or any other
information relating to the business of Borrower to any court or other
government agency or to any participant or assignee or prospective participant
or assignee. Borrower hereby irrevocably authorizes and directs all accountants
or auditors to deliver to Lender, at Borrower's expense, copies of the financial
statements of Borrower and any reports or management letters prepared by such
accountants or auditors on behalf of Borrower and to disclose to Lender such
information as they may have regarding the business of Borrower. Any documents,
schedules, invoices or other papers delivered to Lender may be destroyed or
otherwise disposed of by Lender one (1) year after the same are delivered to
Lender, except as otherwise designated by Borrower to Lender in writing.
9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc. Borrower
shall not, directly or indirectly:
(a) merge into or with or consolidate with any other Person or
permit any other Person to merge into or with or consolidate with it, or
(b) sell, assign, lease, transfer, abandon or otherwise
dispose of any of its assets to any other Person, except for:
(i) sales of Inventory in the ordinary course of
business,
(ii) the disposition of worn-out or obsolete
Equipment so long as 9.7.2.2.1 if an Event of Default exists or has occurred and
is continuing, any proceeds are paid to Lender and 9.7.2.2.2 such sales do not
involve Equipment having an aggregate fair market value in excess of $100,000
for all such Equipment disposed of in any fiscal year of Borrower,
(iii) sales or other dispositions by Borrower of
assets in connection with the closing or sale of a retail store location of
Borrower in the ordinary course of Borrower's business, which assets so disposed
of consist of leasehold interests in the premises of such store, the Equipment
and fixtures located at such premises and the books and records relating
exclusively and directly to the operations of such store; provided, that, as to
each and all such sales, 9.7.2.3.1 no such sale or other disposition shall give
rise, whether by reason of any action or inaction then or thereafter by Borrower
or Lender, or otherwise, to any "Excess Proceeds" in respect of which (in whole
or in part or in combination with other transactions) an "Offer" to purchase any
Senior Notes is required at any time to be made pursuant to, and as such quoted
terms are defined in, the Senior Note Indenture, 9.7.2.3.2 on the date of, and
after giving effect to, any such sale, in any
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calendar year, Borrower shall not have closed or sold retail store locations
accounting for more than fifteen (15%) percent of all sales of Borrower in the
immediately preceding twelve (12) month period, 9.7.2.3.3 Lender shall have
received not less than ten (10) Business Days prior written notice of such sale,
which notice shall set forth in reasonable detail satisfactory to Lender, the
parties to such sale or other disposition, the assets to be sold or otherwise
disposed of, the purchase price and the manner of payment thereof and such other
information with respect thereto as Lender may request, 9.7.2.3.4 as of the date
of such sale or other disposition and after giving effect thereto, no Event of
Default, or act, condition or event which with notice or passage of time would
constitute an Event of Default, shall exist or have occurred, 9.7.2.3.5 such
sale shall be on commercially reasonable prices and terms in a bona fide arm's
length transaction, and 9.7.2.3.6 any and all net proceeds payable or delivered
to Borrower in respect of such sale or other disposition shall be paid or
delivered, or caused to be paid or delivered, to Lender in accordance with the
terms of this Agreement either, at Lender's option, for application to the
Obligations in accordance with the terms hereof (except to the extent such
proceeds reflect payment in respect of indebtedness secured by a properly
perfected first priority security interest in the assets sold, in which case,
such proceeds shall be applied to such indebtedness secured thereby) or to be
held by Lender as cash collateral for the Obligations on terms and conditions
acceptable to Lender; or
(c) form or acquire any subsidiaries, or
(d) wind up, liquidate or dissolve, or
(e) agree to do any of the foregoing.
9.8 Encumbrances. Borrower shall not create, incur, assume or suffer to
exist any security interest, mortgage, pledge, lien, charge or other encumbrance
of any nature whatsoever on any of its assets or properties, including, without
limitation, the Collateral, except: (a) liens and security interests of Lender;
(b) liens securing the payment of taxes, either not yet overdue or the validity
of which are being contested in good faith by appropriate proceedings diligently
pursued and available to Borrower and with respect to which adequate reserves
have been set aside on its books; (c) non-consensual statutory liens (other than
liens securing the payment of taxes) arising in the ordinary course of
Borrower's business to the extent: (i) such liens secure indebtedness which is
not overdue or (ii) such liens secure indebtedness relating to claims or
liabilities which are fully insured and being defended at the sole cost and
expense and at the sole risk of the insurer or being contested in good faith by
appropriate proceedings diligently pursued and available to Borrower, in each
case prior to the commencement of foreclosure or other similar proceedings and
with respect to which adequate reserves have been set aside on its books; (d)
zoning restrictions, easements, licenses, covenants and other restrictions
affecting the use of Real Property which do not interfere in any material
respect with the use of such Real Property or ordinary conduct of the business
of Borrower as presently conducted thereon or materially impair the value of the
Real Property which may be subject thereto; (e) purchase money security
interests in Equipment (including capital leases) not to exceed $3,000,000 in
the aggregate at any one time outstanding, and purchase money mortgages on real
estate owned in fee simple not to exceed $500,000 in the
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aggregate at any time outstanding, so long as such security interests and
mortgages do not apply to any property of Borrower other than the Equipment or
real estate so acquired, and the indebtedness secured thereby does not exceed
the cost of the Equipment or such real estate so acquired, as the case may be;
(f) mortgage liens (including capital leases) with respect to the Real Property
of Borrower located at 2500 Halsey Street, Bronx, New York and/or any
improvements thereto, to the extent owned or leased by Borrower under a capital
lease, that secure Indebtedness permitted under Sections 9.9(d) or (e) hereof;
(g) liens or rights of setoff or credit balances of Borrower with Credit Card
Issuers, but not liens on or rights of setoff against any other property or
assets of Borrower pursuant to the Credit Card Agreements (as in effect on the
date hereof) to secure the obligations of Borrower to the Credit Card Issuers as
a result of fees and chargebacks; (h) deposits of cash with the owner or lessor
of premises leased and operated by Borrower in the ordinary course of the
business of Borrower to secure the performance by Borrower of its obligations
under the terms of the lease for such premises; (i) liens on or security,
interests in cash securing the performance of bids, tenders, contracts (other
than for borrowed money), surety and appeal bonds incurred as an incident to and
in the ordinary course of Borrower's business; and (j) the liens and security
interests set forth on Schedule 8.4 hereto.
9.9 Indebtedness. Borrower shall not incur, create, assume, become or
be liable in any manner with respect to, or permit to exist, any Indebtedness,
except:
(a) Indebtedness in favor of Lender;
(b) purchase money Indebtedness (including capital leases) to
the extent not incurred or secured by liens (including capital leases) in
violation of any other provision of this Agreement;
(c) Indebtedness under the Senior Notes and Senior Note
Indenture as in effect on the date hereof and any indebtedness that refinances
such Indebtedness, so long as Lender receives at least twenty (20) days' prior
written notice of such refinancing, the maturity of such Indebtedness is not
shortened, the outstanding principal amount of such Indebtedness is not
increased, no greater, earlier or more frequent payments of principal or
interest are required, the interest rate is not increased, the refinancing
Indebtedness is unsecured, and no other terms or provisions of such refinancing
Indebtedness are more adverse to Borrower or Lender than those applicable to the
Indebtedness being refinanced, as reasonably determined by Lender; provided,
that, (i) except for permitted refinancings as provided herein, Borrower may
only make regularly scheduled payments of principal and interest and payments at
maturity in respect of such Indebtedness in accordance with the terms of the
agreement or instrument evidencing or giving rise to such Indebtedness as in
effect on the date hereof (or on the date of issuance in the case of such
refinancing), (ii) Borrower shall not, directly or indirectly, (A) amend,
modify, alter or change the terms of such Indebtedness or any agreement,
document or instrument related thereto as in effect on the date hereof (or on
the date of issuance in the case of such refinancing), except to the extent that
Lender receives at least twenty (20) days' prior written notice of such
amendment, the maturity of such Indebtedness is not shortened, the outstanding
principal amount of such
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Indebtedness is not increased, no greater, earlier or more frequent payments of
principal or interest are required, the interest rate is not increased, after
giving effect to the amendment, such Indebtedness is and will remain unsecured
and no other terms or provisions of such Indebtedness are more adverse to
Borrower or Lender than those applicable to the Indebtedness prior to the
amendment, as reasonably determined by Lender, or (B) except for permitted
refinancings as provided herein, redeem, retire, defease, purchase (except
mandatory purchases pursuant to the terms in effect on the date hereof or on the
date of issuance in the case of such refinancing) or otherwise acquire such
Indebtedness, or set aside or otherwise deposit or invest any sums for such
purpose, and (iii) Borrower shall furnish to Lender all notices or demands in
connection with such Indebtedness either received by Borrower or on its behalf,
promptly after the receipt thereof, or sent by Borrower or on its behalf,
concurrently with the sending thereof, as the case may be;
(d) Indebtedness under the Bronx IRB as in effect on the date
hereof; provided, that, (i) except as permitted under Section 9.9(e), Borrower
may only make regularly scheduled payments of principal and interest and
payments at maturity in respect of such Indebtedness in accordance with the
terms of the agreement or instrument evidencing or giving rise to such
Indebtedness as in effect on the date hereof, (ii) Borrower shall not, directly
or indirectly, (A) amend, modify, alter or change the terms of such Indebtedness
or any agreement, document or instrument related thereto as in effect on the
date hereof, or (B) except as permitted under Section 9.9(e) hereof, redeem,
retire, defease, purchase (except mandatory purchases pursuant to the terms in
effect on the date hereof) or otherwise acquire such Indebtedness, or set aside
or otherwise deposit or invest any sums for such purpose, and (iii) Borrower
shall furnish to Lender all notices or demands in connection with such
Indebtedness either received by Borrower or on its behalf, promptly after the
receipt thereof, or sent by Borrower or on its behalf, concurrently with the
sending thereof, as the case may be;
(e) Indebtedness for borrowed money or Indebtedness under
capital leases that refinances the permitted Indebtedness in respect of the
Bronx IRB; provided, that (i) the principal amount of such refinancing
Indebtedness shall not exceed $7,000,000, (ii) Borrower shall have Excess
Availability of not less than $20,000,000 for the period of thirty (30)
consecutive days immediately preceding the incurrence of such Indebtedness and
after giving effect thereto, (iii) Lender shall have received at least twenty
(20) days' prior written notice of such refinancing, (iv) the fees, interest
rate, principal payment and other terms shall be satisfactory to Lender, in its
reasonable determination, and the agreements, documents and instruments
evidencing or giving rise to such Indebtedness shall be in form and substance
satisfactory to Lender, in its reasonable determination, (v) the proceeds of
such refinancing are used to pay the costs of improvements to Borrower's
facilities at 2500 Halsey Street, Bronx, New York or for general working capital
purposes, (vi) Borrower may only make regularly scheduled payments of principal
and interest and payments at maturity in respect of such Indebtedness in
accordance with the terms of the agreement or instrument evidencing or giving
rise to such Indebtedness as in effect on the date of execution and delivery
thereof, (vii) Borrower shall not, directly or indirectly, (A) amend, modify,
alter or change the terms of such Indebtedness or any agreement, document or
instrument related thereto as in effect on the date of execution and delivery
thereof, or (B) redeem, retire, defease,
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purchase (except mandatory purchases pursuant to the terms in effect on the date
of execution and delivery thereof) or otherwise acquire such Indebtedness, or
set aside or otherwise deposit or invest any sums for such purpose, and (viii)
Borrower shall furnish to Lender all notices or demands in connection with such
Indebtedness either received by Borrower or on its behalf, promptly after the
receipt thereof, or sent by Borrower or on its behalf, concurrently with the
sending thereof, as the case may be;
(f) unsecured Indebtedness to the Unsecured Term Lender for
borrowed money; provided that (i) the outstanding principal amount of such
Indebtedness does not at any time exceed the amount of $8,000,000, (ii) the
fees, interest rate, principal payment and other terms shall be satisfactory to
Lender, and the agreements, documents and instruments evidencing or giving rise
to such Indebtedness shall be in form and substance satisfactory to Lender,
(iii) the loan proceeds advanced to Borrower by the Unsecured Term Lender shall
be used for Borrower's general working capital purposes, (iv) the terms and
conditions of the Backup Letter of Credit, if required by the Unsecured Term
Lender and available to Borrower hereunder, shall be in form and substance
satisfactory to Lender and subject to all other terms and provisions hereof, (v)
Borrower may only make regularly scheduled payments (if any) of principal and
interest and payments at maturity in respect of such Indebtedness in accordance
with the terms of the agreement or instrument evidencing or giving rise to such
Indebtedness as in effect on the date hereof, (vi) Borrower shall not, directly
or indirectly, (A) amend, modify, alter or change the terms of such Indebtedness
or any agreement, document or instrument related thereto as in effect on the
date hereof, or (B) redeem, retire, defease, purchase or otherwise acquire such
Indebtedness, or set aside or otherwise deposit or invest any sums for such
purpose, and (vii) Borrower shall furnish to Lender all notices or demands in
connection with such Indebtedness either received by Borrower or on its behalf,
promptly after the receipt thereof, or sent by Borrower or on its behalf,
concurrently with the sending thereof, as the case may be;
(g) unsecured Indebtedness for borrowed money incurred under
financing arrangements entered into after the date hereof, in addition to
Indebtedness otherwise permitted under this Section 9.9; provided, that (i) such
Indebtedness shall not exceed the amount of $2,000,000, at any one time
outstanding, (ii) no payments, other than interest, shall be permitted or
required in respect of such Indebtedness so long as this Agreement shall remain
effect or any of the Obligations remain outstanding, (iii) the loan proceeds
advanced to Borrower by the lender under such financing shall be used for
Borrower's general working capital purposes, and (iv) Borrower shall furnish to
Lender all notices or demands in connection with such Indebtedness either
received by Borrower or on its behalf, promptly after the receipt thereof, or
sent by Borrower or on its behalf, concurrently with the sending thereof, as the
case may be; and
(h) Indebtedness described on Schedule 9.9 hereto as such
Indebtedness as in effect on the date hereof, provided, that, (i) Borrower may
only make regularly scheduled payments of principal and interest and payments at
maturity in respect of such Indebtedness in accordance with the terms of the
agreement or instrument evidencing or giving rise to such Indebtedness as in
effect on the date hereof, (ii) Borrower shall not, directly or indirectly, (A)
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amend, modify, alter or change the terms of such Indebtedness or any agreement,
document or instrument related thereto as in effect on the date hereof; or (B)
redeem, retire, defease, purchase (except mandatory purchases pursuant to the
terms in effect on the date hereof) or otherwise acquire such Indebtedness, or
set aside or otherwise deposit or invest any sums for such purpose, and (iii)
Borrower shall furnish to Lender all notices or demands in connection with such
Indebtedness either received by Borrower or on its behalf, promptly after the
receipt thereof, or sent by Borrower or on its behalf, concurrently with the
sending thereof, as the case may be.
9.10 Loans, Investments, Guarantees, Etc. Borrower shall not, directly
or indirectly, make any loans or advance money or property to any person, or
invest in (by capital contribution, dividend or otherwise) or purchase or
repurchase the stock or Indebtedness or all or a substantial part of the assets
or property of any person, or guarantee, assume, endorse, or otherwise become
responsible for (directly or indirectly) the indebtedness, performance,
obligations or dividends of any Person or agree to do any of the foregoing,
except: (a) the endorsement of instruments for collection or deposit in the
ordinary course of business; (b) investments in: (i) short-term direct
obligations of the United States Government or fully guaranteed or insured by
the United States Government or any agency thereof, (ii) negotiable certificates
of deposit issued by any bank satisfactory to Lender, payable to the order of
the Borrower or to bearer and delivered to Lender, (iii) commercial paper rated
A1 or P1, and (iv) money market funds that invest exclusively in one or more of
the foregoing types of permitted investments; provided, that, as to any of the
foregoing, unless waived in writing by Lender, Borrower shall take such actions
as are deemed necessary by Lender to perfect the security interest of Lender in
such investments, (c) loans and advances to employees of Borrower in the
ordinary course of business, consistent with past practices, in an aggregate
amount for all such loans and advances not to exceed $50,000 at any one time
outstanding, (d) conversions of shares of Class B convertible common stock
outstanding on the date hereof into shares of Borrower's common stock in
accordance with the terms of such Class B convertible common stock as in effect
on the date hereof; and (e) the existing loans, advances and guarantees by
Borrower outstanding as of the date hereof as set forth on Schedule 9.10 hereto;
provided, that, as to such loans, advances and guarantees, (i) Borrower shall
not, directly or indirectly, (A) amend, modify, alter or change the terms of
such loans, advances or guarantees or any agreement, document or instrument
related thereto, or (B) as to such guarantees, redeem, retire, defease, purchase
or otherwise acquire such guarantee or set aside or otherwise deposit or invest
any sums for such purpose and (ii) Borrower shall furnish to Lender all notices,
demands or other materials in connection with such loans, advances or guarantees
either received by Borrower or on its behalf, promptly after the receipt
thereof, or sent by Borrower or on its behalf, concurrently with the sending
thereof, as the case may be.
9.11 Dividends and Redemptions. Borrower shall not, directly or
indirectly, declare or pay any dividends on account of any shares of class of
Capital Stock of Borrower now or hereafter outstanding, or set aside or
otherwise deposit or invest any sums for such purpose, or redeem, retire,
defease, purchase or otherwise acquire any shares of any class of Capital Stock
(or set aside or otherwise deposit or invest any sums for such purpose) for any
consideration other than common stock or apply or set apart any sum, or make any
other distribution (by reduction of
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capital or otherwise) in respect of any such shares or agree to do any of the
foregoing; provided, that, so long as no Event of Default exists or has occurred
and is continuing, Borrower may utilize the proceeds of keyman life insurance
and disability insurance policies to repurchase, out of legally available funds
therefor, capital stock of Borrower owned by a deceased employee's estate or by
a disabled employee, to the extent such repurchase is otherwise required under
the terms of such employee's employment agreement with Borrower.
9.12 Transactions with Affiliates. Borrower shall not directly or
indirectly, (a) purchase, acquire or lease any property from, or sell, transfer
or lease any property to, any officer, employee, shareholder, director, agent or
any other person affiliated with Borrower, except in the ordinary course of and
pursuant to the reasonable requirements of Borrower's business and upon fair and
reasonable terms no less favorable to the Borrower than Borrower would obtain in
a comparable arm's length transaction with an unaffiliated person or (b) make
any payments of management, consulting or other fees for management or similar
services, or of any indebtedness owing to any officer, employee, shareholder,
director or other person affiliated with Borrower, except reasonable
compensation to officers, employees, directors and consultants (including former
executive officers and directors of Borrower) for services rendered to Borrower
in the ordinary course of business.
9.13 Credit Card Agreements. Borrower shall (a) observe and perform all
material terms, covenants, conditions and provisions of the Credit Card
Agreements to be observed and performed by it at the times set forth therein;
(b) not do, permit, suffer or refrain from doing anything, as a result of which
there could be a default under or breach of any of the terms of any of the
Credit Card Agreements and (c) at all times maintain in full force and effect
the Credit Card Agreements and not terminate, cancel, surrender, modify, amend,
waive or release any of the Credit Card Agreements, or consent to or permit to
occur any of the foregoing; except, that, (i) Borrower may terminate or cancel
any of the Credit Card Agreements in the ordinary course of the business of
Borrower; provided, that, Borrower shall give Lender not less than fifteen (15)
days prior written notice of its intention to so terminate or cancel any of the
Credit Card Agreements; (d) not enter into any new Credit Card Agreements with
any new Credit Card Issuer unless (i) Lender shall have received not less than
thirty (30) days prior written notice of the intention of Borrower to enter into
such agreement (together with such other information with respect thereto as
Lender may request) and (ii) Borrower delivers, or causes to be delivered to
Lender, a Credit Card Acknowledgment in favor of Lender; (e) give Lender
immediate written notice of any Credit Card Agreement entered into by Borrower
after the date hereof, together with a true, correct and complete copy thereof
and such other information with respect thereto as Lender may request; and (f)
furnish to Lender, promptly upon the request of Lender, such information and
evidence as Lender may reasonably require from time to time concerning the
observance, performance and compliance by Borrower or the other party or parties
thereto with the terms, covenants or provisions of the Credit Card Agreements.
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9.14 Compliance with ERISA.
(a) Borrower shall not with respect to any "employee benefit
plans" maintained by Borrower or any of its ERISA Affiliates: (i) terminate any
of such employee benefit plans so as to incur any liability in excess of
$250,000 to the Pension Benefit Guaranty Corporation established pursuant to
ERISA, (ii) allow or suffer to exist any prohibited transaction involving any of
such employee benefit plans or any trust created thereunder which would subject
Borrower or such ERISA Affiliate to a tax or penalty or other liability on
prohibited transactions imposed under the Code or ERISA, (iii) fail to pay to
any such employee benefit plan any contribution which it is obligated to pay
under ERISA, the Code or the terms of such plan, (iv) allow or suffer to exist
any accumulated funding deficiency in excess of $250,000, whether or not waived,
with respect to any such employee benefit plan, (v) allow or suffer to exist any
occurrence of a reportable event or any other event or condition which presents
a material risk of involuntary termination by the Pension Benefit Guaranty
Corporation of any such employee benefit plan that is a single employer plan,
which termination could result in any liability to the Pension Benefit Guaranty
Corporation or (vi) except as described in Schedule 8.10 hereto, incur any
withdrawal liability with respect to any multiemployer pension plan.
(b) As used in this Section 9.14, the term "employee pension
benefit plans," "accumulated funding deficiency" and "reportable event" shall
have the respective meanings assigned to them in ERISA, and the term "prohibited
transaction" shall have the meaning assigned to it in the Code and ERISA.
9.15 Additional Bank Accounts. Borrower shall not, directly or
indirectly, open, establish or maintain any deposit account, investment account
or any other account with any bank or other financial institution, other than
the Blocked Accounts and the accounts set forth in Schedule 6.3 hereto, except:
(a) as to any new or additional Blocked Accounts, upon not less than fifteen
(15) days' prior written notice to Lender, and (b) as to any other such new or
additional accounts which contain any Collateral or proceeds thereof, including
any deposit accounts used by Borrower's retail stores for deposits of daily
receipts, provided Lender receives a written schedule thereof updated not less
frequently than monthly, and in the case of each account under clauses (a) or
(b), subject to Borrower's compliance, contemporaneously with the opening of
each such account, with the provisions of 6.3(a)(i) and (ii), as applicable,
with respect to each such Blocked Account or other account, and (c) as to any
accounts used by Borrower to make payments of payroll, taxes or other
obligations to third parties, after prior written notice to Lender.
9.16 Costs and Expenses. Borrower shall pay to Lender on demand all
costs, expenses, filing fees and taxes paid or payable in connection with the
preparation, negotiation, execution, delivery, recording, administration,
collection, liquidation, enforcement and defense of the Obligations, Lender's
rights in the Collateral, this Agreement, the other Financing Agreements and all
other documents related hereto or thereto, including any amendments, supplements
or consents which may hereafter be contemplated (whether or not executed) or
entered into in respect hereof and thereof, including: (a) all costs and
expenses of filing or recording (including Uniform
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Commercial Code financing statement filing taxes and fees, documentary taxes,
intangibles taxes and mortgage recording taxes and fees, if applicable); (b) all
insurance premiums, appraisal fees and search fees; (c) costs and expenses of
remitting loan proceeds, collecting checks and other items of payment, and
establishing and maintaining the Blocked Accounts, together with Lender's
customary charges and fees with respect thereto; (d) charges, fees or expenses
charged by any bank or issuer in connection with the Letter of Credit
Accommodations; (e) costs and expenses of preserving and protecting the
Collateral; (f) costs and expenses paid or incurred in connection with obtaining
payment of the Obligations, enforcing the security interests and liens of
Lender, selling or otherwise realizing upon the Collateral, and otherwise
enforcing the provisions of this Agreement and the other Financing Agreements or
defending any claims made or threatened against Lender arising out of the
transactions contemplated hereby and thereby (including preparations for and
consultations concerning any such matters); (g) subject to the limitation (if
applicable) set forth in Section 7.7 hereof, all out-of-pocket expenses and
costs heretofore and from time to time hereafter incurred by Lender during the
course of periodic field examinations of the Collateral and Borrower's
operations, plus a per diem charge at the rate of $600 per person per day for
Lender's examiners in the field and office; and (h) the reasonable fees and
disbursements of counsel (including legal assistants) to Lender in connection
with any of the foregoing.
9.17 Certain Notices. Borrower shall promptly send to Lender a copy of
each default or termination notice sent by or on behalf of Borrower to, or to
Borrower by, any operator of a warehouse where Eligible Inventory is kept, or
any lessor of a material number of retail store locations of Borrower, or any
mortgagee of Real Property of Borrower, or any Credit Card Issuer or Credit Card
Processor, or any trademark licensor or licensee of Borrower, or any customs
broker or similar agent for Borrower, or any material Equipment lessor, with
respect to the existing or any future arrangements or agreements between
Borrower and any such person(s).
9.18 Further Assurances. At the request of Lender at any time and from
time to time, Borrower shall, at its expense, duly execute and deliver, or cause
to be duly executed and delivered, such further agreements, documents and
instruments, and do or cause to be done such further acts as may be necessary or
proper to evidence, perfect, maintain and enforce the security interests and the
priority thereof in the Collateral and to otherwise effectuate the provisions or
purposes of this Agreement or any of the other Financing Agreements. Lender may
at any time and from time to time request a certificate from an officer of
Borrower representing that all conditions precedent to the making of Loans and
providing Letter of Credit Accommodations contained herein are satisfied. In the
event of such request by Lender, Lender may, at its option, cease to make any
further Loans or provide any further Letter of Credit Accommodations until
Lender has received such certificate and, in addition, Lender has determined
that such conditions are satisfied. Where permitted by law, Borrower hereby
authorizes Lender to execute and file one or more UCC financing statements
signed only by Lender.
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SECTION 10. EVENTS OF DEFAULT AND REMEDIES
10.1 Events of Default. The occurrence or existence of any one or more
of the following events are referred to herein individually as an "Event of
Default", and collectively as "Events of Default":
(a) (i) Borrower fails to pay any principal in respect of the
Loans or Letter of Credit Accommodations when due, or Borrower fails to pay any
of the Obligations, other than principal, within three (3) days after the same
becomes due and payable, (ii) Borrower fails to perform any of the terms,
covenants, conditions or provisions contained in Sections 7.1, 7.2, 7.3, 7.7,
9.1, 9.2, or 9.5 of the Loan Agreement, other than as described in Section
10.1(a)(i) and such failure shall continue for five (5) days, or (iii) Borrower
or any Obligor fails to perform any of the terms, covenants, conditions or
provisions contained in this Agreement or any of the other Financing Agreements
other than as described in Sections 10.1(a)(i) or 10.1(a)(ii), and such failure
shall continue for twenty (20) days; provided, that, such five (5) day or twenty
(20) day period under clauses (ii) or (iii), as the case may be, shall not apply
in the case of: (A) any failure to observe any such term, covenant, condition or
provision which is not capable of being cured at all or within such five (5) or
twenty (20) day period, as applicable, or which has been the subject of a prior
failure within a six (6) month period or (B) an intentional breach by Borrower
or any Obligor of any such term, covenant, condition or provision, or (C) the
failure to observe or perform any of the covenants or provisions contained in
Sections 6.3, 6.6, 9.1 (as to the required maintenance by Borrower of its
corporate existence and rights and franchises with respect thereto), 9.7, 9.8,
9.9, 9.10, 9.11, 9.12, 9.13 or 9.15 of this Agreement or any covenants or
agreements covering substantially the same matter as such sections in any of the
other Financing Agreements; or
(b) any representation, warranty or statement of fact made by
Borrower to Lender in this Agreement, the other Financing Agreements or any
other agreement, schedule, confirmatory assignment or otherwise shall when made
or deemed made be false or misleading in any material respect;
(c) any Obligor revokes, terminates or fails to perform any of
the terms, covenants, conditions or provisions of any guarantee, endorsement or
other agreement of such party in favor of Lender;
(d) any judgment for the payment of money is rendered against
Borrower or any Obligor in excess of $250,000 in any one case or in excess of
$500,000 in the aggregate and shall remain undischarged or unvacated for a
period in excess of thirty (30) days (except where such judgment is fully
covered by insurance and the carrier has admitted in writing liability for the
full amount thereof, or execution of such judgment (whether or not insured)
shall at any time not be effectively stayed, or any judgment other than for the
payment of money, or injunction,
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attachment, garnishment or execution is rendered against Borrower or any Obligor
or any of their assets;
(e) any Obligor (being a natural person or a general partner
of an Obligor which is a partnership) dies or Borrower or any Obligor, which is
a partnership, limited liability company, limited liability partnership or a
corporation, dissolves or suspends or discontinues doing business;
(f) Borrower or any Obligor becomes insolvent (however defined
or evidenced), makes an assignment for the benefit of creditors, makes or sends
notice of a bulk transfer;
(g) a case or proceeding under the bankruptcy laws of the
United States of America now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction now or hereafter in effect (whether at law or
in equity) is filed against Borrower or any Obligor or all or any part of its
properties and such petition or application is not dismissed within forty-five
(45) days after the date of its filing or Borrower or any Obligor shall file any
answer admitting or not contesting such petition or application or indicates its
consent to, acquiescence in or approval of, any such action or proceeding or the
relief requested is granted sooner;
(h) a case or proceeding under the bankruptcy laws of the
United States of America now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction now or hereafter in effect (whether at a law
or equity) is filed by Borrower or any Obligor or for all or any part of its
property;
(i) any default by Borrower or any Obligor under the Senior
Notes or Senior Note Indenture or any other agreement, document or instrument
relating to any indebtedness for borrowed money owing to any person other than
Lender, or any capitalized lease obligations, contingent indebtedness in
connection with any guarantee, letter of credit, indemnity or similar type of
instrument in favor of any person other than Lender, where the agreement,
document or instrument under which the default arises or exists, relates to
indebtedness or obligations in an amount in excess of $500,000, which default
continues for more than the applicable cure period, if any, with respect
thereto, or any material default by Borrower or any Obligor under any material
contract, lease, license or other obligation to any person other than Lender,
which default continues for more than the applicable cure period, if any, with
respect thereto;
(j) any "Change of Control" as defined in the Senior Note
Indenture, as in effect on the date hereof;
(k) the indictment or threatened indictment of Borrower or any
Obligor under any criminal statute, or commencement or threatened commencement
of criminal or civil proceedings against Borrower or any Obligor, pursuant to
which statute or proceedings the penalties or
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remedies sought or available include forfeiture of any material amount of the
property of Borrower or such Obligor;
(l) there shall be a material adverse change after the date
hereof in the business, assets or prospects of Borrower or any Obligor; or
(m) there shall be an event of default under any of the other
Financing Agreements.
10.2 Remedies.
(a) At any time an Event of Default exists or has occurred and
is continuing, Lender shall have all rights and remedies provided in this
Agreement, the other Financing Agreements, the Uniform Commercial Code of the
State of New York and other applicable law, all of which rights and remedies may
be exercised without notice to or consent by Borrower or any Obligor, except as
such notice or consent is expressly provided for hereunder or required by
applicable law. All rights, remedies and powers granted to Lender hereunder,
under any of the other Financing Agreements, the Uniform Commercial Code or
other applicable law, are cumulative, not exclusive and enforceable, in Lender's
discretion, alternatively, successively, or concurrently on any one or more
occasions, and shall include, without limitation, the right to apply to a court
of equity for an injunction to restrain a breach or threatened breach by
Borrower or Obligor of this Agreement or any of the other Financing Agreements.
Lender may, at any time or times, proceed directly against Borrower or any
Obligor to collect the Obligations without prior recourse to the Collateral.
(b) Without limiting the foregoing, at any time an Event of
Default exists or has occurred and is continuing, Lender may, in its discretion
and without limitation, (i) accelerate the payment of all Obligations and demand
immediate payment thereof to Lender (provided, that, upon the occurrence of any
Event of Default described in Sections 10.1(g) and 10.1(h), all Obligations
shall automatically become immediately due and payable), (ii) with or without
judicial process or the aid or assistance of others, enter upon any premises on
or in which any of the Collateral may be located and take possession of the
Collateral or complete processing, manufacturing and repair of all or any
portion of the Collateral, (iii) require Borrower, at Borrower's expense, to
assemble and make available to Lender any part or all of the Collateral at any
place and time designated by Lender, (iv) collect, foreclose, receive,
appropriate, setoff and realize upon any and all Collateral, (v) remove any or
all of the Collateral from any premises on or in which the same may be located
for the purpose of effecting the sale, foreclosure or other disposition thereof
or for any other purpose, (vi) sell, lease, transfer, assign, deliver or
otherwise dispose of any and all Collateral (including, without limitation,
entering into contracts with respect thereto, public or private sales at any
exchange, broker's board, at any office of Lender or elsewhere) at such prices
or terms as Lender may deem reasonable, for cash, upon credit or for future
delivery, with the Lender having the right to purchase the whole or any part of
the Collateral at any such public sale, all of the foregoing being free from any
right or equity of
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redemption of Borrower, which right or equity of redemption is hereby expressly
waived and released by Borrower to the fullest extent permitted by law, and/or
(vii) terminate this Agreement. If any of the Collateral is sold or leased by
Lender upon credit terms or for future delivery, the Obligations shall not be
reduced as a result thereof until payment therefor is finally collected by
Lender. If notice of disposition of Collateral is required by law, seven (7)
days prior notice by Lender to Borrower designating the time and place of any
public sale or the time after which any private sale or other intended
disposition of Collateral is to be made, shall be deemed to be reasonable notice
thereof and Borrower waives any other notice. In the event Lender institutes an
action to recover any Collateral or seeks recovery of any Collateral by way of
prejudgment remedy, Borrower waives the posting of any bond which might
otherwise be required.
(c) Lender may apply the cash proceeds of Collateral actually
received by Lender from any sale, lease, foreclosure or other disposition of the
Collateral to payment of the Obligations, in whole or in part and in such order
as Lender may elect, whether or not then due. Borrower shall remain liable to
Lender for the payment of any deficiency with interest at the highest rate
provided for herein and all costs and expenses of collection or enforcement,
including reasonable attorneys' fees and legal expenses.
(d) Without limiting the foregoing, upon the occurrence of an
Event of Default or an event which with notice or passage of time or both would
constitute an Event of Default, Lender may, at its option, without notice, (i)
cease making Loans or arranging for Letter of Credit Accommodations or reduce
the lending formulas or amounts of Loans and Letter of Credit Accommodations
available to Borrower and/or (ii) terminate any provision of this Agreement
providing for any future Loans or Letter of Credit Accommodations to be made by
Lender to Borrower.
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS;
GOVERNING LAW
11.1 Governing Law; Choice of Forum; Service of Process; Jury Trial
Waiver.
(a) The validity, interpretation and enforcement of this
Agreement and the other Financing Agreements and any dispute arising out of the
relationship between the parties hereto, whether in contract, tort, equity or
otherwise, shall be governed by the internal laws of the State of New York
(without giving effect to principles of conflicts of law).
(b) Each of Borrower and Lender irrevocably consents and
submits to the non-exclusive jurisdiction of the Supreme Court of the State of
New York and the United States District Court for the Southern District of New
York and waives any objection based on venue or forum non conveniens with
respect to any action instituted therein arising under this Agreement or any of
the other Financing Agreements or in any way connected with or related or
incidental to the dealings of the parties hereto in respect of this Agreement or
any of the other Financing
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Agreements or the transactions related hereto or thereto, in each case whether
now existing or hereafter arising, and whether in contract, tort, equity or
otherwise, and agrees that any dispute with respect to any such matters shall be
heard only in the courts described above (except that Lender shall have the
right to bring any action or proceeding against Borrower or its property in the
courts of any other jurisdiction which Lender deems necessary or appropriate in
order to realize on the Collateral or to otherwise enforce its rights against
Borrower or its property).
(c) Borrower hereby waives personal service of any and all
process upon it and consents that all such service of process may be made by
certified mail (return receipt requested) directed to its address set forth on
the signature pages hereof and service so made shall be deemed to be completed
five (5) days after the same shall have been so deposited in the U.S. mails, or,
at Lender's option, by service upon Borrower in any other manner provided under
the rules of any such courts. Within thirty (30) days after such service,
Borrower shall appear in answer to such process, failing which Borrower shall be
deemed in default and judgment may be entered by Lender against Borrower for the
amount of the claim and other relief requested.
(d) BORROWER AND LENDER EACH HEREBY WAIVES ANY RIGHT TO TRIAL
BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i) ARISING UNDER THIS
AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR (ii) IN ANY WAY CONNECTED
WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO IN RESPECT
OF THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR THE TRANSACTIONS
RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER
ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. BORROWER AND LENDER
EACH HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF
ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT BORROWER OR
LENDER MAY FILE AN ORIGINAL COUNTERPART OF A COPY OF THIS AGREEMENT WITH ANY
COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF
THEIR RIGHT TO TRIAL BY JURY.
(e) Lender shall not have any liability to Borrower (whether
in tort, contract, equity or otherwise) for losses suffered by Borrower in
connection with, arising out of, or in any way related to the transactions or
relationships contemplated by this Agreement, or any act, omission or event
occurring in connection herewith, unless it is determined by a final and
non-appealable judgment binding on Lender, that the losses were the result of
acts or omissions of Lender constituting gross negligence or willful misconduct.
In any such litigation, Lender shall be entitled to the benefit of the
rebuttable presumption that it acted in good faith and with the exercise of
ordinary care in the performance by it of the terms of this Agreement and the
other Financing Agreements.
11.2 Waiver of Notices. Borrower hereby expressly waives demand,
presentment, protest and notice of protest and notice of dishonor with respect
to any and all instruments and
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commercial paper, included in or evidencing any of the Obligations or the
Collateral, and any and all other demands and notices of any kind or nature
whatsoever with respect to the Obligations, the Collateral and this Agreement,
except such as are expressly provided for herein. No notice to or demand on
Borrower which Lender may elect to give shall entitle Borrower to any other or
further notice or demand in the same, similar or other circumstances.
11.3 Amendments and Waivers. Neither this Agreement nor any provision
hereof shall be amended, modified, waived or discharged orally or by course of
conduct, but only by a written agreement signed by an authorized officer of
Lender, and as to amendments, as also signed by an authorized officer of
Borrower. Lender shall not, by any act, delay, omission or otherwise be deemed
to have expressly or impliedly waived any of its rights, powers and/or remedies
unless such waiver shall be in writing and signed by an authorized officer of
Lender. Any such waiver shall be enforceable only to the extent specifically set
forth therein. A waiver by Lender of any right, power and/or remedy on any one
occasion shall not be construed as a bar to or waiver of any such right, power
and/or remedy which Lender would otherwise have on any future occasion, whether
similar in kind or otherwise.
11.4 Waiver of Counterclaims. Borrower waives all rights to interpose
any claims, deductions, setoffs or counterclaims of any nature (other then
compulsory counterclaims) in any action or proceeding with respect to this
Agreement, the Obligations, the Collateral or any matter arising therefrom or
relating hereto or thereto.
11.5 Indemnification. Borrower shall indemnify and hold Lender, and its
directors, agents, employees and counsel, harmless from and against any and all
losses, claims, damages, liabilities, costs or expenses imposed on, incurred by
or asserted against any of them in connection with any litigation,
investigation, claim or proceeding commenced or threatened related to the
negotiation, preparation, execution, delivery, enforcement, performance or
administration of this Agreement, any other Financing Agreements, or any
undertaking or proceeding related to any of the transactions contemplated hereby
or any act, omission, event or transaction related or attendant thereto,
including, without limitation, amounts paid in settlement, court costs, and the
reasonable fees and expenses of counsel, except for any such losses, claims,
damages, liabilities, costs and expenses resulting from Lender's own gross
negligence or willful misconduct as determined by a final, non-appealable
judgment of a court of competent jurisdiction. To the extent that the
undertaking to indemnify, pay and hold harmless set forth in this Section may be
unenforceable because it violates any law or public policy, Borrower shall pay
the maximum portion which it is permitted to pay under applicable law to Lender
in satisfaction of indemnified matters under this Section. The foregoing
indemnity shall survive the payment of the Obligations and the termination or
non-renewal of this Agreement.
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SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS
12.1 Term.
(a) This Agreement and the other Financing Agreements shall
become effective as of the date set forth on the first page hereof and shall
continue in full force and effect for a term ending on the date three (3) years
from the date hereof (the "Renewal Date"), and from year to year thereafter,
unless sooner terminated pursuant to the terms hereof. Lender or Borrower may
terminate this Agreement and the other Financing Agreements effective on the
Renewal Date or on the anniversary of the Renewal Date in any year by giving to
the other party at least sixty (60) days prior written notice; provided, that,
this Agreement and all other Financing Agreements must be terminated
simultaneously. Borrower may also terminate this Agreement and the other
Financing Agreements at any time on not less than thirty (30) days' prior
written notice to Lender, in accordance with the other provisions of this
Section 12.1, including the payment of all Obligations, including, if
applicable, the early termination fee payable under Section 12.1(c) hereof;
provided, that, this Agreement and all other Financing Agreements must be
terminated simultaneously. Upon the effective date of termination or non-renewal
of the Financing Agreements, Borrower shall pay to Lender, in full, all
outstanding and unpaid Obligations and shall furnish cash collateral to Lender
in such amounts as Lender determines are reasonably necessary to secure Lender
from loss, cost, damage or expense, including attorneys' fees and legal
expenses, in connection with any contingent Obligations, including issued and
outstanding Letter of Credit Accommodations and checks or other payments
provisionally credited to the Obligations and/or as to which Lender has not yet
received final and indefeasible payment. Such payments in respect of the
Obligations and cash collateral shall be remitted by wire transfer in Federal
funds to such bank account of Lender, as Lender may, in its discretion,
designate in writing to Borrower for such purpose. Interest shall be due until
and including the next business day, if the amounts so paid by Borrower to the
bank account designated by Lender are received in such bank account later than
12:00 noon, New York City time.
(b) No termination of this Agreement or the other Financing
Agreements shall relieve or discharge Borrower of its respective duties,
obligations and covenants under this Agreement or the other Financing Agreements
until all Obligations have been fully and finally discharged and paid, and
Lender's continuing security interest in the Collateral and the rights and
remedies of Lender hereunder, under the other Financing Agreements and
applicable law, shall remain in effect until all such Obligations have been
fully and finally discharged and paid.
(c) If for any reason this Agreement is terminated prior to
the end of the then current term or renewal term of this Agreement, in view of
the impracticality and extreme difficulty of ascertaining actual damages and by
mutual agreement of the parties as to a reasonable calculation of Lender's lost
profits as a result thereof, Borrower agrees to pay to Lender, upon the
effective date of such termination, an early termination fee in the amount set
forth below if such termination is effective in the period indicated:
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Amount Period
------ ------
(i) 2% of Maximum Credit From the date hereof to and including
May 12, 1999;
(ii) 1% of Maximum Credit From May 13, 1999 to but not including
May 12, 2001;
Provided, however, if this Agreement and the other Financing Agreements are
terminated at Borrower's request in compliance with the terms hereof and such
termination becomes effective within the sixty (60) day period ending on May 12,
2001, and provided no Event of Default, and no event or condition that with
notice or passage of time, or both, would constitute an Event of Default, exists
or has occurred and is continuing, then Borrower shall not be obligated to pay
the early termination fee otherwise payable under this Section 12.1(c) in
respect of such termination.
Such early termination fee shall be presumed to be the amount of damages
sustained by Lender as a result of such early termination and Borrower agrees
that it is reasonable under the circumstances currently existing. In addition,
Lender shall be entitled to such early termination fee upon the occurrence of
any Event of Default described in Sections 10.1(g) and 10.1(h) hereof, even if
Lender does not exercise its right to terminate this Agreement, but elects, at
its option, to provide financing to Borrower or permit the use of cash
collateral under the United States Bankruptcy Code. The early termination fee
provided for in this Section 12.1 shall be deemed included in the Obligations.
12.2 Notices. All notices, requests and demands hereunder shall be in
writing and (a) made to Lender at its address set forth below and to Borrower at
its chief executive office set forth below, or to such other address as either
party may designate by written notice to the other in accordance with this
provision, and (b) deemed to have been given or made: if delivered in person,
immediately upon delivery; if by telex, telegram or facsimile transmission,
immediately upon sending and upon confirmation of receipt; if by nationally
recognized overnight courier service with instructions to deliver the next
Business Day, one (1) Business Day after sending; and if by certified mail,
return receipt requested, five (5) days after mailing.
12.3 Confidentiality.
(a) Lender shall use all reasonable efforts to keep
confidential, in accordance with its customary procedures for handling
confidential information and safe and sound lending practices, any non-public
information supplied to it by Borrower pursuant to this Agreement that Lender
knows is confidential, non-public information at the time such information is
furnished by Borrower to Lender, provided, that, nothing contained herein shall
limit the disclosure of any such information: (i) to the extent required by
statute, rule, regulation, subpoena or court order, (ii) to bank examiners and
other regulators, auditors and/or accountants, (iii) in connection with any
litigation to which Lender is a party, (iv) to any assignee or participant (or
prospective assignee or
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participant) so long as such assignee or participant (or prospective assignee or
participant) shall have first agreed in writing to treat such information as
confidential in accordance with this Section 12.3, or (v) to counsel for Lender
or any participant or assignee (or prospective participant or assignee).
(b) In no event shall this Section 12.3 or any other provision
of this Agreement or applicable law be deemed: (i) to apply to or restrict
disclosure of information that has been or is made public by Borrower or any
third party without breach of this Section 12.3 or otherwise become generally
available to the public other than as a result of a disclosure in violation
hereof, (ii) to apply to or restrict disclosure of information that was or
becomes available to Lender on a non-confidential basis from a person other than
Borrower, (iii) require Lender to return any materials furnished by Borrower to
Lender, or (iv) prevent Lender from responding to routine informational requests
in accordance with the Code of Ethics for the Exchange of Credit Information
promulgated by The Robert Morris Associates or other applicable industry
standards relating to the exchange of credit information. The obligations of
Lender under this Section 12.3 shall supersede and replace the obligations of
Lender under any confidentiality letter signed prior to the date hereof.
12.4 Partial Invalidity. If any provision of this Agreement is held to
be invalid or unenforceable, such invalidity or unenforceability shall not
invalidate this Agreement as a whole, but this Agreement shall be construed as
though it did not contain the particular provision held to be invalid or
unenforceable and the rights and obligations of the parties shall be construed
and enforced only to such extent as shall be permitted by applicable law.
12.5 Successors.
(a) This Agreement, the other Financing Agreements and any
other document referred to herein or therein shall be binding upon and inure to
the benefit of and be enforceable by Lender, Borrower and their respective
successors and assigns, except that Borrower may not assign its rights under
this Agreement, the other Financing Agreements and any other document referred
to herein or therein without the prior written consent of Lender.
(b) Lender may, after notice to Borrower, assign its rights
and delegate its obligations under this Agreement and the other Financing
Agreements to another financial institution, investor or any other Person, other
than (i) to a Person engaged at the time of the assignment in a retailing
business that is, at the time of the assignment, to Lender's actual knowledge
(without any duty of investigation or inquiry), competitive with the business of
Borrower, and (ii) so long as no Event of Default exists or has occurred and is
continuing at the time of the assignment and provided Borrower has at least
$5,000,000 of Excess Availability at such time, to an investor or other Person
(or to a division or group of any such investor or other Person) whose primary
business is, to Lender's actual knowledge (without any duty of investigation or
inquiry), the purchase of or investment in distressed indebtedness; provided,
that, unless an Event of Default exists or has occurred and is continuing, if
Lender shall assign (other
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than by way of participation) more than a fifty (50%) percent interest in the
Obligations and sLender's rights and duties under this Agreement to any Person
other than an affiliate of Lender at the time of the assignment (or a Person
that becomes an affiliate concurrently therewith), and other than to any Person
that purchases all or substantially all of Lender's business or assets, whether
through asset acquisition, merger, stock acquisition or otherwise, then, during
the ninety (90) day period following notice to Borrower of such assignment,
Borrower shall have the right to effect the termination of this Agreement,
subject to and in accordance with the provisions of Section 12.1 hereof, but
without the requirement for payment of any early termination fee otherwise
payable by Borrower under Section 12.1(c) in connection with such voluntary
early termination by Borrower.
(c) Lender may, without notice to Borrower, assign or sell
participations in, all or any part of the Loans, the Letter of Credit
Accommodations or any other interest herein to another financial institution,
investor or any other Person, other than (i) to a Person engaged at the time of
the assignment in a retailing business that is, at the time of the assignment to
Lender's actual knowledge (without any duty of investigation or inquiry),
competitive with the business of Borrower, and (ii) so long as no Event of
Default exists or has occurred and is continuing at the time the participation
is assigned or sold, and provided Borrower has at least $5,000,000 of Excess
Availability at such time, to an investor or other Person (or to a division or
group of any such investor or other Person) whose primary business is, to
Lender's actual knowledge (without any duty of investigation or inquiry), the
purchase of or investment in distressed indebtedness.
(d) In the event of any such assignment or participation by
Lender, the assignee or participant shall have, to the extent of such assignment
or participation, the same rights and benefits as it would have if it were the
Lender hereunder, except as otherwise provided by the terms of such assignment
or participation.
12.6 Entire Agreement. This Agreement, the other Financing Agreements,
any supplements hereto or thereto, and any instruments or documents delivered or
to be delivered in connection herewith or therewith represents the entire
agreement and understanding concerning the subject matter hereof and thereof
between the parties hereto, and supersede all other prior agreements,
understandings, negotiations and discussions, representations, warranties,
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commitments, proposals, offers and contracts concerning the subject matter
hereof, whether oral or written.
IN WITNESS WHEREOF, Lender and Borrower have caused these presents to
be duly executed as of the day and year first above written.
LENDER BORROWER
CONGRESS FINANCIAL CORPORATION LOEHMANN'S, INC.
By: /s/ Kenneth M. Sands By: /s/ Dennis R. Hernreich
- ------------------------ ---------------------------
Title: Senior Vice President Title: Vice President/Chief Financial
Officer
Address:
Chief Executive Office:
1133 Avenue of the Americas
New York, New York 10036 2500 Halsey Street
Bronx, New York 10461
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EXHIBIT 4.2
LOAN AGREEMENT
This LOAN AGREEMENT made and dated May 12, 1998, by and between
LOEHMANN'S INC., a corporation of the State of Delaware with
its principal corporate place of business at 2500 Halsey
Street, Bronx, Bronx County, New York 10461 (hereinafter
referred to as "BORROWER")
and
FLEET BANK, N.A., a national banking association organized and
existing under the laws of the United States with offices at
1125 Route 22 West, Bridgewater, New Jersey 08807 (being
hereinafter referred to as "BANK")
WITNESSES THAT:
(1) WHEREAS, BORROWER is desirous of borrowing $7,850,000 from BANK in
the form of a term loan (called the "LOAN" in this Agreement and more fully
defined in Article I below);
(2) WHEREAS, BORROWER seeks to enter into a relationship with BANK
setting forth an understanding relating to its ability to borrow under the
aforementioned LOAN and the repayment thereof;
(3) WHEREAS, BANK is willing to enter into this Agreement but only if
the conditions contained in this Agreement are satisfied;
(4) WHEREAS, as a condition of BANK's entering into such a
relationship, BORROWER is willing to execute this Agreement and comply with the
provisions of this Agreement or cause them to be complied with; and
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(5) WHEREAS, BORROWER represents that its execution of this Agreement
and its performance of the covenants and terms contained herein will inure to
its economic benefit and will be in furtherance of its corporate purposes;
NOW THEREFORE in consideration of the premises and the covenants
contained in this Agreement and for other good and valuable consideration,
BORROWER and BANK do hereby agree as follows:
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ARTICLE I.
DEFINITIONS
1.1 DEFINITIONS OF "BANK" AND "BORROWER". The terms "BANK" and
"BORROWER" shall have the meaning given those terms in the Preamble to this
Agreement.
1.2 "AGREEMENT" is a collective term which means this Loan Agreement
and all extensions, modifications and renewals hereof.
1.3 "BUSINESS DAY" shall have the meaning given that term in Section
2.4(d)(1) below.
1.4 "CERTIFICATION RESPONSIVE TO THE LOAN AGREEMENT" is a collective
term which means the certification of BORROWER as to the truth and accuracy of
certain representations and warranties, to which is attached each of the
following:
(a) EXHIBIT "A": the Certification of the corporate secretary
of BORROWER as to a true, complete and correct copy of the resolutions adopted
by the executive committee of BORROWER's Board of Directors authorizing the
execution and delivery of this Agreement, the borrowings hereunder, and the
execution and delivery of the other Loan Documents;
(b) EXHIBIT "B": the Certification of the corporate secretary
of BORROWER as to a true, complete and correct copy of the incumbency and
specimen signatures of those officers of BORROWER who are to execute this
Agreement and the other Loan Documents; and
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(c) EXHIBIT "C": a true, complete and correct copy of
BORROWER's Certificate of Incorporation, as amended; and
(d) EXHIBIT "D": a true, complete and correct copy of
BORROWER's By-Laws, as amended.
1.5 "CONGRESS LOAN DOCUMENTS" is a collective term which means all of
the following:
(a) that certain Loan and Security Agreement between BORROWER
and Congress Financial Corporation dated on or about May 12, 1998; and
(b) any documents relating thereto; and
(c) all renewals, substitutions and replacements of such
certain Loan and Security Agreement or any such document relating thereto.
1.6 "DEFAULT RATE" is a collective term which means a rate per annum
equal to 2% in excess of the floating Prime Rate, provided, however, at no time
will per annum interest be calculated at a rate higher than the maximum rate
allowed by law.
1.7 "EVENT OF DEFAULT" has the meaning set forth in Article VI of this
Agreement.
1.8 "GAAP" means generally accepted accounting principles, consistently
applied over the period to which they relate.
1.9 "INTEREST PERIOD" shall have the meaning given that term in Section
2.4(d)(2) below.
1.10 "LETTER OF CREDIT" is a collective term which means all of the
following:
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(a) that certain standby letter of credit bearing No.
_____________________, dated May 12, 1998, issued by CoreStates Bank N.A. in the
amount of $8,000,000 (allocated $7,850,000 to principal and $150,000 to
interest) for the account of BORROWER and for the benefit of BANK so as to
provide for the payment of principal and interest due on the Term Note and the
LOAN in the amounts aforesaid, a true copy of which is attached hereto as
Exhibit "A" and made a part hereof; and
(b) all renewals, substitutions and replacements of any such
certain letter of credit, which are renewed, substituted and/or replaced by the
Letter of Credit Bank with the consent of BANK.
1.11 "LETTER OF CREDIT BANK" means CoreStates Bank and any successor
thereto (including First Union National Bank) through merger, acquisition or
consolidation.
1.12 "LIABILITIES" means all of the following:
(a) principal due on the LOAN and the Term Note, to be paid
with interest thereon as required by the Term Note and this Agreement; and
(b) the payment by BORROWER of all other sums due under the
Term Note and this Agreement; and
(c) the performance and fulfillment by BORROWER of all the
terms, conditions, promises, covenants and provisions contained in this
Agreement.
1.13 "LIBOR" shall have the meaning given that term in Section
2.4(d)(3) below.
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1.14 "LIBOR BASED RATE" means the fixed short term rate or rates of
interest determined as a function of LIBOR and charged on the outstanding
Principal Balance(s) of the LOAN for and during the Interest Period(s)
applicable to such Principal Balance(s), all as more fully set forth in Section
2.4(d) below.
1.15 "LIBOR RESERVE PERCENTAGE" shall have the meaning given that term
in Section 2.4(d)(4) below.
1.16 "LOAN" has the meaning set forth in Section 2.1 of this Agreement.
1.17 "LOAN DOCUMENTS" means this Agreement, the Certification
Responsive to Loan Agreement, the Term Note, any documents or instruments
related hereto or thereto and all extensions, modifications or renewals of any
or all of the foregoing.
1.18 "MATURITY DATE" shall mean the earlier of (a) May 11, 2001 or any
such later date or dates agreed to by BANK in a writing signed by BANK or (b)
the date of the termination of the Congress Loan Documents.
1.19 "PRIME RATE" means the variable rate of interest set from time to
time by BANK as its usual, short-term base lending rate to its commercial
borrowers. The Prime Rate is a reference rate and does not necessarily represent
the lowest or best rate being charged to any customer. From time to time BANK
makes loans to certain customers at rates of interest below BANK's Prime Rate.
1.20 "PRINCIPAL BALANCE" shall have the meaning given that term in
Section 2.4(d)(5) below.
1.21 "REFERENCE BANKS" shall have the meaning given that term in
Section 2.4(d)(6) below.
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1.22 "TERM NOTE" has the meaning given that term in Section 2.8 of this
Agreement.
1.23 "ROLL OVER DATE" shall have the meaning given that term in Section
2.4(d)(7) below.
END OF ARTICLE I
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ARTICLE II.
LOAN
2.1 LOAN.
(a) BANK will under this Agreement lend the principal sum of
$7,850,000 to BORROWER under an $7,850,000 term loan to be used by BORROWER to
meet its ongoing working capital and general business needs.
(b) The term loan described in Section 2.1(a) above and
throughout the other sections of this Article II (and all extensions,
modifications and renewals of such term loan) is the "LOAN" referenced
throughout this Agreement.
2.2 DISBURSEMENT OF LOAN PROCEEDS.
(a) The full proceeds of the LOAN shall be disbursed in one
advance made by BANK from its offices at Fleet Corporate Administration, 1
Federal Street, Boston, Massachusetts 02211 or, at its option, from any of its
other offices, by crediting a checking account or an operating account
maintained in the name of BORROWER at BANK or maintained in the name of BORROWER
at another financial institution designated by BORROWER or otherwise at
BORROWER's direction to BANK in writing.
(b) BORROWER may not re-borrow any portions of the LOAN repaid
by BORROWER.
2.3 REPAYMENT OF PRINCIPAL.
(a) So long as BORROWER is in compliance with all terms and
conditions of this Agreement and the Term Note, the outstanding principal amount
of the
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LOAN need not be repaid until the Maturity Date, unless such outstanding amount
is sooner accelerated or required to be paid as provided herein or in the Loan
Agreement.
(b) Unless BORROWER is otherwise given notice by BANK in
accordance with this Agreement, all payments due under the LOAN shall be made at
BANK's offices at Fleet Corporate Administration, 1 Federal Street, Boston,
Massachusetts 02211 or at any other location that BANK may hereafter designate
by written notice to BORROWER given in accordance with this Agreement.
2.4 PAYMENT OF INTEREST DUE ON THE LOAN.
(a) Interest shall be charged on the outstanding unpaid
principal balance of the LOAN at a fixed short term rate or rates based on LIBOR
(as defined in subsection (d) below), such fixed short term rate or rates being
the "LIBOR Based Rate" referenced throughout this Agreement, it being
understood, however, that in no event shall interest on the LOAN ever be
calculated at a rate higher than the maximum rate allowed by law:
(b) The LIBOR Based Rate shall be a rate per annum equal to 50
basis points in excess of LIBOR (as defined in subsection (d) below) with
respect to the applicable Interest Period (as also defined in subsection (d)
below) -- provided, however, that in all events on after the occurrence of an
Event of Default, per annum interest shall be charged on the outstanding
principal amount of the LOAN at the Default Rate.
(c) Each determination of a LIBOR Based Rate shall be made by
BANK in its sole and absolute discretion and shall be conclusive and binding
upon BORROWER, absent manifest error.
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(d) For purposes of the determination of any LIBOR Based Rate,
the following terms shall have the following meanings:
(1) "Business Day" shall mean a day which is not a
Saturday, Sunday or day on which banks in London are required or permitted to
close.
(2) "Interest Period" means (i) initially the period
commencing on the date hereof and ending 1 month later and (ii) thereafter, each
period commencing on the last day of the immediately preceding Interest Period
and ending 1 month thereafter but in no event after the Maturity Date. No
Interest Period shall commence other than on a Business Day. If any Interest
Period shall end on a day which is not a Business Day, such Interest Period
shall be extended to the next succeeding Business Day so long as such date does
not extend beyond the Maturity Date of the LOAN.
(3) (i) "LIBOR" means, as applicable to any Interest
Period, the rate per annum (rounded upward, if necessary, to the nearest 1/32 of
one percent) as determined on the basis of the offered rates for deposits in
U.S. dollars, for a period of time comparable to such Interest Period which
appears on the Telerate page 3750 as of 11:00 a.m. London time on the day that
is three Business Days preceding the first day of such Interest Period;
provided, however, if the rate described above does not appear on the Telerate
System on any applicable interest determination date, then LIBOR shall be the
rate (rounded upwards as described above, if necessary) for deposits in dollars
for a period substantially equal to the interest period on the Reuters Page
"LIBO" (or such other page as may replace the LIBO Page on that service for the
purpose of displaying such rates), as of 11:00 a.m. (London Time), on the day
that is three Business Days prior to the beginning of such Interest Period.
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(ii) If both the Telerate and Reuters system
are unavailable, then the rate for the day that is three Business Days preceding
the first day of such Interest Period will be determined on the basis of the
offered rates for deposits in U.S. dollars for a period of time comparable to
such Interest Period which are offered by four major banks in the London
interbank market as selected by BANK at approximately 11:00 a.m. London time, on
such day. The principal London office of each of the four major London banks
will be requested to provide a quotation of its U.S. dollar deposit offered
rate. If at least two such quotations are provided, the rate for that date will
be the arithmetic mean of the quotations. If fewer than two quotations are
provided as requested, the rate for that date will be determined on the basis of
the rates quoted for loans in U.S. dollars to leading European banks for a
period of time comparable to such Interest Period offered by major banks in New
York City at approximately 11:00 a.m. New York City time, on the day that is
three Business Days preceding the first day of such Interest Period. In the
event that BANK is unable to obtain any such quotation as provided above, it
will be deemed that LIBOR pursuant to a Interest Period cannot be determined.
(iii) In the event that the Board of
Governors of the Federal Reserve System shall impose a LIBOR Reserve Percentage
with respect to LIBOR deposits of BANK then for any period during which such
LIBOR Reserve Percentage shall apply, LIBOR shall be equal to the amount
determined above divided by an amount equal to 1 minus the LIBOR Reserve
Percentage.
(4) "LIBOR Reserve Percentage" means for any day that
percentage (expressed as a decimal) which is in effect on such day, as
prescribed by the Board
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of Governors of the Federal Reserve System (or any successor) for determining
the maximum reserve requirement for a member bank of the Federal Reserve System
in New York City with deposits exceeding one billion dollars in respect of
Eurocurrency liabilities (as defined in Regulation D of the Board of Governors
of the Federal Reserve System) (or in respect of any other category of
liabilities which includes deposits by reference to which the interest rate on
loans covered by a LIBOR Based Rate is determined or any category of extensions
of credit or other assets which includes loans by a non-United States office of
BANK to United States residents). The LIBOR Based Rate shall be adjusted
automatically on and as of the effective date of any change in the LIBOR Reserve
Percentage.
(5) "Principal Balance" means, at any time, the
entire outstanding principal amount of the LOAN and includes all amounts that
are to be borrowed at a LIBOR Based Rate, whether or not BORROWER actually
borrows such amounts.
(6) "Reference Banks" means one or more of the banks
appearing on the display designated as page "LIBO" on the Reuters Monitor Money
Rates Service (or such other page as may replace the LIBO page on that service
for the purpose of displaying London interbank offered rates of major banks);
provided that if no such offered rate shall appear on such display, "Reference
Banks" shall mean one or more major banks in the London interbank market as
selected by BANK.
(7) "Roll Over Date" shall mean the day immediately
following the last day of an Interest Period.
(e) At the end of each Interest Period and effective as of the
Roll Over Date applicable thereto but subject to the conditions set forth in
subsection (f) below, a
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new Interest Period of 1 month shall commence and the interest rate charged on
the Principal Balance for such new Interest Period shall be based on the LIBOR
Based Rate applicable to an Interest Period consisting of such month. BANK shall
have no duty or obligation to notify BORROWER that any Interest Period has ended
or will end or that the interest rate charged on any Principal Balance may
change from one interest rate to any other interest rate.
(f) For purposes of the determination of any LIBOR Based Rate,
the following conditions shall apply:
(1) The LIBOR Based Rate will be available only so
long as no Event of Default shall have occurred and be continuing.
(2) The applicable Interest Period must commence on a
Business Day.
(3) No Interest Period shall extend beyond the
Maturity Date of the LOAN.
(4) Each Interest Period shall extend 1 month after
the commencement of such Interest Period, subject to the requirement that the
first day and last day of an Interest Period must be a Business Day.
(5) If any Interest Period shall end on a day which
is not a Business Day, such Interest Period shall be extended to the next
succeeding Business Day.
(6) The Principal Balance applicable to any such
LIBOR Based Rate must be for the entire outstanding principal amount of the
LOAN.
(7) There can not be more than one (1) LIBOR contract
in existence between BORROWER and BANK at any one time.
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(g) In the event, and on each occasion, that on or before the
date upon which an Interest Period is to commence, BANK shall have in its sole
discretion made a determination (which determination shall be conclusive and
binding upon BORROWER) that BANK is unable to quote a LIBOR Based Rate for any
reason whatsoever, BANK shall so notify BORROWER and the LOAN shall bear
interest at the floating Prime Rate.
(h) On and after the occurrence of an Event of Default
hereunder or after the Maturity Date or after any judgment has been rendered on
the amounts owing on the LOAN, the LIBOR Based Rate will no longer be available
to BORROWER and the unpaid principal of all advances shall, at the option of
BANK, bear interest at the Default Rate.
(i) Interest shall be calculated on the basis of a year
consisting of 360 days and paid for actual days elapsed.
(j) Interest on all amounts outstanding under the LOAN shall
be payable monthly on an accrued basis on the first day of each and every
calendar month, commencing on the first day of the first month following the
date hereof.
(k) All agreements between BORROWER and BANK are hereby
expressly limited so that in no contingency or event whatsoever, whether by
reason of acceleration of maturity of the indebtedness evidenced hereby or
otherwise, shall the amount paid or agreed to be paid to BANK for the use or the
forbearance of the indebtedness evidenced hereby exceed the maximum permissible
under applicable law. As used herein, the term "applicable law" shall mean the
law in effect as of the date hereof provided, however, that in the event there
is a change in the law which results in a higher permissible rate of interest,
then the LOAN shall be governed by such new law as of its effective date. In
this
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regard, it is expressly agreed that it is the intent of BORROWER and BANK in the
execution, delivery and acceptance of this Agreement to contract in strict
compliance with the laws of the State of New York from time to time in effect.
If, under or from any circumstances whatsoever, fulfillment of any provision
hereof or of any of the Loan Documents at the time of performance of such
provision shall be due, shall involve transcending the limit of such validity
prescribed by applicable law, then the obligation to be fulfilled shall
automatically be reduced to the limits of such validity, and if under or from
circumstances whatsoever BANK should ever receive as interest an amount which
would exceed the highest lawful rate, such amount which would be excessive
interest shall be applied to the reduction of the principal balance evidenced
hereby and not to the payment of interest. This provision shall control every
other provision of all agreements between BORROWER and BANK.
2.5 AUTHORIZATION TO CHARGE ACCOUNT. Although BANK may bill BORROWER
monthly for accrued monthly interest at the rate determined in accordance with
Section 2.4 above, it is understood that BANK will, and BORROWER hereby
authorizes BANK to, charge as of each due date such interest and any other
amounts (including principal) due under the LOAN against a specially designated
demand deposit account of BORROWER at BANK.
2.6 TERM OF THE LOAN AND PREPAYMENT.
(a) The LOAN relationship shall continue in full force and
effect until the Maturity Date (unless the term of this Agreement or BANK's
relationship with BORROWER under the LOAN is sooner accelerated or terminated as
provided herein).
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(b) BORROWER may prepay the amounts due under the LOAN and the
Term Note at any time by giving BANK 30 days' prior written notice and by paying
in full, but not in part, all amounts due under the LOAN and the Term Note and
all other Liabilities, together with any indemnification and yield maintenance
amounts that may be due under Section 2.7 below. Despite BORROWER's giving such
notice, BANK's rights under the Term Note and this Agreement shall remain in
full force and effect until all the Liabilities are paid in full.
2.7 YIELD MAINTENANCE AND INDEMNIFICATION RELATING TO LIBOR BASED
INTEREST:
(a) BORROWER hereby agrees to indemnify BANK against any loss
or expense which BANK may sustain or incur as a consequence of (1) any failure
by BORROWER to borrow all or any portion of any Principal Balance or (2) the
receipt or recovery by BANK of all or any part of any Principal Balance prior to
the maturity thereof whether by voluntary or involuntary prepayment,
acceleration or otherwise.
(b) Without limiting the effect of the foregoing, the amount
to be paid by BORROWER to BANK in order to indemnify BANK for any loss
occasioned by any of the events described in the preceding provisions of this
Paragraph, and as liquidated damages therefor, shall be equal to the following
amount:
The current rate for United States Treasury
securities (Bills on a discounted basis shall be converted to
a bond equivalent) with a maturity closest to the maturity
date of the Interest Period chosen pursuant to the LIBOR
Option and as to which the prepayment is made shall be
subtracted from the "cost of funds" component of the LIBOR
Based Rate in effect at the time of the prepayment. If the
result is zero or a negative number, there shall be no yield
maintenance fee. If the result is a positive number, then the
resulting percentage shall be multiplied
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by the amount of the Principal Balance being prepaid. The
resulting amount shall be divided by 360 and multiplied by the
number of days remaining in the term of the applicable
Interest Period as to which the prepayment is made. Said
amount shall be reduced to present value calculated by using
the number of days remaining in the designated term and using
the above referenced United States Treasury security rate and
the number of days remaining in the term of the applicable
Interest Period as to which the prepayment is made. The
resulting amount shall be the yield maintenance fee due to
BANK upon any prepayment of any Principal Balance. Such yield
maintenance fee shall be paid, if due under the formula set
forth above, upon the receipt or recovery by BANK of all or
any part of any Principal Balance prior to the maturity
thereof whether by voluntary or involuntary prepayment,
acceleration or otherwise.
(c) A certificate as to any additional amounts payable
pursuant to this Paragraph setting forth the basis and method of determining
such amounts shall be conclusive, absent manifest error, as to the determination
by BANK set forth therein if made reasonably and in good faith. BORROWER shall
pay any amounts so certified to it by BANK within 10 days of receipt of any such
certificate. For purposes of this Paragraph, all references to "BANK" shall be
deemed to include any participant in this Note.
(d) The indemnities provided for herein shall survive payment
in full of the principal amount of the LOAN and the interest due thereon.
2.8 EVIDENCE OF INDEBTEDNESS UNDER LOAN.
(a) BORROWER's obligation to repay the LOAN shall be evidenced
by this Agreement.
(b) In addition, BORROWER's obligation to repay the LOAN
received by it shall be evidenced by that certain promissory note entitled "Term
Note" executed by BORROWER on even date herewith.
(c) (1) In addition to BORROWER's obligations being evidenced
by both this Agreement and the above-described promissory note entitled "Term
Note", the initial
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amount advanced by BANK under the LOAN and all interest due on the LOAN and all
other amounts due under the LOAN and this Agreement, and all payments made on
account of principal and/or interest and/or such other amounts may be entered by
BANK on its records. The aggregate unpaid principal and/or interest and/or other
amounts entered and shown on BANK's records shall further evidence the principal
and/or interest and/or other amounts owing and unpaid on the LOAN and this
Agreement.
(2) BANK may from time to time render a statement of
the aforementioned records. If BORROWER fails to object to the statement within
forty-five (45) days after it is received by BORROWER, such statement shall be
deemed to be an account stated and binding upon BORROWER, absent manifest error.
Notwithstanding the foregoing, BANK's failure to enter on such records the date
and amount of any advance or interest or other amount due on the LOAN or this
Agreement or BANK's failure to render any such statement shall not, however,
limit or otherwise affect the obligations of BORROWER under this Agreement to
repay the outstanding principal amount of the LOAN, together with all interest
accruing and other amounts due thereon.
(d) All of the foregoing note and records and all extensions,
modifications and renewals of such note are collectively referred to as the
"Term Note" in this Agreement.
2.9 CUSTOMARY SERVICE CHARGES: BORROWER shall be responsible for all
customary services charges associated with any accounts maintained by BORROWER
at BANK.
END OF ARTICLE II
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ARTICLE III.
REPRESENTATIONS
In order to induce BANK to enter into this Agreement and to perform its
obligations hereunder, BORROWER makes the following representations to BANK each
and all of which shall survive the execution and delivery of this Agreement for
the duration of the term, or the extended or renewed term or terms of, this
Agreement:
3.1 (a) BORROWER is a corporation of the State of Delaware with its
principal corporate place of business at 2500 Halsey Street, Bronx, Bronx
County, New York 10461.
(b) BORROWER's correct legal name is "LOEHMANN'S INC."
3.2 BORROWER is in good standing under the laws of the state of its
incorporation and is qualified to do business in every jurisdiction where the
nature of its business requires it to be so qualified, except for those
jurisdictions in which the failure to so qualify would not have material adverse
effect on BORROWER's financial condition, results of operations or business (a
"Material Adverse Effect").
3.3 BORROWER has the corporate power to execute, deliver and perform
this Agreement, the Term Note and all of the other Loan Documents and the
execution, delivery and performance of this Agreement, the Term Note and all of
the other Loan Documents has been has duly authorized and approved.
3.4 No consent or approval of any trustee or holder of any indebtedness
or obligation of BORROWER is necessary in connection with the execution and
delivery of this
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Agreement, the Term Note or any of the other Loan Documents, or any transaction
contemplated hereby or thereby.
3.5 No consent, permission, authorization, order or license of any
governmental authority is necessary in connection with the execution and
delivery of this Agreement, the Term Note or any of the other Loan Documents, or
any transaction contemplated hereby or thereby.
3.6 There is no provision of any indenture or agreement, written or
oral, to which BORROWER is a party or under which it is obligated which would be
contravened by the execution and delivery of this Agreement, the Term Note or
any of the other Loan Documents, or by the performance of any provision,
condition, covenant or other term hereof or thereof.
3.7 There is no statute, rule or regulation, or any judgment, decree or
order of any court or agency binding on BORROWER which would be contravened by
the execution and delivery of this Agreement, the Term Note or any of the other
Loan Documents, or by the performance of any provision, condition, covenant or
other term hereof or thereof.
3.8 (a) BORROWER has timely filed or is under a permitted extension of
time in which to file all returns and information and other reports required of
it under all Federal, State, local and foreign tax laws to which it is subject;
(b) all such returns and reports filed by BORROWER are true,
correct and complete in all material respects;
(c) BORROWER has paid or made adequate provision for the full
payment of all fees, taxes, interest and penalties which have been incurred or
are due and
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payable by it or which have been asserted or proposed to be asserted against it,
except fees, taxes, interest and penalties the validity of which is being
contested in good faith by appropriate proceedings diligently pursued and
available to BORROWER with respect to which adequate reserves have been set
aside on its books.
3.9 Except as set forth on Schedule to Section 3.9, no action or
proceeding is now pending or, to the knowledge of BORROWER is threatened,
against BORROWER at law, in equity or otherwise, before any court, board,
commission, agency or instrumentality of any federal, state or local government
or of any agency or subdivision thereof, or before any arbitrator or panel of
arbitrators (other than claims covered by insurance), which could reasonably be
expected to result in a Material Adverse Effect.
3.10 No event has occurred and is continuing which would constitute an
Event of Default as defined in Article VI or which, upon a lapse of time and
notice, if applicable, would become such an Event of Default and no borrowing by
BORROWER under this Agreement constitutes an event of default under any
agreement to which BORROWER is a party.
3.11 All financial statements of BORROWER and all written information
and other written data furnished by BORROWER to BANK are complete and correct in
all material respects, and such financial statements have been prepared in
accordance with GAAP and fairly represent the financial condition of BORROWER as
of such date in all material respects. Since such date there has been no change
in BORROWER's financial condition that has caused or evidences a Material
Adverse Effect. BORROWER does not have any contingent obligations, liabilities
for taxes or other outstanding financial obligations which are
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material in the aggregate to the financial condition, operations and business of
BORROWER, except as disclosed in such statements, information and data.
3.12 (a) Neither BORROWER nor any employee benefit plan maintained by
BORROWER ("Benefit Plan") is in violation of any of the provisions of the
Employee Retirement Income Security Act of 1974, 29 U.S.C. ss.1001 et seq., as
from time to time amended ("ERISA") or any regulations issued thereunder by the
United States Treasury Department, the Department of Labor and the Pension
Benefit Guaranty Corporation, and no non-exempt prohibited transaction (within
the meaning of Title I of ERISA or the Internal Revenue Code of 1986, as amended
(the "Code")) has occurred and is continuing with respect to any such plan, in
each instance where such violation or prohibited transaction or any liabilities
resulting directly or indirectly therefrom individually or in the aggregate
could reasonably be expected to have a material adverse effect on the business,
results of operations, prospects, financial condition or any material asset of
BORROWER or on the ability of BORROWER to execute this Agreement or consummate
any of the transactions contemplated hereby. For purposes of this Agreement, the
term "employee benefit plan" shall have the meaning given that term in Section
3(3) of ERISA.
(b) Neither BORROWER nor any officer, director or other employee
of BORROWER, nor, to the knowledge of BORROWER, any "party in interest" or
"disqualified person", as such terms are defined in Section 3 of ERISA and
Section 4975 of the Code, has, with respect to any Benefit Plan, engaged in or
been a party to any non-exempt "prohibited transaction," as such term is defined
in Section 4975 of the Code or Section 406 of ERISA, in connection with which
BORROWER or any officer, director or other employee of
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BORROWER, or any Benefit Plan, could reasonably be expected to, directly or
indirectly, be subject to either a penalty, assessed pursuant to Section 502(i)
of ERISA, or a tax imposed by Section 4975 of the Code which could reasonably be
expected to have a Material Adverse Effect.
END OF ARTICLE III
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ARTICLE IV.
CONDITIONS OF LENDING
The obligation of BANK to lend hereunder is subject to the following
conditions precedent:
4.1 On the date hereof, all legal matters incident to this Agreement
shall be satisfactory to counsel for BANK.
4.2 On the date hereof, BORROWER shall be in compliance with all the
terms and provisions set forth herein and no Event of Default specified in
Article VII hereof, nor any event which upon notice or lapse of time or both
would constitute such an Event of Default, shall have occurred and be
continuing.
4.3 On the date hereof, BANK shall have received executed originals of:
(a) this Agreement;
(b) the Letter of Credit;
(c) the Term Note;
(d) the Certification Responsive to the Loan Agreement;
(e) Legal Opinion of Counsel for BORROWER.
END OF ARTICLE IV
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ARTICLE V.
POSITIVE AND NEGATIVE COVENANTS
BORROWER covenants and agrees that, until the full and final payment of
the Liabilities, unless BANK waives compliance in writing:
5.1 (a) BORROWER will repay the LOAN, in accordance with the terms of
the Term Note and this Agreement.
(b) BORROWER will repay all other Liabilities in accordance with
the terms thereof.
5.2 BORROWER will (a) preserve and maintain its corporate existence,
(b) maintain all of its rights, privileges and franchises necessary or desirable
in the normal conduct of its business except for such rights, privileges and
franchises that are not material to the business of BORROWER, (c) conduct its
business in an orderly and regular manner, (d) not dissolve or otherwise dispose
of all or a substantial part of its assets and (e) not consolidate with or merge
into another corporation or permit one or more other corporations to consolidate
with or merge into it.
5.3 Reporting Requirements.
(a) Quarterly Financial Statements: BORROWER shall, during the
term of this Agreement and so long as any of the Liabilities remains outstanding
(unless BANK otherwise consents in writing), deliver to BANK as soon as
available and in any event within 60 days after the end of each fiscal quarter
of BORROWER, BORROWER's quarterly financial statements in the form of Form 10-Q
as filed by BORROWER.
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<PAGE>
(b) Annual Financial Statements: BORROWER shall, during the
term of this Agreement and so long as any of the Liabilities remains outstanding
(unless BANK otherwise consents in writing), deliver to BANK as soon as
available and in any event within 90 days after the end of each fiscal year of
BORROWER, BORROWER's annual financial statements in the form of Form 10-K as
filed by BORROWER.
(c) Certificate of No-Default: Concurrently with the delivery
of the financial statements referred to in subsections (a) and (b) above,
BORROWER shall supply BANK with a certificate of BORROWER (in the form attached
hereto as "EXHIBIT B") signed by the principal financial officer of BORROWER, to
the effect that (1) the signatory is aware of what events or conditions are
Events of Default; and (2) to his/her knowledge, information and belief, no
Event of Default nor any act, omission, thing or condition which upon the giving
of notice or lapse of time, or both, would constitute an Event of Default has
been done, happened or exists, or in the event that any Event of Default or act,
omission, thing or condition which upon the giving of notice or lapse of time,
or both, would constitute an Event of Default has been done, happened or exists
specifying the same and setting forth in detail what action BORROWER proposes to
take with respect thereto.
(d) Notice of Default: As soon as possible and in any event
within five (5) days after it becomes aware of the occurrence of each Event of
Default (or each event which, with the giving of notice or lapse of time or
both, would constitute an Event of Default), the written statement of the chief
financial officer of BORROWER or another executive officer of BORROWER setting
forth details of such Event of Default (or such other event) and the action
which BORROWER proposes to take with respect thereto.
26
<PAGE>
(e) Notice of Adverse Condition: As soon as possible, the
written statement of the chief financial officer of BORROWER or another
executive officer of BORROWER setting forth details of any action, event or
condition of any nature of which BORROWER is aware, which would reasonably be
expected to have a material adverse effect upon the business, assets or
financial condition of BORROWER and the action which BORROWER proposes to take
with respect thereto.
(f) Notice of Litigation: BORROWER will notify BANK in writing
within a reasonable time (which shall in no event exceed ten business days after
BORROWER's knowledge) of the commencement of any litigation against BORROWER
which, could reasonably be expected to result in its dissolution or liquidation,
prevent or materially impair it from conducting its business substantially as
now conducted, prevent or materially impair BORROWER from repaying the LOAN and
the other Liabilities or prevent or materially impair BORROWER from otherwise
faithfully performing its obligations under this Agreement or result in a
material adverse change in BORROWER's business or financial condition or affairs
or creditworthiness.
5.4 BORROWER will at all times comply with, or cause to be complied
with, all laws, statutes, rules, regulations, orders and directions of any
governmental authority having jurisdiction over it and its business in all cases
where the failure of BORROWER to comply would cause or result in a Material
Adverse Effect.
5.5 Upon reasonable prior notice and request, BANK shall have full
access during normal business hours to, and the right, through its officers,
agents, attorneys or accountants and at BORROWER's expense to examine, check,
inspect and make abstracts and
27
<PAGE>
copies from BORROWER's books, accounts, orders, records, audits, correspondence,
and all other papers.
5.6 BORROWER will not modify the Letter of Credit without the consent
of BANK.
5.7 Within 10 days from the date of the occurrence thereof, BORROWER
will give BANK notice of the occurrence of any Event of Default under the
Congress Loan Documents or any document governing the issuance of the Letter of
Credit as well as notice of the occurrence of any event which, with the passage
of time or the giving of notice would be such an Event of Default.
END OF ARTICLE V
28
<PAGE>
ARTICLE VI.
EVENTS OF DEFAULT
Regardless of the terms of any of the other Loan Documents, the
occurrence of any of the following events shall be deemed an event of default
(an "Event of Default") hereunder:
6.1 BORROWER shall (a) fail to pay on its due date any principal due on
the Term Note or (b) fail to pay within 10 days of its due date any interest or
other payment due under this Agreement;
6.2 any representation or warranty herein or in the Term Note or any of
the other Loan Documents shall prove to have been false or misleading in any
material respect when made.
6.3 BORROWER shall (a) apply for or consent to the appointment of, or
the taking of possession by, a receiver, custodian, trustee or liquidator of
BORROWER of all or a substantial part of its property, (b) admit in writing its
inability, or be generally unable, to pay its debts as such debts become due,
(c) make a general assignment for the benefit of its creditors, (d) commence a
voluntary case under the Federal Bankruptcy Code (as now or hereafter in
effect), (e) file a petition seeking to take advantage of any other law relating
to bankruptcy, insolvency, reorganization, winding-up or composition or
adjustment of debts, (f) fail to controvert in a timely or appropriate manner,
or acquiesce in writing to, any petition filed against it in an involuntary case
under the Federal Bankruptcy Code, or (g) take any corporate action for the
purpose of effecting any of the foregoing;
29
<PAGE>
6.4 a proceeding or case shall be commenced, without the application or
consent of BORROWER, in any court of competent jurisdiction, seeking (a) the
liquidation, reorganization, dissolution, winding-up, or composition or
adjustment of debts, of BORROWER, (b) the appointment of a trustee, receiver,
custodian, liquidator or the like of BORROWER of all or any substantial part of
the assets of BORROWER, or (c) similar relief in respect of BORROWER under any
law relating to bankruptcy, insolvency, reorganization, winding-up or
composition or adjustment of debts, and such proceeding or case shall continue
undismissed, or an order, judgment or decree approving or ordering any of the
foregoing shall be entered and continue unstayed and in effect, for a period of
ninety (90) days; or any order for relief against BORROWER shall be entered in
an involuntary case under such Bankruptcy Code;
6.5 an "Event of Default" occurs under the Congress Loan Documents and,
as a result thereof, Congress Financial Corporation accelerates the obligations
of BORROWER under the Congress Loan Documents ;
6.6 the Letter of Credit Bank declares Congress Financial Corporation
to be in default of any obligation owed by Congress Financial Corporation under
any documentation governing the issuance of the Letter of Credit;
6.7 BANK receives notice from the Letter of Credit Bank that the Letter
of Credit has not been or will not be renewed, regardless of the reason for such
non-renewal;
6.8 the Letter of Credit is not renewed at least 45 days prior to any
expiration date by a renewed Letter of Credit whose expiration date is one year
later than the
30
<PAGE>
expiration date of the Letter of Credit being renewed and the expiration date of
the Letter of Credit being renewed will occur within 30 days;
6.9 any default shall occur under any other loan agreement involving
either the borrowing of money or the advance of credit to which BORROWER may be
a party as borrower or guarantor involving an amount in excess of $5,000,000 and
such default results in the acceleration of the money owing under such other
loan agreement;
6.10 BORROWER shall materially breach, violate or default under, any
term, condition, provision, representation or warranty contained in this
Agreement or any of the other Loan Documents not specifically referred to in
this Article VI and such breach, violation or default is not cured by BORROWER
within 20 days after notice is received by BORROWER from BANK that BORROWER do
so; or
6.11 any of the Loan Documents (or any provision thereof) is claimed by
BORROWER to be invalid or unenforceable.
END OF ARTICLE VI
31
<PAGE>
ARTICLE VII
REMEDIES
7.1 Whenever an Event of Default has occurred, BANK may do any or all
of the following at the same time or at different times:
(a) Declare the entire principal amount of the LOAN, or the
unpaid balance thereof, together with all accrued interest and all other
Liabilities and lawful and proper charges thereon, immediately due and payable
whereupon all such sums shall become immediately due and payable with interest
thereafter at the Default Rate, without presentment, demand, protest or other
notice of any kind, all of which are hereby expressly waived by BORROWER.
(b) Declare all other loans, sums and Liabilities owed to BANK
under this Agreement, together with all accrued interest and all other lawful
and proper charges thereon, to be forthwith due and payable, whereupon all such
sums shall forthwith become immediately due and payable, without presentment,
demand, protest or other notice of any kind, all of which are hereby expressly
waived by BORROWER.
(c) Draw upon the Letter of Credit in an amount necessary to
pay in full the principal of, and accrued interest on, the LOAN and the Term
Note, all without notice of any kind to BORROWER, which notice is hereby
expressly waived by BORROWER, provided, however, that any amount realized from
the Letter of Credit shall reduce the amount owed hereunder, provided further
however that in the event that any such amount received from the Letter of
Credit or any portion thereof, is rescinded, avoided, set aside, rendered void
and/or undone or otherwise required to be restored by BANK to the Letter of
Credit
32
<PAGE>
Bank or any other party, then the amount so required to be restored (including
any amount which BANK may be obligated to refund or repay) shall be due and
payable immediately by BORROWER hereunder this Agreement and the other Loan
Documents, all as though payment to BANK under the Letter of Credit had not been
made and BANK may immediately pursue all of its rights and remedies to collect
such amounts, together with interest at the Default Rate and all other amounts
which BANK may lawfully recover in connection therewith, including attorneys'
fees (including allocable costs of staff counsel) and expenses incurred to date
and/or which may be hereafter incurred.
(d) Immediately, and without notice or other action, set-off
and apply against the Liabilities any sum owed by BANK in any capacity to
BORROWER whether due or not. ANY AND ALL RIGHTS TO REQUIRE BANK TO EXERCISE ITS
RIGHTS OR REMEDIES PRIOR TO EXERCISING ITS RIGHT OF SETOFF ARE HEREBY KNOWINGLY,
VOLUNTARILY AND IRREVOCABLY WAIVED. BANK may do the foregoing even though some
or all of the Liabilities may be unmatured and regardless of the adequacy of any
remedy available to BANK. BANK shall be deemed to have exercised such right of
set-off and to have made a charge against any such sum immediately upon the
occurrence of such Event of Default, even though the actual book entries may be
made at some time subsequent thereto.
(e) Add to the Liabilities BANK's reasonable expenses to
obtain or enforce payment of any Liabilities hereunder and the enforcement or
liquidation of any debt hereunder shall include reasonable attorneys' fees, plus
other legal expenses incurred by BANK.
33
<PAGE>
7.2 The rights of BANK under this Article are in addition to all other
remedies, statutory and otherwise, which are available to it under law or
otherwise or under the terms of any of the other Loan Documents. No remedy
herein conferred upon or reserved to BANK is intended to be exclusive of any
other remedy or remedies, but each and every such remedy shall be cumulative and
shall be in addition to every other remedy given hereunder or now or hereafter
existing at law or in equity or by statute. No delay or omission to exercise any
right or power accruing upon the occurrence of any event of default shall impair
any such right or power or shall be construed to be a waiver thereof, but any
such right or power may be exercised from time to time and as often as may be
deemed expedient.
END OF ARTICLE VII
34
<PAGE>
ARTICLE VIII
MISCELLANEOUS
8.1 (a) Any communications between the parties hereto or notices
provided herein to be given may be given by mailing the same, certified mail,
return receipt requested, postage prepaid or by confirmed facsimile transmission
or hand delivery or by an overnight delivery service, to BANK at 1125 Route 22
West, Bridgewater, New Jersey 08807 Attn: Head, Asset Based Lending Department
and to BORROWER at the address first above given for BORROWER in this Agreement
or to such other addresses as either party may in writing hereafter indicate by
notice given in conformity with this Section.
(b) Notices sent by certified mail shall be deemed received when
accepted. Notices sent by confirmed facsimile transmission or hand delivery
shall be deemed received when delivered to the address and/or person designated
in this Section. Notices sent by overnight delivery service shall be deemed
received upon delivery.
8.2 CONFIDENTIALITY.
(a) BANK shall use all reasonable efforts to keep confidential, in
accordance with its customary procedures for handling confidential information
and safe and sound lending practices, any non-public information supplied to it
by BORROWER pursuant to this Agreement that BANK knows is confidential,
non-public information at the time such information is furnished by BORROWER to
BANK, provided, that, nothing contained herein shall limit the disclosure of any
such information: (1) to the extent required by statute, rule, regulation,
subpoena or court order, (2) to bank examiners and other regulators, auditors
and/or accountants, (3) in connection with any litigation to which BANK is a
party, (4) to any
35
<PAGE>
assignee or participate (or prospective assignee or participant) so long as such
assignee or participant (or prospective assignee or participant) shall have
first agreed in writing to treat such information as confidential in accordance
with this Section, or (5) to counsel for BANK or any participant or assignee (or
prospective participant or assignee).
(b) In no event shall this Section or any other provision of
this Agreement or applicable law be deemed: (1) to apply to or restrict
disclosure of information that has been or is made public by BORROWER or any
third party without breach of this Section or otherwise become generally
available to the public other than as a result of a disclosure in violation
hereof, (2) to apply to or restrict disclosure of information that was or
becomes available to BANK on a non-confidential basis from a person other than
BORROWER, (3) require BANK to return any materials furnished by BORROWER to
BANK, or (4) prevent BANK from responding to routine informational requests in
accordance with the Code of Ethics for the Exchange of Credit Information
promulgated by The Robert Morris Associates or other applicable industry
standards relating to the exchange of credit information.
8.3 PLEDGE TO FEDERAL RESERVE: BANK may at any time pledge all or any
portion of its rights under the Loan Documents including any portion of the Term
Note to any of the twelve (12) Federal Reserve Banks organized under Section 4
of the Federal Reserve Act, 12 U.S.C. Section 341. No such pledge or enforcement
thereof shall release BANK from its obligations under any of the Loan Documents.
8.4 ASSIGNMENTS: BANK shall have the unrestricted right, at BANK's
expense, at any time or from time to time, on prior notice to BORROWER but
without the
36
<PAGE>
need for BORROWER's consent, to assign all or any portion of its rights and
obligations hereunder to one or more banks or other financial institutions
(each, an "Assignee"), and BORROWER agrees that it shall execute, or cause to be
executed, such documents, including without limitation, amendments to this
Agreement and to any other documents, instruments and agreements executed in
connection herewith as BANK shall deem necessary to effect the foregoing. In
addition, at the request of BANK and any such Assignee, BORROWER shall issue one
or more new promissory notes, as applicable, to any such Assignee and, if BANK
has retained any of its rights and obligations hereunder following such
assignment, to BANK, which new promissory notes shall be issued in replacement
of, but not in discharge of, the liability evidenced by the promissory note held
by BANK prior to such assignment and shall reflect the amount of the respective
commitments and loans held by such Assignee and BANK after giving effect to such
assignment. Upon the execution and delivery of appropriate assignment
documentation, amendments and any other documentation required by BANK in
connection with such assignment, and the payment by Assignee of the purchase
price agreed to by BANK, and such Assignee, such Assignee shall be a party to
this Agreement and shall have all of the rights and obligations of BANK
hereunder (and under any and all other guaranties, documents, instruments and
agreements executed in connection herewith) to the extent that such rights and
obligations have been assigned by BANK pursuant to the assignment documentation
between BANK and such Assignee, and BANK shall be released from its obligations
hereunder and thereunder to a corresponding extent. Nothing in the foregoing
shall increase any financial obligation of BORROWER hereunder. Notwithstanding
anything else in this Section 8.4 or in Section 8.5 below, the following shall
apply:
37
<PAGE>
(a) BANK shall not assign or participate all or any part of
its rights and obligations hereunder to any Assignee or Participant that is not
a bank or trust company organized under the laws of the United States or any
state thereof having a combined capital and surplus of at least $500,000,000;
(b) no assignment or participation shall be made for less than
$2,000,000 of BANK's commitment hereunder; and
(c) there shall in no event be more than an aggregate of two
Assignees and Participants hereunder at any time.
8.5 PARTICIPATIONS: BANK shall have the unrestricted right at any time
and from time to time, and on prior notice to BORROWER but without the need for
the consent of BORROWER, to grant to one or more banks or other financial
institutions (each, a "Participant") participating interests in BANK's
obligation to lend hereunder and/or any or all of the loans held by BANK
hereunder. In the event of any such grant by BANK of a participating interest to
a Participant, whether or not upon notice to BORROWER, BANK shall remain
responsible for the performance of its obligations hereunder and BORROWER shall
continue to deal solely and directly with BANK in connection with BANK's rights
and obligations hereunder. Nothing in the foregoing shall increase any financial
obligation of BORROWER hereunder.
8.6 BANK may on prior notice to BORROWER but without the need for the
consent of BORROWER furnish any information concerning BORROWER in its
possession from time to time to prospective Assignees and Participants, provided
that BANK shall require
38
<PAGE>
any such prospective Assignee or Participant to agree to maintain the
confidentiality of such information to the same extent that BANK is obligated to
maintain such confidentiality.
8.7 All of BORROWER's payments hereunder shall be in lawful money of
the United States in immediately available funds unless otherwise provided in
this Agreement.
8.8 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns; provided, however, that
BORROWER shall not assign this Agreement or any of its rights, duties or
obligations hereunder without the prior written consent of BANK.
8.9 No delay or omission to exercise any right, power or remedy
accruing to BANK upon any breach or default (whether such breach or default is
now or hereafter occurring) of BORROWER under this Agreement, the Term Note or
any of the other Loan Documents shall (a) impair any such right, power or remedy
of BANK, (b) be construed to be a waiver of any such breach or default, or an
acquiescence therein, or (c) be construed to be a waiver of or an acquiescence
in any similar breach or default thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of BANK of any breach
or default under this Agreement, the Term Note or any of the other Loan
Documents, or any waiver on the part of BANK of any provision or condition of
this Agreement or any of such other Loan Documents, must be in writing and shall
be effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement, the Term Note or any of the other Loan
Documents, or by law or otherwise afforded to BANK, shall be cumulative and not
alternative.
39
<PAGE>
8.10 (a) BORROWER will pay reasonable fees and out-of-pocket expenses
incurred by BANK in connection with (1) the preparation of this Agreement and
other related documents, whether or not the transactions hereby contemplated
shall be consummated, (2) the making of the LOAN hereunder and (3) the
determination and/or enforcement of the rights of BANK in connection with such
documents or with the LOAN and the Term Note. Such reasonable out-of-pocket
expenses include but are not limited to, charges for the examination of title,
inspections and drawings of paper, recording and filing fees, and all reasonable
attorneys' fees, including the fees and disbursements of BANK's counsel.
(b) Whenever any attorney is used to provide advice to BANK
regarding BANK's relationship with BORROWER or whenever any attorney is used to
collect any obligation or to determine, preserve or enforce any right of BANK
against BORROWER, the Term Note or any of the other Loan Documents, whether by
suit or other means, BORROWER agrees to pay the reasonable attorney's fees and
other costs and expenses incurred by BANK.
(c) Until paid by BORROWER, all of the expenses set forth in
Sections (a) and (b) above shall bear interest at the Default Rate, but in no
event higher than the maximum rate allowed by law, and all such amounts shall be
added to any one or all of the Liabilities at BANK's sole discretion.
8.11 Nothing in this Agreement shall be deemed any waiver or
prohibition of BANK's right of set-off.
8.12 This Agreement, the Term Note and each of the other Loan Documents
shall be governed by, and construed under, the laws of the State of New York.
40
<PAGE>
8.13 BORROWER agrees that, in addition to any other available forum,
any suit, action or proceeding against it arising under or growing out of, or
relating to this Agreement or any note or other instrument or agreement required
hereunder, or any other instrument executed by BORROWER for the benefit of BANK,
may be instituted in any Federal court in the State of New Jersey or any State
court in the State of New Jersey or in any other court having jurisdiction, and
BORROWER hereby waives any objection which it might have now or hereafter to the
laying of the venue of any such suit, action or proceeding, and irrevocably
submits to the jurisdiction of any such court in any suit, action or proceeding
and waives any claim or defense of inconvenient forum.
BORROWER designates the Secretary of State of New Jersey as its agent
for service of process in the State of New Jersey in conjunction with any suit,
hearing, determination or proceeding connected with or related to this
Agreement. Any notice, process, pleading or other papers served upon such agent
shall, as a prerequisite to the validity thereof, at the same time be sent by
registered mail to BORROWER at the address for BORROWER given in Section 8.1 of
this Agreement.
8.14 (a) This Agreement shall not be effective against BANK unless
signed by an officer of BANK.
(b) This Agreement contains the entire understanding of the
parties and any promises or representations not herein contained shall have no
force and effect, unless in writing, duly signed by the party to be charged.
8.15 No portion or provision of this Agreement or any of the other Loan
Documents may be changed, modified, amended, waived, supplemented, discharged,
canceled
41
<PAGE>
or terminated orally or by any course of dealing, or in any manner other than by
an agreement in writing, signed by the party to be charged.
8.16 All representations, warranties, covenants, waivers and agreements
contained herein shall survive execution hereof, unless otherwise provided.
8.17 If any part of this Agreement is contrary to, prohibited by, or
deemed invalid under applicable laws or regulations, such provision shall be
inapplicable and deemed omitted to the extent so contrary, prohibited or
invalid, but the remainder hereof shall not be invalidated thereby and shall be
given effect so far as possible.
8.18 LOST LOAN DOCUMENTS: Upon receipt of an affidavit of an officer of
BANK as to the loss, theft, destruction or mutilation of the Term Note, BORROWER
will issue, in lieu thereof, a replacement Term Note other security document in
the same principal amount thereof and otherwise of like tenor. BANK will
indemnify BORROWER in the event that such replacement note is issued and the
Term Note was not in fact lost, stolen, destroyed or mutilated lost but was
instead transferred by BANK to a third party making claim thereunder.
8.19 This Agreement may be executed in any number of counterparts and
by different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement. Delivery of an executed counterpart of a
signature page to this Agreement by facsimile shall be as effective as delivery
of a manually executed counterpart of this Agreement.
42
<PAGE>
8.20 BORROWER AND BANK MUTUALLY HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE THE RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY CLAIM BASED
HEREON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER
LOAN DOCUMENTS CONTEMPLATED TO BE EXECUTED IN CONNECTION HEREWITH OR ANY COURSE
OF CONDUCT, COURSE OF DEALINGS, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR
ACTIONS OF ANY PARTY. THIS WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR BANK TO
ENTER INTO THIS AGREEMENT AND MAKE THE LOAN.
END OF ARTICLE VIII
<PAGE>
IN WITNESS WHEREOF, BORROWER and FLEET BANK, N.A. have caused this Loan
Agreement to be executed by their respective duly authorized officers on the
date and year first above written.
LOEHMANN'S, INC.
By: /s/ Dennis Hernreich
------------------------
Dennis Hernreich
Vice President, Finance
Chief Financial Officer
Assistant Secretary and Treasurer
FLEET BANK, N.A.
By: /s/ Barry Karen
-------------------
Barry Karen, Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEC FORM
10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> MAY-02-1998
<CASH> 2,132
<SECURITIES> 0
<RECEIVABLES> 7,220
<ALLOWANCES> 0
<INVENTORY> 77,774
<CURRENT-ASSETS> 87,126
<PP&E> 71,856
<DEPRECIATION> 0
<TOTAL-ASSETS> 201,299
<CURRENT-LIABILITIES> 56,315
<BONDS> 95,000
0
0
<COMMON> 89
<OTHER-SE> 11,359
<TOTAL-LIABILITY-AND-EQUITY> 201,299
<SALES> 112,595
<TOTAL-REVENUES> 112,595
<CGS> 73,182
<TOTAL-COSTS> 73,182
<OTHER-EXPENSES> 28,604
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,540
<INCOME-PRETAX> 1,766
<INCOME-TAX> 24
<INCOME-CONTINUING> 1,742
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,742
<EPS-PRIMARY> 0.19
<EPS-DILUTED> 0.19
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEC FORM
10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-02-1997
<PERIOD-END> MAY-03-1997
<CASH> 1,767
<SECURITIES> 0
<RECEIVABLES> 5,575
<ALLOWANCES> 0
<INVENTORY> 67,521
<CURRENT-ASSETS> 74,863
<PP&E> 71,612
<DEPRECIATION> 0
<TOTAL-ASSETS> 189,226
<CURRENT-LIABILITIES> 47,771
<BONDS> 95,000
0
0
<COMMON> 89
<OTHER-SE> 9,617
<TOTAL-LIABILITY-AND-EQUITY> 189,226
<SALES> 112,595
<TOTAL-REVENUES> 112,595
<CGS> 74,489
<TOTAL-COSTS> 74,489
<OTHER-EXPENSES> 28,868
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,972
<INCOME-PRETAX> 402
<INCOME-TAX> 22
<INCOME-CONTINUING> 380
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 380
<EPS-PRIMARY> 0.04
<EPS-DILUTED> 0.04
</TABLE>
