<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED APRIL 30, 1998
COMMISSION FILE #0-12862
DEP CORPORATION
A DELAWARE CORPORATION - I.R.S. NO. 95-2040819
2101 EAST VIA ARADO, RANCHO DOMINGUEZ, CA 90220
(310) 604-0777
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934,
during the preceding 12 months (or for such shorter period that the company was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, exclusive of treasury stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Outstanding at
Class April 30, 1998
-------------------------------------------- -----------------------
<S> <C>
COMMON STOCK, $.01 PAR VALUE 6,876,140
</TABLE>
1
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
<S> <C>
ITEM 1. FINANCIAL STATEMENTS:
CONSOLIDATED CONDENSED BALANCE SHEETS - 3
April 30, 1998 and July 31, 1997
CONSOLIDATED CONDENSED STATEMENTS OF INCOME - 4
Three and Nine Month Periods Ended
April 30, 1998 and 1997
CONSOLIDATED CONDENSED STATEMENTS OF RETAINED 5
DEFICIT AND ADDITIONAL PAID-IN CAPITAL -
Nine Month Period Ended April 30, 1998
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS - 6
Nine Month Periods Ended April 30, 1998 and 1997
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 9
CONDITION AND RESULTS OF OPERATIONS
PART II. OTHER INFORMATION
SIGNATURES 13
EXHIBIT INDEX 14
</TABLE>
2
<PAGE> 3
DEP CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
April 30, July 31,
ASSETS 1998 1997
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents ..................................................... $ 1,073,000 $ 11,788,000
Accounts receivable, net ...................................................... 16,554,000 16,218,000
Inventories at lower of cost (first-in, first-out) or market:
Raw materials ............................................................... 6,208,000 5,470,000
Finished goods .............................................................. 7,319,000 7,526,000
------------ ------------
13,527,000 12,996,000
Other current assets .......................................................... 1,227,000 2,014,000
------------ ------------
Total current assets ........................................................ 32,381,000 43,016,000
Property and equipment, net .................................................... 12,410,000 12,822,000
Intangibles, net ............................................................... 26,509,000 27,181,000
Other assets ................................................................... 1,754,000 1,671,000
------------ ------------
$ 73,054,000 $ 84,690,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion long-term debt ............................................... $ 3,721,000 $ 1,853,000
Accrued expenses ............................................................. 6,875,000 6,854,000
Accounts payable ............................................................. 5,264,000 8,529,000
------------ ------------
Total current liabilities ................................................... 15,860,000 17,236,000
Long-term debt, net of current portion ......................................... 49,379,000 61,521,000
Other non-current liabilities .................................................. 1,788,000 1,832,000
------------ ------------
Total liabilities ........................................................... 67,027,000 80,589,000
Stockholders' equity:
Preferred stock, par value $ 01; authorized 3,000,000 shares; none outstanding -- --
Common Stock, par value $ 01; authorized 15,000,000 shares; issued
7,107,140 shares .......................................................... 71,000 71,000
Additional paid-in capital ................................................... 13,397,000 13,397,000
Retained deficit ............................................................. (6,220,000) (8,181,000)
Foreign currency translation adjustment ...................................... (216,000) (181,000)
------------ ------------
7,032,000 5,106,000
Less: treasury stock, at cost, 231,000 shares of Common Stock ................ (1,005,000) (1,005,000)
------------ ------------
6,027,000 4,101,000
------------ ------------
$ 73,054,000 $ 84,690,000
============ ============
</TABLE>
See notes to consolidated condensed financial statements
3
<PAGE> 4
DEP CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
April 30, April 30,
-------------------------------- --------------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales ......................... $ 26,013,000 $ 28,571,000 $ 80,337,000 $ 85,693,000
Cost of sales ..................... 9,948,000 11,252,000 30,621,000 33,406,000
------------ ------------ ------------ ------------
Gross profit ...................... 16,065,000 17,319,000 49,716,000 52,287,000
Selling, general and
administrative expenses ......... 13,913,000 16,304,000 43,130,000 49,579,000
------------ ------------ ------------ ------------
Income from operations ............ 2,152,000 1,015,000 6,586,000 2,708,000
Other income (expense):
Interest, net ................... (1,454,000) (1,574,000) (4,727,000) (5,289,000)
Other ........................... (17,000) (42,000) 102,000 (22,000)
------------ ------------ ------------ ------------
(1,471,000) (1,616,000) (4,625,000) (5,311,000)
------------ ------------ ------------ ------------
Income (loss) before reorganization
items and income taxes .......... 681,000 (601,000) 1,961,000 (2,603,000)
Reorganization items .............. -- 12,000 -- 9,000
Income taxes ...................... -- -- -- --
------------ ------------ ------------ ------------
Net income (loss) ................. $ 681,000 $ (613,000) $ 1,961,000 $ (2,612,000)
============ ============ ============ ============
Earnings (loss) per common share
basic and diluted ................ $ 0.10 $ (0.09) $ 0.28 $ (0.39)
============ ============ ============ ============
Weighted average shares outstanding 6,876,140 6,876,140 6,876,140 6,643,842
============ ============ ============ ============
</TABLE>
See notes to consolidated condensed financial statements
4
<PAGE> 5
DEP CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF RETAINED DEFICIT
AND ADDITIONAL PAID-IN CAPITAL
NINE MONTHS ENDED APRIL 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Additional Retained
Paid-in Capital Deficit
----------- -----------
<S> <C> <C>
Balance at beginning of period $13,397,000 $(8,181,000)
Net income ................... -- 1,961,000
----------- -----------
Balance at end of period ..... $13,397,000 $(6,220,000)
=========== ===========
</TABLE>
See notes to consolidated condensed financial statements
5
<PAGE> 6
DEP CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
April 30,
--------------------------------
Operating Activities: 1998 1997
------------ ------------
<S> <C> <C>
Net income (loss) .......................................................... $ 1,961,000 $ (2,612,000)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization ............................................ 2,091,000 2,398,000
Other .................................................................... (74,000) 158,000
Changes in operating assets and liabilities:
Accounts receivable ..................................................... (310,000) 2,128,000
Inventories ............................................................. (543,000) (1,854,000)
Other assets ............................................................ 787,000 1,251,000
Accounts payable ........................................................ (3,272,000) (1,215,000)
Accrued expenses ........................................................ 15,000 (252,000)
------------ ------------
Net cash provided by operating activities .................................. 655,000 2,000
Investing Activities:
Purchases of property and equipment ........................................ (733,000) (538,000)
Proceeds from settlement of litigation relating to acquisition of trademarks -- 3,900,000
Other, net ................................................................. (357,000) 181,000
------------ ------------
Net cash provided by (used in) investing activities ......................... (1,090,000) 3,543,000
Financing Activities:
Decrease in lines of credit and long-term debt,
including change in current portion ..................................... (10,274,000) (1,034,000)
------------ ------------
Net cash used in financing activities ....................................... (10,274,000) (1,034,000)
------------ ------------
Increase (decrease) in cash and cash equivalents ............................ (10,709,000) 2,511,000
Effect of exchange rate changes on cash ..................................... (6,000) 13,000
Cash and cash equivalents at beginning of period ............................ 11,788,000 11,118,000
------------ ------------
Cash and cash equivalents at end of period .................................. $ 1,073,000 $ 13,642,000
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest ................................................................ $ 4,639,000 $ 3,791,000
============ ============
Income tax payments ..................................................... $ 2,000 $ 4,000
============ ============
</TABLE>
See notes to consolidated condensed financial statements
6
<PAGE> 7
DEP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. GENERAL
In the opinion of the Company, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (consisting of only
normal recurring accruals) necessary to fairly present the financial position as
of April 30, 1998, and the results of operations and statements of cash flows
for the three and nine month periods ended April 30, 1998.
The results of operations for the three and nine month periods ended
April 30, 1998, are not necessarily indicative of the results to be expected for
any other period or for the full year.
These quarterly financial statements should be read in conjunction with
the Company's audited financial statements contained in the annual report on
Form 10-K for the year ended July 31, 1997.
NOTE 2. EARNINGS (LOSS) PER SHARE
During the fiscal year, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 128 "Earnings Per Share," which was effective
for interim and annual reporting periods ending after December 15, 1997. SFAS
No. 128 specifies the method of computation, presentation and disclosure for
earnings per share ("EPS"). SFAS No. 128 requires the presentation of two EPS
amounts, basic and diluted. However, if there is no dilution, as defined, then
only basic EPS is presented. Basic EPS is calculated by dividing net income by
the weighted average number of common shares outstanding during the period.
Diluted EPS is calculated by dividing net income by the sum of the
weighted average number of common shares outstanding plus all additional common
shares that would have been outstanding assuming the exercise of dilutive stock
options. The number of shares that would be issued upon the exercise of dilutive
stock options has been reduced by the number of shares that could have been
purchased from the option proceeds at the average market price of the Company's
Common Stock. For the three and nine month periods ended April 30, 1998 and
1997, the number of dilutive stock options had no material impact on the EPS
calculations.
Options to purchase approximately 138,300 and 546,750 shares of Common
Stock were outstanding at April 30, 1998 and 1997, respectively, but were not
included in the computation of diluted EPS because the options' exercise prices
were greater than the average market price of the Common Stock for the period.
7
<PAGE> 8
NOTE 3. ACCRUED EXPENSES
Provisions for certain expenses, including coupon redemption and
cooperative advertising, are based on full year assumptions. Such expenses are
charged to operations in the year incurred and are included in the accompanying
consolidated condensed financial statements based upon estimated annual sales.
NOTE 4. REORGANIZATION ITEMS
Reorganization items consisted of the following:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
April 30, April 30,
------------------------- ----------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Professional fees $ -- $ $12,000 $ -- $ 139,000
Interest income . -- -- (130,000)
--------- --------- --------- ---------
$ -- $ 12,000 $ -- $ 9,000
========= ========= ========= =========
</TABLE>
NOTE 5. RECLASSIFICATION
Certain reclassifications have been made to the fiscal 1997 amounts to
conform to the fiscal 1998 presentation.
NOTE 6. NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board has issued SFAS No. 130,
"Reporting Comprehensive Income" and SFAS No. 131, "Disclosure about Segments of
an Enterprise and Related Information." SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its components. SFAS No. 131
supersedes previous reporting requirements for reporting on segments of a
business enterprise. These accounting standards are effective for periods
beginning after December 15, 1997. The Company has not determined the impact, if
any, of these new accounting standards.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Consolidated net sales for the three months ended April 30, 1998 were
$26,013,000, compared to $28,571,000 for the same period of the prior year.
Sales declined in the current period principally due to the conversion of two of
the Company's foreign operations, China and Australia, from direct sales to
percentage based royalty revenues, which accounted for $955,000 of the decrease,
and a $929,000 decline in Contract Packaging, which collectively represented 74%
of the decrease.
Net sales of domestic Personal Care Products for the three months ended
April 30, 1998 increased slightly from the previous year despite a $433,000
decline in sales of AGREE and HALSA. International Personal Care Products net
sales declined due to the conversion of the two foreign operations as noted
above and by lower AGREE and HALSA sales of $934,000.
Consolidated net sales for the nine month period ended April 30, 1998
were $80,337,000, compared to $85,693,000 for the comparable period of the prior
year. Sales were lower principally due to the conversion of international
operations which accounted for $2,792,000, or 52% of the decrease, a $3,171,000
decrease in Agree and Halsa sales and a $1,142,000 decline in Contract Packaging
due to lower private label sales. Such declines were partially offset by sales
generated from new product lines.
Gross profits for the three and nine months ended April 30, 1998 were
$16,065,000 and $49,716,000, respectively, compared to $17,319,000 and
$52,287,000, for the same periods of the prior year. As a percentage of net
sales, gross profits were 62% for the three and nine month periods ended April
30, 1998 compared to 61% for both periods of the prior year. The decrease in
absolute dollars of the current periods was the result of the lower sales
volume. The increase in gross profits percentage in the current periods was
primarily the result of sales of new products which have higher gross margins
than the Company's average and a decrease in the proportion of lower margin
Contract Packaging and international products.
9
<PAGE> 10
For the three and nine month periods ended April 30, 1998 selling,
general and administrative expenses ("SG&A") were $13,913,000 and $43,130,000,
respectively, compared to $16,304,000 and $49,579,000, for the same periods of
the prior year. As a percentage of net sales, SG&A decreased to 53% and 54%,
respectively, versus 57% and 58% for the prior year. The decrease, in both
dollars and the percentage of SG&A, in the current periods was primarily due to
lower promotional allowances as a result of moderate price increases initiated
in August 1997 and lower variable expenses as a result of the lower net sales.
In the nine month period ended April 30, 1997, SG&A included $640,000 of
expenses related to the recall of a test market skin care line.
Operating income significantly increased to $2,152,000 and $6,586,000
for the three and nine months ended April 30, 1998 from $1,015,000 and
$2,708,000, respectively. The increases were primarily due to lower SG&A
expenses, sales of higher margin new products, and the nonrecurring costs
incurred in fiscal 1997 related to a product recall.
Earnings before interest, taxes, depreciation and amortization (EBITDA)
for the three and nine month periods ended April 30, 1998 increased over 70% to
$2,826,000 and $8,779,000, respectively, from $1,570,000 and $5,075,000, for the
comparable prior year periods. EBITDA is considered by certain investors to be
an additional basis for evaluating the Company's value as well as its ability to
pay interest, repay debt and make capital expenditures. However, EBITDA should
not be considered in isolation, or a substitute for cash flow data prepared in
accordance with generally accepted accounting principles, or a measure of an
entity's profitability or liquidity. Such EBITDA data should be read in
conjunction with the consolidated statement of cash flows, included elsewhere
herein.
For the three and nine month periods ended April 30, 1998 net interest
expenses decreased to $1,454,000 and $4,727,000, respectively, compared to
$1,574,000 and $5,289,000 for the same periods of the prior year. The decrease
was due to a lower average principal balance and a lower average interest rate.
The Company entered into a new revolving credit facility (the "RCF") on March
31, 1998, which allowed it to utilize its excess cash balances to reduce
long-term debt. The RCF also provides for a lower rate of interest than the
existing Term Loan facility. As a result, the Company expects interest expense
to be lower in future periods.
There was no tax provision for the three and nine months ended April 30,
1998 as a result of prior net operating losses offsetting the current period's
taxable income.
10
<PAGE> 11
For the three and nine month periods ended April 30, 1998 the Company
recorded net income of $681,000, or $.10 per share, and $1,961,000, or $.28 per
share, respectively, compared to net losses of ($613,000), or ($.09) per share,
and ($2,612,000), or ($.39) per share, for the same periods of the prior year.
The improved results of the current period were primarily due to lower SG&A and
interest expense in the current periods, and the nonrecurring recall costs of
the prior year.
Liquidity and Capital Resources
Working capital at April 30, 1998 and July 31, 1997 was $16,521,000 and
$25,780,000, respectively, with current ratios of 2.0:1 and 2.5:1, respectively.
The primary reason for the decrease in working capital was the reduction in cash
which was used to make a permanent paydown on the Company's Term Loan.
The increases in accounts receivable and inventory related to new product
introductions and their related inventory requirements. The decrease in accounts
payable was primarily the result of the paydown of pre-petition unsecured
creditor claims.
Effective March 31, 1998, the Company entered into the RCF with an
affiliate of one of the lenders and agent to the Term Loan facility. The RCF
provides the Company with a working capital line of $13,000,000 based upon
eligible accounts receivable and inventory, as defined, and a $2,000,000
revolving capital expenditure facility. Interest under the RCF is, at the option
of the Company, either at LIBOR plus 3.75% or at the Norwest Bank base rate plus
1%. The RCF terminates March 31, 2003. As of April 30, 1998, there was
approximately $4,450,000 outstanding under the RCF. The financial covenants
under the RCF are the same as those of the Term Loan.
In conjunction with the RCF, on March 31, 1998 the Company made a
permanent paydown of its Term Loan of $13,250,000, of which $10,160,000 came
from excess cash balances and the remainder from the RCF. In addition, the
Company agreed to increase principal payments under the Term Loan by $250,000 in
each of the next three quarters beginning June 30, 1998. The RCF and Term Loan
are secured substantially by all of the Company's assets.
Management believes that the amount available under its RCF together
with cash flows from operations will be sufficient to enable it to meet its
obligations for the next twelve months.
The Company has from time to time engaged in discussions with third
parties regarding the possible acquisition by one or more of such third parties
of discrete portions of the Company's assets, and it has received indications of
interest from time to time from third parties interested in acquiring all of the
Company's stock or assets. The discussions have been preliminary in nature and
no agreements regarding any such sale or sales have been reached, nor can any
assurance be given that any agreements will be reached.
11
<PAGE> 12
Forward Looking Statements
The Management's Discussion and Analysis of Financial Condition and
Results of Operations section of this Form 10-Q contains forward looking
statements that are based on management's current beliefs and assumptions about
expectations, estimates, strategies and projections for the Company. Words such
as "expects," "seeks," "anticipates," "intends," "plans," "believes,"
"estimates," and variations of such words and similar expressions are intended
to identify such forward looking statements. These statements are not guarantees
of future performance and involve risks, uncertainties and assumptions that are
difficult to predict. Therefore, actual outcomes and results may differ
materially from what is expressed or forecasted in such forward looking
statements. The Company undertakes no obligation to update publicly any forward
looking statements whether as a result of new information, future events or
otherwise.
The risks, uncertainties and assumptions regarding forward looking
statements include, but are not limited to, product demand and market acceptance
risks; product development risks, such as delays or difficulties in developing,
producing and marketing new products or line extensions; the impact of
competitive products, pricing and advertising; constraints resulting from the
financial condition of the Company, including the degree to which the Company is
leveraged, debt service requirements and restrictions under loan agreements; and
other risks described in the Company's Securities and Exchange Commission
filings.
12
<PAGE> 13
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
Number Description
10.16 Loan and Security Agreement dated as of
March 31, 1998 (Revolving Credit Facility)
11 Statement re: Computation of Per Share Gain (Loss)
27 Financial Data Schedule
b) Reports on Form 8-K
None
13
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
May 27, 1998 DEP CORPORATION
/s/ Grant W. Johnson
-------------------------------
Grant W. Johnson
Senior Vice President,
Principal Financial Officer
and Chief Accounting Officer
14
<PAGE> 15
EXHIBIT INDEX
<TABLE>
<CAPTION>
Description Exhibit No.
- ----------- -----------
<S> <C>
Loan and Security Agreement dated as of
March 31, 1998 (Revolving Credit Facility) 10.16
Computation of Per Share Gain (Loss) 11
Financial Data Schedule 27
</TABLE>
15
<PAGE> 1
EXHIBIT 10.16
- --------------------------------------------------------------------------------
LOAN AND SECURITY AGREEMENT
BY AND BETWEEN
DEP CORPORATION
AND
FOOTHILL CAPITAL CORPORATION
DATED AS OF MARCH 31, 1998
- --------------------------------------------------------------------------------
<PAGE> 2
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (THIS "AGREEMENT"), is entered into as
of March 31, 1998, between FOOTHILL CAPITAL CORPORATION, a California
corporation ("Foothill"), with a place of business located at 11111 Santa Monica
Boulevard, Suite 1500, Los Angeles, California 90025-3333 and DEP CORPORATION, a
Delaware corporation ("Borrower"), with its chief executive office located at
2101 East Via Arado, Rancho Dominguez, California 90220.
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1 DEFINITIONS. As used in this Agreement, the following terms
shall have the following definitions:
"Account Debtor" means any Person who is or who may become
obligated under, with respect to, or on account of, an Account.
"Accounts" means all currently existing and hereafter
arising accounts, contract rights, and all other forms of obligations owing to
Obligor arising out of the sale or lease of goods or the rendition of services
by Obligor, irrespective of whether earned by performance, and any and all
credit insurance, guaranties, or security therefor.
"Adjusted Eurodollar Rate" means, with respect to each
Interest Period for any Eurodollar Rate Loan, the rate per annum (rounded
upwards, if necessary, to the next 1/16%) determined by dividing (a) the
Eurodollar Rate for such Interest Period by (b) a percentage equal to (i) 100%
minus (ii) the Reserve Percentage. The Adjusted Eurodollar Rate shall be
adjusted on and as of the effective day of any change in the Reserve Percentage.
"Advances" has the meaning set forth in Section 2.1(a).
"Affiliate" means, as applied to any Person, any other
Person who, directly or indirectly, controls, is controlled by, is under common
control with, or is a director or officer of such Person. For purposes of this
definition, "control" means the possession, directly or indirectly, of the power
to vote 5% or more of the Stock having ordinary voting power for the election of
directors (or comparable managers) or the direct or indirect power to direct the
management and policies of a Person.
"Agreement" has the meaning set forth in the preamble
hereto.
-2-
<PAGE> 3
"Applicable Percentage" means: (a) with respect to
Eligible Finished Goods, 60%; (b) with respect to Eligible Multi-Pak Inventory,
55%; (c) with respect to Eligible Raw Materials, 20% during the first month
following the Closing Date, reducing by 1% to 19% during the second month after
the Closing Date, and reducing by an additional 1% in each month thereafter
until the end of the 20th month following the Closing Date, and 0% thereafter.
"Approved Customer" means CVS, Kmart, Rite Aid, Target,
and Walgreen and any other Account Debtor which has been approved in writing by
Foothill which approval shall not be unreasonably conditioned, withheld or
delayed.
"Approved Participant" means any Person to which Foothill
has sold a participation interest in its rights under the Loan Documents with
the written consent of Borrower; provided, however, that any such consent shall
not be unreasonably conditioned, withheld, or delayed by Borrower.
"Authorized Person" means any officer or other employee of
Borrower.
"Availability" means, as of any date of determination, the
aggregate amount of Advances Borrower would be entitled to borrow on such date
under the terms of this Agreement (including Section 2.1) after taking into
account the amount of all Non-Contingent Obligations minus the amount of all
Capital Expenditure Loans, if any.
"Bankruptcy Code" means the United States Bankruptcy Code
(11 U.S.C.Section 101 et seq.), as amended, and any successor statute.
"Borrower" has the meaning set forth in the preamble to
this Agreement.
"Borrower Collateral" means all right, title, and interest
of Borrower in or to each of the following:
(a) the Accounts,
(b) Borrower's Books,
(c) the Equipment,
(d) the General Intangibles,
(e) the Inventory,
(f) the Negotiable Collateral,
(g) any money, or other assets of Borrower that now or
hereafter come into the possession, custody, or control of Foothill, and
-1-
<PAGE> 4
(h) the proceeds and products, whether tangible or
intangible, of any of the foregoing, including proceeds of insurance covering
any or all of the Borrower Collateral, and any and all Accounts, Borrower's
Books, Equipment, General Intangibles, Inventory, Negotiable Collateral, real
property, money, deposit accounts, or other tangible or intangible property
resulting from the sale, exchange, collection, or other disposition of any of
the foregoing, or any portion thereof or interest therein, and the proceeds
thereof.
"Borrower's Books" means all of Borrower's books and
records including: ledgers; records indicating, summarizing, or evidencing
Borrower's properties or assets (including the Borrower Collateral) or
liabilities; all information relating to Borrower's business operations or
financial condition; and all computer programs, disk or tape files, printouts,
runs, or other computer prepared information.
"Borrowing Base" has the meaning set forth in Section
2.1(a). For purposes of this definition, any amount that is denominated in a
currency other than Dollars shall be valued in Dollars based on the applicable
Exchange Rate for such currency as of the date one Business Day prior to the
date of determination.
"Business Day" means any day that is not a Saturday,
Sunday, or other day on which national banks located in Los Angeles, California
or Pittsburgh, Pennsylvania are authorized or required to close.
"Canadian Collateral" means the personal property
collateral in which liens and security interests held by Foothill have been
granted pursuant to the Loan Documents to which Canadian Guarantor is party.
"Canadian Currency Reserves" means reserves, determined
monthly by Foothill but without duplication, equal to 5% of the average
estimated amount (if any) of all Eligible Accounts payable in Canadian Dollars
included in the Borrowing Base for such month.
"Canadian Dollars" means the currency of Canada,
denominated in Canadian dollars.
"Canadian Guarantor" means DEP Canada, Limited, a
corporation incorporated under the laws of Canada.
"Canadian Lockbox Account" means any deposit account in
Canada into which Collections of Canadian Guarantor are deposited or that is
established pursuant to the terms of any Canadian Lockbox Agreement.
"Canadian Lockbox Agreement" means any Lockbox Agreement
that relates to the collection of Accounts in Canada.
"Canadian Maritime Provinces" means Prince Edward Island,
New Brunswick, Nova Scotia, and Newfoundland.
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"Canadian Security Agreement" means that certain General
Security Agreement, dated as of even date herewith, by Canadian Guarantor in
favor of Foothill, in the form of Exhibit C-1.
"Capital Expenditures" means, for any period, all
expenditures during such period by Borrower and its Subsidiaries for equipment,
fixed assets, real property or improvements, or for replacements or
substitutions therefor or additions thereto, that have a useful life of more
than one year.
"Capital Expenditure Line Commitment" has the meaning set
forth in Section 2.4.
"Capital Expenditure Loan" has the meaning set forth in
Section 2.4.
"CERCLA" means the Comprehensive Environmental Response,
Compensation and Liability Act of 1980.
"Change of Control" means any of the following: (i) any
Person or two or more Persons acting in concert shall have acquired (by an
acquisition approved by the board of directors of Borrower) beneficial ownership
(within the meaning of Rule 13d-3 of the Securities and Exchange Commission
under the Securities and Exchange Act of 1934), directly or indirectly, of
common stock of Borrower (or other securities convertible into such common
stock) representing 26% or more of the combined voting power of all common stock
of Borrower; (ii) at any time, Robert Berglass and his Affiliates shall
collectively own beneficially (including having the right to vote) less than 26%
of the combined voting power of all common stock of Borrower; or (iii) at any
time, the majority of the board of directors of Borrower is not comprised of
"Continuing Directors," which term shall mean those individuals who on the
Closing Date were directors of Borrower and those individuals subsequently
elected or appointed whose election or appointment was recommended or approved
by a majority of the Continuing Directors.
"Closing Date" means the date of the first to occur of the
making of the initial Advance, the issuance of the initial Letter of Credit, or
the making of the initial Capital Expenditure Loan.
"Code" means the California Uniform Commercial Code.
"Collateral" means the Borrower Collateral and the
Canadian Collateral.
"Collateral Access Agreement" means a landlord waiver,
mortgagee waiver, bailee letter, or acknowledgement agreement of any
warehouseman, processor, lessor, consignee, or other Person (other than any
Obligor) in possession of, having a Lien upon, or having rights or interests in
the Equipment or Inventory, in each case, in form and substance satisfactory to
Foothill.
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"Collections" means all cash, checks, notes, instruments,
and other items of payment (including, insurance proceeds, proceeds of cash
sales, rental proceeds, and tax refunds).
"Compliance Certificate" means a certificate substantially
in the form of Exhibit C-3 and delivered by the chief accounting officer of
Borrower to Foothill.
"Confidential Information" means information that Borrower
expressly furnishes to Foothill on a confidential basis, but does not include
any such information that is or becomes generally available to the public (other
than information that is or becomes available to the public as a result of
disclosure by Foothill in violation of Section 15.10) or that is or becomes
available to Foothill from a source other than Borrower or any agent of
Borrower.
"Consolidated Current Assets" means, as of any date of
determination, the aggregate amount of all current assets of Borrower and its
Subsidiaries that would, in accordance with GAAP, be classified on a balance
sheet as current assets.
"Consolidated Current Liabilities" means, as of any date
of determination, the aggregate amount of all current liabilities of Borrower
and its Subsidiaries that would, in accordance with GAAP, be classified on a
balance sheet as current liabilities; provided, however, that for the purposes
of this definition, all amounts of Funded Debt required to be paid or prepaid
within one year after any date of determination shall be deemed to be excluded
from such Person's current liabilities without regard to whether they would be
deemed to be so under GAAP.
"Consolidated EBITDA" means, for any applicable period,
the aggregate amount of net income (or net loss) of Borrower and its
Subsidiaries plus the sum of (a) interest expense, (b) income tax expense (or
credit), (c) depreciation expense, and (e) amortization expense, in each case as
determined in accordance with GAAP for such period.
"Consolidated Net Worth" means, as of any date of
determination, all amounts which would in accordance with GAAP be included in
stockholder's equity in a consolidated balance sheet of Borrower and its
Subsidiaries as of such date, minus (to the extent not otherwise deductible in
accordance with GAAP) the carrying value of (a) treasury stock and capital
stock, intercompany obligation or other securities of, or capital contributions
to or investments in, any Subsidiary, and (b) any write-up in the book value of
an asset resulting from any revaluation thereof after July 31, 1996.
"Consolidated Total Liabilities" means, as of any date of
determination, the aggregate amount of all liabilities of Borrower and its
Subsidiaries that would, in accordance with GAAP, be classified on a balance
sheet as liabilities.
"Copyright Security Agreement" means a Copyright Security
Agreement in the form of Exhibit C-4, executed and delivered by Borrower to
Foothill.
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"deems itself insecure" means that the Person deems itself
insecure in accordance with the provisions of Section 1208 of the Code.
"Default" means an event, condition, or default that, with
the giving of notice, the passage of time, or both, would be an Event of
Default.
"Designated Account" means account number 1006799911 of
Borrower maintained with Borrower's Designated Account Bank, or such other
deposit account of Borrower (located within the United States) that has been
designated, in writing and from time to time, by Borrower to Foothill.
"Designated Account Bank" means PNC Bank, N.A., whose
office is located at 620 Liberty Avenue, Pittsburgh, Pennsylvania 15265, and
whose ABA number is 043-000-096, or such other financial institution (located
within the United States) that has been designated, in writing and from time to
time, by Borrower to Foothill.
"Dilution" means, in each case based upon the experience
of the immediately prior 3 months, the result of dividing the Dollar amount of
(a) bad debt write-downs; customer deductions for discounts, cooperative
advertising, returns, promotions, or credits; or other dilution with respect to
the Accounts, by (b) Obligors' Collections (excluding extraordinary items) plus
the Dollar amount of clause (a).
"Dilution Reserve" means, as of any date of determination,
an amount sufficient to reduce Foothill's advance rate against Eligible Accounts
by one (1) percentage point for each percentage point by which Dilution is in
excess of 4%.
"Disbursement Letter" means an instructional letter
executed and delivered by Borrower to Foothill regarding the extensions of
credit to be made on the Closing Date, the form and substance of which shall be
satisfactory to Foothill.
"Dollars or $" means United States dollars.
"Early Termination Premium" has the meaning set forth in
Section 3.6.
"Eligible Accounts" means those Accounts created by either
Obligor in the ordinary course of business, that arise out of either Obligor's
sale of goods or rendition of services, that strictly comply with each and all
of the representations and warranties respecting Accounts made by Borrower to
Foothill in the Loan Documents, and that are and at all times continue to be
acceptable to Foothill in all respects; provided, however, that standards of
eligibility may be fixed and revised from time to time by Foothill in Foothill's
reasonable credit judgment. Eligible Accounts shall not include the following:
(a) Accounts with selling terms of more than 60 days,
(b) Accounts not excluded by clause (a) that the Account
Debtor has failed to pay within 60 days of the due date of such Account as
reflected on the relevant invoice;
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(c) Accounts owed by an Account Debtor or its Affiliates
where 50% or more of all Accounts owed by that Account Debtor (and its
Affiliates) are deemed ineligible under clause (b) above;
(d) Accounts with respect to which the Account Debtor is
an employee, Affiliate, or agent of either Obligor;
(e) Accounts with respect to which goods are placed on
consignment, guaranteed sale, sale or return, sale on approval, bill and hold,
or other terms by reason of which the payment by the Account Debtor may be
conditional;
(f) Accounts that are not payable in Dollars or Canadian
Dollars, or with respect to which the Account Debtor: (i) does not maintain its
chief executive office in the United States or Canada (but exclusive of the
Canadian Maritime Provinces), or (ii) is not organized under (1) the laws of the
United States or any State thereof or (2) Canada or any provinces thereof (but
exclusive of the Canadian Maritime Provinces), or (iii) is the government of any
foreign country or sovereign state, or of any state, province, municipality, or
other political subdivision thereof, or of any department, agency, public
corporation, or other instrumentality thereof, unless (y) the Account is
supported by an irrevocable letter of credit reasonably satisfactory to Foothill
(as to form, substance, and issuer or domestic confirming bank) that has been
delivered to Foothill and is directly drawable by Foothill, or (z) the Account
is covered by credit insurance in form and amount, and by an insurer, reasonably
satisfactory to Foothill;
(g) Accounts, in excess of $250,000 in the aggregate, with
respect to which the Account Debtor is either (i) the United States or any
department, agency, or instrumentality of the United States (exclusive, however,
of Accounts with respect to which the applicable Obligor has complied, to the
satisfaction of Foothill, with the Assignment of Claims Act, 31 U.S.C. Section
3727), or (ii) any State of the United States (exclusive, however, of Accounts
owed by any State that does not have a statutory counterpart to the Assignment
of Claims Act);
(h) Accounts with respect to which the Account Debtor is a
creditor of Obligor, has or has asserted a right of setoff, has disputed its
liability, or has made any claim with respect to such Account (but only to the
extent of any such setoff, disputed liability, or claim);
(i) Accounts with respect to (i) Walmart/Sam's Club that
exceed 35% of all Eligible Accounts, (ii) any Approved Customer in each case
that exceeds 20% of all Eligible Accounts, (iii) the aggregate of all Accounts
with respect to the Account Debtors set forth in clauses (i) and (ii) that
exceed 65% of all Eligible Accounts, and (iv) any other Account Debtor whose
total obligations owing to Obligors exceed 10% of all Eligible Accounts, to the
extent of the obligations owing by such Account Debtor in excess of such
percentage;
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(j) Accounts with respect to which the Account Debtor is
subject to any Insolvency Proceeding, or becomes insolvent, or goes out of
business;
(k) Accounts the collection of which Foothill, in its
reasonable credit judgment, believes to be doubtful by reason of the Account
Debtor's financial condition;
(l) Accounts with respect to which the goods giving rise
to such Account have not been shipped and billed to the Account Debtor, the
services giving rise to such Account have not been performed and accepted by the
Account Debtor, or the Account otherwise does not represent a final sale;
(m) Accounts with respect to which the Account Debtor is
located in the states of New Jersey, Minnesota, Indiana, or West Virginia (or
any other state that requires a creditor to file a Business Activity Report or
similar document in order to bring suit or otherwise enforce its remedies
against such Account Debtor in the courts or through any judicial process of
such state), unless the applicable Obligor has qualified to do business in New
Jersey, Minnesota, Indiana, West Virginia, or such other states, or has filed a
Notice of Business Activities Report with the applicable division of taxation,
the department of revenue, or with such other state offices, as appropriate, for
the then-current year, or is exempt from such filing requirement; and
(n) Accounts that represent progress payments or other
advance billings that are due prior to the completion of performance by the
applicable Obligor of the subject contract for goods or services.
"Eligible Finished Goods" means Eligible Inventory of the
type referred to in clause (a) of the definition of Eligible Inventory.
"Eligible Inventory" means Inventory consisting of: (a)
first quality Finished Goods held for sale in the ordinary course of Borrower's
business; (b) Multi-Pak Components held for the production of Finished Goods;
and (c) Raw Materials for such Finished Goods; in each case that are located at
or in-transit between Borrower's premises identified on Schedule E-1 as amended
from time to time in accordance with the provisions hereof to add additional
premises located in the United States or Canada (but exclusive of (i) the
Canadian Maritime Provinces and (ii) the province of Quebec unless the
applicable Obligor has entered into a Hypothec with respect to all such
Obligor's Collateral located in Quebec), that strictly comply with each and all
of the representations and warranties respecting Inventory made by Borrower to
Foothill in the Loan Documents, and that are and at all times continue to be
acceptable to Foothill in all respects; provided, however, that standards of
eligibility may be fixed and revised from time to time by Foothill in Foothill's
reasonable credit judgment. In determining the amount to be so included,
Inventory shall be valued at the lower of cost or market on a basis consistent
with Borrower's current and historical accounting practices. An item of
Inventory shall not be included in Eligible Inventory if:
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(a) it is not owned solely by Borrower or Borrower does
not have good, valid, and marketable title thereto;
(b) it is not located at or in-transit between one or more
of the locations set forth on Schedule E-1;
(c) it is not located on property owned or leased by
Borrower or in a contract warehouse, in each case, subject to a Collateral
Access Agreement executed by the mortgagee, lessor, the warehouseman, or other
third party, as the case may be, and segregated or otherwise separately
identifiable from goods of others, if any, stored on the premises;
(d) it is not subject to a valid and perfected first
priority security interest in favor of Foothill;
(e) it consists of goods returned or rejected by
Borrower's customers or goods in transit; and
(f) it is obsolete or slow moving, a restrictive or custom
item, work-in-process, or constitutes spare parts, supplies used or consumed in
Borrower's business, Inventory subject to a Lien in favor of any third Person,
bill and hold goods, defective goods, "seconds," or Inventory acquired on
consignment.
"Eligible Multi-Pak Inventory" means Eligible Inventory of
the type referred to in clause (b) of the definition of Eligible Inventory;
provided, however, that Eligible Multi-Pak Inventory shall not include any
Inventory that has been packaged in sample-size packages not intended for retail
sale, or any packaging related thereto.
"Eligible Raw Materials" means Eligible Inventory of the
type referred to in clause (c) of the definition of Eligible Inventory.
"Enhanced Availability" means, as of any date of
determination, the aggregate amount of Availability plus the amount of
unrestricted cash and cash equivalents of Borrower.
"Environmental Action" means any administrative,
regulatory or judicial action, suit, demand, demand letter, claim, notice of
non-compliance or violation, investigation, proceeding, consent order or consent
agreement relating in any way to any Environmental Law or any Environmental
Permit including, without limitation, (a) any claim by any Governmental
Authority for enforcement, cleanup, removal, response, remedial or other actions
or damages pursuant to any Environmental Law and (b) any claim by any third
party seeking damages, contribution, indemnification, cost recovery,
compensation or injunctive relief resulting from Hazardous Materials or arising
from alleged injury or threat of injury to health, safety or the environment.
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"Environmental Law" means any federal, state or local law,
rule, regulation, order, writ, judgment, injunction, decree, determination or
award relating to the environment, health, safety or Hazardous Materials,
including, without limitation, CERCLA, the Resource Conservation and Recovery
Act, the Hazardous Materials Transportation Act, the Clean Water Act, the Toxic
Substances Control Act, the Clean Air Act, the Safe Drinking Water Act, the
Atomic Energy Act, the Federal Insecticide, Fungicide and Rodenticide Act and
the Occupational Safety and Health Act.
"Environmental Permit" means any permit, approval,
identification number, license or other authorization required under any
Environmental Law.
"Equipment" means all of Obligor's present and hereafter
acquired machinery, machine tools, motors, equipment, furniture, furnishings,
fixtures, vehicles (including motor vehicles and trailers), tools, parts, goods
(other than consumer goods, farm products, or Inventory), wherever located,
including, (a) any assets acquired by Obligor with the proceeds of a Capital
Expenditure Loan, (b) any interest of Obligor in any of the foregoing, and (c)
all attachments, accessories, accessions, replacements, substitutions,
additions, and improvements to any of the foregoing.
"ERISA" means (a) the Employee Retirement Income Security
Act of 1974, as amended from time to time, and the regulations promulgated and
rulings issued thereunder and (b) comparable provisions of Canadian law relative
to the establishment and regulation of pension and other employee benefit plans.
"ERISA Affiliate" of any Person means any other Person
that for purposes of Title IV of ERISA is a member of such Person's controlled
group, or under common control with such Person, within the meaning of Section
414 of the Internal Revenue Code.
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"ERISA Event" with respect to any Person means (a) the
occurrence of a reportable event, within the meaning of Section 4043 of ERISA,
with respect to any Plan of such Person or any of its ERISA Affiliates unless
the 30-day notice requirement with respect to such event has been waived by the
PBGC; (b) the provision by the administrator of any Plan of such Person or any
of its ERISA Affiliates of a notice of intent to terminate such Plan, pursuant
to Section 4041(a)(2) of ERISA (including any such notice with respect to a plan
amendment referred to in Section 4041(e) of ERISA); (c) the cessation of
operations at a facility of such Person or any of its ERISA Affiliates in the
circumstances described in Section 4062(e) of ERISA; (d) the withdrawal by such
Person or any of its ERISA Affiliates from a Multiple Employer Plan during a
plan year for which it was a substantial employer, as defined in Section
4001(a)(2) of ERISA; (e) the failure by such Person or any of its ERISA
Affiliates to make a payment to a Plan required under Section 302(f)(1) of
ERISA; (f) the adoption of an amendment to a Plan of such Person or any of its
ERISA Affiliates requiring the provision of security to such Plan, pursuant to
Section 307 of ERISA; (g) the institution by the PBGC of proceedings to
terminate any Plan of such Person or any of its ERISA Affiliates, pursuant to
Section 4042 of ERISA, or the occurrence of any event or condition described in
Section 4042 of ERISA that could constitute grounds for the termination of, or
the appointment of a trustee to administer, such Plan; or (h) any comparable
event under Canadian law.
"Eurodollar Rate" means, with respect to the Interest
Period for a Eurodollar Rate Loan, the interest rate per annum at which United
States dollar deposits are offered to Foothill (or its Affiliates) by major
banks in the London interbank market (or other Eurodollar Rate market selected
by Foothill (or its Affiliates) if Foothill (or its Affiliates) reasonably
determines that the London interbank market has ceased to be a suitable
interbank market for the designation of offshore United States dollar deposit
interest rates) on or about 2:00 p.m. (New York time) 2 Business Days prior to
the commencement of such Interest Period in amounts comparable to the 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.
"Eurodollar Rate Loans" means any Advance or Capital
Expenditure Loan (or any portion thereof) made or outstanding hereunder during
any period when interest on such Advance or Capital Expenditure Loan (or portion
thereof) is payable based on the Adjusted Eurodollar Rate.
"Event of Default" has the meaning set forth in Section 8.
"Exchange Act" means the Securities and Exchange Act of
1934, as amended.
"Exchange Rate" means and refers to the nominal rate of
exchange available to Foothill in a chosen foreign exchange market for the
purchase of non-Dollar currency by Foothill at 12:00 noon, local time, one
Business Day prior to any date of determination, expressed as the number of
units of such currency per one (1) Dollar.
"FEIN" means Federal Employer Identification Number.
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"Finished Goods" means Inventory that has been
manufactured or assembled and packaged in its final form for distribution and
sale; provided, however, that Finished Goods shall not include any Multi-Pak
Components.
"Foothill" has the meaning set forth in the preamble to
this Agreement.
"Foothill Account" has the meaning set forth in Section
2.7.
"Foothill Expenses" means all: costs or expenses
(including taxes, and insurance premiums) required to be paid by Borrower under
any of the Loan Documents that are paid or incurred by Foothill; reasonable
out-of-pocket fees or charges paid or incurred by Foothill in connection with
Foothill's transactions with Borrower, including, fees or charges for
photocopying, notarization, couriers and messengers, telecommunication, public
record searches (including tax lien, litigation, and UCC searches and including
searches with the patent and trademark office, the copyright office, or the
department of motor vehicles), filing, recording, publication, appraisal
(including periodic Collateral appraisals); costs and expenses incurred by
Foothill in the disbursement of funds to Borrower (by wire transfer or
otherwise); charges paid or incurred by Foothill resulting from the dishonor of
checks; reasonable out-of-pocket costs and expenses paid or incurred by Foothill
to correct any default or enforce any provision of the Loan Documents, or in
gaining possession of, maintaining, handling, preserving, storing, shipping,
selling, preparing for sale, or advertising to sell the Collateral, or any
portion thereof, irrespective of whether a sale is consummated; reasonable costs
and expenses paid or incurred by Foothill in examining Borrower's Books, subject
to the limitations in this Agreement; reasonable out-of-pocket costs and
expenses of third party claims or any other suit paid or incurred by Foothill in
enforcing or defending the Loan Documents or in connection with the transactions
contemplated by the Loan Documents or Foothill's relationship with Borrower or
any guarantor; and Foothill's reasonable attorneys fees and expenses incurred in
advising, structuring, drafting, reviewing, administering, amending,
terminating, enforcing (including reasonable local counsel fees, and reasonable
attorneys fees and expenses incurred in connection with a "workout," a
"restructuring," or an Insolvency Proceeding concerning Borrower or any
guarantor of the Obligations), defending, or concerning the Loan Documents,
irrespective of whether suit is brought.
"Foothill Primary Collateral" means that portion of the
Collateral in which the Lien of Foothill has priority over the Lien of the Term
Lender Group pursuant to the provisions of the Intercreditor Agreement.
"Foreign Account" means any deposit account of Borrower or
any foreign subsidiary of Borrower (except for Canadian Guarantor), located in
any foreign country (except Canada) into which Collections of such foreign
subsidiary, or foreign Collections of Borrower, are deposited.
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"Funded Debt" means any Indebtedness of Borrower or its
Subsidiaries that by its terms matures more than one year after the date of
creation or determination or matures within one year from such date but is
renewable or extendible, at the option of such Person, to a date more than one
year after such date or arises under a revolving credit or similar agreement
that obligates the lender or lenders to extend credit during a period of more
than one year after such date, including all amounts of Funded Debt of such
Person required to be paid or prepaid within one year after the date of
determination and including all Indebtedness to the Term Lender Group under the
Term Loan Agreement and all Indebtedness to Foothill under the Terms of this
Agreement.
"GAAP" means generally accepted accounting principles as
in effect from time to time in the United States, consistently applied.
"General Intangibles" means all of Obligor's present and
future general intangibles and other personal property (including contract
rights, rights arising under common law, statutes, or regulations, choses or
things in action, goodwill, patents, trade names, trademarks, servicemarks,
copyrights, blueprints, drawings, purchase orders, customer lists, monies due or
recoverable from pension funds, route lists, rights to payment and other rights
under any royalty or licensing agreements, infringement claims, computer
programs, information contained on computer disks or tapes, literature, reports,
catalogs, deposit accounts, insurance premium rebates, tax refunds, and tax
refund claims), other than goods, Accounts, and Negotiable Collateral.
"Governing Documents" means the certificate or articles of
incorporation, by-laws, or other organizational or governing documents of any
Person.
"Governmental Authority" means any nation or government,
any state or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Guaranty" means that certain General Continuing Guaranty,
dated as of even date herewith, executed and delivered by Canadian Guarantor in
the form of Exhibit G-1.
"Hazardous Materials" means (a) petroleum or petroleum
products, natural or synthetic gas, asbestos in any form that is or could become
friable, urea formaldehyde foam insulation and radon gas, (b) any substances
defined as or included in the definition of "hazardous substances," "hazardous
wastes," "hazardous materials," "extremely hazardous wastes," "restricted
hazardous wastes," "toxic substances," "toxic pollutants," "contaminants" or
"pollutants," or words of similar import, under any Environmental Law and (c)
any other substance exposure to which is regulated under any Environmental Law.
"Hypothec" means a hypothec governed by Quebec law, in
form and substance reasonably satisfactory to Foothill.
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"Indebtedness" means: (a) all obligations of Borrower for
borrowed money, (b) all obligations of Borrower evidenced by bonds, debentures,
notes, or other similar instruments and all reimbursement or other obligations
of Borrower in respect of letters of credit, bankers acceptances, interest rate
swaps, or other financial products, (c) all obligations of Borrower under
capital leases, (d) all obligations or liabilities of others secured by a Lien
on any property or asset of Borrower, irrespective of whether such obligation or
liability is assumed, and (e) any obligation of Borrower guaranteeing or
intended to guarantee (whether guaranteed, endorsed, co-made, discounted, or
sold with recourse to Borrower) any indebtedness, lease, dividend, letter of
credit, or other obligation of any other Person; provided, however, Indebtedness
shall not include any Accounts owed by any Subsidiary of Borrower to Borrower or
by Borrower to any Subsidiary of Borrower to the extent and only to the extent
that any such Accounts do not constitute obligations for loans or borrowed
money.
"Insolvency Proceeding" means any proceeding commenced by
or against any Person under any provision of the Bankruptcy Code or under any
other bankruptcy or insolvency law, assignments for the benefit of creditors,
formal or informal moratoria, compositions, extensions generally with creditors,
or proceedings seeking reorganization, arrangement, or other similar relief.
"Intercreditor Agreement" means an Intercreditor Agreement
between Foothill and the Term Lender Group in the form attached hereto as
Exhibit I-1.
"Interest Period" means, for any Eurodollar Rate Loan, the
period commencing on the Business Day such Eurodollar Rate Loan is disbursed or
continued, or on the Business Day on which a Reference Rate Loan is converted to
such Eurodollar Rate Loan, and ending on the date 1, 2, or 3 months thereafter,
as selected by Borrower and notified to Foothill pursuant to Section 2.1(c), and
as further provided in Section 2.12(a)&(b).
"International Account" means account number 014-179-720
of Borrower maintained with City National Bank, or such other deposit account of
Borrower (located within the United States) that has been designated, in writing
and from time to time, by Borrower to Foothill as its International Account.
"Inventory" means all present and future inventory in
which Obligor has any interest, including goods held for sale or lease or to be
furnished under a contract of service and all of Obligor's present and future
raw materials, work in process, finished goods, and packing and shipping
materials, wherever located.
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"Inventory Reserves" means reserves (determined from time
to time by Foothill in its reasonable discretion but without duplication) for:
(a) the estimated costs relating to warehousing or storage charges, and other
similar unpaid costs associated with the storage of Eligible Inventory by
Borrower; provided, however, that to the extent any applicable rights to assert
any Liens with respect to any such costs have been waived under the terms of a
Collateral Access Agreement by the each Person otherwise entitled to assert such
liens, and Foothill is not required to pay or indemnify such Person for such
costs under the terms of any such Collateral Access Agreement, such costs shall
not be included in the Inventory Reserves; plus (b) the estimated reclamation
claims of unpaid sellers of Eligible Inventory sold to Borrower.
"Investment" in any Person means any (a) loans, advances,
capital contributions, or transfers of property to a Person, (b) the acquisition
of the capital stock, warrants, rights, options, or obligations other securities
(either debt or equity) of, or other interests in, a Person, (c) loans,
advances, capital contributions, or transfers of property to a Person, or (d)
the acquisition of all or substantially all of the properties or assets of a
Person, but excluding (i) loans or advances of account of trade credit given in
the ordinary course of Borrower's business and (ii) lease payments or other
expenditures incurred in the ordinary course of Borrower's business or
expenditures which would be considered ordinary course expenditures by the
standards or trade customs of the industry in which Borrower operates.
"Investment Property" means "investment property" as that
term is defined in Section 9115 of the Code.
"IRC" means the Internal Revenue Code of 1986, as amended,
and the regulations thereunder.
"L/C" has the meaning set forth in Section 2.2(a).
"L/C Guaranty" has the meaning set forth in Section
2.2(a).
"Letter of Credit" means an L/C or an L/C Guaranty, as the
context requires.
"Letter of Credit Usage" means the sum of (a) the undrawn
amount of outstanding Letters of Credit plus (b) the amount of unreimbursed
drawings under Letters of Credit.
"License Agreement" means a License Agreement in the form
of Exhibit L-1, executed and delivered by Borrower to Foothill.
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"Lien" means any interest in property securing an
obligation owed to, or a claim by, any Person other than the owner of the
property, whether such interest shall be based on the common law, statute, or
contract, whether such interest shall be recorded or perfected, and whether such
interest shall be contingent upon the occurrence of some future event or events
or the existence of some future circumstance or circumstances, including the
lien or security interest arising from a mortgage, deed of trust, encumbrance,
pledge, hypothecation, assignment, deposit arrangement, security agreement,
adverse claim or charge, conditional sale or trust receipt, or from a lease,
consignment, or bailment for security purposes and also including reservations,
exceptions, encroachments, easements, rights-of-way, covenants, conditions,
restrictions, leases, and other title exceptions and encumbrances affecting real
property.
"Loan Account" has the meaning set forth in Section 2.10.
"Loan Documents" means this Agreement, the Disbursement
Letter, the Letters of Credit, the Lockbox Agreements, the Stock Pledge
Agreement, the Trademark Security Agreement, the Copyright Security Agreement,
the License Agreement, the Guaranty, the Canadian Security Agreement, the
Intercreditor Agreement, any note or notes executed by Borrower and payable to
Foothill, and any other agreement entered into, now or in the future, in
connection with this Agreement.
"Lockbox Account" shall mean a depositary account
established pursuant to one of the Lockbox Agreements.
"Lockbox Agreements" means those certain Lockbox Operating
Procedural Agreements and those certain Depository Account Agreements, in form
and substance satisfactory to Foothill, each of which is among Borrower,
Foothill, and one of the Lockbox Banks.
"Lockbox Banks" means PNC Bank, N.A.
"Lockboxes" has the meaning set forth in Section 2.7.
"Material Adverse Change" means (a) a material adverse
change in the business, prospects, operations, results of operations, assets,
liabilities or condition (financial or otherwise) of Obligor taken as a whole;
(b) the material impairment of the ability of Obligor taken as a whole to
perform its obligations under the Loan Documents to which it is a party or of
Foothill to enforce the Obligations or realize upon the Collateral; (c) a
material adverse effect on the value of the Collateral, or the amount that
Foothill would be likely to receive (after giving consideration to delays in
payment and costs of enforcement) in the liquidation of the Collateral; or (d) a
material impairment of the priority of Foothill's Liens with respect to the
Collateral.
"Maximum Amount" means, as of any date of determination,
the sum of (a) the Maximum Revolving Amount, and (b) the Capital Expenditure
Line Commitment.
"Maximum Revolving Amount" means $13,000,000.
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"Multiemployer Plan" of any Person means a multiemployer
plan, as defined in Section 4001(a)(3) of ERISA, to which such Person or any of
its ERISA Affiliates is making or accruing an obligation to make contributions,
or has within any of the preceding five plan years made or accrued an obligation
to make contributions.
"Multi-Pak Components" means first quality finished
products which have been bottled and labeled in multi-pak (bulk) packaging but
which require further assembly and packaging to produce Finished Goods.
"Multiple Employer Plan" of any Person means a single
employer plan, as defined in Section 4001(a)(15) of ERISA, that (a) is
maintained for employees of such Person or any of its ERISA Affiliates and at
least one Person other than such Person and its ERISA Affiliates or (b) was so
maintained and in respect of which such Person or any of its ERISA Affiliates
could have liability under Section 4064 or 4069 of ERISA in the event such plan
has been or were to be terminated.
"Negotiable Collateral" means all of a Person's present
and future letters of credit, notes, drafts, instruments, Investment Property,
documents, personal property leases (wherein such Person is the lessor), chattel
paper, and Borrower's Books relating to any of the foregoing.
"Net Cash Proceeds" means, with respect to any sale,
lease, transfer, or other disposition of any asset, or the sale or issuance of
any Indebtedness or capital stock, any securities convertible into or
exchangeable for capital stock, or any warrants, rights, or options to acquire
capital stock by any Person, the aggregate amount of cash received from time to
time by or on behalf of such Person in connection with such transaction after
deducting therefrom only; (a) reasonable and customary brokerage commissions,
underwriting fees and discounts, legal fees, finder's fees an other similar fees
and commissions; (b) the amount of taxes payable in connection with or as a
result of such transactions; (c) all other reasonable out-of-pocket expenses
incurred in connection with or as a result of such transaction; and (d) the
amount of Indebtedness (excluding any intercompany Indebtedness) that is secured
by a Lien on such asset which, by the terms of such transaction, is required to
be repaid upon such disposition or that would, if secured by a Lien, create with
such a Lien a "purchase money security interest" within the meaning of Section
9107 of the Code, in each case to the extent, but only to the extent, that the
amounts so deducted are, at the time of receipt of such cash, actually paid to a
Person that is not an Affiliate and are properly attributable to such
transactions or to the asset that is the subject thereof.
"Non-Contingent Obligations" means all Obligations other
than any contingent Obligations not included in Letter of Credit Usage;
provided, however, that Foothill Expenses, accrued interest or fees, and other
similar Obligations that may be charged to Borrower's Loan Account, but that
have not yet been charged to Borrower's Loan Account, shall not be included in
Non-Contingent Obligations until such amounts have been charged to Borrower's
Loan Account or written demand for payment thereof has been made on Borrower.
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"Obligations" means all loans, Advances, debts, principal,
interest (including any interest that, but for the provisions of the Bankruptcy
Code, would have accrued), contingent reimbursement obligations under any
outstanding Letters of Credit, premiums (including Early Termination Premiums),
liabilities (including all amounts charged to Borrower's Loan Account pursuant
hereto), obligations, fees, charges, costs, or Foothill Expenses (including any
fees or expenses that, but for the provisions of the Bankruptcy Code, would have
accrued), lease payments, guaranties, covenants, and duties owing by Borrower to
Foothill of any kind and description pursuant to or evidenced by the Loan
Documents (and irrespective of whether for the payment of money), whether direct
or indirect, absolute or contingent, due or to become due, now existing or
hereafter arising under and pursuant to the Loan Documents, and further
including all interest not paid when due and all Foothill Expenses that Borrower
is required to pay or reimburse by the Loan Documents, by law, or otherwise with
respect to the Loan Documents.
"Obligor" means Borrower and Canadian Guarantor or any one
of them as the context requires.
"Overadvance" has the meaning set forth in Section 2.5.
"Participant" means any Person to which Foothill has sold
a participation interest in its rights under the Loan Documents.
"PBGC" means (a) the Pension Benefit Guaranty Corporation
or any successor and (b) any entity created under the laws of Canada or any of
the provinces or territories thereof having comparable rights and
responsibilities.
"Permitted Liens" means:
(a) Liens held by Foothill;
(b) Liens for taxes, assessments and governmental charges
or levies which are not yet due and payable or which may be paid after the due
date without penalty or risk of forfeiture of any property, or which are the
subject of Permitted Protests;
(c) Liens imposed by law, such as materialmen's,
mechanics', carriers', workmen's and repairmen's Liens and other similar Liens
arising in the ordinary course of business securing obligations which are not
overdue for a period of more than 60 days or which are the subject of Permitted
Protests;
(d) Liens of or resulting from any judgment or award that
reasonably could not be expected to result in a Material Adverse Change or with
respect to which Borrower has obtained a stay of execution pending appeal,
provided, however, that Borrower shall have posted a bond which satisfies the
legal requirements applicable to such appeal, and provided, further, that
Borrower shall have set aside adequate reserves in accordance with GAAP with
respect to such contested judgment or award;
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(e) Liens arising in connection with pledges or deposits
to secure obligations under workers' compensation laws or similar legislation or
to secure public or statutory obligations;
(f) Liens arising by reason of security for surety or
appeal bonds in the ordinary course of business of Borrower or its Subsidiaries;
(g) Liens set forth on Schedule P-1;
(h) purchase money Liens upon or in property acquired or
held by Borrower or any of its Subsidiaries in the ordinary course of business
to secure the purchase price of such property or to secure Debt incurred solely
for the purpose of financing the acquisition, construction or improvement of any
such property to be subject to such Liens, or Liens existing on any such
property at the time of acquisition, or extensions, renewals or replacements of
any of the foregoing for the same or a lesser amount; provided, however, that no
such Lien shall extend to or cover any property other than the property being
acquired, constructed or improved, and no such extension, renewal or replacement
shall extend to or cover any property not theretofore subject to the Lien being
extended, renewed or replaced; and provided, further, that the aggregate
principal amount of Indebtedness of Borrower and its Subsidiaries on a
consolidated basis secured by Liens permitted by this clause (h) shall not
exceed $2,200,000 at any time outstanding and that any such Indebtedness shall
not otherwise be prohibited by the terms of the Loan Documents;
(i) Liens arising in connection with capitalized leases in
an aggregate principal amount for Borrower and its Subsidiaries on a
consolidated basis not to exceed $2,000,000 at any time outstanding;
(j) Liens granted to the Term Lender Group pursuant to the
terms of the Term Loan Agreement;
(k) (i) any Lien, levy or assessment which is filed of
record with respect to any of Borrower's properties or assets by the United
States Government, or any department, agency, or instrumentality thereof, or by
any state, county, municipal, or governmental agency, or (ii) any taxes or debts
owing at any time hereafter to any one or more of such entities which becomes a
Lien, whether choate or otherwise, upon any of Borrower's properties or assets,
in each case, which does not create an Event of Default pursuant to Section 8.8;
(l) any judgment or other claim which becomes a Lien or
encumbrance upon any material portion of Borrower's properties or assets and
which does not create an Event of Default pursuant to Section 8.9; and
(m) Liens arising in connection with deposits made by
Borrower and its Subsidiaries in the ordinary course of business with suppliers,
utilities, and other third parties.
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"Permitted Protest" means the right of Borrower to protest
any Lien (other than any such Lien that secures the Obligations), tax (other
than payroll taxes or taxes that are the subject of a United States federal tax
lien), rental payment or any other obligation of Borrower or any of its
Subsidiaries, provided that (a) Borrower maintains adequate reserves in
accordance with GAAP with respect to any such obligations on the books of
Borrower or its Subsidiaries, (b) any such protest is instituted and diligently
prosecuted by Borrower in good faith, and (c) while any such protest is pending,
there will be no impairment of the enforceability, validity, or priority of any
of the Liens of Foothill in and to the Collateral.
"Person" means and includes natural persons, corporations,
limited liability companies, limited partnerships, general partnerships, limited
liability partnerships, joint ventures, trusts, land trusts, business trusts, or
other organizations, irrespective of whether they are legal entities, and
governments and agencies and political subdivisions thereof.
"Plan" means a Single Employer Plan or a Multiple Employer
Plan.
"Plan of Reorganization" means a Plan of Reorganization
for Borrower which has been approved pursuant to Chapter 11 of the Bankruptcy
Code.
"Raw Materials" means (a) all packaging materials and
components, and (b) all bulk chemicals, held for use in the manufacture of
Finished Goods.
"Reference Rate" means the variable rate of interest, per
annum, most recently announced by Norwest Bank Minnesota, National Association,
or any successor thereto, as its "base rate," irrespective of whether such
announced rate is the best rate available from such financial institution.
"Reference Rate Loans" means any Advance or Capital
Expenditure Loan (or any portion thereof) made or outstanding hereunder during
any period when interest on such Advance or Capital Expenditure Loan (or portion
thereof) is payable based on the Reference Rate.
"Renewal Date" has the meaning set forth in Section 3.4.
"Reorganization Expenses" means expenses incurred by
Borrower in connection with its proceeding under the Bankruptcy Code and the
Plan of Reorganization.
"Requirement of Law" means, as to any Person: all (a) (i)
statutes and regulations and (ii) court orders and injunctions, arbitrators's
decisions, and/or similar rulings, in each instance by any Governmental
Authority, or other body which has jurisdiction over such Person, or any
property of such Person; and (b) that Person's organizational documents, by-laws
and/or other instruments which deal with corporate or similar governance, as
applicable.
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"Reserve Percentage" means and refers to, as of the date
of determination thereof, the maximum percentage (rounded upward, if necessary
to the nearest 1/100th of 1%), as determined by Foothill (or its Affiliates) in
accordance with its (or their) usual procedures (which determination shall be
conclusive in the absence of manifest error), that is in effect on such date as
prescribed by the Federal Reserve Board for determining the reserve requirements
(including supplemental, marginal, and emergency reserve requirements) with
respect to eurocurrency funding (currently referred to as "eurocurrency
liabilities") by Foothill or its Affiliates.
"Revolving Lender Primary Collateral" shall have the
meaning ascribed to that term in the Intercreditor Agreement as such agreement
is in effect as of the Closing Date.
"Royalty Payment Reserves" means reserves (determined from
time to time by Foothill in its reasonable discretion but without duplication)
for the estimated amount of any amounts payable by Borrower in connection with
royalties due from Borrower under any licensing agreements with other Persons
that relate to Eligible Inventory or Eligible Accounts and that have not been
paid by Borrower when due or within 60 days of the date on which such royalty
payments are due.
"SEC" means the Securities and Exchange Commission or any
successor thereto.
"Single Employer Plan" of any Person means a single
employer plan, as defined in Section 4001(a)(15) of ERISA, that (a) is
maintained for employees of such Person or any of its ERISA Affiliates and no
Person other than such Person and its ERISA Affiliates or (b) was so maintained
and in respect of which such Person or any of its ERISA Affiliates could have
liability under Section 4069 of ERISA in the event such plan has been or were to
be terminated.
"slow moving" means, as of any date of determination, any
category of Inventory that has an amount equal to or in excess of 18 months
supply for that category of Inventory; provided, however, that no category of
Inventory for which the first date of sale has occurred within 12 months of any
such date of determination shall be classified as "slow moving".
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"Solvent" means, with respect to any Person on a
particular date, that on such date (a) at fair valuations, all of the properties
and assets of such Person are greater than the sum of the debts, including
contingent liabilities, of such Person, (b) the present fair salable value of
the properties and assets of such Person is not less than the amount that will
be required to pay the probable liability of such Person on its debts as they
become absolute and matured, (c) such Person is able to realize upon its
properties and assets and pay its debts and other liabilities, contingent
obligations and other commitments as they mature in the normal course of
business, (d) such Person does not intend to, and does not believe that it will,
incur debts beyond such Person's ability to pay as such debts mature, and (e)
such Person is not engaged in business or a transaction, and is not about to
engage in business or a transaction, for which such Person's properties and
assets would constitute unreasonably small capital after giving due
consideration to the prevailing practices in the industry in which such Person
is engaged. In computing the amount of contingent liabilities at any time, it is
intended that such liabilities will be computed at the amount that, in light of
all the facts and circumstances existing at such time, represents the amount
that reasonably can be expected to become an actual or matured liability.
"Stock" means all shares, options, warrants, interests,
participations, or other equivalents (regardless of how designated) of or in a
corporation or equivalent entity, whether voting or nonvoting, including common
stock, preferred stock, or any other "equity security" (as such term is defined
in Rule 3a11-1 of the General Rules and Regulations promulgated by the SEC under
the Exchange Act).
"Stock Pledge Agreement" means a Stock Pledge Agreement in
the form of Exhibit S-1, executed and delivered by Borrower to Foothill, with
respect to the Stock of the domestic Subsidiaries of Borrower (but not the
foreign Subsidiaries of Borrower).
"Subsidiary" of any Person means any corporation,
partnership, joint venture, trust or estate of which (or in which) more than 50%
of (a) the issued and outstanding capital stock having ordinary voting power to
elect a majority of the Board of Directors of such corporation (irrespective of
whether at the time capital stock of any other class or classes of such
corporation shall or might have voting power upon the occurrence of any
contingency), (b) the aggregate general partners' or joint venturers' interest
in the capital or profits of such partnership or joint venture or (c) the
controlling interest, by contract or otherwise, in such trust or estate, is at
the time directly or indirectly owned or controlled by such Person, by such
Person and one or more of its other Subsidiaries or by one or more of such
Person's other Subsidiaries.
"Subordinated Indebtedness" means any Indebtedness of
Borrower that is subordinated to the Obligations of Borrower under the Loan
Documents on, and that otherwise contains, terms and conditions satisfactory to
Foothill.
"Term Lender Group" means the "Term Lender Group" as that
term is defined in the Intercreditor Agreement.
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"Term Lender Group Claims" shall have the meaning ascribed
to that term in the Intercreditor Agreement.
"Term Loan Agreement" means that certain term loan
agreement, dated as of November 4, 1996 between Foothill as agent for the
lenders, City National Bank as co-agent for the lenders, and each of the lenders
party thereto on the one hand, and Borrower on the other hand, as such agreement
may be amended, modified, supplemented, refinanced or replaced from time to time
in accordance with the provisions of this Agreement and the Intercreditor
Agreement; provided, however, that to the extent that any defined terms
contained in the Term Loan Agreement are incorporated herein by reference, then
they shall have the meanings assigned to them under the Term Loan Agreement as
of the Closing Date.
"Trademark Security Agreement" means a Trademark Security
Agreement in the form of Exhibit T-1, executed and delivered by Borrower to
Foothill.
"Voidable Transfer" has the meaning set forth in Section
15.8.
"Withdrawal Liability" has the meaning specified in Part I
of Subtitle E of Title IV of ERISA.
1.2 ACCOUNTING TERMS. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP. When used herein, the
term "financial statements" shall include the notes and schedules thereto.
Whenever the term "Borrower" is used in respect of a financial covenant or a
related definition, it shall be understood to mean Borrower on a consolidated
basis unless the context clearly requires otherwise.
1.3 CODE. Any terms used in this Agreement that are defined in
the Code shall be construed and defined as set forth in the Code unless
otherwise defined herein.
1.4 CONSTRUCTION. Unless the context of this Agreement clearly
requires otherwise, references to the plural include the singular, references to
the singular include the plural, the term "including" is not limiting, and the
term "or" has, except where otherwise indicated, the inclusive meaning
represented by the phrase "and/or." The words "hereof," "herein," "hereby,"
"hereunder," and similar terms in this Agreement refer to this Agreement as a
whole and not to any particular provision of this Agreement. An Event of Default
shall "continue" or be "continuing" until such Event of Default has been waived
in writing by Foothill. Section, subsection, clause, schedule, and exhibit
references are to this Agreement unless otherwise specified. Any reference in
this Agreement or in the Loan Documents to this Agreement or any of the Loan
Documents shall include all alterations, amendments, changes, extensions,
modifications, renewals, replacements, substitutions, and supplements, thereto
and thereof, as applicable.
1.5 SCHEDULES AND EXHIBITS. All of the schedules and exhibits
attached to this Agreement shall be deemed incorporated herein by reference.
2. LOAN AND TERMS OF PAYMENT.
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2.1 REVOLVING ADVANCES.
(a) Subject to the terms and conditions of this Agreement,
Foothill agrees to make advances ("Advances") to Borrower in an amount
outstanding not to exceed at any one time the lesser of (i) the Maximum
Revolving Amount less the Letter of Credit Usage, or (ii) the Borrowing Base
less the Letter of Credit Usage. For purposes of this Agreement, "Borrowing
Base", as of any date of determination, shall mean the result of:
(A) the lesser of i) 85% of Eligible Accounts, less the
amount, if any, of a) the Dilution Reserve and b) the Canadian
Currency Reserves, and ii) an amount equal to Borrower's
Collections with respect to Accounts for the immediately
preceding 60 day period, plus
(B) the lesser of i) $8,000,000, ii) the Applicable
Percentage times the difference between the value of Eligible
Inventory (determined by category, and subject to a $1,500,000
sublimit with respect to Eligible Raw Materials), less the
amount, if any, of a) the Inventory Reserves and b) the Royalty
Payment Reserves, and iii) 150% of the amount of credit
availability created by clause (A) above, minus
(C) the aggregate amount of reserves, if any,
established by Foothill under Section 2.1(b).
(b) Anything to the contrary in Section 2.1(a) above
notwithstanding, Foothill may create reserves against or reduce its advance
rates based upon Eligible Accounts or Eligible Inventory without declaring an
Event of Default if it determines that there has occurred a Material Adverse
Change.
(c) Foothill shall have no obligation to make Advances
hereunder to the extent they would cause the outstanding Non-Contingent
Obligations (other than under the Capital Expenditure Loans) to exceed the
Maximum Revolving Amount. Each Advance shall be made upon Borrower's request
(pursuant to the terms of Section 2.9, and Section 2.12 if and to the extent it
is applicable), which request shall be irrevocable except as set forth in
Section 2.12, specifying (i) the amount of the requested Advance; (ii) the
requested funding date of such Advance; (iii) whether the Advance is to
constitute a Eurodollar Rate Loan or a Reference Rate Loan; and (iv) if such
Advance is to constitute a Eurodollar Rate Loan, the requested Interest Period
therefor. If any requested Advance is to constitute a Eurodollar Rate Loan, such
request must be delivered to Foothill no later than 2:00 p.m. (New York time)
two Business Days prior to the requested funding date therefor.
(d) Amounts borrowed pursuant to this Section 2.1 may be
repaid and, subject to the terms and conditions of this Agreement, reborrowed at
any time during the term of this Agreement.
2.2 LETTERS OF CREDIT.
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(a) Subject to the terms and conditions of this Agreement,
Foothill agrees to issue letters of credit for the account of Borrower (each, an
"L/C") or to issue guarantees of payment (each such guaranty, an "L/C Guaranty")
with respect to letters of credit issued by an issuing bank for the account of
Borrower. Foothill shall have no obligation to issue a Letter of Credit if any
of the following would result:
(i) the aggregate amount of all undrawn or unreimbursed
Letters of Credit would exceed the Borrowing Base less the
amount of outstanding Advances less the aggregate amount of
reserves established under Section 2.1(b); or
(ii) the aggregate amount of all undrawn or
unreimbursed Letters of Credit would exceed the lower of: (x)
the Maximum Revolving Amount less the amount of outstanding
Advances less the aggregate amount of reserves established under
Section 2.1(b); or (y) $1,000,000; or
(iii) the outstanding Non-Contingent Obligations
(other than under the Capital Expenditure Loans) would exceed
the Maximum Revolving Amount.
Borrower expressly understands and agrees that Foothill shall have no obligation
to arrange for the issuance by issuing banks of the letters of credit that are
to be the subject of L/C Guarantees. Borrower and Foothill acknowledge and agree
that certain of the letters of credit that are to be the subject of L/C
Guarantees may be outstanding on the Closing Date. Each Letter of Credit shall
have an expiry date no later than 60 days prior to the date on which this
Agreement is scheduled to terminate under Section 3.4 (without regard to any
potential renewal term) and all such Letters of Credit shall be in form and
substance acceptable to Foothill in its sole discretion. If Foothill is
obligated to advance funds under a Letter of Credit, Borrower immediately shall
reimburse such amount to Foothill and, in the absence of such reimbursement, the
amount so advanced immediately and automatically shall be deemed to be an
Advance hereunder and, thereafter, shall bear interest at the rate then
applicable to Advances under Section 2.6.
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(b) Borrower hereby agrees to indemnify, save, defend, and
hold Foothill harmless from any loss, cost, expense, or liability, including
payments made by Foothill, expenses, and reasonable attorneys fees incurred by
Foothill arising out of or in connection with any Letter of Credit. Borrower
agrees to be bound by the issuing bank's regulations and interpretations of any
Letters of Credit guarantied by Foothill and opened to or for Borrower's account
or by Foothill's interpretations of any L/C issued by Foothill to or for
Borrower's account, even though this interpretation may be different from
Borrower's own, and Borrower understands and agrees that Foothill shall not be
liable for any error, negligence, or mistake, whether of omission or commission,
in following Borrower's instructions or those contained in the Letter of Credit
or any modifications, amendments, or supplements thereto other than those that
arise from the gross negligence or willful misconduct of Foothill. Borrower
understands that the L/C Guarantees may require Foothill to indemnify the
issuing bank for certain costs or liabilities arising out of claims by Borrower
against such issuing bank. Borrower hereby agrees to indemnify, save, defend,
and hold Foothill harmless with respect to any loss, cost, expense (including
reasonable attorneys fees), or liability incurred by Foothill under any L/C
Guaranty as a result of Foothill's indemnification of any such issuing bank;
provided, however, that Borrower shall not indemnify Foothill against any loss,
cost, expense or claim that results from the gross negligence or willful
misconduct of Foothill or such issuing bank.
(c) Borrower hereby authorizes and directs any bank that
issues a letter of credit guaranteed by Foothill to deliver to Foothill all
instruments, documents, and other writings and property received by the issuing
bank pursuant to such letter of credit, and to accept and rely upon Foothill's
instructions and agreements with respect to all matters arising in connection
with such letter of credit and the related application. Borrower may or may not
be the "applicant" or "account party" with respect to such letter of credit.
(d) Any and all charges, commissions, fees, and costs
incurred by Foothill relating to the letters of credit guaranteed by Foothill
shall be considered Foothill Expenses for purposes of this Agreement and
immediately shall be reimbursable by Borrower to Foothill.
(e) Immediately upon the termination of this Agreement,
Borrower agrees to either (i) provide cash collateral to be held by Foothill in
an amount equal to 105% of the maximum amount of Foothill's obligations under
Letters of Credit, or (ii) cause to be delivered to Foothill releases of all of
Foothill's obligations under outstanding Letters of Credit. At Foothill's
discretion, any proceeds of the Collateral received by Foothill after the
occurrence and during the continuation of an Event of Default may be held as the
cash collateral required by this Section 2.2(e).
(f) If by reason of (i) any change in any applicable law,
treaty, rule, or regulation or any change in the interpretation or application
by any governmental authority of any such applicable law, treaty, rule, or
regulation, or (ii) compliance by the issuing bank or Foothill with any
direction, request, or requirement (irrespective of whether having the force of
law) of any governmental authority or monetary authority including, without
limitation, Regulation D of the Board of Governors of the Federal Reserve System
as from time to time in effect (and any successor thereto):
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(i) any reserve, deposit, or similar requirement is
or shall be imposed or modified in respect of any Letters of Credit issued
hereunder, or
(ii) there shall be imposed on the issuing bank or
Foothill any other condition regarding any letter of credit, or Letter of
Credit, as applicable, issued pursuant hereto;
and the result of the foregoing is to increase, directly or indirectly, the cost
to the issuing bank or Foothill of issuing, making, guaranteeing, or maintaining
any letter of credit, or Letter of Credit, as applicable, or to reduce the
amount receivable in respect thereof by such issuing bank or Foothill, then, and
in any such case, Foothill may, at any time within a reasonable period after the
additional cost is incurred or the amount received is reduced, notify Borrower,
which notice shall include a certificate setting forth the calculation thereof
in reasonable detail, and Borrower shall pay on demand such amounts as the
issuing bank or Foothill may specify to be necessary to compensate the issuing
bank or Foothill for such additional cost or reduced receipt, together with
interest on such amount from the date of such demand until payment in full
thereof at the rate set forth in Section 2.6(a)(ii) or (c)(i), as applicable;
provided, however, that Borrower shall not be obligated to pay any such
additional cost or reduced receipt which relates to a period ending more than
180 days prior to the date of receipt by Borrower of such notice and
certificate. The determination by the issuing bank or Foothill, as the case may
be, of any amount due pursuant to this Section 2.2(f), as set forth in a
certificate setting forth the calculation thereof in reasonable detail, shall,
in the absence of manifest or demonstrable error, be final and conclusive and
binding on all of the parties hereto.
2.3 [INTENTIONALLY OMITTED.]
2.4 CAPITAL EXPENDITURE LINE. Subject to the terms and conditions
of this Agreement, Foothill agrees to make a series of term loans to Borrower
(each, a "Capital Expenditure Loan") in an aggregate amount at any one time
outstanding not to exceed $2,000,000 (the "Capital Expenditure Line
Commitment"). Each Capital Expenditure Loan shall be repayable in 60 equal
monthly installments of principal, such installments to be payable on the first
day of each month commencing with the first day of the first month following the
date on which the Capital Expenditure Loan is made and continuing on the first
day of each succeeding month until and including the date on which the unpaid
balance of the Capital Expenditure Loan is paid in full. The outstanding
principal balance and all accrued and unpaid interest under each Capital
Expenditure Loan shall be due and payable upon the termination of this
Agreement, whether by its terms, by prepayment, by acceleration, or otherwise.
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Each Capital Expenditure Loan shall be made by Foothill at
such times and in such amounts as Borrower may request in writing, shall be
advanced directly to the applicable vendor or Borrower, as the case may be, and
once borrowed may be prepaid in whole or in part without penalty or premium at
any time during the term of this Agreement upon 10 days prior written notice by
Borrower to Foothill, all such prepaid amounts to be applied to the installments
due on all of the Capital Expenditure Loans in the inverse order of their
maturity; provided, however, if the amount of prepaid principal at any one time
is equal to or greater than $100,000, then any such prepayment shall be applied
ratably to the principal amount payable under each remaining installment due on
each Capital Expenditure Loan (excluding, however, the amount, if any, of
principal otherwise due and payable on the Maturity Date with respect to any
such Capital Expenditure Loan), and the amount of each such remaining
installment shall be reduced accordingly. The foregoing to the contrary
notwithstanding, (a) each requested Capital Expenditure Loan shall be in a
principal amount of not less than (i) $50,000, or (ii) such lesser amount as is
the then unfunded balance of the Capital Expenditure Line Commitment, (b) each
Capital Expenditure Loan shall be in an amount, as determined by Foothill, not
to exceed 80% of Borrower's invoice cost (net of shipping, freight,
installation, and other so-called `soft costs') of (i) new Equipment that is to
be purchased by Borrower with the proceeds of such Capital Expenditure Loan, or
(ii) new Equipment that has been purchased by Borrower within 60 days prior to
the date of the making of such Capital Expenditure Loan, (c) the new Equipment
that is to be acquired or that has been purchased by Borrower must be acceptable
to Foothill in all respects, not be a fixture, and not be intended to be affixed
to real property or to become installed in or affixed to other goods, (d)
Foothill shall have no obligation to make any Capital Expenditure Loan hereunder
to the extent that the making thereof would cause the then outstanding amount of
Capital Expenditure Loans to exceed the Capital Expenditure Line Commitment, and
(e) the aggregate amount of all Capital Expenditure Loans outstanding at any
time (including giving effect to any requested Capital Expenditure Loan) shall
not exceed the lesser of cost or fair market value, of all of the Equipment
acquired or financed with the proceeds of such Capital Expenditure Loans,
measured as of the end of the 24th month following the Closing Date, and as of
the end of each 24 month period occurring thereafter (each, a "Determination
Date"). All amounts outstanding under the Capital Expenditure Loans shall
constitute Obligations.
2.5 OVERADVANCES.
(a) If, at any time or for any reason, the amount of
outstanding Non-Contingent Obligations (other than under the Capital Expenditure
Loans) owed by Borrower to Foothill pursuant to Sections 2.1 and 2.2 is greater
than either the Dollar or percentage limitations set forth in Sections 2.1 or
2.2 (an "Overadvance"), Borrower immediately shall pay to Foothill, in cash, the
amount of such excess, as it relates to such outstanding Non-Contingent
Obligations (other than under the Capital Expenditure Loans), to be used by
Foothill (i) first, to repay Advances outstanding under Section 2.1, (ii)
second, to be held by Foothill as cash collateral to secure Borrower's
obligation to repay Foothill for all amounts paid pursuant to Letters of Credit,
and (iii) thereafter, pay to Foothill, in cash, the amount, if any, of such
excess as it relates to Capital Expenditure Loans, to be applied to the
principal amount of Capital Expenditure Loans; and
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(b) If, (i) at any time for any reason, the amount of
outstanding Capital Expenditure Loans owed by Borrower to Foothill pursuant to
Section 2.4 is greater than the Dollar limitation set forth in Section 2.4, or,
(ii) as of any Determination Date the amount of outstanding Capital Expenditure
Loans owed by Borrower to Foothill pursuant to Section 2.4 is greater than the
Dollar or percentage limitations set forth in Section 2.4, Borrower immediately
shall pay to Foothill, in cash, the amount of such excess, as it relates to such
outstanding Capital Expenditure Loans, to be used by Foothill (1) first, to
repay Capital Expenditure Loans outstanding under Section 2.4 to be applied to
the principal amount of Capital Expenditure Loans, (2) second to repay Advances
outstanding under Section 2.1, and (3) third, to be held by Foothill as cash
collateral to secure Borrower's obligation to repay Foothill for all amounts
paid pursuant to Letters of Credit under Section 2.2.
2.6 INTEREST AND LETTER OF CREDIT FEES: RATES, PAYMENTS, AND
CALCULATIONS.
(a) Interest Rate. Except as provided in clause (c) below,
(i) Each Eurodollar Rate Loan (including any Capital Expenditure Loans that are
Eurodollar Rate Loans) shall bear interest at a per annum rate of 3.75
percentage points above the Adjusted Eurodollar Rate; and (ii) all other
Non-Contingent Obligations (except for undrawn Letters of Credit) shall bear
interest at a per annum rate of 1.00 percentage points above the Reference Rate.
(b) Letter of Credit Fee. Borrower shall pay Foothill a
fee (in addition to the charges, commissions, fees, and costs set forth in
Section 2.2(d)) equal to 1.50% per annum times the aggregate undrawn amount of
all outstanding Letters of Credit.
(c) Default Rate. Upon the occurrence and during the
continuation of an Event of Default, (i) all Non-Contingent Obligations (except
for undrawn Letters of Credit) shall bear interest at a per annum rate equal to
3.00 percentage points above the Reference Rate, and (ii) the Letter of Credit
fee provided in Section 2.6(b) shall be increased to 3.50% per annum times the
amount of the undrawn Letters of Credit that were outstanding during the
immediately preceding month.
(d) Minimum Interest. In no event shall the rate of
interest chargeable hereunder for any day be less than 7.00% per annum. To the
extent that interest accrued hereunder at the rate set forth herein would be
less than the foregoing minimum daily rate, the interest rate chargeable
hereunder for such day automatically shall be deemed increased to the minimum
rate. To the extent that interest accrued hereunder at the rate set forth herein
(including the minimum interest rate) would yield less than the foregoing
minimum amount, the interest rate chargeable hereunder for the period in
question automatically shall be deemed increased to that rate that would result
in the minimum amount of interest being accrued and payable hereunder.
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(e) Payments. Interest in respect of Reference Rate Loans
and Letter of Credit fees payable hereunder shall be due and payable, in
arrears, on the first day of each month during the term hereof. Interest in
respect of each Eurodollar Rate Loan shall be due and payable, in arrears, on
the last day of the Interest Period applicable thereto. Borrower hereby
authorizes Foothill, at its option, without prior notice to Borrower, to charge
such interest and Letter of Credit fees, all Foothill Expenses (as and when
properly charged to Borrower's Loan Account), the charges, commissions, fees,
and costs provided for in Section 2.2(d) (as and when as and when properly
charged to Borrower's Loan Account), the fees and charges provided for in
Section 2.11 (as and when properly charged to Borrower's Loan Account), and all
installments or other payments due under the Capital Expenditure Loans, or any
Loan Document to Borrower's Loan Account, which amounts thereafter shall accrue
interest at the rate then applicable to Advances hereunder; provided that
Foothill Expenses (including fees and expenses of counsel to Foothill) relating
to activities prior to the Closing Date shall not be charged to Borrower's Loan
Account until Borrower has had 7 days to review detailed invoices with respect
to such Foothill Expenses. Any interest not paid when due shall be compounded
and shall thereafter accrue interest at the rate then applicable to Advances
hereunder.
(f) Computation. The Reference Rate as of the date of this
Agreement is 8.50% per annum. In the event the Reference Rate is changed from
time to time hereafter, the applicable rate of interest hereunder automatically
and immediately shall be increased or decreased by an amount equal to such
change in the Reference Rate. All interest and fees chargeable under the Loan
Documents shall be computed on the basis of a 360 day year for the actual number
of days elapsed.
(g) Intent to Limit Charges to Maximum Lawful Rate. In no
event shall the interest rate or rates payable under this Agreement, plus any
other amounts paid in connection herewith, exceed the highest rate permissible
under any law that a court of competent jurisdiction shall, in a final
determination, deem applicable. Borrower and Foothill, in executing and
delivering this Agreement, intend legally to agree upon the rate or rates of
interest and manner of payment stated within it; provided, however, that,
anything contained herein to the contrary notwithstanding, if said rate or rates
of interest or manner of payment exceeds the maximum allowable under applicable
law, then, ipso facto as of the date of this Agreement, Borrower is and shall be
liable only for the payment of such maximum as allowed by law, and payment
received from Borrower in excess of such legal maximum, whenever received, shall
be applied to reduce the principal balance of the Obligations to the extent of
such excess.
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2.7 COLLECTION OF ACCOUNTS. Borrower shall at all times maintain
lockboxes (the "Lockboxes") and, except as otherwise provided below in this
section, immediately after the Closing Date, shall instruct all Account Debtors
with respect to the Accounts, General Intangibles, and Negotiable Collateral of
Borrower to remit all Collections in respect thereof to such Lockboxes.
Borrower, Foothill, and the Lockbox Banks shall enter into the Lockbox
Agreements, which among other things shall provide for the opening of a Lockbox
Account for the deposit of Collections at a Lockbox Bank. Except as otherwise
provided below in this section, Borrower agrees that all Collections and other
amounts received by Borrower from any Account Debtor or any other source
immediately upon receipt shall be deposited into a Lockbox Account. No Lockbox
Agreement or arrangement contemplated thereby shall be modified by Borrower
without the prior written consent of Foothill. Upon the terms and subject to the
conditions set forth in the Lockbox Agreements, all amounts received in each
Lockbox Account shall be wired each Business Day into an account (the "Foothill
Account") maintained by Foothill at a depositary selected by Foothill; provided,
however, that:
(a) with respect to any Canadian Lockbox Agreement and any
Canadian Lockbox Account, unless;
(i) total Collections of Canadian Guarantor as a
percentage of Borrower's total consolidated Collections exceeded
20% with respect to any fiscal month of Borrower ended after the
Closing Date, and, thereafter, Foothill has notified Borrower
that such Canadian amounts henceforth shall be wired each
Business Day to the Foothill Account; provided that Borrower
shall not be required to wire transfer funds to the Foothill
Account under this clause (i) unless the aggregate balance in
the Canadian Lockbox Account is in excess of $500,000,
(ii) Foothill deems itself insecure, and, thereafter,
Foothill has notified Borrower that such Canadian amounts
henceforth shall be wired each Business Day to the Foothill
Account; provided that Borrower shall not be required to wire
transfer funds to the Foothill Account under this clause (ii)
unless the aggregate balance in the Canadian Lockbox Account is
in excess of $100,000, or
(iii) an Event of Default has occurred and is
continuing, and, thereafter, Foothill has notified Borrower that
such Canadian amounts henceforth shall be wired each Business
Day to the Foothill Account,
such Canadian amounts need not be wired to Foothill and may be retained and used
in Canada for any purpose permitted by the Loan Documents as if such amounts had
been used to pay down the balance of Borrower's loan account and immediately
readvanced to Borrower;
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(b) with respect to any Foreign Account, unless an Event
of Default has occurred and is continuing, and, thereafter, Foothill has
notified Borrower that such amounts henceforth shall be wired each Business Day
to the Foothill Account, all amounts held in Foreign Accounts need not be wired
to Foothill and may be retained and used in such Foreign Accounts for any
purpose permitted by the Loan Documents as if such amounts had been used to pay
down the balance of Borrower's loan account and immediately readvanced to
Borrower, provided that on each Business Day that the aggregate amount of all
Collections held in all Foreign Accounts exceeds $100,000, Borrower shall
immediately wire all such excess amounts to the Foothill Account; and
(c) with respect to the International Account, unless an
Event of Default has occurred and is continuing, and, thereafter, Foothill has
notified Borrower that such amounts henceforth shall be wired each Business Day
to the Foothill Account, all amounts held in the International Account need not
be wired to Foothill and may be retained and used in the International Account
for any purpose permitted by the Loan Documents as if such amounts had been used
to pay down the balance of Borrower's loan account and immediately readvanced to
Borrower, provided that on each Business Day that the aggregate amount of all
Collections held in the International Account exceeds $150,000, Borrower shall
immediately wire all funds held in the International Account to the Foothill
Account.
Anything in the foregoing to the contrary notwithstanding, Obligor shall at all
times provide Foothill with such information as Foothill shall reasonably
request with respect to the daily amount of Collections received by Obligor in
any lockbox or deposit account, domestic or foreign, sufficient to permit
Foothill to calculate the 2 Business Days clearance or float charge thereon in
accordance with the provisions of Section 2.8. In exercising dominion or control
over any Collections, Lockboxes, or Lockbox Accounts under the Loan Documents,
Foothill's actions shall be not only for its own account, but also as the bailee
of the agent of the Term Lender Group in accordance with, and subject in all
respects to, the Intercreditor Agreement.
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2.8 CREDITING PAYMENTS; APPLICATION OF COLLECTIONS. The receipt
of any Collections by Foothill (whether from transfers to Foothill by the
Lockbox Banks pursuant to the Lockbox Agreements or otherwise) immediately shall
be applied provisionally to reduce the Obligations outstanding under Section
2.1, but shall not be considered a payment on account unless such Collection
item is a wire transfer of immediately available federal funds and is made to
the Foothill Account or unless and until such Collection item is honored when
presented for payment. From and after the Closing Date, Foothill shall be
entitled to charge Borrower for 2 Business Days of `clearance' or `float' at the
rate set forth in Section 2.6(a)(ii) or Section 2.6(c)(i), as applicable, on all
Collections that are received by Foothill (regardless of whether forwarded by
the Lockbox Banks to Foothill, whether provisionally applied to reduce the
Obligations under Section 2.1, or otherwise), plus, in addition, but without
duplication, on all Collections of Canadian Guarantor (whether received by
Canadian Guarantor in the Canadian Lockbox Account, or otherwise), even if such
Collections are retained by Borrower and not paid to or received by Foothill,
plus, in addition, but without duplication, after the occurrence and during the
continuation of an Event of Default or if Foothill deems itself insecure, on all
amounts required to be remitted to the Foothill Account pursuant to Section
2.7(b) or (c) (without regard to whether such amounts in fact are remitted);
provided, however, that, any foreign Collections received by Borrower or any
Collections received by Borrower's foreign Subsidiaries in any Foreign Account,
and any Collections received in the International Account, shall not be subject
to any clearance or float charge.
This across-the-board 2 Business Day clearance or float charge on all
Collections is acknowledged by the parties to constitute an integral aspect of
the pricing of Foothill's financing of Borrower, and shall apply irrespective of
the characterization of whether receipts are owned by Borrower, Canadian
Guarantor, or Foothill, and whether or not there are any outstanding Advances,
the effect of such clearance or float charge being the equivalent of charging 2
Business Days of interest on such Collections. Should any Collection item not be
honored when presented for payment, then Borrower shall be deemed not to have
made such payment, and interest shall be recalculated accordingly. Anything to
the contrary contained herein notwithstanding, any Collection item shall be
deemed received by Foothill only if it is received into the Foothill Account on
a Business Day on or before 11:00 a.m. California time. If any Collection item
is received into the Foothill Account on a non-Business Day or after 11:00 a.m.
California time on a Business Day, it shall be deemed to have been received by
Foothill as of the opening of business on the immediately following Business
Day; and (b) so long as no Event of Default has occurred and is continuing,
Collections will only be applied to Obligations that are not Eurodollar Rate
Loans, and to the extent that all such Obligations other than Eurodollar Rate
Loans have been repaid, additional Collections will be, at Borrower's direction,
returned to Borrower or applied to such Eurodollar Rate Loans subject to any
required payments under Section 2.16(d).
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2.9 DESIGNATED ACCOUNT. Foothill is authorized to make the
Advances, the Letters of Credit, and the Capital Expenditure Loans under this
Agreement based upon telephonic or other instructions received from anyone
purporting to be an Authorized Person, or without instructions if pursuant to
Section 2.6(e). Borrower agrees to establish and maintain the Designated Account
with the Designated Account Bank for the purpose of receiving the proceeds of
the Advances and the Capital Expenditure Loans requested by Borrower and made by
Foothill hereunder. Unless otherwise agreed by Foothill and Borrower, any
Advance and the Capital Expenditure Loans requested by Borrower and made by
Foothill hereunder shall be made to the Designated Account.
2.10 MAINTENANCE OF LOAN ACCOUNT; STATEMENTS OF OBLIGATIONS.
Foothill shall maintain an account on its books in the name of Borrower (the
"Loan Account") on which Borrower will be charged with all Advances and all
Capital Expenditure Loans made by Foothill to Borrower or for Borrower's
account, including, accrued interest, Foothill Expenses, and any other payment
Obligations of Borrower. In accordance with Section 2.8, the Loan Account will
be credited with all payments received by Foothill from Borrower or for
Borrower's account, including all amounts received in the Foothill Account from
any Lockbox Bank. Foothill shall render monthly statements regarding the Loan
Account to Borrower, including principal, interest, fees, and including an
itemization of all charges and expenses constituting Foothill Expenses owing,
and such statements shall be conclusively presumed to be correct and accurate
and constitute an account stated between Borrower and Foothill unless, within 60
days after receipt thereof by Borrower, Borrower shall deliver to Foothill
written objection thereto describing the error or errors contained in any such
statements or a request for additional information to determine the accuracy of
such statements.
2.11 FEES. Borrower shall pay to Foothill the following fees:
(a) Closing Fee. On the Closing Date, a closing fee of
$130,000;
(b) Capital Expenditure Loan Funding Fee. On the date that
each Capital Expenditure Loan requested by Borrower under Section 2.4 in made, a
funding fee equal to 1% of amount of each such Capital Expenditure Loan;
provided, however, that the aggregate fees paid pursuant to this Section 2.11(b)
shall not exceed $20,000;
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(c) Financial Examination, Documentation, and Appraisal
Fees. (i) Foothill's customary fee of $650 per day per examiner, plus
out-of-pocket expenses for each financial analysis and examination (i.e.,
audits) of Borrower performed by personnel employed by Foothill; and (ii)
Foothill's customary appraisal fee of $1,500 per day per appraiser, plus
out-of-pocket expenses for each appraisal of the Collateral performed by
personnel employed by Foothill; and, the actual charges paid or incurred by
Foothill if it elects to employ the services of one or more third Persons to
perform such financial analyses and examinations (i.e., audits) of Borrower or
to appraise the Collateral; provided, however, that so long as no Event of
Default has occurred and is continuing, and Foothill does not deem itself
insecure (1) the total number of person-days for which Borrower shall be
required to pay fees under this Section in connection with financial
examination, documentation, and appraisals shall not exceed 16 person-days in
each calendar year occurring during the term of this Agreement, (2) Foothill
shall not conduct Collateral audits more frequently than once in each calendar
quarter, (3) Foothill shall not conduct Collateral appraisals (including desktop
appraisals) with respect to all Collateral other than the Equipment more than
twice in each calendar year, and provided further that, absent i) the occurrence
and continuation of an Event of Default, or ii) Foothill deems itself insecure,
not more than one such Collateral appraisal with respect to all Collateral other
than the Equipment in each calendar year shall be conducted at Borrower's
expense on an in person basis, and (4) absent the occurrence and continuation of
an Event of Default, Foothill shall not conduct Collateral appraisals with
respect to the Equipment more than once in each 24 month period following the
Closing Date; and
(d) Servicing Fee. On the first day of each month during
the term of this Agreement, and thereafter so long as any Obligations are
outstanding, a servicing fee in an amount equal to $5,000, payable in arrears
for the preceding month or any applicable portion thereof during which this
Agreement shall remain in effect.
2.12 EURODOLLAR RATE LOANS. Any other provisions herein to the
contrary notwithstanding, the following provisions shall govern with respect to
Eurodollar Rate Loans as to the matters covered:
(a) Borrowing; Conversion; Continuation. Borrower may from
time to time, on or after the Closing Date, request in a written or telephonic
communication with Foothill: (i) Advances or Capital Expenditure Loans to
constitute Eurodollar Rate Loans (pursuant to Section 2.1(c)); (ii) that
Reference Rate Loans be converted into Eurodollar Rate Loans; or (iii) that
existing Eurodollar Rate Loans continue for an additional Interest Period. Any
such request shall specify the aggregate amount of the requested Eurodollar Rate
Loans, the proposed funding date therefor (which shall be a Business Day, and
with respect to continued Eurodollar Rate Loans shall be the last day of the
Interest Period of the existing Eurodollar Rate Loans being continued), and the
proposed Interest Period, in each case subject to the limitations set forth
below). Eurodollar Rate Loans may only be made, continued, or extended if, as of
the proposed funding date therefor each of the following conditions is
satisfied:
(v) no Event of Default exists;
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(w) no more than five Interest Periods may be in effect
at any one time without the prior written consent of Foothill to
any such additional Interest Period, and provided further that
not more than eight Interest Periods shall be in effect at any
one time;
(x) the amount of each Eurodollar Rate Loan borrowed,
converted, or continued must be in an amount not less than
$1,000,000 and integral multiples of $500,000 in excess thereof;
(y) Foothill shall have determined that the Interest
Period or Adjusted Eurodollar Rate is available to Foothill and
can be readily determined as of the date of the request for such
Eurodollar Rate Loan by Borrower; and
(z) Foothill shall have received such request at least
two Business Days prior to the proposed funding date therefor.
Any request by Borrower to borrow Eurodollar Rate Loans, to
convert Reference Rate Loans to Eurodollar Rate Loans, or to continue any
existing Eurodollar Rate Loans shall be irrevocable, except to the extent that
Foothill shall determine under Sections 2.12(a), 2.13 or 2.14 that such
Eurodollar Rate Loans cannot be made or continued.
(b) Determination of Interest Period. By giving notice as
set forth in Section 2.12(a), the Borrower shall have the option of selecting a
1 month, 2 month, or 3 month Interest Period for such Eurodollar Rate Loan. The
determination of Interest Periods shall be subject to the following provisions:
(i) in the case of immediately successive Interest
Periods, each successive Interest Period shall commence on the
day on which the next preceding Interest Period expires;
(ii) if any Interest Period would otherwise expire on a
day which is not a Business Day, the Interest Period shall be
extended to expire on the next succeeding Business Day;
provided, however, that if the next succeeding Business Day
occurs in the following calendar month, then such Interest
Period shall expire on the immediately preceding Business Day;
(iii) if any Interest Period begins on the last
Business Day of a month, or on a day for which there is no
numerically corresponding day in the calendar month at the end
of such Interest Period, then the Interest Period shall end on
the last Business Day of the calendar month at the end of such
Interest Period; and
(iv) the Borrower may not select an Interest Period
which expires later than the Maturity Date.
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(c) Automatic Conversion: Optional Conversion by Foothill.
Any Eurodollar Rate Loan shall automatically convert to a Reference Rate Loan
upon the last day of the applicable Interest Period, unless Foothill has
received a request to continue such Eurodollar Rate Loan at least two Business
Days prior to the end of such Interest Period in accordance with the terms of
Section 2.12(a). Any Eurodollar Rate Loan shall, at Foothill's option, upon
notice to Borrower, convert to a Reference Rate Loan in the event that (i) an
Event of Default shall have occurred and be continuing as of the last day of the
Interest Period for such Eurodollar Rate Loan, or (ii) this Agreement shall
terminate; provided that Borrower shall not be required to pay any amounts under
Section 2.16 which results from such conversion.
2.13 ILLEGALITY. Any other provision herein to the contrary
notwithstanding, if the adoption after the date hereof of or any change after
the date hereof in any Requirement of Law or in the interpretation or
application thereof shall make it unlawful for Foothill to make or maintain
Eurodollar Rate Loans as contemplated by this Agreement, (a) the obligation of
Foothill hereunder to make Eurodollar Rate Loans, continue Eurodollar Rate Loans
as such, and convert Reference Rate Loans to Eurodollar Rate Loans shall
forthwith be suspended and (b) Foothill's then outstanding Eurodollar Rate
Loans, if any, shall be converted automatically to Reference Rate Loans on the
respective last days of the then current Interest Periods with respect thereto
or within such earlier period as required by law; provided, however, that before
making any such demand, Foothill agrees to use reasonable efforts (consistent
with its internal policy and legal and regulatory restrictions and so long as
such efforts would not be disadvantageous to it, in its reasonable discretion,
in any legal, economic, or regulatory manner) to designate a different lending
office if the making of such a designation would allow Foothill or its lending
office to continue to perform its obligations to make Eurodollar Rate Loans. If
any such conversion of a Eurodollar Rate Loan occurs on a day which is not the
last day of the then current Interest Period with respect thereto, the Borrower
shall pay to such lender such amounts, if any, as may be required pursuant to
Section 2.16. If circumstances subsequently change so that Foothill shall
determine that it is no longer so affected, Foothill will promptly notify
Borrower, and upon receipt of such notice, the obligations of Foothill to make
or continue Eurodollar Rate Loans or to convert Reference Rate Loans into
Eurodollar Rate Loans shall be reinstated.
2.14 REQUIREMENTS OF LAW. (a) If the adoption after the date
hereof of or any change after the date hereof in any Requirement of Law or in
the interpretation or application thereof or compliance by Foothill or any
Approved Participant with any request or directive that is issued after the date
hereof and is not a request or directive to comply with any Requirement of Law
in effect on the date hereof (whether or not having the force of law) from any
central bank or other Governmental Authority made subsequent to the date hereof
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(i) shall subject Foothill or any Approved Participant
to any tax, levy, charge, fee, reduction, or withholding of any
kind whatsoever with respect to this Agreement or any Advance,
or change the basis of taxation of payments to Foothill or any
Approved Participant in respect thereof (except for taxes
covered by Section 2.15 and the establishment of a tax based on
the net income of Foothill or any Approved Participant, or a
franchise or other tax imposed in lieu of a tax based on net
income, or changes in the rate of any such tax);
(ii) shall impose, modify or hold applicable any
reserve, special deposit, compulsory loan, or similar
requirement against assets held by, deposits or other
liabilities in or for the account of, Advances or other
extensions of credit by, or any other acquisition of funds by,
any office of Foothill or any Approved Participant; or
(iii) shall impose on Foothill or any Approved
Participant any other condition with respect to this Agreement
or any Advance;
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and the result of any of the foregoing is to increase the cost to Foothill or
any Approved Participant, by an amount which Foothill or any Approved
Participant in good faith deems to be material, of making, converting into,
continuing, or maintaining Advances or to increase the cost to Foothill or any
Approved Participant, by an amount which Foothill or any Approved Participant
deems to be material, or to reduce any amount receivable hereunder in respect of
Advances, or to forego any other sum payable thereunder or make any payment on
account thereof, then, in any such case, Borrower shall promptly pay Foothill or
any Approved Participant, after receipt of notice thereof (and a certificate, in
reasonable detail, setting forth the calculation of such increased cost), any
additional amounts necessary to compensate Foothill or any Approved Participant
for such increased cost or reduced amount receivable; provided, however, that
(x) before making any such demand, Foothill or any Approved Participant agrees
to use reasonable efforts (consistent with its internal policy and legal and
regulatory restrictions and so long as such efforts would not be disadvantageous
to it, in its reasonable discretion, in any legal, economic, or regulatory
manner) to designate a different Eurodollar lending office if the making of such
designation would allow Foothill or any Approved Participant, or the Eurodollar
lending office of Foothill or any Approved Participant to continue to perform
its obligations to make Eurodollar Rate Loans or to continue to fund or maintain
Eurodollar Rate Loans and avoid the need for, or materially reduce the amount
of, such increased cost, and (y) Borrower shall not be obligated to pay any such
increased cost which relates to a period ending more than 180 days prior to the
date of receipt by Borrower of such notice and certificate. If Foothill or any
Approved Participant becomes entitled to claim any additional amounts pursuant
to this Section 2.14, Foothill or any Approved Participant shall promptly notify
Borrower of the event by reason of which it has become so entitled. A
certificate as to any additional amounts payable pursuant to this Section 2.14
submitted to Borrower by Foothill on its own behalf or on behalf of any Approved
Participant shall be conclusive in the absence of manifest error. If Borrower so
notifies Foothill within 5 Business Days after Foothill notifies Borrower on its
own behalf or on behalf of any Approved Participant of any increased cost
pursuant to the foregoing provisions of this Section 2.14, Borrower may convert
all Eurodollar Rate Loans then outstanding into Reference Rate Loans in
accordance with Section 2.12 and, additionally, reimburse Foothill or any such
Approved Participant for any cost in accordance with Section 2.16. This covenant
shall survive the termination of this Agreement and the payment of the Advances
and all other amounts payable hereunder for nine months following such
termination and repayment.
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(b) If Foothill or any Approved Participant shall have
determined that the adoption after the date hereof of or any change after the
date hereof in any Requirement of Law regarding capital adequacy or in the
interpretation or application thereof or compliance by Foothill or any Person
controlling Foothill, or any Approved Participant or any Person controlling any
such Approved Participant, with any request or directive issued after the date
hereof regarding capital adequacy and not a request or directive to comply with
a Requirement of Law in effect on the date hereof (whether or not having the
force of law) from any Governmental Authority made subsequent to the date hereof
does or shall have the effect of increasing the amount of capital required to be
maintained or reducing the rate of return on Foothill's, any such Approved
Participant's, or any other such Person's capital as a consequence of its
obligations hereunder to a level below that which Foothill or any such Approved
Participant or any such other Person could have achieved but for such change or
compliance (taking into consideration Foothill's or any such Approved
Participant's or any such other Person's policies with respect to capital
adequacy) by an amount deemed by Foothill or any Approved Participant or any
such other Person to be material, then from time to time, after submission by
Foothill to Borrower of a prompt written request therefor on its own behalf, on
behalf of any Approved Participant, or on behalf of any other such Person,
Borrower shall pay to Foothill for its own benefit or for the benefit of any
such Approved Participant or any other such Person, as applicable, such
additional amount or amounts as will compensate Foothill or any such Approved
Participant or any other such Person for such reduction; provided, however, that
Borrower shall not be obligated to pay for any such reduction which relates to a
period ending more than 180 days prior to the date of receipt by Borrower of
such notice. This covenant shall survive the termination of this Agreement and
the payment of the Advances and all other amount payable hereunder for nine
months following such termination and repayment.
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2.15 TAXES. (a) Except as provided below in this Section 2.15,
all payments made by Borrower under this Agreement and any other Loan Documents
shall be made free and clear of, and without deduction or withholding for or on
account of, any present or future income, stamp or other taxes, levies, imposts,
duties, charges, fees, deductions, or withholdings, now or hereafter imposed,
levied, collected, withheld, or assessed by any Governmental Authority,
excluding net income taxes and franchise taxes or other taxes imposed in lieu of
net income taxes. If any such non-excluded taxes, levies, imposts, duties,
charges, fees, deductions or withholdings ("Non-Excluded Taxes") are required to
be withheld from any amounts payable to Foothill hereunder or under any other
Loan Documents, the amounts so payable to Foothill shall be increased to the
extent necessary to yield to Foothill and any Approved Participant (after
payment of all Non-Excluded Taxes) interest or any such other amounts payable
hereunder at the rates or in the amounts specified in this Agreement and any
other Loan Documents, provided, however, that Borrower shall be entitled to
deduct and withhold any Non-Excluded Taxes and shall not be required to increase
any such amounts payable to Foothill if Foothill or any Approved Participant
fails or is unable to comply with the requirements of paragraph (b) of this
Section 2.15. Whenever any Non-Excluded Taxes are payable by Borrower, as
promptly as possible thereafter Borrower shall send to Foothill a certified copy
of an original official receipt received by Borrower showing payment thereof. If
Borrower fails to pay any Non-Excluded Taxes when due to the appropriate taxing
authority or fails to remit to Foothill the required receipts or other required
documentary evidence, Borrower shall indemnify Foothill and any Approved
Participant for any incremental taxes, interest or penalties that may become
payable by Foothill or any Approved Participant as a result of any such failure.
The agreements in this Section 2.15 shall survive the termination of this
Agreement and the payment of the Advances and all other amounts payable
hereunder. If for any reason Foothill or any Participant shall subsequently
recoup all or any portion of any amounts paid by Borrower pursuant to this
Section 2.15, from the relevant taxation authority or other authority and
Foothill or such Participant is reasonably able to identify such recoupment as
relating to amounts paid under this Agreement, Foothill or such Participant
shall promptly remit the amount of the recoupment to Borrower.
(b) Any Participant or assignee of Foothill that is not
incorporated under the laws of the United States of America or a state thereof
(any such Person, a "Foreign Lender") shall:
(i) (x) on or before the date of any payment by
Borrower under this Agreement to such Foreign Lender, deliver to
Borrower and Foothill (A) two duly completed copies of United
States Internal Revenue Service Form 1001 or 4224, or successor
applicable form, as the case may be, certifying that it is
entitled to receive payments under this Agreement without any
deduction or withholding of any United States federal income
taxes and (B) a duly completed Internal Revenue Service Form W-8
or W-9, or successor applicable form, as the case may be,
certifying that it is entitled to an exemption from United
States backup withholding tax;
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(y) deliver to Borrower and Foothill two further copies
of any such form or certification on or before the date that any
such form or certification expires or becomes obsolete and after
the occurrence of any event requiring a change in the most
recent form previously delivered by it to Borrower, and
(z) obtain such extensions of time for filing and
complete such forms or certifications as may reasonably be
requested by Borrower or Foothill;
or
(ii) in the case of any such Foreign Lender that is not
a "bank" within the meaning of Section 881(c)(3)(A) of the IRC
and that does not comply with subparagraph (i) of this paragraph
(b),
(x) represent to Borrower (for the benefit of Borrower
and Foothill) that it is not a bank within the meaning of
Section 881(c)(3)(A) of the IRC,
(y) deliver to Borrower on or before the date of any
payment by Borrower, with a copy to Foothill: (1) a certificate
stating that such Foreign Lender (A) is not a "bank" under
Section 881(c)(3)(A) of the IRC, is not subject to regulatory or
other legal requirements as a bank in any jurisdiction, and has
not been treated as a bank for purposes of any tax, securities
law, or other filing or submission made to any Governmental
Authority, any application made to a rating agency or
qualification for any exemption from tax, securities law or
other legal requirements, (B) is not a 10-percent shareholder
within the meaning of Section 881(c)(3)(B) of the IRC, and (C)
is not a controlled foreign corporation receiving interest from
a related person within the meaning of Section 881(c)(3)(C) of
the IRC (any such certificate a "U.S. Tax Compliance
Certificate"); and (2) two duly completed copies of Internal
Revenue Service Form W-8, or successor applicable form,
certifying to such Foreign Lender's legal entitlement at the
date of such certificate to an exemption from U.S. withholding
tax under the provisions of Section 881(c) of the IRC with
respect to payments to be made under this Agreement (and to
deliver to Borrower and Foothill two further copies of Form W-8
on or before the date it expires or becomes obsolete and after
the occurrence of any event requiring a change in the most
recently provided form and, if necessary, obtain any extensions
of time reasonably requested by Borrower or Foothill for filing
and completing such forms), and
(z) agree, to the extent legally entitled to do so,
upon reasonable request by Borrower, to provide to Borrower (for
the benefit of Borrower and Foothill) such other forms as may be
reasonably required in order to establish the legal entitlement
of such Foreign Lender to an exemption from withholding with
respect to payments under this Agreement;
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(c) Foothill and each Foreign Lender shall, upon the
reasonable request by Borrower, deliver to Borrower or the applicable
Governmental Authority, as the case may be, any form or certificate required in
order that any payment by Borrower under this Agreement may be made free and
clear of, and without deduction or withholding for or on Non-Excluded Taxes (or
to allow any such deduction or withholding to be at a reduced rate) imposed on
such payment under the laws of any jurisdiction, provided that Foothill or such
Foreign Lender, as the case may be, is legally entitled to complete, execute and
deliver such form or certificate and such completion, execution or submission
would not materially prejudice the legal position of Foothill or such Foreign
Lender, as the case may be,
unless in any such case any change in treaty, law, or regulation has occurred
after the date such Person becomes a Foreign Lender hereunder which renders all
such forms and certificates inapplicable or which would prevent such Foreign
Lender from duly completing and delivering any such form or certificate with
respect to it and such Foreign Lender so advises Borrower and Foothill. Each
Person that shall become an assignee, an Approved Participant, or a Participant
shall, upon the effectiveness of the related transfer, be required to provide
all of the forms, certifications, and statements required pursuant to this
Section 2.15; provided, however, that in the case of an Approved Participant or
a Participant, the obligations of such Approved Participant or Participant
pursuant to this paragraph (b) shall be determined as if such Approved
Participant or Participant were an assignee except that such Approved
Participant or Participant shall furnish all such required forms,
certifications, and statements to Foothill.
2.16 INDEMNITY. Borrower agrees to indemnify Foothill and any
Approved Participant and to hold Foothill and any Approved Participant harmless
from any loss or expense which Foothill or any Approved Participant may sustain
or incur as a consequence of (a) default by Borrower in payment when due of the
principal amount of or interest on any Eurodollar Rate Loan, (b)default by
Borrower in making a borrowing of, conversion into, or continuation of
Eurodollar Rate Loans after Borrower has given a notice requesting the same in
accordance with the provisions of this Agreement, (c) default by Borrower in
making any prepayment of Eurodollar Rate Loans after Borrower has given a notice
thereof in accordance with the provisions of this Agreement, or (d) the making
of a prepayment of Eurodollar Rate Loans on a day which is not the last day of
an Interest Period with respect thereto (whether due to the termination of this
Agreement upon an Event of Default or otherwise), including, in each case, any
such loss or expense (but excluding loss of margin) arising from the
reemployment of funds obtained by it or from fees payable to terminate the
deposits from which such funds were obtained. Calculation of all amounts payable
to Foothill under this Section 2.16 shall be made as though Foothill and any
Approved Participant had actually funded the relevant Eurodollar Rate Loan
through the purchase of a deposit bearing interest at the Eurodollar Rate in an
amount equal to the amount of such Eurodollar Rate Loan and having a maturity
comparable to the relevant Interest Period; provided, however, that Foothill and
any Approved Participant may fund each of the Eurodollar Rate Loans in any
manner it sees fit, and the foregoing assumption shall be utilized only for the
calculation of amounts payable under this Section 2.16. This covenant shall
survive the termination of this Agreement and the payment of the Loans and all
other amounts payable hereunder for a period of nine months thereafter.
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3. CONDITIONS; TERM OF AGREEMENT.
3.1 CONDITIONS PRECEDENT TO THE INITIAL ADVANCE, LETTER OF
CREDIT, AND THE INITIAL CAPITAL EXPENDITURE LOAN. The obligation of Foothill to
make the initial Advance, to issue the initial Letter of Credit, or to make the
initial Capital Expenditure Loan is subject to the fulfillment, to the
satisfaction of Foothill and its counsel, of each of the following conditions on
or before the Closing Date:
(a) the Closing Date shall occur on or before March 31,
1998;
(b) Foothill shall have received searches reflecting the
filing of its financing statements and fixture filings;
(c) Foothill shall have received each of the following
documents, duly executed, and each such document shall be in full force and
effect:
(1) the Lockbox Agreements;
(2) the Disbursement Letter;
(3) the Stock Pledge Agreement;
(4) the Trademark Security Agreement;
(5) the Guaranty;
(6) the Canadian Security Agreement;
(7) the Copyright Security Agreement;
(8) the License Agreement; and
(9) the Intercreditor Agreement;
(d) Foothill shall have received a certificate from the
Secretary of Borrower attesting to the resolutions of Borrower's Board of
Directors authorizing its execution, delivery, and performance of this Agreement
and the other Loan Documents to which Borrower is a party and authorizing
officers of Borrower to execute the same;
(e) Foothill shall have received a certificate from the
Secretary of Canadian Guarantor attesting to the resolutions of Canadian
Guarantor's Board of Directors authorizing the execution, delivery, and
performance of the Guaranty and each of the other Loan Documents to which it is
a party and authorizing officers of Canadian Guarantor to execute the same;
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(f) Foothill shall have received copies of Borrower's
Governing Documents, as amended, modified, or supplemented to the Closing Date,
certified by the Secretary of Borrower;
(g) Foothill shall have received copies of Canadian
Guarantor's Governing Documents (or the Canadian equivalent thereof), as
amended, modified, or supplemented to the Closing Date, certified by the
Secretary of Canadian Guarantor;
(h) Foothill shall have received a certificate of status
with respect to Borrower, dated within 10 days of the Closing Date, such
certificate to be issued by the appropriate officer of the jurisdiction of
organization of Borrower, which certificate shall indicate that Borrower is in
good standing in such jurisdiction;
(i) Foothill shall have received a certificate of status
with respect to Canadian Guarantor (or the Canadian equivalent thereof), dated
within 10 days of the Closing Date, such certificate to be issued by the
appropriate officer of the jurisdiction of organization of Canadian Guarantor,
which certificate shall indicate that Canadian Guarantor is in good standing in
such jurisdiction;
(j) Foothill shall have received certificates of status
with respect to Borrower, each dated within 15 days of the Closing Date, such
certificates to be issued by the appropriate officer of the jurisdictions in
which its failure to be duly qualified or licensed would constitute a Material
Adverse Change, which certificates shall indicate that Borrower is in good
standing in such jurisdictions;
(k) Foothill shall have received certificates of status
with respect Canadian Guarantor (or the Canadian equivalent thereof), each dated
within 15 days of the Closing Date, such certificates to be issued by the
appropriate officer of the jurisdictions in which its failure to be duly
qualified or licensed would constitute a Material Adverse Change, which
certificates shall indicate that Canadian Guarantor is in good standing in such
jurisdictions;
(l) Foothill shall have received a certificate of
insurance, together with the endorsements thereto, as are required by Section
6.10, the form and substance of which shall be satisfactory to Foothill and its
counsel;
(m) Foothill shall have received such Collateral Access
Agreements from (i) the lessors of Borrower's University Street warehouse, (ii)
from the warehousemen for Borrower's Hawaii, New Jersey, Tennessee, and Toronto,
Canada warehouse facilities, and (iii) from such other lessors, warehousemen,
bailees, and other third persons as Foothill may require;
(n) Foothill shall have received an opinion of Borrower's
counsel in form and substance satisfactory to Foothill in its sole discretion;
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(o) Foothill shall have received satisfactory evidence
that all tax returns required to be filed by Borrower have been timely filed and
all taxes upon Borrower or its properties, assets, income, and franchises
(including real property taxes and payroll taxes) have been paid prior to
delinquency, except such taxes that are the subject of a Permitted Protest;
(p) Foothill shall have received satisfactory evidence
that no regulatory or other approvals are required for the sale of any part of
Borrower's Inventory by Foothill;
(q) Foothill shall have received and reviewed reference
checks for key management of Borrower, the results of which shall be
satisfactory to Foothill in its sole discretion;
(r) Foothill shall have received and shall have reviewed
the amendment of the Term Loan Agreement to be entered into in connection with
the Intercreditor Agreement and this Agreement, the results of which shall be
satisfactory to Foothill in its sole discretion;
(s) Foothill shall have completed and reviewed its
inventory appraisal of Borrower, the results of which shall be satisfactory to
Foothill in its sole discretion;
(t) Foothill shall have completed its final pre-closing
inventory appraisal and examination of Borrower, including the calculation of
Borrower's Availability;
(u) on the Closing Date, after giving effect to any
Advances made on such date and any Letters of Credit issued or assumed on such
date, Borrower shall have remaining Enhanced Availability of not less than
$6,500,000;
(v) all other documents and legal matters in connection
with the transactions contemplated by this Agreement shall have been delivered,
executed, or recorded and shall be in form and substance satisfactory to
Foothill and its counsel.
3.2 CONDITIONS PRECEDENT TO ALL ADVANCES, ALL LETTERS OF CREDIT,
AND ALL CAPITAL EXPENDITURE LOANS. The following shall be conditions precedent
to all Advances, all Letters of Credit, and all Capital Expenditure Loans
hereunder:
(a) the representations and warranties contained in this
Agreement and the other Loan Documents shall be true and correct in all material
respects on and as of the date of such extension of credit, as though made on
and as of such date (except to the extent that such representations and
warranties relate solely to an earlier date);
(b) no Default or Event of Default shall have occurred and
be continuing on the date of such extension of credit, nor shall either result
from the making thereof; and
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(c) no injunction, writ, restraining order, or other order
of any nature prohibiting, directly or indirectly, the extending of such credit
shall have been issued and remain in force by any Governmental Authority against
Borrower, Foothill, or any of their Affiliates.
3.3 CONDITION SUBSEQUENT. As a condition subsequent to initial
closing hereunder, Borrower shall perform or cause to be performed the following
(the failure by Borrower to so perform or cause to be performed constituting an
Event of Default):
(a) within 30 days of the Closing Date, deliver to
Foothill the certified copies of the policies of insurance, together with the
endorsements thereto, as are required by Section 6.10, the form and substance of
which shall be satisfactory to Foothill and its counsel.
3.4 TERM; AUTOMATIC RENEWAL. This Agreement shall become
effective upon the execution and delivery hereof by Borrower and Foothill and
shall continue in full force and effect for a term ending on the date (the
"Renewal Date") that is 4 years from the Closing Date and automatically shall be
renewed for successive 1 year periods thereafter, unless sooner terminated
pursuant to the terms hereof. Either party may terminate this Agreement
effective on the Renewal Date or on any 1 year anniversary of the Renewal Date
by giving the other party at least 90 days prior written notice. The foregoing
notwithstanding, Foothill shall have the right to terminate its obligations
under this Agreement immediately and without notice upon the occurrence and
during the continuation of an Event of Default.
3.5 EFFECT OF TERMINATION. On the date of termination of this
Agreement, all Obligations (including contingent reimbursement obligations of
Borrower with respect to any outstanding Letters of Credit) immediately shall
become due and payable without notice or demand. No termination of this
Agreement, however, shall relieve or discharge Borrower of Borrower's duties,
Obligations, or covenants hereunder, and Foothill's continuing security
interests in the Collateral shall remain in effect until all Obligations have
been fully and finally discharged and Foothill's obligation to provide
additional credit hereunder is terminated. If Borrower has sent a notice of
termination pursuant to the provisions of Section 3.4, but fails to pay the
Obligations in full on the date set forth in said notice, then Foothill may, but
shall not be required to, renew this Agreement for an additional term of 1
years.
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3.6 EARLY TERMINATION BY BORROWER. The provisions of Section 3.4
that allow termination of this Agreement by Borrower only on the Renewal Date
and certain anniversaries thereof notwithstanding, Borrower has the option, at
any time upon 90 days prior written notice to Foothill, to terminate this
Agreement by paying to Foothill, in cash, the Obligations (including an amount
equal to 105% of the undrawn amount of the Letters of Credit), in full, together
with a premium (the "Early Termination Premium") equal to (a) 2.00% of the
Maximum Amount if such termination occurs on or before the second anniversary of
the Closing Date, (b) 1.00% of the Maximum Amount if such termination occurs
after the second anniversary of the Closing Date and on or before the third
anniversary of the Closing Date, and (c) .50% of the Maximum Amount if such
termination occurs after the third anniversary of the Closing Date and on or
before the fourth anniversary of the Closing Date; provided, however, that in
the event that Borrower shall elect to terminate this Agreement at the same time
as Borrower makes full and final payment of all amounts due under the Term Loan
Agreement, then the Early Termination Premium payable to Foothill shall be
reduced to one half of the applicable amount set forth above.
3.7 TERMINATION UPON EVENT OF DEFAULT. If Foothill terminates
this Agreement upon the occurrence of an Event of Default, in view of the
impracticability and extreme difficulty of ascertaining actual damages and by
mutual agreement of the parties as to a reasonable calculation of Foothill's
lost profits as a result thereof, Borrower shall pay to Foothill upon the
effective date of such termination, a premium in an amount equal to the Early
Termination Premium. The Early Termination Premium shall be presumed to be the
amount of damages sustained by Foothill as the result of the early termination
and Borrower agrees that it is reasonable under the circumstances currently
existing. The Early Termination Premium provided for in this Section 3 shall be
deemed included in the Obligations.
4. CREATION OF SECURITY INTEREST.
4.1 GRANT OF SECURITY INTEREST. Borrower hereby grants to
Foothill a continuing security interest in all currently existing and hereafter
acquired or arising Borrower Collateral in order to secure prompt repayment of
any and all Obligations and in order to secure prompt performance by Borrower of
each of its covenants and duties under the Loan Documents. Foothill's security
interests in the Borrower Collateral shall attach to all Borrower Collateral
without further act on the part of Foothill or Borrower. Anything contained in
this Agreement or any other Loan Document to the contrary notwithstanding,
except for the sale of Inventory to buyers in the ordinary course of business,
Borrower has no authority, express or implied, to dispose of any item or portion
of the Revolving Lender Primary Collateral.
4.2 NEGOTIABLE COLLATERAL. In the event that any Borrower
Collateral, including proceeds, is evidenced by or consists of Negotiable
Collateral, Borrower, immediately upon the request of Foothill, shall endorse
and deliver physical possession of such Negotiable Collateral to Foothill.
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4.3 COLLECTION OF ACCOUNTS, GENERAL INTANGIBLES, AND NEGOTIABLE
COLLATERAL. At any time, Foothill or Foothill's designee may (a) if an Event of
Default has occurred and is continuing or Foothill deems itself insecure, notify
customers or Account Debtors of Obligor that the Accounts, General Intangibles,
or Negotiable Collateral have been assigned to Foothill or that Foothill has a
security interest therein, and (b) if an Event of Default has occurred and is
continuing, collect the Accounts, General Intangibles, and Negotiable Collateral
directly and charge the reasonable collection costs and expenses to the Loan
Account. Borrower agrees that it will hold in trust for Foothill, as Foothill's
trustee, any Collections that it receives and will dispose thereof in accordance
with the provisions of this Agreement.
4.4 DELIVERY OF ADDITIONAL DOCUMENTATION REQUIRED. At any time
upon the request of Foothill, Borrower shall execute and deliver to Foothill all
financing statements, continuation financing statements, fixture filings,
security agreements, pledges, assignments, endorsements of certificates of
title, applications for title, affidavits, reports, notices, schedules of
accounts, letters of authority, and all other documents that Foothill reasonably
may request, (i) in form satisfactory to Foothill to perfect and continue
perfected Foothill's security interests in the Collateral, and (ii) in form
reasonably satisfactory to Foothill in order to fully consummate all of the
transactions contemplated hereby and under the other the Loan Documents.
4.5 POWER OF ATTORNEY. Borrower hereby irrevocably makes,
constitutes, and appoints Foothill (and any of Foothill's officers, employees,
or agents designated by Foothill) as Borrower's true and lawful attorney, with
power to (a) if Borrower refuses to, or fails timely to execute and deliver any
of the documents described in Section 4.4(i), sign the name of Borrower on any
of the documents described in Section 4.4(i), (b) at any time that an Event of
Default has occurred and is continuing, sign Borrower's name on any invoice or
bill of lading relating to any Account, drafts against Account Debtors,
schedules and assignments of Accounts, verifications of Accounts, and notices to
Account Debtors, (c) if an Event of Default has occurred and is continuing or
Foothill deems itself insecure, send requests for verification of Accounts more
than 4 times per year, (d) endorse Borrower's name on any Collection item that
may come into Foothill's possession, (e) at any time that an Event of Default
has occurred and is continuing, notify the post office authorities to change the
address for delivery of Borrower's mail to an address designated by Foothill, to
receive and open all mail addressed to Borrower, and to retain all mail relating
to the Collateral and forward copies of all mail pertaining to Collateral and
all other mail to Borrower, (f) at any time that an Event of Default has
occurred and is continuing, make, settle, and adjust all claims under Borrower's
policies of insurance to the extent they pertain to Foothill Primary Collateral
and make all determinations and decisions with respect to such policies of
insurance to the extent they relate to Foothill Primary Collateral, and (g) at
any time that an Event of Default has occurred and is continuing, settle and
adjust disputes and claims respecting the Accounts directly with Account
Debtors, for amounts and upon terms that Foothill determines to be reasonable,
and Foothill may cause to be executed and delivered any documents and releases
that Foothill determines to be necessary. The appointment of Foothill as
Borrower's attorney, and each and every one of Foothill's rights and powers,
being coupled with an interest, is irrevocable until all of the Obligations have
been fully and finally repaid and performed and Foothill's obligation to extend
credit hereunder is terminated.
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4.6 RIGHT TO INSPECT. Subject to Section 2.11(c), Foothill
(through any of its officers, employees, or agents) shall have the right, from
time to time hereafter to inspect Borrower's Books and to check, test, and
appraise the Collateral in order to verify Borrower's financial condition or the
amount, quality, value, condition of, or any other matter relating to, the
Collateral. Borrower shall cooperate in all respects with representatives of
Foothill and its agents in the completion of such inspections and appraisals,
including each quarterly Collateral audit and each semi-annual Collateral
appraisal update.
5. REPRESENTATIONS AND WARRANTIES.
In order to induce Foothill to enter into this Agreement,
Borrower makes the following representations and warranties which shall be true,
correct, and complete in all material respects as of the date hereof, and shall
be true, correct, and complete in all material respects as of the Closing Date,
and at and as of the date of the making of each Advance, Letter of Credit, or
Capital Expenditure Loan made thereafter, as though made on and as of the date
of such Advance, Letter of Credit, or Capital Expenditure Loan (except to the
extent that such representations and warranties relate solely to an earlier
date) and such representations and warranties shall survive the execution and
delivery of this Agreement:
5.1 NO ENCUMBRANCES. Borrower has good and indefeasible title to
the Borrower Collateral, free and clear of Liens except for Permitted Liens and
Canadian Guarantor has good and indefeasible title to the Canadian Collateral,
free and clear of liens, claims, security interests, or encumbrances, except for
Permitted Liens.
5.2 ELIGIBLE ACCOUNTS. The Eligible Accounts are bona fide
existing obligations created by the sale and delivery of Inventory or the
rendition of services to Account Debtors in the ordinary course of Obligor's
respective business, unconditionally owed to Obligor, without defenses,
disputes, offsets, counterclaims, or rights of return or cancellation. The
property giving rise to such Eligible Accounts has been delivered to the Account
Debtor, or to the Account Debtor's agent for immediate shipment to and
unconditional acceptance by the Account Debtor. Neither Obligor has received
notice of actual or imminent bankruptcy, insolvency, or material impairment of
the financial condition of any Account Debtor regarding any Eligible Account due
from such Account Debtor in an amount in excess of $10,000.
5.3 ELIGIBLE INVENTORY. All Eligible Inventory is of good and
merchantable quality, free from defects.
5.4 EQUIPMENT. Substantially all of the Equipment is used or held
for use in Obligor's business and is fit for such purposes.
5.5 LOCATION OF INVENTORY AND EQUIPMENT. The Inventory (other
than Inventory identified by Borrower to Foothill as not being Eligible
Inventory or that is excluded by Borrower in the calculation of Eligible
Inventory submitted to Foothill pursuant to Section 6.2) and material Equipment
are not stored with a bailee, warehouseman, or similar party (without Foothill's
prior written consent) and are located only at the locations identified on
Schedule 6.12 or otherwise permitted by Section 6.12.
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5.6 INVENTORY RECORDS. Borrower keeps correct and accurate
records itemizing and describing the kind, type, quality, and quantity of the
Inventory, and Borrower's cost therefor.
5.7 LOCATION OF CHIEF EXECUTIVE OFFICE; FEIN. The chief executive
office of Borrower is located at the address indicated in the preamble to this
Agreement and Borrower's FEIN is 95-2040819, and the chief executive office of
Canadian Guarantor is located at 966 Pantera Drive, #35, Mississauga, Ontario
L4W 2S1, and Canadian Guarantor's Canadian employer identification number is
13883 7844.
5.8 DUE ORGANIZATION AND QUALIFICATION; SUBSIDIARIES.
(a) Each of Borrower and the Canadian Guarantor are duly
organized and existing and in good standing under the laws of the jurisdiction
of its respective incorporation and qualified and licensed to do business in,
and in good standing in, any state where the failure to be so licensed or
qualified reasonably could be expected to have a Material Adverse Change.
(b) Set forth on Schedule 5.8, as supplemented from time
to time to incorporate new Subsidiaries formed in accordance with the terms and
conditions of this Agreement, is a complete and accurate list of Borrower's
direct and indirect Subsidiaries, showing: (i) the jurisdiction of their
incorporation; (ii) the number of shares of each class of common and preferred
Stock authorized for each of such Subsidiaries; and (iii) the number and the
percentage of the outstanding shares of each such class owned directly or
indirectly by Borrower. All of the outstanding Stock of each such Subsidiary has
been validly issued and is fully paid and non-assessable.
(c) Except as set forth on Schedule 5.8, no Stock (or any
securities, instruments, warrants, options, purchase rights, conversion or
exchange rights, calls, commitments or claims of any character convertible into
or exercisable for Stock) of any direct or indirect Subsidiary of Borrower is
subject to the issuance of any security, instrument, warrant, option, purchase
right, conversion or exchange right, call, commitment or claim of any right,
title, or interest therein or thereto.
5.9 DUE AUTHORIZATION; NO CONFLICT.
(a) The execution, delivery, and performance (i) by
Borrower of this Agreement and (ii) by Borrower and Canadian Guarantor of each
of the Loan Documents to which it is a party have been duly authorized by all
necessary corporate action.
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(b) The execution, delivery, and performance (i) by
Borrower of this Agreement and (ii) by Borrower and Canadian Guarantor of each
of the Loan Documents to which it is a party do not and will not (1) violate any
provision of federal, state, or local law or regulation (including Regulations
G, T, U, and X of the Federal Reserve Board, and any Canadian equivalents of the
foregoing laws and regulations) applicable to Obligor, the Governing Documents
of Obligor, or any order, judgment, or decree of any court or other Governmental
Authority binding on Obligor, (2) conflict with, result in a breach of, or
constitute (with due notice or lapse of time or both) a default under any
material contractual obligation or material lease of Obligor, (3) result in or
require the creation or imposition of any Lien of any nature whatsoever upon any
properties or assets of Obligor, other than Permitted Liens, or (4) require any
approval of stockholders or any approval or consent of any Person under any
material contractual obligation of Obligor.
(c) Other than the filing of appropriate financing
statements and fixture filings, and as otherwise required by this Agreement, the
execution, delivery, and performance by Borrower of this Agreement and the Loan
Documents to which Borrower and Canadian Guarantor are a party do not and will
not require any registration with, consent, or approval of, or notice to, or
other action with or by, any federal, state, foreign, or other Governmental
Authority or other Person.
(d) This Agreement and the Loan Documents to which
Borrower and Canadian Guarantor are a party, and all other documents
contemplated hereby and thereby, when executed and delivered by Obligor will be
the legally valid and binding obligations of Borrower and Canadian Guarantor,
enforceable against Borrower and Canadian Guarantor in accordance with their
respective terms, except as enforcement may be limited by equitable principles
or by bankruptcy, insolvency, reorganization, moratorium, or similar laws
relating to or limiting creditors' rights generally.
(e) The Liens granted by Borrower and Canadian Guarantor
to Foothill in and to its properties and assets pursuant to this Agreement and
the other Loan Documents are validly created, perfected, and first priority
Liens, subject only to Permitted Liens.
5.10 LITIGATION. There are no actions or proceedings pending by
or against Borrower before any court or administrative agency and Borrower does
not have knowledge or belief of any pending, threatened, or imminent litigation,
governmental investigations, or claims, complaints, actions, or prosecutions
involving Borrower or any guarantor of the Obligations, except for: (a) ongoing
collection matters in which Borrower is the plaintiff; (b) matters disclosed on
Schedule 5.10; and (c) matters that, if decided adversely to Borrower or such
guarantor, reasonably could not be expected to result in a Material Adverse
Change.
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5.11 NO MATERIAL ADVERSE CHANGE. All financial statements
relating to Borrower or any guarantor of the Obligations that have been
delivered by Borrower to Foothill have been prepared in accordance with GAAP
(except, in the case of unaudited financial statements, for the lack of
footnotes and being subject to year-end audit adjustments) and fairly present
Borrower's (or such guarantor's, as applicable) financial condition as of the
date thereof and Borrower's results of operations for the period then ended.
There has not been a Material Adverse Change with respect to Borrower (or such
guarantor, as applicable) since the date of the latest financial statements
submitted to Foothill on or before the Closing Date.
5.12 SOLVENCY. Borrower and Canadian Guarantor are Solvent. No
transfer of property is being made by Obligor and no obligation is being
incurred by Obligor in connection with the transactions contemplated by this
Agreement or the other Loan Documents with the intent to hinder, delay, or
defraud either present or future creditors of Obligor.
5.13 EMPLOYEE BENEFITS. No ERISA Event has occurred or is
reasonably expected to occur with respect to any Plan of Borrower or any of its
ERISA Affiliates. Neither Borrower nor any of its ERISA Affiliates has incurred
or is reasonably expected to incur any Withdrawal Liability to any Multiemployer
Plan. Neither Borrower nor any of its ERISA Affiliates has been notified by the
sponsor of a Multiemployer Plan of Borrower or any of its ERISA Affiliates that
such Multiemployer Plan is in reorganization or has been terminated, within the
meaning of Title IV of ERISA, and no such Multiemployer Plan is reasonably
expected to be in reorganization or to be terminated, within the meaning of
Title IV of ERISA.
5.14 ENVIRONMENTAL CONDITION.
(a) Compliance With Environmental Laws. The operations and
properties of Borrower and the Canadian Guarantor comply in all material
respects with all Environmental Laws, all material Environmental Permits have
been obtained and are in effect for the operations and properties of Borrower
and the Canadian Guarantor, Borrower and the Canadian Guarantor are in
compliance in all material respects with all such material Environmental
Permits, and no circumstances exist that could (i) form the basis of an
Environmental Action against Borrower, the Canadian Guarantor or any of their
properties that would cause a Material Adverse Change or (ii) cause any such
property to be subject to any material restrictions on ownership, occupancy, use
or transferability under any Environmental Law.
(b) National Priorities List. None of the properties of
Borrower or the Canadian Guarantor is listed or proposed for listing on the
National Priorities List under CERCLA or on the Comprehensive Environmental
Response, Compensation and Liability Information System maintained by the
Environmental Protection Agency or any analogous state list of sites requiring
investigation or cleanup or is adjacent to any such property, and no underground
storage tanks, as such term is defined in 42 U.S.C. Section 6991, are located on
any property of Borrower or the Canadian Guarantor or, to the best of knowledge
of Borrower, on any adjoining property.
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(c) Hazardous Materials. Neither Borrower nor any of its
Subsidiaries has transported or arranged for the transportation of any Hazardous
Materials to any location that is listed or proposed for listing on the National
Priorities List under CERCLA or on the Comprehensive Environmental Response,
Compensation and Liability Information System maintained by the Environmental
Protection Agency or any analogous state list, Hazardous Materials have not been
generated, used, treated, handled, stored or disposed of on, or released or
transported to or from, any property of Borrower or the Canadian Guarantor or,
to the best of knowledge of Borrower, any adjoining property, except in
compliance with all Environmental Laws and Environmental Permits, and all other
wastes generated at any such properties have been disposed of in compliance with
all Environmental Laws and Environmental Permits.
5.15 BROKERAGE FEES. No brokerage commission or finders fees has
or shall be incurred or payable in connection with or as a result of Borrower's
obtaining financing from Foothill under this Agreement, and Borrower has not
utilized the services of any broker or finder in connection with Borrower's
obtaining financing from Foothill under this Agreement.
6. AFFIRMATIVE COVENANTS.
Borrower covenants and agrees that, so long as any credit
hereunder shall be available and until full and final payment of the
Obligations, and unless Foothill shall otherwise consent in writing, Borrower
shall do, and shall cause Canadian Guarantor to do all of the following:
6.1 ACCOUNTING SYSTEM. Maintain a standard and modern system of
accounting that enables Obligor to produce financial statements in accordance
with GAAP, and maintain records pertaining to the Collateral that contain
information as from time to time may be reasonably requested by Foothill.
Obligor also shall keep a modern reporting system that shows all additions,
sales, claims, returns, and allowances with respect to the Inventory.
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6.2 COLLATERAL REPORTING. Provide Foothill with the following
documents at the following times in form satisfactory to Foothill: (a) on each
Business Day (other than the first 2 Business Days of each month), a sales
journal summary report, lockbox collection report, and credit register summary
since the last such schedule and a calculation of the Borrowing Base as of such
date; (b) on a monthly basis and, in any event, by no later than the 10th day of
each month during the term of this Agreement, (i) a detailed calculation of the
Borrowing Base as of each month end, in accordance with Exhibit C-5, and (ii) a
detailed aging, by total, of the Accounts, together with a reconciliation to the
detailed calculation of the Borrowing Base previously provided to Foothill; (c)
on a monthly basis and, in any event, by no later than the 10th day of each
month during the term of this Agreement, a summary aging, by vendor, of
Obligor's accounts payable and any book overdraft; (d) on a weekly basis,
Inventory reports specifying Obligor's cost of its Inventory by category; (e)
upon request, copies of invoices in connection with the Accounts, customer
statements, credit memos, remittance advices and reports, deposit slips,
shipping and delivery documents in connection with the Accounts and for
Inventory and Equipment acquired by Obligor, purchase orders and invoices; (f)
on a monthly basis, a calculation of the Dilution for the prior month; (g) on a
daily basis, such information as Foothill shall reasonably request with respect
to the daily amount of Collections received by Obligor in any lockbox or deposit
account, domestic or foreign, sufficient to permit Foothill to calculate the 2
Business Days clearance or float charge thereon in accordance with the
provisions of Section 2.8; and (h) such other reports as to the Collateral or
the financial condition of Obligor as Foothill may reasonably request from time
to time. Original sales invoices evidencing daily sales shall be mailed by
Obligor to each Account Debtor and, at Foothill's direction after the occurrence
and continuation of an Event of Default, the invoices shall indicate on their
face that the Account has been assigned to Foothill and that all payments are to
be made directly to Foothill.
6.3 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES.
(a) Monthly Financials. As soon as available and in any
event within 30 days after the end of each month other than a month which is the
last month of a fiscal quarter or fiscal year, (i) a consolidated balance sheet
of Borrower and its Subsidiaries as of the end of such month; (ii) consolidated
statements of income of Borrower and its Subsidiaries (including a breakdown of
sales by product line) for such month and the period commencing on the first day
of the fiscal year in which such month occurs and ending on the last day of such
month; and (iii) consolidated statements of cash flows of Borrower and its
Subsidiaries for the period commencing on the first day of the fiscal year in
which such month occurs and ending on the last day of such month, setting forth
in each case in comparative form the corresponding figures for the corresponding
month or period of the preceding year, all in reasonable detail and duly
certified by the chief financial officer of Borrower that, to the best of the
knowledge of such chief financial officer, subject to year-end audit
adjustments, the financial information contained therein fairly presents the
financial condition of Borrower and its Subsidiaries.
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(b) Quarterly Financials. As soon as available and in any
event within 45 days after the end of each fiscal quarter of Borrower other than
the last fiscal quarter of a fiscal year, (i) a consolidated balance sheet of
Borrower and its Subsidiaries as of the end of such quarter; (ii) consolidated
statements of income of Borrower and its Subsidiaries (including a breakdown of
sales by product line) for such quarter and the period commencing on the first
day of the fiscal year in which such quarter occurs and ending on the last day
of such quarter; and (iii) consolidated statements of cash flows of Borrower and
its Subsidiaries for the period commencing on the first day of the fiscal year
in which such quarter occurs and ending on the last day of such quarter, setting
forth in the case of subclause (ii) above in comparative form, the corresponding
figures for the corresponding quarter or period of the preceding fiscal year and
the corresponding figures from the most recent business plan delivered to
Foothill pursuant to Section 6.3(d) hereof and in the case of subclause (i) and
(iii) above in comparative form the corresponding figures from the most recent
plan delivered to Foothill pursuant to Section 6.3(d) hereof, all in reasonable
detail and duly certified (subject to year-end audit adjustments) by the chief
financial officer of Borrower as having been prepared in accordance with GAAP,
together with (i) a certificate of said officer stating that no Default has
occurred and is continuing or, if a Default has occurred and is continuing, a
statement as to the nature thereof and the action that Borrower has taken and
proposes to take with respect thereto and (ii) a completed compliance
certificate, in substantially the form of Exhibit C-3 attached hereto, duly
executed by the chief financial officer or chief executive officer of Borrower.
(c) Annual Financials. As soon as available and in any
event within 90 days after the end of each fiscal year of Borrower, a copy of
the annual audit report for such year for Borrower and its Subsidiaries,
including therein a consolidated balance sheet of Borrower and its Subsidiaries
as of the end of such fiscal year and consolidated statements of income and cash
flows of Borrower and its Subsidiaries for such fiscal year, in each case
accompanied by an opinion reasonably acceptable to Foothill of a nationally
recognized public accounting firm, together with (i) a certificate of such
accounting firm to Foothill stating that in the course of the regular audit of
the business of Borrower and its Subsidiaries, which audit was conducted by such
accounting firm in accordance with generally accepted auditing standards, such
accounting firm has obtained no knowledge that a Default has occurred and is
continuing, or if, in the opinion of such accounting firm, a Default has
occurred and is continuing, a statement as to the nature thereof and (ii) a
completed compliance certificate, in substantially the form of Exhibit C-3, duly
executed by the chief financial officer or the chief executive officer of
Borrower. In addition, Borrower shall furnish to Foothill, as soon as available
and in any event no later than 45 days after the end of each fiscal year of
Borrower, (A) a consolidated and a consolidating balance sheet of Borrower and
its Subsidiaries as of the end of such fiscal year, and (B) consolidated and
consolidating statements of income (including a breakdown of sales by product
line) and cash flows of Borrower and its Subsidiaries for such fiscal year, in
each case so as to present Borrower and each related entity separately and on a
consolidated basis, all in reasonable detail and duly certified (subject to
year-end audit adjustments) by the chief financial officer of Borrower as having
been prepared in accordance with GAAP.
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Together with the above, Borrower shall also deliver to
Foothill Borrower's Form 10-Q Quarterly Reports, Form 10-K Annual Reports, and
Form 8-K Current Reports, and all other filings made by Borrower with the
Securities and Exchange Commission, if any, promptly after the sending or filing
thereof, or any other information that is provided by Borrower to its public
shareholders, and any other report reasonably requested by Foothill relating to
the financial condition of Borrower.
(d) Annual Forecasts. As soon as available and in any
event no later than 30 days after the end of each fiscal year of Borrower,
Borrower's annual business plan and forecasts prepared by management of
Borrower, in form reasonably satisfactory to Agent, of balance sheets, income
statements (including a breakdown of sales by product line) and cash flow
statements (it being understood that each such business plan and all such
forecasts furnished to Foothill shall set forth information on a quarterly basis
for the first fiscal year covered thereby and shall set forth information on an
annual basis for each fiscal year thereafter until the Maturity Date).
6.4 TAX RETURNS. Deliver to Foothill copies of each of Borrower's
future federal income tax returns, and any amendments thereto, within 30 days of
the filing thereof with the Internal Revenue Service.
6.5 [INTENTIONALLY OMITTED.]
6.6 RETURNS. Cause returns and allowances, if any, as between
Obligor and any Account Debtors to be on the same basis and in accordance with
the usual customary practices of Borrower. If, at a time when no Event of
Default has occurred and is continuing, any Account Debtor returns any Inventory
to Obligor, Obligor promptly shall determine the reason for such return and, if
Obligor accepts such return, issue a credit memorandum (with a copy to be sent
to Foothill upon request) in the appropriate amount to such Account Debtor. If,
at a time when an Event of Default has occurred and is continuing, any Account
Debtor returns any Inventory to Obligor, Borrower promptly shall determine the
reason for such return and, if Foothill consents (which consent shall not be
unreasonably conditioned, withheld, or delayed), issue a credit memorandum (with
a copy to be sent to Foothill) in the appropriate amount to such Account Debtor.
6.7 TITLE TO EQUIPMENT. Upon Foothill's reasonable request and
subject to the terms and conditions of the Intercreditor Agreement, Obligor
immediately shall deliver to Foothill, properly endorsed, any and all evidences
of ownership of, certificates of title, or applications for title to any items
of Equipment.
6.8 MAINTENANCE OF EQUIPMENT. Maintain the Equipment in good
operating condition and repair (ordinary wear and tear excepted), and make all
necessary replacements thereto so that the operating efficiency thereof shall at
all times be maintained and preserved. Other than those items of Equipment that
constitute fixtures on the Closing Date, Obligor shall not permit any item of
Equipment to become a fixture to real estate or an accession to other property,
and such Equipment shall at all times remain personal property.
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6.9 TAXES. Cause all assessments and taxes, whether real,
personal, or otherwise, due or payable by, or imposed, levied, or assessed
against Borrower or any Subsidiary of Borrower or any of their respective
property to be paid in full, before delinquency or before the expiration of any
extension period, except to the extent that such assessment or tax shall be the
subject of a Permitted Protest. Borrower shall make or shall cause any affected
Subsidiary to make due and timely payment or deposit of all such federal, state,
and local taxes, assessments, or contributions required of it by law, and will
execute and deliver to Foothill, on demand, appropriate certificates attesting
to the payment thereof or deposit with respect thereto, except to the extent
that such tax, assessment or contribution shall be the subject of a Permitted
Protest. Borrower shall make or shall cause any affected Subsidiary to make
timely payment or deposit of all tax payments and withholding taxes required of
it by applicable laws, including those laws concerning F.I.C.A., F.U.T.A. (and
any applicable Canadian equivalent thereof), state disability, and local, state,
and federal income taxes, and will, upon request, furnish Foothill with proof
satisfactory to Foothill indicating that Borrower or any applicable Subsidiary
has made such payments or deposits, except to the extent that such tax,
assessment or contribution shall be the subject of a Permitted Protest.
6.10 INSURANCE.
(a) At its expense, keep the Collateral insured against
loss or damage by fire, theft, explosion, sprinklers, and all other hazards and
risks, and in such amounts, as are ordinarily insured against by other owners in
similar businesses. Borrower also shall maintain business interruption, public
liability, product liability, and property damage insurance relating to
Obligor's ownership and use of the Collateral, as well as insurance under
standard employee dishonesty bonds.
(b) At its expense, obtain and maintain (i) insurance of
the type necessary to insure the improvements and chattels located on any of
Obligors' premises against any loss by fire, lightning, windstorm, hail,
explosion, aircraft, smoke damage, vehicle damage, earthquakes, elevator
collision, and other risks from time to time included under "extended coverage"
policies, in substantially the same amounts as those in effect in the insurance
policies of Borrower in effect as of the Closing Date, but in any event in such
amounts as Foothill may reasonably require as sufficient to prevent Obligor from
becoming a co-insurer under such policies, (ii) combined single limit bodily
injury and property damages insurance against any loss, liability, or damages
on, about, or relating to any of Obligor's premises, in an amount of not less
than $[1,000,000]; and (iii) insurance for substantially the same risks as those
covered by the insurance policies of Borrower in effect as of the Closing Date.
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(c) All such policies of insurance shall be in the form
and in amounts substantially the same as the form and amounts of the insurance
policies of Borrower in effect on the Closing Date, with such companies as are
reasonably satisfactory to Foothill; provided, however, that such policies shall
be maintained in such increased amounts as may be reasonably requested by
Foothill from time to time after the Closing Date pursuant to the provisions of
this Section and as may be required to provide insurance with respect to any
increases in the aggregate amount of Inventory stored at Obligors' premises. All
insurance required herein shall be written by companies which are authorized to
do insurance business in the State of California. All hazard insurance and such
other insurance as Foothill shall specify, shall contain a California Form
438BFU (NS) mortgagee endorsement, or an equivalent endorsement reasonably
satisfactory to Foothill, showing Foothill as sole loss payee thereof, and shall
contain a waiver of warranties. Every policy of insurance referred to in this
Section 6.10 shall contain an agreement by the insurer that it will not cancel
such policy except after 30 days prior written notice to Foothill and that any
loss payable thereunder shall be payable notwithstanding any act or negligence
of Borrower, any Subsidiary of Borrower, or Foothill which might, absent such
agreement, result in a forfeiture of all or a part of such insurance payment and
notwithstanding the occupancy or use of the insured premises for purposes more
hazardous than permitted by the terms of such policy. Borrower shall deliver to
Foothill certified copies of such policies of insurance and evidence of the
payment of all premiums therefor.
(d) Original policies, certificates, or binders thereof
satisfactory to Foothill evidencing such insurance shall be delivered to
Foothill on the first day following the expiration of the existing or preceding
policies. Borrower shall give Foothill prompt notice of any loss covered by such
insurance, and after the occurrence of and during the continuation of an Event
of Default, Foothill shall have the right to adjust any loss. After the
occurrence of and during the continuation of an Event of Default, Foothill shall
have the exclusive right to adjust all losses payable under any such insurance
policies with respect to the Foothill Primary Collateral without any liability
to Borrower whatsoever in respect of such adjustments. Any monies received by
Obligor as payment for any loss under any insurance policy, including the
insurance policies mentioned above, to the extent it pertains to the Foothill
Primary Collateral, shall be paid over to Foothill to be applied to the
prepayment of the Obligations without premium, (1) first, to repay Advances
outstanding under Section 2.1, (2) second, to be held by Foothill as cash
collateral to secure Borrower's obligation to repay Foothill for all amounts
paid pursuant to Letters of Credit, and (3) thereafter, to be applied to the
principal amount of Capital Expenditure Loans, but consistent with the terms of
the Intercreditor Agreement, to the extent applicable; provided, however, that
any monies received by Obligor as payment for any loss under any insurance
policy, to the extent it pertains to the Foothill Primary Collateral consisting
of Equipment, shall be paid over to Foothill to be applied to the prepayment of
the Capital Expenditure Loans. All repairs, replacements, or restorations shall
be effected with reasonable promptness and shall be of a value at least equal to
the value of the items or property destroyed prior to such damage or
destruction.
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(e) Borrower shall not take out separate insurance
concurrent in form or contributing in the event of loss with that required to be
maintained under this Section 6.10, unless Foothill is included thereon as named
insured with the loss payable to Foothill under a standard California 438BFU
(NS) Mortgagee endorsement, or its local equivalent. Borrower immediately shall
notify Foothill whenever such separate insurance is taken out, specifying the
insurer thereunder and full particulars as to the policies evidencing the same,
and originals of such policies promptly shall be provided to Foothill.
6.11 NO SETOFFS OR COUNTERCLAIMS. Make payments hereunder and
under the other Loan Documents by or on behalf of Obligor without setoff or
counterclaim and free and clear of, and without deduction or withholding for or
on account of, any federal, state, or local taxes.
6.12 LOCATION OF INVENTORY AND EQUIPMENT. Keep the Inventory,
other than Inventory in amounts not in excess of $150,000 at any one location,
and not in excess of $500,000 in the aggregate and that is not reported as
Eligible Inventory, and all the material Equipment only at the locations
identified on Schedule 6.12; provided, however, that Borrower may amend Schedule
6.12 so long as such amendment occurs by written notice to Foothill not less
than 20 days prior to the date on which the Inventory or Equipment is moved to
such new location, so long as such new location is within the continental United
States, and so long as, at the time of such written notification, Borrower
provides any financing statements or fixture filings necessary to perfect and
continue perfected Foothill's security interests in such assets and also
provides to Foothill a Collateral Access Agreement. Anything in the foregoing to
the contrary notwithstanding, Borrower and its foreign subsidiaries may keep
slow moving Inventory and other Inventory in locations not within the
continental United States and Canada in an amount not to exceed $500,000 in the
aggregate at any time, and not to exceed $150,000 at any time with respect to
any such Inventory that is not slow moving Inventory.
6.13 COMPLIANCE WITH LAWS. Comply in all material respects with
the requirements of all applicable laws, rules, regulations, and orders of any
governmental authority, including the Fair Labor Standards Act and the Americans
With Disabilities Act (and any applicable Canadian equivalents of the
foregoing), other than laws, rules, regulations, and orders the non-compliance
with which, individually or in the aggregate, would not result in and reasonably
could not be expected to result in a Material Adverse Change.
6.14 EMPLOYEE BENEFITS.
(a) ERISA Events. Promptly and in any event within 10 days
after Borrower or any of its ERISA Affiliates knows or has reason to know that
any ERISA Event with respect to Borrower or any of its ERISA Affiliates has
occurred, a statement of the chief financial officer of Borrower describing such
ERISA Event and the action, if any, that Borrower or such ERISA Affiliate has
taken and proposes to take with respect thereto.
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(b) Plan Terminations. Promptly and in any event within
five Business Days after receipt thereof by Borrower or any of its ERISA
Affiliates, copies of each notice from the PBGC stating its intention to
terminate any Plan of Borrower or any of its ERISA Affiliates or to have a
trustee appointed to administer any such Plan.
(c) Plan Annual Reports. Promptly and in any event within
30 days after the filing thereof with the Internal Revenue Service, copies of
each Schedule B (Actuarial Information) to the annual report (Form 5500 Series)
with respect to each Plan of Borrower or any of its ERISA Affiliates.
(d) Multiemployer Plan Notices. Promptly and in any event
within five Business Days after receipt thereof by Borrower or any of its ERISA
Affiliates from the sponsor of a Multiemployer Plan of Borrower or any of its
ERISA Affiliates, copies of each notice concerning (i) the imposition of
Withdrawal Liability by any such Multiemployer Plan, (ii) the reorganization or
termination, within the meaning of Title IV of ERISA, of any such Multiemployer
Plan or (iii) the amount of liability incurred, or that may be incurred, by
Borrower or any of its ERISA Affiliates in connection with any event described
in clause (i) or (ii).
6.15 LEASES. Pay when due all rents and other amounts payable
under any leases to which Borrower is a party or by which Borrower's properties
and assets are bound, unless such payments are the subject of a Permitted
Protest. To the extent that Borrower fails to comply with the foregoing,
Foothill shall be entitled, in its discretion, to reserve an amount equal to
such unpaid amounts against the Borrowing Base.
6.16 BROKERAGE COMMISSIONS. Pay any and all brokerage commission
or finders fees incurred by in connection with or as a result of Borrower's
obtaining financing from Foothill under this Agreement.
6.17 COMPLIANCE WITH ENVIRONMENTAL LAWS.
(a) Comply, and cause all lessees and other Persons
occupying its properties to comply, in all material respects, with all
Environmental Laws and Environmental Permits applicable to its operations and
properties; obtain and renew all Environmental Permits necessary for its
operations and properties; and conduct, and cause each of its Subsidiaries to
conduct, any investigation, study, sampling and testing, and undertake any
cleanup, removal, remedial or other action necessary to remove and clean up all
Hazardous Materials from any of its properties, in accordance with the
requirements of all Environmental Laws; provided, however, that neither Borrower
nor any of its Subsidiaries shall be required to undertake any such cleanup,
removal, remedial or other action to the extent that its obligation to do so is
being contested in good faith and by proper proceedings and appropriate reserves
are being maintained with respect to such circumstances.
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(b) Promptly after the occurrence thereof, notice of any
condition or occurrence on any property of Borrower that results in a material
noncompliance by Borrower or any of its Subsidiaries with any Environmental Law
or Environmental Permit or could (i) form the basis of an Environmental Action
against Borrower or any of its Subsidiaries or such property that would have a
Material Adverse Effect or (ii) cause any such property to be subject to any
restrictions on ownership, occupancy, use or transferability under any
Environmental Law.
7. NEGATIVE COVENANTS.
Borrower covenants and agrees that, so long as any credit
hereunder shall be available and until full and final payment of the
Obligations, Borrower will not do any of the following, and shall cause Canadian
Guarantor not to do any of the following, without Foothill's prior written
consent:
7.1 INDEBTEDNESS. Create, incur, assume, permit, guarantee, or
otherwise become or remain, directly or indirectly, liable with respect to any
Indebtedness, except:
(a) Indebtedness evidenced by the Loan Documents, together
with Indebtedness to issuers of letters of credit that are the subject of L/C
Guarantees;
(b) Indebtedness set forth in Schedule 7.1;
(c) unsecured Indebtedness incurred in the ordinary course
of business for borrowed money, maturing within one year from the date incurred,
and aggregating for Borrower and its Subsidiaries on a consolidated basis, not
more than $1,000,000 at any one time outstanding;
(d) Subordinated Indebtedness;
(e) Indebtedness secured by Permitted Liens to the extent
not set forth on Schedule 7.1; provided, however, that any Indebtedness secured
by Permitted Liens described in clause (h) of the definition of Permitted Liens
set forth in Section 1.1 shall not exceed the amounts set forth therein;
(f) unsecured Indebtedness incurred in the ordinary course
of business for the deferred purchase price of property or services, maturing
within one year from the date created, and aggregating for Borrower and its
Subsidiaries on a consolidated basis, not more than $1,000,000 at any one time
outstanding;
(g) endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of business;
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(h) Indebtedness incurred in connection with leases,
agreements to lease, or capital leases having an original term of one year of
more that would result in direct and contingent liabilities of Borrower and its
Subsidiaries, on a consolidated basis, in respect of all such obligations to
exceed $1,500,000 payable in any consecutive period of 12 months; and
(i) refinancings, renewals, or extensions of Indebtedness
permitted under clauses (b) thorough (h) of this Section 7.1 (and continuance or
renewal of any Permitted Liens associated therewith) so long as: (i) the terms
and conditions of such refinancings, renewals, or extensions do not materially
impair the prospects of repayment of the Obligations by Obligor, (ii) the Net
Cash Proceeds of such refinancings, renewals, or extensions do not result in an
increase in the aggregate principal amount of the Indebtedness so refinanced,
renewed, or extended, (iii) such refinancings, renewals, refundings, or
extensions do not result in a shortening of the average weighted maturity of the
Indebtedness so refinanced, renewed, or extended, and (iv) to the extent that
Indebtedness that is refinanced was subordinated in right of payment to the
Obligations, then the subordination terms and conditions of the refinancing
Indebtedness must be at least as favorable to Foothill as those applicable to
the refinanced Indebtedness; provided, however, that Dep International, Ltd., a
U.S. Virgin Islands corporation and a Subsidiary of Borrower, will not be
permitted to create, incur, assume or suffer to exist any Indebtedness
whatsoever.
7.2 LIENS. Create, incur, assume, or permit to exist, directly or
indirectly, or permit any of its Subsidiaries to create, incur, assume, or
permit to exist, directly or indirectly, any Lien on or with respect to any of
its property or assets, of any kind, whether now owned or hereafter acquired, or
any income or profits therefrom, except for Permitted Liens (including Liens
that are replacements of Permitted Liens to the extent that the original
Indebtedness is refinanced under Section 7.1(i) and so long as the replacement
Liens only encumber those assets or property that secured the original
Indebtedness).
7.3 RESTRICTIONS ON FUNDAMENTAL CHANGES. Enter into any merger,
consolidation, reorganization, or recapitalization, or reclassify its Stock, or
liquidate, wind up, or dissolve itself (or suffer any liquidation or
dissolution), or convey, sell, assign, lease, transfer, or otherwise dispose of,
in one transaction or a series of transactions, all or substantially all of its
property or assets. Anything in the foregoing to the contrary notwithstanding,
(a) any Subsidiary of Borrower may merge into or consolidate with any other
Subsidiary of Borrower, provided that, in the case of any such consolidation,
the Person formed by such consolidation shall be a Subsidiary of Borrower, (b)
any Subsidiary of Borrower may merge into Borrower, and (c) Borrower and/or one
or more of its Subsidiaries may engage in any such transactions in order to
effect a sale of all of the assets of such Subsidiary or Subsidiaries to the
extent not otherwise prohibited by the Loan Documents; provided, however, that
in each case, immediately after giving effect thereto, no Event of Default shall
occur or be continuing, and in the case of any merger to which Borrower is a
party, Borrower shall be the surviving entity.
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7.4 DISPOSAL OF ASSETS. Sell, lease, transfer, or otherwise
dispose of any of Borrower's properties or assets other than sales of Inventory
in the ordinary course of Borrower's business as currently conducted; provided,
however, that Borrower may dispose of (a) Equipment in an amount not to exceed
(i) $1,000,000 in the aggregate in each fiscal year of Borrower and (ii)
$2,000,000 in the aggregate during the term of this Agreement, and (b) assets of
any type in an amount not to exceed (i) $5,000,000 in the aggregate in each
fiscal year of Borrower and (c) $10,000,000 in the aggregate during the term of
this Agreement.
7.5 CHANGE NAME. Change Borrower's name, FEIN, corporate
structure (within the meaning of Section 9402(7) of the Code), or identity, or
add any new fictitious name unless notice is given to Foothill 20 days prior to
the use of such new name, except as otherwise permitted under Section 7.3.
7.6 [INTENTIONALLY OMITTED.]
7.7 NATURE OF BUSINESS. (a) Make any change in the principal
nature of Borrower's business, or (b) become the general partner in any general
or limited partnership, or permit any Subsidiary to do so, other than any
Subsidiary the sole assets of which consist of it interest in such partnership
and other than thorough a special interest vehicle.
7.8 PREPAYMENTS AND AMENDMENTS.
(a) Except in connection with (i) the regularly scheduled
or required repayments or redemptions of Indebtedness permitted under Section
7.1(b) through (h) and to the extent such repayments or redemptions are
otherwise permitted under the Intercreditor Agreement, any other intercreditor
agreement, or any subordination agreement, as applicable, entered into in
connection with such Indebtedness, and (ii) a refinancing permitted by Section
7.1(i), prepay, redeem, retire, defease, purchase, or otherwise acquire any
Indebtedness owing to any third Person, other than the Obligations in accordance
with this Agreement, and
(b) Except (1) as otherwise permitted in connection with
any refinancing under Section 7.1(i) or (2) in connection with an amendment that
would amend or extend the terms of any such Indebtedness on terms and conditions
substantially the same as those which would be permitted in connection with any
refinancing otherwise permitted under Section 7.1(i), and to the extent
permitted under the Intercreditor Agreement, any other intercreditor agreement,
or any subordination agreement, as applicable, entered into in connection with
such Indebtedness, directly or indirectly, amend, modify, alter, increase, or
change any of the terms or conditions of any agreement, instrument, document,
indenture, or other writing evidencing or concerning Indebtedness permitted
under Sections 7.1(b) through (i).
7.9 CHANGE OF CONTROL. Cause, permit, or suffer, directly or
indirectly, any Change of Control.
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7.10 CONSIGNMENTS. Consign any Inventory or sell any Inventory on
bill and hold, sale or return, sale on approval, or other conditional terms of
sale in excess of an amount not to exceed $150,000 in the aggregate in any
fiscal year of any Obligor.
7.11 DISTRIBUTIONS. Make any distribution or declare or pay any
dividends (in cash or other property, other than Stock) on, or purchase,
acquire, redeem, or retire any of Borrower's Stock, of any class, whether now or
hereafter outstanding (other than with the proceeds received from the issue of
new shares of Borrower's Stock with equal or inferior voting powers,
designations, preferences an rights to the shares of Borrower's stock purchased,
acquired, redeemed or retired) provided that the restrictions contained in this
Section 7.11 shall not apply to any wholly owned Subsidiaries of Borrower.
7.12 ACCOUNTING METHODS. Make or permit, or permit any of its
Subsidiaries to make or permit, any change as to its fiscal year or in
accounting policies or reporting practices, except as required by GAAP. Borrower
waives the right to assert a confidential relationship, if any, it may have with
any accounting firm or service bureau in connection with any information
requested by Foothill pursuant to or in accordance with this Agreement, and
agrees that Foothill may contact directly any such accounting firm or service
bureau in order to obtain such information.
7.13 INVESTMENTS. Make or hold any Investment in any Person other
than:
(a) (i) Investments by Borrower and its Subsidiaries in
Guarantor, and Subsidiaries which have executed a continuing guaranty and a
security agreement, each in favor of and in form and substance satisfactory to
Foothill; (ii) Investments by Borrower and its Subsidiaries in other
Subsidiaries of Borrower existing on the Closing Date; and (iii) Investments by
Borrower and its Subsidiaries in other Subsidiaries of Borrower all the stock of
which has been pledged to Foothill under the applicable security agreement in an
aggregate amount from the Closing Date not to exceed $2,000,000;
(b) loans and advances to employees of Borrower and its
Subsidiaries in the ordinary course of business as presently conducted in an
aggregate amount not to exceed $200,000 at any one time outstanding;
(c) Investments by Borrower and its Subsidiaries in cash
equivalents;
(d) Investments listed on Schedule 7.13; and
(e) other Investments in an aggregate amount invested not
to exceed $2,000,000.
7.14 TRANSACTIONS WITH AFFILIATES. Directly or indirectly enter
into or permit to exist any material transaction with any Affiliate of Borrower
except for transactions that are upon fair and reasonable terms, that are
disclosed to Foothill, and that are no less favorable to Borrower than would be
obtained in an arm's length transaction with a non-Affiliate.
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7.15 SUSPENSION. Suspend or go out of a substantial portion of
its business. For the purposes of this Section 7.15, "substantial portion" shall
be defined as any portion of any Obligor's business constituting at least 10% of
the gross revenues of such Obligor, as calculated on a four quarter trailing
basis for such Obligor.
7.16 [INTENTIONALLY OMITTED.]
7.17 USE OF PROCEEDS. Use: (a) the proceeds of the Advances made
hereunder for any purpose other than (i) on the Closing Date, (1) to repay in
full or in part the outstanding principal, accrued interest, and accrued fees
and expenses owing to the Term Lender Group, and (2) to pay transactional costs
and expenses incurred in connection with this Agreement and the transactions
contemplated hereby, and (ii) thereafter, consistent with the terms and
conditions hereof, for its lawful and permitted corporate purposes; and (b) the
proceeds of the Capital Expenditure Loans made hereunder for any purpose other
than to finance new Equipment in accordance with Section 2.4.
7.18 CHANGE IN LOCATION OF CHIEF EXECUTIVE OFFICE; INVENTORY AND
EQUIPMENT WITH BAILEES. Relocate its chief executive office to a new location
without providing 30 days prior written notification thereof to Foothill and so
long as, at the time of such written notification, Borrower provides any
financing statements or fixture filings necessary to perfect and continue
perfected Foothill's security interests and also provides to Foothill a
Collateral Access Agreement with respect to such new location. The Inventory and
Equipment shall not at any time now or hereafter be stored with a bailee,
warehouseman, or similar party without Foothill's prior written consent.
7.19 NO PROHIBITED TRANSACTIONS UNDER ERISA. Directly or
indirectly:
(a) engage, or permit any Subsidiary of Borrower to
engage, in any prohibited transaction which is reasonably likely to result in a
civil penalty or excise tax described in Sections 406 of ERISA or 4975 of the
IRC for which a statutory or class exemption is not available or a private
exemption has not been previously obtained from the Department of Labor;
(b) permit to exist with respect to any Plan any
accumulated funding deficiency (as defined in Sections 302 of ERISA and 412 of
the IRC), whether or not waived;
(c) fail, or permit any Subsidiary of Borrower to fail, to
pay timely required contributions or annual installments due with respect to any
waived funding deficiency to any Plan;
(d) terminate, or permit any Subsidiary of Borrower to
terminate, any Plan where such event would result in any liability of Borrower,
any of its Subsidiaries or any ERISA Affiliate under Title IV of ERISA;
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(e) fail, or permit any Subsidiary of Borrower to fail, to
make any required contribution or payment to any Multiemployer Plan;
(f) fail, or permit any Subsidiary of Borrower to fail, to
pay any required installment or any other payment required under Section 412 of
the IRC on or before the due date for such installment or other payment;
(g) amend, or permit any Subsidiary of Borrower to amend,
a Plan resulting in an increase in current liability for the plan year such that
either of Borrower, any Subsidiary of Borrower or any ERISA Affiliate is
required to provide security to such Plan under Section 401(a)(29) of the IRC;
or
(h) withdraw, or permit any Subsidiary of Borrower to
withdraw, from any Multiemployer Plan where such withdrawal is reasonably likely
to result in any liability of any such entity under Title IV of ERISA;
which, individually or in the aggregate, results in or reasonably would be
expected to result in a claim against or liability of Borrower, any of its
Subsidiaries or any ERISA Affiliate in excess of $100,000.
7.20 FINANCIAL COVENANTS. Fail to maintain:
(a) Current Ratio. A ratio of Consolidated Current Assets
divided by Consolidated Current Liabilities of at least 1.5: 1.0, measured on a
fiscal quarter-end basis;
(b) Leverage Ratio. A ratio of Consolidated Total
Liabilities divided by Consolidated Net Worth of not more than the ratio set
forth in the table below:
<TABLE>
<CAPTION>
Fiscal Quarter Ending Ratio
--------------------- -----
<S> <C>
During 1997/1998 fiscal year 30.0 to 1.0
During 1998/1999 fiscal year 18.0 to 1.0
During 1999/2000 fiscal year 13.0 to 1.0
During 2000/2001 fiscal year 8.0 to 1.0
During 2001/2002 fiscal year 5.0 to 1.0
</TABLE>
(c) Fixed Charge Coverage Ratio. A ratio, for each period
of four consecutive quarters set forth below, of (i) Consolidated EBITDA for
such period, minus the sum of (1) cash Capital Expenditures during such period,
and (2) consolidated cash income taxes paid (net of any cash income tax refunds
received) by Borrower and its Subsidiaries during such period, to (ii) the sum
of (1) interest payable on, and amortization of debt discount in respect of all
Indebtedness of Borrower and its Subsidiaries during such period, and (2)
principal amounts of all Funded Debt payable during such period of not less than
the ratio set forth in the table below:
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<TABLE>
<CAPTION>
Four Quarter Period Ending Ratio
-------------------------- -----
<S> <C>
During 1997/1998 fiscal year 0.95 to 1.0
During 1998/1999 fiscal year 0.95 to 1.0
During 1999/2000 fiscal year 0.90 to 1.0
During 2000/2001 fiscal year 0.80 to 1.0
During 2001/2002 fiscal year 0.85 to 1.0
</TABLE>
(d) Capital Expenditures. Make, or permit any Subsidiary
to make, Capital Expenditures in any consecutive 12 month period in excess of
$1,500,000 plus an amount equal to the sum of (i) the Net Cash Proceeds of any
asset dispositions which, in accordance with the provisions of Section 2.4(a) of
the Term Loan Agreement, are utilized by Borrower or any Subsidiary of Borrower
to effect a Capital Expenditure during such 12 consecutive month period, and
(ii) cash proceeds received from any litigation which, accordance with the
provisions of Section 2.4(c) of the Term Loan Agreement, are utilized by
Borrower or any Subsidiary of Borrower to effect a Capital Expenditure during
such 12 consecutive month period.
(e) Calculation. In making calculations under this Section
7.20, Reorganization Expenses shall be excluded.
8. EVENTS OF DEFAULT.
Any one or more of the following events shall constitute an event
of default (each, an "Event of Default") under this Agreement:
8.1 If Borrower fails to pay when due and payable or when
declared due and payable, any portion of the Obligations (whether of principal,
interest (including any interest which, but for the provisions of the Bankruptcy
Code, would have accrued on such amounts), fees and charges due Foothill,
reimbursement of Foothill Expenses, or other amounts constituting Obligations);
provided, however, that in the case of Overadvances that are caused by the
charging of interest, fees, or Foothill Expenses to Borrower's Loan Account,
such event shall not constitute an Event of Default if, within 3 Business Days
of incurring such Overadvance, Borrower repays, or otherwise eliminates, such
Overadvance;
8.2 If Borrower:
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(a) fails to perform, keep, or observe any term,
provision, condition, covenant, or agreement contained in Sections 2.7
(Collection of Accounts), 6.10(a) and (b) (Insurance), 6.11 (No Setoffs or
Counterclaims), 6.16 (Brokerage Commissions), 7.1 (Indebtedness), 7.2 (Liens),
7.3 (Restrictions on Fundamental Changes), 7.4 (Disposition of Assets), 7.5
(Change Name), 7.7 (Nature of Business), 7.8 (Prepayments and Amendments), 7.9
(Change of Control), 7.10 (Prepayments and Amendments), 7.11 (Distributions),
7.12 (Accounting Methods), 7.13 (Investments), 7.14 (Transactions with
Affiliates), 7.15 (Suspension), 7.17 (Use of Proceeds), 7.18 (Change in Location
of Chief Executive Office; Inventory and Equipment with Bailees), 7.19 (No
Prohibited Transaction Under ERISA), or 7.20 (Financial Covenants) of this
Agreement, or any makes any knowing or intentional breach of any negative
covenant contained in any of the other Loan Documents;
(b) fails or neglects to perform, keep, or observe any
term, provision, condition, covenant, or agreement contained in Sections 4.2
(Negotiable Collateral), 4.4 (Delivery of Additional Documentation Required),
4.6 (Power of Attorney), 6.2 (Collateral Reporting), 6.3 (Financial Statements,
Reports, Certificates), 6.4 (Tax Returns), 6.6 ( Returns), 6.7 (Title to
Equipment), 6.9 (Taxes), 6.10(c), (d), and (e) (Insurance), 6.12 (Location of
Inventory and Equipment), 6.13 (Compliance with Laws), 6.14 (Employee Benefits),
or Section 6.17 (Compliance with Environmental Laws) of this Agreement and such
failure continues for a period of 5 Business Days; or
(c) fails or neglects to perform, keep, or observe any
other term, provision, condition, covenant, or agreement contained in this
Agreement, or in any of the other Loan Documents (giving effect to any grace
periods, cure periods, or required notices, if any, expressly provided for in
such Loan Documents); in each case, other than any such term, provision,
condition, covenant, or agreement that is the subject of another provision of
this Section 8, in which event such other provision of this Section 8 shall
govern), and such failure continues for a period of 15 Business Days;
provided that, during any period of time that any such failure or neglect of
Borrower referred to in this paragraph exists, even if such failure or neglect
is not yet an Event of Default by virtue of the existence of a grace or cure
period or the pre-condition of the giving of a notice, Foothill shall be
relieved of its obligation to extend credit hereunder;
8.3 If there is a Material Adverse Change;
8.4 If any material portion of Borrower's properties or assets is
attached, seized, subjected to a writ or distress warrant, or is levied upon, or
comes into the possession of any third Person in connection with a claim of such
person, in an amount, together with (a) the amount of all existing attachments,
seizures, writs or distress warrants, levies, or possessions plus (b) the amount
of all existing judgements or claims subject to the provisions of Section 8.9,
is in excess of $1,000,000 in the aggregate (provided that Foothill may maintain
reserves with respect to all such attachments, seizures, writs or distress
warrants, levies, or possessions that affect any Collateral included in the
Borrowing Base without regard to whether an Event of Default exists under this
Section 8.4);
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8.5 If an Insolvency Proceeding is commenced by Borrower;
8.6 If an Insolvency Proceeding is commenced against Borrower and
any of the following events occur: (a) Borrower consents to the institution of
the Insolvency Proceeding against it; (b) the petition commencing the Insolvency
Proceeding is not timely controverted; (c) the petition commencing the
Insolvency Proceeding is not dismissed or stayed within 60 calendar days of the
date of the filing thereof; provided, however, that, during the pendency of such
period, Foothill shall be relieved of its obligation to extend credit hereunder;
(d) an interim trustee is appointed to take possession of all or a substantial
portion of the properties or assets of, or to operate all or any substantial
portion of the business of, Borrower; or (e) an order for relief shall have been
issued or entered therein;
8.7 If Borrower is enjoined, restrained, or in any way prevented
by court order from continuing to conduct all or any material part of its
business affairs for purposes of this Section 8.7, "material part" shall be
defined as any part of Borrower and its Subsidiaries' business affairs
constituting at least 10% of the gross revenues of Borrower and its
Subsidiaries, as calculated on a trailing four quarter basis;
8.8 (a) If any notice of Lien, levy, or assessment is filed of
record with respect to any of Borrower's properties or assets by the United
States Government, or any department, agency, or instrumentality thereof, or by
any state, county, municipal, or governmental agency, and such Lien, levy or
assessment is not paid within 10 days after it is due, or (b) if any taxes or
debts owing at any time hereafter to any one or more of such entities becomes a
Lien, whether choate or otherwise, upon any of Borrower's properties or assets
and the same is not paid on the payment date thereof, and (x) any such tax or
debt is not paid within 10 days after it is due, or (y) any such Lien has not
been cured within ten days after such Lien, levy or assessment has been filed or
arises in each case which (i) represent claims in an aggregate amount of in
excess of $1,000,000 and which have priority over the security interests of
Foothill in the Collateral, or (ii) represent claims in an aggregate amount of
in excess of $2,500,000 and which are junior to the security interests of
Foothill in the Collateral (provided that Foothill may maintain reserves with
respect to any such Liens that affect Collateral included in the Borrowing Base
without regard to whether an Event of Default exists under this Section 8.8);
8.9 If any judgment or other claim in an amount that, together
with (a) the amount of all existing judgements or claims plus (b) the amount of
all existing attachments, seizures, writs or distress warrants, levies, or
possessions subject to the provisions of Section 8.4, is in excess of $1,000,000
in the aggregate, becomes a Lien or encumbrance upon any material portion of
Borrower's properties or assets and such judgment or claim is not removed or
released or stayed within 30 days of the entry of such judgment (provided that
Foothill may maintain reserves with respect to any such Liens that affect
Collateral included in the Borrowing Base without regard to whether an Event of
Default exists under this Section 8.9);
8.10 If there is a default in any material agreement to which
Borrower is a party with one or more third Persons involving claims,
Indebtedness, or other obligations in excess of $1,000,000, and such default (a)
occurs at the final maturity of the obligations
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thereunder, or (b) results in a right (after giving effect to any applicable
grace or cure periods) by such third Person(s), irrespective of whether
exercised, to accelerate the maturity of Borrower's obligations thereunder;
8.11 If Borrower makes any payment on account of Indebtedness
that has been contractually subordinated in right of payment to the payment of
the Obligations, except to the extent such payment is permitted by the terms of
the subordination provisions applicable to such Indebtedness;
8.12 If any material misstatement or misrepresentation exists now
or hereafter in any warranty, representation, statement, or report made to
Foothill by Borrower or any officer, employee, agent, or director of Borrower,
or if any such warranty or representation is withdrawn; or
8.13 If the material obligations of Canadian Guarantor under any
Loan Document are limited or terminated by operation of law or by Canadian
Guarantor, or Canadian Guarantor becomes the subject of an Insolvency
Proceeding.
9. FOOTHILL'S RIGHTS AND REMEDIES.
9.1 RIGHTS AND REMEDIES. Upon the occurrence, and during the
continuation, of an Event of Default Foothill may, at its election, without
notice of its election and without demand, do any one or more of the following,
all of which are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this
Agreement, by any of the other Loan Documents, immediately due and payable;
(b) Cease advancing money or extending credit to or for
the benefit of Borrower under this Agreement or under any of the Loan Documents;
(c) Terminate this Agreement and any of the other Loan
Documents as to any future liability or obligation of Foothill, but without
affecting Foothill's rights and security interests in the Collateral, and
without affecting the Obligations;
(d) Settle or adjust disputes and claims directly with
Account Debtors for amounts and upon terms which Foothill considers advisable,
and in such cases, Foothill will credit Borrower's Loan Account with only the
net amounts received by Foothill in payment of such disputed Accounts after
deducting all Foothill Expenses incurred or expended in connection therewith;
(e) Cause Borrower to hold all returned Inventory in trust
for Foothill, segregate all returned Inventory from all other property of
Borrower or in Borrower's possession and conspicuously label said returned
Inventory as the property of Foothill;
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(f) Without notice to or demand upon Borrower or any
guarantor, make such payments and do such acts as Foothill considers necessary
or reasonable to protect its security interests in the Collateral. Borrower
agrees to assemble the Collateral if Foothill so requires, and to make the
Collateral available to Foothill at such reasonable locations as Foothill may
designate. Borrower authorizes Foothill to enter the premises where the
Collateral is located, to take and maintain possession of the Collateral, or any
part of it, and to pay, purchase, contest, or compromise any encumbrance,
charge, or Lien that in Foothill's determination appears to conflict with its
security interests and to pay all expenses incurred in connection therewith.
With respect to any of Borrower's owned or leased premises, Borrower hereby
grants Foothill a license to enter into possession of such premises and to
occupy the same, without charge, for up to 90 days in order to exercise any of
Foothill's rights or remedies provided herein, at law, in equity, or otherwise;
(g) Without notice to Borrower (such notice being
expressly waived), and without constituting a retention of any collateral in
satisfaction of an obligation (within the meaning of Section 9505 of the Code),
set off and apply to the Obligations any and all (i) balances and deposits of
Borrower held by Foothill (including any amounts received in the Lockbox
Accounts), or (ii) indebtedness at any time owing to or for the credit or the
account of Borrower held by Foothill;
(h) Hold, as cash collateral, any and all balances and
deposits of Borrower held by Foothill, and any amounts received in the Lockbox
Accounts, to secure the full and final repayment of all of the Obligations;
(i) Ship, reclaim, recover, store, finish, maintain,
repair, prepare for sale, advertise for sale, and sell (in the manner provided
for herein) the Collateral. Foothill is hereby granted a license or other right
to use, without charge, Borrower's labels, patents, copyrights, rights of use of
any name, trade secrets, trade names, trademarks, service marks, and advertising
matter, or any property of a similar nature, as it pertains to the Collateral,
in completing production of, advertising for sale, and selling any of the
Collateral and, except as limited by any enforceable anti-assignment provisions
in such licenses and franchise agreements, Borrower's rights under all licenses
and all franchise agreements shall inure to Foothill's benefit;
(j) Sell the Collateral at either a public or private
sale, or both, by way of one or more contracts or transactions, for cash or on
terms, in such manner and at such places (including Borrower's premises) as
Foothill determines is commercially reasonable. It is not necessary that the
Collateral be present at any such sale;
(k) Foothill shall give notice of the disposition of the
Collateral as follows:
(1) Foothill shall give Borrower and each holder of a
security interest in the Collateral who has filed with Foothill a written
request for notice, a notice in writing of the time and place of public sale,
or, if the sale is a private sale or some other disposition other than a public
sale is to be made of the Collateral, then the time on or after which the
private sale or other disposition is to be made;
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(2) The notice shall be personally delivered or
mailed, postage prepaid, to Borrower as provided in Section 12, at least 5 days
before the date fixed for the sale, or at least 5 days before the date on or
after which the private sale or other disposition is to be made; no notice needs
to be given prior to the disposition of any portion of the Collateral that is
perishable or threatens to decline speedily in value or that is of a type
customarily sold on a recognized market. Notice to Persons other than Borrower
claiming an interest in the Collateral shall be sent to such addresses as they
have furnished to Foothill;
(3) If the sale is to be a public sale, Foothill also
shall give notice of the time and place by publishing a notice one time at least
5 days before the date of the sale in a newspaper of general circulation in the
county in which the sale is to be held;
(l) Foothill may credit bid and purchase at any public
sale; and
(m) Any deficiency that exists after disposition of the
Collateral as provided above will be paid immediately by Borrower. Any excess
will be returned, without interest and subject to the rights of third Persons,
by Foothill to Borrower.
9.2 REMEDIES CUMULATIVE. Foothill's rights and remedies under
this Agreement, the Loan Documents, and all other agreements shall be
cumulative. Foothill shall have all other rights and remedies not inconsistent
herewith as provided under the Code, by law, or in equity. No exercise by
Foothill of one right or remedy shall be deemed an election, and no waiver by
Foothill of any Event of Default shall be deemed a continuing waiver. No delay
by Foothill shall constitute a waiver, election, or acquiescence by it.
10. TAXES AND EXPENSES.
If Borrower fails to pay any monies (whether taxes, assessments,
insurance premiums, or, in the case of leased properties or assets, rents or
other amounts payable under such leases) due to third Persons, or fails to make
any deposits or furnish any required proof of payment or deposit, all as
required under the terms of this Agreement, then, to the extent that Foothill
determines that such failure by Borrower could result in a Material Adverse
Change, in its discretion and without prior notice to Borrower, Foothill may do
any or all of the following: (a) make payment of the same or any part thereof;
(b) set up such reserves in Borrower's Loan Account as Foothill deems necessary
to protect Foothill from the exposure created by such failure; or (c) obtain and
maintain insurance policies of the type described in Section 6.10, and take any
action with respect to such policies as Foothill deems prudent. Any such amounts
paid by Foothill shall constitute Foothill Expenses. Any such payments made by
Foothill shall not constitute an agreement by Foothill to make similar payments
in the future or a waiver by Foothill of any Event of Default under this
Agreement. Foothill need not inquire as to, or contest the validity of, any such
expense, tax, or Lien and the receipt of the usual official notice for the
payment thereof shall be conclusive evidence that the same was validly due and
owing.
11. WAIVERS; INDEMNIFICATION.
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11.1 DEMAND; PROTEST; ETC. Borrower waives demand, protest,
notice of protest, notice of default or dishonor, notice of payment and
nonpayment, nonpayment at maturity, release, compromise, settlement, extension,
or renewal of accounts, documents, instruments, chattel paper, and guarantees at
any time held by Foothill on which Borrower may in any way be liable.
11.2 FOOTHILL'S LIABILITY FOR COLLATERAL. So long as Foothill
complies with its obligations, if any, under Section 9207 of the Code, Foothill
shall not in any way or manner be liable or responsible for: (a) the safekeeping
of the Collateral; (b) any loss or damage thereto occurring or arising in any
manner or fashion from any cause; (c) any diminution in the value thereof; or
(d) any act or default of any carrier, warehouseman, bailee, forwarding agency,
or other Person. All risk of loss, damage, or destruction of the Collateral
shall be borne by Borrower.
11.3 INDEMNIFICATION. Borrower shall pay, indemnify, defend, and
hold Foothill, each Approved Participant, and each of their respective officers,
directors, employees, counsel, agents, and attorneys-in-fact (each, an
"Indemnified Person") harmless (to the fullest extent permitted by law) from and
against any and all claims, demands, suits, actions, investigations,
proceedings, and damages, and all reasonable attorneys fees and disbursements
and other costs and expenses actually incurred in connection therewith (as and
when they are incurred and irrespective of whether suit is brought), at any time
asserted against, imposed upon, or incurred by any of them in connection with or
as a result of or related to the execution, delivery, enforcement, performance,
and administration of this Agreement and any other Loan Documents or the
transactions contemplated herein, and with respect to any investigation,
litigation, or proceeding related to this Agreement, any other Loan Document, or
the use of the proceeds of the credit provided hereunder (irrespective of
whether any Indemnified Person is a party thereto), or any act, omission, event
or circumstance in any manner related thereto (all the foregoing, collectively,
the "Indemnified Liabilities"). Borrower shall have no obligation to any
Indemnified Person under this Section 11.3 with respect to any Indemnified
Liability that a court of competent jurisdiction finally determines to have
resulted from the gross negligence or willful misconduct of such Indemnified
Person. This provision shall survive the termination of this Agreement and the
repayment of the Obligations.
12. NOTICES.
Unless otherwise provided in this Agreement, all notices or
demands by any party relating to this Agreement or any other Loan Document shall
be in writing and (except for financial statements and other informational
documents which may be sent by first-class mail, postage prepaid) shall be
personally delivered or sent by registered or certified mail (postage prepaid,
return receipt requested), overnight courier, or telefacsimile to Borrower or to
Foothill, as the case may be, at its address set forth below:
If to Borrower: DEP CORPORATION
2101 East Via Arado
Rancho Dominguez, California 90220
Attn: Mr. Robert Berglass
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President and Chairman
Fax No. 310.537.2524
with copies to: LATHAM & WATKINS
633 West Fifth Street
Suite 4000
Los Angeles,
California 90071-2007
Attn: Glen B. Collyer, Esq.
Fax No. 213.891.8763
If to Foothill: FOOTHILL CAPITAL CORPORATION
11111 Santa Monica Boulevard
Suite 1500
Los Angeles, California 90025-3333
Attn: Business Finance Division Manager
Fax No. 310.478.9788
with copies to: BROBECK, PHLEGER & HARRISON LLP
550 South Hope Street
Los Angeles, California 90071
Attn: Jeffrey S. Turner, Esq.
Fax No. 213.745.3345
The parties hereto may change the address at which they are to
receive notices hereunder, by notice in writing in the foregoing manner given to
the other. All notices or demands sent in accordance with this Section 12, other
than notices by Foothill in connection with Sections 9504 or 9505 of the Code,
shall be deemed received on the earlier of the date of actual receipt or 3 days
after the deposit thereof in the mail. Borrower acknowledges and agrees that
notices sent by Foothill in connection with Sections 9504 or 9505 of the Code
shall be deemed sent when deposited in the mail or personally delivered, or,
where permitted by law, transmitted telefacsimile or other similar method set
forth above.
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
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THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
(UNLESS EXPRESSLY PROVIDED TO THE CONTRARY IN AN ANOTHER LOAN DOCUMENT), THE
CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF AND THEREOF, AND THE RIGHTS
OF THE PARTIES HERETO AND THERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER
OR THEREUNDER OR RELATED HERETO OR THERETO SHALL BE DETERMINED UNDER, GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA. THE
PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE TRIED AND LITIGATED ONLY IN THE
STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF LOS ANGELES, STATE OF
CALIFORNIA OR, AT THE SOLE OPTION OF FOOTHILL, IN ANY OTHER COURT THAT FOOTHILL
REASONABLY DETERMINES NECESSARY OR APPROPRIATE IN ORDER FOR FOOTHILL TO FULLY
ENFORCE ITS REMEDIES WITH RESPECT TO ANY PORTION OF THE COLLATERAL. EACH OF
BORROWER AND FOOTHILL WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY
RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT
TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION
13. BORROWER AND FOOTHILL HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL
OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN
DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT
CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR
STATUTORY CLAIMS. EACH OF BORROWER AND FOOTHILL REPRESENTS THAT IT HAS REVIEWED
THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF
THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
14. DESTRUCTION OF BORROWER'S DOCUMENTS.
All documents, schedules, invoices, agings, or other papers
delivered to Foothill may be destroyed or otherwise disposed of by Foothill 4
months after they are delivered to or received by Foothill, unless Borrower
requests, in writing, the return of said documents, schedules, or other papers
and makes arrangements, at Borrower's expense, for their return.
15. GENERAL PROVISIONS.
15.1 EFFECTIVENESS. This Agreement shall be binding and deemed
effective when executed by Borrower and Foothill.
15.2 SUCCESSORS AND ASSIGNS.
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(a) This Agreement shall bind and inure to the benefit of
the respective successors and assigns of each of the parties; provided, however,
that Borrower may not assign this Agreement or any rights or duties hereunder
without Foothill's prior written consent and any prohibited assignment shall be
absolutely void. No consent to an assignment by Foothill shall release Borrower
from its Obligations.
(b) (i) Prior to the occurrence and continuation of an
Event of Default, with the prior written consent of Borrower Foothill may assign
this Agreement and its rights and duties hereunder, and (ii) Foothill reserves
the right to sell, assign, transfer, negotiate, or grant participations in all
or any part of, or any interest in Foothill's rights and benefits hereunder;
provided, however, any such consent shall not be unreasonably conditioned,
withheld, or delayed by Borrower, and any such prohibited assignment shall be
absolutely void. Anything in the foregoing to the contrary notwithstanding, upon
the occurrence and continuation of an Event of Default Foothill may assign this
Agreement and its rights and duties hereunder and no consent or approval by
Borrower shall be required in connection with any such permitted assignment.
(c) In connection with any such assignment or
participation by Foothill, Foothill may disclose all documents and information
which Foothill now or hereafter may have relating to Borrower or Borrower's
business; provided, however, that prior to any such disclosure, the assignee or
participant or proposed assignee or participant shall agree to preserve the
confidentiality of any Confidential Information received by it from Foothill.
(d) To the extent that Foothill assigns its rights and
obligations hereunder to a third Person, Foothill thereafter shall be released
from such assigned obligations to Borrower and such assignment shall effect a
novation between Borrower and such third Person.
(e) Anything contained herein to the contrary
notwithstanding, (i) the consent of Borrower shall not be required for any
assignment if such assignment is in connection with any merger, consolidation,
sale, transfer, or other disposition of all or any substantial portion of the
business or loan portfolio of Foothill or any Approved Participant, and (ii)
Foothill, any Approved Participant, or any of their Affiliates may at any time
create a security interest in, or pledge, all or any portion of its rights under
and interest in this Agreement in favor of any Federal Reserve Bank in
accordance with Regulation A of the Federal Reserve Bank or U.S. Treasury
Regulation 31 CFR Section203.14, and such Federal Reserve Bank may enforce such
pledge or security interest in any manner permitted under applicable law;
provided, however, that any successor to an Approved Participant shall not
become an Approved Participant without the prior written consent of Borrower.
15.3 SECTION HEADINGS. Headings and numbers have been set forth
herein for convenience only. Unless the contrary is compelled by the context,
everything contained in each section applies equally to this entire Agreement.
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15.4 INTERPRETATION. Neither this Agreement nor any uncertainty
or ambiguity herein shall be construed or resolved against Foothill or Borrower,
whether under any rule of construction or otherwise. On the contrary, this
Agreement has been reviewed by all parties and shall be construed and
interpreted according to the ordinary meaning of the words used so as to fairly
accomplish the purposes and intentions of all parties hereto.
15.5 SEVERABILITY OF PROVISIONS. Each provision of this Agreement
shall be severable from every other provision of this Agreement for the purpose
of determining the legal enforceability of any specific provision.
15.6 AMENDMENTS IN WRITING. This Agreement can only be amended by
a writing signed by both Foothill and Borrower.
15.7 COUNTERPARTS; TELEFACSIMILE EXECUTION. This Agreement may be
executed in any number of counterparts and by different parties on separate
counterparts, each of which, when executed and delivered, shall be deemed to be
an original, and all of which, when taken together, shall constitute but one and
the same Agreement. Delivery of an executed counterpart of this Agreement by
telefacsimile shall be equally as effective as delivery of an original executed
counterpart of this Agreement. Any party delivering an executed counterpart of
this Agreement by telefacsimile also shall deliver an original executed
counterpart of this Agreement but the failure to deliver an original executed
counterpart shall not affect the validity, enforceability, and binding effect of
this Agreement.
15.8 REVIVAL AND REINSTATEMENT OF OBLIGATIONS. If the incurrence
or payment of the Obligations by Borrower or any guarantor of the Obligations or
the transfer by either or both of such parties to Foothill of any property of
either or both of such parties should for any reason subsequently be declared to
be void or voidable under any state or federal law relating to creditors'
rights, including provisions of the Bankruptcy Code relating to fraudulent
conveyances, preferences, and other voidable or recoverable payments of money or
transfers of property (collectively, a "Voidable Transfer"), and if Foothill is
required to repay or restore, in whole or in part, any such Voidable Transfer,
or elects to do so upon the reasonable advice of its counsel, then, as to any
such Voidable Transfer, or the amount thereof that Foothill is required or
elects to repay or restore, and as to all reasonable costs, expenses, and
attorneys fees of Foothill related thereto, the liability of Borrower or such
guarantor automatically shall be revived, reinstated, and restored and shall
exist as though such Voidable Transfer had never been made.
15.9 INTEGRATION. This Agreement, together with the other Loan
Documents, reflects the entire understanding of the parties with respect to the
transactions contemplated hereby and shall not be contradicted or qualified by
any other agreement, oral or written, before the date hereof.
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15.10 CONFIDENTIALITY. Foothill shall not disclose any
Confidential Information to any Person without the consent of Borrower, other
than (a) to Foothill's Affiliates and its officers, directors, employees, agents
and advisors and to actual or prospective assignees and participants, and then
only on a confidential basis; (b) as required by any law, rule or regulation or
judicial process; and (c) as requested or required by any state, federal or
foreign authority or examiner regulating banks or banking. If Foothill is
required by any law, rule or regulation or judicial process to disclose any
Confidential Information, Foothill will promptly give notice to Borrower so that
Borrower may seek a protective order or other appropriate remedy. If Borrower
shall not obtain such protective order or other remedy, Foothill will endeavor
to furnish only that portion of the Confidential Information which Foothill
reasonably believes to be legally required.
15.11 RELEASE AND TERMINATION.
(a) Upon any sale, lease, transfer or other disposition of
any item of Collateral in accordance with the terms of the Loan Documents (other
than sales of Inventory in the ordinary course of business), Foothill will, at
Borrower's request and expense, execute and deliver to Borrower such documents
as Borrower shall reasonably request to evidence the release of such item of
Collateral from the assignment and security interest granted hereby; provided,
however, that (i) at the time of such request and such release no Event of
Default shall have occurred and be continuing and Foothill shall not deem itself
insecure, (ii) Borrower shall have delivered to Foothill, at least ten Business
Days prior to the date of the proposed release, a written request for release
describing the item of Collateral, and, for dispositions in excess of $25,000 in
value, the terms of the sale, lease, transfer or other disposition in reasonable
detail, including the price thereof and any expenses in connection therewith,
together with a form of release for execution by Foothill and a certification by
Borrower to the effect that the transaction is in compliance with the Loan
Documents, and (iii) the proceeds of any such sale, lease, transfer or other
disposition required to be paid in accordance with the provisions of this
Agreement and the Term Loan Agreement.
(b) Upon the later of (i) the full and final payment in
cash of the Obligations and the release of Foothill from any obligation to make
any further loans or extend credit to or for the benefit of Borrower, and (ii)
the Maturity Date, Foothill shall terminate the pledge, assignment and security
interest granted hereby. In connection with any such termination, Foothill will,
at Borrower's expense, execute and deliver to Borrower such documents as
Borrower shall reasonably request to evidence such termination.
[Remainder of page intentionally left blank.]
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in Los Angeles, California.
DEP CORPORATION,
a Delaware corporation
By /s/ GRANT JOHNSON
-----------------------------
Title: Sr. Vice President
-------------------------
FOOTHILL CAPITAL CORPORATION,
a California corporation
By /s/ BRIAN DUFFY
-----------------------------
Title: AVP
-------------------------
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TABLE OF CONTENTS
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1. DEFINITIONS AND CONSTRUCTION ........................................................ 1
1.1 Definitions ................................................................ 1
1.2 Accounting Terms ........................................................... 24
1.3 Code ....................................................................... 24
1.4 Construction ............................................................... 24
1.5 Schedules and Exhibits ..................................................... 25
2. LOAN AND TERMS OF PAYMENT ........................................................... 25
2.1 Revolving Advances ........................................................ 25
2.2 Letters of Credit ......................................................... 26
2.3 [Intentionally Omitted.] .................................................. 29
2.4 Capital Expenditure Line .................................................. 29
2.5 Overadvances .............................................................. 30
2.6 Interest and Letter of Credit Fees: Rates, Payments, and Calculations..... 30
2.7 Collection of Accounts .................................................... 32
2.8 Crediting Payments; Application of Collections ............................ 34
2.9 Designated Account ........................................................ 35
2.10 Maintenance of Loan Account; Statements of Obligations .................... 35
2.11 Fees ...................................................................... 35
2.12 Eurodollar Rate Loans ..................................................... 36
2.13 Illegality ................................................................ 38
2.14 Requirements of Law ....................................................... 39
2.15 Taxes ..................................................................... 41
2.16 Indemnity ................................................................. 44
3. CONDITIONS; TERM OF AGREEMENT ....................................................... 44
3.1 Conditions Precedent to the Initial Advance, Letter of Credit,
and the Initial Capital Expenditure Loan ................................... 44
3.2 Conditions Precedent to all Advances, all Letters of Credit,
and all Capital Expenditure Loans .......................................... 47
3.3 Condition Subsequent ....................................................... 47
3.4 Term; Automatic Renewal .................................................... 48
3.5 Effect of Termination ...................................................... 48
3.6 Early Termination by Borrower .............................................. 48
3.7 Termination Upon Event of Default .......................................... 49
4. CREATION OF SECURITY INTEREST ....................................................... 49
4.1 Grant of Security Interest ................................................. 49
4.2 Negotiable Collateral ...................................................... 49
4.3 Collection of Accounts, General Intangibles, and Negotiable Collateral 49
</TABLE>
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4.4 Delivery of Additional Documentation Required .................................. 49
4.5 Power of Attorney .............................................................. 50
4.6 Right to Inspect ............................................................... 50
5. REPRESENTATIONS AND WARRANTIES .......................................................... 51
5.1 No Encumbrances ................................................................ 51
5.2 Eligible Accounts .............................................................. 51
5.3 Eligible Inventory ............................................................. 51
5.4 Equipment ...................................................................... 51
5.5 Location of Inventory and Equipment ............................................ 51
5.6 Inventory Records .............................................................. 52
5.7 Location of Chief Executive Office; FEIN ....................................... 52
5.8 Due Organization and Qualification; Subsidiaries ............................... 52
5.9 Due Authorization; No Conflict ................................................. 52
5.10 Litigation .................................................................... 53
5.11 No Material Adverse Change .................................................... 53
5.12 Solvency ...................................................................... 54
5.13 Employee Benefits ............................................................. 54
5.14 Environmental Condition ....................................................... 54
5.15 Brokerage Fees ................................................................ 55
6. AFFIRMATIVE COVENANTS ................................................................... 55
6.1 Accounting System .............................................................. 55
6.2 Collateral Reporting ........................................................... 55
6.3 Financial Statements, Reports, Certificates .................................... 56
6.4 Tax Returns .................................................................... 58
6.5 [Intentionally Omitted.] ....................................................... 58
6.6 Returns ........................................................................ 58
6.7 Title to Equipment ............................................................. 58
6.8 Maintenance of Equipment ....................................................... 58
6.9 Taxes .......................................................................... 59
6.10 Insurance ..................................................................... 59
6.11 No Setoffs or Counterclaims ................................................... 61
6.12 Location of Inventory and Equipment ........................................... 61
6.13 Compliance with Laws .......................................................... 61
6.14 Employee Benefits ............................................................. 61
6.15 Leases ........................................................................ 62
6.16 Brokerage Commissions ......................................................... 62
7. NEGATIVE COVENANTS ...................................................................... 63
7.1 Indebtedness ................................................................... 63
7.2 Liens .......................................................................... 64
7.3 Restrictions on Fundamental Changes ............................................ 64
7.4 Disposal of Assets ............................................................. 65
7.5 Change Name .................................................................... 65
7.6 [Intentionally Omitted.] ....................................................... 65
7.7 Nature of Business ............................................................. 65
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7.8 Prepayments and Amendments ...................................................... 65
7.9 Change of Control ............................................................... 66
7.10 Consignments ................................................................... 66
7.11 Distributions .................................................................. 66
7.12 Accounting Methods ............................................................. 66
7.13 Investments .................................................................... 66
7.14 Transactions with Affiliates ................................................... 67
7.15 Suspension ..................................................................... 67
7.16 [Intentionally Omitted.] ....................................................... 67
7.17 Use of Proceeds ................................................................ 67
7.18 Change in Location of Chief Executive Office;
Inventory and Equipment with Bailees ........................................... 67
7.19 No Prohibited Transactions Under ERISA ......................................... 68
7.20 Financial Covenants ............................................................ 69
8. EVENTS OF DEFAULT ....................................................................... 70
9. FOOTHILL'S RIGHTS AND REMEDIES .......................................................... 73
9.1 Rights and Remedies ............................................................. 73
9.2 Remedies Cumulative ............................................................. 76
10. TAXES AND EXPENSES ..................................................................... 76
11. WAIVERS; INDEMNIFICATION ............................................................... 76
11.1 Demand; Protest; etc .......................................................... 76
11.2 Foothill's Liability for Collateral ........................................... 76
11.3 Indemnification ............................................................... 77
12. NOTICES ................................................................................ 77
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER ............................................. 78
14. DESTRUCTION OF BORROWER'S DOCUMENTS .................................................... 79
15. GENERAL PROVISIONS ..................................................................... 79
15.1 Effectiveness ................................................................. 79
15.2 Successors and Assigns ........................................................ 79
15.3 Section Headings .............................................................. 80
15.4 Interpretation ................................................................ 80
15.5 Severability of Provisions .................................................... 81
15.6 Amendments in Writing ......................................................... 81
15.7 Counterparts; Telefacsimile Execution ......................................... 81
15.8 Revival and Reinstatement of Obligations ...................................... 81
15.9 Integration ................................................................... 81
15.10 Confidentiality .............................................................. 81
15.11 Release and Termination ...................................................... 82
</TABLE>.
-2-
<PAGE> 85
SCHEDULES AND EXHIBITS
<TABLE>
<S> <C>
Schedule E-1 Eligible Inventory Locations
Schedule P-1 Permitted Liens
Schedule 5.8 Subsidiaries
Schedule 5.10 Litigation
Schedule 5.13 ERISA Benefit Plans
Schedule 6.12 Location of Inventory and Equipment
Schedule 7.1 Permitted Indebtedness
Schedule 7.13 Investments
Exhibit C-1 Form of Canadian Security Agreement - General Security Agreement
Exhibit C-2 Intentionally omitted
Exhibit C-3 Form of Compliance Certificate
Exhibit C-4 Form of Copyright Security Agreement
Exhibit C-5 Form of Calculation of the Borrowing Base
Exhibit G-1 Form of Guaranty
Exhibit I-1 Form of Intercreditor Agreement
Exhibit L-1 Form of License Agreement
Exhibit S-1 Form of Stock Pledge Agreement
Exhibit T-1 Form of Trademark Security Agreement
</TABLE>
-3-
<PAGE> 1
DEP CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF
COMPUTATION OF EARNINGS PER SHARE
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
April 30, April 30,
----------------------------- -----------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income (loss) .................................. $ 681,000 $ (613,000) $ 1,961,000 $(2,612,000)
=========== =========== =========== ===========
Shares:
Weighted average shares outstanding - basic 6,876,140 6,876,140 6,876,140 6,643,842
Effect of dilutive stock options ................... 162,231 18,670 80,493 49,656
----------- ----------- ----------- -----------
Weighted average shares outstanding - diluted ...... 7,038,371 6,894,810 6,956,633 6,693,498
=========== =========== =========== ===========
Earnings (loss) per common share:
Basic .............................................. $ 0.10 $ (0.09) $ 0.28 $ (0.39)
=========== =========== =========== ===========
Diluted ............................................ $ 0.10 $ (0.09) $ 0.28 $ (0.39)
=========== =========== =========== ===========
</TABLE>
Exhibit 11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEET AT APRIL 30, 1998, AND THE CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE NINE MONTHS THEN ENDED AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> APR-30-1998
<CASH> 1,073,000
<SECURITIES> 0
<RECEIVABLES> 16,554,000<F1>
<ALLOWANCES> 0
<INVENTORY> 13,527,000
<CURRENT-ASSETS> 32,381,000
<PP&E> 12,410,000<F2>
<DEPRECIATION> 0
<TOTAL-ASSETS> 73,054,000
<CURRENT-LIABILITIES> 15,860,000
<BONDS> 49,379,000
0
0
<COMMON> 71,000
<OTHER-SE> 5,956,000
<TOTAL-LIABILITY-AND-EQUITY> 73,054,000
<SALES> 80,337,000
<TOTAL-REVENUES> 0
<CGS> 30,621,000
<TOTAL-COSTS> 73,751,000
<OTHER-EXPENSES> (102,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,727,000
<INCOME-PRETAX> 1,961,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,961,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,961,000
<EPS-PRIMARY> 0.28<F3>
<EPS-DILUTED> 0
<FN>
<F1>ACCOUNTS RECEIVABLE NET OF ALLOWANCE FOR DOUBTFUL ACCOUNTS.
<F2>PROPERTY, PLANT AND EQUIPMENT NET OF ACCUMULATED DEPRECIATION.
<F3>THIS IS NOW REFERRED TO AS EPS-BASIC.
</FN>
</TABLE>
