<PAGE>
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report: January 23, 1998
Date of Earliest Event Reported: January 7, 1998
SUNBELT NURSERY GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 1-9031 75-1932993
(State of incorporation) (Commission File (I.R.S. Employer
Number) Identification No.)
32382 Del Obispo Street, San Juan Capistrano, CA 92675
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (714) 248-3811
500 Terminal Road, Fort Worth, TX 76106
(Former name or former address, if changed since last report)
================================================================================
<PAGE>
Item 5. Other Events
On January 7, 1998, Sunbelt Nursery Group, Inc. (the "Company") announced
that it had completed agreements to refinance the Company's outstanding
credit facility and to provide the Company with an additional cash infusion of
$2 million, consisting of $700,000 in subordinated debt and $1,300,000 of
convertible preferred stock.
Paragon Capital LLC ("Paragon") of Boston Massachusetts has agreed to loan
to the Company's operating subsidiaries (Wolfe Nursery, Inc., Tip Top Nurseries,
Inc., and Nurseryland Garden Centers, Inc.) a total of $5,000,000 under a
revolving credit facility secured by a first priority lien on the assets of the
Company and its operating subsidiaries. A portion of the loan proceeds,
approximately $4,200,000 was immediately used to pay off the Company's existing
revolving credit facility with American National Bank of Chicago ("ANB") which
facility matured on October 14, 1997 and had been extended by ANB on a week-by-
week basis thereafter. As a condition to the Paragon revolving credit facility
(the "Revolving Credit Facility"), the Company also obtained an additional
$2,000,000 of subordinated debt and equity contributions.
The Revolving Credit Facility has an aggregate credit limit amount of
$5,000,000 subject to a seasonal overline which may increase the aggregate
credit limit to $6,500,000. The unpaid principal balance of the Revolving Credit
Facility shall bear interest, until repaid (calculated based upon a 360-day year
and actual days elapsed), at the aggregate of the base rate, announced from time
to time by Norwest Bank Minnesota National Association or its successor
("Base"), plus one (1%) percent per annum up to $5 million in borrowings and two
(2%) percent per annum over Base for borrowings in excess of $5 million, but in
no event less than eight (8%) percent per annum or in excess of the maximum rate
permitted by applicable law. The revolving credit facility is intended to be, a
continuing agreement and shall remain in full force and effect for an initial
term ending on November 30, 2002, and thereafter for successive twelve-month
periods ("renewal term") provided, however, that either party may terminate such
revolving credit facility agreement as of the end of the initial term or any
subsequent renewal term by giving the other party notice to terminate in writing
at least sixty (60) days prior to the ended of any such period.
Timothy Duoos - Chairman of the Board, President and Chief Executive
Officer of the Company, Healthy American Products, Inc. (an affiliate of Rodney
Burwell, also a member of the Company's Board of Directors), and John Tastad,
(collectively, the "Purchasers") purchased a total of 1,300,000 shares of Series
A Cumulative Convertible Preferred Stock, $.01 par value, (the "Series A
Preferred Stock") for an aggregate purchase price of $1,300,000 in cash. The
rights and privileges of the Series A Preferred Stock are set forth in the
Certificate of Designations, Preferences, and Rights (the "Certificate of
Designations") filed with the Secretary of the State of Delaware and filed as an
exhibit herewith and incorporated herein. The holders of the Series A Preferred
Stock are entitled to receive a seven percent (7%) annual cash dividend thereon,
which dividend is cumulative, if unpaid. The Series A Preferred Stock may be
converted to
2
<PAGE>
shares of Common Stock at the Market Price defined in the Certificate of
Designations (being the average daily sales price of the Common Stock for the
ten (10) trading days following the closing of the Series A Preferred Stock
Agreement). Holders of the Series A Preferred Stock are entitled to a
liquidation preference over holders of the Company's Common Stock and are also
entitled to the same voting rights as the holders of the Common Stock, being one
vote per share on all matters submitted to holders of the Common Stock. The
terms and conditions of the sale of the Series A Preferred Stock are set forth
in the Series A Cumulative Convertible Stock Purchase Agreement among the
Company and the Purchasers dated December 30, 1997 attached as an exhibit hereto
and incorporated herein.
Contemporaneous with the purchase and sale of the Series A Preferred Stock,
Mr. Tastad and Healthy American Products, Inc. (collectively, the "Subordinated
Lenders") loaned to the Company a total of $700,000, secured by liens against
the Company's assets subordinate to the liens of Paragon (the "Subordinated
Notes"). Pursuant to the Subordinated Notes, the Company agreed to pay to the
Subordinated Lenders interest in the amount of twelve percent (12%) per annum,
payable monthly for a period of sixty (60) months, at which time the entire
principal balance of the Subordinated Notes shall become due. Additionally, the
Company has agreed to issue to the Subordinated Lenders warrants (the
"Warrants") to purchase up to 231,000 shares of the Company's Common Stock at a
purchase price, per share, equal to $1.00 per share. The Warrants expire on
November 30, 2002. The Warrants may be exercised at any time prior to their
expiration by the holder of the Subordinated Notes. The holders of the Warrants
are entitled to piggy-back registration rights in the event the Company should
file a registration statement under the Securities Act of 1933 covering its
Common Stock. Mr. Tastad has the right to demand the Company to prepay the
$500,000 principal balance due Mr. Tastad under his Subordinated Note, provided
that Paragon consents to such prepayment and advances the funds to the Company.
Paragon has indicated in writing its consent to such prepayment in the future,
provided that Mr. Tastad personally guarantees the amount of the prepayment and
provides collateral acceptable to Paragon securing his guaranty. The
Subordinated Notes and Warrant Agreements between the Company and the
Subordinated Lenders are attached hereto as exhibits and incorporated herein.
Item 7 Financial Statements and Exhibits
(c) Exhibits
4. Certificate of Designations, Preferences and Rights of Series A Cumulative
Convertible Preferred Stock.
10.1 Loan and Security Agreement between Paragon Capital, LLC and Wolfe
Nursery, Inc. dated December 12, 1997 (without exhibits).
10.2 Loan and Security Agreement between Paragon Capital, LLC and Tip Top
Nurseries, Inc. dated December 17, 1997 (without exhibits).
3
<PAGE>
10.3 Loan and Security Agreement between Paragon Capital, LLC and Nurseryland
Garden Centers, Inc. dated December 17, 1997 (without exhibits).
10.4 Series A Cumulative Convertible Preferred Stock Purchase Agreement among
the Company, Mr. Timothy Duoos, Mr. John Tastad and Healthy American
Products, Inc. dated December 30, 1997 (without exhibits).
10.5 Warrant Agreement between the Company and Healthy American Products, Inc.
dated December 17, 1997.
10.6 Warrant Agreement between the Company and John Tastad dated December 17,
1997.
10.7 Subordinated Secured Promissory Note in the principal amount of $200,000
payable to Healthy American Products, Inc.
10.8 Subordinated Secured Promissory Note in the principal amount of $500,000
payable to John Tastad.
99.1 Press Release dated January 7, 1998 issued by Sunbelt Nursery Group, Inc.
4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SUNBELT NURSERY GROUP, INC.
Dated: January 23, 1998 By: /s/ TIMOTHY R. DUOOS
---------------- -------------------------------------
Timothy R. Duoos
Chairman of the Board,
President and Chief Executive Officer
5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- ------------
<C> <S>
4. Certificate of Designations, Preferences and Rights of Series A
Cumulative Convertible Preferred Stock.
10.1 Loan and Security Agreement between Paragon Capital, LLC and Wolfe
Nursery, Inc. dated December 12, 1997 (without exhibits).
10.2 Loan and Security Agreement between Paragon Capital, LLC and Tip Top
Nurseries, Inc. dated December 17, 1997 (without exhibits).
10.3 Loan and Security Agreement between Paragon Capital, LLC and Nurseryland
Garden Centers, Inc. dated December 17, 1997 (without exhibits).
10.4 Series A Cumulative Convertible Preferred Stock Purchase Agreement among
the Company, Mr. Timothy Duoos, Mr. John Tastad and Healthy American
Products, Inc. dated December 30, 1997 (without exhibits).
10.5 Warrant Agreement between the Company and Healthy American Products,
Inc. dated December 17, 1997.
10.6 Warrant Agreement between the Company and John Tastad dated December 17,
1997.
10.7 Subordinated Secured Promissory Note in the principal amount of $200,000
payable to Healthy American Products, Inc.
10.8 Subordinated Secured Promissory Note in the principal amount of $500,000
payable to John Tastad.
99.1 Press Release dated January 7, 1998 issued by Sunbelt Nursery Group,
Inc.
</TABLE>
6
<PAGE>
Exhibit 4
EXHIBIT "B"
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS OF
SERIES A CUMULATIVE CONVERTIBLE PREFERRED STOCK
OF
SUNBELT NURSERY GROUP, INC.
Pursuant to Section 151 of the General
Corporation Law of the State of Delaware
We, the undersigned, the President and Secretary, respectively, of Sunbelt
Nursery Group, Inc., a Delaware corporation (the "Corporation"), DO HEREBY
CERTIFY that the following resolution was duly adopted by an independent
committee of the Board of Directors of the Corporation at a special meeting held
December 23, 1997:
"RESOLVED, that, pursuant to the authority expressly granted to and
vested in the Board of Directors by the Certificate of Incorporation, as
the same may heretofore have been amended, and pursuant to the provisions
of Section 151 of the General Corporation Law of the State of Delaware, the
Board of Directors does hereby provide for the issuance of a series of
preferred stock of the Corporation which is hereby given the designation of
Series A Cumulative Convertible Preferred Stock (the "Series A Preferred
Stock"), to consist of One Million Three Hundred Thousand (1,300,000)
shares, each of One Cent ($.01) par value, and the Board of Directors
hereby fixes the voting powers, preferences and relative, participating,
option or other special rights, and the qualifications, limitation or
restrictions thereof, of the shares of such series, as follows:
1. Dividends. The holders of shares of Series A Preferred Stock shall
---------
be entitled to receive, when, as and if declared by the Board of Directors
out of funds legally available for such purpose, cash dividends at the
annual rate of seven cents ($.07) per share, payable in arrears annually on
the thirty-first day of December of each year, commencing on December 31,
1998. Cash dividends shall be cumulative for all periods as to which the
full cash dividend shall not have been paid. Such dividends may be accrued
by the Corporation without penalty. If the dividend on the Series A
Preferred Stock for any dividend period, and an amount equal to all accrued
but unpaid dividends relating to prior dividend periods, shall not have
been paid or set apart in full, the aggregate deficiency shall be
cumulative and shall be fully paid or set apart for payment before (i) any
dividend whatsoever is declared or paid upon, or any distribution is made
upon, any Common Stock or any other series of preferred stock or any
security convertible into Common Stock or preferred stock, whether in cash
or in property (other than a dividend or distribution payable in shares of
Common Stock), or (ii) any shares of Common Stock or any other series of
preferred stock are purchased or redeemed by the Corporation for cash or
property, or (iii) any moneys are paid to or made available for a
-vii-
<PAGE>
sinking fund for the purchase or redemption of any shares of Common Stock
or any other series of preferred stock. In the event any shares of Series A
Preferred Stock are issued, converted or redeemed on any date other than
the last day of the calendar year, the dividend payable with respect to
such year will be prorated and will accrue and be payable only with respect
to the portion of such year that such Series A Preferred Stock is
outstanding.
2. Rights on Liquidation. Dissolution or Winding Up.
------------------------------------------------
(a) In the event of any liquidation, dissolution or winding up of the
Corporation, the holders of shares of Series A Preferred Stock then
outstanding shall be entitled to be paid out of the assets of the
Corporation available for distribution to its stockholders, whether from
capital, surplus or earnings, before any payment shall be made to the
holders of any stock ranking, on liquidation, junior to the Series A
Preferred Stock, which must include any and all subsequent issuances of any
other series of preferred stock, the amount of One Dollar ($1.00) in cash
for each share of Series A Preferred Stock, plus an amount equal to the
dividends accumulated and unpaid on each such share, if any, up to the date
of payment.
(b) If upon any liquidation, dissolution or winding up of the
Corporation, the assets of the Corporation available for distribution to
its stockholders shall be insufficient to pay the holders of shares of
Series A Preferred Stock the full amounts to which they each shall be
entitled pursuant to subparagraph (a) above (as appropriately adjusted in
the event of any stock dividend, stock split or combination or similar
recapitalization of the Corporation's capital stock), the holders of shares
of Series A Preferred Stock shall be entitled to receive ratably all of the
assets of the Corporation then available for distribution to its
stockholders.
(c) In the event of any liquidation, dissolution or winding up of the
Corporation, after payment shall have been made to the holders of shares of
Series A Preferred Stock of the full amount to which they shall be entitled
as aforesaid, holders of any class or classes of stock ranking junior to
the Series A Preferred Stock shall be entitled, to the exclusion of the
holders of shares of Series A Preferred Stock, to share, according to their
respective rights and preferences, in all remaining assets of the
Corporation available for distribution to its stockholders.
(d) For purposes of this Section 3, a merger or consolidation of the
Corporation with or into any other corporation or corporations in which the
stockholders of the Corporation do not own more than fifty percent (50%) of
the outstanding voting power (assuming conversion of all convertible
securities and the exercise of all outstanding options and warrants) of the
surviving corporation, or the sale of all or substantially all of the
assets of the Corporation, shall be treated as a liquidation, dissolution,
or winding up of the Corporation.
-viii-
<PAGE>
shares covered by a certificate representing shares of Series A Preferred
Stock surrendered for conversion, the Corporation shall issue and deliver
to, or upon the written order of, the holder of the certificate so
surrendered for conversion, at the expense of the Corporation, a new
certificate covering the number of shares of Series A Preferred Stock,
representing the unconverted portion of the certificate so surrendered,
which new certificate shall entitle the holder thereof to dividends on, and
all other rights relating to, the shares of Series A Preferred Stock
represented thereby to the same extent as if the certificate theretofore
covering such unconverted shares had not been surrendered for conversion.
(c) No fractional shares of Common Stock or scrip shall be issued upon
conversion of any shares of Series A Preferred Stock. If more than one (1)
share of Series A Preferred Stock shall be surrendered for conversion at
any one time by the same holder, the number of full shares of Common Stock
issuable upon conversion thereof shall be computed on the basis of the
aggregate number of shares of Series A Preferred Stock so surrendered.
Instead of any fractional shares of Common Stock which would otherwise be
issuable upon conversion of any shares of Series A Preferred Stock, the
Corporation shall pay a cash adjustment in respect of such fractional
interest in an amount equal to the closing price of the Common Stock as of
the last business day immediately prior to the surrender date.
(d) The Series A Preferred Conversion Ratio shall be subject to
adjustment from time to time as follows:
(i) If, at any time after an original date of issuance, the
number of shares of Common Stock issued and outstanding is increased
by a stock dividend payable in shares of Common Stock or by a
subdivision or split-up of shares of Common Stock, then, following the
record date fixed for the determination of holders of Common Stock or
of those entitled to receive such stock dividend, subdivision or
split-up, the Series A Preferred Conversion Ratio shall be
appropriately increased so that the number of shares of Common Stock
issuable on conversion of each share of Series A Preferred Stock shall
be increased in proportion to such increase in outstanding shares.
(ii) If, at any time after the original date of issuance, the
number of shares of Common Stock issued and outstanding is decreased
by a combination of the issued and outstanding shares of Common Stock,
then, following the record date for such combination, the Series A
Preferred Conversion Ratio shall be appropriately decreased so that
the number of shares of Common Stock issuable on conversion of each
share of Series A Preferred Stock shall be decreased in proportion to
such decrease in outstanding shares.
(iii) If, at any time after the original date of issuance, any
shares of A Preferred Stock are converted into such shares of Common
Stock, the A Preferred Conversion Ratio shall, at the option of the
holder, be
-x-
<PAGE>
appropriately increased so as to account for the accrued and unpaid
dividends on the Series A Preferred Stock through the most recently
ended fiscal quarter, or, at the option of the holder, accrued and
unpaid dividends shall be paid in cash upon conversion as soon as
funds are legally available therefor.
(iv) In case, at any time after the original date of issuance,
there occurs a capital reorganization, a reclassification of the stock
of the Corporation (other than a change in par value or from par value
to no par value or from no par value to par value or as a result of a
stock dividend or subdivision, split-up or combination of shares), the
consolidation or merger of the Corporation with or into another entity
(other than a subsidiary merger or a consolidation or merger in which
the Corporation is the continuing corporation and which does not
result in any change in the Common Stock), or the sale or other
disposition of all or substantially all the properties and assets of
the Corporation to any other entity (each, an "Event"), each issued
and outstanding share of Series A Preferred Stock shall be convertible
after such Event (unless, in the case of an Event, payment shall have
been made to the holders of all shares of Series A Preferred Stock of
the full amount to which they shall have been entitled pursuant to
Section 3 hereof), into the kind and number of shares of stock or
other securities or property of the Corporation or of the corporation
resulting from such consolidation or surviving such merger or to which
such properties and assets shall have been sold or otherwise disposed,
to which the holder of the number of shares of Common Stock
deliverable (immediately prior to the time of such Event) upon
conversion of such share would have been entitled upon such Event. The
provisions of this Section 4(d)(iv) shall similarly apply to
successive Events.
(v) All calculations under this Section 4(e) shall be made to
the nearest 1/10 of a cent or to the nearest 1/10 of a share, as the
case may be.
(vi) For the purpose of any computation hereunder, Market Price
for any day shall mean the average sales prices on such day on all
domestic stock exchanges on which the Common Stock may then be listed,
or, if no sale took place on such day on any such exchange, the
average of the closing bid and asked prices on such day, as officially
quoted on such exchanges, or if the Common Stock is not at the time
listed or admitted for trading on any domestic stock exchange, then
the last sales price as reported by the National Association of
Securities Dealers Automated Quotation System ("NASDAQ"), if
available, or the average of the last bid and asked prices on such day
as reported by NASDAQ, as the case may be, or if, on any day in
question, the security shall not be quoted on the NASDAQ, then such
price shall be equal to the average of the last reported bid and asked
prices on such day as reported by the National Quotation Bureau, Inc.
(or any similar reputable quotation and reporting service), or if such
quotation is not reported by the National Quotation Bureau, Inc. or if
there is no such firm, then as furnished by any member of the National
Association of Securities Dealers, Inc. selected by the Corporation,
and if no such member is furnishing
-xi-
<PAGE>
such quotation, then the Market Price for such shares shall be
established by the Board of Directors of the Corporation, utilizing
its reasonable good faith business judgment.
(vii) In any case in which the provisions of this Section 4(d)
require that an adjustment become effective immediately after a record
date for an event, the Corporation may defer until the occurrence of
such event (i) the issuance to the holder of any share of Series A
Preferred Stock converted after such record date, and before the
occurrence of such event, of such additional shares of capital stock
issuable upon such conversion by reason of the adjustment required by
such event over and above the shares of capital stock issuable upon
such conversion before giving effect to such adjustment, and (ii) the
payment to such holder of any amount in cash in lieu of a fractional
share of capital stock pursuant to Section 4(c); provided, however,
that the Corporation shall deliver to such holder an appropriate
instrument evidencing such holder's right to receive such additional
shares, and such cash, upon the occurrence of the event requiring such
adjustment.
(e) Whenever the Series A Preferred Conversion Ratio (or Series A
Preferred Conversion Price) shall be adjusted as provided in Section 4(d),
the Corporation shall forthwith file, at the office of the transfer agent
for the Series A Preferred Stock or at such other place as may be
designated by the Corporation from time to time, a statement, signed by a
designated corporate officer, showing in reasonable detail the facts
requiring such adjustment and the Series A Preferred Conversion Ratio (or
Series A Preferred Conversion Price) that shall be in effect after such
adjustment. The Corporation shall also cause a copy of such statement to be
sent by first-class mail, postage prepaid, to each holder of shares of
Series A Preferred Stock at his or its address appearing on the
Corporation's records. Where appropriate, such copy may be given in advance
and may be included as part of a notice required to be mailed under the
provisions of Section 4(f).
(f) In the event the Corporation shall propose to take any action on
the type described in clauses (i), (ii), (iii) or (iv) of Section 4(d), the
Corporation shall give notice to each holder of shares of Series A
Preferred Stock, which notice shall specify the record date, if any, with
respect to any such action and the date on which such action is to take
place. Such notice shall also set forth such facts with respect thereto as
shall be reasonably necessary to indicate the effect of such action (to the
extent such effect may be known at the date of such notice) on the Series A
Preferred Conversion Ratio (or Series A Preferred Conversion Price) and the
number, kind or class of shares or other securities or property which shall
be deliverable or purchasable upon the occurrence of such action or
deliverable upon conversion of shares of Series A Preferred Stock, as the
case may be. In the case of any action which would require the fixing of a
record date, such notice shall be given at least twenty (20) days prior to
the date so fixed, and in case of all other action, such notice shall be
given at least thirty (30) days prior to the taking of such proposed
action. Failure to give such notice, or any defect therein, shall not
affect the legality or validity of any such action.
-xii-
<PAGE>
(g) The Corporation shall pay all documentary, stamp or other
transactional taxes attributable to the issuance or delivery of shares of
capital stock of the Corporation upon conversion of any shares of Series A
Preferred Stock; provided, however, that the Corporation shall not be
required to pay any taxes which may be payable in respect of any transfer
involved in the issuance or delivery of any certificate for such shares in
a name other than that of the holder of the shares of Series A Preferred
Stock in respect of which such shares are being issued.
(h) All shares of Common Stock which may be issued in connection with
the conversion provisions set forth herein will, upon issuance by the
Corporation, be validly issued, fully paid and nonassessable and free from
all taxes, liens or charges with respect thereto, and will not be subject
to any sinking fund provision.
(i) The Corporation shall at all times reserve and keep available out
of its Common Stock (whether authorized but unissued shares reserved by it
free from preemptive rights or issued shares which have been reacquired by
it) the number of full shares of such Common Stock into which all shares of
Series A Preferred Stock from time to time outstanding are convertible.
5. Voting.
------
The holders or Series A Preferred Stock shall, by virtue of their
ownership thereof, have the same voting powers as holders of the Company's
Common Stock. Whenever the holders of the Corporation's Common Stock shall be
entitled to exercise voting rights, the holder of the Series A Preferred Stock
shall also be entitled to one vote per share of Series A Preferred Stock so
held.
6. Restrictions on Transfer.
------------------------
No holder of shares of Series A Preferred Stock may transfer any such
shares except to (i) an "Accredited Investor" as such term is defined in Rule
501(a) adopted by the Securities and Exchange Commission under the Securities
Act of 1933, as amended (as the same may be modified from time to time or in any
successor provision or statute) and then only in transactions aggregating
fifty thousand (50,000) shares or more, or (ii) an affiliate of the holder,
which affiliate is also on "Accredited Investor."
IN WITNESS WHEREOF, this Certificate has been made under the seal of the
said SUNBELT NURSERY GROUP, INC. and has been signed by Timothy R. Duoos, its
President, and attested to by Chad Ruth, its Secretary, this 30th day of
----
December, 1997.
/s/ TIMOTHY R. DUOOS
---------------------------
Timothy R. Duoos, President
-xiii-
<PAGE>
Attest:
/s/ CHAD RUTH
- --------------------
Chad Ruth, Secretary
-xiv-
<PAGE>
Exhibit 10.1
LOAN AND SECURITY AGREEMENT 12/11/97
BETWEEN
PARAGON CAPITAL LLC
AND
WOLFE NURSERY, INC.
TABLE OF CONTENTS
-----------------
ARTICLE 1 - THE REVOLVING CREDIT
- --------------------------------
1-1. Establishment of Revolving Credit
---------------------------------
1-2. Advances in Excess of Maximum Loan Exposure
-------------------------------------------
1-3. Risks of Value of Inventory
---------------------------
1-4. Procedures Under Revolving Credit
---------------------------------
1-5. The Loan Account
----------------
1-6. The Master Note
---------------
1-7. Payment of Loan Account
-----------------------
1-8. Interest
--------
1-9. Fees
----
1-10. Lender's Discretion
-------------------
1-11. Fees For L/C's
--------------
1-12. Concerning L/C's
----------------
ARTICLE 2 - GRANT OF SECURITY INTEREST
- --------------------------------------
2-1. Grant of Security Interest
--------------------------
2-2. Extent and Duration of Security Interest
----------------------------------------
ARTICLE 3 - DEFINITIONS
- -----------------------
ARTICLE 4 - CONDITIONS PRECEDENT
- ---------------------------------
4-1. Corporate Due Diligence
-----------------------
4-2. Opinion
-------
4-3. Additional Documents
--------------------
4-4. Key Life Policies
-----------------
4-5. Officers' Certificates
----------------------
4-6. Representations and Warranties
------------------------------
4-7. Minimum Excess Availability
---------------------------
<PAGE>
4-8. No Event of Default
-------------------
4-9. No Adverse Change
-----------------
ARTICLE 5 - GENERAL REPRESENTATIONS, WARRANTIES AND COVENANTS
- -------------------------------------------------------------
5-1. Payment and Performance of Liabilities
--------------------------------------
5-2. Due Organization - Corporate Authorization - No Conflicts
---------------------------------------------------------
5-3. Trade Names
-----------
5-4. Locations, Landlord's Waivers
-----------------------------
5-5. Title to Assets
---------------
5-6. Indebtedness
------------
5-7. Insurance Policies
------------------
5-8. Licenses
--------
5-9. Leases
------
5-10. Requirements of Law
-------------------
5-11. Maintain Properties
-------------------
5-12. Pay Taxes
---------
5-13. No Margin Stock
---------------
5-14. ERISA
-----
5-15. Hazardous Materials
-------------------
5-16. Litigation
----------
5-17. Dividends or Investments
------------------------
5-18. Loans
-----
5-19. Protection of Assets
--------------------
5-20. Line of Business
----------------
5-21. Affiliate Transactions
----------------------
5-22. Executive Pay
-------------
5-23. Additional Assurances
---------------------
5-24. Adequacy of Disclosure
---------------------
5-25. Other Covenants
---------------
ARTICLE 6 - USE AND COLLECTION OF COLLATERAL
- --------------------------------------------
6-1. Use of Inventory Collateral
---------------------------
6-2. Inventory Quality
-----------------
6-3. Adjustments and Allowances
--------------------------
6-4. Validity of Accounts
--------------------
6-5. Notification to Account Debtors
-------------------------------
ARTICLE 7 - CASH MANAGEMENT
- ---------------------------
7-1. Depository Accounts
-------------------
7-2. Credit Card Receipts
--------------------
7-3. The Concentration and the Funding Accounts
------------------------------------------
7-4. Proceeds and Collection of Accounts
-----------------------------------
-ii-
<PAGE>
7-5. Payment of Liabilities
----------------------
7-6. The Funding Account
-------------------
ARTICLE 8 - LENDER AS BORROWER'S ATTORNEY-IN-FACT
- -------------------------------------------------
8-1. Appointment as Attorney-In-Fact
-------------------------------
8-2. No Obligation to Act
--------------------
ARTICLE 9 - FINANCIAL AND OTHER REPORTING REQUIREMENTS/FINANCIAL COVENANTS
- --------------------------------------------------------------------------
9-1. Maintain Records
----------------
9-2. Access to Records
-----------------
9-3. Immediate Notice to Lender
--------------------------
9-4. Borrowing Base Certificate
--------------------------
9-5. Weekly Reports
--------------
9-6. Monthly Reports
---------------
9-7. Quarterly Reports
-----------------
9-8. Annual Reports
--------------
9-9. Officers' Certificates
----------------------
9-10. Inventories, Appraisals, and Audits
-----------------------------------
9-11. Additional Financial Information
--------------------------------
9-12. Financial Performance Covenants
-------------------------------
9-13. Electronic Reporting
--------------------
ARTICLE 10 - EVENTS OF DEFAULT
- ------------------------------
10-1. Failure to Pay Revolving Credit
-------------------------------
10-2. Failure To Make Other Payments
------------------------------
10-3. Failure to Perform Covenant or Liability (No Grace Period)
---------------------------------------------------------
10-4. Failure to Perform Covenant or Liability (Grace Period)
------------------------------------------------------
10-5. Misrepresentation
-----------------
10-6. Acceleration of Other Debt, Breach of Lease
-------------------------------------------
10-7. Default Under Other Agreements
------------------------------
10-8. Casualty Loss, Non-Ordinary Course Sales
----------------------------------------
10-9. Judgment, Restraint of Business
-------------------------------
10-10. Business Failure
----------------
10-11. Bankruptcy
----------
10-12. Insecurity
----------
10-13. Prepayment or Default by Guarantor or Related Entity
----------------------------------------------------
10-14. Indictment - Forfeiture
-----------------------
10-15. Termination of Guaranty
-----------------------
10-16. Challenge to Loan Documents
---------------------------
-iii-
<PAGE>
10-17. Executive Management
--------------------
10-18. Change in Control
-----------------
ARTICLE 11 - RIGHTS AND REMEDIES UP ON DEFAULT
- ----------------------------------------------
11-1 Rights of Enforcement
---------------------
11-2. Sale of Collateral
------------------
11-3. Occupation of Business Location
-------------------------------
11-4. Grant of Nonexclusive License
-----------------------------
11-5. Assembly of Collateral
----------------------
11-6. Rights and Remedies
-------------------
ARTICLE 12 - NOTICES
- --------------------
12-1. Notice Addresses
----------------
12-2. Notice Given
------------
ARTICLE 13 - TERM
- -----------------
13-1. Termination of Revolving Credit
-------------------------------
13-2. Effect of Termination
---------------------
13-3. Prepayment Premium
------------------
ARTICLE 14 - GENERAL
- --------------------
14-1. Protection of Collateral
------------------------
14-2. Successors and Assigns
----------------------
14-3. Severability
------------
14-4. Amendments, Course of Dealing
-----------------------------
14-5. Power of Attorney
-----------------
14-6. Application of Proceeds
-----------------------
14-7. Lender's Costs and Expenses
---------------------------
14-8. Copies and Facsimiles
---------------------
14-9. Massachusetts Law
-----------------
14-10. Consent to Jurisdiction
-----------------------
14-11. Indemnification
---------------
14-12. Right of Set-Off
----------------
14-13. Maximum Interest Rate
---------------------
14-14. Usury Savings Clause
--------------------
14-15. Waivers
-------
14-16. Confidentiality
---------------
14-17. Right to Publish Notice
-----------------------
14-18. Entities Related to Lender
--------------------------
-iv-
<PAGE>
EXHIBITS
1-6 Master Note
3 Definitions
5-2 Related Entities
5-3 Trade Names.
5-4 Locations.
5-5 Encumbrances.
5-6 Indebtedness.
5-7 Insurance Policies.
5-12 Taxes
5-16 Litigation
7-1 DDA's.
7-2 Credit Card Arrangements
9-4 Borrowing Base Certificate
9-12(a) Financial Performance Covenants
9-12(b) Business Plan.
-v-
<PAGE>
THIS AGREEMENT is made between Paragon Capital LLC (hereinafter, "Paragon"
or "Lender"), a Delaware limited liability company with its principal executive
offices at Hillsite Office Building 75 Second Avenue, Suite 400 Needham,
Massachusetts 02194 and Wolfe Nursery, Inc. hereinafter, the "Borrower"), a
Delaware corporation with its principal executive offices at 32382 Del Obispo,
San Juan Capistrano, California 92675-4029 in consideration of the mutual
covenants contained herein and benefits to be derived herefrom.
WITNESSETH:
ARTICLE 1 - THE REVOLVING CREDIT
- --------------------------------
1-1. Establishment of Revolving Credit.
---------------------------------
(a) The Lender hereby establishes a revolving line of credit (the
"Revolving Credit") in the Borrower's favor pursuant to which the Lender,
subject to, and in accordance with, the within Agreement, shall make loans and
advances and otherwise provide financial accommodations to and for the account
of the Borrower as provided herein. The amount of the Revolving Credit shall be
determined by the Lender by reference to Availability, as determined by the
Lender from time to time hereafter. All loans made by the Lender under this
Agreement, and all of the Borrower's other Liabilities to the Lender under or
pursuant to this Agreement, are payable as provided herein.
(b) The Lender hereby agrees, subject to the terms and conditions of
this Agreement, to make loans to the Borrower in an amount outstanding not to
exceed at any one time the lesser of (i) the Credit Limit, or (ii) the Borrowing
Base.
(c) Availability shall be based upon Borrowing Certificates furnished
as provided in Section 9-4, below.
(d) The proceeds of borrowings under the Revolving Credit shall be
used solely in accordance with the Business Plan for working capital purposes of
the Borrower and for its Capital Expenditures, all solely to the extent
permitted by the within Agreement.
1-2. Advances in Excess of Maximum Loan Exposure. The Lender does not have
-------------------------------------------
any obligation to make any loan or advance, or otherwise to provide any credit
for the benefit of the Borrower such that the outstanding principal balance of
the Loan Account exceeds Maximum Loan Exposure. The making of loans, advances,
and credits and the providing of financial accommodations in excess of Maximum
Loan Exposure is for the benefit of the Borrower and does not affect the
obligations of the Borrower hereunder; such loans, advances, credits, and
financial accommodations constitute Liabilities. The making of any such loans,
advances, and credits and the providing of financial accommodations, on any one
occasion such that Maximum Loan Exposure is exceeded shall not obligate the
Lender to make any such loans, credits, or advances or to provide any financial
accommodation on any other occasion nor to permit such loans, credits, or
advances to remain outstanding.
<PAGE>
1-3. Risks of Value of Inventory. The Lender's reference to a given asset
---------------------------
in connection with the making of loans, credits, and advances and the providing
of financial accommodations under the Revolving Credit and/or the monitoring of
compliance with the provisions hereof shall not be deemed a determination by the
Lender relative to the actual value of the asset in question. All risks
concerning the saleability of the Borrower's Inventory are and remain upon the
Borrower. All Collateral secures the prompt, punctual and faithful performance
of the Liabilities whether or not relied upon by the Lender in connection with
the making of loans, credits, and advances and the providing of financial
accommodations under the Revolving Credit.
1-4. Procedures Under Revolving Credit.
---------------------------------
(a) The Borrower may request loans and advances under the Revolving
Credit, each in an amount of not less than Ten Thousand ($10,000.00) Dollars.
Each such request shall be in such manner as may from time to time be acceptable
to the Lender.
(b) (i) The Lender, subject to the terms and conditions of the
within Agreement, will provide the Borrower with the loan so requested, if such
request is received by 12:00 Noon on a Banking Day, by the end of business on
that Banking Day; otherwise, by the end of the then next Banning Day.
(ii) The Lender may revise the above schedule, by which loans
shall be made, from time to time.
(c) Provided that Maximum Loan Exposure will not be exceeded (but
subject, however, to Subsection 1-4(i), below (which deals with the effect of a
Suspension Event)), a loan or advance under the Revolving Credit so requested by
the Borrower shall be made by the transfer of the proceeds of such loan or
advance to the Funding Account or as otherwise instructed by the Borrower.
(d) A loan or advance shall be deemed to have been made under the
Revolving Credit upon:
(i) The Lender's initiation of the transfer of the proceeds of
such loan or advance in accordance with the Borrower's instructions (if such
loan or advance is of funds requested by the Borrower).
(ii) The charging of the amount of such loan to the Loan Account
(in all other circumstances).
(e) There shall not be any recourse to, nor liability of, the Lender
on account of:
(i) Any delay in the making of any loan or advance requested
under the Revolving Credit.
-2-
<PAGE>
(ii) Any delay in the proceeds of any such loan or advance
constituting collected funds.
(iii) Any delay in the receipt, and/or any loss, of funds which
constitute a loan or advance under the Revolving Credit, the wire transfer of
which was properly initiated by the Lender in accordance with wire instructions
provided to the Lender by the Borrower.
(f) The Lender may rely on any request for a loan or advance or
financial accommodation which the Lender, in good faith, believes to have been
made by a person duly authorized to act on behalf of the Borrower and may
decline to make any such requested loan or advance or to provide any such
financial accommodation pending the Lender's being furnished with such
documentation concerning that person's authority to act as may be satisfactory
to the Lender.
(g) A request by the Borrower for any financial accommodation under
the Revolving Credit or of the issuance of an L/C shall be irrevocable and shall
constitute certification by the Borrower that as of the date of such request,
each of the following is true and correct:
(i) There has been no material adverse change in the Borrower's
financial condition from the most recent financial information furnished Lender
pursuant to this Agreement.
(ii) The Borrower is in compliance with, and has not breached
any of, its covenants contained in this Agreement.
(iii) Each representation which is made herein or in any of the
Loan Documents is then true and complete as of and as if made on the date of
such request.
(iv) No Suspension Event is then extant.
(h) The Borrower shall immediately become indebted to the Lender for
the amount of each loan under or pursuant to this Agreement when such loan is
deemed to have been made.
(i) Upon the occurrence from time to time of any Suspension Event,
the Lender may suspend the Revolving Credit immediately and shall not be
obligated, during such suspension, to make any loans or to provide any financial
accommodation hereunder.
(j) The Borrower may request that the Lender cause the issuance of
L/C's for the account of the Borrower.
(i) Each such request shall be in such manner as may from time
to time be acceptable to the Lender.
-3-
<PAGE>
(ii) The Lender will endeavor to cause the issuance of any L/C
so requested by the Borrower, provided that the requested L/C is in form
satisfactory to the Lender and if so issued:
(A) The aggregate Stated Amount of all L/C's then
outstanding, does not exceed Five Hundred Thousand ($500,000.00)
Dollars.
(B) The expiry of the L/C is not later than the earlier of
thirty (30) days prior to the Maturity Date or the following:
(I) Standby's: One (1) year from initial issuance.
(II) Documentary's: sixty (60) days from issuance.
(C) Maximum Loan Exposure would not be exceeded.
(iii) The Borrower shall execute such documentation to apply for
and support the issuance of an L/C as may be required by the Issuer.
(iv) There shall not be any recourse to, nor liability of, the
Lender on account of:
(A) any delay or refusal by an Issuer to issue an L/C;
(B) any action or inaction of an Issuer on account of or in
respect to, any L/C;
(v) The Borrower shall reimburse the Issuer, immediately upon
the drawing under any L/C, for the amount of such drawing. In the event that the
Borrower fails to so reimburse the Issuer, the Borrower immediately shall
reimburse the Lender for the amount of such drawing. To the extent which the
Borrower fails to so reimburse the Issuer or the Lender, the Lender, without the
request of the Borrower, may advance under the Revolving Credit any amount which
the Borrower is so obligated to pay to the Lender or the Issuer, or for which
the Borrower, the Issuer, or the Lender becomes obligated on account of, or in
respect to, any L/C. Such advance shall be made whether or not a Suspension
Event is then in existence or such advance would result in Maximum Loan
Exposure's being exceeded. Such action shall not constitute a waiver of the
Lender's rights under Section 1-7(b), below.
1-5. The Loan Account.
----------------
(a) An account ("Loan Account") shall be opened on the books of the
Lender in which Loan Account a record may be kept of all loans made under or
pursuant to this Agreement and of all payments thereon.
-4-
<PAGE>
(b) The Lender may also keep a record (either in the Loan Account or
elsewhere, as the Lender may from time to time elect) of all interest, fees,
service charges, costs, expenses, and other debits owed the Lender on account of
the Liabilities and of all credits against such amounts so owed.
(c) All credits against the Liabilities shall be conditional upon
final payment to the Lender of the items giving rise to such credits. The amount
of any item credited against the Liabilities which is charged back against the
Lender for any reason or is not so paid shall be a Liability and shall be added
to the Loan Account whether or not the item so charged back or not so paid is
returned.
(d) Except as otherwise provided herein, all fees, service charges,
costs, and expenses for which the Borrower is obligated hereunder are payable on
demand. In the determination of Availability, the Lender may deem fees, service
charges, accrued interest, and other payments as having been advanced under the
Revolving Credit if such amounts are then due and payable.
(e) The Lender, without the request of the Borrower, may advance
under the Revolving Credit any interest, fee, service charge, or other payment
to which the Lender is entitled from the Borrower pursuant hereto and may charge
the same to the Loan Account notwithstanding that such amount so advanced may
result in Availability's being exceeded. Such action on the part of the Lender
shall not constitute a waiver of the Lender's rights under Section 1-7(b),
below. Any amount which is added to the principal balance of the Loan Account as
provided in this Section shall bear interest at the interest rate applicable
from time to time to the unpaid principal balance of the Loan Account.
(f) Any statement rendered by the Lender to the Borrower concerning
the Liabilities shall be considered correct and accepted by the Borrower and
shall be conclusively binding upon the Borrower unless the Borrower provides the
Lender with written objection thereto within twenty (20) days from the mailing
of such statement, which written objection shall indicate, with particularity,
the reason for such objection. The Loan Account and the Lender's books and
records concerning the loan arrangement contemplated herein and the Liabilities
shall be prima facie evidence and proof of the items described therein.
1-6. The Master Note. The obligation to repay loans and advances under the
---------------
Revolving Credit, with interest as provided herein, shall be evidenced by a note
(the "Master Note") in the form of EXHIBIT 1-6, annexed hereto, executed by the
Borrower. Neither the original nor a copy of the Master Note shall be required,
however, to establish or prove any Liability. In the event that the Master Note
is ever lost, mutilated, or destroyed, the Borrower shall execute a replacement
thereof and deliver such replacement to the Lender.
-5-
<PAGE>
1-7. Payment of Loan Account.
-----------------------
(a) The Borrower may repay all or any portion of the principal
balance of the Loan time to time until the Termination Date.
(b) The Borrower, without notice or demand from the Lender, shall pay
the Lender that amount, from time to time, which is necessary so that the
principal balance of the Loan Account does not exceed Maximum Loan Exposure.
(c) The Borrower shall repay the then entire unpaid balance of the
Loan Account and all other Liabilities on the Termination Date.
1-8. Interest.
--------
(a) The unpaid principal balance of the Loan Account shall bear
interest, until repaid (calculated based upon a 360-day year and actual days
elapsed), at the aggregate of Base plus one (1%) percent per annum but in no
event less than eight (8%) percent per annum or in excess of the maximum rate
permitted by applicable law.
(b) Following the occurrence of any Event of Default (and whether or
not the Lender exercises any of the Lender's rights on account of such Event of
Default), all loans and advances made under the Revolving Credit shall bear
interest, through the End Date, at a rate which is the aggregate of that
provided for in Section 1-8(a), above, plus four (4%) percent per annum.
(c) Accrued interest shall be payable:
(i) Monthly in arrears on the first day of the month next
following that during which such interest accrued.
(ii) On the Termination Date.
(iii) On the End Date.
1-9. Fees. Borrower shall pay to the Lender the following fees:
----
(a) Commitment Fee. On the date of execution hereof, a one time fully
earned commitment fee shall be due and payable in an amount equal to $48,125.00.
(b) Annual Facility Fee. On the first anniversary of the date of
execution hereof, a facility fee in an amount equal to one-quarter of one (.25%)
percent of the Credit Limit which shall have been fully earned at the date of
execution hereof, shall be due and payable, and on each anniversary of the date
of execution hereof, a facility fee in an amount equal to one-quarter of one
-6-
<PAGE>
(.25%) percent of the Credit Limit, which shall have been fully earned as of the
date hereof, shall be due and payable.
(c) Loan Maintenance Fee. On the date of execution hereof and on each
anniversary of the date of execution hereof, a loan maintenance fee equal to
$14,000.00 shall be payable. Such fee shall have been fully earned as of the
date hereof and as of each anniversary of the date of execution hereof and shall
be payable in twelve (12) monthly installments as follows: 1/12th of such fee
shall be payable as of the date hereof and on each anniversary of the date of
execution hereof, and 1/12th of such fee shall be payable on the same day of
each month hereafter until paid in full.
(d) Financial Examination, Documentation, and Appraisal Fees. Subject
to the provisions of Article 9-10 Lender's actual charges paid or incurred for
each financial analysis and examination (i.e., audits) of Borrower performed by
personnel employed by Lender; Lender's actual charges paid or incurred for each
appraisal of the Collateral performed by personnel employed by Lender: and, the
actual charges paid or incurred by Lender if it elects to employ the services of
one or more third Persons to perform such financial analysis and examinations
(i.e., audits) of Borrower or to appraise the Collateral.
(e) In addition to any other right to which the Lender is then
entitled on account thereof, the Lender may assess additional fees and charges
payable by the Borrower on account of the accommodation, from time to time, of
Lender to the Borrower's request that the Lender depart or dispense with one or
more of the administrative provisions of the within Agreement and/or the
Borrower's failure to comply with any of such provisions.
(i) By way of non-exclusive example, the Lender may assess a fee
on account of any of the following:
(A) The Borrower's failure to pay that amount which is
necessary so that the principal balance of the Loan Account does
not exceed Maximum Permitted Exposure (as required under Section
1-7(b), above).
(B) The providing of a loan or advance under the Revolving
Credit such that Maximum Loan Exposure would be exceeded.
(C) The providing of a same Banking Day loan requested
after the time set forth in Section l-4(b)(i), above.
(D) The Borrower's failure to provide a financial statement
or report within the applicable time-frame provided for such
report under Article 9, below.
-7-
<PAGE>
(ii) The inclusion of the foregoing right on the part of the
Lender to assess a fee does not constitute an obligation, on the part of the
Lender, to waive any provision of the within Agreement under any circumstances.
The assessment of any such fee in any particular circumstance shall not
constitute the Lender's waiver of any breach of the within Agreement on account
of which such fee was assessed nor a course of action on which the Borrower may
rely.
(f) The Borrower shall not be entitled to any credit, rebate or
repayment of any Commitment Fee, Facility Fee, Loan Maintenance Fee, or other
fee previously earned by the Lender pursuant to this Section notwithstanding any
termination of the within Agreement or suspension or termination of the Lender's
obligation to make loans and advances hereunder.
1-10. Lender's Discretion.
-------------------
(a) Each reference in the Loan Documents to the exercise of
discretion or the like by the Lender shall be to that Person's exercise of its
judgement, in good faith (which shall be presumed), based upon that Person's
consideration of any such factor as the Lender, taking into account information
of which that Person then has actual knowledge, believes:
(i) Will or reasonably could be expected to affect the value of
the Collateral, the enforceability of the Lender's security and collateral
interests therein, or the amount which the Lender would likely realize therefrom
(taking into account delays which may possibly be encountered in the Lender's
realizing upon the Collateral and likely Costs of Collection).
(ii) Indicates that any report or financial information delivered
to the Lender by or on behalf of the Borrower is incomplete, inaccurate, or
misleading in any material manner or was not prepared in accordance with the
requirements of the within Agreement.
(iii) Suggests an increase in the likelihood that the Borrower
will become the subject of a bankruptcy or insolvency proceeding.
(iv) Constitutes a Suspension Event.
(b) In the exercise of such judgement, the Lender also may take into
account any of the following factors:
(i) Those included in, or tested by, the definitions of
"Acceptable Inventory", "Retail", and "Cost".
(ii) The current financial and business climate of the industry
in which the Borrower competes (having regard for the Borrower's position in
that industry).
(iii) General economic conditions which have a material effect
on cost structure.
-8-
<PAGE>
(iv) Material changes in or to the mix of the Borrower's
Inventory.
(v) Seasonality with respect to the Borrower's Inventory and
patterns of the Borrower's retail sales.
(vi) Such other factors as the Lender determines as having a
material bearing on credit risks associated with the providing of loans and
financial accommodations to the Borrower.
(c) The burden of establishing the failure of the Lender to have
acted in a reasonable manner in such Person's exercise of discretion shall be
the Borrower's.
1-11. Fees for L/C's.
--------------
(a) Prior to the issuance of any L/C, the Borrower shall pay to the
Lender a fee for each L/C equal to the greater of (i) Two Hundred Fifty
($250.00) Dollars, or (ii) twenty-five (25) Basis Points per month times the
Stated Amount of that L/C.
(b) In addition to the fee to be paid as provided in Subsection
1-11(a), above, the Borrower shall pay to the Lender (or to the Issuer, if so
requested by the Lender), on demand, all issuance, processing, negotiation,
amendment, and administrative fees and other amounts charged by the Issuer on
account of; or in respect to, any L/C.
1-12. Concerning L/C's.
----------------
(a) None of the Issuer, the Issuer's correspondents, or any advising,
negotiating, or paying bank with respect to any L/C shall be responsible in any
way for:
(i) The performance by any beneficiary under any L/C of that
beneficiary's obligations to the Borrower.
(ii) The form, sufficiency, correctness, genuineness, authority
of any person signing; falsification; or the legal effect of; any documents
called for under any L/C if (with respect to the foregoing) such documents on
their face appear to be in order.
(b) The Issuer may honor, as complying with the terms of any L/C and
of any drawing thereunder, any drafts or other documents otherwise in order, but
signed or issued by an administrator, executor, conservator, trustee in
bankruptcy, debtor in possession, assignee for the benefit of creditors,
liquidator, receiver, or other legal representative of the party authorized
under such L/C to draw or issue such drafts or other documents.
(c) Unless otherwise agreed to, in the particular instance, the
Borrower hereby authorizes any Issuer to:
-9-
<PAGE>
(i) Select an advising bank, if any.
(ii) Select a paying bank if any.
(iii) Select a negotiating bank.
(d) All directions, correspondence, and funds transfers relating to
any L/C are at the risk of the Borrower. The Issuer shall have discharged the
Issuer's obligations under any L/C which, or the drawing under which, includes
payment instructions, by the initiation of the method of payment called for in,
and in accordance with, such instructions (or by any other commercially
reasonable and comparable method). Neither the Lender nor the Issuer shall have
any responsibility for any inaccuracy, interruption, error, or delay in
transmission or delivery by post, telegraph or cable, or for any inaccuracy of
translation.
(e) The Lender's and the Issuer's rights, powers, privileges and
immunities specified in or arising under this Agreement are in addition to any
heretofore or at any time hereafter otherwise created or arising, whether by
statute or rule of law or contract.
(f) Except to the extent otherwise expressly provided hereunder or
agreed to in writing by the Issuer and the Borrower, the L/C will be governed by
the Uniform Customs and Practice for Documentary Credits (1993 Revision),
International Chamber of Commerce, Publication No.500, and any subsequent
revisions thereof.
(g) If any change in any law, executive order or regulation, or any
directive of any administrative or governmental authority (whether or not having
the force of law), or in the interpretation thereof by any court or
administrative or governmental authority charged with the administration
thereof, shall either:
(i) Impose, modify or deem applicable any reserve, special
deposit or similar requirements against letters of credit heretofore or
hereafter issued by any Issuer or with respect to which the Lender or any Issuer
has an obligation to lend to fund drawings under any L/C.
(ii) Impose on any Issuer any other condition or requirements
relating to any such letters of credit; and the result of any event referred to
in Section 1 - 12(g)(i) or I - 12(g)(ii), above, shall be to increase the cost
to any Issuer of issuing or maintaining any L/C (which increase in cost shall be
the result of such Issuer's reasonable allocation among that Issuer's letter of
credit customers of the aggregate of such cost increases resulting from such
events), then, upon demand by the Lender and delivery by the Lender to the
Borrower of a certificate of an officer of the subject Issuer describing such
change in law, executive order, regulation, directive, or interpretation
thereof, its effect on such Issuer, and the basis for determining such increased
costs and their allocation, the Borrower shall immediately pay to the Lender,
from time to time as specified by the Lender, such amounts as shall be
sufficient to compensate such Issuer for such increased cost. Any Issuer's
determination of costs incurred under Section 1 - 12(g)(i) or 1 - 12(g)(ii),
above, and the allocation, if
-10-
<PAGE>
any, of such costs among the Borrower and other letter of credit customers of
such Issuer, if done in good faith and made on an equitable basis and in
accordance with the officer's certificate, shall be conclusive and binding on
the Borrower.
(h) The obligations of the Borrower under the within Agreement with
respect to L/C's are absolute, unconditional, and irrevocable and shall be
performed strictly in accordance with the terms hereof under all circumstances
whatsoever including, without limitation, the following:
(i) Any lack of validity or enforceability or restriction,
restraint, or stay in the enforcement of the within Agreement, any L/C, or any
other agreement or instrument relating thereto.
(ii) Any amendment or waiver of; or consent to the departure
from, any L/C.
(iii) The existence of any claim, set-off, defense, or other
right which the Borrower may have at any time against the beneficiary of any
L/C.
(iv) Any honoring of a drawing under any L/C, which drawing
possibly could have been dishonored based upon a strict construction of the
terms of the L/C.
ARTICLE 2 - GRANT OF SECURITY INTEREST
- --------------------------------------
2-1. Grant of Security Interest. To secure the Borrower's prompt,
--------------------------
punctual, and faithful performance of all and each of the Borrower's
Liabilities, the Borrower hereby grants to the Lender a continuing security
interest in and to, and assigns to the Lender, the following, and each item
thereof; whether now owned or now due, or in which the Borrower has an interest,
or hereafter acquired, arising, or to become due, or in which the Borrower
obtains an interest, and all products, Proceeds, substitutions, and accessions
of or to any of the following (all of which, together with any other property in
which the Lender may in the future be granted a security interest, is referred
to herein as the "Collateral"):
(a) All of Borrower's inventory, including all goods, merchandise,
raw materials, goods and work in process, finished goods, and other tangible
personal property now owned or hereafter acquired and held for sale or lease or
furnished or to be furnished under contracts of service or used or consumed in
Borrower's business, including, without limitation, all crops, plants, shrubs,
trees, live Christmas trees and flowers, whether potted or affixed to the land
including, without limitation, all crops growing or to be grown on the land
identified on Exhibit 5-4 hereto.
(b) All farm products, including, without limitation, all crops,
plants, shrubs, trees, live Christmas trees and flowers whether potted or
affixed to the land, and all equipment and supplies used or produced in
connection with debtor's farming operations, now owned or hereafter
-11-
<PAGE>
acquired including, without limitation, all crops growing or to be grown on the
land identified on Exhibit 5-4 hereto.
(c) All of Borrower's accounts contracts, contract rights, notes.
bills, drafts, acceptances, general intangibles (including without limitation
trade names, customer lists, goodwill, computer programs, computer records.
computer software, computer data, trade secrets, trademarks, patents, ledger
sheets, files, records, data processing records relating to any accounts and all
tax refunds of every kind and nature to which Borrower is now or hereafter may
become entitled to, no matter how arising), instruments, documents, chattel
paper, securities, security entitlements, security accounts, investment
property, choses in action, and all other debts, obligations and liabilities in
whatever form, owing to Borrower from any person, firm or corporation or any
other legal entity, whether now existing or hereafter arising, now or hereafter
received by or belonging or owing to Borrower, for goods sold by it or for
services rendered by it, or however otherwise same may have been established or
created, all guarantees and securities therefor, all right, title and interest
of Borrower in the merchandise or services which gave rise thereto, including
the rights of reclamation and stoppage in transit, all rights to replevy goods,
all rights of an unpaid seller of merchandise or services, and in the products
and proceeds thereof, including, without limitation, all proceeds of credit,
fire or other insurance.
(d) All of Borrower's machinery, equipment and other goods (as
defined in Article 9 of the Uniform Commercial Code) whether now owned or
hereafter acquired by Borrower and wherever located, all replacements and
substitutions therefor or accessions thereto and all proceeds thereof.
(e) All proceeds and products of all of the foregoing in any form,
including, without limitation, all proceeds, refunds and premium rebates of
credit, fire or other insurance, and also including, without limitation, rents
and profits resulting from the temporary use of any of the foregoing.
2-2. Extent and Duration of Security Interest. The within grant of a
----------------------------------------
security interest is in addition to, and supplemental of, any security interest
previously granted by the Borrower to the Lender and shall continue in full
force and effect applicable to all Liabilities until all Liabilities have been
paid and/or satisfied in full and the security interest granted herein is
specifically terminated in writing by a duly authorized officer of the Lender.
ARTICLE 3 - DEFINITIONS
- -----------------------
All capitalized terms used in this agreement which are not otherwise
defined herein or in the UCC shall have the meanings assigned to them in EXHIBIT
3, annexed hereto.
-12-
<PAGE>
ARTICLE 4 - CONDITIONS PRECEDENT
- --------------------------------
Precedent to the effectiveness of this Agreement, the establishment of the
Revolving Credit, and the making of the first loan under the Revolving Credit,
the documents respectively described in Sections 4-1 through and including 4-5,
each in form and substance satisfactory to the Lender shall have been delivered
to the Lender, and the conditions respectively described in Sections 4-6 through
and including 4-9, shall have been satisfied:
4-1. Corporate Due Diligence.
-----------------------
(a) A Certificate of corporate good standing issued by the Secretary
of State of Incorporation of the Borrower.
(b) Certificates of due qualification, in good standing, issued by
the Secretary(ies) of State of each State in which the nature of the Borrower's
business conducted or assets owned could require such qualification.
(c) A Certificate of the Borrower's secretary or clerk attesting to
the due adoption, continued effectiveness, and setting forth the texts of, each
corporate resolution adopted in connection with the establishment of the loan
arrangement contemplated by the Loan Documents and attesting to the true
signatures of each Person authorized as a signatory to any of the Loan
Documents.
4-2. Opinion An opinion of counsel to the Borrower in form and substance
-------
satisfactory to the Lender.
4-3. Additional Documents. Such additional instruments and documents as
--------------------
the Lender or its counsel reasonably may require or request.
4-4. Key Life Policies. The Collateral Assignment to the Lender of
-----------------
policies on the lives of the following persons for the amounts stated:
Timothy Duoos: $1,000,000.00
4-5. Officers' Certificates. Certificates executed by the President and
----------------------
the Chief Financial Officer of the Borrower and stating that the representations
and warranties made by the Borrower to the Lender in the Loan Documents are true
and complete as of the date of such Certificate, and that no event has occurred
which is or which, solely with the giving of notice or passage of time (or both)
would be an Event of Default.
-13-
<PAGE>
4-6. Representations and Warranties. Each of the representations made by
------------------------------
or on behalf of the Borrower in this Agreement or in any of the other Loan
Documents or in any other report, statement, document. or paper provided by and
or on behalf of the Borrower shall be true and complete as of the date as of
which such representation or warranty was made.
4-7. Minimum Excess Availability. Availability, after giving effect to the
---------------------------
first loans and advances to be made under the Revolving Credit; any charges to
the Loan Account made in connection with the establishment of the credit
facility contemplated hereby; and L/C's to be issued at, or immediately
subsequent to, the establishment of such establishment, is not less than Five
Hundred Fifty Thousand and 00/100 ($550.000.00) Dollars.
4-8. No Event of Default. No event shall have occurred, or failed to
-------------------
occur, which occurrence or which failure constitutes, or which, solely with the
passage of time or the giving of notice (or both) would constitute, an Event of
Default.
4-9. No Adverse Change. No event shall have occurred or failed to occur,
-----------------
which occurrence or failure is or could have a materially adverse effect upon
the Borrower's financial condition, operating results, or cash flows from the
Borrower's financial condition at September 30, 1997.
No document shall be deemed delivered to the Lender until received and accepted
by the Lender at its head offices in Newton, Massachusetts. Under no
circumstances will the within Agreement take effect until executed and accepted
by the Lender at said head office.
ARTICLE 5 - GENERAL REPRESENTATIONS, WARRANTIES AND COVENANTS
- -------------------------------------------------------------
To induce the Lender to establish the loan arrangement contemplated herein
and to make loans and advances and to provide financial accommodations under the
Revolving Credit (each of which loans shall be deemed to have been made in
reliance thereupon) the Borrower, in addition to all other representations.
warranties, and covenants made by the Borrower in any other Loan Document, makes
those representations, warranties, and covenants included in the within
Agreement.
5-1. Payment and Performance of Liabilities. The Borrower shall pay each
--------------------------------------
Liability due Lender when due (or when demanded if payable on demand) and shall
promptly, punctually, and faithfully perform each other Liability due Lender and
pay each Liability due others in accordance with its current custom and
practice. If Borrower has any dispute with any Person with respect to any
Liability, Borrower shall give Paragon notice of said dispute.
5-2. Due Organization - Corporate Authorization - No Conflicts.
---------------------------------------------------------
(a) The Borrower presently is and shall hereafter remain in good
standing as a corporation and is and shall hereafter remain duly qualified and
in good standing in every other State
-14-
<PAGE>
in which, by reason of the nature or location of the Borrower's assets or
operation of the Borrower's business, such qualification may be necessary.
(b) Each Related Entity is listed on EXHIBIT 5-2, annexed hereto.
Each Related Entity is and shall hereafter remain in good standing in the State
in which incorporated and is and shall hereafter remain duly qualified in which
other State in which, by reason of that entity's assets or the operation of
such entity's business. such qualification may be necessary. The Borrower shall
provide the Lender with prior written notice of any entity's becoming or ceasing
to be a Related Entity.
(c) The Borrower has all requisite corporate power and authority to
execute and deliver all and singular the Loan Documents to which the Borrower is
a party and has and will hereafter retain all requisite corporate power to
perform all and singular the Liabilities.
(d) The execution and delivery by the Borrower of each Loan Document
to which it is a party; the Borrower's consummation of the transactions
contemplated by such Loan Documents (including, without limitation, the creation
of security interests by the Borrower as contemplated hereby); the Borrower's
performance under those of the Loan Documents to which it is a party; the
borrowings hereunder; and the use of the proceeds thereof:
(i) Have been duly authorized by all necessary corporate
action.
(ii) Do not, and will not, contravene in any material respect
any provision of any Requirement of Law or obligation of the Borrower.
(iii) Will not result in the creation or imposition of; or the
obligation to create or impose, any Encumbrance upon any assets of the Borrower
pursuant to any Requirement of Law or obligation, except pursuant to the Loan
Documents.
(e) The Loan Documents have been duly executed and delivered by
Borrower and are the legal, valid and binding obligations of the Borrower,
enforceable against the Borrower in accordance with their respective terms.
5-3. Trade Names.
-----------
(a) EXHIBIT 5-3, annexed hereto, is a listing of:
(i) All names under which the Borrower ever conducted its
business.
(ii) All entities and/or persons with whom the Borrower ever
consolidated or merged, or from whom the Borrower ever acquired in a single
transaction or in a series of related transactions substantially all of such
entity's or person's assets.
-15-
<PAGE>
(b) Except (i) upon not less than twenty-one (21) days prior written
notice given the Lender, and (ii) in compliance with all other provisions of the
within Agreement, the Borrower will not undertake or commit to undertake any
action such that the results of that action, if undertaken prior to the date of
this Agreement, would have been reflected on EXHIBIT 5-3.
(c) The Borrower owns and possesses, or has the right to use all
patents, industrial designs, trademarks, trade names, trade styles, brand names,
service marks, logos, copyrights, trade secrets, know-how, confidential
information, and other intellectual or proprietary property of any third Person
necessary for the Borrower's conduct of the Borrower's business.
(d) The conduct by the Borrower of the Borrower's business does not
infringe on the patents, industrial designs, trademarks, trade names, trade
styles, brand names, service marks, logos, copyrights, trade secrets, know-how,
confidential information, or other intellectual or proprietary property of any
third Person.
5-4. Locations, Landlord's Waivers.
-----------------------------
(a) The Collateral, and the books, records, and papers of Borrower
pertaining thereto, are kept and maintained solely at the Borrower's chief
executive offices as set forth in the beginning of this Agreement and at those
locations which are listed on EXHIBIT 5-4, annexed hereto, which EXHIBIT
includes all service bureaus with which any such records are maintained and the
names and addresses of each of the Borrower's landlords. Except (i) to
accomplish sales of Inventory in the ordinary course of business or (ii) to
utilize such of the Collateral as is removed from such locations in the ordinary
course of business (such as motor vehicles), the Borrower shall not remove any
Collateral from said chief executive offices or those locations listed on EXHBIT
5-4.
(b) The Borrower shall use its best efforts to obtain and deliver to
the Lender a waiver or subordination (reasonably satisfactory to the Lender) by
the landlord for each store location within sixty (60) days of the date of
execution hereof.
(c) If the Borrower fails to obtain a waiver or subordination for
each store location within said sixty (60) day period, the Lender may establish
an Availability Reserve for up to ninety (90) days rent for each of the
Borrower's locations in a Landlord Lien State or in a One Turn State.
Such Availability Reserve shall be reduced or eliminated as follows
(but only if no Suspension Event is then in existence or has theretofore
occurred):
(i) With respect to locations in One Turn States: one hundred twenty
(120) days after the execution of the within Agreement.
-16-
<PAGE>
(ii) With respect to locations in Landlord Lien States; Upon the
furnishing to the Lender of a waiver or subordination (reasonably satisfactory
to the Lender by the landlord for the subject location. Without duplication of
any Availability Reserve described above, the Lender may establish an
Availability Reserve for unpaid rent.
(c) The Borrower will not:
(i) Execute, alter, modify, or amend any Lease.
(ii) Commit to, or open or close any location at which the
Borrower maintains, offers for sales, or stores any of the Collateral.
(d) Except as otherwise disclosed pursuant to. or permitted by, this
Section 5-4, no tangible personal property of the Borrower is in the care or
custody of any third party or stored or entrusted with a bailee or other third
party and none shall hereafter be placed under such care, custody, storage, or
entrustment.
5-5. Title to Assets.
---------------
(a) The Borrower is, and shall hereafter remain, the owner of the
Collateral free and clear of all Encumbrances with the exceptions of the
following:
(i) The security interest created herein.
(ii) Those Encumbrances (if any) listed on EXHIBIT 5-5, annexed
hereto.
(b) The Borrower does not and shall not have possession of any
property on consignment to the Borrower.
5-6. Indebtedness. The Borrower does not and shall not hereafter have any
------------
Indebtedness with the exceptions of:
(a) Any Indebtedness to the Lender.
(b) The Indebtedness (if any) listed on EXHIBIT 5-6, annexed hereto.
5-7. Insurance Policies.
------------------
(a) EXHIBIT 5-7, annexed hereto, is a schedule of all insurance
policies owned by the Borrower or under which the Borrower is the named insured.
Each of such policies is in full force and effect. Neither the issuer of any
such policy nor the Borrower is in default or violation of any such policy.
-17-
<PAGE>
(b) The Borrower shall have and maintain at all times insurance
covering such risks, in such amounts, containing such terms, in such form, for
such periods, and written by such companies as may be satisfactory to the
Lender. The coverage reflected on EXHIBIT 5-7 presently satisfies the foregoing
requirements, it being recognized by the Borrower, however, that such
requirements may change hereafter to reflect changing circumstances. All
insurance carried by the Borrower shall provide for a minimum of twenty (20)
days' written notice of cancellation to the Lender and all such insurance which
covers the Collateral shall include an endorsement in favor of the Lender, which
endorsement shall provide that the insurance, to the extent of the Lender's
interest therein shall not be impaired or invalidated, in whole or in part, by
reason of any act or neglect of the Borrower or by the failure of the Borrower
to comply with any warranty or condition of the policy. In the event of the
failure by the Borrower to maintain insurance as required herein, the Lender, at
its option, may obtain such insurance, provided, however, the Lender's obtaining
of such insurance shall not constitute a cure or waiver of any Event of Default
occasioned by the Borrower's failure to have maintained such insurance. The
Borrower shall furnish to the Lender certificates or other evidence satisfactory
to the Lender regarding compliance by the Borrower with the foregoing insurance
provisions.
(c) The Borrower shall advise the Lender of each claim in excess of
One Hundred Thousand ($100,000.00) Dollars made by the Borrower under any
policy of insurance which covers the Collateral and will permit the Lender, at
the Lender's option in each instance, to the exclusion of the Borrower, to
conduct the adjustment of each such claim (and of all claims following the
occurrence of any Suspension Event). The Borrower hereby appoints the Lender as
the Borrower's attorney in fact to obtain, adjust, settle, and cancel any
insurance described in this section and to endorse in favor of the Lender any
and all drafts and other instruments with respect to such insurance. The within
appointment, being coupled with an interest, is irrevocable until this Agreement
is terminated by a written instrument executed by a duly authorized officer of
the Lender. The Lender shall not be liable on account of any exercise pursuant
to said power except for any exercise in actual willful misconduct and bad
faith. The Lender may apply any proceeds of such insurance against the
Liabilities, whether or not such have matured, in such order of application as
the Lender may determine.
(d) The Borrower shall maintain at all times those policies of
insurance obtained by the Borrower and assigned to the Lender as required by
Section 4-4, above.
5-8. Licenses. Each license, distributorship, franchise, and similar
--------
agreement issued to, or to which the Borrower is a party is in full force and
effect. No party to any such license or agreement is in default or violation
thereof. The Borrower has not received any notice or threat of cancellation of
any such license or agreement.
5-9. Leases. EXHIBIT 5-9, annexed hereto, is a schedule of all presently
------
effective Leases and Capital Leases. Each of such Leases and Capital Leases is
in full force and effect. No party to any such Lease or Capital Lease is in
default or violation of any such Lease (except as disclosed on Exhibit 5-9) or
Capital Lease and the Borrower has not received any notice or threat of
cancellation
-18-
<PAGE>
of any such Lease or Capital Lease. The Borrower hereby authorizes the Lender at
any time and from time to time to contact any of the Borrower's landlords in
order to confirm the Borrower's continued compliance with the terms and
conditions of the Lease(s) between the Borrower and that landlord and to discuss
such issues concerning the Borrower's occupancy under such Lease(s), as the
Lender may determine.
5-10. Requirements of Law. The Borrower is in compliance with, and shall
-------------------
hereafter comply with and use its assets in compliance with, all Requirements of
Law. The Borrower has not received any notice of any violation of any
Requirement of Law (whether or not such violation is material), which violation
has not been cured or otherwise remedied.
5-11. Maintain Properties. The Borrower shall:
-------------------
(a) Keep the Collateral in good order and repair (ordinary reasonable
wear and tear and insured casualty excepted).
(b) Not suffer or cause the waste or destruction of any material part
of the Collateral.
(c) Not use any of the Collateral in violation of any policy of
insurance thereon.
(d) Not sell, lease, or otherwise dispose of any of the Collateral,
other than the following:
(i) The sale of Inventory in compliance with the within
Agreement.
(ii) The disposal of Equipment which is obsolete, worn out, or
damaged beyond repair, which Equipment is replaced to the extent necessary to
preserve or improve the operating efficiency of the Borrower.
(iii) The turning over to the Lender of all Receipts as provided
herein.
5-12. Pay Taxes.
---------
(a) The federal income tax returns of the Borrower have been audited
by the Internal Revenue Service (or closed by applicable statutes) for all
fiscal years through and including the Borrower's taxable year referenced on
EXHIBIT 5-12, annexed hereto, and all deficiencies, assessments, and other
amounts asserted as a result of such examinations have been fully paid or
settled. No agreement is extant which waives or extends any statute of
limitations applicable to the right of the Internal Revenue Service to assert a
deficiency or make any other claim for or in respect to federal income taxes. No
issue has been raised in any such examination which, by application of similar
principles, reasonably could be expected to result in the assertion of a
deficiency for any fiscal year open for examination, assessment, or claim by the
Internal Revenue Service.
-19-
<PAGE>
(b) All returns of the Borrower for state and local income, excise,
sales, and other taxes have been audited (or closed by applicable statutes) for
all fiscal years through and including the Borrower's taxable year referenced on
EXHIBIT 5-12, annexed hereto and all deficiencies, assessments, and other
amounts asserted as a result of such examinations have been fully paid or
settled. No agreement is in existence which waives or extends any statute of
limitations applicable to the right of any state taxing authority to assert a
deficiency or make any other claim for or in respect to any such state taxes. No
issue has been raised in any such examination which, by application of similar
principles reasonably could be expected to result in the assertion of a
deficiency for any fiscal year open for examination, assessment, or claim by any
state or local taxing authority.
(c) Except as disclosed on said EXHIBIT 5-12, there are no
examinations of or with respect to the Borrower presently being conducted by the
Internal Revenue Service or any state taxing authority.
(d) The Borrower has, and hereafter shall: pay, as they become due
and payable, all taxes and unemployment contributions and other charges of any
kind or nature levied, assessed or claimed against the Borrower or the
Collateral by any person or entity whose claim could result in an Encumbrance
upon any asset of the Borrower or by any governmental authority; properly
exercise any trust responsibilities imposed upon the Borrower by reason of
withholding from employees' pay; timely make all contributions and other
payments as may be required pursuant to any Employee Benefit Plan now or
hereafter established by the Borrower; and timely file all tax and other returns
and other reports with each governmental authority to whom the Borrower is
obligated to so file.
(e) At its option, the Lender may, but shall not be obligated to, pay
any taxes, unemployment contributions, and any and all other charges levied or
assessed upon the Borrower or the Collateral by any person or entity or
governmental authority, and make any contributions or other payments on account
of the Borrower's Employee Benefit Plan as the Lender, in the Lender's
discretion, may deem necessary or desirable, to protect, maintain preserve
collect, or realize upon any or all of the Collateral or the value thereof or
any right or remedy pertaining thereto, provided, however, the Lender's making
of any such payment shall not constitute a cure or waiver of any Event of
Default occasioned by the Borrower's failure to have made such payment.
5-13. No Margin Stock. The Borrower is not engaged in the business of
---------------
extending credit for the purpose of purchasing or carrying any margin stock
(within the meaning of Regulations G.U.T. and X. of the Board of Governors of
the Federal Reserve System of the United States). No part of the proceeds of any
borrowing hereunder will be used at any time to purchase or carry any such
margin stock or to extend credit to others for the purpose of purchasing or
carrying any such margin stock.
-20-
<PAGE>
5-14. ERISA Neither the Borrower nor any ERISA Affiliate ever has or
-----
hereafter shall:
(a) Violate or fail to be in full compliance with the Borrower's
Employee Benefit Plan.
(b) Fail timely to file all reports and filings required by ERISA to
be filed by the Borrower.
(c) Engage in any "prohibited transactions" or "reportable events"
(respectively as described in ERISA).
(d) Engage in, or commit, any act such that a tax or penalty could be
imposed on account thereof pursuant to ERISA.
(e) Accumulate any material funding deficiency within the meaning of
ERISA.
(f) Terminate any Employee Benefit Plan such that a lien could be
asserted of the Borrower on account thereof pursuant to ERISA
(g) Be a member of; contribute to, or have any obligation under any
Employee is a multiemployer plan within the meaning of Section 4001(a) of ERISA.
5-15. Hazardous Materials.
-------------------
(a) The Borrower has never:
(i) Been legally responsible for any release or threat of
release of any Hazardous Material.
(ii) Received notification of any release or threat of release
of any Hazardous Material from any site or vessel occupied or operated by the
Borrower and/or of the incurrence of any expense or loss in connection with the
assessment, containment, or removal of any release or threat of release of any
Hazardous Material from any such site or vessel.
(b) The Borrower shall:
(i) Dispose of any Hazardous Material only in compliance with
all Environmental Laws.
(ii) Not store on any site or vessel occupied or operated by the
Borrower and not transport or arrange for the transport of any Hazardous
Material, except if such storage or transport is in the ordinary course of the
Borrower's business and is in compliance with all Environmental Laws.
-21-
<PAGE>
(c) The Borrower shall provide the Lender with written notice upon
the Borrower's obtaining knowledge of any incurrence of any expense or loss by
any governmental authority or other Person in connection with the assessment,
containment or removal of any Hazardous Material, for which expense or loss the
Borrower may be liable.
5-16. Litigation. Except as disclosed on Exhibit 5-16, there is not
----------
presently pending or threatened by or against the Borrower any suit, action,
proceeding, or investigation which, if determined adversely to the Borrower,
would have a material adverse effect upon the Borrower's financial condition or
ability to conduct its business as such business is presently conducted or is
contemplated to be conducted in the foreseeable future.
5-17. Dividends or Investments. The Borrower shall not:
------------------------
(a) Pay any cash dividend or make any other distribution in respect
of any class of the Borrower's capital stock.
(b) Own, redeem, retire, purchase or acquire any of the Borrower's
capital stock.
(c) Invest in or purchase any stock or securities or rights to
purchase any such stock or securities, of any corporation or other entity.
(d) Merge or consolidate or be merged or consolidated with or into
any other corporation or other entity.
(e) Consolidate any of the Borrower's operations with those of any
other corporation or other entity.
(f) Organize or create any Related Entity.
(g) Subordinate any debts or obligations owed to the Borrower by any
third party to any other debts owed by such third party to any other Person.
5-18. Loans. The Borrower shall not make any loans or advances to, nor
-----
acquire the Indebtedness of; any Person, provided, however, the foregoing does
not prohibit any of the following:
(a) Advance payments made to the Borrower's suppliers in the ordinary
course.
(b) Advances to the Borrower's officers, employees, and salespersons
with respect to reasonable expenses to be incurred by such officers, employees,
and salespersons for the benefit of the Borrower, which expenses are properly
substantiated by the person seeking such advance and properly reimbursable by
the Borrower.
-22-
<PAGE>
5-19. Protection of Assets. The Lender, in the Lender's discretion, and
--------------------
from time to time, may discharge any tax or Encumbrance on any of the
Collateral, or take any other action that the Lender may deem necessary or
desirable to repair, insure, maintain, preserve, collect, or realize upon any of
the Collateral. The Lender shall not have any obligation to undertake any of the
foregoing and shall have no liability on account of any action so undertaken
except where there is a specific finding in a judicial proceeding (in which the
Lender has had an opportunity to be heard), from which finding no further appeal
is available, that the Lender had acted in actual bad faith or in a grossly
negligent manner. The Borrower shall pay to the Lender, on demand, or the
Lender, in its discretion, may add to the Loan Account, all amounts paid or
incurred by the Lender pursuant to this section. The obligation of the Borrower
to pay such amounts is a Liability.
5-20. Line of Business. The Borrower shall not engage in any business other
----------------
than the business in which it is currently engaged or a business reasonably
related thereto.
5-21. Affiliate Transactions. The Borrower shall not make any payment, nor
----------------------
give any value to any Related Entity except for goods and services actually
purchased by the Borrower from, or sold by the Borrower to, such Related Entity
for a price which shall:
(a) Be competitive and fully deductible as an "ordinary and necessary
business expense" and/or fully depreciable under the Internal Revenue Code of
1986 and the Treasury Regulations, each as amended.
(b) Not differ from that which would have been charged in an arms
length transaction.
5-22. Executive Pay.
-------------
(a) The only Executive Officers of the Borrower, at the execution of
the within Agreement, are those individuals referenced in the definition of
"Executive Officers".
(b) Prior to the execution of the within Agreement, the Borrower
furnished the Lender with copies of all written Executive Agreements and
outlines of the salient features of all unwritten Executive Agreements (as
amended to date) then extant. There are no unwritten agreements or
understandings between the Borrower and any Executive Officer which relate to
Executive Pay, written disclosure of which has not been made to the Lender.
(c) The Borrower will not:
(i) Enter into any Executive Agreement not existing at the
execution of the within Agreement.
(ii) Alter, amend, supplement, or otherwise change any Executive
Agreement.
-23-
<PAGE>
(iii) Pay, provide, or facilitate any Executive Pay other than as
provided in an Executive Agreement or, if not covered by an Executive Agreement,
as permitted pursuant to Section 5-21, above.
5-23. Additional Assurances.
---------------------
(a) The Borrower is not the owner of, nor has it any interest in, any
property or asset which, immediately upon the satisfaction of the conditions
precedent to the effectiveness of the credit facility contemplated hereby
(Article 4) will be not be subject to a perfected security interest in favor of
the Lender (subject only to those Encumbrances (if any) described on EXHIBIT 5-
5, annexed hereto) to secure the Liabilities.
(b) The Borrower will not hereafter acquire any asset or any interest
in property which is not, immediately upon such acquisition, subject to such a
perfected security interest in favor of the Lender to secure the Liabilities
(subject only to Encumbrances (if any) permitted pursuant to Section 5-5,
above).
(c) The Borrower shall execute and deliver to the Lender such
instruments, documents, and papers, and shall do all such things from time to
time hereafter as the Lender may request to carry into effect the provisions and
intent of this Agreement; to protect and perfect the Lender's security interests
in the Collateral; and to comply with all applicable statutes and laws, and
facilitate the collection of the Receivables Collateral. The Borrower shall
execute all such instruments as may be required by the Lender with respect to
the recordation and/or perfection of the security interests created herein.
(d) A carbon, photographic, or other reproduction of this Agreement
or of any financing statement or other instrument executed pursuant to this
Section 5-23 shall be sufficient for filing to perfect the security interests
granted herein.
5-24. Adequacy of Disclosure.
----------------------
(a) All financial statements furnished to the Lender by the Borrower
have been prepared in accordance with GAAP consistently applied and present
fairly the condition of the Borrower at the date(s) thereof and the results of
operations and cash flows for the period(s) covered. There has been no change in
the financial condition, results of operations, or cash flows of the Borrower
since the date(s) of such financial statements, other than changes in the
ordinary course of business, which changes have not been materially adverse,
either singularly or in the aggregate.
(b) The Borrower does not have any contingent obligations or
obligation under any Lease or capital lease which is not noted in the Borrower's
financial statements furnished to the Lender prior to the execution of the
within Agreement.
-24-
<PAGE>
(c) No document, instrument, agreement, or paper now or hereafter
given the Lender by or on behalf of the Borrower or any guarantor of the
Liabilities in connection with the execution of the within Agreement by the
Lender contains or will contain any untrue statement of a material fact or omits
or will omit to state a material fact necessary in order to make the statements
therein not misleading. There is no fact known to the Borrower which has, or
which, in the foreseeable future could have, a material adverse effect on the
financial condition of the Borrower or any such guarantor which has not been
disclosed in writing to the Lender.
5-25. Other Covenants. The Borrower shall not indirectly do or cause to be
---------------
done any act which, if done directly by the Borrower, would breach any covenant
contained in this Agreement.
ARTICLE 6 - USE AND COLLECTION OF COLLATERAL.
- -------------------------------------------
6-1. Use of Inventory Collateral.
---------------------------
(a) The Borrower shall not engage in any sale of the Inventory other
than for fair consideration in the conduct of the Borrower's business in the
ordinary course and shall not engage in sales or other dispositions to
creditors: sales or other dispositions in bulk; and any use of any of the
Inventory in breach of any provision of this Agreement.
(b) No sale of Inventory shall be on consignment, approval, or under
any other circumstances such that, with the exception of the Borrower's
customary return policy applicable to the return of inventory purchased by the
Borrower's retail customers in the ordinary course, such Inventory may be
returned to the Borrower without the consent of the Lender.
6-2. Inventory Quality. All Inventory now owned or hereafter acquired by
-----------------
the Borrower is and will be of good and merchantable quality and free from
defects (other than defects within customary trade tolerances).
6-3. Adjustments and Allowances. The Borrower may grant such allowances or
--------------------------
other adjustments to the Borrower's Account Debtors (exclusive of extending the
time for payment of any Account or Account Receivable, which shall not be done
without first obtaining the Lender's prior written consent in each instance) as
the Borrower may reasonably deem to accord with sound business practice,
provided, however, the authority granted the Borrower pursuant to this Section
6-3 may be limited or terminated by the Lender at any time in the Lender's
discretion.
6-4. Validity of Accounts.
--------------------
(a) The amount of each Account shown on the books, records, and
invoices of the Borrower represented as owing by each Account Debtor is and will
be the correct amount actually owing by such Account Debtor and shall have been
fully earned by performance by the Borrower.
-25-
<PAGE>
(b) The Borrower has no knowledge of any impairment of the validity
or collectibility of any of the Accounts and shall notify the Lender of any such
fact immediately after Borrower becomes aware of any such impairment.
(c) The Borrower shall not post any bond to secure the Borrower's
performance under any agreement to which the Borrower is a party nor cause any
surety, guarantor, or other third party obligee to become liable to perform any
obligation of the Borrower (other than to the Lender) in the event of the
Borrower's failure so to perform.
6-5. Notification to Account Debtors. The Lender shall have the right at
-------------------------------
any time (whether or not an Event of Default has occurred) to notify any of the
Borrower's Account Debtors to make payment directly to the Lender and to collect
all amounts due on account of the Collateral.
ARTICLE 7 - CASH MANAGEMENT
- ---------------------------
7-1. Depository Accounts.
-------------------
(a) Annexed hereto as EXHIBIT 7-1 is a Schedule of all present DDA's,
which Schedule includes, with respect to each depository (i) the name and
address of that depository; (ii) the account number(s) of the account(s)
maintained with such depository; (iii) a contact person at such depository; and
(iv) the telephone number of the contact person.
(b) The Borrower shall deliver to the Lender. as a condition to the
effectiveness of the within Agreement:
(i) Proof of the mailing, to each depository institution with
which any DDA is maintained (other than the Funding Account or any Local DDA) of
notification (in form satisfactory to the Lender) of the Lender's interest in
such DDA.
(ii) An agreement (in form satisfactory to the Lender) with any
depository institution at which a Central Account is maintained.
(c) The Borrower will not establish any DDA hereafter (other than a
Local DDA) unless the Borrower, contemporaneous with such establishment, the
Borrower delivers to the Lender an agreement (in form satisfactory to the
Lender) executed on behalf of the depository with which such DDA is being
established.
7-2. Credit Card Receipts.
--------------------
(a) Annexed hereto as EXHIBIT 7-2, is a Schedule which describes all
arrangements to which the Borrower is a party with respect to the payment to the
Borrower of the proceeds of all credit card charges for sales by the Borrower.
-26-
<PAGE>
(b) The Borrower shall deliver to the Lender, as a condition to the
effectiveness of the within Agreement, proof of the mailing to each of the
Borrower's credit card clearinghouses and processors of notice (in form
satisfactory to the Lender), which notice provides that payment of all credit
card charges submitted by the Borrower to that clearinghouse or other processor
and any other amount payable to the Borrower by such clearinghouse or other
processor shall be directed to the Central Account. The Borrower shall not
change such direction or designation except upon and with the prior written
consent of the Lender.
7-3. The Concentration and the Funding Accounts.
------------------------------------------
(a) The following checking accounts have been or will be established
(and are so referred to herein):
(i) The Concentration Account: Established by the Lender with
The Chase Manhattan Bank, N.A.
(ii) The Funding Account: Established by the Borrower with
American National Bank and Trust Company of Chicago.
(iii) The Central Account: Established by the Borrower with
American National Bank and Trust Company of Chicago.
(b) The contents of the Central Account constitutes Collateral and
Proceeds of Collateral.
(c) The Borrower:
(i) Contemporaneous with the execution of the within Agreement,
shall provide the Lender with such agreement of the depository with which the
Central Account is maintained as may be satisfactory to the Lender.
(ii) Shall not establish any Central Account hereafter except
upon not less than thirty (30) days prior written notice to the Lender and the
delivery to the Lender of a similar such agreement.
(d) The Borrower shall pay all fees and charges of, and maintain such
impressed balances as may be required by the Lender or by any bank in which any
account is opened as required hereby (even if such account is opened by the
Lender).
-27-
<PAGE>
7-4. Proceeds and Collection of Accounts.
-----------------------------------
(a) All Receipts constitute Collateral and proceeds of Collateral and
shall be held in trust by the Borrower for the Lender; shall not be commingled
with any of the Borrower's other funds; and shall be deposited and/or
transferred only to the Central Account.
(b) The Borrower shall cause the ACH or wire transfer to the Central
Account, no less frequently than daily (and whether or not there is then an
outstanding balance in the Loan Account) of:
(i) The then contents of each DDA (other than (A) any Local DDA
and (B) the Funding Account) each such transfer to be net of any minimum
balance, not to exceed Seven Hundred Fifty ($750.00) Dollars, as may be required
to be maintained in the subject DDA by the bank at which such DDA is
maintained).
(ii) The proceeds of all credit card charges not otherwise
provided for pursuant hereto.
Telephone advice (confirmed by written notice) shall be provided to the Lender
on each Banking Day on which any such transfer is made.
(c) Whether or not any Liabilities are then outstanding, the Borrower
shall cause the ACH or wire transfer to the Concentration Account, no less
frequently that daily, of then entire collected balance of the Central Account.
(d) In the event that, notwithstanding the provisions of this Section
7-4, the Borrower receives or otherwise has dominion and control of any
Receipts, or any proceeds or collections of any Collateral, such Receipts,
proceeds, and collections shall be held in trust by the Borrower for the Lender
and shall not be commingled with any of the Borrower's other funds or deposited
in any account of the Borrower other than as instructed by the Lender.
7-5. Payment of Liabilities.
----------------------
(a) On each Banking Day, the Lender shall apply, towards the
Liabilities, the then collected balance of the Concentration Account (net of
fees charged, and of such impressed balances as may be required by the bank at
which the Concentration Account is maintained), provided, however, for purposes
of the calculation of interest on the unpaid principal balance of the Loan
Account, such payment shall be deemed to have been made one (1) Banking Day
after such transfer.
(b) The Lender shall transfer to the Funding Account any surplus in
the Concentration Account remaining after the application towards the
Liabilities referred to in Section 7-5(a), above (less those amount which are to
be netted out, as provided therein) provided, however, in the event that both
(i) a Suspension Event has occurred and (ii) one or more L/C's are then
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outstanding, the Lender may establish a funded reserve of up to one hundred ten
(110%) percent of the aggregate Stated Amounts of such L/C's.
7-6. The Funding Account. Except as otherwise specifically provided in, or
-------------------
permitted by, the within Agreement all checks shall be drawn by the Borrower
upon, and other disbursements made by the Borrower solely from, the Funding
Account.
ARTICLE 8 - LENDER AS BORROWER'S ATTORNEY-IN-FACT
- ------------------------------------------------
8-1. Appointment as Attorney-n-Fact. Upon the occurrence of a Suspension
------------------------------
Event or an Event of Default the Borrower hereby irrevocably constitutes and
appoints the Lender as the Borrower's true and lawful attorney, with full power
of substitution, to convert the Collateral into cash at the sole risk, cost, and
expense of the Borrower, but for the sole benefit of the Lender. The rights and
powers granted the Lender by the within appointment include but are not limited
to the right and power to:
(a) Prosecute defend, compromise, or release any action relating to
the Collateral.
(b) Sign change of address forms to change the address to which the
Borrower's mail is to be sent to such address as the Lender shall designate;
receive and open the Borrower's mail; remove any Receivables Collateral and
Proceeds of Collateral therefrom and turn over the balance of such mail either
to the Borrower or to any trustee in bankruptcy, receiver, assignee for the
benefit of creditors of the Borrower or other legal representative of the
Borrower whom the Lender determines to be the appropriate person to whom to so
turn over such mail.
(c) Endorse the name of the Borrower in favor of the Lender upon any
and all checks, drafts, notes, acceptances, or other items or instruments; sign
and endorse the name of the Borrower on, and receive as secured party, any of
the Collateral, any invoices, schedules of Collateral, freight or express
receipts, or bills of lading, storage receipts, warehouse receipts, or other
documents of title respectively relating to the Collateral.
(d) Sign the name of the Borrower on any notice to the Borrower's
Account Debtors or verification of the Receivables Collateral; sign the
Borrower's name on any Proof of Claim in Bankruptcy against Account Debtors, and
on notices of lien, claims of mechanic's liens, or assignments or releases of
mechanic's liens securing the Accounts.
(e) Take all such action as may be necessary to obtain the payment of
any letter of credit and/or banker's acceptance of which the Borrower is a
beneficiary.
(f) Repair, manufacture, assemble, complete, package, deliver, alter
or supply goods, if any, necessary to fulfill in whole or in part the purchase
order of any customer of the Borrower.
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<PAGE>
(g) Use, license or transfer any or all General Intangibles of the
Borrower.
(h) Sign and file or record any financing or other statements in
order to perfect or protect the Lender's security interest in the Collateral.
8-2. No Obligation to Act. The Lender shall not be obligated to do any of
--------------------
the acts or to exercise any of the powers authorized by Section 8-1 herein, but
if the Lender elects to do any such act or to exercise any of such powers, it
shall not be accountable for more than it actually receives as a result of such
exercise of power, and shall not be responsible to the Borrower for any act or
omission to act except for any act or omission to act as to which there is a
final determination made in a judicial proceeding (in which proceeding the
Lender has had an opportunity to be heard) which determination includes a
specific finding that the subject act or omission to act had been grossly
negligent or in actual bad faith.
ARTICLE 9 - FINANCIAL AND OTHER REPORTING REQUIREMENTS/FINANCIAL COVENANTS
- --------------------------------------------------------------------------
9-1. Maintain Records. The Borrower shall:
----------------
(a) At all times, keep proper books of account, in which full, true,
and accurate entries shall be made of all of the Borrower's transactions, all in
accordance with GAAP applied consistently with prior periods to fairly reflect
the financial condition of the Borrower at the close of; and its results of
operations for, the periods in question.
(b) Timely provide the Lender with those financial reports,
statements, and schedules required by this Article 9 or otherwise, each of which
reports, statements and schedules shall be prepared, to the extent applicable,
in accordance with GAAP applied consistently with prior periods to fairly
reflect the financial condition of the Borrower at the close of, and its results
of operations for, the period(s) covered therein.
(c) At all times, keep accurate current records of the Collateral
including, without limitation, accurate current stock, cost, and sales records
of its Inventory, accurately and sufficiently itemizing and describing the
kinds, types, and quantities of Inventory and the cost and selling prices
thereof.
(d) At all times, retain independent certified public accountants who
are reasonably satisfactory to the Lender and instruct such accountants to fully
cooperate with, and be available to, the Lender to discuss the Borrower's
financial performance, financial condition, operating results, controls, and
such other matters, within the scope of the retention of such accountants, as
may be raised by the Lender.
(e) Not change the Borrower's fiscal year.
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(f) Not change the Borrower's taxpayer identification number.
9-2. Access to Records.
-----------------
(a) The Borrower shall accord the Lender and the Lender's
representatives with access from time to time as the Lender and such
representatives may require to all properties owned by or over which the
Borrower has control. The Lender and the Lender's representatives shall have the
right, and the Borrower will permit the Lender and such representatives from
time to time as the Lender and such representatives may request, to examine,
inspect, copy, and make extracts from any and all of the Borrower's books,
records, electronically stored data, papers, and files. The Borrower shall make
all of the Borrower's copying facilities available to the Lender.
(b) The Borrower hereby authorizes the Lender and the Lender's
representatives to:
(i) Inspect copy, duplicate, review, cause to be reduced to
hard copy, run off, draw off, and otherwise use any and all computer or
electronically stored information or data which relates to the Borrower, or any
service bureau, contractor, accountant, or other person, and directs any such
service bureau, contractor, accountant, or other person fully to cooperate with
the Lender and the Lender's representatives with respect thereto.
(ii) Verify at any time the Collateral or any portion thereof;
including verification with Account Debtors, and/or with the Borrower's computer
billing companies, collection agencies, and accountants and to sign the name of
the Borrower on any notice to the Borrower's Account Debtors or verification of
the Collateral.
9-3. Immediate Notice to Lender.
--------------------------
(a) The Borrower shall provide the Lender with written notice
immediately upon the occurrence of any of the following events, which written
notice shall be with reasonable particularity as to the facts and circumstances
in respect of which such notice is being given:
(i) Any change in the Borrower's Executive Officers, officers,
directors, controllers or key employees.
(ii) The completion of any physical count of the Borrower's
Inventory (together with a copy of the certified results thereof).
(iii) Any ceasing of the Borrower's making of payment, in the
ordinary course, to any of its creditors (including the ceasing of the making of
such payments on account of a dispute with the subject creditor).
-31-
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(iv) Any failure by the Borrower to pay rent at any of the
Borrower's locations, which failure continues for more than three (3) days
following the day on which such rent first came due. If Borrower has any dispute
with any Landlord with respect to rent payable or other matters, Borrower shall
give Paragon written notice of said dispute.
(v) Any material change in the business, operations, or
financial affairs of the Borrower.
(vi) The occurrence of any Suspension Event.
(vii) Any intention on the part of the Borrower to discharge the
Borrower's present independent accountants or any withdrawal or resignation by
such independent accountants from their acting in such capacity (as to which,
see Subsection 9-1(d)).
(viii) Any litigation which, if determined adversely to the
Borrower, might have a material adverse effect on the financial condition of the
Borrower.
(b) The Borrower shall:
(i) Provide the Lender, when so distributed, with copies of
any materials distributed to the shareholders of the Borrower (qua such
shareholders).
(ii) Add the Lender as an addressee on all mailing lists
maintained by or for the Borrower.
(iii) At the request of the Lender, from time to time, provide
the Lender with copies of all advertising (including copies of all print
advertising and duplicate tapes of all video and radio such advertising).
(iv) Provide the Lender, when received by the Borrower, with a
copy of any management letter or similar communications from any accountant of
the Borrower.
9-4. Borrowing Base Certificate. The Borrower shall provide the Lender,
--------------------------
daily, with a Borrowing Base Certificate (in the form of EXHIBIT 9.4 annexed
hereto, as such form may be revised from time to time by the Lender). Such
Certificate may be sent to the Lender by facsimile transmission, provided that
the original thereof is forwarded to the Lender on the date of such
transmission. Such Certificate must include back up support of inventory.
9-5. Weekly Reports. Weekly, on Friday of each week (as of the then
--------------
immediately preceding fiscal week) the Borrower shall provide the Lender with a
Sales Audit Report and Cash Reconciliation (Borrower format acceptable), a Flash
Sales Report by Department (Borrower format acceptable), and a Collateral
Activity Summary (including a "roll forward" of Inventory). Such
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report may be sent to the Lender by facsimile transmission, provided that the
original thereof is forwarded to the Lender on the date of such transmission.
9-6. Monthly Reports.
---------------
(a) Monthly, the Borrower shall provide the Lender with original
counterparts of (each in such form as the Lender from time to time may specify):
(i) Within Fifteen (15) days of the end of the previous month:
(A) Consigned Inventory Report by Vendor.
(B) Retail Inventory Report by entity, by department
(Green, Seasonal and Dry)
(C) Rent, Tax, and Insurance Compliance Form
(D) Inventory Certificate (Paragon Format)
(ii) Within Thirty (30) days of the end of the previous month:
(A) A Statement of Gross Margin (Paragon Format).
(B) Reconciliation of Inventory to the general ledger as of
the end of the subject month (Paragon Format).
(C) An aging of the Borrower's accounts payable.
(D) An internally prepared financial statement of the
Borrower's financial condition at, and the results of its
operations for, the period ending with the end of the subject
month, which financial statement shall include, at a minimum, a
balance sheet, income statement (on a store specific and on a
"consolidated" basis), cash flow and comparison of same store
sales for the corresponding month of the then immediately
previous year, as well as to the Business Plan.
(E) A statement of Store Activity (Paragon format).
(b) For purposes of Section 9-6(a)(i), above, the first "previous
month" in respect of which the items required by that Section shall be provided
shall be November, 1997 and for purposes of Section 9-6(a)(ii), above, the first
"previous month" in respect of which the items required by that Section shall be
provided shall be November, 1997.
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9-7. Quarterly Reports. Quarterly, within Forty Five (45) days following
-----------------
the end of each of the Borrower's fiscal quarters, the Borrower shall provide
the Lender with an original counterpart of a management prepared financial
statement of the Borrower for the period from the beginning of the Borrower's
then current fiscal year through the end of the subject quarter, with
comparative information for the same period of the previous fiscal year, which
statement shall include, at a minimum, a balance sheet, income statement (on a
store specific and on a "consolidated" basis), statement of changes in
shareholders' equity, and cash flows and comparisons for the corresponding
quarter of the then immediately previous year, as well as to the Business Plan.
Borrower shall also provide to Lender a copy of Borrower's 10Q Report within
forty five (45) days of the end of each quarter.
9-8. Annual Reports.
--------------
(a) Annually, within ninety (90) days following the end of the
Borrower's fiscal year, the Borrower shall furnish the Lender with an original
signed counterpart of the Borrower's annual financial statement, which statement
shall have been prepared by, and bearing the unqualified opinion of, the
Borrower's independent certified public accountants (i.e. said statement shall
be "certified" by such accountants). Such annual statement shall include, at a
minimum (with comparative information for the then prior fiscal year) a balance
sheet income statement, statement of changes in shareholders' equity, and cash
flows. Borrower shall also provide to Lender a copy of Borrower's 10K report
within ninety (90) days of the end of Borrower's fiscal year. Borrower's audited
financial statements for its fiscal year ending June 1997 shall be delivered to
Lender within forty five days (45) of the execution of this Agreement.
(b) Each annual statement shall be accompanied by such accountant's
Certificate indicating that to the best knowledge of such accountant, no event
has occurred which is or which, solely with the passage of time or the giving of
notice (or both) would be, an Event of Default.
9-9. Officers' Certificates. The Borrower shall cause the Borrower's
----------------------
President and Chief Financial Officer respectively to provide such Person's
Certificate with those monthly, quarterly, and annual statements to be furnished
pursuant to this Agreement, which Certificate shall:
(a) Indicate that the subject statement was prepared in accordance
with GAAP consistently applied, and presents fairly the financial condition of
the Borrower at-the close of, and the results of the Borrower's operations and
cash flows for, the period(s) covered, subject, however (with the exception of
the Certificate which accompanies such annual statement) to usual year end
adjustments.
(b) Indicate either that (i) no Suspension Event has occurred or (ii)
if such an event has occurred, its nature (in reasonable detail) and the steps
(if any) being taken or contemplated by the Borrower to be taken on account
thereof.
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<PAGE>
(c) Include calculations concerning the Borrower's compliance (or
failure to comply) at the date of the subject statement with each of the
financial performance covenants included in Section 9-12, below.
(d) Indicate that all taxes (broken down by type and taxing
authority) have or have not been paid.
(e) Indicate that all rent and additional rent (broken down by store
location) due pursuant to any store lease have or have not been paid.
9-10. Inventories. Appraisals. and Audits.
-----------------------------------
(a) The Lender, at the expense of the Borrower, may participate in
and/or observe each physical count and/or inventory of so much of the Collateral
as consists of Inventory which is undertaken on behalf of the Borrower.
(b) Upon the Lender's request from time to time, the Borrower shall
obtain, or shall permit the Lender to obtain (in all events, at the Borrower's
expense) physical counts and/or inventories of the Collateral, conducted by such
inventory takers as are satisfactory to the Lender and following such
methodology as may be required by the Lender, each of which physical counts
and/or inventories shall be observed by the Borrower's accountants. The Lender
will require the Borrower to conduct two (2) such counts and/or inventories
during each twelve (12) month period during which the within Agreement is in
effect, but in its discretion, may undertake additional such counts or
inventories during such period.
(c) Upon the Lender's request from time to time, the Borrower shall
permit the Lender to obtain appraisals (in all events, at the Borrower's
expense) conducted by such appraisers as are satisfactory to the Lender.
(d) The Lender contemplates conducting three (3) commercial finance
audits (in each event, at the Borrower's expense) of the Borrower's books and
records during any Twelve (12) month period during which the within Agreement is
in effect, but in its discretion, may undertake additional such audits during
such period. Absent a Suspension Event or Default, Lender agrees that audit
charges payable by the Borrower will not exceed $13,750.00 per year plus
expenses.
(e) The Lender from time to time (in all events, at the Borrower's
expense) may undertake "mystery shopping" (so-called) visits to all or any of
the Borrower's business premises. The Lender shall provide the Borrower with a
copy of any non-company confidential results of such mystery shopping.
9-11. Additional Financial Information.
--------------------------------
(a) In addition to all other information required to be provided
pursuant to this Article 9, the Borrower promptly shall provide the Lender with
such other and additional
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<PAGE>
information concerning the Borrower and any guarantor of the Liabilities, the
Collateral, the operation of the Borrower's business, and the Borrower's
financial condition, including original counterparts of financial reports and
statements, as the Lender may from time to time request from the Borrower.
(b) The Borrower may provide the Lender, from time to time hereafter,
with updated Business Plans. In all events, the Borrower, no sooner than ninety
(90) nor later than sixty (60) days prior to the end of each of the Borrower's
fiscal years, shall furnish the Lender with an updated and extended Business
Plan which shall go out at least through the end of the then next fiscal year.
In each event, such updated and extended Business Plans shall be prepared
pursuant to a methodology and shall include such assumptions as are satisfactory
to the Lender. The Lender, following the receipt of any of such Business Plans,
may, but shall not be under any obligation to, revise the financial performance
covenants included on EXHIBIT 9-12, annexed hereto.
9-12. Financial Performance Covenants. The Borrower shall observe and
-------------------------------
comply with those financial performance covenants set forth on EXHIBIT 9-12(a),
annexed hereto, certain of which covenants are based on the Business Plan set
forth on EXHIBIT 9-12(b), annexed hereto.
9-13. Electronic Reporting. At Lender's option all information and reports
--------------------
required to be substituted to Lender by Borrower shall be transmitted
electronically pursuant to an electronic transmitting reporting system and shall
be in a record layout format designated by Lender from time to time.
ARTICLE 10 - EVENTS OF DEFAULT
- ------------------------------
The occurrence of any event described in this Article 10 respectively shall
constitute an "Event of Default" herein. Upon the occurrence of any Event of
Default described in Section 10-11, any and all Liabilities shall become due
and payable without any further act on the part of the Lender. Upon the
occurrence of any other Event of Default, any and all Liabilities shall become
immediately due and payable, at the option of the Lender and without notice or
demand. The occurrence of any Event of Default shall also constitute, without
notice or demand, a default under all other agreements between the Lender and
the Borrower and instruments and papers given the Lender by the Borrower,
whether such agreements, instruments, or papers now exist or hereafter arise.
10-1. Failure to Pay Revolving Credit. The failure by the Borrower to pay
-------------------------------
any amount when due under the Revolving Credit.
10-2. Failure To Make Other Payments. The failure by the Borrower to pay
------------------------------
when due (or upon demand, if payable on demand) any payment Liability other than
under the Revolving Credit.
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10-3. Failure to Perform Covenant or Liability (No Grace Period). The
----------------------------------------------------------
failure by the Borrower to promptly, punctually, faithfully and timely perform,
discharge, or comply with any covenant or Liability not otherwise described in
section 10-1 or section 10-2, above, and included in any of the following
provisions hereof:
<TABLE>
<CAPTION>
Section Relates to:
------- ----------
<S> <C>
5-4(a) and (b) Location of Collateral
5-5 Title to Assets
5-6 Indebtedness
5-7(b) Insurance Policies
5-12(d) Pay Taxes
5-21 Affiliate Transactions
5-23 Additional Assurances
Article 7 Cash Management
Article 9 Financial Reporting Requirements and Financial Covenants
</TABLE>
10-4. Failure to Perform Covenant or Liability (Grace Period). The failure
-------------------------------------------------------
by the Borrower to promptly, punctually and faithfully perform, or observe any
term, covenant or agreement on its part to be performed or observed pursuant to
any of the provisions of this Agreement, other than those described in Sections
10-1, 10-2 or 10-3, or in any other agreement with Lender which is not remedied
within the earlier of fifteen (15) days after (i) notice thereof by Lender to
Borrower, or (ii) the date Borrower was required to give notice to Lender
pursuant to Section 9-3(a)(vi) hereof.
10-5. Misrepresentation. The determination by the Lender that any
-----------------
representation or warranty at any time made by the Borrower to the Lender, was
not true or complete in all material respects when given.
10-6. Acceleration of Other Debt. Breach of Lease. Other than as disclosed
-------------------------------------------
on Exhibits 5-4 and 5-16 the occurrence of any event such that any Indebtedness
in excess of the aggregate of $100,000 of the Borrower to any creditors other
than the Lender could be accelerated or, without the consent of the Borrower,
any Lease could be terminated (whether or not the subject creditor or lessor
takes any action on account of such occurrence).
10-7. Default Under Other Agreements. The occurrence of any breach or
------------------------------
default under any agreement between the Lender and the Borrower or instrument or
paper given the Lender by the Borrower, whether such agreement, instrument, or
paper now exists or hereafter arises (notwithstanding that the Lender may not
have exercised its rights upon default under any such other agreement,
instrument or paper).
10-8. Casualty Loss. Non-Ordinary Course Sales. The occurrence of any (a)
----------------------------------------
uninsured loss, theft, damage, or destruction of or to any material portion of
the Collateral in excess of $100,000.00, or (b) sale (other than sales in the
ordinary course of business) of any material portion of the
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<PAGE>
Collateral in excess of the aggregate of $100,000.00 in any year without
Lender's prior written consent.
10-9. Judgment. Restraint of Business.
-------------------------------
(a) The service of process upon the Lender or any Participant
seeking to attach, by trustee, mesne, or other process, any of the Borrower's
funds on deposit with, or assets of the Borrower in the possession of, the
Lender or such Participant.
(b) The entry of any judgment against the Borrower, which judgment
is not satisfied (if a money judgment) or appealed from (with execution or
similar process stayed) within thirty (30) days of its entry.
(c) The entry of any order or the imposition of any other process
having the force of law, the effect of which is to restrain in any material way
the conduct by the Borrower of its business in the ordinary course.
10-10. Business Failure. Any act by, against, or relating to the Borrower,
----------------
or its property or assets, which act constitutes the application for, consent
to, or sufferance of the appointment of a receiver, trustee, or other person,
pursuant to court action or otherwise, over all, or any part of the Borrower's
property; the granting of any trust mortgage or execution of an assignment for
the benefit of the creditors of the Borrower, or the occurrence of any other
voluntary or involuntary liquidation or extension of debt agreement for the
Borrower; or the offering by or entering into by the Borrower of any
composition, extension, or any other arrangement seeking relief from or
extension of the debts of the Borrower, or the initiation of any other judicial
or non-judicial proceeding or agreement by, against, or including the Borrower
which seeks or intends to accomplish a reorganization or arrangement with
creditors.
10-11. Bankruptcy. The failure by the Borrower to generally pay the debts
----------
of the Borrower as they mature; the filing of any complaint, application, or
petition by or against the Borrower initiating any matter in which the Borrower
is or may be granted any relief from the debts of the Borrower pursuant to the
Bankruptcy Code or any other insolvency statute or procedure.
10-12. Insecurity. The occurrence of any event or circumstance with
----------
respect to the Borrower such that Lender shall believe in good faith that the
prospect of payment of all or any part of the Liabilities or the performance by
the Borrower under this Agreement or any other agreement between the Lender and
the Borrower is impaired or there shall occur any material adverse change in the
business or financial condition of the Borrower.
10-13. Prepayment or Default by Guarantor or Related Entity. The
----------------------------------------------------
prepayment by a Related Entity or Guarantor of its Liabilities to Lender or the
occurrence of any of the foregoing Events of Default with respect to any
guarantor of the Liabilities, or the occurrence of any of the foregoing
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<PAGE>
Events of Default with respect to any parent (if the Borrower is a corporation),
subsidiary, or Related Entity, as if such guarantor, parent, or Related Entity
were the "Borrower" described therein.
10-14. Indictment - Forfeiture. The indictment of, or institution of any
-----------------------
legal process or proceeding against, the Borrower, any Executive Officer or any
guarantor of the Liabilities under any federal, state, municipal, and other
civil or criminal statute, rule, regulation, order, or other requirement having
the force of law where the relief; penalties, or remedies sought or available
include the forfeiture of any property of the Borrower and/or the imposition of
any stay or other order, the effect of which could be to restrain in any
material way the conduct by the Borrower of its business in the ordinary course.
10-15. Termination of Guaranty. The termination or attempted termination
-----------------------
of any guaranty by any guarantor of the Liabilities.
10-16. Challenge to Loan Documents.
---------------------------
(a) Any challenge by or on behalf of the Borrower or any
guarantor of the Liabilities to the validity of any Loan Document or the
applicability or enforceability of any Loan Document strictly in accordance with
the subject Loan Document's terms or which seeks to void, avoid, limit, or
otherwise adversely affect any security interest created by or in any Loan
Document or any payment made pursuant thereto.
(b) Any determination by any court or any other judicial or
government authority that any Loan Document is not enforceable strictly in
accordance with the subject Loan Document's terms or which voids, avoids,
limits, or otherwise adversely affects any security interest created by any Loan
Document or any payment made pursuant thereto.
10-17. Executive Management. The death, disability, or failure of any
--------------------
Executive Officer at any time to exercise that authority and discharge those
management responsibilities with respect to the Borrower as are exercised and
discharged by such Person at the execution of the within Agreement.
10-18. Change in Control. Any change in the ownership of the capital stock
-----------------
of the Borrower such that Timothy Duoos does not Control at least 30% of the
Borrower and maintain any seat on the Board of Directors.
ARTICLE 11 - RIGHTS AND REMEDIES UPON DEFAULT
- ---------------------------------------------
In addition to all of the rights, remedies, powers, privileges, and
discretions which the Lender is provided prior to the occurrence of an Event of
Default, the Lender shall have the following rights and remedies upon the
occurrence of any Event of Default and at any time thereafter. No stay which
otherwise might be imposed pursuant to the Bankruptcy Code or otherwise shall
stay, limit, prevent, hinder, delay, restrict, or otherwise prevent the Lender's
exercise of any of such rights and remedies.
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<PAGE>
11-1. Rights of Enforcement. The Lender shall have all of the rights and
---------------------
remedies of a secured party upon default under the UCC, in addition to which the
Lender shall have all and each of the following rights and remedies:
(a) To collect the Receivables Collateral with or without the
taking of possession of any of the Collateral.
(b) To take possession of all or any portion of the Collateral.
(c) To sell, lease, or otherwise dispose of any or all of the
Collateral, in its then condition or following such preparation or processing as
the Lender deems advisable and with or without the taking of possession of any
of the Collateral.
(d) To conduct one or more going out of business sales which
include the sale or other disposition of the Collateral.
(e) To apply the Receivables Collateral or the proceeds of the
Collateral towards (but not necessarily in complete satisfaction of) the
Liabilities.
(f) To exercise all or any of the rights, remedies, powers,
privileges, and discretions under all or any of the Loan Documents.
11-2. Sale of Collateral.
------------------
(a) Any sale or other disposition of the Collateral may be at
public or private sale upon such terms and in such manner as the Lender deems
advisable, having due regard to compliance with any statute or regulation which
might affect, limit, or apply to the Lender's disposition of the Collateral.
(b) The Lender, in the exercise of the Lender's rights and
remedies upon default, may conduct one or more going out of business sales, in
the Lender's own right or by one or more agents and contractors. Such sale(s)
may be conducted upon any premises owned, leased, or occupied by the Borrower.
The Lender and any such agent or contractor, in conjunction with any such sale,
may augment the Inventory with other goods (all of which other goods shall
remain the sole property of the Lender or such agent or contractor). Any amounts
realized from the sale of such goods which constitute augmentations to the
Inventory (net of an allocable share of the costs and expenses incurred in their
disposition) shall be the sole property of the Lender or such agent or
contractor and neither the Borrower nor any Person claiming under or in right of
the Borrower shall have any interest therein.
(c) Unless the Collateral is perishable or threatens to decline
speedily in value, or is of a type customarily sold on a recognized market (in
which event the Lender shall provide the Borrower with such notice as may be
practicable under the circumstances), the Lender shall give the
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<PAGE>
Borrower at least five (5) days prior written notice of the date, time, and
place of any proposed public sale, and of the date after which any private sale
or other disposition of the Collateral may be made. The Borrower agrees that
such written notice shall satisfy all requirements for notice to the Borrower
which are imposed under the UCC or other applicable law with respect to the
exercise of the Lender's rights and remedies upon default.
(d) The Lender may purchase the Collateral, or any portion of it at
any sale held under this Article.
(e) The Lender shall apply the proceeds of any exercise of the
Lender's Rights and Remedies under this Article 11 towards the Liabilities in
such manner, and with such frequency, as the Lender determines.
11-3. Occupation of Business Location. In connection with the Lender's
-------------------------------
exercise of the Lender's rights under this Article 11, the Lender may enter
upon, occupy, and use any premises owned or occupied by the Borrower, and may
exclude the Borrower from such premises or portion thereof as may have been so
entered upon, occupied, or used by the Lender. The Lender shall not be required
to remove any of the Collateral from any such premises upon the Lender's taking
possession thereof, and may render any Collateral unusable to the Borrower. In
no event shall the Lender be liable to the Borrower for use or occupancy by the
Lender of any premises pursuant to this Article 11, nor for any charge (such as
wages for the Borrower's employees and utilities) incurred in connection with
the Lender's exercise of the Lender's Rights and Remedies.
11-4. Grant of Nonexclusive License. The Borrower hereby grants to the
-----------------------------
Lender a royalty free nonexclusive irrevocable license to use, apply, and affix
any trademark, tradesman, logo, or the like in which the Borrower now or
hereafter has rights, such license being with respect to the Lender's exercise
of the rights hereunder including, without limitation, in connection with any
completion of the manufacture of Inventory or sale or other disposition of
Inventory.
11-5. Assembly of Collateral. The Lender may require the Borrower to
----------------------
assemble the Collateral and make it available to the Lender at the Borrower's
sole risk and expense at a place or places which are reasonably convenient to
both the Lender and Borrower.
11-6. Rights and Remedies. The rights, remedies, powers, privileges, and
-------------------
discretions of the Lender hereunder (herein, the "Lender's Rights and Remedies")
shall be cumulative and not exclusive of any rights or remedies which it would
otherwise have. No delay or omission by the Lender in exercising or enforcing
any of the Lender's Rights and Remedies shall operate as, or constitute, a
waiver thereof. No waiver by the Lender of any Event of Default or of any
default under any other agreement shall operate as a waiver of any other default
hereunder or under any other agreement. No single or partial exercise of any of
the Lender's Rights or Remedies, and no express or implied agreement or
transaction of whatever nature entered into between the Lender and any person,
at any time, shall preclude the other or further exercise of the Lender's Rights
and Remedies. No waiver by the Lender of any of the Lender's Rights and Remedies
on any one occasion shall be
-41-
<PAGE>
deemed a waiver on any subsequent occasion, nor shall it be deemed a continuing
waiver. All of the Lender's Rights and Remedies and all of the Lender's rights,
remedies, powers, privileges, and discretions under any other agreement or
transaction are cumulative, and not alternative or exclusive, and may be
exercised by the Lender at such time or times and in such order of preference as
the Lender in its sole discretion may determine. The Lender's Rights and
Remedies may be exercised without resort or regard to any other source of
satisfaction of the Liabilities.
ARTICLE 12- NOTICES
- -------------------
12-1. Notice Addresses. All notices, demands, and other communications
----------------
made in respect of this Agreement (other than a request for a loan or advance or
other financial accommodation under the Revolving Credit) shall be made to the
following addresses, each of which may be changed upon seven (7) days written
notice to all others given by certified mail, return receipt requested:
<TABLE>
<S> <C>
If to the Lender: Paragon Capital LLC
Hillsite Office Building
75 Second Avenue, Suite 400
Needham, Massachusetts 02194
Attention: Andrew Moser, President
Phone: (781) 707-2100
Fax: (781) 707-2107
With a copy to: Joel B. Rosenthal, Esq.
Shapiro, Israel & Weiner, P.C.
100 North Washington Street
Boston, Massachusetts 02114
Phone: (617) 742-4200
Fax: (617) 742-2355
If to the Borrower: Wolfe Nursery, Inc.
32382 Del Obispo
San Juan Capistrano, California 92675-4029
Attention: Mr. Timothy Duoos, President
Phone: (714) 248-3811
Fax: (714) 248-4398
With a copy to: Ravich, Meyer, Kirkman,
McGrath & Nauman
4545 IDS Center
80 South Eight Street
Minneapolis, Minnesota 55402-2225
Attention: Michael F. McGrath, Esq.
</TABLE>
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<PAGE>
Phone: (612) 332-8511
Fax: (612) 332-8302
12-2. Notice Given.
------------
(a) Except as otherwise specifically provided herein, notices shall
be deemed made and correspondence received, as follows (all times being local to
the place of delivery or receipt):
(i) By mail: the sooner of when actually received or three
(3) days following deposit in the United States mail, postage prepaid.
(ii) By recognized overnight express delivery: the Banking Day
following the day when sent.
(iii) By hand: If delivered on a Banking Day after 9:00 A.M.
and no later than three (3) hours prior to the close of customary business hours
of the recipient, when delivered. Otherwise, at the opening of the then next
Banking Day.
(iv) By facsimile transmission (which must include a header
indicated the party sending such transmission): If sent on a Banking Day after
9:00 A.M. and no later than Three (3) hours prior to the close of customary
business hours of the recipient, one (1) hour after being sent. Otherwise, at
the opening of the then next Banking Day.
(b) Rejection or refusal to accept delivery and inability to
deliver because of a changed address or facsimile number for which no due notice
was given shall each be deemed receipt of the notice sent.
ARTICLE 13 - TERM.
- -----------------
13-1. Termination of Revolving Credit. This Agreement is, and is intended
-------------------------------
to be, a continuing agreement and shall remain in full force and effect for an
initial term ending on the Maturity Date, and thereafter for successive twelve-
month periods, each beginning on the 1st day of December (commencing December 1,
2002) of each year and ending on November 30th of the following year (each such
twelve-month period is hereinafter referred to as a "renewal term"); provided,
however, that either party may terminate this Agreement as of the end of the
initial term or any subsequent renewal term by giving the other party notice to
terminate in writing at least sixty (60) days prior to the end of any such
period whereupon at the end of such period all Liabilities shall be due and
payable in full without presentation, demand, or further notice of any kind,
whether or not all or any part of the Liabilities is otherwise due and payable
pursuant to the agreement or instrument evidencing same. Lender may terminate
this Agreement immediately and without notice upon the occurrence of an Event of
Default. Notwithstanding the foregoing or anything in this Agreement or
elsewhere to the contrary, the security interest, Lender's rights and remedies
hereunder
-43-
<PAGE>
and Borrower's obligations and liabilities hereunder shall survive any
termination of this Agreement and shall remain in full force and effect until
all of the Liabilities outstanding, or contracted or committed for (whether or
not outstanding), before the receipt of such notice by Lender, and any
extensions or renewals thereof (whether made before or after receipt of such
notice), together with interest accruing thereon after such notice, shall be
finally and irrevocably paid in full. No Collateral shall be released or
financing statement terminated until such final and irrevocable payment in full
of the Liabilities, as described in the preceding sentence.
13-2. Effect of Termination. Upon the termination of Revolving Credit, the
---------------------
Borrower shall pay the Lender (whether or not then due), in immediately
available funds, all then Liabilities including, without limitation: the entire
balance of the Loan Account; any then remaining balance of the Facility Fee; any
accrued and unpaid Line Fee; any Prepayment Premium and all unreimbursed costs
and expenses of the Lender for which the Borrower is responsible, and shall make
such arrangements concerning any L/C's then outstanding are reasonably
satisfactory to the Lender. Until such payment, all provisions of this
Agreement, other than those contained in Article 1 which place an obligation on
the Lender to make any loans or advances or to provide financial accommodations
under the Revolving Credit or otherwise, shall remain in full force and effect
until all Liabilities shall have been paid in full. The release by the Lender of
the security interests granted the Lender by the Borrower hereunder may be upon
such conditions and indemnifications as the Lender may require.
13-3. Prepayment Premium. If Borrower pays in full all or substantially
------------------
all of the Liabilities prior to the end of the initial term of this Agreement
(or any renewal term), other than temporarily from funds internally generated in
the ordinary course of business, at the time of such payment Borrower shall also
pay to Lender a prepayment premium in an amount equal to: $82,500.00, if paid
during the first year after the date of this Agreement, and reducing by
$13,750.00 per year on each anniversary of this Agreement. Any tender of payment
in full of the Liabilities following an acceleration by Lender of the
Liabilities pursuant to Article 10, shall be for purposes of this section deemed
to be a prepayment requiring Borrower to pay the aforementioned prepayment
premium.
Such prepayment premium shall be paid to Lender as liquidated
damages for the loss of the bargain by Lender and not as a penalty.
ARTICLE 14- GENERAL
- -------------------
14-1. Protection of Collateral. The Lender has no duty as to the
------------------------
collection or protection of the Collateral beyond the safe custody of such of
the Collateral as may come into the possession of the Lender and shall have no
duty as to the preservation of rights against prior parties or any other rights
pertaining thereto. The Lender may include reference to the Borrower (and may
utilize any logo or other distinctive symbol associated with the Borrower) in
connection with any advertising, promotion, or marketing undertaken by the
Lender.
-44-
<PAGE>
14-2. Successors and Assigns. This Agreement shall be binding upon the
----------------------
Borrower and the Borrowers representatives, successors, and assigns and shall
endure to the benefit of the Lender and the Lender's successors and assigns
provided, however, no trustee or other fiduciary appointed with respect to the
Borrower shall have any rights hereunder. In the event that the Lender assigns
or transfers its rights under this Agreement, the assignee shall thereupon
succeed to and become vested with all rights, powers, privileges, and duties of
the Lender hereunder and the Lender shall thereupon be discharged and relieved
from its duties and obligations hereunder.
14-3. Severability. Any determination that any provision of this Agreement
------------
or any application thereof is invalid, illegal, or unenforceable in any respect
in any instance shall not affect the validity, legality, or enforceability of
such provision in any other instance, or the validity, legality, or
enforceability of any other provision of this Agreement.
14-4. Amendments, Course of Dealing.
-----------------------------
(a) This Agreement and the other Loan Documents incorporate all
discussions and negotiations between the Borrower and the Lender, either express
or implied, concerning the matters included herein and in such other
instruments, any custom, usage, or course of dealings to the contrary
notwithstanding. No such discussions, negotiations, custom, usage, or course of
dealings shall limit, modify, or otherwise affect the provisions thereof. No
failure by the Lender to give notice to the Borrower of the Borrower's having
failed to observe and comply with any warranty or covenant included in any Loan
Document shall constitute a waiver of such warranty or covenant or the amendment
of the subject Loan Document. No change made by the Lender in the manner by
which Availability is determined shall obligate the Lender to continue to
determine Availability in that manner.
(b) The Borrower may undertake any action otherwise prohibited
hereby, and may omit to take any action otherwise required hereby, upon and with
the express prior written consent of the Lender. No consent, modification,
amendment, or waiver of any provision of any Loan Document shall be effective
unless executed in writing by or on behalf of the party to be charged with such
modification, amendment, or waiver (and if such party is the Lender, then by a
duly authorized officer thereof). Any modification, amendment, or waiver
provided by the Lender shall be in reliance upon all representations and
warranties theretofore made to the Lender by or on behalf of the Borrower (and
any guarantor, endorser, or surety of the Liabilities) and consequently may be
rescinded in the event that any of such representations or warranties was not
true and complete in all material respects when given.
14-5. Power of Attorney. In connection with all powers of attorney
-----------------
included in this Agreement, the Borrower hereby grants unto the Lender full
power to do any and all things necessary or appropriate in connection with the
exercise of such powers as fully and effectually as the Borrower might or could
do. hereby ratifying all that said attorney shall do or cause to be done by
virtue of this Agreement. No power of attorney set forth in this Agreement shall
be affected by any disability or incapacity suffered by the Borrower and each
shall survive the same. All powers
-45-
<PAGE>
conferred upon the Lender by this Agreement, being coupled with an interest,
shall be irrevocable until this Agreement is terminated by a written instrument
executed by a duly authorized officer of the Lender.
14-6. Application of Proceeds. The proceeds of any collection, sale, or
-----------------------
disposition of the Collateral, or of any other payments received hereunder,
shall be applied towards the Liabilities in such order and manner as the Lender
determines in its sole discretion. The Borrower shall remain liable for any
deficiency remaining following such application.
14-7. Lender's Costs and Expenses. The Borrower shall pay on demand all
---------------------------
Costs of Collection and all reasonable fees, charges and expenses of the Lender
in connection with the preparation, execution, and delivery of this Agreement
and of any other Loan Documents, whether now existing or hereafter arising, and
all other reasonable fees, charges and expenses which may be incurred by the
Lender in preparing or amending this Agreement and all other agreements,
instruments, and documents related thereto, or otherwise incurred with respect
to the Liabilities, including, without limiting the generality of the foregoing,
any counsel fees or expenses incurred in any bankruptcy or insolvency
proceedings. The Borrower specifically authorizes the Lender to pay all such
fees and expenses and in the Lender's discretion, to add such fees and expenses
to the Loan Account.
14-8. Copies and Facsimiles. This Agreement and all documents which relate
---------------------
thereto, which have been or may be hereinafter furnished the Lender may be
reproduced by the Lender by any photographic, microfilm, xerographic, digital
imaging, or other process, and the Lender may destroy any document so
reproduced. Any such reproduction shall be admissible in evidence as the
original itself in any judicial or administrative proceeding (whether or not the
original is in existence and whether or not such reproduction was made in the
regular course of business). Any facsimile which bears proof of transmission
shall be binding on the party which or on whose behalf such transmission was
initiated and likewise shall be so admissible in evidence as if the original of
such facsimile had been delivered to the party which or on whose behalf such
transmission was received.
14-9. Massachusetts Law. This Agreement and all rights and obligations
-----------------
hereunder, including matters of construction, validity, and performance, shall
be governed by the laws of The Commonwealth of Massachusetts.
14-10. Consent to Jurisdiction.
-----------------------
(a) The Borrower agrees that any legal action, proceeding, case, or
controversy against the Borrower with respect to any Loan Document may be
brought in the Superior Court of Middlesex County, Massachusetts or in the
United States District Court, District of Massachusetts, sitting in Boston,
Massachusetts, as the Lender may elect in the Lender's sole discretion. By
execution and delivery of this Agreement, the Borrower, for itself and in
respect of its property,
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<PAGE>
accepts, submits, and consents generally and unconditionally, to the
jurisdiction of the aforesaid courts.
(b) Nothing herein shall affect the right of the Lender to bring
legal actions or proceedings in any other competent jurisdiction.
(c) The Borrower agrees that any action commenced by the Borrower
asserting any claim or counterclaim arising under or in connection with this
Agreement or any other Loan Document shall be brought solely in the Superior
Court of Middlesex County, Massachusetts or in the United States District Court,
District of Massachusetts, sitting in Boston, Massachusetts, and that such
Courts shall have exclusive jurisdiction with respect to any such action.
14-11. Indemnification. The Borrower shall indemnify, defend, and hold
---------------
the Lender and any employee, officer, or agent of the Lender (each, an
"Indemnified Person") harmless of and from any claim brought or threatened
against any Indemnified Person by the Borrower, any guarantor or endorser of the
Liabilities, or any other Person (as well as from attorneys' reasonable fees and
expenses in connection therewith) on account of the relationship of the Borrower
or of any other guarantor or endorser of the Liabilities Lender (each of claims
which may be defended, compromised, settled, or pursued by the Indemnified
Person with counsel of the Lender's selection, but at the expense of the
Borrower) other than any claim as to which a final determination is made in a
judicial proceeding (in which the Lender and any other Indemnified Person has
had an opportunity to be heard), which determination includes a specific finding
that the Indemnified Person seeking indemnification had acted in a grossly
negligent manner or in actual bad faith. The within indemnification shall
survive payment of the Liabilities and/or any termination, release, or discharge
executed by the Lender in favor of the Borrower.
14-12. Right of Set-Off. Any and all deposits or other sums at any time
----------------
credited by or due to the undersigned from the Lender or from any participant (a
"Participant") with the Lender in the credit facility contemplated hereby and
any cash, securities, instruments or other property of the undersigned in the
possession of the Lender or any Participant, whether for safekeeping or
otherwise (regardless of the reason such Person had received the same) shall at
all times constitute security for all Liabilities and for any and all
obligations of the undersigned to the and any Participant, and may be applied or
set off against the Liabilities and against such obligations at any time,
whether or not such are then due and whether or not other collateral is then
available to the Lender or any Participant.
14-13. Maximum Interest Rate. Regardless of any provision of any Loan
---------------------
Document, the Lender shall never be entitled to contract for, charge, receive,
collect, or apply as interest on any Liability, any amount in excess of the
maximum rate imposed by applicable law. Any payment which is made which, if
treated as interest on a Liability would result in such interest's exceeding
such maximum rate shall be held, to the extent of such excess, as additional
collateral for the Liabilities as if such excess were "Collateral."
-47-
<PAGE>
14-14. Usury Savings Clause. It is the intention of the parties hereto to
--------------------
comply strictly with applicable usury laws, if any; accordingly, notwithstanding
any provisions to the contrary in this Agreement or any other Loan Documents, in
no event shall this Agreement or such Loan Document require or permit the
payment, taking, reserving, receiving, collecting or charging of any sums
constituting interest under applicable laws which exceed the maximum amount
permitted by such laws. If any such excess interest is called for, contracted
for, charged, paid, taken, reserved, collected or received in connection with
the Liabilities or in any communication by Lender or any other person to the
Borrower or any other person, or in the event all or part of the principal of
the Liabilities or interest thereon shall be prepaid or accelerated, so that
under any of such circumstances or under any other circumstance whatsoever the
amount of interest contracted for, charged, taken, collected, reserved, or
received on the amount of principal actually outstanding from time to time under
this Agreement shall exceed the maximum amount of interest permitted by
applicable usury laws, if any, then in any such event it is agreed as follows:
(i) the provisions of this paragraph shall govern and control, (ii) neither the
Borrower nor any other person or entity now or hereafter liable for the payment
of the Liabilities shall be obligated to pay the amount of such interest to the
extent such interest is in excess of the maximum amount of interest permitted by
applicable usury laws, if any, (iii) any such excess which is or has been
received notwithstanding this paragraph shall be credited against the then
unpaid principal balance hereof or, if the Liabilities have been or would be
paid in full by such credit, refunded to the Borrower, and (iv) the provisions
of this Agreement and the other Loan Documents, and any communication to the
Borrower, shall immediately be deemed reformed and such excess interest reduced,
without the necessity of executing any other document, to the maximum lawful
rate allowed under applicable laws as now or hereafter construed by courts
having jurisdiction hereof or thereof. Without limiting the foregoing, all
calculations of the rate of interest contracted for, charged, taken, collected,
reserved, or received in connection herewith which are made for the purpose of
determining whether such rate exceeds the maximum lawful rate shall be made to
the extent permitted by applicable laws by amortizing, prorating, allocating and
spreading during the period of the full term of the Liabilities, including all
prior and subsequent renewals and extensions, all interest at any time
contracted for, charged, taken, collected, reserved or received. The terms of
this paragraph shall be deemed to be incorporated in every Loan Document and
communication relating to the Liabilities.
14-15. Waivers.
-------
(a) The Borrower (and all guarantors, endorsers, and sureties of
the Liabilities) make each of the waivers included in Section 14-14(b), below,
knowingly, voluntarily, and intentionally, and understands that the Lender, in
entering into the financial arrangements contemplated hereby and in providing
loans and other financial accommodations to or for the account of the Borrower
as provided herein, whether not or in the future, is relying on such waivers.
(b) THE BORROWER, AND EACH SUCH GUARANTOR, ENDORSER, AND SURETY
RESPECTIVELY WAIVES THE FOLLOWING.
-48-
<PAGE>
(i) Except as otherwise specifically required hereby, notice
of nonpayment, demand, presentment, protest and all forms of demand and notice,
both with respect to the Liabilities and the Collateral.
(ii) Except as otherwise specifically required hereby, the
right to notice and/or hearing prior to the Lender's exercising of the Lender's
rights upon default.
(iii) THE RIGHT TO A JURY IN ANY TRIAL OF ANY CASE OR
CONTROVERSY IN WHICH THE LENDER IS OR BECOMES A PARTY (WHETHER SUCH CASE OR
CONTROVERSY IS INITIATED BY OR AGAINST THE LENDER OR IN WHICH THE LENDER IS
JOINED AS A PARTY LITIGANT), WHICH CASE OR CONTROVERSY ARISES OUT OF OR IS IN
RESPECT OF, ANY RELATIONSHIP AMONGST OR BETWEEN THE BORROWER OR ANY OTHER PERSON
AND THE LENDER (AND THE LENDER LIKEWISE WAIVES THE RIGHT TO A JURY IN ANY TRIAL
OF ANY SUCH CASE OR CONTROVERSY).
(iv) Any defense, counterclaim, set-off, recoupment, or other
basis on which the amount of any Liability, as stated on the books and records
of the Lender, could be reduced or claimed to be paid otherwise than in
accordance with the tenor of and written terms of such Liability.
(v) Any claim to consequential, special, or punitive damages.
14-16. Confidentiality. This Agreement and the terms hereof are
---------------
confidential, and neither the contents of this Agreement or the details of this
Agreement may be shown or disclosed by the Borrower to any bank, finance company
or other lender without the prior written consent of the Lender or except as
required by applicable law or regulation.
14-17. Right to Publish Notice. Lender may, at Lender's discretion and
-----------------------
expense, publicize or otherwise advertise by so-called "tombstone" advertising
or otherwise Lender's financing transaction with the Borrower.
14-18. Entities Related to Lender. Borrower acknowledges notice that
--------------------------
Lender is affiliated with The Ozer Group, LLC ("Ozer"). Ozer and other entities
related to Lender may, from time to time act as a merchant consultant or provide
other services to Lender with respect to Borrower.
-49-
<PAGE>
Executed as a sealed instrument this 12th day of December, 1997.
WOLFE NURSERY, INC.
(BORROWER)
By: /s/ Tim Duoos
------------------------------
Print Name: Tim Duoos
Title: President
PARAGON CAPITAL LLC
(LENDER)
By: /s/ Andrew H. Moser
------------------------------
Print Name: Andrew H. Moser
----------------------
Title: President
---------------------------
-50-
<PAGE>
Exhibit 10.2
LOAN AND SECURITY AGREEMENT 12/15/97
BETWEEN
PARAGON CAPITAL LLC
AND
TIP TOP NURSERIES, INC.
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
ARTICLE 1 - THE REVOLVING CREDIT
- --------------------------------
<S> <C> <C>
1-1. Establishment of Revolving Credit
---------------------------------
1-2. Advances in Excess of Maximum Loan Exposure
-------------------------------------------
1-3. Risks of Value of Inventory
---------------------------
1-4. Procedures Under Revolving Credit
---------------------------------
1-5. The Loan Account
----------------
1-6. The Master Note
---------------
1-7. Payment of Loan Account
-----------------------
1-8. Interest
--------
1-9. Fees
----
1-10. Lender's Discretion
-------------------
1-11. Fees For L/C's
--------------
1-12. Concerning L/C's
----------------
ARTICLE 2 - GRANT OF SECURITY INTEREST
- --------------------------------------
2-1. Grant of Security Interest
--------------------------
2-2. Extent and Duration of Security Interest
----------------------------------------
ARTICLE 3 - DEFINITIONS.
- ------------------------
ARTICLE 4- CONDITIONS PRECEDENT.
- --------------------------------
4-1. Corporate Due Diligence
-----------------------
4-2. Opinion
-------
4-3. Additional Documents
--------------------
4-4. Key Life Policies
-----------------
4-5. Officers' Certificates
----------------------
4-6. Representations and Warranties
------------------------------
4-7. Minimum Excess Availability
---------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
4-8. No Event of Default
-------------------
4-9. No Adverse Change
-----------------
ARTICLE 5 - GENERAL REPRESENTATIONS. WARRANTIES AND COVENANTS
- -------------------------------------------------------------
5-1. Payment and Performance of Liabilities
--------------------------------------
5-2. Due Organization - Corporate Authorization - No Conflicts
---------------------------------------------------------
5-3. Trade Names
-----------
5-4. Locations. Landlord's Waivers
-----------------------------
5-5. Title to Assets
---------------
5-6. Indebtedness
------------
5-7. Insurance Policies
------------------
5-8. Licenses
--------
5-9. Leases
------
5-10. Requirements of Law
-------------------
5-11 Maintain Properties
-------------------
5-12. Pay Taxes
---------
5-13. No Margin Stock
---------------
5-14. ERISA
-----
5-15. Hazardous Materials
-------------------
5-16. Litigation
----------
5-17. Dividends or Investments
------------------------
5-18. Loans
-----
5-19. Protection of Assets
--------------------
5-20. Line of Business
----------------
5-21. Affiliate Transactions
----------------------
5-22. Executive Pay
-------------
5-23. Additional Assurances
---------------------
5-24. Adequacy of Disclosure
----------------------
5-25. Other Covenants
---------------
ARTICLE 6 - USE AND COLLECTION OF COLLATERAL.
- --------- --------------------------------
6-1. Use of Inventory Collateral
---------------------------
6-2. Inventory Quality
-----------------
6-3. Adjustments and Allowances
--------------------------
6-4. Validity of Accounts
--------------------
6-5. Notification to Account Debtors
-------------------------------
ARTICLE 7 - CASH MANAGEMENT
- --------- ---------------
7-1. Depository Accounts
-------------------
7-2. Credit Card Receipts
--------------------
7-3. The Concentration and the Funding Accounts
------------------------------------------
7-4. Proceeds and Collection of Accounts
-------------------------- --------
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C> <C>
7-5. Payment of Liabilities
----------------------
7-6. The Funding Account
-------------------
ARTICLE 8 - LENDER AS BORROWER'S ATTORNEY-IN-FACT
- --------- -------------------------------------
8-1. Appointment as Attorney-In-Fact
-------------------------------
8-2. No Obligation to Act
--------------------
ARTICLE 9 - FINANCIAL AND OTHER REPORTING REQUIREMENTS/FINANCIAL COVENANTS
- --------- --------------------------------------------------------------
9-1. Maintain Records
----------------
9-2. Access to Records
-----------------
9-3 Immediate Notice to Lender
--------------------------
9-4. Borrowing Base Certificate
--------------------------
9-5. Weekly Reports
--------------
9-6. Monthly Reports
---------------
9-7. Quarterly Reports
-----------------
9-8. Annual Reports
--------------
9-9. Officers' Certificates
----------------------
9-10. Inventories, Appraisals, and Audits
-----------------------------------
9-11. Additional Financial Information
--------------------------------
9-12. Financial Performance Covenants
-------------------------------
9-13. Electronic Reporting
--------------------
ARTICLE 10 - EVENTS OF DEFAULT
- ---------- -----------------
10-1. Failure to Pay Revolving Credit
-------------------------------
10-2. Failure To Make Other Pavements
-------------------------------
10-3. Failure to Perform Covenant or Liability (No Grace Period)
----------------------------------------------------------
10-4. Failure to Perform Covenant or Liability (Grace Period)
-------------------------------------------------------
10-5. Misrepresentation
-----------------
10-6. Acceleration of Other Debt. Breach of Lease
-------------------------------------------
10-7. Default Under Other Agreements
------------------------------
10-8. Casualty Loss. Non-Ordinary Course Sales
----------------------------------------
10-9. Judgment. Restraint of Business
-------------------------------
10-10. Business Failure
----------------
10-11. Bankruptcy
----------
10-12. Insecurity
----------
10-13. Prepayment or Default by Guarantor or Related Entity
----------------------------------------------------
10-14. Indictment - Forfeiture
-----------------------
10-15. Termination of Guaranty
-----------------------
10-16. Challenge to Loan Documents
---------------------------
</TABLE>
-iii-
<PAGE>
<TABLE>
<S> <C> <C>
10-17. Executive Management
--------------------
10-18. Change in Control
-----------------
ARTICLE 11 - RIGHTS AND REMEDIES UPON DEFAULT
- ---------- --------------------------------
11-1. Rights of Enforcement
---------------------
11-2. Sale of Collateral
------------------
11-3. Occupation of Business Location
-------------------------------
11-4. Grant of Nonexclusive License
-----------------------------
11-5. Assembly of Collateral
----------------------
11-6. Rights and Remedies
-------------------
ARTICLE 12 - NOTICES.
- ---------- -------
12-1. Notice Addresses
----------------
12-2. Notice Given
------------
ARTICLE 13 - TERM
- ---------- ----
13-1. Termination of Revolving Credit
-------------------------------
13-2. Effect of Termination
---------------------
13-3. Prepayment Premium
------------------
ARTICLE 14 - GENERAL
- ---------- -------
14-1. Protection of Collateral
------------------------
14-2. Successors and Assigns
----------------------
14-3. Severability
------------
14-4. Amendments. Course of Dealing
-----------------------------
14-5. Power of Attorney
-----------------
14-6. Application of Proceeds
-----------------------
14-7. Lender's Costs and Expenses
---------------------------
14-8. Copies and Facsimiles
---------------------
14-9. Massachusetts Law
-----------------
14-10. Consent to Jurisdiction
-----------------------
14-11. Indemnification
---------------
14-12. Right of Set-Off
----------------
14-13. Maximum Interest Rate
---------------------
14-14. Usury Savings Clause
--------------------
14-15. Waivers
-------
14-16. Confidentiality
---------------
14-17. Right to Publish Notice
-----------------------
14-18. Entities Related to Lender
--------------------------
</TABLE>
iv
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS
<S> <C>
1-6 Master Note
3 Definitions
5-2 Related Entities
5-3 Trade Names.
5-4 Locations.
5-5 Encumbrances.
5-6 Indebtedness.
5-7 Insurance Policies.
5-12 Taxes
5-16 Litigation
7-1 DDA's.
7-2 Credit Card Arrangements
9-4 Borrowing Base Certificate
9-12(a) Financial Performance Covenants
9-12(b) Business Plan.
</TABLE>
-v-
<PAGE>
THIS AGREEMENT is made between Paragon Capital LLC (hereinafter, "Paragon"
or "Lender"), a Delaware limited liability company with its principal executive
offices at Hillsite Office Building, 75 Second Avenue, Suite 400 Needham,
Massachusetts 02194 and Tip Top Nurseries, Inc. hereinafter, the "Borrower"), an
Arizona corporation with its principal executive offices at 32382 Del Obispo,
San Juan Capistrano. California 92675-4029 in consideration of the mutual
covenants contained herein and benefits to be derived herefrom,
WITNESSETH:
ARTICLE 1 - THE REVOLVING CREDIT
- --------------------------------
1-1. Establishment of Revolving Credit.
---------------------------------
(a) The Lender hereby establishes a revolving line of credit (the
"Revolving Credit") in the Borrowers favor pursuant to which the Lender, subject
to, and in accordance with, the within Agreement, shall make loans and advances
and otherwise provide financial accommodations to and for the account of the
Borrower as provided herein. The amount of the Revolving Credit shall be
determined by the Lender by reference to Availability, as determined by the
Lender from time to time hereafter. All loans made by the Lender under this
Agreement, and all of the Borrower's other Liabilities to the Lender under or
pursuant to this Agreement, are payable as provided herein.
(b) The Lender hereby agrees, subject to the terms and conditions of
this Agreement, to make loans to the Borrower in an amount outstanding not to
exceed at any one time the lesser of (i) the Credit Limit, or (ii) the Borrowing
Base.
(c) Availability shall be based upon Borrowing Certificates furnished
as provided in Section 9-4, below.
(d) The proceeds of borrowings under the Revolving Credit shall be
used solely in accordance with the Business Plan for working capital purposes of
the Borrower and for its Capital Expenditures, all solely to the extent
permitted by the within Agreement.
1-2. Advances in Excess of Maximum Loan Exposure. The Lender does not have
-------------------------------------------
any obligation to make any loan or advance, or otherwise to provide any credit
for the benefit of the Borrower such that the outstanding principal balance of
the Loan Account exceeds Maximum Loan Exposure. The making of loans, advances,
and credits and the providing of financial accommodations in excess of Maximum
Loan Exposure is for the benefit of the Borrower and does not affect the
obligations of the Borrower hereunder; such loans, advances, credits, and
financial accommodations constitute Liabilities. The making of any such loans,
advances, and credits and the providing of financial accommodations, on any one
occasion such that Maximum Loan Exposure is exceeded shall not obligate the
Lender to make any such loans, credits, or advances or to provide any financial
accommodation on any other occasion nor to permit such loans, credits, or
advances to remain outstanding.
<PAGE>
1-3. Risks of Value of Inventory. The Lender's reference to a given asset
---------------------------
in connection with the making of loans, credits, and advances and the providing
of financial accommodations under the Revolving Credit and/or the monitoring of
compliance with the provisions hereof shall not be deemed a determination by the
Lender relative to the actual value of the asset in question. All risks
concerning the saleabilitv of the Borrower's Inventory are and remain upon the
Borrower. All Collateral secures the prompt, punctual, and faithful performance
of the Liabilities whether or not relied upon by the Lender in connection with
the making of loans, credits, and advances and the providing of financial
accommodations under the Revolving Credit.
1-4. Procedures Under Revolving Credit.
---------------------------------
(a) The Borrower may request loans and advances under the Revolving
Credit, each in an amount of not less than Ten Thousand ($10,000.00) Dollars.
Each such request shall be in such manner as may from time to time be acceptable
to the Lender.
(b) (i) The Lender, subject to the terms and conditions of the
within Agreement, will provide the Borrower with the loan so requested, if such
request is received by 12:00 Noon on a Banking Day, by the end of business on
that Banking Day; otherwise, by the end of the then next Banking Day.
(ii) The Lender may revise the above schedule, by which loans
shall be made, from time to time.
(c) Provided that Maximum Loan Exposure will not be exceeded (but
subject, however, to Subsection 1-4(i), below (which deals with the effect of a
Suspension Event)), a loan or advance under the Revolving Credit so requested by
the Borrower shall be made by the transfer of the proceeds of such loan or
advance to the Funding Account or as otherwise instructed by the Borrower.
(d) A loan or advance shall be deemed to have been made under the
Revolving Credit upon:
(i) The Lender's initiation of the transfer of the proceeds of
such loan or advance in accordance with the Borrower's instructions (if such
loan or advance is of funds requested by the Borrower).
(ii) The charging of the amount of such loan to the Loan Account
(in all other circumstances).
(e) There shall not be any recourse to, nor liability of, the Lender
on account of:
(i) Any delay in the making of any loan or advance requested
under the Revolving Credit.
-2-
<PAGE>
(ii) Any delay in the proceeds of any such loan or advance
constituting collected funds.
(iii) Any delay in the receipt, and/or any loss, of funds which
constitute a loan or advance under the Revolving Credit, the wire transfer of
which was properly initiated by the Lender in accordance with wire instructions
provided to the Lender by the Borrower.
(f) The Lender may rely on any request for a loan or advance or
financial accommodation which the Lender, in good faith, believes to have been
made by a person duly authorized to act on behalf of the Borrower and may
decline to make any such requested loan or advance or to provide any such
financial accommodation pending the Lender's being furnished with such
documentation concerning that person's authority to act as may be satisfactory
to the Lender.
(g) A request by the Borrower for any financial accommodation under
the Revolving Credit or of the issuance of an L/C shall be irrevocable and shall
constitute certification by the Borrower that as of the date of such request.
each of the following is true and correct:
(i) There has been no material adverse change in the Borrower's
financial condition from the most recent financial information furnished Lender
pursuant to this Agreement.
(ii) The Borrower is in compliance with, and has not breached
any of, its covenants contained in this Agreement.
(iii) Each representation which is made herein or in any of the
Loan Documents is then true and complete as of and as if made on the date of
such request.
(iv) No Suspension Event is then extant.
(h) The Borrower shall immediately become indebted to the Lender for
the amount of each loan under or pursuant to this Agreement when such loan is
deemed to have been made.
(i) Upon the occurrence from time to time of any Suspension Event,
the Lender may suspend the Revolving Credit immediately and shall not be
obligated, during such suspension, to make any loans or to provide any financial
accommodation hereunder.
(j) The Borrower may request that the Lender cause the issuance of
L/C's for the account of the Borrower.
(i) Each such request shall be in such manner as may from time
to time be acceptable to the Lender.
-3-
<PAGE>
(ii) The Lender will endeavor to cause the issuance of any L/C
so requested by the Borrower, provided that the requested L/C is in form
satisfactory to the Lender and if so issued:
(A) The aggregate Stated Amount of all L/C's then
outstanding, does not exceed Five Hundred Thousand ($500,000.00)
Dollars.
(B) The expiry of the L/C is not later than the earlier of
thirty (30) days prior to the Maturity Date or the following:
(I) Standby's: One (1) year from initial issuance.
(II) Documentary's: sixty (60) days from issuance.
(C) Maximum Loan Exposure would not be exceeded.
(iii) The Borrower shall execute such documentation to apply for
and support the issuance of an L/C as may be required by the Issuer.
(iv) There shall not be any recourse to, nor liability of, the
Lender on account of:
(A) any delay or refusal by an Issuer to issue an L/C;
(B) any action or inaction of an Issuer on account of or in
respect to, any L/C;
(v) The Borrower shall reimburse the Issuer, immediately upon
the drawing under any L/C, for the amount of such drawing. In the event that the
Borrower fails to so reimburse the Issuer, the Borrower immediately shall
reimburse the Lender for the amount of such drawing. To the extent which the
Borrower fails to so reimburse the Issuer or the Lender, the Lender, without the
request of the Borrower, may advance under the Revolving Credit any amount which
the Borrower is so obligated to pay to the Lender or the Issuer, or for which
the Borrower, the Issuer, or the Lender becomes obligated on account of, or in
respect to, any L/C. Such advance shall be made whether or not a Suspension
Event is then in existence or such advance would result in Maximum Loan
Exposure's being exceeded. Such action shall not constitute a waiver of the
Lender's rights under Section 1-7(b), below.
1-5. The Loan Account.
----------------
(a) An account ("Loan Account") shall be opened on the books of the
Lender in which Loan Account a record may be kept of all loans made under or
pursuant to this Agreement and of all payments thereon.
-4-
<PAGE>
(b) The Lender may also keep a record (either in the Loan Account or
elsewhere, as the Lender may from time to time elect) of all interest, fees,
service charges, costs, expenses, and other debits owed the Lender on account of
the Liabilities and of all credits against such amounts so owed.
(c) All credits against the Liabilities shall be conditional upon
final payment to the Lender of the items giving rise to such credits. The amount
of any item credited against the Liabilities which is charged back against the
Lender for any reason or is not so paid shall be a Liability and shall be added
to the Loan Account, whether or not the item so charged back or not so paid is
returned.
(d) Except as otherwise provided herein, all fees, service charges,
costs, and expenses for which the Borrower is obligated hereunder are payable on
demand. In the determination of Availability, the Lender may deem fees, service
charges, accrued interest, and other payments as having been advanced under the
Revolving Credit if such amounts are then due and payable.
(e) The Lender, without the request of the Borrower, may advance
under the Revolving Credit any interest, fee, service charge, or other payment
to which the Lender is entitled from the Borrower pursuant hereto and may charge
the same to the Loan Account notwithstanding that such amount so advanced may
result in Availability's being exceeded. Such action on the part of the Lender
shall not constitute a waiver of the Lender's rights under Section 1-7(b),
below. Any amount which is added to the principal balance of the Loan Account as
provided in this Section shall bear interest at the interest rate applicable
from time to time to the unpaid principal balance of the Loan Account.
(f) Any statement rendered by the Lender to the Borrower concerning
the Liabilities shall be considered correct and accepted by the Borrower and
shall be conclusively binding upon the Borrower unless the Borrower provides the
Lender with written objection thereto within twenty (20) days from the mailing
of such statement, which written objection shall indicate, with particularity,
the reason for such objection. The Loan Account and the Lender's books and
records concerning the loan arrangement contemplated herein and the Liabilities
shall be prima facie evidence and proof of the items described therein.
1-6. The Master Note. The obligation to repay loans and advances under the
---------------
Revolving Credit, with interest as provided herein, shall be evidenced by a note
(the "Master Note") in the form of EXHIBIT 1-6, annexed hereto, executed by the
Borrower. Neither the original nor a copy of the Master Note shall be required,
however, to establish or prove any Liability. In the event that the Master Note
is ever lost, mutilated, or destroyed, the Borrower shall execute a replacement
thereof and deliver such replacement to the Lender.
-5-
<PAGE>
1-7. Payment of Loan Account.
-----------------------
(a) The Borrower may repay all or any portion of the principal
balance of the Loan time to time until the Termination Date.
(b) The Borrower, without notice or demand from the Lender, shall pay
the Lender that amount, from time to time, which is necessary so that the
principal balance of the Loan Account does not exceed Maximum Loan Exposure.
(c) The Borrower shall repay the then entire unpaid balance of the
Loan Account and all other Liabilities on the Termination Date.
1-8. Interest.
--------
(a) The unpaid principal balance of the Loan Account shall bear
interest, until repaid (calculated based upon a 360-day year and actual days
elapsed), at the aggregate of Base plus one (1%) percent per annum but in no
event less than eight (8%) percent per annum or in excess of the maximum rate
permitted by applicable law.
(b) Following the occurrence of any Event of Default (and whether or
not the Lender exercises any of the Lender's rights on account of such Event of
Default), all loans and advances made under the Revolving Credit shall bear
interest, through the End Date, at a rate which is the aggregate of that
provided for in Section 1-8(a), above, plus four (4%) percent per annum.
(c) Accrued interest shall be payable:
(i) Monthly in arrears on the first day of the month next
following that during which such interest accrued.
(ii) On the Termination Date.
(iii) On the End Date.
1-9. Fees. Borrower shall pay to the Lender the following fees:
----
(a) Commitment Fee. On the date of execution hereof, a one time fully
earned commitment fee shall be due and payable in an amount equal to $17,500.00.
(b) Annual Facility Fee. On the first anniversary of the date of
execution hereof, a facility fee in an amount equal to one-quarter of one (.25%)
percent of the Credit Limit which shall have been fully earned at the date of
execution hereof, shall be due and payable, and on each anniversary of the date
of execution hereof, a facility fee in an amount equal to one-quarter of one
-6-
<PAGE>
(.25%) percent of the Credit Limit, which shall have been fully earned as of the
date hereof, shall be due and payable.
(c) Loan Maintenance Fee. On the date of execution hereof and on each
anniversary of the date of execution hereof, a loan maintenance fee equal to
$14,000.00 shall be payable. Such fee shall have been fully earned as of the
date hereof and as of each anniversary of the date of execution hereof and shall
be payable in twelve (12) monthly installments as follows: 1/12th of such fee
shall be payable as of the date hereof and on each anniversary of the date of
execution hereof, and 1/12th of such fee shall be payable on the same day of
each month hereafter until paid in full.
(d) Financial Examination, Documentation, and Appraisal Fees. Subject
to the provisions of Article 9-10 Lender's actual charges paid or incurred for
each financial analysis and examination (i.e., audits) of Borrower performed by
personnel employed by Lender; Lender's actual charges paid or incurred for each
appraisal of the Collateral performed by personnel employed by Lender; and the
actual charges paid or incurred by Lender if it elects to employ the services of
one or more third Persons to perform such financial analysis and examinations
(i.e., audits) of Borrower or to appraise the Collateral.
(e) In addition to any other right to which the Lender is then
entitled on account thereof, the Lender may assess additional fees and charges
payable by the Borrower on account of the accommodation, from time to time, of
Lender to the Borrower's request that the Lender depart or dispense with one or
more of the administrative provisions of the within Agreement and/or the
Borrower's failure to comply with any of such provisions.
(i) By way of non-exclusive example, the Lender may assess a
fee on account of any of the following:
(A) The Borrower's failure to pay that amount which is
necessary so that the principal balance of the Loan Account does
not exceed Maximum Permitted Exposure (as required under Section
1-7(b), above).
(B) The providing of a loan or advance under the Revolving
Credit such that Maximum Loan Exposure would be exceeded.
(C) The providing of a same Banking Day loan requested
after the time set forth in Section l-4(b)(i), above.
(D) The Borrower's failure to provide a financial statement
or report within the applicable time-frame provided for such
report under Article 9, below.
-7-
<PAGE>
(ii) The inclusion of the foregoing right on the part of the
Lender to assess a fee does not constitute an obligation, on the part of the
Lender, to waive any provision of the within Agreement under any circumstances.
The assessment of any such fee in any particular circumstance shall not
constitute the Lender's waiver of any breach of the within Agreement on account
of which such fee was assessed nor a course of action on which the Borrower may
rely.
(f) The Borrower shall not be entitled to any credit, rebate or
repayment of any Commitment Fee, Facility Fee, Loan Maintenance Fee, or other
fee previously earned by the Lender pursuant to this Section notwithstanding any
termination of the within Agreement or suspension or termination of the Lender's
obligation to make loans and advances hereunder.
1-10. Lender's Discretion.
-------------------
(a) Each reference in the Loan Documents to the exercise of
discretion or the like by the Lender shall be to that Person's exercise of its
judgement, in good faith (which shall be presumed), based upon that Person's
consideration of any such factor as the Lender, taking into account information
of which that Person then has actual knowledge, believes:
(i) Will or reasonably could be expected to affect the value
of the Collateral, the enforceability of the Lender's security and collateral
interests therein, or the amount which the Lender would likely realize therefrom
(taking into account delays which may possibly be encountered in the Lender's
realizing upon the Collateral and likely Costs of Collection).
(ii) Indicates that any report or financial information
delivered to the Lender by or on behalf of the Borrower is incomplete,
inaccurate, or misleading in any material manner or was not prepared in
accordance with the requirements of the within Agreement.
(iii) Suggests an increase in the likelihood that the Borrower
will become the subject of a bankruptcy or insolvency proceeding.
(iv) Constitutes a Suspension Event.
(b) In the exercise of such judgement, the Lender also may take
into account any of the following factors:
(i) Those included in, or tested by, the definitions of
"Acceptable Inventory", " Retail", and "Cost".
(ii) The current financial and business climate of the
industry in which the Borrower competes (having regard for the Borrower's
position in that industry).
(iii) General economic conditions which have a material effect
on cost structure.
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<PAGE>
(iv) Material changes in or to the mix of the Borrower's
Inventory.
(v) Seasonality with respect to the Borrower's Inventory and
patterns of the Borrower's retail sales.
(vi) Such other factors as the Lender determines as having a
material bearing on credit risks associated with the providing of loans and
financial accommodations to the Borrower.
(c) The burden of establishing the failure of the Lender to have
acted in a reasonable manner in such Person's exercise of discretion shall be
the Borrower's.
1-11. Fees for L/C's.
--------------
(a) Prior to the issuance of any L/C, the Borrower shall pay to the
Lender a fee for each L/C equal to the greater of(i) Two Hundred Fifty ($250.00)
Dollars, or (ii) twenty-five (25) Basis Points per month times the Stated Amount
of that L/C.
(b) In addition to the fee to be paid as provided in Subsection
1-11(a), above, the Borrower shall pay to the Lender (or to the Issuer, if so
requested by the Lender), on demand, all issuance, processing, negotiation,
amendment, and administrative fees and other amounts charged by the Issuer on
account of, or in respect to, any L/C
1-12. Concerning L/C's.
----------------
(a) None of the Issuer, the Issuer's correspondents, or any advising,
negotiating, or paying bank with respect to any L/C shall be responsible in any
way for:
(i) The performance by any beneficiary under any L/C of that
beneficiary's obligations to the Borrower.
(ii) The form, sufficiency, correctness, genuineness, authority
of any person signing; falsification; or the legal effect of, any documents
called for under any L/C if (with respect to the foregoing) such documents on
their face appear to be in order.
(b) The Issuer may honor, as complying with the terms of any L/C and
of any drawing thereunder, any drafts or other documents otherwise in order, but
signed or issued by an administrator, executor, conservator, trustee in
bankruptcy, debtor in possession, assignee for the benefit of creditors,
liquidator, receiver, or other legal representative of the party authorized
under such L/C to draw or issue such drafts or other documents.
(c) Unless otherwise agreed to, in the particular instance, the
Borrower hereby authorizes any Issuer to:
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<PAGE>
(i) Select an advising bank, if any.
(ii) Select a paying bank, if any.
(iii) Select a negotiating bank.
(d) All directions, correspondence, and funds transfers relating to
any L/C are at the risk of the Borrower. The Issuer shall have discharged the
Issuer's obligations under any L/C which, or the drawing under which, includes
payment instructions, by the initiation of the method of payment called for in,
and in accordance with, such instructions (or by any other commercially
reasonable and comparable method). Neither the Lender nor the Issuer shall have
any responsibility for any inaccuracy, interruption, error, or delay in
transmission or delivery by post, telegraph or cable, or for any inaccuracy of
translation.
(e) The Lender's and the Issuer's rights, powers, privileges and
immunities specified in or arising under this Agreement are in addition to any
heretofore or at any time hereafter otherwise created or arising, whether by
statute or rule of law or contract.
(f) Except to the extent otherwise expressly provided hereunder or
agreed to in writing by the Issuer and the Borrower, the L/C will be governed by
the Uniform Customs and Practice for Documentary Credits (1993 Revision),
International Chamber of Commerce, Publication No.500, and any subsequent
revisions thereof.
(g) If any change in any law, executive order or regulation, or any
directive of any administrative or governmental authority (whether or not having
the force of law), or in the interpretation thereof by any court or
administrative or governmental authority charged with the administration
thereof, shall either:
(i) Impose, modify or deem applicable any reserve, special
deposit or similar requirements against letters of credit heretofore or
hereafter issued by any Issuer or with respect to which the Lender or any Issuer
has an obligation to lend to fund drawings under any L/C.
(ii) Impose on any Issuer any other condition or requirements
relating to any such letters of credit; and the result of any event referred to
in Section 1-12(g)(i) or 1-12(g)(ii), above, shall be to increase the cost to
any Issuer of issuing or maintaining any L/C (which increase in cost shall be
the result of such Issuer's reasonable allocation among that Issuer's letter of
credit customers of the aggregate of such cost increases resulting from such
events), then, upon demand by the Lender and delivery by the Lender to the
Borrower of a certificate of an officer of the subject Issuer describing such
change in law, executive order, regulation, directive, or interpretation
thereof, its effect on such Issuer, and the basis for determining such increased
costs and their allocation, the Borrower shall immediately pay to the Lender,
from time to time as specified by the Lender, such amounts as shall be
sufficient to compensate such Issuer for such increased cost. Any Issuer's
determination of costs incurred under Section 1-12(g)(i) or 1-12(g)(ii), above,
and the allocation, if
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<PAGE>
any, of such costs among the Borrower and other letter of credit customers of
such Issuer, if done in good faith and made on an equitable basis and in
accordance with the officer's certificate, shall be conclusive and binding on
the Borrower.
(h) The obligations of the Borrower under the within Agreement with
respect to L/C's are absolute, unconditional, and irrevocable and shall be
performed strictly in accordance with the terms hereof under all circumstances,
whatsoever including, without limitation, the following:
(i) Any lack of validity or enforceability or restriction,
restraint, or stay in the enforcement of the within Agreement, any L/C, or any
other agreement or instrument relating thereto.
(ii) Any amendment or waiver of, or consent to the departure
from, any L/C.
(iii) The existence of any claim, set-off, defense, or other
right which the Borrower may have at any time against the beneficiary of any
L/C.
(iv) Any honoring of a drawing under any L/C, which drawing
possibly could have been dishonored based upon a strict construction of the
terms of the L/C.
ARTICLE 2 - GRANT OF SECURITY INTEREST
- --------------------------------------
2-1. Grant of Security Interest. To secure the Borrower's prompt,
--------------------------
punctual, and faithful performance of all and each of the Borrower's
Liabilities, the Borrower hereby grants to the Lender a continuing security
interest in and to, and assigns to the Lender, the following, and each item
thereof, whether now owned or now due, or in which the Borrower has an interest,
or hereafter acquired, arising, or to become due, or in which the Borrower
obtains an interest, and all products, Proceeds, substitutions, and accessions
of or to any of the following (all of which, together with any other property in
which the Lender may in the future be granted a security interest, is referred
to herein as the "Collateral"):
(a) All of Borrower's inventory, including all goods, merchandise,
raw materials, goods and work in process, finished goods, and other tangible
personal property now owned or hereafter acquired and held for sale or lease or
furnished or to be furnished under contracts of service or used or consumed in
Borrower's business, including, without limitation, all crops, plants, shrubs,
trees, live Christmas trees and flowers, whether ported or affixed to the land
including, without limitation, all crops growing or to be grown on the land
identified on Exhibit 5-4 hereto.
(b) All farm products, including, without limitation, all crops,
plants, shrubs, trees, live Christmas trees and flowers, whether potted or
affixed to the land, and all equipment and supplies used or produced in
connection with debtor's farming operations, now owned or hereafter
-11-
<PAGE>
acquired including, without limitation, all crops growing or to be grown on the
land identified on Exhibit 5-4 hereto.
(c) All of Borrower's accounts, contracts, contract rights, notes,
bills, drafts, acceptances, general intangibles (including without limitation
trade names, customer lists, goodwill, computer programs, computer records,
computer software, computer data, trade secrets, trademarks, patents, ledger
sheets, files, records, data processing records relating to any accounts and all
tax refunds of every kind and nature to which Borrower is now or hereafter may
become entitled to, no matter how arising), instruments, documents, chattel
paper, securities, security entitlements, security accounts, investment
property, chooses in action, and all other debts, obligations and liabilities in
whatever form, owing to Borrower from any person, firm or corporation or any
other legal entity, whether now existing or hereafter arising, now or hereafter
received by or belonging or owing to Borrower, for goods sold by it or for
services rendered by it, or however otherwise same may have been established or
created, all guarantees and securities therefor, all right, title and interest
of Borrower in the merchandise or services which gave rise thereto, including
the rights of reclamation and stoppage in transit, all rights to replevy goods,
all rights of an unpaid seller of merchandise or services, and in the products
and proceeds thereof, including, without limitation, all proceeds of credit,
fire or other insurance.
(d) All of Borrower's machinery, equipment and other goods (as
defined in Article 9 of the Uniform Commercial Code) whether now owned or
hereafter acquired by Borrower and wherever located, all replacements and
substitutions therefor or accessions thereto and all proceeds thereof.
(e) All proceeds and products of all of the foregoing in any form,
including, without limitation, all proceeds, refunds and premium rebates of
credit, fire or other insurance, and also including, without limitation, rents
and profits resulting from the temporary use of any of the foregoing.
2-2. Extent and Duration of Security Interest. The within grant of a
----------------------------------------
security interest is in addition to, and supplemental of, any security interest
previously granted by the Borrower to the Lender and shall continue in full
force and effect applicable to all Liabilities until all Liabilities have been
paid and/or satisfied in full and the security interest granted herein is
specifically terminated in writing by a duly authorized officer of the Lender.
ARTICLE 3 - DEFINITIONS
- -----------------------
All capitalized terms used in this agreement which are not otherwise
defined herein or in the UCC shall have the meanings assigned to them in EXHIBIT
3, annexed hereto.
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<PAGE>
ARTICLE 4 - CONDITIONS PRECEDENT
- --------------------------------
Precedent to the effectiveness of this Agreement, the establishment of the
Revolving Credit, and the making of the first loan under the Revolving Credit,
the documents respectively described in Sections 4-1 through and including 4-5,
each in form and substance satisfactory to the Lender shall have been delivered
to the Lender, and the conditions respectively described in Sections 4-6 through
and including 4-9, shall have been satisfied:
4-1. Corporate Due Diligence.
-----------------------
(a) A Certificate of corporate good standing issued by the Secretary
of State of Incorporation of the Borrower.
(b) Certificates of due qualification on, in good standing, issued by
the Secretary(ies) of State of each State in which the nature of the Borrower's
business conducted or assets owned could require such qualification.
(c) A Certificate of the Borrower's secretary or clerk attesting to
the due adoption, continued effectiveness, and setting forth the texts of, each
corporate resolution adopted in connection with the establishment of the loan
arrangement contemplated by the Loan Documents and attesting to the true
signatures of each Person authorized as a signatory to any of the Loan
Documents.
4-2. Opinion. An opinion of counsel to the Borrower in form and substance
-------
satisfactory to the Lender.
4-3. Additional Documents. Such additional instruments and documents as
--------------------
the Lender or its counsel reasonably may require or request.
4-4. Key Life Policies. The Collateral Assignment to the Lender of
-----------------
policies on the lives of the following persons for the amounts stated:
Timothy Duoos: $1,000,000.00
4-5. Officers' Certificates. Certificates executed by the President and
----------------------
the Chief Financial Officer of the Borrower and stating that the representations
and warranties made by the Borrower to the Lender in the Loan Documents are true
and complete as of the date of such Certificate, and that no event has occurred
which is or which, solely with the giving of notice or passage of time (or both)
would be an Event of Default.
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<PAGE>
4-6. Representations and Warranties. Each of the representations made by
------------------------------
or on behalf of the Borrower in this Agreement or in any of the other Loan
Documents or in any other report, statement, document or paper provided by and
or on behalf of the Borrower shall be true and complete as of the date as of
which such representation or warranty was made.
4-7. Minimum Excess Availability. Availability, after giving effect to the
---------------------------
first loans and advances to be made under the Revolving Credit; any charges to
the Loan Account made in connection with the establishment of the credit
facility contemplated hereby; and L/C's to be issued at, or immediately
subsequent to, the establishment of such establishment, is not less than Five
Hundred Fifty Thousand and 00/100 ($550,000.00) Dollars.
4-8. No Event of Default. No event shall have occurred, or failed to
-------------------
occur, which occurrence or which failure constitutes, or which. solely with the
passage of time or the giving of notice (or both) would constitute, an Event of
Default.
4-9. No Adverse Change. No event shall have occurred or failed to occur,
-----------------
which occurrence or failure is or could have a materially adverse effect upon
the Borrower's financial condition, operating results, or cash flows from the
Borrower's financial condition at September 30, 1997.
No document shall be deemed delivered to the Lender until received and accepted
by the Lender at its head offices in Newton, Massachusetts. Under no
circumstances will the within Agreement take effect until executed and accepted
by the Lender at said head office.
ARTICLE 5 - GENERAL REPRESENTATIONS, WARRANTIES AND COVENANTS
- -------------------------------------------------------------
To induce the Lender to establish the loan arrangement contemplated herein
and to make loans and advances and to provide financial accommodations under the
Revolving Credit (each of which loans shall be deemed to have been made in
reliance thereupon) the Borrower, in addition to all other representations,
warranties, and covenants made by the Borrower in any other Loan Document, makes
those representations, warranties, and covenants included in the within
Agreement.
5-1. Payment and Performance of Liabilities. The Borrower shall pay each
-------------------------- -----------
Liability due Lender when due (or when demanded if payable on demand) and shall
promptly, punctually, and faithfully perform each other Liability due Lender and
pay each Liability due others in accordance with its current custom and
practice. If Borrower has any dispute with any Person with respect to any
Liability, Borrower shall give Paragon notice of said dispute.
5-2. Due Organization - Corporate Authorization - No Conflicts.
---------------------------------------------------------
(a) The Borrower presently is and shall hereafter remain in good
standing as a corporation and is and shall hereafter remain duly qualified and
in good standing in every other State
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<PAGE>
in which, by reason of the nature or location of the Borrower's assets or
operation of the Borrower's business such qualification may be necessary.
(b) Each Related Entity is listed on EXHIBIT 5-2, annexed hereto.
Each Related Entity is and shall hereafter remain in good standing in the State
in which incorporated and is and shall hereafter remain duly qualified in which
other State in which, by reason of that entity's assets or the operation of such
entity's business, such qualification may be necessary. The Borrower shall
provide the Lender with prior written notice of any entity's becoming or ceasing
to be a Related Entity.
(c) The Borrower has all requisite corporate power and authority to
execute and deliver all and singular the Loan Documents to which the Borrower is
a party and has and will hereafter retain all requisite corporate power to
perform all and singular the Liabilities.
(d) The execution and delivery by the Borrower of each Loan Document
to which it is a party; the Borrower's consummation of the transactions
contemplated by such Loan Documents (including, without limitation, the creation
of security interests by the Borrower as contemplated hereby); the Borrower's
performance under those of the Loan Documents to which it is a party; the
borrowings hereunder; and the use of the proceeds thereof:
(i) Have been duly authorized by all necessary corporate
action.
(ii) Do not, and will not, contravene in any material respect
any provision of any Requirement of Law or obligation of the Borrower.
(iii) Will not result in the creation or imposition of or the
obligation to create or impose, any Encumbrance upon any assets of the Borrower
pursuant to any Requirement of Law or obligation, except pursuant to the Loan
Documents.
(e) The Loan Documents have been duly executed and delivered by
Borrower and are the legal, valid and binding obligations of the Borrower,
enforceable against the Borrower in accordance with their respective terms.
5-3. Trade Names.
-----------
(a) EXHIBIT 5-3, annexed hereto, is a listing of:
(i) All names under which the Borrower ever conducted its
business.
(ii) All entities and/or persons with whom the Borrower ever
consolidated or merged, or from whom the Borrower ever acquired in a single
transaction or in a series of related transactions substantially all of such
entity's or person's assets.
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<PAGE>
(b) Except (i) upon not less than twenty-one (21) days prior written
notice given the Lender, and (ii) in compliance with all other provisions of the
within Agreement, the Borrower will not undertake or commit to undertake any
action such that the results of that action, if undertaken prior to the date of
this Agreement, would have been reflected on EXHIBIT 5-3.
(c) The Borrower owns and possesses, or has the right to use all
patents, industrial designs, trademarks, trade names, trade styles, brand names,
service marks, logos, copyrights, trade secrets, know-how, confidential
information, and other intellectual or proprietary property of any third Person
necessary for the Borrower's conduct of the Borrower's business.
(d) The conduct by the Borrower of the Borrower's business does not
infringe on the patents, industrial designs, trademarks, trade names, trade
styles, brand names, service marks, logos, copyrights, trade secrets, know-how,
confidential information, or other intellectual or proprietary property of any
third Person.
5-4. Locations, Landlord's Waivers.
-----------------------------
(a) The Collateral, and the books, records, and papers of Borrower
pertaining thereto, are kept and maintained solely at the Borrower's chief
executive offices as set forth in the beginning of this Agreement and at those
locations which are listed on EXHIBIT 5-4, annexed hereto, which EXHIBIT
includes all service bureaus with which any such records are maintained and the
names and addresses of each of the Borrower's landlords. Except (i) to
accomplish sales of Inventory in the ordinary course of business or (ii) to
utilize such of the Collateral as is removed from such locations in the ordinary
course of business (such as motor vehicles), the Borrower shall not remove any
Collateral from said chief executive offices or those locations listed on
EXHIBIT 5-4.
(b) The Borrower shall use its best efforts to obtain and deliver to
the Lender a waiver or subordination (reasonably satisfactory to the Lender) by
the landlord for each store location within sixty (60) days of the date of
execution hereof.
(c) If the Borrower fails to obtain a waiver or subordination for
each store location within said sixty (60) day period, the Lender may establish
an Availability Reserve for up to ninety (90) days rent for each of the
Borrower's locations in a Landlord Lien State or in a One Turn State.
Such Availability Reserve shall be reduced or eliminated as
follows (but only if no Suspension Event is then in existence or has theretofore
occurred):
(i) With respect to locations in One Turn States: one hundred
twenty (120) days after the execution of the within Agreement.
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<PAGE>
(ii) With respect to locations in Landlord Lien States: Upon
the furnishing to the Lender of a waiver or subordination (reasonably
satisfactory to the Lender by the landlord for the subject location. Without
duplication of any Availability Reserve described above, the Lender may
establish an Availability Reserve for unpaid rent.
(c) The Borrower will not:
(i) Execute alter, modify, or amend any Lease.
(ii) Commit to, or open or close any location at which the
Borrower maintains, offers for sales, or stores any of the Collateral.
(d) Except as otherwise disclosed pursuant to, or permitted by, this
Section 5-4, no tangible personal property of the Borrower is in the care or
custody of any third party or stored or entrusted with a bailee or other third
party and none shall hereafter be placed under such care, custody, storage, or
entrustment.
5-5. Title to Assets.
---------------
(a) The Borrower is, and shall hereafter remain, the owner of the
Collateral free and clear of all Encumbrances with the exceptions of the
following:
(i) The security interest created herein.
(ii) Those Encumbrances (if any) listed on EXHIBIT 5-5, annexed
hereto.
(b) The Borrower does not and shall not have possession of any
property on consignment to the Borrower.
5-6. Indebtedness. The Borrower does not and shall not hereafter have any
------------
Indebtedness with the exceptions of:
(a) Any Indebtedness to the Lender.
(b) The Indebtedness (if any) listed on EXHIBIT 5-6, annexed hereto.
5-7. Insurance Policies.
------------------
(a) EXHIBIT 5-7, annexed hereto, is a schedule of all insurance
policies owned by the Borrower or under which the Borrower is the named insured.
Each of such policies is in full force and effect. Neither the issuer of any
such policy nor the Borrower is in default or violation of any such policy.
-17-
<PAGE>
(b) The Borrower shall have and maintain at all times insurance
covering such risks, in such amounts, containing such terms, in such form, for
such periods, and written by such companies as may be satisfactory to the
Lender. The coverage reflected on EXHIBIT 5-7 presently satisfies the foregoing
requirements, it being recognized by the Borrower, however, that such
requirements may change hereafter to reflect changing circumstances. All
insurance carried by the Borrower shall provide for a minimum of twenty (20)
days' written notice of cancellation to the Lender and all such insurance which
covers the Collateral shall include an endorsement in favor of the Lender, which
endorsement shall provide that the insurance, to the extent of the Lender's
interest therein, shall not be impaired or invalidated, in whole or in part, by
reason of any act or neglect of the Borrower or by the failure of the Borrower
to comply with any warranty or condition of the policy. In the event of the
failure by the Borrower to maintain insurance as required herein, the Lender, at
its option, may obtain such insurance, provided, however, the Lender's obtaining
of such insurance shall not constitute a cure or waiver of any Event of Default
occasioned by the Borrower's failure to have maintained such insurance. The
Borrower shall furnish to the Lender certificates or other evidence satisfactory
to the Lender regarding compliance by the Borrower with the foregoing insurance
provisions.
(c) The Borrower shall advise the Lender of each claim in excess of
One Hundred Thousand ($100,000.00) Dollars made by the Borrower under any policy
of insurance which covers the Collateral and will permit the Lender, at the
Lender's option in each instance, to the exclusion of the Borrower, to conduct
the adjustment of each such claim (and of all claims following the occurrence of
any Suspension Event). The Borrower hereby appoints the Lender as the Borrower's
attorney in fact to obtain, adjust, settle, and cancel any insurance described
in this section and to endorse in favor of the Lender any and all drafts and
other instruments with respect to such insurance. The within appointment, being
coupled with an interest, is irrevocable until this Agreement is terminated by a
written instrument executed by a duly authorized officer of the Lender. The
Lender shall not be liable on account of any exercise pursuant to said power
except for any exercise in actual willful misconduct and bad faith. The Lender
may apply any proceeds of such insurance against the Liabilities, whether or not
such have matured, in such order of application as the Lender may determine.
(d) The Borrower shall maintain at all times those policies of
insurance obtained by the Borrower and assigned to the Lender as required by
Section 4-4, above.
5-8. Licenses. Each license, distributorship, franchise, and similar
--------
agreement issued to, or to which the Borrower is a party is in full force and
effect. No party to any such license or agreement is in default or violation
thereof. The Borrower has not received any notice or threat of cancellation of
any such license or agreement.
5-9. Leases. EXHIBIT 5-9, annexed hereto, is a schedule of all presently
------
effective Leases and Capital Leases. Each of such Leases and Capital Leases is
in full force and effect. No party to any such Lease or Capital Lease is in
default or violation of any such Lease (except as disclosed on Exhibit 5-9) or
Capital Lease and the Borrower has not received any notice or threat of
cancellation
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<PAGE>
of any such Lease or Capital Lease. The Borrower hereby authorizes the Lender at
any time and from time to time to contact any of the Borrower's landlords in
order to confirm the Borrower's continued compliance with the terms and
conditions of the Lease(s) between the Borrower and that landlord and to
discuss such issues, concerning the Borrower's occupancy under such Lease(s), as
the Lender may determine.
5-10. Requirements of Law. The Borrower is in compliance with, and shall
-------------------
hereafter comply with and use its assets in compliance with, all Requirements of
Law. The Borrower has not received any notice of any violation of any
Requirement of Law (whether or not such violation is material), which violation
has not been cured or otherwise remedied.
5-11. Maintain Properties. The Borrower shall:
-------------------
(a) Keep the Collateral in good order and repair (ordinary
reasonable wear and tear and insured casualty excepted).
(b) Not suffer or cause the waste or destruction of any material
part of the Collateral.
(c) Not use any of the Collateral in violation of any policy of
insurance thereon.
(d) Not sell, lease, or otherwise dispose of any of the Collateral,
other than the following:
(i) The sale of Inventory in compliance with the within
Agreement.
(ii) The disposal of Equipment which is obsolete, worn out, or
damaged beyond repair, which Equipment is replaced to the extent necessary to
preserve or improve the operating efficiency of the Borrower.
(iii) The turning over to the Lender of all Receipts as provided
herein.
5-12. Pay Taxes.
---------
(a) The federal income tax returns of the Borrower have been audited
by the Internal Revenue Service (or closed by applicable statutes) for all
fiscal years through and including the Borrower's taxable year referenced on
EXHIBIT 5-12, annexed hereto, and all deficiencies, assessments, and other
amounts asserted as a result of such examinations have been fully paid or
settled. No agreement is extant which waives or extends any statute of
limitations applicable to the right of the Internal Revenue Service to assert a
deficiency or make any other claim for or in respect to federal income taxes. No
issue has been raised in any such examination which, by application of similar
principles, reasonably could be expected to result in the assertion of a
deficiency for any fiscal year open for examination, assessment, or claim by the
Internal Revenue Service.
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<PAGE>
(b) All returns of the Borrower for state and local income, excise,
sales, and other taxes have been audited (or closed by applicable statutes) for
all fiscal years through and including the Borrower's taxable year referenced on
EXHIBIT 5-12, annexed hereto, and all deficiencies, assessments, and other
amounts asserted as a result of such examinations have been fully paid or
settled. No agreement is in existence which waives or extends any statute of
limitations applicable to the right of any state taxing authority to assert a
deficiency or make any other claim for or in respect to any such state taxes. No
issue has been raised in any such examination which, by application of similar
principles, reasonably could be expected to result in the assertion of a
deficiency for any fiscal year open for examination, assessment, or claim by any
state or local taxing authority.
(c) Except as disclosed on said EXHIBIT 5-12, there are no
examinations of or with respect to the Borrower presently being conducted by the
Internal Revenue Service or any state taxing authority.
(d) The Borrower has, and hereafter shall: pay, as they become due
and payable, all taxes and unemployment contributions and other charges of any
kind or nature levied, assessed or claimed against the Borrower or the
Collateral by any person or entity whose claim could result in an Encumbrance
upon any asset of the Borrower or by any governmental authority; properly
exercise any trust responsibilities imposed upon the Borrower by reason of
withholding from employees' pay; timely make all contributions and other
payments as may be required pursuant to any Employee Benefit Plan now or
hereafter established by the Borrower; and timely file all tax and other returns
and other reports with each governmental authority to whom the Borrower is
obligated to so file.
(e) At its option, the Lender may, but shall not be obligated to,
pay any taxes, unemployment contributions, and any and all other charges levied
or assessed upon the Borrower or the Collateral by any person or entity or
governmental authority, and make any contributions or other payments on account
of the Borrower's Employee Benefit Plan as the Lender, in the Lender's
discretion, may deem necessary or desirable, to protect, maintain, preserve.
collect, or realize upon any or all of the Collateral or the value thereof or
any right or remedy pertaining thereto, provided, however, the Lender's making
of any such payment shall not constitute a cure or waiver of any Event of
Default occasioned by the Borrower's failure to have made such payment.
5-13. No Margin Stock. The Borrower is not engaged in the business of
---------------
extending credit for the purpose of purchasing or carrying any margin stock
(within the meaning of Regulations G.U.T. and X. of the Board of Governors of
the Federal Reserve System of the United States). No part of the proceeds of any
borrowing hereunder will be used at any time to purchase or carry any such
margin stock or to extend credit to others for the purpose of purchasing or
carrying any such margin stock.
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5-14. ERISA. Neither the Borrower nor any ERISA Affiliate ever has or
-----
hereafter shall:
(a) Violate or fail to be in full compliance with the Borrower's
Employee Benefit Plan.
(b) Fail timely to file all reports and filings required by ERISA to
be filed by the Borrower.
(c) Engage in any "prohibited transactions" or "reportable events"
(respectively as described in ERISA).
(d) Engage in, or commit, any act such that a tax or penalty could
be imposed on account thereof pursuant to ERISA
(e) Accumulate any material funding deficiency within the meaning of
ERISA
(f) Terminate any Employee Benefit Plan such that a lien could be
asserted of the Borrower on account thereof pursuant to ERISA.
(g) Be a member of, contribute to, or have any obligation under any
Employee is a multiemployer plan within the meaning of Section 4001(a) of ERISA
5-15. Hazardous Materials.
-------------------
(a) The Borrower has never:
(i) Been legally responsible for any release or threat of
release of any Hazardous Material.
(ii) Received notification of any release or threat of release
of any Hazardous Material from any site or vessel occupied or operated by the
Borrower and/or of the incurrence of any expense or loss in connection with the
assessment, containment, or removal of any release or threat of release of any
Hazardous Material from any such site or vessel.
(b) The Borrower shall:
(i) Dispose of any Hazardous Material only in compliance with
all Environmental Laws.
(ii) Not store on any site or vessel occupied or operated by
the Borrower and not transport or arrange for the transport of any Hazardous
Material, except if such storage or transport is in the ordinary course of the
Borrower's business and is in compliance with all Environmental Laws.
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<PAGE>
(c) The Borrower shall provide the Lender with written notice upon
the Borrower's obtaining knowledge of any incurrence of any expense or loss by
any governmental authority or other Person in connection with the assessment,
containment, or removal of any Hazardous Material, for which expense or loss the
Borrower may be liable.
5-16. Litigation. Except as disclosed on Exhibit 5-16, there is not
----------
presently pending or threatened by or against the Borrower any suit, action,
proceeding, or investigation which, if determined adversely to the Borrower,
would have a material adverse effect upon the Borrower's financial condition or
ability to conduct its business as such business is presently conducted or is
contemplated to be conducted in the foreseeable future.
5-17. Dividends or Investments. The Borrower shall not:
------------------------
(a) Pay any cash dividend or make any other distribution in respect
of any class of the Borrower's capital stock.
(b) Own, redeem, retire, purchase, or acquire any of the Borrower's
capital stock.
(c) Invest in or purchase any stock or securities or rights to
purchase any such stock or securities, of any corporation or other entity.
(d) Merge or consolidate or be merged or consolidated with or into
any other corporation or other entity.
(e) Consolidate any of the Borrower's operations with those of any
other corporation or other entity.
(f) Organize or create any Related Entity.
(g) Subordinate any debts or obligations owed to the Borrower by any
third party to any other debts owed by such third party to any other Person.
5-18. Loans. The Borrower shall not make any loans or advances to, nor
-----
acquire the Indebtedness of, any Person, provided, however, the foregoing does
not prohibit any of the following:
(a) Advance payments made to the Borrower's suppliers in the
ordinary course.
(b) Advances to the Borrower's officers, employees, and salespersons
with respect to reasonable expenses to be incurred by such officers, employees,
and salespersons for the benefit of the Borrower, which expenses are properly
substantiated by the person seeking such advance and properly reimbursable by
the Borrower.
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5-19. Protection of Assets. The Lender, in the Lender's discretion, and
--------------------
from time to time, may discharge any tax or Encumbrance on any of the Collateral
or take any other action that the Lender may deem necessary or desirable to
repair insure, maintain, preserve. collect, or realize upon any of the
Collateral. The Lender shall not have any obligation to undertake any of the
foregoing and shall have no liability on account of any action so undertaken
except where there is a specific finding in a judicial proceeding (in which the
Lender has had an opportunity to be heard), from which finding no further appeal
is available. that the Lender had acted in actual bad faith or in a grossly
negligent manner. The Borrower shall pay to the Lender, on demand, or the
Lender, in its discretion, may add to the Loan Account, all amounts paid or
incurred by the Lender pursuant to this section. The obligation of the Borrower
to pay such amounts is a Liability.
5-20. Line of Business. The Borrower shall not engage in any business
----------------
other than the business in which it is currently engaged or a business
reasonably related thereto.
5-21. Affiliate Transactions. The Borrower shall not make any payment, nor
----------------------
give any value to any Related Entity except for goods and services actually
purchased by the Borrower from, or sold by the Borrower to, such Related Entity
for a price which shall:
(a) Be competitive and fully deductible as an "ordinary and
necessary business expense" and/or filly depreciable under the Internal Revenue
Code of 1986 and the Treasury Regulations, each as amended.
(b) Not differ from that which would have been charged in an arms
length transaction.
5-22. Executive Pay.
-------------
(a) The only Executive Officers of the Borrower. at the execution of
the within Agreement, are those individuals referenced in the definition of
"Executive Officers".
(b) Prior to the execution of the within Agreement, the Borrower
furnished the Lender with copies of all written Executive Agreements and
outlines of the salient features of all unwritten Executive Agreements (as
amended to date) then extant. There are no unwritten agreements or
understandings between the Borrower and any Executive Officer which relate to
Executive Pay, written disclosure of which has not been made to the Lender.
(c) The Borrower will not:
(i) Enter into any Executive Agreement not existing at the
execution of the within Agreement.
(ii) Alter, amend, supplement, or otherwise change any Executive
Agreement.
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(iii) Pay, provide, or facilitate any Executive Pay other than
as provided in an Executive Agreement or, if not covered by an Executive
Agreement, as permitted pursuant to Section 5-21, above.
5-23. Additional Assurances.
---------------------
(a) The Borrower is not the owner of, nor has it any interest in,
any property or asset which, immediately upon the satisfaction of the conditions
precedent to the effectiveness of the credit facility contemplated hereby
(Article 4) will be not be subject to a perfected security interest in favor of
the Lender (subject only to those Encumbrances (if any) described on EXHIBIT 5-
5, annexed hereto) to secure the Liabilities.
(b) The Borrower will not hereafter acquire any asset or any
interest in property which is not, immediately upon such acquisition, subject
to such a perfected security interest in favor of the Lender to secure the
Liabilities (subject only to Encumbrances (if any) permitted pursuant to Section
5-5, above).
(c) The Borrower shall execute and deliver to the Lender such
instruments, documents, and papers, and shall do all such things from time to
time hereafter as the Lender may request to carry into effect the provisions and
intent of this Agreement; to protect and perfect the Lender's security interests
in the Collateral; and to comply with all applicable statutes and laws, and
facilitate the collection of the Receivables Collateral. The Borrower shall
execute all such instruments as may be required by the Lender with respect to
the recordation and/or perfection of the security interests created herein.
(d) A carbon, photographic or other reproduction of this Agreement
or of any financing statement or other instrument executed pursuant to this
Section 5-23 shall be sufficient for filing to perfect the security interests
granted herein.
5-24. Adequacy of Disclosure.
----------------------
(a) All financial statements furnished to the Lender by the Borrower
have been prepared in accordance with GAAP consistently applied and present
fairly the condition of the Borrower at the date(s) thereof and the results of
operations and cash flows for the period(s) covered. There has been no change in
the financial condition, results of operations, or cash flows of the Borrower
since the date(s) of such financial statements, other than changes in the
ordinary course of business, which changes have not been materially adverse,
either singularly or in the aggregate.
(b) The Borrower does not have any contingent obligations or
obligation under any Lease or capital lease which is not noted in the Borrower's
financial statements furnished to the Lender prior to the execution of the
within Agreement.
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<PAGE>
(c) No document, instrument, agreement, or paper now or hereafter
given the Lender by or on behalf of the Borrower or any guarantor of the
Liabilities in connection with the execution of the within Agreement by the
Lender contains or will contain any untrue statement of a material fact or omits
or will omit to state a material fact necessary in order to make the statements
therein not misleading. There is no fact known to the Borrower which has, or
which, in the foreseeable future could have, a material adverse effect on the
financial condition of the Borrower or any such guarantor which has not been
disclosed in writing to the Lender.
5-25. Other Covenants. The Borrower shall not indirectly do or cause to be
---------------
done any act which, if done directly by the Borrower, would breach any covenant
contained in this Agreement.
ARTICLE 6- USE AND COLLECTION OF COLLATERAL.
- -------------------------------------------
6-1. Use of Inventory Collateral.
---------------------------
(a) The Borrower shall not engage in any sale of the Inventory other
than for fair consideration in the conduct of the Borrower's business in the
ordinary course and shall not engage in sales or other dispositions to
creditors; sales or other dispositions in bulk: and any use of any of the
Inventory in breach of any provision of this Agreement.
(b) No sale of Inventory shall be on consignment, approval, or under
any other circumstances such that, with the exception of the Borrower's
customary return policy applicable to the return of inventory purchased by the
Borrower's retail customers in the ordinary course, such Inventory may be
returned to the Borrower without the consent of the Lender.
6-2. Inventory Quality. All Inventory now owned or hereafter acquired by
-----------------
the Borrower is and will be of good and merchantable quality and free from
defects (other than defects within customary trade tolerances).
6-3. Adjustments and Allowances. The Borrower may grant such allowances
--------------------------
or other adjustments to the Borrower's Account Debtors (exclusive of extending
the time for payment of any Account or Account Receivable, which shall not be
done without first obtaining the Lender's prior written consent in each
instance) as the Borrower may reasonably deem to accord with sound business
practice, provided, however, the authority granted the Borrower pursuant to this
Section 6-3 may be limited or terminated by the Lender at any time in the
Lender's discretion.
6-4. Validity of Accounts.
--------------------
(a) The amount of each Account shown on the books, records, and
invoices of the Borrower represented as owing by each Account Debtor is and will
be the correct amount actually owing by such Account Debtor and shall have been
fully earned by performance by the Borrower.
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<PAGE>
(b) The Borrower has no knowledge of any impairment of the validity
or collectibility of any of the Accounts and shall notify the Lender of any such
fact immediately after Borrower becomes aware of any such impairment.
(c) The Borrower shall not post any bond to secure the Borrower's
performance under any agreement to which the Borrower is a party nor cause any
surety, guarantor, or other third party obligee to become liable to perform any
obligation of the Borrower (other than to the Lender) in the event of the
Borrower's failure so to perform.
6-5. Notification to Account Debtors. The Lender shall have the right at
-------------------------------
any time (whether or not an Event of Default has occurred) to notify any of the
Borrower's Account Debtors to make payment directly to the Lender and to collect
all amounts due on account of the Collateral.
ARTICLE 7 - CASH MANAGEMENT
- ---------------------------
7-1. Depository Accounts.
-------------------
(a) Annexed hereto as EXHIBIT 7-1 is a Schedule of all present
DDA's, which Schedule includes, with respect to each depository (i) the name and
address of that depository; (ii) the account number(s) of the account(s)
maintained with such depository; (iii) a contact person at such depository; and
(iv) the telephone number of the contact person.
(b) The Borrower shall deliver to the Lender, as a condition to the
effectiveness of the within Agreement:
(i) Proof of the mailing, to each depository institution with
which any DDA is maintained (other than the Funding Account or any Local DDA) of
notification (in form satisfactory to the Lender) of the Lender's interest in
such DDA.
(ii) An agreement (in form satisfactory to the Lender) with any
depository institution at which a Central Account is maintained.
(c) The Borrower will not establish any DDA hereafter (other than a
Local DDA) unless the Borrower, contemporaneous with such establishment, the
Borrower delivers to the Lender an agreement (in form satisfactory to the
Lender) executed on behalf of the depository with which such DDA is being
established.
7-2. Credit Card Receipts.
--------------------
(a) Annexed hereto as EXHIBIT 7-2, is a Schedule which describes all
arrangements to which the Borrower is a party with respect to the payment to the
Borrower of the proceeds of all credit card charges for sales by the Borrower.
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(b) The Borrower shall deliver to the Lender, as a condition to the
effectiveness of the within Agreement, proof of the mailing to each of the
Borrower's credit card clearinghouses and processors of notice (in form
satisfactory to the Lender), which notice provides that payment of all credit
card charges submitted by the Borrower to that clearinghouse or other processor
and any other amount payable to the Borrower by such clearinghouse or other
processor shall be directed to the Central Account. The Borrower shall not
change such direction or designation except upon and with the prior written
consent of the Lender.
7-3. The Concentration and the Funding Accounts.
------------------------------------------
(a) The following checking accounts have been or will be established
(and are so referred to herein):
(i) The Concentration Account: Established by the Lender with
The Chase Manhattan Bank, N.A.
(ii) The Funding Account: Established by the Borrower with
American National Bank and Trust Company of Chicago.
(iii) The Central Account: Established by the Borrower with
American National Bank and Trust Company of Chicago.
(b) The contents of the Central Account constitutes Collateral and
Proceeds of Collateral.
(c) The Borrower:
(i) Contemporaneous with the execution of the within
Agreement, shall provide the Lender with such agreement of the depository with
which the Central Account is maintained as may be satisfactory to the Lender.
(ii) Shall not establish any Central Account hereafter except
upon not less than thirty (30) days prior written notice to the Lender and the
delivery to the Lender of a similar such agreement.
(d) The Borrower shall pay all fees and charges of, and maintain
such impressed balances as may be required by the Lender or by any bank in which
any account is opened as required hereby (even if such account is opened by the
Lender).
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7-4. Proceeds and Collection of Accounts.
-----------------------------------
(a) All Receipts constitute Collateral and proceeds of Collateral
and shall be held in trust by the Borrower for the Lender; shall not be
commingled with any of the Borrower's other funds; and shall be deposited and/or
transferred only to the Central Account.
(b) The Borrower shall cause the ACH or wire transfer to the Central
Account, no less frequently than daily (and whether or not there is then an
outstanding balance in the Loan Account) of:
(i) The then contents of each DDA (other than (A) any Local
DDA and (B) the Funding Account), each such transfer to be net of any minimum
balance, not to exceed Seven Hundred Fifty ($750.00) Dollars, as may be required
to be maintained in the subject DDA by the bank at which such DDA is
maintained).
(ii) The proceeds of all credit card charges not otherwise
provided for pursuant hereto.
Telephone advice (confirmed by written notice) shall be provided to the Lender
on each Banking Day on which any such transfer is made.
(c) Whether or not any Liabilities are then outstanding, the
Borrower shall cause the ACH or wire transfer to the Concentration Account, no
less frequently that daily, of then entire collected balance of the Central
Account.
(d) In the event that, notwithstanding the provisions of this
Section 7-4, the Borrower receives or otherwise has dominion and control of any
Receipts, or any proceeds or collections of any Collateral, such Receipts,
proceeds, and collections shall be held in trust by the Borrower for the Lender
and shall not be commingled with any of the Borrowers other funds or deposited
in any account of the Borrower other than as instructed by the Lender.
7-5. Payment of Liabilities.
----------------------
(a) On each Banking Day, the Lender shall apply, towards the
Liabilities, the then collected balance of the Concentration Account (net of
fees charged, and of such impressed balances as may be required by the bank at
which the Concentration Account is maintained), provided however, for purposes
of the calculation of interest on the unpaid principal balance of the Loan
Account, such payment shall be deemed to have been made one (1) Banking Day
after such transfer.
(b) The Lender shall transfer to the Funding Account any surplus in
the Concentration Account remaining after the application towards the
Liabilities referred to in Section 7-5(a), above (less those amount which are to
be netted out, as provided therein) provided, however, in the event that both
(i) a Suspension Event has occurred and (ii) one or more L/C's are then
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outstanding, the Lender may establish a funded reserve of up to one hundred ten
(110%) percent of the aggregate Stated Amounts of such L/C's.
7-6. The Funding Account. Except as otherwise specifically provided in or
-------------------
permitted by, the within Agreement, all checks shall be drawn by the Borrower
upon, and other disbursements made by the Borrower solely from, the Funding
Account.
ARTICLE 8 - LENDER AS BORROWER'S ATTORNEY-IN-FACT
- -------------------------------------------------
8-1. Appointment as Attorney-In-Fact. Upon the occurrence of a Suspension
-------------------------------
Event or an Event of Default, the Borrower hereby irrevocably constitutes and
appoints the Lender as the Borrower's true and lawful attorney, with full power
of substitution, to convert the Collateral into cash at the sole risk, cost, and
expense of the Borrower, but for the sole benefit of the Lender. The rights and
powers granted the Lender by the within appointment include but are not limited
to the right and power to:
(a) Prosecute, defend, compromise, or release any action relating to
the Collateral.
(b) Sign change of address forms to change the address to which the
Borrower's mail is to be sent to such address as the Lender shall designate;
receive and open the Borrower's mail; remove any Receivables Collateral and
Proceeds of Collateral therefrom and turn over the balance of such mail either
to the Borrower or to any trustee in bankruptcy, receiver, assignee for the
benefit of creditors of the Borrower, or other legal representative of the
Borrower whom the Lender determines to be the appropriate person to whom to so
turn over such mail.
(c) Endorse the name of the Borrower in favor of the Lender upon any
and all checks, drafts, notes, acceptances, or other items or instruments; sign
and endorse the name of the Borrower on, and receive as secured party, any of
the Collateral, any invoices, schedules of Collateral, freight or express
receipts, or bills of lading, storage receipts, warehouse receipts, or other
documents of title respectively relating to the Collateral.
(d) Sign the name of the Borrower on any notice to the Borrower's
Account Debtors or verification of the Receivables Collateral; sign the
Borrower's name on any Proof of Claim in Bankruptcy against Account Debtors, and
on notices of lien, claims of mechanic's liens, or assignments or releases of
mechanic's liens securing the Accounts.
(e) Take all such action as may be necessary to obtain the payment
of any letter of credit and/or banker's acceptance of which the Borrower is a
beneficiary.
(f) Repair, manufacture, assemble, complete, package, deliver, alter
or supply goods, if any, necessary to fulfill in whole or in part the purchase
order of any customer of the Borrower.
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(g) Use, license or transfer any or all General Intangibles of the
Borrower.
(h) Sign and file or record any financing or other statements in
order to perfect or protect the Lender's security interest in the Collateral.
8-2. No Obligation to Act. The Lender shall not be obligated to do any of
--------------------
the acts or to exercise any of the powers authorized by Section 8-1 herein, but
if the Lender elects to do any such act or to exercise any of such powers, it
shall not be accountable for more than it actually receives as a result of such
exercise of power, and shall not be responsible to the Borrower for any act or
omission to act except for any act or omission to act as to which there is a
final determination made in a judicial proceeding (in which proceeding the
Lender has had an opportunity to be heard) which determination includes a
specific finding that the subject act or omission to act had been grossly
negligent or in actual bad faith.
ARTICLE 9 - FINANCIAL AND OTHER REPORTING REQUIREMENTS/FINANCIAL COVENANTS
- -------------------------------------------------------------------------
9-1. Maintain Records. The Borrower shall:
----------------
(a) At all times, keep proper books of account, in which full, true,
and accurate entries shall be made of all of the Borrower's transactions, all in
accordance with GAAP applied consistently with prior periods to fairly reflect
the financial condition of the Borrower at the close of; and its results of
operations for, the periods in question.
(b) Timely provide the Lender with those financial reports,
statements, and schedules required by this Article 9 or otherwise, each of which
reports, statements and schedules shall be prepared, to the extent applicable,
in accordance with GAAP applied consistently with prior periods to fairly
reflect the financial condition of the Borrower at the close of, and its results
of operations for, the period(s) covered therein.
(c) At all times, keep accurate current records of the Collateral
including, without limitation, accurate current stock, cost, and sales records
of its Inventory, accurately and sufficiently itemizing and describing the
kinds, types, and quantities of Inventory and the cost and selling prices
thereof.
(d) At all times, retain independent certified public accountants
who are reasonably satisfactory to the Lender and instruct such accountants to
fully cooperate with, and be available to, the Lender to discuss the Borrower's
financial performance, financial condition, operating results, controls, and
such other matters, within the scope of the retention of such accountants, as
may be raised by the Lender.
(e) Not change the Borrower's fiscal year.
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(f) Not change the Borrower's taxpayer identification number.
9-2. Access to Records.
-----------------
(a) The Borrower shall accord the Lender and the Lender's
representatives with access from time to time as the Lender and such
representatives may require to all properties owned by or over which the
Borrower has control. The Lender and the Lender's representatives shall have the
right, and the Borrower will permit the Lender and such representatives from
time to time as the Lender and such representatives may request, to examine,
inspect, copy, and make extracts from any and all of the Borrower's books,
records, electronically stored data, papers, and files. The Borrower shall make
all of the Borrower's copying facilities available to the Lender.
(b) The Borrower hereby authorizes the Lender and the Lender's
representatives to:
(i) Inspect, copy, duplicate, review, cause to be reduced to
hard copy, run off, draw off and otherwise use any and all computer or
electronically stored information or data which relates to the Borrower, or any
service bureau, contractor, accountant, or other person, and directs any such
service bureau, contractor, accountant, or other person fully to cooperate with
the Lender and the Lender's representatives with respect thereto.
(ii) Verify at any time the Collateral or any portion thereof;
including verification with Account Debtors, and/or with the Borrower's computer
billing companies, collection agencies, and accountants and to sign the name of
the Borrower on any notice to the Borrower's Account Debtors or verification of
the Collateral.
9-3. Immediate Notice to Lender.
--------------------------
(a) The Borrower shall provide the Lender with written notice
immediately upon the occurrence of any of the following events, which written
notice shall be with reasonable particularity as to the facts and circumstances
in respect of which such notice is being given:
(i) Any change in the Borrower's Executive Officers, officers,
directors, controllers or key employees.
(ii) The completion of any physical count of the Borrower's
Inventory (together with a copy of the certified results thereof).
(iii) Any ceasing of the Borrower's making of payment, in the
ordinary course, to any of its creditors (including the ceasing of the making of
such payments on account of a dispute with the subject creditor).
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(iv) Any failure by the Borrower to pay rent at any of the
Borrower's locations, which failure continues for more than three (3) days
following the day on which such rent first came due. If Borrower has any dispute
with any Landlord with respect to rent payable or other matters, Borrower shall
give Paragon written notice of said dispute.
(v) Any material change in the business, operations, or
financial affairs of the Borrower.
(vi) The occurrence of any Suspension Event.
(vii) Any intention on the part of the Borrower to discharge
the Borrower's present independent accountants or any withdrawal or resignation
by such independent accountants from their acting in such capacity (as to which,
see Subsection 9-1(d)).
(viii) Any litigation which, if determined adversely to the
Borrower, might have a material adverse effect on the financial condition of the
Borrower.
(b) The Borrower shall:
(i) Provide the Lender, when so distributed, with copies of
any materials distributed to the shareholders of the Borrower (qua such
shareholders).
(ii) Add the Lender as an addressee on all mailing lists
maintained by or for the Borrower.
(iii) At the request of the Lender, from time to time, provide
the Lender with copies of all advertising (including copies of all print
advertising and duplicate tapes of all video and radio such advertising).
(iv) Provide the Lender, when received by the Borrower, with
a copy of any management letter or similar communications from any accountant of
the Borrower.
9-4. Borrowing Base Certificate. The Borrower shall provide the Lender,
--------------------------
daily, with a Borrowing Base Certificate (in the form of EXHIBIT 9.4 annexed
hereto, as such form may be revised from time to time by the Lender). Such
Certificate may be sent to the Lender by facsimile transmission, provided that
the original thereof is forwarded to the Lender on the date of such
transmission. Such Certificate must include back up support of inventory.
9-5. Weekly Reports. Weekly, on Friday of each week (as of the then
--------------
immediately preceding fiscal week) the Borrower shall provide the Lender with a
Sales Audit Report and Cash Reconciliation (Borrower format acceptable), a Flash
Sales Report by Department (Borrower format acceptable), and a Collateral
Activity Summary (including a "roll forward" of Inventory). Such
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report may be sent to the Lender by facsimile transmission, provided that the
original thereof is forwarded to the Lender on the date of such transmission.
9-6 Monthly Reports.
---------------
(a) Monthly, the Borrower shall provide the Lender with original
counterparts of (each in such form as the Lender from time to time may specify):
(i) Within Fifteen (15) days of the end of the previous month:
(A) Consigned Inventory Report by Vendor.
(B) Retail Inventory Report by entity, by department (Green,
Seasonal and Dry)
(C) Rent, Tax, and Insurance Compliance Form
(D) Inventory Certificate (Paragon Format)
(ii) Within Thirty (30) days of the end of the previous month:
(A) A Statement of Gross Margin (Paragon Format).
(B) Reconciliation of Inventory to the general ledger as of
the end of the subject month (Paragon Format).
(C) An aging of the Borrower's accounts payable.
(D) An internally prepared financial statement of the
Borrower's financial condition at, and the results of its
operations for, the period ending with the end of the subject
month, which financial statement shall include, at a minimum, a
balance sheet, income statement (on a store specific and on a
"consolidated" basis), cash flow and comparison of same store
sales for the corresponding month of the then immediately
previous year, as well as to the Business Plan.
(E) A statement of Store Activity (Paragon format).
(b) For purposes of Section 9-6(a)(i), above, the first "previous month"
in respect of which the items required by that Section shall be provided shall
be November, 1997 and for purposes of Section 9-6(a)(ii), above, the first
"previous month" in respect of which the items required by that Section shall
be provided shall be November, 1997.
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<PAGE>
9-7. Quarterly Reports. Quarterly, within Forty Five (45) days following
-----------------
the end of each of the Borrower's fiscal quarters, the Borrower shall provide
the Lender with an original counterpart of a management prepared financial
statement of the Borrower for the period from the beginning of the Borrower's
then current fiscal year through the end of the subject quarter, with
comparative information for the same period of the previous fiscal year, which
statement shall include, at a minimum, a balance sheet, income statement (on a
store specific and on a "consolidated" basis), statement of changes in
shareholders' equity, and cash flows and comparisons for the corresponding
quarter of the then immediately previous year, as well as to the Business Plan.
Borrower shall also provide to Lender a copy of Borrower's l0Q Report within
forty five (45) days of the end of each quarter.
9-8. Annual Reports.
--------------
(a) Annually, within ninety (90) days following the end of the
Borrower's fiscal year, the Borrower shall furnish the Lender with an original
signed counterpart of the Borrower's annual financial statement, which statement
shall have been prepared by, and bearing the unqualified opinion of, the
Borrower's independent certified public accountants (i.e. said statement shall
be "certified" by such accountants). Such annual statement shall include, at a
minimum (with comparative information for the then prior fiscal year) a balance
sheet, income statement, statement of changes in shareholders' equity, and cash
flows. Borrower shall also provide to Lender a copy of Borrower's 10K report
within ninety (90) days of the end of Borrower's fiscal year. Borrower's audited
financial statements for its fiscal year ending June 1997 shall be delivered to
Lender within forty five days (45) of the execution of this Agreement.
(b) Each annual statement shall be accompanied by such accountant's
Certificate indicating that to the best knowledge of such accountant, no event
has occurred which is or which, solely with the passage of time or the giving of
notice (or both) would be, an Event of Default.
9-9. Officers' Certificates. The Borrower shall cause the Borrower's
----------------------
President and Chief Financial Officer respectively to provide such Person's
Certificate with those monthly, quarterly, and annual statements to be furnished
pursuant to this Agreement, which Certificate shall:
(a) Indicate that the subject statement was prepared in accordance
with GAAP consistently applied, and presents fairly the financial condition of
the Borrower at the close of, and the results of the Borrower's operations and
cash flows for, the period(s) covered, subject, however (with the exception of
the Certificate which accompanies such annual statement) to usual year end
adjustments.
(b) Indicate either that (i) no Suspension Event has occurred or (ii)
if such an event has occurred, its nature (in reasonable detail) and the steps
(if any) being taken or contemplated by the Borrower to be taken on account
thereof.
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<PAGE>
(c) Include calculations concerning the Borrower's compliance (or
failure to comply) at the date of the subject statement with each of the
financial performance covenants included in Section 9-12. below.
(d) Indicate that all taxes (broken down by type and taxing
authority) have or have not been paid.
(e) Indicate that all rent and additional rent (broken down by store
location) due pursuant to any store lease have or have not been paid.
9-10. Inventories. Appraisals. and Audits.
-----------------------------------
(a) The Lender, at the expense of the Borrower, may participate in
and/or observe each physical count and/or inventory of so much of the Collateral
as consists of Inventory which is undertaken on behalf of the Borrower.
(b) Upon the Lender's request from time to time, the Borrower shall
obtain, or shall permit the Lender to obtain (in all events, at the Borrower's
expense) physical counts and/or inventories of the Collateral, conducted by such
inventory takers as are satisfactory to the Lender and following such
methodology as may be required by the Lender, each of which physical counts
and/or inventories shall be observed by the Borrower's accountants. The Lender
will require the Borrower to conduct two (2) such counts and/or inventories
during each twelve (12) month period during which the within Agreement is in
effect, but in its discretion, may undertake additional such counts or
inventories during such period.
(c) Upon the Lender's request from time to time, the Borrower shall
permit the Lender to obtain appraisals (in all events, at the Borrower's
expense) conducted by such appraisers as are satisfactory to the Lender.
(d) The Lender contemplates conducting three (3) commercial finance
audits (in each event, at the Borrower's expense) of the Borrower's books and
records during any Twelve(12) month period during which the within Agreement is
in effect, but in its discretion, may undertake additional such audits during
such period. Absent a Suspension Event or Default, Lender agrees that audit
charges payable by the Borrower will not exceed $13,750.00 per year plus
expenses.
(e) The Lender from time to time (in all events, at the Borrower's
expense) may undertake "mystery shopping" (so-called) visits to all or any of
the Borrower's business premises. The Lender shall provide the Borrower with a
copy of any non-company confidential results of such mystery shopping.
9-11. Additional Financial Information.
--------------------------------
(a) In addition to all other information required to be provided
pursuant to this Article 9, the Borrower promptly shall provide the Lender with
such other and additional
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<PAGE>
information concerning the Borrower and any guarantor of the Liabilities, the
Collateral, the operation of the Borrower's business, and the Borrower's
financial condition, including original counterparts of financial reports and
statements, as the Lender may from time to time request from the Borrower.
(b) The Borrower may provide the Lender, from time to time
hereafter, with updated Business Plans. In all events, the Borrower, no sooner
than ninety (90) nor later than sixty (60) days prior to the end of each of the
Borrower's fiscal years, shall furnish the Lender with an updated and extended
Business Plan which shall go out at least through the end of the then next
fiscal year. In each event, such updated and extended Business Plans shall be
prepared pursuant to a methodology and shall include such assumptions as are
satisfactory to the Lender. The Lender, following the receipt of any of such
Business Plans, may, but shall not be under any obligation to, revise the
financial performance covenants included on EXHIBIT 9-12, annexed hereto.
9-12. Financial Performance Covenants. The Borrower shall observe and
-------------------------------
comply with those financial performance covenants set forth on EXHIBIT 9-12(a),
annexed hereto, certain of which covenants are based on the Business Plan set
forth on EXHIBIT 9-12(b), annexed hereto.
9-13. Electronic Reporting. At Lender's option all information and reports
--------------------
required to be substituted to Lender by Borrower shall be transmitted
electronically pursuant to an electronic transmitting reporting system and shall
be in a record layout format designated by Lender from time to time.
ARTICLE 10 - EVENTS OF DEFAULT
- ------------------------------
The occurrence of any event described in this Article 10 respectively shall
constitute an "Event of Default" herein. Upon the occurrence of any Event of
Default described in Section 10-11, any and all Liabilities shall become due and
payable without any further act on the part of the Lender. Upon the occurrence
of any other Event of Default, any and all Liabilities shall become immediately
due and payable, at the option of the Lender and without notice or demand. The
occurrence of any Event of Default shall also constitute, without notice or
demand, a default under all other agreements between the Lender and the Borrower
and instruments and papers given the Lender by the Borrower, whether such
agreements, instruments, or papers now exist or hereafter arise.
10-1. Failure to Pay Revolving Credit. The failure by the Borrower to pay
-------------------------------
any amount when due under the Revolving Credit.
10-2. Failure To Make Other Payments. The failure by the Borrower to pay
------------------------------
when due (or upon demand, if payable on demand) any payment Liability other than
under the Revolving Credit.
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<PAGE>
10-3. Failure to Perform Covenant or Liability (No Grace Period). The
----------------------------------------------------------
failure by the Borrower to promptly, punctually, faithfully and timely perform,
discharge, or comply with any covenant or Liability not otherwise described in
section 10-1 or section 10-2, above, and included in any of the following
provisions hereof:
<TABLE>
<CAPTION>
Section Relates to:
------- ----------
<S> <C>
5-4(a) and (b) Location of Collateral
5-5 Title to Assets
5-6 Indebtedness
5-7(b) Insurance Policies
5-12(d) Pay Taxes
5-21 Affiliate Transactions
5-23 Additional Assurances
Article 7 Cash Management
Article 9 Financial Reporting Requirements and Financial Covenants
</TABLE>
10-4. Failure to Perform Covenant or Liability (Grace Period). The failure
-------------------------------------------------------
by the Borrower to promptly, punctually and faithfully perform, or observe any
term, covenant or agreement on its part to be performed or observed pursuant to
any of the provisions of this Agreement, other than those described in Sections
10-1, 10-2 or 10-3, or in any other agreement with Lender which is not remedied
within the earlier of fifteen (15) days after (i) notice thereof by Lender to
Borrower, or (ii) the date Borrower was required to give notice to Lender
pursuant to Section 9-3(a)(vi) hereof.
10-5. Misrepresentation. The determination by the Lender that any
-----------------
representation or warranty at any time made by the Borrower to the Lender, was
not true or complete in all material respects when given.
10-6. Acceleration of Other Debt. Breach of Lease. Other than as disclosed
-------------------------------------------
on Exhibits 5-4 and 5-16 the occurrence of any event such that any Indebtedness
in excess of the aggregate of $l00,000 of the Borrower to any creditors other
than the Lender could be accelerated or, without the consent of the Borrower,
any Lease could be terminated (whether or not the subject creditor or lessor
takes any action on account of such occurrence).
10-7. Default Under Other Agreements. The occurrence of any breach or
------------------------------
default under any agreement between the Lender and the Borrower or instrument or
paper given the Lender by the Borrower, whether such agreement, instrument, or
paper now exists or hereafter arises (notwithstanding that the Lender may not
have exercised its rights upon default under any such other agreement,
instrument or paper).
10-8. Casualty Loss. Non-Ordinary Course Sales. The occurrence of any (a)
----------------------------------------
uninsured loss, theft, damage, or destruction of or to any material portion of
the Collateral in excess of $100,000.00, or (b) sale (other than sales in the
ordinary course of business) of any material portion of the
-37-
<PAGE>
Collateral in excess of the aggregate of $100,000.00 in any year without
Lender's prior written consent.
10-9. Judgment. Restraint of Business.
---------------------- --------
(a) The service of process upon the Lender or any Participant
seeking to attach, by trustee, mesne, or other process, any of the Borrower's
funds on deposit with, or assets of the Borrower in the possession of, the
Lender or such Participant.
(b) The entry of any judgment against the Borrower, which judgment
is not satisfied (if a money judgment) or appealed from (with execution or
similar process stayed) within thirty (30) days of its entry.
(c) The entry of any order or the imposition of any other process
having the force of law, the effect of which is to restrain in any material way
the conduct by the Borrower of its business in the ordinary course.
10-10. Business Failure. Any act by, against, or relating to the Borrower,
----------------
or its property or assets, which act constitutes the application for, consent
to, or sufferance of the appointment of a receiver, trustee, or other person,
pursuant to court action or otherwise, over all, or any part of the Borrower's
property; the granting of any trust mortgage or execution of an assignment for
the benefit of the creditors of the Borrower, or the occurrence of any other
voluntary or involuntary liquidation or extension of debt agreement for the
Borrower; or the offering by or entering into by the Borrower of any
composition, extension, or any other arrangement seeking relief from or
extension of the debts of the Borrower, or the initiation of any other judicial
or non-judicial proceeding or agreement by, against, or including the Borrower
which seeks or intends to accomplish a reorganization or arrangement with
creditors.
10-11. Bankruptcy. The failure by the Borrower to generally pay the debts
----------
of the Borrower as they mature; the filing of any complaint, application, or
petition by or against the Borrower initiating any matter in which the Borrower
is or may be granted any relief from the debts of the Borrower pursuant to the
Bankruptcy Code or any other insolvency statute or procedure.
10-12. Insecurity. The occurrence of any event or circumstance with
----------
respect to the Borrower such that Lender shall believe in good faith that the
prospect of payment of all or any part of the Liabilities or the performance by
the Borrower under this Agreement or any other agreement between the Lender and
the Borrower is impaired or there shall occur any material adverse change in the
business or financial condition of the Borrower.
10-13. Prepayment or Default by Guarantor or Related Entity. The
----------------------------------------------------
prepayment by a Related Entity or Guarantor of its Liabilities to Lender or the
occurrence of any of the foregoing Events of Default with respect to any
guarantor of the Liabilities, or the occurrence of any of the foregoing
-38-
<PAGE>
Events of Default with respect to any parent (if the Borrower is a corporation),
subsidiary, or Related Entity, as if such guarantor, parent, or Related Entity
were the "Borrower" described therein.
10-14. Indictment - Forfeiture. The indictment of, or institution of any
-----------------------
legal process or proceeding against, the Borrower, any Executive Officer or any
guarantor of the Liabilities under any federal, state, municipal, and other
civil or criminal statute, rule, regulation, order, or other requirement having
the force of law where the relief, penalties, or remedies sought or available
include the forfeiture of any property of the Borrower and/or the imposition of
any stay or other order, the effect of which could be to restrain in any
material way the conduct by the Borrower of its business in the ordinary course.
10-15. Termination of Guaranty. The termination or attempted termination
-----------------------
of any guaranty by any guarantor of the Liabilities.
10-16. Challenge to Loan Documents.
---------------------------
(a) Any challenge by or on behalf of the Borrower or any guarantor
of the Liabilities to the validity of any Loan Document or the applicability or
enforceability of any Loan Document strictly in accordance with the subject Loan
Document's terms or which seeks to void, avoid, limit, or otherwise adversely
affect any security interest created by or in any Loan Document or any payment
made pursuant thereto.
(b) Any determination by any court or any other judicial or
government authority that any Loan Document is not enforceable strictly in
accordance with the subject Loan Document's terms or which voids, avoids,
limits, or otherwise adversely affects any security interest created by any Loan
Document or any payment made pursuant thereto.
10-17. Executive Management. The death, disability, or failure of any
--------------------
Executive Officer at any time to exercise that authority and discharge those
management responsibilities with respect to the Borrower as are exercised and
discharged by such Person at the execution of the within Agreement.
10-18. Change in Control. Any change in the ownership of the capital stock
-----------------
of the Borrower such that Timothy Duoos does not Control at least 30% of the
Borrower and maintain any seat on the Board of Directors.
ARTICLE 11 - RIGHTS AND REMEDIES UPON DEFAULT
- ---------------------------------------------
In addition to all of the rights, remedies, powers, privileges, and
discretions which the Lender is provided prior to the occurrence of an Event of
Default, the Lender shall have the following rights and remedies upon the
occurrence of any Event of Default and at any time thereafter. No stay which
otherwise might be imposed pursuant to the Bankruptcy Code or otherwise shall
stay, limit, prevent, hinder, delay, restrict, or otherwise prevent the Lender's
exercise of any of such rights and remedies.
-39-
<PAGE>
11-1. Rights of Enforcement. The Lender shall have all of the rights and
---------------------
remedies of a secured party upon default under the UCC, in addition to which the
Lender shall have all and each of the following rights and remedies:
(a) To collect the Receivables Collateral with or without the taking
of possession of any of the Collateral.
(b) To take possession of all or any portion of the Collateral.
(c) To sell, lease, or otherwise dispose of any or all of the
Collateral, in its then condition or following such preparation or processing as
the Lender deems advisable and with or without the taking of possession of any
of the Collateral.
(d) To conduct one or more going out of business sales which include
the sale or other disposition of the Collateral.
(e) To apply the Receivables Collateral or the proceeds of the
Collateral towards (but not necessarily in complete satisfaction of) the
Liabilities.
(f) To exercise all or any of the rights, remedies, powers,
privileges, and discretions under all or any of the Loan Documents.
11-2. Sale of Collateral.
------------------
(a) Any sale or other disposition of the Collateral may be at public
or private sale upon such terms and in such manner as the Lender deems
advisable, having due regard to compliance with any statute or regulation which
might affect, limit, or apply to the Lender's disposition of the Collateral.
(b) The Lender in the exercise of the Lender's rights and remedies
upon default, may conduct one or more going out of business sales, in the
Lender's own right or by one or more agents and contractors. Such sale(s) may be
conducted upon any premises owned, leased, or occupied by the Borrower. The
Lender and any such agent or contractor, in conjunction with any such sale, may
augment the Inventory with other goods (all of which other goods shall remain
the sole property of the Lender or such agent or contractor). Any amounts
realized from the sale of such goods which constitute augmentations to the
Inventory (net of an allocable share of the costs and expenses incurred in their
disposition) shall be the sole property of the Lender or such agent or
contractor and neither the Borrower nor any Person claiming under or in right of
the Borrower shall have any interest therein.
(c) Unless the Collateral is perishable or threatens to decline
speedily in value, or is of a type customarily sold on a recognized market (in
which event the Lender shall provide the Borrower with such notice as may be
practicable under the circumstances), the Lender shall give the
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<PAGE>
Borrower at least five (5) days prior written notice of the date, time, and
place of any proposed public sale, and of the date after which any private sale
or other disposition of the Collateral may be made. The Borrower agrees that
such written notice shall satisfy all requirements for notice to the Borrower
which are imposed under the UCC or other applicable law with respect to the
exercise of the Lender's rights and remedies upon default.
(d) The Lender may purchase the Collateral, or any portion of it at
any sale held under this Article.
(e) The Lender shall apply the proceeds of any exercise of the
Lender's Rights and Remedies under this Article 11 towards the Liabilities in
such manner, and with such frequency, as the Lender determines.
11-3. Occupation of Business Location. In connection with the Lender's
-------------------------------
exercise of the Lender's rights under this Article 11 the Lender may enter upon,
occupy, and use any premises owned or occupied by the Borrower, and may exclude
the Borrower from such premises or portion thereof as may have been so entered
upon, occupied, or used by the Lender. The Lender shall not be required to
remove any of the Collateral from any such premises upon the Lender's taking
possession thereof and may render any Collateral unusable to the Borrower. In no
event shall the Lender be liable to the Borrower for use or occupancy by the
Lender of any premises pursuant to this Article 11, nor for any charge (such as
wages for the Borrower's employees and utilities) incurred in connection with
the Lender's exercise of the Lender's Rights and Remedies.
11-4. Grant of Nonexclusive License. The Borrower hereby grants to the
-----------------------------
Lender a royalty free nonexclusive irrevocable license to use, apply, and affix
any trademark, tradename, logo, or the like in which the Borrower now or
hereafter has rights, such license being with respect to the Lender's exercise
of the rights hereunder including, without limitation, in connection with any
completion of the manufacture of Inventory or sale or other disposition of
Inventory.
11-5. Assembly of Collateral. The Lender may require the Borrower to
----------------------
assemble the Collateral and make it available to the Lender at the Borrower's
sole risk and expense at a place or places which are reasonably convenient to
both the Lender and Borrower.
11-6. Rights and Remedies. The rights, remedies, powers, privileges, and
-------------------
discretions of the Lender hereunder (herein, the "Lender's Rights and Remedies")
shall be cumulative and not exclusive of any rights or remedies which it would
otherwise have. No delay or omission by the Lender in exercising or enforcing
any of the Lender's Rights and Remedies shall operate as, or constitute, a
waiver thereof. No waiver by the Lender of any Event of Default or of any
default under any other agreement shall operate as a waiver of any other default
hereunder or under any other agreement. No single or partial exercise of any of
the Lender's Rights or Remedies, and no express or implied agreement or
transaction of whatever nature entered into between the Lender and any person,
at any time, shall preclude the other or further exercise of the Lender's Rights
and Remedies. No waiver by the Lender of any of the Lender's Rights and Remedies
on any one occasion shall be
-41-
<PAGE>
deemed a waiver on any subsequent occasion, nor shall it be deemed a continuing
waiver. All of the Lender's Rights and Remedies and all of the Lender's rights,
remedies, powers, privileges, and discretions under any other agreement or
transaction are cumulative, and not alternative or exclusive, and may be
exercised by the Lender at such time or times and in such order of preference as
the Lender in its sole discretion may determine. The Lender's Rights and
Remedies may be exercised without resort or regard to any other source of
satisfaction of the Liabilities.
ARTICLE 12 - NOTICES
- --------------------
12-1. Notice Addresses. All notices, demands, and other communications
----------------
made in respect of this Agreement (other than a request for a loan or advance or
other financial accommodation under the Revolving Credit) shall be made to the
following addresses, each of which may be changed upon seven (7) days written
notice to all others given by certified mail, return receipt requested:
If to the Lender: Paragon Capital LLC
Hillsite Office Building
75 Second Avenue, Suite 400
Needham, Massachusetts 02194
Attention: Andrew Moser, President
Phone: (781) 707-2100
Fax: (781) 707-2107
With a copy to: Joel B. Rosenthal, Esq.
Shapiro, Israel & Weiner, P.C.
100 North Washington Street
Boston, Massachusetts 02114
Phone: (617) 742-4200
Fax: (617)742-2355
If to the Borrower: Tip Top Nurseries, Inc.
32382 Del Obispo
San Juan Capistrano, California 92675-4029
Attention: Mr. Timothy Duoos, President
Phone: (714) 248-3811
Fax: (714) 248-4398
With a copy to: Ravich, Meyer, Kirkman,
McGrath & Nauman
4545 IDS Center
80 South Eight Street
Minneapolis, Minnesota 55402-2225
Attention: Michael F. McGrath, Esq.
-42-
<PAGE>
Phone:(612)332-8511
Fax: (612) 332-8302
12-2. Notice Given.
------------
(a) Except as otherwise specifically provided herein, notices shall
be deemed made and correspondence received, as follows (all times being local to
the place of delivery or receipt):
(i) By mail: the sooner of when actually received or three (3)
days following deposit in the United States mail, postage prepaid.
(ii) By recognized overnight express delivery: the Banking Day
following the day when sent.
(iii) By hand: If delivered on a Banking Day after 9:00 A.M. and
no later than three (3) hours prior to the close of customary business hours of
the recipient when delivered. Otherwise, at the opening of the then next Banking
Day.
(iv) By facsimile transmission (which must include a header
indicated the party sending such transmission): If sent on a Banking Day after
9:00 A.M. and no later than Three (3) hours prior to the close of customary
business hours of the recipient, one (1) hour after being sent. Otherwise, at
the opening of the then next Banking Day.
(b) Rejection or refusal to accept delivery and inability to deliver
because of a changed address or facsimile number for which no due notice was
given shall each be deemed receipt of the notice sent.
ARTICLE 13 - TERM.
- -----------------
13-1. Termination of Revolving Credit. This Agreement is, and is intended
-------------------------------
to be, a continuing agreement and shall remain in full force and effect for an
initial term ending on the Maturity Date, and thereafter for successive twelve-
month periods, each beginning on the 1st day of December (commencing December 1,
2002) of each year and ending on November 30th of the following year (each such
twelve-month period is hereinafter referred to as a "renewal term"); provided,
however, that either party may terminate this Agreement as of the end of the
initial term or any subsequent renewal term by giving the other party notice to
terminate in writing at least sixty (60) days prior to the end of any such
period whereupon at the end of such period all Liabilities shall be due and
payable in full without presentation, demand, or further notice of any kind,
whether or not all or any part of the Liabilities is otherwise due and payable
pursuant to the agreement or instrument evidencing same. Lender may terminate
this Agreement immediately and without notice upon the occurrence of an Event of
Default. Notwithstanding the foregoing or anything in this Agreement or
elsewhere to the contrary, the security interest, Lender's rights and remedies
hereunder
-43-
<PAGE>
and Borrower's obligations and liabilities hereunder shall survive any
termination of this Agreement and shall remain in full force and effect until
all of the Liabilities outstanding, or contracted or committed for (whether or
not outstanding), before the receipt of such notice by Lender, and any
extensions or renewals thereof (whether made before or after receipt of such
notice), together with interest accruing thereon after such notice, shall be
finally and irrevocably paid in full. No Collateral shall be released or
financing statement terminated until such final and irrevocable payment in full
of the Liabilities, as described in the preceding sentence.
13-2. Effect of Termination. Upon the termination of Revolving Credit, the
---------------------
Borrower shall pay the Lender (whether or not then due), in immediately
available funds, all then Liabilities including, without limitation: the entire
balance of the Loan Account; any then remaining balance of the Facility Fee; any
accrued and unpaid Line Fee; any Prepayment Premium and all unreimbursed costs
and expenses of the Lender for which the Borrower is responsible, and shall make
such arrangements concerning any L/C's then outstanding are reasonably
satisfactory to the Lender. Until such payment, all provisions of this
Agreement, other than those contained in Article 1 which place an obligation on
the Lender to make any loans or advances or to provide financial accommodations
under the Revolving Credit or otherwise, shall remain in full force and effect
until all Liabilities shall have been paid in full. The release by the Lender of
the security interests granted the Lender by the Borrower hereunder may be upon
such conditions and indemnifications as the Lender may require.
13-3. Prepayment Premium. If Borrower pays in full all or substantially
------------------
all of the Liabilities prior to the end of the initial term of this Agreement
(or any renewal term), other than temporarily from funds internally generated in
the ordinary course of business, at the time of such payment Borrower shall also
pay to Lender a prepayment premium in an amount equal to: $82,500.00, if paid
during the first year after the date of this Agreement, and reducing by
$13,750.00 per year on each anniversary of this Agreement. Any tender of
payment in full of the Liabilities following an acceleration by Lender of the
Liabilities pursuant to Article 10, shall be for purposes of this section deemed
to be a prepayment requiring Borrower to pay the aforementioned prepayment
premium.
Such prepayment premium shall be paid to Lender as liquidated
damages for the loss of the bargain by Lender and not as a penalty.
ARTICLE 14 - GENERAL
- --------------------
14-1. Protection of Collateral. The Lender has no duty as to the
------------------------
collection or protection of the Collateral beyond the safe custody of such of
the Collateral as may come into the possession of the Lender and shall have no
duty as to the preservation of rights against prior parties or any other rights
pertaining thereto. The Lender may include reference to the Borrower (and may
utilize any logo or other distinctive symbol associated with the Borrower) in
connection with any advertising, promotion, or marketing undertaken by the
Lender.
-44-
<PAGE>
14-2. Successors and Assigns. This Agreement shall be binding upon the
----------------------
Borrower and the Borrower's representatives, successors, and assigns and shall
enure to the benefit of the Lender and the Lender's successors and assigns
provided, however, no trustee or other fiduciary appointed with respect to the
Borrower shall have any rights hereunder. In the event that the Lender assigns
or transfers its rights under this Agreement. the assignee shall thereupon
succeed to and become vested with all rights, powers, privileges, and duties of
the Lender hereunder and the Lender shall thereupon be discharged and relieved
from its duties and obligations hereunder.
14-3. Severability. Any determination that any provision of this Agreement
------------
or any application thereof is invalid, illegal, or unenforceable in any respect
in any instance shall not affect the validity, legality, or enforceability of
such provision in any other instance, or the validity, legality, or
enforceability of any other provision of this Agreement.
14-4. Amendments, Course of Dealing.
-----------------------------
(a) This Agreement and the other Loan Documents incorporate all
discussions and negotiations between the Borrower and the Lender, either express
or implied, concerning the matters included herein and in such other
instruments, any custom, usage, or course of dealing to the contrary
notwithstanding. No such discussions, negotiations, custom, usage, or course of
dealings shall limit, modify, or otherwise affect the provisions thereof. No
failure by the Lender to give notice to the Borrower of the Borrower's having
failed to observe and comply with any warranty or covenant included in any Loan
Document shall constitute a waiver of such warranty or covenant or the amendment
of the subject Loan Document. No change made by the Lender in the manner by
which Availability is determined shall obligate the Lender to continue to
determine Availability in that manner.
(b) The Borrower may undertake any action otherwise prohibited
hereby, and may omit to take any action otherwise required hereby, upon and with
the express prior written consent of the Lender. No consent, modification,
amendment, or waiver of any provision of any Loan Document shall be effective
unless executed in writing by or on behalf of the party to be charged with such
modification, amendment, or waiver (and if such party is the Lender, then by a
duly authorized officer thereof). Any modification, amendment, or waiver
provided by the Lender shall be in reliance upon all representations and
warranties theretofore made to the Lender by or on behalf of the Borrower (and
any guarantor, endorser, or surety of the Liabilities) and consequently may be
rescinded in the event that any of such representations or warranties was not
true and complete in all material respects when given.
14-5. Power of Attorney. In connection with all powers of attorney
-----------------
included in this Agreement, the Borrower hereby grants unto the Lender full
power to do any and all things necessary or appropriate in connection with the
exercise of such powers as fully and effectually as the Borrower might or could
do, hereby ratifying all that said attorney shall do or cause to be done by
virtue of this Agreement. No power of attorney set forth in this Agreement shall
be affected by any disability or incapacity suffered by the Borrower and each
shall survive the same. All powers
-45-
<PAGE>
conferred upon the Lender by this Agreement, being coupled with an interest,
shall be irrevocable until this Agreement is terminated by a written instrument
executed by a duly authorized officer of the Lender.
14-6. Application of Proceeds. The proceeds of any collection, sale, or
-----------------------
disposition of the Collateral, or of any other payments received hereunder,
shall be applied towards the Liabilities in such order and manner as the Lender
determines in its sole discretion. The Borrower shall remain liable for any
deficiency remaining following such application.
14-7. Lender's Costs and Expenses. The Borrower shall pay on demand all
---------------------------
Costs of Collection and all reasonable fees, charges and expenses of the Lender
in connection with the preparation, execution, and delivery of this Agreement
and of any other Loan Documents, whether now existing or hereafter arising, and
all other reasonable fees, charges and expenses which may be incurred by the
Lender in preparing or amending this Agreement and all other agreements,
instruments, and documents related thereto, or otherwise incurred with respect
to the Liabilities, including, without limiting the generality of the foregoing,
any counsel fees or expenses incurred in any bankruptcy or insolvency
proceedings. The Borrower specifically authorizes the Lender to pay all such
fees and expenses and in the Lender's discretion, to add such fees and expenses
to the Loan Account.
14-8. Copies and Facsimiles. This Agreement and all documents which relate
---------------------
thereto, which have been or may be hereinafter furnished the Lender may be
reproduced by the Lender by any photographic, microfilm, xerographic, digital
imaging, or other process, and the Lender may destroy any document so
reproduced. Any such reproduction shall be admissible in evidence as the
original itself in any judicial or administrative proceeding (whether or not the
original is in existence and whether or not such reproduction was made in the
regular course of business). Any facsimile which bears proof of transmission
shall be binding on the party which or on whose behalf such transmission was
initiated and likewise shall be so admissible in evidence as if the original of
such facsimile had been delivered to the party which or on whose behalf such
transmission was received.
14-9. Massachusetts Law. This Agreement and all rights and obligations
-----------------
hereunder, including matters of construction, validity, and performance, shall
be governed by the laws of The Commonwealth of Massachusetts.
14-10. Consent to Jurisdiction.
-----------------------
(a) The Borrower agrees that any legal action, proceeding, case, or
controversy against the Borrower with respect to any Loan Document may be
brought in the Superior Court of Middlesex County, Massachusetts or in the
United States District Court, District of Massachusetts, sitting in Boston,
Massachusetts, as the Lender may elect in the Lender's sole discretion. By
execution and delivery of this Agreement, the Borrower, for itself and in
respect of its property, accepts, submits, and consents generally and
unconditionally, to the jurisdiction of the aforesaid courts.
-46-
<PAGE>
(b) Nothing herein shall affect the right of the Lender to bring
legal actions or proceedings in any other competent jurisdiction.
(c) The Borrower agrees that any action commenced by the Borrower
asserting any claim or counterclaim arising under or in connection with this
Agreement or any other Loan Document shall be brought solely in the Superior
Court of Middlesex County, Massachusetts or in the United States District Court,
District of Massachusetts, sitting in Boston, Massachusetts, and that such
Courts shall have exclusive jurisdiction with respect to any such action.
14-11. Indemnification. The Borrower shall indemnify, defend, and hold the
---------------
Lender and any employee, officer, or agent of the Lender (each, an "Indemnified
Person") harmless of and from any claim brought or threatened against any
Indemnified Person by the Borrower, any guarantor or endorser of the
Liabilities, or any other Person (as well as from attorneys' reasonable fees and
expenses in connection therewith) on account of the relationship of the Borrower
or of any other guarantor or endorser of the Liabilities Lender (each of claims
which may be defended, compromised, settled, or pursued by the Indemnified
Person with counsel of the Lender's selection, but at the expense of the
Borrower) other than any claim as to which a final determination is made in a
judicial proceeding (in which the Lender and any other Indemnified Person has
had an opportunity to be heard), which determination includes a specific finding
that the Indemnified Person seeking indemnification had acted in a grossly
negligent manner or in actual bad faith. The within indemnification shall
survive payment of the Liabilities and/or any termination, release, or discharge
executed by the Lender in favor of the Borrower.
14-12. Right of Set-Off. Any and all deposits or other sums at any time
----------------
credited by or due to the undersigned from the Lender or from any participant (a
"Participant") with the Lender in the credit facility contemplated hereby and
any cash, securities, instruments or other property of the undersigned in the
possession of the Lender or any Participant, whether for safekeeping or
otherwise (regardless of the reason such Person had received the same) shall at
all times constitute security for all Liabilities and for any and all
obligations of the undersigned to the and any Participant, and may be applied or
set off against the Liabilities and against such obligations at any time,
whether or not such are then due and whether or not other collateral is then
available to the Lender or any Participant.
14-13. Maximum Interest Rate. Regardless of any provision of any Loan
---------------------
Document, the Lender shall never be entitled to contract for, charge, receive,
collect, or apply as interest on any Liability, any amount in excess of the
maximum rate imposed by applicable law. Any payment which is made which, if
treated as interest on a Liability would result in such interest's exceeding
such maximum rate shall be held, to the extent of such excess, as additional
collateral for the Liabilities as if such excess were "Collateral."
-47-
<PAGE>
14-14. Usury Savings Clause. It is the intention of the parties hereto to
--------------------
comply strictly with applicable usury laws, if any; accordingly, notwithstanding
any provisions to the contrary in this Agreement or any other Loan Documents, in
no event shall this Agreement or such Loan Document require or permit the
payment, taking, reserving, receiving, collecting or charging of any sums
constituting interest under applicable laws which exceed the maximum amount
permitted by such laws. If any such excess interest is called for, contracted
for, charged, paid, taken, reserved, collected or received in connection with
the Liabilities or in any communication by Lender or any other person to the
Borrower or any other person, or in the event all or part of the principal of
the Liabilities or interest thereon shall be prepaid or accelerated, so that
under any of such circumstances or under any other circumstance whatsoever the
amount of interest contracted for, charged, taken, collected, reserved, or
received on the amount of principal actually outstanding from time to time under
this Agreement shall exceed the maximum amount of interest permitted by
applicable usury laws, if any, then in any such event it is agreed as follows:
(i) the provisions of this paragraph shall govern and control, (ii) neither the
Borrower nor any other person or entity now or hereafter liable for the payment
of the Liabilities shall be obligated to pay the amount of such interest to the
extent such interest is in excess of the maximum amount of interest permitted by
applicable usury laws, if any, (iii) any such excess which is or has been
received notwithstanding this paragraph shall be credited against the then
unpaid principal balance hereof or, if the Liabilities have been or would be
paid in full by such credit, refunded to the Borrower, and (iv) the provisions
of this Agreement and the other Loan Documents, and any communication to the
Borrower, shall immediately be deemed reformed and such excess interest reduced,
without the necessity of executing any other document, to the maximum lawful
rate allowed under applicable laws as now or hereafter construed by courts
having jurisdiction hereof or thereof. Without limiting the foregoing, all
calculations of the rate of interest contracted for, charged, taken, collected,
reserved, or received in connection herewith which are made for the purpose of
determining whether such rate exceeds the maximum lawful rate shall be made to
the extent permitted by applicable laws by amortizing, prorating, allocating and
spreading during the period of the full term of the Liabilities, including all
prior and subsequent renewals and extensions, all interest at any time
contracted for, charged, taken, collected, reserved or received. The terms of
this paragraph shall be deemed to be incorporated in every Loan Document and
communication relating to the Liabilities.
14-15. Waivers.
-------
(a) The Borrower (and all guarantors, endorsers, and sureties of the
Liabilities) make each of the waivers included in Section 14-14(b), below,
knowingly, voluntarily, and intentionally, and understands that the Lender, in
entering into the financial arrangements contemplated hereby and in providing
loans and other financial accommodations to or for the account of the Borrower
as provided herein, whether not or in the future, is relying on such waivers.
(b) THE BORROWER, AND EACH SUCH GUARANTOR, ENDORSER, AND SURETY
RESPECTIVELY WAIVES THE FOLLOWING.
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<PAGE>
(i) Except as otherwise specifically required hereby, notice
of nonpayment, demand, presentment, protest and all forms of demand and notice,
both with respect to the Liabilities and the Collateral.
(ii) Except as otherwise specifically required hereby, the
right to notice and/or hearing prior to the Lender's exercising of the Lender's
rights upon default.
(iii) THE RIGHT TO A JURY IN ANY TRIAL OF ANY CASE OR
CONTROVERSY IN WHICH THE LENDER IS OR BECOMES A PARTY (WHETHER SUCH CASE OR
CONTROVERSY IS INITIATED BY OR AGAINST THE LENDER OR IN WHICH THE LENDER IS
JOINED AS A PARTY LITIGANT), WHICH CASE OR CONTROVERSY ARISES OUT OF OR IS IN
RESPECT OF, ANY RELATIONSHIP AMONGST OR BETWEEN THE BORROWER OR ANY OTHER PERSON
AND THE LENDER (AND THE LENDER LIKEWISE WAIVES THE RIGHT TO A JURY IN ANY TRIAL
OF ANY SUCH CASE OR CONTROVERSY).
(iv) Any defense, counterclaim, set-off, recoupment, or other
basis on which the amount of any Liability, as stated on the books and records
of the Lender, could be reduced or claimed to be paid otherwise than in
accordance with the tenor of and written terms of such Liability.
(v) Any claim to consequential, special, or punitive damages.
l4-16. Confidentiality. This Agreement and the terms hereof are
---------------
confidential, and neither the contents of this Agreement or the details of this
Agreement may be shown or disclosed by the Borrower to any bank, finance company
or other lender without the prior written consent of the Lender or except as
required by applicable law or regulation.
14-17. Right to Publish Notice. Lender may, at Lender's discretion and
-----------------------
expense, publicize or otherwise advertise by so-called "tombstone" advertising
or otherwise Lender's financing transaction with the Borrower.
14-18. Entities Related to Lender. Borrower acknowledges notice that
--------------------------
Lender is affiliated with The Ozer Group, LLC ("Ozer"). Ozer and other entities
related to Lender may, from time to time act as a merchant consultant or provide
other services to Lender with respect to Borrower.
-49-
<PAGE>
Executed as a sealed instrument this 17th day of December, 1997.
TIP TOP NURSERIES, INC.
(BORROWER)
By: /s/ Timothy R. Duoos
-------------------------------
Print Name: Timothy R. Duoos
Title: President
PARAGON CAPITAL LLC
(LENDER)
By: /s/ Andrew H. Moser
-------------------------------
Print Name: Andrew H. Moser
-----------------------
Title: President
----------------------------
-50-
<PAGE>
Exhibit 10.3
LOAN AND SECURITY AGREEMENT 12/15/97
BETWEEN
PARAGON CAPITAL LLC
AND
NURSERYLAND GARDEN CENTERS, INC.
TABLE OF CONTENTS
-----------------
ARTICLE l - THE REVOLVING CREDIT
- --------------------------------
1-1. Establishment of Revolving Credit
---------------------------------
1-2. Advances in Excess of Maximum Loan Exposure
-------------------------------------------
1-3. Risks of Value of Inventory
---------------------------
1-4. Procedures Under Revolving Credit
---------------------------------
1-5 The Loan Account
----------------
1-6. The Master Note
---------------
1-7. Payment of Loan Account
-----------------------
1-8. Interest
--------
1-9. Fees
----
1-10. Lender's Discretion
-------------------
1-11. Fees For L/C's
--------------
1-12. Concerning L/C's
----------------
ARTICLE 2 - GRANT OF SECURITY INTEREST
- --------------------------------------
2-1. Grant of Security Interest
--------------------------
2-2. Extent and Duration of Security Interest
----------------------------------------
ARTICLE 3 - DEFINITIONS
- -----------------------
ARTICLE 4 - CONDITIONS PRECEDENT
- --------------------------------
4-1. Corporate Due Diligence
-----------------------
4-2. Opinion
-------
4-3. Additional Documents
--------------------
4-4. Key Life Policies
-----------------
4-5. Officers' Certificates
----------------------
4-6. Representations and Warranties
------------------------------
4-7. Minimum Excess Availability
---------------------------
<PAGE>
4-8. No Event of Default
-------------------
4-9. No Adverse Change
-----------------
ARTICLE 5 - GENERAL REPRESENTATIONS, WARRANTIES AND COVENANTS
- --------------------------------------------------------------
5-1. Payment and Performance of Liabilities
--------------------------------------
5-2. Due Organization - Corporate Authorization - No Conflicts
---------------------------------------------------------
5-3. Trade Names
-----------
5-4. Locations, Landlord's Waivers
-----------------------------
5-5. Title to Assets
---------------
5-6. Indebtedness
------------
5-7. Insurance Policies
------------------
5-8. Licenses
--------
5-9. Leases
------
5-10 Requirements of Law
-------------------
5-11. Maintain Properties
-------------------
5-12. Pay Taxes
---------
5-13. No Margin Stock
---------------
5-14. ERISA
-----
5-15. Hazardous Materials
-------------------
5-16. Litigation
----------
5-17. Dividends or Investments
------------------------
5-18. Loans
-----
5-19. Protection of Assets
------------- ------
5-20. Line of Business
----------------
5-21. Affiliate Transactions
----------------------
5-22. Executive Pay
-------------
5-23. Additional Assurances
---------------------
5-24. Adequacy of Disclosure
----------------------
5-25. Other Covenants
---------------
ARTICLE 6 - USE AND COLLECTION OF COLLATERAL.
- ---------------------------------------------
6-1 Use of Inventory Collateral
---------------------------
6-2. Inventory Quality
-----------------
6-3. Adjustments and Allowances
--------------------------
6-4. Validity of Accounts
--------------------
6-5. Notification to Account Debtors
-------------------------------
ARTICLE 7 - CASH MANAGEMENT
- ---------------------------
7-1. Depository Accounts
-------------------
7-2. Credit Card Receipts
--------------------
7-3. The Concentration and the Funding Accounts
------------------------------------------
7-4. Proceeds and Collection of Accounts
-----------------------------------
-ii-
<PAGE>
7-5. Payment of Liabilities
----------------------
7-6. The Funding Account
-------------------
ARTICLE 8 - LENDER AS BORROWER'S ATTORNEY-IN-FACT
- -------------------------------------------------
8-1. Appointment as Attorney-In-Fact
-------------------------------
8-2. No Obligation to Act
--------------------
ARTICLE 9 - FINANCIAL AND OTHER REPORTING REQUIREMENTS/FINANCIAL COVENANTS
- --------------------------------------------------------------------------
9-1. Maintain Records
----------------
9-2. Access to Records
-----------------
9-3. Immediate Notice to Lender
--------------------------
9-4. Borrowing Base Certificate
--------------------------
9-5. Weekly Reports
--------------
9-6. Monthly Reports
---------------
9-7. Quarterly Reports
-----------------
9-8. Annual Reports
--------------
9-9. Officers' Certificates
----------------------
9-10. Inventories, Appraisals, and Audits
-----------------------------------
9-11. Additional Financial Information
--------------------------------
9-12. Financial Performance Covenants
-------------------------------
9-13. Electronic Reporting
--------------------
ARTICLE 10 - EVENTS OF DEFAULT
- ------------------------------
10-1. Failure to Pay Revolving Credit
-------------------------------
10-2. Failure To Make Other Payments
------------------------------
10-3. Failure to Perform Covenant or Liability (No Grace Period)
---------------------------------------------------------
10-4. Failure to Perform Covenant or Liability (Grace Period)
------------------------------------------------------
10-5. Misrepresentation
-----------------
10-6. Acceleration of Other Debt, Breach of Lease
-------------------------------------------
10-7. Default Under Other Agreements
------------------------------
10-8. Casualty Loss, Non-Ordinary Course Sales
----------------------------------------
10-9. Judgment, Restraint of Business
-------------------------------
10-10. Business Failure
----------------
10-11. Bankruptcy
----------
10-12. Insecurity
----------
10-13. Prepayment or Default by Guarantor or Related Entity
----------------------------------------------------
10-14. Indictment - Forfeiture
-----------------------
10-15. Termination of Guaranty
-----------------------
10-16. Challenge to Loan Documents
---------------------------
-iii-
<PAGE>
10-17. Executive Management
--------------------
10-18. Change in Control
-----------------
ARTICLE 11 - RIGHTS AND REMEDIES UPON DEFAULT
- ---------------------------------------------
11-1 Rights of Enforcement
---------------------
11-2. Sale of Collateral
------------------
11-3. Occupation of Business Location
-------------------------------
11-4. Grant of Nonexclusive License
-----------------------------
11-5. Assembly of Collateral
----------------------
11-6. Rights and Remedies
-------------------
ARTICLE 12 - NOTICES.
- ---------------------
12-1. Notice Addresses
----------------
12-2. Notice Given
------------
ARTICLE 13 - TERM
- -----------------
13-1. Termination of Revolving Credit
-------------------------------
13-2. Effect of Termination
---------------------
13-3. Prepayment Premium
------------------
ARTICLE 14 - GENERAL
- --------------------
14-1. Protection of Collateral
------------------------
14-2. Successors and Assigns
----------------------
14-3. Severability
------------
14-4. Amendments, Course of Dealing
-----------------------------
14-5. Power of Attorney
-----------------
14-6. Application of Proceeds
-----------------------
14-7. Lender's Costs and Expenses
---------------------------
14-8. Copies and Facsimiles
---------------------
14-9. Massachusetts Law
-----------------
14-10. Consent to Jurisdiction
-----------------------
14-11. Indemnification
---------------
14-12. Right of Set-Off
----------------
14-13. Maximum Interest Rate
---------------------
14-14. Usury Savings Clause
--------------------
14-15. Waivers
-------
14-16. Confidentiality
---------------
14-17. Right to Publish Notice
-----------------------
14-18. Entities Related to Lender
--------------------------
-iv-
<PAGE>
EXHIBITS
1-6 Master Note
3 Definitions
5-2 Related Entities
5-3 Trade Names.
5-4 Locations.
5-5 Encumbrances.
5-6 Indebtedness.
5-7 Insurance Policies.
5-12 Taxes
5-16 Litigation
7-1 DDA's.
7-2 Credit Card Arrangements
9-4 Borrowing Base Certificate
9-12(a) Financial Performance Covenants
9-12(b) Business Plan.
-v-
<PAGE>
THIS AGREEMENT is made between Paragon Capital LLC (hereinafter, "Paragon"
or "Lender"), a Delaware limited liability company with its principal executive
offices at Hillsite Office Building, 75 Second Avenue, Suite 400, Needham,
Massachusetts 02194 and Nurseryland Garden Centers, Inc. hereinafter, the
"Borrower"), a California corporation with its principal executive offices at
32382 Del Obispo, San Juan Capistrano, California 92675-4029 in consideration of
the mutual covenants contained herein and benefits to be derived herefrom.
WITNESSETH:
ARTICLE 1 - THE REVOLVING CREDIT
- --------------------------------
1 - 1. Establishment of Revolving Credit.
---------------------------------
(a) The Lender hereby establishes a revolving line of credit (the
""Revolving Credit"") in the Borrower's favor pursuant to which the Lender,
subject to. and in accordance with, the within Agreement, shall make loans and
advances and otherwise provide financial accommodations to and for the account
of the Borrower as provided herein. The amount of the Revolving Credit shall be
determined by the Lender by reference to Availability, as determined by the
Lender from time to time hereafter. All loans made by the Lender under this
Agreement, and all of the Borrower's other Liabilities to the Lender under or
pursuant to this Agreement, are payable as provided herein.
(b) The Lender hereby agrees, subject to the terms and conditions
of this Agreement, to make loans to the Borrower in an amount outstanding not to
exceed at any one time the lesser of (i) the Credit Limit, or (ii) the Borrowing
Base.
(c) Availability shall be based upon Borrowing Certificates
furnished as provided in Section 9-4, below.
(d) The proceeds of borrowings under the Revolving Credit shall be
used solely in accordance with the Business Plan for working capital purposes of
the Borrower and for its Capital Expenditures, all solely to the extent
permitted by the within Agreement.
1-2. Advances in Excess of Maximum Loan Exposure. The Lender does not
-------------------------------------------
have any obligation to make any loan or advance, or otherwise to provide any
credit for the benefit of the Borrower such that the outstanding principal
balance of the Loan Account exceeds Maximum Loan Exposure. The making of loans,
advances, and credits and the providing of financial accommodations in excess of
Maximum Loan Exposure is for the benefit of the Borrower and does not affect the
obligations of the Borrower hereunder; such loans, advances, credits, and
financial accommodations constitute Liabilities. The making of any such loans,
advances, and credits and the providing of financial accommodations, on any one
occasion such that Maximum Loan Exposure is exceeded shall not obligate the
Lender to make any such loans, credits, or advances or to provide any financial
accommodation on any other occasion nor to permit such loans, credits, or
advances to remain outstanding.
<PAGE>
1-3. Risks of Value of Inventory. The Lender's reference to a given asset
---------------------------
in connection with the making of loans, credits, and advances and the providing
of financial accommodations under the Revolving Credit and/or the monitoring of
compliance with the provisions hereof shall not be deemed a determination by the
Lender relative to the actual value of the asset in question. All risks
concerning the saleability of the Borrower's Inventory are and remain upon the
Borrower. All Collateral secures the prompt, punctual, and faithful performance
of the Liabilities whether or not relied upon by the Lender in connection with
the making of loans, credits, and advances and the providing of financial
accommodations under the Revolving Credit.
1-4. Procedures Under Revolving Credit.
---------------------------------
(a) The Borrower may request loans and advances under the Revolving
Credit, each in an amount of not less than Ten Thousand ($10,000.00) Dollars.
Each such request shall be in such manner as may from time to time be acceptable
to the Lender.
(b) (i) The Lender, subject to the terms and conditions of the
within Agreement, will provide the Borrower with the loan so requested, if such
request is received by 12:00 Noon on a Banking Day, by the end of business on
that Banking Day; otherwise, by the end of the then next Banking Day.
(ii) The Lender may revise the above schedule, by which loans
shall be made, from time to time.
(c) Provided that Maximum Loan Exposure will not be exceeded (but
subject, however, to Subsection 1-4(i), below (which deals with the effect of a
Suspension Event)), a loan or advance under the Revolving Credit so requested by
the Borrower shall be made by the transfer of the proceeds of such loan or
advance to the Funding Account or as otherwise instructed by the Borrower.
(d) A loan or advance shall be deemed to have been made under the
Revolving Credit upon:
(i) The Lender's initiation of the transfer of the proceeds of
such loan or advance in accordance with the Borrower's instructions (if such
loan or advance is of funds requested by the Borrower).
(ii) The charging of the amount of such loan to the Loan Account
(in all other circumstances).
(e) There shall not be any recourse to, nor liability of the Lender
on account of:
(i) Any delay in the making of any loan or advance requested
under the Revolving Credit.
-2-
<PAGE>
(ii) Any delay in the proceeds of any such loan or advance
constituting collected funds
(iii) Any delay in the receipt, and/or any loss, of funds which
constitute a loan or advance under the Revolving Credit, the wire transfer of
which was properly initiated by the Lender in accordance with wire instructions
provided to the Lender by the Borrower.
(f) The Lender may rely on any request for a loan or advance or
financial accommodation which the Lender, in good faith, believes to have been
made by a person duly authorized to act on behalf of the Borrower and may
decline to make any such requested loan or advance or to provide any such
financial accommodation pending the Lender's being furnished with such
documentation concerning that person's authority to act as may be satisfactory
to the Lender.
(g) A request by the Borrower for any financial accommodation under
the Revolving Credit or of the issuance of an L/C shall be irrevocable and shall
constitute certification by the Borrower that as of the date of such request,
each of the following is true and correct:
(i) There has been no material adverse change in the Borrower's
financial condition from the most recent financial information furnished Lender
pursuant to this Agreement.
(ii) The Borrower is in compliance with, and has not breached
any of its covenants contained in this Agreement.
(iii) Bach representation which is made herein or in any of the
Loan Documents is then true and complete as of and as if made on the date of
such request.
(iv) No Suspension Event is then extant.
(h) The Borrower shall immediately become indebted to the Lender for
the amount of each loan under or pursuant to this Agreement when such loan is
deemed to have been made.
(i) Upon the occurrence from time to time of any Suspension Event,
the Lender may suspend the Revolving Credit immediately and shall not be
obligated, during such suspension, to make any loans or to provide any financial
accommodation hereunder.
(j) The Borrower may request that the Lender cause the issuance of
L/C's for the account of the Borrower.
(i) Each such request shall be in such manner as may from time
to time be acceptable to the Lender.
-3-
<PAGE>
(ii) The Lender will endeavor to cause the issuance of any L/C
so requested by the Borrower, provided that the requested L/C is in form
satisfactory to the Lender and if so issued:
(A) The aggregate Stated Amount of all L/C's then
outstanding, does not exceed Five Hundred Thousand ($500,000.00)
Dollars.
(B) The expiry of the L/C is not later than the earlier of
thirty (30) days prior to the Maturity Date or the following:
(I) Standby's: One (1) year from initial issuance.
(II) Documentary's: sixty (60) days from issuance.
(C) Maximum Loan Exposure would not be exceeded.
(iii) The Borrower shall execute such documentation to apply for
and support the issuance of an L/C as may be required by the Issuer.
(iv) There shall not be any recourse to, nor liability of, the
Lender on account of:
(A) any delay or refusal by an Issuer to issue an L/C;
(B) any action or inaction of an Issuer on account of or
in respect to, any
(v) The Borrower shall reimburse the Issuer, immediately upon
the drawing under any L/C, for the amount of such drawing. In the event that the
Borrower fails to so reimburse the Issuer, the Borrower immediately shall
reimburse the Lender for the amount of such drawing. To the extent which the
Borrower fails to so reimburse the Issuer or the Lender, the Lender, without the
request of the Borrower, may advance under the Revolving Credit any amount which
the Borrower is so obligated to pay to the Lender or the Issuer, or for which
the Borrower, the Issuer, or the Lender becomes obligated on account of or in
respect to, any L/C. Such advance shall be made whether or not a Suspension
Event is then in existence or such advance would result in Maximum Loan
Exposure's being exceeded. Such action shall not constitute a waiver of the
Lender's rights under Section 1-7(b), below.
1-5. The Loan Account.
----------------
(a) An account (""Loan Account"") shall be opened on the books of the
Lender in which Loan Account a record may be kept of all loans made under or
pursuant to this Agreement and of all payments thereon.
-4-
<PAGE>
(b) The Lender may also keep a record (either in the Loan Account or
elsewhere, as the Lender may from time to time elect) of all interest, fees,
service charges, costs, expenses, and other debits owed the Lender on account of
the Liabilities and of all credits against such amounts so owed.
(c) All credits against the Liabilities shall be conditional upon
final payment to the Lender of the items giving rise to such credits. The amount
of any item credited against the Liabilities which is charged back against the
Lender for any reason or is not so paid shall be a Liability and shall be added
to the Loan Account, whether or not the item so charged back or not so paid is
returned.
(d) Except as otherwise provided herein, all fees, service charges,
costs, and expenses for which the Borrower is obligated hereunder are payable on
demand. In the determination of Availability, the Lender may deem fees, service
charges, accrued interest, and other payments as having been advanced under the
Revolving Credit if such amounts are then due and payable.
(e) The Lender, without the request of the Borrower, may advance
under the Revolving Credit any interest, fee, service charge, or other payment
to which the Lender is entitled from the Borrower pursuant hereto and may charge
the same to the Loan Account notwithstanding that such amount so advanced may
result in Availability's being exceeded. Such action on the part of the Lender
shall not constitute a waiver of the Lender's rights under Section 1-7(b),
below. Any amount which is added to the principal balance of the Loan Account as
provided in this Section shall bear interest at the interest rate applicable
from time to time to the unpaid principal balance of the Loan Account.
(f) Any statement rendered by the Lender to the Borrower concerning
the Liabilities shall be considered correct and accepted by the Borrower and
shall be conclusively binding upon the Borrower unless the Borrower provides the
Lender with written objection thereto within twenty (20) days from the mailing
of such statement, which written objection shall indicate, with particularity,
the reason for such objection. The Loan Account and the Lender's books and
records concerning the loan arrangement contemplated herein and the Liabilities
shall be prima facie evidence and proof of the items described therein.
1-6. The Master Note. The obligation to repay loans and advances under the
---------------
Revolving Credit, with interest as provided herein, shall be evidenced by a note
(the "Master Note"") in the form of EXHIBIT 1-6, annexed hereto, executed by
the Borrower. Neither the original nor a copy of the Master Note shall be
required, however, to establish or prove any Liability. In the event that the
Master Note is ever lost, mutilated, or destroyed, the Borrower shall execute a
replacement thereof and deliver such replacement to the Lender.
-5-
<PAGE>
1-7. Payment of Loan Account.
-----------------------
(a) The Borrower may repay all or any portion of the principal
balance of the Loan time to time until the Termination Date.
(b) The Borrower, without notice or demand from the Lender, shall pay
the Lender that amount, from time to time, which is necessary so that the
principal balance of the Loan Account does not exceed Maximum Loan Exposure.
(c) The Borrower shall repay the then entire unpaid balance of the
Loan Account and all other Liabilities on the Termination Date.
1-8. Interest
--------
(a) The unpaid principal balance of the Loan Account shall bear
interest, until repaid (calculated based upon a 360-day year and actual days
elapsed), at the aggregate of Base plus one (1%) percent per annum but in no
event less than eight (8%) percent per annum or in excess of the maximum rate
permitted by applicable law.
(b) Following the occurrence of any Event of Default (and whether or
not the Lender exercises any of the Lender's rights on account of such Event of
Default), all loans and advances made under the Revolving Credit shall bear
interest, through the End Date, at a rate which is the aggregate of that
provided for in Section 1-8(a), above, plus four (4%) percent per annum.
(c) Accrued interest shall be payable:
(i) Monthly in arrears on the first day of the month next
following that during which such interest accrued.
(ii) On the Termination Date.
(iii) On the End Date.
1-9. Fees. Borrower shall pay to the Lender the following fees:
----
(a) Commitment Fee. On the date of execution hereof, a one time fully
earned commitment fee shall be due and payable in an amount equal to $21,875.00.
(b) Annual Facility Fee. On the first anniversary of the date of
execution hereof, a facility fee in an amount equal to one-quarter of one (.25%)
percent of the Credit Limit which shall have been fully earned at the date of
execution hereof, shall be due and payable, and on each anniversary of the date
of execution hereof, a facility fee in an amount equal to one-quarter of one
-6-
<PAGE>
(.25%) percent of the Credit Limit, which shall have been fully earned as of the
date hereof, shall be due and payable.
(c) Loan Maintenance Fee. On the date of execution hereof and on each
anniversary of the date of execution hereof, a loan maintenance fee equal to
$14,000.00 shall be payable. Such fee shall have been fully earned as of the
date hereof and as of each anniversary of the date of execution hereof and shall
be payable in twelve (12) monthly installments as follows: 1/12th of such fee
shall be payable as of the date hereof and on each anniversary of the date of
execution hereof and 1/12th of such fee shall be payable on the same day of each
month hereafter until paid in full.
(d) Financial Examination, Documentation, and Appraisal Fees. Subject
to the provisions of Article 9-10 Lender's actual charges paid or incurred for
each financial analysis and examination (i.e., audits) of Borrower performed by
personnel employed by Lender; Lender's actual charges paid or incurred for each
appraisal of the Collateral performed by personnel employed by Lender; and, the
actual charges paid or incurred by Lender if it elects to employ the services of
one or more third Persons to perform such financial analysis and examinations
(i.e., audits) of Borrower or to appraise the Collateral.
(e) In addition to any other right to which the Lender is then
entitled on account thereof, the Lender may assess additional fees and charges
payable by the Borrower on account of the accommodation, from time to time, of
Lender to the Borrower's request that the Lender depart or dispense with one or
more of the administrative provisions of the within Agreement and/or the
Borrower's failure to comply with any of such provisions.
(i) By way of non-exclusive example, the Lender may assess a
fee on account of any of the following:
(A) The Borrower's failure to pay that amount which is
necessary so that the principal balance of the Loan Account does
not exceed Maximum Permitted Exposure (as required under Section
1-7(b), above).
(B) The providing of a loan or advance under the
Revolving Credit such that Maximum Loan Exposure would be
exceeded.
(C) The providing of a same Banking Day loan requested
after the time set forth in Section 1-4(b)(i), above.
(D) The Borrower's failure to provide a financial
statement or report within the applicable time-frame provided for
such report under Article 9, below.
-7-
<PAGE>
(ii) The inclusion of the foregoing right on the part of the
Lender to assess a fee does not constitute an obligation, on the part of the
Lender, to waive any provision of the within Agreement under any circumstances.
The assessment of any such fee in any particular circumstance shall not
constitute the Lender's waiver of any breach of the within Agreement on account
of which such fee was assessed nor a course of action on which the Borrower may
rely.
(f) The Borrower shall not be entitled to any credit, rebate or
repayment of any Commitment Fee, Facility Fee, Loan Maintenance Fee, or other
fee previously earned by the Lender pursuant to this Section notwithstanding any
termination of the within Agreement or suspension or termination of the Lender's
obligation to make loans and advances hereunder.
1-10. Lender's Discretion.
-------------------
(a) Each reference in the Loan Documents to the exercise of
discretion or the like by the Lender shall be to that Person's exercise of its
judgement, in good faith (which shall be presumed), based upon that Person's
consideration of any such factor as the Lender, taking into account information
of which that Person then has actual knowledge, believes:
(i) Will or reasonably could be expected to affect the value
of the Collateral, the enforceability of the Lender's security and collateral
interests therein, or the amount which the Lender would likely realize therefrom
(taking into account delays which may possibly be encountered in the Lender's
realizing upon the Collateral and likely Costs of Collection).
(ii) Indicates that any report or financial information
delivered to the Lender by or on behalf of the Borrower is incomplete,
inaccurate, or misleading in any material manner or was not prepared in
accordance with the requirements of the within Agreement.
(iii) Suggests an increase in the likelihood that the Borrower
will become the subject of a bankruptcy or insolvency proceeding.
(iv) Constitutes a Suspension Event.
(b) In the exercise of such judgement, the Lender also may take into
account any of the following factors:
(i) Those included in, or tested by, the definitions of
"Acceptable Inventory", "Retail", and "Cost".
(ii) The current financial and business climate of the industry
in which the Borrower competes (having regard for the Borrower's position in
that industry).
(iii) General economic conditions which have a material effect
on cost structure.
-8-
<PAGE>
(iv) Material changes in or to the mix of the Borrower's
Inventory.
(v) Seasonality with respect to the Borrower's Inventory and
patterns of the Borrower's retail sales.
(vi) Such other factors as the Lender determines as having a
material bearing on credit risks associated with the providing of loans and
financial accommodations to the Borrower.
(c) The burden of establishing the failure of the Lender to have
acted in a reasonable manner in such Person's exercise of discretion shall be
the Borrower's.
1-11. Fees for L/C's.
--------------
(a) Prior to the issuance of any L/C, the Borrower shall pay to the
Lender a fee for each L/C equal to the greater of (i) Two Hundred Fifty
($250.00) Dollars or (ii) twenty-five (25) Basis Points per month times the
Stated Amount of that L/C.
(b) In addition to the fee to be paid as provided in Subsection
1-11(a), above, the Borrower shall pay to the Lender (or to the Issuer, if so
requested by the Lender), on demand, all issuance, processing, negotiation,
amendment, and administrative fees and other amounts charged by the Issuer on
account of, or in respect to, any L/C.
1-12. Concerning L/C's.
----------------
(a) None of the Issuer, the Issuers correspondents, or any advising,
negotiating, or paying bank with respect to any L/C shall be responsible in any
way for:
(i) The performance by any beneficiary under any L/C of that
beneficiary's obligations to the Borrower.
(ii) The form, sufficiency, correctness, genuineness, authority
of any person signing; falsification; or the legal effect of; any documents
called for under any L/C if (with respect to the foregoing) such documents on
their face appear to be in order.
(b) The Issuer may honor, as complying with the terms of any L/C and
of any drawing thereunder, any drafts or other documents otherwise in order, but
signed or issued by an administrator, executor, conservator, trustee in
bankruptcy, debtor in possession, assignee for the benefit of creditors,
liquidator, receiver, or other legal representative of the party authorized
under such L/C to draw or issue such drafts or other documents.
(c) Unless otherwise agreed to, in the particular instance, the
Borrower hereby authorizes any Issuer to:
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<PAGE>
(i) Select an advising bank, if any.
(ii) Select a paying bank, if any.
(iii) Select a negotiating bank.
(d) All directions, correspondence, and funds transfers relating to
any L/C are at the risk of the Borrower. The Issuer shall have discharged the
Issuer's obligations under any L/C which, or the drawing under which, includes
payment instructions, by the initiation of the method of payment called for in,
and in accordance with, such instructions (or by any other commercially
reasonable and comparable method). Neither the Lender nor the Issuer shall have
any responsibility for any inaccuracy, interruption, error, or delay in
transmission or delivery by post, telegraph or cable, or for any inaccuracy of
translation.
(e) The Lender's and the Issuer's rights, powers, privileges and
immunities specified in or arising under this Agreement are in addition to any
heretofore or at any time hereafter otherwise created or arising, whether by
statute or rule of law or contract.
(f) Except to the extent otherwise expressly provided hereunder or
agreed to in writing by the Issuer and the Borrower, the L/C will be governed by
the Uniform Customs and Practice for Documentary Credits (1993 Revision),
International Chamber of Commerce, Publication No.500, and any subsequent
revisions thereof.
(g) If any change in any law, executive order or regulation, or any
directive of any administrative or governmental authority (whether or not having
the force of law), or in the interpretation thereof by any court or
administrative or governmental authority charged with the administration
thereof, shall either:
(i) Impose, modify or deem applicable any reserve, special
deposit or similar requirements against letters of credit heretofore or
hereafter issued by any Issuer or with respect to which the Lender or any Issuer
has an obligation to lend to fund drawings under any L/C.
(ii) Impose on any Issuer any other condition or requirements
relating to any such letters of credit; and the result of any event referred to
in Section 1-12(g)(i) or 1-12(g)(ii), above, shall be to increase the cost to
any Issuer of issuing or maintaining any L/C (which increase in cost shall be
the result of such Issuer's reasonable allocation among that Issuer's letter of
credit customers of the aggregate of such cost increases resulting from such
events), then, upon demand by the Lender and delivery by the Lender to the
Borrower of a certificate of an officer of the subject Issuer describing such
change in law, executive order, regulation, directive, or interpretation
thereof, its effect on such Issuer, and the basis for determining such increased
costs and their allocation, the Borrower shall immediately pay to the Lender,
from time to time as specified by the Lender, such amounts as shall be
sufficient to compensate such Issuer for such increased cost. Any Issuer's
determination of costs incurred under Section 1-12(g)(i) or 1-12(g)(ii),
above, and the allocation, if
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<PAGE>
any, of such costs among the Borrower and other letter of credit customers of
such Issuer, if done in good faith and made on an equitable basis and in
accordance with the officer's certificate, shall be conclusive and binding on
the Borrower.
(h) The obligations of the Borrower under the within Agreement with
respect to L/C's are absolute, unconditional, and irrevocable and shall be
performed strictly in accordance with the terms hereof under all circumstances,
whatsoever including, without limitation, the following:
(i) Any lack of validity or enforceability or restriction,
restraint, or stay in the enforcement of the within Agreement, any L/C, or any
other agreement or instrument relating thereto.
(ii) Any amendment or waiver of, or consent to the departure
from, any L/C.
(iii) The existence of any claim, set-off, defense, or other
right which the Borrower may have at any time against the beneficiary of any
L/C.
(iv) Any honoring of a drawing under any L/C, which drawing
possibly could have been dishonored based upon a strict construction of the
terms of the L/C.
ARTICLE 2 - GRANT OF SECURITY INTEREST
- --------------------------------------
2-1. Grant of Security Interest. To secure the Borrower's prompt, punctual,
--------------------------
and faithful performance of all and each of the Borrower's Liabilities, the
Borrower hereby grants to the Lender a continuing security interest in and to,
and assigns to the Lender, the following, and each item thereof, whether now
owned or now due, or in which the Borrower has an interest, or hereafter
acquired, arising, or to become due, or in which the Borrower obtains an
interest, and all products. Proceeds, substitutions, and accessions of or to any
of the following (all of which, together with any other property in which the
Lender may in the future be granted a security interest, is referred to herein
as the "Collateral"):
(a) All of Borrower's inventory, including all goods, merchandise,
raw materials, goods and work in process, finished goods, and other tangible
personal property now owned or hereafter acquired and held for sale or lease or
furnished or to be furnished under contracts of service or used or consumed in
Borrower's business, including, without limitation, all crops, plants, shrubs,
trees, live Christmas trees and flowers, whether potted or affixed to the land
including, without limitation, all crops growing or to be grown on the land
identified on Exhibit 5-4 hereto.
(b) All farm products, including, without limitation, all crops,
plants, shrubs, trees, live Christmas trees and flowers, whether potted or
affixed to the land, and all equipment and supplies used or produced in
connection with debtor's farming operations, now owned or hereafter
-11-
<PAGE>
acquired, including, without limitation, all crops growing or to be grown on the
land identified on Exhibit 5-4 hereto.
(c) All of Borrower's accounts, contracts, contract rights, notes,
bills, drafts, acceptances, general intangibles (including without limitation
trade names, customer lists, goodwill, computer programs, computer records
computer software, computer data, trade secrets, trademarks, patents, ledger
sheets, files, records, data processing records relating to any accounts and all
tax refunds of every kind and nature to which Borrower is now or hereafter may
become entitled to, no matter how arising), instruments, documents, chattel
paper, securities, security entitlements, security accounts, investment
property, choses in action, and all other debts, obligations and liabilities in
whatever form, owing to Borrower from any person, firm or corporation or any
other legal entity, whether now existing or hereafter arising, now or hereafter
received by or belonging or owing to Borrower, for goods sold by it or for
services rendered by it, or however otherwise same may have been established or
created, all guarantees and securities therefor, all right, title and interest
of Borrower in the merchandise or services which gave rise thereto, including
the rights of reclamation and stoppage in transit, all rights to replevy goods,
all rights of an unpaid seller of merchandise or services, and in the products
and proceeds thereof, including, without limitation, all proceeds of credit,
fire or other insurance.
(d) All of Borrower's machinery, equipment and other goods (as
defined in Article 9 of the Uniform Commercial Code) whether now owned or
hereafter acquired by Borrower and wherever located, all replacements and
substitutions therefor or accessions thereto and all proceeds thereof.
(e) All proceeds and products of all of the foregoing in any form,
including, without limitation, all proceeds, refunds and premium rebates of
credit, fire or other insurance, and also including, without limitation, rents
and profits resulting from the temporary use of any of the foregoing.
2-2. Extent and Duration of Security Interest. The within grant of a
----------------------------------------
security interest is in addition to, and supplemental of, any security interest
previously granted by the Borrower to the Lender and shall continue in full
force and effect applicable to all Liabilities until all Liabilities have been
paid and/or satisfied in full and the security interest granted herein is
specifically terminated in writing by a duly authorized officer of the Lender.
ARTICLE 3 - DEFINITIONS
- ----------------------
All capitalized terms used in this agreement which are not otherwise
defined herein or in the UCC shall have the meanings assigned to them in EXHIBIT
3, annexed hereto.
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<PAGE>
ARTICLE 4- CONDITIONS PRECEDENT
- -------------------------------
Precedent to the effectiveness of this Agreement, the establishment of the
Revolving Credit, and the making of the first loan under the Revolving Credit,
the documents respectively described in Sections 4-1 through and including 4-5,
each in form and substance satisfactory to the Lender shall have been delivered
to the Lender, and the conditions respectively described in Sections 4-6 through
and including 4-9, shall have been satisfied:
4-1. Corporate Due Diligence.
-----------------------
(a) A Certificate of corporate good standing issued by the Secretary
of State of Incorporation of the Borrower.
(b) Certificates of due qualification, in good standing, issued by
the Secretary(ies) of State of each State in which the nature of the Borrower's
business conducted or assets owned could require such qualification.
(c) A Certificate of the Borrower's secretary or clerk attesting to
the due adoption, continued effectiveness, and setting forth the texts of each
corporate resolution adopted in connection with the establishment of the loan
arrangement contemplated by the Loan Documents and attesting to the true
signatures of each Person authorized as a signatory to any of the Loan
Documents.
4-2. Opinion. An opinion of counsel to the Borrower in form and substance
-------
satisfactory to the Lender.
4-3. Additional Documents. Such additional instruments and documents as the
--------------------
Lender or its counsel reasonably may require or request.
4-4. Key Life Policies. The Collateral Assignment to the Lender of policies
-----------------
on the lives of the following persons for the amounts stated:
Timothy Duoos: $1,000,000.00
4-5. Officers' Certificates. Certificates executed by the President and the
----------------------
Chief Financial Officer of the Borrower and stating that the representations and
warranties made by the Borrower to the Lender in the Loan Documents are true and
complete as of the date of such Certificate, and that no event has occurred
which is or which, solely with the giving of notice or passage of time (or both)
would be an Event of Default.
-13-
<PAGE>
4-6. Representations and Warranties. Each of the representations made by
------------------------------
or on behalf of the Borrower in this Agreement or in any of the other Loan
Documents or in any other report, statement, document, or paper provided by and
or on behalf of the Borrower shall be true and complete as of the date as of
which such representation or warranty was made.
4-7. Minimum Excess Availability. Availability, after giving effect to the
---------------------------
first loans and advances to be made under the Revolving Credit; any charges to
the Loan Account made in connection with the establishment of the credit
facility contemplated hereby; and L/C's to be issued at, or immediately
subsequent to, the establishment of such establishment, is not less than Five
Hundred Fifty Thousand and 00/100 ($550,000.00) Dollars.
4-8. No Event of Default. No event shall have occurred, or failed to occur,
-------------------
which occurrence or which failure constitutes, or which, solely with the passage
of time or the giving of notice (or both) would constitute, an Event of Default.
4-9. No Adverse Change. No event shall have occurred or failed to occur,
-----------------
which occurrence or failure is or could have a materially adverse effect upon
the Borrower's financial condition, operating results, or cash flows from the
Borrower's financial condition at September 30, 1997.
No document shall be deemed delivered to the Lender until received and accepted
by the Lender at its head offices in Newton, Massachusetts. Under no
circumstances will the within Agreement take effect until executed and accepted
by the Lender at said head office.
ARTICLE 5 - GENERAL REPRESENTATIONS, WARRANTIES AND COVENANTS
- -------------------------------------------------------------
To induce the Lender to establish the loan arrangement contemplated herein
and to make loans and advances and to provide financial accommodations under the
Revolving Credit (each of which loans shall be deemed to have been made in
reliance thereupon) the Borrower, in addition to all other representations,
warranties, and covenants made by the Borrower in any other Loan Document, makes
those representations, warranties, and covenants included in the within
Agreement.
5-1. Payment and Performance of Liabilities. The Borrower shall pay each
--------------------------------------
Liability due Lender when due (or when demanded if payable on demand) and shall
promptly, punctually, and faithfully perform each other Liability due Lender and
pay each Liability due others in accordance with its current custom and
practice. If Borrower has any dispute with any Person with respect to any
Liability, Borrower shall give Paragon notice of said dispute.
5-2. Due Organization - Corporate Authorization - No Conflicts.
---------------------------------------------------------
(a) The Borrower presently is and shall hereafter remain in good
standing as a corporation and is and shall hereafter remain duly qualified and
in good standing in every other State
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<PAGE>
in which, by reason of the nature or location of the Borrower's assets or
operation of the Borrower's business, such qualification may be necessary.
(b) Each Related Entity is listed on EXHIBIT 5-2, annexed hereto.
Each Related Entity is and shall hereafter remain in good standing in the State
in which incorporated and is and shall hereafter remain duly qualified in which
other State in which, by reason of that entity's assets or the operation of such
entity's business, such qualification may be necessary. The Borrower shall
provide the Lender with prior written notice of any entity's becoming or ceasing
to be a Related Entity.
(c) The Borrower has all requisite corporate power and authority to
execute and deliver all and singular the Loan Documents to which the Borrower is
a party and has and will hereafter retain all requisite corporate power to
perform all and singular the Liabilities.
(d) The execution and delivery by the Borrower of each Loan Document
to which it is a party; the Borrower's consummation of the transactions
contemplated by such Loan Documents (including, without limitation, the creation
of security interests by the Borrower as contemplated hereby); the Borrower's
performance under those of the Loan Documents to which it is a party; the
borrowings hereunder; and the use of the proceeds thereof:
(i) Have been duly authorized by all necessary corporate
action.
(ii) Do not, and will not, contravene in any material respect
any provision of any Requirement of Law or obligation of the Borrower.
(iii) Will not result in the creation or imposition of or the
obligation to create or impose, any Encumbrance upon any assets of the Borrower
pursuant to any Requirement of Law or obligation, except pursuant to the Loan
Documents.
(e) The Loan Documents have been duly executed and delivered by
Borrower and are the legal, valid and binding obligations of the Borrower,
enforceable against the Borrower in accordance with their respective terms.
5-3. Trade Names.
-----------
(a) EXHIBIT 5-3, annexed hereto, is a listing of:
(i) All names under which the Borrower ever conducted its
business.
(ii) All entities and/or persons with whom the Borrower ever
consolidated or merged, or from whom the Borrower ever acquired in a single
transaction or in a series of related transactions substantially all of such
entity's or person's assets.
-15-
<PAGE>
(b) Except (i) upon not less than twenty-one (21) days prior written
notice given the Lender, and (ii) in compliance with all other provisions of the
within Agreement, the Borrower will not undertake or commit to undertake any
action such that the results of that action, if undertaken prior to the date of
this Agreement, would have been reflected on EXHIBIT 5-3.
(c) The Borrower owns and possesses, or has the right to use all
patents, industrial designs, trademarks, trade names, trade styles, brand names,
service marks, logos, copyrights, trade secrets, know-how, confidential
information, and other intellectual or proprietary property of any third Person
necessary for the Borrower's conduct of the Borrower's business.
(d) The conduct by the Borrower of the Borrower's business does not
infringe on the patents, industrial designs, trademarks, trade names, trade
styles, brand names, service marks, logos, copyrights, trade secrets, know-how,
confidential information, or other intellectual or proprietary property of any
third Person.
5-4. Locations, Landlord's Waivers.
-----------------------------
(a) The Collateral, and the books, records, and papers of Borrower
pertaining thereto, are kept and maintained solely at the Borrower's chief
executive offices as set forth in the beginning of this Agreement and at those
locations which are listed on EXHIBIT 5-4, annexed hereto, which EXHIBIT
includes all service bureaus with which any such records are maintained and the
names and addresses of each of the Borrower's landlords. Except (i) to
accomplish sales of Inventory in the ordinary course of business or (ii) to
utilize such of the Collateral as is removed from such locations in the ordinary
course of business (such as motor vehicles), the Borrower shall not remove any
Collateral from said chief executive offices or those locations listed on
EXHIBIT 5-4.
(b) The Borrower shall use its best efforts to obtain and deliver to
the Lender a waiver or subordination (reasonably satisfactory to the Lender) by
the landlord for each store location within sixty (60) days of the date of
execution hereof.
(c) If the Borrower fails to obtain a waiver or subordination for
each store location within said sixty (60) day period, the Lender may establish
an Availability Reserve for up to ninety (90) days rent for each of the
Borrower's locations in a Landlord Lien State or in a One Turn State.
Such Availability Reserve shall be reduced or eliminated as
follows (but only if no Suspension Event is then in existence or has theretofore
occurred):
(i) With respect to locations in One Turn States: one hundred
twenty (120) days after the execution of the within Agreement.
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<PAGE>
(ii) With respect to locations in Landlord Lien States:
Upon the furnishing to the Lender of a waiver or subordination reasonably
satisfactory to the Lender by the landlord for the subject location. Without
duplication of any Availability Reserve described above, the Lender may
establish an Availability Reserve for unpaid rent.
(c) The Borrower will not:
(i) Execute, alter, modify, or amend any Lease.
(ii) Commit to, or open or close any location at which the
Borrower maintains, offers for sales, or stores any of the Collateral.
(d) Except as otherwise disclosed pursuant to, or permitted by, this
Section 5-4, no tangible personal property of the Borrower is in the care or
custody of any third party or stored or entrusted with a bailee or other third
party and none shall hereafter be placed under such care, custody, storage, or
entrustment.
5-5. Title to Assets.
---------------
(a) The Borrower is, and shall hereafter remain, the owner of the
Collateral free and clear of all Encumbrances with the exceptions of the
following:
(i) The security interest created herein.
(ii) Those Encumbrances (if any) listed on EXHIBIT 5-5,
annexed hereto.
(b) The Borrower does not and shall not have possession of any
property on consignment to the Borrower.
5-6. Indebtedness. The Borrower does not and shall not hereafter have any
------------
Indebtedness with the exceptions of:
(a) Any Indebtedness to the Lender.
(b) The Indebtedness (if any) listed on EXHIBIT 5-6, annexed hereto.
5-7. Insurance Policies.
------------------
(a) EXHIBIT 5-7 annexed hereto, is a schedule of all insurance
policies owned by the Borrower or under which the Borrower is the named insured.
Each of such policies is in full force and effect. Neither the issuer of any
such policy nor the Borrower is in default or violation of any such policy.
-17-
<PAGE>
(b) The Borrower shall have and maintain at all times insurance
covering such risks, in such amounts, containing such terms, in such form, for
such periods, and written by such companies as may be satisfactory to the
Lender. The coverage reflected on EXHIBIT 5-7 presently satisfies the foregoing
requirements, it being recognized by the Borrower, however, that such
requirements may change hereafter to reflect changing circumstances. All
insurance carried by the Borrower shall provide for a minimum of twenty (20)
days' written notice of cancellation to the Lender and all such insurance which
covers the Collateral shall include an endorsement in favor of the Lender, which
endorsement shall provide that the insurance, to the extent of the Lender's
interest therein, shall not be impaired or invalidated, in whole or in part by
reason of any act or neglect of the Borrower or by the failure of the Borrower
to comply with any warranty or condition of the policy. In the event of the
failure by the Borrower to maintain insurance as required herein, the Lender, at
its option, may obtain such insurance. provided, however, the Lender's obtaining
of such insurance shall not constitute a cure or waiver of any Event of Default
occasioned by the Borrower's failure to have maintained such insurance. The
Borrower shall furnish to the Lender certificates or other evidence satisfactory
to the Lender regarding compliance by the Borrower with the foregoing insurance
provisions.
(c) The Borrower shall advise the Lender of each claim in excess of
One Hundred Thousand ($100,000.00) Dollars made by the Borrower under any
policy of insurance which covers the Collateral and will permit the Lender, at
the Lender's option in each instance, to the exclusion of the Borrower, to
conduct the adjustment of each such claim (and of all claims following the
occurrence of any Suspension Event). The Borrower hereby appoints the Lender as
the Borrower's attorney in fact to obtain, adjust, settle, and cancel any
insurance described in this section and to endorse in favor of the Lender any
and all drafts and other instruments with respect to such insurance. The within
appointment, being coupled with an interest, is irrevocable until this Agreement
is terminated by a written instrument executed by a duly authorized officer of
the Lender. The Lender shall not be liable on account of any exercise pursuant
to said power except for any exercise in actual willful misconduct and bad
faith. The Lender may apply any proceeds of such insurance against the
Liabilities, whether or not such have matured, in such order of application as
the Lender may determine.
(d) The Borrower shall maintain at all times those policies of
insurance obtained by the Borrower and assigned to the Lender as required by
Section 4-4, above.
5-8. Licenses. Each license, distributorship, franchise, and similar
--------
agreement issued to, or to which the Borrower is a party is in full force and
effect. No party to any such license or agreement is in default or violation
thereof. The Borrower has not received any notice or threat of cancellation of
any such license or agreement.
5-9. Leases. EXHIBIT 5-9, annexed hereto, is a schedule of all presently
------
effective Leases and Capital Leases. Each of such Leases and Capital Leases is
in full force and effect. No party to any such Lease or Capital Lease is in
default or violation of any such Lease (except as disclosed on Exhibit 5-9) or
Capital Lease and the Borrower has not received any notice or threat of
cancellation
-18-
<PAGE>
of any such Lease or Capital Lease. The Borrower hereby authorizes the Lender at
any time and from time to time to contact any of the Borrower's landlords in
order to confirm the Borrower's continued compliance with the terms and
conditions of the Lease(s) between the Borrower and that landlord and to
discuss such issues, concerning the Borrower's occupancy under such Lease(s), as
the Lender may determine.
5-10. Requirements of Law. The Borrower is in compliance with, and shall
-------------------
hereafter comply with and use its assets in compliance with, all Requirements of
Law. The Borrower has not received any notice of any violation of any
Requirement of Law (whether or not such violation is material), which violation
has not been cured or otherwise remedied.
5-11. Maintain Properties. The Borrower shall:
-------------------
(a) Keep the Collateral in good order and repair (ordinary
reasonable wear and tear and insured casualty excepted).
(b) Not suffer or cause the waste or destruction of any material
part of the Collateral.
(c) Not use any of the Collateral in violation of any policy of
insurance thereon.
(d) Not sell, lease, or otherwise dispose of any of the
Collateral, other than the following:
(i) The sale of Inventory in compliance with the within
Agreement.
(ii) The disposal of Equipment which is obsolete, worn out,
or damaged beyond repair, which Equipment is replaced to the extent necessary to
preserve or improve the operating efficiency of the Borrower.
(iii) The turning over to the Lender of all Receipts as
provided herein.
5-12. Pay Taxes.
---------
(a) The federal income tax returns of the Borrower have been
audited by the Internal Revenue Service (or closed by applicable statutes) for
all fiscal years through and including the Borrower's taxable year referenced on
EXHIBIT 5-12, annexed hereto, and all deficiencies, assessments, and other
amounts asserted as a result of such examinations have been fully paid or
settled. No agreement is extant which waives or extends any statute of
limitations applicable to the right of the Internal Revenue Service to assert a
deficiency or make any other claim for or in respect to federal income taxes. No
issue has been raised in any such examination which, by application of similar
principles, reasonably could be expected to result in the assertion of a
deficiency for any fiscal year open for examination, assessment, or claim by the
Internal Revenue Service.
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<PAGE>
(b) All returns of the Borrower for state and local income,
excise. sales, and other taxes have been audited (or closed by applicable
statutes) for all fiscal years through and including the Borrower's taxable year
referenced on EXHIBIT 5-12, annexed hereto, and all deficiencies, assessments,
and other amounts asserted as a result of such examinations have been fully paid
or settled. No agreement is in existence which waives or extends any statute of
limitations applicable to the right of any state taxing authority to assert a
deficiency or make any other claim for or in respect to any such state taxes. No
issue has been raised in any such examination which, by application of similar
principles. reasonably could be expected to result in the assertion of a
deficiency for any fiscal year open for examination, assessment, or claim by any
state or local taxing authority.
(c) Except as disclosed on said EXHIBIT 5-12, there are no
examinations of or with respect to the Borrower presently being conducted by the
Internal Revenue Service or any state taxing authority.
(d) The Borrower has. and hereafter shall: pay, as they become
due and payable, all taxes and unemployment contributions and other charges of
any kind or nature levied, assessed or claimed against the Borrower or the
Collateral by any person or entity whose claim could result in an Encumbrance
upon any asset of the Borrower or by any governmental authority; properly
exercise any trust responsibilities imposed upon the Borrower by reason of
withholding from employees' pay; timely make all contributions and other
payments as may be required pursuant to any Employee Benefit Plan now or
hereafter established by the Borrower; and timely file all tax and other returns
and other reports with each governmental authority to whom the Borrower is
obligated to so file.
(e) At its option, the Lender may, but shall not be obligated to,
pay any taxes, unemployment contributions, and any and all other charges levied
or assessed upon the Borrower or the Collateral by any person or entity or
governmental authority, and make any contributions or other payments on account
of the Borrowers Employee Benefit Plan as the Lender, in the Lender's
discretion, may deem necessary or desirable, to protect, maintain, preserve,
collect, or realize upon any or all of the Collateral or the value thereof or
any right or remedy pertaining thereto, provided, however, the Lender's making
of any such payment shall not constitute a cure or waiver of any Event of
Default occasioned by the Borrower's failure to have made such payment.
5-13. No Margin Stock. The Borrower is not engaged in the business of
---------------
extending credit for the purpose of purchasing or carrying any margin stock
(within the meaning of Regulations G.U.T. and X. of the Board of Governors of
the Federal Reserve System of the United States). No part of the proceeds of any
borrowing hereunder will be used at any time to purchase or carry any such
margin stock or to extend credit to others for the purpose of purchasing or
carrying any such margin stock.
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<PAGE>
5-14. ERISA. Neither the Borrower nor any ERISA Affiliate ever has or
-----
hereafter shall:
(a) Violate or fail to be in full compliance with the Borrowers
Employee Benefit Plan.
(b) Fail timely to file all reports and filings required by ERISA
to be filed by the Borrower.
(c) Engage in any "prohibited transactions" or "reportable
events" as (respectively described in ERISA).
(d) Engage in, or commit, any act such that a tax or penalty
could be imposed on account thereof pursuant to ERISA.
(e) Accumulate any material funding deficiency within the meaning
of ERISA.
(f) Terminate any Employee Benefit Plan such that a lien could be
asserted of the Borrower on account thereof pursuant to ERISA.
(g) Be a member of, contribute to, or have any obligation under
any Employee is a multiemployer plan within the meaning of Section 4001(a) of
ERISA.
5-15. Hazardous Materials.
-------------------
(a) The Borrower has never:
(i) Been legally responsible for any release or threat of
release of any Hazardous Material.
(ii) Received notification of any release or threat of
release of any Hazardous Material from any site or vessel occupied or operated
by the Borrower and/or of the incurrence of any expense or loss in connection
with the assessment, containment, or removal of any release or threat of release
of any Hazardous Material from any such site or vessel.
(b) The Borrower shall:
(i) Dispose of any Hazardous Material only in compliance
with all Environmental Laws.
(ii) Not store on any site or vessel occupied or operated by
the Borrower and not transport or arrange for the transport of any Hazardous
Material, except if such storage or transport is in the ordinary course of the
Borrower's business and is in compliance with all Environmental Laws.
-21-
<PAGE>
(c) The Borrower shall provide the Lender with written notice
upon the Borrower's obtaining knowledge of any incurrence of any expense or loss
by any governmental authority or other Person in connection with the assessment,
containment or removal of any Hazardous Material, for which expense or loss the
Borrower may be liable.
5-16. Litigation. Except as disclosed on Exhibit 5-16, there is not
----------
presently pending or threatened by or against the Borrower any suit, action,
proceeding, or investigation which, if determined adversely to the Borrower,
would have a material adverse effect upon the Borrower's financial condition or
ability to conduct its business as such business is presently conducted or is
contemplated to be conducted in the foreseeable future.
5-17. Dividends or Investments. The Borrower shall not:
------------------------
(a) Pay any cash dividend or make any other distribution in
respect of any class of the Borrower's capital stock.
(b) Own, redeem, retire, purchase, or acquire any of the
Borrower's capital stock.
(c) Invest in or purchase any stock or securities or rights to
purchase any such stock or securities, of any corporation or other entity.
(d) Merge or consolidate or be merged or consolidated with or
into any other corporation or other entity.
(e) Consolidate any of the Borrower's operations with those of
any other corporation or other entity.
(f) Organize or create any Related Entity.
(g) Subordinate any debts or obligations owed to the Borrower by
any third party to any other debts owed by such third party to any other Person.
5-18. Loans. The Borrower shall not make any loans or advances to, nor
-----
acquire the Indebtedness of, any Person, provided, however, the foregoing does
not prohibit any of the following:
(a) Advance payments made to the Borrower's suppliers in the
ordinary course.
(b) Advances to the Borrower's officers, employees. and
salespersons with respect to reasonable expenses to be incurred by such
officers, employees, and salespersons for the benefit of the Borrower, which
expenses are properly substantiated by the person seeking such advance and
properly reimbursable by the Borrower.
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<PAGE>
5-19. Protection of Assets. The Lender, in the Lender's discretion, and
--------------------
from time to time, may discharge any tax or Encumbrance on any of the
Collateral, or take any other action that the Lender may deem necessary or
desirable to repair, insure, maintain, preserve, collect, or realize upon any of
the Collateral. The Lender shall not have any obligation to undertake any of the
foregoing and shall have no liability on account of any action so undertaken
except where there is a specific finding in a judicial proceeding (in which the
Lender has had an opportunity to be heard), from which finding no further appeal
is available, that the Lender had acted in actual bad faith or in a grossly
negligent manner. The Borrower shall pay to the Lender, on demand, or the
Lender, in its discretion, may add to the Loan Account, all amounts paid or
incurred by the Lender pursuant to this section. The obligation of the Borrower
to pay such amounts is a Liability.
5-20. Line of Business. The Borrower shall not engage in any business
----------------
other than the business in which it is currently engaged or a business
reasonably related thereto.
5-21. Affiliate Transactions. The Borrower shall not make any payment, nor
----------------------
give any value to any Related Entity except for goods and services actually
purchased by the Borrower from, or sold by the Borrower to, such Related Entity
for a price which shall:
(a) Be competitive and fully deductible as an "ordinary and
necessary business expense" and/or fully depreciable under the Internal Revenue
Code of 1986 and the Treasury Regulations, each as amended.
(b) Not differ from that which would have been charged in an arms
length transaction.
5-22. Executive Pay.
-------------
(a) The only Executive Officers of the Borrower. at the execution
of the within Agreement, are those individuals referenced in the definition of
"Executive Officers".
(b) Prior to the execution of the within Agreement, the Borrower
furnished the Lender with copies of all written Executive Agreements and
outlines of the salient features of all unwritten Executive Agreements (as
amended to date) then extant. There are no unwritten agreements or
understandings between the Borrower and any Executive Officer which relate to
Executive Pay, written disclosure of which has not been made to the Lender.
(c) The Borrower will not:
(i) Enter into any Executive Agreement not existing at the
execution of the within Agreement.
(ii) Alter, amend, supplement, or otherwise change any
Executive Agreement.
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<PAGE>
(iii) Pay, provide, or facilitate any Executive Pay other
than as provided in an Executive Agreement or, if not covered by an Executive
Agreement, as permitted pursuant to Section 5-21, above.
5-23. Additional Assurances.
---------------------
(a) The Borrower is not the owner of, nor has it any interest in,
any property or asset which, immediately upon the satisfaction of the conditions
precedent to the effectiveness of the credit facility contemplated hereby
(Article 4) will be not be subject to a perfected security interest in favor of
the Lender (subject only to those Encumbrances (if any) described on EXHIBIT
5-5, annexed hereto) to secure the Liabilities.
(b) The Borrower will not hereafter acquire any asset or any
interest in property which is not, immediately upon such acquisition, subject to
such a perfected security interest in favor of the Lender to secure the
Liabilities (subject only to Encumbrances (if any) permitted pursuant to Section
5-5. above).
(c) The Borrower shall execute and deliver to the Lender such
instruments, documents, and papers, and shall do all such things from time to
time hereafter as the Lender may request to carry into effect the provisions and
intent of this Agreement; to protect and perfect the Lender's security interests
in the Collateral; and to comply with all applicable statutes and laws, and
facilitate the collection of the Receivables Collateral. The Borrower shall
execute all such instruments as may be required by the Lender with respect to
the recordation and/or perfection of the security interests created herein.
(d) A carbon, photographic, or other reproduction of this
Agreement or of any financing statement or other instrument executed pursuant to
this Section 5-23 shall be sufficient for filing to perfect the security
interests granted herein.
5-24. Adequacy of Disclosure.
----------------------
(a) All financial statements furnished to the Lender by the
Borrower have been prepared in accordance with GAAP consistently applied and
present fairly the condition of the Borrower at the date(s) thereof and the
results of operations and cash flows for the period(s) covered. There has been
no change in the financial condition, results of operations, or cash flows of
the Borrower since the date(s) of such financial statements, other than changes
in the ordinary course of business, which changes have not been materially
adverse, either singularly or in the aggregate.
(b) The Borrower does not have any contingent obligations or
obligation under any Lease or capital lease which is not noted in the Borrower's
financial statements furnished to the Lender prior to the execution of the
within Agreement.
-24-
<PAGE>
(c) No document, instrument, agreement, or paper now or
hereafter given the Lender by or on behalf of the Borrower or any guarantor of
the Liabilities in connection with the execution of the within Agreement by the
Lender contains or will contain any untrue statement of a material fact or omits
or will omit to state a material fact necessary in order to make the statements
therein not misleading. There is no fact known to the Borrower which has, or
which, in the foreseeable future could have, a material adverse effect on the
financial condition of the Borrower or any such guarantor which has not been
disclosed in writing to the Lender.
5-25. Other Covenants. The Borrower shall not indirectly do or cause to be
---------------
done any act which, if done directly by the Borrower, would breach any covenant
contained in this Agreement.
ARTICLE 6-USE AND COLLECTION OF COLLATERAL.
- ------------------------------------------
6-1. Use of Inventory Collateral.
---------------------------
(a) The Borrower shall not engage in any sale of the Inventory
other than for fair consideration in the conduct of the Borrower's business in
the ordinary course and shall not engage in sales or other dispositions to
creditors; sales or other dispositions in bulk; and any use of any of the
Inventory in breach of any provision of this Agreement.
(b) No sale of Inventory shall be on consignment. approval, or
under any other circumstances such that, with the exception of the Borrower's
customary return policy applicable to the return of inventory purchased by the
Borrower's retail customers in the ordinary course, such Inventory may be
returned to the Borrower without the consent of the Lender.
6-2. Inventory Quality. All Inventory now owned or hereafter acquired by
-----------------
the Borrower is and will be of good and merchantable quality and free from
defects (other than defects within customary trade tolerances).
6-3. Adjustments and Allowances. The Borrower may grant such allowances
--------------------------
or other adjustments to the Borrower's Account Debtors (exclusive of extending
the time for payment of any Account or Account Receivable, which shall not be
done without first obtaining the Lender's prior written consent in each
instance) as the Borrower may reasonably deem to accord with sound business
practice, provided, however, the authority granted the Borrower pursuant to this
Section 6-3 may be limited or terminated by the Lender at any time in the
Lender's discretion.
6-4. Validity of Accounts.
--------------------
(a) The amount of each Account shown on the books, records, and
invoices of the Borrower represented as owing by each Account Debtor is and will
be the correct amount actually owing by such Account Debtor and shall have been
fully earned by performance by the Borrower.
-25-
<PAGE>
(b) The Borrower has no knowledge of any impairment of the
validity or collectibility of any of the Accounts and shall notify the Lender of
any such fact immediately after Borrower becomes aware of any such impairment.
(c) The Borrower shall not post any bond to secure the Borrower's
performance under any agreement to which the Borrower is a party nor cause any
surety, guarantor, or other third party obligee to become liable to perform any
obligation of the Borrower (other than to the Lender) in the event of the
Borrower's failure so to perform.
6-5. Notification to Account Debtors. The Lender shall have the right at
-------------------------------
any time (whether or not an Event of Default has occurred) to notify any of the
Borrower's Account Debtors to make payment directly to the Lender and to collect
all amounts due on account of the Collateral.
ARTICLE 7 - CASH MANAGEMENT
- ---------------------------
7-1. Depository Accounts.
-------------------
(a) Annexed hereto as EXHIBIT 7-1 is a Schedule of all present
DDA's, which Schedule includes, with respect to each depository (i) the name and
address of that depository; (ii) the account number(s) of the account(s)
maintained with such depository; (iii) a contact person at such depository; and
(iv) the telephone number of the contact person.
(b) The Borrower shall deliver to the Lender, as a condition to
the effectiveness of the within Agreement:
(i) Proof of the mailing, to each depository institution
with which any DDA is maintained (other than the Funding Account or any Local
DDA) of notification (in form satisfactory to the Lender) of the Lender's
interest in such DDA.
(ii) An agreement (in form satisfactory to the Lender) with
any depository institution at which a Central Account is maintained.
(c) The Borrower will not establish any DDA hereafter (other than
a Local DDA) unless the Borrower, contemporaneous with such establishment, the
Borrower delivers to the Lender an agreement (in form satisfactory to the
Lender) executed on behalf of the depository with which such DDA is being
established.
7-2. Credit Card Receipts.
--------------------
(a) Annexed hereto as EXHIBIT 7-2, is a Schedule which describes
all arrangements to which the Borrower is a party with respect to the payment to
the Borrower of the proceeds of all credit card charges for sales by the
Borrower.
-26-
<PAGE>
(b) The Borrower shall deliver to the Lender, as a condition to the
effectiveness of the within Agreement, proof of the mailing to each of the
Borrower's credit card clearinghouses and processors of notice (in form
satisfactory to the Lender), which notice provides that payment of all credit
card charges submitted by the Borrower to that clearinghouse or other processor
and any other amount payable to the Borrower by such clearinghouse or other
processor shall be directed to the Central Account. The Borrower shall not
change such direction or designation except upon and with the prior written
consent of the Lender.
7-3. The Concentration and the Funding Accounts.
------------------------------------------
(a) The following checking accounts have been or will be established
(and are so referred to herein):
(i) The Concentration Account: Established by the Lender with
The Chase Manhattan Bank, N.A.
(ii) The Funding Account: Established by the Borrower with
American National Bank and Trust Company of Chicago.
(iii) The Central Account: Established by the Borrower with
American National Bank and Trust Company of Chicago.
(b) The contents of the Central Account constitutes Collateral and
Proceeds of Collateral.
(c) The Borrower:
(i) Contemporaneous with the execution of the within
Agreement, shall provide the Lender with such agreement of the depository with
which the Central Account is maintained as may be satisfactory to the Lender.
(ii) Shall not establish any Central Account hereafter except
upon not less than thirty (30) days prior written notice to the Lender and the
delivery to the Lender of a similar such agreement.
(d) The Borrower shall pay all fees and charges of, and maintain
such impressed balances as may be required by the Lender or by any bank in which
any account is opened as required hereby (even if such account is opened by the
Lender).
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<PAGE>
7-4. Proceeds and Collection of Accounts.
-----------------------------------
(a) All Receipts constitute Collateral and proceeds of Collateral and
shall be held in trust by the Borrower for the Lender; shall not be commingled
with any of the Borrower's other funds; and shall be deposited and/or
transferred only to the Central Account.
(b) The Borrower shall cause the ACH or wire transfer to the Central
Account, no less frequently than daily (and whether or not there is then an
outstanding balance in the Loan Account) of:
(i) The then contents of each DDA (other than (A) any Local
DDA and (B) the Funding Account), each such transfer to be net of any minimum
balance, not to exceed Seven Hundred Fifty ($750.00) Dollars, as may be required
to be maintained in the subject DDA by the bank at which such DDA is
maintained).
(ii) The proceeds of all credit card charges not otherwise
provided for pursuant hereto.
Telephone advice (confirmed by written notice) shall be provided to the Lender
on each Banking Day on which any such transfer is made.
(c) Whether or not any Liabilities are then outstanding, the Borrower
shall cause the ACH or wire transfer to the Concentration Account, no less
frequently that daily, of then entire collected balance of the Central Account.
(d) In the event that, notwithstanding the provisions of this Section
7-4, the Borrower receives or otherwise has dominion and control of any
Receipts, or any proceeds or collections of any Collateral, such Receipts,
proceeds, and collections shall be held in trust by the Borrower for the Lender
and shall not be commingled with any of the Borrower's other funds or deposited
in any account of the Borrower other than as instructed by the Lender.
7-5. Payment of Liabilities.
----------------------
(a) On each Banking Day, the Lender shall apply, towards the
Liabilities, the then collected balance of the Concentration Account (net of
fees charged, and of such impressed balances as may be required by the bank at
which the Concentration Account is maintained), provided, however, for purposes
of the calculation of interest on the unpaid principal balance of the Loan
Account, such payment shall be deemed to have been made one (1) Banking Day
after such transfer.
(b) The Lender shall transfer to the Funding Account any surplus in
the Concentration Account remaining after the application towards the
Liabilities referred to in Section 7-5(a), above (less those amount which are to
be netted out, as provided therein) provided, however, in the event that both
(i) a Suspension Event has occurred and (ii) one or more L/C's are then
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<PAGE>
outstanding, the Lender may establish a funded reserve of up to one hundred ten
(110%) percent of the aggregate Stated Amounts of such L/C's.
7-6. The Funding Account. Except as otherwise specifically provided in, or
-------------------
permitted by, the within Agreement, all checks shall be drawn by the Borrower
upon, and other disbursements made by the Borrower solely from, the Funding
Account.
ARTICLE 8 - LENDER AS BORROWER'S ATTORNEY-IN-FACT
- -------------------------------------------------
8-1. Appointment as Attorney-In-Fact. Upon the occurrence of a Suspension
-------------------------------
Event or an Event of Default, the Borrower hereby irrevocably constitutes and
appoints the Lender as the Borrower's true and lawful attorney, with full power
of substitution, to convert the Collateral into cash at the sole risk, cost, and
expense of the Borrower, but for the sole benefit of the Lender. The rights and
powers granted the Lender by the within appointment include but are not limited
to the right and power to:
(a) Prosecute, defend, compromise, or release any action relating to
the Collateral.
(b) Sign change of address forms to change the address to which the
Borrower's mail is to be sent to such address as the Lender shall designate;
receive and open the Borrower's mail; remove any Receivables Collateral and
Proceeds of Collateral therefrom and turn over the balance of such mail either
to the Borrower or to any trustee in bankruptcy, receiver, assignee for the
benefit of creditors of the Borrower, or other legal representative of the
Borrower whom the Lender determines to be the appropriate person to whom to so
turn over such mail.
(c) Endorse the name of the Borrower in favor of the Lender upon any
and all checks, drafts, notes, acceptances, or other items or instruments; sign
and endorse the name of the Borrower on, and receive as secured party, any of
the Collateral, any invoices, schedules of Collateral, freight or express
receipts, or bills of lading, storage receipts, warehouse receipts, or other
documents of title respectively relating to the Collateral.
(d) Sign the name of the Borrower on any notice to the Borrower's
Account Debtors or verification of the Receivables Collateral; sign the
Borrower's name on any Proof of Claim in Bankruptcy against Account Debtors, and
on notices of lien, claims of mechanic's liens, or assignments or releases of
mechanic's liens securing the Accounts.
(e) Take all such action as may be necessary to obtain the payment of
any letter of credit and/or banker's acceptance of which the Borrower is a
beneficiary.
(f) Repair, manufacture, assemble, complete, package, deliver, alter
or supply goods, if any, necessary to fulfill in whole or in part the purchase
order of any customer of the Borrower.
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(g) Use, license or transfer any or all General Intangibles o{the
Borrower.
(h) Sign and file or record any financing or other statements in
order to perfect or protect the Lender's security interest in the Collateral.
8-2. No Obligation to Act. The Lender shall not be obligated to do any of
--------------------
the acts or to exercise any of the powers authorized by Section S-1 herein, but
if the Lender elects to do any such act or to exercise any of such powers, it
shall not be accountable for more than it actually receives as a result of such
exercise of power, and shall not be responsible to the Borrower for any act or
omission to not except for any act or omission to act as to which there is a
final determination made in a judicial proceeding (in which proceeding the
Lender has had an opportunity to be heard) which determination includes a
specific finding that the subject act or omission to act had been grossly
negligent or in actual bad faith.
ARTICLE 9 - FINANCIAL AND OTHER REPORTING REQUIREMENTS/FINANCIAL COVENANTS
- --------------------------------------------------------------------------
9-1. Maintain Records. The Borrower shall:
----------------
(a) At all times, keep proper books of account, in which full, true,
and accurate entries shall be made of all of the Borrower's transactions, all in
accordance with GAAP applied consistently with prior periods to fairly reflect
the financial condition of the Borrower at the close of, and its results of
operations for, the periods in question.
(b) Timely provide the Lender with those financial reports,
statements, and schedules required by this Article 9 or otherwise, each of which
reports, statements and schedules shall be prepared, to the extent applicable,
in accordance with GAAP applied consistently with prior periods to fairly
reflect the financial condition of the Borrower at the close of, and its results
of operations for, the period(s) covered therein.
(c) At all times, keep accurate current records of the Collateral
including, without limitation, accurate current stock, cost, and sales records
of its Inventory, accurately and sufficiently itemizing and describing the
kinds, types, and quantities of Inventory and the cost and selling prices
thereof.
(d) At all times, retain independent certified public accountants who
are reasonably satisfactory to the Lender and instruct such accountants to fully
cooperate with, and be available to, the Lender to discuss the Borrower's
financial performance, financial condition, operating results, controls, and
such other matters, within the scope of the retention of such accountants, as
may be raised by the Lender.
(e) Not change the Borrower's fiscal year.
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(f) Not change the Borrower's taxpayer identification number.
9-2. Access to Records.
-----------------
(a) The Borrower shall accord the Lender and the Lender's
representatives with access from time to time as the Lender and such
representatives may require to all properties owned by or over which the
Borrower has control. The Lender and the Lender's representatives shall have the
right, and the Borrower will permit the Lender and such representatives from
time to time as the Lender and such representatives may request, to examine,
inspect, copy, and make extracts from any and all of the Borrower's books,
records, electronically stored data, papers, and files. The Borrower shall make
all of the Borrower's copying facilities available to the Lender.
(b) The Borrower hereby authorizes the Lender and the Lender's
representatives to:
(i) Inspect, copy, duplicate, review, cause to be reduced to
hard copy, run off, draw off, and otherwise use any and all computer or
electronically stored information or data which relates to the Borrower, or any
service bureau, contractor, accountant, or other person, and directs any such
service bureau, contractor, accountant, or other person fully to cooperate with
the Lender and the Lender's representatives with respect thereto.
(ii) Verify at any time the Collateral or any portion thereof,
including verification with Account Debtors, and/or with the Borrower's computer
billing companies, collection agencies, and accountants and to sign the name of
the Borrower on any notice to the Borrower's Account Debtors or verification of
the Collateral.
9-3. Immediate Notice to Lender.
--------------------------
(a) The Borrower shall provide the Lender with written notice
immediately upon the occurrence of any of the following events, which written
notice shall be with reasonable particularity as to the facts and circumstances
in respect of which such notice is being given:
(i) Any change in the Borrower's Executive Officers, officers,
directors, controllers or key employees.
(ii) The completion of any physical count of the Borrower's
Inventory (together with a copy of the certified results thereof).
(iii) Any ceasing of the Borrower's making of payment, in the
ordinary course, to any of its creditors including the ceasing of the making of
such payments on account of a dispute with the subject creditor).
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(iv) Any failure by the Borrower to pay rent at any of the
Borrower's locations, which failure continues for more than three (3) days
following the day on which such rent first came due. If Borrower has any dispute
with any Landlord with respect to rent payable or other matters, Borrower shall
give Paragon written notice of said dispute.
(v) Any material change in the business, operations, or
financial affairs of the Borrower.
(vi) The occurrence of any Suspension Event.
(vii) Any intention on the part of the Borrower to discharge the
Borrower's present independent accountants or any withdrawal or resignation by
such independent accountants from their acting in such capacity (as to which,
see Subsection 9-1(d)).
(viii) Any litigation which, if determined adversely to the
Borrower, might have a material adverse effect on the financial condition of the
Borrower.
(b) The Borrower shall:
(i) Provide the Lender, when so distributed, with copies of
any materials distributed to the shareholders of the Borrower (qua such
shareholders).
(ii) Add the Lender as an addressee on all mailing lists
maintained by or for the Borrower.
(iii) At the request of the Lender, from time to time, provide
the Lender with copies of all advertising (including copies of all print
advertising and duplicate tapes of all video and radio such advertising).
(iv) Provide the Lender, when received by the Borrower, with a
copy of any management letter or similar communications from any accountant of
the Borrower.
9-4. Borrowing Base Certificate. The Borrower shall provide the Lender,
--------------------------
daily, with a Borrowing Base Certificate (in the form of EXHIBIT 9.4 annexed
hereto, as such form may be revised from time to time by the Lender). Such
Certificate may be sent to the Lender by facsimile transmission, provided that
the original thereof is forwarded to the Lender on the date of such
transmission. Such Certificate must include back up support of inventory.
9-5. Weekly Reports. Weekly, on Friday of each week (as of the then
--------------
immediately preceding fiscal week) the Borrower shall provide the Lender with a
Sales Audit Report and Cash Reconciliation (Borrower format acceptable), a Flash
Sales Report by Department (Borrower format acceptable), and a Collateral
Activity Summary (including a roll forward" of Inventory). Such
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report may be sent to the Lender by facsimile transmission, provided that the
original thereof is forwarded to the Lender on the date of such transmission.
9-6. Monthly Reports.
---------------
(a) Monthly, the Borrower shall provide the Lender with original
counterparts of (each in such form as the Lender from time to time may specify):
(i) Within Fifteen (15) days of the end of the previous month:
(A) Consigned Inventory Report by Vendor.
(B) Retail Inventory Report by entity, by department
(Green, Seasonal and Dry)
(C) Rent, Tax and Insurance Compliance Form
(D) Inventory Certificate (Paragon Format)
(ii) Within Thirty (30) days of the end of the previous month:
(A) A Statement of Gross Margin (Paragon Format).
(B) Reconciliation of Inventory to the general ledger as of
the end of the subject month (Paragon Format).
(C) An aging of the Borrower's accounts payable.
(D) An internally prepared financial statement of the
Borrower's financial condition at, and the results of its
operations for the period ending with the end of the subject
month, which financial statement shall include, at a minimum, a
balance sheet, income statement (on a store specific and on a
"consolidated" basis), cash flow and comparison of same store
sales for the corresponding month of the then immediately
previous year, as well as to the Business Plan.
(E) A statement of Store Activity (Paragon format).
(b) For purposes of Section 9-6(a)(i), above, the first "previous month" in
respect of which the items required by that Section shall be provided shall be
November, 1997 and for purposes of Section 9-6(a)(ii), above, the first
"previous month" in respect of which the items required by that Section shall be
provided shall be November, l997.
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<PAGE>
9-7. Quarterly Reports. Quarterly, within Forty Five (45) days following
-----------------
the end of each of the Borrower's fiscal quarters, the Borrower shall provide
the Lender with an original counterpart of a management prepared financial
statement of the Borrower for the period from the beginning of the Borrower's
then current fiscal year through the end of the subject quarter, with
comparative information for the same period of the previous fiscal year, which
statement shall include, at a minimum, a balance sheet, income statement (on a
store specific and on a "consolidated" basis), statement of changes in
shareholders' equity, and cash flows and comparisons for the corresponding
quarter of the then immediately previous year, as well as to the Business Plan.
Borrower shall also provide to Lender a copy of Borrower's 10Q Report within
forty five (45) days of the end of each quarter.
9-8. Annual Reports.
--------------
(a) Annually, within ninety (90) days following the end of the
Borrower's fiscal year, the Borrower shall furnish the Lender with an original
signed counterpart of the Borrower's annual financial statement which statement
shall have been prepared by, and bearing the unqualified opinion of the
Borrower's independent certified public accountants (i.e. said statement shall
be "certified" by such accountants). Such annual statement shall include, at a
minimum (with comparative information for the then prior fiscal year) a balance
sheet, income statement, statement of changes in shareholders' equity, and cash
flows. Borrower shall also provide to Lender a copy of Borrower's 10K report
within ninety (90) days of the end of Borrower's fiscal year. Borrower's audited
financial statements for its fiscal year ending June l997 shall be delivered to
Lender within forty five days (45) of the execution of this Agreement.
(b) Each annual statement shall be accompanied by such accountant's
Certificate indicating that to the best knowledge of such accountant, no event
has occurred which is or which, solely with the passage of time or the giving of
notice (or both) would be, an Event of Default.
9-9. Officers' Certificates. The Borrower shall cause the Borrower's
----------------------
President and Chief Financial Officer respectively to provide such Person's
Certificate with those monthly, quarterly, and annual statements to be furnished
pursuant to this Agreement, which Certificate shall:
(a) Indicate that the subject statement was prepared in accordance
with GAAP consistently applied, and presents fairly the financial condition of
the Borrower at the close of and the results of the Borrower's operations and
cash flows for, the period(s) covered, subject, however (with the exception of
the Certificate which accompanies such annual statement) to usual year end
adjustments.
(b) Indicate either that (i) no Suspension Event has occurred or (ii)
if such an event has occurred, its nature (in reasonable detail) and the steps
(if any) being taken or contemplated by the Borrower to be taken on account
thereof.
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(c) Include calculations concerning the Borrower's compliance (or
failure to comply) at the date of the subject statement with each of the
financial performance covenants included in Section 9-12, below.
(d) Indicate that all taxes (broken down by type and taxing
authority) have or have not been paid.
(e) Indicate that all rent and additional rent broken down by store
location) due pursuant to any store lease have or have not been paid.
9-10. Inventories, Appraisals, and Audits.
-----------------------------------
(a) The Lender, at the expense of the Borrower, may participate in
and/or observe each physical count and/or inventory of so much of the Collateral
as consists of Inventory which is undertaken on behalf of the Borrower.
(b) Upon the Lender's request from time to time, the Borrower shall
obtain, or shall permit the Lender to obtain (in all events, at the Borrower's
expense) physical counts and/or inventories of the Collateral, conducted by such
inventory takers as are satisfactory to the Lender and following such
methodology as may be required by the Lender, each of which physical counts
and/or inventories shall be observed by the Borrower's accountants. The Lender
will require the Borrower to conduct two (2) such counts and/or inventories
during each twelve (12) month period during which the within Agreement is in
effect, but in its discretion, may undertake additional such counts or
inventories during such period.
(c) Upon the Lender's request from time to time, the Borrower shall
permit the Lender to obtain appraisals (in all events, at the Borrower's
expense) conducted by such appraisers as are satisfactory to the Lender.
(d) The Lender contemplates conducting three (3) commercial finance
audits (in each event, at the Borrower's expense) of the Borrower's books and
records during any Twelve (12) month period during which the within Agreement is
in effect, but in its discretion, may undertake additional such audits during
such period. Absent a Suspension Event or Default, Lender agrees that audit
charges payable by the Borrower will not exceed $13,750.00 per year plus
expenses.
(e) The Lender from time to time (in all events, at the Borrower's
expense) may undertake "mystery shopping" (so-called) visits to all or any of
the Borrower's business premises. The Lender shall provide the Borrower with a
copy of any non-company confidential results of such mystery shopping.
9-l1. Additional Financial Information.
--------------------------------
(a) In addition to all other information required to be provided
pursuant to this Article 9, the Borrower promptly shall provide the Lender with
such other and additional
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<PAGE>
information concerning the Borrower and any guarantor of the Liabilities, the
Collateral, the operation of the Borrower's business, and the Borrower's
financial condition, including original counterparts of financial reports and
statements, as the Lender may from time to time request from the Borrower.
(b) The Borrower may provide the Lender, from time to time
hereafter, with updated Business Plans. In all events, the Borrower, no sooner
than ninety (90) nor later than sixty (60) days prior to the end of each of the
Borrower's fiscal years, shall furnish the Lender with an updated and extended
Business Plan which shall go out at least through the end of the then next
fiscal year. In each event, such updated and extended Business Plans shall be
prepared pursuant to a methodology and shall include such assumptions as are
satisfactory to the Lender. The Lender, following the receipt of any of such
Business Plans, may, but shall not be under any obligation to, revise the
financial performance covenants included on EXHIBIT 9-12, annexed hereto.
9-12. Financial Performance Covenants. The Borrower shall observe and
-------------------------------
comply with those financial performance covenants set forth on EXHIBIT 9-12(a),
annexed hereto, certain of which covenants are based on the Business Plan set
forth on EXHIBIT 9-12(b), annexed hereto.
9-13. Electronic Reporting. At Lender's option all information and reports
--------------------
required to be substituted to Lender by Borrower shall be transmitted
electronically pursuant to an electronic transmitting reporting system and shall
be in a record layout format designated by Lender from time to time.
ARTICLE 10 - EVENTS OF DEFAULT
- ------------------------------
The occurrence of any event described in this Article 10 respectively shall
constitute an "Event of Default" herein. Upon the occurrence of any Event of
Default described in Section 10-11, any and all Liabilities shall become due and
payable without any further act on the part of the Lender. Upon the occurrence
of any other Event of Default, any and all Liabilities shall become immediately
due and payable, at the option of the Lender and without notice or demand. The
occurrence of any Event of Default shall also constitute, without notice or
demand, a default under all other agreements between the Lender and the Borrower
and instruments and papers given the Lender by the Borrower, whether such
agreements, instruments, or papers now exist or hereafter arise
10-1. Failure to Pay Revolving Credit. The failure by the Borrower to pay
-------------------------------
any amount when due under the Revolving Credit.
10-2. Failure To Make Other Payments. The failure by the Borrower to pay
------------------------------
when due (or upon demand, if payable on demand) any payment Liability other than
under the Revolving Credit.
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<PAGE>
10-3. Failure to Perform Covenant or Liability (No Grace Period). The
----------------------------------------------------------
failure by the Borrower to promptly, punctually, faithfully and timely perform,
discharge, or comply with any covenant or Liability not otherwise described in
section 10-1 or section 10-2, above, and included in any of the following
provisions hereof:
<TABLE>
<CAPTION>
Section Relates to:
------- ----------
<S> <C>
5-4(a) and (b) Location of Collateral
5-5 Title to Assets
5-6 Indebtedness
5-7(b) Insurance Policies
5-12(d) Pay Taxes
5-21 Affiliate Transactions
5-23 Additional Assurances
Article 7 Cash Management
Article 9 Financial Reporting Requirements and Financial Covenants
</TABLE>
10-4. Failure to Perform Covenant or Liability (Grace Period). The failure
-------------------------------------------------------
by the Borrower to promptly, punctually and faithfully perform, or observe any
term, covenant or agreement on its part to be performed or observed pursuant to
any of the provisions of this Agreement, other than those described in Sections
10-1, 10-2 or 10-3, or in any other agreement with Lender which is not remedied
within the earlier of fifteen (15) days after (i) notice thereof by Lender to
Borrower, or (ii) the date Borrower was required to give notice to Lender
pursuant to Section 9-3(a)(vi) hereof.
10-5. Misrepresentation. The determination by the Lender that any
-----------------
representation or warranty at any time made by the Borrower to the Lender, was
not true or complete in all material respects when given.
10-6. Acceleration of Other Debt, Breach of Lease. Other than as disclosed
-------------------------------------------
on Exhibits 5-4 and 5-16 the occurrence of any event such that any Indebtedness
in excess of the aggregate of $100,000 of the Borrower to any creditors other
than the Lender could be accelerated or, without the consent of the Borrower,
any Lease could be terminated (whether or not the subject creditor or lessor
takes any action on account of such occurrence).
10-7. Default Under Other Agreements. The occurrence of any breach or
------------------------------
default under any agreement between the Lender and the Borrower or instrument or
paper given the Lender by the Borrower, whether such agreement, instrument, or
paper now exists or hereafter arises (notwithstanding that the Lender may not
have exercised its rights upon default under any such other agreement,
instrument or paper).
10-8. Casualty Loss, Non-Ordinary Course Sales. The occurrence of any (a)
----------------------------------------
uninsured loss, theft, damage, or destruction of or to any material portion of
the Collateral in excess of $l00,000.00, or (b) sale (other than sales in the
ordinary course of business) of any material portion of the
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<PAGE>
Collateral in excess of the aggregate of $100,000.00 in any year without
Lender's prior written consent.
10-9. Judgment, Restraint of Business.
-------------------------------
(a) The service of process upon the Lender or any Participant
seeking to attach, by trustee, mesne, or other process, any of the Borrower's
funds on deposit with, or assets of the Borrower in the possession of; the
Lender or such Participant.
(b) The entry of any judgment against the Borrower, which
judgment is not satisfied (if a money judgment) or appealed from (with execution
or similar process stayed) within thirty (30) days of its entry.
(c) The entry of any order or the imposition of any other process
having the force of law, the effect of which is to restrain in any material way
the conduct by the Borrower of its business in the ordinary course.
10-10. Business Failure. Any act by, against, or relating to the
----------------
Borrower, or its property, or assets, which act constitutes the application for,
consent to, or sufferance of the appointment of a receiver, trustee, or other
person, pursuant to court action or otherwise, over all, or any part of the
Borrower's property; the granting of any trust mortgage or execution of an
assignment for the benefit of the creditors of the Borrower, or the occurrence
of any other voluntary or involuntary liquidation or extension of debt agreement
for the Borrower; or the offering by or entering into by the Borrower of any
composition, extension, or any other arrangement seeking relief from or
extension of the debts of the Borrower, or the initiation of any other judicial
or non-judicial proceeding or agreement by, against, or including the Borrower
which seeks or intends to accomplish a reorganization or arrangement with
creditors.
10-11. Bankruptcy. The failure by the Borrower to generally pay the debts
----------
of the Borrower as they mature; the filing of any complaint, application, or
petition by or against the Borrower initiating any matter in which the Borrower
is or may be granted any relief from the debts of the Borrower pursuant to the
Bankruptcy Code or any other insolvency statute or procedure.
10-12. Insecurity. The occurrence of any event or circumstance with
----------
respect to the Borrower such that Lender shall believe in good faith that the
prospect of payment of all or any part of the Liabilities or the performance by
the Borrower under this Agreement or any other agreement between the Lender and
the Borrower is impaired or there shall occur any material adverse change in the
business or financial condition of the Borrower.
10-13. Prepayment or Default by Guarantor or Related Entity. The
----------------------------------------------------
prepayment by a Related Entity or Guarantor of its Liabilities to Lender or the
occurrence of any of the foregoing Events of Default with respect to any
guarantor of the Liabilities, or the occurrence of any of the foregoing
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<PAGE>
Events of Default with respect to any parent (if the Borrower is a corporation),
subsidiary, or Related Entity, as if such guarantor, parent, or Related Entity
were the "Borrower" described therein.
10-14. Indictment - Forfeiture. The indictment of, or institution of any
-----------------------
legal process or proceeding against, the Borrower, any Executive Officer or any
guarantor of the Liabilities under any federal, state, municipal, and other
civil or criminal statutem, rule, regulation, order, or other requirement having
the force of law where the relief, penalties, or remedies sought or available
include the forfeiture of any property of the Borrower and/or the imposition of
any stay or other order, the effect of which could be to restrain in any
material way the conduct by the Borrower of its business in the ordinary course.
10-15. Termination of Guaranty. The termination or attempted termination
-----------------------
of any guaranty by any guarantor of the Liabilities.
10-16. Challenge to Loan Documents.
---------------------------
(a) Any challenge by or on behalf of the Borrower or any
guarantor of the Liabilities to the validity of any Loan Document or the
applicability or enforceability of any Loan Document strictly in accordance with
the subject Loan Document's terms or which seeks to void, avoid, limit, or
otherwise adversely affect any security interest created by or in any Loan
Document or any payment made pursuant thereto.
(b) Any determination by any court or any other judicial or
government authority that any Loan Document is not enforceable strictly in
accordance with the subject Loan Document's terms or which voids, avoids,
limits, or otherwise adversely affects any security interest created by any Loan
Document or any payment made pursuant thereto.
10-17. Executive Management. The death, disability, or failure of any
--------------------
Executive Officer at any time to exercise that authority and discharge those
management responsibilities with respect to the Borrower as are exercised and
discharged by such Person at the execution of the within Agreement.
10-18. Change in Control. Any change in the ownership of the capital stock
-----------------
of the Borrower such that Timothy Duoos does not Control at least 30% of the
Borrower and maintain any seat on the Board of Directors.
ARTICLE 11 - RIGHTS AND REMEDIES UPON DEFAULT
- ---------------------------------------------
In addition to all of the rights, remedies, powers, privileges, and
discretions which the Lender is provided prior to the occurrence of an Event of
Default, the Lender shall have the following rights and remedies upon the
occurrence of any Event of Default and at any time thereafter. No stay which
otherwise might be imposed pursuant to the Bankruptcy Code or otherwise shall
stay, limit prevent, hinder, delay, restrict, or otherwise prevent the Lender's
exercise of any of such rights and remedies.
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<PAGE>
11-1. Rights of Enforcement. The Lender shall have all of the rights and
---------------------
remedies of a secured party upon default under the UCC, in addition to which the
Lender shall have all and each of the following rights and remedies:
(a) To collect the Receivables Collateral, with or without the
taking of possession of any of the Collateral.
(b) To take possession of all or any portion of the Collateral.
(c) To sell, lease, or otherwise dispose of any or all of the
Collateral, in its then condition or following such preparation or processing as
the Lender deems advisable and with or without the taking of possession of any
of the Collateral.
(d) To conduct one or more going out of business sales which
include the sale or other disposition of the Collateral.
(e) To apply the Receivables Collateral or the proceeds of the
Collateral towards (but not necessarily in complete satisfaction of) the
Liabilities.
(f) To exercise all or any of the rights, remedies, powers,
privileges, and discretions under all or any of the Loan Documents.
11-2. Sale of Collateral.
------------------
(a) Any sale or other disposition of the Collateral may be at
public or private sale upon such terms and in such manner as the Lender deems
advisable, having due regard to compliance with any statute or regulation which
might affect, limit, or apply to the Lender's disposition of the Collateral.
(b) The Lender, in the exercise of the Lender's rights and
remedies upon default, may conduct one or more going out of business sales, in
the Lender's own right or by one or more agents and contractors. Such sale(s)
may be conducted upon any premises owned, leased, or occupied by the Borrower.
The Lender and any such agent or contractor, in conjunction with any such sale,
may augment the Inventory with other goods (all of which other goods shall
remain the sole property of the Lender or such agent or contractor). Any amounts
realized from the sale of such goods which constitute augmentations to the
Inventory (net of an allocable share of the costs and expenses incurred in their
disposition) shall be the sole property of the Lender or such agent or
contractor and neither the Borrower nor any Person claiming under or in right of
the Borrower shall have any interest therein.
(c) Unless the Collateral is perishable or threatens to decline
speedily in value, or is of a type customarily sold on a recognized market (in
which event the Lender shall provide the Borrower with such notice as may be
practicable under the circumstances), the Lender shall give the
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<PAGE>
Borrower at least five (5) days prior written notice of the date, time, and
place of any proposed public sale, and of the date after which any private sale
or other disposition of the Collateral may be made. The Borrower agrees that
such written notice shall satisfy all requirements for notice to the Borrower
which are imposed under the UCC or other applicable law with respect to the
exercise of the Lender's rights and remedies upon default.
(d) The Lender may purchase the Collateral, or any portion of it
at any sale held under this Article.
(e) The Lender shall apply the proceeds of any exercise of the
Lender's Rights and Remedies under this Article 11 towards the Liabilities in
such manner, and with such frequency, as the Lender determines.
11-3. Occupation of Business Location. In connection with the Lender's
------------------------------
exercise of the Lender's rights under this Article 11, the Lender may enter
upon, occupy, and use any premises owned or occupied by the Borrower, and may
exclude the Borrower from such premises or portion thereof as may have been so
entered upon, occupied, or used by the Lender. The Lender shall not be required
to remove any of the Collateral from any such premises upon the Lender's taking
possession thereof, and may render any Collateral unusable to the Borrower. In
no event shall the Lender be liable to the Borrower for use or occupancy by the
Lender of any premises pursuant to this Article 11, nor for any charge (such as
wages for the Borrower's employees and utilities) incurred in connection with
the Lender's exercise of the Lender's Rights and Remedies.
11-4. Grant of Nonexclusive License. The Borrower hereby grants to the
-----------------------------
Lender a royalty free nonexclusive irrevocable license to use, apply, and affix
any trademark, tradename, logo, or the like in which the Borrower now or
hereafter has rights, such license being with respect to the Lender's exercise
of the rights hereunder including, without limitation, in connection with any
completion of the manufacture of Inventory or sale or other disposition of
Inventory.
11-5. Assembly of Collateral. The Lender may require the Borrower to
----------------------
assemble the Collateral and make it available to the Lender at the Borrower's
sole risk and expense at a place or places which are reasonably convenient to
both the Lender and Borrower.
11-6. Rights and Remedies. The rights, remedies, powers, privileges, and
-------------------
discretions of the Lender hereunder (herein, the "Lender's Rights and Remedies")
shall be cumulative and not exclusive of any rights or remedies which it would
otherwise have. No delay or omission by the Lender in exercising or enforcing
any of the Lender's Rights and Remedies shall operate as, or constitute, a
waiver thereof. No waiver by the Lender of any Event of Default or of any
default under any other agreement shall operate as a waiver of any other default
hereunder or under any other agreement. No single or partial exercise of any of
the Lender's Rights or Remedies, and no express or implied agreement or
transaction of whatever nature entered into between the Lender and any person,
at any time, shall preclude the other or further exercise of the Lender's Rights
and Remedies. No waiver by the Lender of any of the Lender's Rights and Remedies
on any one occasion shall be
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<PAGE>
deemed a waiver on any subsequent occasion, nor shall it be deemed a continuing
waiver. All of the Lender's Rights and Remedies and all of the Lender's rights,
remedies, powers, privileges, and discretions under any other agreement or
transaction are cumulative, and not alternative or exclusive, and may be
exercised by the Lender at such time or times and in such order of preference as
the Lender in its sole discretion may determine. The Lender's Rights and
Remedies may be exercised without resort or regard to any other source of
satisfaction of the Liabilities.
ARTICLE 12-NOTICES
- ------------------
12-1. Notice Addresses. All notices, demands, and other communications
----------------
made in respect of this Agreement (other than a request for a loan or advance or
other financial accommodation under the Revolving Credit) shall be made to the
following addresses, each of which may be changed upon seven (7) days written
notice to all others given by certified mail, return receipt requested:
If to the Lender: Paragon Capital LLC
Hillsite Office Building
75 Second Avenue, Suite 400
Needham, Massachusetts 02194
Attention: Andrew Moser, President
Phone: (781) 707-2100
Fax: (781) 707-2107
With a copy to: Joel B. Rosenthal, Esq.
Shapiro Israel & Weiner, P.C.
100 North Washington Street
Boston, Massachusetts 02114
Phone: (617) 742-4200
Fax: (617) 742-2355
If to the Borrower: Nurseryland Garden Centers, Inc.
32382 Del Obispo
San Juan Capistrano, California 92675-4029
Attention: Mr. Timothy Duoos, President
Phone: (714) 248-3811
Fax: (714) 248-4398
With a copy to: Ravich, Meyer, Kirkman,
McGrath & Nauman
4545 IDS Center
80 South Eight Street
Minneapolis, Minnesota 55402-2225
Attention: Michael F. McGrath, Esq.
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<PAGE>
Phone: (612) 332-8511
Fax: (612) 332-8302
12-2. Notice Given.
------------
(a) Except as otherwise specifically provided herein, notices
shall be deemed made and correspondence received, as follows (all times being
local to the place of delivery or receipt):
(i) By mail: the sooner of when actually received or three
(3) days following deposit in the United States mail, postage prepaid.
(ii) By recognized overnight express delivery: the Banking
Day following the day when sent.
(iii) By hand: If delivered on a Banking Day after 9:00 A.M.
and no later than three (3) hours prior to the close of customary business hours
of the recipient, when delivered. Otherwise, at the opening of the then next
Banking Day.
(iv) By facsimile transmission (which must include a header
indicated the party sending such transmission): If sent on a Banking Day after
9:00 A.M. and no later than Three (3) hours prior to the close of customary
business hours of the recipient, one (1) hour after being sent. Otherwise, at
the opening of the then next Banking Day.
(b) Rejection or refusal to accept delivery and inability to
deliver because of a changed address or facsimile number for which no due notice
was given shall each be deemed receipt of the notice sent.
ARTICLE 13 - TERM.
- -----------------
13-1. Termination of Revolving Credit. This Agreement is, and is intended
-------------------------------
to be, a continuing agreement and shall remain in full force and effect for an
initial term ending on the Maturity Date, and thereafter for successive twelve-
month periods, each beginning on the 1st day of December (commencing December 1,
2002) of each year and ending on November 30th of the following year (each such
twelve-month period is hereinafter referred to as a "renewal term"); provided,
however, that either party may terminate this Agreement as of the end of the
initial term or any subsequent renewal term by giving the other party notice to
terminate in writing at least sixty (60) days prior to the end of any such
period whereupon at the end of such period all Liabilities shall be due and
payable in full without presentation, demand, or further notice of any kind,
whether or not all or any part of the Liabilities is otherwise due and payable
pursuant to the agreement or instrument evidencing same. Lender may terminate
this Agreement immediately and without notice upon the occurrence of an Event of
Default. Notwithstanding the foregoing or anything in this Agreement or
elsewhere to the contrary, the security interest, Lender's rights and remedies
hereunder
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<PAGE>
and Borrower's obligations and liabilities hereunder shall survive any
termination of this Agreement and shall remain in full force and effect until
all of the Liabilities outstanding, or contracted or committed for (whether or
not outstanding), before the receipt of such notice by Lender, and any
extensions or renewals thereof (whether made before or after receipt of such
notice), together with interest accruing thereon after such notice, shall be
finally and irrevocably paid in full. No Collateral shall be released or
financing statement terminated until such final and irrevocable payment in full
of the Liabilities, as described in the preceding sentence.
13-2. Effect of Termination. Upon the termination of Revolving Credit, the
---------------------
Borrower shall pay the Lender (whether or not then due), in immediately
available funds, all then Liabilities including, without limitation: the entire
balance of the Loan Account; any then remaining balance of the Facility Fee; any
accrued and unpaid Line Fee; any Prepayment Premium and all unreimbursed costs
and expenses of the Lender for which the Borrower is responsible, and shall make
such arrangements concerning any L/C's then outstanding are reasonably
satisfactory to the Lender. Until such payment, all provisions of this
Agreement, other than those contained in Article l which place an obligation on
the Lender to make any loans or advances or to provide financial accommodations
under the Revolving Credit or otherwise, shall remain in full force and effect
until all Liabilities shall have been paid in full. The release by the Lender of
the security interests granted the Lender by the Borrower hereunder may be upon
such conditions and indemnifications as the Lender may require.
13-3. Prepayment Premium. If Borrower pays in full all or substantially
------------------
all of the Liabilities prior to the end of the initial term of this Agreement
(or any renewal term), other than temporarily from funds internally generated in
the ordinary course of business, at the time of such payment Borrower shall also
pay to Lender a prepayment premium in an amount equal to: $82,500.00, if paid
during the first year after the date of this Agreement, and reducing by
$13,750.00 per year on each anniversary of this Agreement . Any tender of
payment in full of the Liabilities following an acceleration by Lender of the
Liabilities pursuant to Article 10, shall be for purposes of this section deemed
to be a prepayment requiring Borrower to pay the aforementioned prepayment
premium.
Such prepayment premium shall be paid to Lender as liquidated
damages for the loss of the bargain by Lender and not as a penalty.
ARTICLE 14 - GENERAL
- --------------------
14-1. Protection of Collateral. The Lender has no duty as to the
------------------------
collection or protection of the Collateral beyond the safe custody of such of
the Collateral as may come into the possession of the Lender and shall have no
duty as to the preservation of rights against prior parties or any other rights
pertaining thereto. The Lender may include reference to the Borrower (and may
utilize any logo or other distinctive symbol associated with the Borrower) in
connection with any advertising, promotion, or marketing undertaken by the
Lender.
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<PAGE>
14-2. Successors and Assigns. This Agreement shall be binding upon the
----------------------
Borrower and the Borrower's representatives, successors, and assigns and shall
enure to the benefit of the Lender and the Lender's successors and assigns
provided, however, no trustee or other fiduciary appointed with respect to the
Borrower shall have any rights hereunder. In the event that the Lender assigns
or transfers its rights under this Agreement, the assignee shall thereupon
succeed to and become vested with all rights, powers, privileges, and duties of
the Lender hereunder and the Lender shall thereupon be discharged and relieved
from its duties and obligations hereunder.
14-3. Severability. Any determination that any provision of this Agreement
------------
or any application thereof is invalid, illegal, or unenforceable in any respect
in any instance shall not affect the validity, legality, or enforceability of
such provision in any other instance, or the validity, legality, or
enforceability of any other provision of this Agreement.
14-4. Amendments, Course of Dealing.
-----------------------------
(a) This Agreement and the other Loan Documents incorporate all
discussions and negotiations between the Borrower and the Lender, either express
or implied, concerning the matters included herein and in such other
instruments, any custom, usage, or course of dealings to the contrary
notwithstanding. No such discussions, negotiations, custom, usage, or course of
dealings shall limit, modify, or otherwise affect the provisions thereof. No
failure by the Lender to give notice to the Borrower of the Borrower's having
failed to observe and comply with any warranty or covenant included in any Loan
Document shall constitute a waiver of such warranty or covenant or the amendment
of the subject Loan Document. No change made by the Lender in the manner by
which Availability is determined shall obligate the Lender to continue to
determine Availability in that manner.
(b) The Borrower may undertake any action otherwise prohibited
hereby, and may omit to take any action otherwise required hereby, upon and with
the express prior written consent of the Lender. No consent, modification,
amendment, or waiver of any provision of any Loan Document shall be effective
unless executed in writing by or on behalf of the party to be charged with such
modification, amendment, or waiver (and if such party is the Lender, then by a
duly authorized officer thereof). Any modification, amendment, or waiver
provided by the Lender shall be in reliance upon all representations and
warranties theretofore made to the Lender by or on behalf of the Borrower (and
any guarantor, endorser, or surety of the Liabilities) and consequently may be
rescinded in the event that any of such representations or warranties was not
true and complete in all material respects when given.
14-5. Power of Attorney. In connection with all powers of attorney
-----------------
included in this Agreement, the Borrower hereby grants unto the Lender full
power to do any and all things necessary or appropriate in connection with the
exercise of such powers as fully and effectually as the Borrower might or could
do, hereby ratifying all that said attorney shall do or cause to be done by
virtue of this Agreement. No power of attorney set forth in this Agreement shall
be affected by any disability or incapacity suffered by the Borrower and each
shall survive the same. All powers
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<PAGE>
conferred upon the Lender by this Agreement, being coupled with an interest,
shall be irrevocable until this Agreement is terminated by a written instrument
executed by a duly authorized officer of the Lender.
14-6. Application of Proceeds. The proceeds of any collection, sale, or
-----------------------
disposition of the Collateral, or of any other payments received hereunder,
shall be applied towards the Liabilities in such order and manner as the Lender
determines in its sole discretion. The Borrower shall remain liable for any
deficiency remaining following such application.
14-7. Lender's Costs and Expenses. The Borrower shall pay on demand all
---------------------------
Costs of Collection and all reasonable fees, charges and expenses of the Lender
in connection with the preparation, execution, and delivery of this Agreement
and of any other Loan Documents, whether now existing or hereafter arising, and
all other reasonable fees, charges and expenses which may be incurred by the
Lender in preparing or amending this Agreement and all other agreements,
instruments, and documents related thereto, or otherwise incurred with respect
to the Liabilities, including, without limiting the generality of the foregoing,
any counsel fees or expenses incurred in any bankruptcy or insolvency
proceedings. The Borrower specifically authorizes the Lender to pay all such
fees and expenses and in the Lender's discretion, to add such fees and expenses
to the Loan Account.
14-8. Copies and Facsimiles. This Agreement and all documents which relate
---------------------
thereto, which have been or may be hereinafter furnished the Lender may be
reproduced by the Lender by any photographic, microfilm, xerographic, digital
imaging, or other process, and the Lender may destroy any document so
reproduced. Any such reproduction shall be admissible in evidence as the
original itself in any judicial or administrative proceeding (whether or not the
original is in existence and whether or not such reproduction was made in the
regular course of business). Any facsimile which bears proof of transmission
shall be binding on the party which or on whose behalf such transmission was
initiated and likewise shall be so admissible in evidence as if the original of
such facsimile had been delivered to the party which or on whose behalf such
transmission was received.
14-9. Massachusetts Law. This Agreement and all rights and obligations
-----------------
hereunder, including matters of construction, validity, and performance, shall
be governed by the laws of The Commonwealth of Massachusetts.
14-10. Consent to Jurisdiction.
-----------------------
(a) The Borrower agrees that any legal action, proceeding, case,
or controversy against the Borrower with respect to any Loan Document may be
brought in the Superior Court of Middlesex County, Massachusetts or in the
United States District Court, District of Massachusetts, sitting in Boston,
Massachusetts, as the Lender may elect in the Lender's sole discretion. By
execution and delivery of this Agreement, the Borrower, for itself and in
respect of its property,
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<PAGE>
accepts, submits, and consents generally and unconditionally, to the
jurisdiction of the aforesaid courts.
(b) Nothing herein shall affect the right of the Lender to bring
legal actions or proceedings in any other competent jurisdiction.
(c) The Borrower agrees that any action commenced by the Borrower
asserting any claim or counterclaim arising under or in connection with this
Agreement or any other Loan Document shall be brought solely in the Superior
Court of Middlesex County, Massachusetts or in the United States District Court,
District of Massachusetts, sitting in Boston, Massachusetts, and that such
Courts shall have exclusive jurisdiction with respect to any such action.
14-11. Indemnification. The Borrower shall indemnify, defend, and hold
---------------
the Lender and any employee, officer, or agent of the Lender (each, an
"Indemnified Person") harmless of and from any claim brought or threatened
against any Indemnified Person by the Borrower, any guarantor or endorser of the
Liabilities, or any other Person (as well as from attorneys' reasonable fees and
expenses in connection therewith) on account of the relationship of the Borrower
or of any other guarantor or endorser of the Liabilities Lender (each of claims
which may be defended, compromised, settled, or pursued by the Indemnified
Person with counsel of the Lender's selection, but at the expense of the
Borrower) other than any claim as to which a final determination is made in a
judicial proceeding (in which the Lender and any other Indemnified Person has
had an opportunity to be heard), which determination includes a specific finding
that the Indemnified Person seeking indemnification had acted in a grossly
negligent manner or in actual bad faith. The within indemnification shall
survive payment of the Liabilities and/or any termination, release, or discharge
executed by the Lender in favor of the Borrower.
14-12. Right of Set-Off. Any and all deposits or other sums at any time
----------------
credited by or due to the undersigned from the Lender or from any participant (a
"Participant") with the Lender in the credit facility contemplated hereby and
any cash, securities, instruments or other property of the undersigned in the
possession of the Lender or any Participant, whether for safekeeping or
otherwise (regardless of the reason such Person had received the same) shall at
all times constitute security for all Liabilities and for any and all
obligations of the undersigned to the and any Participant, and may be applied or
set off against the Liabilities and against such obligations at any time,
whether or not such are then due and whether or not other collateral is then
available to the Lender or any Participant.
14-13. Maximum Interest Rate. Regardless of any provision of any Loan
---------------------
Document, the Lender shall never be entitled to contract for, charge, receive,
collect, or apply as interest on any Liability, any amount in excess of the
maximum rate imposed by applicable law. Any payment which is made which, if
treated as interest on a Liability would result in such interest's exceeding
such maximum rate shall be held, to the extent of such excess, as additional
collateral for the Liabilities as if such excess were "Collateral."
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<PAGE>
14-14. Usury Savings Clause. It is the intention of the parties hereto to
--------------------
comply strictly with applicable usury laws, if any; accordingly, notwithstanding
any provisions to the contrary in this Agreement or any other Loan Documents, in
no event shall this Agreement or such Loan Document require or permit the
payment, taking, reserving, receiving, collecting or charging of any sums
constituting interest under applicable laws which exceed the maximum amount
permitted by such laws. If any such excess interest is called for, contracted
for, charged, paid, taken, reserved, collected or received in connection with
the Liabilities or in any communication by Lender or any other person to the
Borrower or any other person, or in the event all or part of the principal of
the Liabilities or interest thereon shall be prepaid or accelerated, so that
under any of such circumstances or under any other circumstance whatsoever the
amount of interest contracted for, charged, taken, collected, reserved, or
received on the amount of principal actually outstanding from time to time under
this Agreement shall exceed the maximum amount of interest permitted by
applicable usury laws, if any, then in any such event it is agreed as follows:
(i) the provisions of this paragraph shall govern and control, (ii) neither the
Borrower nor any other person or entity now or hereafter liable for the payment
of the Liabilities shall be obligated to pay the amount of such interest to the
extent such interest is in excess of the maximum amount of interest permitted by
applicable usury laws, if any, (iii) any such excess which is or has been
received notwithstanding this paragraph shall be credited against the then
unpaid principal balance hereof or, if the Liabilities have been or would be
paid in full by such credit, refunded to the Borrower, and (iv) the provisions
of this Agreement and the other Loan Documents, and any communication to the
Borrower, shall immediately be deemed reformed and such excess interest reduced,
without the necessity of executing any other document, to the maximum lawful
rate allowed under applicable laws as now or hereafter construed by courts
having jurisdiction hereof or thereof. Without limiting the foregoing, all
calculations of the rate of interest contracted for, charged, taken, collected,
reserved, or received in connection herewith which are made for the purpose of
determining whether such rate exceeds the maximum lawful rate shall be made to
the extent permitted by applicable laws by amortizing, prorating, allocating and
spreading during the period of the full term of the Liabilities, including all
prior and subsequent renewals and extensions, all interest at any time
contracted for, charged, taken, collected, reserved or received. The terms of
this paragraph shall be deemed to be incorporated in every Loan Document and
communication relating to the Liabilities.
14-15. Waivers.
-------
(a) The Borrower (and all guarantors, endorsers, and sureties of
the Liabilities) make each of the waivers included in Section 14-14(b), below,
knowingly, voluntarily, and intentionally, and understands that the Lender, in
entering into the financial arrangements contemplated hereby and in providing
loans and other financial accommodations to or for the account of the Borrower
as provided herein, whether not or in the future, is relying on such waivers.
(b) THE BORROWER, AND EACH SUCH GUARANTOR, ENDORSER, AND SURETY
RESPECTIVELY WAIVES THE FOLLOWING.
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<PAGE>
(i) Except as otherwise specifically required hereby,
notice of nonpayment, demand, presentment, protest and all forms of demand and
notice, both with respect to the Liabilities and the Collateral.
(ii) Except as otherwise specifically required hereby, the
right to notice and/or hearing prior to the Lender's exercising of the Lender's
rights upon default.
(iii) THE RIGHT TO A JURY IN ANY TRIAL OF ANY CASE OR
CONTROVERSY IN WHICH THE LENDER IS OR BECOMES A PARTY (WHETHER SUCH CASE OR
CONTROVERSY IS INITIATED BY OR AGAINST THE LENDER OR IN WHICH THE LENDER IS
JOINED AS A PARTY LITIGANT), WHICH CASE OR CONTROVERSY ARISES OUT OF OR IS IN
RESPECT OF, ANY RELATIONSHIP AMONGST OR BETWEEN THE BORROWER OR ANY OTHER PERSON
AND THE LENDER (AND THE LENDER LIKEWISE WAIVES THE RIGHT TO A JURY IN ANY TRIAL
OF ANY SUCH CASE OR CONTROVERSY).
(iv) Any defense, counterclaim, set-off, recoupment, or
other basis on which the amount of any Liability, as stated on the books and
records of the Lender, could be reduced or claimed to be paid otherwise than in
accordance with the tenor of and written terms of such Liability.
(v) Any claim to consequential, special, or punitive
damages.
14-16. Confidentiality. This Agreement and the terms hereof are
---------------
confidential, and neither the contents of this Agreement or the details of this
Agreement may be shown or disclosed by the Borrower to any bank, finance company
or other lender without the prior written consent of the Lender or except as
required by applicable law or regulation.
14-17. Right to Publish Notice. Lender may, at Lender's discretion and
-----------------------
expense, publicize or otherwise advertise by so-called "tombstone" advertising
or otherwise Lender's financing transaction with the Borrower.
14-18. Entities Related to Lender. Borrower acknowledges notice that
--------------------------
Lender is affiliated with The Ozer Group, LLC ("Ozer"). Ozer and other entities
related to Lender may, from time to time act as a merchant consultant or provide
other services to Lender with respect to Borrower.
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<PAGE>
EXHIBIT 10.4
SUNBELT NURSERY GROUP, INC.
SERIES A CUMULATIVE CONVERTIBLE PREFERRED
STOCK PURCHASE AGREEMENT
THIS SERIES A CUMULATIVE CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
(the "Agreement"), is made and entered into as of the 30th day of December, 1997
by and among Sunbelt Nursery Group, Inc. (the "Company"), a Delaware
corporation, with offices at 32382 Del Obispo Street, San Juan Capistrano,
California 92675 and the persons and entities listed on the Schedule of
Investors attached as Exhibit A hereto (each individually is referred to as an
---------
"Investor" and collectively as the "Investors").
WITNESSETH:
ARTICLE I
AUTHORIZATION OF PREFERRED STOCK,
PURCHASE AND SALE OF PREFERRED STOCK
Section 1.1. Authorization of Preferred Stock. The Company has authorized
--------------------------------
the issue and sale of up to 1,300,000 shares of its Series A Cumulative
Convertible Preferred Stock, $.01 par value (such Series A Cumulative
Convertible Preferred Stock being hereinafter referred to as the "Series A
Preferred Stock") to be issued under this Agreement. The rights, privileges, and
preferences of the Series A Preferred Stock are as set forth in the Company's
Certificate of Designations, Preferences and Rights of Series A Cumulative
Convertible Preferred Stock (the "Certificate of Designation") in the form
attached to this Agreement as Exhibit B.
---------
Section 1.2. Private Offering. The offer and sale of the Series A Preferred
----------------
Stock is being made by the Company in an offering (the "Offering") exempt from
the registration requirements of the Securities Act of 1933, as amended (the
"Securities Act"), and applicable state securities
laws.
Section 1.3. Purchase and Sale of the Preferred Stock. Subject to the
----------------------------------------
terms and conditions of this Agreement and on the basis of the representations
and warranties set forth herein, the Company agrees to sell to each Investor and
each Investor agrees to purchase from the Company the number of shares of Series
A Preferred Stock (the "Shares") at a purchase price of one dollar ($1.00) per
share of Series A Preferred Stock set forth opposite such Investor's name on
Exhibit A hereto.
- ---------
Section 1.4. The Closing. Subject to Sections 4.1 and 4.2 hereof, the
-----------
closing of the transactions contemplated hereby (the "Closing") shall occur
contemporaneous with the funding of the Loan and Security Agreements by and
among Paragon Capital LLC ("Paragon") and the Company's wholly-owned
subsidiaries, Wolfe Nursery, Inc., Tip Top Nurseries, Inc. and Nurseryland
Garden Centers (hereinafter the "Paragon Financing"), or at such other time and
<PAGE>
place as the parties shall mutually agree. At the Closing, the Company shall
deliver to each Investor a certificate or certificates, registered in such
Investor's name, representing the number of shares to be purchased by such
Investor pursuant to this Agreement against payment of the purchase price
thereof in lawful money of the United States of America by wire transfer or, if
acceptable to the Company check payable to the Company.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Representations and Warranties. The Company hereby represents and warrants
------------------------------
to the Investors as follows:
Section 2.1. Organization and Good Standing. Each of the Company and its
------------------------------
subsidiaries listed on Schedule 2.10 hereto (the "Subsidiaries") is a
-------------
corporation duly organized, validly existing and in good standing under the laws
of the state of its incorporation which, in the case of the Company, is the
State of Delaware. Except as otherwise reflected on Schedule 2.10, each of the
-------------
Company and the Subsidiaries has all requisite corporate power and authority and
holds all licenses, permits and other required authorizations from governmental
authorities necessary to conduct its business as it is now being conducted and
to own or lease the properties and assets it now owns or holds under lease, and
is duly qualified and in good standing as a foreign corporation in each
jurisdiction where the nature of the business transacted or the character of the
properties owned or leased makes such qualification necessary and where the
failure to qualify would have a material adverse effect upon the Company's
consolidated operations or consolidated financial condition.
Section 2.2. Capital Stock. The total authorized capital stock of the
-------------
Company presently consists of (i) 25,000,000 shares of Common Stock, $.01 par
value per share (the "Common Stock"), of which 8,500,000 shares are issued and
outstanding, all of which have been duly authorized and are validly issued,
fully paid and nonassessable, and (ii) 5,000,000 shares of Preferred Stock, $.01
par value per share (the "Preferred Stock"), of which 1,300,000 shares have been
designated Series A Preferred Stock. No shares of the Preferred Stock are
presently issued and outstanding. The Shares when issued pursuant to this
Agreement will be duly authorized, fully paid and nonassessable.
Except for the conversion provisions of the Preferred Stock and as set
forth on Schedule 2.2 hereto, there are no outstanding warrants, options or
------------
other rights to purchase or acquire, or exchangeable for or convertible into,
any shares of Common Stock. There are no preemptive rights with respect to the
issuance or sale by the Company of the Shares. Except as provided in this
Agreement, there are no restrictions on the transfer or voting of any shares of
the Common Stock. Other than as set forth in this Agreement and on Schedule 2.2
------------
hereto, there are no existing rights with respect to registration under the
Securities Act, of any of the Company's Common Stock or Preferred Stock. No
shares of Common Stock or Preferred Stock that have been issued were issued in
violation of the preemptive rights of any person. Except as reflected on
Schedule 2.4 hereto, the issuance of the Shares in accordance with the
- ------------
provisions of this
-2-
<PAGE>
Agreement has been duly authorized by all necessary corporate action before the
Closing, and the Shares when issued and sold to the Investors and upon payment
in full of the Purchase Price as provided herein, will be duly authorized and
validly issued, fully paid and nonassessable, will be evidenced by certificates
duly and validly authorized by the Company, and will constitute valid and
legally binding obligations of the Company enforceable against it in accordance
with the terms of issuance, subject to the effect of equitable principals and
applicable bankruptcy, insolvency, reorganization, moratorium or other laws of
general application relating to or affecting the enforcement of creditors'
rights.
Section 2.3. Financial Statements. The Company's audited financial
--------------------
statements as of and for the year ended June 29, 1997, included in its Form 10-K
for such year (the "10-K"), filed with the Securities and Exchange Commission
(the "Commission") and the unaudited financial statements as of and for the
three month period ending September 28, 1997, included in its Form 10-Q for such
three month period (the "10-Q") filed with the Commission, filed copies of
which 10-K and l0-Q's have heretofore been delivered to the Investors, are in
conformity with the books and records of the Company and the Subsidiaries, and
fairly present the consolidated financial condition of the Company and the
Subsidiaries as of each such date and fairly present the consolidated results of
the operations of the Company and the Subsidiaries for each period then ended,
in conformity with generally accepted accounting principles consistently
applied; provided, however, that the unaudited financial statements included in
the l0-Q are subject to year-end audit adjustments and do not contain all
footnotes required under generally accepted accounting principles.
Section 2.4. Compliance with Other Instruments. Except as reflected on
---------------------------------
Schedule 2.4 hereto, neither the execution and delivery of this Agreement nor
- ------------
the fulfillment of the terms set forth herein and the consummation of the
transactions contemplated hereby will: (i) conflict with the Certificate of
Incorporation or Bylaws of the Company; (ii) conflict with or constitute a
material breach of; or constitute a material default under or an event which,
with notice or lapse of time or both, would be a material breach of or material
default under or violation of any material agreement, indenture, mortgage, deed
of trust, loan agreement or other instrument or undertaking by which the Company
is bound or to which any of its properties are subject, or constitute a
violation of any law, administrative regulation, judgment, order decree or award
applicable to the Company; (iii) result in the creation or imposition of any
material lien or encumbrance upon any property or assets of the Company or any
of the Subsidiaries; (iv) result in the loss of any material license or
certificate enjoyed or possessed by the Company or any of the Subsidiaries, or
(v) give any party to any material agreement to which the Company is party the
right of termination.
Section 2.5. Authorization. Subject to the matters set forth on Schedule
------------- --------
2.4 hereof; the Company has the full corporate power and authority to enter into
- ---
this Agreement and to perform all of its obligations hereunder. Subject to
Schedule 2.4 hereto, the execution, delivery and performance of this Agreement
- ------------
by the Company has been duly authorized by all necessary corporate action, and
this Agreement constitutes a legal, valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, subject to the
effect of
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<PAGE>
equitable principles and applicable bankruptcy, insolvency, reorganization,
moratorium, or other laws of general application relating to or affecting the
enforcement of creditors' rights generally.
Section 2.6. Taxes. Except as reflected on Schedule 2.l0 hereto, each of
----- -------------
the Company and the Subsidiaries has filed all necessary or appropriate federal,
state, local and foreign tax returns and reports and all taxes, fees,
assessments and governmental charges of a material nature which are due and
payable have been paid, except those being contested in good faith or for which
an adequate reserve has been set aside, and there is no material tax deficiency
which has been or, to the knowledge of the Company, might be asserted against
the Company or any of the Subsidiaries which would materially affect the
business or operations of the Company and the Subsidiaries considered as a
whole.
Section 2.7. Litigation. Except as otherwise reflected in the Disclosure
----------
Documents (defined below) and on Schedule 2.7 hereto, there is not now pending
------------
nor, to the knowledge of the Company, threatened, any litigation, action, suit
or proceeding to which the Company or any of the Subsidiaries is or will be a
party before or by any governmental or regulatory agency or body or arbitration
tribunal (i) which questions or affects the Company's ability to enter into and
perform its obligations under this Agreement or (ii) which, if adversely
determined, would have a material adverse effect on the Company and the
Subsidiaries considered as a whole for which the Company has not taken an
adequate reserve. In addition to the foregoing, there is no judgment, decree,
injunction, rule or order of any court, governmental department, commission,
agency, instrumentality or arbitrator outstanding against the Company or any of
the Subsidiaries having, or that can be reasonably expected to have, any
material adverse effect on the business, properties, assets or condition,
financial or otherwise, of the Company and the Subsidiaries taken as a whole.
Section 2.8. Compliance with Law. To the best of the Company's knowledge,
-------------------
each of the Company and the Subsidiaries is, in the conduct of its business, in
compliance with all federal, state, local and other laws, statutes, ordinances
and regulations, the enforcement of which would materially adversely affect the
business or the value of the properties or assets of the Company and the
Subsidiaries taken as a whole.
Section 2.9. Licenses. Permits. Etc. To the best of the Company's
----------------------
knowledge, each of the Company and the Subsidiaries has all approvals,
authorizations, consents, licenses, orders and other permits of all governmental
agencies, whether federal, state or local, required to permit the operation of
its business as presently conducted. Except as otherwise reflected on
Schedule 2.9 hereto, there are no proceedings pending or, to the knowledge of
- ------------
the Company, threatened, looking toward revocation or limitation of any such
approvals, authorizations, consents, licenses, orders or permits, nor, to the
Company's knowledge, is there any basis or grounds for any such revocation or
limitation.
Section 2.10. Subsidiaries. Schedule 2.l0 to this Agreement sets forth all
------------- -------------
of the wholly owned Subsidiaries of the Company as of the date of this
Agreement. Other than as stated above, "Subsidiaries" shall include all
companies in which the Company owns a majority interest.
-4-
<PAGE>
Section 2.11. Securities Laws. Neither the Company nor any other person,
---------------
firm or corporation acting on its behalf has offered any of the Shares for sale
to, or solicited any offers to purchase any thereof from, or otherwise
approached or negotiated (nor will the Company or any other person, firm or
corporation acting on its behalf sell, offer, solicit or otherwise approach or
negotiate) in respect thereof with, such number or character of persons in the
aggregate or in such manner, as would result in bringing the Shares, or any
part thereof, within the provisions of Section 5 of the Securities Act. The
offer, issuance and sale of the Shares are and will be exempt from the
registration requirements under the Securities Act, and have been registered or
qualified (or are exempt from registration and qualification) under the
registration, permit or qualification requirements of all applicable state
securities laws. The Company has not retained a broker or finder in connection
with the sale of the Shares.
Section 2.12 Reports. To the best of the Company's knowledge, for the
-------
period commencing one (1) year prior to the date of Closing under this
Agreement, the Company reports filed under the Securities Exchange Act of 1934,
as amended (the "1934 Act"), and all amendments and supplements thereto
(collectively, the "Reports") complied as to form in all material respects with
the requirements of the 1934 Act, and the rules and regulations of the
Securities and Exchange Commission thereunder, as of their respective file
dates, except that the Company failed to timely file its amendment to the
Company's Annual Report on Form l0-K for the fiscal year ended June 29, 1997.
ARTICLE III
REPRESENTATIONS OF THE INVESTORS
--------------------------------
Representations of the Investors. Each Investor represents and warrants to
--------------------------------
the Company as follows:
Section 3.1. Purchase for Own Account. Such Investor is acquiring the
------------------------
Shares for its own account for investment and not with a view to or in
connection with any distribution or resale thereof, provided that such Investor
retains the right to dispose of the Shares in accordance with applicable law,
including without limitation the Securities Act.
Section 3.2. Restrictions on Transfers. Such Investor understands that the
-------------------------
Shares are not, and any Common Stock acquired on conversion thereof at the time
of issuance may not, be registered under either the Securities Act or any
applicable state securities laws and further understands that the Shares
constitute "restricted securities" within the meaning of Rule 144 under the
Securities Act. Such Investor understands that the Shares (or the Common Stock
issued on conversion thereof) may not be sold or otherwise transferred unless
subsequently registered under the Securities Act and registered or qualified
under any applicable state securities laws or, in the opinion of counsel (at the
expense of the Investor or transferee) for or reasonably acceptable, to the
Company, an exemption from registration is available; provided, however, that no
such registration statement or opinion of counsel shall be necessary for a
transfer by an Investor pursuant to a Rule 144(k) promulgated under the
Securities Act or a
-5-
<PAGE>
transfer by an Investor to an affiliate (as defined in Rule 405 of the
Securities Act) of such Investor, if such affiliate is an accredited investor.
Such Investor further understands that, except pursuant to subsection (k) of
Rule 144, any routine sales of Shares (and any Common Stock issued upon
conversion thereof) made in reliance on Rule 144 can only be made if current
information about the Company is publicly available and then only in limited
amounts in accordance with that rule. Pursuant to the terms of the Certificate
of Designation no holder of shares of Series A Preferred Stock may transfer any
such shares except to an "accredited investor" as such term is defined in Rule
501(a) adopted by the Securities and Exchange Commission under the Securities
Act and then only in transactions involving the transfer of at least 50,000
shares of Series A Preferred Stock.
Section 3.3. Restrictive Legends. Until such time as the Shares have been
-------------------
registered under the Securities Act and registered or qualified under any
applicable state securities laws or until such time as the Company is provided
by the Purchaser with an opinion of counsel reasonably acceptable to the Company
to the effect that the transfer of the Shares may be made without any such
registration or qualification, the certificates representing the Shares shall be
imprinted with a legend in substantially the following form:
"The shares of stock represented by this Certificate have not been
registered under the Securities Act of 1933, as amended, (the "Act") or
registered or qualified under any applicable state securities laws, and the
holder hereof cannot make any sale, assignment or other transfer of any
shares of such stock except pursuant to an offering of such shares duly
registered under the Act and registered or qualified under any applicable
state securities laws, or under such other circumstances as in the opinion
of counsel for or reasonably acceptable to the issuer shall not (by virtue
of any applicable exemption under the Act and any applicable state
securities laws, any rule or regulation thereunder or the federal
bankruptcy laws) require such registration or qualification."
Section 3.4. Access to Information. Such Investor is able to fend for
---------------------
itself in the transactions contemplated by this Agreement, has such knowledge
and experience in financial and business matters as to be capable of evaluating
the merits and risks of its investment, and has the ability to bear the economic
risks of its investment. Such Investor has had access, during the course of the
transaction and prior to its purchase of its Shares, to the same kind of
information that would be provided in a registration statement filed by the
Company under the 1933 Act and that it has had, during the course of the
transaction and prior to its purchase of its Shares, the opportunity to ask
questions of; and receive answers from, the Company concerning the terms and
conditions of the offering and to obtain additional information (to the extent
the Company possessed such information or could acquire it without unreasonable
effort or expense) necessary to verify the accuracy of any information furnished
to it or to which it had access.
Section 3.5. Accredited Investor. Such Investor is an "Accredited Investor"
-------------------
as such term is defined in Rule 501(a) as adopted by the Securities and Exchange
Commission pursuant to the Securities Act, and has a net worth of at least
$l,000,000.
-6-
<PAGE>
Section 3.6. Authorizations. Such Investor has full power and authority to
--------------
enter into this Agreement and to fully perform the terms of this Agreement
hereunder. The execution, delivery, and performance of this Agreement by such
Investor has been (or will be) duly authorized by all necessary action of such
Investor prior to Closing, and this Agreement constitutes the legal, valid and
binding obligation of such Investor enforceable in accordance with its terms,
and the execution and delivery of this Agreement and the purchase of the Shares
contemplated thereby by such Investor will not violate any applicable federal or
state law, regulation or rule.
Section 3.7. Broker's or Finder's Fees. Such Investor has not retained a
-------------------------
broker or finder in connection with the purchase of the Shares.
Section 3.8. Receipt of Disclosure Documents. Such Investor acknowledges
-------------------------------
receipt of a copy of each of the following documents (the Disclosure Documents):
(i) The Company's Annual Report on Form l0-K for the fiscal year ended
June 29, 1997, and Form l0-KA-l filed with the Securities and
Exchange Commission on October 29, 1997;
(ii) The Company's Quarterly Report on Form l0-Q for the quarterly
period ended September 28, 1997; and
(iii) The Company's Notice of Annual Meeting and Proxy Statement for the
annual meeting of Stockholders to be held December 12, 1997.
ARTICLE IV
CONDITIONS PRECEDENT
Section 4.1. Conditions to the Obligations of the Investors. The
----------------------------------------------
obligation of the Investors to be bound by the provisions of this Agreement and
to purchase the Shares is subject to satisfaction of the following conditions
precedent, any or all of which may be waived in whole or in part by the
Investors:
(a) Representations and Warranties Correct. All of the representations
--------------------------------------
and warranties of the Company contained in this Agreement and all information
contained in any exhibit, schedule or attachment hereto or otherwise delivered
to the Investors shall be true and correct on the date of Closing.
(b) Performance of Obligations. All of the obligations of the Company
--------------------------
shall have been performed pursuant to the terms and conditions hereof on or
prior to the date of Closing.
(c) Paragon Financing. All conditions to the closing of the Paragon
-----------------
Financing shall have been satisfied or waived by Paragon.
-7-
<PAGE>
(d) Amex Listing. The Company shall have received written notice of
------------
approval for the listing of the Shares by the American Stock Exchange.
(e) Certificate of Designation. The Certificate of Designation shall
--------------------------
have been duly filed and accepted by the Delaware Secretary of State.
(f) Opinion of Counsel to the Company. The Investors shall have received
---------------------------------
an opinion of Murphy Mahon Keffler & Farrier, L.L.P., counsel to the Company,
based upon such counsel's best knowledge, addressed to the Purchaser, dated such
date, substantially in the form as set forth below:
1) The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware, and that it has full
corporate power and authority to execute the Agreement and to consummate
the transactions contemplated thereby;
2) The Agreement has been duly authorized by the Company and its Board
of Directors and duly executed and delivered by an authorized officer of
the Company and constitutes a legal, valid, and binding obligation of the
Company and is enforceable in accordance with its terms, subject to
bankruptcy and other laws of general application affecting the rights and
remedies of creditors;
3) The offer, issuance, sale and delivery of the Shares in conformity
with the terms of the Agreement does not violate any provision of the
Company's Certificate of Incorporation or Bylaws;
4) To such counsel's knowledge, other than the conditions to closing
and the matters set forth on Schedule 2.4 hereto, no order, authorization,
------------
consent or approval of; or registration, declaration or filing with any
state or federal governmental authority or agency is required in connection
with the execution and delivery of the Agreement or the offer, sale or
issuance of the Shares by the Company or the consummation by the Company of
the transactions contemplated by the Agreement.
5) To such counsel's knowledge, except as otherwise set forth in the
Disclosure Documents and Schedule 2.7, neither Sunbelt nor any of its
------------
subsidiaries is a party to any pending or threatened action, suit,
proceeding or investigation before any court or governmental agency.
6) Except as set forth on Schedule 2.4 hereto, neither the execution,
------------
delivery or performance of the Agreement nor compliance by the Company with
all provisions thereof; nor consummation by the Company of the transactions
contemplated thereby conflicts or will conflict with or constitutes or will
constitute a breach of; or a default under, the Certificate of
Incorporation or bylaws of the Company, or, to such counsel's knowledge,
any material contract to which it is a party, or will result in the
creation or
-8-
<PAGE>
imposition of any lien, charge or encumbrance upon any property or assets
of the Company under any such material contract nor will any such action
result in any violation of any existing Delaware or Federal law, rule
regulation (assuming compliance with all applicable state securities and
Blue Sky laws), or any ruling, judgment, injunction, order or decree of any
court or government entity or instrumentality known to such counsel, and
applicable to the Company or any of its properties;
7) To such counsel's knowledge, without undertaking any independent
investigation, the authorized, issued and outstanding capital stock of the
Company (i) is as set forth in Section 2.2 of the Agreement, (ii) has been
duly and validly authorized and issued and are fully paid and
nonassessable, and (iii) has not been issued in violation of any preemptive
right, co-sale right, or registration right.
8) Once issued and delivered for the consideration stated in the
Agreement, the Shares shall be duly and validly issued, fully paid and non-
assessable. To such counsel's knowledge, without undertaking any
independent investigation, there are no outstanding subscriptions, options
(other than employee stock options), warrants, rights or other written
agreements obligating the Company to issue or sell any shares of Common or
Preferred Stock of the Company other than as set forth on Schedule 2.2.
------------
(g) Consents Obtained. The Company shall have obtained in writing all
-----------------
consents, if any, needed to enable the Company to observe and comply with all of
its obligations hereunder.
(h) Other Documents. All instruments, documents and legal matters
---------------
reasonable and necessary to consummate the transactions contemplated by this
Agreement shall be satisfactory in form and substance to the respective counsels
for the Investors and the Investors shall have received all documents reasonably
requested in connection with the purchase of the Shares.
Section 4.2. Conditions to the Obligations of the Company. The obligation
--------------------------------------------
of the Company to be bound by the provisions of this Agreement and to sell the
Shares is subject to satisfaction of the following conditions precedent:
(a) Representations and Warranties Correct. All of the representations
--------------------------------------
and warranties of the Investors contained in this Agreement and all information
contained in any exhibit, schedule or attachment hereto or otherwise delivered
to the Company shall be true and correct on the date of Closing.
(b) Consents Obtained. Each Investor shall have obtained in writing all
-----------------
consents, if any, needed to enable such Investor to observe and comply with all
of its obligations hereunder.
(c) Corporate Resolutions Compliance Certificate and Certain Other
--------------------------------------------------------------
Documents. Each Investor that is a corporation or other business entity shall
- ---------
have delivered to the Company on such date certified copies of the resolutions
adopted by such Investor's Board of Directors or other governing body
authorizing the execution, delivery and performance of this Agreement and the
purchase and acceptance of the Shares.
-9-
<PAGE>
(d) Other Documents. All instruments, documents and legal matters
---------------
reasonable and necessary to consummate the transactions contemplated by this
Agreement shall be satisfactory in form and substance to counsel for the Company
and the Company shall have received all documents reasonably requested in
connection with the sale thereby of the Shares.
ARTICLE V
REGISTRATION RIGHTS
-------------------
Section 5.1. "Holder." As used in this Article V, the term "holder" shall
------
mean any person owning or having the right to acquire Registrable Securities (as
defined below), including any transferee of Registrable Securities to whom the
Purchaser has assigned its registration rights under this Article V, but only if
the Company is, within a reasonable time after such transfer, furnished with
written notice of the name and address of such transferee or assignee and the
Registrable Securities with respect to which such registration rights are being
assigned; provided, however, that such assignment shall be effective only if
immediately following such transfer the transferee or assignee is the holder of
at least 50,000 Registrable Securities and the further disposition of such
Registrable Securities by the transferee or assignee is restricted under the
Securities Act.
Section 5.2. "Registrable Securities." As used in this Article V, the term
----------------------
"Registrable Securities" shall mean (1) the Common Stock issued or issuable upon
conversion of the Shares and (2) any Common Stock issued as (or issuable upon
the conversion or exercise of any warrant, right or other security which is
issued as) a dividend or other distribution with respect to, or in exchange for
or in replacement of; such Shares; provided, however, that any shares previously
sold to the public pursuant to a registered public offering or pursuant to Rule
144 under the Securities Act shall cease to be Registrable Securities.
Section 5.3. Piggy-Back Registration. Whenever the Company proposes to
-----------------------
register any shares of its capital stock for its own or others account under the
Securities Act for a public offering for cash, on a form that would also permit
the registration of the Registrable Securities, the Company shall give each
holder of Registrable Securities prompt written notice of its intent to do so.
Upon the written request of any such holder given within 15 days after receipt
of such notice, the Company will use its best efforts to cause to be included in
such registration all of the Registrable Securities which such holder requests.
If the Company is advised in writing in good faith by any managing underwriter
of the securities being offered pursuant to any registration statement under
this Section 5.3 that the number of shares to be sold by persons other than the
Company is greater than the number of such shares which can be offered without
adversely affecting the offering, the Company may reduce pro rata (based upon
the number of shares of the Company's capital stock held by all persons other
than the Company, who hold Registrable Securities) the number of shares offered
for the accounts of such persons to a number deemed satisfactory by such
managing underwriter. No agreement of the Company shall permit any person other
than the Company or holders of Registrable Securities to participate in any
registration under this paragraph except on the basis that any offering
limitation either applies
-10-
<PAGE>
only to such other persons or is apportioned according to the number of shares
held by each participant. Rights under this Section 5.3 are subject to the terms
and provisions of outstanding demand registration rights which are referenced in
Schedule 2.2.
- ------------
Section 5.4. Demand Registrations. If at any time after December 31, 1998,
--------------------
and prior to January 1, 2006, the holder(s) of at least twenty-five percent
(25%) of the Registrable Securities shall notify the Company in writing that
such holders intend to offer or cause to be offered for sale at least twenty-
five percent (25%) of such Registrable Securities and shall request the Company
to cause such Registrable Securities to be registered under the Securities Act,
the Company will use its best efforts as soon as practicable thereafter to
register such Registrable Securities (together with any other Registrable
Securities requested by the holders thereof to be included in such registration
pursuant to Section 5.3 within 15 days after receipt of a notice from the
Company pursuant to Section 5.3) in accordance with the registration procedures
set forth in Section 5.5. hereof.
Such rights to require registration shall be in addition to the rights of
the holders under Sections 5.3 and 5.5 and shall be available to holders, acting
pursuant to this Agreement, on not more than a cumulative total of two (2)
occasions; provided, however, that each such registration right shall be deemed
to have been used only upon such registration statement becoming and remaining
effective in accordance with the provisions hereof. The Company shall, within
five days of receipt of a request for registration pursuant to this Section 5.4,
notify each holder of such request and permit each holder to join such request;
provided, that such holder, within 15 days of receipt of such notification, so
indicates in writing to the Company. Notwithstanding the foregoing, the Company
shall not be obligated to effect a registration pursuant to this Section 5.4
during the period starting with the date thirty (30) days prior to the Company's
estimated date of filing of, and ending on a date three (3) months following the
effective date of; a registration statement pertaining to an underwritten public
offering of securities for the account of the Company provided that the Company
is actively employing in good faith all reasonable efforts to cause such
registration statement to become effective and that the Company's estimate of
the date of filing such registration statement is made in good faith; provided,
however, that no such registration statements filed by the Company shall
preclude the holders of the Registrable Securities from exercising a
registration right hereunder this Section 5.4 for more than 90 days.
Section 5.5. Registration Procedures.
-----------------------
(a) All registration expenses incurred in connection with registrations
under Sections 5.3 and 5.4 (including all registration, filing, qualification,
printer's, accounting and legal fees) shall be borne by the Company. All selling
expenses, including underwriting commissions and discounts, relating to the
Registrable Securities shall be borne pro rata by the holders whose Registrable
Securities are to be registered.
(b) In connection with registrations under this Article 5, the Company
shall (i) use its best efforts to prepare and file with the Securities and
Exchange Commission (the "Commission") as soon as reasonably practicable, but
not later than 90 days, a registration statement with respect to the Registrable
Securities and use its best efforts to cause such
-11-
<PAGE>
registration to promptly become and remain effective for a period of at least 12
months or such shorter period during which holders shall have sold all
Registrable Securities which they requested to be registered); (ii) furnish to
each holder such number of copies of the prospectus contained in such
registration statement (including each preliminary prospectus), in conformity
with the requirements of the Securities Act, and such other documents as such
holder may reasonably request in order to facilitate the disposition of the
Registrable Securities owned by such holder; (iii) use its best efforts to
register and qualify the Registrable Securities covered by such registration
statement under applicable state securities laws as shall be reasonably
appropriate for the distribution of the Registrable Securities; and (iv) take
such other actions as are reasonable and necessary to comply with the
requirements of the Securities Act and the regulations thereunder, or the
reasonable request of any holder, with respect to the registration and
distribution of the Registrable Securities. The Company is not obligated to
effect registration or qualification under this Article S in any jurisdiction
requiring it to qualify to do business or to execute a general consent to
service of process.
Section 5.6. Certain Delays: Notification.
----------------------------
(a) The Company shall have the right, on not more than two occasions, to
defer for a reasonable period (not to exceed 90 days) the filing of any
registration statement requested under Sections 5.4 or 5.5 if, in the reasonable
judgment of the Company's board of directors, such registration would materially
interfere with or materially and adversely affect any then existing negotiations
for financing arrangements or financing plans of the Company, or any arrangement
or plan of the Company, then pending or being negotiated in good faith, relating
to any acquisition, disposition, merger or similar transaction, or would require
an audit of the Company or any Subsidiary other than the regularly scheduled
annual audit (unless the requesting holder or holders and other parties joining
such request or otherwise participating in such registration agree to bear the
expenses of such audit), such right to defer a registration to be exercised by
the Company not more than once in any year period.
(b) The Company shall promptly notify each holder of Registrable
Securities covered by any registration statement of any event which results in
the prospectus included in such registration statement, as then in effect,
containing an untrue statement of a material fact or omitting to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing. The
Company shall forthwith prepare and furnish, after securing such approvals as
may be necessary, to such holder a reasonable number of copies of any supplement
to or amendment of such prospectus that may be necessary so that, as thereafter
delivered to the purchasers of such Registrable Securities, such prospectus
shall not include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing.
(c) The Company shall promptly notify all selling holders of any stop
order or similar proceeding initiated by state or federal regulatory bodies and
use its best efforts to take all necessary steps expeditiously to remove such
stop order to similar proceeding.
-12-
<PAGE>
Section 5.7. Indemnification by the Company. To the extent permitted by
------------------------------
law, the Company will indemnify and hold harmless each participating holder and
each underwriter of the Registrable Securities being sold by such holder, and
each controlling person of such holder and underwriter, against all claims,
losses, damages and liabilities (or actions in respect thereof) arising out of
or based on any untrue statement (or alleged untrue statement) of a material
fact contained in any registration statement relating to such Registrable
Securities (or in any related registration statement, notification or the like)
or any omission (or alleged omission) to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
or any violation by the Company of any rule or regulation promulgated under the
Securities Act applicable to the Company and relating to action or inaction
required of the Company in connection with any such registration, qualification
or compliance, and will reimburse each such holder and each such underwriter and
controlling person for any legal or any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action and will enter into an indemnification agreement with each
such holder and underwriter containing customary provisions, including
provisions for contribution, as any holder or underwriter shall reasonably
request; provided, however, that, the Indemnity Agreement contained in this
Section 5.7 shall not apply to amounts paid in settlement of any such claim,
loss, damage, liability or action if such settlement is effected without the
consent of the Company (which consent will not be unreasonably withheld, nor
shall the Company be liable in any such case to the extent that any such claim,
loss, damage or liability arises out of or is based on any untrue statement or
omission based upon written information furnished to the Company by such holder
or underwriter and stated to be specifically for use therein.
Section 5.8. Indemnification by Holders. To the extent permitted by law,
--------------------------
each participating holder of Registrable Securities will indemnify and hold
harmless the Company, each of its directors, each of its officers who has signed
the registration statement, each person, if any, who controls the Company within
the meaning of Section l5 of the Securities Act, and each agent and any
underwriter for the Company (within the meaning of the Act) against all claims,
losses, damages and liabilities (or actions in respect thereof) arising out of
or based on any untrue statement (or alleged untrue statement) or a material
fact contained in any registration statement relating to the Registrable
Securities (or in any related registration statement, notification or the like)
or any omission (or alleged omission) to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and will reimburse the Company and each such director, officer or controlling
person for any legal or any other expenses reasonably incurred in connection
with investigating or defending any such claim, loss, damage, liability or
action and will enter into an indemnification agreement with the Company and
each such person containing customary provisions, including provisions for
contribution, as the Company or each such person shall reasonably request;
provided, however, that no holder of Registrable Securities will be liable in
any such case except to the extent that any such claim, loss, damage or
liability arises out of or is based on any untrue statement or omission based
upon written information furnished to the Company by such holder and stated to
be specifically for use therein; and provided, further, that no holder of
Registrable Securities will be liable under this section for any losses, costs,
damages or expenses exceeding in aggregate the proceeds to such 'holder in such
offering; and, provided further, however, that the indemnity contained in this
Section 5.8 shall not apply to amounts paid in settlement of any such loss,
claim, damage,
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<PAGE>
liability, or action (if such settlement is effected without the consent of such
holder, which consent will not be unreasonably withheld).
Section 5.9. Reports under Securities Exchange Act of 1934. With a view to
---------------------------------------------
making available to the holders of Registrable Securities the benefits of Rule
l44 promulgated under the Securities Act and any other rule or regulation of the
Commission that may at any time permit a holder to sell securities of the
Company to the public without registration or pursuant to registration on Form
S-3, the Company agrees to use its best efforts to satisfy the requirements of
all such rules and regulations (including the requirements for public
information, registration Under the Securities Exchange Act of l934 and timely
reporting to the Commission).
Section 5.10. Preparation of Registration Statements. Whenever the Company
--------------------------------------
is registering any Common Stock under the Securities Act and a holder of
Registrable Securities is selling any securities under such registration or
determines that it may be a controlling person under such Act, the Company will
allow such holder to participate in the preparation of the registration
statement, will include in the registration statement such information as such
holder may reasonably request and will take all such other action as such holder
may reasonably request.
ARTICLE VI
INDEMNIFICATION
---------------
Section 6.1. Indemnification by the Company. The Company agrees to
------------------------------
indemnify and hold harmless each Investor from and against, and to reimburse
each Investor with respect to any and all loss, damage, liability, cost and
expense, including reasonable attorney's fees incurred by such Investor, by
reason of or arising out of or in connection with: (i) a material breach of any
representation or warranty contained in Article II hereof or in any certificate
delivered to the Investor pursuant to the provisions of this Agreement; or (ii)
the failure of the Company to perform any material agreement required by this
Agreement.
Section 6.2. Indemnification by the Investors. The Investors agree to
--------------------------------
indemnify and hold the Company harmless from and against, and to reimburse the
Company with respect to any and all loss, damage, liability, cost and expense,
including reasonable attorney's fees incurred by the Company by reason of or
arising out of or in connection with: (i) a material breach of any
representation or warranty contained in Article III hereof made by such Investor
or (ii) the failure of such Investor to perform any material agreement required
by this Agreement to be performed by it.
ARTICLE VII
MISCELLANEOUS
-------------
Section 7.1. Survival of Representations and Warranties. All
------------------------------------------
representations and warranties contained herein or made in writing by the
Company and the Investors in connection
-14-
<PAGE>
with the transactions contemplated hereby shall survive any investigations made
by the Investors and the execution and delivery of this Agreement and the
Closing Date for a period of one year.
Section 7.2. Entire Agreement. This Agreement and the Exhibits and
----------------
Schedules hereto and thereto constitute the entire agreement among the Company
and the Investors with respect to the subject matter hereof. There are no
representations, warranties, covenants or undertakings with respect to the
subject matter hereof other than those expressly set forth herein. This
Agreement supersedes all prior agreements between the parties with respect to
the Shares purchased hereunder and the subject matter hereof. The terms and
provisions of this Agreement may not be modified or amended, or any of the
provisions hereof waived, temporarily or permanently, except in the case of
modifications and amendments pursuant to the written consent of the parties to
this Agreement and in the case of waiver pursuant to a writing by the person so
waiving.
Section 7.3. Notices. All notices, requests, demands and other
-------
communications called for or contemplated hereunder shall be in writing and
shall be deemed duly given three days from the date such notice is deposited in
the United States mail, postage-paid and addressed to the proper parties at the
following addresses, or at such other addresses as the parties may designate by
written notice in the manner aforesaid:
If to an Investor: At such investor's address set forth
on Exhibit A hereto.
If to the Company: Sunbelt Nursery Group, Inc.
32382 Del Obispo Street
San Juan Capistrano, California 92675
Attn: Timothy R. Duoos, President
With a copy to: Murphy Mahon Keffler & Farrier, L.L.P.
500 Throckinorton Street, Suite 1810
Fort Worth, Texas 76102
Attn: Robert J.Keffler
Section 7.4. Successors. This Agreement shall be binding upon and inure to
----------
the benefit of the Company, the Investors and their respective legal successors.
Nothing contained herein, express or implied, is intended to confer upon any
person or entity other than the parties hereto and their legal successors, any
rights or remedies under or by reason of this Agreement unless so stated herein
to the contrary.
Section 7.5. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
Section 7.6. Headings. The headings in this Agreement are for reference
--------
purposes only and shall not be deemed to have any substantive effect.
-15-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
COMPANY:
SUNBELT NURSERY GROUP, INC.
By: /s/ Timothy R. Duoos
-------------------------------
Title: President
----------------------------
-16-
<PAGE>
SUNBELT NURSERY GROUP, INC.
SERIES A PREFERRED STOCK PURCHASE AGREEMENT
SIGNATURE PAGE
JOHN TASTAD
-----------------------------------
John Tastad
HEALTHY AMERICAN PRODUCTS, INC.
By: /S/ Janet R. Leuman
-------------------------------
Title: Vice President
----------------------------
TIMOTHY R. DUOOS
/s/ Timothy R. Duoos
-----------------------------------
Timothy R. Duoos
-17-
<PAGE>
SUNBELT NURSERY GROUP, INC.
SERIES A PREFERRED STOCK PURCHASE AGREEMENT
SIGNATURE PAGE
JOHN TASTAD
/s/ John Tastad
-----------------------------------
John Tastad
HEALTHY AMERICAN PRODUCTS INC.
By:
-------------------------------
Title:
----------------------------
TIMOTHY R. DUOOS
/s/ Timothy R. Duoos
-----------------------------------
Timothy R. Duoos
-18-
<PAGE>
Exhibit 10.5
THIS WARRANT AND THE COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE
LAW, AND NO INTEREST THEREIN MAY BE SOLD, OFFERED FOR SALE, PLEDGED OR OTHERWISE
TRANSFERRED IN THE PRESENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT
TO SUCH SECURITIES UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS, OR THE
COMPANY RECEIVES AN OPINION OF LEGAL COUNSEL FOR THE HOLDER OF THESE SECURITIES
STATING THAT SUCH TRANSACTION IS EXEMPT FROM REGISTRATION AND SUCH OPINION IS IN
FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE COMPANY.
66,000 Shares
WARRANT TO PURCHASE
SHARES OF COMMON STOCK
SUNBELT NURSERY GROUP, INC.
THIS IS TO CERTIFY that, for value received, Healthy American Products,
Inc., a Minnesota corporation ("HAP"), or registered transferees or assigns (the
"Holder"), is entitled, at any time after the date set forth in paragraph 10
hereof (the "Effective Date of the Warrant") and not later than 5:00 p.m., local
time on the expiration date of the Warrant as defined in paragraph 12 hereof
(the "Expiration Date"), subject to the provisions hereof, to purchase Sixty-Six
Thousand (66,000) shares of fully paid and nonassessable shares of Common Stock
(as defined) of Sunbelt Nursery Group, Inc., a Delaware corporation (the
"Company"), at a price per share determined pursuant to paragraph 11 hereof (the
"Purchase Price Per Share") or at the price per share as calculated for a
cashless conversion as set forth in Paragraph 9 hereof, (such number of shares
and the Purchase Price Per Share being subject to adjustment as provided herein)
upon (a) the surrender of this certificate (with the form of Election to
Purchase annexed hereto duly completed and executed by the Holder); and (b) in
the case of an exercise as set forth in Paragraph 11 hereof, delivery of a bank
check, payable to the Company in the amount of the Purchase Price Per Share
multiplied by the number of shares for which the Warrant is being exercised, to
the Company at its principal office, subject to Holder's rights under paragraph
9 hereof. Thereafter, the Company will issue a certificate representing such
Common Stock as soon as practicable. Such surrender and payment, if any, are
hereinafter referred to as the "exercise of the Warrant".
Upon satisfaction of the conditions of paragraph 5 below, all or part of
the Warrant may be assigned at any time after the Effective Date of the Warrant
and prior to the Expiration Date. In the case of any assignment, upon request
and upon surrender of this certificate to the Company at its aforesaid office
with the form of Assignment annexed hereto duly completed and executed, and
accompanied by payment of all transfer taxes, if any, payable in connection
therewith, the Company will cause to be executed and delivered as soon as
practicable one or more certificates of like tenor evidencing in the aggregate
the number of Warrants to which this certificate relates registered in the name
of the person or persons entitled thereto upon such assignment. At any time
after the Effective Date of the Warrant and prior to the Expiration Date, upon
surrender of this certificate to the Company, this certificate may be exchanged,
alone or with other certificates
<PAGE>
of like tenor, for a new certificate or certificates of like tenor evidencing in
the aggregate the number of Warrants to which this certificate and such other
certificates relate, registered in the name of the Holder.
For the purpose of the Warrant, the term "Common Stock" shall mean, subject
to the provisions of paragraph 2, shares of the class designated as Common
Stock, $.01 par value, of the Company or shares of any class or classes
resulting from any reclassification or reclassifications thereof; provided, that
if at any time there shall be more than one such resulting class, the shares of
each such class then so issuable shall be substantially in the proportion which
the total number of shares of such class resulting from all such
reclassifications bears to the total number of shares of all such classes
resulting from all such reclassifications.
The Warrant is subject to the following additional terms and conditions:
1. In case the Company shall issue any shares of its Common Stock as a
stock dividend or subdivide the number of outstanding shares of Common Stock
into a greater number of shares, then, in either of such cases, the Purchase
Price Per Share in effect at the time of such action shall be proportionately
reduced and the number of shares of Common Stock at that time purchasable
pursuant to the Warrant shall be proportionately increased; and, conversely, in
the event the Company shall contract the number of outstanding shares of Common
Stock by combining such shares into a smaller number of shares, then, in such
case, the Purchase Price Per Share in effect at the time of such action shall be
proportionately increased and the number of shares of Common Stock at that time
purchasable pursuant to the Warrant shall be proportionately decreased. Any
dividend paid or distributed on the Common Stock in stock of any other class of
securities convertible into shares of Common Stock shall be treated as a
dividend paid in Common Stock to the extent that shares of Common Stock are
issuable upon the conversion thereof.
2. In case the Company shall be recapitalized by reclassifying its
outstanding Common Stock into a stock with a different par value, or by changing
its outstanding Common Stock with par value to stock without par value, then as
a condition of such recapitalization, lawful and adequate provision shall be
made whereby the Holder shall thereafter have the right to purchase, upon the
terms and conditions specified in the Warrant, in lieu of the shares of Common
Stock theretofore purchasable upon the exercise of the Warrant, the kind and
amount of shares of stock and other securities and property receivable upon such
recapitalization by the owner of the number of shares of Common Stock which the
Holder might have purchased immediately prior to such recapitalization.
3. In case the Company shall consolidate or merge with or convey all or
substantially all its property and assets to any other corporation or
corporations, then as a condition of such consolidation, merger or conveyance,
lawful and adequate provision shall be made whereby the Holder shall thereafter
have the right to purchase, upon the terms and conditions specified in the
2
<PAGE>
Warrant, in lieu of the shares of Common Stock theretofore purchasable upon the
exercise of the Warrant, the kind and amount of shares of stock and other
securities and property receivable upon such consolidation, merger or conveyance
by a holder of the number of shares of Common Stock which the Holder might have
purchased immediately prior to such consolidation, merger or conveyance, and in
any such case appropriate provision shall be made with respect to the rights and
interests of the Holder to the end that the provisions hereof shall thereafter
be applicable, as nearly as may be, in relation to such shares of stock and
other securities and property thereafter deliverable upon exercise hereof.
4. Whenever the Purchase Price Per Share or the kind or amount of
securities purchasable under the Warrant shall be adjusted pursuant to any of
the provisions hereof, the Company shall forthwith thereafter cause to be sent
to the Holder, by first-class mail at the Holder's address as it appears upon
the records of the Company, a certificate setting forth the adjustments in the
Purchase Price Per Share and/or in said number of shares, and also setting forth
in detail the facts requiring such adjustments including, without limitation, a
statement of the consideration received or deemed to have been received by the
Company for any additional shares of stock issued by it.
5. The Warrant and the Common Stock purchasable upon the exercise of the
Warrant have not been registered under the Securities Act of 1933, as amended,
or any applicable state law, and no interest therein may be sold offered for
sale, pledged or otherwise transferred in the absence of a registration
statement in effect with respect to such securities under such Act and
applicable state securities laws or the Company receives an opinion of legal
counsel for the Holder of the securities stating that such transaction is exempt
from registration and such opinion is in form and substance reasonably
satisfactory to the Company. A legend setting forth or referring to the above
restrictions shall be placed on any Warrant and certificates for Common Stock
subject to these restrictions and a stop transfer restriction or order shall be
placed on the books of the Company and with any transfer agents against the
Warrant and the shares of Common Stock purchasable upon exercise of the Warrant
until they may be legally sold or otherwise transferred.
6. No fractional shares or scrip representing fractional shares shall be
issued upon the exercise of the Warrant. If the exercise of the Warrant would,
but for the provisions of this paragraph 6, result in the right to receive a
fraction of a share of Common Stock, the Company shall, in lieu thereof, make
payment in cash for such fractional interest (computed to the nearest 1/100th of
a share) calculated based on the fair market value of such share (the "Fair
Market Value") calculated on the basis of the last reported sales price (or the
mean of the bid and ask if there be no sale) of the Common Stock as reported (a)
on any stock exchange designated by the Company on which the Common Stock may be
traded, (b) by any reputable quotation reporting service, including the Nasdaq
Stock Market or Nasdaq SmallCap Market, if the Common Stock is not traded on any
stock exchange, (c) by any dealer in securities dealing in the Common Stock, if
such quotations are not reported by any such reporting service, on the day on
which the Warrant shall be exercised, or, if none is reported on such date, on
the date of the last such reported sale
3
<PAGE>
or bid, or (d) if there is no dealer in securities who is dealing in the Common
Stock, at the fair market value of a share of Common Stock as determined in good
faith by the Board of Directors of the Company.
7. The Company may deem and treat the registered Holder at all times as
the absolute owner of the Warrant for all purposes regardless of any notice to
the contrary.
8. The Warrant shall not entitle the Holder hereof to any voting rights or
any other rights of a stockholder of the Company, or to any other rights
whatsoever except the rights stated herein; and no dividend or interest shall be
payable or shall accrue in respect of the Warrant or the shares purchasable
hereunder unless, and until, and except to the extent that, the Warrant shall be
exercised.
9. At any time following the Effective Date of the Warrant the Holder
shall be entitled to exercise this Warrant on a cashless basis by means of an
exchange of the Warrant for a particular number of shares subject to the Warrant
(the "Converted Warrant Shares") by the Company delivering to the Holder,
without payment by the Holder of the Purchase Price Per Share or any cash or
other consideration, that number of shares of Common Stock equal to the quotient
obtained by dividing the Net Value (as hereinafter defined) of the Converted
Warrant Shares by the Fair Market Value (as defined in paragraph 6 above) of a
single share of Common Stock, determined in each case as of the close of
business on the date of exercise of the Warrant. The "Net Value" of the
Converted Warrant Shares shall be determined by subtracting the aggregate
Purchase Price Per Share of the Converted Warrant Shares from the aggregate Fair
Market Value of the Converted Warrant Shares. All other provisions of the
Warrant shall apply to any such exchange of the Warrant pursuant to the terms of
this paragraph 9.
10. The Effective Date of the Warrant shall be December 17, 1997. This
Warrant shall not be exercisable prior to the Effective Date of the Warrant.
11. The Purchase Price Per Share shall be One Dollar ($1.00).
12. This Warrant shall expire on the later of (i) December 17, 2002 or
(ii) the date on which all obligations owing HAP under that certain Promissory
Note of even date herewith in the original principal amount of $200,000 has been
paid in full (the "Expiration Date").
13. If at anytime after the Effective Date and until the Expiration Date
the Company proposes to file a registration statement (the "Registration
Statement") under the Securities Act of 1933 for the purpose of conducting a
public offering of Common Stock, and if requested by Holder, the Company, at its
cost and expense, shall use its best efforts to register for sale and to cause
such Registration Statement to be declared effective with respect to either (i)
any Converted
4
<PAGE>
Warrant Shares, (ii) any shares owned as a result of any exercise of the Warrant
or (iii) any shares purchasable upon exercise of this Warrant (collectively, the
"Registrable Shares"). After the Company notifies Holder in writing of its
intention to file the Registration Statement, Holder shall have fourteen (14)
days to notify the Company in writing of Holder's intention to either register
or not register the Registrable Shares. If within such fourteen (14) day period
no response is received by the Company from Holder, the Company shall have no
obligation to register the Registrable Shares. The Company shall use its best
efforts to maintain the effectiveness of such Registration Statement for twelve
(12) months or unless prior to the expiration of such period Holder is permitted
to sell all of the Registrable Shares under Rule 144 of the Securities Act of
1933, as amended. In connection with any such Registration Statement, the
Company shall indemnify the Holder from all liabilities arising from the use of
such Registration Statement except with respect to liability arising from
written information provided by Holder and included in such Registration
Statement.
14. This Warrant is exchangeable upon the surrender hereof by the Holder
to the Company at its office for new Warrants of like tenor and date
representing in the aggregate the right to purchase the number of Shares
purchasable hereunder, each of such new Warrants to represent the right to
purchase such number of Shares (not to exceed the aggregate total number
purchasable hereunder) as shall be designated by the Holder at the time of such
surrender. Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction, or mutilation of this Warrant, and, in case of
loss, theft or destruction, of indemnity, or security reasonably satisfactory to
it, and upon, surrender and cancellation of this Warrant, if mutilated, the
Company will make and deliver a new Warrant of like tenor, in lieu of this
Warrant. This Warrant shall be promptly canceled by the Company upon the
surrender hereof in connection with any exchange or replacement. The Company
shall pay all reasonable expenses, taxes (other than stock transfer taxes), and
other charges payable in connection with the preparation, execution and delivery
of Warrants pursuant to this Section 14.
15. The Company covenants and agrees that all shares of the Company's
Common Stock that may be issued upon the exercise of this Warrant have been duly
authorized and reserved for issuance upon the exercise of this Warrant, and the
shares, when so issued, delivered and paid for upon such exercise in accordance
with the terms of this Warrant, will be validly issued, fully paid and
nonassessable, and free from all taxes, liens and charges with respect to the
issuance thereof. The Company further covenants and agrees that, until
expiration of this Warrant, the Company will at all times have authorized, and
reserved for the purpose of issuance upon exercise of this Warrant, a sufficient
number of shares of Common Stock to provide for the exercise of this Warrant.
5
<PAGE>
16. This Warrant and any provisions hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the parties
hereto.
WITNESS the signature of a duly authorized officer.
Date of Issue: December 17, 1997
SUNBELT NURSERY GROUP, INC.
By /s/ TIMOTHY R. DUOOS
-----------------------------------
Its /s/ Pres.
----------------------------
6
<PAGE>
EXHIBIT 10.6
THIS WARRANT AND THE COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE
LAW, AND NO INTEREST THEREIN MAY BE SOLD, OFFERED FOR SALE, PLEDGED OR OTHERWISE
TRANSFERRED IN THE PRESENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT
TO SUCH SECURITIES UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS, OR THE
COMPANY RECEIVES AN OPINION OF LEGAL COUNSEL FOR THE HOLDER OF THESE SECURITIES
STATING THAT SUCH TRANSACTION IS EXEMPT FROM REGISTRATION AND SUCH OPINION IS IN
FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE COMPANY.
165,000 Shares
WARRANT TO PURCHASE
SHARES OF COMMON STOCK
SUNBELT NURSERY GROUP, INC.
THIS IS TO CERTIFY that, for value received, John Tastad ("Tastad"), or
registered transferees or assigns (the "Holder"), is entitled, at any time after
the date set forth in paragraph 10 hereof (the "Effective Date of the Warrant")
and not later than 5:00 p.m., local time on the expiration date of the Warrant
as defined in paragraph 12 hereof (the "Expiration Date"), subject to the
provisions hereof, to purchase One Hundred Sixty-five Thousand (165,000) shares
of fully paid and nonassessable shares of Common Stock (as defined) of Sunbelt
Nursery Group, Inc., a Delaware corporation (the "Company"), at a price per
share determined pursuant to paragraph 11 hereof (the "Purchase Price Per
Share") or at the price per share as calculated for a cashless conversion as set
forth in Paragraph 9 hereof, (such number of shares and the Purchase Price Per
Share being subject to adjustment as provided herein) upon (a) the surrender of
this certificate (with the form of Election to Purchase annexed hereto duly
completed and executed by the Holder); and (b) in the case of an exercise as set
forth in Paragraph 11 hereof, delivery of a bank check, payable to the Company
in the amount of the Purchase Price Per Share multiplied by the number of shares
for which the Warrant is being exercised, to the Company at its principal
office, subject to Holder's rights under paragraph 9 hereof. Thereafter, the
Company will issue a certificate representing such Common Stock as soon as
practicable. Such surrender and payment, if any, are hereinafter referred to as
the "exercise of the Warrant".
Upon satisfaction of the conditions of paragraph 5 below, all or part of
the Warrant may be assigned at any time after the Effective Date of the Warrant
and prior to the Expiration Date. In the case of any assignment, upon request
and upon surrender of this certificate to the Company at its aforesaid office
with the form of Assignment annexed hereto duly completed and executed, and
accompanied by payment of all transfer taxes, if any, payable in connection
therewith, the Company will cause to be executed and delivered as soon as
practicable one or more certificates of like tenor evidencing in the aggregate
the number of Warrants to which this certificate relates registered in the name
of the person or persons entitled thereto upon such assignment. At any time
after the Effective Date of the Warrant and prior to the Expiration Date, upon
surrender of this certificate to the Company, this certificate may be exchanged,
alone or with other certificates
<PAGE>
of like tenor, for a new certificate or certificates of like tenor evidencing in
the aggregate the number of Warrants to which this certificate and such other
certificates relate, registered in the name of the Holder.
For the purpose of the Warrant, the term "Common Stock" shall mean, subject
to the provisions of paragraph 2, shares of the class designated as Common
Stock, $.01 par value, of the Company or shares of any class or classes
resulting from any reclassification or reclassifications thereof; provided, that
if at any time there shall be more than one such resulting class, the shares of
each such class then so issuable shall be substantially in the proportion which
the total number of shares of such class resulting from all such
reclassifications bears to the total number of shares of all such classes
resulting from all such reclassifications.
The Warrant is subject to the following additional terms and conditions:
1. In case the Company shall issue any shares of its Common Stock as a
stock dividend or subdivide the number of outstanding shares of Common Stock
into a greater number of shares, then, in either of such cases, the Purchase
Price Per Share in effect at the time of such action shall be proportionately
reduced and the number of shares of Common Stock at that time purchasable
pursuant to the Warrant shall be proportionately increased; and, conversely, in
the event the Company shall contract the number of outstanding shares of Common
Stock by combining such shares into a smaller number of shares, then, in such
case, the Purchase Price Per Share in effect at the time of such action shall be
proportionately increased and the number of shares of Common Stock at that time
purchasable pursuant to the Warrant shall be proportionately decreased. Any
dividend paid or distributed on the Common Stock in stock of any other class of
securities convertible into shares of Common Stock shall be treated as a
dividend paid in Common Stock to the extent that shares of Common Stock are
issuable upon the conversion thereof.
2. In case the Company shall be recapitalized by reclassifying its
outstanding Common Stock into a stock with a different par value, or by changing
its outstanding Common Stock with par value to stock without par value, then as
a condition of such recapitalization, lawful and adequate provision shall be
made whereby the Holder shall thereafter have the right to purchase, upon the
terms and conditions specified in the Warrant, in lieu of the shares of Common
Stock theretofore purchasable upon the exercise of the Warrant, the kind and
amount of shares of stock and other securities and property receivable upon such
recapitalization by the owner of the number of shares of Common Stock which the
Holder might have purchased immediately prior to such recapitalization.
3. In case the Company shall consolidate or merge with or convey all or
substantially all its property and assets to any other corporation or
corporations, then as a condition of such consolidation, merger or conveyance,
lawful and adequate provision shall be made whereby the Holder shall thereafter
have the right to purchase, upon the terms and conditions specified in the
2
<PAGE>
Warrant, in lieu of the shares of Common Stock theretofore purchasable upon the
exercise of the Warrant, the kind and amount of shares of stock and other
securities and property receivable upon such consolidation, merger or conveyance
by a holder of the number of shares of Common Stock which the Holder might have
purchased immediately prior to such consolidation, merger or conveyance, and in
any such case appropriate provision shall be made with respect to the rights and
interests of the Holder to the end that the provisions hereof shall thereafter
be applicable, as nearly as may be, in relation to such shares of stock and
other securities and property thereafter deliverable upon exercise hereof.
4. Whenever the Purchase Price Per Share or the kind or amount of
securities purchasable under the Warrant shall be adjusted pursuant to any of
the provisions hereof, the Company shall forthwith thereafter cause to be sent
to the Holder, by first-class mail at the Holder's address as it appears upon
the records of the Company, a certificate setting forth the adjustments in the
Purchase Price Per Share and/or in said number of shares, and also setting forth
in detail the facts requiring such adjustments including, without limitation, a
statement of the consideration received or deemed to have been received by the
Company for any additional shares of stock issued by it.
5. The Warrant and the Common Stock purchasable upon the exercise of the
Warrant have not been registered under the Securities Act of 1933, as amended,
or any applicable state law, and no interest therein may be sold offered for
sale, pledged or otherwise transferred in the absence of a registration
statement in effect with respect to such securities under such Act and
applicable state securities laws or the Company receives an opinion of legal
counsel for the Holder of the securities stating that such transaction is exempt
from registration and such opinion is in form and substance reasonably
satisfactory to the Company. A legend setting forth or referring to the above
restrictions shall be placed on any Warrant and certificates for Common Stock
subject to these restrictions and a stop transfer restriction or order shall be
placed on the books of the Company and with any transfer agents against the
Warrant and the shares of Common Stock purchasable upon exercise of the Warrant
until they may be legally sold or otherwise transferred.
6. No fractional shares or scrip representing fractional shares shall be
issued upon the exercise of the Warrant. If the exercise of the Warrant would,
but for the provisions of this paragraph 6, result in the right to receive a
fraction of a share of Common Stock, the Company shall, in lieu thereof, make
payment in cash for such fractional interest (computed to the nearest 1/100th of
a share) calculated based on the fair market value of such share (the "Fair
Market Value") calculated on the basis of the last reported sales price (or the
mean of the bid and ask if there be no sale) of the Common Stock as reported (a)
on any stock exchange designated by the Company on which the Common Stock may be
traded, (b) by any reputable quotation reporting service, including the Nasdaq
Stock Market or Nasdaq SmallCap Market, if the Common Stock is not traded on any
stock exchange, (c) by any dealer in securities dealing in the Common Stock, if
such quotations are not reported by any such reporting service, on the day on
which the Warrant shall be exercised, or, if none is reported on such date, on
the date of the last such reported sale
3
<PAGE>
or bid, or (d) if there is no dealer in securities who is dealing in the Common
Stock, at the fair market value of a share of Common Stock as determined in good
faith by the Board of Directors of the Company.
7. The Company may deem and treat the registered Holder at all times as
the absolute owner of the Warrant for all purposes regardless of any notice to
the contrary.
8. The Warrant shall not entitle the Holder hereof to any voting rights or
any other rights of a stockholder of the Company, or to any other rights
whatsoever except the rights stated herein; and no dividend or interest shall be
payable or shall accrue in respect of the Warrant or the shares purchasable
hereunder unless, and until, and except to the extent that, the Warrant shall be
exercised.
9. At any time following the Effective Date of the Warrant the Holder
shall be entitled to exercise this Warrant on a cashless basis by means of an
exchange of the Warrant for a particular number of shares subject to the Warrant
(the "Converted Warrant Shares") by the Company delivering to the Holder,
without payment by the Holder of the Purchase Price Per Share or any cash or
other consideration, that number of shares of Common Stock equal to the quotient
obtained by dividing the Net Value (as hereinafter defined) of the Converted
Warrant Shares by the Fair Market Value (as defined in paragraph 6 above) of a
single share of Common Stock, determined in each case as of the close of
business on the date of exercise of the Warrant. The "Net Value" of the
Converted Warrant Shares shall be determined by subtracting the aggregate
Purchase Price Per Share of the Converted Warrant Shares from the aggregate Fair
Market Value of the Converted Warrant Shares. All other provisions of the
Warrant shall apply to any such exchange of the Warrant pursuant to the terms of
this paragraph 9.
10. The Effective Date of the Warrant shall be December 17, 1997. This
Warrant shall not be exercisable prior to the Effective Date of the Warrant.
11. The Purchase Price per Share of the Warrants shall be One Dollar
($1.00).
12. This Warrant shall expire on the later of (i) December 17, 2002 or
(ii) the date on which all obligations owing Tastad under that certain
Promissory Note of even date herewith in the original principal amount of
$500,000 has been paid in full ("Expiration Date").
13. If at anytime after the Effective Date and until the Expiration Date
the Company proposes to file a registration statement (the "Registration
Statement") under the Securities Act of 1933 for the purpose of conducting a
public offering of Common Stock, and if requested by Holder, the Company, at its
cost and expense, shall use its best efforts to register for sale and to cause
such Registration Statement to be declared effective with respect to either (i)
any Converted
4
<PAGE>
Warrant Shares, (ii) any shares owned as a result of any exercise of the Warrant
or (iii) any shares purchasable upon exercise of this Warrant (collectively, the
"Registrable Shares"). After the Company notifies Holder in writing of its
intention to file the Registration Statement, Holder shall have fourteen (14)
days to notify the Company in writing of Holder's intention to either register
or not register the Registrable Shares. If within such fourteen (14) day period
no response is received by the Company from Holder, the Company shall have no
obligation to register the Registrable Shares. The Company shall use its best
efforts to maintain the effectiveness of such Registration Statement for twelve
(12) months or unless prior to the expiration of such period Holder is permitted
to sell all of the Registrable Shares under Rule 144 of the Securities Act of
1933, as amended. In connection with any such Registration Statement, the
Company shall indemnify the Holder from all liabilities arising from the use of
such Registration Statement except with respect to liability arising from
written information provided by Holder and included in such Registration
Statement.
14. This Warrant is exchangeable upon the surrender hereof by the Holder
to the Company at its office for new Warrants of like tenor and date
representing in the aggregate the right to purchase the number of Shares
purchasable hereunder, each of such new Warrants to represent the right to
purchase such number of Shares (not to exceed the aggregate total number
purchasable hereunder) as shall be designated by the Holder at the time of such
surrender. Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction, or mutilation of this Warrant, and, in case of
loss, theft or destruction, of indemnity, or security reasonably satisfactory to
it, and upon, surrender and cancellation of this Warrant, if mutilated, the
Company will make and deliver a new Warrant of like tenor, in lieu of this
Warrant. This Warrant shall be promptly canceled by the Company upon the
surrender hereof in connection with any exchange or replacement. The Company
shall pay all reasonable expenses, taxes (other than stock transfer taxes), and
other charges payable in connection with the preparation, execution and delivery
of Warrants pursuant to this Section 14.
15. The Company covenants and agrees that all shares of the Company's
Common Stock that may be issued upon the exercise of this Warrant have been duly
authorized and reserved for issuance upon the exercise of this Warrant, and the
shares, when so issued, delivered and paid for upon such exercise in accordance
with the terms of this Warrant, will be validly issued, fully paid and
nonassessable, and free from all taxes, liens and charges with respect to the
issuance thereof. The Company further covenants and agrees that, until
expiration of this Warrant, the Company will at all times have authorized, and
reserved for the purpose of issuance upon exercise of this Warrant, a sufficient
number of shares of Common Stock to provide for the exercise of this Warrant.
5
<PAGE>
16. This Warrant and any provisions hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the parties
hereto.
WITNESS the signature of a duly authorized officer.
Date of Issue: December 17, 1997
SUNBELT NURSERY GROUP, INC.
By /s/ TIMOTHY R. DUOOS
----------------------------------
Its /s/ Pres.
---------------------------
6
<PAGE>
Exhibit 10.7
TIP TOP NURSERY, INC.
NURSERYLAND GARDEN CENTER, INC.
PROMISSORY NOTE
$200,000 December 17, 1997
FOR VALUE RECEIVED, TIP TOP NURSERY, INC., an Arizona corporation ("Tip
Top"), and NURSERYLAND GARDEN CENTER, INC., a California corporation
("Nurseryland") (Tip Top and Nurseryland are hereinafter collectively "Maker"),
jointly and severally promise to pay to the order of HEALTHY AMERICAN PRODUCTS,
INC., a Minnesota corporation ("Payee") at c/o Burwell Enterprises, 7901 Xerxes
Avenue South, Suite 201, Minneapolis, Minnesota 55431 in lawful money of the
United States of America, the sum of TWO HUNDRED THOUSAND AND NO/100 DOLLARS
($200,000.00), together with interest on the unpaid principal hereof as
hereinafter provided.
This Note is secured and made pursuant to that certain Security Agreement
of even date herewith by and among John Tastad ("Tastad"), Payee and Maker (the
"Security Agreement"). The Security Agreement is subject to the terms of an
Intercreditor Agreement of even date herewith among Paragon Capital LLC, HAP and
Payee ("Intercreditor Agreement").
Interest shall accrue on the unpaid principal balance of this Note from the
date hereof at the rate of 12% per annum. Interest on this Note shall be due and
payable in twelve (12) consecutive monthly installments, each in the amount of
$2,000, beginning January 17, 1998 and continuing on the 17th day of each month
thereafter through November 17, 2002. The entire unpaid principal balance
together with accrued interest shall be due and payable in full on December 17,
2002 ("Maturity Date"). In the event of a payment default and failure to cure
the same within five (5) days interest shall thereafter accrue on the entire
unpaid principal balance hereof at the default rate of fifteen percent (15%) per
annum until Maker is current in payment of all obligations hereunder.
In addition to all principal of and interest on this Note, Maker agrees to
pay (i) all costs and expenses reasonably incurred by Payee and all owners and
holders of this Note in collecting this Note through reorganization, bankruptcy
or any other proceeding and (ii) reasonable attorney's fees if and when this
Note is placed in the hands of an attorney for collection.
Maker and each comaker, endorser, guarantor and surety jointly and
severally waive notice, demand, presentment for payment, notice of nonpayment,
notice of intent to accelerate, notice of acceleration, protest, notice of
protest, and the filing of suit and diligence in collecting this Note and all
other demands and notices, and consent and agree that any and all (i) extensions
of the time of payment hereof, (ii) renewals hereof, (iii) acceptances of
partial payments, (iv) releases or substitutions of the collateral and (v) the
failure, if any, to perfect or maintain
<PAGE>
perfection of any security interest in the collateral, all the foregoing,
whether with or without notice to them or any of them, and whether before or
after the stated maturity hereof, shall not release or discharge its liability
or obligations hereunder. Maker and each comaker, endorser, guarantor or surety
hereof also agrees that acceptance of any partial payment shall not constitute a
waiver and that waiver of any default shall not constitute waiver of any prior
or subsequent default. Maker, in any litigation (whether or not arising out of
or relating to this Note or in any document or instrument given to secure this
Note) in which Payee shall be an adverse party, waives trial by jury and Maker,
in addition, waives the right to interpose any defense based upon any statute of
limitations or any claim of laches.
This Note shall be deemed to be a contract made under the laws of the State
of California and, except as provided hereinabove with regard to the
applicability of federal law, shall be governed by and construed in accordance
with such laws.
TIP TOP NURSERY, INC.
By /s/ TIMOTHY R. DUOOS
----------------------------------
Its /s/ Pres.
---------------------------
NURSERYLAND GARDEN CENTER, INC.
By /s/ TIMOTHY R. DUOOS
----------------------------------
Its /s/ Pres.
---------------------------
2
<PAGE>
EXHIBIT 10.8
TIP TOP NURSERY, INC.
NURSERYLAND GARDEN CENTER, INC.
PROMISSORY NOTE
$500,000 December 17, 1997
FOR VALUE RECEIVED, TIP TOP NURSERY, INC., an Arizona corporation ("Tip
Top"), and NURSERYLAND GARDEN CENTER, INC., a California corporation
("Nurseryland") (Tip Top and Nurseryland are hereinafter collectively "Maker"),
jointly and severally promise to pay to the order of JOHN TASTAD ("Payee") at
c/o Energy Masters, Inc., 1385 Mendota Heights Road, St. Paul, Minnesota 55120
in lawful money of the United States of America, the sum of FIVE HUNDRED
THOUSAND AND NO/100 DOLLARS ($500,000.00), together with interest on the unpaid
principal hereof as hereinafter provided.
This Note is secured and made pursuant to that certain Security Agreement
of even date herewith by and among Steven B. Hoyt ("Hoyt"), Payee and Maker (the
"Security Agreement"). The Security Agreement is subject to the terms of an
Intercreditor Agreement of even date herewith among Paragon Capital LLC, Hoyt
and Payee ("Intercreditor Agreement").
Interest shall accrue on the unpaid principal balance of this Note from the
date hereof at the rate of 12% per annum. Interest on this Note shall be due and
payable in twelve (12) consecutive monthly installments, each in the amount of
$5,000, beginning January 17, 1998 and continuing on the 17th day of each month
thereafter through November 17, 2002. The entire unpaid principal balance
together with accrued interest shall be due and payable in full on December 17,
2002 ("Maturity Date"). In the event of a payment default and failure to cure
the same within five (5) days interest shall thereafter accrue on the entire
unpaid principal balance hereof at the default rate of fifteen percent (15%) per
annum until Maker is current in payment of all obligations hereunder.
In addition to all principal of and interest on this Note, Maker agrees to
pay (i) all costs and expenses reasonably incurred by Payee and all owners and
holders of this Note in collecting this Note through reorganization, bankruptcy
or any other proceeding and (ii) reasonable attorney's fees if and when this
Note is placed in the hands of an attorney for collection.
Maker and each comaker, endorser, guarantor and surety jointly and
severally waive notice, demand, presentment for payment, notice of nonpayment,
notice of intent to accelerate, notice of acceleration, protest, notice of
protest, and the filing of suit and diligence in collecting this Note and all
other demands and notices, and consent and agree that any and all (i) extensions
of the time of payment hereof, (ii) renewals hereof, (iii) acceptances of
partial payments, (iv) releases or substitutions of the collateral and (v) the
failure, if any, to perfect or maintain perfection of any security interest in
the collateral, all the foregoing, whether with or without
<PAGE>
notice to them or any of them, and whether before or after the stated maturity
hereof, shall not re1ease or discharge its liability or obligations hereunder.
Maker and each comaker, endorser, guarantor or surety hereof also agrees that
acceptance of any partial payment shall not constitute a waiver and that waiver
of any default shall not constitute waiver of any prior or subsequent default.
Maker, in any litigation (whether or not arising out of or relating to this Note
or in any document or instrument given to secure this Note) in which Payee shall
be an adverse party, waives trial by jury and Maker, in addition, waives the
right to interpose any defense based upon any statute of limitations or any
claim of laches.
This Note shall be deemed to be a contract made under the laws of the State
of California and, except as provided hereinabove with regard to the
applicability of federal law, shall be governed by and construed in accordance
with such laws.
TIP TOP NURSEY, INC.
By /s/ TIMOTHY R. DUOOS
-----------------------------------
Its /s/ Pres.
--------------------------
NURSERYLAND GARDEN CENTER, INC.
By /s/ TIMOTHY R. DUOOS
-----------------------------------
Its /s/ Pres.
--------------------------
2
<PAGE>
[LOGO OF SUNBELT NURSERY GROUP APPEARS HERE]
EXHIBIT 99.1
IMMEDIATE RELEASE
- -----------------
NEWS RELEASE
SUNBELT NURSERY GROUP For more information contact
ANNOUNCES REFINANCING Timothy Duoos
Thomas R. Hoekstra
(714)248-3811
San Juan Capistrano, Ca, January 08, 1998 - Sunbelt Nursery Group, Inc.
(ASE:SBN) Chairman and CEO Timothy R. Duoos announced today that the Company has
completed agreements that refinance the Company's $5 million line of credit
facility and also provide the Company with an additional direct cash infusion of
$2 million through $700,000 of subordinated debt and $1,300,000 of convertible
preferred stock. The subordinated debt agreements include 231,000 warrants
exercisable at $1.00 per share. The preferred stock is convertible into common
stock at an average trading price currently being established.
The Company entered into the five year Loan and Security Agreement on December
31, 1997, that replaced the Company's existing loan facility. The additional
capital contribution of $2 million was provided by individual investors
including Duoos and fellow Board member Rod Burwell. "We are very pleased to
announce the completion of these important agreements" commented Duoos. "We can
now focus all of our attention on strengthening the financial performance of
Sunbelt and returning the Company to profitability."
Sunbelt Nursery Group, Inc. also announced that it is being reviewed by the
American Stock Exchange regarding its listing status. The Company does not fully
satisfy all the ASE guidelines for continued listing and while management
believes the new capital will favorably impact the Exchange's evaluation there
can be no assurance that the listing will be continued.
Sunbelt Nursery Group, Inc., is a leading specialty nursery retailer in six
major metropolitan areas in California, Texas, and Arizona with 60 stores that
feature flowering plants, tropical foliage, nursery stock and lawn and garden
products.
