SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1996, or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______ TO ________.
Commission file number 0-15194
SOUND ADVICE, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
FLORIDA 59-1520531
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
1901 TIGERTAIL BOULEVARD, DANIA, FLORIDA 33004
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(Address of principal executive offices) (Zip Code)
(954) 922-4434
----------------------------------------------------
(Registrant's telephone number, including area code)
NOT APPLICABLE
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL
REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE
ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES [X] NO [ ]
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S
CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICAL DATE.
COMMON STOCK, PAR VALUE $.01 PER SHARE - 3,728,894 SHARES OUTSTANDING AS OF MAY
10, 1996.
<PAGE>
SOUND ADVICE, INC. AND SUBSIDIARIES
INDEX
PAGE
----
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements.
Consolidated Balance Sheets (Unaudited)
March 31, 1996 and June 30, 1995 3-4
Consolidated Statements of Operations (Unaudited) for the
Three and Nine Months Ended March 31, 1996 and 1995 5
Consolidated Statements of Cash Flows (Unaudited) for the
Nine Months Ended March 31, 1996 and 1995 6
Notes to Consolidated Financial Statements 7-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. 10-12
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security - Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13-14
SIGNATURES 15
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PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS.
SOUND ADVICE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 AND JUNE 30, 1995
MARCH 31, 1996 JUNE 30, 1995
-------------- -------------
ASSETS (Unaudited)
CURRENT ASSETS:
Cash $ 50,712 $ 46,950
Receivables:
Vendors 2,997,609 4,232,746
Trade 1,267,736 1,010,135
Employees 310,450 280,755
------------ ------------
4,575,795 5,523,636
Less allowance for doubtful accounts (556,000) (470,000)
------------ ------------
4,019,795 5,053,636
Inventories 26,121,366 31,758,744
Prepaid and other current assets 746,657 1,242,569
Deferred tax asset 537,308 537,308
Prepaid/Refundable income taxes 512,983 551,683
------------ ------------
Total current assets 31,988,821 39,190,890
------------ ------------
Property and equipment, net 13,358,248 15,063,283
Property under capital lease, net 754,140 795,630
Deferred tax asset, net 1,003,157 1,003,157
Other assets 213,858 453,698
Goodwill, net 177,004 195,341
------------ ------------
$ 47,495,228 $ 56,701,999
============ ============
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
Page 3
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SOUND ADVICE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 AND JUNE 30, 1995
MARCH 31, 1996 JUNE 30, 1995
-------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY (Unaudited)
CURRENT LIABILITIES:
Borrowings under revolving credit agreement $ 4,273,054 $ 8,677,413
Accounts payable 5,890,980 11,091,255
Cash overdraft 1,804,980 1,234,066
Accrued liabilities 5,050,614 5,430,521
Current installments of long-term debt 5,837,741 2,673,570
----------- -----------
Total current liabilities 22,857,369 29,106,825
Long-term debt, excluding current installments 786,823 907,913
Capital lease obligation 818,049 821,277
Other liabilities and deferred credits 4,418,100 4,469,969
----------- -----------
28,880,341 35,305,984
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SHAREHOLDERS' EQUITY:
Common stock, $.01 par value; authorized
10,000,000 shares; issued and outstanding
3,728,894 shares at March 31, 1996
and June 30, 1995 37,289 37,289
Paid-in capital 11,058,655 11,058,655
Retained earnings 7,518,943 10,300,071
----------- -----------
Total shareholders' equity 18,614,887 21,396,015
Commitments and contingencies
----------- -----------
$47,495,228 $56,701,999
=========== ===========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
Page 4
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<TABLE>
<CAPTION>
SOUND ADVICE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 1996 AND 1995
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
---------------------------- ----------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 39,078,800 $ 43,781,461 $136,504,152 $151,355,958
Cost of goods sold 27,094,825 31,543,257 97,913,399 106,892,995
------------ ------------ ------------ ------------
Gross profit 11,983,975 12,238,204 38,590,753 44,462,963
Selling, general and administrative
expenses 11,754,041 13,521,304 40,817,957 42,934,107
------------ ------------ ------------ ------------
Income (loss) from operations 229,934 (1,283,100) (2,227,204) 1,528,856
Other income (expense):
Interest expense (293,014) (482,662) (1,017,059) (1,040,761)
Other, net (1,001) -- 1,835 (58,014)
------------ ------------ ------------ ------------
(Loss) income before income taxes (64,081) (1,765,762) (3,242,428) 430,081
Provision (benefit) for income taxes 0 (679,800) (461,300) 165,500
------------ ------------ ------------ ------------
Net (loss) income $ (64,081) $ (1,085,962) $(2,781,128) $ 264,581
============ ============ ============ ============
COMMON AND COMMON EQUIVALENT
PER SHARE AMOUNTS:
NET (LOSS) EARNINGS PER SHARE $ (0.02) $ (0.29) $ (0.75) $ 0.07
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 3,728,894 3,728,894 3,728,894 3,734,675
============ ============ ============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
Page 5
<PAGE>
<TABLE>
<CAPTION>
SOUND ADVICE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED MARCH 31, 1996 AND 1995
1996 1995
--------------- --------------
<S> <C> <C>
NET CASH FLOWS FROM OPERATING ACTIVITIES:
Net (Loss) Income $ (2,781,128) $ 264,581
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,496,785 2,437,818
Provision for loss on asset impairment -- 400,000
Deferred income taxes -- 48,381
Loss on disposition of assets -- 58,014
Changes in operating assets and liabilities:
Decrease (increase) in:
Receivables 1,033,841 312,319
Inventories 5,637,378 3,390,597
Prepaid and other current assets 495,912 551,276
Prepaid income taxes 38,700 (199,881)
Other assets 82,460 (196,838)
(Decrease) increase in:
Accounts payable (5,200,275) (4,639,910)
Accrued liabilities (379,907) (686,118)
Other liabilities and deferred credits (51,869) 219,822
-------------- --------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,371,897 1,960,061
-------------- --------------
INVESTING ACTIVITIES:
Capital expenditures (574,543) (4,791,477)
-------------- --------------
NET CASH (USED IN) INVESTING ACTIVITIES (574,543) (4,791,477)
-------------- --------------
FINANCING ACTIVITIES:
Net (repayments) borrowings on revolving credit agreement (4,404,359) 3,710,221
Net borrowings (repayments) on long-term debt 3,043,081 (874,858)
Increase in cash overdraft 570,914 --
Reductions in capital lease obligation (3,228) (1,234)
-------------- --------------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (793,592) 2,834,129
-------------- --------------
Increase in cash 3,762 2,713
Cash, beginning of period 46,950 44,992
-------------- --------------
CASH, END OF PERIOD $ 50,712 $ 47,705
============== ==============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 901,012 $ 1,078,749
============== ==============
Income taxes (refundable) paid, net $ (500,000) $ 317,000
============== ==============
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
Page 6
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SOUND ADVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have
been prepared in conformity with instructions to Form 10-Q and, therefore, do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, the accompanying financial statements contain all adjustments,
consisting of normal, recurring accruals, necessary to present fairly the
financial position of the Company at March 31, 1996 and June 30, 1995 and the
statements of operations for the three and nine month periods ended March 31,
1996 and 1995 and statements of cash flows for the nine month periods ended
March 31, 1996 and 1995. The results of operations for the three and nine months
ended March 31, 1996 are not necessarily indicative of the operating results
expected for the fiscal year ending June 30, 1996. These financial statements
should be read in conjunction with the consolidated financial statements and
notes thereto contained in the Company's annual report on Form 10-K for the
fiscal year ended June 30, 1995.
2.) (LOSS) EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
(Loss) earnings per common and common equivalent share has been
determined by dividing net (loss) income by the weighted average number of
shares of common stock and common stock equivalents outstanding during the
respective period unless their effect was antidilutive.
3.) SEASONALITY
Historically, the Company's net sales are greater during the holiday
season than during other periods of the year. Net sales by fiscal quarters and
their related percentages for the trailing four quarters ended March 31, 1996
and 1995 are as follows:
TRAILING FOUR QUARTERS ENDED MARCH 31,
(Dollars in Thousands)
QUARTERLY SALES
1996 1995
---- ----
AMOUNT % AMOUNT %
-------- ----- -------- -----
Third Quarter $ 39,079 22.3% $ 43,781 23.2%
(January - March)
Second Quarter 53,260 30.3 60,854 32.2
(October - December)
First Quarter 44,165 25.1 46,721 24.8
(July - September)
Fourth Quarter 39,148 22.3 37,442 19.8
(April - June) -------- ---- -------- ----
SALES FOR TRAILING TWELVE $175,652 100% $188,798 100%
MONTHS ENDED MARCH 31, ======== ==== ======== ====
1996 AND 1995, RESPECTIVELY
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4.) PROPERTY AND EQUIPMENT, NET
Property and equipment, net, consists of the following:
MARCH 31, 1996 JUNE 30, 1995
-------------- -------------
Land $ 521,465 $ 521,465
Building 434,605 434,605
Furniture and equipment 8,000,012 7,814,945
Leasehold improvements 14,420,244 14,236,432
Display fixtures 4,953,973 4,799,236
Vehicles 949,167 964,323
------------ ------------
Total 29,279,466 28,771,006
Less accumulated depreciation (15,921,218) (13,707,723)
------------ ------------
Property and equipment, net $ 13,358,248 $ 15,063,283
============ ============
5.) PROVISION FOR DISPOSAL OF INVENTORY
During the quarter ended December 31, 1995 the Company recorded an
estimated provision for loss totalling $1,500,000 which is included in Cost of
Goods Sold to reduce the market value of its inventory of personal computers and
related accessories which are being eliminated from the Company's product mix.
Included in the loss provision are the estimated writedown of inventory to net
realizable value and expenses associated with the sale and disposal of the
inventory. (See "Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations - Results of Operations.")
6.) PROVISION (BENEFIT) FOR INCOME TAXES
During the quarter ended December 31, 1995, the Company has recorded
all tax benefits available for accounting recognition. As a result, the tax
benefit does not reflect the expected percentage relationship to the losses
incurred. In future periods, no tax benefit or provision will be recognized
until the Company has recorded pre-tax income.
7.) STOCK OPTIONS
In February 1996, incentive stock options for an aggregate of 50,000
shares of common stock at an exercise price of $1.77 and immediately exercisable
through February 21, 2001 were issued, pursuant to the Company's 1986 stock
option plan, to certain employees of the Company. At the same time, options for
30,000 shares of common stock previously issued to two executive officers at an
exercise price of $5.96 were cancelled and reissued at an exercise price of
$1.77 per share and are immediately exercisable through February 21, 2001. In
addition, options previously issued to a former executive officer who remains a
director of the Company for an aggregate of 35,000 shares of common stock were
converted from incentive stock options to non-qualified stock options on the
same terms and conditions as provided in the cancelled incentive stock options
including as to term and exercise price.
In March 1996, incentive stock options for an aggregate of 30,000
shares of
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common stock at an exercise price of $1.70 per share and immediately exercisable
through March 28, 2001 were issued, pursuant to the Company's 1986 stock option
plan, to two executive officers of the Company.
8.) EMPLOYMENT AGREEMENTS
Effective as of July 1, 1995, the employment agreements for two of
the Company's executive officers were extended to June 30, 1996 on substantially
the same terms and conditions as in effect under their respective employment
agreements during fiscal year 1995.
9.) SUBSEQUENT EVENT - REFINANCING
On April 12, 1996, the Company replaced its then existing $16,000,000
revolving credit and term loan facility with a new revolving credit facility
from a new lender. Under the new $25,000,000 revolving credit facility, the
Company is able to borrow, repay and reborrow based upon a borrowing base equal
to the lesser of 65% of eligible inventory (as defined) at cost or 50% of
eligible inventory at retail selling price. The availability is reduced by
outstanding letters of credit which are limited to $3,000,000. The revolving
credit facility matures on July 31, 1998 and bears interest on the outstanding
balance at prime plus 1%. The Company paid a .625% commitment fee in connection
with the closing of such financing and is obligated to pay additional commitment
fees of .5% annually on the total facility and a monthly fee on the unused
portion of the commitment of .375% per annum.
The new credit agreement contains various affirmative and negative
covenants including those requiring the Company to (i) maintain a quarterly
ratio of current assets to current liabilities of not less than 1.05 to 1.0,
(ii) maintain a quarterly ratio of total liabilities to tangible net worth of
not more than 2.75 to 1.0, (iii) maintain tangible net worth at the end of each
quarter of at least $14,000,000 and (iv) maintain working capital at the end of
each quarter of at least $3,500,000. In addition, cumulative net losses from and
after April 1, 1996 may not exceed $4,000,000. The new credit agreement also
limits the incurrence of additional debt, capital expenditures, acquisitions and
investments and prohibits cash dividends.
Borrowings under the new revolving credit facility are collateralized
by the Company's assets including depository accounts, receivables, inventory,
property and equipment and intangible assets. (See "Item 2. Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Financial Condition.")
Page 9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
The Company's net sales for the quarter ended March 31,1996,
decreased to $39,079,000 compared to $43,782,000 in the prior year resulting in
a decrease of $4,703,000 or 10.7% over the third quarter of fiscal 1995. The
decrease is primarily attributable to the Company's decision to eliminate
personal computers and other non-performing low margin products from the product
mix and increased competition on widely available lower end electronic products.
Comparable store net sales decreased 12.4% in the quarter ended March 31, 1996
over the corresponding quarter in the prior year. The Company's operations, in
common with other retailers in general, are subject to seasonal influences.
Historically, the Company has realized more of its net sales and operating
income in the second quarter ending in December.
Net sales of $136,504,000 for the nine months ended March 31, 1996,
decreased by $14,852,000 or 9.8% over the corresponding period in the prior
fiscal year. The decrease in net sales during the first three months of the
fiscal 1996 nine month period is primarily attributable to weather related
effects of Hurricane Erin during the August annual scratch and dent sale and
increased competition on lower end electronic products. The decrease in net
sales overall for the fiscal 1996 nine month period is primarily attributable,
as stated above, to increased competition on widely available lower end
electronic products and the Company's decision to eliminate personal computers
and other non-performing low margin products from the product mix. The Company
believes that part of the reduction is also attributable to consumer concerns
over the general economy and increased levels of consumer debt. Comparable store
sales decreased 13.0% in the nine months ended March 31, 1996 compared to the
corresponding nine month period in the prior year. The comparable store sales
for the nine months were adjusted to exclude the new store opened in November
1994 and another relocated to a larger showroom in December 1994.
Gross profit of $11,984,000 for the quarter ended March 31, 1996
decreased by $254,000 or 2.1% from $12,238,000 in the quarter ended March 31,
1995. This reduction is substantially less than the 10.7% reduction in net sales
for the comparable period. Exclusive of computer sales, the gross profit
percentage was 32.3% in the quarter ended March 31, 1996 as compared to 29.6% in
the quarter ended March 31, 1995. This increase in gross profit percentage is
directly related to the Company's renewed specialty retailing focus on value
added selling in the core categories of high end audio, video and mobile
electronics.
Gross profit decreased by $5,872,000 or 13.2% in the nine months
ended March 31, 1996 compared to the corresponding period in the prior year. The
overall reduction in gross profit is related to the reduction in net sales, and
includes a $1,500,000 provision in the second quarter of fiscal 1996 for loss on
personal computer inventory and related accessories in connection with such
product category's elimination from the Company's product mix through subsequent
sale and disposal.
Page 10
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See note 5 to Notes to Consolidated Financial Statements. Exclusive of this loss
provision, the gross profit percentage was 29.4% in each of the comparable nine
month periods in 1996 and 1995.
Selling, general and administrative expenses (SG&A) decreased by
$1,767,000 or 13.1% in the third quarter and $2,116,000 or 4.9% in the nine
months ended March 31, 1996 over the corresponding periods in the prior year.
Decreases in SG&A expenses in both periods were primarily attributable to cost
reduction programs initiated by the Company which were partially offset by
increased selling expenses. The increased selling expenses reflected the net
effect of increased advertising expenditures over reduced salesmen's commissions
on lower sales volume. In addition, the SG&A for the third quarter and nine
month period of 1995 was impacted by a $400,000 provision for asset impairment
and a $197,000 write-off of expenses associated with the postponed entry into a
new market area. As a percentage of sales, SG&A expenses were 30.1% as compared
to 30.9% in the third quarter of fiscal 1996 and 1995, and 29.9% as compared to
28.4% in the nine month periods ended March 31,1996 and 1995. The percentage
increase in the nine month period of fiscal 1996 is directly attributable to the
reduction in net sales from the previous comparable period.
Interest expense decreased by $190,000 for the quarter and $24,000
for the nine months ended March 31, 1996 compared to the same periods of the
prior year. The decrease was primarily reflective of the decreased borrowing,
net of interest rate increases, under the Company's revolving credit facility
during fiscal 1996.
The Company had an effective income tax benefit of approximately
14.2% for the nine months ended March 31, 1996 compared to an effective income
tax rate of 38.5% in the same period of the prior fiscal year. The recorded tax
benefit in fiscal 1996 does not reflect the expected percentage relationship to
the losses incurred as tax benefits available for recognition have been fully
realized. See note 6 to Notes to Consolidated Financial Statements.
Net loss for the quarter ended March 31, 1996 was $64,000 or $.02 per
share compared to net loss of $1,086,000 or $.29 per share for the same quarter
in the previous year. Net loss for the nine months ended March 31, 1996 was
$2,781,000 or $.75 per share compared to net income of $265,000 or $.07 per
share in the same period of the prior fiscal year. The net loss in the 1996
fiscal year was primarily attributable to the reduction in net sales and the
corresponding reduction in gross profit (of which $1,500,000 is attributable to
the provision for loss on personal computers). The overall reduction in gross
profit was only partially offset by the net reduction in SG&A expenses.
FINANCIAL CONDITION
Net cash provided by operating activities was approximately
$1,372,000 for the nine months ended March 31, 1996. The Company had working
capital of approximately $9,131,000 at March 31, 1996, as compared to the
$10,084,000 in working capital at June 30, 1995 for an overall decrease of
$953,000. The decrease in
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current assets of $7,202,000 during the nine month period was primarily related
to the $5,637,000 decrease in inventory, as well as a $1,034,000 decrease in
accounts receivable. The decrease in current assets of $7,202,000 was partially
offset by a net decrease of $6,249,000 in current liabilities primarily
resulting from a decrease in trade payables of $5,200,000 and a net decrease of
$1,240,000 in borrowings under the then existing revolving credit and term loan
facility.
The Company's then existing $16,000,000 revolving credit and term
loan facility was replaced on April 12, 1996 with a new $25,000,000 revolving
credit facility from a new lender. Under the new revolving credit facility, the
Company is able to borrow, repay and reborrow based upon a borrowing base equal
to the lesser of 65% of eligible inventory (as defined) at cost or 50% of
eligible inventory at retail selling price. The availability is reduced by
outstanding letters of credit which are limited to $3,000,000. The revolving
credit facility matures on July 31, 1998 and bears interest on the outstanding
balance at prime plus 1%. The Company paid a .625% commitment fee in connection
with the closing of such financing and is obligated to pay additional commitment
fees of .5% annually on the total facility and a monthly fee on the unused
portion of the commitment of .375% per annum. The new credit agreement contains
various affirmative and negative covenants including those requiring the Company
to (i) maintain a quarterly ratio of current assets to current liabilities of
not less than 1.05 to 1.0, (ii) maintain a quarterly ratio of total liabilities
to tangible net worth of not more than 2.75 to 1.0, (iii) maintain tangible net
worth at the end of each quarter of at least $14,000,000 and (iv) maintain
working capital at the end of each quarter of at least $3,500,000. In addition,
cumulative net losses from and after April 1, 1996 may not exceed $4,000,000.
The new credit agreement also limits the incurrence of additional debt, capital
expenditures, acquisitions and investments and prohibits cash dividends.
Borrowings under the new revolving credit facility are collateralized by the
Company's assets including depository accounts, receivables, inventory, property
and equipment and intangible assets. See note 9 to Notes to Consolidated
Financial Statements.
The Company currently believes funds from the Company's operations
combined with borrowings available under the new credit facility will be
sufficient to satisfy its currently projected operating cash requirements. The
Company's operating performance has improved as a result of the elimination of
personal computers and other non-performing products from its product mix
together with a return to our traditional speciality retailing focus on value
added selling in the core categories of high end audio, video and mobile
electronics.
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PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security-Holders.
(a) The Registrant held its 1995 annual meeting of
shareholders on Thursday, February 15, 1996 (the "Annual Meeting").
(b) and (c) The only matter voted upon at the Annual Meeting was the
election of six directors which comprised the Registrant's entire Board of
Directors. The six nominees, who were the nominees of the Registrant's Board of
Directors and all of which were serving as directors of the Registrant as of the
date of the Annual Meeting, were all elected at the Annual Meeting as directors
of the Registrant receiving the number of votes for election and abstentions and
percentage of total votes cast as set forth next to their respective names
below:
NOMINEE FOR DIRECTOR FOR THE ELECTION ABSTAIN
-------------------- ------------------- -------
Peter Beshouri 3,542,994 (97.5%) 92,508 (2.5%)
Michael Blumberg 3,543,969 (97.5%) 91,533 (2.5%)
Gregory Sturgis 3,564,379 (98.0%) 71,123 (2.0%)
Joseph Piccirilli 3,537,379 (97.3%) 98,123 (2.7%)
G. Kay Griffith 3,554,429 (97.8%) 81,073 (2.2%)
Richard W. McEwen 3,554,429 (97.8%) 81,073 (2.2%)
(d) Not applicable.
Item 5. Other Information.
See note 9 to Notes to Consolidated Financial Statements and "Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Financial Condition" in Part I of this report for a discussion of
the Registrant's new revolving credit facility.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits. The following exhibits are filed with this
report:
EXHIBIT NO. DESCRIPTION
----------- -----------
10.1 Amended and Restated Credit Agreement
(without exhibits) dated as of February 15,
1996 among the Registrant and its
wholly-owned subsidiaries and NationsBank,
N.A. (South), successor to NationsBank of
Florida, N.A. ("NationsBank"), together with
Amended and Restated Renewal Revolving Credit
Promissory Note dated as of February 15, 1996
from the Registrant payable to NationsBank.
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10.2 Loan and Security Agreement (without
schedules) dated as of April 11,1996 between
the Registrant and Foothill Capital
Corporation.
27. Financial Data Schedule.
(b) Reports on Form 8-K. No reports on Form 8-K have been filed
during the quarter ended March 31, 1996.
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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.
SOUND ADVICE, INC.
(Registrant)
Date MAY 15, 1996 /s/ PETER BESHOURI
-----------------------
Peter Beshouri, Chairman of the
Board, President and Chief
Executive Officer
Date MAY 15, 1996 /s/ KENNETH L. DANIELSON
-----------------------------
Kenneth L. Danielson, Chief
Financial and Accounting Officer
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
TO
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED
MARCH 31, 1996
COMMISSION FILE NUMBER
0-15194
-----------------------------------------------------
SOUND ADVICE, INC.
-----------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<PAGE>
EXHIBIT INDEX
EXHIBIT
NO.
- -------
10.1 Amended and Restated Credit Agreement (without exhibits) dated as of
February 15, 1996 among the Registrant and its wholly-owned subsidiaries
and NationsBank, N.A. (South), successor to NationsBank of Florida, N.A.
("NationsBank"), together with Amended and Restated Renewal Revolving
Credit Promissory Note dated as of February 15, 1996 from the Registrant
payable to NationsBank.
10.2 Loan and Security Agreement (without schedules) dated as of April 11,
1996 between the Registrant and Foothill Capital Corporation.
27. Financial Data Schedule.
AMENDED AND RESTATED
CREDIT AGREEMENT
THIS AMENDED AND RESTATED CREDIT AGREEMENT, dated as of February 15, 1996
(the "Agreement"), is among SOUND ADVICE, INC., a Florida corporation (the
"Borrower"), SAI DISTRIBUTORS, INC., a Florida corporation, SAI REALTY
INVESTMENTS, INC., a Florida corporation, SOUND ADVICE OF VIRGINIA, INC., a
Virginia corporation, and SOUND ADVICE ELECTRONICS OF MARYLAND, INC., a Maryland
corporation (collectively, the "Guarantor") and NATIONSBANK, N.A. (SOUTH),
successor to NATIONSBANK OF FLORIDA, N.A., a national banking association
("Lender").
R E C I T A L S:
A. Lender, Borrower and SAI Distributors, Inc. have previously
executed and entered into that certain Amended and Restated Credit Agreement
dated as of October 10, 1995, (referred to as the "Existing Agreement").
B. Pursuant to the Existing Agreement, Lender has extended a credit
facility to the Borrower of up to $20,000,000 ("Existing Line").
C. In consideration of Lender waiving certain defaults of the Borrower
under the Existing Agreement, the parties have agreed to reduce the availability
of the Existing Line and to modify the Existing Agreement as more particularly
set forth herein.
D. Simultaneously with the execution and delivery of this Amended and
Restated Credit Agreement (the "Agreement"), the Existing Agreement shall be
amended and restated in its entirety to read as set forth below.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements set forth herein, the parties hereto agree as follows:
ARTICLE 1 - DEFINITIONS
SECTION 1.1 DEFINITIONS. In addition to terms defined elsewhere in this
Agreement, the following terms have the meanings indicated, which meanings shall
be equally applicable to both the singular and the plural forms of such terms:
"AFFILIATE" shall mean any Person (other than a Subsidiary) which directly
or indirectly through one or more intermediaries controls, or is controlled by
or is under common control with, the Borrower, or 5% or more of the equity
interest of which is held beneficially or of record by the Borrower or a
Subsidiary. The term "control" means the possession, directly or indirectly,
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of the power to cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise.
"AGREEMENT" shall mean this Agreement, as the same may from time to time
be amended.
"BORROWER" shall have the meaning assigned to that term in the
introduction to this Agreement.
"BORROWING" shall mean the drawing down by the Borrower of the Term Loan,
a Revolving Credit Loan or Revolving Credit Loans from the Lender or the
issuance of a Letter of Credit or Letters of Credit by the Lender on any given
Borrowing Date.
"BORROWING BASE" shall mean, at any date of determination thereof, the sum
of sixty-five percent (65%) of the lower of cost or fair market value of
Eligible Inventory.
"BORROWING DATE" shall mean the date as of which a Borrowing is
consummated.
"BUSINESS DAY" shall mean a day on which commercial banks are open for
business in Fort Lauderdale, Florida.
"CAPITAL EXPENDITURES" shall mean any expenditure by a Person which is or
is required to be capitalized on its balance sheet for financial reporting
purposes in accordance with generally accepted principles, exclusive of
Capitalized Lease Obligations.
"CAPITALIZED LEASE OBLIGATIONS" shall mean, as to any Person, the
obligations of such Person, as lessee or guarantor, to pay rent or other amounts
under a lease of (or other agreement conveying the right to use) real and/or
personal property, which obligations are required to be classified and accounted
for as a capital lease on a balance sheet of the Person under generally accepted
accounting principles. For purposes of this Agreement, the amount of such
obligations shall be the capitalized amount thereof, determined in accordance
with generally accepted accounting principles.
"CLOSING DATE" shall mean the date hereof.
"CODE" shall mean the Internal Revenue Code of 1986, as amended from time
to time.
"COMMITMENT" shall mean the Existing Line as amended under the terms of
this Agreement pursuant to which the Lender has agreed to make the Term Loan,
Revolving Credit Loans and issue Letters of Credit in the aggregate principal
amount of up to $16,000,000.00 pursuant to Article 2 hereof.
"DEFAULT" shall mean any event which, with the lapse of time, the giving
of notice, or both, would become an Event of Default.
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"DEFAULT RATE" shall mean the maximum rate permitted by law; provided,
however, that such rate shall not exceed twenty-five percent (25%) per annum.
"ELIGIBLE INVENTORY" shall mean all of the Inventory which are finished
goods other than:
(a) work-in-process and supplies;
(b) Inventory on consignment;
(c) Inventory in an amount equal to the aggregate outstanding
indebtedness owed by the Borrower to lenders (other than the
Lender) having non-subordinated purchase money security
interests in such Inventory of the Borrower and its
Subsidiaries;
(d) Inventory that is damaged or in need of repair;
(e) Inventory that has been repossessed from or has been otherwise
returned by a customer unless such Inventory is in the same or
better condition as similar Inventory held for sale by the
Borrower and can be resold at the original retail price;
(f) Inventory which is located in a jurisdiction where the
security interest of the Lender is not perfected;
(g) Inventory equal to accounts payable and outstanding under
any floor plan lines to the extent not fully subordinated
to the Lender;
(h) Intentionally Left Blank;
(i) paid in full sales of on-hand Inventory awaiting delivery
adjusted to cost;
(j) capitalized distribution costs;
(k) in-transit inventory;
(l) computers and computer-related Inventory;
(m) service and repair parts; and
(n) Inventory that is reasonably determined by the Lender to be
ineligible for any reason whatsoever.
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"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
the same may from time to time be amended.
"EVENT OF DEFAULT" shall have the meaning assigned to that term in Section
7.1 hereof.
"GUARANTOR" shall have the meaning assigned to that term in the
introduction to this Agreement.
"GUARANTY" shall mean, as to any Person, all liabilities or obligations of
such Person in respect of any Indebtedness or other obligations of others
guaranteed, directly or indirectly, in any manner by such Person, or in effect
guaranteed, directly or indirectly, by such Person through an agreement,
contingent or otherwise, to purchase such Indebtedness or obligation, or to
purchase or sell property, or to purchase or sell services, primarily for the
purpose of enabling the debtor to make payment of the Indebtedness or obligation
or to assure the owner of such Indebtedness or obligation against loss, or to
supply funds to or in any manner invest in the debtor or otherwise.
"GUARANTY AGREEMENT(S)" shall mean, individually and collectively, the
Guaranty Agreement executed by each of the Guarantors dated effective as of
October 10, 1995, as ratified and confirmed pursuant to the Reaffirmation of
Guaranty Agreement effective as of even date herewith (collectively, "Guaranty
Ratification").
"HAZARDOUS MATERIALS" shall mean all materials defined as hazardous wastes
or substances under any local, state or federal environmental laws, rules or
regulations, and petroleum, petroleum products, oil and asbestos.
"INDEBTEDNESS" of any Person shall mean (i) all indebtedness for borrowed
money or for the deferred purchase price of any property (other than accounts
payable to trade creditors under customary trade credit terms) or services for
which the Person is liable as principal, (ii) all indebtedness (excluding
unaccrued finance charges) secured by a Lien on property owned or being
purchased by the Person, whether or not such indebtedness shall have been
assumed by the Person, (iii) all Capitalized Lease Obligations (excluding
unaccrued finance charges) of the Person, (iv) any arrangement (commonly
described as a sale-and-leaseback transaction) with any financial institution or
other lender or investor providing for the leasing to the Person of property
which at the time has been or is to be sold or transferred by the Person to the
lender or investor, or which has been or is being acquired from another Person
by the lender or investor for the purpose of leasing the property to the Person
and (v) all obligations of partnerships or joint ventures in respect of which
the Person is primarily or secondarily liable as a partner or joint venturer or
otherwise (provided that in any event for purposes of determining the amount of
the Indebtedness, the full amount of such obligations, without giving effect to
the contingent liability or contributions of other participants in the
partnership or joint venture, shall be included); provided however, that the
definition of Indebtedness shall not include Rentals.
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"INTERCREDITOR AGREEMENT" shall mean the Intercreditor Agreements by and
between Borrower, Lender and certain of Borrower's vendors and creditors which
must be in form and substance satisfactory to Lender in Lender's sole
discretion.
"INVENTORY" shall mean all of the Borrower's inventory, including raw
materials, work-in-process, and finished goods of every kind or character,
whether presently in existence or hereafter acquired, and wherever located.
"INVESTMENTS" shall mean, with respect to any Person, all advances, loans
or extensions of credit to any other Person, other than accounts receivable
generated by the sale of inventory arising in the ordinary course of business,
and all purchases or commitments to purchase any stock, bonds, notes, debentures
or other securities of any other Person, and any investment in other Persons,
including partnerships or joint ventures.
"LENDER" has the meaning assigned to that terms in the introduction to
this Agreement and shall include any affiliates of Lender.
"LETTER OF CREDIT" or "LETTERS OF CREDIT" shall mean the standby letter of
credit or standby letters of credit, respectively, issued by the Lender at the
request of the Borrower pursuant to Section 2.1 hereof.
"LETTER OF CREDIT APPLICATION" shall have the meaning assigned to that
terms in Section 2.1 hereof.
"LIEN" shall mean a mortgage, pledge, lien, security interest or other
charge or encumbrance or any segregation of assets or revenues or other
preferential arrangement (whether or not constituting a security interest) with
respect to any present or future assets, including fixtures, revenues or rights
to the receipt of income of the Person referred to in the context in which the
term is used.
"LOAN DOCUMENTS" shall mean this Agreement, the Notes, the Letter of
Credit Application, the Security Agreement, the Guaranty Agreement(s) and all of
the other documents, agreements, certificates, schedules, notes, statements and
opinions referred to herein or executed and delivered pursuant hereto or in
connection with the Term Loan, the Revolving Credit Loans or the Letters of
Credit or any other transaction contemplated by this Agreement.
"NOTES" shall mean, individually and collectively, the Term Note in the
original principal amount of $6,680,000 and the Renewal Revolving Credit
Promissory Note in the original principal amount of $9,320,000, and any
modifications, renewals, replacements and substitutions therefor made from time
to time hereafter.
"PERMITTED LIENS" shall mean the liens granted to those parties set forth
on EXHIBIT 1.1 hereto and the liens permitted pursuant to Section 6.1 hereof.
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"PERSON" shall mean any natural person, corporation, unincorporated
organization, trust, joint-stock company, joint venture, association, company,
partnership or government, or any agency or political subdivision of any
government.
"PLAN" shall mean any employee benefit plan which is subject to the
provisions of Title IV of ERISA and which is maintained in whole or in part for
employees of the Borrower or the Subsidiary.
"PRIME RATE" shall mean that index rate of interest per annum the Lender
announces from time to time as its Prime Rate. The Prime Rate is not necessarily
the best or lowest rate charged or offered by Lender to its borrowing customers.
"RECEIVABLES" shall mean all of the Borrower's accounts, instruments,
contract rights, chattel paper, documents and general intangibles arising from
its sales and the proceeds thereof, now existing or created hereafter and all
returned, reclaimed or repossessed goods, and all books and records pertaining
to the foregoing.
"RENEWAL REVOLVING CREDIT PROMISSORY NOTE" shall mean the Amended and
Restated Renewal Revolving Credit Promissory Note dated even date herewith
executed by Borrower in favor of the Lender in the original principal amount of
$9,320,000, together with any modification, renewal or substitution thereof.
"RENTALS" of any Person shall mean, as of any date, the aggregate amount
of the obligations and liabilities (including future obligations and liabilities
not yet due and payable) of such Person to make payments under all leases,
subleases and similar arrangements for the use of real, personal or mixed
property, other than under Capitalized Leases. The definition of Rentals shall
include amounts required to be accrued under generally accepted accounting
principles for straight line rent.
"REVOLVING CREDIT LOAN" and "REVOLVING OF CREDIT LOANS" shall mean the
principal amount and the aggregate principal amount, respectively, advanced by
the Lender as a loan or loans to the Borrower pursuant to Section 2.1(a) hereof,
or, where the context requires, the amount then outstanding.
"REVOLVING MAXIMUM AMOUNT" shall mean the lesser of: (i) $9,320,000;
and (ii) the Borrowing Base less $6,680,000.
"SALES" shall mean the delivery of goods and/or rendition of services by
the Borrower in the ordinary course of its business, which have not been
returned, repossessed or rejected.
"SECURITY AGREEMENT" shall mean the Amended and Restated Security
Agreement between Borrower and Lender dated as of even date herewith.
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"SUBORDINATED DEBT" shall mean Indebtedness of the Borrower or any
Subsidiary which is in all respects subordinate and junior to the Indebtedness
of the Borrower to the Lender,.
"SUBSIDIARY" shall mean any Person in which Borrower or a Wholly-Owned
Subsidiary may own, directly or indirectly, an equity interest of more than 50%,
or which may effectively be controlled by the Borrower or a Wholly-Owned
Subsidiary, during the term of this Agreement.
"TANGIBLE NET WORTH" shall mean, at the time any determination thereof is
to be made, the aggregate amount of all assets shown on the consolidated balance
sheet of the Borrower and its Subsidiaries at the relevant date (but excluding
from such assets capitalized organization and development costs, capitalized
interest, debt discount and expense, goodwill, patents, trademarks, copyrights,
franchise licenses, amounts due from Affiliates, Subsidiaries, officers,
employees, directors or stockholders and such other assets as are properly
classified as "intangible assets" under generally accepted accounting
principles), less Total Liabilities.
"TAX INDEMNITY AGREEMENT" shall mean the Tax Indemnity Agreement between
Borrower and Lender dated as of even date herewith.
"TERM LOAN" shall mean the loan evidenced by the Term Note.
"TERM NOTE" shall mean the Amended and Restated Term Note dated effective
October 10, 1995 executed by the Borrower in favor of the Lender in the original
principal amount of $6,680,000 together with any modification, renewal or
substitution thereof.
"TOTAL LIABILITIES" shall mean, at the time any determination thereof is
to be made, the aggregate amount of all liabilities of the Borrower and its
Subsidiaries on a consolidated basis determined in accordance with general
accepted accounting principles.
"TOTAL MAXIMUM AMOUNT" shall mean $16,000,000.
"TERMINATION DATE" shall mean December 31, 1996. Borrower acknowledges
that Lender shall have no obligation to extend the Termination Date.
"TERMINATION EVENT" shall mean a "reportable event" as defined in Section
4043(b) of ERISA or the filing of a notice of intent to terminate under Section
4041 of ERISA.
"WHOLLY-OWNED SUBSIDIARY' shall mean any Subsidiary, 100% of the
outstanding capital stock of all classes of which is owned directly or
indirectly by the Borrower.
SECTION 1.2 ACCOUNTING TERMS. Accounting terms not specifically defined in
this Agreement shall have the meaning given to them under accounting principles
and practices generally accepted in the United States, applied on a consistent
basis with the financial statements referred to in Section 4.3 hereof, and shall
be determined both as to classification of items and amounts in accordance
therewith. All Subsidiaries shall be consolidated to the fullest extent
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permitted by such principles and practices, and any accounting terms, financial
covenants and financial statements referred to herein shall be determined and
prepared on the basis of such consolidation.
SECTION 1.3 OTHER DEFINITIONAL PROVISIONS. The words "hereof," "herein"
and "hereunder" and words of similar import when used in this Agreement shall
refer to this Agreement as a whole and not to any particular provision of this
Agreement, and section (ss. ), subsection and exhibit references are to this
Agreement unless otherwise specified.
ARTICLE 2 - COMMITMENT
SECTION 2.1 COMMITMENT.
(A) REVOLVING CREDIT LOANS. The Lender agrees, on the terms of this
Agreement, to continue the Existing Line under which the Lender has made the
Term Loan and shall from time to time make revolving credit loans ("Revolving
Credit Loans") and issue Letters of Credit (subject to the sub-limit set forth
below) in United States Dollars to the Borrower for a period terminating on the
earlier of the Termination Date or termination in full of the Commitment of the
Lender pursuant to Article 7 hereof, on a revolving credit basis, at such time,
and subject to Section 2.2 below, in such amounts as the Borrower shall request,
provided that the aggregate principal amount of the Revolving Credit Loans and
Letters of Credit outstanding at one time shall not exceed the Revolving Maximum
Amount. Within the limits of the Commitment and subject to the provisions of
this Agreement and provided no Event of Default exists hereunder, the Borrower
may borrow, repay and reborrow from time to time for the period commencing on
the date hereto to and including the earlier of the Termination Date or the
termination in full of the Commitment of the Lender pursuant to Article 7
hereof. In the event the aggregate outstanding principal balance of the
Revolving Credit Loans and Letters of Credit exceed the Revolving Maximum Amount
or, in the event the aggregate of the outstanding principal balance of the Term
Loan, the Revolving Credit Loans and Letters of Credit exceed the Total Maximum
Amount, then the Borrower shall, immediately and without notice or demand of any
kind, make such payments as shall be necessary to reduce the outstanding
principal balance of the Commitment below the Revolving Maximum Amount and the
Total Maximum Amount, respectively.
(B) LETTERS OF CREDIT.
(I) The Borrower may use up to $1,200,000 of the Commitment
for the issuance of Letters of Credit. The undrawn amount of all Letters of
Credit plus any and all amounts paid by Lender in connection with drawings under
any Letter of Credit for which Lender has not been reimbursed shall be reserved
under the Commitment and shall not be available for Revolving Credit Loans
thereunder. Each draft paid by Lender under a Letter of Credit shall be deemed a
Revolving Credit Loan under the Commitment and shall be repaid in accordance
with the terms of the Revolving Credit Loans; provided, however, if the
Commitment is not available for any reason whatsoever, at the time any draft is
paid by Lender, or if Revolving Credit Loans
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are not available under the Commitment in such amount due to any limitation of
borrowing set forth herein, then the full amount of such draft or drafts shall
be immediately due and payable, together with interest thereon, from the date
such amount is paid by Lender to the date such amount is fully repaid by
Borrower, at the Default Rate.
(II) The Borrower shall request the issuance of each Letter of
Credit by submitting to the Lender a completed application for standby letter of
credit (the "Letter of Credit Application") on the Lender's standard form and
provided no Event of Default exists hereunder and Borrower pays all applicable
fees, then upon the fulfillment of the applicable conditions set forth in the
Letter of Credit Application and this Agreement, a Letter of Credit shall be
issued. Letters of Credit issued under the Commitment shall have an expiration
date not later than January 31, 1997.
(C) LIMITATION ON BORROWINGS. Notwithstanding anything in this
Agreement to the contrary, the total amount of Revolving Credit Loans made and
Letters of Credit issued under the Commitment shall be determined in the
discretion of the Lender acting in good faith consistent with the value of
Eligible Inventory, taking into account all fluctuations of the value thereof in
light of the Lender's experience and sound business principles. The Lender shall
be under no obligation to make any Revolving Credit Loan or issue any Letter of
Credit to Borrower in excess of the limitations stated in Section 2.1.
SECTION 2.2 MANNER OF BORROWING.
(A) THIS SPACE IS INTENTIONALLY LEFT BLANK.
(B) All Borrowings under this Agreement shall be made as
follows:
(I) the Borrower shall give written (or telephonic notice
promptly confirmed in writing) to the Lender prior to 11:00 A.M., Fort
Lauderdale time, on the proposed Borrowing Date specifying (A) the Borrowing
Date (which shall be a Business Day) and (B) the amount of the proposed
Borrowing.
(II) each Borrowing under this Section 2.2(b) shall be made at
the office of the Lender, at its address set forth opposite its signature at the
end of this Agreement, by crediting the Borrower's general disbursement account
with Lender in the amount thereof.
SECTION 2.3 NOTES.
(A) The Commitment made available to the Borrower by the Lender
under this Article 2 shall be evidenced by, and repaid with interest in
accordance with the Term Note and the Renewal Revolving Credit Promissory Note.
(B) The Borrower hereby irrevocably authorizes the Lender to record
in its computerized records the date and the amount of the Term Loan and each
Revolving Credit Loan
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made or Letter of Credit issued by the Lender under this Article 2, and each
repayment thereof; PROVIDED, HOWEVER, that the failure to make a notation in the
Lender's records with respect to the Term Loan or any Revolving Credit Loan or
Letter of Credit shall not limit or otherwise affect the obligation of the
Borrower hereunder or under the Notes with respect to the Term Loan or the
Revolving Credit Loans or the Letter of Credit Applications with respect to the
Letters of Credit or any other obligation of the Borrower relating to the Term
Loan, Revolving Credit Loans or Letter of Credits, and the Borrower's obligation
to make payments of principal and interest on the Notes and to reimburse Lender
for any drawings on a Letter of Credit shall not be affected by the failure to
make a notation thereof in its computerized records. The Lender's recordation of
the date and the amount of the Term Loan and each Revolving Credit Loan or
Letter of Credit and each repayment thereof shall, absent manifest error,
constitute PRIMA FACIE evidence of the accuracy of the information recorded.
(C) THIS SPACE IS INTENTIONALLY LEFT BLANK.
SECTION 2.4 INTEREST. Interest shall accrue on the unpaid principal amount
of the Term Loan and the Revolving Credit Loans for each day any amount thereof
is outstanding and said interest shall be paid at the times set forth in the
respective Notes. Interest on the Term Loan and the Revolving Credit Loans shall
accrue at a rate per annum (computed on the actual number of days elapsed over a
360-day year; i.e., 1/360th of a full year's interest shall accrue for each day
any principal balance under the Notes is outstanding) at all times equal to the
rate or rates per annum set forth in the respective Notes; PROVIDED, any
principal and, to the extent permitted by law, interest which is not paid when
due (whether at stated maturity, by acceleration or otherwise) shall bear
interest at a rate per annum (computed as aforesaid) equal to the Default Rate.
Interest on any unreimbursed drawing on a Letter of Credit that is not converted
into a Revolving Credit Loan under the provisions of Section 2.1(b) above shall
accrue at a rate per annum (computed on the actual number of days elapsed over a
360-day year; i.e., 1/360th of a full year's interest shall accrue for each day
any unreimbursed drawing on a Letter of Credit is outstanding) equal to the
Default Rate.
SECTION 2.5 FEES.
(A) THIS SPACE IS INTENTIONALLY LEFT BLANK.
(B) Borrower shall pay to Lender the Lender's standard letter of
credit fees upon issuance of each Letter of Credit.
(C) In addition to the fees set forth in subparagraphs (a) and (b)
above, so long as either of the Notes remains unpaid the following additional
fee(s) shall be due the Lender (i) $160,000 shall be due and payable on February
28, 1996; (ii) $225,000 shall be due and payable on July 1, 1996; and (iii)
$250,000 shall be due and payable on September 30, 1996.
(D) Borrower shall pay to Lender all of Lender's expenses associated
with the monitoring of the Revolving Credit Loan.
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ARTICLE 3 - CONDITIONS PRECEDENT TO BORROWING
The Lender shall not be obligated to make any Revolving Credit Loan or
issue any Letter of Credit to the Borrower hereunder unless the following
conditions have been satisfied, in the sole opinion of the Lender and its
counsel:
SECTION 3.1 CONDITIONS PRECEDENT TO BORROWING. The obligation of the
Lender to make each Revolving Credit Loan and to issue each Letter of Credit
pursuant to Article 2 herein is subject to the following conditions precedent,
each of which shall have been met or performed by the Borrowing Date:
(A) NOTICE OF BORROWING. In the event the borrowing procedure
described in Section 2.2(b) is in effect, the Borrower shall have been given or
delivered to the Lender the Notice of Borrowing provided for in Section 2.2(b).
(B) LETTER OF CREDIT APPLICATION. In the case of a Letter of Credit,
the Borrower shall have delivered a duly executed and completed Letter of Credit
Application to Lender, all in form and substance acceptable to Lender.
(C) NO DEFAULT. No Default or Event of Default shall have occurred
and be continuing or will occur upon the making of the Revolving Credit Loan or
issuance of the Letter of Credit on such Borrowing Date, and all representations
and warranties made by the Borrower and its Subsidiaries herein or otherwise in
writing on connection herewith shall be true and correct with the same effect as
though the representations and warranties had been made on and as of such
Borrowing Date.
SECTION 3.2 INITIAL BORROWING. The obligation of the Lender to continue
the Term Loan and to make the initial Revolving Credit Loan and to issue the
initial Letter of Credit pursuant to Article 2 herein is subject to the
following additional conditions precedent, each of which shall have been met or
performed by the Closing Date.
(A) NOTES. Each Note shall have been duly executed, completed and
delivered to the Lender outside the State of Florida.
(B) SECURITY AGREEMENT. The Amended and Restated Security
Agreement, duly executed and completed, shall have been delivered to the
Lender.
(C) TAX INDEMNITY AGREEMENT. The Tax Indemnity Agreement, duly
executed and completed, shall have been delivered to the Lender.
(D) GUARANTY RATIFICATION(S). The Guaranty Ratifications, duly
executed and completed by each Guarantor in form and substance satisfactory
to Lender, shall have been delivered to the Lender.
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(E) OPINION OF COUNSEL. The Lender shall have received from Rubin
Baum Levin Constant Friedman & Bilzin, counsel to the Borrower, a legal opinion
in form and substance acceptable to the Lender.
(F) INTERCREDITOR AGREEMENT(S). The Lender shall have received the
Intercreditor Agreement from each vendor and creditor of the Borrower set forth
on EXHIBIT 1.1 attached hereto which is marked with (***) subordinating their
security interest to the interest of the Lender, all in form and substance
acceptable to the Lender, all of which Lender acknowledges it has received in
connection with the closing of the Existing Agreement.
(G) SUPPORTING DOCUMENTS. The Borrower shall have delivered to the
Lender such opinions, documents and certificates that the Lender or its counsel
may require, and all such opinions, certificates and documents specified in this
Article 3 shall be satisfactory in form and substance to the Lender and its
counsel.
SECTION 3.3 LANDLORD'S WAIVERS OF LIENS. With respect to each facility for
which Borrower has not previously delivered a Landlord's Waiver of Lien
acceptable to Lender, the Borrower shall use its best efforts, which shall not
include the payment of any money to any landlord other than such landlord's
reasonable legal costs, to obtain and furnish to Lender, within sixty (60) days
of the date hereof, (i) either Landlord's Waiver of Lien in the form of EXHIBIT
3.3 hereto with respect to each leased facility in which the Borrower maintains
Inventory or otherwise conducts business or the lease for such leased facility
shall contain a landlord's lien waiver in form and substance reasonably
satisfactory to Lender, and (ii) legal descriptions for each such facility to
enable Lender to perfect its security interest in all fixtures located in such
facilities. The failure of Borrower to obtain a Landlord's Waiver of Lien or
legal description with respect to any such facility shall not be deemed an Event
of Default hereunder so long as, in Lender's reasonable judgment, the Borrower
has used its best efforts to obtain such waiver and/or legal description.
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES
In order to induce the Lender to enter into this Agreement and to continue
the Term Loan, and to make the Revolving Credit Loans and issue the Letters of
Credit provided for herein, the Borrower makes the following representations and
warranties to the Lender, all of which shall survive the execution and delivery
of this Agreement and the Notes:
SECTION 4.1 CORPORATE EXISTENCE AND POWER. Each of the Borrower and the
Guarantor is a corporation duly incorporated, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and is duly
qualified or licensed to transact business in all places where such
qualification or license is necessary. The Borrower has the corporate power to
make and perform this Agreement, the Security Agreement, the Notes, the Letter
of Credit Applications and this Agreement does, and the Notes and Letter of
Credit Applications when duly executed and delivered for value will, constitute
the legal, valid and binding obligations of the Borrower, enforceable in
accordance with their respective terms except as enforceability may be limited
by
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applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally and general principles
of equity which may limit the availability of equitable remedies.
SECTION 4.2 CORPORATE AUTHORITY. The making and performance by the
Borrower of this Agreement, the Security Agreement, the Notes, the Letter of
Credit Applications and any additional documents contemplated to be executed in
connection herewith have been duly authorized by all necessary corporate action
of the Borrower, and do not and will not violate any provision of law or
regulation, or any writ, order or decree of any court, governmental, regulatory
authority or agency or any provision of the articles or certificate of
incorporation of the Borrower, and do not and will not, with the passage of time
or the giving notice, result in a breach of, or constitute a default or require
any consent under, or result in the creation of any lien, charge or encumbrance
upon any property or assets of the Borrower or any Subsidiary pursuant to, any
instrument or agreement to which the Borrower or any Subsidiary is a party or by
which the Borrower or any Subsidiary or their respective properties may be bound
or affected.
SECTION 4.3 FINANCIAL CONDITION. The unaudited consolidated balance sheet
of the Borrower and its Subsidiaries as of December 31, 1995, and the
consolidated statements of operations and statements of cash flows of the
Borrower and its Subsidiaries for the second fiscal quarter ended December 31,
1995, including any related notes, in the form heretofore furnished to the
Lender, were prepared in accordance with generally accepted accounting
principles consistently applied, are complete and correct and fairly present the
consolidated financial condition of the Borrower and its Subsidiaries as of that
date and the results of their operations for the fiscal period ending on that
date, respectively. Other than as disclosed by those financial statements and
the Borrower's consolidated financial statements for the fiscal year ended June
30, 1995, including the related notes thereto, which have been previously
furnished to Lender, as of the date hereof, neither the Borrower nor its
Subsidiaries has any direct or contingent obligations or liabilities which would
be material to the consolidated financial position of the Borrower and its
Subsidiaries, nor any material unrealized or anticipated losses from any
commitments of the Borrower or its Subsidiaries. Since the date of December 31,
1995, there has been no material adverse change in the business or financial
condition of the Borrower and its Subsidiaries, taken as a whole.
SECTION 4.4 FULL DISCLOSURE. The financial statements referred to in
Section 4.3 shall not, nor does this Agreement, or any written statement
furnished by the Borrower to the Lender in connection with the negotiation of
this Agreement and the Commitment, contain any untrue statement of a material
fact or omit a material fact necessary to make the statements contained therein
or herein not misleading. There is no fact which materially and adversely
affects nor, so far as the Borrower can now foresee, is reasonably likely to
prove to materially and adversely affect the business or financial condition of
the Borrower or the ability of the Borrower to perform this Agreement.
SECTION 4.5 LITIGATION. There are no suits or proceedings pending, or to
the knowledge of the Borrower, threatened before any court or by or before any
governmental or regulatory
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authority, commission, bureau or agency of any public regulatory body against or
affecting the Borrower or its Subsidiaries which, if adversely determined, would
have a material adverse effect on the business or financial condition of the
Borrower and its Subsidiaries, except as disclosed in the opinion of Borrower's
counsel delivered pursuant to Section 3.2(c).
SECTION 4.6 PAYMENT OF TAXES. Each of the Borrower and its Subsidiaries
have filed or caused to be filed, or have obtained or requested extensions to
file all federal, state and local tax returns which are required to be filed,
and have paid or caused to be paid, or have reserved on their books amounts
sufficient for the payment of, all taxes as shown on said returns or on any
assessment received by them, to the extent that the taxes have become due,
except as otherwise permitted by the provisions hereof. Borrower shall provide
Lender with copies of all extensions to file tax returns within ten (10) days of
the filing thereof. No tax liens have been filed and neither the Borrower nor
any of its Subsidiaries have been notified of, or otherwise have knowledge of,
any claim being asserted with respect to any such taxes, fees, or other charges
which could have a material adverse effect on the business or financial
condition of the Borrower or any of its Subsidiaries. The Borrower and its
Subsidiaries have set up reserves which are reasonably believed by the officers
of the Borrower to be adequate for the payment of said taxes for the years that
have not been audited by the respective tax authorities.
SECTION 4.7 NO ADVERSE RESTRICTIONS OR DEFAULTS. Neither the Borrower nor
any of its Subsidiaries is a party to any agreement or instrument, nor subject
to any court order or judgment, governmental decree, charter or other corporate
restriction materially adversely affecting its business, properties or assets,
operations or condition (financial or otherwise). Neither the Borrower nor any
of its Subsidiaries is in default in the performance, observance or fulfillment
of any of the obligations, covenants or conditions contained in any agreement or
instrument to which it is a party or by which the Borrower or any of its
Subsidiaries or their respective properties may be bound or affected, or under
any law, regulation, decree, order or the like, which default would have a
material adverse effect on the business or financial condition of the Borrower
and its Subsidiaries taken as a whole.
SECTION 4.8 INVESTMENT COMPANY ACT. Neither the Borrower nor any of its
Subsidiaries is an "investment company' or a company "controlled" by an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.
SECTION 4.9 AUTHORIZATIONS. All authorizations, consents, approvals, and
licenses required under applicable law or regulation for the ownership or
operation of the property owned or operated by the Borrower or its Subsidiaries
(including, without limitation, shares of the capital stock of any Subsidiary)
or for the conduct of business in which the Borrower or its Subsidiaries is
engaged, have been duly issued and are in full force and effect, and neither the
Borrower nor any of its Subsidiaries is in default under any order, decree,
ruling, regulation, closing agreement, or other decision or instrument of any
governmental commission, bureau or other administrative agency or public
regulatory body having jurisdiction over the Borrower or any of its
Subsidiaries, which default would have a material adverse effect on the Borrower
and its Subsidiaries taken
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as a whole. No approval, consent or authorization of, or filing or registration
with, any governmental commission, bureau or other decision or instrument of any
governmental commission, bureau or other regulatory authority or agency is
required with respect to the Borrower's execution, delivery or performance of
this Agreement, the Security Agreement, the Notes, or the Letter of Credit
Applications, except for the filing of UCC-1 financing statements and a power of
attorney with the Internal Revenue Service.
SECTION 4.10 SUBSIDIARIES AND AFFILIATES. As of the date of execution of
this Agreement, the Borrower has no Subsidiaries or, to the best of its
knowledge, Affiliates, except as set forth on EXHIBIT 4.10 attached hereto. All
of the capital stock and evidence of the equity rights held by the Borrower or a
Subsidiary in each Subsidiary is and will be owned by the Borrower and/or
another Subsidiary, beneficially and of record, free and clear of all Liens.
SECTION 4.11 TITLE TO PROPERTIES. The Borrower and its Subsidiaries have,
respectively, good and marketable fee title to all real property, and good and
marketable title to all other property and assets, reflected in the latest
audited balance sheet referred to in Section 4.3 or purported to have been
acquired by the Borrower or any Subsidiary subsequent to such date, except
property and assets sold or otherwise disposed of subsequent to such date in the
ordinary course of business. All property and assets of any kind of the Borrower
and its Subsidiaries are free from any Liens except for Permitted Liens. The
Borrower and its Subsidiaries enjoy peaceful and undisturbed possession under
all of the leases under which they are operating, none of which contains any
unusual or burdensome provisions that will materially impair or adversely affect
the operations of the Borrower or its Subsidiaries. All of such leases are
valid, subsisting and in full force and effect and none of such leases is in
material default and no event has occurred which, with the passage of time or
the giving of notice, or both, would constitute a material default under any
such leases. The Borrower and its Subsidiaries possess all patents, patent
rights or licenses, trademarks and copyrights which are required to conduct
their respective businesses as now conducted without known conflict with the
rights of others.
SECTION 4.12 USE OF LOANS. The proceeds of each Borrowing under the
Commitment shall be used by the Borrower exclusively for the following
purposes: (i) to finance permanent general working capital with respect to the
Term Loan; and (ii) to finance the seasonal working capital needs of the
Borrower, finance capital expenditures to the extent permitted under this
Agreement and to provide a $1,200,000.00 letter of credit availability with
respect to the Revolving Credit Loan. Neither the Borrower nor any of its
Subsidiaries is engaged principally, or as one of its important activities, in
the business of extending credit for the purpose of purchasing or carrying
margin stock (within the meaning of Regulation U of the Board of Governors of
the Federal Reserve System), and no part of the proceeds of any Borrowing
hereunder will be used to purchase or carry any margin stock or to extend credit
to others for the purpose of purchasing or carrying any margin stock. If
requested by the Lender, the Borrower will furnish to the Lender, in connection
with any Borrowing hereunder, a statement in conformity with the requirements of
Federal Reserve Form U-1 referred to in said Regulation.
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SECTION 4.13 ERISA.
(A) None of the Plans or the trusts created thereunder has engaged
in a prohibited transaction which could subject any such Plan or trust to a
material tax or penalty on prohibited transactions imposed under Code Section
4975 or ERISA.
(B) None of the Plans or the trusts created thereunder has been
terminated with any deficiency; nor has any such Plan incurred any liability to
the Pension Benefit Guaranty Corporation, other than for required insurance
premiums which have been paid when due, or incurred any accumulated funding
deficiency; nor has there been any reportable event, or other event or
condition, which presents a risk of termination of any such Plan by the Pension
Benefit Guaranty Corporation.
(C) The present value of all accrued benefits under the Plans did
not, as of the most recent valuation date, exceed the then current value of the
assets of Plans allocable to such accrued benefits.
(D) Neither the Borrower nor any of its Subsidiaries is or has
been a party to or has any employees who are covered by any multi-employer
pension or benefit plan.
(E) As used in this Section 4.13, the terms "accumulated funding
deficiency," "reported event" and "accrued benefits" shall have the respective
meanings assigned to them in ERISA, and the term "prohibited transaction" shall
have the meaning assigned to it in Code Section 4975 and ERISA.
SECTION 4.14 ENVIRONMENTAL LAW COMPLIANCE. The conduct of Borrower's
business operations do not and will not violate any federal laws, rules or
ordinances for environmental protection, regulations of the Environmental
Protection Agency and any applicable local or state law, rule, regulation, or
rule of common law and any judicial interpretation thereof relating primarily to
the environment or Hazardous Materials at any of Borrower's places of business
except such materials as are incidental to Borrower's normal course of business,
maintenance and repairs. Borrower agrees to permit Lender, its agents,
contractors and employees to enter and inspect any of Borrower's places of
business at any reasonable times upon three (3) days prior notice for the
purposes of conducting an environmental investigation and audit (including
taking physical samples) to insure that Borrower is complying with this covenant
and Borrower shall promptly reimburse Lender for the costs of any such
environmental investigation and audit. Borrower shall provide Lender, its
agents, contractors, employees, and representatives with access to and copies of
any and all data and documents relating to or dealing with any Hazardous
Materials used, generated, manufactured, stored, or disposed of by Borrower's
business operations within five (5) business days of the request therefor.
SECTION 4.15 SOLVENCY.
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(A) Borrower has no intention of filing any petition or initiating
any Bankruptcy proceeding.
(B) Borrower has not entered into this Agreement and the
transactions contemplated hereby to provide preferential treatment to Lender,
Lender's nominee or any other creditor of Borrower or any guarantor in
anticipation of seeking relief under the federal or any state bankruptcy code or
similar law, nor has Borrower entered into this Agreement and the transactions
contemplated hereby with the intent to hinder, delay or defraud any creditors.
ARTICLE 5 - AFFIRMATIVE COVENANTS
The Borrower covenants and agrees that from the Closing Date and until
payment in full of the principal of and interest on the Notes and all drawings
under the Letters of Credit and until the termination of the Revolving Credit
Loan, unless the Lender shall otherwise consent in writing, the Borrower will,
and will cause each of its Subsidiaries to:
SECTION 5.1 LOAN PROCEEDS. Use the proceeds of the Term Loan, the
Revolving Credit Loans and Letters of Credit only for the purposes set forth in
Section 4.12 and furnish the Lender with all evidence that it may reasonably
require with respect to such use.
SECTION 5.2 CORPORATE EXISTENCE. Do or cause to be done all things
necessary to maintain, preserve and keep in full force and effect its existence
in the jurisdiction of its incorporation, and qualify and remain qualified in
each jurisdiction where qualification is necessary or desirable in view of its
business operations or the ownership of its properties.
SECTION 5.3 MAINTENANCE OF BUSINESS AND PROPERTIES. Continue to conduct
and operate its business substantially as conducted and operated during the
present and preceding fiscal year; at all times maintain, preserve and protect
all rights, privileges, patents, franchises, and trade names necessary or
desirable in the conduct of its business and preserve all the remainder of its
property used or useful in the conduct of its business and keep the same in good
repair, working order and condition, and from time to time make, or cause to be
made, all reasonable repairs, replacements, betterments and improvements thereto
so that the business carried on in connection therewith may be conducted
properly and advantageously at all times.
SECTION 5.4 INSURANCE. Insure and keep insured with good and responsible
insurance companies and in amounts reasonably satisfactory to the Lender, all
insurable property owned by it which is of a character usually insured by
companies similarly situated and operating like properties, against loss or
damage from such hazards or risks, including fire, as are insured by companies
similarly situated and operating like properties, insure and keep insured
employers' and public liability risks in good and responsible insurance
companies of the types and amounts usually insured by companies similarly
situated; maintain such other insurance as may be required by law or as may
reasonably be required in writing by the Lender; and upon request of the Lender
furnish a certificate setting forth in summary form the nature and extent of the
insurance
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maintained by the Borrower pursuant to this Section 5.4.
SECTION 5.5 PAYMENT OF INDEBTEDNESS, TAXES, ETC. Pay all of its
Indebtedness and obligations promptly and in accordance with normal terms and
comply in all material respects with all material agreements, indentures,
mortgages, or documents binding on it or affecting its properties or business;
and pay and discharge or cause to be paid and discharged promptly all taxes,
assessments and governmental charges or levies imposed upon it or upon its
property or upon any part thereof, before the same shall become in default, as
well as all lawful claims for labor materials and supplies or otherwise which,
if unpaid, might become a Lien upon such properties or any part thereof;
provided, however, that neither the Borrower nor any of its Subsidiaries shall
be required to pay and discharge or to cause to be paid and discharged any
Indebtedness, obligation, tax, assessment, charge, levy, or claim so long as the
validity thereof shall be contested in good faith by appropriate proceedings and
the Borrower or such Subsidiary, as the case may be, shall have set aside on its
books adequate reserves with respect to any Indebtedness, obligation, tax,
assessment, charge, levy or claim, so contested.
SECTION 5.6 COMPLIANCE WITH LAWS. Duly observe, conform and comply with
all laws, decisions, judgments, rules, regulations, and orders of all
governmental authorities relative to the conduct of business, its properties,
and assets, except (i) those being contested in good faith by appropriate
proceedings diligently pursued and (ii) those the failure to comply with which
in the aggregate will not have a material adverse effect on the business or
financial condition of the Borrower and its Subsidiaries taken as a whole; and
obtain, maintain and keep in full force and effect all governmental licenses,
authorizations, consents, and permits necessary to the proper conduct of its
business.
SECTION 5.7 NOTICE OF DEFAULT. Upon the occurrence of any Default or Event
of Default of which the Borrower or any of its officers has knowledge, promptly
furnish written notice thereof to the Lender specifying the nature and period of
existence thereof and the action which the Borrower is taking or proposes to
take with respect thereto.
SECTION 5.8 FINANCIAL STATEMENTS, REPORTS, ETC. In the case of the
Borrower, furnish to the Lender:
(A) within 120 days after the end of each fiscal year of the
Borrower (being each June 30), consolidated balance sheets and consolidated
statements of operations, statements of retained earnings and statements of cash
flow, together with supporting schedules, all in reasonable detail and
accompanied by an unqualified opinion thereon of a firm of independent certified
public accountants of recognized standing selected by the Borrower and
acceptable to the Lender to the effect that the consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles consistently applied, showing the financial condition of the Borrower
and its Subsidiaries at the close of such year and the results of operations of
the Borrower and its Subsidiaries during such year, together with a certificate
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of such accountants stating that they have no knowledge of any event which
constitutes a Default or Event of Default (a certificate as to such matters
being herein called a "NO-DEFAULT CERTIFICATE"). Lender acknowledges that a
"going concern" qualification in the June 30, 1996 audited statements based
solely upon the upcoming maturity of the Notes shall not in and of itself
constitute an Event of Default hereunder.
As used herein, "unqualified opinion" means relative to the
opinion of any independent public accountant as to any financial statement of
Borrower or any Guarantor that said opinion contains no qualification or
exception to any such opinion (i) which is of a "going concern" or similar
nature; (ii) which relates to the limitation on the scope of examination of
matters relevant to such financial statements; (iii) which relates to the
treatment or classification of any item in such financial statement in which, as
a condition to its removal, would require an adjustment to said item, the effect
of which would be to cause Borrower or any Guarantor to be in default of any of
the financial covenants under any of the Loan Documents; or (iv) which is
otherwise unacceptable to the Lender, in its reasonable discretion.
(B) within 30 days after the end of each month (unless the month in
question is the end of the quarter, in which event Borrower shall have 45 days),
similar financial statements to those referred to in subsection 5.8(a) above,
unaudited but certified by the president or chief financial officer of the
Borrower, such balance sheets to be as of the end of such month and such
statements of operations and cash flows to be for the period from the beginning
of the fiscal year to the end of such month, in each case subject to audit and
year-end adjustments;
(C) within 30 days after the end of each month, a completed
Compliance Certificate, in form and content satisfactory to Lender, certified by
the President or chief financial officer of the Borrower verifying that Borrower
is in compliance (except as otherwise permitted by Paragraph 6.15 hereof) with
the covenants, terms and conditions of this Agreement and which shall include
all calculations utilized therein;
(D) weekly, a completed Borrowing Base Certificate in the form of
EXHIBIT 5.8(D) hereto and made a part hereof, in form and content satisfactory
to Lender, certified by the President or chief financial officer of the Borrower
which shall include, without limitation, a summary of the Borrower's inventory
position;
(E) within 20 days after the end of each month, a summary of the
Borrower's accounts receivable aging report and, upon the Lender's request, a
complete copy of the Borrower's accounts receivable aging report;
(F) with the statements submitted under subsections 5.8(a), 5.8(b)
and 5.8(c) above, a certificate of the Borrower signed by the president or chief
financial officer of the Borrower to the effect that to the best of his
knowledge, after due inquiry, no Default or Event of Default has occurred and is
continuing;
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(G) promptly upon becoming available, a copy of all financial
statements, reports, notices, and proxy statements sent by the Borrower or any
of its Subsidiaries to stockholders, and of all regular and periodic reports
filed by the Borrower or any of its Subsidiaries with any securities exchange or
with the Securities and Exchange Commission or with any governmental authority
succeeding to any or all of the functions of said Commission;
(H) within 15 days of the filing thereof, a copy of all income tax
returns of the Borrower (and each Guarantor which is not consolidated with the
Borrower) filed with federal or state governmental authorities, or copies of
extensions should the income tax returns not be filed by the applicable due
date;
(I) Intentionally Left Blank;
(J) within 20 days after the receipt thereof, copies of all
management letters the Borrower receives from its audit firm;
(K) within 30 days after the end of each month, an updated
litigation report for all claims in excess of $100,000.00 containing the
following information with respect to each lawsuit filed by or against the
Borrower or any Subsidiary: (i) copies of all pleadings by or against the
Borrower or any Subsidiary; (ii) status of all motions and hearings; (iii)
status of all discovery, including schedules of upcoming depositions; (iv)
summaries of all depositions; (v) litigation-related expenses; and (vi)
schedules for all trial and appellate proceedings;
(L) monthly, commencing with the month following the date hereof, a
report certified by an officer of the Borrower setting forth the sales and gross
margin results for each store of the Borrower on a store-by-store basis, showing
the results for the current month and the results for the year to date and
comparing such results to the month and year to date for the prior year. The
foregoing shall be in form and substance satisfactory to the Lender and such
shall be delivered to the Lender within 20 days following the end of each such
month;
(M) within 30 days of the end of each month, a copy of Borrower's
monthly inventory reconciliation reports for the preceding month, all in form
and content acceptable to Lender;
(N) on or prior to forty (40) days following the end of any month,
borrowing base certificates based upon Borrower's closed month-end general
ledger balance;
(O) unless consolidated with the Borrower, each Guarantor shall
provide annual financial statements within forty-five (45) days following fiscal
year end; and
(P) promptly, from time to time, such other information regarding
the operations, business, affairs, and financial condition of the Borrower and
its Subsidiaries as the Lender may reasonably request.
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All financial statements required to be furnished to the Lender
under this Section 5.8 shall be prepared in accordance with generally accepted
accounting principles applied on a basis consistent with the accounting
practices of the Borrower reflected in its audited financial statements referred
to in Section 4.3 hereof, or to the extent such treatment has changed, with a
reconciliation thereof. Each set of financial statements delivered pursuant to
subsection 5.8(a) above shall be accompanied by a report setting forth
computations showing, in detail satisfactory to the Lender, whether the Borrower
was at the end of, and for, the respective year in compliance with its
obligations under Sections 6.11 through 6.14 hereof, which computations shall be
certified by the independent public accountants.
SECTION 5.9 VISITATION RIGHTS. Permit any authorized representative of the
Lender, from time to time, to examine and copy the records and books of, and
visit and inspect the properties of, the Borrower and any of its Subsidiaries
during normal business hours with reasonable notice and to discuss the affairs
and finances of the Borrower and any of its Subsidiaries with any of their
respective officers, directors, employees, and independent public accountants.
SECTION 5.10 NOTICE OF LITIGATION AND OTHER PROCEEDINGS. Give prompt
notice in writing to the Lender upon the earlier of (i) actual knowledge or (ii)
receipt of service of process, of the commencement of (a) all material
litigation which, if adversely determined, might adversely affect the business
or financial condition of the Borrower or its Subsidiaries taken as a whole; (b)
all other litigation involving a claim against the Borrower or any of its
Subsidiaries for $100,000.00 or more in excess of applicable insurance coverage;
and (c) any citation, order, decree, ruling, or decision issued by, or any
denial of any application or petition to, or any proceedings before any
governmental commission, bureau or other administrative agency or public
regulatory body against or affecting the Borrower or any of its Subsidiaries or
any property of the Borrower or any of its Subsidiaries, or any lapse,
suspension or other termination or modification of any certification, license,
consent, or other authorization of any agency or public regulatory body, or any
refusal of any thereof to grant any application therefor or renewal thereof, in
connection with the operation of any business conducted by the Borrower or any
of its Subsidiaries, which might have a material and adverse effect upon the
business or financial condition of the Borrower and its Subsidiaries taken as a
whole.
SECTION 5.11 ERISA. Furnish to the Lender:
(A) As soon available and in any event within 15 days after Borrower
knows or has reason to know that any Termination Event has occurred, a statement
of a senior officer of the Borrower describing the Termination Event and the
action which the Borrower proposes to take so that the Termination Event shall
not be continuing;
(B) Promptly after receipt of request therefor by the Lender, copies
of each annual report filed by the Borrower or any of its Subsidiaries pursuant
to Section 104 of ERISA with respect to each Plan (including, to the extent
required by Section 103 of ERISA, the related financial and actuarial statements
and opinions and other supporting statements, certifications, schedules, and
information referred to in said Section 103) and each annual report, if any,
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required to be filed with respect to each Plan under Section 4065 of ERISA;
(C) Promptly after receipt thereof by the Borrower or any of its
Subsidiaries from the Pension Benefit Guaranty Corporation, copies of each
notice received by such party of the Pension Benefit Guaranty Corporation's
intention to terminate any Plan or to have a Trustee appointed to administer any
Plan; and
(D) Promptly after such request, any other documents and information
relating to any Plan that the Lender may reasonably request from time to time.
SECTION 5.12 COLLATERAL AUDITS. Permit any authorized representative of
the Lender to conduct audits of the Collateral (as defined in the Security
Agreement) and provide such authorized representatives of Lender with all
necessary information to complete such audits to the Lender's satisfaction. The
Borrower agrees to pay the cost of one such audit per calendar quarter and to
pay the cost of monthly UCC-11 lien searches to be obtained by Lender to monitor
its position with respect to the Collateral.
SECTION 5.13 APPRAISAL. Permit Borrower to conduct appraisal(s) of the
Inventory and Borrower's furniture, fixtures and equipment, the cost of one (1)
such appraisal(s) shall be paid for by the Borrower.
SECTION 5.14 BUSINESS PLAN. THIS SPACE IS INTENTIONALLY LEFT BLANK.
SECTION 5.15 DEPOSITORY ACCOUNT. For Collateral purposes so long as the
Notes remain unpaid, Borrower covenants and agrees to cause all of its and its
Subsidiaries' cash and receipts of whatever nature to be deposited in a lock box
depository account with Lender. In addition to the foregoing, Borrower
authorizes Lender to change the name of the Borrower's existing depository
account with Lender into Lender's name and to delete the Borrower (or its
designee[s]) as authorized signatories on that account. The Borrower agrees to
execute such additional documents deemed reasonably necessary by Lender to carry
out the intent of this Section.
ARTICLE 6 - NEGATIVE COVENANTS
The Borrower covenants and agrees that from the Closing Date and until
payment in full of the principal of and interest on each of the Notes and all
drawings under the Letter of Credit and the termination of the Revolving Credit
Loan, unless the Lender shall otherwise consent in writing, the Borrower will
not, nor will it permit any of its Subsidiaries to:
SECTION 6.1 LIMITATION ON LIENS. Create or suffer to exist any Lien upon,
or transfer or assignment of, any of its property or revenues or assets now
owned or hereafter acquired to secure any Indebtedness or obligations, or enter
into any arrangement for the acquisition of any property subject to conditional
sale agreements or leases or other title retention agreements; excluding,
however, from the operation of this covenant: (a) deposits or pledges to secure
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payment of workers' compensation, unemployment insurance, old age pensions, or
other social security benefits; (b) deposits or pledges to secure performance of
bid, tenders, contracts (other than contracts for the payment of money) or
leases, public or statutory obligations, surety or appeal bonds or other
deposits or pledges for purposes of like general nature in the ordinary course
of business; (c) Liens for property taxes, assessments and similar taxes not
delinquent and Liens for taxes which in good faith are being contested or
litigated; (d) mechanics', carriers', workmens', repairmens', landlords', or
other like liens arising in the ordinary course of business securing obligations
which are not overdue for a period of 60 days or more or which are in good faith
being contested or litigated; (e) existing Liens set forth on EXHIBIT 1.1
attached hereto; (f) purchase money security interests in Inventory purchased
with the proceeds of Indebtedness permitted to be incurred under Section 6.2
hereof; (g) purchase money security interests in fixed assets purchased with the
proceeds of Indebtedness permitted to be incurred under Section 6.2 hereof; and
(h) the lien in favor of NationsBank of Florida, N.A.
SECTION 6.2 LIMITATION ON INDEBTEDNESS. Incur, create, assume or
permit to exist any Indebtedness, except:
(A) the Notes, the Letters of Credit and any other Indebtedness of
the Borrower or its Subsidiaries to the Lender;
(B) purchase money Indebtedness not subordinated to Lender incurred
to purchase Inventory in an amount not to exceed fifteen percent (15%) of the
lower of fair market value or cost of the Borrower's Inventory balance;
(C) purchase money Indebtedness incurred to acquire fixed assets in
an amount not to exceed $500,000 in the aggregate outstanding at any one time;
provided that at least eighty percent (80%) of the purchase price of each fixed
asset acquired with the proceeds of Indebtedness incurred under this Section
6.2(c) shall be financed by such Indebtedness;
(D) Indebtedness incurred in connection with the Borrower's Employee
Stock Ownership Plan (the "ESOP") in an amount not to exceed $500,000.00; and
(E) Existing Indebtedness reflected on EXHIBIT 1.1 attached hereto
and the capitalized lease for the Borrower's Fort Myers, Florida, location
(subject to the limitations in Section 6.9 hereof).
SECTION 6.3 GUARANTIES. Be or become liable in respect of any Guaranty,
except for: (a) the endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of business; (b)
Guaranties by the Borrower of Indebtedness of the ESOP or any of its
Subsidiaries and by any of its Subsidiaries of Indebtedness of the Borrower or
the ESOP to the extent the Indebtedness is permitted in Section 6.2 hereof; and
(c) performance bonds entered into by the Borrower or any of its Subsidiaries to
secure the obligations of itself or such Subsidiary. Borrower shall be permitted
to provide a corporate guaranty of up to
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$50,000, in the aggregate, to guarantee loans to employees of the Borrower. The
foregoing amount(s) of employee-guaranteed loans which are the subject of
Borrower's guaranty shall be reserved under the Commitment and shall not be
available for Revolving Credit Loans or Letters of Credit.
SECTION 6.4 MERGERS, CONSOLIDATIONS AND ACQUISITIONS OF ASSETS. Merge or
consolidate with any corporation, or acquire all or substantially all of the
assets of any person except that: (a) the Borrower may merge or consolidate with
any Subsidiary provided that the Borrower is the surviving corporation; and (b)
any Subsidiary may merge or consolidate with any Wholly-Owned Subsidiary.
SECTION 6.5 SALE, LEASE, ETC. Sell, lease, assign, transfer, or otherwise
dispose of any of its assets or revenues (other than obsolete or worn-out
personal property or personal property or real estate not used or useful in its
business) whether now owned or hereafter acquired, other than in the ordinary
course of business, including, without limitation, the stock of any Subsidiary,
or sell, assign or discount any of its accounts receivable or any promissory
note held by it, with or without recourse, other than the discount of such notes
in the ordinary course of business for collection.
SECTION 6.6 INVESTMENTS. Make or suffer to exist any Investments, except
that this prohibition shall not apply to (a) the purchase of direct obligations
of the government of the United States of America, or any agency thereof, or
obligations unconditionally guaranteed by the United States of America; (b)
certificates of deposit of any bank organized or licensed to conduct a banking
business under the laws of the United States or any State thereof having
capital, surplus and undivided profits of not less than $100,000,000; and (c)
Investments in commercial paper which, at the time of acquisition by the
Borrower or any Subsidiary, is rated A2/P2 by Standard & Poor's Corporation,
Moody's Investors Services, Inc. or any other nationally recognized credit
rating agency of similar standing.
SECTION 6.7 TRANSACTIONS WITH AFFILIATES. Enter into or be a party to, any
transaction or arrangement with any Affiliate (including, without limitation,
the purchase from, sale to or exchange of property with, or the rendering of any
service by or for, any Affiliate), except in the ordinary course of and pursuant
to the reasonable requirements of the Borrower's or any Subsidiary's business
and upon fair and reasonable terms no less favorable to the Borrower or any such
Subsidiary than would be obtained in a comparable arm's length transaction with
a Person other than an Affiliate.
SECTION 6.8 CAPITAL EXPENDITURES. Make capital expenditures during any
month in excess of $100,000.00 in the aggregate and/or in excess of
$1,000,000.00 in the aggregate during the term of each of the Notes.
SECTION 6.9 LEASE OBLIGATIONS. Incur or suffer to exist any obligations to
pay in any consecutive 12-month period Rentals and Capitalized Lease Obligations
aggregating in excess of $7,500,000.00 for the Borrower and its Subsidiaries.
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SECTION 6.10 DIVIDENDS. Declare or pay any dividend (other than a dividend
payable in stock of the Borrower) or authorize or make any other distribution on
any stock of the Borrower (other than a distribution payable in stock of the
Borrower), whether now or hereafter outstanding, or make, or permit any
Subsidiary to make, any payment on account of the purchase, acquisition,
redemption, or other retirement of any shares of such stock (such dividends,
distributions and payments being herein called "cash distributions"); provided,
that any Subsidiary may pay a dividend to its parent.
SECTION 6.11 LEVERAGE RATIO. Permit the ratio of Total Liabilities to
Tangible Net Worth to be greater than 2.1:1.0 at the end of any quarter.
SECTION 6.12 TANGIBLE NET WORTH. Permit its Tangible Net Worth to be
less than $19,500,000.00, tested monthly.
SECTION 6.13 FIXED CHARGE COVERAGE RATIO. Permit the Fixed Charge Coverage
Ratio to be less than 1.05:1. As set forth herein, the Fixed Charge Coverage
Ratio shall be determined as follows: Net income plus taxes plus interest
expense plus non-cash charges plus rent/lease expenses divided by current
maturities of long-term debt (exclusive of those relating to the balloon portion
of the Term Note and the principal amount outstanding under the Revolving Credit
Loan), plus interest payments plus rent/lease payments. The foregoing shall be
tested monthly based upon the trailing twelve (12) months.
SECTION 6.14 INTEREST COVERAGE RATIO. Permit the Interest Coverage Ratio
to be less than 2.0:1 as of the date hereof and increased as follows: (i) 2.5 as
of April 30, 1996; and (ii) 3.0 as of July 31, 1996. As set forth herein, the
Interest Coverage Ratio shall be determined by dividing the Borrower's earnings
before interest, taxes, depreciation and amortization by Borrower's cash
interest expense. The foregoing shall be tested monthly based upon the trailing
twelve (12) months.
SECTION 6.15 Notwithstanding anything to the contrary contained in this
Agreement including, without limitation, in Sections 6.11, 6.12, 6.13 and 6.14
hereof, the Lender hereby agrees as follows:
(A) All Defaults and Events of Default arising or resulting from the
violation by the Borrower of the negative covenants set forth in Sections 6.11,
6.12, 6.13 and/or 6.14 as of the quarter or month ended or at December 31, 1995,
are hereby waived; and
(B) The calculation after December 31, 1995, of the negative
covenants set forth in Sections 6.11, 6.12, 6.13 and 6.14 hereof shall be
suspended until May 15, 1996, at which time such negative covenants shall be
calculated based upon the Borrower's consolidated financial statements for the
fiscal quarter ending March 31, 1996; it being specifically understood and
agreed that no Default or Event of Default shall be deemed to occur with respect
to any violation of such negative covenants prior to the calculation thereof as
stated above on May 15, 1996.
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SECTION 6.16 STOCK. Permit the issuance, sale, hypothecation or assignment
of (i) currently existing, or authorized but not issued, shares of Borrower's
common stock (including, without limitation, any shares which may be held by
Borrower and/or any Affiliate); and/or (ii) any other debt or mezzanine
financing, without Lender's prior written consent, which consent shall not be
unreasonably withheld.
ARTICLE 7 - EVENTS OF DEFAULT
SECTION 7.1 EVENTS OF DEFAULT. If any one of the following "EVENTS OF
DEFAULT" shall occur and shall not have been remedied:
(A) Any representation or warranty made by the Borrower herein or in
any certificate or report furnished by the Borrower hereunder shall prove to
have been incorrect in any material respect; or
(B) The Borrower shall fail to pay, when due, any principal or
interest on either Notes, to reimburse any drawing on a Letter of Credit on the
date made, or to pay when due any other sum payable under this Agreement; or
(C) The Borrower shall default in the performance of any agreement,
covenant or obligation contained herein not provided for elsewhere in this
Article 7, if the default continues for a period of thirty (30) days after
notice of default to the Borrower by the Lender; or
(D) There shall occur any default in the due observance or
performance of any covenant, condition or agreement on the part of the Borrower
to be observed or performed pursuant to the terms of Article 6 hereof; or
(E) (i) the rendering of any judgment or judgments against the
Borrower or any Subsidiary which in the aggregate exceed $1,000,000 over
applicable insurance coverage; (ii) the entry by the Borrower or any Subsidiary
into an agreement or agreements to settle any action or actions for more than
$1,000,000 in the aggregate over applicable insurance coverage; or (iii) a
combination of judgments rendered and settlements entered into aggregating in
excess of $1,000,000 over applicable insurance coverage. For purposes of this
subsection 7.1(e), a judgment shall not be deemed to have been rendered if it is
being appealed on good faith grounds and a stay of execution thereof has been
issued and remains in effect. A judgment shall be deemed rendered if it is not
appealed within the applicable statutory period or it becomes unappealable.
(F) The Borrower or any Subsidiary shall (i) voluntarily terminate
operations or apply for or consent to the appointment of, or the taking of
possession by, a receiver, custodian, trustee or liquidator of the Borrower or
any Subsidiary, as the case may be, or of all or of a substantial part of the
assets of the Borrower or any Subsidiary, as the case may be, (ii) admit in
writing its inability, or be generally unable, to pay its debts as the debts
become due, (iii) make a general assignment for the benefit of its creditors,
(iv) commence a voluntary case
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under the United States Bankruptcy Code (as now or hereafter in effect), (v)
file a petition seeking to take advantage of any other law relating to
bankruptcy, insolvency, reorganization, winding-up, or composition or adjustment
of debts, (vi) fail to controvert in a timely and appropriate manner, or
acquiesce in writing to, any petition filed against it in an involuntary case
under the Bankruptcy Code, or (vii) take any corporate action for the purpose of
effecting any of the foregoing; or
(G) The Borrower shall fail to furnish to the Lender notice of
default in accordance with Section 5.7 hereof, within 5 days after any such
Default or Event of Default becomes known to the president or chief financial
officer of the Borrower, whether or not notification to the Borrower is
furnished by the Lender; or
(H) Without its application, approval or consent, a proceeding shall
be commenced, in any court of competent jurisdiction, seeking in respect of the
Borrower or any Subsidiary: the liquidation, reorganization, dissolution,
winding-up, or composition or readjustment of debt, the appointment of a
trustee, receiver, liquidator or the like of the Borrower or any Subsidiary, as
the case may be, or of all or any substantial part of the assets of the Borrower
or any Subsidiary or other like relief in respect of the Borrower or any
Subsidiary, as the case may be, under any law relating to bankruptcy,
insolvency, reorganization, winding-up, or composition or adjustment of debts
unless such proceeding is contested in good faith by the Borrower or any
Subsidiary; and, if the proceeding is contested in good faith by the Borrower or
any Subsidiary, as the case may be, the same shall continue undismissed, or
unstayed and in effect, for any period of 60 consecutive days, or an order for
relief against the Borrower or any Subsidiary shall be entered in any
involuntary case under the Bankruptcy Code; or
(I) The Borrower, any Guarantor or any Subsidiary shall (i) default
in the payment of principal or interest on any Indebtedness (other than the
Notes) having a principal balance equal to or greater than $50,000 beyond the
period of grace, if any, provided in the instrument or agreement under which
such Indebtedness was created or (ii) default in the observance or performance
beyond the period of grace, if any, of any other agreement contained in any such
Indebtedness or in any instrument or agreement evidencing, securing or relating
thereto, or any other event shall occur, the effect of which default or other
event is to cause, or permit the holder or holders of such Indebtedness (or a
trustee or agent on behalf of such holder or holders) to cause, such
Indebtedness to become due prior to its stated maturity; or
(J) The invalidation or loss of priority of any security interest or
lien granted pursuant to this Agreement, any existing loan document or agreement
previously executed by the Borrower in favor of the Lender or the other
documents executed in connection herewith; or
(K) A Termination Event has occurred; or a trustee shall be
appointed to administer any Plan or Plans under Section 4042 of ERISA; or the
Pension Benefit Guaranty Corporation shall institute proceedings to terminate,
or to have a trustee appointed to administer, any Plan or Plans, and the
proceeding shall not be dismissed within 30 days; or a voluntary notice of
intent to terminate is filed under Section 4041 of ERISA which would, in the
opinion of the
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Lender, have a material adverse effect on the financial condition of the
Borrower or the Subsidiary; or, with respect to any Plan as to which the
Borrower or any Subsidiary may have any liability, there shall exist a
deficiency in the Plan assets available to satisfy the benefits guaranteeable
under ERISA with respect to the Plan which is material to the financial
condition of the Borrower or such Subsidiary, and (i) steps are undertaken to
terminate the Plan or (ii) the Plan is terminated or (iii) any Reportable Event
which presents a material risk of termination with respect to the Plan shall
occur; or
(L) Borrower or any Guarantor shall be in default under any
other agreement between Lender and Borrower or any Guarantor; or
(M) A default by Peter Beshouri or Michael Blumberg under their
joinder to this Agreement; or
THEREUPON, in the case of any such event other than an event described in
subsection 7.1(f) or subsection 7.1(h) above, the Lender may, by written notice
to the Borrower, at its option: (a) immediately terminate the Commitment of the
Lender hereunder, and/or (b) immediately declare the principal of, and interest
accrued on, the Notes forthwith due and payable; and, in the case of any event
described in subsection 7.1(f) or subsection 7.1(h) above, the Commitment of the
Lender hereunder shall automatically terminate, without any action on the part
of the Lender, and the principal of, and interest accrued on, the Notes shall
become immediately due and payable, both as to principal and interest, and any
contingent obligation of the Borrower under the Letters of Credit shall become
immediately due and payable, without presentment, demand, protest or other
notice of any kind, all of which are hereby expressly waived, anything contained
herein or in the Notes or any Letter of Credit Application to the contrary
notwithstanding.
SECTION 7.2 RESERVE FOR CONTINGENT LIABILITIES. Upon the occurrence of an
Event of Default, the Borrower shall, at the request of the Lender, establish a
special reserve account with the Lender as security for any contingent
liabilities of the Borrower under any Letter of Credit. Upon demand of the
Lender, Borrower shall immediately deposit or cause to be deposited in such
reserve account an amount equal to all contingent liabilities of the Borrower
under the Letters of Credit. The Lender may pay any and all reimbursement
obligations of the Borrower in respect of any Letters of Credit from such
reserve account as such obligations become due.
ARTICLE 8 - MISCELLANEOUS
SECTION 8.1 NO WAIVER, REMEDIES CUMULATIVE. No failure on the part of the
Lender to exercise, and no delay in exercising, any right granted hereunder, or
in the Notes, shall operate as a waiver thereof; nor shall any single or partial
exercise of any right hereunder preclude any other or further exercise thereof,
or the exercise of any other right. The remedies herein provided are cumulative
and are not exclusive of any remedies provided by law.
SECTION 8.2 SURVIVAL OF REPRESENTATIONS. All representations and
warranties made herein shall survive the making of the Revolving Credit Loans
hereunder, the issuance of the
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Letters of Credit and the delivery of the Notes, and shall continue in full
force and effect so long as the Notes are outstanding and unpaid, any Letter of
Credit is outstanding and the Commitment has not been terminated.
SECTION 8.3 EXPENSES. Whether or not any of the Revolving Credit Loans
herein provided for shall be made or Letters of Credit issued, the Borrower
agrees to pay on demand all costs and expenses of the Lender in connection with
the preparation, printing, execution, delivery and administration of this
Agreement, the Loan Documents and other instruments and documents to be
delivered hereunder and thereunder, including the reasonable fees and
out-of-pocket expenses of legal counsel for the Lender, with respect thereto, as
well as the reasonable fees and out-of-pocket expenses of legal counsel,
independent public accountants and other outside experts retained by the Lender
in connection with the administration of this Agreement, and all reasonable
costs and expenses, if any, in connection with the enforcement of this
Agreement, the Loan Documents and the other instruments and documents to be
delivered hereunder and thereunder. In addition, the Borrower shall pay any and
all stamp and other taxes payable or determined to be payable in connection with
the execution and delivery of this Agreement, the Loan Documents and the other
instruments and documents to be delivered hereunder and thereunder, and agrees
to save the Lender harmless from and against any and all liabilities with
respect to or resulting from any delay in paying or omitting to pay such taxes.
All obligations provided for in this Section 8.3 shall survive any termination
of this Agreement. The Lender is hereby irrevocably authorized to debit any of
the Borrower's deposit accounts maintained with the Lender from time to time in
an amount equal to any amount due to the Lender pursuant to this Section 8.3.
SECTION 8.4 NOTICES. Any written notice or other communication hereunder
to any party hereto shall be by telegram, telex, telecopy or registered or
certified mail and shall be deemed to have been given or made when telegraphed,
telexed, telecopied or deposited in the mails, postage prepaid, addressed to the
party at its address specified next to its signature hereto (or at any other
address that the party may hereafter specify to the other parties in writing),
except that written notices by the Borrower under Section 2.2(b) hereof shall
not be effective until received.
SECTION 8.5 CONSTRUCTION. This Agreement and the Notes shall be deemed a
contract made under the laws of the State of Florida and shall be governed by
and construed in accordance with the internal laws of said state.
SECTION 8.6 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and shall inure to the benefit of the Borrower and the Lender, and their
respective successors and assigns; provided, that the Borrower may not assign
any of its rights hereunder without the prior written consent of the Lender.
SECTION 8.7 JURISDICTION, SERVICE OF PROCESS.
(A) Any suit, action or proceeding against the Borrower with respect
to this Agreement, the Notes or any judgment entered by any court in respect of
any thereof may be
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brought in the courts of the State of Florida or in the United States District
Court for the Southern District of Florida as the Lender (in its sole
discretion) may elect, and the Borrower hereby accepts, the non-exclusive
jurisdiction of those courts for the purpose of any suit, action or proceeding.
(B) In addition, the Borrower hereby irrevocably waives, to the
fullest extent permitted by law, any objection which it may now or hereafter
have to the laying of venue of any suit, action or proceedings arising out of or
relating to this Agreement or the Notes or any judgment entered by any court in
respect thereof brought in the State of Florida, and hereby further irrevocably
waives any claim that any suit, action or proceeding brought in the State of
Florida has been brought in an inconvenient forum. The Borrower further agrees
that if any such suit, action or proceeding is pending in more than one
jurisdiction, the Lender's selection of the forum shall be binding upon the
parties hereto.
SECTION 8.8 LIMIT ON INTEREST. Anything herein or in any of the Notes to
the contrary notwithstanding, the obligations of the Borrower under this
Agreement and each of the Notes to the Lender shall be subject to the limitation
that payments of interest to the Lender shall not be required to the extent that
receipt of any such payment by the Lender would be contrary to provisions of law
applicable to the Lender (if any) which limit the maximum rate of interest which
may be charged or collected by the Lender; PROVIDED, HOWEVER, that nothing
herein shall be construed to limit the Lender to presently existing maximum
rates of interest, if an increased rate is hereafter permitted by reason of
applicable federal or state legislation.
SECTION 8.9 PAYMENT ON OTHER THAN A BUSINESS DAY; TIME OF THE ESSENCE.
Should any payment required by this Agreement become due and payable other than
on a Business Day, the maturity thereof shall be extended to the next succeeding
Business Day, and in the case of principal, with interest thereon at the rate
specified in this Agreement. Time shall be of the essence under this Agreement.
SECTION 8.10 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed an original and all of
which when taken together shall constitute but one and the same instrument.
SECTION 8.11 HEADINGS. The headings of this Agreement are for convenience
only and are not to affect the construction of or to be taken into account in
interpreting the substance of this Agreement.
SECTION 8.12 SEVERABILITY. In the event that any one or more of the
provisions contained in this Agreement shall for any reason be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provisions of this Agreement, but
this Agreement shall be construed as if such invalid, illegal or unenforceable
provision had never been contained herein.
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SECTION 8.13 COURSE OF DEALING; AMENDMENT; SUPPLEMENTAL AGREEMENTS;
INTERPRETATION. No course of dealing between the Lender and the Borrower shall
be effective to amend, modify or change any provision of this Agreement. This
Agreement may not be amended, modified or changed in any respect except by an
agreement in writing signed by the Lender and the Borrower. The Lender and the
Borrower may, subject to the provisions of this Section 8.13, from time to time,
enter into written agreements supplemental hereto for the purpose of adding any
provisions to this Agreement or changing in any manner the rights and
obligations of the Lender and the Borrower hereunder. Any such supplemental
agreement in writing shall be binding upon the Lender and the Borrower. This
Agreement shall not be construed more strictly against either party by virtue of
the preparation of this Agreement.
SECTION 8.14 MANDATORY ARBITRATION. Any controversy or claim between or
among the parties hereto including, but not limited to, those arising out of or
relating to this Agreement or any related agreements or instruments, including
any claim based on or arising from an alleged tort, shall be determined by
binding arbitration in accordance with the Federal Arbitration Act (or if not
applicable, the applicable state law), the Rules of Practice and Procedure for
the Arbitration of Commercial Disputes of Judicial Arbitration and Mediation
Services, Inc. (J.A.M.S.), and the "Special Rules" set forth below. In the event
of any inconsistency, the Special Rules shall control. Judgment upon any
arbitration award may be entered in any court having jurisdiction. Any party to
this Agreement may bring an action, including a summary or expedited proceeding,
to compel arbitration of any controversy or claim to which this Agreement
applies in any court having jurisdiction over such action.
(A) SPECIAL RULES. The arbitration shall be conducted in the city of
Fort Lauderdale, Florida and administered by Endispute, Inc., d/b/a
J.A.M.S./Endispute, who will appoint an arbitrator; if J.A.M.S./Endispute is
unable or legally precluded from administering the arbitration, then the
American Arbitration Association will serve. All arbitration hearings will be
commenced within ninety (90) days of the demand for arbitration; further, the
arbitrator shall only, upon a showing of cause, be permitted to extend the
commencement of such hearing for up to an additional sixty (60) days.
(B) RESERVATION OF RIGHTS. Nothing in this Agreement shall be deemed
to: (i) limit the applicability of any otherwise applicable statutes of
limitation or repose and any waivers contained in this Agreement; or (ii) be a
waiver by the Lender of the protection afforded to it by 12 U.S.C. Sec. 91 or
any substantially equivalent state law; or (iii) limit the right of the Lender
hereto (A) to exercise self help remedies such as (but not limited to) setoff,
or (B) to foreclose against any real or personal property collateral, or (C) to
obtain from a court provisional or ancillary remedies such as (but not limited
to) injunctive relief or the appointment of a receiver. The Lender may exercise
such self help rights, foreclose upon such property, or obtain such provisional
or ancillary remedies before, during or after the pendency of any arbitration
proceeding brought pursuant to this Agreement. At Lender's option, foreclosure
under a deed of trust or mortgage may be accomplished by any of the following:
the exercise of a power of sale under the deed of trust or mortgage, or by
judicial sale under the deed of trust or mortgage, or by judicial foreclosure.
Neither this exercise of self help remedies nor the institution or
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maintenance of an action for foreclosure or provisional or ancillary remedies
shall constitute a waiver of the right of any party, including the claimant in
any such action, to arbitrate the merits of the controversy or claim occasioning
resort to such remedies.
(C) WAIVER OF JURY TRIAL. BY AGREEING TO BINDING ARBITRATION, THE
PARTIES HERETO HEREBY KNOWINGLY, IRREVOCABLY, VOLUNTARILY, AND INTENTIONALLY
WAIVE THE RIGHT THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY CONTROVERSY
OR CLAIM BETWEEN OR AMONG THE PARTIES HERETO INCLUDING, BUT NOT LIMITED TO,
THOSE ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT AND ANY OTHER
DOCUMENT EXECUTED IN CONJUNCTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF
DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS BETWEEN OR AMONG THE
PARTIES HERETO. FURTHERMORE, WITHOUT INTENDING IN ANY WAY TO LIMIT THE AGREEMENT
TO ARBITRATE, TO THE EXTENT ANY SUCH CONTROVERSY OR CLAIM BETWEEN OR AMONG THE
PARTIES HERETO IS NOT ARBITRATED, THE PARTIES HEREBY KNOWINGLY, IRREVOCABLY,
VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT THEY MAY HAVE TO A TRIAL BY JURY
IN RESPECT OF SUCH CONTROVERSY OR CLAIM. THIS PROVISION IS A MATERIAL INDUCEMENT
FOR LENDER'S MAKING THE LOAN(S) EVIDENCED BY THE TERM NOTE AND THE REVOLVING
CREDIT NOTE.
SECTION 8.16 RELEASE. AS A MATERIAL INDUCEMENT FOR LENDER TO EXECUTE THIS
AGREEMENT, BORROWER AND EACH GUARANTOR DO HEREBY RELEASE, WAIVE, DISCHARGE,
COVENANT NOT TO SUE, ACQUIT, SATISFY AND FOREVER DISCHARGE LENDER ITS OFFICERS,
DIRECTORS, EMPLOYEES, AND AGENTS AND ITS AFFILIATES AND ASSIGNS FROM ANY AND ALL
LIABILITY, CLAIMS, COUNTERCLAIMS, DEFENSES, ACTIONS, CAUSES OF ACTION, SUITS,
CONTROVERSIES, AGREEMENTS, PROMISES AND DEMANDS WHATSOEVER IN LAW OR IN EQUITY
WHICH BORROWER OR GUARANTOR EVER HAD, NOW HAVE, OR WHICH ANY PERSONAL
REPRESENTATIVE, SUCCESSOR, HEIR OR ASSIGN OF BORROWER OR ANY GUARANTOR HEREAFTER
CAN, SHALL OR MAY HAVE AGAINST LENDER, ITS OFFICERS, DIRECTORS, EMPLOYEES, AND
AGENTS, AND ITS AFFILIATES AND ASSIGNS, FOR, UPON, OR BY REASON OF ANY MATTER,
CAUSE OR THING WHATSOEVER THROUGH THE DATE HEREOF. BORROWER AND GUARANTOR
FURTHER EXPRESSLY AGREE THAT THE FOREGOING RELEASE AND WAIVER AGREEMENT IS
INTENDED TO BE AS BROAD AND INCLUSIVE AS PERMITTED BY THE LAWS OF THE STATE OF
FLORIDA. IN ADDITION TO, AND WITHOUT LIMITING THE GENERALITY OF THE FOREGOING,
AND IN CONSIDERATION OF LENDER'S EXECUTION OF THIS AGREEMENT, BORROWER AND EACH
GUARANTOR COVENANT WITH AND WARRANT UNTO LENDER, AND ITS AFFILIATES AND ASSIGNS,
THAT THERE EXIST NO CLAIMS, COUNTERCLAIMS, DEFENSES, OBJECTIONS, OFFSETS OR
CLAIMS OF OFFSETS AGAINST LENDER OR
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THE OBLIGATION OF BORROWER AND EACH GUARANTOR TO PAY THE LOAN TO LENDER WHEN AND
AS THE SAME BECOMES DUE AND PAYABLE.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
dated for convenience as of the date and year first above written, but have in
fact executed this Agreement on March _____ , 1996.
SOUND ADVICE, INC., a Florida corporation
By: /s/ KENNETH L. DANIELSON (SEAL)
-----------------------------------------
Print Name: KENNETH L. DANIELSON
Title: CFO AND TREASURER
NATIONSBANK, N.A. (SOUTH)
By: /s/ DENISE M. DOCAL
-----------------------------------------
Print Name: DENISE M. DOCAL
Title: VICE PRESIDENT
SAI DISTRIBUTORS, INC., a Florida
corporation
By: /s/ KENNETH L. DANIELSON (SEAL)
-----------------------------------------
Print Name: KENNETH L. DANIELSON
Title: CFO AND TREASURER
SAI REALTY INVESTMENTS, INC., a Florida
corporation
By: /s/ KENNETH L. DANIELSON (SEAL)
-----------------------------------------
Print Name: KENNETH L. DANIELSON
Title: CFO AND TREASURER
SOUND ADVICE OF VIRGINIA, INC., a
Virginia corporation
By: /s/ KENNETH L. DANIELSON (SEAL)
-----------------------------------------
Print Name: KENNETH L. DANIELSON
Title: CFO AND TREASURER
33
<PAGE>
SOUND ADVICE ELECTRONICS OF
MARYLAND, INC., a Maryland corporation
By: /s/ KENNETH L. DANIELSON (SEAL)
-----------------------------------------
Print Name: KENNETH L. DANIELSON
Title: CFO AND TREASURER
J O I N D E R
THE UNDERSIGNED, jointly and severally, for good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
covenant, warrant and represent to Lender as follows:
1. Each of the undersigned is the beneficial owner and holder of 340,467
shares of the issued and outstanding common stock of the Borrower (the "Shares")
which shares are subject to a right of first refusal and voting trust agreement
dated June 30, 1986 which expires June 30, 1996.
2. So long as the Notes shall be outstanding, neither any of the Shares
nor any additional shares of the Borrower owned directly or indirectly by the
undersigned (other than an aggregate of approximately 510 shares each which are
held in their respective ESOPs) shall be sold, transferred, hypothecated or
otherwise encumbered.
3. The undersigned acknowledge that a breach by either of them of this
Joinder shall constitute an Event of Default under this Agreement and the
Lender's remedy for such breach shall be solely against the Borrower and not
against the undersigned for such breach.
/s/ PETER BESHOURI
-----------------------------------------
PETER BESHOURI
/s/ MICHAEL BLUMBERG
-----------------------------------------
MICHAEL BLUMBERG
34
<PAGE>
SCHEDULE OF EXHIBITS
Exhibit 1.1 - Permitted Liens
Exhibit 3.3 - Forms of Landlord Lien Waiver
Exhibit 4.10 - Subsidiaries and Affiliates
Exhibit 5.8(d) - Borrowing Base Certificate
35
<PAGE>
SOUND ADVICE, INC.
AMENDED AND RESTATED
RENEWAL REVOLVING CREDIT PROMISSORY NOTE
Amount: $9,320,000.00 Effective Date: February 15, 1996
FOR VALUE RECEIVED, the undersigned, SOUND ADVICE, INC., a Florida
corporation ("Maker" or "Borrower"), promises to pay to the order of
NATIONSBANK, N.A. (SOUTH), successor to NATIONSBANK OF FLORIDA, N.A., ("Lender"
or "Bank"), as herein provided, at the offices of Lender in Fort Lauderdale,
Florida, or at such other place as the holder of this Note may from time to time
designate, the principal sum of NINE MILLION THREE HUNDRED TWENTY THOUSAND
DOLLARS ($9,320,000.00) in lawful money of the United States of America, or the
aggregate unpaid principal amount of all advances made by Lender to the
undersigned under this Note, whichever is less, and to pay interest on the
principal amount of each advance remaining from time to time outstanding from
the date of execution hereof (and not the Effective Date) until maturity, at the
"Rate" (as hereinafter defined) adjusted daily to reflect changes in such Rate,
with each adjustment to become effective on the date the change occurs. The
"Rate" shall be the Lender's Prime Rate plus one percent (1%) per annum.
Lender's "Prime Rate" means, for the purposes hereof, that index rate of
interest per annum which Lender from time to time announces as its prime rate.
The Prime Rate is not necessarily the best or lowest rate charged or offered by
Lender to its borrowing customers.
Notwithstanding the foregoing, however, in no event shall the interest
rate applicable to principal outstanding under this Note exceed the maximum rate
of interest allowed by applicable law, as amended from time to time. If any
payment of interest or in the nature of interest thereunder would cause the
foregoing interest rate limitation to be exceeded, then such excess payment
shall be credited as a payment of principal unless the undersigned notifies
Lender in writing that the undersigned wishes to have such excess sum returned,
together with interest at the rate specified in Section 687.04(2), Florida
Statutes, or any successor statute.
Interest shall be computed on the basis of a year of 360 days and the
actual number of days elapsed. Payments made pursuant to the terms of this Note
shall first be credited to interest and lawful charges then accrued and the
remainder to principal.
Accrued interest on the outstanding principal balance shall be due and
payable on the first (1st) day of March, 1995, and on the first (1st) day of
each month thereafter. Accrued interest, together with the outstanding principal
balance hereunder, shall be due and payable December 31, 1996, unless sooner due
and payable as set forth pursuant to the terms of that certain Amended and
Restated Credit Agreement, dated as of even date herewith among Borrower, SAI
1
<PAGE>
Distributors, Inc., SAI Realty Investments, Inc., Sound Advice of Virginia,
Inc., Sound Advice Electronics of Maryland, Inc. and Lender (the "Agreement").
If any payment of principal under this Note is not paid when due (whether
on demand, by acceleration or otherwise), each amount shall bear interest from
such date at the highest lawful rate until paid, provided, however, that such
rate shall not exceed twenty-five percent (25%) per annum.
This Note is issued pursuant to, and is subject to, the provisions of the
Agreement. This Note is secured by collateral, as described more fully in the
Agreement and other security documents executed pursuant to the Agreement
(collectively, together with this Note and the Agreement, the "Loan Documents").
Reference is made to such Loan Documents for a description of the relative
rights and obligations of the undersigned and Lender, including rights and
obligations of prepayment, events of default, and rights of acceleration of
maturity in the event of default, which terms are incorporated herein. An Event
of Default under any of the Loan Documents shall constitute a default hereunder.
This Note is a renewal of that certain Amended and Restated Renewal
Revolving Credit Promissory Note from the undersigned to Lender in the amount of
$13,320,000.00, with an Effective Date of October 10, 1995. Accrued but unpaid
interest on the Note renewed hereby shall be paid on the first payment date
hereunder.
The undersigned agrees to pay all costs of collection incurred in
enforcing this Note, including reasonable attorneys' fees, regardless of whether
suit or other proceedings are instituted, and if instituted, for all trial,
appellate, and other proceedings, if any.
All persons now or at any time liable for payment of this Note hereby
waive presentment, protest, notice of protest, and notice of dishonor. The
undersigned expressly consents to any extensions and renewals of this Note, in
whole or in part, and all delays in time of payment or other performance under
this Note which Lender may grant at any time from time to time, without
limitation and without any notice or further consent of the undersigned. All
notices, demands, and other communications required or permitted in connection
with this Note shall be given in the manner specified in the Agreement.
The remedies of Lender, as provided herein, or in any other agreement
between the undersigned and Lender are cumulative and concurrent (except as may
be provided in the Loan Documents) and may be pursued singularly, successively,
or together, and may be exercised as often as the occasion therefor shall arise.
This Note has been made, executed and delivered by the undersigned in
Atlanta, Georgia.
MANDATORY ARBITRATION. Any controversy or claim between or among the
parties hereto including, but not limited to, those arising out of or relating
to this Note or any related agreements or instruments, including any claim based
on or arising from an alleged tort, shall be
2
<PAGE>
determined by binding arbitration in accordance with the Federal Arbitration Act
(or if not applicable, the applicable state law), the Rules of Practice and
Procedure for the Arbitration of Commercial Disputes of Judicial Arbitration and
Mediation Services, Inc. (J.A.M.S.), and the "Special Rules" set forth below. In
the event of any inconsistency, the Special Rules shall control. Judgment upon
any arbitration award may be entered in any court having jurisdiction. Any party
to this Note may bring an action, including a summary or expedited proceeding,
to compel arbitration of any controversy or claim to which this Note applies in
any court having jurisdiction over such action.
a. SPECIAL RULES. The arbitration shall be conducted in the city of
Fort Lauderdale, Florida and administered by Endispute, Inc., d/b/a
J.A.M.S./Endispute, who will appoint an arbitrator; if J.A.M.S./Endispute is
unable or legally precluded from administering the arbitration, then the
American Arbitration Association will serve. All arbitration hearings will be
commenced within ninety (90) days of the demand for arbitration; further, the
arbitrator shall only, upon a showing of cause, be permitted to extend the
commencement of such hearing for up to an additional sixty (60) days.
b. RESERVATION OF RIGHTS. Nothing in this Note shall be deemed to:
(i) limit the applicability of any otherwise applicable statutes of limitation
or repose and any waivers contained in this Note; or (ii) be a waiver by the
Bank of the protection afforded to it by 12 U.S.C. Sec. 91 or any substantially
equivalent state law; or (iii) limit the right of the Bank hereto (A) to
exercise self help remedies such as (but not limited to) setoff, or (B) to
foreclose against any real or personal property collateral, or (C) to obtain
from a court provisional or ancillary remedies such as (but not limited to)
injunctive relief or the appointment of a receiver. The Bank may exercise such
self help rights, foreclose upon such property, or obtain such provisional or
ancillary remedies before, during or after the pendency of any arbitration
proceeding brought pursuant to this Note. At Bank's option, foreclosure under a
deed of trust or mortgage may be accomplished by any of the following: the
exercise of a power of sale under the deed of trust or mortgage, or by judicial
sale under the deed of trust or mortgage, or by judicial foreclosure. Neither
this exercise of self help remedies nor the institution or maintenance of an
action for foreclosure or provisional or ancillary remedies shall constitute a
waiver of the right of any party, including the claimant in any such action, to
arbitrate the merits of the controversy or claim occasioning resort to such
remedies.
c. WAIVER OF JURY TRIAL. BY AGREEING TO BINDING ARBITRATION, THE
PARTIES HERETO HEREBY KNOWINGLY, IRREVOCABLY, VOLUNTARILY, AND INTENTIONALLY
WAIVE THE RIGHT THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY CONTROVERSY
OR CLAIM BETWEEN OR AMONG THE PARTIES HERETO INCLUDING, BUT NOT LIMITED TO,
THOSE ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE AND ANY OTHER
DOCUMENT EXECUTED IN CONJUNCTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF
DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS BETWEEN OR AMONG THE
PARTIES HERETO. FURTHERMORE, WITHOUT INTENDING IN ANY WAY TO LIMIT THE AGREEMENT
TO ARBITRATE, TO THE EXTENT ANY SUCH CONTROVERSY OR CLAIM BETWEEN OR AMONG THE
3
<PAGE>
PARTIES HERETO IS NOT ARBITRATED, THE PARTIES HEREBY KNOWINGLY, IRREVOCABLY,
VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT THEY MAY HAVE TO A TRIAL BY JURY
IN RESPECT OF SUCH CONTROVERSY OR CLAIM. THIS PROVISION IS A MATERIAL INDUCEMENT
FOR BANK'S EXTENDING THE LOAN EVIDENCED BY THIS REVOLVING CREDIT NOTE.
IN WITNESS WHEREOF, the undersigned has caused this Note to be executed as
of the day and year first above written.
Signed, Sealed and Delivered
in the Presence of: SOUND ADVICE, INC., a Florida corporation
/s/ DEBORAH A. LASSITER (ANALYST) By: /s/ KENNETH L. DAVIDSON (SEAL)
------------------------------ -----------------------------------------
Name: KENNETH L. DAVIDSON
/s/ JUDY BELLUSO A.V.P. Title: CFO AND TREASURER
------------------------------
STATE OF GEORGIA )
) SS:
COUNTY OF FULTON )
I HEREBY CERTIFY that on this day, before me, an officer duly authorized
in the State aforesaid and in the County aforesaid to take acknowledgments, the
foregoing instrument was acknowledged before me by KENNETH L. DANIELSON, the
CFO & TREASURER of SOUND ADVICE, INC., a Florida corporation, freely and
voluntarily under authority duly vested in him by said corporation and that the
seal affixed thereto is the true corporate seal of said corporation. He is
personally known to me or who has produced DRIVERS LICENSE as identification.
WITNESS my hand and official seal in the County and State last aforesaid
this 5TH day of MARCH , 1996.
/s/ ZARAH C. ELLIOT
-----------------------------------
Notary Public
ZARAH C. ELLIOTT
--------------------------------------
Typed, printed or stamped name of
Notary Public
My Commission Expires: 6/21/97
4
<PAGE>
AFFIDAVIT FOR EXECUTION OF NOTE
WITHOUT THE STATE OF FLORIDA
STATE OF GEORGIA )
) SS:
COUNTY OF FULTON )
BEFORE ME, the undersigned Notary Public, duly authorized in the County
and State aforesaid to administer oaths and take acknowledgments, personally
appeared the undersigned witnesses, to me well known and to me known to be the
persons described as witnesses to the foregoing Note and who witnessed the
execution and delivery of the foregoing Note, and who, first being duly sworn by
me did each depose, say and acknowledge before me that they were present at the
time that the said Note was executed, that they saw the same executed and
delivered by KENNETH L. DANIELSON , the CFO & TREASURER of SOUND ADVICE, INC.,
and that the other subscribing witness was likewise present and witnessed the
execution and delivery of the foregoing Note to a representative of NationsBank,
N.A. (South) at the City of Atlanta, County of Fulton, State of Georgia, on the
date written below.
/s/ JUDY BELLUSO AVP
-----------------------------------------
Subscribing Witness
Print Name: JUDY BELLUSO
Address: 600 PEACHTREE ST. NE
ATLANTA, GEORGIA 30308
/s/ DEBORAH A. LASSITER
-----------------------------------------
Subscribing Witness
Print Name: DEBORAH A. LASSITER
Address: 600 PEACHTREE ST. N.E.
ATLANTA, GEORGIA 30308
SWORN TO AND SUBSCRIBED before me and acknowledged to me this 5TH day of
February, 1996.
/s/ ZARAH C. ELLIOTT (SEAL)
-----------------------------------------
Notary Public, State of Georgia
My Commission Expires: 6/21/97
My Commission No. is:
5
LOAN AND SECURITY AGREEMENT
BY AND BETWEEN
SOUND ADVICE, INC.
AND
FOOTHILL CAPITAL CORPORATION
DATED AS OF APRIL 11, 1996
<PAGE>
TABLE OF CONTENTS
PAGE
----
1. DEFINITIONS AND CONSTRUCTION............................................. 1
1.1 Definitions..................................................... 1
1.2 Accounting Terms................................................ 11
1.3 Code............................................................ 11
1.4 Construction.................................................... 11
1.5 Schedules and Exhibits.......................................... 11
2. LOAN AND TERMS OF PAYMENT................................................ 12
2.1 Revolving Advances.............................................. 12
2.2 Letters of Credit and Letter of Credit Guarantees............... 12
2.3 Intentionally Omitted........................................... 14
2.4 Overadvances.................................................... 14
2.5 Interest: Rates, Payments, and Calculations.................... 14
2.6 Crediting Payments; Application of Collections.................. 15
2.7 Statements of Obligations....................................... 16
2.8 Fees............................................................ 16
2.9 Expenses........................................................ 17
3. CONDITIONS; TERM OF AGREEMENT............................................ 17
3.1 Conditions Precedent to Initial Advance, L/C, or L/C Guaranty... 17
3.2 Conditions Precedent to All Advances, L/Cs, or L/C Guarantees... 18
3.3 Term; Automatic Renewal......................................... 19
3.4 Effect of Termination........................................... 19
3.5 Early Termination by Borrower................................... 19
3.6 Termination Upon Event of Default............................... 19
4. CREATION OF SECURITY INTEREST............................................ 20
4.1 Grant of Security Interest...................................... 20
4.2 Negotiable Collateral........................................... 20
4.3 Collection of Accounts, General Intangibles, Negotiable
Collateral..................................................... 20
4.4 Delivery of Additional Documentation Required................... 20
4.5 Power of Attorney............................................... 21
4.6 Right to Inspect................................................ 21
5. REPRESENTATIONS AND WARRANTIES........................................... 21
5.1 No Prior Encumbrances........................................... 21
5.2 Subsidiaries.................................................... 22
5.3 Eligible Inventory.............................................. 22
5.4 Location of Inventory and Equipment............................. 22
5.5 Inventory Records............................................... 22
5.6 Location of Chief Executive Office; FEIN........................ 22
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5.7 Due Organization and Qualification.............................. 22
5.8 Due Authorization; No Conflict.................................. 22
5.9 Litigation...................................................... 22
5.10 No Material Adverse Change in Financial Condition............... 23
5.11 Solvency........................................................ 23
5.12 Employee Benefits............................................... 23
5.13 Environmental Condition......................................... 24
5.14 Reliance by Foothill; Cumulative................................ 24
6. AFFIRMATIVE COVENANTS.................................................... 24
6.1 Accounting System............................................... 24
6.2 Collateral Reports.............................................. 24
6.3 Subsidiaries.................................................... 25
6.4 Financial Statements, Reports, Certificates..................... 25
6.5 Tax Returns..................................................... 26
6.6 Collateral Access Agreements.................................... 26
6.7 Designation of Inventory........................................ 26
6.8 Store Openings and Closings and Rent Reports.................... 26
6.9 Title to Equipment.............................................. 26
6.10 Maintenance of Equipment........................................ 27
6.11 Taxes........................................................... 27
6.12 Insurance....................................................... 27
6.13 Financial Covenants............................................. 28
6.14 No Setoffs or Counterclaims..................................... 28
6.15 Location of Inventory and Equipment............................. 28
6.16 Compliance with Laws............................................ 28
6.17 Employee Benefits............................................... 29
7. NEGATIVE COVENANTS....................................................... 29
7.1 Indebtedness.................................................... 29
7.2 Liens........................................................... 30
7.3 Restrictions on Fundamental Changes............................. 30
7.4 Extraordinary Transactions and Disposal of Assets............... 30
7.5 Change Name..................................................... 30
7.6 Guarantee....................................................... 30
7.7 Restructure..................................................... 31
7.8 Prepayments..................................................... 31
7.9 Change of Control............................................... 31
7.10 Capital Expenditures............................................ 31
7.11 Consignments.................................................... 31
7.12 Distributions................................................... 31
7.13 Accounting Methods.............................................. 31
7.14 Investments..................................................... 31
7.15 Transactions with Affiliates.................................... 32
7.16 Suspension...................................................... 32
7.17 [Intentionally Omitted]......................................... 32
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7.18 Use of Proceeds................................................. 32
7.19 Change in Location of Chief Executive Office;
Inventory and Equipment with Bailees............................ 32
8. EVENTS OF DEFAULT........................................................ 32
9. FOOTHILL'S RIGHTS AND REMEDIES........................................... 34
9.1 Rights and Remedies............................................. 34
9.2 Remedies Cumulative............................................. 36
10. TAXES AND EXPENSES REGARDING THE COLLATERAL.............................. 36
11. WAIVERS; INDEMNIFICATION................................................. 37
11.1 Demand; Protest; etc............................................ 37
11.2 Foothill's Liability for Collateral............................. 37
11.3 Indemnification................................................. 37
12. NOTICES.................................................................. 37
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER............................... 38
14. DESTRUCTION OF BORROWER'S DOCUMENTS...................................... 39
15. GENERAL PROVISIONS....................................................... 39
15.1 Effectiveness................................................... 39
15.2 Successors and Assigns.......................................... 39
15.3 Confidentiality................................................. 39
15.4 Section Headings................................................ 40
15.5 Interpretation.................................................. 40
15.6 Severability of Provisions...................................... 40
15.7 Amendments in Writing........................................... 40
15.8 Counterparts; Telefacsimile Execution........................... 40
15.9 Revival and Reinstatement of Obligations........................ 40
15.10 Integration..................................................... 40
SCHEDULES
Schedule E-1 Location of Inventory and Equipment
Schedule P-1 Permitted Liens
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<PAGE>
LOAN AND SECURITY AGREEMENT
This LOAN AND SECURITY AGREEMENT, is entered into as of April 11, 1996,
between FOOTHILL CAPITAL CORPORATION, a California corporation ("Foothill"),
with a place of business located at 11111 Santa Monica Boulevard, Suite 1500,
Los Angeles, California 90025-3333, and SOUND ADVICE, INC., a Florida
corporation ("Borrower"), with its chief executive office located at 1901
Tigertail Boulevard, Dania, Florida 33004.
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1 DEFINITIONS. As used in this Agreement, the following
terms shall have the following definitions:
"ACCOUNT DEBTOR" means any Person who is or who may become
obligated under, with respect to, or on account of an Account.
"ACCOUNTS" means all currently existing and hereafter arising
accounts, contract rights, and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods or the rendition of services by
Borrower, irrespective of whether earned by performance, and any and all credit
insurance, guaranties, or security therefor.
"AFFILIATE" means, as applied to any Person, any other Person
directly or indirectly controlling, controlled by, or under common control with,
that Person. For purposes of this definition, "control" as applied to any Person
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of that Person, whether through the
ownership of voting securities, by contract, or otherwise.
"AGREEMENT" means this Loan and Security Agreement and any
extensions, riders supplements, notes, amendments, or modifications to or in
connection with this Loan and Security Agreement.
"AUTHORIZED OFFICER" means any officer of Borrower.
"AVERAGE UNUSED PORTION OF MAXIMUM AMOUNT" means (a) the
Maximum Amount; LESS (b) the sum of: (i) the average Daily Balance of advances
made by Foothill under SECTION 2.1 that were outstanding during the immediately
preceding month; PLUS (ii) the average Daily Balance of the undrawn L/Cs and L/C
Guarantees issued by Foothill under SECTION 2.2 that were outstanding during the
immediately preceding month.
"BANKRUPTCY CODE" means the United States Bankruptcy Code
(11 U.S.C. /section/ 101 ET SEQ.), as amended, and any successor statute.
"BORROWER" has the meaning set forth in the preamble to this
Agreement.
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<PAGE>
"BORROWER'S BOOKS" means all of Borrower's books and records
including: ledgers; records indicating, summarizing, or evidencing Borrower's
properties or assets (including the Collateral) or liabilities; all information
relating to Borrower's business operations or financial condition; and all
computer programs, disc or tape files, printouts, runs, or other computer
prepared information, and the equipment containing such information.
"BORROWER'S COST" means Borrower's cost of Inventory, as
determined by Borrower based upon Borrower's perpetual inventory records as
tested and accepted by Foothill.
"BORROWING BASE" has the meaning set forth in SECTION 2.1.
"BUSINESS DAY" means any day which is not a Saturday, Sunday,
or other day on which national banks are authorized or required to close.
"CHANGE OF CONTROL" shall be deemed to have occurred at such
time as a "person" or "group" (within the meaning of Sections 13(d) and 14(d)(2)
of the Securities Exchange Act of 1934) other than one or more of the Permitted
Shareholders becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934), directly or indirectly, of more than twenty
five percent (25%) of the total voting power of all classes of stock then
outstanding of Borrower normally entitled to vote in the election of directors.
"CLOSING DATE" means the date of the initial advance or the
date of the initial issuance of an L/C or an L/C Guaranty, whichever occurs
first.
"CODE" means the California Uniform Commercial Code.
"COLLATERAL" means each of the following: the Accounts;
Borrower's Books; the Equipment; the General Intangibles; the Inventory; the
Negotiable Collateral; any money, or other assets of Borrower which now or
hereafter come into the possession, custody, or control of Foothill; and the
proceeds and products, whether tangible or intangible, of any of the foregoing
including proceeds of insurance covering any or all of the Collateral, and any
and all Accounts, Borrower's Books, Equipment, General Intangibles, Inventory,
Negotiable Collateral, money, deposit accounts, or other tangible or intangible
property resulting from the sale, exchange, collection, or other disposition of
any of the foregoing, or any portion thereof or interest therein, and the
proceeds thereof.
"COLLATERAL ACCESS AGREEMENT" means a landlord waiver,
mortgagee waiver, bailee letter, or a similar acknowledgement agreement from any
warehouseman, processor, lessor, or other Person in possession of, or having a
lien on or other interest in, any property or assets of Borrower, in each case,
in form and substance satisfactory to Foothill.
"COMPUTER INVENTORY" means those items of Inventory that
consist of computer hardware, software or other items of computer related
Inventory.
"CONSOLIDATED CURRENT ASSETS" means, as of any date of
determination, the aggregate amount of all current assets of Borrower and its
subsidiaries calculated on a
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<PAGE>
consolidated basis that would, in accordance with GAAP, be classified on a
balance sheet as current assets.
"CONSOLIDATED CURRENT LIABILITIES" means, as of any date of
determination, the aggregate amount of all current liabilities of Borrower and
its subsidiaries, calculated on a consolidated basis that would, in accordance
with GAAP, be classified on a balance sheet as current liabilities. For purposes
of this definition, all advances outstanding under this Agreement shall be
deemed to be current liabilities without regard to whether they would be deemed
to be so under GAAP.
"DAILY BALANCE" means the amount of an Obligation owed at the
end of a given day.
"EARLY TERMINATION PREMIUM" has the meaning set forth in
SECTION 3.5.
"ELIGIBLE IN-TRANSIT INVENTORY" means those items of Inventory
that do not qualify as Eligible Landed Inventory solely because they are not
located at a location set forth on SCHEDULE E-1 but: (a) currently are
in-transit from a location not set forth on SCHEDULE E-1 to a location set forth
on SCHEDULE E-1, (b) title to such Inventory has passed to Borrower, and (c) are
insured against types of loss, damage, hazards, and risks, and in amounts,
satisfactory to Foothill in its discretion; in each case, with documentation
therefor in form and substance satisfactory to Foothill in its discretion, and
that do not constitute Eligible Landed Inventory.
"ELIGIBLE LANDED INVENTORY" means Inventory, excluding
Computer Inventory, and net of Inventory Reserves, consisting of first quality
finished goods held for sale in the ordinary course of Borrower's business that
strictly comply with each and all of the representations and warranties
respecting Inventory made by Borrower in the Loan Documents, that are and at all
times continue to be acceptable to Foothill in all respects; PROVIDED, HOWEVER,
that standards of eligibility may be fixed and revised from time to time by
Foothill in Foothill's reasonable credit judgment. An item of Inventory shall
not be included in Eligible Landed Inventory if:
(a) it is purchased from Hitachi Home Electronics (America),
Inc. unless Hitachi has entered into an intercreditor agreement with Foothill in
form and substance reasonably satisfactory to Foothill; or
(b) it is not owned solely by Borrower or Borrower does not
have good, valid, and marketable title thereto; or
(c) it is not located at one of the locations set forth on
SCHEDULE E-1 attached hereto; or
(d) it is not located on property owned or leased by Borrower
or in a contract warehouse, in each case, subject to a Collateral Access
Agreement executed by the mortgagee, lessor, warehouseman, or other third party,
as the case may be, and segregated or otherwise separately identifiable from
goods of others, if any, stored on the premises; or
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<PAGE>
(e) it is not subject to a valid and perfected first priority
security interest in favor of Foothill; PROVIDED, HOWEVER, that this limitation
shall not apply to the Monogram Goods; or
(f) it is work-in-process, a component that is not part of
finished goods, or constitutes spare parts (other than accessories held for
sale), packaging and shipping materials, supplies used or consumed in Borrower's
business, Inventory subject to a security interest or lien in favor of any third
Person except for Permitted Liens, bill and hold goods, "seconds" (other than
manufacturer refurbished products), or Inventory acquired on consignment.
"EQUIPMENT" means all of Borrower's present and hereafter
acquired machinery, machine tools, motors, equipment, furniture, furnishings,
fixtures, vehicles (including motor vehicles and trailers), tools, parts, dies,
jigs, goods (other than consumer goods, farm products, or Inventory), wherever
located, and any interest of Borrower in any of the foregoing, and all
attachments, accessories, accessions, replacements, substitutions, additions,
and improvements to any of the foregoing, wherever located.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, or any predecessor, successor, or
superseding laws of the United States of America, together with all regulations
promulgated thereunder.
"ERISA AFFILIATE" means any trade or business (whether or not
incorporated) which, within the meaning of Section 414 of the IRC, is: (i) under
common control with Borrower; (ii) treated, together with Borrower, as a single
employer; (iii) treated as a member of an affiliated service group of which
Borrower is also treated as a member; or (iv) is otherwise aggregated with the
Borrower for purposes of the employee benefits requirements listed in IRC
Section 414(m)(4).
"ERISA EVENT" means any one or more of the following: (i) a
Reportable Event with respect to a Qualified Plan or a Multiemployer Plan; (ii)
a Prohibited Transaction with respect to any Plan; (iii) a complete or partial
withdrawal by Borrower or any ERISA Affiliate from a Multiemployer Plan; (iv)
the complete or partial withdrawal of Borrower or an ERISA Affiliate from a
Qualified Plan during a plan year in which it was, or was treated as, a
"substantial employer" as defined in Section 4001(a)(2) of ERISA; (v) a failure
to make full payment when due of all amounts which, under the provisions of any
Plan or applicable law, Borrower or any ERISA Affiliate is required to make;
(vi) the filing of a notice of intent to terminate, or the treatment of a plan
amendment as a termination, under Sections 4041 or 4041A of ERISA; (vii) an
event or condition which might reasonably be expected to constitute grounds
under Section 4042 of ERISA for the termination of, or the appointment of a
trustee to administer, any Qualified Plan or Multiemployer Plan; (viii) the
imposition of any liability under Title IV of ERISA, other than PBGC premiums
due but not delinquent under Section 4007 of ERISA, upon Borrower or any ERISA
Affiliate; and (ix) a violation of the applicable requirements of Sections 404
or 405 of ERISA, or the exclusive benefit rule under Section 403(c) of ERISA, by
any fiduciary or disqualified person with respect to any Plan for which Borrower
or any ERISA Affiliate may be directly or indirectly liable.
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"EVENT OF DEFAULT" has the meaning set forth in SECTION 8.
"EXCLUDED ASSETS" means (i) Borrower's computer and
communications equipment that is as of the date hereof subject to a lien in
favor General Electric Capital Corporation, (ii) Borrower's furniture,
furnishings, fixtures, machinery, materials and equipment that is as of the date
hereof located at 4113 North Federal Highway, Ft. Lauderdale, Florida 33021 and
is subject to a lien in favor BankAtlantic, and (iii) the L/C Collateral
Assignment until Borrower's obligations to Old Lender have been satisfied in
full.
"FEIN" means Federal Employer Identification Number.
"FOOTHILL" has the meaning set forth in the preamble to this
Agreement.
"FOOTHILL EXPENSES" means all: costs or expenses (including
taxes, photocopying, notarization, telecommunication and insurance premiums)
required to be paid by Borrower under any of the Loan Documents that are paid or
advanced by Foothill; documentation, filing, recording, publication, appraisal
(including periodic Collateral appraisals), real estate survey, environmental
audit, and search fees assessed, paid, or incurred by Foothill in connection
with Foothill's transactions with Borrower; costs and expenses incurred by
Foothill in the disbursement of funds to Borrower (by wire transfer or
otherwise); charges paid or incurred by Foothill resulting from the dishonor of
checks; costs and expenses paid or incurred by Foothill to correct any default
or enforce any provision of the Loan Documents, or in gaining possession of,
maintaining, handling, preserving, storing, shipping, selling, preparing for
sale, or advertising to sell the Collateral, or any portion thereof,
irrespective of whether a sale is consummated; costs and expenses paid or
incurred by Foothill in examining Borrower's Books; costs and expenses of third
party claims or any other suit paid or incurred by Foothill in enforcing or
defending the Loan Documents; and Foothill's reasonable attorneys fees and
expenses incurred in advising, structuring, drafting, reviewing, administering,
amending, terminating, enforcing (including attorneys fees and expenses incurred
in connection with a "workout," a "restructuring," or an Insolvency Proceeding
concerning Borrower or any guarantor of the Obligations), defending, or
concerning the Loan Documents, irrespective of whether suit is brought.
"GAAP" means generally accepted accounting principles as in
effect from time to time in the United States, consistently applied.
"GENERAL INTANGIBLES" means all of Borrower's present and
future general intangibles and other personal property (including contract
rights, rights arising under common law, statutes, or regulations, choses or
things in action, goodwill, patents, trade names, trademarks, service marks,
copyrights, blueprints, drawings, purchase orders, customer lists, monies due or
recoverable from pension funds, route lists, rights to payment and other rights
under any royalty or licensing agreements, infringements, claims, computer
programs, computer discs, computer tapes, literature, reports, catalogs, deposit
accounts, insurance premium rebates, tax refunds, and tax refund claims), other
than goods and Accounts.
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"HAZARDOUS MATERIALS" means all or any of the following: (a)
substances that are defined or listed in, or otherwise classified pursuant to,
any applicable laws or regulations as "hazardous substances," "hazardous
materials," "hazardous wastes," "toxic substances," or any other formulation
intended to define, list, or classify substances by reason of deleterious
properties such as ignitability, corrosivity, reactivity, carcinogenicity,
reproductive toxicity, or "EP toxicity"; (b) oil, petroleum, or petroleum
derived substances, natural gas, natural gas liquids, synthetic gas, drilling
fluids, produced waters, and other wastes associated with the exploration,
development, or production of crude oil, natural gas, or geothermal resources;
(c) any flammable substances or explosives or any radioactive materials; and (d)
asbestos in any form or electrical equipment which contains any oil or
dielectric fluid containing levels of polychlorinated biphenyls in excess of
fifty (50) parts per million.
"INDEBTEDNESS" means: (a) all obligations of Borrower for
borrowed money; (b) all obligations of Borrower evidenced by bonds, debentures,
notes, or other similar instruments and all reimbursement or other obligations
of Borrower in respect of letters of credit, letter of credit guaranties,
bankers acceptances, interest rate swaps, controlled disbursement accounts, or
other financial products; (c) all obligations under capitalized leases; (d) all
obligations or liabilities of others secured by a lien or security interest on
any property or asset of Borrower, irrespective of whether such obligation or
liability is assumed; and (e) any obligation of Borrower guaranteeing or
intended to guarantee (whether guaranteed, endorsed, co-made, discounted, or
sold with recourse to Borrower) any indebtedness, lease, dividend, letter of
credit, or other obligation of any other Person.
"INSOLVENCY PROCEEDING" means any proceeding commenced by or
against any Person under any provision of the Bankruptcy Code or under any other
bankruptcy or insolvency law, including assignments for the benefit of
creditors, formal or informal moratoria, compositions, extensions generally with
its creditors, or proceedings seeking reorganization, arrangement, or other
similar relief.
"IN-TRANSIT INVENTORY RESERVES" means (a) reserves (determined
from time to time by Foothill in its reasonable discretion) for the estimated
costs relating to unpaid freight charges, warehousing or storage charges, taxes,
duties, and other similar unpaid costs associated with the acquisition of
Eligible In-Transit Inventory by Borrower, plus (b) reserves (determined from
time to time by Foothill in its reasonable discretion) for the estimated
reclamation claims of unpaid sellers of Eligible In-Transit Inventory sold to
Borrower except for reclamation claims of Permitted Secured Vendors.
"INVENTORY" means all present and future inventory in which
Borrower has any interest, including goods held for sale or lease or to be
furnished under a contract of service and all of Borrower's present and future
raw materials, work in process, finished goods, returned or repossessed goods,
and packing and shipping materials, wherever located, and any documents of title
representing any of the above.
"INVENTORY LETTERS OF CREDIT" means documentary Letters of
Credit issued to support the purchase by Borrower of Inventory prior to transit
to a location set forth on SCHEDULE E-1, that satisfy the following conditions:
(a) all draws thereunder must require presentation of
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customary documentation (including, if applicable, commercial invoices, packing
list, certificate of origin, bill of lading or airway bill, customs clearance
documents, quota statement, inspection certificate, beneficiaries statement, and
bill of exchange, bills of lading, dock warrants, dock receipts, warehouse
receipts, or other documents of title) in form and substance satisfactory to
Foothill and reflecting the passage to Borrower of title to first quality
Inventory conforming to Borrower's contract with the seller thereof, and (b)
such Letter of Credit shall cease to be an "Inventory Letter of Credit" at such
time, if any, as the goods purchased thereunder become Eligible Landed
Inventory.
"INVENTORY RESERVES" means reserves (determined from time to
time by Foothill in its reasonable discretion) for Inventory to be returned to a
vendor, rebates, discounts, shrinkage, obsolete or slow moving Inventory,
defective goods, customer deposits, and Inventory located at Borrower's Miami
Service Inside Repair. The amount of Inventory Reserves initially shall be equal
to ten percent (10%) of the gross amount of Borrower's Inventory excluding
Computer Inventory; PROVIDED, HOWEVER, that the amount of such reserves may be
adjusted by Foothill in its reasonable discretion from time to time.
"IRC" means the Internal Revenue Code of 1986, as amended, and
the regulations thereunder.
"L/C" has the meaning set forth in SECTION 2.2(A).
"L/C COLLATERAL ASSIGNMENT" has the meaning set forth in the
definition of the term "Pay-Off Letter."
"L/C GUARANTY" has the meaning set forth in SECTION 2.2(A).
"LETTER OF CREDIT" means an L/C or an L/C Guaranty, as the
context requires.
"LOAN DOCUMENTS" means this Agreement, the Lock Box Agreement,
any note or notes executed by Borrower and payable to Foothill, and any other
agreement entered into in connection with this Agreement.
"LOCK BOX" has the same meaning as "Blocked Account" as
defined in the Lock Box Agreement.
"LOCK BOX AGREEMENT" means that certain Blocked Depository
Account Agreement, in form and substance satisfactory to Foothill, which is
among Borrower, Foothill, and the Lock Box Bank.
"LOCK BOX BANK" means NationsBank, N.A. (South) or such other
bank acceptable to Borrower and Foothill.
"MAXIMUM AMOUNT" has the meaning set forth in SECTION 2.1.
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"MITSUBISHI" has the meaning set forth in the definition of
the term "Permitted Secured Vendors."
"MONOGRAM" means Monogram Credit Card Bank of Georgia, a
Georgia banking corporation, and its successors and assigns.
"MONOGRAM AGREEMENT" means that certain Credit Card Program
Agreement, dated as of August 12, 1992, between Monogram and Borrower as amended
from time to time.
"MONOGRAM GOODS" means Inventory that is returned to Borrower
by customers of Borrower that purchased such Inventory from Borrower with credit
card financing provided under the Monogram Agreement.
"MONOGRAM RESERVE" means, as of any date of determination, the
amount, if any, by which Borrower's payables to Monogram exceed Borrower's
receivables from Monogram.
"MULTIEMPLOYER PLAN" means a multiemployer plan as defined in
Sections 3(37) or 4001(a)(3) of ERISA or Section 414 of the IRC in which
employees of Borrower or an ERISA Affiliate participate or to which Borrower or
any ERISA Affiliate contribute or are required to contribute.
"NEGOTIABLE COLLATERAL" means all of Borrower's present and
future letters of credit, notes, drafts, instruments, certificated and
uncertificated securities (including the shares of stock of subsidiaries of
Borrower), documents, personal property leases (wherein Borrower is the lessor),
chattel paper, and Borrower's Books relating to any of the foregoing.
"OBLIGATIONS" means all loans, advances, debts, principal,
interest (including any interest that, but for the provisions of the Bankruptcy
Code, would have accrued), contingent reimbursement obligations owing to
Foothill under any outstanding L/Cs or L/C Guarantees, premiums, liabilities
(including all amounts charged to Borrower's loan account pursuant to any
agreement authorizing Foothill to charge Borrower's loan account), obligations,
fees (including Early Termination Premiums), lease payments, guaranties,
covenants, and duties owing by Borrower to Foothill of any kind and description
(whether pursuant to or evidenced by the Loan Documents, by any note or other
instrument, or pursuant to any other agreement between Foothill and Borrower,
and irrespective of whether for the payment of money), whether direct or
indirect, absolute or contingent, due or to become due, now existing or
hereafter arising, and including any debt, liability, or obligation owing from
Borrower to others that Foothill may have obtained by assignment or otherwise,
and further including all interest not paid when due and all Foothill Expenses
that Borrower is required to pay or reimburse by the Loan Documents, by law, or
otherwise.
"OLD LENDER" means NationsBank, N.A. (South).
"OVERADVANCE" has the meaning set forth in SECTION 2.4.
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"PAY-OFF LETTER" means a letter, in form and substance
reasonably satisfactory to Foothill, from Old Lender respecting the amount
necessary to repay in full all of the obligations of Borrower owing to Old
Lender and obtain a termination or release of all of the security interests or
liens existing in favor of Old Lender in and to the properties or assets of
Borrower other than that certain collateral assignment of Borrower's deposit
account with the Old Lender securing the Borrower's obligation after the Closing
Date with respect to the outstanding letters of credit issued by the Old Lender
(the "L/C Collateral Assignment").
"PBGC" means the Pension Benefit Guaranty Corporation as
defined in Title IV of ERISA, or any successor thereto.
"PERMITTED LIENS" means: (a) liens and security interests held
by Foothill; (b) liens for unpaid taxes or assessments that are not yet
delinquent; (c) liens and security interests set forth on SCHEDULE P-1 attached
hereto; (d) security interests held by Permitted Secured Vendors provided that
such security interests are junior and subordinate to the security interests
held by Foothill; (e) security interests held by Monogram pursuant to the
Monogram Agreement; (f) purchase money security interests and liens of lessors
under capitalized leases to the extent that the acquisition or lease of the
underlying asset was permitted under SECTION 7.10, and so long as the security
interest or lien only secures the purchase price of the asset and that certain
capitalized lease of the Borrower for its existing Ft. Meyers, Florida location;
(g) easements, rights of way, reservations, covenants, conditions, restrictions,
zoning variances, and other similar encumbrances that do not materially
interfere with the use or value of the property subject thereto; (h) obligations
and duties as lessee under any operating lease; (i) mechanics', carriers,
materialmen's, warehousemen's or similar liens; (j) deposits or pledges to
secure payment of workers' compensation, unemployment insurance, old age
pensions, or other social security benefits; (k) deposits or pledges to secure
performance of bids, tenders, contracts (other than contracts for the payment of
money) or leases, public or statutory obligations, surety or appeal bonds or
other deposits or pledges for purposes of like general nature in the ordinary
course of business; (l) liens or rights of set-off or credit balances of
Borrower with credit card issuers to secure the obligations of Borrower to such
credit card issuers as a result of fees and chargebacks; (m) the L/C Collateral
Assignment; and (n) landlord's liens of landlords that have executed Collateral
Access Agreements or in respect of which Foothill has a right to establish a
reserve pursuant to Section 6.8.
"PERMITTED SECURED VENDORS" means Alpine Electronics of
America, Inc., Kenwood USA Corporation, Mitsubishi Electronics America, Inc.
("Mitsubishi"), Yamaha Electronics Corp., Sony Electronics Inc. ("Sony") and any
other Person that sells Inventory to Borrower, obtains a purchase money security
interest in such Inventory and enters into an intercreditor agreement with
Foothill in form and substance satisfactory to Foothill in its reasonable
discretion; it being understood and agreed that an intercreditor agreement in
the same as substantially same form as executed by Mitsubishi or Sony is in form
and substance satisfactory to Foothill.
"PERMITTED SHAREHOLDERS" means FMR Corp., Peter Beshouri,
Michael Blumberg, U.S. Bancorp, Dimensional Fund Advisors Inc., Joseph
Piccirilli and Gregory Sturgis.
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"PERSON" means and includes natural persons, corporations,
limited partnerships, general partnerships, joint ventures, trusts, land trusts,
business trusts, or other organizations, irrespective of whether they are legal
entities, and governments and agencies and political subdivisions thereof.
"PLAN" means an employee benefit plan (as defined in Section
3(3) of ERISA) which Borrower or any ERISA Affiliate sponsors or maintains or to
which Borrower or any ERISA Affiliate makes, is making, or is obligated to make
contributions, including any Multiemployer Plan or Qualified Plan.
"PROHIBITED TRANSACTION" means any transaction described in
Section 406 of ERISA which is not exempt by reason of Section 408 of ERISA, and
any transaction described in Section 4975(c) of the IRC which is not exempt by
reason of Section 4975(c) of the IRC.
"QUALIFIED LENDER" means a bank, savings and loan, finance
company, insurance company or any other Person that is engaged in the business
of making loans or buying loan portfolios and in each case has assets in excess
of Fifty Million Dollars ($50,000,000).
"QUALIFIED PLAN" means a pension plan (as defined in Section
3(2) of ERISA) intended to be tax-qualified under Section 401(a) of the IRC
which Borrower or any ERISA Affiliate sponsors, maintains, or to which any such
person makes, is making, or is obligated to make, contributions, or, in the case
of a multiple-employer plan (as described in Section 4064(a) of ERISA), has made
contributions at any time during the immediately preceding period covering at
least five (5) plan years, but excluding any Multiemployer Plan.
"REFERENCE RATE" means the variable rate of interest, per
annum, most recently announced by Norwest Bank Minnesota, N.A., or any successor
to the foregoing institution, as its "base rate", "prime rate" or "reference
rate," as the case may be, irrespective of whether such announced rate is the
best rate available from such financial institution.
"RENEWAL DATE" has the meaning set forth in SECTION 3.3.
"REPORTABLE EVENT" means any event described in Section 4043
(other than Subsections (b)(7) and (b)(9)) of ERISA.
"SOLVENT" means, with respect to any Person on a particular
date, that on such date (a) at fair valuations, all of the properties and assets
of such Person are greater than the sum of the debts, including contingent
liabilities, of such Person, (b) the present fair salable value of the
properties and assets of such Person is not less than the amount that will be
required to pay the probable liability of such Person on its debts as they
become absolute and matured, (c) such Person is able to realize upon its
properties and assets and pay its debts and other liabilities, contingent
obligations and other commitments as they mature in the normal course of
business, (d) such Person does not intend to, and does not believe that it will,
incur debts beyond such Person's ability to pay as such debts mature, and (e)
such Person is not engaged in business or a transaction, and is not about to
engage in business or a transaction, for which such Person's properties and
assets would constitute unreasonably small capital after giving due
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consideration to the prevailing practices in the industry in which such Person
is engaged. In computing the amount of contingent liabilities at any time, it is
intended that such liabilities will be computed at the amount that, in light of
all the facts and circumstances existing at such time, represents the amount
that reasonably can be expected to become an actual or matured liability.
"SONY" has the meaning set forth in the definition of the term
"Permitted Secured Vendors."
"TANGIBLE NET WORTH" means, as of the date any determination
thereof is to be made, the difference of: (a) Borrower's total stockholder's
equity; MINUS (b) the sum of: (i) all intangible assets of Borrower; (ii) all of
Borrower's prepaid expenses; and (iii) all amounts due to Borrower from
Affiliates, calculated on a consolidated basis.
"UNFUNDED BENEFIT LIABILITY" means the excess of a Plan's
benefit liabilities (as defined in Section 4001(a)(16) of ERISA) over the
current value of such Plan's assets, determined in accordance with the
assumptions used by the Plan's actuaries for funding the Plan pursuant to
Section 412 of the IRC for the applicable plan year.
"VOIDABLE TRANSFER" has the meaning set forth in SECTION 15.8.
"WORKING CAPITAL" means the result of subtracting Consolidated
Current Liabilities from Consolidated Current Assets.
1.2 ACCOUNTING TERMS. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP. When used herein, the
term "financial statements" shall include the notes and schedules thereto.
Whenever the term "Borrower" is used in respect of a financial covenant or a
related definition, it shall be understood to mean Borrower on a consolidated
basis unless the context clearly requires otherwise.
1.3 CODE. Any terms used in this Agreement which are defined
in the Code shall be construed and defined as set forth in the Code unless
otherwise defined herein.
1.4 CONSTRUCTION. Unless the context of this Agreement clearly
requires otherwise, references to the plural include the singular, references to
the singular include the plural, the term "including" is not limiting, and the
term "or" has, except where otherwise indicated, the inclusive meaning
represented by the phrase "and/or." The words "hereof," "herein," "hereby,"
"hereunder," and similar terms in this Agreement refer to this Agreement as a
whole and not to any particular provision of this Agreement. Section,
subsection, clause, schedule, and exhibit references are to this Agreement
unless otherwise specified. Any reference in this Agreement or in the Loan
Documents to this Agreement or any of the Loan Documents shall include all
alterations, amendments, changes, extensions, modifications, renewals,
replacements, substitutions, and supplements, thereto and thereof, as
applicable.
1.5 SCHEDULES AND EXHIBITS. All of the schedules and exhibits
attached to this Agreement shall be deemed incorporated herein by reference.
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2. LOAN AND TERMS OF PAYMENT.
2.1 REVOLVING ADVANCES.
(a) Subject to the terms and conditions of this
Agreement, Foothill agrees to make revolving advances to Borrower in an amount
at any one time outstanding not to exceed the lesser of: (i) the Maximum Amount
less the aggregate amount of all undrawn or unreimbursed Letters of Credit; or
(ii) the Borrowing Base LESS (A) the aggregate amount of all undrawn or
unreimbursed Letters of Credit (other than Inventory Letters of Credit), LESS
(B) fifty percent (50%) of the aggregate amount of all undrawn or unreimbursed
Inventory Letters of Credit, LESS (C) the Monogram Reserve. For purposes of this
Agreement, "Borrowing Base," as of any date of determination, shall mean the sum
of:
(x) THE LESSER OF: (i) sixty five percent (65%) of
Borrower's Cost of Eligible Landed Inventory; and (ii) fifty
percent (50%) of the retail selling price of Eligible Landed
Inventory; plus
(y) (i) fifty percent (50%) of Borrower's Cost of
Eligible In-Transit Inventory, MINUS (ii) the amount of the
In-Transit Inventory Reserves.
(b) Anything to the contrary in Section 2.1(a) above
notwithstanding, Foothill may reduce its advance rates based upon Eligible
Landed Inventory or Eligible In-Transit Inventory without declaring an Event of
Default if it determines, in its reasonable discretion, that there is a material
impairment of the prospect of repayment of all or any portion of the Obligations
or a material impairment of the value or priority of Foothill's security
interests in the Collateral.
(c) Foothill shall have no obligation to make advances
hereunder to the extent they would cause the outstanding Obligations to exceed
Twenty Five Million Dollars ($25,000,000) ("Maximum Amount").
(d) Foothill is authorized to make advances under this
Agreement based upon telephonic or other instructions received from anyone
purporting to be an Authorized Officer of Borrower, or without instructions if
pursuant to SECTION 2.5(D). Borrower agrees to establish and maintain a single
designated deposit account for the purpose of receiving the proceeds of the
advances requested by Borrower and made by Foothill hereunder. Unless otherwise
agreed by Foothill and Borrower, any advance requested by Borrower and made by
Foothill hereunder shall be made to such designated deposit account. Amounts
borrowed pursuant to this SECTION 2.1 may be repaid and, subject to the terms
and conditions of this Agreement, reborrowed at any time during the term of this
Agreement.
2.2 LETTERS OF CREDIT AND LETTER OF CREDIT GUARANTEES.
(a) Subject to the terms and conditions of this
Agreement, Foothill agrees to issue commercial or standby letters of credit for
the account of Borrower (each, an "L/C") or to issue standby letters of credit
or guarantees of payment (each such letter of credit
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or guaranty, an "L/C Guaranty") with respect to commercial or standby letters of
credit issued by another Person for the account of Borrower in an aggregate face
amount not to exceed the lesser of: (i) the Borrowing Base LESS the amount of
advances outstanding pursuant to SECTION 2.1, LESS (A) the aggregate amount of
all undrawn or unreimbursed Letters of Credit (other than Inventory Letters of
Credit), LESS (B) fifty percent (50%) of the aggregate amount of all undrawn or
unreimbursed Inventory Letters of Credit; and (ii) Three Million Dollars
($3,000,000). Borrower expressly understands and agrees that Foothill shall have
no obligation to arrange for the issuance by other financial institutions of
letters of credit that are to be the subject of L/C Guarantees. Borrower and
Foothill acknowledge and agree that certain of the letters of credit that are to
be the subject of L/C Guarantees may be outstanding on the Closing Date. Each
such L/C (including those that are the subject of L/C Guarantees) shall have an
expiry date no later than thirty (30) days prior to the date on which this
Agreement is scheduled to terminate under SECTION 3.3 (without regard to any
potential renewal term) and all such L/Cs and L/C Guarantees shall be in form
and substance acceptable to Foothill in its sole discretion. Foothill shall not
have any obligation to issue L/Cs or L/C Guarantees to the extent that: (i) the
face amount of all outstanding Letters of Credit plus (ii) the amount of
advances outstanding pursuant to SECTION 2.1, would exceed the Maximum Amount.
The L/Cs and the L/C Guarantees issued under this SECTION 2.2 shall be used by
Borrower, consistent with this Agreement, for its general working capital
purposes or to support its obligations with respect to workers' compensation
premiums, security deposits or other similar obligations. If Foothill is
obligated to advance funds under an L/C or L/C Guaranty, the amount so advanced
immediately shall be deemed to be an advance made by Foothill to Borrower
pursuant to SECTION 2.1 and, thereafter, shall bear interest at the rates then
applicable under SECTION 2.5.
(b) Borrower hereby agrees to indemnify, save, defend,
and hold Foothill harmless from any loss, cost, or liability, including payments
made by Foothill, expenses, and reasonable attorneys fees incurred by Foothill
arising out of or in connection with any L/Cs or L/C Guarantees. Borrower agrees
to be bound by the issuing bank's regulations and interpretations of any letters
of credit guarantied by Foothill and opened to or for Borrower's account or by
Foothill's interpretations of any L/C issued by Foothill to or for Borrower's
account, even though this interpretation may be different from Borrower's own,
and Borrower understands and agrees that Foothill shall not be liable for any
error, negligence, or mistakes, whether of omission or commission (except for
Foothill's wilful misconduct or gross negligence as determined by a final
judgment of a court of competent jurisdiction), in following Borrower's
instructions or those contained in the L/Cs or any modifications, amendments, or
supplements thereto. Borrower understands that the L/C Guarantees may require
Foothill to indemnify the issuing bank for certain costs or liabilities arising
out of claims by Borrower against such issuing bank. Borrower hereby agrees to
indemnify, save, defend, and hold Foothill harmless with respect to any loss,
cost, expense (including attorneys fees), or liability incurred by Foothill
under any L/C Guaranty as a result of Foothill's indemnification of any such
issuing bank.
(c) Borrower hereby authorizes and directs any bank that
issues a letter of credit guaranteed by Foothill to deliver to Foothill all
instruments, documents, and other writings and property received by the issuing
bank pursuant to the letter of credit, and to accept and rely upon Foothill's
instructions and agreements with respect to all matters arising in
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connection with the letter of credit and the related application. Borrower may
or may not be the "applicant" or "account party" with respect to such letter of
credit.
(d) Any and all service charges, commissions, fees, and
costs incurred by Foothill relating to the L/Cs guaranteed by Foothill shall be
considered Foothill Expenses for purposes of this Agreement and immediately
shall be reimbursable by Borrower to Foothill. On the first day of each month,
Borrower will pay Foothill a fee equal to one and one-half percent (1.50%) per
annum times the actual Daily Balance of the undrawn L/Cs and L/C Guarantees that
were outstanding during the immediately preceding month. Service charges,
commissions, fees, and costs may be charged to Borrower's loan account at the
time the service is rendered or the cost is incurred.
(e) Immediately upon the termination of this Agreement,
Borrower agrees to either: (i) provide cash collateral to be held by Foothill in
an amount equal to the maximum amount of Foothill's obligations under L/Cs plus
the maximum amount of Foothill's obligations to any Person under outstanding L/C
Guarantees, or (ii) cause to be delivered to Foothill releases of all of
Foothill's obligations under its outstanding L/Cs and L/C Guarantees. At
Foothill's discretion, any proceeds of Collateral received by Foothill after the
occurrence and during the continuation of an Event of Default may be held as the
cash collateral required by this SECTION 2.2(E).
2.3 INTENTIONALLY OMITTED.
2.4 OVERADVANCES. If, at any time or for any reason, the
amount of Obligations owed by Borrower to Foothill pursuant to SECTIONS 2.1 AND
2.2 is greater than either the dollar or percentage limitations set forth in
SECTIONS 2.1 OR 2.2 (an "Overadvance"), Borrower immediately shall pay to
Foothill, in cash, the amount of such excess to be used by Foothill first, to
repay non-contingent Obligations and, thereafter, to be held by Foothill as cash
collateral to secure Borrower's obligation to repay Foothill for all amounts
paid pursuant to L/Cs or L/C Guarantees.
2.5 INTEREST: RATES, PAYMENTS, AND CALCULATIONS.
(a) Interest Rate. All Obligations, except for undrawn
L/Cs and L/C Guarantees, shall bear interest, on the actual Daily Balance, at a
per annum rate of one (1) percentage point above the Reference Rate.
(b) Default Rate. All Obligations, except for undrawn
L/Cs and L/C Guarantees, shall bear interest, from and after the occurrence and
during the continuance of an Event of Default, at a per annum rate equal to four
(4) percentage points above the Reference Rate. From and after the occurrence
and during the continuance of an Event of Default, the fee provided in SECTION
2.2(D) shall be increased to a fee equal to four and one-half percent (4.5%) per
annum times the actual Daily Balance of the undrawn L/Cs and L/C Guarantees that
were outstanding during the immediately preceding month.
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(c) Minimum Interest. In no event shall the rate of
interest chargeable hereunder be less than seven percent (7%) per annum. To the
extent that interest accrued hereunder at the rate set forth herein (including
the minimum interest rate) would yield less than the foregoing minimum amount,
the interest rate chargeable hereunder for the period in question automatically
shall be deemed increased to that rate that would result in the minimum amount
of interest being accrued and payable hereunder.
(d) Payments. Interest hereunder shall be due and payable
on the first day of each month during the term hereof. Borrower hereby
authorizes Foothill, at its option, without prior notice to Borrower, to charge
such interest, all Foothill Expenses (as and when incurred), and all other
payments due under any note or other Loan Document to Borrower's loan account,
which amounts shall thereafter accrue interest at the rate then applicable
hereunder. Any interest not paid when due shall be compounded by becoming a part
of the Obligations, and such interest shall thereafter accrue interest at the
rate then applicable hereunder.
(e) Computation. The Reference Rate as of this date is
eight and one-quarter percent (8.25%) per annum. In the event the Reference
Rate is changed from time to time hereafter, the applicable rate of interest
hereunder automatically and immediately shall be increased or decreased by an
amount equal to such change in the Reference Rate. The rates of interest charged
hereunder shall be based upon the actual Reference Rate in effect during the
month. All interest and fees chargeable under the Loan Documents shall be
computed on the basis of a three hundred sixty (360) day year for the actual
number of days elapsed.
(f) Intent to Limit Charges to Maximum Lawful Rate. In no
event shall the interest rate or rates payable under this Agreement, plus any
other amounts paid in connection herewith, exceed the highest rate permissible
under any law that a court of competent jurisdiction shall, in a final
determination, deem applicable. Borrower and Foothill, in executing this
Agreement, intend to legally agree upon the rate or rates of interest and manner
of payment stated within it; PROVIDED, HOWEVER, that, anything contained herein,
to the contrary notwithstanding, if said rate or rates of interest or manner of
payment exceeds the maximum allowable under applicable law, then, IPSO FACTO as
of the date of this Agreement, Borrower is and shall be liable only for the
payment of such maximum as allowed by law, and payment received from Borrower in
excess of such legal maximum, whenever received, shall be applied to reduce the
principal balance of the Obligations to the extent of such excess.
2.6 CREDITING PAYMENTS; APPLICATION OF COLLECTIONS. The
receipt of any wire transfer of funds, check, or other item of payment by
Foothill (whether from transfers to Foothill by the Lock Box Bank pursuant to
the Lock Box Agreement or otherwise) immediately shall be applied to
provisionally reduce the Obligations, but shall not be considered a payment on
account unless such wire transfer is of immediately available federal funds and
is made to the appropriate deposit account of Foothill or unless and until such
check or other item of payment is honored when presented for payment. From and
after the Closing Date, Foothill shall be entitled to charge Borrower for one
(1) Business Day of `clearance' at the applicable rates set forth in SECTIONS
2.5(A) and 2.5(B) (applicable to advances under SECTION 2.1) on all collections,
checks, wire transfers, or other items of payment that are received by Foothill
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(regardless of whether forwarded by the Lock Box Bank to Foothill, whether
provisionally applied to reduce the Obligations, or otherwise). This
across-the-board one (1) Business Day clearance charge on all receipts is
acknowledged by the parties to constitute an integral aspect of the pricing of
Foothill's facility to Borrower, and shall apply irrespective of the
characterization of whether receipts are owned by Borrower or Foothill, and
irrespective of the level of Borrower's Obligations to Foothill. Should any
check or item of payment not be honored when presented for payment, then
Borrower shall be deemed not to have made such payment, and interest shall be
recalculated accordingly. Anything to the contrary contained herein
notwithstanding, any wire transfer, check, or other item of payment shall be
deemed received by Foothill only if it is received into Foothill's Operating
Account (as such account is identified in the Lock Box Agreement) on or before
11:00 a.m. Los Angeles time. If any wire transfer, check, or other item of
payment is received into Foothill's Operating Account (as such account is
identified in the Lock Box Agreement) after 11:00 a.m. Los Angeles time it shall
be deemed to have been received by Foothill as of the opening of business on the
immediately following Business Day. At any time that no Obligations are owed to
Foothill, funds received in the Lock Box will be automatically paid over to
Borrower by Foothill into the designated deposit account described in Section
2.1(d).
2.7 STATEMENTS OF OBLIGATIONS. Foothill shall render
statements to Borrower of the Obligations, including principal, interest, fees,
and including an itemization of all charges and expenses constituting Foothill
Expenses owing, and such statements shall be conclusively presumed to be correct
and accurate and constitute an account stated between Borrower and Foothill
unless, within sixty (60) days after receipt thereof by Borrower, Borrower shall
deliver to Foothill by registered or certified mail at its address specified in
SECTION 12, written objection thereto describing the error or errors contained
in any such statements.
2.8 FEES. Borrower shall pay to Foothill the following fees:
(a) Commitment/Closing Fee. A commitment/closing fee of
One Hundred Fifty Six Thousand Two Hundred Fifty Dollars ($156,250). Thirty One
Thousand Two Hundred Fifty Dollars ($31,250) of such fee was earned by Foothill
and paid by Borrower in connection with Foothill's Commitment Letter dated March
29, 1996. The One Hundred Twenty Five Thousand Dollars ($125,000) balance of
such fee is earned, in full, on the Closing Date and is due and payable by
Borrower to Foothill on the Closing Date;
(b) Unused Line Fee. On the first day of each month
during the term of this Agreement, a fee in an amount equal to three eights of
one percent (.375%) per annum times the Average Unused Portion of the Maximum
Amount;
(c) Annual Facility Fee. On each anniversary of the
Closing Date, a fee in an amount equal to one half percent (.50%) of the Maximum
Amount, such fee to be fully earned on each such anniversary. Such fee shall be
prorated (on the same basis that interest is calculated) on any anniversary of
the Closing Date where the remaining term of this Agreement is less than one
year and the term of this Agreement is not renewed;
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(d) Financial Examination, Documentation, and Appraisal
Fees. Foothill's customary fee of Six Hundred Fifty Dollars ($650) per day per
examiner, plus out-of-pocket expenses for each financial analysis and
examination of Borrower performed by Foothill or its agents; Foothill's
customary appraisal fee of One Thousand Five Hundred Fifty Dollars ($1,500) per
day per appraiser, plus out-of-pocket expenses for each appraisal of the
Collateral performed by Foothill or its agents, plus the costs of any third
party appraisals of Inventory. So long as no Event of Default occurs, such
appraisals will not be conducted more frequently than semi-annually and such
financial analysis and examinations will not be conducted more frequently than
quarterly.
(e) Servicing Fee. On the first day of each month during
the term of this Agreement, and thereafter so long as any Obligations are
outstanding, a servicing fee in an amount equal to Four Thousand Dollars
($4,000) per month. Such fee shall be payable in arrears and shall prorated (on
the same basis that interest is calculated) for the month of April 1996.
2.9 EXPENSES. Foothill acknowledges that prior to the date of
this Agreement Borrower paid to Foothill Sixty Thousand Dollars ($60,000) as a
deposit against Foothill Expenses.
3. CONDITIONS; TERM OF AGREEMENT.
3.1 CONDITIONS PRECEDENT TO INITIAL ADVANCE, L/C, OR L/C
GUARANTY. The obligation of Foothill to make the initial advance or to provide
the initial L/C or L/C Guaranty is subject to the fulfillment, to the
satisfaction of Foothill and its counsel, of each of the following conditions on
or before the Closing Date:
(a) the Closing Date shall occur on or before April 26,
1996;
(b) Old Lender shall have executed and delivered the
Pay-Off Letter;
(c) Foothill shall have received searches reflecting the
filing of its financing statements;
(d) Foothill shall have received each of the following
documents, duly executed, and each such document shall be in full force and
effect:
i) the Lock Box Agreement;
ii) an intercreditor agreement with Monogram; and
iii) intercreditor agreements with the Permitted
secured Vendors.
(e) Foothill shall have received a certificate from the
Secretary of Borrower attesting to the resolutions of Borrower's Board of
Directors authorizing its execution
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and delivery of this Agreement and the other Loan Documents to which Borrower is
a party and authorizing specific officers of Borrower to execute same;
(f) Foothill shall have received copies of Borrower's
By-laws and Articles or Certificate of Incorporation, as amended, modified, or
supplemented to the Closing Date, certified by the Secretary of Borrower;
(g) Foothill shall have received a certificate of
corporate status with respect to Borrower, dated within ten (10) days of the
Closing Date, by the Secretary of State of the state of incorporation of
Borrower, which certificate shall indicate that Borrower is in good standing in
such state;
(h) Foothill shall have received certificates of corporate
status with respect to Borrower, each dated within fifteen (15) days of the
Closing Date, such certificates to be issued by the Secretary of State of the
states in which its failure to be duly qualified or licensed would have a
material adverse effect on the financial condition or properties and assets of
Borrower, which certificates shall indicate that Borrower is in good standing;
(i) Foothill shall have received the certified copies of
the policies of insurance, together with the endorsements thereto, as are
required by SECTION 6.12 hereof, the form and substance of which shall be
satisfactory to Foothill and its counsel;
(j) Foothill shall have received a Collateral Access
Agreement from the lessor of Borrower's Deefield Beach Warehouse;
(k) Borrower shall have not less than Two Million Dollars
($2,000,000) of unused borrowing availability under this Agreement after payment
of monies required to be paid on the Closing Date and after subtracting the
amount of any past due trade payables of Borrower and the amount of any
delinquencies on material obligations;
(l) Foothill shall have received an opinion of Borrower's
counsel in form and substance satisfactory to Foothill in its sole discretion;
and
(m) all other documents and legal matters in connection
with the transactions contemplated by this Agreement shall have been delivered
or executed or recorded and shall be in form and substance satisfactory to
Foothill and its counsel.
3.2 CONDITIONS PRECEDENT TO ALL ADVANCES, L/CS, OR L/C
GUARANTEES. The following shall be conditions precedent to all advances, L/Cs,
or L/C Guarantees hereunder:
(a) the representations and warranties contained in this
Agreement and the other Loan Documents shall be true and correct in all material
respects on and as of the date of such advance, L/C, or L/C Guaranty, as though
made on and as of such date (except to the extent that such representations and
warranties relate solely to an earlier date);
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(b) no Event of Default or event which with the giving of
notice or passage of time would constitute an Event of Default shall have
occurred and be continuing on the date of such advance, L/C, or L/C Guaranty,
nor shall either result from the making of the advance; and
(c) no injunction, writ, restraining order, or other order
of any nature prohibiting, directly or indirectly, the making of such advance or
the issuance of such L/C or L/C Guaranty shall have been issued and remain in
force by any governmental authority.
3.3 TERM; AUTOMATIC RENEWAL. This Agreement shall become
effective upon the execution and delivery hereof by Borrower and Foothill and
shall continue in full force and effect for a term ending on July 31, 1998 (the
"Renewal Date") and automatically shall be renewed for successive one (1) year
periods thereafter, unless sooner terminated pursuant to the terms hereof.
Either party may terminate this Agreement effective on the Renewal Date or on
any one (1) year anniversary of the Renewal Date by giving the other party at
least ninety (90) days prior written notice by registered or certified mail,
return receipt requested. The foregoing notwithstanding, Foothill shall have the
right to terminate its obligations under this Agreement immediately and without
notice upon the occurrence and during the continuation of an Event of Default.
3.4 EFFECT OF TERMINATION. On the date of termination, all
Obligations (including contingent reimbursement obligations under any
outstanding L/Cs or L/C Guarantees) immediately shall become due and payable
without notice or demand. No termination of this Agreement, however, shall
relieve or discharge Borrower of Borrower's duties, Obligations, or covenants
hereunder, and Foothill's continuing security interests in the Collateral shall
remain in effect until all Obligations have been fully and finally discharged
and Foothill's obligation to provide advances hereunder is terminated. If
Borrower has sent a notice of termination pursuant to the provisions of SECTION
3.3, but fails to pay all Obligations on the date set forth in said notice, then
Foothill may, but shall not be required to, renew this Agreement for an
additional term of one (1) year.
3.5 EARLY TERMINATION BY BORROWER. The provisions of SECTION
3.3 that allow termination of this Agreement by Borrower only on the Renewal
Date and certain anniversaries thereof notwithstanding, Borrower has the option,
at any time upon at least ninety (90) days prior written notice to Foothill, to
terminate this Agreement by paying on the date of termination to Foothill, in
cash, the Obligations (including an amount equal to the full amount of any L/Cs
or L/C Guarantees that have not been released or returned), together with a
premium (the "Early Termination Premium") equal to the sum of: (a) one eighth
percent (.125%) multiplied by the Maximum Amount multiplied by the number of
months remaining in the term of this Agreement, plus (b) Twenty Five Thousand
Dollars ($25,000).
3.6 TERMINATION UPON EVENT OF DEFAULT. If Foothill terminates
this Agreement upon the occurrence of an Event of Default, in view of the
impracticability and extreme difficulty of ascertaining actual damages and by
mutual agreement of the parties as to a reasonable calculation of Foothill's
lost profits as a result thereof, Borrower shall pay to Foothill upon the
effective date of such termination, a premium in an amount equal to the Early
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Termination Premium. The Early Termination Premium shall be presumed to be the
amount of damages sustained by Foothill as the result of the early termination
and Borrower agrees that it is reasonable under the circumstances currently
existing. The Early Termination Premium provided for in this SECTION 3.6 shall
be deemed included in the Obligations.
4. CREATION OF SECURITY INTEREST.
4.1 GRANT OF SECURITY INTEREST. Borrower hereby grants to
Foothill a continuing security interest in all currently existing and hereafter
acquired or arising Collateral (except for the Excluded Assets, to the extent
Borrower is prohibited from granting Foothill a security interest therein) in
order to secure prompt repayment of any and all Obligations and in order to
secure prompt performance by Borrower of each of its covenants and duties under
the Loan Documents. Foothill's security interests in the Collateral shall attach
to all Collateral without further act on the part of Foothill or Borrower.
Anything contained in this Agreement or any other Loan Document to the contrary
notwithstanding, Borrower has no authority, express or implied, to dispose of
any item or portion of the Collateral, except for: (i) sales of Inventory to
buyers in the ordinary course of business, and (ii) sales or other dispositions
in the ordinary course of business of items that are worn out, obsolete or no
longer useful in the business.
4.2 NEGOTIABLE COLLATERAL. In the event that any Collateral,
including proceeds, is evidenced by or consists of Negotiable Collateral,
Borrower shall, immediately upon the request of Foothill, endorse and assign
such Negotiable Collateral to Foothill and deliver physical possession of such
Negotiable Collateral to Foothill.
4.3 COLLECTION OF ACCOUNTS, GENERAL INTANGIBLES, NEGOTIABLE
COLLATERAL. Foothill, Borrower, and the Lock Box Bank shall enter into the Lock
Box Agreement, in form and substance satisfactory to Foothill in its sole
discretion, pursuant to which all of Borrower's cash receipts, checks, and other
items of payment (including, insurance proceeds (other than proceeds of business
interruption insurance so long as no Event of Default has occurred), proceeds of
cash sales, rental proceeds, and tax refunds) will be forwarded to Foothill on a
daily basis. At any time with prior notice to Borrower, Foothill or Foothill's
designee may notify customers or Account Debtors of Borrower that the Accounts,
General Intangibles, or Negotiable Collateral have been assigned to Foothill or
that Foothill has a security interest therein. At any time after the occurrence
of Event of Default Foothill or Foothill's designee may collect the Accounts,
General Intangibles, and Negotiable Collateral directly and charge the
collection costs and expenses to Borrower's loan account. Borrower agrees that
it will hold in trust for Foothill, as Foothill's trustee, any cash receipts,
checks, and other items of payment (including, insurance proceeds, proceeds of
cash sales, rental proceeds, and tax refunds) that it receives and immediately
will deliver said cash receipts, checks, and other items of payment to Foothill
in their original form as received by Borrower.
4.4 DELIVERY OF ADDITIONAL DOCUMENTATION REQUIRED. At any time
upon the request of Foothill, Borrower shall execute and deliver to Foothill all
financing statements, continuation financing statements, fixture filings,
security agreements, chattel mortgages, pledges, assignments, endorsements of
certificates of title, applications for title, affidavits, reports, notices,
schedules of accounts, letters of authority, and all other documents that
Foothill
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may reasonably request, in form satisfactory to Foothill, to perfect and
continue perfected Foothill's security interests in the Collateral and in order
to fully consummate all of the transactions contemplated hereby and under the
other the Loan Documents.
4.5 POWER OF ATTORNEY. Borrower hereby irrevocably makes,
constitutes, and appoints Foothill (and any of Foothill's officers, employees,
or agents designated by Foothill) as Borrower's true and lawful attorney, with
power to: (a) if Borrower refuses to, or fails timely to execute and deliver any
of the documents described in SECTION 4.4, sign the name of Borrower on any of
the documents described in SECTION 4.4; (b) at any time that an Event of Default
has occurred and is continuing or Foothill deems itself insecure (in accordance
with Section 1208 of the Code), sign Borrower's name on any invoice or bill of
lading relating to any Account, drafts against Account Debtors, schedules and
assignments of Accounts, verifications of Accounts, and notices to Account
Debtors; (c) send requests for verification of Accounts; (d) endorse Borrower's
name on any checks, notices, acceptances, money orders, drafts, or other item of
payment or security that may come into Foothill's possession; (e) at any time
that an Event of Default has occurred and is continuing or Foothill deems itself
insecure (in accordance with Section 1208 of the Code) with prior notice to
Borrower, notify the post office authorities to change the address for delivery
of Borrower's mail to an address designated by Foothill, to receive and open all
mail addressed to Borrower, and to retain all mail relating to the Collateral
and forward all other mail to Borrower; (f) at any time that an Event of Default
has occurred and is continuing or Foothill deems itself insecure (in accordance
with Section 1208 of the Code), make, settle, and adjust all claims under
Borrower's policies of insurance and make all determinations and decisions with
respect to such policies of insurance; and (g) at any time that an Event of
Default has occurred and is continuing or Foothill deems itself insecure (in
accordance with Section 1208 of the Code), settle and adjust disputes and claims
respecting the Accounts directly with Account Debtors, for amounts and upon
terms which Foothill determines to be reasonable, and Foothill may cause to be
executed and delivered any documents and releases which Foothill determines to
be necessary. The appointment of Foothill as Borrower's attorney, and each and
every one of Foothill's rights and powers, being coupled with an interest, is
irrevocable until all of the Obligations have been fully and finally repaid and
performed and Foothill's obligation to extend credit hereunder is terminated.
4.6 RIGHT TO INSPECT. Foothill (through any of its officers,
employees, or agents) shall have the right, from time to time hereafter to
inspect Borrower's Books and to check, test, and appraise the Collateral in
order to verify Borrower's financial condition or the amount, quality, value,
condition of, or any other matter relating to, the Collateral. So long as no
Event of Default occurs, such inspections shall be conducted during normal
business hours.
5. REPRESENTATIONS AND WARRANTIES.
Borrower represents and warrants to Foothill as follows:
5.1 NO PRIOR ENCUMBRANCES. Borrower has good and indefeasible
title to the Collateral, free and clear of liens, claims, security interests, or
encumbrances, except for Permitted Liens.
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5.2 SUBSIDIARIES. Borrower has only the following
subsidiaries: Sound Advice Electronics of Maryland, Inc., Sound Advice of
Virginia, Inc., SAI Realty Investments, Inc., and SAI Distributors, Inc. Such
subsidiaries do not own any assets, are currently inactive and are currently not
engaged in business.
5.3 ELIGIBLE INVENTORY. All Eligible Landed Inventory and all
Eligible In-Transit Inventory is now and at all times hereafter shall be of
good and merchantable quality, free from defects.
5.4 LOCATION OF INVENTORY AND EQUIPMENT. The Inventory and
Equipment are not stored with a bailee, warehouseman, or similar party (without
Foothill's prior written consent) and are located only at the locations
identified on SCHEDULE E-1 or otherwise permitted by SECTION 6.15. Foothill
consents to the two warehouse locations identified in Section E of Schedule E-1
so long as such locations do not contain more than an aggregate of One Hundred
Fifty Thousand Dollars ($150,000) of Inventory at Borrower's Cost until the
Borrower obtains and delivers to Foothill a Collateral Access Agreement for each
such location.
5.5 INVENTORY RECORDS. Borrower now keeps, and hereafter at
all times shall keep, correct and accurate records itemizing and describing the
kind, type, quality, and quantity of the Inventory, and Borrower's cost
therefor.
5.6 LOCATION OF CHIEF EXECUTIVE OFFICE; FEIN. As of the date
hereof and as of the Closing Date, the chief executive office of Borrower is
located at the address indicated in the preamble to this Agreement. Borrower's
FEIN is 59-1520531.
5.7 DUE ORGANIZATION AND QUALIFICATION. Borrower is duly
organized and existing and in good standing under the laws of the state of its
incorporation and qualified and licensed to do business in, and in good standing
in, any state where the failure to be so licensed or qualified could reasonably
be expected to have a material adverse effect on the business, operations,
condition (financial or otherwise), finances, or prospects of Borrower or on the
value of the Collateral to Foothill.
5.8 DUE AUTHORIZATION; NO CONFLICT. The execution, delivery,
and performance of the Loan Documents are within Borrower's corporate powers,
have been duly authorized, and are not in conflict with nor constitute a breach
of any provision contained in Borrower's Articles or Certificate of
Incorporation, or By-laws, nor will they constitute an event of default under
any material agreement to which Borrower is a party or by which its properties
or assets may be bound, except for: (i) Borrower's loan agreements with the Old
Lender which will be paid off on the Closing Date, or (ii) agreements the breach
of which, individually or in the aggregate, do not have and could not reasonably
be expected to have a material adverse effect on the business, operations,
condition (financial or otherwise), finances, or prospects of Borrower or on the
value of the Collateral to Foothill.
5.9 LITIGATION. There are no actions or proceedings pending by
or against Borrower before any court or administrative agency and Borrower does
not have knowledge or belief of any pending, threatened, or imminent litigation,
governmental investigations, or claims,
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complaints, actions, or prosecutions involving Borrower, except for: (a) ongoing
collection matters in which Borrower is the plaintiff; (b) matters covered by
insurance; and (c) matters arising after the date hereof that, if decided
adversely to Borrower, would not materially impair the prospect of repayment of
the Obligations or materially impair the value or priority of Foothill's
security interests in the Collateral.
5.10 NO MATERIAL ADVERSE CHANGE IN FINANCIAL CONDITION. All
financial statements relating to Borrower that have been delivered by Borrower
to Foothill have been prepared in accordance with GAAP and fairly present
Borrower's financial condition as of the date thereof and Borrower's results of
operations for the period then ended. As of the date hereof and as of the
Closing Date, there has not been a material adverse change in the financial
condition of Borrower since the date of the latest financial statements
submitted to Foothill on or before the Closing Date.
5.11 SOLVENCY. Borrower is Solvent. No transfer of property is
being made by Borrower and no obligation is being incurred by Borrower in
connection with the transactions contemplated by this Agreement or the other
Loan Documents with the intent to hinder, delay, or defraud either present or
future creditors of Borrower.
5.12 EMPLOYEE BENEFITS. The representations and warranties
made by Borrower in this Section 5.12 shall be deemed to be made as of the date
hereof and as of the Closing Date. Each Plan is in compliance in all material
respects with the applicable provisions of ERISA and the IRC. Each Qualified
Plan and Multiemployer Plan has been determined by the Internal Revenue Service
to qualify under Section 401 of the IRC, and the trusts created thereunder have
been determined to be exempt from tax under Section 501 of the IRC, and, to the
best knowledge of Borrower, nothing has occurred that would cause the loss of
such qualification or tax-exempt status. There are no outstanding liabilities
under Title IV of ERISA with respect to any Plan maintained or sponsored by
Borrower or any ERISA Affiliate, nor with respect to any Plan to which Borrower
or any ERISA Affiliate contributes or is obligated to contribute which could
reasonably be expected to have a material adverse effect on the financial
condition of Borrower. No Plan subject to Title IV of ERISA has any Unfunded
Benefit Liability which could reasonably be expected to have a material adverse
effect on the financial condition of Borrower. Neither Borrower nor any ERISA
Affiliate has transferred any Unfunded Benefit Liability to a person other than
Borrower or an ERISA Affiliate or has otherwise engaged in a transaction that
could be subject to Sections 4069 or 4212(c) of ERISA which could reasonably be
expected to have a material adverse effect on the financial condition of
Borrower. Neither Borrower nor any ERISA Affiliate has incurred nor reasonably
expects to incur (x) any liability (and no event has occurred which, with the
giving of notice under Section 4219 of ERISA, would result in such liability)
under Sections 4201 or 4243 of ERISA with respect to a Multiemployer Plan, or
(y) any liability under Title IV of ERISA (other than premiums due but not
delinquent under Section 4007 of ERISA) with respect to a Plan, which could, in
either event, reasonably be expected to have a material adverse effect on the
financial condition of Borrower. No application for a funding waiver or an
extension of any amortization period pursuant to Section 412 of the IRC has been
made with respect to any Plan. No ERISA Event has occurred or is reasonably
expected to occur with respect to any Plan which could reasonably be expected to
have a material adverse effect on the financial condition of Borrower. Borrower
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and each ERISA Affiliate have complied in all material respects with the notice
and continuation coverage requirements of Section 4980B of the IRC.
5.13 ENVIRONMENTAL CONDITION. As of the date hereof and as of
the Closing Date, to the best of Borrower's knowledge none of Borrower's
properties or assets has ever been used by Borrower or, to the best of
Borrower's knowledge, by previous owners or operators in the disposal of, or to
produce, store, handle, treat, release, or transport, any Hazardous Materials.
As of the date hereof and as of the Closing Date, to the best of Borrower's
knowledge none of Borrower's properties or assets has ever been designated or
identified in any manner pursuant to any environmental protection statute as a
Hazardous Materials disposal site, or a candidate for closure pursuant to any
environmental protection statute. As of the date hereof and as of the Closing
Date, no lien arising under any environmental protection statute has attached to
any revenues or to any real or personal property owned by Borrower. As of the
date hereof and as of the Closing Date, Borrower has not received a summons,
citation, notice, or directive from the Environmental Protection Agency or any
other federal or state governmental agency concerning any action or omission by
Borrower resulting in the releasing or disposing of Hazardous Materials into the
environment.
5.14 RELIANCE BY FOOTHILL; CUMULATIVE. Each warranty and
representation contained in this Agreement automatically shall be deemed
repeated with each advance or issuance of an L/C or L/C Guaranty and shall be
conclusively presumed to have been relied on by Foothill regardless of any
investigation made or information possessed by Foothill. The warranties and
representations set forth herein shall be cumulative and in addition to any and
all other written warranties and representations that Borrower now or hereafter
shall give, or cause to be given, to Foothill.
6. AFFIRMATIVE COVENANTS.
Borrower covenants and agrees that, so long as any credit
hereunder shall be available and until full and final payment of the
Obligations, and unless Foothill shall otherwise consent in writing, Borrower
shall do all of the following:
6.1 ACCOUNTING SYSTEM. Borrower shall maintain a standard and
modern system of accounting in accordance with GAAP with ledger and account
cards or computer tapes, discs, printouts, and records pertaining to the
Collateral which contain information as from time to time may be requested by
Foothill. Borrower also shall keep proper books of account showing all sales,
claims, and allowances on its Inventory.
6.2 COLLATERAL REPORTS. Borrower shall deliver to Foothill, no
later than the twentieth (20th) day of each month during the term of this
Agreement, an aging, by total, of the Accounts, a reconciliation statement, and
a summary aging, by vendor, of all accounts payable and any book overdraft.
Borrower shall deliver to Foothill, as Foothill may from time to time require,
collection reports, sales journals, and reports reflecting customer purchase
orders and deposits. Absent such a request by Foothill, copies of all such
documentation shall be held by Borrower as custodian for Foothill.
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6.3 SUBSIDIARIES. As a condition to Borrower engaging in
business through any subsidiary, Borrower will give Foothill prior written
notice and cause such subsidiary to become a co-borrower and/or guarantor of the
Obligations on terms and conditions acceptable to Foothill in its reasonable
discretion.
6.4 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES. Borrower
agrees to deliver to Foothill: (a) as soon as available, but in any event within
thirty (30) days after the end of each month during each of Borrower's fiscal
years (except for the last month of each fiscal year), a company prepared
balance sheet, income statement, and cash flow statement covering Borrower's
operations during such period; PROVIDED, HOWEVER, that Borrower shall have forty
five (45) days to deliver such financial statements to Foothill with respect to
the last month of each of the first three fiscal quarters of each fiscal year;
and (b) as soon as available, but in any event within ninety (90) days after the
end of each of Borrower's fiscal years, financial statements of Borrower for
each such fiscal year, audited by independent certified public accountants
reasonably acceptable to Foothill and certified, without any qualifications, by
such accountants to have been prepared in accordance with GAAP, together with a
certificate of such accountants addressed to Foothill stating that such
accountants do not have knowledge of the existence of any event or condition
constituting an Event of Default, or that would, with the passage of time or the
giving of notice, constitute an Event of Default. Such audited financial
statements shall include a balance sheet, profit and loss statement, and cash
flow statement. Borrower also shall deliver to Foothill such accountants' letter
to management together with Borrower's reply promptly after being completed. If
Borrower is a parent company of one or more subsidiaries, or Affiliates, or is a
subsidiary or Affiliate of another company, then, in addition to the financial
statements referred to above, Borrower agrees to deliver financial statements
prepared on a consolidating basis so as to present Borrower and such related
entities on a consolidated basis.
Together with the above, Borrower also shall deliver to
Foothill Borrower's Form 10-Q Quarterly Reports, Form 10-K Annual Reports, and
Form 8-K Current Reports, and any other filings made by Borrower with the
Securities and Exchange Commission, as soon as the same are filed, or any other
information that is provided by Borrower to its shareholders, and any other
report reasonably requested by Foothill relating to the Collateral and financial
condition of Borrower.
Each month, together with the financial statements provided
pursuant to SECTION 6.4(a), Borrower shall deliver to Foothill a certificate
signed by its chief financial officer to the effect that: (i) all reports,
statements, or computer prepared information of any kind or nature delivered or
caused to be delivered to Foothill hereunder have been prepared in accordance
with GAAP and fairly present the financial condition of Borrower; (ii) Borrower
is in timely compliance in all material respects with all of its covenants and
agreements hereunder; (iii) the representations and warranties of Borrower
contained in this Agreement and the other Loan Documents are true and correct in
all material respects on and as of the date of such certificate, as though made
on and as of such date (except to the extent that such representations and
warranties relate solely to an earlier date); and (iv) on the date of delivery
of such certificate to Foothill there does not exist any condition or event that
constitutes an Event of Default (or, in each case, to the extent of any
non-compliance, describing such non-compliance as to which
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he or she may have knowledge and what action Borrower has taken, is taking, or
proposes to take with respect thereto).
Subject to the next sentence of this paragraph, Borrower
hereby irrevocably authorizes and directs all auditors, accountants, or other
third parties to deliver to Foothill, at Borrower's expense, copies of
Borrower's financial statements, papers related thereto, and other accounting
records of any nature in their possession, and to disclose to Foothill any
information they may have regarding Borrower's business affairs and financial
conditions. In all cases, Foothill shall request that Borrower obtain and
provide such information to Foothill and give Borrower a reasonable opportunity
to so provide same and only if the requested information is not so provided
shall Foothill request such information directly from such auditors,
accountants, or other third parties.
6.5 TAX RETURNS. Borrower agrees to deliver to Foothill upon
request copies of each of Borrower's future federal income tax returns, and any
amendments thereto, within thirty (30) days of the filing thereof with the
Internal Revenue Service.
6.6 COLLATERAL ACCESS AGREEMENTS. Borrower shall use its best
efforts (which shall not include the payment by Borrower of any material sums)
to obtain and deliver to Foothill Collateral Access Agreements for all of
Borrower's locations set forth on Schedule E-1 (as amended in the manner
permitted hereunder). The failure to obtain any such Collateral Access Agreement
after using best efforts shall not constitute an Event of Default hereunder. As
of this date, for purposes of item (d) of the definition of "Eligible Landed
Inventory", Foothill has Collateral Access Agreements for all of Borrower's
locations other than the Kendall, West Palm Beach and Storage Locations set
forth on SCHEDULE E-1.
6.7 DESIGNATION OF INVENTORY. Borrower shall now and from time
to time hereafter, but not less frequently than weekly, execute and deliver to
Foothill a designation of Inventory specifying Borrower's Cost, and an aging of
Borrower's Inventory and further specifying such other information as Foothill
may reasonably request. Borrower shall now and from time to time hereafter, but
not less frequently than monthly unless otherwise requested by Foothill in its
reasonable discretion, execute and deliver to Foothill a designation of
Inventory specifying the retail selling price of Borrower's Inventory.
6.8 STORE OPENINGS AND CLOSINGS AND RENT REPORTS. Borrower
shall give Foothill reasonable prior notice of new store openings and closing of
its stores. Except where Borrower is disputing its rent obligation in good
faith, Borrower shall make timely payment of all rents on real property leases
where Borrower is the lessee within applicable grace periods, and shall provide
Foothill with a monthly report specifying the status of such payments. In the
event that Borrower becomes delinquent in its rent payments, then Foothill can
establish reserves against the Borrowing Base for the amount of any actual or
potential landlord liens arising from such delinquency that would have priority
over Foothill's security interests.
6.9 TITLE TO EQUIPMENT. Upon the occurrence of an Event of
Default or if Foothill deems itself insecure, upon Foothill's request, Borrower
immediately shall deliver to
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Foothill, properly endorsed, any and all evidences of ownership of, certificates
of title, or applications for title to any items of Equipment.
6.10 MAINTENANCE OF EQUIPMENT. Borrower shall keep and
maintain the Equipment in good operating condition and repair (ordinary wear and
tear and casualty losses and damages excepted), and make all necessary
replacements thereto so that the value and operating efficiency thereof shall at
all times be maintained and preserved. Borrower shall not permit any item of
Equipment to become a fixture to real estate or an accession to other property,
and the Equipment is now and shall at all times remain personal property.
6.11 TAXES. All assessments and taxes, whether real, personal,
or otherwise, due or payable by, or imposed, levied, or assessed against
Borrower or any of its property have been paid, and shall hereafter be paid in
full, before delinquency or before the expiration of any extension period,
except for any such assessments or taxes that do not exceed Fifty Thousand
Dollars ($50,000) in the aggregate or that Borrower is contesting in good faith
and that have been reserved against in accordance with GAAP. Except as permitted
by the preceding sentence, Borrower shall make due and timely payment or deposit
of all federal, state, and local taxes, assessments, or contributions required
of it by law, and will execute and deliver to Foothill, on demand, appropriate
certificates attesting to the payment thereof or deposit with respect thereto.
Except as permitted by the first sentence of this Section, Borrower will make
timely payment or deposit of all tax payments and withholding taxes required of
it by applicable laws, including those laws concerning F.I.C.A., F.U.T.A., state
disability, and local, state, and federal income taxes, and will, upon request,
furnish Foothill with proof satisfactory to Foothill indicating that Borrower
has made such payments or deposits.
6.12 INSURANCE.
(a) Borrower, at its expense, shall keep the Collateral
insured against loss or damage by fire, theft, explosion, sprinklers, and all
other hazards and risks, and in such amounts, as are ordinarily insured against
by other owners in similar businesses. Borrower also shall maintain business
interruption, public liability, product liability, and property damage insurance
relating to Borrower's ownership and use of the Collateral, as well as insurance
against larceny, embezzlement, and criminal misappropriation.
(b) All such policies of insurance shall be in such form,
with such companies, and in such amounts as may be reasonably satisfactory to
Foothill. All such policies of insurance (except those of public liability and
property damage) shall contain a 438BFU lender's loss payable endorsement, or an
equivalent endorsement in a form satisfactory to Foothill, showing Foothill as
sole loss payee thereof, and shall contain a waiver of warranties, and shall
specify that the insurer must give at least ten (10) days prior written notice
to Foothill before canceling its policy for any reason. Borrower shall deliver
to Foothill certified copies of such policies of insurance and evidence of the
payment of all premiums therefor. All proceeds payable under any such policy
shall be payable to Foothill to be applied on account of the Obligations;
PROVIDED, however, that so long as no Event of Default has occurred, Borrower
shall be entitled to the use of the proceeds of Borrower's business interruption
insurance.
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6.13 FINANCIAL COVENANTS.
(a) Borrower shall maintain:
i) Current Ratio. A ratio of Consolidated
Current Assets divided by Consolidated Current Liabilities of at least 1.05-1.0,
measured on the last day of each fiscal quarter;
ii) Total Liabilities to Tangible Net Worth
Ratio. A ratio of Borrower's total liabilities divided by Tangible Net Worth of
not more than 2.75-1.0, measured on the last day of each fiscal quarter;
iii) Tangible Net Worth. Tangible Net Worth of
at least Fourteen Million Dollars ($14,000,000), measured on the last day of
each fiscal quarter; and
iv) Working Capital. Working Capital of not less
than Three Million Five Hundred Thousand Dollars ($3,500,000), measured on the
last day of each fiscal quarter.
(b) Borrower's cumulative aggregate net losses from
and after April 1, 1996 shall not at any time exceed Four Million Dollars
($4,000,000).
6.14 NO SETOFFS OR COUNTERCLAIMS. All payments hereunder and
under the other Loan Documents made by or on behalf of Borrower shall be made
without setoff or counterclaim and free and clear of, and without deduction or
withholding for or on account of, any federal, state, or local taxes.
6.15 LOCATION OF INVENTORY AND EQUIPMENT. Borrower shall keep
the Inventory and Equipment only at the locations identified on SCHEDULE E-1;
PROVIDED, HOWEVER, that Borrower may amend SCHEDULE E-1 so long as such
amendment occurs by written notice to Foothill not less than ten (10) days prior
to the date on which the Inventory or Equipment is moved to such new location,
so long as such new location is within the continental United States, and so
long as, at the time of such written notification, Borrower provides any
financing statements or fixture filings necessary to perfect and continue
perfected Foothill's security interests in such assets and also provides to
Foothill a landlord's waiver in form and substance satisfactory to Foothill.
6.16 COMPLIANCE WITH LAWS. Borrower shall comply with the
requirements of all applicable laws, rules, regulations, and orders of any
governmental authority, including the Fair Labor Standards Act and the Americans
With Disabilities Act, other than laws, rules, regulations, and orders the
non-compliance with which, individually or in the aggregate, would not have and
could not reasonably be expected to have a material adverse effect on the
business, operations, condition (financial or otherwise), finances, or prospects
of Borrower or on the value of the Collateral to Foothill.
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6.17 EMPLOYEE BENEFITS.
(a) Borrower shall deliver to Foothill a written
statement by the chief financial officer of Borrower specifying the nature of
any of the following events and the actions which Borrower proposes to take with
respect thereto promptly, and in any event within ten (10) days of becoming
aware of any of them, and when known, any action taken or threatened by the
Internal Revenue Service, PBGC, Department of Labor, or other party with respect
thereto: (i) an ERISA Event with respect to any Plan; (ii) the incurrence of an
obligation to pay additional premium to the PBGC under Section 4006(a)(3)(E) of
ERISA with respect to any Plan; and (iii) any lien on the assets of Borrower
arising in connection with any Plan.
(b) Borrower shall also promptly furnish to Foothill
copies prepared or received by Borrower or an ERISA Affiliate of: (i) at the
request of Foothill, each annual report (Internal Revenue Service Form 5500
series) and all accompanying schedules, actuarial reports, financial information
concerning the financial status of each Plan, and schedules showing the amounts
contributed to each Plan by or on behalf of Borrower or its ERISA Affiliates for
the most recent three (3) plan years; (ii) all notices of intent to terminate or
to have a trustee appointed to administer any Plan; (iii) all written demands by
the PBGC under Subtitle D of Title IV of ERISA; (iv) all notices required to be
sent to employees or to the PBGC under Section 302 of ERISA or Section 412 of
the IRC; (v) all written notices received with respect to a Multiemployer Plan
concerning (x) the imposition or amount of withdrawal liability pursuant to
Section 4202 of ERISA, (y) a termination described in Section 4041A of ERISA, or
(z) a reorganization or insolvency described in Subtitle E of Title IV of ERISA;
(vi) the adoption of any new Plan that is subject to Title IV of ERISA or
Section 412 of the IRC by Borrower or any ERISA Affiliate; (vii) the adoption of
any amendment to any Plan that is subject to Title IV of ERISA or Section 412 of
the IRC, if such amendment results in a material increase in benefits or
Unfunded Benefit Liability; or (viii) the commencement of contributions by
Borrower or any ERISA Affiliate to any Plan that is subject to Title IV of ERISA
or Section 412 of the IRC.
7. NEGATIVE COVENANTS.
Borrower covenants and agrees that, so long as any credit
hereunder shall be available and until full and final payment of the
Obligations, Borrower will not do any of the following without Foothill's prior
written consent:
7.1 INDEBTEDNESS. Create, incur, assume, permit, guarantee, or
otherwise become or remain, directly or indirectly, liable with respect to any
Indebtedness, except:
(a) Indebtedness evidenced by this Agreement;
(b) Indebtedness set forth in the latest financial
statements of Borrower submitted to Foothill on or prior to the Closing Date;
(c) Indebtedness secured by Permitted Liens;
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(d) refinancings, renewals, or extensions of Indebtedness
permitted under clauses (b) and (c) of this SECTION 7.1 (and continuance or
renewal of any Permitted Liens associated therewith) so long as: (i) the terms
and conditions of such refinancings, renewals, or extensions do not materially
impair the prospects of repayment of the Obligations by Borrower, (ii) the net
cash proceeds of such refinancings, renewals, or extensions do not result in an
increase in the aggregate principal amount of the Indebtedness so refinanced,
renewed, or extended, (iii) such refinancings, renewals, refundings, or
extensions do not result in a material shortening of the average weighted
maturity of the Indebtedness so refinanced, renewed, or extended, and (iv) to
the extent that Indebtedness that is refinanced was subordinated in right of
payment to the Obligations, then the subordination terms and conditions of the
refinancing Indebtedness must be at least as favorable to Foothill as those
applicable to the refinanced Indebtedness; and
(e) Up to One Million Five Hundred Thousand Dollars
($1,500,000) of additional unsecured Indebtedness, so long as such Indebtedness
does not result in a violation of SECTION 6.13.
7.2 LIENS. Create, incur, assume, or permit to exist, directly
or indirectly, any lien on or with respect to any of its property or assets, of
any kind, whether now owned or hereafter acquired, or any income or profits
therefrom, except for Permitted Liens (including liens that are replacements of
Permitted Liens to the extent that the original Indebtedness is refinanced under
SECTION 7.1(D) and so long as the replacement liens secure only those assets or
property that secured the original Indebtedness).
7.3 RESTRICTIONS ON FUNDAMENTAL CHANGES. Enter into any
acquisition, merger, consolidation, reorganization, or recapitalization, or
reclassify its capital stock, or liquidate, wind up, or dissolve itself (or
suffer any liquidation or dissolution), or convey, sell, assign, lease,
transfer, or otherwise dispose of, in one transaction or a series of
transactions, all or any substantial part of its business, property, or assets,
whether now owned or hereafter acquired, or acquire by purchase or otherwise all
or substantially all of the properties, assets, stock, or other evidence of
beneficial ownership of any Person.
7.4 EXTRAORDINARY TRANSACTIONS AND DISPOSAL OF ASSETS. Enter
into any transaction not in the ordinary and usual course of Borrower's
business, including the sale, lease, or other disposition of, moving,
relocation, or transfer, whether by sale or otherwise, of any of Borrower's
properties or assets, except for: (i) sales of Inventory to buyers in the
ordinary course of Borrower's business as currently conducted, (ii) sales or
other dispositions in the ordinary course of business of items that are worn
out, obsolete or no longer useful in the business, and (iii) relocation of
assets among the locations set forth on SCHEDULE E-1 (as amended in the manner
permitted hereunder) in the ordinary course of Borrower's business.
7.5 CHANGE NAME. Change Borrower's name, FEIN, business
structure, or identity, or add any new fictitious name.
7.6 GUARANTEE. Guarantee or otherwise become in any way liable
with respect to the obligations of any third Person except by endorsement or
instruments or items of payment
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for deposit to the account of Borrower or which are transmitted or turned over
to Foothill and except that Borrower may guarantee up to Fifty Thousand Dollars
($50,000) in the aggregate of loans to Borrower's employees.
7.7 RESTRUCTURE. Make any change in Borrower's financial
structure, the principal nature of Borrower's business operations, or the date
of its fiscal year.
7.8 PREPAYMENTS. Prepay any Indebtedness owing to any third
Person in an amount in excess of One Hundred Thousand Dollars ($100,000),
except: (i) in connection with a refinancing permitted by SECTION 7.1(D), (ii)
Borrower may sell its real estate located at 4113 Federal Highway, Ft.
Lauderdale, Florida 33021 and use the proceeds of the sale to pay off the
mortgage on such real estate, and (iii) Borrower may prepay Equipment loans that
are secured by such Equipment.
7.9 CHANGE OF CONTROL. Cause, permit, or suffer, directly or
indirectly, any Change of Control.
7.10 CAPITAL EXPENDITURES. Make any capital expenditure, or
any commitment therefor, in excess of One Million Seven Hundred Fifty Thousand
Dollars ($1,750,000) for any individual transaction or where the aggregate
amount of such capital expenditures, made or committed for in any fiscal year,
is in excess of Three Million Five Hundred Thousand Dollars ($3,500,000).
7.11 CONSIGNMENTS. Consign any Inventory or sell any Inventory
on bill and hold, sale or return, sale on approval, or other conditional terms
of sale.
7.12 DISTRIBUTIONS. Make any distribution or declare or pay
any dividends (in cash or property, other than shares of stock of Borrower) on,
or purchase, acquire, redeem, or retire any of Borrower's capital stock, of any
class, whether now or hereafter outstanding.
7.13 ACCOUNTING METHODS. Modify or change its method of
accounting or enter into, modify, or terminate any agreement currently existing,
or at any time hereafter entered into with any third party accounting firm or
service bureau for the preparation or storage of Borrower's accounting records
without said accounting firm or service bureau agreeing to provide Foothill
information regarding the Collateral or Borrower's financial condition. Borrower
waives the right to assert a confidential relationship, if any, it may have with
any accounting firm or service bureau in connection with any information
requested by Foothill pursuant to or in accordance with this Agreement, and
agrees that Foothill may contact directly any such accounting firm or service
bureau in order to obtain such information.
7.14 INVESTMENTS. Directly or indirectly make or acquire any
beneficial interest in (including stock, partnership interest, or other
securities of), or make any loan, advance, or capital contribution to, any
Person except for employee advances and loans made in the ordinary course of
business which in the aggregate do not exceed Seven Hundred Fifty Thousand
Dollars ($750,000) outstanding at any one time.
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7.15 TRANSACTIONS WITH AFFILIATES. Directly or indirectly
enter into or permit to exist any material transaction with any Affiliate of
Borrower except for transactions that are in the ordinary course of Borrower's
business, upon fair and reasonable terms, that are fully disclosed to Foothill,
and that are no less favorable to Borrower than would be obtained in arm's
length transaction with a non-Affiliate.
7.16 SUSPENSION. Suspend or go out of a substantial portion of
its business.
7.17 [INTENTIONALLY OMITTED].
7.18 USE OF PROCEEDS. Use the proceeds of the advances made
hereunder for any purpose other than: (a) on the Closing Date, to repay in full
the outstanding principal, accrued interest, and accrued fees and expenses owing
to the Old Lender; (b) to pay transactional fees, costs and expenses incurred in
connection with this Agreement; and (c) thereafter, consistent with the terms
and conditions hereof, for its lawful and permitted corporate purposes.
7.19 CHANGE IN LOCATION OF CHIEF EXECUTIVE OFFICE; INVENTORY
AND EQUIPMENT WITH BAILEES. Borrower covenants and agrees that it will not,
without thirty (30) days prior written notification to Foothill, relocate its
chief executive office to a new location and so long as, at the time of such
written notification, Borrower provides any financing statements or fixture
filings necessary to perfect and continue perfected Foothill's security
interests and also provides to Foothill a landlord's waiver in form and
substance satisfactory to Foothill. The Inventory and Equipment shall not at any
time now or hereafter be stored with a bailee, warehouseman, or similar party
without Foothill's prior written consent.
8. EVENTS OF DEFAULT.
Any one or more of the following events shall constitute an
event of default (each, an "Event of Default") under this Agreement:
8.1 If Borrower fails to pay when due and payable or when
declared due and payable, any portion of the Obligations (whether of principal,
interest (including any interest which, but for the provisions of the Bankruptcy
Code, would have accrued on such amounts), fees and charges due Foothill,
reimbursement of Foothill Expenses, or other amounts constituting Obligations);
8.2 If Borrower fails or neglects to perform, keep, or observe
any term, provision, condition, covenant, or agreement contained in this
Agreement, in any of the Loan Documents, or in any other present or future
agreement between Borrower and Foothill; PROVIDED, HOWEVER, that Borrower's
failure or neglect to comply with SECTION 6.2, SECTIONS 6.4 THROUGH 6.7, SECTION
6.11, and SECTION 6.17 shall not constitute an Event of Default hereunder unless
such failure or neglect continues for five (5) days or more;
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8.3 If there is a material impairment of the prospect of
repayment of any portion of the Obligations owing to Foothill or a material
impairment of the value or priority of Foothill's security interests in the
Collateral;
8.4 If any material portion of Borrower's properties or assets
is attached, seized, subjected to a writ or distress warrant, or is levied upon,
or comes into the possession of any third Person;
8.5 If an Insolvency Proceeding is commenced by Borrower;
8.6 If an Insolvency Proceeding is commenced against Borrower
and any of the following events occur: (a) Borrower consents to the institution
of the Insolvency Proceeding against it; (b) the petition commencing the
Insolvency Proceeding is not timely controverted; (c) the petition commencing
the Insolvency Proceeding is not dismissed within sixty (60) calendar days of
the date of the filing thereof; PROVIDED, HOWEVER, that, during the pendency of
such period, Foothill shall be relieved of its obligation to make additional
advances or issue additional L/Cs or L/C Guarantees hereunder; (d) an interim
trustee is appointed to take possession of all or a substantial portion of the
properties or assets of, or to operate all or any substantial portion of the
business of, Borrower; or (e) an order for relief shall have been issued or
entered therein;
8.7 If Borrower is enjoined, restrained, or in any way
prevented by court order from continuing to conduct all or any material part of
its business affairs;
8.8 If (a)(i) a notice of lien, levy, or assessment is filed
of record with respect to any of Borrower's properties or assets by the United
States Government, or any department, agency, or instrumentality thereof, or by
any state, county, municipal, or governmental agency, or (ii) if any taxes or
debts owing at any time hereafter to any one or more of such entities becomes a
lien, whether choate or otherwise, upon any of Borrower's properties or assets
and the same is not paid on the payment date thereof, and (b) the aggregate
amount of such liens exceeds Fifty Thousand Dollars ($50,000) at any time, and
PROVIDED THAT Foothill can establish reserves against Borrower's borrowing
availability hereunder for the amount of all such liens;
8.9 If a judgment or other claim individually or in the
aggregate exceeding Fifty Thousand Dollars ($50,000) becomes a lien or
encumbrance upon any material portion of Borrower's properties or assets;
8.10 If there is a material default (after applicable grace or
cure periods) in any material agreement to which Borrower is a party with one or
more third Persons resulting in a right by such Persons, irrespective of whether
exercised, to accelerate the maturity of Borrower's obligations thereunder, or
if there is a default in any such material agreement and the third Person(s)
accelerates the maturity of Borrower's obligations thereunder;
8.11 If Borrower makes any payment on account of Indebtedness
that has been contractually subordinated in right of payment to the payment of
the Obligations, except to the
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<PAGE>
extent such payment is permitted by the terms of the subordination provisions
applicable to such Indebtedness;
8.12 If any material misstatement or misrepresentation exists
now or hereafter in any warranty or representation made hereunder or in any
statement or report delivered pursuant hereto to Foothill by Borrower or any
officer, employee, agent, or director of Borrower, or if any such warranty or
representation is withdrawn; or
8.13 If (a) with respect to any Plan, there shall occur any of
the following which could reasonably be expected to have a material adverse
effect on the financial condition of Borrower: (i) the violation of any of the
provisions of ERISA; (ii) the loss by a Plan intended to be a Qualified Plan of
its qualification under Section 401(a) of the IRC; (iii) the incurrence of
liability under Title IV of ERISA; (iv) a failure to make full payment when due
of all amounts which, under the provisions of any Plan or applicable law,
Borrower or any ERISA Affiliate is required to make; (v) the filing of a notice
of intent to terminate a Plan under Sections 4041 or 4041A of ERISA; (vi) a
complete or partial withdrawal of Borrower or an ERISA Affiliate from any Plan;
(vii) the receipt of a notice by the plan administrator of a Plan that the PBGC
has instituted proceedings to terminate such Plan or appoint a trustee to
administer such Plan; (viii) a commencement or increase of contributions to, or
the adoption of or the amendment of, a Plan; and (ix) the assessment against
Borrower or any ERISA Affiliate of a tax under Section 4980B of the IRC; or (b)
there shall be any Unfunded Benefit Liability under any of the Plans of Borrower
or its ERISA Affiliates.
9. FOOTHILL'S RIGHTS AND REMEDIES.
9.1 RIGHTS AND REMEDIES. Upon the occurrence of an Event of
Default Foothill may, at its election, without notice of its election and
without demand, do any one or more of the following, all of which are authorized
by Borrower:
(a) Declare all Obligations, whether evidenced by this
Agreement, by any of the other Loan Documents, or otherwise, immediately due and
payable;
(b) Cease advancing money or extending credit to or for
the benefit of Borrower under this Agreement, under any of the Loan Documents,
or under any other agreement between Borrower and Foothill;
(c) Terminate this Agreement and any of the other Loan
Documents as to any future liability or obligation of Foothill, but without
affecting Foothill's rights and security interests in the Collateral and without
affecting the Obligations;
(d) Settle or adjust disputes and claims directly with
Account Debtors for amounts and upon terms which Foothill considers advisable,
and in such cases, Foothill will credit Borrower's loan account with only the
net amounts received by Foothill in payment of such disputed Accounts after
deducting all Foothill Expenses incurred or expended in connection therewith;
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<PAGE>
(e) Without notice to or demand upon Borrower, make such
payments and do such acts as Foothill considers necessary or reasonable to
protect its security interests in the Collateral. Borrower agrees to assemble
the Collateral if Foothill so requires, and to make the Collateral available to
Foothill as Foothill may designate. Borrower authorizes Foothill to enter the
premises where the Collateral is located, to take and maintain possession of the
Collateral, or any part of it, and to pay, purchase, contest, or compromise any
encumbrance, charge, or lien that in Foothill's determination appears to
conflict with its security interests and to pay all expenses incurred in
connection therewith. With respect to any of Borrower's owned premises, Borrower
hereby grants Foothill a license to enter into possession of such premises and
to occupy the same, without charge, for up to one hundred twenty (120) days in
order to exercise any of Foothill's rights or remedies provided herein, at law,
in equity, or otherwise;
(f) Without notice to Borrower (such notice being
expressly waived), and without constituting a retention of any collateral in
satisfaction of an obligation (within the meaning of Section 9505 of the Code),
set off and apply to the Obligations any and all (i) balances and deposits of
Borrower held by Foothill (including any amounts received in the Lock Boxes), or
(ii) indebtedness at any time owing to or for the credit or the account of
Borrower held by Foothill;
(g) Hold, as cash collateral, any and all balances and
deposits of Borrower held by Foothill, and any amounts received in the Lock
Boxes, to secure the full and final repayment of all of the Obligations;
(h) Ship, reclaim, recover, store, finish, maintain,
repair, prepare for sale, advertise for sale, and sell (in the manner provided
for herein) the Collateral. Foothill is hereby granted a license or other right
to use, without charge, Borrower's labels, patents, copyrights, rights of use of
any name, trade secrets, trade names, trademarks, service marks, and advertising
matter, or any property of a similar nature, as it pertains to the Collateral,
in completing production of, advertising for sale, and selling any Collateral
and Borrower's rights under all licenses and all franchise agreements shall
inure to Foothill's benefit;
(i) Sell the Collateral at either a public or private
sale, or both, by way of one or more contracts or transactions, for cash or on
terms, in such manner and at such places (including Borrower's premises) as
Foothill determines is commercially reasonable. It is not necessary that the
Collateral be present at any such sale;
(j) Foothill shall give notice of the disposition of the
Collateral as follows:
(1) Foothill shall give Borrower and each holder of a
security interest in the Collateral who has filed with Foothill a written
request for notice, a notice in writing of the time and place of public sale,
or, if the sale is a private sale or some other disposition other than a public
sale is to be made of the Collateral, then the time on or after which the
private sale or other disposition is to be made;
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<PAGE>
(2) The notice shall be personally delivered or
mailed, postage prepaid, to Borrower as provided in SECTION 12, at least ten
(10) days before the date fixed for the sale, or at least ten (10) days before
the date on or after which the private sale or other disposition is to be made;
no notice needs to be given prior to the disposition of any portion of the
Collateral that is perishable or threatens to decline speedily in value or that
is of a type customarily sold on a recognized market. Notice to Persons other
than Borrower claiming an interest in the Collateral shall be sent to such
addresses as they have furnished to Foothill;
(3) If the sale is to be a public sale, Foothill also
shall give notice of the time and place by publishing a notice one time at least
ten (10) days before the date of the sale in a newspaper of general circulation
in the county in which the sale is to be held;
(k) Foothill may credit bid and purchase at any public
sale; and
(l) Any deficiency that exists after disposition of the
Collateral as provided above will be paid immediately by Borrower. Any excess
will be returned, without interest and subject to the rights of third Persons,
by Foothill to Borrower.
9.2 REMEDIES CUMULATIVE. Foothill's rights and remedies under
this Agreement, the Loan Documents, and all other agreements shall be
cumulative. Foothill shall have all other rights and remedies not inconsistent
herewith as provided under the Code, by law, or in equity. No exercise by
Foothill of one right or remedy shall be deemed an election, and no waiver by
Foothill of any Event of Default shall be deemed a continuing waiver. No delay
by Foothill shall constitute a waiver, election, or acquiescence by it.
10. TAXES AND EXPENSES REGARDING THE COLLATERAL.
If Borrower fails to pay any monies (whether taxes, rents,
assessments, insurance premiums, or otherwise) due to third Persons, or fails to
make any deposits or furnish any required proof of payment or deposit, all as
required under the terms of this Agreement, then, to the extent that Foothill
determines that such failure by Borrower could have a material adverse effect on
Foothill's interests in the Collateral, in its discretion and without prior
notice to Borrower, Foothill may do any or all of the following: (a) make
payment of the same or any part thereof; (b) set up such reserves in Borrower's
loan account as Foothill deems necessary to protect Foothill from the exposure
created by such failure; or (c) obtain and maintain insurance policies of the
type described in SECTION 6.12, and take any action with respect to such
policies as Foothill deems prudent. Any such amounts paid by Foothill shall
constitute Foothill Expenses. Any such payments made by Foothill shall not
constitute an agreement by Foothill to make similar payments in the future or a
waiver by Foothill of any Event of Default under this Agreement. Foothill need
not inquire as to, or contest the validity of, any such expense, tax, security
interest, encumbrance, or lien and the receipt of the usual official notice for
the payment thereof shall be conclusive evidence that the same was validly due
and owing.
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<PAGE>
11. WAIVERS; INDEMNIFICATION.
11.1 DEMAND; PROTEST; ETC. Borrower waives demand, protest,
notice of protest, notice of default or dishonor, notice of payment and
nonpayment, notice of any default, nonpayment at maturity, release, compromise,
settlement, extension, or renewal of accounts, documents, instruments, chattel
paper, and guarantees at any time held by Foothill on which Borrower may in any
way be liable.
11.2 FOOTHILL'S LIABILITY FOR COLLATERAL. So long as Foothill
complies with its obligations, if any, under Section 9207 of the Code, Foothill
shall not in any way or manner be liable or responsible for: (a) the safekeeping
of the Collateral; (b) any loss or damage thereto occurring or arising in any
manner or fashion from any cause; (c) any diminution in the value thereof; or
(d) any act or default of any carrier, warehouseman, bailee, forwarding agency,
or other Person. All risk of loss, damage, or destruction of the Collateral
shall be borne by Borrower.
11.3 INDEMNIFICATION. Borrower agrees to defend, indemnify,
save, and hold Foothill and its officers, employees, and agents harmless
against: (a) all obligations, demands, claims, and liabilities claimed or
asserted by any other Person arising out of or relating to the transactions
contemplated by this Agreement or any other Loan Document, and (b) all losses
(including attorneys fees and disbursements) in any way suffered, incurred, or
paid by Foothill as a result of or in any way arising out of, following, or
consequential to the transactions contemplated by this Agreement or any other
Loan Document; PROVIDED, HOWEVER, that Borrower shall not be liable to Foothill
for consequential damages and shall not be obligated to indemnify Foothill in
respect of any matter that a court of competent jurisdiction determines by a
final judgment resulted primarily from Foothill's wilful misconduct or gross
negligence. This provision shall survive the termination of this Agreement.
12. NOTICES.
Unless otherwise provided in this Agreement, all notices or
demands by any party relating to this Agreement or any other Loan Document shall
be in writing and (except for financial statements and other informational
documents which may be sent by first-class mail, postage prepaid) shall be
personally delivered or sent by registered or certified mail, postage prepaid,
return receipt requested, or by prepaid telex, TWX, telefacsimile, or telegram
(with messenger delivery specified) to Borrower or to Foothill, as the case may
be, at its address set forth below:
If to Borrower: SOUND ADVICE, INC.
1901 Tigertail Boulevard
Dania, Florida 33004
Attn.: Kenneth L. Danielson, Chief Financial Officer
Telefacsimile No. (954) 926-4389
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<PAGE>
With a copy to: RUBIN BAUM LEVIN CONSTANT
FRIEDMAN & BILZIN
2500 First Union Financial Center
Miami Beach, FL 33131-2336
Attn.: Alan D. Axelrod, Esq.
Telefacsimile No. (305) 374-7593
If to Foothill: FOOTHILL CAPITAL CORPORATION
11111 Santa Monica Boulevard
Suite 1500
Los Angeles, California 90025-3333
Attn.: Business Finance Division Manager
Telefacsimile No. (310) 479-2690
With a copy to: BUCHALTER, NEMER, FIELDS & YOUNGER
601 South Figueroa Street, Suite 2400
Los Angeles, California 90017-5704
Attn.: Robert C. Colton, Esq.
Telefacsimile No. (213) 896-0400
The parties hereto may change the address at which they are to
receive notices hereunder, by notice in writing in the foregoing manner given to
the other. All notices or demands sent in accordance with this SECTION 12, other
than notices by Foothill in connection with Sections 9504 or 9505 of the Code,
shall be deemed received on the earlier of the date of actual receipt or three
(3) days after the deposit thereof in the mail. Borrower acknowledges and agrees
that notices sent by Foothill in connection with Sections 9504 or 9505 of the
Code shall be deemed sent when deposited in the mail or transmitted by
telefacsimile or other similar method set forth above.
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
THE VALIDITY OF THIS AGREEMENT, ITS CONSTRUCTION,
INTERPRETATION, AND ENFORCEMENT, AND THE RIGHTS OF THE PARTIES HERETO WITH
RESPECT TO ALL MATTERS ARISING HEREUNDER OR RELATED HERETO SHALL BE DETERMINED
UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
CALIFORNIA, WITHOUT GIVING EFFECT TO ITS CONFLICT OF LAWS PRINCIPLES. THE
PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS
AGREEMENT SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS
LOCATED IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA OR, AT THE SOLE OPTION
OF FOOTHILL, IN ANY OTHER COURT IN WHICH FOOTHILL SHALL INITIATE LEGAL OR
EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT MATTER JURISDICTION OVER THE MATTER
IN CONTROVERSY. EACH OF BORROWER AND FOOTHILL WAIVES, TO THE EXTENT PERMITTED
UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM
NON CONVENIENS OR TO OBJECT TO
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<PAGE>
VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION
13. BORROWER AND FOOTHILL HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL
OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN
DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT
CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR
STATUTORY CLAIMS. BORROWER AND FOOTHILL REPRESENT THAT EACH HAS REVIEWED THIS
WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING
CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS
AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
14. DESTRUCTION OF BORROWER'S DOCUMENTS.
All documents, schedules, invoices, agings, or other papers
delivered to Foothill may be destroyed or otherwise disposed of by Foothill four
(4) months after they are delivered to or received by Foothill, unless Borrower
requests, in writing, the return of said documents, schedules, or other papers
and makes arrangements, at Borrower's expense, for their return.
15. GENERAL PROVISIONS.
15.1 EFFECTIVENESS. This Agreement shall be binding and deemed
effective when executed by Borrower and Foothill.
15.2 SUCCESSORS AND ASSIGNS. This Agreement shall bind and
inure to the benefit of the respective successors and assigns of each of the
parties; PROVIDED, HOWEVER, that Borrower may not assign this Agreement or any
rights or duties hereunder without Foothill's prior written consent and any
prohibited assignment shall be absolutely void. No consent to an assignment by
Foothill shall release Borrower from its Obligations. Foothill may assign this
Agreement and its rights and duties hereunder to a Qualified Lender and no
consent or approval by Borrower is required in connection with any such
assignment. Foothill reserves the right to sell, assign, transfer, negotiate, or
grant participations in all or any part of, or any interest in Foothill's rights
and benefits hereunder to a Qualified Lender. In connection with any such
assignment or participation, Foothill may disclose all documents and information
which Foothill now or hereafter may have relating to Borrower or Borrower's
business subject to such Qualified Lender agreeing in writing to maintain same
confidential to the same extent set forth in SECTION 15.3. To the extent that
Foothill assigns its rights and obligations hereunder to a Qualified Lender with
assets in excess of One Hundred Million Dollars ($100,000,000), Foothill shall
thereafter be released from such assigned obligations to Borrower and such
assignment shall effect a novation between Borrower and such third Person.
15.3 CONFIDENTIALITY. Foothill agrees to maintain the
confidentiality of any material non-public information that is disclosed by
Borrower to Foothill.
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<PAGE>
15.4 SECTION HEADINGS. Headings and numbers have been set
forth herein for convenience only. Unless the contrary is compelled by the
context, everything contained in each section applies equally to this entire
Agreement.
15.5 INTERPRETATION. Neither this Agreement nor any
uncertainty or ambiguity herein shall be construed or resolved against Foothill
or Borrower, whether under any rule of construction or otherwise. On the
contrary, this Agreement has been reviewed by all parties and shall be construed
and interpreted according to the ordinary meaning of the words used so as to
fairly accomplish the purposes and intentions of all parties hereto.
15.6 SEVERABILITY OF PROVISIONS. Each provision of this
Agreement shall be severable from every other provision of this Agreement for
the purpose of determining the legal enforceability of any specific provision.
15.7 AMENDMENTS IN WRITING. This Agreement can only be amended
by a writing signed by both Foothill and Borrower.
15.8 COUNTERPARTS; TELEFACSIMILE EXECUTION. This Agreement may
be executed in any number of counterparts and by different parties on separate
counterparts, each of which, when executed and delivered, shall be deemed to be
an original, and all of which, when taken together, shall constitute but one and
the same Agreement. Delivery of an executed counterpart of this Agreement by
telefacsimile shall be equally as effective as delivery of a manually executed
counterpart of this Agreement. Any party delivering an executed counterpart of
this Agreement by telefacsimile also shall deliver a manually executed
counterpart of this Agreement but the failure to deliver a manually executed
counterpart shall not affect the validity, enforceability, and binding effect of
this Agreement.
15.9 REVIVAL AND REINSTATEMENT OF OBLIGATIONS. If the
incurrence or payment of the Obligations by Borrower or the transfer by Borrower
to Foothill of any property should for any reason subsequently be declared to be
void or voidable under any state or federal law relating to creditors' rights,
including provisions of the Bankruptcy Code relating to fraudulent conveyances,
preferences, and other voidable or recoverable payments of money or transfers of
property (collectively, a "Voidable Transfer"), and if Foothill is required to
repay or restore, in whole or in part, any such Voidable Transfer, or elects to
do so upon the reasonable advice of its counsel, then, as to any such Voidable
Transfer, or the amount thereof that Foothill is required or elects to repay or
restore, and as to all reasonable costs, expenses, and attorneys fees of
Foothill related thereto, the liability of Borrower automatically shall be
revived, reinstated, and restored and shall exist as though such Voidable
Transfer had never been made.
15.10 INTEGRATION. This Agreement, together with the other
Loan Documents, reflect the entire understanding of the parties with respect to
the transactions contemplated
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<PAGE>
hereby and shall not be contradicted or qualified by any other agreement, oral
or written, before the date hereof.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in Los Angeles, California.
FOOTHILL CAPITAL CORPORATION,
a California corporation
By /s/ PATRICIA MCLOUGHLIN
-------------------------------------
Title: VICE PRESIDENT
SOUND ADVICE, INC.,
a Florida corporation
By /s/ KENNETH L. DANIELSON
-------------------------------------
Title: CFO AND TREASURER
-41-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE REGISTRANT'S
FINANCIAL STATEMENTS AS OF AND FOR THE NINE MONTH PERIOD ENDED MARCH 31,
1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> MAR-31-1996
<CASH> 50,712
<SECURITIES> 0
<RECEIVABLES> 4,575,795
<ALLOWANCES> 556,000
<INVENTORY> 26,121,366
<CURRENT-ASSETS> 31,988,821
<PP&E> 29,279,466
<DEPRECIATION> 15,921,218
<TOTAL-ASSETS> 47,495,228
<CURRENT-LIABILITIES> 22,857,369
<BONDS> 1,604,872
0
0
<COMMON> 37,289
<OTHER-SE> 18,577,598
<TOTAL-LIABILITY-AND-EQUITY> 47,495,228
<SALES> 136,504,152
<TOTAL-REVENUES> 136,504,152
<CGS> 97,913,399
<TOTAL-COSTS> 97,913,399
<OTHER-EXPENSES> 40,817,957
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,017,059
<INCOME-PRETAX> (3,242,428)
<INCOME-TAX> (461,300)
<INCOME-CONTINUING> (2,781,128)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,781,128)
<EPS-PRIMARY> (.75)
<EPS-DILUTED> (.75)
</TABLE>
