Second Quarter Filing on Form 10-Q
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
_X_ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
AUGUST 2, 1997
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT FOR THE TRANSITION PERIOD
FROM ____ TO ____
COMMISSION FILE NUMBER: 0-14818
--------------------------------
TRANS WORLD ENTERTAINMENT CORPORATION
-------------------------------------
(Exact name of registrant as specified in its charter)
NEW YORK 14-1541629
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
38 Corporate Circle
Albany, New York 12203
----------------------
(Address of principal executive offices, including zip code)
(518) 452-1242
--------------
(Registrant's telephone number, including area code)
Indicate by a check mark whether the Registrant (1) has filed all
reports required to be filed by Sections 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for
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 practicable date.
Common Stock, $01 par value,
9,846,509 shares outstanding as of August 29, 1997
<PAGE>
TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Form 10-Q
Page No.
---------
PART 1. FINANCIAL INFORMATION
Item 1 - Financial Statements (unaudited)
Condensed Consolidated Balance Sheets - August 2, 1997,
February 1, 1997 and August 3, 1996 3
Condensed Consolidated Statements of Income - Thirteen Weeks Ended
and Twenty-Six Weeks Ended August 2, 1997 and August 3, 1996 5
Condensed Consolidated Statements of Cash Flows - Twenty-Six Weeks
Ended August 2, 1997 and August 3, 1996 6
Notes to Condensed Consolidated Financial Statements 7
Item 2 - Management's Discussion and Analysis of Financial
Conditions and Results of Operations 10
PART II. OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 15
Signatures 15
<PAGE>
TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
August 2, February 1, August 3,
1997 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 9,757 $ 54,771 $ 7,783
Merchandise inventory 151,563 163,509 168,718
Other current assets 10,037 14,654 20,534
--------- --------- ---------
Total current assets 171,357 232,934 197,035
--------- --------- ---------
VIDEOCASSETTE RENTAL INVENTORY, net 4,203 4,784 7,163
DEFERRED TAX ASSET 3,918 3,098 430
FIXED ASSETS:
Property, plant and equipment 168,729 169,292 169,273
Less: Fixed asset write-off reserve 6,500 7,571 10,430
Allowances for depreciation and amortization 99,911 96,747 93,401
--------- --------- ---------
62,318 64,974 65,442
--------- --------- ---------
OTHER ASSETS 3,179 4,263 3,525
--------- --------- ---------
TOTAL ASSETS $244,975 $310,053 $273,595
========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
(unaudited)
<TABLE>
<CAPTION>
August 2, February 1, August 3,
1997 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 77,684 $118,980 $ 76,517
Notes payable 1,241 --- 19,813
Accrued expenses and other 7,073 9,403 7,686
Store closing reserve 10,549 13,747 17,152
Current portion of long-term debt
and capital lease obligations 93 9,557 5,465
--------- --------- ---------
Total current liabilities 96,640 151,687 126,633
--------- --------- ---------
LONG-TERM DEBT, less current portion 35,000 43,983 46,024
CAPITAL LEASE OBLIGATIONS,
less current portion 6,459 6,507 6,553
OTHER LIABILITIES 6,889 6,514 5,300
--------- --------- ---------
TOTAL LIABILITIES 144,988 208,691 184,510
--------- --------- ---------
SHAREHOLDERS' EQUITY:
Preferred stock ($.01 par value; 5,000,000 shares
authorized; none issued) --- --- ---
Common stock ($.01 par value; 20,000,000 shares
authorized; 9,872,382, 9,809,594 and 9,731,208
shares issued respectively) 98 98 98
Additional paid-in capital 24,812 24,540 24,413
Treasury stock, at cost (40,394, 41,394
and 48,394 shares, respectively) (394) (407) (407)
Unearned compensation - restricted stock (210) (245) (162)
Retained earnings 75,681 77,376 65,143
--------- --------- ---------
TOTAL SHAREHOLDERS' EQUITY 99,987 101,362 89,085
--------- --------- ---------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $244,975 $310,053 $273,595
========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-Six Weeks Ended
------------------------- -------------------------
August 2, August 3, August 2, August 3,
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Sales $105,024 $ 96,717 $214,536 $203,339
Cost of sales 65,497 62,101 135,746 131,554
--------- --------- --------- ---------
Gross profit 39,527 34,616 78,790 71,785
Selling, general and
administrative expense 35,708 31,666 71,056 66,363
Depreciation and amortization 3,643 3,527 7,228 7,180
--------- --------- --------- ---------
Income (Loss) from operations 176 (577) 506 (1,758)
Interest expense 1,543 3,106 3,285 6,143
--------- --------- --------- ---------
Loss before income taxes (1,367) (3,683) (2,779) (7,901)
Income tax expense benefit (533) (1,291) (1,084) (2,770)
--------- --------- --------- ---------
NET LOSS $ (834) $ (2,392) $ (1,695) $ (5,131)
========= ========= ========= =========
LOSS PER SHARE $ (0.09) $ (0.25) $ (0.17) $ (0.53)
========= ========= ========= =========
Weighted average number of
common shares outstanding 9,806 9,739 9,788 9,737
========= ========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
TRANS WORLD ENTERTAINMENT AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Twenty-Six Weeks Ended
-------------------------
August 2, August 3,
1997 1996
---------- ----------
<S> <C> <C>
---------- ----------
NET CASH USED BY OPERATING ACTIVITIES: $(23,559) $(26,908)
---------- ----------
INVESTING ACTIVITIES:
Acquisition of property and equipment (5,102) (2,951)
Disposal(Purchase) of videocassette
rental inventory, net 581 (441)
---------- ----------
Net cash used by investing activities (4,521) (3,392)
---------- ----------
FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 35,000 ---
Payments of long-term debt and capital
lease obligations (53,495) (3,520)
Net increase(decrease) in revolving
line of credit 1,241 (45,447)
Proceeds from issuance of common stock --- 1
Increase in additional paid-in capital 272 177
Decrease in treasury stock due to
reissuance of shares 13 96
Decrease(Increase) unearned compensation from
issuance of shares of restricted stock 35 (162)
---------- ----------
Net cash used by financing activities (16,934) (48,855)
---------- ----------
Net decrease in cash and cash equivalents (45,014) (79,155)
Cash and cash equivalents, beginning of period 54,771 86,938
---------- ----------
Cash and cash equivalents, end of period $ 9,757 $ 7,783
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1. Basis of Presentation
The accompanying unaudited financial statements consist of Trans World
Entertainment Corporation and its subsidiaries, (the "Company"), all of which
are wholly owned. All significant intercompany accounts and transactions have
been eliminated. Joint venture investments, none of which are material, are
accounted for using the equity method.
These interim condensed financial statements have been prepared pursuant to
the rules and regulations of the Securities and Exchange Commission. The
information furnished in these condensed consolidated financial statements
reflect all normal, recurring adjustments which, in the opinion of management,
are necessary for a fair presentation of such financial statements. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to rules and regulations applicable to interim
financial statements.
These unaudited condensed consolidated financial statements should be read in
conjunction with the audited financial statements included in the Company's
Annual Report on Form 10-K for the fiscal year ended February 1, 1997.
Note 2. Restructuring Charge
In order to streamline operations and close unprofitable store locations, the
Company recorded pre-tax restructuring charges of $35 million in 1995 and $21
million 1994. The restructuring charges include the write-down of assets,
estimated cash payments to landlords for early termination of operating leases
and the cost for returning product to the Company's distribution center and
vendors. The charge also includes estimated legal, lender and consulting
fees, including those that the Company was obligated to pay on behalf of its
lenders while working to renegotiate its credit agreements.
<PAGE>
TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 2. Restructuring Charge (cont'd)
In determining the components of the reserves, management analyzed all of the
aspects of closing stores and the costs that are incurred. An analysis of the
amounts comprising the restructuring reserve and the charges against the
reserve for the period from February 1, 1997 through August 2, 1997 are
outlined below (in thousands):
<TABLE>
<CAPTION>
Balance Charges against Balance
as of the Reserve as of
02/01/97 1st Qtr 2nd Qtr 08/02/97
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Non-cash write-offs $ 7,671 $ 445 $ 855 $ 6,371
Cash outflows 13,647 2,311 658 10,678
-------- -------- -------- ---------
Total $ 21,318 $ 2,756 $ 1,513 $ 17,049
======== ======== ======== =========
</TABLE>
Note 3. Seasonality
The Company's business is seasonal in nature, with the highest sales and
earnings occurring in the fourth fiscal quarter.
Note 4. Earnings (Loss) Per Share
Earnings (Loss) per share is based on the weighted average number of common
shares outstanding during each fiscal period. Common stock equivalents, which
relate to employee stock options, are excluded from the calculations, as their
inclusion would have an anti-diltive impact on the loss per share.
<PAGE>
TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 5. Recently Issued Accounting Standards
Financial Accounting Standards Board Statement No. 128, "Earnings per Share"
("Statement No. 128"), issued in February 1997 and effective for fiscal years
ending after December 15, 1997, establishes and simplifies standards for
computing and presenting earnings per share ("EPS"). Implementation of
Statement No. 128 will not have a material impact on the Company's computation
or presentation of EPS, as the Company's common stock equivalents either have
had no material effect on EPS amounts or have been anti-dilutive with respect
to losses.
Financial Accounting Standards Board Statement No. 130, "Reporting
Comprehensive Income" ("Statement No. 130"), issued in June 1997 and effective
for fiscal years beginning after December 15, 1997, establishes standards for
reporting and display of the total of net income and the components of all
other nonowner changes in equity, or comprehensive income, either below net
income(loss) in the statement of operations, in a separate statement of
comprehensive income(loss) or within the statement of changes of stockholders'
equity. The Company has had no significant items of other comprehensive
income.
<PAGE>
TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations
The following is an analysis of the Company's results of operations, liquidity
and capital resources. To the extent that such analysis contains statements
which are not of a historical nature, such statements are forward-looking
statements, which involve risks and uncertainties. These risks include, but
are not limited to, changes in the competitive environment for the Company's
products, including the entry or exit of non-traditional retailers of the
Company's products to or from its markets; the release by the music industry
of an increased or decreased number of "hit releases", general economic
factors in markets where the Company's products are sold; and other factors
discussed in the Company's filings with the Securities and Exchange
Commission.
RESULTS OF OPERATIONS
- ---------------------
Thirteen Weeks Ended August 2, 1997
Compared to the Thirteen Weeks Ended August 3, 1996
Sales. Total sales increased 8.6% to $105.0 million for the thirteen weeks
ended August 2, 1997 compared to $96.7 million for the same period last year.
The Company operated 35 fewer stores in 1997 than in 1996, a decrease of
approximately 83,000 square feet of retail selling space. The increase in
total sales is due to the comparable sales increase of 8.7%, which is measured
against last year's 3.4% increase and is the Company's sixth consecutive
quarter of comparable store sales growth.
Comparable store sales in the Company's music stores increased 9.1% while
comparable sales in the video stores increased 6.6%.
Gross Profit. Gross profit as a percentage of sales improved to 37.6% from
35.8% in the thirteen week period ended August 2, 1997 compared to the same
period in 1996. The increase is due to a higher initial markon and lower
markdowns in the quarter.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses ("S,G&A"), expressed as a percentage of sales,
increased from 32.7% to 34.0% in the thirteen week period ended August 2, 1997
when compared to the same period in 1996. The 1996 percentage includes the
receipt of $2.5 million upon the termination of a business development
agreement which was recorded as a reduction of S,G&A. Excluding the receipt of
$2.5 million, S,G&A as a percentage of sales improved in 1997 from 35.3% in
1996 as the Company continues to leverage its operating expenses against
sales.
<PAGE>
TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and
Results of Operations
(continued)
Interest Expense. Net interest expense was reduced to $1.5 million in the
thirteen week period ended August 2, 1997 from $3.1 million in 1996. The
decrease is due to a reduction of approximately $35 million of total debt,
compared to the second quarter of 1996 and reduced interest rates during the
last month of the quarter which is the result of the complete refinancing of
the Company's debt, completed on July 9, 1997.
Net Loss. The Company reduced its net loss to $0.8 million for the thirteen
weeks ended August 2, 1997 from a net loss of $2.4 million for the same period
in 1996. The 1996 loss includes the receipt of $2.5 million upon the
termination of a business development agreement. Excluding the receipt of
$2.5 million the Company's net loss in 1996 would have been $4.0 million. The
improved bottom line performance can be attributed to the comparable store
sales increase, improved gross margin rates, leverage of SG&A expense and
lower interest expense.
Twenty-Six Weeks Ended August 2, 1997
Compared to the Twenty-Six Weeks Ended August 3, 1996
Sales. The Company's total sales increased 5.5% to $214.5 million for the
twenty-six weeks ended August 2, 1997 compared to $203.3 million for the same
period last year, while operating 35 fewer stores. The increase in sales is
due to enhanced merchandising and marketing initiatives combined with an
overall improvment in the music and video specialty retail industry.
Comparable store sales increased by 6.9% which is measured against last year's
4.8% increase.
Comparable store sales in the Company's music stores increased approximately
7.3% while comparable sales in the video stores increased 5.7%.
Gross Profit. Gross profit as a percentage of sales improved to 36.7% from
35.3% in the first half of 1997, compared to 1996. The increase is due to
a higher initial markon and higher purchase discounts combined with a greater
percentage of higher margin catalog sales.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses ("S,G&A"), as a percentage of sales, increased to
33.1% in the first half of 1997 from 32.6% in the first half of 1996. The
1996 percentage includes the receipt of $2.5 million upon the termination of a
business development agreement which, was recorded as a reduction of S,G&A.
Excluding the receipt of $2.5 million, S,G&A as a percentage of sales improved
in 1997 from 33.8% in 1996 as the Company continues to leverage its operating
expenses against sales.
<PAGE>
TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and
Results of Operations
(continued)
Interest Expense. Net interest expense was reduced to $3.3 million in the
twenty-six week period ended August 2, 1997 from $6.1 million for the
twenty-six week period ending August 3, 1997. The decrease is due to a
reduction of approximately $86 million of total debt since the beginning of
1996.
Net Loss. The Company reduced its net loss to $1.7 million in the twenty-six
weeks ended August 2, 1997 from a net loss of $5.1 million during the same
period last year. The 1996 loss includes the receipt of of $2.5 million upon
the termination of a business development agreement. Excluding the receipt of
$2.5 million the Company's net loss in 1996 would have been $6.8 million. The
improved bottom line performance can be attributed to the comparable store
sales increase, improved gross margin rates, leverage of SG&A expense and
lower interest expense.
<PAGE>
TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and
Results of Operations
(continued)
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Liquidity and Sources of Capital. Cash generated from earnings continued to
be the Company's primary source of liquidity during the first half of the
fiscal year. The Company had unused lines of credit aggregating $63.8
million, at August 2, 1997.
The Company's working capital at August 2, 1997 was $74.7 million and its
ratio of current assets to current liabilities was 1.8 to 1. During the first
half of 1997, the Company's net cash used by operations was $23.6 million,
compared to $26.9 million used in the first half of 1996. The most
significant uses of cash during the period were $41.3 million in normal
reductions of accounts payable, $17.2 million in total debt reduction and $5.5
million relating to the reduction of accrued expenses and store closing
reserves.
On July 9, 1997, the Company finalized a new Loan and Security Agreement with
Congress Financial Corporation. The new agreement replaced the Company's
existing debt by making $100 million available to the Company under a new
revolving credit facility, at favorable financing terms.
CAPITAL EXPENDITURES
- --------------------
During the twenty-six weeks ended August 2, 1997, the Company had capital
expenditures of $5.1 million out of a total of $12 million, net of
construction allowances, planned for the year. During the first half of 1997
the Company has opened or relocated 19 new stores and closed 30 stores while
total retail selling space has declined slightly. While the Company is
closing more stores than it is opening it anticipates that total retail
footage for the year will increase as the average size of new stores continues
to increase.
On August 4, 1997 the Company announced the signing of a Letter of Intent to
acquire Strawberries Inc., a privately-held retailer of pre-recorded music and
video, based in Milford, MA. Final closing of the acquisition is subject to
the approval of the U.S. District Court and the signing of a definitive
agreement.
<PAGE>
Management's Discussion and Analysis of Financial Condition and
Results of Operations
(continued)
PROVISION FOR BUSINESS RESTRUCTURING
- ------------------------------------
The Company is experiencing the earnings and cash flow benefits which are the
result of a comprehensive business restructuring plan that began in the 4th
quarter of 1994. Through the first half of 1997, the Company has closed or
relocated a total of 294 stores that were performing below financial
expectations. The Company continues to monitor the financial performance of
it's stores and continues to close underperforming stores. The restructuring
is expected to be substantially complete in the next twelve months and the
Company will open new stores that meet its standards for projected sales and
profitability
Additionally, the restructuring has allowed the Company to achieve key
financial efficiencies. Through the first half of 1997, the Company has
reduced it's investment in inventory to $152 million compared to $169 million
last year. It also reduced total debt to $36 million from $71 million in
1996.
<PAGE>
PART II. OTHER INFORMATION
TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
Item 6 - Exhibits and Reports on Form 8-K
(A) Exhibits
Exhibit No. Description Page No.
----------- -------------------------------------- --------
Trans World Entertainment Corporation
10.1 Loan and Security Agreement 15
27 Financial Data Schedule
News Release - Letter of Intent to
99.1 acquire Strawberries Inc. 93
(B) Reports on Form 8-K - None
Omitted from this part II are items which are not applicable or to which the
answer is negative to the periods covered.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRANS WORLD ENTERTAINMENT CORPORATION
September 16, 1997 By: /s/ ROBERT J. HIGGINS
--------------------------
Robert J. Higgins
Chairman, President and Chief Executive Officer
(Principal Executive Officer)
September 16, 1997 By: /s/ JOHN J. SULLIVAN
-------------------------
John J. Sullivan
Senior Vice President-Finance
and Chief Financial Officer
(Principal Financial Officer)
LOAN AND SECURITY AGREEMENT
by and among
CONGRESS FINANCIAL CORPORATION
as Lender
and
TRANS WORLD ENTERTAINMENT CORPORATION
and
RECORD TOWN, INC.
as Borrowers
Dated: July 9, 1997
TABLE OF CONTENTS
SECTION 1. DEFINITIONS
SECTION 2. CREDIT FACILITIES
2.1 Loans
2.2 Letter of Credit Accommodations
2.3 Availability Reserves
SECTION 3. INTEREST AND FEES
3.1 Interest
3.2 Closing Fee
3.3 Servicing Fee
3.4 Unused Line Fee
3.5 Changes in Laws and Increased Costs of Loans
SECTION 4. CONDITIONS PRECEDENT
4.1 Conditions Precedent to Initial Loans and Letter
of Credit Accommodations
4.2 Conditions Precedent to All Loans and Letter of
Credit Accommodations
SECTION 5. SECURITY INTEREST
SECTION 6. COLLECTION AND ADMINISTRATION
6.1 Borrowers' Loan Accounts
6.2 Statements
6.3 Collection of Accounts
6.4 Payments
6.5 Authorization to Make Loans
6.6 Use of Proceeds
SECTION 7. COLLATERAL REPORTING AND COVENANTS
7.1 Collateral Reporting
7.2 Accounts Covenants
7.3 Inventory Covenants
7.4 Equipment Covenants
7.5 Power of Attorney
7.6 Right to Cure
7.7 Access to Premises
SECTION 8. REPRESENTATIONS AND WARRANTIES
8.1 Corporate Existence, Power and Authority;
Subsidiaries
8.2 Financial Statements; No Material Adverse Change
8.3 Chief Executive Office; Collateral Locations
8.4 Priority of Liens; Title to Properties
8.5 Tax Returns
8.6 Litigation
8.7 Compliance with Other Agreements and Applicable
Laws
8.8 Environmental Compliance
8.9 Credit Card Agreements
8.10 Employee Benefits
8.11 Bank Accounts
8.12 Interrelated Businesses
8.13 Accuracy and Completeness of Information
8.14 Survival of Warranties; Cumulative
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS
9.1 Maintenance of Existence
9.2 New Collateral Locations
9.3 Compliance with Laws, Regulations, Etc
9.4 Payment of Taxes and Claims
9.5 Insurance
9.6 Financial Statements and Other Information
9.7 Sale of Assets, Consolidation, Merger,
Dissolution, Etc
9.8 Encumbrances
9.9 Indebtedness
9.10 Loans, Investments, Guarantees, Etc
9.11 Dividends and Redemptions
9.12 Transactions with Affiliates
9.13 Credit Card Agreements
9.14 Compliance with ERISA
9.15 Additional Bank Accounts
9.16 Minimum Net Worth
9.17 Costs and Expenses
9.18 Certain Notices
9.19 Further Assurances
SECTION 10. EVENTS OF DEFAULT AND REMEDIES
10.1 Events of Default
10.2 Remedies
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS
AND CONSENTS; GOVERNING LAW
11.1 Governing Law; Choice of Forum; Service of
Process; Jury Trial Waiver
11.2 Waiver of Notices
11.3 Amendments and Waivers
11.4 Waiver of Counterclaims
11.5 Indemnification
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS
12.1 Term
12.2 Appointment of Borrowers' Agent
12.3 Notices
12.4 Partial Invalidity
12.5 Confidentiality
12.6 Successors
12.7 Entire Agreement
INDEX TO
EXHIBITS AND SCHEDULES
Exhibit A Information Certificate
Exhibit B Existing Lenders
Schedule 6.3 Bank Accounts
Schedule 8.4 Existing Liens
Schedule 8.8 Environmental Disclosure
Schedule 8.9 Credit Card Agreements
Schedule 8.10 Employee Benefits
Schedule 9.9 Existing Indebtedness
Schedule 9.10 Loans, Investments, Guarantees
LOAN AND SECURITY AGREEMENT
This Loan and Security Agreement dated July __, 1997 is entered into by
and among Congress Financial Corporation, a California corporation ("Lender"),
Trans World Entertainment Corporation, a New York corporation, ("TWE") and
Record Town, Inc., a New York corporation, ("RTI"; and together with TWE,
individually referred to as a "Borrower" and collectively, as "Borrowers").
W I T N E S S E T H:
WHEREAS, Borrowers have requested that Lender enter into certain financing
arrangements with Borrowers pursuant to which Lender may make loans and
provide other financial accommodations to Borrowers; and
WHEREAS, Lender is willing to make such loans and provide such financial
accommodations on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual conditions and agreements
set forth herein, and for other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
SECTION 1. DEFINITIONS
All terms used herein which are defined in Article 1 or Article 9 of the
Uniform Commercial Code of the State of New York shall have the meanings given
therein unless otherwise defined in this Agreement. All references to the
plural herein shall also mean the singular and to the singular shall also mean
the plural unless the context otherwise requires. All references to Borrowers
shall, unless the context otherwise expressly provides, mean each and all of
them, individually and collectively, jointly and severally. All references to
Borrowers and Lender pursuant to the definitions set forth in the recitals
hereto, or to any other person herein, shall include their respective
successors and assigns. The words "hereof", "herein", "hereunder", "this
Agreement" and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not any particular provision of this
Agreement and as this Agreement now exists or may hereafter be amended,
modified, supplemented, extended, renewed, restated or replaced. The word
"including" when used in this Agreement shall mean "including, without
limitation". An Event of Default shall exist or continue or be continuing
until such Event of Default is waived in accordance with Section 11.3 or cured
in a manner satisfactory to Lender, if such Event of Default is capable of
being cured as determined by Lender. Any accounting term used herein unless
otherwise defined in this Agreement shall have the meanings customarily given
to such term in accordance with GAAP. For purposes of this Agreement, the
following terms shall have the respective meanings given to them below:
1.1 "Accounts" shall mean, as to each Borrower, all present and future
rights of such Borrower to payment for goods sold or leased or for services
rendered, which are not evidenced by instruments or chattel paper, and whether
or not earned by performance, and including, without limitation, Credit Card
Receivables.
1.2 "Adjusted Eurodollar Rate" shall mean, with respect to each Interest
Period for any Eurodollar Rate Loan, the rate per annum (rounded upwards, if
necessary, to the next one-sixteenth (1/16) of one (1%) percent) determined by
dividing (a) the Eurodollar Rate for such Interest Period by (b) a percentage
equal to: (i) one (1) minus (ii) the Reserve Percentage. For purposes
hereof, "Reserve Percentage" shall mean the reserve percentage, expressed as a
decimal, prescribed by any United States or foreign banking authority for
determining the reserve requirement which is or would be applicable to
deposits of United States dollars in a non-United States or an international
banking office of Reference Bank used to fund a Eurodollar Rate Loan or any
Eurodollar Rate Loan made with the proceeds of such deposit, whether or not
the Reference Bank actually holds or has made any such deposits or loans. The
Adjusted Eurodollar Rate shall be adjusted on and as of the effective day of
any change in the Reserve Percentage.
1.3 "Availability Reserves" shall mean, as of any date of determination,
such amounts as Lender may from time to time establish and revise in good
faith, in accordance with its customary business practices, reducing the
amount of Loans and Letter of Credit Accommodations that would otherwise be
available to Borrowers under the lending formula(s) provided for herein: (a)
to reflect events, conditions, contingencies or risks that, as determined by
Lender in good faith, do or may affect either (i) the Collateral or any other
property which is security for the Obligations or its value or (ii) the
security interests and other rights of Lender in the Collateral (including the
enforceability, perfection and priority thereof), or (b) to reflect Lender's
good faith belief that any collateral report or financial information
furnished by or on behalf of any Borrower or any Obligor to Lender is or may
have been incomplete, inaccurate or misleading in any material respect, or (c)
in respect of any state of facts which Lender determines in good faith
constitutes an Event of Default or may, with notice or passage of time or
both, constitute an Event of Default, or (d) to reflect outstanding Letter of
Credit Accommodations as provided in Section 2.2 hereof, or (e) as otherwise
provided in Section 2.3 hereof or elsewhere in this Agreement.
1.4 "Blocked Accounts" shall have the meaning set forth in Section 6.3
hereof.
1.5 "Business Day" shall mean any day other than a Saturday, Sunday, or
other day on which commercial banks are authorized or required to close under
the laws of the State of New York or the Commonwealth of Pennsylvania, and a
day on which the Reference Bank and Lender are open for the transaction of
business, except that if a determination of a Business Day shall relate to any
Eurodollar Rate Loans, the term Business Day shall also exclude any day on
which banks are closed for dealings in dollar deposits in the London interbank
market or other applicable Eurodollar Rate market.
1.6 "Code" shall mean the Internal Revenue Code of 1986, as the same now
exists or may from time to time hereafter be amended, modified, recodified or
supplemented, together with all rules, regulations and interpretations
thereunder or related thereto.
1.7 "Collateral" shall have the meaning set forth in Section 5 hereof.
1.8 "Cost" shall mean, as to Inventory as of any date, the cost of such
Inventory as of such date, determined on a first-in- first-out basis (a) in
the case of Inventory located at a Borrower's retail stores, under the retail
method of accounting, and (b) in the case of Inventory located at Borrowers'
distribution center(s), under the current replacement method, or in either or
both cases under clauses (a) or (b), the average cost method if Borrowers so
change their method of accounting, in each case under clauses (a) or (b), in
accordance with GAAP.
1.9 "Credit Card Acknowledgments" shall mean, individually and
collectively, the agreements by Credit Card Issuers or Credit Card Processors
who are parties to Credit Card Agreements in favor of Lender acknowledging
Lender's first priority security interest in the monies due and to become due
to a Borrower (including, without limitation, credits and reserves) under the
Credit Card Agreements, and agreeing to transfer all such amounts to the
Blocked Accounts, as the same now exist or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced.
1.10 "Credit Card Agreements" shall mean all agreements now or
hereafter entered into by a Borrower with any Credit Card Issuer or any Credit
Card Processor, as the same now exist or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced, including, but not
limited to, the agreements identified on Schedule 8.9 hereto.
1.11 "Credit Card Issuer" shall mean any person (other than a
Borrower) who issues or whose members issue credit cards, including, without
limitation, MasterCard or VISA bank credit or debit cards or other bank credit
or debit cards issued through MasterCard International, Inc., Visa, U.S.A.,
Inc. or Visa International and American Express, Discover, Diners Club, Carte
Blanche and other non-bank credit or debit cards, including, without
limitation, credit or debit cards issued by or through American Express Travel
Related Services Company, Inc. and NOVUS Services, Inc.
1.12 "Credit Card Processor" shall mean any servicing or processing
agent or any factor or financial intermediary who facilitates, services,
processes or manages the credit authorization, billing transfer and/or payment
procedures with respect to any of a Borrower's sales transactions involving
credit card or debit card purchases by customers using credit cards or debit
cards issued by any Credit Card Issuer (including, but not limited to,
National Bancard Corporation, American Express Travel Related Services
Company, Inc. and NOVUS Services, Inc.)
1.13 "Credit Card Receivables" shall mean collectively, (a) all
present and future rights of a Borrower to payment from any Credit Card
Issuer, Credit Card Processor or other third party arising from sales of goods
or rendition of services to customers who have purchased such goods or
services using a credit or debit card and (b) all present and future rights of
a Borrower to payment from any Credit Card Issuer, Credit Card Processor or
other third party in connection with the sale or transfer of Accounts arising
pursuant to the sale of goods or rendition of services to customers who have
purchased such goods or services using a credit card or a debit card,
including, but not limited to, all amounts at any time due or to become due
from any Credit Card Issuer or Credit Card Processor under the Credit Card
Agreements or otherwise.
1.14 "Eligible Inventory" shall mean, as to each Borrower, Inventory of
such Borrower consisting of finished goods held for resale in the ordinary
course of the business of Borrowers (including Eligible RTV Inventory), in
each case that are acceptable to Lender as determined in good faith in
accordance with its customary business practices based on the criteria set
forth below. In general, Eligible Inventory shall not include (a) packaging
and shipping materials; (b) raw materials and supplies used or consumed in
Borrowers' business, (c) work-in- process; (d) Inventory at premises other
than those owned and controlled by a Borrower located in the United States,
except for (i) Inventory at retail store locations of a Borrower in the United
States which are leased by it (A) if there are no common law, statutory or
other landlord's liens applicable to Inventory at such leased retail store
locations, or (B) if there are any such common law, statutory or other
landlord's liens applicable to Inventory at such leased retail store locations
either (1) Lender shall have received a Landlord Agreement (as defined below)
duly authorized, executed and delivered by the owner and lessor of such
premises and, at Lender's option, Lender has established on Availability
Reserve as provided in Section 2.3(c)(ii), or (2) if Lender has not received
such Landlord Agreement, then, at Lender's option, Lender shall have
established an Availability Reserve as provided in Section 2.3(c)(i) in an
amount acceptable to Lender in respect of amounts due or to become due to the
owner and lessor of such retail store location; provided, that, such Borrower
shall use reasonable efforts to obtain a Landlord Agreement with respect to
each of such locations regardless of whether clause (A) or clause (B) applies,
and (ii) Inventory at other locations of a Borrower in the United States which
are leased by it or operated by third party warehousemen or that are owned by
it subject to a mortgage in favor of any Person other than Lender and
otherwise permitted hereunder, if Lender shall have received an agreement in
writing from the owner and lessor, or operator of such premises, or in the
case of mortgaged premises, from the mortgagee thereof, in form and substance
satisfactory to Lender acknowledging Lender's first priority security interest
in the Inventory, waiving security interests and claims by such person against
the Inventory and permitting Lender access to, and the right to remain on, the
premises so as to exercise Lender's rights and remedies and otherwise deal
with the Collateral (such agreement, a "Landlord Agreement", "Warehouseman's
Agreement" or "Mortgagee Agreement", as applicable); (e) Inventory subject to
a security interest or lien in favor of any person other than Lender except
those permitted in this Agreement; (f) Inventory which is not subject to the
first priority, valid and perfected security interest of Lender; (g) damaged
and/or defective Inventory; (h) newly purchased Inventory that is in transit
to a Borrower's location in the United States, unless Lender has a first
priority security interest and control of the documents of title covering such
goods; (i) Inventory purchased or sold on consignment; (j) Inventory located
at retail stores that are closed; (k) Inventory located at Incredible Universe
retail stores; (l) used Inventory and Inventory held for rental (whether or
not at any time ultimately held for resale); and (m) samples. General
criteria for Eligible Inventory may be established and revised from time to
time by Lender in good faith, in accordance with its customary business
practices. Any Inventory which is not Eligible Inventory shall nevertheless
be part of the Collateral.
1.15 "Eligible RTV Inventory" shall mean as to each Borrower, finished
goods of such Borrower that are being held for return to the respective
vendors thereof within the applicable time periods and in all other respects
in conformity with the return privileges granted by the respective vendors
thereof.
1.16 "Environmental Laws" shall mean all foreign, Federal, State and local
laws (including common law), legislation, rules, codes, licenses, permits
(including any conditions imposed therein), authorizations, judicial or
administrative decisions, injunctions to the extent applicable to Borrowers or
their business or operations, or agreements between a Borrower and any
governmental authority, (a) relating to the protection, preservation or
restoration of the environment (including air, water vapor, surface water,
ground water, drinking water, drinking water supply, surface land, subsurface
land, plant and animal life or any other natural resource), or to human health
or safety, (b) relating to the exposure to, or the use, storage, recycling,
treatment, generation, manufacture, processing, distribution, transportation,
handling, labeling, production, release or disposal, or threatened release, of
Hazardous Materials, or (c) relating to all laws with regard to recordkeeping,
notification, disclosure and reporting requirements respecting Hazardous
Materials. The term "Environmental Laws" includes (i) the Federal
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
the Federal Superfund Amendments and Reauthorization Act, the Federal Water
Pollution Control Act of 1972, the Federal Clean Water Act, the Federal Clean
Air Act, the Federal Resource Conservation and Recovery Act of 1976 (including
the Hazardous and Solid Waste Amendments thereto), the Federal Solid Waste
Disposal and the Federal Toxic Substances Control Act, the Federal
Insecticide, Fungicide and Rodenticide Act, and the Federal Safe Drinking
Water Act of 1974, (ii) applicable state counterparts to such laws, and (iii)
any common law or equitable doctrine that may impose liability or obligations
for injuries or damages due to, or threatened as a result of, the presence of
or exposure to any Hazardous Materials.
1.17 "Equipment" shall mean, as to each Borrower, all of such Borrower's
now owned and hereafter acquired equipment, machinery, computers and computer
hardware and software (whether owned or licensed), vehicles, tools, furniture,
trade fixtures, all attachments, accessions and property now or hereafter
affixed thereto or used in connection therewith, and substitutions and
replacements thereof, wherever located.
1.18 "ERISA" shall mean the United States Employee Retirement Income
Security Act of 1974, as the same now exists or may hereafter from time to
time be amended, modified, recodified or supplemented, together with all
rules, regulations and interpretations thereunder or related thereto.
1.19 "ERISA Affiliate" shall mean any person required to be aggregated
with a Borrower or Guarantor under Sections 414(b), 414(c), 414(m) or 414(o)
of the Code.
1.20 "Eurodollar Rate" shall mean with respect to the Interest Period for
a Eurodollar Rate Loan, the interest rate per annum equal to the arithmetic
average of the rates of interest per annum (rounded upwards, if necessary, to
the next one- sixteenth (1/16) of one (1%) percent) at which Reference Bank is
offered deposits of United States dollars in the London interbank market (or
other Eurodollar Rate market selected by a Borrower and approved by Lender) on
or about 9:00 a.m. (New York City time) two (2) Business Days prior to the
commencement of such Interest Period in amounts substantially equal to the
principal amount of the Eurodollar Rate Loans requested by or on behalf of and
available to Borrowers in accordance with this Agreement, with a maturity of
comparable duration to the Interest Period selected by a Borrower.
1.21 "Eurodollar Rate Loans" shall mean any Loans or portion thereof on
which interest is payable based on the Adjusted Eurodollar Rate in accordance
with the terms hereof.
1.22 "Event of Default" shall mean the occurrence or existence of any
event or condition described in Section 10.1 hereof.
1.23 "Excess Availability" shall mean the amount, as determined by Lender,
calculated at any time, equal to: (a) the lesser of (i) the aggregate amount
of the Loans available to Borrowers as of such time based on the applicable
lending formulas multiplied by the Value of Eligible Inventory, as determined
by Lender, subject to the sublimits and Availability Reserves from time to
time established by Lender hereunder and (ii) the Maximum Credit less the face
amount of outstanding Letter of Credit Accommodations, minus (b) the sum of:
(i) the amount of all then outstanding and unpaid Obligations (other than the
face amount of outstanding Letter of Credit Accommodations), plus (ii) the
aggregate amount of all trade payables of Borrowers that are more than sixty
(60) days past due as of such time.
1.24 "Existing Lenders" shall mean the existing lenders to Borrowers
identified on Exhibit B hereto, and IBJ Schroder Bank & Trust Company, a New
York banking corporation, as security trustee for such lenders, pursuant to
that certain Collateral Trust Indenture, dated as of July 26, 1996, as amended
or modified.
1.25 "Financing Agreements" shall mean, collectively, this Agreement and
all notes, guarantees, security agreements, and other agreements, documents
and instruments now or at any time hereafter executed and/or delivered by any
Borrower or any Obligor in connection with this Agreement, as the same now
exist or may hereafter be amended, modified, supplemented, extended, renewed,
restated or replaced.
1.26 "GAAP" shall mean generally accepted accounting principles in the
United States of America as in effect from time to time as set forth in the
opinions and pronouncements of the Accounting Principles Board and the
American Institute of Certified Public Accountants and the statements and
pronouncements of the Financial Accounting Standards Board(s) which are
applicable to the circumstances as of the date of determination consistently
applied, except that, for purposes of Section 9.16 hereof, GAAP shall be
determined on the basis of such principles in effect on the date hereof and
consistent with those used in the preparation of the audited financial
statements delivered to Lender prior to the date hereof; provided, that if any
changes in accounting principles or practices from those used in the
preparation of the financial statements described above are occasioned after
the date hereof by the promulgation of rules, regulations, pronouncements and
opinions by or required by the Accounting Principles Board or the Financing
Accounting Standards Board(s) which results in a material change in the method
of the calculation of any of the components of the financial covenant set
forth in Section 9.16 hereof, the parties to this Agreement agree to enter
into negotiations in good faith to amend such covenant so as equitably to
reflect such changes to the end that the criteria for evaluating the financial
condition and performance of Borrowers will be the same after such changes as
they were before such changes and if the parties fail to agree on the
amendment of such provisions, Borrowers will furnish financial statements in
accordance with such changes but will provide calculations for the financial
covenant, perform the financial covenant and otherwise observe all financial
standards and terms in accordance with applicable accounting principles and
practices in effect immediately prior to such changes. Calculations with
respect to the financial covenant required to be stated in accordance with
applicable accounting principles and practices in effect immediately prior to
such change will be reviewed and certified by Borrowers' independent certified
public accountants.
1.27 "Guarantors" shall mean, individually and collectively, each Person
that at any time guarantees payment or performance of all or any portion of
the Obligations, including, as of the date hereof, Media Logic Inc., a New
York corporation, Trans World Fixture Co., Inc., a New York corporation,
Movies Plus, Inc., a New York corporation, Records and Such, Inc., a New York
corporation, DAAL International, Ltd., a Delaware corporation, and Saturday
Matinee, Inc., a New York corporation and their respective successors and
assigns.
1.28 "Hazardous Materials" shall mean any hazardous, toxic or
dangerous substances, materials and wastes, including hydrocarbons (including
naturally occurring or man-made petroleum and hydrocarbons), flammable
explosives, asbestos, urea formaldehyde insulation, radioactive materials,
biological substances, polychlorinated biphenyls, pesticides, herbicides and
any other kind and/or type of pollutants or contaminants (including materials
which include hazardous constituents), sewage, sludge, industrial slag,
solvents and/or any other similar substances, materials, or wastes and
including any other substances, materials or wastes that are or become
regulated under any Environmental Law (including any that are or become
classified as hazardous or toxic under any Environmental Law).
1.29 "Information Certificate" shall mean, collectively, the Information
Certificates of Borrowers constituting Exhibit A hereto containing material
information with respect to Borrowers, their business and assets, provided by
or on behalf of Borrowers to Lender in connection with the preparation of this
Agreement and the other Financing Agreements and the financing arrangements
provided for herein.
1.30 "Interest Period" shall mean for any Eurodollar Rate Loan, a period
of approximately one (1), two (2), or three (3) months duration as Borrowers
may elect, the exact duration to be determined in accordance with the
customary practice in the applicable Eurodollar Rate market; provided, that,
Borrowers may not elect an Interest Period which will end after the last day
of the then-current term of this Agreement.
1.31 "Interest Rate" shall mean, as to Prime Rate Loans, a rate per annum
equal to the Prime Rate and, as to Eurodollar Rate Loans, a rate of one and
three-quarters (1 3/4%) percent per annum in excess of the Adjusted Eurodollar
Rate (based on the Eurodollar Rate applicable for the Interest Period selected
by Borrowers or by TWE on behalf of Borrowers as in effect three (3) Business
Days after the date of receipt by Lender of the request by Borrowers or by TWE
on behalf of Borrowers for such Eurodollar Rate Loans in accordance with the
terms hereof, whether such rate is higher or lower than any rate previously
quoted to such Borrower); provided, that: the Interest Rate shall be
increased to a rate two (2%) percent per annum in excess of the pre-default
variable rate as to Prime Rate Loans and to a rate two (2%) percent per annum
in excess of the pre-default variable rate as to Eurodollar Rate Loans, at
Lender's option, without prior notice, (a) for the period on and after (i) the
date of termination or non-renewal hereof and until such time as all non-
contingent Obligations are fully and finally paid (notwithstanding entry of
any judgment against any Borrower), or (ii) the date of the occurrence of any
Event of Default or act, condition or event which with notice or passage of
time or both would constitute an Event of Default, and for so long as such
Event of Default or other event is continuing and (b) on the Loans at any time
outstanding in excess of the amounts available to a Borrower under Section 2
(whether or not such excess(es), arise or are made with or without Lender's
knowledge or consent and whether made before or after an Event of Default);
provided, further, that Lender will notify Borrower of Lender's implementation
of the increased Interest Rate under the preceding proviso and the effective
date thereof, which may be retroactive to the date of the event or
circumstance under the preceding proviso giving rise to the option to increase
such rate.
1.32 "Inventory" shall mean, as to each Borrower, all of such Borrower's
now owned and hereafter existing or acquired raw materials, work in process,
finished goods and all other inventory of whatsoever kind or nature, wherever
located.
1.33 "Letter of Credit Accommodations" shall mean the letters of credit,
merchandise purchase or other guaranties which are from time to time either
(a) issued or opened by Lender for the account of any Borrower or, in Lender's
discretion, any Obligor or (b) with respect to which Lender has agreed to
indemnify the issuer or guaranteed to the issuer the performance by a Borrower
of its obligations to such issuer.
1.34 "Loans" shall mean the loans now or hereafter made by Lender to or
for the benefit of Borrower on a revolving basis (involving advances,
repayments and readvances) as set forth in Section 2.1 hereof.
1.35 "Material Adverse Effect" shall mean a material adverse effect on
(i) the business, assets or financial condition of any Borrower, or (ii) the
legality, validity or enforceability of this Agreement or the other Financing
Agreements, or (iii) the ability of any Borrower to perform its obligations
under this Agreement or any of the other Financing Agreements, or (iv) the
rights and remedies of Lender under this Agreement or any of the other
Financing Agreements.
1.36 "Maximum Credit" shall mean $100,000,000.
1.37 "Net Recovery Cost Percentage" as to Inventory at any time shall mean
the fraction, expressed as a percentage, (a) the numerator of which is the
amount equal to the recovery on the aggregate amount of the Inventory at such
time on a "going out of business sale" basis as set forth as the mid-range
recovery amount in the most recent acceptable appraisal of Inventory received
by Lender in accordance with Section 7.3, net of operating and occupancy
expenses, liquidation expenses and commissions, and (b) the denominator of
which is the original Cost of the aggregate amount of the Inventory subject to
appraisal.
1.38 "Net Worth" shall mean as to any Person, at any time, in accordance
with GAAP (except as otherwise specifically set forth below), on a
consolidated basis for such Person and its subsidiaries (if any), the amount
equal to the difference between: (a) the aggregate net book value of all
assets of such Person and its subsidiaries, calculating the book value of
inventory for this purpose on a first-in-first-out basis, at the lower of cost
or market using the retail method of accounting for inventory at retail stores
and using the current replacement cost method, or, if Borrowers so change
their method of accounting, the average cost method, for inventory at
distribution center(s) and/or at retail stores, after deducting from such book
values all appropriate reserves in accordance with GAAP (including all
reserves for doubtful receivables, obsolescence, depreciation and
amortization) and (b) the aggregate amount of the indebtedness and other
liabilities of such Person and its subsidiaries (including tax and other
proper accruals).
1.39 "Non-Breakage Procedure" shall have the meaning set forth in
Section 6.4(b) hereof.
1.40 "Obligations" shall mean any and all Loans, Letter of Credit
Accommodations and all other obligations, liabilities and indebtedness of
every kind, nature and description owing by any or all Borrowers to Lender
and/or its affiliates, including principal, interest, charges, fees, costs and
expenses, however evidenced, whether as principal, surety, endorser, guarantor
or otherwise, whether arising under this Agreement or otherwise, whether now
existing or hereafter arising, whether arising before, during or after the
initial or any renewal term of this Agreement or after the commencement of any
case with respect to any or all Borrowers under the United States Bankruptcy
Code or any similar statute (including, without limitation, the payment of
interest and other amounts which would accrue and become due but for the
commencement of such case, whether or not such amounts are allowed or
allowable in whole or in part in such case), whether direct or indirect,
absolute or contingent, joint or several, due or not due, primary or
secondary, liquidated or unliquidated, secured or unsecured, and however
acquired by Lender.
1.41 "Obligor" shall mean any Guarantor, endorser, acceptor, surety or
other person liable on or with respect to the Obligations or who is the owner
of any property which is security for the Obligations, other than a Borrower.
1.42 "Payment Account" shall have the meaning set forth in Section 6.3
hereof.
1.43 "Permits" shall have the meaning set forth in Section 8.7 hereof.
1.44 "Person" or "person" shall mean any individual, sole proprietorship,
partnership, corporation (including, without limitation, any corporation which
elects subchapter S status under the Code), limited liability company, limited
liability partnership, business trust, unincorporated association, joint stock
corporation, trust, joint venture or other entity or any government or any
agency or instrumentality or political subdivision thereof.
1.45 "Prime Rate" shall mean the rate from time to time publicly announced
by CoreStates Bank, N.A., or its successors, at its office in Philadelphia,
Pennsylvania, as its prime rate, whether or not such announced rate is the
best rate available at such bank.
1.46 "Prime Rate Loans" shall mean any Loans or portion thereof on which
interest is payable based on the Prime Rate in accordance with the terms
hereof.
1.47 "Real Property" shall mean all now owned and hereafter acquired real
property of a Borrower, including leasehold interests, together with all
buildings, structures, and other improvements located thereon and all
licenses, easements and appurtenances relating thereto, wherever located.
1.48 "Records" shall mean, as to each Borrower, all of such Borrower's
present and future books of account of every kind or nature, purchase and sale
agreements, invoices, ledger cards, bills of lading and other shipping
evidence, statements, correspondence, memoranda, credit files and other data
relating to the Collateral or any account debtor, together with the tapes,
disks, diskettes and other data and software storage media and devices, file
cabinets or containers in or on which the foregoing are stored (including any
rights of such Borrower with respect to the foregoing maintained with or by
any other person).
1.49 "Reference Bank" shall mean CoreStates Bank, N.A. or such other bank
as Lender may designate from time to time by written notice to Borrowers or
TWE as agent for Borrowers.
1.50 "Renewal Date" shall have the meaning set forth in Section 12.1
hereof.
1.51 "Value" shall mean, as determined by Lender in good faith, with
respect to Inventory, the lower of (a) Cost or (b) market value.
SECTION 2. CREDIT FACILITIES
2.1 Loans.
(a) Subject to, and upon the terms and conditions contained herein,
Lender agrees to make Loans to Borrowers, from time to time in amounts
requested by Borrowers or TWE as agent for Borrowers, up to the amount equal
to:
(i) (A) seventy (70%) percent during the period from the date
hereof through and including December 15, 1997, (B) sixty (60%) percent during
the period from December 16 in each calendar year through and including
September 14 in the following calendar year, or (C) sixty-five 65%) percent
during the period from September 15 through and including December 15 in each
calendar year, multiplied by the Value of Eligible Inventory of Borrowers;
less
(ii) any Availability Reserves.
(b) Lender may, in its discretion, from time to time, upon not less
than five (5) days prior notice to TWE as agent for Borrowers, reduce the
lending formula with respect to Eligible Inventory to the extent that Lender
determines in good faith that: (i) the number of days of the turnover of the
Inventory for any period has changed in any material respect or (ii) the
nature, quality or mix of the Inventory has deteriorated. In determining
whether to reduce the lending formula(s), Lender may, without duplication,
consider events, conditions, contingencies or risks which are also considered
in determining Eligible Inventory or in establishing Availability Reserves.
Notwithstanding the foregoing, at no time shall the applicable lending
percentages set forth above in Sections 2.1(a)(i)(B) or (C) exceed the
percentages, rounded to the nearest whole percent, equal to eighty (80%)
percent multiplied by the applicable mid- range Net Recovery Cost Percentage
of Inventory of Borrowers at such time; provided, that in the case of the
lending percentage applicable under Section 2.1(a)(i)(C), the Net Recovery
Percentage for the "Peak Season" (as referred to in the most recent appraisal
received by Lender in accordance with Section 7.3) shall be used and, in the
case of the lending percentage applicable under Section 2.1(a)(i)(B), the Net
Recovery Cost Percentage for the Non-Peak Season shall be used,
notwithstanding that such periods may not completely coincide with the "Peak
Season" and "Non-Peak Season" as identified in such appraisal.
(c) The aggregate amount of Loans outstanding at any time with respect
to Eligible RTV Inventory shall not exceed (i) $15,000,000 during the period
from December 15 in each calendar year through April 30 in the following
calendar year, (ii) $10,000,000 during the period from May 1 through June 30
in each calendar year, or (iii) $8,000,000 at all other times.
(d) Except in Lender's discretion, the aggregate amount of the Loans
and the Letter of Credit Accommodations outstanding at any time shall not
exceed the Maximum Credit. In the event that the outstanding amount of the
Loans, or the aggregate amount of the outstanding Loans and Letter of Credit
Accommodations, exceed the amounts available under the lending formulas, the
sublimit under Section 2.1(c), the sublimits for Letter of Credit
Accommodations set forth in Section 2.2(d) or the Maximum Credit, as
applicable, such event shall not limit, waive or otherwise affect any rights
of Lender in that circumstance or on any future occasions and Borrowers shall,
upon demand by Lender, which may be made at any time or from time to time,
immediately repay to Lender the entire amount of any such excess(es) for which
payment is demanded.
2.2 Letter of Credit Accommodations.
(a) Subject to, and upon the terms and conditions contained herein, at
the request of Borrowers or TWE as agent for Borrowers, Lender agrees to
provide or arrange for Letter of Credit Accommodations for the account of
Borrowers containing terms and conditions acceptable to Lender and the issuer
thereof. Any payments made by Lender to any issuer thereof and/or related
parties in connection with the Letter of Credit Accommodations shall
constitute additional Loans to Borrowers pursuant to this Section 2.
Notwithstanding that any Letter of Credit Accommodation may designate, or any
application therefor may designate or be signed by, only one Borrower as
account party, each of the Borrowers shall be jointly and severally liable for
all Obligations in respect of all Letter of Credit Accommodations or relating
thereto (in addition to all other Obligations).
(b) In addition to any charges, fees or expenses charged by any bank
or issuer in connection with the Letter of Credit Accommodations, Borrowers
shall pay to Lender a letter of credit fee at a rate equal to one and
one-quarter (1-1/4%) percent per annum on the daily outstanding balance of the
Letter of Credit Accommodations for the immediately preceding month (or part
thereof), payable in arrears as of the first day of each succeeding month,
except that Borrowers shall pay to Lender such letter of credit fee, at
Lender's option, without prior notice, at a rate equal to three and
one-quarter (3 1/4%) percent per annum for (i) the period from and after the
date of termination or non-renewal hereof until Lender has received full and
final payment of all non-contingent Obligations and cash collateral (or a
standby letter of credit in favor of Lender acceptable to Lender in all
respects) sufficient to cover all Obligations in respect of outstanding Letter
of Credit Accommodations or relating thereto (notwithstanding entry of a
judgment against such Borrower) and (ii) the period from and after the date of
the occurrence of an Event of Default and for so long as such Event of Default
is continuing; provided, that Lender will notify Borrower of Lender's
implementation of such higher rate for letter of credit fees and the effective
date of such higher rate for letter of credit fees, which may be retroactive
to the date of the event or circumstance under this Section giving rise to the
option to increase such rate for letter of credit fees. Such letter of credit
fee shall be calculated on the basis of a three hundred sixty (360) day year
and actual days elapsed and the obligation of Borrowers to pay such fee shall
survive the termination or non-renewal of this Agreement.
(c) No Letter of Credit Accommodations shall be available to Borrowers
unless on the date of the proposed issuance of any Letter of Credit
Accommodations, the Loans available to Borrowers (subject to the Maximum
Credit, applicable sublimits and any Availability Reserves in effect
immediately prior to such proposed issuance) are equal to or greater than (i)
if the proposed Letter of Credit Accommodation is for the purpose of
purchasing Eligible Inventory, forty (40%) percent multiplied by the sum of
(A) the Value of such Eligible Inventory, plus (B) freight, taxes, duty and
other amounts that Lender estimates must be paid in connection with such
Inventory upon arrival and for delivery to one of Borrowers' locations for
Eligible Inventory, or (ii) if the proposed Letter of Credit Accommodations is
for the purpose, other than set forth in Section 2.2(c)(i), an amount equal to
one hundred (100%) percent of the face amount thereof and all other
commitments and obligations made or incurred by Lender with respect thereto.
Effective on the issuance of each Letter of Credit Accommodations, an
Availability Reserve shall be established in the applicable amount set forth
in Sections 2.2(c)(i) or 2.2(c)(ii), subject to increase in the case of Letter
of Credit Accommodations described in Section 2.2(c)(i), based on any decrease
in the lending percentage applicable to such Eligible Inventory under Section
2.1(a)(i) hereof.
(d) Except in Lender's discretion, the aggregate amount of all
outstanding Letter of Credit Accommodations and any other commitments and
obligations made or incurred by Lender in connection therewith, shall not at
any time exceed $10,000,000. At any time an Event of Default exists or has
occurred and is continuing, upon Lender's request, Borrowers will either
furnish cash collateral to secure the reimbursement obligations to the issuer
in connection with any Letter of Credit Accommodations or furnish cash
collateral to Lender for the Letter of Credit Accommodations, and in either
case, or, if at any other time Borrowers furnish cash collateral to Lender for
the Letter of Credit Accommodations, the Loans otherwise available to
Borrowers shall not be reduced as provided in Section 2.2(c) to the extent of
such cash collateral.
(e) Borrowers shall indemnify and hold Lender harmless from and
against any and all losses, claims, damages, liabilities, costs and expenses
which Lender may suffer or incur in connection with any Letter of Credit
Accommodations and any documents, drafts or acceptances relating thereto,
including, but not limited to, any losses, claims, damages, liabilities, costs
and expenses due to any action taken by any issuer or correspondent with
respect to any Letter of Credit Accommodation, but excluding any such losses,
claims, damages, liabilities, costs or expenses incurred as a result of
Lender's own gross negligence or wilful misconduct, as determined by a final
non- appealable judgment of a court of competent jurisdiction. Borrowers
assume all risks with respect to the acts or omissions of the drawer under or
beneficiary of any Letter of Credit Accommodation and for such purposes the
drawer or beneficiary shall be deemed the agent of Borrowers. Borrowers
assume all risks for, and agree to pay, all foreign, Federal, State and local
taxes, duties and levies relating to any goods subject to any Letter of Credit
Accommodations or any documents, drafts or acceptances thereunder. Borrowers
hereby release and hold Lender harmless from and against any acts, waivers,
errors, delays or omissions, whether caused by Borrowers, by any issuer or
correspondent or otherwise with respect to or relating to any Letter of Credit
Accommodation, other than acts, waivers, errors, delays or omissions of Lender
constituting gross negligence or wilful misconduct, as determined by a final
non-appealable judgment of court of competent jurisdiction. The provisions of
this Section 2.2(e) shall survive the payment of the Obligations and the
termination or non-renewal of this Agreement.
(f) Nothing contained herein shall be deemed or construed to grant
Borrowers any right or authority to pledge the credit of Lender in any manner.
Lender shall have no liability of any kind with respect to any Letter of
Credit Accommodation provided by an issuer other than Lender unless Lender has
duly executed and delivered to such issuer the application or a guarantee or
indemnification in writing with respect to such Letter of Credit
Accommodation. Borrowers shall be bound by any interpretation made in good
faith by Lender, or any other issuer or correspondent under or in connection
with any Letter of Credit Accommodation or any documents, drafts or
acceptances thereunder, notwithstanding that such interpretation may be
inconsistent with any instructions of a Borrower. Lender shall have the sole
and exclusive right and authority to, and Borrowers shall not: (i) at any
time an Event of Default exists or has occurred and is continuing, (A) approve
or resolve any questions of non- compliance of documents, (B) give any
instructions as to acceptance or rejection of any documents or goods or (C)
execute any and all applications for steamship or airway guaranties,
indemnities or delivery orders, and (ii) at all times, (A) grant any
extensions of the maturity of, time of payment for, or time of presentation
of, any drafts, acceptances, or documents, and (B) agree to any amendments,
renewals, extensions, modifications, changes or cancellations of any of the
terms or conditions of any of the applications, Letter of Credit
Accommodations, or docu- ments, drafts or acceptances thereunder or any
letters of credit included in the Collateral. Lender may take such actions
either in its own name or in the name of a Borrower.
(g) Any rights, remedies, duties or obligations granted or undertaken
by a Borrower to any issuer or corre- spondent in any application for any
Letter of Credit Accommoda- tion, or any other agreement in favor of any
issuer or correspondent relating to any Letter of Credit Accommodation, shall
be deemed to have been granted or undertaken by all Borrowers to Lender. Any
duties or obligations undertaken by Lender to any issuer or correspondent in
any application for any Letter of Credit Accommodation, or any other agreement
by Lender in favor of any issuer or correspondent relating to any Letter of
Credit Accommodation, shall be deemed to have been undertaken by all Borrowers
to Lender and to apply in all respects to all Borrowers.
2.3 Availability Reserves. All Loans otherwise available to Borrowers
pursuant to the lending formulas and subject to the Maximum Credit and other
applicable limits hereunder shall be subject to Lender's continuing right to
establish and revise Availability Reserves. Without limiting any other rights
or remedies of Lender under this Agreement or any of the other Financing
Agreements with respect to the establishment of Availability Reserves or
otherwise, Lender may, without duplication, establish and revise Availability
Reserves to reflect: (a) inventory shrinkage; (b) amounts due or to become
due in respect of sales, use and/or withholding taxes; or (c) any rental
payments, service charges or other amounts due to lessors, mortgagees or
operators of real or personal property to the extent Inventory or Records are
located in or on property or such Records are needed to monitor or otherwise
deal with the Collateral, but limited to amounts estimated by Lender in good
faith as necessary to be paid in connection with the future exercise by Lender
of its rights in the case of (i) Inventory at leased retail stores located in
states where the landlord has a common law, statutory or other landlord's lien
for rent or other sums payable under the lease not covered by a Landlord
Agreement and/or (ii) property covered by a Landlord Agreement, Mortgagee
Agreement or Warehouseman's Agreement that requires payments for use or
occupancy of real property or equipment or for the release of goods. Lender
shall promptly inform Borrower (telephonically or in writing) of any new or
revised categories of Availability Reserves and, upon Borrowers' request, the
amounts of Availability Reserves then in effect.
SECTION 3. INTEREST AND FEES
3.1 Interest.
(a) Borrowers shall pay to Lender interest on the outstanding
principal amount of the non-contingent monetary Obligations at the Interest
Rate. All interest accruing hereunder on and after the date of any Event of
Default or termination or non-renewal hereof shall be payable on demand.
(b) Borrowers or TWE as agent for Borrowers may from time to time
request that Prime Rate Loans be converted to Eurodollar Rate Loans or that
any existing Eurodollar Rate Loans continue for an additional Interest Period.
Such request from or on behalf of Borrowers shall specify the amount of the
Prime Rate Loans which will constitute Eurodollar Rate Loans (subject to the
limits set forth below) and the Interest Period to be applicable to such
Eurodollar Rate Loans. Subject to the terms and conditions contained herein,
three (3) Business Days after receipt by Lender of such a request from or on
behalf of Borrowers, such Prime Rate Loans shall be converted to Eurodollar
Rate Loans or such Eurodollar Rate Loans shall continue, as the case may be,
provided, that, as of such date each of the following conditions is satisfied
as determined by Lender: (i) no Event of Default, or event which with notice
or passage of time or both would constitute an Event of Default exists or has
occurred and is continuing, (ii) no party hereto shall have sent any notice of
termination or non-renewal of this Agreement, (iii) Borrowers shall have
complied with such customary procedures as are established by Lender and
specified by Lender to Borrowers from time to time for requests by or on
behalf of Borrowers for Eurodollar Rate Loans, (iv) no more than six (6)
Interest Periods may be in effect at any one time, (v) the amount of
Eurodollar Rate Loans subject to a given Interest Period must be not less than
$5,000,000 or an integral multiple of $500,000 in excess thereof and (vi)
Lender shall have determined that the Interest Period and Adjusted Eurodollar
Rate is available to Lender through the Reference Bank and can be readily
determined as of the date of the request for such Eurodollar Rate Loan by or
on behalf of Borrowers. Any request by or on behalf of Borrowers to convert
Prime Rate Loans to Eurodollar Rate Loans or to continue any existing
Eurodollar Rate Loans shall be irrevocable. Notwithstanding anything to the
contrary contained herein, Lender and Reference Bank shall not be required to
purchase United States Dollar deposits in the London interbank market or other
applicable Eurodollar Rate market to fund any Eurodollar Rate Loans, but the
provisions hereof shall be deemed to apply as if Lender and Reference Bank had
purchased such deposits to fund the Eurodollar Rate Loans.
(c) Any Eurodollar Rate Loans shall automatically convert to Prime
Rate Loans upon the last day of the applicable Interest Period, unless Lender
has received and approved a request to continue such Eurodollar Rate Loan at
least three (3) Business Days prior to such last day in accordance with the
terms hereof. Any Eurodollar Rate Loans shall, at Lender's option, upon
notice by Lender to Borrowers or TWE as agent for Borrowers, convert to Prime
Rate Loans in the event that (i) an Event of Default or act, condition or
event which with the notice or passage of time or both would constitute an
Event of Default, shall exist or have occurred, (ii) this Agreement shall
terminate or not be renewed, or (iii) the aggregate principal amount of the
Prime Rate Loans which have previously been converted to Eurodollar Rate Loans
or existing Eurodollar Rate Loans continued, as the case may be, at the
beginning of an Interest Period shall at any time during such Interest Period
exceed either (A) the aggregate principal amount of the Loans then
outstanding, or (B) the Loans then available to Borrowers under Section 2
hereof. Borrowers shall pay to Lender, upon demand by Lender (or Lender may,
at its option, charge any loan account of Borrowers) any amounts required to
compensate Lender, the Reference Bank or any participant with Lender for any
loss (including loss of anticipated profits), cost or expense incurred by such
person, as a result of the conversion of Eurodollar Rate Loans to Prime Rate
Loans pursuant to any of the foregoing. With respect to any amounts so
demanded or charged, Lender will, at Borrowers' request, provide a certificate
showing the calculation of such amounts, and, with respect to any anticipated
profits so demanded or charged, Lender shall be entitled, at its option, to
the conclusive presumption that its anticipated profits shall equal one and
three-quarters (1-3/4%) percent per annum upon the Eurodollar Rate Loans in
question for the unexpired portion(s) of the Interest Period(s) involved.
(d) Interest shall be payable by Borrowers to Lender monthly in
arrears not later than the first day of each calendar month and shall be
calculated on the basis of a three hundred sixty (360) day year and actual
days elapsed. The interest rate on non-contingent Obligations (other than
Eurodollar Rate Loans) shall increase or decrease by an amount equal to each
increase or decrease in the Prime Rate effective on the first day of the month
after any change in such Prime Rate is announced based on the Prime Rate in
effect on the last day of the month in which any such change occurs. In no
event shall charges constituting interest payable by Borrowers to Lender
exceed the maximum amount or the rate permitted under any applicable law or
regulation, and if any such part or provision of this Agreement is in
contravention of any such law or regulation, such part or provision shall be
deemed amended to conform thereto.
(e) If the closing daily balance in all of the loan account(s) of
Borrowers on a combined basis as of any day is a credit balance, or, in the
case of any credit balance in the loan account(s) of Borrowers, on a combined
basis, but excluding any Eurodollar Rate Loans while the Non-Breakage
Procedure is in effect, Lender shall, on the first day of the next month,
credit the loan account(s) of Borrowers with, in total, an amount calculated
upon such credit balance at the rate of three (3%) percent per annum less than
the Prime Rate. Such amount to be credited shall be calculated on the basis
of a three hundred sixty (360) day year and actual days elapsed. The Prime
Rate used to calculate such credit to the loan account(s) of Borrowers shall
increase or decrease by an amount equal to such increase or decrease in such
Prime Rate effective on the first day of the month after any change in such
Prime Rate is announced based on the Prime Rate in effect on the last day of
the month in which any such change occurs.
3.2 Closing Fee. Borrowers shall pay to Lender as a closing fee the
amount of $500,000 which shall be fully earned as of the date hereof, $250,000
of which shall be payable on the date hereof, and $250,000 of which shall be
payable on the ninetieth (90th) day after the date hereof, subject to
acceleration upon an Event of Default.
3.3 Servicing Fee. Borrowers shall pay to Lender monthly a servicing fee
in an amount equal to $5,000 for each month (or part thereof) while this
Agreement is in effect and for so long thereafter as any of the Obligations
are outstanding, which fee shall be fully earned as of and payable in advance
on the date hereof and on the first day of each month hereafter.
3.4 Unused Line Fee. Borrowers shall pay to Lender an unused line fee at
a rate equal to one-quarter (1/4%) percent per annum calculated upon the
amount by which eighty (80%) percent of the Maximum Credit exceeds the average
daily principal balance of the outstanding Loans and Letter of Credit
Accommodations during such month (or part thereof), which fee shall be payable
on the first day following each applicable month, in arrears.
3.5 Changes in Laws and Increased Costs of Loans.
(a) Notwithstanding anything to the contrary contained herein, all
Eurodollar Rate Loans shall, upon notice by Lender to Borrowers, or to TWE as
agent for Borrowers, convert to Prime Rate Loans in the event that (i) any
change in applicable law or regulation (or the interpretation or
administration thereof) shall either (A) make it unlawful for Lender,
Reference Bank or any participant to make or maintain Eurodollar Rate Loans or
to comply with the terms hereof in connection with the Eurodollar Rate Loans,
or (B) shall result in the increase in the costs to Lender, Reference Bank or
any participant of making or maintaining any Eurodollar Rate Loans or by an
amount deemed by Lender to be material, or (C) reduce the amounts received or
receivable by Lender in respect thereof, by an amount deemed by Lender to be
material or (ii) the cost to Lender, Reference Bank or any participant of
making or maintaining any Eurodollar Rate Loans shall otherwise increase by an
amount deemed by Lender to be material. In the circumstances described in
clauses (i)(B), (i)(C) or (ii) of this Section 3.5(a), in lieu of conversion
to Prime Rate Loans, Borrowers shall have the option, for the remainder of the
Interest Period(s) for then-outstanding Eurodollar Rate Loans, of paying any
and all increased costs to Lender, Reference Banks and each Participant,
together with the aggregate amount by which the amounts received or receivable
by Lender have been reduced in respect of such Eurodollar Rate Loans. In the
event of any conversion of Eurodollar Rate Loans to Prime Rate Loans,
Borrowers shall pay to Lender, upon demand by Lender (or Lender may, at its
option, charge any loan account of Borrowers) any amounts required to
compensate Lender, the Reference Bank or any participant with Lender for any
loss (including loss of anticipated profits), cost or expense incurred by such
person as a result of the foregoing, including, without limitation, any such
loss, cost or expense incurred by reason of the liquidation or reemployment of
deposits or other funds acquired by such person to make or maintain the
Eurodollar Rate Loans or any portion thereof. A certificate of Lender setting
forth the basis for the determination of such amount necessary to compensate
Lender as aforesaid shall be delivered to Borrowers and shall be conclusive,
absent manifest error, and, with respect to any anticipated profits so
demanded or charged, Lender shall be entitled, at its option, to the
conclusive presumption that its anticipated profits shall equal one and
three-quarters (1-3/4%) percent per annum upon the Eurodollar Rate Loans in
question for the unexpired portion(s) of the Interest Period(s) involved.
(b) If any payments or prepayments in respect of the Eurodollar Rate
Loans are received by Lender other than on the last day of the applicable
Interest Period (whether pursuant to acceleration, upon maturity or
otherwise), including any payments pursuant to the application of collections
under Section 6.3 or any other payments made with the proceeds of Collateral,
Borrowers shall pay to Lender upon demand by Lender (or Lender may, at its
option, charge any loan account of Borrowers) any amounts required to
compensate Lender, the Reference Bank or any participant with Lender for any
additional loss (including loss of anticipated profits), cost or expense
incurred by such person as a result of such prepayment or payment, including,
without limitation, any loss, cost or expense incurred by reason of the
liquidation or reemployment of deposits or other funds acquired by such person
to make or maintain such Eurodollar Rate Loans or any portion thereof, and,
with respect to any anticipated profits so demanded or charged, Lender shall
be entitled, at its option, to the conclusive presumption that its anticipated
profits shall equal one and three-quarters (1-3/4%) percent per annum upon the
Eurodollar Rate Loans in question for the unexpired portion(s) of the Interest
Period(s) involved.
SECTION 4. CONDITIONS PRECEDENT
4.1 Conditions Precedent to Initial Loans and Letter of Credit
Accommodations. Each of the following is a condition precedent to Lender
making the initial Loans and providing the initial Letter of Credit
Accommodations hereunder:
(a) Lender shall have received, in form and substance satisfactory to
Lender, a release agreement and all releases, terminations and such other
documents as Lender may request to evidence and effectuate the termination by
the Existing Lenders of their financing arrangements with TWE and its
subsidiaries and the termination and release by the Existing Lenders of any
interests in and to any assets and properties of TWE and its subsidiaries,
duly authorized, executed and delivered by it, including, but not limited to,
(i) UCC termination statements for all UCC financing statements previously
filed by them or their predecessors, as secured party, and TWE or any of its
subsidiaries, as debtor, and (ii) satisfactions and discharges of any
mortgages, deeds of trust or deeds to secure debt by Borrowers or any Obligor
in favor of the Existing Lenders or a trustee acting on their behalf, in form
acceptable for recording in the appropriate governmental office;
(b) Lender shall have received evidence, in form and substance
satisfactory to Lender, that Lender has valid perfected and first priority
security interests in and liens upon the Collateral and any other property
which is intended to be security for the Obligations or the liability of any
Obligor in respect thereof, subject only to the security interests and liens
permitted herein or in the other Financing Agreements;
(c) Lender shall have received, in form and substance satisfactory to
Lender, unlimited guarantees of payment of the Obligations by each Guarantor
in favor of Lender, and, with respect to each Guarantor, (i) a security
agreement by each such Guarantor in favor of Lender, granting Lender a first
priority security interest in each such Guarantor's assets, and (ii) UCC-1
financing statements with respect thereto, in each case duly authorized,
executed and delivered by the parties thereto;
(d) all requisite corporate action and proceedings in connection with
this Agreement and the other Financing Agreements shall be satisfactory in
form and substance to Lender, and Lender shall have received all information
and copies of all documents, including, without limitation, records of
requisite corporate action and proceedings which Lender may have requested in
connection therewith, such documents where requested by Lender or its counsel
to be certified by appropriate corporate officers or governmental authorities;
(e) no material adverse change shall have occurred in the assets,
business or financial condition of any Borrower since the date of Lender's
latest field examination and no change or event shall have occurred which
would impair the ability of any Borrower or any Obligor to perform its
obligations hereunder or under any of the other Financing Agreements to which
it is a party or of Lender to enforce the Obligations or realize upon the
Collateral;
(f) Lender shall have completed a field review of the Records and such
other information with respect to the Collateral as Lender may require to
determine the amount of Loans available to Borrowers, including, without
limitation, current perpetual inventory records and/or roll-forwards of
Accounts and Inventory through the date of closing, together with such
supporting documentation as may be necessary or appropriate, and other
documents and information that will enable Lender to accurately identify and
verify the Collateral, the results of which shall be satisfactory to Lender,
not more than three (3) Business Days prior to the date hereof;
(g) Lender shall have received, in form and substance satisfactory to
Lender, all consents, waivers, acknowledgments and other agreements from third
persons which Lender may deem necessary or desirable in order to permit,
protect and perfect its security interests in and liens upon the Collateral or
to effectuate the provisions or purposes of this Agreement and the other
Financing Agreements, including, without limitation, acknowledgements by
lessors, mortgagees and warehousemen of Lender's security interests in the
Collateral, waivers by such persons of any security interests, liens or other
claims by such persons to the Collateral and agreements permitting Lender
access to, and the right to remain on, the premises to exercise its rights and
remedies and otherwise deal with the Collateral;
(h) Borrowers shall have established the Blocked Accounts and Lender
shall have received, in form and substance satisfactory to Lender, all
agreements with the depository banks and Borrowers with respect to such
Blocked Accounts as Lender may require pursuant to Section 6.3 hereof, duly
authorized, executed and delivered by such depository banks and Borrowers;
(i) Lender shall have received evidence, in form and substance
satisfactory to Lender, that each Borrower has (i) directed the banks at which
such Borrower maintains deposit accounts for the initial receipt of cash,
checks and other items from such Borrower's retail store locations to transfer
all immediately available funds deposited in such bank only to the Blocked
Accounts as required pursuant to Section 6.3 hereof or as otherwise directed
by Lender and (ii) notified such banks of the security interests of Lender in
such funds and the other Collateral;
(j) Lender shall have received Credit Card Acknowledgements in each
case, duly authorized, executed and delivered by the Credit Card Issuers and
Credit Card Processors;
(k) Lender shall have received evidence of insurance and loss payee
endorsements required hereunder and under the other Financing Agreements, in
form and substance satisfactory to Lender, and certificates of insurance
policies and/or endorsements naming Lender as loss payee;
(l) Lender shall have received, in form and substance satisfactory to
Lender, the opinion letters of counsel to Borrowers with respect to the
Financing Agreements and the security interests and liens of Lender with
respect to the Collateral and such other matters and Lender may request; and
(m) the other Financing Agreements and all instruments and documents
hereunder and thereunder shall have been duly executed and delivered to
Lender, in form and substance satisfactory to Lender.
4.2 Conditions Precedent to All Loans and Letter of Credit Accommodations.
Each of the following is an additional condition precedent to Lender making
Loans and/or providing Letter of Credit Accommodations to Borrowers, including
the initial Loans and Letter of Credit Accommodations and any future Loans and
Letter of Credit Accommodations:
(a) all representations and warranties contained herein and in the
other Financing Agreements shall be true and correct in all material respects
with the same effect as though such representations and warranties had been
made on and as of the date of the making of each such Loan or providing each
such Letter of Credit Accommodation and after giving effect thereto (except
for any such representation or warranty expressly made as of a specified date,
in which case each such representation or warranty shall be true and correct
in all material respects as of such specified date); and
(b) no Event of Default and no event or condition which, with notice
or passage of time or both, would constitute an Event of Default, shall exist
or have occurred and be continuing on and as of the date of the making of such
Loan or providing each such Letter of Credit Accommodation and after giving
effect thereto.
SECTION 5. SECURITY INTEREST
To secure payment and performance of all Obligations, each Borrower hereby
grants to Lender a continuing security interest in, a lien upon, and a right
of set off against, and hereby assigns to Lender as security, the following
property and interests in property of such Borrower, whether now owned or
hereafter acquired or existing, and wherever located (collectively, the
"Collateral"):
5.1 Accounts;
5.2 all present and future contract rights, general intangibles
(including, but not limited to, tax and duty refunds, registered and
unregistered patents, trademarks, service marks, copyrights, trade names,
applications for the foregoing, trade secrets, goodwill, processes, drawings,
blueprints, customer lists, licenses, whether as licensor or licensee, choses
in action and other claims and existing and future leasehold interests in
equipment, real estate and fixtures), chattel paper, documents, instruments,
securities and other investment property, credit card sales drafts, credit
card sales slips or charge slips or receipts and other forms of store
receipts, letters of credit, bankers' acceptances and guaranties;
5.3 all present and future monies, securities, credit balances, deposits,
deposit accounts and other property of such Borrower now or hereafter held or
received by or in transit to Lender or its affiliates or at any other
depository or other institution from or for the account of such Borrower,
whether for safekeeping, pledge, custody, transmission, collection or
otherwise, and all present and future liens, security interests, rights,
remedies, title and interest in, to and in respect of Accounts and other
Collateral, including, without limitation, (i) rights and remedies under or
relating to guaranties, contracts of suretyship, letters of credit and credit
and other insurance related to the Collateral, (ii) rights of stoppage in
transit, replevin, repossession, reclamation and other rights and remedies of
an unpaid vendor, lienor or secured party, (iii) goods described in invoices,
documents, credit card sales drafts, credit card sales slips or charge slips
or receipts and other forms of store receipts, contracts or instruments with
respect to, or otherwise representing or evidencing, Accounts or other
Collateral, including, without limitation, returned, repossessed and reclaimed
goods, and (iv) deposits by and property of account debtors or other persons
securing the obligations of account debtors;
5.4 Inventory;
5.5 Equipment;
5.6 Records; and
5.7 all products and proceeds of the foregoing, in any form, including,
without limitation, insurance proceeds and all claims against third parties
for loss or damage to or destruction of any or all of the foregoing.
SECTION 6. COLLECTION AND ADMINISTRATION
6.1 Borrowers' Loan Accounts. Lender shall maintain one or more loan
account(s) on its books in which shall be recorded (a) all Loans, Letter of
Credit Accommodations and other Obligations and the Collateral, (b) all
payments made by or on behalf of Borrowers and (c) all other appropriate
debits and credits as provided in this Agreement, including, without
limitation, fees, charges, costs, expenses and interest. All entries in the
loan account(s) shall be made in accordance with Lender's customary practices
as in effect from time to time.
6.2 Statements. Lender shall render to Borrowers each month a statement
setting forth the balance in the Borrowers' loan account(s) maintained by
Lender for Borrowers pursuant to the provisions of this Agreement, including
principal, interest, fees, costs and expenses. Each such statement shall be
subject to subsequent adjustment by Lender but shall, absent manifest errors
or omissions, be considered correct and deemed accepted by Borrowers and
conclusively binding upon Borrowers as an account stated except to the extent
that Lender receives a written notice from any Borrower of any specific
exceptions of such Borrower thereto within thirty (30) days after the date
such statement has been mailed by Lender. Until such time as Lender shall
have rendered to Borrowers a written statement as provided above, the balance
in Borrowers' loan account(s) shall be presumptive evidence of the amounts due
and owing to Lender by Borrowers.
6.3 Collection of Accounts.
(a) Borrowers shall establish and maintain, at their expense, deposit
account arrangements and merchant payment arrangements with the banks set
forth on Schedule 6.3 hereto and after prior written notice to Lender, subject
to Section 9.15, such other banks as Borrowers may hereafter select as are
acceptable to Lender. The banks set forth on Schedule 6.3 constitute all of
the banks with whom any Borrower has deposit account arrangements and merchant
payment arrangements as of the date hereof and identifies each of the deposit
accounts at such banks to a retail store location of a Borrower or otherwise
describes the nature of the use of such deposit account by the applicable
Borrower.
(i) Borrowers shall deposit all proceeds from sales of Inventory
in every form, including, without limitation, cash, checks and other forms of
daily store receipts, from each retail store location of Borrowers on each
business day into the deposit accounts of Borrowers used solely for such
purpose and identified to each retail store location as set forth on Schedule
6.3, and Borrowers shall cause all required information and documents relating
to Credit Card Receivables, including, as applicable, credit card sales
drafts, credit card sales or charge slips or receipts, to be submitted daily
to the applicable Credit Card Processors who have executed and delivered
Credit Card Acknowledgments in favor of Lender. All funds deposited into the
separate deposit accounts for the respective retail store locations in excess
of $15,000 at any time on deposit in any such account (or, after and during
the continuance of an Event of Default, all such funds regardless of amount)
and all amounts paid by the Credit Card Processors shall be sent by wire
transfer on a daily basis, and all other proceeds of Collateral shall be sent
by wire transfer, to the Blocked Accounts as provided in Section 6.3(a)(ii)
below. Borrowers shall irrevocably authorize and direct in writing, in form
and substance satisfactory to Lender, each of the banks into which proceeds
from sales of Inventory from each retail store locations of Borrowers are at
any time deposited as provided above to send all funds deposited in such
accounts by wire transfer on a daily basis to the Blocked Accounts and, if at
any time required by Lender, Borrowers shall obtain the written agreement by
such banks to do so. Such authorization and direction shall not be rescinded,
revoked or modified without the prior written consent of Lender.
(ii) Borrowers shall establish and maintain, at its expense,
deposit accounts with such banks as are acceptable to Lender (the "Blocked
Accounts") into which Borrowers shall promptly either cause all amounts on
deposit in its deposit accounts used by each retail store location to be sent
as provided in Section 6.3(a)(i) above or shall themselves deposit or cause to
be deposited all proceeds from sales of Inventory, all amounts payable to
Borrowers from Credit Card Issuers and Credit Card Processors and all other
proceeds of Collateral. The banks at which the Blocked Accounts are
established shall enter into an agreement, in form and substance satisfactory
to Lender, providing that all items received or deposited in the Blocked
Accounts are the property of Lender, that the depository bank has no lien
upon, or right of setoff against, the Blocked Accounts, the items received for
deposit therein, or the funds from time to time on deposit therein and that
the depository bank will wire, or otherwise transfer, in immediately available
funds, on a daily basis, all funds received or deposited into the Blocked
Accounts to such bank account of Lender as Lender may from time to time
designate for such purpose ("Payment Account"). Each Borrower agrees that all
amounts deposited in such Blocked Accounts or other funds received and
collected by Lender, whether as proceeds of inventory or other Collateral or
otherwise shall be the property of Lender.
(b) For purposes of calculating the amount of the Loans available to
Borrowers, such payments under Section 6.3(a) will be applied (conditional
upon final collection) to the Obligations on the Business Day of receipt by
Lender of immediately available funds in the Payment Account provided notice
of such payments is received by Lender's loan account officer for Borrowers by
no later than 1:30 p.m. New York City time and such payments are actually and
always received in the Payment Account, in the amounts so notified to Lender
and otherwise in accordance with Lender's usual and customary practices as in
effect from time to time and within sufficient time to credit Borrowers' loan
account(s) on such day, and if not, then on the next Business Day. For
purposes of calculating interest on the non-contingent monetary Obligations,
such payments or other funds received will be applied (conditional upon final
collection) to the non-contingent monetary Obligations on the Business Day of
receipt of immediately available funds by Lender in the Payment Account
provided notice of such payments or other funds is received by Lender's
accounting department by no later than 1:30 p.m. New York City time and such
payments or other funds are actually and always received in the Payment
Account in the amounts so notified to Lender and otherwise in accordance with
Lender's usual and customary practices as in effect from time to time and
within sufficient time to credit the Borrowers' loan account(s) on such day,
and if not, then on the next Business Day.
(c) Borrowers and all of their affiliates, subsidiaries, shareholders,
directors, employees or agents shall, acting as trustee for Lender, receive,
as the property of Lender, any cash, checks, credit card sales drafts, credit
card sales or charge slips or receipts, notes, drafts, all forms of store
receipts or any other payment relating to and/or proceeds of Accounts or other
Collateral which come into their possession or under their control and
immediately upon receipt thereof, shall deposit or cause the same to be
deposited in the Blocked Accounts, or remit the same or cause the same to be
remitted, in kind, to Lender; provided, that, if at any time the Excess
Availability shall be less than $5,000,000, Borrowers shall promptly upon
Lender's request cause the portion thereof representing sales and/or use taxes
payable in connection with such sales or otherwise to be deposited into a
separate bank account or accounts established for such purpose. In no event
shall any such cash, checks, credit card sales drafts, credit card sales or
charge slips or receipts, notes, drafts or other payments be commingled with
Borrowers' own funds. Borrowers agree to reimburse Lender on demand for any
amounts owed or paid to any bank at which a Blocked Account is established or
any other bank or person involved in the transfer of funds to or from the
Blocked Accounts arising out of Lender's payments to or indemnification of
such bank or person. The Obligation of Borrowers to reimburse Lender for such
amounts pursuant to this Section 6.3 shall survive the termination or
non-renewal of this Agreement.
6.4 Payments.
(a) All Obligations shall be payable to the Payment Account as
provided in Section 6.3 or such other place as Lender may designate from time
to time. Subject to Section 6.4(b) hereof, Lender may apply payments received
or collected from Borrowers or for the account of Borrowers (including,
without limitation, the monetary proceeds of collections or of realization
upon any Collateral) to such of the non-contingent monetary Obligations,
whether or not then due, in such order and manner as Lender determines. All
principal, interest, fees, costs, expenses and other charges provided for in
this Agreement or the other Financing Agreements will be charged directly to
the loan account(s) of Borrowers, unless Lender elects, at its option to
require payment to be made by Borrowers, such election to be made (or
reversed) by Lender prospectively upon notice to Borrowers given at any time
or from time to time as to any or all such payments or categories thereof;
provided, that, Borrowers shall be required to make payment to Lender of all
amounts demanded by Lender under the terms of this Agreement when so demanded,
and of all non-contingent monetary Obligations upon the effective date of
termination or non-renewal hereof, in each case without any requirement for
any notice of election under this provision.
(b) So long as (i) no Event of Default exists or has occurred and is
continuing, and no event has occurred or condition exists that would, with
notice or passage of time, or both, constitute an Event of Default, (ii) there
is Excess Availability of at least $1.00, (iii) there are no Prime Rate Loans
outstanding and (iv) no event has occurred or state of facts exists pursuant
to which the Eurodollar Rate Loans may or must be converted to Prime Rate
Loans hereunder, Lender agrees to employ an internal bookkeeping procedure
(the Non-Breakage Procedure") such that outstanding Eurodollar Rate Loans
shall not be treated as repaid (in whole or in part) by the application of the
proceeds of collections or of realization upon Collateral (as otherwise
provided in Section 6.4(a) hereof), but such proceeds shall instead be treated
as retained by Lender as cash collateral (which may be evidenced by a credit
balance in any loan account of Borrowers). Lender shall have the right,
without prior notice to Borrowers, to terminate the Non-Breakage Procedure and
immediately apply any or all sums held by Lender as cash collateral to, and/or
set-off and apply any or all credit balances evidencing such cash collateral
against, any or all then-outstanding Eurodollar Rate Loans if any of the
conditions set forth in clauses (i) through (iv) of this Section 6.4(b) is not
or is no longer satisfied on a continuing basis at any time while the
Non-Breakage Procedure is in effect, or if Lender otherwise determines, in
good faith, that its risk would be increased if such Non-Breakage Procedure
were to continue.
(c) Borrowers shall make all payments to Lender on the Obligations
free and clear of, and without deduction or withholding for or on account of,
any setoff, counterclaim, defense, duties, taxes, levies, imposts, fees,
deductions, withholding, restrictions or conditions of any kind. If after
receipt of any payment of, or proceeds of Collateral applied to the payment
of, any of the Obligations, Lender is required to surrender or return such
payment or proceeds to any Person for any reason, then the Obligations
intended to be satisfied by such payment or proceeds shall be reinstated and
continue and this Agreement shall continue in full force and effect as if such
payment or proceeds had not been received by Lender. Borrowers shall be
liable to pay to Lender, and each Borrower does hereby indemnify and hold
Lender harmless for the amount of any payments or proceeds surrendered or
returned. This Section 6.4 shall remain effective notwithstanding any
contrary action which may be taken by Lender in reliance upon such payment or
proceeds. This Section 6.4 shall survive the payment of the Obligations and
the termination or non-renewal of this Agreement.
6.5 Authorization to Make Loans. Lender is authorized to make the Loans
and provide the Letter of Credit Accommodations based upon telephonic or other
instructions received from anyone purporting to be an officer of Borrowers or
TWE as agent for Borrowers or other authorized person or, at the discretion of
Lender, if such Loans are necessary to satisfy any Obligations. All requests
for Loans or Letter of Credit Accommodations hereunder shall specify the date
on which the requested advance is to be made or Letter of Credit
Accommodations established (which day shall be a Business Day) and the amount
of the requested Loan. Requests received after 12:00 Noon, New York City
time, on any day shall be deemed to have been made as of the opening of
business on the immediately following Business Day. All Loans and Letter of
Credit Accommodations under this Agreement shall be conclusively presumed to
have been made to, and at the request of and for the benefit of, Borrowers
when deposited to the credit of a Borrower or TWE as agent for Borrowers, or
otherwise disbursed or established in accordance with the instructions of a
Borrower or TWE as agent for Borrowers or in accordance with the terms and
conditions of this Agreement.
6.6 Use of Proceeds. Borrowers shall use the initial proceeds of the
Loans provided by Lender to Borrowers hereunder only for: (a) payments to
each of the persons listed in the disbursement direction letter furnished by
Borrowers to Lender on or about the date hereof and (b) costs, expenses and
fees in connection with the preparation, negotiation, execution and delivery
of this Agreement and the other Financing Agreements. All other Loans made
and all Letter of Credit Accommodations provided by Lender to Borrowers
pursuant to the provisions hereof shall be used by Borrowers only for general
operating, working capital and other proper corporate purposes of Borrowers
not otherwise prohibited by the terms hereof. None of the proceeds will be
used, directly or indirectly, for the purpose of purchasing or carrying any
margin security or for the purposes of reducing or retiring any indebtedness
which was originally incurred to purchase or carry any margin security or for
any other purpose which might cause any of the Loans to be considered a
"purpose credit" within the meaning of Regulation G of the Board of Governors
of the Federal Reserve System, as amended.
SECTION 7. COLLATERAL REPORTING AND COVENANTS
7.1 Collateral Reporting. Borrowers shall provide Lender with the
following documents in a form satisfactory to Lender: (a) on a weekly basis
or, if Excess Availability falls below $10,000,000 or an Event of Default
exists or has occurred and is continuing, or an event has occurred or state of
facts exists that would, with notice or passage of time, or both, constitute
an Event of Default, more frequently as Lender may request, (i) perpetual
Inventory reports at Cost for distribution center(s) and retail stores by
category (including, separately, return-to- vendor Inventory and other
Inventory, in each case by product categories), (ii) reports of sales of
Inventory, indicating net sales, (iii) reports of aggregate Inventory
purchases (including all costs related thereto, such as freight, duty and
taxes), (iv) reports of markdowns taken with respect to Inventory in
Borrowers' retail stores, and (v) reports of consigned inventory or inventory
on approval in Borrowers' possession; (b) on a monthly basis or, if Excess
Availability falls below $10,000,000 or an Event of Default exists or has
occurred and is continuing, or an event has occurred or state of facts exists
that would, with notice or passage of time, or both, constitute an Event of
Default, more frequently as Lender may request, (i) agings of accounts
payable, and (ii) a schedule of Accounts, credits and collections; (c) upon
Lender's request, (i) copies of customer statements and credit memos,
remittance advices and reports, and copies of deposit slips and bank
statements, (ii) copies of shipping and delivery documents, (iii) copies of
purchase orders, invoices and delivery documents for Inventory and Equipment
acquired by Borrowers, (iv) reports by retail store location of sales and
operating profits for each such retail store location and (v) reports on sales
and use tax collections, deposits and payments, including monthly sales and
use tax accruals; (d) as soon as available, but in any event not later than
five (5) Business Days after receipt by Borrowers, the monthly statements
received by Borrowers from any Credit Card Issuers or Credit Card Processors,
together with such additional information with respect thereto as shall be
sufficient to enable Lender to monitor the transactions pursuant to the Credit
Card Agreements; and (e) such other reports as to the Collateral as Lender
shall request from time to time. If any of Borrowers' records or reports of
the Collateral are prepared or maintained by an accounting service,
contractor, shipper or other agent, Borrowers hereby irrevocably authorize
such service, contractor, shipper or agent to deliver such records, reports,
and related documents to Lender and to follow Lender's instructions with
respect to further services at any time that an Event of Default exists or has
occurred and is continuing.
7.2 Accounts Covenants.
(a) Borrowers shall notify Lender promptly of (i) any material delay
in any Borrower's performance of any of its obligations to any account debtor
or the assertion of any claims, offsets, defenses or counterclaims by any
account debtor, Credit Card Issuer or Credit Card Processor or any disputes
with any of such persons or any settlement, adjustment or compromise thereof,
in any instance involving an amount of $500,000 or more and (ii) all material
adverse information relating to the financial condition of any account debtor,
Credit Card Issuer or Credit Card Processor. No credit, discount, allowance
or extension or agreement for any of the foregoing shall be granted to any
account debtor, Credit Card Issuer or Credit Card Processor except in the
ordinary course of Borrowers' business in accordance with the current
practices of Borrowers. So long as no Event of Default exists or has occurred
and is continuing, Borrowers shall settle, adjust or compromise any claim,
offset, counterclaim or dispute with any account debtor, Credit Card Issuer,
Credit Card Processor. At any time that an Event of Default exists or has
occurred and is continuing, Lender shall, at its option, have the exclusive
right to settle, adjust or compromise any claim, offset, counterclaim or
dispute with account debtors, Credit Card Issuers or Credit Card Processors or
grant any credits, discounts or allowances.
(b) Each Borrower shall notify Lender promptly of: (x) any notice of
a material default by such Borrower under any of the Credit Card Agreements or
of any default which might result in the Credit Card Issuer or Credit Card
Processor ceasing to make payments or suspending payments to Borrowers, (y)
any notice from any Credit Card Issuer or Credit Card Processor that such
person is ceasing or suspending, or will cease or suspend, any present or
future payments due or to become due to any Borrower from such person, or that
such person is terminating or will terminate any of the Credit Card
Agreements, and (z) the failure of any Borrower to comply with any material
terms of the Credit Card Agreements or any terms thereof which might result in
the Credit Card Issuer or Credit Card Processor ceasing or suspending payments
to any Borrower.
(c) With respect to each Account: (i) the amounts shown on any
invoice delivered to Lender or schedule thereof delivered to Lender shall be
true and complete, (ii) no payments shall be made thereon except payments
delivered to Lender pursuant to the terms of this Agreement, (iii) no credit,
discount, allowance or extension or agreement for any of the foregoing shall
be granted by a Borrower to any account debtor, Credit Card Issuer or Credit
Card Processor, except as reported to Lender in accordance with this Agreement
and except for credits, discounts, allowances or extensions made or given in
the ordinary course of such Borrower's business, (iv) there shall be no
setoffs, deductions, contras, defenses, counterclaims or disputes existing or
asserted with respect thereto except as reported to Lender in accordance with
the terms of this Agreement, (v) none of the transactions giving rise thereto
will violate any applicable State or Federal Laws or regulations, all
documentation relating thereto will be legally sufficient under such laws and
regulations and all such documentation will be legally enforceable in
accordance with its terms.
(d) Lender may, at any time or times that an Event of Default exists
or has occurred and is continuing: (i) notify any or all account debtors,
Credit Card Issuers and Credit Card Processors that the Accounts have been
assigned to Lender and that Lender has a security interest therein and Lender
may direct any or all account debtors, Credit Card Issuers and Credit Card
Processors to make payments of Accounts directly to Lender, (ii) extend the
time of payment of, compromise, settle or adjust for cash, credit, return of
merchandise or otherwise, and upon any commercially reasonable terms or
conditions, any and all Accounts or other obligations included in the
Collateral and thereby discharge or release the account debtor or any other
party or parties in any way liable for payment thereof without affecting any
of the Obligations, (iii) demand, collect or enforce payment of any Accounts
or such other obligations, but without any duty to do so, and Lender shall not
be liable for its failure to collect or enforce the payment thereof nor for
the negligence of its agents or attorneys with respect thereto and (iv) take
whatever other action Lender may deem necessary or desirable for the
protection of its interests. At any time that an Event of Default exists or
has occurred and is continuing, at Lender's request, all invoices and
statements sent to any account debtor, Credit Card Issuer or Credit Card
Processor shall state that the Accounts owed by such account debtor, Credit
Card Issuer or Credit Card Processor and such other obligations have been
assigned to Lender and are payable directly and only to Lender and Borrowers
shall deliver to Lender such originals of documents evidencing the sale and
delivery of goods or the performance of services giving rise to any Accounts
as Lender may require.
(e) Lender shall have the right at any time or times, in Lender's name
or in the name of a nominee of Lender, to verify the validity, amount or any
other matter relating to any Account or other Collateral, by mail, telephone,
facsimile transmission or otherwise.
(f) Each Borrower shall deliver or cause to be delivered to Lender,
with appropriate endorsement and assignment, with full recourse to such
Borrower, all chattel paper and instruments which such Borrower now owns or
may at any time acquire immediately upon such Borrower's receipt thereof,
except as Lender may otherwise agree.
7.3 Inventory Covenants. With respect to the Inventory: (a) each
Borrower shall at all times maintain inventory records reasonably satisfactory
to Lender, keeping correct and accurate records itemizing and describing the
kind, type, quality and quantity of Inventory, such Borrower's cost therefor
and daily withdrawals therefrom and additions thereto; (b) no Borrower shall
remove any Inventory from the locations set forth or permitted herein, without
the prior written consent of Lender, except for sales of Inventory in the
ordinary course of Borrowers' business and except to move Inventory directly
from one location set forth or permitted herein to another such location; (c)
Borrowers shall, at Lender's request and at Borrowers' expense, once in every
twelve (12) month period, but at any time or times as Lender may request at
Lender's expense, or at Borrowers' expense any time or times as Lender may
request after and during the continuance of an Event of Default, deliver or
cause to be delivered to Lender written reports or appraisals as to the
Inventory in form, scope and methodology acceptable to Lender and by an
appraiser acceptable to Lender, addressed to Lender or upon which Lender is
expressly permitted to rely; (d) Borrowers shall conduct, at their expense, a
physical count of the Inventory located at Borrowers' distribution center(s)
at least once during each twelve (12) month period, and cycle counts of the
Inventory located at Borrowers' retail stores and distribution center(s), in
form, scope and methodology acceptable to Lender, and, upon Lender's request
after an and during the continuance of Event of Default, Borrowers shall, at
their expense, conduct through RGIS Inventory Specialists, Inc. or another
inventory counting service acceptable to Lender, such cycle counts of the
Inventory located at Borrowers' retail stores and distribution center(s) and
such physical count of the Inventory at Borrowers' distribution center(s), in
form, scope and methodology acceptable to Lender, and, in each case, the
results of such counts shall be reported to Lender by Borrowers or, if
applicable, directly to Lender by such inventory counting service, in such
form and with such specificity as Lender may reasonably require, and Borrowers
shall promptly deliver confirmation in a form satisfactory to Lender that
appropriate adjustments have been made to the inventory records of Borrowers
to reconcile the inventory counts to Borrowers' inventory records; (e)
Borrowers shall produce, use, store and maintain the Inventory, with all
reasonable care and caution and in accordance with applicable standards of any
insurance and in conformity with applicable laws (including, but not limited
to, the requirements of the Federal Fair Labor Standards Act of 1938, as
amended and all rules, regulations and orders related thereto); (f) each
Borrower assumes all responsibility and liability arising from or relating to
the production, use, sale or other disposition of the Inventory; (g) no
Borrower shall sell Inventory to any customer on approval, or any other basis
which entitles the customer to return or may obligate such Borrower to
repurchase such Inventory, except for the right of return given to retail
customers of such Borrower in the ordinary course of the business of such
Borrower in accordance with the then-current return policy of such Borrower;
(h) Borrowers shall keep the Inventory in good and marketable condition; (i)
without limiting the other reporting obligations of Borrowers hereunder, if
Excess Availability is, or would thereby be reduced, below $5,000,000,
Borrowers shall provide three (3) days' prior written notice to Lender on a
separate basis of any proposed return of Inventory to the vendors thereof if
the Inventory proposed to be so returned has a value in excess of $500,000,
unless such return is accompanied by a contemporaneous exchange for and/or
purchase of new Inventory of equal original cost and, if purchased, on normal,
unsecured trade credit terms; (j) without Lender's prior written approval, no
Inventory shall be returned to vendors after and during the continuance of an
Event of Default, or, if as a result thereof, Excess Availability would be
less than one dollar ($1.00); and (k) no Borrower shall, without the prior
written consent of Lender, acquire, accept or hold any inventory on
consignment or approval ("Consigned Inventory"), except that Borrowers may, on
a combined basis acquire, accept and hold Consigned Inventory whose aggregate
cost (if purchased) at no time exceeds five (5%) percent of the Cost of all of
Borrowers' other Inventory, so long as such Consigned Inventory is segregated
from Borrowers' other Inventory or is otherwise readily identifiable at all
times by Lender, and either (i) each consignor or other supplier of such
Consigned Inventory has, pursuant to a signed writing acceptable to Lender in
form and substance, waived all claims to the proceeds of such Consigned
Inventory received by Lender, or (ii) in the absence of a signed writing as
described in clause (i), either (A) Excess Availability at all times equals or
exceeds $5,000,000, or (B) if Excess Availability is less than or falls below
$5,000,000, any proceeds of such Consigned Inventory in which the consignor or
supplier of such Consigned Inventory has an interest superior to the security
interests of Lender (as determined by Lender) are segregated from the proceeds
of Borrowers' other Inventory and, at Lender's option, such segregated
proceeds of such Consigned Inventory are not applied to the Obligations.
7.4 Equipment Covenants. With respect to the Equipment: (a) Borrowers
shall keep the Equipment in good order, repair, running and marketable
condition (ordinary wear and tear excepted); (b) Borrowers shall use the
Equipment with all reasonable care and caution and in accordance with
applicable standards of any insurance and in conformity with all applicable
laws; (c) the Equipment is and shall be used in Borrowers' business and not
for personal, family, household or farming use; (d) no Borrower shall remove
any Equipment from the locations set forth or permitted herein, except to the
extent necessary to have any Equipment repaired or maintained in the ordinary
course of the business of such Borrower or to move Equipment directly from one
location set forth or permitted herein to another such location and except for
the movement of motor vehicles used by or for the benefit of such Borrower in
the ordinary course of business; (e) the Equipment is now and shall remain
personal property and Borrowers shall not permit any of the Equipment to be or
become a part of or a permanent fixture to real property; and (f) each
Borrower assumes all responsibility and liability arising from its use of the
Equipment.
7.5 Power of Attorney. Each Borrower hereby irrevocably designates and
appoints Lender (and all persons designated by Lender) as such Borrower's true
and lawful attorney-in-fact, and authorizes Lender, in such Borrower's or
Lender's name, to: (a) at any time an Event of Default or event which with
notice or passage of time or both would constitute an Event of Default exists
or has occurred and is continuing (i) demand payment on Accounts or other
proceeds of Inventory or other Collateral, (ii) enforce payment of Accounts by
legal proceedings or otherwise, (iii) exercise all of such Borrower's rights
and remedies to collect any Account or other Collateral, (iv) sell or assign
any Account upon such terms, for such amount and at such time or times as the
Lender deems advisable, (v) settle, adjust, compromise, extend or renew an
Account, (vi) discharge and release any Account, (vii) prepare, file and sign
such Borrower's name on any proof of claim in bankruptcy or other similar
document against an account debtor, (viii) notify the post office authorities
to change the address for delivery of such Borrower's mail to an address
designated by Lender, and open and dispose of all mail addressed to such
Borrower, and (ix) do all acts and things which are necessary, in Lender's
determination, to fulfill such Borrower's obligations under this Agreement and
the other Financing Agreements and (b) at any time to (i) take control in any
manner of any item of payment or proceeds thereof, (ii) have access to any
lockbox or postal box into which such Borrower's mail is deposited, (iii)
endorse such Borrower's name upon any items of payment or proceeds thereof and
deposit the same in the Lender's account for application to the Obligations,
(iv) endorse such Borrower's name upon any chattel paper, document,
instrument, invoice, or similar document or agreement relating to any Account
or any goods pertaining thereto or any other Collateral, (v) sign such
Borrower's name on any verification of Accounts and notices thereof to account
debtors and (vi) execute in such Borrower's name and file any UCC financing
statements or foreign equivalents thereof or amendments thereto. Each
Borrower hereby releases Lender and its officers, employees and designees from
any liabilities arising from any act or acts under this power of attorney and
in furtherance thereof, whether of omission or commission, except as a result
of Lender's own gross negligence or wilful misconduct as determined pursuant
to a final non-appealable judgment of a court of competent jurisdiction.
7.6 Right to Cure. Lender may, at its option, (a) if an Event of Default
exists or has occurred and is continuing, or if any event has occurred or
state of facts exists that would, with notice or passage of time, or both,
constitute an Event of Default, cure any default by a Borrower under any
agreement with a third party or pay or bond on appeal any judgment entered
against a Borrower, (b) discharge taxes, liens, security interests or other
encumbrances at any time levied on or existing with respect to the Collateral
and (c) pay any amount, incur any expense or perform any act which, in
Lender's judgment, is necessary or appropriate to preserve, protect, insure or
maintain the Collateral and the rights of Lender with respect thereto. Lender
may add any amounts so expended to the Obligations and charge such Borrower's
account therefor, such amounts to be repayable by such Borrower on demand.
Lender shall be under no obligation to effect such cure, payment or bonding
and shall not, by doing so, be deemed to have assumed any obligation or
liability of any Borrower. Any payment made or other action taken by Lender
under this Section shall be without prejudice to any right to assert an Event
of Default hereunder and to proceed accordingly.
7.7 Access to Premises. From time to time as requested by Lender, at the
cost and expense of Borrowers, (a) Lender or its designee shall have complete
access to all of Borrowers' premises during normal business hours and after
notice to Borrowers, or at any time and without notice to Borrowers if an
Event of Default exists or has occurred and is continuing, for the purposes of
inspecting, verifying and auditing the Collateral and all of Borrowers' books
and records, including, without limitation, the Records, and (b) Borrowers
shall promptly furnish to Lender such copies of such books and records or
extracts therefrom as Lender may request, and (c) use during normal business
hours such of Borrowers' personnel, equipment, supplies and premises as may be
reasonably necessary for the foregoing and if an Event of Default exists or
has occurred and is continuing for the collection of Accounts and realization
of other Collateral. Notwithstanding the foregoing provisions of this Section
7.7, Lender agrees that Borrowers' Obligations to pay Lender's expenses in
connection with Lender's periodic field examinations of the Collateral and
Borrowers' operations shall be limited to no more than three (3) periodic
field examinations in any calendar year (excluding any field examinations
prior to the date hereof), except after and during the continuance of an Event
of Default, in which case the foregoing limitation shall not apply.
SECTION 8. REPRESENTATIONS AND WARRANTIES
Borrowers hereby, jointly and severally, represent and warrant to Lender
the following (which shall survive the execution and delivery of this
Agreement), the truth and accuracy of which is a continuing condition of the
making of Loans and providing Letter of Credit Accommodations by Lender to
Borrowers (except for any such representation or warranty that is expressly
made as of a specified date, in which case such representation or warranty
shall be true and correct as of such specified date):
8.1 Corporate Existence, Power and Authority; Subsidiaries. Each
Borrower is a corporation duly organized and in good standing under the laws
of its state of incorporation and is duly qualified as a foreign corporation
and in good standing in all states or other jurisdictions where the nature and
extent of the business transacted by it or the ownership of assets makes such
qualification necessary, except for those jurisdictions in which the failure
to so qualify would not have a material adverse effect on such Borrower's
financial condition, results of operation or business or the rights of Lender
in or to any of the Collateral. The execution, delivery and performance of
this Agreement, the other Financing Agreements and the transactions
contemplated hereunder and thereunder are all within each Borrower's corporate
powers, have been duly authorized and are not in contravention of law or the
terms of each Borrower's certificate of incorporation, by-laws, or other
organizational documentation, or any indenture, agreement or undertaking to
which any Borrower is a party or by which any Borrower or its property is
bound. This Agreement and the other Financing Agreements constitute legal,
valid and binding obligations of Borrowers enforceable in accordance with
their respective terms. Borrowers do not have any subsidiaries except as set
forth on the Information Certificate.
8.2 Financial Statements; No Material Adverse Change. All financial
statements relating to Borrowers which have been or may hereafter be delivered
by Borrowers to Lender have been prepared in accordance with GAAP and fairly
present the financial condition and the results of operation of Borrowers as
at the dates and for the periods set forth therein. Except as disclosed in
any interim financial statements furnished by Borrowers to Lender prior to the
date of this Agreement, there has been no material adverse change in the
assets, liabilities, properties and condition, financial or otherwise, of any
Borrower, since the date of the most recent audited financial statements
furnished by Borrowers to Lender prior to the date of this Agreement.
8.3 Chief Executive Office; Collateral Locations. The chief executive
office of each Borrower is located at the address set forth on the signature
page(s) hereof, and each Borrower's Records concerning Accounts and Inventory
are located at the address set forth below and its only other places of
business and the only other locations of Collateral, if any, are the addresses
set forth in the Information Certificate, subject to the right of Borrowers to
establish new locations in accordance with Section 9.2 below. The Information
Certificate correctly identifies as of the date hereof any of such locations
which are not owned by Borrowers and sets forth the owners and/or operators
thereof and, to the best of each Borrower's knowledge, the holders of any
mortgages on such locations.
8.4 Priority of Liens; Title to Properties. The security interests and
liens granted to Lender under this Agreement and the other Financing
Agreements constitute valid and perfected first priority liens and security
interests in and upon the Collateral, subject only to the liens indicated on
Schedule 8.4 hereto and the other liens permitted under Section 9.8 hereof.
Each Borrower has good and marketable title to all of its properties and
assets, subject to no liens, mortgages, pledges, security interests,
encumbrances or charges of any kind, except those granted to Lender and such
others as are specifically listed on Schedule 8.4 hereto or permitted under
Section 9.8 hereof.
8.5 Tax Returns. Each Borrower has filed, or caused to be filed, in a
timely manner all tax returns, reports and declarations which are required to
be filed by it. All information in such tax returns, reports and declarations
is complete and accurate in all material respects. Each Borrower has paid or
caused to be paid all taxes due and payable or claimed due and payable in any
assessment received by it, and has collected, deposited and remitted in
accordance with all applicable laws all sales and/or use taxes applicable to
the conduct of its business, except taxes the validity of which are being
contested in good faith by appropriate proceedings diligently pursued and
available to such Borrower and with respect to which adequate reserves have
been set aside on its books. Adequate provision has been made for the payment
of all accrued and unpaid Federal, State, county, local, foreign and other
taxes whether or not yet due and payable and whether or not disputed. Each
Borrower has collected and, when and if required by this Agreement, deposited
in a separate bank account, and, in all events timely remitted when due to the
appropriate tax authority all sales and/or use taxes applicable to its
business required to be collected under the laws of the United States and each
possession or territory thereof, and each State or political subdivision
thereof, including any State in which such Borrower owns any Inventory or owns
or leases any other property, and under the applicable laws of any foreign
jurisdiction.
8.6 Litigation. Except as set forth on the Information Certificate, as
of the date hereof, there is, to the best of each Borrower's knowledge, no
present investigation by any governmental agency pending, or to the best of
each Borrower's knowledge threatened, against or affecting any Borrower, its
assets or business and there is no action, suit, proceeding or claim by any
Person pending, or to the best of any Borrower's knowledge threatened, against
any Borrower or its assets or goodwill, or against or affecting any
transactions contemplated by this Agreement, which, if adversely determined
against any Borrower, would result in any material adverse change in the
assets, business or financial condition of any Borrower or would impair the
ability of any Borrower to perform its Obligations hereunder or under any of
the other Financing Agreements to which it is a party or of Lender to enforce
any Obligations or realize upon any Collateral.
8.7 Compliance with Other Agreements and Applicable Laws.
(a) No Borrower is in default in any respect under, or in violation in
any respect of any of the terms of, any material agreement, contract,
instrument, lease or other commitment to which it is a party or by which it or
any of its assets are bound. Borrowers are in compliance in all material
respects with the requirements of all applicable laws, rules, regulations and
orders of any governmental authority relating to their business, including,
without limitation, those set forth in or promulgated pursuant to the
Occupational Safety and Health Act of 1970, as amended, the Fair Labor
Standards Act of 1938, as amended, ERISA, the Code, as amended, and the rules
and regulations thereunder, all federal, state and local statutes,
regulations, rules and orders relating to consumer credit (including, without
limitation, as each has been amended, the Truth-in-Lending Act, the Fair
Credit Billing Act, the Equal Credit Opportunity Act and the Fair Credit
Reporting Act, and regulations, rules and orders promulgated thereunder), all
federal, state and local and foreign statutes, regulations, rules and orders
pertaining to sales of consumer goods (including, without limitation, the
Consumer Products Safety Act of 1972, as amended, and the Federal Trade
Commission Act of 1914, as amended, and all regulations, rules and orders
promulgated thereunder), except where the failure to so comply does not and
could not reasonably be expected to result in a Material Adverse Effect.
(b) Each Borrower has obtained all material permits, licenses,
approvals, consents, certificates, orders or authorizations of any
governmental agency required for the lawful conduct of its business.
Borrowers have all permits, licenses, approvals, consents, certificates,
orders or authorizations of each federal, state, local or foreign governmental
agency (the "Permits"), that are necessary for each Borrower to own and
operate its business as presently conducted or proposed to be conducted,
except where the failure to have such Permits does not and could not
reasonably be expected to result in a Material Adverse Effect. All of the
Permits are valid and subsisting and in full force and effect. There are no
actions, claims or proceedings pending or, to any Borrower's knowledge,
threatened that seek the revocation, cancellation, suspension or modification
of any of the Permits.
8.8 Environmental Compliance.
(a) Except as set forth on Schedule 8.8 hereto, to the best of each
Borrower's knowledge, no Borrower has generated, used, stored, treated,
transported, manufactured, handled, produced or disposed of any Hazardous
Materials, on or off its premises (whether or not owned by it) in any manner
which at any time violates any applicable Environmental Law in any respect or
any license, permit, certificate, approval or similar authorization issued to
a Borrower thereunder and the operations of Borrowers comply in all respects
with all applicable Environmental Laws and all licenses, permits,
certificates, approvals and similar authorizations thereunder, except where
the failure to do so does not and could not reasonably be expected to result
in a Material Adverse Effect.
(b) Except as set forth on Schedule 8.8 hereto, to the best of each
Borrower's knowledge, there is no investigation, proceeding, complaint, order,
directive, claim, citation or notice by any governmental authority or any
other person pending or threatened, with respect to any material
non-compliance with or material violation of the requirements of any
applicable Environmental Law by such Borrower, nor has there been any material
release, spill or discharge, overtly threatened or actual, of any Hazardous
Material on any properties of Borrowers, or, to the best of each Borrower's
knowledge, any material release, spill or discharge from any properties at
which any Borrower has transported, stored or disposed of any Hazardous
Materials, or the generation, use, storage, treatment, transportation,
manufacture, handling, production or disposal of any Hazardous Materials or
any other environmental matter which affects any Borrower or its business,
operations or assets in any material respect.
(c) Except as set forth in Schedule 8.8 hereto, no Borrower has
material liability (contingent or otherwise) in connection with a release,
spill or discharge, threatened or actual, of any Hazardous Materials or the
generation, use, storage, treatment, transportation, manufacture, handling,
production or disposal of any Hazardous Materials.
(d) Each Borrower has all licenses, permits, certificates, approvals
or similar authorizations required to be obtained or filed in connection with
the operations of such Borrower under any Environmental Law and all of such
licenses, permits, certificates, approvals or similar authorizations are valid
and in full force and effect in each case where the failure to obtain or
maintain such licenses, permits, certificates, approvals or similar
authorizations would have a material adverse effect on the assets or business
of such Borrower or would impair the ability of such Borrower to perform its
obligations hereunder or under any of the other Financing Agreements to which
it is a party or of Lender to enforce any Obligations or realize upon any
Collateral.
8.9 Credit Card Agreements. Set forth on Schedule 8.9 hereto is a correct
and complete list of (a) all of the Credit Card Agreements and all other
agreements, documents and instruments existing as of the date hereof between
or among each Borrower, any of its affiliates, the Credit Card Issuers, the
Credit Card Processors and any of their affiliates, (b) the percentage of each
sale payable to the Credit Card Issuer or Credit Card Processor under the
terms of the Credit Card Agreements, (c) all other fees and charges payable by
Borrowers under or in connection with the Credit Card Agreements and (d) the
term of such Credit Card Agreements. The Credit Card Agreements constitute
all of such agreements necessary for each Borrower to operate its business as
presently conducted with respect to credit cards and debit cards and no
Accounts of Borrowers arise from purchases by customers of Inventory with
credit cards or debit cards, other than those which are issued by Credit Card
Issuers with whom Borrowers shall have entered into one of the Credit Card
Agreements set forth on Schedule 8.9 hereto or with whom Borrowers shall have
entered into a Credit Card Agreement in accordance with Section 9.13 hereof.
Each of the Credit Card Agreements constitutes the legal, valid and binding
obligation of each Borrower party thereto and, to the best of each Borrower's
knowledge, the other parties thereto, is enforceable in accordance with its
respective terms and is in full force and effect. No default or event of
default, or act, condition or event which after notice or passage of time or
both, would constitute a default or an event of default under any of the
Credit Card Agreements exists or has occurred and is continuing. Borrowers
and the other parties thereto have complied with all of the terms and
conditions of the Credit Card Agreements to the extent necessary for Borrowers
to be entitled to receive all payments thereunder. Borrowers have delivered,
or caused to be delivered to Lender, true, correct and complete copies of all
of the Credit Card Agreements.
8.10 Employee Benefits.
(a) With respect to any "employee benefit plan" (within the meaning of
ERISA) maintained by Borrower or any ERISA Affiliate, no Borrower or ERISA
Affiliate of Borrower has engaged in any transaction in connection with which
any Borrower or any of its ERISA Affiliates could be subject to either a civil
penalty assessed pursuant to ERISA or a penalty or excise tax imposed by the
Code, including any such penalty or tax in respect of an accumulated funding
deficiency described in Section 8.10(c) hereof or any deficiency with respect
to vested accrued benefits described in Section 8.10(d) hereof.
(b) No liability to the Pension Benefit Guaranty Corporation has been
or is expected by any Borrower to be incurred with respect to any employee
benefit plan of any Borrower or any of its ERISA Affiliates, other than for
normal premium payments due under Title IV of ERISA. There has been no
reportable event (within the meaning of ERISA) or any other event or condition
with respect to any employee benefit plan of any Borrower or any of its ERISA
Affiliates which presents a material risk of termination of any such plan by
the Pension Benefit Guaranty Corporation.
(c) Full payment has been made when due of all amounts which each
Borrower or any of its ERISA Affiliates is required under ERISA and the Code
to have paid under the terms of each employee benefit plan as contributions to
such plan as of the last day of the most recent fiscal year of such plan ended
prior to the date hereof, and no accumulated funding deficiency (as defined in
ERISA and the Code), or any deficiency with respect to vested accrued benefits
described in Section 8.10(d) hereof, whether or not waived, exists with
respect to any such plan that is an employee pension benefit plan.
(d) Except as set forth on Schedule 8.10 hereto, the current value of
all vested accrued benefits under each employee benefit plans maintained by
each Borrower that are subject to Title IV of ERISA, based on the actuarial
assumptions (if proper) used for calculating funding requirements in the most
recent actuarial report prepared by the plan's independent actuary with
respect to such plan, does not exceed the current value of the assets of such
plan allocable to such vested accrued benefits as of the valuation date (if
proper) set forth in such report. The terms "current value" and "accrued
benefit" have the meanings specified in ERISA.
(e) Except as disclosed on Schedule 8.10 hereto, no Borrower or any
ERISA Affiliate of a Borrower is or has ever been obligated to contribute to
any "multiemployer plan" (as such term is defined in ERISA) that is subject to
Title IV of ERISA, and, except as disclosed on Schedule 8.10 hereto, no
Borrower has incurred any unpaid withdrawal liability under Title IV of ERISA
with respect to any such multiemployer plan.
8.11 Bank Accounts. All of the deposit accounts, investment accounts or
other accounts in the name of or used by Borrowers maintained at any bank or
other financial institution are set forth on Schedule 6.3 hereto, subject to
the right of Borrowers to establish new accounts in accordance with Section
9.15 below.
8.12 Interrelated Businesses. Borrowers and Guarantors make up an
interrelated organization of various entities constituting a single economic
and business enterprise in which each of Borrowers and Guarantors shares an
identity of interests such that any benefit received by any one of the
Borrowers and Guarantors benefits the other Borrowers and Guarantors. Each of
Borrowers and Guarantors purchases or sells and supplies goods and renders or
receives services to or from, or for the benefit of, the other such Persons
and provides or receives other financial accommodations to or for the benefit
of the other such Persons and administrative, marketing, payroll and
management services to or from or for the benefit of, the other Borrowers and
Guarantors. Borrowers and Guarantors have (i) substantially consolidated
accounting, administrative, financial, computer, credit, legal and other
services, and (ii) substantially common officers and directors and are
identified to creditors as a common entity.
8.13 Accuracy and Completeness of Information. All information furnished
by or on behalf of any Borrower in writing to Lender in connection with this
Agreement or any of the other Financing Agreements or any transaction
contemplated hereby or thereby, including, without limitation, all information
on the Information Certificate is true and correct in all material respects on
the date as of which such information is dated or certified and does not omit
any material fact necessary in order to make such information not misleading.
No event or circumstance has occurred which has had or could reasonably be
expected to have a Material Adverse Effect, which has not been fully and
accurately disclosed to Lender in writing.
8.14 Survival of Warranties; Cumulative. All representa- tions and
warranties contained in this Agreement or any of the other Financing
Agreements shall survive the execution and delivery of this Agreement and
shall be deemed to have been made again to Lender on the date of each
additional borrowing or other credit accommodation hereunder (except to the
extent such representation or warranty expressly relates to a specified date,
in which case such representation or warranty shall be deemed made again as of
such specified date), and shall be conclusively presumed to have been relied
on by Lender regardless of any investigation made or information possessed by
Lender. The representations and warranties set forth herein shall be
cumulative and in addition to any other representations or warranties which
any Borrower shall now or hereafter give, or cause to be given, to Lender.
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS
9.1 Maintenance of Existence. Each Borrower shall at all times preserve,
renew and keep in full, force and effect its corporate existence and rights
and franchises with respect thereto and maintain in full force and effect all
permits, licenses, trademarks, tradenames, approvals, authorizations, leases
and contracts necessary to carry on its business as presently or proposed to
be conducted. Each Borrower shall give Lender thirty (30) days prior written
notice of any proposed change in its corporate name, which notice shall set
forth the new name and such Borrower shall deliver to Lender a copy of the
amendment to the Certificate of Incorporation of such Borrower providing for
the name change certified by the Secretary of State of the jurisdiction of
incorporation of such Borrower as soon as it is available.
9.2 New Collateral Locations. Any Borrower may open any new location
within the continental United States provided such Borrower (a) gives Lender
ten (10) days prior written notice of the intended opening of any such new
location, and (b) executes and delivers, or causes to be executed and
delivered, to Lender such agreements, documents, and instruments as Lender may
deem reasonably necessary or desirable to protect its interests in the
Collateral at such location, including UCC financing statements, Landlord
Agreements, Mortgagee Agreements and Warehouseman's Agreements, as applicable.
9.3 Compliance with Laws, Regulations, Etc. Each Borrower shall at all
times comply in all material respects with all applicable provisions of laws,
rules, regulations, licenses, permits, approvals and orders applicable to it
and duly observe all requirements, of any foreign, Federal, State or local
governmental authority, including, without limitation, the Occupational Safety
and Health Act of 1970, as amended, the Code, the Fair Labor Standards Act of
1938, as amended, and the rules and regulations thereunder, all Federal, State
and local statutes, regulations, rules and orders relating to consumer credit
(including, without limitation, as each has been amended, the Truth-in-Lending
Act, the Fair Credit Billing Act, the Equal Credit Opportunity Act and the
Fair Credit Reporting Act, and regulations, rules and orders promulgated
thereunder), all Federal, State and local statutes, regulations, rules and
orders pertaining to sales of consumer goods (including, without limitation,
the Consumer Products Safety Act of 1972, as amended, and the Federal Trade
Commission Act of 1914, as amended, and all regulations, rules and orders
promulgated thereunder) and all statutes, rules, regulations, orders, permits
and stipulations relating to environmental pollution and employee health and
safety, including, without limitation, all Environmental Laws, except where
the failure to comply will not and could not reasonably be expected to result
in a Material Adverse Effect.
9.4 Payment of Taxes and Claims. Each Borrower shall duly pay and
discharge all taxes, assessments, contributions and governmental charges upon
or against it or its properties or assets, except for taxes the validity of
which are being contested in good faith by appropriate proceedings diligently
pursued and available to such Borrower and with respect to which adequate
reserves have been set aside on its books. Each Borrower shall be liable for
any tax or penalties imposed on Lender as a result of the financing
arrangements provided for herein and Borrowers agree to indemnify and hold
Lender harmless with respect to the foregoing, and to repay to Lender on
demand the amount thereof, and until paid by Borrowers such amount shall be
added and deemed part of the Loans, provided, that, nothing contained herein
shall be construed to require any Borrower to pay any income or franchise
taxes attributable to the income of Lender from any amounts charged or paid
hereunder to Lender. The foregoing indemnity shall survive the payment of the
Obligations and the termination or non-renewal of this Agreement.
9.5 Insurance. Each Borrower shall, at all times, maintain with
financially sound and reputable insurers insurance with respect to the
Collateral against loss or damage and all other insurance of the kinds and in
the amounts customarily insured against or carried by corporations of
established reputation engaged in the same or similar businesses and similarly
situated. Said policies of insurance shall be reasonably satisfactory to
Lender as to form, amount and insurer. Each Borrower shall furnish
certificates, policies or endorsements to Lender as Lender shall require as
proof of such insurance, and, if any Borrower fails to do so, Lender is
authorized, but not required, to obtain such insurance at the expense of
Borrowers. All policies shall provide for at least thirty (30) days prior
written notice to Lender of any cancellation or reduction of coverage and that
Lender may act as attorney for Borrowers in obtaining, and at any time an
Event of Default exists or has occurred and is continuing, adjusting,
settling, amending and canceling such insurance. Borrowers shall cause Lender
to be named as a loss payee and an additional insured (but without any
liability for any premiums) under such insurance policies and Borrowers shall
obtain non-contributory lender's loss payable endorsements to all insurance
policies in form and substance satisfactory to Lender. Such lender's loss
payable endorsements shall specify that the proceeds of such insurance shall
be payable to Lender as its interests may appear and further specify that
Lender shall be paid regardless of any act or omission by any Borrower or any
of its affiliates. At its option, Lender may apply any insurance proceeds
received by Lender at any time to the cost of repairs or replacement of
Collateral and/or to payment of the Obligations, whether or not then due, in
any order and in such manner as Lender may determine or hold such proceeds as
cash collateral for the Obligations.
9.6 Financial Statements and Other Information.
(a) Each Borrower shall keep proper books and records in which true
and complete entries shall be made of all dealings or transactions of or in
relation to the Collateral and the business of such Borrower and its
subsidiaries (if any) in accordance with GAAP, and Borrowers shall furnish or
cause to be furnished to Lender: (i) within thirty (30) days after the end of
each fiscal month (or forty-five (45) days after the end of each fiscal month
coinciding with the end of the first, second or third fiscal quarters of each
fiscal year of Borrowers), monthly unaudited consolidated and unaudited
consolidating financial statements (including in each case balance sheets,
statements of income and loss, statements of cash flow and statements of
shareholders' equity), all in reasonable detail, fairly presenting the
financial position and the results of the operations of Borrowers and their
subsidiaries as of the end of and through such fiscal month and (ii) within
ninety (90) days after the end of each fiscal year, audited consolidated
financial statements (including in each case balance sheets, statements of
income and loss, statements of cash flow and statements of shareholders'
equity), and the accompanying notes thereto, all in reasonable detail, fairly
presenting the financial position and the results of the operations of
Borrowers and their subsidiaries as of the end of and for such fiscal year,
together with the unqualified opinion of independent certified public
accountants, which accountants shall be an independent accounting firm
selected by Borrowers and reasonably acceptable to Lender, that such financial
statements have been prepared in accordance with GAAP, and present fairly the
results of operations and financial condition of Borrowers and their
subsidiaries as of the end of and for the fiscal year then ended.
(b) Borrowers shall promptly notify Lender in writing of the details
of (i) any loss, damage, investigation, action, suit, proceeding or claim
relating to the Collateral or any other property which is security for the
Obligations, in each case having a value of $500,000 or more, or which would
result in any material adverse change in any Borrower's business, properties,
assets, goodwill or condition, financial or otherwise and (ii) the occurrence
of any Event of Default or act, condition or event which, with the passage of
time or giving of notice or both, would constitute an Event of Default.
(c) Borrowers shall promptly after the sending or filing thereof
furnish or cause to be furnished to Lender copies of all reports which
Borrowers send to their stockholders generally and copies of all reports and
registration statements which Borrowers file with the Securities and Exchange
Commission, any national securities exchange or the National Association of
Securities Dealers, Inc.
(d) Borrowers shall furnish or cause to be furnished to Lender such
budgets, forecasts, projections and other information respecting the
Collateral and the business of Borrowers, as Lender may, from time to time,
reasonably request. Lender is hereby authorized, subject to the provisions of
Section 12.5 hereof, to deliver a copy of any financial statement or any other
information relating to the business of Borrowers to any court or other
government agency or to any participant or assignee or prospective participant
or assignee. Each Borrower hereby irrevocably authorizes and directs all
accountants or auditors to deliver to Lender, at Borrowers' expense, copies of
the financial statements of Borrowers and any reports or management letters
prepared by such accountants or auditors on behalf of Borrowers and to
disclose to Lender such information as they may have regarding the business of
any Borrower. Any documents, schedules, invoices or other papers delivered to
Lender may be destroyed or otherwise disposed of by Lender one (1) year after
the same are delivered to Lender, except as otherwise designated by Borrowers
to Lender in writing.
9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc. No Borrower
shall, directly or indirectly:
(a) merge into or with or consolidate with any other Person or permit
any other Person to merge into or with or consolidate with it, or
(b) sell, assign, lease, transfer, abandon or otherwise dispose of any
stock or indebtedness to any other Person or any of its assets to any other
Person, except for:
(i) sales of Inventory in the ordinary course of business,
(ii) the disposition of worn-out or obsolete Equipment, so long
as (A) if an Event of Default exists or has occurred and is continuing, any
proceeds are paid to Lender and (B) such sales do not involve Equipment having
an aggregate fair market value in excess of $350,000 for all such Equipment
disposed of in any fiscal year of Borrowers,
(iii) sales or other dispositions by a Borrower of assets in
connection with the closing or sale of a retail store location of such
Borrower in the ordinary course of Borrowers' business, which assets so
disposed of consist of leasehold interests in the premises of such store, the
Equipment and fixtures located at such premises and the books and records
relating exclusively and directly to the operations of such store; provided,
that, as to each and all such sales (A) Lender shall have received not less
than five (5) Business Days prior written notice of such sale, which notice
shall set forth in reasonable detail satisfactory to Lender, the parties to
such sale or other disposition, the assets to be sold or otherwise disposed
of, the purchase price and the manner of payment thereof and such other
information with respect thereto as Lender may request, (B) as of the date of
such sale or other disposition and after giving effect thereto, no Event of
Default, or act, condition or event which with notice or passage of time would
constitute an Event of Default, shall exist or have occurred and be
continuing, and (C) any and all net proceeds payable or delivered to a
Borrower in respect of such sale or other disposition shall be paid or
delivered, or caused to be paid or delivered, to Lender in accordance with the
terms of this Agreement either, at Lender's option, for application to the
Obligations in accordance with the terms hereof (except to the extent such
proceeds reflect payment in respect of indebtedness secured by a properly
perfected first priority security interest in the assets sold, in which case,
such proceeds shall be applied to such indebtedness secured thereby) or to be
held by Lender as cash collateral for the Obligations on terms and conditions
acceptable to Lender, or
(iv) returns of Eligible RTV Inventory to the respective
vendors thereof in the ordinary course of business, upon compliance with and
subject to the provisions of Section 7.3(i) hereof; or
(c) form or acquire any subsidiaries, or
(d) wind up, liquidate or dissolve (except for dissolution of any
inactive Guarantors upon not less than twenty (20) days prior written notice
to Lender), or
(e) agree to do any of the foregoing.
9.8 Encumbrances. No Borrower shall create, incur, assume or suffer to
exist any security interest, mortgage, pledge, lien, charge or other
encumbrance of any nature whatsoever on any of its assets or properties,
including, without limitation, the Collateral, except: (a) liens and security
interests of Lender; (b) liens securing the payment of taxes, either not yet
overdue or the validity of which are being contested in good faith by
appropriate proceedings diligently pursued and available to Borrowers and with
respect to which adequate reserves have been set aside on their books; (c)
non-consensual statutory liens (other than liens securing the payment of
taxes) arising in the ordinary course of Borrowers' business to the extent:
(i) such liens secure indebtedness which is not overdue for a period of more
than thirty (30) days or (ii) such liens secure indebtedness relating to
claims or liabilities which are either (A) fully insured and being defended at
the sole cost and expense and at the sole risk of the insurer or (B) being
contested in good faith by appropriate proceedings diligently pursued and
available to Borrowers, in each case under clauses (A) or (B), prior to the
commencement of foreclosure or other similar proceedings and with respect to
which adequate reserves have been set aside on their books; (d) zoning
restrictions, easements, licenses, covenants and other restrictions affecting
the use of Real Property which do not interfere in any material respect with
the use of such Real Property or ordinary conduct of the business of Borrowers
as presently conducted thereon or materially impair the value of the Real
Property which may be subject thereto; (e) purchase money security interests
in Equipment (including capital leases) securing the indebtedness permitted
under Section 9.9(f) and, in addition thereto, purchase money security
interests in Equipment (including capital leases) and purchase money mortgages
on real estate not to exceed $500,000 in the aggregate at any time
outstanding, so long as such security interests and mortgages permitted under
this Section 9.8(e) do not apply to any property of Borrowers other than the
Equipment or real estate so acquired, and the indebtedness secured thereby
does not exceed the cost of the Equipment or real estate so acquired, as the
case may be; (f) liens or rights of setoff on or against credit balances of
Borrowers with Credit Card Issuers (but not liens on or rights of setoff
against any other property or assets of Borrowers) pursuant to the Credit Card
Agreements to secure the obligations of Borrowers to the Credit Card Issuers
as a result of fees and chargebacks; (g) deposits of cash with the owner or
lessor of premises leased and operated by a Borrower in the ordinary course of
the business of Borrowers' to secure the performance by such Borrower of its
obligations under the terms of the lease for such premises; (h) pledges or
deposits of cash in connection with worker's compensation, unemployment
insurance or other social security legislation; (i) pledges of cash to secure
the performance of bids, trade contracts (other than for borrowed money),
statutory obligations, surety and appeal bonds, performance bonds and other
obligations of a like nature incurred in the ordinary course of business; and
(j) the liens and security interests set forth on Schedule 8.4 hereto.
9.9 Indebtedness. No Borrower shall incur, create, assume, become or be
liable in any manner with respect to, or permit to exist, any indebtedness,
except:
(a) the Obligations;
(b) short-term intercompany loans by one Borrower to another Borrower
in the ordinary course of business or other intercompany loans by RTI to TWE,
to the extent permitted by Section 9.11 hereof;
(c) purchase money indebtedness (including capital leases) to the
extent not incurred or secured by liens (including capital leases) in
violation of any other provision of this Agreement;
(d) indebtedness existing as of the date hereof set forth on Schedule
9.9 hereto, provided, that, (i) the applicable Borrower may only make
regularly scheduled payments of principal and interest in respect of such
indebtedness in accordance with the terms of the agreement or instrument
evidencing or giving rise to such indebtedness as in effect on the date
hereof, (ii) such Borrower shall not, directly or indirectly, (A) amend,
modify, alter or change the terms of such indebtedness or any agreement,
document or instrument related thereto as in effect on the date hereof, or (B)
redeem, retire, defease, purchase or otherwise acquire such indebtedness, or
set aside or otherwise deposit or invest any sums for such purpose, and (iii)
such Borrower shall furnish to Lender all notices or demands in connection
with such indebtedness either received by such Borrower or on its behalf,
promptly after the receipt thereof, or sent by such Borrower or on its behalf,
concurrently with the sending thereof, as the case may be;
(e) trade accounts payable (other than for borrowed money) incurred in
the ordinary course of business as presently conducted provided that such
trade accounts payable will not be overdue or, if overdue, are being
diligently contested in good faith and by appropriate proceedings; and
(f) indebtedness incurred upon reasonable and customary terms to
replace and upgrade Borrowers' (i) existing AS400 computer hardware and
related equipment in an amount incurred not to exceed $4,000,000 in the
aggregate (including amounts incurred prior to the date hereof) and (ii)
existing point of sale cash register system in an amount incurred not to
exceed $12,000,000 in the aggregate (including amounts incurred prior to the
date hereof).
9.10 Loans, Investments, Guarantees, Etc. None of the Borrowers shall
directly or indirectly make any loans or advance money or property to any
person, or invest in (by capital contribution, dividend or otherwise) or
purchase or repurchase the stock or indebtedness or all or a substantial part
of the assets or property of any person, or guarantee, assume, endorse, or
otherwise become responsible for (directly or indirectly) the indebtedness,
performance, obligations or dividends of any Person or agree to do any of the
foregoing, except:
(a) the endorsement of instruments for collection or deposit in the
ordinary course of business;
(b) investments in: (i) short-term direct obligations of the United
States Government, (ii) negotiable certificates of deposit issued by any bank
satisfactory to Lender, payable to the order of any Borrower or to bearer and
delivered to Lender, (iii) commercial paper rated A1 or P1, and (iv) stock or
obligations issued in settlement of claims against any non-affiliated person
by reason of any bankruptcy case or composition or readjustment of debt or
reorganization of any such non-affiliated person that is a debtor of any
Borrower; provided, that, as to any of the foregoing, unless waived in writing
by Lender, Borrowers shall take such actions as are deemed necessary by Lender
to perfect the security interest of Lender in such investments;
(c) loans by one Borrower to another Borrower constituting permitted
indebtedness under Section 9.9 hereof;
(d) loans by any Borrower to any Guarantor, in the ordinary course of
business, for such Guarantor's working capital, in an aggregate amount for all
such loans by any or all Borrowers to any or all Guarantors, not to exceed
$3,000,000, at any one time outstanding;
(e) advances to employees of Borrowers in the ordinary course of
business, consistent with past practices, in an aggregate amount for all such
advances not to exceed $500,000 at any one time outstanding;
(f) investments by Borrowers in the form of cash paid to acquire (i)
equity interests in or debt of any corporation engaged in a retailing business
similar to that of Borrowers (a "Retailing Investment"), or (ii) any equity
interests in any joint venture, partnership, business trust, corporation or
other jointly owned and controlled entity formed by any Borrower with
non-affiliated person(s) to engage in specialty retailing or related
businesses ("Retailing Ventures") or cash capital contributions or loans to
such Retailing Ventures; provided that (A) Lender receives not less than
twenty (20) days' prior written notice from Borrowers of the formation of each
Retailing Venture and not less than seven (7) days' prior written notice of
each such proposed investment by Borrowers with respect to a Retailing Venture
and of each Retailing Investment, (B) the aggregate amount of all such
investments (whether with respect to Retailing Investments or Retailing
Ventures or both) made by Borrowers after the date hereof shall not exceed
$10,000,000, (C) Borrowers shall have maintained not less than $15,000,000 of
Excess Availability as of the close of business of each day during the period
of thirty (30) consecutive days immediately preceding each such investment and
after giving effect thereto, (D) Lender shall have received a perfected first
priority security interest in and pledge and assignment of Borrowers' entire
interest in each Retailing Investment and Retailing Venture and of each note,
certificate or other evidence of each such investment, and Borrowers shall
have executed and delivered such Forms G-3 of the Board of Governors of the
Federal Reserve Board as Lender shall require in connection therewith (if
applicable), accompanied by such evidence (including a legal opinion by
Borrowers' counsel if required by Lender) that no such investment shall cause
Borrowers to violate the terms of the continuing representations and
warranties contained in Section 6.6 hereof or will render any such
representation or warranty untrue at any time, (E) no corporation whose equity
interests or debt are so acquired pursuant to a Retailing Investment and no
such Retailing Venture shall engage in any transactions with any Borrower or
Guarantor, except upon terms and conditions acceptable to Lender, (F) no
Borrower or Guarantor shall provide any guarantee or other credit support for
any target corporation whose equity interests or debt are acquired pursuant to
a Retailing Investment or any such Retailing Venture, except with Lender's
prior written consent, (G) prior to the formation of each Retailing Venture
and prior to each investment therein, and prior to each Retailing Investment,
Lender shall have received such documents and information concerning the
proposed Retailing Investment target or Retailing Venture (as applicable) and
its equity owners, lenders and management as Lender may reasonably request,
and (H) no Event of Default, or event which with notice or passage of time, or
both, would constitute an Event of Default, shall exist or have occurred and
be continuing at the time of such investment; and
(g) the existing loans, advances and guarantees by Borrowers
outstanding as of the date hereof as set forth on Schedule 9.10 hereto;
provided, that, as to such loans, advances and guarantees, (i) Borrowers shall
not, directly or indirectly, (A) amend, modify, alter or change the terms of
such loans, advances or guarantees or any agreement, document or instrument
related thereto, or (B) as to such guarantees, redeem, retire, defease,
purchase or otherwise acquire any such guarantee or set aside or otherwise
deposit or invest any sums for such purpose and (ii) Borrowers shall furnish
to Lender all notices, demands or other material in connection with such
loans, advances or guarantees either received by Borrowers or on their behalf,
promptly after the receipt thereof, or sent by Borrowers or on their behalf,
concurrently with the sending thereof, as the case may be.
9.11 Dividends and Redemptions. No Borrower shall, directly or
indirectly, declare or pay any dividends on account of any shares of class of
Capital Stock of any Borrower now or hereafter outstanding, or set aside or
otherwise deposit or invest any sums for such purpose, or redeem, retire,
defease, purchase or otherwise acquire any shares of any class of capital
Stock (or set aside or otherwise deposit or invest any sums for such purpose)
for any consideration other than common stock or apply or set apart any sum,
or make any other distribution (by reduction of capital or otherwise) in
respect of any such shares or agree to do any of the foregoing, except for
dividends or stock splits declared and paid by TWE solely in common stock of
TWE, and except that, once in each calendar year, upon not less than ten (10)
days' prior written notice from TWE to Lender, accompanied by supporting
calculations and received by Lender after Lender has received Borrowers'
annual audited consolidated financial statements with respect to the fiscal
year ended most recently prior thereto, in the form and accompanied by the
auditor's opinion required under Section 9.6(a)(ii) hereof, RTI may, out of
legally available funds therefor, repay intercompany debt to TWE, or if no
such debt is outstanding, make a loan to TWE, such funds to be used by TWE
solely to pay cash dividends to its shareholders and/or repurchase capital
stock of TWE, in an aggregate amount not to exceed ten (10%) percent of
Borrowers' consolidated net income after taxes in accordance with GAAP,
excluding extraordinary gains and non-cash gains, for such prior fiscal year,
as shown in such audited consolidated financial statements; provided, that at
the time of payment of each such dividend (i) Borrowers shall have maintained
at least $25,000,000 of Excess Availability as of the close of business on
each day during the thirty (30) consecutive day period immediately preceding
such payment, (ii) Borrowers will have Excess Availability immediately after
making such payment of not less than $25,000,000, (iii) no Event of Default,
or event which, with notice or passage of time, or both, would constitute an
Event of Default shall exist or have occurred and be continuing, or will occur
or exist after giving effect to such payment, and (iv) each such dividend, and
the loan by RTI to TWE to fund such dividend, shall not violate any applicable
law or other agreement to which any Borrower or Obligor is a party or by which
any Borrower or Obligor is bound.
9.12 Transactions with Affiliates. No Borrower shall, directly or
indirectly, (a) purchase, acquire or lease any property from, or sell,
transfer or lease any property to, any officer, employee, shareholder,
director, agent or any other affiliate of such Borrower, except in the
ordinary course of and pursuant to the reasonable requirements of Borrowers'
business and upon fair and reasonable terms no less favorable to such Borrower
than such Borrower would obtain in a comparable arm's length transaction with
an unaffiliated person or (b) make any payments of management, consulting or
other fees for management or similar services, or of any indebtedness owing,
to any officer, employee, shareholder, director or other person affiliated
with such Borrower except reasonable compensation to officers, employees and
directors for services rendered to such Borrower in the ordinary course of
business.
9.13 Credit Card Agreements. Each Borrower shall (a) observe and perform
all material terms, covenants, conditions and provisions of the Credit Card
Agreements to be observed and performed by it at the times set forth therein;
(b) not do, permit, suffer or refrain from doing anything, as a result of
which there could be a default under or breach of any of the terms of any of
the Credit Card Agreements and (c) at all times maintain in full force and
effect the Credit Card Agreements and not terminate, cancel, surrender,
modify, amend, waive or release any of the Credit Card Agreements, or consent
to or permit to occur any of the foregoing; except, that, each Borrower may
terminate or cancel any of the Credit Card Agreements in the ordinary course
of the business of Borrowers; provided, that, such Borrower shall give Lender
not less than fifteen (15) days prior written notice of its intention to so
terminate or cancel any of the Credit Card Agreements; (d) not enter into any
new Credit Card Agreements with any new Credit Card Issuer unless (i) Lender
shall have received not less than thirty (30) days prior written notice of the
intention of a Borrower to enter into such agreement (together with such other
information with respect thereto as Lender may request) and (ii) such Borrower
delivers, or causes to be delivered to Lender, a Credit Card Acknowledgment in
favor of Lender; (e) give Lender immediate written notice of any Credit Card
Agreement entered into by such Borrower after the date hereof, together with a
true, correct and complete copy thereof and such other information with
respect thereto as Lender may request; and (f) furnish to Lender, promptly
upon the request of Lender, such information and evidence as Lender may
reasonably require from time to time concerning the observance, performance
and compliance by such Borrower or the other party or parties thereto with the
terms, covenants or provisions of the Credit Card Agreements.
9.14 Compliance with ERISA.
(a) No Borrower shall with respect to any "employee benefit plans"
maintained by a Borrower or any ERISA Affiliate of a Borrower: (i) terminate
any of such employee benefit plans so as to incur any liability to the Pension
Benefit Guaranty Corporation established pursuant to ERISA, (ii) allow or
suffer to exist any prohibited transaction involving any of such employee
benefit plans or any trust created thereunder which would subject a Borrower
or a Guarantor to a tax or penalty or other liability on prohibited
transactions imposed under the Code or ERISA, (iii) fail to pay to any such
employee benefit plan any contribution which it is obligated to pay under
ERISA, the Code or the terms of such plan, (iv) allow or suffer to exist any
accumulated funding deficiency, whether or not waived, with respect to any
such employee benefit plan, (v) allow or suffer to exist any occurrence of a
reportable event or any other event or condition which presents a material
risk of termination by the Pension Benefit Guaranty Corporation of any such
employee benefit plan that is a single employer plan, which termination could
result in any liability to the Pension Benefit Guaranty Corporation, or (vi)
except as described in Schedule 8.10 hereto, incur any withdrawal liability
with respect to any multiemployer pension plan.
(b) As used in this Section 9.14, the terms "employee benefit plans",
"accumulated funding deficiency" and "reportable event" shall have the
respective meanings assigned to them in ERISA, and the term "prohibited
transaction" shall have the meaning assigned to it in the Code and ERISA.
9.15 Additional Bank Accounts. No Borrower shall, directly or indirectly,
open, establish or maintain any deposit account, investment account or any
other account with any bank or other financial institution, other than the
Blocked Accounts and the accounts set forth in Schedule 6.3 hereto, except:
(a) as to any new or additional Blocked Accounts, upon not less than fifteen
(15) days' prior written notice to Lender, and (b) as to any other such new or
additional accounts which contain any Collateral or proceeds thereof,
including any deposit accounts used by Borrowers' retail stores for deposits
of daily receipts, provided Lender receives a written schedule thereof updated
not less frequently than monthly, and in the case of each account under
clauses (a) or (b), subject to Borrowers' compliance, contemporaneously with
the opening of each such account, with the provisions of 6.3(a)(i) and (ii),
as applicable, with respect to each such Blocked Account or other account, and
(c) as to any accounts used by Borrowers to make payments of payroll, taxes or
other obligations to third parties, after prior written notice to Lender.
9.16 Minimum Net Worth. Borrowers shall, at all time, on a
consolidated basis with their subsidiaries, maintain a Net Worth of not less
than $75,000,000.
9.17 Costs and Expenses. Borrowers shall pay to Lender on demand all
costs, expenses, filing fees and taxes paid or payable in connection with the
preparation, negotiation, execution, delivery, recording, administration,
collection, liquidation, enforcement and defense of the Obligations, Lender's
rights in the Collateral, this Agreement, the other Financing Agreements and
all other documents related hereto or thereto, including any amendments,
supplements or consents which may hereafter be contemplated (whether or not
executed) or entered into in respect hereof and thereof, including: (a) all
costs and expenses of filing or recording (including Uniform Commercial Code
financing statement filing taxes and fees, documentary taxes, intangibles
taxes and mortgage recording taxes and fees, if applicable); (b) all insurance
premiums, appraisal fees and search fees; (c) reasonable costs and expenses of
remitting loan proceeds, collecting checks and other items of payment, and
establishing and maintaining the Blocked Accounts, together with Lender's
customary charges and fees with respect thereto; (d) charges, fees or expenses
charged by any bank or issuer in connection with the Letter of Credit
Accommodations; (e) reasonable costs and expenses of preserving and protecting
the Collateral; (f) costs and expenses paid or incurred in connection with
obtaining payment of the Obligations, enforcing the security interests and
liens of Lender, selling or otherwise realizing upon the Collateral, and
otherwise enforcing the provisions of this Agreement and the other Financing
Agreements or defending any claims made or threatened against Lender arising
out of the transactions contemplated hereby and thereby (including
preparations for and consultations concerning any such matters); (g) subject
to the limitation (if applicable) set forth in Section 7.7, all out-of-pocket
expenses and costs heretofore and from time to time hereafter incurred by
Lender during the course of periodic field examinations of the Collateral and
Borrowers' operations, plus a per diem charge at the rate of $600 per person
per day for Lender's examiners in the field and office; and (h) the reasonable
fees and disbursements of counsel (including legal assistants) to Lender in
connection with any of the foregoing.
9.18 Certain Notices. Borrowers or TWE as agent for Borrowers shall
promptly send to Lender a copy of each default or termination notice sent by
or on behalf of any Borrower to, or to any Borrower by, any operator of a
warehouse where Eligible Inventory is kept, or any lessor of a material number
of retail store locations of Borrowers, or any mortgagee of Real Property of
any Borrower, or any Credit Card Issuer or Credit Card Processor, or any
trademark licensor or licensee of any Borrower, or any customs broker or
similar agent for a Borrower, or any material Equipment lessor, with respect
to the existing or any future arrangements or agreements between any Borrower
and any such person(s).
9.19 Further Assurances. At the request of Lender at any time and
from time to time, Borrowers shall, at Borrowers' expense, duly execute and
deliver, or cause to be duly executed and delivered, such further agreements,
documents and instruments, and do or cause to be done such further acts as may
be necessary or proper to evidence, perfect, maintain and enforce the security
interests and the priority thereof in the Collateral and to otherwise
effectuate the provisions or purposes of this Agreement or any of the other
Financing Agreements. Lender may at any time and from time to time request a
certificate from an officer of each Borrower and/or TWE as agent for Borrowers
representing that all conditions precedent to the making of Loans and
providing Letter of Credit Accommodations contained herein are satisfied. In
the event of such request by Lender, Lender may, at its option, cease to make
any further Loans or provide any further Letter of Credit Accommodations until
Lender has received such certificate and, in addition, Lender has determined
that such conditions are satisfied. Where permitted by law, each Borrower
hereby authorizes Lender to execute and file one or more UCC financing
statements signed only by Lender.
SECTION 10. EVENTS OF DEFAULT AND REMEDIES
10.1 Events of Default. The occurrence or existence of any one or more
of the following events are referred to herein individually as an "Event of
Default", and collectively as "Events of Default":
(a) (i) any Borrower fails to pay any of the Obligations within two
(2) days after the same becomes due and payable or (ii) any Borrower or any
Obligor fails to perform any of the terms, covenants, conditions or provisions
contained in this Agreement or any of the other Financing Agreements other
than as described in Section 10.1(a)(i) and such failure shall continue for
ten (10) days; provided, that, such ten (10) day period shall not apply in the
case of: (A) any failure to observe any such term, covenant, condition or
provision which is not capable of being cured at all or within such ten (10)
day period or which has been the subject of a prior failure within a six (6)
month period or (B) an intentional breach by any Borrower or any Obligor of
any such term, covenant, condition or provision, or (C) the failure to observe
or perform any of the covenants or provisions contained in Sections 6.3, 6.6,
7.1, 7.2, 7.3, 7.7, 9.1, 9.2, 9.5, 9.7, 9.8, 9.9, 9.10, 9.11, 9.12 or 9.15 of
this Agreement or any covenants or agreements covering substantially the same
matter as such sections in any of the other Financing Agreements; or
(b) any representation, warranty or statement of fact made by any
Borrower to Lender in this Agreement, the other Financing Agreements or any
other agreement, schedule, confirmatory assignment or otherwise shall when
made or deemed made be false or misleading in any material respect;
(c) any Obligor revokes, terminates or fails to perform any of the
terms, covenants, conditions or provisions of any guarantee, endorsement or
other agreement of such party in favor of Lender;
(d) any judgment for the payment of money is rendered against any
Borrower or any Obligor in excess of $200,000 in any one case or in excess of
$500,000 in the aggregate and shall remain undischarged or unvacated for a
period in excess of forty- five (45) days or execution shall at any time not
be effectively stayed, or any judgment other than for the payment of money, or
injunction, attachment, garnishment or execution is rendered against any
Borrower or any Obligor or any of their assets;
(e) any Obligor (being a natural person or a general partner of an
Obligor which is a partnership) dies or any Borrower or any Obligor, which is
a partnership, limited liability company, limited liability partnership or a
corporation, dissolves or suspends or discontinues doing business;
(f) any Borrower or any Obligor becomes insolvent (however defined or
evidenced), makes an assignment for the benefit of creditors, makes or sends
notice of a bulk transfer or calls a meeting of its creditors or principal
creditors;
(g) a case or proceeding under the bankruptcy laws of the United
States of America now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction now or hereafter in effect (whether at law
or in equity) is filed against any Borrower or any Obligor or all or any part
of its properties and such petition or application is not dismissed within
thirty (30) days after the date of its filing or any Borrower or any Obligor
shall file any answer admitting or not contesting such petition or application
or indicates its consent to, acquiescence in or approval of, any such action
or proceeding or the relief requested is granted sooner;
(h) a case or proceeding under the bankruptcy laws of the United
States of America now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction now or hereafter in effect (whether at a
law or equity) is filed by any Borrower or any Obligor or for all or any part
of its property;
(i) (A) any default by any Borrower or any Obligor under any
agreement, document or instrument relating to any indebtedness for borrowed
money owing to any person other than Lender, or any capitalized lease
obligations, contingent indebtedness in connection with any guarantee, letter
of credit, indemnity or similar type of instrument in favor of any person
other than Lender, where the agreement, document or instrument under which the
default arises or exists, relates to such indebtedness or obligations in an
amount in excess of $500,000, which default continues for more than the
applicable cure period, if any, with respect thereto and is either a default
in making payment of money when due, or is any other default and results in
acceleration of such indebtedness, or (B) any default by any Borrower or any
Obligor under any material contract, lease, license or other obligation to any
person other than Lender, which default continues for more than the applicable
cure period, if any, with respect thereto;
(j) any change in its controlling ownership occurs with respect to RTI
or any Guarantor, or any change in the ownership or control of TWE occurs such
that Robert J. Higgins is no longer the record and beneficial owner and
holder, with full power to vote, of at least twenty-five (25%) percent of the
outstanding voting stock of TWE, except, upon or after the death of Robert J.
Higgins;
(k) the indictment or threatened indictment of any Borrower or any
Obligor under any criminal statute, or commencement or threatened commencement
of criminal or civil proceedings against any Borrower or any Obligor, pursuant
to which statute or proceedings the penalties or remedies sought or available
include forfeiture of any of the property of such Borrower or such Obligor;
(l) there shall be a material adverse change after the date hereof in
the business, assets or financial condition of any Borrower or Obligor; or
(m) there shall be an event of default under any of the other
Financing Agreements.
10.2 Remedies.
(a) At any time an Event of Default exists or has occurred and is
continuing, Lender shall have all rights and remedies provided in this
Agreement, the other Financing Agreements, the Uniform Commercial Code of the
State of New York and other applicable law, all of which rights and remedies
may be exercised without notice to or consent by any Borrower or any Obligor,
except as such notice or consent is expressly provided for hereunder or
required by applicable law. All rights, remedies and powers granted to Lender
hereunder, under any of the other Financing Agreements, the Uniform Commercial
Code or other applicable law, are cumulative, not exclusive and enforceable,
in Lender's discretion, alternatively, successively, or concurrently on any
one or more occasions, and shall include, without limitation, the right to
apply to a court of equity for an injunction to restrain a breach or
threatened breach by any Borrower or Obligor of this Agreement or any of the
other Financing Agreements. Lender may, at any time or times, proceed
directly against any Borrower or any Obligor to collect the Obligations
without prior recourse to the Collateral.
(b) Without limiting the foregoing, at any time an Event of Default
exists or has occurred and is continuing, Lender may, in its discretion and
without limitation, (i) accelerate the payment of all Obligations by notice to
Borrowers and demand immediate payment thereof to Lender (provided, that, upon
the occurrence of any Event of Default described in Sections 10.1(g) and
10.1(h), all Obligations shall automatically become immediately due and
payable), (ii) with or without judicial process or the aid or assistance of
others, enter upon any premises on or in which any of the Collateral may be
located and take possession of the Collateral or complete processing,
manufacturing and repair of all or any portion of the Collateral, (iii)
require Borrowers, at Borrowers' expense, to assemble and make available to
Lender any part or all of the Collateral at any place and time designated by
Lender, (iv) collect, foreclose, receive, appropriate, setoff and realize upon
any and all Collateral, (v) remove any or all of the Collateral from any
premises on or in which the same may be located for the purpose of effecting
the sale, foreclosure or other disposition thereof or for any other purpose,
(vi) sell, lease, transfer, assign, deliver or otherwise dispose of any and
all Collateral (including, without limitation, entering into contracts with
respect thereto, public or private sales at any exchange, broker's board, at
any office of Lender or elsewhere) at such prices or terms as Lender may deem
reasonable, for cash, upon credit or for future delivery, with the Lender
having the right to purchase the whole or any part of the Collateral at any
such public sale, all of the foregoing being free from any right or equity of
redemption of any Borrower, which right or equity of redemption is hereby
expressly waived and released by each Borrower and/or (vii) terminate this
Agreement. If any of the Collateral is sold or leased by Lender upon credit
terms or for future delivery, the Obligations shall not be reduced as a result
thereof until payment therefor is finally collected by Lender. If notice of
disposition of Collateral is required by law, ten (10) days prior notice by
Lender to Borrowers, or to TWE as agent for Borrowers, designating the time
and place of any public sale or the time after which any private sale or other
intended disposition of Collateral is to be made, shall be deemed to be
reasonable notice thereof to Borrowers and each Borrower, and TWE as agent for
Borrowers, waives any other notice. In the event Lender institutes an action
to recover any Collateral or seeks recovery of any Collateral by way of
prejudgment remedy, each Borrower waives the posting of any bond which might
otherwise be required.
(c) Lender may apply the cash proceeds of Collateral actually received
by Lender from any sale, lease, foreclosure or other disposition of the
Collateral to payment of the Obligations, in whole or in part and in such
order as Lender may elect, whether or not then due. Each Borrower shall
remain liable to Lender for the payment of any deficiency with interest at the
highest rate provided for herein and all costs and expenses of collection or
enforcement, including reasonable attorneys' fees and legal expenses.
(d) Without limiting the foregoing, upon the occurrence and during the
continuance of an Event of Default or an event which with notice or passage of
time or both would constitute an Event of Default, Lender may, at its option,
without prior notice, (i) cease making Loans or arranging for Letter of Credit
Accommodations or reduce the lending formulas or amounts of Loans and Letter
of Credit Accommodations available to Borrowers and/or (ii) terminate any
provision of this Agreement providing for any future Loans or Letter of Credit
Accommodations to be made by Lender to Borrowers.
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING LAW
11.1 Governing Law; Choice of Forum; Service of Process; Jury Trial
Waiver.
(a) The validity, interpretation and enforcement of this Agreement and
the other Financing Agreements and any dispute arising out of the relationship
between the parties hereto, whether in contract, tort, equity or otherwise,
shall be governed by the internal laws of the State of New York (without
giving effect to principles of conflicts of law).
(b) Each Borrower and Lender irrevocably consents and submits to the
non-exclusive jurisdiction of the Supreme Court of the State of New York and
the United States District Court for the Southern District of New York and
waives any objection based on venue or forum non conveniens with respect to
any action instituted therein arising under this Agreement or any of the other
Financing Agreements or in any way connected with or related or incidental to
the dealings of the parties hereto in respect of this Agreement or any of the
other Financing Agreements or the transactions related hereto or thereto, in
each case whether now existing or hereafter arising, and whether in contract,
tort, equity or otherwise, and agree that any dispute with respect to any such
matters shall be heard only in the courts described above (except that Lender
shall have the right to bring any action or proceeding against any Borrower or
its property in the courts of any other jurisdiction which Lender deems
necessary or appropriate in order to realize on the Collateral or to otherwise
enforce its rights against such Borrower or its property).
(c) Each Borrower hereby waives personal service of any and all
process upon it and consents that all such service of process may be made by
certified mail (return receipt requested) directed to its address set forth on
the signature pages hereof and service so made shall be deemed to be completed
five (5) Business Days after the same shall have been so deposited in the U.S.
mails, or, at Lender's option, by service upon such Borrower in any other
manner provided under the rules of any such courts. Within thirty (30) days
after such service, such Borrower shall appear in answer to such process,
failing which such Borrower shall be deemed in default and judgment may be
entered by Lender against such Borrower for the amount of the claim and other
relief requested.
(d) EACH BORROWER AND LENDER EACH HEREBY WAIVES ANY RIGHT TO TRIAL BY
JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i) ARISING UNDER THIS
AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR (ii) IN ANY WAY
CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO
IN RESPECT OF THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR THE
TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR
HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. EACH
BORROWER AND LENDER HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND,
ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND
THAT ANY BORROWER OR LENDER MAY FILE AN ORIGINAL COUNTERPART OF A COPY OF THIS
AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES
HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
(e) Lender shall not have any liability to any Borrower (whether in
tort, contract, equity or otherwise) for losses suffered by any Borrower in
connection with, arising out of, or in any way related to the transactions or
relationships contemplated by this Agreement, or any act, omission or event
occurring in connection herewith, unless it is determined by a final and
non-appealable judgment binding on Lender, that the losses were the result of
acts or omissions of Lender constituting gross negligence or willful
misconduct. In any such litigation, Lender shall be entitled to the benefit
of the rebuttable presumption that it acted in good faith and with the
exercise of ordinary care in the performance by it of the terms of this
Agreement and the other Financing Agreements.
11.2 Waiver of Notices. Each Borrower hereby expressly waives demand,
presentment, protest and notice of protest and notice of dishonor with respect
to any and all instruments and commercial paper, included in or evidencing any
of the Obligations or the Collateral, and any and all other demands and
notices of any kind or nature whatsoever with respect to the Obligations, the
Collateral and this Agreement, except such as are expressly provided for
herein. No notice to or demand on any Borrower, or on TWE as agent for
Borrowers, which Lender may elect to give shall entitle such Borrower or any
other Borrower or TWE as agent for Borrowers to any other or further notice or
demand in the same, similar or other circumstances.
11.3 Amendments and Waivers. Neither this Agreement nor any provision
hereof shall be amended, modified, waived or discharged orally or by course of
conduct, but only by a written agreement signed by an authorized officer of
Lender, and as to amendments, as also signed by an authorized officer of each
Borrower. Lender shall not, by any act, delay, omission or otherwise be
deemed to have expressly or impliedly waived any of its rights, powers and/or
remedies unless such waiver shall be in writing and signed by an authorized
officer of Lender. Any such waiver shall be enforceable only to the extent
specifically set forth therein. A waiver by Lender of any right, power and/or
remedy on any one occasion shall not be construed as a bar to or waiver of any
such right, power and/or remedy which Lender would otherwise have on any
future occasion, whether similar in kind or otherwise.
11.4 Waiver of Counterclaims. Each Borrower waives all rights to
interpose any claims, deductions, setoffs or counterclaims of any nature
(other then compulsory counterclaims) in any action or proceeding with respect
to this Agreement, the Obligations, the Collateral or any matter arising
therefrom or relating hereto or thereto.
11.5 Indemnification. Borrowers shall indemnify and hold Lender, and its
directors, agents, employees and counsel, harmless from and against any and
all losses, claims, damages, liabilities, costs or expenses imposed on,
incurred by or asserted against any of them in connection with any litigation,
investigation, claim or proceeding commenced or threatened related to the
negotiation, preparation, execution, delivery, enforcement, performance or
administration of this Agreement, any other Financing Agreements, or any
undertaking or proceeding related to any of the transactions contemplated
hereby or any act, omission, event or transaction related or attendant
thereto, including, without limitation, amounts paid in settlement, court
costs, and the reasonable fees and expenses of counsel, except for any of such
losses, claims, damages, liabilities, costs and expenses resulting from
Lender's own gross negligence or wilful misconduct as determined by a final,
non-appealable judgment of a court of competent jurisdiction. To the extent
that the undertaking to indemnify, pay and hold harmless set forth in this
Section may be unenforceable because it violates any law or public policy,
each Borrower shall pay the maximum portion which it is permitted to pay under
applicable law to Lender in satisfaction of indemnified matters under this
Section. The foregoing indemnity shall survive the payment of the Obligations
and the termination or non-renewal of this Agreement.
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS
12.1 Term.
(a) This Agreement and the other Financing Agreements shall become
effective as of the date set forth on the first page hereof and shall continue
in full force and effect for a term ending on the date three (3) years from
the date hereof (the "Renewal Date"), and from year to year thereafter, unless
sooner terminated pursuant to the terms hereof. Lender may terminate this
Agreement and the other Financing Agreements effective on the Renewal Date or
on the anniversary of the Renewal Date in any year by giving to Borrowers or
TWE on behalf of Borrowers at least sixty (60) days prior written notice and
Borrowers may terminate this Agreement at any time without premium or penalty;
provided, that, this Agreement and all other Financing Agreements must be
terminated simultaneously. Upon the effective date of termination or
non-renewal of the Financing Agreements, Borrowers shall pay to Lender, in
full, all outstanding and unpaid Obligations and shall furnish cash collateral
to Lender in such amounts as Lender determines are reasonably necessary
(including reasonable estimates) to secure Lender from loss, cost, damage or
expense, including reasonable attorneys' fees and legal expenses, in
connection with any quantifiable or estimable contingent monetary Obligations,
including, without limitation, issued and outstanding Letter of Credit
Accommodations and checks or other payments provisionally credited to the
Obligations and/or as to which Lender has not yet received final and
indefeasible payment, any asserted claims for which indemnification by
Borrowers is claimed by Lender, and termination expenses, including estimated
legal fees and expenses not otherwise paid upon such effective date. Such
payments in respect of the Obligations and cash collateral shall be remitted
by wire transfer in Federal funds to such bank account of Lender, as Lender
may, in its discretion, designate in writing to Borrowers for such purpose.
Interest shall be due until and including the next business day, if the
amounts so paid by Borrowers to the bank account designated by Lender are
received in such bank account later than 12:00 noon, New York City time.
(b) No termination of this Agreement or the other Financing Agreements
shall relieve or discharge any Borrower of its respective duties, obligations
and covenants under this Agreement or the other Financing Agreements until all
Obligations have been fully and finally discharged and paid, or if contingent,
fully cash collateralized as aforesaid, and Lender's continuing security
interest in the Collateral and the rights and remedies of Lender hereunder,
under the other Financing Agreements and applicable law, shall remain in
effect until all such Obligations have been fully and finally discharged and
paid.
12.2 Appointment of Borrowers' Agent.
(a) Each Borrower hereby irrevocably appoints TWE as agent for such
Borrower hereunder and under the other Financing Agreements, to act in such
capacity as agent for such Borrower hereunder and TWE hereby accepts such
appointment. Each Borrower further irrevocably authorizes TWE as agent for
such purposes to take such action on such Borrower's behalf and to exercise
such rights and powers hereunder and under the other Financing Agreements as
are delegated to TWE in such capacity by the terms hereof and thereof,
together with such rights and powers as are reasonably incidental thereto.
(b) TWE as agent for each Borrower is hereby expressly and irrevocably
authorized by each Borrower, without hereby limiting any implied or express
authority, (i) to give and receive on behalf of such Borrower all notices and
other materials delivered or provided to be delivered by Lender to such
Borrower or by such Borrower to Lender pursuant to the Financing Agreements,
(ii) to request Loans and Letter of Credit Accommodations on behalf of such
Borrower, (iii) to receive disbursements of Loans and other financing
accommodations on behalf of such Borrower, and (iv) to pay, on behalf of such
Borrower, all Obligations of such Borrower at any time due Lender pursuant to
the terms of this Agreement.
12.3 Notices. All notices, requests and demands hereunder shall be in
writing and (a) made to Lender at its address set forth below and to Borrowers
at their chief executive offices set forth below, or to such other address as
any party may designate by written notice to the other parties in accordance
with this provision, and (b) deemed to have been given or made: if delivered
in person, immediately upon delivery; if by telex, telegram or facsimile
transmission, immediately upon sending and upon confirmation of receipt; if by
nationally recognized overnight courier service with instructions to deliver
the next Business Day, one (1) Business Day after sending; and if by certified
mail, return receipt requested, five (5) Business Days after mailing.
12.4 Partial Invalidity. If any provision of this Agreement is held to be
invalid or unenforceable, such invalidity or unenforceability shall not
invalidate this Agreement as a whole, but this Agreement shall be construed as
though it did not contain the particular provision held to be invalid or
unenforceable and the rights and obligations of the parties shall be construed
and enforced only to such extent as shall be permitted by applicable law.
12.5 Confidentiality.
(a) Lender shall use all reasonable efforts to keep confidential, in
accordance with its customary procedures for handling confidential information
and safe and sound lending practices, any non-public information supplied to
it by any Borrower pursuant to this Agreement that Lender knows is
confidential, non-public information at the time such information is furnished
by any Borrower to Lender, provided, that, nothing contained herein shall
limit the disclosure of any such information: (i) to the extent required by
statute, rule, regulation, subpoena or court order, (ii) to bank examiners and
other regulators, auditors and/or accountants, (iii) in connection with any
litigation to which Lender is a party, (iv) to any assignee or participant (or
prospective assignee or participant) so long as such assignee or participant
(or prospective assignee or participant) shall have first agreed in writing to
treat such information as confidential in accordance with this Section 12.5,
or (v) to counsel for Lender or any participant or assignee (or prospective
participant or assignee).
(b) In no event shall this Section 12.5 or any other provision of this
Agreement or applicable law be deemed: (i) to apply to or restrict disclosure
of information that has been or is made public by any Borrower or any third
party without breach of this Section 12.5 or otherwise become generally
available to the public other than as a result of a disclosure in violation
hereof, (ii) to apply to or restrict disclosure of information that was or
becomes available to Lender on a non-confidential basis from a person other
than a Borrower, (iii) require Lender to return any materials furnished by any
Borrower to Lender or (iv) prevent Lender from responding to routine
informational requests in accordance with the Code of Ethics for the Exchange
of Credit Information promulgated by The Robert Morris Associates or other
applicable industry standards relating to the exchange of credit information.
The obligations of Lender under this Section 12.5 shall supersede and replace
the obligations of Lender under any confidentiality letter signed prior to the
date hereof.
12.6 Successors. This Agreement, the other Financing Agreements and any
other document referred to herein or therein shall be binding upon and inure
to the benefit of and be enforceable by Lender, Borrowers and their respective
successors and assigns, except that Borrowers may not assign their rights
under this Agreement, the other Financing Agreements and any other document
referred to herein or therein without the prior written consent of Lender.
Lender may, after notice to Borrowers, assign its rights and delegate its
obligations under this Agreement and the other Financing Agreements and
further may assign, or sell participations in, all or any part of the Loans,
the Letter of Credit Accommodations or any other interest herein to another
financial institution or other person, in which event, the assignee or
participant shall have, to the extent of such assignment or participation, the
same rights and benefits as it would have if it were the Lender hereunder,
except as otherwise provided by the terms of such assignment or participation;
provided, that, excluding, for these purposes, Lender and any affiliates of
Lender to whom Lender may assign or delegate its rights, interests or
obligations under this Agreement, and excluding all participants of Lender and
of its assignees, and excluding any assignments made after and during the
continuance of an Event of Default, there shall be no more than six (6)
assignees of Lender or of its assignees at any one time holding rights,
interests or obligations under this Agreement.
12.7 Entire Agreement. This Agreement, the other Financing Agreements,
any supplements hereto or thereto, and any instru- ments or documents
delivered or to be delivered in connection herewith or therewith represents
the entire agreement and understanding concerning the subject matter hereof
and thereof between the parties hereto, and supersede all other prior
agreements, understandings, negotiations and discussions, representations,
warranties, commitments, proposals, offers and contracts concerning the
subject matter hereof, whether oral or written.
IN WITNESS WHEREOF, Lender and Borrowers have caused these presents to be
duly executed as of the day and year first above written.
LENDER
- ------
CONGRESS FINANCIAL CORPORATION
By: /s/ DANIEL J. COTT
------------------
DANIEL J. COTT
Title: VICE PRESIDENT
Address: 1133 Avenue of the Americas
New York, New York 10036
BORROWERS
- ---------
TRANS WORLD ENTERTAINMENT CORPORATION
By: /s/ JOHN J. SULLIVAN
-------------------
JOHN J. SULLIVAN
Title: SENIOR VICE PRESIDENT
Chief Executive Office: 38 Corporate Circle
Albany, New York 12203
RECORD TOWN, INC.
By: /s/ JOHN J. SULLIVAN
--------------------
JOHN J. SULLIVAN
Title: SENIOR VICE PRESIDENT
Chief Executive Office: 38 Corporate Circle
Albany, New York 12203
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS DATA EXTRACTED FROM
THE CONSOLIDATED BALANCE SHEETS, AND THE
CONSOLIDATED STATEMENTS OF INCOME AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
<CIK> 0000795212
<NAME> TRANS WORLD ENTERTAINMENT CORPORATION
<MULTIPLIER> 1,000
<CAPTION>
AMOUNT
ITEM DESCRIPTION (IN THOUSANDS, EXCEPT PER SHARE DATA)
- ---------------- -------------------------------------
<S> <C>
<FISCAL-YEAR-END> Jan-31-1998
<PERIOD-START> Feb-02-1997
<PERIOD-END> Aug-02-1997
<PERIOD-TYPE> 6-MOS
<CASH> 9,757
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 151,563
<CURRENT-ASSETS> 171,357
<PP&E> 168,729
<DEPRECIATION> 99,911
<TOTAL-ASSETS> 244,975
<CURRENT-LIABILITIES> 96,640
<BONDS> 41,459
0
0
<COMMON> 98
<OTHER-SE> 99,987
<TOTAL-LIABILITY-AND-EQUITY> 244,975
<SALES> 214,536
<TOTAL-REVENUES> 214,536
<CGS> 135,746
<TOTAL-COSTS> 135,746
<OTHER-EXPENSES> 78,284
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,285
<INCOME-PRETAX> (2,779)
<INCOME-TAX> (1,084)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,695)
<EPS-PRIMARY> (0.17)
<EPS-DILUTED> (0.17)
</TABLE>
______________________________________________________________________________
TRANS WORLD ENTERTAINMENT CORPORATION
**** NEWS RELEASE ****
______________________________________________________________________________
MWW/Strategic Communications, Inc.
Public Relations (201) 507-9500
Media Contact: Michael Kempner - [email protected]
Rob Swadosh - [email protected]
Investor Contact: Robert Ferris - [email protected]
FOR IMMEDIATE RELEASE
---------------------
TRANS WORLD ENTERTAINMENT SIGNS LETTER OF INTENT TO
ACQUIRE STRAWBERRIES INC.
Albany, NY, August 4, 1997 -- Trans World Entertainment Corporation
(Nasdaq National Market: TWMC) today announced that it signed a letter of
intent to acquire substantially all of the assets of Strawberries Inc., a
privately-held retailer of pre-recorded music and video based in Milford,
MA. Strawberries operates 118 freestanding and strip center locations
primarily located in the New England and Washington, DC markets. Final
closing of the acquisition is subject to the approval of the U.S. District
Court, the Boards of Trans World Entertainment and Strawberries as well as
further due diligence and signing of a definitive agreement. Robert J.
Higgins, Chairman, Chief Executive Officer and President of Trans World
commented, "The acquisition of Strawberries, with its concentrated
non-mall store format, offers Trans World additional opportunities to add
value to our existing portfolio of stores, enhance overall operating
performance and further strengthen our position within the industry."
Trans World Entertainment operates 468 retail stores in malls,
freestanding and strip center locations under several names, including
Record Town, Coconuts Music and Movies, Saturday Matinee and F.Y.E.
Certain statements in this report set forth management's intentions, plans,
beliefs, expectations or predictions of the future based on current facts and
analyses. Actual results may differ materially from those indicated in such
statements. Additional information on factors that may affect the business
and financial results of the Company can be found in filings of the Company
with the Securities and Exchange Commission.
# # #
