UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 01, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ....... to ..........
Commission file number 0-15934
JAY JACOBS, INC.
(Exact name of registrant as specified in its charter)
Washington 91-0698077
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
1530 Fifth Avenue, Seattle, Washington 98101
(Address of Principal Executive Offices) (Zip code)
Registrant's telephone number,
including area code: (206) 622-5400
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No __
Applicable only to issuers involved in bankruptcy proceedings during the
preceding five years:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes X No __
Applicable only to corporate issuers :
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of December 15, 1997
(Common Stock, 8,157,601 shares.)
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
JAY JACOBS, INC. AND SUBSIDIARY
Consolidated Balance Sheet
(Dollar amounts in thousands)
(Unaudited)
November 01, February 01,
1997 1997
Assets
Current assets:
Cash and cash equivalents $ 123 $ 249
Accounts receivable 677 540
Inventories 13,355 7,935
Refundable Income Taxes 415 0
Prepaid expenses 568 276
Total current assets 15,138 9,000
Property and equipment, net 5,297 4,545
-------- --------
Total Assets $ 19,683 $ 14,297
-------- --------
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 6,127 $4,735
Accrued payroll 0 217
Accrued reorganization expenses 2,453 2,618
Other accrued expenses 886
753
Short Term Bank Debt 8,384 3,177
Total current liabilities 17,717 11,633
-------- --------
Deferred rental credits 261 331
Federal Income Tax Refund Reserve 1,980 1,955
Accrued reorganization expenses 300 334
-------- --------
Shareholders' equity:
Preferred stock:
Authorized - 5,000,000 shares; Issued -- --
and outstanding - none
Common stock:
Authorized - 20,000,000 shares; Issued 13,013 12,990
and outstanding - 6,214,000 and 6,124,000
shares
Retained earnings (13,588) (12,946)
(575) 44
-------- --------
$ 19,683 $ 14,297
-------- --------
<PAGE>
JAY JACOBS, INC. AND SUBSIDIARY
Consolidated Statement of Operations
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
November 01, October 26, November 01, October 26,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net Sales 15,238 13,479 44,361 43,776
Operating costs and expenses:
Cost of sales, buying and 11,131 10,883 33,094 34,579
occupancy costs
Selling, general and 3,909 4,197 11,909 13,081
administrative expenses
Interest and other income, net 124 60 416 228
------ ------ ------ ------
Net operating expenses 15,164 15,140 45,419 47,888
------ ------ ------ ------
Income (loss) before 74 (1,661) (1,058) (4,112)
reorganization
items and income taxes
Federal Income Tax Refund 0 400 400
Income tax provision (benefit) 30 0 (423) 0
Net income (loss) 44 (1,261) (635) (3,712)
Earnings (loss) per share 0.01 (0.21) (0.10) (0.61)
Weighted average number of 6,181 6,124 6,143 6,093
shares outstanding
</TABLE>
<PAGE>
JAY JACOBS, INC. AND SUBSIDIARY
Consolidated Statement of Cash Flows
(In thousands)
(Unaudited)
Nine Months Ended
November 01, ctober 26,
1997 1996
Cash flows from operating activities:
Net loss ($ 635) ($3,712)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Depreciation and amortization 860 968
Change in deferred rents (70) (446)
Change in assets and liabilities:
Accounts receivable (552) (86)
Inventories (5,420) (383)
Prepaid expenses and other (292) (25)
Accounts payable 1,392 3,029
Accrued payroll (217) (292)
Other accrued expenses (140) 618
Accrued Restructuring Expenses (199) (4,046)
------- -------
Federal Income Tax Refund Reserve 25 1,954
------- -------
(5,248) (2,421)
Cash flows from investing activities:
Net increase in property and equipment (108) (1,058)
Cash flows from financing activities:
Net borrowing from line of credit 5,207 2,781
Proceeds from options exercised 23 71
Net change in cash and cash equivalents (126) (627)
Cash and cash equivalents - beginning of 249 705
period
------- -------
Cash and cash equivalents - end of period $ 123 $ 78
------- -------
<PAGE>
JAY JACOBS, INC. AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements
Note 1. Financial Presentation:
The attached unaudited condensed consolidated financial statements have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. As a result, certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. The Company believes that
the disclosures made are adequate to make the information not misleading and
that the information furnished reflects all material adjustments which are, in
the opinion of management, necessary to present fairly its results for the
interim periods reported and that all such adjustments are of normal recurring
nature. The consolidated financial statements should be read in conjunction with
the financial statements and related notes included in the Company's Form 10-K
filed with the Securities and Exchange Commission on May 16, 1997 and 10-K/A
dated June 17, 1997.
Note 2. Earnings (Loss) Per Share
Earnings (loss) per share is based on the weighted average number of common
shares outstanding during the periods as adjusted to take into account the
effect of outstanding options to purchase common stock unless the effect of
including such options is anti-dilutive. The weighted average number of common
shares and equivalents outstanding were 6,181,000 and 6,124,000 for the quarters
ended November 01, 1997 and October 26, 1996 respectively. The weighted average
number of common shares and equivalents outstanding were 6,143,000 and 6,093,000
for the 9 month periods ended November 01, 1997 and October 26, 1996,
respectively. The amount of common stock equivalents outstanding was computed
using the treasury stock method.
Note 3. Subsequent Events
During December, 1997, the Company sold preferred stock in a private placement
for $7,100,000, reported on Form 8-K, dated December 15, 1997. Series A
Preferred Stock (which pays a dividend at the rate of 5%, payable quarterly,
from the date of closing), was issued for $4,600,000 and Series B Preferred
Stock(which pays a dividend at the rate of 8%, payable quarterly 90 days after
the second anniversary of the closing) was issued for $2,500,000. The Series B
stock can be converted into 86.25% of the Company's common stock. The Company
received approximately $5,900,000 after fees and expenses of the transaction.
The fees and related expenses are as follows: investment group receiving the
preferred stock earned a fee in the amount of $355,000 and expenses up to
$40,000; break-up fee to a different investment group that the Company had
agreed to pay if a transaction was not consummated with them, in the amount of
$300,000 and expenses up to $75,000; investment banking fees of $275,000 and
$145,000 of professional expenses incurred by the Company.
Effective August 29, 1997, the Company entered into a loan and security
agreement with General Electric Capital Corporation ("GECC"), providing for
borrowing and letters of credit, the aggregate of which cannot exceed 60% of
eligible inventory and outstanding letters of credit, or $10 million. Letters of
credit are limited to a maximum of $5 million. A first and only lien is granted
to GECC on all the Company's assets (see "Liquidity and Capital Resources"). In
conjunction with the private placement outlined above, this agreement was
amended ("Second Amendment") to allow for the change in control as required by
the transaction.
The Company's Chapter XI Bankruptcy plan of reorganization, confirmed in
November, 1995, was modified on December 1, 1997, by the U.S. Bankruptcy Court,
to allow for $1,500,000 in cash and $1,000,000 in value of the Company's common
stock (1,889,764 shares) issued in full payment for the $2,500,000 payment that
was due creditors by January 1, 1998.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
All references herein to fiscal 1997 relate to the twelve months ended February
1, 1997. References to third quarter 1998 and 1997 relate to the three months
ended November 01, 1997 and October 26, 1996, respectively. References made to
1998 year-to-date and 1997 year-to-date relate to the first nine months of the
Company's fiscal year ending January 31, 1998 and February 1, 1997 respectively.
Forward-looking statements in this report are made pursuant tot he safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. These
forward-looking statements are not guarantees of future performance and are
subject to risks and uncertainties related to the Company's operations. These
risks and uncertainties include, but are not limited to, competitive factors
(including the possibility of increased competition and price pressures) and the
Company's dependence on key personnel and significant suppliers.
Seasonality
The Company's business, like that of most retailers, is subject to seasonal
influences. A significant portion of the Company's net sales and profits are
realized during the Company's fourth fiscal quarter, which includes the holiday
selling season. Results of any quarter are not necessarily indicative of the
results that may be achieved for a full fiscal year. Quarterly results may
fluctuate materially depending upon, among other things, increases or decreases
in comparable store sales, adverse weather conditions, and shifts in timing of
certain holidays and promotions.
Results of Operations
The following table sets forth, for the periods indicated, certain consolidated
financial data as a percentage of net sales:
<TABLE>
<CAPTION>
Percentage of net sales
Three Months Ended Nine Months Ended
November, October, November, October,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales, buying and 73.0 80.7 74.6 79.6
occupancy cost
Selling, general and 25.7 31.1 26.8 29.9
administrative expenses
Interest expense 0.8 0.4 0.9 0.5
Net operating expenses 99.5% 112.3% 102.4% 109.4%
Income (Loss) before 0.5% (12.3)% (2.4)% (9.4)%
income taxes
Federal Income Tax Refund 0.0 3.0 0.0 0.9
Income Tax Provision 0.2 0.0 (1.0) 0.0
(benefit)
Net income (loss) 0.3% (9.3)% (1.4)% (8.5)%
</TABLE>
Quarter ended November 01, 1997 compared to quarter ended October 26, 1996
Net sales increased by $1,759,000 or 13 %, in the quarter ended November 01,
1997 as compared to the same period a year earlier. This increase was primarily
due to a comparable store sales increase of 29%. compared to a decline of 16 %
during the same quarter last year. During the third quarter the Company opened 1
store and closed
<PAGE>
2 stores for a total of 113 stores in operation at the end of the third quarter
1997. The Company operated 16 fewer stores at the beginning of the third quarter
of FY 1998 (114) than it did at the beginning of the third quarter of FY 1997
(130). Comparable store sales increased primarily as a result of the increased
acceptance by its customers of the new merchandise concept implemented in the
fall of 1995 and increased inventory which was procured with the new working
capital facility ( see "Liquidity and Capital Resources") .
Cost of sales, buying and occupancy costs decreased as a percentage of sales by
7.7%. This was primarily due to higher initial margins on inventory, than last
year, reduced promotional activity as compared to last year and greater leverage
on fixed occupancy costs as a result of the increase in comparable store sales.
Selling, general and administrative expenses decreased as a percentage of sales
by 5.4%, primarily as a result of cost control measures implemented over the
past twelve months and greater leverage on fixed expenses as a result of the
increase in comparable store sales during the quarter.
Interest expense as a percent of sales was 0.8% in the third quarter of fiscal
1998 compared to 0.4% of sales in the second quarter of fiscal 1997. This
resulted from increased short term borrowing to fund increased inventory during
the quarter.
The Company had a profit of $44,000 during the third quarter of FY 1998 or $0.01
per share compared to a loss of $1,261,000 in the third quarter of FY 1997 (
$0.21 per share). Improved comparable store sales, gross margins, and lower
operating expenses, accounted for the improvement in profit.
Nine Months Ended November 01, 1997 Compared to Nine months ended October 26,
1996
Net sales increased $585,000 or 1.3% in the nine months ended November 01, 1997
as compared to the same period ended October 26, 1996. This increase was
primarily due to improved comparable store sales. The company operated 16 fewer
stores than it did one year earlier. Comparable store sales increased 17%
compared to a decline of 7% during the same period last year. Comparable store
sales increased primarily as a result of the increased acceptance by its
customers of the new merchandise concept implemented in the fall of 1995 and
increased inventory which was procured with the new working capital facility (
see "Liquidity and Capital Resources")
Cost of sales, buying and occupancy costs decreased as a percentage of net sales
by 4.4%. This was primarily due to higher initial margins on inventory, than
last year, reduced promotional activity as compared to last year and greater
leverage on fixed occupancy costs as a result of the increase in comparable
store sales.
Selling, general and administrative expenses decreased as a percentage of sales
by 3.1%. primarily as a result of cost control measures implemented over the
past twelve months and greater leverage on fixed expenses as a result of the
increase in comparable store sales during the first nine months of 1998.
Interest expense as a percent of sales was 0.9% for the first nine months of
1998 compared to interest expense of 0.5% in the first nine months of fiscal
1997. This was a result of increased borrowings to fund additional inventory
during the period.
The company incurred a loss of $635,000 during the nine months of fiscal 1998,
compared to a loss of $3,712,000 during the nine months of fiscal 1997. The loss
has decreased significantly due to improved comparable sales, gross margins and
a decrease in expenses..
Liquidity and Capital Resources
General Electric Capital Corporation Loan and Security Agreement
Jay Jacobs replaced the LaSalle facility, entered into in December, 1995, with a
loan and security agreement with General Electric Capital Corporation ("GECC")
on August 29, 1997. The GECC Facility provides for borrowing and letters of
credit, the aggregate of which cannot exceed the sum of 60% of eligible
inventory (as defined)
<PAGE>
and outstanding letters of credit, or $ 10 million. Letters of credit are
limited to a maximum of $5 million. A first and only lien is granted to GECC on
all the Company's assets. The Company must maintain a scheduled minimum fixed
charge coverage ratio, and may not declare or pay dividends or other
distributions on account of any equity interest in the Company, except dividends
to be paid on Series A and Series B Preferred Stock ( see Note 3 "Subsequent
Events") until payment or satisfaction in full of liabilities under the GECC
Facility and termination of the financing agreement. Interest is charged at
GECC's index rate plus 3.5%. The Company is charged an annual fee of 0.5% of the
unused credit under this facility, normal audit fees, and a letter of credit fee
of 1.75% per annum on the aggregate undrawn face amount of letters of credit
outstanding, based on the original terms of the GECC agreement. As a result of
the private placement transaction outlined in Note 3 - Subsequent Events, the
interest charge is reduced to GECC's index rate plus 3%, the unused credit fee
is reduced to 0.375 %, and the letter of credit fee is reduced to 1.00% per
annum. The agreement has a term of three years and was signed on August 29,
1997. On October 23, 1997, the company amended ("First Amendment") it's
agreement with GECC to temporarily increase the Company's borrowing capacity for
seasonal purposes, by $500,000. This increase must be re-paid with the
completion of a Cash Equity Contribution (as defined), or by December 19, 1997,
whichever occurs first. Subsequent to the end of the third quarter, the GECC
facility was further amended by the Second Amendment, to allow for the
investment which occurred subsequent to the third quarter, and is described in
subsequent events .
As of the end of the third quarter of 1998 the Company had $8,384,000 of direct
borrowing and no outstanding letters of credit.
General
The Company's principal needs for liquidity are to finance the purchase of
merchandise inventories and fund its operations.
During the nine months ended November 1, 1997 the Company's primary source of
liquidity was from borrowings under its secured, revolving credit facility
Net cash used for operations for the first nine months of FY 1998 $5,248,000.
The use of cash resulted primarily from an increase in inventory ($5,420,000)
and the operating loss ($635,000). Property and equipment expenditures for the
nine months of FY 98 were $108,000. The expenditures during the nine months of
FY 1998 were minor in nature.
The Company had a working capital deficit of $2,579,000 at November 01, 1997
compared to a working capital deficit of, $2,786,000 at October 26, 1996. The
working capital deficit decreased $207,000 primarily due to additional trade
credit and a federal tax refund which were used to purchase additional
inventory.
Subsequent to the end of the quarter, the Company closed on a transaction with a
group of investors, for a recapitalizaton of the company (see Note - 3
Subsequent Events above). Effective December 3, 1997, the Company raised $
7,100,000 by the issuance and sale of preferred stock in the following manner:
Series A Preferred Stock, $ 4,600,000 and Series B Preferred Stock, $ 2,500,000.
The Series A Preferred Stock has a quarterly dividend payable at the rate of 5%
per annum. The series B Preferred Stock has a quarterly dividend at the rate of
8% per annum and is not payable until ninety days after the second anniversary
of the issuance of the Series A Preferred Stock and each quarter thereafter. The
dividend for both series of preferred stock will increase to the rate of 20% per
annum upon the first quarterly payment due subsequent to the fifth anniversary
of the issuance of the preferred stock. The Series B Preferred Stock is
equivalent to 86.25% of the Company's common stock, upon conversion. The Company
intends to use these funds for the modified payment to the Class 3 unsecured
creditors (described below), certain costs and expenses of the investment
transaction, opening new stores during the next fiscal year and working capital
for funding operations
Under the terms of the Company's Second Amended Plan of Reorganization (approved
by the Bankruptcy Court on November 16, 1995), the unsecured creditors received
a payment of 30% of the approved claims in January 1996. These creditors made an
election to receive either a second 30% payment in January, 1997, or a 15%
payment plus a
<PAGE>
note equal to 42% of the approved claim amount. The Company entered into
negotiations with the Post-confirmation Creditors Committee ( the "PCC") to
delay the January 1997 payment. On April 17, 1997, pursuant to an agreement in
principle between the PCC, and Jay Jacobs, founder and majority shareholder of
the Company (the "PCC Agreement"), the January 1997 payment to the PCC was
placed in abeyance. PCC members granted an initial moratorium, subject to
extension by the PCC until July 1, 1997, to resolve the 1997 payment. An
additional moratorium has been granted until January 1, 1998. As a result of the
PCC agreement the Company accepted the resignation of four of its six directors
and reduced the size of its Board of Directors to five, three of which were
chosen by the PCC members. The directors who resigned were Shelly Swerland,
Gilbert Scherer, David Taylor and William L. Lawrence, Jr. The reconstituted
board was comprised of Robert Bartlett, Principal of Bartlett Joseph Associates,
Paul Buxbaum, President of Buxbaum, Ginsberg & Associates Inc., Alan
Schlesinger, Chairman, CEO and President of Lamonts Apparel, Inc., and Mr.
Jacobs and Mr. Steffey. As of May 2, 1997, Mr. Schlesinger resigned from the
Board and was replaced by William Nandor.
Subsequent to the end of the quarter the Company arranged for a hearing with the
Bankruptcy court for the purpose of modifying the previously scheduled plan
payment. The proposed modification was to pay in lieu of the approximate $
2,500,000 cash payment, $ 1,500,000 in cash and $ 1,000,000 in value of the
Company's common stock, to be issued proratably to all holders of Class 3
unsecured allowed claims. The number of shares issued is based on the average
closing price of the Company's stock in the preceding 30 trading days prior to
closing of the investment transaction referenced above. Ballots were mailed to
all creditors who held allowed Class 3 claims. The deadline for balloting was
November 29, 1997. The voting resulted in acceptance of over 99% of those
voting. On December 1, 1997, the bankruptcy court approved the proposed
modification of the plan. The cash and stock were be mailed to creditors on
December 15, 1997. The source of the funds for this payment will be from the
proceeds of the sales of preferred stock referenced above.
During the next twelve months, the Company will be obligated to pay
approximately $238,000 to Allowed Priority Tax Claims.
At November 01, 1997 the Company had $123,000 in cash and cash equivalents. The
Company had approximately $313,000 of potential liquidity under terms of its
GECC Facility based on its borrowing base formula. On a going forward basis, the
Company's liquidity is dependent on a combination of cash flow from operations
and the sale of preferred stock which occurred subsequent to the end of the
quarter. In the opinion of management, the net proceeds of the private
placement, along with the GECC facility and cash flow from operations are
adequate to accomplish its plans for Fiscal Year ending January, 199. Depending
on the success of its business strategy the Company may continue to incur future
losses, which could negatively affect working capital, the extension of credit
by the Company's suppliers and the Company's ability to maintain compliance with
its debt covenants, and the ability to raise additional capital in the future.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
See 8 - K filed December 15, 1997
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
<PAGE>
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27. Financial Data Schedule
10.1 GECC Loan and Security agreement
10.2 First amendment to GECC Loan and Security agreement 10.3 Second amendment
to GECC Loan and Security agreement
(b) Reports on Form 8-K
Form 8-K dated November 19, 1997, Item 5, Other Events
SIGNATURES
Pursuant to requirements of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
JAY JACOBS, INC.
December 12, 1997
/s/ WILLIAM L. LAWRENCE, JR.
William L. Lawrence, Jr.
Senior Vice President, Chief Financial Officer and
Treasurer (Principal Financial and Accounting Officer)
GE Capital Commercial Finance
This LOAN AND SECURITY AGREEMENT is dated as of August 29, 1997, and agreed to
by and between JAY JACOBS, INC., a Washington corporation ("Borrower"), any
other Credit Party executing this Agreement, and GENERAL ELECTRIC CAPITAL
CORPORATION, a New York corporation ("Lender").
RECITALS
A. The purpose of this Agreement is to provide to Borrower a revolving credit
loan (including a subfacility for letters of credit) having the following
general description:
- -------------------------------------------------------------------------------
TRANSACTION SUMMARY
-------------------
REVOLVING CREDIT LOAN
Maximum Amount: $10,000,000.00
Term: 3 years
Revolving Credit Rate: Index Rate plus 3.5% (subject to
adjustments)
Letter of Credit Subfacility: $5,000,000.00
Borrowing Base: The sum of:
(i) The lesser of: (a) 60% (or such
lesser percentage as may be specified by
Lender from time to time by written
notice to Borrower) of the value of
Borrower's Eligible Inventory, valued on
a first in, first out basis (at the
lower of cost or market); or (b) (i)
during the period from the Closing Date
through and including December 14, 1997,
90% of the Appraised Value of Borrower's
Eligible Inventory, (ii) during the
period from December 15 of each calendar
year through and including February 15
of the immediately following calendar
year, 80% of the Appraised Value of
Borrower's Eligible Inventory, and (iii)
during the period from February 15 of
each calendar year through and including
December 14 of such calendar year, 85%
of the Appraised Value of Borrower's
Eligible Inventory, plus
(ii) 60% (or such lesser percentage as
may be specified by Lender from time to
time by written notice to Borrower) of
the value of Borrower's Eligible
Purchase Order Goods, valued on a first
in, first out basis (at the lower of
cost or market).
FEES
Closing Fee: $175,000.00 (subject to adjustments)
Collateral Monitoring Fee: $36,000.00 per year
Unused Line Fee: .5% (subject to adjustments)
Letter of Credit Fee: 1.75% (subject to adjustments)
Prepayment Fee: 3% in year one; 1% in year two; and 0%
in year three.
The revolving credit loan described generally here is established and governed
by the terms and conditions set forth below in this Agreement and the other Loan
Documents, and if there is any conflict between this general description and the
express terms and conditions below or elsewhere in the Loan Documents, such
other express terms and conditions shall control.
- -------------------------------------------------------------------------------
B. Borrower desires to obtain the Revolving Credit Loan and other financial
accommodations from Lender and Lender is willing to provide the Revolving Credit
Loan and other accommodations all in accordance with the terms of this
Agreement.
1
<PAGE>
C. Capitalized terms used herein shall have the meanings assigned to them in
Schedule A and, for purposes of this Agreement and the other Loan Documents, the
rules of construction set forth in Schedule A shall govern. All Schedules,
Disclosure Schedules, Attachments and Exhibits (collectively, "Appendices")
hereto, or expressly identified to this Agreement, are incorporated herein by
reference, and taken together, constitute but a single agreement. Unless
otherwise expressly set forth herein, or in a written amendment referring to
such Appendices, all Appendices referred to herein shall mean the Appendices as
in effect on the Closing Date. These Recitals shall be construed as part of this
Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual covenants
hereinafter contained, the parties hereto agree as follows:
1. AMOUNT AND TERMS OF CREDIT
1.1 (a) Subject to the terms and conditions of this Agreement, from the Closing
Date and until the Commitment Termination Date (i) Lender agrees (A) to make
available advances (each, a "Revolving Credit Advance") and (B) to incur Letter
of Credit Obligations, in an aggregate outstanding amount not to exceed the
Borrowing Availability, and (ii) Borrower may at its request from time to time
borrow, repay and reborrow, and may cause Lender to incur Letter of Credit
Obligations, under this Section 1.1.
(b) Borrower shall request each Revolving Credit Advance by notice given in
writing (by telecopy, hand delivery, or United States mail) to Lender's
representative responsible for Borrower's account as identified in Schedule 1.1
given no later than 1:00 P.M. (New York City time) on the Business Day of the
proposed Revolving Credit Advance. Each such notice (a "Notice of Revolving
Credit Advance") shall be substantially in the form of Exhibit A. Lender shall
be fully protected under this Agreement in relying upon, and shall be entitled
to rely upon, (i) any Notice of Revolving Credit Advance believed by Lender to
be genuine, and (ii) the assumption that the Persons making electronic requests
or executing and delivering a Notice of Revolving Credit Advance were duly
authorized, unless the responsible individual acting thereon for Lender shall
have actual knowledge to the contrary.
(c) To evidence the Revolving Credit Loan Borrower shall execute and deliver to
Lender the Revolving Credit Note, which shall represent the Obligation of
Borrower to pay the Revolving Credit Loan. The date and amount of each Revolving
Credit Advance and each payment of principal with respect thereto shall be
recorded on the books of Lender, which books shall be presumed to correctly and
accurately record the transactions between Borrower and Lender and shall, absent
manifest error, be conclusive and binding upon Borrower. The entire unpaid
balance of the Revolving Credit Loan, together with all other outstanding and
non-contingent Obligations shall be immediately due and payable on the
Commitment Maturity Date.
2
<PAGE>
(d) Borrower agrees that Lender, in making any Revolving Credit Advance or
incurring any other Obligation hereunder, shall be entitled to rely upon the
most recent Borrowing Base Certificate delivered to Lender by Borrower and on
any other information available to Lender. Borrower further agrees that Lender
shall be under no obligation to make any further Revolving Credit Advance or
incur any other Obligation if Borrower shall have failed to deliver a Borrowing
Base Certificate to Lender by the time specified in Section 4.1(a).
(e) Subject to the terms and conditions of this Agreement, including Schedule C,
Borrower shall have the right to request, and Lender agrees to incur, the Letter
of Credit Obligations for the account of Borrower in accordance with Schedule C.
1.2 Term and Prepayment. The obligation of Lender to make Revolving Credit
Advances and extend other financial accommodations shall be in effect from the
Closing Date until the Commitment Termination Date. Upon the Commitment Maturity
Date Borrower shall pay to Lender in full, in cash: (i) all outstanding
Revolving Credit Advances and all interest earned, but unpaid, thereon; (ii) an
amount sufficient to enable Lender to hold cash collateral as specified in
Schedule C; and (iii) all other non-contingent Obligations due to or incurred by
Lender. Upon payment of the amounts specified in the immediately preceding
sentence, Borrower's obligation to pay the Unused Line Fee shall simultaneously
terminate. Prior to repayment of all Obligations to Lender in full, in cash on
the Commitment Maturity Date:
(a) If the Revolving Credit Loan shall at any time exceed the Borrowing
Availability, then Borrower shall immediately repay the Revolving Credit Loan in
the amount of such excess; such excess balance shall nevertheless constitute
Obligations that are evidenced by the Revolving Credit Note, secured by the
Collateral and entitled to all of the benefits of the Loan Documents.
(b) Borrower shall have the right, at any time upon 30 days prior written notice
to Lender and payment of the applicable Prepayment Fee, (i) to terminate
voluntarily Borrower's right to receive or benefit from, and Lender's obligation
to make and to incur, Revolving Credit Advances and Letter of Credit
Obligations, and (ii) to prepay all of the Obligations. The effective date of
termination of the Revolving Credit Loan specified in such notice shall be the
Commitment Maturity Date.
1.3 Use of Proceeds. Borrower shall use the proceeds of the Revolving Credit
Loan to repay all of its outstanding indebtedness to LaSalle National Bank and
for general working capital and corporate uses not otherwise prohibited by the
terms of this Agreement, but excluding in any event the making of any Restricted
Payment.
1.4 Single Loan. The Revolving Credit Loan and all of the other Obligations of
Borrower to Lender shall constitute one general obligation of Borrower secured
by all of the Collateral.
1.5 Interest. (a) Borrower shall pay interest to Lender on the aggregate
outstanding Revolving Credit Advances at a floating rate equal to the Index Rate
plus the Revolving Loan Margin (the "Revolving Credit Rate").
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(b) Interest shall be payable on the outstanding Revolving Credit Advances (i)
in arrears for the preceding calendar month on the first day of each calendar
month, commencing on September 2, 1997, (ii) on the Commitment Maturity Date,
and (iii) if any interest accrues or remains payable after the Commitment
Maturity Date, upon demand by Lender.
(c) All computations of interest, and all calculations of the Letter of Credit
Fee, shall be made by Lender on the basis of a three hundred and sixty (360) day
year, in each case for the actual number of days occurring in the period for
which such interest or fee is payable. The Index Rate shall be determined (i) on
the first Business Day immediately prior to the Closing Date and (ii)
thereafter, on the last Business Day of each calendar month for calculation of
interest for the following month. Each determination by Lender of an interest
rate hereunder shall be conclusive and binding for all purposes, absent manifest
error.
(d) Effective upon the occurrence of any Default and for so long as any Default
shall be continuing, the Revolving Credit Rate and the Letter of Credit Fee
shall, upon notice by Lender to Borrower, be increased by two percentage points
(2%) per annum (the "Default Rate"), and all outstanding Obligations, including
unpaid interest and Letter of Credit Fees, shall continue to accrue interest
from the date of such Default at the Default Rate applicable to such
Obligations.
(e) If any interest or other payment (including Unused Line Fees, Letter of
Credit Fees and Collateral Monitoring Fees) to Lender under this Agreement
becomes due and payable on a day other than a Business Day, such payment shall
be payable on the next succeeding Business Day; provided, that for purposes
hereof, including calculating interest due to Lender, such payment shall be
deemed to be due and charged to the Revolving Credit Loan as of the first day of
each calendar month.
(f) In no event will Lender charge interest at a rate that exceeds the highest
rate of interest permissible under any law that a court of competent
jurisdiction shall, in a final determination, deem applicable. Amounts paid or
to be collected by Lender in excess of interest calculated at the highest rate
permitted by law will be applied by Lender as provided for in Section 1.10.
1.6 Eligible Inventory. Based on the most recent Borrowing Base Certificate
delivered by Borrower to Lender and on any other information available to
Lender, Lender shall determine which Inventory shall be deemed to be "Eligible
Inventory" for purposes of determining the credit to be extended to Borrower. In
determining whether any particular Inventory constitutes Eligible Inventory (and
without limiting Lender's right to determine eligibility or ineligibility of any
item of Collateral or its inclusion in the Borrowing Base), Lender shall not
include Inventory that meets any of the criteria set forth in Schedule 1.6.
Lender reserves the right, at any time and from time to time after the Closing
Date, to adjust any such criteria, to establish new criteria, to adjust advance
rates and to establish and modify reserves with respect to Eligible Inventory in
its sole discretion, and Lender agrees to give notice to Borrower of each such
change within 10 days thereof. Notwithstanding the generality of the forgoing,
Lender will establish reserves against Eligible Inventory: (a) on the Closing
Date in an amount satisfactory to Lender with respect to each leased location
for which (i) the Collateral located thereon is subject to a statutory
landlord's Lien and (ii) Lender has not received a satisfactory landlord's
agreement; and (b) on February 1, 1998 in an
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amount equal to one month's rent for each leased location for which (i) all rent
and related promissory notes due and owing to the landlord is not brought
current (i.e., no more than 30 days past due) by January 31, 1998, (ii) the
Collateral located thereon is not subject to a statutory landlord's Lien, and
(iii) Lender has not received a satisfactory landlord's agreement.
1.7 Cash Management System. On or prior to the Closing Date and until the
Termination Date, Borrower will establish and maintain the cash management
system described in Schedule D.
1.8 Fees. As compensation for Lender's costs, skills and efforts incurred and
expended in entering into this Agreement and in consideration of Lender's making
the Revolving Credit Loan available to Borrower, Borrower agrees to pay to
Lender the Fees set forth in Schedule E.
1.9 Receipt of Payments. Borrower shall make each payment under this Agreement
(not otherwise made pursuant to Section 1.10) not later than 12:00 P.M. (New
York City time) on the day when due in lawful money of the United States of
America in immediately available funds to the Collection Account. For purposes
of computing interest and fees, and determining Borrowing Availability and Net
Borrowing Availability, all payments shall be deemed received by Lender upon
receipt of good funds in the Collection Account.
1.10 Application and Allocation of Payments. Borrower irrevocably agrees that
Lender shall have the continuing and exclusive right to apply any and all
payments against the then due and payable Obligations, as Lender may deem
advisable. In the absence of a specific determination by Lender with respect
thereto, the same shall be applied in the following order: (a) then due and
payable Fees and expenses; (b) then due and payable interest payments; (c) then
due and payable Obligations other than Fees, expenses and interest and principal
payments; and (d) then due and payable principal payments on the Revolving
Credit Loan. Lender is authorized to, and at its option may (without notice or
precondition and at any time or times), but shall not be obligated to, make or
cause to be made Revolving Credit Advances on behalf of Borrower for: (x)
payment of all Fees, expenses, indemnities, charges, costs, principal, interest,
or other Obligations owing by Borrower under this Agreement or any of the other
Loan Documents, (y) the payment, performance or satisfaction of any of
Borrower's obligations with respect to preservation of the Collateral or
otherwise under this Agreement, or (z) any premium in whole or in part required
in respect of any of the policies of insurance required by this Agreement, even
if the making of any such Revolving Credit Advance causes the outstanding
balance of the Revolving Credit Loan to exceed the Borrowing Availability, and
Borrower agrees to repay immediately, in cash, any amount by which the Revolving
Credit Loan exceeds the Borrowing Availability.
1.11 Accounting. Lender will provide a monthly accounting of transactions under
the Revolving Credit Loan to Borrower. Borrower shall, within 30 days after the
date any such accounting is rendered, notify Lender in writing of any objection
that Borrower may have to any such accounting, describing the basis for such
objection with specificity. Unless so objected to, each and every such
accounting shall (absent manifest error) be deemed final, binding and conclusive
upon Borrower in all respects. Only those items expressly objected to in such
notice shall be deemed to be disputed by Borrower. Lender shall review any item
objected to within 30 days following Borrower's timely objection, and Lender's
determination, based upon the facts available and discussions with
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Borrower, of any item so objected to in such notice shall (absent manifest
error) likewise be final, binding and conclusive on Borrower.
1.12 Indemnity. (a) Borrower and each other Credit Party executing this
Agreement shall jointly and severally indemnify and hold Lender and Lender's
Affiliates, and their respective employees, attorneys and agents (each, an
"Indemnified Person"), harmless from and against any Claim which may be
instituted or asserted against or incurred by any such Indemnified Person as the
result of credit having been extended or not extended under this Agreement and
the other Loan Documents or otherwise in connection with or arising out of the
transactions contemplated hereunder or thereunder, including any Claim for
Environmental Liabilities and Costs and legal costs and expenses of disputes
between the parties to this Agreement; provided, that Borrower and such other
Credit Party shall not be liable for indemnification of an Indemnified Person to
the extent that any such Claim is finally determined by a court of competent
jurisdiction to have resulted solely from such Indemnified Person's gross
negligence or willful misconduct. NO INDEMNIFIED PERSON SHALL BE RESPONSIBLE OR
LIABLE TO ANY OTHER PARTY TO ANY LOAN DOCUMENT, ANY SUCCESSOR, ASSIGNEE OR THIRD
PARTY BENEFICIARY OR ANY OTHER PERSON ASSERTING CLAIMS DERIVATIVELY THROUGH SUCH
PARTY, FOR INDIRECT, PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES WHICH MAY BE
ALLEGED AS A RESULT OF CREDIT HAVING BEEN EXTENDED OR NOT EXTENDED UNDER THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT OR AS A RESULT OF ANY OTHER TRANSACTION
CONTEMPLATED HEREUNDER OR THEREUNDER.
(b) In any suit, proceeding or action brought by Lender relating to any item of
Collateral or any sum owing hereunder, or to enforce any provision of any item
of Collateral, Borrower and each other Credit Party executing this Agreement
shall save, indemnify and keep Lender harmless from and against all expense,
loss or damage suffered by reason of such action or any defense, setoff, or
counterclaim asserted for any reason by the other party or parties to such
litigation and however arising. All obligations of Borrower or any other Credit
Party with respect to any item of Collateral shall be and remain enforceable
against, and only against, Borrower or such other Credit Party, as the case may
be, and shall not be enforceable against Lender.
1.13 Taxes. (a) All payments to Lender under any Loan Document (including under
any Guaranty) shall be made free and clear of, and without deduction for, any
Taxes. In order to protect Lender's economic returns, if any Credit Party shall
be required by law to deduct any Taxes from any payment to Lender under any Loan
Document, then the amount payable to Lender shall be increased so that, after
making all required deductions (including deductions applicable to additional
sums payable under this Section 1.13), Lender receives an amount equal to that
which it would have received had no such deductions been made. The applicable
Credit Party shall then make the required deduction, pay the full amount
deducted to the relevant taxing authority, and promptly furnish to Lender tax
receipts evidencing such payment.
(b) Borrower and the applicable Credit Party shall indemnify Lender for, and pay
within 10 days of demand therefor, the full amount of Taxes (including any Taxes
imposed by any jurisdiction on amounts payable under Section 1.12) paid by
Lender and any liability (including
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penalties, interest and expenses) arising therefrom or with respect thereto,
whether or not such Taxes were correctly or legally asserted.
2. CONDITIONS PRECEDENT
2.1 Conditions to the Initial Revolving Credit Advance and Letter of Credit
Obligation. Lender shall not be obligated to make any Revolving Credit Advance,
incur any Letter of Credit Obligation, or to take, fulfill, or perform any other
action hereunder, until the following conditions have been satisfied to Lender's
complete satisfaction:
(a) the Loan Documents to be delivered on or before the Closing Date shall have
been duly executed and delivered by the appropriate parties, all as set forth in
the Schedule of Documents;
(b) Lender shall have received evidence satisfactory to it that: (i) all of the
obligations of Borrower to LaSalle National Bank under its loan agreement as in
effect immediately prior to the Closing Date will be performed and paid in full
from the proceeds of the initial Revolving Credit Advance; and (ii) all Liens
upon any of the property of Borrower or any other Credit Party in favor of
LaSalle National Bank shall have been terminated immediately upon such payment;
(c) Lender shall have received evidence satisfactory to it that each Credit
Party has obtained all consents and acknowledgments of all Persons and
Governmental Authorities whose consents or acknowledgments may be required
pursuant to the terms of, or prior to the execution and delivery of, this
Agreement and the other Loan Documents and the consummation of the transactions
contemplated hereby and thereby and such consents or acknowledgements have not
been rescinded and remain in full force and effect;
(d) Lender shall have received evidence satisfactory to it that the insurance
policies provided for in Section 3.18 and Disclosure Schedule (3.18) are in full
force and effect, together with appropriate evidence showing loss payable or
additional insured clauses or endorsements, as appropriate, in favor of Lender
and in form and substance satisfactory to Lender;
(e) all of the assets supporting the initial Revolving Credit Advance to be
made, the initial Letter of Credit Obligations to be incurred, and the amount,
if any, of the reserves to be established on the Closing Date, shall be
sufficient in value, as determined by Lender, to provide Borrower with Net
Borrowing Availability of not less than $750,000.00 (after giving effect to such
initial Revolving Credit Advance and Letter of Credit Obligations), without
increase in Borrower's other current liabilities above the average of those
reflected on Borrower's balance sheet for the three months preceding the Closing
Date;
(f) payment by Borrower of the Closing Fee and all other fees, costs, and
expenses of closing (including fees of consultants and counsel to Lender
presented as of the Closing Date);
(g) no action, proceeding, investigation, regulation or legislation shall have
been instituted, threatened or proposed before any court, Governmental Authority
or legislative body to enjoin, restrain or prohibit, or to obtain damages in
respect of, or which is related to or arises out of, this
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Agreement or any other Loan Document or the consummation of the transactions
contemplated hereby or thereby and which, in Lender's sole judgment, would make
it inadvisable to consummate the transactions contemplated by this Agreement or
any other Loan Document;
(h) since the date of Borrower's most recent annual audited financial statements
delivered to Lender prior to the Closing Date, no event has occurred which has
had, or could reasonably be expected to have, a Material Adverse Effect;
(i) Lender shall have performed a pre-closing Collateral audit, including test
counts at certain of Borrower's retail stores and at its distribution center, a
reconciliation of the retail inventory system to the merchandising system and a
verification of Borrower's cost conversion ratio with respect to its Inventory,
all with results satisfactory to Lender; and
(j) Lender shall have received, as Disclosure Schedule (2.1(j)), a written
report in form and substance satisfactory to Lender detailing the amount of
unpaid rent for each of Borrower's leases and the repayment plan therefor.
If any other term of any Loan Document should conflict, or appear to conflict,
with this Section 2.1, the terms of this Section 2.1 shall control, and Borrower
shall have no rights under this Agreement or any other Loan Document until each
of the conditions of this Section 2.1 has been complied with to Lender's
satisfaction or specifically waived in a writing by Lender identifying by
section number the condition to be waived and the specific circumstance with
respect to which the condition is waived.
2.2 Further Conditions. It shall be a further condition to the making of any
Revolving Credit Advance or the incurrence of any Letter of Credit Obligation
that the following statements shall be true on the date of each such advance or
incurrence, as the case may be:
(a) all of each Credit Party's representations and warranties contained herein
or in any of the other Loan Documents shall have been true and correct on and as
of the Closing Date;
(b) no event shall have occurred and be continuing, or would result from the
funding of any Revolving Credit Advance or the incurrence of any Letter of
Credit Obligation, which constitutes or would constitute a Default or an Event
of Default;
(c) after giving effect to such Revolving Credit Advance, or the incurrence of
such Letter of Credit Obligation, the Revolving Credit Loan shall not exceed the
Borrowing Availability; and
(d) each of the conditions set forth in Section 2.1(c), (d), (g) and (h) shall
continue to be satisfied as of such date.
The request and acceptance by Borrower of the proceeds of any Revolving Credit
Advance, and the request by Borrower for the incurrence by Lender of any Letter
of Credit Obligations, as the case may be, shall be deemed to constitute, as of
the date of such request or acceptance, (i) a representation and warranty by
Borrower that the conditions in this Section 2.2 have been satisfied
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and (ii) a confirmation by Borrower of the granting and continuance of Lender's
Liens pursuant to the Loan Documents.
3. REPRESENTATIONS, WARRANTIES AND AFFIRMATIVE COVENANTS
To induce Lender to enter into this Agreement, to make the Revolving Credit
Advances and to incur the Letter of Credit Obligations, Borrower and each other
Credit Party executing this Agreement represent and warrant to Lender, and
promise to and agree with Lender (each of which representations and warranties
shall be true and correct on the Closing Date and shall survive the execution
and delivery of this Agreement, and each of which covenants and agreements shall
continue to be kept, honored and maintained at all times from the Closing Date
until the Termination Date) as follows:
3.1 Corporate Existence; Compliance with Law. Each Credit Party: (a) is, as of
the Closing Date, and will continue to be (i) a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation, (ii) duly qualified to do business and in good standing in each
other jurisdiction where its ownership or lease of property or the conduct of
its business requires such qualification, (iii) in compliance with its charter
and by-laws, and (iv) in compliance in all material respects with all applicable
provisions of law and regulations; and (b) has and will continue to have (i) the
requisite corporate power and authority and the legal right to own, pledge,
mortgage or otherwise encumber and operate its properties, to lease the property
it operates under lease, and to conduct its business as now, heretofore or
proposed to be conducted, and (ii) all licenses, permits, franchises, rights,
powers, consents or approvals from or by all Persons or Governmental Authorities
having jurisdiction over such Credit Party which are necessary or appropriate
for the conduct of its business. As of the Closing Date, each Credit Party has
made and will continue to make all filings with any Governmental Authority that
are necessary or appropriate for the conduct of its business and has given and
will continue to give all notices to the extent required for the ownership,
operation and conduct of its property and business.
3.2 Executive Offices; Corporate or Other Names; Conduct of Business. The
locations of each Credit Party's executive offices, principal place of business,
corporate offices, warehouses, other locations of Collateral and locations where
records with respect to Collateral are kept are as set forth in Disclosure
Schedule (3.2) and, except as set forth in such Disclosure Schedule, such
locations have not changed during the preceding twelve months. As of the Closing
Date, during the prior five years, except as set forth in Disclosure Schedule
(3.2), no Credit Party has been known as or conducted business in any other
name. No Credit Party shall change its (a) name, (b) chief executive office, (c)
principal place of business, (d) corporate offices, (e) warehouses or other
Collateral locations, or (f) location of its records concerning the Collateral,
or acquire, lease or use any real estate after the Closing Date without such
Person, in each instance, giving thirty (30) days prior written notice thereof
to Lender and taking all actions deemed necessary or appropriate by Lender to
continuously protect and perfect Lender's Liens upon the Collateral.
3.3 Corporate Power; Authorization; Enforceable Obligations. The execution,
delivery and performance by each Credit Party of the Loan Documents to which it
is a party, and the creation of all Liens provided for herein and therein: (a)
are and will continue to be within such Person's
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corporate power; (b) have been and will continue to be duly authorized by all
necessary or proper corporate and shareholder action; (c) are not and will not
be in contravention of any provision of such Person's charter or by-laws; (d) do
not and will not violate any law or regulation, or any order or decree of any
court or Governmental Authority; (e) do not and will not conflict with or result
in the breach or termination of, constitute a default under or accelerate any
performance required by, any indenture, mortgage, deed of trust, lease,
agreement or other instrument to which such Person is a party or by which such
Person or any of its property is bound; (f) do not and will not result in the
creation or imposition of any Lien (other than Permitted Encumbrances) upon any
of the Collateral; and (g) do not and will not require the consent or approval
of any Governmental Authority or any other Person, except those referred to in
Section 2.1(c) (all of which will have been duly obtained, made or complied with
on or before the Closing Date). As of the Closing Date, each Loan Document shall
have been duly executed and delivered for the benefit of or on behalf of each
Credit Party, and each such Loan Document shall then be and will continue to be
a legal, valid and binding obligation of such Person, to the extent it is a
party thereto, enforceable against it in accordance with its terms.
3.4 Financial Statements and Projections; Books and Records. (a) Borrower has
delivered as of the Closing Date (i) the Financial Statements for its most
recently ended Fiscal Year and Fiscal Month, which Financial Statements are
true, correct and complete and reflect fairly and accurately the financial
condition of Borrower as of the date of each of such Financial Statement, and
(ii) the Projections, which Projections have been prepared in good faith, with
care and diligence and use assumptions that are reasonable under the
circumstances and disclosed in the Projections.
(b) Borrower and each other Credit Party shall keep adequate Books and Records
with respect to the Collateral and such Person's business activities, in which
proper entries, reflecting all consolidated and consolidating financial
transactions, and payments received on any and all credits granted to, and all
other dealings with, the Collateral, are made in accordance with GAAP and on a
basis consistent with the Financial Statements.
3.5 Material Adverse Change. Between the date of Borrower's most recently
audited Financial Statements delivered to Lender and the Closing Date: (a) no
Credit Party has incurred any obligations, contingent or non-contingent
liabilities, or liabilities for Charges, long-term leases or unusual forward or
long-term commitments which are not reflected in the pro forma balance sheet of
Borrower and which could, alone or in the aggregate, reasonably be expected to
have a Material Adverse Effect; (b) there has been no material deviation from
the Projections delivered at or prior to the Closing Date; (c) no contract,
lease, agreement or other instrument to which any Credit Party has become a
party or by which it or any of its properties or assets is bound or affected,
and no provision of applicable law or governmental regulation has had or could
reasonably be expected to have a Material Adverse Effect; (d) no Credit Party is
in default, and to such Credit Party's knowledge no third party is in default
under or with respect to any material contract, agreement, lease or other
instrument to which it is a party, which alone or in the aggregate could
reasonably be expected to have a Material Adverse Effect; and (e) no event has
occurred, and such Credit Party will not permit or suffer to occur any event or
events, which alone or in the aggregate could reasonably be expected to have a
Material Adverse Effect.
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3.6 Ownership of Property; Liens. As of the Closing Date, the real estate listed
in Disclosure Schedule (3.6) constitutes all of the real property owned, leased,
or used in its business by each Credit Party, and such Credit Party will not
execute any material agreement or contract in respect of such real estate after
the Closing Date without giving Lender prompt written notice thereof. Each
Credit Party holds and will continue to hold good and marketable fee simple
title to all of its owned real estate, and good and marketable title to all of
its other properties and assets, and valid and marketable leasehold interests in
all of its leases (both as lessor and lessee, sublessee or assignee), and none
of the properties and assets of each Credit Party are or will be subject to any
Liens, except Permitted Encumbrances. Each Credit Party has received and will
continue to obtain all deeds, agreements, and other documents affecting real
estate, and has duly effected and will duly effect all recordings and filings
and take other actions necessary, in each circumstance to establish, protect and
perfect its and Lender's right, title and interest in and to all real property
constituting Collateral. All permits required to allow the real property owned
or leased by each Credit Party to be lawfully occupied and used, for all of the
purposes for which they are occupied and used on the Closing Date, have been
lawfully issued and are in full force and effect, and that all such permits will
be obtained and maintained. With respect to each of the premises identified in
Disclosure Schedule (3.2) on the Closing Date a landlord or mortgagee agreement
acceptable to Lender has been obtained, and such Credit Party will obtain a
landlord's or mortgagee's agreement in form acceptable to Lender from the
applicable lessor or mortgagee before entering into any new lease or acquiring
any new premises after the Closing Date.
3.7 Labor Matters. As of the Closing Date, there are no strikes or other labor
disputes against any Credit Party that are pending or, to any Credit Party's
knowledge, threatened. All payments due from any Credit Party on account of
employee health and welfare insurance have been and will continue to be paid or
accrued as a liability on the books of such Credit Party. Disclosure Schedule
(3.7) identifies each collective bargaining agreement, management agreement with
an executive officer, or any other material employment agreement to which any
Credit Party is a party in effect as of the Closing Date, and a copy of each
such agreement has been made available to Lender. Promptly upon the execution of
any such agreement or incurrence of such obligation after the Closing Date and
until the Termination Date, each Credit Party shall provide to Lender prompt
written notice of such event and a copy of such agreement. As of the Closing
Date (a) there is no organizing activity involving any Credit Party pending or,
to any Credit Party's knowledge, threatened by any labor union or group of
employees, (b) there are no representation proceedings pending or, to any Credit
Party's knowledge, threatened with the National Labor Relations Board, and (c)
no labor organization or group of employees of any Credit Party has pending any
demand for recognition, and such Credit Party shall give to Lender prompt
written notice of any of the foregoing occurring after the Closing Date.
3.8 Ventures, Subsidiaries and Affiliates; Outstanding Stock and Indebtedness.
As of the Closing Date, all outstanding Stock and Indebtedness of each Credit
Party, and the holders (including group or affiliated holders known to any
Credit Party) of 10% or more of the Stock of each Credit Party is as described
in Disclosure Schedule (3.8). After the Closing Date each Credit Party will give
Lender prompt notice of (a) each issuance of Stock or change in ownership
representing a sale or issuance of 10% or more of the ownership of any of its
Stock, (b) any
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issuance or transfer of its Stock that is intended to be an item of Collateral,
and (c) each Change of Control of such Credit Party.
3.9 Government Regulation. No Credit Party is or will be subject to or be
regulated under the Investment Company Act of 1940, the Public Utility Holding
Company Act of 1935, the Federal Power Act or any other Federal or state
statute, rule or regulation that restricts or limits such Person's ability to
incur Indebtedness, pledge its assets, or to perform its obligations under the
Loan Documents. The making of the Revolving Credit Loan, the application of the
proceeds and repayment thereof by Borrower or any other Credit Party, and the
consummation of the transactions contemplated by the Loan Documents do not and
will not violate any provision of any such statute or any rule, regulation or
order issued by the Securities and Exchange Commission.
3.10 Margin Regulations. No Credit Party owns or will own any "margin security,"
as that term is defined in Regulations G and U of the Board of Governors of the
Federal Reserve System (the "Federal Reserve Board"), and none of the proceeds
of the Revolving Credit Advances will be used directly or indirectly for (a)
purchasing or carrying any margin security, (b) reducing or retiring any
indebtedness which was originally incurred to purchase or carry any margin
security, or (c) any purpose which might cause the Revolving Credit Loan or this
Agreement to be considered a "purpose credit" within the meaning of Regulation
G, T, U or X of the Federal Reserve Board. No Credit Party will take or permit
to be taken any action which might cause any Loan Document to violate any
regulation of the Federal Reserve Board.
3.11 Taxes. (a) All tax returns, reports and statements required by any
Governmental Authority to be filed by Borrower or any other Credit Party have,
as of the Closing Date, been filed and will, until the Termination Date, be
filed with the appropriate Governmental Authority, and all Charges and other
impositions shown thereon have been and will be paid when due. Proper and
accurate amounts have been and will be withheld by Borrower and each other
Credit Party from their respective employees for all periods in full and
complete compliance with the tax, social security and unemployment withholding
provisions of all applicable law, and such withholdings have and will be timely
paid to the respective Governmental Authorities. Borrower and each other Credit
Party executing this Agreement represents and promises that, except as set forth
in Disclosure Schedule (3.11), neither Borrower nor any other Credit Party: (i)
has executed or filed, or will execute or file, with any Governmental Authority,
any agreement or other document extending, or having the effect of extending,
the period for assessment or collection of any Charges; (ii) has agreed or been
requested to make any adjustment in accounting method; (iii) is a party to any
tax sharing agreement; or (iv) is currently being audited by any Governmental
Authority. There are no assessments or threatened assessments outstanding
against any Credit Party.
(b) Each Credit Party may contest, by proper legal actions or proceedings, the
validity or amount of any Charges; provided, that at the time of commencement of
any such action or proceeding: (i) no Default or Event of Default shall have
occurred; (ii) adequate reserves with respect thereto are established on the
books of the contesting Person in accordance with GAAP; (iii) such contest
operates to suspend collection of the contested Charges and is maintained and
prosecuted continuously with diligence; (iv) none of the Collateral would be
subject to forfeiture or loss of Lien thereby; (v) no Lien shall be imposed or
be attempted to be imposed by any
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Governmental Authority for such Charges or claims during such action or
proceeding; (vi) the contesting Person shall promptly pay or discharge any
contested Charge and shall deliver to Lender evidence acceptable to Lender of
such compliance, payment or discharge, if such contest is terminated or
discontinued adversely; and (vii) Lender has not advised any Credit Party in
writing that Lender reasonably believes that nonpayment or nondischarge thereof
could reasonably be expected to have a Material Adverse Effect.
3.12 ERISA. (a) Disclosure Schedule (3.12) lists (i) all ERISA Affiliates and
(ii) all Plans, each of which has been provided to Lender, and distinguishes
among the following types of Plans: "Pension Plans" as defined in Section 3(2)
of ERISA; Qualified Plans; pension plans that are not Qualified Plans; Title IV
Plans; Multiemployer Plans; and welfare plans as defined in Section 3(3) of
ERISA, and among welfare plans distinguishes among health, life, disability,
severance, Retiree Welfare Plans and other welfare benefit plans. Each Credit
Party is and will remain in compliance with all requirements of each Plan, and
each Plan complies with and is operated, and will continue to be operated, in
compliance with all applicable provisions of law in all respects, including the
timely filing of all reports under the IRC or ERISA. Each Qualified Plan and
each related trust has been determined by the IRS to qualify under Section 401
of the IRC and be exempt under Section 501 of the IRC, respectively, and will
continue to qualify under, and be exempt from tax under, the IRC. Nothing has
occurred or will be permitted to occur which would cause the loss of such
qualification or tax-exempt status. All required contributions have been and
will be made in accordance with the provisions of each Plan and the IRC and
ERISA, and with respect to any Credit Party or any ERISA Affiliate, there are
and will be no Unfunded Pension Liabilities or Withdrawal Liabilities. No Credit
Party has engaged or will engage in a prohibited transaction, as defined in
Section 4975 of the IRC or Section 406 of ERISA.
(b) No ERISA Event has occurred or will be permitted to occur. No Retiree
Welfare Plan exists or will be adopted (except as may be required by law). No
liability under any Title IV Plan has been or will be funded, nor has such
obligation been (nor will it be) satisfied with, the purchase of a contract from
an insurance company that is not rated AAA by Standard & Poor's Corporation and
the equivalent by each other nationally recognized rating agency. Stock of each
Credit Party and its ERISA Affiliates makes up, in the aggregate, no more than
10% of the assets of any Plan, measured on the basis of fair market value as of
the latest valuation date of any Plan.
3.13 Litigation. As of the Closing Date, except as disclosed in Disclosure
Schedule (3.13) no Claim is pending or threatened against any Credit Party which
(a) challenges any such Person's right, power, or competence to enter into or
perform any of its obligations under the Loan Documents, the validity or
enforceability of any Loan Document or any action taken thereunder, or (b)
whether or not determined adversely, could reasonably be expected to have a
Material Adverse Effect. Each Credit Party shall notify Lender in writing
promptly upon learning of the existence or commencement of any Claim commenced
or threatened against any Credit Party that: (x) may involve an amount in excess
of $10,000.00; (y) could reasonably be expected to have a Material Adverse
Effect whether or not determined adversely; or (z) regardless of amount (i) is
asserted or instituted, against any Plan, its fiduciaries or its assets, or
against any Credit Party or any ERISA Affiliate in connection with any Plan,
(ii) includes any demand for injunctive relief, (iii) alleges
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criminal misconduct by any Credit Party, or (iv) alleges the violation of any
law regarding, or seeks remedies in connection with, any Environmental
Liabilities and Costs.
3.14 Brokers. No broker or finder acting on behalf of any Credit Party brought
about the obtaining, making or closing of the Revolving Credit Loan or the
transactions contemplated by the Loan Documents, and no Credit Party has any
obligation to any Person in respect of any finder's or brokerage fees in
connection therewith.
3.15 Intellectual Property. As of the Closing Date, each Credit Party owns or
has the right to use and will own or have the right to use all Intellectual
Property necessary to continue to conduct its business as now or heretofore
conducted by it or proposed to be conducted by it in the most recent Projections
delivered to Lender, and each such item (that is registrable) of Intellectual
Property is listed, together with application or registration numbers, where
applicable, in Disclosure Schedule (3.15). Each Credit Party will give Lender
prompt written notice of any change in the status of any of its Intellectual
Property. Each Credit Party conducts and will continue to conduct its affairs
and business without infringement of or interference with any Intellectual
Property of any other Person. Each Credit Party shall notify Lender immediately
if it knows or discovers that any of any Credit Party's Intellectual Property is
or may become infringed upon, misappropriated or abandoned, or of any other
adverse determination or development.
3.16 Full Disclosure. No information contained in the Loan Documents, the
Financial Statements or any written statement furnished by or on behalf of any
Credit Party under this Agreement, or to induce Lender to execute the Loan
Documents, contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements contained herein or therein not
misleading in light of the circumstances under which they were made. As of the
Closing Date, each Credit Party has provided Lender and will continue to provide
Lender with a true, complete and correct copy of each material contract executed
by any Credit Party.
3.17 Hazardous Materials. (a) As of the Closing Date, each real property
location owned, leased or occupied by each Credit Party (the "Subject Property")
is and will continue to be maintained free of contamination from any Hazardous
Material. Each Credit Party: (i) shall comply with all applicable Environmental
Laws and Environmental Permits; (ii) shall notify Lender in writing within seven
days if and when it becomes aware of any incident or ongoing case of
non-compliance or Release (regardless of when such Release may have occurred)
upon any Subject Property; and (iii) shall promptly forward to Lender a copy of
any order, notice, permit, application, or any communication or report received
by it or any other Credit Party in connection with any such Release or any other
matter relating to the Environmental Laws that may affect Borrower or any other
Credit Party. As of the Closing Date, Disclosure Schedule (3.17) discloses
existing or potential environmental liabilities of each Credit Party that could
result in Environmental Liabilities and Costs, and each Credit Party will
promptly notify Lender in writing of any such liabilities arising after the
Closing Date. As of the Closing Date, no Credit Party has caused, permitted or
suffered, or will cause, permit or suffer to occur any Release at, under, above
or within any Subject Property, or the presence, use, generation, manufacture,
installation, or storage of any Hazardous Materials on, under, in or about any
Subject Property or the transportation of any Hazardous Materials to or from any
Subject Property except to the extent such use, generation, manufacture,
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installation, storage or transportation is conducted in compliance with all
Environmental Laws and Environmental Permits. Neither Borrower nor any other
Credit Party is or will become involved in operations that could lead to the
imposition of Environmental Liabilities or Costs, and no sub-tenant of any
Credit Party is permitted, or will be permitted, to engage in any such activity.
(b) Each Credit Party executing this Agreement acknowledges and agrees that
Lender (i) is not now, and has not ever been, in control of any of the Subject
Property or the affairs of Borrower or any other Credit Party, and (ii) does not
have the capacity through the provisions of the Loan Documents to influence
Borrower's or any other Credit Party's conduct with respect to the ownership,
operation or management of any of the Subject Property.
3.18 Insurance. As of the Closing Date, Disclosure Schedule (3.18) lists all
insurance of any nature maintained for current occurrences by Borrower and each
other Credit Party, as well as a summary of the terms of such insurance. Each
Credit Party executing this Agreement shall deliver to Lender endorsements to
all of its and those of its Subsidiaries' (a) "All Risk" and business
interruption insurance policies naming Lender loss payee, and (b) general
liability and other liability policies naming Lender as an additional insured.
All policies of insurance on real and personal property will contain an
endorsement, in form and substance acceptable to Lender, showing loss payable to
Lender (Form 438 BFU or equivalent) and extra expense and business interruption
endorsements. Such endorsement, or an independent instrument furnished to
Lender, will provide that the insurance companies will give Lender at least 30
days prior written notice before any such policy or policies of insurance shall
be altered or cancelled and that no act or default of Borrower or any other
Person shall affect the right of Lender to recover under such policy or policies
of insurance in case of loss or damage. Each Credit Party executing this
Agreement hereby directs all present and future insurers under its "All Risk"
policies of insurance to pay all proceeds payable thereunder directly to Lender.
Lender reserves the right at any time, upon review of each Credit Party's risk
profile, to require additional forms and limits of insurance to adequately
protect Lender's interests in accordance with Lender's normal practice for
similarly situated borrowers, and if the circumstances are unusual, in Lender's
sole opinion. Each Credit Party executing this Agreement shall, on each
anniversary of the Closing Date and from time to time at Lender's request,
deliver to Lender a report by a reputable insurance broker, satisfactory to
Lender, with respect to such Person's insurance policies.
3.19 Deposit and Disbursement Accounts. Disclosure Schedule (3.19) lists all
banks and other financial institutions at which Borrower maintains deposits
and/or other accounts, including the Disbursement Account, and such Disclosure
Schedule correctly identifies the name, address and telephone number of each
such depository, the name in which the account is held, a description of the
purpose of the account, and the complete account number. Except as permitted in
Schedule D, Borrower will not establish any other depository or other bank
account with any financial institution of any kind. All payments to Borrower
shall be made to or paid into the accounts specified by Lender in Schedule D.
3.20 Accounts. Borrower promises to perform and comply with all obligations in
respect of each item of Collateral. Borrower has not agreed and will not agree:
(a) with any Account Debtor for any deduction from any Account except a discount
or allowance allowed by Borrower in the
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ordinary course of its business for prompt payment; or (b) to release, in whole
or in part, any Person liable for the payment of any Account; provided, that
Borrower may permit deductions, extensions, compromises, settlements and
releases of the Accounts described in clause (b) which, in the aggregate during
any Fiscal Quarter will not exceed $5,000.
3.21 Inventory. Borrower represents and promises that, as of the date of each
Borrowing Base Certificate delivered to Lender, each item of Inventory shown on
such Borrowing Base Certificate is Eligible Inventory.
3.22 Payment of Obligations. Each Credit Party: (a) will pay and discharge or
cause to be paid and discharged all Obligations in a timely manner; and (b)
prior to an Event of Default, (i) will pay and discharge or cause to be paid and
discharged the PCC Debt and the Allowed Tax Claim only in accordance with the
terms of Section 5(n), (ii) will pay and discharge, or cause to be paid and
discharged, its Indebtedness (other than the Obligations, the PCC Debt and the
Allowed Tax Claim) in the ordinary course of business, (ii) subject to Section
3.11(b), will pay and discharge, or cause to be paid and discharged promptly,
all Charges, and (iii) will pay all lawful claims for labor, materials, supplies
and services or otherwise, before any thereof shall become in default.
3.23 Confidentiality and Press Releases. Lender and each Credit Party executing
this Agreement agree that the terms and conditions of this Agreement are
confidential. No Credit Party executing this Agreement shall use the name of or
refer to General Electric Capital Corporation (or any Affiliate thereof) or "GE
Capital," or issue any press release regarding or make other public disclosure
of the existence of this Agreement or its terms, without the prior written
consent of Lender, except as may be required by law; provided, that to the
extent required by law, Borrower or any other Credit Party may make such
disclosures, but only if Borrower shall first have afforded Lender a reasonable
opportunity to review and comment upon any such legally required disclosure,
press release, or use of such name.
3.24 Conduct of Business. Each Credit Party (a) shall conduct its business
substantially as now conducted or as otherwise permitted hereunder, and (b)
shall at all times maintain, preserve and protect all of the Collateral and such
Credit Party's other property, in use or useful in the conduct of its business
and keep the same in good repair, working order and condition (taking into
consideration ordinary wear and tear) and from time to time make, or cause to be
made, all necessary or appropriate repairs, replacements and improvements
thereto consistent with industry practices, so that the business carried on in
connection therewith may be properly and advantageously conducted at all times.
3.25 Further Assurances; Disclosure Schedule Supplements. At any time and from
time to time, upon the written request of Lender and at the sole expense of
Borrower, Borrower and each other Credit Party shall promptly and duly execute
and deliver any and all such further instruments and documents and take such
further action as Lender may reasonably deem desirable (a) to obtain the full
benefits of this Agreement, (b) to protect, preserve and maintain Lender's
rights in the Collateral, or any of it, and under this Agreement, or (c) to
enable Lender to exercise all or any of the rights and powers herein granted. On
each anniversary of the Closing Date (or as often as Lender may require upon the
occurrence and continuation of a Default or Event of Default),
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Borrower will supplement each Disclosure Schedule with respect to any matter
hereafter arising that, if existing or occurring as of the Closing Date, would
have been required to be set forth or described in such Disclosure Schedule;
provided, that such supplement shall not be deemed to be an amendment thereof
unless expressly consented to in writing by Lender.
4. FINANCIAL MATTERS; REPORTS
4.1 Reports and Notices. Borrower represents, agrees and promises that from and
after the Closing Date until the Termination Date, Borrower shall deliver to
Lender:
(a) as frequently as Lender may request and in any event no later than (i) the
second Business Day of each week and (ii) within five Business Days following
the end of each Fiscal Month, a Borrowing Base Certificate in the form of
Exhibit B as of the last day of the immediately preceding week or such Fiscal
Month, as the case may be, in each case detailing purchases, sales and total
Inventory for adjustment to the Borrowing Base, and including a summarized
mark-up and mark-down report and a reconciliation of cash receipts to store
sales;
(b) within 30 days following the end of each Fiscal Month, an Accounts Payable
Analysis in the form of Exhibit C accompanied by an accounts payable aging and
reconciliation of the aged trial balance to Borrower's general ledger and from
the general ledger to the Financial Statements for such Fiscal Month,
accompanied by supporting detail and documentation as the Lender may request;
(c) within 30 days following the end of each Fiscal Month, the internally
prepared Financial Statements for such Fiscal Month, which Financial Statements
shall (i) provide comparisons to budget and actual results for the corresponding
period during the prior Fiscal Year, both on a monthly and year-to-date basis,
(ii) include (A) a reconciliation of the retail inventory system to the
merchandising system, to the general ledger and to such Financial Statements as
of the end of such Fiscal Month, (B) an update of the information provided in
Disclosure Schedule (2.1(j)) as of the end of such Fiscal Month, and (C) if the
end of such Fiscal Month is also the end of a Fiscal Quarter, a statement of
profit and loss per retail location as of the end of such Fiscal Quarter, and
(iii) be accompanied by a certification, in the form of Exhibit G, by the Chief
Executive Officer or Chief Financial Officer of Borrower that such Financial
Statements are complete and correct, that there was no Default or Event of
Default (or specifying those Defaults or Events of Default of which he or she
was aware), and showing in reasonable detail the calculations used in testing
the Fixed Charge Coverage Ratio as of the end of such Fiscal Month;
(d) within 90 days following the close of each Fiscal Year, the Financial
Statements for such Fiscal Year certified without qualification by an
independent certified accounting firm acceptable to Lender, which Financial
Statements shall provide comparisons to actual results for the prior Fiscal
Year, both on a monthly and annual basis, and shall be accompanied by (i) a
statement in reasonable detail showing the calculations used in determining
compliance with the financial covenants hereunder, (ii) a report from Borrower's
accountants to the effect that in connection with their audit examination
nothing has come to their attention to cause them to believe that a Default
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or Event of Default has occurred or specifying those Defaults or Events of
Default of which they are aware, and (iii) any management letter that may be
issued;
(e) not less than 10 days prior to the close of each Fiscal Year, the
Projections, which Projections will be prepared by Borrower in good faith, with
care and diligence, using assumptions which are reasonable under the
circumstances and disclosed in the Projections when delivered, and approved by
Borrower's Board of Directors;
(f) promptly upon their becoming available, copies of: (i) all Financial
Statements, reports, notices and proxy statements made publicly available by
Borrower to its security holders; (ii) all regular and periodic reports and all
registration statements and prospectuses, if any, filed by Borrower with any
securities exchange or with the Securities and Exchange Commission or any
governmental or private regulatory authority; (iii) all press releases and other
statements made available by Borrower to the public; and (iv) all correspondence
and other written notices delivered to or by Borrower in connection with the PCC
Debt; and
(g) such other information respecting the business, financial condition,
prospects or projections of Borrower or any Affiliate thereof as Lender
reasonably may request from time to time.
4.2 Financial Covenants. Borrower shall not breach any of the financial
covenants set forth in Schedule G.
4.3 Other Reports. Borrower shall notify Lender promptly of any occurrence
causing a material loss or decline in value of any Collateral and the estimated
(or actual, if available) amount of such loss or decline. Borrower shall, upon
the request of Lender, furnish to Lender such other reports in connection with
the affairs, business, financial condition, operations, prospects or management
of Borrower or any other Credit Party or the Collateral as Lender may request,
all in reasonable detail, and Borrower shall advise Lender promptly, in
reasonable detail, of: (a) any Lien, other than Permitted Encumbrances,
attaching to or asserted against any of the Collateral; (b) any material change
in the composition of the Collateral; and (c) the occurrence of any other event
which could reasonably be expected to have a Material Adverse Effect.
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5. NEGATIVE COVENANTS
Borrower and each Credit Party executing this Agreement covenants and agrees
(for itself and each other Credit Party) that, without Lender's prior written
consent, from the Closing Date until the Termination Date, neither Borrower nor
any other Credit Party shall, directly or indirectly, by operation of law or
otherwise:
(a) merge with, consolidate with, acquire all or substantially all of the assets
or capital stock of, or otherwise combine with, any Person or form any
Subsidiary, except that any Subsidiary of Borrower may merge or consolidate with
Borrower or another Subsidiary of Borrower (so long as Borrower is the surviving
corporation from any such transaction if it is involved therein) and Borrower or
any Subsidiary of Borrower may acquire all or substantially all of the assets of
capital Stock of another Subsidiary of Borrower;
(b) except as otherwise permitted in this Section 5 below, make any investment
in, or make or accrue loans or advances of money to, any Person, except for
travel advances, loans to officers and other employee advances made in the
ordinary course of business not to exceed $100,000 in the aggregate at any time
outstanding;
(c) create, incur, assume or permit to exist any Indebtedness, except: (i) the
Obligations; (ii) Indebtedness other than the Obligations in an aggregate
outstanding amount not exceeding $50,000; (iii) deferred taxes; and (iv) other
Indebtedness set forth in Disclosure Schedule (5(c));
(d) enter into any lending, borrowing or other commercial transaction with any
of its employees, directors, Affiliates or any other Credit Party (including
upstreaming and downstreaming of cash and intercompany advances);
(e) make any changes in any of its business objectives, purposes, or operations
which could have or reasonably be expected to have a Material Adverse Effect;
(f) amend its charter or by-laws in a manner that would adversely affect Lender
or such Credit Party's duty or ability to repay the Obligations;
(g) incur any Guaranteed Indebtedness except (i) by endorsement of instruments
or items of payment for deposit to the general account of Borrower, and (ii) for
Guaranteed Indebtedness incurred for the benefit of Borrower if the primary
obligation is permitted by this Agreement;
(h) create or permit any Lien on any of its properties or assets, except for
Permitted Encumbrances;
(i) sell, transfer, convey, assign or otherwise dispose of any its assets or
properties, including its Accounts (provided, that the foregoing shall not
prohibit the sale of Inventory or obsolete or unnecessary Equipment or real
estate in the ordinary course of its business);
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(j) take any action or omit to take any action, which act or omission would
constitute a material default or an event of default pursuant to, or
noncompliance with, any contract, lease, mortgage, deed of trust or instrument
to which it is a party or by which it or any of its property is bound, or any
document creating a Lien;
(k) cancel any debt owing to it, except for reasonable consideration and in the
ordinary course of its business or as otherwise permitted in Section 3.20;
(l) make or permit any Restricted Payment;
(m) engage in any business other than that presently engaged in or proposed to
be engaged in the Projections delivered to Lender on the Closing Date;
(n) modify the terms of (other than for payment extensions on principal and
interest) or otherwise make any payment on the PCC Debt or the Allowed Tax Claim
except pursuant to the terms of the Plan of Reorganization; provided, that
Borrower may only make such payments on the PCC Debt (i) from Excess Cash Flow
(as defined under the Plan of Reorganization) so long as there is Net Borrowing
Availability of not less than $1,000,000 at all times during the 30-day period
immediately prior to, and the 30-day period immediately following, such payment,
or (ii) from the proceeds of the Additional Equity; or
(o) enter into any new lease at any time a Default or Event of Default has
occurred and is continuing.
6. SECURITY INTEREST
6.1 Grant of Security Interest. (a) To secure the prompt and complete payment,
performance and observance of all of the Obligations, and to induce Lender to
enter into the Loan Documents, to make the Revolving Credit Advances and to
incur the Letter of Credit Obligations, Borrower and each other Credit Party
executing this Agreement hereby grants to Lender a security interest in and Lien
upon all of its right, title and interest in the Collateral.
(b) Borrower, each other Credit Party executing this Agreement and Lender agree
that this Agreement creates, and is intended to create, valid and continuing
Liens upon the Collateral in favor of Lender. Borrower and each other Credit
Party executing this Agreement represents, warrants and promises to Lender that:
(i) upon and as a result of the filing of appropriate financing statements in
the jurisdictions listed in Disclosure Schedule (6.1), such Liens are and will
be fully perfected Liens on and in all Collateral, which Liens are and will,
until the Termination Date, be enforceable as first priority, fully perfected
Liens as against all other creditors of, and purchasers from, Borrower and any
other Credit Party granting a Lien in Collateral (other than purchasers of
Inventory in the ordinary course of business); (ii) all action necessary or
desirable to protect and perfect such Liens in favor of Lender in all of the
Collateral has been duly taken; (iii) except for Permitted Encumbrances,
Borrower (and any other Credit Party granting a Lien in Collateral) is and will
be the sole owner of each such item of the Collateral in which a Lien is granted
under the Loan Documents (other than consigned goods specifically identified in
Disclosure Schedule (6.1)), and
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has and will have good and marketable title to such Collateral free and clear of
any and all other Liens, and (iv) no effective security agreement, financing
statement, equivalent security or Lien instrument or continuation statement
covering all or any part of the Collateral is or will be on file or of record in
any public office, except those filed by Borrower (and any other Credit Party
granting a Lien to Lender in Collateral) in favor of Lender pursuant to the Loan
Documents, and those relating to other Permitted Encumbrances.
(c) Borrower and each other Credit Party executing this Agreement promise to
defend the right, title and interest of Lender in and to the Collateral against
the claims and demands of all Persons whomsoever, and shall take such actions,
including (i) the prompt delivery of all original Instruments, Chattel Paper and
certificated Stock owned by Borrower and such Credit Party to Lender, (ii)
notification of Lender's interest in Collateral at Lender's request, or (iii)
the institution of litigation against third parties as shall be prudent in order
to protect and preserve Borrower's, such Credit Party's and Lender's respective
and several interests in the Collateral. Borrower (and any other Credit Party
granting a Lien in Collateral) shall mark its Books and Records pertaining to
the Collateral to evidence the Loan Documents and the Liens granted under the
Loan Documents. All Chattel Paper shall be marked with the following legend:
"This writing and the obligations evidenced or secured hereby are subject to the
security interest of General Electric Capital Corporation."
6.2 Lender's Rights. (a) Lender may, (i) at any time in Lender's own name or in
the name of Borrower and each other Credit Party executing this Agreement,
communicate with Account Debtors, parties to Contracts, and obligors in respect
of Instruments, Chattel Paper or other Collateral to verify to Lender's
satisfaction, the existence, amount and terms of any such Accounts, Contracts,
Instruments or Chattel Paper or other Collateral, and (ii) at any time and
without prior notice to Borrower or such Credit Party, notify Account Debtors,
parties to Contracts, and obligors in respect of Chattel Paper, Instruments, or
other Collateral that the Collateral has been assigned to Lender and that
payments shall be made directly to Lender. Upon the request of Lender, Borrower
and each other Credit Party executing this Agreement shall so notify such
Account Debtors, parties to Contracts, and obligors in respect of Instruments,
Chattel Paper or other Collateral.
(b) It is expressly agreed by Borrower and each other Credit Party executing
this Agreement that, notwithstanding anything herein to the contrary, Borrower
and such Credit Party shall remain liable under each Contract and License to
observe and perform all the conditions and obligations to be observed and
performed by it thereunder, and Lender shall have no obligation or liability
whatsoever to any Person under any Contract or License (between Borrower or any
other Credit Party and any Person other than Lender) by reason of or arising out
of the execution, delivery or performance of this Agreement, and Lender shall
not be required or obligated in any manner (i) to perform or fulfill any of the
obligations of Borrower or such Credit Party, (ii) to make any payment or
inquiry, or (iii) to take any action of any kind to collect or enforce any
performance or the payment of any amounts which may have been assigned to it or
to which it may be entitled at any time or times under or pursuant to any
Contract or License.
(c) Borrower and each other Credit Party executing this Agreement shall, with
respect to each owned, leased, or controlled property or facility, during normal
business hours and upon reasonable
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advance notice (unless a Default shall have occurred and be continuing, in which
event no notice shall be required and Lender shall have access at any and all
times): (i) provide access to such facility or property to Lender and any of its
officers, employees and agents, as frequently as Lender determines to be
appropriate; (ii) permit Lender and any of its officers, employees and agents to
inspect, audit and make extracts from all of Borrower's and such Credit Party's
Books and Records; and (iii) permit Lender and any of its officers, employees
and agents to inspect, review, evaluate and make physical verifications and
appraisals of the Inventory and other Collateral in any manner and through any
medium that Lender considers advisable, including the monthly Collateral
inspections and the quarterly Collateral appraisals performed by an appraiser in
determining the Appraised Value, and Borrower and such Credit Party agree to
render to Lender, at Borrower's and such Credit Party's cost and expense, such
clerical and other assistance as may be reasonably requested with regard
thereto. Borrower and each other Credit Party executing this Agreement shall
make available to Lender and its counsel, as quickly as practicable under the
circumstances, originals or copies of all Borrower's and such Credit Party's
Books and Records and any other instruments and documents which Lender may
request. Borrower shall deliver any document or instrument reasonably necessary
for Lender, as it may from time to time request, to obtain records from any
service bureau or other Person which maintains records for Borrower or any other
Credit Party.
(d) Upon the occurrence and continuation of a Default or Event of Default,
Borrower, at its own expense, shall cause the certified public accountant then
engaged by Borrower to prepare and deliver to Lender at any time and from time
to time, promptly upon Lender's request, the following reports: (i) a
reconciliation of all Accounts and Inventory; (ii) trial balances; and (iii)
test verifications of such Accounts as Lender may request. Borrower, at its own
expense, shall cause its certified independent public accountants to deliver to
Lender the results of any physical verifications of all or any portion of the
Inventory made or observed by such accountants when and if such verification is
conducted. Lender shall be permitted to observe and consult with Borrower's
accountants in the performance of these tasks.
6.3 Lender's Appointment as Attorney-in-fact. On the Closing Date Borrower and
each other Credit Party executing this Agreement shall execute and deliver a
Power of Attorney in the form attached as Exhibit F. The power of attorney
granted pursuant to the Power of Attorney is a power coupled with an interest
and shall be irrevocable until the Termination Date. The powers conferred on
Lender under the Power of Attorney are solely to protect Lender's interests in
the Collateral and shall not impose any duty upon it to exercise any such
powers. Lender agrees and promises that (a) it shall not exercise any power or
authority granted under the Power of Attorney unless an Event of Default has
occurred and is continuing, (b) Lender shall only exercise the powers granted
under the Power of Attorney in respect of Collateral, and (c) upon request of
Borrower or such Credit Party, Lender shall account for any moneys received by
Lender in respect of any foreclosure on or disposition of Collateral pursuant to
use of the Power of Attorney; provided, that Lender shall not have any other
duty as to any Collateral, and Lender shall be accountable only for amounts that
it actually receives as a result of the exercise of such powers. NONE OF LENDER
OR ITS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS OR REPRESENTATIVES SHALL BE
RESPONSIBLE TO BORROWER FOR ANY ACT OR FAILURE TO ACT PURSUANT TO THE POWERS
GRANTED UNDER THE POWER OF ATTORNEY OR OTHERWISE,
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EXCEPT FOR ITS OR THEIR OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT, NOR FOR ANY
PUNITIVE, EXEMPLARY, INDIRECT OR CONSEQUENTIAL DAMAGES. Borrower also hereby
authorizes Lender to file any financing or continuation statement without the
signature of Borrower to the extent permitted by applicable law.
6.4 Grant of License to Use Intellectual Property Collateral. For the purpose of
enabling Lender to exercise its rights and remedies under the Loan Documents,
Borrower and each other Credit Party executing this Agreement hereby grants to
Lender an irrevocable, non-exclusive license (exercisable upon the occurrence of
an Event of Default without payment of royalty or other compensation to Borrower
or such Credit Party) to use, transfer, license or sublicense any Intellectual
Property now owned, licensed to, or hereafter acquired by Borrower or such
Credit Party, and wherever the same may be located, and including in such
license access to all media in which any of the licensed items may be recorded
or stored and to all computer and automatic machinery software and programs used
for the compilation or printout thereof, and represents, promises and agrees
that any such license or sublicense is not and will not be in conflict with the
contractual or commercial rights of any third person; provided, that such
license will terminate on the Termination Date.
6.5 Reinstatement. The provisions of this Section 6 shall remain in full force
and effect and continue to be effective even if: (a) any petition is filed by or
against Borrower or any other Credit Party for liquidation or reorganization;
(b) Borrower or any other Credit Party becomes insolvent or makes an assignment
for the benefit of creditors; (c) a receiver or trustee is appointed for all or
any significant part of Borrower's or any other Credit Party's assets; or (d) at
any time payment and performance of the Obligations, or any part thereof, is,
pursuant to applicable law, rescinded or reduced in amount, or must otherwise be
restored or returned by any obligee of the Obligations, whether as a "voidable
preference," "fraudulent transfer" or otherwise, all as though such payment or
performance had not been made. In the event that any payment, or any part
thereof, is rescinded, reduced, restored or returned, the Obligations and
Lender's Liens in the Collateral shall be reinstated and deemed reduced only by
any amount paid and not so rescinded, reduced, restored or returned.
7. EVENTS OF DEFAULT, RIGHTS AND REMEDIES
7.1 Events of Default. The occurrence of any one or more of the following events
(regardless of the reason therefor) shall constitute an "Event of Default"
hereunder:
(a) Borrower shall fail to make any payment in respect of any Obligations when
due and payable or declared due and payable; or
(b) Borrower or any other Credit Party shall fail or neglect to perform, keep or
observe any of the provisions of Sections 1.3, 1.7, 3.18, 4.2 or 5, or any of
the provisions set forth in Annexes D or G, respectively, regardless of whether
such breach involves a covenant, promise, agreement, condition, requirement,
term or provision with respect to a Credit Party that has not signed this
Agreement; or
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(c) Borrower or any other Credit Party shall fail or neglect to perform, keep or
observe any of the covenants, promises, agreements, requirements, conditions or
other terms or provisions contained in this Agreement or any of the other Loan
Documents (other than any provision embodied in or covered by any other clause
of this Section 7.1), regardless of whether such breach involves a covenant,
promise, agreement, condition, requirement, term or provision with respect to a
Credit Party that has not signed this Agreement, and the same shall remain
unremedied for seven days or more; or
(d) an event of default shall occur under any other material agreement, document
or instrument to which Borrower or any other Credit Party is a party, or by
which any such Person or its property is bound, and such event of default (i)
involves the failure to make any payment, whether of principal, interest or
otherwise, and whether due by scheduled maturity, required prepayment,
acceleration, demand or otherwise, in respect of any Indebtedness (other than
the Obligations) of such Person in an aggregate amount exceeding the Minimum
Actionable Amount, or (ii) causing (or permits any holder of such Indebtedness
or a trustee to cause) such Indebtedness, or a portion thereof in an aggregate
amount exceeding the Minimum Actionable Amount to become due prior to its stated
maturity or prior to its regularly scheduled dates of payment; or
(e) any representation or warranty in this Agreement or any other Loan Document,
or in any written statement pursuant hereto or thereto, or in any report,
financial statement or certificate made or delivered to Lender by Borrower or
any other Credit Party shall be untrue or incorrect as of the date when made,
regardless of whether such breach involves a representation or warranty with
respect to a Credit Party that has not signed this Agreement; or
(f) any of the assets of Borrower or any other Credit Party shall be attached,
seized, levied upon or subjected to a writ or distress warrant; or come within
the possession of any receiver, trustee, custodian or assignee for the benefit
of creditors of such Person, and shall remain unstayed or undismissed for 60
consecutive days; or any Person other than Borrower shall apply for the
appointment of a receiver, trustee or custodian for any of Borrower's assets (or
those of any other Credit Party) and shall remain unstayed or undismissed for 60
consecutive days; or Borrower or any other Credit Party shall have concealed,
removed or permitted to be concealed or removed, any part of its property with
intent to hinder, delay or defraud its creditors or any of them or made or
suffered a transfer of any of its property or the incurring of an obligation
which may be fraudulent under any bankruptcy, fraudulent transfer or other
similar law; or
(g) a case or proceeding shall have been commenced involuntarily against
Borrower or any other Credit Party in a court having competent jurisdiction
seeking a decree or order: (i) under the United States Bankruptcy Code or any
other applicable Federal, state or foreign bankruptcy or other similar law, and
seeking either (a) the appointment of a custodian, receiver, liquidator,
assignee, trustee or sequestrator (or similar official) of such Person or of any
substantial part of its properties, or (b) the reorganization or winding up or
liquidation of the affairs of any such Person and such case or proceeding shall
remain undismissed or unstayed for 60 consecutive days or such court shall enter
a decree or order granting the relief sought in such case or proceeding; or (ii)
invalidating or denying (a) any Person's right, power, or competence to enter
into or perform
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any of its obligations under any Loan Document, or (b) the validity or
enforceability of this Agreement or any other Loan Document or any action taken
hereunder or thereunder; or
(h) Borrower or any other Credit Party shall (i) file a petition under the
United States Bankruptcy Code or any other applicable Federal, state or foreign
bankruptcy or other similar law, (ii) consent to the institution of proceedings
thereunder or to the filing of any such petition or to the appointment of or
taking possession by a custodian, receiver, liquidator, assignee, trustee or
sequestrator (or similar official) of any such Person or of any substantial part
of its properties, (iii) fail generally to pay (or admit in writing its
inability to pay) its debts as such debts become due, or (iv) take any corporate
action in furtherance of any such action; or
(i) final judgment or judgments (after the expiration of all times to appeal
therefrom) for the payment of money in excess of the Minimum Actionable Amount
in the aggregate shall be rendered against Borrower or any other Credit Party,
unless the same shall be (i) fully covered by insurance and the issuer(s) of the
applicable policies shall have acknowledged full coverage in writing within 15
days of judgment, or (ii) vacated, stayed, bonded, paid or discharged within a
period of 15 days from the date of such judgment; or
(j) any other event shall have occurred which could have or reasonably be
expected to have a Material Adverse Effect and Lender shall have given Borrower
notice thereof, and the same shall remain unremedied for 15 days or more; or
(k) any Lien or any provision of any Loan Document shall for any reason cease to
be valid, binding and enforceable in accordance with its terms, or any Lien
granted, or intended by the Loan Documents to be granted, to Lender shall cease
to be a valid and perfected Lien having the first priority (or a lesser priority
if expressly permitted in the Loan Documents) in any of the Collateral covered
or purported to be covered thereby; or
(l) any Change of Control shall have occurred for which Lender has not given its
prior written consent; or
(m) an "Event of Default" shall have occurred under and as defined in the Plan
of Reorganization.
7.2 Remedies. (a) If any Default or Event of Default shall have occurred and be
continuing, then Lender may exercise one or more of the following remedies: (i)
upon notice to Borrower from Lender, increase the rate of interest applicable to
the outstanding Revolving Credit Advances and the Letter of Credit Fee to the
Default Rate, as provided in Section 1.5(d), effective as of the date of the
initial Default; or (ii) terminate or suspend its obligation to make further
Revolving Credit Advances and to incur additional Letter of Credit Obligations.
In addition, if any Event of Default shall have occurred and be continuing,
Lender may, without notice, take any one or more of the following actions: (1)
declare all or any portion of the Obligations to be forthwith due and payable,
including contingent liabilities with respect to Letter of Credit Obligations,
whereupon such Obligations shall become and be due and payable; (2) require that
all Letter of Credit Obligations be fully cash collateralized pursuant to
Schedule C; or (3) exercise any rights and remedies
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provided to Lender under the Loan Documents or at law or equity, including all
remedies provided under the Code; provided, that upon the occurrence of an Event
of Default specified in Sections 7.1(f), (g) or (h), the Obligations shall
become immediately due and payable (and any obligation of Lender to make further
Revolving Credit Advances or incur Letter of Credit Obligations, if not
previously terminated, shall immediately be terminated) without declaration,
notice or demand by Lender.
(b) Without limiting the generality of the foregoing, Borrower and each other
Credit Party executing this Agreement expressly agrees that upon the occurrence
of any Event of Default, Lender may collect, receive, assemble, process,
appropriate and realize upon the Collateral, or any part thereof, and may
forthwith sell, lease, assign, give an option or options to purchase or
otherwise dispose of and deliver said Collateral (or contract to do so), or any
part thereof, in one or more parcels at public or private sale or sales, at any
exchange at such prices as it may deem best, for cash or on credit or for future
delivery without assumption of any credit risk. Lender shall have the right upon
any such public sale or sales and, to the extent permitted by law, upon any such
private sale or sales, to purchase for the benefit of Lender the whole or any
part of said Collateral so sold, free of any right or equity of redemption,
which equity of redemption Borrower and each other Credit Party executing this
Agreement hereby releases. Such sales may be adjourned, or continued from time
to time with or without notice. Lender shall have the right to conduct such
sales on Borrower's and each other Credit Party's premises or elsewhere and
shall have the right to use Borrower's and such Credit Party's premises without
rent or other charge for such sales or other action with respect to the
Collateral for such time or times as Lender deems necessary or advisable.
(c) Borrower and each other Credit Party executing this Agreement further agree,
upon the occurrence of an Event of Default and at Lender's request, to assemble
the Collateral and make it available to Lender at places which Lender shall
reasonably select, whether at Borrower's or such Credit Party's premises or
elsewhere. Until Lender is able to effect a sale, lease, or other disposition of
the Collateral, Lender shall have the right to complete, assemble, use or
operate the Collateral or any part thereof, to the extent that Lender deems
appropriate, for the purpose of preserving such Collateral or its value or for
any other purpose. Lender shall have no obligation to Borrower or such Credit
Party to maintain or preserve the rights of Borrower or such Credit party as
against third parties with respect to any Collateral while such Collateral is in
the possession of Lender. Lender may, if it so elects, seek the appointment of a
receiver or keeper to take possession of any Collateral and to enforce any of
Lender's remedies with respect to such appointment without prior notice or
hearing. To the maximum extent permitted by applicable law, Borrower and each
other Credit Party executing this Agreement waive all claims, damages, and
demands against Lender, its Affiliates, agents, and the officers and employees
of any of them arising out of the repossession, retention or sale of any
Collateral except such as are determined in a final judgment by a court of
competent jurisdiction to have arisen solely out of the gross negligence or
willful misconduct of such Person. Borrower and each other Credit Party
executing this Agreement agree that ten (10) days prior notice by Lender to
Borrower and such Credit Party of the time and place of any public sale or of
the time after which a private sale may take place is reasonable notification of
such matters. Borrower and such Credit Party shall remain liable for any
deficiency if the proceeds of any sale or disposition of the Collateral are
insufficient to pay all amounts to which Lender is entitled.
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(d) Under no circumstances shall Lender be deemed to have elected to retain
possession of all or any part of the Collateral in satisfaction of the
Obligations unless Lender has given Borrower written notice of a proposal to do
so in accordance with Section 505(2) of the Code, regardless of the length of
time the Collateral remains in Lender's possession after a Default or an Event
of Default. Under no circumstances shall Lender have any liability as a result
of a decline in the market value of the Collateral while Lender holds it.
(e) Lender's rights and remedies under this Agreement shall be cumulative and
nonexclusive of any other rights and remedies which Lender may have under any
Loan Document or at law or in equity. Recourse to the Collateral shall not be
required. All rights, remedies and powers provided in this Agreement may be
exercised only to the extent that the exercise thereof does not violate any
applicable provision of law, and all provisions of this Agreement are intended
to be subject to all applicable mandatory provisions of law that may be
controlling and to be limited, to the extent necessary, so that they do not
render this Agreement invalid, unenforceable, in whole or in part.
7.3 Waivers. Except as otherwise provided for in this Agreement and to the
fullest extent permitted by applicable law, Borrower and each other Credit Party
executing this Agreement waive: (a) presentment, demand and protest, and notice
of presentment, dishonor, intent to accelerate, acceleration, protest, default,
nonpayment, maturity, release, compromise, settlement, extension or renewal of
any or all Loan Documents, the Revolving Credit Note or any other notes,
commercial paper, Accounts, Contracts, Documents, Instruments, Chattel Paper and
guaranties at any time held by Lender on which Borrower or such Credit Party may
in any way be liable, and hereby ratifies and confirms whatever Lender may do in
this regard; (b) all rights to notice and a hearing prior to Lender's taking
possession or control of, or to Lender's replevy, attachment or levy upon, any
Collateral or any bond or security which might be required by any court prior to
allowing Lender to exercise any of its remedies; and (c) the benefit of all
valuation, appraisal and exemption laws. Borrower and each other Credit Party
executing this Agreement acknowledge that it has been advised by counsel of its
choices and decisions with respect to this Agreement, the other Loan Documents
and the transactions evidenced hereby and thereby.
7.4 Proceeds. The Proceeds of any sale, disposition or other realization upon
any Collateral shall be applied by Lender upon receipt, in the following order
of priorities: first, to reimburse or pay in full the actual and reasonable
expenses of Lender incurred in connection with such sale, disposition or other
realization, including all other expenses, liabilities and advances incurred or
made by Lender in connection therewith; second, to Lender as specified in
Section 1.10; third, to cash collateralize any outstanding Letter of Credit
Obligations pursuant to Schedule C; and finally, after payment and satisfaction
in full in cash of all of the Obligations, and after the payment by Lender of
any other amount required by any provision of law, including Section 9-504(1)(c)
of the Code (but only after Lender has received what Lender considers reasonable
proof of a subordinate party's security interest), the surplus, if any, to
Borrower or its representatives or to whomsoever may be lawfully entitled to
receive the same, or as a court of competent jurisdiction may direct.
8. SUCCESSORS AND ASSIGNS
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Each Loan Document shall be binding on and shall inure to the benefit of
Borrower and each other Credit Party executing such Loan Document, Lender, and
their respective successors and assigns, except as otherwise provided herein or
therein. Neither Borrower nor any other Credit Party may assign, transfer,
hypothecate or otherwise convey its rights, benefits, obligations or duties
under any Loan Document without the prior express written consent of Lender. Any
such purported assignment, transfer, hypothecation or other conveyance by
Borrower or such Credit Party without the prior express written consent of
Lender shall be void. The terms and provisions of this Agreement and the other
Loan Documents are for the purpose of defining the relative rights and
obligations of Borrower the other Credit Parties and Lender with respect to the
transactions contemplated hereby and thereby, and there shall be no third party
beneficiaries of any of the terms and provisions of any of the Loan Documents.
Lender reserves the right at any time to create and sell a participation in the
Revolving Credit Loan and the Loan Documents and to sell, transfer or assign any
or all of its rights in the Revolving Credit Loan and under the Loan Documents.
9. MISCELLANEOUS
9.1 Complete Agreement; Modification of Agreement. The Loan Documents constitute
the complete agreement between the parties with respect to the subject matter
hereof and thereof, represent the final expression of the agreement of the
parties and supersede all prior agreements, commitments, understandings or
inducements (oral or written, expressed or implied), and may not be modified,
altered or amended except by a written agreement signed by Lender, Borrower and
any other Credit Party executing this Agreement or any other Loan Document.
Borrower and each other Credit Party executing this Agreement or any other Loan
Document shall have all duties and obligations under this Agreement and such
other Loan Document from the date of its execution and delivery, regardless of
whether the initial Loan has been funded at that time.
ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO FORBEAR
FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW.
9.2 Expenses. Borrower shall reimburse Lender for all reasonable out-of-pocket
expenses as set forth in Schedule E.
9.3 No Waiver. Neither Lender's failure, at any time or times, to require strict
performance by Borrower or any other Credit Party of any provision of any Loan
Document, nor Lender's failure to exercise, nor any delay in exercising, any
right, power or privilege hereunder, (a) shall waive, affect or diminish any
right of Lender thereafter to demand strict compliance and performance
therewith, or (b) shall operate as a waiver thereof. No single or partial
exercise of any right, power or privilege hereunder shall preclude any other or
future exercise thereof or the exercise of any other right, power or privilege.
Any suspension or waiver of a Default, Event of Default, or other provision
under the Loan Documents shall not suspend, waive or affect any other Default or
Event of Default under any Loan Document, whether the same is prior or
subsequent thereto and whether of the same or of a different type, and shall not
be construed as a bar to any right or remedy which Lender would otherwise have
had on any future occasion. None of the undertakings, indemnities, agreements,
warranties, covenants and representations of Borrower or any other Credit Party
to
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Lender contained in any Loan Document and no Default or Event of Default by
Borrower or any other Credit Party under any Loan Document shall be deemed to
have been suspended or waived by Lender, unless such waiver or suspension is by
an instrument in writing signed by an officer or other authorized employee of
Lender and directed to Borrower specifying such suspension or waiver (and then
such waiver shall be effective only to the extent therein set forth), and Lender
shall not, by any act (other than execution of a formal written waiver), delay,
omission or otherwise, be deemed to have waived any of its rights or remedies
hereunder.
9.4 Severability. Wherever possible, each provision of the Loan Documents shall
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of any Loan Document shall be prohibited by or invalid
under applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Agreement. Except as otherwise expressly
provided for in the Loan Documents, no termination or cancellation (regardless
of cause or procedure) of any financing arrangement under the Loan Documents
shall in any way affect or impair the Obligations, duties, indemnities, and
liabilities of Borrower or any other Credit Party or the rights of Lender
relating to any unpaid Obligation, due or not due, liquidated, contingent or
unliquidated, or any transaction or event occurring prior to such termination,
or any transaction or event, the performance of which is not required until
after the Commitment Maturity Date. Except as otherwise expressly provided
herein or in any other Loan Document, all undertakings, agreements, covenants,
warranties and representations of or binding upon Borrower or any other Credit
Party and all rights of Lender, all as contained in the Loan Documents, shall
not terminate or expire, but rather shall survive such termination or
cancellation and shall continue in full force and effect until the Termination
Date; provided, that the indemnity obligations of the Credit Parties under the
Loan Documents shall survive the Termination Date.
9.5 Conflict of Terms. Except as otherwise provided in any Loan Document by
specific reference to the applicable provisions of this Agreement, if any
provision contained in this Agreement is in conflict with, or inconsistent with,
any provision in any other Loan Document, the provision contained in this
Agreement shall govern and control.
9.6 Authorized Signature. Until Lender shall be notified by Borrower or any
other Credit Party to the contrary, the signature upon any document or
instrument delivered pursuant hereto and believed by Lender or any of Lender's
officers, agents, or employees to be that of an officer of Borrower or such
other Credit Party listed in the Secretarial Certificate in the form of Exhibit
E shall bind Borrower and such other Credit Party and be deemed to be the act of
Borrower or such other Credit Party affixed pursuant to and in accordance with
resolutions duly adopted by Borrower's or such other Credit Party's Board of
Directors, and Lender shall be entitled to assume the authority of each
signature and authority of the person whose signature it is or appears to be
unless the person acting in reliance of such signature shall have actual
knowledge of the fact that such signature is false or the person whose signature
or purported signature is presented is without authority.
9.7 Notices. Except as otherwise provided herein, whenever any notice, demand,
request, consent, approval, declaration or other communication shall or may be
given to or served upon any
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party by any other party, or whenever any party desires to give or serve upon
any other party any communication with respect to this Agreement, each such
notice, demand, request, consent, approval, declaration or other communication
shall be in writing and shall be deemed to have been validly served, given or
delivered (a) upon the earlier of actual receipt and three (3) days after
deposit in the United States Mail, registered or certified mail, return receipt
requested, with proper postage prepaid, (b) upon transmission, when sent by
telecopy or other similar facsimile transmission (with such telecopy or
facsimile promptly confirmed by delivery of a copy by personal delivery or
United States Mail as otherwise provided in this Section 9.7), (c) one (1)
Business Day after deposit with a reputable overnight courier with all charges
prepaid or (d) when hand-delivered, all of which shall be addressed to the party
to be notified and sent to the address or facsimile number indicated in Schedule
1.1 or to such other address (or facsimile number) as may be substituted by
notice given as herein provided. The giving of any notice required hereunder may
be waived in writing by the party entitled to receive such notice. Failure or
delay in delivering copies of any notice, demand, request, consent, approval,
declaration or other communication to any Person (other than Borrower or Lender)
designated in Schedule 1.1 to receive copies shall in no way adversely affect
the effectiveness of such notice, demand, request, consent, approval,
declaration or other communication.
9.8 Section Titles. The Section titles contained in any Loan Document are and
shall be without substantive meaning or content of any kind whatsoever and are
not a part of the agreement between the parties hereto.
9.9 Counterparts. Any Loan Document may be executed in any number of identical
counterparts, which shall constitute an original and collectively and separately
constitute a single instrument or agreement.
9.10 Time of the Essence. Time is of the essence for performance of the
Obligations under the Loan Documents.
9.11 GOVERNING LAW. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN ANY OF THE LOAN
DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND
PERFORMANCE, THE LOAN DOCUMENTS AND THE OBLIGATIONS ARISING UNDER THE LOAN
DOCUMENTS SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF WASHINGTON APPLICABLE TO CONTRACTS MADE AND PERFORMED
IN SUCH STATE, WITHOUT REGARD TO THE PRINCIPLES THEREOF REGARDING CONFLICTS OF
LAWS, AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. BORROWER AND EACH
OTHER CREDIT PARTY EXECUTING THIS AGREEMENT HEREBY CONSENT AND AGREE THAT THE
STATE OR FEDERAL COURTS LOCATED IN WASHINGTON, KING COUNTY, SHALL HAVE EXCLUSIVE
JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN BORROWER AND
SUCH CREDIT PARTY AND LENDER PERTAINING TO THIS AGREEMENT OR ANY OF THE OTHER
LOAN DOCUMENTS OR TO ANY MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT OR
ANY OF THE OTHER LOAN DOCUMENTS; PROVIDED, THAT LENDER, BORROWER AND SUCH CREDIT
PARTY
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ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT
LOCATED OUTSIDE OF WASHINGTON; AND FURTHER PROVIDED, THAT NOTHING IN THIS
AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE LENDER FROM BRINGING SUIT OR
TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO COLLECT THE OBLIGATIONS,
TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO
ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF LENDER. BORROWER AND EACH
OTHER CREDIT PARTY EXECUTING THIS AGREEMENT EXPRESSLY SUBMIT AND CONSENT IN
ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT,
AND BORROWER AND SUCH CREDIT PARTY HEREBY WAIVE ANY OBJECTION WHICH IT MAY HAVE
BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS
AND HEREBY CONSENT TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS
DEEMED APPROPRIATE BY SUCH COURT. BORROWER AND EACH OTHER CREDIT PARTY EXECUTING
THIS AGREEMENT HEREBY WAIVE PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER
PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREE THAT SERVICE OF SUCH
SUMMONS, COMPLAINTS AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED
MAIL ADDRESSED TO BORROWER OR SUCH CREDIT PARTY AT THE ADDRESS SET FORTH IN
SCHEDULE 1.1 OF THIS AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED
COMPLETED UPON THE EARLIER OF BORROWER'S OR SUCH CREDIT PARTY'S ACTUAL RECEIPT
THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE
PREPAID.
9.12 WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX
FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN
EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL
LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR
DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO
ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF
ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION,
SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER ARISING IN CONTRACT,
TORT, OR OTHERWISE BETWEEN LENDER, BORROWER AND ANY CREDIT PARTY ARISING OUT OF,
CONNECTED WITH, RELATED OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN
THEM IN CONNECTION WITH THE LOAN DOCUMENTS OR THE TRANSACTIONS RELATED THERETO.
IN WITNESS WHEREOF, this Loan and Security Agreement has been duly executed as
of the date first written above.
"Credit Parties"
JAY JACOBS, INC.
31
<PAGE>
By:
-----------------------------------------
William L. Lawrence, Jr.
Chief Financial Officer
J.J. DISTRIBUTION COMPANY
By:
-----------------------------------------
William L. Lawrence, Jr.
Chief Financial Officer
"Lender"
GENERAL ELECTRIC CAPITAL CORPORATION
By:
-----------------------------------------
Bruce Brown
Duly Authorized Signatory
32
<PAGE>
INDEX OF EXHIBITS AND SCHEDULES
-------------------------------
Schedule A - Definitions
Schedule B - Disclosure Schedules
Schedule C - Letters of Credit
Schedule D - Cash Management System
Schedule E - Fees and Expenses
Schedule F - Schedule of Documents
Schedule G - Financial Covenants
Schedule 1.1 - Lender's and Borrower's Representatives for Notices;
Addresses
Schedule 1.6 - Eligible Inventory
Exhibit A - Form of Notice of Revolving Credit Advance
Exhibit B - Form of Borrowing Base Certificate
Exhibit C - Form of Accounts Payable Analysis
Exhibit D - Form of Revolving Credit Note
Exhibit E - Form of Secretarial Certificate
Exhibit F - Form of Power of Attorney
Exhibit G - Form of Certificate of Compliance
i
<PAGE>
SCHEDULE A
(Definitions)
In addition to the defined terms appearing below, capitalized terms used in the
Agreement and the other Loan Documents shall have (unless otherwise provided
elsewhere in the Agreement or in the other Loan Documents) the following
respective meanings:
"Account Debtor" shall mean any Person who may become obligated with respect to,
or on account of, an Account.
"Accounts" shall mean all "accounts," as such term is defined in the Code, now
owned or hereafter acquired by any Person, including: (i) all accounts
receivable, other receivables, book debts and other forms of obligations (other
than forms of obligations evidenced by Chattel Paper, Documents or Instruments),
whether arising out of goods sold or services rendered or from any other
transaction (including any such obligations which may be characterized as an
account or contract right under the Code); (ii) all of such Person's rights in,
to and under all purchase orders or receipts for goods or services; (iii) all of
such Person's rights to any goods represented by any of the foregoing (including
unpaid sellers' rights of rescission, replevin, reclamation and stoppage in
transit and rights to returned, reclaimed or repossessed goods); (iv) all moneys
due or to become due to such Person under all purchase orders and contracts for
the sale of goods or the performance of services or both by such Person or in
connection with any other transaction (whether or not yet earned by performance
on the part of such Person), including the right to receive the proceeds of said
purchase orders and contracts; and (v) all collateral security and guarantees of
any kind given by any other Person with respect to any of the foregoing.
"Accounts Payable Analysis" shall mean a certificate in the form of Exhibit C.
"Additional Equity" shall mean an aggregate cash equity contribution (net of any
customary fees or expenses, including fees to investment bankers) received by
Borrower on or after the Closing Date of not less than $6,000,000.
"Affiliate" shall mean, with respect to any Person: (i) each Person that,
directly or indirectly, owns or controls, whether beneficially, or as a trustee,
guardian or other fiduciary, five percent (5%) or more of the Stock having
ordinary voting power in the election of directors of such Person; (ii) each
Person that controls, is controlled by or is under common control with such
Person or any Affiliate of such Person; or (iii) each of such Person's officers,
directors, joint venturers and partners. For the purpose of this definition,
"control" of a Person shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of its management or policies, whether
through the ownership of voting securities, by contract or otherwise.
"Agreement" shall mean the Loan and Security Agreement to which this Schedule A
is attached or otherwise identified, including all Appendices attached or
otherwise identified thereto, restatements and modifications and supplements
thereto, and any appendices, exhibits or schedules to any of the foregoing, and
shall refer to the Agreement as the same may be in effect at the time such
reference becomes operative; provided, that except as specifically set forth in
the Agreement, any reference to the Disclosure Schedules to the Agreement shall
be deemed a reference to the Disclosure Schedules as in effect on the Closing
Date or in a written amendment thereto executed by Borrower and Lender in
accordance with Section 3.25.
A-1
<PAGE>
"Allowed Tax Claim" shall mean the unclassified "Allowed Priority Tax Claims"
and the "Allowed Class 2 Claims" under and as defined in the Plan of
Reorganization.
"Appendices" shall have the meaning assigned to it in the Recitals of the
Agreement.
"Appraised Value" shall mean, at any time, the most recent "projected net
liquidation value" assigned to Borrower's Inventory by Hilco/Great American
Group, L.L.C. or such other appraiser satisfactory to Lender, and pursuant to a
written appraisal in form and substance satisfactory to Lender.
"Blocked Account" shall have the meaning assigned to it in Schedule D.
"Books and Records" shall mean all books, records, board minutes, contracts,
licenses, insurance policies, environmental audits, business plans, files,
accounting books and records, financial statements (actual and pro forma), and
filings with Governmental Authorities.
"Borrower" shall mean the Person identified in the Recitals of the Agreement.
"Borrowing Availability" shall mean, at any time, the lesser of (i) the Maximum
Amount or (ii) the Borrowing Base, in each case less reserves established by
Lender from time to time.
"Borrowing Base" shall mean at any time an amount equal to the sum of: (a)
lesser of (i) 60% (or such lesser percentage as may be specified by Lender from
time to time by written notice to Borrower) of the value of Borrower's Eligible
Inventory, valued on a first in, first out basis (at the lower of cost or
market), or (ii) (A) during the period from the Closing Date through and
including December 14, 1997, 90% of the Appraised Value of Borrower's Eligible
Inventory, (B) during the period from December 15 of each calendar year through
and including February 15 of the immediately following calendar year, 80% of the
Appraised Value of Borrower's Eligible Inventory, and (C) during the period from
February 15 of each calendar year through and including December 14 of such
calendar year, 85% of the Appraised Value of Borrower's Eligible Inventory; plus
(b) 60% (or such lesser percentage as may be specified by Lender from time to
time by written notice to Borrower) of the value of Borrower's Eligible Purchase
Order Goods, valued on a first in, first out basis (at the lower of cost or
market).
"Borrowing Base Certificate" shall mean a certificate in the form of Exhibit B
and shall include the Schedule of Inventory.
"Business Day" shall mean any day that is not a Saturday, a Sunday or a day on
which banks are required or permitted to be closed in the State of New York or
in the State of Washington.
"Capital Expenditures" shall mean all payments or accruals (including Capital
Lease Obligations) for any fixed assets or improvements or for replacements,
substitutions or additions thereto, that have a useful life of more than one
year and that are required to be capitalized under GAAP.
"Capital Lease" shall mean, with respect to any Person, any lease of any
property (whether real, personal or mixed) by such Person as lessee that, in
accordance with GAAP, either would be required to be classified and accounted
for as a capital lease on a balance sheet of such Person or otherwise would be
disclosed as such in a note to such balance sheet, other than, in the case of
Borrower, any such lease under which Borrower is the lessor.
A-2
<PAGE>
"Capital Lease Obligation" shall mean, with respect to any Capital Lease, the
amount of the obligation of the lessee thereunder that, in accordance with GAAP,
would appear on a balance sheet of such lessee in respect of such Capital Lease
or otherwise be disclosed in a note to such balance sheet.
"Cash Collateral Account" shall have the meaning assigned to it in Schedule C.
"Change of Control" shall mean, with respect to any Person on or after the
Closing Date (i) that any Person or "group" shall increase its "beneficial
ownership" (as such terms are defined under Section 13d-3 of and Regulation 13D
under the Securities Exchange Act of 1934) either directly or indirectly, by
more than ten percent (10%) of the outstanding shares of Stock of such Person
having the right to vote for the election of directors of such Person under
ordinary circumstances, (ii) that any change in the composition of its
stockholders as of the Closing Date shall occur which would result in any
stockholder or group acquiring 49.9% or more of any class of Stock of such
Person, or (iii) that any Person (or group of Persons acting in concert) shall
otherwise acquire the power to direct the management or affairs of such Person
by obtaining proxies, entering into voting agreements or trusts, acquiring
securities or otherwise.
"Charges" shall mean all Federal, state, county, city, municipal, local, foreign
or other governmental taxes (including premiums owed to PBGC at the time due and
payable), levies, assessments, charges, liens, and all additional charges,
interest, penalties, expenses, claims or encumbrances upon or relating to (i)
the Collateral, (ii) the Obligations, (iii) the employees, payroll, income or
gross receipts of any Credit Party, (iv) the ownership or use of any assets by
any Credit Party, or (v) any other aspect of any Credit Party's business.
"Chattel Paper" shall mean all "chattel paper," as such term is defined in the
Code, now owned or hereafter acquired by any Person, wherever located.
"Claim" shall mean any and all: suits, actions, or proceedings in any court or
forum, at law, in equity or otherwise; any costs, fines, deficiencies, or
penalties; any asserted claims or demands by any Person; any arbitration
demands, proceedings or awards; any damages, losses, liabilities and expenses
(including reasonable attorneys' fees and disbursements and other costs of
collection, defense or appeal); any enforcement of rights and remedies; or any
criminal, civil or regulatory investigations.
"Closing Date" shall mean the Business Day on which the conditions precedent set
forth in Section 2 have been satisfied or specifically waived in writing by
Lender, and the initial Loan has been made.
"Closing Fee" shall have the meaning assigned to it in Schedule E.
"Code" shall mean the Uniform Commercial Code as the same may, from time to
time, be in effect in the State of Washington; provided, that in the event that,
by reason of mandatory provisions of law, any or all of the attachment,
perfection or priority of Lender's security interest in any Collateral is
governed by the Uniform Commercial Code as in effect in a jurisdiction other
than the State of Washington, the term "Code" shall mean the Uniform Commercial
Code as in effect in such other jurisdiction for purposes of the provisions of
the Agreement relating to such attachment, perfection or priority and for
purposes of definitions related to such provisions.
"Collateral" shall mean all property, now existing or hereafter acquired, real
or personal, tangible or intangible, and whether owned by, consigned to, or held
by, or under the care, custody or control of Borrower or any other Credit Party,
including all cash, cash equivalents, Accounts, bank and deposit accounts and
deposits, investment property, commodity contracts, commodity accounts,
securities accounts,
A-3
<PAGE>
Inventory, Equipment, Goods, Chattel Paper, Documents, Instruments, Books and
Records, real property interests, General Intangibles (including all
Intellectual Property, Stock, Claims, contract rights, and choses in action),
and all of Borrower's or such Credit Party's other interests in property of
every kind and description, and the products, profits, rents of, dividends or
distributions on, accessions to, and all Proceeds (including insurance proceeds)
of any of the foregoing, regardless of whether the Collateral, or any of it, is
property as to which the Code provides for the perfection of a security
interest, and all rights and remedies applicable to such property, but excluding
in all events Hazardous Materials.
"Collection Account" shall mean that certain account of Lender, account number
50-232-854 in the name of GECC-CAF Depository at Bankers Trust Company, 1
Bankers Trust Plaza, New York, New York, ABA number 021-001-033.
"Commitment Maturity Date" shall mean the earliest of (i) August 29, 2000, (ii)
the date Lender's obligation to advance funds is terminated and the Obligations
are declared to be due and payable pursuant to Section 7.2, and (iii) the date
of prepayment in full by Borrower of the Obligations in accordance with the
provisions of Section 1.2(b).
"Commitment Termination Date" shall mean the earliest of (i) August 29, 2000,
(ii) the date of termination of Lender's obligation to advance funds pursuant to
Section 7.2, and (iii) the date of prepayment in full by Borrower of the
Obligations in accordance with the provisions of Section 1.2(b).
"Concentration Account" shall have the meaning assigned to it in Schedule D.
"Contracts" shall mean all the contracts, undertakings, or agreements (other
than rights evidenced by Chattel Paper, Documents or Instruments) in or under
which any Person may now or hereafter have any right, title or interest,
including any agreement relating to the terms of payment or the terms of
performance of any Account.
"Copyright License" shall mean rights under any written agreement now owned or
hereafter acquired by any Person granting the right to use any Copyright or
Copyright registration.
"Copyrights" shall mean all of the following now owned or hereafter acquired by
any Person: (i) all copyrights in any original work of authorship fixed in any
tangible medium of expression, now known or later developed, all registrations
and applications for registration of any such copyrights in the United States or
any other country, including registrations, recordings and applications, and
supplemental registrations, recordings, and applications in the United States
Copyright Office; and (ii) all Proceeds of the foregoing, including license
royalties and proceeds of infringement suits, the right to sue for past, present
and future infringements, all rights corresponding thereto throughout the world
and all renewals and extensions thereof.
"Credit Party" shall mean Borrower, its parent and each of its Subsidiaries, and
each Guarantor who has incurred obligations under or in respect of the Agreement
or granted Lender a Lien on Collateral in support of the Obligations with or
without direct liability, including J.J. Distribution Company, and each
co-Borrower or other Person, other than Lender and Borrower, who has executed
the Agreement or any other Loan Document.
"Default" shall mean any event which, with the passage of time or notice or
both, would, unless cured or waived, become an Event of Default.
A-4
<PAGE>
"Default Rate" shall have the meaning assigned to it in Section 1.5(d).
"Disbursement Account" shall have the meaning assigned to it in Schedule D.
"DOL" shall mean the United States Department of Labor or any successor thereto.
"Documents" shall mean all "documents," as such term is defined in the Code, now
owned or hereafter acquired by any Person, wherever located, including all bills
of lading, dock warrants, dock receipts, warehouse receipts, and other documents
of title, whether negotiable or non-negotiable.
"EBITDA" shall mean, for any period, the Net Income (Loss) of Borrower and its
Subsidiaries on a consolidated basis for such period, plus interest expense, tax
expense, amortization expense, depreciation expense and extraordinary losses and
minus extraordinary gains, in each case, of Borrower and its Subsidiaries on a
consolidated basis for such period determined in accordance with GAAP to the
extent included in the determination of such Net Income (Loss).
"Eligible Inventory" shall have the meaning assigned to it in Schedule 1.6.
"Eligible Purchase Order Goods" shall mean Goods for which Borrower has issued a
purchase order supported by a Letter of Credit and which do not constitute
Inventory, in each case as determined by Lender in its sole discretion, provided
that Lender shall have the right to create and adjust eligibility standards from
time to time in its sole judgment, and Lender agrees to give notice to Borrower
of each such change within 10 days thereof.
"Environmental Laws" shall mean all Federal, state and local laws, statutes,
ordinances and regulations, now or hereafter in effect, and any applicable
judicial or administrative interpretation thereof relating to the regulation and
protection of human health, safety, the environment and natural resources
(including ambient air, surface water, groundwater, wetlands, land surface or
subsurface strata, wildlife, aquatic species and vegetation). Environmental Laws
include the Comprehensive Environmental Response, Compensation, and Liability
Act of 1980 (42 U.S.C. ss.ss. 9601 et seq.) ("CERCLA"); the Hazardous Material
Transportation Act (49 U.S.C. ss.ss. 1801 et seq.); the Federal Insecticide,
Fungicide, and Rodenticide Act (7 U.S.C. ss.ss. 136 et seq.); the Resource
Conservation and Recovery Act (42 U.S.C. ss.ss. 6901 et seq.) ("RCRA"); the
Toxic Substance Control Act (15 U.S.C. ss.ss. 2601 et seq.); the Clean Air Act
(42 U.S.C. ss.ss. 740 et seq.); the Federal Water Pollution Control Act (33
U.S.C. ss.ss. 1251 et seq.); the Occupational Safety and Health Act (29 U.S.C.
ss.ss. 651 et seq.) ("OSHA"); and the Safe Drinking Water Act (42 U.S.C. ss.ss.
300(f) et seq.), and any and all regulations promulgated thereunder, and all
analogous state and local counterparts or equivalents and any transfer of
ownership notification or approval statutes.
"Environmental Liabilities and Costs" shall mean all liabilities, obligations,
responsibilities, remedial actions, removal costs, losses, damages, punitive
damages, consequential damages, treble damages, costs and expenses (including
all reasonable fees, disbursements and expenses of counsel, experts and
consultants and costs of investigation and feasibility studies), fines,
penalties, sanctions and interest incurred as a result of any claim, suit,
action or demand by any Person, whether based in contract, tort, implied or
express warranty, strict liability, criminal or civil statute or common law
(including any thereof arising under any Environmental Law, permit, order or
agreement with any Governmental Authority) and which relate to any health or
safety condition regulated under any Environmental Law or in connection with any
other environmental matter or Release, threatened Release, or the presence of a
Hazardous Material.
A-5
<PAGE>
"Environmental Permits" shall mean all permits, licenses, administrative orders,
consent orders, consent decrees, governmental agency agreements or other written
documents detailing required environmental performance expected of Borrower or
any other Credit Party by any Governmental Authority.
"Equipment" shall mean all "equipment" as such term is defined in the Code, now
owned or hereafter acquired by any Person, wherever located, including any and
all machinery, apparatus, equipment, fittings, furniture, fixtures, motor
vehicles and other tangible personal property (other than Inventory) of every
kind and description which may be now or hereafter used in such Person's
operations or which are owned by such Person or in which such Person may have an
interest, and all parts, accessories and accessions thereto and substitutions
and replacements therefor.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, and any
regulations promulgated thereunder.
"ERISA Affiliate" shall mean any trade or business (whether or not incorporated)
which is a member of a "controlled group of corporations," a group of trades or
businesses under "common control," or an "affiliated service group," which
includes Borrower or any Credit Party, within the meaning of Sections 414(b),
(c), (m) or (o) of the IRC.
"ERISA Event" shall mean: (i) any of the events described in Section 4043(c) or
Section 4062(e) of ERISA with respect to a Title IV Plan or a Multiemployer
Plan; (ii) the withdrawal of Borrower, any other Credit Party or any ERISA
Affiliate from a Title IV Plan subject to Section 4063 of ERISA during a plan
year in which it was a "substantial employer," as defined in Section 4001(a)(2)
of ERISA; (iii) the complete or partial withdrawal of Borrower, any other Credit
Party or any ERISA Affiliate from any Multiemployer Plan; (iv) the filing of a
notice of intent to terminate a Title IV Plan or the treatment of a plan
amendment as a termination under Section 4041 of ERISA; (v) the institution of
proceedings to terminate a Title IV Plan or Multiemployer Plan by PBGC; (vi) a
transfer, within the preceding five complete fiscal years which resulted or will
result in a Title IV Plan with Unfunded Liabilities being transferred outside of
the "controlled group" (within the meaning of Section 4001(a)(14) of ERISA) of
Borrower or any other Credit Party; or (vii) any other event or condition which
might reasonably be expected to constitute grounds under Section 4042 of ERISA
for the termination of, or the appointment of a trustee to administer, any Title
IV Plan or Multiemployer Plan, or which results in the reorganization of or
insolvency of a Multiemployer Plan under Section 4241 or 4245 of ERISA, or the
imposition of any liability under Title IV of ERISA, other than PBGC premiums
due but not delinquent under Section 4007 of ERISA.
"Event of Default" shall have the meaning assigned to it in Section 7.1.
"Federal Reserve Board" shall have the meaning assigned to it in Section 3.10.
"Fees" shall mean the fees due to Lender as set forth in Schedule E.
"Financial Statements" shall mean the consolidated income statement, balance
sheet and statement of cash flows of Borrower and its Subsidiaries, internally
prepared for each Fiscal Month, and audited for each Fiscal Year, prepared in
accordance with GAAP.
"Fiscal Month" shall mean each of the twelve (12) accounting periods comprising
a Fiscal Year, each of which shall be a four (4) or five (5) week period under
Borrower's "4-5-4" method of accounting.
A-6
<PAGE>
"Fiscal Quarter" shall mean each of the quarterly accounting periods comprising
a Fiscal Year, which shall be the periods consisting of the first three (3)
Fiscal Periods, the second three (3) Fiscal Periods, the third three (3) Fiscal
Periods and the last three (3) Fiscal Periods of each Fiscal Year.
"Fiscal Year" shall mean a fiscal year of Borrower, which is the fifty-two (52)
or fifty-three (53) week period ending on the Saturday nearest to the last day
of January of each calendar year. Subsequent changes of the fiscal year of
Borrower shall not change the term "Fiscal Year," unless Lender shall consent in
writing to each change.
"Fixed Charge Coverage Ratio" shall mean, for the last day of any Fiscal Month
for the twelve (12) Fiscal Month period ending on such day, the ratio of the
following for Borrower and its Subsidiaries on a consolidated basis determined
in accordance with GAAP: (a) EBITDA plus Lease Expenses less Capital
Expenditures which are not financed through the incurrence of any Indebtedness
(excluding the Revolving Credit Loan), in each case for such period; to (b) the
sum of (i) interest expense paid or deemed paid in respect of any indebtedness
during such period plus (ii) regularly scheduled payments of principal paid or
deemed paid on Funded Debt (excluding the Revolving Credit Loan) during such
period plus (iii) taxes to the extent accrued or otherwise payable with respect
to such period plus (iv) Lease Expenses during such period.
"Funded Debt" shall mean, with respect to Borrower, all of Borrower's
Indebtedness which by the terms of the agreement governing or instrument
evidencing such Indebtedness matures more than one year from, or is directly or
indirectly renewable or extendible at the option of Borrower under a revolving
credit or similar agreement obligating the lender or lenders to extend credit
over a period of more than one year from, the date of creation thereof,
including Capital Lease Obligations, current maturities of long-term debt,
revolving credit, and short-term debt extendible beyond one year at the option
of Borrower.
"GAAP" shall mean generally accepted accounting principles in the United States
of America as in effect from time to time, consistently applied.
"GE Capital" shall mean General Electric Capital Corporation, a New York
corporation, and its successors and assigns.
"General Intangibles" shall mean all "general intangibles," as such term is
defined in the Code, now owned or hereafter acquired by any Person, including
all right, title and interest which such Person may now or hereafter have in or
under any Contract, Intellectual Property, interests in partnerships, limited
liability companies, joint ventures and other business associations, permits,
proprietary or confidential information, inventions (whether or not patented or
patentable), technical information, procedures, designs, knowledge, know-how,
software, data bases, data, skill, expertise, experience, processes, models,
drawings, materials, Books and Records, Goodwill (including the Goodwill
associated with any Intellectual Property), all rights and claims in or under
insurance policies (including insurance for fire, damage, loss, and casualty,
whether covering personal property, real property, tangible rights or intangible
rights, all liability, life, key-person, and business interruption insurance,
and all unearned premiums), uncertificated securities, choses in action, deposit
accounts, rights to receive tax refunds and other payments, rights to receive
dividends, distributions, cash, instruments, and other property in respect of or
in exchange for pledged shares or other equity interests, and rights of
indemnification.
A-7
<PAGE>
"Goods" shall mean all "goods," as such term is defined in the Code, now owned
or hereafter acquired by any Person, wherever located, including movables,
fixtures, equipment, inventory, or other tangible personal property.
"Goodwill" shall mean all goodwill, trade secrets, proprietary or confidential
information, technical information, procedures, formulae, quality control
standards, designs, operating and training manuals, customer lists, and
distribution agreements now owned or hereafter acquired by any Person.
"Governmental Authority" shall mean any nation or government, any state or other
political subdivision thereof, and any agency, department or other entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
"Guaranteed Indebtedness" shall mean, as to any Person, any obligation of such
Person guaranteeing any indebtedness, lease, dividend, or other obligation
("primary obligations") of any other Person (the "primary obligor") in any
manner, including any obligation or arrangement of such Person: (i) to purchase
or repurchase any such primary obligation; (ii) to advance or supply funds (a)
for the purchase or payment of any such primary obligation or (b) to maintain
working capital or equity capital of the primary obligor or otherwise to
maintain the net worth or solvency or any balance sheet condition of the primary
obligor; (iii) to purchase property, securities or services primarily for the
purpose of assuring the owner of any such primary obligation of the ability of
the primary obligor to make payment of such primary obligation; or (iv) to
indemnify the owner of such primary obligation against loss in respect thereof.
"Guarantor" shall mean J.J. Distribution Company and each other Person that
executes a guaranty or a support, put or other similar agreement in favor of
Lender in connection with the transactions contemplated by the Agreement.
"Guaranty" shall mean any agreement to perform all or any portion of the
Obligations on behalf of Borrower or any other Credit Party, in favor of, and in
form and substance satisfactory to, Lender, together with all amendments,
modifications and supplements thereto, and shall refer to such Guaranty as the
same may be in effect at the time such reference becomes operative.
"Hazardous Material" shall mean any substance, material or waste, the
generation, handling, storage, treatment or disposal of which is regulated by
any Governmental Authority, or forms the bases of liability now or hereafter
under, any Environmental Law in any jurisdiction in which Borrower or any other
Credit Party has owned, leased, or operated real property or disposed of
hazardous materials, including any material or substance which (i) is defined as
a "solid waste," "hazardous waste," "hazardous material," "hazardous substance,"
"extremely hazardous waste" or "restricted hazardous waste" or other similar
term or phrase under any Environmental Laws, or (ii) constitutes petroleum or
any fraction or by-product thereof, asbestos, polychlorinated biphenyls,
radioactive substances, volatile hydrocarbons or industrial solvents.
"Indebtedness" of any Person shall mean: (i) all indebtedness of such Person for
borrowed money or for the deferred purchase price of property or services
(including reimbursement and all other obligations with respect to surety bonds,
letters of credit and bankers' acceptances, whether or not matured, but not
including obligations to trade creditors incurred in the ordinary course of
business); (ii) all obligations evidenced by notes, bonds, debentures or similar
instruments; (iii) all indebtedness created or arising under any conditional
sale or other title retention agreements with respect to property acquired by
such Person (even though the rights and remedies of the seller or lender under
such agreement in the event of default are limited to repossession or sale of
such property); (iv) all Capital Lease Obligations; (v) all Guaranteed
Indebtedness;
A-8
<PAGE>
(vi) all Indebtedness referred to in clauses (i), (ii), (iii), (iv) or (v) above
secured by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien upon or in property
(including accounts and contract rights) owned by such Person, even though such
Person has not assumed or become liable for the payment of such Indebtedness;
(vii) the Obligations; (viii) the PCC Debt; and (ix) all liabilities under Title
IV of ERISA.
"Indemnified Person" shall have the meaning assigned to it in Section 1.12(a).
"Index Rate" shall mean the latest rate for 30-day dealer placed commercial
paper which normally is published in the "Money Rates" section of The Wall
Street Journal (or if such rate ceases to be so published, as quoted from such
other generally available and recognizable source as Lender may select).
"Instruments" shall mean all "instruments," as such term is defined in the Code,
now owned or hereafter acquired by any Person, wherever located, including all
certificated securities and all notes and other evidences of indebtedness, other
than instruments that constitute, or are a part of a group of writings that
constitute, Chattel Paper.
"Intellectual Property" shall mean any and all Licenses, Patents, Copyrights and
Trademarks.
"Intellectual Property Security Agreement" shall mean the Patent, Trademark and
Copyright Security Agreement made in favor of Lender by each Credit Party.
"Inventory" shall mean all "inventory," as such term is defined in the Code, now
or hereafter owned or acquired by any Person, wherever located, including all
inventory, merchandise, goods and other personal property which are held by or
on behalf of such Person for sale or lease or are furnished or are to be
furnished under a contract of service or which constitute raw materials, work in
process or materials used or consumed or to be used or consumed in such Person's
business or in the processing, production, packaging, promotion, delivery or
shipping of the same, including other supplies.
"IRC" shall mean the Internal Revenue Code of 1986, and any successor thereto.
"IRS" shall mean the Internal Revenue Service.
"L/C Fee Margin" shall mean one and three-quarters of one percent (1.75%) per
annum; provided, that the "L/C Fee Margin" shall mean one percent (1%) per annum
at all times during a Step-Down Period.
"Lease Expenses" shall mean, with respect to Borrower for any period, the
aggregate rental obligations of Borrower determined in accordance with GAAP
which are payable in respect of such period under leases of real and/or personal
property (net of income from subleases thereof, but including taxes, insurance,
maintenance and similar expenses which the lessee is obligated to pay under the
terms of such leases), whether or not such obligations are reflected as
liabilities or commitments on a consolidated balance sheet of Borrower or in the
notes thereto, excluding, however, any such obligations under Capital Leases.
"Lender" shall mean GE Capital and, if at any time GE Capital shall decide to
assign or syndicate all or any of the Obligations, such term shall include such
assignee or such other members of the syndicate.
"Letters of Credit" shall mean standby, commercial or trade letters of credit
issued at the request and for the account of Borrower for which Lender has
incurred Letter of Credit Obligations.
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"Letter of Credit Fee" shall have the meaning assigned to it in Schedule E.
"Letter of Credit Obligations" shall mean all outstanding obligations incurred
by Lender at the request of Borrower, whether direct or indirect, contingent or
otherwise, due or not due, in connection with the issuance or guarantee, by
Lender or another, of Letters of Credit, all as further set forth in Schedule C.
"License" shall mean any Copyright License, Patent License, Trademark License or
other license of rights or interests now held or hereafter acquired by any
Person.
"Lien" shall mean any mortgage, security deed or deed of trust, pledge,
hypothecation, assignment, deposit arrangement, lien, charge, claim, security
interest, security title, easement or encumbrance, or preference, priority or
other security agreement or preferential arrangement of any kind or nature
whatsoever (including any lease or title retention agreement, any financing
lease having substantially the same economic effect as any of the foregoing, and
the filing of, or agreement to give, any financing statement perfecting a
security interest under the Code or comparable law of any jurisdiction).
"Loan Documents" shall mean the Agreement, the Revolving Credit Note, the Pledge
Agreement, the Intellectual Property Security Agreement, the Financial
Statements, each Guaranty, the Power of Attorney and the other documents and
instruments listed in Schedule F, and all documents, instruments, certificates,
and notices at any time delivered by and between Lender and any Credit Party in
connection with any of the foregoing.
"Material Adverse Effect" shall mean: (i) a material adverse effect on (a) the
business, assets, operations, prospects or financial or other condition of
Borrower or any other Credit Party or the industry within which Borrower or any
other Credit Party operates, (b) Borrower's or any other Credit Party's ability
to pay or perform the Obligations under the Loan Documents to which such Credit
Party is a party in accordance with the terms thereof, (c) the Collateral or
Lender's Liens on the Collateral or the priority of any such Lien, or (d)
Lender's rights and remedies under the Agreement and the other Loan Documents;
or (ii) the incurrence by Borrower of any liability (other than liabilities to
trade creditors incurred in the ordinary course of business), contingent or
liquidated, which has an actual or estimated incurrence of liability, or dollar
exposure or loss, greater than $50,000 to Borrower.
"Maximum Amount" shall mean the maximum amount of credit to be provided by
Lender to or for the benefit of Borrower for aggregate Revolving Credit Advances
and Letter of Credit Obligations outstanding at any time, without regard to the
Borrowing Base or reserves, which amount, for purposes of the Agreement, is
$10,000,000.00.
"Minimum Actionable Amount" shall mean $50,000.
"Multiemployer Plan" shall mean a "multiemployer plan," as defined in Section
4001(a) (3) of ERISA, to which Borrower, any other Credit Party or any ERISA
Affiliate is making, is obligated to make, has made or been obligated to make,
contributions on behalf of participants who are or were employed by any of them.
"Net Borrowing Availability" shall mean at any time the Borrowing Availability
less the Revolving Credit Loan.
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"Net Income (Loss)" shall mean with respect to Borrower for any period, the
aggregate net income (or loss) after taxes of Borrower for such period,
determined in accordance with GAAP.
"Notice of Revolving Credit Advance" shall have the meaning assigned to it in
Section 1.1(b).
"Obligations" shall mean all loans, advances, debts, expense reimbursement,
fees, liabilities, and obligations, for the performance of covenants, tasks or
duties or for payment of monetary amounts (whether or not such performance is
then required or contingent, or amounts are liquidated or determinable) owing by
Borrower or any other Credit Party to Lender, of any kind or nature, present or
future, whether or not evidenced by any note, agreement or other instrument,
whether arising under any of the Loan Documents or under any other agreement
between Borrower, such Credit Party and Lender, and all covenants and duties
regarding such amounts. This term includes all principal, interest (including
interest which accrues after the commencement of any case or proceeding in
bankruptcy, or for the reorganization of Borrower), Fees, Charges, expenses,
attorneys' fees and any other sum chargeable to Borrower under any of the Loan
Documents, and all principal and interest due in respect of the Revolving Credit
Loan.
"Patent License" shall mean rights under any written agreement now owned or
hereafter acquired by any Person granting any right with respect to any
invention on which a Patent is in existence.
"Patents" shall mean all of the following in which any Person now holds or
hereafter acquires any interest: (i) all letters patent of the United States or
any other country, all registrations and recordings thereof, and all
applications for letters patent of the United States or any other country,
including registrations, recordings and applications in the United States Patent
and Trademark Office or in any similar office or agency of the United States,
any State or Territory thereof, or any other country; and (ii) all reissues,
continuations, continuations-in-part or extensions thereof.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any successor
thereto.
"PCC Debt" shall mean all indebtedness of Borrower consisting of an "Allowed
Class 3 Claim" under and as defined in the Plan of Reorganization.
"Permitted Encumbrances" shall mean the following encumbrances: (i) Liens for
taxes or assessments or other governmental Charges or levies, either not yet due
and payable or to the extent that nonpayment thereof is permitted by the terms
of Section 3.11(b); (ii) pledges or deposits securing obligations under worker's
compensation, unemployment insurance, social security or public liability laws
or similar legislation; (iii) pledges or deposits securing bids, tenders,
contracts (other than contracts for the payment of money) or leases to which
Borrower is a party as lessee made in the ordinary course of business; (iv)
deposits securing public or statutory obligations of Borrower; (v) inchoate and
unperfected workers', mechanics', suppliers' or similar liens arising in the
ordinary course of business; (vi) carriers', warehousing or other similar
possessory liens arising in the ordinary course of business and securing
indebtedness not yet due and payable in an outstanding aggregate amount not in
excess of $5,000 at any time; (vii) deposits securing, or in lieu of, surety,
appeal or customs bonds in proceedings to which Borrower is a party; (viii) any
attachment or judgment lien, unless the judgment it secures shall not, within 30
days after the entry thereof, have been discharged or execution thereof stayed
pending appeal, or shall not have been discharged within 30 days after the
expiration of any such stay; (ix) zoning restrictions, easements, licenses, or
other restrictions on the use of real property or other minor irregularities in
title (including leasehold title) thereto, so long as the same do not materially
impair the use, value, or marketability of such real property, leases or
leasehold estates, (x) Purchase Money Liens securing Purchase Money Indebtedness
(or rent) to the extent
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permitted under Section 5(c)(ii) of the Agreement; (xi) Liens disclosed in the
Disclosure Schedules on the Closing Date and approved by Lender; and (xii) Liens
in favor of Lender securing the Obligations.
"Person" shall mean any individual, sole proprietorship, partnership, limited
liability partnership, joint venture, trust, unincorporated organization,
association, corporation, limited liability company, institution, public benefit
corporation, entity or government (whether Federal, state, county, city,
municipal or otherwise, including any instrumentality, division, agency, body or
department thereof), and shall include such Person's successors and assigns.
"Plan" shall mean, with respect to Borrower, any other Credit Party or any ERISA
Affiliate, an employee benefit plan, as defined in Section 3(3) of ERISA, which
Borrower or any other Credit Party or any ERISA Affiliate, at any time,
maintains, contributes to or has an obligation to contribute to, or has
maintained, contributed to or had an obligation to contribute to, on behalf of
participants who are or were employed by any of them.
"Plan of Reorganization" shall mean Debtor's Second Amended Chapter 11 Plan of
Reorganization dated November 16, 1995 and filed with the United States
Bankruptcy Court for the District of Washington in Chapter 11 Case No. 94-03993,
as in effect on the Closing Date.
"Pledge Agreement" shall mean the Pledge Agreement made by Borrower in favor of
Lender.
"Prepayment Fee" shall mean the fee payable for termination by Borrower pursuant
to Section 1.2(b) of Lender's obligation to make Revolving Credit Advances or to
incur Letter of Credit Obligations, all in the amount(s) specified in Schedule
E.
"Proceeds" shall mean "proceeds," as such term is defined in the Code and, in
any event, shall include: (i) any and all proceeds of any insurance, indemnity,
warranty or guaranty payable to Borrower or any other Credit Party from time to
time with respect to any Collateral; (ii) any and all payments (in any form
whatsoever) made or due and payable to Borrower or any other Credit Party from
time to time in connection with any requisition, confiscation, condemnation,
seizure or forfeiture of any Collateral by any governmental body, authority,
bureau or agency (or any person acting under color of governmental authority);
(iii) any claim of Borrower or any other Credit Party against third parties (a)
for past, present or future infringement of any Intellectual Property or (b) for
past, present or future infringement or dilution of any Trademark or Trademark
License or for injury to the goodwill associated with any Trademark, Trademark
registration or Trademark licensed under any Trademark License; (iv) any
recoveries by Borrower or any other Credit Party against third parties with
respect to any litigation or dispute concerning any Collateral; and (v) any and
all other amounts from time to time paid or payable under or in connection with
any Collateral, upon disposition or otherwise.
"Projections" shall mean as of any date the consolidated balance sheet,
statements of income and cash flow for Borrower and its Subsidiaries (including
forecasted Capital Expenditures and Net Borrowing Availability) (i) by month for
the next Fiscal Year, and (ii) by year for the following three Fiscal Years, in
each case prepared in a manner consistent with GAAP and accompanied by senior
management's discussion and analysis of such plan.
"Purchase Money Indebtedness" shall mean (i) any Indebtedness incurred for the
payment of all or any part of the purchase price of any fixed asset, (ii) any
Indebtedness incurred for the sole purpose of financing or
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refinancing all or any part of the purchase price of any fixed asset, and (iii)
any renewals, extensions or refinancings thereof (but not any increases in the
principal amounts thereof outstanding at that time).
"Purchase Money Lien" shall mean any Lien upon any fixed assets which secures
the Purchase Money Indebtedness related thereto but only if such Lien shall at
all times be confined solely to the asset the purchase price of which was
financed or refinanced through the incurrence of the Purchase Money Indebtedness
secured by such Lien and only if such Lien secures such Purchase Money
Indebtedness.
"Qualified Plan" shall mean a Plan which is intended to be tax-qualified under
Section 401(a) of the IRC.
"Release" shall mean, as to any Person, any release, spill, emission, leaking,
pumping, injection, deposit, disposal, discharge, dispersal, dumping, leaching
or migration of Hazardous Materials in the indoor or outdoor environment by such
Person, including the movement of Hazardous Materials through or in the air,
soil, surface water, ground water or property.
"Restricted Payment" shall mean: (i) the declaration or payment of any dividend
or the occurrence of any liability to make any other payment or distribution of
cash or other property or assets on or in respect of Borrower's or any other
Credit Party's Stock; (ii) any payment on account of the purchase, redemption,
defeasance or other retirement of Borrower's or any other Credit Party's Stock
or Indebtedness other than (a) that arising under the Agreement or (b) if no
Default shall have occurred and be continuing, or shall be caused thereby,
interest and principal, when due, under Indebtedness described in Disclosure
Schedule (3.8) or otherwise permitted under Section 5(c)(ii) of the Agreement,
without acceleration or modification of the amortization as in effect on the
Closing Date, or any other payment or distribution made in respect thereof,
either directly or indirectly; or (iii) any payment, loan, contribution, or
other transfer of funds or other property to any Stockholder of such Person
which is not expressly and specifically permitted in the Agreement; provided,
that no payment to Lender shall constitute a Restricted Payment.
"Retiree Welfare Plan" shall refer to any Plan which is a "welfare plan," as
defined in Section 3(1) of ERISA, providing for continuing coverage or benefits
for any participant or any beneficiary of a participant after such participant's
termination of employment, other than continuation coverage provided pursuant to
Section 4980B of the IRC and at the sole expense of the participant or the
beneficiary of the participant.
"Revolving Credit Advance" shall have the meaning assigned to it in Section
1.1(a).
"Revolving Credit Loan" shall mean at any time the sum of (i) the aggregate
amount of Revolving Credit Advances then outstanding, plus (ii) the total Letter
of Credit Obligations incurred by Lender and outstanding at such time, plus the
amount of earned and accrued, but unpaid, interest thereon and Letter of Credit
Fees with respect thereto.
"Revolving Credit Note" shall mean the promissory note of Borrower dated the
Closing Date, substantially in the form of Exhibit D.
"Revolving Credit Rate" shall have the meaning assigned to it in Section 1.5(a).
"Revolving Loan Margin" shall mean three and one-half percent (3.5%) per annum;
provided, that the "Revolving Loan Margin" shall mean three percent (3%) per
annum at all times during a Step-Down Period.
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"Schedule of Documents" shall mean the schedule, including all appendices,
exhibits or schedules thereto, listing certain documents and information to be
delivered in connection with the Loan Documents and the transactions
contemplated thereunder, substantially in the form of Schedule F.
"Schedule of Inventory" shall mean the schedules of inventory to be delivered by
Borrower to Lender pursuant to Section 1.6, including Borrower's internal
reports classifying and valuing Inventory, which schedules shall include the
scheduling of Borrower's Inventory by location.
"Step-Down Period" shall mean each period occurring after the Closing Date, if
any, during which time all of the following conditions are satisfied: (a) no
Default or Event or Default has occurred and is continuing, (b) Borrower has
received the Additional Equity, and (c) Borrower has maintained a Fixed Charge
Coverage Ratio of greater than 1:1, calculated from the Financial Statements
delivered to Lender in accordance with Section 4.1(c) or Section 4.1(d), as the
case may be, each which period (y) shall commence on (i) if the clause (b)
condition is the last condition to be satisfied, the first day of the calendar
month following receipt of the Additional Equity or (ii) if the clause (c)
condition if the last condition to be satisfied, the first day of the calendar
month following receipt of the required Financial Statements showing the
requisite Fixed Charge Coverage Ratio, and (z) shall end immediately upon the
date that either of the conditions set forth in clauses (a) or (c) above are no
longer satisfied.
"Stock" shall mean all certificated and uncertificated shares, options,
warrants, general or limited partnership interests, participation or other
equivalents (regardless of how designated) of or in a corporation, partnership,
limited liability company or equivalent entity whether voting or nonvoting,
including common stock, preferred stock, or any other "equity security" (as such
term is defined in Rule 3a11-1 of the General Rules and Regulations promulgated
by the Securities and Exchange Commission under the Securities Exchange Act of
1934).
"Stockholder" shall mean each holder of Stock of Borrower or any other Credit
Party.
"Subject Property" shall have the meaning assigned to it in Section 3.17(a).
"Subsidiary" shall mean, with respect to any Person, (i) any corporation of
which an aggregate of more than 50% of the outstanding Stock having ordinary
voting power to elect a majority of the board of directors of such corporation
(irrespective of whether, at the time, Stock of any other class or classes of
such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time, directly or indirectly, owned
legally or beneficially by such Person and/or one or more Subsidiaries of such
Person, or with respect to which any such Person has the right to vote or
designate the vote of 50% or more of such Stock whether by proxy, agreement,
operation of law or otherwise, and (ii) any partnership or limited liability
company in which such Person or one or more Subsidiaries of such Person has an
interest (whether in the form of voting or participation in profits or capital
contribution) of more than 50% or of which any such Person is a general partner
or may exercise the powers of a general partner.
"Taxes" shall mean taxes, levies, imposts, deductions, Charges or withholdings,
and all liabilities with respect thereto, excluding taxes imposed on or measured
by the net income of Lender.
"Termination Date" shall mean the date on which the Revolving Credit Loan and
any other Obligations under the Agreement are indefeasibly paid in full, in cash
(other than amounts in respect of Letter of Credit Obligations if any, then
outstanding, provided that Borrower shall have funded such amounts in cash in
full
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into the Cash Collateral Account), and Borrower shall have no further right to
borrow any moneys or obtain other credit extensions or financial accommodations
under the Agreement.
"Title IV Plan" shall mean an "employee pension benefit plan," as defined in
Section 3(2) of ERISA (other than a Multiemployer Plan), which is covered by
Title IV of ERISA, and which Borrower, any other Credit Party or any ERISA
Affiliate, at any time, maintains, contributes to or has an obligation to
contribute to, or has maintained, contributed to or had an obligation to
contribute to, on behalf of participants who are or were employed by any of
them.
"Trademark License" shall mean rights under any written agreement now owned or
hereafter acquired by any Person granting any right to use any Trademark or
Trademark registration.
"Trademarks" shall mean all of the following now owned or hereafter acquired by
any Person: (i) all trademarks, trade names, corporate names, business names,
trade styles, service marks, logos, other source or business identifiers, prints
and labels on which any of the foregoing have appeared or appear, designs and
general intangibles of like nature, now existing or hereafter adopted or
acquired, all registrations and recordings thereof, and all applications in
connection therewith, including all registrations, recordings and applications
in the United States Patent and Trademark Office or in any similar office or
agency of the United States, any State or Territory thereof, or any other
country or any political subdivision thereof, and (ii) all reissues, extensions
or renewals thereof.
"Transaction Summary" shall mean the Transaction Summary set forth in the
Recitals to the Agreement.
"Unfunded Pension Liability" shall mean, at any time, the aggregate amount, if
any, of the sum of (i) the amount by which the present value of all accrued
benefits under each Title IV Plan exceeds the fair market value of all assets of
such Title IV Plan allocable to such benefits in accordance with Title IV of
ERISA, all determined as of the most recent valuation date for such Title IV
Plan determined on the basis of an immediate termination of the Title IV Plan,
and assuming that all unpredictable contingent event benefits, as that term is
used in Section 412(1)(4)(B)(ii), accrued immediately prior to termination are
unpaid, and (ii) for a period of five (5) years following a transaction which
could be covered by Section 4069 of ERISA, the liabilities (whether or not
accrued) that could be avoided by Borrower, any other Credit Party or any ERISA
Affiliate as a result of such transaction.
"Unused Line Fee" shall have the meaning assigned to it in Schedule E.
"Unused Line Margin" shall mean one-half of one percent (.5%) per annum;
provided, that the "Unused Line Margin" shall mean three-eighths of one percent
(.375%) per annum at all times during a Step-Down Period.
"Withdrawal Liability" shall mean, at any time, the sum of the withdrawal
liabilities that would be incurred if a Person were to withdraw immediately from
all Multiemployer Plans to which that Person has a contribution obligation, plus
all unsatisfied withdrawal liabilities that have actually occurred with respect
to a Person's withdrawal from all Multiemployer Plans.
Any accounting term used in the Agreement or the other Loan Documents shall
have, unless otherwise specifically provided therein, the meaning customarily
given such term in accordance with GAAP, and all financial computations
thereunder shall be computed, unless otherwise specifically provided therein, in
accordance with GAAP consistently applied; provided, that all financial
covenants and calculations in the Loan Documents shall be made in accordance
with GAAP as in effect on the Closing Date unless Borrower
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and Lender shall otherwise specifically agree in writing. That certain items or
computations are explicitly modified by the phrase "in accordance with GAAP"
shall in no way be construed to limit the foregoing. All other undefined terms
contained in the Agreement or the other Loan Documents shall, unless the context
indicates otherwise, have the meanings provided for by the Code. The words
"herein," "hereof" and "hereunder" or other words of similar import refer to the
Agreement as a whole, including the exhibits and schedules thereto, as the same
may from time to time be amended, modified or supplemented, and not to any
particular section, subsection or clause contained in this Agreement.
For purposes of this Agreement and the other Loan Documents, the following
additional rules of construction shall apply, unless specifically indicated to
the contrary: (a) wherever from the context it appears appropriate, each term
stated in either the singular or plural shall include the singular and the
plural, and pronouns stated in the masculine, feminine or neuter gender shall
include the masculine, the feminine and the neuter; (b) the term "or" is not
exclusive; (c) the term "including" (or any form thereof) shall not be limiting
or exclusive; (d) all references to statutes and related regulations shall
include any amendments of same and any successor statutes and regulations; (e)
all references in the Agreement or in the Schedules to the Agreement to
sections, schedules, disclosure schedules, exhibits, and attachments shall refer
to the corresponding sections, schedules, disclosure schedules, exhibits, and
attachments of or to the Agreement; and (f) all references to any instruments or
agreements, including references to any of the Loan Documents, shall include any
and all modifications or amendments thereto and any and all extensions or
renewals thereof.
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SCHEDULE B
(Disclosure Schedules)
Disclosure Schedule (2.1(j)) - Unpaid Rent
Disclosure Schedule (3.2) - Locations of Collateral
Disclosure Schedule (3.6) - Real Property
Disclosure Schedule (3.7) - Labor Matters
Disclosure Schedule (3.8) - Ventures, Subsidiaries and Affiliates
Disclosure Schedule (3.11) - Taxes
Disclosure Schedule (3.12) - ERISA
Disclosure Schedule (3.13) - Litigation
Disclosure Schedule (3.15) - Intellectual Property
Disclosure Schedule (3.17) - Environmental
Disclosure Schedule (3.18) - Insurance
Disclosure Schedule (3.19) - Deposit Accounts
Disclosure Schedule (5(c)) - Indebtedness
Disclosure Schedule (6.1) - Jurisdictions
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SCHEDULE C
(Letters of Credit)
1. Lender agrees, subject to the terms and conditions hereinafter set forth, to
incur Letter of Credit Obligations in respect of the issuance of Letters of
Credit issued on terms acceptable to Lender and supporting obligations of
Borrower incurred in the ordinary course of Borrower's business, in order to
support the payment of Borrower's inventory purchase obligations, insurance
premiums, or utility or other operating expenses and obligations, as Borrower
shall request by written notice to Lender that is received by Lender not less
than five Business Days prior to the requested date of issuance of any such
Letter of Credit; provided, that: (a) that the aggregate amount of all Letter of
Credit Obligations at any one time outstanding (whether or not then due and
payable) shall not exceed the lesser of (i) $5,000,000.00 or (ii) the Borrowing
Availability at such time; (b) no Letter of Credit shall have an expiry date
which is later than one year following the date of issuance thereof; and (c)
Lender shall be under no obligation to incur Letter of Credit Obligations in
respect of any Letter of Credit having an expiry date that is later than August
29, 2000. The maximum amount payable in respect of each Letter of Credit
requested by Borrower will be guaranteed by Lender in favor of the issuing bank
under terms of a separate agreement between Lender and the issuing bank.
Borrower will enter into an application and agreement for such Letter of Credit
with the issuing bank selected by Lender. The bank that issues any Letter of
Credit pursuant to the Agreement shall be determined by Lender in its sole
discretion.
2. The notice to be provided to Lender requesting that Lender incur Letter of
Credit Obligations shall be in the form of a Letter of Credit application in the
form customarily employed by the issuing bank, together with a written request
by Borrower and the bank that Lender approve Borrower's application. Upon
receipt of such notice Lender shall establish a reserve against the Borrowing
Availability in the amount of 100% of the face amount of the Letter of Credit
requested. Approval by Lender in the written form agreed upon between Lender and
the issuing bank (a) will authorize the bank to issue the requested Letter of
Credit, and (b) will conclusively establish the existence of the Letter of
Credit Obligation as of the date of such approval.
3. In the event that Lender shall make any payment on or pursuant to any Letter
of Credit Obligation, Borrower shall be unconditionally obligated to reimburse
Lender therefor, and such payment shall then be deemed to constitute a Revolving
Credit Advance. For purposes of computing interest under Section 1.5 of the
Agreement, a Revolving Credit Advance made in satisfaction of a Letter of Credit
Obligation shall be deemed to have been made as of the date on which the issuer
or endorser makes the related payment under the underlying Letter of Credit.
4. In the event that any Letter of Credit Obligations, whether or not then due
or payable, shall for any reason be outstanding on the Commitment Maturity Date,
Borrower will either (a) cause the underlying Letter of Credit to be returned
and canceled and each corresponding Letter of Credit Obligation to be
terminated, or (b) pay to Lender, in immediately available funds, an amount
equal to 105% of the maximum amount then available to be drawn under all Letters
of Credit not so returned and canceled. Such funds shall be held by Lender in a
cash collateral account (the "Cash Collateral Account") maintained at a bank or
financial institution acceptable to Lender. The Cash Collateral Account shall be
in the name of Borrower, and shall be pledged to, and subject to the control of,
Lender in a manner satisfactory to Lender. Borrower hereby pledges and grants to
Lender a security interest in all such funds held in the Cash Collateral Account
from time to time and all proceeds thereof, as security for the payment of all
amounts due in respect of the Letter of Credit Obligations and other
Obligations, whether or not then due.
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5. In the event that Lender shall incur any Letter of Credit Obligations,
Borrower agrees to pay the Letter of Credit Fee to Lender as compensation to
Lender for incurring such Letter of Credit Obligations. In addition, Borrower
shall reimburse Lender for all fees and charges paid by Lender on account of any
such Letters of Credit or Letter of Credit Obligations to the issuing bank.
6. Borrower's Obligations to Lender with respect to any Letter of Credit or
Letter of Credit Obligation shall be evidenced by Lender's records and, in the
absence of manifest error, shall be absolute, unconditional and irrevocable and
shall not be affected, modified or impaired by (i) any lack of validity or
enforceability of the transactions contemplated by or related to such Letter of
Credit or Letter of Credit Obligation; (ii) any amendment or waiver of or
consent to depart from all or any of the terms of the transactions contemplated
by or related to such Letter of Credit or Letter of Credit Obligation; (iii) the
existence of any claim, set-off, defense or other right which Borrower or any
other Credit Party may have against Lender, the issuer or beneficiary of such
Letter of Credit, or any other Person, whether in connection with the Agreement
or the transactions contemplated therein or such Letter of Credit or the
transactions contemplated thereby or any unrelated transactions; or (iv) the
fact that any draft, affidavit, letter, certificate, invoice, bill of lading or
other document presented under or delivered in connection with such Letter of
Credit or any other Letter of Credit proves to have been forged, fraudulent,
invalid or insufficient in any respect or any statement therein proves to have
been untrue or incorrect in any respect.
7. In addition to any other indemnity obligations which Borrower may have to
Lender under the Agreement and without limiting such other indemnification
provisions, Borrower hereby agrees to indemnify Lender from and to hold Lender
harmless against any and all claims, liabilities, losses, costs and expenses
(including, attorneys' fees and expenses) which Lender may (other than as a
result of its own gross negligence or willful misconduct) incur or be subject to
as a consequence, directly or indirectly, of (i) the issuance of or payment of
or failure to pay under any Letter of Credit or Letter of Credit Obligation or
(ii) any suit, investigation or proceeding as to which Lender is or may become a
party as a consequence, directly or indirectly, of the issuance of any Letter of
Credit, the incurring of any Letter of Credit Obligation or any payment of or
failure to pay under any Letter of Credit or Letter of Credit Obligation. The
obligations of Borrower under this paragraph shall survive any termination of
the Agreement.
8. Borrower hereby assumes all risks of the acts, omissions or misuse of each
Letter of Credit by the beneficiary or issuer thereof and, in connection
therewith, Lender shall not be responsible (i) for the validity, sufficiency,
genuineness or legal effect of any document submitted in connection with any
drawing under any Letter of Credit even if it should in fact prove in any
respect to be invalid, insufficient, inaccurate, untrue, fraudulent or forged;
(ii) for the validity or sufficiency of any instrument transferring or assigning
or purporting to transfer or assign any Letter of Credit or any rights or
benefits thereunder or any proceeds thereof, in whole or in part, even if it
should prove to be invalid or ineffective for any reason; (iii) for the failure
of any issuer or beneficiary of any Letter of Credit to comply fully with the
terms thereof, including the conditions required in order to effect or pay a
drawing thereunder; (iv) for any errors, omissions, interruptions or delays in
transmission or delivery of any messages, by mail, telecopy, telex or otherwise;
(v) for any loss or delay in the transmission or otherwise of any document or
draft required in order to make a drawing under any Letter of Credit; or (vi)
for any consequences arising from causes beyond the control of Lender.
C-2
<PAGE>
SCHEDULE D
(Cash Management)
Borrower agrees to establish, and to maintain, until the Termination Date, the
cash management system described below:
1. Borrower: (a) shall not (and shall not permit any of its Subsidiaries to)
open or maintain any deposit, checking, operating or other bank account, or
similar money handling account, with any bank or other financial institution
except for those accounts identified in Disclosure Schedule (3.19) (to include a
petty cash account not to exceed $10,000 in the aggregate for all locations of
Borrower during any Fiscal Month, and a payroll account not to exceed an amount
equal to one regular payroll at any time) and Attachment I hereto; and (b) shall
not close or permit to be closed any of the accounts listed in Attachment I
hereto, in each case without Lender's prior written consent, and then only after
Borrower has implemented agreements with such bank or financial institution and
Lender acceptable to Lender.
2. Commencing on the Closing Date and until the Termination Date, Borrower shall
deposit or, if directed by Lender, cause to be deposited directly, in either
case on the date of receipt thereof, all cash, checks, notes, drafts or other
similar items relating to or constituting proceeds of or payments made in
respect of any and all Collateral and all other receipts into blocked accounts
in Borrower's or Lender's name (collectively, the "Blocked Accounts") at the
banks identified as "Blocked Account Banks" in Attachment I hereto. On or before
the Closing Date, Borrower shall have established a concentration account in
Borrower's name (the "Concentration Account") at the bank set forth in
Attachment I hereto, under an agreement in form and substance acceptable to
Lender.
3. On or before the Closing Date, each bank at which the Blocked Accounts are
held shall have entered into tri-party blocked account agreements (the "Blocked
Account Agreements") with Lender and Borrower, in form and substance acceptable
to Lender. Each such Blocked Account Agreement shall provide, among other
things, that (a) such bank executing such agreement has no rights of setoff or
recoupment or any other claim against such Blocked Account, other than for
payment of its service fees and other charges directly related to the
administration of such account, and (b) such bank agrees not to allow any
withdrawals from the Blocked Account except for wires or electronic transfers of
funds into the Concentration Account. On each Business Day Borrower shall cause
such bank to transfer to the Concentration Account, by wire or electronic
transfer, the amount of receipts then on deposit in the Blocked Account, as
determined by Borrower's point-of-sale system "polling" process described in
Attachment II hereto.
4. On or before the Closing Date, the bank at which the Concentration Account is
held shall have entered into a tri-party blocked account agreement (the
"Concentration Account Agreement") with Lender and Borrower, in form and
substance acceptable to Lender. Such Concentration Account Agreement shall
provide, among other things, that (a) such bank executing such agreement has no
rights of setoff or recoupment or any other claim against such Concentration
Account, other than for payment of its service fees and other charges directly
related to the administration of such account, and (b) such bank agrees to sweep
on a daily basis all amounts received in the Concentration Account to the
Collection Account.
5. On the Closing Date, (a) the blocked account arrangements shall immediately
become operative at the banks at which the Blocked Accounts and the
Concentration Account are maintained, and (b) amounts outstanding under the
Revolving Credit Loan (for purposes of the Borrowing Availability) shall be
reduced through daily sweeps, by wire and ACH transfer, of the Blocked Accounts
into the Concentration Account,
D-1
<PAGE>
and of the Concentration Account into the Collection Account. Borrower
acknowledges that it shall have no right to gain access to any of the moneys in
the Blocked Accounts or the Concentration Account until after the Termination
Date.
6. Borrower may maintain, in its name, accounts (the "Disbursement Accounts") at
a bank or banks acceptable to Lender into which Lender shall, from time to time,
deposit proceeds of Revolving Credit Advances made pursuant to Section 1.1 for
use solely in accordance with the provisions of Section 1.3. All of the
Disbursement Accounts as of the Closing Date are listed in Attachment I hereto.
On or before the Closing Date, the banks at which the Disbursement Accounts are
maintained shall have entered into the pledged account agreements with Lender.
7. All amounts deposited in the Collection Account shall be deemed received by
Lender in accordance with the terms of Section 1.10 and shall be applied (and
allocated) by Lender in accordance with the terms of Section 1.11.
8. Upon the request of Lender, Borrower shall forward to Lender evidence of the
deposit of all items of payment received by Borrower into the Blocked Accounts
and copies of all such checks and other items, together with a statement showing
the application of those items relating to payments on Accounts to outstanding
Accounts and a collection report with regard thereto in form and substance
satisfactory to Lender.
9. So long as no Default or Event of Default has occurred and is continuing,
Borrower may amend Disclosure Schedule (3.19) and Attachment I hereto to add or
replace a Blocked Account, any Disbursement Account or the Concentration
Account; provided, that (a) Lender shall have consented in writing in advance to
the opening of such account with the relevant bank, and (b) prior to the time of
the opening of such account, Borrower and such bank shall have executed and
delivered to Lender a blocked account agreement in form and substance reasonably
satisfactory to Lender.
D-2
<PAGE>
Attachment I to Schedule D
(LIST OF CONCENTRATION ACCOUNT, DISBURSEMENT ACCOUNTS AND BLOCKED ACCOUNTS)
1. Concentration Account:
KeyBank Account No. 471661007271, 1420 5th Avenue, Seattle, WA
2. Disbursement Accounts:
KeyBank Account Nos. 471661007198, 619120000572 and 619120000580, 1420 5th
Avenue, Seattle, WA
3. Blocked Accounts:
<TABLE>
<CAPTION>
Store Bank Account Number Address
- ----- ---- -------------- -------
<S> <C> <C> <C>
001 U.S Bank 0017928680 1420 5th Ave., Seattle, WA
002 KeyBank 471641002731 700 Fifth Ave., Seattle, WA
006 KeyBank 471671002536 700 Fifth Ave., Seattle, WA
014 KeyBank 34222539 700 Fifth Ave., Seattle, WA
015 Norwest 7101006691 P.O. box 30058, Billings, MT
017 1st Nat'l Bank of Anchorage 24101289 44332 Sterling Hghwy, Soldotna, AK
019 KeyBank 37308962 700 Fifth Ave., Seattle, WA
022 U.S Bank 0017928680 1420 5th Ave., Seattle, WA
025 Bank of America 60407418 P.O. Box 34414, Seattle, WA
028 Security State Bank 300033870 P.O. Box 900, Centralla, WA
031 U.S Bank 0017928680 1420 5th Ave., Seattle, WA
032 U.S Bank 4427800505 1942 W. Pullman Rd., Moscow, ID
033 KeyBank 471011001586 700 Fifth Ave., Seattle, WA
037 Wells Fargo Bank 4159596048 P.O. Box 63020, San Francisco, CA
038 Wells Fargo Bank 4159596097 P.O. Box 63020, San Francisco, CA
039 Wells Fargo Bank 4159645282 P.O. Box 63020, San Francisco, CA
041 First Interstate 1301211502 P.O. Box 31317, Billings, MT
042 Wells Fargo Bank 4159596055 P.O. Box 63020, San Francisco, CA
043 Wells Fargo Bank 4159596071 P.O. Box 63020, San Francisco, CA
048 Wells Fargo Bank 4159596113 P.O. Box 63020, San Francisco, CA
051 Wells Fargo Bank 00880894396 P.O. Box 640214, San Francisco, CA
053 Centennial Bank 5054450 1141 Valley River Dr., Eugene, OR
058 U.S Bank 0017928680 1420 5th Ave., Seattle, WA
063 Bank of America 0487800129 P.O. Box 37176, San Francisco, CA
072 Alaska Federal Savings 14000693 2094 Jordan Ave., Juneau, AK
073 Bank of America 1233957543 P.O. Box 27128, Concord, CA
083 Farmers & Merchants 1002212777 P.O. Box 14588, Spokane, WA
099 U.S Bank 0017928680 1420 5th Ave., Seattle, WA
D-i
<PAGE>
112 Nat'l Bank of Alaska 44069073 P.O. Box 196127, Anchorage, AK
113 First Interstate 194050 P.O. Box 7130, Kailspell, MT
115 American Bank 2801021541 P.O. Box 1926, Bozeman, MT
120 U.S Bank 1530013828 2445 S.E. 3rd, Gresham, OR
123 Desert Comm. Bank 106767201 14800 La Paz Dr., Victorville, CA
126 Desert Comm. Bank 106766401 14800 La Paz Dr., Victorville, CA
127 U.S Bank 0017928680 1420 5th Ave., Seattle, WA
129 KeyBank 10074759 601 E. 5th, Anchorage, AK
141 Bank of America 1014503068 590 E. Shaw Ave., Fresno, CA
145 KeyBank 580021632 50 S. Main, Salt Lake City, UT
147 Bank of America 230219081 P.O. Box 98600, Las Vegas, NV
</TABLE>
<TABLE>
<CAPTION>
Store Bank Account Number Address
- ----- ---- -------------- -------
<S> <C> <C> <C>
150 U.S Bank 8940100137 6399 Sunrise Mall, Citrus Heights, CA
152 Bank of America 230219070 P.O. Box 98600, Las Vegas, NV
155 KeyBank 362703092 700 Fifth Ave., Seattle, WA
156 Tri Counties Bank 66036753 2171 Pillsbury Rd., Chico, CA
157 Tri Counties Bank 66036996 2171 Pillsbury Rd., Chico, CA
159 Wells Fargo Bank 0832939854 P.O. Box 340214, Sacramento, CA
163 Bank of America 0670506166 4055 Capitola Rd., Capitola, CA
164 U.S Bank 1270017187 P.O. Box 948, Albany, OR
165 Community First 1112023024 1515 Dell Range Blvd., Cheyenne, WY
167 First Security Bank 8461034234 1721 11th Ave., Helena, MT
169 Columbia State Bank 7000070347 3500 S. Meridian, Puyaliup, WA
170 U.S Bank 4607805068 P.O. Box 2026, Couer d'lane, OR
174 First Savings 2206000019 1661 West Rose St., Walla Walla, WA
180 Bank of the West 029001826 945 Blossom Hill Rd., San Jose, CA
184 Bank of America 2476404851 P.O. Box 3530, Rancho Cordova, CA
185 Bank of America 2476404852 P.O. Box 3530, Rancho Cordova, CA
195 M&I Bank 14028757 770 N. Water St., Milwaukee, WI
197 Firstar Bank 312224847 P.O. Box 7900, Madison, WI
200 Firstar Bank 312222470 P.O. Box 7900, Madison, WI
203 U.S Bank 0970012621 1407 Lloyd Ctr., Portland, OR
205 Success Nat'l Bank 0200301438 1 Marriott Dr., Lincolnshire, IL
206 Success Nat'l Bank 0200301448 1 Marriott Cr., Lincolnshire, IL
236 BankOne 9510000095 P.O. Box 655415, Dallas, TX
256 Colorado Nat'l Bank 120400537698 P.O. Box 5548, Denver, CO
258 Colorado Nat'l Bank 120400817173 P.O. Box 5548, Denver, CO
264 Vanguard Bank 0000134981 23 John Sims Parkway, Valparalso, FL
288 SunTrust Bank 8801799001 P.O. Box 4418, Atlanta, GA
291 SunTrust Bank 88010162525 P.O. Box 4418, Atlanta, GA
298 Citizens Bank 3997701 P.O. Box 2108, Las Cruces, NM
299 Sunwest Bank 001128119987 P.O. Box 5375, Santa Fe, NM
300 1st Nat'l Bank Abilene 200478030301 P.O. Box 701, Abllene, TX
D-ii
<PAGE>
322 American Bank of Texas 10168245001 2011 Texoma Parkway, Sherman, TX
351 First Chicago 1.115E+12 5330 Main St., Downers Grove, IL
352 LaSalle Bank 5200542131 5501 South Kedzie Ave., Chicago, Il
353 Harris Banks 0000164984 1 East Main St., St. Charles, IL
354 Norwest 5591627287 P.O. Box 1241, Lubbock, TX
355 M&I Bank 2968537 1245 Main St, Box 8, Stevens Pt, WI
356 Southtrust Bank 68777637 P.O. Box 1234, Atlanta, GA
357 1st Bank of Colorado 2165520681 P.O. Box 150600, Lakewood, CO
358 1st Bank of Colorado 3405507650 P.O. Box 150600, Lakewood, CO
359 Colorado Nat'l Bank 194312174346 P.O. Box 5548, Denver, CO
360 Hibernia 812394614 P.O. Box61540, New Orleans, LA
361 BankOne 1821230107 P.O. Box 540, Wichita Falls, TX
362 Union Federal Savings 0590101315 P.O. Box 6054, Indianapolis, IN
363 Colorado Nat'l Bank 194310837811 P.O. Box 5548, Denver, CO
364 KeyBank 6001520091 1151 E. Hoffer, Kokomo, IN
365 First Merchants Bank 0001910116 P.O. Box 792, Muncle, IN
366 Liberty 501037390 P.O. Box 25848, Oklahoma City, OK
367 Union Federal Savings 0590105310 P.O. Box 6054, Indianapolis, IN
368 Union Federal Savings 0590105302 P.O. Box 6054, Indianapolis, IN
371 Bank of America 7855401150 P.O. Box 619005, Dallas, TX
372 BankOne 1889361406 P.O. Box 655415, Dallas, TX
373 Hibernia 772020305 P.O. Box 61540, New Orleans, LA
</TABLE>
<TABLE>
<CAPTION>
Store Bank Account Number Address
- ----- ---- -------------- -------
<S> <C> <C> <C>
375 BankOne 3101186700 P.O. Box 3399, Baton Rouge, LA
403 Washington Trust 1301215854 P.O. Box 2127, Spokane, WA
404 First Interstate 184381 P.O. Box 7130, Kallspell, MT
405 Nat'l Bank of Alaska 7510101 P.O. Box 196127, Anchorage, AK
406 Columbia State Bank 7000070206 3500 S Meridian, Puyallup, WA
408 Kitsap Bank 0413346311 P.O. Box 660, Silverdale, WA
409 Citadel Bank 543306 730 Citadel Dr., Colorado Springs, CO
410 Colorado Nat'l Bank 125900162624 P.O. Box 5548, Denver, CO
411 Provident Bank 3000012542 P.O. Box 650324, Dallas, TX
412 U.S. Bank 0017928680 404 W. Yaklma Ave., Yakima, WA
413 Nat'l Bank of Alaska 44068158 P.O. Box 196127, Anchorage, AK
414 KeyBank 10074740 601 E. 5th, Anchorage, AK
415 Nat'l Bank of Alaska 48000043 1701 E. Parks Highway, Wasilla, AK
416 U.S. Bank 0017928680 1420 5th Ave., Seattle, WA
417 Nat'l Bank of Alaska 32140479 Pouch 71000, Fairbanks, AK
418 Western Bank 01350494606 1600 N. Riverside, Medford, OR
419 Nat'l Bank of Alaska 15922960 2415 Tongass Ave., Ketchikan, AK
420 Sunwest Bank 000124221581 P.O. Box 25500, Albuquerque, NM
421 Wells Fargo Bank 0634020333 P.O. Box 340214, Sacramento, CA
422 First Security Bank 1590009815 P.O. Box 25237, Salt Lake City, UT
422 First Security Bank 124100064 P.O. Box 7069, Bolse, ID
D-iii
<PAGE>
423 Bank of America 0575103878 2905 Stevens Creek, Stata Clara, CA
424 Nat'l Bank of Alaska 39108635 P.O. Box 196127, Anchorage, AK
</TABLE>
D-iv
<PAGE>
Attachment II to Schedule D
(DESCRIPTION OF POLLING PROCESS)
All payment information from each store register is transmitted to
Borrower's corporate headquarters on a daily basis through a "polling"
process. This information includes the amount of all cash to be
deposited in each Blocked Account at the end of such day or the next
morning, and is calculated from the tender type on each transaction
throughout the day. The cash deposit amount represents what should be
deposited based upon Borrower's point-of-sale system, and is the
amount used by Borrower to balance the register on a nightly basis.
The daily cash totals transmitted to Borrower's corporate headquarters
are automatically compiled into an ACH file which is credited to the
Concentration Account in one sum, and debited to each Blocked Account
as appropriate.
<PAGE>
SCHEDULE E
(Fees)
1. Fees at Closing:
Closing Fee $ 100,000.00
Commitment Fee $ 50,000.00 (credit prior payment)
Collateral Monitoring Fee $ 9,000.00
Underwriting Deposit $ 50,000.00 (credit prior payment)
Expenses through Closing $ 81,820.95
------------
Net Payment at Closing: $ 90,820.95
2. Closing Fee: Borrower shall pay to Lender an origination fee in the amount of
$175,000, which fee shall be fully earned on the Closing Date; $100,000 of such
fee shall be payable on the Closing Date and $75,000 of such fee shall be
payable on December 14, 1997; provided, that payment by Borrower of the $75,000
installment will be waived by Lender if December 14, 1997 occurs during a
Step-Down Period.
3. Unused Line Fee: For each day from the Closing Date, and through but
including the Termination Date, an amount equal to the Maximum Amount less the
Revolving Credit Loan for such day, multiplied by the Unused Line Margin, the
product of which is then divided by 360. Subject to Section 1.5(e), the Unused
Line Fee for each month (except for the month in which the Termination Date
occurs) is payable on the first day of each calendar month following the month
in which the Closing Date occurs; the final monthly installment of the Unused
Line Fee is payable on the Termination Date. Notwithstanding the foregoing, any
Unused Line Fee is immediately due and payable on the Commitment Maturity Date.
4. Letter of Credit Fee: For each day for which Lender maintains Letter of
Credit Obligations outstanding, an amount equal to the amount of the Letter of
Credit Obligations outstanding on such day, multiplied by the L/C Fee Margin,
the product of which is then divided by 360. The Letter of Credit Fee incurred
for each month is payable at the same time each payment of the Unused Line Fee
is due. Notwithstanding the foregoing, any unpaid Letter of Credit Fee is
immediately due and payable on the Commitment Maturity Date.
5. Collateral Monitoring Fee: Borrower shall pay to Lender an annual collateral
monitoring fee in the amount of $36,000, which fee shall be fully earned on the
Closing Date and on each anniversary of the Closing Date and be payable in
quarterly installments of $9,000 each commencing on the Closing Date and on the
first day of each third month following the month in which the Closing Date
occurs prior to the Commitment Maturity Date, with any earned but unpaid portion
of such fee being payable on the Commitment Maturity Date.
6. Prepayment Fee: An amount equal to the Maximum Amount multiplied by:
3% if Lender's obligation to make or incur Revolving Credit Advances or
Letter of Credit Obligations is terminated by Borrower on or after the
Closing Date and on or before the first anniversary of the Closing Date,
payable on the Commitment Maturity Date; and
1% if Lender's obligation to make or incur Revolving Credit Advances or
Letter of Credit Obligations is terminated by Borrower after the first
anniversary of the Closing Date and on or before the second anniversary
of the Closing Date, payable on the Commitment Maturity Date.
E-1
<PAGE>
Borrower acknowledges and agrees that (a) it would be difficult or impractical
to calculate Lender's actual damages from Borrower's early termination of
Lender's Revolving Credit Loan obligations pursuant to Section 1.2(b) of the
Agreement, (b) the Prepayment Fees provided above are intended to be fair and
reasonable approximations of such damages, and (c) the Prepayment Fees are not
intended to be penalties.
7. Audit Fees: Borrower will reimburse Lender at the rate of $650 per person per
day, plus out of pocket expenses, for the audit reviews, field examinations and
collateral examinations.
8. Expenses: Borrower will pay to Lender on demand all costs incurred in
connection with: (a) the preparation, negotiation, execution, delivery,
performance and enforcement of the Loan Documents; (b) collection (including the
fees and expenses of all special counsel, advisors, consultants (including
environmental and management consultants) and auditors retained in connection
therewith), including post-judgment and deficiency collections; (c) the
forwarding to Borrower or any other Person on behalf of Borrower by Lender of
the proceeds of any Loan (including by wire transfer); (d) any amendment,
extension, modification or waiver of, or consent with respect to any Loan
Document or advice in connection with the administration of the Revolving Credit
Loan or the rights thereunder; (e) any litigation, contest, dispute, suit,
proceeding or action (whether instituted by or between any combination of
Lender, Borrower or any other Person or Persons), and any appeal and review
thereof or settlement in connection therewith, in any way relating to the
Collateral, any Loan Document, or any action taken or any other agreements to be
executed or delivered in connection therewith, whether as a party, witness or
otherwise, including by arbitration or other alternative dispute resolution
proceedings, trial court actions and appeals; (f) any bankruptcy or other
insolvency proceedings of any Credit Party; and (g) any effort (i) to monitor
the Revolving Credit Loan, (ii) to evaluate, observe or assess Borrower or any
other Credit Party or the affairs of such Person, and (iii) to verify, protect,
evaluate, assess, appraise, collect, sell, liquidate or otherwise dispose of the
Collateral, in each case prior to and after the occurrence of any Default or
Event of Default, including with respect to all of the foregoing: the fees,
costs and expenses of attorneys, accountants, environmental advisors,
appraisers, investment bankers, management and other consultants, and
paralegals; court costs and expenses; photocopying and duplicating expenses;
court reporter fees, costs and expenses; long distance telephone charges; air
express charges; telegram charges; secretarial overtime charges; and expenses
for travel, lodging and food paid or incurred in connection with the performance
of such legal or other advisory services.
E-2
<PAGE>
SCHEDULE F
(Schedule of Documents)
<PAGE>
SCHEDULE G
(Financial Covenants)
Borrower shall not breach or fail to comply with any of the following financial
covenants, each of which shall be calculated in accordance with GAAP
consistently applied:
(a) Maximum Capital Expenditures. Borrower and its Subsidiaries on a
consolidated basis shall not make Capital Expenditures during the following
periods that exceed in the aggregate the amounts set forth opposite each of such
periods, unless otherwise agreed to in writing by Lender:
Period Maximum Capital Expenditures per Period
Fiscal Year ending 1/31/98 $ 145,000
Fiscal Year ending 1/30/99 $ 400,000
Fiscal Year ending 1/29/00 $1,100,000
(b) Minimum Fixed Charge Coverage Ratio. Borrower and its Subsidiaries shall
have on a consolidated basis at the end of each Fiscal Quarter a Fixed Charge
Coverage Ratio of not less than 1:1.
(c) Unpaid Rent. Borrower shall not permit, as of the end of any Fiscal Month,
the aggregate amount of unpaid rent for all of its locations to exceed the
aggregate amount of such unpaid rent as of the Closing Date and as set forth in
Disclosure Schedule (2.1(j)).
G-1
<PAGE>
SCHEDULE 1.1
(Notice Addresses)
(A) If to Lender, at
General Electric Capital Corporation
201 High Ridge Road
Stamford, Connecticut 06927
Attention: Account Manager (Jay Jacobs)
Facsimile: (203) 708-1005
Telephone: (203) 316-7500
with copies to:
General Electric Capital Corporation
201 High Ridge Road
Stanford, Connecticut 06927-5100
Attention: Corporate Counsel (Jay Jacobs)
Facsimile: (203) 316-7889
Telephone: (203) 316-7784
and
Murphy, Weir & Butler
2049 Century Park East, Suite 2100
Los Angeles, California 90067
Attention: Adam G. Spiegel, Esq.
Facsimile: (310) 788-3777
Telephone: (310) 788-3700
(B) If to Borrower, at
Jay Jacobs, Inc.
1530 5th Avenue
Seattle, Washington 98101
Attention: William L. Lawrence, Jr.
Facsimile: (206) 621-9830
Telephone: (206) 622-5400
with copies to:
Vandeberg Johnson & Gandara
One Union Square, Suite 2404
600 University Street
Seattle, Washington 98101-1192
Attention: James L. Vandeberg, Esq.
Facsimile: (206) 464-0484
Telephone: (206) 464-0404
<PAGE>
SCHEDULE 1.6
(Eligible Inventory)
Inventory constituting Eligible Inventory shall not include Inventory that:
(a) is not owned by Borrower free and clear of all Liens and rights of
others, except first priority Liens in favor of Lender;
(b) except as otherwise provided in clause (d) below, is not located on
premises owned or operated by Borrower and referenced in Disclosure
Schedule 3.2,
(c) is located on premises with respect to which Lender has not received a
landlord or mortgagee letter acceptable in form and substance to
Lender, except to the extent Lender has established reserves therefor
against the Borrowing Base in an amount satisfactory to Lender;
(d) is in transit, unless (i) with respect to Inventory in transit outside
of the United States, such Inventory is in transit from overseas
suppliers under Letters of Credit pursuant to this Agreement and all
conditions established by Lender, in its sole discretion, have been
satisfied, which conditions shall include the following: (A) each bill
of lading or other documents of title with respect to such Inventory
will be an original negotiable document of title under which Lender is
the named consignee and is otherwise acceptable to Lender in its sole
discretion; (B) such Inventory meets each of the other requirements of
Eligible Inventory under the Agreement; (C) such Inventory is fully
insured in transit against such risks (including war risks), pursuant
to such terms and conditions and in such amounts as Lender deems
appropriate, and a policy or certificate of such insurance, in form
and substance acceptable to Lender, with loss payable endorsement
naming Lender as loss payee is delivered to Lender; (D) an opinion in
form and substance satisfactory to Lender has been delivered to Lender
by counsel to Borrower, which counsel shall be acceptable to Lender
and its counsel, with respect to the perfection of Lender's Liens in
any documents of title and the Inventory covered thereby; and (E) such
Inventory is being shipped directly from a foreign country to one of
Borrower's domestic locations specified in Disclosure Schedule (3.2),
and (ii) with respect to Inventory in transit within the United
States, such Inventory is under the control of a common carrier (e.g.,
Wosco) who has executed an agreement with Lender (A) prohibiting such
carrier from diverting such Inventory from Borrower's distribution
center and (B) waiving such carrier's offset rights against such
Inventory;
(e) in Lender's reasonable credit judgment, is obsolete, unsalable,
shopworn, damaged, unfit for further processing, is of substandard
quality or is not of good and merchantable quality, free from any
defects;
(f) consists of:
(i) Raw materials;
(ii) work in process;
(iii) discontinued items;
(iv) Inventory located at one or more of Borrower's locations for
longer than one year;
(v) a class or type of Inventory that has not turned-over within one
year;
<PAGE>
(vi) used items held for resale; or (vii) fixtures.
(g) does not meet all standards imposed by any Governmental Authority,
including with respect to its production, acquisition or importation
(as the case may be);
(h) is placed by Borrower on consignment or held by Borrower on
consignment from another Person;
(i) is held for rental or lease by or on behalf of Borrower;
(j) is produced in violation of the Fair Labor Standards Act and subject
to the "hot goods" provisions contained in 29 U.S.C. ss. 215 or any
successor statute or section;
(k) in any way fails to meet or violates any warranty, representation or
covenant contained in this Agreement or any other Loan Document;
(l) is subject to any licensing, patent, royalty, trademark, trade name or
copyright agreement with any third parties;
(m) requires the consent of any Person for the sale or other disposition
of such Inventory by Lender following an Event of Default and such
sale constitutes a breach or default under any contract or agreement
to which Borrower is a party or to which such Inventory is or may
become subject; or
(n) is not otherwise acceptable in the sole discretion of Lender,
provided, that Lender shall have the right to create and adjust eligibility
standards and related reserves from time to time in its sole judgment, and
Lender agrees to give notice to Borrower of each such change within 10 days
thereof.
<PAGE>
EXHIBIT A
[GRAPHIC OMITTED]1 Commercial Finance
Notice of Revolving Credit Advance
JAY JACOBS, INC.
DATE:____________
PREVIOUSLY FAXED: Yes No (circle one)
CERTIFICATE NO.: NRCA-____________________
1. Eligible inventory availability (Line 5 of latest
weekly Borrowing Base Certificate dated ______ __, ____) $__________
2. Reserves (Line 6 of latest weekly Borrowing
Base Certificate dated ______ __, ____) $__________
3. Borrowing Availability (the lesser of (a) Line 1 minus Line 2 or (b) the
Maximum Amount of $10,000,000 minus Line 2) $__________
4. Letter of Credit Obligations at 100% $__________
5. Beginning Revolving Credit Advance balance (Line 9 of
previous Notice of Revolving Credit Advance
dated ________ __, ____ $__________
6. REVOLVING CREDIT ADVANCE REQUESTED $__________
7. Other loan reductions or additions (i.e., monthly fees and interest)
$__________
8. Total payments on Revolving Loan since previous Notice of Revolving credit
Advance $__________
9. Ending Revolving Credit Advance balance
(sum of Line 5, Line 6 and Line 7, minus Line 8) $__________
10. Net Borrowing Availability (Line 3 minus Lines 4 and Line 8) $__________
The undersigned hereby certifies that all of the statements contained in
Section 2.2 of the LOAN AND SECURITY AGREEMENT dated August 29, 1997 between Jay
Jacobs, Inc. and General Electric Capital Corporation and the other parties
thereto, if any (as from time to time amended, supplemented, restated or
otherwise modified, the "LOAN AGREEMENT") are true and correct on date hereof,
and will be
<PAGE>
true and correct on the date of the requested REVOLVING CREDIT ADVANCE, before
and after giving effect thereto and the application of the proceeds therefrom.
JAY JACOBS, INC.
By:
--------------------------------
Title:
-----------------------------
<PAGE>
EXHIBIT B
[GRAPHIC OMITTED]2 Commercial Finance
Borrowing Base Certificate
COMPANY NAME:
DATE:____________
PREVIOUSLY FAXED: Yes No (circle one)
CERTIFICATE NO.: __________________________
1. Inventory Balance as of ____/____ /____: $__________
2. Ineligible Inventory as of ____/ ____/ ____:
a. Excess/Obsolete Inventory $__________
b. Locations with less than $50M at cost of Inventory $__________
c. Shrinkage Reserve $__________
d. Other _________________ $__________
e. TOTAL INELIGIBLES $__________
3. Eligible Inventory (Line 1 minus Line 2(e)) $__________
4. Eligible Inventory Advance Rate 60%
5. Eligible Inventory Borrowing Base (line 3 times Line 4) $__________
6. Reserves against Borrowing Base $__________
7. Letter of Credit Obligations at 100% $__________
8. Maximum Amount $10,000,000
9. Borrowing Availability (lesser of (a) Line 5 minus Line 6 and
Line 7 (and (b) Line 8 minus Lines 6 and 7) $__________
10. Revolving Loan Balance $__________
11. Net Borrowing Availability (Line 7 minus Line 8) $__________
The undersigned certifies that all of the foregoing information regarding
Eligible Inventory is true and correct on the date hereof and relates
solely to Eligible Inventory within the meaning given such term in the Loan
and Security Agreement dated as of August 29, 1997, between Jay Jacobs,
Inc., as borrower, and General Electric Capital Corporation, as lender, as
from time to time amended, supplemented, restated or otherwise modified
from time to time.
<PAGE>
JAY JACOBS, INC.
By:
--------------------------------
Title:
-----------------------------
<PAGE>
EXHIBIT C
[GRAPHIC OMITTED]3 Commercial Finance
Accounts Payable Analysis
JAY JACOBS, INC.
DATE:____________
PREVIOUSLY FAXED: Yes No (circle one)
CERTIFICATE NO.: __________________________
1. BEGINNING OF THE MONTH ACCOUNTS PAYABLE BALANCE $__________
2. Purchases $__________
3. Disbursements $__________
4. Other Adjustments $__________
5. ENDING ACCOUNTS PAYABLE BALANCE PER CLIENT AGING $__________
6. Book Overdraft $__________
7. Adjusted End of Month Accounts Payable Balance $__________
8. Accounts Payable per Financial Statements (reconciliation per
attached) $__________
The undersigned hereby certifies that all of the information shown above is
true and correct as of the date hereof.
JAY JACOBS, INC.
By:
--------------------------------
Title:
-----------------------------
<PAGE>
EXHIBIT D
(Form Of Revolving Credit Note)
$10,000,000.00 ________ ___, 1997
For value received, the receipt and sufficiency of which are hereby
acknowledged, JAY JACOBS, INC., a Washington corporation ("Borrower"), hereby
promises to pay to the order of GENERAL ELECTRIC CAPITAL CORPORATION, a New York
corporation ("Lender"), the sum of $10,000,000.00 (the "Maximum Amount") or such
greater or lesser amount as shall be advanced by Lender from time to time,
together with interest on the unpaid balance of such amount from the date of the
initial Revolving Credit Advance. This Note is the Revolving Credit Note issued
under the Loan and Security Agreement between Borrower and Lender of even date
herewith (said agreement, as the same may be amended, restated or supplemented
from time to time, being herein called the "Agreement") to which a reference is
made for a statement of all of the terms and conditions of the Revolving Credit
Loan evidenced hereby. Capitalized terms not defined in this Note shall have the
respective meanings assigned to them in the Agreement. This Note is secured by
the Agreement, the other Loan Documents and the Collateral, and is entitled to
the benefit of the rights and security provided thereby.
Interest on the outstanding principal balance under this Note is payable at the
Revolving Credit Rate, or, under the circumstances contemplated by the
Agreement, at the Default Rate, in immediately available United States Dollars
at the time and in the manner specified in the Agreement. The outstanding
principal and interest under this Note shall be immediately due and payable on
the Commitment Maturity Date. Payments received by Lender shall be applied
against principal and interest as provided for in the Agreement. Borrower
acknowledges that (a) Lender is authorized under the Agreement to charge to the
Revolving Credit Loan unpaid Obligations of Borrower to Lender, (b) the
principal amount of the Revolving Credit Loan will be increased by such amounts,
and (c) the principal, as so increased, will bear interest as provided for
herein and in the Agreement.
To the fullest extent permitted by applicable law, Borrower waives: (a)
presentment, demand and protest, and notice of presentment, dishonor, intent to
accelerate, acceleration, protest, default, nonpayment, maturity, release,
compromise, settlement, extension or renewal of any or all of the other Loan
Documents or this Note; (b) all rights to notice and a hearing prior to Lender's
taking possession or control of, or to Lender's replevy, attachment or levy
upon, the Collateral or any bond or security that might be required by any court
prior to allowing Lender to exercise any of its remedies; and (c) the benefit of
all valuation, appraisal and exemption laws.
Borrower acknowledges that this Note is executed as part of a commercial
transaction and that the proceeds of this Note will not be used for any personal
or consumer purpose.
Borrower agrees to pay to Lender all Fees and expenses described in Schedule E
to the Agreement.
BORROWER ACKNOWLEDGES THAT IT HAS WAIVED THE RIGHT TO TRIAL BY JURY IN ANY
ACTION OR PROCEEDING ON THIS NOTE. THIS NOTE IS GOVERNED BY THE LAW OF THE STATE
OF WASHINGTON.
"Borrower"
<PAGE>
JAY JACOBS, INC.
By:
Name:
Title:
<PAGE>
EXHIBIT E
(Secretarial Certificate)
The undersigned hereby certifies that he or she is the duly elected and acting
Secretary or Assistant Secretary of JAY JACOBS, INC., a Washington corporation
("Borrower"), and as such is the custodian of Borrower's Books and Records and
is authorized to execute and deliver this Certificate in connection with the
Revolving Credit Loan being made to Borrower by General Electric Capital
Corporation ("Lender") under the Loan and Security Agreement ("Agreement") dated
as of August 29, 1997. Capitalized terms not defined in this Certificate shall
have the respective meanings ascribed to them in the Agreement. In order to
induce Lender to execute the Agreement and make the Revolving Credit Loan, the
undersigned certifies (in his or her secretarial capacity, and on behalf of
Borrower) as follows:
1. Attachment 1 hereto is a full, complete, and correct copy of Borrower's
articles or certificate of incorporation or other creating instrument
("Charter") as filed and recorded with the Secretary of State of Washington,
which Charter has not been rescinded or amended and remains in full force and
effect in its entirety.
2. Attachment 2 is a copy of a written confirmation from the Secretary of State
of Washington, dated ________ __, 1997, confirming that the Charter of Borrower
in the form of Attachment 1 remains on file.
3. Attachment 3 is a copy of the Bylaws of Borrower, and as of the Closing Date
such Bylaws are in full force and effect and have not been amended or rescinded.
4. Attachment 4 are copies of good standing certificates dated not more than 30
days prior to the Closing Date for each state or jurisdiction in which Borrower
does business confirming that Borrower is qualified to engage in business in
such jurisdiction and such qualification is in good standing.
5. Attachment 5 are copies of the Resolutions of the Board of Directors of
Borrower duly adopted in a meeting duly called upon proper notice, or by written
consent in conformity with the corporate and other laws of the State of
Washington and with Borrower's Charter and Bylaws, which Resolutions authorize
(a) Borrower to execute and deliver the Loan Documents and to borrow the funds
intended to be borrowed thereunder, and (b) the officers of Borrower to execute
and deliver the Loan Documents. There is no provision of Borrower's Charter or
Bylaws limiting or contravening the Resolutions attached as Attachment 5, which
Resolutions are fully in conformity with Borrower's Charter and Bylaws and the
proper proceedings of its Board of Directors.
6. The undersigned officers and employees of Borrower have been elected to the
positions set opposite their respective names below, are qualified to act in
such capacities and to execute and deliver the Loan Documents on behalf of
Borrower, and the signature set opposite each name is the authentic signature of
such officer or employee:
1
<PAGE>
NAME SIGNATURE OFFICE
-------------------- -------------------- --------------------
-------------------- -------------------- --------------------
-------------------- -------------------- --------------------
-------------------- -------------------- --------------------
The individual identified by Borrower as Borrower's Representative in Schedule
1.1 is Mr. William L. Lawrence, Jr., whose signature appears above.
IN WITNESS WHEREOF, the undersigned have executed this Certificate on ________
__, 1997.
-------------------------------
-------------------------------
Secretary of Jay Jacobs, Inc.
The Undersigned, the Chief Executive Officer of Borrower, hereby certifies that
[NEED: Secretary Person (name) at Borrower] is the Secretary of Borrower and is
authorized to execute and deliver this Certificate.
----------------------------------
Name: ________________
Date: ________ __, 1997
2
<PAGE>
EXHIBIT F
(Power of Attorney)
This Power of Attorney is executed and delivered by JAY JACOBS, INC., as
Borrower, to GENERAL ELECTRIC CAPITAL CORPORATION (hereinafter referred to as
"Attorney"), as Lender, under a Loan and Security Agreement dated as of August
29, 1997, and other documents (the "Loan Documents"). No person to whom this
Power of Attorney is presented, as authority for Attorney to take any action or
actions contemplated hereby, shall inquire into or seek confirmation from
Borrower as to the authority of Attorney to take any action described below, or
as to the existence of or fulfillment of any condition to this Power of
Attorney, which is intended to grant to Attorney unconditionally the authority
to take and perform the actions contemplated herein, and Borrower irrevocably
waives any right to commence any suit or action, in law or equity, against any
person or entity which acts in reliance upon or acknowledges the authority
granted under this Power of Attorney. The power of attorney granted hereby is
coupled with an interest, and may not be revoked or canceled by Borrower without
Attorney's written consent upon payment in full of all Obligations due to
Attorney under the Loan Documents.
Borrower hereby irrevocably constitutes and appoints Attorney (and all officers,
employees or agents designated by Attorney), with full power of substitution, as
Borrower's true and lawful attorney-in-fact with full irrevocable power and
authority in the place and stead of Borrower and in the name of Borrower or in
its own name, from time to time in Attorney's discretion, to take any and all
appropriate action and to execute and deliver any and all documents and
instruments which may be necessary or desirable to accomplish the purposes of
the Loan Documents and, without limiting the generality of the foregoing,
Borrower hereby grants to Attorney the power and right, on behalf of Borrower,
without notice to or assent by Borrower, and at any time, to do the following:
(a) open mail for Borrower, and ask, demand, collect, give acquittances and
receipts for, take possession of, endorse and receive payment of, any checks,
drafts, notes, acceptances, or other instruments for the payment of moneys due,
and sign and endorse any invoices, freight or express bills, bills of lading,
storage or warehouse receipts, drafts against debtors, assignments,
verifications, and notices in connection with any property of Borrower; (b)
effect any repairs to any asset of Borrower, or continue or obtain any insurance
and pay all or any part of the premiums therefor and costs thereof, and make,
settle and adjust all claims under such policies of insurance, and make all
determinations and decisions with respect to such policies; (c) pay or discharge
any taxes, liens, security interests, or other encumbrances levied or placed on
or threatened against Borrower or its property; (d) defend any suit, action or
proceeding brought against Borrower if Borrower does not defend such suit,
action or proceeding or if Attorney believes that Borrower is not pursuing such
defense in a manner that will maximize the recovery to Attorney, and settle,
compromise or adjust any suit, action, or proceeding described above and, in
connection therewith, give such discharges or releases as Attorney may deem
appropriate; (e) file or prosecute any claim, litigation, suit or proceeding in
any court of competent jurisdiction or before any arbitrator, or take any other
action otherwise deemed appropriate by Attorney for the purpose of collecting
any and all such moneys due to Borrower whenever payable and to enforce any
other right in respect of
<PAGE>
Borrower's property; (f) sell, transfer, pledge, make any agreement with respect
to, or otherwise deal with any property of Borrower, and execute, in connection
with such sale or action, any endorsements, assignments or other instruments of
conveyance or transfer in connection therewith; and (g) cause the certified
public accountants then engaged by Borrower to prepare and deliver to Attorney
at any time and from time to time, promptly upon Attorney's request, the
following reports: (1) a reconciliation of all accounts and inventory; (2) trial
balances; (3) test verifications of such accounts as Attorney may request, and
(4) the results of each physical verification of inventory, all as though
Attorney were the absolute owner of the property of Borrower for all purposes,
and to do, at Attorney's option and Borrower's expense, at any time or from time
to time, all acts and other things that Attorney reasonably deems necessary to
perfect, preserve, or realize upon Borrower's property or assets and Attorney's
Liens thereon, all as fully and effectively as Borrower might do. Borrower
hereby ratifies, to the extent permitted by law, all that said attorneys shall
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, this Power of Attorney is executed by Borrower on ________
__, 1997.
JAY JACOBS, INC.
By:
Name:
Title:
<PAGE>
EXHIBIT G
(Form of Certificate of Compliance)
[Date]
To: General Electric Capital - Commercial Finance Account Manager for Jay
Jacobs, Inc.
This is to certify that in accordance with Section 4.1(c) of the Loan and
Security Agreement dated August 29, 1997 that the attached Financial Statements
are complete and true and have been prepared in conformance with GAAP. In
addition there are no Defaults or Events of Default other than those specified
below continuing as of such date.
Also attached are the covenant calculations used in determining compliance with
the financial covenants contained in Schedule G to the Loan and Security
Agreement.
Very truly yours,
JAY JACOBS, INC.
By:
Name:
Title:
FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIS FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT ("Amendment") is
entered into as of October 23, 1997 by and between JAY JACOBS, INC., a
Washington corporation ("Borrower"), J.J. DISTRIBUTION COMPANY, a Washington
corporation ("Distribution"), and GENERAL ELECTRIC CAPITAL CORPORATION, a New
York corporation ("Lender"), with respect to the following facts:
RECITALS
A. Borrower, Distribution and Lender have entered into that certain Loan
and Security Agreement dated as of August 29, 1997 (the "Loan Agreement"),
pursuant to which Lender agreed to make certain financial accommodations to or
for the benefit of Borrower upon the terms and conditions contained therein.
Capitalized terms used herein and not otherwise defined shall have the
respective meanings ascribed to them in the Loan Agreement.
B. Borrower and Distribution have requested that Lender make certain
modifications to the Loan Agreement, and Lender is willing to make such
modifications upon the terms and conditions set forth in this Amendment.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing Recitals which are hereby
incorporated into this Amendment, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
1. Acknowledgment of Debt. Borrower and Distribution acknowledge and agree
that, as of October 22, 1997, Borrower was indebted to Lender for outstanding
Revolving Credit Advances in the aggregate amount of $7,211,895.72 and
outstanding Letter of Credit Obligations in the aggregate amount of $175,114,
plus accrued interest and all fees and costs incurred by Lender but not billed.
Each of Borrower and Distribution confirm and represent that it has no offset,
defense, counterclaim, dispute or disagreement of any kind or nature whatsoever
with respect to the amount of such indebtedness or to its obligations arising
under the Loan Documents, including, with respect to Distribution, its Guaranty,
which Guaranty Distribution hereby ratifies and reaffirms.
2. Amendment to Loan Agreement.
2.1 The following definition of "Additional Advance" is hereby added
to Schedule A to the Loan Agreement:
"Additional Advance" shall mean $500,000; provided, that upon the
earlier of (i) December 19, 1997 and (ii) the date that Borrower receives
an aggregate
<PAGE>
cash equity contribution (net of any customary fees or expenses, including
fees to investment bankers) of $500,000 or more, in each case including all
times thereafter, the "Additional Advance" shall mean $0.00.
2.2 The definition of "Borrowing Availability" set forth in Schedule A
to the Loan Agreement is hereby deleted in its entirety and the following is
substituted therefor:
"Borrowing Availability" shall mean, at any time, the lesser of (i)
the Borrowing Base plus the Additional Advance or (ii) the Maximum Amount,
in each case less reserves established by Lender from time to time.
3. Amendment to Open Items Letter. We refer to the letter agreement between
Borrower and Lender dated August 29, 1997, wherein Lender waived immediate
delivery of certain documents and other information (collectively, the "Open
Items") as a condition to the effectiveness of the Loan Agreement and the other
Loan Documents. Lender hereby agrees to further extend the time for performance
of the Open Items as follows:
Borrower will deliver to Lender, on or before November 28, 1997, the
Bank Direction Letters as required under Item 3.7(c) of the Schedule
of Documents.
Borrower's failure to deliver such documents by November 28, 1997 such
constitute an Event of Default.
4. In-Transit Inventory. Borrower has informed Lender that it has not
satisfied all of the conditions set forth in clause (i) of paragraph (d) of
Schedule 1.6 to the Loan Agreement with respect to Inventory in transit outside
of the United States that is currently in the Borrowing Base. At Borrower's
request, Lender hereby agrees to waive satisfaction of such conditions until
November 7, 1997. The failure to satisfy such conditions by November 7, 1997
shall constitute and Event of Default; provided, that Lender reserves it right
to establish reserves with respect to such Inventory in transit in accordance
with Section 1.6 of the Loan Agreement.
5. Amendment Fee. In consideration of the agreements of Lender set forth in
this Amendment, Borrower shall pay to Lender an amendment fee of $50,000 (the
"Amendment Fee"), which fee shall be fully earned upon Borrower's execution of
this Amendment and payable in two $25,000 installments. The first such
installment shall be payable upon Borrower's execution of this Amendment, and
the second installment shall be payable upon the earlier of (a) December 1, 1997
and (b) the date that Borrower receives an aggregate cash equity contribution
(net of any customary fees or expenses, including fees to investment bankers) of
$500,000 or more. Borrower and Distribution agree that Lender is expressly
authorized to pay each installment of the Amendment Fee with a Revolving Credit
Advance in accordance with Section 1.10 of the Loan Agreement.
6. Conditions of Effectiveness. This Amendment shall become effective upon
Lender's receipt of (a) this Amendment executed by Borrower and Distribution and
(b) the first installment of the Amendment Fee described in paragraph 5 above.
<PAGE>
7. Representations and Warranties. Each of Borrower and Distribution
represent and warrant as follows: (a) its representations and warranties
contained in the Loan Agreement were true and correct in all material respects
when made and, except to the extent that a particular representation and
warranty by its terms expressly applies only to an earlier date, are true and
correct in all material respects as of the date hereof after giving effect to
this Amendment; and (b) this Amendment, the Loan Agreement as amended hereby,
and the other Loan Documents constitute the legal, valid and binding obligations
of each of Borrower and Distribution, enforceable against such Person in
accordance with their respective terms.
8. Miscellaneous.
8.1 Complete Agreement. The Loan Agreement, as amended by this
Amendment, together with the other Loan Documents, constitute the complete
agreement between the parties, and supersede any prior written or oral
agreements, writings, communications or understandings of the parties with
respect to the subject matter thereof.
8.2 Counterparts. This Amendment may be executed in identical
counterpart copies, each of which shall be an original, but all of which shall
constitute one and the same agreement.
8.3 Governing Law. This Amendment shall be governed by, and construed
and enforced in accordance with, the laws of the State of Washington applicable
to contracts made and performed in such state, without regard to the principles
thereof regarding conflict of laws.
8.4 Effect of Amendment. Borrower, Distribution and Lender hereby
acknowledge and agree to the following:
(a) upon the effectiveness of this Amendment, on and after the
date hereof, each reference in the Loan Agreement to "this Agreement,"
"hereunder," "hereof" or words of similar import shall mean and be a reference
to the Loan Agreement as amended hereby, and each reference in the other Loan
Documents to the Loan Agreement, "thereunder," "thereof," or words of similar
import shall mean and be a reference to the Loan Agreement as amended hereby;
(b) the execution, delivery and effectiveness of this Amendment
shall not, except to the extent specifically set forth herein, operate as a
waiver of any right, power or remedy by Lender under the Loan Agreement or any
other Loan Document, or constitute a waiver of any provision in the Loan
Agreement or in any of the other Loan Documents;
(c) except to the extent specifically amended by the terms of
this Amendment, all of the provisions of the Loan Agreement shall remain in full
force and effect to the extent in effect on the date hereof; and
<PAGE>
(d) in the event of any inconsistency between the provisions of
this Amendment and any other provision of the Loan Agreement, the terms and
provisions of this Amendment shall govern and control.
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment
to Loan and Security Agreement as of the date first written above.
"Borrower"
JAY JACOBS, INC.
By:
-----------------------------------------
Its:
----------------------------------------
"Distribution"
J.J. DISTRIBUTION COMPANY
By:
-----------------------------------------
Its:
----------------------------------------
"Lender"
GENERAL ELECTRIC CAPITAL CORPORATION
By:
-----------------------------------------
Bruce Brown
Duly Authorized Signatory
SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT
This Second Amendment to Loan and Security Agreement ("Amendment") is dated
as of December 5, 1997, and entered into by and between JAY JACOBS, INC., a
Washington corporation ("Borrower"), J.J. DISTRIBUTION COMPANY, a Washington
corporation ("Distribution"), and GENERAL ELECTRIC CAPITAL CORPORATION, a New
York corporation ("Lender").
R E C I T A L S:
WHEREAS Borrower, Distribution and Lender are parties to a Loan and
Security Agreement dated as of August 29, 1997, as amended by that certain First
Amendment to Loan and Security Agreement dated as of October 23, 1997
(collectively, the "Loan Agreement"; capitalized terms used herein without
definition shall have the meaning set forth in the Loan Agreement), pursuant to
which Lender has extended to Borrower a revolving credit loan (including a
subfacility for letters of credit);
WHEREAS, in connection with the proposed investment in Borrower by one or
more affiliates of Cahill, Warnock & Company, LLC and possibly other accredited
or institutional investors ("Purchasers") pursuant to the form of Preferred
Stock Purchase Agreement attached hereto as Exhibit A (the "Purchase
Agreement"), Borrower has requested that Lender amend the Loan Agreement in
accordance with the terms hereof; and
WHEREAS Lender wishes to grant Borrower's request on the terms and
conditions set forth herein,
NOW, THEREFORE, for valuable consideration the receipt and sufficiency of
which is hereby acknowledged, the parties hereto agree as follow
ARTICLE I. AMENDMENTS
1.1 Defined Terms
On and after the Effective Date (as hereinafter defined), Schedule A to the
Loan Agreement shall be amended to include the following additional and revised
definitions:
"Additional Equity" shall mean an aggregate cash equity contribution (net
of customary investment banking fees of Purchasers, reimbursable expenses
of Purchasers, and out of pocket fees and expenses of Borrower) received by
Borrower on or after the Closing Date of not less than $6,000,000.
"Additional Equity Account" shall have the meaning assigned to it in
Schedule D.
"Fixed Charge Coverage Ratio" shall mean, for the last day of any Fiscal
Month for
<PAGE>
the twelve (12) Fiscal Month period ending on such day, the ratio of the
following for Borrower and its Subsidiaries on a consolidated basis
determined in accordance with GAAP: (a) EBITDA plus Lease Expenses less
Capital Expenditures that are not financed through the incurrence of any
Indebtedness (excluding the Revolving Credit Loan) plus Capital
Expenditures that are made with the proceeds of the Additional Equity, in
each case for such period; to (b) the sum of (i) interest expense (net of
interest income) paid or deemed paid in respect of any indebtedness during
such period plus (ii) regularly scheduled payments of principal paid or
deemed paid on Funded Debt (excluding the Revolving Credit Loan) during
such period plus (iii) taxes to the extent accrued or otherwise payable
with respect to such period plus (iv) Lease Expenses during such period
plus (v) cash dividends paid with respect to the Preferred Stock during
such period.
"Plan of Reorganization" shall mean Borrower's Second Amended Chapter 11
Plan of Reorganization dated November 16, 1995 and filed with the United
States Bankruptcy Court for the Western District of Washington at Seattle
in Chapter 11 Case No. 94-03993, as in effect on the Closing Date, and as
further amended in accordance with the terms of the Order Re-Opening Case,
Modifying Treatment of Class 3 (General Unsecured) Claims Under Plan, and
Re-Closing Case entered on December 1, 1997.
"Preferred Stock" shall mean Borrower's Series A Preferred Stock and Series
B Preferred Stock, in each case issued pursuant to the terms of the
Statement of Rights and Preferences.
"Purchase Agreement" shall mean the Preferred Stock Purchase Agreement
between Borrower, as seller, and one or more affiliates of Cahill, Warnock
& Company, LLC and such other accredited or institutional investors, as
purchasers, dated as of December 3, 1997.
"Purchasers" shall mean the "Purchasers" under and as defined in the
Purchase Agreement.
"Statement of Rights and Preferences" shall mean the Statement of Rights
and Preferences of Series A Preferred Stock and Series B Preferred Stock of
Jay Jacobs, Inc., as in effect on December 3, 1997 and as amended from time
to time with the consent of the Lender."
1.2 Use of Proceeds
On and after the Effective Date, Section 1.3 of the Loan Agreement shall be
amended to read as follows:
"Borrower shall use the proceeds of the Revolving Credit Loan to repay
all of its outstanding indebtedness to LaSalle National Bank and for
general working capital
<PAGE>
and corporate uses not otherwise prohibited by the terms of this Agreement,
but excluding in any event the making of any Restricted Payment not
otherwise permitted under Section 5(l); provided, that in no event shall
Borrower use the proceeds of the Revolving Credit Loan for the payment of
Capital Expenditures at any time that there are funds in the Additional
Equity Account."
1.3 Reports and Notices
On and after the Effective Date, Section 4.1(b) of the Loan Agreement shall
be amended by adding the following at the end of such clause:
"together with a report of the sources and uses of funds in the
Additional Equity Account during such Fiscal Month".
1.4 5(l) Restricted Payments
On and after the Effective Date, Section 5(l) of the Loan Agreement shall
be amended to read as follows:
"Make or permit any Restricted Payment; provided, that so long as no
Default or Event of Default has occurred and is continuing or would occur
as a result of such payment, then Borrower may pay dividends on account of
its Preferred Stock, cash or otherwise, in accordance with the terms of the
Statement of Rights and Preferences."
1.5 5(n) Modification of PCC Debt
On and after the Effective Date, Section 5(n) of the Loan Agreement shall
be amended by addition of the following proviso at the end thereof:
"; and provided further, that Borrower may satisfy all or any amount of the
PCC Debt in excess of 95% thereof in aggregate principal amount, by payment
of not more than (i) $1,500,000 in cash and (ii) issuance of $1,000,000 in
value of Borrower's common Stock in substitution therefor, in accordance
with the Purchase Agreement".
1.6 Statement of Rights and Preferences
On and after the Effective Date, a new Section 5(p) shall be added to the
Loan Agreement as follows:
"(p) amend the Statement of Rights and Preferences without the prior
written consent of Lender."
1.7 Schedule D (Cash Management)
On and after the Effective Date, Schedule D to the Loan Agreement shall be
amended
<PAGE>
by: (i) the addition of "(other than the Additional Equity)" in the third line
of paragraph 2 thereof between the words "and all other receipts" and "into
blocked accounts"; and (ii) the addition of the following paragraph number 10 to
Schedule D to the Loan Agreement:
"10. Borrower shall deposit all of the net proceeds of the Additional
Equity to a deposit account (the "Additional Equity Account") with a bank
or other financial institution acceptable to Lender that shall enter into a
tri-party blocked account agreement (the "Additional Equity Account
Agreement") with Lender and Borrower, in form and substance acceptable to
Lender. The Additional Equity Account Agreement shall provide, among other
things, that the bank or other financial institution shall have no rights
of setoff or recoupment or any other claim against the Additional Equity
Account, other than for payment of its service fees and other charges
directly related to the administration of such account. The Additional
Equity Account shall be under the sole dominion and control of Lender;
provided, that prior to the occurrence of an Event of Default, Borrower may
use funds in the Additional Equity Account for any purpose permitted by the
Loan Agreement."
1.8 Schedule E (Fees)
On and after the Effective Date, paragraph 2 of Schedule E to the Loan
Agreement shall be amended to read as follows:
"2. Closing Fee. Borrower shall pay to Lender an origination fee in the
amount of $175,000, which fee shall be fully earned on the Closing Date;
$100,000 of such fee shall be payable on the Closing Date and $75,000 of
such fee shall be payable on December 31, 1997; provided, that payment by
Borrower of the $75,000 installment will be waived by Lender if Borrower
has received the Additional Equity on or before December 31, 1997 and no
Default or Event of Default has then occurred and is continuing."
1.9 Schedule G (Financial Covenants)
On and after the Effective Date, paragraph (a) of Schedule G to the Loan
Agreement shall be amended by deleting the amounts of "Maximum Capital
Expenditures per Period" set forth therein for the Fiscal Years ended 1/30/99
and 1/29/00 and replacing such amounts with "$2,000,000" and "$4,000,000" for
such Fiscal Years, respectively.
1.10 Open Items Letter
We refer to the letter agreement between Borrower and Lender dated August
29, 1997, wherein Lender waived immediately delivery of certain documents and
other information (collectively, the "Open Items") as a condition to the
effectiveness of the Loan Agreement and the other Loan Documents. On and after
the Effective Date the time for performance of the Open Items shall be extended
as follows:
<PAGE>
"With respect to the Bank Direction Letters required under Item 3.7(c) of
the Schedule of Documents, Borrower shall have delivered to Lender (a) not
less than 50% of such letters by January 31, 1998, and (b) not less than
70% of such letters by February 28, 1998. In addition, Borrower shall have
delivered by February 28, 1998, direction letters in form and substance
satisfactory to Lender with respect to Borrower's charge card agreements
with each of American Express, First Data and the Discover Card. The
failure to deliver such documents by the respective dates set forth above
shall constitute an Event of Default."
ARTICLE II. CONSENTS
2.1 Change of Control
Lender hereby gives its consent, pursuant to Sections 7.1(l) and 9.3 of the
Loan Agreement, to any Change of Control of Borrower resulting directly or
indirectly from (i) the sale of the Preferred Stock to the Purchasers, (ii) the
conversion of Preferred Stock to common Stock, and (iii) the aggregate effect of
all other transactions contemplated by Borrower and Purchasers relating to the
Purchase Agreement, including without limitation the issuance of $1,000,000 in
value of Borrower common Stock in satisfaction of PCC Debt and the issuance of
new stock options to the management of Borrower pursuant to the Purchase
Agreement.
2.2 Additional Equity Account
Lender hereby gives its consent, pursuant to Sections 3.19 and 9.3 of the
Loan Agreement, to creation of the Additional Equity Account and to the addition
of the Additional Equity Account to Schedule 3.19.
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF BORROWER
In order to induce Lender to enter into this Amendment Borrower and
Distribution represent and warrant to Lender that the following statements are
true and correct:
3.1 Corporate Power and Authority
Each of Borrower and Distribution has all corporate power and authority to
enter into this Amendment and carry out the transactions contemplated hereby,
and perform its obligations under the Loan Agreement, as amended hereby.
3.2 Incorporation of Representations and Warranties from Loan Agreement
The representations and warranties contained in Article V of the Loan
Agreement are and will be true, correct, and complete in all material respects
on and as of the date of the Effective Date to the same extent as though made on
and as of that date, except to the extent such representations and warranties
specifically relate to an earlier date, in which they were true and correct in
all material respects on and as of such earlier date.
<PAGE>
3.3 Absence of Default
No event has occurred and is continuing that constitutes or will constitute
a Default or an Event of Default.
ARTICLE IV. CONDITIONS TO EFFECTIVENESS
Article I and Article II of this Amendment shall become effective as of the
closing of the investment by Purchasers in Borrower pursuant to the Purchase
Agreement (the "Effective Date"), provided that (a) all representations and
warranties contained herein are true and correct as of the Effective Date, and
(b) Lender shall have received on or before the Effective Date (or such other
date indicated below) each of the following, dated the date hereof (or such
other date satisfactory to Lender), and in form and substance satisfactory to
Lender.
4.1 Amendment
A duly executed original (or, if elected by Lender, an executed facsimile
copy) of this Amendment, duly executed by Borrower, Distribution and Lender.
4.2 Purchase Agreement
A fully executed copy of the Purchase Agreement.
4.3 Articles of Incorporation
Within two business days of the closing of the investment, Borrower's
amended Articles of Incorporation incorporating the terms of the Statement of
Rights and Preferences and certified by the Washington Secretary of State.
4.4 Pledged Account Agreement
A Pledged Account Agreement in form and substance satisfactory to Lender
with respect to the Additional Equity Account.
4.5 Additional Equity
(a) Within ten business days of the closing of the investment, Lender shall
have received evidence satisfactory to it that the Company has distributed to
the holders of the PCC Debt the $1,500,000 cash payment to be made in accordance
with Section 3.2 of the Purchase Agreement.
(b) Lender shall have received from the Company from the proceeds of the
Additional Equity an amount sufficient to repay the Additional Advance and
Borrower's other repayment obligations arising under Section 1.2(a) of the Loan
Agreement as of the Effective
<PAGE>
Date.
4.6 Further Assurances
All corporate and other proceedings taken or to be taken in connection with
the transactions contemplated by this Amendment and all documents relating
thereto shall be reasonably satisfactory in form and substance to Lender and
Lender shall have received all counterpart originals or certified copies of such
documents as it may reasonably request.
ARTICLE V. MISCELLANEOUS
5.1 Reservation of Rights
Borrower and Distribution acknowledge and agree that the execution and
delivery by Lender of this Amendment shall not be deemed to create a course of
dealing or otherwise obligate Lender to give similar amendments in the future.
5.2 Security
The Loan Agreement, as amended hereby, the Pledge Agreement, the
Intellectual Property Security Agreement, and all other Loan Documents creating,
evidencing and/or perfecting Lender's security interest in the Collateral shall
remain in full force and effect and shall secure the Obligations, as amended
herein. At any time and from time to time, upon the reasonable request of Lender
and at the sole expense of Borrower, Borrower and Distribution will promptly
execute and deliver such further instruments and documents, take such further
actions as Lender may reasonably request for the purpose of obtaining or
preserving the full benefits of this Amendment and rights and powers herein
granted to Lenders under the Loan Agreement or any of the other Loan Documents.
5.3 Supersession
This Amendment, together with the Loan Agreement, contains the entire and
exclusive agreement of the parties hereto with reference to the matters
discussed herein and therein. This Amendment supersedes all prior drafts and
communications with respect thereto. This Amendment may not be amended except in
accordance with the provisions of Section 9.1 of the Loan Agreement.
ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO FORBEAR
FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW.
5.4 Fees and Expenses
Borrower acknowledges that all reasonable costs, fees, and expenses as
described in Section 9.2 of and Schedule E to the Loan Agreement incurred by
Lender and its counsel with
<PAGE>
respect to this Amendment and the documents and transactions contemplated hereby
shall be for the account of Borrower.
5.5 Invalidity
If any term or provision of this Amendment shall be deemed prohibited by or
invalid under any applicable law, such provision shall be invalidated without
affecting the remaining provisions of this Amendment or the Loan Agreement,
respectively.
5.6 Governing Law
This Amendment and the rights and obligations of the parties hereunder
shall be governed by, and shall be construed and enforced in accordance with the
internal laws of the State of Washington, without regard to conflicts of laws
principles.
5.7 Headings
Section and subsection headings in this Amendment are included herein for
convenience of reference only and shall not constitute a part of this Amendment
for any other purpose or be given any substantive effect.
5.8 Successors
This Amendment shall be binding upon and inure to the benefit of the
parties hereto and thereto and their respective successors and assigns. No
third-party beneficiaries are intended in connection with this Amendment.
5.9 Counterparts
This Amendment may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when executed
and delivered shall be deemed an original, but all such counterparts together
shall constitute but one and the same instrument; signature pages may be
detached from multiple separate counterparts and attached to a single
counterpart so that all signature pages are physically attached to the same
document.
5.10 Effect of Amendment
Borrower, Distribution and Lender hereby acknowledge and agree to the
following:
(a) upon the effectiveness of this Amendment, on and after the date hereof,
each reference in the Loan Agreement to "this Agreement," "hereunder," "hereof"
or words of similar import shall mean and be a reference to the Loan Agreement
as amended hereby, and each reference in the other Loan Documents to the Loan
Agreement, "thereunder," "thereof," or words of similar import shall mean and be
a reference to the Loan Agreement as amended hereby;
<PAGE>
(b) the execution, delivery and effectiveness of this Amendment shall not,
except to the extent specifically set forth herein, operate as a waiver of any
right, power or remedy by Lender under the Loan Agreement or any other Loan
Document, or constitute a waiver of any provision in the Loan Agreement or in
any of the other Loan Documents;
(c) except to the extent specifically amended by the terms of this
Amendment, all of the provisions of the Loan Agreement shall remain in full
force and effect to the extent in effect on the date hereof; and
(d) in the event of any inconsistency between the provisions of this
Amendment and any other provision of the Loan Agreement, the terms and
provisions of this Amendment shall govern and control.
ARTICLE VI. LENDER'S ACKNOWLEDGMENT
Lender hereby acknowledges that, based solely upon (a) the most recent
Borrowing Base Certificate received by Lender dated December 2, 1997, and (b)
the representation and warranty of Borrower and Distribution regarding the
absence of Defaults set forth in Section 3.3 above, as of the Effective Date, to
the actual knowledge of Lender (without any duty to investigate), no Default or
Event of Default has occurred and is continuing under the Loan Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment to
be duly executed and delivered by its respective officers therein to be duly
authorized as of the date first above written.
BORROWER:
JAY JACOBS, INC.
By
------------------------------------------
William L. Lawrence, Jr.
Executive Vice President and
Chief Financial Officer
DISTRIBUTION:
J.J. DISTRIBUTION COMPANY
By
------------------------------------------
William L. Lawrence, Jr.
President
LENDER:
<PAGE>
GENERAL ELECTRIC CAPITAL CORPORATION
By
------------------------------------------
Steven Sanicola
Duly Authorized Signatory
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial data extracted from the
Registrant's audited consolidated financial statements as of and for the
quarter ended April 27, 1996, and is qualified in its entirety by reference
to such financial statements and the notes thereto.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
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<PERIOD-START> AUG-03-1997
<PERIOD-END> NOV-01-1997
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0
0
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