U.S. Securities and Exchange Commission
Washington, D.C. 20549
________________________________
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the Quarterly Period Ended April 30, 1998
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 0-10593
CANDIE'S, INC.
(Exact name of registrant as specified in its charter)
Delaware 11-2481903
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2975 Westchester Avenue
Purchase, NY 10577
(Address of principal executive offices) (Zip Code)
(914) 694-8600
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No ___
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
Common Stock, $.001 Par Value -- 14,173,364 shares as of June 10, 1998
<PAGE>
INDEX
FORM 10-Q
CANDIE'S, INC. and SUBSIDIARIES
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Part I. Financial Information
Item 1. Financial Statements - (Unaudited)
Condensed Consolidated Balance Sheets - April 30, 1998 and January 31, 1998.......................... 3
Condensed Consolidated Statements of Income - Three Months Ended April 30,1998
and 1997 ............................................................................................ 4
Condensed Consolidated Statement of Stockholders' Equity - Three Months Ended
April 30, 1998....................................................................................... 5
Condensed Consolidated Statements of Cash Flows - Three Months Ended April 30,
1998 and 1997........................................................................................ 6
Notes to Condensed Consolidated Financial Statements................................................. 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ........ 9
Part II. Other Information
Item 1. Legal Proceedings.................................................................................. 11
Item 2. Changes in Securities.............................................................................. 11
Item 6. Exhibits and Reports on Form 8-K................................................................... 11
Signatures ................................................................................................ 12
Index to Exhibits.......................................................................................... 13
</TABLE>
<PAGE>
Part I. Financial Information
Candie's, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
April 30, January 31,
1998 1998
----------- -----------
(Unaudited) (Note)
(000's omitted, except share data)
<S> <C> <C>
Assets
Current Assets
Cash ............................................... $ 19 $ 367
Accounts receivable, net ........................... 4,998 2,805
Inventories ........................................ 7,595 16,179
Due from factor .................................... 13,454 831
Deferred income taxes .............................. 653 801
Prepaid advertising and marketing .................. 2,945 1,821
Other current assets ............................... 496 604
------- -------
Total Current Assets ..................................... 30,160 23,408
Property and equipment, at cost:
Furniture, fixtures and equipment .................. 2,000 1,810
Less: Accumulated depreciation and amortization .... 1,056 959
------- -------
944 851
Other assets:
Deferred income taxes .............................. 1,443 1,443
Intangibles ........................................ 4,770 4,860
Other .............................................. 722 319
------- -------
6,935 6,622
------- -------
Total Assets ............................................. $38,039 $30,881
======= =======
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable and accrued expenses .............. $ 3,763 $ 6,139
------- -------
Total Current Liabilities ................................ 3,763 6,139
Long-term liabilities .................................... 60 61
Stockholders' Equity
Preferred stock, $.01 par value
--authorized 5,000,000 shares;
none issued and outstanding
Common stock, $.001 par value
--authorized 30,000,000 shares;
issued and outstanding:
14,170,364 and 12,425,014 shares ....... 14 12
Additional paid-in capital ............................... 31,930 23,453
Retained earnings* ....................................... 2,272 1,216
------- -------
34,216 24,681
------- -------
Total Liabilities and Stockholders' Equity ............... $38,039 $30,881
======= =======
</TABLE>
* Accumulated since February 28, 1993, deficit eliminated of $27,696
Note: The balance sheet at January 31, 1998 has been derived from the audited
financial statements at that date.
See notes to condensed consolidated financial statements.
3
<PAGE>
Candie's, Inc. and Subsidiaries
Condensed Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
---------------------
April 30, April 30,
1998 1997
--------- ---------
(000's omitted, except per share data)
<S> <C> <C>
Net revenues ............................................. $25,693 $16,861
Cost of goods sold ....................................... 18,295 11,774
------- -------
Gross profit ............................................. 7,398 5,087
Selling, general and administrative expenses ............. 5,368 3,416
------- -------
Operating income ......................................... 2,030 1,671
Other expenses:
Interest expense - net ................... 274 275
Other - net .............................. -- 68
------- -------
274 343
------- -------
Income before income taxes ............................... 1,756 1,328
Income taxes ............................................. 700 505
------- -------
Net income ............................................... $ 1,056 $ 823
======= =======
Earnings per common share:
Basic ................................ $ .08 $ .08
======= =======
Diluted .............................. $ .07 $ .06
======= =======
Weighted average number of common shares outstanding:
Basic ................................ 13,656 9,975
======= =======
Diluted .............................. 16,015 12,730
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
Candie's, Inc. and Subsidiaries
Condensed Consolidated Statement of Stockholders' Equity
(Unaudited)
Three Months Ended April 30, 1998
(000's omitted)
<TABLE>
<CAPTION>
Additional
Common Stock Paid-In Retained
Shares Amount Capital Earnings Total
-------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C>
Balance at January 31, 1998 .................................. 12,425 $ 12 $23,453 $ 1,216 $24,681
Exercise of stock options and warrants .................... 1,729 2 8,197 -- 8,199
Issuance of common stock to retirement plan .............. 16 -- 78 -- 78
Tax benefit from exercise of stock options ............... -- -- 202 -- 202
Net income ................................................ -- -- -- 1,056 1,056
------- ------- ------- ------- -------
Balance at April 30, 1998 .................................... 14,170 $ 14 $31,930 $ 2,272 $34,216
======= ======= ======= ======= =======
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
Candie's, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
------------------------------
April 30, April 30,
1998 1997
------------------------------
(000's omitted)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income ............................................................................. $ 1,056 $ 823
Items in net income not affecting cash:
Depreciation and amortization .................................................... 193 129
Changes in operating assets and liabilities:
Accounts receivable ......................................................... (2,193) (83)
Inventories ................................................................. 8,584 (622)
Prepaid advertising and marketing ........................................... (1,016) (390)
Other assets ................................................................ (59) (4)
Accounts payable and accrued expenses ....................................... (2,376) 2,217
Due to/from factor .......................................................... (12,623) (3,545)
Long-term liabilities ....................................................... (1) (3)
------------------------------
Net cash used in operating activities .................................................. (8,435) (1,478)
------------------------------
INVESTING ACTIVITIES:
Purchases of property and equipment .............................................. (190) (3)
------------------------------
Net cash used in investing activities .................................................. (190) (3)
------------------------------
FINANCING ACTIVITIES:
Proceeds from exercise of stock options and warrants ............................. 8,277 1,289
------------------------------
Net cash provided by financing activities .............................................. 8,277 1,289
------------------------------
DECREASE IN CASH ....................................................................... (348) (192)
Cash at beginning of period ............................................................ 367 389
------------------------------
Cash at end of period .................................................................. $ 19 $ 197
==============================
</TABLE>
See notes to condensed consolidated financial statements.
6
<PAGE>
Candie's, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
April 30, 1998
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report on Form 10-K for the
year ended January 31, 1998.
Operating results for the three month period ended April 30, 1998 are not
necessarily indicative of the results that may be expected for a full fiscal
year.
NOTE B -- PROPOSED MERGER
The Company began to license the use of the CANDIE'S(R) trademark from New
Retail Concepts, Inc. ("NRC") in June 1991 and in March 1993 purchased ownership
of the CANDIE'S(R) trademark from NRC together with certain pre-existing
licenses of NRC. NRC is a publicly traded company engaged primarily in the
licensing and sublicensing of fashion trademarks and a significant shareholder
of the Company. NRC's principal shareholder is also the Company's President and
Chief Executive Officer.
The Company and NRC have executed a Merger Agreement dated April 6, 1998, (the
"Merger Agreement") which provides that NRC will be merged with and into the
Company (the "Merger"), and the Company will be the surviving corporation. At
the effective date of the Merger (the "Effective Date"), each issued and
outstanding share of NRC common stock $.01 par value (the "NRC Common Stock"),
and each issued and outstanding option to purchase shares of NRC Common Stock
immediately prior to the Effective Date will be converted, respectively, into
0.405 shares of common stock, $.001 par value of the Company (the "Common
Stock"), and options to purchase 0.405 shares of Common Stock respectively.
The completion of the Merger is subject to a number of conditions, including
among other things, the approval of the stockholders of both the Company and NRC
and the registration of the Common Stock to be issued to the holders of NRC
pursuant to the Merger under the Securities Act of 1933, as amended. No
assurance can be given that the Company and NRC will be able to successfully
obtain the requisite stockholder approval or that the Company will otherwise be
able to consummate the Merger.
At April 6, 1998, there were 5,693,639 shares of NRC Common Stock issued and
outstanding and options to purchase 1,635,000 shares of NRC Common Stock
outstanding. NRC currently owns 1,227,696 shares of Common Stock and has options
and warrants to purchase an additional 800,000 shares of Common Stock, all of
which will be extinguished upon consummation of the Merger.
7
<PAGE>
Candie's, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited) - Continued
NOTE C -- EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued SFAS No. 128, "Earnings
Per Share" SFAS No. 128 replaced the calculation of primary and fully diluted
earnings per share with basic and diluted earnings per share. Unlike primary
earnings per share, basic earnings per share excludes any dilutive effects of
option, warrants and convertible securities. Diluted earnings per share is very
similar to the previously reported fully diluted earnings per share. Earnings
per share amounts and weighted average shares for April 1997 have been restated
in accordance with the SFAS No. 128 requirements.
The following is a reconciliation of the numerator and denominators of the basic
and diluted EPS computations and other related disclosures required by SFAS No.
128:
April 30,
-------------------
1998 1997
-------------------
(000's omitted)
Numerator:
Numerator for basic and diluted earnings per share ..... $ 1,056 $ 823
===================
Denominator:
Denominator for basic earnings per share ............... 13,656 9,975
Effect of dilutive securities .......................... 2,359 2,755
-------------------
Denominator for diluted earnings per share ............. 16,015 12,730
===================
Basic earnings per share ............................... $ .08 $ .08
===================
Diluted earnings per share ............................. $ .07 $ .06
===================
Outstanding options in 1998 and outstanding options of warrants in 1997 to
purchase 80,000 and 277,000 shares of common stock, respectively, at exercise
prices exceeding the average market price of the common stock were not included
in the computation of diluted earnings per share as the effect would have been
anti-dilutive.
NOTE D -- SUBSEQUENT EVENT -FINANCING AGREEMENTS
On May 27, 1998, the Company entered into a three year $35 million revolving
credit facility (the "Facility"). Under certain conditions, including the
addition of a second lender, the Facility may increase to a maximum of $50
million. Borrowings under the Facility currently bear interest at 1.75% below
the prime rate (8 1/2% at May 27, 1998) and also the Company has the option to
borrow at either LIBOR plus 1.25% or the banker's acceptance rate plus 1%. These
rates are fixed and subject to an increase or decrease based on certain
conditions beginning in November 1998. The Company will pay a commitment fee of
1/4% on the unused portion of the Facility.
Borrowings under the Facility are formula based and available up to the maximum
amount of the Facility. The facility also contains certain financial covenants
including, minimum tangible net worth, certain specified ratios and other
limitations as defined. The Company has granted the lender a security interest
in substantially all of its assets.
Simultaneously with the above, the Company entered into a new factoring
agreement whereby the Company has the option to sell any or all of its accounts
receivable to the lender, principally without recourse, subject to maximum
credit limits established by the lender for individual accounts. Receivables not
sold to the lender or in excess of such maximum credit limits are subject to
recourse.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Safe Harbor Statement under the Private Securities Litigation Reform Act of
1995. The statements which are not historical facts contained in this Quarterly
Report on Form 10-Q are forward looking statements that involve a number of
known and unknown risks, uncertainties and other factors which may cause the
actual results, performance or achievements of the Company to be materially
different from any future results, performance or achievements expressed or
implied by such forward looking statements. Such factors include, but are not
limited to, uncertainty regarding continued market acceptance of current
products and the ability to successfully develop and market new products
particularly in light of rapidly changing fashion trends, the impact of supply
and manufacturing constraints or difficulties particularly in light of the
Company's dependence on foreign manufacturers, uncertainties relating to
customer plans and commitments, competition, uncertainties relating to economic
conditions in the markets in which the Company operates, the ability to hire and
retain key personnel, the ability to obtain additional capital if required, the
risks of uncertainty of trademark protection and other risks detailed below and
in the Company's Securities and Exchange Commission filings.
Results of Operations
Revenues. Net revenues increased by $8.8 million or 52% to $25.7 million in
the three months ended April 30, 1998, from $16.9 million in the comparable
period of the prior year, primarily due to increased brand awareness and
consumer acceptance due to the Company's increased sales and marketing efforts
coupled with increased sales in all product categories, the successful
introduction of children's footwear products and increased selling prices.
Gross Profit. Gross profit margins decreased to 28.8% in the three months
ended April 30, 1998 from 30.2% in the comparable period of the prior year. The
decrease was primarily attributable to changes in product mix.
Operating Expenses. Selling, general and administrative expenses increased
by $1.9 million or 57% to $5.4 million in the three months ended April 30, 1998
from $3.4 million in the comparable period of the prior year. The increase
reflects the costs incurred in implementing the Company's strategic plan to
strengthen its management team and infrastructure, which the Company believes
has created the foundation for future growth, coupled with costs which are
directly associated with the increase in net revenues. As a percentage of net
revenues, selling, general and administrative expenses increased 0.6% to 20.9%
for the three months ended April 30, 1998 from 20.3% for the comparable period
of the prior year.
Interest Expenses. Interest expense for the first quarter of fiscal 1999
was $274,000, compared to $275,000 for the first quarter of fiscal 1998. The
decrease resulted from lower average borrowings and to a lesser extent lower
interest rates under the Company's credit facility.
Net Income. As a result of the foregoing, net income increased to
$1,056,000 for the three months ended April 30, 1998, compared to net income of
$823,000 for the corresponding period a year ago.
Earnings Per Share. Earnings per share was $.07 on a diluted basis, which
reflects an additional 3.3 million weighted average shares outstanding, compared
to $.06 per diluted share in comparable quarter of the prior year which has been
restated to comply with the requirements of SFAS No. 128 on earnings per share.
The increase in the weighted average shares outstanding was primarily the result
of the exercise of approximately 4.0 million warrants and options since the
first quarter of fiscal 1998.
Liquidity and Capital Resources
Working capital increased approximately $9 million to $26 million at April 30,
1998 from $17 million at January 31, 1998. The current ratio increased to 8:1
compared to 3.8:1 at January 31, 1998. Inventory levels at April 30, 1998
decreased by $8.6 million to $7.6 million from $16 million at January 31, 1998.
The Company has relied in the past primarily upon revenues generated from
operations, borrowings from its factor and sales of securities to finance its
liquidity and capital needs. Net cash used in operating activities totaled $8.4
million for the first quarter of fiscal 1999, as compared to $1.5 million for
the first quarter of fiscal 1998. Such utilization of cash was used to repay
short-term borrowings under the factoring agreement.
Other than short-term borrowings, the Company is virtually debt-free.
Capital expenditures were $190,000 for the first quarter of fiscal 1999 compared
to $3,000 for the first quarter of fiscal 1998.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Liquidity and Capital Resources - Continued
During the quarter ended April 30, 1998 (up to and including February 23, 1998),
substantially all of the Company's outstanding Class C warrants ("Warrants")
were exercised and the Company received aggregate proceeds of $7.16 million from
the exercise of such Warrants. The proceeds were used to repay short-term
borrowings. Each Warrant entitled the holder thereof to purchase one share of
Common Stock at an exercise price of $5.00. In addition, the Company received
proceeds of $1.12 million in connection with the issuance of common stock
relating to the exercise of outstanding stock options and certain underwriters'
warrants.
On May 27, 1998, the Company entered into a three year $35 million revolving
credit facility (the "Facility"). Under certain conditions, including the
addition of a second lender, the Facility may increase to a maximum of $50
million. Borrowings under the Facility currently bear interest at 1.75% below
the prime rate (8 1/2% at May 27, 1998) and also the Company has the option to
borrow at either LIBOR plus 1.25% or the banker's acceptance rate plus 1%. These
rates are fixed and subject to an increase or decrease based on certain
conditions beginning in November 1998. The Company will pay a commitment fee of
1/4% on the unused portion of the Facility.
Borrowings under the Facility are formula based and available up to the maximum
amount of the Facility. The facility also contains certain financial covenants
including, minimum tangible net worth, certain specified ratios and other
limitations as defined. The Company has granted the lender a security interest
in substantially all of its assets.
The Company believes that it will be able to satisfy its ongoing cash
requirements for the foreseeable future, including requirements for its
expansion, primarily with cash flow from operations, supplemented by borrowings
under the Facility.
Year 2000 Issues
The Company has assessed the issues associated with its existing computer system
with respect to a two digit year value as the year 2000 approaches and is in the
process of implementing a new computer system which it believes addresses such
issues. The Company also believes that implementation of this system is not a
material event or uncertainty that would cause expected financial information
not to be indicative of future operating results or financial condition.
10
<PAGE>
PART II. Other Information
Item 1. Legal Proceedings
The Company is party to certain litigation incurred in the normal
course of business. While any litigation has an element of
uncertainty, the Company believes that the final outcome of any of
these matters will not have a material adverse effect on the Company's
financial position or future liquidity.
Item 2. Changes in Securities
During the quarter ended April 30, 1998, the Company issued 15,874
shares of its common stock as a matching contribution in connection
with the Company's 401(k) savings plan. In addition, the Company
issued five-year options to certain employees to purchase an aggregate
of 165,000 shares of its common stock at an average exercise price of
$5.28. The foregoing shares and options were acquired by the holders
for investment in private transactions exempt from registration by
Sections 2(3) or 4(2) of the Securities Act of 1933.
Item 6. Exhibits and Reports on Form 8-K
A. Exhibit 10.1 - Revolving Credit and Security Agreement
B. Exhibit 10.2 - Factoring Agreement
C. Exhibit 27 - Financial Data Schedule
D. Reports on Form 8-K
None
11
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CANDIE'S, INC.
----------------------------
(Registrant)
Date June 11, 1998 /s/ Neil Cole
--------------------------- ----------------------------
Neil Cole
Chief Executive Officer on
Behalf of the Registrant.
Date June 11, 1998 /s/ David Golden
--------------------------- ----------------------------
David Golden
Senior Vice President and
Chief Financial Officer
Date June 11, 1998 /s/ Gary Klein
--------------------------- ----------------------------
Gary Klein
Vice-President Finance
(Principal Accounting Officer)
12
<PAGE>
Index to Exhibits
Exhibit
Numbers Description
- ------- -----------
10.1 Revolving Credit and Security Agreement
10.2 Factoring Agreement
27 Financial Data Schedule
13
EXHIBIT 10.1
REVOLVING CREDIT
AND
SECURITY AGREEMENT
NATIONSBANC COMMERCIAL CORPORATION
(AS LENDER AND AS AGENT)
WITH
CANDIE'S, INC.
-------------------------------------------------------------
May 27, 1998
<PAGE>
REVOLVING CREDIT AND
SECURITY AGREEMENT
Revolving Credit and Security Agreement dated May 27, 1998 between Candie's,
Inc. ("Candie's"), the undersigned financial institutions (collectively, the
"Lenders" and individually a "Lender") and NATIONSBANC COMMERCIAL CORPORATION
("NCC"), a corporation organized under the laws of the State of Georgia, as
agent for the Lenders (NCC, in such capacity, the "Agent").
IN CONSIDERATION of the mutual covenants and undertakings herein contained,
Candie's and its subsidiaries and Lender hereby agree as follows:
I. DEFINITIONS.
1.1. Accounting Terms. As used in this Agreement or any certificate, report
or other document made or delivered pursuant to this Agreement, accounting terms
not defined in Section 1.2 or elsewhere in this Agreement and accounting terms
partly defined in Section 1.2 to the extent not defined, shall have the
respective meanings given to them under GAAP; provided, however, whenever such
accounting terms are used for the purposes of determining compliance with
financial covenants in this Agreement, such accounting terms shall be defined in
accordance with GAAP consistently applied in preparation of the audited
financial statements of Borrower for the fiscal year ended.
1.2 General Terms. For purposes of this Agreement the following terms shall
have the following meanings:
"Acceptances" shall have the meaning set forth in Section 2.9 hereof.
"Advances" shall mean and include the Revolving Advances, Letters of Credit
and Acceptances.
"Advance Rates" shall have the meaning and be determined as set forth in
Section 2.1 hereof.
"Affiliate" of any Person shall mean (a) any Person (other than a
Subsidiary) which, directly or indirectly, is in control of, is controlled by,
or is under common control with such Person, or (b) any Person who is a director
or officer (i) of such Person, (ii) of any Subsidiary of such Person or (iii) of
any Person described in clause (a) above. For purposes of this definition,
control of a Person shall mean the power, direct or indirect, (x) to vote 10% or
more of the securities having ordinary voting power for the election of
directors of such Person, or (y) to direct or cause the direction of the
management and policies of such Person whether by contract or otherwise.
"Authority" shall have the meaning set forth in Section 4.19(d).
"Bank" shall mean NationsBank N.A. in Charlotte, NC
<PAGE>
"Bankers' Acceptance Rate" shall mean with respect to any Acceptance
hereunder, a discount charge (calculated with respect to the face amount of such
Acceptance on the basis of a 360-day year from the number of days from the date
such Acceptance is accepted by Agent (the "Acceptance Date") to its maturity
date) at a rate per annum equal to the discount rate, at which the Agent is able
to rediscount in the New York bankers' acceptance market on the Acceptance Date
its eligible acceptances of a face amount and a maturity period approximately
equal to that of such Acceptance.
"Blocked Accounts" shall have the meaning set forth in Section 4.15(h).
"Borrower" shall mean Candie's and all permitted successors and assigns.
"Business Day" shall mean with respect to LIBO Rate Loans, any day on which
commercial banks are open for domestic and international business, including
dealings in Dollar deposits in London, England and Charlotte, North Carolina and
with respect to all other loans, any day other than a day on which commercial
banks in Charlotte, North Carolina are authorized or required by law to close.
"Capital Lease" shall mean, as applied to any Borrower, any lease of any
property (whether real, personal or mixed) by that Borrower as lessee which
would, in conformity with GAAP, be required to be accounted for as a capital
lease on the balance sheet of that Person.
"CERCLA" shall mean the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended, 42 U.S.C. Sections 9601 et seq.
"Certification By Officers" shall mean the Certification By Officer
questionnaire and the responses thereto provided by Borrower and delivered to
Agent.
"Change of Control" shall mean: (i) when any "person" as defined in Section
3(a)(9) of the Securities and Exchange Act of 1934, as amended (the "Exchange
Act"), and as used in Section 13(d) and 14(d) thereof, including a "group" as
defined in Section 13(d) of the Exchange Act, but excluding the Borrower or any
Affiliate or any employee benefit plan sponsored or maintained by the Borrower
(including any trustee of such plan acting as trustee), becomes the "beneficial
owner" (as defined in Rule 13(d)(3) under the Exchange Act) of securities of the
Borrower representing 20% or more of the combined voting power of the Borrower's
then outstanding securities; or (ii) when, during any period of twelve (12)
consecutive months, the individuals who, at the beginning of such period,
constitute the Board of Directors (the "Incumbent Directors") cease for any
reason other than death to constitute at least a majority thereof; provided
however, that a director who was not a director at the beginning of such 12
month period shall be deemed to have satisfied such 12 month requirement (and be
an Incumbent Director) if such director was elected by, or on the recommendation
of or with the approval of, at least two thirds of the directors who than
qualified as Incumbent Directors either actually (because they were directors at
the beginning of such 12 month period) or through the operation of this proviso;
or (iii) the occurrence of a transaction requiring stockholder approval for the
acquisition of the Borrower by an entity other than the Borrower or an
affiliated company of the Borrower through purchase of assets, or by merger, or
otherwise.
-2-
<PAGE>
"Charges" shall mean all taxes, charges, fees, imposts, levies or other
assessments, including, without limitation, all net income, gross income, gross
receipts, sales, use, ad valorem, value added, transfer, franchise, profits,
inventory, capital stock, license, withholding, payroll, employment, social
security, unemployment, excise, severance, stamp, occupation and property taxes,
custom duties, fees, assessments, liens, claims and charges of any kind
whatsoever, together with any interest and any penalties, additions to tax or
additional amounts, imposed by any taxing or other authority, domestic or
foreign (including, without limitation, the Pension Benefit Guaranty Corporation
or any environmental agency or superfund), upon the Collateral, Borrower or any
of its Affiliates.
"Closing Date" shall mean May 27, 1998 or such other date as may be agreed
to by the parties hereto.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time and the regulations promulgated thereunder.
"Collateral" shall mean and include:
(a) all Receivables;
(b) all General Intangibles;
(c) all Inventory;
(d) all of Borrower's right, title and interest in and to (i) its
goods and other property including, but not limited to, all merchandise
returned or rejected by Customers, relating to or securing any of the
Receivables; (ii) all of Borrower's rights as a consignor, a consignee, an
unpaid vendor, mechanic, artisan, or other lienor, including stoppage in
transit, setoff, detinue, replevin, reclamation and repurchase; (iii) all
additional amounts due to Borrower from any Customer relating to the
Receivables; (iv) other property, including warranty claims, relating to
any goods securing this Agreement; (v) all of Borrower's contract rights,
rights of payment which have been earned under a contract right,
instruments, documents, chattel paper, warehouse receipts, deposit
accounts, money and securities; (vi) if and when obtained by Borrower, all
real and personal property of third parties in which Borrower has been
granted a lien or security interest as security for the payment or
enforcement of Receivables; and (vii) any other goods, personal property or
real property now owned or hereafter acquired in which Borrower has
expressly granted a security interest or may in the future grant a security
interest to Agent hereunder, or in any amendment or supplement hereto, or
under any other agreement between Agent and Borrower;
(e) all of Borrower's ledger sheets, ledger cards, files,
correspondence, records, books of account, business papers, information and
data stored in computers, and documents relating to (a), (b), or (c), of
this Paragraph exclusive of privileged documents between Borrower and its
attorneys and documents subject to contractual limitations; and
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<PAGE>
(f) all proceeds and products of (a), (b), and(c), in whatever form,
including, but not limited to: cash, deposit accounts (whether or not
comprised solely of proceeds), certificates of deposit, insurance proceeds
(including hazard, flood and credit insurance), negotiable instruments and
other instruments for the payment of money, chattel paper, security
agreements, documents, eminent domain proceeds, condemnation proceeds and
tort claim proceeds.
"Commitment Percentage" of any Lender shall mean the percentage set forth
below such Lender's name on the signature page hereof as same may be adjusted
upon any assignment by a Lender pursuant to Section 15.3(b) hereof, it being
understood that at any time that NCC is the only Lender hereunder, NCC's
Commitment Percentage shall equal the Maximum Amount.
"Commitment Transfer Supplement" shall mean a document in the form of
Exhibit 15.3 hereto, properly completed and otherwise in form and substance
satisfactory to Agent by which the Purchasing Lender purchases and assumes a
portion of the obligation of Lenders to make Advances under this Agreement.
"Consents" shall mean all filings and all licenses, permits, consents,
approvals, authorizations, qualifications and orders of governmental authorities
and other third parties, domestic or foreign, necessary to carry on Borrower's
business, including, without limitation, any Consents required under all
applicable federal, state or other applicable law.
"Contract Rate" shall mean, as applicable, the Revolving Interest Rate or
the Default Rate.
"Contract Year" shall mean the twelve month period beginning on May of each
year.
"Controlled Group" shall mean all members of a controlled group of
corporations and all trades or businesses (whether or not incorporated) under
common control which, together with Borrower, are treated as a single employer
under Section 414 of the Code.
"Current Assets" at a particular date, shall mean all cash, cash
equivalents, accounts and inventory of Borrower and all other items which would,
in conformity with GAAP, and on a consolidated basis, be included under current
assets on a balance sheet of Borrower as at such date; provided, however, that
such amounts shall not include (a) any amounts for any Indebtedness owing by an
Affiliate of Borrower, unless such Indebtedness arose in connection with the
sale of goods or rendition of services in the ordinary course of business and
would otherwise constitute current assets in conformity with GAAP, or (b) any
shares of stock issued by an Affiliate of Borrower.
"Current Liabilities" at a particular date, shall mean all amounts which
would, in conformity with GAAP, and on a consolidated basis, be included under
current liabilities on a balance sheet of Borrower, as at such date, but in any
event including, without limitation, the amounts of (a) all Indebtedness of
Borrower payable on demand, or, at the option of the Person to whom such
Indebtedness is owed, not more than twelve (12) months after such date, (b) any
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payments in respect of any Indebtedness of Borrower (whether installment, serial
maturity, sinking fund payment or otherwise) required to be made not more than
twelve (12) months after such date, (c) all reserves in respect of liabilities
or Indebtedness payable on demand or, at the option of the Person to whom such
Indebtedness is owed, not more than twelve (12) months after such date, the
validity of which is not contested at such date, (d) all accruals for federal or
other taxes measured by income payable within a twelve (12) month period and (e)
the amount of outstanding Obligations under this Agreement at the time of
calculation.
"Customer" shall mean and include the account debtor with respect to any
Receivable and/or the prospective purchaser of goods, services or both with
respect to any contract or contract right, and/or any party who enters into or
proposes to enter into any contract or other arrangement with Borrower, pursuant
to which Borrower is to deliver any personal property or perform any services.
"Default" shall mean an event which, with the giving of notice or passage
of time or both, would constitute an Event of Default.
"Default Rate" shall have the meaning set forth in Section 3.1 hereof.
"Depository Accounts" shall have the meaning set forth in Section 4.15(h)
hereof.
"Documents" shall have the meaning set forth in Section 8.1(c) hereof.
"Dollar" and the sign, "$" shall mean lawful money of the United States of
America.
"Domestic Rate Loan" shall mean any Advance that bears interest based upon
the Prime Rate.
"EBITDA" shall mean, for any period, determined on a consolidated basis,
Borrower's net income (or net loss) plus the sum of (a) interest expense, (b)
income tax expense, (c) depreciation expense and (d) amortization expense.
"Eligible Inventory" shall mean and include Inventory valued at the lower
of cost or market value, determined on a first-in-first-out basis, which is not
obsolete, slow moving or unmerchantable and which Agent, , shall not deem
ineligible Inventory, based on such considerations as Agent may from time to
time deem appropriate including, without limitation, whether the Inventory is
subject to a perfected, first priority security interest in favor of Agent and
whether the Inventory conforms to all standards imposed by any governmental
agency, division or department thereof which has regulatory authority over such
goods or the use or sale thereof, the age of the Inventory and the status of
outstanding orders with respect to the Inventory. Eligible Inventory shall
include all Inventory intransit for which title has passed to Borrower, which is
insured to the full value thereof and for which Agent shall have in its
possession (a) all negotiable bills of lading properly endorsed and (b) all
non-negotiable bills of lading issued in Agent's name.
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<PAGE>
"Eligible Receivables" shall mean and include (i)each receivable of
Borrower with respect to which Factor bears the credit risk and (ii)each
Receivable of Borrower with respect to which Factor does not bear the credit
risk arising in the ordinary course of Borrower's business and which Agent,
shall deem to be an Eligible Receivable, based on such considerations as Agent
may from time to time deem appropriate. A Receivable shall not be deemed
eligible unless such Receivable is subject to Agent's perfected security
interest and no other Lien other than Permitted Encumbrances, and is evidenced
by an invoice or other documentary evidence satisfactory to Agent. In addition,
no Receivable with respect to which Factor does not bear the credit risk shall
be an Eligible Receivable if:
(a) it arises out of a sale made by Borrower to an Affiliate of
Borrower or to a Person controlled by an Affiliate of Borrower;
(b) it is unpaid more than ninety (90) days after the original due
date;
(c) any material covenant, representation or warranty contained in
this Agreement with respect to such Receivable has been breached;
(d) the Customer shall (i) apply for, suffer, or consent to the
appointment of, or the taking of possession by, a receiver, custodian,
trustee or liquidator of itself or of all or a substantial part of its
property or call a meeting of its creditors, (ii) admit in writing its
inability, or be generally unable, to pay its debts as they become due or
cease operations of its present business, (iii) make a general assignment
for the benefit of creditors, (iv) commence a voluntary case under any
state or federal bankruptcy laws (as now or hereafter in effect), (v) be
adjudicated a bankrupt or insolvent, (vi) file a petition seeking to take
advantage of any other law providing for the relief of debtors, (vii)
acquiesce to, or fail to have dismissed, any petition which is filed
against it in any involuntary case under such bankruptcy laws, or (viii)
take any action for the purpose of effecting any of the foregoing;
(e) the sale to the Customer is on a bill-and-hold, guaranteed sale,
sale-and-return, sale on approval, consignment or any other repurchase or
return basis or is evidenced by chattel paper;
(f) the Customer is the United States of America, any state or any
department, agency or instrumentality of any of them, unless Borrower
assigns its right to payment of such Receivable to Agent pursuant to the
Assignment of Claims Act of 1940, as amended (31 U.S.C. Sub-Section 3727 et
seq. and 41 U.S.C. Sub-Section 15 et seq.) or has otherwise complied with
other applicable statutes or ordinances;
(g) the goods giving rise to such Receivable have not been shipped and
delivered to and accepted by the Customer or the services giving rise to
such Receivable have not been performed by Borrower and accepted by the
Customer or the Receivable otherwise does not represent a final sale;
(h) the Receivables of the Customer exceed a credit limit determined
by Agent, in its sole discretion, to the extent such Receivable exceeds
such limit;
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<PAGE>
(i) the Receivable is subject to any offset, deduction (except in the
ordinary course of business), defense, dispute, or counterclaim, the
Customer is also a creditor or supplier of the Borrower or the Receivable
is contingent in any respect or for any reason;
(j) Borrower has made any agreement with any Customer for any
deduction therefrom, except for discounts or allowances made in the
ordinary course of business for prompt payment, all of which discounts or
allowances are reflected in the calculation of the face value of each
respective invoice related thereto;
(k) shipment of the merchandise or the rendition of services has not
been completed;
(l) any return, rejection or repossession of the merchandise has
occurred;
(m) such Receivable is not payable to Borrower provided, however, that
a Receivable payable to the Factor shall be deemed payable to Borrower; or
(n) such Receivable is not otherwise satisfactory to Agent as
determined in good faith by Agent in the exercise of its discretion in a
reasonable manner.
"Environmental Complaint" shall have the meaning set forth in Section
4.19(d) hereof.
"Environmental Laws" shall mean all federal, state and local environmental,
land use, zoning, health, chemical use, safety and sanitation laws, statutes,
ordinances and codes relating to the protection of the environment and/or
governing the use, storage, treatment, generation, transportation, processing,
handling, production or disposal of Hazardous Substances and the rules,
regulations, policies, guidelines, interpretations, decisions, orders and
directives of federal, state and local governmental agencies and authorities
with respect thereto.
"Equipment" shall mean and include all of Borrower's goods (excluding
Inventory) whether now owned or hereafter acquired and wherever located
including, without limitation, all equipment, machinery, apparatus, motor
vehicles, fittings, furniture, furnishings, fixtures, parts, accessories and all
replacements and substitutions therefor or accessions thereto.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time and the rules and regulations promulgated thereunder.
"Event of Default" shall mean the occurrence and continuance of any of the
events set forth in Article X hereof.
"Factor" shall mean NCC in its capacity as factor under the Factoring
Agreement.
"Factoring Agreement" shall mean the Factoring Agreement between NCC and
Candie's and Bright Star Footwear, Inc. dated as of May 27, 1998.
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<PAGE>
"Fixed Charge Coverage Ratio" shall mean and include, with respect to any
fiscal period, the ratio of (a) EBITDA to (b) all of Borrower's interest
expense.
"Formula Amount" shall have the meaning set forth in Section 2.1.
"GAAP" shall mean generally accepted accounting principles in the United
States of America in effect from time to time.
"General Intangibles" shall mean and include all of Borrower's general
intangibles, whether now owned or hereafter acquired including, without
limitation, all choses in action, causes of action, corporate or other business
records, inventions, designs, patents, patent applications, equipment
formulations, manufacturing procedures, quality control procedures, trademarks,
trade secrets, goodwill, copyrights, registrations, licenses, franchises,
customer lists, tax refunds, tax refund claims, all claims under guaranties,
security interests or other security held by or granted to Borrower to secure
payment of any of the Receivables by a Customer, all rights of indemnification
and all other intangible property of every kind and nature (other than
Receivables).
"Governmental Body" shall mean any nation or government, any state or other
political subdivision thereof or any entity exercising the legislative,
judicial, regulatory or administrative functions of or pertaining to a
government.
"Guarantors" shall mean Bright Star Footwear, Inc., Candie's Galleria,
Inc., Yulong Limited, Intercontinental Trading Group, Inc., Ponca Limited.
"Guaranty" shall mean the guaranty of the obligations of Borrower executed
by Guarantor in favor of Agent.
"Hazardous Discharge" shall have the meaning set forth in Section 4.19(d)
hereof.
"Hazardous Substance" shall mean, without limitation, any flammable
explosives, radon, radioactive materials, asbestos, urea formaldehyde foam
insulation, polychlorinated byphenyls, petroleum and petroleum products,
methane, hazardous materials, Hazardous Wastes, hazardous or toxic substances or
related materials as defined in CERCLA, the Hazardous Materials Transportation
Act, as amended (49 U.S.C. Sections 1801, et seq.), RCRA, Articles 15 and 27 of
the New York State Environmental Conservation Law or any other applicable
Environmental Law and in the regulations adopted pursuant thereto.
"Hazardous Wastes" shall mean all waste materials subject to regulation
under CERCLA, RCRA or applicable state law, and any other applicable Federal and
state laws now in force or hereafter enacted relating to hazardous waste
disposal.
"Indebtedness" of a Person at a particular date shall mean all obligations
of such Person which in accordance with GAAP would be classified upon a balance
sheet as liabilities (except capital stock and surplus earned or otherwise) and
in any event, without limitation by reason of enumeration, shall include all
indebtedness, debt, Capital Leases and other similar monetary obligations of
such Person whether direct or guaranteed, and all premiums, if any, due
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<PAGE>
at the required prepayment dates of such indebtedness, and all indebtedness
secured by a Lien on assets owned by such Person, whether or not such
indebtedness actually shall have been created, assumed or incurred by such
Person. Any indebtedness of such Person resulting from the acquisition by such
Person of any assets subject to any Lien shall be deemed, for the purposes
hereof, to be the equivalent of the creation, assumption and incurring of the
indebtedness secured thereby, whether or not actually so created, assumed or
incurred.
"Initial Period" shall mean the period commencing on the Closing Date and
ending on the 180th day after the Closing Date.
"Intangible Assets" shall mean at a particular date such assets as are
properly classified as intangible assets under GAAP, including but not limited
to noncompetition agreements and trademarks as currently identified on
Borrower's financial statement.
"Interest Period" shall mean the period provided for any LIBO Rate Loan
pursuant to Section 2.2(b).
"Inventory" shall mean all of Borrower's now owned or hereafter acquired
goods, merchandise and other personal property, wherever located, to be
furnished under any contract of service or held for sale or lease, all raw
materials, work in process, finished goods and materials and supplies of any
kind, nature or description which are or might be used or consumed in Borrower's
business or used in selling or furnishing such goods, merchandise and other
personal property, and all documents of title or other documents representing
them.
"Inventory Advance Rate" shall have the meaning set forth in Section
2.1(ii) hereof.
"Issuing Lender" shall mean (a) with respect to Letters of Credit, Agent or
any other Lender that is acceptable to Agent (it being understood that
BancBoston is acceptable to Agent) that has agreed to issue or cause to be
issued a Letter of Credit for the account of Borrower under this Agreement and
(b) with respect to Acceptances, NationsBanc Commercial Corporation.
"Leasehold Interests" shall mean all of Borrower's right, title and
interest in and to the premises located at ___________________________________.
"Lender" and "Lenders" shall have the meaning ascribed to such term in the
Preamble, each Purchasing Lender and shall include each person which is a
transferee, successor or assign of any Lender or any Purchasing Lender.
"Letters of Credit" shall have the meaning set forth in Section 2.8.
"Letter of Credit and Acceptance Fees" shall have the meaning set forth in
Section 3.2.
"LIBO Rate Loan" shall mean an Advance at any time that bears interest
based on the LIBO Rate.
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"LIBO Rate" shall mean for any LIBO Rate Loan for the then current Interest
Period relating thereto the rate per annum (such LIBO Rate to be adjusted to the
next higher 1/100 of one (1%) percent) equal to the quotient of (a) LIBOR,
divided by (b) a number equal to 1.00 minus the aggregate of the rates
(expressed as a decimal) of reserve requirements current on the day that is two
Business Days prior to the beginning of the Interest Period (including without
limitation basic, supplemental, marginal and emergency reserves) under any
regulation promulgated by the Board of Governors of the Federal Reserve System
(or any other governmental authority having jurisdiction over the Bank) as in
effect from time to time, dealing with reserve requirements prescribed for
Eurocurrency funding including any reserve requirements with respect to
"Eurocurrency liabilities" under Regulation D of the Board of Governors of the
Federal Reserve System.
"LIBOR" shall mean for any LIBO Rate Loan for the then current Interest
Period relating thereto, the rate per annum quoted by the Bank two (2) Business
Days prior to the first day of such Interest Period for the offering by the Bank
to prime commercial banks in the London interbank Eurodollar market of Dollar
deposits in immediately available funds for a period equal to such Interest
Period and in an amount equal to the amount of such LIBO Rate Loan.
"Lien" shall mean any mortgage, deed of trust, pledge, hypothecation,
assignment, security interest, lien (whether statutory or otherwise), charge,
claim or encumbrance, or preference, priority or other security agreement or
preferential arrangement held or asserted in respect of any asset of any kind or
nature whatsoever including, without limitation, any conditional sale or other
title retention agreement, any lease having substantially the same economic
effect as any of the foregoing, and the filing of, or agreement to give, any
financing statement under the Uniform Commercial Code or comparable law of any
jurisdiction.
"Margin Trigger Ratio" shall mean, at the end of each Rolling Period a
fraction, the numerator of which shall equal the amount of Revolving Advances
plus outstanding Acceptances and the denominator of which shall equal EBITDA.
"Material Adverse Effect" shall mean a material adverse effect on (a) the
condition, operations, assets, business or prospects of the applicable Person or
Persons, (b) Borrower's ability to pay the Obligations in accordance with the
terms thereof, (d) the value of the Collateral, the Liens on the Collateral or
the priority of any such Lien or (d) the practical realization of the benefits
of Agent and Lenders' rights and remedies under this Agreement and the Other
Documents.
"Maximum Loan Amount" shall mean
(a) so long as NCC's Commitment Percentage is 100%, $35,000,000, and
(b) at any time that there are two or more Lenders that are parties
hereto, $35,000,000 for the first Contract Year, $40,000,000 for the second
Contract Year, and $45,000,000 for each Contract Year thereafter, provided
that if (i) there are two or more Lenders hereunder and (ii)Borrower so
requests, such amounts shall increase to $40,000,000 for the first Contact
Year if Advances hereunder exceed $30,000,000 for any three two-week
periods during
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any ninety day period in such year; $45,000,000 for the second Contract
Year if Advances hereunder exceed $35,000,000 for any three two-week
periods during any ninety day period in such year; and $50,000,000 for each
subsequent Contract Year if Advances in each year exceed $40,000,000 for
any three two-week periods during any ninety day period in such year.
"Monthly Advances" shall have the meaning set forth in Section 3.1 hereof.
"Net Cash Flow" of Borrower for any fiscal period shall mean (a) Cash Flow
for such period minus (b) capital expenditures (net of Indebtedness incurred to
finance such expenditures) in an amount for such period not to exceed the amount
permitted under Section 7.6.
"Note" shall mean Revolving Credit Note.
"Obligations" shall mean and include any and all of Borrower's Indebtedness
and/or liabilities to Agent or the Lenders or any corporation that directly or
indirectly controls or is controlled by or is under common control with any
Lender, or to the Factor of every kind, nature and description, direct or
indirect, secured or unsecured, joint, several, joint and several, absolute or
contingent, due or to become due, now existing or hereafter arising, contractual
or tortious, liquidated or unliquidated, regardless of how such indebtedness or
liabilities arise or by what agreement or instrument they may be evidenced or
whether evidenced by any agreement or instrument, including, but not limited to,
any and all of Borrower's Indebtedness and/or liabilities under this Agreement,
the Factoring Agreement or under any other agreement between Agent or the
Lenders and Borrower and all obligations of Borrower to Agent or the Lenders to
perform acts or refrain from taking any action.
"Other Documents" shall mean the Certification By Officers and any and all
other agreements, instruments and documents, including, without limitation,
guaranties, pledges, powers of attorney, consents, and all other writings
heretofore, now or hereafter executed by Borrower and/or delivered to Agent or
any Lender in respect of the transactions contemplated by this Agreement.
"Overadvance Amount" shall mean Advances in excess of the lending formula
set forth in Section 2.1 (i), (ii) and (iii) in an amount up to $2,000,000 at
any one time, which Advances shall be made so long as after giving effect
thereto, Advances shall not exceed the Maximum Loan Amount and no Event of
Default has occurred and is continuing.
"Parent" of any Person shall mean a corporation or other entity owning,
directly or indirectly at least 50% of the shares of stock or other ownership
interests having ordinary voting power to elect a majority of the directors of
the Person, or other Persons performing similar functions for any such Person.
"Participant" shall mean each Person who shall be granted the right by any
Lender to participate in any of the Advances and who shall have entered into a
participation agreement in form and substance satisfactory to such Lender.
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"Payment Office" shall mean initially P.O. Box 4095, Atlanta, GA 30302;
thereafter, such other office of Agent, if any, which it may designate by notice
to Borrower and each Lender to be the Payment Office.
"Permitted Encumbrances" shall mean (a) Liens in favor of Agent for the
benefit of the Lenders; (b) Liens for taxes, assessments or other governmental
charges not delinquent or being contested in good faith and by appropriate
proceedings and with respect to which proper reserves have been taken by
Borrower; provided, that, the Lien shall have no effect on the priority of the
Liens in favor of Agent or the value of the assets in which Agent has such a
Lien and a stay of enforcement of any such Lien shall be in effect; (c) Liens
disclosed in the financial statements referred to in Section 5.5, the existence
of which Agent has consented to in writing; (d) deposits or pledges to secure
obligations under worker's compensation, social security or similar laws, or
under unemployment insurance; (e) deposits or pledges to secure bids, tenders,
contracts (other than contracts for the payment of money), leases, statutory
obligations, surety and appeal bonds and other obligations of like nature
arising in the ordinary course of Borrower's business; (f) judgment Liens that
have been stayed or bonded and mechanics', workers', materialmen's or other like
Liens arising in the ordinary course of Borrower's business with respect to
obligations which are not due or which are being contested in good faith by
Borrower; (g) Liens placed upon fixed assets hereafter acquired to secure a
portion of the purchase price thereof, provided that (x) any such lien shall not
encumber any other property of Borrower and (y) the aggregate amount of
Indebtedness secured by such Liens incurred as a result of such purchases during
any fiscal year shall not exceed the amount provided for in Section 7.6; and (h)
Liens disclosed on Schedule 1.2.
"Person" shall mean any individual, sole proprietorship, partnership,
corporation, business trust, joint stock company, trust, unincorporated
organization, association, limited liability company, institution, public
benefit corporation, joint venture, entity or government (whether Federal,
state, county, city, municipal or otherwise, including any instrumentality,
division, agency, body or department thereof).
"Plan" shall mean any employee benefit plan within the meaning of Section
3(3) of ERISA, maintained for employees of Borrower or any member of the
Controlled Group or any such Plan to which Borrower or any member of the
Controlled Group is required to contribute on behalf of any of its employees.
"Prime Rate" shall mean the prime commercial lending rate of the Bank as
publicly announced to be in effect from time to time, such rate to be adjusted
automatically, without notice, on the effective date of any change in such rate.
This rate of interest is determined from time to time by the Bank as a means of
pricing some loans to its customers and is neither tied to any external rate of
interest or index nor does it necessarily reflect the lowest rate of interest
actually charged by the Bank to any particular class or category of customers of
the Bank.
"Projections" shall have the meaning set forth in Section 5.5 hereof.
"Purchasing Lender" shall have the meaning set forth in Section 15.3
hereof.
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"RCRA" shall mean the Resource Conservation and Recovery Act, 42 U.S.C.
Sections 6901 et seq., as same may be amended from time to time.
"Receivables" shall mean and include all of Borrower's accounts, contract
rights, instruments (including those evidencing indebtedness among Borrower and
its Affiliates), documents, chattel paper, general intangibles relating to
accounts, drafts and acceptances, and all other forms of obligations owing to
Borrower arising out of or in connection with the sale or lease of Inventory or
the rendition of services, all guarantees and other security therefor, whether
secured or unsecured, now existing or hereafter created, and whether or not
specifically sold or assigned to the Agent hereunder.
"Receivables Advance Rate" shall have the meaning set forth in Section
2.1(i) hereof.
"Related Person" shall mean as to any Person, any other Person which,
together with such Person, is treated as a single employer under Section 414(c)
of the Code.
"Release" shall have the meaning set forth in Section 5.7(c)(i) hereof.
"Required Lenders" shall mean Lenders holding at least sixty-six and two
thirds percent (66 2/3%) of the Advances.
"Revolving Advances" shall mean Advances made other than Letters of Credit.
"Revolving Credit Note" shall mean the promissory note referred to in
Section 2.1 hereof.
"Revolving Interest Rate" shall mean for the Initial Period, an interest
rate per annum equal to (a) the sum of the Prime Rate minus one and three
quarters of one percent (1.75%) with respect to Domestic Rate Loans or (b) the
sum of the LIBO Rate plus one and one quarter percent (1.25%) with respect to
LIBO Rate Loans. After the Initial Period, the Revolving Interest Rate shall be
the following percentages based on the Margin Trigger Ratios set forth below:
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<TABLE>
<CAPTION>
If the Margin The Revolving Interest Rate The Revolving Interest Rate with
Trigger Ratio is: with respect to Domestic Rate respect to LIBO Rate Loans
Loans incurred on or after the incurred on or after the date of
date of the financial statement the financial statement evidencing
evidencing the change in the the change in the Margin Trigger
Margin Trigger Ratio is the Ration is LIBO Rate plus:
Prime Rate minus:
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Less than or equal 2% 1%
to 1.5 to 1
Greater than 1.5 to 1.75% 1.25%
1, but less than or
equal to 3.0 to 1
Greater than 3.0 to 1 1.5% 1.50%
</TABLE>
"Rolling Period" shall mean, as at the end of each fiscal quarter, the
immediately preceding four fiscal quarters, including the fiscal quarter then
ending.
"Settlement Date" shall mean the Closing Date and thereafter Wednesday of
each week unless such day is not a Business Day in which case it shall be the
next succeeding Business Day.
"Subsidiary" shall mean a corporation or other entity of whose shares of
stock or other ownership interests having ordinary voting power (other than
stock or other ownership interests having such power only by reason of the
happening of a contingency) to elect a majority of the directors of such
corporation, or other Persons performing similar functions for such entity, are
owned, directly or indirectly, by such Person.
"Tangible Net Worth" shall mean, at a particular date, (a) the aggregate
amount of all assets of Borrower as may be properly classified as such in
accordance with GAAP consistently applied excluding Intangible Assets, less (b)
the aggregate amount of all liabilities of Borrower, plus (c) (i) the amount of
any deferred compensation resulting from the grant of stock options up to a
maximum amount of $3,000,000 and (ii) the effect of a change in the amortization
of goodwill in accordance with GAAP up to a mazimum of $2,000,000.
"Term" shall mean the Closing Date through May 26, 2001, as same may be
extended in accordance with the provisions of Section 13.1.
"Termination Event" shall mean (i) a Reportable Event with respect to any
Plan or Multiemployer Plan; (ii) the withdrawal of either Borrower or any member
of the Controlled Group from a Plan or Multiemployer Plan during a plan year in
which such entity was a "substantial employer" as defined in Section 4001(a)(2)
of ERISA; (iii) the providing of notice of intent to terminate a Plan in a
distress termination described in Section 4041(c) of ERISA; (iv) the institution
by the PBGC of proceedings to terminate a Plan or Multiemployer Plan; (v) any
event or condition (a) which might constitute grounds under Section 4042 of
ERISA for the
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termination of, or the appointment of a trustee to administer, any Plan or
Multiemployer Plan, or (b) that may result in termination of a Multiemployer
Plan pursuant to Section 4041A of ERISA; or (vi) the partial or complete
withdrawal within the meaning of Sections 4203 and 4205 of ERISA, of either
Borrower or any member of the Controlled Group from a Multiemployer Plan.
"Toxic Substance" shall mean and include any material present on the Real
Property or the Leasehold Interests which has been shown to have significant
adverse effect on human health or which is subject to regulation under the Toxic
Substances Control Act (TSCA), 15 U.S.C. Sections 2601 et seq., applicable state
law, or any other applicable Federal or state laws now in force or hereafter
enacted relating to toxic substances. "Toxic substance" includes but is not
limited to asbestos, polychlorinated biphenyls (PCBs) and lead-based paints.
"Transferee" shall have the meaning set forth in Section 16.3(b) hereof.
"Week" shall mean the time period commencing with a Wednesday and ending on
the following Tuesday.
"Working Capital" at a particular date, shall mean the excess, if any, of
Current Assets over Current Liabilities at such date.
1.3. Uniform Commercial Code Terms. All terms used herein and defined in
the Uniform Commercial Code as adopted in the State of New York shall have the
meaning given therein unless otherwise defined herein.
1.4. Certain Matters of Construction. The terms "herein", "hereof" and
"hereunder" and other words of similar import refer to this Agreement as a whole
and not to any particular section, paragraph or subdivision. Any pronoun used
shall be deemed to cover all genders. Wherever appropriate in the context, terms
used herein in the singular also include the plural and vice versa. All
references to statutes and related regulations shall include any amendments of
same and any successor statutes and regulations. All references to any
instruments or agreements, including, without limitation, references to any of
the Other Documents shall include any and all modifications or amendments
thereto and any and all extensions or renewals thereof.
II. ADVANCES, PAYMENTS.
2.1. Revolving Advances. Subject to the terms and conditions set forth in
this Agreement, each Lender, severally and not jointly, will make Revolving
Advances to Borrower in aggregate amounts outstanding at any time equal to such
Lender's Commitment Percentage of the lesser of (a) the Maximum Loan Amount less
the aggregate amount of outstanding Letters of Credit and Acceptances or (b) an
amount equal to the sum of:
(i) 85%, subject to the provisions of Section 2.1(b) hereof
("Receivables Advance Rate"), of Eligible Receivables, plus
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(ii) 60%, subject to the provisions of Section 2.1(b) hereof
("Inventory Advance Rate"), of the value of the Eligible Inventory (the
Receivables Advance Rate and the Inventory Advance Rate shall be referred
to collectively, as the "Advance Rates plus
(iii) 60% of the value of Inventory being imported under outstanding
Letters of Credit opened by a Lender, plus
(iv) the Overadvance Amount, minus
(v) the aggregate amount of outstanding Letters of Credit and
Acceptances, minus
(vi) such reserves as Agent may reasonably deem proper and necessary
from time to time, provided however that no reserve will be taken for
dilution of Receivables unless dilution, as indicated on the Factor
statements issued at the end of each rolling ninety day period exceeds 13%
of the collections of gross invoices less discounts at any time.
The amount derived from the sum of (x) Sections 2.1(i), (ii), (iii) and
(iv) minus (y) Sections 2.1 (v) and (vi) at any time and from time to time shall
be referred to as the "Formula Amount". The Revolving Advances shall be
evidenced by the secured promissory note ("Revolving Credit Note") substantially
in the form attached hereto as Exhibit 2.1..
2.2. Procedure for Revolving Advances Borrowing.
(a) Borrower may notify Agent prior to 11:00 a.m. on a Business Day of its
request to incur, on that day, a Revolving Advance hereunder. Should any amount
required to be paid as interest hereunder, or as fees or other charges under
this Agreement or the Factoring Agreement or any other agreement with Agent or
Lenders, or with respect to any other obligation, become due, same shall be
deemed a request for a Revolving Advance as of the date such payment is due, in
the amount required to pay in full such interest, fee, charge or Obligation
under this Agreement or the Factoring Agreement or any other agreement with
Agent or Lenders, and such request shall be irrevocable, provided that Borrower
may contest such charge and if Agent subsequently agrees that such interest,
fee, or charge was not appropriate, Agent will reverse same together with any
interest that has accrued with respect thereto.
(b) Notwithstanding the provisions of (a) above, in the event Borrower
desires to obtain a LIBO Rate Loan, it shall give Agent at least three (3)
Business Days' prior written notice; specifying (i) the date of the proposed
borrowing (which shall be a Business Day), (ii) the type of borrowing and the
amount on the date of such Advance to be borrowed, which amount shall be an
integral multiple of $250,000.00, and (iii) the duration of the first Interest
Period therefor. Interest Periods for LIBO Rate Loans shall be for one, two,
three or six months. No LIBO Rate Loan shall be made available to Borrower nor
shall an Acceptance be created for Borrower during the continuance of a Default
or an Event of Default.
(c) Each Interest Period of a LIBO Rate Loan shall commence on the date
such LIBO Rate Loan is made and shall end on such date as Borrower may elect as
set forth in (b)(iii) above provided that:
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(i) any Interest Period which would otherwise end on a day which is
not a Business Day shall be the next preceding or succeeding Business Day
as is the Bank's custom in the market to which such LIBO Rate Loan relates;
(ii) no Interest Period shall end after the last day of the Term; and
(iii) any Interest Period which begins on a day for which there is no
numerically corresponding day in the calendar month during which such
Interest Period is to end, shall (subject to clause (i) above) end on the
last day of such calendar month.
Borrower may elect the initial Interest Period applicable to a LIBO Rate
Loan by its notice of borrowing given to Agent pursuant to Section 2.2(b) or by
its notice of conversion given to Agent pursuant to Section 2.2(d), as the case
may be. Borrower may elect the duration of each succeeding Interest Period by
giving irrevocable written notice to Agent of such duration not less than three
(3) Business Days prior to the last day of the then current Interest Period
applicable to such LIBO Rate Loan. If Agent does not receive timely notice of
the Interest Period elected by Borrower, Borrower shall be deemed to have
elected to convert to a Domestic Rate Loan subject to Section 2.2(d) herein
below.
(d) Provided that no Event of Default shall have occurred and be
continuing, Borrower may, on the last Business Day of the then current Interest
Period applicable to any outstanding LIBO Rate Loan or Domestic Rate Loan
convert any such loan into a loan of another type in the same aggregate
principal amount provided that any conversion of a or LIBO Rate Loan shall be
made only on the last Business Day of the then current Interest Period
applicable to such LIBO Rate Loan. If Borrower desires to convert a loan, it
shall give the Agent not less than three (3) Business Days' prior written
notice, specifying the date of such conversion, the loans to be converted and if
the conversion is from a Domestic Rate Loan to any other type of loan, the
duration of the first Interest Period therefor. After giving effect to each such
conversion, there shall not be outstanding more than six (6)LIBO Rate Loans, in
the aggregate.
(e) Borrower shall be liable to Agent and Lenders for any and all losses or
expenses that Agent and Lenders may sustain or incur as a consequence of any
prepayment or any default by Borrower in the payment of the principal of or
interest on any LIBO Rate Loan or failure by Borrower to complete a borrowing
of, a prepayment of or conversion of or to a LIBO Rate Loan after notice thereof
has been given, including (but not limited to) any interest payable by Agent or
Lenders to lenders of funds obtained by it in order to make or maintain its LIBO
Rate Loans hereunder.
(f) Notwithstanding any other provision hereof, if any applicable law,
treaty, regulation or directive, or any change therein or in the interpretation
or application thereof, shall make it unlawful for any Lender (for purposes of
this subsection (g), the term "Lender" shall include any Lender and the office
or branch where any Lender or any corporation or bank controlling such Lender
makes or maintains any LIBO Rate Loans ) to make or maintain its LIBO Rate
Loans, the obligation of the Lender to make LIBO Rate Loans hereunder shall
forthwith be cancelled and Borrower shall, if any affected LIBO Rate Loans are
then outstanding, promptly upon request from Agent, either pay all such affected
LIBO Rate Loans
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or convert such affected LIBO Rate Loans into loans of another type. If any such
payment or conversion of any LIBO Rate Loan is made on a day that is not
applicable to such LIBO Rate Loan, Borrower shall pay such Lender, upon such
Lender's request, such amount or amounts as may be necessary to compensate such
Lender for any loss or expense sustained or incurred by such Lender in respect
of such LIBO Rate Loan as a result of such payment or conversion (so long as
such amounts are customary for lenders in similar circumstances to charge with
respect to LIBO Rate Loans), including (but not limited to) any interest or
other amounts payable by such Lender to lenders of funds obtained by such Lender
in order to make or maintain such LIBO Rate Loan. A certificate as to any
additional amounts payable pursuant to the foregoing sentence submitted by such
Lender to Borrower shall be conclusive absent manifest error.
2.3. Disbursement of Advance Proceeds. All Advances shall be disbursed from
whichever office or other place Agent may designate from time to time and,
together with any and all other Obligations of Borrower to Agent or Lenders,
shall be charged to Borrower's account on Agent's books. During the Term,
Borrower may use the Revolving Advances by borrowing, prepaying and reborrowing,
all in accordance with the terms and conditions hereof. The proceeds of each
Revolving Advance requested by Borrower or deemed to have been requested by
Borrower under Section 2.2(a) hereof shall, with respect to requested Revolving
Advances to the extent the Lenders make such Revolving Advances, be made
available to Borrower on the day so requested by way of credit to Borrower's
operating account at the Bank, or such other bank as Borrower may designate
following notification to Agent, in federal funds or other immediately available
funds or, with respect to Revolving Advances deemed to have been requested, be
disbursed to Agent to be applied to the outstanding Obligations giving rise to
such deemed request.
2.4. Maximum Advances. The aggregate balance of Advances outstanding at any
time shall not exceed the lesser of (a) Maximum Loan Amount or (b) the Formula
Amount plus outstanding Letters of Credit and Acceptances.
2.5. Repayment of Advances.
(a) The Advances shall be due and payable in full on the last day of the
Term subject to earlier prepayment as herein provided.
(b) With respect to Collateral other than Receivables which are assigned to
the Factor under the Factoring Agreement, Borrower recognizes that the amounts
evidenced by checks, notes, drafts or any other items of payment relating to
and/or proceeds of Collateral may not be collectible by Agent on the date
received. In consideration of Agent's agreement to conditionally credit
Borrower's account as of the Business Day on which Agent receives those items of
payment, Borrower agrees that, in computing the charges under this Agreement,
all items of payment shall be deemed applied by Agent on account of the
Obligations on the day of confirmation to Agent by the Blocked Account bank or
the Depository Account bank, as provided for in Section 4.15(h), that such items
of payment have been collected in good funds and finally credited to Agent's
account. Agent is not, however, required to credit Borrower's account for the
amount of any item of payment which is unsatisfactory to Agent and Agent may
charge Borrower's account for the amount of any item of payment which is
returned to Agent unpaid.
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(c) All payments of principal, interest and other amounts payable
hereunder, or under any of the related agreements shall be made to Agent at the
Payment Office not later than 1:00 P.M. (New York Time) on the due date therefor
in lawful money of the United States of America in federal funds or other funds
immediately available to Agent. Agent shall have the right to effectuate payment
on any and all Obligations due and owing hereunder by charging Borrower's
account or by making Revolving Advances as provided in Section 2.2 hereof.
(d) Borrower shall pay principal, interest, and all other amounts payable
hereunder, or under any related agreement, without any deduction whatsoever,
including, but not limited to, any deduction for any setoff or counterclaim.
2.6. Repayment of Excess Advances. The aggregate balance of Advances
outstanding at any time in excess of the maximum amount of Advances permitted
hereunder shall be immediately due and payable without the necessity of any
demand, at the Payment Office, whether or not a Default or Event of Default has
occurred.
2.7. Statement of Account. Agent shall maintain, in accordance with its
customary procedures, a loan account in the name of Borrower in which shall be
recorded the date and amount of each Advance made by Lenders and the date and
amount of each payment in respect thereof; provided, however, the failure by
Agent to record the date and amount of any Advance shall not adversely affect
Agent or any Lender. Each month, Agent shall send to Borrower a statement
showing the accounting for the Advances made, payments made or credited in
respect thereof, and other transactions between Lenders and Borrower, during
such month. The monthly statements shall be deemed correct and binding upon
Borrower in the absence of manifest error and shall constitute an account stated
between Lenders and Borrower unless Agent receives a written statement of
Borrower's specific exceptions thereto within one hundred twenty (120) days
after such statement is received by Borrower. The records of Agent with respect
to the loan account shall be prima facie evidence of the amounts of Advances and
other charges thereto and of payments applicable thereto.
2.8. Letters of Credit and Acceptances. Subject to the terms and conditions
hereof, Issuing Lender shall (a) issue or cause the issuance of Letters of
Credit ("Letters of Credit") or (b) accept, or cause to be accepted, drafts for
Borrower under such Letters of Credit or otherwise ("Acceptances"); provided,
however, that Issuing Lender will not be required to issue or cause to be issued
any Letters of Credit or accept or cause to be accepted any Acceptances to the
extent that the face amount of such Letters of Credit and Acceptances would then
cause the sum of (i) the outstanding Revolving Advances plus (ii) outstanding
Letters of Credit (with the requested Letter of Credit being deemed to be
outstanding for purposes of this calculation) plus (iii) outstanding Acceptances
to exceed the lesser of (x) the Maximum Loan Amount or (y) the Formula Amount
which is calculated as if the requested Letter of Credit or Acceptance has been
issued or created. All disbursements or payments related to Letters of Credit
and Acceptances shall be deemed to be Revolving Advances and shall bear interest
at the applicable Contract Rate; Letters of Credit that have not been drawn upon
and unmatured Acceptances shall not bear interest.
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2.9 Issuance of Letters of Credit; Creation of Acceptances.
(a) Borrower may request Issuing Lender to issue or cause the issuance of a
Letter of Credit or create an Acceptance by delivering to Agent, on behalf of
the Issuing Lender, at the Payment Office or at any other location requested by
Agent, Issuing Lender's standard form of Letter of Credit Application (the
"Letter of Credit Application") and any draft, if applicable, completed to the
satisfaction of Issuing Lender; and, such other certificates, documents and
other papers and information as Issuing Lender may reasonably request.
(b) Each Letter of Credit shall, among other things, (i) provide for the
payment of sight drafts when presented for honor thereunder in accordance with
the terms thereof and when accompanied by the documents described therein and
(ii) have an expiry date not later than six (6) months after such Letter of
Credit's date of issuance exclusive of any extensions and in no event later than
the last day of the Term. Each Letter of Credit Application and each Letter of
Credit shall be subject to the Uniform Customs and Practice for Documentary
Credits (1993 Revision), International Chamber of Commerce Publication No. 500,
and any amendments or revision thereof and, to the extent not inconsistent
therewith, the laws of the State of New York.
(c) Issuing Lender shall have absolute discretion whether to accept any
draft. Without in any way limiting Issuing Lender's absolute discretion whether
to accept any draft, Borrower will not present any draft and Issuing Lender with
generally not accept any drafts (i) that arise out of transactions involving the
sale of goods by Borrower not in the ordinary course of its business, (ii) that
involve a sale to an Affiliate of Borrower other than arms-length sales to
Affiliates, (iii) that involve any purchase for which Issuing Lender has not
received all related documents, instruments and forms requested by Issuing
Lender, or (iv) that is not eligible for discounting with Federal Reserve Banks
pursuant to paragraph 7 of Section 13 of the Federal Reserve Act, as amended.
(d) Subject to terms set by Issuing Lender from time to time in its
reasonable discretion with respect to the acceptance of drafts generally,
Borrower may request Acceptances on any Business Day, by delivering to Issuing
Lender a request for an Acceptance in substantially the form of Exhibit 2.9 and,
upon demand, copies of all invoices, delivery receipts and related documents
relating to that request that Issuing Lender might require. Provided that the
request for Acceptance is received prior to 10:30 a.m. and approved by Issuing
Lender, Issuing Lender shall make the net proceeds of the Acceptance available
to the Borrower by crediting the net amount of the Acceptance in lawful money of
the United States and in immediately available funds to the Borrower's account.
The net amount of the Acceptance shall be calculated by discounting the
Acceptance at the Bankers' Acceptance Rate for the applicable maturity period
upon the creation by Issuing Lender of an Acceptance plus during the Initial
Period, one percent (1%) and after the Initial Period as follows:
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<TABLE>
<CAPTION>
If the Margin Trigger Ratio is: The margin with respect to the Bankers'
Acceptance Rate for Bankers' Acceptances
created on or after the date of the financial
statement evidencing the change in the
Margin Trigger Ration is:
- --------------------------------------------------------------------------------------------------
<S> <C>
Less than or equal to 1.5 to 1 .75%
Greater than 1.5 to 1, but less 1%
than or equal to 3.0 to 1
Greater than 3.0 to 1 1.25%
</TABLE>
(e) Borrower shall pay to Issuing Lender the amount of any Acceptance on
its maturity date. In addition, Agent is hereby irrevocably authorized, in its
sole discretion, to make Revolving Advances from time to time, or to charge the
account of Borrower, to pay any Acceptance for which payment is due, or at any
time after the occurrence of an Event of Default to fund cash collateral for any
outstanding Acceptance.
(f) Each Acceptance shall be payable in Dollars to the order of Issuing
Lender, shall be dated the date of its presentment to Issuing Lender for
acceptance and shall be in the face amount of $500,000 or a whole multiple of
$250,000 in excess thereof. The maturity of each Acceptance shall be in any 30
day increment equal to or greater than 30 and less than or equal to 180 days or,
if such day is not a Business Day on the next succeeding Business Day, and , in
any event, no later than the day preceding the expiration of the Term. This
Section 2.9(f) will apply to any Acceptances, including those created under
Letters of Credit, if any.
(g) Issuing Lender shall use its reasonable efforts to notify Lenders of
the request by Borrower for a Letter of Credit or Acceptance hereunder.
2.10. Requirements For Issuance of Letters of Credit and Acceptances.
(a) In connection with the issuance of any Letter of Credit or Acceptance,
Borrower shall indemnify save and hold Issuing Lender and each Lender harmless
from any loss, cost, expense or liability, including, without limitation,
payments made by Issuing Lender, any Lender, any issuer or any accepting bank
and reasonable expenses and reasonable attorneys' fees incurred by Issuing
Lender or any Lender arising out of, or in connection with, any Letter of Credit
or Acceptance to be issued or created for Borrower. Borrower shall be bound by
Issuing Lender or any issuing or accepting bank's regulations and good faith
interpretations of any Letter of Credit or Acceptance issued or created for
Borrower's account, although this interpretation may be different from
Borrower's own, and, neither Issuing Lender nor any Lender, the bank which
opened the Letter of Credit, nor any of its correspondents shall be liable for
any error, negligence, or mistakes, whether of omission or commission, in
following Borrower's instructions or those contained in any Letter of Credit,
Acceptance or of any modifications, amendments or supplements thereto or in
issuing or paying any Letter of Credit or Acceptance, except for Issuing
Lender's or any Lender's or such correspondents' willful misconduct.
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(b) Borrower shall authorize and direct any bank which issues a Letter of
Credit to name Borrower as the "Applicant" or "Account Party" therein and to
deliver to Issuing Lender all instruments, documents, and other writings and
property received by the bank pursuant to the Letter of Credit or any Acceptance
related thereto and to accept and rely upon Issuing Lender's instructions and
agreements with respect to all matters arising in connection with the Letter of
Credit, the application therefor or any Acceptance therefor.
(c) In connection with all Letters of Credit and Acceptances issued or
caused to be issued or created by Issuing Lender under this Agreement, Borrower
hereby appoints Issuing Lender, or its designee, as its attorney, with full
power and authority (i) to sign and/or endorse Borrower's name upon any
warehouse or other receipts, letter of credit applications and acceptances; (ii)
to sign Borrower's name on bills of lading; (iii) to clear Inventory through the
United States of America Customs Department ("Customs") in the name of Borrower
or Issuing Lender or Issuing Lender's designee, and to sign and deliver to
Customs officials powers of attorney in the name of Borrower for such purpose;
and (iv) to complete in Borrower's name or Issuing Lender's, or in the name of
Issuing Lender's designee, any order, sale or transaction, obtain the necessary
documents in connection therewith, and collect the proceeds thereof. Neither
Issuing Lender nor its attorneys will be liable for any acts or omissions nor
for any error of judgment or mistakes of fact or law, except for Issuing
Lender's or its attorney's willful misconduct or gross negligence. This power,
being coupled with an interest, is irrevocable as long as any Letters of Credit
or Acceptances remain outstanding.
(d) Each Lender shall to the extent of the percentage amount equal to the
product of such Lender's Commitment Percentage times the aggregate amount of all
disbursements made with respect to the Letters of Credit or Acceptances be
deemed to have irrevocably purchased an undivided participation in each
Revolving Advance made as a consequence of such disbursement. In the event that
at the time a disbursement is made the unpaid balance of Advances exceeds or
would exceed, with the making of such disbursement, the lesser of the Maximum
Loan Amount or the Formula Amount, and such disbursement is not reimbursed by
Borrower within two (2) Business Days, Agent shall promptly notify each Lender
and upon Agent's demand each Lender shall pay to Agent such Lender's
proportionate share of such unreimbursed disbursement together with such
Lender's proportionate share of Agent's unreimbursed costs and expenses relating
to such unreimbursed disbursement. Upon receipt by Agent of a repayment from
Borrower of any amount disbursed by Agent for which Agent had already been
reimbursed by the Lenders, Agent shall deliver to each of the Lenders that
Lender's pro rata share of such repayment. Each Lender's participation
commitment shall continue until the last to occur of any of the following
events: (A) Issuing Lender ceases to be obligated to issue Letters of Credit or
to create Acceptances hereunder; (B) no Letter of Credit issued or Acceptance
created hereunder remains outstanding and uncancelled or (C) all Persons (other
than Borrower) have been fully reimbursed for all payments made under or
relating to Letters of Credit and Acceptances.
2.11. Additional Payments. Any sums expended by Agent or any Lender due to
Borrower's failure to perform or comply with its obligations under this
Agreement or any Other Document including, without limitation, Borrower's
obligations under Sections 4.2, 4.4, 4.12, 4.13, 4.14 and 6.1 hereof, may be
charged to Borrower's account as a Revolving Advance and added to the
Obligations.
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2.12. Manner of Borrowing and Payment.
(a) Each borrowing of Revolving Advances shall be advanced according to the
Commitment Percentages of the Lenders.
(b) Each payment (including each prepayment) by Borrower on account of the
principal of and interest on the Revolving Credit Note, shall be applied to the
Revolving Advances pro rata according to the Commitment Percentages of the
Lenders. Except as expressly provided herein, all payments (including
prepayments) to be made by Borrower on account of principal, interest and fees
shall be made without set-off and shall be made to Agent on behalf of the
Lenders to the Payment Office, in each case on or prior to 1:00 P.M., Atlanta
time, in Dollars and in immediately available funds.
(c) (i) Notwithstanding anything to the contrary contained in Sections
2.12(a) and (b) hereof, commencing with the first Business Day following the
Closing Date, each borrowing of Revolving Advances shall be advanced by Agent
and each payment by Borrower on account of Revolving Advances shall be applied
first to those Revolving Advances made by Agent. On or before 1:00 P.M., Atlanta
time, on each Settlement Date commencing with the first Settlement Date
following the Closing Date, Agent and the Lenders shall make certain payments as
follows: (I) if the aggregate amount of new Revolving Advances made by Agent
during the preceding Week exceeds the aggregate amount of repayments applied to
outstanding Revolving Advances during such preceding Week, then each Lender
shall provide Agent with funds in an amount equal to its Commitment Percentage
of the difference between (w) such Revolving Advances and (x) such repayments
and (II) if the aggregate amount of repayments applied to outstanding Revolving
Advances during such Week exceeds the aggregate amount of new Revolving Advances
made during such Week, then Agent shall provide each Lender with its Commitment
Percentage of the difference between (y) such repayments and (z) such Revolving
Advances.
(ii) Each Lender shall be entitled to earn interest at the Contract Rate on
outstanding Advances which it has funded.
(iii) Promptly following each Settlement Date, Agent shall submit to each
Lender a certificate with respect to payments received and Advances made during
the Week immediately preceding such Settlement Date. Such certificate of Agent
shall be conclusive in the absence of manifest error.
(d) If any Lender or Participant (a "benefited Lender") shall at any time
receive any payment of all or part of its Advances, or interest thereon, or
receive any Collateral in respect thereof (whether voluntarily or involuntarily
or by setoff) in a greater proportion than any such payment to and Collateral
received by any other Lender, if any, in respect of such other Lender's
Advances, or interest thereon, and such greater proportionate payment or receipt
of Collateral is not expressly permitted hereunder, such benefited Lender shall
purchase for cash from the other Lenders such portion of each such other
Lender's Advances, or shall provide such other Lender with the benefits of any
such Collateral, or the proceeds thereof, as shall be necessary to cause such
benefited Lender to share the excess payment or benefits of such Collateral or
proceeds ratably with each of the Lenders; provided, however, that if all or any
portion of such excess payment or benefits is thereafter recovered from such
benefited Lender,
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such purchase shall be rescinded, and the purchase price and benefits returned,
to the extent of such recovery, but without interest. Each Lender so purchasing
a portion of another Lender's Advances may exercise all rights of payment
(including, without limitation, rights of set-off) with respect to such portion
as fully as if such Lender were the direct holder of such portion.
(e) Unless Agent shall have been notified by telephone, confirmed in
writing, by any Lender that such Lender will not make the amount which would
constitute its Commitment Percentage of the Advances available to Agent, Agent
may (but shall not be obligated to) assume that such Lender shall make such
amount available to Agent and, in reliance upon such assumption, make available
to Borrower a corresponding amount. Agent will promptly notify Borrower of its
receipt of any such notice from a Lender. If such amount is made available to
Agent on a date after a Settlement Date, such Lender shall pay to Agent on
demand an amount equal to the product of (i) the daily average Federal Funds
Rate (computed on the basis of a year of 360 days) during such period as quoted
by Agent, times (ii) such amount, times (iii) the number of days from and
including such Settlement Date to the date on which such amount becomes
immediately available to Agent. A certificate of Agent submitted to any Lender
with respect to any amounts owing under this paragraph (e) shall be conclusive,
in the absence of manifest error. If such amount is not in fact made available
to Agent by such Lender within three (3) Business Days after such Settlement
Date, Agent shall be entitled to recover such an amount, with interest thereon
at the rate per annum then applicable to Revolving Advances hereunder, on demand
from Borrower; provided, however, that Agent's right to such recovery shall not
prejudice or otherwise adversely affect Borrower's rights (if any) against such
Lender.
2.13. Mandatory Prepayments.
In the event that Advances exceed the lesser of (i) the Maximum Loan Amount
or (ii) the Formula Amount plus the amount of outstanding Letters of Credit and
Acceptances, and Borrower sells or otherwise disposes of any Collateral other
than Inventory in the ordinary course of business or Receivables sold and
assigned to Factor under the Factoring Agreement, Borrower shall repay the
Advances in an amount equal to the net proceeds of such sale (i.e., gross
proceeds less the reasonable costs of such sales or other dispositions), such
repayments to be made promptly but in no event more than one (1) Business Day
following receipt of such net proceeds, and until the date of payment, such
proceeds shall be held in trust for Agent. The foregoing shall not be deemed to
be implied consent to any such sale otherwise prohibited by the terms and
conditions hereof. Such repayments shall be applied to the remaining Advances in
such order as Agent may determine, subject to Borrower's ability to reborrow
Revolving Advances in accordance with the terms hereof.
III. INTEREST AND FEES.
3.1. Interest. Interest on Revolving Advances shall be payable in arrears
on the last day of each month with respect to Domestic Rate Loans and, with
respect to LIBO Rate Loans , at the end of each Interest Period. Interest
charges shall be computed on the actual principal of Advances outstanding during
the month (the "Monthly Advances") at a rate per annum equal to with respect to
Revolving Advances, the Revolving Interest Rate. Whenever, subsequent to the
date of this Agreement, the Prime Rate is increased or decreased, the Revolving
Interest Rate with respect to Domestic Rate Loans shall be similarly changed
without
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notice or demand of any kind by an amount equal to the amount of such change in
the Prime Rate during the time such change or changes remain in effect. Upon and
after the occurrence of an Event of Default, and during the continuation
thereof, the Obligations shall bear interest at the Revolving Interest Rate plus
one percent (1%) per annum (the "Default Rate").
3.2. Letter of Credit and Acceptance Fees.
Borrower shall pay (i) to Agent, for the ratable benefit of the Lenders (A)
for issuing or causing the issuance of a standby Letter of Credit, a fee
computed at a rate per annum of one and one quarter percent (1.25%) on the
outstanding amount thereof from time to time, (B) for issuing or causing the
issuance of a Letter of Credit that is not a standby Letter of Credit, a fee
equal to 1/8% of the original and each increase in the face amount thereof for
each 120 days or part thereof of its term, and (ii) to Issuing Lender, such
Issuing Lender's other customary charges payable in connection with Letters of
Credit or Acceptances, as the case may be, as in effect from time to time (which
charges shall be furnished to Borrower by Issuing Lender upon request). Such
fees and charges set forth herein shall be referred to as "Letter of Credit and
Acceptance Fees" and shall be payable (i) in the case of any Letter of Credit,
on its opening (ii) in the case of a standby Letter of Credit, (A) monthly
thereafter in advance and (B) upon each increase in the outstanding amount
thereof, (iii) in the case of any Letter of Credit that is not a standby Letter
of Credit, at the time of each increase in face amount thereof and (iv) in the
case of an Acceptance, at the time thereof. Any such charge in effect at the
time of a particular transaction shall be the charge for that transaction,
notwithstanding any subsequent change in Bank's prevailing charges for that type
of transaction. All Letter of Credit and Acceptance Fees payable hereunder shall
be deemed earned in full on the date when the same are due and payable hereunder
and shall not be subject to rebate or proration upon the termination of this
Agreement for any reason.
Upon an acceleration of the Obligations hereunder, upon demand, Borrower
will cause cash to be deposited and maintained in an account with Agent, as cash
collateral, in an amount equal to one hundred and five percent (105%) of the
outstanding Letters of Credit and Acceptances, and Borrower hereby irrevocably
authorizes Agent, in its discretion, on Borrower's behalf and in Borrower's
name, to open such an account and to make and maintain deposits therein, or in
an account opened by Borrower, in the amounts required to be made by Borrower,
out of the proceeds of Receivables or other Collateral or out of any other funds
of Borrower coming into Lender's possession at any time. Agent will invest such
cash collateral (less applicable reserves) in such short-term money-market items
as to which Agent and Borrower mutually agree and the net return on such
investments shall be credited to such account and constitute additional cash
collateral. Borrower may not withdraw amounts credited to any such account
except upon payment and performance in full of all Obligations and termination
of this Agreement.
3.3. (a) Closing Fees. Upon the execution of this Agreement, Borrower shall
pay to Agent, for its own account, a closing fee in the amount of $15,000.
(b) Facility Fee. If, for any month during the Term, the average daily
unpaid balance of the Advances for each day of such month does not equal the
Maximum Loan Amount, then Borrower shall pay to Agent for the ratable benefit of
the Lenders a fee at a rate equal to
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twenty-five hundredths of one percent (.25%) per annum on the amount by which
the Maximum Loan Amount exceeds such average daily unpaid balance. Such fee will
be reduced to twenty hundredths of one percent (.20%) in the event that the
Margin Trigger Ratio is reduced by twenty-five hundredths of one percent
(.25%).Such fee shall be payable to Agent in arrears on the last day of each
month.
3.4 Intentionally Omitted.
3.5. Computation of Interest and Fees. Interest and fees hereunder shall be
computed on the basis of a year of 360 days and for the actual number of days
elapsed. If any payment to be made hereunder becomes due and payable on a day
other than a Business Day, the due date thereof shall be extended to the next
succeeding Business Day and interest thereon shall be payable at the applicable
Contract Rate during such extension.
3.6. Maximum Charges. In no event whatsoever shall interest and other
charges charged hereunder exceed the highest rate permissible under law which a
court of competent jurisdiction shall, in a final determination, deem applicable
hereto. In the event that a court determines that Agent or any Lender has
received interest and other charges hereunder in excess of the highest rate
permissible hereto, such excess amount shall be first applied to any unpaid
principal balance owed by Borrower, and if the then remaining excess amount is
greater than the previously unpaid principal balance, the Lenders shall promptly
refund such excess amount to Borrower and the provisions hereof shall be deemed
amended to provide for such permissible rate.
3.7. Increased Costs. In the event that after the date hereof, the adoption
of any applicable law, treaty or governmental regulation, or any change therein
or in the interpretation or application thereof, or compliance by any Lender
(for purposes of this Section 3.7, the term "Lender" shall include Agent or any
Lender and any corporation or bank controlling Agent or any Lender) and the
office or branch where Agent or any Lender (as so defined) makes or maintains
any LIBO Rate Loans with any request or directive (whether or not having the
force of law) from any central bank or other financial, monetary or other
authority, shall:
(a) subject Agent or any Lender to any tax of any kind whatsoever with
respect to this Agreement or change the basis of taxation of payments to Agent
or any Lender of principal, fees, interest or any other amount payable hereunder
or under any Other Documents (except for changes in the rate of tax on the
overall net income of Agent or any Lender by the jurisdiction in which it
maintains its principal office);
(b) impose, modify or hold applicable any reserve, special deposit,
assessment or similar requirement against assets held by, or deposits in or for
the account of, advances or loans by, or other credit extended by, any office of
Agent or any Lender, including (without limitation) pursuant to Regulation D of
the Board of Governors of the Federal Reserve System; or
(c) impose on Agent or any Lender or the London interbank Eurodollar market
any other condition with respect to this Agreement or any Other Documents;
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and the result of any of the foregoing is to increase the cost to Agent or
Lender of making, renewing or maintaining its Advances hereunder by an amount
that Agent or such Lender deems to be material or to reduce the amount of any
payment (whether of principal, interest or otherwise) in respect of any of the
Advances by an amount that Agent or such Lender deems to be material, then, in
any case Borrower shall promptly pay Agent or such Lender, upon its notice and
demand, such additional amount as will compensate Agent or such Lender for such
additional cost or such reduction, as the case may be, provided that the
foregoing shall not apply to increased costs which are reflected in the LIBO
Rate. Agent or such Lender shall certify the amount of such additional cost or
reduced amount to Borrower, and such certification shall set forth in reasonable
detail the reasons for invoking the provisions of this Section 3.7 and be
conclusive absent manifest error.
3.8. Basis For Determining Interest Rate Inadequate or Unfair. In the event
that Agent or any Lender shall have determined that:
(a) reasonable means do not exist for ascertaining the LIBO Rate applicable
pursuant to Section 2.2 hereof for any Interest Period;
(b) Dollar deposits in the relevant amount and for the relevant maturity
are not available in the London interbank Eurodollar market, with respect to an
outstanding LIBO Rate Loan, a proposed LIBO Rate Loan, or a proposed conversion
of a Domestic Rate Loan into a LIBO Rate Loan;
Agent shall give Borrower prompt written, telephonic or telegraphic notice of
such determination, which notice shall set forth in reasonable detail the
reasons for invoking the provisions of this Section 3.8. If such notice is
given, (i) any such requested LIBO Rate Loan shall be made as a Domestic Rate
Loan, unless Borrower shall notify Agent no later than 10:00 a.m. (New York City
time) two (2) Business Days prior to the date of such proposed borrowing, that
its request for such borrowing shall be cancelled or made as an unaffected type
of LIBO Rate Loan, (ii) any Domestic Rate Loan or LIBO Rate Loan which was to
have been converted to an affected type of LIBO Rate Loan shall be continued as
or converted into a Domestic Rate Loan, or, if Borrower shall notify Agent, no
later than 10:00 a.m. (New York City time) two (2) Business Days prior to the
proposed conversion, shall be maintained as an unaffected type of LIBO Rate
Loan, and (iii) any outstanding affected LIBO Rate Loans shall be converted into
a Domestic Rate Loan, or, if Borrower shall notify Agent, no later than 10:00
a.m. (New York City time) two (2) Business Days prior to the last Business Day
of the then current Interest Period applicable to such affected LIBO Rate Loan,
shall be converted into an unaffected type of LIBO Rate Loan, on the last
Business Day of the then current Interest Period for such affected LIBO Rate
Loans. Until such notice has been withdrawn, the Lenders shall have no
obligation to make an affected type of LIBO Rate Loan or maintain outstanding
affected LIBO Rate Loans and Borrower shall not have the right to convert a
Domestic Rate Loan or an unaffected type of LIBO Rate Loan into an affected type
of LIBO Rate Loan.
3.9. Capital Adequacy.
(a) In the event that after the date hereof, Agent or any Lender shall have
determined that the adoption of any applicable law, rule, regulation or
guideline regarding capital
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adequacy, or any change therein, or any change in the interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by Agent or any Lender (for purposes of this Section 3.9, the term "Lender"
shall include Agent or any Lender and any corporation or bank controlling Agent
or any Lender and the office or branch where Agent or any Lender (as so defined)
makes or maintains any LIBO Rate Loans with any request or directive regarding
capital adequacy (whether or not having the force of law) of any such authority,
central bank or comparable agency, has or would have the effect of reducing the
rate of return on Agent or any Lender's capital as a consequence of its
obligations hereunder to a level below that which Agent or such Lender could
have achieved but for such adoption, change or compliance (taking into
consideration Agent's and each Lender's policies with respect to capital
adequacy) by an amount deemed by Agent or any Lender to be material, then, from
time to time, Borrower shall pay upon demand to Agent or such Lender such
additional amount or amounts as will compensate Agent or such Lender for such
reduction. In determining such amount or amounts, Agent or such Lender may use
any reasonable averaging or attribution methods. The protection of this Section
3.9 shall be available to Agent and each Lender regardless of any possible
contention of invalidity or inapplicability with respect to the applicable law,
regulation or condition.
(b) A certificate of Agent or such Lender setting forth such amount or
amounts as shall be necessary to compensate Agent or such Lender with respect to
Section 3.9(a) hereof when delivered to Borrower shall set forth in reasonable
detail the reasons for invoking the provisions of this Section 3.9 and be
conclusive absent manifest error.
IV. COLLATERAL: GENERAL TERMS
4.1. Security Interest in the Collateral. To secure the prompt payment and
performance to Agent and each Lender of the Obligations, Borrower hereby
assigns, pledges and grants to Agent for the ratable benefit of each Lender a
continuing security interest in and to all of the Collateral, whether now owned
or existing or hereafter acquired or arising and wheresoever located. Borrower
shall mark its books and records as may be necessary or appropriate to evidence,
protect and perfect Agent's security interest and shall cause its financial
statements to reflect such security interest. Such security interest shall be
subordinated to the security interest granted by Borrower under the Factoring
Agreement with respect to all Receivables and to the security interest granted
to Congress Talcott Corporation with respect to Receivables arising prior to the
Closing Date.
4.2. Perfection of Security Interest. After the Closing Date, Borrower
shall take all action that may be necessary or desirable, or that Agent may
request, so as at all times to maintain the validity, perfection, enforceability
and priority of Agent's security interest in the Collateral or to enable Agent
to protect, exercise or enforce its rights hereunder and in the Collateral,
including, but not limited to (i) immediately discharging all Liens other than
Permitted Encumbrances, (ii) obtaining landlords' or mortgagees' lien waivers,
(iii) delivering to Agent, endorsed or accompanied by such instruments of
assignment as Agent may specify, and stamping or marking, in such manner as
Agent may specify, any and all chattel paper, instruments, letters of credit and
advices thereof and documents evidencing or forming a part of the Collateral,
(iv) entering into warehousing, lockbox and other custodial arrangements
satisfactory to Agent, and (v) executing and delivering financing statements,
instruments of pledge, mortgages, notices and
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assignments, in each case in form and substance satisfactory to Agent, relating
to the creation, validity, perfection, maintenance or continuation of Agent's
security interest under the Uniform Commercial Code or other applicable law. All
charges, expenses and fees Agent may incur in doing any of the foregoing, and
any local taxes relating thereto, shall be charged to Borrower's account as a
Revolving Advance and added to the Obligations, or, at the Agent's option, shall
be paid to Agent for the ratable benefit of the Lenders immediately upon demand.
4.3. Disposition of Collateral. At any time that Advances exceed the lesser
of (i) the Maximum Loan Amount or (ii) the Formula Amount plus the amount of
outstanding Letters of Credit and Acceptances, Borrower will safeguard and
protect all Collateral for Agent's general account and make no disposition
thereof whether by sale, lease or otherwise except, the sale of Inventory in the
ordinary course of business.
4.4. Preservation of Collateral. In addition to the rights and remedies set
forth in Section 11.1 hereof, upon the occurrence and continuance of an Event of
Default, Agent: (a) may at any time take such steps as Agent deems necessary to
protect Agent's interest in and to preserve the Collateral, including the hiring
of such security guards or the placing of other security protection measures as
Agent may deem appropriate; (b) may employ and maintain at any of Borrower's
premises a custodian who shall have full authority to do all acts necessary to
protect Agent's interests in the Collateral; (c) may lease warehouse facilities
to which Agent may move all or part of the Collateral; (d) may use any of
Borrower's owned or leased lifts, hoists, trucks and other facilities or
equipment for handling or removing the Collateral; and (e) shall have, and is
hereby granted, a right of ingress and egress to the places where the Collateral
is located, and may proceed over and through any of Borrower's owned or leased
property. Borrower shall cooperate fully with all of Agent's efforts to preserve
the Collateral and will take such actions to preserve the Collateral as Agent
may direct. All of Agent's expenses of preserving the Collateral, including any
expenses relating to the bonding of a custodian, shall be charged to Borrower's
account as a Revolving Advance and added to the obligations.
4.5. Ownership of Collateral. With respect to the Collateral, but subject
to the rights of the Factor under the Factoring Agreement ,at the time the
Collateral becomes subject to Agent's security interest,: (a) Borrower shall be
the sole owner of and fully authorized and able to sell, transfer, pledge and/or
grant a first security interest in each and every item of the Collateral to
Agent; and, except for Permitted Encumbrances the Collateral shall be free and
clear of all Liens and encumbrances whatsoever; (b) each document and agreement
executed by Borrower or delivered to Agent or any Lender in connection with this
Agreement shall be true and correct in all respects; (c) all signatures and
endorsements of Borrower that appear on such documents and agreements shall be
genuine and Borrower shall have full capacity to execute same; and (d)
Borrower's Inventory shall be located as set forth on Schedule 4.5 and shall not
be removed from such location(s) without the prior written consent of Agent
except with respect to the sale of Inventory in the ordinary course of business.
4.6. Defense of Agent's and Lender's Interests. Until (a) payment and
performance in full of all of the Obligations and (b) termination of this
Agreement, Agent's interests in the Collateral shall continue in full force and
effect. During such period Borrower shall not, without Agent's prior written
consent, pledge, sell (except in the event that Advances exceed the lesser of
(i) the Maximum Loan Amount or (ii) the Formula Amount plus the amount
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of outstanding Letters of Credit and Acceptances, Inventory in the ordinary
course of business and Receivables sold and assigned to the Factor under the
Factoring Agreement), assign, transfer, create or suffer to exist a Lien upon or
encumber or allow or suffer to be encumbered in any way except for Permitted
Encumbrances, any part of the Collateral. Borrower shall defend Agent's
interests in the Collateral against any and all persons whatsoever. Upon the
occurrence and continuance of an Event of Default, at any time following demand
by Agent for payment of all Obligations, Agent shall have the right to take
possession of the indicia of the Collateral and the Collateral in whatever
physical form contained, including without limitation: labels, stationery,
documents, instruments and advertising materials. If Agent exercises this right
to take possession of the Collateral, Borrower shall, upon demand, assemble it
in the best manner possible and make it available to Agent at a place reasonably
convenient to Agent. In addition, with respect to all Collateral, Agent and the
Lenders shall be entitled to all of the rights and remedies set forth herein and
further provided by the Uniform Commercial Code or other applicable law.
Borrower shall, and Agent may, at its option, instruct all suppliers, carriers,
forwarders, warehouses or others receiving or holding cash, checks, Inventory,
documents or instruments in which Agent holds a security interest to deliver
same to Agent and/or subject to Agent's order and if they shall come into
Borrower's possession, they, and each of them, shall be held by Borrower in
trust as Agent's trustee, and Borrower will immediately deliver them to Agent in
their original form together with any necessary endorsement.
4.7. Books and Records. Borrower (a) shall keep proper books of record and
account in which full, true and correct entries will be made of all dealings or
transactions of or in relation to its business and affairs; (b) set up on its
books accruals with respect to all taxes, assessments, charges, levies and
claims; and (c) on a reasonably current basis set up on its books, from its
earnings, allowances against doubtful Receivables, advances and investments and
all other proper accruals (including without limitation by reason of
enumeration, accruals for premiums, if any, due on required payments and
accruals for depreciation, obsolescence, or amortization of properties), which
should be set aside from such earnings in connection with its business. All
determinations pursuant to this subsection shall be made in accordance with, or
as required by, GAAP consistently applied in the opinion of such independent
public accountant as shall then be regularly engaged by Borrower.
4.8. Intentionally Deleted.
4.9. Compliance with Laws. Borrower shall comply with all acts, rules,
regulations and orders of any legislative, administrative or judicial body or
official applicable to the Collateral or any part thereof or to the operation of
Borrower's business the non-compliance with which could have a Material Adverse
Effect on Borrower.
4.10. Inspection of Premises. At all reasonable times and upon reasonable
notice, Agent and each Lender shall have full access to and the right to audit,
check, inspect and make abstracts and copies from Borrower's books, records,
audits, correspondence and all other papers relating to the Collateral and the
operation of Borrower's business. Agent, any Lender and their agents may enter
upon any of Borrower's premises at any time during business hours and at any
other reasonable time, and from time to time, for the purpose of inspecting the
Collateral and any and all records pertaining thereto and the operation of
Borrower's business.
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4.11. Insurance. Borrower shall bear the full risk of any loss of any
nature whatsoever with respect to the Collateral. At Borrower's own cost and
expense in amounts and with carriers acceptable to Agent, Borrower shall (a)
keep all its insurable properties and properties in which Borrower has an
interest insured against the hazards of fire, flood, sprinkler leakage, those
hazards covered by extended coverage insurance and such other hazards, and for
such amounts, as is customary in the case of companies engaged in businesses
similar to Borrower's including, without limitation, business interruption
insurance; (b) maintain a bond in such amounts as is customary in the case of
companies engaged in businesses similar to Borrower's insuring against larceny,
embezzlement or other criminal misappropriation of insured's officers and
employees who may either singly or jointly with others at any time have access
to the assets or funds of Borrower either directly or through authority to draw
upon such funds or to direct generally the disposition of such assets; (c)
maintain public and product liability insurance against claims for personal
injury, death or property damage suffered by others; (d) maintain all such
worker's compensation or similar insurance as may be required under the laws of
any state or jurisdiction in which Borrower is engaged in business; (e) furnish
Agent with (i) copies of all policies and evidence of the maintenance of such
policies by the renewal thereof at least thirty (30) days before any expiration
date, and (ii) appropriate loss payable endorsements in form and substance
satisfactory to Agent, naming Agent as a coinsured and loss payee as its
interests may appear with respect to all insurance coverage referred to in
clauses (a), and (b) above, and providing (A) that all proceeds thereunder shall
be payable to Agent, (B) no such insurance shall be affected by any act or
neglect of the insured or owner of the property described in such policy, and
(C) that such policy and loss payable clauses may not be cancelled, amended or
terminated unless at least thirty (30) days' prior written notice is given to
Agent. In the event of any loss thereunder, the carriers named therein hereby
are directed by Agent and Borrower to make payment for such loss to Agent and
not to Borrower and Agent jointly. If any insurance losses are paid by check,
draft or other instrument payable to Borrower and Agent jointly, Agent may
endorse Borrower's name thereon and do such other things as Agent may deem
advisable to reduce the same to cash. Agent is hereby authorized to adjust and
compromise claims under insurance coverage referred to in clauses (a), (b)
above. Upon the occurrence and the continuance of an Event of Default, all loss
recoveries received by Agent upon any such insurance may be applied to the
obligations, in such order as Agent in its sole discretion shall determine. Any
surplus shall be paid by Agent to Borrower or applied as may be otherwise
required by law. Any deficiency thereon shall be paid by Borrower to Agent, on
demand.
4.12. Failure to Pay Insurance. If Borrower fails to obtain insurance as
hereinabove provided, or to keep the same in force, Agent, if Agent so elects,
may obtain such insurance and pay the premium therefor for Borrower's account,
and charge Borrower's account therefor and such expenses so paid shall be part
of the Obligations.
4.13. Payment of Taxes. Borrower will pay, when due, all taxes, assessments
and other Charges lawfully levied or assessed upon Borrower or any of the
Collateral including, without limitation, real and personal property taxes,
assessments and charges and all franchise, income, employment, social security
benefits, withholding, and sales taxes. If any tax by any governmental authority
is or may be imposed on or as a result of any transaction between Borrower and
Agent or any Lender which Agent or any Lender may be required to withhold or pay
or if any taxes, assessments, or other Charges remain unpaid after the date
fixed for their payment, or if any claim shall be made which, in Agent's or
Lender's opinion, may possibly
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create a valid Lien on the Collateral, Agent may without notice to Borrower pay
the taxes, assessments or other Charges and Borrower hereby indemnifies and
holds Agent and each Lender harmless in respect thereof. The amount of any
payment by Agent under this Section 4.13 shall be charged to Borrower's account
as a Revolving Advance and added to the Obligations and, until Borrower shall
furnish Agent with an indemnity therefor (or supply Agent with evidence
satisfactory to Agent that due provision for the payment thereof has been made),
Agent may hold without interest any balance standing to Borrower's credit and
Agent shall retain its security interest in any and all Collateral held by
Agent.
4.14. Payment of Leasehold Obligations. Borrower shall at all times pay,
when and as due, its rental obligations under all leases under which it is a
tenant, and shall otherwise comply, in all material respects, with all other
terms of such leases and keep them in full force and effect and, at Agent's
request, will provide evidence of having done so.
4.15. Receivables.
(a) Nature of Receivables. To the best of Borrower's knowledge, and subject
to the rights of the Factor under the Factoring Agreement,each of the
Receivables shall be a bona fide and valid account representing a bona fide
indebtedness incurred by the Customer therein named, for a fixed sum as set
forth in the invoice relating thereto (provided immaterial or unintentional
invoice errors shall not be deemed to be a breach hereof) with respect to an
absolute sale or lease and delivery of goods upon stated terms of Borrower, or
work, labor or services theretofore rendered by Borrower as of the date each
Receivable is created. Same shall be due and owing in accordance with Borrower's
standard terms of sale without dispute, setoff or counterclaim except as may be
stated on the accounts receivable schedules delivered by Borrower to Agent.
(b) Solvency of Customers. Each Customer, to the best of Borrower's
knowledge, as of the date each Receivable is created, is and will be solvent and
able to pay all Receivables on which the Customer is obligated in full when due
or with respect to such Customers of Borrower who are not solvent Borrower has
set up on its books and in its financial records bad debt reserves adequate to
cover such Receivables.
(c) Locations of Borrower. Borrower's chief executive office is located at
2975 Westchester Avenue, Purchase, NY 10577 . Until written notice is given to
Agent by Borrower of any other office at which it keeps its records pertaining
to Receivables, all such records shall be kept at such executive office.
(d) Collection of Receivables. Subject to the terms of the Factoring
Agreement, until Borrower's authority to do so is terminated by Agent (which
notice Agent may give at any time following the occurrence of an Event of
Default or a Default or when Agent in its sole discretion deems it to be in the
Lenders' best interest to do so), Borrower will, at Borrower's sole cost and
expense, but on Agent's behalf and for Agent's account, collect as Agent's
property and in trust for Agent all amounts received on Receivables, and shall
not commingle such collections with Borrower's funds or use the same except to
pay Obligations. Borrower shall, upon request, deliver to Agent or the Blocked
Account in original form and on the date of receipt
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thereof, all checks, drafts, notes, money orders, acceptances, cash and other
evidences of Indebtedness.
(e) Notification of Assignment of Receivables. At any time upon the
occurrence and continuance of an Event of Default, Agent shall have the right to
send notice of the assignment of, and Agent's security interest in, the
Receivables to any and all Customers or any third party holding or otherwise
concerned with any of the Collateral. Thereafter, Agent shall have the sole
right to collect the Receivables, take possession of the Collateral, or both.
Agent's actual collection expenses, including, but not limited to, stationery
and postage, telephone and telegraph, secretarial and clerical expenses and the
salaries of any collection personnel used for collection, may be charged to
Borrower's account and added to the obligations.
(f) Power of Agent to Act on Borrower's Behalf. Agent shall have the right
to receive, endorse, assign and/or deliver in the name of Agent or Borrower any
and all checks, drafts and other instruments for the payment of money relating
to the Receivables, and Borrower hereby waives notice of presentment, protest
and non-payment of any instrument so endorsed. Borrower hereby constitutes Agent
or Agent's designee as Borrower's attorney with power (i) to endorse Borrower's
name upon any notes, acceptances, checks, drafts, money orders or other
evidences of payment or Collateral; (ii) to sign Borrower's name on any invoice
or bill of lading relating to any of the Receivables, drafts against Customers,
assignments and verifications of Receivables; (iii) to send verifications of
Receivables to any Customer; (iv) to sign Borrower's name on all financing
statements or any other documents or instruments deemed necessary or appropriate
by Agent to preserve, protect, or perfect Agent's interest in the Collateral and
to file same; (v) to demand payment of the Receivables; (vi) to enforce payment
of the Receivables by legal proceedings or otherwise; (vii) to exercise all of
Borrower's rights and remedies with respect to the collection of the Receivables
and any other Collateral; (viii) to settle, adjust, compromise, extend or renew
the Receivables; (ix) to settle, adjust or compromise any legal proceedings
brought to collect Receivables; (x) to prepare, file and sign Borrower's name on
a proof of claim in bankruptcy or similar document against any Customer; (xi) to
prepare, file and sign Borrower's name on any notice of Lien, assignment or
satisfaction of Lien or similar document in connection with the Receivables; and
(xii) to do all other acts and things necessary to carry out this Agreement. All
acts of said attorney or designee are hereby ratified and approved, and said
attorney or designee shall not be liable for any acts of omission or commission
nor for any error of judgment or mistake of fact or of law, unless done
maliciously or with gross (not mere) negligence; this power being coupled with
an interest is irrevocable while any of the Obligations remain unpaid. Agent
shall have the right at any time to change the address for delivery of mail
addressed to Borrower to such address as Agent may designate.
(g) No Liability. So long as they have acted in good faith, neither Agent
nor any Lender shall, under any circumstances or in any event whatsoever, have
any liability for any error or omission or delay of any kind occurring in the
settlement, collection or payment of any of the Receivables or any instrument
received in payment thereof, or for any damage resulting therefrom. Agent may,
without notice or consent from Borrower, sue upon or otherwise collect, extend
the time of payment of, compromise or settle for cash, credit or upon any terms
any of the Receivables or any other securities, instruments or insurance
applicable thereto and/or release any obligor thereof. Upon the occurrence and
the continuance of an Event of Default, Agent is authorized and empowered to
accept the return of the goods represented by any of the
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Receivables, without notice to or consent by Borrower, all without discharging
or in any way affecting Borrower's liability hereunder.
(h) Establishment of a Lockbox Account, Dominion Account. All proceeds of
Collateral shall, at the direction of Agent, be deposited by Borrower into a
lockbox account, dominion account or such other "blocked account" ("Blocked
Accounts") as Agent may require pursuant to an arrangement with such bank as may
be selected by Borrower and be acceptable to Agent. Borrower shall issue to any
such bank, an irrevocable letter of instruction directing said bank to transfer
such funds so deposited to Agent, either to any account maintained by Agent at
said bank or by wire transfer to appropriate account(s) of Agent. All funds
deposited in such "blocked account" shall immediately become the property of
Agent and Borrower shall obtain the agreement by such bank to waive any offset
rights against the funds so deposited. Agent assumes no responsibility for such
"blocked account" arrangement, including without limitation, any claim of accord
and satisfaction or release with respect to deposits accepted by any bank
thereunder. Alternatively, Agent may establish depository accounts ("Depository
Accounts") in the name of Agent at a bank or banks for the deposit of such funds
and Borrower shall deposit all proceeds of Collateral or cause same to be
deposited, in kind, in such Depository Accounts of Agent in lieu of depositing
same to the Blocked Accounts.
(i) Adjustments. In the event that the status of Borrower's account with
Agent is such that the Receivables are being liquidated to reduce the
outstanding Advances, Borrower will not, without Agent's consent, compromise or
adjust any Receivables (or extend the time for payment thereof) or accept any
returns of merchandise or grant any additional discounts, allowances or credits
thereon except for those compromises, adjustments, returns, discounts, credits
and allowances as have been heretofore customary in the ordinary course of
business of Borrower.
4.16. Inventory. To the best of Borrower's knowledge and belief, all
Inventory has been, and will be, produced by Borrower in accordance with the
Federal Fair Labor Standards Act of 1938, as amended, and all rules, regulations
and orders thereunder.
4.17. Maintenance of Equipment. The Equipment shall be maintained in
operating condition and repair (reasonable wear and tear excepted) and all
necessary replacements of and repairs thereto shall be made so that the value
and operating efficiency of the Equipment shall be maintained and preserved.
Borrower shall not use or operate the Equipment in violation of any law,
statute, ordinance, code, rule or regulation.
4.18. Exculpation of Liability. Nothing herein contained shall be construed
to constitute Agent or any Lender as Borrower's agent for any purpose
whatsoever, nor shall Agent or any Lender be responsible or liable for any
shortage, discrepancy, damage, loss or destruction of any part of the Collateral
wherever the same may be located and regardless of the cause thereof. Neither
Agent nor any Lender, whether by anything herein or in any assignment or
otherwise, assume any of Borrower's obligations under any contract or agreement
assigned to Agent or such Lender, and neither Agent nor any Lender shall be
responsible in any way for the performance by Borrower of any of the terms and
conditions thereof.
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4.19. Environmental Matters. (a) Borrower will ensure that the Real
Property remains in compliance with all Environmental Laws and it will not place
or permit to be placed any Hazardous Substances on any Real Property except as
not prohibited by applicable law or appropriate governmental authorities.
(b) Borrower will establish and maintain a system to assure and monitor
continued compliance with all applicable Environmental Laws which system shall
include periodic reviews of such compliance.
(c) Borrower will (i) employ in connection with its use of the Real
Property appropriate technology necessary to maintain compliance with any
applicable Environmental Laws and (ii) dispose of any and all Hazardous Waste
generated at the Real Property only at facilities and with carriers that
maintain valid permits under RCRA and any other applicable Environmental Laws.
Borrower shall use its best efforts to obtain certificates of disposal, such as
hazardous waste manifest receipts, from all treatment, transport, storage or
disposal facilities or operators employed by Borrower in connection with the
transport or disposal of any Hazardous Waste generated at the Real Property.
(d) In the event Borrower obtains, gives or receives notice of any Release
or threat of Release of a reportable quantity of any Hazardous Substances at the
Real Property (any such event being hereinafter referred to as a "Hazardous
Discharge") or receives any notice of violation, request for information or
notification that it is potentially responsible for investigation or cleanup of
environmental conditions at the Real Property, demand letter or complaint,
order, citation, or other written notice with regard to any Hazardous Discharge
or violation of Environmental Laws affecting the Real Property or Borrower's
interest therein (any of the foregoing is referred to herein as an
"Environmental Complaint") from any Person or entity, including any state agency
responsible in whole or in part for environmental matters in the state in which
the Real Property is located or the United States Environmental Protection
Agency (any such person or entity hereinafter the "Authority"), then Borrower
shall, within five (5) Business Days, give written notice of same to Agent
detailing facts and circumstances of which Borrower is aware giving rise to the
Hazardous Discharge or Environmental Complaint. Such information is to be
provided to allow Agent to protect its security interest in the Real Property
and is not intended to create nor shall it create any obligation upon Agent or
any Lender with respect thereto.
(e) Borrower shall promptly forward to Agent copies of any request for
information, notification of potential liability, demand letter relating to
potential responsibility with respect to the investigation or cleanup of
Hazardous Substances at any other site owned, operated or used by Borrower to
dispose of Hazardous Substances and shall continue to forward copies of
correspondence between Borrower and the Authority regarding such claims to the
Lender until the claim is settled. Borrower shall promptly forward to Agent
copies of all documents and reports concerning a Hazardous Discharge at the Real
Property that Borrower is required to file under any Environmental Laws. Such
information is to be provided solely to allow Agent to protect Agent's security
interest in the Collateral.
(f) Borrower shall respond promptly to any Hazardous Discharge or
Environmental Complaint and take all necessary action in order to safeguard the
health of any
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Person and to avoid subjecting the Collateral or Real Property to any Lien. If
Borrower shall fail to respond promptly to any Hazardous Discharge or
Environmental Complaint or Borrower shall fail to comply with any of the
requirements of any Environmental Laws, Agent on behalf of the Lenders may, but
without the obligation to do so, for the sole purpose of protecting Agent's
interest in Collateral: (A) give such notices or (B) enter onto the Real
Property (or authorize third parties to enter onto the Real Property) and take
such actions as Agent (or such third parties as directed by Agent) deem
reasonably necessary or advisable, to clean up, remove, mitigate or otherwise
deal with any such Hazardous Discharge or Environmental Complaint. All
reasonable costs and expenses incurred by Agent and the Lenders (or such third
parties) in the exercise of any such rights, including any sums paid in
connection with any judicial or administrative investigation or proceedings,
fines and penalties, together with interest thereon from the date expended at
the Default Rate for Revolving Advances shall be paid upon demand by Borrower,
and until paid shall be added to and become a part of the Obligations secured by
the Liens created by the terms of this Agreement or any other agreement between
Agent, any Lender and Borrower.
(g) Promptly upon the written request of Agent from time to time, Borrower
shall provide Agent, at Borrower's expense, with an environmental site
assessment or environmental audit report prepared by an environmental
engineering firm acceptable in the reasonable opinion of Agent, to assess with a
reasonable degree of certainty the existence of a Hazardous Discharge and the
potential costs in connection with abatement, cleanup and removal of any
Hazardous Substances found on, under, at or within the Real Property. Any report
or investigation of such Hazardous Discharge proposed and acceptable to an
appropriate Authority that is charged to oversee the clean-up of such Hazardous
Discharge shall be acceptable to Agent. If such estimates, individually or in
the aggregate, exceed $100,000, Agent shall have the right to require Borrower
to post a bond, letter of credit or other security reasonably satisfactory to
Agent to secure payment of these costs and expenses.
(h) Borrower shall defend and indemnify Agent and the Lenders and hold
Agent, the Lenders and their respective employees, agents, directors and
officers harmless from and against all loss, liability, damage and expense,
claims, costs, fines and penalties, including attorney's fees, suffered or
incurred by Agent or the Lenders under or on account of any Environmental Laws,
including, without limitation, the assertion of any lien thereunder, with
respect to any Hazardous Discharge, the presence of any Hazardous Substances
affecting the Real Property, whether or not the same originates or emerges from
the Real Property or any contiguous real estate, including any loss of value of
the Real Property as a result of the foregoing except to the extent such loss,
liability, damage and expense is attributable to any Hazardous Discharge
resulting from actions on the part of Agent or any Lender. Borrower's
obligations under this Section 4.19 shall arise upon the discovery of the
presence of any Hazardous Substances at the Real Property, whether or not any
federal, state, or local environmental agency has taken or threatened any action
in connection with the presence of any Hazardous Substances. Borrower's
obligation and the indemnifications hereunder shall survive the termination of
this Agreement.
(i) For purposes of Section 4.19 and 5.7, all references to Real Property
shall be deemed to include all of Borrower's right, title and interest in and to
its owned and leased premises.
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4.20. Financing Statements. Except as respects the financing statements
filed by Agent and by the Factor and the financing statements described on
Schedule 1.2, no financing statement covering any of the Collateral or any
proceeds thereof is on file in any public office.
V. REPRESENTATIONS AND WARRANTIES.
Borrower represents and warrants as follows:
5.1. Authority. Borrower has full power, authority and legal right to enter
into this Agreement and the Other Documents and perform all Obligations
hereunder and thereunder. The execution, delivery and performance hereof and of
the Other Documents (a) are within Borrower's corporate powers, have been duly
authorized, are not in contravention of law or the terms of Borrower's by-laws,
certificate of incorporation or other applicable documents relating to
Borrower's formation or to the conduct of Borrower's business or of any material
agreement or undertaking to which Borrower is a party or by which Borrower is
bound, and (b) will not conflict with nor result in any breach in any of the
provisions of or constitute a default under or result in the creation of any
Lien except Permitted Encumbrances upon any asset of Borrower under the
provisions of any agreement, charter document, instrument, by-law, or other
instrument to which Borrower or its property is a party or by which it may be
bound.
5.2. Formation and Qualification. (a) Borrower is duly incorporated and in
good standing under the laws of the State of Delaware and is qualified to do
business and is in good standing in the states listed on Schedule 5.2 which
constitute all states in which qualification and good standing are necessary for
Borrower to conduct its business and own its property and where the failure to
so qualify could have a Material Adverse Effect on Borrower. Borrower has
delivered to Agent true and complete copies of its certificate of incorporation
and by-laws and will promptly notify Agent of any amendment or changes thereto.
(b) The only Subsidiaries of Borrower are listed on Schedule 5.2.
5.3. Survival of Representations and Warranties. All representations and
warranties of Borrower contained in this Agreement and the Other Documents shall
be true at the time of Borrower's execution of this Agreement and the Other
Documents, and shall survive the execution, delivery and acceptance thereof by
the parties thereto and the closing of the transactions described therein or
related thereto.
5.4. Tax Returns. Borrower's federal tax identification number is
11-2481903. Borrower has filed all federal, state and local tax returns and
other reports it is required by law to file and has paid all taxes, assessments,
fees and other governmental charges that are due and payable the failure of
which to file would have a Material Adverse Effect. There is no tax deficiency
outstanding, proposed or assessed against Borrower that is not reflected as a
liability on the Borrower's books nor has the Borrower executed any waiver of
any statute of limitations on or extending the period for the assessment or
collection of any tax.
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5.5. Financial Statements.
The twelve-month cash flow projections (unaudited) of Borrower previously
provided to Agent and the quarterly projections (unaudited) and its projected
balance sheets as of the Closing Date, copies of which are annexed hereto as
Exhibit 5.5 (the "Projections") were prepared by the V.P. Finance of the
Borrower and reviewed by the Chief Financial Officer of Borrower, are based on
underlying assumptions which provide a reasonable basis for the projections
contained therein and reflect Borrower's judgment based on present circumstances
of the most likely set of conditions and course of action for the projected
period.
5.6. Corporate Name. Borrower has not been known by any other corporate
name in the past five years and does not sell Inventory under any other name
except as set forth on Schedule 5.6, nor has Borrower been the surviving
corporation of a merger or consolidation or acquired all or substantially all of
the assets of any Person during the preceding five (5) years.
5.7. O.S.H.A. and Environmental Compliance.
(a) Borrower has duly complied with, and its facilities, business, assets,
property, leaseholds and Equipment are in compliance in all material respects
with, the provisions of the Federal Occupational Safety and Health Act, the
Environmental Protection Act, RCRA and all other Environmental Laws; there have
been no outstanding citations, notices or orders of non-compliance issued to
Borrower or relating to its business, assets, property, leaseholds or equipment
under any such laws, rules or regulations.
(b) Borrower has been issued all required federal, state and local
licenses, certificates or permits relating to all applicable Environmental Laws.
(c) (i) There are no visible signs of releases, spills, discharges, leaks
or disposal (collectively referred to as "Releases") of Hazardous Substances at,
upon, under or within any Real Property or any premises leased by Borrower; (ii)
there are no underground storage tanks or polychlorinated biphenyls on the Real
Property or any premises leased by Borrower; (iii) neither the Real Property nor
any premises leased by Borrower has ever been used as a treatment, storage or
disposal facility of Hazardous Waste; and (iv) no Hazardous Substances are
present on the Real Property or any premises leased by Borrower, excepting such
quantities as are handled in accordance with all applicable manufacturer's
instructions and governmental regulations and in proper storage containers and
as are necessary for the operation of the commercial business of Borrower or of
its tenants.
5.8. Solvency; No Litigation, Violation, Indebtedness or Default.
(a) Borrower is solvent, able to pay its debts as they mature, has capital
sufficient to carry on its business and all businesses in which it is about to
engage, and (i) as of the Closing Date, the fair present saleable value of its
assets, calculated on a going concern basis, is in excess of the amount of its
liabilities and (ii) subsequent to the Closing Date, the fair saleable value of
its assets (calculated on a going concern basis) will be in excess of the amount
of its liabilities.
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(b) To the best knowledge and belief of Borrower there is (i) no pending or
threatened litigation, arbitration, action or proceeding which if decided
adversely to Borrower would involve the possibility of having a Material Adverse
Effect on Borrower, or the ability of Borrower to perform this Agreement, and
(ii) no liability nor indebtedness other than the Obligations.
(c) Borrower is not in violation of any applicable statute, regulation or
ordinance in any respect which could have a Material Adverse Effect on Borrower
nor is Borrower in violation of any order of any court, governmental authority
or arbitration board or tribunal.
(d) Neither Borrower nor any member of the Controlled Group maintains or
contributes to any Plan other than those listed on Schedule 5.8(d) hereto.
Except as set forth in Schedule 5.8(d), (i) no Plan has incurred any
"accumulated funding deficiency," as defined in Section 302(a)(2) of ERISA and
Section 412(a) of the Code, whether or not waived, and Borrower and each member
of the Controlled Group has met all applicable minimum funding requirements
under Section 302 of ERISA in respect of each Plan, (ii) each Plan which is
intended to be a qualified plan under Section 401(a) of the Code as currently in
effect has been determined by the Internal Revenue Service to be qualified under
Section 401(a) of the Code and the trust related thereto is exempt from federal
income tax under Section 501(a) of the Code, (iii) neither Borrower nor any
member of the Controlled Group has incurred any liability to the PBGC other than
for the payment of premiums, and there are no premium payments which have become
due which are unpaid, (iv) no Plan has been terminated by the plan administrator
thereof or by the PBGC, and there is no occurrence which would cause the PBGC to
institute proceedings under Title IV of ERISA to terminate any Plan, (v) at this
time, the current value of the assets of each Plan exceeds the present value of
the accrued benefits and other liabilities of such Plan and neither Borrower nor
any member of the Controlled Group knows of any facts or circumstances which
would materially change the value of such assets and accrued benefits and other
liabilities, (vi) neither Borrower nor any member of the Controlled Group has
breached in any material respect any of the responsibilities, obligations or
duties imposed on it by ERISA with respect to any Plan, (vii) neither Borrower
nor any member of a Controlled Group has incurred any liability for any excise
tax arising under Section 4972 or 4980B of the Code, and no fact exists which
could give rise to any such liability, (viii) neither Borrower nor any member of
the Controlled Group nor any fiduciary of, nor any trustee to, any Plan, has
engaged in a "prohibited transaction" described in Section 406 of the ERISA or
Section 4975 of the Code nor taken any action which would constitute or result
in a Termination Event with respect to any such Plan which is subject to ERISA,
(ix) Borrower and each member of the Controlled Group has made all contributions
due and payable with respect to each Plan, (x) there exists no event described
in Section 4043(b) of ERISA, for which the thirty (30) day notice period
contained in 29 CFR Section 2615.3 has not been waived, (xi) neither Borrower
nor any member of the Controlled Group has any fiduciary responsibility for
investments with respect to any plan existing for the benefit of persons other
than employees or former employees of Borrower and any member of the Controlled
Group, and (xii) neither Borrower nor any member of the Controlled Group has
withdrawn, completely or partially, from any Multiemployer Plan so as to incur
liability under the Multiemployer Pension Plan Amendments Act of 1980.
5.9. Patents, Trademarks, Copyrights and Licenses. All patents, patent
applications, trademarks, trademark applications, service marks, service mark
applications,
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copyrights, copyright applications, design rights, tradenames, assumed names,
trade secrets and licenses owned or licensed by Borrower constituting all of the
intellectual property rights which are necessary for the operation of its
business are, to the best of Borrower's knowledge valid; all registered
trademarks and pending trademark applications of which Borrower is the owner or
which Borrower is licensed to use are set forth on Schedule 5.9; there is no
objection to or pending challenge to the validity of any such material patent,
trademark, copyright, design rights tradename, trade secret or license and
Borrower is not aware of any grounds for any challenge, except as set forth in
Schedule 5.9 hereto. Each patent, patent application, patent license, trademark,
trademark application, trademark license, service mark, service mark
application, service mark license, copyright, copyright application and
copyright license owned or held by Borrower consists of original material or
property developed by Borrower or was lawfully acquired by Borrower from the
proper and lawful owner thereof. Each of such items has been maintained so as to
preserve the value thereof from the date of creation or acquisition thereof.
5.10. Licenses and Permits. Except as set forth in Schedule 5.10, Borrower
(a) is in compliance with and (b) has procured and is now in possession of, all
material licenses or permits required by any applicable federal, state,
provincial or local law or regulation for the operation of its business in each
jurisdiction wherein it is now conducting or proposes to conduct business and
where the failure to procure such licenses or permits could have a Material
Adverse Effect on Borrower.
5.11. Default of Indebtedness. Borrower is not in default in the payment of
the principal of or interest on any Indebtedness or under any instrument or
agreement under or subject to which any Indebtedness has been issued and no
event has occurred under the provisions of any such instrument or agreement
which with or without the lapse of time or the giving of notice, or both,
constitutes or would constitute an event of default thereunder.
5.12. No Default. Borrower is not in default in the payment or performance
of any of its material contractual obligations and no Default has occurred.
5.13. No Burdensome Restrictions. Borrower is not party to any contract or
agreement the performance of which could have a Material Adverse Effect on
Borrower. Borrower has not agreed or consented to cause or permit in the future
(upon the happening of a contingency or otherwise) any of its property, whether
now owned or hereafter acquired, to be subject to a Lien which is not a
Permitted Encumbrance.
5.14. No Labor Disputes. To the best of Borrower's knowledge and belief,
Borrower is not involved in any labor dispute; there are no strikes or walkouts
or union organization of any of Borrower's employees threatened or in existence
and no labor contract is scheduled to expire during the Term other than as set
forth on Schedule 5.14 hereto.
5.15. Margin Regulations. Borrower is not engaged, nor will it engage,
principally or as one of its important activities, in the business of extending
credit for the purpose of "purchasing" or "carrying" any "margin stock" within
the respective meanings of each of the quoted terms under Regulation U or
Regulation G of the Board of Governors of the Federal Reserve System as now and
from time to time hereafter in effect. No part of the proceeds of any
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Advance will be used for "purchasing" or "carrying" "margin stock" as defined in
Regulation U of such Board of Governors.
5.16. Investment Company Act. Borrower is not an "investment company"
registered or required to be registered under the Investment Company Act of
1940, as amended, nor is it controlled by such a company.
5.17. Disclosure. No representation or warranty made by Borrower in this
Agreement or in any financial statement, report, certificate or any other
document furnished in connection herewith knowingly contains any untrue
statement of fact or omits to state any fact necessary to make the statements
herein not misleading. There is no fact known to Borrower or which reasonably
should be known to Borrower which Borrower has not disclosed to Agent in writing
with respect to the transactions contemplated by this Agreement which could have
a Material Adverse Effect on Borrower.
5.18. Derivatives. Other than those listed on Schedule 5.18, Borrower is
not a party to, nor will it be a party to, any derivative agreement whereby
Borrower has agreed or will agree to swap interest rates or currencies unless
same provides that damages upon termination following an event of default
thereunder are payable on an unlimited "two-way basis" without regard to fault
on the part of either party.
5.19. Conflicting Agreements. No provision of any mortgage, indenture,
contract, agreement, judgment, decree or order binding on Borrower or affecting
the Collateral conflicts with, or requires any Consent which has not already
been obtained to, or would in any way prevent the execution, delivery or
performance of, the terms of this Agreement or the Other Documents.
5.20. Application of Certain Laws and Regulations. Neither Borrower nor any
Affiliate of Borrower is subject to any statute, rule or regulation which
regulates the incurrence of any Indebtedness, including without limitation,
statutes or regulations relative to common or interstate carriers or to the sale
of electricity, gas, steam, water, telephone, telegraph or other public utility
services.
5.21. Business and Property of Borrower. Upon and after the Closing Date
and during the Term, Borrower does not propose to engage in any business other
than footwear, handbags, apparel, accessories, licensing and operation of retail
stores consistent with Borrower's operations and activities necessary to conduct
such business. On the Closing Date, Borrower will own all the property and
possess all of the rights and Consents necessary for the conduct of the business
of Borrower.
VI. AFFIRMATIVE COVENANTS.
Borrower shall, until payment in full of the Obligations and termination of
this Agreement:
6.1. Payment of Fees. As set forth in this Agreement, pay to Agent on
demand all usual and customary fees and expenses which Agent incurs in
connection with (a) the
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forwarding of Advance proceeds and (b) the establishment and maintenance of any
Blocked Accounts or Depository Accounts as provided for in Section 4.15(h).
Agent may, without making demand, charge the account of Borrower for all such
fees and expenses.
6.2. Conduct of Business and Maintenance of Existence and Assets. (a)
Conduct continuously and operate actively its business according to good
business practices and maintain all of its properties useful or necessary in its
business in good working order and condition (reasonable wear and tear excepted
and except as may be disposed of in accordance with the terms of this
Agreement), including, without limitation, all licenses, patents, copyrights,
design rights, tradenames, trade secrets and trademarks and take all actions
necessary to enforce and protect the validity of any intellectual property right
or other right included in the Collateral; (b) keep in full force and effect its
existence and comply in all material respects with the laws and regulations
governing the conduct of its business and (c) make all such reports and pay all
such franchise and other taxes and license fees and do all such other acts and
things as may be lawfully required to maintain its rights, licenses, leases,
powers and franchises under the laws of the United States or any political
subdivision thereof. It is understood and agreed that the manner in which the
business is presently conducted conforms with this Section 6.2.
6.3. Violations. Promptly notify Agent in writing of any violation of any
law, statute, regulation or ordinance of any Governmental Body, or of any agency
thereof, applicable to Borrower which may have a Material Adverse Effect on
Borrower known to Borrower.
6.4. Government Receivables. Take all steps necessary to protect Agent's
interest in the Collateral under the Federal Assignment of Claims Act or other
applicable state or local statutes or ordinances and deliver to Agent
appropriately endorsed, any instrument or chattel paper connected with any
Receivable arising out of contracts between Borrower and the United States, any
state or any department, agency or instrumentality of any of them.
6.5. Tangible Net Worth. Maintain at the end of each period set forth below
a Tangible Net Worth in an amount not less than the amount set forth below
corresponding to such period end:
Period End Tangible Net Worth
---------- ------------------
7/31/98 $29,000,000
10/31/98 $30,000,000
1/31/99 $31,000,000
4/30/99 $31,000,000
7/31/99 $33,000,000
10/31/99 $34,000,000
1/31/00 $35,000,000
4/30/00 $35,000,000
7/31/00 $37,000,000
10/31/00 $38,000,000
1/31/01 $40,000,000
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6.6. Indebtedness to Tangible Net Worth. Maintain at all times after
January 31, 1999 a ratio of Indebtedness to Tangible Net Worth of not greater
than 1.5 to 1.0.
6.7. Fixed Charge Coverage Ratio. Maintain at all times after January 31,
1999 a Fixed Charge Coverage Ratio of not less than 2.0 to 1.0.
6.8. Execution of Supplemental Instruments. Execute and deliver to Agent
from time to time, upon demand, such supplemental agreements, statements,
assignments and transfers, or instructions or documents relating to the
Collateral, and such other instruments as Agent may request, in order that the
full intent of this Agreement may be carried into effect.
6.9. Payment of Indebtedness. Pay, discharge or otherwise satisfy at or
before maturity (subject, where applicable, to specified grace periods and, in
the case of the trade payables, to normal payment practices) all its obligations
and liabilities of whatever nature, except when the amount or validity thereof
is currently being contested in good faith by appropriate proceedings and
Borrower shall have provided for such reserves as Agent may reasonably deem
proper and necessary, subject at all times to any applicable subordination
arrangement in favor of Lenders.
6.10. Standards of Financial Statements. Cause all financial statements
referred to in Sections 9.7, 9.8, 9.9, 9.10, 9.11, 9.12, 9.13 and 9.14 as to
those to which GAAP is applicable to be complete and correct in all material
respects (subject, in the case of interim financial statements, to normal
year-end audit adjustments) and to be prepared in reasonable detail and in
accordance with GAAP applied consistently throughout the periods reflected
therein (except as concurred in by such reporting accountants or officer, as the
case may be, and disclosed therein).
VII. NEGATIVE COVENANTS.
Borrower shall not, until satisfaction in full of the Obligations and
termination of this Agreement:
7.1. Merger, Consolidation, Acquisition and Sale of Assets.
(a) Enter into any merger (other than a merger between Candie's and New
Retail Concepts, Inc.), consolidation or other reorganization with or into any
other Person or acquire all or a substantial portion of the assets or stock of
any Person or permit any other Person to consolidate with or merge with it,
provided that Borrower upon notice to Agent may make acquisitions during the
Term not exceeding the aggregate amount of $5,000,000.00.
(b) Sell, lease, transfer or otherwise dispose of any of its properties or
assets, except in the ordinary course of its business.
7.2. Creation of Liens. Create or suffer to exist any Lien or transfer upon
or against any of its property or assets now owned or hereafter acquired, except
Permitted Encumbrances.
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7.3. Guarantees. Become liable upon the obligations of any Person by
assumption, endorsement or guaranty thereof or otherwise (other than to Lenders)
except purchase commitments issued to Affiliates or buying and selling agents or
the endorsement of checks in the ordinary course of business.
7.4. Investments. Purchase or acquire obligations or stock of, or any other
interest in, any Person, except (a) obligations issued or guaranteed by the
United States of America or any agency thereof; (b) commercial paper with
maturities of not more than 180 days and a published rating of not less than A-1
or P-1 (or the equivalent rating); (c) certificates of time deposit and bankers'
acceptances having maturities of not more than 180 days and repurchase
agreements backed by United States government securities of a commercial bank if
(i) such bank has a combined capital and surplus of at least $500,000,000, or
(ii) its debt obligations, or those of a holding company of which it is a
Subsidiary, are rated not less than A (or the equivalent rating) by a nationally
recognized investment rating agency; and (d) U.S. money market funds that invest
solely in obligations issued or guaranteed by the United States of America or an
agency thereof.
7.5. Loans. Make advances, loans or extensions of credit to any Person,
including without limitation, any Parent, Subsidiary or Affiliate, provided that
Borrower may make loans to (a) its Subsidiaries which are Guarantors, or (b) its
employees in an amount not to exceed $1,000,000 to any one employee up to an
aggregate of $3,000,000 outstanding to all employees at any one time.
7.6. Capital Expenditures. Contract for, purchase or make any expenditure
or commitments for fixed or capital assets (including Capital Leases) on a
consolidated basis in fiscal year 1999 in an amount in excess of $3,500,000, in
fiscal year 2000 in an amount in excess of $4,000,000 and in fiscal year 2001 in
an amount in excess of $5,000,000, provided that if there is an Overadvance
Amount outstanding for sixty (60) consecutive days during any fiscal year, then
the amounts permitted under this Section 7.6 with respect to that fiscal year
shall be $2,000,000 in fiscal year 1999, $2,500,000 in fiscal year 2000,
$3,000,000 in fiscal year 2001.
7.7. Dividends. Declare, pay or make any dividend or distribution on any
shares of the common stock or preferred stock of Borrower (other than dividends
or distributions payable in its stock, or split-ups or reclassifications of its
stock) or apply any of its funds, property or assets to the purchase, redemption
or other retirement of any common or preferred stock, or of any options to
purchase or acquire any such shares of common or preferred stock of Borrower.
7.8. Indebtedness. Create, incur, assume or suffer to exist any
Indebtedness in excess of $5,000,000 (exclusive of trade debt and Capital
Leases).
7.9. Nature of Business. Except as permitted in Section 5.21, substantially
change the nature of the business in which it is presently engaged, nor except
as specifically permitted hereby purchase or invest, directly or indirectly, in
any assets or property other than in the ordinary course of business for assets
or property which are useful in, necessary for and are to be used in its
business as presently conducted.
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7.10. Transactions with Affiliates. Directly or indirectly, purchase,
acquire or lease any property from, or sell, transfer or lease any property to,
or otherwise deal with, any Affiliate, except (a) transactions disclosed in the
ordinary course of business, on an arm's-length basis on terms no less favorable
than terms which would have been obtainable from a Person other than an
Affiliate, not to exceed an aggregate amount of $5,000,000 at any one time, (b)
transactions with Redwood Shoe Corp. in the ordinary course of Borrower's
business and (c) transactions with New Retail Concepts Inc. in connection with
its Services Allocation Agreement with Borrower or with respect to the proposed
merger between New Retail Concepts Inc. and Borrower.
7.11. Leases. Enter as lessee into any lease arrangement for real or
personal property (unless capitalized and permitted under Section 7.6 hereof) if
after giving effect thereto, aggregate annual rental payments for all leased
property would exceed $1,500,000 in any one fiscal year.
7.12. Subsidiaries.
(a) Form any new Subsidiary unless it becomes a Guarantor or a party to
this Agreement, provided, however, that Borrower may form Subsidiaries which are
not Guarantors hereunder if and only if the execution of a Guaranty by the
Subsidiary is prohibited by the laws or statutes of the country in which the
Subsidiary is incorporated.
(b) Enter into any partnership, joint venture or similar arrangement that
would have a material effect on Borrower's financial condition without the prior
consent of Agent.
7.13. Accounting Changes. Make any significant change (i) in accounting
treatment and reporting practices except as required by GAAP or (ii) in tax
reporting treatment except as required by law.
7.14. Pledge of Credit. Now or hereafter pledge Lender's credit on any
purchases or for any purpose whatsoever or use any portion of any Advance in or
for any business other than Borrower's business as conducted on the date of this
Agreement.
7.15. Amendment of Articles of Incorporation, By-Laws. Amend, modify or
waive any term or material provision of its Articles of Incorporation or By-Laws
unless required by law without notice to Agent.
7.16. Compliance with ERISA. (i) (x) Maintain, or permit any member of the
Controlled Group to maintain, or (y) become obligated to contribute, or permit
any member of the Controlled Group to become obligated to contribute, to any
Plan, other than those Plans disclosed on Schedule 5.8(d); (ii) engage, or
permit any member of the Controlled Group to engage, in any non-exempt
"prohibited transaction", as that term is defined in section 406 of ERISA and
Section 4975 of the Code; (iii) incur, or permit any member of the Controlled
Group to incur, any "accumulated funding deficiency", as that term is defined in
Section 302 of ERISA or Section 412 of the Code; (iv) terminate, or permit any
member of the Controlled Group to terminate, any Plan where such event could
result in any liability of Borrower or any member of the Controlled Group or the
imposition of a lien on the property of Borrower or any member of
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the Controlled Group pursuant to Section 4068 of ERISA; (v) assume, or permit
any member of the Controlled Group to assume, any obligation to contribute to
any Multiemployer Plan not disclosed on Schedule 5.8(d); (vi) incur, or permit
any member of the Controlled Group to incur, any withdrawal liability to any
Multiemployer Plan; (vii) fail promptly to notify the Lender of the occurrence
of any Termination Event; (viii) fail to comply, or permit a member of the
Controlled Group to fail to comply, with the requirements of ERISA or the Code
or other applicable laws in respect of any Plan; (ix) fail to meet, or permit
any member of the Controlled Group to fail to meet, all minimum funding
requirements under ERISA or the Code or postpone or delay or allow any member of
the Controlled Group to postpone or delay any funding requirement with respect
of any Plan.
7.17. Prepayment of Indebtedness. At any time, directly or indirectly,
prepay any Indebtedness (other than to Lender or trade debt or Capital Leases or
other Current Liabilities), or repurchase, redeem, retire or otherwise acquire
any Indebtedness of Borrower.
VIII. CONDITIONS PRECEDENT.
8.1. Conditions to Initial Advances. The agreement of Lenders to make the
initial Advances requested to be made on the Closing Date is subject to the
satisfaction, or waiver by Lenders, immediately prior to or concurrently with
the making of such Advances, of the following conditions precedent:
(a) Note. Agent shall have received the Note duly executed and delivered by
an authorized officer of Borrower;
(b) Filings, Registrations and Recordings. Each document (including,
without limitation, any Uniform Commercial Code financing statement) required by
this Agreement, any related agreement or under law or reasonably requested by
the Agent to be filed, registered or recorded in order to create, in favor of
Agent, a perfected security interest in or lien upon the Collateral shall have
been properly filed, registered or recorded in each jurisdiction in which the
filing, registration or recordation thereof is so required or requested, and
Agent shall have received an acknowledgment copy, or other evidence satisfactory
to it, of each such filing, registration or recordation and satisfactory
evidence of the payment of any necessary fee, tax or expense relating thereto;
(c) Corporate Proceedings of Borrower. Agent shall have received a copy of
the resolutions in form and substance reasonably satisfactory to Agent, of the
Board of Directors of Borrower authorizing (i) the execution, delivery and
performance of this Agreement, the Note, and any related agreements,
(collectively the "Documents") and (ii) the granting by Borrower of the security
interests in and liens upon the Collateral in each case certified by the
Secretary or an Assistant Secretary of Borrower as of the Closing Date; and,
such certificate shall state that the resolutions thereby certified have not
been amended, modified, revoked or rescinded as of the date of such certificate;
(d) Incumbency Certificates of Borrower. Agent shall have received a
certificate of the Secretary or an Assistant Secretary of Borrower, dated the
Closing Date, as to the
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incumbency and signature of the officers of Borrower executing this Agreement,
any certificate or other documents to be delivered by it pursuant hereto,
together with evidence of the incumbency of such Secretary or Assistant
Secretary;
(e) Certificates. Agent shall have received a copy of the Articles or
Certificate of Incorporation of Borrower, and all amendments thereto, certified
by the Secretary of State or other appropriate official of its jurisdiction of
incorporation together with copies of the By-Laws of Borrower and all agreements
of Borrower's shareholders certified as accurate and complete by the Secretary
of Borrower;
(f) Good Standing Certificates. Agent shall have received good standing
certificates for Borrower dated not more than ten days prior to the Closing,
issued by the Secretary of State or other appropriate official of Borrower's
jurisdiction of incorporation and each jurisdiction where the conduct of
Borrower's business activities or the ownership of its properties necessitates
qualification;
(g) Legal Opinion. Agent shall have received the executed legal opinion of
Tenzer Greenblatt LLP in form and substance satisfactory to the Lenders which
shall cover such matters incident to the transactions contemplated by this
Agreement, the Note, and related agreements as Agent may reasonably require and
Borrower hereby authorizes and directs such counsel to deliver such opinions to
Agent;
(h) No Litigation. (i) No litigation, investigation or proceeding before or
by any arbitrator or Governmental Body shall be continuing or threatened against
Borrower or against the officers or directors of Borrower (A) in connection with
the Documents or any of the transactions contemplated thereby and which, in the
reasonable opinion of the Lenders, is deemed material or (B) which if adversely
determined, could, in the reasonable opinion of the Lenders, have a Material
Adverse Effect on Borrower; and (ii) no injunction, writ, restraining order or
other order of any nature which would have a Material Adverse Effect on Borrower
or the conduct of its business or inconsistent with the due consummation of the
Transactions shall have been issued by any Governmental Body;
(i) Financial Condition Opinions. Agent shall have received an executed
Officers' Certificate in the form of Exhibit 8.1(i).
(j) Collateral Examination. Agent shall have completed Collateral
examinations, the results of which shall be satisfactory in form and substance
to the Lenders, of the Receivables, Inventory, and General Intangibles, and
Leasehold Interests of Borrower and all books and records in connection
therewith;
(k) Fees. Agent shall have received all fees payable to Agent and the
Lenders on or prior to the Closing Date pursuant to Article III hereof;
(l) Intentionally Deleted.
(m) Insurance. Agent shall have received in form and substance satisfactory
to Agent, certified copies of Borrower's casualty insurance policies, together
with loss payable endorsements on Agent's standard form of loss payee
endorsement naming Agent as loss payee,
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and certified copies of Borrower's liability insurance policies, together with
endorsements naming Agent as a co-insured;
(n) Payment Instructions. Agent shall have received written instructions
from Borrower directing the application of proceeds of the initial Advances made
pursuant to this Agreement;
(o) Blocked Accounts. Agent shall have received duly executed agreements
establishing the Blocked Accounts or Depository Accounts with financial
institutions acceptable to Agent for the collection or servicing of the
Receivables and proceeds of the Collateral;
(p) Consents. Agent shall have received any and all Consents necessary to
permit the effectuation of the transactions contemplated by this Agreement and
the Other Documents; and, Agent shall have received such Consents and waivers of
such third parties as might assert claims with respect to the Collateral, as
Agent and its counsel shall deem necessary;
(q) No Adverse Material Change. (i) since January 31, 1998, there shall not
have occurred (x) no material adverse change in the condition, financial or
otherwise, operations, properties or prospects of Borrower, (y) no material
damage or destruction to any of the Collateral nor any material depreciation in
the value thereof and (z) no event, condition or state of facts which could
reasonably be expected to have a Material Adverse Effect on Borrower and (ii) no
representations made or information supplied to the Lenders shall have been
proven to be inaccurate or misleading in any material respect;
(r) Leasehold Agreements. Agent shall have agreed to deliver within sixty
(60) days from the Closing Date, landlord, mortgagee or warehouseman agreements
satisfactory to Lender with respect to all premises leased by Borrower at which
Inventory is located;
(s) Intentionally Deleted.
(t) Closing Certificate. Agent shall have received a closing certificate
signed by the Chief Financial Officer of Borrower dated as of the date hereof,
stating that (i) all representations and warranties set forth in this Agreement
and the other Documents are true and correct on and as of such date, (ii)
Borrower is on such date in compliance with all the terms and provisions set
forth in this Agreement and the other Documents and (iii) on such date no
Default or Event of Default has occurred or is continuing; and
(u) Borrowing Base. Agent shall have received evidence from Borrower that
the aggregate amount of Eligible Receivables and Eligible Inventory is
sufficient in value and amount to support Advances in the amount requested by
Borrower on the Closing Date;
(v) Other. All corporate and other proceedings, and all documents,
instruments and other legal matters in connection with the Transactions shall be
satisfactory in form and substance to Agent, the Lenders and their counsel.
8.2. Conditions to Each Advance. The agreement of Lenders to make any
Advance requested to be made on any date (including, without limitation, the
initial Advance), is
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subject to the satisfaction of the following conditions precedent as of the date
such Advance is made:
(a) Representations and Warranties. Each of the representations and
warranties made by Borrower in or pursuant to this Agreement and any related
agreements to which it is a party, and each of the representations and
warranties contained in any certificate, document or financial or other
statement furnished at any time under or in connection with this Agreement or
any related agreement shall be true and correct in all material respects on and
as of such date as if made on and as of such date;
(b) No Default. No Event of Default or Default shall have occurred and be
continuing on such date, or would exist after giving effect to the Advances
requested to be made, on such date provided, however that Lenders in their sole
discretion, may continue to make Advances notwithstanding the existence of an
Event of Default or Default and that any Advances so made shall not be deemed a
waiver of any such Event of Default or Default; and
(c) Maximum Advances. In the case of any Advances requested to be made,
after giving effect thereto, the aggregate Advances shall not exceed the maximum
Advances permitted under Section 2.4 hereof.
Each request for an Advance by Borrower hereunder shall constitute a
representation and warranty by Borrower as of the date of such Advance that the
conditions contained in this subsection shall have been satisfied.
IX. INFORMATION AS TO BORROWER.
Borrower shall, until satisfaction in full of the Obligations and the
termination of this Agreement:
9.1. Disclosure of Material Matters. Immediately upon learning thereof,
report to Agent all matters materially affecting the value, enforceability or
collectibility of any portion of the Collateral including, without limitation,
Borrower's reclamation or repossession of, or the return to Borrower of, a
material amount of goods or claims or disputes asserted by any Customer or other
obligor.
9.2. Schedules. Deliver to Agent as and for the prior month (a) on or
before the twentieth (20th) day of each month accounts receivable ageings, (b)
on or before the thirtieth (30th) day of each month accounts payable schedules
and (c) on or before the twentieth (20th) day of each month Inventory reports.
In addition, Borrower will deliver to Agent at such intervals as Agent may
require: (i) confirmatory assignment schedules, (ii) copies of Customer's
invoices, (iii) evidence of shipment or delivery, and (iv) such further
schedules, documents and/or information regarding the Collateral as Agent may
require including, without limitation, trial balances and test verifications.
Agent shall have the right to confirm and verify all Receivables by any manner
and through any medium it considers advisable and do whatever it may deem
reasonably necessary to protect its interests hereunder. The items to be
provided under this Section are to be in form satisfactory to Agent and executed
by Borrower and delivered to Agent from time to time solely for Agent's
convenience in maintaining records of the
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Collateral, and Borrower's failure to deliver any of such items to Agent shall
not affect, terminate, modify or otherwise limit Agent's Lien with respect to
the Collateral.
9.3. Deliver to Agent on the 15th day of each month a Borrowing Base
Certificate for the prior month in the form of Exhibit 9.3.
9.4. Litigation. Promptly notify Agent in writing of any litigation, suit
or administrative proceeding affecting Borrower, whether or not the claim is
covered by insurance, and of any suit or administrative proceeding, which may
have a Material Adverse Effect on Borrower.
9.5. Material Occurrences. Promptly notify Agent in writing upon the
occurrence of (a) any Event of Default or Default (b) any event, development or
circumstance whereby any financial statements or other reports furnished to
Agent fail in any material respect to present fairly, in accordance with GAAP
consistently applied, the financial condition or operating results of Borrower
as of the date of such statements; (c) any accumulated retirement plan funding
deficiency which, if such deficiency continued for two plan years and was not
corrected as provided in Section 4971 of the Internal Revenue Code, could
subject Borrower to a tax imposed by Section 4971 of the Internal Revenue Code;
(d) each and every default by Borrower which might result in the acceleration of
the maturity of any Indebtedness, including the names and addresses of the
holders of such Indebtedness with respect to which there is a default existing
or with respect to which the maturity has been or could be accelerated, and the
amount of such Indebtedness; and (e) any other development in the business or
affairs of Borrower which might reasonably be expected to be materially adverse;
in each case describing the nature thereof and the action Borrower proposes to
take with respect thereto.
9.6. Government Receivables. Notify Agent immediately if any of its
Receivables arise out of contracts between Borrower and the United States, any
state, or any department, agency or instrumentality of any of them.
9.7. Annual Financial Statements. Furnish Agent within ninety (90) days
after the end of each fiscal year of Borrower, financial statements of Borrower
including, but not limited to, statements of income and stockholders' equity and
cash flow from the beginning of the current fiscal year to the end of such
fiscal year and the balance sheet as at the end of such fiscal year, all
prepared in accordance with GAAP applied on a basis consistent with prior
practices, and in reasonable detail and reported upon without qualification by
an independent certified public accounting firm selected by Borrower and
satisfactory to Agent (the "Accountants"). The Accountants will issue a
compliance covenant letter pursuant to AICPA standards on auditing indicating
the procedures performed. In addition, the reports shall be accompanied by a
certificate of Borrower's Chief Financial Officer which shall state that, based
on an examination sufficient to permit him to make an informed statement, no
Default or Event of Default exists, or, if such is not the case, specifying such
Default or Event of Default, its nature, when it occurred, whether it is
continuing and the steps being taken by Borrower with respect to such event and,
such certificate shall have appended thereto calculations which set forth
Borrower's compliance with the requirements or restrictions imposed by Sections
6.5, 6.6 and 6.7, hereof.
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9.8. Quarterly Financial Statements. Furnish Agent within sixty days after
the end of each fiscal quarter, an unaudited balance sheet of Borrower and
unaudited statements of income and stockholders' equity and cash flow of
Borrower reflecting results of operations from the beginning of the fiscal year
to the end of such quarter and for such quarter, prepared on a basis consistent
with prior practices and complete and correct in all material respects, subject
to normal year end adjustments. The reports shall be accompanied by a
certificate of Borrower's Chief Financial Officer which shall state that, based
on an examination sufficient to permit him to make an informed statement, no
Default or Event of Default exists, or, if such is not the case, specifying such
Default or Event of Default, its nature, when it occurred, whether it is
continuing and the steps being taken by Borrower with respect to such event and,
such certificate shall have appended thereto calculations which set forth
Borrower's compliance with the requirements or restrictions imposed by Sections
6.5, 6.6, 6.7, and hereof.
9.9. Consolidated and Consolidating Reports. All financial statements
furnished to Agent pursuant to the Agreement shall be consolidated and
consolidating statements.
9.10. Other Reports. Furnish Agent as soon as available, but in any event
within ten (10) days after the issuance thereof, with copies of such financial
statements, reports and returns as Borrower shall send to its stockholders.
9.11. Additional Information. Furnish Agent with such additional
information as Agent and Lenders shall reasonably request in order to enable
Agent and Lenders to determine whether the terms, covenants, provisions and
conditions of this Agreement and the Note have been complied with by Borrower
including, without limitation and without the necessity of any request by Agent,
(a) copies of all environmental audits and reviews, (b) at least thirty (30)
days prior thereto, notice of Borrower's opening of any new office or place of
business or Borrower's closing of any existing office or place of business, and
(c) promptly upon Borrower's learning thereof, notice of any labor dispute to
which Borrower may become a party, any strikes or walkouts relating to any of
its plants or other facilities, and the expiration of any labor contract to
which Borrower is a party or by which Borrower is bound.
9.12. Projected Operating Budget. Furnish Agent, no later than thirty (30)
days prior to the beginning of each of Borrower's fiscal years commencing with
fiscal year 1999, a month by month projected operating budget and cash flow of
Borrower for such fiscal year (including an income statement for each month and
a balance sheet as at the end of the last month in each fiscal quarter), such
projections to be accompanied by a certificate signed by Borrower's President or
Chief Financial Officer to the effect that such projections have been prepared
on the basis of sound financial planning practice consistent with past budgets
and financial statements and that such officer has no reason to question the
reasonableness of any material assumptions on which such projections were
prepared.
9.13. Intentionally Deleted.
9.14. Notice of Suits, Adverse Events. Furnish Agent with prompt notice of
(i) any lapse or other termination of any Consent issued to Borrower by any
Governmental Body or any other Person that is material to the operation of
Borrower's business, (ii) any refusal by any Governmental Body or any other
Person to renew or extend any such Consent; and (iii) copies of
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any periodic or special reports filed by Borrower with any Governmental Body or
Person, if such reports indicate any material change in the business,
operations, affairs or condition of Borrower, or if copies thereof are requested
by Agent, and (iv) copies of any material notices and other communications from
any Governmental Body or Person which specifically relate to Borrower.
9.15. ERISA Notices and Requests. Furnish Agent with immediate written
notice in the event that (i) Borrower or any member of the Controlled Group
knows or has reason to know that a Termination Event has occurred, together with
a written statement describing such Termination Event and the action, if any,
which Borrower or member of the Controlled Group has taken, is taking, or
proposes to take with respect thereto and, when known, any action taken or
threatened by the Internal Revenue Service, Department of Labor or PBGC with
respect thereto, (ii) Borrower or any member of the Controlled Group knows or
has reason to know that a prohibited transaction (as defined in Sections 406 of
ERISA and 4975 of the Internal Revenue Code) has occurred together with a
written statement describing such transaction and the action which Borrower or
any member of the Controlled Group has taken, is taking or proposes to take with
respect thereto, (iii) a funding waiver request has been filed with respect to
any Plan together with all communications received by Borrower or any member of
the Controlled Group with respect to such request, (iv) any increase in the
benefits of any existing Plan or the establishment of any new Plan or the
commencement of contributions to any Plan to which Borrower or any member of the
Controlled Group was not previously contributing shall occur, (v) Borrower or
any member of the Controlled Group shall receive from the PBGC a notice of
intention to terminate a Plan or to have a trustee appointed to administer a
Plan, together with copies of each such notice, (vi) Borrower or any member of
the Controlled Group shall receive any favorable or unfavorable determination
letter from the Internal Revenue Service regarding the qualification of a Plan
under Section 401(a) of the Internal Revenue Code, together with copies of each
such letter; (vii) Borrower or any member of the Controlled Group shall receive
a notice regarding the imposition of withdrawal liability, together with copies
of each such notice; (viii) Borrower or any member of the Controlled Group shall
fail to make a required installment or any other required payment under Section
412 of the Internal Revenue Code on or before the due date for such installment
or payment; (ix) Borrower or any member of the Controlled Group knows that (a) a
Multiemployer Plan has been terminated, (b) the administrator or plan sponsor of
a Multiemployer Plan intends to terminate a Multiemployer Plan, or (c) the PBGC
has instituted or will institute proceedings under Section 4042 of ERISA to
terminate a Multiemployer Plan.
9.16. Additional Documents. Execute and deliver to Agent, upon request,
such documents and agreements as Agent may, from time to time, reasonably
request to carry out the purposes, terms or conditions of this Agreement.
X. EVENTS OF DEFAULT.
The occurrence of any one or more of the following events shall constitute
an "Event of Default":
10.1. failure by Borrower to pay any principal or interest on the
obligations when due, whether at maturity or by reason of acceleration pursuant
to the terms of this Agreement or any Other Document when due;
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10.2. any material representation or warranty made or deemed made by
Borrower in this Agreement or any related agreement or in any certificate,
document or financial or other statement furnished at any time in connection
herewith or therewith shall prove to have been misleading in any material
respect on the date when made or deemed to have been made;
10.3. failure by Borrower to (i) furnish financial information (a) when due
or (b) when requested pursuant to the terms hereof which is, in the case of
subclause (b), unremedied for a period of 15 days, or (ii) permit the inspection
of its books or records;
10.4. issuance of a notice of Lien, levy, assessment, injunction or
attachment against a material portion of Borrower's property which is not stayed
or lifted within thirty (30) days, except if such lien is being diligently
contested in good faith and does not have a Material Adverse Effect on the value
of the Collateral;
10.5. (i) failure of Borrower to perform, keep or observe any term,
provision, condition, or covenant contained in Section 4.2, 4.3, 4.5, 4.11,
4.12, 4.15, 6.5, 6.6, 6.7, Section VII or Section IX, or (ii) failure of
Borrower to perform, keep or observe any other material term, provision,
condition or covenant, contained in this Agreement or any other agreement or
arrangement, now or hereafter entered into between Borrower and the Lender if
such failure remains unremedied for ten(10) days from the occurrence of such
failure;
10.6. any material judgment is rendered or judgment liens filed against
Borrower which within thirty (30) days of such rendering or filing is not either
satisfied, stayed, bonded or discharged of record;
10.7. Borrower shall (i) apply for, consent to or suffer the appointment
of, or the taking of possession by, a receiver, custodian, trustee, liquidator
or similar fiduciary of itself or of all or a substantial part of its property,
(ii) make a general assignment for the benefit of creditors, (iii) commence a
voluntary case under any state or federal bankruptcy laws (as now or hereafter
in effect), (iv) be adjudicated a bankrupt or insolvent, (v) file a petition
seeking to take advantage of any other law providing for the relief of debtors,
(vi) acquiesce to, or fail to have dismissed, within forty-five (45) days, any
petition filed against it in any involuntary case under such bankruptcy laws, or
(vii) take any action for the purpose of effecting any of the foregoing;
10.8. Borrower shall admit in writing its inability, or be generally
unable, to pay its debts as they become due or cease operations of its present
business;
10.9. Intentionally Deleted.
10.10. any change in Borrower's condition or affairs (financial or
otherwise) which in Lenders' commercially reasonable opinion impairs the
Collateral and the ability of Borrower to perform its Obligations under this
Agreement;
10.11. any Lien created hereunder or provided for hereby or under any
related agreement for any reason ceases to be or is not a valid and perfected
Lien having a first priority interest;
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10.12. a default of the obligations of Borrower under any other agreement
to which it is a party shall occur which has a Material Adverse Effect on its
condition, affairs or prospects (financial or otherwise) which default is not
cured within any applicable grace period;
10.13. a Change of Control occurs, but only if Agent gives Borrower 180
days prior notice of termination; provided, however, that notwithstanding a
Change of Control if Neil Cole ("Cole") remains with the Borrower in
substantially the same position as on the date hereof, then an Event of Default
shall not exist under this section 10.13 for so long as Cole remains in such
position;
10.14. Cole ceases to remain with the Borrower in substantially the same
position as on the date hereof for any reason other than death or disability,
but only if Agent gives Borrower 180 days prior notice of termination; or
10.15. (i) any Governmental Body shall (A) revoke, terminate, suspend or
adversely modify any license, permit, patent, trademark or tradename of
Borrower, the continuation of which is material to the continuation of
Borrower's business, or (B) commence proceedings to suspend, revoke, terminate
or adversely modify any such license, permit, trademark, tradename or patent and
such proceedings shall not be dismissed or discharged within sixty (60) days, or
(C) schedule or conduct a hearing on the renewal of any license, permit,
trademark, tradename or patent necessary for the continuation of Borrower's
business and the staff of such Governmental Body issues a report recommending
the termination, revocation, suspension or material, adverse modification of
such license, permit, trademark, tradename or patent and such event shall have a
Material Adverse Effect on Borrower's financial condition or its ability to
conduct its business; (ii) any agreement which is necessary or material to the
operation of Borrower's business shall be revoked or terminated and not replaced
by a substitute acceptable to Agent within thirty (30) days after the date of
such revocation or termination, and such revocation or termination and
non-replacement could have a Material Adverse Effect on Borrower;
10.16. any portion of the Collateral shall be seized or taken by a
Governmental Body, or Borrower or the title and rights of Borrower or any
Original Owner which is the owner of any material portion of the Collateral
shall have become the subject matter of litigation which might, in the opinion
of Agent, upon final determination, result in impairment or loss of the security
provided by this Agreement or the Other Documents;
10.17 Intentionally Deleted.
10.18 an event or condition specified in Sections 7.16 or 9.15 hereof shall
occur or exist with respect to any Plan which is not cured within fifteen (15)
days of the discovery thereof and, as a result of such event or condition,
together with all other such events or conditions, Borrower or any member of the
Controlled Group shall incur, or in the opinion of Lender be reasonably likely
to incur, a liability to a Plan or the PBGC (or both) which, in the reasonable
judgment of Agent, could have a Material Adverse Effect on any Borrower.
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XI. LENDERS' RIGHTS AND REMEDIES AFTER DEFAULT.
11.1. Rights and Remedies. Upon the occurrence of (i) an Event of Default
pursuant to Section 10.7 all Obligations shall be immediately due and payable
and this Agreement and the obligation of Lenders to make Advances shall be
deemed terminated; and, (ii) any of the other Events of Default and at any time
thereafter (such default not having previously been cured), at the option of
Required Lenders all Obligations shall be immediately due and payable and the
Lenders shall have the right to terminate this Agreement and to terminate the
obligation of Lenders to make Advances. Upon the occurrence of any Event of
Default, Agent shall have the right to exercise any and all other rights and
remedies provided for herein, under the Uniform Commercial Code and at law or
equity generally, including, without limitation, the right to foreclose the
security interests granted herein and to realize upon any Collateral by any
available judicial procedure and/or to take possession of and sell any or all of
the Collateral with or without judicial process. Upon the occurrence and the
continuance of an Event of Default, Agent may enter any of Borrower's premises
or other premises without legal process and without incurring liability to
Borrower therefor, and Agent may thereupon, or at any time thereafter, in its
discretion without notice or demand, take the Collateral and remove the same to
such place as Agent may deem advisable and Agent may require Borrower to make
the Collateral available to Agent at a convenient place. With or without having
the Collateral at the time or place of sale, Agent may sell the Collateral, or
any part thereof, at public or private sale, at any time or place, in one or
more sales, at such price or prices, and upon such terms, either for cash,
credit or future delivery, as Agent may elect. Except as to that part of the
Collateral which is perishable or threatens to decline speedily in value or is
of a type customarily sold on a recognized market, Agent shall give Borrower
reasonable notification of such sale or sales, it being agreed that in all
events written notice mailed to Borrower at least five (5) days prior to such
sale or sales is reasonable notification. At any public sale Agent or any Lender
may bid for and become the purchaser, and Agent, any Lender or any other
purchaser at any such sale thereafter shall hold the Collateral sold absolutely
free from any claim or right of whatsoever kind, including any equity of
redemption and such right and equity are hereby expressly waived and released by
Borrower. In connection with the exercise of the foregoing remedies, Agent is
granted permission to use (a) all of Borrower's trademarks, trade styles, trade
names, patents, patent applications, licenses, franchises and other proprietary
rights which are used in connection with Inventory for the purpose of disposing
of such Inventory and (b) Equipment for the purpose of completing the
manufacture of unfinished goods. The proceeds realized from the sale of any
Collateral shall be applied as follows: first, to the reasonable costs, expenses
and attorneys' fees and expenses incurred by Agent for collection and for
acquisition, completion, protection, removal, storage, sale and delivery of the
Collateral; second, to interest due upon any of the Obligations; and, third, to
the principal of the Obligations. If any deficiency shall arise, Borrower shall
remain liable to Agent and the Lenders therefor.
11.2. Agent's Discretion. Agent shall have the right in its sole discretion
to determine which rights, Liens, security interests or remedies Agent may at
any time pursue, relinquish, subordinate, or modify or to take any other action
with respect thereto and such determination will not in any way modify or affect
any of Agent's or Lenders, rights hereunder;.
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11.3. Intentionally Deleted.
11.4. Rights and Remedies not Exclusive. The enumeration of the foregoing
rights and remedies is not intended to be exhaustive and the exercise of any
right or remedy shall not preclude the exercise of any other right or remedies
provided for herein or otherwise provided by law, all of which shall be
cumulative and not alternative.
XII. WAIVERS AND JUDICIAL PROCEEDINGS.
12.1. Waiver of Notice. Borrower hereby waives notice of non-payment of any
of the Receivables, demand, presentment, protest and notice thereof with respect
to any and all instruments, notice of acceptance hereof, notice of loans or
advances made, credit extended, Collateral received or delivered, or any other
action taken in reliance hereon, and all other demands and notices of any
description, except such as are expressly provided for herein.
12.2. Delay. No delay or omission on Agent's or any Lender's part in
exercising any right, remedy or option shall operate as a waiver of such or any
other right, remedy or option or of any default.
12.3. Jury Waiver. EACH PARTY TO THIS AGREEMENT HEREBY EXPRESSLY WAIVES ANY
RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (A)
ARISING UNDER THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT
EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR (B) IN ANY WAY CONNECTED WITH
OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM
WITH RESPECT TO THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT
EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED HERETO
OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER
SOUNDING IN CONTRACT OR TORT OR OTHERWISE AND EACH PARTY HEREBY CONSENTS THAT
ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT
TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL
COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE
CONSENTS OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
IX. EFFECTIVE DATE AND TERMINATION.
13.1. Term. This Agreement, which shall inure to the benefit of and shall
be binding upon the respective successors and permitted assigns of each of
Borrower, Agent and each Lender, shall become effective on the date hereof and
shall continue in full force and effect until the last day of the Term unless
sooner terminated as herein provided.
13.2. Termination. The termination of the Agreement shall not affect any of
Borrower's, Agent's or any Lender's rights, or any of the Obligations having
their inception prior to the effective date of such termination, and the
provisions hereof shall continue to be fully operative until all transactions
entered into, rights or interests created or Obligations have been
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fully disposed of, concluded or liquidated. The security interests, Liens and
rights granted to Agent and the Lenders hereunder and the financing statements
filed hereunder shall continue in full force and effect, notwithstanding the
termination of this Agreement or the fact that Borrower's account may from time
to time be temporarily in a zero or credit position, until all of the
Obligations of Borrower have been paid or performed in full after the
termination of this Agreement or Borrower has furnished Agent and the Lenders
with an indemnification reasonably satisfactory to Agent and the Lenders with
respect thereto. Accordingly, Borrower waives any rights which it may have under
Section 9-404(1) of the Uniform Commercial Code to demand the filing of
termination statements with respect to the Collateral, and Agent shall not be
required to send such termination statements to Borrower, or to file them with
any filing office, unless and until this Agreement shall have been terminated in
accordance with its terms and all Obligations paid in full in immediately
available funds or Borrower has furnished Agent and the Lenders with an
indemnification reasonably satisfactory to Agent and the Lenders with respect
thereto.
IV. REGARDING AGENT.
14.1. Appointment. Each Lender hereby designates NCC to act as Agent for
such Lender under this Agreement and the Other Documents. Each Lender hereby
irrevocably authorizes Agent to take such action on its behalf under the
provisions of this Agreement and the Other Documents and to exercise such powers
and to perform such duties hereunder and thereunder as are specifically
delegated to or required of Agent by the terms hereof and thereof and such other
powers as are reasonably incidental thereto and Agent shall hold all Collateral,
payments of principal and interest, fees (except the fees set forth in Sections
3.3(a) and 3.4), charges and collections (without giving effect to any
collection days) received pursuant to this Agreement, for the ratable benefit of
Lenders. Agent may perform any of its duties hereunder by or through its agents
or employees. As to any matters not expressly provided for by this Agreement
(including without limitation, collection of the Note) Agent shall not be
required to exercise any discretion or take any action, but shall be required to
act or to refrain from acting (and shall be fully protected in so acting or
refraining from acting) upon the instructions of the Required Lenders, and such
instructions shall be binding; provided, however, that Agent shall not be
required to take any action which exposes Agent to liability or which is
contrary to this Agreement or the Other Documents or applicable law unless Agent
is furnished with an indemnification reasonably satisfactory to Agent with
respect thereto.
14.2. Nature of Duties. Agent shall have no duties or responsibilities
except those expressly set forth in this Agreement and the Other Documents.
Neither Agent nor any of its officers, directors, employees or agents shall be
(i) liable for any action taken or omitted by them as such hereunder or in
connection herewith, unless caused by their gross negligence (but not mere
negligence) or willful misconduct or gross (not mere) negligence, or (ii)
responsible in any manner for any recitals, statements, representations or
warranties made by Borrower or any officer thereof contained in this Agreement,
or in any of the Other Documents or in any certificate, report, statement or
other document referred to or provided for in, or received by Agent under or in
connection with, this Agreement or any of the Other Documents or for the value,
validity, effectiveness, genuineness, enforceability or sufficiency of this
Agreement, or any of the Other Documents or for any failure of Borrower to
perform its obligations hereunder. Agent shall not be under any obligation to
any Lender to ascertain or to inquire as to the observance or performance of any
of the agreements contained in, or conditions of, this
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Agreement or any of the Other Documents, or to inspect the properties, books or
records of Borrower. The duties of Agent as respects the Advances to Borrower
shall be mechanical and administrative in nature; Agent shall not have by reason
of this Agreement a fiduciary relationship in respect of any Lender; and nothing
in this Agreement, expressed or implied, is intended to or shall be so construed
as to impose upon Agent any obligations in respect of this Agreement except as
expressly set forth herein.
14.3. Lack of Reliance on Agent and Resignation. Independently and without
reliance upon Agent or any other Lender, each Lender has made and shall continue
to make (i) its own independent investigation of the financial condition and
affairs of Borrower in connection with the making and the continuance of the
Advances hereunder and the taking or not taking of any action in connection
herewith, and (ii) its own appraisal of the creditworthiness of Borrower. Agent
shall have no duty or responsibility, either initially or on a continuing basis,
to provide any Lender with any credit or other information with respect thereto,
whether coming into its possession before making of the Advances or at any time
or times thereafter except as shall be provided by Borrower pursuant to the
terms hereof. Agent shall not be responsible to any Lender for any recitals,
statements, information, representations or warranties herein or in any
agreement, document, certificate or a statement delivered in connection with or
for the execution, effectiveness, genuineness, validity, enforceability,
collectability or sufficiency of this Agreement or any Other Document, or of the
financial condition of Borrower, or be required to make any inquiry concerning
either the performance or observance of any of the terms, provisions or
conditions of this Agreement, the Note, the Other Documents or the financial
condition of Borrower, or the existence of any Event of Default or any Default.
Subject to Agent's obligations under Section 15.3, Agent may resign on
sixty (60) days' written notice to each of Lenders and Borrower and upon such
resignation, the Required Lenders will promptly designate a successor Agent
reasonably satisfactory to Borrower.
Any such successor Agent shall succeed to the rights, powers and duties of
Agent, and the term "Agent" shall mean such successor agent effective upon its
appointment, and the former Agent's rights, powers and duties as Agent shall be
terminated, without any other or further act or deed on the part of such former
Agent. After any Agent's resignation as Agent, the provisions of this Article
XIV shall inure to its benefit as to any actions taken or omitted to be taken by
it while it was Agent under this Agreement.
14.4. Certain Rights of Agent. If Agent shall request instructions from
Lenders with respect to any act or action (including failure to act) in
connection with this Agreement or any Other Document, Agent shall be entitled to
refrain from such act or taking such action unless and until Agent shall have
received instructions from the Required Lenders; and Agent shall not incur
liability to any Person by reason of so refraining. Without limiting the
foregoing, Lenders shall not have any right of action whatsoever against Agent
as a result of its acting or refraining from acting hereunder in accordance with
the instructions of the Required Lenders.
14.5. Reliance. Agent shall be entitled to rely, and shall be fully
protected in relying, upon any note, writing, resolution, notice, statement,
certificate, telex, teletype or telecopier message, cablegram, order or other
document or telephone message believed by it to be genuine and correct and to
have been signed, sent or made by the proper person or entity,
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and, with respect to all legal matters pertaining to this Agreement and the
Other Documents and its duties hereunder, upon advice of counsel selected by it.
Agent may employ agents and attorneys-in-fact and shall not be liable for the
default or misconduct of any such agents or attorneys-in-fact selected by Agent
with reasonable care.
14.6. Notice of Default. Agent shall not be deemed to have knowledge or
notice of the occurrence of any Default or Event of Default hereunder or under
the Other Documents, unless Agent has received notice from a Lender or Borrower
referring to this Agreement or the Other Documents, describing such Default or
Event of Default and stating that such notice is a "notice of default". In the
event that Agent receives such a notice, Agent shall give notice thereof to
Lenders. Agent shall take such action with respect to such Default or Event of
Default as shall be reasonably directed by the Required Lenders; provided, that,
unless and until Agent shall have received such directions, Agent may (but shall
not be obligated to) take such action, or refrain from taking such action, with
respect to such Default or Event of Default as it shall deem advisable in the
best interests of Lenders.
14.7. Indemnification. To the extent Agent is not reimbursed and
indemnified by Borrower, each Lender will reimburse and indemnify Agent in
proportion to its respective portion of the Advances (or, if no Advances are
outstanding, according to its Commitment Percentage), from and against any and
all liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind or nature whatsoever which
may be imposed on, incurred by or asserted against Agent in performing its
duties hereunder, or in any way relating to or arising out of this Agreement or
any Other Document; provided that, Lenders shall not be liable for any portion
of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting from Agent's gross
negligence (but not mere negligence) or willful misconduct or gross (not mere)
negligence.
14.8. Agent in its Individual Capacity. With respect to the obligation of
Agent to lend under this Agreement, the Advances made by it shall have the same
rights and powers hereunder as any other Lender and as if it were not performing
the duties as Agent specified herein; and the term "Lender" or any similar term
shall, unless the context clearly otherwise indicates, include Agent in its
individual capacity as a Lender. Agent may engage in business with Borrower as
if it were not performing the duties specified herein, and may accept fees and
other consideration from Borrower for services in connection with this Agreement
or otherwise without having to account for the same to Lenders.
14.9. Delivery of Documents. To the extent Agent receives documents and
information from Borrower pursuant to the terms of this Agreement, Agent will
promptly furnish such documents and information to Lenders.
14.10 Borrower's Undertaking to Agent. Without prejudice to their
respective obligations to the Lenders under the other provisions of this
Agreement, Borrower hereby undertakes with Agent to pay to Agent from time to
time on demand all amounts from time to time due and payable by it for the
account of Agent or the Lenders or any of them pursuant to this Agreement to the
extent not already paid. Any payment made pursuant to any such demand
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shall pro tanto satisfy Borrower's obligations to make payments for the account
of the Lenders or the relevant one or more of them pursuant to this Agreement.
XV. MISCELLANEOUS.
15.1. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York applied to contracts to be
performed wholly within the State of New York. Any judicial proceeding brought
by or against Borrower with respect to any of the Obligations, this Agreement or
any related agreement may be brought in any court of competent jurisdiction in
the State of New York, United States of America, and, by execution and delivery
of this Agreement, Borrower accepts for itself and in connection with its
properties, generally and unconditionally, the non-exclusive jurisdiction of the
aforesaid courts, and irrevocably agrees to be bound by any judgment rendered
thereby in connection with this Agreement. Borrower hereby waives personal
service of any and all process upon it and consents that all such service of
process may be made by registered mail (return receipt requested) directed to
Borrower at its address set forth in Section 15.6. Nothing herein shall affect
the right to serve process in any manner permitted by law or shall limit the
right of the Lenders to bring proceedings against Borrower in the courts of any
other jurisdiction. Borrower waives any objection to jurisdiction and venue of
any action instituted hereunder and shall not assert any defense based on lack
of jurisdiction or venue or based upon forum non conveniens. Any judicial
proceeding by Borrower against the Lenders involving, directly or indirectly,
any matter or claim in any way arising out of, related to or connected with this
Agreement or any related agreement, shall be brought only in a federal or state
court located in the City of New York, State of New York.
15.2. Entire Understanding. (a) This Agreement and the documents executed
concurrently herewith contain the entire understanding between Borrower, Agent
and each Lender and supersedes all prior agreements and understandings, if any,
relating to the subject matter hereof. Any promises, representations, warranties
or guarantees not herein contained and hereinafter made shall have no force and
effect unless in writing, signed by Borrower's, Agent's and each Lender's
respective officers. Neither this Agreement nor any portion or provisions hereof
may be changed, modified, amended, waived, supplemented, discharged, cancelled
or terminated orally or by any course of dealing, or in any manner other than by
an agreement in writing, signed by the party to be charged. Borrower
acknowledges that it has been advised by counsel in connection with the
execution of this Agreement and Other Documents and is not relying upon oral
representations or statements inconsistent with the terms and provisions of this
Agreement.
(b) The Required Lenders, Agent with the consent in writing of the Required
Lenders, and Borrower may, subject to the provisions of this Section 15.2 (b),
from time to time enter into written supplemental agreements to this Agreement,
the Notes or the Other Documents executed by Borrower, for the purpose of adding
or deleting any provisions or otherwise changing, varying or waiving in any
manner the rights of the Lenders, Agent or Borrower thereunder or the
conditions, provisions or terms thereof of waiving any Event of Default
thereunder, but only to the extent specified in such written agreements;
provided, however, that no such supplemental agreement shall, without the
consent of all the Lenders:
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(i) increase the Commitment Percentage of any Lender.
(ii) extend the maturity of any Note or the due date for any amount
payable hereunder, or decrease the rate of interest or reduce any fee
payable by Borrower to Lenders pursuant to this Agreement.
(iii) alter the definition of the term Required Lenders or alter,
amend or modify this Section 15.2(b).
(iv) release any Collateral during any calendar year.
(v) change the rights and duties of Agent.
Any such supplemental agreement shall apply equally to each of the Lenders and
shall be binding upon Borrower, the Lenders and Agent and all future holders of
the Obligations. In the case of any waiver, Borrower, Agent and the Lenders
shall be restored to their former positions and rights, and any Event of Default
waived shall be deemed to be cured and not continuing, but no waiver of a
specific Event of Default shall extend to any subsequent Event of Default
(whether or not the subsequent Event of Default is the same as the Event of
Default which was waived), or impair any right consequent thereon.
15.3. Successors and Assigns; Participations; New Lenders.
(a) This Agreement shall be binding upon and inure to the benefit of
Borrower, Agent, each Lender, all future holders of the Note and their
respective successors and assigns, except that (i) Borrower may not assign or
transfer any of its rights or obligations under this Agreement without the prior
written consent of Agent and each Lender and (ii) Agent may not assign or
transfer any of its rights or obligations under this Agreement without the prior
written consent of Borrower which shall not be unreasonably withheld, except as
provided for in Sections 15.3(b) and (c) hereof and as a result of a change of
control or a merger or combination with its parent or a sale by its parent of
all of its stock or substantially all of its assets.
(b) Borrower acknowledges that in the regular course of commercial banking
business one or more Lenders may at any time and from time to time sell
participating interests in the Advances to other financial institutions (each
such transferee or purchaser of a participating interest, a "Transferee"). Each
Transferee may exercise all rights of payment (including without limitation
rights of set-off) with respect to the portion of such Advances held by it or
other obligations payable hereunder as fully as if such Transferee were the
direct holder thereof provided that Borrower shall not be required to pay to any
Transferee more than the amount which it would have been required to pay to
Lender which granted an interest in its Advances or other obligations payable
hereunder to such Transferee had such Lender retained such interest in the
Advances hereunder or other Obligations payable hereunder and in no event shall
Borrower be required to pay any such amount arising from the same circumstances
and with respect to the same Advances or other Obligations payable hereunder to
both such Lender and such Transferee. Borrower hereby grants to any Transferee a
continuing security interest in any deposits, moneys or other property actually
or constructively held by such Transferee as security for the Transferee's
interest in the Advances.
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(c) Any Lender may with the consent of Agent which shall not be
unreasonably withheld or delayed sell, assign or transfer all or any part of its
rights under this Agreement and the Other Documents to one or more additional
banks or financial institutions and one or more additional banks or financial
institutions may commit to make Advances hereunder (each a "Purchasing Lender"),
in minimum amounts of not less than $5,000,000 pursuant to a Commitment Transfer
Supplement, executed by a Purchasing Lender, the transferor Lender, and Agent
and delivered to Agent for recording together with a transfer fee in the amount
of $2500.00. Upon such execution, delivery, acceptance and recording, from and
after the transfer effective date determined pursuant to such Commitment
Transfer Supplement, (i) Purchasing Lender thereunder shall be a party hereto
and, to the extent provided in such Commitment Transfer Supplement, have the
rights and obligations of a Lender thereunder with a Commitment Percentage as
set forth therein, and (ii) the transferor Lender thereunder shall, to the
extent provided in such Commitment Transfer Supplement, be released from its
obligations under this Agreement, the Commitment Transfer Supplement creating a
novation for that purpose. Such Commitment Transfer Supplement shall be deemed
to amend this Agreement to the extent, and only to the extent, necessary to
reflect the addition of such Purchasing Lender and the resulting adjustment of
the Commitment Percentages arising from the purchase by such Purchasing Lender
of all or a portion of the rights and obligations of such transferor Lender
under this Agreement and the Other Documents. Borrower hereby consents to the
addition of such Purchasing Lender and the resulting adjustment of the
Commitment Percentages arising from the purchase by such Purchasing Lender of
all or a portion of the rights and obligations of such transferor Lender under
this Agreement and the Other Documents. Borrower shall execute and deliver such
further documents and do such further acts and things in order to effectuate the
foregoing.
(d) Agent shall maintain at its address a copy of each Commitment Transfer
Supplement delivered to it and a register (the "Register") for the recordation
of the names and addresses of the Advances owing to each Lender from time to
time. The entries in the Register shall be conclusive, in the absence of
manifest error, and Borrower, Agent and Lenders may treat each Person whose name
is recorded in the Register as the owner of the Advance recorded therein for the
purposes of this Agreement. The Register shall be available for inspection by
Borrower or any Lender at any reasonable time and from time to time upon
reasonable prior notice. Agent shall receive a fee in the amount of $2500
payable by the applicable Purchasing Lender upon the effective date of each
transfer or assignment to such Purchasing Lender.
(e) Borrower authorizes each Lender to disclose to any Transferee or
Purchasing Lender and any prospective Transferee or Purchasing Lender any and
all financial information in such Lender's possession concerning Borrower which
has been delivered to such Lender by or on behalf of Borrower pursuant to this
Agreement or in connection with such Lender's credit evaluation of Borrower.
15.4. Application of Payments. Agent shall have the continuing and
exclusive right to apply or reverse and re-apply any payment and any and all
proceeds of Collateral to any portion of the Obligations. To the extent that
Borrower makes a payment or Agent or any Lender receives any payment or proceeds
of the Collateral for Borrower's benefit, which are subsequently invalidated,
declared to be fraudulent or preferential, set aside or required to be repaid to
a trustee, debtor in possession, receiver, custodian or any other party under
any bankruptcy law, common law or equitable cause, then, to such extent, the
Obligations or part
-62-
<PAGE>
thereof intended to be satisfied shall be revived and continue as if such
payment or proceeds had not been received by Agent or such Lender, it being
understood that interest will accrue only upon the revival thereof.
15.5. Indemnity. Borrower shall indemnify Agent and each Lender and their
officers, employees and agents from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses and disbursements of any kind or nature whatsoever (including, without
limitation, fees and disbursements of counsel) which may be imposed on, incurred
by, or asserted against Agent or any Lender in any litigation, proceeding or
investigation instituted or conducted by any governmental agency or
instrumentality or any other Person with respect to any aspect of, or any
transaction contemplated by, or referred to in, or any matter related to, this
Agreement, whether or not Agent or any Lender is a party thereto, except to the
extent that any of the foregoing arises out of the willful misconduct or gross
negligence of the party being indemnified.
15.6. Notice. Any notice or request hereunder may be given to Borrower or
to Agent or any Lender at their respective addresses set forth below or at such
other address as may hereafter be specified in a notice designated as a notice
of change of address under this Section. Any notice or request hereunder shall
be given by (a) hand delivery, (b) overnight courier, (c) registered or
certified mail, return receipt requested, (d) telex or telegram, subsequently
confirmed by registered or certified mail, or (e) telecopy to the number set out
below (or such other number as may hereafter be specified in a notice designated
as a notice of change of address) with telephone communication to a duly
authorized officer of the recipient confirming its receipt as subsequently
confirmed by registered or certified mail. Any notice or other communication
required or permitted pursuant to this Agreement shall be deemed given (a) when
personally delivered to any officer of the party to whom it is addressed, (b) on
the earlier of actual receipt thereof or three (3) days following posting
thereof by certified or registered mail, postage prepaid, or (c) upon actual
receipt thereof when sent by a recognized overnight delivery service or (d) upon
actual receipt thereof when sent by telecopier to the number set forth below
with telephone communication confirming receipt and subsequently confirmed by
registered, certified or overnight mail to the address set forth below, in each
case addressed to each party at its address set forth below or at such other
address as has been furnished in writing by a party to the other by like notice:
(A) If to Agent or
NCC at: NationsBanc
Commercial Corporation
P.O. Box 4095
Atlanta, GA 30302
Attention: Robert Higgins, SVP
Telephone: (212)790-4529
Telecopier: (212)790-4518
-63-
<PAGE>
with a copy to: NationsBanc Commercial Corporation
Legal Department
1372 Broadway
New York, NY 10018
Attention: Jeanne Siegel, Esq.
Telephone: (212)790-4524
Telecopier: (212)790-4632
(B) If to Lender other than Agent, as specified on the signature pages
hereof.
(C) If to Borrower,
at: Candie's Inc.
2975 Westchester Avenue
Purchase, NY 10577
Attention: David Golden, CFO
Telephone: (914)694-8600
Telecopier: (914)694-8609
with a copy to: Tenzer Greenblatt, LLP.
405 Lexington Avenue 23rd Floor
New York, NY 10174
Attn: Michael S. Mullman, Esq.
Telephone: (212)885-5517
Telecopier: (212)885-5001
15.7. Survival. The obligations of Borrower under Sections 2.2(e) and 15.5
shall survive termination of this Agreement and the Other Documents and payment
in full of the obligations.
15.8. Severability. If any part of this Agreement is contrary to,
prohibited by, or deemed invalid under applicable laws or regulations, such
provision shall be inapplicable and deemed omitted to the extent so contrary,
prohibited or invalid, but the remainder hereof shall not be invalidated thereby
and shall be given effect so far as possible.
15.9. Expenses. All costs and expenses including, without limitation,
reasonable attorneys' fees and disbursements incurred by Agent, Agent on behalf
of the Lenders and the Lenders (a) in all efforts made to enforce payment of any
Obligation or effect collection of any Collateral, or (b) in connection with the
entering into, modification, amendment, administration and enforcement of this
Agreement or any consents or waivers hereunder and all related agreements,
documents and instruments, or (c) in instituting, maintaining, preserving,
enforcing and foreclosing on Agent's security interest in or Lien on any of the
Collateral, whether through judicial proceedings or otherwise, or (d) in
defending or prosecuting any actions or proceedings arising out of or relating
to Agent's or any Lender's transactions with Borrower, or (e) in connection with
any advice given to Agent or any Lender with respect to its rights and
obligations under this Agreement and all related agreements, may be charged to
Borrower's account and shall be part of the Obligations or (f) with respect to
all examinations of Borrower's
-64-
<PAGE>
inventory, books and records, provided that unless an Event of Default has
occurred and is continuing, such examinations shall be limited to three times
each year.
15.10 Injunctive Relief. Borrower recognizes that, in the event Borrower
fails to perform, observe or discharge any of its obligations or liabilities
under this Agreement, any remedy at law may prove to be inadequate relief to the
Lenders; therefore, each Lender, if such Lender so requests, shall be entitled
to temporary and permanent injunctive relief in any such case without the
necessity of proving that actual damages are not an adequate remedy.
15.11. Intentionally Deleted.
15.12. Captions. The captions at various places in this Agreement are
intended for convenience only and do not constitute and shall not be interpreted
as part of this Agreement.
15.13. Counterparts; Telecopied Signatures. This Agreement may be executed
in any number of and by different parties hereto on separate counterparts, all
of which, when so executed, shall be deemed an original, but all such
counterparts shall constitute one and the same agreement. Any signature
delivered by a party by facsimile transmission shall be deemed to be an original
signature hereto.
15.14. Construction. The parties acknowledge that each party and its
counsel have reviewed this Agreement and that the normal rule of construction to
the effect that any ambiguities are to be resolved against the drafting party
shall not be employed in the interpretation of this Agreement or any amendments,
schedules or exhibits thereto.
Each of the parties has signed this Agreement as of the day and year first
above written.
CANDIES, INC.
By: /s/ Gary Klein
-------------------------------------
Its: Vice President - Finance
2975 Westchester Avenue
Purchase, NY 10577
NATIONSBANC COMMERCIAL
CORPORATION, as Lender and as Agent
By: Cynthia Osofsky
-------------------------------------
Its: Senior Vice President
P.O. Box 4095
Atlanta, GA 30302
Commitment Percentage: 100%
-65-
EXHIBIT 10.2
NationsBank
NationsBanc Commercial Corporation
Factoring Agreement
entered into between
Candie's, Inc.
Bright Star Footwear, Inc.
and
NationsBanc Commercial Corporation
NationsBanc Commercial Corporation
P.O. Box 4095
Atlanta, Georgia 30302
Gentlemen:
We are pleased to confirm the following agreement by which you are to act
as sole factor for sales made by us:
SECTION 1. DEFINITIONS
1.1 "Banking Day" shall mean a day for dealings by and between banks,
excluding Saturday, Sunday and any day which shall be a legal holiday in the
City of Atlanta, Georgia, and any other day on which banking institutions are
authorized to close in the City of Atlanta, Georgia.
1.2 "Credit Risk" shall mean the risk of loss resulting solely and
exclusively from a Customer's failure to pay at maturity because of its
financial inability.
1.3 "Customer Dispute" shall mean any cause for nonpayment of Receivables,
other than the financial inability of the Customer, including, without
limitation, any alleged defense, offset, or counterclaim.
1.4 "Customers" shall mean the account debtors obligated on the
Receivables.
1.5 "Default" shall mean the occurrence of any of the following events: (a)
nonpayment when due of any amount payable on any of the Obligations or failure
to perform any agreement or meet any obligation of ours contained herein or in
any agreement out of which any of the Obligations arose; (b) default by us in
repayment when due of any indebtedness now
1
<PAGE>
or hereafter owed for monies borrowed from any one other than you; (c) any
material statement, representation, or warranty of ours made orally or in
writing herein or in any other writing or statement at any time furnished or
made by us to you is untrue in any material respect as of the date furnished or
made; (d) suspension of the operation of our present business; (e) any Obligor
becomes insolvent or unable to pay debts as they mature, makes an assignment for
the benefit of creditors, or a proceeding is instituted by or against any
Obligor alleging that such Obligor is insolvent or unable to pay debts as they
mature, or a petition under any provision of Title 11 of the United States Code
(entitled "Bankruptcy"), as amended is brought by or against any Obligor; (f)
dissolution, merger, or consolidation of any Obligor which is a corporation; (g)
sale, transfer or exchange, either directly or indirectly, of a controlling
stock interest of any Obligor which is a corporation; (h) termination or
withdrawal of any guaranty for the Obligations; (i) appointment of a receiver
for any collateral pledged for the Obligations or for any property in which we
have an interest; (j) the Pension Benefit Guaranty Corporation shall commence
proceedings under Section 4042 of the Employee Retirement Income Security Act of
1974 (ERISA) to terminate any employee pension benefit plan of Debtor; or (k)
you in good faith deem the prospect of our payment or performance of the
Obligations to have been impaired.
1.6 "Net Amount" of Receivables shall mean the gross amount of Receivables,
less maximum discounts, less returns, less credits or allowances of any nature
at any time issued, owing, granted or outstanding, and less also your commission
as set forth herein.
1.7 "Obligations" shall mean all of our obligations to you hereunder,
including without limitation all obligations of ours to you under any note,
contract of surety, guaranty, or accommodation, or with respect to letters of
credit or acceptances, sums owing to you for goods and/or services purchased
from any other firm factored or financed by you, and all other obligations of
ours to you, however and whenever created, arising or evidenced, whether direct
or indirect, through assignment from third parties in the ordinary course of
your business, absolute, contingent or otherwise, now or hereafter existing or
due or to become due.
1.8 "Obligor" shall mean: us and each other party primarily or secondarily,
directly or indirectly liable on any of the Obligations.
1.9 "Payment Date" shall mean: (a) for each credit-approved Receivable for
which you retain the Credit Risk, the date on which the Receivable is credited
by you to our account or, if such Receivable is not paid, one hundred twenty
(120) days after the due date of the Receivable or, if such day is not a Banking
Day, the next Banking Day; and (b) for each Receivable for which you do not bear
the Credit Risk, the date on which the Receivable is credited by you to our
account.
1.10 "Receivables" shall mean all accounts, instruments, contract rights,
chattel paper, documents, and general intangibles arising from our Sales which
are specifically assigned by us hereunder, and the proceeds thereof, and all
security and guaranties therefor, whether now existing or hereafter created.
2
<PAGE>
1.11 "Sales" shall mean the sale of goods and/or the rendition of services
by us in the ordinary course of our business to Customers in the United States
of America and Puerto Rico.
SECTION 2. SALE AND APPROVAL; PURCHASE PRICE; COMMISSION; RESERVE
2.1 We hereby assign and sell to you as absolute owner, without recourse,
except as hereinafter set forth, our entire interest in all of our present and
future Receivables.
2.2 All orders for Sales shall be submitted to you for credit approval
prior to shipment of the goods or rendition of the services so ordered, and each
approved Sale shall be made only in accordance with such approval. You may, in
your sole discretion, approve in writing all or a portion of our customers'
orders, either by establishing a credit line limited to a specific amount for a
specific customer, or by approving all or a portion of the proposed purchase
order submitted by us. Receivables arising from orders not so approved by you,
in whole or in part, shall be with full recourse to us to the extent and in the
respects not so approved. A credit approval shall not be effective if (a) the
approved terms of sale are changed, (b) delivery of the goods to the Customer is
not made by us within forty-five (45) days after the shipping date specified in
our request for credit approval, or if no such date is specified, within
forty-five (45) days of the credit approval, or (c) the invoice representing the
Sale is not delivered to you within twenty (20) days after the shipment date.
While a credit line remains in force, Receivables (or parts thereof) in excess
of such line will succeed amounts within the line which are paid by or credited
to the Customer; the succession of Receivables (or parts thereof) shall take
place in the order of maturity and shall be limited to amounts then so paid or
credited. The right of succession ceases when the line is cancelled. On all
credit-approved Sales you assume the Credit Risk up to the amount so approved
and will bear the credit loss on the amount of the uncollected Receivables if a
Customer, after delivery/rendition and acceptance of the goods/services, fails
on due date to pay in full solely because of financial inability, but you are
not to be responsible where nonpayment results from any Customer Dispute, acts
of God, war, civil strife, currency restrictions, or foreign political
impediments, because we assume all other risks. Credit approvals, once granted,
may be withdrawn by you prior to shipment/rendition of the goods/services. With
regard to Sales without credit approval or in excess of any approved amount of
credit, as to any given Customer, we agree that any payments or credits on any
Receivables owing from such Customer may be applied first to any credit-approved
Receivables which may at any time be unpaid, regardless of the respective dates
such Sales occurred and regardless of any notations on payment items, or may be
applied in such other manner as you in your sole discretion shall deem
appropriate.
If, when we submit to you for your prior written credit approval, the amount,
terms and delivery date of a proposed sale of goods, (i) we advise you in
writing that the order for the goods is a special order by the Customer and (ii)
your credit approval as to such order is withdrawn prior to shipment of the
goods, then (a) to the extent that goods covered by such order consist of work
in process, such work in process shall be finished, and (b) such finished goods
together with all finished goods covered by such order manufactured prior to the
withdrawal of your credit
3
<PAGE>
approval (collectively the "Finished Goods") shall be promptly resold by us (but
in no event later than sixty (60) days after you withdraw your credit approval),
subject to your prior written approval. You agree to reimburse us for any
out-of-pocket loss we may sustain upon such resale, but only if the Finished
Goods are available for resale within the delivery date specified in the order
relating to the order with respect to which you credit approval has been
withdrawn, free and clear of all liens and charges. "Out of pocket loss" is
herein defined to mean the amount of the original cost of the goods, or portion
thereof, less the amount of the actual resale price of the goods, or portion
thereof, ultimately resold.
2.3 We will provide you with listings of Receivables in form satisfactory
to you, together with Customers' invoices, shipping documents, and such other
documents and proof of delivery/rendition as you may at any time require.
Billing on invoices by whomever done shall be conclusive evidence of assignment
and sale hereunder of such Receivables whether or not we execute any other
instrument with regard thereto. All invoices to Customers shall state plainly on
the face thereof that the Receivables represented by such invoices have been
assigned, sold, and are payable to you only. All remittances obtained by us
against Receivables will be received in trust for you, and will turn over to you
the identical remittances as speedily as possible; provided, however, that
nothing herein authorizes us to collect Receivables.
2.4 The purchase price of Receivables is to be the Net Amount thereof,
which, less any charges and reserves, will be due and payable on Payment Date.
We shall pay you a commission in an amount equal to four tenths of one percent
(.4%) of the gross amount of such Receivables arising from orders approved by
you as to credit; and fifteen hundredths of one percent (.15%) of the gross
amount of Receivables arising from orders not approved by you as to credit which
Receivables we shall assign on separate schedule; provided, however, that the
minimum commissions paid by us each contract year shall be One Hundred Thousand
Dollars ($100,000.00) or a prorated part thereof if this Agreement shall be
terminated during a contract year. You may retain from sums payable to us a
reserve, which reserve may be revised from time to time at your discretion, in
order to provide for Customer Disputes, possible credit losses on unapproved
Receivables, sums owing to you for goods/services purchased by us from any other
firm factored or otherwise financed by you, and the Obligations. A discount,
credit, or allowance after issuance or granting may not be claimed by us, but
may be claimed solely by the Customer; no third party beneficiary rights are
created hereby.
2.5 We shall pay to you on demand any charges for commissions at any time
outstanding in our account.
2.6 You will render a statement of account monthly, and such statement
shall be binding upon us except as to specific matters for which you are
notified in writing to the contrary within one hundred twenty (120) days after
the date of such statement.
SECTION 3. [INTENTIONALLY LEFT BLANK]
4
<PAGE>
SECTION 4. POWER OF ATTORNEY
We hereby appoint you as our attorney-in-fact to receive, open, and dispose
of all mail addressed to us pertaining to Receivables; to endorse our name upon
any notes, acceptances, checks, drafts, money orders, and other evidences of
payment of Receivables that may come into your possession and to deposit or
otherwise collect the same; and to do all other acts and things necessary to
carry out the terms of this Agreement. This power, being coupled with an
interest, is irrevocable while any Receivable shall remain unpaid. You, as
attorney-in-fact, shall not be liable for any errors of judgment or mistake of
fact.
SECTION 5. SECURITY INTEREST
We hereby grant you a security interest in all of our present and future
accounts, instruments, contract rights, chattel paper, documents and general
intangibles, (whether arising before or after termination of this Agreement) and
all returned, repossessed, and reclaimed goods, and books and records relating
thereto, to secure all of the Obligations. We further sell and assign to you all
our title and/or interest in the goods (unless released by you) represented by
Receivables as well as goods returned by or repossessed from Customers, all of
our rights as an unpaid vendor or lienor, all or our rights of stoppage in
transit, replevin and reclamation relating thereto, and all of our rights
thereto; we will cooperate with you in exercising any rights with respect to the
goods. In addition, we hereby grant you a security interest in the reserve
established pursuant to Section 2.4 hereof, to secure all of the Obligations.
SECTION 6. REPRESENTATIONS, WARRANTIES AND COVENANTS
6.1 We represent and warrant that we are fully authorized to enter into
this Agreement and perform hereunder and covenant that we will continue to be so
for the duration of this Agreement.
6.2 We represent and warrant that we are solvent.
6.3 To the best of our knowledge and belief, we represent and warrant that
our Receivables are, and covenant that they shall be, at the time of their
creation, bona fide and existing obligations of our Customers arising out of our
Sales, free and clear of all security interests, liens, and claims whatsoever.
6.4 We represent and warrant that our domestic inventory is not subject to
any security interest, lien or encumbrance whatsoever other than security
interests of creditors with whom you have entered into an intercreditor
agreement in form and substance acceptable to you, and we covenant that we shall
not permit it to become so encumbered without your prior written consent.
5
<PAGE>
6.5 We represent and warrant with respect to each Receivable as it arises:
(a) We will have made delivery of the goods or will have rendered the
services ordered as per the Customer's deliver order;
(b) We have no reason to believe that any Customer will not accept the
goods and/or services;
(c) We have no reason to believe that any Customer Dispute will exist
in any material respect;
(d) We will have preserved and will continue to preserve any liens and
any rights to liens available by virtue of Sales; and
(e) The Sale will have been made at arms length.
SECTION 7. CUSTOMER DISPUTES, CHARGEBACKS AND RETURNS
With respect to Receivables for which you bear the Credit Risk, we will
notify you promptly and will settle all known Customer Disputes, but you have
the right at all times to do so directly and to compromise, adjust, or litigate
all such Customer Disputes. If a Customer Dispute exists or is asserted with
regard to any Receivable, or if we breach any representation, warranty or
covenant with respect to any Receivable, you may charge back to our account the
disputed amount of such Receivable. You may charge back to our account at any
time any unapproved Receivable, whether before or after its due date. A
chargeback shall not be deemed a reassignment of the Receivable, and title
thereto and to the goods represented thereby shall remain in you until you
execute a reassignment. All returned, replevied, and reclaimed goods coming into
our possession shall be held in trust by us for you.
SECTION 8. INDEMNITY
We shall indemnify you for all losses, costs and expenses incurred by you
in connection with Receivables for which credit approval has not been given and
in connection with Receivables which are unpaid at maturity for reasons other
than financial inability. Further, we shall indemnify you for any liability for
duties, forwarder's fees, storage, shipping charges, sales or excise taxes or
other expenses in connection with the Receivables and for any losses occasioned
by claims of Customers under Receivables. This indemnity shall survive the
termination of this Agreement for sixty (60) days.
SECTION 9. APPLICABLE LAW
This Agreement shall be governed by, construed and enforced according to
the laws of the State of New York.
6
<PAGE>
SECTION 10. EFFECTIVE DATE; TERMINATION; BINDING EFFECT
If accepted by you, this Agreement shall be effective on the 27th day of
May, 1998, and shall continue in full force and effect until: (a) three (3)
years from such effective date and from year to year thereafter until terminated
by your giving to us not less than sixty (60) days prior written notice; or (b)
terminated by us at any time by giving to you not less than sixty (60) days
prior written notice. This Agreement may be terminated at any time by you
without notice to us should any Default occur or should the Revolving Credit and
Security Agreement between us as Borrower and you as Agent and Lender of even
date herewith terminate for any reason. Upon termination, we will pay all of our
Obligations to you, and in any event we will remain liable to you for any
deficiency remaining after determination of our liability hereunder and
liquidation of any collateral. Also, upon termination you may withhold any
payment to us unless supplied with an indemnity satisfactory to you. This
Agreement shall bind us, our successors and assigns and shall inure to the
benefit of you, your successors and assigns; we agree that you may delegate your
duties hereunder.
SECTION 11. EXPENSES; ATTORNEYS' FEES; NO WAIVER; SEVERABILITY; NOTICES;
HEADINGS
We shall pay all expenses incurred in connection with the filing of
financing statements, continuation statements, and record searches. We shall
also pay you such wire transfer and similar fees as you charge from time to
time. Upon liquidation of any collateral, settlement or prosecution of Customer
Disputes, or enforcement of any obligation of ours hereunder, you may charge to
our account all costs and expenses incurred including fifteen percent (15%) of
the amount involved as attorneys' fees, if collection is by or through an
attorney and such costs, expenses and fees shall constitute obligations
hereunder. No delay or failure on your part in exercising any right, privilege,
or option hereunder shall operate as a waiver of such or of any other right,
privilege, or option, and no waiver, amendment, or modification of any provision
of this Agreement shall be valid, unless in writing signed by you and then only
to the extent therein stated. Should any provision of this Agreement be
prohibited by or invalid under applicable law, the validity of the remaining
provisions shall not be affected thereby. Any notice or request hereunder may be
given to either party at their respective addresses set forth below or at such
other address as may hereafter be specified in a notice designated as a notice
of change of address under this Section. Any notice or request hereunder shall
be given by (a) hand delivery, (b) overnight courier, (c) registered or
certified mail, return receipt requested, (d) telex or telegram, subsequently
confirmed by registered or certified mail, or (e) telecopy to the number set out
below (or such other number as may hereafter be specified in a notice designated
as a notice of change of address) with telephone communication to a duly
authorized officer of the recipient confirming its receipt as subsequently
confirmed by registered or certified mail. Any notice or other communication
required or permitted pursuant to this Agreement shall be deemed given (a) when
personally delivered to any officer of the party to whom it is addressed, (b) on
the earlier of actual receipt thereof or three (3) days following posting
thereof by certified or registered mail, postage prepaid, or (c) upon actual
receipt thereof when sent by
7
<PAGE>
a recognized overnight delivery service or (d) upon actual receipt thereof when
sent by telecopier to the number set forth below with telephone communication
confirming receipt and subsequently confirmed by registered, certified or
overnight mail to the addresses set forth below, in each case addressed to each
party at its address set forth below or at such other address as has been
furnished in writing by a party to the other by like notice:
If to Candie's, Inc.:
Candie's, Inc./Bright Star Footwear, Inc.
2975 Westchester Avenue
Purchase, NY 10577
Attention: David Golden, CFO
Telephone: (914) 694-8600
Telecopier: (914) 694-8609
with a copy to:
Tenzer Greenblatt, LLP
405 Lexington Avenue, 23rd Floor
New York, NY 10174
Attention: Michael Mullman, Esq.
Telephone: (212) 885-5517
Telecopier: (212) 885-8001
If to NationsBanc Commercial Corporation:
NationsBanc Commercial Corporation
P.O. Box 4095
Atlanta, GA 30302
Attention: Robert Higgins, SVP
Telephone: (212) 790-4529
Telecopier: (212) 790-4518
with a copy to:
NationsBanc Commercial Corporation
1372 Broadway
New York, NY 10018
Attention: Legal Department
Telephone: (212) 790-4524
Telecopier: (212) 790-4632
The headings used herein are intended to be for convenience of reference only
and shall not define or limit the scope, extent or intent or otherwise affect
the meaning of any portion hereof.
8
<PAGE>
SECTION 12. ENTIRE AGREEMENT; WAIVER OF JURY TRIAL
This Agreement embodies our entire agreement as to the subject matter and
supersedes all prior agreements as to the subject matter. EACH OF US HEREBY
WAIVES ALL RIGHTS TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING RELATING TO
TRANSACTIONS UNDER THIS AGREEMENT.
SECTION 13. TRADE STYLES
Receivables under this Agreement shall include those created by our doing
business under the following trade styles, all of which have been duly and
properly registered:
Candie's; Bongo; Aspen; Crayons; Bright Star
Candie's, Inc.
By: /s/ Gary Klein VP Finance
---------------------------------
(Title)
Bright Star Footwear, Inc.
By: /s/ Gary Klein VP Finance
---------------------------------
(Title)
ACCEPTANCE
The foregoing Factoring Agreement is accepted in Atlanta, Georgia as of the
27th day of May, 1998.
NationsBanc Commercial Corporation
By: /s/ Stuart Brister SVP
---------------------------------
(Title)
Funds Employed
9
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<PERIOD-END> APR-30-1998
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<RECEIVABLES> 4,998
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<INVENTORY> 7,595
<CURRENT-ASSETS> 30,160
<PP&E> 2,000
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0
0
<COMMON> 14
<OTHER-SE> 34,202
<TOTAL-LIABILITY-AND-EQUITY> 38,039
<SALES> 25,693
<TOTAL-REVENUES> 25,693
<CGS> 18,295
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<OTHER-EXPENSES> 0
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