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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: June 30, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to ___________
Commission file number: 0-18823
UNIVERSAL INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
MINNESOTA 41-0776502
(State or jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
5000 WINNETKA AVENUE NORTH, NEW HOPE, MINNESOTA 55428
(Address of principal executive offices) (Zip Code)
(612) 533-1169
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
-------- ----------
On July 31, 1997 there were 4,893,328 shares of the registrant's $.05 par value
Common Stock outstanding.
1
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UNIVERSAL INTERNATIONAL, INC.
INDEX
PART I FINANCIAL INFORMATION PAGE
Item 1. Consolidated Financial Statements:
Consolidated Statements of Operations
for the three and six months ended June 30,
1997 and 1996................................ 3
Consolidated Balance Sheets as of
June 30, 1997 and December 31, 1996.......... 4
Consolidated Statements of Cash Flows
for the six months ended June 30,
1997 and 1996................................ 5
Notes to Consolidated Financial Statements... 6
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition 7
PART II OTHER INFORMATION................................. 13
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
2
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UNIVERSAL INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(In thousands, except per share data)
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
June 30, June 30, June 30, June 30,
1997 1996 1997 1996
------- ------- ------- -------
Net sales $19,474 $18,509 $41,438 $35,066
Cost of goods sold 13,084 11,767 27,456 22,656
------- ------- ------- -------
Gross margin 6,390 6,742 13,982 12,410
Selling, general and
administrative expenses 9,293 7,922 19,004 15,150
------- ------- ------- -------
Operating loss (2,903) (1,180) (5,022) (2,740)
Other income (expense):
Miscellaneous income
(expense), net (1) 8 (15) 2
Interest expense (326) (273) (633) (485)
------- ------- ------- -------
(327) (265) (648) (483)
------- ------- ------- -------
Loss before non-controlling
interest in subsidiary (3,230) (1,445) (5,670) (3,223)
Non-controlling interest in
subsidiary's net loss -- 63 -- 496
------- ------- ------- -------
Net loss $(3,230) $(1,382) $(5,670) $(2,727)
------- ------- ------- -------
------- ------- ------- -------
Net loss per common share $ (.66) $ (.28) $ (1.16) $ (.56)
------- ------- ------- -------
------- ------- ------- -------
Weighted average number of
common shares outstanding 4,893 4,893 4,893 4,893
------- ------- ------- -------
------- ------- ------- -------
See accompanying notes to unaudited
consolidated financial statements
3
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UNIVERSAL INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
June 30, December 31,
1997 1996
----------- ------------
ASSETS (unaudited)
Current assets:
Cash $ 304 $ 521
Accounts receivable, less
allowance for doubtful
accounts of $260 for 1997
and $200 for 1996 3,814 3,707
Inventories 16,965 26,458
Other current assets 1,975 1,313
Deferred income taxes 666 666
-------- -------
Total current assets 23,724 32,665
Equipment and improvements, net 9,360 10,056
Other assets, net 145 152
-------- -------
Total assets $ 33,229 $42,873
-------- -------
-------- -------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Borrowings under revolving credit
agreement $ -- $ 7,791
Current portion of long-term debt 793 556
Accounts payable 9,923 12,606
Accrued expenses 1,337 3,008
-------- -------
Total current liabilities 12,053 23,961
Borrowings under revolving credit
agreement 8,072 --
Deferred income taxes 693 693
Long-term debt, less current portion 1,593 1,731
-------- -------
Total liabilities 22,411 26,385
-------- -------
Shareholders' equity:
Common stock, $.05 par value,
75,000 shares authorized;
4,893 shares issued and
outstanding 245 245
Additional paid-in capital 22,917 22,917
Accumulated deficit (12,344) (6,674)
-------- -------
Total shareholders'equity 10,818 16,488
-------- -------
Total liabilities and
shareholders' equity $33,229 $42,873
-------- -------
-------- -------
See accompanying notes to unaudited
consolidated financial statements
4
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UNIVERSAL INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited) (In thousands)
Six Months Ended
------------------
June 30, June 30,
1997 1996
------- -------
Cash flows from operating activities:
Net loss $(5,670) $(2,727)
Adjustments to reconcile net
loss to net cash used by
operating activities:
Depreciation and amortization 773 504
Provision for losses on accounts
receivable 60 72
Provision for inventory obsolescence
and shrinkage 518 561
Non-controlling interest in
subsidiary's net loss -- (496)
Changes in operating assets and
liabilities:
Accounts receivable (167) (1,468)
Inventories 8,975 (5,449)
Other current assets (662) (342)
Accounts payable (2,683) 2,654
Other current liabilities (1,671) (400)
------- -------
Net cash used by operating
activities (527) (7,091)
------- -------
Cash flows from investing activities:
Additions to equipment and
improvements (70) (1,919)
------- -------
Net cash used by investing
activities (70) (1,919)
------- -------
Cash flows from financing activities:
Net change in borrowings under
revolving credit agreements 281 8,986
Proceeds from long-term debt 1,872 --
Payments of long-term debt (1,773) (384)
------- -------
Net cash provided by financing
activities 380 8,602
------- -------
Net decrease in cash (217) (408)
Cash, beginning of period 521 811
------- -------
Cash, end of period $ 304 $ 403
------- -------
------- -------
See accompanying notes to unaudited
consolidated financial statements
5
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The financial statements included in this Form 10-Q have been
prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in
financial statements prepared in accordance with generally
accepted accounting principles have been condensed, or omitted,
pursuant to such rules and regulations. These financial
statements should be read in conjunction with the financial
statements and related notes included in the Company's 1996 Form
10-K.
The financial statements presented herein as of June 30, 1997 and
for the three and six months then ended reflect, in the opinion
of management, all adjustments necessary, consisting of normal
recurring items, for a fair presentation of financial position
and the results of operations for the periods presented. The
results of operations for any interim period are not necessarily
indicative of results for the full year.
2. Revolving Credit Agreement
During the second quarter of 1997, the Company entered into a $14
million revolving credit agreement with a new lender which
replaced the previous credit facility under which the Company was
in technical default of several provisions. The Company may
borrow against a borrowing base derived from the level of
qualifying accounts receivable and inventory.
6
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Universal International, Inc. ("Universal" or the "Company") buys and
sells quality "close-out" merchandise at the wholesale level (see
"Liquidity and Capital Resources" with respect to downsizing of
wholesale operations). The Company, through its wholly owned
subsidiary, Only Deals, Inc. ("Only Deals"), owns and operates 50
retail stores offering close-out merchandise in 8 states in the Upper
Midwest. The Company, through its 40.5% ownership of Odd's-N-End's,
Inc. ("Odd's-N-End's"), also operates 22 close-out retail stores in
New York state. The Company's wholesale and retail operations sell
consumer goods in a variety of categories including toys, food, health
and beauty aids, housewares, and many others. In addition, the
Company's 95% owned subsidiary, Universal Asset-Based Services, Inc.
("Asset-Based Services"), which commenced operations in April 1996,
provides inventory valuation and liquidation services to a wide range
of financial institutions, retailers and manufacturers.
FORWARD LOOKING INFORMATION
Information contained in this Form 10-Q contains "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995,
which can be identified by the use of forward-looking terminology such as
"may", "will", "expect", "plan", "anticipate", "estimate" or "continue" or
the negative thereof or other variations thereon or comparable terminology.
There are certain important factors that could cause results to differ
materially from those anticipated by some of these forward-looking
statements. Investors are cautioned that all forward-looking statements
involve risks and uncertainty. The factors, among others, that could cause
actual results to differ materially include: the Company's ability to execute
its business plan, continuity of a relationship with or purchases from major
vendors, competitive pressures on sales and pricing, increases in other costs
which cannot be recovered through improved pricing of merchandise, and the
adverse effect of weather conditions on retail sales.
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RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
items from the Company's statement of operations expressed as a
percentage of net sales.
Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
1997 1996 1997 1996
---- ---- ---- ----
(unaudited) (unaudited)
Net sales........................ 100.0% 100.0% 100.0% 100.0%
Cost of goods sold............... 67.2 63.6 66.3 64.6
----- ----- ----- -----
Gross margin..................... 32.8 36.4 33.7 35.4
Selling, general and
administrative expenses......... 47.7 42.8 45.8 43.2
----- ----- ----- -----
Loss from operations......... (14.9) (6.4) (12.1) (7.8)
Interest and other expenses, net. (1.7) (1.4) (1.6) (1.4)
----- ----- ----- -----
Loss before non-controlling
interest in subsidiary.... (16.6) (7.8) (13.7) (9.2)
Non-controlling interest in
subsidiary's net loss.......... -- .3 -- 1.4
----- ----- ----- -----
Net loss......................... (16.6)% (7.5)% (13.7)% (7.8)%
----- ----- ----- -----
----- ----- ----- -----
The following table sets forth, for the periods indicated, certain
information relating to the Company's operations.
<TABLE>
<CAPTION>
(IN THOUSANDS)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
INCREASE INCREASE
1997 1996 (DECREASE) PERCENT 1997 1996 (DECREASE) PERCENT
----------------- ---------------------- ------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales:
Wholesale $5,646 $6,800 $(1,154) (17.0%) $13,725 $12,966 $ 759 5.9%
Retail:
Only Deals 8,860 6,673 2,187 32.8% 17,835 12,395 5,440 43.9%
Odd's-N-End's 4,753 4,857 (104) (2.1%) 9,357 9,526 (169) (1.8%)
Gross Margin:
Wholesale 30 1,443 (1,413) (97.9%) 1,038 2,759 (1,721) (62.4%)
Retail:
Only Deals 4,028 2,938 1,090 37.1% 8,152 5,365 2,787 51.9%
Odd's-N-End's(1) 2,117 2,182 (65) (3.0%) 4,271 4,107 164 4.0%
Selling, General and
Administrative Expenses:
Wholesale 1,875 1,677 198 11.8% 3,951 3,538 413 11.7%
Retail:
Only Deals 5,071 3,846 1,225 31.9% 10,393 7,142 3,251 45.5%
Odd's-N-End's 2,101 2,214 (113) (5.1%) 4,120 4,285 (165) (3.9%)
</TABLE>
(1) Excludes impact of intercompany profit under the supply agreement with
Universal, which has been eliminated in consolidation.
8
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NET SALES
Net sales for the second quarter and six months ended June 30, 1997
increased by $965,000 or 5.2% and $6,372,000 or 18.2%, respectively,
from the corresponding periods last year. Wholesale sales during the
first six months of 1997 were impacted by the downsizing of wholesale
operations (see "Liquidity and Capital Resources"), since merchandise
was sold at reduced margins, resulting in increased sales. However,
wholesale sales decreased in the second quarter of 1997 as inventory
levels declined substantially. Management expects wholesale sales
will be less than $1 million for the remainder of 1997 as the
downsizing is completed.
Net sales by the Only Deals retail subsidiary increased primarily due
to the addition of 12 new stores since June 30, 1996. At June 30,
1997, the Company had 50 Only Deals retail stores in operation
compared to 39 (including one store reserved for closing) at June 30,
1996. Net sales for Only Deals and Odd's-N-End's during the second
quarter of 1997 were negatively impacted by supply disruptions that
occurred prior to the closing of the new credit facility.
Net sales for Asset-Based Services were $215,000 and $521,000 during
the quarter and six months ended June 30, 1997, respectively, compared
to $179,000 during the quarter ended June 30, 1996.
GROSS MARGINS
Gross margins decreased $352,000 or 5.2% for the second quarter of
1997 and increased $1,572,000 or 12.7% for the six months ended June
30, 1997. Wholesale gross margins were 0.5% and 7.6% of sales for the
quarter and six months ended June 30, 1997, respectively, compared to
21.2% and 21.3% for the corresponding periods of 1996. The substantial
decrease in wholesale gross margins is directly related to selling
merchandise at lower margins to substantially reduce wholesale
inventories (see "Liquidity and Capital Resources").
Gross margins for Only Deals increased primarily due to increased
sales. Gross margins for Only Deals increased as a percent of sales
from 44.0% and 43.3% for the quarter and six months ended June 30,
1996 to 45.5% and 45.7% for the quarter and six months ended June 30,
1997, respectively. Gross margins for Odd's-N-End's for the second
quarter of 1997 decreased slightly as a percent of sales from 44.9% to
44.5%. Gross margins for Odd's-N-End's as a percent of sales
increased to 45.6% for the first six months of 1997 compared to 43.1%
for the same period of the prior year. Retail gross margins improved
primarily due to lower seasonal markdowns in the first quarter of 1997
as compared to the first quarter of 1996. In addition, the Company's
change in merchandise
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mix has resulted in lower product costs and improved margins. Management
expects that retail gross margins for the remainder of 1997 will continue to
exceed 1996 gross margins.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the quarter and six
months ended June 30, 1997 increased by $1,371,000 or 17.3% and
$3,854,000 or 25.4%, respectively, from the corresponding periods of
1996. This increase primarily resulted from the significant increase
in retail operations, which incur much higher operating costs than
wholesale operations. The increase in selling, general and
administrative expenses as a percent of sales in the wholesale
business from 24.7% to 33.2% for the second quarter of 1997 and from
27.3% to 28.8% for the first six months was due to increased costs
incurred during downsizing of wholesale operations and costs to
transition out of the prior credit facility.
Selling, general and administrative expenses as a percent of sales for
Only Deals and Odd's-N-End's remained relatively constant for the
second quarter and first six months of 1997 as compared to the same
periods last year. Selling, general and administrative expenses for
Asset-Based Services were $246,000 and $540,000 for the quarter and
six months ended June 30, 1997 compared to $185,000 during the second
quarter of 1996.
INTEREST
Interest expense increased to $326,000 in the second quarter and
$633,000 in the first six months of 1997 compared to $273,000 in the
second quarter and $485,000 in the first six months of 1996 due to an
increase in borrowings under the revolving credit facility and due to
increased interest rates on outstanding borrowings.
NET LOSS
The Company incurred a net loss of $3.2 million and $5.7 million
during the second quarter and first six months of 1997, respectively,
compared to a net loss of $1.4 million and $2.7 million during the
corresponding periods of 1996. The net loss in the second quarter and
first six months of 1997 was primarily the result of reduced wholesale
gross margins, costs incurred in eliminating the wholesale business,
costs incurred to transition out of the prior credit facility, and
lower than anticipated net sales in the retail business as a result of
supply disruptions that occurred prior to the closing of the new
credit facility.
LIQUIDITY AND CAPITAL RESOURCES
During 1995, the Company entered into a borrowing arrangement whereby
a financial institution agreed to lend the Company up to $16 million
under a revolving credit agreement originally expiring
10
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in January 1998. During 1996, the lender waived certain technical defaults
under the agreement, and the expiration date of the agreement was amended to
March 31, 1997.
During the first quarter of 1997, the Company was in technical default
on several provisions of the amended loan agreement. As a result of
these defaults, the lender reduced the credit line to $12.5 million
and increased the interest rate on the outstanding borrowings from
prime plus 1.5% to prime plus 3.5%. The lender further reduced the
credit line to $11 million as of April 30, 1997 and $10 million as of
May 31, 1997.
In June 1997 the Company entered into a borrowing arrangement with a
new lender which replaced the previous credit line and Odd's-N-End's
bank notes payable of $1.3 million. Under the new revolving credit
agreement, the Company may borrow up to $14 million against a
borrowing base derived from the level of qualifying accounts
receivable and inventory. The agreement expires in June 1999, but may
be automatically renewed each year thereafter at the option of both
the lender and the Company. Borrowings under the agreement are
collateralized by substantially all assets of the Company, and
outstanding borrowings bear interest at prime plus 2% (the prime rate
at June 30, 1997 was 8.5%). The amount available at June 30, 1997,
based on the borrowing base, was $12.8 million, of which there were
outstanding borrowings of $8.1 million and outstanding letters of
credit of $229,000. The Company also obtained $1.9 million of term
loan financing from the new lender. The term note is payable in 48
equal monthly installments plus interest at prime plus 2% and is
collateralized by equipment and fixtures.
The Company is in the process of substantially reducing the wholesale
inventories and restructuring and downsizing wholesale operations to
focus more Company resources on retail operations. Management
anticipates that the downsizing of wholesale operations will be
completed by December 31, 1997. Management expects that reduced sales
from the downsizing of wholesale operations will be substantially
offset by increased sales from retail operations for 1997 due to 21
Only Deals stores in operation for all of 1997 versus a partial year
in 1996. Management believes that the new credit facility and term
loan will be sufficient to satisfy the Company's planned operating
requirements through December 31, 1997.
Net cash used by operating activities was $527,000 for the six months
ended June 30, 1997 principally due to a $5.7 million net loss, a $9.0
million decrease in inventories, and a $4.4 million decrease in
accounts payable and other current liabilities. Payments of long-term
debt totaling $1.8 million and the $527,000 net cash used by operating
activities were funded primarily by proceeds from the $1.9 million
term loan and by a $281,000 increase in borrowings under the revolving
credit facility.
11
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The Company has an agreement which, as amended, provides for advances
of up to $10.0 million to Odd's-N-End's, collateralized by
substantially all assets of Odd's-N-End's, with interest payable at
prime plus 2.5%. There were advances totaling $6.4 million under this
agreement as of June 30, 1997.
In March 1997, the Company entered into a contingent purchase
agreement to acquire the leases and inventory of approximately 90
retail stores and a warehouse from Perry Brothers, Inc., of Lufkin,
Texas. The purchase agreement terminated in July 1997 without an
acquisition.
The Company does not intend to open any new Only Deals stores during
the remainder of 1997. The Company expects to focus its attention on
managing the recent substantial growth in new Only Deals stores. The
Company does not expect to have any significant capital expenditures
in 1997.
12
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PART II OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other information.
On August 7, 1997, the Company announced that Wesley
Laseski, the President of the Company, had resigned,
effective immediately, to pursue other business interests in
light of the Company's downsizing of the wholesale business,
which was under his supervision. In connection with this
decision, Mr. Laseski also resigned as a director of the
Company.
The Company has filled this vacancy by promoting Richard
Ennen to President. Mr. Ennen will continue to serve as
President of Only Deals, Inc., the Company's wholly-owned
subsidiary. In his expanded role, Mr. Ennen will be
responsible for managing all daily aspects of the Company's
operations. In addition, Mr. Ennen has been appointed to
the Company's Board of Directors to fill the vacancy created
by the departure of Mr. Laseski.
Item 6. Exhibits and Reports on Form 8-K.
Exhibit 10.12.2 Amended and Restated Loan and
Security Agreement with Odd's-N-
End's, Inc.
Exhibit 10.14 Loan and Security Agreement between the
Company and Coast Business Credit dated
June 6, 1997.
Exhibit 10.14.1 Schedule to Loan and Security Agreement
dated June 6, 1997.
No Form 8-K's were filed during the quarter ended June 30,
1997.
13
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SIGNATURE
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.
UNIVERSAL INTERNATIONAL, INC.
DATE: August 13, 1997 By:
------------------------------
James A. Patineau
Chief Financial Officer
(principal financial
officer)
14
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AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
THIS AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT ("Agreement"),
dated as of June 7, 1997, is entered into between UNIVERSAL INTERNATIONAL, INC.
(the "Lender") and ODDS-N-ENDS, INC. (the "Borrower").
WITNESSETH:
WHEREAS, Lender and Borrower entered into that certain Loan and
Security Agreement dated as of February 28, 1995, as amended (the "Existing
Loan Agreements") to provide credit to Borrower for the purchase of inventory;
WHEREAS, as evidence of its obligations to Lender, Borrower executed
and delivered to Lender that certain Revolving Note dated February 28, 1995 in
the original principal amount of $2,000,000 (the "Existing Note"), which was
amended to $5,000,000 by an Allonge dated July 30, 1996;
WHEREAS, the Borrower and the Lender desire to enter into this
Agreement to amend and restate the terms of the Existing Loan Agreements and
the Existing Note.
NOW, THEREFORE, for and in consideration of loans, advances or other
extensions of credit made or to be made to the Borrower by the Lender, and for
other good and valuable consideration, the parties hereto agree as follows:
SECTION 1
DEFINITIONS AND INTERPRETATION
1.1 Definitions. In addition to the terms defined elsewhere in this
Agreement, the following terms shall have the meanings indicated for purposes
of this Agreement (such means being applicable to both the singular and plural
forms):
"Agreement" shall mean this Amended and Restated Loan and Security
Agreement, as it may be amended, modified, supplemented, assigned, restated or
replaced from time to time.
"Collateral" shall mean all property or rights in which security
interest is granted hereunder.
"Default" shall mean: (1) the occurrence of any "Event of Default"
or similar occurrence under the Revolving Note; or (2) nonpayment, when due
or demanded (if under a demand instrument) of any amount of the Liabilities,
or any amount payable to the Lender by Borrower.
<PAGE>
"Liabilities" shall mean all obligations of the Borrower under the
Revolving Note, under this agreement, or for indemnity as the result of
Lender's guaranty of Borrower's obligations, and all other obligations of the
Borrower to the Lender, its successors and assigns, howsoever created,
arising or evidenced, whether direct or indirect, absolute or contingent, or
now or hereafter existing, or due or to become due.
1.2 TERMS DEFINED IN UNIFORM COMMERCIAL CODE. "Account," "Account
Debtor," Chattel paper," "Document" "Equipment," "Fixtures," "General
Intangibles," "Instrument," "Investment Property", "Inventory," and "Proceeds"
shall have the meaning set forth in the Minnesota Uniform Commercial Code,
PROVIDED, that if any additional goods, property or rights shall be included in
such terms under Section 2 hereof, such terms shall be construed to include such
additional goods, property or rights.
SECTION 2
AMENDMENT AND RESTATEMENT OF EXISTING LOAN AGREEMENTS
Section 2.1. AMOUNT OF EXISTING INDEBTEDNESS; AGREEMENT TO AMEND AND
RESTATE.
(a) The Borrower hereby acknowledges and agrees that, as of the date
hereof, the outstanding principal balance of, and accrued interest on, the
Existing Note is approximately $6 million.
(b) The Lender and the Borrower agree to amend and restate the terms
and conditions of the revolving credit facility existing under, and the
obligations owing to the Lender under, the Existing Loan Agreements,
including without limitation, the obligations owing under the Existing
Note, on the terms and conditions set forth herein.
Section 2.2 EXISTING AGREEMENTS. The Lender and the Borrower agree
that this Agreement shall exclusively control and govern the mutual rights and
obligations of the parties hereto with respect to the Existing Loan Agreements
and the Existing Note.
Section 2.3. NO NOVATION. THE PARTIES HERETO HAVE EXECUTED THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS SOLELY TO AMEND AND RESTATE THE TERMS OF,
AND THE OBLIGATIONS OWING UNDER AND IN CONNECTION WITH, THE EXISTING DOCUMENTS.
THE PARTIES DO NOT INTEND THIS AGREEMENT, NOR THE TRANSACTIONS CONTEMPLATED
HEREBY TO BE AND THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY SHALL
NOT BE CONSTRUED TO BE, A NOVATION OR WAIVE OF ANY OF THE OBLIGATIONS OWING BY
THE BORROWER UNDER OR IN CONNECTION WITH ANY OF THE EXISTING DOCUMENTS.
FURTHER, THE PARTIES DO NOT INTEND THIS AGREEMENT, NOR THE TRANSACTIONS
2
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CONTEMPLATED HEREBY, TO AFFECT OR IMPAIR THE PRIORITY OF THE SECURITY INTEREST
IN ANY OF THE COLLATERAL IN ANY WAY.
SECTION 3
TERMS OF LENDING
3.1 THE REVOLVING NOTE. Borrower shall execute a revolving note
(the "Revolving Note") in the form attached hereto as EXHIBIT A in the
principal sum of Ten Million Dollars ($10,000,000) representing the
outstanding balance of the current obligation of Borrower to Lender and
further advances of credit for the purpose of inventory, fixtures, tenant
improvements and operating expenses to be made by Lender in the future.
3.2 ADVANCES DISCRETIONARY. All further advances of credit from
Lender to Borrower under the Existing Note shall be at the discretion of the
Lender. Lender shall have no obligation to advance further credit at any
time, whether or not Borrower is in Default under this Agreement.
3.3 PAYMENTS TO LENDER. Upon written notice to Borrower whether
or not a Default exists or on demand, Lender shall have the option to require
that all cash received by Borrower be turned over to Lender for application
on the Existing Note.
SECTION 4
GRANT OF SECURITY INTEREST
4.1 GRANT OF SECURITY INTEREST. As security for the payment of
all Liabilities, the Borrower hereby assigns to the Lender, and grant to the
Lender, a continuing first priority security interest in, the following
whether now owned or hereafter arising or acquired:
4.1.1 Accounts, including all other rights and interests
(including all liens and security interests) that the Borrower may at time
have by law or agreement against any Account Debtor or other obligor
obligated to make any such payment or against any of the property of such
Account Debtor or other obligor;
4.1.2 Equipment and fixtures, including all accessories, parts and
other property at any time affixed thereto or used in connection therewith
and all substitutions and replacements thereof;
4.1.3 Inventory, including goods that are returned, repossessed,
stopped in transit or which otherwise come into the possession of the
Borrower;
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4.1.4 General Intangibles, including real estate leases,
inventions, designs, patents, patent applications, design patents, design
patent applications, trademarks, trademark applications, trade names, trade
secrets, goodwill, copyrights, registrations, licenses, franchises,
customer lists, tax refund claims, rights to indemnification and rights
under warranties;
4.1.5 Chattel Paper, Instrument and Documents;
4.1.6 Goods, instruments, documents of chattel paper that are in
the possession or control of, or in transit to, the Lender or any agent or
bailee for the Lender for any reason and all interest on, dividends and
distributions and other rights in connection with such property, and any
and all balances, credits, deposits (general or special, time or demand,
provisional or final), accounts or monies of or in the name of the Borrower
now or hereafter with the Lender;
4.1.7 Books, correspondence, credit files, records, invoices,
manuals, service records and programs, other papers and documents, computer
records, runs, software, systems, procedures, disks, tapes and other
storage media relating to any of the Collateral, including any of the
foregoing in the possession or control of any service, consultant, or
outside vendor;
4.1.8 Proceeds, including all policies, claims to payment under,
and proceeds of any and all insurance policies and letters of credit
payable to the Borrower, or on behalf of the Borrower's property whether or
not such policies are issued to or owned by the Borrower and whether or not
the Lender is named as loss payee or additional insured, including any
credit insurance.
SECTION 5
DEFAULT AND REMEDIES
Whenever a Default shall be existing:
5.1 LIABILITIES DUE AND PAYABLE. All of the Liabilities may at the
option of the Lender without any showing of cause, and without demand or notice
of any kind, be declared, and thereupon immediately shall become, due and
payable.
5.2 USE AND SALE OF COLLATERAL. The Lender may, to the fullest
extent permitted by applicable law, without notice, hearing or process of law
of any kind, (a) enter upon any premises where any of the Collateral may be
located and take possession of and sell or remove such Collateral; (b) use or
license, on an exclusive or non-exclusive basis, any General Intangibles
throughout the world for such term or terms, on such conditions, and in such
manner, as the Lender shall in its sole discretion determine, without
compensation to the Borrower; (c) sell any or all of the
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Collateral, free of all rights and claims of the Borrower therein and
thereto; and (d) bid for and purchase any or all of such Collateral at any
such sale.
5.3 USE OF PREMISES. Borrower grants to Lender a license to take
temporary possession of any premises upon which the Collateral is located for
the purpose of conducting a sale of Collateral. Such sale may be identified as
a "Going Out of Business Sale." This license shall not impair or affect
Lender's security interest in Borrower's leases or Lender's right to foreclose
on such leases. By exercising rights under this license, Lender assumes no
liability for Borrower's obligations under any lease of the premises.
5.4 OTHER RIGHTS. The Lender may exercise from time to time any
other rights and remedies available to it under any agreement and under all
applicable laws.
5.5 NOTICE TO COAST. Lender shall provide to Coast Business Credit
written notice of the default and Lender's intention regarding exercise of its
remedies.
SECTION 6
GENERAL PROVISIONS
6.1 REIMBURSEMENT OF EXPENSES. The Borrower shall reimburse the
Lender upon demand for all costs and expenses, including reasonable fees of
attorneys for the Lender and legal expenses, incurred by the Lender in
seeking to collect or enforce any rights under the Collateral and its rights
hereunder and, in case of Default, in seeking to collect the Liabilities,
including expenses of any repairs to any realty or other property to which
any of the Equipment may be affixed or be a part.
6.2 REMEDIES CUMULATIVE. The remedies provided for herein are
cumulative and not exclusive of any remedies which may be available to the
lender at law or in equity.
6.3 TERMINATION OF AGREEMENT. Unless sooner terminated by the
Lender, this Agreement shall terminate when all Liabilities shall have been
paid in full and Lender has given notice of termination to Borrower. This
Agreement shall continue notwithstanding that there may be, from time to
time, no outstanding loans or extensions of credit from the Lender to the
Borrower.
6.4 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
the Borrower, its successors and assigns and shall inure to the benefit of,
and be enforceable by, the Lender and its successors, transferees and assigns.
6.5 CHOICE OF LAW. This Agreement has been delivered at
Minneapolis, Minnesota, and shall be construed in accordance with any
governed by the laws of the State of Minnesota.
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6.6 SEVERANCE. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity without
invalidating the remainder of such provision or the remaining provisions of
this Agreement.
6.7 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original, but all such counterparts together shall constitute but one and the
same instrument.
IN WITNESS WHEREOF, this Agreement has been duly executed as of the
day and year first above written.
UNIVERSAL INTERNATIONAL, INC.
By: /s/ Mark Ravich
-------------------------------------
Its: CEO
--------------------------------
ODDS-N-ENDS, INC.
By: /s/ Mark Ravich
-------------------------------------
Its: Chairman
--------------------------------
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COAST-Registered Trademark-
LOAN AND SECURITY AGREEMENT
BORROWERS: UNIVERSAL INTERNATIONAL, INC.
ONLY DEALS, INC.
UNIVERSAL ASSET-BASED SERVICES, INC.
ADDRESS: 5000 WINNETKA AVENUE NORTH
NEW HOPE, MINNESOTA 55428
DATE: JUNE 6, 1997
THIS LOAN AND SECURITY AGREEMENT is entered into on the above date between
COAST BUSINESS CREDIT, a division of Southern Pacific Thrift & Loan
Association ("Coast"), a California corporation, with offices at 12121
Wilshire Boulevard, Suite 1111, Los Angeles, California 90025, and the
borrowers named above, (jointly and severally, "Borrowers"), whose chief
executive office is located at the above address ("Borrowers' Address"). The
Schedule to this Agreement (the "Schedule") shall for all purposes be deemed
to be a part of this Agreement, and the same is an integral part of this
Agreement. (Definitions of certain terms used in this Agreement are set
forth in Section 8 below.)
1. LOANS.
1.1 LOANS. Coast will make loans to Borrowers (the "Loans"), up to the
amounts and percentages (the "Credit Limit"), if any, shown on the Schedule,
unless Coast determines in its reasonable credit judgment that the making of an
advance in an amount or percentage is not commercially reasonable, and provided
that no Default or Event of Default has occurred and is continuing, and further
subject to Availability Reserves.
1.2 INTEREST. All Loans and all other monetary Obligations shall bear
interest at the rate shown on the Schedule, except where expressly set forth to
the contrary in this Agreement. Interest shall be payable monthly, on the last
day of the month. Interest may, in Coast's discretion, be charged to Borrowers'
loan account, and the same shall thereafter bear interest at the same rate as
the other Loans.
1.3 FEES. Borrowers shall pay Coast the fee(s) shown on the Schedule, which
are in addition to all interest and other sums payable to Coast and are not
refundable.
1.4 LETTERS OF CREDIT. At the request of Universal, Coast will arrange for
the issuance of letters of credit for the account of Borrowers (collectively,
"Letters of Credit"), by issuing guarantees to the issuer of the letter of
credit or by other means unless Coast determines in its reasonable credit
judgment that the issuance of a letter of credit is not commercially reasonable.
All Letters of Credit shall be issued by financial institutions and in form and
substance satisfactory to Coast in its sole discretion. The aggregate face
amount of all outstanding Letters of Credit from time to time shall not exceed
the amount shown on the Schedule (the "Letter of Credit Sublimit"). Effective
on the issuance of each Letter of Credit, an Availability Reserve shall be
established in an amount equal to the product of the face amount of documentary
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Letters of Credit multiplied by that percentage equivalent to one (1) minus the
then applicable advance rate under Section 1.A(b) of the Schedule, PLUS and all
other commitments and obligations made or incurred by Coast with respect
thereto, PLUS an amount equal to one hundred percent (100%) of the face amount
of standby Letters of Credit and all other commitments and obligations made or
incurred by Coast with respect thereto. Borrowers shall pay all bank charges
for the issuance of Letters of Credit. Any payment by Coast under or in
connection with a Letter of Credit shall constitute a Loan hereunder on the date
such payment is made. Each Letter of Credit shall have an expiry date no later
than thirty (30) days prior to the Maturity Date. Each Borrower hereby agrees
to indemnify, save, and hold Coast harmless from any loss, cost, expense, or
liability, including payments made by Coast, expenses, and reasonable attorneys'
fees incurred by Coast arising out of or in connection with any Letters of
Credit. Each Borrower agrees to be bound by the regulations and interpretations
of the issuer of any Letters of Credit guarantied by Coast and opened for
Borrowers' account or by Coast's interpretations of any Letter of Credit issued
by Coast for Borrowers' account, and each Borrower understands and agrees that
Coast shall not be liable for any error, negligence, or mistake, whether of
omission or commission, in following a Borrower's instructions or those
contained in the Letters of Credit or any modifications, amendments, or
supplements thereto. Each Borrower understands that Letters of Credit may
require Coast to indemnify the issuing bank for certain costs or liabilities
arising out of claims by a Borrower against such issuing bank. Each Borrower
hereby agrees to indemnify and hold Coast harmless with respect to any loss,
cost, expense, or liability incurred by Coast under any Letter of Credit as a
result of Coast's indemnification of any such issuing bank. The provisions of
this Agreement, as it pertains to Letters of Credit, and any other present or
future documents or agreements between a Borrower and Coast relating to Letters
of Credit are cumulative.
1.5 AVAILABILITY RESERVES AND LENDING FORMULAS. Coast may from time to time
in good faith establish and revise Availability Reserves and, in such event,
shall advise the Borrowers of the specifics of the establishment or revision of
any Availability Reserve. Further, Coast may, in its discretion, from time to
time, upon not less than five (5) days prior notice to Borrowers, which notice
shall specify the reasons therefor, reduce the lending formula(s) set forth in
the Schedule with respect to Eligible Inventory to the extent that Coast
determines in good faith that: (A) the number of days of the turnover, or the
mix, of such Inventory for any period has changed in any materially adverse
respect or (B) the Appraised Inventory Value of the Eligible Inventory, or any
category thereof, has decreased in any material respect, or (C) the nature and
quality of the Inventory has deteriorated in any material respect. In
determining whether to reduce the lending formula(s), Coast may consider events,
conditions, contingencies or risks which are also considered in determining
Eligible Inventory or in establishing Availability Reserves.
2. SECURITY INTEREST.
2.1 SECURITY INTEREST. To secure the payment and performance of all of the
Obligations when due, each Borrower hereby grants to Coast a security interest
in all of such Borrower's interest in the following, whether now owned or
hereafter acquired, and wherever located: All Receivables, Inventory,
Equipment, and General Intangibles, including, without limitation, all of such
Borrower's Deposit Accounts, and all money, and all property now or at any time
in the future in Coast's possession (including claims and credit balances), and
all proceeds of any of the foregoing (including proceeds of any insurance
policies and letters of credit, proceeds of proceeds, and claims against third
parties), all products of any of the foregoing, and all books and records
related to any of the foregoing (all of the foregoing, together with all other
property in which Coast may now or in the future be granted a lien or security
interest, is referred to herein, collectively, as the "Collateral"), except as
permitted for UAS under Section 5.5(h) hereof with respect to purchase money
security interests in Inventory.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF BORROWERS. In order to induce
Coast to enter into this Agreement and to make Loans, each Borrower represents
and warrants to Coast as follows, and each Borrower covenants that the following
representations will continue to be true, and that each Borrower will at all
times comply with all of the following covenants:
3.1 CORPORATE EXISTENCE AND AUTHORITY. Each Borrower or ONE, if a
corporation, are and will continue to be, duly organized, validly existing and
in good standing under the laws of the jurisdiction of its incorporation. Each
Borrower or ONE are and will continue to be qualified and licensed to do
business in all jurisdictions in which any failure to do so would have a
material adverse effect on such Borrower or ONE. The execution, delivery and
performance by each Borrower of this Agreement, and by each Borrower or ONE, to
the extent it is a party thereto, of the ODI Loan Documents, the UAS Loan
Documents, the ONE Loan Documents and all of the other documents contemplated
hereby, (i) have
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been duly and validly authorized, (ii) are enforceable against such Borrower
or ONE in accordance with their terms (except as enforcement may be limited
by equitable principles and by bankruptcy, insolvency, reorganization,
moratorium or similar laws relating to creditors' rights generally), and
(iii) do not violate such Borrower's or ONE's articles or certificate of
incorporation, or such Borrower's or ONE's by-laws, or any law or any
material agreement or instrument which is binding upon such Borrower or ONE
or their respective property, and (iv) do not constitute grounds for
acceleration of any material indebtedness or obligation under any material
agreement or instrument which is binding upon such Borrower or ONE or their
respective property.
3.2 NAME; TRADE NAMES AND STYLES. The name of each Borrower set forth in
the heading to this Agreement is its correct name and the name of ONE set forth
in Section 8 hereof is its correct name. Listed on the Schedule are all prior
names of Borrower and ONE and all of Borrower's and ONE's present and prior
trade names. Borrowers shall give Coast thirty (30) days prior written notice
before changing their or ONE's name or doing business under any other name.
Each Borrower and ONE has complied, and will in the future comply, with all laws
relating to the conduct of business under a fictitious business name.
3.3 PLACE OF BUSINESS; LOCATION OF COLLATERAL. The address set forth in the
heading to this Agreement is each Borrower's chief executive office. In
addition, Borrowers and ONE have places of business and Collateral is located
only at the locations set forth on SCHEDULE 3.3. Borrowers will give Coast at
least thirty (30) days prior written notice before opening any additional place
of business, changing its or ONE's chief executive office, or moving any of the
Collateral to a location other than Borrowers' Address or one of the locations
set forth on SCHEDULE 3.3 and will execute and deliver, or cause to be executed
and delivered, to Coast such agreements, documents, and instruments as Coast may
deem reasonably necessary or desirable to protect its interests in the
Collateral at such location, including UCC financing statements.
3.4 TITLE TO COLLATERAL; PERMITTED LIENS. Borrowers and ONE are now, and
will at all times in the future be, the sole owners of all the Collateral,
except for items of Equipment which are leased by Borrowers or ONE. The
Collateral now is and will remain free and clear of any and all liens, charges,
security interests, encumbrances and adverse claims, except for Permitted Liens.
Coast now has, and will continue to have, a first-priority perfected and
enforceable security interest in all of the Collateral, subject only to the
Permitted Liens, and each Borrower and ONE will at all times defend Coast and
the Collateral against all claims of others. None of the Collateral now is or
will be affixed to any real property in such a manner, or with such intent, as
to become a fixture. No Borrower or ONE is and will become a lessee under any
real property lease pursuant to which the lessor may obtain any rights in any of
the Collateral and no such lease now prohibits, restrains, impairs or will
prohibit, restrain or impair a Borrower's or ONE's right to remove any
Collateral from the leased premises. Whenever any Collateral is located upon
premises in which any third party has an interest (whether as owner, mortgagee,
beneficiary under a deed of trust, lien or otherwise), each Borrower and ONE
shall, whenever requested by Coast, use its best efforts to cause such third
party to execute and deliver to Coast, in form acceptable to Coast, such waivers
and subordinations as Coast shall specify, so as to ensure that Coast's rights
in the Collateral are, and will continue to be, superior to the rights of any
such third party. Each Borrower and ONE will keep in full force and effect, and
will comply with all the terms of, any lease of real property where any of the
Collateral now or in the future may be located.
3.5 MAINTENANCE OF COLLATERAL. Each Borrower and ONE will maintain the
Collateral in good working condition, and each Borrower and ONE will not use the
Collateral for any unlawful purpose. Borrowers will immediately advise Coast in
writing of any material loss or damage to the Collateral.
3.6 BOOKS AND RECORDS. Each Borrower and ONE has maintained and will
maintain at the Borrowers' and ONE's Address complete and accurate books and
records, comprising an accounting system in accordance with generally accepted
accounting principles.
3.7 FINANCIAL CONDITION, STATEMENTS AND REPORTS. All financial statements
now or in the future delivered to Coast have been, and will be, prepared in
conformity with generally accepted accounting principles (except, in the case of
unaudited financial statements, for the absence of footnotes and subject to
normal year-end adjustments) and now and in the future will fairly reflect the
financial condition of Borrower and ONE on a consolidated and consolidating
basis, at the times and for the periods therein stated. Between the last date
covered by any such statement provided to Coast and the date hereof, there has
been no material adverse change in the financial condition or business of a
Borrower or ONE. Each Borrower, on a consolidated basis with ONE, is now and
will continue to be Solvent.
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3.8 TAX RETURNS AND PAYMENTS; PENSION CONTRIBUTIONS. Each Borrower and ONE
has timely filed, and will timely file, all tax returns and reports required by
foreign, federal, state and local law, and each Borrower and ONE has timely
paid, and will timely pay, all foreign, federal, state and local taxes,
assessments, deposits and contributions now or in the future owed by such
Borrower or ONE. A Borrower or ONE may, however, defer payment of any contested
taxes, provided that such Borrower or ONE (i) in good faith contests such
Borrower's or ONE's obligation, as the case may be, to pay the taxes by
appropriate proceedings promptly and diligently instituted and conducted, (ii)
notifies Coast in writing of the commencement of, and any material development
in, the proceedings, and (iii) posts bonds or takes any other steps required to
keep the contested taxes from becoming a lien upon any of the Collateral. As of
the date hereof, no Borrower or One is aware of any claims or adjustments
proposed for any of a Borrower's or ONE's prior tax years which could result in
additional taxes becoming due and payable by a Borrower or ONE. Each Borrower
or ONE has paid, and shall continue to pay all amounts necessary to fund all
present and future pension, profit sharing and deferred compensation plans in
accordance with their terms, and such Borrower or ONE has not and will not
withdraw from participation in, permit partial or complete termination of, or
permit the occurrence of any other event with respect to, any such plan which
could result in any liability of such Borrower or ONE, including any liability
to the Pension Benefit Guaranty Corporation or its successor or any other
governmental agency. Each Borrower or ONE has remitted to the appropriate tax
authority all sales and/or use taxes applicable to its business required to be
collected under the laws of the United States and each possession or territory
thereof, and each State or political subdivision thereof, including any State in
which such Borrower or ONE owns any Inventory or owns or leases any other
property. Each Borrower or ONE shall, at all times, utilize the services of an
outside payroll service providing for the automatic deposit of all payroll taxes
payable by such Borrower or ONE.
3.9 COMPLIANCE WITH LAW. Each Borrower or ONE has complied, and will comply,
in all material respects, with all provisions of all material foreign, federal,
state and local laws and regulations relating to such Borrower or ONE,
including, but not limited to, those relating to such Borrower's or ONE's
ownership of real or personal property, the conduct and licensing of such
Borrower's or ONE's business, and environmental matters, including, without
limitation, those set forth in or promulgated pursuant to the Occupational
Safety and Health Act of 1970, as amended, the Fair Labor Standards Act of 1938,
as amended, ERISA, the Code, as amended, and the rules and regulations
thereunder, all federal, state and local statutes, regulations, rules and orders
relating to consumer credit (including, without limitation, as each has been
amended, the Truth-in-Lending Act, the Fair Credit Billing Act, the Equal Credit
Opportunity Act and the Fair Credit Reporting Act, and regulations, rules and
orders promulgated thereunder), and all federal, state and local states,
regulations, rules and orders pertaining to sales of consumer goods (including,
without limitation, the Consumer Products Safety Act of 1972, as amended, and
the Federal Trade Commission Act of 1914, as amended, and all regulations, rules
and orders promulgated thereunder).
3.10 LITIGATION. Except as disclosed in the Schedule, there is no claim,
suit, litigation, proceeding or investigation pending or (to best of each
Borrower's knowledge) threatened by or against or affecting a Borrower or ONE in
any court or before any governmental agency (or any basis therefor known to each
Borrower) which may result, either separately or in the aggregate, in any
material adverse change in the financial condition or business of a Borrower or
ONE, or in any material impairment in the ability of a Borrower or ONE to carry
on its business in substantially the same manner as it is now being conducted.
Borrowers will promptly inform Coast in writing of any claim, proceeding,
litigation or investigation in the future threatened or instituted by or against
ONE, a Borrower and/or Borrowers involving any single claim of Fifty Thousand
Dollars ($50,000) or more, or involving One Hundred Thousand Dollars ($100,000)
or more in the aggregate.
3.11 USE OF PROCEEDS. All proceeds of all Loans shall be used solely for
lawful business purposes. No Borrower or ONE is purchasing or carrying any
"margin stock" (as defined in Regulation G of the Board of Governors of the
Federal Reserve System) and no part of the proceeds of any Loan will be used to
purchase or carry any "margin stock" or to extend credit to others for the
purpose of purchasing or carrying any "margin stock."
3.12 CREDIT CARD AGREEMENTS. Set forth in SCHEDULE 3.12 hereto is a correct
and complete list of (a) all of the Credit Card Agreements and all other
agreements, documents and instruments existing as of the date hereof between or
among a Borrower or ONE, any of its affiliates, the Credit Card Issuers, the
Credit Card Processors and any of their affiliates, (b) the percentage of each
sale payable to the Credit Card Issuer or Credit Card Processor under the terms
of the Credit Card Agreements, (c) all other fees and charges payable by
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such Borrower or ONE under or in connection with the Credit Card Agreements
and (d) the term of such Credit Card Agreements. The Credit Card Agreements
constitute all of such agreements necessary for Borrowers and ONE to operate
each of their businesses as presently conducted with respect to credit cards
and debit cards and no Receivables of a Borrower or ONE arise from purchases
by customers of Inventory with credit cards or debit cards, other than those
which are issued by Credit Card Issuers with whom a Borrower or ONE has
entered into one of the Credit Card Agreements set forth on SCHEDULE 3.12 or
with whom a Borrower or ONE has entered into a Credit Card Agreement in
accordance with this Section. Each of the Credit Card Agreements constitutes
the legal, valid and binding obligations of the respective Borrower or ONE
and to the best of Borrowers' knowledge, the other parties thereto,
enforceable in accordance with their respective terms and are in full force
and effect. No default or event of default, or act, condition or event which
after notice or passage of time or both, would constitute a default or an
event of default under any of the Credit Card Agreements exists or has
occurred. Each Borrower or ONE and the other parties thereto have complied
and will comply with all of the terms and conditions of the Credit Card
Agreements to the extent necessary for such Borrower or ONE to be entitled to
receive all payments thereunder. Borrowers have delivered, or caused to be
delivered to Coast, true, correct and complete copies of all of the Credit
Card Agreements. Each Borrower or ONE shall: (a) observe and perform all
material terms, covenants, conditions and provisions of the Credit Card
Agreements to be observed and performed by it at the times set forth therein;
(b) not do, permit, suffer or refrain from doing anything, as a result of
which there could be a default under or breach of any of the terms of any of
the Credit Card Agreements; (c) at all times maintain in full force and
effect the Credit Card Agreements and not terminate, cancel, surrender,
modify, amend, waive or release any of the Credit Card Agreements, or consent
to or permit to occur any of the foregoing; except that a Borrower or ONE may
terminate or cancel any of the Credit Card Agreements in the ordinary course
of the business of such Borrower or ONE; PROVIDED, THAT, such Borrower or ONE
shall give Coast not less than thirty (30) days prior written notice of its
intention to so terminate or cancel any of the Credit Card Agreements; (d)
not enter into any new Credit Card Agreements with any new Credit Card Issuer
unless (i) Coast shall have received not less than thirty (30) days prior
written notice of the intention of such Borrower or ONE to enter into such
agreement (together with such other information with respect thereto as Coast
may request) and (ii) Borrowers or ONE deliver, or cause to be delivered to
Coast, a Credit Card Acknowledgment in favor of Coast; (e) give Coast
immediate written notice of any Credit Card Agreement entered into by a
Borrower or ONE after the date hereof, together with a true, correct and
complete copy thereof and such other information with respect thereto as
Coast may request; and (f) furnish to Coast, promptly upon the request of
Coast, such information and evidence as Coast may require from time to time
concerning the observance, performance and compliance by a Borrower or ONE or
the other party or parties thereto with the terms, covenants or provisions of
the Credit Card Agreements.
3.13 BANK ACCOUNTS. All of the Deposit Accounts, investment accounts or
other accounts in the name of or used by a Borrower or ONE maintained at any
bank or other financial institution are set forth on SCHEDULE 3.13 hereto,
subject to the right of such Borrower or ONE to establish new accounts in
accordance with this Section 3.13. The banks set forth on SCHEDULE 3.13
constitute all of the banks with whom a Borrower or ONE has and will maintain,
at its expense, deposit account arrangements and merchant payment arrangements
as of the date hereof and identifies each of the deposit accounts at such banks
to a retail store location of a Borrower or ONE or otherwise describes the
nature of the use of such deposit account by such Borrower or ONE. Neither
Borrower nor ONE shall directly or indirectly, open, establish or maintain any
deposit account, investment account or any other account with any bank or other
financial institution, other than the accounts set forth in SCHEDULE 3.13,
except: (a) as to any new or additional accounts which contain any Collateral
or proceeds thereof, with the prior written consent of Coast and subject to such
conditions thereto as Coast may establish and (b) as to any accounts used by a
Borrower or ONE to make payments of payroll, taxes or other obligations to third
parties, after prior written notice to Coast.
4. RECEIVABLES.
4.1 REPRESENTATIONS RELATING TO RECEIVABLES. Each Borrower or ONE
represents and warrants to Coast as follows: Each Receivable with respect to
which Loans are requested by Borrowers shall, on the date each Loan is requested
and made, represent an undisputed bona fide existing unconditional obligation of
the Account Debtor created by the sale, delivery, and acceptance of goods or the
rendition of services in the ordinary course of the respective Borrower's or
ONE's business.
4.2 REPRESENTATIONS RELATING TO DOCUMENTS AND LEGAL COMPLIANCE. Each
Borrower or ONE represents and warrants to Coast as follows: All statements
made and all unpaid balances appearing in all invoices, instruments and
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other documents evidencing the Receivables are and shall be true and correct
and all such invoices, instruments and other documents and all of a
Borrower's or ONE's books and records are and shall be genuine and in all
respects what they purport to be. All sales and other transactions
underlying or giving rise to each Receivable shall fully comply with all
applicable laws and governmental rules and regulations. All signatures and
endorsements on all documents, instruments, and agreements relating to all
Receivables are and shall be genuine, and all such documents, instruments and
agreements are and shall be legally enforceable in accordance with their
terms.
4.3 SCHEDULES AND DOCUMENTS RELATING TO RECEIVABLES. Borrowers or ONE shall
deliver to Coast transaction reports and loan requests, schedules of
Receivables, and schedules of collections, all on Coast's standard forms;
provided, however, that a Borrower's or ONE's failure to execute and deliver the
same shall not affect or limit Coast's security interest and other rights in all
of a Borrower's or ONE's Receivables, nor shall Coast's failure to advance or
lend against a specific Receivable affect or limit Coast's security interest and
other rights therein. Loan requests received after 10:30 AM Pacific Time will
not be considered by Coast until the next Business Day. Together with each such
schedule, or later if requested by Coast, Borrower or ONE shall furnish Coast
with copies (or, at Coast's request, originals) of all contracts, orders,
invoices, and other similar documents, and all original shipping instructions,
delivery receipts, bills of lading, and other evidence of delivery, for any
goods the sale or disposition of which gave rise to such Receivables, and each
Borrower or ONE warrants the genuineness of all of the foregoing. Borrowers or
ONE shall also furnish to Coast an aged accounts receivable trial balance in
such form and at such intervals as Coast shall request. In addition, Borrowers
or ONE shall deliver to Coast the originals of all instruments, chattel paper,
security agreements, guarantees and other documents and property evidencing or
securing any Receivables, upon receipt thereof and in the same form as received,
with all necessary endorsements, all of which shall be with recourse. Borrower
or ONE shall also provide Coast with copies of all credit memos as and when
requested by Coast. Coast or its designee may, at any time, notify Account
Debtors that Coast has been granted a security interest in the Receivables.
4.4 COLLECTION OF STORE RECEIPTS AND RECEIVABLES. (a) Each Borrower or ONE
shall deposit all proceeds from sales of Inventory in every form, including,
without limitation, cash, checks, credit card sales drafts, credit card sales or
charge slips or receipts and other forms of daily store receipts, from each
retail store location of such Borrower or ONE on each business day into the
deposit accounts of such Borrower or ONE used solely for such purpose and
identified to each retail store location as set forth on SCHEDULE 3.13
(collectively, the "Blocked Accounts"). All such funds deposited into the
Blocked Accounts shall be sent by wire transfer no less frequently than twice a
week and all other proceeds of Collateral shall be sent by wire transfer, to the
Concentration Accounts as provided in Section 4.4(c) hereof. Each Borrower or
ONE shall irrevocably authorize and direct in writing, in form and substance
satisfactory to Coast, each of the banks into which proceeds from sales of
Inventory from each retail store location of such Borrower or ONE, as the case
may be, are at any time deposited as provided above to send all funds deposited
in such Blocked Accounts by wire transfer on a daily basis to the Concentration
Accounts and such banks shall agree in writing to do so. Such authorization and
direction shall not be rescinded, revoked or modified without the prior written
consent of Coast.
(b) Each Borrower or ONE shall establish and maintain, at its expense,
lockbox accounts (the "Lockbox Accounts") with such banks as are acceptable to
Coast into which such Borrower or ONE shall direct its Account Debtors to
directly remit all payments on Receivables. The banks at which the Lockbox
Accounts are established shall enter into an agreement, in form and substance
satisfactory to Coast, providing that all funds deposited into the Lockbox
Accounts shall be sent by wire transfer on a daily basis to the Concentration
Accounts as provided in Section 4.4(c) of this Agreement and such banks shall
agree in writing to do so. Such authorization and direction shall not be
rescinded, revoked or modified without the prior written consent of Coast.
(c) Each Borrower or ONE shall establish and maintain, at its expense,
additional deposit accounts with such banks as are acceptable to Coast (the
"Concentration Accounts") into which such Borrower or ONE, as the case may be,
shall promptly either cause all amounts on deposit in the Lockbox Accounts and
Blocked Accounts to be sent as provided in Sections 4.4(a) and (b) above or
shall itself deposit or cause to be deposited all payments on Receivables, all
proceeds from sales of Inventory, all amounts payable to such Borrower or ONE,
as the case may be, from Credit Card Issuers and Credit Card Processors and all
other proceeds of Collateral. The banks at which the Concentration Accounts are
established shall enter into an agreement, in form and substance satisfactory to
Coast, providing that all items received or deposited in the Concentration
Accounts are the property of Coast, that the depository bank has no lien upon,
or right of setoff against, the Concentration Accounts, the
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items received for deposit therein, or the funds from time to time on deposit
therein and that the depository bank will wire, or otherwise transfer, in
immediately available funds, on a daily basis, all funds received or
deposited into the Concentration Accounts to such bank account of Coast as
Coast may from time to time designate for such purpose (the "Payment
Account"). Each Borrower or ONE agrees that all amounts deposited in such
Concentration Accounts or other funds received and collected by Coast,
whether as payments on Receivables, proceeds of Inventory or other Collateral
or otherwise shall be the property of Coast.
(d) To the extent a Borrower or ONE may elect, at Borrower's or ONE's
option, to use an Armored Car Company to pick up and collect cash or other
proceeds of sales of Inventory from a retail store location, such Borrower or
ONE, as the case may be, shall deliver to the Armored Car Company all proceeds
from sales of Inventory and other Collateral from such retail store location of
such Borrower or ONE. Such Borrower or ONE shall irrevocably authorize and
direct the Armored Car Company in writing, in form and substance satisfactory to
Coast, to remit all such proceeds at any time received by the Armored Car
Company only to a Concentration Account. Such authorization and direction to
the Armored Car Company shall not be rescinded, revoked or modified without the
prior written consent of Coast. As of the date hereof, neither the Borrowers
nor ONE uses the services of an Armored Car Company. No Borrower or ONE shall
use the Armored Car Company for any purpose, EXCEPT if (i) Coast shall have
received not less than thirty (30) days' prior written notice of the intention
of such Borrower or ONE to use such Armored Car Company, (ii) Coast shall have
received an agreement in writing from such Armored Car Company, in form and
substance satisfactory to Coast, acknowledging the security interests of Coast
in the Collateral, waiving any security interest, lien or other claim to cash
and other items delivered by such Borrower or ONE to the Armored Car Company and
agreeing to send all cash and other items received by them only to a
Concentration Account and to otherwise follow the instructions of Coast with
respect thereto upon Coast's request, duly authorized, executed and delivered by
such Armored Car Company, and (iii) no Event of Default shall exist or have
occurred.
(e) Each Borrower or ONE and all of its affiliates, subsidiaries,
shareholders, directors, employees or agents shall, acting as trustee for Coast,
receive, as the property of Coast, any cash, checks, credit card sales drafts,
credit card sales or charge slips or receipts, notes, drafts, all forms of store
receipts or any other payment relating to and/or proceeds of Inventory or
Receivables or other Collateral which come into their possession or under their
control and immediately upon receipt thereof, shall deposit or cause the same to
be deposited in the Concentration Accounts, or remit the same or cause the same
to be remitted, in kind, to Coast, PROVIDED, THAT, if at any time the Excess
Availability shall be less than Two Hundred Fifty Thousand Dollars ($250,000),
each Borrower or ONE shall promptly upon Coast's request cause the portion
thereof representing sales and/or use taxes payable in connection with such
sales or otherwise to be deposited into a separate bank account or accounts
established for such purpose. In no event shall such cash, checks, credit card
sales drafts, credit card sales or charge slips or receipts, notes, drafts or
other payments be commingled with a Borrower's or ONE's own funds. Each
Borrower or ONE agrees to reimburse Coast on demand for any amounts owed or paid
to any bank at which a Concentration Account is established or any other bank or
person involved in the transfer of funds to or from the Concentration Accounts
arising out of Coast's payments to or indemnification of such bank or person.
The obligation of each Borrower or ONE to reimburse Coast for such amounts
pursuant to this Section 4.4 shall survive the termination or non-renewal of
this Agreement.
4.5. REMITTANCE OF PROCEEDS. Except as provided above, all proceeds arising
from the disposition of any Collateral shall be delivered to Coast within one
(1) Business Day after receipt by a Borrower or ONE, as the case may be, in
their original form, duly endorsed to Coast, to be applied to the Obligations in
such order as Coast shall determine. Each Borrower or ONE agrees that it will
not commingle proceeds of Collateral with any of such Borrower's or ONE's other
funds or property, but will hold such proceeds separate and apart from such
other funds and property and in an express trust for Coast. Nothing in this
Section limits the restrictions on disposition of Collateral set forth elsewhere
in this Agreement.
4.6 DISPUTES. (a) Borrowers or ONE shall notify Coast promptly of (i) all
disputes or claims relating to Receivables, (ii) all material adverse
information relating to the financial condition of any Account Debtor, Credit
Card Issuer or Credit Card Processor, (iii) any notice of a material default by
a Borrower or ONE under any of the Credit Card Agreements or of any default
which might result in the Credit Card Issuer or Credit Card Processor ceasing to
make payments or suspending payments to a Borrower or ONE, (iv) any notice from
any Credit Card Issuer or Credit Card Processor that such person is ceasing or
suspending, or will cease or suspend, any present or future payments due or to
become due to a Borrower or ONE from such
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person, or that such person is terminating or will terminate any of the
Credit Card Agreements, and (v) the failure of a Borrower or ONE to comply
with any material terms of the Credit Card Agreements or any terms thereof
which might result in the Credit Card Issuer or Credit Card Processor ceasing
or suspending payments to a Borrower or ONE.
(b) No Borrower or ONE shall forgive (completely or partially), compromise
or settle any Receivable for less than payment in full, or agree to do any of
the foregoing, except that a Borrower may do so, provided that: (i) such
Borrower does so in good faith, in a commercially reasonable manner, in the
ordinary course of business, and in arm's length transactions, which are
reported to Coast on the regular reports provided to Coast; (ii) no Default or
Event of Default has occurred and is continuing; and (iii) taking into account
all such discounts settlements and forgiveness, the total outstanding Loans will
not exceed the Credit Limit.
(c) Coast may, at any time after the occurrence of an Event of Default,
(i) settle or adjust disputes or claims directly with Account Debtors, Credit
Card Issuers or Credit Card Processors for amounts and upon terms which Coast
considers advisable in its reasonable credit judgment, (ii) direct any or all
Account Debtors, Credit Card Issuers and Credit Card Processors to make payments
of Receivables directly to Coast, (iii) demand, collect or enforce payment of
any Receivables or such other obligations, but without any duty to do so, and
Coast shall not be liable for its failure to collect or enforce the payment
thereof not for the negligence of its agents or attorneys with respect thereto
and (iv) take whatever other action Coast may deem necessary or desirable for
the protection of its interests and, in all cases, Coast shall credit Borrowers'
loan account with only the net amounts received by Coast in payment of any
Receivables. At any time that an Event of Default exists or has occurred and is
continuing, at Coast's request, all invoices and statements sent to any Account
Debtor, Credit Card Issuer or Credit Card Processor shall state that the
Receivables due from such Account Debtor, Credit Card Issuer or Credit Card
Processor and such other obligations have been assigned to Coast and are payable
directly and only to Coast and Borrowers or ONE shall deliver to Coast such
originals of documents evidencing the sale and delivery of goods or the
performance of services giving rise to any Receivables as Coast may require.
4.7 RETURNS. Provided no Event of Default has occurred and is continuing, if
any Account Debtor returns any Inventory to a Borrower or ONE in the ordinary
course of its business, such Borrower or ONE shall promptly determine the reason
for such return and promptly issue a credit memorandum to the Account Debtor in
the appropriate amount. In the event any attempted return occurs after the
occurrence of any Event of Default, such Borrower or ONE shall (a) hold the
returned Inventory in trust for Coast, (b) segregate all returned Inventory from
all of such Borrower's or ONE's other property, (c) conspicuously label the
returned Inventory as subject to Coast's security interest, and (d) immediately
notify Coast of the return of any Inventory, specifying the reason for such
return, the location and condition of the returned Inventory, and on Coast's
request deliver such returned Inventory to Coast.
4.8 VERIFICATION. Coast may, from time to time, verify directly with the
respective Account Debtors the validity, amount and other matters relating to
the Receivables, by means of mail, telephone or otherwise, either in the name of
a Borrower or ONE, as the case may be, or Coast or such other name as Coast may
choose.
4.9 NO LIABILITY. Coast shall not under any circumstances be responsible or
liable for any shortage or discrepancy in, damage to, or loss or destruction of,
any goods, the sale or other disposition of which gives rise to a Receivable, or
for any error, act, omission, or delay of any kind occurring in the settlement,
failure to settle, collection or failure to collect any Receivable, or for
settling any Receivable in good faith for less than the full amount thereof, nor
shall Coast be deemed to be responsible for any of a Borrower's or ONE's
obligations under any contract or agreement giving rise to a Receivable.
Nothing herein shall, however, relieve Coast from liability for its own gross
negligence or willful misconduct.
5. ADDITIONAL DUTIES OF BORROWERS.
5.1 FINANCIAL AND OTHER COVENANTS; CONDITIONS PRECEDENT. Each Borrower or
ONE shall at all times comply with the financial and other covenants set forth
in this Agreement. The obligation of Coast to make the initial Loans hereunder
is subject to the fulfillment, to the satisfaction of Coast and its counsel, of
each of the conditions as set forth in the Schedule as of the date of initial
funding of the Loans hereunder.
5.2 INSURANCE. Borrowers shall, at all times, insure all of the tangible
personal property Collateral and carry such other business insurance, with
insurers reasonably acceptable to Coast, in such form and amounts as Coast may
reasonably require, and Borrowers shall provide evidence of such insurance to
Coast, so that Coast is satisfied that such insurance is, at all times, in full
force
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and effect. All liability insurance policies of each Borrower or ONE shall
name Coast as an additional insured, and all property casualty and related
insurance policies of each Borrower or ONE shall name Coast as a loss payee
thereon and each Borrower or ONE shall cause a lenders loss payee endorsement
to be delivered to Coast in form reasonably acceptable to Coast. Upon
receipt of the proceeds of any such insurance, Coast shall apply such
proceeds in reduction of the Obligations as Coast shall determine in its sole
discretion, except that, provided no Default or Event of Default has occurred
and is continuing, Coast shall release to Borrowers or ONE, as the case may
be, insurance proceeds with respect to Equipment totaling less than Fifty
Thousand Dollars ($50,000), which shall be utilized by Borrowers or ONE, as
the case may be, for the replacement of the Equipment with respect to which
the insurance proceeds were paid. Coast may require reasonable assurance
that the insurance proceeds so released will be so used. If a Borrower or
ONE fails to provide or pay for any insurance, Coast may, but is not
obligated to, obtain the same at Borrowers' expense. Each Borrower or ONE
shall promptly deliver to Coast copies of all reports made to insurance
companies.
5.3 REPORTS. Borrowers or ONE, at their expense, shall provide Coast with
the written reports set forth in the Schedule, and such other written reports
with respect to Borrowers (including budgets, sales projections, operating plans
and other financial documentation), as Coast shall from time to time reasonably
specify.
5.4 ACCESS TO COLLATERAL, BOOKS AND RECORDS. At reasonable times but no more
frequently than quarterly prior to the occurrence and during the continuance of
an Event of Default, and on one (1) Business Day's notice, Coast, or its agents,
shall have the right to inspect, audit and copy a Borrower's or ONE's books and
records and the Collateral (the "Audits"). Coast shall take reasonable steps to
keep confidential all confidential information obtained in any Audit, but Coast
shall have the right to disclose any such information to its auditors,
regulatory agencies, and attorneys, and pursuant to any subpoena or other legal
process. The Audits shall be at Borrowers' expense and the charge for the
Audits shall be Six Hundred Dollars ($600) per person per day (or such higher
amount as shall represent Coast's then current standard charge for the same),
plus reasonable out of pocket expenses. Neither Borrower nor ONE will enter
into any agreement with any accounting firm, service bureau or third party to
store such Borrower's or ONE's books or records at any location other than the
Borrowers' or ONE's Address, without first notifying Coast of the same and
obtaining the written agreement from such accounting firm, service bureau or
other third party to give Coast the same rights with respect to access to books
and records and related rights as Coast has under this Loan Agreement.
5.5 NEGATIVE COVENANTS. Neither Borrower nor ONE shall, without Coast's
prior written consent, do any of the following:
(a) merge or consolidate with another corporation or entity, except in a
transaction in which (i) Universal holds at least fifty percent (50%) of the
common stock and all other capital stock of the surviving corporation
immediately after such merger or consolidation, and (ii) such Borrower is the
surviving corporation;
(b) acquire any assets, except (i) in the ordinary course of business, or
(ii) in a transaction or a series of transactions not involving the payment by
the Borrowers and ONE, on a consolidated basis, of an aggregate amount in excess
of Two Million Dollars ($2,000,000);
(c) enter into any other transaction outside the ordinary course of
business;
(d) sell or transfer any Collateral, except for (i) the sale of finished
Inventory or obsolete or unneeded Equipment in the ordinary course of a
Borrower's or ONE's business, and (ii) the sale or other disposition by a
Borrower or ONE of assets in connection with the closing or sale of a retail
store location of a Borrower or ONE in the ordinary course of a Borrower's or
ONE's business which consist of leasehold interests in the premises of such
store, the Equipment and fixtures located at such premises and the books and
records relating exclusively and directly to the operations of such store;
PROVIDED, THAT, as to each and all such sales, (A) on the date of, and after
giving effect to, any such sale, in any calendar year, such Borrower or ONE
shall not have closed or sold retail store locations accounting for more than
twenty percent (20%) of all sales of such Borrower or ONE, as the case may be,
in the immediately preceding twelve (12) month period on a net basis, offsetting
the reduction in sales resulting from store closures by increases in sales
resulting from the opening of new stores, (B) Coast shall have received not less
than thirty (30) Business Days prior written notice of such sale, which notice
shall set forth in reasonable detail satisfactory to Coast, the parties to such
sale or other disposition, the assets to be sold or otherwise disposed of, the
purchase price and the manner of payment thereof and such other information with
respect thereto as Coast may request, (C) as of the date of such sale or other
disposition and after giving effect thereto, no Event of
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Default, or act, condition or event which with notice or passage of time
would constitute an Event of Default, shall exist or have occurred, (D) such
sale shall be on commercially reasonable prices and terms in a BONA FIDE
arm's length transaction, and (E) any and all net proceeds payable or
delivered to such Borrower or ONE, as the case may be, in respect of such
sale or other disposition shall be paid or delivered, or caused to be paid or
delivered, to Coast in accordance with the terms of this Agreement either, at
Coast's option, for application to the Obligations in accordance with the
terms hereof (except to the extent such proceeds reflect payment in respect
of indebtedness secured by a properly perfected first priority security
interest in the assets sold, in which case, such proceeds shall be applied to
such indebtedness secured thereby) or to be held by Coast as cash collateral
for the Obligations on terms and conditions acceptable to Coast;
(e) store any Eligible Inventory or other Collateral (except ineligble
Inventory) with any warehouseman or other third party, unless Coast shall have
first received from such warehouseman or other third party an agreement, in form
and substance satisfactory to Coast, acknowledging the security interest of
Coast in the Collateral in possession of such warehouseman or third party,
waiving any security interest, lien or other claim to such Collateral, agreeing
not to issue any negotiable documents of title with respect to such Collateral
and agreeing to send all cash and other items received by it only to the
Concentration Accounts and to otherwise follow the instruction of Coast with
respect thereto;
(f) sell any Inventory on a sale or return, guaranteed sale, consignment,
or other contingent basis, with the exception of consignment sales to All For A
Dollar Joint Venture, a general partnership, in an amount not to exceed Two
Hundred Thousand Dollars ($200,000) outstanding at any one time; PROVIDED THAT
(i) the Borrower or ONE, as the case may be, shall provide Coast five (5) days
prior written notice of any such intended consignment sale, (ii) all Inventory
subject to such consignment sales shall not be considered Eligible Inventory,
(iii) no Event of Default shall have occurred and be continuing hereunder, and
(iv) after giving effect to any such consignment sale, no Event of Default shall
exist].
(g) make any loans of any money or other assets, except (i) advances to
customers or suppliers in the ordinary course of business, (ii) travel advances,
employee relocation loans and other employee loans and advances in the ordinary
course of business, (iii) loans to employees, officers and directors for the
purpose of purchasing equity securities of a Borrower; and (iv) intercompany
indebtedness advanced by Universal: (A) to ODI pursuant to the ODI Loan
Documents, (B) to UAS pursuant to the UAS Loan Documents, or (C) to ONE pursuant
to the ONE Loan Documents; PROVIDED, HOWEVER, that Universal shall not make an
intercompany advance to any of ODI, UAS or ONE: (1) if an Event of Default would
occur hereunder as a result of any such intercompany advance, (2) if an Event of
Default has occurred and is continuing hereunder, or (3) after giving effect to
the intercompany advance, Universal, ODI, UAS and ONE, on a consolidated basis,
would not be Solvent.
(h) incur any debts, outside the ordinary course of business, which would
have a material, adverse effect on a Borrower or ONE or on the prospect of
repayment of the Obligations except as otherwise permitted by this Agreement;
and except for purchase money indebtedness incurred by UAS for the purpose of
purchasing distressed merchandise Inventory for resale to third parties (other
than a Borrower or ONE), and such indebtedness and the purchase of such
Inventory shall be considered for all purposes of this Agreement as in the
ordinary course of UAS's business, and UAS may grant the lender of the purchase
money inventory financing a purchase money security interest in the Inventory
purchased so long as the security interest only secures the purchase price of
such Inventory plus fees and costs directly related to the purchase; PROVIDED
THAT UAS notifies Coast, in writing, promptly after the purchase of any such
Inventory subject to purchase money financing, and in any event within ten (10)
days of the date of purchase or the taking of possession of such Inventory,
whichever first occurs, of the specifics of the purchase.
(i) guarantee or otherwise become liable with respect to the obligations
of another party or entity;
(j) pay or declare any dividends on a Borrower's or ONE's stock (except
for dividends payable solely in stock of such Borrower or ONE);
(k) redeem, retire, purchase or otherwise acquire, directly or indirectly,
any of a Borrower's or ONE's stock, except that a Borrower or ONE, as the case
may be, may repurchase stock owned by employees, directors and consultants of
such Borrower or ONE pursuant to terms of employment, consulting or other stock
restriction agreements at such time as any such employee, director or consultant
terminates his or her affiliation with such Borrower or ONE, for an aggregate
purchase price not to exceed One Hundred Thousand Dollars ($100,000) in any
fiscal year;
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(l) make any change in a Borrower's or ONE's capital structure which would
have a material adverse effect on such Borrower or ONE or on the prospect of
repayment of the Obligations; or
(m) dissolve or elect to dissolve.
Transactions permitted by the foregoing provisions of this Section are only
permitted if no Default or Event of Default would occur as a result of such
transaction.
5.6 LITIGATION COOPERATION. Should any third-party suit or proceeding be
instituted by or against Coast with respect to any Collateral or relating to a
Borrower or ONE, such Borrower or ONE shall, without expense to Coast, make
available such Borrower or ONE, as the case may be, and its officers, employees
and agents and such Borrower's or ONE's books and records, to the extent that
Coast may deem them reasonably necessary in order to prosecute or defend any
such suit or proceeding.
5.7 INDEMNITY. Each Borrower or ONE hereby agrees to indemnify Coast and
hold Coast harmless from and against any and all claims, debts, liabilities,
demands, obligations, actions, causes of action, penalties, reasonable costs and
expenses (including reasonable attorneys' fees), of every nature, character and
description, which Coast may sustain or incur based upon or arising out of any
of the Obligations, any actual or alleged failure to collect and pay over any
withholding or other tax relating to a Borrower or ONE or its employees, any
relationship or agreement between Coast and a Borrower or ONE, as the case may
be, any actual or alleged failure of Coast to comply with any writ of attachment
or other legal process relating to a Borrower or ONE or any of their property,
or any other matter, cause or thing whatsoever occurred, done, omitted or
suffered to be done by Coast relating to a Borrower or ONE or the Obligations
(except any such amounts sustained or incurred as the result of the gross
negligence or willful misconduct of Coast). Notwithstanding any provision in
this Agreement to the contrary, the indemnity agreement set forth in this
Section shall survive any termination of this Agreement and shall for all
purposes continue in full force and effect.
5.8 FURTHER ASSURANCES. Each Borrower or ONE agrees, at its expense, on
request by Coast, to execute all documents and take all actions, as Coast, may
deem reasonably necessary or useful in order to perfect and maintain Coast's
perfected security interest in the Collateral, and in order to fully consummate
the transactions contemplated by this Agreement.
6. TERM.
6.1 MATURITY DATE. This Agreement shall continue in effect until the
maturity date set forth on the Schedule (the "Maturity Date"); provided that the
Maturity Date shall automatically be extended unless the parties hereto
otherwise agree in writing, and this Agreement shall automatically and
continuously renew, for successive additional terms of one (1) year each, unless
one party gives written notice to the other, not less than sixty (60) days prior
to the next Maturity Date, that such party elects to terminate this Agreement
effective on the next Maturity Date. If this Agreement is renewed during the
initial term of this Agreement, Borrowers shall pay to Coast a renewal fee (the
"Renewal Fee") in the amount shown on the Schedule.
6.2 EARLY TERMINATION. This Agreement may be terminated prior to the
Maturity Date as follows: (i) by Borrowers, effective upon thirty (30) days
prior written notice of termination given by Borrowers to Coast; or (ii) by
Coast at any time after the occurrence of an Event of Default, without notice,
effective immediately. If this Agreement is terminated by Borrowers or by Coast
under this Section 6.2, Borrowers shall pay to Coast a termination fee (the
"Early Termination Fee") in the amount shown on the Schedule. The Early
Termination Fee shall be due and payable on the effective date of termination
and thereafter shall bear interest at a rate equal to the rate applicable to the
Loans.
6.3 PAYMENT OF OBLIGATIONS. On the Maturity Date or on any earlier effective
date of termination, Borrowers shall pay and perform in full all Obligations,
whether evidenced by installment notes or otherwise, and whether or not all or
any part of such Obligations are otherwise then due and payable. Without
limiting the generality of the foregoing, if on the Maturity Date, or on any
earlier effective date of termination, there are any outstanding Letters of
Credit issued by Coast or issued by another institution based upon an
application, guarantee, indemnity or similar agreement on the part of Coast,
then on such date Borrowers shall provide to Coast cash collateral in an amount
equal to the face amount of all such Letters of Credit plus all interest, fees
and cost due or to become due in connection therewith, to secure all of the
Obligations relating to said Letters of Credit, pursuant to Coast's then
standard form cash pledge agreement. Notwithstanding any termination of this
Agreement, all of Coast's security interests in all of the Collateral and all of
the terms and provisions of this Agreement shall continue in full force and
effect until all Obligations have been paid and performed in full; provided
that, without limiting the fact that Loans are subject to the discretion of
Coast,
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Coast may, in its sole discretion, refuse to make any further Loans after
termination. No termination shall in any way affect or impair any right or
remedy of Coast, nor shall any such termination relieve a Borrower or ONE, as
the case may be, of any Obligation to Coast, until all of the Obligations have
been paid and performed in full. Upon payment and performance in full of all
the Obligations and termination of this Agreement, Coast shall promptly deliver
to Borrowers termination statements, requests for reconveyances and such other
documents as may be required to fully terminate Coast's security interests.
7. EVENTS OF DEFAULT AND REMEDIES.
7.1 EVENTS OF DEFAULT. The occurrence of any of the following events
shall constitute an "Event of Default" under this Agreement, and Borrowers
shall give Coast immediate written notice thereof: (a) Any material warranty,
representation, statement, report or certificate made or delivered to Coast
by a Borrower or ONE or any of a Borrower's or ONE's officers, employees or
agents, now or in the future, shall be untrue or misleading in a material
respect; or (b) A Borrower or ONE shall fail to pay when due any Loan or any
interest thereon or any other monetary Obligation; or (c) The total Loans and
other Obligations outstanding at any time shall exceed the Credit Limit; or
(d) A Borrower or ONE shall fail to deliver the proceeds of Collateral to
Coast as provided in Section 4.5 above, or shall fail to give Coast access to
its books and records or Collateral as provided in Section 5.4 above, or
shall breach any negative covenant set forth in Section 5.5 above; or (e) A
Borrower or ONE shall fail to comply with the financial covenants (if any)
set forth in the Schedule or shall fail to perform any other non-monetary
Obligation which by its nature cannot be cured; or (f) A Borrower or ONE
shall fail to perform any other non-monetary Obligation, which failure is not
cured within five (5) Business Days after Coast shall have provided the
Borrowers notice of the occurrence of any such non-monetary default; or (g)
Any levy, assessment, attachment, seizure, lien or encumbrance (other than a
Permitted Lien) is made on all or any part of the Collateral which is not
cured within ten (10) days after the occurrence of the same; or (h) Any
default or event of default occurs under any obligation secured by a
Permitted Lien, which is not cured within any applicable cure period or
waived in writing by the holder of the Permitted Lien; or (i) A Borrower or
ONE breaches any material contract or obligation, which has or may reasonably
be expected to have a material adverse effect on such Borrower's or ONE's
business or financial condition; or (j) Dissolution, termination of existence
or business failure of a Borrower or ONE, or Borrowers on a consolidated
basis with ONE are not Solvent; or appointment of a receiver, trustee or
custodian, for all or any part of the property of, assignment for the benefit
of creditors by, or the commencement of any proceeding by a Borrower or ONE
under any reorganization, bankruptcy, insolvency, arrangement, readjustment
of debt, dissolution or liquidation law or statute of any jurisdiction, now
or in the future in effect; or (k) The commencement of any proceeding against
a Borrower or ONE or any guarantor of any of the Obligations under any
reorganization, bankruptcy, insolvency, arrangement, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction, now or in the
future in effect, which is not cured by the dismissal thereof within sixty
(60) days after the date commenced; or (l) Revocation or termination of, or
limitation or denial of liability upon, any guaranty of the Obligations or
any attempt to do any of the foregoing, or commencement of proceedings by any
guarantor of any of the Obligations under any bankruptcy or insolvency law;
or (m) Revocation or termination of, or limitation or denial of liability
upon, any pledge of any certificate of deposit, securities or other property
or asset of any kind pledged by any third party to secure any or all of the
Obligations, or any attempt to do any of the foregoing, or commencement of
proceedings by or against any such third party under any bankruptcy or
insolvency law; or (n) A Borrower or ONE makes any payment on account of any
indebtedness or obligation which has been subordinated to the Obligations,
other than as permitted in the applicable subordination agreement, or if any
Person who has subordinated such indebtedness or obligations terminates or in
any way limits his subordination agreement; or (o) A Borrower or ONE shall
generally not pay its debts as they become due, or a Borrower or ONE shall
conceal, remove or transfer any part of its property, with intent to hinder,
delay or defraud its creditors, or make or suffer any transfer of any of its
property which may be fraudulent under any bankruptcy, fraudulent conveyance
or similar law; or (p) There shall be a material adverse change in a
Borrower's or ONE's business or financial condition; or (q) Universal, or
Coast by reason of assignment or directly pursuant to the terms hereof, shall
cease to be a first priority secured creditor in all of the assets of ODI,
UAS or ONE, as the case may be, except as otherwise permitted by this
Agreement; or (r) The ODI Loan Documents, the ONE Loan Documents or the UAS
Loan Documents shall be amended or modified without the prior written consent
of Coast; or (s) Any default or event of default occurs under any of the ODI
Loan Documents, the UAS Loan Documents or the ONE Loan Documents. Coast may
cease making any Loans hereunder during any of the above cure periods, and
thereafter if an Event of Default has occurred.
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7.2 REMEDIES. Upon the occurrence, and during the continuance, of any Event
of Default, Coast, at its option, and without notice or demand of any kind (all
of which are hereby expressly waived by each Borrower and ONE), may do any one
or more of the following: (a) Cease making Loans or otherwise extending credit
to Borrowers under this Agreement or any other document or agreement;
(b) Accelerate and declare all or any part of the Obligations to be immediately
due, payable, and performable, notwithstanding any deferred or installment
payments allowed by any instrument evidencing or relating to any Obligation; (c)
Take possession of any or all of the Collateral wherever it may be found, and
for that purpose each Borrower or ONE, as the case may be, hereby authorizes
Coast without judicial process to enter onto any of a Borrower's or ONE's
premises without interference to search for, take possession of, keep, store, or
remove any of the Collateral, and remain on the premises or cause a custodian to
remain on the premises in exclusive control thereof, without charge for so long
as Coast deems it reasonably necessary in order to complete the enforcement of
its rights under this Agreement or any other agreement; provided, however, that
should Coast seek to take possession of any of the Collateral by court process,
each Borrower or ONE hereby irrevocably waives: (i) any bond and any surety or
security relating thereto required by any statute, court rule or otherwise as an
incident to such possession; (ii) any demand for possession prior to the
commencement of any suit or action to recover possession thereof; and (iii) any
requirement that Coast retain possession of, and not dispose of, any such
Collateral until after trial or final judgment; (d) Require a Borrower or ONE to
assemble any or all of the Collateral and make it available to Coast at places
designated by Coast which are reasonably convenient to Coast and such Borrower,
and to remove the Collateral to such locations as Coast may deem advisable; (e)
Complete the processing, manufacturing or repair of any Collateral prior to a
disposition thereof and, for such purpose and for the purpose of removal, Coast
shall have the right to use a Borrower's or ONE's premises, vehicles, hoists,
lifts, cranes, equipment and all other property without charge; (f) Sell, lease
or otherwise dispose of any of the Collateral, in its condition at the time
Coast obtains possession of it or after further manufacturing, processing or
repair, at one or more public and/or private sales, in lots or in bulk, for
cash, exchange or other property, or on credit, and to adjourn any such sale
from time to time without notice other than oral announcement at the time
scheduled for sale. Coast shall have the right to conduct such disposition on a
Borrower's or ONE's premises without charge, for such time or times as Coast
deems reasonable, or on Coast's premises, or elsewhere and the Collateral need
not be located at the place of disposition. Coast may directly or through any
affiliated company purchase or lease any Collateral at any such public
disposition, and if permissible under applicable law, at any private
disposition. Any sale or other disposition of Collateral shall not relieve a
Borrower or ONE, as the case may be, of any liability a Borrower or ONE may have
if any Collateral is defective as to title or physical condition or otherwise at
the time of sale; (g) Demand payment of, and collect any Receivables and General
Intangibles comprising Collateral and, in connection therewith, each Borrower or
ONE irrevocably authorizes Coast to endorse or sign such Borrower's or ONE's
name on all collections, receipts, instruments and other documents, to take
possession of and open mail addressed to such Borrower or ONE and remove
therefrom payments made with respect to any item of the Collateral or proceeds
thereof, and, in Coast's sole discretion, to grant extensions of time to pay,
compromise claims and settle Receivables and the like for less than face value;
(h) Offset against any sums in any of a Borrower's or ONE's general, special or
other Deposit Accounts with Coast; and (i) Demand and receive possession of any
of a Borrower's or ONE's federal and state income tax returns and the books and
records utilized in the preparation thereof or referring thereto. All
reasonable attorneys' fees, expenses, costs, liabilities and obligations
incurred by Coast with respect to the foregoing shall be due from Borrowers or
ONE to Coast on demand. Coast may charge the same to Borrowers' or ONE's loan
account, and the same shall thereafter bear interest at the same rate as is
applicable to the Loans. Without limiting any of Coast's rights and remedies,
from and after the occurrence of any Event of Default, the interest rate
applicable to the Obligations shall be increased by an additional two percent
(2%) per annum.
7.3 STANDARDS FOR DETERMINING COMMERCIAL REASONABLENESS. Each Borrower or
ONE and Coast agree that a sale or other disposition (collectively, "sale") of
any Collateral which complies with the following standards will conclusively be
deemed to be commercially reasonable: (a) Notice of the sale is given to
Borrowers or ONE at least seven (7) days prior to the sale, and, in the case of
a public sale, notice of the sale is published at least seven (7) days before
the sale in a newspaper of general circulation in the county where the sale is
to be conducted; (b) Notice of the sale describes the collateral in general,
non-specific terms; (c) The sale is conducted at a place designated by Coast,
with or without the Collateral being present; (d) The sale commences at any time
between 8:00 a.m. and 6:00 p.m; (e) Payment of the purchase price in cash or by
cashier's check or wire transfer is required; (f) With respect to any sale of
any of
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the Collateral, Coast may (but is not obligated to) direct any prospective
purchaser to ascertain directly from Borrowers or ONE any and all information
concerning the same. Coast shall be free to employ other methods of noticing
and selling the Collateral, in its discretion, if they are commercially
reasonable.
7.4 POWER OF ATTORNEY. Upon the occurrence, and during the continuance, of
any Event of Default, without limiting Coast's other rights and remedies, each
Borrower or ONE grants to Coast an irrevocable power of attorney coupled with an
interest, authorizing and permitting Coast (acting through any of its employees,
attorneys or agents) at any time, at its option, but without obligation, with or
without notice to Borrowers or ONE, and at Borrowers' and ONE's expense, to do
any or all of the following, in such Borrower's or ONE's name or otherwise, as
the case may be, but Coast agrees to exercise the following powers in a
commercially reasonable manner: (a) Execute on behalf of a Borrower or ONE any
documents that Coast may, in its sole discretion, deem advisable in order to
perfect and maintain Coast's security interest in the Collateral, or in order to
exercise a right of such Borrower or ONE or Coast, or in order to fully
consummate all the transactions contemplated under this Agreement, and all other
present and future agreements; (b) Execute on behalf of a Borrower or ONE any
document exercising, transferring or assigning any option to purchase, sell or
otherwise dispose of or to lease (as lessor or lessee) any real or personal
property which is part of Coast's Collateral or in which Coast has an interest;
(c) Execute on behalf of a Borrower or ONE, any invoices relating to any
Receivable, any draft against any Account Debtor and any notice to any Account
Debtor, any proof of claim in bankruptcy, any Notice of Lien, claim of
mechanic's, materialman's or other lien, or assignment or satisfaction of
mechanic's, materialman's or other lien; (d) Take control in any manner of any
cash or non-cash items of payment or proceeds of Collateral; endorse the name of
a Borrower or ONE upon any instruments, or documents, evidence of payment or
Collateral that may come into Coast's possession; (e) Endorse all checks and
other forms of remittances received by Coast; (f) Pay, contest or settle any
lien, charge, encumbrance, security interest and adverse claim in or to any of
the Collateral, or any judgment based thereon, or otherwise take any action to
terminate or discharge the same; (g) Grant extensions of time to pay, compromise
claims and settle Receivables and General Intangibles for less than face value
and execute all releases and other documents in connection therewith; (h)Pay any
sums required on account of a Borrower's or ONE's taxes or to secure the release
of any liens therefor, or both; (i) Settle and adjust, and give releases of, any
insurance claim that relates to any of the Collateral and obtain payment
therefor; (j) Instruct any third party having custody or control of any books or
records belonging to, or relating to, a Borrower to give Coast the same rights
of access and other rights with respect thereto as Coast has under this
Agreement; and (k) Take any action or pay any sum required of a Borrower or ONE
pursuant to this Agreement and any other present or future agreements. Any and
all reasonable sums paid and any and all reasonable costs, expenses,
liabilities, obligations and attorneys' fees incurred by Coast with respect to
the foregoing shall be added to and become part of the Obligations, and shall be
payable on demand. Coast may charge the foregoing to Borrowers' loan account
and the foregoing shall thereafter bear interest at the same rate applicable to
the Loans. In no event shall Coast's rights under the foregoing power of
attorney or any of Coast's other rights under this Agreement be deemed to
indicate that Coast is in control of the business, management or properties of a
Borrower or ONE.
7.5 APPLICATION OF PROCEEDS. All proceeds realized as the result of any sale
of the Collateral shall be applied by Coast first to the reasonable costs,
expenses, liabilities, obligations and attorneys' fees incurred by Coast in the
exercise of its rights under this Agreement, second to the interest due upon any
of the Obligations, and third to the principal of the Obligations, in such order
as Coast shall determine in its sole discretion. Any surplus shall be paid to
Borrowers or other persons legally entitled thereto; each Borrower or ONE shall
remain liable to Coast for any deficiency. If, Coast, in its sole discretion,
directly or indirectly enters into a deferred payment or other credit
transaction with any purchaser at any sale of Collateral, Coast shall have the
option, exercisable at any time, in its sole discretion, of either reducing the
Obligations by the principal amount of purchase price or deferring the reduction
of the Obligations until the actual receipt by Coast of the cash therefor.
7.6 REMEDIES CUMULATIVE. In addition to the rights and remedies set forth in
this Agreement, Coast shall have all the other rights and remedies accorded a
secured party under the California Uniform Commercial Code and under all other
applicable laws, and under any other instrument or agreement now or in the
future entered into between Coast and a Borrower or ONE, and all of such rights
and remedies are cumulative and none is exclusive. Exercise or partial exercise
by Coast of one or more of its rights or remedies shall not be deemed an
election, nor bar Coast from subsequent exercise or partial exercise of any
other rights or remedies. The failure or delay of Coast to exercise any rights
or remedies shall not operate as a waiver thereof, but all rights and remedies
shall
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continue in full force and effect until all of the Obligations have been
fully paid and performed.
8. DEFINITIONS. As used in this agreement, the following terms have the
following meanings:
"ACCOUNT DEBTOR" means the obligor on a Receivable.
"AFFILIATE" means, with respect to any Person, a relative, partner,
shareholder, director, officer, or employee of such Person, or any parent or
subsidiary of such Person, or any Person controlling, controlled by or under
common control with such Person.
"ARMORED CAR COMPANY" shall mean any armored car service selected by a
Borrower or ONE after the date hereof after prior written notice to Coast and
reasonably acceptable to Coast.
"AUDITS" has the meaning set forth in Section 5.4 of this Agreement.
"AVAILABILITY RESERVES" shall mean, as of any date of determination, such
amounts as Coast may from time to time establish and revise in good faith
reducing the amount of Revolving Loans and Letters of Credit that would
otherwise be available to Borrowers under the lending formula(s) provided for
herein:(a) to reflect events, conditions, contingencies or risks that, as
determined by Coast in good faith, do or may affect either (i) the Collateral or
any other property which is security for the Obligations or its value, (ii) the
assets, business or prospects of Borrowers or ONE or (iii) the security
interests and other rights of Coast in the Collateral (including the
enforceability, perfection and priority thereof) or (b) to reflect Coast's good
faith belief that any collateral report or financial information furnished by or
on behalf of a Borrower or ONE to Coast is or may have been incomplete,
inaccurate or misleading in any material respect or (c) to reflect outstanding
Letters of Credit as provided in Section 1.4 hereof or (d) to compensate for any
deterioration in the nature, quality or mix of the Inventory or (e) to
compensate for any increase in the percentage of Inventory represented by slow
moving Inventory (defined as Inventory held longer than eighteen (18) months)
held at one of a Borrower's or ONE's warehouse facilities, or (f) to reflect the
anticipated moving expenses and other costs associated with the transfer of
Inventory from each of Borrowers' or ONE's retail locations to another location
acceptable to Coast or (g) in respect of any state of facts which Coast
determines in good faith constitutes an Event of Default or may, with notice or
passage of time or both, constitute an Event of Default. Without limiting the
generality of the foregoing, Coast shall establish on the date hereof and
maintain throughout the term of this Agreement and throughout any renewal term
an Availability Reserve for an amount equal to one (1) month of the applicable
Borrower's or ONE's gross rent and other obligations as lessee for each leased
premises of such Borrower or ONE which is either a warehouse facility or is
located in a state where a landlord may be entitled to a priority lien on
Collateral to secure unpaid rent and with respect to each such property the
landlord has not executed a form of waiver and consent acceptable to Coast.
"BLOCKED ACCOUNTS" has the meaning set forth in Section 4.4 of this
Agreement.
"BUSINESS DAY" means a day on which Coast is open for business.
"CODE" means the Uniform Commercial Code as adopted and in effect in the
State of California from time to time.
"COLLATERAL" has the meaning set forth in Section 2.1 of this Agreement.
"CONCENTRATION ACCOUNTS" has the meaning set forth in Section 4.4 of this
Agreement.
"CONSOLIDATED TANGIBLE NET WORTH" at any date of determination, means the
excess of (i) the total assets of the Borrowers, and ONE for all purposes of
this Agreement with the exception of the Consolidated Tangible Net Worth
financial covenant set forth in item 7 under "Additional Covenants" in the
Schedule, determined on a consolidated basis in accordance with generally
accepted accounting principles consistent with those applied by Universal as of
the date hereof ("GAAP"), MINUS goodwill and any other items that are classified
as intangibles in accordance with GAAP, over (ii) all liabilities of the
Borrowers, and ONE for all purposes of this Agreement with the exception of the
Consolidated Tangible Net Worth financial covenant set forth in item 7 under
"Additional Covenants" in the Schedule, determined on a consolidated basis in
accordance with GAAP.
"CREDIT CARD ACKNOWLEDGMENTS" means, individually and collectively, the
agreements by Credit Card Issuers or Credit Card Processors who are parties to
Credit Card Agreements in favor of Coast acknowledging Coast's first priority
security interest in the monies due and to become due to a Borrower or ONE
(including, without limitation, credits and reserves) under the Credit
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Card Agreements, and agreeing to transfer all such amounts to the Lockbox
Accounts, as the same now exist or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced.
"CREDIT CARD AGREEMENTS" means all agreements now or hereafter entered into
by a Borrower or ONE with any Credit Card Issuer or any Credit Card Processor,
as the same now exist or may hereafter be amended, modified, supplemented,
extended, renewed, restated or replaced, including, but not limited to, the
agreements set forth on SCHEDULE 3.12.
"CREDIT CARD ISSUER" means any person (other than a Borrower or ONE) who
issues or whose members issue credit cards, including, without limitation,
MasterCard or VISA bank credit or debit cards or other bank credit or debit
cards issued through MasterCard International, Inc., Visa, U.S.A., Inc. or Visa
International, American Express, Discover, Diners Club, Carte Blanche and other
non-bank credit or debit cards, including, without limitation, credit or debit
cards issued by or through American Express Travel Related Services Company,
Inc. and Novus Services, Inc.
"CREDIT CARD PROCESSOR" means any servicing or processing agent or any
factor or financial intermediary who facilitates, services, processes or manages
the credit authorization, billing transfer and/or payment procedures with
respect to any of a Borrower's or ONE's sales transactions involving credit card
or debit card purchases by customers using credit cards or debit cards issued by
any Credit Card Issuer.
"CREDIT CARD RECEIVABLES" means collectively, (a) all present and future
rights of a Borrower or ONE to payment from any Credit Card Issuer, Credit Card
Processor or other third party arising from sales of goods or rendition of
services to customers who have purchased such goods or services using a credit
or debit card and (b) all present and future rights of a Borrower or ONE to
payment from any Credit Card Issuer, Credit Card Processor or other third party
in connection with the sale or transfer of Accounts arising pursuant to the sale
of goods or rendition of services to customers who have purchased such goods or
services using a credit card or a debit card, including, but not limited to, all
amounts at any time due or to become due from any Credit Card Issuer or Credit
Card Processor under the Credit Card Agreements or otherwise.
"CREDIT LIMIT" has the meaning set forth in Section 1 of this Agreement.
"DEFAULT" means any event which with notice or passage of time or both,
would constitute an Event of Default.
"DEPOSIT ACCOUNT" has the meaning set forth in Section 9105 of the Code.
"EARLY TERMINATION FEE" has the meaning set forth in Section 6.2 of this
Agreement.
"ELIGIBLE IN-TRANSIT INVENTORY" means Eligible Inventory which is in
transit in the continental United States of America, fully insured to the
satisfaction of Coast, indefeasibly owned by a Borrower or ONE, endorsed to
Coast or its assignees in a manner acceptable to Coast and meets all criteria
for Eligible Inventory.
"ELIGIBLE INVENTORY" means Inventory which Coast, in its reasonable credit
judgment, deems eligible for borrowing, based on such considerations as Coast
may from time to time deem appropriate; and Coast shall advise the Borrowers of
the total Dollar amount of ineligible Inventory, and by Dollar amount per
category of ineligible Inventory, as soon as is practicable after such time as
Coast modifies or changes the total Dollar amount of ineligible Inventory.
Without limiting the fact that the determination of which Inventory is eligible
for borrowing is a matter of Coast's discretion, Inventory which does not meet
the following requirements will not be deemed to be Eligible Inventory:
Inventory which (i) consists of finished goods, in good, new and salable
condition which is not perishable, not obsolete or unmerchantable, and is not
comprised of raw materials, work in process, packaging materials or supplies;
(ii) meets all applicable governmental standards; (iii) has been manufactured in
compliance with the Fair Labor Standards Act; (iv) conforms in all respects to
the warranties and representations set forth in this Agreement; (v) is situated
at one of the locations set forth on SCHEDULE 3.3, or satisfies the requirements
of Section 5.5(e) for the storage of Eligible Inventory or other Collateral
(except ineligible Inventory) with a warehouseman or other third party, or is
Eligible In-Transit Inventory; and (vi) is at all times subject to Coast's duly
perfected, first priority security interest. Eligible Inventory shall not
include: (i) Inventory returned by customers that is not held for resale; (ii)
Inventory to be returned to vendors; (iii) Inventory subject to deposits made by
customers and has not been delivered; (iv) Inventory held after the applicable
expiration date thereof which Inventory, prior to the expiration date thereof,
shall not be considered perishable under clause (i) above); (v) Inventory
consisting of samples or display Inventory; (vi) that portion of the Value of
Inventory attributable to
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markdowns not posted to the Inventory retail system to month-end cut-off, or
to unearned discounts; (vii) Inventory held for rental; (viii) Inventory
purchased or sold on consignment; and (ix) slow moving Inventory (defined as
Inventory held longer than eighteen (18) months at one of a Borrower's or
ONE's warehouse facilities).
"ELIGIBLE RECEIVABLES" means Receivables arising in the ordinary course of
a Borrower's or ONE's business from the sale of goods or rendition of services,
which Coast, in its good faith business judgment, shall deem eligible for
borrowing, based on such considerations as Coast may from time to time deem
appropriate, including, but not limited to, dating terms which would not
consider Receivables which remain unpaid for more than sixty (60) days from due
date provided that such due date is no later than ninety (90) days from invoice
date to be Eligible Receivables.
"EQUIPMENT" means all of a Borrower's or ONE's present and hereafter
acquired machinery, molds, machine tools, motors, furniture, equipment,
furnishings, fixtures, trade fixtures, motor vehicles, tools, parts, dyes, jigs,
goods and other tangible personal property (other than Inventory) of every kind
and description used in a Borrower's or ONE's operations or owned by a Borrower
or ONE and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions or improvements
to any of the foregoing, wherever located.
"EVENT OF DEFAULT" means any of the events set forth in Section 7.1 of this
Agreement.
"EXCESS AVAILABILITY" means the amount, as determined by Lender, calculated
at any time, equal to: (a) the lesser of (i) the amount of the Loans available
to Borrowers as of such time based on the applicable lending formula set forth
in the Schedule multiplied by the Value of Eligible Inventory, as determined by
Lender, and subject to the sublimits and Availability Reserves from time to time
established by Lender hereunder and (ii) the Maximum Dollar Amount, MINUS (b)
the sum of: (i) the amount of all then outstanding and unpaid Obligations, plus
(ii) the aggregate amount of all trade payables of Borrowers or ONE which are
more than ninety (90) days past due as of such time, plus (iii) the amount of
checks issued by Borrowers or ONE to pay trade payables, but not yet sent and
the book overdraft of Borrowers or ONE.
"FIXED ASSET TERM LOAN" has the meaning set forth in Section 1 of the
Schedule.
"GENERAL INTANGIBLES" means all general intangibles of Borrowers or ONE,
whether now owned or hereafter created or acquired by a Borrower or ONE,
including, without limitation, all choses in action, causes of action, corporate
or other business records, Deposit Accounts, inventions, designs, drawings,
blueprints, patents, patent applications, trademarks and the goodwill of the
business symbolized thereby, names, trade names, trade secrets, goodwill,
copyrights, registrations, licenses, franchises, customer lists, prescription
files, security and other deposits, securities and other investment property,
credit card sales drafts, credit card sale slips or charge slips or receipts and
other forms of store receipts, rights in all litigation presently or hereafter
pending for any cause or claim (whether in contract, tort or otherwise), and all
judgments now or hereafter arising therefrom, all claims of Borrowers or ONE
against Coast, rights to purchase or sell real or personal property, rights as a
licensor or licensee of any kind, royalties, telephone numbers, proprietary
information, purchase orders, and all insurance policies and claims (including
without limitation life insurance, key man insurance, credit insurance,
liability insurance, property insurance and other insurance), tax refunds and
claims, computer programs, discs, tapes and tape files, claims under guaranties,
security interests or other security held by or granted to Borrowers or ONE, all
rights to indemnification, securities and other investment property, credit card
sales drafts, credit card sales slips or charge slips or receipts and other
forms of store receipts and all other intangible property of every kind and
nature (other than Receivables).
"INVENTORY" means all of a Borrower's or ONE's now owned and hereafter
acquired goods, merchandise or other personal property, wherever located, to be
furnished under any contract of service or held for sale or lease (including
without limitation all raw materials, work in process, finished goods and goods
in transit, and including without limitation all farm products), and all
materials and supplies of every kind, nature and description which are or might
be used or consumed in a Borrower's or ONE's business or used in connection with
the manufacture, packing, shipping, advertising, selling or finishing of such
goods, merchandise or other personal property, and all warehouse receipts,
documents of title, credit card sales drafts, credit card sales slips or charge
slips or receipts or other forms of store receipts and other documents
representing any of the foregoing.
"INVENTORY LOANS" has the meaning set forth in Section 1 of the Schedule.
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"LETTER OF CREDIT SUBLIMIT" has the meaning set forth in Section 1.4 of
this Agreement.
"LETTERS OF CREDIT" has the meaning set forth in Section 1.4 of this
Agreement.
"LOANS" has the meaning set forth in Section 1 of this Agreement.
"LOCKBOX ACCOUNTS" has the meaning set forth in Section 4.4 of this
Agreement.
"MATURITY DATE" has the meaning set forth in Section 6.1 of this Agreement.
"MAXIMUM DOLLAR AMOUNT" has the meaning set forth in Section 1 of the
Schedule.
"OBLIGATIONS" means all present and future Loans, advances, debts,
liabilities, obligations, guaranties, covenants, duties and indebtedness at any
time owing by Borrowers or ONE to Coast, whether evidenced by this Agreement or
any note or other instrument or document, whether arising from an extension of
credit, opening of a letter of credit, banker's acceptance, loan, guaranty,
indemnification or otherwise, whether direct or indirect (including, without
limitation, those acquired by assignment and any participation by Coast in a
Borrower's or ONE's debts owing to others including another Borrower or ONE),
absolute or contingent, due or to become due, including, without limitation, all
interest, charges, expenses, fees, attorney's fees, expert witness fees, audit
fees, letter of credit fees, collateral monitoring fees, closing fees, facility
fees, termination fees, minimum interest charges and any other sums chargeable
to a Borrower or ONE under this Agreement or under any other present or future
instrument or agreement between a Borrower or ONE and Coast.
"ODI" means Only Deals, Inc., a Minnesota corporation.
"ODI LOAN DOCUMENTS" means, collectively, that certain Amended and Restated
Loan and Security Agreement Agreement of even date herewith by and between ODI
and Universal, that certain Revolving Note of even date herewith made by ODI to
the order of Universal, and any other agreement, instrument, document or note
entered into in connection therewith, together with all alterations, amendments,
changes, extensions, modifications, refinancings, refundings, renewals,
replacements, restatements, or supplements, of or to any of the foregoing.
"ONE" means Odd's-N-End's, Inc., a Delaware corporation.
"ONE LOAN DOCUMENTS" means, collectively, that certain Amended and Restated
Loan and Security Agreement of even date herewith by and between ONE and
Universal, that certain Revolving Note of even date herewith made by ONE to the
order of Universal, that certain Limited Liability Continuing Guaranty by ONE in
favor of Coast of even date herewith, that certain Security Agreement (Guaranty)
by ONE in favor of Coast of even date herewith securing its Limited Liability
Continuing Guaranty, and any other agreement, instrument, document or note
entered into in connection therewith, together with all alterations, amendments,
changes, extensions, modifications, refinancings, refundings, renewals,
replacements, restatements, or supplements, of or to any of the foregoing.
"ONE'S ADDRESS" means 5000 Winnetka Avenue North, New Hope, Minnesota
55428.
"PAYMENT ACCOUNT" has the meaning set forth in Section 4.4 of this
Agreement.
"PERMITTED LIENS" means the following: (i) purchase money security
interests in specific items of Equipment; (ii) leases of specific items of
Equipment; (iii) liens for taxes not yet payable; (iv) additional security
interests and liens consented to in writing by Coast, which consent shall not be
unreasonably withheld; (v) security interests being terminated substantially
concurrently with this Agreement; (vi) liens of materialmen, mechanics,
warehousemen, carriers, or other similar liens arising in the ordinary course of
business and securing obligations which are not delinquent; (vii) liens incurred
in connection with the extension, renewal or refinancing of the indebtedness
secured by liens of the type described above in clauses (i) or (ii) above,
provided that any extension, renewal or replacement lien is limited to the
property encumbered by the existing lien and the principal amount of the
indebtedness being extended, renewed or refinanced does not increase; (viii)
liens in favor of customs and revenue authorities which secure payment of
customs duties in connection with the importation of goods; (ix) liens or rights
of setoff or credit balances of a Borrower or ONE with Credit Card Issuers, but
not liens on or rights of setoff against any other property or assets of a
Borrower or ONE pursuant to the Credit Card Agreements (as in effect on the date
hereof) to secure the obligations of such Borrower or ONE to the Credit Card
Issuers as a result of fees and chargebacks; (x) deposits of cash with the owner
or lessor of premises leased and operated by a Borrower or ONE in the ordinary
course of
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the business of such Borrower or ONE to secure the performance by such
Borrower of its obligations under the terms of the lease for such premises; and
(xi) purchase money security interests permitted under Section 5.5(h) above.
Coast will have the right to require, as a condition to its consent under
subparagraph (iv) above, that the holder of the additional security interest or
lien sign an intercreditor agreement on Coast's then standard form, acknowledge
that the security interest is subordinate to the security interest in favor of
Coast, and agree not to take any action to enforce its subordinate security
interest so long as any Obligations remain outstanding, and that each Borrower
or ONE, as the case may be, agree that any uncured default in any obligation
secured by the subordinate security interest shall also constitute an Event of
Default under this Agreement.
"PERSON" means any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated organization, association, corporation,
government, or any agency or political division thereof, or any other entity.
"RECEIVABLE LOANS" has the meaning set forth in Section 1 of the Schedule.
"RECEIVABLES" means all of Borrowers' and ONE's now owned and hereafter
acquired accounts (whether or not earned by performance), letters of credit,
contract rights, chattel paper, instruments, securities, Credit Card
Receivables, documents and all other forms of obligations at any time owing to a
Borrower or ONE, as the case may be, all guaranties and other security therefor,
all merchandise returned to or repossessed by a Borrower or ONE, as the case may
be, all goods described in invoices, documents, credit card sales drafts, credit
card sales slips or charge slips or receipts or other forms of store receipts,
contracts or instruments with respect to, or otherwise representing or
evidencing accounts or other Collateral, and all rights of stoppage in transit
and all other rights or remedies of an unpaid vendor, lienor or secured party.
"RENEWAL FEE" has the meaning set forth in Section 6.1 of this Agreement.
"RETAIL SALES PRICE" shall mean the current ticketed sales price in the
Borrowers' or ONE's retail stores, net of markdowns from the original retail
sales price with respect thereto, for the types, categories and styles of
inventory included in the Eligible Inventory of Borrowers or ONE.
"REVOLVING LOANS" has the meaning set forth in Section 1 of the Schedule.
"SOLVENT" shall mean with respect to any Person on a particular date, that
on such date (a) at fair valuations, all the properties and assets of such
Person are greater than the sum of the debts, including contingent liabilities,
of such Person, (b) the present fair salable value of the properties and assets
of such Person is not less than the amount that will be required to pay the
probable liability of such Person on its debts as they become absolute and
matured, (c) such Person is able to realize upon its properties and assets and
pay its debts and other liabilities, contingent obligations and other
commitments as they mature in the normal course of business, (d) such Person
does not intend to, and does not believe that it will, incur debts beyond such
Person's ability to pay as such debts mature, and (e) such Person is not engaged
in business or a transaction, and is not about to engage in business or a
transaction, for which such Person's properties and assets would constitute
unreasonably small capital after giving due consideration to the prevailing
practices in the industry in which such Person is engaged. In computing the
amount of contingent liabilities at any time, it is intended that such
liabilities will be computed at the amount that, in light of all the facts and
circumstances existing at such time, represents the amount that reasonably can
be expected to become an actual or matured liability.
"UAS" means Universal Asset-Based Services, Inc., a Minnesota corporation.
"UAS LOAN DOCUMENTS" means, collectively, that certain Amended and Restated
Loan and Security Agreement of even date herewith by and between UAS and
Universal, that certain Revolving Note of even date herewith made by UAS to the
order of Universal, and any other agreement, instrument, document or note
entered into in connection therewith, together with all alterations, amendments,
changes, extensions, modifications, refinancings, refundings, renewals,
replacements, restatements, or supplements, of or to any of the foregoing.
"UNIVERSAL" means Universal International, Inc., a Minnesota corporation.
"VALUE" shall mean, as determined by Coast in good faith, with respect to
Inventory, the lower of (i) cost as determined by the retail method of
accounting (which method of accounting includes the netting of markdowns from
the original sales price or ticketed sales price) under
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the first-in-first-out method, net of vendor discounts or (b) market value.
OTHER TERMS. All accounting terms used in this Agreement, unless otherwise
indicated, shall have the meanings given to such terms in accordance with
generally accepted accounting principles, consistently applied. All other terms
contained in this Agreement, unless otherwise indicated, shall have the meanings
provided by the Code, to the extent such terms are defined therein.
9. GENERAL PROVISIONS.
9.1 INTEREST COMPUTATION. In computing interest on the Obligations, all
checks, wire transfers and other items of payment received by Coast (including
proceeds of Receivables and payment of the Obligations in full) shall be deemed
applied by Coast on account of the Obligations as of the same Business Day as
receipt by Coast of funds immediately available to Coast in the Payment Account
or two (2) Business Days following the date of receipt by Coast of funds that
are not immediately available to Coast in the Payment Account. Coast shall not,
however, be required to credit Borrowers' account for the amount of any item of
payment which is unsatisfactory to Coast in its sole discretion, and Coast may
charge Borrowers' loan account for the amount of any item of payment which is
returned to Coast unpaid.
9.2 APPLICATION OF PAYMENTS. All payments with respect to the Obligations
may be applied, and in Coast's sole discretion reversed and re-applied, to the
Obligations, in such order and manner as Coast shall determine in its sole
discretion.
9.3 CHARGES TO ACCOUNTS. Coast may, in its discretion, require that
Borrowers pay monetary Obligations in cash to Coast, or charge them to
Borrowers' loan account, in which event they will bear interest at the same rate
applicable to the Loans. Coast may also, in its discretion, charge any monetary
Obligations to a Borrower's Deposit Accounts maintained with Coast.
9.4 MONTHLY ACCOUNTINGS. Coast shall provide Borrowers monthly with an
account of advances, charges, expenses and payments made pursuant to this
Agreement. Such account shall be deemed correct, accurate and binding on each
Borrower and an account stated (except for manifest error or reverses and
reapplications of payments made and corrections of errors discovered by Coast),
unless Borrowers notify Coast in writing to the contrary within thirty (30) days
after each account is rendered, describing the nature of any alleged errors or
omissions.
9.5 NOTICES. All notices to be given under this Agreement shall be in
writing and shall be given either personally or by reputable private delivery
service or by regular first-class mail, or certified mail return receipt
requested, addressed to Coast or Borrowers at the addresses shown in the heading
to this Agreement, or at any other address designated in writing by one party to
the other party. Notices to Coast shall be directed to the Commercial Finance
Division, to the attention of the Division Manager or the Division Credit
Manager. All notices shall be deemed to have been given upon delivery in the
case of notices personally delivered, or at the expiration of one (1) Business
Day following delivery to the private delivery service, or two (2) Business Days
following the deposit thereof in the United States mail, with postage prepaid.
9.6 SEVERABILITY. Should any provision of this Agreement be held by any
court of competent jurisdiction to be void or unenforceable, such defect shall
not affect the remainder of this Agreement, which shall continue in full force
and effect.
9.7 INTEGRATION. This Agreement and such other written agreements, documents
and instruments as may be executed in connection herewith are the final, entire
and complete agreement between Borrowers or ONE and Coast and supersede all
prior and contemporaneous negotiations and oral representations and agreements,
all of which are merged and integrated in this Agreement. THERE ARE NO ORAL
UNDERSTANDINGS, REPRESENTATIONS OR AGREEMENTS BETWEEN THE PARTIES WHICH ARE NOT
SET FORTH IN THIS AGREEMENT OR IN OTHER WRITTEN AGREEMENTS SIGNED BY THE PARTIES
IN CONNECTION HEREWITH.
9.8 WAIVERS. The failure of Coast at any time or times to require a Borrower
or ONE to strictly comply with any of the provisions of this Agreement or any
other present or future agreement between such Borrower or ONE and Coast shall
not waive or diminish any right of Coast later to demand and receive strict
compliance therewith. Any waiver of any default shall not waive or affect any
other default, whether prior or subsequent, and whether or not similar. None of
the provisions of this Agreement or any other agreement now or in the future
executed by a Borrower or ONE and delivered to Coast shall be deemed to have
been waived by any act or knowledge of Coast or its agents or employees, but
only by a specific written waiver signed by an authorized officer of Coast and
delivered to Borrowers or ONE. Each Borrower or ONE waives demand, protest,
notice of protest and notice of
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default or dishonor, notice of payment and nonpayment, release, compromise,
settlement, extension or renewal of any commercial paper, instrument,
account, General Intangible, document or guaranty at any time held by Coast
on which a Borrower or ONE is or may in any way be liable, and notice of any
action taken by Coast, unless expressly required by this Agreement.
9.9 NO LIABILITY FOR ORDINARY NEGLIGENCE. Neither Coast, nor any of its
directors, officers, employees, agents, attorneys or any other Person affiliated
with or representing Coast shall be liable for any claims, demands, losses or
damages, of any kind whatsoever, made, claimed, incurred or suffered by a
Borrower or ONE or any other party through the ordinary negligence of Coast, or
any of its directors, officers, employees, agents, attorneys or any other Person
affiliated with or representing Coast, but nothing herein shall relieve Coast
from liability for its own gross negligence or willful misconduct.
9.10 AMENDMENT. The terms and provisions of this Agreement may not be waived
or amended, except in a writing executed by Borrowers and a duly authorized
officer of Coast and consented to by ONE.
9.11 TIME OF ESSENCE. Time is of the essence in the performance by each
Borrower or ONE of each and every obligation under this Agreement.
9.12 ATTORNEYS FEES, COSTS AND CHARGES. Borrowers or ONE shall reimburse
Coast for all reasonable attorneys' fees and all filing, recording, search,
title insurance, appraisal, audit, and other reasonable costs incurred by Coast,
pursuant to, or in connection with, or relating to this Agreement (whether or
not a lawsuit is filed), including, but not limited to, any reasonable
attorneys' fees and costs Coast incurs in order to do the following: prepare and
negotiate this Agreement and the documents relating to this Agreement; obtain
legal advice in connection with this Agreement or a Borrower or ONE; enforce, or
seek to enforce, any of its rights; prosecute actions against, or defend actions
by, Account Debtors; commence, intervene in, or defend any action or proceeding;
initiate any complaint to be relieved of the automatic stay in bankruptcy; file
or prosecute any probate claim, bankruptcy claim, third-party claim, or other
claim; examine, audit, copy, and inspect any of the Collateral or any of a
Borrower's or ONE's books and records; protect, obtain possession of, lease,
dispose of, or otherwise enforce Coast's security interest in, the Collateral;
and otherwise represent Coast in any litigation relating to a Borrower or ONE.
If either Coast or a Borrower or ONE files any lawsuit against the other
predicated on a breach of this Agreement, the prevailing party in such action
shall be entitled to recover its reasonable costs and attorneys' fees, including
(but not limited to) reasonable attorneys' fees and costs incurred in the
enforcement of, execution upon or defense of any order, decree, award or
judgment. Borrowers or ONE shall also pay Coast's standard charges for returned
checks and for wire transfers, in effect from time to time. All attorneys'
fees, costs and charges to which Coast may be entitled pursuant to this
Paragraph may be charged by Coast to Borrowers' loan account and shall
thereafter bear interest at the same rate as the Loans.
9.13 BENEFIT OF AGREEMENT. The provisions of this Agreement shall be binding
upon and inure to the benefit of the respective successors, assigns, heirs,
beneficiaries and representatives of each Borrower and Coast; provided, however,
that no Borrower may assign or transfer any of its rights under this Agreement
without the prior written consent of Coast, and any prohibited assignment shall
be void. No consent by Coast to any assignment shall release a Borrower from
its liability for the Obligations.
9.14 PUBLICITY. Coast is hereby authorized, at its expense, to issue
appropriate press releases and to cause a tombstone to be published announcing
the consummation of this transaction and the aggregate amount thereof.
9.15 JOINT AND SEVERAL LIABILITY. If Borrowers consists of more than one
Person, their liability shall be joint and several, and the compromise of any
claim with, or the release of, any Borrower shall not constitute a compromise
with, or a release of, any other Borrower.
9.16 LIMITATION OF ACTIONS. Any claim or cause of action by a Borrower or
ONE against Coast, its directors, officers, employees, agents, accountants or
attorneys, based upon, arising from, or relating to this Loan Agreement, or
any other present or future document or agreement, or any other transaction
contemplated hereby or thereby or relating hereto or thereto, or any other
matter, cause or thing whatsoever, occurred, done, omitted or suffered to be
done by Coast, its directors, officers, employees, agents, accountants or
attorneys, shall be barred unless asserted by such Borrower or ONE by the
commencement of an action or proceeding in a court of competent jurisdiction
by the filing of a complaint within eighteen (18) months after the first act,
occurrence or omission upon which such claim or cause of action, or any part
thereof, is based, and the service of a summons and complaint on an officer
of Coast, or on any other person authorized to accept service on behalf of
Coast, within thirty (30) days thereafter. Each Borrower
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or ONE agrees that such one-year period is a reasonable and sufficient time
for such Borrower or ONE to investigate and act upon any such claim or cause
of action. The one-year period provided herein shall not be waived, tolled,
or extended except by the written consent of Coast in its sole discretion.
This provision shall survive any termination of this Loan Agreement or any
other present or future agreement.
9.17 PARAGRAPH HEADINGS; CONSTRUCTION. Paragraph headings are only used in
this Agreement for convenience. Each Borrower or ONE and Coast acknowledge that
the headings may not describe completely the subject matter of the applicable
paragraph, and the headings shall not be used in any manner to construe, limit,
define or interpret any term or provision of this Agreement. The term
"including", whenever used in this Agreement, shall mean "including (but not
limited to)". This Agreement has been fully reviewed and negotiated between the
parties and no uncertainty or ambiguity in any term or provision of this
Agreement shall be construed strictly against Coast or a Borrower or ONE under
any rule of construction or otherwise.
9.18 GOVERNING LAW; JURISDICTION; VENUE. This Agreement and all acts and
transactions hereunder and all rights and obligations of Coast and each Borrower
or ONE shall be governed by the laws of the State of California. As a material
part of the consideration to Coast to enter into this Agreement, each Borrower
or ONE (i) agrees that all actions and proceedings relating directly or
indirectly to this Agreement shall, at Coast's option, be litigated in courts
located within California, and that the exclusive venue therefor shall be Los
Angeles County; (ii) consents to the jurisdiction and venue of any such court
and consents to service of process in any such action or proceeding by personal
delivery or any other method permitted by law; and (iii) waives any and all
rights such Borrower or ONE may have to object to the jurisdiction of any such
court, or to transfer or change the venue of any such action or proceeding.
9.19 MUTUAL WAIVER OF JURY TRIAL. EACH BORROWER, ONE AND COAST HEREBY WAIVE
THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT
OF, OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY OTHER PRESENT OR FUTURE
INSTRUMENT OR AGREEMENT BETWEEN COAST AND SUCH BORROWER OR ONE, OR ANY CONDUCT,
ACTS OR OMISSIONS OF COAST OR SUCH BORROWER OR ONE OR ANY OF THEIR DIRECTORS,
OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH
COAST OR SUCH BORROWER OR ONE, IN ALL OF THE FOREGOING CASES, WHETHER SOUNDING
IN CONTRACT OR TORT OR OTHERWISE.
10. SURETYSHIP WAIVERS.
10.1 INDEPENDENT OBLIGATIONS; SUBROGATION. The Obligations of each Borrower,
as guarantor of another Borrower's obligations hereunder ("Borrower/Guarantor"),
are joint and several. To the maximum extent permitted by law, each
Borrower/Guarantor hereby waives any claim, right or remedy which it may now
have or hereafter acquire against another Borrower that arises hereunder
including, without limitation, any claim, remedy or right of subrogation,
reimbursement, exoneration, contribution, indemnification, or participation in
any claim, right or remedy of Coast against any Borrower or any Collateral which
Coast now has or hereafter acquires, whether or not such claim, right or remedy
arises in equity, under contract, by statute, under common law or otherwise
until the Obligations are fully paid and finally discharged. In addition, each
Borrower/Guarantor hereby waives any right to proceed against another Borrower,
now or hereafter, for contribution, indemnity, reimbursement, and any other
suretyship rights and claims, whether direct or indirect, liquidated or
contingent, whether arising under express or implied contract or by operation of
law, which any Borrower/Guarantor may now have or hereafter have as against
another Borrower with respect to the Obligations until the Obligations are fully
paid and finally discharged. Each Borrower/Guarantor also hereby waives any
rights of recourse to or with respect to any asset of any other Borrower until
the Obligations are fully paid and finally discharged.
10.2 AUTHORITY TO MODIFY OBLIGATIONS AND SECURITY. Each Borrower/Guarantor
authorizes Coast, without notice or demand and without affecting any Borrower's
liability hereunder, from time to time, whether before or after any notice of
termination hereof or before or after any default in respect of the Obligations,
to: (i) renew, extend, accelerate, or otherwise change the time for payment of,
or otherwise change any other term or condition of, any document or agreement
evidencing or relating to any Obligations as such Obligations relate to any
other Borrower, including, without limitation, to increase or decrease the rate
of interest thereon; (ii) accept, substitute, waive, decrease, increase,
release, exchange or otherwise alter any Collateral, in whole or in part,
securing any other Borrower's Obligations; (iii) apply any and all such
Collateral and direct the order or manner of sale thereof as Coast, in its sole
discretion, may
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determine; (iv) deal with any other Borrower as Coast may elect; (v) in
Coast's sole discretion, settle, release on terms satisfactory to Coast, or
by operation of law or otherwise, compound, compromise, collect or otherwise
liquidate any of another Borrower's Obligations and/or any of the Collateral
in any manner, and bid and purchase any of the collateral at any sale
thereof; (vi) apply any and all payments or recoveries from another Borrower
as Coast, in its sole discretion, may determine, whether or not such
indebtedness relates to the Obligations; all whether such Obligations are
secured or unsecured or guaranteed or not guaranteed by others; and (vii)
apply any sums realized from Collateral furnished by another Borrower upon
any of its indebtedness or obligations to Coast as Coast, in its sole
discretion, may determine, whether or not such indebtedness relates to the
Obligations.
10.3 WAIVER OF DEFENSES. Upon an Event of Default by any Borrower in respect
of any Obligations, Coast may, at its option and without notice to the
Borrowers, proceed directly against any Borrower to collect and recover the full
amount of the liability hereunder, or any portion thereof, and each Borrower
waives any right to require Coast to: (i) proceed against any other Borrower or
any other person whomsoever; (ii) proceed against or exhaust any Collateral
given to or held by Coast in connection with the Obligations; (iii) give notice
of the terms, time and place of any public or private sale of any of the
Collateral except as otherwise provided herein; or (iv) pursue any other remedy
in Coast's power whatsoever. A separate action or actions may be brought and
prosecuted against a Borrower whether or not action is brought against any other
Borrower and whether any other Borrower be joined in any such action or actions;
and each Borrower waives the benefit of any statute of limitations affecting the
liability hereunder or the enforcement hereof, and agrees that any payment of
any Obligations or other act which shall toll any statute of limitations
applicable thereto shall similarly operate to toll such statute of limitations
applicable to the liability hereunder.
10.4 RIGHT TO DISPOSE OF SECURITY; IMPAIRMENT OF RIGHTS. Each
Borrower/Guarantor hereby authorizes and empowers Coast in its sole discretion,
without any notice or demand to such Borrower/Guarantor whatsoever and without
affecting the liability of such Borrower/Guarantor hereunder, to exercise any
right or remedy which Coast may have available to it against any other Borrower,
including, but not limited to, judicial foreclosure, exercise of rights of power
of sale without judicial action, or taking a deed or an assignment in lieu of
foreclosure as to any Collateral, and such Borrower/Guarantor hereby waives any
defense to the recovery by Coast against such Borrower/Guarantor of any
deficiency after such action notwithstanding any impairment or loss of any right
of reimbursement or subrogation or other right or remedy against another
Borrower or against any Collateral for the Obligations. Each Borrower/Guarantor
expressly waives any defense or benefits that may be available from California
Code of Civil Procedure, Section 580 and its subdivisions or Section 726, or
comparable provisions of the laws of any other jurisdiction, as well as all
suretyship defenses such Borrower/Guarantor would otherwise have under
California law or the laws of any other jurisdiction. Without limiting the
foregoing, each Borrower specifically agrees that action maintained by Coast for
the appointment of any receiver, trustee or custodian to collect rents, issues
or profits or to obtain possession of any property shall not constitute an
"action" within the meaning of Section 726 of the California Code of Civil
Procedure or comparable provisions of the laws of any other jurisdiction.
10.5 ADDITIONAL WAIVERS. Each Borrower/Guarantor waives any defense arising
by reason of any disability or other defense of any other Borrower or by reason
of any cessation from any cause whatsoever of the liability of the other
Borrower or by reason of any act or omission of Coast or others which directly
or indirectly results in or aids the discharge or release of any other Borrower
or any Obligations or any Collateral by operation of law or otherwise. The
Obligations shall be enforceable against each Borrower without regard to the
validity, regularity or enforceability of any of the Obligations with respect to
any Borrower or any of the documents related thereto or any collateral security
documents securing any of the Obligations. No exercise by Coast of, and no
omission of Coast to exercise, any power or authority recognized herein and no
impairment or suspension of any right or remedy of Coast against any Borrower or
any Collateral shall in any way suspend, discharge, release, exonerate or
otherwise affect any of the Obligations or any Collateral furnished by the
Borrowers or give to the Borrowers any right of recourse against Coast. The
Borrowers specifically agree that the failure of Coast: (i) to perfect any lien
on or security interest in any property heretofore or hereafter given by
Borrowers to secure payment of the Obligations, or to record or file any
document relating thereto or (ii) to file or enforce a claim against the estate
(either in administration, bankruptcy or other proceeding) of any Borrower shall
not in any manner whatsoever terminate, diminish, exonerate or otherwise affect
the liability of any Borrower hereunder.
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10.6 ADDITIONAL INDEBTEDNESS. Additional Obligations may be created from
time to time at the request of any Borrower and without further authorization
from or notice to another Borrower even though the borrowing Borrower's
financial condition may deteriorate since the date hereof. Each Borrower waives
the right, if any, to require Coast to disclose to such Borrower any information
it may now have or hereafter acquire concerning another Borrower's character,
credit, Collateral, financial condition or other matters. Each Borrower has
established adequate means to obtain from another Borrower on a continuing basis
financial and other information pertaining to such Borrower's business and
affairs, and assumes the responsibility for being and keeping informed of the
financial and other conditions of another Borrower and of all circumstances
bearing upon the risk of nonpayment of the Obligations which diligent inquiry
would reveal. Coast need not inquire into the powers of any of the Borrowers or
the authority of any of their respective officers, directors, partners or agents
acting or purporting to act in their behalf, and any obligations created in
reliance upon the purported exercise of such power or authority is hereby
guaranteed. All obligations of the Borrowers to Coast heretofore, now or
hereafter created shall be deemed to have been granted at the Borrowers' special
insistence and request and in consideration of and in reliance upon this
Agreement.
10.7 NOTICES, DEMANDS, ETC. Except as expressly provided by this Agreement,
Coast shall be under no obligation whatsoever to make or give to any Borrower,
and each Borrower hereby waives diligence, all rights of setoff and counterclaim
against Coast, all demands, presentments, protests, notices of protests, notices
of nonperformance, notices of dishonor, and all other notices of every kind or
nature, including notice of the existence, creation or incurring of any new or
additional Obligations.
10.8 SUBORDINATION. Except as otherwise provided in this Section 10.8, any
indebtedness of any Borrower now or hereafter owing to another Borrower is
hereby subordinated to the Obligations, whether heretofore, now or hereafter
created, and whether before or after notice of termination hereof, and,
following the occurrence and during the continuation of an Event of Default,
Borrowers shall not, without the prior consent of Coast, pay in whole or in part
any of such indebtedness nor will any Borrower accept any payment of or on
account of any such indebtedness at any time while such Borrower remains liable
hereunder. At the request of Coast, after the occurrence and during the
continuance of an Event of Default, each Borrower shall pay to Coast all or any
part of such subordinated indebtedness and any amount so paid to Coast at its
request shall be applied to payment of the Obligations. Each payment on the
indebtedness of a Borrower to another Borrower received in violation of any of
the provisions hereof shall be deemed to have been received by such Borrower as
trustee for Coast and shall be paid over to Coast immediately on account of the
Obligations, but without otherwise affecting in any manner such Borrower's
liability under any of the provisions of this Agreement. Each Borrower agrees
to file all claims against any other Borrower in any bankruptcy or other
proceeding in which the filing of claims is required by law in respect of any
indebtedness of any other Borrower to such Borrower, and Coast shall be entitled
to all of any such Borrower's rights thereunder. If for any reason any Borrower
fails to file such claim at least thirty (30) days prior to the last date on
which such claim should be filed, Coast, as such Borrower's attorney-in-fact, is
hereby authorized to do so in such Borrower's name or, in Coast's discretion, to
assign such claim to, and cause a proof of claim to be filed in the name of,
Coast's nominee. In all such cases, whether in administration, bankruptcy or
otherwise, the person or persons authorized to pay such claim shall pay to Coast
the full amount payable on the claim in the proceeding, and to the full extent
necessary for that purpose such Borrower hereby assigns to Coast all such
Borrower's rights to any payments or distributions to which such Borrower
otherwise would be entitled. If the amount so paid is greater than such
Borrower's liability hereunder, Coast will pay the excess amount to the party
entitled thereto.
10.9 REVIVAL. If any payments of money or transfers of property made to
Coast by any Borrower should for any reason subsequently be declared to be
fraudulent (within the meaning of any state or federal law relating to
fraudulent conveyances), preferential or otherwise voidable or recoverable in
whole or in part for any reason (hereinafter collectively called "VOIDABLE
TRANSFERS") under the Bankruptcy Code or any other federal or state law, and
Coast is required to repay or restore any such voidable transfer, or the amount
or any portion thereof, then as to any such voidable transfer or the amount
repaid or restored and all costs and expenses (including attorneys' fees) of
Coast related thereto, such Borrower's liability hereunder shall automatically
be revived, reinstated and restored and shall exist as though such voidable
transfer had never been made to Coast.
10.10 UNDERSTANDING OF WAIVERS. Each Borrower warrants and agrees that the
waivers set forth in this Section 10 are made with full knowledge of their
significance and consequences. If any of such waivers are determined to be
contrary to any applicable law or public
24
<PAGE>
policy, such waivers shall be effective only to the maximum extent permitted
by law.
10.11 UNLIMITED LIABILITY. The Obligations of the Borrowers hereunder shall
be in addition to any obligations of Borrowers to Coast heretofore given or
hereafter to be given to Coast unless such other obligations are expressly
modified or terminated in writing. The liability of Borrowers to Coast shall at
all times be deemed to be the aggregate liability of Borrowers under the terms
of this Agreement and of any other obligations heretofore or hereafter incurred
by Borrowers to Coast and not expressly terminated or modified in writing.
BORROWERS: COAST:
UNIVERSAL INTERNATIONAL, INC., COAST BUSINESS CREDIT,
A MINNESOTA CORPORATION A DIVISION OF SOUTHERN PACIFIC
THRIFT & LOAN ASSOCIATION,
A CALIFORNIA CORPORATION
BY /s/ Mark Ravich
-----------------------------------
PRESIDENT OR VICE PRESIDENT CEO BY /s/ Phillip Goessler
-------------------------------
BY /s/ Mark Ravich
----------------------------------- TITLE V.P.
SECRETARY OR ASS'T SECRETARY ----------------------------
ONLY DEALS, INC.,
A MINNESOTA CORPORATION
BY /s/ Mark Ravich
------------------------------------
PRESIDENT OR VICE PRESIDENT CHAIRMAN
BY /s/ Mark Ravich
-----------------------------------
SECRETARY OR ASS'T SECRETARY
UNIVERSAL ASSET-BASED SERVICES, INC.,
A MINNESOTA CORPORATION
BY /s/ Mark Ravich
-----------------------------------
PRESIDENT OR VICE PRESIDENT CHAIRMAN
BY /s/ Mark Ravich
-----------------------------------
SECRETARY OR ASS'T SECRETARY
25
<PAGE>
COAST-Registered Trademark-
SCHEDULE TO
LOAN AND SECURITY AGREEMENT
BORROWERS: UNIVERSAL INTERNATIONAL, INC.
ONLY DEALS, INC.
UNIVERSAL ASSET-BASED SERVICES, INC.
ADDRESS: 5000 WINNETKA AVENUE NORTH
NEW HOPE, MINNESOTA 55428
DATE: JUNE 6, 1997
This Schedule forms an integral part of the Loan and Security Agreement between
COAST BUSINESS CREDIT, a division of Southern Pacific Thrift & Loan Association,
and the above Borrowers of even date.
- -------------------------------------------------------------------------------
1. CREDIT LIMIT (Section 1.1): Loans in a total amount at any time
outstanding not to exceed FOURTEEN MILLION DOLLARS ($14,000,000) (the "Maximum
Dollar Amount"), consisting of Revolving Loans and the Fixed Asset Term Loan.
A. REVOLVING LOANS. A revolving line of credit ("Revolving Loans")
in a total amount at any time outstanding not to exceed the lesser of
(i) the Maximum Dollar Amount less the aggregate outstanding principal
amount of the Fixed Asset Term Loan, or (ii) the sum of (a) through
(d) below, to be advanced to Universal as provided in subsections (1),
(2), (3) and (4) below:
(a) Loans (the "Receivable Loans") in an amount not to exceed eighty
percent (80%) of the aggregate amount of Borrowers' and ONE's
Eligible Receivables (as defined in Section 8 of this Agreement);
PLUS
(b) Loans (the "Inventory Loans") in an amount not to exceed
sixty percent (60%) of the aggregate Value of the
Eligible Inventory of the Borrowers and ONE provided that
the Borrowers and ONE, on a consolidated basis but with
the exclusion of UAS going-out-of-business merchandise
sales, shall have maintained gross margins in excess of
thirty percent (30%) to be determined quarterly on the
1
<PAGE>
basis of the average gross margins maintained for the
preceding trailing twelve month period; and in the event
that the Borrowers and ONE do not maintain the thirty
percent (30%) gross margins as provided above, the
advance rate against Eligible Inventory shall be set by
Coast as it determines in its reasonable credit judgment;
MINUS
(c) an amount equal to the product of the then undrawn amounts of the
outstanding Letters of Credit issued to Universal multiplied by
the applicable percentages as provided in Section 1.4 of this
Agreement; MINUS
(d) any Availability Reserves; all of the foregoing subject to the
following:
(1) REVOLVING LOANS BASED UPON UNIVERSAL'S BORROWING
AVAILABILITY. Subject to the terms and conditions set forth
in Section 5.5(g) of this Agreement, and within the overall
limits for Revolving Loans set forth above, Revolving Loans
may be advanced by Coast to Universal to be utilized by
Universal either for its own corporate purposes, or to be
lent by Universal to any of ODI, UAS or ONE, as Universal
shall determine from time to time, and on terms and
conditions acceptable to Coast, to fund Universal's
intercompany loans to ODI, UAS or ONE in excess of the
intercompany loans advanced against the individual borrowing
availabilities of ODI, UAS or ONE, as the case may be,
permitted by Section 5.5(g) and subsections (2), (3) and (4)
below. In no event shall the total of Revolving Loans to
Universal at any time exceed eighty percent (80%) of the
amount of Universal's Eligible Receivables; PLUS sixty
percent (60%) of the Value of Universal's Eligible Inventory
provided that the Borrowers and ONE have maintained gross
margins in excess of thirty percent (30%) determined and
adjusted as described above.
(2) REVOLVING LOANS BASED UPON ODI'S BORROWING AVAILABILITY.
Subject to the terms and conditions set forth in Section
5.5(g) of this Agreement, and within the overall limits for
Revolving Loans set forth above, Revolving Loans based upon
ODI's individual borrowing availability may be advanced by
Coast to Universal to be utilized by Universal solely to
fund intercompany revolving loans by Universal to ODI
subject to the terms and conditions of the ODI Loan
Documents. In no event shall the total of such Revolving
Loans to Universal based on ODI's borrowing availability and
to be further advanced by Universal to ODI at any time
exceed eighty percent (80%) of the amount of ODI's Eligible
Receivables; PLUS sixty percent (60%) of the Value of ODI's
Eligible Inventory provided that the Borrowers and ONE have
maintained gross margins in excess of thirty percent (30%)
determined and adjusted as described above, PLUS ODI's
allocated share of the Fixed Asset Term Loan under Section
1.B below. Coast consents to such intercompany loans by
Universal to ODI, provided that ODI executes and delivers
the ODI Loan
2
<PAGE>
Documents to Universal and Universal assigns all its
rights, titles and interests in and to the ODI Loan
Documents to Coast pursuant to a Collateral Assignment,
in form and substance satisfactory to Coast.
(3) REVOLVING LOANS BASED UPON UAS'S BORROWING AVAILABILITY.
Subject to the terms and conditions set forth in Section
5.5(g) of this Agreement, and within the overall limits for
Revolving Loans set forth above, Revolving Loans based upon
UAS's individual borrowing availability may be advanced by
Coast to Universal to be utilized by Universal solely to
fund intercompany revolving loans to UAS subject to the
terms and conditions of the UAS Loan Documents. In no event
shall the total of such Revolving Loans to Universal based
on UAS's borrowing availability and to be further advanced
by Universal to UAS at any time exceed eighty percent (80%)
of the amount of UAS's Eligible Receivables; PLUS sixty
percent (60%) of the Value of UAS's Eligible Inventory
provided that the Borrowers and ONE have maintained gross
margins in excess of thirty percent (30%) determined and
adjusted as described above, PLUS UAS's allocated share of
the Fixed Asset Term Loan under Section 1.B below. Coast
consents to such intercompany loans by Universal to UAS,
provided that UAS executes and delivers the UAS Loan
Documents to Universal and Universal assigns all its rights,
titles and interests in and to the UAS Loan Documents to
Coast pursuant to a Collateral Assignment, in form and
substance satisfactory to Coast.
(4) REVOLVING LOANS BASED UPON ONE'S IMPUTED BORROWING
AVAILABILITY. Subject to the terms and conditions set forth
in Section 5.5(g) of this Agreement, and within the overall
limits for Revolving Loans set forth above, Revolving Loans
based upon ONE's imputed borrowing availability if a
Borrower hereunder may be advanced by Coast to Universal to
be utilized by Universal solely to fund intercompany
revolving loans to ONE subject to the terms and conditions
of the ONE Loan Documents. In no event shall the total of
such Revolving Loans to Universal based on ONE's imputed
borrowing availability and to further advanced by Universal
to ONE at any time exceed eighty percent (80%) of the amount
of ONE's Eligible Receivables; PLUS sixty percent (60%) of
the Value of ONE's Eligible Inventory provided that the
Borrowers and ONE have maintained gross margins in excess of
thirty percent (30%) determined and adjusted as described
above, PLUS ONE's imputed allocated share of the Fixed Asset
Term Loan under Section 1.B below. Coast consents to such
intercompany loans by Universal to ONE, provided that ONE
executes and delivers the ONE Loan Documents to Universal
and Universal assigns all its rights, titles and interests
in and to the ONE Loan Documents to Coast pursuant to a
Collateral Assignment, in form and substance satisfactory to
Coast.
3
<PAGE>
B. FIXED ASSET TERM LOAN. A term loan
("Fixed Asset Term Loan"), in an aggregate principal
amount of Two Million Dollars ($2,000,000). The loan
proceeds under the Fixed Asset Term Loan shall be
initially advanced by Coast to Universal, and then either
retained by Universal for its own corporate purposes or
lent by Universal as additional intercompany revolving
loans to ODI, UAS or ONE, respectively, pursuant to the
ODI Loan Documents, the UAS Documents or the ONE Loan
Documents, as the case may be, in the same percentage
thereof as the percentage of the individual assets of
Universal, ODI, UAS or ONE, as the case may be, primarily
securing the Fixed Asset Term Loan, as determined by
Coast, bears to the total of the assets primarily
securing the Fixed Asset Term Loan. The Fixed Asset Term
Loan shall be evidenced by and repayable in accordance
with the terms and conditions of a Promissory Term Note
by Borrowers to the order of Coast, in form and substance
satisfactory to Coast.
C. LETTER OF CREDIT SUB-LIMIT. (Section 1.4): FOUR MILLION
DOLLARS ($4,000,000).
- -------------------------------------------------------------------------------
2. INTEREST.
INTEREST RATE A rate equal to the "Prime Rate" plus TWO PERCENT (2%) per
(Section 1.2): annum, calculated on the basis of a 360-day year for the
actual number of days elapsed. The interest rate applicable
to all Loans shall be adjusted monthly as of the first day
of each month, and the interest to be charged for each month
shall be based on the highest "Prime Rate" in effect during
said month, but in no event shall the rate of interest
charged on any Loans in any month be less than nine percent
(9%) per annum. "Prime Rate" means the actual "Reference
Rate" or the substitute therefor of the Bank of America
NT & SA whether or not that rate is the lowest interest rate
charged by said bank. If the Prime Rate, as defined, is
unavailable, "Prime Rate" shall mean the highest of the
prime rates published in the Wall Street Journal on the
first business day of the month, as the base rate on
corporate loans at large U.S. money center commercial banks.
- -------------------------------------------------------------------------------
3. FEES (Section 1.3):
ORIGINATION FEE: One percent (1%) of the Maximum Dollar Amount, payable
upon the execution of this Agreement.
FACILITY FEE: Twelve Thousand Five Hundred Dollars ($12,500), per
calendar quarter, payable in advance (pro rated for
any partial calendar quarter at the beginning of the
term of this Agreement).
UNUSED LINE FEE: One-half percent (0.5%) per annum calculated upon the
amount by which (i) the Maximum Dollar Amount LESS the
aggregate outstanding principal amount of the Fixed
Asset Term Loan and LESS the then amounts of the
4
<PAGE>
outstanding Letters of Credit, exceeds (ii) the average
daily principal balance of the outstanding Revolving
Loans during the immediately preceding month while this
Agreement is in effect and for so long thereafter as
any of the Obligations are outstanding, which fee shall
be payable on the first Business Day of each calendar
month in arrears.
LETTER OF CREDIT 0.175% per month of the face amount of each documentary
FEES: Letter of Credit outstanding and 0.25% per month of the
face amount of each standby Letter of Credit
outstanding. Such letter of credit fees shall be
deemed to be fully earned upon the issuance of each
Letter of Credit and shall be due and payable on the
first Business Day of each calendar month following
a month during which any Letter of Credit is
outstanding.
4. MATURITY DATE
(Section 6.1): June 30, 1999, subject to automatic renewal as provided
in Section 6.1 of this Agreement, and early
termination as provided in Section 6.2 of this
Agreement.
RENEWAL FEE One-half percent (0.5%) of the Maximum Dollar Amount,
(Section 6.1): payable upon the second anniversary of this Agreement.
EARLY TERMINATION Two percent (2%) of the outstanding balance of the
FEE Obligations, if such early termination occurs during
the first twelve (12) months of the initial
(Section 6.2): of this Agreement; or one percent
(1%) of the outstanding balance of the Obligations,
if such early termination occurs during months
thirteen (13) through twenty-three (23) of the
initial term of this Agreement; and no Early
Termination Fee shall be payable if such early
termination occurs during the twenty-fourth month of
the initial two (2) year term of this Agreement.
- -------------------------------------------------------------------------------
5
<PAGE>
5. REPORTING.
(Section 5.3): Borrowers and ONE shall provide Coast with the following:
1. Weekly, or more frequently as Coast may request: (a) report
of sales of Inventory, indicating gross sales, returns,
allowances and net sales; (b) reports of aggregate Inventory
purchases (including all costs related thereto, such as
freight, duty and taxes) and identifying items of Inventory
in transit to Borrowers or ONE related to applicable
documentary Letters of Credit and/or bill of lading number;
(c) reports of amounts of consigned Inventory held by
Borrowers or ONE by category and by consignor; and (d)
reports of the Value of Inventory (net of markdowns).
2. Monthly Receivable agings, aged by invoice date, within
fifteen (15) days after the end of each calendar month,
including outstanding amounts by category, payments,
accruals and returns and other credits.
3. Monthly accounts payable agings, aged by invoice due date,
and outstanding or held check registers within fifteen (15)
days after the end of each calendar month.
4. Upon Coast's request: (i) copies of customer statements and
credit memos, remittance advices and reports, and copies of
deposit slips and bank statements; (ii) copies of shipping
and delivery documents; (iii) copies of purchase orders,
invoices and delivery documents for Inventory and Equipment
acquired by a Borrower or ONE, as the case may be; and (iv)
reports by retail store location of sales and operating
profits for each such retail store location.
5. Monthly perpetual Inventory reports, which shall be prepared
by product category for Inventory located at one of
Borrowers' or ONE's warehouse facilities, setting forth
aggregate Value and Retail Sales Price of such Inventory and
monthly reports of sales, which shall be prepared by product
category for Inventory located at one of Borrowers' or ONE's
warehouse facilities, or such other inventory reports as are
reasonably requested by Coast, all within fifteen (15) days
after the end of each calendar month.
6. Monthly internally prepared financial statements, as soon as
available, and in any event within thirty (30) days after
the end of each calendar month.
7. Quarterly internally prepared financial statements, as soon
as available, and in any event within forty-five (45) days
after the end of each fiscal quarter of Borrowers.
6
<PAGE>
8. Quarterly prepared financial statements filed on Form 10Q
with the Securities Exchange Commission pursuant to the
Securities Exchange Act of 1934, within ten (10) days after
the applicable filing due date.
9. Quarterly, customer lists, including customer name, address,
and phone number.
10. Annual consolidated and consolidating audited financial
statements, as soon as available, and in any event within
ninety (90) days following the end of Borrowers' fiscal
year, certified by independent certified public accountants
acceptable to Coast.
11. Annual financial statements filed on Form 10K with the
Securities Exchange Commission pursuant to the Securities
Exchange Act of 1934, as soon as available, and in any event
within ninety (90) days following the end of Borrowers'
fiscal year.
12. As soon as available, and in any event within five (5) days
after receipt by a Borrower or ONE, the monthly statements
received by a Borrower or ONE from any Credit Card Issuers
of Credit Card Processors, together with such additional
information with respect thereto as shall be sufficient to
enable Coast to monitor the transactions pursuant to the
Credit Card Agreements.
13. Monthly reports on sales and use tax collections and
deposits, including monthly sales and use tax accruals, all
within fifteen (15) days after the end of each calendar
month; and monthly reports on sales and use tax payments
within forty (40) days after the end of each calendar month.
14 Annual operating budgets (including income statements,
balance sheets and cash flow statements, by month) for the
upcoming fiscal year of the Borrowers and ONE within thirty
(30) days prior to the end of each fiscal year of the
Borrowers and ONE.
- -------------------------------------------------------------------------------
6. BORROWERS INFORMATION:
PRIOR NAMES OF None
BORROWERS AND ONE
(Section 3.2):
PRIOR TRADE NAMES None
OF BORROWERS AND ONE
(Section 3.2):
7
<PAGE>
EXISTING TRADE NAMES Only Deals
OF BORROWERS AND ONE Only Deals $1 to $10
(Section 3.2):
MATERIAL ADVERSE None
LITIGATION
(Section 3.10):
- -------------------------------------------------------------------------------
7. OTHER PROVISIONS
CONDITIONS PRECEDENT
(Section 5.1):
1. Borrowers and ONE shall have Excess Availability as of the
date hereof, shall not be less than Three Hundred Thousand
Dollars ($300,000) after giving effect to the initial Loans
made or to be made and the face amount of the Letters of
Credit issued or to be issued in connection with the initial
transactions hereunder.
2. Borrowers and ONE shall have no accounts payable outstanding
on which payment has been due for ninety (90) days or more
from the invoice due date.
3. Coast shall have received landlord and mortgagee waivers
from the lessors and mortgagees of all locations where any
Collateral is located, and to the extent Coast has not
received such waivers for any of Borrowers' or ONE's retail
store locations, an Availability Reserve will be established
as set forth in Section 8 of this Agreement.
4. Borrowers or ONE shall have established the Lockbox
Accounts, Blocked Accounts and Concentration Accounts as
required by Section 4.4 of the Agreement and Coast shall
have received, in form and substance satisfactory to Coast,
all agreements with such depository banks as Coast may
require pursuant to Section 4.4 of this Agreement, duly
authorized, executed and delivered by such depository banks,
and by the Borrowers or ONE, as the case may be.
5. Coast shall have received Credit Card Acknowledgements in
each case, duly authorized, executed and delivered by the
Credit Card Issuers and Credit Card Processors.
6. Coast shall have received, in form and substance
satisfactory to Coast, Operating Account Security Interest
Notification Letters executed by the banks at which the
Borrowers or ONE maintain operating accounts
8
<PAGE>
whereby such banks acknowledge the security interest
of Coast in such funds and operating accounts and
agree to take instructions from Coast with respect
to such operating accounts.
7. Coast shall have received, in form and substance
satisfactory to Coast, an agreement by the Armored Car
Company acknowledging the security interests of Coast in the
Collateral, waiving any security interest, lien or other
claim to cash and other items delivered by Borrower to the
Armored Car Company, agreeing to send all such cash and
other items received by it only to the Concentration
Accounts and to otherwise follow the instructions of Coast
with respect thereto upon Coast's request, in each case duly
authorized, executed and delivered by the Armored Car
Company.
8. Coast shall have received true and correct copies of the ODI
Loan Documents, the UAS Loan Documents and the ONE Loan
Documents and the respective Collateral Assignments, in form
and substance satisfactory to Coast, of the ODI Loan
Documents, the UAS Loan Documents and the ONE Loan Documents
by Universal to Coast and consented to and acknowledged by
ODI, UAS or ONE, respectively.
9. Coast shall have received the Limited Liability Continuing
Guaranty of ONE, in form and substance satisfactory to
Coast, whereby ONE guarantees advances to it by Universal
under the Universal Loan Documents initially advanced by
Coast to ONE based upon the imputed borrowing availability
of ONE, such guaranty and the obligations of ONE thereunder
secured by substantially all of the assets of ONE.
ADDITIONAL COVENANTS
(Section 5.1):
1. Upon Coast's request (no more than once in any twelve (12)
month period, but at any time or times as Coast may request
on or after an Event of Default), Borrowers or ONE shall, at
their expense, conduct through either RGIS Inventory
Specialists, Inc. or Washington Inventory Services, Inc. a
physical count of the Inventory in form, scope and
methodology acceptable to Coast the results of which shall
be reported directly by such inventory counting service to
Coast, and Borrowers or ONE shall promptly deliver
confirmation in a form satisfactory to Coast that
appropriate adjustments have been made to the inventory
records of Borrowers or ONE to reconcile the inventory count
to Borrowers' or ONE's inventory records.
2. Borrowers or ONE shall retain a retail inventory monitoring
firm acceptable to Coast to monitor the Inventory on a
monthly basis. The
9
<PAGE>
expenses in connection with such monthly monitoring of
Inventory shall be shared equally by Borrowers and
Coast.
3. Borrowers or ONE shall at the end of each business day
retain cash in the registers at each of its retail store
locations of no more than One Thousand Five Hundred Dollars
($1,500).
4. Borrowers or ONE shall not permit any modifications or
amendments to the ODI Loan Documents, the UAS Loan Documents
or the ONE Loan Documents without the prior written consent
of Coast.
5. Universal shall, at its own expense, take any and all
actions to perfect, maintain, protect and enforce its first
priority security interest and other rights in all of the
assets of ODI, UAS and ONE pledged to Universal pursuant to
the respective ODI Loan Documents, the UAS Loan Documents or
the ONE Loan Documents and Universal's failure to do so
shall constitute an Event of Default hereunder.
6. Borrowers and ONE shall on the date hereof and at all times
during the term of this Agreement maintain a Consolidated
Tangible Net Worth equal to at least Ten Million Dollars
($10,000,000).
7. Borrowers shall on the date hereof and at all times during
the term of this Agreement maintain a Consolidated Tangible
Net Worth equal to at least One Million Dollars
($1,000,000), but excluding from tangible assets any
indebtedness owing from ONE to any Borrower or any equity
value attributable to the ownership by any Borrower of any
equity interest in ONE.
10
<PAGE>
BORROWER:
UNIVERSAL INTERNATIONAL, INC.
a Minnesota corporation
By: /s/ Mark Ravich
------------------------------------
President or Vice President CEO
By: /s/ Mark Ravich
------------------------------------
Secretary or Assistant Secretary
ONLY DEALS, INC.,
a Minnesota corporation
By: /s/ Mark Ravich
------------------------------------
President or Vice President Chairman
By: /s/ Mark Ravich
------------------------------------
Secretary or Assistant Secretary
UNIVERSAL ASSET-BASED SERVICES, INC.
a Minnesota corporation
By: /s/ Mark Ravich
------------------------------------
President or Vice President Chairman
By: /s/ Mark Ravich
------------------------------------
Secretary or Assistant Secretary
COAST:
COAST BUSINESS CREDIT, a division of Southern Pacific Thrift & Loan Association,
a California corporation
By: /s/ Phillip Goessler
---------------------------------
Title V.P.
-------------------------------
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 304
<SECURITIES> 0
<RECEIVABLES> 3,814
<ALLOWANCES> 0
<INVENTORY> 16,965
<CURRENT-ASSETS> 23,724
<PP&E> 9,360
<DEPRECIATION> 0
<TOTAL-ASSETS> 33,229
<CURRENT-LIABILITIES> 12,053
<BONDS> 9,665
0
0
<COMMON> 245
<OTHER-SE> 10,573
<TOTAL-LIABILITY-AND-EQUITY> 33,229
<SALES> 41,438
<TOTAL-REVENUES> 41,438
<CGS> 27,456
<TOTAL-COSTS> 27,456
<OTHER-EXPENSES> 19,019
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 633
<INCOME-PRETAX> (5,670)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,670)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,670)
<EPS-PRIMARY> (1.16)
<EPS-DILUTED> (1.16)
</TABLE>
