SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
JULY 2, 1996
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED)
BRAUN'S FASHIONS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 0-19972 06-1195422
(STATE OR OTHER (COMMISSION FILE NUMBER) (IRS EMPLOYER
JURISDICTION OF IDENTIFICA-
INCORPORATION) TION NO.)
2400 XENIUM LANE NORTH
PLYMOUTH, MINNESOTA 55441
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(612) 551-5000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
BRAUN'S FASHIONS CORPORATION
COMMISSION FILE NO.: 0-19972
Item 3. Bankruptcy or Receivership.
On July 2, 1996, Braun's Fashions Corporation, a Delaware corporation,
together with its wholly-owned operating subsidiary, Brauns Fashions, Inc.
(collectively, the "Registrant") filed in the United States Bankruptcy Court for
the District of Delaware a petition for reorganization under Chapter 11 of title
11 of the United States Code, Case Number 96-1030(HSB) (the "Chapter 11
Filing"). The Registrant is managing its business as debtor-in-possession
subject to Court approval for certain actions of the Registrant. The Registrant
has also received an interim debtor-in-possession financing facility of
$10,000,000 with Norwest Bank Minnesota, N.A. under a revolving Credit and
Security Agreement to ensure that the Registrant can continue operating in the
ordinary course of business. See the press release dated July 2, 1996 filed as
Exhibit 99.1 hereto and incorporated herein by this reference.
Item 7. Financial Statements and Exhibits.
(c) Exhibits.
10.1 Revolving Credit and Security Agreement dated as of July 8,
1996 and between Braun's Fashions, Inc. and Norwest Bank
Minnesota, National Association.
10.2 Guaranty dated as of July 8, 1996 by and between Braun's
Fashions Corporation and Norwest Bank Minnesota, National
Association.
10.3 Revolving Note dated as of July 8, 1996 by and between Braun's
Fashions, Inc. And Norwest Bank Minnesota, National
Association.
99.1 Registrant's press release dated July 2, 1996 relating to the
filing of the Registrant's plan of reorganization.
* * * * * *
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: July 15, 1996
BRAUN'S FASHIONS CORPORATION
(Registrant)
By: ________________________
Stephen W. Clark
Vice President and
Chief Financial Officer
DEBTOR-IN-POSSESSION
REVOLVING CREDIT AND SECURITY AGREEMENT
DATED AS OF JULY 8, 1996
This Debtor-In-Possession Revolving Credit and Security Agreement ("DIP
LOAN AGREEMENT") between NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, a
national banking association having its principal office at Norwest Center,
Sixth and Marquette, Minneapolis, Minnesota 55479 ("BANK"), and BRAUN'S
FASHIONS, INC., a Minnesota corporation, with its principal place of business at
2400 Xenium Lane North, Plymouth, Minnesota 55441 ("BORROWER" or "DEBTOR"), a
debtor-in-possession in Case No. 96-1030 (HSB) pending in the United States
Bankruptcy Court for the District of Delaware ("CASE"), and BRAUN'S FASHIONS
CORPORATION, a Delaware corporation with its principal office at 2400 Xenium
Lane North, Plymouth, Minnesota 55441, a debtor-in-possession in Case No.
96-1030 (HSB) pending in the United States Bankruptcy Court for the District of
Delaware ("GUARANTOR").
RECITALS
FIRST: On July 2, 1996, Debtor filed its voluntary petition with the
Bankruptcy Court commencing the Case. Pursuant to Sections 1107 and
1108 of the Bankruptcy Code, Debtor as debtor-in-possession has
remained in possession and control of its assets.
SECOND: Debtor entered into a Commitment Letter on June 24, 1996, in
order to obtain a post-petition secured loan from Bank.
THIRD: Bank is prepared to extend certain financial accommodations to
Borrower, subject to the terms and conditions set forth herein, and
based upon the court's ability to grant to Bank a first priority lien
on all assets of Borrower.
NOW, THEREFORE, and in consideration of the mutual promises, covenants
and agreements contained herein and for other good and valuable consideration
the receipt and sufficiency of which are hereby acknowledged, the Borrower and
the Bank agree as follows:
1. DEFINED TERMS
1.1. DEFINED TERMS. In addition to terms defined elsewhere in this DIP
Loan Agreement, when used herein, the following terms shall have the following
meanings:
"ACCOUNT" means "account," if any, as defined in Section 9-106 of the
Uniform Commercial Code as currently enacted in the State of Minnesota (and
includes Receivables defined herein).
"ADVANCE" means a disbursement by Bank to Borrower under the Credit.
"AFFILIATE" means, as to any Person, any other Person which, directly
or indirectly, is in control of, is controlled by, or is under common control
with such Person. For purposes of this definition, a Person (a "Controlled
Person") shall be deemed to be "controlled by" another Person (a "Controlling
Person") if the Controlling Person possesses, directly or indirectly, power to
direct or cause the direction of the management and policies of the Controlled
Person whether by contract or otherwise.
"AGGREGATE OUTSTANDING" means at any time the sum of: (i) the aggregate
outstanding principal balance of all Advances under the Revolving Loan plus (ii)
the amount of the Letter of Credit Obligations.
"APPLICATION" means an application by Borrower, in a form and
containing terms, conditions and provisions acceptable to Bank, for the issuance
by Bank of a Letter of Credit, substantially in the form of Exhibit D.
"AUTHORIZED PERSON" means any of the following: Nicholas Cook, Chairman
of the Board and Chief Executive Officer; Herbert Froemming, President and Chief
Operating Officer; and Stephen W. Clark, Vice President, and Chief Financial
Officer; and Andrew Moller, Controller.
"BASE RATE" means the rate of interest publicly announced by Bank from
time to time as its Base Rate.
"BOOK VALUE" has the meaning ascribed to such term in Exhibit A.
"BORROWING BASE" has the meaning ascribed to such term in Exhibit A.
"BORROWING CERTIFICATES" means the financial reporting certificates
substantially in the form of Exhibit B.
"BUSINESS DAY" means any day other than a Saturday, Sunday or other day
on which banks in Minneapolis, Minnesota are authorized or required to be
closed.
"CAPITAL EXPENDITURES" means, for any period, the aggregate of all
expenditures (whether paid in cash or accrued as liabilities during such period
and including that portion of capitalized leases which is capitalized on the
balance sheet of Borrower), excluding interest capitalized by Borrower during
such period that, in conformity with GAAP, is required to be included in or
reflected by the property, plant, equipment or intangibles or similar fixed
asset accounts reflected in the balance sheet of Borrower (including equipment
which is purchased simultaneously with the trade-in of existing equipment owned
by Borrower to the extent of the gross amount of such purchase price less the
Book Value of the equipment being traded in at such time), but excluding
expenditures made in connection with the replacement or restoration of assets,
to the extent reimbursed or financed from insurance proceeds paid on account of
the loss of or the damage to the assets being replaced or restored, or from
awards of compensation arising from the taking by condemnation or eminent domain
of such assets being replaced.
"CASH ACCOUNT" has the meaning ascribed to such term in Section 2.2(b).
"CARVE-OUT" has the meaning ascribed to such term in Section 3.7.
"COLLATERAL" has the meaning ascribed to such term in Section 3.1.
"COLLATERAL ACCOUNT" has the meaning ascribed to such term in Section
3.2(d).
"COMMITMENT FEE" has the meaning set forth in Section 2.3(a).
"CREDIT" means the facility established under this DIP Loan Agreement
pursuant to which Advances are to be made and Letters of Credit are to be
issued.
"CREDIT CARD RECEIVABLES" has the meaning set forth in Section 7.1(i).
"DEFAULT" means an event which, with the giving of notice, or the
passage of time, would constitute an Event of Default.
"DIP LOAN AGREEMENT" means this Revolving Credit and Security
Agreement, as it may be amended, modified or supplemented from time to time.
"DOLLARS" means lawful money of the United States of America.
"ELIGIBLE INVENTORY" has the meaning ascribed to such term in Exhibit
A.
"ENVIRONMENTAL LAWS" means any and all federal, state, local or
municipal laws, rules, orders, regulations, statutes, ordinances, codes, decrees
or requirements of any governmental entity regulating, relating to or imposing
liability or standards of conduct concerning any Hazardous Substance or other
hazardous, toxic or dangerous waste, substance or constituent, or other
substance, whether solid, liquid or gas, as now or at any time hereafter in
effect.
"ENVIRONMENTAL LIEN" means a Lien in favor of any Governmental
Authority for (i) any liability under federal, state or local environmental laws
or regulations, or (ii) damages arising from or costs incurred by such
Governmental Authority in response to a release or threatened release of a
Hazardous Substance or other substance into the environment.
"EQUIPMENT" means "equipment" as defined in Section 9-106 of the
Uniform Commercial Code as currently enacted in the State of Minnesota.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations promulgated and rulings issued
thereunder.
"EVENT OF DEFAULT" has the meaning ascribed to such term in Section
7.1.
"FINANCING ORDER" means the Final Order Approving Emergency Motion to
Approve Postpetition Financing.
"GAAP" means generally accepted accounting principles applied on a
basis consistent with those used in preparing the financial statements of
Borrower previously provided to Bank by Borrower.
"GENERAL INTANGIBLES" means "general intangibles" as defined in Section
9-106 of the Uniform Commercial Code as currently enacted in the State of
Minnesota, including without limitation causes of action, trade names,
trademarks, patents and licenses.
"GOVERNMENTAL AUTHORITY" means any Federal, state, county, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality or any court, in each case whether of the United States or
foreign.
"HAZARDOUS SUBSTANCE" means any substance or material that, whether by
its nature or use, is subject to regulation under any Environmental Law.
"INDEBTEDNESS" shall mean, as to the Borrower, all items of
indebtedness, obligation or liability, whether matured or unmatured, liquidated
or unliquidated, direct or contingent, joint or several, including but not
limited to principal, interest, costs, and reasonable attorneys fees (including
in-house counsel fees), other fees, expenses and letter of credit obligations.
"INTERIM ORDER" means the Order, in form and substance satisfactory to
Bank, entered by the Bankruptcy Court, after a preliminary hearing on this DIP
Loan Agreement, which Order approves this DIP Loan Agreement.
"INVENTORY" means "inventory" as defined in Section 9-109(4) of the
Uniform Commercial Code as currently enacted in the State of Minnesota.
"KEY OFFICER" means Nicholas Cook, Herbert Froemming, or Stephen Clark.
"LANDLORD NOTICE" means prompt notice of Interim Order and the
Financing Order.
"LETTER OF CREDIT" means any letter of credit issued pursuant to
Section 2.2, which letter of credit shall be a standby or documentary letter of
credit.
"LETTER OF CREDIT OBLIGATIONS" means at any time, the sum of: (i) the
aggregate undrawn amount of all Letters of Credit then outstanding plus (ii) all
amounts theretofore drawn under Letters of Credit and not then reimbursed.
"LOAN DOCUMENTS" means this DIP Loan Agreement, the Revolving Note and
the Applications together with all other agreements, documents and instruments
executed and delivered to Bank in connection herewith.
"MATURITY DATE" means the earlier of: (i) April 1, 1999; (ii) the
occurrence of an Event of Default, or (iii) the date a plan of reorganization is
confirmed.
"MAXIMUM CREDIT COMMITMENT" means Ten Million Dollars ($10,000,000.00).
"OBLIGATIONS" means all of the liabilities, obligations and
indebtedness of Borrower to Bank of any kind or nature, however created, arising
or evidenced, whether direct or indirect, absolute or contingent, now or
hereafter existing or due or to become due, whether arising in a transaction
involving the Bank alone, or in a transaction involving other creditors of
Borrower, and including but not limited to (i) Borrower's obligations under this
DIP Loan Agreement including without limitation Borrower's obligations under
Section 2.3(c), (ii) Borrower's obligations under the Revolving Note, (iii)
Borrower's obligations with respect to all Letters of Credit and the respective
Applications therefor, (iv) interest, charges, expenses, reasonable attorneys'
fees and other fees and sums chargeable to Borrower by Bank under this DIP Loan
Agreement or the other Loan Documents, including obligations of performance and
including any fees and costs incurred in negotiating, drafting, or enforcing all
amendments, extensions, renewals, refundings or refinancings of any of the
foregoing including post-confirmation financing.
"PBGC" means the Pension Benefit Guaranty Corporation, or any successor
agency or entity performing substantially the same functions.
"PERMITTED LIENS" means the liens set forth on the attached Schedule
5.3.
"PERSON" means any natural person, corporation, division of a
corporation, firm, association, partnership, joint venture, limited liability
company, association, trust, joint-stock company, unincorporated organization,
government, Governmental Authority or any other entity, whether acting in an
individual, fiduciary or other capacity.
"PREMISES" means all premises where Borrower conducts its business and
any rights of possession, including, without limitation, the premises described
on Schedule 5.16.
"PROJECTIONS" has the meaning ascribed to such term in Section 5.19.
"RECEIVABLES" means all of Borrower's rights to payment for goods sold
or leased or services performed by Borrower or any other Person, whether now in
existence or arising from time to time hereafter, including without limitation,
rights evidenced by an Account, note, contract right, security agreement,
chattel paper, or other evidence of indebtedness or security, Credit Card
Receivables, for amounts due under any Receivables Agreements, together with (i)
all security pledged, assigned, hypothecated or granted to or held by Borrower
to secure the foregoing, (ii) General Intangibles arising out of Borrower's
rights in any goods the sale of which gave rise thereto, (iii) all guaranties,
endorsements and indemnifications on, or of, any of the foregoing, (iv) all
powers of attorney for the execution of any evidence of indebtedness or security
or other writing in connection therewith, (v) all books, records, ledger cards,
print-outs and invoices relating thereto, (vi) all evidences of the filing of
financing statements and other statements and the registration of other
instruments in connection therewith and amendments thereto, notices to other
creditors or secured parties, and certificates from filing or other registration
offices, (vii) all credit information, reports and memoranda relating thereto,
and (viii) all other writings related in any way to the foregoing.
"RECEIVABLES AGREEMENTS" means (i) the agreements in effect as of the
date of this DIP Loan Agreement, together with any amendments and extensions
thereof hereafter, under which the Receivables arising from the use of credit or
charge cards for the purchase or sale of Borrower's Inventory are processed and
the proceeds thereof are remitted to Borrower or at Borrower's direction to
Bank, on each Business Day and (ii) all such agreements to which Borrower
becomes a party hereafter.
"REVOLVING NOTE" means the Revolving Note of Borrower to Bank in the
form of Exhibit C.
"SUPER-PRIORITY CLAIM" means a claim, authorized pursuant to Section
364(c)(1) of the Bankruptcy Code, against Borrower in the Case which is an
administrative expense claim having priority over any and all administrative
expenses of the kind specified in Sections 503(b) and 507(b) of the Bankruptcy
Code, subject only to the Carve-Out.
"SECURITY INTEREST" or "LIEN" means any lien, pledge, mortgage,
encumbrance, charge or security interest of any kind whatsoever (including
without limitation, the lien or retained security title of a conditional sale or
other title retention agreement or any lease in the nature thereof) whether
arising under a security instrument or as a matter of law, judicial process or
otherwise or an agreement granting any lien, security interest or pledge, or
mortgaging or encumbering any asset.
1.2. TERMS GENERALLY. The definitions in Section 1.1 shall apply
equally to both the singular and plural forms of the terms defined. All
references in this DIP Loan Agreement to Articles, Sections, Exhibits, and
Schedules shall be deemed references to Articles and Sections of, and Exhibits
and Schedules to, this DIP Loan Agreement unless the context requires otherwise.
Except as otherwise expressly provided herein, all terms of an accounting or
financial nature shall be construed in accordance with GAAP, as in effect from
time to time; provided however, that for purposes of determining compliance with
any covenant set forth in Article VI, such terms shall be construed in
accordance with GAAP as in effect on the date of this DIP Loan Agreement applied
on a basis consistent with the application used in Borrower's audited financial
statements referred to in Section 5.6. All terms contained in this DIP Loan
Agreement (and which are not otherwise specifically defined herein) shall have
the meanings provided in the Uniform Commercial Code of the State of Minnesota
to the extent the same are used or defined therein.
2. REVOLVING CREDIT AND LETTERS OF CREDIT
2.1. REVOLVING LOAN.
(a) Advances. Bank agrees, on the terms and subject to the
conditions herein set forth, to make Advances to Borrower from
time to time during the period from the date hereof until the
earlier of the "Maturity Date" or the date the Credit has been
terminated pursuant to Sections 2.3(d) or 7.1(a), in an
aggregate amount of any amount as requested by Borrower, as
long as, at any time outstanding, when added to all other
Obligations, including the Letter of Credit Obligations, does
not exceed the lesser of (1) an amount equal to the Maximum
Credit Commitment, or (ii) an amount equal to the Borrowing
Base as shown on the most recent Borrowing Certificates
submitted to Bank, or, if no such certificates have been
submitted by Borrower to Bank on a timely basis, the Borrowing
Base as calculated in good faith by Bank, which Advances shall
be secured by the Collateral as provided in Article III
hereof. The Credit shall be a revolving facility and it is
contemplated that Borrower will request Advances, make
prepayments and request additional Advances. Borrower agrees
to comply with the following procedures in requesting Advances
under this Section 2.1(a). Advances shall be made upon entry
of the Interim Order or the Financing Order and execution of
the DIP Loan Agreement and related documents and in accordance
therewith. Bank may increase the Borrowing Base from time to
time without notice or court approval so long as the amount
extended under the Borrowing Base does not exceed the Maximum
Credit.
1. Borrower will not request any Advance under this
Section 2.1(a) if, after giving effect to such
requested Advance, the sum of the outstanding and
unpaid Advances under this Section 2.1(a) or
otherwise would exceed the Borrowing Base.
2. Each request for an Advance may be made in writing
specifying the date of the requested Advance and the
amount thereof, and shall be by (i) any officer of
Borrower; (ii) any person designated as Borrower's
agent by any officer of Borrower in a writing
delivered to the Bank; or (iii) any person reasonably
believed by Bank to be an officer of Borrower or such
a designated agent, (iv) such written request must be
received prior to 12:00 p.m. (Minneapolis time) on
the Business Day of the requested Advance (requests
for Advances received by Bank after 12:00 p.m.
(Minneapolis time) shall be processed on the
immediately succeeding Business Day). Such written
request may be made by facsimile. Borrower may not
make more than one request for an Advance per
Business Day.
3. Upon fulfillment of the applicable conditions set
forth in Article IV hereof, Bank shall disburse loan
proceeds, if any, by crediting the same to Borrower's
demand deposit account maintained with Bank unless
Bank and Borrower shall agree in writing to another
manner of disbursement. Borrower shall be obligated
to repay all Advances under this Section 2.1(a)
notwithstanding the failure of the Bank to receive
written confirmation of Borrower's request for an
Advance and notwithstanding the fact that the person
requesting the same and identifying himself as an
Authorized Person, was not in fact authorized to do
so. Any request for an Advance under this Section
2.1(a), shall be deemed to be a representation by
Borrower that (i) the condition set forth in Section
2.1(a)(1) hereof has been met, and (ii) the
conditions set forth in Article IV hereof have been
met as of the time of the request.
(b) Revolving Note. The obligation to repay all Advances under the
Revolving Loan and interest accrued thereon shall be evidenced
by a single promissory note of Borrower payable to the order
of Bank (the "REVOLVING NOTE").
(c) Payment. All Advances under the Revolving Loan shall be paid
by Borrower on the Maturity Date, but at Borrower's election,
may be repaid in whole or in part at any time prior to such
date without premium or penalty. Borrower shall pay to Bank
all proceeds of Collateral in accordance with the procedures
established by Bank for payment into the Collateral Account.
Borrower agrees that the amount and interest rate or rates
shown on the books and records of Bank as being the aggregate
amount of Advances outstanding and the interest rate or rates
applicable thereto shall be prima facie evidence of the
principal balance of the Revolving Loan and the applicable
interest rate or rates. Each month Bank shall render to
Borrower a statement setting forth the principal balance of
the Advances and the interest due thereon. Each statement
shall be subject to subsequent adjustment by Bank but shall be
presumed to be correct and binding upon Borrower, and shall
constitute an account stated unless, within ten (10) Business
Days of the date of such statement Borrower shall deliver to
Bank its written objection thereto specifying the error or
errors, if any, which Borrower believes are contained in such
statement. In the absence of a written objection delivered to
Bank, Bank's statement shall be conclusive evidence against
Borrower of the amounts owing to Bank by Borrower.
Any payment received by Bank may be applied to the Advances
including interest thereon and any fees, costs and reasonable
expenses hereunder, and under the Loan Documents, in such
order and in such amounts as the Bank, in its discretion, may
from time to time determine.
(d) Interest Rate; Payment of Interest. Interest on the principal
of the Advances shall accrue at a floating annual rate equal
to one and one-half percent (1 1/2%) above the Base Rate. Each
change in the interest rate thereon shall become effective on
the day the corresponding change in the Base Rate becomes
effective. Accrued interest shall be due and payable, in
arrears, monthly, commencing on the fourth Business Day of the
month immediately following execution of this DIP Loan
Agreement and continuing on the fourth Business Day of each
month thereafter until all of the Obligations have been paid
in full in cash and Bank's commitment to extend the Credit has
been terminated pursuant to Section 2.3(d) or Section 7.3(a).
Interest under the Revolving Note shall be computed on the
basis of actual number of days elapsed in a year of 360 days.
Borrower hereby authorizes Bank, if and to the extent an
interest payment is not made timely, to make an Advance, in an
amount equal to the accrued interest then due and payable to
Bank under the Revolving Note or hereunder and to apply the
same to the accrued interest due.
(e) Default Interest. Upon the occurrence of an Event of Default,
and at all times thereafter during the continuance of such
event, Borrower shall on demand from time to time pay
interest, to the extent permitted by law, on the Obligations
during the period of time such default continues until (but
not including) the date of actual payment at a rate equal to
two percent (2%) per annum in excess of the interest rate
otherwise in effect pursuant to Section 2.2(d).
(f) Payment on Non-Business Days. Whenever any payment to be made
hereunder or under the Revolving Note shall be stated to be
due on a day other than a Business Day, such payment shall be
made on the immediately succeeding Business Day, and such
extension of time shall in such case be included in the
computation of payment of interest on the Revolving Note or
the fees hereunder, as the case may be.
(g) Usury Provisions. The Revolving Note shall be governed by and
construed in accordance with applicable statutes. The parties
hereto intend to conform strictly to the applicable usury
laws. Therefore, all agreements between Borrower and Bank
hereof, whether now existing or hereafter arising and whether
written or oral, are hereby expressly limited to the extent
that in no event, whether by reason of acceleration of the
maturity hereof or otherwise, shall the amount paid or agreed
to be paid to the Bank hereof for the use, forbearance, or
detention of money hereunder or otherwise, exceed the maximum
amount permissible under applicable law. If the fulfillment of
any provision hereof or of any deed of trust or other document
evidencing or securing the indebtedness evidenced hereby, at
the time performance of such provision shall be due, shall
involve transcending the limit of validity prescribed by law,
then, ipso facto, the obligation to be fulfilled shall be
reduced to the limit of such validity. If the Bank hereof
shall ever receive anything of value deemed interest under
applicable law that would exceed interest at the highest
lawful rate, an amount equal to any such excessive interest
shall be applied to the reduction of the principal amount
owing hereunder and not to the payment of interest. If such
excessive interest exceeds the unpaid balance of principal
hereof, such excess shall be refunded to the Borrower. All
sums paid or agreed to be paid to the Bank hereof for the use,
forbearance, or detention of the indebtedness of the Borrower
to the Bank hereof shall, to the extent provided by applicable
law, be amortized, prorated, allocated, and spread throughout
the term thereof. The provisions of this paragraph shall
control all agreements between the Borrower and the Bank
hereof.
2.2. LETTERS OF CREDIT.
(a) Issuance. Prior to the Maturity Date and subject to the terms
and conditions of this DIP Loan Agreement, Borrower may
request the issuance of Letters of Credit substantially in the
form of Exhibit E by submitting an Application to the Bank.
The Letter of Credit Obligations shall not exceed Seven
Million Dollars ($7,000,000.00). In addition, the Letter of
Credit Obligations plus all other Obligations shall not exceed
the lesser of the Maximum Credit Commitment or the Borrowing
Base. Issuance of the Letters of Credit are subject to the
following conditions: (i) No Letters of Credit shall be issued
until the Financing Order becomes a final order; (ii) No
Letters of Credit shall be issued unless issued in accordance
with the Bank's customary requirements, standards, and
procedures; (iii) The Letters of Credit shall be issued in
connection with the purchase of Inventory by Borrower and for
such other purposes as are acceptable to Bank; and (iv) No
Letter of Credit shall be issued in an original face amount in
excess of Five Hundred Thousand Dollars ($500,000.00) unless
otherwise agreed to in writing by Bank; (v) Whenever Borrower
desires Bank to issue a Letter of Credit, it shall give Bank
at least two (2) Business Days' prior written (including
telegraphic, telex, facsimile or cable communication) notice
specifying the Business Day on which the proposed Letter of
Credit is to be issued, the stated amount of the Letter of
Credit so requested, the expiration date of such Letter of
Credit, the name and address of the beneficiary.
(b) Term; Cash Collateralization. No Letter of Credit shall have a
stated expiration date later than February 15, 1999. Upon the
earlier of the occurrence of the Maturity Date or February 15,
1999, Borrower shall with respect to each Letter of Credit
then outstanding: (i) cause all unexpired Letters of Credit to
be returned to Bank undrawn and marked "canceled" or (ii) if
Borrower is unable to do so in whole or in part, either (A)
cause a stand-by letter of credit to be issued in favor of
Bank as beneficiary thereunder in form and substance
satisfactory to Bank in its sole discretion, issued by a bank
satisfactory to Bank in its sole discretion, in an amount
equal to one hundred five percent (105%) of the then undrawn
face amount of all outstanding Letters of Credit issued by
Bank or (B) deposit cash into an account designated by Bank
and controlled by Bank ("CASH ACCOUNT") in an aggregate amount
equal to one hundred five percent (105%) of the then undrawn
face amount of all outstanding Letters of Credit. In the event
Borrower fails to effect timely either (i) or (ii) immediately
above, Borrower hereby authorizes Bank to, and Bank may in its
sole discretion, make an Advance, subject to availability, in
an amount equal to one hundred five percent (105%) of the
aggregate undrawn face amounts of the then outstanding Letters
of Credit (notwithstanding any failure of all of the
conditions precedent set forth in Article IV to be satisfied
at the time of such Advance) and deposit the same into the
Cash Account. Notwithstanding the foregoing in this Section
2.2(b), a Letter of Credit may expire after February 15, 1999,
so long as prior to the issuance of such Letter of Credit,
Borrower has deposited cash into the Cash Account in an amount
to be determined by Bank in its sole discretion which amount
shall not be less than an amount equal to 105% of the stated
face amount of such Letter of Credit (any amendment to
increase the stated amount of such Letter of Credit will
require an additional deposit into the Cash Account in cash in
an amount equal to 105% of the amount of increase of the
stated amount). All amounts deposited into the Cash Account
shall be part of the Collateral and shall be held by Bank as
security for all of the Letter of Credit Obligations and
applied by Bank to the Letter of Credit Obligations as they
become due.
(c) Letter of Credit Fees. Borrower shall pay to Bank with respect
to each documentary Letter of Credit a fee calculated (on the
basis of the actual number of days elapsed over a year of 360
days) at the rate of one and one-half percent (1 1/2%) per
annum on the face amount of each documentary Letter of Credit
issued; Borrower shall pay to Bank with respect to each
stand-by Letter of Credit a fee calculated (on the basis of
the actual number of days elapsed over a year of 360 days) at
the rate of two and one-half percent (2 1/2%) per annum on the
face amount of each standby Letter of Credit issued; all such
Letter of Credit fees shall be paid prior to issuance of the
respective Letter of Credit. In addition thereto Borrower
shall pay on demand to Bank such fees and charges in
connection with the processing, amending and administering of
the Letters of Credit issued by Bank as are customarily
imposed by Bank from time to time in connection with letter of
credit transactions.
(d) Reimbursement. Bank shall notify Borrower each time a Letter
of Credit is presented at Bank for payment (including the
amount of the requested draw, the beneficiary and identity of
the Letter of Credit) and shall advise Borrower whether such
presentment for payment is satisfactory in order for Bank to
honor the Letter of Credit. If the presentation is such that
Bank honors the Letter of Credit and pays the beneficiary
thereunder, Borrower shall immediately reimburse Bank for the
amount(s) drawn thereunder. If, however, the presentation of
documents contains discrepancies from those required under the
applicable Letter of Credit (including, without limitation,
the expiration of such Letter of Credit), Bank shall use its
best efforts to promptly notify persons designated by Borrower
of the discrepancies and permit Borrower to waive any such
discrepancies, to which Borrower shall respond promptly. In
order to effect such immediate reimbursements, Borrower hereby
authorizes Bank to make an Advance, subject to availability,
simultaneously with Bank's payment to the Letter of Credit
beneficiary, in an amount sufficient to pay in full Borrower's
reimbursement obligations to Bank and to apply the same to the
reimbursement obligations then due, notwithstanding any
failure of all of the conditions precedent set forth in
Article IV to be satisfied at the time of such Advance.
(e) Nature of Letter of Credit Obligations Absolute. The
obligations of Borrower to reimburse Bank for drawings made
under each Letter of Credit shall be unconditional and
irrevocable and shall be paid strictly in accordance with the
terms of this DIP Loan Agreement and the Applications under
all circumstances, including without limitation (it being
understood that any such payment by Borrower shall be without
prejudice to, and shall not constitute a waiver of, any rights
Borrower might have or might acquire against the beneficiary
of any Letter of Credit as a result of the payment by Bank of
any draft or the reimbursement by Borrower thereof): (i) the
existence of any claim, setoff, defense or other right which
Borrower may have at any time against a beneficiary of any
Letter of Credit or against Bank, whether in connection with
this DIP Loan Agreement, the transactions contemplated herein
or any unrelated transaction; (ii) any draft, demand,
certificate or other document presented under any Letter of
Credit proving to be forged, fraudulent, invalid in any
respect or any statement therein being untrue or inaccurate in
any respect; (iii) any other circumstance or happening
whatsoever, which is similar to any of the foregoing; or (iv)
the fact that any Default or Event of Default shall have
occurred and be continuing.
2.3. THE CREDIT.
(a) Commitment/Transaction Fee. Borrower has paid a fee of
Sixty-Five Thousand Dollars ($65,000.00), (half of which is
nonrefundable prior to an advance made under the DIP Loan
Agreement).
(b) Use of Proceeds. The proceeds of the Revolving Loan shall be
used only: (i) for general working capital purposes, (ii) for
purchase of Inventory, or (iii) for Capital Expenditures
subject to the limitations in Section 6.9.
(c) Mandatory Payment. If at any time the Aggregate Outstanding
exceeds the lesser of (i) an amount equal to the Maximum
Credit Commitment, or (ii) an amount equal to the Borrowing
Base, Borrower shall immediately pay into the Collateral
Account an amount sufficient to cause the Aggregate
Outstanding to be equal to or less than the lesser of (i) the
Maximum Credit Commitment or (ii) the sum of the Borrowing
Base.
(d) Termination of Commitment. Unless otherwise agreed to in
writing by Bank, the commitment by Bank to extend the Credit
shall terminate in full upon the earlier of: (i) April 1, 1999
(without notice by Bank); (ii) written notice by Bank to
Borrower that Bank is terminating the Credit and commitment to
lend hereunder pursuant to Section 7.3(a); (iii) the
occurrence of an Event of Default; or (iv) confirmation of a
plan of reorganization; thereafter Bank's commitment shall be
of no further force or effect unless otherwise agreed in
writing by Bank. It is anticipated that Borrower and Bank will
negotiate a postconfirmation loan, and nothing in this
paragraph shall preclude or prejudice any such negotiations.
To the extent Borrower and Bank enter into such
postconfirmation loan agreement, Borrower shall pay no
commitment fee for any period covered by the commitment fee
paid herein, except to the extent of an increase in the
Maximum Credit.
(e) Facility Fees. Borrower shall pay to Bank a fee in an amount
equal to one-half of one percent (1/2%) per annum of an amount
equal to the average daily difference between the Aggregate
Outstanding and the Maximum Credit Commitment. Such fee shall
be calculated monthly and paid in arrears commencing on the
fourth Business Day of the month immediately following
execution of this DIP Loan Agreement and continuing on the
fourth Business Day of each month thereafter until Bank's
commitment to extend the Credit has been terminated pursuant
to Section 2.3(d) or Section 7.3(a) (the "FACILITY FEES").
Borrower hereby authorizes Bank, if and to the extent a
monthly payment of the Facility Fees is not made timely
pursuant to this Section 2.3(e), to make an Advance, subject
to availability, in an amount equal to the Facility Fees then
due and payable, and apply the same to the Facility Fees due.
(f) Payment of Obligations. Any time any of the Obligations are
due and payable under the Loan Documents (whether by
acceleration or otherwise), Bank shall be entitled to
immediate payment of such Obligations without further
application to or order of the Bankruptcy Court.
(g) No Discharge of Claims; No Waiver by Bank. The Obligations
hereunder shall not be discharged by the entry of an order
confirming a plan of reorganization in the Case. The Security
Interest granted to Bank hereunder shall not be affected in
any manner by entry of an order confirming a plan of
reorganization in the Case, or the entry of an order
dismissing or converting the Case.
(h) Collateral Monitoring Fees. Borrower shall pay a monthly
collateral monitoring fee limited to One Thousand Dollars
($1000.00) per month so long as Borrower is not in Default.
The monthly monitoring fee shall include the fully allocated
costs of utilizing Bank's employees to verify the daily
accuracy of the Borrowing base calculation.
(i) Cleandown Period. Aggregate Outstandings shall not exceed Two
Million Dollars ($2,000,000.00) (excluding letters of
credit)for a period of thirty (30) consecutive calendar days
during the fiscal year end 1997, and One Million Dollars
($1,000,000.00) (excluding letters of credit) for each fiscal
year thereafter, the cleandown period to begin no later than
thirty (30) days before the end of such Fiscal Year.
3. COLLATERAL AND GRANT OF SECURITY INTERESTS
3.1. GRANT OF SECURITY INTEREST. To secure payment and performance of
the Obligations of Borrower to Bank, Borrower hereby grants, or shall require
its subsidiary to grant, to Bank a first priority perfected Security Interest
pursuant to 11 U.S.C. ss. 364(d) in and to all of Borrower's right, title and
interest in and to the following property, whether now owned or existing or
hereafter acquired or coming into existence and whether acquired before or after
the commencement of the Case, wherever now or hereafter located (all such
property is hereinafter referred to collectively as the "COLLATERAL"):
(a) Accounts;
(b) Inventory (whether or not Eligible Inventory);
(c) General Intangibles, not including recovery actions under
Chapter 5 of the Bankruptcy Code;
(d) Receivables;
(e) Cash and cash equivalents;
(f) All chattel paper, instruments and documents of title, as
those terms are defined in Article 9 of the Uniform Commercial
Code as currently enacted in the State of Minnesota;
(g) Any and all balances, credits, deposits (general or special,
time or demand, provisional or final), accounts or monies of
or in the name of Borrower now or hereafter with Bank or any
other financial institution and any and all property of every
kind or description of or in the name of Borrower now or
hereafter, for any reason or purpose whatsoever, in the
possession or control of, or in transit to, or standing to
Borrower's credit on the books of, Bank, any agent or bailee
for Bank;
(h) All interest of Borrower in any goods the sale or lease of
which shall have given or shall give rise to, and in all other
property securing the payment of or performance under, any
Accounts, General Intangibles, Receivables or any chattel
paper or instruments referred to above;
(i) All equipment as defined in Section 9-109(2) of the Uniform
Commercial Code as currently enacted in the State of
Minnesota;
(j) All Intellectual Property rights including trade names and
trademarks held by Borrower or any subsidiary;
(k) All tax refunds;
(l) All replacements, substitutions, additions or accessions to or
for any of the foregoing;
(m) To the extent related to the property described in clauses (a)
through (j) above, all books, correspondence, credit files,
records, invoices and other papers and documents, including,
without limitation, to the extent so related, all tapes,
cards, computer runs, computer programs and other papers and
documents in the possession or control of Borrower or any
computer bureau from time to time acting for Borrower, and, to
the extent so related, all rights in, to and under all
policies of insurance, including claims of rights to payments
thereunder and proceeds therefrom, including any credit
insurance; and
(n) All products and proceeds (including but not limited to any
Accounts, Receivables or other proceeds arising from the sale
or other disposition of any Collateral, any returns of any
Inventory sold by Borrower, and the proceeds of any insurance
covering any of the Collateral) of all of the foregoing.
Notwithstanding anything to the contrary contained in this Section 3.1,
the security interests granted herein shall not attach to any of the fixtures
and leasehold improvements of Borrower or any of the leases or contracts of
Borrower or rights thereunder to the extent and for so long as the granting of a
security interest therein to Bank is prohibited (a) with respect to any fixture,
the lease for any location relating to such fixtures, and (b) with respect to
any of the leases and contracts of Borrower, the terms and provisions of such
leases and contracts (collectively, the "Non-Assignment Provisions"); provided
however that the security interests herein shall attach to such assets to the
extent that Borrower has obtained the consent of the other party to the relevant
lease, contract, or agreement containing Non-Assignment Provisions, or the
Non-Assignment Provisions are ineffective or unenforceable pursuant to Section
9-318 of the Uniform Commercial Code as in effect in the State of Minnesota or
other applicable law.
3.2. CASH PROCEEDS; ACCOUNTS; RECEIVABLES.
(a) If requested by Bank, Borrower shall advise Bank promptly of
any Inventory returned to Vendor, or returned as damaged,
following the sale thereof, or otherwise recovered (calculated
in the aggregate on a monthly basis). All Receivables and all
net amounts received by Bank in settlement, adjustment or
liquidation of any Account or Receivable may be applied by
Bank to Borrower's Obligations. If requested by Bank, Borrower
will make proper entries in its books, disclosing the
assignment of Accounts and Receivables to Bank.
(b) Bank shall retain the right to require Borrower to warrant
that: (i) all of the Accounts are and will continue to be bona
fide existing obligations created by the sale and delivery of
goods, the rendering of services, or the furnishing of other
good and sufficient consideration to account debtors in the
regular course of business; and (ii) all sales receipts and
other documents furnished or to be furnished to Bank in
connection therewith are and will be genuine.
(c) Bank is authorized and empowered upon an Event of Default, in
its sole and absolute discretion:
1. To request but not unreasonably, in Bank's name,
Borrower's name or the name of a third party,
confirmation from any account debtor or party
obligated under or with respect to any Collateral of
the amount shown by the Accounts or other Collateral
to be payable, or any other matter stated therein;
2. To endorse in Borrower's name and to collect any
chattel paper, checks, notes, drafts, instruments or
other items of payment tendered to or received by
Bank in payment of any Account or other obligation
owing to Borrower;
3. To notify, either in Bank's name or Borrower's name,
and/or to require Borrower to notify, any Account
Debtor or other Person obligated under or in respect
of any Collateral, of the fact of Bank's Security
Interest therein and of the collateral assignment
thereof to Bank;
4. To direct, either in Bank's name or Borrower's name,
and/or to require Borrower to direct, any account
debtor or other Person obligated under or in respect
of any Collateral, to make payment directly to Bank
of any amounts due or to become due thereunder or
with respect thereto; and
5. After the occurrence of an Event of Default, to
demand, collect, surrender, release or exchange all
or any part of any Collateral or any amounts due
thereunder or with respect thereto, or compromise or
extend or renew for any period (whether or not longer
than the initial period) any and all sums which are
now or may hereafter become due or owing upon or with
respect to any of the Collateral, or enforce, by suit
or otherwise, payment or performance of any of the
Collateral either in Bank's own name or in the name
of Borrower.
Under no circumstances shall Bank be under any duty to act in regard to
any of the foregoing matters set forth in Section 3.2(c)(1)-(5). The costs
relating to any of the foregoing matters, including reasonable attorneys' fees
and out-of-pocket expenses, and the cost of the Collateral Account or other bank
account or accounts which may be required hereunder, shall be borne solely by
Borrower whether the same are incurred by Bank or Borrower.
(d) Unless otherwise consented to by Bank, Borrower will,
forthwith upon receipt by Borrower of all checks, drafts, cash
and other remittances in payment or as proceeds of, or on
account of, any of the Accounts, the Receivables or other
Collateral (except Advances made by Bank and excess amounts
referenced in the last sentence of this Section 3.2(d) paid
over to Borrower by Bank), deposit the same in a special bank
account (the "COLLATERAL ACCOUNT") with Bank or such other
bank or financial institution as Bank shall consent, over
which Bank alone has power of withdrawal. Borrower
acknowledges that the maintenance of the Collateral Account is
solely for the convenience of Bank in facilitating its own
operations, and Borrower does not and shall not have any
right, title or interest in the Collateral Account or in the
amounts at any time appearing to the credit thereof. All
deposits into the Collateral Account shall be applied to the
outstanding principal balance, if any, of the Advances at the
time such accounts are actually and finally collected as
determined by Bank. Said proceeds shall be deposited in
precisely the form received except for Borrower's endorsement
where necessary to permit collection of items, which
endorsement Borrower agrees to make. Pending such deposit,
Borrower agrees not to commingle any such checks, drafts, cash
and other remittances with any of its funds or property, but
will hold them separate and apart therefrom and upon an
express trust for Bank until deposit thereof is made in the
Collateral Account. Upon payment in full in cash of all
outstanding Obligations, Bank will pay over to Borrower any
excess amounts received by Bank as payment or proceeds of
Collateral, whether received by Bank as a deposit in the
Collateral Account or received by Bank as a direct payment on
any of the sums due hereunder. Borrower may direct Bank to
invest excess cash consistent with the "Order Pursuant to
Section 345(b) of the Bankruptcy Code Approving Investment
Guidelines" dated July 2, 1996.
(e) Borrower appoints Bank, or any Person whom Bank may from time
to time designate, as Borrower's attorney and agent-in-fact
with power, at any time after the occurrence (and during the
continuance) of an Event of Default: (i) to notify the post
office authorities to change the address for delivery of
Borrower's mail to an address designated by Bank; (ii) to
receive and to open and sort together with an Authorized
Person or a person designated by an Authorized Person all mail
addressed to Borrower; (iii) to send requests for verification
of Accounts, Receivables or other Collateral to Account
Debtors; (iv) to open an escrow account or other account under
Bank's sole control for the collection of Accounts,
Receivables or other Collateral, if not required
contemporaneously with the execution hereof; and (v) to do all
other things which Bank is permitted to do under this DIP Loan
Agreement or which are necessary to carry out this DIP Loan
Agreement and the Loan Documents. Neither Bank nor any of its
directors, officers, employees or agents will be liable for
any reasonable acts of commission or omission for any
reasonable error in judgment or mistake of fact or law, unless
the same shall have resulted from gross negligence or willful
misconduct. This power, being coupled with an interest, is
irrevocable until either: (i) all of the Obligations are paid
in full in cash, or (ii) this DIP Loan Agreement is
terminated, whichever shall last occur. Borrower expressly
waives presentment, demand, notice of dishonor and protest of
all instruments and any other notice to which it might
otherwise be entitled.
(f) If any Account or Receivable arises out of contracts with the
United States or any department, agency, or instrumentality
thereof, Borrower will, unless Bank shall otherwise agree,
immediately notify Bank in writing and execute any instruments
and take any steps required by Bank in order that all monies
due and to become due under such contracts shall be assigned
to Bank and notice thereof given to the government under the
Federal Assignment of Claims Act of 1940, as amended.
(g) If any Account or Receivable is evidenced by chattel paper or
promissory notes, trade acceptances, or other instruments for
the payment of money, Borrower will, unless Bank shall
otherwise agree, deliver the originals of same to Bank,
appropriately endorsed to Bank's order and, regardless of the
form of such endorsement, Borrower hereby expressly waives
presentment, demand, notice of dishonor, protest and notice of
protest and all other notices with respect thereto.
3.3. INVENTORY.
(a) Unless Bank shall otherwise agree, if Borrower sells Inventory
for cash, all full and partial payments therefor shall
immediately be delivered by Borrower to Bank or in accordance
with the cash management systems referenced in Section 4.2(f)
in their original form for deposit into the Collateral Account
or other application to reduction of the Obligations. All such
cash shall be held by Borrower in trust for Bank and shall be
remitted to Bank on the day following the day received, or at
such other time as Bank may reasonably designate (excepting an
amount not exceeding $5,000.00 per store).
(b) Except as provided in this subsection 3.3(b), Bank shall not
be liable or responsible in any way for the safekeeping of any
Inventory delivered to it, to any bailee appointed by or for
it, to any warehouseman, or under any other circumstances.
Bank shall not be responsible for collection of any proceeds
or for losses in collected proceeds held by Borrower in trust
for Bank. Any and all risk of loss for any or all of the
foregoing shall be upon Borrower, except for such loss as
shall result from Bank's gross negligence or willful
misconduct. Bank shall exercise reasonable care in a
commercially reasonable manner with respect to any Inventory
which comes into its possession.
(c) If requested by Bank, Borrower shall, consistent with its
usual reporting systems, upon acquiring an interest in any
Inventory, deliver to Bank schedules of such Inventory,
including a description of the location of such Inventory,
together with suppliers' invoices, warranties, production,
cost and other records as Bank may reasonably request. If
requested by Bank, Borrower shall deliver to Bank schedules of
the sale of any Inventory as soon as possible. Any material
adverse change in the value or condition of any Inventory, and
any errors discovered in schedules delivered to Bank, shall be
reported to Bank immediately. Borrower confirms that the
warranties and representations in this DIP Loan Agreement
shall apply to each schedule. Borrower represents and warrants
that, as to each schedule of Inventory delivered to Bank:
1. The descriptions, origins, size, qualities,
quantities, weights, and markings of all goods stated
thereon, or on any attachment thereto, are true and
correct in all material respects;
2. None of the goods is defective, used, or goods
returned by Borrower after receipt thereof, except
where described as such; and
3. All Inventory not included on such schedule has been
previously scheduled.
(d) If requested by Bank, Borrower will notify Bank monthly if
Borrower obtains possession (by return, repossession or
otherwise) of any Inventory which has been sold, and will
inform Bank of the aggregate Book Value of the returned or
repossessed Inventory, if such value is greater than FIFTY
THOUSAND DOLLARS ($50,000.00).
(e) Except for Inventory moved in the ordinary course of business,
Borrower shall provide Bank with at least five (5) days'
written notice prior to twenty-five percent (25%) or more of
the Inventory being moved from said locations which notice
shall include the location(s) where the Inventory or a portion
thereof will be relocated and which notice shall be
accompanied by all UCC financing statements and other
instruments and documents duly executed by Borrower which are
necessary to maintain Bank's first priority Security Interest
therein.
3.4. ASSIGNMENT OF INSURANCE. As additional security for the payment
and performance of the Obligations, Borrower hereby assigns to Bank as Lender
Loss Payee any and all monies (including, without limitation, proceeds of
insurance and refunds of unearned premiums) due or to become due under, and all
other rights of Borrower with respect to, any and all policies of insurance now
or at any time hereafter covering the Collateral or any evidence thereof or any
business records or valuable papers pertaining thereto, and Borrower hereby
directs the issuer of any such policy to pay all such monies directly to Bank.
At any time, after the occurrence of, and during the continuance of, any Event
of Default, Bank may (but need not), in Bank's name or in Borrower's name,
execute and deliver proof of claim, receive all such monies, endorse checks and
other instruments representing payment of such monies, and adjust, litigate,
compromise or release any claim against the issuer of any such policy.
3.5. OCCUPANCY.
(a) The Borrower hereby irrevocably grants to Bank the right to
take possession of the Premises at any time after the
occurrence and during the continuance of an Event of Default.
(b) Bank may use the Premises only to hold, process, manufacture,
sell, use, store, liquidate, realize upon or otherwise dispose
of goods that are Collateral and for other purposes that Bank
may in good faith deem to be related or incidental purposes.
(c) The right of Bank to hold the Premises shall cease and
terminate upon the earlier of (i) payment in full and
discharge of all Obligations, and (ii) final sale or
disposition of all goods constituting Collateral and delivery
of all such goods to purchasers.
(d) Bank may, immediately, upon nonpayment of any of Borrower's
rental obligations, pay such rent, but shall not be obligated
to pay or account for any rent or other compensation for the
possession, occupancy or use of any of the Premises; provided,
however, in the event that Bank does pay or account for any
rent or other compensation for the possession, occupancy or
use of any of the Premises, Borrower shall reimburse Bank
promptly for the full amount thereof. In addition, Borrower
will pay, or reimburse Bank for, all taxes, fees, duties,
imposts, charges and expenses at any time incurred by or
imposed upon Bank by reason of the execution, delivery,
existence, recordation, performance or enforcement of this DIP
Loan Agreement or the provisions of this Section 3.5.
3.6. LICENSE. Borrower hereby grants or causes its subsidiary to grant
to Bank, a non-exclusive, worldwide and royalty free license to use or otherwise
exploit all trademarks, franchises, trade names, copyrights and patents of
Borrower, Guarantor, or any subsidiaries, for the purpose of selling, leasing or
otherwise disposing of any or all Collateral following an Event of Default.
3.7. SUPER-PRIORITY CLAIM; CARVE-OUT. Upon entry of the Interim or
Financing Orders, pursuant to Section 364(c)(1) of the Bankruptcy Code, the
Obligations of Borrower to Bank shall at all times constitute allowed
administrative expense claims in the Case having priority over all
administrative expenses of the kind specified in Sections 503(b) and 507(b) of
the Bankruptcy Code, subject only to in the event of an Event of Default and
foreclosure by Bank of its Security Interest granted hereunder, the professional
fees of the Unsecured Creditors' Committee, and the statutory United States
Trustees' Fees (which Carve-Out shall not exceed Two Hundred Thousand Dollars
($200,000.00) in the aggregate for purposes of this section. The Carve-Out shall
have a Pari Passu priority with the superpriority claim of Bank.
3.8. SUPPLEMENTAL DOCUMENTATION. At Bank's request, Borrower shall
execute and deliver to Bank, at any time or times hereafter, such agreements,
documents, financing statements, warehouse receipts, bills of lading, notices of
assignment of Accounts, schedules of Accounts assigned, and other written matter
necessary or reasonably requested by Bank to perfect and maintain perfected
Bank's Security Interest in the Collateral (all the above hereinafter referred
to as "SUPPLEMENTAL DOCUMENTATION"), in form and substance acceptable to Bank,
and pay all taxes, fees and other costs and expenses associated with any
recording or filing of the same.
4. CONDITIONS PRECEDENT
4.1. CONDITIONS PRECEDENT TO THE INITIAL ADVANCE OR ISSUANCE OF THE
INITIAL LETTER OF CREDIT. The obligation of Bank to make the initial Advance
under the Revolving Loan or to issue the initial Letter of Credit is subject to
the conditions precedent that Bank first receive all of the following, ALL IN
FORM AND SUBSTANCE SATISFACTORY TO BANK:
(a) DIP Loan Agreement. This DIP Loan Agreement properly executed
by the parties.
(b) Revolving Note. The Revolving Note, duly executed by Borrower.
(c) Financing Statements. All financing statements and other
writings, properly executed, which are deemed by Bank to be
necessary or desirable to grant Bank an attached, perfected
first priority Security Interest in the Collateral.
(d) Insurance. (i) Certificates of insurance covering the tangible
property constituting the Collateral, in such amounts, against
such risks and with such companies as are satisfactory to
Bank, which insurance contains a separate standard lender's
loss payable clause; and (ii) certificates of all other
insurance required by Section 6.5.
(e) Resolutions. Certified Resolutions of the Board of Directors
of Borrower authorizing the execution and delivery of this DIP
Loan Agreement and the other Loan Documents as well as
performance by Borrower hereunder and under the other Loan
Documents. In addition, all Certified Resolutions of the Board
of Directors of Borrower which may be required by Bank
authorizing Borrower to open accounts or perform other
operational functions at Bank.
(f) Certified Articles and By-Laws. Certified copies of the
Articles of Incorporation and By-Laws of Borrower certified by
Borrower's corporate secretary that either there are no
amendments thereto or that all amendments are attached to such
certificate.
(g) Certificate of Incumbency. Certificate of Incumbency showing
the names, offices and specimen signatures of the officers of
Borrower authorized to execute this DIP Loan Agreement and the
other Loan Documents as well as of each Person identified in
Section 1.1 as an Authorized Person.
(h) Good Standing Certificates. Certificates of good standing or
existence in each state in which Borrower conducts business.
(i) Opinion. Opinion of Neligan & Averch, counsel for Borrower, in
a form reasonably acceptable to Bank, dated the date of the
initial Advance or of the issuance of the initial Letter of
Credit, whichever occurs first.
(j) Interim Order. A file stamped copy of the Interim Order.
(k) Commitment and Transaction Fees. Payment in full in cash of
the Commitment Fee and the Transaction Fee.
(l) UCC Searches; Termination Statements. UCC search results
demonstrating to Bank's satisfaction that Bank is being
granted a first priority Security Interest in the Collateral,
except for Permitted Liens.
(m) Landlord Notices. Written evidence that Borrower has sent
timely the Landlord Notices to all of Borrower's landlords.
(n) Leases. True and correct copies of all leases (or reasonable
access thereto) pursuant to which Borrower is or will be a
lessee, any license agreement and/or mortgage waivers or
warehouse agreements requested by Bank, with respect to each
such lease in form and substance acceptable to Bank, along
with evidence satisfactory to Bank indicating that the leases
have been properly assumed and assigned to Borrower pursuant
to the Financing Order.
(o) Other Fees and Charges. Payment in full in cash of all
reasonable fees and expenses, including without limitation the
reasonable fees and disbursements of Bank's outside counsel
and in-house counsel incurred by Bank through the date of this
DIP Loan Agreement in the negotiation, preparation, delivery,
execution and litigation with respect to the Loan Documents
and the Credit.
(p) Projections. Financial projections of the business of Borrower
and subsidiaries in form and substance acceptable to Bank.
(q) Inventory Certification. Inventory Certifications in form and
substance acceptable to Bank.
(r) Guaranty. Guaranty by Guarantor of all obligations, which
Guaranty is secured by all assets of Guarantor.
(s) Other Documents. Such other documents and opinions as Bank may
reasonably request.
4.2. ADDITIONAL CONDITIONS PRECEDENT. The obligations of Bank to make
each Advance and to issue each Letter of Credit, INCLUDING the initial Advance
under the Revolving Loan and the initial Letter of Credit, shall be subject to
the further conditions precedent that on the date of each such Advance or the
issuance of each such Letter of Credit:
(a) Representations and Warranties. All of the representations and
warranties contained in this DIP Loan Agreement and the other
Loan Documents or otherwise made in writing by Borrower are
true and correct in all material respects, on and as of the
date of such Advance or the date of issuance of such Letter of
Credit, as the case may be, as though made on and as of such
date, except to the extent that such representations and
warranties relate solely to an earlier date in which event
they shall be true and correct as of such earlier date.
(b) No Default. No event has occurred and continues which would
result from such Advance or issuance of such Letter of Credit,
which constitutes a Default or an Event of Default or would
constitute an Event of Default but for any requirement that
notice be given or time elapse or both.
(c) Financing Order and Interim Order. The Financing Order shall
be in full force and effect and shall not have been appealed,
reversed, vacated, modified, amended, or stayed in any
respect. However, the Bank shall advance funds upon entry of
the Interim Order or the Financing Order, if the DIP Loan
Agreement and related documents are fully completed and
executed, and Borrower has met the conditions contained in
such documents to Bank's satisfaction.
(d) Borrowing Certificates. Bank shall have received timely the
most recent Borrowing Certificates required to be delivered
hereunder.
(e) No Material Change. No material adverse change in the
business, assets, results of operations or condition of
Borrower taken as a whole which, in the determination of Bank,
applying commercially reasonable standards, materially
adversely affects (or could reasonably be expected to
materially adversely affect) the prospect of repayment of the
Obligations, shall have occurred since the date of execution
of this DIP Loan Agreement. A change of the makeup of Key
Officers without the prior notice and consent of Bank shall
constitute a material adverse change as that term is used in
this paragraph.
(f) Cash Management System. Borrower has established cash
management systems satisfactory to Bank and such cash
management systems are operating to the satisfaction of Bank.
(g) Fees. Bank has received payment in full of all fees due and
owing pursuant to Section 8.2.
(h) Inventory. Bank shall be satisfied that the Inventory of
Borrower is located at such places and is in the amounts
represented by Borrower.
(i) Other Banks. Bank has received written evidence, satisfactory
to Bank, that Borrower has sent to each of its depository
banks a notice, in the form of Exhibit G, advising such banks
and financial institutions of Bank's first priority Security
Interest in funds deposited in such accounts.
(j) Documentation. All other documents in connection with the
transactions contemplated by this DIP Loan Agreement shall
have been delivered and executed or recorded in form and
substance satisfactory to Bank.
5. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants to Bank as follows:
5.1. CORPORATE EXISTENCE AND POWER; NAME; CHIEF EXECUTIVE OFFICE;
INVENTORY AND EQUIPMENT LOCATIONS. Borrower is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Minnesota,
and is or will be within 21 days, duly licensed or qualified to transact
business in all jurisdictions where the character of the property owned or
leased or the nature of the business transacted by it makes such licensing or
qualification necessary. Borrower has all requisite power and authority,
corporate or otherwise, to conduct its business, to own its properties and to
execute and deliver, and to perform all of its obligations under, the Loan
Documents. During its corporate existence, Borrower has done business solely
under the name Braun's Fashions, Inc. The chief executive office and principal
place of business of Borrower is located at the address set forth in the first
page of this DIP Loan Agreement, and all of Borrower's records relating to its
business or the Collateral are kept at that location. All Inventory and
Equipment is located at that location or at one of the other locations set forth
in Exhibit B hereto.
5.2. QUALIFICATION. Borrower is or will be within 21 days, in good
standing and is qualified to do business in all states and locations where
qualifications are necessary and failure to so qualify would preclude it from
enforcing its rights with respect to any material asset, expose it to any
material liability or have a material adverse effect on its business.
5.3. TITLE TO ASSETS; NO 506(C) CLAIM. Except for Permitted Liens and
the Security Interests granted to Bank hereunder, Borrower has good and
marketable title to all of its property and assets free and clear of all other
Security Interests. As of the date hereof the Collateral is not subject to any
claim or lien pursuant to Section 506(c) or any other section of the Bankruptcy
Code.
5.4. PRIORITY SECURITY INTERESTS. Pursuant to the Interim Order and the
Financing Order, the Security Interests granted to Bank hereunder shall have
priority over all other Security Interests in the Collateral.
5.5. LEGAL AGREEMENTS. This DIP Loan Agreement and the other Loan
Documents, upon execution by the respective parties, will constitute the legal,
valid and binding obligations of Borrower, enforceable in accordance with their
respective terms.
5.6. FINANCIAL STATEMENTS. The financial statements and notes prepared
by Borrower for Borrower's fiscal year ended March 2, 1996, which Borrower has
furnished to Bank, including all schedules and notes pertaining thereto, were
prepared in accordance with GAAP consistently applied, and fully and fairly
present the financial condition of Borrower on the dates thereof and the results
of its operations for the periods covered thereby.
5.7. NO ADVERSE CHANGE. There has been no material adverse change in
the assets acquired by Borrower since the inventory statement dated June 1,
1996, furnished to Bank by Borrower.
5.8. TAXES. Borrower has filed all required tax returns, has paid all
due and payable taxes, including without limitation payroll, real and personal
property taxes, sales taxes, assessments and other governmental charges levied
or imposed upon it or upon its income or profits or upon any of its property,
and has made adequate provision for the payment of such taxes, assessments and
other charges accruing but not yet due and payable.
5.9. LITIGATION. There is no pending or overtly threatened notice,
claim, litigation, proceeding or investigation against or affecting Borrower or
any property of Borrower, whether or not covered by insurance, that would have a
material adverse effect on the financial condition, business, prospects,
property or operations of Borrower, and there is no basis for any such order,
notice, claim, litigation, proceedings or investigation, except as identified on
Schedule 5.9.
5.10. MARGIN STOCK. Neither Borrower nor Guarantor, is engaged in the
business of extending credit for the purpose of purchasing or carrying margin
stock (within the meaning of Regulation U of the Board of Governors of the
Federal Reserve System), and no part of the proceeds of the Revolving 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.
5.11. NO STOCK OR SECURITIES. Borrower owns no shares of stock or
securities of any non-governmental entity.
5.12. INVESTMENT COMPANY ACT. Neither Borrower nor Guarantor, is, nor
will, during the term of this DIP Loan Agreement be, (a) an "investment company"
or a company "controlled" by an "investment company", within the meaning of the
Investment Company Act of 1940, as amended or (b) subject to regulation under
the Public Utility Holding Company Act of 1935, the Federal Power Act or any
foreign, federal or local statute, or regulation limiting its ability to incur
indebtedness for money borrowed.
5.13. ERISA.
(a) Borrower is in compliance in all material respects with the
provisions of ERISA, the Internal Revenue Code applicable to
employee benefit plans and other plans covered by Title IV of
ERISA, and the regulations and published interpretations
thereunder, if any, which are applicable to it;
(b) As of the date hereof, Borrower has not, with respect to any
plan established or maintained by it, engaged in a prohibited
transaction which would subject it to a material tax or
penalty or prohibited transactions imposed by ERISA or Section
4975 of the Internal Revenue Code;
(c) No liability to the PBGC (other than liability for premiums to
be paid in the normal course) that is material to Borrower has
been or to Borrower's knowledge is reasonably expected to be
incurred with respect to the plans and, except with respect to
any plan which is a multi-employer plan within the meaning of
Section 3(37) of ERISA (a "Multi-Employer Plan"), there has
been no Reportable Event and no other event or condition that
presents a material risk of termination of a plan by the PBGC;
(d) Borrower has not engaged in any transaction which would result
in the incurring of a material liability under Section 4069 of
ERISA; and
(e) Borrower has not taken any action and no event has occurred
with respect to any Multi-Employer Plan which would subject
Borrower to liability under either Section 4201 or 4204 or
ERISA.
5.14. ENVIRONMENTAL LIABILITIES. Neither Borrower nor Guarantor, has
used, stored, treated, transported, manufactured, refined, handled, produced or
disposed of any Hazardous Substances on, under, at, from, or in any way
affecting any of their respective properties or assets, in any manner which at
the time of the action in question materially violated any applicable
Environmental Law governing the use, storage, treatment, transportation,
manufacture, refinement, handling, production or disposal of Hazardous
Substances. To the best of Borrower's knowledge, no prior owner of such property
or asset or any tenant, subtenant, prior tenant or prior subtenant thereof has
used Hazardous Substances on, from or affecting such property or asset, in any
manner which at the time of the action in question materially violated any
applicable Environmental Law governing the use, storage, treatment,
transportation, manufacture, refinement, handling, production or disposal of
Hazardous Substances. There is no ongoing federal, state, local or other
governmental investigation, proceeding or environmentally related problem
relating to any of Borrower's properties or assets. Borrower has received no
notices or advice (written or oral) from any Governmental Authority of any
non-compliance by Borrower with any Environmental Law or of any investigation,
proceeding or problem referred to in the immediately preceding sentence. The
foregoing paragraph applies only to those assets obtained from the bankruptcy
estate of Debtor.
5.15. PATENTS; LICENSES; INTELLECTUAL PROPERTY.
(a) All of the patents, trademarks, trade names, and other
intellectual property owned or licensed by Borrower as of date
of this DIP Loan Agreement are identified on Schedule 5.15,
and there are no other patents, trademarks, trade names or
intellectual property owned by Borrower or in which Borrower
holds an interest. All such assets identified on Schedule 5.15
are free and clear of any Liens and other encumbrances except
for the Security Interests granted to Bank hereunder.
(b) Borrower and Guarantor own and have pledged to Bank, all
patents, trademarks, trade names, copyrights, and other
intellectual property necessary to own and operate its
business as heretofore operated by it without conflict with
the rights of other Persons.
5.16. STORE LOCATIONS; INVENTORY LOCATIONS. Set forth on Schedule 5.16
is a complete and accurate list of the names and addresses of all the retail
stores, distribution centers and warehouses operated by Borrower. As of the date
hereof Borrower is current on all postpetition lease payments which are due and
owing for such locations. None of Borrower's Inventory, except Inventory in
transit in the ordinary course of business, is located any place other than as
identified on Schedule 5.16.
5.17. INSURANCE. All policies of insurance owned by or issued to
Borrower are identified (by type, amount of coverage, policy number and
insurance company) in Schedule 5.17 and are in full force and effect as of the
date hereof and are of a nature and provide such coverage as is sufficient and
as is customarily carried by companies of the size and character of Borrower
consistent with industry practice.
5.18. STATEMENTS. All statements written or oral which Borrower has
made or provided to Bank in connection with any Loan Document, and financial
statements delivered on May 2, 1996, (except to the extent that any such
statements constitute projections), taken as a whole, contain no untrue
statement of a material fact and do not omit stating a material fact necessary
to make such statements not misleading.
5.19. PROJECTIONS. The financial projections (the "PROJECTIONS")
delivered to Bank on July 8, 1996, along with the assumptions included
therewith, were prepared in good faith on the basis of assumptions, methods,
data, tests and information believed by Borrower to be valid and accurate at the
time the Projections were provided to Bank. Based upon the Projections, the
financial accommodations being extended by Bank hereunder are reasonable and
adequate to meet Borrower's credit needs during the term of this DIP Loan
Agreement.
5.20. CONSIGNED GOODS. All goods title to which is held by a consignor
or concessionaire and which are in the possession of Borrower as of the date
hereof are identified in Schedule 5.20 by type and location.
5.21. BORROWER'S LANDLORDS. The name and correct address of each of
Borrower's landlords is listed on the attached Schedule 5.21 and there are no
Borrower's landlords other than those set forth in Schedule 5.21.
5.22. NO DEFAULT. No Event of Default has occurred and is continuing
and no event which would constitute an Event of Default but for the giving of
notice and lapse of time or both has occurred, and no such event or Event of
Default will occur as a result of the execution and delivery of this DIP Loan
Agreement and the other Loan Documents.
5.23. COMPLIANCE. Except to the extent that failure to comply could not
reasonably be expected to have a material adverse effect on Borrower, (i)
Borrower is in compliance with all applicable law, rules, regulations and
ordinances of any Governmental Authority having jurisdiction over its business
operations; and (ii) Borrower is compliance with all contracts entered into
after the commencement of the Case to which it has become a party.
5.24. BUY-BACK AGREEMENTS. All buy-back agreements and other such
contracts and arrangements which Borrower has entered into with any of its
vendors are identified on Schedule 5.24, and there are no other buy-back
agreements, agreements or arrangements in to which Borrower is a party.
5.25. LABOR/EMPLOYMENT MATTERS. Except as identified on Schedule 5.25,
as of the date of this DIP Loan Agreement (i) no employee of Borrower is a
member of a labor union, (ii) there is no strike or work stoppage in effect at
any of Borrower's retail stores, distribution centers or warehouses, and (iii)
Borrower has no knowledge of a pending or threatened strike or work stoppage at
any such location.
5.26. BANK ACCOUNTS. As of the date hereof, Borrower does not maintain
any bank account (whether general or special, time or demand, provisional or
final) other than those identified on Schedule 5.26.
6. COVENANTS
AFFIRMATIVE COVENANTS
So long as any of the Obligations shall remain outstanding, and unless
Bank otherwise consents in writing, Borrower shall comply with the following
requirements:
6.1. FINANCIAL STATEMENTS AND OTHER INFORMATION. Borrower shall deliver
to Bank, in form and substance acceptable to Bank:
(a) Weekly Reporting. Unless the Bank requires otherwise, on the
third Business Day of each week all of the Borrowing
Certificates covering the immediately preceding week, with an
Authorized Person certifying to the truth and accuracy of all
information contained therein. Availability as determined by
the first Borrowing Certificate shall be effective through
July 2, 1996.
(b) Other Monthly Reporting. As soon as available and in any event
within twenty (20) days after the end of each fiscal month:
1. the balance sheet, a report of Inventory by location
(and one by department if requested by Bank), an aged
listing of accounts payable both, prepetition and
post-petition, (or in lieu of such, a listing of all
payables, identified by vendor, over thirty (30) days
past due) of Borrower as of the end of such month and
related statements of income, retained earnings and
cash flow of Borrower for such month and for the year
to date, including all supporting schedules and
notes, all in reasonable detail, prepared and
certified by the chief financial officer of Borrower
to have been prepared in accordance with GAAP applied
on a basis consistent with the accounting practices
applied in the annual financial statements previously
furnished to Bank, subject, however, to year-end
audit adjustments, and
2. a written certification executed by the chief
financial officer of Borrower as to whether or not
such chief financial officer has knowledge of the
occurrence of any Event of Default or of any event
not theretofore reported and remedied which would
constitute an Event of Default with notice or passage
of time or both and, if so, stating in reasonable
detail the facts with respect thereto.
(c) Fiscal Year End. Audited financial statements within one
hundred twenty (120) days after the end of Borrower's fiscal
year.
(d) Litigation. As promptly as practicable (but in any event no
later than two (2) Business Days for litigation affecting the
ordinary course of business) after any officer of Borrower
obtains knowledge thereof, written notice of all orders,
notices, claims, litigation, proceedings and investigations
materially and adversely affecting Borrower or any property of
Borrower of the type described in Section 5.9.
(e) Default. As promptly as practicable (but in any event no later
than five (5) Business Days) after any officer of Borrower
obtains knowledge of the occurrence of any event which
constitutes an Event of Default or would constitute an Event
of Default with notice or passage of time or both, written
notice of such occurrence to Bank and court-approved counsel
for the Unsecured Creditors' Committee, together with a
detailed statement by a responsible officer of Borrower of the
steps being taken by Borrower to cure the effect of such
event.
(f) Authorized Person Report. Upon execution hereof, Borrower
shall provide to Bank a certified list identifying the names
and titles of those individuals set forth in the definition of
"Authorized Person" in Article I, a copy of which is set forth
in Schedule 6.1(f). Hereafter, Borrower shall promptly notify
Bank in writing of any and all changes to said list.
(g) Account Verification. Borrower will at any time and from time
to time upon request of Bank send requests for verification of
accounts or notices of assignment to account debtors and other
obligors.
(h) Other. Such other information respecting the financial
condition, business and property of Borrower as Bank may from
time to time reasonably request.
6.2. BOOKS AND RECORDS. Borrower shall keep accurate books and records
in which true and complete entries will be made in accordance with GAAP
consistently applied. Borrower shall at all times maintain its inventory control
system in place as of the date of this DIP Loan Agreement. Upon reasonable
notice and request by Bank, Borrower, during normal business hours, shall give
to any representative of Bank access to examine, copy and make extracts from all
books, records and other writings in its possession, to inspect its property,
the Collateral, and to discuss its finances, accounts, property and business
with any of its officers. Upon such notice and request, Borrower shall provide
Bank with information sufficient for Bank to conduct its own audit and Borrower
shall assume the expenses of each such audit. Bank agrees to limit the number of
such audits to three per year so long as Borrower is not in default.
6.3. TAXES AND OTHER CLAIMS. Borrower shall file when due all required
tax returns, shall pay when due all taxes, including without limitation payroll,
real and personal property taxes, sales taxes, assessments and other
governmental charges levied or imposed upon it or upon its income or profits or
upon any of its property, and shall pay when due all lawful claims for labor,
materials and supplies which, if unpaid, might become a lien or charge upon any
property of Borrower; provided, that Borrower shall not be required to pay any
such tax, assessment, charge or claim whose amount, applicability or validity is
being contested by Borrower in good faith in appropriate proceedings, provided
that adequate reserve has been set aside for the amount in question.
6.4. MAINTENANCE OF PROPERTIES. Borrower shall keep and maintain all of
its inventory, equipment, real estate and all other property necessary or useful
in its business in good condition and repair, normal wear and tear excepted, and
shall pay when due all rental and mortgage payments, if any, due on such
property.
6.5. INSURANCE. Borrower shall maintain existing insurance to the
extent of Bank's interests, insurance with insurers which are reasonably
acceptable to Bank, in such amounts and with such coverage (including, without
limitation, public liability insurance, business interruption, fire, hazard and
extended coverage insurance on all other coverage as are consistent with
industry practice) as are reasonably acceptable to Bank. Borrower shall cause
all insurance policies to contain a provision whereby they cannot be canceled
except after thirty (30) days' written notice to Bank. In the event Borrower
fails to pay any premium on any such insurance, Bank may do so (but shall not be
obligated to do so), and Borrower shall reimburse Bank for any such payment on
demand. Borrower hereby authorizes Bank, to the extent that Borrower does not
make such reimbursements timely, to make an Advance, subject to availability, in
the amount of such unpaid reimbursements and apply the same thereto. Borrower
shall cause all such policies to contain a separate standard lender's loss
payable clause, to the extent of Bank's collateral.
6.6. CORPORATE EXISTENCE AND LICENSES. Borrower shall preserve and
maintain its corporate existence and all of its rights, privileges, licenses
including permits and franchises, and shall comply in all material respects with
all applicable laws, regulations and ordinances, including without limitation
Environmental Laws and laws relating to ERISA, applicable to Borrower, the
operation of its business and such permits and licenses necessary for its
business.
6.7. PHYSICAL TEST COUNTS. Borrower shall permit at any time before or
after regular business hours any third party test counting agency experienced in
the retail industry designated by Bank, access to its store locations and
distribution center for the purpose of conducting physical test counts. Borrower
shall pay such third party or reimburse Bank within five (5) Business Days of
demand for the costs of such physical test counts; Borrower hereby authorizes
Bank, to the extent that Borrower does not make such reimbursements timely, to
make an Advance, subject to availability, in the amount of such unpaid
reimbursements and apply the same thereto.
6.8. NOTICE OF STORE CHANGES. Borrower shall notify Bank in writing at
least thirty (30) days prior to: (i) opening each, if any, new store location
not identified on Schedule 5.16 and (ii) closing any store location.
6.9. FINANCIAL COVENANTS.
(a) Capital Expenditures. Borrower shall not, without the prior
written consent of Bank, which consent will not be
unreasonably withheld or delayed, make any expenditures of
money for Capital Expenditures in excess of Two and One Half
Million Dollars ($2,500,00.00) per year during the term of
this DIP Loan Agreement.
There will be additional covenants negotiated regarding the time of the Chapter
11 case such as the following:
(b) Other Covenants. In lieu of other financial covenants Borrower
agrees to achieve the following benchmarks:
1. Obtain court approval of a Disclosure Statement by
November 2, 1996; and
2. Obtain confirmation of its Plan of Reorganization by
December 31, 1996.
6.10. USE OF PROCEEDS. Borrower shall use the proceeds of this Credit
for working capital, capital expenditures, and general corporate purposes.
NEGATIVE COVENANTS
So long as any of the Obligations shall remain outstanding, and unless
Bank otherwise agrees in writing, Borrower shall comply with the following
requirements:
6.11. LIENS. Borrower shall not create, incur or permit to exist in
favor of any Person (other than Security Interests in favor of Bank and
Permitted Liens) any Security Interest in any of its property now owned or
hereafter acquired.
6.12. INDEBTEDNESS; GUARANTIES.
(a) Borrower shall not incur or permit to remain outstanding any
indebtedness or liability on account of deposits or advances
or any indebtedness for borrowed money or any other
indebtedness or liability evidenced by notes, bonds,
debentures or similar obligations except: (i) the Obligations
in favor of Bank, and (ii) indebtedness identified on Schedule
6.12.
(b) Borrower shall not guarantee, endorse, assume or otherwise
become directly or contingently liable in connection with any
obligation of any other Person, except by the endorsement of
negotiable instruments by Borrower for deposit or collection
or similar transactions in the ordinary course of business.
6.13. SALE OF ASSETS. Borrower shall not sell, lease, assign, transfer
or otherwise dispose of all or a substantial part of its assets (whether in one
transaction or in a series of transactions) to any Person unless the Obligations
shall be paid in full.
6.14. INVESTMENTS. Borrower shall not purchase or hold beneficially any
shares of stock or other securities or evidences of Indebtedness of, or make any
investment or acquire any interest whatsoever in, any other Person.
6.15. SALE AND LEASEBACK. Borrower shall not enter into any
arrangement, directly or indirectly, with any other Person whereby Borrower
shall sell or transfer any real or personal property and then or thereafter rent
or lease as lessee such property or any part thereof or any other property which
Borrower intends to use for substantially the same purpose as the property being
sold or transferred.
6.16. MAINTENANCE OF ACCOUNTS. Borrower shall maintain all bank
accounts at Bank or institutions acceptable to Bank. A list identifying all of
its accounts not maintained at Bank and the financial institutions at which such
accounts are maintained is set forth in Schedule 6.16. Borrower shall notify
Bank in writing of any changes in and additions to such list as soon as any
change or addition occurs.
6.17. INTERIM ORDER AND FINANCING ORDER. Borrower shall not violate nor
shall Borrower seek to modify, appeal or otherwise affect, without the consent
of Bank, the terms of the Interim Order or the Financing Order.
6.18. DIVIDENDS; CAPITAL STOCK. Borrower shall not declare or pay,
directly or indirectly, any dividends or make any other distribution or payment,
whether in cash, property, securities or a combination thereof, with respect to
(whether by reduction of capital or otherwise) any shares of capital stock (or
any options, warrants, rights or other equity securities or agreements relating
to any capital stock), or set apart any sum for the aforesaid purposes.
6.19. BUSINESS. Borrower shall not engage in business other than the
sale of women's fashion retail apparel, and related merchandise.
6.20. CONSOLIDATION AND MERGER; ASSET ACQUISITIONS. The Borrower will
not consolidate with or merge into any Person, or permit any other Person to
merge into it, or acquire (in a transaction analogous in purpose or effect to a
consolidation or merger) all or substantially all the assets of any other
Person.
6.21. RESTRICTIONS ON ACQUISITIONS. The Borrower will not purchase,
lease or otherwise acquire assets not related to its business.
6.22. ACCOUNTING. The Borrower will not adopt any material change in
accounting principles other than as required by generally accepted accounting
principles. The Borrower will not adopt, permit or consent to any change in its
fiscal year.
6.23. PLACE OF BUSINESS; NAME. Without notice and prior consent of
Bank, Borrower will not transfer its chief executive office or principal place
of business, or move, relocate, close or sell any business location; will not
permit any tangible Collateral or any records pertaining to the Collateral to be
located in any state or area in which, in the event of such location, a
financing statement covering such Collateral would be required to be, but has
not in fact been, filed in order to perfect the Security Interests; and will not
change its name.
6.24. SALARIES. The Borrower will not increase the salary, bonus,
commissions, consultant fees or other compensation of any director, officer or
consultant, or any member of their families, by more than ten percent (10%) in
any one year, either individually or for all such person in the aggregate, or
pay any such increase from any source other than profits earned in the year of
payment.
6.25. CHANGE IN OWNERSHIP. The Borrower will not issue or sell (but can
issue stock options to employees) any stock of the Borrower so as to change the
percentage of voting and non-voting stock owned by each of the Borrower's
shareholders, and it shall be an Event of Default if there is a change in
majority ownership of the company without five days' prior notice to Bank
following receipt of SEC notification.
6.26. CHANGE IN MANAGEMENT. The Borrower will not replace or terminate
any Key Officer of Borrower without the prior notice and consent of Bank.
6.27. POINT OF SALE EQUIPMENT. Borrower shall not permit any material
adverse change, as determined by Bank, to occur with respect to the point of
sale equipment, if any, or to occur with respect to the lease arrangements, if
any, for such equipment.
6.28. NO DISTRIBUTIONS. Except compensation and benefits (e.g., medical
and retirement) and expense reimbursements paid in the ordinary course of
business, and as permitted by Section 6.24, Borrower shall not make payments of
indebtedness or other distributions to officers or shareholders.
6.29. CONSIGNED GOODS. Borrower shall not, without providing Bank with
twenty (20) Business Days' prior notice, maintain consigned goods at any
locations other than those listed in Schedule 5.20 or hold types of consigned
goods other than those listed in Schedule 5.20.
7. EVENTS OF DEFAULT, RIGHTS, AND REMEDIES
7.1. EVENTS OF DEFAULT. The occurrence of any of the following events,
following written notice from Bank to Borrower (where such notice would not
unreasonably jeopardize Bank's ability to maintain its collateral position) of a
default, and Borrower's failure to cure such default within five days after
receipt of such notice (by facsimile or otherwise) shall constitute an "EVENT OF
DEFAULT", unless Bank in writing otherwise consents:
(a) Non-Payment at Maturity. Failure by Borrower to pay in full in
cash the Obligations on the Maturity Date; or
(b) Non-Payment. Failure by Borrower to pay in full any of the
Obligations other than the Obligations due on the Maturity
Date; or
(c) Misrepresentation. Any written statement, representation or
warranty of Borrower (or any officer of Borrower) to Bank at
any time, including without limitation any statement,
representation or warranty made in this DIP Loan Agreement or
in any writing contemplated by this DIP Loan Agreement, shall
prove to have been incorrect or misleading in any material
respect when made; or
(d) Non-Payment of Taxes. Failure by Borrower to make the payments
required by Section 5.8; or
(e) Non-Payment of Other Indebtedness. A default under any other
bond, debenture, note or other evidence of Indebtedness of
Borrower (except for debts reasonably in dispute), or under
any indenture or other writing except for Indebtedness
incurred by Borrower prior to the commencement of the Case; or
(f) Financial Reporting. Failure to submit any Borrowing
Certificate required under Section 6.1(a) within one (1)
Business Day after the same is due; or
(g) Pension Plan. Occurrence of a "REPORTABLE EVENT" (as described
in Section 4043(b) of ERISA) relating to a failure to meet
minimum funding standards or an inability to pay benefits when
due shall have occurred with respect to any plan under the
control of Borrower or any affiliate thereof and shall not
have been remedied within thirty (30) days after the
occurrence of such Reportable Event or a trustee shall be
appointed by a United States District Court to administer such
plan, or the PBGC shall institute proceedings to terminate
such plan and any of the foregoing will result in a liability
of Borrower; or
(h) Financing Order. Except with Bank's written consent, entry of
an order of the Bankruptcy Court modifying, amending,
reversing, vacating or staying the Interim Order or the
Financing Order, or Borrower shall violate the terms of the
Interim Order or the Financing Order; or
(i) Credit Card Receivables. The obligation of the credit card
processors(s) (or other obligor) (First Bank, South Dakota and
Household Bank, as of the date of this DIP Loan Agreement)
pursuant to the Receivables Agreements to pay to Borrower on
each Business Day the proceeds of accounts receivable arising
from the use of credit or charge cards (the "Credit Card
Receivables") shall terminate and not be replaced within three
Business Days, or such processor or other obligor shall cease
making such payments for any reason; or
(j) Invalidity Assertion. Assertion by Borrower in any pleading
filed in any court asserting that any material provision in
any of the Loan Documents is invalid or not binding on
Borrower; or
(k) Non-Compliance. Default or failure by Borrower in the
performance of, or breach of, any other covenant or agreement
of Borrower in this DIP Loan Agreement.
(l) Non-payment of Rent. Failure by Borrower to make any
postpetition rent payment, before such payment becomes a
default under such lease, shall constitute an immediate Event
of Default. Upon such default, Bank shall have the immediate
right to pay such rent, add such payment to the existing
Indebtedness and advance funds to repay such Indebtedness.
7.2. NOTICE BY BORROWER. As required by Section 6.1(e), Borrower shall
provide Bank with written notice of the occurrence of an Event of Default.
7.3. RIGHTS AND REMEDIES. Upon the occurrence of an Event of Default,
and at any time thereafter during the continuance of such event, and without
further order of or application to the Bankruptcy Court to have the automatic
stay imposed by Section 362 of the Bankruptcy Code modified or lifted, Bank may
take any or all of the following actions, at the same or different times, all of
which are cumulative and non-exclusive:
(a) terminate the Credit and the commitment to lend extended under
this DIP Loan Agreement;
(b) declare the Obligations to be forthwith due and payable,
whereupon the same shall become and be forthwith due and
payable, without presentment, demand, protest, notice of
acceleration, notice of intent to accelerate or other notice
of any kind, all of which are hereby expressly waived,
anything in this DIP Loan Agreement to the contrary
notwithstanding;
(c) set off and apply, to the fullest extent permitted by law and
without further order of or application to the Bankruptcy
Court, any and all deposit accounts (general or special, time
or demand, provisional or final) at any time held and any
other indebtedness at any time owing by Bank to or for the
credit or the account of Borrower against any and all of the
Obligations, whether or not any demand has been made under the
Loan Documents and although such Obligations may not have
matured;
(d) exercise any and all rights or remedies contained in this DIP
Loan Agreement or any Loan Document;
(e) exercise any and all rights and remedies available to Bank
under the Uniform Commercial Code and any other applicable
law; and
(f) exercise any and all rights conferred in the Financing Order
or in any other documents or agreements Borrower has executed
and delivered to Bank.
7.4. APPLICATION OF PROCEEDS ON DEFAULT. Upon the occurrence of an
Event of Default, the balances in any account of Borrower with Bank and the
Collateral Account, all other proceeds from the Collateral, and all proceeds
from any sale of the Collateral pursuant hereto shall be applied to the
outstanding Obligations at the Bank's sole and absolute discretion. Any amounts
remaining after such payment in full shall be remitted to Borrower.
7.5. FINANCING STATEMENTS; DIRECT PAYMENTS; CONFIRMATION OF RECEIVABLES
AND AUDIT RIGHTS. Borrower hereby authorizes Bank to file UCC financing
statements and any amendments thereto or continuations thereof and any other
appropriate security documents or instruments and to give any notices necessary
or desirable to perfect the Lien of Bank in the Collateral, in all cases without
the signatures of Borrower or with the signature by Bank as attorney-in-fact for
Borrower. Bank will provide Borrower with notice simultaneously with any such
filings made or notices given by Bank; however, failure by Bank to provide such
notice to Borrower shall not affect the validity of such filings or notices.
Borrower further authorizes Bank (i) upon the occurrence of, and during the
continuance of, an Event of Default, to notify any Account Debtors or parties to
any Receivables Agreement that all sums payable to Borrower, relating to the
Collateral shall be paid directly to Bank and to confirm with any Account
Debtors or parties to any Receivables Agreement the amounts payable by them to
Borrower with regard to the Collateral and (ii) to participate with Borrower in
the audits of its Account Debtors.
8. MISCELLANEOUS
8.1. WAIVER AND AMENDMENT. No provision of this DIP Loan Agreement or
any Loan Document or writing contemplated hereby can be waived, modified,
amended, abridged, supplemented or terminated, except by a writing executed by
Bank. A waiver shall be effective only in the specific instance and for the
specific purpose given and only if in a writing signed by Bank. No delay or
failure by Bank to exercise any right or remedy shall be a waiver thereof, nor
shall any single or partial exercise by Bank of any right or remedy preclude any
other exercise thereof or the exercise of any other right or remedy. All rights
and remedies of Bank under this DIP Loan Agreement and any other writing are
cumulative and not exclusive.
8.2. COSTS AND EXPENSES. Whether or not the transactions contemplated
by this DIP Loan Agreement shall be consummated, Borrower shall pay, or shall
reimburse Bank for, all expenses, including without limitation the reasonable
fees and disbursements of Oppenheimer Wolff & Donnelly, local counsel employed
by Bank and in-house counsel, in connection with the negotiation, preparation,
execution, amendment, administration, performance, collection and enforcement of
the Obligations and all such documents and agreements and the creation,
perfection, protection, satisfaction, foreclosure or enforcement of the Security
Interests in favor of Bank. Such payments shall be paid when due. If Borrower
does not object, in writing to Bank, as to the reasonableness of such fees and
expenses within twenty (20) days of when payments are due, Borrower shall be
deemed to have waived any such objection. Borrower hereby authorizes Bank, if
and to the extent such expenses are not paid timely, to make an Advance, subject
to availability, in an amount equal to the expenses then due and payable to Bank
hereunder and to apply the same to the expenses due. The Obligations of Borrower
under this Section 8.2 shall survive the termination of this DIP Loan Agreement
and the payment of all of the Obligations other than those under this Section
8.2.
8.3. ADDRESSES. All notices, requests, demands and other communications
provided for under this DIP Loan Agreement and the writings contemplated by this
DIP Loan Agreement shall be in writing and shall be delivered in person,
deposited in the mail postage prepaid, via overnight courier or by facsimile
addressed as follows:
IF TO BORROWER:
Mr. Herbert Froemming
President and Chief Operating Officer
Braun's Fashions, Inc.
2400 Xenium Lane North
Plymouth, MN 55441
Fax No. 551-5199
WITH A COPY TO:
Patrick J. Neligan, Esq.
Neligan & Averch, L.L.P.
1717 Main Street, Suite 4050
Dallas, TX 75201
Fax No. (214) 653-4393
IF TO GUARANTOR:
Mr. Herbert Froemming
President and Chief Operating Officer
Braun's Fashion Corporation
2400 Xenium Lane North
Plymouth, MN 55441
Fax No. 551-5199
WITH A COPY TO:
Patrick J. Neligan, Esq.
Neligan & Averch, L.L.P.
1717 Main Street, Suite 4050
Dallas, TX 75201
Fax No. (214) 653-4393
IF TO BANK:
Norwest Bank Minnesota, National Association
Debtor-in-Possession Financing Group
Norwest Center, Sixth and Marquette
Minneapolis, Minnesota 55479
Attention: Douglas Vitek
Fax No. (612) 673-8690
WITH A COPY TO:
Mark J. Kalla, Esq.
Oppenheimer Wolff & Donnelly
3400 Plaza VII
45 South Seventh Street
Minneapolis, Minnesota 55402
Fax No. (612) 344-9376
or, as to each party, at such other address as shall be designated by such party
in a written notice to the other party complying as to delivery with the terms
of this section. All such notices, requests, demands and other communications
shall be effective when actually delivered, deposited in the mail or with
overnight courier service or faxed, except that notices and requests to Bank
pursuant to Article II shall not be effective until received by Bank.
8.4. BINDING EFFECT AND ASSIGNMENT. This DIP Loan Agreement and the
other writings contemplated by this DIP Loan Agreement shall be binding upon and
inure to the benefit of the parties hereto and thereto and their respective
successors and assigns, except that Borrower shall have no right to assign any
of its rights hereunder or thereunder or any interest herein or therein without
the prior written consent of Bank. If any provision or application of this DIP
Loan Agreement, the Revolving Note or any other writing contemplated hereby is
held unlawful or unenforceable in any respect, such illegality or
unenforceability shall not affect the other provisions or applications which can
be given effect, and this DIP Loan Agreement and such writings shall be
construed as if the unlawful or unenforceable provision or application had never
been contained herein or therein or prescribed hereby or thereby.
8.5. BANK FEES AND CHARGES. Borrower agrees to pay Bank on demand the
reasonable customary fees and charges of Bank for providing customer services to
Borrower as published from time to time by Bank.
8.6. PRIOR AGREEMENTS. This DIP Loan Agreement represents the entire
agreement of the parties with regard to the subject matter hereof and the terms
of any letters and other documentation entered into between Borrower and Bank
prior to the execution of this DIP Loan Agreement which relate to Advances shall
be replaced by the terms of this DIP Loan Agreement. Borrower acknowledges that
this Agreement is entered into and arises out of the Commitment Letter and that
Borrower has no claim against Bank, its officers, directors, agents and
representatives, arising out of or relating to the Commitment Letter.
8.7. LOAN PARTICIPATION. Bank expressly reserves the right to sell
participation(s) in the Credit with notice to, but without the consent of
Borrower or the necessity of further Bankruptcy Court order.
8.8. INDEMNITY. In addition to the payment of expenses pursuant to
Section 8.2 hereof Borrower agrees to indemnify, defend and hold harmless Bank,
and any of its participants, parent corporations, subsidiary corporations,
affiliated corporations, successor corporations, and all present and future
officers, directors, employees and agents of the foregoing (the "Indemnitees"),
from and against (i) any and all transfer taxes, documentary taxes, assessments
or charges made by any governmental authority by reason of the execution and
delivery of this DIP Loan Agreement and the other Loan Documents or the making
of the Advances, and (ii) any and all liabilities, losses, damages, penalties,
judgments, suits, claims, costs and expenses of any kind or nature whatsoever
(including, without limitation, the reasonable fees and disbursements of
counsel) in connection with any investigative, administrative or judicial
proceedings, whether or not such Indemnitee shall be designated a party thereto,
which may be imposed on, incurred by or asserted against such Indemnitee, in any
manner relating to or arising out of or in connection with the making of the
Advances, this DIP Loan Agreement and all other Loan Documents or the use or
intended use of the proceeds of the Advances, except those which arise as a
result of the gross negligence or willful misconduct of an Indemnitee, (the
"INDEMNIFIED LIABILITIES"). If any investigative, judicial or administrative
proceeding arising from any of the foregoing is brought against any Indemnitee,
upon request of such Indemnitee, Borrower, or counsel designated by Borrower and
satisfactory to the Indemnitee, will resist and defend such action, suit or
proceeding to the extent and in the manner directed by the Indemnitee, at
Borrower's sole cost and expense. Each Indemnitee will use its best efforts to
cooperate in the defense of any such action, suit or proceeding. If the
foregoing undertaking to indemnify, defend and hold harmless may be held to be
unenforceable because it violates any law or public policy, Borrower shall
nevertheless make the maximum contribution to the payment and satisfaction of
each of the Indemnified Liabilities which is permissible under applicable law.
The obligation of Borrower under this Section 8.8 shall survive the termination
of this DIP Loan Agreement and the discharge of Borrower's other Obligations.
8.9. SURVIVAL OF AGREEMENT, REPRESENTATIONS, AND WARRANTIES, ETC. All
warranties, representations and covenants made herein by Borrower or in any
certificate or other instrument delivered by it or on its behalf in connection
with this DIP Loan Agreement shall be considered to have been relied upon by
Bank and shall survive the making of the Advances herein contemplated and the
issuance and delivery to Bank of the Revolving Note regardless of any
investigation made by Bank or on its behalf and shall continue in full force and
effect so long as any amount due or to become due hereunder is outstanding and
unpaid and so long as the Credit has not been terminated. All statements in any
such certificate or other instrument shall constitute representations and
warranties by Borrower.
8.10. HEADINGS. Article and Section headings in this DIP Loan Agreement
are for convenience of reference only, and shall not constitute a part of this
DIP Loan Agreement for any other purpose or a limitation of the scope of the
particular Articles or Sections to which they refer.
8.11. SEVERABILITY. Any provision of this DIP Loan Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
8.12. EXECUTION IN COUNTERPARTS. This DIP Loan Agreement may be
executed in any number of counterparts, each of which shall constitute an
original, but all of which taken together shall constitute one and the same
instrument.
8.13. FURTHER ASSURANCES. Whenever and so often as reasonably requested
by Bank, Borrower shall promptly execute and deliver or cause to be executed and
delivered all such other and further instruments, documents or assurances, and
promptly do or cause to be done all such other and further things as may be
necessary and reasonably required in order to further and more fully vest in
Bank all rights, interests, powers, benefits or privileges and advantages
conferred or intended to be conferred by this DIP Loan Agreement and the other
Loan Documents.
8.14. WAIVER OF JURY TRIAL. Each of Borrower and Bank hereby
irrevocably waives all right to trial by jury in any action, proceeding or
counterclaim arising out of or relating to any of the Loan Documents or the
transactions contemplated thereby.
8.15. GOVERNING LAW. This DIP Loan Agreement, the Revolving Note and
the other Loan Documents shall be governed by and construed in accordance with
the laws of the State of Minnesota.
IN WITNESS WHEREOF, the parties have executed this DIP Loan Agreement
on the date first above written.
BRAUN'S FASHIONS, INC.
BORROWER
By:
Title:
BRAUN'S FASHIONS CORPORATION
GUARANTOR
By:
Title:
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
By:
Title:
GUARANTY
In order to induce NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, a
national banking association, with its chief executive offices at Norwest
Center, Sixth and Marquette, Minneapolis, Minnesota 55479 (the "BANK") to extend
credit or other financial accommodations to BRAUN'S FASHIONS, INC., a Minnesota
corporation with its principal place of business at 2400 Xenium Lane North,
Plymouth, Minnesota 55441 (the "BORROWER"), BRAUN'S FASHIONS CORPORATION, a
Delaware corporation with its principal place of business at 2400 Xenium Lane
North, Plymouth, Minnesota 55441 ("GUARANTOR") executes and delivers this
Guaranty ("GUARANTY") to Bank on this 8th day of July, 1996.
RECITALS
FIRST: Bank and Borrower are parties to that certain Revolving Credit and
Security Agreement of even date herewith (the "DIP LOAN AGREEMENT")
under which Bank is extending credit to Borrower pursuant to that
certain revolving note of even date herewith in the original principal
amount of Ten Million and 00/100 Dollars ($10,000,000.00).
SECOND: One of the conditions precedent to Bank's obligation to make Advances
(as defined in the DIP Loan Agreement) to Borrower is the execution and
delivery of this Guaranty by Guarantor to Bank.
THIRD: Guarantor has considered the impact of the failure of Borrower to
obtain financing and believes that (i) the DIP Loan Agreement will
assist the Borrower in its efforts to reorganize under Chapter 11; and
(ii) without the DIP Loan Agreement, the Borrower's efforts would be
jeopardized; and (iii) Guarantor will benefit from execution of this
Guaranty, and the continuation of the business.
NOW, THEREFORE, in consideration of the foregoing recitals and for good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Guarantor hereby agrees with Bank as follows:
DEFINED TERMS. All capitalized terms herein have the same meanings
ascribed to them in the DIP Loan Agreement unless otherwise defined herein.
GUARANTY OF OBLIGATIONS. Except as modified in this Guaranty, Guarantor
hereby absolutely and unconditionally guarantees the prompt payment when due,
whether at maturity or earlier by reason of acceleration or otherwise, of all of
the Indebtedness owing under the Revolving Note, as that term is defined in the
DIP Loan Agreement, of any kind or nature, however created, arising or evidence,
whether direct or indirect, absolute or contingent, now or hereafter existing or
due or to become due, joint or several, together with any and all expenses of
and incidental to collection, including without limitation reasonable attorneys'
fees, with respect to collection from Borrower and Guarantor (collectively the
"OBLIGATIONS").
UNCONDITIONAL. This Guaranty is unconditional, is effective immediately
and shall continue to be effective regardless whether: (a) the amount, manner,
term or place of the Obligations or any portion thereof is modified, waived or
released, (b) there is any release, substitution, nonperfection, or other
impairment, of the Collateral or any other security for the Obligations or no
establishment of a first priority of Bank's interests therein, (c) the
Obligations or any portion thereof are unenforceable, or (d) there is any
provision of any law or other defense available to Borrower as against Bank.
Guarantor hereby expressly waives presentment, demand, notice of nonpayment,
dishonor protest, and notice of protest on any and all forms of such
indebtedness and also waives notice of acceptance of this Guaranty.
ABSOLUTE. Except as modified below, this Guaranty is absolute and
Guarantor's liability to Bank is not conditioned upon Bank proceeding first
against Borrower or the Collateral. The obligation of Guarantor to make payment
under this Guaranty becomes effective immediately, without further notice, upon
the occurrence of an Event of Default. The liability of Guarantor hereunder
shall not be affected or impaired by any of the following (which Guarantor
authorizes Bank to do, omit or suffer from time to time without notice to or
approval by Guarantor): (a) any failure, neglect or omission on the part of Bank
to realize upon any of the Obligations, (b) any failure by Bank to realize upon
any Collateral or other security, including rights of setoff, for any or all of
the Obligations, (c) the acceptance by Bank of other collateral or guaranty or
guaranties to secure the Obligations to Bank, (d) any one or more extensions,
renewals or forbearance of the Obligations whether or not for longer than the
original period, or any modification of the interest rates, maturities or other
contractual terms applicable to any of the Obligations, (e) any waiver or
indulgence granted to Borrower, any delay in the enforcement of the Obligations,
or any act of the Bank to delay or defer the initiation of proceedings, filing
of claims (whether or not in a bankruptcy proceeding), or giving of any required
notices, provided any such waiver, indulgence, delay or act would not, in
relation to sound banking practices, constitute gross negligence or willful
misconduct, (f) any discharge of any evidence of the Obligations or the
acceptance of any instrument in renewal thereof or substitution therefor, (g)
any foreclosure or enforcement of any Collateral or other security for the
Obligations, (i) any election by Bank under section 1111(b) of Title 11 of the
United States Code, (h) any act or failure to act by Bank whatsoever which but
for this provision might or could in law or in equity act to release or reduce
Guarantor's liability hereunder. In addition, Guarantor hereby acknowledges and
agrees that the amount of his liability hereunder shall not be affected or
reduced from the actual amount of outstanding Obligations by any modification,
reduction or treatment of the same in any case or proceeding under Title 11 of
the United States Code in which Borrower is a debtor.
CONTINUING. This Guaranty is a continuing guaranty and shall continue
in full force and effect notwithstanding, without limitation: (a) the
nonexistence from time to time of any Obligations from Borrower to Bank, or (b)
the extension of time to other guarantor, if any, both as to the Obligations
then existing and/or thereafter created. If payment of the Obligations or any
portion thereof by Borrower or any other Person is rescinded or otherwise must
be returned by Bank for any reason whatsoever, including without limitation
reasons related to the insolvency, bankruptcy or reorganization of Borrower or
such other Person, this Guaranty shall continue to be of full force and effect
or shall be reinstated, as the case may be, as to the Obligations or portion
thereof satisfied by the payment or payments rescinded or returned all as if the
such payment or payments had not been made.
IRREVOCABLE. This Guaranty is irrevocable. Guarantor may not revoke
this Guaranty as long as the Obligations or any portion thereof is outstanding.
Revocation of this Guaranty may occur only with the prior written consent of
Bank.
7. SECURED GUARANTY. Guarantor, contemporaneous with this Guaranty,
pledges, as security for its obligations under the Guaranty, all assets, real
and personal, now owned or hereafter acquired.
WAIVERS. Guarantor hereby waives any and all defenses, claim and
discharges of Borrower pertaining to the Obligations except the defense of
discharge by payment in full. Without limiting the generality of the foregoing,
Guarantor shall not assert, plead or enforce against Bank any defense of waiver,
release, discharge in bankruptcy, statue of limitations, res judicata, statue of
frauds, anti-deficiency statue, fraud, incapacity, minority, usury, illegality
or unenforceability which may be available to Borrower or any other Person
liable with respect to the Obligations or any portion thereof, or any setoff
available against Bank to Borrower or any such other Person, whether or not on
account of a related transaction. Guarantor expressly agrees that it shall be
and remain liable for any deficiency remaining after foreclosure of Bank's
Security Interest whether or not the liability of Borrower or any other obligor
for such deficiency is discharged pursuant to statute or judicial decision.
PAYMENTS AND APPLICATION THEREOF. Statements of account rendered to
Borrower by Bank, including without limitation the monthly statements setting
forth the principal balance of the Revolving Loan and the interest due thereon,
shall be presumed to be correct absent manifest error and shall be an account
stated binding upon Guarantor the same as upon Borrower as set forth in the DIP
Loan Agreement. Any and all payments upon the Obligations by Borrower, by
Guarantor, or by any other person, and/or the proceeds of any or all Collateral
or other security for any of the Obligations may be applied by Bank upon such of
the items of the then due and payable Obligations and in such order as Bank may
determine in its sole discretion whether the same shall be due or not.
ASSIGNMENT. This Guaranty shall be binding upon Guarantor and upon the
successors and assigns of Guarantor, and shall inure to the benefit of Bank and
its successors, assigns and participants except that Guarantor may not assign
its obligations or liability hereunder. Bank may assign its rights, in whole or
in part, under this Guaranty.
ACCEPTANCE. This Guaranty shall be effective upon delivery to Bank
without further act, condition or acceptance by Bank. Possession of this
Guaranty by Bank shall be conclusive evidence of due delivery hereof by
Guarantor.
NO SUBROGATION. Unless and until such time as all of the Obligations
shall have been fully paid and discharged, Guarantor hereby irrevocably waive
any claim or other rights which it may now hold or hereafter acquire against
Borrower or any Person liable for payment of the Obligations or against the
Collateral or any other security for the Obligations, that arise from the
existence, payment, performance, or enforcement of the Obligations or any other
loan document, including without limitation any right of subrogation,
reimbursement, contribution, recourse, exoneration, or indemnification or any
right to participate in any claim or remedy of Bank against Borrower or any
Collateral or other security which Bank now has or hereafter acquires, whether
or not such claim, remedy, or right arises in equity or under contract, statute
or common law, including without limitation the right to take or receive from
Borrower directly, or indirectly, in cash or other property or by setoff or
otherwise, payment or security on account of such claim or other rights.
TERMINATION. This Guaranty shall continue to be effective and shall not
terminate prior to the time all of the Obligations have been paid in full in
cash.
CONSENT TO JURISDICTION. Guarantor hereby irrevocably submits to the
jurisdiction of any Minnesota State or Federal court sitting in Minneapolis,
Minnesota, over any action or proceeding arising out of or relating to this
Guaranty, and Guarantor hereby irrevocably agrees that all claims in respect of
such action or proceeding may be heard and determined in such Minnesota State or
Federal court except to the extent that Guarantor's remedies hereunder shall be
governed by the laws of a jurisdiction other than the State of Minnesota.
Guarantor hereby irrevocably waives, to the fullest extent it may effectively do
so, the defense of an inconvenient forum to the maintenance of such action or
proceeding. Guarantor irrevocably consents to service of copies of the summons
and complaints and any other process which may be served in any such action or
proceeding by the mailing by United States certified mail, return receipt
requested of copies of such process to Guarantor's address specified in the
first paragraph of this Guaranty. Guarantor agrees that a judgment final by
appeal or expiration of time to appeal without an appeal being taken, in any
such action or proceeding shall be conclusive and may be enforced in any other
jurisdiction by suit on the judgment or in any other manner provided by law.
Nothing in this Section shall affect the right of Bank to serve legal process in
any other manner permitted by laws or affect the right of Bank to bring any
action or proceeding against Guarantor or its property in the courts of any
other jurisdictions.
GOVERNING LAW. This Guaranty shall be deemed to be a contract made
under and governed by the internal laws, and not the law of conflicts, of the
State of Minnesota.
SEVERABILITY. If any provision or application of this Guaranty is held
unlawful or unenforceable in any respect, such illegality or unenforceability
shall not affect the other provisions or applications which can be given effect,
and this Guaranty shall be construed as if the unlawful or unenforceable
provision or application had never been contained herein or prescribed hereby.
FAILURE NOT WAIVER; CUMULATIVE REMEDIES. No failure or delay by Bank in
the exercise of any power, right or remedy under this Guaranty and no course of
dealing with respect thereto shall: (a) impair such power, right or remedy, (b)
be a waiver thereof or be construed to be a waiver thereof or of any default or
be an acquiescence therein, and no single or partial exercise of any such power,
right or remedy preclude any other or further exercise thereof or any other
right, power or privilege. The rights and remedies of Bank provided under this
Guaranty, the DIP Loan Agreement and the other Loan Documents are cumulative,
may be exercised singly or concurrently and are cumulative to, and not exclusive
of any rights or remedies provided by law or otherwise available.
COSTS. Guarantor shall pay or reimburse Bank for all costs and expenses
including without limitation reasonable attorneys' fees and legal expenses
incurred by Bank in connection with the protection, defense, enforcement and
collection of this Guaranty (whether or not suit is commenced).
NOTICES. Any notice, demand or request by Bank to Guarantor shall be in
writing and shall be either (a) manually delivered to Guarantor, or (b) mailed
by United States registered or certified mail, postage prepaid, return receipt
requested, or (c) sent by overnight courier, properly addressed to Guarantor at
the address of Guarantor set forth in the first paragraph of this Guaranty. Any
notice or communication shall be deemed effective when manually delivered to
Guarantor, or, if mailed or forwarded by overnight courier when received at the
specified address of Guarantor, and the registered or certified receipt or
overnight air-bill shall be conclusive evidence of the date of such receipt.
Guarantor may change the address to which mailed notice is to be sent to them by
giving Bank not less than thirty (30) days advance written notice thereof given
at the address set forth in the first paragraph of this Guaranty or at such
other address as Bank may from time to time provide to Guarantor.
HEADINGS. All Section headings in this Guaranty are for convenience of
reference only and shall not constitute a part of this Guaranty for any other
purpose or a limitation of the scope of the particular Sections to which they
refer.
AMENDMENTS. No amendment, modification, termination or waiver of any
provision of this Guaranty, or consent to any departure by Guarantor therefrom,
shall be effective in any respect unless the same shall be in a writing signed
by Bank and Guarantor.
IN WITNESS WHEREOF, this Guaranty has been duly executed by Guarantor
as of the date and year first above written.
BRAUN'S FASHIONS CORPORATION
By:
Its:
REVOLVING NOTE
$10,000,000.00 July 8, 1996
FOR VALUE RECEIVED, the undersigned, BRAUN'S FASHIONS, INC., a
Minnesota corporation (the "Borrower"), promises to pay to the order of Norwest
Bank Minnesota, National Association, a national banking association (the
"BANK"), the principal amount of each Advance (as that term is defined in that
certain Debtor-In-Possession Revolving Credit and Security Agreement dated as of
July 8, 1996, between the Borrower and the Bank (the "DIP LOAN AGREEMENT")) made
by the Bank to the Borrower together with interest accrued thereon as provided
in the DIP Loan Agreement.
This is the Revolving Note as that term is defined in the DIP Loan
Agreement. All capitalized terms in this Revolving Note shall have the meanings
ascribed to them in the DIP Loan Agreement unless otherwise defined herein. This
Revolving Note is entitled to the benefits of the DIP Loan Agreement. The DIP
Loan Agreement provides among other things, for the making of Advances by the
Bank from time to time in an aggregate amount not to exceed at any time
outstanding Ten Million Dollars ($10,000,000.00). The indebtedness of the
Borrower to the Bank resulting from each Advance shall be evidenced by this
Revolving Note.
Interest shall accrue and be computed on this Revolving Note as
provided in Section 2.1(d) of the DIP Loan Agreement. Interest accrued shall be
due and payable, in arrears, monthly commencing on the fourth Business Day of
the month immediately following the date hereof and continuing on the fourth
Business Day of each month thereafter and on the Maturity Date.
All payments of principal of this Revolving Note shall be due and
payable on the Maturity Date which is the earlier of: (i) April 1, 1999, (ii)
the occurrence of an Event of Default, or (iii) the first business day after an
order of the Bankruptcy Court confirming a plan of reorganization in the
bankruptcy case becomes a final, non-appealable order. Until the Maturity Date,
principal shall be reduced in accordance with the terms set forth in the DIP
Loan Agreement.
Both principal and interest shall be payable in lawful money of the
United States of America to the Bank at Minneapolis, Minnesota, or such other
location specified by the Bank in writing.
So long as no Event of Default occurs, the Borrower may borrow, repay,
and reborrow in accordance with the terms of the DIP Loan Agreement.
In the event of any inconsistency between the terms of the DIP Loan
Agreement and this Revolving Note, the DIP Loan Agreement shall control.
Presentment and demand for payment, notice of dishonor, protest and
notice of protest are hereby waived. In the event of an Event of Default, the
Borrower agrees to pay all costs of collection and reasonable attorneys' fees
(whether or not suit is commenced) including, without limitation, attorneys'
fees and legal expenses incurred in connection with any appeal of a lower
court's judgment or order, as provided in the DIP Loan Agreement.
BRAUN'S FASHIONS, INC.
By:
Its:
BRAUNS FASHIONS CORPORATION [LOGO]
2400 XENIUM LANE NORTH
PLYMOUTH, MN 55441
FOR IMMEDIATE RELEASE
Contact: Stephen W. Clark
Vice President and
Chief Financial Officer
(612) 551-5106
BRAUNS FASHIONS CORPORATION FILES PLAN OF REORGANIZATION
Minneapolis, MN (July 2, 1996) -- Braun's Fashions Corporation (Nasdaq/NNM:BFCI)
announced today that the Company and its wholly owned operating subsidiary,
Braun's Fashions, Inc., filed chapter 11 reorganization petitions in the United
States Bankruptcy Court for the District of Delaware. In connection with the
bankruptcy filing, Braun's received approval of a number of first-day motions
including approval from the Bankruptcy Court for an interim debtor-in-possession
financing facility with Norwest Bank to ensure that the Company can continue
operating in the ordinary course of business.
The Company is also seeking to reject at least 40 store leases. The losses
experienced by these 40 store locations has had a significant negative impact on
the Company's cash flow. "Our reorganization provides us with an opportunity for
relieving the Company of a significant number of unprofitable stores, and allows
the remaining healthy stores to be even more competitive in the marketplace,"
said Nicholas H. Cook, Chairman and CEO.
With a core group of profitable stores and a new $10 million working capital
facility, Braun's expects to operate its business without major interruption.
The Company expects to file a plan of reorganization within the next few weeks.
Mr. Cook commented that, "Braun's will take every necessary step to emerge
quickly from its chapter 11 reorganization as a strong and financially viable
corporation."
Braun's Fashions Corporation, based in Minneapolis, Minnesota, is a regional
retailer of women's fashions that currently operates 221 stores in 22 states,
primarily in the Midwest and Pacific Northwest.
