<PAGE> 1
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
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED):
APRIL 20, 1999
COMMISSION FILE NUMBER 0-27920
Garden Botanika, Inc.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Washington 91-1464962
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
8624 154th Avenue NE
Redmond, Washington 98052
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(425) 881-9603
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
<PAGE> 2
ITEM 5. OTHER EVENTS.
On April 20, 1999, Garden Botanika, Inc. (the "Company") filed a voluntary
petition under Chapter 11 of the United States Bankruptcy Code (United States
Bankruptcy Court for the Western District of Washington at Seattle, the
Honorable Karen A. Overstreet, Case No. 99-04464) in order to address
obligations associated with the Company's recent financial difficulties and
related reorganization efforts. On April 23, 1999, Judge Overstreet approved
interim debtor-in-possession financing of up to $2.2 million under the terms of
a $7.0 credit facility obtained from BankBoston Retail Finance Inc.
(BankBoston). On April 30, 1999, Judge Overstreet issued an order granting the
Company the authority to close 95 of its 245 retail stores.
Copies of the Company's press release announcing its bankruptcy filing, as well
as a copy of its credit facility with BankBoston, are attached as Exhibits to
this filing.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(C) EXHIBITS
10.33 Second Amendment to Employment Agreement
10.34 Loan and Security Agreement with BankBoston Retail Finance Inc.
99.1 Press Release dated April 20, 1999 announcing bankruptcy filing
<PAGE> 3
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.
GARDEN BOTANIKA, INC.
Registrant
May 3, 1999 /s/ Arlee J. Jensen
- ----------- -----------------------------------------
Date Arlee J. Jensen
President
(Principal Executive Officer)
May 3, 1999 /s/ George W. Newman
- ----------- -----------------------------------------
Date George W. Newman
Vice President & Chief Financial Officer
(Principal Financial and Accounting Officer)
<PAGE> 4
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
10.33 Second Amendment to Employment Agreement
10.34 Loan and Security Agreement with BankBoston Retail Finance Inc.
99.1 Press Release dated April 20, 1999 announcing bankruptcy filing
<PAGE> 1
EXHIBIT 10.33
SECOND AMENDMENT TO
EMPLOYMENT AGREEMENT
This Second Amendment to Employment Agreement (this "Second Amendment")
is entered into this 19th day of January, 1999 by and between Garden Botanika,
Inc. ("Garden") and Michael W. Luce ("Luce").
RECITALS
A. Garden and Luce are parties to that certain Employment Agreement
dated as of January 1, 1990, as amended on November 13, 1998 (the "Employment
Agreement").
B. Garden has requested Luce, and Luce has agreed, to resign from his
position as President and Chief Executive Officer of Garden in lieu of
termination thereof.
C. Garden and Luce wish to amend the Employment Agreement as provided
herein to memorialize the terms of Luce's resignation under the aforementioned
circumstances.
D. In light of Garden's current financial circumstances, it has
requested and Luce is willing to forego certain severance benefits under the
Employment Agreement on the terms set forth herein.
AGREEMENT
In consideration of the mutual promises contained in this Second
Amendment, Garden and Luce hereby agree as follows:
1. Resignation; Continued Services as Director. Luce hereby resigns from
his position as President and Chief Executive Officer of Garden effective
January 19, 1999 (the "Resignation Date"). After the Resignation Date, Luce will
receive from Garden only the compensation and benefits provided in this Second
Amendment and hereby waives all other rights and benefits to which he might
otherwise be entitled by virtue of the Employment Agreement or otherwise,
including without limitation any and all rights to notice and any other
severance benefits as defined in Section 10 of the Employment Agreement. Unless
(i) he is not re-elected to the Board or (ii) he is requested to resign from the
Board by Garden or any successor to Garden, Luce agrees to continue to serve as
a member of Garden's Board of Directors for a period of at least one (1) year
from the date of this Second Amendment, unless and until he becomes an employee
or director or serves in some other capacity for a competitor of Garden, in
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which case Luce agrees to immediately resign from Garden's Board of Directors.
In addition, Luce agrees to assist Garden and its financial advisors as
reasonably requested by any such party consistent with his role as an outside
director.
2. Separation Plan and Benefits. Garden agrees to provide Luce with the
following benefits:
a. Upon execution hereof Garden will pay Luce for his accrued but
unused vacation as of the Resignation Date in the amount of $32,893.75.
b. Luce will continue to be entitled to benefits under Garden's
disability, health and individual life insurance plans, which benefits include
the right to reasonable use of a cellular telephone, the costs of which shall be
borne by Garden, until the later of (i) one (1) year from the date of this
Second Amendment or (ii) the date Luce ceases to serve as a member of Garden's
Board of Directors. Such obligations will terminate in the event that Luce
accepts other employment in which such benefits are provided. During such
period, he shall also receive consideration provided other outside directors.
After one (1) year Luce shall receive only such benefits as are provided to
other outside directors.
c. Garden will pay Luce a severance amount totaling $131,000, payable
as follows: $66,000 shall be payable upon execution of this Second Amendment,
$32,500 shall be payable three (3) months from the date hereof, and the balance
of $32,500 shall be payable six (6) months from the date hereof. So long as Luce
is not in breach of the Agreement, as amended by this Second Amendment, in the
event that Garden fails to pay Luce in accordance herewith, Luce shall be
entitled to receive the entire $260,000 severance payment as specified in the
Employment Agreement less amounts paid hereunder to the date of such breach,
with the entire unpaid balance to be immediately accelerated and due and payable
upon the failure of Garden to make any payment when due, and without notice or
demand from Luce, which Garden hereby waives.
d. All unvested stock options currently held by Luce shall continue
to vest according to their respective stated vesting schedules until, and the
terms of all currently vested stock options held by Luce are hereby extended to
coincide with, the later of (i) one (1) year from the date of this Second
Amendment or (ii) ninety (90) days after the date Luce ceases to serve as a
member of Garden's Board of Directors; provided that this provision is intended
only to confirm the parties' interpretation that such continuation of vesting
and exercise is encompassed by Section 10(ii) of the Employment Agreement and
the relevant stock option plan and is not providing benefits to Luce beyond that
provided by such provisions, and Luce hereby disclaims any benefit or value in
excess of what he is entitled to under the Employment Agreement and relevant
stock option plan as existing prior to this Second Amendment.
<PAGE> 3
e. Garden hereby agrees to sell, and Luce may agree to purchase, the
computer and scanner equipment currently located in Luce's office for the fair
market value thereof.
f. Garden agrees to keep in full force and effect a directors' and
officer's liability insurance policy or policies consistent with its past
practices.
3. Tax Withholding. All payments made under this Second Amendment shall
be subject to applicable federal income tax, social security and any other
required withholdings.
4. Release. Luce accepts the benefits contained in this Second Amendment
in full satisfaction of all his rights and interests relating to his employment
with Garden and, in consideration therefore, Luce hereby releases Garden, its
affiliates, successors, past and present officers, directors, agents and
employees from all claims (other than claims for the consideration provided for
under this Second Amendment), causes of action or liabilities, suspected or
unsuspected and irrespective of any present lack of knowledge of any possible
claim or of any fact or circumstance pertaining thereto, which Luce may have or
claim to have against Garden through and including the date of this Second
Amendment arising from or during his employment or as a result of his separation
from employment. This release specifically covers, but is not limited to, any
workers' compensation or disability claims under state law; any claims of
discrimination based on race, color, national origin, sex, marital status, age
or physical or mental disability under any federal, state, or local law, rule or
regulation; any contract or tort claims arising under federal, state or local
law; any claims arising under federal, state or local law based on promises made
or allegedly made by Garden to Luce; any claims based on Garden's stock option
agreement; and any claims under any express or implied contract or legal
restrictions on Garden's right to terminate its employees. Luce hereby covenants
not to assert any such claims or causes of action.
5. Other Claims or Lawsuits. Luce represents that as of the date of the
Second Amendment, he has not filed any complaints, charges or lawsuits with any
governmental agency or any court against Garden or its affiliates, successors,
past and present officers, directors, agents or employees. Luce agrees that he
will not file any lawsuit against Garden or its affiliates, successors, past and
present officers, directors, agents or employees at any time hereafter, other
than to remedy a breach of this Second Amendment, as to any and all claims or
causes of action arising from or relating to his employment by Garden or the
cessation thereof through and including the date of this Second Amendment.
6. Non-Competition. Section 9(a) of the Employment Agreement, as
amended, and any references thereto, shall hereafter be null and void, except
that Luce hereby agrees not to employ or attempt to employ, either directly or
indirectly, any person who is or at any time during the six months prior to the
date hereof was an employee of
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Garden, unless such person's employment with Garden was terminated by Garden.
Section 9(b) of the Employment Agreement is hereby amended to delete the
reference to "termination of his employment" and replace it with "termination of
his service as a director of the Company."
7. No Admission. Nothing in this Second Amendment shall be construed as
any indication that Garden has acted wrongfully towards Luce or any other
person.
8. Full and Final Resolution. This Second Amendment is intended to
constitute a full and final resolution of any issues related to Luce's
employment by Garden.
9. No Representations. Luce represents that in entering into this Second
Amendment, he does not rely and has not relied upon any representation or
statement made by Garden or any of its employees or agents concerning this
Second Amendment.
10. Voluntary Execution. Luce represents that he has read, considered
and fully understands this Second Amendment and all its terms, and executes it
freely and voluntarily.
11. Construction of Second Amendment; Governing Law. Each party has had
a full and complete opportunity to review this Second Amendment and has been
given the opportunity to have counsel review it. Accordingly, the parties agree
that the common law principles of construing ambiguities against the drafter
shall have no application to this Second Amendment. Interpretation of this
Second Amendment shall be under Washington law. If any such action is necessary
to enforce the terms of this Second Amendment, the substantially prevailing
party shall be entitled to receive reasonable attorneys' fees and costs.
12. Survival of Employment Agreement. Unless specifically modified or
amended hereby, the provisions of the Employment Agreement shall continue in
full force and effect.
13. Complete Agreement. This Second Amendment constitutes a full and
final resolution of all matters in any way related to Luce's employment with
Garden. This Second Amendment, together with the Employment Agreement, supersede
any and all other agreements between the parties related to Luce's employment by
Garden. Except as provided in this Second Amendment, there are no other wages or
benefits of any kind owed by Garden to Luce.
14. Assigns; Death and Disability. This Second Amendment shall be
binding on and shall inure to the benefit of the heirs, successors and assigns
of the parties hereto. The death or disability of Luce shall relieve him from
the duty to serve on Garden's Board of Directors and shall not constitute a
breach of this Second Amendment.
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15. Counterparts. This Second Amendment may be executed in counterpart
originals and/or by facsimile signatures and shall be binding to the same effect
as if executed through a single document with original signatures.
16. Authorization. The party executing this Second Amendment on behalf
of Garden warrants that he or she is duly authorized to execute this Second
Amendment and thereby bind Garden, and that this Second Amendment is a lawful
and binding obligation of Garden.
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IN WITNESS WHEREOF, each of the parties hereto has caused this Second
Amendment to be duly executed and delivered as of the dates specified below.
/s/ Michael W. Luce Dated: January 19, 1999
- -----------------------------
Michael W. Luce
GARDEN BOTANIKA, INC.
By: /s/ William R. Randall Dated: January 19, 1999
- -----------------------------
Its: Director
-------------------------
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EXHIBIT 10.34
================================================================================
--------------------------------------------
LOAN AND SECURITY AGREEMENT
--------------------------------------------
BANKBOSTON RETAIL FINANCE INC.
THE LENDER
--------------------------------------------
GARDEN BOTANIKA, INC.
DEBTOR AND DEBTOR IN POSSESSION
AND THE BORROWER
--------------------------------------------
April __, 1999
================================================================================
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TABLE OF CONTENTS
<TABLE>
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ARTICLE I-DEFINITIONS........................................................................1
ARTICLE II-THE REVOLVING CREDIT.............................................................19
2.1. Establishment of Revolving Credit.................................................19
2.2. Advances in Excess of Borrowing Base...............................................20
2.3. Risks of Value of Collateral.......................................................20
2.4. Loan Requests......................................................................20
2.5. Making of Loans Under Revolving Credit.............................................22
2.6. The Loan Account...................................................................23
2.7. The Revolving Credit Note..........................................................24
2.8. Payment of The Loan Account........................................................24
2.9. Interest...........................................................................25
2.10. Commitment Fee.....................................................................25
2.11. Facility Fee.......................................................................26
2.12. Line (Unused) Fee..................................................................26
2.13. Early Termination Fee..............................................................26
2.14. Concerning Fees....................................................................27
2.15. Lender's Discretion................................................................28
2.16. Increased Costs....................................................................29
ARTICLE 3. CONDITIONS PRECEDENT:...........................................................30
3.1. Corporate Due Diligence............................................................30
3.2. Opinion............................................................................31
3.3. Additional Documents...............................................................31
3.4. Officers' Certificates.............................................................31
3.5. Representations and Warranties.....................................................31
3.6. Minimum Excess Availability........................................................31
3.7. All Fees and Expenses Paid.........................................................32
3.8. No Suspension Event................................................................32
3.9. No Adverse Change..................................................................32
3.10. Borrowing Order....................................................................32
3.11. Store Closing Order................................................................32
ARTICLE 4 -GENERAL REPRESENTATIONS, COVENANTS AND WARRANTIES:..............................33
4.1. Payment and Performance of Liabilities..............................................33
4.2. Due Organization -Corporate Authorization -No Conflicts.............................33
4.3. Trade Names.........................................................................34
4.4. Infrastructure......................................................................34
4.5. Year 2000 Compliance................................................................35
4.6. Locations...........................................................................35
4.7. Title to Assets.....................................................................36
4.8. Indebtedness........................................................................37
4.9. Insurance Policies..................................................................37
4.10. Licenses...........................................................................38
4.11. Leases.............................................................................38
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4.12. Requirements of Law................................................................39
4.13. Maintain Properties................................................................39
4.14. Pay Taxes..........................................................................40
4.15. No Margin Stock....................................................................41
4.16. ERISA..............................................................................42
4.17. Hazardous Materials................................................................42
4.18. Litigation.........................................................................43
4.19. Dividends or Investments...........................................................43
4.20. Loans..............................................................................44
4.21. Protection of Assets...............................................................44
4.22. Line of Business...................................................................45
4.23. Affiliate Transactions.............................................................45
4.24. Additional Assurances..............................................................45
4.25. Adequacy of Disclosure.............................................................46
4.26. Other Covenants....................................................................47
ARTICLE 5 - FINANCIAL REPORTING AND PERFORMANCE COVENANTS:..................................47
5.1. Maintain Records....................................................................47
5.2. Access to Records...................................................................47
5.3. Immediate Notice to Lender..........................................................48
5.4. Borrowing Base Certificate..........................................................50
5.5. Weekly Reports......................................................................50
5.6. Monthly Reports.....................................................................50
5.7. Quarterly Reports...................................................................51
5.8. Annual Reports......................................................................52
5.9. Officers' Certificates..............................................................53
5.10. Inventories, Appraisals, and Audits................................................53
5.11. Additional Financial Information...................................................54
5.12. Financial Performance Covenants....................................................56
5.13. Store Closing Order................................................................56
ARTICLE 6 -USE AND COLLECTION OF COLLATERAL:...............................................56
6.1. Use of Inventory Collateral.........................................................56
6.2. Inventory Quality...................................................................57
6.3. Adjustments and Allowances..........................................................57
6.4. Validity of Accounts................................................................57
6.5. Notification to Account Debtors.....................................................58
ARTICLE 7 -CASH MANAGEMENT. PAYMENT OF LIABILITIES:........................................58
7.2. Credit Card Receipts................................................................59
7.3. The Concentration, Blocked, and Operating Accounts..................................59
7.4. Proceeds and Collection of Accounts.................................................60
7.5. Payment of Liabilities..............................................................61
7.6. The Operating Account...............................................................62
ARTICLE 8 -GRANT OF SECURITY INTEREST:.....................................................63
8.1. Grant of Security Interest..........................................................63
8.2. Extent and Duration of Security Interest............................................64
ARTICLE 9-LENDER AS BORROWER'S ATTORNEY-IN-FACT:............................................64
</TABLE>
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9.1. Appointment as Attorney-In-Fact.....................................................64
9.2-. No Obligation to Act...............................................................65
ARTICLE 10-EVENTS OF DEFAULT:...............................................................65
10.1. Failure to Pay Revolving Credit....................................................66
10.2. Failure To Make Other Payments.....................................................66
10.3. Failure to Perform Covenant or Liability (No Grace Period).........................67
10.4. Failure to Perform Covenant or Liability (Grace Period)............................67
10.5. Misrepresentation..................................................................67
10.6. Acceleration of Other Debt. Breach of Lease........................................67
10.7. Default Under Other Agreements.....................................................68
10.8. Uninsured Casualty Loss............................................................68
10.9. Judgment. Restraint of Business...................................................68
10.10. Business Failure..................................................................68
10.11. Indictment -Forfeiture............................................................69
10.12. Challenge to Loan Documents.......................................................69
10.13. Executive Management..............................................................69
10.14. Change in Control.................................................................70
10.15. Change in Borrowing Order.........................................................70
10.16. Appointment of Examiner or Trustee................................................70
10.17. Conversion of Case................................................................70
10.18. Relief From Stay..................................................................70
10.19. Return of Collateral..............................................................70
ARTICLE 11.-RIGHTS AND REMEDIES UPON DEFAULT:...............................................71
11.1. Rights of Enforcement..............................................................71
11.2. Sale of Collateral.................................................................71
11.3. Occupation of Business Location....................................................72
11.4. Grant of Nonexclusive License......................................................73
11.5. Assembly of Collateral.............................................................73
11.6. Rights and Remedies................................................................73
ARTICLE 12-NOTICES:.........................................................................74
12.1. Notice Addresses...................................................................74
12.2. Notice Given.......................................................................75
ARTICLE 13-TERM:............................................................................76
13.1. Termination of Revolving Credit....................................................76
13.2. Effect of Termination..............................................................76
ARTICLE 14-GENERAL:.........................................................................76
14.1. Protection of Collateral...........................................................76
14.2. Successors and Assigns.............................................................77
14.3. Severability.......................................................................77
14.4. Amendments. Course of Dealing.....................................................77
14.5. Power of Attorney..................................................................78
14.6. Application of Proceeds............................................................78
14.7. Lender's Costs and Expenses........................................................79
14.8. Copies and Facsimiles..............................................................79
14.9. Massachusetts Law..................................................................79
</TABLE>
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14.10. Acknowledgement...................................................................80
14.11. Indemnification...................................................................80
14.12. Rules of Construction.............................................................80
14.13. Intent............................................................................82
14.14. Right of Set-Off..................................................................82
14.15. Maximum Interest Rate.............................................................83
14.16. Waivers...........................................................................83
</TABLE>
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EXHIBITS
2-7 Revolving Credit Note
3-11 Form of Borrowing Order
4-2 Related Entities
4-3 Trade Names
4-5 Year 2000 Compliance
4-6(a) Locations, Leases, and Landlords
4-6(b) List of Locations to be Closed
4-6(c) List of Third Party Locations
4-7 Encumbrances
4-8 Indebtedness
4-9 Insurance Policies
4-11 Capital Leases
4-14 Taxes
4-18 Litigation
5-4 Borrowing Base Certificate
5-12(a) Financial Performance Covenants
5-12(b) Business Plan
7-1 DDA's.
7-2 Credit Card Arrangements
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================================================================================
LOAN AND SECURITY AGREEMENT BANKBOSTON RETAIL FINANCE INC.
================================================================================
April __, 1999
THIS AGREEMENT is made between
BankBoston Retail Finance Inc., a Delaware corporation with
offices at 40 Broad Street, Boston, Massachusetts 02109,
and
Garden Botanika, Inc. (hereinafter, the "BORROWER"), Washington
corporation with its principal executive offices at 8624 154th Avenue NE,
Redmond, WA 98052, and debtor in possession in the Proceedings (defined below)
in consideration of the mutual covenants contained herein and benefits to be
derived herefrom,
WITNESSETH:
ARTICLE I - DEFINITIONS:
As herein used, the following terms have the following meanings or are
defined in the section of this Agreement so indicated:
"ACCEPTABLE INVENTORY": Such of the Borrower's finished Inventory, at
such locations, and of such types, character, qualities and
quantities, as the Lender in its sole discretion from time to
time reasonably determines to be acceptable for borrowing, as to
which Inventory, the Lender has a perfected security interest
which is prior and superior to all security interests, claims,
and all Encumbrances other than Permitted Encumbrances.
Acceptable Inventory shall not include obsolete Inventory.
"ACCOUNTS" and "ACCOUNTS RECEIVABLE" include, without limitation,
"accounts" as defined in the UCC, and also all: accounts (other
than the Escrow Account),
<PAGE> 8
accounts receivable, credit card receivables, notes, drafts,
acceptances, and other forms of obligations and receivables and
rights to payment for credit extended and for goods sold or
leased, or services rendered, whether or not yet earned by
performance; all "contract rights" as formerly defined in the
UCC; all Inventory which gave rise thereto, and all rights
associated with such Inventory, including the right of stoppage
in transit; all reclaimed, returned, rejected or repossessed
Inventory (if any) the sale of which gave rise to any Account.
"ACH": Automated clearing house.
"ACCOUNT DEBTOR": Has the meaning given that term in the UCC.
"AFFILIATE": With respect to any two Persons, a relationship in which
(a) one holds, directly or indirectly, not less than Twenty Five
Percent (25%) of the capital stock, beneficial interests,
partnership interests, or other equity interests of the other; or
(b) one has, directly or indirectly, the right, under ordinary
circumstances, to vote for the election of a majority of the
directors (or other body or Person who has those powers
customarily vested in a board of directors of a corporation); or
(c) not less than Twenty Five Percent (25%) of their respective
ownership is directly or indirectly held by the same third
Person.
"AVAILABILITY": Is defined in Section 2-1(b)(i).
"AVAILABILITY RESERVES": Such reserves as the Lender from time to time
determines in the Lender's discretion as being appropriate to
reflect the impediments to the Lender's ability to realize upon
the Collateral. Without limiting the generality of the foregoing,
Availability Reserves may include (but are not limited to)
reserves based on the following:
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(i) Rent (based upon past due rent and/or whether or
not Landlord's Waiver, acceptable to the Lender ,
has been received by the Lender), which initially
shall be zero dollars.
(ii) In store customer credits, which initially shall be
50% of the actual liability.
(iii) Gift Certificates, which initially shall be 50% of
the actual liability.
(iv) Frequent Shopper Programs, which initially shall be
zero dollars.
(v) Layaways and Customer Deposits, which initially
shall be zero dollars.
(vi) Taxes and other governmental charges, including, ad
valorem, personal property, and other taxes which
might have priority over the security interests of
the Lender in the Collateral, which initially shall
be zero dollars.
(ix) Year 2000 compliance, which initially shall be zero
dollars.
"BANKRUPTCY CODE": Title 11, U.S.C., as amended from time to time.
"BANKRUPTCY COURT": The bankruptcy court in which the Proceedings are
pending.
"BANKRUPTCY RECOVERIES": Any claim or recovery realized by the Borrower
or which the Borrower may be entitled to assert by reason of any
avoidance or other power vested in or on behalf of the Borrower
or the estate of the Borrower under the following Sections of the
Bankruptcy Code: 329, 347, 506, 510, 542, 543, 544, 545, 547,
548, 549, 550, 551, 553, or 724.
"BASE": The Base Rate announced from time to time by BankBoston, N.A.
(or any successor in interest to BankBoston, N.A.) as its "prime
rate". In the event that said bank (or any such successor) ceases
to announce such a rate, "Base" shall refer to that rate or index
announced or published from time to time as the Lender,
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<PAGE> 10
in good faith, designates as the functional equivalent to said
Base Rate. Any change in "Base" shall be effective, for purposes
of the calculation of interest due hereunder, when such change is
made effective generally by the bank on whose rate or index
"Base" is being set. In all events, interest which is determined
by reference to Base (or any successor to Base) shall be
calculated on a 360 day year and actual days elapsed.
"BLOCKED ACCOUNT": Is defined in Section 7-3.
"BORROWER": Is defined in the Preamble.
"BORROWING BASE": Is defined in Section 2-1(b)(ii).
"BORROWING ORDER": Shall mean the interim financing order and such
further interim, final and/or supplemental orders relating
thereto or authorizing the granting of credit by the Lender to
the Borrower pursuant to Section 364 of the Bankruptcy Code (as
such Order may from time to time be amended with the written
consent of the Lender and the Borrower).
"BUSINESS DAY": Any day other than (a) a Saturday or Sunday; (b) any day
on which banks in Boston, Massachusetts, generally are not open
to the general public for the purpose of conducting commercial
banking business; or (c) a day on which the Lender is not open to
the general public to conduct business.
"BUSINESS PLAN": The Borrower's business plan annexed hereto as EXHIBIT
5-12(b) and any revision, amendment, or update of such business
plan to which the Lender has provided its written sign-off.
"CAPITAL EXPENDITURES": The expenditure of funds or the incurrence of
liabilities which may be capitalized in accordance with GAAP.
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"CAPITAL LEASE": Any lease which may be capitalized in accordance with
GAAP.
"CARVE OUT": Has that meaning given to it in the Borrowing Order.
"CHANGE IN CONTROL": The occurrence of any of the following:
(a) The acquisition, by any group of persons (within the
meaning of the Securities Exchange Act of 1934, as amended) or by
any Person, of beneficial ownership (within the meaning of Rule
13d-3 of the Securities and Exchange Commission) of 20% or more
of the issued and outstanding capital stock of the Borrower
having the right, under ordinary circumstances, to vote for the
election of directors of the Borrower.
(b) More than half of the persons who were directors of
the Borrower on the first day of any period consisting of Twelve
(12) consecutive calendar months (th first of which Twelve (12)
month periods commencing with the first day of the month during
which this Agreement was executed), cease, for any reason other
than death or disability to be directors of the Borrower.
(c) All but one of the persons who were directors of the
Borrower on the first day of any period consisting of Twelve (12)
consecutive calendar months (the first of which Twelve (12) month
periods commencing with the first day of the month during which
this Agreement was executed), resign as directors of the Borrower
prior to July 1, 1999.
"CHATTEL PAPER": Has the meaning given that term in the UCC.
"COLLATERAL": Is defined in Section 8-1.
"COMMITMENT FEE": Is defined in Section 2-10.
"CONCENTRATION ACCOUNT": Is defined in Section 7-3.
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<PAGE> 12
"CONTROL AGREEMENT": The Investment Account Control Agreement by and
between Borrower and Lender dated as of the date of this
Agreement.
"COST": The lower of
(a) the calculated cost of purchases, as determined from
invoices received by the Borrower, the Borrower's purchase
journal or stock ledger, based upon the Borrower's accounting
practices, known to the Lender, which practices are in effect on
the date on which this Agreement was executed; or
(b) the cost equivalent of the lowest ticketed or promoted
price at which the subject inventory is offered to the public,
after all mark-downs (whether or not such price is then reflected
on the Borrower's accounting system), which cost equivalent is
determined in accordance with the retail method of accounting,
reflecting the Borrower's historic business practices. "Cost"
does not include inventory capitalization costs or other
non-purchase price charges (such as freight) used in the
Borrower's calculation of cost of goods sold.
"COSTS OF COLLECTION": Includes, without limitation, all attorneys'
reasonable fees and reasonable out-of-pocket expenses incurred by
the Lender's attorneys, and all reasonable costs incurred by the
Lender in the administration of the Liabilities and/or the Loan
Documents, including, without limitation, reasonable costs and
expenses associated with travel on behalf of the Lender, which
costs and expenses are directly or indirectly related to or in
respect of the Lender's: administration and management of the
Liabilities; negotiation, documentation, and amendment of any
Loan Document; or efforts to preserve, protect, collect, or
enforce the Collateral, the Liabilities, and/or the Lender's
Rights and Remedies and/or any of the Lender's rights and
remedies against or in respect of any guarantor or other person
liable in respect of the Liabilities (whether or not suit is
instituted in connection with such efforts). The Costs of
Collection are Liabilities, and at the
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Lender's option may bear interest at the interest rate payable on
the Revolving Credit.
"DDA": Any checking or other demand daily depository account maintained
by the Borrower.
"DEPOSIT ACCOUNT": Has the meaning given that term in the UCC.
"DOCUMENTS": Has the meaning given that term in the UCC.
"DOCUMENTS OF TITLE": Has the meaning given that term in the UCC.
"EARLY TERMINATION FEE": Is defined in Section 2-13.
"EBITDA": The Borrower's earnings before interest, taxes, depreciation,
and amortization, each as determined in accordance with GAAP.
"EMPLOYEE BENEFIT PLAN": As defined in ERISA.
"ENCUMBRANCE":Each of the following:
(a) Any security interest, mortgage, pledge,
hypothecation, lien, attachment, or charge of any kind (including
any agreement to give any of the foregoing); the interest of a
lessor under a Capital Lease; conditional sale or other title
retention agreement; sale of accounts receivable or chattel
paper; or other arrangement pursuant to which any Person is
entitled to any preference or priority with respect to the
property or assets of another Person or the income or profits of
such other Person or which constitutes an interest in property to
secure an obligation; each of the foregoing whether consensual or
non-consensual and whether arising by way of agreement, operation
of law, legal process or otherwise.
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<PAGE> 14
(b) The filing of any financing statement under the UCC or
comparable law of any jurisdiction.
"END DATE": The date upon which both (a) all Liabilities have been paid
in full and (b) all obligations of the Lender to make loans and
advances and to provide other financial accommodations to the
Borrower hereunder shall have been irrevocably terminated.
"ENVIRONMENTAL LAWS": All of the following:
(a) Any and all federal, state, local or municipal laws,
rules, orders, regulations, statutes, ordinances, codes, decrees
or requirements which regulate or relate to, or impose any
standard of conduct or liability on account of or in respect to
environmental protection matters, including, without limitation,
Hazardous Materials, as are now or hereafter in effect.
(b) The common law relating to damage to Persons or
property from Hazardous Materials.
"EQUIPMENT": Includes, without limitation, "equipment" as defined in the
UCC, and also all motor vehicles, rolling stock, machinery,
office equipment, plant equipment, tools, dies, molds, store
fixtures, furniture, and other goods, property, and assets which
are used and/or were purchased for use in the operation or
furtherance of the Borrower's business, and any and all
accessions or additions thereto, and substitutions therefor.
"ERISA": The Employee Retirement Security Act of 1974, as amended.
"ERISA AFFILIATE": Any Person which is under common control with the
Borrower within the meaning of Section 4001 of ERISA or is part
of a group which includes the Borrower and which would be treated
as a single employer under Section 414 of the Internal Revenue
Code of 1986, as amended.
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<PAGE> 15
"ESCROW ACCOUNT": As defined in the Borrowing Order.
"EVENTS OF DEFAULT": Is defined in Article 10.
"FACILITY FEE": Is defined in Section 2-11.
"FIXTURES": Has the meaning given that term in the UCC.
"GAAP": Principles which are consistent with those promulgated or
adopted by the Financial Accounting Standards Board and its
predecessors (or successors) in effect and applicable to that
accounting period in respect of which reference to GAAP is being
made, provided, however, in the event of a Material Accounting
Change, then unless otherwise specifically agreed to by the
Lender, (a) the Borrower's compliance with the financial
performance covenants imposed pursuant to Section 5-12 shall be
determined as if such Material Accounting Change had not taken
place and (b) the Borrower shall include, with its monthly,
quarterly, and annual financial statements a schedule, certified
by the Borrower's chief financial officer, on which the effect of
such Material Accounting Change to the statement with which
provided shall be described.
"GENERAL INTANGIBLES": Includes, without limitation, "general
intangibles" as defined in the UCC; and also all: rights to
payment for credit extended; deposits; amounts due to the
Borrower; credit memoranda in favor of the Borrower; warranty
claims; tax refunds and abatements; insurance refunds and premium
rebates; all means and vehicles of investment or hedging,
including, without limitation, options, warrants, and futures
contracts; records; customer lists; telephone numbers; goodwill;
causes of action other than Bankruptcy Recoveries; judgments;
payments under any settlement or other agreement; literary
rights; rights to performance; royalties; license and/or
franchise fees; rights of admission;
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<PAGE> 16
licenses; franchises; license agreements, including all rights of
the Borrower to enforce same; permits, certificates of
convenience and necessity, and similar rights granted by any
governmental authority; patents, patent applications, patents
pending, and other intellectual property; internet addresses and
domain names; developmental ideas and concepts; proprietary
processes; blueprints, drawings, designs, diagrams, plans,
reports, and charts; catalogs; manuals; technical data; computer
software programs (including the source and object codes
therefor), computer records, computer software, rights of access
to computer record service bureaus, service bureau computer
contracts, and computer data; tapes, disks, semiconductors chips
and printouts; trade secrets rights, copyrights, mask work rights
and interests, and derivative works and interests; user,
technical reference, and other manuals and materials; trade
names, trademarks, service marks, and all goodwill relating
thereto; applications for registration of the foregoing; and all
other general intangible property of the Borrower in the nature
of intellectual property; proposals; cost estimates, and
reproductions on paper, or otherwise, of any and all concepts or
ideas, and any matter related to, or connected with, the design,
development, manufacture, sale, marketing, leasing, or use of any
or all property produced, sold, or leased, by the Borrower or
credit extended or services performed, by the Borrower, whether
intended for an individual customer or the general business of
the Borrower, or used or useful in connection with research by
the Borrower.
"GOODS": Has the meaning given that term in the UCC.
"GROSS MARGIN": With respect to the subject accounting period for which
being calculated, the decimal equivalent of the following
(determined in accordance with the retail method of accounting):
Sales (Minus) Cost of Goods Sold
--------------------------------
Sales
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<PAGE> 17
"HAZARDOUS MATERIALS": Any (a) hazardous materials, hazardous waste,
hazardous or toxic substances, petroleum products, which (as to
any of the foregoing) are defined or regulated as a hazardous
material in or under any Environmental Law and (b) oil in any
physical state.
"INDEBTEDNESS": All Post-Petition indebtedness and obligations of or
assumed by any Person on account of or in respect to any of the
following:
(a) In respect of money borrowed (including any
indebtedness which is non-recourse to the credit of such Person
but which is secured by an Encumbrance on any asset of such
Person) whether or not evidenced by a promissory note, bond,
debenture or other written obligation to pay money.
(b) In connection with any letter of credit or acceptance
transaction (including, without limitation, the face amount of
all letters of credit and acceptances issued for the account of
such Person or reimbursement on account of which such Person
would be obligated).
(c) In connection with the sale or discount of accounts
receivable or chattel paper of such Person.
(d) On account of deposits or advances.
(e) As lessee under Capital Leases.
"Indebtedness" also includes:
(x) Indebtedness of others secured by an
Encumbrance on any asset of such Person, whether or not
such Indebtedness is assumed by such Person.
(y) Any guaranty, endorsement, suretyship or other
undertaking pursuant to which that Person may be liable on
account of any obligation of any third party.
(z) The Indebtedness of a partnership or joint
venture in which such Person is a general partner or joint
venturer.
"INDEMNIFIED PERSON": Is defined in Section 14-11.
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<PAGE> 18
"INSTRUMENTS": Has the meaning given that term in the UCC.
"INVENTORY": Includes, without limitation, "inventory" as defined in the
UCC and also all: packaging, advertising, and shipping materials
related to any of the foregoing, and all names or marks affixed
or to be affixed thereto for identifying or selling the same;
Goods held for sale or lease or furnished or to be furnished
under a contract or contracts of sale or service by the Borrower,
or used or consumed or to be used or consumed in the Borrower's
business; Goods of said description in transit: returned,
repossessed and rejected Goods of said description; and all
documents (whether or not negotiable) which represent any of the
foregoing.
"INVENTORY ADVANCE RATE": The following percentage: The lesser of (i)
Eighty Percent (80%) of the Net Liquidation Value of Acceptable
Inventory or (ii) Seventy Percent of the Cost of Acceptable
Inventory (in each case, net of Inventory Reserves).
"INVENTORY RESERVES": Such Reserves as may be established from time to
time by the Lender in the Lender's discretion with respect to the
determination of the saleability, at retail, of the Acceptable
Inventory or which reflect such other factors as affect the
market value of the Acceptable Inventory. Without limiting the
generality of the foregoing, Inventory Reserves may include (but
are not limited to) reserves based on the following:
(i) Seasonality.
(ii) Shrinkage, which initially shall be the sum
of a base amount of $400,000.00 plus 2% of
sales.
(iii) Change in Inventory character.
(iv) Change in Inventory composition.
(v) Change in Inventory mix.
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<PAGE> 19
(vi) Markdowns (both permanent and point of
sale), or as may be realized in conjunction
with the "Garden Club Program" to the extent
discounts from the program exceed 8% of
monthly sales.
(vii) Retail markons and markups inconsistent with
prior period practice and performance;
industry standards; current business plans;
or advertising calendar and planned
advertising events.
Initial Inventory Reserves are set forth on EXHIBIT 5-4 hereto. Lender
agrees not to reserve for obsolete Inventory.
"INVESTMENT ACCOUNT": Is defined in Section 7.3(a) hereof.
"INVESTMENT PROPERTY": Has the meaning given that term in the UCC.
"LEASE": Any lease or other agreement, no matter how styled or
structured, pursuant to which the Borrower is entitled to the use
or occupancy of any space.
"LEASEHOLD INTEREST": Any interest of the Borrower as lessee under any
Lease.
"LENDER": Is defined in the Preamble to the within Agreement.
"LENDER'S RIGHTS AND REMEDIES": Is defined in Section 11-6.
"LIABILITIES" (in the singular, "LIABILITY"): Includes, without
limitation, all and each of the following, whether now existing
or hereafter arising:
(a) Any and all direct and indirect liabilities, debts,
and obligations of the Borrower to the Lender, each of every
kind, nature, and description.
(b) Each obligation to repay any loan, advance,
indebtedness, note, obligation, overdraft, or amount now or
hereafter owing by the Borrower to the
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<PAGE> 20
Lender (including all future advances whether or not made
pursuant to a commitment by the Lender), whether or not any of
such are liquidated, unliquidated, primary, secondary, secured,
unsecured, direct, indirect, absolute, contingent, or of any
other type, nature, or description, or by reason of any cause of
action which the Lender may hold against the Borrower.
(c) All notes and other obligations of the Borrower now or
hereafter assigned to or held by the Lender, each of every kind,
nature, and description.
(d) All interest, fees, and charges and other amounts
which may be charged by the Lender to the Borrower and/or which
may be due from the Borrower to the Lender from time to time.
(e) All costs and expenses incurred or paid by the Lender
in respect of any agreement between the Borrower and the Lender
or instrument furnished by the Borrower to the Lender (including,
without limitation, Costs of Collection, attorneys' reasonable
fees, and all court and litigation costs and expenses).
(f) Any and all covenants of the Borrower to or with the
Lender and any and all obligations of the Borrower to act or to
refrain from acting in accordance with any agreement between the
Borrower and the Lender or instrument furnished by the Borrower
to the Lender.
(g) Each of the foregoing as if each reference to the "
Lender " therein were to each Affiliate of the Lender.
"LINE (UNUSED) FEE": Is defined in Section 2-12.
"LOAN ACCOUNT": Is defined in Section 2-6.
"LOAN CEILING": Seven Million Dollars ($7,000,000.00), or such other
amount as the Bankruptcy Court may approve in the Borrowing
Order, or such lesser amount as the Lender may establish
following the occurrence of an Event of Default hereunder.
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<PAGE> 21
"LOAN DOCUMENTS": This Agreement, each instrument and document executed
and/or delivered as contemplated by Article 3, below, and each
other instrument or document from time to time executed and/or
delivered in connection with the arrangements contemplated hereby
or in connection with any transaction with the Lender or any
Affiliate of the Lender, including, without limitation, any
transaction which arises out of any cash management, depository,
investment, letter of credit, interest rate protection, or
equipment leasing services provided by the Lender or any
Affiliate of the Lender, as each may be amended from time to
time.
"LOCAL DDA": A depository account maintained by the Borrower, the only
contents of which may be transfers from the Funding Account and
actually used solely (i) for petty cash purposes; or (ii) for
payroll.
"MANDATORY FEES": Has that meaning given that term in the Borrowing
Order.
"MATERIAL ACCOUNTING CHANGE": Any change in GAAP applicable to
accounting periods subsequent to the Borrower's fiscal year most
recently completed prior to the execution of this Agreement,
which change has a material effect on the Borrower's financial
condition or operating results, as reflected on financial
statements and reports prepared by or for the Borrower, when
compared with such condition or results as if such change had not
taken place or where preparation of the Borrower's statements and
reports in compliance with such change results in the breach of a
financial performance covenant imposed pursuant to Section 5-12
where such a breach would not have occurred if such change had
not taken place or visa versa.
"MATURITY DATE": The earliest to occur: (a) April ****, 1999, unless a
final Borrowing Order has been entered by the Bankruptcy Court by
such date, in which event the foregoing date shall be extended to
April ***, 2001; (b) the date
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<PAGE> 22
on which the Bankruptcy Court enters and order confirming a Plan
in the Proceedings; (c) the date of conversion of the Borrower's
Proceedings to a liquidation under Chapter 7 of the Bankruptcy
Code.
"NET LIQUIDATION VALUE": The net liquidation value of Inventory, as
determined by Lender based upon a then current appraisal of such
Inventory delivered to Lender from time to time pursuant to
Section 5.10(d) of this Agreement.
"OPERATING ACCOUNT": Is defined in Section 7-3.
"PERMITTED ENCUMBRANCES": Those Encumbrances permitted as provided in
Section 4-7(a) hereof.
"PERSON": Any natural person, and any corporation, limited liability
company, trust, partnership, joint venture, or other enterprise
or entity.
"PLAN": A plan of reorganization for the Borrower pursuant to Chapter 11
of the Bankruptcy Code.
"POST PETITION": Refers (depending upon the context in which used) to:
obligations which arose after the initiation of the Proceedings;
obligations, the payment or performance of which is secured by an
Encumbrance which is senior to the security interests in the
Collateral created hereby; and events which occur after the
initiation of the Proceedings.
"PROCEEDINGS": Those proceedings, pursuant to Chapter 11 of the
Bankruptcy Code, initiated or to be initiated by the Borrower in
Bankruptcy Court for the District of *** (Docket No. ***).
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"PROCEEDS": Includes, without limitation, "Proceeds" as defined in the
UCC (defined below), and each type of property described in
Section 8-1 hereof.
"RECEIPTS": All cash, cash equivalents, checks, and credit card slips
and receipts as arise out of the sale of the Collateral.
"RECEIVABLES COLLATERAL": That portion of the Collateral which consists
of the Borrower's Accounts, Accounts Receivable, General
Intangibles, Chattel Paper, Instruments, Documents of Title,
Documents, Investment Property, letters of credit for the benefit
of the Borrower, and bankers' acceptances held by the Borrower,
and any rights to payment.
"RELATED ENTITY": (a) Any corporation, limited liability company, trust,
partnership, joint venture, or other enterprise which: is a
parent, brother-sister, subsidiary, or affiliate, of the
Borrower; could have such enterprise's tax returns or financial
statements consolidated with the Borrower's; could be a member of
the same controlled group of corporations (within the meaning of
Section 1563(a)(1), (2) and (3) of the Internal Revenue Code of
1986, as amended from time to time) of which the Borrower is a
member; controls or is controlled by the Borrower or by any
Affiliate of the Borrower.
(b) Any Affiliate.
"REQUIREMENT OF LAW": As to any Person:
(a)(i) All statutes, rules, regulations, orders, or
other requirements having the force of law and (ii) all court
orders and injunctions, arbitrator's decisions, and/or similar
rulings, in each instance ((i) and (ii)) of or by any federal,
state, municipal, and other governmental authority, or court,
tribunal, panel, or other body which has or claims jurisdiction
over such Person, or any property of such Person, or of any other
Person for whose conduct such Person would be responsible.
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<PAGE> 24
(b) That Person's charter, certificate of
incorporation, articles of organization, and/or other
organizational documents, as applicable; and (c) that Person's
by-laws and/or other instruments which deal with corporate or
similar governance, as applicable.
"RESERVES": All (if any) Availability Reserves and Inventory Reserves.
"REVOLVING CREDIT": Is defined in Section 2-1.
"REVOLVING CREDIT NOTE": Is defined in Section 2-7.
"STORE CLOSING ORDER": Is defined in Section 3.11.
"SUSPENSION EVENT": Any occurrence, circumstance, or state of facts
which (a) is an Event of Default; or (b) would become an Event of
Default if any requisite notice were given and/or any requisite
period of time were to run and such occurrence, circumstance, or
state of facts were not absolutely cured within any applicable
grace period.
"TERMINATION DATE": The earliest of (a) the Maturity Date; or (b) the
occurrence of any event described in Section 10-11 hereof; or (c)
date set by notice by the Lender to the Borrower, which notice
sets the Termination Date on account of the occurrence of any
Event of Default other than as described in Section 10-11 hereof.
"UCC": The Uniform Commercial Code as presently in effect in
Massachusetts (Mass. Gen. Laws, Ch. 106).
"YEAR 2000 COMPLIANT": Computer applications, imbedded microchips, and
other systems and subsystems which properly recognize and perform
their intended function without any adverse effect on account of
their respective inability to
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<PAGE> 25
recognize certain dates prior to, on, and after December 31, 1999
or on account of their treating any date prior to, on, or after
December 31, 1999 other than as the specific date in question.
ARTICLE II - THE REVOLVING CREDIT:
2.1 Establishment of Revolving Credit.
(a) The Lender hereby establishes a revolving line of credit (the
"REVOLVING CREDIT") in the Borrower's favor pursuant to which the Lender,
subject to, and in accordance with, this Agreement, shall make loans and
advances and otherwise provide financial accommodations to and for the account
of the Borrower as provided herein. The amount available for borrowing under the
Revolving Credit shall be determined by the Lender by reference to Availability,
as determined by the Lender from time to time.
(b) As used herein, the following terms have the following meanings:
(i) "AVAILABILITY" refers at any time to the result of the
following:
(A) Borrowing Base.
Minus
(B) The then unpaid principal balance of the Loan
Account.
(ii) "BORROWING BASE" refers at any time to the lesser of
2-1(b)(ii)(A) or 2-1(b)(ii)(B), where:
(A) is the Loan Ceiling.
(B) is the result of the following:
(I) The Inventory Advance Rate.
Minus
(II) The then aggregate of the Availability Reserves.
Minus
(III) The Carve Out.
Minus
(IV) Mandatory Fees.
(c) Availability shall be based upon Borrowing Base Certificates
furnished as provided in Section 5-4 hereof.
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<PAGE> 26
(d) The proceeds of borrowings under the Revolving Credit shall be
used solely in accordance with the Business Plan for working capital purposes of
the Borrower including, if necessary, the repayment of the Borrower's working
capital facility with Foothill Capital Corporation, and for its Capital
Expenditures, all solely to the extent permitted by this Agreement.
2.2 Advances in Excess of Borrowing Base. The Lender does not have any
obligation to make any loan or advance, or otherwise to provide any credit for
the benefit of the Borrower such that the balance of the Loan Account exceeds
the Borrowing Base. The making of loans, advances, and credits and the providing
of financial accommodations in excess of the Borrowing Base is for the benefit
of the Borrower and does not affect the obligations of the Borrower hereunder;
such loans, advances, credits, and financial accommodations constitute
Liabilities. The making of any such loans, advances, and credits and the
providing of financial accommodations, on any one occasion such that the
Borrowing Base is exceeded shall not obligate the Lender to make any such loans,
credits, or advances or to provide any financial accommodation on any other
occasion nor to permit such loans, credits, or advances to remain outstanding.
2.3 Risks of Value of Collateral. The Lender's reference to a given
asset in connection with the making of loans, credits, and advances and the
providing of financial accommodations under the Revolving Credit and/or the
monitoring of compliance with the provisions hereof shall not be deemed a
determination by the Lender relative to the actual value of the asset in
question. All risks concerning the saleability of the Borrower's Inventory are
and remain upon the Borrower. All Collateral secures the prompt, punctual, and
faithful performance of the Liabilities whether or not relied upon by the Lender
in connection with the making of loans, credits, and advances and the providing
of financial accommodations under the Revolving Credit.
2.4 Loan Requests.
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<PAGE> 27
(a) Subject to the provisions of this Agreement, a loan or advance
under the Revolving Credit duly and timely requested by the Borrower shall be
made pursuant hereto, provided that:
(i) Borrowing Base will not be exceeded; and
(ii) The Revolving Credit has not been suspended as provided in
Section 2-4(i).
(b) Requests for loans and advances under the Revolving Credit may
be requested by the Borrower in such manner as may from time to time be
reasonably acceptable to the Lender.
(c) Subject to provisions of this Agreement, a request for a loan or
advance (in each instance in an amount which is not less than $10,000.00) shall
be made by 11:00AM PST on a Business Day will be made by the end of business on
that Business Day; otherwise, by the end of the then next Business Day.
(d) Any request for a Revolving Credit Loan or for the conversion of
a Revolving Credit Loan which is made after the applicable deadline therefor, as
set forth above, shall be deemed to have been made at the opening of business on
the then next Business Day or Libor Business Day, as applicable. Each request
for a Revolving Credit Loan or for the conversion of a Revolving Credit Loan
shall be made in such manner as may from time to time be acceptable to the
Lender
(e) If, during the Fifteen (15) days immediately preceding the day
on which a loan request is made there has been no unpaid principal balance in
the Loan Account on account of loans and advances under the Revolving Credit,
the loan so requested shall be made (subject to all other provisions of this
Agreement) no later than the Fifth Business Day after (and not counting) the day
on which the loan otherwise would have been made as provided above.
(f) The Lender may rely on any request for a loan or advance, or
other financial accommodation under the Revolving Credit which the Lender, in
good faith, believes to have been made by a Person duly authorized to act on
behalf of the Borrower and may decline to make any such requested loan or
advance, or issuance, or to provide any such financial accommodation pending the
Lender's being furnished with such documentation concerning that Person's
authority to act as may be satisfactory to the Lender.
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<PAGE> 28
(g) A request by the Borrower for loan or advance, or other
financial accommodation under the Revolving Credit shall be irrevocable and
shall constitute certification by the Borrower that as of the date of such
request, each of the following is true and correct:
(i) There has been no material adverse change in the Borrower's
financial condition from the most recent financial information furnished
Lender pursuant to this Agreement.
(ii) The Borrower is in compliance with, and has not breached
any of, its covenants contained in this Agreement.
(iii) All or a portion of any loan or advance so requested will
be set aside by the Borrower to cover all of the Borrower's obligations
for sales tax on account of sales since the then most recent borrowing
pursuant to the Revolving Credit.
(iv) Each representation which is made herein or in any of the
Loan Documents (defined below) is then true and complete as of and as if
made on the date of such request.
(v) To its knowledge, no Suspension Event is then extant.
(h) Upon the occurrence from time to time of any Suspension Event:
(i) The Lender may suspend the Revolving Credit immediately.
(ii) The Lender shall not be obligated, during such suspension,
to make any loans or advance, or to provide any financial accommodation
hereunder.
2.5 Making of Loans Under Revolving Credit.
(a) A loan or advance under the Revolving Credit shall be made by
the transfer of the proceeds of such loan or advance to the Operating Account or
as otherwise instructed by the Borrower.
(b) A loan or advance shall be deemed to have been made under the
Revolving Credit (and the Borrower shall be indebted to the Lender for the
amount thereof immediately) at the following:
(i) The Lender's initiation of the transfer of the proceeds of
such loan or advance in accordance with the Borrower's instructions (if
such loan or advance is of funds requested by the Borrower).
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<PAGE> 29
(ii) The charging of the amount of such loan to the Loan Account
(in all other circumstances).
(c) There shall not be any recourse to or liability of the Lender,
on account of:
(i) Any delay in the making of any loan or advance requested
under the Revolving Credit.
(ii) Any delay in the proceeds of any such loan or advance
constituting collected funds.
(iii) Any delay in the receipt, and/or any loss, of funds which
constitute a loan or advance under the Revolving Credit, the wire
transfer of which was properly initiated by the Lender in accordance
with wire instructions provided to the Lender by the Borrower.
2.6 The Loan Account.
(a) An account ("LOAN ACCOUNT") shall be opened on the books of the
Lender. A record may be kept in the Loan Account of all loans made under or
pursuant to this Agreement and of all payments thereon.
(b) The Lender may also keep a record (either in the Loan Account or
elsewhere, as the Lender may from time to time elect) of all interest, fees,
service charges, costs, expenses, and other debits owed the Lender on account of
the Liabilities and of all credits against such amounts so owed.
(c) All credits against the Liabilities shall be conditional upon
final payment to the Lender of the items giving rise to such credits. The amount
of any item credited against the Liabilities which is charged back against the
Lender for any reason or is not so paid shall be a Liability and shall be added
to the Loan Account, whether or not the item so charged back or not so paid is
returned.
(d) Except as otherwise provided herein, all fees, service charges,
costs, and expenses for which the Borrower is obligated hereunder are payable on
demand. In the determination of Availability, the Lender may deem fees, service
charges, accrued interest, and other payments which will be due and payable
between the date of such determination and the
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first day of the then next succeeding month as having been advanced under the
Revolving Credit whether or not such amounts are then due and payable.
(e) The Lender, without the request of the Borrower, may advance
under the Revolving Credit any interest, fee, service charge, or other payment
to which the Lender is entitled from the Borrower pursuant hereto and may charge
the same to the Loan Account notwithstanding that such amount so advanced may
result in Borrowing Base's being exceeded. Such action on the part of the Lender
shall not constitute a waiver of the Lender's rights and Borrower's obligations
under Section 2-8(b). Any amount which is added to the principal balance of the
Loan Account as provided in this Section 2-6(e) shall bear interest.
(f) Any statement rendered by the Lender to the Borrower concerning
the Liabilities shall be considered correct and accepted by the Borrower and
shall be conclusively binding upon the Borrower unless the Borrower provides the
Lender with written objection thereto within ninety (90) days from the date
Borrower receives such statement, which written objection shall indicate, with
particularity, the reason for such objection, except in the case of fraud, in
which case, the Borrower may object to any such statement anytime prior to the
End Date. The Loan Account and the Lender's books and records concerning the
loan arrangement contemplated herein and the Liabilities shall be prima facie
evidence and proof of the items described therein.
2.7 The Revolving Credit Note. The obligation to repay loans and
advances under the Revolving Credit, with interest as provided herein, shall be
evidenced by a note (the "REVOLVING CREDIT NOTE") in the form of EXHIBIT 2-7,
annexed hereto, executed by the Borrower. Neither the original nor a copy of the
Revolving Credit Note shall be required, however, to establish or prove any
Liability. In the event that the Revolving Credit Note is ever lost, mutilated,
or destroyed, the Borrower shall execute a replacement thereof and deliver such
replacement to the Lender. In the event of a lost, mutilated or destroyed note,
Lender shall, upon request by Borrower, execute an affidavit to that effect.
2.8 Payment of The Loan Account.
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(a) The Borrower may repay all or any portion of the principal
balance of the Loan Account from time to time until the Termination Date.
(b) The Borrower, without notice or demand from the Lender, shall
pay the Lender that amount, from time to time, which is necessary so that the
unpaid balance of the Loan Account does not exceed the Borrowing Base.
(c) The Borrower shall repay the then entire unpaid balance of the
Loan Account and all other Liabilities on the Termination Date.
2.9 Interest.
(a) The unpaid principal balance of the Loan Account shall bear
interest, until repaid (calculated based upon a 360-day year and actual days
elapsed), at the aggregate of Base plus One Percent (1%) per annum.
(b) Following the occurrence of any Event of Default (and whether or
not the Lender exercises any of the Lender's rights on account of such Event of
Default), all loans and advances made under the Revolving Credit shall bear
interest, at the option of the Lender at a rate which is the aggregate of the
rate provided for in Section 2-9(a), above, plus Three Percent (3%) per annum.
(c) Accrued interest shall be payable:
(i) Monthly in arrears on the first day of the month next
following that during which such interest accrued.
(ii) On the Termination Date.
(iii) On the End Date.
2.10 Commitment Fee.
(a) As compensation for the Lender's commitment to make loans and
advances to the Borrower and as compensation for the Lender's maintenance of
sufficient funds available for such purpose, the Lender has earned a COMMITMENT
FEE (so referred to herein) of $ 75,000.00.
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(b) The Commitment Fee shall be paid as follows: Lender
acknowledges receipt of $25,000.00. The Borrower shall pay the balance, of the
Commitment Fee $50,000.00, at closing.
2.11 Facility Fee.
(a) In addition to any other fee or expense paid by the Borrower on
account of the Revolving Credit, the Borrower shall pay the Lender a FACILITY
FEE (so referred to herein) equal $3,000.00 per month.
(i) A proration of such monthly installment shall be paid
out of the first advance under the Revolving Credit for the period
beginning with the date on which a Borrowing Order is first entered by
the Bankruptcy Court and ending on the last day of the month of such
execution.
(ii) A monthly installment shall be paid on the first day
of the month next following that during which this Agreement is executed
and on the first day of each month thereafter, until the entire Facility
Fee has been paid.
2.12 Line (Unused) Fee. In addition to any other fee by the Borrower on
account of the Revolving Credit, the Borrower shall pay the Lender a LINE
(UNUSED) FEE (so referred to herein) in arrears, on the first day of each
quarter (and on the Termination Date). The Line (Unused) Fee shall be equal to
One Quarter of One Percent (0.25%) per annum of the average difference, during
the quarter just ended (or relevant period with respect to the payment being
made on the Termination Date) between the Loan Ceiling and the unpaid principal
balance of the Loan Account.
2.13 Early Termination Fee.
(a) In the event that the Termination Date occurs, for any reason,
prior to the Maturity Date, the Borrower shall pay the Lender the EARLY
TERMINATION FEE (so referred to herein) determined and payable as follows:
(i) If the Termination Date occurs on or before April__, 2000,
the Borrower shall pay an Early Termination Fee of Three Quarters of One
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Percent (0.75%) of the Loan Ceiling existing as of the date of this
Agreement.
(ii) If the Termination Date occurs on or before April __,
2001, the Borrower shall pay an Early Termination Fee of One Half of One
Percent (0.50%) of the Loan Ceiling existing as of the date of this
Agreement.
No Early Termination Fee shall be payable if Lender or an Affiliate of Lender
refinances the Revolving Credit, it being understood that nothing contained
herein shall obligate or commit Lender or its Affiliates to make such
refinancing available to the Borrower.
2.14 Concerning Fees.
(a) In addition to any other right to which the Lender is then
entitled on account thereof, the Lender may assess an additional fee payable by
the Borrower on account of the accommodation, from time to time, by the Lender
to the Borrower's request that the Lender depart or dispense with one or more of
the administrative provisions of this Agreement and/or the Borrower's failure to
comply with any of such provisions.
(i) By way of non-exclusive example, the Lender may assess a
fee on account of any of the following:
(A) The Borrower's failure to pay that amount which is
necessary so that the principal balance of the Loan Account does
not exceed Borrowing Base (as required under Section 2-8(b)
hereof).
(B) The providing of a loan or advance under the Revolving
Credit or charging of the Loan Account such that the Borrowing
Base would be exceeded.
(C) The foreshortening of any of the time frames with
respect to the making of Revolving Credit Loans as set forth in
Section 2-4(a).
(D) The Borrower's failure to provide a financial statement
or report within the applicable timeframe provided for such
report under Article 5 hereof.
(ii) The inclusion of the foregoing right on the part of the
Lender to assess a fee does not constitute an obligation, on the part of
the Lender, to waive any
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provision of this Agreement under any circumstances. The assessment of
any such fee in any particular circumstance shall not constitute the
Lender's waiver of any breach of this Agreement on account of which such
fee was assessed nor a course of action on which the Borrower may rely.
(b) The Borrower shall not be entitled to any credit, rebate or
repayment of the Commitment Fee, Facility Fee, Line (Unused) Fee, Early
Termination Fee, or other fee previously earned by the Lender pursuant to this
Agreement notwithstanding any termination of this Agreement or suspension or
termination of the Lender's obligation to make loans and advances hereunder.
2.15 Lender's Discretion.
(a) Each reference in the Loan Documents to the exercise of
discretion or the like by the Lender shall be to that Person's exercise of its
judgement, in good faith (which shall be presumed), based upon that Person's
consideration of any such factor as the Lender, taking into account information
of which that Person then has actual knowledge, believes:
(i) Will or reasonably could be expected to affect the
value of the Collateral, the enforceability of the Lender's security and
collateral interests therein, or the amount which the Lender would
likely realize therefrom (taking into account delays which may possibly
be encountered in the Lender's realizing upon the Collateral and likely
Costs of Collection).
(ii) Indicates that any report or financial information
delivered to the Lender by or on behalf of the Borrower is incomplete,
inaccurate, or misleading in any material manner or was not prepared in
accordance with the requirements of this Agreement.
(iii) Constitutes a Suspension Event.
(b) In the exercise of such judgement, the Lender also may take
into account any of the following factors:
(i) Those included in, or tested by, the definitions of
"Acceptable Inventory," "Retail," and "Cost".
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(ii) The current financial and business climate of the
industry in which the Borrower competes (having regard for the
Borrower's position in that industry).
(iii) General macroeconomic conditions which have a material
effect on the Borrower's cost structure.
(iv) Material changes in or to the mix of the Borrower's
Inventory.
(v) Seasonality with respect to the Borrower's Inventory and
patterns of retail sales.
(vi) Such other factors as the Lender determines as having a
material bearing on credit risks associated with the providing of loans
and financial accommodations to the Borrower.
(c) The burden of establishing the failure of the Lender to have
acted in a reasonable manner in such Person's exercise of discretion shall be
the Borrower's.
2.16 Increased Costs.
If, as a result of any requirement of law, or of the interpretation
or application thereof by any court or by any governmental or other authority or
entity charged with the administration thereof, whether or not having the force
of law, which, in a material respect:
(a) subjects the Lender to any taxes or changes the basis of
taxation, or increases any existing taxes, on payments of principal, interest or
other amounts payable by the Borrower to the Lender under this Agreement (except
for taxes on the Lender's overall net income or capital imposed by the
jurisdiction in which the Lender's principal or lending offices are located);
(b) imposes, modifies or deems applicable any reserve, cash margin,
special deposit or similar requirements against assets held by, or deposits in
or for the account of or loans by or any other acquisition of funds by the
relevant funding office of the Lender;
(c) imposes on the Lender any other condition with respect to any
Loan Document; or
(d) imposes on the Lender a requirement to maintain or allocate
capital in relation to the Liabilities;
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and the result of any of the foregoing, in the Lender's reasonable opinion, is
to increase the cost to the Lender of making or maintaining any loan, advance or
financial accommodation or to reduce the income receivable by the Lender in
respect of any loan, advance or financial accommodation by an amount which the
Lender deems to be material, then upon the Lender's giving written notice
thereof, from time to time, to the Borrower (such notice to set out in
reasonable detail the facts giving rise to and a summary calculation of such
increased cost or reduced income), the Borrower shall within thirty (30) days
thereafter pay to the Lender , upon receipt of such notice, that amount which
shall compensate the Lender for such additional cost or reduction in income.
ARTICLE 3. CONDITIONS PRECEDENT:
As a condition to the effectiveness of this Agreement, the establishment
of the Revolving Credit, and the making of the first loan under the Revolving
Credit, each of the documents respectively described in Sections 3-1 through and
including 3-4, (each in form and substance satisfactory to the Lender) shall
have been delivered to the Lender, and the conditions respectively described in
Sections 3-5 through and including 3-11, shall have been satisfied:
3.1 Corporate Due Diligence.
(a) A Certificate of corporate good standing issued by the Secretary
of State of Washington.
(b) Certificates of due qualification, in good standing, issued by
the Secretary(ies) of State of each State in which the nature of the Borrower's
business conducted or assets owned could require such qualification.
(c) A Certificate of the Borrower's Clerk of the due adoption,
continued effectiveness, and setting forth the texts of, each corporate
resolution adopted in connection with the establishment of the loan arrangement
contemplated by the Loan Documents and attesting to the true signatures of each
Person authorized as a signatory to any of the Loan Documents.
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3.2 Opinion. An opinion of counsel to the Borrower in form and substance
satisfactory to the Lender .
3.3 Additional Documents. Such additional instruments and documents as
the Lender or its counsel reasonably may require or request, including but not
limited to:
(a) A Control Agreement.
3.4 Officers' Certificates. If needed, Certificates executed by the
President and the Chief Financial Officer of the Borrower and stating that the
representations and warranties made by the Borrower to the Lender in the Loan
Documents are true and complete as of the date of such Certificate, and that no
event has occurred which is or which, solely with the giving of notice or
passage of time (or both) would be an Event of Default.
3.5 Representations and Warranties. Each of the representations made
by or on behalf of the Borrower in this Agreement or in any of the other Loan
Documents or in any other report, statement, document, or paper provided by or
on behalf of the Borrower shall be true and complete as of the date as of which
such representation or warranty was made.
3.6 Minimum Excess Availability. The Borrowing Base, after giving effect
to the first funding under the Revolving Credit; all then held checks (if any);
accounts payable which are beyond credit terms then accorded the Borrower;
overdrafts; any charges to the Loan Account made in connection with the
establishment of the credit facility contemplated hereby is not less than Five
Million Dollars ($5,000,000.00).
3.7 All Fees and Expenses Paid. All fees due at or immediately after the
first funding under the Revolving Credit and all costs and expenses incurred by
the Lender in connection with the establishment of the credit facility
contemplated hereby (including the fees and expenses of counsel to the Lender)
shall have been paid.
3.8 No Suspension Event. No Suspension Event shall then exist.
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3.9 No Adverse Change. No event, other than Borrower's commencement of
the Proceedings, shall have occurred or failed to occur, which occurrence or
failure is or could have a materially adverse effect upon the Borrower's
financial condition when compared with such financial condition at February 28,
1999.
3.10 Borrowing Order. There shall have been entered in the Proceedings
the Borrowing Order approving the establishment of the credit facility
contemplated hereby, which Borrowing Order shall be in form and substance
satisfactory to the Lender and which shall not have been stayed, modified,
appealed, reversed, or otherwise affected.
3.11 Store Closing Order. There shall have been filed in the Proceedings
a motion by the Borrower seeking entry of the Store Closing Order, so referred
to herein, by the Bankruptcy Court approving the closing of stores and the
rejection of the leases identified on EXHIBIT 4-6(b) hereto by the Borrower,
which order shall be in form and substance satisfactory to the Lender.
No document shall be deemed delivered to the Lender until received and accepted
by the Lender at its head offices in Boston, Massachusetts. Under no
circumstances will this Agreement take effect until executed and accepted by the
Lender at said head office.
ARTICLE 4 - GENERAL REPRESENTATIONS, COVENANTS AND WARRANTIES:
To induce the Lender to establish the loan arrangement contemplated
herein and to make loans and advances and to provide financial accommodations
under the Revolving Credit (each of which loans shall be deemed to have been
made in reliance thereupon) the Borrower, in addition to all other
representations, warranties, and covenants made by the Borrower in any other
Loan Document, makes those representations, warranties, and covenants included
in this Agreement.
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4.1 Payment and Performance of Liabilities. The Borrower shall pay each
Liability when due (or when demanded if payable on demand) and shall promptly,
punctually, and faithfully perform each other Liability.
4.2 Due Organization - Corporate Authorization - No Conflicts.
(a) The Borrower presently is and shall hereafter remain in good
standing as Washington corporation and is and shall hereafter remain duly
qualified and in good standing in every other State in which, by reason of the
nature or location of the Borrower's assets or operation of the Borrower's
business, such qualification may be necessary.
(b) The Borrower shall not change its State of incorporation nor its
taxpayer identification number.
(c) The Borrower has all requisite corporate power and authority to
execute and deliver all Loan Documents to which the Borrower is a party and has
and will hereafter retain all requisite corporate power to perform all
Liabilities.
(d) The execution and delivery by the Borrower of each Loan Document
to which it is a party; the Borrower's consummation of the transactions
contemplated by such Loan Documents (including, without limitation, the creation
of security interests by the Borrower as contemplated hereby); the Borrower's
performance under those of the Loan Documents to which it is a party; the
borrowings hereunder; and the use of the proceeds thereof:
(i) Have been duly authorized by all necessary corporate
action.
(ii) Do not, and will not, contravene in any material respect
any provision of any Requirement of Law or obligation of the Borrower.
(iii) Will not result in the creation or imposition of, or the
obligation to create or impose, any Encumbrance upon any assets of the
Borrower pursuant to any Requirement of Law or obligation, except
pursuant to the Loan Documents.
(e) The Loan Documents have been duly executed and delivered by
Borrower and are the legal, valid and binding obligations of the Borrower,
enforceable against the Borrower in accordance with their respective terms.
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4.3 Trade Names.
(a) EXHIBIT 4-3, annexed hereto, is a listing of:
(i) All names under which the Borrower ever conducted its
business.
(ii) All entities and/or persons with whom the Borrower ever
consolidated or merged, or from whom the Borrower ever acquired in a
single transaction or in a series of related transactions substantially
all of such entity's or person's assets.
(b) The Borrower will not change its name or conduct its business
under any name not listed on EXHIBIT 4-3 except (i) upon not less than
twenty-one (21) days prior written notice (with reasonable particularity) to the
Lender and (ii) in compliance with all other provisions of this Agreement.
4.4 Infrastructure.
(a) The Borrower has and will maintain a sufficient infrastructure
to conduct its business as presently conducted and as contemplated to be
conducted as described in the Business Plan.
(b) To the Borrower's knowledge, the Borrower owns and possesses, or
has the right to use (and will hereafter own, possess, or have such right to
use) all patents, industrial designs, trademarks, trade names, trade styles,
brand names, service marks, logos, copyrights, trade secrets, know-how,
confidential information, and other intellectual or proprietary property of any
third Person necessary for the Borrower's conduct of the Borrower's business.
(c) The conduct by the Borrower of the Borrower's business does not,
to the Borrower's knowledge, presently infringe (nor will the Borrower conduct
its business in the future so as to infringe) the patents, industrial designs,
trademarks, trade names, trade styles, brand names, service marks, logos,
copyrights, trade secrets, know-how, confidential information, or other
intellectual or proprietary property of any third Person.
4.5 Year 2000 Compliance.
(a) Based upon a diligent inquiry undertaken by the Borrower, it
appears that, except as set forth on EXHIBIT 4-5, annexed hereto, the Borrower's
operations are Year 2000 Compliant.
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(b) The Borrower has developed a plan and timetable with respect to
the Borrower's operations becoming fully Year 2000 Compliant as set forth on
EXHIBIT 4-5 and has committed adequate resources to execute that plan and to
meet such timetable.
(c) Following the Borrower's operations becoming Year 2000
Compliant, the Borrower will not suffer or permit its operations thereafter to
cease to be Year 2000 Compliant in any manner which might have more than a de
minimus effect on its operations.
4.6 Locations.
(a) The Collateral, and the books, records, and papers of Borrower
pertaining thereto, are kept and maintained solely at the Borrower's chief
executive offices of the Borrower stated in the Preamble of this Agreement, and
at those locations which are listed on EXHIBIT 4-6(a), annexed hereto, which
EXHIBIT includes, with respect to each such location, the name and address of
the landlord on the Lease which covers such location (or an indication that the
Borrower owns the subject location) and of all service bureaus with which any
such records are maintained and the names and addresses of each of the
Borrower's landlords.
(b) The Borrower shall not remove any of the Collateral from said
chief executive office or those locations listed on EXHIBIT 4-6(a) except to:
(i) accomplish sales of Inventory in the ordinary course of
business; or
(ii) move Inventory from one such location to another such
location; or
(iii) utilize such of the Collateral as is removed from such
locations in the ordinary course of business (such as motor vehicles);
or
(iv) accomplish sales of Inventory as contemplated by the Store
Closing Order.
(c) The Borrower will not:
(i) Execute, alter, modify, or amend any Lease except with
both the approval of the Bankruptcy Court and the prior written consent
of the Lender.
(ii) Commit to, or open or close any location at which the
Borrower maintains, offers for sales, or stores any of the Collateral,
except with both the approval of the Bankruptcy Court and the prior
written consent of the Lender. Lender has consented to the closing of
the Borrower's stores listed on EXHIBIT 4-6(B).
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(d) Except as otherwise disclosed on EXHIBIT 4-6(c) and as
contemplated by the Store Closing Order or pursuant to, or permitted by, this
Section 4-6, no tangible personal property of the Borrower is in the care or
custody of any third party or stored or entrusted with a bailee or other third
party and no more than Four Million Dollars ($4,000,000.00) of such tangible
personal property, valued at Cost, at any one time shall hereafter be placed
under such care, custody, storage, or entrustment.
4.7 Title to Assets.
(a) The Borrower is, and shall hereafter remain, the owner of the
Collateral free and clear of all Encumbrances with the exceptions of the
following (the "PERMITTED ENCUMBRANCES"):
(i) Encumbrances in favor of the Lender.
(ii) Those Encumbrances (if any) listed on EXHIBIT 4-7, annexed
hereto.
(b) The Borrower does not and shall not have possession of any
property on consignment to the Borrower.
(c) The Borrower shall not acquire or obtain the right to use any
Equipment, the acquisition or right to use of which Equipment is otherwise
permitted by this Agreement, in which Equipment any third party has an interest,
except for:
(i) Equipment which is merely incidental to the conduct of the
Borrower's business.
(ii) Equipment, the acquisition or right to use of which has
been consented to by the Lender, which consent may be conditioned upon
the Lender's receipt of such agreement with the third party which has an
interest in such Equipment as is satisfactory to the Lender.
4.8 Indebtedness. The Borrower does not and shall not hereafter have any
Indebtedness with the exceptions of:
(a) Any Indebtedness to the Lender .
(b) The Indebtedness (if any) listed on EXHIBIT 4-8, annexed hereto.
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4.9 Insurance Policies.
(a) EXHIBIT 4-9, annexed hereto, is a schedule of all insurance
policies owned by the Borrower or under which the Borrower is the named insured.
Each of such policies is in full force and effect. Neither the issuer of any
such policy nor the Borrower is in default or violation of any such policy.
(b) The Borrower shall have and maintain at all times insurance
covering such risks, in such amounts, containing such terms, in such form, for
such periods, and written by such companies as may be satisfactory to the
Lender. The coverage reflected on EXHIBIT 4-9 presently satisfies the foregoing
requirements, it being recognized by the Borrower, however, that such
requirements may change hereafter to reflect changing circumstances. All
insurance carried by the Borrower shall provide for a minimum of Sixty (60)
days' written notice of cancellation to the Lender and all such insurance which
covers the Collateral shall include an endorsement in favor of the Lender, which
endorsement shall provide that the insurance, to the extent of the Lender's
interest therein, shall not be impaired or invalidated, in whole or in part, by
reason of any act or neglect of the Borrower or by the failure of the Borrower
to comply with any warranty or condition of the policy. In the event of the
failure by the Borrower to maintain insurance as required herein, the Lender ,
at its option, may obtain such insurance, provided, however, the Lender's
obtaining of such insurance shall not constitute a cure or waiver of any Event
of Default occasioned by the Borrower's failure to have maintained such
insurance. The Borrower shall furnish to the Lender certificates or other
evidence satisfactory to the Lender regarding compliance by the Borrower with
the foregoing insurance provisions.
(c) The Borrower shall advise the Lender of each Post-Petition claim
in excess of $50,000.00 made by the Borrower under any policy of insurance which
covers the Collateral and will permit the Lender , at the Lender's option in
each instance, to the exclusion of the Borrower, to conduct the adjustment of
each such claim (and of all claims following the occurrence of any Suspension
Event). The Borrower hereby appoints the Lender as the Borrower's attorney in
fact to obtain, adjust, settle, and cancel any insurance described in this
section and to endorse in favor of the Lender any and all drafts and other
instruments with respect to such insurance. The within appointment, being
coupled with an interest, is
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exerciseable following the occurrence and during the continuance of an Event of
Default hereunder and is irrevocable until this Agreement is terminated by a
written instrument executed by a duly authorized officer of the Lender . The
Lender shall not be liable on account of any exercise pursuant to said power
except for any exercise in actual willful misconduct and bad faith. The Lender
may apply any proceeds of such insurance against the Liabilities, whether or not
such have matured, in such order of application as the Lender may determine.
4.10 Licenses. Each license, distributorship, franchise, and similar
agreement issued to, or to which the Borrower is a party is in full force and
effect. The Borrower and, to the Borrower's knowledge, no other party to any
such license or agreement is in default or violation thereof beyond any
applicable grace period. The Borrower has not received any notice or threat of
cancellation of any such license or agreement.
4.11 Leases.EXHIBIT 4-11, annexed hereto, is a schedule of all presently
effective Capital Leases. Exhibit 4-6 includes a list of all other presently
effective Leases. Each of such Leases and Capital Leases is in full force and
effect. To the Borrower's knowledge, no party to any such Capital Lease is in
default or violation of any such Capital Lease and the Borrower has not received
any notice or threat of cancellation of any such Capital Lease. Pursuant to the
Borrower's Business Plan and the Store Closing Order, the Borrower intends to
close certain stores and assume and assign or reject the Leases for those
stores. Borrower has received notices of default for failure to pay rent from
the landlords for some of the stores the Borrower intends to close. Other than
with respect to certain of the stores to be closed, to Borrower's knowledge,
Borrower is not in default under any other Lease and the Borrower has not
received any notice or threat of cancellation of any Lease.
4.12 Requirements of Law. To the Borrower's knowledge, the Borrower is
in compliance with, and shall hereafter comply with and use its assets in
compliance with, all Requirements of Law. The Borrower has not received any
notice of any violation of any Requirement of Law (whether or not such violation
is material), which violation has not been cured or otherwise remedied.
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4.13 Maintain Properties. The Borrower shall:
(a) Keep the Collateral in good order and repair (ordinary
reasonable wear and tear and insured casualty excepted).
(b) Not suffer or cause the waste or destruction of any material
part of the Collateral.
(c) Not use any of the Collateral in violation of any policy of
insurance thereon.
(d) Not sell, lease, or otherwise dispose of any of the Collateral,
other than the following:
(i) The sale of Inventory in compliance with this Agreement.
(ii) The disposal of Equipment which is obsolete, worn out, or
damaged beyond repair, which Equipment is replaced to the extent
necessary to preserve or improve the operating efficiency of the
Borrower.
(iii) The turning over to the Lender of all Receipts as
provided herein.
(iv) The disposition of damaged or defective goods having a
cumulative Cost, not in excess of $50,000.00 per month, credit for which
is given the Borrower by the vendor thereof.
(v) On not less than Fifteen (15) days prior written notice
(with reasonable particularity) to the Lender in each instance, the
exchange of Inventory, for like-kind Inventory of equal or greater
Retail value, in connection with a replacement of one Inventory supplier
with another or the exchange of Inventory from the same supplier with
other Inventory of like or greater value.
(vi) Sale of Collateral in accordance with the Store Closing
Order.
4.14 Pay Taxes.
(a) Except as set forth in EXHIBIT 4-14, the Borrower has not
received written notice that the Internal Revenue Service intends to examine any
federal income tax returns of the Borrower. With respect to any such
examinations disclosed on EXHIBIT 4-14, either (i) the Borrower has received
written notice from the Internal Revenue Service that the Internal Revenue
Service has completed its examination of such federal income tax returns, or
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(ii) the status of such examination is described on EXHIBIT 4-14. All
deficiencies, assessments, and other amounts asserted as a result of any
Internal Revenue Service examinations have been fully paid or settled. No
agreement is extant which waives or extends any statute of limitations
applicable to the right of the Internal Revenue Service to assert a deficiency
or make any other claim for or in respect to federal income taxes. No issue has
been raised in any such examination which, by application of similar principles,
reasonably could be expected to result in the assertion of a deficiency for any
fiscal year open for examination, assessment, or claim by the Internal Revenue
Service.
(b) Except as set forth in EXHIBIT 4-14, the Borrower has not
received written notice that any state or local taxing authority intends to
examine any state or local tax returns of the Borrower. With respect to any such
examinations disclosed on EXHIBIT 4-14, (a) the Borrower has received written
notice from the respective state and local taxing authorities to which the
Borrower is subject that such authorities have completed their respective
examination of the Borrower's returns for all state and local income, excise,
sales, and other taxes for which the Borrower is liable for the respective tax
years referenced on EXHIBIT 4-14, annexed hereto, or (b) the status is described
on EXHIBIT 4-14. All deficiencies, assessments, and other amounts asserted as a
result of such examinations have been fully paid or settled. No agreement is
extant which waives or extends any statute of limitations applicable to the
right of any state taxing authority to assert a deficiency or make any other
claim for or in respect to any such state taxes. No issue has been raised in any
such examination which, by application of similar principles, reasonably could
be expected to result in the assertion of a deficiency for any fiscal year open
for examination, assessment, or claim by any state or local taxing authority.
(c) Except as disclosed on said EXHIBIT 4-14, there are no
examinations of or with respect to the Borrower presently being conducted by the
Internal Revenue Service or any other taxing authority.
(d) The Borrower has, and hereafter shall: pay, as they become due
and payable, all taxes and unemployment contributions and other charges of any
kind or nature levied, assessed or claimed against the Borrower or the
Collateral by any person or entity whose claim could result in an Encumbrance
upon any asset of the Borrower or by any governmental authority; properly
exercise any trust responsibilities imposed upon the Borrower by reason of
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withholding from employees' pay or by reason of the Borrower's receipt of sales
tax or other funds for the account of any third party; timely make all
contributions and other payments as may be required pursuant to any Employee
Benefit Plan now or hereafter established by the Borrower; and timely file all
tax and other returns and other reports with each governmental authority to whom
the Borrower is obligated to so file.
(e) At its option, the Lender may, but shall not be obligated to,
pay any taxes, unemployment contributions, and any and all other charges levied
or assessed upon the Borrower or the Collateral by any person or entity or
governmental authority, and make any contributions or other payments on account
of the Borrower's Employee Benefit Plan as the Lender , in the Lender's
discretion, may deem necessary or desirable, to protect, maintain, preserve,
collect, or realize upon any or all of the Collateral or the value thereof or
any right or remedy pertaining thereto, provided, however, the Lender's making
of any such payment shall not constitute a cure or waiver of any Event of
Default occasioned by the Borrower's failure to have made such payment.
4.15 No Margin Stock. The Borrower is not engaged in the business of
extending credit for the purpose of purchasing or carrying any margin stock
(within the meaning of Regulations U, T, and X of the Board of Governors of the
Federal Reserve System of the United States). No part of the proceeds of any
borrowing hereunder will be used at any time to purchase or carry any such
margin stock or to extend credit to others for the purpose of purchasing or
carrying any such margin stock.
4.16 ERISA. Neither the Borrower nor any ERISA Affiliate ever has or
hereafter shall:
(a) Violate or fail to be in full compliance with the Borrower's
Employee Benefit Plan.
(b) Fail timely to file all reports and filings required by ERISA
to be filed by the Borrower.
(c) Engage in any "prohibited transactions" or "reportable events"
(respectively as described in ERISA).
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(d) Engage in, or commit, any act such that a tax or penalty could
be imposed upon the Borrower on account thereof pursuant to ERISA.
(e) Accumulate any material funding deficiency within the meaning
of ERISA.
(f) Terminate any Employee Benefit Plan such that a lien could be
asserted against any assets of the Borrower on account thereof pursuant to
ERISA.
(g) Be a member of, contribute to, or have any obligation under any
Employee Benefit Plan which is a multiemployer plan within the meaning of
Section 4001(a) of ERISA.
4.17 Hazardous Materials.
(a) The Borrower has never:
(i) Been legally responsible for any release or threat of
release of any Hazardous Material.
(ii) Received notification of any release or threat of release
of any Hazardous Material from any site or vessel occupied or operated
by the Borrower and/or of the incurrence of any expense or loss in
connection with the assessment, containment, or removal of any release
or threat of release of any Hazardous Material from any such site or
vessel.
(b) The Borrower shall:
(i) Dispose of any Hazardous Material only in compliance with
all Environmental Laws.
(ii) Not store on any site or vessel occupied or operated by
the Borrower and not transport or arrange for the transport of any
Hazardous Material, except if such storage or transport is in the
ordinary course of the Borrower's business and is in compliance with all
Environmental Laws.
(c) The Borrower shall provide the Lender with written notice
upon the Borrower's obtaining knowledge of any incurrence of any expense or loss
by any governmental authority or other Person in connection with the assessment,
containment, or removal of any Hazardous Material, for which expense or loss the
Borrower may be liable.
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4.18 Litigation. Except as described in EXHIBIT 4-18, annexed hereto,
there is not presently pending against the Borrower any suit, action,
proceeding, or investigation which, if determined adversely to the Borrower,
would have a material adverse effect upon the Borrower's financial condition or
ability to conduct its business as such business is presently conducted or is
contemplated to be conducted in the foreseeable future. Except for actions
arising from non-payment of rent under certain of the Leases, to Borrower's
knowledge, there is no litigation threatened against the Borrower.
4.19 Dividends or Investments. The Borrower shall not:
(a) Pay any cash dividend or make any other distribution in respect
of any class of the Borrower's capital stock.
(b) Own, redeem, retire, purchase, or acquire any of the Borrower's
capital stock.
(c) Invest in or purchase any stock or securities or rights to
purchase any such stock or securities, of any corporation or other entity.
(d) Merge or consolidate or be merged or consolidated with or into
any other corporation or other entity.
(e) Consolidate any of the Borrower's operations with those of any
other corporation or other entity.
(f) Organize or create any Related Entity.
(g) Subordinate any debts or obligations owed to the Borrower by
any third party to any other debts owed by such third party to any other Person.
(h) Acquire any assets other than in the ordinary course and
conduct of the Borrower's business as conducted at the execution of this
Agreement
4.20 Loans. The Borrower shall not make any loans or advances to, nor
acquire the Indebtedness of, any Person, provided, however, the foregoing does
not prohibit any of the following:
(a) Advance payments made to the Borrower's suppliers in the
ordinary course.
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(b) Advances to the Borrower's officers, employees, and
salespersons with respect to reasonable expenses to be incurred by such
officers, employees, and salespersons for the benefit of the Borrower, which
expenses are properly substantiated by the person seeking such advance and
properly reimbursable by the Borrower.
4.21 Protection of Assets. The Lender, in the Lender's discretion, and
from time to time, may discharge any tax or Encumbrance on any of the
Collateral, or take any other action that the Lender may deem necessary or
desirable to repair, insure, maintain, preserve, collect, or realize upon any of
the Collateral. The Lender shall not have any obligation to undertake any of the
foregoing and shall have no liability on account of any action so undertaken
except where there is a specific finding in a judicial proceeding (in which the
Lender has had an opportunity to be heard), from which finding no further appeal
is available, that the Lender had acted in actual bad faith or in a grossly
negligent manner. The Borrower shall pay to the Lender, on demand, or the
Lender, in its discretion, may add to the Loan Account, all amounts paid or
incurred by the Lender pursuant to this section. The obligation of the Borrower
to pay such amounts is a Liability.
4.22 Line of Business. The Borrower shall not engage in any business
other than the business in which it is currently engaged or a business
reasonably related thereto (the conduct of which reasonably related business is
reflected in the Business Plan).
4.23 Affiliate Transactions. The Borrower shall not make any payment,
nor give any value to any Related Entity except for goods and services actually
purchased by the Borrower from, or sold by the Borrower to, such Related Entity
for a price and on terms which shall
(a) be competitive and fully deductible as an "ordinary and
necessary business expense" and/or fully depreciable under the Internal Revenue
Code of 1986 and the Treasury Regulations, each as amended; and
(b) no be less favorable from those which would have been charged
in an arms length transaction.
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4.24 Additional Assurances.
(a) The Borrower is not the owner of, nor has it any interest in,
any property or asset which, immediately upon the satisfaction of the conditions
precedent to the effectiveness of the credit facility contemplated hereby
(Article 3) will be not be subject to a perfected security or other collateral
interest in favor of the Lender (subject only to Permitted Encumbrances) to
secure the Liabilities.
(b) The Borrower will not hereafter acquire any asset or any
interest in property which is not, immediately upon such acquisition, subject to
such a perfected security or other collateral interest in favor of the Lender to
secure the Liabilities (subject only to Permitted Encumbrances).
(c) The Borrower shall execute and deliver to the Lender such
instruments, documents, and papers, and shall do all such things from time to
time hereafter as the Lender may reasonably request to carry into effect the
provisions and intent of this Agreement; to protect and perfect the Lender's
security interests in the Collateral; and to comply with all applicable statutes
and laws, and facilitate the collection of the Receivables Collateral. The
Borrower shall execute all such instruments as may be required by the Lender
with respect to the recordation and/or perfection of the security interests
created herein.
(d) The Borrower hereby designates the Lender as and for the
Borrower's true and lawful attorney, with full power of substitution, to sign
and file any financing statements in order to perfect or protect the Lender's
security and other collateral interests in the Collateral.
(e) A carbon, photographic, or other reproduction of this Agreement
or of any financing statement or other instrument executed pursuant to this
Section 4-24 shall be sufficient for filing to perfect the security interests
granted herein.
4.25 Adequacy of Disclosure.
(a) All financial statements furnished to the Lender by the
Borrower have been prepared in accordance with GAAP consistently applied and
present fairly the condition of the Borrower at the date(s) thereof and the
results of operations and cash flows for the period(s) covered. There has been
no change in the financial condition, results of operations, or cash flows of
the Borrower since the date(s) of such financial statements (except as disclosed
to the Lender
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in the Business Plan or otherwise in writing), other than changes in the
ordinary course of business, which changes have not been materially adverse,
either singularly or in the aggregate.
(b) To the Borrower's knowledge, the Borrower does not have any
material contingent obligations or obligation under any Lease or Capital Lease
which is not noted in the Borrower's financial statements furnished to the
Lender or otherwise disclosed to the Lender in writing prior to the execution of
this Agreement.
(c) No document, instrument, agreement, or paper now or hereafter
given the Lender by or on behalf of the Borrower or any guarantor of the
Liabilities in connection with the execution of this Agreement by the Lender
contains or will contain any untrue statement of a material fact or omits or
will omit to state a material fact necessary in order to make the statements
therein not misleading. There is no fact known to the Borrower which has, or
which, in the foreseeable future could have, a material adverse effect on the
financial condition of the Borrower or any such guarantor which has not been
disclosed in writing to the Lender.
4.26 Other Covenants. The Borrower shall not indirectly do or cause to
be done any act which, if done directly by the Borrower, would breach any
covenant contained in this Agreement.
ARTICLE 5 - FINANCIAL REPORTING AND PERFORMANCE COVENANTS:
5.1 Maintain Records. The Borrower shall:
(a) At all times, keep proper books of account, in which full, true,
and accurate entries shall be made of all of the Borrower's transactions, all in
accordance with GAAP applied consistently with prior periods to fairly reflect
the financial condition of the Borrower at the close of, and its results of
operations for, the periods in question.
(b) Timely provide the Lender with those financial reports,
statements, and schedules required by this Article 5 or otherwise, each of which
reports, statements and schedules shall be prepared, to the extent applicable,
in accordance with GAAP applied
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consistently with prior periods to fairly reflect the financial condition of the
Borrower at the close of, and its results of operations for, the period(s)
covered therein.
(c) At all times, keep accurate current records of the Collateral
including, without limitation, accurate current stock, cost, and sales records
of its Inventory, accurately and sufficiently itemizing and describing the
kinds, types, and quantities of Inventory and the cost and selling prices
thereof.
(d) At all times, retain independent certified public accountants
who are reasonably satisfactory to the Lender and instruct such accountants to
fully cooperate with, and be available to, the Lender to discuss the Borrower's
financial performance, financial condition, operating results, controls, and
such other matters, within the scope of the retention of such accountants, as
may be raised by the Lender.
(e) Not change the Borrower's fiscal year.
5.2 Access to Records.
(a) The Borrower shall accord the Lender and the Lender's
representatives with reasonable access from time to time as the Lender and such
representatives may require to all properties owned by or over which the
Borrower has control. The Lender and the Lender's representatives shall have the
right, and the Borrower will permit the Lender and such representatives from
time to time as the Lender and such representatives may reasonably request, to
examine, inspect, copy, and make extracts from any and all of the Borrower's
books, records, electronically stored data, papers, and files. The Borrower
shall make all of the Borrower's copying facilities reasonably available to the
Lender.
(b) The Borrower hereby authorizes the Lender and the Lender's
representatives to:
(i) Inspect, copy, duplicate, review, cause to be reduced to
hard copy, run off, draw off, and otherwise use any and all computer or
electronically stored information or data which relates to the Borrower,
or any service bureau, contractor, accountant, or other person, and
directs any such service bureau, contractor, accountant, or other person
fully to cooperate with the Lender and the Lender's representatives with
respect thereto.
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(ii) Verify at any time the Collateral or any portion thereof,
including verification with Account Debtors, and/or with the Borrower's
computer billing companies, collection agencies, and accountants and to
sign the name of the Borrower on any notice to the Borrower's Account
Debtors or verification of the Collateral.
5.3 Immediate Notice to Lender.
(a) The Borrower shall provide the Lender with written notice
immediately upon the occurrence of any of the following events, which written
notice shall be with reasonable particularity as to the facts and circumstances
in respect of which such notice is being given:
(i) Any change in the Borrower's officers.
(ii) The completion of any physical count of the Borrower's
Inventory (together with a copy of the certified results thereof).
(iii) Any ceasing of the Borrower's making of payment, in the
ordinary course, to any of its creditors (including the ceasing of the
making of such payments on account of a dispute with the subject
creditor) with respect to Post-Petition liabilities.
(iv) Any failure by the Borrower to pay Post-Petition rent at
any of the Borrower's locations, which failure continues for more than
Three (3) Business Days following the day on which such rent first came
due.
(v) Any material change in the business, operations, or
financial affairs of the Borrower.
(vi) The occurrence of any Suspension Event of which the
Borrower has knowledge.
(vii) Any intention on the part of the Borrower to discharge
the Borrower's present independent accountants or any withdrawal or
resignation by such independent accountants from their acting in such
capacity (as to which, see Subsection 5-1(d)).
(viii) Any litigation which, if determined adversely to the
Borrower, might have a material adverse effect on the financial
condition of the Borrower.
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(ix) Any failure to maintain its operations as Year 2000
Compliant where such failure to so maintain will have material adverse
effect on the Borrower's operations.
(x) The filing in the Proceedings of any pleading by or on
behalf of the Borrower or the submission by or on behalf of the Borrower
of any report and financial statement to any of: the Bankruptcy Court;
the office of the United States Trustee; or any committee appointed in
the Proceedings (in each instance, which notice shall be accompanied by
the item so filed or submitted).
(b) The Borrower shall:
(i) Provide the Lender, when so distributed, with copies of
any materials distributed to the shareholders of the Borrower (qua such
shareholders).
(ii) Add the Lender as an addressee on all mailing lists
maintained by or for the Borrower.
(iii) At the request of the Lender, from time to time, provide
the Lender with copies of all advertising (including copies of all print
advertising and duplicate tapes of all video and radio advertising).
(iv) Provide the Lender, when received by the Borrower, with a
copy of any management letter or similar communications from any
accountant of the Borrower.
5.4 Borrowing Base Certificate. The Borrower shall provide the Lender by
11:00AM, PST, with each request for an advance under the Revolving Credit and
weekly, with a Borrowing Base Certificate (in the form of EXHIBIT 5-4 annexed
hereto, as such form may be revised from time to time by the Lender). Such
Certificate may be sent to the Lender by facsimile transmission, provided that
the original thereof is forwarded to the Lender on the date of such
transmission.
5.5 Weekly Reports. Weekly, on Tuesday of each week (as of the then
immediately preceding Saturday) the Borrower shall provide the Lender with a
sales audit report and a flash collateral report (each in such form as may be
specified from time to time by the
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Lender). Such report may be sent to the Lender by facsimile transmission,
provided that the original thereof is forwarded to the Lender on the date of
such transmission.
5.6 Monthly Reports.
(a) Monthly, the Borrower shall provide the Lender with original
counterparts of the following (each in such form as the Lender from time to time
may specify):
(i) Within Fifteen (15) days of the end of the previous month:
(A) A "Stock Ledger Inventory Report" and Certificate
(signed by the Borrower's Treasurer or Controller) concerning the
Borrower's Inventory.
(B) Stock Ledgers for the Borrower's retail and catalogue
divisions.
(C) A Stock Ledger by each store location.
(D) A "Slow Moving Inventory Report", concerning the
Borrower's Inventory that is on hand more than 365 days.
(ii) Within Thirty (30) days of the end of the previous month:
(A) Reconciliations of the above-described "Stock Ledger
Inventory Report" and Inventory Certificate (Section 5-6(a)(i)(A)) to
Availability and to the general ledger as of the end of the subject
month.
(B) A Store Activity Report.
(C) A Gross Margin Reconciliation Report
(D) A schedule of purchases from the Borrower's ten largest
vendors (in terms of year to date purchases), which schedule shall be in
such form as is satisfactory to the Lender and shall include year to
date cumulative purchases and an aging of payables to each vendor.
(E) A aging of Borrower's accounts payable.
(F) An internally prepared financial statement of the
Borrower's financial condition the results of its operations for, the
period ending with the end of the subject month, which financial
statement shall include, at a minimum, a balance sheet, income statement
(on a store specific and on a "consolidated" basis), cash flow and
comparison of same store sales for the
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corresponding month of the then immediately previous year, as well as to
the Business Plan.
(b) For purposes of Section 5-6(a)(i), above, the first "previous
month" in respect of which the items required by that Section shall be provided
shall be March, 1999 and for purposes of Section 5-6(a)(ii), above, the first
"previous month" in respect of which the items required by that Section shall be
provided shall be April, 1999.
5.7 Quarterly Reports. Quarterly, within Forty Five (45) days following
the end of each of the Borrower's fiscal quarters, the Borrower shall provide
the Lender with an original counterpart of the Borrower's Form 10-Q Report filed
with the Securities and Exchange Commission and an original counterpart of a
management prepared financial statement of the Borrower for the period from the
beginning of the Borrower's then current fiscal year through the end of the
subject quarter, with comparative information for the same period of the
previous fiscal year, which statement shall include, at a minimum, a balance
sheet, income statement (on a store specific and on a "consolidated" basis),
statement of changes in shareholders' equity, and cash flows and comparisons for
the corresponding quarter of the then immediately previous year, as well as to
the Business Plan.
5.8 Annual Reports.
(a) On or before May 31, 1999, and thereafter annually, within
ninety (90) days following the end of the Borrower's fiscal year, the Borrower
shall furnish the Lender with an original signed counterpart of the Borrower's
annual financial statement, which statement shall have been prepared by, and
bear the opinion without material qualification (other than such qualification
as may be based on the Borrower's being the debtor in the Proceedings) of, the
Borrower's independent certified public accountants (i.e. said statement shall
be "certified" by such accountants). Such annual statement shall include, at a
minimum (with comparative information for the then prior fiscal year) a balance
sheet, income statement, statement of changes in shareholders' equity, cash
flows, and of Borrower's Form 10-K Report filed with the Securities and Exchange
Commission.
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(b) No later than the earlier of Fifteen (15) days prior to the end
of each of the Borrower's fiscal years or the date on which such accountants
commence their work on the preparation of the Borrower's annual financial
statement, the Borrower shall give written notice to such accountants (with a
copy of such notice, when sent, to the Lender) that:
(i) Such annual financial statement will be delivered by the
Borrower to the Lender.
(ii) It is the primary intention of the Borrower, in its
engagement of such accountants, to satisfy the financial reporting
requirements set forth in this Article 5.
(iii) The Borrower has been advised that the Lender will rely
thereon with respect to the administration of, and transactions under,
the credit facility contemplated by this Agreement.
(c) Each annual statement shall be accompanied by such accountant's
Certificate indicating that, in the preparation of such annual statement, such
accountants did not conclude that any Suspension Event had occurred during the
subject fiscal year (or if one or more had occurred, the facts and circumstances
thereof).
5.9 Officers' Certificates. The Borrower shall cause the Borrower's
President and Chief Financial Officer respectively to provide such Person's
Certificate with those monthly, quarterly, and annual statements to be furnished
pursuant to this Agreement, which Certificate shall:
(a) Indicate that the subject statement was prepared in accordance
with GAAP consistently applied and presents fairly the financial condition of
the Borrower at the close of, and the results of the Borrower's operations and
cash flows for, the period(s) covered, subject, however to the following:
(i) usual year end adjustments (this exception shall not be
included in the Certificate which accompanies such annual statement).
(ii) Material Accounting Changes (in which event, such
Certificate shall include a schedule (in reasonable detail) of the
effect of each such Material Accounting Change) not previously
specifically taken into account in the determination of the financial
performance covenant imposed pursuant to Section 5-12.
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(b) Indicate either that (i) to the Borrower's knowledge, no
Suspension Event has occurred or (ii) if such an event has occurred, its nature
(in reasonable detail) and the steps (if any) being taken or contemplated by the
Borrower to be taken on account thereof.
(c) Include calculations concerning the Borrower's compliance (or
failure to comply) at the date of the subject statement with each of the
financial performance covenants included in Section 5-12 hereof.
5.10 Inventories, Appraisals, and Audits.
(a) The Lender, at the expense of the Borrower, may participate in
and/or observe each physical count and/or inventory of so much of the Collateral
as consists of Inventory which is undertaken on behalf of the Borrower.
(b) The Borrower, at its own expense, shall cause not less than two
(2) physical inventories to be undertaken in each twelve (12) month period
during which this Agreement is in effect (the spacing of the scheduling of which
inventories shall be subject to the Lender's discretion) conducted by such
inventory takers as are satisfactory to the Lender and following such
methodology as may be satisfactory to the Lender.
(i) The Borrower shall provide the Lender with a copy of the
preliminary results of each such inventory (as well as of any other
physical inventory undertaken by the Borrower) within ten (10) days
following the completion of such inventory.
(ii) The Borrower shall provide the Lender with a
reconciliation of the results of each such inventory (as well as of any
other physical inventory undertaken by the Borrower) to the Borrower's
books and records within thirty (30) days following the completion of
such inventory.
(iii) The Lender, in its discretion, following the occurrence of
a Suspension Event, may cause such additional inventories to be taken as
the Lender determines (each, at the expense of the Borrower).
(c) Upon the Lender's request from time to time, the Borrower shall
permit the Lender to obtain appraisals (in all events, at the Borrower's
expense) conducted by such appraisers as are satisfactory to the Lender.
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(d) The Lender contemplates conducting Four (4) commercial finance
audits (in each event, at the Borrower's expense) of the Borrower's books and
records during any Twelve (12) month period during which this Agreement is in
effect, but in its discretion, may undertake additional such audits during such
period.
(e) The Lender from time to time (in all events, at the Borrower's
expense) may undertake "mystery shopping" (so-called) visits to all or any of
the Borrower's business premises. The Lender shall provide the Borrower with a
copy of any non-company confidential results of such mystery shopping.
5.11 Additional Financial Information.
(a) In addition to all other information required to be provided
pursuant to this Article 5, the Borrower promptly shall provide the Lender (and
any guarantor of the Liabilities), with such other and additional information
concerning the Borrower, the Collateral, the operation of the Borrower's
business, and the Borrower's financial condition, including original
counterparts of financial reports and statements, as the Lender may from time to
time request from the Borrower.
(b) The Borrower may provide the Lender, from time to time
hereafter, with updated projections of the Borrower's anticipated performance
and operating results.
(c) In all events, the Borrower, no sooner than Ninety (90) nor
later than Sixty (60) days prior to the end of each of the Borrower's fiscal
years, shall furnish the Lender with an updated and extended projection which
shall go out at least through the end of the then next fiscal year.
(d) Such updated and extended projections shall be prepared
pursuant to a methodology and shall include such assumptions as are satisfactory
to the Lender.
(e) The Lender, following the receipt of any of such projections,
may, but shall not be under any obligation to, provide its written sign-off on
such projections (in which event, such Projections shall become the Business
Plan) and if it provides such written sign-off, may by written notice to the
Borrower, extend or revise the financial performance covenants included on
EXHIBIT 5-12, annexed hereto.
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(f) In the event that the Lender does not provide its sign-off with
respect to the updated and extended projections to be provided at year-end
pursuant to Section 5-11(c), above, then the Lender, by written notice to the
Borrower, may revise, roll-over, or extend, for the then coming fiscal year, the
financial performance covenants applicable to the Borrower pursuant to Section
5-12 hereof by extrapolation from the Business Plan.
(g) The Borrower recognizes that all appraisals, inventories,
analysis, financial information, and other materials which the Lender may
obtain, develop, or receive with respect to the Borrower is confidential to the
Lender and that, except as otherwise provided herein, the Borrower is not
entitled to receipt of any of such appraisals, inventories, analysis, financial
information, and other materials, nor copies or extracts thereof or therefrom.
5.12 Financial Performance Covenants. The Borrower shall observe and
comply with those financial performance covenants set forth on EXHIBIT 5-12(a),
annexed hereto, certain of which covenants are based on the Business Plan set
forth on EXHIBIT 5-12(b), annexed hereto. Such financial performance covenants
are subject to change, revision, roll over, and extension as provided in Section
5-11(e) hereof. Compliance with such financial performance covenants shall be
made as if no Material Accounting Changes had been made (other than any Material
Accounting Changes specifically taken into account in the setting of such
covenants). The Lender may determine the Borrower's compliance with such
covenants based upon financial reports and statements provided by the Borrower
to the Lender (whether or not such financial reports and statements are required
to be furnished pursuant to this Agreement) as well as by reference to interim
financial information provided to, or developed by, the Lender.
5.13 Store Closing Order. Within thirty (30) days of entry of the
Borrowing Order by the Bankruptcy Court, the Borrower shall have obtained a
Store Closing Order, so referred to herein, by the Bankruptcy Court approving
the closing of stores and the rejection of leases identified on EXHIBIT 4-6(b)
hereto, which order shall be in form and substance satisfactory to Lender and
which shall not have been stayed, modified, appealed, reversed, or otherwise
affected.
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ARTICLE 6 - USE AND COLLECTION OF COLLATERAL:
6.1 Use of Inventory Collateral.
(a) The Borrower shall not engage in any sale of the Inventory
other than for fair consideration in the conduct of the Borrower's business in
the ordinary course and, except as contemplated by the Sale Closing Order, shall
not engage in sales or other dispositions to creditors; sales or other
dispositions in bulk; and any use of any of the Inventory in breach of any
provision of their Agreement.
(b) No sale of Inventory shall be on consignment, approval, or
under any other circumstances such that, with the exception of the Borrower's
customary return policy applicable to the return of Inventory purchased by the
Borrower's retail customers in the ordinary course, such Inventory may be
returned to the Borrower without the consent of the Lender.
(c) The Borrower shall not consent to, nor suffer, the return of
any item of Collateral pursuant to Section 546(h) of the Bankruptcy Code.
6.2 Inventory Quality. All Inventory now owned or hereafter acquired by
the Borrower is and will be of good and merchantable quality and free from
defects (other than defects within customary trade tolerances).
6.3 Adjustments and Allowances. The Borrower may grant such allowances
or other adjustments to the Borrower's Account Debtors (exclusive of extending
the time for payment of any Account or Account Receivable, which shall not be
done without first obtaining the Lender's prior written consent in each
instance) as the Borrower may reasonably deem to accord with sound business
practice, provided, however, the authority granted the Borrower pursuant to this
Section 6-3 may be limited or terminated by the Lender at any time in the
Lender's discretion.
6.4 Validity of Accounts.
(a) The amount of each Account shown on the books, records, and
invoices of the Borrower represented as owing by each Account Debtor is and will
be the correct amount
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actually owing by such Account Debtor and shall have been fully earned by
performance by the Borrower.
(b) The Borrower has no knowledge of any impairment of the validity
or collectibility of any of the Accounts and shall notify the Lender of any such
fact immediately after Borrower becomes aware of any such impairment.
(c) The Borrower shall not post any bond to secure the Borrower's
performance under any agreement to which the Borrower is a party nor cause any
surety, guarantor, or other third party obligee to become liable to perform any
obligation of the Borrower (other than to the Lender ) in the event of the
Borrower's failure so to perform.
6.5 Notification to Account Debtors. The Lender shall have the right at
any time (whether or not an Event of Default has occurred) to notify any of the
Borrower's Account Debtors to make payment directly to the Lender and to collect
all amounts due on account of the Collateral.
ARTICLE 7 - CASH MANAGEMENT. PAYMENT OF LIABILITIES:
7.1 Depository Accounts.
(a) Annexed hereto as EXHIBIT 7-1 is a Schedule of all present
DDA's, which Schedule includes, with respect to each depository (i) the name and
address of that depository; (ii) the account number(s) of the account(s)
maintained with such depository; and (iii) a contact person at such depository.
(b) The Borrower shall deliver to the Lender, as a condition to the
effectiveness of this Agreement:
(i) Notification, executed on behalf of the Borrower, to each
depository institution with which any DDA is maintained (other than the
Operating Account or any Local DDA), in form satisfactory to the Lender,
of the Lender's interest in such DDA.
(ii) An agreement (generally referred to as a "Blocked Account
Agreement"), in form satisfactory to the Lender with any depository
institution at which
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both any DDA (other than the Operating Account) and the Operating
Account is maintained.
(iii) An agreement (generally referred to as a "Blocked Account
Agreement"), in form satisfactory to the Lender, with any depository
institution at which a Blocked Account is maintained.
(c) The Borrower will not establish any DDA hereafter (other than a
Local DDA) unless, contemporaneous with such establishment, the Borrower
delivers to the Lender an agreement (in form satisfactory to the Lender)
executed on behalf of the depository with which such DDA is being established.
7.2 Credit Card Receipts.
(a) Annexed hereto as EXHIBIT 7-2, is a Schedule which describes all
arrangements to which the Borrower is a party with respect to the payment to the
Borrower of the proceeds of all credit card charges for sales by the Borrower.
(b) The Borrower shall deliver to the Lender, as a condition to the
effectiveness of this Agreement, notification, executed on behalf of the
Borrower, to each of the Borrower's credit card clearinghouses and processors of
notice (in form satisfactory to the Lender), which notice provides that payment
of all credit card charges submitted by the Borrower to that clearinghouse or
other processor and any other amount payable to the Borrower by such
clearinghouse or other processor shall be directed to the Concentration Account
or as otherwise designated from time to time by the Lender. The Borrower shall
not change such direction or designation except upon and with the prior written
consent of the Lender .
7.3 The Concentration, Blocked, and Operating Accounts.
(a) The following checking accounts have been or will be established
(and are so referred to herein):
(i) The CONCENTRATION ACCOUNT: Established by the Lender with
BankBoston, N.A.
(ii) The BLOCKED ACCOUNT: Established by the Borrower with USA
Bank.
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(iii) The OPERATING ACCOUNT: Established by the Borrower with
BankBoston, N.A.
(iv) The INVESTMENT ACCOUNT: Established by the Borrower with
BankBoston, N.A.
(b) The contents of each DDA (other than the Operating Account), and
of the Blocked Account constitutes Collateral and Proceeds of Collateral. The
contents of the Concentration Account constitutes the Lender's property.
(c) The Borrower:
(i) Contemporaneous with the execution of this Agreement,
shall provide the Lender with such agreement (generally referred to as a
"Blocked Account Agreement") of the depository with which the Blocked
Account is maintained as may be satisfactory to the Lender; and
(ii) Shall not establish any Blocked Account hereafter except
upon not less than Thirty (30) days prior written notice to the Lender
and the delivery to the Lender of a similar such agreement; and
(iii) Contemporaneous with the execution of this Agreement,
shall provide the Lender with a "Control Agreement" of the depository
with which the Investment Account is maintained as may be satisfactory
to the Lender; and
(d) The Borrower shall pay all fees and charges of, and maintain
such impressed balances as may be required by the Lender or by any bank in which
any account is opened as required hereby (even if such account is opened by
and/or is the property of the Lender).
7.4 Proceeds and Collection of Accounts.
(a) All Receipts constitute Collateral and proceeds of Collateral
and shall be held in trust by the Borrower for the Lender; shall not be
commingled with any of the Borrower's other funds; and shall be deposited and/or
transferred only to the Blocked Account.
(b) Subject to subparagraph (d), below, the Borrower shall cause the
ACH or wire transfer to the Blocked Account, no less frequently than daily (and
whether or not there is then an outstanding balance in the Loan Account) of
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(i) the then contents of each DDA (other than (A) any
Local DDA and (B) the Operating Account), each such transfer to be net
of any minimum balance, not to exceed $750.00, as may be required to be
maintained in the subject DDA by the bank at which such DDA is
maintained); and
(ii) the proceeds of all credit card charges not otherwise
provided for pursuant hereto.
Telephone advice (confirmed by written notice) shall be provided to the Lender
on each Business Day on which any such transfer is made.
(c) Whether or not any Liabilities are then outstanding, the
Borrower shall cause the ACH or wire transfer to the Concentration Account, no
less frequently than daily, of then entire ledger balance of the Blocked
Account, net of such minimum balance, not to exceed $750.00, as may be required
to be maintained in the Blocked Account by the bank at which the Blocked Account
is maintained.
(d) Within Sixty (60) days from the date of this Agreement, the
Borrower shall cause the ACH or wire transfer to the Concentration Account, no
less frequently than daily (and whether or not there is then an outstanding
balance in the Loan Account) of
(i) the then contents of each DDA (other than (A) any Local DDA
and (B) the Operating Account), each such transfer to be net of any
minimum balance, not to exceed $750.00, as may be required to be
maintained in the subject DDA by the bank at which such DDA is
maintained); and
(ii) the proceeds of all credit card charges not otherwise
provided for pursuant hereto.
Telephone advice (confirmed by written notice) shall be provided to the Lender
on each Business Day on which any such transfer is made.
(e) In the event that, notwithstanding the provisions of this
Section 7-4, the Borrower receives or otherwise has dominion and control of any
Receipts, or any proceeds or collections of any Collateral, such Receipts,
proceeds, and collections shall be held in trust by the Borrower for the Lender
and shall not be commingled with any of the Borrower's other funds or deposited
in any account of the Borrower other than as instructed by the Lender.
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7.5 Payment of Liabilities.
(a) On each Business Day, the Lender shall apply, towards the
Liabilities, the then collected balance of the Concentration Account (net of
fees charged, and of such impressed balances as may be required by the bank at
which the Concentration Account is maintained), provided, however, for purposes
of the calculation of interest on the unpaid principal balance of the Loan
Account, such payment shall be deemed to have been made One (1) Business Day
after such transfer.
(b) The following rules shall apply to deposits and payments under
and pursuant to this Agreement:
(i) Funds shall be deemed to have been deposited to the
Concentration Account on the Business Day on which deposited, provided
that notice of such deposit is available to the Lender by 2:00PM on that
Business Day.
(ii) Funds paid to the Lender, other than by deposit to the
Concentration Account, shall be deemed to have been received on the
Business Day when they are good and collected funds, provided that
notice of such payment is available to the Lender by 2:00PM on that
Business Day.
(iii) If notice of a deposit to the Concentration Account
(Section 7-5(b)(i)) or payment (Section 7-5(b)(ii)) is not available to
the Lender until after 2:00PM on a Business Day, such deposit or payment
shall be deemed to have been made at 9:00AM on the then next Business
Day.
(iv) All deposits to the Concentration Account and other
payments to the Lender are subject to clearance and collection.
(c) The Lender shall transfer to the Investment Account any surplus
in the Concentration Account remaining after the application towards the
Liabilities referred to in Section 7-5(a), above (less those amount which are to
be netted out, as provided therein).
7.6 The Operating Account. Except as otherwise specifically provided in,
or permitted by, this Agreement, all checks shall be drawn by the Borrower upon,
and other disbursements shall be made by the Borrower solely from, the Operating
Account.
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ARTICLE 8 - GRANT OF SECURITY INTEREST:
8.1 Grant of Security Interest. To secure the Borrower's prompt,
punctual, and faithful performance of all and each of the Liabilities, the
Borrower hereby grants to the Lender a continuing security interest in and to,
and assigns to the Lender, the following, and each item thereof, whether now
owned or now due, or in which the Borrower has an interest, or hereafter
acquired, arising, or to become due, or in which the Borrower obtains an
interest, and all products, Proceeds, substitutions, and accessions of or to any
of the following (all of which, together with any other property in which the
Lender may in the future be granted a security interest, is referred to herein
as the "COLLATERAL"):
(a) All Accounts and accounts receivable.
(b) All Inventory.
(c) All General Intangibles.
(d) All Equipment.
(e) All Goods.
(f) All Fixtures.
(g) All Chattel Paper.
(h) All books, records, and information relating to the Collateral
and/or to the operation of the Borrower's business, and all
rights of access to such books, records, and information, and
all property in which such books, records, and information are
stored, recorded, and maintained.
(i) All Investment Property, Instruments, Documents, Deposit
Accounts, policies and certificates of insurance, deposits,
impressed accounts, compensating balances, money, cash, or
other property.
(j) All insurance proceeds, refunds, and premium rebates,
including, without limitation, proceeds of fire and credit
insurance, whether any of such proceeds, refunds, and premium
rebates arise out of any of the foregoing (8-1(a) through
8-1(i)) or otherwise.
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(k) All liens, guaranties, rights, remedies, and privileges
pertaining to any of the foregoing (8-1(a) through 8-1(i)),
including the right of stoppage in transit.
(l) All Leasehold Interests.
8.2 Extent and Duration of Security Interest. The security interest
created and granted herein shall continue in full force and effect applicable to
all Liabilities until all Liabilities have been paid and/or satisfied in full
and the security interest granted herein is specifically terminated in writing
by a duly authorized officer of the Lender .
ARTICLE 9 - LENDER AS BORROWER'S ATTORNEY-IN-FACT:
9.1 Appointment as Attorney-In-Fact. The Borrower hereby irrevocably
constitutes and appoints the Lender as the Borrower's true and lawful attorney,
with full power of substitution, effective upon the occurrence of any Event of
Default and the Lender being granted relief from the automatic stay imposed
pursuant to Section 362 of the Bankruptcy Code, to convert the Collateral into
cash at the sole risk, cost, and expense of the Borrower, but for the sole
benefit of the Lender. The rights and powers granted the Lender by the within
appointment include but are not limited to the right and power to:
(a) Prosecute, defend, compromise, or release any action relating to
the Collateral.
(b) Sign change of address forms to change the address to which the
Borrower's mail is to be sent to such address as the Lender shall designate;
receive and open the Borrower's mail; remove any Receivables Collateral and
Proceeds of Collateral therefrom and turn over the balance of such mail either
to the Borrower or to any trustee in bankruptcy, receiver, assignee for the
benefit of creditors of the Borrower, or other legal representative of the
Borrower whom the Lender determines to be the appropriate person to whom to so
turn over such mail.
(c) Endorse the name of the Borrower in favor of the Lender upon any
and all checks, drafts, notes, acceptances, or other items or instruments; sign
and endorse the name of
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the Borrower on, and receive as secured party, any of the Collateral, any
invoices, schedules of Collateral, freight or express receipts, or bills of
lading, storage receipts, warehouse receipts, or other documents of title
respectively relating to the Collateral.
(d) Sign the name of the Borrower on any notice to the Borrower's
Account Debtors or verification of the Receivables Collateral; sign the
Borrower's name on any Proof of Claim in Bankruptcy against Account Debtors, and
on notices of lien, claims of mechanic's liens, or assignments or releases of
mechanic's liens securing the Accounts.
(e) Take all such action as may be necessary to obtain the payment
of any letter of credit and/or banker's acceptance of which the Borrower is a
beneficiary.
(f) Repair, manufacture, assemble, complete, package, deliver, alter
or supply goods, if any, necessary to fulfill in whole or in part the purchase
order of any customer of the Borrower.
(g) Use, license or transfer any or all General Intangibles of the
Borrower.
9.2 No Obligation to Act. The Lender shall not be obligated to do any of
the acts or to exercise any of the powers authorized by Section 9-1 herein, but
if the Lender elects to do any such act or to exercise any of such powers, it
shall not be accountable for more than it actually receives as a result of such
exercise of power, and shall not be responsible to the Borrower for any act or
omission to act except for any act or omission to act as to which there is a
final determination made in a judicial proceeding (in which proceeding the
Lender has had an opportunity to be heard) which determination includes a
specific finding that the subject act or omission to act had been grossly
negligent or in actual bad faith.
ARTICLE 10 - EVENTS OF DEFAULT:
The occurrence of any event described in this Article 10 respectively
shall constitute an "EVENT OF DEFAULT" herein. Upon the occurrence of any Event
of Default described in Section 10-11, any and all Liabilities shall become due
and payable without any further act on the part of the Lender. Upon the
occurrence of any other Event of Default, any and all Liabilities shall
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become immediately due and payable, at the option of the Lender and without
notice or demand. The occurrence of any Event of Default shall also constitute,
without notice or demand, a default under all other agreements between the
Lender and the Borrower and instruments and papers given the Lender by the
Borrower, whether such agreements, instruments, or papers now exist or hereafter
arise.
10.1 Failure to Pay Revolving Credit.
(a) Subject to subparagraph (b), below, the failure by the Borrower
to pay any amount when due under the Revolving Credit.
(b) It shall not be an "Event of Default" in the event that the
Lender makes loans, advances, and credits for the purpose of paying a fee due
hereunder or changes the Inventory Advance Rate which results in the Loan
Account exceeding the Borrowing Base, if the Borrower cures such default by
paying the Lender such amounts as are necessary such that the balance of the
Loan Account does not exceed the Borrowing Base; provided, (i) such amount is
received by the Lender within One (1) Business Day of the Lender providing the
Borrower with telephone or facsimile notice that such a payment is due; and (ii)
the balance of the Loan Account has not exceeded the Borrowing Base more
frequently than the lesser of once during the previous six (6) month period or
three (3) times before the Maturity Date.
10.2 Failure To Make Other Payments. The failure by the Borrower to pay
when due (or upon demand, if payable on demand) any payment Liability other than
under the Revolving Credit.
10.3 Failure to Perform Covenant or Liability (No Grace Period). The
failure by the Borrower to promptly, punctually, faithfully and timely perform,
discharge, or comply with any covenant or Liability not otherwise described in
Section 10-1 or Section 10-2 hereof, and included in any of the following
provisions hereof:
Section Relates to :
------------------------------------------
4-6 Location of Collateral
4-7 Title to Assets
4-8 Indebtedness
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4-9 Insurance Policies
4-14 Pay taxes
4-23 Affiliate Transactions
4-24 Additional Assurances
6-1 Use of Collateral
Article 5 Reporting Requirements and Financial Covenants
Article 7 Cash Management
10.4 Failure to Perform Covenant or Liability (Grace Period). The
failure by the Borrower, upon Ten (10) days written notice by the Lender , to
cure the Borrower's failure to promptly, punctually and faithfully perform,
discharge, or comply with any covenant or Liability not described in any of
Sections 10-1, 10-2, or 10-3 hereof.
10.5 Misrepresentation. The determination by the Lender that any
representation or warranty at any time made by the Borrower to the Lender, was
not true or complete in all material respects when given.
10.6 Acceleration of Other Debt. Breach of Lease. The occurrence of any
event such that any Indebtedness of the Borrower to any creditor other than the
Lender could be accelerated or, without the consent of the Borrower, any Lease
(other than a Lease listed on EXHIBIT 4-6(b)) could be terminated, and the
failure of the Borrower to cure such default within the time provided with
respect to such Indebtedness or in such Lease (whether or not the subject
creditor or lessor takes any action on account of such occurrence).
10.7 Default Under Other Agreements. The occurrence of any breach or
default under any agreement between the Lender and the Borrower or instrument or
paper given the Lender by the Borrower, whether such agreement, instrument, or
paper now exists or hereafter arises (notwithstanding that the Lender may not
have exercised its rights upon default under any such other agreement,
instrument or paper).
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10.8 Uninsured Casualty Loss. The occurrence of any uninsured (except to
the extent of any deductible in insurance policies approved by Lender) loss,
theft, damage, or destruction of or to any material portion of the Collateral.
10.9 Judgment. Restraint of Business.
(a) The service of process upon the Lender seeking to attach, by
trustee, mesne, or other process, any of the Borrower's funds on deposit with,
or assets of the Borrower in the possession of, the Lender.
(b) The entry of any judgment against the Borrower on a
Post-Petition liability in excess of $50,000.00, which judgment is not satisfied
(if a money judgment) or appealed from (with execution or similar process
stayed) within fifteen (15) days of its entry.
(c) The entry of any order or the imposition of any other process
having the force of law, the effect of which is to restrain in any material way
the conduct by the Borrower of its business in the ordinary course.
10.10 Business Failure. The occurrence of any voluntary or involuntary
liquidation, or the initiation of any proceeding which seeks or intends to
accomplish or initiate the liquidation or winding up of all or any material part
of the Borrower's business, except for the liquidation of Inventory and
rejection of Leases contemplated by the Store Closing Order.
10.11 Indictment - Forfeiture. The indictment of, or institution of any
legal process or proceeding against, the Borrower, under any federal, state,
municipal, and other civil or criminal statute, rule, regulation, order, or
other requirement having the force of law where the relief, penalties, or
remedies sought or available include the forfeiture of any property of the
Borrower and/or the imposition of any stay or other order, the effect of which
could be to restrain in any material way the conduct by the Borrower of its
business in the ordinary course.
10.12 Challenge to Loan Documents.
(a) Any challenge by or on behalf of the Borrower to the validity
of any Loan Document or the applicability or enforceability of any Loan Document
strictly in accordance
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with the subject Loan Document's terms or which seeks to void, avoid, limit, or
otherwise adversely affect any security interest created by or in any Loan
Document or any payment made pursuant thereto.
(b) Any determination by any court or any other judicial or
government authority that any Loan Document is not enforceable strictly in
accordance with the subject Loan Document's terms or which voids, avoids,
limits, or otherwise adversely affects any security interest created by any Loan
Document or any payment made pursuant thereto.
10.13 Executive Management.The death, disability, or failure of any of
George Newman or Arlee Jensen at any time to exercise that authority and
discharge those management responsibilities with respect to the Borrower as are
exercised and discharged by such Person at the execution of this Agreement and
the failure of the Borrower to replace such Person with a person acceptable to
Lender in its reasonable opinion within thirty (30) days of such death,
disability or failure.
10.14 Change in Control. Any Change in Control to which to Lender
objects within Five (5) days of the Borrower providing Lender with written
notice of such Change in Control.
10.15 Change in Borrowing Order. The entry of an order in the
Proceedings, which order constitutes the stay, modification, appeal, or reversal
of any Borrowing Order or which otherwise affects the effectiveness of any
Borrowing Order.
10.16 Appointment of Examiner or Trustee. The appointment in the
Proceedings of any examiner having expanded powers or of a trustee to operate
all or any part of the Borrower's business.
10.17 Conversion of Case. The conversion of the Proceedings to a case
under Chapter 7 of the Bankruptcy Code.
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10.18 Relief From Stay. The entry of any order which provides relief
from the automatic stay otherwise imposed pursuant to Section 362 of the
Bankruptcy Code, which order permits any creditor, other than the Lender to
realize upon, or to exercise any right or remedy with respect to assets of the
Borrower or more than a de minimus value; or to terminate any license,
franchise, or similar agreement, where such termination could have a material
adverse effect on the Borrower's financial condition or ability to conduct its
business in the ordinary course; or to permit the prosecution of an uninsured
tort or similar claim or more than a de minimus amount.
10.19 Return of Collateral. The entry of an order which authorizes the
return of any Collateral pursuant to Section 546(h) of the Bankruptcy Code,
other than the return of damaged and defective goods, credit for which is given
the Borrower by the vendor thereof as permitted pursuant to Section 4-13(d)(iv),
above.
ARTICLE 11 - RIGHTS AND REMEDIES UPON DEFAULT:
In addition to all of the rights, remedies, powers, privileges, and
discretions which the Lender is provided prior to the occurrence of an Event of
Default, the Lender shall have the following rights and remedies upon the
occurrence of any Event of Default and at any time thereafter.
11.1 Rights of Enforcement. The Lender shall have all of the rights and
remedies of a secured party upon default under the UCC, in addition to which the
Lender shall have all and each of the following rights and remedies:
(a) To collect the Receivables Collateral with or without the
taking of possession of any of the Collateral.
(b) To take possession of all or any portion of the Collateral.
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(c) To sell, lease, or otherwise dispose of any or all of the
Collateral, in its then condition or following such preparation or processing as
the Lender deems advisable and with or without the taking of possession of any
of the Collateral.
(d) To conduct one or more going out of business sales which
include the sale or other disposition of the Collateral.
(e) To apply the Receivables Collateral or the Proceeds of the
Collateral towards (but not necessarily in complete satisfaction of) the
Liabilities.
(f) To exercise all or any of the rights, remedies, powers,
privileges, and discretions under all or any of the Loan Documents.
11.2 Sale of Collateral.
(a) Any sale or other disposition of the Collateral may be at
public or private sale upon such terms and in such manner as the Lender deems
advisable, having due regard to compliance with any statute or regulation which
might affect, limit, or apply to the Lender's disposition of the Collateral.
(b) The Lender, in the exercise of the Lender's rights and remedies
upon default, may conduct one or more going out of business sales, in the
Lender's own right or by one or more agents and contractors. Such sale(s) may be
conducted upon any premises owned, leased, or occupied by the Borrower. The
Lender and any such agent or contractor, in conjunction with any such sale, may
augment the Inventory with other goods (all of which other goods shall remain
the sole property of the Lender or such agent or contractor). Any amounts
realized from the sale of such goods which constitute augmentations to the
Inventory (net of an allocable share of the costs and expenses incurred in their
disposition) shall be the sole property of the Lender or such agent or
contractor and neither the Borrower nor any Person claiming under or in right of
the Borrower shall have any interest therein.
(c) Unless the Collateral is perishable or threatens to decline
speedily in value, or is of a type customarily sold on a recognized market (in
which event the Lender shall provide the Borrower with such notice as may be
practicable under the circumstances), the Lender shall give the Borrower at
least seven (7) days prior written notice of the date, time, and place of any
proposed public sale, and of the date after which any private sale or other
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disposition of the Collateral may be made. The Borrower agrees that such written
notice shall satisfy all requirements for notice to the Borrower which are
imposed under the UCC or other applicable law with respect to the exercise of
the Lender's rights and remedies upon default.
(d) The Lender may purchase the Collateral, or any portion of it at
any sale held under this Article.
(e) If any of the Collateral is sold, leased, or otherwise disposed
of by the Lender on credit, the Liabilities shall not be deemed to have been
reduced as a result thereof unless and until payment is finally received thereon
by the Lender.
(f) The Lender shall apply the proceeds of any exercise of the
Lender's Rights and Remedies under this Article 11 towards the Liabilities in
such manner, and with such frequency, as the Lender determines.
11.3 Occupation of Business Location. In connection with the Lender's
exercise of the Lender's rights under this Article 11, the Lender may enter
upon, occupy, and use any premises owned or occupied by the Borrower, and may
exclude the Borrower from such premises or portion thereof as may have been so
entered upon, occupied, or used by the Lender. The Lender shall not be required
to remove any of the Collateral from any such premises upon the Lender's taking
possession thereof, and may render any Collateral unusable to the Borrower. In
no event shall the Lender be liable to the Borrower for use or occupancy by the
Lender of any premises pursuant to this Article 11, nor for any charge (such as
wages for the Borrower's employees and utilities) incurred in connection with
the Lender's exercise of the Lender's Rights and Remedies provided, however, the
foregoing does not affect the right of any Person to file a claim, as an
administrative expense or otherwise, in the Proceedings, for such use or
occupancy or other charge.
11.4 Grant of Nonexclusive License. The Borrower hereby grants to the
Lender a royalty free nonexclusive irrevocable license to use, apply, and affix
any trademark, trade name, logo, or the like in which the Borrower now or
hereafter has rights, such license being with respect to the Lender's exercise
of the rights hereunder including, without limitation, in
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connection with any completion of the manufacture of Inventory or sale or other
disposition of Inventory.
11.5 Assembly of Collateral. The Lender may require the Borrower to
assemble the Collateral and make it available to the Lender at the Borrower's
sole risk and expense at a place or places which are reasonably convenient to
both the Lender and Borrower.
11.6 Rights and Remedies. The rights, remedies, powers, privileges, and
discretions of the Lender hereunder (herein, the " LENDER'S RIGHTS AND
REMEDIES") shall be cumulative and not exclusive of any rights or remedies which
it would otherwise have. No delay or omission by the Lender in exercising or
enforcing any of the Lender's Rights and Remedies shall operate as, or
constitute, a waiver thereof. No waiver by the Lender of any Event of Default or
of any default under any other agreement shall operate as a waiver of any other
default hereunder or under any other agreement. No single or partial exercise of
any of the Lender's Rights or Remedies, and no express or implied agreement or
transaction of whatever nature entered into between the Lender and any person,
at any time, shall preclude the other or further exercise of the Lender 's
Rights and Remedies. No waiver by the Lender of any of the Lender's Rights and
Remedies on any one occasion shall be deemed a waiver on any subsequent
occasion, nor shall it be deemed a continuing waiver. All of the Lender's Rights
and Remedies and all of the Lender's rights, remedies, powers, privileges, and
discretions under any other agreement or transaction are cumulative, and not
alternative or exclusive, and may be exercised by the Lender at such time or
times and in such order of preference as the Lender in its sole discretion may
determine. The Lender's Rights and Remedies may be exercised without resort or
regard to any other source of satisfaction of the Liabilities.
ARTICLE 12 - NOTICES:
12.1 Notice Addresses. All notices, demands, and other communications
made in respect of this Agreement (other than a request for a loan or advance or
other financial
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accommodation under the Revolving Credit) shall be made to the following
addresses, each of which may be changed upon seven (7) days written notice to
all others given by certified mail, return receipt requested:
If to the Lender:
BankBoston Retail Finance Inc.
40 Broad Street
Boston, Massachusetts 02109
Attention : Robert DeAngelis, Sr. Vice President
Tel : 617-434-4046
Fax : 617-434-4339
With a copy to:
Stroock & Stroock & Lavan LLP
100 Federal Street, 33rd Floor
Boston, MA 02110
Attention : Peter J. Antoszyk, Esquire
Te; : 617-478-4490
Fax : 617-330-5111
If to the Borrower:
Garden Botanika, Inc.
8624 154th Avenue NE
Redmond, WA 98052
Attention : ***
Tel : ***
Fax : ***
With a copy to:
Preston Gates & Ellis LLP
701 Fifth Avenue, Suite 5000
Seattle, Washington 98104-7078
Attention : Mark C. Paben, Esq.
: Judith A. Bigelow, Esq.
Tel : 206-467-2692
Fax: : 206-623-7022
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12.2 Notice Given.
(a) Except as otherwise specifically provided herein, notices shall
be deemed made and correspondence received, as follows (all times being local to
the place of delivery or receipt):
(i) By mail: the sooner of when actually received or Three
(3) days following deposit in the United States mail, postage prepaid.
(ii) By recognized overnight express delivery: the Business
Day following the day when sent.
(iii) By Hand: If delivered on a Business Day after 9:00 AM and
no later than Three (3) hours prior to the close of customary business
hours of the recipient, when delivered. Otherwise, at the opening of the
then next Business Day.
(iv) By Facsimile transmission (which must include a header on
which the party sending such transmission is indicated): If sent on a
Business Day after 9:00 AM and no later than Three (3) hours prior to
the close of customary business hours of the recipient, one (1) hour
after being sent. Otherwise, at the opening of the then next Business
Day.
(b) Rejection or refusal to accept delivery and inability to
deliver because of a changed address or Facsimile Number for which no due notice
was given shall each be deemed receipt of the notice sent.
ARTICLE 13 - TERM:
13.1 Termination of Revolving Credit. The Revolving Credit shall
remain in effect (subject to suspension as provided in Section 2-4(i) hereof)
until the Termination Date.
13.2 Effect of Termination. On the Termination Date, the Borrower
shall pay the Lender (whether or not then due), in immediately available funds,
all then Liabilities including, without limitation: the entire balance of the
Loan Account; any then remaining installments of the Commitment Fee; any then
remaining balance of the Facility Fee; any accrued and unpaid
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Line Fee; and all unreimbursed costs and expenses of the Lender for which the
Borrower is responsible; and shall make such arrangements concerning any L/C's
then outstanding are reasonably satisfactory to the Lender . Until such payment,
all provisions of this Agreement, other than those contained in Article 2 which
place an obligation on the Lender to make any loans or advances or to provide
financial accommodations under the Revolving Credit or otherwise, shall remain
in full force and effect until all Liabilities shall have been paid in full. The
release by the Lender of the security and other collateral interests granted the
Lender by the Borrower hereunder may be upon such conditions and
indemnifications as the Lender may require.
ARTICLE 14 - GENERAL:
14.1 Protection of Collateral. The Lender has no duty as to the
collection or protection of the Collateral beyond the safe custody of such of
the Collateral as may come into the possession of the Lender and shall have no
duty as to the preservation of rights against prior parties or any other rights
pertaining thereto. The Lender may include reference to the Borrower (and may
utilize any logo or other distinctive symbol associated with the Borrower) in
connection with any advertising, promotion, or marketing undertaken by the
Lender.
14.2 Successors and Assigns. This Agreement shall be binding upon the
Borrower and the Borrower's representatives, successors, and assigns and shall
enure to the benefit of the Lender and the Lender's successors and assigns
provided, however, no trustee or other fiduciary appointed with respect to the
Borrower shall have any rights hereunder. In the event that the Lender assigns
or transfers its rights under this Agreement, the assignee shall thereupon
succeed to and become vested with all rights, powers, privileges, and duties of
the Lender hereunder and the Lender shall thereupon be discharged and relieved
from its duties and obligations hereunder.
14.3 Severability. Any determination that any provision of this
Agreement or any application thereof is invalid, illegal, or unenforceable in
any respect in any instance shall not affect the validity, legality, or
enforceability of such provision in any other instance, or the validity,
legality, or enforceability of any other provision of this Agreement.
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14.4 Amendments. Course of Dealing.
(a) This Agreement and the other Loan Documents incorporate all
discussions and negotiations between the Borrower and the Lender, either express
or implied, concerning the matters included herein and in such other
instruments, any custom, usage, or course of dealings to the contrary
notwithstanding. No such discussions, negotiations, custom, usage, or course of
dealings shall limit, modify, or otherwise affect the provisions thereof. No
failure by the Lender to give notice to the Borrower of the Borrower's having
failed to observe and comply with any warranty or covenant included in any Loan
Document shall constitute a waiver of such warranty or covenant or the amendment
of the subject Loan Document. No change made by the Lender in the manner by
which Availability is determined shall obligate the Lender to continue to
determine Availability in that manner.
(b) The Borrower may undertake any action otherwise prohibited
hereby, and may omit to take any action otherwise required hereby, upon and with
the express prior written consent of the Lender. No consent, modification,
amendment, or waiver of any provision of any Loan Document shall be effective
unless executed in writing by or on behalf of the party to be charged with such
modification, amendment, or waiver (and if such party is the Lender, then by a
duly authorized officer thereof). Any modification, amendment, or waiver
provided by the Lender shall be in reliance upon all representations and
warranties theretofore made to the Lender by or on behalf of the Borrower (and
any guarantor, endorser, or surety of the Liabilities) and consequently may be
rescinded in the event that any of such representations or warranties was not
true and complete in all material respects when given.
14.5 Power of Attorney. In connection with all powers of attorney
included in this Agreement, the Borrower hereby grants unto the Lender full
power to do any and all things necessary or appropriate in connection with the
exercise of such powers as fully and effectually as the Borrower might or could
do, hereby ratifying all that said attorney shall do or cause to be done by
virtue of this Agreement. No power of attorney set forth in this Agreement shall
be affected by any disability or incapacity suffered by the Borrower and each
shall survive the same. All powers conferred upon the Lender by this Agreement,
being coupled with an interest, shall
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be irrevocable until this Agreement is terminated by a written instrument
executed by a duly authorized officer of the Lender.
14.6 Application of Proceeds. The proceeds of any collection, sale, or
disposition of the Collateral, or of any other payments received hereunder,
shall be applied towards the Liabilities in such order and manner as the Lender
determines in its sole discretion. The Borrower shall remain liable for any
deficiency remaining following such application.
14.7 Lender's Costs and Expenses.
(a) The Borrower shall pay on demand all Costs of Collection and
all reasonable expenses of the Lender in connection with the preparation,
execution, and delivery of this Agreement and of any other Loan Documents,
whether now existing or hereafter arising, and all other reasonable expenses
which may be incurred by the Lender in preparing, negotiating, interpreting, or
amending this Agreement or any other Loan Document, and all costs and expenses
of the Lender which relate to the credit facility contemplated hereby.
(b) The Borrower authorizes the Lender to pay all such fees and
expenses and in the Lender's discretion, to add such fees and expenses to the
Loan Account.
(c) The undertaking on the part of the Borrower in this Section
14-7 shall survive payment of the Liabilities and/or any termination, release,
or discharge executed by the Lender in favor of the Borrower, other than a
termination, release, or discharge which makes specific reference to this
Section 14-7.
14.8 Copies and Facsimiles. This Agreement and all documents which
relate thereto, which have been or may be hereinafter furnished the Lender may
be reproduced by the Lender by any photographic, microfilm, xerographic, digital
imaging, or other process, and the Lender may destroy any document so
reproduced. Any such reproduction shall be admissible in evidence as the
original itself in any judicial or administrative proceeding (whether or not the
original is in existence and whether or not such reproduction was made in the
regular course of business). Any facsimile which bears proof of transmission
shall be binding on the party which or on whose behalf such transmission was
initiated and likewise shall be so admissible in
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evidence as if the original of such facsimile had been delivered to the party
which or on whose behalf such transmission was received.
14.9 Massachusetts Law. This Agreement and all rights and obligations
hereunder, including matters of construction, validity, and performance, shall
be governed by the laws of The Commonwealth of Massachusetts.
14.10 Acknowledgement. THE BORROWER ACKNOWLEDGES THAT ORAL AGREEMENTS OR
ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO FORBEAR FROM ENFORCING
REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW.
14.11 Indemnification. The Borrower shall indemnify, defend, and hold
the Lender and any employee, officer, or agent of the Lender (each, an
"INDEMNIFIED PERSON") harmless of and from any claim brought or threatened
against any Indemnified Person by the Borrower, any guarantor or endorser of the
Liabilities, or any other Person (as well as from attorneys' reasonable fees and
expenses in connection therewith) on account of the relationship of the Borrower
or of any other guarantor or endorser of the Liabilities Lender (each of claims
which may be defended, compromised, settled, or pursued by the Indemnified
Person with counsel of the Lender's selection, but at the expense of the
Borrower) other than any claim as to which a final determination is made in a
judicial proceeding (in which the Lender and any other Indemnified Person has
had an opportunity to be heard), which determination includes a specific finding
that the Indemnified Person seeking indemnification had acted in a grossly
negligent manner or in actual bad faith. This indemnification shall survive
payment of the Liabilities and/or any termination, release, or discharge
executed by the Lender in favor of the Borrower, other than a termination,
release, or discharge which makes specific reference to this Section 14-11.
14.12 Rules of Construction. The following rules of construction shall
be applied in the interpretation, construction, and enforcement of this
Agreement and of the other Loan Documents:
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(a) Words in the singular include the plural and words in the
plural include the singular.
(b) Titles, headings (indicated by being underlined or shown in
SMALL CAPITALS) and any Table of Contents are solely for convenience of
reference; do not constitute a part of the instrument in which included; and do
not affect such instrument's meaning, construction, or effect.
(c) The words "includes" and "including" are not limiting.
(d) Text which follows the words "including, without limitation"
(or similar words) is illustrative and not limitational.
(e) Except where the context otherwise requires or where the
relevant subsections are joined by "or", compliance with any Section or
provision of any Loan Document which constitutes a warranty or covenant requires
compliance with all subsections (if any) of that Section or provision. Except
where the context otherwise requires, compliance with any warranty or covenant
of any Loan Document which includes subsections which are joined by "or" may be
accomplished by compliance with any of such subsections.
(f) Text which is shown in italics, shown in BOLD, shown IN ALL
CAPITAL LETTERS, or in any combination of the foregoing, shall be deemed to be
conspicuous.
(g) The words "may not" are prohibitive and not permissive.
(h) The word "or" is not exclusive.
(i) Any reference to a Person's "knowledge" (or words of similar
import) are to such Person's knowledge assuming that such Person has undertaken
reasonable and diligent investigation with respect to the subject of such
"knowledge" (whether or not such investigation has actually been undertaken).
(j) Terms which are defined in one section of any Loan Document
are used with such definition throughout the instrument in which so defined.
(k) The symbol "$" refers to United States Dollars.
(l) Unless limited by reference to a particular Section or
provision, any reference to "herein", "hereof", or "within" is to the entire
Loan Document in which such reference is made.
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(m) References to "this Agreement" or to any other Loan Document
is to the subject instrument as amended to the date on which application of such
reference is being made.
(n) Except as otherwise specifically provided, all references to
time are to Boston time.
(o) In the determination of any notice, grace, or other period of
time prescribed or allowed hereunder:
(i) Unless otherwise provided (I) the day of the act, event,
or default from which the designated period of time begins to run shall
not be included and the last day of the period so computed shall be
included unless such last day is not a Business Day, in which event the
last day of the relevant period shall be the then next Business Day and
(II) the period so computed shall end at 5:00 PM on the relevant
Business Day.
(ii) The word "from" means "from and including".
(iii) The words "to" and "until" each mean "to, but
excluding".
(iv) The work "through" means "to and including".
(p) The Loan Documents shall be construed and interpreted in a
harmonious manner and in keeping with the intentions set forth in Section 14-13
hereof, provided, however, in the event of any inconsistency between the
provisions of this Agreement and any other Loan Document, the provisions of this
Agreement shall govern and control.
14.13 Intent. It is intended that:
(a) This Agreement take effect as a sealed instrument.
(b) The scope of the security interests created by this Agreement
be broadly construed in favor of the Lender.
(c) The security interests created by this Agreement secure all
Liabilities, whether now existing or hereafter arising.
(d) All reasonable costs and expenses incurred by the Lender in
connection with the Lender's relationship(s) with the Borrower shall be borne by
the Borrower.
(e) Unless otherwise explicitly provided herein, the Lender's
consent to any action of the Borrower which is prohibited unless such consent is
given may be given or refused by the Lender in its sole discretion and without
reference to Section 2-15 hereof.
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14.14 Right of Set-Off. Any and all deposits or other sums at any time
credited by or due to the Borrower from the Lender or any from any Affiliate of
the Lender and any cash, securities, instruments or other property of the
Borrower in the possession of the Lender or any such Affiliate, whether for
safekeeping or otherwise (regardless of the reason such Person had received the
same) shall at all times constitute security for all Liabilities and for any and
all obligations of the Borrower to the Lender or any such Affiliate and may be
applied or set off against the Liabilities and against such obligations at any
time, whether or not such are then due and whether or not other collateral is
then available to the Lender or any such Affiliate.
14.15 Maximum Interest Rate. Regardless of any provision of any Loan
Document, the Lender shall never be entitled to contract for, charge, receive,
collect, or apply as interest on any Liability, any amount in excess of the
maximum rate imposed by applicable law. Any payment which is made which, if
treated as interest on a Liability would result in such interest's exceeding
such maximum rate shall be held, to the extent of such excess, as additional
collateral for the Liabilities as if such excess were "Collateral."
14.16 Waivers.
(a) The Borrower (and all guarantors, endorsers, and sureties of
the Liabilities, if any) make each of the waivers included in Section 14-16(b),
below, knowingly, voluntarily, and intentionally, and understands that the
Lender, in entering into the financial arrangements contemplated hereby and in
providing loans and other financial accommodations to or for the account of the
Borrower as provided herein, whether not or in the future, is relying on such
waivers.
(b) THE BORROWER, AND EACH SUCH GUARANTOR, ENDORSER, AND SURETY
RESPECTIVELY WAIVES THE FOLLOWING:
(i) Except as otherwise specifically required hereby, notice
of non-payment, demand, presentment, protest and all forms of demand and
notice, both with respect to the Liabilities and the Collateral.
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(ii) Except as otherwise specifically required hereby, the
right to notice and/or hearing prior to the Lender's exercising of the
Lender's rights upon default.
(iii) THE RIGHT TO A JURY IN ANY TRIAL OF ANY CASE OR
CONTROVERSY IN WHICH THE LENDER IS OR BECOMES A PARTY (WHETHER SUCH CASE
OR CONTROVERSY IS INITIATED BY OR AGAINST THE LENDER OR IN WHICH THE
LENDER IS JOINED AS A PARTY LITIGANT), WHICH CASE OR CONTROVERSY ARISES
OUT OF OR IS IN RESPECT OF, ANY RELATIONSHIP AMONGST OR BETWEEN THE
BORROWER OR ANY OTHER PERSON AND THE LENDER (AND THE LENDER LIKEWISE
WAIVES THE RIGHT TO A JURY IN ANY TRIAL OF ANY SUCH CASE OR
CONTROVERSY).
(iv) The benefits or availability of any stay, limitation,
hindrance, delay, or restriction (including, without limitation, any
automatic stay which otherwise might be imposed pursuant to Section 362
of the Bankruptcy Code) with respect to any action which the Lender may
or may become entitled to take hereunder.
(v) Any defense, counterclaim, set-off, recoupment, or other
basis on which the amount of any Liability, as stated on the books and
records of the Lender, could be reduced or claimed to be paid otherwise
than in accordance with the tenor of and written terms of such
Liability.
(vi) Any claim to consequential, special, or punitive
damages.
INTENTIONALLY LEFT BLANK
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GARDEN BOTANIKA, INC.
("BORROWER")
By____________________________________
Print Name:___________________________
Title:________________________________
BANKBOSTON RETAIL FINANCE INC.
("LENDER")
By____________________________________
Print Name:___________________________
Title:________________________________
SIGNATURE PAGE TO LOAN AND SECURITY AGREEMENT
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EXHIBIT 99.1
Garden Botanika Press Release
Dated and Issued May 20, 1999
FOR IMMEDIATE RELEASE FOR MORE INFORMATION CONTACT:
April 20, 1999 CEO: Arlee Jensen (425) 881-9603
Bankruptcy Counsel: (206) 467-8429
GARDEN BOTANIKA MAKES CHAPTER 11 BANKRUPTCY FILING
WITH $7.0 MILLION IN DEBTOR-IN-POSSESSION FINANCING;
STORE CLOSINGS TO BE A PART OF REORGANIZATION EFFORT
REDMOND, WA - Garden Botanika, Inc. (OTC BB: GBOT), the Redmond-based cosmetics
and personal care products company, announced today it has filed a voluntary
petition under Chapter 11 of the United States Bankruptcy Code (United States
Bankruptcy Court for the Western District of Washington at Seattle, the
Honorable Karen A. Overstreet, Case No. 99-04464) in order to address
obligations associated with the Company's recent financial difficulties and
related reorganization efforts.
To assist the Company through this process, Garden Botanika has negotiated a
credit facility in the amount of $7.0 million in debtor-in-possession financing
from BankBoston Retail Finance Inc. to fund its operations during the voluntary
reorganization period.
In connection with its bankruptcy filing, the Company has sought authority to
close 95 of its 245 retail stores nationwide and liquidate the related inventory
by May 31, 1999. The stores are located in 34 states, and the bulk of the
closures will occur in the Midwest and Southeastern United States. No stores in
Washington State or Oregon will be effected. Both the BankBoston financing and
store closings are subject to Court approval.
"The decision to file for bankruptcy and close over one-third of our stores was
extremely difficult to make," said Chief Executive Officer Arlee Jensen.
According to Jensen, the protection of a Chapter 11 filing will enable the
Company to retool its core business strategy. Moving forward, Garden Botanika
intends to refocus on markets where it has traditionally been most successful,
while extricating itself from the economic drain created by dozens of newer,
unprofitable retail stores across the country.
"In certain markets and regions - particularly the Northeastern seaboard and the
West Coast - Garden Botanika remains an industry leader with high sales and
extremely loyal customers," Jensen said. "However, in some states, our stores
are too new and too few to adequately compete. We expect the Chapter 11 filing
will allow us to move forward with
<PAGE> 2
our planned improvements in operations and merchandising, helping us achieve our
restructuring objectives in a timely, orderly fashion."(a)
"The ability to close nonprofitable stores is one of the great tools of the
Chapter 11 process," said Mark Paben of Preston Gates & Ellis LLP (701 Fifth
Avenue, Suite 5000, Seattle, WA 98104), bankruptcy counsel for the Company.
Paben was also lead bankruptcy counsel for Northwest-based retailers Pacific
Linen and Jay Jacobs. Information about the Company's filing may be obtained by
calling its bankruptcy counsel at 206-467-8429.
With 95 stores slated for closure, Garden Botanika expects to lay-off
approximately 200 full time and 1000 part time employees across 32 states.
"The layoffs we're announcing today are a regrettable outcome of the bankruptcy
filing, but they are the right thing to do for the sake of the business, our
creditors and our shareholders," CEO Jensen said. "We intend to do everything
possible to make this transition a smooth one for the women and men whose jobs
are being eliminated." (a)
CHANGES TO BOARD OF DIRECTORS
With the bankruptcy moving ahead, the Company announced it recently appointed
two experienced executives to its Board of Directors. Kern Gillette and Victor
Fandel both joined the Board in March 1999, following the departure of William
Randall, who resigned his directorship in March.
Before joining Garden Botanika's Board, Mr. Gillette served as President and
Chief Executive Officer of Cinnabon, Inc., a leading retailer of gourmet
cinnamon rolls with 210 company-owned stores and 150 franchises throughout North
America. Prior to that, Gillette was Chief Financial Officer for Reese Brothers,
Inc., a prominent direct response telemarketing company.
Mr. Fandel is one of three partners constituting the firm of Terranomics Retail
Services, which directs national and regional specialty tenant strategies for
retailers and also assists urban and specialty retail developments with the
management of their real estate. From 1991 to 1994, Mr. Fandel assisted Garden
Botanika in obtaining many of its store locations.
FORWARD LOOKING STATEMENTS
(a) When used in the above discussion in the context of future events the words
"expects," "anticipates," "estimates," "plans," "believes," "intends," "hopes,"
and other similar expressions are intended to identify forward looking
statements. Such statements are subject to certain risks and uncertainties that
could cause actual results of trends to differ materially from those projected.
These risks and uncertainties include, among others, future trends in the
comparable store sales, the Company's ability to access
<PAGE> 3
financing and obtain product from its suppliers, the effectiveness of the
Company's mailings in generating sales and the Company's ability to introduce
new products and to close selected stores in a cost effective manner. See also
the "Risk Factors and Forward-Looking Statements" section of the Company's
Annual Report on Form 10-K/A dated May 29, 1998, which has previously been filed
with the Securities and Exchange Commission. Readers are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of the
date hereof. The Company undertakes no obligation to publicly release the result
of any revision to these forward looking statements that may be made to reflect
events of circumstances after the date hereof of to reflect the occurrence of
unanticipated events.
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