UNITED STATES
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 even reported):
November 21, 1997
THE LEATHER FACTORY, INC.
(Exact name of registrant as specified in its charter)
Delaware 1-12368 75-2543540
(State or other jurisdiction of (Commission File (IRS Employer
incorporation) Number) (Identification No.)
3847 East Loop 820 South
Fort Worth, Texas 76119
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (817) 496-4414
<PAGE>
ITEM 5. Other Events.
General
On November 21, 1997, The Leather Factory, Inc. and subsidiaries (the
"Company") entered into a Loan and Security Agreement with FINOVA Capital
Corporation ("FINOVA"), pursuant to which FINOVA agreed to provide a credit
facility of up to $9,136,000 in senior debt (the "Senior Debt Facility"). The
Senior Debt Facility has a two year term and is secured by all of the assets of
the Company as well as a pledge of 3,000,000 shares of the Company's common
stock, par value $.0024 ("Common Stock"), collectively owned by two of the
Company's executive officers.
The Company also obtained $1,000,000 in subordinated debt pursuant the
terms and conditions of a Promissory Note, by and between the Company and The
Schlinger Foundation (the "Subordinated Debenture"). The Subordinated Debenture
also has a two year term and is partially secured by a pledge of 2,666,666
shares of the Company's Common Stock owned by another executive officer.
Proceeds of the closing of the Senior Debt Facility in the amount of
$6,417,563, together with the $1,000,000 of proceeds from the Subordinated
Debenture, were used to pay all amounts due and owing by the Company pursuant to
the Second Restated Loan Agreement, as amended, by and between the Company and
NationsBank of Texas, N.A. ("NationsBank"). The Company's revolving line of
credit and term loan facility with NationsBank in the principal amounts of
$5,125,000 and $2,200,000, respectively, were satisfied in their entirety. The
Company used the remaining proceeds to pay certain closing and financing costs.
The principal terms and conditions of the Senior Debt Facility and the
Subordinated Debenture are described herein below.
Terms of Senior Debt
Loan Amounts. The Senior Debt Facility consists of a revolving line of
credit ("Revolving Credit Loan"), a term loan in the principal amount of
$400,000 ("Term Loan A"), a term loan in the principal sum of $236,000 ("Term
Loan B"), and a term loan in the principal amount of $1,500,000 ("Term Loan C").
Page 2 of 10 Pages
<PAGE>
Key provisions of these loans are summarized in the table below and in the
following text:
<TABLE>
<S> <C> <C> <C>
Principal Balance
-------------------------------------
At At Annual Rate Principal
Facility Closing 02/03/98 of Interest(1) Payments(2) Maturity
Revolving Credit Loan(3) $4,281,563 $4,213,303 Prime + 1%(4) At Maturity 12-01-99
Term Loan A $400,000 $386,667 Prime +3/4% $6,667/mo(5) 12-01-99
Term Loan B $236,000 -0-(6) Prime +3/4% $2,810/mo(7) 12-01-99
Term Loan C $1,500,000 $1,450,000 Prime + 3% $25,000/mo(8)(9) 12-01-99
--------- ---------
Total $6,417,563 $6,049,970(10)
========= ===========
</TABLE>
(1) All accrued interest is payable monthly in arrears. Interest is computed
based on the prime rate announced from time to time by Citibank, N.A.
(2) None of the Revolving Credit Loan, the Term Loan A or the Term Loan C may be
prepaid in part. In the event any or all of these loans are prepaid in full
prior to November 21, 1999, a termination fee equal to 3% of the amount prepaid
would be incurred and paid to FINOVA as part of the prepayment.
(3) Total borrowings under the Revolving Credit Loan cannot exceed the lesser
of: (i) $7,000,000 less any Loan Reserves and the aggregate undrawn face amount
of all letters of credit issued by the Company and (ii) the sum of: (a) a
certain percentage of trade accounts receivable as reduced by the aggregate
undrawn face amount of all letters of credit; plus (b) an amount not to exceed
the lesser of a certain percentage of inventory or $4,500,000; less (c) any Loan
Reserves. Loan Reserves are defined as "such amounts as FINOVA may from time to
time establish and revise in good faith reducing the amount of the Revolving
Credit Loans or letters of credit which would otherwise be available to the
Company." The amount of the Loan Reserves set by FINOVA as of the date of
closing through February 3, 1998 were $108,081 and related to certain landlord
waivers that the Company has yet to secure. Since the date of closing, the total
available credit line (including amounts already advanced) under the Revolving
Credit Loan have ranged from $4,268,000 to $4,561,000.
(4) Upon payment of a $90,000 facility fee to FINOVA and the payment of a
$168,000 brokerage fee to First Capital Advisors and the satisfaction of other
financial tests, the interest rate on the Revolving Credit Loan shall decrease
to Prime + 0.5%. The brokerage fee to First Capital Advisors is being paid in 12
equal monthly installments that began on November 21, 1997.
(5) Monthly principal payments began January 1, 1998. A balloon principal
payment of $246,667 is due at maturity.
(6) This loan was prepaid in full on December 15, 1997 from net proceeds of
$250,000 received by the Company from the sale of real property in Tampa,
Florida. No termination or prepayment charge was incurred.
(7) A balloon principal payment of $171,381 was payable at maturity. This note
has been prepaid. See Note 6.
(8) Monthly principal payments began January 1, 1998. A balloon principal
payment of $925,000 is payable at maturity.
(9) In addition, FINOVA has the option of requiring 50% of the excess of actual
Operating Cash Flow above Total Contractual Debt Service (as such terms are
defined) as shown on the Company's annual audited financial statements to be
applied to pay principal installments due on the Term Loan C in inverse order of
maturity.
(10)On December 31, 1997, the total principal amount outstanding on the
Revolving Credit Loan was $4,030,519, $400,000 on the Term Loan A, and
$1,500,000 on the Term Loan C.
Page 3 of 10 Pages
<PAGE>
Fees. In addition to interest, the Company will pay to FINOVA a $1,500
monthly collateral monitoring fee, letter of credit issuance fees, an annual
renewal fee of 0.125% of the total facility renewed, and a 0.375% unused line
fee on the Revolving Credit Loan. The Company has also incurred a facility fee
of $90,000 due to the closing of the Senior Debt Facility, of which the Company
has paid $37,500 as of the date of this filing. The remaining balance will be
paid in monthly installments over the next nine months.
Covenants. The terms of the Senior Debt Facility also contain certain
covenants, such as requiring the Company to: (i) maintain certain financial
ratios, beginning January 1, 1998; (ii) provide FINOVA with timely information
and reports; (iii) file all tax returns; (iv) notify FINOVA of the making of any
capital expenditures materially affecting the Company's business; and (v) notify
FINOVA of any labor dispute. The Company's financial maintenance covenants
include duties to maintain (a) Earnings Before Interest, Taxes, Depreciation and
Amortization (as defined) of at least $900,000 for the first six months of each
year, and $1,050,000 for the second six months of that year, (b) a Senior Debt
Service Coverage Ratio (as defined) for the year to date period in 1998 and for
the trailing 12-month period in 1999 ending on March 31, June 30, September 30
and December 31 equal to or in excess of 1.35, and (c) a Total Debt Service
Coverage Ratio (as defined) for the same year to date or trailing 12-month
periods of at least 1.10. Other covenants prohibit the Company from incurring
indebtedness except as permitted by the terms of the Senior Debt Facility, from
declaring or paying cash dividends upon any of its stock and from entering into
any new business or making material changes in any of the Company's business
objectives, purposes or operations.
Letters of Credit. The Senior Debt Facility provides that the Company may
request FINOVA, in its discretion, to arrange for up to $1.0 million in letters
of credit to be issued for the benefit of the Company. The aggregate outstanding
amount of these letters of credit reduces the line of credit available under the
Revolving Credit Loan. On February 3, 1998, the Company had outstanding letters
of credit of $130,277.
Pledge Agreement; Events of Default. Mr. Ronald C. Morgan, the Company's
Executive Vice President, Chief Operating Officer and Director, and Ms. Robin L.
Morgan, the Company's Vice President Administration, Assistant Secretary and
Director (collectively the "Pledgors"), entered into a Pledge Agreement with
FINOVA, whereby they pledged 3,000,000 shares of the Company's Common Stock
("Pledged Common Stock") to secure the obligations of the Company and the
Pledgors relative to the Senior Debt Facility. The Pledgors presently own
3,109,300 shares of the Common Stock. Unless an event of default occurs pursuant
to the terms of the Senior Debt Facility ("Event of Default"), the Pledgors
shall be entitled to exercise all voting powers in all company matters.
Events of Default include any one or more of several events, including, but
not limited to: (i) the failure by the Company to pay when due and payable any
portion of the amounts to be paid pursuant to the terms of the Senior Debt
Facility; (ii) any material adverse change that occurs in the Company's
business, assets, operations, prospects or condition, financial or otherwise;
and (iii) any representation or warranty made or deemed to be made by the
Page 4 of 10 Pages
<PAGE>
Company in any document or report made or delivered to FINOVA that proves to
have been misleading in any material respect. In the Event of Default, FINOVA
may cause the Pledged Common Stock to be registered, exercise all voting powers
pertaining to the Pledged Common Stock, receive all dividends on the Pledged
Common Stock, and subject to any applicable state or federal securities laws,
sell or assign, any or all of the Pledged Common Stock. The Pledge Agreement
terminates upon the payment and performance in full of the Company's and
Pledgors' obligations as provided by the Senior Debt Facility.
Other Collateral. The Company and FINOVA also entered into a Patent
Security Agreement, a Trademark Security Agreement, and a Copyright Security
Agreement (collectively, the "Other Security Agreements"). The Other Security
Agreements created security interests on the Company's patents, trademarks and
copyrights securing payment of the Senior Debt Facility. Upon the payment and
performance in full of the Company's obligations under the Senior Debt Facility,
the liens and security interests shall be released.
Terms of Subordinated Debenture
Payment Terms. The Subordinated Debenture, in the aggregate principal
amount of $1,000,000, bears interest at 13% per year. The interest is payable
monthly on the outstanding balance of the Subordinated Debenture until maturity
on December 1, 1999. At the maturity of the Subordinated Debenture, the entire
principal amount of $1,000,000, subject to the conversion rights of Schlinger
noted herein below, shall be due and payable in full. The interest payments are
subject to the terms and conditions of the Subordination Agreement discussed
below, which is also an integral part of the Subordinated Debenture. The
discussion relative to the principal terms and conditions of the Subordination
Agreement is incorporated by reference into this summary of the terms and
conditions of the Subordinated Debenture.
Conversion Rights. At any time before the maturity date of the Subordinated
Debenture, Schlinger may, at its option, satisfy 50% or $500,000 of the
principal amount of the Subordinated Debenture by converting into shares of the
Company's Common Stock at the current market price ("Current Market Price").
Current Market Price is defined by the Subordinated Debenture as the average
daily closing price for thirty (30) trading days prior to November 21, 1997. The
Current Market Price is $0.7240, and accordingly, Schlinger may receive up to
690,608 shares of the Company's Common Stock upon the exercise of its option to
convert up to $500,000 of principal amount of said Subordinated Debenture.
Pledge and Security Agreement. Mr. J. Wray Thompson, Sr., the Company's
Chairman of the Board of Directors, President and Chief Executive Officer,
entered into a Pledge and Security Agreement with Schlinger, whereby he pledged
2,666,666 shares of the Common Stock of the Company ("Schlinger Common Stock")
to partially secure the obligation of the Company pursuant to the Subordinated
Debenture. According to the Pledge and Security Agreement, Mr. Thompson cannot,
without the written consent of Schlinger, sell, contract to sell, lease,
encumber, or dispose of the Schlinger Common Stock, or any portion thereof,
Page 5 of 10 Pages
<PAGE>
until the Pledge and Security Agreement and the Subordinated Debenture have been
satisfied. In the event that Schlinger exercises its conversion rights as
described hereinabove, Schlinger agrees to release a pro rata portion, not to
exceed fifty percent (50%), of the Schlinger Common Stock.
The Pledge and Security Agreement as well as the Subordinated Debenture
contain similar provisions involving an Event of Default as the Senior Debt
Facility. On the occurrence of an Event of Default, Schlinger may declare all
obligations secured immediately due and payable and may proceed to enforce
payment of the same and exercise any and all rights and remedies either at law
or in equity possessed by Schlinger.
Other. In connection with the issuance of the Subordinated Debenture, the
Company paid a finder's fee to an unrelated individual in the amount of $50,000
plus warrants to acquire up to 100,000 shares of Common Stock at 75% of the
Current Market Price.
Subordination Agreement.
The Company, FINOVA and Schlinger entered into a Subordination Agreement
(the "Agreement") in connection with the Senior Debt Facility and the
Subordinated Debenture in order to establish the priority of the repayment of
the Company's debt and other matters. The significant provisions of the
Agreement are summarized below. Under the Agreement, Schlinger agrees to
postpone and subordinate its right to payment of all of the amount of the
Subordinated Debenture until full and final payment has been made of all of the
Senior Debt Facility and FINOVA's obligation to make loans or other advances
under the Senior Debt Facility has been terminated. In addition, pursuant to the
terms of the Agreement, any mortgage, deed of trust, pledge, lien, security
interest, claims, or rights ("Secured Claims") of any kind that Schlinger may
acquire against the Company shall be subordinate to all Secured Claims held by
FINOVA pursuant to the Senior Debt Facility.
The Agreement contains certain covenants on the part of the Company and/or
Schlinger such as: (i) the Company cannot, directly or indirectly, grant a
security interest in, pledge, assign or transfer any properties of the Company,
to secure or satisfy all or any part of the Subordinated Debenture; (ii)
Schlinger is prohibited from demanding or accepting any of the Company's
collateral held or to be held by FINOVA; and (iii) Schlinger agrees not to
transfer or assign any of the Subordinated Debenture to any person, except upon
the prior written consent of FINOVA and subject to the condition that such
transferee or assignee shall have agreed in writing to be bound by the terms of
the Agreement.
Pursuant to the terms of the Agreement, the Company is authorized to render
the monthly payments of interest provided by the Subordinated Debenture so long
as: (i) no Event of Default has occurred according to the terms of the Senior
Debt Facility; (ii) the Company has complied with certain financial ratios as
required by the Senior Debt Facility, taking into account the interest payment
to be made; and (iii) the Company will have availability for future advances
under the Revolving Credit Loan of at least $350,000, after giving effect to the
interest payment in question. In the event of dissolution, winding up,
liquidation or reorganization of the Company, the Senior Debt Facility must be
paid in full before Schlinger is entitled to receive any payment of principal or
interest attributable to the Subordinated Debenture.
Page 6 of 10 Pages
<PAGE>
ITEM 7. Financial Statements and Exhibits.
(a) Financial Statements
None
(b) Pro Forma Financial Information
None
(c) Exhibits
A list of exhibits required to be filed as part of this
report is set forth in the Exhibit Index, which immediately precedes such
exhibits, and is incorporated herein by reference.
Page 7 of 10 Pages
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has caused this Current Report on Form 8-K to be signed on its behalf
by the undersigned hereunto duly authorized.
THE LEATHER FACTORY, INC.
BY: /s/ Anthony C. Morton
--------------------------------------
Anthony c. Morton
Chief Financial Officer and Treasurer
Date: February 6, 1998
Page 8 of 10 Pages
<PAGE>
THE LEATHER FACTORY, INC. AND SUBSIDIARIES
EXHIBIT INDEX
Exhibit Number Description
4.1 Loan and Security Agreement dated November 21, 1997, by and
between The Leather Factory, Inc., a Delaware corporation,
The Leather Factory, Inc., a Texas corporation, The Leather
Factory, Inc., an Arizona corporation, Hi-Line Leather &
Manufacturing Company, a California corporation, Roberts,
Cushman & Company, Inc., a New York corporation, and FINOVA
Capital Corporation.
4.2 Revolving Note (Revolving Credit Loan) dated November 21,
1997, in the principal amount of $7,000,000, payable to the
order of FINOVA Capital Corporation, which matures December
1, 1999.
4.3 Term Loan A Note (Term Loan A) dated November 21, 1997, in
the principal amount of $400,000, payable to the order of
FINOVA Capital Corporation, which matures December 1, 1999.
4.4 Term Loan B Note (Term Loan B) dated November 21, 1997, in
the principal amount of $236,000, payable to the order of
FINOVA Capital Corporation, which matures December 1, 1999.
4.5 Term Loan C Note (Term Loan C) dated November 21, 1997, in
the principal amount of $1,500,000, payable to the order of
FINOVA Capital Corporation, which matures December 1, 1999.
4.6 Subordination Agreement dated November 21, 1997, by and
between FINOVA Capital Corporation, The Schlinger Foundation,
The Leather Factory, Inc., a Delaware corporation, The
Leather Factory, Inc., a Texas corporation, The Leather
Factory, Inc., an Arizona corporation, Hi-Line Leather &
Manufacturing Company, a California corporation, and Roberts,
Cushman & Company, Inc., a New York corporation.
Page 9 of 10 Pages
<PAGE>
4.7 Pledge Agreement dated November 21, 1997, by and between
Ronald C. Morgan and Robin L. Morgan and FINOVA Capital
Corporation.
4.8 Patent Security Agreement dated November 21, 1997, by and
between The Leather Factory, Inc., a Delaware corporation,
The Leather Factory, Inc., a Texas corporation, The Leather
Factory, Inc., an Arizona corporation, Hi-Line Leather &
Manufacturing Company, a California corporation, Roberts,
Cushman & Company, Inc., a New York corporation, and FINOVA
Capital Corporation.
4.9 Trademark Security Agreement dated November 21, 1997, by and
between The Leather Factory, Inc., a Delaware corporation,
The Leather Factory, Inc., a Texas corporation, The Leather
Factory, Inc., an Arizona corporation, Hi-Line Leather &
Manufacturing Company, a California corporation, Roberts,
Cushman & Company, Inc., a New York corporation, and FINOVA
Capital Corporation.
4.10 Copyright Security Agreement dated November 21, 1997, by and
between The Leather Factory, Inc., a Delaware corporation,
The Leather Factory, Inc., a Texas corporation, The Leather
Factory, Inc., an Arizona corporation, Hi-Line Leather &
Manufacturing Company, a California corporation, Roberts,
Cushman & Company, Inc., a New York corporation, and FINOVA
Capital Corporation.
4.11 Promissory Note (Subordinated Debenture) dated November 14,
1997, in the principal amount of $1,000,000, payable to the
order of The Schlinger Foundation, which matures December 1,
1999.
4.12 Pledge and Security Agreement dated November 14, 1997, by and
between The Schlinger Foundation and J. Wray Thompson, Sr.
Page 10 of 10 Pages
<PAGE>
EXHIBIT 4.1
<PAGE>
[GRAPHIC OMITTED]
LOAN AND SECURITY AGREEMENT
THE LEATHER FACTORY, INC., a Delaware corporation,
THE LEATHER FACTORY, INC., a Texas corporation,
THE LEATHER FACTORY, INC., an Arizona corporation,
HI-LINE LEATHER & MANUFACTURING COMPANY, a California corporation, and
ROBERTS, CUSHMAN & COMPANY, INC., a New York corporation
3847 EAST LOOP 820 SOUTH
FORT WORTH, TEXAS 76119
Telecopy: (817) 496-9806
$9,136,000 Credit Limit
November 21, 1997
================================================================================
CORPORATE FINANCE
================================================================================
<PAGE>
TABLE OF CONTENTS
1. DEFINITIONS................................................................1
1.1 DEFINED TERMS.............................................................1
1.2 OTHER TERMS...............................................................7
2. LOANS; INTEREST RATE AND OTHER CHARGES....................................7
2.1 TOTAL FACILITY............................................................7
2.2 LOANS.....................................................................7
2.3 OVERLINES; OVERADVANCES...................................................7
2.4 LETTERS OF CREDIT.........................................................7
2.5 LOAN ACCOUNT..............................................................8
2.6 INTEREST; FEES............................................................8
2.7 DEFAULT INTEREST RATE.....................................................8
2.8 EXAMINATION FEE...........................................................8
2.9 EXCESS INTEREST...........................................................8
2.10 PRINCIPAL PAYMENTS; PROCEEDS OF COLLATERAL...............................9
2.11 APPLICATION OF COLLATERAL...............................................11
2.12 APPLICATION OF PAYMENTS.................................................11
2.13 NOTIFICATION OF CLOSING.................................................11
3. SECURITY..................................................................11
3.1 SECURITY INTEREST IN THE COLLATERAL......................................11
3.2 PERFECTION AND PROTECTION OF SECURITY INTEREST...........................12
3.3 PRESERVATION OF COLLATERAL...............................................12
3.4 INSURANCE................................................................12
3.5 COLLATERAL REPORTING; INVENTORY..........................................12
3.6 RECEIVABLES..............................................................13
3.7 EQUIPMENT................................................................13
3.8 OTHER LIENS; NO DISPOSITION OF COLLATERAL................................13
3.9 COLLATERAL SECURITY......................................................14
4. CONDITIONS OF CLOSING.....................................................14
4.1 INITIAL ADVANCE..........................................................14
4.2 SUBSEQUENT ADVANCES......................................................16
5. REPRESENTATIONS AND WARRANTIES............................................17
5.1 DUE ORGANIZATION.........................................................17
5.2 OTHER NAMES..............................................................17
5.3 DUE AUTHORIZATION........................................................17
5.4 BINDING OBLIGATION.......................................................17
5.5 INTANGIBLE PROPERTY......................................................17
5.6 CAPITAL..................................................................17
5.7 MATERIAL LITIGATION......................................................17
5.8 TITLE; SECURITY INTERESTS OF FINOVA......................................17
5.9 RESTRICTIVE AGREEMENTS, LABOR CONTRACTS..................................17
5.10 LAWS....................................................................18
5.11 CONSENTS................................................................18
5.12 DEFAULTS................................................................18
5.13 FINANCIAL CONDITION.....................................................18
5.14 ERISA...................................................................18
(i)
<PAGE>
5.15 TAXES...................................................................18
5.16 LOCATIONS; FEDERAL TAX ID NO............................................18
5.17 BUSINESS RELATIONSHIPS..................................................18
5.18 REAFFIRMATIONS..........................................................18
5.19 CAPITALIZATION OF BORROWER..............................................18
5.20 RESTRICTIONS............................................................19
6. COVENANTS.................................................................19
6.1 AFFIRMATIVE COVENANTS....................................................19
6.1.1 TAXES..................................................................19
6.1.2 NOTICE OF LITIGATION...................................................19
6.1.3 ERISA..................................................................19
6.1.4 CHANGE IN LOCATION.....................................................19
6.1.5 CORPORATE EXISTENCE....................................................19
6.1.6 LABOR DISPUTES.........................................................19
6.1.7 VIOLATIONS OF LAW......................................................19
6.1.8 DEFAULTS...............................................................19
6.1.9 CAPITAL EXPENDITURES...................................................19
6.1.10 BOOKS AND RECORDS.....................................................20
6.1.11 LEASES, WAREHOUSE AGREEMENTS..........................................20
6.1.12 ADDITIONAL DOCUMENTS..................................................20
6.1.13 FINANCIAL COVENANTS...................................................20
6.1.14 SCHEDULE CONDITIONS...................................................20
6.2 NEGATIVE COVENANTS.......................................................20
6.2.1 MERGERS................................................................20
6.2.2 LOANS..................................................................20
6.2.3 DIVIDENDS..............................................................20
6.2.4 ISSUANCE OF EQUITY INTERESTS...........................................20
6.2.5 ADVERSE TRANSACTIONS...................................................20
6.2.6 INDEBTEDNESS OF OTHERS.................................................20
6.2.7 REPURCHASE.............................................................20
6.2.8 NAME...................................................................21
6.2.9 PREPAYMENT OF INDEBTEDNESS; BROKERAGE FEE..............................21
6.2.10 SUBORDINATED DEBT.....................................................21
6.2.11 CAPITAL EXPENDITURE...................................................21
6.2.12 COMPENSATION..........................................................21
6.2.13 INDEBTEDNESS..........................................................21
6.2.14 AFFILIATE TRANSACTIONS................................................21
6.2.15 NATURE OF BUSINESS....................................................21
6.2.16 FINOVA'S NAME.........................................................21
6.2.17 MARGIN SECURITY.......................................................21
6.2.18 REAL PROPERTY.........................................................22
6.2.19 LIENS.................................................................22
7. DEFAULT AND REMEDIES......................................................22
7.1 EVENTS OF DEFAULT........................................................22
7.2 REMEDIES.................................................................23
7.3 STANDARDS FOR DETERMINING COMMERCIAL REASONABLENESS......................23
(ii)
<PAGE>
8. EXPENSES AND INDEMNITIES..................................................24
8.1 EXPENSES.................................................................24
8.2 ENVIRONMENTAL MATTERS....................................................24
9. MISCELLANEOUS.............................................................24
9.1 EXAMINATION OF RECORDS; FINANCIAL REPORTING..............................24
9.2 TERM, TERMINATION........................................................25
9.3 RECOURSE TO SECURITY; CERTAIN WAIVERS....................................25
9.4 NO WAIVER BY FINOVA......................................................25
9.5 BINDING ON SUCCESSOR AND ASSIGNS.........................................25
9.6 SEVERABILITY.............................................................25
9.7 AMENDMENTS; ASSIGNMENTS..................................................26
9.8 INTEGRATION..............................................................26
9.9 SURVIVAL.................................................................26
9.10 EVIDENCE OF OBLIGATIONS.................................................26
9.11 LOAN REQUESTS...........................................................26
9.12 NOTICES.................................................................26
9.13 BROKERAGE FEES..........................................................26
9.14 DISCLOSURE..............................................................26
9.15 PUBLICITY...............................................................27
9.16 CAPTIONS................................................................27
9.17 INJUNCTIVE RELIEF.......................................................27
9.18 COUNTERPARTS; FACSIMILE EXECUTION.......................................27
9.19 CONSTRUCTION............................................................27
9.20 TIME OF ESSENCE.........................................................27
9.21 LIMITATION OF ACTIONS...................................................27
9.22 LIABILITY...............................................................27
9.23 NOTICE OF BREACH BY FINOVA..............................................28
9.24 APPLICATION OF INSURANCE PROCEEDS.......................................28
9.25 POWER OF ATTORNEY.......................................................28
9.26 JOINT AND SEVERAL.......................................................28
9.27 GOVERNING LAW; WAIVERS..................................................28
9.28 MUTUAL WAIVER OF RIGHT TO JURY TRIAL....................................29
(iii)
<PAGE>
THIS LOAN AND SECURITY AGREEMENT (collectively with the Schedule to Loan
Agreement (the "Schedule") attached hereto, the "Agreement") dated the date set
forth on the cover page, is entered into by and between the borrowers named on
the cover page (hereinafter referred to individually "Borrower" and
collectively, "Borrower"), whose address is set forth on the cover page and
FINOVA Capital Corporation ("FINOVA"), whose address is set forth below the
signature of Lender on the signature page attached hereto. Each reference to
Borrower, unless the context otherwise indicates, shall refer to borrowers,
collectively.
1. DEFINITIONS.
1.1 Defined Terms . As used in this Agreement, the following terms have the
definitions set forth below:
"ADA" has the meaning set forth in Section 4.1(x) hereof.
"Additional Sums" has the meaning set forth in Section 2.9(a) hereof.
"Affiliate" means any Person controlling, controlled by or under common
control with Borrower. For purposes of this definition, "control" means the
possession, directly or indirectly, of the power to direct or cause direction of
the management and policies of any Person, whether through ownership of common
or preferred stock or other equity interests, by contract or otherwise. Without
limiting the generality of the foregoing, each of the following shall be an
Affiliate: any officer, director, employee or other agent of Borrower, any
shareholder, member or subsidiary of Borrower, and any other Person with whom or
which Borrower has common shareholders, officers or directors.
"Agreement" has the meaning set forth in the preamble.
"Annual Renewal Fee" has the meaning set forth in the Schedule.
"Applicable Usury Law" has the meaning set forth in Section 2.9(b)
hereof.
"Blocked Account" has the meaning set forth in Section 2.10(c) hereof.
"Business Day" means any day on which commercial banks in both Los Angeles,
California and Phoenix, Arizona are open for business.
"Capital Expenditures" means all expenditures made and liabilities incurred
for the acquisition of any fixed asset or improvement, replacement, substitution
or addition thereto which has a useful life of more than one year and including,
without limitation, those arising in connection with Capital Leases.
"Capital Lease" means any lease of property by Borrower that, in accordance
with GAAP, should be capitalized for financial reporting purposes and reflected
as a liability on the balance sheet of Borrower.
"Closing Fee" has the meaning set forth in the Schedule.
"Closing Date" means the date of the initial advance made by FINOVA
pursuant to this Agreement.
"Code" means the Uniform Commercial Code as adopted and in effect in the
State of Arizona from time to time.
"Collateral" has the meaning set forth in Section 3.1 hereof.
"Collateral Monitoring Fee" has the meaning set forth in the Schedule.
"Current Assets" at any date means the amount at which the current assets
of Borrower would be shown on a balance sheet of Borrower as at such date,
prepared in accordance with GAAP, provided that amounts due from Affiliates and
investments in Affiliates shall be excluded therefrom.
"Current Liabilities" at any date means the amount at which the current
liabilities of Borrower would be shown on a balance sheet of Borrower as at such
date, prepared in accordance with GAAP.
"Deposit Accounts" has the meaning set forth in Section 9105 of the Code.
"Dominion Account" has the meaning set forth in Section 2.10(c) hereof.
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"Earnings Before Interest, Taxes, Depreciation and Amortization" for any
fiscal period of Borrower means the net income of Borrower for such fiscal
period, plus interest expense, depreciation and amortization and provision for
income taxes for such fiscal period, and minus non-recurring miscellaneous
income and expenses, all calculated in accordance with GAAP.
"Eligible Inventory" means Inventory which FINOVA, in its Permitted
Discretion, deems Eligible Inventory, based on such considerations as FINOVA may
from time to time deem appropriate. Without limiting the generality of the
foregoing, no Inventory shall be Eligible inventory unless, in FINOVA's
Permitted Discretion, such Inventory (i) consists of raw materials and finished
goods, in good, new and salable condition which are not obsolete or
unmerchantable, and are not comprised of work in process, packaging materials or
supplies; (iii) meets all standards imposed by any governmental agency or
authority; (iv) conforms in all respects to the warranties and representations
set forth herein; (v) is at all times subject to FINOVA's duly perfected, first
priority security interest; and (vi) is situated at a location in compliance
with Section 5.16 hereof.
"Eligible Receivables" means Receivables arising in the ordinary course of
Borrower's business from the sale of goods or rendition of services, which
FINOVA, in its Permitted Discretion, shall deem eligible based on such
considerations as FINOVA may from time to time deem appropriate. Without
limiting the foregoing, a Receivable shall not be deemed to be an Eligible
Receivable if (i) the account debtor has failed to pay the Receivable within a
period of ninety (90) days after invoice date, to the extent of any amount
remaining unpaid after such period; (ii) the account debtor has failed to pay
more than 25% of all outstanding Receivables owed by it to Borrower within
ninety (90) days after invoice date; (iii) the account debtor is an Affiliate of
Borrower; (iv) the goods relating thereto are placed on consignment, guaranteed
sale, "bill and hold," "COD" or other terms pursuant to which payment by the
account debtor may be conditional; (v) the account debtor is not located in the
United States or Canada, unless the Receivable is supported by a letter of
credit or other form of guaranty or security, in each case in form and substance
satisfactory to FINOVA; (vi) the account debtor is the United States or any
department, agency or instrumentality thereof or any State, city or municipality
of the United States; (vii) Borrower is or may become liable to the account
debtor for goods sold or services rendered by the account debtor to Borrower;
(viii) the account debtor's total obligations to Borrower exceed 15% of all
Eligible Receivables, to the extent of such excess (or, with respect to
Wal-Mart, 20% of all Eligible Receivables, to the extent of such excess); (ix)
the account debtor disputes liability or makes any claim with respect thereto
(up to the amount of such liability or claim), or is subject to any insolvency
or bankruptcy proceeding, or becomes insolvent, fails or goes out of a material
portion of its business; (x) it is subject to any offset or right of return
(other than any right of return arising in the ordinary course of business
acceptable to FINOVA in its Permitted Discretion), to the extent of such offset
or right of return; (xi) the amount thereof consists of late charges or finance
charges; (xii) the amount thereof consists of a credit balance more than ninety
(90) days past due; (xiii) the face amount thereof exceeds $70,000, unless
accompanied by evidence of shipment of the goods relating thereto satisfactory
to FINOVA in its Permitted Discretion; (xiv) the invoice constitutes a progress
billing on a project not yet completed, except that the final billing at such
time as the matter has been completed and delivered to the customer may be
deemed an Eligible Receivable; (xv) the amount thereof is not yet represented by
an invoice or bill issued in the name of the applicable account debtor or (xvi)
Borrower has not delivered to FINOVA shipping evidence for all orders over
$10,000.
"Equipment" means all of Borrower's present and hereafter acquired
machinery, molds, machine tools, motors, furniture, equipment, furnishings,
fixtures, trade fixtures, motor vehicles, tools, parts, dyes, jigs, goods and
other tangible personal property (other than Inventory) of every kind and
description used in Borrower's operations or owned by Borrower and any interest
in any of the foregoing, and all attachments, accessories, accessions,
replacements, substitutions, additions or improvements to any of the foregoing,
wherever located.
"ERISA" means the Employment Retirement Income Security Act of 1974, as
amended, and the regulations thereunder.
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"ERISA Affiliate" means each trade or business (whether or not incorporated
and whether or not foreign) which is or may hereafter become a member of a group
of which Borrower is a member and which is treated as a single employer under
ERISA Section 4001(b)(1), or IRC Section 414.
"Event of Default" means any of the events set forth in Section 7.1 of this
Agreement.
"Examination Fee" has the meaning set forth in the Schedule.
"Excess Availability" means, as of the date of determination thereof, the
amount by which the average daily total principal balance of the Revolving
Credit Loans facility which Borrower would be permitted to have outstanding over
the prior 30 days, based on the formulas and reserves set forth in the Schedule,
exceeds the sum of the Receivable Loans and the Inventory Loans then actually
outstanding, such excess then being reduced by an amount necessary to provide
for the payment of all accounts payable of Borrower which are more than 30 days
past due date and all book overdrafts.
"Excess Cash Flow" means Operating Cash Flow/Actual less Total Contractual
Debt Service.
"Facility Fee" has the meaning set forth in the Schedule.
"FINOVA Affiliate" has the meaning set forth in Section 9.22 hereof.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect from time to time as set forth in the opinions and
pronouncements of the Accounting Principles Board and the American Institute of
Certified Public Accountants and the statements and pronouncements of the
Financial Accounting Standards Boards which are applicable to the circumstances
as of the date of determination consistently applied, except that, for the
financial covenants set forth in this Agreement, GAAP shall be determined on the
basis of such principles in effect on the date hereof and consistent with those
used in the preparation of the audited financial statements delivered to Lender
prior to the date hereof.
"General Intangibles" means all general intangibles of Borrower, whether
now owned or hereafter created or acquired by Borrower, including, without
limitation, all choses in action, causes of action, corporate or other business
records, Deposit Accounts, inventions, designs, drawings, blueprints,
Trademarks, Licenses and Patents, names, trade secrets, goodwill, copyrights,
registrations, licenses, franchises, customer lists, security and other
deposits, rights in all litigation presently or hereafter pending for any cause
or claim (whether in contract, tort or otherwise), and all judgments now or
hereafter arising therefrom, all claims of Borrower against FINOVA, rights to
purchase or sell real or personal property, rights as a licensor or licensee of
any kind, royalties, telephone numbers, proprietary information, purchase
orders, and all insurance policies and claims (including without limitation
credit, liability, property and other insurance) tax refunds and claims,
computer programs, discs, tapes and tape files, claims under guaranties,
security interests or other security held by or granted to Borrower to secure
payment of any of the Receivables by an account debtor, all rights to
indemnification and all other intangible property of every kind and nature
(other than Receivables).
"Indebtedness" means all of Borrower's present and future obligations,
liabilities, debts, claims and indebtedness, contingent, fixed or otherwise,
however evidenced, created, incurred, acquired, owing or arising, whether under
written or oral agreement, operation of law or otherwise, and includes, without
limiting the foregoing (i) the Obligations, (ii) obligations and liabilities of
any Person secured by a lien, claim, encumbrance or security interest upon
property owned by Borrower, even though Borrower has not assumed or become
liable therefor, (iii) obligations and liabilities created or arising under any
lease (including Capital Leases) or conditional sales contract or other title
retention agreement with respect to property used or acquired by Borrower, even
though the rights and remedies of the lessor, seller or lender are limited to
repossession, (iv) all unfunded pension fund obligations and liabilities and (v)
deferred taxes.
"Inventory" means all of Borrower's now owned and hereafter acquired goods,
merchandise or other personal property, wherever located, to be furnished under
any contract of service or held for sale or lease, all raw materials, work in
process, finished goods and materials and supplies of any kind, nature or
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description which are or might be used or consumed in Borrower's business or
used in connection with the manufacture, packing, shipping, advertising, selling
or finishing of such goods, merchandise or other personal property, and all
documents of title or other documents representing them.
"Inventory Loans" has the meaning set forth in the Schedule.
"IRC" means the Internal Revenue Code of 1986, as amended, and the
regulations thereunder.
"L/C Fee" has the meaning set forth in Section 2.4 hereof.
"Letters of Credit" has the meaning set forth in Section 2.4 hereof.
"Lien" means any mortgage, pledge, assignment, lien, charge, encumbrance,
or security interest of any kind, or the interest of a vendor or lessor under
any conditional sale agreement, Capitalized Lease or title retention agreement.
"Loans" has the meaning set forth in Section 2.2 hereof.
"Loan Documents" means, collectively, this Agreement, any note or notes
executed by Borrower and payable to FINOVA, and any other present or future
agreement entered into in connection with this Agreement, together with all
alterations, amendments, changes, extensions, modifications, refinancings,
refundings, renewals, replacements, restatements, or supplements, of or to any
of the foregoing.
"Loan Party" means Borrower, each Subordinating Creditor and each other
party (other than FINOVA) to any Loan Document.
"Loan Reserves" means, as of any date of determination, such amounts as
FINOVA may from time to time establish and revise in good faith reducing the
amount of Revolving Credit Loans and Letters of Credit which would otherwise be
available to Borrower under the lending formula(s) provided in the Schedule: (a)
to reflect events, conditions, contingencies or risks which, as determined by
FINOVA in good faith, do or may affect either (i) the Collateral or any other
property which is security for the Obligations or its value, (ii) the assets,
business or prospects of Borrower or (iii) the security interests and other
rights of FINOVA in the Collateral (including the enforceability, perfection and
priority thereof) or (b) to reflect FINOVA's good faith belief that any
collateral report or financial information furnished by or on behalf of Borrower
to FINOVA is or may have been incomplete, inaccurate or misleading in any
material respect or (c) in respect of any state of facts which FINOVA determines
in good faith constitutes an Event of Default or may, with notice or passage of
time or both, constitute an Event of Default or (d) to reflect landlord waivers
for any locations which were not delivered to FINOVA prior to the Closing Date.
"Loan Year" means each twelve month period commencing on the Closing Date
and each anniversary of the Closing Date.
"Maximum Interest Rate" has the meaning set fort in Section 2.9(b) hereof.
"Multiemployer Plan" means a "multiemployer plan" as defined in ERISA
Sections 3(37) or 4001(a)(3) or IRC Section 414(f) which covers employees of
Borrower or any ERISA Affiliate.
"Net Worth" at any date means the Borrower's net worth as determined in
accordance with GAAP.
"Obligations" means all present and future loans, advances, debts,
liabilities, obligations, covenants, duties and indebtedness at any time owing
by Borrower to FINOVA, whether evidenced by this Agreement, any note or other
instrument or document, whether arising from an extension of credit, opening of
a letter of credit, banker's acceptance, loan, guaranty, indemnification or
otherwise, whether direct or indirect (including, without limitation, those
acquired by assignment and any participation by FINOVA in Borrower's debts owing
to others), absolute or contingent, due or to become due, including, without
limitation, all interest, charges, expenses, fees, attorney's fees, expert
witness fees, Examination Fee, letter of credit fees, Collateral Monitoring Fee,
Closing Fee, Facility Fee, Termination Fee, and any other sums chargeable to
Borrower hereunder or under any other agreement with FINOVA.
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"Operating Cash Flow/Actual" means, for any period, Borrower's net income
or loss (excluding the effect of any extraordinary gains or losses), determined
in accordance with GAAP, plus or minus each of the following items, to the
extent deducted from or added to the revenues of Borrower in the calculation of
net income or loss: (i) depreciation; (ii) amortization and other noncash
charges; (iii) interest expense paid or accrued; and (iv) total federal and
state income tax expense determined as the accrued liability of Borrower in
respect of such period, regardless of what portion of such expense has actually
been paid by Borrower during such period, and after deduction for each of (a)
federal and state income taxes, to the extent actually paid during such period;
(b) any non-cash income; and (c) all actual Capital Expenditures made during
such period and not financed.
"Overadvance" has the meaning set forth in Section 2.3.
"Overline" has the meaning set forth in Section 2.3.
"PBGC" means the Pension Benefit Guarantee Corporation.
"Permitted Discretion" means FINOVA's judgment exercised in good faith
based upon its consideration of any factor which FINOVA believes in good faith:
(i) will or could adversely affect the value of any Collateral, the
enforceability or priority of FINOVA's liens thereon or the amount which FINOVA
would be likely to receive (after giving consideration to delays in payment and
costs of enforcement) in the liquidation of such Collateral; (ii) suggests that
any collateral report or financial information delivered to FINOVA by any Person
on behalf of the Borrower is incomplete, inaccurate or misleading in any
material respect; (iii) materially increases the likelihood of a bankruptcy,
reorganization or other insolvency proceeding involving the Borrower, any Loan
Party or any of the Collateral, or (iv) creates or reasonably could be expected
to create an Event of Default. In exercising such judgment, FINOVA may consider
such factors already included in or tested by the definition of Eligible
Receivables or Eligible Inventory, as well as any of the following: (i) the
financial and business climate of the Borrower's industry and general
macroeconomic conditions, (ii) changes in collection history and dilution with
respect to the Receivables, (iii) changes in demand for, and pricing of,
Inventory, (iv) changes in any concentration of risk with respect to Receivables
and/or Inventory, and (v) any other factors that change the credit risk of
lending to the Borrower on the security of the Receivables and Inventory. The
burden of establishing lack of good faith hereunder shall be on the Borrower.
"Permitted Liens" means any of the following Liens: (i) Liens in the
Collateral granted to FINOVA; (ii) Liens for taxes or assessments and similar
charges, which either are (a) not delinquent or (b) being contested diligently
and in good faith by appropriate proceedings, and as to which Borrower has set
aside reserves on its books in accordance with GAAP; (iii) statutory Liens, such
as mechanic's, materialman's, warehouseman's, carrier's or other like Liens,
incurred in good faith in the ordinary course of business, provided that the
underlying obligations relating to such Liens are paid in the ordinary course of
business, or are being contested diligently and in good faith by appropriate
proceedings and as to which Borrower has set aside reserves on its books in
accordance with GAAP, or the payment of which obligations are otherwise secured
in a manner satisfactory to FINOVA; and (iv) zoning ordinances, easements,
licenses, reservations, provisions, covenants, conditions, waivers or
restrictions on the use of Property and other title exceptions, in each case,
that are acceptable to FINOVA.
"Person" means any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated organization, association, corporation, limited
liability company, government, or any agency or political division thereof, or
any other entity.
"Plan" means any plan described in ERISA Section 3(2) maintained for
employees of Borrower or any ERISA Affiliate, other than a Multiemployer Plan.
"Pledgors" has the meaning set forth in Section 4.1(y) hereof.
"Prepared Financials" means the balance sheets of Borrower as of the date
set forth in the Schedule in the section entitled "Reporting Requirements", and
as of each subsequent date on which audited balance sheets are delivered to
FINOVA from time to time hereunder, and the related statements of operations,
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changes in stockholder's equity and changes in cash flow for the periods ended
on such dates.
"Prime Rate" has the meaning set forth in the Schedule.
"Prohibited Transaction" means any transaction described in Section 406 of
ERISA which is not exempt by reason of Section 408 of ERISA, and any transaction
described in Section 4975(c) of the IRC which is not exempt by reason of Section
4975(c)(2) of the IRC.
"Property" means all real property, wherever located, in which Borrower or
any Affiliate of Borrower has any right, title or interest, whether now existing
or hereafter arising, and including, without limitation, as owner, lessor or
lessee.
"Receivable Loans" has the meaning set forth on the Schedule.
"Receivables" means all of Borrower's now owned and hereafter acquired
accounts (whether or not earned by performance), proceeds of any letters of
credit naming Borrower as beneficiary, contract rights, chattel paper,
instruments, documents and all other forms of obligations at any time owing to
Borrower, all guaranties and other security therefor, whether secured or
unsecured, all merchandise returned to or repossessed by Borrower, and all
rights of stoppage in transit and all other rights or remedies of an unpaid
vendor, lienor or secured party.
"Reportable Event" means a reportable event described in Section 4043 of
ERISA or the regulations thereunder, a withdrawal from a Plan described in
Section 4063 of ERISA, or a cessation of operations described in Section 4068(f)
of ERISA.
"Revolving Credit Loans" has the meaning set forth in the Schedule.
"Revolving Credit Limit" has the meaning set forth in the Schedule.
"Revolving Interest Rate" has the meaning set forth in the Schedule.
"Schedule" has the meaning set forth in the preamble.
"Senior Contractual Debt Service" means, for any period, the sum of
payments made or required to be made by Borrower during such period for (i)
interest and scheduled principal payments due on the Term Loans (excluding
voluntary prepayment and payments made from Borrower's Excess Cash Flow, as
required pursuant to the Schedule), and (ii) interest only payments due on the
Revolving Credit Loans facility plus the Collateral Monitoring Fee, the Facility
Fee and the Unused Line Fee.
"Start Date" has the meaning set forth in the Schedule.
"Stock Pledge Agreement" has the meaning set forth in Section 4.1(y)
hereof.
"Subordinated Debt" means liabilities of Borrower the repayment of which is
subordinated, to the payment and performance of the Obligations, pursuant to the
Subordination Agreement.
"Subordinating Creditor" has the meaning set forth in the Schedule.
"Subordination Agreement" means the subordination agreement entered into by
and between Subordinating Creditor and FINOVA with respect to the Subordinated
Debt, in form and substance acceptable to FINOVA in its sole discretion.
"Term" has the meaning set forth on the Schedule.
"Term Loans" has the meaning set forth in the Schedule.
"Termination Fee" has the meaning set forth in Section 9.2(d) hereof.
"Total Contractual Debt Service" means, for any period, the sum of payments
made (or, as to clause (i) of this sentence, required to be made) by Borrower
during such period for (i) Senior Contractual Debt Service and (ii) interest and
scheduled principal payments due on any and all other Indebtedness of Borrower,
including without limitation the Subordinated Indebtedness.
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"Total Facility" has the meaning set forth in Section 2.1 hereof.
"Trademarks, Copyrights, Licenses and Patents" means all of Borrower's
right, title and interest in and to, whether now owned or hereafter acquired:
(i) trademarks, trademark registrations, trade names, trade name registrations,
and trademark or trade name applications, including without limitation such as
are listed on the Schedule attached hereto and made a part hereof, as the same
may be amended from time to time, and (a) renewals thereof, (b) all income,
royalties, damages and payments now and hereafter due and/or payable with
respect thereto, including without limitation, damages and payments for past or
future infringements thereof, (c) the right to sue for past, present and future
infringements thereof, (d) all rights corresponding thereto throughout the
world, and (e) the goodwill of the business operated by Borrower connected with
and symbolized by any trademarks or trade names; (ii) copyrights, copyright
registrations and copyright applications, including without limitation such as
are listed on the Schedule attached hereto and made a part hereof, as the same
may be amended from time to time, and (a) renewals thereof, (b) all income,
royalties, damages and payments now and hereafter due and/or payable with
respect thereto, including without limitation, damages and payments for past or
future infringements thereof, (c) the right to sue for past, present and future
infringements thereof, and (d) all rights corresponding thereto throughout the
world; (iii) license agreements, including without limitation such as are listed
on the Schedule attached hereto and made a part hereof, and the right to prepare
for sale, sell and advertise for sale any Inventory now or hereafter owned by
Borrower and now or hereafter covered by such licenses; and (iv) patents and
patent applications, registered or pending, including without limitation such as
are listed on the Schedule attached hereto, together with all income, royalties,
shop rights, damages and payments thereto, the right to sue for infringements
thereof, and all rights thereto throughout the world and all reissues,
divisions, continuations, renewals, extensions and continuations-in-part
thereof.
"Unused Line Fee" has the meaning set forth in the Schedule.
1.2 Other Terms. All accounting terms used in this Agreement, unless
otherwise indicated, shall have the meanings given to such terms in accordance
with GAAP. All other terms contained in this Agreement, unless otherwise
indicated, shall have the meanings provided by the Code, to the extent such
terms are defined therein.
2. LOANS; INTEREST RATE AND OTHER CHARGES.
2.1 Total Facility. Upon the terms and conditions set forth herein and
provided that no Event of Default or event which, with the giving of notice or
the passage of time, or both, would constitute an Event of Default, shall have
occurred and be continuing, FINOVA shall, upon Borrower's request, make advances
to Borrower from time to time in an aggregate outstanding principal amount not
to exceed the Total Facility amount (the "Total Facility") set forth on the
Schedule hereto, subject to deduction of reserves for accrued interest and such
other reserves as FINOVA deems proper from time to time, and less amounts FINOVA
may be obligated to pay in the future on behalf of Borrower. The Schedule is an
integral part of this Agreement and all references to "herein", "herewith" and
words of similar import shall for all purposes be deemed to include the
Schedule.
2.2 Loans. Advances under the Total Facility ("Loans" and individually, a
"Loan") shall be comprised of the amounts shown on the Schedule.
2.3 Overlines; Overadvances. If at any time or for any reason the
outstanding amount of advances (including all Letters of Credit) extended or
issued pursuant hereto exceeds any of the dollar limitations ("Overline") or
percentage limitations ("Overadvance") in the Schedule, then Borrower shall,
upon FINOVA's demand, immediately pay to FINOVA, in cash, the full amount of
such Overline or Overadvance which, at FINOVA's option, may be applied to reduce
the outstanding principal balance of the Loans and/or cash collateralize all or
any part of any outstanding Letters of Credit. Without limiting Borrower's
obligation to repay to FINOVA on demand the amount of any Overline or
Overadvance, Borrower agrees to pay FINOVA interest on the outstanding principal
amount of any Overline or Overadvance, on demand, at the rate set forth on the
Schedule and applicable to the Revolving Credit Loans.
2.4 Letters of Credit. At the request of Borrower, FINOVA may, in its
Permitted Discretion, arrange for the issuance of letters of credit for the
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account of Borrower and guarantees of payment of such letters of credit, in each
case in form and substance satisfactory to FINOVA in its sole discretion
(collectively, "Letters of Credit"). The aggregate face amount of all
outstanding Letters of Credit from time to time shall not exceed the amount
shown on the Schedule, and shall be reserved against the availability of
Revolving Credit Loans. Borrower shall pay all bank charges for the issuance of
Letters of Credit, together with an additional fee to FINOVA equal to the
percentage set forth on the Schedule of the aggregate face amount of each Letter
of Credit outstanding from time to time during the term of this Agreement (the
"L/C Fee"). The L/C Fee shall be deemed to be fully earned upon the issuance of
each Letter of Credit and shall be due and payable on the first Business Day of
each month following a month during which any Letter of Credit is outstanding.
Any advance by FINOVA under or in connection with a Letter of Credit shall
constitute an Obligation hereunder. Each Letter of Credit shall have an expiry
date no later than thirty (30) days prior to the last day of the Term.
Immediately upon any termination of this Agreement, Borrower shall either: (i)
provide cash collateral to FINOVA in an amount equal to 105% of the maximum
amount of FINOVA's obligations under or in connection with all then outstanding
Letters of Credit, or (ii) cause to be delivered to FINOVA releases of all
FINOVA's obligations under outstanding Letters of Credit. At FINOVA's
discretion, any proceeds of Collateral received by FINOVA may be held as the
cash collateral required by this Section 2.4. Borrower hereby agrees to
indemnify, save, and hold FINOVA harmless from any loss, cost, expense, or
liability, including payments made by FINOVA, expenses, and reasonable
attorneys' fees incurred by FINOVA arising out of or in connection with any
Letters of Credit. Borrower agrees to be bound by the issuing bank's regulations
and interpretations of any Letters of Credit guarantied by FINOVA and opened for
Borrower's account or by FINOVA's interpretations of any Letter of Credit issued
by FINOVA for Borrower's account, and Borrower understands and agrees that
FINOVA shall not be liable for any error, negligence, or mistake, whether of
omission or commission, in following Borrower's instructions or those contained
in the Letters of Credit or any modifications, amendments, or supplements
thereto. Borrower understands that FINOVA may indemnify the bank issuing a
Letter of Credit for certain costs or liabilities arising out of claims by
Borrower against such issuing bank. Borrower hereby agrees to indemnify and hold
FINOVA harmless with respect to any loss, cost, expense, or liability incurred
by FINOVA under any such indemnification by FINOVA to any issuing bank.
2.5 Loan Account. All advances made hereunder (including without limitation
all advances made by FINOVA under or in connection with any Letter of Credit)
shall be added to and deemed part of the Obligations when made. FINOVA may from
time to time charge all Obligations of Borrower to Borrower's loan account with
FINOVA.
2.6 Interest; Fees. Borrower shall pay FINOVA interest on the daily
outstanding balance of the Obligations at the per annum rate set forth on the
Schedule. Borrower shall also pay FINOVA the fees set forth on the Schedule.
2.7 Default Interest Rate. Upon the occurrence and during the continuation
of an Event of Default, Borrower shall pay FINOVA interest on the daily
outstanding balance of the Obligations and any L/C Fee at a rate per annum which
is two percent (2%) in excess of the rate which would otherwise be applicable
thereto pursuant to the Schedule.
2.8 Examination Fee. Borrower agrees to pay to FINOVA the Examination Fee
in the amount set forth on the Schedule in connection with each audit or
examination of Borrower performed by FINOVA prior to or after the date hereof.
Without limiting the generality of the foregoing, Borrower shall pay to FINOVA
an initial Examination Fee in an amount equal to the amount set forth on the
Schedule. Such initial Examination Fee shall be deemed fully earned at the time
of payment and due and payable upon the closing of this transaction, and shall
be deducted from any good faith deposit paid by Borrower to FINOVA prior to the
date of this Agreement.
2.9 Excess Interest.
(a) The contracted for rate of interest of the loan contemplated hereby,
without limitation, shall consist of the following: (i) the interest rate set
forth on the Schedule, calculated and applied to the principal balance of the
Obligations in accordance with the provisions of this Agreement; (ii) interest
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FINOVA Loan and Security Agreement
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after an Event of Default, calculated and applied to the amount of the
Obligations in accordance with the provisions hereof, and (iii) all Additional
Sums (as herein defined), if any. Borrower agrees to pay an effective contracted
for rate of interest which is the sum of the above-referenced elements. The
Examination Fee, attorneys fees, expert witness fees, letter of credit fees,
collateral monitoring fees, closing fees, facility fees, Termination Fees, other
charges, goods, things in action or any other sums or things of value paid or
payable by Borrower (collectively, the "Additional Sums"), whether pursuant to
this Agreement or any other documents or instruments in any way pertaining to
this lending transaction, or otherwise with respect to this lending transaction,
that under any applicable law may be deemed to be interest with respect to this
lending transaction, for the purpose of any applicable law that may limit the
maximum amount of interest to be charged with respect to this lending
transaction, shall be payable by Borrower as, and shall be deemed to be,
additional interest and for such purposes only, the agreed upon and "contracted
for rate of interest" of this lending transaction shall be deemed to be
increased by the rate of interest resulting from the inclusion of the Additional
Sums.
(b) It is the intent of the parties to comply with the usury laws of the
State of Arizona (the "Applicable Usury Law"). Accordingly, it is agreed that
notwithstanding any provisions to the contrary in this Agreement, or in any of
the documents securing payment hereof or otherwise relating hereto, in no event
shall this Agreement or such documents require the payment or permit the
collection of interest in excess of the maximum contract rate permitted by the
Applicable Usury Law (the "Maximum Interest Rate"). In the event (a) any such
excess of interest otherwise would be contracted for, charged or received from
Borrower or otherwise in connection with the loan evidenced hereby, or (b) the
maturity of the Obligations is accelerated in whole or in Loan and Security
Agreement part, or (c) all or part of the Obligations shall be prepaid, so that
under any of such circumstances the amount of interest contracted for, shared or
received in connection with the loan evidenced hereby, would exceed the Maximum
Interest Rate, then in any such event (1) the provisions of this paragraph shall
govern and control, (2) neither Borrower nor any other Person now or hereafter
liable for the payment of the Obligations shall be obligated to pay the amount
of such interest to the extent that it is in excess of the Maximum Interest
Rate, (3) any such excess which may have been collected shall be either applied
as a credit against the then unpaid principal amount of the Obligations or
refunded to Borrower, at FINOVA's option, and (4) the effective rate of interest
shall be automatically reduced to the Maximum Interest Rate. It is further
agreed, without limiting the generality of the foregoing, that to the extent
permitted by the Applicable Usury Law; (x) all calculations of interest which
are made for the purpose of determining whether such rate would exceed the
Maximum Interest Rate shall be made by amortizing, prorating, allocating and
spreading during the period of the full stated term of the loan evidenced
hereby, all interest at any time contracted for, charged or received from
Borrower or otherwise in connection with such loan; and (y) in the event that
the effective rate of interest on the loan should at any time exceed the Maximum
Interest Rate, such excess interest that would otherwise have been collected had
there been no ceiling imposed by the Applicable Usury Law shall be paid to
FINOVA from time to time, if and when the effective interest rate on the loan
otherwise falls below the Maximum Interest Rate, to the extent that interest
paid to the date of calculation does not exceed the Maximum Interest Rate, until
the entire amount of interest which would otherwise have been collected had
there been no ceiling imposed by the Applicable Usury Law has been paid in full.
Borrower further agrees that should the Maximum Interest Rate be increased at
any time hereafter because of a change in the Applicable Usury Law, then to the
extent not prohibited by the Applicable Usury Law, such increases shall apply to
all indebtedness evidenced hereby regardless of when incurred; but, again to the
extent not prohibited by the Applicable Usury Law, should the Maximum Interest
Rate be decreased because of a change in the Applicable Usury Law, such
decreases shall not apply to the indebtedness evidenced hereby regardless of
when incurred.
2.10 Principal Payments; Proceeds of Collateral.
(a) Principal Payments. Except where evidenced by notes or other
instruments issued or made by Borrower to FINOVA specifically containing payment
provisions which are in conflict with this Section 2.10 (in which event the
conflicting provisions of said notes or other instruments shall govern and
control), that portion of the Obligations consisting of principal payable on
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FINOVA Loan and Security Agreement
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account of Loans shall be payable by Borrower to FINOVA immediately upon the
earliest of (i) the receipt by FINOVA or Borrower of any proceeds of any of the
Collateral, to the extent of said proceeds, (ii) the occurrence of an Event of
Default in consequence of which FINOVA elects to accelerate the maturity and
payment of such loans, or (iii) any termination of this Agreement pursuant to
Section 9.2 hereof, provided, however, that any Overadvance or Overline shall be
payable on demand pursuant to the provisions of Section 2.3 hereof.
(b) Collections. Until FINOVA notifies Borrower to the contrary, Borrower
may make collection of all Receivables for FINOVA and shall receive all such
payments or sums as trustee of FINOVA and immediately deliver all such payments
or sums to FINOVA in their original form, duly endorsed in blank or cause the
same to be deposited into a Blocked Account or Dominion Account. FINOVA or its
designee may, at any time, notify account debtors that the Receivables have been
assigned to FINOVA and of FINOVA's security interest therein, and may collect
the Receivables directly and charge the collection costs and expenses to
Borrower's loan account. Borrower agrees that, in computing the charges under
this Agreement, all items of payment shall be deemed applied by FINOVA on
account of the Obligations one (1) Business Day after receipt by FINOVA of good
funds which have been finally credited to FINOVA's account, whether such funds
are received directly from Borrower or from the Blocked Account bank or the
Dominion Account bank, pursuant to Section 2.10(c) hereof, and this provision
shall apply regardless of the amount of the Obligations outstanding or whether
any Obligations are outstanding; provided, that if any such good funds are
received after 12:00 p.m. noon (Los Angeles time) on any Business Day or at any
time on any day not constituting a Business Day, such funds shall be deemed
received on the immediately following Business Day. FINOVA is not, however,
required to credit Borrower's account for the amount of any item of payment
which is unsatisfactory to FINOVA in its Permitted Discretion and FINOVA may
charge Borrower's loan account for the amount of any item of payment which is
returned to FINOVA unpaid.
(c) Establishment of a Blocked Account or Dominion Account. Unless Borrower
shall be otherwise directed by FINOVA in writing, Borrower shall cause all
proceeds of Collateral to be deposited into a lockbox account, or such other
"blocked account" as FINOVA may require (each, a "Blocked Account") pursuant to
an arrangement with such bank as may be selected by Borrower and be acceptable
to FINOVA which proceeds, unless otherwise provided herein, shall be applied in
payment of the Obligations in such order as FINOVA determines in its sole
discretion. Borrower shall issue to any such bank an irrevocable letter of
instruction directing said bank to transfer such funds so deposited to FINOVA,
either to any account maintained by FINOVA at said bank or by wire transfer to
appropriate account(s) of FINOVA. All funds deposited in a Blocked Account shall
immediately become the sole property of FINOVA and Borrower shall obtain the
agreement by such bank to waive any offset rights against the funds so
deposited. FINOVA assumes no responsibility for any Blocked Account arrangement,
including without limitation, any claim of accord and satisfaction or release
with respect to deposits accepted by any bank thereunder. Alternatively, FINOVA
may establish depository accounts in the name of FINOVA at a bank or banks for
the deposit of such funds (each, a "Dominion Account") and Borrower shall
deposit all proceeds of Receivables and all cash proceeds of any sale of
Inventory or, to the extent permitted herein, Equipment or cause same to be
deposited, in kind, in such Dominion Accounts of FINOVA in lieu of depositing
same to Blocked Accounts, and, unless otherwise provided herein, all such funds
shall be applied by FINOVA to the Obligations in such order as FINOVA determines
in its sole discretion.
(d) Payments Without Deductions. Borrower shall pay principal, interest,
and all other amounts payable hereunder, or under any other Loan Document,
without any deduction whatsoever, including, but not limited to, any deduction
for any setoff or counterclaim.
(e) Collection Days Upon Repayment. In the event Borrower repays the
Obligations in full at any time hereafter, such payment in full shall be
credited (conditioned upon final collection) to Borrower's loan account three
(3) Business Days after FINOVA's receipt thereof.
(f) Monthly Accountings. FINOVA shall provide Borrower monthly with an
account of advances, charges, expenses and payments made pursuant to this
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FINOVA Loan and Security Agreement
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Agreement. Such account shall be deemed correct, accurate and binding on
Borrower and an account stated (except for reverses and reapplications of
payments made and corrections of errors discovered by FINOVA), unless Borrower
notifies FINOVA in writing to the contrary within thirty (30) days after each
account is rendered, describing the nature of any alleged errors or omissions.
2.11 Application of Collateral. Except as otherwise provided herein, FINOVA
shall have the continuing and exclusive right to apply or reverse and reapply
any and all payments to any portion of the Obligations in such order and manner
as FINOVA shall determine in its sole discretion. To the extent that Borrower
makes a payment or FINOVA receives any payment or proceeds of the Collateral for
Borrower's benefit which is subsequently invalidated, declared to be fraudulent
or preferential, set aside or required to be repaid to a trustee, debtor in
possession, receiver or any other party under any bankruptcy law, common law or
equitable cause, or otherwise, then, to such extent, the Obligations or part
thereof intended to be satisfied shall be revived and continue as if such
payment or proceeds had not been received by FINOVA.
2.12 Application of Payments. The amount of all payments or amounts
received by FINOVA with respect to the Loan shall be applied to the extent
applicable under this Agreement: (i) first, to accrued interest through the date
of such payment, including any Default Interest; (ii) then, to any late fees,
overdue risk assessments, Examination Fee and expenses, collection fees and
expenses and any other fees and expenses due to FINOVA hereunder; and (iii)
last, the remaining balance, if any, to the unpaid principal balance of the
Loan; provided however, while an Event of Default exists under this Agreement,
or under any other Loan Document, each payment hereunder shall be (x) held as
cash collateral to secure Obligations relating to any Letters of Credit or other
contingent obligations arising under the Loan Documents and/or (y) applied to
amounts owed to FINOVA by Borrower as FINOVA in its sole discretion determine.
In calculating interest and applying may payments as set forth above: (a)
interest shall be calculated and collected through the date a payment is
actually applied by FINOVA under the terms of this Agreement; (b) interest on
the outstanding balance shall be charged during any grace period permitted
hereunder; (c) at the end of each month, all accrued and unpaid interest and
other charges provided for hereunder shall be added to the principal balance of
the Loan; and (d) to the extent that Borrower makes a payment or FINOVA receives
any payment or proceeds of the Collateral for Borrower's benefit that is
subsequently invalidated, set aside or required to be repaid to any other
Person, then, to such extent, the Obligations intended to be satisfied shall be
revived and continue as if such payment or proceeds had not been received by
FINOVA and FINOVA may adjust the Loan balances as FINOVA, in its sole
discretion, deems appropriate under the circumstances.
2.13 Notification of Closing. Borrower shall provide FINOVA with at least
twenty-four (24) hours prior written notice of the Closing Date, to enable
FINOVA to arrange for the availability of funds. In the event the closing does
not take place on the date specified in Borrower's notice to FINOVA, other than
through the fault of FINOVA, Borrower agrees to reimburse FINOVA for FINOVA's
costs to maintain the necessary funds available for the closing, at the Term
Interest Rate with respect to the amount specified in the Schedule, and at the
Revolving Interest Rate with respect to an amount equal to the initial advance
under the Revolving Credit Loans facility which is to be made on the Closing
Date, for the number of days which elapse between the date specified in
Borrower's notice and the date upon which the closing actually occurs (which
number of days shall not include the date specified in Borrower's notice, but
shall include the Closing Date).
3. SECURITY.
3.1 Security Interest in the Collateral. To secure the payment and
performance of the Obligations when due, Borrower hereby grants to FINOVA a
first priority security interest (subject only to Permitted Liens) in all of
Borrower's now owned or hereafter acquired or arising Inventory, Equipment,
Receivables, Trademarks, Copyrights, Licenses and Patents, Investment Property
(as defined in Section 9-115 of the Code) and General Intangibles, including,
without limitation, all of Borrower's Deposit Accounts, money, any and all
property now or at any time hereafter in FINOVA's possession (including claims
and credit balances), and all proceeds (including proceeds of any insurance
policies, proceeds of proceeds and claims against third parties), all products
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FINOVA Loan and Security Agreement
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and all books and records and computer data related to any of the foregoing (all
of the Foregoing, together with all other property in which FINOVA may be
granted a lien or security interest, is referred to herein, collectively, as the
"Collateral").
3.2 Perfection and Protection of Security Interest. Borrower shall, at its
expense, take all actions requested by FINOVA at any time to perfect, maintain,
protect and enforce FINOVA's first priority security interest and other rights
in the Collateral and the priority thereof from time to time, including, without
limitation, (i) executing and filing financing or continuation statements and
amendments thereof and executing and delivering such documents and titles in
connection with motor vehicles as FINOVA shall require, all in form and
substance satisfactory to FINOVA, (ii) maintaining a perpetual inventory and
complete and accurate stock records, (iii) delivering to FINOVA warehouse
receipts covering any portion of the Collateral located in warehouses and for
which warehouse receipts are issued, and transferring Inventory to warehouses
designated by FINOVA, (iv) placing notations on Borrower's books of account to
disclose FINOVA's security interest therein and (v) delivering to FINOVA all
letters of credit on which Borrower is named beneficiary. FINOVA may file,
without Borrower's signature, one or more financing statements disclosing
FINOVA's security interest under this Agreement. Borrower agrees that a carbon,
photographic, photostatic or other reproduction of this Agreement or of a
financing statement is sufficient as a financing statement. If any Collateral is
at any time in the possession or control of any warehouseman, bailee or any of
Borrower's agents or processors, Borrower shall notify such Person of FINOVA's
security interest in such Collateral and, upon FINOVA's request, instruct them
to hold all such Collateral for FINOVA's account subject to FINOVA's
instructions. From time to time, Borrower shall, upon FINOVA's request, execute
and deliver confirmatory written instruments pledging the Collateral to FINOVA,
but Borrower's failure to do so shall not affect or limit FINOVA's security
interest or other rights in and to the Collateral. Until the Obligations have
been fully satisfied and FINOVA's obligation to make further advances hereunder
has terminated, FINOVA's security interest in the Collateral shall continue in
full force and effect.
3.3 Preservation of Collateral. FINOVA may, in its Permitted Discretion, at
any time discharge any lien or encumbrance on the Collateral or bond the same,
pay any insurance, maintain guards, pay any service bureau, obtain any record or
take any other action to preserve the Collateral and charge the cost thereof to
Borrower's loan account as an Obligation.
3.4 Insurance. Borrower will maintain and deliver evidence to FINOVA of
such insurance as is required by FINOVA, written by insurers, in amounts, and
with lender's loss payee, additional insured, and other endorsements,
satisfactory to FINOVA. All premiums with respect to such insurance shall be
paid by Borrower as and when due. Accurate and certified copies of the policies
shall be delivered by Borrower to FINOVA. If Borrower fails to comply with this
Section, FINOVA may (but shall not be required to) procure such insurance and
endorsements at Borrower's expense and charge the cost thereof to Borrower's
loan account as an Obligation.
3.5 Collateral Reporting; Inventory.
(a) Invoices. Borrower shall not re-date any invoice or sale from the
original date thereof or make sales on extended terms beyond those customary in
Borrower's industry, or otherwise extend or modify the term of any Receivable.
If Borrower becomes aware of any matter affecting any Receivable, including
information affecting the credit of the account debtor thereon, Borrower shall
promptly notify FINOVA in writing.
(b) Instruments. In the event any Receivable is or becomes evidenced by a
promissory note, trade acceptance or any other instrument for the payment of
money, Borrower shall immediately deliver such instrument to FINOVA
appropriately endorsed to FINOVA and, regardless of the form of any presentment,
demand, notice of dishonor, protest and notice of protest with respect thereto,
Borrower shall remain liable thereon until such instrument is paid in full.
(c) Physical Inventory. Borrower shall conduct a physical count of the
Inventory at such intervals as FINOVA requests and promptly supply FINOVA with a
copy of such accounts accompanied by a report of the value (calculated at the
lower of cost or market value on a first in, first out basis) of the Inventory
and such additional information with respect to the Inventory as FINOVA may
request from time to time.
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(d) Returns. For so long as no Event of Default has occurred and is
continuing and subject to the provisions of Section 3.6(b), if any account
debtor returns any Inventory to Borrower in the ordinary course of its business,
Borrower shall promptly determine the reason for such return and promptly issue
a credit memorandum to the account debtor (sending a copy to FINOVA) in the
appropriate amount. In the event any attempted return occurs after the
occurrence of any Event of Default, Borrower shall (i) hold the returned
Inventory in trust for FINOVA, (ii) segregate all returned Inventory from all of
Borrower's other property, (iii) conspicuously label the returned Inventory as
FINOVA's property, and (iv) immediately notify FINOVA of the return of any
Inventory, specifying the reason for such return, the location and condition of
the returned Inventory, and on FINOVA's request deliver such returned Inventory
to FINOVA.
(e) No Consignment. Borrower shall not consign any Inventory.
3.6 Receivables.
(a) Eligibility. (i) Borrower represents and warrants that each Receivable
covers and shall cover a bona fide sale or lease and delivery by it of goods or
the rendition by it of services in the ordinary course of its business, and
shall be for a liquidated amount and, to Borrower's knowledge, except as
disclosed to FINOVA, shall not be subject to any offset, deduction,
counterclaim, rights of return or cancellation, lien or other condition. If any
representation or warranty herein is breached as to any Receivable or any
Receivable ceases to be an Eligible Receivable for any reason other than payment
thereof, then FINOVA may, in addition to its other rights hereunder, designate
any and all Receivables owing by that account debtor as not Eligible
Receivables; provided, that FINOVA shall in any such event retain its security
interest in all Receivables, whether or not Eligible Receivables, until the
Obligations have been fully satisfied and FINOVA's obligation to provide loans
hereunder has terminated.
(ii) FINOVA at any time shall be entitled to (i) establish and increase or
decrease reserves against Eligible Receivables and Eligible Inventory, (ii)
reduce the advance rates in the Schedule or restore such advance rates to any
level equal to or below the advance rates set forth in the Schedule or (iii)
impose additional restrictions (or eliminate the same) to the standards of
eligibility set forth in the definitions of "Eligible Receivables" and "Eligible
Inventory," in the exercise of its Permitted Discretion. FINOVA may but shall
not be required to rely on the schedules and/or reports delivered to FINOVA in
connection herewith in determining the then eligibility of Receivables and
Inventory. Reliance thereon by FINOVA from time to time shall not be deemed to
limit the right of FINOVA to revise advance rates or standards of eligibility as
provided above.
(b) Disputes. Borrower shall notify FINOVA promptly of all disputes or
claims and settle or adjust such disputes or claims at no expense to FINOVA, but
no discount, credit or allowance shall be granted to any account debtor and no
returns of merchandise shall be accepted by Borrower without FINOVA's consent,
except for discounts, credits and allowances made or given in the ordinary
course of Borrower's business. FINOVA may, at any time after the occurrence of
an Event of Default, settle or adjust disputes or claims directly with account
debtors for amounts and upon terms which FINOVA considers advisable in its
reasonable credit judgment and, in all cases, FINOVA shall credit Borrower's
loan account with only the net amounts received by FINOVA in payment of any
Receivables.
3.7 Equipment. Borrower shall keep and maintain the Equipment in good
operating condition and repair and make all necessary replacements thereto to
maintain and preserve the value and operating efficiency thereof at all times
consistent with Borrower's past practice, ordinary wear and tear excepted.
Borrower shall not permit any item of Equipment to become a fixture (other than
a trade fixture) to real estate or an accession to other property.
3.8 Other Liens; No Disposition of Collateral. Borrower represents,
warrants and covenants that except for FINOVA's security interest, Permitted
Liens, and such other liens, claims and encumbrances as may be permitted by
FINOVA in its sole discretion from time to time in writing, (a) all Collateral
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FINOVA Loan and Security Agreement
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is and shall continue to be owned by it free and clear of all liens, claims and
encumbrances whatsoever and (b) Borrower shall not, without FINOVA's prior
written approval, sell, encumber or dispose of or permit the sale, encumbrance
or disposal of any Collateral or all or any substantial part of any of its other
assets (or any interest of Borrower therein), except for the sale of Inventory
in the ordinary course of Borrower's business. In the event FINOVA gives any
such prior written approval with respect to any such sale of Collateral, the
same may be conditioned on the sale price being equal to, or greater than, an
amount acceptable to FINOVA. The proceeds of any such sales of Collateral shall
be remitted to FINOVA pursuant to this Agreement for application to the
Obligations.
3.9 Collateral Security. The Obligations shall constitute one loan secured
by the Collateral. FINOVA may, in its sole discretion, (i) exchange, enforce,
waive or release any of the Collateral, (ii) apply Collateral and direct the
order or manner of sale thereof as it may determine, and (iii) settle,
compromise, collect or otherwise liquidate any Collateral in any manner without
affecting its right to take any other action with respect to any other
Collateral.
4. CONDITIONS OF CLOSING.
4.1 Initial Advance. The obligation of FINOVA to make the initial advance
hereunder or to issue or arrange for the issuance of the initial Letter of
Credit hereunder is subject to the fulfillment, to the satisfaction of FINOVA
and its counsel, of each of the following conditions on or prior to the date set
forth on the Schedule:
(a) Loan Documents. FINOVA shall have received each of the following Loan
Documents: (i) the Agreement fully and properly executed by Borrower; (ii)
promissory notes in such amounts and on such terms and conditions as FINOVA
shall specify, executed by Borrower; (iii) Support Agreements executed by the
applicable parties; (iv) such security agreements, intellectual property
assignments, pledge agreements, mortgages and deeds of trust as FINOVA may
require with respect to this Agreement and any Guaranties, executed by each of
the parties thereto and, if applicable, duly acknowledged for recording or
filing in the appropriate governmental offices; (v) the Subordination Agreement,
together with copies of all instruments subject thereto showing a legend
indicating such subordination; (vi) such Blocked Account or Dominion Account
agreements as it shall determine; and (vii) such other documents, instruments
and agreements in connection herewith as FINOVA shall require, executed,
certified and/or acknowledged by such parties as FINOVA shall designate;
(b) Minimum Excess Availability. Borrower shall have Excess Availability
under the Revolving Credit Loans facility of not less than the amount specified
in the Schedule, after giving effect to the initial advance hereunder and after
giving effect to any applicable Loan Reserves against borrowing availability
under the Revolving Credit Loans.
(c) Terminations by Existing Lender. Borrower's existing lender(s) shall
have executed and delivered UCC termination statements and other documentation
evidencing the termination of its liens and security interests in the assets of
Borrower or a subordination agreement in form and substance satisfactory to
FINOVA in its sole discretion;
(d) Charter Documents. FINOVA shall have received copies of Borrower's
By-laws and Articles or Certificate of Incorporation, as amended, modified, or
supplemented to the Closing Date, certified by the Secretary of Borrower;
(e) Good Standing. FINOVA shall have received a certificate of corporate
status with respect to Borrower, dated within ten (10) days of the Closing Date,
by the Secretary of State of the state of incorporation of Borrower, which
certificate shall indicate that Borrower is in good standing in such state;
(f) Foreign Qualification. FINOVA shall have received certificates of
corporate status with respect to Borrower and each other Loan Party, each dated
within ten (10) days of the Closing Date, issued by the Secretary of State of
each state in which such party's failure to be duly qualified or licensed would
have a material adverse effect on its financial condition or assets, indicating
that such party is in good standing;
(g) Authorizing Resolutions and Incumbency. FINOVA shall have received a
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certificate from the Secretary of Borrower attesting to (i) the adoption of
resolutions of Borrower's Board of Directors, and shareholders or members if
necessary, authorizing the borrowing of money from FINOVA and execution and
delivery of this Agreement and the other Loan Documents to which Borrower is a
party, and authorizing specific officers of Borrower to execute same, and (ii)
the authenticity of original specimen signatures of such officers;
(h) Insurance. FINOVA shall have received the insurance certificates and
certified copies of policies required by Section 3.4 hereof, in form and
substance satisfactory to FINOVA and its counsel, together with an additional
insured endorsement in favor of FINOVA with respect to all liability policies
and a lender's loss payable endorsement in favor of FINOVA with respect to all
casualty and business interruption policies, each in form and substance
acceptable to FINOVA and its counsel;
(i) Title Insurance. FINOVA shall have received binding commitments to
issue such title insurance with respect to Collateral or security for Guaranties
which is comprised of real property as it shall determine;
(j) Searches; Certificates of Title. FINOVA shall have received searches
reflecting the filing of its financing statements and fixture filings in such
jurisdictions as it shall determine, and shall have received certificates of
title with respect to the Collateral which shall have been duly executed in a
manner sufficient to perfect all of the security interests granted to FINOVA;
(k) Landlord, Bailee and Mortgagee Waivers. FINOVA shall have received
landlord, bailee and/or mortgagee waivers from the lessors, bailees and/or
mortgagees of all locations where any Collateral is located;
(l) Fees. Borrower shall have paid all fees payable by it on the Closing
Date pursuant to this Agreement;
(m) Opinion of Counsel. FINOVA shall have received an opinion of Borrower's
counsel covering such matters as FINOVA shall determine in its sole discretion;
(n) Officer Certificate. FINOVA shall have received a certificate of the
President and the Chief Financial Officer or similar official of Borrower,
attesting to the accuracy of each of the representations and warranties of
Borrower set forth in this Agreement and the fulfillment of all conditions
precedent to the initial advance hereunder;
(o) Solvency Certificate. If requested, FINOVA shall have received a signed
certificate of the Borrower's duly elected Chief Financial Officer concerning
the solvency and financial condition of Borrower, on FINOVA's standard form;
(p) Blocked Account. The Blocked Account referred to in Section 2.10(c)
hereof shall have been established to the satisfaction of FINOVA in its sole
discretion;
(q) Environmental Assessment. If required by FINOVA, Borrower shall have
caused a Phase I Environmental Assessment to be conducted on the property or
properties owned or occupied by Borrower, all at Borrower's own expense and the
results of such assessment(s) shall have been in form and substance satisfactory
to FINOVA in its sole discretion. Such assessment(s) shall have included, in
FINOVA's discretion, core samplings, and shall have been conducted by an
environmental engineer acceptable to FINOVA;
(r) Environmental Certificate. FINOVA shall have received an Environmental
Certificate from Borrower, in form and substance satisfactory to FINOVA in its
discretion, with respect to all locations of Collateral;
(s) Search and References. FINOVA shall have received and approved the
results of UCC, tax lien, litigation, judgment, and bankruptcy searches
regarding Borrower.
(t) No Material Adverse Changes. Prior to the Closing Date, there shall
have occurred no material adverse change in the financial condition of Borrower.
(u) Material Agreements. FINOVA shall have received, reviewed and approved
all material agreements to which Borrower shall be a party.
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(v) Projections. Borrower shall submit cash flow projections and pro forma
balance sheet with adjusting entries (i) showing that the proposed financing
will provide sufficient funds for Borrower's projected working capital needs,
and (ii) showing: (1) that Borrower will have reasonably sufficient capital for
the conduct of its business following the initial funding, and (2) that Borrower
will not incur debts beyond its ability to pay such debts as they mature.
(w) Opinions. To the extent any Person other than Borrower shall be parties
to the Loan Documents, FINOVA reserves the right to require satisfactory
opinions of counsel for each such Person concerning the proper organization of
such Person and the due authorization, execution, delivery, enforceability,
validity and binding effect of the Loan Documents to which such Person is a
party. Each such opinion of counsel shall confirm, to the satisfaction of
FINOVA, that the opinion is being delivered to FINOVA at the instruction of the
party represented by such counsel, that FINOVA is entitled to rely on such
opinion and that for purposes of such reliance, FINOVA is deemed to be in
privity with the opining counsel.
(x) ADA Compliance. If necessary, as of the Closing Date, Borrower shall be
in compliance with the Americans with Disabilities Act of 1990 ("ADA"), or, if
any renovations of Borrower's facilities or modifications of Borrower's
employment practices shall be required to bring them into compliance with the
ADA, review and approval by FINOVA of Borrower's proposed plan to come into such
compliance. Borrower shall deliver representations and warranties to FINOVA
concerning Borrower's compliance with the ADA, and no evidence shall have come
to the attention of FINOVA indicating that Borrower is not in compliance with
the ADA (except to the extent that FINOVA has reviewed and approved Borrower's
plan to come into compliance).
(y) Stock Pledge. Pledgors under the Stock Pledge Agreement ("Pledgors") of
even date herewith ("Stock Pledge Agreement") shall have executed and delivered
the Stock Pledge Agreement, pledging in favor of FINOVA 3,000,000 of the issued
and outstanding common capital stock of Borrower. FINOVA shall be in possession
on the Closing Date of original stock certificates evidencing the shares of
Borrower's stock so pledged to FINOVA, and of undated stock Powers and
Assignments Apart from Certificate, executed in blank by Pledgors with respect
to all such shares.
(z) Asset Appraisal. Borrower shall have provided to FINOVA, at Borrower's
sole cost and expense, an asset appraisal of all Borrower's fixed assets upon
which FINOVA shall be granted a first priority lien and security interest, which
appraisal must be acceptable to FINOVA in all respects.
(aa) Transaction Costs. Borrower shall provide to FINOVA a complete,
itemized summary of all transaction costs paid or incurred by any Person in
connection with the making of the Loan, which transaction costs shall not exceed
the amount set forth in the Schedule, as well as appropriate documentation
evidencing such costs and the payment thereof. All such information must be
acceptable to FINOVA, in FINOVA's sole discretion, exercised in good faith.
(bb) Schedule Conditions. Borrower shall have complied with all additional
conditions precedent as set forth in the Schedule attached hereto.
(cc) Other Matters. All other documents and legal matters in connection
with the transactions contemplated by this Agreement shall have been delivered,
executed and recorded and shall be in form and substance satisfactory to FINOVA
and its counsel including, without limitation, each of the items listed on the
Closing Checklist attached as Exhibit 4.1 hereto.
4.2 Subsequent Advances. The obligation of FINOVA to make any advance or
issue or cause any Letter of Credit to be issued hereunder (including the
initial advance or Letter of Credit) shall be subject to the further conditions
precedent that, on and as of the date of such advance or Letter of Credit
issuance: (a) the representations and warranties of Borrower set forth in this
Agreement shall be accurate, before and after giving effect to such advance or
issuance and to the application of any proceeds thereof; (b) no Event of Default
and no event which, with notice or passage of time or both, would constitute an
Event of Default has occurred and is continuing, or would result from such
advance or issuance or from the application of any proceeds thereof, (c) no
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material adverse change has occurred in the Borrower's business, operations,
financial condition, in the condition of the Collateral or other assets of
Borrower or in the prospect of repayment of the Obligations; and (d) FINOVA
shall have received such other approvals, opinions or documents as FINOVA shall
reasonably request.
5. REPRESENTATIONS AND WARRANTIES.
Each Borrower represents and warrants that:
5.1 Due Organization. It is a corporation duly organized, validly existing
and in good standing under the laws of the State set forth on the Schedule, is
qualified and authorized to do business and is in good standing in all states in
which such qualification and good standing are necessary in order for it to
conduct its business and own its property, and has all requisite power and
authority to conduct its business as presently conducted, to own its property
and to execute and deliver each of the Loan Documents to which it is a party and
perform all of its Obligations thereunder, and has not taken any steps to
wind-up, dissolve or otherwise liquidate its assets;
5.2 Other Names. Borrower has not, during the preceding five (5) years,
been known by or used any other corporate or fictitious name except as set forth
on the Schedule, nor has Borrower been the surviving corporation of a merger or
consolidation or acquired all or substantially all of the assets of any Person
during such time;
5.3 Due Authorization. The execution, delivery and performance by Borrower
of the Loan Documents to which it is a party have been authorized by all
necessary corporate action and do not and shall not constitute a violation of
any applicable law or of Borrower's Articles or Certificate of Incorporation or
ByLaws or any other document, agreement or instrument to which Borrower is a
party or by which Borrower or its assets are bound;
5.4 Binding Obligation. Each of the Loan Documents to which Borrower is a
party is the legal, valid and binding obligation of Borrower enforceable against
Borrower in accordance with its terms;
5.5 Intangible Property. Borrower possesses adequate assets, licenses,
patents, patent applications, copyrights, trademarks, trademark applications and
trade names for the present and planned future conduct of its business without
any known conflict with the rights of others, and each is valid and has been
duly registered or filed with the appropriate governmental authorities; each of
Borrower's patents, patent applications, copyrights, trademarks and trademark
applications which have been registered or filed with any governmental authority
(including the U.S. Patent and Trademark Office and the Library of Congress) are
listed by name, date and filing number on the Schedule;
5.6 Capital. Borrower has capital sufficient to conduct it's business, is
able to pay its debts as they mature, and owns property having a fair salable
value greater than the amount required to pay all of its debts (including
contingent debts);
5.7 Material Litigation. Borrower has no pending or overtly threatened
litigation, actions or proceedings which would materially and adversely affect
its business, assets, operations, prospects or condition, financial or
otherwise, or the Collateral or any of FINOVA's interests therein;
5.8 Title; Security Interests of FINOVA. Borrower has good, indefeasible
and merchantable title to the Collateral and, upon the execution and delivery of
the Loan Documents, the filing of UCC-1 Financing Statements, delivery of the
certificate(s) evidencing any pledged securities, the filing of any collateral
assignments or security agreements regarding Borrower, Trademarks, Copyrights,
Licenses and/or Patents, if any, with the appropriate governmental offices and
the recording of any mortgages or deeds of trust with respect to real property,
in each case in the appropriate offices, this Agreement and such documents shall
create valid and perfected first priority liens in the Collateral, subject only
to Permitted Liens;
5.9 Restrictive Agreements, Labor Contracts. Borrower is not a party or
subject to any contract or subject to any charge, corporate restriction,
judgment, decree or order materially and adversely affecting its business,
assets, operations, prospects or condition, financial or otherwise, or which
restricts its right or ability to incur Indebtedness, and it is not party to any
labor dispute. In addition, no labor contract is scheduled to expire during the
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FINOVA Loan and Security Agreement
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Term of this Agreement, except as disclosed to FINOVA in writing prior to the
date hereof,
5.10 Laws. Borrower is not in violation of any applicable statute,
regulation, ordinance or any order of any court, tribunal or governmental
agency, including, without limitation, any minimum wage requirements, in any
respect materially and adversely affecting the Collateral or its business,
assets, operations, prospects or condition, financial or otherwise;
5.11 Consents. Borrower has obtained or caused to be obtained or issued any
required consent of a governmental agency or other Person in connection with the
financing contemplated hereby;
5.12 Defaults. Borrower is not in default with respect to any note,
indenture, loan agreement, mortgage, lease, deed or other agreement to which it
is a party or by which it or its assets are bound, nor has any event occurred
which, with the giving of notice or the lapse of time, or both, would cause such
a default;
5.13 Financial Condition. The Prepared Financials fairly present Borrower's
financial condition and results of operations and those of such other Persons
described therein as of the date thereof in accordance with GAAP; there are no
material omissions from the Prepared Financials or other facts or circumstances
not reflected in the Prepared Financials; and there has been no material and
adverse change in such financial condition or operations since the date of the
initial Prepared Financials delivered to FINOVA hereunder;
5.14 ERISA. None of Borrower, any ERISA Affiliate, or any Plan is or has
been in violation of any of the provisions of ERISA, any of the qualification
requirements of IRC Section 401(a) or any of the published interpretations
thereunder, nor has Borrower or any ERISA Affiliate received any notice to such
effect. No notice of intent to terminate a Plan has been filed under Section
4041 of ERISA, nor has any Plan been terminated under ERISA. The PBGC has not
instituted proceedings to terminate, or appointed a trustee to administer, a
Plan. No lien upon the assets of Borrower has arisen with respect to a Plan. No
prohibited transaction or Reportable Event has occurred with respect to a Plan.
Neither Borrower nor any ERISA Affiliate has incurred any withdrawal liability
with respect to any Multiemployer Plan. Borrower and each ERISA Affiliate have
made all contributions required to be made by them to any Plan or Multiemployer
Plan when due. There is no accumulated funding deficiency in any Plan, whether
or not waived;
5.15 Taxes. Borrower has filed all tax returns and such other reports as it
is required by law to file and has paid or made adequate provision for the
payment on or prior to the date when due of all taxes, assessments and similar
charges that are due and payable;
5.16 Locations; Federal Tax ID No. Borrower's chief executive office and
the offices and locations where it keeps the Collateral (except for Inventory in
transit) are at the locations set forth on the Schedule, except to the extent
that such locations may have been changed after notice to FINOVA in accordance
with Section 6.4 hereof; Borrower's federal tax identification number is as
shown on the Schedule;
5.17 Business Relationships. There exists no actual or threatened
termination, cancellation or limitation of, or any modification or change in,
the business relationship between Borrower and any customer or any group of
customers whose purchases individually or in the aggregate are material to the
business of Borrower, or with any material supplier, and there exists no present
condition or state of facts or circumstances which would materially and
adversely affect Borrower or prevent Borrower from conducting such business
after the consummation of the transactions contemplated by this Agreement in
substantially the same manner in which it has heretofore been conducted;
5.18 Reaffirmations. Each request for a loan made by Borrower pursuant to
this Agreement shall constitute (i) an automatic representation and warranty by
Borrower to FINOVA that there does not then exist any Event of Default and (ii)
a reaffirmation as of the date of said request of all of the representations and
warranties of Borrower contained in this Agreement and the other Loan Documents;
5.19 Capitalization of Borrower. All of the equity interests are validly
issued and fully paid, and have been issued and sold in compliance with all
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FINOVA Loan and Security Agreement
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applicable federal and state laws, rules and regulations, including, without
limitation, all so-called "Blue-Sky" laws. The equity interests are free and
clear of all Liens except as set forth on Exhibit H; and
5.20 Restrictions. Borrower (i) is not a party to and has no knowledge of
any agreements restricting the transfer of any of the equity interests, except
the Loan Documents, Pledge Agreement and the Subordinated Documents, (ii) except
pursuant to certain of the Subordinated Documents, the 1995 Stock Option Plan
for officers and key, management employees, the 1995 Director Non-Qualified
Stock Option Plan for non-employee directors and the 1993 Non-Qualified
Incentive Stock Option Plan, has not issued any rights which can be convertible
into or exchangeable or exercisable for any equity interests, or any rights to
subscribe for or to purchase, or any options for the purchase of, or any
agreements providing for the issuance (contingent or otherwise) of, or any
calls, commitments or claims of any character relating to, any equity interests
or any securities convertible into or exchangeable or exercisable for any equity
interests, or (iii) is not subject to any obligation (contingent or otherwise)
to repurchase or otherwise acquire or retire any equity interests or any
convertible rights or options. Except as set forth on Exhibit H, Borrower is not
required to file, and has not filed, pursuant to Section 12 of the Securities
Exchange Act of 1934, as amended, a registration statement relating to any class
of debt or equity securities.
6. COVENANTS.
6.1 Affirmative Covenants. Each Borrower covenants that, so long as any
Obligation remains outstanding and this Agreement is in effect, it shall:
6.1.1 Taxes. File all tax returns and pay or make adequate provision
for the payment of all taxes, assessments and other charges on or prior to
the date when due;
6.1.2 Notice of Litigation. Promptly notify FINOVA in writing of any
litigation, suit or administrative proceeding which may materially and
adversely affect the Collateral or Borrower's business, assets, operations,
prospects or condition, financial or otherwise, whether or not the claim is
covered by insurance;
6.1.3 ERISA. Notify FINOVA in writing (i) promptly upon the occurrence
of any event described in Paragraph 4043 of ERISA, other than a
termination, partial termination or merger of a Plan or a transfer of a
Plan's assets and (ii) prior to any termination, partial termination or
merger of a Plan or a transfer of a Plan's assets;
6.1.4 Change in Location. Notify FINOVA in writing thirty (30) days
prior to any anticipated change, fourteen (14) days prior to any actual
change, in the location of Borrower's chief executive office or the
location of any Collateral, or Borrower's opening or closing of any other
place of business;
6.1.5 Corporate Existence. Maintain its corporate existence and its
qualification to do business and good standing in all states necessary for
the conduct of its business and the ownership of its property and maintain
adequate assets, licenses, patents, copyrights, trademarks and trade names
for the conduct of its business;
6.1.6 Labor Disputes. Promptly notify FINOVA in writing of any labor
dispute to which Borrower is or may become subject and the expiration of
any labor contract to which Borrower is a party or bound;
6.1.7 Violations of Law. Promptly notify FINOVA in writing of any
violation of any law, statute, regulation or ordinance of any governmental
entity, or of any agency thereof, applicable to Borrower which may
materially and adversely affect the Collateral or Borrower's business,
assets, prospects, operations or condition, financial or otherwise;
6.1.8 Defaults. Notify FINOVA in writing within five (5) Business Days
of Borrower's default under any note, indenture, loan agreement mortgage,
lease or other agreement to which Borrower is a party or by which Borrower
is bound, or of any other default under any Indebtedness of Borrower;
6.1.9 Capital Expenditures. Promptly notify FINOVA in writing of the
making of any Capital Expenditure materially affecting Borrower's business,
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FINOVA Loan and Security Agreement
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assets, prospects, operations or condition, financial or otherwise, except
to the extent permitted in the Schedule;
6.1.10 Books and Records. Keep adequate records and books of account
with respect to its business activities in which proper entries are made in
accordance with GAAP, reflecting all of its financial transactions;
6.1.11 Leases, Warehouse Agreements. Provide FINOVA with (i) copies of
all agreements between Borrower and any landlord, warehouseman or bailee
which owns any premises at which any Collateral may, from time to time, be
located (whether for processing, storage or otherwise), and (ii) without
limiting the landlord, bailee and/or mortgagee waivers to be provided
pursuant to Section 4.10) hereof, additional landlord, bailee and/or
mortgagee waivers in form acceptable to FINOVA with respect to all
locations where any Collateral is hereafter located;
6.1.12 Additional Documents. At FINOVA's request, promptly execute or
cause to be executed and delivered to FINOVA any and all documents,
instruments or agreements deemed necessary by FINOVA to facilitate the
collection of the Obligations or the Collateral or otherwise to give effect
to or carry out the terms or intent of this Agreement or any of the other
Loan Documents. Without limiting the generality of the foregoing, if any of
the Receivables with a face value in excess of $10,000 (or, if any Event of
Default exists and is continuing, with a face value in excess of $1,000)
arises out of a contract with the United States of America or any
department, agency, subdivision or instrumentality thereof, Borrower shall
promptly notify FINOVA of such fact in writing and shall execute any
instruments and take any other action required or requested by FINOVA to
comply with the provisions of the Federal Assignment of Claims Act; and
6.1.13 Financial Covenants. Comply with the financial covenants set
forth on the Schedule.
6.1.14 Schedule Conditions. Borrower shall have complied with all
additional conditions as set forth in the Schedule attached hereto.
6.2 Negative Covenants. Without FINOVA's prior written consent, which
consent FINOVA may withhold in its sole discretion, so long as any Obligation
remains outstanding and this Agreement is in effect, each Borrower shall not:
6.2.1 Mergers. Merge or consolidate with or acquire any other Person,
or make any other material change in its capital structure or in its
business or operations which might adversely affect the repayment of the
Obligations;
6.2.2 Loans. Make advances, loans or extensions of credit to, or
invest in, any Person, except for loans or cash advances to employees which
are permitted in the Schedule;
6.2.3 Dividends. Declare or pay cash dividends upon any of its stock
or distribute any of its property or redeem, retire, purchase or acquire
directly or indirectly any of its stock;
6.2.4 Issuance of Equity Interests. Issue or permit to be issued any
equity interests or interests convertible into or exercisable for any
equity interests, except for the issuance of equity interests pursuant to
the exercise of conversion rights and warrants held by Subordinating
Creditor.
6.2.5 Adverse Transactions. Enter into any transaction which
materially and adversely affects the Collateral or its ability to repay the
Obligations in full as and when due;
6.2.6 Indebtedness of Others. Guarantee or become directly or
contingently liable for the Indebtedness of any Person, except by
endorsement of instruments for deposit and except for the existing
Guarantees made by Borrower prior to the date hereof, if any, which are set
forth in the Schedule;
6.2.7 Repurchase. Make a sale to any customer on a bill-and-hold,
guaranteed sale, sale and return, sale on approval, consignment, or any
other repurchase or return basis, provided that the foregoing shall not be
deemed to prohibit Borrower from making any sale in the ordinary course of
business subject to Borrower's customary return policy;
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FINOVA Loan and Security Agreement
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6.2.8 Name. Use any corporate or fictitious name other than its
corporate name as set forth in its Articles or Certificate of Incorporation
on the date hereof or as set forth on the Schedule;
6.2.9 Prepayment of Indebtedness; Brokerage Fee. Prepay any
Indebtedness other than trade payables and other than the Obligations. Pay
the Brokerage Fee so long as any Event of Default exists.
6.2.10 Subordinated Debt. Pay any of the Subordinated Debt except as
provided in the Subordination Agreement;
6.2.11 Capital Expenditure. Make or incur any Capital Expenditure if,
after giving effect thereto, the aggregate amount of all Capital
Expenditures by Borrower in any fiscal year would exceed the amount set
forth on the Schedule;
6.2.12 Compensation. Pay total compensation, including salaries,
withdrawals, fees, bonuses, commissions, drawing accounts and other
payments, whether directly or indirectly, in money or otherwise, during any
fiscal year to all of Borrower's executives, officers and directors (or any
relative thereof) in an amount in excess of the amount set forth on the
Schedule;
6.2.13 Indebtedness. Create, incur, assume or permit to exist any
Indebtedness (including Indebtedness in connection with Capital Leases) in
excess of the amount set forth on the Schedule, other than (i) the
Obligations, (ii) trade payables and other contractual obligations to
suppliers and customers incurred in the ordinary course of business, and
(iii) other Indebtedness existing on the date of this Agreement and
reflected in the Prepared Financials (except Indebtedness paid on the.date
of this Agreement from proceeds of the initial advances hereunder), and
(iv) Subordinated Debt;
6.2.14 Affiliate Transactions. Except as set forth below, sell,
transfer, distribute or pay any money or property to any Affiliate, or
invest in (by capital contribution or otherwise) or purchase or repurchase
any stock or Indebtedness, or any property, of any Affiliate, or become
liable on any guaranty of the indebtedness, dividends or other obligations
of any Affiliate. Notwithstanding the foregoing, Borrower may pay
compensation permitted by Section 6.23 to employees who are Affiliates and,
if no Event of Default has occurred, Borrower may (i) engage in
transactions with Affiliates in the normal course of business, in amounts
and upon terms which are fully disclosed to FINOVA and which are no less
favorable to Borrower than would be obtainable in a comparable arm's length
transaction with a Person who is not an Affiliate, and (ii) make payments
to a Subordinating Creditor that is an Affiliate, subject to and only to
the extent expressly permitted in the Subordination Agreement between such
Subordinating Creditor and FINOVA;
6.2.15 Nature of Business. Enter into any new business or make any
material change in any of Borrower's business objectives, purposes or
operations;
6.2.16 FINOVA's Name. Use the name of FINOVA in connection with any of
Borrower's business or activities, except in connection with internal
business matters or as required in dealings with governmental agencies and
financial institutions or with trade creditors of Borrower, solely for
credit reference purposes; or
6.2.17 Margin Security. Borrower will not (and has not in the past)
engaged principally, or as one of its important activities, in the business
of extending credit for the purpose of purchasing or carrying, margin stock
(within the meaning of Regulation G or Regulation U issued by the Board of
Governors of the Federal Reserve System), and no proceeds of any Loan or
other advance will be used to purchase or carry any margin stock or to
extend credit to others for the purpose of purchasing or carrying any
margin stock, or in any manner which might cause such Loan or other advance
or the application of such proceeds to violate (or require any regulatory
filing under) Regulation G, Regulation T, Regulation U, Regulation X or any
other regulation of the Board of Governors of the Federal Reserve System,
in each case as in effect on the date or dates of such Loan or other
advance and such use of proceeds. Further, no proceeds of any Loan or other
advance will be used to acquire any security of a class which is registered
pursuant to Section 12 of the Securities Exchange Act of 1934.
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FINOVA Loan and Security Agreement
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6.2.18 Real Property. Purchase or acquire any real property without
FINOVA's prior written consent, a condition of which consent shall include
delivery of appropriate environmental reports and analysis, in form and
substance satisfactory to FINOVA and its counsel. Except as set forth
below, Borrower shall not sell or transfer title to any real property
without FINOVA's prior written consent. Notwithstanding the foregoing,
Borrower may sell real property owned by Borrower located in Tampa,
Florida; provided, however, that: (i) such property may not be sold for an
amount less than $250,000 net proceeds in cash, (ii) such property is sold
to Fred Mitchell Mendelsohn prior to December 31, 1997, (iii) proceeds
shall be applied towards the payment of Term Loan B and (iv) any excess
proceeds shall be applied towards payment of Obligations in such manner as
FINOVA may elect.
6.2.19 Liens. Create, incur, assume or suffer to exist any Lien upon
any of its Property, whether now owned or hereafter acquired, except
Permitted Liens.
7. DEFAULT AND REMEDIES.
7.1 Events of Default. Any one or more of the following events shall
constitute an Event of Default under this Agreement:
(a) Borrower fails to pay when due and payable any portion of the
Obligations at stated maturity, upon acceleration or otherwise;
(b) Borrower or any other Loan Party fails or neglects to perform, keep, or
observe any Obligation including, but not limited to, any term, provision,
condition, covenant or agreement contained in any Loan Document to which
Borrower or such other Loan Party is a party;
(c) Any material adverse change occurs in Borrower's business, assets,
operations, prospects or condition, financial or otherwise;
(d) The prospect of repayment of any portion of the Obligations or the
value or priority of FINOVA's security interest in the Collateral is materially
impaired;
(e) Any portion of Borrower's assets is seized, attached, subjected to a
writ or distress warrant, is levied upon or comes into the possession of any
judicial officer;
(f) Borrower shall generally not pay its debts as they become due or shall
enter into any agreement (whether written or oral), or offer to enter into any
agreement, with all or a significant number of its creditors regarding any
moratorium or other indulgence with respect to its debts or the participation of
such creditors or their representatives in the supervision, management or
control of the business of Borrower;
(g) Any bankruptcy or other insolvency proceeding is commenced by Borrower,
or any such proceeding is commenced against Borrower and remains undischarged or
unstayed for forty-five (45) days;
(h) Any notice of lien, levy or assessment is filed of record with respect
to any of Borrower's assets;
(i) Any judgments are entered against Borrower in an aggregate amount
exceeding $25,000 in any fiscal year except for the judgment presently existing
in Federal Court in Denver, Colorado styled Gary A. Bedini and John C. Bedini v.
The Leather Factory, Inc., et al, United States District Court, District of
Colorado, Civil Action No. 99-N-1666;
(j) Any default shall occur under (i) any material agreement between
Borrower and any third party including, without limitation, any default which
would result in a right by such third party to accelerate the maturity of any
Indebtedness of Borrower to such third party, or (ii) any Subordinated Debt;
(k) Any representation or warranty made or deemed to be made by Borrower,
any Affiliate or any other Loan Party in any Loan Document or any other
statement, document or report made or delivered to FINOVA in connection
therewith shall prove to have been misleading in any material respect;
(l) Any Prohibited Transaction or Reportable Event shall occur with respect
to a Plan which could have a material adverse effect on the financial condition
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FINOVA Loan and Security Agreement
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of Borrower; any lien upon the assets of Borrower in connection with any Plan
shall arise; Borrower or any of its ERISA Affiliates shall fail to make full
payment when due of all amounts which Borrower or any of its ERISA Affiliates
may be required to pay to any Plan or any Multiemployer Plan as one or more
contributions thereto; Borrower or any of its ERISA Affiliates creates or
permits the creation of any accumulated funding deficiency, whether or not
waived; or
(m) Pledgors fail to retain in the aggregate not less than 30.44% of the
issued and outstanding common capital stock of Borrower; or
(n) Borrower fails to implement a computerized perpetual inventory system
at its Fort Worth, Texas facility within six (6) months of the Closing Date or
Borrower fails to implement such system which shall be fully operational within
twelve (12) months of the Closing Date at all locations of Borrower's Inventory.
NOTWITHSTANDING ANYTHING TO THE CONTRARY HEREIN, FINOVA RESERVES THE RIGHT
TO CEASE MAKING ANY LOANS DURING ANY CURE PERIOD STATED ABOVE, AND THEREAFTER IF
AN EVENT OF DEFAULT HAS OCCURRED.
7.2 Remedies. Upon the occurrence of an Event of Default, FINOVA may, at
its option and in its sole discretion and in addition to all of its other rights
under the Loan Documents, cease making Loans, terminate this Agreement and/or
declare all of the Obligations to be immediately payable in full. Borrower
agrees that FINOVA shall also have all of its rights and remedies under
applicable law, including, without limitation, the default rights and remedies
of a secured party under the Code, and upon the occurrence of an Event of
Default Borrower hereby consents to the appointment of a receiver by FINOVA in
any action initiated by FINOVA pursuant to this Agreement and to the
jurisdiction and venue set forth in Section 9.25 hereof, and Borrower waives
notice and posting of a bond in connection therewith. Further, FINOVA may, at
any time, take possession of the Collateral and keep it on Borrower's premises,
at no cost to FINOVA, or remove any part of it to such other place(s) as FINOVA
may desire, or Borrower shall, upon FINOVA's demand, at Borrower's sole cost,
assemble the Collateral and make it available to FINOVA at a place reasonably
convenient to FINOVA. FINOVA may sell and deliver any Collateral at public or
private sales, for cash, upon credit or otherwise, at such prices and upon such
terms as FINOVA deems advisable, at FINOVA's discretion, and may, if FINOVA
deems it reasonable, postpone or adjourn any sale of the Collateral by an
announcement at the time and place of sale or of such postponed or adjourned
sale without giving a new notice of sale. Borrower agrees that FINOVA has no
obligation to preserve rights to the Collateral or marshall any Collateral for
the benefit of any Person. FINOVA is hereby granted a license or other right to
use, without charge, Borrower's labels, patents, copyrights, name, trade
secrets, trade names, trademarks and advertising matter, or any similar
property, in completing production, advertising or selling any Collateral and
Borrower's rights under all licenses and all franchise agreements shall inure to
FINOVA's benefit. Any requirement of reasonable notice shall be met if such
notice is mailed postage prepaid to Borrower at its address set forth in the
heading to this Agreement at least five (5) days before sale or other
disposition. The proceeds of sale shall be applied, first, to all attorneys fees
and other expenses of sale, and second, to the Obligations in such order as
FINOVA shall elect, in its sole discretion. FINOVA shall return any excess to
Borrower and Borrower shall remain liable for any deficiency to the fullest
extent permitted by law.
7.3 Standards for Determining Commercial Reasonableness. Borrower and
FINOVA agree that the following conduct by FINOVA with respect to any
disposition of Collateral shall conclusively be deemed commercially reasonable
(but other conduct by FINOVA, including, but not limited to, FINOVA's use in its
sole discretion of other or different times, places and manners of noticing and
conducting any disposition of Collateral shall not be deemed unreasonable): Any
public or private disposition: (i) as to which on no later than the fifth
calendar day prior thereto written notice thereof is mailed or personally
delivered to Borrower and, with respect to any public disposition, on no later
than the fifth calendar day prior thereto notice thereof describing in general
nonspecific terms, the Collateral to be disposed of is published once in a
newspaper of general circulation in the county where the sale is to be conducted
(provided that no notice of any public or private disposition need be given to
23
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FINOVA Loan and Security Agreement
- --------------------------------------------------------------------------------
the Borrower or published if the Collateral is perishable or threatens to
decline speedily in value or is of a type customarily sold on a recognized
market); (ii) which is conducted at any place designated by FINOVA, with or
without the Collateral being present; and (iii) which commences at any time
between 8:00 a.m. and 5:00 p.m. Without limiting the generality of the
foregoing, Borrower expressly agrees that, with respect to any disposition of
accounts, instruments and general intangibles, it shall be commercially
reasonable for FINOVA to direct any prospective purchaser thereof to Loan and
Security Agreement ascertain directly from Borrower any and all information
concerning the same, including, but not limited to, the terms of payment, aging
and delinquency, if any, the financial condition of any obligor or account
debtor thereon or guarantor thereof, and any collateral therefor.
8. EXPENSES AND INDEMNITIES.
8.1 Expenses. Borrower covenants that, so long as any Obligation remains
outstanding and this Agreement remains in effect, it shall promptly reimburse
FINOVA for all costs, fees and expenses incurred by FINOVA in connection with
the negotiation, preparation, execution, delivery, administration and
enforcement of each of the Loan Documents, including, but not limited to, the
attorneys' and paralegals' fees of in-house and outside counsel, expert witness
fees, lien, title search and insurance fees, appraisal fees, all charges and
expenses incurred in connection with any and all environmental reports and
environmental remediation activities, and all other costs, expenses, taxes and
filing or recording fees payable in connection with the transactions
contemplated by this Agreement, including without limitation all such costs,
fees and expenses as FINOVA shall incur or for which FINOVA shall become
obligated in connection with (i) any inspection or verification of the
Collateral, (ii) any proceeding relating to the Loan Documents or the
Collateral, (iii) actions taken with respect to the Collateral and FINOVA's
security interest therein, including, without limitation, the defense or
prosecution of any action involving FINOVA and Borrower or any third party, (iv)
enforcement of any of FINOVA's rights and remedies with respect to the
Obligations or Collateral and (v) consultation with FINOVA's attorneys and
participation in any workout, bankruptcy or other insolvency or other proceeding
involving any Loan Party or any Affiliate, whether or not suit is filed or the
issues are peculiar to federal bankruptcy or state insolvency laws. Borrower
shall also pay all FINOVA charges in connection with bank wire transfers,
forwarding of loan proceeds, deposits of checks and other items of payment,
returned checks, establishment and maintenance of lockboxes and other Blocked
Accounts, and all other bank and administrative matters, in accordance with
FINOVA's schedule of bank and administrative fees and charges in effect from
time to time.
8.2 Environmental Matters.
The Environmental Certificate dated on or about the date of this Agreement
is incorporated herein for all purposes as if fully stated in this Agreement.
9. MISCELLANEOUS.
9.1 Examination of Records; Financial Reporting.
(a) Examinations. FINOVA shall at all reasonable times have full access to
and the right to examine, audit, make abstracts and copies from and inspect
Borrower's records, files, books of account and all other documents, instruments
and agreements relating to the Collateral and the right to check, test and
appraise the Collateral. Borrower shall deliver to FINOVA any instrument
necessary for FINOVA to obtain records from any service bureau maintaining
records for Borrower. All instruments and certificates prepared by Borrower
showing the value of any of the Collateral shall be accompanied, upon FINOVA's
request, by copies of related purchase orders and invoices. FINOVA may, at any
time after the occurrence of an Event of Default, remove from Borrower's
premises Borrower's books and records (or copies thereof) or require Borrower to
deliver such books and records or copies to FINOVA. FINOVA may, without expense
to FINOVA, use such of Borrower's personnel, supplies and premises as may be
reasonably necessary for maintaining or enforcing FINOVA's security interest.
(b) Reporting Requirements. Borrower shall furnish FINOVA, upon request,
such information and statements as FINOVA shall request from time to time
regarding Borrower's business affairs, financial condition and the results of
its operations. Without limiting the generality of the foregoing, Borrower shall
24
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FINOVA Loan and Security Agreement
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provide FINOVA with: (i) FINOVA's standard form collateral and loan report,
daily, and upon FINOVA's request, copies of sales journals, cash receipt
journals, and deposit slips; (ii) upon FINOVA's request, copies of sales
invoices, customer statements and credit memoranda issued, remittance advices
and reports; (iii) copies of shipping and delivery documents, upon request; (iv)
on or prior to the date set forth on the Schedule, monthly agings (aged from
invoice date) and reconciliations of Receivables (with listings of concentrated
accounts), payables reports, inventory reports, compliance certificates and
unaudited financial statements with respect to the prior month prepared on a
basis consistent with such statements prepared in prior months and otherwise in
accordance with GAAP; (v) audited annual consolidated and consolidating
financial statements, prepared in accordance with GAAP applied on a basis
consistent with the most recent Prepared Financials provided to FINOVA by
Borrower, including balance sheets, income and cash flow statements, accompanied
by the unqualified report thereon of independent certified public accountants
acceptable to FINOVA, as soon as available, and in any event, within ninety (90)
days after the end of each of Borrower's fiscal years; and (vi) such
certificates relating to the foregoing as FINOVA may request, including, without
limitation, a monthly certificate from the president and the chief financial
officer of Borrower showing Borrower's compliance with each of the financial
covenants set forth in this Agreement, and stating whether any Event of Default
has occurred or event which, with giving of notice or the passage of time, or
both, would constitute an Event of Default, and if so, the steps being taken to
prevent or cure such Event of Default. All reports or financial statements
submitted by Borrower shall be in reasonable detail and shall be certified by
the principal financial officer of Borrower as being complete and correct.
9.2 Term, Termination.
(a) Term. The Term of the Revolving Credit Loans and the obligation of
FINOVA to made advances with respect thereto in accordance with this Agreement
shall be as set forth on the Schedule, unless earlier terminated as provided
herein.
(b) Prior Notice. Each party shall have the right to terminate this
Agreement effective at the end of the Term by giving the other party written
notice not less than sixty (60) days prior to the effective date of such
termination, by registered or certified mail.
(c) Payment in Full. Upon the effective date of termination, the
Obligations shall become immediately due and payable in full in cash.
(d) Early Termination; Termination Fee. In addition to the procedure set
forth in Section 9.2(b), Borrower may terminate this Agreement at any time but
only upon sixty (60) days' prior written notice and prepayment of the
Obligations. Upon any such early termination by Borrower or any termination of
this Agreement by FINOVA upon the occurrence of an Event of Default, then, and
in any such event, Borrower shall pay to FINOVA upon the effective date of such
termination a fee (the "Termination Fee") in an amount equal to the amount shown
on the Schedule.
9.3 Recourse to Security; Certain waivers. All Obligations shall be payable
by Borrower as provided for herein and, in full, at the termination of this
Agreement; recourse to security shall not be required at any time. Borrower
waives presentment and protest of any instrument and notice thereof, notice of
default and, to the extent permitted by applicable law, all other notices to
which Borrower might otherwise be entitled.
9.4 No Waiver by Finova.Neither FINOVA's failure to exercise any right,
remedy or option under this Agreement, any supplement, the Loan Documents or
other agreement between FINOVA and Borrower nor any delay by FINOVA in
exercising the same shall operate as a waiver. No waiver by FINOVA shall be
effective unless in writing and then only to the extent stated. No waiver by
FINOVA shall affect its right to require strict performance of this Agreement.
FINOVA's rights and remedies shall be cumulative and not exclusive.
9.5 Binding on Successor and Assigns. All terms, conditions, promises,
covenants, provisions and warranties shall inure to the benefit of and bind
FINOVA's and Borrower's respective representatives, successors and assigns.
9.6 Severability. If any provision of this Agreement shall be prohibited or
invalid under applicable law, it shall be ineffective only to such extent,
without invalidating the remainder of this Agreement.
25
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FINOVA Loan and Security Agreement
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9.7 Amendments; Assignments. This Agreement may not be modified, altered or
amended, except by an agreement in writing signed by Borrower and FINOVA.
Borrower may not sell, assign or transfer any interest in this Agreement or any
other Loan Document, or any portion thereof, including, without limitation, any
of Borrower's rights, title, interests, remedies, powers and duties hereunder or
thereunder. Borrower hereby consents to FINOVA's participation, sale,
assignment, transfer or other disposition, at any time or times hereafter, of
this Agreement and any of the other Loan Documents, or of any portion hereof or
thereof, including, without limitation, FINOVA's rights, title, interests,
remedies, powers and duties hereunder or thereunder. In connection therewith,
FINOVA may disclose all documents and information which FINOVA now or hereafter
may have relating to Borrower or Borrower's business. To the extent that FINOVA
assigns its rights and obligations hereunder to a third party, FINOVA shall
thereafter be released from such assigned obligations to Borrower and such
assignment shall effect a novation between Borrower and such third party.
9.8 Integration. This Agreement, together with the Schedule (which is a
part hereof) and the other Loan Documents, reflect the entire understanding of
the parties with respect to the transactions contemplated hereby.
9.9 Survival. All of the representations and warranties of Borrower
contained in this Agreement shall survive the execution, delivery and acceptance
of this Agreement by the parties. No termination of this Agreement or of any
guaranty of the Obligations shall affect or impair the powers, obligations,
duties, rights, representations, warranties or liabilities of the parties hereto
and all shall survive such termination.
9.10 Evidence of Obligations. Each Obligation may, in FINOVA's discretion,
be evidenced by notes or other instruments issued or made by Borrower to FINOVA.
If not so evidenced, such Obligation shall be Loan and Security Agreement
evidenced solely by entries upon FINOVA's books and records.
9.11 Loan Requests. Each oral or written request for a loan by any Person
who purports to be any employee, officer or authorized agent of Borrower shall
be made to FINOVA on or prior to 10:00 a.m., Central/Standard time, on the
Business Day on which the proceeds thereof are requested to be paid to Borrower
and shall be conclusively presumed to be made by a Person authorized by Borrower
to do so and the crediting of a loan to Borrower's operating account shall
conclusively establish Borrower's obligation to repay such loan. Unless and
until Borrower otherwise directs FINOVA in writing, all loans shall be wired to
Borrower's operating account set forth on the Schedule.
9.12 Notices. Any notice required hereunder shall be in writing and
addressed to the Borrower and FINOVA at their addresses set forth at the
beginning of this Agreement. Notices hereunder shall be deemed received (i) if
personally delivered, then on the Business Day of delivery, (ii) if sent by
telecopy before 2:00 p.m. Los Angeles time, on the day sent if a Business Day or
if such day is not a Business Day or if sent after 2:00 p.m. Los Angeles time,
then on the next Business Day, (iii) if sent by overnight express carrier, on
the next Business Day immediately following the day sent, or (iv) if sent by
registered or certified mail, on the earlier of the fifth (5th) Business Day
following the day sent or when actually received. Any notice by telecopy shall
be followed by delivery on the next Business Day by overnight express carrier or
by hand.
9.13 Brokerage Fees. Borrower represents and warrants to FINOVA that, with
respect to the financing transaction herein contemplated, no Person is entitled
to any brokerage fee or other commission, except for First Capital Advisors and
Borrower agrees to indemnify and hold FINOVA harmless against any and all such
claims.
9.14 Disclosure. No representation or warranty made by Borrower in this
Agreement, or in any financial statement, report, certificate or any other
document furnished in connection herewith contains any untrue statement of a
material fact or omits to state any material fact necessary to make the
statements herein or therein not misleading. There is no fact known to Borrower
or which reasonably should be known to Borrower which Borrower has not disclosed
26
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FINOVA Loan and Security Agreement
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to FINOVA in writing with respect to the transactions contemplated by this
Agreement which materially and adversely affects the business, assets,
operations, prospects or condition (financial or otherwise), of Borrower.
9.15 Publicity. Borrower and FINOVA are hereby authorized to issue
appropriate press releases and to cause a tombstone to be published announcing
the consummation of this transaction and the aggregate amount thereof, provided
however, both parties hereto must approve the wording of any such press release
prior to publication.
9.16 Captions. The Section titles contained in this Agreement are without
substantive meaning and are not part of this Agreement.
9.17 Injunctive relief. Borrower recognizes that, in the event Borrower
fails to perform, observe or discharge any of its Obligations under this
Agreement, any remedy at law may prove to be inadequate relief to FINOVA.
Therefore, FINOVA, if it so requests, shall be entitled to temporary and
permanent injunctive relief in any such case without the necessity of proving
actual damages.
9.18 Counterparts; Facsimile Execution. This Agreement may be executed in
one or more counterparts, each of which taken together shall constitute one and
the same instrument, admissible into evidence. Delivery of an executed
counterpart of this Agreement by telecopy shall be equally as effective as
delivery of a manually executed counterpart of this Agreement. Any party
delivering an executed counterpart of this Agreement by telefacsimile shall also
deliver a manually executed counterpart of this Agreement, but the failure to
deliver a manually executed counterpart shall not affect the validity,
enforceability, and binding effect of this Agreement.
9.19 Construction. The parties acknowledge that each party and its counsel
have reviewed this Agreement and that the normal rule of construction to the
effect that any ambiguities are to be resolved against the drafting party shall
not be employed in the interpretation of this Agreement or any amendments or
exhibits hereto.
9.20 Time of Essence. Time is of the essence for the performance by
Borrower of the Obligations set forth in this Agreement.
9.21 Limitation of Actions. Borrower agrees that any claim or cause of
action by Borrower against FINOVA, or any of FINOVA's directors, officers,
employees, agents, accountants or attorneys, based upon, arising from, or
relating to this Agreement, or any other present or future agreement, or any
other transaction contemplated hereby or thereby or relating hereto or thereto,
or any other matter, cause or thing whatsoever, whether or not relating hereto
or thereto, occurred, done, omitted or suffered to be done by FINOVA, or by
FINOVA's directors, officers, employees, agents, accountants or attorneys,
whether sounding in contract or in tort or otherwise, shall be barred unless
asserted by Borrower by the commencement of an action or proceeding in a court
of competent jurisdiction by the filing of a complaint within one year after the
first, occurrence or omission upon which such claim or cause of action, or any
part thereof, is based and service of a summons and complaint on an officer of
FINOVA or any other Person authorized to accept service of process on behalf of
FINOVA, within 30 days thereafter. Borrower agrees that such one-year period of
time is a reasonable and sufficient time for Borrower to investigate and act
upon any such claim or cause of action. The one-year period provided herein
shall not be waived, tolled, or extended except by a specific written agreement
of Loan and Security Agreement FINOVA. This provision shall survive any
termination of this Loan Agreement or any other agreement.
9.22 Liability. Neither FINOVA nor any FINOVA Affiliate shall be liable for
any indirect, special, incidental or consequential damages in connection with
any breach of contract, tort or other wrong relating to this Agreement or the
Obligations or the establishment, administration or collection thereof
(including without limitation damages for loss of profits, business
interruption, or the like), whether such damages are foreseeable or
unforeseeable, even if FINOVA has been advised of the possibility of such
damages. Neither FINOVA, nor any FINOVA Affiliate shall be liable for any
claims, demands, losses or damages, of any kind whatsoever, made, claimed,
incurred or suffered by the Borrower through the ordinary negligence of FINOVA,
27
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FINOVA Loan and Security Agreement
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or any FINOVA Affiliate. "FINOVA Affiliate" shall mean FINOVA's directors,
officers, employees, agents, attorneys or any other Person or entity affiliated
with or representing FINOVA.
9.23 Notice of Breach by FINOVA. Borrower agrees to give FINOVA written
notice of (i) any action or inaction by FINOVA or any attorney of FINOVA in
connection with any Loan Documents that may be actionable against FINOVA or any
attorney of FINOVA or (ii) any defense to the payment of the Obligations for any
reason, including, but not limited to, commission of a tort or violation of any
contractual duty or duty implied by law. Borrower agrees that unless such notice
is fully given as promptly as possible (and in any event within thirty (30)
days) after Borrower has knowledge, or with the exercise of reasonable diligence
should have had knowledge, of any such action, inaction or defense, Borrower
shall not assert, and Borrower shall be deemed to have waived, any claim or
defense arising therefrom.
9.24 Application of Insurance Proceeds. The net proceeds of any casualty
insurance insuring the Collateral, after deducting all costs and expenses
(including attorneys' fees) of collection, shall be applied, at FINOVA's option,
either toward replacing or restoring the Collateral, in a manner and on terms
satisfactory to FINOVA, or toward payment of the Obligations. Any proceeds
applied to the payment of Obligations shall be applied in such manner as FINOVA
may elect. In no event shall such application relieve Borrower from payment in
full of all installments of principal and interest which thereafter become due
in the order of maturity thereof.
9.25 Power of Attorney. Borrower appoints FINOVA and its designees as
Borrower's attorney, with the power to endorse Borrower's name on any checks,
notes, acceptances, money orders or other forms of payment or security that come
into FINOVA's possession; to sign Borrower's name on any invoice or bill of
lading relating to any Receivable, on drafts against customers, on assignments
of Receivables, on notices of assignment, financing statements and other public
records, on verifications of accounts and on notices to customers or account
debtors; to send requests for verification of Receivables to customers or
account debtors; after the occurrence of any Event of Default, to notify the
post office authorities to change the address for delivery of Borrower's mail to
an address designated by FINOVA and to open and dispose of all mail addressed to
Borrower; and to do all other things FINOVA deems necessary or desirable to
carry out the terms of this Agreement. Borrower hereby ratifies and approves all
acts of such attorney. Neither FINOVA nor any of its designees shall be liable
for any acts or omissions nor for any error of judgment or mistake of fact or
law while acting as Borrower's attorney. This power, being coupled with an
interest, is irrevocable until the Obligations have been fully satisfied and
FINOVA's obligation to provide loans hereunder shall have terminated
9.26 Joint and Several. The Obligations, covenants and agreements of
borrowers hereunder shall be the joint and several obligations, covenants and
agreements of each Borrower.
9.27 Governing Law; Waivers. THIS AGREEMENT, INCLUDING WITHOUT LIMITATION
ENFORCEMENT OF THE OBLIGATIONS, SHALL BE INTERPRETED IN ACCORDANCE WITH THE
INTERNAL LAWS (AND NOT THE CONFLICT OF LAWS RULES) OF THE STATE OF ARIZONA
GOVERNING CONTRACTS TO BE PERFORMED ENTIRELY WITHIN SUCH STATE. BORROWER HEREBY
CONSENTS TO THE EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED
WITHIN THE COUNTY OF MARICOPA IN THE STATE OF ARIZONA OR, AT THE SOLE OPTION OF
FINOVA, IN ANY OTHER COURT IN WHICH FINOVA SHALL INITIATE LEGAL OR EQUITABLE
PROCEEDINGS AND WHICH HAS SUBJECT MATTER JURISDICTION OVER THE MATTER IN
CONTROVERSY. BORROWER WAIVES ANY OBJECTION OF FORUM NON CONVENIENS AND VENUE.
BORROWER FURTHER WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT, AND
CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE IN THE MANNER SET FORTH IN
SECTION 9.12 HEREOF FOR THE GIVING OF NOTICE. BORROWER FURTHER WAIVES ANY RIGHT
IT MAY OTHERWISE HAVE TO COLLATERALLY ATTACK ANY JUDGMENT ENTERED AGAINST IT.
28
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FINOVA Loan and Security Agreement
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9.28 MUTUAL WAIVER OF RIGHT TO JURY TRIAL. FINOVA AND BORROWER EACH HEREBY
WAIVES THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON,
ARISING OUT OF, OR IN ANY WAY RELATING TO: (i) THIS AGREEMENT; (ii) ANY OTHER
PRESENT OR FUTURE INSTRUMENT OR AGREEMENT BETWEEN FINOVA AND BORROWER; OR (iii)
ANY CONDUCT, ACTS OR OMISSIONS OF FINOVA OR BORROWER OR ANY OF THEIR DIRECTORS,
OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH
FINOVA OR BORROWER; IN EACH OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT
OR TORT OR OTHERWISE.
[remainder of this page intentionally left blank]
29
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed as of the day
and year first above written.
THE LEATHER FACTORY, INC., a Delaware
corporation, Fed ID Tax No. 75-2543540, THE
LEATHER FACTORY, INC., a Texas corporation,
Fed ID Tax No. 75-1721123, THE LEATHER
FACTORY, INC., an Arizona corporation, Fed
ID Tax No. 86-0540648, HI-LINE LEATHER &
MANUFACTURING COMPANY, a California
corporation, Fed ID Tax No. 94-1122115, and
ROBERTS, CUSHMAN & COMPANY, INC., a New York
corporation, Fed ID Tax No. 13-2682601
By: /s/ Fred N. Howell
Fred N. Howell
Chief Financial Officer
FINOVA CAPITAL CORPORATION
By: /s/ John Sorber
John Sorber
Vice President
FINOVA Capital Corporation
355 South Grand Avenue
Los Angeles, California 90071
Attention: John Bonano
Telecopy: (213) 625-0268
Copy to:
FINOVA Capital Corporation
1850 North Central Avenue
P.O. Box 2209
Phoenix, Arizona 85002-2209
Attention: Joseph D'Amore, Esq.
Telecopy: (602) 207-5036
and
FINOVA Capital Corporation
13355 Noel Road
Suite 800
Dallas, Texas 75240
Attention: John Lewis
Telecopy: (972) 458-5698
Schedule to Loan and Security Agreement
<PAGE>
Loan and Security Agreement
STATE OF TEXAS )
) SS.
COUNTY OF TARRANT )
On this 19th day of November, 1997, before me, a Notary Public in and for
the State of TEXAS , in the County aforesaid, personally appeared Fred N.
Howell, to me known to be Chief Financial Officer of THE LEATHER FACTORY, INC.,
a Delaware corporation, THE LEATHER FACTORY, INC., a Texas corporation, THE
LEATHER FACTORY, INC., an Arizona corporation, HI-LINE LEATHER & MANUFACTURING
COMPANY, a California corporation and ROBERT, CUSHMAN & COMPANY, INC., a New
York corporation that executed the foregoing instrument, and upon oath did
depose that he is the Chief Financial Officer of such corporations, that the
signature to said instrument was made by the Chief Financial Officer of said
corporations as indicated after said signature, and that the corporations
executed the said instrument freely and voluntarily for the uses and purposes
therein mentioned.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal the day
and year first above written.
/s/ Barbara Marvin
----------------------------------------------
NOTARY PUBLIC in and for said State and County
My commission expires: 10-16-2001
----------------------
Loan and Security Agreement
<PAGE>
Schedule to
Loan and Security Agreement
Borrowers: THE LEATHER FACTORY, INC., a Delaware corporation,
THE LEATHER FACTORY, INC., a Texas corporation,
THE LEATHER FACTORY, INC., an Arizona corporation,
HI-LINE LEATHER & MANUFACTURING COMPANY, a California
corporation, and
ROBERTS, CUSHMAN & COMPANY, INC., a New York corporation
Address: 3847 East Loop 820 South
Fort Worth, Texas 76119
Date: November 21, 1997
This Schedule forms an integral part of the Loan and Security Agreement between
the above Borrower and FINOVA Capital Corporation dated the above date, and all
references herein and therein to "this Agreement" shall be deemed to refer to
said Agreement and to this Schedule.
================================================================================
DEFINITIONS (SECTION 1):
"Subordinating Creditor" means The Schlinger Foundation, a California
non-profit corporation.
TOTAL FACILITY (SECTION 2.1):
$9,136,000
================================================================================
LOANS (SECTION 2.2):
Revolving Credit Loans: A revolving line of credit
consisting of loans against Borrower's Eligible
Receivables ("Receivable Loans") and against
Borrower's Eligible Inventory ("Inventory Loans")
(the Receivable Loans and the Inventory Loans shall
be collectively referred to as the "Revolving Credit
Loans") in an aggregate outstanding principal amount
not to exceed the lesser of (a) or (b) below:
(a) $7,000,000 (the "Revolving Credit Limit"), less
any Loan Reserves, less the aggregate undrawn face
amount of all Letters of Credit issued under Section
2.4 of this Agreement, or (b) the sum of
(i) an amount not to exceed 85% of the net
amount of Eligible Receivables, less the
aggregate undrawn face amount of all Letters
of Credit issued under Section 2.4 of this
Agreement; plus
(ii) an amount not to exceed the lesser of:
<PAGE>
(A) 50% of the value of Borrower's
Eligible Inventory, calculated at
the lower of cost or market value
and determined on a first-in,
first-out basis, or
(B) $4,500,000; less
(iii) any Loan Reserves.
Term Loans: Term Loan A in the principal amount of
$400,000 ("Term Loan A"), Term Loan B in the
principal amount of $236,000 ("Term Loan B") and Term
Loan C in the principal amount of $1,500,000 ("Term
Loan C") (Term Loan A, Term Loan B and Term Loan C
shall be collectively referred to as "Term Loans") in
an aggregate outstanding principal amount not to
exceed $2,136,000. The Term Loans shall be payable in
accordance with the terms set forth on separate
promissory notes of Borrower to be delivered on or
prior to Closing Date, each in form and substance
satisfactory to FINOVA in its sole discretion.
================================================================================
LETTERS OF CREDIT (SECTION 2.4):
The aggregate face amount of all outstanding Letters
of Credit from time to time shall not exceed
$1,000,000, and shall be reserved against the
availability of Revolving Credit Loans pursuant to
Section 2.4 hereof. The L/C Fee shall equal 1.85% per
annum of the aggregate face amount of each Letter of
Credit outstanding from time to time during the term
of this Agreement plus applicable issuing bank
charges. The L/C Fee shall be deemed to be fully
earned upon the issuance of each Letter of Credit and
shall be due and payable on the first Business Day of
each month following a month during which any Letter
of Credit is outstanding.
================================================================================
INTEREST AND FEES (SECTION 2.6):
Revolving Interest Rate. Borrower shall pay FINOVA
interest on the daily outstanding balance of
Borrower's Revolving Credit Loans at a per annum rate
equal to the rate of interest announced publicly by
Citibank, N.A., (or any successor thereto), from time
to time as its "prime rate" (the "Prime Rate") which
may not be such institution's lowest rate plus 1.0%
per annum. The interest rate chargeable hereunder in
respect of the Revolving Credit Loans (herein, the
"Revolving Interest Rate" shall be increased or
decreased, as the case may be, without notice or
demand of any kind, upon the announcement of any
change in the Prime Rate. Each change in the Prime
Rate shall be effective hereunder on the first day
following the announcement of such change. Interest
charges and all other fees and charges herein shall
be computed on the basis of a year of 360 days and
actual days elapsed and shall be payable to FINOVA in
arrears on the first day of each month.
2
<PAGE>
FINOVA will reduce the Revolving Interest Rate to the
Prime Rate plus .5% per annum, subject to the
following conditions:
(i) the Facility Fee payable to FINOVA and the
Brokerage Fee (as such term is defined
below) payable to First Capital Advisors
shall have been paid in full;
(ii) after giving effect to the payment of all
fees in clause (i) Borrower shall have
maintained Excess Availability of at least
$500,000 for three (3) consecutive months;
(iii) Borrower shall have delivered to FINOVA a
certificate as to the satisfaction of the
conditions set forth in clauses (i) and (ii)
and all Financial Covenants described below;
and
(iv) no Event of Default shall exist.
Term Interest Rate.
(a) Borrower shall pay FINOVA interest on the daily
outstanding balance of Term Loan A and Term Loan B at
a per annum rate equal to the Prime Rate plus 3/4%
per annum.
(b) Borrower shall pay FINOVA interest on the daily
outstanding balance of Term Loan C at a per annum
rate equal to the Prime Rate plus 3.0% per annum.
Collateral Monitoring Fee. At the closing of this
transaction and on the first day of each calendar
month thereafter, Borrower shall pay FINOVA a
collateral monitoring fee of $1,500 per month
("Collateral Monitoring Fee"); provided however, that
Borrower agrees and acknowledges that each Loan Year
a full year's fee shall be deemed earned at the
beginning of the respective Loan Year.
Facility Fee. Borrower shall pay to FINOVA a facility
fee of $90,000 ("Facility Fee"). $20,000 of such fee
has been paid by Borrower. The balance of the
Facility Fee shall be due and payable by the Borrower
in twelve (12) equal monthly installments commencing
on the Closing Date and the first day of each of the
eleven (11) months thereafter.
Annual Renewal Fee. On the first anniversary of the
date of this Agreement, and on each subsequent
anniversary of said date, if this Agreement is in
effect, Borrower shall pay FINOVA a renewal fee in an
amount equal to .125% of the Total Facility ("Annual
Renewal Fee"), which shall be deemed fully earned on
the date due and shall be non-refundable.
3
<PAGE>
Unused Line Fee. During the term of this Agreement,
Borrower shall unconditionally pay to FINOVA a fee
equal to .375% per annum of the amount equal to the
Revolving Credit Limit, less the average daily
outstanding balance of the Revolving Credit Loans on
a monthly basis commencing the first month after the
Closing Date, less the aggregate face amount of all
Letters of Credit outstanding from time to time
during the term of this Agreement ("Unused Line
Fee").
Examination Fee. Borrower agrees to pay to FINOVA an
examination fee in the amount of $600 per person per
day in connection with each audit or examination of
Borrower performed by FINOVA prior to or after the
date hereof, plus all costs and expenses incurred in
connection therewith (the "Examination Fee"). Without
limiting the generality of the foregoing, Borrower
shall pay to FINOVA an initial Examination Fee in an
amount equal to $600 per person per day, plus all
costs and expenses incurred in connection therewith.
Such initial Examination Fee shall be deemed fully
earned at the time of payment and due and payable
upon the closing of this transaction, and shall be
deducted from any good faith deposit paid by Borrower
to FINOVA prior to the date of this Agreement.
================================================================================
NOTIFICATION OF CLOSING (SECTION 2.13):
The amount for purposes of Section 2.13 shall be
$6,417,562.51.
================================================================================
CONDITIONS OF CLOSING (SECTION 4.1):
The obligation of FINOVA to make the initial advance
hereunder or to issue or arrange for the issuance of
the initial Letter of Credit hereunder is subject to
the fulfillment, to the satisfaction of FINOVA and
its counsel, of each of the following conditions, in
addition to the conditions set forth in Sections 4.1
and 4.2 above:
(a) Minimum Excess Availability (Section 4.1(c)). Not
less than $350,000 plus the aggregate amount of all
accounts payable of Borrower which are outstanding
more than 60 days from invoice date.
(b) Landlord Waivers (Section 4.1(k)). Borrower shall
deliver to FINOVA landlord waivers from any landlord
which owns any premises at which FINOVA's collateral
may be located, in form and substance satisfactory to
FINOVA. In the event that any of such landlord
waivers are not executed and delivered to FINOVA
prior to the Closing Date, FINOVA shall establish and
maintain a reserve against Eligible Inventory equal
to three (3) months of lease payments for any and all
locations for which landlord waivers have not been
delivered. In the event that any of such landlord
waivers are executed and delivered to FINOVA after
the Closing Date, FINOVA shall release any reserves
against Eligible Inventory established and maintained
with respect to locations for which landlord waivers
have been delivered. Notwithstanding the foregoing,
4
<PAGE>
Borrower shall deliver to FINOVA a landlord waiver
from the landlord of the site located at 3847 East
Loop 820 South, Fort Worth, Texas 76119 prior to the
Closing Date.
(c) No Material Adverse Change (Section 4.1)). No
material adverse change has occurred in the
Borrower's business, operations, financial condition,
or assets or in the prospect of repayment of the
Obligations since September 30, 1997.
(d) Subordinated Debt. Borrower shall have received
$1,000,000 from Subordinating Creditor as the
proceeds of the Subordinated Debt.
(e) Support Agreements. Wray Thompson and Ronald C.
Morgan shall each have delivered a Support Agreement
in favor of FINOVA, and in form and substance
satisfactory to FINOVA.
(f) Physical Inventory. Results of the Borrower's
physical inventory taken at the close of the
accounting period ended September 30, 1997 shall be
reviewed by and found satisfactory to FINOVA prior to
the Closing Date.
(g) Transaction Costs (Section 4.1(aa)). Not to
exceed $
----------------------
Borrower shall cause the conditions precedent set
forth in Section 4.1 of this Agreement and set forth
above in this Schedule to be satisfied, and shall
provide evidence to FINOVA that all such conditions
precedent have been satisfied, on or before November
21, 1997
================================================================================
BORROWER INFORMATION:
Borrower's State of Incorporation (Section 5.1): See Exhibit A attached
hereto.
Borrower's copyrights, patents, trademarks, and licenses (Section 5.5): See
Exhibit B attached hereto.
Prior Corporate/Fictitious Names (Section 5.2): See Exhibit C attached
hereto. Fictitious Names: See Exhibit D attached hereto.
Borrower Locations (Section 5.16): See Exhibit E attached hereto.
Borrower's Federal Tax Identification Number (Section 5.16): See Exhibit F
attached hereto.
5
<PAGE>
================================================================================
FINANCIAL COVENANTS (SECTION 6.1.13):
Borrower shall comply with all of the
following covenants. Compliance shall be
determined as of the end of each month or
quarter (as determined by FINOVA in its sole
discretion), except as otherwise
specifically provided below:
EBITDA. Borrower shall maintain Earnings Before
Interest, Taxes, Depreciation and
Amortization of not less than (i) Nine
Hundred Thousand and No/100 Dollars
($900,000) for the first six month period of
each Loan Year and (ii) One Million Fifty
Thousand and No/100 Dollars ($1,050,000) for
the second six month period of each Loan
Year.
Senior Debt Service
Coverage Ratio. As of the last day of each calendar quarter ended
March 31, June 30, September 30 or
December 31, Borrower's Operating Cash Flow/
Actual for the consecutive 12-month period
ending as of such last day must be at least
1.35 times the amount necessary to meet
Borrower's Senior Contractual Debt Service
for such 12-month period; provided however,
that, with respect to the calculations set
forth herein for the period from January 1,
1998 through December 31, 1998, Borrower's
Operating Cash Flow/Actual and Senior
Contractual Debt Service shall be determined
beginning as of January 1, 1998 (the "Start
Date")* and be measured as follows: w) the
time period from the Start Date through
March 31, 1998, shall be for such amounts
for such period, (x) the time period from
the Start Date through June 30, 1998,
shall be for such amounts for such period,
(y) the time period from the Start Date
through September 30, 1998, shall be for
such amounts for such period, and (z) the
time period from the Start Date through
December 31, 1998, shall be for such amounts
for such period; and, provided further, that
all such determinations shall be made on a
consolidated basis.
Total Debt Service
Coverage Ratio. As of the last day of each calendar quarter ended
March 31, June 30, September 30 or December
31, Borrower's Operating Cash Flow/Actual
for the consecutive 12-month period ending
as of such last day must be at least 1.10
times the amount necessary to meet
Borrower's Total Contractual Debt Service
for such 12-month period; provided however,
that, with respect to the calculations set
forth herein for the period from January 1,
1998, through December 31, 1998, Borrower's
Operating Cash Flow/Actual and Total
Contractual Debt Service shall be determined
beginning as of the Start Date and be
measured as follows: (w)the time period from
the Start Date through March 31, 1998, shall
- --------------------------
* NOTE: The definition of Start Date should be modified to correspond with the
relevant fiscal quarter in which the closing occurs.
6
<PAGE>
be for such amounts for such period,(x) the
time period from the Start Date through June
30, 1998, shall be for such amounts for such
period, (y) the time period from the Start
Date through September 30, 1998, shall be
for such amounts for such period and (z) the
time period from the Start Date through
December 31, 1998 shall be for such amounts
for such period; and, provided further, that
all such determinations shall be made on a
consolidated basis.
================================================================================
<TABLE>
<CAPTION>
NEGATIVE COVENANTS (SECTION 6.2):
<S> <C>
Employee Advances: Borrower shall not make any loans or advances to employees except in
the ordinary course of business and consistent with past practices of
Borrower in an aggregate amount not exceeding at any time $500,000,
which amount includes existing loans in the aggregate amount of
approximately $269,305 made to employees in connection with the
acquisition of securities of Borrower by such employees.
Notwithstanding the foregoing, Borrower shall not make advances to any
store manager in an aggregate amount not to exceed 50% of the bonus
compensation earned to date or through the current period by such store
manager.
Capital Expenditures: Borrower shall not make or incur any Capital Expenditure if, after
giving effect thereto, the aggregate amount of all Capital Expenditures
by Borrower: (i) would exceed $600,000 for the 1998 fiscal year,
provided that, (a) Borrower shall not make any Capital Expenditures
during such fiscal year in connection with the acquisition of computer
systems in an aggregate amount in excess of $350,000 and (b) Borrower
shall not make or incur any other Capital Expenditures during such
fiscal year in the aggregate amount in excess of $250,000, and (ii)
would exceed $300,000 for the 1999 fiscal year.
Compensation: Borrower shall not pay total compensation, including salaries,
withdrawals, fees, bonuses, commissions, drawing accounts and other
payments, whether directly or indirectly, in money or otherwise, during
any of the 1997, 1998 or 1999 fiscal years, to all of Borrower's
executives, officers and directors (or any relative thereof) in an
amount in excess of 115% of such total compensation paid in the fiscal
year immediately preceding such fiscal year.
Indebtedness: Borrower shall not create, incur, assume or permit to exist any
Indebtedness (including Indebtedness in connection with Capital Leases)
in excess of $150,000 other than (i) the Obligations, (ii) trade
7
<PAGE>
payables and other contractual obligations to suppliers and customers
incurred in the ordinary course of business, (iii) other Indebtedness
existing on the date of this Agreement and reflected in Exhibit G
attached hereto (other than Indebtedness paid on the date of this
Agreement from proceeds of the initial advances hereunder), (iv) the
Subordinated Debt and (v) any Indebtedness incurred in connection with
the acquisition of the computer system.
</TABLE>
================================================================================
REPORTING REQUIREMENTS (SECTION 9.1):
1. Borrower shall provide FINOVA with monthly agings aged by
invoice date and reconciliations of Receivables within fifteen
(15) days after the end of each month.
2. Borrower shall provide FINOVA with monthly accounts payable
agings aged by invoice date, outstanding or held check
registers and inventory certificates within fifteen (15) days
after the end of each month.
3. Borrower shall provide FINOVA with monthly inventory reports
for the Inventory valued on a first-in, first-out basis at the
lower of cost or market (in accordance with GAAP) or such
other inventory reports as are reasonably requested by FINOVA,
all within twenty (20) days (fifteen (15) days, after the
installation of a computerized perpetual inventory system)
after the end of each month.
4. Borrower shall provide FINOVA with monthly unaudited financial
statements within thirty (30) days after the end of each
month.
5. Borrower shall provide FINOVA with audited consolidated and
consolidating fiscal financial statements within ninety (90)
days after the end of each fiscal year, as more specifically
described in Section 9.1(b) hereof, and with an opinion issued
by a Certified Public Accountant which is acceptable to
FINOVA.
6. Borrower shall provide FINOVA with annual operating budgets
(including income statements, balance sheets and cash flow
statements, by month) for the upcoming fiscal year of Borrower
within thirty (30) days prior to the end of each fiscal year
of Borrower.
7. Borrower's balance sheets for purposes of the definition of
Prepared Financials shall be as of December 31, 1997.
================================================================================
TERM (SECTION 9.2):
The term of this Agreement shall be two (2) years from the
date hereof (the "Term"), unless earlier terminated as
provided in Section 7 or 9.2 above or elsewhere in this
Agreement.
8
<PAGE>
================================================================================
TERMINATION FEE (SECTION 9.2):
(A) Revolving Credit Loans Facility. The Termination Fee
applicable to the Revolving Credit Loans facility provided for
in Section 9.2(d) shall be an amount equal to the following
percentage of Revolving Credit Limit:
(i) three percent (3%), if such early termination occurs on or
prior to the first anniversary of the date of this Agreement;
and
(ii) three percent (3%), if such early termination occurs on
or prior to the second anniversary of the date of this
Agreement.
(B) Term Loans. The Termination Fee applicable to the Term
Loans provided for in Section 9.2(d) shall be equal to:
(i) three percent (3%) of the amount prepaid if such
prepayment is made during the Loan Year beginning on the
Closing Date; and
(ii) three percent (3%) of the amount prepaid if such
prepayment is made during the Loan Year beginning on the first
anniversary of the Closing Date.
Notwithstanding the foregoing, the Termination Fee shall not
apply to Term Loan B, provided the real property owned by
Borrower located in Tampa, Florida is sold by Borrower in
accordance with the provisions of Section 6.2.18 of this
Agreement prior to December 31, 1997.
================================================================================
DISBURSEMENT (SECTION 9.11):
Unless and until Borrower otherwise directs FINOVA in writing,
all loans shall be wired to Borrower's following operating
account:
NationsBank of Texas N.A.
Fort Worth, Texas
ABA Number: 111000025
For Credit to:
NationsBank, Texas
Fort Worth Commercial Banking
9
<PAGE>
Further Credit to:
The Leather Factory, Inc.
Account Number 5050347716
================================================================================
ADDITIONAL PROVISIONS:
1. Excess Cash Flow Prepayments. Within sixty (60) days
following receipt by FINOVA of Borrower's annual audited
financial statements, commencing with such financial
statements for Borrower's fiscal year ending December 31,
1997, FINOVA may deliver a notice to Borrower requiring
Borrower to prepay Term Loan C in an amount up to fifty
percent (50%) of Borrower's Excess Cash Flow for such year.
Any prepayments required under this section are strictly at
the sole option of FINOVA, and are payable within thirty (30)
days following the date of demand by FINOVA. Each such
prepayment shall be applied to the remaining principal
installments due under Term Loan C in the inverse order of
their respective maturities.
--------------------------------------------------------------
No Termination Fee or other form of prepayment premium shall
be applied to any payments made under this section.
2. Brokerage Fee. Notwithstanding the provisions in Section
2.6 of this Agreement, fees payable to First Capital Advisors
("Brokerage Fee") shall be due and payable in twelve (12)
equal monthly installments commencing on the Closing Date and
continuing on the first day of each of the eleven (11) months
thereafter. Borrower shall indemnify and hold FINOVA harmless
against any and all claims from First Capital Advisors in
connection with the Brokerage Fee.
3. Audit or Examination. Audit or examination of Borrower
performed by FINOVA prior to or after the date hereof shall be
limited to no more than once per month, provided however,
notwithstanding the foregoing, if any Event of Default exists
and is continuing, audit or examination of Borrower by FINOVA
shall not be subject to such limitation.
================================================================================
10
<PAGE>
BORROWERS:
THE LEATHER FACTORY, INC., a Delaware
corporation, Fed ID Tax No. 75-2543540, THE
LEATHER FACTORY, INC., a Texas corporation,
Fed ID Tax No. 75-1721123, THE LEATHER
FACTORY, INC., an Arizona corporation, Fed
ID Tax No. 86-0540648, HI-LINE LEATHER &
MANUFACTURING COMPANY, a California
corporation, Fed ID Tax No. 94-1122115, and
ROBERTS, CUSHMAN & COMPANY, INC., a New York
corporation, Fed ID Tax No. 13-2682601
By: /s/ Fred N. Howell
----------------------------
Fred N. Howell
Chief Financial Officer
LENDER:
FINOVA CAPITAL CORPORATION
By: /s/ John Sorber
-----------------------------
John Sorber
Vice President
<PAGE>
STATE OF TEXAS )
) SS.
COUNTY OF TARRANT )
On this 19th day of November , 1997, before me, a Notary Public in and for
the State of TEXAS , in the County aforesaid, personally appeared Fred N.
Howell, to me known to be Chief Financial Officer of THE LEATHER FACTORY, INC.,
a Delaware corporation, THE LEATHER FACTORY, INC., a Texas corporation, THE
LEATHER FACTORY, INC., an Arizona corporation, HI-LINE LEATHER & MANUFACTURING
COMPANY, a California corporation and ROBERT, CUSHMAN & COMPANY, INC., a New
York corporation that executed the foregoing instrument, and upon oath did
depose that he the Chief Financial Officer of such corporations, that the
signature to said instrument was made by the Chief Financial Officer of said
corporations as indicated after said signature, and that the corporations
executed the said instrument freely and voluntarily for the uses and purposes
therein mentioned.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal the day
and year first above written.
/S/ Barbara Marvin
----------------------------------------------
NOTARY PUBLIC in and for said State and County
My commission expires: 10-16-2001
Schedule to Loan and Security Agreement
<PAGE>
FINOVA CAPITAL CORPORATION &
THE LEATHER FACTORY, INC.
Loan and Security Agreement
Exhibit A
Borrower's State of Incorporation
Exact Corporate Name Jurisdiction
-------------------- ------------
The Leather Factory, Inc. (a Delaware Corporation) Delaware
The Leather Factory, Inc. (a Texas Corporation) Texas
The Leather Factory, Inc. (an Arizona Corporation) Arizona
Hi-Line Leather & Manufacturing Company California
Roberts, Cushman & Company, Inc. New York
<PAGE>
FINOVA CAPITAL CORPORATION &
THE LEATHER FACTORY, INC.
Loan and Security Agreement
Exhibit B
Borrower's Copyrights, Patents, Trademarks, and Licenses
Item A. Copyrights -- See Attachment 1 to the Copyright Security Agreement
attached.
Item B. Patents -- See Attachment 1 to the Patent Security Agreement
attached.
Item C. Trademarks & Licenses -- See Attachment 1 to the Trademark Security
Agreement attached.
<PAGE>
FINOVA CAPITAL CORPORATION &
THE LEATHER FACTORY, INC.
Loan and Security Agreement
Exhibit C
Prior Corporate/Fictitious Names
--------------------------------
Durr Leather Company, Inc.
Taurus Leather, Inc.
Midas Leathercraft Tool Co., Inc.
National Transfer & Register Corp.
Drake Leather Company
Exhibit D
Current Fictitious Names
------------------------
The Leather Factory
Royal Crown Custom Leathers
Midas Leathercraft Tool Company
The Leather Warehouse
Gulf Coast Leather
American Leather Company
Tejas Lace
Midas Metals
Jon Thompson Sales
<PAGE>
FINOVA CAPITAL CORPORATION &
THE LEATHER FACTORY, INC.
Loan and Security Agreement
Exhibit E
Borrower's Locations
Unit # Location Unit # Location
------ -------- ------ --------
1 The Leather Factory, Inc. 13 The Leather Factory, Inc.
3101 Williams Street American Leather Company
Chattanooga, TN 37409 1214 W. Cass St.
Tampa, FL 33601
2 The Leather Factory, Inc.
10685 E. 51st Ave. #2 14 The Leather Factory, Inc.
Denver, CO 80239 5710 Mobud St.
San Antonio, TX 78268
3 The Leather Factory, Inc.
1818 N. Cameron St. 15 The Leather Factory, Inc.
Harrisburg, PA 17110 4683 Morse Centre Dr.
Columbus, OH 43229
4 The Leather Factory, Inc.
3847 East Loop 820 South 16 The Leather Factory, Inc.
Fort Worth, Texas 76119 435-E Henry Brennan Dr.
El Paso, TX 79926
5 The Leather Factory, Inc.
2750 N. Clovis Ave. 17 The Leather Factory, Inc.
Fresno, CA 93747 Hi-Line Leather & Mfg., Inc.
919 International Blvd.
6 The Leather Factory, Inc. Oakland, CA 94606
5041 N.E. 14th Street
Des Moines, IA 50316 18 The Leather Factory, Inc.
The Leather Warehouse
7 The Leather Factory, Inc. 3134 S. Division Ave.
425 North 19th Ave. Grand Rapids, MI 49548
Phoenix, Arizona 85009
19 The Leather Factory, Inc.
8 The Leather Factory, Inc. 2435 W. Pawnee
2341 E. Kearney Wichita, KS 67213
Springfield, MO 65803
20 The Leather Factory, Inc.
9 The Leather Factory, Inc. Gulf Coast Leather
28 West Boone Ave. 5617 Crawford Street
Spokane, WA 99201 New Orleans, LA 70123
10 The Leather Factory, Inc. 22 The Leather Factory, Inc.
2491 Candelaria N.E. 2526 S. Tryon St.
Albuquerque, NM 87190 Charlotte, NC 28234
11 The Leather Factory, Inc. 50 Roberts, Cushman & Company, Inc.
2331 S. State Street 119 West 24th Street
Salt Lake City, UT 84165 New York, NY 10011
12 The Leather Factory, Inc. 70 The Leather Factory of Canada,
Ltd.
1376-A Maine Ave. 104 King Edward St. E.
Baldwin Park, CA 91706 Winnipeg, MB R3HON8
CANADA
Company's Chief Executive Offices
The Leather Factory, Inc.
3847 East Loop 820 South
Fort Worth, Texas 76119
<PAGE>
FINOVA CAPITAL CORPORATION &
THE LEATHER FACTORY, INC.
Loan and Security Agreement
Exhibit F
Borrower's Federal Tax Identification Numbers
Exact Corporate Name Federal EIN
-------------------- -----------
The Leather Factory, Inc. (a Delaware Corporation) 75-2543540
The Leather Factory, Inc. (a Texas Corporation) 75-1721123
The Leather Factory, Inc. (an Arizona Corporation) 86-0540648
Hi-Line Leather & Manufacturing Company 94-1122115
Roberts, Cushman & Company, Inc. 13-2682601
<PAGE>
FINOVA CAPITAL CORPORATION &
THE LEATHER FACTORY, INC.
Loan and Security Agreement
<TABLE>
<CAPTION>
Exhibit G
Other Indebtedness existing on the date of this Agreement
<S> <C>
Principal Balance
-----------------
Item A. Dick Hill Note (Subordinated debt acquired in the purchase of $21,659.59
The Leather Warehouse assets) (See attached Amortization
Schedule)
Item B. A.C. Financial Corp. Capital Lease (Lease #16-200-0001, $64,040.64
Schedule #16-0001-A) (Computer System Lease) (See attached
Amortization Schedule)
Item C. A.C. Financial Corp. Capital Lease (Lease #16-200-0001, $29,788.89
Schedule #16-0001-C) (Computer System Lease) (See attached
Amortization Schedule)
</TABLE>
<PAGE>
FINOVA CAPITAL CORPORATION &
THE LEATHER FACTORY, INC.
Loan and Security Agreement
Exhibit H
Equity Interest Liens
1. The lien created by the plege of shares pursuant to this agreement to FINOVA
Capital Corporation.
2. The lien created by the plege of shares pursuant to the subordinated note to
the Schlinger Foundation.
<TABLE>
<S> <C> <C>
Registration Statements
-----------------------
Form Commission Date Filed or
Number Description File Number Effective Date
- ------ ----------- ----------- --------------
10-SB General Form of Registration of Securities of Small 0-22128 07/22/93
Business Issuers
Amendement No. 1 09/07/93
Amendement No. 2 09/23/93
Amendement No. 3 09/30/93
S-8 1993 Stock Option Plan 33-69214 09/23/93
Amendement No. 1 05/08/94
S-8 ESOP Plan 33-81214 07/05/94
SB-2 Registration Statement 33-81132 07/05/94
Amendment No. 1 07/21/94
Post Effective Amendment No. 1 04/04/95
Post Effective Amendment No. 2 06/28/96
S-8 1995 Stock Option Plans 333-07147 06/28/96
8-A Emerging Company Market Place of the American Stock 1-12368 09/24/93
Exchange Listing
8-A American Stock Exchange Primary Listing 1-12368 12/27/93
8-B American Stock Exchange Substitute Listing of 1-12368 08/15/94
Delaware Corporation Shares
</TABLE>
<PAGE>
EXHIBIT 4.2
<PAGE>
REVOLVING NOTE
$7,000,000.00 Phoenix, Arizona
November 21, 1997
FOR VALUE RECEIVED, THE LEATHER FACTORY, INC., a Delaware corporation, THE
LEATHER FACTORY, INC., a Texas corporation, formerly known as Midas Leathercraft
Tool Company, a Texas corporation, THE LEATHER FACTORY, INC., an Arizona
corporation, HI-LINE LEATHER & MANUFACTURING COMPANY, a California corporation,
and ROBERTS, CUSHMAN & COMPANY, INC., a New York corporation (hereinafter
referred to individually as a "Borrower" and collectively as "Borrowers"),
jointly and severally, hereby promise to pay to the order of FINOVA CAPITAL
CORPORATION, a Delaware corporation ("FINOVA"), at its offices at 355 South
Grand Avenue, Suite 2400, Los Angeles, California 90071, or at such other place
or places as the holder hereof from time to time may designate in writing, the
principal sum of SEVEN MILLION AND NO/100 DOLLARS ($7,000,000.00), plus interest
thereon as set forth below and any other charges applicable thereto, in
accordance with the applicable provisions of that certain Loan and Security
Agreement of even date herewith among FINOVA and Borrowers (such Loan and
Security Agreement, as the same may be amended, modified, supplemented or
restated from time to time, hereinafter is referred to as the "Loan Agreement"),
the provisions of which are incorporated herein by this reference. This
Revolving Note (this "Note") is delivered by Borrowers to FINOVA to evidence the
Revolving Credit Loans (this and all other capitalized terms used but not
elsewhere defined herein shall have the respective meanings ascribed to such
terms in the Loan Agreement).
1.0 Rate and Payment of Interest; Scheduled Principal Payments; Prepayment.
1.1 The principal balance of this Note shall bear interest at the
applicable per annum rate set forth in the Loan Agreement. Accrued and unpaid
interest on this Note shall be payable monthly in arrears on the first day of
each month, beginning December 1, 1997. Interest shall be calculated in the
manner and upon the terms and conditions set forth in the Loan Agreement.
1.2 The unpaid principal balance of this Note shall be payable in
accordance with the terms of the Loan Agreement.
1.3 Prepayment may be made under this Note in whole but not in part,
subject to the provisions of Section 9.2(d) of the Loan Agreement.
Notwithstanding anything herein to the contrary, in the event the Loan Agreement
is terminated by Borrowers, by FINOVA or by any other person at any time, then
the entire unpaid principal balance of this Note, together with all accrued and
unpaid interest hereon, the full amount of the applicable Termination Fee and
all other sums which then are due and payable pursuant to the Loan Agreement,
shall become immediately due and payable in full on the effective date of such
termination, without presentment, notice or demand of any kind.
1.4 All payments to be made by Borrowers pursuant to this Note shall be
made in accordance with the instructions therefor set forth in the Loan
Agreement. Payment shall not be deemed to have been received by FINOVA until
FINOVA is in receipt of United States Dollars available in collected funds to
FINOVA at or before 12:00 p.m. Los Angeles time on a Business Day.
2.0 Events of Defaults; Remedies.
2.1 Subject to the provisions of the Loan Agreement, at the election of the
holder hereof, upon the occurrence of an Event of Default, without further
notice or demand, the principal balance of this Note, all accrued and unpaid
interest thereon and the Termination Fee, shall be and become immediately due
and payable in full. Failure to exercise this option shall not constitute a
waiver of the right to exercise the same in the event of any subsequent Event of
Default, and such failure shall not be deemed to establish a custom or course of
dealing or performance among Borrowers and FINOVA.
<PAGE>
2.2 Upon the occurrence of an Event of Default, FINOVA may enforce its
rights and remedies under the Loan Documents in accordance with their terms and
may exercise all rights and remedies available to it under applicable law, by
virtue of statute or otherwise, including without limitation all rights and
remedies available under the Uniform Commercial Code or other laws of Arizona.
2.3 The remedies of FINOVA as provided herein and in the Loan Agreement
shall be cumulative and concurrent, and may be pursued singularly, successively,
or together, at the sole discretion of FINOVA. No act of omission or commission
of FINOVA, including specifically any failure to exercise any right, remedy or
recourse, shall be deemed to be a waiver or release of the same, such waiver or
release to be effected only through a written document executed by FINOVA and
then only to the extent specifically recited therein. A waiver or release with
reference to any one event shall not be construed as continuing, as a bar to, or
as a waiver or release of, any subsequent right, remedy or recourse as to a
subsequent event.
3.0 General Provisions.
3.1 Each Borrower warrants and represents to FINOVA that such Borrower has
used and will continue to use the loans and advances represented by this Note
solely for proper business purposes, and consistent with all applicable laws and
statutes.
3.2 This Note is secured by the Collateral described in the Loan Agreement.
3.3 Each Borrower waives presentment for payment, demand and protest,
notice of protest, demand, dishonor and nonpayment of this Note and all other
notices and demands in connection with the enforcement of FINOVA's rights
hereunder, except as specifically provided and called for by the Loan Agreement,
and hereby consents to, and waives notice of, the release, addition, or
substitution, with or without consideration, of any collateral or of any person
liable for payment of this Note. Any failure of FINOVA to exercise any right
available hereunder or otherwise shall not be construed as a waiver of the right
to exercise the same or as a waiver of any other right at any other time.
3.4 If this Note is not paid when due or upon the occurrence of an Event of
Default, Borrowers, jointly and severally, further promise to pay all costs of
collection, foreclosure fees, attorneys fees and expert witness fees incurred by
FINOVA, whether or not suit is filed hereon, and the fees, costs and expenses as
provided in the Loan Agreement.
3.5 The contracted for rate of interest of the Loan contemplated hereby,
without limitation, shall consist of the following: (i) the interest rate set
forth on the Schedule, calculated and applied to the principal balance of this
Note in accordance with the provisions of this Note; (ii) interest after an
Event of Default, calculated and applied to the amounts due under this Note in
accordance with the provisions hereof; and (iii) all Additional Sums (as herein
defined), if any. Each Borrower agrees to pay an effective contracted for rate
of interest which is the sum of the above-referenced elements. All examination
fees, attorneys fees, expert witness fees, letter of credit fees, collateral
monitoring fees, closing fees, facility fees, Termination Fees, Minimum Interest
Charges, other charges, goods, things in action or any other sums or things of
value paid or payable by Borrowers (collectively, the "Additional Sums"),
whether pursuant to this Note, the Loan Agreement or any other documents or
instruments in any way pertaining to this lending transaction, or otherwise with
respect to this lending transaction, that under any applicable law may be deemed
to be interest with respect to this lending transaction, for the purpose of any
applicable law that may limit the maximum amount of interest to be charged with
respect to this lending transaction, shall be payable by Borrowers as, and shall
be deemed to be, additional interest and for such purposes only, the agreed upon
and "contracted for rate of interest" of this lending transaction shall be
deemed to be increased by the rate of interest resulting from the inclusion of
the Additional Sums.
3.6 It is the intent of the parties to comply with the usury law of the
State of Arizona (the "Applicable Usury Law"). Accordingly, it is agreed that
notwithstanding any provisions to the contrary in this Note, or in any of the
documents securing payment hereof or otherwise relating hereto, in no event
shall this Note or such documents require the payment or permit the collection
of interest in excess of the Maximum Interest Rate, then in any such event (i)
the provisions of this paragraph shall govern and control, (ii) neither any
-2-
<PAGE>
Borrower nor any other person or entity now or hereafter liable for the payment
hereof shall be obligated to pay the amount of such interest to the extent that
it is in the excess of the Maximum Interest Rate, (iii) any such excess which
may have been collected shall be either applied as a credit against the then
outstanding principal amount hereof or refunded to Borrowers, at FINOVA's
option, and (iv) the effective rate of interest shall be automatically reduced
to the Maximum Interest Rate. It is further agreed, without limiting the
generality of the foregoing, that to the extent permitted by the Applicable
Usury Law, all calculations of interest which are made for the purpose of
determining whether such rate would exceed the Maximum Interest Rate shall be
made by amortizing, prorating, allocating and spreading during the period of the
full stated term of the loan evidenced hereby, all interest at any time
contracted for, charged or received from Borrowers or otherwise in connection
with such loan, and in the event that the effective rate of interest on the loan
should at any time exceed the Maximum Interest Rate, such excess interest that
would otherwise have been collected had there been no ceiling imposed by the
Applicable Usury Law shall be paid to FINOVA from time to time, if and when the
effective interest rate on the loan otherwise falls below the Maximum Interest
Rate, until the entire amount of interest which would otherwise have been
collected had there been no ceiling imposed by the Applicable Usury Law has been
paid in full. Each Borrower further agrees that should the Maximum Interest Rate
be increased at any time hereafter because of a change in the Applicable Usury
Law, then to the extent not prohibited by the Applicable Usury Law, such
increases shall apply to all indebtedness evidenced hereby regardless of when
incurred; but, again to the extent not prohibited by the Applicable Usury Law,
should the Maximum Interest Rate be decreased because of a change in the
Applicable Usury Law, such decreases shall not apply to the indebtedness
evidenced hereby regardless of when incurred.
3.7 FINOVA may at any time transfer this Note and FINOVA's rights in any or
all collateral securing this Note, and FINOVA thereafter shall be relieved from
all liability with respect to such collateral arising after the date of such
transfer.
3.8 Each Borrower expressly agrees that this Note, or any payment
hereunder, may be extended from time to time before, at or after maturity,
without in any way affecting the liability of Borrower hereunder or any
guarantor hereof.
3.9 This Note may not be changed or amended orally, but only by an
instrument in writing signed by the party against whom enforcement of the change
or amendment is sought.
3.10 This Note shall be binding upon Borrowers and their legal
representatives, successors and assigns. Wherever possible, each provision of
this Note shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of the Note shall be prohibited by or
invalid under such law, such provision shall be severable, and be ineffective to
the extent of such prohibition or invalidity, without invalidating the remaining
provision of this Note.
3.11 Time for the performance of the obligations of Borrowers under this
Note is of the essence of this Note.
THIS NOTE HAS BEEN DELIVERED FOR ACCEPTANCE BY FINOVA IN PHOENIX, ARIZONA
AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AS
OPPOSED TO THE CONFLICTS OF LAW PROVISIONS) OF THE STATE OF ARIZONA, AS THE SAME
MAY FROM TIME TO TIME BE IN EFFECT, INCLUDING, WITHOUT LIMITATION, THE UNIFORM
COMMERCIAL CODE AS ADOPTED IN ARIZONA. EACH BORROWER HEREBY (i) IRREVOCABLY
SUBMITS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED IN MARICOPA
COUNTY, ARIZONA OVER ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY MATTER
ARISING FROM OR RELATED TO THIS NOTE; (ii) WAIVES PERSONAL SERVICE OF ANY AND
ALL PROCESS UPON SUCH BORROWER, AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE
MADE BY MESSENGER, CERTIFIED MAIL OR REGISTERED MAIL DIRECTED TO SUCH BORROWER
AT THE ADDRESS SET FORTH BELOW AND SERVICE SO MADE SHALL BE DEEMED TO BE
COMPLETED UPON THE EARLIER OF ACTUAL RECEIPT OR THREE (3) DAYS AFTER THE SAME
SHALL HAVE BEEN POSTED TO SUCH BORROWER'S ADDRESS; (iii) IRREVOCABLY WAIVES, TO
THE FULLEST EXTENT SUCH BORROWER MAY EFFECTIVELY DO SO, THE DEFENSE OF AN
INCONVENIENT FORUM TO THE MAINTENANCE OF ANY SUCH ACTION OR PROCEEDING; (iv)
AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE
-3-
<PAGE>
CONCLUSIVE AND MAY BE ENFORCED IN ANY OTHER JURISDICTION BY SUIT ON THE JUDGMENT
OR IN ANY OTHER MANNER PROVIDED BY LAW; (v) AGREES NOT TO INSTITUTE ANY LEGAL
ACTION OR PROCEEDING AGAINST FINOVA OR ANY OF FINOVA'S DIRECTORS, OFFICERS,
EMPLOYEES, AGENTS OR PROPERTY, CONCERNING ANY MATTER ARISING OUT OF OR RELATING
TO THIS NOTE IN ANY COURT OTHER THAN ONE LOCATED IN MARICOPA COUNTY, ARIZONA;
AND (vi) IRREVOCABLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION ARISING
UNDER OR IN CONNECTION WITH THIS NOTE. NOTHING IN THIS PARAGRAPH SHALL AFFECT OR
IMPAIR FINOVA'S RIGHT TO SERVE LEGAL PROCESS IN ANY MANNER PERMITTED BY LAW OR
FINOVA'S RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST ANY BORROWER OR
BORROWER'S PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION.
[remainder of this page intentionally left blank]
-4-
<PAGE>
IN WITNESS WHEREOF, Borrower has executed this Note as of the
day and year first written above.
THE LEATHER FACTORY, INC., a Delaware corporation, Fed ID
Tax No. 75-2543540,
THE LEATHER FACTORY, INC., a Texas corporation, formerly
known as Midas Leathercraft Tool Company, a Texas
corporation, Fed ID Tax No. 75-1721123,
THE LEATHER FACTORY, INC., an Arizona corporation, Fed ID
Tax No. 86-0540648,
HI-LINE LEATHER & MANUFACTURING COMPANY, a California
corporation, Fed ID Tax No.: 94-1122115,
ROBERTS, CUSHMAN & COMPANY, INC., a New York corporation,
Fed ID Tax No. 13-2682601
By: /s/ Fred N. Howell
---------------------------------------------------------
Fred N. Howell
Chief Financial Officer
Borrowers' Address:
3847 East Loop 820 South
Fort Worth, Texas 76119
Revolving Note
<PAGE>
EXHIBIT 4.3
<PAGE>
TERM LOAN A NOTE
$400,000 Phoenix, Arizona
November 21, 1997
FOR VALUE RECEIVED, THE LEATHER FACTORY, INC., a Delaware corporation, THE
LEATHER FACTORY, INC., a Texas corporation, formerly known as Midas Leathercraft
Tool Company, a Texas corporation, THE LEATHER FACTORY, INC., an Arizona
corporation, HI-LINE LEATHER & MANUFACTURING COMPANY, a California corporation,
and ROBERTS, CUSHMAN & COMPANY, INC., a New York corporation (hereinafter
referred to individually as a "Borrower" and collectively as "Borrowers"),
jointly and severally, hereby promise to pay to the order of FINOVA CAPITAL
CORPORATION, a Delaware corporation ("FINOVA"), at its offices at 355 South
Grand Avenue, Suite 2400, Los Angeles, California 90071, or at such other place
or places as the holder hereof from time to time may designate in writing, the
principal sum of FOUR HUNDRED THOUSAND AND NO/100 DOLLARS ($400,000), plus
interest thereon as set forth below and any other charges applicable thereto, in
accordance with the applicable provisions of that certain Loan and Security
Agreement of even date herewith among FINOVA and Borrowers (such Loan and
Security Agreement, as the same may be amended, modified, supplemented or
restated from time to time, hereinafter is referred to as the "Loan Agreement"),
the provisions of which are incorporated herein by this reference. This Term
Loan A Note (this "Note") is delivered by Borrowers to FINOVA to evidence Term
Loan A (this and all other capitalized terms used but not elsewhere defined
herein shall have the respective meanings ascribed to such terms in the Loan
Agreement).
1.0 Rate and Payment of Interest; Scheduled Principal Payments; Prepayment.
1.1 The principal balance of this Note shall bear interest at the
applicable per annum rate set forth in the Loan Agreement. Accrued and unpaid
interest on this Note shall be payable monthly in arrears on the first day of
each month, beginning December 1, 1997. Interest shall be calculated in the
manner and upon the terms and conditions set forth in the Loan Agreement.
1.2 The unpaid principal balance of this Note shall be payable as follows:
a. Twenty-three (23) successive monthly installments, each
in the principal amount of Six Thousand Six Hundred Sixty-Six
Dollars and 67/100 ($6,666.67), shall be payable on the first day
of each month, beginning January 1, 1998, and continuing through
and including November 1, 1999; and
b. A final monthly installment in the principal amount of
Two Hundred Forty-Six Thousand Six Hundred Sixty-Six Dollars and
59/100 ($246,666.59) shall be payable on the first day of
December, 1999.
Concurrently with the making of such final monthly installment, Borrowers shall
pay to FINOVA all other sums which then are due and payable pursuant to the Loan
Agreement.
1.3 Prepayment may be made under this Note in whole but not in part,
subject to the provisions of Section 9.2(d) of the Loan Agreement.
Notwithstanding anything herein to the contrary, in the event the Loan Agreement
is terminated by Borrowers, by FINOVA or by any other person at any time, then
the entire unpaid principal balance of this Note, together with all accrued and
unpaid interest hereon, the full amount of the applicable Termination Fee and
all other sums which then are due and payable pursuant to the Loan Agreement,
shall become immediately due and payable in full on the effective date of such
termination, without presentment, notice or demand of any kind.
1.4 All payments to be made by Borrowers pursuant to this Note shall be
made in accordance with the instructions therefor set forth in the Loan
<PAGE>
Agreement. Payment shall not be deemed to have been received by FINOVA until
FINOVA is in receipt of United States Dollars available in collected funds to
FINOVA at or before 12:00 p.m. Los Angeles time on a Business Day.
2.0 Events of Defaults; Remedies.
2.1 Subject to the provisions of the Loan Agreement, at the election of the
holder hereof, upon the occurrence of an Event of Default, without further
notice or demand, the principal balance of this Note, all accrued and unpaid
interest thereon and the Termination Fee, shall be and become immediately due
and payable in full. Failure to exercise this option shall not constitute a
waiver of the right to exercise the same in the event of any subsequent Event of
Default, and such failure shall not be deemed to establish a custom or course of
dealing or performance among Borrowers and FINOVA.
2.2 Upon the occurrence of an Event of Default, FINOVA may enforce its
rights and remedies under the Loan Documents in accordance with their terms and
may exercise all rights and remedies available to it under applicable law, by
virtue of statute or otherwise, including without limitation all rights and
remedies available under the Uniform Commercial Code or other laws of Arizona.
2.3 The remedies of FINOVA as provided herein and in the Loan Agreement
shall be cumulative and concurrent, and may be pursued singularly, successively,
or together, at the sole discretion of FINOVA. No act of omission or commission
of FINOVA, including specifically any failure to exercise any right, remedy or
recourse, shall be deemed to be a waiver or release of the same, such waiver or
release to be effected only through a written document executed by FINOVA and
then only to the extent specifically recited therein. A waiver or release with
reference to any one event shall not be construed as continuing, as a bar to, or
as a waiver or release of, any subsequent right, remedy or recourse as to a
subsequent event.
3.0 General Provisions.
3.1 Each Borrower warrants and represents to FINOVA that such Borrower has
used and will continue to use the loans and advances represented by this Note
solely for proper business purposes, and consistent with all applicable laws and
statutes.
3.2 This Note is secured by the Collateral described in the Loan Agreement.
3.3 Each Borrower waives presentment for payment, demand and protest,
notice of protest, demand, dishonor and nonpayment of this Note and all other
notices and demands in connection with the enforcement of FINOVA's rights
hereunder, except as specifically provided and called for by the Loan Agreement,
and hereby consents to, and waives notice of, the release, addition, or
substitution, with or without consideration, of any collateral or of any person
liable for payment of this Note. Any failure of FINOVA to exercise any right
available hereunder or otherwise shall not be construed as a waiver of the right
to exercise the same or as a waiver of any other right at any other time.
3.4 If this Note is not paid when due or upon the occurrence of an Event of
Default, Borrowers, jointly and severally, further promise to pay all costs of
collection, foreclosure fees, attorneys fees and expert witness fees incurred by
FINOVA, whether or not suit is filed hereon, and the fees, costs and expenses as
provided in the Loan Agreement.
3.5 The contracted for rate of interest of the loan contemplated hereby,
without limitation, shall consist of the following: (i) the interest rate set
forth on the Schedule, calculated and applied to the principal balance of this
Note in accordance with the provisions of this Note; (ii) interest after an
Event of Default, calculated and applied to the amounts due under this Note in
accordance with the provisions hereof; and (iii) all Additional Sums (as herein
defined), if any. Each Borrower agrees to pay an effective contracted for rate
of interest which is the sum of the above-referenced elements. All examination
fees, attorneys fees, expert witness fees, letter of credit fees, collateral
monitoring fees, closing fees, facility fees, Termination Fees, Minimum Interest
Charges, other charges, goods, things in action or any other sums or things of
value paid or payable by Borrowers (collectively, the "Additional Sums"),
-2-
<PAGE>
whether pursuant to this Note, the Loan Agreement or any other documents or
instruments in any way pertaining to this lending transaction, or otherwise with
respect to this lending transaction, that under any applicable law may be deemed
to be interest with respect to this lending transaction, for the purpose of any
applicable law that may limit the maximum amount of interest to be charged with
respect to this lending transaction, shall be payable by Borrowers as, and shall
be deemed to be, additional interest and for such purposes only, the agreed upon
and "contracted for rate of interest" of this lending transaction shall be
deemed to be increased by the rate of interest resulting from the inclusion of
the Additional Sums.
3.6 It is the intent of the parties to comply with the usury law of the
State of Arizona (the "Applicable Usury Law"). Accordingly, it is agreed that
notwithstanding any provisions to the contrary in this Note, or in any of the
documents securing payment hereof or otherwise relating hereto, in no event
shall this Note or such documents require the payment or permit the collection
of interest in excess of the Maximum Interest Rate, then in any such event (i)
the provisions of this paragraph shall govern and control, (ii) neither any
Borrower nor any other person or entity now or hereafter liable for the payment
hereof shall be obligated to pay the amount of such interest to the extent that
it is in the excess of the Maximum Interest Rate, (iii) any such excess which
may have been collected shall be either applied as a credit against the then
unpaid principal amount hereof or refunded to Borrowers, at FINOVA's option, and
(iv) the effective rate of interest shall be automatically reduced to the
Maximum Interest Rate. It is further agreed, without limiting the generality of
the foregoing, that to the extent permitted by the Applicable Usury Law, all
calculations of interest which are made for the purpose of determining whether
such rate would exceed the Maximum Interest Rate shall be made by amortizing,
prorating, allocating and spreading during the period of the full stated term of
the loan evidenced hereby, all interest at any time contracted for, charged or
received from Borrowers or otherwise in connection with such loan, and in the
event that the effective rate of interest on the loan should at any time exceed
the Maximum Interest Rate, such excess interest that would otherwise have been
collected had there been no ceiling imposed by the Applicable Usury Law shall be
paid to FINOVA from time to time, if and when the effective interest rate on the
loan otherwise falls below the Maximum Interest Rate, until the entire amount of
interest which would otherwise have been collected had there been no ceiling
imposed by the Applicable Usury Law has been paid in full. Each Borrower further
agrees that should the Maximum Interest Rate be increased at any time hereafter
because of a change in the Applicable Usury Law, then to the extent not
prohibited by the Applicable Usury Law, such increases shall apply to all
indebtedness evidenced hereby regardless of when incurred; but, again to the
extent not prohibited by the Applicable Usury Law, should the Maximum Interest
Rate be decreased because of a change in the Applicable Usury Law, such
decreases shall not apply to the indebtedness evidenced hereby regardless of
when incurred.
3.7 FINOVA may at any time transfer this Note and FINOVA's rights in any or
all collateral securing this Note, and FINOVA thereafter shall be relieved from
all liability with respect to such collateral arising after the date of such
transfer.
3.8 Each Borrower expressly agrees that this Note, or any payment
hereunder, may be extended from time to time before, at or after maturity,
without in any way affecting the liability of such Borrower hereunder or any
guarantor hereof.
3.9 This Note may not be changed or amended orally, but only by an
instrument in writing signed by the party against whom enforcement of the change
or amendment is sought.
3.10 This Note shall be binding upon Borrowers and their legal
representatives, successors and assigns. Wherever possible, each provision of
this Note shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of the Note shall be prohibited by or
invalid under such law, such provision shall be severable, and be ineffective to
the extent of such prohibition or invalidity, without invalidating the remaining
provision of this Note.
3.11 Time for the performance of the obligations of Borrowers under this
Note is of the essence of this Note.
-3-
<PAGE>
THIS NOTE HAS BEEN DELIVERED FOR ACCEPTANCE BY FINOVA IN PHOENIX, ARIZONA
AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AS
OPPOSED TO THE CONFLICTS OF LAW PROVISIONS) OF THE STATE OF ARIZONA, AS THE SAME
MAY FROM TIME TO TIME BE IN EFFECT, INCLUDING, WITHOUT LIMITATION, THE UNIFORM
COMMERCIAL CODE AS ADOPTED IN ARIZONA. EACH BORROWER HEREBY (i) IRREVOCABLY
SUBMITS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED IN MARICOPA
COUNTY, ARIZONA OVER ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY MATTER
ARISING FROM OR RELATED TO THIS NOTE; (ii) WAIVES PERSONAL SERVICE OF ANY AND
ALL PROCESS UPON SUCH BORROWER, AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE
MADE BY MESSENGER, CERTIFIED MAIL OR REGISTERED MAIL DIRECTED TO SUCH BORROWER
AT THE ADDRESS SET FORTH BELOW AND SERVICE SO MADE SHALL BE DEEMED TO BE
COMPLETED UPON THE EARLIER OF ACTUAL RECEIPT OR THREE (3) DAYS AFTER THE SAME
SHALL HAVE BEEN POSTED TO SUCH BORROWER'S ADDRESS; (iii) IRREVOCABLY WAIVES, TO
THE FULLEST EXTENT SUCH BORROWER MAY EFFECTIVELY DO SO, THE DEFENSE OF AN
INCONVENIENT FORUM TO THE MAINTENANCE OF ANY SUCH ACTION OR PROCEEDING; (iv)
AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE
CONCLUSIVE AND MAY BE ENFORCED IN ANY OTHER JURISDICTION BY SUIT ON THE JUDGMENT
OR IN ANY OTHER MANNER PROVIDED BY LAW; (v) AGREES NOT TO INSTITUTE ANY LEGAL
ACTION OR PROCEEDING AGAINST FINOVA OR ANY OF FINOVA'S DIRECTORS, OFFICERS,
EMPLOYEES, AGENTS OR PROPERTY, CONCERNING ANY MATTER ARISING OUT OF OR RELATING
TO THIS NOTE IN ANY COURT OTHER THAN ONE LOCATED IN MARICOPA COUNTY, ARIZONA;
AND (vi) IRREVOCABLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION ARISING
UNDER OR IN CONNECTION WITH THIS NOTE. NOTHING IN THIS PARAGRAPH SHALL AFFECT OR
IMPAIR FINOVA'S RIGHT TO SERVE LEGAL PROCESS IN ANY MANNER PERMITTED BY LAW OR
FINOVA'S RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST ANY BORROWER OR ANY
BORROWER'S PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION.
[remainder of this page intentionally left blank]
-4-
<PAGE>
IN WITNESS WHEREOF, Borrowers have executed this Note as of the day and
year first written above.
THE LEATHER FACTORY, INC., a Delaware corporation, Fed ID
Tax No. 75-2543540,
THE LEATHER FACTORY, INC., a Texas corporation, formerly
known as Midas Leathercraft
Tool Company, a Texas corporation, Fed ID Tax No.
75-1721123, THE LEATHER FACTORY, INC., an Arizona
corporation, Fed ID Tax No. 86-0540648,
HI-LINE LEATHER & MANUFACTURING COMPANY, a California
corporation, Fed ID Tax No.: 94-1122115,
ROBERTS, CUSHMAN & COMPANY, INC., a New York corporation,
Fed ID Tax No. 13-2682601
By: /s/ Fred N. Howell
-----------------------------
Fred N. Howell
Chief Financial Officer
Borrowers' Address:
3847 East Loop 820 South
Fort Worth, Texas 76119
Term Loan A Note
<PAGE>
EXHIBIT 4.4
<PAGE>
TERM LOAN B NOTE
$236,000 Phoenix, Arizona
November 21, 1997
FOR VALUE RECEIVED, THE LEATHER FACTORY, INC., a Delaware corporation, THE
LEATHER FACTORY, INC., a Texas corporation, formerly known as Midas Leathercraft
Tool Company, a Texas corporation, THE LEATHER FACTORY, INC., an Arizona
corporation, HI-LINE LEATHER & MANUFACTURING COMPANY, a California corporation,
and ROBERTS, CUSHMAN & COMPANY, INC., a New York corporation (hereinafter
referred to individually as a "Borrower" and collectively as "Borrowers"),
jointly and severally, hereby promise to pay to the order of FINOVA CAPITAL
CORPORATION, a Delaware corporation ("FINOVA"), at its offices at 355 South
Grand Avenue, Suite 2400, Los Angeles, California 90071, or at such other place
or places as the holder hereof from time to time may designate in writing, the
principal sum of TWO HUNDRED THIRTY-SIX THOUSAND AND NO/100 DOLLARS ($236,000),
plus interest thereon as set forth below and any other charges applicable
thereto, in accordance with the applicable provisions of that certain Loan and
Security Agreement of even date herewith among FINOVA and Borrowers (such Loan
and Security Agreement, as the same may be amended, modified, supplemented or
restated from time to time, hereinafter is referred to as the "Loan Agreement"),
the provisions of which are incorporated herein by this reference. This Term
Loan B Note (this "Note") is delivered by Borrowers to FINOVA to evidence Term
Loan B (this and all other capitalized terms used but not elsewhere defined
herein shall have the respective meanings ascribed to such terms in the Loan
Agreement).
1.0 Rate and Payment of Interest; Scheduled Principal Payments; Prepayment.
1.1 The principal balance of this Note shall bear interest at the
applicable per annum rate set forth in the Loan Agreement. Accrued and unpaid
interest on this Note shall be payable monthly in arrears on the first day of
each month, beginning December 1, 1997. Interest shall be calculated in the
manner and upon the terms and conditions set forth in the Loan Agreement.
1.2 The unpaid principal balance of this Note shall be payable as follows:
a. Twenty-three (23) successive monthly installments, each in the
principal amount of Two Thousand Eight Hundred Nine and 52/100 Dollars
($2,809.52), shall be payable on the first day of each month, beginning
January 1, 1998, and continuing through and including November 1, 1999; and
b. A final monthly installment in the principal amount of One Hundred
Seventy-One Thousand Three Hundred Eighty-One and 4/100 Dollars
($171,381.04) shall be payable on the first day of December, 1999.
Concurrently with the making of such final monthly installment, Borrowers shall
pay to FINOVA all other sums which then are due and payable pursuant to the Loan
Agreement.
1.3 Prepayment may be made under this Note in whole but not in part,
subject to the provisions of Section 9.2(d) of the Loan Agreement.
Notwithstanding anything herein to the contrary, in the event the Loan Agreement
is terminated by Borrowers, by FINOVA or by any other person at any time, then
the entire unpaid principal balance of this Note, together with all accrued and
unpaid interest hereon, the full amount of the applicable Termination Fee and
all other sums which then are due and payable pursuant to the Loan Agreement,
shall become immediately due and payable in full on the effective date of such
termination, without presentment, notice or demand of any kind.
1.4 All payments to be made by Borrowers pursuant to this Note shall be
made in accordance with the instructions therefor set forth in the Loan
Agreement. Payment shall not be deemed to have been received by FINOVA until
<PAGE>
FINOVA is in receipt of United States Dollars available in collected funds to
FINOVA at or before 12:00 p.m. Los Angeles time on a Business Day.
2.0 Events of Defaults; Remedies.
2.1 Subject to the provisions of the Loan Agreement, at the election of the
holder hereof, upon the occurrence of an Event of Default, without further
notice or demand, the principal balance of this Note, all accrued and unpaid
interest thereon and the Termination Fee, shall be and become immediately due
and payable in full. Failure to exercise this option shall not constitute a
waiver of the right to exercise the same in the event of any subsequent Event of
Default, and such failure shall not be deemed to establish a custom or course of
dealing or performance among Borrowers and FINOVA.
2.2 Upon the occurrence of an Event of Default, FINOVA may enforce its
rights and remedies under the Loan Documents in accordance with their terms and
may exercise all rights and remedies available to it under applicable law, by
virtue of statute or otherwise, including without limitation all rights and
remedies available under the Uniform Commercial Code or other laws of Arizona.
2.3 The remedies of FINOVA as provided herein and in the Loan Agreement
shall be cumulative and concurrent, and may be pursued singularly, successively,
or together, at the sole discretion of FINOVA. No act of omission or commission
of FINOVA, including specifically any failure to exercise any right, remedy or
recourse, shall be deemed to be a waiver or release of the same, such waiver or
release to be effected only through a written document executed by FINOVA and
then only to the extent specifically recited therein. A waiver or release with
reference to any one event shall not be construed as continuing, as a bar to, or
as a waiver or release of, any subsequent right, remedy or recourse as to a
subsequent event.
3.0 General Provisions.
3.1 Each Borrower warrants and represents to FINOVA that such Borrower has
used and will continue to use the loans and advances represented by this Note
solely for proper business purposes, and consistent with all applicable laws and
statutes.
3.2 This Note is secured by the Collateral described in the Loan Agreement.
3.3 Each Borrower waives presentment for payment, demand and protest,
notice of protest, demand, dishonor and nonpayment of this Note and all other
notices and demands in connection with the enforcement of FINOVA's rights
hereunder, except as specifically provided and called for by the Loan Agreement,
and hereby consents to, and waives notice of, the release, addition, or
substitution, with or without consideration, of any collateral or of any person
liable for payment of this Note. Any failure of FINOVA to exercise any right
available hereunder or otherwise shall not be construed as a waiver of the right
to exercise the same or as a waiver of any other right at any other time.
3.4 If this Note is not paid when due or upon the occurrence of an Event of
Default, Borrowers, jointly and severally, further promise to pay all costs of
collection, foreclosure fees, attorneys fees and expert witness fees incurred by
FINOVA, whether or not suit is filed hereon, and the fees, costs and expenses as
provided in the Loan Agreement.
3.5 The contracted for rate of interest of the loan contemplated hereby,
without limitation, shall consist of the following: (i) the interest rate set
forth on the Schedule, calculated and applied to the principal balance of this
Note in accordance with the provisions of this Note; (ii) interest after an
Event of Default, calculated and applied to the amounts due under this Note in
accordance with the provisions hereof; and (iii) all Additional Sums (as herein
defined), if any. Each Borrower agrees to pay an effective contracted for rate
of interest which is the sum of the above-referenced elements. All examination
fees, attorneys fees, expert witness fees, letter of credit fees, collateral
monitoring fees, closing fees, facility fees, Termination Fees, Minimum Interest
Charges, other charges, goods, things in action or any other sums or things of
-2-
<PAGE>
value paid or payable by Borrowers (collectively, the "Additional Sums"),
whether pursuant to this Note, the Loan Agreement or any other documents or
instruments in any way pertaining to this lending transaction, or otherwise with
respect to this lending transaction, that under any applicable law may be deemed
to be interest with respect to this lending transaction, for the purpose of any
applicable law that may limit the maximum amount of interest to be charged with
respect to this lending transaction, shall be payable by Borrowers as, and shall
be deemed to be, additional interest and for such purposes only, the agreed upon
and "contracted for rate of interest" of this lending transaction shall be
deemed to be increased by the rate of interest resulting from the inclusion of
the Additional Sums.
3.6 It is the intent of the parties to comply with the usury law of the
State of Arizona (the "Applicable Usury Law"). Accordingly, it is agreed that
notwithstanding any provisions to the contrary in this Note, or in any of the
documents securing payment hereof or otherwise relating hereto, in no event
shall this Note or such documents require the payment or permit the collection
of interest in excess of the Maximum Interest Rate, then in any such event (i)
the provisions of this paragraph shall govern and control, (ii) neither any
Borrower nor any other person or entity now or hereafter liable for the payment
hereof shall be obligated to pay the amount of such interest to the extent that
it is in the excess of the Maximum Interest Rate, (iii) any such excess which
may have been collected shall be either applied as a credit against the then
unpaid principal amount hereof or refunded to Borrowers, at FINOVA's option, and
(iv) the effective rate of interest shall be automatically reduced to the
Maximum Interest Rate. It is further agreed, without limiting the generality of
the foregoing, that to the extent permitted by the Applicable Usury Law, all
calculations of interest which are made for the purpose of determining whether
such rate would exceed the Maximum Interest Rate shall be made by amortizing,
prorating, allocating and spreading during the period of the full stated term of
the loan evidenced hereby, all interest at any time contracted for, charged or
received from Borrowers or otherwise in connection with such loan, and in the
event that the effective rate of interest on the loan should at any time exceed
the Maximum Interest Rate, such excess interest that would otherwise have been
collected had there been no ceiling imposed by the Applicable Usury Law shall be
paid to FINOVA from time to time, if and when the effective interest rate on the
loan otherwise falls below the Maximum Interest Rate, until the entire amount of
interest which would otherwise have been collected had there been no ceiling
imposed by the Applicable Usury Law has been paid in full. Each Borrower further
agrees that should the Maximum Interest Rate be increased at any time hereafter
because of a change in the Applicable Usury Law, then to the extent not
prohibited by the Applicable Usury Law, such increases shall apply to all
indebtedness evidenced hereby regardless of when incurred; but, again to the
extent not prohibited by the Applicable Usury Law, should the Maximum Interest
Rate be decreased because of a change in the Applicable Usury Law, such
decreases shall not apply to the indebtedness evidenced hereby regardless of
when incurred.
3.7 FINOVA may at any time transfer this Note and FINOVA's rights in any or
all collateral securing this Note, and FINOVA thereafter shall be relieved from
all liability with respect to such collateral arising after the date of such
transfer.
3.8 Each Borrower expressly agrees that this Note, or any payment
hereunder, may be extended from time to time before, at or after maturity,
without in any way affecting the liability of such Borrower hereunder or any
guarantor hereof.
3.9 This Note may not be changed or amended orally, but only by an
instrument in writing signed by the party against whom enforcement of the change
or amendment is sought.
3.10 This Note shall be binding upon Borrowers and their legal
representatives, successors and assigns. Wherever possible, each provision of
this Note shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of the Note shall be prohibited by or
invalid under such law, such provision shall be severable, and be ineffective to
the extent of such prohibition or invalidity, without invalidating the remaining
provision of this Note.
3.11 Time for the performance of the obligations of Borrowers under this
Note is of the essence of this Note.
-3-
<PAGE>
THIS NOTE HAS BEEN DELIVERED FOR ACCEPTANCE BY FINOVA IN PHOENIX, ARIZONA
AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AS
OPPOSED TO THE CONFLICTS OF LAW PROVISIONS) OF THE STATE OF ARIZONA, AS THE SAME
MAY FROM TIME TO TIME BE IN EFFECT, INCLUDING, WITHOUT LIMITATION, THE UNIFORM
COMMERCIAL CODE AS ADOPTED IN ARIZONA. EACH BORROWER HEREBY (i) IRREVOCABLY
SUBMITS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED IN MARICOPA
COUNTY, ARIZONA OVER ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY MATTER
ARISING FROM OR RELATED TO THIS NOTE; (ii) WAIVES PERSONAL SERVICE OF ANY AND
ALL PROCESS UPON SUCH BORROWER, AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE
MADE BY MESSENGER, CERTIFIED MAIL OR REGISTERED MAIL DIRECTED TO SUCH BORROWER
AT THE ADDRESS SET FORTH BELOW AND SERVICE SO MADE SHALL BE DEEMED TO BE
COMPLETED UPON THE EARLIER OF ACTUAL RECEIPT OR THREE (3) DAYS AFTER THE SAME
SHALL HAVE BEEN POSTED TO SUCH BORROWER'S ADDRESS; (iii) IRREVOCABLY WAIVES, TO
THE FULLEST EXTENT SUCH BORROWER MAY EFFECTIVELY DO SO, THE DEFENSE OF AN
INCONVENIENT FORUM TO THE MAINTENANCE OF ANY SUCH ACTION OR PROCEEDING; (iv)
AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE
CONCLUSIVE AND MAY BE ENFORCED IN ANY OTHER JURISDICTION BY SUIT ON THE JUDGMENT
OR IN ANY OTHER MANNER PROVIDED BY LAW; (v) AGREES NOT TO INSTITUTE ANY LEGAL
ACTION OR PROCEEDING AGAINST FINOVA OR ANY OF FINOVA'S DIRECTORS, OFFICERS,
EMPLOYEES, AGENTS OR PROPERTY, CONCERNING ANY MATTER ARISING OUT OF OR RELATING
TO THIS NOTE IN ANY COURT OTHER THAN ONE LOCATED IN MARICOPA COUNTY, ARIZONA;
AND (vi) IRREVOCABLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION ARISING
UNDER OR IN CONNECTION WITH THIS NOTE. NOTHING IN THIS PARAGRAPH SHALL AFFECT OR
IMPAIR FINOVA'S RIGHT TO SERVE LEGAL PROCESS IN ANY MANNER PERMITTED BY LAW OR
FINOVA'S RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST ANY BORROWER OR ANY
BORROWER'S PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION.
[remainder of this page intentionally left blank]
-4-
<PAGE>
IN WITNESS WHEREOF, Borrowers have executed this Note as of the day and
year first written above.
THE LEATHER FACTORY, INC., a Delaware corporation, Fed ID
Tax No. 75-2543540,
THE LEATHER FACTORY, INC., a Texas corporation, formerly
known as Midas Leathercraft Tool Company, a Texas
corporation, Fed ID Tax No. 75-1721123,
THE LEATHER FACTORY, INC., an Arizona corporation, Fed ID
Tax No. 86-0540648,
HI-LINE LEATHER & MANUFACTURING COMPANY, a California
corporation, Fed ID Tax No.: 94-1122115,
ROBERTS, CUSHMAN & COMPANY, INC., a New York corporation,
Fed ID Tax No. 13-2682601
By: /s/ Fred N. Howell
----------------------------
Fred N. Howell
Chief Financial Officer
Borrowers' Address:
3847 East Loop 820 South
Fort Worth, Texas 76119
Term Loan B Note
<PAGE>
EXHIBIT 4.5
<PAGE>
TERM LOAN C NOTE
$1,500,000 Phoenix, Arizona
November 21, 1997
FOR VALUE RECEIVED, THE LEATHER FACTORY, INC., a Delaware corporation, THE
LEATHER FACTORY, INC., a Texas corporation, formerly known as Midas Leathercraft
Tool Company, a Texas corporation, THE LEATHER FACTORY, INC., an Arizona
corporation, HI-LINE LEATHER & MANUFACTURING COMPANY, a California corporation,
and ROBERTS, CUSHMAN & COMPANY, INC., a New York corporation (hereinafter
referred to individually as a "Borrower" and collectively as "Borrowers"),
jointly and severally, hereby promise to pay to the order of FINOVA CAPITAL
CORPORATION, a Delaware corporation ("FINOVA"), at its offices at 355 South
Grand Avenue, Suite 2400, Los Angeles, California 90071, or at such other place
or places as the holder hereof from time to time may designate in writing, the
principal sum of ONE MILLION FIVE HUNDRED THOUSAND AND NO/100 DOLLARS
($1,500,000), plus interest thereon as set forth below and any other charges
applicable thereto, in accordance with the applicable provisions of that certain
Loan and Security Agreement of even date herewith among FINOVA and Borrowers
(such Loan and Security Agreement, as the same may be amended, modified,
supplemented or restated from time to time, hereinafter is referred to as the
"Loan Agreement"), the provisions of which are incorporated herein by this
reference. This Term Loan C Note (this "Note") is delivered by Borrowers to
FINOVA to evidence Term Loan C (this and all other capitalized terms used but
not elsewhere defined herein shall have the respective meanings ascribed to such
terms in the Loan Agreement).
1.0 Rate and Payment of Interest; Scheduled Principal Payments; Prepayment.
1.1 The principal balance of this Note shall bear interest at the
applicable per annum rate set forth in the Loan Agreement. Accrued and unpaid
interest on this Note shall be payable monthly in arrears on the first day of
each month, beginning December 1, 1997. Interest shall be calculated in the
manner and upon the terms and conditions set forth in the Loan Agreement.
1.2 The unpaid principal balance of this Note shall be payable as follows:
a. Twenty-three (23) successive monthly installments, each in the
principal amount of Twenty Five Thousand and No/100 Dollars ($25,000.00),
shall be payable on the first day of each month, beginning January 1, 1998,
and continuing through and including November 1, 1999; and
b. A final monthly installment in the principal amount of Nine Hundred
Twenty Five Thousand and NO/100 Dollars ($925,000.00) shall be payable on
the first day of December, 1999.
Concurrently with the making of such final monthly installment, Borrowers shall
pay to FINOVA all other sums which then are due and payable pursuant to the Loan
Agreement.
1.3 Prepayment may be made under this Note in whole but not in part,
subject to the provisions of Section 9.2(d) of the Loan Agreement.
Notwithstanding anything herein to the contrary, in the event the Loan Agreement
is terminated by Borrowers, by FINOVA or by any other person at any time, then
the entire unpaid principal balance of this Note, together with all accrued and
unpaid interest hereon, the full amount of the applicable Termination Fee and
all other sums which then are due and payable pursuant to the Loan Agreement,
shall become immediately due and payable in full on the effective date of such
termination, without presentment, notice or demand of any kind.
<PAGE>
1.4 All payments to be made by Borrowers pursuant to this Note shall be
made in accordance with the instructions therefor set forth in the Loan
Agreement. Payment shall not be deemed to have been received by FINOVA until
FINOVA is in receipt of United States Dollars available in collected funds to
FINOVA at or before 12:00 p.m. Los Angeles time on a Business Day.
2.0 Events of Defaults; Remedies.
2.1 Subject to the provisions of the Loan Agreement, at the election of the
holder hereof, upon the occurrence of an Event of Default, without further
notice or demand, the principal balance of this Note, all accrued and unpaid
interest thereon and the Termination Fee, shall be and become immediately due
and payable in full. Failure to exercise this option shall not constitute a
waiver of the right to exercise the same in the event of any subsequent Event of
Default, and such failure shall not be deemed to establish a custom or course of
dealing or performance among Borrowers and FINOVA.
2.2 Upon the occurrence of an Event of Default, FINOVA may enforce its
rights and remedies under the Loan Documents in accordance with their terms and
may exercise all rights and remedies available to it under applicable law, by
virtue of statute or otherwise, including without limitation all rights and
remedies available under the Uniform Commercial Code or other laws of Arizona.
2.3 The remedies of FINOVA as provided herein and in the Loan Agreement
shall be cumulative and concurrent, and may be pursued singularly, successively,
or together, at the sole discretion of FINOVA. No act of omission or commission
of FINOVA, including specifically any failure to exercise any right, remedy or
recourse, shall be deemed to be a waiver or release of the same, such waiver or
release to be effected only through a written document executed by FINOVA and
then only to the extent specifically recited therein. A waiver or release with
reference to any one event shall not be construed as continuing, as a bar to, or
as a waiver or release of, any subsequent right, remedy or recourse as to a
subsequent event.
3.0 General Provisions.
3.1 Each Borrower warrants and represents to FINOVA that such Borrower has
used and will continue to use the loans and advances represented by this Note
solely for proper business purposes, and consistent with all applicable laws and
statutes.
3.2 This Note is secured by the Collateral described in the Loan Agreement.
3.3 Each Borrower waives presentment for payment, demand and protest,
notice of protest, demand, dishonor and nonpayment of this Note and all other
notices and demands in connection with the enforcement of FINOVA's rights
hereunder, except as specifically provided and called for by the Loan Agreement,
and hereby consents to, and waives notice of, the release, addition, or
substitution, with or without consideration, of any collateral or of any person
liable for payment of this Note. Any failure of FINOVA to exercise any right
available hereunder or otherwise shall not be construed as a waiver of the right
to exercise the same or as a waiver of any other right at any other time.
3.4 If this Note is not paid when due or upon the occurrence of an Event of
Default, Borrowers, jointly and severally, further promise to pay all costs of
collection, foreclosure fees, attorneys fees and expert witness fees incurred by
FINOVA, whether or not suit is filed hereon, and the fees, costs and expenses as
provided in the Loan Agreement.
3.5 The contracted for rate of interest of the loan contemplated hereby,
without limitation, shall consist of the following: (i) the interest rate set
forth on the Schedule, calculated and applied to the principal balance of this
Note in accordance with the provisions of this Note; (ii) interest after an
Event of Default, calculated and applied to the amounts due under this Note in
accordance with the provisions hereof; and (iii) all Additional Sums (as herein
defined), if any. Each Borrower agrees to pay an effective contracted for rate
of interest which is the sum of the above-referenced elements. All examination
-2-
<PAGE>
fees, attorneys fees, expert witness fees, letter of credit fees, collateral
monitoring fees, closing fees, facility fees, Termination Fees, Minimum Interest
Charges, other charges, goods, things in action or any other sums or things of
value paid or payable by Borrowers (collectively, the "Additional Sums"),
whether pursuant to this Note, the Loan Agreement or any other documents or
instruments in any way pertaining to this lending transaction, or otherwise with
respect to this lending transaction, that under any applicable law may be deemed
to be interest with respect to this lending transaction, for the purpose of any
applicable law that may limit the maximum amount of interest to be charged with
respect to this lending transaction, shall be payable by Borrowers as, and shall
be deemed to be, additional interest and for such purposes only, the agreed upon
and "contracted for rate of interest" of this lending transaction shall be
deemed to be increased by the rate of interest resulting from the inclusion of
the Additional Sums.
3.6 It is the intent of the parties to comply with the usury law of the
State of Arizona (the "Applicable Usury Law"). Accordingly, it is agreed that
notwithstanding any provisions to the contrary in this Note, or in any of the
documents securing payment hereof or otherwise relating hereto, in no event
shall this Note or such documents require the payment or permit the collection
of interest in excess of the Maximum Interest Rate, then in any such event (i)
the provisions of this paragraph shall govern and control, (ii) neither any
Borrower nor any other person or entity now or hereafter liable for the payment
hereof shall be obligated to pay the amount of such interest to the extent that
it is in the excess of the Maximum Interest Rate, (iii) any such excess which
may have been collected shall be either applied as a credit against the then
unpaid principal amount hereof or refunded to Borrowers, at FINOVA's option, and
(iv) the effective rate of interest shall be automatically reduced to the
Maximum Interest Rate. It is further agreed, without limiting the generality of
the foregoing, that to the extent permitted by the Applicable Usury Law, all
calculations of interest which are made for the purpose of determining whether
such rate would exceed the Maximum Interest Rate shall be made by amortizing,
prorating, allocating and spreading during the period of the full stated term of
the loan evidenced hereby, all interest at any time contracted for, charged or
received from Borrowers or otherwise in connection with such loan, and in the
event that the effective rate of interest on the loan should at any time exceed
the Maximum Interest Rate, such excess interest that would otherwise have been
collected had there been no ceiling imposed by the Applicable Usury Law shall be
paid to FINOVA from time to time, if and when the effective interest rate on the
loan otherwise falls below the Maximum Interest Rate, until the entire amount of
interest which would otherwise have been collected had there been no ceiling
imposed by the Applicable Usury Law has been paid in full. Each Borrower further
agrees that should the Maximum Interest Rate be increased at any time hereafter
because of a change in the Applicable Usury Law, then to the extent not
prohibited by the Applicable Usury Law, such increases shall apply to all
indebtedness evidenced hereby regardless of when incurred; but, again to the
extent not prohibited by the Applicable Usury Law, should the Maximum Interest
Rate be decreased because of a change in the Applicable Usury Law, such
decreases shall not apply to the indebtedness evidenced hereby regardless of
when incurred.
3.7 FINOVA may at any time transfer this Note and FINOVA's rights in any or
all collateral securing this Note, and FINOVA thereafter shall be relieved from
all liability with respect to such collateral arising after the date of such
transfer.
3.8 Each Borrower expressly agrees that this Note, or any payment
hereunder, may be extended from time to time before, at or after maturity,
without in any way affecting the liability of such Borrower hereunder or any
guarantor hereof.
3.9 This Note may not be changed or amended orally, but only by an
instrument in writing signed by the party against whom enforcement of the change
or amendment is sought.
3.10 This Note shall be binding upon Borrowers and their legal
representatives, successors and assigns. Wherever possible, each provision of
this Note shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of the Note shall be prohibited by or
invalid under such law, such provision shall be severable, and be ineffective to
the extent of such prohibition or invalidity, without invalidating the remaining
provision of this Note.
-3-
<PAGE>
3.11 Time for the performance of the obligations of Borrowers under this
Note is of the essence of this Note.
THIS NOTE HAS BEEN DELIVERED FOR ACCEPTANCE BY FINOVA IN PHOENIX, ARIZONA
AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AS
OPPOSED TO THE CONFLICTS OF LAW PROVISIONS) OF THE STATE OF ARIZONA, AS THE SAME
MAY FROM TIME TO TIME BE IN EFFECT, INCLUDING, WITHOUT LIMITATION, THE UNIFORM
COMMERCIAL CODE AS ADOPTED IN ARIZONA. EACH BORROWER HEREBY (i) IRREVOCABLY
SUBMITS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED IN MARICOPA
COUNTY, ARIZONA OVER ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY MATTER
ARISING FROM OR RELATED TO THIS NOTE; (ii) WAIVES PERSONAL SERVICE OF ANY AND
ALL PROCESS UPON SUCH BORROWER, AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE
MADE BY MESSENGER, CERTIFIED MAIL OR REGISTERED MAIL DIRECTED TO SUCH BORROWER
AT THE ADDRESS SET FORTH BELOW AND SERVICE SO MADE SHALL BE DEEMED TO BE
COMPLETED UPON THE EARLIER OF ACTUAL RECEIPT OR THREE (3) DAYS AFTER THE SAME
SHALL HAVE BEEN POSTED TO SUCH BORROWER'S ADDRESS; (iii) IRREVOCABLY WAIVES, TO
THE FULLEST EXTENT SUCH BORROWER MAY EFFECTIVELY DO SO, THE DEFENSE OF AN
INCONVENIENT FORUM TO THE MAINTENANCE OF ANY SUCH ACTION OR PROCEEDING; (iv)
AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE
CONCLUSIVE AND MAY BE ENFORCED IN ANY OTHER JURISDICTION BY SUIT ON THE JUDGMENT
OR IN ANY OTHER MANNER PROVIDED BY LAW; (v) AGREES NOT TO INSTITUTE ANY LEGAL
ACTION OR PROCEEDING AGAINST FINOVA OR ANY OF FINOVA'S DIRECTORS, OFFICERS,
EMPLOYEES, AGENTS OR PROPERTY, CONCERNING ANY MATTER ARISING OUT OF OR RELATING
TO THIS NOTE IN ANY COURT OTHER THAN ONE LOCATED IN MARICOPA COUNTY, ARIZONA;
AND (vi) IRREVOCABLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION ARISING
UNDER OR IN CONNECTION WITH THIS NOTE. NOTHING IN THIS PARAGRAPH SHALL AFFECT OR
IMPAIR FINOVA'S RIGHT TO SERVE LEGAL PROCESS IN ANY MANNER PERMITTED BY LAW OR
FINOVA'S RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST ANY BORROWER OR ANY
BORROWER'S PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION.
[remainder of this page intentionally left blank]
-4-
<PAGE>
IN WITNESS WHEREOF, Borrowers have executed this Note as of the day and
year first written above.
THE LEATHER FACTORY, INC., a Delaware corporation,Fed ID Tax
No. 75-2543540,
THE LEATHER FACTORY, INC., a Texas corporation, formerly known
as Midas Leathercraft Tool Company, a Texas corporation, Fed
ID Tax No. 75-1721123,
THE LEATHER FACTORY, INC., an Arizona corporation, Fed ID Tax
No. 86-0540648,
HI-LINE LEATHER & MANUFACTURING COMPANY, a California
corporation, Fed ID Tax No.: 94-1122115,
ROBERTS, CUSHMAN & COMPANY, INC., a New York corporation,
Fed ID Tax No. 13-2682601
By: /s/ Fred N. Howell
----------------------------
Fred N. Howell
Chief Financial Officer
Borrowers' Address:
3847 East Loop 820 South
Fort Worth, Texas 76119
Term Loan C Note
<PAGE>
EXHIBIT 4.6
<PAGE>
SUBORDINATION AGREEMENT
This SUBORDINATION AGREEMENT (this "Agreement") is made as of this 21st day
of November, 1997 among FINOVA CAPITAL CORPORATION, a Delaware corporation
("Senior Lender"), and THE SCHLINGER FOUNDATION (the "Subordinated Lender") and
THE LEATHER FACTORY, INC., a Delaware corporation, THE LEATHER FACTORY, INC., a
Texas corporation, formerly known as Midas Leathercraft Tool Company, a Texas
corporation, THE LEATHER FACTORY, INC., an Arizona corporation, HI-LINE LEATHER
& MANUFACTURING COMPANY, a California corporation, and ROBERTS, CUSHMAN &
COMPANY, INC., a New York corporation (hereinafter referred to individually as a
"Borrower" and collectively as "Borrowers"). Each reference herein to Borrower
shall be deemed to mean each Borrower, individually and collectively, as the
context requires.
WITNESSETH:
WHEREAS, Senior Lender and Borrower have entered into a Loan and Security
Agreement, dated as of the date hereof (as the same may hereafter be amended,
restated, supplemented or otherwise modified from time to time, the "Loan
Agreement"), together with the other Loan Documents (as defined in the Loan
Agreement), whereby Senior Lender has made and shall make available to Borrower
a credit facility in the aggregate amount of $9,136,000 (collectively, the
"Senior Loan") therein set forth, which Senior Loan is secured by certain
assignments of and security interests in the assets of Borrower, now or
hereafter existing, all as more fully set forth in the Loan Documents; and
WHEREAS, Borrower has issued certain promissory notes (collectively, the
"Notes"), all as described in the "Subordinated Debt Schedule" attached hereto
and incorporated herein, (the Notes and all other documents or instruments
executed in connection therewith, as amended, supplemented or otherwise modified
from time to time as permitted hereunder, collectively the "Subordinated
Documents"); and
WHEREAS, as set forth in Section 19 hereof, Subordinated Lenders shall
benefit from the execution and delivery of the Loan Agreement and the making of
the Senior Loan; and
WHEREAS, as a condition of the financing accommodations under the Loan
Documents, the parties hereto are required to enter into this Agreement to
establish the priority of the repayment of Borrowers' debt, and to address
certain related matters; and
WHEREAS, it is a condition precedent for Senior Lender to enter into the
Loan Agreement with Borrower and to make the Senior Loan that Subordinated
Lenders and Borrower enter into this Agreement.
NOW, THEREFORE, for good and valuable consideration, the sufficiency of
which is hereby acknowledged, the parties agree as follows:
Definitions. All capitalized terms used but not elsewhere defined in this
Agreement shall have the respective meanings ascribed to such terms in the Loan
Agreement. The following terms shall have the following meanings in this
Agreement:
"Borrower's Property" means all assets, property and property rights, of
any kind or nature, tangible or intangible, now or hereafter existing, in which
Borrower owns, asserts or maintains an interest.
"Finally Paid" or "Final Payment," when used in connection with the Senior
Indebtedness shall mean the full, final and indefeasible payment of all of the
Senior Indebtedness and the irrevocable termination of Senior Lender's
obligation to make loans or other advances under the Loan Agreement.
<PAGE>
"Insolvency Proceeding" shall mean any proceeding commenced by or against
any Person under any provision of the Bankruptcy Code, or under any other
bankruptcy or insolvency law, including assignments for the benefit of
creditors, formal or informal moratoria, compositions, extensions generally with
its creditors, or proceedings seeking reorganization, arrangement, or other
similar relief.
"Liens" shall mean any mortgage, deed of trust, pledge, lien, security
interest, charge, set-off right or other encumbrance, whether now existing or
hereafter created, acquired or arising.
"Notes" shall have the meaning set forth in the recitals hereof.
"Senior Indebtedness" means all principal, interest and other obligations
at any time due and owing by Borrower to Senior Lender arising out of or
incurred in connection with the Loan Documents or other documents executed in
connection with the Senior Loan (and any indebtedness which refinances such
principal, interest or other obligations), as amended, restated, supplemented or
otherwise modified from time to time, whether direct or contingent, and whether
now existing or hereafter created. Senior Indebtedness shall include, without
limitation, interest which accrues on the principal amount of the Senior
Indebtedness subsequent to the commencement of a case under Chapter 11 of the
Bankruptcy Code, but only to the extent such interest is allowed as a claim in
such case.
"Subordinated Lender" means, individually and collectively, the individuals
and entities named on the signature page hereto, and each reference herein to
"Subordinated Lender" shall be deemed to mean each Subordinated Lender,
individually and collectively, as the context requires.
"Subordinated Indebtedness" means all indebtedness of Borrower to
Subordinated Lender pursuant to the Subordinated Documents and all present and
future loans, advances, debts, liabilities, obligations, and indebtedness
otherwise owing by Borrower to any Subordinated Lender, whether evidenced by any
note, or other instrument or document, whether absolute or contingent, due or to
become due, including, without limitation, all interest, charges, expenses,
fees, attorneys' fees and any other sums chargeable to Borrower.
"Subordinated Lender Remedies" means any action which results in (A) the
sale, foreclosure, realization on or liquidation of any of Borrower's Property,
(B) the execution on any judgment obtained against Borrower, (C) the
acceleration of the Subordinated Indebtedness, (D) the filing of any petition or
lien under any bankruptcy, insolvency or creditors' rights laws with respect to
Borrower, or (E) the institution or exercise against Borrower of any suit, legal
action, arbitration or other enforcement remedy.
"UCC" shall mean Article 9 of the Uniform Commercial Code, as in effect in
the State of Arizona from time to time.
Subordination. Subordinated Lender hereby postpones and subordinates in
right of payment all of the Subordinated Indebtedness to the Final Payment of
all of the Senior Indebtedness. Subordinated Lender does not, as of the date
hereof, hold any Liens or security interests in Borrower's Property and hereby
agrees that any Liens, security interests, claims and rights of any kind
Subordinated Lender may hereafter acquire against Borrower and Borrower's
Property (but only with the prior written consent of Senior Lender) shall be
subordinate and subject to the Liens, security interests, claims and rights
against Borrower and/or Borrower's Property of Senior Lender arising from or out
of the Senior Indebtedness, regardless of the order or time as of which any
Liens attach to any of Borrower's Property, the order or time of UCC filings or
any other filings or recordings, the order or time of granting of any such
Liens, or the physical possession of any of Borrower's Property until this
Agreement is terminated in accordance with Section 26 hereof. If Borrower issues
any instrument or document evidencing the Subordinated Indebtedness each such
instrument and document shall bear a conspicuous legend that it is subordinated
to the Senior Indebtedness in accordance with the terms of this Agreement.
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Borrower's books shall be marked to evidence the subordination of all of the
Subordinated Indebtedness to the holder of Senior Indebtedness, in accordance
with the terms of this Agreement. Senior Lender is authorized to examine such
books from time to time and to make any notations required by this Agreement.
Warranties and Representations of Borrower and Subordinated Lender.
Borrower and Subordinated Lender each hereby severally represents and warrants
to the Senior Lender that the Senior Lender has been furnished with a true and
correct copy of all instruments and securities evidencing or pertaining to the
Subordinated Indebtedness. Borrower hereby represents and warrants to the Senior
Lender that this Agreement has been duly executed and delivered by Borrower and
constitutes a legal, valid and binding obligation of Borrower enforceable in
accordance with its terms except to the extent that the enforceability thereof
may be limited by any applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws from time to time in effect affecting generally the
enforcement of creditors' rights and remedies and general principles of equity.
Subordinated Lender represents and warrants to the Senior Lender: (A) that this
Agreement has been duly executed and delivered by Subordinated Lender and
constitutes a legal, valid and binding obligation of Subordinated Lender
enforceable against the Subordinated Lender in accordance with its terms, except
to the extent that the enforceability thereof may be limited by any applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws from time to
time in effect affecting generally the enforcement of creditors' rights and
remedies and general principles of equity; (B) that Subordinated Lender is a
California corporation having its chief executive office at the address set
forth below its name on the signature page hereto; (C) that Subordinated Lender
is acquiring the Subordinated Indebtedness for its own account and not with a
view to the distribution thereof and has no present intention of distributing
the Subordinated Indebtedness; (D) that Subordinated Lender has not relied and
shall not rely on any representation or information of any nature made by or
received from Senior Lender relative to Borrower in deciding to execute this
Agreement or to permit it to continue in effect.
Negative Covenants. Until all of the Senior Indebtedness has been Finally
Paid: (A) Borrower shall not, directly or indirectly, grant a security interest
in, mortgage, pledge, assign or transfer any properties, to secure or satisfy
all or any part of the Subordinated Indebtedness; (B) Subordinated Lender shall
not demand or accept from Borrower any collateral; (C) Borrower shall not
discharge the Subordinated Indebtedness other than in accordance with its terms;
(D) Subordinated Lender shall not demand or accept from Borrower or other person
any consideration which would result in a discharge of the Subordinated
Indebtedness other than in accordance with its terms; (E) Subordinated Lender
shall not hereafter give any subordination in respect of the Subordinated
Indebtedness or convert any or all of the Subordinated Indebtedness to capital
stock, equity, ownership interest or other securities of Borrower, except as set
forth in Section 5 (ii) hereof; (F) Subordinated Lender shall not transfer or
assign any of the Subordinated Indebtedness to any person, except upon the prior
written consent of Senior Lender and subject to the condition that such
transferee or assignee shall have agreed in writing to be bound by the terms of
this Agreement as a Subordinated Lender hereunder; (G) Borrower shall not
hereafter issue any instrument, security or other writing evidencing any part of
the Subordinated Indebtedness, and Subordinated Lender shall not receive any
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such writing, except upon the condition that such security shall bear the legend
referred to in Section 2 above and a true copy thereof shall be furnished to
Senior Lender; (H) neither Borrower nor Subordinated Lender otherwise shall take
any action contrary to Senior Lender's priority position over Subordinated
Lender that is created by this Agreement, except with respect to the exercise by
Subordinated Lender of the rights granted to it in this Agreement.
Payments of Subordinated Indebtedness. Until all of the Senior Indebtedness
has been Finally Paid, Borrower shall not make and Subordinated Lender shall not
accept any direct or indirect payment or prepayment in cash, property or
securities, by set-off or otherwise, with respect to any Subordinated
Indebtedness, except (i) that scheduled monthly payments of interest under the
Notes may be paid monthly in arrears ("Allowed Payment") if, and only to the
extent that at the time of any such Allowed Payment: (a) no "Event of Default"
has occurred and is continuing under the Loan Agreement and no Event of Default
would result from the making of such Allowed Payment, and (b) according to the
monthly financial statements submitted to Senior Lender by Borrower pursuant to
the Loan Agreement (x) Borrower will have a Total Debt Service Coverage Ratio of
no less than 1.10 to 1.0 and will be in compliance with the other financial
covenants set forth in Section 6.1.13 of the Loan Agreement after giving effect
to the Allowed Payment, and (y) Borrower will have at least $350,000 of Excess
Availability under the Revolving Credit Loans after giving effect to the Allowed
Payment and (ii) that Borrower may issue equity interests pursuant to the
exercise of warrants held by Subordinated Lender.
Prohibition on Payments.
(A) Notwithstanding the provisions of Section 5 above, upon the happening
of any Event of Default under and as defined in the Loan Agreement, and upon
receipt by Subordinated Lender of written notice thereof (the "Default Notice")
from the Senior Lender, no direct or indirect payment or prepayment in cash,
property or securities, by set-off or otherwise, shall be made or agreed to be
made by the Borrower or accepted by the Subordinated Lender on account of the
principal of, premium or interest on, or any other amounts in respect of the
Subordinated Indebtedness, and Borrower shall not segregate or hold in trust
money for any such payment or distribution, unless and until Subordinated Lender
has received a written notice from the Senior Lender that the default referred
to in such Default Notice has been cured or waived by Senior Lender, and
thereafter Subordinated Lender shall be entitled to the payment of suspended
payments of the Subordinated Indebtedness from Borrower, to the extent permitted
as an Allowed Payment under Section 5 hereof.
(B) In the event that Borrower shall make or Subordinated Lender shall
collect any payment on account of the principal of, premium or interest on or
any other amounts due under the Subordinated Indebtedness in contravention of
this Section 6, such payments shall be paid over and delivered to the Senior
Lender immediately upon receipt thereof.
(C) In the event that any failure of the Borrower to make or the
Subordinated Lender to receive any payment with respect to the Subordinated
Indebtedness as a result of the provisions of this Section 6 shall be deemed a
default under the Subordinated Documents, such event shall not give rise to any
right of Subordinated Lender to exercise any Subordinated Lender Remedies, any
provision of the Subordinated Documents to the contrary notwithstanding.
Forbearance of Legal Remedies. Until all of the Senior Indebtedness has
been Finally Paid, the Subordinated Lender shall not exercise any Subordinated
Lender Remedies or other remedies it may have for a default under the
Subordinated Documents, except as permitted below. Whether or not a Default
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Notice is then in effect, the Subordinated Lender may exercise one or more or
all of the following rights and remedies (in each case, subject at all times to
the payment subordination and lien subordination provisions set forth in this
Agreement), but only the following rights and remedies, after prior written
notice to Senior Lender and upon the occurrence of any of the following
conditions, including any such occurrence during the effective period of any
Default Notice: (a) an Insolvency Proceeding shall occur, or (b) the Senior
Lender commences legal proceedings against the Borrower:
accelerate payment of the Subordinated Indebtedness;
commence legal proceedings against the Borrower and, if requested by the
Senior Lender, become a co-plaintiff in any legal proceedings commenced by the
Senior Lender, provided, that in no event shall Subordinated Lender be permitted
to execute on any judgment obtained against Borrower until the Senior
Indebtedness shall have been Finally Paid unless the proceeds of such execution
of judgment are paid to the Senior Lender for application against the Senior
Indebtedness, and further provided that Subordinated Lender shall not be
permitted to execute on by judgment obtained against Borrower if the only
predicate act above is the acceleration of payment of the Senior Indebtedness;
and
file a proof of claim and otherwise participate in any Insolvency
Proceeding.
The Subordinated Lender agrees to provide the Senior Lender with not less than
six (6) days' prior written notice of its intent to exercise any legal remedy,
which notice may be given during any period of time that a Default Notice is in
effect.
Subordinated Indebtedness Subordinated to Prior Payment of All Senior
Indebtedness on Dissolution, Liquidation or Reorganization of the Borrower. Upon
any distribution of assets of Borrower in any dissolution, winding up,
liquidation or reorganization of Borrower (whether in bankruptcy, insolvency or
receivership proceedings or upon an assignment for the benefit of creditors or
otherwise) tending toward liquidation of the business and assets of Borrower:
the holder of all Senior Indebtedness shall first be entitled to receive
payment in full (or to have such payment duly provided for in a manner
previously agreed upon or otherwise satisfactory to it) of the principal
thereof, and premium and interest due thereon, and other amounts payable
comprising such Senior Indebtedness, before the Subordinated Lender is entitled
to receive any payment on account of the principal of, premium or interest on or
any other amounts due under the Subordinated Indebtedness; and
(B) any payment or distribution of assets of Borrower of any kind or
character, whether in cash, property or securities, to which the Subordinated
Lender would be entitled except for these provisions, shall be paid by the
liquidating trustee or agent or other person making such payment or distribution
directly to the holder of the Senior Indebtedness, to the extent necessary to
make payment in full of all Senior Indebtedness remaining unpaid, after giving
effect to any concurrent payment or distribution or provision therefor to the
holders of such Senior Indebtedness.
The Borrower shall give prompt written notice to the Senior Lender and the
Subordinated Lender of any dissolution, winding up, liquidation or
reorganization of the Borrower or any assignment for the benefit of any of the
creditors of the Borrower tending toward the liquidation of the business and
assets of the Borrower.
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Obligation of Borrower Unconditional. Nothing contained herein or in the
Loan Documents is intended to or shall impair, as between the Borrower and the
Subordinated Lender only, the obligation of the Borrower, which is absolute and
unconditional, to pay to the holder of the Subordinated Indebtedness the
Subordinated Indebtedness as and when the same shall become due and payable in
accordance with their terms, or to affect the relative rights of the
Subordinated Lender and creditors of the Borrower other than the Senior Lender.
Subordination Rights Not Impaired by Acts or Omissions of Borrower or
Holder of Senior Indebtedness. No right of any present or future holder of any
Senior Indebtedness to enforce subordination as provided herein shall at any
time in any way be prejudiced or impaired by any act or failure to act on the
part of the Borrower; by any act or failure to act, which act or failure is in
good faith, by any such holder; by any act or failure to act by any other holder
of the Senior Indebtedness; or by any noncompliance by the Borrower with the
terms hereof, regardless of any knowledge thereof which any such holder may have
or be otherwise charged with. Subordinated Lender shall not be released, nor
shall Subordinated Lender's obligation hereunder be in any way diminished, by
any of the following: (A) the exercise or the failure to exercise by Senior
Lender of any rights or remedies conferred on it or them under the Loan
Documents hereunder or existing at law or otherwise, or against any of
Borrower's Property; (B) the commencement of an action at law or the recovery of
a judgment at law against Borrower or any obligor ("Obligor") for the
performance of the Senior Indebtedness and the enforcement thereof through levy
or execution or otherwise; (C) the taking or institution or any other action or
proceeding against Borrower or any Obligor; or (D) any delay in taking,
pursuing, or exercising any of the foregoing actions, rights, powers, or
remedies (even though requested by Subordinated Lender) by Senior Lender or
anyone acting for Senior Lender. Without limiting the generality of the
foregoing, and anything else contained herein to the contrary notwithstanding,
Senior Lender, from time to time, without prior notice to or the consent of
Subordinated Lender, may take all or any of the following actions without in any
manner affecting or impairing the obligation or liability of Subordinated Lender
hereunder: (I) obtain a lien or a security interest in any property to secure
any of the Senior Indebtedness; (II) obtain the primary and secondary liability
of any party or parties with respect to any of the Senior Indebtedness; (III)
renew, extend, or otherwise change the time for payment of the Senior Loan or
any installment thereof for any period; (IV) release or compromise any liability
of any nature of any person or entity with respect to the Senior Indebtedness;
(V) exchange, enforce, waive, release, and apply any of Borrower's Property and
direct the order or manner of sale thereof as Senior Lender may in its
discretion determine; (VI) enforce their rights hereunder, whether or not Senior
Lender shall proceed against any other person or entity; (VII) exercise its
rights to consent to any action or non-action of Borrower which may violate the
covenants and agreements contained in the Loan Documents, with or without
consideration, on such terms and conditions as may be acceptable to it; or
(VIII) exercise any of its rights conferred by the Loan Documents or by law.
Authority to Act for Subordinated Lender. Until the Senior Indebtedness has
been Finally Paid, in the event an Insolvency Proceeding shall occur and be
continuing, if the Subordinated Lender is within forty-five (45) days of a final
bar on exercising its right to present a proof of debt, proof of claim, suit or
other similar right available for the purpose of protecting the Senior Lender's
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rights created by the subordination herein (to the extent that any of the
foregoing proofs, procedures, or rights are relevant in the context of the
particular Insolvency Proceeding involved), Subordinated Lender shall advise
Senior Lender prior to the date thirty (30) days before such final bar occurs
whether Subordinated Lender intends to exercise its rights and present a proof
of debt, proof of claim, file suit, or preserve such other rights as are
available to Subordinated Lender prior to the expiration of such rights. In the
event that Subordinated Lender advises Senior Lender of its intention to let any
such rights lapse, Senior Lender shall thereupon immediately have the right to
act as Subordinated Lender's attorney-in-fact for the purposes specified in the
remainder of this Section 11 (but solely to the extent that any of the actions
on behalf of Senior Lender authorized hereby are relevant in the context of the
particular Insolvency Proceeding involved). In the event Subordinated Lender,
regardless of whether Subordinated Lender notified Senior Lender of its
intention to preserve its rights or not, is within fifteen (15) days of a final
bar on exercising its right to present a proof of debt, proof of claim, file
suit or exercise such other similar rights as are available to Subordinated
Lender, Senior Lender shall have the right to act as Subordinated Lender's
attorney-in-fact for the purposes specified herein, and Subordinated Lender
hereby irrevocably appoints Senior Lender its true and lawful attorney, with
full power of substitution, in the name of Subordinated Lender or in the name of
Senior Lender, for the use and benefit of Senior Lender, without further or
additional notice to Subordinated Lender or any of its representatives,
successors or assigns, to perform the following acts, at Senior Lender's option,
in such Insolvency Proceeding:
To enforce or vote claims comprising the Subordinated Indebtedness, either
in its own name or in the name of Subordinated Lender, by proof of debt, proof
of claim, suit or otherwise; and
To collect any assets of Borrower distributed, divided or applied by way of
dividend or payment, or any securities issued, on account of the Subordinated
Indebtedness and to apply the same, or the proceeds of any realization upon the
same that Senior Lender in its discretion elects to effect, to the Senior
Indebtedness until all of the Senior Indebtedness (including, without
limitation, interest accruing on the Senior Indebtedness after the commencement
of any bankruptcy case, but only to the extent such interest is included within
the definition of Senior Indebtedness hereunder) has been paid in full,
rendering any surplus to Subordinated Lender if and to the extent permitted by
law.
In no event shall Senior Lender be liable to Subordinated Lender for any
failure to prove the Subordinated Indebtedness, to exercise any right with
respect thereto or to collect any sums payable thereon.
Waivers. Borrower and Subordinated Lender each hereby waives, to the
fullest extent permitted by law, any defense based on the adequacy of a remedy
at law which might be asserted as a bar to the remedy of specific performance of
this Agreement in any action brought therefor by Senior Lender. To the fullest
extent permitted by law and except as to any notices specified in this
Agreement, notices regarding the intended sale or disposition of any portion of
the Collateral by Senior Lender, or any notice which may not be waived in
accordance with the UCC, Borrower and Subordinated Lender each hereby further
waives: presentment, demand, protest, notice of protest, notice of default or
dishonor, notice of payment or nonpayment and any and all other notices and
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demands of any kind in connection with all negotiable instruments evidencing all
or any portion of the Senior Indebtedness or the Subordinated Indebtedness to
which Borrower or Subordinated Lender may be a party; prior notice of and
consent to any loans made, extensions granted or other action taken in reliance
thereon; and all other demands and notices of every kind in connection with this
Agreement, the Senior Indebtedness or the Subordinated Indebtedness.
Subordinated Lender consents to any release, renewal, extension, compromise or
postponement of the time of payment of the Senior Indebtedness, to any
substitution, exchange or release of collateral therefor, and to the addition or
release of any person primarily or secondarily liable thereon.
Indulgences Not Waivers. Neither the failure nor any delay on the part of
Senior Lender to exercise any right, remedy, power or privilege hereunder shall
operate as a waiver thereof or give rise to an estoppel, nor be construed as an
agreement to modify the terms of this Agreement, nor shall any single or partial
exercise of any right, remedy, power or privilege with respect to any occurrence
be construed as a waiver of such right, remedy, power or privilege with respect
to any other occurrence. No waiver by a party hereunder shall be effective
unless it is in writing and signed by the party making such waiver, and then
only to the extent specifically stated in such writing.
Default. If any material representation or warranty of Borrower or
Subordinated Lender in this Agreement or in any instrument evidencing, securing
or relating to the Senior Indebtedness proves to have been materially false when
made, or, in the event of a material breach by either the Borrower or
Subordinated Lender in the performance of any of the material terms of this
Agreement, or any instrument or agreement evidencing, securing or relating to
the Senior Indebtedness, all of the Senior Indebtedness shall, at the option of
Senior Lender, become immediately due and payable without presentment, demand,
protest, or notices of any kind, notwithstanding any time or credit otherwise
allowed. At any time Subordinated Lender fails to comply with any provision of
this Agreement that is applicable to Subordinated Lender, Senior Lender may
demand specific performance of this Agreement, whether or not Borrower has
complied with this Agreement, and may exercise any other remedy available at law
or equity.
Reliance on Judicial Order or Certificate of Liquidating Agent. Upon any
payment or distribution of assets of Borrower referred to in this Agreement,
Subordinated Lender shall be entitled to rely upon any order or decree entered
by any court of competent jurisdiction in which such insolvency, bankruptcy,
receivership, liquidation, reorganization, dissolution, winding up or similar
case or proceeding is pending, or a certificate of a trustee in bankruptcy,
receiver, liquidating trustee, custodian, assignee for the benefit of creditors,
agent or other person making such payment or distribution, delivered to the
Subordinated Lender, for the purpose of ascertaining the persons entitled to
participate in such payment or distribution, the amount thereof or payable
thereon, the amount or amounts paid or distributed thereon and all other facts
pertinent thereto or to this Agreement.
Amendment of the Subordinated Documents. Subordinated Lender agrees that it
will not, without the consent of Senior Lender, amend the Subordinated
Documents, so as to modify the financial terms thereof (including, without
limitation, the amount of principal, rate of interest, dividends, fees and
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prepayment premiums, if any), extend the maturity thereof, add or change any
covenants in a manner materially more restrictive to the Borrower, or effect any
other modification to the Subordinated Documents, which would be materially
adverse to the Senior Lender.
Inconsistent or Conflicting Provisions. In the event a provision of the
Loan Documents or the Subordinated Documents, is inconsistent or conflicts with
the provisions of this Agreement, the provisions of this Agreement shall govern
and prevail.
Notices. All notices, requests, demands and other communications required
or permitted under this Agreement or by law shall be in writing and shall be
deemed received (i) if personally delivered, then on the Business Day of
Delivery, (ii) if sent by telecopy before 2:00 p.m. Los Angeles time, on the day
sent if a Business Day or if such day is not a Business Day or if sent after
2:00 p.m. Los Angeles time, then on the nest Business Day, (iii) if sent by
overnight express carrier, on the next Business Day immediately following the
day sent, or (iv) if sent by registered or certified mail, on the earlier of the
fifth Business Day following the day sent or when actually received. Any notice
by telecopy shall be followed by delivery on the next Business Day by overnight
express carrier or by hand.
If to Senior Lender:
FINOVA Capital Corporation
355 South Grand Avenue
Los Angeles, California 90071
Attention: John Bonano
Telecopy: (213) 625-0268
Copy to:
FINOVA Capital Corporation
1850 North Central Avenue
P.O. Box 2209
Phoenix, Arizona 85002-2209
Attention: Joseph D'Amore, Esq.
Telecopy: (602) 207-5036
and
FINOVA Capital Corporation
13355 Noel Road
Suite 800
Dallas, Texas 75240
Attention: John Lewis
Telecopy: (972) 458-5698
If to Subordinated Lender:
The address set forth below the signature of such Subordinated
Lender on the signature page hereto.
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If to Borrowers:
c/o The Leather Factory, Inc.
3847 East Loop 820 South
Fort Worth, Texas 76119
Attention: Fred N. Howell
Telecopy: (817) 496-9806
Any addressee may alter the address to which communications are to be sent
by giving notice of such change of address in conformity with the provisions of
this Section for the giving of notice.
Benefit. Subordinated Lender represents and warrants that the making of the
Senior Loan will benefit Subordinated Lender in that Subordinated Lender is
financially interested in Borrower and will benefit from the financial success
of Borrower. Subordinated Lender acknowledges that Senior Lender would not make
the Senior Loan but for the execution of this Agreement. Therefore, Subordinated
Lender has received good, sufficient and adequate consideration for the making
of this Agreement.
Entire Agreement. This Agreement constitutes and expresses the entire
understanding between the parties hereto with respect to the subject matter
hereof, and supersedes all prior and contemporaneous agreements and
understandings, inducements or conditions, whether express or implied, oral or
written. Neither this Agreement nor any portion or provision hereof may be
changed, waived or amended orally or in any manner other than by an agreement in
writing signed by Senior Lender and Subordinated Lender; provided, however, any
such change, waiver or amendment shall be binding upon the Borrower by its
written consent thereto.
Additional Documentation. Borrower and Subordinated Lender shall execute
and deliver to Senior Lender such further instruments and shall take such
further action as Senior Lender may at any time or times reasonably request in
order to carry out the provisions and intent of this Agreement.
Expenses. Borrower agrees to pay Senior Lender on demand all expenses of
every kind, including reasonable attorney's fees, that Senior Lender may incur
in enforcing any of its rights against Borrower under this Agreement. As between
Senior Lender and the Subordinated Lender, the court may, in the exercise of its
discretion, award attorney's fees to a prevailing party, in a manner consistent
with Arizona law governing actions arising out of a contract, and the prevailing
party shall have the right to petition the court to make such award.
Successors and Assigns. This Agreement shall inure to the benefit of Senior
Lender, its successors and assigns, and shall be binding upon Borrower and its
successors and assigns, and each Subordinated Lender and their respective heirs,
legatees, distributees, transferees, executors, administrators and personal
representatives and assigns, including without limitation, any subsequent
holders of the Note. Senior Lender, without prior notice or consent of any kind,
may sell, assign or transfer the Senior Indebtedness, and in such event each and
every immediate and successive assignee or transferee thereof may be given the
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right by Senior Lender to enforce this Agreement in full against Borrower and
Subordinated Lender, by suit or otherwise, for its own benefit, provided that
such successor, assignee or transferee agrees to be bound by the terms of this
Agreement.
Covenant Not to Challenge. This Agreement has been negotiated by the
parties with the expectation and in reliance upon the assumption that the
instruments and documents evidencing the Senior Indebtedness are valid and
enforceable. In determining whether to enter into this Agreement, Subordinated
Lender has assumed such validity and enforceability, and has agreed to the
provisions contained herein, without relying upon any reservation of a right to
challenge or call into question such validity or enforceability. As between
Senior Lender and Subordinated Lender, Subordinated Lender hereby covenants and
agrees, to the fullest extent permitted by law, that it shall not initiate in
any proceeding a challenge to the validity or enforceability of the documents
and instruments evidencing the Senior Indebtedness, nor shall Subordinated
Lender instigate other parties to raise any such challenges, nor shall
Subordinated Lender participate in or otherwise assert any such challenges which
are raised by other parties. The foregoing notwithstanding, in the event that
any other party is successful in establishing the invalidity or unenforceability
of any of the documents or instruments evidencing the Senior Indebtedness, then
Subordinated Lender shall be entitled to the benefit of such result, and
Subordinated Lender shall not be bound by the subordination provisions of this
Agreement to the extent of such invalidity or unenforceability.
Subrogation. Subject to the foregoing provisions hereof, provided that the
Senior Indebtedness has been Finally Paid (and shall not be subject to avoidance
under Section 547 of the Bankruptcy Code) the Subordinated Lender shall be
subrogated, to the extent of such Senior Indebtedness so paid, to the rights of
the holder of such Senior Indebtedness to receive payments or distributions or
assets of the Borrower that secure such Senior Indebtedness until all amounts
owing on the Subordinated Indebtedness shall be paid in full. For the purpose of
such subrogation no payments or distributions to the holder of the Senior
Indebtedness by or on behalf of the Borrower or by or on behalf of the
Subordinated Lender by virtue of the provisions hereof which otherwise would
have been made to Subordinated Lender shall, as between the Borrower, a creditor
of the Borrower (other than Subordinated Lender and the Senior Lender) and the
Subordinated Lender, be deemed to be payment by the Borrower to or on account of
the Subordinated Indebtedness, it being understood that the provisions of this
Agreement are, and are intended solely, for the purpose of defining the relative
rights of Subordinated Lender on the one hand, and Senior Lender on the other
hand. In the event that Subordinated Lender turns over to any Senior Lender any
payment or contributions received by it in accordance with this Agreement,
Subordinated Lender shall, for purposes of determining whether any default under
the Subordinated Documents has occurred, be deemed never to have received such
payment or distribution. In the event that Borrower fails to make any payment on
account of the Subordinated Indebtedness by reason of any provision contained
herein, such failure shall, notwithstanding such provision contained herein,
constitute a default with respect to the Subordinated Indebtedness if and to the
extent such failure would otherwise constitute such a default in accordance with
the terms of the Subordinated Indebtedness.
11
<PAGE>
Termination of Agreement. This Agreement shall continue and shall be
irrevocable until the date all of the Senior Indebtedness has been Finally Paid
by Borrower or otherwise discharged and released by the Senior Lender.
Reinstatement. The obligations of Subordinated Lender under the Agreement
shall continue to be effective, or be reinstated, as the case may be, if at any
time any payment in respect of any Senior Indebtedness is rescinded or must
otherwise be restored or returned by Senior Lender by reason of any bankruptcy,
reorganization, arrangement, composition or similar proceeding or as a result of
the appointment of a receiver, intervenor or conservator of, or trustee or
similar officer for, Borrower or any substantial part of its property, or
otherwise, all as though such payment had not been made.
Governing Law. THE VALIDITY, CONSTRUCTION AND ENFORCEMENT OF THIS AGREEMENT
SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF ARIZONA. BORROWER AND
SUBORDINATED LENDER HEREBY AGREE THAT ALL ACTIONS OR PROCEEDINGS INITIATED BY
EITHER BORROWER OR SUBORDINATED LENDER AND ARISING DIRECTLY OR INDIRECTLY OUT OF
THIS AGREEMENT SHALL BE LITIGATED IN A MARICOPA COUNTY, ARIZONA SUPERIOR COURT
OR THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA OR, IF SENIOR
LENDER INITIATES SUCH ACTION, IN ADDITION TO THE FOREGOING COURTS, ANY COURT IN
WHICH SENIOR LENDER SHALL INITIATE SUCH ACTION, TO THE EXTENT SUCH COURT HAS
JURISDICTION. EACH OF BORROWER AND SUBORDINATED LENDER HEREBY EXPRESSLY SUBMIT
AND CONSENT IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR PROCEEDING
COMMENCED BY SENIOR LENDER AND HEREBY WAIVES ANY CLAIM THAT SUCH COURTS ARE AN
INCONVENIENT FORUM OR AN IMPROPER FORUM BASED UPON LACK OF VENUE. THE EXCLUSIVE
CHOICE OF FORUM AS SET FORTH IN THIS SECTION SHALL NOT BE DEEMED TO PRECLUDE THE
ENFORCEMENT, BY SENIOR LENDER, OF ANY JUDGMENT OBTAINED IN ANY OTHER FORUM OR
THE TAKING, BY SENIOR LENDER, OF ANY ACTION TO ENFORCE THE SAME IN ANY OTHER
APPROPRIATE JURISDICTION, AND EACH OF BORROWER AND SUBORDINATED LENDER HEREBY
WAIVE THE RIGHT TO COLLATERALLY ATTACK SUCH JUDGMENT OR ACTION.
Jury Trial. SENIOR LENDER, SUBORDINATED LENDER AND BORROWER WAIVE TRIAL BY
JURY IN ANY DISPUTE ARISING FROM, UNDER OR IN CONNECTION WITH THIS AGREEMENT.
Severability. The provisions of this Agreement are independent of and
separable from each other. If any provision hereof shall for any reason be held
invalid or unenforceable, it is the intent of the parties that such invalidity
or unenforceability shall not affect the validity or enforceability of any other
provision hereof, and that this Agreement shall be construed as if such invalid
or unenforceable provision had never been contained herein.
12
<PAGE>
Counterparts. This Agreement may be executed in any number of separate
counterparts, all of which, when taken together, shall constitute one and the
same instrument, notwithstanding the fact that all parties did not sign the same
counterpart.
[remainder of this page intentionally left blank]
13
<PAGE>
SUBORDINATION AGREEMENT
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.
SUBORDINATED LENDER: THE SCHLINGER FOUNDATION
By: /s/ Paul O. Halme
-------------------------------------
Name: Paul O. Halme
Title: Attorney in Fact for The Schlinger
Foundation
Address:
1944 Edison Street
Santa Ynez, California 93460
Telecopy: (805) 686-1618
<PAGE>
SUBORDINATION AGREEMENT
SENIOR LENDER: FINOVA CAPITAL CORPORATION, a Delaware
corporation
By: /s/ John Sorber
-------------------------------
John Sorber
Vice President
BORROWERS: THE LEATHER FACTORY, INC., a Delaware corporation, Fed ID
Tax No. 75-2543540,
THE LEATHER FACTORY, INC., a Texas corporation, formerly
known as Midas Leathercraft Tool Company, a Texas
corporation, Fed ID Tax No. 75-1721123,
THE LEATHER FACTORY, INC., an Arizona corporation, Fed ID
Tax No. 86-0540648,
HI-LINE LEATHER & MANUFACTURING COMPANY, a California
corporation, Fed ID Tax No. 94-1122115, and
ROBERTS, CUSHMAN & COMPANY, INC., a New York corporation,
Fed ID Tax No. 13-2682601
By: /s/ Fred N. Howell
------------------------------
Fred N. Howell
Chief Financial Officer
<PAGE>
LEGEND TO BE INSERTED
AT THE TOP OF
SUBORDINATED NOTES
ALL INDEBTEDNESS EVIDENCED HEREBY AND REFERENCED HEREIN IS SUBORDINATED IN RIGHT
OF PAYMENT TO THE PRIOR PAYMENT IN FULL OF ALL INDEBTEDNESS OWED TO FINOVA
CAPITAL CORPORATION AS SET FORTH IN THAT CERTAIN SUBORDINATION AGREEMENT AMONG
FINOVA CAPITAL CORPORATION, THE PAYEE OF THIS NOTE AND THE OTHER PARTIES NAMED
THEREIN.
<PAGE>
EXHIBIT 4.7
<PAGE>
PLEDGE AGREEMENT
This PLEDGE AGREEMENT (this "Pledge Agreement"), dated as of November 21,
1997, is among the parties listed in Exhibit B (such parties hereinafter are
referred to individually as a "Pledgor" and collectively as "Pledgors"), and
FINOVA CAPITAL CORPORATION, a Delaware corporation ("Pledgee").
Preliminary Statement:
A. The Leather Factory, Inc., a Delaware corporation, The Leather Factory,
Inc., a Texas corporation, formerly known as Midas Leathercraft Tool Company, a
Texas corporation, The Leather Factory, Inc., an Arizona corporation, Hi-Line
Leather & Manufacturing Company, a California corporation, and Roberts, Cushman
& Company, Inc., a New York corporation (hereinafter are referred to
individually as a "Borrower" and collectively as "Borrowers"), and Pledgee have
entered into that certain Loan and Security Agreement of even date herewith (as
the same may be amended, modified, supplemented or restated from time to time,
the "Loan Agreement"), pursuant to which Pledgee has agreed to make loans and
other financial accommodations to Borrowers (collectively, the "Loan") subject
to the terms and conditions set forth in the Loan Agreement.
B. Pledgors collectively own 3,109,300 shares of the issued and outstanding
capital stock of The Leather Factory, Inc., a Delaware corporation ("TLF").
C. One of the conditions precedent to Pledgee's obligations under the Loan
Agreement is that Pledgors shall have executed and delivered this Pledge
Agreement to secure the payment and performance of Borrowers' Obligations and
Pledgors' Obligations.
NOW, THEREFORE, in order to induce Pledgee to make the Loan, and for other
good and valuable consideration, the receipt and sufficiency of which hereby are
acknowledged, Pledgee and each Pledgor hereby agree as follows:
1. Definitions. All capitalized terms used but not elsewhere defined in
this Pledge Agreement shall have the respective meanings ascribed to such terms
in the Loan Agreement. The following terms shall have the following meanings in
this Pledge Agreement:
Collateral: the Securities and all dividends, distributions and other
amounts or additional securities of TLF or any successor in interest to TLF
to which any Pledgor or any successor in interest to such Pledgor (with or
without additional consideration) is or becomes entitled by virtue of the
ownership by such Person of any of the Securities or as the result of any
corporate reorganization, merger, consolidation, stock split, stock
dividend, distribution, conversion, preemptive right or otherwise, and the
proceeds thereof.
Securities: all of the capital stock of TLF and any warrants, options
or other rights to purchase the capital stock of TLF described in Exhibit A
hereto, and duly executed assignments separate from certificates, in form
and substance satisfactory to Pledgee.
Pledgors' Obligations: (i) any and all Indebtedness, due or to become
due, now existing or hereafter arising, of any Pledgor to Pledgee pursuant
to the terms of this Pledge Agreement or any other Loan Document to which
such Pledgor is a party and (ii) the performance of the covenants of each
Pledgor contained in this Pledge Agreement and all other Loan Documents to
which such Pledgor is a party.
2. Pledge of Collateral. To secure Borrowers' Obligations and Pledgors'
Obligations, each Pledgor hereby pledges, assigns and grants to Pledgee a valid
and perfected first Lien in (i) the Securities owned by such Pledgor and (ii)
all other items of Collateral now owned or hereafter acquired by such Pledgor.
<PAGE>
3. Representations, Warranties and Covenants. Each Pledgor hereby
represents, warrants and covenants to Pledgee that with respect to the
Collateral pledged by Pledgors to Pledgee on the date hereof, (i) such
Collateral together represents 96.48% of the issued and outstanding capital
stock and warrants, options and other rights to purchase capital stock of TLF
owned by Pledgors, and, represents 30.44% (3,000,000 shares) of the issued and
outstanding capital stock and warrants, options and other rights to purchase
capital stock of TLF, (ii) Pledgors are the legal and beneficial owner of the
Collateral pledged by Pledgors to Pledgee pursuant to this Pledge Agreement,
(iii) such Collateral is validly issued, fully paid and non-assessable and is
registered in the names of Pledgors, (iv) none of such Collateral is subject to
any Lien of any kind whatsoever, except for the first Lien on such Collateral
granted to Pledgee hereby, Permitted Liens, and Liens disclosed on Schedule I
hereto, (v) no authorization, approval or other action by, or notice to or
filing with, any governmental body is required for the pledge by Pledgors of
such Collateral pursuant to the terms of this Pledge Agreement and (vi) until
all of Borrowers' Obligations and Pledgors' Obligations have been paid and
performed in full, no Pledgor: (A) will create or permit to exist any Lien upon
or with respect to such Collateral, except for the first Lien thereon granted to
Pledgee by this Pledge Agreement and Permitted Liens, and (B) will sell,
transfer, convey, assign, or otherwise voluntarily divest such Pledgor's
interest in such Collateral, or any part thereof, to any other Person. Each
Pledgor further represents and warrants to Pledgee that the location of such
Pledgor's primary place of residence or business, as applicable, is set forth on
Exhibit B hereto.
4. Stock Splits; Stock Dividends.
4.1 Additional Securities. Each Pledgor agrees that in the event that
such Pledgor, by virtue of the ownership by such Pledgor of its portion of
the Collateral, now is, or hereafter becomes, entitled (with or without
additional consideration) to other or additional capital stock as the
result of any reorganization, merger, consolidation, stock split, stock
dividend, conversion, exercise of warrant or preemptive right or otherwise,
such Pledgor shall:
4.1.1 Delivery. Cause the issuer of such additional capital stock
to deliver to Pledgee all certificates and other documents, if any,
evidencing the ownership by such Pledgor of such additional capital
stock and hereby authorizes and empowers Pledgee to demand the same
from such issuer, and agrees if such certificates and other documents
are delivered to such Pledgor, to take possession thereof in trust for
Pledgee;
4.1.2 UCC Financing Statements and Assignments Separate from
Certificate. Deliver to Pledgee (i) such UCC financing statements as
Pledgee reasonably may request to perfect Pledgee's security interest
in such additional capital stock and (ii) an assignment separate from
certificate with respect to such capital stock, executed in blank by
such Pledgor;
4.1.3 Representations and Warranties. Deliver to Pledgee a
certificate, executed by such Pledgor and dated the date of such
pledge, as to the truth and correctness on such date of the
representations and warranties set forth in Section 3 hereof; and
4.1.4 Additional Documents. Deliver to Pledgee such other
certificates, documents and other instruments as Pledgee reasonably
may request in connection with the pledge of such additional capital
stock by such Pledgor.
4.2 Additional Collateral. Each Pledgor agrees that such additional capital
stock shall constitute a portion of the Collateral and be subject to this Pledge
Agreement in the same manner and to the same extent as the Securities pledged
hereby to Pledgee on the date hereof.
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<PAGE>
5. Voting Power; Distributions. Unless and until an Event of Default shall
have occurred, and thereafter until the consent of any applicable governmental
body is obtained, each Pledgor shall be entitled to exercise all voting powers
in all company matters pertaining to the Collateral or otherwise, for any
purpose not inconsistent with, or in violation of, any of the Loan Documents.
Except to the extent otherwise provided in the Loan Agreement, unless and until
all of Borrowers' Obligations and Pledgors' Obligations have been performed and
paid in full, no Pledgor shall be entitled to receive any dividends or
distributions with respect to any portion of the Collateral. If any such
dividends or distributions are received by any Pledgor in violation of the terms
of this Section 5, such distributions shall be (i) held in trust by such Pledgor
on behalf of Pledgee, (ii) turned over to Pledgee by such Pledgor immediately
upon receipt thereof and (iii) deemed to constitute a portion of the Collateral
pledged by such Pledgor to Pledgee hereunder.
6. Default and Remedies.
6.1 Occurrence. The occurrence of an Event of Default under the Loan
Agreement shall constitute an Event of Default hereunder.
6.2 Remedies. If an Event of Default shall occur and be continuing,
Pledgee, at its option, may:
6.2.1 Registration. Cause the Collateral to be registered in its name
or in the name of its nominee;
6.2.2 Voting Power. Exercise all voting powers pertaining to the
Collateral and otherwise act with respect thereto as though Pledgee were
the owner thereof, subject to Section 5 hereof;
6.2.3 Distributions. Receive all dividends and distributions of any
kind whatsoever on all or any part of the Collateral;
6.2.4 Collection; Conversion. Exercise any and all rights of
collection, conversion or exchange, and any and all other rights,
privileges, options or powers of any Pledgor pertaining or relating to the
Collateral;
6.2.5 Sale of Collateral. Subject to any applicable state or federal
securities laws, sell, assign and deliver the whole, or from time to time,
any part of the Collateral at any broker's board or at any private sale or
at public auction, with or without demand for performance or advertisement
of the time or place of sale or adjournment thereof or otherwise, and free
from any right of redemption (all of which hereby expressly are waived by
each Pledgor) for cash, for credit or for other property, for immediate or
future delivery, and for such price and on such terms as Pledgee in its
sole discretion may determine; and
6.2.6 Other Remedies. Exercise any other remedy specifically granted
under this Pledge Agreement or now or hereafter existing in equity, or at
law, by virtue of statute or otherwise.
With respect to the actions described in each of subsections 6.2.2 and
6.2.4 above, each Pledgor hereby irrevocably constitutes and appoints
Pledgee its proxy and attorney-in-fact with full power of substitution and
acknowledges that the constitution and appointment of such proxy and
attorney-in-fact are coupled with an interest and are irrevocable until all
of Borrowers' Obligations and Pledgors' Obligations are paid and performed
in full.
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<PAGE>
6.3 Agreement to Sell Collateral. For the purposes of this Section 6, an
agreement to sell all or any part of the Collateral shall be treated as a sale
thereof and Pledgee shall be free to carry out such sale pursuant to such
agreement, and no Pledgor shall be entitled to the return of any of the same
subject thereto, notwithstanding the fact that after Pledgee shall have entered
into such an agreement, all Events of Default hereunder may have been remedied
or all of Borrowers' Obligations and/or Pledgors' Obligations may have been paid
and/or performed in full.
6.4 Pledgee May Bid. At any sale made pursuant to Section 6.2 above,
Pledgee may bid for and purchase, free from any right of equity or redemption on
the part of any Pledgor (the same hereby being waived and released by each
Pledgor), any part or all of the Collateral that is offered for sale, and
Pledgee, upon compliance with the terms of sale, may hold, retain and dispose of
such Collateral without further accountability therefor.
6.5 Proceeds of Sale. The proceeds of any sale of the whole or any part of
the Collateral and any other monies at the time held by Pledgee under the
provisions of this Pledge Agreement shall be applied in accordance with the
terms of Section 2.10 of the Loan Agreement.
6.6 No Duty of Pledgee. Pledgee shall not have any duty to exercise any of
the rights, privileges, options or powers or to sell or otherwise realize upon
any of the Collateral, as hereinbefore authorized, and Pledgee shall not be
responsible for any failure to do so or delay in so doing.
6.7 Effect of Sale. Any sale of all or any portion of the Collateral
pursuant to Section 6.2 above shall operate to divest all right, title and
interest of any Pledgor to the Collateral which is the subject of any such sale.
6.8 Securities Act. Each Pledgor acknowledges that Pledgee may be unable to
effect a public sale of all or a part of the Collateral by reason of certain
prohibitions contained in the Securities Act of 1933 ("Securities Act"), or that
it may be able to do so only after delay which might adversely affect the value
that might be realized upon the sale of the Collateral. Accordingly, each
Pledgor agrees that Pledgee, without the necessity of attempting to cause any
registration of the Collateral to be effected under the Securities Act, may sell
the Collateral or any part thereof in one or more private sales to a restricted
group of purchasers who may be required to agree, among other things, that they
are acquiring the Collateral for their own account, for investment purposes
only, and not with a view toward the distribution or resale thereof. Each
Pledgor agrees that any such private sale may be at prices or on terms less
favorable to the owner of the Collateral sold than would be the case if such
Collateral was sold at public sale, and that any such private sale shall not be
deemed not to have been made in a commercially reasonable manner by virtue of
such sale having been a private sale.
6.9 Transfer of Control to Other Persons. Each Pledgor acknowledges and
agrees that, upon the occurrence of an Event of Default, a transfer of control
of the Collateral of TLF may be made to a receiver, trustee or similar official
or to any purchaser of all or any part of the other Collateral hereunder,
pursuant to any court order, public or private sale, judicial sale, foreclosure
or the exercise of any other remedies available to Pledgee hereunder or under
applicable law.
6.10 Notice. Pledgee shall give not less than ten (10) Business Days' prior
written notice to Pledgors of any sale pursuant to this Section 6. Each Pledgor
hereby agrees that such notice is commercially reasonable.
7. Pledgee's Obligations, Custodial Agreement, Performance Rights, Pledge Does
Not Make Pledgee a Shareholder. Pledgee shall not have any duty to protect,
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<PAGE>
preserve or enforce rights against the Collateral other than a duty of
reasonable custodial care of any such Collateral in its possession, it being
understood that Pledgee shall (i) have no responsibility for (A) ascertaining or
taking action with respect to calls, conversions, exchanges, maturities, tenders
or other matters relating to the Collateral, whether or not Pledgee has or is
deemed to have knowledge of such matters, (B) taking any necessary steps to
preserve rights against any parties with respect to the Collateral or (C) making
any capital contributions or other payments on behalf of any Pledgor and (ii)
not be deemed to be a shareholder of TLF unless Pledgee purchases or otherwise
retains the applicable portion of the Collateral in connection with a
foreclosure.
8. Termination of Pledge Agreement. Upon the payment and performance in full
of all of Borrowers' Obligations and Pledgors' Obligations, Pledgee shall
deliver to Pledgors the Collateral in its possession and this Pledge Agreement
thereupon shall terminate.
9. Miscellaneous.
9.1 Exercise of Rights. Each Pledgor unconditionally agrees that if an
Event of Default has occurred and is continuing, Pledgee may exercise its
rights and remedies hereunder prior to, concurrently with, or subsequent to
the exercise by Pledgee of its rights and remedies against any Pledgor or
any other Person under any of the Loan Documents or otherwise. The
obligations of each Pledgor under this Pledge Agreement shall be absolute
and unconditional and shall remain in full force and effect without regard
to, and shall not be released or discharged or in any way affected by:
9.1.1 Amendments. Any amendment or modification of or supplement
to any of the Loan Documents;
9.1.2 Exercise or Non-Exercise of Rights. Any exercise or
non-exercise of any right or remedy under any of the Loan Documents,
or the granting of any postponements or extensions for time of payment
or other indulgences to any Pledgor or any other Person, or the
settlement or adjustment of any claim or the release or discharge or
substitution of any Person primarily or secondarily liable with
respect to any of the Loan Documents;
9.1.3 Bankruptcy. The institution of any bankruptcy, insolvency,
reorganization, debt arrangement, readjustment, composition,
receivership or liquidation proceedings by or against any Pledgor, TLF
or any other Person; or
9.1.4 Other Defenses. Any other circumstance which otherwise
might constitute a defense to, or a discharge of, any Pledgor with
respect to Borrowers' Obligations and/or Pledgors' Obligations.
9.2 Rights Cumulative. Each and every right, remedy and power granted
to Pledgee hereunder shall be cumulative and in addition to any other
right, remedy or power specifically granted herein or now or hereafter
existing in equity, at law, by virtue of statute or otherwise and may be
exercised by Pledgee, from time to time, concurrently or independently and
as often and in such order as Pledgee may deem expedient. Any failure or
delay on the part of Pledgee in exercising any such right, remedy or power,
or abandonment or discontinuance of steps to enforce the same, shall not
operate as a waiver thereof or affect the right of Pledgee thereafter to
exercise the same, and any single or partial exercise of any such right,
remedy or power shall not preclude any other or further exercise thereof or
the exercise of any other right, remedy or power, and no such failure,
delay, abandonment or single or partial exercise of rights of Pledgee
hereunder shall be deemed to establish a custom or course of dealing or
performance among the parties hereto.
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<PAGE>
9.3 Modification. Any modification or waiver of any provision of this
Pledge Agreement, or any consent to any departure by any Pledgor therefrom,
shall not be effective in any event unless the same is in writing and
signed by Pledgee and then such modification, waiver or consent shall be
effective only in the specific instance and for the specific purpose given.
Any notice to or demand on any Pledgor in any event not specifically
required of Pledgee hereunder shall not entitle such Pledgor to any other
or further notice or demand in the same, similar or other circumstances
unless specifically required hereunder.
9.4 Further Assurances. Each Pledgor agrees that at any time, and from
time to time, after the execution and delivery of this Pledge Agreement,
such Pledgor, upon the request of Pledgee, promptly will execute and
deliver such further documents and do such further acts and things as
Pledgee reasonably may request in order to effect fully the purposes of
this Pledge Agreement and to subject to the security interest created
hereby any Collateral intended by the provisions hereof to be covered
hereby. Each Pledgor and Pledgee acknowledge their intent that, upon the
occurrence of an Event of Default, Pledgee shall receive, to the fullest
extent permitted by law and governmental policy, all rights necessary or
desirable to obtain, use or sell the Collateral, and to exercise all
remedies available to Pledgee under the Loan Documents, the Uniform
Commercial Code or other applicable law. Each Pledgor and Pledgee further
acknowledge and agree that, in the event of changes in law or governmental
policy occurring subsequent to the date hereof that affect in any manner
Pledgee's rights of access to, or use or sale of, the Collateral, or the
procedures necessary to enable Pledgee to obtain such rights of access, use
or sale, Pledgee and each Pledgor shall amend this Pledge Agreement and any
other Loan Documents to which such Pledgor is a party, in such manner as
Pledgee reasonably shall request, in order to provide Pledgee such rights
to the greatest extent possible consistent with then applicable law and
governmental policy.
9.5 Preservation of Collateral. Each Pledgor agrees that it will
warrant, preserve, maintain and defend, at the expense of such Pledgor, the
right, title and interest of Pledgee in and to the Collateral and all
right, title and interest represented thereby against all claims, charges
and demands of all Persons whomsoever which are based on a breach of
Borrowers' Obligations and/or Pledgors' Obligations hereunder.
9.6 Notices. All notices and communications under this Pledge
Agreement shall be delivered in the manner set forth in Section 9.12 of the
Loan Agreement, with all notices to Pledgors to be sent to the address set
forth in the Loan Agreement for Borrowers.
9.7 GOVERNING LAW. THIS PLEDGE AGREEMENT SHALL BE GOVERNED BY THE LAWS
AND DECISIONS OF THE STATE OF ARIZONA. FOR THE PURPOSES OF THIS SECTION
9.7, THIS PLEDGE AGREEMENT SHALL BE DEEMED TO BE PERFORMED AND MADE IN THE
STATE OF ARIZONA.
9.8 Severability. In the event that any provision of this Pledge
Agreement is deemed to be invalid by reason of the operation of any law, or
by reason of the interpretation placed thereon by any court or any
governmental body, this Pledge Agreement shall be construed as not
containing such provision and any and all other provisions hereof which
otherwise are lawful and valid shall remain in full force and effect.
9.9 Successors and Assigns. This Pledge Agreement shall inure to the
benefit of the successors and assigns of Pledgee and shall be binding upon
the successors and assigns of each Pledgor.
9.10 Counterparts. This Pledge Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original, but all
of which when taken together shall be deemed to be one and the same
instrument.
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<PAGE>
9.11 Notation on Books. Concurrently with the execution and delivery
hereof, each Pledgor shall cause TLF to register in its corporate books the
security interests in and the pledge of the Collateral effected hereby.
10. JURISDICTION AND VENUE. EACH PLEDGOR HEREBY AGREES THAT ALL ACTIONS
OR PROCEEDINGS INITIATED BY ANY PLEDGOR IN ANY CAPACITY AND ARISING DIRECTLY OR
INDIRECTLY OUT OF THIS PLEDGE AGREEMENT SHALL BE LITIGATED IN THE SUPERIOR COURT
OF ARIZONA, MARICOPA COUNTY DIVISION, OR THE UNITED STATES DISTRICT COURT FOR
THE DISTRICT OF ARIZONA, OR, IF PLEDGEE INITIATES SUCH ACTION, IN ADDITION TO
THE FOREGOING COURTS, ANY COURT IN WHICH PLEDGEE SHALL INITIATE OR TO WHICH
PLEDGEE SHALL REMOVE SUCH ACTION, TO THE EXTENT SUCH COURT HAS JURISDICTION.
EACH PLEDGOR HEREBY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH
JURISDICTION IN ANY ACTION OR PROCEEDING COMMENCED IN OR REMOVED BY PLEDGEE TO
ANY OF SUCH COURTS, AND HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS AND
COMPLAINT, OR OTHER PROCESS OR PAPERS ISSUED THEREIN, AND AGREES THAT SERVICE OF
SUCH SUMMONS AND COMPLAINT OR OTHER PROCESS OR PAPERS MAY BE MADE BY REGISTERED
OR CERTIFIED MAIL ADDRESSED TO PLEDGORS AT THE ADDRESS TO WHICH NOTICES ARE TO
BE SENT TO BORROWER PURSUANT TO SECTION 9.12 OF THE LOAN AGREEMENT. EACH PLEDGOR
WAIVES ANY CLAIM THAT MARICOPA COUNTY, ARIZONA OR THE DISTRICT OF ARIZONA IS AN
INCONVENIENT FORUM OR AN IMPROPER FORUM BASED ON LACK OF VENUE. SHOULD ANY
PLEDGOR, AFTER BEING SO SERVED, FAIL TO APPEAR OR ANSWER TO ANY SUMMONS,
COMPLAINT, PROCESS OR PAPERS SO SERVED WITHIN THE NUMBER OF DAYS PRESCRIBED BY
LAW AFTER THE MAILING THEREOF, SUCH PLEDGOR SHALL BE DEEMED IN DEFAULT AND AN
ORDER AND/OR JUDGMENT MAY BE ENTERED BY PLEDGEE AGAINST SUCH PLEDGOR AS DEMANDED
OR PRAYED FOR IN SUCH SUMMONS, COMPLAINT, PROCESS OR PAPERS. THE EXCLUSIVE
CHOICE OF FORUM FOR PLEDGORS SET FORTH IN THIS SECTION 10 SHALL NOT BE DEEMED TO
PRECLUDE THE ENFORCEMENT, BY PLEDGEE, OF ANY JUDGMENT OBTAINED IN ANY OTHER
FORUM OR THE TAKING, BY PLEDGEE, OF ANY ACTION TO ENFORCE THE SAME IN ANY OTHER
APPROPRIATE JURISDICTION, AND EACH PLEDGOR HEREBY WAIVES THE RIGHT TO
COLLATERALLY ATTACK ANY SUCH JUDGMENT OR ACTION.
11. WAIVER OR RIGHT TO JURY TRIAL. PLEDGEE AND EACH PLEDGOR ACKNOWLEDGE AND
AGREE THAT ANY CONTROVERSY WHICH MAY ARISE UNDER ANY OF THE LOAN DOCUMENTS OR
WITH RESPECT TO THE TRANSACTIONS CONTEMPLATED THEREBY WOULD BE BASED UPON
DIFFICULT AND COMPLEX ISSUES AND, THEREFORE, THE PARTIES AGREE THAT ANY LAWSUIT
ARISING OUT OF ANY SUCH CONTROVERSY WILL BE TRIED IN A COURT OF COMPETENT
JURISDICTION BY A JUDGE SITTING WITHOUT A JURY.
12. Pledgee's Right to Specific Performance. Each Pledgor agrees that, in
addition to all other remedies available at law or in equity, Pledgee shall be
entitled to obtain decree(s) of specific performance entitling it to temporary
restraining order(s), preliminary injunction(s), or permanent injunction(s) to
enforce and require specific performance of this Pledge Agreement. Each Pledgor
agrees that notice shall be adequate for the entry of a decree of specific
performance with respect to any such matter (i) in the case of a temporary
restraining order, upon twenty four (24) hours' prior notice of the hearing
thereof and (ii) in the case of any other proceeding, upon five (5) days' prior
notice of the hearing thereof, and hereby waives all requirements and demands
that Pledgee give any greater notice of such hearings or post a bond or other
surety arrangement in connection with the issuance of such decree.
[remainder of this page intentionally left blank]
-7-
<PAGE>
IN WITNESS WHEREOF, each Pledgor and Pledgee have caused this Pledge
Agreement to be executed as of the date first above written.
/s/ Ronald C. Morgan
-------------------------------
Ronald C. Morgan, individually
/s/ Robin L. Morgan
-------------------------------
Robin L. Morgan, individually
Pledge Agreement
<PAGE>
FINOVA CAPITAL CORPORATION, a Delaware corporation
By: /s/ John Sorber
John Sorber
Vice President
Pledge Agreement
<PAGE>
EXHIBIT A
---------
Description of Securities
-------------------------
Issued to
Description Pledgors and
Pledgors of Securities Outstanding
- -------- ------------- ------------
Ronald C. Morgan Capital stock of 3,000,000 shares
and Robin L. Morgan The Leather Factory, represented by
Inc., a Delaware certificate no. LF 4270
corporation ("TLF")
<PAGE>
EXHIBIT B
---------
Location of each Pledgor's Primary Residence
--------------------------------------------
1. Ronald C. Morgan
7200 Lake Havasu Court
Arlington, Texas 76016
2. Robin L. Morgan
7200 Lake Havasu Court
Arlington, Texas 76016
<PAGE>
EXHIBIT 4.8
<PAGE>
PATENT SECURITY AGREEMENT
This PATENT SECURITY AGREEMENT, dated as of November 21 , 1997 (this
"Agreement"), is among THE LEATHER FACTORY, INC., a Delaware corporation, THE
LEATHER FACTORY, INC., a Texas corporation, formerly known as Midas Leathercraft
Tool Company, a Texas corporation, THE LEATHER FACTORY, INC., an Arizona
corporation, HI-LINE LEATHER & MANUFACTURING COMPANY, a California corporation,
and ROBERTS, CUSHMAN & COMPANY, INC., a New York corporation (hereinafter
referred to individually as a "Debtor" and collectively as "Debtors"), and
FINOVA CAPITAL CORPORATION, a Delaware corporation ("Secured Party").
RECITALS:
A. Debtors and Secured Party have entered into that certain Loan and
Security Agreement of even date herewith (as the same may be amended, modified,
supplemented or restated from time to time, the "Loan Agreement"), pursuant to
which Secured Party has agreed to make loans and other financial accommodations
(collectively, the "Loan") to Debtors, subject to the terms and conditions set
forth in the Loan Agreement.
B. As a condition precedent to the making of the Loan under the Loan
Agreement, each Debtor is required to execute and deliver this Agreement and to
grant to Secured Party a continuing security interest in all of the "Patent
Collateral" (as defined below) to secure Debtors' Obligations.
C. Each Debtor has duly authorized the execution, delivery and performance
of this Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt of which
is hereby acknowledged, and in order to induce Secured Party to make the Loan to
Debtors pursuant to the Loan Agreement, each Debtor agrees, for the benefit of
Secured Party, as follows:
SECTION 1. Definitions. Unless otherwise defined herein or the context
otherwise requires, terms used in this Agreement, including its preamble and
recitals, have the meanings provided or provided by reference in the Loan
Agreement.
SECTION 2. Grant of Security Interest. For good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, to secure all of
Debtors' Obligations, each Debtor does hereby grant to Secured Party a
continuing security interest in all of the following property of such Debtor
(collectively, the "Patent Collateral"), whether now or hereafter owned,
acquired or existing:
(a) all letters patent and applications for letters patent throughout
the world, including all patent applications in preparation for filing
anywhere in the world and including each patent and patent application
referred to in Item A of Attachment 1 hereto;
(b) all patent licenses, including each patent license referred to in
Item B of Attachment 1 hereto;
(c) all reissues, divisions, continuations, continuations-in-part,
extensions, renewals and reexaminations of any of the items described in
the foregoing clauses (a) and b; and
(d) all proceeds of, and rights associated with, the foregoing
(including license royalties and proceeds of infringement suits), the right
to sue third parties for past, present or future infringements of any
patent or patent application, including any patent or patent application
referred to in Item A of Attachment 1 hereto, and for breach or enforcement
<PAGE>
of any patent license, including any patent license referred to in Item B
of Attachment 1 hereto, and all rights corresponding thereto throughout the
world.
SECTION 3. Loan Agreement. This Agreement has been executed and delivered
by each Debtor for the purpose of registering the security interest of Secured
Party in the Patent Collateral with the United States Patent and Trademark
Office and corresponding offices in other countries of the world. The security
interest granted hereby has been granted as a supplement to, and not in
limitation of, the security interest granted to Secured Party under the Loan
Agreement. The Loan Agreement (and all rights and remedies of Secured Party
thereunder) shall remain in full force and effect in accordance with its terms.
SECTION 4. Release of Security Interest. Upon payment and performance in
full of Debtors' Obligations, Secured Party shall, at Debtors' expense, execute
and deliver to Debtors all instruments and other documents as may be necessary
or proper to release the lien on and security interest in the Patent Collateral
which has been granted hereunder.
SECTION 5. Acknowledgment. Each Debtor does hereby further acknowledge and
affirm that the rights and remedies of Secured Party with respect to the
security interest in the Patent Collateral granted hereby are more fully set
forth in the Loan Agreement, the terms and provisions of which (including the
remedies provided for therein) are incorporated by reference herein as if fully
set forth herein.
SECTION 6. Loan Document, etc. This Agreement is a Loan Document executed
pursuant to the Loan Agreement and shall (unless otherwise expressly indicated
herein) be construed, administered and applied in accordance with the terms and
provisions of the Loan Agreement.
SECTION 7. Counterparts. This Agreement may be executed by the parties
hereto in several counterparts, each of which shall be deemed to be an original
and all of which shall constitute together but one and the same agreement.
-2-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their respective officers thereunto duly
authorized as of the day and year first above written.
THE LEATHER FACTORY, INC.,
a Delaware corporation, THE
LEATHER FACTORY, INC., a
Texas corporation, formerly
known as Midas Leathercraft
Tool Company, a Texas
corporation, THE LEATHER
FACTORY, INC., an Arizona
corporation, HI-LINE
LEATHER & MANUFACTURING
COMPANY, a California
corporation and ROBERTS,
CUSHMAN & COMPANY, INC., a
New York corporation
By: /s/ Fred N. Howell
-----------------------
Fred N. Howell
Chief Financial Officer
FINOVA CAPITAL CORPORATION,
a Delaware corporation
By: /s/ John Sorber
-----------------------
John Sorber
Vice President
<PAGE>
STATE OF TEXAS )
) SS.
COUNTY OF TARRANT )
I, Barbara Marvin, a notary public in and for said County, in the State of
aforesaid, DO HEREBY CERTIFY that Fred N. Howell personally known to me to be
Chief Financial Officer of THE LEATHER FACTORY, INC., a Delaware corporation,
THE LEATHER FACTORY, INC., a Texas corporation, formerly known as Midas
Leathercraft Tool Company, a Texas corporation, THE LEATHER FACTORY, INC., an
Arizona corporation, HI-LINE LEATHER & MANUFACTURING COMPANY, a California
corporation and ROBERTS, CUSHMAN & COMPANY, INC., a New York corporation, and
personally known to me to be the same person whose name is subscribed to the
foregoing instrument, appeared before me this day in person and acknowledged
that he signed and delivered the said instrument as Chief Financial Officer of
said corporations, pursuant to authority, given by the Board of Directors of
said corporations as such person's free and voluntary act, and as the free and
voluntary act and deed of said corporations, for the uses and purposes therein
set forth.
GIVEN under my hand and notarial seal this 19th day of November, 1997.
/s/ Barbara Marvin
---------------------------
Notary Public
My Commission Expires:
10-16-2001
- ----------------------
<PAGE>
Patent Security Agreement STATE OF PENNSYLVANIA )
) SS.
COUNTY OF MONTGOMERY )
I, Lori A. Harris, a notary public in and for said County, in the State of
aforesaid, DO HEREBY CERTIFY that John Sorber, personally known to me to be a
Vice President of FINOVA CAPITAL CORPORATION, a Delaware corporation, and
personally known to me to be the same person whose name is subscribed to the
foregoing instrument, appeared before me this day in person and acknowledged
that he signed and delivered the said instrument as such officer of said
corporation, pursuant to authority, given by the Board of Directors of said
corporation as such person's free and voluntary act, and as the free and
voluntary act and deed of said corporation, for the uses and purposes therein
set forth.
GIVEN under my hand and notarial seal this _24th day of November, 1997.
/s/ Lori A. Harris
-------------------------
Notary Public
My Commission Expires:
Jan. 22, 2001
- ----------------------
<PAGE>
EXHIBIT 4.9
<PAGE>
TRADEMARK SECURITY AGREEMENT
This TRADEMARK SECURITY AGREEMENT (this "Agreement"), dated as of November
21, 1997, is among THE LEATHER FACTORY, INC., a Delaware corporation, THE
LEATHER FACTORY, INC., a Texas corporation, formerly known as Midas Leathercraft
Tool Company, a Texas corporation, THE LEATHER FACTORY, INC., an Arizona
corporation, HI-LINE LEATHER & MANUFACTURING COMPANY, a California corporation,
and ROBERTS, CUSHMAN & COMPANY, INC., a New York corporation (hereinafter
referred to individually as a "Debtor" and collectively as "Debtors"), and
FINOVA CAPITAL CORPORATION, a Delaware corporation ("Secured Party").
RECITALS:
A. Debtors and Secured Party have entered into that certain Loan and
Security Agreement of even date herewith (as the same may be amended, modified,
supplemented or restated from time to time, the "Loan Agreement"), pursuant to
which Secured Party has agreed to make loans and other financial accommodations
(collectively, the "Loan") to Debtors, subject to the terms and conditions set
forth in the Loan Agreement.
B. As a condition precedent to the making of the Loan under the Loan
Agreement, each Debtor is required to execute and deliver this Agreement and to
grant to Secured Party a continuing security interest in all of the "Trademark
Collateral" (as defined below) to secure Debtors' Obligations.
C. Each Debtor has duly authorized the execution, delivery and performance
of this Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which hereby are acknowledged, and in order to induce Secured
Party to make the Loan to Debtors pursuant to the Loan Agreement, each Debtor
agrees, for the benefit of Secured Party, as follows:
1. Definitions. Unless otherwise defined herein or the context otherwise
requires, terms used in this Agreement, including its preamble and recitals,
have the meanings provided or provided by reference in the Loan Agreement.
2. Grant of Security Interest. For good and valuable consideration, the
receipt and sufficiency of which hereby are acknowledged, to secure Debtors'
Obligations, each Debtor does hereby grant to Secured Party a continuing
security interest in all of the following property of such Debtor (collectively,
the "Trademark Collateral"), whether now owned or existing and hereafter
acquired or arising:
<PAGE>
(a) all trademarks, trade names, corporate names, company names,
business names, fictitious business names, trade dress, service marks,
certification marks, collective marks, logos, other sources of business
identifiers, prints and labels on which any of the foregoing have appeared
or appear, designs and general intangibles of a like nature (each of the
foregoing items in this clause (a) being called a "Trademark"), now
existing anywhere in the world or hereafter adopted or acquired, whether
currently in use or not, all registrations and recordings thereof and all
applications in connection therewith, whether pending or in preparation for
filing, including registrations, recordings and applications in the United
States Patent and Trademark Office or in any office or agency of the United
States of America or any State thereof or any foreign country, including
those referred to in Item A of Attachment 1 hereto;
(b) all Trademark licenses, including each Trademark license referred
to in Item B of Attachment 1 hereto;
(c) all reissues, extensions or renewals of any of the items described
in clauses (a) and (b);
(d) all of the goodwill of the business connected with the use of, and
symbolized by the items described in clauses (a) and (b); and
(e) all proceeds of, and rights associated with, the foregoing,
including any claim by such Debtor against third parties for past, present
or future infringement or dilution of any Trademark, Trademark
registration, or Trademark license, including any Trademark, Trademark
registration or Trademark license referred to in Item A and Item B of
Attachment 1 hereto, or for any injury to the goodwill associated with the
use of any Trademark or for breach or enforcement of any Trademark license.
3. Loan Agreement. This Agreement has been executed and delivered by each
Debtor for the purpose of registering the security interest of Secured Party in
the Trademark Collateral with the United States Patent and Trademark Office and
corresponding offices in other countries of the world. The security interest
granted hereby has been granted as a supplement to, and not in limitation of,
the security interest granted to Secured Party under the Loan Agreement. The
Loan Agreement (and all rights and remedies of Secured Party thereunder) shall
remain in full force and effect in accordance with its terms.
4. Release of Security Interest. Upon payment and performance in full of
Debtors' Obligations, Secured Party shall, at Debtors' expense, execute and
deliver to Debtors all instruments and other documents as may be necessary or
proper to release the lien on and security interest in the Trademark Collateral
which has been granted hereunder.
-2-
<PAGE>
5. Acknowledgment. Each Debtor does hereby further acknowledge and affirm
that the rights and remedies of Secured Party with respect to the security
interest in the Trademark Collateral granted hereby are more fully set forth in
the Loan Agreement, the terms and provisions of which (including the remedies
provided for therein) are incorporated by reference herein as if fully set forth
herein.
6. Loan Document, Etc. This Agreement is a Loan Document executed pursuant
to the Loan Agreement and shall (unless otherwise expressly indicated herein) be
construed, administered and applied in accordance with the terms and provisions
of the Loan Agreement.
7. Counterparts. This Agreement may be executed by the parties hereto in
several counterparts, each of which shall be deemed to be an original and all of
which shall constitute together but one and the same agreement.
[remainder of this page intentionally left blank]
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their respective officers thereunto duly
authorized as of the day and year first above written.
THE LEATHER FACTORY, INC.,
a Delaware corporation, THE
LEATHER FACTORY, INC., a
Texas corporation, formerly
known as Midas Leathercraft
Tool Company, a Texas
corporation, THE LEATHER
FACTORY, INC., an Arizona
corporation, HI-LINE
LEATHER & MANUFACTURING,
COMPANY, a California
corporation, and ROBERTS,
CUSHMAN & COMPANY, INC., a
New York corporation
By: /s/ Fred N. Howell
-----------------------
Fred N. Howell
Chief Financial Officer
FINOVA CAPITAL CORPORATION,
a Delaware corporation
By: /s/ John Sorber
-----------------------
John Sorber
Vice President
<PAGE>
STATE OF TEXAS )
) SS.
COUNTY OF TARRANT )
I, Barbara Marvin, a notary public in and for said County, in the State of
aforesaid, DO HEREBY CERTIFY that Fred N. Howell personally known to me to be
the Chief Financial Officer of THE LEATHER FACTORY, INC., a Delaware
corporation, THE LEATHER FACTORY, INC., a Texas corporation, formerly known as
Midas Leathercraft Tool Company, a Texas corporation, THE LEATHER FACTORY, INC.,
an Arizona corporation, HI-LINE LEATHER & MANUFACTURING, COMPANY, a California
corporation, and ROBERTS, CUSHMAN & COMPANY, INC., a New York corporation, and
personally known to me to be the same person whose name is subscribed to the
foregoing instrument, appeared before me this day in person and acknowledged
that he signed and delivered the said instrument as Chief Financial Officer of
said corporations, pursuant to authority, given by the Board of Directors of
said corporations as such person's free and voluntary act, and as the free and
voluntary act and deed of said corporations, for the uses and purposes therein
set forth.
GIVEN under my hand and notarial seal this 19th day of November, 1997.
/s/Barbara Marvin
------------------------------
Notary Public
My Commission Expires:
10-16-2001
- ----------------------
<PAGE>
STATE OF PENNSYLVANIA )
) SS.
COUNTY OF MONTGOMERY )
I, Lori A. Harris, a notary public in and for said County, in the State of
aforesaid, DO HEREBY CERTIFY that John Sorber, personally known to me to be a
Vice President of FINOVA CAPITAL CORPORATION, a Delaware corporation, and
personally known to me to be the same person whose name is subscribed to the
foregoing instrument, appeared before me this day in person and acknowledged
that he signed and delivered the said instrument as such officer of said
corporation, pursuant to authority, given by the Board of Directors of said
corporation as such person's free and voluntary act, and as the free and
voluntary act and deed of said corporation, for the uses and purposes therein
set forth.
GIVEN under my hand and notarial seal this 24th day of November, 1997.
/s/ Lori A. Harris
------------------------------
Notary Public
My Commission Expires:
Jan. 22, 2001
- ---------------------
<PAGE>
THE LEATHER FACTORY, INC.
TRADEMARK SECURITY AGREEMENT
ATTACHMENT 1
Item A. Trademarks
Registered Trademarks
---------------------
United States of America:
See attached list.
Other Countries:
None
Pending Trademark Applications
------------------------------
United States of America:
See attached list.
Other Countries:
None
Trademark Applications in Preparation
-------------------------------------
None
<TABLE>
<CAPTION>
Item B. Trademark Licenses
<S> <C> <C>
Country or Effective Expiration Commencement
Territory Trademark Licensor Licensee Date Date
--------- --------- -------- --------- ---------- ------------
United Playboy Playboy Roberts, December June 1, 1997
States and Rabbit Enterprises, Cushman and 31, 1998
its Head Inc. Co., Inc. dba
possessions; Design Royal Crown
and Canada Custom
Leathers
</TABLE>
<PAGE>
EXHIBIT 4.10
<PAGE>
COPYRIGHT SECURITY AGREEMENT
This COPYRIGHT SECURITY AGREEMENT (this "Agreement"), dated as of November
21, 1997, is among THE LEATHER FACTORY, INC., a Delaware corporation, THE
LEATHER FACTORY, INC., a Texas corporation, formerly known as Midas Leathercraft
Tool Company, a Texas corporation, THE LEATHER FACTORY, INC., an Arizona
corporation, HI-LINE LEATHER & MANUFACTURING COMPANY, a California corporation,
and ROBERTS, CUSHMAN & COMPANY, INC., a New York corporation (hereinafter
referred to individually as a "Debtor" and collectively as "Debtors"), and
FINOVA CAPITAL CORPORATION, a Delaware corporation ("Secured Party").
RECITALS:
A. Debtors and Secured Party have entered into that certain Loan and
Security Agreement of even date herewith (as the same may be amended, modified,
supplemented or restated from time to time, the "Loan Agreement"), pursuant to
which Secured Party has agreed to make loans and other financial accommodations
(collectively, the "Loan") to Debtors, subject to the terms and conditions set
forth in the Loan Agreement.
B. As a condition precedent to the making of the Loan under the Loan
Agreement, each Debtor is required to execute and deliver this Agreement and to
grant to Secured Party a continuing security interest in all of the "Copyright
Collateral" (as defined below) to secure Debtors' Obligations.
C. Each Debtor has duly authorized the execution, delivery and performance
of this Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which hereby are acknowledged, and in order to induce Secured
Party to make the Loan to Debtors pursuant to the Loan Agreement, each Debtor
agrees, for the benefit of Secured Party, as follows:
1. Definitions. Unless otherwise defined herein or the context otherwise
requires, terms used in this Agreement, including its preamble and recitals,
have the meanings provided or provided by reference in the Loan Agreement.
2. Grant of Security Interest. For good and valuable consideration, the
receipt and sufficiency of which hereby are acknowledged, to secure all of
Debtors' Obligations, each Debtor does hereby grant to Secured Party a
continuing security interest in all of the following property of such Debtor
(the "Copyright Collateral"), whether now or hereafter owned, acquired or
existing, being all copyrights of such Debtor, whether statutory or common law,
registered or unregistered, now or hereafter in force throughout the world,
including, without limitation, all of such Debtor's right, title and interest in
and to all copyrights registered in the United States Copyright Office or
anywhere else in the world and also including, without limitation, the
copyrights referred to in Item A of Attachment 1 hereto, and all applications
for registration thereof, whether pending or in preparation, all copyright
<PAGE>
licenses, including each copyright license referred to in Item B of Attachment 1
attached hereto, the right to sue for past, present and future infringements of
any thereof, all rights corresponding thereto throughout the world, all
extensions and renewals of any thereof and all proceeds of the foregoing,
including, without limitation, licenses, royalties, income, payments, claims,
damages and proceeds of suit.
3. Loan Agreement. This Agreement has been executed and delivered by each
Debtor for the purpose of registering the security interest of Secured Party in
the Copyright Collateral with the United States Copyright Office and
corresponding offices in other countries of the world. The security interest
granted hereby has been granted as a supplement to, and not in limitation of,
the security interest granted to Secured Party under the Loan Agreement. The
Loan Agreement (and all rights and remedies of Secured Party thereunder) shall
remain in full force and effect in accordance with its terms.
4. Release of Security Interest. Upon payment and performance in full of
Debtors' Obligations, Secured Party shall, at Debtors' expense, execute and
deliver to Debtors all instruments and other documents as may be necessary or
proper to release the lien on and security interest in the Copyright Collateral
which has been granted hereunder.
5. Acknowledgment. Each Debtor does hereby further acknowledge and affirm
that the rights and remedies of Secured Party with respect to the security
interest in the Copyright Collateral granted hereby are more fully set forth in
the Loan Agreement, the terms and provisions of which (including the remedies
provided for therein) are incorporated by reference herein as if fully set forth
herein.
6. Loan Document, Etc. This Agreement is a Loan Document executed pursuant
to the Loan Agreement and shall (unless otherwise expressly indicated herein) be
construed, administered and applied in accordance with the terms and provisions
of the Loan Agreement.
7. Counterparts. This Agreement may be executed by the parties hereto in
several counterparts, each of which shall be deemed to be an original and all of
which shall constitute together but one and the same agreement.
[remainder of this page intentionally left blank]
-2-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their respective officers thereunto duly
authorized as of the day and year first above written.
THE LEATHER FACTORY, INC.,
a Delaware corporation, THE
LEATHER FACTORY, INC., a
Texas corporation, formerly
known as Midas Leathercraft
Tool Company, a Texas
corporation, THE LEATHER
FACTORY, INC., an Arizona
corporation, HI-LINE
LEATHER & MANUFACTURING
COMPANY, a California
corporation and ROBERTS,
CUSHMAN & COMPANY, INC., a
New York corporation
By: /s/ Fred N. Howell
-----------------------
Fred N. Howell
Chief Financial Officer
FINOVA CAPITAL CORPORATION,
a Delaware corporation
By: /s/ John Sorber
-----------------------
John Sorber
Vice President
<PAGE>
STATE OF TEXAS )
) SS.
COUNTY OF TARRANT )
I, Barbara Marvin, a notary public in and for said County, in the State of
aforesaid, DO HEREBY CERTIFY that Fred N. Howell personally known to me to be
Chief Financial Officer of THE LEATHER FACTORY, INC., a Delaware corporation,
THE LEATHER FACTORY, INC., a Texas corporation, formerly known as Midas
Leathercraft Tool Company, a Texas corporation, THE LEATHER FACTORY, INC., an
Arizona corporation, HI-LINE LEATHER & MANUFACTURING COMPANY, a California
corporation and ROBERTS, CUSHMAN & COMPANY, INC., a New York corporation and
personally known to me to be the same person whose name is subscribed to the
foregoing instrument, appeared before me this day in person and acknowledged
that he signed and delivered the said instrument as Chief Financial Officer of
said corporations, pursuant to authority, given by the Board of Directors of
said corporations as such person's free and voluntary act, and as the free and
voluntary act and deed of said corporations, for the uses and purposes therein
set forth.
GIVEN under my hand and notarial seal this 19th day of November, 1997.
/s/ Barbara Marvin
--------------------------------
Notary Public
My Commission Expires:
10-16-2001
- ----------------------
<PAGE>
STATE OF PENNSYLVANIA )
) SS.
COUNTY OF MONTGOMERY )
I, Lori A. Harris, a notary public in and for said County, in the State of
aforesaid, DO HEREBY CERTIFY that John Sorber, personally known to me to be a
Vice President of FINOVA CAPITAL CORPORATION, a Delaware corporation, and
personally known to me to be the same person whose name is subscribed to the
foregoing instrument, appeared before me this day in person and acknowledged
that he signed and delivered the said instrument as such officer of said
corporation, pursuant to authority, given by the Board of Directors of said
corporation as such person's free and voluntary act, and as the free and
voluntary act and deed of said corporation, for the uses and purposes therein
set forth.
GIVEN under my hand and notarial seal this 24th day of November, 1997.
/s/ Lori A. Harris
------------------------------
Notary Public
My Commission Expires:
Jan. 22, 2001
- ----------------------
<PAGE>
THE LEATHER FACTORY, INC.
COPYRIGHT SECURITY AGREEMENT
ATTACHMENT 1
Item A. Copyrights
Registered Copyrights
---------------------
United States of America:
See attached list.
Other Countries:
None
Pending Copyright Applications
------------------------------
United States of America:
See attached list.
Other Countries:
None
Copyright Applications in Preparation
-------------------------------------
None
Item B. Copyright Licenses
United States of America:
See attached list.
Other Countries:
None
<PAGE>
EXHIBIT 4.11
<PAGE>
All indebtedness evidenced hereby and referenced herein is subordinated in right
of payment to the prior payment in full of all indebtedness owed to Finova
Capital Corporation as set forth in that certain Subordination Agreement among
Finova Capital Corporation, the payee of this Note and the other parties named
therein.
PROMISSORY NOTE
Secured by Corporate Stock
$1,000,000 dated effective as of November 14, 1997
"Borrower" promises to pay to the order of The Schlinger Foundation "Holder," at
its office at 1944 Edison Street, Santa Ynez, California 93460, or at such other
place as the holder may designate in writing, in lawful money of the United
States of America, the principal sum of One Million and No/100 Dollars
($1,000,000), with interest at thirteen percent (13%) thereon until two years
from the date of this Note.
Interest only payments shall be payable monthly beginning on the fourteenth
(14th) day of December, 1997 and every fourteenth day of each month thereafter
until November 14th, 1999 when the entire principal and accrued interest is all
due and payable.
PAYMENTS SHALL BE MADE BY ELECTRONIC DEPOSIT TO THE UNION BANK OF CALIFORNIA,
WALNUT CREEK REGIONAL OFFICE, 100 PRINGLE AVENUE, SUITE 150, WALNUT CREEK,
CALIFORNIA 94596, WITH INSTRUCTIONS TO DEPOSIT TO ACCOUNT NO.
014-015018-41, OR AT DIFFERENT PLACE IF REQUIRED BY HOLDER.
THIS NOTE CAN BE PREPAID WITHOUT PENALTY.
This Note is secured by the 2,666,667 shares of stock of The Leather Factory,
Inc., a Delaware corporation. Said stock is pledged by J. Wray Thompson, Sr.,
Ron Morgan and Robin Morgan. This Note is subordinate to any indebtedness owed
by Borrower to Finova Capital Corporation and Holder has executed a subordinate
agreement to that effect.
At any time before the maturity date of this Note, Holder, at its option may
satisfy fifty percent (50%) or Five Hundred Thousand Dollars ($500,000) of the
principal amount of this Note by converting into common stock of borrower at the
current market price. Current Market Price will be defined as the average daily
closing price for thirty (30) trading days prior to closing. Upon receipt of
notice that Holder has exercised its option to convert to Borrower's stock,
Borrower shall promptly issue said shares and transfer them into the Holder's
name.
Principal, interest and all other sums owed Holder shall be evidenced by entries
in records maintained by Holder for such purpose. Each payment on and any other
credits with respect to principal, interest and all other sums outstanding shall
be evidenced by entries in such records. Holder's records shall be conclusive
evidence thereof.
Notwithstanding the rights given to Borrower pursuant to provisions in the laws
of the state specified in the governing law clause of this document (and any
amendments or successors thereto), to designate how payments will be applied,
Borrower hereby waives such rights and Holder shall have the right in its sole
discretion to determine the order and method of the application of payments to
this Note.
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If the proceeds of the loan evidenced by this Note are, at Borrower's request,
to be wire transferred to Borrower or any other individual or entity, including
without limitation Holder where the context so permits and in Holder's sole
discretion. Such transfer shall be subject to all applicable laws and
regulations, and the policy of the Board of Governors of the Federal Reserve
System on Reduction of Payments System Risk in effect from time to time
("Applicable Law and Policy"). Borrower acknowledges that as a result of
Applicable Law and Policy, the transmission of the proceeds of any advance under
this Note which Borrower has requested to be wire-transferred may be
significantly delayed.
Any unpaid payments of principal or interest on this Note shall bear interest
from their respective maturities, whether scheduled or accelerated, until paid
in full, whether before or after judgment.
In no event shall Borrower be obligated to pay interest at a rate in excess of
the highest rate permitted by applicable law from time to time in effect.
The occurrence of any of the following shall at Holder's option make all sums of
interest, principal and any other amounts owing under this Note immediately due
and payable without notice of default, presentment or demand for payment,
protest or notice of nonpayment or dishonor or any other notices or demands; and
give Holder the right to exercise any other right or remedy provided by contract
or applicable law:
(a) Borrower shall fail to make any payment of principal or interest
when due under this Note or to pay any fees or other charges when due,
or Borrower or any other Person shall fail to provide Holder with, or
to perform any obligation under, this Note or any contract,
instrument, addenda or document executed in connection with this Note,
including without limitation any guaranty, pledge agreement, or
security agreement (including this Note, each a "Loan Document").
Provided, however, nothing herein shall effect the notice provisions
of the "security agreement." Notice shall be given in accordance with
the agreement securing this Note.
(b) Any representation or warranty made, or financial statement,
certificate or other document provided, by Borrower or any guarantor
("Guarantor") of the obligations evidenced by this Note
("Obligations") shall prove to have been false or misleading.
(c) Borrower or any Guarantor shall fail to pay its debts generally as
they become due or shall file any petition or action for relief under
any bankruptcy, insolvency, reorganization, moratorium, creditor
composition law, or any other law for the relief of or relating to
debtors; an involuntary petition shall be filed under any bankruptcy
law against Borrower or any Guarantor, or a custodian, receiver,
trustee, assignee for the benefit of creditors, or other similar
official, shall be appointed to take possession, custody or control of
the properties of Borrower or any Guarantor; or the death, incapacity,
dissolution or termination of the business of Borrower or any
Guarantor.
(d) Borrower or any Guarantor shall fail to perform under any other
agreement involving the borrowing of money, the purchase of property,
the advance of credit or any other monetary liability of any kind to
any Person which shall have a material adverse effect upon the
business operations of the Borrower; or any guaranty of the
Obligations shall be revoked or terminated.
(e) Any governmental or regulatory authority shall take any action,
any defined benefit pension plan maintained by Borrower shall have any
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unfunded liabilities, or any other event shall occur, any of which, in
the judgment of Holder, might have a material adverse effect on the
financial condition or business of Borrower or any Guarantor.
(f) Any sale, transfer or other disposition of all or a substantial or
material part of the assets of Borrower other than the pending merger
of Borrower and The Leather Factory, Inc.
(g) Failure to perform Borrower's obligations under the terms of any
promissory note, contract or other obligation that is held by Holder
as collateral for the Obligations; or Holder shall not have a
perfected security interest in, or shall not maintain full
collatoralization of the Note with respect to the value of, any
collateral being held for the Obligations.
(h) Any judgment(s) shall be entered against Borrower or any
Guarantor, or any involuntary lien(s) of any kind or character shall
attach to any assets or property of Borrower or any Guarantor, any of
which, in the judgment of Holder, might have a material adverse effect
on the collateral securing this agreement or the financial condition
or business of Borrower
or any Guarantor.
(i) Borrower shall fail to perform any of its duties or obligations
under any Loan Document not specifically referenced hereinabove.
No failure or delay on the part of Holder in exercising any power, right or
privilege under any Loan Document shall operate as a waiver thereof, and no
single or partial exercise of any such power, right or privilege shall preclude
any further exercise thereof or the exercise of any other power, right or
privilege.
Holder has the right at its sole option to continue to accept interest and/or
principal payments due under the Loan Documents after default, and such
acceptance shall not constitute a waiver of said default or an extension of the
maturity date unless Holder agrees otherwise in writing.
Dispute Resolution
(Sections (a) and (b) below are to be construed in accordance with
California law)
(a) Mandatory Mediation/Arbitration. Any controversy or claim between
or among the parties, their agents, employees and affiliates,
including but not limited to those arising out of or relating to this
Note or any related agreements or instruments ("Subject Documents"),
including without limitation any claim based on or arising from an
alleged tort, shall, at the option of any party, and at that party's
expense, be submitted to mediation, using either the American
Arbitration Association ("AAA") or Judicial Arbitration and Mediation
Services, Inc. ("JAMS") in Santa Barbara County, California. If
mediation is not used, or if it is used and it fails to resolve the
dispute within 30 days from the date AAA or JAMS is engaged, then the
dispute shall be determined by arbitration in accordance with the
rules of either JAMS or AAA (at the option of the party initiating the
arbitration) and Title 9 of the U.S. Code, notwithstanding any other
choice of law provision in the Subject Documents. All statutes of
limitations or any waivers contained herein which would otherwise be
applicable shall apply to any arbitration proceeding under this
subparagraph (a). The parties agree that related arbitration
proceedings may be consolidated. The arbitrator shall prepare written
reasons for the award. Judgment upon the award rendered may be entered
in any court having jurisdiction.
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(b) Jury Waiver/Judicial Reference. If the controversy or claim is not
submitted to arbitration as provided and limited in subparagraph (a),
but becomes the subject of a judicial action, each party hereby waives
its respective right to trial
by jury of the controversy or claim. In addition, any party may elect
to have all decisions of fact and law determined by a referee
appointed by the court in accordance with applicable state reference
procedures. The party requesting the reference procedure shall ask AAA
or JAMS to provide a panel of retired judges and the court shall
select the referee from the designated panel. The referee shall
prepare written findings of fact and conclusions of law. Judgment upon
the award rendered shall be entered in the Santa Barbara County
Superior Court.
(c) Provisional Remedies, Self Help, and Foreclosure. To the extent
allowed under applicable law no provision of, or the exercise of any
rights under, subparagraph (a), shall limit the right of any party to
exercise self help remedies such as setoff, to foreclose against any
real or personal property collateral, or to obtain provisional or
ancillary remedies such as injunctive relief or the appointment of a
receiver from the Santa Barbara County Superior Court having
jurisdiction before, during or after the pendency of any mediation or
arbitration. The institution and maintenance of an action for judicial
relief or pursuit of provisional or ancillary remedies or exercise of
self help remedies shall not constitute a waiver of the right of any
party, including the plaintiff, to submit the controversy or claim to
mediation or arbitration.
To the extent any provision of the dispute resolution clause is unenforceable in
the jurisdiction under which it is asserted the applicable law shall control.
Borrower shall pay and protect, defend and indemnify Holder and Holder's
employees, officers, directors, shareholders, affiliates, correspondents, agents
and representatives (other than Holder, collectively "Agents") against, and hold
Holder and each such Agent harmless from, all claims, actions, proceedings,
liabilities, damages, losses, expenses (including, without limitation,
attorneys' fees and costs) and other amounts incurred by Holder and each such
Agent, arising from (i) the matters contemplated by this Note or any Loan
Document or (ii) any contention that Borrower has failed to comply with any law,
rule, regulation, order or directive applicable to Borrower's sales, leases or
performance of services to Borrower's customers, including without limitation
those sales, leases and services requiring consumer or other disclosures;
provided, however, that this indemnification shall not apply to any of the
foregoing incurred solely as the result of Holder's or any Agent's gross
negligence or wilful conduct. This indemnification shall survive the payment and
satisfaction of all of Borrower's obligations and liabilities to Holder.
Borrower shall reimburse Holder for all costs and expenses, including without
limitation reasonable attorneys' fees and
disbursements expended or incurred by Holder in connection with (a) the
negotiation, preparation, amendment, interpretation and enforcement of the Loan
Documents, including without limitation during any workout, attempted workout,
and/or in connection with the rendering of legal advice as to Holder's rights,
remedies and obligations under the Loan Documents, (b) collecting any sum which
becomes due Holder under any Loan Document, (c) any proceeding for declaratory
relief, any counterclaim to any proceeding, or any appeal, or (d) the
protection, preservation or enforcement of any rights of Holder. For the
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purposes of this section, attorneys' fees shall include, without limitation,
fees incurred in connection with the following: (1) contempt proceedings; (2)
discovery; (3) any motion, proceeding or other activity of any kind in
connection with a bankruptcy proceeding or case arising out of or relating to
any petition under Title 11 of the United States Code, as the same shall be in
effect from time to time, or any similar law; (4) garnishment, levy, and debtor
and third party examinations; and (5) postjudgment motions and proceedings of
any kind, including without limitation any activity taken to collect or enforce
any judgment.
Each Borrower is jointly and severally liable for the obligations evidenced by
this Note, and all references to "Borrower" shall be to "each" or "any" Borrower
as the context requires.
This Note shall be governed by, and construed in accordance with, the laws of
the State of California at Holder's option as authorized by applicable law.
All terms and conditions of the security agreement and/or other written
agreements between the parties are incorporated by this reference.
BORROWER
THE LEATHER FACTORY, INC., a Texas Corporation
By /s/ J. Wray Thompson
- ---------------------------------------
J. WRAY THOMPSON, SR., President
By /s/ Fred N. Howell
- ---------------------------------------
FRED N. HOWELL, Chief Financial Officer
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<PAGE>
EXHIBIT 4.12
<PAGE>
PLEDGE AND SECURITY AGREEMENT
This pledge and Security Agreement is made and entered into on this _____
day of November, 1997 by and between THE SCHLINGER FOUNDATION, hereinafter
referred to as Secured Party, and J. WRAY THOMPSON, SR., hereinafter referred to
as Pledgor, as follows:
For value received, the Pledgor hereby grants to the Secured Party a
secured interest in the following described property hereinafter referred to as
the Collateral, to-wit:
Stock Certificate No. dated representing
1,333,333 shares of The Leather Factory, Inc.
Stock Certificate No. dated representing
1,333,333 shares of The Leather Factory, Inc.
This Pledge and Security Agreement shall partially secure the obligation of
The Leather Factory, Inc. ("TLF") to Secured Party, in the principal sum of One
Million Dollars ($1,000,000.00) dated November, 1997, payable according to its
terms (the "Obligation").
The Pledgor warrants and covenants that the Pledgor's place of business is
3847 East Loop 820 South, Fort Worth, Tarrant County, Texas 76119. The
Collateral will be kept at 1944 Edison Street, Santa Ynez, California 93460.
PLEDGOR WARRANTS, COVENANTS AND AGREES
1. TITLE. Except for the security interest hereby granted, the Pledgor has
full title to the Collateral, free from any lien, security interest,
encumbrance, or claim, and the Pledgor will, at the Pledgor's cost and expense,
defend any action which may affect the Secured Party's security interest in, or
the Pledgor's title to, the Collateral.
2. FINANCING STATEMENT. No Financing Statement covering the Collateral or
any part thereof or any proceeds thereof is on file in any public office and, at
the Secured Party's request, the Pledgor will join in executing all necessary
Financing Statements in form satisfactory to the Secured Party and will pay the
cost of filing the same and will further execute all other necessary instruments
deemed necessary by the Secured Party.
3. SALE, LEASE OR DISPOSITION OF COLLATERAL. The Pledgor will not, without
the written consent of the Secured Party, sell, contract to sell lease,
encumber, or dispose of the Collateral or any interest therein until this Pledge
and Security Agreement and all debts secured thereby have been fully satisfied.
Such consent cannot be unreasonably withheld.
4. PARTIAL RELEASE OF COLLATERAL. In the event Secured Party shall exercise
the option granted in the obligation to convert up to $500,000.00 of the
obligation to shares of stock in TLF, then Secured Party agrees to release a
portion of the pledged collateral pro rata, up to fifty percent (50%) of the
total collateral for any shares so converted. Should Secured Party elect to
receive less than fifty percent (50%) of the obligation in converted stock,
Secured Party will agree to release one of the stock certificates in trust for
the purpose of allowing the same to be re-issued by TLFs transfer agent.
5. PROTECTION OF COLLATERAL. The Secured Party, at Security Party's sole
cost and expense, will keep the Collateral safe and will not destroy the
Collateral or any part thereof. The Pledgor will not use the Collateral in
violation of any Statute or ordinance.
6. LOCATION AND IDENTIFICATION. The Secured Party will keep the Collateral
separate and identifiable and at the address shown above or a bank lock box and
will not remove the Collateral from said address without the Pledgor's written
consent.
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7. SECURITY INTEREST IN PROCEEDS AND ACCESSION. The Pledgor hereby grants
to the Secured Party a security interest in and to all proceeds, increases,
substitutions, replacements, dividends, additions, and accessions to the
Collateral. This provision shall not be construed to mean that the Pledgor or
Security Party are authorized to sell or dispose of the Collateral without the
consent of the other.
8. REIMBURSEMENT OF EXPENSES. At the option of the Secured Party, the
Secured Party may discharge taxes, liens, interest, or perform or cause to be
performed for and on behalf of the Pledgor, any actions and conditions,
obligations, or covenants which the Pledgor has failed or refused to perform,
and may pay for the preservation of the Collateral, and all sums so expended,
including, but not limited to, attorney's fees, Court costs, agent's fees, or
commissions, or any other costs or expenses, shall bear interest from the date
of payment at the rate of ten percent (10%) per annum and shall be payable at
the place designated in the above-described note and shall be secured by this
Pledge and Security Agreement.
9. CHANGE OF PLACE OF BUSINESS. The Secured Party and Pledgor will promptly
notify the other of any change of the other's chief place of business, or place
where records concerning the Collateral are kept.
10. ATTORNEY IN FACT. The Pledgor hereby appoints the Secured Party as the
Pledgor's attorney in fact to do any and every act which the Pledgor is
obligated under this Pledge and Security Agreement to do, and to exercise all
rights of the Pledgor in the collateral and to make collections and to execute
any and all papers and instruments and to do all other things necessary to
preserve and protect the Collateral and to make collections and to protect the
Secured Party's security interest in said collateral.
11. TIME OF PERFORMANCE AND WAIVER. In performing any act under this Pledge
and Security Agreement and note secured thereby, time shall be of the essence.
The Secured Party's acceptance of partial or delinquent payments, or the failure
of the Secured Party to exercise any right or remedy shall not be a waiver of
any obligation of the Pledgor or right of Secured party or constitute a waiver
of any other similar default subsequently occurring.
12. DEFAULT. The Pledgor shall be in default under this Pledge and Security
Agreement on the happening of any of the following events or conditions:
(a) Default in the payment or performance of any note obligation,
covenant, or liability contained or referred to therein;
(b) Any warranty, representation, or statement made or furnished to
the Secured Party by or on behalf of the Pledgor proves to have been false
in any material respect when made or furnished;
(c) Any event which results in the acceleration of the maturity of the
indebtedness of the Pledgor to others under any indenture, agreement, or
undertaking,
(d) The making of any levy, seizure or attachment thereof or thereon;
(e) Any time the Secured Party believes that the prospect of payment
of any indebtedness secured hereby or the performance of this Pledge and
Security Agreement is impaired;
(f) Dissolution, termination of existence, insolvency, business
failure, appointment of a receiver for any part of the Collateral
assignment for the benefit of creditors or the commencement of any
proceeding under any bankruptcy or insolvency law by or against the Pledgor
or any guarantor or surety for the Pledgor.
13. REMEDIES. On the occurrence of any such event of default, and at any
time thereafter, the Secured Party may declare all obligations secured
immediately due and payable and may proceed to enforce payment of the same and
exercise any and all of the rights and remedies provided by the Texas Business
and Commerce Code as well as other rights and remedies either at law or in
equity possessed by the Secured Party.
14. MISCELLANEOUS PROVISIONS.
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(a) Texas Law to Apply: This Agreement shall be construed under and in
accordance with the Uniform Commercial Code and other applicable laws of
the State of Texas and all obligations of the parties created hereunder are
performable in Tarrant County, Texas.
(b) Parties Bound: This Agreement shall be binding on and insure to
the benefit of the parties hereto and their respective heirs, executors,
administrators, legal representatives, successors, and assigns where
permitted by the Agreement.
(c) Legal Construction: In case any one or more of the provisions
contained in this Agreement shall for any reason be held to be invalid,
illegal, or unenforceable in any respect, such invalidity, illegality, or
unenforceability shall not affect any other provision thereof and this
Agreement shall be construed as if such invalid, illegal or unenforceable
provision had never been contained herein.
(d Prior Agreements Superseded: This Agreement constitutes the sole
and only agreement of the parties hereto and supersedes any prior
understandings or written or oral agreements between the parties respect
the within subject matter.
(e) Definitions: All terms used herein which are defined in the
Business and Commerce Code of Texas shall have the same meaning herein as
in said Code.
DATED this 14 day of November, 1997.
SECURED PARTY: PLEDGOR:
THE SCHLINGER FOUNDATION
By: /s/ Paul O. Halme
----------------- /s/ J. Wray Thompson
--------------------
Its: Attorney In Fact J. Wray Thompson, Sr.
------------------
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