UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended May 4, 1996
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 0-22504
PET FOOD WAREHOUSE, INC.
(Exact name of registrant as specified in its charter)
Minnesota 41-1663962
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
600 South Highway 169, Suite 701
St. Louis Park, Minnesota 55426
(Address of principal executive offices; Zip Code)
(612) 542-0123
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes __X__ No____
Shares of Common Stock, $0.01 per share par value, outstanding on June 7, 1996:
9,381,385.
PET FOOD WAREHOUSE, INC.
Table of Contents
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Balance Sheets as of May 4, 1996 and February 3, 1996 2
Condensed Statements of Operations for the Quarters Ended
May 4, 1996 and April 29, 1995 3
Condensed Statements of Cash Flows for the Quarters Ended
May 4, 1996 and April 29, 1995 4
Notes to Condensed Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 6
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 10
Exhibit Index 11
PET FOOD WAREHOUSE, INC.
Condensed Balance Sheets
(In thousands, except per share data)
<TABLE>
<CAPTION>
May 4, February 3,
1996 1996
-------- --------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,237 $ 5,103
Accounts receivable, less allowance for doubtful
accounts of $150 and $145 1,043 664
Inventories, net 6,969 6,319
Prepaid expenses and other 826 717
-------- --------
Total current assets 13,075 12,803
PROPERTY AND EQUIPMENT, net 9,098 8,468
OTHER ASSETS 183 172
-------- --------
$ 22,356 $ 21,443
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,463 $ 1,114
Current maturities of capital lease obligations 152 149
Accrued liabilities 2,169 1,996
-------- --------
Total current liabilities 3,784 3,259
CAPITAL LEASE OBLIGATIONS, less current maturites 309 349
DEFERRED RENT CREDITS AND OTHER 1,260 1,200
SHAREHOLDERS' EQUITY:
Undesignated stock, $0.01 par value; 5,000 shares
authorized; none issued and outstanding -- --
Common stock, $0.01 par value; 11,429 shares authorized;
9,382 and 9,342 issued and outstanding, respectively 93 93
Additional paid-in capital 25,649 25,579
Accumulated deficit (8,739) (9,037)
-------- --------
Total shareholders' equity 17,003 16,635
-------- --------
$ 22,356 $ 21,443
======== ========
</TABLE>
See accompanying notes to condensed financial statements.
PET FOOD WAREHOUSE, INC.
Condensed Statements of Operations
(Unaudited; in thousands, except per share data)
Quarter Ended
-------------------
May 4, April 29,
1996 1995
-------- --------
NET SALES $ 16,204 $ 13,237
COST OF SALES 12,011 10,426
-------- --------
GROSS PROFIT 4,193 2,811
-------- --------
Store operating expenses 2,920 2,771
Preopening expenses 241 156
General and administrative expenses 800 780
-------- --------
Operating income (loss) 232 (896)
INTEREST INCOME, net 66 130
-------- --------
Income (loss) before income taxes 298 (766)
INCOME TAXES -- --
-------- --------
Net income (loss) $ 298 $ (766)
======== ========
NET INCOME (LOSS) PER SHARE $ 0.03 $ (0.08)
======== ========
WEIGHTED AVERAGE COMMON
AND COMMON EQUIVALENT
SHARES OUTSTANDING 9,406 9,328
======== ========
See accompanying notes to condensed financial statements.
PET FOOD WAREHOUSE, INC.
Condensed Statements of Cash Flows
(Unaudited; in thousands)
<TABLE>
<CAPTION>
Quarter Ended
------------------
May 4, April 29,
1996 1995
------- -------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 298 $ (766)
Adjustments to reconcile net income (loss) to net
cash used for operating activities-
Depreciation and amortization 297 287
Changes in operating assets and liabilities:
Accounts receivable (379) 161
Inventories (650) (523)
Prepaid expenses and other (199) (75)
Accounts payable 349 (258)
Accrued liabilities 173 195
Deferred rent credits and other 60 57
------- -------
Net cash used for operating activities (51) (922)
------- -------
INVESTING ACTIVITIES:
Payments from notes receivable 74 18
Purchase of property and equipment, net (922) (958)
------- -------
Net cash used for investing purposes (848) (940)
------- -------
FINANCING ACTIVITIES:
Proceeds from exercising of stock options 70 --
Payments of long-term obligations, net (37) (31)
------- -------
Net cash provided by (used for) financing activities 33 (31)
------- -------
NET DECREASE IN CASH AND CASH EQUIVALENTS (866) (1,893)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD 5,103 9,462
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,237 $ 7,569
======= =======
</TABLE>
See accompanying notes to condensed financial statements.
PET FOOD WAREHOUSE, INC.
Notes to Condensed Financial Statements
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying interim financial statements of Pet Food Warehouse, Inc. (the
Company) are unaudited; however, in the opinion of management, all adjustments
necessary for a fair presentation of such financial statements have been
reflected in the interim periods presented. Such adjustments consisted only of
normal recurring items. Given the timing and number of new store openings,
interim results may not be indicative of results for a full year. The
significant accounting policies and certain financial information which are
normally included in financial statements prepared in accordance with generally
accepted accounting principles, but which are not required for interim reporting
purposes, have been condensed or omitted. The accompanying financial statements
of the Company should be read in conjunction with the Company's audited
financial statements for the years ended February 3, 1996 and January 28, 1995
and the notes thereto, included in the Company's annual report on Form 10-KSB.
2. NET INCOME (LOSS) PER SHARE
Net income (loss) per share amounts are computed by dividing net income (loss)
by the weighted average number of common and common equivalent shares
outstanding. Common stock equivalents related to stock options are anti-dilutive
for the net loss in the quarter ended April 29, 1995.
3. DISPOSITION OF STORES
In November 1995, the Company exited the Michigan/Ohio market. Accordingly, the
Company sold certain assets of its eight retail locations in Michigan and Ohio
(MI/OH stores) for $2,426,000 in cash to SuperPetz, Inc. pursuant to an Asset
Purchase Agreement and Addendum.
The disposition of the MI/OH stores and the relative maturity of the stores
involved affect the comparability of results between periods. Had the sale of
the MI/OH stores occurred at the beginning of the quarter ended April 29, 1995,
the selected unaudited pro forma results would have been as follows (in
thousands, except per share data):
Quarter Ended
April 29, 1995
-----------
Revenues $ 11,073
Operating loss (356)
Net loss (206)
Net loss per share $ (0.02)
4. SUBSEQUENT EVENT
Effective May 31, 1996, the Company obtained a new revolving credit facility to
replace the existing credit facility which expired on May 31, 1996. The new
three-year credit facility provides for a line equal to the lesser of the
Company's borrowing base, as defined, or $10,000,000. The credit facility will
accrue interest on the outstanding balance at an index rate (30-day high-grade
unsecured commercial paper) plus 3.0% and is collateralized by the Company's
inventories, receivables, investments and general intangibles. The Company will
pay a facility fee of 0.375% per annum. The facility fee will not be applicable
on the committed amount in excess of $5,000,000 until outstanding borrowings
exceed $5,000,000 for the first time and thereafter, such fee will not be
applicable on the committed amount in excess of $7,500,000 until outstanding
borrowings exceed $7,500,000 for the first time.
PET FOOD WAREHOUSE, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
GENERAL
As of May 4, 1996 (first quarter fiscal 1997) and April 29, 1995 (first quarter
fiscal 1996), the Company operated twenty-five and twenty-three (seventeen
excluding the MI/OH stores) warehouse superstores, respectively. The Company
opened three new warehouse superstores in the quarter ended May 4, 1996. The
Company plans to open an additional seven new stores for the remainder of fiscal
1997 and plans to operate approximately 32 warehouse superstores in the Upper
Midwest by the end of fiscal year 1997.
Comparable store sales, for first quarter fiscal 1997 compared to first quarter
fiscal 1996, increased 12.5%. The Company anticipates that the rate of
comparable store sales growth will be lower in future periods as existing
warehouse superstores mature and additional warehouse superstores are opened in
existing markets. Also, impacting comparable store sales growth in future
periods is the opening of five stores in the Minneapolis/St. Paul metropolitan
area in first quarter fiscal 1997 by a national superstore competitor.
The Company's operations are relatively "young" with an average age of the
Company's twenty-five stores of approximately two years. Future operating
results may be adversely affected by costs associated with the opening of a
significant number of new stores over a relatively short period of time. The
Company expects downward pressure on its gross profit and operating profit
margins because certain store level expenses, primarily occupancy and payroll,
are higher as a percentage of sales for new warehouse superstores than for
mature warehouse superstores due to the relatively lower sales of the new
warehouse superstores. General and administrative expenses as a percentage of
sales decreased from 5.9% in the first quarter of fiscal 1996 to 5.0% in the
first quarter of fiscal 1997 as sales growth outpaced the general and
administrative expenses incurred to support the Company's expansion. Management
expects general and administrative expenses will continue to decrease as a
percentage of sales.
The Company charges preopening costs, which are estimated to be approximately
$80,000 to $85,000 for each new warehouse superstore, to expense in the quarter
the warehouse superstore opens. Therefore, the opening of a large number of new
warehouse superstores in a given quarter will adversely affect the Company's
results of operations for that quarter. In addition, although the pet food
supply industry does not experience the same degree of seasonal fluctuations as
many retailers, a mature warehouse superstore's sales are typically higher than
average during the winter and lower than average during the summer. As a result
of the foregoing, period to period comparisons of financial results may not be
meaningful and the results of operations for historical periods may not be
indicative of future results.
The disposition of the MI/OH stores and the relative maturity of the stores
involved affect the comparability of results between periods. Had the sale of
the MI/OH stores occurred at the beginning of the quarter ended April 29, 1995,
the selected unaudited pro forma results would have been as follows (in
thousands, except per share data):
Quarter Ended
April 29, 1995
-----------
Revenues $ 11,073
Operating loss (356)
Net loss (206)
Net loss per share $ (0.02)
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain statement of
operations items as a percentage of net sales:
Quarter Ended
-----------------------------
May 4, April 29,
1996 1995
------------- ------------
Net sales 100.0% 100.0%
Gross profit 25.9% 21.2%
Store operating expenses 18.0% 20.9%
Store contribution 7.9% 0.3%
Preopening expenses 1.5% 1.2%
General and administrative expenses 5.0% 5.9%
Operating income (loss) 1.4% -6.8%
Interest income, net 0.4% 1.0%
Net income (loss) 1.8% -5.8%
FIRST QUARTER FISCAL 1997 COMPARED TO FIRST QUARTER FISCAL 1996
NET SALES increased 22.4% (46.3% excluding the MI/OH stores) to $16.2 million
for the quarter ended May 4, 1996 from $13.2 million for the quarter ended April
29, 1995. The increase is primarily due to the nine warehouse superstores opened
since April 29, 1995, offset by the disposition of six MI/OH stores in November
1995 which were opened prior to first quarter fiscal 1996 and the closing of a
5,000 square foot, non-concept store during the second quarter of fiscal 1996.
In addition, the Company's fiscal 1997 first quarter comparable store sales
increased 12.5%. (Same stores are those stores open twelve months or longer.)
GROSS PROFIT, defined as net sales less cost of sales, including distribution,
purchasing, store occupancy costs and direct grooming payroll, improved as a
percentage of net sales for the quarter ended May 4, 1996 to 25.9% from 21.2%
(23.4% excluding the MI/OH stores) for the quarter ended April 29, 1995. This
improvement reflects improved margins on products sold as well as increased
profits from services. In addition, store occupancy costs declined as a
percentage of sales as stores continued to mature.
STORE OPERATING EXPENSES decreased as a percentage of net sales to 18.0% for the
quarter ended May 4, 1996 from 20.9% (18.3% excluding the MI/OH stores) for the
quarter ended April 29, 1995. This decrease primarily resulted from improved
payroll and advertising expenses as a percentage of sales as stores matured and
certain store level programs were refined.
STORE CONTRIBUTION increased as a percentage of net sales to 7.9% for the
quarter ended May 4, 1996 from 0.3% (5.1% excluding MI/OH stores) for the
quarter ended April 29, 1995. The increase is a result of the improved margins
on products sold and the decline in store operating expenses.
PREOPENING EXPENSES were 1.5% of net sales for the quarter ended May 4, 1996
compared to 1.2% of net sales for the quarter ended April 29, 1995. Average
preopening expense per store for the three stores opened during the fiscal 1997
quarter was $80,000 compared to $78,000 for the two stores opened during the
fiscal 1996 quarter.
GENERAL AND ADMINISTRATIVE EXPENSES decreased as a percentage of net sales to
5.0% for the quarter ended May 4, 1996 from 5.9% (6.9% excluding MI/OH stores)
for the quarter ended April 29, 1995. Sales growth outpaced the general and
administrative expenses incurred to build the corporate infrastructure to
support the Company's expansion plans.
NET INTEREST INCOME was $66,000 for the quarter ended May 4, 1996 compared to
$130,000 for the quarter ended April 29, 1995. The decline is due to the
decrease of available cash and cash equivalents for temporary investment.
The Company did not record a provision for income taxes for the quarter ended
May 4, 1996 due to sufficient net operating loss carryforwards available at
February 3, 1996 to offset income tax liabilities. No provision for income taxes
was recorded for the quarter ended April 29, 1995 due to the Company's net
operating loss.
NET INCOME for the quarter ended May 4, 1996 was $298,000 ($0.03 per share)
compared to a net loss of $766,000 ($0.08 per share) for the quarter ended April
29, 1995. The Company's net loss for the quarter ended April 29, 1995, excluding
MI/OH stores, was $206,000 ($0.02 per share).
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has financed its operations and growth primarily
through the sale of equity securities. The Company has financed the purchase of
its computer hardware and software systems with capital lease arrangements under
which $461,000 is outstanding at May 4, 1996. The Company's net working capital
at May 4, 1996 was $9.3 million and at February 3, 1996 was $9.5 million.
The Company's primary capital requirement is related to the opening of new
warehouse superstores. All of the Company's existing warehouse superstores are
in leased facilities, and the Company intends to continue to lease, rather than
purchase, new warehouse superstore facilities. The Company estimates the average
expenditures for opening a new warehouse superstore to be $650,000, including an
average of $235,000 for inventory (net of vendor payables), $330,000 for
equipment, fixture and leasehold improvements and $85,000 for preopening
expenses. The Company plans to open an additional seven new superstores for the
remainder of fiscal 1997. The success of the Company's remaining fiscal 1997
expansion plans will depend on various business and economic factors.
Net cash used in operating activities for the quarter ended May 4, 1996 was
$51,000 compared to $922,000 for the quarter ended April 29, 1995. The cash used
in operations was primarily for purchasing inventory for new stores, the funding
of the Company's net losses (for the quarter ended April 29, 1995) and the
timing of payments to vendors.
The Company's primary use of cash for investing activities in the first quarter
of fiscal 1997 and 1996 related to leasehold improvements and equipment
additions, including computer hardware and software, for warehouse superstore
expansion.
The Company had a revolving bank line of credit arrangement that provided for
borrowings up to $2.0 million. The line of credit expired May 31, 1996. There
were no amounts outstanding against this credit facility at May 4, 1996 and
February 3, 1996. Effective May 31, 1996, the Company obtained a new three-year
credit facility, which provides for a line equal to the lesser of the Company's
borrowing base, as defined, or $10,000,000. The credit facility will accrue
interest on the outstanding balance at an index rate (30-day high-grade
unsecured commercial paper) plus 3.0% and is collateralized by the Company's
inventories, receivables, investments and general intangibles. The Company will
pay a facility fee of 0.375% per annum. The facility fee will not be applicable
on the committed amount in excess of $5,000,000 until outstanding borrowings
exceed $5,000,000 for the first time and thereafter, such fee will not be
applicable on the committed amount in excess of $7,500,000 until outstanding
borrowings exceed $7,500,000 for the first time.
The Company does not believe that inflation is likely to have a material impact
on its sales or results of operations.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The statements in this filing that are forward looking are based on current
expectations and actual results may differ materially from the forward looking
statements which involve numerous risks and uncertainties including, but not
limited to, the timing of store openings, the availability of additional
external sources of financing, the impact of competition, the effect of changing
economic or business conditions and other risks and uncertainties detailed from
time to time in the Company's SEC reports and filings.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.27 Loan and Security Agreement with General Electric
Capital Corporation dated May 31, 1996
11 Computation of Per Share Earnings
27 Financial Data Schedule (filed electronically only)
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: June 17, 1996 PET FOOD WAREHOUSE, INC.
By: /s/ Marvin W. Goldstein
Marvin W. Goldstein
Chairman, President and Chief
Executive Officer
(Principal Executive Officer)
By: /s/ Sharon K. Link
Sharon K. Link
Vice President-Finance and Chief
Financial Officer
(Principal Financial and Accounting
Officer)
Exhibit Index
EXHIBIT
NUMBER EXHIBITS SEQUENTIAL PAGE
10.27 Loan and Security Agreement with General Electric
Capital Corporation dated May 31, 1996 12
11 Computation of Per Share Earnings 45
27 Financial Data Schedule (filed electronically only) 46
EXHIBIT 10.27
GE CAPITAL Commercial Finance
This LOAN AND SECURITY AGREEMENT is dated as of May 31, 1996, and agreed to by
and between PET FOOD WAREHOUSE, INC., a Minnesota corporation ("Borrower"), any
other Credit Party executing this Agreement, and GENERAL ELECTRIC CAPITAL
CORPORATION, a New York corporation ("Lender").
RECITALS
A. The purpose of this Agreement is to provide to Borrower a revolving credit
loan (including a subfacility for letters of credit) loan (collectively, the
"Loans") having the following general description:
- --------------------------------------------------------------------------------
TRANSACTION SUMMARY
REVOLVING CREDIT LOAN
Maximum Amount: $10,000,000
Term: three (3) years
Revolving Credit Rate: Index Rate plus 3.0%
Letter of Credit
Subfacility: $1,000,000
Borrowing Base: 65% of the value (as determined by
Lender) of Borrower's Eligible Inventory
consisting of consumables (food, litter and
treats); plus 60% of the value of Borrower's
Eligible Inventory consisting of
non-consumables, in each case as determined
by Lender, valued on a first-in, first-out
basis (at the lower of cost or market), less
$1,250,000 and less reserves established by
Lender in its discretion from time to time.
Collection Days: collections will be credited on the date good
funds are received
FEES
Origination Fee: $50,000 (includes $25,000 commitment fee)
Collateral Monitoring Fee: $15,000
Unused Line Fee: 0.375% per annum (meaning
360 days); such fee will not be
applicable on the committed amount
in excess of $5 million until
outstanding Revolving Credit
Advances exceed $5 million for the
first time; thereafter, such fee
will not be applicable on the
committed amount in excess of $7.5
million until outstanding Revolving
Credit Advances exceed $7.5 million
for the first time
Letter of Credit Fee: 1.50% on the face amount of letters of
credit outstanding, plus any charges
assessed by the issuing bank
Prepayment Fee: 1.50% in year one; 1.0% in year two; and
0.50% in year three
THE LOANS DESCRIBED GENERALLY HERE ARE ESTABLISHED AND GOVERNED BY THE TERMS AND
CONDITIONS SET FORTH BELOW IN THIS AGREEMENT AND THE
OTHER LOAN DOCUMENTS, AND IF THERE IS ANY CONFLICT BETWEEN THIS GENERAL
DESCRIPTION AND THE EXPRESS TERMS AND CONDITIONS BELOW OR ELSEWHERE IN THE LOAN
DOCUMENTS, SUCH OTHER EXPRESS TERMS AND CONDITIONS SHALL CONTROL.
- --------------------------------------------------------------------------------
B. Borrower desires to obtain the Loans and other financial accommodations from
Lender and Lender is willing to provide the Loans and accommodations all in
accordance with the terms of this Agreement.
C. Capitalized terms used herein shall have the meanings assigned to them in
Schedule A and, for purposes of this Agreement and the other Loan Documents, the
rules of construction set forth in Schedule A shall govern. All Schedules,
Disclosure Schedules, Attachments and Exhibits (collectively, "Appendices")
hereto, or expressly identified to this Agreement, are incorporated herein by
reference, and taken together, constitute but a single agreement. Unless
otherwise expressly set forth herein, or in a written amendment referring to
such Appendices, all Appendices referred to herein shall mean the Appendices as
in effect on the Closing Date. These Recitals shall be construed as part of this
Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual covenants
hereinafter contained, the parties hereto agree as follows:
1. AMOUNT AND TERMS OF CREDIT
1.1 Loans. (a) Subject to the terms and conditions of this Agreement, from the
Closing Date and until the Commitment Termination Date (i) Lender agrees (A) to
make available advances (each, a "Revolving Credit Advance") and (B) to incur
Letter of Credit Obligations, in an aggregate outstanding amount not to exceed
the Borrowing Availability, and (ii) Borrower may at its request from time to
time borrow, repay and reborrow, and may cause Lender to incur Letter of Credit
Obligations, under this Section 1.1.
(b) Borrower shall request each Revolving Credit Advance by notice given in
writing (by telecopy, hand delivery, or United States mail) to Lender's
representative responsible for Borrower's account as identified in Schedule 1.1
given no later than 12:00 noon (Chicago time) on the Business Day of the
proposed Revolving Credit Advance. Each such notice (a "Notice of Revolving
Credit Advance") shall be substantially in the form of Exhibit A. Lender shall
be fully protected under this Agreement in relying upon, and shall be entitled
to rely upon, (i) any Notice of Revolving Credit Advance purportedly given by an
authorized representative of Borrower believed by Lender to be genuine, and (ii)
the assumption that the Persons making electronic requests or executing and
delivering a Notice of Revolving Credit Advance were duly authorized, unless the
responsible individual acting thereon for Lender shall have actual knowledge to
the contrary.
(c) To evidence the Revolving Credit Loan Borrower shall execute and deliver to
Lender the Revolving Credit Note in substantially the form of Exhibit B, which
shall represent the Obligation of Borrower to pay the Revolving Credit Loan. The
date and amount of each Revolving Credit Advance and each payment of principal
with respect thereto shall be recorded on the books of Lender, which books shall
be presumed to correctly and accurately record the transactions between Borrower
and Lender and shall, absent manifest error, be conclusive and binding upon
Borrower. The entire unpaid balance of the Revolving Credit Loan, together with
all other outstanding and non-contingent Obligations, shall be immediately due
and payable on the Commitment Maturity Date.
(d) Borrower agrees that Lender, in making any Revolving Credit Advance or
incurring any other Obligation hereunder, shall be entitled to rely upon the
most recent Borrowing Base Certificate delivered to Lender by Borrower. Borrower
further agrees that Lender shall be under no obligation to make any further
Revolving Credit Advance or incur any other Obligation if Borrower shall have
failed to deliver a Borrowing Base Certificate to Lender by the time specified
in Section 4.1(a).
(e) Letters of Credit. Subject to the terms and conditions of this Agreement,
including Schedule C, Borrower shall have the right to request, and Lender
agrees to incur, the Letter of Credit Obligations for the account of Borrower in
accordance with Schedule C.
1.2 Term and Prepayment. The obligation of Lender to make Revolving Credit
Advances and extend other financial accommodations shall be in effect from the
Closing Date until the Commitment Termination Date. Upon the Commitment Maturity
Date Borrower shall pay to Lender in full, in cash: (i) all outstanding
Revolving Credit Advances and all interest earned, but unpaid, thereon; (ii) an
amount sufficient to enable Lender to hold cash collateral as specified in
Schedule C; and (iii) all other non-contingent Obligations due to or incurred by
Lender. Upon payment of the amounts specified in the immediately preceding
sentence, Borrower's obligation to pay the Unused Line Fee shall simultaneously
terminate. Prior to repayment of all Obligations to Lender in full, in cash on
the Commitment Maturity Date:
(a) If the Revolving Credit Loan shall at any time exceed the Borrowing
Availability, then Borrower shall immediately repay the Revolving Credit Loan in
the amount of such excess; such excess balance shall nevertheless constitute
Obligations that are evidenced by the Revolving Credit Note, secured by the
Collateral and entitled to all of the benefits of the Loan Documents.
(b) Borrower shall have the right, at any time upon thirty (30) days prior
written notice to Lender and payment of the applicable Prepayment Fee, (i) to
terminate voluntarily Borrower's right to receive or benefit from, and Lender's
obligation to make and to incur, Revolving Credit Advances and Letter of Credit
Obligations, and (ii) to prepay all of the Obligations. The effective date of
termination of the Revolving Credit Loan specified in such notice shall be the
Commitment Maturity Date.
1.3 Use of Proceeds. Borrower shall use the proceeds of the Loans as follows:
working capital and general corporate purposes.
1.4 Single Loan. The Loans and all of the other Obligations of Borrower to
Lender shall constitute one general obligation of Borrower secured by all of the
Collateral.
1.5 Interest. (a) Borrower shall pay interest to Lender on the aggregate
outstanding Revolving Credit Advances at a floating rate equal to the Index Rate
plus three percent (3.0%) per annum (the "Revolving Credit Rate").
(b) Interest shall be payable on the outstanding Revolving Credit Advances (i)
in arrears for the preceding calendar month on the first day of each calendar
month, commencing on July 1, 1996, (ii) on the Commitment Maturity Date, and
(iii) if any interest accrues or remains payable after the Commitment Maturity
Date, upon demand by Lender.
(c) All computations of interest, and all calculations of the Letter of Credit
Fee, shall be made by Lender on the basis of a three hundred and sixty (360) day
year, in each case for the actual number of days occurring in the period for
which such interest or fee is payable. The Index Rate shall be determined (i) on
the first Business Day immediately prior to the Closing Date and (ii)
thereafter, on the last Business Day of each calendar month for calculation of
interest for the following month. Each determination by Lender of an interest
rate hereunder shall be conclusive and binding for all purposes, absent manifest
error. Lender will notify Borrower of each determination of the Index Rate.
(d) Effective upon the occurrence of any Default and for so long as any Default
shall be continuing, the Revolving Credit Rate and the Letter of Credit Fee
shall, upon notice by Lender to Borrower, be increased by two percentage points
(2.0%) per annum (the "Default Rate"), and all outstanding Obligations,
including unpaid interest and Letter of Credit Fees, shall continue to accrue
interest from the date of such Default at the Default Rate applicable to such
Obligations.
(e) If any interest or other payment to Lender under this Agreement becomes due
and payable on a day other than a Business Day, the maturity thereof shall be
extended to the next succeeding Business Day and, with respect to payments of
principal, interest thereon shall be payable at the then applicable rate during
such extension.
(f) In no event will Lender charge interest at a rate that exceeds the highest
rate of interest permissible under any law that a court of competent
jurisdiction shall, in a final determination, deem applicable. Amounts paid or
to be collected by Lender in excess of interest calculated at the highest rate
permitted by law will be applied by Lender as provided for in Section 1.11.
1.6 [Intentionally omitted].
1.7 Eligible Inventory. Based on the most recent Borrowing Base Certificate
delivered by Borrower to Lender and on other information available to Lender,
Lender shall determine which Inventory shall be deemed to be "Eligible
Inventory" for purposes of determining the credit to be extended to Borrower. In
determining whether any particular Inventory constitutes Eligible Inventory (and
without limiting Lender's right to determine eligibility or ineligibility of any
item of Collateral or its inclusion in the Borrowing Base), Lender shall not
include Inventory that meets any of the criteria set forth in Schedule 1.7.
1.8 Cash Management System. On or prior to the Closing Date and until the
Termination Date, Borrower will establish and maintain the cash management
system described in Schedule D.
1.9 Fees. As compensation for Lender's costs, skills and efforts incurred and
expended in entering into this Agreement and in consideration of Lender's making
the Loans available to Borrower, Borrower agrees to pay to Lender the Fees set
forth in Schedule E.
1.10 Receipt of Payments. Borrower shall make each payment under this Agreement
(not otherwise made pursuant to Section 1.11) not later than 1:00 p.m. (Chicago
time) on the day when due in lawful money of the United States of America in
immediately available funds to the Collection Account. For purposes of computing
interest and fees and Borrowing Availability, payments shall be deemed received
by Lender on the Business Day on which good funds are received in the Collection
Account.
1.11 Application and Allocation of Payments. Borrower irrevocably agrees that
Lender shall have the continuing and exclusive right to apply any and all
payments against the then due and payable Obligations, as Lender may deem
advisable. In the absence of a specific determination by Lender with respect
thereto, the same shall be applied in the following order:
(a) then due and payable Fees and expenses; (b) then due and payable interest
payments; (c) then due and payable Obligations other than Fees, expenses and
interest and principal payments; and (d) then due and payable principal payments
on the Revolving Credit Loan. Lender is authorized to, and at its option may
(without prior notice or precondition and at any time or times), but shall not
be obligated to, make or cause to be made Revolving Credit Advances on behalf of
Borrower for: (x) payment of all Fees, expenses, indemnities, charges, costs,
principal, interest, or other Obligations owing by Borrower under this Agreement
or any of the other Loan Documents, (y) the payment, performance or satisfaction
of any of Borrower's obligations with respect to preservation of the Collateral
or otherwise under this Agreement, or (z) any premium in whole or in part
required in respect of any of the policies of insurance required by this
Agreement, even if the making of any such Revolving Credit Advance causes the
outstanding balance of the Revolving Credit Loan to exceed the Borrowing
Availability, and Borrower agrees to repay immediately, in cash, any amount by
which the Revolving Credit Loan exceeds the Borrowing Availability. Lender will
notify Borrower of any such action after taking such action.
1.12 Accounting. Lender will provide a monthly accounting of transactions under
the Revolving Credit Loan to Borrower. Borrower shall, within thirty (30) days
after the date any such accounting is rendered, notify Lender in writing of any
objection that Borrower may have to any such accounting, describing the basis
for such objection with specificity. Unless so objected to, each and every such
accounting shall (absent manifest error) be deemed final, binding and conclusive
upon Borrower in all respects. Only those items expressly objected to in such
notice shall be deemed to be disputed by Borrower. Lender shall review any item
objected to within thirty (30) days following Borrower's timely objection, and
Lender's determination, based upon the facts available, of any item so objected
to in such notice shall (absent manifest error) likewise be final, binding and
conclusive on Borrower.
1.13 Indemnity. (a) Borrower and each other Credit Party executing this
Agreement shall jointly and severally indemnify and hold Lender and Lender's
Affiliates, and their respective employees, attorneys and agents (each, an
"Indemnified Person"), harmless from and against any Claim which may be
instituted or asserted against or incurred by any such Indemnified Person as the
result of credit having been extended or not extended under this Agreement and
the other Loan Documents or otherwise in connection with or arising out of the
transactions contemplated hereunder or thereunder, including any Claim for
Environmental Liabilities and Costs and legal costs and expenses of disputes
between the parties to this Agreement; provided, that Borrower and such other
Credit Party shall not be liable for indemnification of an Indemnified Person to
the extent that any such Claim is finally determined by a court of competent
jurisdiction to have resulted solely from (i) such Indemnified Person's gross
negligence or willful misconduct; or (ii) as a result of such Indemnified
Person's breach of this Agreement.
NO INDEMNIFIED PERSON SHALL BE RESPONSIBLE OR LIABLE TO ANY OTHER PARTY TO ANY
LOAN DOCUMENT, ANY SUCCESSOR, ASSIGNEE OR THIRD PARTY BENEFICIARY OR ANY OTHER
PERSON ASSERTING CLAIMS DERIVATIVELY THROUGH SUCH PARTY, FOR INDIRECT, PUNITIVE,
EXEMPLARY OR CONSEQUENTIAL DAMAGES WHICH MAY BE ALLEGED AS A RESULT OF CREDIT
HAVING BEEN EXTENDED OR NOT EXTENDED UNDER THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT OR AS A RESULT OF ANY OTHER TRANSACTION CONTEMPLATED HEREUNDER OR
THEREUNDER.
(b) In any suit, proceeding or action brought by Lender relating to any item of
Collateral or any sum owing hereunder, or to enforce any provision of any item
of Collateral, Borrower and each other Credit Party executing this Agreement
shall save, indemnify and keep Lender harmless from and against all expense,
loss or damage suffered by reason of such action or any defense, setoff, or
counterclaim asserted for any reason by the other party or parties to such
litigation and however arising except to the extent that it shall be finally
determined by a court of competent jurisdiction that such suit, action or
proceeding was brought in bad faith. All obligations of Borrower or any other
Credit Party with respect to any item of Collateral shall be and remain
enforceable against, and only against, Borrower or such other Credit Party, as
the case may be, and shall not be enforceable against Lender.
1.14 Taxes. (a) All payments to Lender under any Loan Document shall be made
free and clear of, and without deduction for, any Taxes. In order to protect
Lender's economic returns, if Borrower shall be required by law to deduct any
Taxes from any payment to Lender under any Loan Document, then the amount
payable to Lender shall be increased so that, after making all required
deductions (including deductions applicable to additional sums payable under
this Section 1.14), Lender receives an amount equal to that which it would have
received had no such deductions been made. Borrower shall then make the required
deduction, pay the full amount deducted to the relevant taxing authority, and
promptly furnish to Lender tax receipts evidencing such payment.
(b) Borrower shall indemnify Lender for, and pay within ten (10) days of demand
therefor, the full amount of Taxes (including any Taxes imposed by any
jurisdiction on amounts payable under Section 1.13) paid by Lender and any
liability (including penalties, interest and expenses, to the extent the same
were not incurred because of, and did not arise from, Lender's gross negligence
or willful misconduct) arising therefrom or with respect thereto, whether or not
such Taxes were correctly or legally asserted.
2. CONDITIONS PRECEDENT
2.1 Conditions to the Initial Revolving Credit Advance and Initial Letter of
Credit Obligation. Lender shall not be obligated to make any of the Loans, or to
take, fulfill, or perform any other action hereunder, until the following
conditions have been satisfied to Lender's complete satisfaction:
(a) the Loan Documents to be delivered on or before the Closing Date shall have
been duly executed and delivered by the appropriate parties, all as set forth in
Schedule F;
(b) Lender shall have received evidence satisfactory to it that: (i) all of the
obligations of Borrower to First Bank National Association under its loan
agreement as in effect immediately prior to the Closing Date will be performed
and paid in full from the proceeds of the initial Revolving Credit Advance; and
(ii) all Liens upon any of the property of Borrower in favor of First Bank
National Association shall have been terminated immediately upon such payment;
(c) Lender shall have received evidence satisfactory to it that each Credit
Party has obtained all consents and acknowledgments of all Persons and
Governmental Authorities whose consents or acknowledgments may be required
pursuant to the terms of, or prior to the execution and delivery of, this
Agreement and the other Loan Documents and the consummation of the transactions
contemplated hereby and thereby and such consents or acknowledgements have not
been rescinded and remain in full force and effect;
(d) Lender shall have received evidence satisfactory to it that the insurance
policies provided for in Section 3.18 and the Disclosure Schedule (3.18) are in
full force and effect, together with appropriate evidence showing loss payable
or additional insured clauses or endorsements, as appropriate, in favor of
Lender and in form and substance satisfactory to Lender;
(e) all of the assets supporting the initial Revolving Credit Advance to be
made, the initial Letter of Credit Obligations to be incurred, and the amount,
if any, of the reserves to be established on the Closing Date, shall be
sufficient in value, as determined by Lender, to provide Borrower with Net
Borrowing Availability of not less than $1,500,000 (after giving effect to such
initial Revolving Credit Advance and Letter of Credit Obligations), without
increase in Borrower's other current liabilities above the average of those
reflected on Borrower's balance sheet for the three (3) months preceding the
Closing Date;
(f) payment by Borrower of the Closing Fee and all other fees, costs, and
expenses of closing (including fees of consultants and counsel to Lender
presented as of the Closing Date);
(g) no action, proceeding, investigation, regulation or legislation shall have
been instituted, threatened or proposed before any court, Governmental Authority
or legislative body to enjoin, restrain or prohibit, or to obtain damages in
respect of, or which is related to or arises out of, this Agreement or any other
Loan Document or the consummation of the transactions contemplated hereby or
thereby and which, in Lender's sole judgment, would make it inadvisable to
consummate the transactions contemplated by this Agreement or any other Loan
Document; and
(h) since the date of Borrower's most recent annual audited financial statements
delivered to Lender prior to the Closing Date, no event has occurred which has
had, or could reasonably be expected to have, a Material Adverse Effect.
If any other term of any Loan Document should conflict, or appear to conflict,
with this Section 2.1, the terms of this Section 2.1 shall control, and Borrower
shall have no rights under this Agreement or any other Loan Document until each
of the conditions of this Section 2.1 has been complied with to Lender's
satisfaction or specifically waived in a writing by Lender identifying by
section number the condition to be waived and the specific circumstance with
respect to which the condition is waived.
2.2 Further Conditions to the Loans. It shall be a further condition to the
funding of any Loan that the following statements shall be true on the date of
each such funding, advance or incurrence, as the case may be:
(a) all of each Credit Party's representations and warranties contained herein
or in any of the other Loan Documents shall have been true and correct on and as
of the Closing Date;
(b) no event shall have occurred and be continuing, or would result from the
funding of any Revolving Credit Advance or the incurrence of any Letter of
Credit Obligation, which constitutes or would constitute a Default or an Event
of Default;
(c) after giving effect to such Revolving Credit Advance, or the incurrence of
such Letter of Credit Obligation, the Revolving Credit Loan shall not exceed the
Borrowing Availability; and
(d) each of the conditions set forth in Section 2.1(c), (d), (g) and (h) shall
continue to be satisfied as of such date.
The request and acceptance by Borrower of the proceeds of any Revolving Credit
Advance, and the request by Borrower for the incurrence by Lender of any Letter
of Credit Obligations, as the case may be, shall be deemed to constitute, as of
the date of such request or acceptance, (i) a representation and warranty by
Borrower that the conditions in this Section 2.2 have been satisfied and (ii) a
confirmation by Borrower of the granting and continuance of Lender's Liens
pursuant to the Collateral Documents.
3. REPRESENTATIONS, WARRANTIES AND AFFIRMATIVE COVENANTS
To induce Lender to enter into this Agreement and to make the Loans, Borrower
and each other Credit Party executing this Agreement hereby represent and
warrant to Lender as of the date hereof, and promise to and agree with Lender
(each of which representations and warranties shall be true and correct on the
Closing Date and shall survive the execution and delivery of this Agreement, and
each of which covenants and agreements shall continue to be kept, honored and
maintained at all times from the Closing Date until the Termination Date) as
follows:
3.1 Corporate Existence; Compliance with Law. Each Credit Party: (a) is and will
continue to be (i) a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, (ii) duly
qualified to do business and in good standing in each other jurisdiction where
its ownership or lease of property or the conduct of its business requires such
qualification, except where the failure to be so qualified could not reasonably
be expected to have a Material Adverse Effect, (iii) in compliance with its
charter and by-laws, and (iv) in compliance in all material respects with all
applicable provisions of law and regulations; and (b) has and will continue to
have (i) the requisite corporate power and authority and the legal right to own,
pledge, mortgage or otherwise encumber and operate its properties, to lease the
property it operates under lease, and to conduct its business as now, heretofore
or proposed to be conducted, and (ii) all licenses, permits, franchises, rights,
powers, consents or approvals from or by all Persons or Governmental Authorities
having jurisdiction over such Credit Party which are necessary or appropriate
for the conduct of its business. Each Credit Party has made and will continue to
make all filings with any Governmental Authority that are necessary or
appropriate for the conduct of its business and has given and will continue to
give all notices to the extent required for the ownership, operation and conduct
of its property and business.
3.2 Executive Offices; Corporate or Other Names; Conduct of Business. The
locations of each Credit Party's executive offices, principal place of business,
corporate offices, warehouses, other locations of Collateral and locations where
records with respect to Collateral are kept are as set forth in Disclosure
Schedule (3.2) and, except as set forth in such Disclosure Schedule, such
locations have not changed during the preceding twelve months. During the prior
five (5) years, except as set forth in Disclosure Schedule (3.2), no Credit
Party has been known as or conducted business in any other name. No Credit Party
shall change its (a) name, (b) chief executive office, (c) principal place of
business, (d) corporate offices, (e) warehouses or other Collateral locations,
or (f) location of its records concerning the Collateral after the date of this
Agreement without such Person, in each instance, giving thirty (30) days prior
written notice thereof to Lender and taking all actions deemed necessary or
appropriate by Lender to continuously protect and perfect Lender's Liens upon
the Collateral.
3.3 Corporate Power; Authorization; Enforceable Obligations. The execution,
delivery and performance by each Credit Party of the Loan Documents to which it
is a party, and the creation of all Liens provided for herein and therein: (a)
are and will continue to be within such Person's corporate power; (b) have been
and will continue to be duly authorized by all necessary or proper corporate and
shareholder action; (c) are not and will not be in contravention of any
provision of such Person's charter or by-laws; (d) do not and will not violate
any law or regulation, or any order or decree of any court or Governmental
Authority; (e) do not and will not conflict with or result in the breach or
termination of, constitute a default under or accelerate any performance
required by, any indenture, mortgage, deed of trust, lease, agreement or other
instrument to which such Person is a party or by which such Person or any of its
property is bound; (f) do not and will not result in the creation or imposition
of any Lien (other than Permitted Encumbrances) upon any of the Collateral; and
(g) do not and will not require the consent or approval of any Governmental
Authority or any other Person, except those referred to in Section 2.1(c) (all
of which will have been duly obtained, made or complied with on or before the
Closing Date). As of the Closing Date, each Loan Document shall have been duly
executed and delivered for the benefit of or on behalf of each Credit Party, and
each such Loan Document shall then be and will continue to be a legal, valid and
binding obligation of such Person, to the extent it is a party thereto,
enforceable against it in accordance with its terms.
3.4 Financial Statements and Projections; Books and Records. (a) Borrower has
delivered to Lender (i) the Financial Statements for its most recently ended
Fiscal Year and Fiscal Month, which Financial Statements are true, correct and
complete and reflect fairly and accurately the financial condition of Borrower
as of the date of each of such Financial Statement, and (ii) the Projections,
which Projections have been prepared in good faith, with care and diligence and
use assumptions that are reasonable under the circumstances and disclosed in the
Projections.
(b) Borrower promises that Borrower and each other Credit Party shall keep
adequate Books and Records with respect to the Collateral and such Person's
business activities, in which proper entries, reflecting all consolidated and
consolidating financial transactions, and payments received on any and all
credits granted to, and all other dealings with, the Collateral, are made in
accordance with GAAP and on a basis consistent with the Financial Statements.
3.5 Material Adverse Change. Between the date of Borrower's most recently
audited Financial Statements delivered to Lender and the Closing Date: (a) no
Credit Party has incurred any obligations, contingent or non-contingent
liabilities, or liabilities for Charges, long-term leases or unusual forward or
long-term commitments which are not reflected in the most recent audited balance
sheet of Borrower referred to in Section 3.4(a)(i) and which could, alone or in
the aggregate, reasonably be expected to have a Material Adverse Effect; (b)
there has been no material deviation from the Projections delivered at or prior
to the date of this Agreement; (c) no contract, lease, agreement or other
instrument to which any Credit Party has become a party or by which it or any of
its properties or assets is bound or affected, and no provision of applicable
law or governmental regulation has had or could reasonably be expected to have a
Material Adverse Effect; (d) no Credit Party is in default, and to such Credit
Party's knowledge no third party is in default under or with respect to any
material contract, agreement, lease or other instrument to which it is a party,
which alone or in the aggregate could reasonably be expected to have a Material
Adverse Effect; and (e) no event has occurred, and such Credit Party will not
permit or suffer to occur any event or events, which alone or in the aggregate
could reasonably be expected to have a Material Adverse Effect.
3.6 Ownership of Property; Liens. The real estate listed in Disclosure Schedule
(3.6) constitutes all of the real property owned, leased, or used in its
business by each Credit Party, and such Credit Party will not execute any
material agreement or contract in respect of such real estate after the date of
this Agreement without giving Lender prompt written notice thereof. Each Credit
Party holds and will continue to hold good and marketable fee simple title to
all of its owned real estate, and good and marketable title to all of its other
properties and assets, and valid and marketable leasehold interests in all of
its leases (both as lessor and lessee, sublessee or assignee), and none of the
properties and assets of each Credit Party are or will be subject to any Liens,
except Permitted Encumbrances. All permits required to allow the real property
owned or leased by each Credit Party to be lawfully occupied and used, for all
of the purposes for which they are occupied and used on the date of this
Agreement, have been lawfully issued and are in full force and effect, and that
all such permits will be obtained and maintained. With respect to each of the
premises identified in Disclosure Schedule (3.2) on or prior to the Closing Date
a landlord or mortgagee agreement acceptable to Lender shall have been obtained,
and such Credit Party will obtain a landlord's or mortgagee's agreement in form
acceptable to Lender from the lessor or mortgagee of any new leased or acquired
premises after the Closing Date.
3.7 Labor Matters. There are no strikes or other labor disputes against any
Credit Party that are pending or, to any Credit Party's knowledge, threatened.
All payments due from any Credit Party on account of employee health and welfare
insurance have been and will continue to be paid or accrued as a liability on
the books of such Credit Party. Disclosure Schedule (3.7) identifies each
collective bargaining agreement, management agreement with an executive officer,
or any other material employment agreement to which any Credit Party is a party
in effect as of the date of this Agreement, and a copy of each such agreement
has been made available to Lender. Promptly upon the execution of any such
agreement or incurrence of such obligation after the date of this Agreement and
until the Termination Date, each Credit Party shall provide to Lender prompt
written notice of such event and a copy of such agreement. As of the date of
this Agreement (a) there is no organizing activity involving any Credit Party
pending or, to any Credit Party's knowledge, threatened by any labor union or
group of employees, (b) there are no representation proceedings pending or, to
any Credit Party's knowledge, threatened with the National Labor Relations
Board, and (c) no labor organization or group of employees of any Credit Party
has pending any demand for recognition, and such Credit Party shall give to
Lender prompt written notice of any of the foregoing occurring after the date of
this Agreement.
3.8 Ventures, Subsidiaries and Affiliates; Outstanding Stock and Indebtedness.
All outstanding Stock and Indebtedness of each Credit Party, and the holders
(including group or affiliated holders known to any Credit Party) of ten percent
(10%) or more of the Stock of each Credit Party, are as described in Disclosure
Schedule (3.8). After the date of this Agreement each Credit Party will, upon
learning thereof, give Lender prompt notice of (a) each issuance of Stock or
change in ownership representing ten percent (10%) or more of the ownership of
any of its Stock, (b) any issuance or transfer of its Stock that is intended to
be an item of Collateral, and (c) each Change in Control of such Credit Party.
3.9 Government Regulation. No Credit Party is or will be subject to or be
regulated under the Investment Company Act of 1940, the Public Utility Holding
Company Act of 1935, the Federal Power Act or any other Federal or state
statute, rule or regulation that restricts or limits such Person's ability to
incur Indebtedness, pledge its assets, or to perform its obligations under the
Loan Documents. The making of the Loans, the application of the proceeds and
repayment thereof by Borrower or any other Credit Party, and the consummation of
the transactions contemplated by the Loan Documents do not and will not violate
any provision of any such statute or any rule, regulation or order issued by the
Securities and Exchange Commission.
3.10 Margin Regulations. No Credit Party owns or will own any "margin security,"
as that term is defined in Regulations G and U of the Board of Governors of the
Federal Reserve System (the "Federal Reserve Board"), and none of the proceeds
of the Loans will be used directly or indirectly for (a) purchasing or carrying
any margin security, (b) reducing or retiring any indebtedness which was
originally incurred to purchase or carry any margin security, or (c) any purpose
which might cause any of the Loans or this Agreement to be considered a "purpose
credit" within the meaning of Regulation G, T, U or X of the Federal Reserve
Board. No Credit Party will take or permit to be taken any action which might
cause any Loan Document to violate any regulation of the Federal Reserve Board.
3.11 Taxes. (a) All tax returns, reports and statements required by any
Governmental Authority to be filed by Borrower or any other Credit Party have,
as of the date of this Agreement, been filed and will, until the Termination
Date, be filed with the appropriate Governmental Authority, and all Charges and
other impositions shown thereon have been and will be paid when due. Proper and
accurate amounts have been and will be withheld by Borrower and each other
Credit Party from their respective employees for all periods in full and
complete compliance with the tax, social security and unemployment withholding
provisions of all applicable law, and such withholdings have and will be timely
paid to the respective Governmental Authorities. Borrower and each other Credit
Party executing this Agreement represents and promises that neither Borrower nor
any other Credit Party: (i) has executed or filed, or will execute or file, with
any Governmental Authority, any agreement or other document extending, or having
the effect of extending, the period for assessment or collection of any Charges;
(ii) has agreed or been requested to make any adjustment in accounting methods;
(iii) is a party to any tax sharing agreement; or (iv) is currently being
audited by any Governmental Authority. There are no assessments or threatened
assessments outstanding against any Credit Party.
(b) Each Credit Party may contest, by proper legal actions or proceedings, the
validity or amount of any Charges; provided, that at the time of commencement of
any such action or proceeding: (i) no Default or Event of Default shall have
occurred; (ii) adequate reserves with respect thereto are established on the
books of the contesting Person in accordance with GAAP; (iii) such contest
operates to suspend collection of the contested Charges and is maintained and
prosecuted continuously with diligence; (iv) none of the Collateral would be
subject to forfeiture or loss of Lien thereby; (v) no Lien shall be imposed or
be attempted to be imposed by any Governmental Authority for such Charges or
claims during such action or proceeding; (vi) the contesting Person shall
promptly pay or discharge any contested Charge and shall deliver to Lender
evidence acceptable to Lender of such compliance, payment or discharge, if such
contest is terminated or discontinued adversely; and (vii) Lender has not
advised any Credit Party in writing that Lender reasonably believes that
nonpayment or nondischarge thereof could reasonably be expected to have a
Material Adverse Effect.
3.12 ERISA.
(a) Disclosure Schedule (3.12) lists all Plans. Each Credit Party is and will
remain in compliance with all requirements of each Plan, and each Plan complies
with and is operated, and will continue to be operated, in compliance with all
applicable provisions of law in all respects. Each Qualified Plan and each
related trust has been determined by the IRS to qualify and will continue to
qualify under, and be exempt from tax under, the IRC. Nothing has occurred or
will be permitted to occur which would cause the loss of such qualification or
tax-exempt status. All required contributions have been and will be made in
accordance with the provisions of each Plan, and with respect to any Credit
Party or any ERISA Affiliate, there are and will be no Unfunded Pension
Liabilities or Withdrawal Liabilities. No Credit Party has engaged or will
engage in a prohibited transaction, as defined in Section 4975 of the IRC or
Section 406 of ERISA.
(b) No ERISA Event has occurred or will be permitted to occur. No Retiree
Welfare Plan exists or will be adopted (except as may be required by law). No
liability under any Title IV Plan has been or will be funded, nor has such
obligation been (nor will it be) satisfied with, the purchase of a contract from
an insurance company that is not rated AAA by Standard & Poor's Corporation and
the equivalent by each other nationally recognized rating agency.
3.13 Litigation. Except as disclosed in Disclosure Schedule (3.13) no Claim is
pending or threatened against any Credit Party which (a) challenges any such
Person's right, power, or competence to enter into or perform any of its
obligations under the Loan Documents, the validity or enforceability of any Loan
Document or any action taken thereunder, or (b) whether or not determined
adversely, could reasonably be expected to have a Material Adverse Effect. Each
Credit Party shall notify Lender in writing promptly upon learning of the
existence or commencement of any Claim commenced or threatened against any
Credit Party that: (x) may involve an amount in excess of $250,000; (y) could
reasonably be expected to have a Material Adverse Effect whether or not
determined adversely; or (z) regardless of amount (i) is asserted or instituted,
against any Plan, its fiduciaries or its assets, or against any Credit Party or
any ERISA Affiliate in connection with any Plan, (ii) includes any demand for
injunctive relief, (iii) alleges criminal misconduct by any Credit Party, or
(iv) alleges the violation of any law regarding, or seeks remedies in connection
with, any Environmental Liabilities and Costs.
3.14 Brokers. No broker or finder acting on behalf of any Credit Party brought
about the obtaining, making or closing of the Loans or the transactions
contemplated by the Loan Documents, and no Credit Party has any obligation to
any Person in respect of any finder's or brokerage fees in connection therewith.
3.15 Intellectual Property. Each Credit Party owns or has the right to use and
will own or have the right to use all Intellectual Property necessary to
continue to conduct its business as now or heretofore conducted by it or
proposed to be conducted by it in the most recent Projections delivered to
Lender, and each such item (that is registrable) of Intellectual Property is
listed, together with application or registration numbers, where applicable, in
Disclosure Schedule (3.15). Each Credit Party will give Lender prompt written
notice of any change in the status of any of its Intellectual Property. Each
Credit Party conducts and will continue to conduct its affairs and business
without infringement of or interference with any Intellectual Property of any
other Person. Each Credit Party shall notify Lender immediately if it knows or
discovers that any of any Credit Party's Intellectual Property is or may become
infringed upon, misappropriated or abandoned, or of any other adverse
determination or development.
3.16 Full Disclosure. No information contained in the Loan Documents, the
Financial Statements or any written statement furnished by or on behalf of any
Credit Party under this Agreement, or to induce Lender to execute the Loan
Documents, contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements contained herein or therein not
misleading in light of the circumstances under which they were made. As of the
date of this Agreement, each Credit Party has provided Lender and, hereafter
each Credit Party will continue to provide Lender with, a true, complete and
correct copy of each material contract executed by any Credit Party.
3.17 Hazardous Materials. (a) Each real property location owned, leased or
occupied by each Credit Party (the "Subject Property") is and will continue to
be maintained free of contamination from any Hazardous Material. Each Credit
Party: (i) shall comply with all applicable Environmental Laws and Environmental
Permits; (ii) shall notify Lender in writing within seven days if and when it
becomes aware of any incident or ongoing case of non-compliance or Release
(regardless of when such Release may have occurred) upon any Subject Property;
and (iii) shall promptly forward to Lender a copy of any order, notice, permit,
application, or any communication or report received by it or any other Credit
Party in connection with any such Release or any other matter relating to the
Environmental Laws that may affect Borrower or any other Credit Party.
Disclosure Schedule (3.17) discloses existing or potential environmental
liabilities of each Credit Party that could result in Environmental Liabilities
and Costs, and each Credit Party will promptly notify Lender in writing of any
such liabilities arising after the date of this Agreement. No Credit Party has
caused, permitted or suffered, or will cause, permit or suffer to occur any
Release at, under, above or within any Subject Property, or the presence, use,
generation, manufacture, installation, or storage of any Hazardous Materials on,
under, in or about any Subject Property or the transportation of any Hazardous
Materials to or from any Subject Property except to the extent such use,
generation, manufacture, installation, storage or transportation is conducted in
compliance with all Environmental Laws and Environmental Permits. Neither
Borrower nor any other Credit Party is or will become involved in operations
that could lead to the imposition of Environmental Liabilities or Costs, and no
sub-tenant of any Credit Party is permitted, or will be permitted, to engage in
any such activity.
(b) Each Credit Party executing this Agreement acknowledges and agrees that
Lender (i) is not now, and has not ever been, in control of any of the Subject
Property or the affairs of Borrower or any other Credit Party, and (ii) does not
have the capacity through the provisions of the Loan Documents to influence
Borrower's or any other Credit Party's conduct with respect to the ownership,
operation or management of any of the Subject Property.
3.18 Insurance. Disclosure Schedule (3.18) lists all insurance of any nature
maintained for current occurrences by Borrower and each other Credit Party, as
well as a summary of the terms of such insurance. Each Credit Party executing
this Agreement shall deliver to Lender endorsements to all of its and those of
its Subsidiaries' (i) "All Risk" and business interruption insurance policies
naming Lender loss payee, and (ii) general liability and other liability
policies naming Lender as an additional insured. All policies of insurance on
real and personal property will contain an endorsement, in form and substance
acceptable to Lender, showing loss payable to Lender (Form 438 BFU or
equivalent) and extra expense and business interruption endorsements. Such
endorsement, or an independent instrument furnished to Lender, will provide that
the insurance companies will give Lender at least thirty (30) days' prior
written notice before any such policy or policies of insurance shall be altered
or cancelled and that no act or default of Borrower or any other Person shall
affect the right of Lender to recover under such policy or policies of insurance
in case of loss or damage. Each Credit Party executing this Agreement hereby
directs all present and future insurers under its "All Risk" policies of
insurance to pay all proceeds payable thereunder directly to Lender. Lender
reserves the right at any time, upon review of each Credit Party's risk profile,
to require additional forms and limits of insurance to adequately protect
Lender's interests in accordance with Lender's normal practice for similarly
situated borrowers, and if the circumstances are unusual, in Lender's sole
opinion. Each Credit Party executing this Agreement shall, from time to time at
Lender's request, deliver to Lender a report by a reputable insurance broker,
satisfactory to Lender, with respect to such Person's insurance policies.
3.19 Deposit and Disbursement Accounts. Disclosure Schedule (3.19) lists all
banks and other financial institutions at which Borrower maintains deposits
and/or other accounts, including the Disbursement Account, and such Disclosure
Schedule correctly identifies the name, address and telephone number of each
such depository, the name in which the account is held, a description of the
purpose of the account, and the complete account number. Borrower will not
establish any other depository or other bank account with any financial
institution of any kind without first entering into a Blocked Account Agreement
(as defined in Schedule D hereto) with such financial institution and Lender in
form and substance acceptable to Lender. All payments to Borrower shall be made
to or paid into the accounts specified by Lender pursuant to Schedule D.
3.20 [Intentionally omitted].
3.21 Inventory. Borrower promises to perform and comply with all obligations in
respect of each item of Collateral. Borrower represents and promises that, as of
the date of each Borrowing Base Certificate delivered to Lender, each item of
Inventory shown on such Borrowing Base Certificate as Eligible Inventory will be
Eligible Inventory, except to the extent that Lender determines such Inventory
not to be eligible pursuant to clause (q) on Schedule 1.7.
3.22 Payment of Obligations. Each Credit Party: (a) will pay and discharge or
cause to be paid and discharged all Obligations in a timely manner; and (b)
prior to an Event of Default, (i) will pay and discharge, or cause to be paid
and discharged, its Indebtedness (other than the Obligations) in the ordinary
course of business, (ii) subject to Section 3.11(b), will pay and discharge, or
cause to be paid and discharged promptly, all Charges, and (iii) will pay all
lawful claims for labor, materials, supplies and services or otherwise, before
any thereof shall become in default.
3.23 Confidentiality and Press Releases. Lender and each Credit Party executing
this Agreement agree that the terms and conditions of this Agreement are
confidential and neither it nor its contents will be disclosed by any Credit
Party except (a) to those individuals who are Borrowers officers, employees or
advisors who have a need to know of such information as a result of their being
specifically involved in the financing contemplated hereby and then only on the
condition that such matters may not be further disclosed, and (b) as may be
required by applicable laws and regulations. No Credit Party executing this
Agreement shall use the name of or refer to General Electric Capital Corporation
(or any Affiliate thereof) or "GE Capital," or of any of Lender's Affiliates, in
any correspondence, discussions, advertisements or disclosure made in connection
with the financing contemplated hereby without the prior written consent of
Lender, except as may be required by applicable laws and regulations, provided
that Borrower shall first have afforded Lender a reasonable opportunity to
review and comment upon any such legally required disclosure.
3.24 Conduct of Business. Each Credit Party (a) shall conduct its business
substantially as now conducted or as otherwise permitted hereunder, and (b)
shall at all times maintain, preserve and protect all of the Collateral and such
Credit Party's other property, in use or useful in the conduct of its business
and keep the same in good repair, working order and condition (taking into
consideration ordinary wear and tear) and from time to time make, or cause to be
made, all necessary or appropriate repairs, replacements and improvements
thereto consistent with industry practices, so that the business carried on in
connection therewith may be properly and advantageously conducted at all times.
3.25 Further Assurances; Disclosure Schedule Supplements. At any time and from
time to time, upon the written request of Lender and at the sole expense of
Borrower, Borrower and each other Credit Party shall promptly and duly execute
and deliver any and all such further instruments and documents and take such
further action as Lender may reasonably deem desirable (a) to obtain the full
benefits of this Agreement, (b) to protect, preserve and maintain Lender's
rights in the Collateral, or any of it, and under this Agreement, or (c) to
enable Lender to exercise all or any of the rights and powers herein granted. On
each anniversary of the Closing Date (or as often as Lender may require upon the
occurrence and continuation of a Default or Event of Default), Borrower will
supplement each Disclosure Schedule with respect to any matter hereafter arising
that, if existing or occurring as of the Closing Date or as of the date of this
Agreement, would have been required to be set forth or described in such
Disclosure Schedule; provided, that such supplement shall not be deemed to be an
amendment thereof or a waiver with respect to any Default or Event of Default
thereby disclosed unless expressly consented to in writing by Lender.
4. FINANCIAL MATTERS; REPORTS
4.1 Reports and Notices. Borrower represents, agrees and promises that from and
after the date of this Agreement until the Termination Date, Borrower shall
deliver to Lender:
(a) as frequently as Lender may reasonably request and in any event no later
than twenty (20) days following the end of each Fiscal Month, a Borrowing Base
Certificate in the form of Exhibit C as of the last day of the previous Fiscal
Month detailing ineligible Inventory for adjustment to the Borrowing Base;
(b) within thirty (30) days following the end of each Fiscal Month, the
Financial Statements for such Fiscal Month, which Financial Statements shall
provide comparisons to budget and actual results for the corresponding period
during the prior Fiscal Year, both on a monthly and year-to-date basis, and
accompanied by a certification by the Chief Executive Officer or Chief Financial
Officer of Borrower that such Financial Statements are complete and correct,
that there was no Default or Event of Default (or specifying those Defaults or
Events of Default that he or she was aware), and showing in reasonable detail
the calculations used in determining compliance with the financial covenants
hereunder;
(c) within ninety (90) days following the close of each Fiscal Year, the
Financial Statements for such Fiscal Year certified without qualification by
Arthur Andersen & Co. or another "Big Six" accounting firm, or by any other
independent certified accounting firm acceptable to Lender, which Financial
Statements shall provide comparisons to budget and actual results for the prior
Fiscal Year, both on a monthly and annual basis, and shall be accompanied by (i)
a statement in reasonable detail showing the calculations used in determining
compliance with the financial covenants hereunder, (ii) a report from Borrower's
accountants to the effect that in connection with their audit examination
nothing has come to their attention to cause them to believe that a Default or
Event of Default has occurred or specifying those Defaults or Events of Default
of which they are aware, and (iii) any management letter that may be issued;
(d) not less than thirty (30) days prior to the close of each Fiscal Year, the
Projections, which Projections will be prepared by Borrower in good faith, with
care and diligence, and using assumptions which are reasonable under the
circumstances and disclosed in the Projections when delivered; and
(e) such other information respecting the business, financial condition,
prospects or projections of Borrower or any Affiliate thereof as Lender
reasonably may request from time to time.
4.2 Financial Covenants. Borrower shall not breach any of the financial
covenants set forth in Schedule G.
4.3 Other Reports. Borrower shall notify Lender promptly of any occurrence
causing a material loss or decline in value of any Collateral and the estimated
(or actual, if available) amount of such loss or decline. Borrower shall, upon
the request of Lender, furnish to Lender such other reports in connection with
the affairs, business, financial condition, operations, prospects or management
of Borrower or any other Credit Party or the Collateral as Lender may request,
all in reasonable detail, and Borrower shall advise Lender promptly, in
reasonable detail, of: (a) any Lien, other than Permitted Encumbrances,
attaching to or asserted against any of the Collateral; (b) any material change
in the composition of the Collateral; and (c) the occurrence of any other event
which could reasonably be expected to have a Material Adverse Effect.
5. NEGATIVE COVENANTS
Borrower and each Credit Party executing this Agreement covenants and agrees
(for itself and each other Credit Party) that, without Lender's prior written
consent, from the date of this Agreement until the Termination Date, neither
Borrower nor any other Credit Party shall, directly or indirectly, by operation
of law or otherwise:
(a) merge with, consolidate with, acquire all or substantially all of the assets
or capital stock of, or otherwise combine with, any Person or form any
Subsidiary, except that any Subsidiary of Borrower may merge or consolidate with
Borrower or another Subsidiary of Borrower (so long as Borrower is the surviving
corporation from any such transaction if it is involved therein) and Borrower or
any Subsidiary of Borrower may acquire all or substantially all of the assets of
capital Stock of another Subsidiary of Borrower;
(b) except as otherwise permitted in this Section 5 below or in Schedule D
hereto, make any investment in, or make or accrue loans or advances of money to,
any Person;
(c) create, incur, assume or permit to exist any Indebtedness, except: (i) the
Obligations; (ii) Indebtedness other than the Obligations in an aggregate
outstanding amount not exceeding $2,000,000; (iii) deferred taxes; and (iv)
other Indebtedness set forth in Disclosure Schedule (5(c));
(d) enter into any lending, borrowing or other commercial transaction with any
of its employees, directors, Affiliates or any other Credit Party (including
upstreaming and downstreaming of cash and intercompany advances), other than (i)
loans outstanding on the date of this Agreement and described in Disclosure
Schedule (5(d)), and (ii) loans made to employees of Borrower in the ordinary
course of business and consistent with Borrower's past practices and not
exceeding in the aggregate outstanding at any time $100,000;
(e) make any changes in any of its business objectives, purposes, or operations
which could have or reasonably be expected to have a Material Adverse Effect;
(f) amend its charter or by-laws;
(g) incur any Guaranteed Indebtedness except (i) by endorsement of instruments
or items of payment for deposit to the general account of Borrower; (ii)
Guaranteed Indebtedness incurred for the benefit of Borrower if the primary
obligation is permitted by this Agreement; and (iii) Guaranteed Indebtedness set
forth in Disclosure Schedule (5(g));
(h) create or permit any Lien on any of its properties or assets, except for
Permitted Encumbrances;
(i) sell, transfer, convey, assign or otherwise dispose of any Collateral except
in the ordinary course of its business, or sell, transfer, convey, assign or
otherwise dispose of any Intellectual Property not included in the Collateral
(if any) without the prior written consent of Lender, which consent will not be
unreasonably withheld, and except that Borrower may sell, transfer, convey,
assign or otherwise dispose of any Intellectual Property for use solely in any
jurisdiction where Borrower is not then conducting or proposing to conduct any
business; provided that any such sale, transfer, conveyance, assignment or other
disposition shall not limit or restrict or impose any license or other fee or
charge or other condition upon (i) Borrower's rights to use such Intellectual
Property or ability to conduct its business in any jurisdiction where Borrower
is then conducting or proposing to conduct any business, or (ii) Lender's
ability to exercise remedies with respect to the Collateral in any jurisdiction
where Borrower is then conducting or proposing to conduct any business;
(j) take any action or omit to take any action, which act or omission would
constitute a material default or an event of default pursuant to, or
noncompliance with, any contract, lease, mortgage, deed of trust or instrument
to which it is a party or by which it or any of its property is bound, or any
document creating a Lien;
(k) cancel any debt owing to it, except for reasonable consideration and in the
ordinary course of its business or as otherwise permitted in Section 3.20;
(l) make or permit any Restricted Payment; or
(m) engage in any business other than that presently engaged in or proposed to
be engaged in the Projections delivered to Lender on or prior to the date of
this Agreement.
6. SECURITY INTEREST
6.1 Grant of Security Interest. (a) To secure the prompt and complete payment,
performance and observance of all of the Obligations, and to induce Lender to
enter into the Loan Documents and to make the Loans provided for herein,
Borrower hereby grants to Lender a security interest in and Lien upon all of its
right, title and interest in the Collateral.
(b) Borrower and Lender agree that this Agreement creates, and is intended to
create, valid and continuing Liens upon the Collateral in favor of Lender.
Borrower and each other Credit Party executing this Agreement represents,
warrants and promises to Lender that: (i) upon and as a result of the filing of
appropriate financing statements in the jurisdictions listed in Disclosure
Schedule (6.1), the recording of the Intellectual Property Security Agreement in
the U.S. Patent and Trademark Office (with respect to registered Patents and
Trademarks) and the U.S. Copyright Office (with respect to registered
Copyrights), the execution of the Cash Management Account Agreements by all
parties thereto, and the delivery to Lender of each item of Collateral
consisting of Instruments, such Liens are and will be fully perfected Liens on
and in all Collateral, which Liens are and will, until the Termination Date
(assuming that any necessary financing statement continuation statements
required to be filed in the future are duly and timely filed), be enforceable as
first priority, fully perfected Liens as against all other creditors of, and
purchasers from, Borrower and any other Credit Party granting a Lien in
Collateral (other than purchasers of Inventory in the ordinary course of
business); (ii) all action necessary or desirable to protect and perfect such
Liens in favor of Lender in all of the Collateral has been duly taken; (iii)
except for Permitted Encumbrances, Borrower (and any other Credit Party granting
a Lien in Collateral) is and will be the sole owner of each such item of the
Collateral in which a Lien is granted under the Loan Documents (other than
consigned goods specifically identified in Disclosure Schedule (6.1)), and has
and will have good and marketable title to such Collateral free and clear of any
and all other Liens, and (iv) no effective security agreement, financing
statement, equivalent security or Lien instrument or continuation statement
covering all or any part of the Collateral is or will be on file or of record in
any public office, except those filed by Borrower (and any other Credit Party
granting a Lien to Lender in Collateral) in favor of Lender pursuant to the Loan
Documents, and those relating to other Permitted Encumbrances. Borrower and each
other Credit Party executing this Agreement promise to defend the right, title
and interest of Lender in and to the Collateral against the claims and demands
of all Persons whomsoever, and shall take such actions, including (1) the prompt
delivery of all original Instruments, Chattel Paper and certificated Stock owned
by Borrower to Lender, (2) notification of Lender's interest in Collateral at
Lender's request, or (3) the institution of litigation against third parties as
shall be prudent in order to protect and preserve Borrower's and Lender's
respective and several interests in the Collateral. Borrower (and any other
Credit Party granting a Lien in Collateral) shall mark its Books and Records
pertaining to the Collateral to evidence the Loan Documents and the Liens
granted under the Loan Documents. All Chattel Paper shall be marked with the
following legend: "This writing and the obligations evidenced or secured hereby
are subject to the security interest of General Electric Capital Corporation."
6.2 Lender's Rights. (a) Lender may, at any time while an Event of Default has
occurred and is continuing: (i) in Lender's own name or in the name of Borrower,
communicate with Account Debtors, parties to Contracts, and obligors in respect
of Instruments, Chattel Paper or other Collateral to verify to Lender's
satisfaction, the existence, amount and terms of any such Accounts, Contracts,
Instruments or Chattel Paper or other Collateral, and (ii) without prior notice
to Borrower, notify Account Debtors, parties to Contracts, and obligors in
respect of Chattel Paper, Instruments, or other Collateral that the Collateral
has been assigned to Lender and that payments shall be made directly to Lender.
Upon the request of Lender, Borrower shall so notify such Account Debtors,
parties to Contracts, and obligors in respect of Instruments, Chattel Paper or
other Collateral.
(b) It is expressly agreed by Borrower that, notwithstanding anything herein to
the contrary, Borrower shall remain liable under each Contract and License to
observe and perform all the conditions and obligations to be observed and
performed by it thereunder, and Lender shall have no obligation or liability
whatsoever to any Person under any Contract or License (between Borrower or any
other Credit Party and any Person other than Lender) by reason of or arising out
of the execution, delivery or performance of this Agreement, and Lender shall
not be required or obligated in any manner (i) to perform or fulfill any of the
obligations of Borrower, (ii) to make any payment or inquiry, or (iii) to take
any action of any kind to collect or enforce any performance or the payment of
any amounts which may have been assigned to it or to which it may be entitled at
any time or times under or pursuant to any Contract or License.
(c) Borrower and each other Credit Party executing this Agreement shall, with
respect to each owned, leased, or controlled property or facility, during normal
business hours and upon reasonable advance notice (unless a Default or Event of
Default shall have occurred and be continuing, in which event no notice shall be
required and Lender shall have access at any and all times): (i) provide access
to such facility or property to Lender and any of its officers, employees and
agents, as frequently as Lender determines to be appropriate; (ii) permit Lender
and any of its officers, employees and agents to inspect, audit and make
extracts from all of Borrower's and such Credit Party's Books and Records
(except to the extent that such Books and Records are required by law to be
maintained in confidence and except that Borrower shall not be obligated to
disclose matters protected by the attorney-client privilege if (i) in the
opinion of counsel reasonably acceptable to Lender such privilege has not
previously been waived or lost, (ii) in the opinion of counsel reasonably
acceptable to Lender, such disclosure could reasonably be expected to cause
Borrower to waive the benefit of such privilege, and (iii) losing the benefit of
such privilege would be materially detrimental to Borrower); and (iii) permit
Lender to inspect, review, evaluate and make physical verifications and
appraisals of the Inventory and other Collateral in any manner and through any
medium that Lender considers advisable, and Borrower and such Credit Party agree
to render to Lender, at Borrower's and such Credit Party's cost and expense,
such clerical and other assistance as may be reasonably requested with regard
thereto. Borrower and each other Credit Party executing this Agreement shall
make available to Lender and its counsel, as quickly as practicable under the
circumstances, originals or copies of all Borrower's and such Credit Party's
Books and Records and any other instruments and documents which Lender may
request; provided, however, that unless a Default or an Event of Default shall
have occurred and be continuing, Borrower shall not be obligated to bear the
expense of an appraisal more often than once in any twelve (12) month period.
Borrower shall deliver any document or instrument reasonably necessary for
Lender, as it may from time to time request, to obtain records from any service
bureau or other Person which maintains records for Borrower or any other Credit
Party.
(d) Borrower, at its own expense, shall cause its certified independent public
accountants to deliver to Lender the results of any physical verifications of
all or any portion of the Inventory made or observed by such accountants when
and if such verification is conducted. Lender shall be permitted to observe and
consult with Borrower's accountants in the performance of these tasks.
6.3 Lender's Appointment as Attorney-in-fact. On or prior to the Closing Date
Borrower shall execute and deliver the Power of Attorney in the form attached as
Exhibit E. The power of attorney granted pursuant to the Power of Attorney is a
power coupled with an interest and shall be irrevocable until the Termination
Date. The powers conferred on Lender under the Power of Attorney are solely to
protect Lender's interests in the Collateral and shall not impose any duty upon
it to exercise any such powers. Lender agrees and promises that (a) it shall not
exercise any power or authority granted under the Power of Attorney unless an
Event of Default has occurred and is continuing, (b) Lender shall only exercise
the powers granted under the Power of Attorney in respect of Collateral, and (c)
Lender shall promptly account for any moneys received by Lender in respect of
any foreclosure on or disposition of Collateral pursuant to use of the Power of
Attorney; provided, that Lender shall not have any other duty as to any
Collateral, and Lender shall be accountable only for amounts that it actually
receives as a result of the exercise of such powers. NONE OF LENDER OR ITS
OFFICERS, DIRECTORS, EMPLOYEES, AGENTS OR REPRESENTATIVES SHALL BE RESPONSIBLE
TO BORROWER FOR ANY ACT OR FAILURE TO ACT PURSUANT TO THE POWERS GRANTED UNDER
THE POWER OF ATTORNEY OR OTHERWISE, EXCEPT FOR ITS OR THEIR OWN GROSS NEGLIGENCE
OR WILLFUL MISCONDUCT, NOR FOR ANY PUNITIVE, EXEMPLARY, INDIRECT OR
CONSEQUENTIAL DAMAGES. Borrower also hereby authorizes Lender to file any
financing or continuation statement without the signature of Borrower to the
extent permitted by applicable law.
6.4 Grant of License to Use Intellectual Property Collateral. For the purpose of
enabling Lender to exercise its rights and remedies under the Loan Documents,
Borrower hereby grants to Lender an irrevocable, non-exclusive worldwide license
(exercisable upon the occurrence of an Event of Default without payment of
royalty or other compensation to Borrower) to use, transfer, license or
sublicense any Intellectual Property now owned, licensed to, or hereafter
acquired by Borrower, and wherever the same may be located, and including in
such license access to all media in which any of the licensed items may be
recorded or stored and to all computer and automatic machinery software and
programs used for the compilation or printout thereof, and represents, promises
and agrees that any such license or sublicense is not and will not be in
conflict with the contractual or commercial rights of any third person;
provided, that such license will terminate on the Termination Date.
6.5 Reinstatement. The provisions of this Section 6 shall remain in full force
and effect and continue to be effective even if: (a) any petition is filed by or
against Borrower for liquidation or reorganization; (b) Borrower becomes
insolvent or makes an assignment for the benefit of creditors; (c) a receiver or
trustee is appointed for all or any significant part of Borrower's assets; or
(d) at any time payment and performance of the Obligations, or any part thereof,
is, pursuant to applicable law, rescinded or reduced in amount, or must
otherwise be restored or returned by any obligee of the Obligations, whether as
a "voidable preference," "fraudulent transfer" or otherwise, all as though such
payment or performance had not been made. In the event that any payment, or any
part thereof, is rescinded, reduced, restored or returned, the Obligations and
Lender's Liens in the Collateral shall be reinstated and deemed reduced only by
any amount paid and not so rescinded, reduced, restored or returned.
7. EVENTS OF DEFAULT: RIGHTS AND REMEDIES
7.1 Events of Default. The occurrence of any one or more of the following events
(regardless of the reason therefor) shall constitute an "Event of Default"
hereunder:
(a) Borrower shall fail to make any payment in respect of any Obligations when
due and payable or declared due and payable; or
(b) Borrower or any other Credit Party: (i) shall fail or neglect to perform,
keep or observe any of the covenants, promises, agreements, requirements,
conditions or other terms or provisions contained in any of Sections 3.18, 4.1,
4.2, 4.3, 5 or 6 of this Agreement; or (ii) shall fail or neglect to perform,
keep or observe any of the covenants, promises, agreements, requirements,
conditions or other terms or provisions contained in any other Section of this
Agreement or any of the other Loan Documents (regardless of whether such breach
involves a covenant, promise, agreement, condition, requirement, term or
provision with respect to a Credit Party that has not signed this Agreement) and
the same shall remain uncured or uncorrected for a period of fifteen (15) days
after the earlier of the date upon which Borrower or such Credit Party becomes
aware of such matter or the date upon which Borrower or such Credit Party
receives notice of such matter from Lender; or
(c) an event of default shall occur under any other material agreement, document
or instrument to which Borrower or any other Credit Party is a party, or by
which any such Person or its property is bound, and such event of default (i)
involves the failure to make any payment, whether of principal, interest or
otherwise, and whether due by scheduled maturity, required prepayment,
acceleration, demand or otherwise, in respect of any Indebtedness (other than
the Obligations) of such Person in an aggregate amount exceeding the Minimum
Actionable Amount, or (ii) causing (or permits any holder of such Indebtedness
or a trustee to cause) such Indebtedness, or a portion thereof in an aggregate
amount exceeding the Minimum Actionable Amount to become due prior to its stated
maturity or prior to its regularly scheduled dates of payment; or
(d) any representation or warranty in this Agreement or any other Loan Document,
or in any written statement pursuant hereto or thereto, or in any report,
financial statement or certificate made or delivered to Lender by Borrower or
any other Credit Party shall be untrue or incorrect as of the date when made,
regardless of whether such breach involves a representation or warranty with
respect to a Credit Party that has not signed this Agreement; or
(e) any of the assets of Borrower or any other Credit Party shall be attached,
seized, levied upon or subjected to a writ or distress warrant; or come within
the possession of any receiver, trustee, custodian or assignee for the benefit
of creditors of such Person, and shall remain unstayed or undismissed for sixty
(60) consecutive days; or any Person other than Borrower shall apply for the
appointment of a receiver, trustee or custodian for any of Borrower's assets (or
those of any other Credit Party) and shall remain unstayed or undismissed for
sixty (60) consecutive days; or Borrower or any other Credit Party shall have
concealed, removed or permitted to be concealed or removed, any part of its
property with intent to hinder, delay or defraud its creditors or any of them or
made or suffered a transfer of any of its property or the incurring of an
obligation which may be fraudulent under any bankruptcy, fraudulent transfer or
other similar law; or
(f) a case or proceeding shall have been commenced involuntarily against
Borrower or any other Credit Party in a court having competent jurisdiction
seeking a decree or order: (i) under the United States Bankruptcy Code or any
other applicable Federal, state or foreign bankruptcy or other similar law, and
seeking either (a) the appointment of a custodian, receiver, liquidator,
assignee, trustee or sequestrator (or similar official) of such Person or of any
substantial part of its properties, or (b) the reorganization or winding up or
liquidation of the affairs of any such Person and such case or proceeding shall
remain undismissed or unstayed for sixty (60) consecutive days or such court
shall enter a decree or order granting the relief sought in such case or
proceeding; or (ii) invalidating or denying (a) any Person's right, power, or
competence to enter into or perform any of its obligations under any Loan
Document, or (b) the validity or enforceability of this Agreement or any other
Loan Document or any action taken hereunder or thereunder; or
(g) Borrower or any other Credit Party shall (i) file a petition under the
United States Bankruptcy Code or any other applicable Federal, state or foreign
bankruptcy or other similar law, (ii) consent to the institution of proceedings
thereunder or to the filing of any such petition or to the appointment of or
taking possession by a custodian, receiver, liquidator, assignee, trustee or
sequestrator (or similar official) of any such Person or of any substantial part
of its properties, (iii) fail generally to pay (or admit in writing its
inability to pay) its debts as such debts become due, or (iv) take any corporate
action in furtherance of any such action; or
(h) final judgment or judgments (after the expiration of all times to appeal
therefrom) for the payment of money in excess of the Minimum Actionable Amount
in the aggregate shall be rendered against Borrower or any other Credit Party,
unless the same shall be (i) fully covered by insurance and the issuer(s) of the
applicable policies shall have acknowledged full coverage in writing within
fifteen (15) days of judgment, or (ii) vacated, stayed, bonded, paid or
discharged within a period of fifteen (15) days from the date of such judgment;
or
(i) any other event shall have occurred which could have or reasonably be
expected to have a Material Adverse Effect and Lender shall have given Borrower
notice thereof; or
(j) any Lien or any material provision of any Loan Document shall for any reason
cease to be valid, binding and enforceable in accordance with its terms, or any
Lien granted, or intended by the Loan Documents to be granted, to Lender shall
cease to be a valid and perfected Lien having the first priority (or a lesser
priority if expressly permitted in the Loan Documents) in any of the Collateral
covered or purported to be covered thereby.
7.2 Remedies. (a) If any Default or Event of Default shall have occurred and be
continuing, then Lender may exercise one or more of the following remedies: (i)
upon notice to Borrower from Lender, increase the rate of interest applicable to
the Loans and the Letter of Credit Fee to the Default Rate, as provided in
Section 1.5(d), effective as of the date of the initial Default; or (ii)
terminate or suspend its obligation to make further Revolving Credit Advances
and to incur additional Letter of Credit Obligations. In addition, if any Event
of Default shall have occurred and be continuing, Lender may, without notice,
take any one or more of the following actions: (1) declare all or any portion of
the Obligations to be forthwith due and payable, including contingent
liabilities with respect to Letter of Credit Obligations, whereupon such
Obligations shall become and be due and payable; (2) require that all Letter of
Credit Obligations be fully cash collateralized pursuant to Schedule C; or (3)
exercise any rights and remedies provided to Lender under the Loan Documents or
at law or equity, including all remedies provided under the Code; provided, that
upon the occurrence of an Event of Default specified in Sections 7.1 (e), (f) or
(g), the Obligations shall become immediately due and payable (and any
obligation of Lender to make further Loans, if not previously terminated, shall
immediately be terminated) without declaration, notice or demand by Lender.
(b) Without limiting the generality of the foregoing, Borrower expressly agrees
that upon the occurrence and during the continuance of any Event of Default,
Lender may collect, receive, assemble, process, appropriate and realize upon the
Collateral, or any part thereof, and may forthwith sell, lease, assign, give an
option or options to purchase or otherwise dispose of and deliver said
Collateral (or contract to do so), or any part thereof, in one or more parcels
at public or private sale or sales, at any exchange at such prices as it may
deem best, for cash or on credit or for future delivery without assumption of
any credit risk. Lender shall have the right upon any such public sale or sales
and, to the extent permitted by law, upon any such private sale or sales, to
purchase for the benefit of Lender the whole or any part of said Collateral so
sold, free of any right or equity of redemption, which equity of redemption
Borrower hereby releases. Such sales may be adjourned, or continued from time to
time with or without notice. Lender shall have the right to conduct such sales
on Borrower's premises or elsewhere and shall have the right to use Borrower's
premises without rent or other charge for such sales or other action with
respect to the Collateral for such time or times as Lender deems necessary or
advisable.
(c) Borrower further agrees, upon the occurrence and during the continuance of
an Event of Default and at Lender's request, to assemble the Collateral and make
it available to Lender at places which Lender shall reasonably select, whether
at Borrower's premises or elsewhere. Until Lender is able to effect a sale,
lease, or other disposition of the Collateral, Lender shall have the right to
complete, assemble, use or operate the Collateral or any part thereof, to the
extent that Lender deems appropriate, for the purpose of preserving such
Collateral or its value or for any other purpose. Lender shall have no
obligation to Borrower to maintain or preserve the rights of Borrower as against
third parties with respect to any Collateral while such Collateral is in the
possession of Lender. Lender may, if it so elects, seek the appointment of a
receiver or keeper to take possession of any Collateral and to enforce any of
Lender's remedies with respect to such appointment without prior notice or
hearing. To the maximum extent permitted by applicable law, Borrower waives all
claims, damages, and demands against Lender, its Affiliates, agents, and the
officers and employees of any of them arising out of the repossession, retention
or sale of any Collateral except such as are determined in a final judgment by a
court of competent jurisdiction to have arisen solely out of the gross
negligence or willful misconduct of such Person. Borrower agrees that ten (10)
days prior notice by Lender to Borrower of the time and place of any public sale
or of the time after which a private sale may take place is reasonable
notification of such matters. Borrower shall remain liable for any deficiency if
the proceeds of any sale or disposition of the Collateral are insufficient to
pay all amounts to which Lender is entitled, and Lender shall remit any surplus
remaining after payment and satisfaction of the Obligations in full to Borrower
or its representatives or to whomsoever may be lawfully entitled to receive the
same, or as a court of competent jurisdiction may direct.
(d) Lender's rights and remedies under this Agreement shall be cumulative and
nonexclusive of any other rights and remedies which Lender may have under any
Loan Document or at law or in equity. Recourse to the Collateral shall not be
required. All rights, remedies and powers provided in this Agreement may be
exercised only to the extent that the exercise thereof does not violate any
applicable provision of law, and all provisions of this Agreement are intended
to be subject to all applicable mandatory provisions of law that may be
controlling and to be limited, to the extent necessary, so that they do not
render this Agreement invalid, unenforceable, in whole or in part.
7.3 Waivers by Borrower. Except as otherwise provided for in this Agreement and
to the fullest extent permitted by applicable law, Borrower waives: (a)
presentment, demand and protest, and notice of presentment, dishonor, intent to
accelerate, acceleration, protest, default, nonpayment, maturity, release,
compromise, settlement, extension or renewal of any or all Loan Documents, the
Notes or any other notes, commercial paper, Accounts, Contracts, Documents,
Instruments, Chattel Paper and guaranties at any time held by Lender on which
Borrower may in any way be liable, and hereby ratifies and confirms whatever
Lender may do in this regard; (b) all rights to notice, except as expressly
provided in Section 7.2(c), and a hearing prior to Lender's taking possession or
control of, or to Lender's replevy, attachment or levy upon, any Collateral or
any bond or security which might be required by any court prior to allowing
Lender to exercise any of its remedies; and (c) the benefit of all valuation,
appraisal and exemption laws. Borrower acknowledges that it has been advised by
counsel of its choices and decisions with respect to this Agreement, the other
Loan Documents and the transactions evidenced hereby and thereby.
7.4 Proceeds. The Proceeds of any sale, disposition or other realization upon
any Collateral shall be applied by Lender upon receipt, in the following order
of priorities: first, to reimburse or pay in full the actual and reasonable
expenses of Lender incurred in connection with such sale, disposition or other
realization, including all other expenses, liabilities and advances incurred or
made by Lender in connection therewith; second, to Lender as specified in
Section 1.11; third, to cash collateralize any outstanding Letter of Credit
Obligations pursuant to Schedule C; and finally, after payment and satisfaction
in full in cash of all of the Obligations, and after the payment by Lender of
any other amount required by any provision of law, including Section 9-504(1)(c)
of the Code (but only after Lender has received what Lender considers reasonable
proof of a subordinate party's security interest), the surplus, if any, to
Borrower or its representatives or to whomsoever may be lawfully entitled to
receive the same, or as a court of competent jurisdiction may direct.
8. SUCCESSORS AND ASSIGNS
Each Loan Document shall be binding on and shall inure to the benefit of
Borrower and each other Credit Party executing such Loan Document, Lender, and
their respective successors and assigns, except as otherwise provided herein or
therein. Neither Borrower nor any other Credit Party may assign, transfer,
hypothecate or otherwise convey its rights, benefits, obligations or duties
under any Loan Document without the prior express written consent of Lender. Any
such purported assignment, transfer, hypothecation or other conveyance by
Borrower or such Credit Party without the prior express written consent of
Lender shall be void. The terms and provisions of this Agreement and the other
Loan Documents are for the purpose of defining the relative rights and
obligations of Borrower, the other Credit Parties and Lender with respect to the
transactions contemplated hereby and thereby, and there shall be no third party
beneficiaries of any of the terms and provisions of any of the Loan Documents.
Lender reserves the right at any time to create and sell a participation in the
Loans and the Loan Documents and to sell, transfer or assign any or all of its
rights in the Loans and under the Loan Documents.
9. MISCELLANEOUS
9.1 Complete Agreement; Modification of Agreement. The Loan Documents constitute
the complete agreement between the parties with respect to the subject matter
hereof and thereof, supersede all prior agreements, commitments, understandings
or inducements (oral or written, expressed or implied), and may not be modified,
altered or amended except by a written agreement signed by Lender, Borrower and
any other Credit Party executing this Agreement or any other Loan Document.
Borrower and each other Credit Party executing this Agreement or any other Loan
Document shall have all duties and obligations under this Agreement and such
other Loan Document from the date of its execution and delivery, regardless of
whether the initial Loan has been funded at that time.
9.2 Expenses. Borrower shall reimburse Lender for all reasonable out-of-pocket
expenses as set forth in Schedule E.
9.3 No Waiver. Neither Lender's failure, at any time or times, to require strict
performance by Borrower or any other Credit Party of any provision of any Loan
Document, nor Lender's failure to exercise, nor any delay in exercising, any
right, power or privilege hereunder, (a) shall waive, affect or diminish any
right of Lender thereafter to demand strict compliance and performance
therewith, or (b) shall operate as a waiver thereof. No single or partial
exercise of any right, power or privilege hereunder shall preclude any other or
future exercise thereof or the exercise of any other right, power or privilege.
Any suspension or waiver of a Default, Event of Default, or other provision
under the Loan Documents shall not suspend, waive or affect any other Default or
Event of Default under any Loan Document, whether the same is prior or
subsequent thereto and whether of the same or of a different type, and shall not
be construed as a bar to any right or remedy which Lender would otherwise have
had on any future occasion. None of the undertakings, indemnities, agreements,
warranties, covenants and representations of Borrower or any other Credit Party
to Lender contained in any Loan Document and no Default or Event of Default by
Borrower or any other Credit Party under any Loan Document shall be deemed to
have been suspended or waived by Lender, unless such waiver or suspension is by
an instrument in writing signed by an officer or other authorized employee of
Lender and directed to Borrower specifying such suspension or waiver (and then
such waiver shall be effective only to the extent therein set forth), and Lender
shall not, by any act (other than execution of a formal written waiver), delay,
omission or otherwise, be deemed to have waived any of its rights or remedies
hereunder.
9.4 Severability. Wherever possible, each provision of the Loan Documents shall
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of any Loan Document shall be prohibited by or invalid
under applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Agreement. Except as otherwise expressly
provided for in the Loan Documents, no termination or cancellation (regardless
of cause or procedure) of any financing arrangement under the Loan Documents
shall in any way affect or impair the Obligations, duties, indemnities, and
liabilities of Borrower or any other Credit Party or the rights of Lender
relating to any unpaid Obligation, due or not due, liquidated, contingent or
unliquidated, or any transaction or event occurring prior to such termination,
or any transaction or event, the performance of which is not required until
after the Commitment Maturity Date. Except as otherwise expressly provided
herein or in any other Loan Document, all undertakings, agreements, covenants,
warranties and representations of or binding upon Borrower or any other Credit
Party and all rights of Lender, all as contained in the Loan Documents, shall
not terminate or expire, but rather shall survive such termination or
cancellation and shall continue in full force and effect until the Termination
Date; provided, that the indemnity obligations of the Credit Parties under the
Loan Documents shall survive the Termination Date.
9.5 Conflict of Terms. Except as otherwise provided in any Loan Document by
specific reference to the applicable provisions of this Agreement, if any
provision contained in this Agreement is in conflict with, or inconsistent with,
any provision in any other Loan Document, the provision contained in this
Agreement shall govern and control.
9.6 Authorized Signature. Until Lender shall be notified by Borrower or any
other Credit Party to the contrary, the signature upon any document or
instrument delivered pursuant hereto and believed by Lender or any of Lender's
officers, agents, or employees to be that of an officer of Borrower or such
other Credit Party listed in the Secretarial Certificate in the form of Exhibit
D shall bind Borrower and such other Credit Party and be deemed to be the act of
Borrower or such other Credit Party affixed pursuant to and in accordance with
resolutions duly adopted by Borrower's or such other Credit Party's Board of
Directors, and Lender shall be entitled to assume the authority of each
signature and authority of the person whose signature it is or appears to be
unless the person acting in reliance of such signature shall have actual
knowledge of the fact that such signature is false or the person whose signature
or purported signature is presented is without authority.
9.7 Notices. Except as otherwise provided herein, whenever any notice, demand,
request, consent, approval, declaration or other communication shall or may be
given to or served upon any party by any other party, or whenever any party
desires to give or serve upon any other party any communication with respect to
this Agreement, each such notice, demand, request, consent, approval,
declaration or other communication shall be in writing and shall be deemed to
have been validly served, given or delivered (a) upon the earlier of actual
receipt and three (3) days after deposit in the United States Mail, registered
or certified mail, return receipt requested, with proper postage prepaid, (b)
upon transmission, when sent by telecopy or other similar facsimile transmission
(with such telecopy or facsimile promptly confirmed by delivery of a copy by
personal delivery or United States Mail as otherwise provided in this Section
9.7), (c) one (1) Business Day after deposit with a reputable overnight courier
with all charges prepaid or (d) when hand-delivered, all of which shall be
addressed to the party to be notified and sent to the address or facsimile
number indicated in Schedule 1.1 or to such other address (or facsimile number)
as may be substituted by notice given as herein provided. The giving of any
notice required hereunder may be waived in writing by the party entitled to
receive such notice. Failure or delay in delivering copies of any notice,
demand, request, consent, approval, declaration or other communication to any
Person (other than Borrower or Lender) designated in Schedule 1.1 to receive
copies shall in no way adversely affect the effectiveness of such notice,
demand, request, consent, approval, declaration or other communication.
9.8 Section Titles. The Section titles and Table of Contents contained in any
Loan Document are and shall be without substantive meaning or content of any
kind whatsoever and are not a part of the agreement between the parties hereto.
9.9 Counterparts. Any Loan Document may be executed in any number of identical
counterparts, which shall constitute an original and collectively and separately
constitute a single instrument or agreement.
9.10 Time of the Essence. Time is of the essence for performance of the
Obligations under the Loan Documents.
9.11 GOVERNING LAW. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN ANY OF THE LOAN
DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND
PERFORMANCE, THE LOAN DOCUMENTS AND THE OBLIGATIONS ARISING UNDER THE LOAN
DOCUMENTS SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF ILLINOIS APPLICABLE TO CONTRACTS MADE AND PERFORMED IN
SUCH STATE, WITHOUT REGARD TO THE PRINCIPLES THEREOF REGARDING CONFLICTS OF
LAWS, AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. BORROWER AND EACH
OTHER CREDIT PARTY EXECUTING THIS AGREEMENT HEREBY CONSENT AND AGREE THAT THE
STATE OR FEDERAL COURTS LOCATED IN CHICAGO, ILLINOIS SHALL HAVE EXCLUSIVE
JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN BORROWER AND
SUCH CREDIT PARTY AND LENDER PERTAINING TO THIS AGREEMENT OR ANY OF THE OTHER
LOAN DOCUMENTS OR TO ANY MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT OR
ANY OF THE OTHER LOAN DOCUMENTS; PROVIDED, THAT LENDER, BORROWER AND SUCH CREDIT
PARTY ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A
COURT LOCATED OUTSIDE OF CHICAGO, ILLINOIS; AND FURTHER PROVIDED, THAT NOTHING
IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE LENDER FROM BRINGING
SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO COLLECT THE
OBLIGATIONS, TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE
OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF LENDER.
BORROWER AND EACH OTHER CREDIT PARTY EXECUTING THIS AGREEMENT EXPRESSLY SUBMIT
AND CONSENT IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN
ANY SUCH COURT, AND BORROWER AND SUCH CREDIT PARTY HEREBY WAIVE ANY OBJECTION
WHICH IT MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR
FORUM NON CONVENIENS AND HEREBY CONSENT TO THE GRANTING OF SUCH LEGAL OR
EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT. BORROWER AND EACH OTHER
CREDIT PARTY EXECUTING THIS AGREEMENT HEREBY WAIVE PERSONAL SERVICE OF THE
SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREE
THAT SERVICE OF SUCH SUMMONS, COMPLAINTS AND OTHER PROCESS MAY BE MADE BY
REGISTERED OR CERTIFIED MAIL ADDRESSED TO BORROWER OR SUCH CREDIT PARTY AT THE
ADDRESS SET FORTH IN SCHEDULE 1.1 OF THIS AGREEMENT AND THAT SERVICE SO MADE
SHALL BE DEEMED COMPLETED UPON THE EARLIER OF BORROWER'S OR SUCH CREDIT PARTY'S
ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER
POSTAGE PREPAID.
9.12 WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX
FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN
EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL
LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR
DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO
ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF
ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION,
SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER ARISING IN CONTRACT,
TORT, OR OTHERWISE BETWEEN LENDER, BORROWER AND ANY CREDIT PARTY ARISING OUT OF,
CONNECTED WITH, RELATED OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN
THEM IN CONNECTION WITH THE LOAN DOCUMENTS OR THE TRANSACTIONS RELATED THERETO.
[Balance of page intentionally left blank; signature page follows.]
IN WITNESS WHEREOF, this Loan and Security Agreement has been duly executed as
of the date first written above.
PET FOOD WAREHOUSE, INC.
By:/s/ Sharon K. Link
Name: Sharon K. Link
Title: VP - Finance & CFO
GENERAL ELECTRIC CAPITAL CORPORATION
By:_________________________________
Name:_______________________________
Title:______________________________
INDEX OF EXHIBITS AND SCHEDULES
Schedule A - Definitions
Schedule B - Disclosure Schedule
Schedule C - Letters of Credit
Schedule D - Cash Management System
Schedule E - Fees and Expenses
Schedule F - Schedule of Documents
Schedule G - Financial Covenants
Schedule 1.1 - Addresses for Notices
Schedule 1.7 - Eligible Inventory
Exhibit A - Form of Notice of Revolving Credit Advance
Exhibit B - Form of Revolving Credit Note
Exhibit C - Form of Borrowing Base Certificate
Exhibit D - Form of Secretarial Certificate
Exhibit E - Form of Power of Attorney
SCHEDULE A - DEFINITIONS
In addition to the defined terms appearing below, capitalized terms used in the
Agreement and the other Loan Documents shall have (unless otherwise provided
elsewhere in the Agreement or in the other Loan Documents) the following
respective meanings:
"Account Debtor" shall mean any Person who may become obligated with respect to,
or on account of, an Account.
"Accounts" shall mean all "accounts," as such term is defined in the Code, now
owned or hereafter acquired by any Person, including: (i) all accounts
receivable, other receivables, book debts and other forms of obligations (other
than forms of obligations evidenced by Chattel Paper, Documents or Instruments),
whether arising out of goods sold or services rendered or from any other
transaction (including any such obligations which may be characterized as an
account or contract right under the Code); (ii) all of such Person's rights in,
to and under all purchase orders or receipts for goods or services; (iii) all of
such Person's rights to any goods represented by any of the foregoing (including
unpaid sellers' rights of rescission, replevin, reclamation and stoppage in
transit and rights to returned, reclaimed or repossessed goods); (iv) all moneys
due or to become due to such Person under all purchase orders and contracts for
the sale of goods or the performance of services or both by such Person or in
connection with any other transaction (whether or not yet earned by performance
on the part of such Person), including the right to receive the proceeds of said
purchase orders and contracts; and (v) all collateral security and guarantees of
any kind given by any other Person with respected to any of the foregoing.
"Affiliate" shall mean, with respect to any Person: (i) each Person that,
directly or indirectly, owns or controls, whether beneficially, or as a trustee,
guardian or other fiduciary, five percent (5%) or more of the Stock having
ordinary voting power in the election of directors of such Person; (ii) each
Person that controls, is controlled by or is under common control with such
Person or any Affiliate of such Person; or (iii) each of such Person's officers,
directors, joint venturers and partners. For the purpose of this definition,
"control" of a Person shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of its management or policies, whether
through the ownership of voting securities, by contract or otherwise.
"Agreement" shall mean the Loan and Security Agreement to which this Schedule A
is attached or otherwise identified, including all Appendices attached or
otherwise identified thereto, restatements and amendments, modifications and
supplements thereto, and any appendices, exhibits or schedules to any of the
foregoing, and shall refer to the Agreement as the same may be in effect at the
time such reference becomes operative; provided, that except as specifically set
forth in the Agreement, any reference to the Disclosure Schedules to the
Agreement shall be deemed a reference to the Disclosure Schedules as in effect
on the Closing Date or in a written amendment thereto executed by Borrower and
Lender in accordance with Section 3.25.
"Appendices" shall have the meaning assigned to it in the Recitals of the
Agreement.
"Books and Records" shall mean all books, records, board minutes, contracts,
licenses, insurance policies, environmental audits, business plans, files,
accounting books and records, financial statements (actual and pro forma), and
filings with Governmental Authorities.
"Borrower" shall mean the Person identified as "Borrower" in the Recitals of the
Agreement.
"Borrowing Availability" shall mean, at any time, the lesser of (i) the Maximum
Amount or (ii) the Borrowing Base, in each case less any reserves established by
Lender from time to time in its sole discretion.
"Borrowing Base" shall mean at any time an amount equal to the sum at such time
of:
(a) sixty five percent (65%) of the value (valued on a first-in,
first-out basis (at the lower of cost or market)) of
Borrower's Eligible Inventory consisting of consumables (food,
litter and treats); plus
(b) sixty percent (60%) of the value (valued on a first-in,
first-out basis (at the lower of cost or market)) of
Borrower's Eligible Inventory consisting of non-consumables,
less
(c) $1,250,000.
"Borrowing Base Certificate" shall mean a certificate in the form of Exhibit C
and shall include the Schedule of Inventory.
"Business Day" shall mean any day that is not a Saturday, a Sunday or a day on
which banks are required or permitted to be closed in the State of New York.
"Capital Expenditures" shall mean all payments or accruals (including Capital
Lease Obligations) for any fixed assets or improvements or for replacements,
substitutions or additions thereto, that have a useful life of more than one
year and that are required to be capitalized under GAAP.
"Capital Lease" shall mean, with respect to any Person, any lease of any
property (whether real, personal or mixed) by such Person as lessee that, in
accordance with GAAP, either would be required to be classified and accounted
for as a capital lease on a balance sheet of such Person or otherwise would be
disclosed as such in a note to such balance sheet, other than, in the case of
Borrower, any such lease under which Borrower is the lessor.
"Capital Lease Obligation" shall mean, with respect to any Capital Lease, the
amount of the obligation of the lessee thereunder that, in accordance with GAAP,
would appear on a balance sheet of such lessee in respect of such Capital Lease
or otherwise be disclosed in a note to such balance sheet.
"Cash Collateral Account" shall have the meaning assigned to it in Schedule C.
"Cash Management Account Agreements" means, collectively, the Blocked Account
Agreements (as defined in Schedule D), the Concentration Account Agreement (as
defined in Schedule D) and each other tri-party agreement required under
Schedule D to be executed by Borrower and the financial institution at which
Borrower maintains any deposit or investment account in favor of Lender.
"Change of Control" shall mean, with respect to any Person on or after the
Closing Date (i) that any Person or "group" shall increase its "beneficial
ownership" (as such terms are defined under Section 13d-3 of and Regulation 13D
under the Securities Exchange Act of 1934) either directly or indirectly, by
more than ten percent (10%) of the outstanding shares of Stock of such Person
having the right to vote for the election of directors of such Person under
ordinary circumstances, (ii) that any change in the composition of its
stockholders as of the Closing Date shall occur which would result in any
stockholder or group acquiring 49.9% or more of any class of Stock of such
Person, or (iii) that any Person (or group of Persons acting in concert) shall
otherwise acquire the power to direct the management or affairs of such Person
by obtaining proxies, entering into voting agreements or trusts, acquiring
securities or otherwise.
"Charges" shall mean all Federal, state, county, city, municipal, local, foreign
or other governmental taxes (including taxes owed to PBGC at the time due and
payable), levies, assessments, charges, liens, and all additional charges,
interest, penalties, expenses, claims or encumbrances upon or relating to (i)
the Collateral, (ii) the Obligations, (iii) the employees, payroll, income or
gross receipts of any Credit Party, (iv) the ownership or use of any assets by
any Credit Party, or (v) any other aspect of any Credit Party's business.
"Chattel Paper" shall mean all "chattel paper," as such term is defined in the
Code, now owned or hereafter acquired by any Person, wherever located.
"Claim" shall mean any and all: suits, actions, or proceedings in any court or
forum, at law, in equity or otherwise; any costs, fines, deficiencies, or
penalties; any asserted claims or demands by any Person; any arbitration
demands, proceedings or awards; any damages, losses, liabilities and expenses
(including reasonable attorneys' fees and disbursements and other costs of
collection, defense or appeal); any enforcement of rights and remedies; or any
criminal, civil or regulatory investigations.
"Closing Date" shall mean the Business Day on which the conditions precedent set
forth in Section 2 have been satisfied or specifically waived in writing by
Lender, and the initial Loan has been made.
"Code" shall mean the Uniform Commercial Code as the same may, from time to
time, be in effect in the State of Illinois; provided, that in the event that,
by reason of mandatory provisions of law, any or all of the attachment,
perfection or priority of Lender's security interest in any Collateral is
governed by the Uniform Commercial Code as in effect in a jurisdiction other
than the State of Illinois, the term "Code" shall mean the Uniform Commercial
Code as in effect in such other jurisdiction for purposes of the provisions of
the Agreement relating to such attachment, perfection or priority and for
purposes of definitions related to such provisions.
"Collateral" shall mean the property (other than real property interests,
leasehold interests in real property, fixtures and machinery and equipment), now
existing or hereafter acquired, tangible or intangible, and whether owned by,
consigned to, or held by, or under the care, custody or control of Borrower or
any other Credit Party, that may at any time be or become lawfully subject to a
pledge, security interest or Lien in favor of Lender to secure the Obligations,
including all cash, cash equivalents, Accounts, bank and deposit accounts and
deposits, investment property, commodity contracts, Inventory, Goods (other than
fixtures or machinery and equipment), Chattel Paper, Documents, Instruments,
Books and Records, General Intangibles (including all Intellectual Property,
Stock, Claims, contract rights, and choses in action), and all of Borrower's or
such Credit Party's other interests in property of every kind and description
(other than real property interests, leasehold interests in real property,
fixtures and machinery and equipment), and the products, profits, rents of,
dividends or distributions on, accessions to, and all Proceeds (including
insurance proceeds) of any of the foregoing, regardless of whether the
Collateral, or any of it, is property as to which the Code provides for the
perfection of a security interest, and all rights and remedies applicable to
such property, but excluding in all events Hazardous Materials.
"Collection Account" shall mean that certain account of Lender, account number
50-232-854 in the name of GECC-CAF Depository at Bankers Trust Company, 1
Bankers Trust Plaza, New York, New York, ABA number 021-001-033.
"Commitment Maturity Date" shall mean the earliest of (i) May 31, 1999, (ii) the
date Lender's obligation to advance funds is terminated and the Obligations are
declared to be due and payable pursuant to Section 7.2, and (iii) the date of
prepayment in full by Borrower of the Obligations in accordance with the
provisions of Section 1.2(b).
"Commitment Termination Date" shall mean the earliest of (i) May 31, 1999, (ii)
the date of termination of Lender's obligation to advance funds pursuant to
Section 7.2, and (iii) the date of prepayment in full by Borrower of the
Obligations in accordance with the provisions of Section 1.2(b).
"Concentration Account" shall have the meaning assigned to it in Schedule D.
"Contracts" shall mean all the contracts, undertakings, or agreements (other
than rights evidenced by Chattel Paper, Documents or Instruments) in or under
which any Person may now or hereafter have any right, title or interest,
including any agreement relating to the terms of payment or the terms of
performance of any Account.
"Copyright License" shall mean rights under any written agreement now owned or
hereafter acquired by any Person granting the right to use any Copyright or
Copyright registration.
"Copyrights" shall mean all of the following now owned or hereafter acquired by
any Person: (i) all copyrights in any original work of authorship fixed in any
tangible medium of expression, now known or later developed, all registrations
and applications for registration of any such copyrights in the United States or
any other country, including registrations, recordings and applications, and
supplemental registrations, recordings, and applications in the United States
Copyright Office; and (ii) all Proceeds of the foregoing, including license
royalties and proceeds of infringement suits, the right to sue for past, present
and future infringements, all rights corresponding thereto throughout the world
and all renewals and extensions thereof.
"Credit Party" shall mean Borrower, its parent and each of its Subsidiaries, and
other Person who has incurred obligations under or in respect of the Agreement
or granted Lender a Lien on Collateral in support of the Obligations with or
without direct liability, and each co-Borrower or other Person, other than
Lender and Borrower, who has executed the Agreement or any other Loan Document.
"Default" shall mean any event which, with the passage of time or notice or
both, would, unless cured or waived, become an Event of Default.
"Default Rate" shall have the meaning assigned to it in Section 1.5(d).
"Disbursement Account" shall have the meaning assigned to it in Schedule D.
"Disclosure Schedule" shall mean, collectively, all schedules to the Agreement
which begin with the heading "Disclosure Schedule".
"DOL" shall mean the United States Department of Labor or any successor thereto.
"Documents" shall mean all "documents," as such term is defined in the Code, now
owned or hereafter acquired by any Person, wherever located, including all bills
of lading, dock warrants, dock receipts, warehouse receipts, and other documents
of title, whether negotiable or non-negotiable.
"Eligible Inventory" shall have the meaning assigned to it in Schedule 1.7.
"Environmental Laws" shall mean all Federal, state and local laws, statutes,
ordinances and regulations, now or hereafter in effect, and in each case as
amended or supplemented from time to time, and any applicable judicial or
administrative interpretation thereof relating to the regulation and protection
of human health, safety, the environment and natural resources (including
ambient air, surface water, groundwater, wetlands, land surface or subsurface
strata, wildlife, aquatic species and vegetation). Environmental Laws include
the Comprehensive Environmental Response, Compensation, and Liability Act of
1980 (42 U.S.C. ss.ss. 9601 et seq.) ("CERCLA"); the Hazardous Material
Transportation Act (49 U.S.C. ss.ss. 1801 et seq.); the Federal Insecticide,
Fungicide, and Rodenticide Act (7 U.S.C. ss.ss. 136 et seq.); the Resource
Conservation and Recovery Act (42 U.S.C. ss.ss. 6901 et seq.) ("RCRA"); the
Toxic Substance Control Act (15 U.S.C. ss.ss. 2601 et seq.); the Clean Air Act
(42 U.S.C. ss.ss. 740 et seq.); the Federal Water Pollution Control Act (33
U.S.C. ss.ss. 1251 et seq.); the Occupational Safety and Health Act (29 U.S.C.
ss.ss. 651 et seq.) ("OSHA"); and the Safe Drinking Water Act (42 U.S.C. ss.ss.
300(f) et seq.), and any and all regulations promulgated thereunder, and all
analogous state and local counterparts or equivalents and any transfer of
ownership notification or approval statutes.
"Environmental Liabilities and Costs" shall mean all liabilities, obligations,
responsibilities, remedial actions, removal costs, losses, damages, punitive
damages, consequential damages, treble damages, costs and expenses (including
all reasonable fees, disbursements and expenses of counsel, experts and
consultants and costs of investigation and feasibility studies), fines,
penalties, sanctions and interest incurred as a result of any claim, suit,
action or demand by any Person, whether based in contract, tort, implied or
express warranty, strict liability, criminal or civil statute or common law
(including any thereof arising under any Environmental Law, permit, order or
agreement with any Governmental Authority) and which relate to any health or
safety condition regulated under any Environmental Law or in connection with any
other environmental matter or Release, threatened Release, or the presence of a
Hazardous Material.
"Environmental Permits" shall mean all permits, licenses, administrative orders,
consent orders, consent decrees, governmental agency agreements or other written
documents detailing required environmental performance expected of Borrower or
any other Credit Party by any Governmental Authority.
"Equipment" shall mean all "equipment" as such term is defined in the Code, now
owned or hereafter acquired by any Person, wherever located, including any and
all machinery, apparatus, equipment, fittings, furniture, fixtures, motor
vehicles and other tangible personal property (other than Inventory) of every
kind and description which may be now or hereafter used in such Person's
operations or which are owned by such Person or in which such Person may have an
interest, and all parts, accessories and accessions thereto and substitutions
and replacements therefor.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974 (or any
successor legislation thereto), and any regulations promulgated thereunder.
"ERISA Affiliate" shall mean any trade or business (whether or not incorporated)
which is a member of a "controlled group of corporations," a group of trades or
businesses under "common control," or an "affiliated service group," which
includes Borrower or any Credit Party, within the meaning of Sections 414(b),
(c), (m) or (o) of the IRC.
"ERISA Event" shall mean: (i) any of the events described in Section 4043(c) of
ERISA with respect to a Title IV Plan or a Multiemployer Plan with respect to
which the 30-day notice requirement has not been waived by regulation; (ii) the
withdrawal of Borrower, any other Credit Party or any ERISA Affiliate from a
Title IV Plan subject to Section 4063 of ERISA during a plan year in which it
was a "substantial employer," as defined in Section 4001(a)(2) of ERISA; (iii)
the complete or partial withdrawal of Borrower, any other Credit Party or any
ERISA Affiliate from any Multiemployer Plan; (iv) the filing of a notice of
intent to terminate a Title IV Plan or the treatment of a plan amendment as a
termination under Section 4041 of ERISA; (v) the institution of proceedings to
terminate a Title IV Plan or Multiemployer Plan by PBGC; (vi) a transfer, within
the preceding five years which resulted or will result in a Title IV Plan with
Unfunded Liabilities being transferred outside of the "controlled group" (within
the meaning of Section 4001(a)(14) of ERISA) of Borrower or any other Credit
Party; or (vii) any other event or condition which might reasonably be expected
to constitute grounds under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Title IV Plan or Multiemployer Plan,
or which results in the reorganization of or insolvency of a Multiemployer Plan
under Section 4241 or 4245 of ERISA, or the imposition of any liability under
Title IV of ERISA, other than PBGC premiums due but not delinquent under Section
4007 of ERISA.
"Event of Default" shall have the meaning assigned to it in Section 7.1.
"Federal Reserve Board" shall have the meaning assigned to it in Section 3.10.
"Fees" shall mean the fees due to Lender as set forth in Schedule E.
"Financial Statements" shall mean the income statement, balance sheet and
statement of cash flows of Borrower internally prepared for each Fiscal Month,
and audited for each Fiscal Year, prepared in accordance with GAAP.
"Fiscal Month" shall mean any of the monthly accounting periods of Borrower.
"Fiscal Quarter" shall mean any of the quarterly accounting periods of Borrower.
"Fiscal Year" shall mean the 12-month period of Borrower ending on the Saturday
closest to January 31 of each year. Subsequent changes of the fiscal year of
Borrower shall not change the term "Fiscal Year" unless Lender shall consent in
writing to such change.
"GAAP" shall mean generally accepted accounting principles in the United States
of America as in effect from time to time, consistently applied.
"GE Capital" shall mean General Electric Capital Corporation, a New York
corporation, and its successors and assigns.
"General Intangibles" shall mean all "general intangibles," as such term is
defined in the Code, now owned or hereafter acquired by any Person, including
all right, title and interest which such Person may now or hereafter have in or
under any Contract, Intellectual Property, interests in partnerships, joint
ventures and other business associations, permits, proprietary or confidential
information, inventions (whether or not patented or patentable), technical
information, procedures, designs, knowledge, know-how, software, data bases,
data, skill, expertise, experience, processes, models, drawings, materials,
Books and Records, Goodwill (including the Goodwill associated with any
Intellectual Property), all rights and claims in or under insurance policies
(including insurance for fire, damage, loss, and casualty, whether covering
personal property, real property, tangible rights or intangible rights, all
liability, life, key-person, and business interruption insurance, and all
unearned premiums), uncertificated securities, choses in action, deposit
accounts, rights to receive tax refunds and other payments and rights of
indemnification.
"Goods" shall mean all "goods," as such term is defined in the Code, now owned
or hereafter acquired by any Person, wherever located, including movables,
fixtures, equipment, inventory, or other tangible personal property.
"Goodwill" shall mean all goodwill, trade secrets, proprietary or confidential
information, technical information, procedures, formulae, quality control
standards, designs, operating and training manuals, customer lists, and
distribution agreements now owned or hereafter acquired by any Person.
"Governmental Authority" shall mean any nation or government, any state or other
political subdivision thereof, and any agency, department or other entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
"Guaranteed Indebtedness" shall mean, as to any Person, any obligation of such
Person guaranteeing any indebtedness, lease, dividend, or other obligation
("primary obligations") of any other Person (the "primary obligor") in any
manner, including any obligation or arrangement of such Person: (i) to purchase
or repurchase any such primary obligation; (ii) to advance or supply funds (a)
for the purchase or payment of any such primary obligation or (b) to maintain
working capital or equity capital of the primary obligor or otherwise to
maintain the net worth or solvency or any balance sheet condition of the primary
obligor; (iii) to purchase property, securities or services primarily for the
purpose of assuring the owner of any such primary obligation of the ability of
the primary obligor to make payment of such primary obligation; or (iv) to
indemnify the owner of such primary obligation against loss in respect thereof.
"Hazardous Material" shall mean any substance, material or waste, the
generation, handling, storage, treatment or disposal of which is regulated by
any Governmental Authority, or forms the bases of liability now or hereafter
under, any Environmental Law in any jurisdiction in which Borrower or any other
Credit Party has owned, leased, or operated real property or disposed of
hazardous materials, including any material or substance which (i) is defined as
a "solid waste," "hazardous waste," "hazardous material," "hazardous substance,"
"extremely hazardous waste" or "restricted hazardous waste" or other similar
term or phrase under any Environmental Laws, or (ii) constitutes petroleum or
any fraction or by-product thereof, asbestos, polychlorinated biphenyls,
radioactive substances, volatile hydrocarbons or industrial solvents.
"Indebtedness" of any Person shall mean: (i) all indebtedness of such Person for
borrowed money or for the deferred purchase price of property or services
(including reimbursement and all other obligations with respect to surety bonds,
letters of credit and bankers' acceptances, whether or not matured, but not
including obligations to trade creditors incurred in the ordinary course of
business and not more than forty five (45) days past due); (ii) all obligations
evidenced by notes, bonds, debentures or similar instruments issued by such
Person; (iii) all indebtedness created or arising under any conditional sale or
other title retention agreements with respect to property acquired by such
Person (even though the rights and remedies of the seller or lender under such
agreement in the event of default are limited to repossession or sale of such
property); (iv) all Capital Lease Obligations; (v) all Guaranteed Indebtedness
of such Person; (vi) all Indebtedness referred to in clauses (i), (ii), (iii),
(iv) or (v) above secured by (or for which the holder of such Indebtedness has
an existing right, contingent or otherwise, to be secured by) any Lien upon or
in property (including accounts and contract rights) owned by such Person, even
though such Person has not assumed or become liable for the payment of such
Indebtedness; (vii) all Obligations of such Person; and (viii) all liabilities
of such Person under Title IV of ERISA.
"Indemnified Person" shall have the meaning assigned to it in Section 1.13(a).
"Index Rate" shall mean the latest rate for thirty (30) day "high grade
unsecured notes sold through dealers by major corporations" which normally is
published in the "Money Rates" section of The Wall Street Journal (or if such
rate ceases to be so published, as quoted from such other generally available
and recognized source as Lender may select and as may be mutually acceptable to
Borrower).
"Instruments" shall mean all "instruments," as such term is defined in the Code,
now owned or hereafter acquired by any Person, wherever located, including all
certificated securities and all notes and other evidences of indebtedness, other
than instruments that constitute, or are a part of a group of writings that
constitute, Chattel Paper.
"Intellectual Property" shall mean any and all Licenses, Patents, Copyrights and
Trademarks.
"Inventory" shall mean all "inventory," as such term is defined in the Code, now
or hereafter owned or acquired by any Person, wherever located, including all
inventory, merchandise, goods and other personal property which are held by or
on behalf of such Person for sale or lease or are furnished or are to be
furnished under a contract of service or which constitute raw materials, work in
process or materials used or consumed or to be used or consumed in such Person's
business or in the processing, production, packaging, promotion, delivery or
shipping of the same, including other supplies.
"IRC" shall mean the Internal Revenue Code of 1986, and any successor thereto.
"IRS" shall mean the Internal Revenue Service, or any successor thereto.
"Lender" shall mean GE Capital and, if at any time GE Capital shall decide to
assign or syndicate all or any of the Obligations, such term shall include such
assignee or such other members of the syndicate.
"Letters of Credit" shall mean any and all commercial or standby letters of
credit issued at the request and for the account of Borrower for which Lender
has incurred Letter of Credit Obligations.
"Letter of Credit Fee" shall have the meaning assigned to it in Schedule E.
"Letter of Credit Obligations" shall mean all outstanding obligations incurred
by Lender at the request of Borrower, whether direct or indirect, contingent or
otherwise, due or not due, in connection with the issuance or guarantee, by
Lender or another, of Letters of Credit, all as further set forth in Schedule C.
The amount of such Letter of Credit Obligations at any time shall equal the
maximum amount which may be payable by Lender thereupon or pursuant thereto at
such time.
"License" shall mean any Copyright License, Patent License, Trademark License or
other license of rights or interests now held or hereafter acquired by any
Person.
"Lien" shall mean any mortgage, security deed or deed of trust, pledge,
hypothecation, assignment, deposit arrangement, lien, charge, claim, security
interest, security title, easement or encumbrance, or preference, priority or
other security agreement or preferential arrangement of any kind or nature
whatsoever (including any lease or title retention agreement, any financing
lease having substantially the same economic effect as any of the foregoing, and
the filing of, or agreement to give, any financing statement perfecting a
security interest under the Code or comparable law of any jurisdiction).
"Loan Documents" shall mean the Agreement, the Notes, the Financial Statements,
the Power of Attorney, the patent and trademark assignment, and the other
documents and instruments listed in Schedule F, and all documents, instruments,
certificates, and notices at any time delivered by and between Lender and any
Credit Party in connection with any of the foregoing.
"Loans" shall mean the Revolving Credit Loan, including the Letter of Credit
Obligations.
"Lock Box Account" shall have the meaning assigned to it in Schedule D.
"Material Adverse Effect" shall mean: (i) a material adverse effect on (a) the
business, assets, operations, prospects or financial or other condition of
Borrower or any other Credit Party, (b) Borrower's or any other Credit Party's
ability to pay or perform the Obligations under the Loan Documents to which such
Credit Party is a party in accordance with the terms thereof, (c) the Collateral
or Lender's Liens on the Collateral or the priority of any such Lien, or (d)
Lender's rights and remedies under the Agreement and the other Loan Documents;
or (ii) the incurrence by Borrower of any liability, contingent or liquidated,
which has an actual or estimated incurrence of liability, or dollar exposure or
loss, greater than $750,000 to Borrower.
"Maximum Amount" shall mean the maximum amount of credit to be provided by
Lender to or for the benefit of Borrower for aggregate Revolving Credit Advances
and Letter of Credit Obligations outstanding at any time, without regard to the
Borrowing Base or reserves, which amount, for purposes of the Agreement, is
$10,000,000.
"Minimum Actionable Amount" shall mean $400,000.
"Multiemployer Plan" shall mean a "multiemployer plan," as defined in Section
4001(a) (3) of ERISA, to which Borrower, any other Credit Party or any ERISA
Affiliate is making, is obligated to make, has made or been obligated to make,
contributions on behalf of participants who are or were employed by any of them.
"Net Borrowing Availability" shall mean at any time the Borrowing Availability
less the Revolving Credit Loan.
"Notes" shall mean the Revolving Credit Note.
"Notice of Revolving Credit Advance" shall have the meaning assigned to it in
Section 1.1(b).
"Obligations" shall mean all loans, advances, debts, expense reimbursements,
fees, liabilities, and obligations, for the performance of covenants, tasks or
duties or for payment of monetary amounts (whether or not such performance is
then required or contingent, or amounts are liquidated or determinable) owing by
Borrower or any other Credit Party to Lender, of any kind or nature, present or
future, whether or not evidenced by any note, agreement or other instrument,
whether arising under any of the Loan Documents or under any other agreement
between Borrower or such other Credit Party and Lender, and all covenants and
duties regarding such amounts. This term includes all principal, interest
(including interest which accrues after the commencement of any case or
proceeding in bankruptcy, or for the reorganization of Borrower), Fees, Charges,
expenses, attorneys' fees and any other sum chargeable to Borrower under any of
the Loan Documents, and all principal and interest due in respect of the Loans.
"Origination Fee" shall have the meaning assigned to it in Schedule E.
"Patent License" shall mean rights under any written agreement now owned or
hereafter acquired by any Person granting any right with respect to any
invention on which a Patent is in existence.
"Patents" shall mean all of the following in which any Person now holds or
hereafter acquires any interest: (i) all letters patent of the United States or
any other country, all registrations and recordings thereof, and all
applications for letters patent of the United States or any other country,
including registrations, recordings and applications in the United States Patent
and Trademark Office or in any similar office or agency of the United States,
any State or Territory thereof, or any other country; and (ii) all reissues,
continuations, continuations-in-part or extensions thereof.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any successor
thereto.
"Permitted Encumbrances" shall mean the following encumbrances: (i) Liens for
taxes or assessments or other governmental Charges or levies, either not yet due
and payable or to the extent that nonpayment thereof is permitted by the terms
of Section 3.11(b); (ii) pledges or deposits securing obligations under worker's
compensation, unemployment insurance, social security or public liability laws
or similar legislation; (iii) pledges or deposits securing bids, tenders,
contracts (other than contracts for the payment of money) or leases to which
Borrower is a party as lessee made in the ordinary course of business; (iv)
deposits securing public or statutory obligations of Borrower; (v) inchoate and
unperfected workers', mechanics', suppliers' or similar liens arising in the
ordinary course of business; (vi) carriers', warehousing or other similar
possessory liens arising in the ordinary course of business and securing
indebtedness not yet due and payable in an outstanding aggregate amount not in
excess of $50,000 at any time; (vii) deposits securing, or in lieu of, surety,
appeal or customs bonds in proceedings to which Borrower is a party; (viii) any
attachment or judgment lien, unless the judgment it secures shall not, within
thirty (30) days after the entry thereof, have been discharged or execution
thereof stayed pending appeal, or shall not have been discharged within thirty
(30) days after the expiration of any such stay; (ix) zoning restrictions,
easements, licenses, or other restrictions on the use of real property or other
minor irregularities in title (including leasehold title) thereto, so long as
the same do not materially impair the use, value, or marketability of such real
property, leases or leasehold estates, (x) Purchase Money Liens securing
Purchase Money Indebtedness (or rent) to the extent permitted under Section
5(c)(ii) of the Agreement; (xi) Liens disclosed in the Disclosure Schedule on
the Closing Date and approved by Lender; (xii) Liens in favor of Lender securing
the Obligations; and (xiii) Liens on property of Borrower which is not
Collateral incurred to secure other Indebtedness permitted under Section
5(c)(ii) of the Agreement.
"Person" shall mean any individual, sole proprietorship, partnership, limited
liability partnership, joint venture, trust, unincorporated organization,
association, corporation, limited liability company, institution, public benefit
corporation, entity or government (whether Federal, state, county, city,
municipal or otherwise, including any instrumentality, division, agency, body or
department thereof), and shall include such Person's successors and assigns.
"Plan" shall mean, with respect to Borrower or any other Credit Party, at any
time, an employee benefit plan, as defined in Section 3(3) of ERISA, which
Borrower or any other Credit Party maintains, contributes to or has an
obligation to contribute to on behalf of participants who are or were employed
by any of them.
"Prepayment Fee" shall mean the fee payable for termination by Borrower pursuant
to Section 1.2(b) of Lender's obligation to make Revolving Credit Advances or to
incur Letter of Credit Obligations, all in the amount(s) specified in Schedule
E.
"Proceeds" shall mean "proceeds," as such term is defined in the Code and, in
any event, shall include: (i) any and all proceeds of any insurance, indemnity,
warranty or guaranty payable to Borrower or any other Credit Party from time to
time with respect to any Collateral; (ii) any and all payments (in any form
whatsoever) made or due and payable to Borrower or any other Credit Party from
time to time in connection with any requisition, confiscation, condemnation,
seizure or forfeiture of any Collateral by any governmental body, authority,
bureau or agency (or any person acting under color of governmental authority);
(iii) any claim of Borrower or any other Credit Party against third parties (a)
for past, present or future infringement of any Intellectual Property or (b) for
past, present or future infringement or dilution of any Trademark or Trademark
License or for injury to the goodwill associated with any Trademark, Trademark
registration or Trademark licensed under any Trademark License; (iv) any
recoveries by Borrower or any other Credit Party against third parties with
respect to any litigation or dispute concerning any Collateral; and (v) any and
all other amounts from time to time paid or payable under or in connection with
any Collateral, upon disposition or otherwise.
"Projections" shall mean as of any date the balance sheet, statements of income
and cash flow for Borrower (including forecasted Capital Expenditures and Net
Borrowing Availability) (i) by month for the next Fiscal Year, and (ii) by year
for the following three Fiscal Years, in each case prepared in a manner
consistent with GAAP and accompanied by senior management's discussion and
analysis of such plan.
"Purchase Money Indebtedness" shall mean (i) any Indebtedness incurred for the
payment of all or any part of the purchase price of any fixed asset, (ii) any
Indebtedness incurred for the sole purpose of financing or refinancing all or
any part of the purchase price of any fixed asset, and (iii) any renewals,
extensions or refinancings thereof (but not any increases in the principal
amounts thereof outstanding at that time).
"Purchase Money Lien" shall mean any Lien upon any fixed assets which secures
the Purchase Money Indebtedness related thereto but only if such Lien shall at
all times be confined solely to the asset the purchase price of which was
financed or refinanced through the incurrence of the Purchase Money Indebtedness
secured by such Lien and only if such Lien secures such Purchase Money
Indebtedness.
"Qualified Plan" shall mean a Plan which is intended to be tax-qualified under
Section 401(a) of the IRC.
"Release" shall mean, as to any Person, any release, spill, emission, leaking,
pumping, injection, deposit, disposal, discharge, dispersal, dumping, leaching
or migration of Hazardous Materials in the indoor or outdoor environment by such
Person, including the movement of Hazardous Materials through or in the air,
soil, surface water, ground water or property.
"Restricted Payment" shall mean: (i) the declaration or payment of any dividend
or the occurrence of any liability to make any other payment or distribution of
cash or other property or assets on or in respect of Borrower's or any other
Credit Party's Stock; (ii) any payment on account of the purchase, redemption,
defeasance or other retirement of Borrower's or any other Credit Party's Stock
or Indebtedness or any other payment or distribution made in respect thereof,
either directly or indirectly, other than (a) payments of Obligations arising
under the Agreement, or (b) if no Default shall have occurred and be continuing,
or shall be caused thereby, payments of interest and principal, when due, under
Indebtedness described in Disclosure Schedule (3.8) or otherwise permitted under
Section 5(c)(ii) of the Agreement, without acceleration or modification of any
amortization in effect on the Closing Date; or (iii) any payment, loan,
contribution, or other transfer of funds or other property to any Stockholder of
such Person which is not expressly and specifically permitted in the Agreement
other than compensation for services rendered paid to employees in the ordinary
course of business consistent with past practices of Borrower; provided, that no
payment to Lender shall constitute a Restricted Payment.
"Retiree Welfare Plan" shall refer to any Plan which is a "welfare plan," as
defined in Section 3(1) of ERISA, providing for continuing coverage or benefits
for any participant or any beneficiary of a participant after such participant's
termination of employment, other than continuation coverage provided pursuant to
Section 4980B of the IRC and at the sole expense of the participant or the
beneficiary of the participant.
"Revolving Credit Advance" shall have the meaning assigned to it in Section
1.1(a).
"Revolving Credit Loan" shall mean at any time the sum of (i) the aggregate
amount of Revolving Credit Advances then outstanding, plus (ii) the total Letter
of Credit Obligations incurred by Lender and outstanding at such time, plus the
amount of earned and accrued, but unpaid, interest thereon and Letter of Credit
Fees with respect thereto.
"Revolving Credit Note" shall mean the promissory note of Borrower dated the
Closing Date, substantially in the form of Exhibit B.
"Revolving Credit Rate" shall have the meaning assigned to it in Section 1.5(a).
"Schedule of Documents" shall mean the schedule, including all appendices,
exhibits or schedules thereto, listing certain documents and information to be
delivered in connection with the Loan Documents and the transactions
contemplated thereunder, substantially in the form of Schedule F.
"Schedule of Inventory" shall mean the schedules of inventory to be delivered by
Borrower to Lender pursuant to Section 1.7, including Borrower's internal
reports classifying and valuing Inventory.
"Stock" shall mean all certificated and uncertificated shares, options,
warrants, general or limited partnership interests, participation or other
equivalents (regardless of how designated) of or in a corporation, partnership,
limited liability company or equivalent entity whether voting or nonvoting,
including common stock, preferred stock, or any other "equity security" (as such
term is defined in Rule 3a11-1 of the General Rules and Regulations promulgated
by the Securities and Exchange Commission under the Securities Exchange Act of
1934).
"Stockholder" shall mean each holder of Stock of Borrower or any other Credit
Party.
"Subject Property" shall have the meaning assigned to it in Section 3.17(a).
"Subsidiary" shall mean, with respect to any Person, (i) any corporation of
which an aggregate of more than 50% of the outstanding Stock having ordinary
voting power to elect a majority of the board of directors of such corporation
(irrespective of whether, at the time, Stock of any other class or classes of
such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time, directly or indirectly, owned
legally or beneficially by such Person and/or one or more Subsidiaries of such
Person, or with respect to which any such Person has the right to vote or
designate the vote of 50% or more of such Stock whether by proxy, agreement,
operation of law or otherwise, and (ii) any partnership or limited liability
company in which such Person or one or more Subsidiaries of such Person has an
interest (whether in the form of voting or participation in profits or capital
contribution) of more than 50% or of which any such Person is a general partner
or may exercise the powers of a general partner.
"Taxes" shall mean taxes, levies, imposts, deductions, Charges or withholdings,
and all liabilities with respect thereto, excluding taxes imposed on or measured
by the net income of Lender.
"Termination Date" shall mean the date on which the Revolving Credit Loan and
any other Obligations under the Agreement are indefeasibly paid in full, in cash
(other than amounts in respect of Letter of Credit Obligations if any, then
outstanding, provided that Borrower shall have funded such amounts in cash in
full into the Cash Collateral Account), and Borrower shall have no further right
to borrow any moneys or obtain other credit extensions or financial
accommodations under the Agreement.
"Title IV Plan" shall mean an "employee pension benefit plan," as defined in
Section 3(2) of ERISA (other than a Multiemployer Plan), which is covered by
Title IV of ERISA, and which Borrower, any other Credit Party or any ERISA
Affiliate maintains, contributes to or has an obligation to contribute to on
behalf of participants who are or were employed by any of them.
"Trademark License" shall mean rights under any written agreement now owned or
hereafter acquired by any Person granting any right to use any Trademark or
Trademark registration.
"Trademarks" shall mean all of the following now owned or hereafter acquired by
any Person: (i) all trademarks, trade names, corporate names, business names,
trade styles, service marks, logos, other source or business identifiers, prints
and labels on which any of the foregoing have appeared or appear, designs and
general intangibles of like nature, now existing or hereafter adopted or
acquired, all goodwill associated therewith, all registrations and recordings
thereof, and all applications in connection therewith, including all
registrations, recordings and applications in the United States Patent and
Trademark Office or in any similar office or agency of the United States, any
State or Territory thereof, or any other country or any political subdivision
thereof, and (ii) all reissues, extensions or renewals thereof.
"Transaction Summary" shall mean the Transaction Summary set forth in the
Recitals to the Agreement.
"Unfunded Pension Liability" shall mean, at any time, the aggregate amount, if
any, of the sum of (i) the amount by which the present value of all accrued
benefits under each Title IV Plan exceeds the fair market value of all assets of
such Title IV Plan allocable to such benefits in accordance with Title IV of
ERISA, all determined as of the most recent valuation date for such Title IV
Plan determined on the basis of a shutdown of the employees thereunder and using
the actuarial assumptions in effect for funding purposes under such Title IV
Plan, and (ii) for a period of five (5) years following a transaction which
could be covered by Section 4069 of ERISA, the liabilities (whether or not
accrued) that could be avoided by Borrower, any other Credit Party or any ERISA
Affiliate as a result of such transaction.
"Unused Line Fee" shall have the meaning assigned to it in Schedule E.
"Withdrawal Liability" shall mean, at any time, the aggregate amount of the
liabilities, if any, pursuant to Section 4201 of ERISA, and any increase in
contributions pursuant to Section 4243 of ERISA with respect to all
Multiemployer Plans.
Any accounting term used in the Agreement or the other Loan Documents shall
have, unless otherwise specifically provided therein, the meaning customarily
given such term in accordance with GAAP, and all financial computations
thereunder shall be computed, unless otherwise specifically provided therein, in
accordance with GAAP consistently applied; provided, that all financial
covenants and calculations in the Loan Documents shall be made in accordance
with GAAP as in effect on the Closing Date unless Borrower and Lender shall
otherwise specifically agree in writing. That certain items or computations are
explicitly modified by the phrase "in accordance with GAAP" shall in no way be
construed to limit the foregoing. All other undefined terms contained in the
Agreement or the other Loan Documents shall, unless the context indicates
otherwise, have the meanings provided for by the Code. The words "herein,"
"hereof" and "hereunder" or other words of similar import refer to the Agreement
as a whole, including the exhibits and schedules thereto, as the same may from
time to time be amended, restated, modified or supplemented, and not to any
particular section, subsection or clause contained in this Agreement.
For purposes of this Agreement and the other Loan Documents, the following
additional rules of construction shall apply, unless specifically indicated to
the contrary: (a) wherever from the context it appears appropriate, each term
stated in either the singular or plural shall include the singular and the
plural, and pronouns stated in the masculine, feminine or neuter gender shall
include the masculine, the feminine and the neuter; (b) the term "or" is not
exclusive; (c) the term "including" (or any form thereof) shall not be limiting
or exclusive; (d) all references to statutes and related regulations shall
include any amendments of same and any successor statutes and regulations; (e)
all references in the Agreement or in the Schedules to the Agreement to
sections, schedules, disclosure schedules, exhibits, and attachments shall refer
to the corresponding sections, schedules, disclosure schedules, exhibits, and
attachments of or to the Agreement; and (f) all references to any instruments,
documents or agreements, including references to any of the Loan Documents,
shall include any and all amendments thereto, restatements thereof,
modifications or supplements thereto and any and all extensions or renewals
thereof.
REVOLVING CREDIT NOTE
$10,000,000.00 Chicago, Illinois
May 31, 1996
For value received, the receipt and sufficiency of which are hereby
acknowledged, PET FOOD WAREHOUSE, INC., a Minnesota corporation ("Borrower"),
hereby promises to pay to the order of GENERAL ELECTRIC CAPITAL CORPORATION, a
New York corporation ("Lender"), the sum of $10,000,000.00 (the "Maximum
Amount") or such greater or lesser amount as shall be advanced by Lender from
time to time, together with interest on the unpaid balance of such amount from
the date of the initial Revolving Credit Advance. This Note is the Revolving
Credit Note issued under the Loan and Security Agreement between Borrower and
Lender of even date herewith (said agreement, as the same may be amended,
restated, modified or supplemented and in effect from time to time, being herein
called the "Agreement") to which a reference is made for a statement of all of
the terms and conditions of the Loan evidenced hereby. Capitalized terms not
defined in this Note shall have the respective meanings assigned to them in the
Agreement. This Note is secured by the Agreement, the other Loan Documents and
the Collateral, and is entitled to the benefit of the rights and security
provided thereby.
Interest on the outstanding principal balance under this Note is payable at the
Revolving Credit Rate, or, under the circumstances contemplated by the
Agreement, at the Default Rate, in immediately available United States Dollars
at the time and in the manner specified in the Agreement. The outstanding
principal and interest under this Note shall be immediately due and payable on
the Commitment Maturity Date. Payments received by Lender shall be applied
against principal and interest as provided for in the Agreement. Borrower
acknowledges that (a) Lender is authorized under the Agreement to charge to the
Revolving Credit Loan unpaid Obligations of Borrower to Lender, (b) the
principal amount of the Revolving Credit Loan will be increased by such amounts,
and (c) the principal, as so increased, will bear interest as provided for
herein and in the Agreement.
To the fullest extent permitted by applicable law, Borrower waives: (a)
presentment, demand and protest, and notice of presentment, dishonor, intent to
accelerate, acceleration, protest, default, nonpayment, maturity, release,
compromise, settlement, extension or renewal of any or all Loan Documents or
this Note; (b) all rights to notice and a hearing prior to Lender's taking
possession or control of, or to Lender's replevy, attachment or levy upon, the
Collateral or any bond or security that might be required by any court prior to
allowing Lender to exercise any of its remedies; and (c) the benefit of all
valuation, appraisal and exemption laws.
Borrower acknowledges that this Note is executed as part of a commercial
transaction and that the proceeds of this Note will not be used for any personal
or consumer purpose.
Borrower agrees to pay to Lender all Fees and expenses described in Schedules C
and E to the Agreement.
BORROWER ACKNOWLEDGES THAT BORROWER HAS WAIVED THE RIGHT TO TRIAL BY JURY IN ANY
ACTION OR PROCEEDING ON THIS NOTE. THIS NOTE IS GOVERNED BY THE LAW OF THE STATE
OF ILLINOIS.
PET FOOD WAREHOUSE, INC.
("Borrower")
By: /s/ Sharon K. Link
Sharon K. Link
Title: Vice President - Finance
Chief Financial Officer
EXHIBIT 11
PET FOOD WAREHOUSE, INC.
Computation of Per Share Earnings
(Unaudited; in thousands, except per share data)
Quarter Ended
-----------------
May 4, April 29,
1996 1995
------- -------
PRIMARY:
Net income (loss) $ 298 $ (766)
======= =======
Weighted average number of common and common
equivalent shares outstanding:
Weighted average common shares outstanding 9,342 9,328
Dilutive effect of stock options after
application of treasury-stock method 64 0
------- -------
9,406 9,328
======= =======
Net income (loss) per share $ 0.03 $ (0.08)
======= =======
FULLY DILUTED:
Net income (loss) $ 298 $ (766)
======= =======
Weighted average number of common and common
equivalent shares outstanding:
Weighted average common shares outstanding 9,342 9,328
Dilutive effect of stock options after
application of treasury-stock method 82 0
------- -------
9,424 9,328
======= =======
Net income (loss) per share $ 0.03 $ (0.08)
======= =======
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27
PET FOOD WAREHOUSE, INC.
FINANCIAL DATA SCHEDULE
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF PET FOOD WAREHOUSE, INC. FOR THE FIRST QUARTER ENDED
MAY 4, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-END> MAY-04-1996
<CASH> 4,237,000
<SECURITIES> 0
<RECEIVABLES> 1,193,000
<ALLOWANCES> 150,000
<INVENTORY> 6,969,000
<CURRENT-ASSETS> 13,075,000
<PP&E> 11,214,000
<DEPRECIATION> 2,116,000
<TOTAL-ASSETS> 22,356,000
<CURRENT-LIABILITIES> 3,784,000
<BONDS> 0
0
0
<COMMON> 93,000
<OTHER-SE> 16,910,000
<TOTAL-LIABILITY-AND-EQUITY> 22,356,000
<SALES> 15,520,000
<TOTAL-REVENUES> 16,270,000
<CGS> 10,339,000
<TOTAL-COSTS> 12,011,000
<OTHER-EXPENSES> 3,961,000
<LOSS-PROVISION> 150,000
<INTEREST-EXPENSE> 9,000
<INCOME-PRETAX> 298,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 298,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 298,000
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0.03
</TABLE>
